May 6, 2025 • 29 mins
In this episode of NIC Chats, host Lisa McCracken sits down with Eric Winograd, Chief Economist at AllianceBernstein, to unpack the economic turbulence shaking markets, businesses, and households across the U.S. and beyond. From dramatic policy shifts and new tariffs to the ripple effects on inflation, growth, and consumer confidence, Winograd offers a candid, data-driven look at what’s driving today’s volatility, and what it could mean for senior housing.
Highlights include:
- Why “uncertainty” is the economic watchword of the moment
- The real impact of tariffs on prices, growth, and investment decisions
- How labor shortages and demographics are shaping construction and caregiving
- What to expect from the Fed and fiscal policy in the months ahead
- The outlook for international investment and U.S. market stability
Tune in for expert insights on navigating a bumpy economic ride and why, despite the challenges, the U.S. may be better positioned than many think.
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We want to hear from you! Let us know what you think of NIC Chats by giving us a review on Apple Podcasts, Spotify, or wherever you listen.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Thanks everyone for listening in today to the
latest Nick Chats podcast. Thisis Lisa McCracken. I'm the head
of research and analytics withNIC , and I'm here to talk
about a very important andtimely topic , uh, with Eric
Win grad . He's the chiefeconomist with Alliance
Bernstein. Eric , I'm gonna letyou introduce yourself and
maybe give a little backgroundbefore we dive into the fun
(00:25):
stuff, , of what'shappening in the US economy in
the world, and what that meansfor everybody.
Speaker 2 (00:30):
Sure. Thanks Lisa.
And , uh, thanks for , forhaving me. Uh , I'm Eric Win
grad , and as Lisa said, I'mthe chief economist at Alliance
Bernstein , uh, which is aglobal investment firm. We have
about $800 billion in assetsunder management. Uh, we're
global, so, you know, you andI, I'm sure Lisa will touch on
the, the world economy, but I ,I'm based here in the United
States, and that's my primaryfocus within the firm. Uh,
(00:51):
frankly, that's the primaryfocus for most people at this
point is the US economy and ,uh, the US policy outlook,
which is shaping so much ofwhat we talk about. Um, we have
seven economists around theworld, and, you know, we try to
bring that global insight tobear, but as I said, right now,
ground zero is the UnitedStates.
Speaker 1 (01:08):
Yeah, I I bet you are so busy and , and you know,
you probably love these times,right? Even though the
instability is not a whole lotof fun, you know , it's, it's
unraveling what it all meansand what the implications, and
I mean, the crystal ball, ifyou've got that one figured out
now , um, but I'd be incrediblyimpressed. But these , these
are sort of interesting times,maybe a lot of headaches and
(01:29):
heartburn, but it , it'sinteresting, right? It ,
Speaker 2 (01:31):
It is certainly interesting. And you know, what
I've been very encouraged by isI think that the discussions
I've had with investors aroundthe world is sensible. I think
everyone understands to , toborrow your phrase, I don't
have a crystal ball and , andnone of us do. So none of us
have the ability to forecastwith the level of precision or
even the level of accuracy thatwe might in more settled times.
And , and I think everyoneunderstands that, and that just
(01:53):
makes for a better discussionbecause, you know, if, if we're
getting hung up on trying toforecast GDP down to the 10th
of a percent, we're way offcourse, and nobody can do that
in this environment,
Speaker 1 (02:04):
Right? Yeah. So I think it's important when , you
know, you and I only have, youknow , uh, 30 minutes and less
than that at this point to talkabout it, but I do think it's
important to obviously talkabout where we are now, but
also, you know, step back alittle bit too and look at the
big picture, because right nowI think there's a lot of
emotions and it's this sky isfalling, feeling a little bit.
(02:25):
So we've, I , I'd like for youto just comment about, you
know, this period ofinstability, clearly that
breeds unease and, and we knowthe consumer confidence stuff
has not come out real great,where some of the other
indicators actually are notlooking so much the sky's
falling just yet. Um, you're abit more of an expert on that
than I am, but , um, you know,so, you know, consumers said to
(02:46):
me , instability, you know,let's just talk a little bit
about that and you know, what,how we see that, you know , um,
you know, dictating some of the, the narrative in the
headlines right now. Yeah.
Speaker 2 (02:56):
The word I'm using right now, the word that I
think is the, the watch wordfor all of those of us who
follow the economy and marketsright now is uncertainty. Uh ,
we don't know how things aregoing to shake out. That
doesn't mean that we can't lookinto the future at all. I think
we have a pretty clear sense ofthe direction of travel in
which we're going. It's aquestion of magnitude, and of
course, that won't bedetermined until we see what
(03:17):
the policy response , uh, endsup being, what the policy
framework ends up being. Butalso, as you say, as we get a
sense from the data, howhouseholds are responding to it
, uh, we know a few things. Weknow that the economy came into
this year in good shape. Theeconomy was relatively strong.
It was balanced. The labormarket was strong, inflation
was falling, the fed wascutting interest rates, all the
(03:38):
sorts of things that hadsupported the strong financial
market performance over thelast couple of years. We also
know that since that time,there has been a , a very
dramatic, and , and in manyways, unprecedented shift in
the policy framework that hasthe potential to knock us out
of that equilibrium , uh, to beblunt about it. And, and the
disclaimer I'll give here isthat I'm speaking only about
(03:58):
economics, not about politics.
So , uh, to , to paraphraseAlan Greenspan, if , if you
hear me to say somethingpolitical, you have misheard
me. Uh , I'm simply describingthe economic impact of the
policy changes that have beendiscussed without opining on
whether I think they're good orbad. Um, the policies that are
under discussion, specificallyaround trade , uh, whether it's
tariffs or other forms of traderestrictions, push the economy
(04:21):
in a stagflationary directionthat tariffs are attacks and
they're attacks paid bydomestic actors that pushes up
prices and it pushes downgrowth. And that's the opposite
of what you would wanna seefrom a financial market
perspective. It reduces profitmargins, it reduces spending,
it , it , it has the potential, uh, to upend the economy.
Now, again, as you say , Lisa ,it's important to take this
(04:44):
step back. We're starting froma strong position, and that
gives the US economy morecushion , uh, more perhaps than
other countries around theworld have , uh, to absorb the
, the shock that is , uh,underway. Um, that said, the
implications are significant.
We're talking about big numbershere, right? Mm-hmm
. The , the , thetariffs that are under
discussion are likely to raiseus prices over the course of
(05:05):
this year by at least apercentage point, which means
inflation at the end of theyear might be close to four ,
um, which is pretty high. Thefed's target is two, and we
think that they will slowgrowth. Um, you know, we are
not explicitly forecasting arecession at this point, but
I'd say we're doing is we'rekind of hedging our bets, our ,
our growth expectation for theyears between zero and half a
(05:28):
percent, that's pretty close to, to recessionary territory. Uh
, so , so, you know, I don'twanna downplay the significance
of the changes that areunderway. Um, these are big,
big, this is a big, big deal,
Speaker 1 (05:41):
Right? So now, are those estimates based on sort
of the, the high mark rate forthe, the tariff , you know,
there's obviously a , the , thepause button right now, and
there's a lot of, there's somethat have been enacted , some
that have been proposed but notyet enacted and paused so that
, um, you know, increase incost of 1%. What's that base
(06:03):
on? Is that sort of a worstcase scenario? Is that sort of
a midmark? What, can you give alittle background on that?
That's,
Speaker 2 (06:09):
That's sort of a midmark, right? That is not the
worst case scenario. Ourestimate based on the 2018
trade war is that every 10percentage point increase in
the effective tariff rate, sosort of the average tariff rate
on all things boosts prices by1%. Uh, we are incorporating
into our forecast right now ,uh, an increase of 1.5
(06:29):
percentage points relative towhere inflation otherwise would
have been. So around a 15%increase in the effective
tariff rate, if all of thetariffs announced on liberation
day were to go into effect,that would probably roughly
double , uh, you would betalking about an effective
tariff rate of between 27 and30%. Mm-hmm . Uh
, we don't want to take aheroic view on, you know , or a
(06:50):
heroically brave stand on whatthe eventual tariff framework
will be, because we don't knowmm-hmm . Um , I
think it's reasonable to lookat the liberation day
announcement as a worst casescenario. Yeah . And then
something along the lines of a, a 10% universal tariff , uh,
on average as maybe your bestcase scenario, we're probably,
you know, our forecast iscloser to that best case, but
(07:12):
even that is a massive increasein the effective tariff rate.
It's much, much larger by fouror five times than what we saw
in 2018
Speaker 1 (07:21):
Mm-hmm
. Yeah. So , um, so you know ,
the reality of the situation,so you say , you know, your
forecasts are a not the worstcase scenario, so, you know,
are you fairly confident that,that there will be some off
ramp , some politicalmaneuvering here that's not
gonna get us to the theworst case, so we know hour to
hour this changes, so hopefullythis is not all new point till
(07:44):
that this Yeah ,look , I , I've , but here it's
,
Speaker 2 (07:46):
I mean, I have to tell you, I , I have no idea,
right? Yeah . I , I I thinkthat financial markets have
been very eager to believeevery headline when it sounds
like there might be anoff-ramp. I would just observe
that over the course ofPresident Trump's business and
political career, he hasconsistently argued that
tariffs are good policy. He hasconsistently argued that
(08:06):
running a trade deficit isproblematic going back to the
mid 1980s. Mm-hmm. This isn't something he has
come to recently. And so I , Ido think that he believes that
this is good policy mm-hmm . And we can
agree or disagree with that ,uh, depending on your own
economic and political pointsof view. But because he
believes it , you know, I , I Ithink all economic actors need
(08:28):
to accept that there is a widerrange of outcomes than they are
accustomed to seeing. Um, itmay be the case that there are
off-ramps. It also may not be,it also, you know, I I said we
look at the liberation daytariffs as sort of the, the
worst case scenario, that mightnot be true. Uh , it could get
worse. So, you know, that rangeof outcomes is uncomfortably
wide. And , and again, we wannabe humble when we talk about
(08:49):
our economic expectations andforecasts in recognizing that,
yeah , when I say, you know,we're, we're forecasting
inflation to be 4% at the endof the year, I would also
observe that our confidencearound that is probably lower
than it is in a normal year,just because the range of
outcomes is there. But I wanna, you know, I , I think it's
worth taking a step back fromthe mechanics of the tariffs
and just observing, even ifthere are off ramps as you ask,
(09:13):
there's already been damagedone here, right? The
uncertainty alone is weighingon growth. I don't think it is
the case that if there are offramps, then the, the genie goes
back in the bottle or thetoothpaste back in the tube,
depending on your particularmetaphor, metaphor , uh, which
one you prefer. Um, we haveseen consumer confidence
surveys, plunge , uh, theconference board measure of
(09:34):
consumer confidence is now aslow as it was during the worst
of the covid pandemic. Andfuture expectations as married
, measured in that survey areeven lower. So households are
aware. And, you know, there isa section in that survey where
respondents are able to writewhat they're worried about. And
what do you think they wroteabout Tariffs? Tariffs, right ?
They said that we we're worriedabout tariffs. We think it's
(09:56):
gonna push growth up. Um, youknow, part of the argument in
favor of tariffs is that inincentivizes domestic
production, that it encouragesbusinesses to invest and to
build in the United States. Uh, our estimate, and , and I
think that this is sort ofwidely shared, I don't wanna
claim to have reinvented thewheel here, is that business
investment is basically frozenright now. Yeah . Because
(10:17):
businesses don't know what thepolicy framework will be. Um,
how are you supposed to make aone, a three, a five, a 10 year
plan if you don't know whatpolicy is going to be 1, 3, 5,
10 days from now, much less 1,3, 5, 10 months or years from
now? Uh , so there is alreadydamage being done. Um, I don't
wanna say that it's permanentor irreversible. I have no
(10:38):
doubt that if there are offramps, if the tariff policy is
eventually reversed , that thatwill allow for a sigh of relief
and that things will improve.
But even if that is the case,you know, we wanna be cognizant
, cognizant of the fact thatthat growth is gonna slow
either way.
Speaker 1 (10:52):
Right, right. Yeah.
And, you know, so the , the ,the senior housing sector
definitely has some tailwindsfrom a demographic standpoint,
and in turn , and , andcandidly, the , the wealth of
the boomers, the wealth accuwealth accumulation has been
pretty significant , um, youknow, among that population.
So, you know, I , I I thinkthat, that some of these
(11:13):
economic , um, pressures and,and tariff trickle down impacts
, um, are , you know, would notderail that to the extent is
what it might hit some othersectors, but, you know , um,
you know , would it maybe tellcause potential investors
coming in, you know, to buycertain, you know , real estate
or engage in certaintransactions, like let's just
sort of wait and see a littlebit till the storm passes? That
(11:35):
I can understand. I will tellyou the one thing too, and this
is definitely the tariffs are ,I don't wanna say another nail
in the coffin, but certainly anadditional headwind is the
construction developmentactivity. We're at record lows
for, you know, all the obviousreasons, cost of capital, cost
of construction, you know, youcan buy generally newer
properties below replacementcosts. I don't think the
(11:56):
tariffs are gonna be helpingthat at all. So , uh, do you
have any perspective on theconstruction market and what,
you know, I I think a lot ofit's probably materials and,
and so forth, forget theimmigration conversation we're
, we don't necessarily rightnow need to go down that the
labor route , but , um, itthoughts on the con the
construction market andtariffs.
Speaker 2 (12:17):
Yeah . So look, with tariffs, it is not the case
that every sector is gonna behit equally. Yeah , that's
absolutely right. There arethings that are gonna be more
insulated or less, and thereare demographic tailwinds,
obvious ones when it comes toanything that's being built in
the service of senior citizens,whether it's medical care,
housing dedicated to them or ,or anything else. The
population is aging and , and ,and those needs are going to be
(12:37):
there. Hmm . Um , that said, asyou point out, the construction
sector does still face someheadwinds. Raw materials costs
are certainly going to go up asa result of tariffs. That's one
of the most obvious placeswhere you would expect to see
an impact. Um, the cost ofcapital and interest rates
moving higher or staying higheris another impediment. And I
know you said we don't need togo down the immigration route,
but we kind of do. Well , let'stalk about , I mean, you kind
(12:59):
of do, right? Construction isone of the sectors where
migrant labor and immigrantlabor has played a very
significant role. And, youknow, if you rewind two or
three years talking to almostanyone involved in that sector,
as with other sectors of theeconomy, but particularly that
one, the story was that theycouldn't find enough workers.
And, you know, the, the flipside of the, the tailwinds in
(13:20):
terms of the population agingis that the, the headwind in
terms of the number of peoplein the workforce who are , uh,
willing and able to do the typeof work required for
construction has declined. Uh ,we offset that over the last
two years because there was asurge in immigrant labor , um,
that those numbers, the numberof border encounters, the
number of people crossing theborders plummeted late last
(13:41):
year. So even before theelection, the numbers had
collapsed. Uh, and certainlyaren't gonna go up anytime soon
based on what we expect policyto be. That's another headwind
too. Yeah . If you do see massdeportations, that could make
the situation even morechallenging from a labor
perspective. So here again, wedon't know how that shakes out
and , uh, but , but , but thereare those secular or the ,
(14:03):
those secular headwinds. Thereis of course the tailwind of
the, the , the screaming needfor this sort of stuff. It
isn't just senior housing there, there's a broader need for
housing in general, and youwould think that in time , uh,
supply would rise to meet that,but the next few months are
gonna be very choppy for sure.
Speaker 1 (14:20):
Right. Yeah. I had the pleasure of listening to a
labor economist recently. Itwas a very so sobering , um,
presentation. And, and candidlyit was interesting to unbundle
the history of really how thishas unfolded really over a
number of decades. Uh, youknow, sort of this perfect
storm that just, you know,declining birth weight rates ,
more women in the workforce,you know, a lot of different
(14:43):
things that are really tellingthat story of where we are
today. And it's, i , it , Isarcastically sometimes say to
people, I'm like, these couldbe the good old days, you know,
not to be doom and gloom, butwe're, we're gonna need to
think differently, whether it'son the construction side of
things, that the caregivingside of things, 35% of our
sector is immigrant, you know,workers , um, on the caregiving
(15:06):
side of things. So , um, thatlabor piece is , is gonna be a
very interesting thing. And theUS is in be in better shape
than other countries on thatfront.
Speaker 2 (15:14):
Yeah, I think that's right. You know, we talked
about some of the othercountries in the world being
vulnerable, more vulnerable totrade disruptions, but it isn't
just on trade where othercountries are vulnerable
demographically. If you look atEurope, the , you know, the
growth rate of their workingage population is even lower
than ours. Uh , theirdemographics are even worse
than ours. And of course,China's demographics are the
worst of all , uh, where thenumber of people working within
(15:35):
the next few years is likely todecline relative to the number
of people aging out. So you'regonna flip it, you know, in the
US we talk about baddemographics. We still have a
working age population that isgrowing more than the number of
retirees. That's not gonna bethe case in China very soon. So
the , this demographicchallenge is one that faces the
entirety of the developedworld. Uh, the places in the
(15:56):
world where you have youngwilling to work populations are
largely the countries fromwhich the developed world has
drawn immigrants over thecourse of the last couple
years. It's South America, it'sSouth Asia, it's Africa. Um, in
the current environment, itseems unlikely that you will
see enough inflow to the laborforce from those regions to
offset the outflow as the , asthe local born populations age
(16:19):
out. Uh , but we'll see, right?
Politics aren't forever,policies aren't forever. And ,
and you know, there , there,there , there may be offsets in
time.
Speaker 1 (16:28):
Um, I, I do wanna talk a little bit some of the
international stuff from , um,investments in sort of the ,
the US international dollarsand we, we've definitely seen
some of that and on broadercommercial real estate side of
things. But on the seniorhousing front too, is the
current environment impactingany of those , um,
international funds and, andpotentially private investors?
(16:49):
You have sovereign wealth funds, um, behind some stuff too,
you know, backing away from theUS do we see are pulling out?
Speaker 2 (16:56):
Yeah, so that is a very real concern. It's been a
hot topic in financial marketsduring the month of April
because what we have seen infinancial markets has been
unusual. Uh , we've seen asynchronized selloff in the
exchange value of the dollar USequity markets and US sovereign
bonds treasuries, which meansthe yields have gone up as the
price has gone down. And it ,it's unusual to see all three
(17:16):
of them sell off simultaneously, uh, to see them all do. So in
the immediate aftermath of adramatic policy change, like
the ones , uh, that have beenannounced in this
administration suggests , uh,that there is some diminished
appetite for US assets. Uh,what I would say from an
economics perspective is wecan't prove that we don't get
very good real time data oninvestor flow, and particularly
(17:40):
from the types of investorsthat matter in this discussion.
So sovereign wealth fundsglobal reserve managers , uh, I
can make a good case that wehave seen a de a decrease in
demand for dollar assets, butit's a circumstantial case, not
one that, that I could prove ina court of law to put it that
way. Mm-hmm . Um,this is not entirely a new
phenomenon. There's been adesire among reserve managers
(18:00):
to diversify away from thedollar for a long time. The
dollar has been the reservecurrency largely by default,
because there hasn't been aplausible alternative to it.
Um, just to plug brieflysomething that we've done
internally. We, we publishedlast year a series of, of
articles and a a a a blogsimilar to this one, a video
blog, a podcast , uh,discussing the reserve status
(18:21):
of the dollar that , uh, youcan probably locate on our
website. But the basic idea isthat the dollar was the only
currency that satisfied all theneeds of reserve managers. One
of those is that treasury bondsare still considered risk-free
and they are the risk-freeasset that underpins the
financial system. Uh, myexpectation is that that is
still the case, but theincentive for investors to
(18:42):
diversify has increased. Uh,what reserve managers look for
is , uh, policies that are ,um, they , they're looking for
an economy that is based on ,that is rules based , that is
process based , that ispredictable. And right now our
economy is none of those threethings. And so if you are a
reserve manager, it makes senseto look for other alternatives.
(19:04):
I'm not convinced that theyreally exist yet. Um, and , and
certainly things have settleddown later in the month. Um,
but, but these are the sorts ofrisks that we run around times
when we make big policychanges, especially when they
aren't predictable processbased and, and , uh, when they
indicate a willingness tochange the rules of the game,
if you will .
Speaker 1 (19:23):
Yeah. So , uh, let's spend a minute talking about
the, the Fed . So talkabout , um, interesting times
using all the words we talkedabout in unpredictable,
uncertain to and so forth. And, and clearly there's been some
friction between ChairmanPowell or expressed from the
administration , um, on, onthat side of things. So , uh,
(19:45):
what , what's the Fed thinkingright now? What's, what do you
think their stance is then? Iwanna talk a little bit about
the, the , the tenure ofChairman Powell and 'cause he ,
he's he here to point itthrough 26. So , um, but what ,
what , what's their stance?
What , what, what's in theirmind right now?
Speaker 2 (20:00):
So , look, the Fed is a, an admirably transparent
institution. They tell you whatthey think , uh, you could
argue that they talk too much,in fact, and I , I think that's
a very reasonable argument tomake, but in a general sense
where what they have told us,and what I believe to be the
case is that they are in waitand see mode. The Fed is not a
proactive institution. They'renot going to move policy around
(20:20):
based on the way that theythink the economy is going to
evolve. They're going to waitfor the data to tell them how
it is evolving. And if thatmeans that they're going to be
a little late around turningpoints, that's a risk that
they're willing to take. Um,and , and I think that's the
right stance. It minimizes themagnitude of whatever mistakes
you might make over time. Youget to change policy every six
(20:42):
to eight weeks if you want to.
So, you know, the , it isn'tthe case that if they do
something wrong at one meeting,it's an irreversible error. And
that argues in favor ofpatients, and that's what
they're going to exercise here.
They don't know any better thanwe do what the balance is going
to be in terms of slowergrowth, higher prices, and
inflation expectations aroundtariffs. So they're gonna wait
and see , uh, to us what thatmeans is that they are not
(21:03):
likely to cut rates at leastuntil the summer. Um, I do
think that they will cut ratesbecause I'm pretty confident
that growth is gonna slow. Um,I am equally confident that
they will not cut rates as faror as fast as the
administration would like. Um,but whatever the administration
wants or doesn't, won't, won'timpact their thinking one way
or another. Right.
Speaker 1 (21:23):
So you think Chairman Powell sticks it out
and despite some of the, again,the pressures till next May
Speaker 2 (21:28):
Absolutely. His tenure expires at the end of
May. It would do immense damageto the institution were he to
leave the Fed before that time.
I, I, unless his health were todecline or something, I cannot
come up with a scenario wherehe would voluntarily depart.
Speaker 1 (21:42):
Right. Okay. Um, I , I do wanna come back. One thing
I wanted to ask and , and , um,it it just popped into my mind
here, and again, I have notstudied this. You're gonna know
the data better than I do, butthe , there's been an idea
floated in terms of offsettingsome of the, the , the
downsides of the, the trade warand the terror pressures is to
make some changes on the incometax side of things. Viable
(22:06):
numbers don't make sense. What,you know, what , what are your
thoughts on that?
Speaker 2 (22:11):
Uh , you know, I don't think the numbers make
sense just to be blunt about itfor, for a couple of reasons.
One is that cutting the incometaxes unlikely to significantly
boost growth in that the peoplewho pay in the most in income
taxes are also the people lessleast likely to spend
additional money. Um , cutting. You know, it's the nature of
our tax code that the peoplewith the highest bills are the
(22:31):
people who need the money theleast. Um, you know, if you
give someone who has millionsin savings, a few extra
thousand dollars, they're notgonna spend it, or at least
they're not gonna spend all ofit. That's one part of it. The
other part of it is there areconsequences here. If you cut
taxes too deeply, the budgetdeficit, which is already
extraordinarily large, will geteven bigger. And if the budget
deficit gets bigger, it's agood bet that interest rates
(22:52):
will go up. And if thathappens, that slows growth. So
if I were to try to offset ,uh, the, the impact of slower
growth from tariffs, itwouldn't be by cutting taxes. I
just don't think that that'sgonna be particularly
effective.
Speaker 1 (23:05):
Yeah. Are there other things that you have on
your radar that have been, youknow , maybe planted or, or
mentioned by the administrationthat they just haven't gotten
yet there yet on the agendathat you feel is gonna have
some direct economic impacts?
And just to, you know, once weget I I'll, you know, just say
once we get past the tariff,you know, turbulence and, you
know, whatever gets worked outor doesn't, sort of, I'll say,
(23:28):
what's next? What , what's onyour radar?
Speaker 2 (23:30):
So this is gonna happen ? Look, I I , I am a
little bit cynical about thetariff thing in the sense that
I don't think we're ever gonnareally get past it. I think
that this is gonna be somethingthat's gonna persist for months
and quarters. The level ofuncertainty will certainly
decline, but I don't thinkthere's gonna be a day where
you can sort of wipe your handand say, okay, that's done and
dusted. You know, we don't haveto, there's no more uncertainty
there. Yeah. I, I hope I amwrong about that. Uh , but
(23:53):
we'll see. But it's a good timeto ask what's next, because
what's next is gonna start verysoon, and that's the debate
around fiscal policy. Yeah .
And we touched on it a minuteago. Congress is in the process
of preparing a budget and , uh,there are a lot of moving parts
there. Uh , but they're goingto be required to come up with
some sort of budget, and theyhave a variety of , uh, I would
(24:13):
say mutually incompatibleobjectives. And that isn't
unusual. Every congress hasthat. So I, you know, I , I
don't wanna give the impressionthat that's something specific
to this scenario, it's justthat the objectives are perhaps
more difficult to reconcilethis time than usual. And what
do I mean by that? One is thatthey wish to reduce the budget
deficit. Two is that they wishto cut taxes. Three is that
(24:38):
they don't wish to cut spendingon any sort of core social
security Medicare, Medicaidprograms. And I don't think
that the math works toaccomplish all three of those
things simultaneously. Um, theycan try some workarounds there
. There's already some talkthat the Senate may , uh,
attempt to change the rulesaround budget scoring, which if
(24:59):
they did that I think runs therisk of financial markets
responding poorly because itsuggests that rather than
actually doing the work ofmaking a budget, they're , you
know, you're changing the rulesand, and you know, the, that
that's not what you would wantto see from a long-term
perspective. Uh , but basically, uh, you know, the, the
priority one for Congressappears to be extending the
(25:19):
2017 tax cuts, which means thatin order to satisfy the rules
by which they have to pass thisbudget, they have to come up
with , uh, at least a coupletrillion and probably more
dollars worth of spending cuts.
And it's very difficult to seehow you're gonna do that
without cutting into coreprograms. So I don't know how
those discussions are gonnaresolve themselves, but I
(25:41):
suspect the process is gonna bejust as bumpy and just as messy
as the, the tariff discussionhas been. Um, because you're
gonna have, in addition to theadministration, both parties in
Congress involved, plus a bunchof people we've never heard of
the Senate parliamentarian,whose name I don't know, is
going to have a significantrole in determining whether the
legislation that theyeventually get to passes the
(26:03):
rules that allow them to passit , um, mm-hmm
So, you know, it is going to becomplicated, it's gonna be
messy. It's gonna at timesdominate sentiment for the
course of the next few months.
Speaker 1 (26:13):
One final quick question , um, and I feel like
we could go on forever, but ,um, you know , one , the
agencies, Fannie and Fred arevery active in our space. Do
you think they go fully prior ?
What , what do you think thatoutlook is for , um, that
restructuring? So,
Speaker 2 (26:30):
What I would say is, right now, all I can say about
that is it seems to be on theback burner, right? It seems
like there's a lot of otherwood to chop. Yeah. And it just
seems like there's a lot ofwood to chop before we get to
that point. And anypresidential administration is
sort of running a race. Youfigure that you have a couple
years to really implement themajority of your agenda , uh,
after which history tells youthat you usually, it's very
(26:51):
rare for a president to haveundivided control of Congress
after their first two years.
Plus, at that point, thepresidential campaign kicks
off, and as far as we know,president Trump will not be
running again. Uh, which meansthat, you know, he will be
something of a lame duck andhis political capital will
start to erode. So, you know,with the agencies as with a , a
(27:11):
variety of other issues,there's a sense in which if
they don't get to it fairlysoon, the chance of something
significant happening probablydiminishes , uh, you can't rule
it out. Again, thisadministration is nothing if
not unpredictable. Uh, they arenothing if not willing to ex
experiment to widen the rangeof outcomes. So you can't rule
anything in or out. It justdoesn't seem like that's where
the work is being done rightnow.
Speaker 1 (27:33):
Yeah. So any final comments on the economic
outlook? Um, you know, finalwords that you would leave ,
uh, with our listeners?
Speaker 2 (27:43):
Yeah, look , I always feel, I , I feel bad at
this point because whenever I'masked to describe the outlook,
it is not a good outlook,right? It just isn't. We're
talking about slower growth,higher prices, financial market
volatility and , and a lot ofstructural challenges. And that
is the nature of where we are.
And I, I don't wanna downplaythat, but I wanna go back to
(28:04):
where I started and justobserve. Look, the good news is
that we are starting from arelatively solid position. The
reason that the fed and thereason that any central bank
targets being an equilibrium isbecause it makes you maximally
resilient against shocks. Itmeans that you can absorb a
bigger shock with a smallereconomic impact. And we came
into this in a position where Ithink it would take a pretty
(28:25):
big shock to really and trulyupend the apple cart. Now look,
we're seeing a pretty bigshock. And so the name of the
game for the next few months,and probably the next few
quarters, is going to beassessing whether that shock is
big enough to undo the startingpoint that we came in at. Um,
we don't know enough right nowto say that conclusively, but
again, keep in mind that, youknow, the , the direction of
(28:48):
travel isn't great, but we'restarting from a relatively good
place and that that should giveus some comfort that all is not
lost, if you will. Yeah .
Speaker 1 (28:56):
Well, thank you Eric. I know you're a busy man
these days. Appreciate youjoining us and sharing your
thoughts and , um, you know,best of luck in your role and
staying on top of this hour tohour . It's, it's a , it is a
bumpy ride, but it's , it's aninteresting one. And , um, so,
and thank you all for listening, uh, today you can access
additional nickpodcasts@nic.org and , um, we
(29:18):
will see you again soon.
Thanks, Eric .
Speaker 2 (29:20):
Thank you.
Thanks everyone for listening in today to the
latest Nick Chats podcast. Thisis Lisa McCracken. I'm the head
of research and analytics withNIC , and I'm here to talk
about a very important andtimely topic , uh, with Eric
Win grad . He's the chiefeconomist with Alliance
Bernstein. Eric , I'm gonna letyou introduce yourself and
maybe give a little backgroundbefore we dive into the fun
(00:25):
stuff,
the world, and what that meansfor everybody.
Speaker 2 (00:30):
Sure. Thanks Lisa.
And , uh, thanks for , forhaving me. Uh , I'm Eric Win
grad , and as Lisa said, I'mthe chief economist at Alliance
Bernstein , uh, which is aglobal investment firm. We have
about $800 billion in assetsunder management. Uh, we're
global, so, you know, you andI, I'm sure Lisa will touch on
the, the world economy, but I ,I'm based here in the United
States, and that's my primaryfocus within the firm. Uh,
(00:51):
frankly, that's the primaryfocus for most people at this
point is the US economy and ,uh, the US policy outlook,
which is shaping so much ofwhat we talk about. Um, we have
seven economists around theworld, and, you know, we try to
bring that global insight tobear, but as I said, right now,
ground zero is the UnitedStates.
Speaker 1 (01:08):
Yeah, I I bet you are so busy and , and you know,
you probably love these times,right? Even though the
instability is not a whole lotof fun, you know , it's, it's
unraveling what it all meansand what the implications, and
I mean, the crystal ball, ifyou've got that one figured out
now , um, but I'd be incrediblyimpressed. But these , these
are sort of interesting times,maybe a lot of headaches and
(01:29):
heartburn, but it , it'sinteresting, right? It ,
Speaker 2 (01:31):
It is certainly interesting. And you know, what
I've been very encouraged by isI think that the discussions
I've had with investors aroundthe world is sensible. I think
everyone understands to , toborrow your phrase, I don't
have a crystal ball and , andnone of us do. So none of us
have the ability to forecastwith the level of precision or
even the level of accuracy thatwe might in more settled times.
And , and I think everyoneunderstands that, and that just
(01:53):
makes for a better discussionbecause, you know, if, if we're
getting hung up on trying toforecast GDP down to the 10th
of a percent, we're way offcourse, and nobody can do that
in this environment,
Speaker 1 (02:04):
Right? Yeah. So I think it's important when , you
know, you and I only have, youknow , uh, 30 minutes and less
than that at this point to talkabout it, but I do think it's
important to obviously talkabout where we are now, but
also, you know, step back alittle bit too and look at the
big picture, because right nowI think there's a lot of
emotions and it's this sky isfalling, feeling a little bit.
(02:25):
So we've, I , I'd like for youto just comment about, you
know, this period ofinstability, clearly that
breeds unease and, and we knowthe consumer confidence stuff
has not come out real great,where some of the other
indicators actually are notlooking so much the sky's
falling just yet. Um, you're abit more of an expert on that
than I am, but , um, you know,so, you know, consumers said to
(02:46):
me , instability, you know,let's just talk a little bit
about that and you know, what,how we see that, you know , um,
you know, dictating some of the, the narrative in the
headlines right now. Yeah.
Speaker 2 (02:56):
The word I'm using right now, the word that I
think is the, the watch wordfor all of those of us who
follow the economy and marketsright now is uncertainty. Uh ,
we don't know how things aregoing to shake out. That
doesn't mean that we can't lookinto the future at all. I think
we have a pretty clear sense ofthe direction of travel in
which we're going. It's aquestion of magnitude, and of
course, that won't bedetermined until we see what
(03:17):
the policy response , uh, endsup being, what the policy
framework ends up being. Butalso, as you say, as we get a
sense from the data, howhouseholds are responding to it
, uh, we know a few things. Weknow that the economy came into
this year in good shape. Theeconomy was relatively strong.
It was balanced. The labormarket was strong, inflation
was falling, the fed wascutting interest rates, all the
(03:38):
sorts of things that hadsupported the strong financial
market performance over thelast couple of years. We also
know that since that time,there has been a , a very
dramatic, and , and in manyways, unprecedented shift in
the policy framework that hasthe potential to knock us out
of that equilibrium , uh, to beblunt about it. And, and the
disclaimer I'll give here isthat I'm speaking only about
(03:58):
economics, not about politics.
So , uh, to , to paraphraseAlan Greenspan, if , if you
hear me to say somethingpolitical, you have misheard
me. Uh , I'm simply describingthe economic impact of the
policy changes that have beendiscussed without opining on
whether I think they're good orbad. Um, the policies that are
under discussion, specificallyaround trade , uh, whether it's
tariffs or other forms of traderestrictions, push the economy
(04:21):
in a stagflationary directionthat tariffs are attacks and
they're attacks paid bydomestic actors that pushes up
prices and it pushes downgrowth. And that's the opposite
of what you would wanna seefrom a financial market
perspective. It reduces profitmargins, it reduces spending,
it , it , it has the potential, uh, to upend the economy.
Now, again, as you say , Lisa ,it's important to take this
(04:44):
step back. We're starting froma strong position, and that
gives the US economy morecushion , uh, more perhaps than
other countries around theworld have , uh, to absorb the
, the shock that is , uh,underway. Um, that said, the
implications are significant.
We're talking about big numbershere, right? Mm-hmm
discussion are likely to raiseus prices over the course of
(05:05):
this year by at least apercentage point, which means
inflation at the end of theyear might be close to four ,
um, which is pretty high. Thefed's target is two, and we
think that they will slowgrowth. Um, you know, we are
not explicitly forecasting arecession at this point, but
I'd say we're doing is we'rekind of hedging our bets, our ,
our growth expectation for theyears between zero and half a
(05:28):
percent, that's pretty close to, to recessionary territory. Uh
, so , so, you know, I don'twanna downplay the significance
of the changes that areunderway. Um, these are big,
big, this is a big, big deal,
Speaker 1 (05:41):
Right? So now, are those estimates based on sort
of the, the high mark rate forthe, the tariff , you know,
there's obviously a , the , thepause button right now, and
there's a lot of, there's somethat have been enacted , some
that have been proposed but notyet enacted and paused so that
, um, you know, increase incost of 1%. What's that base
(06:03):
on? Is that sort of a worstcase scenario? Is that sort of
a midmark? What, can you give alittle background on that?
That's,
Speaker 2 (06:09):
That's sort of a midmark, right? That is not the
worst case scenario. Ourestimate based on the 2018
trade war is that every 10percentage point increase in
the effective tariff rate, sosort of the average tariff rate
on all things boosts prices by1%. Uh, we are incorporating
into our forecast right now ,uh, an increase of 1.5
(06:29):
percentage points relative towhere inflation otherwise would
have been. So around a 15%increase in the effective
tariff rate, if all of thetariffs announced on liberation
day were to go into effect,that would probably roughly
double , uh, you would betalking about an effective
tariff rate of between 27 and30%. Mm-hmm
, we don't want to take aheroic view on, you know , or a
(06:50):
heroically brave stand on whatthe eventual tariff framework
will be, because we don't knowmm-hmm
think it's reasonable to lookat the liberation day
announcement as a worst casescenario. Yeah . And then
something along the lines of a, a 10% universal tariff , uh,
on average as maybe your bestcase scenario, we're probably,
you know, our forecast iscloser to that best case, but
(07:12):
even that is a massive increasein the effective tariff rate.
It's much, much larger by fouror five times than what we saw
in 2018
Speaker 1 (07:21):
Mm-hmm
the reality of the situation,so you say , you know, your
forecasts are a not the worstcase scenario, so, you know,
are you fairly confident that,that there will be some off
ramp , some politicalmaneuvering here that's not
gonna get us to the
hour this changes, so hopefullythis is not all new point till
(07:44):
that this
,
Speaker 2 (07:46):
I mean, I have to tell you, I , I have no idea,
right? Yeah . I , I I thinkthat financial markets have
been very eager to believeevery headline when it sounds
like there might be anoff-ramp. I would just observe
that over the course ofPresident Trump's business and
political career, he hasconsistently argued that
tariffs are good policy. He hasconsistently argued that
(08:06):
running a trade deficit isproblematic going back to the
mid 1980s. Mm-hmm
come to recently. And so I , Ido think that he believes that
this is good policy mm-hmm
agree or disagree with that ,uh, depending on your own
economic and political pointsof view. But because he
believes it , you know, I , I Ithink all economic actors need
(08:28):
to accept that there is a widerrange of outcomes than they are
accustomed to seeing. Um, itmay be the case that there are
off-ramps. It also may not be,it also, you know, I I said we
look at the liberation daytariffs as sort of the, the
worst case scenario, that mightnot be true. Uh , it could get
worse. So, you know, that rangeof outcomes is uncomfortably
wide. And , and again, we wannabe humble when we talk about
(08:49):
our economic expectations andforecasts in recognizing that,
yeah , when I say, you know,we're, we're forecasting
inflation to be 4% at the endof the year, I would also
observe that our confidencearound that is probably lower
than it is in a normal year,just because the range of
outcomes is there. But I wanna, you know, I , I think it's
worth taking a step back fromthe mechanics of the tariffs
and just observing, even ifthere are off ramps as you ask,
(09:13):
there's already been damagedone here, right? The
uncertainty alone is weighingon growth. I don't think it is
the case that if there are offramps, then the, the genie goes
back in the bottle or thetoothpaste back in the tube,
depending on your particularmetaphor, metaphor , uh, which
one you prefer. Um, we haveseen consumer confidence
surveys, plunge , uh, theconference board measure of
(09:34):
consumer confidence is now aslow as it was during the worst
of the covid pandemic. Andfuture expectations as married
, measured in that survey areeven lower. So households are
aware. And, you know, there isa section in that survey where
respondents are able to writewhat they're worried about. And
what do you think they wroteabout Tariffs? Tariffs, right ?
They said that we we're worriedabout tariffs. We think it's
(09:56):
gonna push growth up. Um, youknow, part of the argument in
favor of tariffs is that inincentivizes domestic
production, that it encouragesbusinesses to invest and to
build in the United States. Uh, our estimate, and , and I
think that this is sort ofwidely shared, I don't wanna
claim to have reinvented thewheel here, is that business
investment is basically frozenright now. Yeah . Because
(10:17):
businesses don't know what thepolicy framework will be. Um,
how are you supposed to make aone, a three, a five, a 10 year
plan if you don't know whatpolicy is going to be 1, 3, 5,
10 days from now, much less 1,3, 5, 10 months or years from
now? Uh , so there is alreadydamage being done. Um, I don't
wanna say that it's permanentor irreversible. I have no
(10:38):
doubt that if there are offramps, if the tariff policy is
eventually reversed , that thatwill allow for a sigh of relief
and that things will improve.
But even if that is the case,you know, we wanna be cognizant
, cognizant of the fact thatthat growth is gonna slow
either way.
Speaker 1 (10:52):
Right, right. Yeah.
And, you know, so the , the ,the senior housing sector
definitely has some tailwindsfrom a demographic standpoint,
and in turn , and , andcandidly, the , the wealth of
the boomers, the wealth accuwealth accumulation has been
pretty significant , um, youknow, among that population.
So, you know, I , I I thinkthat, that some of these
(11:13):
economic , um, pressures and,and tariff trickle down impacts
, um, are , you know, would notderail that to the extent is
what it might hit some othersectors, but, you know , um,
you know , would it maybe tellcause potential investors
coming in, you know, to buycertain, you know , real estate
or engage in certaintransactions, like let's just
sort of wait and see a littlebit till the storm passes? That
(11:35):
I can understand. I will tellyou the one thing too, and this
is definitely the tariffs are ,I don't wanna say another nail
in the coffin, but certainly anadditional headwind is the
construction developmentactivity. We're at record lows
for, you know, all the obviousreasons, cost of capital, cost
of construction, you know, youcan buy generally newer
properties below replacementcosts. I don't think the
(11:56):
tariffs are gonna be helpingthat at all. So , uh, do you
have any perspective on theconstruction market and what,
you know, I I think a lot ofit's probably materials and,
and so forth, forget theimmigration conversation we're
, we don't necessarily rightnow need to go down that the
labor route , but , um, itthoughts on the con the
construction market andtariffs.
Speaker 2 (12:17):
Yeah . So look, with tariffs, it is not the case
that every sector is gonna behit equally. Yeah , that's
absolutely right. There arethings that are gonna be more
insulated or less, and thereare demographic tailwinds,
obvious ones when it comes toanything that's being built in
the service of senior citizens,whether it's medical care,
housing dedicated to them or ,or anything else. The
population is aging and , and ,and those needs are going to be
(12:37):
there. Hmm . Um , that said, asyou point out, the construction
sector does still face someheadwinds. Raw materials costs
are certainly going to go up asa result of tariffs. That's one
of the most obvious placeswhere you would expect to see
an impact. Um, the cost ofcapital and interest rates
moving higher or staying higheris another impediment. And I
know you said we don't need togo down the immigration route,
but we kind of do. Well , let'stalk about , I mean, you kind
(12:59):
of do, right? Construction isone of the sectors where
migrant labor and immigrantlabor has played a very
significant role. And, youknow, if you rewind two or
three years talking to almostanyone involved in that sector,
as with other sectors of theeconomy, but particularly that
one, the story was that theycouldn't find enough workers.
And, you know, the, the flipside of the, the tailwinds in
(13:20):
terms of the population agingis that the, the headwind in
terms of the number of peoplein the workforce who are , uh,
willing and able to do the typeof work required for
construction has declined. Uh ,we offset that over the last
two years because there was asurge in immigrant labor , um,
that those numbers, the numberof border encounters, the
number of people crossing theborders plummeted late last
(13:41):
year. So even before theelection, the numbers had
collapsed. Uh, and certainlyaren't gonna go up anytime soon
based on what we expect policyto be. That's another headwind
too. Yeah . If you do see massdeportations, that could make
the situation even morechallenging from a labor
perspective. So here again, wedon't know how that shakes out
and , uh, but , but , but thereare those secular or the ,
(14:03):
those secular headwinds. Thereis of course the tailwind of
the, the , the screaming needfor this sort of stuff. It
isn't just senior housing there, there's a broader need for
housing in general, and youwould think that in time , uh,
supply would rise to meet that,but the next few months are
gonna be very choppy for sure.
Speaker 1 (14:20):
Right. Yeah. I had the pleasure of listening to a
labor economist recently. Itwas a very so sobering , um,
presentation. And, and candidlyit was interesting to unbundle
the history of really how thishas unfolded really over a
number of decades. Uh, youknow, sort of this perfect
storm that just, you know,declining birth weight rates ,
more women in the workforce,you know, a lot of different
(14:43):
things that are really tellingthat story of where we are
today. And it's, i , it , Isarcastically sometimes say to
people, I'm like, these couldbe the good old days, you know,
not to be doom and gloom, butwe're, we're gonna need to
think differently, whether it'son the construction side of
things, that the caregivingside of things, 35% of our
sector is immigrant, you know,workers , um, on the caregiving
(15:06):
side of things. So , um, thatlabor piece is , is gonna be a
very interesting thing. And theUS is in be in better shape
than other countries on thatfront.
Speaker 2 (15:14):
Yeah, I think that's right. You know, we talked
about some of the othercountries in the world being
vulnerable, more vulnerable totrade disruptions, but it isn't
just on trade where othercountries are vulnerable
demographically. If you look atEurope, the , you know, the
growth rate of their workingage population is even lower
than ours. Uh , theirdemographics are even worse
than ours. And of course,China's demographics are the
worst of all , uh, where thenumber of people working within
(15:35):
the next few years is likely todecline relative to the number
of people aging out. So you'regonna flip it, you know, in the
US we talk about baddemographics. We still have a
working age population that isgrowing more than the number of
retirees. That's not gonna bethe case in China very soon. So
the , this demographicchallenge is one that faces the
entirety of the developedworld. Uh, the places in the
(15:56):
world where you have youngwilling to work populations are
largely the countries fromwhich the developed world has
drawn immigrants over thecourse of the last couple
years. It's South America, it'sSouth Asia, it's Africa. Um, in
the current environment, itseems unlikely that you will
see enough inflow to the laborforce from those regions to
offset the outflow as the , asthe local born populations age
(16:19):
out. Uh , but we'll see, right?
Politics aren't forever,policies aren't forever. And ,
and you know, there , there,there , there may be offsets in
time.
Speaker 1 (16:28):
Um, I, I do wanna talk a little bit some of the
international stuff from , um,investments in sort of the ,
the US international dollarsand we, we've definitely seen
some of that and on broadercommercial real estate side of
things. But on the seniorhousing front too, is the
current environment impactingany of those , um,
international funds and, andpotentially private investors?
(16:49):
You have sovereign wealth funds, um, behind some stuff too,
you know, backing away from theUS do we see are pulling out?
Speaker 2 (16:56):
Yeah, so that is a very real concern. It's been a
hot topic in financial marketsduring the month of April
because what we have seen infinancial markets has been
unusual. Uh , we've seen asynchronized selloff in the
exchange value of the dollar USequity markets and US sovereign
bonds treasuries, which meansthe yields have gone up as the
price has gone down. And it ,it's unusual to see all three
(17:16):
of them sell off simultaneously, uh, to see them all do. So in
the immediate aftermath of adramatic policy change, like
the ones , uh, that have beenannounced in this
administration suggests , uh,that there is some diminished
appetite for US assets. Uh,what I would say from an
economics perspective is wecan't prove that we don't get
very good real time data oninvestor flow, and particularly
(17:40):
from the types of investorsthat matter in this discussion.
So sovereign wealth fundsglobal reserve managers , uh, I
can make a good case that wehave seen a de a decrease in
demand for dollar assets, butit's a circumstantial case, not
one that, that I could prove ina court of law to put it that
way. Mm-hmm
phenomenon. There's been adesire among reserve managers
(18:00):
to diversify away from thedollar for a long time. The
dollar has been the reservecurrency largely by default,
because there hasn't been aplausible alternative to it.
Um, just to plug brieflysomething that we've done
internally. We, we publishedlast year a series of, of
articles and a a a a blogsimilar to this one, a video
blog, a podcast , uh,discussing the reserve status
(18:21):
of the dollar that , uh, youcan probably locate on our
website. But the basic idea isthat the dollar was the only
currency that satisfied all theneeds of reserve managers. One
of those is that treasury bondsare still considered risk-free
and they are the risk-freeasset that underpins the
financial system. Uh, myexpectation is that that is
still the case, but theincentive for investors to
(18:42):
diversify has increased. Uh,what reserve managers look for
is , uh, policies that are ,um, they , they're looking for
an economy that is based on ,that is rules based , that is
process based , that ispredictable. And right now our
economy is none of those threethings. And so if you are a
reserve manager, it makes senseto look for other alternatives.
(19:04):
I'm not convinced that theyreally exist yet. Um, and , and
certainly things have settleddown later in the month. Um,
but, but these are the sorts ofrisks that we run around times
when we make big policychanges, especially when they
aren't predictable processbased and, and , uh, when they
indicate a willingness tochange the rules of the game,
if you will .
Speaker 1 (19:23):
Yeah. So , uh, let's spend a minute talking about
the, the Fed
using all the words we talkedabout in unpredictable,
uncertain to and so forth. And, and clearly there's been some
friction between ChairmanPowell or expressed from the
administration , um, on, onthat side of things. So , uh,
(19:45):
what , what's the Fed thinkingright now? What's, what do you
think their stance is then? Iwanna talk a little bit about
the, the , the tenure ofChairman Powell and 'cause he ,
he's he here to point itthrough 26. So , um, but what ,
what , what's their stance?
What , what, what's in theirmind right now?
Speaker 2 (20:00):
So , look, the Fed is a, an admirably transparent
institution. They tell you whatthey think , uh, you could
argue that they talk too much,in fact, and I , I think that's
a very reasonable argument tomake, but in a general sense
where what they have told us,and what I believe to be the
case is that they are in waitand see mode. The Fed is not a
proactive institution. They'renot going to move policy around
(20:20):
based on the way that theythink the economy is going to
evolve. They're going to waitfor the data to tell them how
it is evolving. And if thatmeans that they're going to be
a little late around turningpoints, that's a risk that
they're willing to take. Um,and , and I think that's the
right stance. It minimizes themagnitude of whatever mistakes
you might make over time. Youget to change policy every six
(20:42):
to eight weeks if you want to.
So, you know, the , it isn'tthe case that if they do
something wrong at one meeting,it's an irreversible error. And
that argues in favor ofpatients, and that's what
they're going to exercise here.
They don't know any better thanwe do what the balance is going
to be in terms of slowergrowth, higher prices, and
inflation expectations aroundtariffs. So they're gonna wait
and see , uh, to us what thatmeans is that they are not
(21:03):
likely to cut rates at leastuntil the summer. Um, I do
think that they will cut ratesbecause I'm pretty confident
that growth is gonna slow. Um,I am equally confident that
they will not cut rates as faror as fast as the
administration would like. Um,but whatever the administration
wants or doesn't, won't, won'timpact their thinking one way
or another. Right.
Speaker 1 (21:23):
So you think Chairman Powell sticks it out
and despite some of the, again,the pressures till next May
Speaker 2 (21:28):
Absolutely. His tenure expires at the end of
May. It would do immense damageto the institution were he to
leave the Fed before that time.
I, I, unless his health were todecline or something, I cannot
come up with a scenario wherehe would voluntarily depart.
Speaker 1 (21:42):
Right. Okay. Um, I , I do wanna come back. One thing
I wanted to ask and , and , um,it it just popped into my mind
here, and again, I have notstudied this. You're gonna know
the data better than I do, butthe , there's been an idea
floated in terms of offsettingsome of the, the , the
downsides of the, the trade warand the terror pressures is to
make some changes on the incometax side of things. Viable
(22:06):
numbers don't make sense. What,you know, what , what are your
thoughts on that?
Speaker 2 (22:11):
Uh , you know, I don't think the numbers make
sense just to be blunt about itfor, for a couple of reasons.
One is that cutting the incometaxes unlikely to significantly
boost growth in that the peoplewho pay in the most in income
taxes are also the people lessleast likely to spend
additional money. Um , cutting. You know, it's the nature of
our tax code that the peoplewith the highest bills are the
(22:31):
people who need the money theleast. Um, you know, if you
give someone who has millionsin savings, a few extra
thousand dollars, they're notgonna spend it, or at least
they're not gonna spend all ofit. That's one part of it. The
other part of it is there areconsequences here. If you cut
taxes too deeply, the budgetdeficit, which is already
extraordinarily large, will geteven bigger. And if the budget
deficit gets bigger, it's agood bet that interest rates
(22:52):
will go up. And if thathappens, that slows growth. So
if I were to try to offset ,uh, the, the impact of slower
growth from tariffs, itwouldn't be by cutting taxes. I
just don't think that that'sgonna be particularly
effective.
Speaker 1 (23:05):
Yeah. Are there other things that you have on
your radar that have been, youknow , maybe planted or, or
mentioned by the administrationthat they just haven't gotten
yet there yet on the agendathat you feel is gonna have
some direct economic impacts?
And just to, you know, once weget I I'll, you know, just say
once we get past the tariff,you know, turbulence and, you
know, whatever gets worked outor doesn't, sort of, I'll say,
(23:28):
what's next? What , what's onyour radar?
Speaker 2 (23:30):
So this is gonna happen ? Look, I I , I am a
little bit cynical about thetariff thing in the sense that
I don't think we're ever gonnareally get past it. I think
that this is gonna be somethingthat's gonna persist for months
and quarters. The level ofuncertainty will certainly
decline, but I don't thinkthere's gonna be a day where
you can sort of wipe your handand say, okay, that's done and
dusted. You know, we don't haveto, there's no more uncertainty
there. Yeah. I, I hope I amwrong about that. Uh , but
(23:53):
we'll see. But it's a good timeto ask what's next, because
what's next is gonna start verysoon, and that's the debate
around fiscal policy. Yeah .
And we touched on it a minuteago. Congress is in the process
of preparing a budget and , uh,there are a lot of moving parts
there. Uh , but they're goingto be required to come up with
some sort of budget, and theyhave a variety of , uh, I would
(24:13):
say mutually incompatibleobjectives. And that isn't
unusual. Every congress hasthat. So I, you know, I , I
don't wanna give the impressionthat that's something specific
to this scenario, it's justthat the objectives are perhaps
more difficult to reconcilethis time than usual. And what
do I mean by that? One is thatthey wish to reduce the budget
deficit. Two is that they wishto cut taxes. Three is that
(24:38):
they don't wish to cut spendingon any sort of core social
security Medicare, Medicaidprograms. And I don't think
that the math works toaccomplish all three of those
things simultaneously. Um, theycan try some workarounds there
. There's already some talkthat the Senate may , uh,
attempt to change the rulesaround budget scoring, which if
(24:59):
they did that I think runs therisk of financial markets
responding poorly because itsuggests that rather than
actually doing the work ofmaking a budget, they're , you
know, you're changing the rulesand, and you know, the, that
that's not what you would wantto see from a long-term
perspective. Uh , but basically, uh, you know, the, the
priority one for Congressappears to be extending the
(25:19):
2017 tax cuts, which means thatin order to satisfy the rules
by which they have to pass thisbudget, they have to come up
with , uh, at least a coupletrillion and probably more
dollars worth of spending cuts.
And it's very difficult to seehow you're gonna do that
without cutting into coreprograms. So I don't know how
those discussions are gonnaresolve themselves, but I
(25:41):
suspect the process is gonna bejust as bumpy and just as messy
as the, the tariff discussionhas been. Um, because you're
gonna have, in addition to theadministration, both parties in
Congress involved, plus a bunchof people we've never heard of
the Senate parliamentarian,whose name I don't know, is
going to have a significantrole in determining whether the
legislation that theyeventually get to passes the
(26:03):
rules that allow them to passit , um, mm-hmm
So, you know, it is going to becomplicated, it's gonna be
messy. It's gonna at timesdominate sentiment for the
course of the next few months.
Speaker 1 (26:13):
One final quick question , um, and I feel like
we could go on forever, but ,um, you know , one , the
agencies, Fannie and Fred arevery active in our space. Do
you think they go fully prior ?
What , what do you think thatoutlook is for , um, that
restructuring? So,
Speaker 2 (26:30):
What I would say is, right now, all I can say about
that is it seems to be on theback burner, right? It seems
like there's a lot of otherwood to chop. Yeah. And it just
seems like there's a lot ofwood to chop before we get to
that point. And anypresidential administration is
sort of running a race. Youfigure that you have a couple
years to really implement themajority of your agenda , uh,
after which history tells youthat you usually, it's very
(26:51):
rare for a president to haveundivided control of Congress
after their first two years.
Plus, at that point, thepresidential campaign kicks
off, and as far as we know,president Trump will not be
running again. Uh, which meansthat, you know, he will be
something of a lame duck andhis political capital will
start to erode. So, you know,with the agencies as with a , a
(27:11):
variety of other issues,there's a sense in which if
they don't get to it fairlysoon, the chance of something
significant happening probablydiminishes , uh, you can't rule
it out. Again, thisadministration is nothing if
not unpredictable. Uh, they arenothing if not willing to ex
experiment to widen the rangeof outcomes. So you can't rule
anything in or out. It justdoesn't seem like that's where
the work is being done rightnow.
Speaker 1 (27:33):
Yeah. So any final comments on the economic
outlook? Um, you know, finalwords that you would leave ,
uh, with our listeners?
Speaker 2 (27:43):
Yeah, look , I always feel, I , I feel bad at
this point because whenever I'masked to describe the outlook,
it is not a good outlook,right? It just isn't. We're
talking about slower growth,higher prices, financial market
volatility and , and a lot ofstructural challenges. And that
is the nature of where we are.
And I, I don't wanna downplaythat, but I wanna go back to
(28:04):
where I started and justobserve. Look, the good news is
that we are starting from arelatively solid position. The
reason that the fed and thereason that any central bank
targets being an equilibrium isbecause it makes you maximally
resilient against shocks. Itmeans that you can absorb a
bigger shock with a smallereconomic impact. And we came
into this in a position where Ithink it would take a pretty
(28:25):
big shock to really and trulyupend the apple cart. Now look,
we're seeing a pretty bigshock. And so the name of the
game for the next few months,and probably the next few
quarters, is going to beassessing whether that shock is
big enough to undo the startingpoint that we came in at. Um,
we don't know enough right nowto say that conclusively, but
again, keep in mind that, youknow, the , the direction of
(28:48):
travel isn't great, but we'restarting from a relatively good
place and that that should giveus some comfort that all is not
lost, if you will. Yeah .
Speaker 1 (28:56):
Well, thank you Eric. I know you're a busy man
these days. Appreciate youjoining us and sharing your
thoughts and , um, you know,best of luck in your role and
staying on top of this hour tohour . It's, it's a , it is a
bumpy ride, but it's , it's aninteresting one. And , um, so,
and thank you all for listening, uh, today you can access
additional nickpodcasts@nic.org and , um, we
(29:18):
will see you again soon.
Thanks, Eric .
Speaker 2 (29:20):
Thank you.
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