May 14, 2025 • 29 mins
- Jens Nordvig, CEO and founder at Exante Data
- Wei Li, Global Chief Investment Strategist at BlackRock
- Holly O'Neill, President: Consumer, Retail & Preferred at Bank of America
- Bill Dudley, Bloomberg Opinion columnist and former President of NY Federal Reserve
Jens Nordvig, CEO and founder at Exante Data, discusses Dollar strength and FX moves amid recent trade turmoil and a reshaping of the US economic landscape. Wei Li, Global Chief Investment Strategist at BlackRock, talks about her outlook for global growth, US investment, and inflation, as well as upside inflation risks. Holly O'Neill, President: Consumer, Retail & Preferred at Bank of America, discusses the state of the American consumer. Bill Dudley, Bloomberg Opinion columnist and former President of NY Federal Reserve, talks about his Opinion column on US-China trade tensions and the Fed.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and a Marie Hordern. Join us each
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(00:33):
Bloomberg Terminal and the Bloomberg Business app. Wiley of black
Rock Rights in the following we still see tariffs causing
further contractions in cordly activity, but the cumulative impact may
be more limited. We stay risk one way. Joins us
now for more waken morning, Good morning. I might pick
up on that line, the cumulative impact, How are you
measuring that?
Speaker 3 (00:53):
Well, there are two potential templates that we can mirror
what's happening by now. One is COVID, the pandemic. You
switch off and you switch on, But in your case
you're saying that you can switch off again and switch
on again. But we're talking about kind of being able
to switch it back on quite quickly. The other template
is Brexit, where you have multiple kind of years of
commulative scarring, where you have the economy below trend even today.
(01:17):
So right now, given how quickly we have seen walk back,
maybe the COVID type of template is appropriate in terms
of structure or scarring. But we're already seen some sort
of contraction, and I think technical contraction in the future
is not off the cards. It's not off the table,
but chances have been lessened because of the immutable or
(01:41):
seemingly at work to guide the destination of where we
end up.
Speaker 2 (01:45):
When you say we stay risk on, what does that
mean in today's market?
Speaker 3 (01:50):
It means positive on US equities and corporate in terms
of credit over US government bonds. I think what we
have seen so far this year, especially this week, is
that greater uncertainty doesn't mean greater certainty of a bad outcome.
People make false equivalents between the two, but there is
a huge, a huge difference. So when we talk about
(02:12):
kind of us that arithmetics, when we talk about supply
chain dependency, this full government, how quickly decoupling can happen,
if at all, which is why we are able.
Speaker 4 (02:23):
We were able to stay.
Speaker 3 (02:24):
Risk on despite elevated uncertainty in terms of policy making.
I would also say, you know, we talk about US
equity is recovering year today, US aquity is more than
recovering the draw down since a pro second, but US
government bonds haven't turn Premier went from thirty five basis
point on April second to seventy basis point. Dollar hasn't
(02:46):
recovered fully. So there is something more exceptional about US
equities than US corporates, and this is what we are
focused on in terms of our risk on strategy.
Speaker 1 (02:54):
This is something a number of people have put up
talked about the fact that US exceptionalism still lies with
US big tech, and it still lies with some of
the mega trends as you've put them out there. It
doesn't lie necessarily with the dollar and US assets per se,
just by virtue of the US's position in the world.
Speaker 4 (03:11):
I want to stick with tech.
Speaker 1 (03:12):
This has been a bit of yours and sort of
structural theme just on a tactical level. Has the rally
already taken back all of the bullishness that you feel,
and for now it feels like maybe it's going to
take a breather. Even with some of these deals going
on in the Middle East.
Speaker 3 (03:27):
Well tech has taken a blunt of market correction since
beginning of the year.
Speaker 4 (03:32):
We think that there is more to go.
Speaker 3 (03:34):
If you look at their guidance, they have all committed
to their previous copex spent, if not increasing. Broadly, companies
are guiding down their copex expectations. For hyperscalers, they continue
to be all in AI transformation, and multiples now look
a bit more attractive compared to beginning well compared to
(03:56):
before the cell off, right, So we do think that
there is more to go now. Bigger picture, we talked
about the walk back and how markets are kind of
jumping on incremental positive development, But the bigger picture is
we're still talking about a landing zone or for you,
as effective tariffs somewhere between ten to fifteen percent, there
(04:16):
is still five times more than the levels at the
beginning of the year, and everything considered, we're still talking
about an environment where we have higher tariffs, potentially lower
growth because of that, and potentially higher inflation because of that.
So I think that big picture is important to bear
in mind as we think about portfolio construction, and I
think markets jumping just to incremental positive news development is
(04:41):
a typical case of behavior buiers of anchoring. We just
look at kind of the incremental pieces, but the big
picture has you know, Tarraff represents us that inflationary shock,
and we still have higher tariffs compared to before.
Speaker 1 (04:53):
Which feaks sort of the divergence between tech exceptionalism and
the rest of the universe. And I just wonder how
pressure the rest the universal stocks you see as really feeling,
especially if you do see potential risk to government bond
markets going forward.
Speaker 3 (05:08):
Which is why we definitely prefer TAG and financials that
have been leading in the latest earning season compared to
the rest of the market, compared to small caps for examples.
So we see TAG as the drivers of US exceptionalism
in terms of US corporates, and maybe the rest of
the markets is passengers of US exceptionalism wave. And especially
(05:32):
at times like this where we're still talking about higher rates,
high for longer central banks not able to come to
the rescue of the economy as they were before. We
still want to focus on companies that can grow their margin,
that can grow their profitability. And if you look at
the latest earning season and also previously, TAG and financials
remain those sectors that we want to focus on.
Speaker 4 (05:54):
What happened to the European trade?
Speaker 3 (05:56):
Where is it now while we close the European underway
to lean into the European trade, But we're just neutral,
not positive.
Speaker 4 (06:05):
What's holding your Backstille?
Speaker 3 (06:07):
What's holding us back? Well, what we have seen so
far if you look at the rally back from the
lows posts April second, is that our performance of Europe
over US has stopped us started catching up now and
if you look at the hoops that mrs has to
jump through to get confirmed, there remains risks around implementation
(06:29):
of all these ambitious policies and reform targets. So we
do want to see more kind of clarity around the
ambitious targets for us to be positive across the board.
But we have liked European financials for a long time.
That have been our performing we have. We also see
(06:50):
opportunities in defense as a sector given the future spent
and lack of capacity in that in that space, So
being selective on European aqulities, definitely seeing a lot more
opportunities compared to the beginning of the year. But the
market has come a long way so I think you know,
one thing that we have seen so far is reversal
(07:12):
strategy as a near term way of navigating market volatility
has worked, and right now reversal strategy seems to support
you as.
Speaker 1 (07:20):
There's this reason why people are sort of saying pass
to Europe, just want to finish up with China. Do
you think that there is morcos there given the fact
that it seems like there isn't a full scale decoupling,
and it does appear to be supported by some fiscal
as well.
Speaker 5 (07:36):
Well.
Speaker 3 (07:36):
We're also selective in China. We're neutral more broadly across
the Chinese acoli market, but we like technology in China
because of the innovation potential as well as China TAP
potentially going a bit more globally. And we also like
financials in China because of the national team's support as
well as funds closing there underweight. The reaction of Chinese
(08:01):
market to the latest development has been somewhat mixed because
the more we see kind of progress on the trade front,
the less likelihood there is for more support on the
policy side to come through. So now there is definitely
a positive momentum in that Previously people are talking about
maybe three handle for Chinese growth this year because of
(08:22):
the tariffs implication. But now people are very quickly upgrading
their forecast for Chinese growth this year, so selectively optunistic
and positive on Chinese Accoudis is our near term tactical view.
But over the longer term structural constraints around kind of
agent population lower growth that hasn't changed.
Speaker 2 (08:40):
So those estimates revised herds are close to the five
percent already this week. Why it's going to say, why
so why? Thanks for dropping by? Thanks welly, that of.
Speaker 4 (08:47):
Black Crock.
Speaker 2 (08:57):
Against Notixanta has been varied on the dollars, and writes
the following, it's likely that we're at a multi year
turning point. I think the dollar should be moving substantially
Jensen's and that joins us now for more. Yeah, it's
good to see it, sir, and too long. Thanks for
dropping by. We've got some time to work through this.
You're looking at potentially a system level shark that leads
to a strategic reallocation of the US dollar away from
(09:18):
the US dollar to other currencies. Can you just set
the scene for us from thirty five thousand feet? What
do you think is happening here?
Speaker 6 (09:25):
We've really been on a strong dollar trend since the
summer of twenty fourteen, right, So we've had this incredible
run in US equities, We've had US yields that were
generally higher than other places around the world, and investors
from Europe to Canada, Australia, Japan have been very comfortable
building up really big allocations to the US, unprecedented high locations.
Speaker 1 (09:51):
Right.
Speaker 6 (09:51):
And now we're coming into this year. A lot of
people were expecting, Oh, okay, Trump two is going to
smell a bit like Trump one.
Speaker 4 (10:00):
People actually added.
Speaker 6 (10:01):
Aggressively to their equity exposure into this year, right, and
then it has turned out that Trump two was not
really anything like Trump one, and a lot of people
are rethinking those allocations. And it's not just about the terriffs, right,
It's about what's happening with foreign policy, who are allies,
(10:22):
what's the natal arrangement going to be. There's a whole
host of issues, right. That means that a lot of
people are thinking about is it really prudent as somebody
who's allocating globally to have such incredible overweight in the
United States, so not talk about is the reserve currency
(10:42):
status going to disappear. But talk about people who've been very,
very overweight. Are they going to do some risk management
and take their allocation down? And I think the feedback
we get from speaking to chief investment officers all around
the world is that it takes a lot to shock them,
but they are shocked and they want to change the allocations.
Speaker 2 (11:04):
To your point, this has been building for a decade,
a decade plus of dollar longs building across all asset classes.
What we're trying to understand now is, as we take
some of the air out of that trade, what are
the policies that you see that make the shift away
from the US dollars sustainable, durable, beyond just the chaos
of the last month or so. How do you think
about that at the moment? And do you consider them
a push dynamic bad policies in the US pushing capital out,
(11:26):
or a pull dynamic better policies elsewhere sucking capital in
which one is it?
Speaker 7 (11:30):
Yes?
Speaker 6 (11:30):
So the first thing I would say is that we
have a list of US polishes sharks, and that list
of policy shocks is actually generating polisher sharks elsewhere. Right.
So in Europe we've had now a historical change in
physical policy where essentially the physical rules have been rewritten.
Speaker 4 (11:47):
Right, The rules that underpin.
Speaker 6 (11:49):
The euro have now been changed in a way where
you can invest more effectively. Right, That's a big change.
So that's important for growth out look in Europe. We're
just talked about, as you mentioned, right, the NATO budget
potentially also totally different. Right, five percent numbers We used
to talk about whether we can get to two, right,
So big, big changes. So that's that's something that underpins
(12:13):
this idea that there are other places because if you
have more investment in Europe, you also have more bond issues, right,
So the whole supply and demand dynamic is changing. It
used to be the case that there was actually very
few assets to buy in Europe, and that's changing too.
If you look at the comparison between international investors and
US investors, in the US, you have an incredible home bias.
Speaker 4 (12:37):
That's the other part of the story.
Speaker 6 (12:39):
Right. If you look at all ehtfs that are issued
in fixed income in the US one point seven trillion,
there's only half a percent that has any foreign currency exposure.
So it can only go one way from here. That's
not going to be quick, but over time it will happen.
Speaker 1 (12:53):
There's an important point here. You said that this isn't
necessarily the loss of the dollar as being a reserve currency.
This is just simply innormalization and diversifying away.
Speaker 4 (13:01):
From the dollar.
Speaker 1 (13:02):
Some people might say that this is a feature, not
a bug, of this administration, that they want a weaker
dollar in order to increase exports. And actually we're going
to see this increasingly as a part of policy, not
just as a potential consequence.
Speaker 6 (13:14):
Yeah, I think you're right.
Speaker 4 (13:16):
We certainly have.
Speaker 6 (13:20):
People within the cabinet Scott Beston included right, that I
have a different nuance to dollar policy compared to the past.
There's always this focus on okay, how do we insource
some manufacturing and a week of dollars certainly would be
helpful in that regard.
Speaker 4 (13:35):
And you're right.
Speaker 6 (13:35):
I think if you look at the price action today,
it is influenced by these let's call it Bloomberg headlines
about career trade deals so and currency deals. So there's
an element of that. So nobody is going to be
fighting this trend. If the dollar is going gradually weaker.
Speaker 4 (13:54):
How much more weakness is there?
Speaker 1 (13:56):
And potentially do you see the euro as the biggest winner.
Speaker 6 (13:59):
So again, we've literally been going in one direction for
eleven years on a trend basis, right, So we've just
started and if we have a big asset location shift,
it's something that can play out over a six to
nine month horizon and we can easily have, you know,
(14:20):
a five percent move down in the dollar index, right,
And then then we get to these questions, so, Okay,
is it going to be orderly or could there be
something that's more dramatic? Right, And what we had in
April I have never seen. I've been doing currency analysis
since two thousand, effectively, right, what we saw on April
(14:41):
we have never seen before, right where used bonds are
selling off, equity is selling off, and the dollar trades down.
So I think that was only for not that many
trading sessions, but it's still a warning sign that that
can happen, right, So I am in addition to what
we just spoke about, I think there's some addicial tail
risk that if the budget process is not one that
(15:05):
investors are comfortable with, I worry that we can have
some of the same dynamics as we had in April.
So that wouldn't be my central case, but the people
who are involved in these budget negotiations have to remember
what happened in April. The US bond market is not
a kind of indisputable safe haven anymore, and what happens
(15:29):
with the budget is absolutely gonna matter.
Speaker 2 (15:31):
There's evidence that speaked not only investors, but also the
White House in the last month as well.
Speaker 1 (15:36):
Yeah, you said yesterday, who's the bigger arbiter, Republicans or
the bond market? And I think a lot of people
are watching the bond market very.
Speaker 2 (15:42):
Closely based on this conversation. It might be the bond
market again. It's going to see it. It's been too long.
Thanks for dropping by again to not if Alexante Data
Retail annings up with Walmart reporting on Thursday, offering another
read on the US consumer. The team at Bank for
(16:04):
America writing the following, spending momentum remains, though it's moderating.
Consumers appear to be pulling bank, particularly on bigger ticket
discretionary services like airline tickets and lodging. Holly O'Neil is
the president of Retail Banking and Bank for America, and
place is sayety joined us now, Holly, welcome back to
the program. I want to talk a little bit about
the consumer, and then we can get to what you're
doing operationally. But let's start with the consumer if we can.
(16:26):
What are you noticing and how is that different to
what we've seen previously over the past few years.
Speaker 5 (16:32):
Well, the consumer appears to be continuing to spend. They're
very healthy. And you had the headline they spent in
April at a rat of about one percent and that's
our credit and debit data, and that was just slightly
cooler than they spent in March at one point one
(16:52):
percent growth year over year. So they have momentum, but
it's moderating a little bit, and I think the driver
of that is that they're supported by continued wage growth.
So we saw good wage growth in April, both in
higher income and lower income, though it is moderating a
little bit, So that theme is still healthy, but moderating.
Speaker 2 (17:15):
Ollie, and please you broke up the income groups, because
we sit on that just for a bat. The low
income group have been squeezed for a while. We've seen
that in data repeatedly throughout this cycle coming out of
the pandemic. Do you see any stress coming up to
the upper income cohorts?
Speaker 5 (17:29):
No, So the lower income household wage growth, just to
give you the numbers picked up by about one point
five percent in April, and that was that was stronger
than March. So March was one point four percent, So
that wage growth in the lower income cohort increased a
little bit. And I think that wage growth is continuing
to support the consumer and the consumer spending. When you
(17:52):
get deeper into the data, some of the credit data,
as an example, the lower income households are continuing to
hold up. Overall. We've seen thirty day delinquencies come down
a tad, so I think that consumer still is showing
signs of good health.
Speaker 1 (18:10):
This really raises a question, Holly, about how much we
can really count on some of the soft data, which
indicated an incredible amount of nervousness and pessimism among consumers
in the United States during the month of April, in
particular after April second, are you saying you're just not
seeing it? But frankly, people can go out and gripe
about how concerned they are about the future of the world,
(18:30):
but then they go out in a spending spree.
Speaker 5 (18:35):
We're not seeing it. And I think we often talk
internally about you know, you have to separate what consumers
are saying versus what they're doing, what we're seeing in
our data, and that data is telling us that they're
continuing to spend, although it is moderating. And so we
saw in April restaurants good spending there, but we did
(18:57):
see a dip down in airline and lodging, leisure travel
a little bit. So consumers are adjusting slightly, which leads
to that the momentum is dipping just slightly. But you
really do have to separate what consumers are saying in
a lot many of the confidence and sentiment numbers versus
what they're doing, what we're seeing in our data, whether
(19:19):
it's spending data, payment data, or credit data.
Speaker 1 (19:23):
Holly, I want to congratulate you. You have basically just received
a pretty big promotion. You're running much more of the
consumer bank, and you come at a time when there's
a real question around how different the scenario is in
different parts of the United States, how it's not a
monolithic story at all, and how different regions are feeling
very different realities depending on what their local economies really
(19:46):
depend on. How different is the scenario that you're looking
at in the United States right now, depending on which
region you're in.
Speaker 5 (19:55):
So we obviously have across the country foot and we
have thirty seven hundred financial centers in all of these
local communities. So you know, our goal is to really
deliver for our consumer clients, you know, approximately seventy million
of them uniquely to what their situation is, whether that's
geographic or that's individual. So you know, we are there
(20:19):
to adjust and course correct based on what our clients
are telling us and based on what they need.
Speaker 2 (20:25):
Ollie, how are the interactions changing between customers? How different
are they now and how does that change what you
need out of your physical footprint.
Speaker 5 (20:34):
So our physical our strategy is all about physical footprints
supported by digital and it's really the combination of the
boats that I think lead to the power of how
we can deliver for the consumer clients. So those thirty
seven hundred financial centers in local communities coupled with world
class digital capabilities, those digital capabilities continue to grow, they
(20:57):
continue to advance, and consumers love them. At the same time,
it does not substitute for face to face interaction that
we get in our financial centers. When a consumer client
really wants advice and guidance in their financial position. So
it's the combination of the two that I think really
(21:18):
deliver the power for our consumer clients.
Speaker 1 (21:20):
Allie, how much have you been able to expand the
physical footprint in part because of the turmoil that happened.
Speaker 4 (21:25):
It feels like ten.
Speaker 1 (21:26):
Years ago, but not that long ago. I guess March
twenty twenty three in terms of some of the regional
banking turmoil. How much of this has just accelerated since
then as you look to take market share.
Speaker 5 (21:39):
So we continue to expand into new markets. We continue
to build new financial centers in communities where we need them,
so we will continue to advance that agenda across the
country new markets. Idaho is a recent new market that
we've entered, and we've got more coming. So we will
(22:03):
continue to expand in new markets. We'll adjust our footprint
in existing markets, opening new financial centers. Over the last decade,
we've opened roughly to more than two hundred financial centers,
and as we look forward, we expect to continue to
open one hundred and fifty more over the next two
to three years.
Speaker 2 (22:21):
Holly, I was dead wrong about all this. I thought
as we changed these interactions, we'd end up with a
smaller footprint that it would give banks a reason to
cut costs and reduce their physical footprint. Holly, why is
that not happening? And it's a space for that to
happen in the future.
Speaker 5 (22:34):
It Yeah, Now, you're not wrong. It has happened. If
you look over the last decade, we started with six
thousand financial centers. We are down to thirty seven hundred.
That may tick down slightly overall as we do things
like consolidate, you know, close two financial centers in a
local community and open one new financial center, so you
(22:58):
will continue to see at the margins some reductions, but
that physical footprint, that engagement with our clients in their
local community is incredibly important as a compliment to the
digital reach that we have with our clients.
Speaker 4 (23:13):
Holly, appreciate the clarity.
Speaker 2 (23:15):
As always, it's good to catch up, Holly A they're there,
of Bank for America.
Speaker 4 (23:28):
It's the latest.
Speaker 2 (23:29):
This morning, President Trump calling for the FED to cut
interest rates once again, saying it's quote not fed to
America after a soft CPR report out just yesterday. Former
New York Fed President Bill Dudley right in the following,
the Fed has little choice when it doesn't know which
way the rescue. It must wait for more information. Right now,
any major move would have only a fifty to fifty
chance of a positive outcome. Bill joins us now for
(23:51):
more but welcome to the program. So why such a
negative assessment of the position that they're in right now?
Speaker 8 (23:56):
Because they don't know where the terrorists are going to land.
Speaker 7 (23:59):
Number one too, they don't know what the effects of
the terraces are going to be on growth versus inflation,
So they're uncertain about two dimensions. So they can't really
just sort of flip a coin and say, oh, we're
gonna worry about the growth mension because that could turn
out to be wrong.
Speaker 8 (24:11):
So they have to sit and wait to wait for
more information.
Speaker 7 (24:14):
I mean, if you were driving a car in a thunderstorm,
you want to put the car in an autopilot and
hope that you would get through safely. So he pulled
it the side of the road until the weather cleared up.
And that's what the FED has to do. You know,
the FED is going to be criticized for waiting. They
have to wait, and because they are waiting, they're probably
ultimately going to be late. But it's not the Fed's fault.
(24:36):
I would behave exactly the same way in the circumstances.
Speaker 2 (24:40):
But what's the definition of light? And what's your definition
of light? Because he reflected on the move last summer
and he said, in some ways we were a little light,
and other people thought he was being preemptive.
Speaker 4 (24:50):
What's light to you?
Speaker 7 (24:52):
I think, ladies responding only after you've seen a criticizeable
increase in the unemploying rate, because at that point it's
really hard to avert recession. When I evaluate the risks
to inflation versus the risks of growth, here, I guess
I worry more about the downside risks of growth. But
the FED can't put all their marbles on that side
of the equation because inflation has been running above the
(25:15):
Fed's target for five years. And if they're wrong and
inflation expectations get unanchored, then it's a really difficult problem
getting inflation back down. So I think they have to wait.
Because they wait because there will be forced to weight.
They'll probably be late. Trump will blame the FED for
being late, But rally is Trump creates the conditions that
forces the FED to have to wait.
Speaker 1 (25:37):
Bill, I'm just curious going forward, how much you see
the FED unwilling to move even if the unemployment rate
rises by half a percentage point, which is sort of
the trigger that a lot of people are looking at,
if you do see those inflationary pressures coming back.
Speaker 7 (25:51):
Well, I think if the unplayer rate rose by above
four and a half percent, that would change the FEDS calculus.
It would be much more worried about the self reinforcing
deterioration the labor market leading to a full blown recession.
So I think the unploying rate is really the single
most important indicator. If it stays around where it is today,
if it's going to just sit and wait. If the
unployer rate starts rising quickly, then the Federal Reserve will
(26:13):
start to respond. But I think it's going to take
some time. I mean, the hard data on the economy
shows that the economy is still just fine. I mean,
the first core GDP report was very misleading because it
was mainly the fact that they couldn't count inventories properly
to match up with the big surgeon imports bill.
Speaker 1 (26:29):
If you were still on the FED, and you have
been on the FED through crises and through really difficult
times where the market was moving faster than the underlying economy.
What data would you look at to get a real
read on what was going on in the United States.
Speaker 7 (26:44):
Well, I think some of the bank banks have actually
pretty good, reallytime data in terms of what's happening sort
of credit cards, and they're not seeing much of a
slowdown at this point.
Speaker 8 (26:53):
Initially unploned claims.
Speaker 7 (26:54):
It gives you a pretty high frequency look at what's
happening to the labor market that doesn't show any deterioration
yet of note, So I think you're looking at things
at the margin that suggests that weaknesses are starting to accumulate.
Now what's interesting is that tariffts are actually starting to
bring in revenue, so fiscal policy and right now is actually.
Speaker 8 (27:11):
Starting to become tighter.
Speaker 7 (27:12):
And I'd also look at low income households because I
think that's where the squeeze is going to be the
most indicative significant. So if you start to see delinquency
rates on subprime all loans really start to hit up,
I mean they're already high. If they start to head
up even more substantially, that would be also a sign
of a growing strain on the growth side.
Speaker 4 (27:31):
But at some point the FED will have to update
their numbers.
Speaker 2 (27:33):
On March nineteenth, they put out these forecasts GDP at
one point seven percent for twenty twenty five PCEE at
swopoint a unemployment of four point four On June eighteenth,
they'll have to deliver an update. When we get that update, Bill,
what do you think it will look like relative to March.
Speaker 7 (27:50):
I think they'll show somewhat slower growth to reflect the
fact that tarifs have gone up more than they anticipated,
and somewhat higher inflation to reflect the same consequence. So
I think he'll be even a more pessimistic forecast in
the sense that the Fed will be missing both of
its dual mandate objectives by a bigger magnitude. But they
still don't have clarity on what's happening to tarrofsts and
(28:11):
the impact of terrorists on the economy, and so I
think it's going to take a while for that to
be realized, and only then will the FED be able
to act.
Speaker 2 (28:18):
One missing piece slower growth, somewhat higher inflation. What does
the median dot do, Bill, Because I think that implies
what their reaction function is, how they respond to that
kind of data mix.
Speaker 4 (28:28):
Do you think it changes?
Speaker 7 (28:31):
I think that you can make the case that the
Fed starts to cut rates in September, and maybe we
can still get three raycuts this year, which would be
consistent with the March set some rate of economic projections.
But obviously, as time passes and the Fed doesn't act,
the likelihood is the number of median number of rate
cuts starts to come down just because there's fewer meetings left.
Speaker 4 (28:51):
Bill.
Speaker 2 (28:51):
I appreciate your time as always, sir, and enjoy your
pieces on Bloomberg dot Com. On Bloomberg Opinion, they form
a New York Fed President Bill Dudley. There, they say,
It's the Bloomberg Surveillance Podcast, bringing you the best in markets, economics,
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Subscribe to the podcast on Apple, Spotify, or anywhere else
(29:14):
you listen, and as always, on the Bloomberg Terminal and
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Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and a Marie Hordern. Join us each
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(00:33):
Bloomberg Terminal and the Bloomberg Business app. Wiley of black
Rock Rights in the following we still see tariffs causing
further contractions in cordly activity, but the cumulative impact may
be more limited. We stay risk one way. Joins us
now for more waken morning, Good morning. I might pick
up on that line, the cumulative impact, How are you
measuring that?
Speaker 3 (00:53):
Well, there are two potential templates that we can mirror
what's happening by now. One is COVID, the pandemic. You
switch off and you switch on, But in your case
you're saying that you can switch off again and switch
on again. But we're talking about kind of being able
to switch it back on quite quickly. The other template
is Brexit, where you have multiple kind of years of
commulative scarring, where you have the economy below trend even today.
(01:17):
So right now, given how quickly we have seen walk back,
maybe the COVID type of template is appropriate in terms
of structure or scarring. But we're already seen some sort
of contraction, and I think technical contraction in the future
is not off the cards. It's not off the table,
but chances have been lessened because of the immutable or
(01:41):
seemingly at work to guide the destination of where we
end up.
Speaker 2 (01:45):
When you say we stay risk on, what does that
mean in today's market?
Speaker 3 (01:50):
It means positive on US equities and corporate in terms
of credit over US government bonds. I think what we
have seen so far this year, especially this week, is
that greater uncertainty doesn't mean greater certainty of a bad outcome.
People make false equivalents between the two, but there is
a huge, a huge difference. So when we talk about
(02:12):
kind of us that arithmetics, when we talk about supply
chain dependency, this full government, how quickly decoupling can happen,
if at all, which is why we are able.
Speaker 4 (02:23):
We were able to stay.
Speaker 3 (02:24):
Risk on despite elevated uncertainty in terms of policy making.
I would also say, you know, we talk about US
equity is recovering year today, US aquity is more than
recovering the draw down since a pro second, but US
government bonds haven't turn Premier went from thirty five basis
point on April second to seventy basis point. Dollar hasn't
(02:46):
recovered fully. So there is something more exceptional about US
equities than US corporates, and this is what we are
focused on in terms of our risk on strategy.
Speaker 1 (02:54):
This is something a number of people have put up
talked about the fact that US exceptionalism still lies with
US big tech, and it still lies with some of
the mega trends as you've put them out there. It
doesn't lie necessarily with the dollar and US assets per se,
just by virtue of the US's position in the world.
Speaker 4 (03:11):
I want to stick with tech.
Speaker 1 (03:12):
This has been a bit of yours and sort of
structural theme just on a tactical level. Has the rally
already taken back all of the bullishness that you feel,
and for now it feels like maybe it's going to
take a breather. Even with some of these deals going
on in the Middle East.
Speaker 3 (03:27):
Well tech has taken a blunt of market correction since
beginning of the year.
Speaker 4 (03:32):
We think that there is more to go.
Speaker 3 (03:34):
If you look at their guidance, they have all committed
to their previous copex spent, if not increasing. Broadly, companies
are guiding down their copex expectations. For hyperscalers, they continue
to be all in AI transformation, and multiples now look
a bit more attractive compared to beginning well compared to
(03:56):
before the cell off, right, So we do think that
there is more to go now. Bigger picture, we talked
about the walk back and how markets are kind of
jumping on incremental positive development, But the bigger picture is
we're still talking about a landing zone or for you,
as effective tariffs somewhere between ten to fifteen percent, there
(04:16):
is still five times more than the levels at the
beginning of the year, and everything considered, we're still talking
about an environment where we have higher tariffs, potentially lower
growth because of that, and potentially higher inflation because of that.
So I think that big picture is important to bear
in mind as we think about portfolio construction, and I
think markets jumping just to incremental positive news development is
(04:41):
a typical case of behavior buiers of anchoring. We just
look at kind of the incremental pieces, but the big
picture has you know, Tarraff represents us that inflationary shock,
and we still have higher tariffs compared to before.
Speaker 1 (04:53):
Which feaks sort of the divergence between tech exceptionalism and
the rest of the universe. And I just wonder how
pressure the rest the universal stocks you see as really feeling,
especially if you do see potential risk to government bond
markets going forward.
Speaker 3 (05:08):
Which is why we definitely prefer TAG and financials that
have been leading in the latest earning season compared to
the rest of the market, compared to small caps for examples.
So we see TAG as the drivers of US exceptionalism
in terms of US corporates, and maybe the rest of
the markets is passengers of US exceptionalism wave. And especially
(05:32):
at times like this where we're still talking about higher rates,
high for longer central banks not able to come to
the rescue of the economy as they were before. We
still want to focus on companies that can grow their margin,
that can grow their profitability. And if you look at
the latest earning season and also previously, TAG and financials
remain those sectors that we want to focus on.
Speaker 4 (05:54):
What happened to the European trade?
Speaker 3 (05:56):
Where is it now while we close the European underway
to lean into the European trade, But we're just neutral,
not positive.
Speaker 4 (06:05):
What's holding your Backstille?
Speaker 3 (06:07):
What's holding us back? Well, what we have seen so
far if you look at the rally back from the
lows posts April second, is that our performance of Europe
over US has stopped us started catching up now and
if you look at the hoops that mrs has to
jump through to get confirmed, there remains risks around implementation
(06:29):
of all these ambitious policies and reform targets. So we
do want to see more kind of clarity around the
ambitious targets for us to be positive across the board.
But we have liked European financials for a long time.
That have been our performing we have. We also see
(06:50):
opportunities in defense as a sector given the future spent
and lack of capacity in that in that space, So
being selective on European aqulities, definitely seeing a lot more
opportunities compared to the beginning of the year. But the
market has come a long way so I think you know,
one thing that we have seen so far is reversal
(07:12):
strategy as a near term way of navigating market volatility
has worked, and right now reversal strategy seems to support
you as.
Speaker 1 (07:20):
There's this reason why people are sort of saying pass
to Europe, just want to finish up with China. Do
you think that there is morcos there given the fact
that it seems like there isn't a full scale decoupling,
and it does appear to be supported by some fiscal
as well.
Speaker 5 (07:36):
Well.
Speaker 3 (07:36):
We're also selective in China. We're neutral more broadly across
the Chinese acoli market, but we like technology in China
because of the innovation potential as well as China TAP
potentially going a bit more globally. And we also like
financials in China because of the national team's support as
well as funds closing there underweight. The reaction of Chinese
(08:01):
market to the latest development has been somewhat mixed because
the more we see kind of progress on the trade front,
the less likelihood there is for more support on the
policy side to come through. So now there is definitely
a positive momentum in that Previously people are talking about
maybe three handle for Chinese growth this year because of
(08:22):
the tariffs implication. But now people are very quickly upgrading
their forecast for Chinese growth this year, so selectively optunistic
and positive on Chinese Accoudis is our near term tactical view.
But over the longer term structural constraints around kind of
agent population lower growth that hasn't changed.
Speaker 2 (08:40):
So those estimates revised herds are close to the five
percent already this week. Why it's going to say, why
so why? Thanks for dropping by? Thanks welly, that of.
Speaker 4 (08:47):
Black Crock.
Speaker 2 (08:57):
Against Notixanta has been varied on the dollars, and writes
the following, it's likely that we're at a multi year
turning point. I think the dollar should be moving substantially
Jensen's and that joins us now for more. Yeah, it's
good to see it, sir, and too long. Thanks for
dropping by. We've got some time to work through this.
You're looking at potentially a system level shark that leads
to a strategic reallocation of the US dollar away from
(09:18):
the US dollar to other currencies. Can you just set
the scene for us from thirty five thousand feet? What
do you think is happening here?
Speaker 6 (09:25):
We've really been on a strong dollar trend since the
summer of twenty fourteen, right, So we've had this incredible
run in US equities, We've had US yields that were
generally higher than other places around the world, and investors
from Europe to Canada, Australia, Japan have been very comfortable
building up really big allocations to the US, unprecedented high locations.
Speaker 1 (09:51):
Right.
Speaker 6 (09:51):
And now we're coming into this year. A lot of
people were expecting, Oh, okay, Trump two is going to
smell a bit like Trump one.
Speaker 4 (10:00):
People actually added.
Speaker 6 (10:01):
Aggressively to their equity exposure into this year, right, and
then it has turned out that Trump two was not
really anything like Trump one, and a lot of people
are rethinking those allocations. And it's not just about the terriffs, right,
It's about what's happening with foreign policy, who are allies,
(10:22):
what's the natal arrangement going to be. There's a whole
host of issues, right. That means that a lot of
people are thinking about is it really prudent as somebody
who's allocating globally to have such incredible overweight in the
United States, so not talk about is the reserve currency
(10:42):
status going to disappear. But talk about people who've been very,
very overweight. Are they going to do some risk management
and take their allocation down? And I think the feedback
we get from speaking to chief investment officers all around
the world is that it takes a lot to shock them,
but they are shocked and they want to change the allocations.
Speaker 2 (11:04):
To your point, this has been building for a decade,
a decade plus of dollar longs building across all asset classes.
What we're trying to understand now is, as we take
some of the air out of that trade, what are
the policies that you see that make the shift away
from the US dollars sustainable, durable, beyond just the chaos
of the last month or so. How do you think
about that at the moment? And do you consider them
a push dynamic bad policies in the US pushing capital out,
(11:26):
or a pull dynamic better policies elsewhere sucking capital in
which one is it?
Speaker 7 (11:30):
Yes?
Speaker 6 (11:30):
So the first thing I would say is that we
have a list of US polishes sharks, and that list
of policy shocks is actually generating polisher sharks elsewhere. Right.
So in Europe we've had now a historical change in
physical policy where essentially the physical rules have been rewritten.
Speaker 4 (11:47):
Right, The rules that underpin.
Speaker 6 (11:49):
The euro have now been changed in a way where
you can invest more effectively. Right, That's a big change.
So that's important for growth out look in Europe. We're
just talked about, as you mentioned, right, the NATO budget
potentially also totally different. Right, five percent numbers We used
to talk about whether we can get to two, right,
So big, big changes. So that's that's something that underpins
(12:13):
this idea that there are other places because if you
have more investment in Europe, you also have more bond issues, right,
So the whole supply and demand dynamic is changing. It
used to be the case that there was actually very
few assets to buy in Europe, and that's changing too.
If you look at the comparison between international investors and
US investors, in the US, you have an incredible home bias.
Speaker 4 (12:37):
That's the other part of the story.
Speaker 6 (12:39):
Right. If you look at all ehtfs that are issued
in fixed income in the US one point seven trillion,
there's only half a percent that has any foreign currency exposure.
So it can only go one way from here. That's
not going to be quick, but over time it will happen.
Speaker 1 (12:53):
There's an important point here. You said that this isn't
necessarily the loss of the dollar as being a reserve currency.
This is just simply innormalization and diversifying away.
Speaker 4 (13:01):
From the dollar.
Speaker 1 (13:02):
Some people might say that this is a feature, not
a bug, of this administration, that they want a weaker
dollar in order to increase exports. And actually we're going
to see this increasingly as a part of policy, not
just as a potential consequence.
Speaker 6 (13:14):
Yeah, I think you're right.
Speaker 4 (13:16):
We certainly have.
Speaker 6 (13:20):
People within the cabinet Scott Beston included right, that I
have a different nuance to dollar policy compared to the past.
There's always this focus on okay, how do we insource
some manufacturing and a week of dollars certainly would be
helpful in that regard.
Speaker 4 (13:35):
And you're right.
Speaker 6 (13:35):
I think if you look at the price action today,
it is influenced by these let's call it Bloomberg headlines
about career trade deals so and currency deals. So there's
an element of that. So nobody is going to be
fighting this trend. If the dollar is going gradually weaker.
Speaker 4 (13:54):
How much more weakness is there?
Speaker 1 (13:56):
And potentially do you see the euro as the biggest winner.
Speaker 6 (13:59):
So again, we've literally been going in one direction for
eleven years on a trend basis, right, So we've just
started and if we have a big asset location shift,
it's something that can play out over a six to
nine month horizon and we can easily have, you know,
(14:20):
a five percent move down in the dollar index, right,
And then then we get to these questions, so, Okay,
is it going to be orderly or could there be
something that's more dramatic? Right, And what we had in
April I have never seen. I've been doing currency analysis
since two thousand, effectively, right, what we saw on April
(14:41):
we have never seen before, right where used bonds are
selling off, equity is selling off, and the dollar trades down.
So I think that was only for not that many
trading sessions, but it's still a warning sign that that
can happen, right, So I am in addition to what
we just spoke about, I think there's some addicial tail
risk that if the budget process is not one that
(15:05):
investors are comfortable with, I worry that we can have
some of the same dynamics as we had in April.
So that wouldn't be my central case, but the people
who are involved in these budget negotiations have to remember
what happened in April. The US bond market is not
a kind of indisputable safe haven anymore, and what happens
(15:29):
with the budget is absolutely gonna matter.
Speaker 2 (15:31):
There's evidence that speaked not only investors, but also the
White House in the last month as well.
Speaker 1 (15:36):
Yeah, you said yesterday, who's the bigger arbiter, Republicans or
the bond market? And I think a lot of people
are watching the bond market very.
Speaker 2 (15:42):
Closely based on this conversation. It might be the bond
market again. It's going to see it. It's been too long.
Thanks for dropping by again to not if Alexante Data
Retail annings up with Walmart reporting on Thursday, offering another
read on the US consumer. The team at Bank for
(16:04):
America writing the following, spending momentum remains, though it's moderating.
Consumers appear to be pulling bank, particularly on bigger ticket
discretionary services like airline tickets and lodging. Holly O'Neil is
the president of Retail Banking and Bank for America, and
place is sayety joined us now, Holly, welcome back to
the program. I want to talk a little bit about
the consumer, and then we can get to what you're
doing operationally. But let's start with the consumer if we can.
(16:26):
What are you noticing and how is that different to
what we've seen previously over the past few years.
Speaker 5 (16:32):
Well, the consumer appears to be continuing to spend. They're
very healthy. And you had the headline they spent in
April at a rat of about one percent and that's
our credit and debit data, and that was just slightly
cooler than they spent in March at one point one
(16:52):
percent growth year over year. So they have momentum, but
it's moderating a little bit, and I think the driver
of that is that they're supported by continued wage growth.
So we saw good wage growth in April, both in
higher income and lower income, though it is moderating a
little bit, So that theme is still healthy, but moderating.
Speaker 2 (17:15):
Ollie, and please you broke up the income groups, because
we sit on that just for a bat. The low
income group have been squeezed for a while. We've seen
that in data repeatedly throughout this cycle coming out of
the pandemic. Do you see any stress coming up to
the upper income cohorts?
Speaker 5 (17:29):
No, So the lower income household wage growth, just to
give you the numbers picked up by about one point
five percent in April, and that was that was stronger
than March. So March was one point four percent, So
that wage growth in the lower income cohort increased a
little bit. And I think that wage growth is continuing
to support the consumer and the consumer spending. When you
(17:52):
get deeper into the data, some of the credit data,
as an example, the lower income households are continuing to
hold up. Overall. We've seen thirty day delinquencies come down
a tad, so I think that consumer still is showing
signs of good health.
Speaker 1 (18:10):
This really raises a question, Holly, about how much we
can really count on some of the soft data, which
indicated an incredible amount of nervousness and pessimism among consumers
in the United States during the month of April, in
particular after April second, are you saying you're just not
seeing it? But frankly, people can go out and gripe
about how concerned they are about the future of the world,
(18:30):
but then they go out in a spending spree.
Speaker 5 (18:35):
We're not seeing it. And I think we often talk
internally about you know, you have to separate what consumers
are saying versus what they're doing, what we're seeing in
our data, and that data is telling us that they're
continuing to spend, although it is moderating. And so we
saw in April restaurants good spending there, but we did
(18:57):
see a dip down in airline and lodging, leisure travel
a little bit. So consumers are adjusting slightly, which leads
to that the momentum is dipping just slightly. But you
really do have to separate what consumers are saying in
a lot many of the confidence and sentiment numbers versus
what they're doing, what we're seeing in our data, whether
(19:19):
it's spending data, payment data, or credit data.
Speaker 1 (19:23):
Holly, I want to congratulate you. You have basically just received
a pretty big promotion. You're running much more of the
consumer bank, and you come at a time when there's
a real question around how different the scenario is in
different parts of the United States, how it's not a
monolithic story at all, and how different regions are feeling
very different realities depending on what their local economies really
(19:46):
depend on. How different is the scenario that you're looking
at in the United States right now, depending on which
region you're in.
Speaker 5 (19:55):
So we obviously have across the country foot and we
have thirty seven hundred financial centers in all of these
local communities. So you know, our goal is to really
deliver for our consumer clients, you know, approximately seventy million
of them uniquely to what their situation is, whether that's
geographic or that's individual. So you know, we are there
(20:19):
to adjust and course correct based on what our clients
are telling us and based on what they need.
Speaker 2 (20:25):
Ollie, how are the interactions changing between customers? How different
are they now and how does that change what you
need out of your physical footprint.
Speaker 5 (20:34):
So our physical our strategy is all about physical footprints
supported by digital and it's really the combination of the
boats that I think lead to the power of how
we can deliver for the consumer clients. So those thirty
seven hundred financial centers in local communities coupled with world
class digital capabilities, those digital capabilities continue to grow, they
(20:57):
continue to advance, and consumers love them. At the same time,
it does not substitute for face to face interaction that
we get in our financial centers. When a consumer client
really wants advice and guidance in their financial position. So
it's the combination of the two that I think really
(21:18):
deliver the power for our consumer clients.
Speaker 1 (21:20):
Allie, how much have you been able to expand the
physical footprint in part because of the turmoil that happened.
Speaker 4 (21:25):
It feels like ten.
Speaker 1 (21:26):
Years ago, but not that long ago. I guess March
twenty twenty three in terms of some of the regional
banking turmoil. How much of this has just accelerated since
then as you look to take market share.
Speaker 5 (21:39):
So we continue to expand into new markets. We continue
to build new financial centers in communities where we need them,
so we will continue to advance that agenda across the
country new markets. Idaho is a recent new market that
we've entered, and we've got more coming. So we will
(22:03):
continue to expand in new markets. We'll adjust our footprint
in existing markets, opening new financial centers. Over the last decade,
we've opened roughly to more than two hundred financial centers,
and as we look forward, we expect to continue to
open one hundred and fifty more over the next two
to three years.
Speaker 2 (22:21):
Holly, I was dead wrong about all this. I thought
as we changed these interactions, we'd end up with a
smaller footprint that it would give banks a reason to
cut costs and reduce their physical footprint. Holly, why is
that not happening? And it's a space for that to
happen in the future.
Speaker 5 (22:34):
It Yeah, Now, you're not wrong. It has happened. If
you look over the last decade, we started with six
thousand financial centers. We are down to thirty seven hundred.
That may tick down slightly overall as we do things
like consolidate, you know, close two financial centers in a
local community and open one new financial center, so you
(22:58):
will continue to see at the margins some reductions, but
that physical footprint, that engagement with our clients in their
local community is incredibly important as a compliment to the
digital reach that we have with our clients.
Speaker 4 (23:13):
Holly, appreciate the clarity.
Speaker 2 (23:15):
As always, it's good to catch up, Holly A they're there,
of Bank for America.
Speaker 4 (23:28):
It's the latest.
Speaker 2 (23:29):
This morning, President Trump calling for the FED to cut
interest rates once again, saying it's quote not fed to
America after a soft CPR report out just yesterday. Former
New York Fed President Bill Dudley right in the following,
the Fed has little choice when it doesn't know which
way the rescue. It must wait for more information. Right now,
any major move would have only a fifty to fifty
chance of a positive outcome. Bill joins us now for
(23:51):
more but welcome to the program. So why such a
negative assessment of the position that they're in right now?
Speaker 8 (23:56):
Because they don't know where the terrorists are going to land.
Speaker 7 (23:59):
Number one too, they don't know what the effects of
the terraces are going to be on growth versus inflation,
So they're uncertain about two dimensions. So they can't really
just sort of flip a coin and say, oh, we're
gonna worry about the growth mension because that could turn
out to be wrong.
Speaker 8 (24:11):
So they have to sit and wait to wait for
more information.
Speaker 7 (24:14):
I mean, if you were driving a car in a thunderstorm,
you want to put the car in an autopilot and
hope that you would get through safely. So he pulled
it the side of the road until the weather cleared up.
And that's what the FED has to do. You know,
the FED is going to be criticized for waiting. They
have to wait, and because they are waiting, they're probably
ultimately going to be late. But it's not the Fed's fault.
(24:36):
I would behave exactly the same way in the circumstances.
Speaker 2 (24:40):
But what's the definition of light? And what's your definition
of light? Because he reflected on the move last summer
and he said, in some ways we were a little light,
and other people thought he was being preemptive.
Speaker 4 (24:50):
What's light to you?
Speaker 7 (24:52):
I think, ladies responding only after you've seen a criticizeable
increase in the unemploying rate, because at that point it's
really hard to avert recession. When I evaluate the risks
to inflation versus the risks of growth, here, I guess
I worry more about the downside risks of growth. But
the FED can't put all their marbles on that side
of the equation because inflation has been running above the
(25:15):
Fed's target for five years. And if they're wrong and
inflation expectations get unanchored, then it's a really difficult problem
getting inflation back down. So I think they have to wait.
Because they wait because there will be forced to weight.
They'll probably be late. Trump will blame the FED for
being late, But rally is Trump creates the conditions that
forces the FED to have to wait.
Speaker 1 (25:37):
Bill, I'm just curious going forward, how much you see
the FED unwilling to move even if the unemployment rate
rises by half a percentage point, which is sort of
the trigger that a lot of people are looking at,
if you do see those inflationary pressures coming back.
Speaker 7 (25:51):
Well, I think if the unplayer rate rose by above
four and a half percent, that would change the FEDS calculus.
It would be much more worried about the self reinforcing
deterioration the labor market leading to a full blown recession.
So I think the unploying rate is really the single
most important indicator. If it stays around where it is today,
if it's going to just sit and wait. If the
unployer rate starts rising quickly, then the Federal Reserve will
(26:13):
start to respond. But I think it's going to take
some time. I mean, the hard data on the economy
shows that the economy is still just fine. I mean,
the first core GDP report was very misleading because it
was mainly the fact that they couldn't count inventories properly
to match up with the big surgeon imports bill.
Speaker 1 (26:29):
If you were still on the FED, and you have
been on the FED through crises and through really difficult
times where the market was moving faster than the underlying economy.
What data would you look at to get a real
read on what was going on in the United States.
Speaker 7 (26:44):
Well, I think some of the bank banks have actually
pretty good, reallytime data in terms of what's happening sort
of credit cards, and they're not seeing much of a
slowdown at this point.
Speaker 8 (26:53):
Initially unploned claims.
Speaker 7 (26:54):
It gives you a pretty high frequency look at what's
happening to the labor market that doesn't show any deterioration
yet of note, So I think you're looking at things
at the margin that suggests that weaknesses are starting to accumulate.
Now what's interesting is that tariffts are actually starting to
bring in revenue, so fiscal policy and right now is actually.
Speaker 8 (27:11):
Starting to become tighter.
Speaker 7 (27:12):
And I'd also look at low income households because I
think that's where the squeeze is going to be the
most indicative significant. So if you start to see delinquency
rates on subprime all loans really start to hit up,
I mean they're already high. If they start to head
up even more substantially, that would be also a sign
of a growing strain on the growth side.
Speaker 4 (27:31):
But at some point the FED will have to update
their numbers.
Speaker 2 (27:33):
On March nineteenth, they put out these forecasts GDP at
one point seven percent for twenty twenty five PCEE at
swopoint a unemployment of four point four On June eighteenth,
they'll have to deliver an update. When we get that update, Bill,
what do you think it will look like relative to March.
Speaker 7 (27:50):
I think they'll show somewhat slower growth to reflect the
fact that tarifs have gone up more than they anticipated,
and somewhat higher inflation to reflect the same consequence. So
I think he'll be even a more pessimistic forecast in
the sense that the Fed will be missing both of
its dual mandate objectives by a bigger magnitude. But they
still don't have clarity on what's happening to tarrofsts and
(28:11):
the impact of terrorists on the economy, and so I
think it's going to take a while for that to
be realized, and only then will the FED be able
to act.
Speaker 2 (28:18):
One missing piece slower growth, somewhat higher inflation. What does
the median dot do, Bill, Because I think that implies
what their reaction function is, how they respond to that
kind of data mix.
Speaker 4 (28:28):
Do you think it changes?
Speaker 7 (28:31):
I think that you can make the case that the
Fed starts to cut rates in September, and maybe we
can still get three raycuts this year, which would be
consistent with the March set some rate of economic projections.
But obviously, as time passes and the Fed doesn't act,
the likelihood is the number of median number of rate
cuts starts to come down just because there's fewer meetings left.
Speaker 4 (28:51):
Bill.
Speaker 2 (28:51):
I appreciate your time as always, sir, and enjoy your
pieces on Bloomberg dot Com. On Bloomberg Opinion, they form
a New York Fed President Bill Dudley. There, they say,
It's the Bloomberg Surveillance Podcast, bringing you the best in markets, economics,
and geopolitics. You can watch the show live on Bloomberg
TV weekday mornings from six am to nine am Eastern.
Subscribe to the podcast on Apple, Spotify, or anywhere else
(29:14):
you listen, and as always, on the Bloomberg Terminal and
the Bloomberg Business app
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