00:00How problematic is it actually for traders and markets but also economists to understand exactly what the economy is looking at?
00:06Hi, thanks for having me on.
00:07I think at any time that you're not going to get data, it's going to be a tough time to try and navigate the market dynamics.
00:14I think it's probably even worse right now because there's been so much going on.
00:19The Federal Reserve, as we know, is already almost struggling with the muddiness of the labor market data given the various supply dynamics,
00:25even trying to consider how AI is coming in and maybe impacting the labor market.
00:29So this is unhelpful.
00:31It's going to be really important how long this extends for, not in terms of the economic impact, but simply in terms of the data,
00:36because we feel like we can get to the October Fed meeting.
00:40We think that they are very likely to cut rates even without the near-term data.
00:45But, of course, as you go beyond that, then they're getting into a very large gap without that kind of data.
00:50And then December starts to become, I guess, a more questionable affair.
00:53So what do you think we're seeing in the U.S. economy, especially when it comes to, you know, this front relationship between labor and inflation?
01:01Is it true that we shouldn't worry about inflation for the moment?
01:05I think that is to some extent.
01:07I mean, when we're looking at the broad economy, we're looking at all the various activity indicators.
01:11So aside from the labor market, things look okay.
01:13I mean, it's slowing.
01:14So we're not seeing an acceleration.
01:17But certainly we're not talking about recessionary conditions.
01:20And then from a labor market perspective, the labor data, we can clearly see that there's a labor market demand slowdown,
01:26and probably more so than what the labor supply dynamics are saying.
01:29So there is a slowdown in play.
01:31But together what that means is that the inflation dynamics are probably less, I should say the fundamentals,
01:38are less important in terms of driving upward pressures.
01:40So we do think that right now inflation is almost contained, albeit at that 3% level.
01:46But this isn't the end of the fight.
01:47And I think from the Fed's perspective, they're going to have to keep a really close eye.
01:49We know that from companies' perspectives, they maybe haven't been passing on price increases yet.
01:55But, of course, as margin pressures become a little bit more impactful, then next year becomes a slightly different story.
02:01Seema, I mean, when you look at, for example, you know, how much does it make more sense to go gradually?
02:07I don't know how many Fed cuts you're expecting, well, why not go big and then see what happens?
02:12Well, I think the thing is, as we said, the data is making you now have to shut down,
02:16stopping you from getting the labor market, the non-fund payrolls today.
02:20But overall, this is a picture where you have – it's a confusing one.
02:23You have an economic broad activity picture, which is fairly robust, but you have a labor market slowdown.
02:28You have supply dynamics.
02:29As I said, you've got the tech.
02:30In that kind of situation where you don't really know where you're going, you shouldn't really run headfirst at the door.
02:35Or you should be maybe treading along.
02:37So from our perspective, three cuts at least takes you towards neutral.
02:40And then it would make sense for the Fed to stop and almost appraise the situation
02:44and see if they have any better understanding of what's going on in the labor market.
02:47So we would expect to see a couple more rate cuts after – into 2026.
02:52But in terms of the magnitude, then you also have to consider the politicization of the Fed
02:56and what the makeup is going to be once Fed Chair Powell is out.
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