August 29, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss core inflation rose to 2.9% in July, highest since February. Does this change the Fed's September rate cut decision? Rate cuts will be good for stocks. But would the Fed be stimulating an economy that doesn't need it? Economists see slow US growth and stubborn inflation well into 2026. Higher prices are coming for household staples.
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Speaker 1 (00:00):
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(01:05):
Zada and Mike Armstraw.
Speaker 2 (01:11):
Chuck, Mike and Tucker with you on the final day
of the week, the final trading.
Speaker 3 (01:16):
Day of August, and this morning.
Speaker 2 (01:20):
At eight thirty am Eastern time, we got the Personal
Consumption Expenditures Report, which includes PCE inflation data in the
form of the PCE price Index. The headline index came
in at point two percent for the month, two point
six for the year, right on the screws, right where
we were expecting to see it, or at least right
(01:41):
where the market was expecting to see it. I didn't
personally have any expectations. And core PCE came in at
point three percent, on the high end of the range
of expectations, but.
Speaker 3 (01:52):
Still within it.
Speaker 2 (01:54):
And so that moved the annual index from two point
eight to two point nine percent. And so, Mike, no
real surprises in the economic data here, but we do
have the long end of the yield curve moving up
very modestly a couple basis points. In response, we got
stock selling off a little bit. I don't know if
it's with regards to this or just hey, you know,
(02:16):
markets have had a nice little run and it's end
of month rebalancing. You never know what these things. I
don't like to ascribe too much to it, especially because
there's nobody, not nobody. But it's a light trading day
on the Friday before Labor Day. I think the population
of New York has relocated from Manhattan to the Hampton
correct in the last twenty four hours, and so the
(02:38):
Friday before Labor Day is generally kind of a bad
time to try to get a read on what the
market is going to do in September. It's not to
say that like today doesn't matter, but just that it
doesn't matter, Okay.
Speaker 4 (02:51):
In any case, this reading on PCE was pretty mirror
image match to what we got from CPI. We are
seeing now inflation which excludes those food and energy readings,
around three percent, and regular old inflation in the high twos.
So not terribly surprising here, and I don't think any
(03:14):
sort of I can't look at this today and say, oh,
but we're heading for a trend of acceleration. We might
get that from terrorists, but I don't know that any
of this data to me indicates that we are heading
for above three percent.
Speaker 2 (03:26):
For example, well, I think here's where where I look
at this. So if we look at you know, core PCE,
because ultimately that's like the one that matters from a
you know that the FED really watches because because this
is why this matters. It's it's what is the Fed
going to do?
Speaker 3 (03:43):
Ultimately.
Speaker 2 (03:44):
We've talked about this before, inflation. The only reason that
people don't like it is because they don't like it.
I'm not saying that anyone should, but I'm just saying
there's nothing that in like inherently states higher inflation leads
to like lower stock prices or this, and that it's
more just hey, when inflation gets high, the cure that
we have for it based on you know, what we
(04:04):
know to this point, and what we've done is raising
interest rates, which all else being equals, slows the economy,
makes the cost of capital for companies more expensive, and
stocks tend to respond negatively. So that's why we care
about core PCE is simply because the Fed doesn't, so
we have to. So here's the big thing over the
next over the rest of the year, really, so we're
(04:27):
gonna get five more inflation readings for twenty twenty five,
I know, only four this year, but just when we
look at you know, the calendar year for you know,
the the actual readings August of last year came in
at point two, September and October came in at point three,
November point one, December point two. So where this matters
in terms of where core PCE is at.
Speaker 3 (04:48):
The end of the year.
Speaker 2 (04:49):
Hey, those point three percent readings are a bit of
a slog to get over, right, Like it's I'm not
saying it's impossible, but are you going to print point
four on.
Speaker 3 (04:58):
Core PCE consistently?
Speaker 2 (05:00):
I just don't know. We haven't seen you know, many
of those. The only reading over point three since early
twenty four came in February of this year, and that
was a point five percent reading that we got, and
there's been nothing around it that's anywhere close to that.
Speaker 3 (05:16):
So you look at this and you say, okay.
Speaker 2 (05:18):
By the end of you know, the twenty twenty five
PCE data, reasonably you've got you know, maybe twenty to
thirty BIPs that you could see this move up if
things continue in this fashion, And so okay, as a
reasonable expectation, Hey, core PCE, you know when we get
this one in January for twenty five comes in anywhere
from like three to three three. I think that seems
(05:39):
reasonable as a possibility. Is there the possibility that we
print you know, a bunch of point two's going into
year end and as such end up with you know,
core pce E at like two seven two eight. Maybe
I don't know that it's quite as convincing. They're like
given the tariff situation to like suddenly see inflation trend lower,
But it's possible. So I think like two seven to
(06:00):
three three is your realistic range, and probably three to
one to like three to three one if you really
want to hone in on like central tendency. It's basically saying, look,
core inflation's probably right around three percent, and that's not
terrible to be fair. But here's the thing. When you
have inflation running at three percent, prices double every twenty
(06:22):
three to twenty five years as opposed to two percent.
You're talking like every thirty five to thirty seven years.
So it does have an impact like over time. It's
it's a meaningful shift moving from a two percent inflationary
world to a three percent one and it's more noticeable
as well, which is why generally you try to see
central banks keeping inflation you know, closer to two percent.
(06:43):
You can have good economic environments where inflation runs closer
to three. The nineteen nineties were a case in point there.
Speaker 3 (06:50):
I don't think.
Speaker 2 (06:51):
Anyone would compare you know, the economy of today with
the you know, blockbuster that we saw in the nineties,
except for you know, maybe some tech bubble similarities. So
I think ultimately where I come back to on this is, hey,
the FED may end up saying, hey, we're cool with
inflation running closer to three. That's okay, it's not necessarily
(07:13):
the worst thing in the world. But how does that
impact other things as far as you know, commodity pricing
and things like that, And does that push inflation higher
with the higher risk of three percent turning into four
percent inflation? Yeah, those are things that you have to
be aware of in that world. And this is you know,
potentially a sea change that we could see in terms
(07:33):
of how we look at or how the FED looks
at inflation here right right.
Speaker 4 (07:38):
So yeah, and it does kind of tail into you know,
they're cutting in September, and we've got a piece later
on about okay, is now really the time to be stimulating?
But clearly they're on this course now, and I think
the only real thing that pushes them away from it
would be labor market induced inflation, which we will see
(08:02):
whether or not that comes in.
Speaker 2 (08:05):
Yeah, it's Look, we've got some key data points before
the next FED meeting. You've got pcees out of the
way now, they're no big surprise here, So this I
don't think really changes things very much. And by the way,
you see this in the market pricing for the upcoming
September meeting. Yesterday, there was an eighty six point seven
(08:25):
percent chance the FED was gonna cut at the September meeting.
According to the CME FED Fund's futures tool. Right now
it's eighty nine point two. So like a modest shift
towards Okay, some of the potential for you know, a
hot PCE is off the table, so it's a little
bit more likely, but no major shift.
Speaker 3 (08:43):
The only other.
Speaker 2 (08:44):
Major data points that are left now jobs next Friday,
and then you get CPI about a week and.
Speaker 3 (08:49):
A half after that. That's it. The other stuff.
Speaker 2 (08:53):
Quite honestly, jobless claims, you're only gonna have two more
now before the FED meeting. I don't know that a
trend of two, you know, bad or good jobless claims
numbers is enough to shift things. So it's jobs next
Friday and then CPI later in September. Those are the
two data points that matter. And I have no idea
(09:15):
what we're going to get from jobs. I mean, Mike,
when we look at the jobs numbers next Friday, the
projections right now are for about seventy thousand jobs added.
Unemployment stays steady at four to two, labor force participation
rate continues to decline. Average hourly earning stays at three
to nine. If you get that, I think you're right
on track for you know, obviously a twenty five basis
(09:38):
point cut from the FED.
Speaker 3 (09:39):
Yep, but I'll acknowledge.
Speaker 2 (09:42):
Look, I think there's a possibility that the numbers are
worse next month. I think there's, you know, even a
possibility that you get big upward revisions and maybe we're like, oh, hey,
like new data came in and things look better. I
have no idea, because we're at an inflection point, and
you don't know how the data is going to evolve
when you're these critical points. So I think there's Look,
(10:04):
quite honestly, I think there's a chance that you could
end up with a fifty basis point cut if you
get a bad jobs report, there's a chance that if
it comes in you know, screaming hot fit doesn't cut
at all. I think those are both possibilities when we
look at the September meeting. Yeah, anything else on PC
that you want to touch, I don't think so.
Speaker 4 (10:23):
Like you said, it was a pretty in line report
for those of you that are just catching what the
market's doing, which is selling off a fair bit. Probably
not because of this.
Speaker 2 (10:34):
Now, because bonds aren't really moving that much, you know,
the ten years up one point six basis points.
Speaker 3 (10:40):
Here's my general thought on end of month. It means nothing.
Speaker 2 (10:45):
End of month you get all kinds of rebalancing flows
from you know, different either pension funds or mutual funds
that are trying to rebalance to their target allocations. You
get all kinds of you know, corporate flows that happen
and things like that. I don't think you really should
read anything into end of month. It's not to say that, hey,
(11:05):
this couldn't continue later today or you know, into next week.
But whenever you talk about like the last two to
three trading days of a month, I generally consider them noise,
just because there's so many forced flows that happen then
that I don't know that you can get any accurate
read on what's going on in the market. Yep, just
take a quick break here. When we return, Mike, should
(11:25):
we talk about what rate cuts could mean if they
end up happening in September?
Speaker 3 (11:30):
Do you think we've covered that enough?
Speaker 4 (11:34):
Now, let's talk a little bit about what a if
the FED is to embark on a rate lowering.
Speaker 3 (11:42):
Stance, what does that mean for all sorts of folks?
I think that's important. Quick break. We'll cover that next
on the Financial Exchange.
Speaker 1 (11:49):
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Speaker 2 (12:19):
Like we have a piece in market Watch titles, Yes,
rate cuts will be good for stocks, but the FED
would be stimulating an economy that doesn't need it.
Speaker 4 (12:30):
Discuss maybe maybe not. It's a bold, depending definitive casey
from Jamie. I'm not sure that it is all that
clear that the economy doesn't need it. We have seen
some pretty weak hiring data, and if it were to continue,
then we could see companies downsizing, we could see real
problems for consumers.
Speaker 3 (12:48):
So I don't I'm not quite.
Speaker 4 (12:50):
As convinced as Jamie seems to be that the economy
doesn't need it. I think it's fair to say it
doesn't now. But that's not how the Fed acts. They
act to try and prevent recession, just respond to an
existing one. The bigger practical question, in terms of what
happens when the FED cuts rates, I think is worth
you know, refreshing our memories on right. I mean for
(13:10):
those of us with savings accounts at the banks, or
money markets, or you know, any of those things tied
to really short term interest rates, you will start to
see those rates come down.
Speaker 3 (13:20):
And that's part of what I think Jamie talks to.
Speaker 4 (13:24):
That you know fuels market speculation in some ways, or
market rallies in some ways, is you know, cash that
is getting paid less paid less on who oftentimes moves
into other types of investments. The other piece it does, though,
is it affects people's I guess, determination of what a
(13:44):
stock is worth. Right, If your alternative to taking risk
in the market is a lower interest rate than that
discount rate you use to apply to things like their
future earnings changes as well. Now we're talking about, in
all likelihood a quarter percentage cut here at the Fed's meeting,
and so what we shouldn't expect is any sort of
(14:06):
necessarily move to the longer end of the curve and Chuck,
you probably remember the stats better than I do. But
when the FED is cutting at a time when we
are not currently in recession, which it appears we are not,
it's kind of a toss up as to whether or
not long term rates move down or up. If I'm
not mistaken, it's a coin toss as to what happens
(14:26):
with things like mortgage rates and auto loan rates. They
sometimes go up, they sometimes go down. It is not
one for one.
Speaker 2 (14:33):
It is and I think there again, when we're talking
about rates, there are a few different things that you
need to think about on this. Let's first talk on
the equity side. The easy comparison that I'll make is, Mike,
if you could go out right now and get fifteen
percent on a ten year treasury, which you can't right
how much would you return out to be in order
to take equity risk. You're not gonna go out and
(14:56):
be like, yeah, equities have historically returned, you know, a
to ten percent. Let me go out and buy equities
when I've got a guaranteed fifteen from.
Speaker 3 (15:05):
The US government. Probably not right.
Speaker 2 (15:07):
And this is why when when rates go up, multiples
come down, is because equity investors say, no, I can
go and get a better return somewhere else with less risk.
The other piece is when it comes to bonds, think
about what you're comparing things to.
Speaker 3 (15:23):
There.
Speaker 2 (15:24):
If inflation is running at one percent and it's pretty stable,
you might go out and say, you know what, I'll
take two percent on a ten year treasury because I
still want something safe.
Speaker 3 (15:39):
It's better than inflation.
Speaker 2 (15:40):
Fine, And by the way, that's what a lot of
people did in the mid twenty tens YEP. Inflation was
really low during the first half of that decade and
growth was slow, and investors said, you know what, I'm
just gonna get my two percent in call today because also, look,
the FED was acting in a certain way that suggested
rates were going to remain low, and so there was
(16:00):
minimal risk there, which was true at the time. Like
rates basically stayed low for the entire twenty tens. On
the other hand, let's say you're entering a four percent
inflation period. You might say, and again, no one knows
what inflation's gonna be, but let's say inflation's running it
for you say, Okay, the Fed's paying me four percent
(16:20):
right now, that's not enough. I need a little premium
because four percent inflation today means it could be a
little higher, tomorrow might be lower. But I'm concerned that
it might be higher. I need more on that side.
And so you might say, no, I'm not gonna buy
a ten year treasury until the yields five and a half.
And where this all kind of meat meets together is
these decisions that businesses have to make all day, every day.
(16:44):
Insurance companies is an example. The things that they hedge
for are some of them are short term in nature.
When you pay an auto insurance premium into you know,
and ensure, generally they assume, okay, X percentage of those
are going to be used in the next year.
Speaker 3 (17:02):
When you are.
Speaker 2 (17:02):
Going out and buying a life insurance policy, they have
the actuarial tables and they say, okay, there's a three
percent chance that you're going to die over that twenty
year period, and we're going to hedge that with you know,
bonds of X, y and Z duration. But all this
comes together and eventually you get to a point where
insurance companies are you know, they don't necessarily segregate these
buckets out. They kind of buy you know, mass exposures.
(17:25):
And so part of it might be okay if we
have you know, these potential things that we need to cover,
and inflation is moving up, Hey, are we comfortable buying
a ten year treasury at three and a half percent
of inflation's at three It's a lot of risk for
us depending on how these costs might move, right, And
so this is kind of where the rubber meets the
(17:46):
road on This is all these different decisions being made,
and that's how you know your your market actually happens
in these different areas and how you end up with
the rates that you may see on different products and
in different uh, you know, parts of the economy. Anything
else to add on that, Mic, No, So the other
piece on this just on this headline, Yes, rate cuts
(18:07):
will be good for stocks, not necessarily, you know, like
Will is doing an awful lot of work there sometimes
they are. But if you go into a real recession,
rate cuts are not usually great for stocks, then stocks
usually sell off, not during the entire recession, but at
some point during them, and so rate cuts are not
necessarily good for stocks. If recession actually materializes, the FED
(18:30):
would be stimulating an economy that doesn't need it. This
is the other piece that I think is questionable here. Hey,
if you cut rates into an economy that doesn't need it,
that's how you potentially end up with long term rates
moving up. If the recession doesn't develop, an inflation comes
out of those rate cuts. Yeah, you could see the
long end move up. And by the way, it's exactly
(18:51):
what happened last fall. The Fed cut interest rates, what
happened to long term rates? They went uppy, uppy, uppy yep.
Tenure treasury moved up almost a full percentage point the
span of a few months, and then reverse a decent
chunk of that, you know, shortly thereafter. So none of
this is black and white, none of it's cut and dry,
And I think you just got to stay away from
headlines like will or won't and have some humility, be
(19:14):
open to maybe, you know, let's take a quick break
here as we head towards the bottom of the hour.
Speaker 3 (19:20):
When we come back, we'll.
Speaker 2 (19:22):
Talk a little bit about what we see for you know,
upcoming growth and inflation in twenty twenty six.
Speaker 3 (19:27):
We've also got Wall Street Watch right after this.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch, a complete look and what's moving market so
far today right here on the Financial Exchange Radio netw
work on.
Speaker 5 (20:00):
The final trading day of August. Markets today are slightly
selling off as Walstree reacts to the core PCE index,
the Fed's preferred measure of inflation, with no surprises and
mostly coming in line with expectations. Right now, the Dow
is off by four tenths of one percent, or one
hundred and ninety points lower. SMP five hundred is down
(20:23):
six tenths of one percent or forty one points lower.
In the Nasdaq down by one percent or two hundred
and twenty four points, Russell two thousand is down by
about a half a percent, Tenured Treasure reeled up one
basis point at four point two two six percent, and
crude oil is down seven tenths of one percent, trading
just above sixty four dollars a barrel. According to the
(20:46):
Wall Street Journal, Ali Baba has created a new versatile
chip to fill the void left by Nvidia's restricted access
to the Chinese market. Several other Chinese tech companies that
are developing homegrown AI technology in order to work around
used restrictions. To boost its AI technology, Ali Bob shares
a jumping twelve percent. Meanwhile, Dell Technologies hiked its annual
(21:10):
outlook driven by strong AI demand. However, the tech company
offered softer guidance for the current quarter, sending Dell shares
down by ten percent. Elsewhere by now pay later company
Affirm seeing its stock leap seventeen percent after it swung
to a profit in the previous quarter, surpassing expectations. Alts
(21:31):
of Beauty falling four percent despite the cosmetics retailer raising
its full year earnings in revenue forecasts. After notching higher
profit and sales in the latest quarter, Caterpillar revealed it
now expects the net impact from tariffs to be as
much as one point eight billion dollars this year, sending
shares in the construction equipment maker down by four percent,
(21:52):
and retailer GAP said it anticipates tariffs to cost between
one hundred and fifty to one hundred and seventy five
million dollars this fiscal year, higher than previously forecasted. For
the second quarter, GAP saw at same store sales climbed slightly,
while revenue met estimates. GAP stock is up by one percent.
I'm Tucker Silva and that is Wall Street Watch, Mike.
Speaker 2 (22:14):
We got a piece from the blooming Berg economistsy slow
US growth, stubborn inflation well into twenty twenty six, and
just to give us some context to the data here,
when we look at GDP growth for next year, economists
are generally expecting that it's gonna end up somewhere in
the high ones, somewhere like right in the one seven
(22:37):
to two percent range for next year, and inflation likely
to remain a core pce likely to remain north of
three percent in the first couple quarters of the year
before getting down to around two and a half percent
in the back half.
Speaker 3 (22:50):
Of the year.
Speaker 4 (22:52):
Is this worth the digital paper it's printed on. I'm
not sure what it tells you. I guess it's interesting
asking how could they be wrong? Yes, So that this is.
Speaker 2 (23:03):
Where I think, Like I like to think about these
kinds of things and specifically, hey, how could they be
wrong to you know, the upside on growth and how
could they be wrong to the downside on inflation?
Speaker 3 (23:15):
Like?
Speaker 2 (23:15):
What what are the paths to things going more right?
Is the interesting thing because to me, like, if things
go more wrong, okay, you're gonna get more fed cuts
like you like? That to me is less interesting because
you kind of know the playbook there. What I'm more
interested in is, Hey, what's the path to things being
better than they expect?
Speaker 3 (23:34):
Like?
Speaker 2 (23:34):
Where where are the unexpected bright spots that we could see?
So if you look at the things that can drive
the US economy, you know, like on the margin, like,
what's the marginal activity that can drive it?
Speaker 3 (23:44):
Let's talk about housing.
Speaker 2 (23:46):
Sure, what's the path to twenty twenty six being a
stronger year for housing? Typically in terms of two things
sales volume and additional construction.
Speaker 4 (23:56):
I genuinely hesitate to think of a single one that
could get us there.
Speaker 2 (23:59):
It's it's tough to find one because pricing is so
tough right now. And this is what we're seeing from companies.
The place that actually could get us to a better
spot on housing, in my opinion, is at least in
the short term, a FED policy error where they're too
duffish and you still don't end up with you know,
(24:22):
too much inflation necessarily in the short term, and so
people are able to buy homes at cheaper rates. It
generates a little more activity there. It still is probably
a marginal impulse, but that's like one way that you
potentially get there in the short term. Sure, Other than that,
it's kind of hard to see housing being like this,
you know, something that draws the US economy forward next year.
(24:45):
Data center construction another big one that has been driving
the US economy this year. The case for it being
you know, stronger than expected next year is that it's
been stronger than expected this year. Yeah, there's been more
construction this year seven years in a row. CAPEX has
continued to ramp up faster than we can even like
measure it basically, and so there there's your case for
(25:07):
upside on that side of things. Tourism not a huge
driver of overall economic activity. I mean, let me rephrase
on the margin, Tourism is just not a big enough
industry to drive you know, a ton of activity there,
but what you could see next year. Hey, a lot
of the foreign visitors who have put off a visit
(25:29):
to the US this year might say, Hey, you know what,
we're coming back next year? The World Cup's happening. Dollars weeker. Sure,
going to the US seems like a great thing to do,
and so maybe you get some kind of marginal boost
from that. Is it big enough to move the needle if.
Speaker 3 (25:47):
You got don't know?
Speaker 2 (25:49):
Maybe, but like, has it been big enough to move
the needle this year? Not really like in the other direction.
So it's kind of like, Okay, that could be something
that's out there. Is it the return of non business
non AI capex growth? The one big beautiful Bill unlocked
(26:09):
a ton of benefits for companies to invest in the
United States.
Speaker 3 (26:14):
Do they spend the.
Speaker 2 (26:15):
Last half of this year planning and next year actually
moving forward with a you know, larger than expected capex
because of these tax breaks they get. Maybe I think
you could see that. So I think the growth picture
being stronger. There's some modest things around the edges, but
(26:36):
it could happen. The inflation picture. What are the ways
that we could see inflation be better than expected next year?
Speaker 4 (26:43):
More conciliation on tariffs and recession. So if we're talking
about positive ones like those, of the two that I
can think of would be tariff rates, which are you know,
stuck for a number of countries right now. I'm thinking
about India, I'm thinking about China. Could you see those
come down? In which case, yeah, you could see inflation
(27:04):
come in better than is currently expected.
Speaker 2 (27:07):
The recession piece obviously, like could result in lower infliction
but obviously results in lower growth, yeah, which you know
doesn't really help you on that side of the equation.
But are we just again I'm just I'm hashing this
out in real time, like just my own thought process.
Are we too anchored to the idea that this is
where twenty twenty six has to be?
Speaker 3 (27:27):
Like? Are we too resistant to the idea that it
could be different?
Speaker 4 (27:32):
I'm not sure I understand which media Are you saying
that you think these gains are the are the status quo?
Speaker 3 (27:37):
No?
Speaker 2 (27:38):
So what I'm saying is we're basically saying, hey, it's
really hard for us to see things being different from
what's being projected next year. Are we too anchored to
those projections to see things that might be obvious to us?
As like another exist usually are the data center construction
piece the other side that we have not dealt with
(27:58):
properly in the US, And we've talked about a lot.
Speaker 4 (28:00):
We're not building enough power generation infrastructure, Right, does it
all fall apart because there's not an electricity to power?
Speaker 2 (28:07):
I was gonna go the opposite direction. Do we finally
decide next year, you know, heading into a midterm election year,
Hey we got to figure out a way to produce
more energy here, not you know, not oil, but hey,
we got to figure out how to build more power
plants here next year and expedite the approval process. And
is that, you know, an unexpected positive thing that we
see for economic growth? Yeah, Like there are things off
(28:29):
the board that I think we need to consider, and
that's one of them that Yeah, it's kind of a
long shot, but it also makes sense when you think
about it logically in terms of the issues that we
might face next year.
Speaker 4 (28:40):
I mean, I feel as though the end all be
all right if you're talking about I'm not sure what
it does to economic growth because I'm just not sure
what it does to the labor force and consumer But
the end all be all would be the productivity gains
that have been promised now for the last five years
from artificial intelligence.
Speaker 2 (28:56):
Now we're getting somewhere fun robots. Man, what if twenty
twenty I'm serious. I know I said it kind of,
you know, tongue in cheek, but it's only kind of
because honestly, I think this is coming soon. What if
twenty twenty six is the year the robots, the same
way that twenty twenty three was the year of the
large language models could be you know, like, these are
(29:17):
just things that I like to consider as far as Hey,
you know, economists have their projections, and I understand that,
and quite honestly, they've thought about this stuff way more
than I have. Like they got actual models for economic growth.
I have, you know, toy plane models sitting on my shelf, Yes,
which you're fine, So I think ultimately, I just try
(29:39):
to think of, hey, how can we see something that's
different from what's expected, because that's ultimately where you make
money in markets. It's by seeing something that's different from
what's expected. In twenty twenty two, it was, Hey, the
Fed's gonna have to hike five percent because inflation's really hot.
When the market was pricing in one percent of hikes
R in the second half of twenty twenty three, it
(30:04):
was no, there's not going to be a recession when
everyone thought we were heading towards one.
Speaker 3 (30:09):
Same with the second half of last year.
Speaker 2 (30:11):
So as we head into next year, it's Okay, where's
the thing that could be different from what everyone's pricing
in right now? And I don't know that it's any
of these, but it's just the stuff that crosses my mind.
Just take a quick break when we return, talk about
this piece from the Wall Street Journal about consumer staples
pricing and how some of those things seem like they
might have a little bit bigger price tag in the
(30:32):
coming months.
Speaker 1 (30:34):
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five with your comments and questions about today's show and
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Speaker 5 (31:01):
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Speaker 2 (31:33):
Mike, we got a piece in the Wall Street Journal.
Higher prices are coming for household staples. Is this tariffs
or something else?
Speaker 3 (31:41):
Why? Yeah?
Speaker 4 (31:42):
So I think it's a little bit of both. But
I think you have a combination of factors here for
staples companies. One, yeah, a lot of the stuff that
we buy on a day to day basis does come
from China. Go to your hardware store, go to you know,
in many of those places, and it is heavily imported
(32:03):
from China, which is facing some seriously higher teriff rates.
On the food side of things. I guess I'm having
a tougher time making the connection other than yeah, look,
there are tariffs even on some food items, on the
items that you use to.
Speaker 3 (32:19):
Package the food.
Speaker 4 (32:20):
And at the same time, a lot of those food
processing companies are probably experiencing a pretty significant labor shortage.
You go take a look at farms across the country
and how outspoken they have been. Meat processing plants, things
along those lines relied heavily on either undocumented or undocumented
labor or folks that are in the country attached to
(32:42):
folks that are undocumented, and there has been a significant
drop in those people that are here and the new
ones coming over the border.
Speaker 3 (32:51):
Yeah, that would you explain it in any other way.
On the food side of things, No, I think it's that.
Speaker 2 (32:56):
I mean, look, there's some food that you just can't
produce the United States. Bananas what you don't have the
environment to produce large quantities of bananas in the United States. Coffee,
you can't produce coffee in the United States and like
consistently with the scale.
Speaker 3 (33:13):
That you need.
Speaker 2 (33:14):
So yeah, I mean there's some stuff that is related
to tariffs. There's some stuff that I think is related
to the labor that happens on US farms. And the
thing that we're seeing is this is a pretty consistent
and there's some stuff that's also just like related to
you know, other things that are going on as well.
I mean, you have it's not bird flu this year,
(33:35):
but have have you guys been paying attention to what's
going on with beef prices.
Speaker 3 (33:38):
Yeah, I have.
Speaker 2 (33:39):
I'm a big beef guy myself, and those prices are
moving in one direction. That price in that direction is up,
and it's because of some concerns about different viruses and
things there and stuff like that that is pushing beef
prices up. And as a result, I'm paying more for steaks,
which is not ideal in my situation. But I think
ultimately you look at this and companies are now also
(34:03):
trying to manage you know, Hey, we've worked through some
of the pre tariff inventory. You know, what do we
have to do on this? And so I think it's
a convergence of a bunch of different factors tariffs of
which are one, labor force is another, than random one
offs that are are pushing you know, prices up on
some staples and stuff.
Speaker 4 (34:17):
Yeah, I don't want to be alarmist. It doesn't seem
as though prices are going back towards very high levels
of inflation. But also really tough to envision any sort
of you know, staple prices moderating to no inflation over
the course of the next couple of years.
Speaker 3 (34:32):
I guess is where I would go with it.
Speaker 4 (34:34):
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Speaker 3 (35:03):
Right.
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It's hey, how do I make sure if I pass
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To do with that.
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Speaker 2 (36:37):
Mike, I want to talk about Happy Hour, Me too,
Chuck Good so big thing Mike and I are show.
We're based out of Massachusetts, which does not allow for
happy hours for about forty years now, and the big
thing is a lot of restaurants and bars are pushing
for Massachusetts to change the rules regarding happy hour. The
(37:00):
reason being basically, people aren't hanging out after work and
they want more customers. And the argument they make is, hey,
this will help us to get you know, more people
coming in between like that four and six o'clock hour,
to you.
Speaker 3 (37:12):
Know, get us a little bit more business.
Speaker 2 (37:14):
And there's more public transit available now you have things
like Uber and Lyft, so people won't be drunk driving
as much.
Speaker 4 (37:21):
Your thoughts, Mike, I'm a general deregulation person, so I'm
totally fine with this. The other person, the other piece
of this that I was trying to recall, do you
guys remember I think it was last year the city
of Boston trialed a past two am second neighborhood that
was going to be open for bars and restaurants after
that two am. I don't remember anything coming of that
(37:44):
trial run that they tested at, which probably means that
they're not going to continue it. But this one just
seems to me like many of our alcohol rules do
across Massachusetts. Seems just kind of arbitrary that bars aren't
allowed to offer this sort of thing. And yeah, I
would be in favor of anything that the restaurants need in.
Speaker 2 (38:02):
Order to look if yeah, if if you want to
balance some of these things, Okay, allow for happy hours,
but ramp up.
Speaker 3 (38:08):
Your duy penalties.
Speaker 2 (38:10):
Sure you know there's ways to solve this, but yeah,
let the restaurants sell what they want, when they want,
for how much they want.
Speaker 3 (38:17):
A quick break here hour two in just a little bit,
The Financial Exchange is produced by Money Matters Radio and
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(00:20):
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(01:05):
Zada and Mike Armstraw.
Speaker 2 (01:11):
Chuck, Mike and Tucker with you on the final day
of the week, the final trading.
Speaker 3 (01:16):
Day of August, and this morning.
Speaker 2 (01:20):
At eight thirty am Eastern time, we got the Personal
Consumption Expenditures Report, which includes PCE inflation data in the
form of the PCE price Index. The headline index came
in at point two percent for the month, two point
six for the year, right on the screws, right where
we were expecting to see it, or at least right
(01:41):
where the market was expecting to see it. I didn't
personally have any expectations. And core PCE came in at
point three percent, on the high end of the range
of expectations, but.
Speaker 3 (01:52):
Still within it.
Speaker 2 (01:54):
And so that moved the annual index from two point
eight to two point nine percent. And so, Mike, no
real surprises in the economic data here, but we do
have the long end of the yield curve moving up
very modestly a couple basis points. In response, we got
stock selling off a little bit. I don't know if
it's with regards to this or just hey, you know,
(02:16):
markets have had a nice little run and it's end
of month rebalancing. You never know what these things. I
don't like to ascribe too much to it, especially because
there's nobody, not nobody. But it's a light trading day
on the Friday before Labor Day. I think the population
of New York has relocated from Manhattan to the Hampton
correct in the last twenty four hours, and so the
(02:38):
Friday before Labor Day is generally kind of a bad
time to try to get a read on what the
market is going to do in September. It's not to
say that like today doesn't matter, but just that it
doesn't matter, Okay.
Speaker 4 (02:51):
In any case, this reading on PCE was pretty mirror
image match to what we got from CPI. We are
seeing now inflation which excludes those food and energy readings,
around three percent, and regular old inflation in the high twos.
So not terribly surprising here, and I don't think any
(03:14):
sort of I can't look at this today and say, oh,
but we're heading for a trend of acceleration. We might
get that from terrorists, but I don't know that any
of this data to me indicates that we are heading
for above three percent.
Speaker 2 (03:26):
For example, well, I think here's where where I look
at this. So if we look at you know, core PCE,
because ultimately that's like the one that matters from a
you know that the FED really watches because because this
is why this matters. It's it's what is the Fed
going to do?
Speaker 3 (03:43):
Ultimately.
Speaker 2 (03:44):
We've talked about this before, inflation. The only reason that
people don't like it is because they don't like it.
I'm not saying that anyone should, but I'm just saying
there's nothing that in like inherently states higher inflation leads
to like lower stock prices or this, and that it's
more just hey, when inflation gets high, the cure that
we have for it based on you know, what we
(04:04):
know to this point, and what we've done is raising
interest rates, which all else being equals, slows the economy,
makes the cost of capital for companies more expensive, and
stocks tend to respond negatively. So that's why we care
about core PCE is simply because the Fed doesn't, so
we have to. So here's the big thing over the
next over the rest of the year, really, so we're
(04:27):
gonna get five more inflation readings for twenty twenty five,
I know, only four this year, but just when we
look at you know, the calendar year for you know,
the the actual readings August of last year came in
at point two, September and October came in at point three,
November point one, December point two. So where this matters
in terms of where core PCE is at.
Speaker 3 (04:48):
The end of the year.
Speaker 2 (04:49):
Hey, those point three percent readings are a bit of
a slog to get over, right, Like it's I'm not
saying it's impossible, but are you going to print point
four on.
Speaker 3 (04:58):
Core PCE consistently?
Speaker 2 (05:00):
I just don't know. We haven't seen you know, many
of those. The only reading over point three since early
twenty four came in February of this year, and that
was a point five percent reading that we got, and
there's been nothing around it that's anywhere close to that.
Speaker 3 (05:16):
So you look at this and you say, okay.
Speaker 2 (05:18):
By the end of you know, the twenty twenty five
PCE data, reasonably you've got you know, maybe twenty to
thirty BIPs that you could see this move up if
things continue in this fashion, And so okay, as a
reasonable expectation, Hey, core PCE, you know when we get
this one in January for twenty five comes in anywhere
from like three to three three. I think that seems
(05:39):
reasonable as a possibility. Is there the possibility that we
print you know, a bunch of point two's going into
year end and as such end up with you know,
core pce E at like two seven two eight. Maybe
I don't know that it's quite as convincing. They're like
given the tariff situation to like suddenly see inflation trend lower,
But it's possible. So I think like two seven to
(06:00):
three three is your realistic range, and probably three to
one to like three to three one if you really
want to hone in on like central tendency. It's basically saying, look,
core inflation's probably right around three percent, and that's not
terrible to be fair. But here's the thing. When you
have inflation running at three percent, prices double every twenty
(06:22):
three to twenty five years as opposed to two percent.
You're talking like every thirty five to thirty seven years.
So it does have an impact like over time. It's
it's a meaningful shift moving from a two percent inflationary
world to a three percent one and it's more noticeable
as well, which is why generally you try to see
central banks keeping inflation you know, closer to two percent.
(06:43):
You can have good economic environments where inflation runs closer
to three. The nineteen nineties were a case in point there.
Speaker 3 (06:50):
I don't think.
Speaker 2 (06:51):
Anyone would compare you know, the economy of today with
the you know, blockbuster that we saw in the nineties,
except for you know, maybe some tech bubble similarities. So
I think ultimately where I come back to on this is, hey,
the FED may end up saying, hey, we're cool with
inflation running closer to three. That's okay, it's not necessarily
(07:13):
the worst thing in the world. But how does that
impact other things as far as you know, commodity pricing
and things like that, And does that push inflation higher
with the higher risk of three percent turning into four
percent inflation? Yeah, those are things that you have to
be aware of in that world. And this is you know,
potentially a sea change that we could see in terms
(07:33):
of how we look at or how the FED looks
at inflation here right right.
Speaker 4 (07:38):
So yeah, and it does kind of tail into you know,
they're cutting in September, and we've got a piece later
on about okay, is now really the time to be stimulating?
But clearly they're on this course now, and I think
the only real thing that pushes them away from it
would be labor market induced inflation, which we will see
(08:02):
whether or not that comes in.
Speaker 2 (08:05):
Yeah, it's Look, we've got some key data points before
the next FED meeting. You've got pcees out of the
way now, they're no big surprise here, So this I
don't think really changes things very much. And by the way,
you see this in the market pricing for the upcoming
September meeting. Yesterday, there was an eighty six point seven
(08:25):
percent chance the FED was gonna cut at the September meeting.
According to the CME FED Fund's futures tool. Right now
it's eighty nine point two. So like a modest shift
towards Okay, some of the potential for you know, a
hot PCE is off the table, so it's a little
bit more likely, but no major shift.
Speaker 3 (08:43):
The only other.
Speaker 2 (08:44):
Major data points that are left now jobs next Friday,
and then you get CPI about a week and.
Speaker 3 (08:49):
A half after that. That's it. The other stuff.
Speaker 2 (08:53):
Quite honestly, jobless claims, you're only gonna have two more
now before the FED meeting. I don't know that a
trend of two, you know, bad or good jobless claims
numbers is enough to shift things. So it's jobs next
Friday and then CPI later in September. Those are the
two data points that matter. And I have no idea
(09:15):
what we're going to get from jobs. I mean, Mike,
when we look at the jobs numbers next Friday, the
projections right now are for about seventy thousand jobs added.
Unemployment stays steady at four to two, labor force participation
rate continues to decline. Average hourly earning stays at three
to nine. If you get that, I think you're right
on track for you know, obviously a twenty five basis
(09:38):
point cut from the FED.
Speaker 3 (09:39):
Yep, but I'll acknowledge.
Speaker 2 (09:42):
Look, I think there's a possibility that the numbers are
worse next month. I think there's, you know, even a
possibility that you get big upward revisions and maybe we're like, oh, hey,
like new data came in and things look better. I
have no idea, because we're at an inflection point, and
you don't know how the data is going to evolve
when you're these critical points. So I think there's Look,
(10:04):
quite honestly, I think there's a chance that you could
end up with a fifty basis point cut if you
get a bad jobs report, there's a chance that if
it comes in you know, screaming hot fit doesn't cut
at all. I think those are both possibilities when we
look at the September meeting. Yeah, anything else on PC
that you want to touch, I don't think so.
Speaker 4 (10:23):
Like you said, it was a pretty in line report
for those of you that are just catching what the
market's doing, which is selling off a fair bit. Probably
not because of this.
Speaker 2 (10:34):
Now, because bonds aren't really moving that much, you know,
the ten years up one point six basis points.
Speaker 3 (10:40):
Here's my general thought on end of month. It means nothing.
Speaker 2 (10:45):
End of month you get all kinds of rebalancing flows
from you know, different either pension funds or mutual funds
that are trying to rebalance to their target allocations. You
get all kinds of you know, corporate flows that happen
and things like that. I don't think you really should
read anything into end of month. It's not to say that, hey,
(11:05):
this couldn't continue later today or you know, into next week.
But whenever you talk about like the last two to
three trading days of a month, I generally consider them noise,
just because there's so many forced flows that happen then
that I don't know that you can get any accurate
read on what's going on in the market. Yep, just
take a quick break here. When we return, Mike, should
(11:25):
we talk about what rate cuts could mean if they
end up happening in September?
Speaker 3 (11:30):
Do you think we've covered that enough?
Speaker 4 (11:34):
Now, let's talk a little bit about what a if
the FED is to embark on a rate lowering.
Speaker 3 (11:42):
Stance, what does that mean for all sorts of folks?
I think that's important. Quick break. We'll cover that next
on the Financial Exchange.
Speaker 1 (11:49):
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Speaker 2 (12:19):
Like we have a piece in market Watch titles, Yes,
rate cuts will be good for stocks, but the FED
would be stimulating an economy that doesn't need it.
Speaker 4 (12:30):
Discuss maybe maybe not. It's a bold, depending definitive casey
from Jamie. I'm not sure that it is all that
clear that the economy doesn't need it. We have seen
some pretty weak hiring data, and if it were to continue,
then we could see companies downsizing, we could see real
problems for consumers.
Speaker 3 (12:48):
So I don't I'm not quite.
Speaker 4 (12:50):
As convinced as Jamie seems to be that the economy
doesn't need it. I think it's fair to say it
doesn't now. But that's not how the Fed acts. They
act to try and prevent recession, just respond to an
existing one. The bigger practical question, in terms of what
happens when the FED cuts rates, I think is worth
you know, refreshing our memories on right. I mean for
(13:10):
those of us with savings accounts at the banks, or
money markets, or you know, any of those things tied
to really short term interest rates, you will start to
see those rates come down.
Speaker 3 (13:20):
And that's part of what I think Jamie talks to.
Speaker 4 (13:24):
That you know fuels market speculation in some ways, or
market rallies in some ways, is you know, cash that
is getting paid less paid less on who oftentimes moves
into other types of investments. The other piece it does, though,
is it affects people's I guess, determination of what a
(13:44):
stock is worth. Right, If your alternative to taking risk
in the market is a lower interest rate than that
discount rate you use to apply to things like their
future earnings changes as well. Now we're talking about, in
all likelihood a quarter percentage cut here at the Fed's meeting,
and so what we shouldn't expect is any sort of
(14:06):
necessarily move to the longer end of the curve and Chuck,
you probably remember the stats better than I do. But
when the FED is cutting at a time when we
are not currently in recession, which it appears we are not,
it's kind of a toss up as to whether or
not long term rates move down or up. If I'm
not mistaken, it's a coin toss as to what happens
(14:26):
with things like mortgage rates and auto loan rates. They
sometimes go up, they sometimes go down. It is not
one for one.
Speaker 2 (14:33):
It is and I think there again, when we're talking
about rates, there are a few different things that you
need to think about on this. Let's first talk on
the equity side. The easy comparison that I'll make is, Mike,
if you could go out right now and get fifteen
percent on a ten year treasury, which you can't right
how much would you return out to be in order
to take equity risk. You're not gonna go out and
(14:56):
be like, yeah, equities have historically returned, you know, a
to ten percent. Let me go out and buy equities
when I've got a guaranteed fifteen from.
Speaker 3 (15:05):
The US government. Probably not right.
Speaker 2 (15:07):
And this is why when when rates go up, multiples
come down, is because equity investors say, no, I can
go and get a better return somewhere else with less risk.
The other piece is when it comes to bonds, think
about what you're comparing things to.
Speaker 3 (15:23):
There.
Speaker 2 (15:24):
If inflation is running at one percent and it's pretty stable,
you might go out and say, you know what, I'll
take two percent on a ten year treasury because I
still want something safe.
Speaker 3 (15:39):
It's better than inflation.
Speaker 2 (15:40):
Fine, And by the way, that's what a lot of
people did in the mid twenty tens YEP. Inflation was
really low during the first half of that decade and
growth was slow, and investors said, you know what, I'm
just gonna get my two percent in call today because also, look,
the FED was acting in a certain way that suggested
rates were going to remain low, and so there was
(16:00):
minimal risk there, which was true at the time. Like
rates basically stayed low for the entire twenty tens. On
the other hand, let's say you're entering a four percent
inflation period. You might say, and again, no one knows
what inflation's gonna be, but let's say inflation's running it
for you say, Okay, the Fed's paying me four percent
(16:20):
right now, that's not enough. I need a little premium
because four percent inflation today means it could be a
little higher, tomorrow might be lower. But I'm concerned that
it might be higher. I need more on that side.
And so you might say, no, I'm not gonna buy
a ten year treasury until the yields five and a half.
And where this all kind of meat meets together is
these decisions that businesses have to make all day, every day.
(16:44):
Insurance companies is an example. The things that they hedge
for are some of them are short term in nature.
When you pay an auto insurance premium into you know,
and ensure, generally they assume, okay, X percentage of those
are going to be used in the next year.
Speaker 3 (17:02):
When you are.
Speaker 2 (17:02):
Going out and buying a life insurance policy, they have
the actuarial tables and they say, okay, there's a three
percent chance that you're going to die over that twenty
year period, and we're going to hedge that with you know,
bonds of X, y and Z duration. But all this
comes together and eventually you get to a point where
insurance companies are you know, they don't necessarily segregate these
buckets out. They kind of buy you know, mass exposures.
(17:25):
And so part of it might be okay if we
have you know, these potential things that we need to cover,
and inflation is moving up, Hey, are we comfortable buying
a ten year treasury at three and a half percent
of inflation's at three It's a lot of risk for
us depending on how these costs might move, right, And
so this is kind of where the rubber meets the
(17:46):
road on This is all these different decisions being made,
and that's how you know your your market actually happens
in these different areas and how you end up with
the rates that you may see on different products and
in different uh, you know, parts of the economy. Anything
else to add on that, Mic, No, So the other
piece on this just on this headline, Yes, rate cuts
(18:07):
will be good for stocks, not necessarily, you know, like
Will is doing an awful lot of work there sometimes
they are. But if you go into a real recession,
rate cuts are not usually great for stocks, then stocks
usually sell off, not during the entire recession, but at
some point during them, and so rate cuts are not
necessarily good for stocks. If recession actually materializes, the FED
(18:30):
would be stimulating an economy that doesn't need it. This
is the other piece that I think is questionable here. Hey,
if you cut rates into an economy that doesn't need it,
that's how you potentially end up with long term rates
moving up. If the recession doesn't develop, an inflation comes
out of those rate cuts. Yeah, you could see the
long end move up. And by the way, it's exactly
(18:51):
what happened last fall. The Fed cut interest rates, what
happened to long term rates? They went uppy, uppy, uppy yep.
Tenure treasury moved up almost a full percentage point the
span of a few months, and then reverse a decent
chunk of that, you know, shortly thereafter. So none of
this is black and white, none of it's cut and dry,
And I think you just got to stay away from
headlines like will or won't and have some humility, be
(19:14):
open to maybe, you know, let's take a quick break
here as we head towards the bottom of the hour.
Speaker 3 (19:20):
When we come back, we'll.
Speaker 2 (19:22):
Talk a little bit about what we see for you know,
upcoming growth and inflation in twenty twenty six.
Speaker 3 (19:27):
We've also got Wall Street Watch right after this.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch, a complete look and what's moving market so
far today right here on the Financial Exchange Radio netw
work on.
Speaker 5 (20:00):
The final trading day of August. Markets today are slightly
selling off as Walstree reacts to the core PCE index,
the Fed's preferred measure of inflation, with no surprises and
mostly coming in line with expectations. Right now, the Dow
is off by four tenths of one percent, or one
hundred and ninety points lower. SMP five hundred is down
(20:23):
six tenths of one percent or forty one points lower.
In the Nasdaq down by one percent or two hundred
and twenty four points, Russell two thousand is down by
about a half a percent, Tenured Treasure reeled up one
basis point at four point two two six percent, and
crude oil is down seven tenths of one percent, trading
just above sixty four dollars a barrel. According to the
(20:46):
Wall Street Journal, Ali Baba has created a new versatile
chip to fill the void left by Nvidia's restricted access
to the Chinese market. Several other Chinese tech companies that
are developing homegrown AI technology in order to work around
used restrictions. To boost its AI technology, Ali Bob shares
a jumping twelve percent. Meanwhile, Dell Technologies hiked its annual
(21:10):
outlook driven by strong AI demand. However, the tech company
offered softer guidance for the current quarter, sending Dell shares
down by ten percent. Elsewhere by now pay later company
Affirm seeing its stock leap seventeen percent after it swung
to a profit in the previous quarter, surpassing expectations. Alts
(21:31):
of Beauty falling four percent despite the cosmetics retailer raising
its full year earnings in revenue forecasts. After notching higher
profit and sales in the latest quarter, Caterpillar revealed it
now expects the net impact from tariffs to be as
much as one point eight billion dollars this year, sending
shares in the construction equipment maker down by four percent,
(21:52):
and retailer GAP said it anticipates tariffs to cost between
one hundred and fifty to one hundred and seventy five
million dollars this fiscal year, higher than previously forecasted. For
the second quarter, GAP saw at same store sales climbed slightly,
while revenue met estimates. GAP stock is up by one percent.
I'm Tucker Silva and that is Wall Street Watch, Mike.
Speaker 2 (22:14):
We got a piece from the blooming Berg economistsy slow
US growth, stubborn inflation well into twenty twenty six, and
just to give us some context to the data here,
when we look at GDP growth for next year, economists
are generally expecting that it's gonna end up somewhere in
the high ones, somewhere like right in the one seven
(22:37):
to two percent range for next year, and inflation likely
to remain a core pce likely to remain north of
three percent in the first couple quarters of the year
before getting down to around two and a half percent
in the back half.
Speaker 3 (22:50):
Of the year.
Speaker 4 (22:52):
Is this worth the digital paper it's printed on. I'm
not sure what it tells you. I guess it's interesting
asking how could they be wrong? Yes, So that this is.
Speaker 2 (23:03):
Where I think, Like I like to think about these
kinds of things and specifically, hey, how could they be
wrong to you know, the upside on growth and how
could they be wrong to the downside on inflation?
Speaker 3 (23:15):
Like?
Speaker 2 (23:15):
What what are the paths to things going more right?
Is the interesting thing because to me, like, if things
go more wrong, okay, you're gonna get more fed cuts
like you like? That to me is less interesting because
you kind of know the playbook there. What I'm more
interested in is, Hey, what's the path to things being
better than they expect?
Speaker 3 (23:34):
Like?
Speaker 2 (23:34):
Where where are the unexpected bright spots that we could see?
So if you look at the things that can drive
the US economy, you know, like on the margin, like,
what's the marginal activity that can drive it?
Speaker 3 (23:44):
Let's talk about housing.
Speaker 2 (23:46):
Sure, what's the path to twenty twenty six being a
stronger year for housing? Typically in terms of two things
sales volume and additional construction.
Speaker 4 (23:56):
I genuinely hesitate to think of a single one that
could get us there.
Speaker 2 (23:59):
It's it's tough to find one because pricing is so
tough right now. And this is what we're seeing from companies.
The place that actually could get us to a better
spot on housing, in my opinion, is at least in
the short term, a FED policy error where they're too
duffish and you still don't end up with you know,
(24:22):
too much inflation necessarily in the short term, and so
people are able to buy homes at cheaper rates. It
generates a little more activity there. It still is probably
a marginal impulse, but that's like one way that you
potentially get there in the short term. Sure, Other than that,
it's kind of hard to see housing being like this,
you know, something that draws the US economy forward next year.
(24:45):
Data center construction another big one that has been driving
the US economy this year. The case for it being
you know, stronger than expected next year is that it's
been stronger than expected this year. Yeah, there's been more
construction this year seven years in a row. CAPEX has
continued to ramp up faster than we can even like
measure it basically, and so there there's your case for
(25:07):
upside on that side of things. Tourism not a huge
driver of overall economic activity. I mean, let me rephrase
on the margin, Tourism is just not a big enough
industry to drive you know, a ton of activity there,
but what you could see next year. Hey, a lot
of the foreign visitors who have put off a visit
(25:29):
to the US this year might say, Hey, you know what,
we're coming back next year? The World Cup's happening. Dollars weeker. Sure,
going to the US seems like a great thing to do,
and so maybe you get some kind of marginal boost
from that. Is it big enough to move the needle if.
Speaker 3 (25:47):
You got don't know?
Speaker 2 (25:49):
Maybe, but like, has it been big enough to move
the needle this year? Not really like in the other direction.
So it's kind of like, Okay, that could be something
that's out there. Is it the return of non business
non AI capex growth? The one big beautiful Bill unlocked
(26:09):
a ton of benefits for companies to invest in the
United States.
Speaker 3 (26:14):
Do they spend the.
Speaker 2 (26:15):
Last half of this year planning and next year actually
moving forward with a you know, larger than expected capex
because of these tax breaks they get. Maybe I think
you could see that. So I think the growth picture
being stronger. There's some modest things around the edges, but
(26:36):
it could happen. The inflation picture. What are the ways
that we could see inflation be better than expected next year?
Speaker 4 (26:43):
More conciliation on tariffs and recession. So if we're talking
about positive ones like those, of the two that I
can think of would be tariff rates, which are you know,
stuck for a number of countries right now. I'm thinking
about India, I'm thinking about China. Could you see those
come down? In which case, yeah, you could see inflation
(27:04):
come in better than is currently expected.
Speaker 2 (27:07):
The recession piece obviously, like could result in lower infliction
but obviously results in lower growth, yeah, which you know
doesn't really help you on that side of the equation.
But are we just again I'm just I'm hashing this
out in real time, like just my own thought process.
Are we too anchored to the idea that this is
where twenty twenty six has to be?
Speaker 3 (27:27):
Like? Are we too resistant to the idea that it
could be different?
Speaker 4 (27:32):
I'm not sure I understand which media Are you saying
that you think these gains are the are the status quo?
Speaker 3 (27:37):
No?
Speaker 2 (27:38):
So what I'm saying is we're basically saying, hey, it's
really hard for us to see things being different from
what's being projected next year. Are we too anchored to
those projections to see things that might be obvious to us?
As like another exist usually are the data center construction
piece the other side that we have not dealt with
(27:58):
properly in the US, And we've talked about a lot.
Speaker 4 (28:00):
We're not building enough power generation infrastructure, Right, does it
all fall apart because there's not an electricity to power?
Speaker 2 (28:07):
I was gonna go the opposite direction. Do we finally
decide next year, you know, heading into a midterm election year,
Hey we got to figure out a way to produce
more energy here, not you know, not oil, but hey,
we got to figure out how to build more power
plants here next year and expedite the approval process. And
is that, you know, an unexpected positive thing that we
see for economic growth? Yeah, Like there are things off
(28:29):
the board that I think we need to consider, and
that's one of them that Yeah, it's kind of a
long shot, but it also makes sense when you think
about it logically in terms of the issues that we
might face next year.
Speaker 4 (28:40):
I mean, I feel as though the end all be
all right if you're talking about I'm not sure what
it does to economic growth because I'm just not sure
what it does to the labor force and consumer But
the end all be all would be the productivity gains
that have been promised now for the last five years
from artificial intelligence.
Speaker 2 (28:56):
Now we're getting somewhere fun robots. Man, what if twenty
twenty I'm serious. I know I said it kind of,
you know, tongue in cheek, but it's only kind of
because honestly, I think this is coming soon. What if
twenty twenty six is the year the robots, the same
way that twenty twenty three was the year of the
large language models could be you know, like, these are
(29:17):
just things that I like to consider as far as Hey,
you know, economists have their projections, and I understand that,
and quite honestly, they've thought about this stuff way more
than I have. Like they got actual models for economic growth.
I have, you know, toy plane models sitting on my shelf, Yes,
which you're fine, So I think ultimately, I just try
(29:39):
to think of, hey, how can we see something that's
different from what's expected, because that's ultimately where you make
money in markets. It's by seeing something that's different from
what's expected. In twenty twenty two, it was, Hey, the
Fed's gonna have to hike five percent because inflation's really hot.
When the market was pricing in one percent of hikes
R in the second half of twenty twenty three, it
(30:04):
was no, there's not going to be a recession when
everyone thought we were heading towards one.
Speaker 3 (30:09):
Same with the second half of last year.
Speaker 2 (30:11):
So as we head into next year, it's Okay, where's
the thing that could be different from what everyone's pricing
in right now? And I don't know that it's any
of these, but it's just the stuff that crosses my mind.
Just take a quick break when we return, talk about
this piece from the Wall Street Journal about consumer staples
pricing and how some of those things seem like they
might have a little bit bigger price tag in the
(30:32):
coming months.
Speaker 1 (30:34):
Text us six one, seven, three, six, two thirteen eighty
five with your comments and questions about today's show and
let us know what you think about the stories we
are covering. This is the Financial Exchange Radio Network, breaking
business and financial news first throughout the day, only here
on the Financial Exchange Radio Network.
Speaker 5 (31:01):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts and now's the perfect time
to register for this year's five K at Castle Island
by visiting dav five K dot Boston. The event will
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(31:23):
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Speaker 2 (31:33):
Mike, we got a piece in the Wall Street Journal.
Higher prices are coming for household staples. Is this tariffs
or something else?
Speaker 3 (31:41):
Why? Yeah?
Speaker 4 (31:42):
So I think it's a little bit of both. But
I think you have a combination of factors here for
staples companies. One, yeah, a lot of the stuff that
we buy on a day to day basis does come
from China. Go to your hardware store, go to you know,
in many of those places, and it is heavily imported
(32:03):
from China, which is facing some seriously higher teriff rates.
On the food side of things. I guess I'm having
a tougher time making the connection other than yeah, look,
there are tariffs even on some food items, on the
items that you use to.
Speaker 3 (32:19):
Package the food.
Speaker 4 (32:20):
And at the same time, a lot of those food
processing companies are probably experiencing a pretty significant labor shortage.
You go take a look at farms across the country
and how outspoken they have been. Meat processing plants, things
along those lines relied heavily on either undocumented or undocumented
labor or folks that are in the country attached to
(32:42):
folks that are undocumented, and there has been a significant
drop in those people that are here and the new
ones coming over the border.
Speaker 3 (32:51):
Yeah, that would you explain it in any other way.
On the food side of things, No, I think it's that.
Speaker 2 (32:56):
I mean, look, there's some food that you just can't
produce the United States. Bananas what you don't have the
environment to produce large quantities of bananas in the United States. Coffee,
you can't produce coffee in the United States and like
consistently with the scale.
Speaker 3 (33:13):
That you need.
Speaker 2 (33:14):
So yeah, I mean there's some stuff that is related
to tariffs. There's some stuff that I think is related
to the labor that happens on US farms. And the
thing that we're seeing is this is a pretty consistent
and there's some stuff that's also just like related to
you know, other things that are going on as well.
I mean, you have it's not bird flu this year,
(33:35):
but have have you guys been paying attention to what's
going on with beef prices.
Speaker 3 (33:38):
Yeah, I have.
Speaker 2 (33:39):
I'm a big beef guy myself, and those prices are
moving in one direction. That price in that direction is up,
and it's because of some concerns about different viruses and
things there and stuff like that that is pushing beef
prices up. And as a result, I'm paying more for steaks,
which is not ideal in my situation. But I think
ultimately you look at this and companies are now also
(34:03):
trying to manage you know, Hey, we've worked through some
of the pre tariff inventory. You know, what do we
have to do on this? And so I think it's
a convergence of a bunch of different factors tariffs of
which are one, labor force is another, than random one
offs that are are pushing you know, prices up on
some staples and stuff.
Speaker 4 (34:17):
Yeah, I don't want to be alarmist. It doesn't seem
as though prices are going back towards very high levels
of inflation. But also really tough to envision any sort
of you know, staple prices moderating to no inflation over
the course of the next couple of years.
Speaker 3 (34:32):
I guess is where I would go with it.
Speaker 4 (34:34):
Folks want to talk to you about the guide this
month from the Armstrong Advisor Group. Why because it is
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the month, so your last opportunity to get our brand
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of different stages of life and what it actually means. Now,
(34:56):
I think, Chuck, when we're most of the time talking
with clients, the legacy that we're talking about is just
making sure that your spouse is protected.
Speaker 3 (35:03):
Right.
Speaker 4 (35:03):
It's hey, how do I make sure if I pass
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Speaker 3 (35:20):
To do with that.
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But then you do have another stage of life that
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And when it comes to that stage, this guide addresses
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(35:41):
whether that's gifting out to different family members, whether that's
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(36:01):
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Speaker 2 (36:37):
Mike, I want to talk about Happy Hour, Me too,
Chuck Good so big thing Mike and I are show.
We're based out of Massachusetts, which does not allow for
happy hours for about forty years now, and the big
thing is a lot of restaurants and bars are pushing
for Massachusetts to change the rules regarding happy hour. The
(37:00):
reason being basically, people aren't hanging out after work and
they want more customers. And the argument they make is, hey,
this will help us to get you know, more people
coming in between like that four and six o'clock hour,
to you.
Speaker 3 (37:12):
Know, get us a little bit more business.
Speaker 2 (37:14):
And there's more public transit available now you have things
like Uber and Lyft, so people won't be drunk driving
as much.
Speaker 4 (37:21):
Your thoughts, Mike, I'm a general deregulation person, so I'm
totally fine with this. The other person, the other piece
of this that I was trying to recall, do you
guys remember I think it was last year the city
of Boston trialed a past two am second neighborhood that
was going to be open for bars and restaurants after
that two am. I don't remember anything coming of that
(37:44):
trial run that they tested at, which probably means that
they're not going to continue it. But this one just
seems to me like many of our alcohol rules do
across Massachusetts. Seems just kind of arbitrary that bars aren't
allowed to offer this sort of thing. And yeah, I
would be in favor of anything that the restaurants need in.
Speaker 2 (38:02):
Order to look if yeah, if if you want to
balance some of these things, Okay, allow for happy hours,
but ramp up.
Speaker 3 (38:08):
Your duy penalties.
Speaker 2 (38:10):
Sure you know there's ways to solve this, but yeah,
let the restaurants sell what they want, when they want,
for how much they want.
Speaker 3 (38:17):
A quick break here hour two in just a little bit,
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