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00:14Bentornati ai nostri appuntamenti alla 52esima edizione di The European House Ambrosetti.
00:21Sono in compagnia di Nathan Schietz, Global Chief Economist di Citigroup.
00:25Mr. Schietz, thank you for being with us.
00:26Good to be here. Thank you.
00:28It's a pleasure to have you.
00:28So let's start with the latest news, which is the payrolls number, which came in on a positive note.
00:35Yeah, the payrolls number was stronger than expectations.
00:41And I think underscores the reality that this year has seen a stabilization of the labor market that six or
00:5012 months ago,
00:51me, like many other economies, we were economists, we were wringing our hands about where the labor market was headed.
01:01And now it's quite, quite stable.
01:05And maybe, if anything, we're starting to see some growth.
01:08In addition to August, solid print, there was an upward revision in July.
01:13So that's no longer a negative number.
01:16Folks that are pushing the labor market as a reason for easier Fed policy, their case just became a lot
01:25harder to make.
01:25So that was my next question.
01:27What are your expectations on what we'll see in just a few weeks by the Fed?
01:32I think we are seeing a Federal Reserve that is exquisitely conflicted about the way forward.
01:41I think Kevin Walsh's Jackson Hole speech left the door open and maybe even signaled a willingness to hike in
01:50September.
01:51But given what I've heard from Governor Waller and what we're hearing from others, I don't know whether he's got
01:57the full support of his committee.
01:59And I think the big question for the Fed, and this is really where the debate is, is they've missed
02:05their target for five years in a row.
02:07How much time do they have to get back to target?
02:11If they're willing to wait until the end of next year, maybe they don't need to hike.
02:14But if they say that is simply too long and it's unacceptable to wait that long, they'll need a tighter
02:21stance.
02:22And I think that's what they'll be debating the middle of this month.
02:25So could one of the questions be, should this still be the target?
02:29I think that that is a question that is being debated amongst economists and amongst many market participants.
02:41But I don't think that it is a question that at this point is being vigorously debated inside the Federal
02:50Reserve.
02:51This is a point where both Chairman Walsh and Chairman Powell have agreed, and that is that they are unwilling
02:59to move that 2 percent target.
03:01Now, once the Fed actually achieves its 2 percent target, might we then have a broader discussion as to whether
03:07it should be 2?
03:08But I don't think that's likely to happen in the near term.
03:12Now, another question is since, you know, we're still needing to adjust to Kevin Walsh's speech, you know, how he
03:20manages his communication.
03:23Yes.
03:23And so is everything he says what he's going to actually do?
03:29Or is he talking, as many say, so that the market will do the work for him?
03:33I think Chairman Walsh is hoping that he can strike a communication stance and policy that is going to motivate
03:46the markets to do a good share of his work.
03:49But what he hasn't figured out yet is exactly what that communication stance and policy actually is.
03:56And I think we're seeing Chairman Walsh grow and experiment in real time.
04:05And I think at a minimum we can say that the Jackson Hole speech was a lot more successful in
04:11that regard than July press conference was.
04:14So we're seeing a particular situation.
04:17There's a lot of shocks out there.
04:19There's wars, the tariffs.
04:21That's just to name a few.
04:21So the economy should be impacted, we would think, historically differently.
04:27It's managing to hold up.
04:29How do you explain this resilience?
04:31Well, for me, this is the biggest question there is.
04:35As you say, everywhere I look, I see uncertainty.
04:41Policy uncertainty, fiscal uncertainty, inflation uncertainty, geopolitical uncertainty, institutional, it goes on and on and on.
04:50But when I look at the associated GDP data, it's an ongoing, resilient global economy.
04:58And I think firms and markets are increasingly looking through the noise and looking through the uncertainties and staying focused
05:08on underlying demand realities, underlying profit and earning realities.
05:13And that reality has been quite favorable.
05:18And these firms are able, as these challenges arise, they're much more capable than was the case a decade or
05:26two ago to respond.
05:28So it is a very uncertain kind of environment, but also a very solid, resilient, flexible economy we're seeing.
05:36How much of this resilience is tied to the role that AI has been playing?
05:41It's a key part of the story.
05:45I would say that AI is one of the key engines of global growth this year and one of the
05:52reasons why the economy has done as well as it has in the face of the oil shock.
06:00Investment in AI is a huge driver of U.S. growth.
06:03And it's not only the United States and Asia, exports of AI, production of AI is an enormous driver there.
06:14So it is a major contributor to that resilience at this stage.
06:19What's your view in terms of Europe?
06:20You didn't mention Europe.
06:21Well, I think Europe has figured out the strategy of stability and continuity in policy.
06:34So from a lot of perspectives, I think Europe is doing exactly the right thing.
06:38However, what Europe has not figured out how to do broadly across the continent is how to innovate and how
06:47to drive growth.
06:49And that is the place the United States, the policy apparatus at this stage is quite unpredictable and maybe even
06:57at times frustrating for European investors and businesses.
07:00But the United States also has kind of figured out that formula for innovation and growth.
07:06And it continues as a result to attract capital.
07:10One last question.
07:12The story of the summer are the yields.
07:14Yields at 5%.
07:16I mean, that's how, how, how, why?
07:23There's a lot going on and a lot of these developments are manifesting themselves as pressures on the back end
07:32of the curve.
07:33And this is a U.S. story, but it's also very much a global story.
07:38I think the number one underlying driver is market concerns about fiscal policy and fiscal issuance.
07:46Another factor is you're having massive AI investment that's being financed at the back end of the curve.
07:52That's further pushing up yields.
07:55The uncertainty that I described, investors are willing to buy, but they want it.
08:00They want to be paid and term premiums are driving, being driven up.
08:04And then finally, there's uncertainty about inflation and central banks are shifting to somewhat tighter policies than we'd expected.
08:12And I think all of that is in play in something of a perfect storm at the moment in the
08:17back end of the curve in the bond market.
08:20Great. Thank you.
08:21Thank you to Nathan Sheets, global chief economist at Citigroup.
08:24Thank you for being with us.
08:25Thank you.
08:26E per ora dei nostri approfondimenti da The European House.
08:29Ambrosetti è tutto, ma ci rivediamo tra pochissimo.
08:32E per ora dei nostri approfondimenti da The European House.
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