¶ Intro / Opening
🎵 Music
Welcome to the JP Morgan Weekender. I'm Bruce Kasman, and with me this weekender is Joe Lufton. Hey Joe.
Hey papa bear.
Okay. I I'm gonna go
Let's start by talking about the Knicks, are we?
We're not gonna talk about the Knicks, although b partly because if we do, we're just not gonna get out of that part of the conversation.
We can at least say go next.
¶ Shifting Global Growth Risk Profile
No next. Okay. Um I wanna talk about risk profiles and sort of emphasize the idea that You know, as we've been. Talking about the outlook for the last three months, we've been balancing this sense of a substantial energy supply shock and then weighing it against the
lifting we've been arguing is taking place. Um, a lifting that has a, you know, substantial element of non tech business spending going back to more normal levels of activity after uh got hit by the trade war sentiment shock and the idea that that's gonna also boost hiring. The baseline view we've had has been that um that that lifting gets somewhat tempered but not turned off by the energy shock. Um but also we've been uh
you know, sitting here focusing on tail risk to the downside very much so. Obviously the greatest one of those risks is that the straight staying close could uh create a a dynamic of inventories being drawn down below critical levels, um concerns around It's staying closed more lasting and then creating these nonlinearities both in terms of product availability and um higher prices.
The other thing of course we've been concerned about is the squeeze on consumers. That's something we've obsessed with on this call to some degree. And the you know, the risk which I think has been more of a concern in Europe that we short circuit that lifting in in business sentiment.
Um, so I think against that backdrop, what I wanna be kind of emphasizing here is how the distribution of risks shift. Um You know, there is questions about whether we do get a deal here, but the uh the prospects of a deal, even though it's not out of line with our baseline forecast, does start to take out the tail. to the upside on oil prices, uh our commodity analysts have been in the last number of weeks been emphasizing there's been less pressure
on global inventories than had been expected. Um and um I think these developments as partly reflected in what we see in the market do suggest we might actually get a bigger drop in oil. if we um actually open the straight here and you know the difference between eighty and a hundred on crude makes a difference in terms of
inflation rates, consumer purchasing power, um, and uh makes a difference on growth. And then I think, you know, the other important thing is I think we're getting stronger News coming out of um uh the growth picture here. There's more momentum uh in certainly in in in global uh industry. I think there's generally uh bigger gains in tech and um business activity more generally is done done somewhat better.
And the consumer is definitely, I think, on track to bend here, but it doesn't feel and we'll see US retail sales, China retail sales next week for May. I don't think it's breaking. So my perspective is that we're rotating from
elevated downside growth risk to a bias towards upside risk to our forecast. Um and I think that does have a number of implications. Um um you know, not least of which um that I think we're gonna see more pressure from uh some places to hike rates, particularly perhaps the US, but we're gonna see a different dynamic as some of the
pressures that come from higher inflation, financial stability uh shifts change. But um I know y having been spending some time arguing with you in the last day or so, you're not quite as on board in terms of the shifting nature of risk profile, so maybe I'll stop there and you can do your counter if you want.
¶ Debating Growth Above Trend
Well I think it was i the the positives that you laid out are all visible in terms of the data flow. Um and I think what I've been uh pressing on is how much of this was in our was a part of our forecast, right? If we started the and shouldn't we just take like the victory lap that the
the conscious recoupling has has taken place. And you know, we we had a view that last year's stall in labor markets one was unsustainable, but more importantly was less attached to AI, which would actually had a very negative uh implication that labor markets weren't gonna come back um as AI kept kind of building out.
but was much more just a more traditional cyclical sentiment driven slowdown. And as caution faded, you would see labor markets uh pick back up and we would be kind of somewhat more uh see kind of as I've always said as a handoff from last year's consumption smoothing wealth effect to something that was more sustainable. And I and
you know what we're how much of what we're seeing is that taking place. Now one one I don't know how it nets out, but one pushback could be okay, well, we had a monster negative shock from the energy shock.
Joe, I mean we could I just wanna jump in here. Uh I mean we could go through uh kind of a a arithmetic kind of exercise on our baseline forecast. But I think the right way to think about this is we have global growth running trend slightly below it in the next two two or three quarters.
Mm-hmm.
Um and if we take out the tail on the energy side. And given a number of the things I've already mentioned, so I won't go back over them. You know, my point to you is it would feel to me like the global economy is getting enough cyclical lift and getting enough uh a positive from taking out energy and possibly even giving us a little bit better dynamics on that front, that we should have a growth picture that's materially above trend.
for the global economy. The question is why not above trend if if we're moving away from the shock, if we're sitting here recognizing the dynamics that you mentioned a minute ago.
Um I think uh like if I look at our forecasts, I would say Bulk of it, well, all of it is the that downshift you're talking about, all of it is Asia and
Or is we have the US running one and three quarters.
Right. And we're running We're running two percent right now for the first half.
I understand. My question is not what whether
But you started by saying we have a downshift and I'm saying the downshift is really
No, I said we have growth we have growth at trend or slightly below. Why shouldn't we have growth above trend? That's my point. That's my question. Why shouldn't US and global growth be above trend in the next four quarters?
Yeah, well I mean again we're gonna uh get into this again, which is that I I think for the US I think there there is a case to be made that as the fiscal
asking if there's a case to be made, I'm actually what case would you believe
Well I was sorry, that was just an idiom. I was just I I was gonna say
I want you to advocate your own view.
So look, uh okay, if you just want me to advocate my own view, yeah, I I would probably my modal view would probably nudge things up uh maybe a quarter, maybe three tenths on the second half, maybe yeah yeah. I wouldn't like get bent out of shape if you said we added five tenths to the second half. Um Cảm ơn các bạn đã theo dõi và hẹn gặp lại.
Globally.
Yeah. Sure. Yeah. Um, I think what's gonna happen is you're gonna get a chunk of that just coming from China alone and we're gonna be sitting here kind of saying like, oh, look at this happen when really all the action is just this kind of China store.
So you want to have US still below two for the second half. Let's leave China out of this.
Uh yeah, I would you know US at two.
I would say I put the US at two and a half.
Right. Yeah. So you want to add three quarters of a percentage point. Um and Sure. Okay. I that that I would take the under on that. Um, but by a lot? I mean, for the sake of the people who are listening to this call, does the difference between two and two and a half matter? Not that much. I think they're both strong. I think it's gonna put the focus squarely back on inflation and it's gonna get the Fed
to be moving a lot earlier, uh certainly than our forecast, less so than the market. I think the market is gonna um look more accurate, but we can talk about central banks after.
¶ Forecasting US Growth and Fed Action
Um, so yeah, we're getting a a cyclical lift. I mean, you and I have gone back and forth on what are the things to worry about. Um, and you know, I I was about to say I think the fading of the of the fiscal stimulus in the US will be something to worry about. Now one thing that's happening that's getting me feeling better is that we're getting yet another monster equity jump. So that could potentially um
you know, give you uh yet a further drop in this uh in the saving rate. But, you know, whatever. I I think if we're talking about two, two and a half on the US. I think you and I are in the same same ballpark. And yeah, we should feel good. I think it's pretty remarkable that we've weathered the energy shock uh the way we have. Um, but
you know, how much of it was us not fully calibrating the the the the fiscal lift. Um I don't know. I the I want to come back to where I started on this, Bruce, because In your mind I would have thought that what you're seeing in the labor market is kind of in line with what you are expecting. Since the start of the year. And yet, this is what you and I have been debating this week. You want to then take you getting what you expected and then revise. Revise up.
That's not what's going on at all, Joe. Okay. I think I think what's happening in the labor market is more or less what I would have expected. I think what's happening in terms of the broader lifting going on in terms of global business activity, there's more strength than I would have expected. In terms of my risk distribution on where energy prices are gonna settle. Once the straight opens, I think the bias is to the lower than where I would have expected a month or two ago.
Financial conditions are more supportive than I thought they would be right now. You just mentioned part of
We're gonna be up.
Okay, just let me let me finish. Okay. Then I think fiscal globally is somewhat more supportive than I would have expected. So when I put all of those things together.
X ex energy responses? You think fiscal's more?
Energy responses are important. They're not going away.
But they're just cushioning the the the the shop.
Yeah, I think Japan, Brazil, China
we got what we're expecting if anything i think people are were pretty negative on the the european fiscal and i think you know we were optimistic and i i don't know maybe we're we're losing a little on that i take the the response to the shock as its own entity Right. This is an issue of are we seeing the conscious recoupling? Is that kind of start of year forecast playing out? And I think it is. As I said, we should kind of take it
I I'm look, I that's that's the call. I'm comfortable with that happening, but I think there's more lift and we're starting as we as we've responded in the last three months.
You always felt our second half forecast was too bad.
Yeah, I'm not trying to benchmark this against you know, right now against our forecast. I'm just saying that I think there's
That was the question when we started talking about this.
My my benchmark is against is growth going to be materially above trend, trend or lower than trend? And I think we've been we've been sitting here for the last couple of months with a haircut being taken on the forecast for the energy shock. uh that has pushed growth to trend light uh in the forecast. Um with a real focus on the tail risk to the downside.
And I think now we're we're really seeing I think evidence that um things are doing somewhat better along a broad range of indications, that financial conditions are more supportive. Um and that there's a decent chance, not necessarily assured, that the fading of the energy price shock will give us a little bit more relief than we thought. And when I put all of those things together, I say we should be
Kind of.
Taking that in stride with saying there's going to be more upward momentum in a forecast that still has its downward momentum to s to
It doesn't, Bruce. It it ex China we don't.
Well
And I would say our our twenty
You're arguing that uh after
Two forecast before before the shot. For this year, the forecast was about 2.6, which is a little less than half a percent above trend. We are currently running two three. So, our response to this 50% rise in oil prices has been to shave a smidge off our global output.
Yeah. I think the problem with this is that
And I've been arguing all week that what's happening is there is a bigger haircut to the tune of a percentage point owing to the energy shock. If you just kind of do a straight read from our models. That is getting offset by a sense that we have done the reassessment that you're looking for. And we are seeing this resilience. And that's getting us to a world of a forecast that's actually still a smidge above potential, not below potential. Two, three is our forecast right now.
🔇 Silence
I'm not sure what you're trying to say though. Sort of sit here about the same pace of growth.
감사합니다.
If you
That is what you're saying. You but you're not saying it, right? You you actually want you're saying our forecast was not calibrated right.
But I was saying at the time, Joe, to be fair. I know.
I'm I'm agreeing. I'm just I'm trying to actually give that to you to say to let you say it. That your argument has been that we were too light on the second half of the year.
¶ Oil Price Outlook and Inventory Risks
I I don't again I wanna get away from inside baseball in our forecast. The question is is uh are we gonna see a global economy that's gonna be materially stronger than trend or not in the next six or nine months?
Right.
We will if we get through this and we get oil to go down well below a hundred dollars a barrel, which is where it's sitting right.
Yeah. We should be clear that Our commodities team, you made it sound like our commodities team has been, you know, so surprised and their forecasts are wrong and they have to mark things down. That's actually completely wrong, right? If if if Natasha were here, she'd probably smack you and say, no, she's getting exactly what she expected.
Right. That we're sitting, she and and she thinks that the the market and the people she's talking to is saying that the market has gone overboard here. She is sticking with a hundred dollars per barrel here. Now she might be wrong. But what she's seeing in terms of the demand flow, the inventory flow, the production flow, and starting to see ships move through the strait is consistent with her idea that things were gonna start to open up on June 1.
Now the fact that oil prices have come down is where she's surprised, which is why she thinks it's a great buy.
I think there's more of a difference there in terms of what has happened in terms of actually the pressure on product prices coming off. Well, you're being a little bit generous there in that if you went back a month or two ago, she was saying yes, we wouldn't see oil prices spike, but we'd see a lot more pressure on product prices, which we haven't seen. And in addition, as she's well pointed out and importantly so
We've seen a lot less drawdown in inventories than had been expected. So the the positioning of the market here, both in terms of overall prices. as well as in the positioning of where inventories are as we move hopefully to a a deal here is in a much better position in terms of being able to support uh
I think the argument is that even if you do get a deal next week, it's gonna take
Three weeks.
Agree. I agree. And now what I'm what I'm basically musing on is the idea that the risk profile, not the baseline forecast. And as you're pointing out, our baseline forecast is for crude to stay at a hundred dollars. a barrel here for the rest of the year effectively. What I'm saying is that the baseline forecast has now got a bigger risk distribution to the downside than it had before. That the events of the last few weeks have shifted that distribution.
And when from a from a world where we've been obsessing over tail risks of a hundred and fifty or plus on oil, we now have, I think, prospects that we might actually get out of this with lower oil prices. You don't may not agree with that that s assessment of risk distribution, but that's the way I'd be reading it. And again, I think the risk distribution on the fundamentals of the economy are giving us potentially more momentum if that's kind of the interaction it has with the energy market.
I do wonder on the point that part of the less inventory draw and we should be clear, the inventory draw that's happening is still
Epic in nature.
Diesel inventories, crude inventories, the the SPR is lowest level since two thousand three. Uh, and you still have these CEOs saying that you're gonna see pressures by the end of this month. I asked Natasha before getting on this call. Are you expecting these pressures to build this kind of hockey stick type move? Uh is it later? Is it August now? She says no, still at the end of this month. Um so she's not backing off that type of a setup.
Um you know, I I I just you know, I think that with those pressures still there, you know, I I think there's there those risks haven't completely subsided. Um Ciao!
¶ Global Growth Bias and Fed Tightening
Yeah, I mean that's the kind of s um Kind of tail wrist that's just
You'd be you'd be saying that your best guess of what happens here is we get so so growth here. That's what you're arguing for, so so growth. Yeah, the labor market recoupled so so effective. The US growing less than two percent is not is not very good growth. It's not terrible, but it's not very good.
Yeah. Yeah. No, I I said two percent. So I'm kind of
That's uh okay, whatever. Two percent it's so so.
So I I guess I don't know what that is. Um Uh and I was just saying the difference between two and
Use that you don't no, but the I mean we I mean you can kinda go back and forth on this a lot of ways. The question is is the global economy strong? Is it gonna be so so or is it gonna be weak? We've been saying so-so with the bias towards weak. Now I think we're saying so-so, but we should be saying it with a bias towards strength. That's what I'm saying to you. You wanna fight that? That I shouldn't be saying it's so so with a bias towards strength. However you want to define strength, Vince
I would say so with balance.
With balanced risk?
Да.
Nah, nah. Not balanced. The risk is shifted to the upside. That's the way I would see it. Now I if you wanna give if I wanna take the um the more concerning element to this is I think we could be sitting here in a position where three or six months and we're starting to price in some material Fed tightening that comes earlier and maybe that ends up being disruptive in this
already there. You mean like it comes in comes in September?
Well what do we have priced in for the Fed over the next year
Only thing is g I mean, you would have to have some just like um like if it were from a like an inflation shock and surprise. But if you're getting a Fed that's talking about going in September, it's gonna be because you've got this super strong growth. So it's there's this kind of reflexivity point uh Hard to uh
I'm rating the futures markets right and I'm looking out a year from now. Uh what do we have thirty some odd basis points of Fed tightening? Should we got in there?
Um I don't know.
We got the... Right at the at the minimum next four four percent, right? Roughly.
Yeah, yeah, sure. But
September. What I'm saying is what if we're sitting here and we reprice that to four fifty, four seventy five in the next six months? That to me is a you know, an event that could be driven by stress.
But that's gonna be a twenty twenty seven story, not a twenty twenty. Cảm ơn các bạn đã theo dõi.
So much about the timing of the Fed, but if we start to price in a more material cycle, that could feed back in a negative way to financial conditions. That's That's the
It is so overvalued and sensitive to this that you're gonna get a massive correction in prices.
Yeah, something uh yeah, I think you need a pretty substantial interest rate shock, but
I think now you're I mean, you have you you've kind of walked into the world that I've been taking on this call, which is to just to play the foil to your optimism. Um, you know, I I I R recall I I was saying like, Oh, the Fed's gonna be in motion a lot earlier than people think and that's gonna feed and you would say like, Well, twenty five basis points not gonna matter and I would say, Well, it feeds into
No, the difference between you and me is you've been saying the Fed should be in motion because inflation is three percent, not because growth is running three percent and the unemployment rate's falling a half or three quarters. You've never been pushing you've never been pushing the story that the thing that drives the Fed is an economy that's super strong. You've been pushing the argument of fool me five times
I said the first half of the year is gonna be strong. I said I'm not gonna fight the first half of the year. And I said my modal view is still consistent with this. I will fully admit that I have worried about downside tail risks that have not materialized. And I've flagged those downside real downside risks. They haven't materialized. That's fine. My modal view has largely been consistent with the call, which I've said you and I aren't that different.
But the one thing I said at the start of the year was that this is going to be a strong first half because we're getting all this fiscal stimulus. How can I fight the$200 billion that's going to be plopped on consumers? And you're going to get strong growth, you do have fading labor supply, and you're going to see um labor markets tightening and you're going to see sticky and elevated inflation. And that's gonna get the Fed in motion.
And so despite this energy price shock, this is exactly what's what's happening. And then I worried about the the the equity market response to it, which is what you're saying right now. And I'm I I agree that that could be potentially um, you know, uh I guess the short circuit
¶ ECB Policy and Euro Area Outlook
Let's shift gears here. Let's talk about central banks from the perspective of the meetings coming up. Uh and and perhaps also from the meetings that we've had, we'll we can maybe start with the E C B. I guess with the E C B no no surprise in the decision. The issue is where do they go from here? And I guess what
to me
seems surprising is that in some sense when you look at the staff forecast, when you listen to way Lagarde talks about it, it's almost like, you know, they're basically saying, well, You know, we made some kind of an adjustment here uh that needs to be corrected partially. We're we need to have a fifty, seventy five basis point higher rate yield. rate rate level. Doesn't matter whether growth is weak, doesn't matter whether
straight opens whether oil is adverse or or a benign scenario. Either way we need somewhere between fifty and a hundred basis points, higher policy rates, of which we got the first installment.
I that's actually a a a nice way of putting it. It uh it does feel that Uh that You know, I mean what's remarkable is that, you know, you've got a a a a baseline from the staff. It's really the staff. I mean, Lagarde kinda had all the smoke and hand waving data dependency and whatnot. But the staff forecast is just I don't I don't understand because their baseline has what two to three and some could argue four, I guess Greg is saying, uh hikes in it. Uh okay, that's the basic
And then they say, well, here's the benign scenario where oil prices kind of fall back. It still has two to three hikes in it. Yeah, I mean you said it you said it right. Like it's almost like it whatever state of the world they're in, they just over overcut and they need to get back.
Which is maybe right.
Curve in this economy and they just kind of go from whatever their gut tells them where interest rate should be The cycle doesn't matter. Um, they're gonna look at inflation. It's like they have adaptive expectations. They're always worried about the last inflation print. Um, never a sense of like what the underlying macro drivers of inflation are. Um I I don't know. It's it's
And in and they may be right, right? I mean, maybe there is this total lack of sensitivity uh of inflation to the economy. Um
But it's another issue is let's say you thought as they do that core inflation is gonna be two and a half over the next you know, twelve months or so. You know, given given the risks on growth, given the downward momentum you see in the data in the first four months of the year.
Is it right to signal three rate hikes at this point as a as an offset to that cumulatively? I mean, I think that's just you know, to me it's not it's not a balanced management. Of course, this is the right story. The E C B is not trying to balance it. It's management here, but
My chief economist is Bruce Caspin. I'm gonna be hiking two hundred basis points.
Gee, what wh what does that mean?
Because you got this like upside cyclical story that's just like booming through the global economy right now. We've all
Yeah. I mean that's a different issue. I mean if if you told me the euro area is gonna grow two percent and and you know the labor markets are gonna be on
I said, but you're saying that.
I'm well, I'm saying we might be there, but I think right now and first of all the E C the Euro area is underperforming relative to most of the rest of the world. This is a global economy that's being led by The US and most of the
I I uh I agree, I thought that characterization was right, but you know, if you just take out the crazy swings in Ireland and it's debatable about whether Ireland should or shouldn't be You you're kind of growing around one percent, which isn't great, but it's not you know, if the US is growing about uh what, two percent, a little under two percent in the first half and Euro area is growing one percent. I don't know, you would say they're both kind of doing about the same.
Um well I mean I think there's a reasonable argument to be made. that as we were turning from twenty twenty five into twenty six, the picture was looking reasonably good in the Eurora in Western Europe, perhaps even more broadly. Um but I think the the point I'd make is that whatever your perspective looking backwards on growth, the survey drops have been much more severe in in what you're doing.
Those survey drops, Bruce, that that happened. very I either it's just a pure coincidence, but if it was just purely about the war and in your mind the the the war is over and oil's gonna drop back to eighty, shouldn't those survey measures bounce back up?
I'm hopeful that's that's be part of Right, but I wouldn't bank that in my policy response at this point in time. I would be if I s if I'm a central bank I I I'm not arguing w I'm not arguing the case
Listen to Lagarde. If you listen to Lagarde, she was. So she was basically saying, Hey, we're super data dependent. We're kind of moving away from some of this forward uh uh you know, this uh Delphic forward guidance, I guess. Um You know, and so...
That's actually not right because they are guiding us pretty strongly towards more ice. You know, you could you could say we're data dependent, but every every scenario you put out there and she's not not fighting the staff forecast, every scenario you put out there there's more hikes in.
Yeah, yeah, yeah.
That's my point. I'm not arguing against being data dependent on the other thing.
Less hawkish than the staff, but she was still hawkish.
Yeah, so um I mean I I think the the issue is not if you realize strong growth and you keep inflation elevated, sure the E C B can hike. But I do they have to hike prematurely? Do they have to signal hike?
in advance of realizing that given the still material risk to the downside in terms of recent momentum. But I think the point you get here is important. I think if the If we do get a better outcome in terms of the energy markets in the next month or two, one of the most important things to check is to whether the region which seems to have gotten hit hardest.
in terms of this sentiment weakness, whether it turns around the quickest. That would be I think uh a nice thing to see and I'd be hopeful we get it, but we we need to A get the realization of the straight opening and then
That's the point I would make is that if you're getting what you the world that you want, this part of the risk distribution is playing out, then Europe is where you should see the the biggest turnaround. Um You know, I mean, and we can be critical on the ECB, but you could also say at least they've done a better job getting their inflation target than the Fed.
¶ Fed Outlook and New Chair's Role
Maybe. I mean I this is get this is getting us into a much more messy and complicated uh conversation. But let's let's turn um to the we got the Fed, the Bank of England, and the BOJ. And I don't want to go on for twenty minutes, so we have to decide do we do we limit our time on the Fed to be able to say something about the others? Um the Fed, I think, in some sense the meeting itself is gonna be interesting for
um i I think basically presentational perspective of of how Walsh decides to uh be a chair here. Yeah. And then to see where the committee is standing not
So much on its own.
twenty six forecast where it feels like is a growing consensus they're not gonna be doing anything, but to what that path suggest for twenty seven and obviously the longer longer term. Um
Yeah, let's be just for listeners, let's be clear. So Mike is saying we move to no cuts this year and one cut next year. Um but he said it's close to get to no cuts next year as well. Um To get no cuts next year as well, you need quite a few people to move up, right? And a couple to move up t two hikes, right? To take two cuts.
Yeah, I mean they're basically people are sitting with two cuts for there's a dominant majority for two cuts for the Cumulative twenty six, twenty seven pass. So take two cuts out to Really large move.
Take out you only need two to move to take out two cuts and move to one. I think you would need six to move. Um To get to to none. I don't know. Mike is saying it's close. I think that's where I was last week and I I was just thinking.
But I think the important thing is if they're taking out if they're taking out both of the cuts Um and obviously it does depend on what they they do to the longer term view, but it basically is saying This is not a transitory event. There's gonna be more lasting uh dynamics that have shifted. Um And therefore we don't have the space to cut. That's that's a pretty significant shift rather than saying
We've had pressures this year that are slowing us down, but we're still on on track. So I think the distinction in those two signals, even though it might be fine as to whether we go over the line or not, is actually of of some importance. And of course the degree to which we see Uh, some members, right now there's only one member that has a hike uh over the next two years. Uh the degree to which we see some members put hikes in and some might even put hikes in for twenty-six.
Yeah. Actually um gonna be interesting to see. Um but I think then it does become in some ways a story about how Walsh makes his initial impression.
Uh about whether he's gonna express his views. versus is he gonna represent the committee's views? I think that's kind of important to kind of set the stage because if he gets up there and starts expressing his views it's gonna feel like he's burning some capital and goodwill with the committee, which would be a bit o a little bit foolish to be honest.
Yeah, I think he's got a If he's gonna do the press conference as the chair, I think he pretty much has to represent what the conversation was in the room. The question is once he does that a well you could ask
Yeah, yeah, d does he does he take some of that airspace to say, Well, here's what I think. This is what the committee decided, but this is what I'm thinking.
right to do that. It's just it's gonna be a little awkward. Uh and I think you end up um using a little burning a little capital and goodwill with the with the rest of the committee. Um And I I think as Mike said in his preview, I thought it was a good point that early uh early Fed shares, no matter who they are, uh tend to be a bit awkward and feel like they They're still trying to find themselves and so it's more open to these types of missteps.
Yeah, I think that balancing that potential with just the idea that people know that Walsh is not um necessarily trying to be in sync with the committee so that they probably downplay if he starts being somewhat um you know, uh out of line with what people think the committee is uh possibly uh signaling, there's gonna be I think some sense of
Okay, Walsh is not necessarily uh trying to represent the committee well. So it's it'll get downplayed, but nonetheless there's plenty of opportunity for Walsh to confuse us, send uh signals that are uh hard to read and and the like. Yeah.
¶ Bank of England and Bank of Japan
Bank of England B. O. J. just for a minute. Any thoughts you have? I mean
Well look I think
Hikes for sh almost for sure. Bank of England looks like a
I think they're leaning generally in the hawkish direction. They've had some data of late that maybe takes a little pressure off. Labor market data's weakening. I think you had a bit of a Downside inflation surprise. Um, but inflation is still running pretty high there. And I think something that was interesting was in the some of these survey data. flagging um some second round inflation effects. So I think there's enough there.
that coupled with this very elevated level of inflation that will keep them hawkish and you know we still look for uh this the one hike um coming from them. I I can't remember when, is it in July?
I think so, yeah.
I mean we have a hike in the B uh the B O E and we have a hike in the Rix bank, both of which I kinda
No no no we have them on hold.
The Riggs bank? Yeah. We have them in September on hiking, I thought.
Oh yeah, yeah. I thought you meant at next week's meeting.
No, no, no, no. I'm sorry. Not no none of the uh of the your hiking next week, but uh we have them hiking in the summer.
Yeah.
Uh Or is even more so than the other.
I think the one that could go is Norges Bank, right? signal they want to hike, so
Um so then finally the B O J anything I mean I think the B O J
The BOJ similarly is gonna have an interesting press conference like Warsh, but for different reasons, right? One is cause you got a new guy. Well, there's both because of new guys, uh, I suppose. Um, but uh the fact that uh Governor Weda uh unfortunately um has taken sick and hope he gets better but uh you're gonna have the deputy governor
stepping in place there. So we and I think is largely uh priced are looking for a a hike next week, but the focus is going to be less on the actual hike itself and more about
um kind of forward guidance both on pace of future hikes but also where that terminal rate gets to. And I think there's also some conversation around QT that is will probably be watched. The problem with all of this is that You know, um the uh is it uh U Uchida, uh the deputy governor, um You know like what Is it gonna be comments that kind of hue to what has been said in the past, which is this incremental gradualism and it's gonna come across as a dovish hike when in fact I would think
In fact, I this is the way I would put it. Let me summarize and kind of my views are evolving as I'm talking. I think there's an asymmetry in the way to read comments, right? If it comes across as as dovish, I would probably fade it because it's just that. awkwardness of not wanting to deviate too much from the script. Uh if it comes across as hawkish, it's gonna tell you that okay, they really wanted to kind of push this view uh and and so I put more more weight uh on that. So that's
I w I would agree. The question is what would actually be hawkish given that markets have another hike price for this year and it seems Hard to I guess they could start pushing the
think anything
Neutral rate.
hikes, talks of neutral rates being higher, um you know.
I think that's the place where you could but I don't think that's likely to happen uh next week, but we'll see. Yeah. And and part of it's part because of what you said earlier you've got someone who's not the governor speaking. Um, it's harder to deliver a a clear message then. But let's let's leave it there. Um And um we'll have fun watching the Fed next week. E any way it goes, it's gonna be a high entertainment uh FOMC meeting
More than more than the next final? Ha ha ha ha!
Or maybe in some way. I I don't I didn't well, I don't want to go about how difficult it was to sit through the last Knicks game, but we're not Get into that. Um it was a
That ends well, Bruce.
It was very entertaining for the last couple of minutes.
First uh
you know, three quarters of the game. So um painful, exactly. So anyway, we'll leave it there and thanks everybody. Hope we can continue the conversation. Oh, we gotta decide what we're doing next week'cause next Friday's a holiday. So we'll we'll let you know.
Well stay tuned.
Take care. Bye.