00:00I'm live to talk once again about the Fed. Weirdly though, the story has evolved and from this time to yesterday, Joltz is better.
00:08The labor market doesn't look quite so challenging. Is there more of a case today than there was yesterday for this hawkish cut that potentially the market is now looking for?
00:16Yeah, I mean, I think on the aggregate, the data is already, you know, it's been pretty good for a while now.
00:22Yes, Joltz was a signal yesterday, but I think actually we got more of a shift earlier in the week, as in we are getting kind of hawkish pre-positioning this week as we start to think about hikes next year.
00:32And I think what's super interesting...
00:33Sorry, hikes in the Fed?
00:34Well, I mean, I think hikes elsewhere, but I'm certainly thinking about the possibility of hikes from the Fed next year.
00:40But I think what's interesting is, as you've seen markets think about these hikes, and a lot of that's been centered around Europe with Schnabel Commons being more hawkish, the dollar's actually gained.
00:50And I think that tells you what's going wrong in terms of current pricing, because it says, yes, you're thinking about ECB hikes, but European growth is meant to be lower next year than this year, inflation's around 2%, there are downside risks there.
01:04Whereas in the US, you're thinking about three to four cuts next year in a global environment where you could have hikes elsewhere, and you have inflation closer to 3%.
01:13And so I think certainly, while we've had pre-positioning for hawkishness, more of those cuts can come out if we have more commentary skew that way later today.
01:20Are you bracing us all for any kind of overheating, then, of the US economy next year, Skylar?
01:25Yeah, absolutely.
01:26That's something I'm worried about.
01:27I think we already have pretty strong growth.
01:30And it's interesting when you look at the Fed projections for the economy, I don't think they'll get a lot of attention because they're unlikely to change.
01:36But we have a 1.8% growth projection for 2026 in the September meeting.
01:41That's the same thing they were forecasting in the first quarter of this year.
01:44And I think the idea is there's so many policy changes that have happened.
01:47There's uncertainty about what that actually means for the economy.
01:51And so you kind of just forecast something closer to trend and watch how the data comes in.
02:02So I think as you have inflation at 3% and you have inflation that's both supply and demand-driven, meaning that tariffs can feed more persistently in, you need to worry about it.
02:12OK.
02:12Can I just come back to the ECB?
02:15Got Vilroy out this morning, Bank of France.
02:17Bank of France will raise its growth forecasts.
02:20Talking about better growth.
02:21The Germans, at some point, and we're starting to get the details of it, are going to spend some money.
02:25Are we underestimating growth in Europe next year?
02:27I mean, we've had downgrades already in that growth outlook for 2026.
02:31But it's not been huge.
02:32And I'm actually skewed more that way because I think there's this broad expectation.
02:36I think currently market pricing, if you look at Eurodollar versus growth forecast, it's not caught down.
02:42But we have this expectation you get broad stimulus in Europe.
02:45You haven't really gotten it anywhere other than your Germany core.
02:49And the German stimulus is being redirected to kind of everyday data operations.
02:54Around 50% of it is.
02:55So I think we're actually still over-optimating what that growth boost will be in Europe.
02:59OK, Skylar, thank you very much.
03:01Skylar Montgomery-Koning from Bloomberg Markets Live.
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