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News joining us now to continue this conversation, and police are scize. Mohammed al Aaron of Queen's College, Cambridge, Mohamed, let's talk about the totality of the data. I'm going to sound like a FED official. When you look at the totality of the data, are you seeing concrete signs of an economic slow down, a loss of momentum? And do you think a conversation about reducing interest rates as soon as next month is warranted?
Yes? And yes, John, So if you look at the data as a whole, the economy is slowing, and it's slowing faster than most economists expect, and certainly more faster than what the FED expects. So yes, on the whole, the economy is slowing. And let's remember this is an economy that has very few buffers. Most of the buffers that we've had in terms of personal savings, in terms
of debt capacity, they've been one down. And that leads you to the second question, which is a forward looking FED would certainly have the possibility of a July cut on the table.
How much daylight do you think there is between what you think they should do and what they will do too much.
You know, if I were them, I would seriously look at July as being a live meeting. I don't think that's the case. I think that's even a question mark in the market. And certainly if you look at what the narrative of the last few days by FED official as to whether even September is alive right now, the market gives less than a fifty percent probability of a
weight cut in September. So their narrative has been pushing back the weight increase towards the end of the year, had one or two federal officials would like to keep open the possibility of a hike, and I think that is a long way from where they should be based on what's happening to the economy. But unfortunately, John, that've been burnt a couple of times or ready, and let's not forget there's still excessively data dependence, so it it takes quite a bit of historic data to get them to change.
So I'm not going to sound like John here. Let's not talk about the totality of the data or a FED official.
Let's cherry pick.
Let's talk about some very specific numbers. I want to cherry pick personal income coming at zero point five percent versus the expectation of zero point four percent, that is up from zero point three percent in the prior month, Mohammed, just looking at personal income and the fact that it's increasing even as personal spending declines, does that give you a sense if we just wanted to terry pick that number, understanding the totality of the data is different, that maybe
people are actually in a better place and have a greater ammunition and set of financial tools to keep spending at a pretty robust pace.
Lisa, I'd love to be where you are, okay, But there's a problem even if we cherry pick, and even if we say one month, data has a ton of information content. So these are big, two big assumptions. I wouldn't know if the increased savings that comes from income going more than spending is it voluntary or is it forced people voluntarily saving more or people do people feel
forced to save more. So as much as I would like to go to where you are in terms of that number, I hesitate because you first you have to assume away some pretty important things. But secondly, we don't know whether it's voluntary or forced that's.
A fascinating point. I'm sitting here thinking about that at a time. What other people might say, the reason why they're not spending is because they're not buying homes and they're not feeling like they have the capacity and the mobility to do so. One argument that some of the more inflationistas out there have made is that if the FED were to cut rates by twenty twenty five basis points next month, that would reignite a surge of interest in the housing market, and then you could see actually
prices climb much more substantially as a result. Do you believe that to be the case, and if not, why so.
I don't think twenty five basis points are going to make that much of a difference to the housing market. That's the first issue. I think you'd need a lot more than twenty five basis points. Don't forget how much we've moved the other way. That's the first point. And second, on housing, it gets even more complicated because supply has been impacted in a way that most people didn't expect. So most people thought that the demand for housing would
come down as rates went up. What they didn't realize is that the supply of housing would also come down as people hesitated from going from a very low weight mortgage to a current mortgage. So you know, again that market has been distorted by what happened during this long period of rock bottom rates, and we must not forget that a lot of distortions occurred, and in slower moving asset classes like housing, it takes time to get these distortions out of the system.
I'm just wondering if twenty five basis points wouldn't necessarily reignite the housing market, is there still a reverse argument that if they don't cut by twenty five basis points next month, that they could be accelerating a tipping point that the US labor market is already reaching.
So that's where I am. I think if you look at the tails of the distribution, or if you look at type one error, type two error right now, the one that scares me more is that they are too slow. They are too high for too long, and that economy
slows in such an extent that two things happen. First, they can't moderate the slowing, and second they end up by having to cut weights much more than they would have otherwise, just like they ended up by hiking weights much more than they would have had otherwise because they
were so late. So when I look at the tails of the distribution, and remember I put on the table the notion that a soft landing is fifty percent thirty five percent, is that we end up in recession because the FED doesn't react quickly enough, and fifteen percent is the bigger but not hotter that you get a supply a positive supply shot something like that. When I look
at that distribution, yeah, I do worry. I do worry that the more likely error right now is that the FED will not start cutting early enough, and then we'll be forced into cutting a aggressively, but it's not going to have the impact in terms of slowing or moderating the slowdown, and then we'll overshoot on the way down yet again, maham.
And there's a new wrinkle. How independent is all of this from policy out of the White House in twenty twenty five?
So, John, I've been fascinated by the discussion you've had as to why are markets so calm about US politics? Why are so market calm when the yen is at one sixty? Why are so markets calm when French Germany the spread is at eighty four basis points, and the list goes on and on. Why are they so calm on the Middle East conflict can intensify? And I think the reason is because we here in the US have
three things going for us. One is it belief in economic exceptionalism that we can soft land the economy or even no land at all. That's still actually the central scenario for a lot of people. That's number one. Two, that we ultimately believe the FED will cut and we believe that in Nvidia and the AI revolution is such a positive supply shock that it's going to keep on giving and giving and giving. You know. On the three,
I worry most about the economic assumption. And that's why if that economic assumption is tested in the months ahead, then the politics what's happening around the world, suddenly all these things will become will capture much more attention in the marketplace than they have so far.
Muhammad, that we're waking up after a moment where the sitting president had what everyone is calling a disastrous debate. Obama's former campaign manager went on MSNBC and called it def Con one. Alarm bells are ringing. What would be enough between now and November, or potentially what political movement could move the markets between now and November.
This is your world and very much more than mine. I think the market truly believes, despite what they hear from some economists, that when push comes to shove, whether it's as in Biden re elected or whether as President Trump comes back into the White House, the degrees of freedom is not going to be as much the degree of freedom what there will be maybe on tariffs, but we've seen that both of them actually are very similar
in what they end up doing. So the market i think senses that, despite what the economs are telling them about fiscal policy, tariffs, everything else, that when push comes to shove, these two individuals when in power, will be relatively similar in economic policies. Why because we've had four years of each and the market has been able to observe what they've done. Now bring in the possibility of
someone new, and that suddenly changes that whole construct. So responding to your question, you know, that's the big question is that if you bring someone new into the equation, how will the market evaluate and what degree of confident as will markets have. It really helps the market that they saw both individuals in the White House.
Maham gonna just want to finish on this and get you to elaborate on a final detail. In the UK, the guilt market has been a constraining regulating force on all kinds of policies coming out of either party in this election race, and you can see that in the nervousness they have talking about the deficit. You're seeing a similar thing take place in France right now. Do you think this treasury market could become a regulating force over the next administration in this country in the United States?
Or will we retain that unique privilege to do other things?
We will unique that we will retain that unique privilege, John, because the rest of the world is so messy. So I think of it very simply. Whether it's France, whether it's the UK, they solve in absolute space. If there is physical irresponsibility, then they will feel it, regardless of what's happening elsewhere. The US solves, the US bond market solves any relatives. So as long as other countries are more irresponsible than us, then we can continue being irresponsible.
Muhammed is one of the best Muhammad I'll air in there