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Economists see slow growth and stubborn inflation well into 2026 · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstraw.
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Speaker 2: Chuck, Mike and Tucker with you on the final day
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Speaker 2: of the week, the final trading.
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Speaker 3: Day of August, and this morning.
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Speaker 2: At eight thirty am Eastern time, we got the Personal
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Speaker 2: Consumption Expenditures Report, which includes PCE inflation data in the
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Speaker 2: form of the PCE price Index. The headline index came
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Speaker 2: in at point two percent for the month, two point
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Speaker 2: six for the year, right on the screws, right where
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Speaker 2: we were expecting to see it, or at least right
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Speaker 2: where the market was expecting to see it. I didn't
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Speaker 2: personally have any expectations. And core PCE came in at
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Speaker 2: point three percent, on the high end of the range
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Speaker 2: of expectations, but.
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Speaker 3: Still within it.
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Speaker 2: And so that moved the annual index from two point
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Speaker 2: eight to two point nine percent. And so, Mike, no
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Speaker 2: real surprises in the economic data here, but we do
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Speaker 2: have the long end of the yield curve moving up
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Speaker 2: very modestly a couple basis points. In response, we got
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Speaker 2: stock selling off a little bit. I don't know if
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Speaker 2: it's with regards to this or just hey, you know,
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Speaker 2: markets have had a nice little run and it's end
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Speaker 2: of month rebalancing. You never know what these things. I
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Speaker 2: don't like to ascribe too much to it, especially because
2:23
Speaker 2: there's nobody, not nobody. But it's a light trading day
2:27
Speaker 2: on the Friday before Labor Day. I think the population
2:30
Speaker 2: of New York has relocated from Manhattan to the Hampton
2:34
Speaker 2: correct in the last twenty four hours, and so the
2:38
Speaker 2: Friday before Labor Day is generally kind of a bad
2:41
Speaker 2: time to try to get a read on what the
2:43
Speaker 2: market is going to do in September. It's not to
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Speaker 2: say that like today doesn't matter, but just that it
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Speaker 2: doesn't matter, Okay.
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Speaker 4: In any case, this reading on PCE was pretty mirror
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Speaker 4: image match to what we got from CPI. We are
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Speaker 4: seeing now inflation which excludes those food and energy readings,
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Speaker 4: around three percent, and regular old inflation in the high twos.
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Speaker 4: So not terribly surprising here, and I don't think any
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Speaker 4: sort of I can't look at this today and say, oh,
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Speaker 4: but we're heading for a trend of acceleration. We might
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Speaker 4: get that from terrorists, but I don't know that any
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Speaker 4: of this data to me indicates that we are heading
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Speaker 4: for above three percent.
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Speaker 2: For example, well, I think here's where where I look
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Speaker 2: at this. So if we look at you know, core PCE,
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Speaker 2: because ultimately that's like the one that matters from a
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Speaker 2: you know that the FED really watches because because this
3:40
Speaker 2: is why this matters. It's it's what is the Fed
3:43
Speaker 2: going to do?
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Speaker 3: Ultimately.
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Speaker 2: We've talked about this before, inflation. The only reason that
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Speaker 2: people don't like it is because they don't like it.
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Speaker 2: I'm not saying that anyone should, but I'm just saying
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Speaker 2: there's nothing that in like inherently states higher inflation leads
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Speaker 2: to like lower stock prices or this, and that it's
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Speaker 2: more just hey, when inflation gets high, the cure that
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Speaker 2: we have for it based on you know, what we
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Speaker 2: know to this point, and what we've done is raising
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Speaker 2: interest rates, which all else being equals, slows the economy,
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Speaker 2: makes the cost of capital for companies more expensive, and
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Speaker 2: stocks tend to respond negatively. So that's why we care
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Speaker 2: about core PCE is simply because the Fed doesn't, so
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Speaker 2: we have to. So here's the big thing over the
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Speaker 2: next over the rest of the year, really, so we're
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Speaker 2: gonna get five more inflation readings for twenty twenty five,
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Speaker 2: I know, only four this year, but just when we
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Speaker 2: look at you know, the calendar year for you know,
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Speaker 2: the the actual readings August of last year came in
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Speaker 2: at point two, September and October came in at point three,
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Speaker 2: November point one, December point two. So where this matters
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Speaker 2: in terms of where core PCE is at.
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Speaker 3: The end of the year.
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Speaker 2: Hey, those point three percent readings are a bit of
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Speaker 2: a slog to get over, right, Like it's I'm not
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Speaker 2: saying it's impossible, but are you going to print point
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Speaker 2: four on.
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Speaker 3: Core PCE consistently?
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Speaker 2: I just don't know. We haven't seen you know, many
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Speaker 2: of those. The only reading over point three since early
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Speaker 2: twenty four came in February of this year, and that
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Speaker 2: was a point five percent reading that we got, and
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Speaker 2: there's been nothing around it that's anywhere close to that.
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Speaker 3: So you look at this and you say, okay.
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Speaker 2: By the end of you know, the twenty twenty five
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Speaker 2: PCE data, reasonably you've got you know, maybe twenty to
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Speaker 2: thirty BIPs that you could see this move up if
5:27
Speaker 2: things continue in this fashion, And so okay, as a
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Speaker 2: reasonable expectation, Hey, core PCE, you know when we get
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Speaker 2: this one in January for twenty five comes in anywhere
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Speaker 2: from like three to three three. I think that seems
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Speaker 2: reasonable as a possibility. Is there the possibility that we
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Speaker 2: print you know, a bunch of point two's going into
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Speaker 2: year end and as such end up with you know,
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Speaker 2: core pce E at like two seven two eight. Maybe
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Speaker 2: I don't know that it's quite as convincing. They're like
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Speaker 2: given the tariff situation to like suddenly see inflation trend lower,
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Speaker 2: But it's possible. So I think like two seven to
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Speaker 2: three three is your realistic range, and probably three to
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Speaker 2: one to like three to three one if you really
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Speaker 2: want to hone in on like central tendency. It's basically saying, look,
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Speaker 2: core inflation's probably right around three percent, and that's not
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Speaker 2: terrible to be fair. But here's the thing. When you
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Speaker 2: have inflation running at three percent, prices double every twenty
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Speaker 2: three to twenty five years as opposed to two percent.
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Speaker 2: You're talking like every thirty five to thirty seven years.
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Speaker 2: So it does have an impact like over time. It's
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Speaker 2: it's a meaningful shift moving from a two percent inflationary
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Speaker 2: world to a three percent one and it's more noticeable
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Speaker 2: as well, which is why generally you try to see
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Speaker 2: central banks keeping inflation you know, closer to two percent.
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Speaker 2: You can have good economic environments where inflation runs closer
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Speaker 2: to three. The nineteen nineties were a case in point there.
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Speaker 3: I don't think.
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Speaker 2: Anyone would compare you know, the economy of today with
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Speaker 2: the you know, blockbuster that we saw in the nineties,
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Speaker 2: except for you know, maybe some tech bubble similarities. So
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Speaker 2: I think ultimately where I come back to on this is, hey,
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Speaker 2: the FED may end up saying, hey, we're cool with
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Speaker 2: inflation running closer to three. That's okay, it's not necessarily
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Speaker 2: the worst thing in the world. But how does that
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Speaker 2: impact other things as far as you know, commodity pricing
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Speaker 2: and things like that, And does that push inflation higher
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Speaker 2: with the higher risk of three percent turning into four
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Speaker 2: percent inflation? Yeah, those are things that you have to
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Speaker 2: be aware of in that world. And this is you know,
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Speaker 2: potentially a sea change that we could see in terms
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Speaker 2: of how we look at or how the FED looks
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Speaker 2: at inflation here right right.
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Speaker 4: So yeah, and it does kind of tail into you know,
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Speaker 4: they're cutting in September, and we've got a piece later
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Speaker 4: on about okay, is now really the time to be stimulating?
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Speaker 4: But clearly they're on this course now, and I think
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Speaker 4: the only real thing that pushes them away from it
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Speaker 4: would be labor market induced inflation, which we will see
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Speaker 4: whether or not that comes in.
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Speaker 2: Yeah, it's Look, we've got some key data points before
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Speaker 2: the next FED meeting. You've got pcees out of the
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Speaker 2: way now, they're no big surprise here, So this I
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Speaker 2: don't think really changes things very much. And by the way,
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Speaker 2: you see this in the market pricing for the upcoming
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Speaker 2: September meeting. Yesterday, there was an eighty six point seven
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Speaker 2: percent chance the FED was gonna cut at the September meeting.
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Speaker 2: According to the CME FED Fund's futures tool. Right now
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Speaker 2: it's eighty nine point two. So like a modest shift
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Speaker 2: towards Okay, some of the potential for you know, a
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Speaker 2: hot PCE is off the table, so it's a little
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Speaker 2: bit more likely, but no major shift.
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Speaker 3: The only other.
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Speaker 2: Major data points that are left now jobs next Friday,
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Speaker 2: and then you get CPI about a week and.
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Speaker 3: A half after that. That's it. The other stuff.
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Speaker 2: Quite honestly, jobless claims, you're only gonna have two more
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Speaker 2: now before the FED meeting. I don't know that a
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Speaker 2: trend of two, you know, bad or good jobless claims
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Speaker 2: numbers is enough to shift things. So it's jobs next
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Speaker 2: Friday and then CPI later in September. Those are the
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Speaker 2: two data points that matter. And I have no idea
9:15
Speaker 2: what we're going to get from jobs. I mean, Mike,
9:17
Speaker 2: when we look at the jobs numbers next Friday, the
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Speaker 2: projections right now are for about seventy thousand jobs added.
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Speaker 2: Unemployment stays steady at four to two, labor force participation
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Speaker 2: rate continues to decline. Average hourly earning stays at three
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Speaker 2: to nine. If you get that, I think you're right
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Speaker 2: on track for you know, obviously a twenty five basis
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Speaker 2: point cut from the FED.
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Speaker 3: Yep, but I'll acknowledge.
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Speaker 2: Look, I think there's a possibility that the numbers are
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Speaker 2: worse next month. I think there's, you know, even a
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Speaker 2: possibility that you get big upward revisions and maybe we're like, oh, hey,
9:51
Speaker 2: like new data came in and things look better. I
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Speaker 2: have no idea, because we're at an inflection point, and
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Speaker 2: you don't know how the data is going to evolve
9:59
Speaker 2: when you're these critical points. So I think there's Look,
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Speaker 2: quite honestly, I think there's a chance that you could
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Speaker 2: end up with a fifty basis point cut if you
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Speaker 2: get a bad jobs report, there's a chance that if
10:10
Speaker 2: it comes in you know, screaming hot fit doesn't cut
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Speaker 2: at all. I think those are both possibilities when we
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Speaker 2: look at the September meeting. Yeah, anything else on PC
10:21
Speaker 2: that you want to touch, I don't think so.
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Speaker 4: Like you said, it was a pretty in line report
10:27
Speaker 4: for those of you that are just catching what the
10:29
Speaker 4: market's doing, which is selling off a fair bit. Probably
10:33
Speaker 4: not because of this.
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Speaker 2: Now, because bonds aren't really moving that much, you know,
10:36
Speaker 2: the ten years up one point six basis points.
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Speaker 3: Here's my general thought on end of month. It means nothing.
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Speaker 2: End of month you get all kinds of rebalancing flows
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Speaker 2: from you know, different either pension funds or mutual funds
10:51
Speaker 2: that are trying to rebalance to their target allocations. You
10:54
Speaker 2: get all kinds of you know, corporate flows that happen
10:58
Speaker 2: and things like that. I don't think you really should
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Speaker 2: read anything into end of month. It's not to say that, hey,
11:05
Speaker 2: this couldn't continue later today or you know, into next week.
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Speaker 2: But whenever you talk about like the last two to
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Speaker 2: three trading days of a month, I generally consider them noise,
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Speaker 2: just because there's so many forced flows that happen then
11:17
Speaker 2: that I don't know that you can get any accurate
11:19
Speaker 2: read on what's going on in the market. Yep, just
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Speaker 2: take a quick break here. When we return, Mike, should
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Speaker 2: we talk about what rate cuts could mean if they
11:28
Speaker 2: end up happening in September?
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Speaker 3: Do you think we've covered that enough?
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Speaker 4: Now, let's talk a little bit about what a if
11:37
Speaker 4: the FED is to embark on a rate lowering.
11:42
Speaker 3: Stance, what does that mean for all sorts of folks?
11:45
Speaker 3: I think that's important. Quick break. We'll cover that next
11:47
Speaker 3: on the Financial Exchange.
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12:19
Speaker 2: Like we have a piece in market Watch titles, Yes,
12:23
Speaker 2: rate cuts will be good for stocks, but the FED
12:25
Speaker 2: would be stimulating an economy that doesn't need it.
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Speaker 4: Discuss maybe maybe not. It's a bold, depending definitive casey
12:36
Speaker 4: from Jamie. I'm not sure that it is all that
12:39
Speaker 4: clear that the economy doesn't need it. We have seen
12:41
Speaker 4: some pretty weak hiring data, and if it were to continue,
12:44
Speaker 4: then we could see companies downsizing, we could see real
12:47
Speaker 4: problems for consumers.
12:48
Speaker 3: So I don't I'm not quite.
12:50
Speaker 4: As convinced as Jamie seems to be that the economy
12:54
Speaker 4: doesn't need it. I think it's fair to say it
12:55
Speaker 4: doesn't now. But that's not how the Fed acts. They
12:57
Speaker 4: act to try and prevent recession, just respond to an
13:01
Speaker 4: existing one. The bigger practical question, in terms of what
13:05
Speaker 4: happens when the FED cuts rates, I think is worth
13:08
Speaker 4: you know, refreshing our memories on right. I mean for
13:10
Speaker 4: those of us with savings accounts at the banks, or
13:13
Speaker 4: money markets, or you know, any of those things tied
13:16
Speaker 4: to really short term interest rates, you will start to
13:19
Speaker 4: see those rates come down.
13:20
Speaker 3: And that's part of what I think Jamie talks to.
13:24
Speaker 4: That you know fuels market speculation in some ways, or
13:29
Speaker 4: market rallies in some ways, is you know, cash that
13:32
Speaker 4: is getting paid less paid less on who oftentimes moves
13:36
Speaker 4: into other types of investments. The other piece it does, though,
13:39
Speaker 4: is it affects people's I guess, determination of what a
13:44
Speaker 4: stock is worth. Right, If your alternative to taking risk
13:49
Speaker 4: in the market is a lower interest rate than that
13:51
Speaker 4: discount rate you use to apply to things like their
13:53
Speaker 4: future earnings changes as well. Now we're talking about, in
13:57
Speaker 4: all likelihood a quarter percentage cut here at the Fed's meeting,
14:02
Speaker 4: and so what we shouldn't expect is any sort of
14:06
Speaker 4: necessarily move to the longer end of the curve and Chuck,
14:10
Speaker 4: you probably remember the stats better than I do. But
14:13
Speaker 4: when the FED is cutting at a time when we
14:15
Speaker 4: are not currently in recession, which it appears we are not,
14:19
Speaker 4: it's kind of a toss up as to whether or
14:21
Speaker 4: not long term rates move down or up. If I'm
14:23
Speaker 4: not mistaken, it's a coin toss as to what happens
14:26
Speaker 4: with things like mortgage rates and auto loan rates. They
14:29
Speaker 4: sometimes go up, they sometimes go down. It is not
14:31
Speaker 4: one for one.
14:33
Speaker 2: It is and I think there again, when we're talking
14:36
Speaker 2: about rates, there are a few different things that you
14:37
Speaker 2: need to think about on this. Let's first talk on
14:40
Speaker 2: the equity side. The easy comparison that I'll make is, Mike,
14:44
Speaker 2: if you could go out right now and get fifteen
14:47
Speaker 2: percent on a ten year treasury, which you can't right
14:50
Speaker 2: how much would you return out to be in order
14:52
Speaker 2: to take equity risk. You're not gonna go out and
14:56
Speaker 2: be like, yeah, equities have historically returned, you know, a
15:00
Speaker 2: to ten percent. Let me go out and buy equities
15:03
Speaker 2: when I've got a guaranteed fifteen from.
15:05
Speaker 3: The US government. Probably not right.
15:07
Speaker 2: And this is why when when rates go up, multiples
15:10
Speaker 2: come down, is because equity investors say, no, I can
15:14
Speaker 2: go and get a better return somewhere else with less risk.
15:19
Speaker 2: The other piece is when it comes to bonds, think
15:22
Speaker 2: about what you're comparing things to.
15:23
Speaker 3: There.
15:24
Speaker 2: If inflation is running at one percent and it's pretty stable,
15:31
Speaker 2: you might go out and say, you know what, I'll
15:34
Speaker 2: take two percent on a ten year treasury because I
15:37
Speaker 2: still want something safe.
15:39
Speaker 3: It's better than inflation.
15:40
Speaker 2: Fine, And by the way, that's what a lot of
15:42
Speaker 2: people did in the mid twenty tens YEP. Inflation was
15:46
Speaker 2: really low during the first half of that decade and
15:49
Speaker 2: growth was slow, and investors said, you know what, I'm
15:53
Speaker 2: just gonna get my two percent in call today because also, look,
15:56
Speaker 2: the FED was acting in a certain way that suggested
15:58
Speaker 2: rates were going to remain low, and so there was
16:00
Speaker 2: minimal risk there, which was true at the time. Like
16:03
Speaker 2: rates basically stayed low for the entire twenty tens. On
16:07
Speaker 2: the other hand, let's say you're entering a four percent
16:10
Speaker 2: inflation period. You might say, and again, no one knows
16:14
Speaker 2: what inflation's gonna be, but let's say inflation's running it
16:17
Speaker 2: for you say, Okay, the Fed's paying me four percent
16:20
Speaker 2: right now, that's not enough. I need a little premium
16:23
Speaker 2: because four percent inflation today means it could be a
16:25
Speaker 2: little higher, tomorrow might be lower. But I'm concerned that
16:28
Speaker 2: it might be higher. I need more on that side.
16:31
Speaker 2: And so you might say, no, I'm not gonna buy
16:32
Speaker 2: a ten year treasury until the yields five and a half.
16:36
Speaker 2: And where this all kind of meat meets together is
16:39
Speaker 2: these decisions that businesses have to make all day, every day.
16:44
Speaker 2: Insurance companies is an example. The things that they hedge
16:48
Speaker 2: for are some of them are short term in nature.
16:51
Speaker 2: When you pay an auto insurance premium into you know,
16:56
Speaker 2: and ensure, generally they assume, okay, X percentage of those
16:59
Speaker 2: are going to be used in the next year.
17:02
Speaker 3: When you are.
17:02
Speaker 2: Going out and buying a life insurance policy, they have
17:06
Speaker 2: the actuarial tables and they say, okay, there's a three
17:08
Speaker 2: percent chance that you're going to die over that twenty
17:11
Speaker 2: year period, and we're going to hedge that with you know,
17:13
Speaker 2: bonds of X, y and Z duration. But all this
17:17
Speaker 2: comes together and eventually you get to a point where
17:19
Speaker 2: insurance companies are you know, they don't necessarily segregate these
17:22
Speaker 2: buckets out. They kind of buy you know, mass exposures.
17:25
Speaker 2: And so part of it might be okay if we
17:28
Speaker 2: have you know, these potential things that we need to cover,
17:31
Speaker 2: and inflation is moving up, Hey, are we comfortable buying
17:35
Speaker 2: a ten year treasury at three and a half percent
17:37
Speaker 2: of inflation's at three It's a lot of risk for
17:41
Speaker 2: us depending on how these costs might move, right, And
17:44
Speaker 2: so this is kind of where the rubber meets the
17:46
Speaker 2: road on This is all these different decisions being made,
17:48
Speaker 2: and that's how you know your your market actually happens
17:51
Speaker 2: in these different areas and how you end up with
17:54
Speaker 2: the rates that you may see on different products and
17:57
Speaker 2: in different uh, you know, parts of the economy. Anything
18:01
Speaker 2: else to add on that, Mic, No, So the other
18:04
Speaker 2: piece on this just on this headline, Yes, rate cuts
18:07
Speaker 2: will be good for stocks, not necessarily, you know, like
18:12
Speaker 2: Will is doing an awful lot of work there sometimes
18:15
Speaker 2: they are. But if you go into a real recession,
18:17
Speaker 2: rate cuts are not usually great for stocks, then stocks
18:20
Speaker 2: usually sell off, not during the entire recession, but at
18:23
Speaker 2: some point during them, and so rate cuts are not
18:26
Speaker 2: necessarily good for stocks. If recession actually materializes, the FED
18:30
Speaker 2: would be stimulating an economy that doesn't need it. This
18:33
Speaker 2: is the other piece that I think is questionable here. Hey,
18:36
Speaker 2: if you cut rates into an economy that doesn't need it,
18:39
Speaker 2: that's how you potentially end up with long term rates
18:41
Speaker 2: moving up. If the recession doesn't develop, an inflation comes
18:45
Speaker 2: out of those rate cuts. Yeah, you could see the
18:48
Speaker 2: long end move up. And by the way, it's exactly
18:51
Speaker 2: what happened last fall. The Fed cut interest rates, what
18:53
Speaker 2: happened to long term rates? They went uppy, uppy, uppy yep.
18:57
Speaker 2: Tenure treasury moved up almost a full percentage point the
19:00
Speaker 2: span of a few months, and then reverse a decent
19:02
Speaker 2: chunk of that, you know, shortly thereafter. So none of
19:05
Speaker 2: this is black and white, none of it's cut and dry,
19:08
Speaker 2: And I think you just got to stay away from
19:10
Speaker 2: headlines like will or won't and have some humility, be
19:14
Speaker 2: open to maybe, you know, let's take a quick break
19:19
Speaker 2: here as we head towards the bottom of the hour.
19:20
Speaker 3: When we come back, we'll.
19:22
Speaker 2: Talk a little bit about what we see for you know,
19:25
Speaker 2: upcoming growth and inflation in twenty twenty six.
19:27
Speaker 3: We've also got Wall Street Watch right after this.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch, a complete look and what's moving market so
19:56
Speaker 1: far today right here on the Financial Exchange Radio netw
20:00
Speaker 1: work on.
20:00
Speaker 5: The final trading day of August. Markets today are slightly
20:05
Speaker 5: selling off as Walstree reacts to the core PCE index,
20:09
Speaker 5: the Fed's preferred measure of inflation, with no surprises and
20:14
Speaker 5: mostly coming in line with expectations. Right now, the Dow
20:17
Speaker 5: is off by four tenths of one percent, or one
20:20
Speaker 5: hundred and ninety points lower. SMP five hundred is down
20:23
Speaker 5: six tenths of one percent or forty one points lower.
20:26
Speaker 5: In the Nasdaq down by one percent or two hundred
20:30
Speaker 5: and twenty four points, Russell two thousand is down by
20:32
Speaker 5: about a half a percent, Tenured Treasure reeled up one
20:35
Speaker 5: basis point at four point two two six percent, and
20:39
Speaker 5: crude oil is down seven tenths of one percent, trading
20:43
Speaker 5: just above sixty four dollars a barrel. According to the
20:46
Speaker 5: Wall Street Journal, Ali Baba has created a new versatile
20:49
Speaker 5: chip to fill the void left by Nvidia's restricted access
20:52
Speaker 5: to the Chinese market. Several other Chinese tech companies that
20:55
Speaker 5: are developing homegrown AI technology in order to work around
21:00
Speaker 5: used restrictions. To boost its AI technology, Ali Bob shares
21:06
Speaker 5: a jumping twelve percent. Meanwhile, Dell Technologies hiked its annual
21:10
Speaker 5: outlook driven by strong AI demand. However, the tech company
21:14
Speaker 5: offered softer guidance for the current quarter, sending Dell shares
21:18
Speaker 5: down by ten percent. Elsewhere by now pay later company
21:22
Speaker 5: Affirm seeing its stock leap seventeen percent after it swung
21:27
Speaker 5: to a profit in the previous quarter, surpassing expectations. Alts
21:31
Speaker 5: of Beauty falling four percent despite the cosmetics retailer raising
21:34
Speaker 5: its full year earnings in revenue forecasts. After notching higher
21:38
Speaker 5: profit and sales in the latest quarter, Caterpillar revealed it
21:42
Speaker 5: now expects the net impact from tariffs to be as
21:45
Speaker 5: much as one point eight billion dollars this year, sending
21:48
Speaker 5: shares in the construction equipment maker down by four percent,
21:52
Speaker 5: and retailer GAP said it anticipates tariffs to cost between
21:56
Speaker 5: one hundred and fifty to one hundred and seventy five
21:59
Speaker 5: million dollars this fiscal year, higher than previously forecasted. For
22:03
Speaker 5: the second quarter, GAP saw at same store sales climbed slightly,
22:07
Speaker 5: while revenue met estimates. GAP stock is up by one percent.
22:12
Speaker 5: I'm Tucker Silva and that is Wall Street Watch, Mike.
22:14
Speaker 2: We got a piece from the blooming Berg economistsy slow
22:18
Speaker 2: US growth, stubborn inflation well into twenty twenty six, and
22:23
Speaker 2: just to give us some context to the data here,
22:26
Speaker 2: when we look at GDP growth for next year, economists
22:30
Speaker 2: are generally expecting that it's gonna end up somewhere in
22:33
Speaker 2: the high ones, somewhere like right in the one seven
22:37
Speaker 2: to two percent range for next year, and inflation likely
22:41
Speaker 2: to remain a core pce likely to remain north of
22:44
Speaker 2: three percent in the first couple quarters of the year
22:46
Speaker 2: before getting down to around two and a half percent
22:49
Speaker 2: in the back half.
22:50
Speaker 3: Of the year.
22:52
Speaker 4: Is this worth the digital paper it's printed on. I'm
22:56
Speaker 4: not sure what it tells you. I guess it's interesting
22:59
Speaker 4: asking how could they be wrong? Yes, So that this is.
23:03
Speaker 2: Where I think, Like I like to think about these
23:06
Speaker 2: kinds of things and specifically, hey, how could they be
23:09
Speaker 2: wrong to you know, the upside on growth and how
23:13
Speaker 2: could they be wrong to the downside on inflation?
23:15
Speaker 3: Like?
23:15
Speaker 2: What what are the paths to things going more right?
23:18
Speaker 2: Is the interesting thing because to me, like, if things
23:20
Speaker 2: go more wrong, okay, you're gonna get more fed cuts
23:23
Speaker 2: like you like? That to me is less interesting because
23:26
Speaker 2: you kind of know the playbook there. What I'm more
23:28
Speaker 2: interested in is, Hey, what's the path to things being
23:31
Speaker 2: better than they expect?
23:34
Speaker 3: Like?
23:34
Speaker 2: Where where are the unexpected bright spots that we could see?
23:37
Speaker 2: So if you look at the things that can drive
23:39
Speaker 2: the US economy, you know, like on the margin, like,
23:42
Speaker 2: what's the marginal activity that can drive it?
23:44
Speaker 3: Let's talk about housing.
23:46
Speaker 2: Sure, what's the path to twenty twenty six being a
23:49
Speaker 2: stronger year for housing? Typically in terms of two things
23:53
Speaker 2: sales volume and additional construction.
23:56
Speaker 4: I genuinely hesitate to think of a single one that
23:58
Speaker 4: could get us there.
23:59
Speaker 2: It's it's tough to find one because pricing is so
24:02
Speaker 2: tough right now. And this is what we're seeing from companies.
24:06
Speaker 2: The place that actually could get us to a better
24:10
Speaker 2: spot on housing, in my opinion, is at least in
24:15
Speaker 2: the short term, a FED policy error where they're too
24:18
Speaker 2: duffish and you still don't end up with you know,
24:22
Speaker 2: too much inflation necessarily in the short term, and so
24:26
Speaker 2: people are able to buy homes at cheaper rates. It
24:29
Speaker 2: generates a little more activity there. It still is probably
24:32
Speaker 2: a marginal impulse, but that's like one way that you
24:35
Speaker 2: potentially get there in the short term. Sure, Other than that,
24:38
Speaker 2: it's kind of hard to see housing being like this,
24:41
Speaker 2: you know, something that draws the US economy forward next year.
24:45
Speaker 2: Data center construction another big one that has been driving
24:48
Speaker 2: the US economy this year. The case for it being
24:51
Speaker 2: you know, stronger than expected next year is that it's
24:54
Speaker 2: been stronger than expected this year. Yeah, there's been more
24:57
Speaker 2: construction this year seven years in a row. CAPEX has
25:01
Speaker 2: continued to ramp up faster than we can even like
25:03
Speaker 2: measure it basically, and so there there's your case for
25:07
Speaker 2: upside on that side of things. Tourism not a huge
25:12
Speaker 2: driver of overall economic activity. I mean, let me rephrase
25:17
Speaker 2: on the margin, Tourism is just not a big enough
25:19
Speaker 2: industry to drive you know, a ton of activity there,
25:23
Speaker 2: but what you could see next year. Hey, a lot
25:26
Speaker 2: of the foreign visitors who have put off a visit
25:29
Speaker 2: to the US this year might say, Hey, you know what,
25:32
Speaker 2: we're coming back next year? The World Cup's happening. Dollars weeker. Sure,
25:38
Speaker 2: going to the US seems like a great thing to do,
25:41
Speaker 2: and so maybe you get some kind of marginal boost
25:43
Speaker 2: from that. Is it big enough to move the needle if.
25:47
Speaker 3: You got don't know?
25:49
Speaker 2: Maybe, but like, has it been big enough to move
25:51
Speaker 2: the needle this year? Not really like in the other direction.
25:54
Speaker 2: So it's kind of like, Okay, that could be something
25:59
Speaker 2: that's out there. Is it the return of non business
26:04
Speaker 2: non AI capex growth? The one big beautiful Bill unlocked
26:09
Speaker 2: a ton of benefits for companies to invest in the
26:12
Speaker 2: United States.
26:14
Speaker 3: Do they spend the.
26:15
Speaker 2: Last half of this year planning and next year actually
26:20
Speaker 2: moving forward with a you know, larger than expected capex
26:25
Speaker 2: because of these tax breaks they get. Maybe I think
26:28
Speaker 2: you could see that. So I think the growth picture
26:32
Speaker 2: being stronger. There's some modest things around the edges, but
26:36
Speaker 2: it could happen. The inflation picture. What are the ways
26:40
Speaker 2: that we could see inflation be better than expected next year?
26:43
Speaker 4: More conciliation on tariffs and recession. So if we're talking
26:48
Speaker 4: about positive ones like those, of the two that I
26:50
Speaker 4: can think of would be tariff rates, which are you know,
26:54
Speaker 4: stuck for a number of countries right now. I'm thinking
26:57
Speaker 4: about India, I'm thinking about China. Could you see those
27:00
Speaker 4: come down? In which case, yeah, you could see inflation
27:04
Speaker 4: come in better than is currently expected.
27:07
Speaker 2: The recession piece obviously, like could result in lower infliction
27:10
Speaker 2: but obviously results in lower growth, yeah, which you know
27:12
Speaker 2: doesn't really help you on that side of the equation.
27:15
Speaker 2: But are we just again I'm just I'm hashing this
27:19
Speaker 2: out in real time, like just my own thought process.
27:21
Speaker 2: Are we too anchored to the idea that this is
27:24
Speaker 2: where twenty twenty six has to be?
27:27
Speaker 3: Like? Are we too resistant to the idea that it
27:30
Speaker 3: could be different?
27:32
Speaker 4: I'm not sure I understand which media Are you saying
27:34
Speaker 4: that you think these gains are the are the status quo?
27:37
Speaker 3: No?
27:38
Speaker 2: So what I'm saying is we're basically saying, hey, it's
27:41
Speaker 2: really hard for us to see things being different from
27:43
Speaker 2: what's being projected next year. Are we too anchored to
27:47
Speaker 2: those projections to see things that might be obvious to us?
27:50
Speaker 2: As like another exist usually are the data center construction
27:55
Speaker 2: piece the other side that we have not dealt with
27:58
Speaker 2: properly in the US, And we've talked about a lot.
28:00
Speaker 4: We're not building enough power generation infrastructure, Right, does it
28:04
Speaker 4: all fall apart because there's not an electricity to power?
28:07
Speaker 2: I was gonna go the opposite direction. Do we finally
28:09
Speaker 2: decide next year, you know, heading into a midterm election year,
28:13
Speaker 2: Hey we got to figure out a way to produce
28:14
Speaker 2: more energy here, not you know, not oil, but hey,
28:17
Speaker 2: we got to figure out how to build more power
28:20
Speaker 2: plants here next year and expedite the approval process. And
28:23
Speaker 2: is that, you know, an unexpected positive thing that we
28:25
Speaker 2: see for economic growth? Yeah, Like there are things off
28:29
Speaker 2: the board that I think we need to consider, and
28:31
Speaker 2: that's one of them that Yeah, it's kind of a
28:33
Speaker 2: long shot, but it also makes sense when you think
28:36
Speaker 2: about it logically in terms of the issues that we
28:38
Speaker 2: might face next year.
28:40
Speaker 4: I mean, I feel as though the end all be
28:43
Speaker 4: all right if you're talking about I'm not sure what
28:45
Speaker 4: it does to economic growth because I'm just not sure
28:48
Speaker 4: what it does to the labor force and consumer But
28:50
Speaker 4: the end all be all would be the productivity gains
28:52
Speaker 4: that have been promised now for the last five years
28:54
Speaker 4: from artificial intelligence.
28:56
Speaker 2: Now we're getting somewhere fun robots. Man, what if twenty
29:00
Speaker 2: twenty I'm serious. I know I said it kind of,
29:02
Speaker 2: you know, tongue in cheek, but it's only kind of
29:05
Speaker 2: because honestly, I think this is coming soon. What if
29:08
Speaker 2: twenty twenty six is the year the robots, the same
29:10
Speaker 2: way that twenty twenty three was the year of the
29:12
Speaker 2: large language models could be you know, like, these are
29:17
Speaker 2: just things that I like to consider as far as Hey,
29:20
Speaker 2: you know, economists have their projections, and I understand that,
29:22
Speaker 2: and quite honestly, they've thought about this stuff way more
29:25
Speaker 2: than I have. Like they got actual models for economic growth.
29:30
Speaker 2: I have, you know, toy plane models sitting on my shelf, Yes,
29:35
Speaker 2: which you're fine, So I think ultimately, I just try
29:39
Speaker 2: to think of, hey, how can we see something that's
29:42
Speaker 2: different from what's expected, because that's ultimately where you make
29:46
Speaker 2: money in markets. It's by seeing something that's different from
29:50
Speaker 2: what's expected. In twenty twenty two, it was, Hey, the
29:53
Speaker 2: Fed's gonna have to hike five percent because inflation's really hot.
29:57
Speaker 2: When the market was pricing in one percent of hikes
29:59
Speaker 2: R in the second half of twenty twenty three, it
30:04
Speaker 2: was no, there's not going to be a recession when
30:07
Speaker 2: everyone thought we were heading towards one.
30:09
Speaker 3: Same with the second half of last year.
30:11
Speaker 2: So as we head into next year, it's Okay, where's
30:13
Speaker 2: the thing that could be different from what everyone's pricing
30:16
Speaker 2: in right now? And I don't know that it's any
30:18
Speaker 2: of these, but it's just the stuff that crosses my mind.
30:21
Speaker 2: Just take a quick break when we return, talk about
30:24
Speaker 2: this piece from the Wall Street Journal about consumer staples
30:27
Speaker 2: pricing and how some of those things seem like they
30:30
Speaker 2: might have a little bit bigger price tag in the
30:32
Speaker 2: coming months.
30:34
Speaker 1: Text us six one, seven, three, six, two thirteen eighty
30:37
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30:41
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30:43
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30:48
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30:52
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31:33
Speaker 2: Mike, we got a piece in the Wall Street Journal.
31:35
Speaker 2: Higher prices are coming for household staples. Is this tariffs
31:40
Speaker 2: or something else?
31:41
Speaker 3: Why? Yeah?
31:42
Speaker 4: So I think it's a little bit of both. But
31:47
Speaker 4: I think you have a combination of factors here for
31:50
Speaker 4: staples companies. One, yeah, a lot of the stuff that
31:54
Speaker 4: we buy on a day to day basis does come
31:56
Speaker 4: from China. Go to your hardware store, go to you know,
32:00
Speaker 4: in many of those places, and it is heavily imported
32:03
Speaker 4: from China, which is facing some seriously higher teriff rates.
32:07
Speaker 4: On the food side of things. I guess I'm having
32:11
Speaker 4: a tougher time making the connection other than yeah, look,
32:15
Speaker 4: there are tariffs even on some food items, on the
32:17
Speaker 4: items that you use to.
32:19
Speaker 3: Package the food.
32:20
Speaker 4: And at the same time, a lot of those food
32:23
Speaker 4: processing companies are probably experiencing a pretty significant labor shortage.
32:28
Speaker 4: You go take a look at farms across the country
32:29
Speaker 4: and how outspoken they have been. Meat processing plants, things
32:32
Speaker 4: along those lines relied heavily on either undocumented or undocumented
32:40
Speaker 4: labor or folks that are in the country attached to
32:42
Speaker 4: folks that are undocumented, and there has been a significant
32:46
Speaker 4: drop in those people that are here and the new
32:49
Speaker 4: ones coming over the border.
32:51
Speaker 3: Yeah, that would you explain it in any other way.
32:53
Speaker 3: On the food side of things, No, I think it's that.
32:56
Speaker 2: I mean, look, there's some food that you just can't
32:58
Speaker 2: produce the United States. Bananas what you don't have the
33:02
Speaker 2: environment to produce large quantities of bananas in the United States. Coffee,
33:07
Speaker 2: you can't produce coffee in the United States and like
33:11
Speaker 2: consistently with the scale.
33:13
Speaker 3: That you need.
33:14
Speaker 2: So yeah, I mean there's some stuff that is related
33:18
Speaker 2: to tariffs. There's some stuff that I think is related
33:20
Speaker 2: to the labor that happens on US farms. And the
33:25
Speaker 2: thing that we're seeing is this is a pretty consistent
33:27
Speaker 2: and there's some stuff that's also just like related to
33:30
Speaker 2: you know, other things that are going on as well.
33:32
Speaker 2: I mean, you have it's not bird flu this year,
33:35
Speaker 2: but have have you guys been paying attention to what's
33:36
Speaker 2: going on with beef prices.
33:38
Speaker 3: Yeah, I have.
33:39
Speaker 2: I'm a big beef guy myself, and those prices are
33:42
Speaker 2: moving in one direction. That price in that direction is up,
33:45
Speaker 2: and it's because of some concerns about different viruses and
33:48
Speaker 2: things there and stuff like that that is pushing beef
33:51
Speaker 2: prices up. And as a result, I'm paying more for steaks,
33:54
Speaker 2: which is not ideal in my situation. But I think
33:58
Speaker 2: ultimately you look at this and companies are now also
34:03
Speaker 2: trying to manage you know, Hey, we've worked through some
34:04
Speaker 2: of the pre tariff inventory. You know, what do we
34:07
Speaker 2: have to do on this? And so I think it's
34:09
Speaker 2: a convergence of a bunch of different factors tariffs of
34:11
Speaker 2: which are one, labor force is another, than random one
34:14
Speaker 2: offs that are are pushing you know, prices up on
34:16
Speaker 2: some staples and stuff.
34:17
Speaker 4: Yeah, I don't want to be alarmist. It doesn't seem
34:19
Speaker 4: as though prices are going back towards very high levels
34:22
Speaker 4: of inflation. But also really tough to envision any sort
34:26
Speaker 4: of you know, staple prices moderating to no inflation over
34:31
Speaker 4: the course of the next couple of years.
34:32
Speaker 3: I guess is where I would go with it.
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36:37
Speaker 2: Mike, I want to talk about Happy Hour, Me too,
36:41
Speaker 2: Chuck Good so big thing Mike and I are show.
36:46
Speaker 2: We're based out of Massachusetts, which does not allow for
36:49
Speaker 2: happy hours for about forty years now, and the big
36:53
Speaker 2: thing is a lot of restaurants and bars are pushing
36:56
Speaker 2: for Massachusetts to change the rules regarding happy hour. The
37:00
Speaker 2: reason being basically, people aren't hanging out after work and
37:04
Speaker 2: they want more customers. And the argument they make is, hey,
37:08
Speaker 2: this will help us to get you know, more people
37:09
Speaker 2: coming in between like that four and six o'clock hour,
37:12
Speaker 2: to you.
37:12
Speaker 3: Know, get us a little bit more business.
37:14
Speaker 2: And there's more public transit available now you have things
37:18
Speaker 2: like Uber and Lyft, so people won't be drunk driving
37:20
Speaker 2: as much.
37:21
Speaker 4: Your thoughts, Mike, I'm a general deregulation person, so I'm
37:26
Speaker 4: totally fine with this. The other person, the other piece
37:28
Speaker 4: of this that I was trying to recall, do you
37:31
Speaker 4: guys remember I think it was last year the city
37:33
Speaker 4: of Boston trialed a past two am second neighborhood that
37:38
Speaker 4: was going to be open for bars and restaurants after
37:41
Speaker 4: that two am. I don't remember anything coming of that
37:44
Speaker 4: trial run that they tested at, which probably means that
37:46
Speaker 4: they're not going to continue it. But this one just
37:48
Speaker 4: seems to me like many of our alcohol rules do
37:52
Speaker 4: across Massachusetts. Seems just kind of arbitrary that bars aren't
37:56
Speaker 4: allowed to offer this sort of thing. And yeah, I
38:00
Speaker 4: would be in favor of anything that the restaurants need in.
38:02
Speaker 2: Order to look if yeah, if if you want to
38:04
Speaker 2: balance some of these things, Okay, allow for happy hours,
38:08
Speaker 2: but ramp up.
38:08
Speaker 3: Your duy penalties.
38:10
Speaker 2: Sure you know there's ways to solve this, but yeah,
38:14
Speaker 2: let the restaurants sell what they want, when they want,
38:16
Speaker 2: for how much they want.
38:17
Speaker 3: A quick break here hour two in just a little bit,