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Now, I'm really anticipating this with the Dow up one hundred points. Julia Cornado was iconic at BMP Perry Bad during the crash where she said, no, GDP isn't going to be as good as it's going to be. She nailed that call. Now with macro policy perspectives, one of our most astute FED watchers as well, Julia, is the next thing we're going to get wrong the certitude that it's one and done on a rate cut, and what we really need to think about is sequential rate cuts in the next year.
Well, Tom, I think actually the possibilities are fairly bimodal. So if you look at the market and what it's priced for, it's priced for several rate cuts next year. But I think either we're going to get one and done because things are stabilizing and growth is going to be okay and the AI story has enough legs to power the economy, or we're really starting, you know, we're in the early game turning of the labor market, and the FED is going to have to cut not just
to neutral, but through to neutral to an accommodate. Interesting so it's one or the other. It feels like, to me, you're so good.
At gaming GDP, my head is spinning. Paul Sweeney's head is spinning over nominal GDP. I got a four percent Atlanta GDP. Now maybe it's three point eight percent. I got half of America flat on their back. What is the Coronado call for twenty twenty six real and nominal GDP?
So, first, if we start with the second half of this year, we have a read on Q three and by all indications, it's very solid, but early indications are Q four is that it's kind of squishy. The consumer auto sales have drapped. I'm not sure what Dana told you on the holiday season, but people seem to be price sensitive, price conscious, budget conscious, not hunkered down in
a corner, but not booming. And so I think we're going to see strong Q three subdued Q four on average, we'll see an economy that is downshifted from last year on balance in twenty twenty five. And one of the reasons this is happening is structural. We've chosen a restrictive immigration policy that means basically no labor supply, So no labor supply, no jobs, less growth in paychecks and income,
and a slower economy. And I think that that will prevail into twenty twenty six, a lower trend growth rate for the US, even assuming some solid productivity tailwinds. You're still looking at growth with a one handle, maybe a low two handle, not a three handle, Julia.
So what do you think is receiving the priority from the Federal Reserve these days? The labor market, the inflation environment here. Is there one thing that's front and center for the Fed here today?
Well, it depends on who you ask, doesn't it. So there are a lot of people. There's nineteen people on the committee, and they all have very different views of the world. It looks like the leadership Chair Powell, President Williams are coalescing around one more rate cut this year, an insurance rate cut, because you're highlighting the tension they face. You've got inflation that's not soaring or even necessarily accelerating in a meaningful way like we saw in the pandemic,
but it's too high. It's running it closer to three percent than two percent, and it's not making any progress. And we don't expect any progress in the foreseeable future, or at least not next year. Not much progress given the tariffs are still coming through.
A worry.
Not that inflation's getting out of control, but it's going to get embedded in the economy and people's behavior, in people's psychology, and we'll get stuck at three and not get to two. On the other hand, the unemployment rate's been creeping higher by a tenth each of the last four months. Usually when we see this kind of movement, we get a break higher in the unemployment rate, the labor market cracks, we reach a tipping point, and all of the sudden we're looking at a recession.
Can we do a Friday audible short on television on radio worldwide with Julia Coronado a surveillance audible. Okay, Julia, you're defined at Dallas FED. Dallas FED owns the southern border. I am as guilty as anyone of ignoring Mexico and focusing on Canada because they need the Montreal Canadians to find an enforcer. Julia, help me with Mexico and the tariff. What's the dynamic right now with Mexico given tariffs.
You know, Mexico had been poised to be a beneficiary from this friend shoring or these reglobalizations or deglobalizations in the sense that it's you know, right next door. It's one of our largest trading partners. But the Trump administration has you know, gone after our closest trading partners, Canada and Mexico, you know, really kind of trying to ensure that some of that that channeling of trade by Chinese companies through Mexico doesn't sort of sneak in the door.
But of course that leaves Mexico really struggling. Mexico's doing okay, but they just put out their growth forecast and it's pretty subdued for next year. So the trade wars, the immigration policy, the frictions between the US and Mexico are not great for the Mexican economy and are not great for Texas. To be honest, Texas is okay, but usually
Texas is a bright shining star. I'm living here in Austin, and you know, the Texas economy is it's okay, but it's it's not the bright shining spot it used to be. Because all of these things, the trade wars, the immigration policy, really do hit Texas hard too.
Interesting We're talking about the unemployment rate, it's at four point four percent. I believe right here is there a number, Julia where the Fed just says, oh boy, we've got a labor problem.
Well, I think, you know what, we're above their longer run estimate of four point two percent. I think once we start heading north of four and a half. And it's not just the level, the level matters. So I think we're at a level that's a little worrisome. When we were saw the unemployment rate rising last summer, we were rising from such a low level that it was kind of hard to worry too much about it. Right, we were going from three point four to the low fours.
That is sort of more of a normalization in conditions than a weakening. Now we're at the low fours. We're at sort of neutral or longer run, and we're rising from here to a labor market that's clearly loosening. If you look at like say the Conference Board survey of consumers, consumers are getting gloomy about the labor market. If you look at nominal wage growth, the indeed wage trackers, what we have in a most timely basis showing wage growth
decelerating below the rate of inflation. These are indications that the labor market is not just balanced but weak.
She's got me going here now, I tell you, I'm tmpercellies over at Pgium. Do you know even in the cold weather, he takes the Hinckley picnic boat, doesn't down the Hudson River to go to Pigum in Jersey City. Okay, you just said that, Julia. The real wage is flatlining, declining. However you want to describe it as well. You're telling me the FED is going to look at that and ignore it to worry about inflation dynamics. I don't buy it for a minute.
No, no, and you shouldn't because if this continues, then the FED will cut, and it will cut in. It's poised to cut in December for exactly that reason. When we saw the September labor report, we said, going in, the most important number is the unemployment rate. Forget payrolls, they're overstated, they haven't been benchmark, blah blah blah, seasonal noise. Look at the unemployment rate and it went up and nobody expected it to go up. So that was the news.
The news was the labor market is weakening. The FED is a go uh, and that looks to be where they've landed. And yeah, I think Tom that the trick is the Committee is in such a hawkish mood because the GDP tracking is so strong and the economy seems basically okay, the stock markets at the highs, So what's
the big deal. Meanwhile, I've got an inflation problem. But if this labor market problem keeps creeping creeping in and those cracks deepening, of course the Fed is going to pay attention to that.
Now up ninety one, John from Coventry Emails instans don't quote the Dow, I said, no, I'm going to quote the Dove Stow up ninety three points right now. Julia cordinaut with us, Julia. Everybody wants to know this, and this is great work off XEOS and the Texas A and M Transportation Institute. Julia. The traffic in Austin, the traffic in Houston, the traffic in Texas. Why is Texas's great mecca? If you can't turn left to four pm?
The traffic in Texas is terrible because we have no public transportation, We have no trains. It's the thing I missed the most about New York is the ability to skip traffic and get on the subway or get on the Metro North and go home. So yeah, what do you care about?
What are you going to do about it? You're you've been shortlisted for all sorts of wonderful Washington titles. What is the entrepreneur aurial GOP spirit of Texas gonna do with that gridlock?
I don't know. You know, we we did pass the Austin area, did pass a big bond that does build in some public transportation. It broadens what is now a very limited train system. But being Texas, we also are just kind of expanding the highway yet again. So if you come down to Texas, Tom, you can choose many multiple lane highways to get around on. It's really something the highway system.
Here, Julie. The only reason we had you on was Hullabadou Kanuck Kanuck. Today seven thirty pm, the number sixteen Texas Longhorns greet the number three fighting Texas Aggy Wow of College Station. Julia, Are you going?
I am not going to the game. No, no, no, no no, But I am a Longhorn thom As. You know, we have not had the season we had hoped for. But you know we had a great last game and hopefully that momentum continues into this one.
Very good for Jess Metting of college Stations as we say good morning as well Julia. Next time I'll have you one on economics instead of a longhorn no doctor deal, Doctor Cornado, thank you so much. Important comments there on the Fed