US Economy 'Deeply Unbalanced' Says Dutta

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00:00I want to start exactly there. And with regard to the shutdown, where we are, longest shutdown

00:05on record, but also the lack of data, the picture that we're kind of piecing together

00:10from various disparate parts show that a labor market is weakening. In your view, how weak is it?

00:19You know, I tend to concern myself more with the direction as opposed to the magnitude,

00:23to be honest. But I think we're probably at the Fed's estimate for the unemployment rate for year

00:31end already. So a couple of months ahead of schedule. So that's not necessarily a good

00:38thing. So my sense is that the speed of the weakness has, you know, maybe picked up a little

00:42bit. But I think we're probably at four and a half percent already on the unemployment rate,

00:48if it were to come out. And, you know, I think, you know, what people need to kind of

00:54answer is, why do you think that stops? And what gets it to stop? Because I think when you look at

01:01it, bottoms up, like which, you know, if you kind of go industry by industry, it's really hard to see

01:09where the growth in employment is coming from at the moment.

01:13Well, and on that, you know, I'm thinking about, Neil, great to be talking with you again,

01:16the dual mandate. Right. And so I'm just wondering if we continue to see weakness,

01:21you know, in the labor market. And then we just talked about Treasury Secretary Scott Besson kind

01:26of deflecting when it came to inflation as he's out and about talking about the administration's

01:30policies. I mean, we've heard from Fed Chair Jay Powell about the struggles on both of those

01:35mandates. Do you think it's going to be a bit of a squeeze for the Fed, for the U.S. economy,

01:41for all of us in terms of weaker labor market staying that way and inflationary pressures kind

01:47of staying that way? Well, I don't I mean, my own view of it is that I don't view the tradeoffs

01:53as nearly as onerous as as the Fed does. I mean, I think there's more downside risk

02:01to the labor market than there is upside risk to inflation. You know, at the end of the day,

02:08inflation is three percent this year. It was three percent last year. The difference between this year

02:13and last year is tariffs. So that would tell me what that underlying inflation is probably slowing.

02:19And, you know, the fact that it's really hard to make a case for why tariffs are anything more than

02:23a one off lends support to the idea of the Fed should continue to cut interest rates here

02:29in terms of and remember, you know, to me, the big story is that

02:34employment tends to evolve potentially in nonlinear ways. It kind of, you know, once it gets once like

02:44a increase in the unemployment rate really gets going, it tends to keep on going. And that's why

02:50you have this sort of, you know, it's episodic. Right. I mean, you see big spikes in the unemployment

02:54rate at times. Right. Yeah. That's not really the case with inflation. And so, in other words,

03:01inflation tends to move in a more linear way and, you know, particularly outside of commodities

03:07and unemployment. That's not necessarily the case. It tends to be more nonlinear in fashion. And

03:13I think that's what, you know, frankly, the Fed and, you know, the the markets might be missing

03:20is the sort of downside kind of growth tail risks associated with with the labor markets.

03:28What if the Supreme Court comes back and says the tariffs are not legal as they're implemented?

03:34Does that change your view? No. I mean, I think if you if you think that the Supreme Court is going

03:41to be the institution in Washington, D.C. with the last word on tariffs, I think you're I mean,

03:47I'd like to have some of what you're smoking. Well, is that is that because you think there

03:51are other there are other avenues for the Trump administration to enact these tariffs apart from

03:54the IEPA? Absolutely. The Congress. I mean, this is really about Congress and Congress is frankly,

04:01a lazy bunch. OK. And they've delegated a lot of their tariff authority to the White House.

04:10And there's a vast legal architecture from which the president can draw from to prosecute a trade

04:18war. And, you know, I think immediately he could probably do a temporary 15 percent baseline tariff

04:25and he can do that for six months. And that will, you know, sort of act as a bridge,

04:30you know, to get towards national security tariffs. So I don't think we're out of the woods on tariffs

04:37because the SCOTUS rules that one way or the other. I mean, it's yeah, I think that's that's

04:43sort of wishful thinking, in my opinion. Hey, a couple of stories I just want to bring in. One

04:46was from last week, Neil, and it was about U.S. consumer sentiment tumbling to near the lowest

04:51on record. And part of it was the government shutdown weighing on the economic outlook,

04:55but also high prices, souring views about personal finances. There were also

04:59concerns about the labor market continuing to weaken in the future. We got that from that report.

05:05And then we just had a story that our Alexis Christoffers mentioned about Walgreens no longer

05:09giving many of its retail workers paid vacation time for Thanksgiving, Christmas and other major

05:13holidays. The company looking to cut costs under new owners. Like I just keep thinking about this

05:18K-shaped economy and there's just so many people. And I think about the SNAP benefits. How many people

05:24are on food stamps and getting assistance? Like this economy doesn't feel great. And yet we have

05:31records on Wall Street and we have earnings that seem to be OK. And the AI spend is out there still

05:37in a big way, even if there's been some questions over the last week or so. So I don't know from an

05:42economic perspective. Are we in a good economy or no? I mean, I think we're in a very in a deeply

05:50imbalanced economy, Carol. I mean, and it's been that way for a while. You know, I've you know,

05:57I recently wrote a piece for your colleague Joe Weisenthal on odd lots, you know, just sort of

06:02characterizing the the economy is really three different things. Right. It's you have the housing

06:08market, which I think is in recession. And you have the consumer, which is kind of, let's say, in the

06:14middle. And then you have AI, which is, you know, booming. And when I go to client meetings and I give

06:20my sort of outlook on the economy, you know, the pushback that I get is kind of what you were

06:24describing. Right. It's, you know, AI, it's stocks, it's, you know, the high end consumer. And people

06:31talk about that, frankly, as if those are three separate things, but they're really derivatives of

06:36the same thing. And I think that's something to keep in mind here. The other thing I would say

06:42is that, you know, we talk, we talk a lot about the resilient consumer, we hear a lot about, you know,

06:48never bet against the US consumer. The truth is, the consumer never actually gives you a signal

06:53ahead of an economic slump, right? If you go back historically, consumer spending has never,

07:01ever declined in the quarters leading up to broader economic downturn. Sometimes in an economic

07:08downturn, consumer spending actually expands, right? Like go back to 2001, right? Like, so that's

07:13not unusual either. So if you're waiting on the consumer to give you a tell, you've probably waited

07:19too long, right? I mean, consumption has a way of amplifying downturns. But I would just say, you know,

07:25what's been interesting to me is just how, like the labor markets have evolved the way you've

07:31expected, right? Let's come, let's come for the young first. And I think it's going to come for

07:34the affluent next.

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