David, what is the character of this
inflation in two in uh 2025?
>> Well, it's a uh a real dichotomy, Tom,
and a bit of a headscratcher, especially
from the numbers that we got in uh July
uh from the CPI and the PPI because uh
you know, we're all expecting uh that
the tariff impact is going to hit the
good sector. Um but was really puzzling
in both reports uh was uh the fact that
service sector inflation uh isn't going
away. Uh and I think that's a a bit of a
problem for the Fed. Uh I still think
that um you know the trend the trend in
inflation uh will be heading lower. I
wrote a report uh talking about uh
something very nebulous uh otherwise
known as the quantity theory of money in
my daily yesterday going through uh
money supply growth which is starting to
cool off and money velocity which is
flattening and in relation to where the
real economy is and then solving for
inflation. Uh and uh we're going to be
getting towards the target or probably
below um but not for another 6 to 12
months. Uh so it's a trend but it's not
a present day reality. Uh but it but
it's out there
>> as we had stimulus in three. Olivia
Blanchard calls it the Biden stimulus
the back stimulus of co I mean is it
just simply David as you say you delay a
disinflationary call out 18 months say
is it because of the stimulus of Mr.
Trump's new legislation just passed?
Well, you know what uh everybody calls
uh stimulus uh from the big beautiful
bill really isn't stimulus uh from the
status quo. Uh the biggest chunk of that
was just maintaining uh the tax cuts uh
from 2017 in the personal sector. Uh and
then you could argue that the bells and
whistles mostly from the uh depreciation
allowance uh benefit uh in so far as
that you know improves the capital
spending picture that is supply side
growth that you would hope would
generate productivity which is
antithetical to an inflation view. So I
I don't really look at um the fiscal
side as being a source of inflation. Of
course, the greater supply that we're
seeing benchmarked against expectations
is what's caused the back end of the
yield curve to remain so elevated. Um,
but the inflation that we're seeing
primarily is coming from the tariffs.
For anybody that thinks that uh tariffs
will not be at least near-term
inflationary uh seem to ignore the fact
that it's the uh importer on record in
the United States that actually pays the
duty. Then the question is how is it
going to get distributed through the
supply chain, right?
>> Um but I said the head scratcher and
it's just you know one month's worth of
data but I was really surprised in July
to see how stubborn uh the service
sector was cuz that's the part of the
economy that had been cooling off. Um
but you know those inflation numbers
across most of the services not just
shelter um were a big upside surprise
last month. I'm just hoping that it's
not going to be sustained.
David, economic growth remainder of this
year going into next year, I think most
folks are expecting it to continue to to
soften but but still be some reasonable
growth. How do you think about GDP?
>> Well, you know, everybody has uh I guess
redefined what reasonable is or what Jay
Powell describes as solid when we're
barely running the economy uh so far
this year uh barely over a 1% annual
rate. I mean when I started in the
business in the mid 80s you got down to
a one handle on real GDP growth and
people weren't talking about reasonable
people were talking about stall speed
and then asking when's the recession
going to start so um the economy uh I
think is sputtering uh it's uneven uh
you know without the proliferation of uh
AI data centers and all the technology
spending related to generative uh AI the
economy would actually be in recession
right now that's been really the only
underpinning, the only impetus to growth
so far this year.
>> So I I'm I'm thinking that the economy
is going I I don't see what the catalyst
is going to be. Even with the big
beautiful bill, it's not going to be
adding a whole lot to growth uh a little
bit. Uh and I think that the tariff
uncertainty is still going to be a big
element that's going to provide an
overhang on the economy going forward.
>> And the Fed's going to be deliberately
slow to cut interest rates. Um so that's
going to have an impact negatively on
the credit sensitive sectors of the
economy and it's not as if the rest of
the world is actually operating at a
very high level of economic activity
that's going to come back and bite the
export sector. So I think the economy is
going to remain very weak uh through the
balance of this year and next year. The
only question is for the Fed is is
demand weakening in relation to what's
happening on the supply side because the
supply side is also weakening alongside
the demand side. Uh and um you know from
an inflation standpoint it's how those
two curves demand and supply in the
broad economy. How they're interacting
that's going to determine right
>> uh what the inflation outlook is going
to be.
>> David Rosenberg with us. We continue
with Mr. Rosenberg. We welcome all of
you across Canada uh and David's
Toronto. Thank you for joining us uh and
the way you listen to us on SiriusXM and
other uh outlets as well. Apple CarPlay,
Android Auto, good morning on YouTube.
It's building each and every day. Paul
and I just sort of blown away by the
whole Google YouTube experience.
Subscribe to Bloomberg Podcasts uh is
the quickest way to get us and get us uh
often as well. What he said there about
ages ago, Paul, we're a 1% 1.x% economy
with stall speed. Why has that talk gone
away? I don't heard that. To me, it's
this divide between the halves and the
have nots.
>> Yeah, exactly.
>> But I think David's dead on about how
the recession language has changed.
>> David, given that backdrop of slower
growth, percolating inflation, what are
we going to hear from Fed Chairman Jay
Pal on Friday from Jackson Hole, do you
think?
>> Well, you know, it's a it's a great
question. um you know if uh this was uh
September the 10th, say a week before
the FOMC meeting, uh given that there's
85% market-based odds priced in for a 25
basis point cut, uh he he would probably
acquies. Um but there's still a lot of
time and uh I don't think that Jay
Powell in his mind thinks that we really
have an 85% chance of seeing a rate cut.
So this is really more of a trade. I
think over time uh the Fed will cut
rates at the right time, probably cut
them aggressively in the next year, but
again at the right time. I have a tough
time believing that he's going to be
talking dovishly, at least relative to
what's priced in. I would expect to see
on Friday morning um those 85%
market-based odds of a September rate
cut. I think they will be dialed back.
Uh, and I say that because, you know,
everybody seems to believe that because
the the thesis of the Jackson Symposium
is about the labor market, uh, everybody
seems to think, well, you know, we had a
pukey July non-farm payroll number,
downward revisions, um, to the previous
two months. So, it's got to be dovish.
But I think what's going to come out of
it mostly is a sign that yes, uh, labor
demand is on the decline. But guess
what? And this is what I mentioned
before. Labor supply is also on the
decline. Uh and how those two wash out
is going to depend uh on what the Fed's
reaction function is going to be. So I
think that there's going to be a lot of
surprises. I think that he's not going
to sound uber hawkish, but I think that
benchmark against priced in. I think
there will be disappointment. Uh and I
think there's actually a good chance
despite all the political pressure
because you got a Fed chairman. He'll be
gone after May. he is going to be
determined to preserve his legacy. Uh
and I think he's going to block out the
noise from the White House. So my sense
is that uh and this is from a bond bull
uh but I think over the near term the
outlook is clouded. I I think that
although you have some dissents and
remember that Vulkar you know back in
the mid 80s would sometimes face a
meeting with at least three descents. Um
so that could happen. Uh but the
chairman is usually in control and I
have a tough time believing that he's
going to sound uh as doubish as what the
markets have priced in right now.
>> David, are you surprised that the equity
markets have rebounded the way that they
have coming off of some of those tariff
tariff concerns earlier in this year?
And and if so, does what does that tell
you?
It tells me that there is a ton of
speculation uh in the marketplace
especially as it relates to uh the
productivity and uh return on investment
uh assumptions uh coming from the uh
technology boom. So you know we're
reliving to some extent not fully to
some extent what happened late 1990s.
This usually happens after a major shift
in the technology curve. Uh the markets
get way ahead of themselves and I think
that uh that's been a big part of it. Of
course, you al you've also seen the
market broaden out even in this very
weak economic environment. I mean, it's
not a recession, but 1% plus growth. Um,
but you've seen uh the market broaden
out. I think a lot of that has come most
recently from this view that the Fed is
going to, you know, ride the cavalry and
start cutting interest rates next month.
I I think think that's where the folly
might be. Um but you know I I'm taking a
look at this market you know and I look
at where real rates are uh you know
roughly 200 basis points benchmarked
against what like a a PE multiple
forward of around 23. Um you know if
this is not a bubble in the equity
market and I know that people view that
as a very emotional word. Uh if if it's
not a bubble it's a giant sud. Okay, so
we're just back into a psychology uh of
a bubble mentality as it pertains to the
broad equity