00:00What matters the most to you as someone who keeps a watch on the U.S. economy?
00:04Is it that Supreme Court ruling and pushback on President Trump's tariffs, who he has said he's going to find
00:10other ways to do this?
00:12Or is it all the economic growth, kind of the mixed messaging, maybe to some extent on inflation a little
00:17bit hotter than we thought and growth a little bit weaker?
00:20Yeah, thanks. Thanks, Carol, for having me. It's good to be back.
00:23I think if you had asked me this question at 10 a.m., obviously I would have said, yeah, it's
00:29the GDP print, the inflation print, particularly the inflation print, just because it was quite hot.
00:35But, you know, fast forward the last couple of hours, clearly the Supreme Court decision is very, very important.
00:41The uncertainty that it brings to the table, you can't run away from it.
00:46And in as much as we thought, tariff risks, tariff related risks were receding.
00:53It's come right back. So, yes, the president has imposed the 10 percent blanket.
01:00I still have to figure out if that 10 percent is truly a blanket or are we going to exempt
01:06pharmaceuticals?
01:07Are we going to exempt oil and gas? Which sounds to me like what they will do.
01:11But we don't I don't know at the moment. I don't think it's clear.
01:14So when we see that executive in that executive order, we will find out.
01:18You have in your notes that you're calling today Liberation Day 2.0.
01:23Of course, we had Liberation Day last year. It was a big market moving day as well.
01:29You link this, though, to optimism.
01:31Are you still optimistic that this is going to be good for the U.S. economy, particularly in light of
01:36Trump floating, you know, 10 percent?
01:38No, I do think that, you know, compared to how I would call this echoes of Liberation Day, right?
01:44Not quite seismic as Liberation Day was.
01:47And the markets are not down, what, 10 percent or 5 percent?
01:50Which we've been talking about feels kind of telling.
01:52Yes. Yeah. But I do think that to the extent that we have the 10 percent, if the administration follows
02:00through with all of the exemptions,
02:01it's going to be fine because effectively it will be lower than what we had before.
02:05If it's a blanket, that means collections will be slightly higher.
02:10So that is, I don't think most companies have planned for that.
02:14Right.
02:14In terms of all of a sudden they have to pay more in tariffs, right?
02:17So I think that would bring some level of uncertainty.
02:22The other point is, it's just for 150 days.
02:25What are they going to replace it with?
02:28It's most likely going to be more sector focused.
02:31So sector focused by nature would affect some countries a lot more than others.
02:36So that brings a lot more uncertainty.
02:39It's probably going to affect pricing decisions, CapEx decisions and the likes.
02:44I don't think that's what the economy needs at the moment,
02:47because this is an economy where if the government gets out of the way, the tailwinds are actually quite strong.
02:53So you have to now think this may be a little bit negative because the economy on its own was
03:00relatively resilient.
03:01Yeah. I want to go into that.
03:02I also just want to mention that the president did threaten 15 to 30 percent auto tariffs.
03:06Now I'm looking at Ford is up about 1.2 percent.
03:08And I think GM is little change.
03:11So it's not like it's actually up about one third of one percent.
03:15Yeah. Those those tailwinds, if you will, whether it's higher tax refunds we get because of tax cuts,
03:24corporate tax cuts that could lead to spending.
03:27I mean, there's a lot of stuff that could be very stimulative.
03:30So that brings us to that hotter inflation print, which you and your notes kind of say it's it's a
03:36reality check.
03:37Like we have to kind of own up that as we've heard from the Fed or Jay Powell, right, inflationary
03:42pressures are still a thing.
03:43They are still a thing.
03:44It could even maybe get worse.
03:46And definitely could get worse.
03:47I think now with this renewed uncertainty, potentially could get worse.
03:51I think there's this wedge between CPI and PCE at the moment.
03:56The CPI print we got a few weeks ago.
03:59Right.
03:59It was what, two and a half percent, 2.4 percent.
04:03Lots of people jumping up and down saying, hey, clearly disinflationary.
04:07But with this reality check, inflation is stuck at 3 percent.
04:11That's essentially what it is.
04:12And if you compare where we are today with headline of a year ago, it's actually accelerated.
04:19Well, what's really kind of wild and Mike McKee, who is breaking down the Fed minutes on Wednesday, says, you
04:24know, they're going through, going through.
04:25And then you get to, like, I think the last paragraph where it said Fed officials were wary of cutting
04:30interest rates at their January meeting.
04:32But several suggesting the central bank may need to raise rates if inflation remains high.
04:36So they are already, like, continuing to be very vigilant when it comes to higher inflation.
04:41You have to be.
04:42Because 3 percent is not 2 percent, obviously.
04:45Right.
04:46And with all of the tariff noise, you still are not clear whether it would accelerate or not.
04:53So the Fed, given a labor market that seems to be relatively stable now, the balance of risk has shifted.
05:00It has it now has to be inflation, inflation, inflation.
05:05Does this make the report we got today about growth being slower than we expected more of a blow to
05:11the economic outlook, particularly if we have the Fed raising rates?
05:16It's a good question where growth is slowing.
05:18I do think that if you dig deeper, once you go under the hood, you realize that about 100 basis
05:23point or so, one percentage point was because of a shutdown.
05:28If you add that back, you're talking about 2.5 percent growth.
05:31The economy on its own is resilient.
05:34I don't think you can take that away.
05:36And you're also going to get some payback during this quarter, right, when we get the GDP.
05:42So potentially growth could be slightly higher.
05:44All right.
05:45You're not a political analyst.
05:46But I've got to throw midterms into this because I have to think as the president starts to, you know,
05:51go to different states, we've started to see some of that.
05:54He is thinking a lot about midterms and whether or not Republicans lose a lot of seats in Congress and
06:01which would be really a vote on his White House.
06:03So having said that, do you think that will shape what he does with tariffs and policies?
06:09Because he wants an economy, right?
06:12Any president wants an economy humming along, whether it's midterms or obviously a presidential race.
06:17I think that would be the rational view.
06:20And without me going further, without me going further, anything can happen between now and the midterms, right?
06:28There will be that affordability push.
06:30We're starting to see that.
06:32Hopefully, if that is really, really strong, that may overwhelm the tariff noise, right?
06:39And to some degree, corporations are used to the tariff noise to some degree.
06:44So hopefully, there will not be a knee-jerk reaction from a price standpoint going forward.
06:50How optimistic are you about the refunds for the tariffs?
06:54This morning before Trump spoke, the question was, oh, okay, well, who's going to get the refunds and how smoothly
07:00is that process going to go?
07:01How are you thinking about that?
07:03So I'm going to go from I'm not a political strategist to I'm not a lawyer.
07:08But the reality is that corporations have sued, right?
07:12They have the legal basis to ask for a refund.
07:15Now, prospectively, going forward, they may still pay tariffs, but it seems to me that they have the legal basis.
07:22Since it's illegal, hey, give me back my money.
07:24You know, it doesn't belong to you.
07:27That's my sense.
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