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Here's the take from Evercore. Julian Emanuel is somewhat cautious. Here's the quote from him. Given the uncertainty on policy and the economy, and with stocks expensive, three-plus steps forward rally is set to yield to two steps back correction. Julian joins us now for more. Julian, good morning. Good morning. I want to give you some credit. A number of weeks ago, still a lot of panic out there, a lack of confidence, and you said we've seen the lows, recession,
averted. That certainly looks like a good call, this morning at least. Can things change and how quickly? Well, it's amazing, John, because when you think about it, right, as long-term investors, we are supposed to be thinking 12, 24, 36 months in advance. And in this environment, there is so much news and so much change that you can barely think 12, 24 or 36 hours in advance of
And that was really part of the condition that set up that low on April 7th, you know, just abject panic about the state of the economy, you know, the need to de-risk. And from our point of view, we do believe that you are going to, and it's obviously a difficult path, avert the recession, barely.
But again, when we think about where the market is right now, there's that high level of uncertainty that makes it a difficult proposition to commit capital long term. Lisa framed the economic outcomes quite well. This is not just about recession or no recession. And we'll continue that conversation later on this morning. We've seen growth expectations come down from two.
to somewhere closer to zero. And I just wonder what your expectations are now for nominal growth in the year ahead and what you need to see from these talks between the US and China. What's achievable? What's reasonable? Well, I think the acknowledgement, and I think Secretary Besson is painting it the correct way, is that this is a process.
It's going to take time. It's going to take a number of months. There will probably be wins announced, small ones, over the next several weeks. Obviously, TikTok is an issue that's coming up again in reasonably short order.
But from our point of view, again, just the fact that the process is going in the right direction is a plus. But at the end of the day, and as you said at the top of the show, we don't know where the landing zone is. And if the landing zone is a global weighted tariff rate,
somewhere of around 15 to 17 percent, that's still extraordinarily high by historical standards. And that brings you to growth in our mind. We're looking for 0.9 for the year. Is this a stagflation type environment that calls for a stagflation type playbook?
that we haven't seen for many years? Well, we would actually say that, and again, in true market discounting fashion, is that that's already been discounted. So in the stagflation playbook, the market averages annually a 10% decline.
led by sectors like energy and consumer staples, and we've seen in various points of the last few months those themes play out. To us, it's actually, again, I go back to what I said a little while ago, to the extent possible and necessary, we want to look through this.
under the assumption that all sides are incentivized to make sure the global economy stays on course. So we think that now's the time to re-engage in the longer-term themes of the sectors that we're leading now.
prior to the sell-off and the sectors that we think are going to continue to lead technology-centric. Okay, you say you look through this, but what is this that we're looking through? And I think about what you just said, which is the market's pricing in a stagflationary-like scenario, but they're not necessarily pricing in a Federal Reserve that responds to stagflation. They are actually pricing in a Federal Reserve that responds to something more like recession or more like some kind of negative growth shock
that maybe isn't in the cards if we have a stagflation type of environment. How much is that the ultimate wild card? Whether the Fed is gonna respond to this like some sort of recessionary or recessionary-like condition versus stagflation, which is much more difficult. - So look, there's no question about the fact
that we will find out we already know know this but we'll find out more that the fed's hands are in fact tied to a certain extent and that obviously goes back to the ratcheting higher of inflation expectations but ultimately i'd go back to chair powell's use of the t word transitory a number of weeks ago
I don't think he would have used that without having true conviction, whether it's a function of demand moderating inflation. It has happened before, but go on. You try not to repeat the same mistakes. But actually, to us, that's the path forward.
And I would say that, in fact, as we've seen in other times over the last couple of years, if we take the under on the number of cuts the market is pricing, that will end up being a market positive. How challenging is it going to be as these talks start? And to Jonathan's point, first time around 18 months, we see fits and starts sometimes when it comes to these negotiations. How challenging is it going to be to...
keep your head on and look straight ahead and say, I'm not going to get distracted by all the stop and start and go and potentially some of the rhetoric that will come from this. Well, that's kind of why we're cautious in the near term within the context of our view that that April 7th low was the resumption of the structural bull market that at some point down the road we are going to see new all-time highs. But to your point, it's even more of a challenge because we know
we're about to get data that's going to scare us over the next number of weeks and months. What does scary data look like?
You know, to us, it all goes back to the labor market. So the thing that we focus on the most is the high frequency weekly jobless claims. If that starts nudging towards 300,000, that's when you're going to get sort of gross scare act two. And that's sort of our two steps back process. Takes us back to the Fed last summer. We know what they did. They reduced interest rates by 100 basis points.
the moment you got a freakout in the labor market, just a small one, in the summer of last year, that's when it started, they moved. Are they constrained this time? They are constrained. There's no question about it. And, you know, even more so because they're certainly going to get political pressure in however many hours that's going to be.
But the fact is, is that the inflation dynamic is different and at risk of being more anchored than it has been in the past. We don't think ultimately it will be, but there is that risk. - The president doesn't like it when other central banks reduce interest rates, and it's interesting that going into this one, it's not the ECB this time around,
It's the Chinese. And they're doing it pretty aggressively to pave the way for fiscal stimulus. In addition, it's basically everything the U.S. isn't doing. And they're setting the stage potentially to bolster an economy that has been flagging, but also potentially to gird, to sort of set the stage for retaliation potentially to head into these talks. Julian, it's good to see you, sir, as always. Thanks for dropping by. Julian Emanuel there of Evercore.
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Priya Misra of J.P. Morgan writing, we are in a giant game of chicken between the market, the administration and the rest of the world. Maybe great deals are just around the corner. Priya joins us now for more. Priya, good morning. Morning. Are they just around the corner? I think that's what the equity market's hoping, not realizing or maybe...
hoping that that doesn't happen, that trade deals, even in agreement in principle with all our trading partners is incredibly hard. It's going to take a while. The administration saying this is strategic uncertainty, which tells you, remember when we were thinking maybe April 2nd was peak uncertainty? Well, okay, maybe it was peak uncertainty
But we're not that much lower. This is a plateau of uncertainty that the economy, it's going to weigh on the economy. It's very non-linear. You can handle some time of uncertainty when that just goes into weeks and months. And, you know, Congress is also sort of dealing with the fiscal side. So there's uncertainty on immigration. There's uncertainty on trade. When all that uncertainty starts to weigh on the economy, I think the equity market's hoping, well, the deal's right here.
At least we know they're talking, that's good news. We weren't sure if that was happening. But it's going to take a long time even to get that agreement in principle, so we don't know how long it'll take and we don't know the end point. The end point is not where we were on, you know, at the start of this year. No question, it's a policy shock. The ECB's decided it's a disinflationary shock. They've cut rates. The Chinese have done the same thing overnight. The Federal Reserve, when they have to address the same question, what kind of a shock is it for them?
I think Chai Pal is going to have to master the art of saying nothing today. You know, so what kind of shock is a great question. I think it's a supply shock, which is very hard for monetary policy to address. But the Fed really can't commit to it. It might morph, I think it will, from a supply shock to a demand shock. When you get prices going up and the consumer has to pick between
dolls or anything else and services, do they cut back on services? The US is a service led economy, but look at the data right now. If you take a step back, the hard data is okay. You know, payrolls are strong. Inflation is still above target. So I think the financial conditions have eased in the last month or at least in the last few weeks. So I think the Fed will say we have no urgency. They've already cut rates. They've taken the preemptive steps.
I think people are looking for them to be preemptive. They were already preemptive last year. They've taken rates down. We're at four and a half. They're going to keep it here until they figure out what's the shock, what's the policy offset. Do we get a big fiscal stimulus deal? In which case, they don't need to address the supply shock. So I think for the Fed, it's trying to...
you know, I think clarify the reaction function. That's the most they can do. But look, if the economy slows down, we'll respond. We're not there yet. We're watching like everyone else. We're watching everything and we'll respond appropriately. The reaction function. This is really interesting to me because right now we don't have a clear sense of what the reaction function is and what data dependency means in a new world where data is incredibly backward looking. And this economy depends on people having $30, not necessarily $2. And when you start to have that
come to fruition, how quickly could you see it manifest in the actual hard data as a demand shock rather than the much more quickly moving supply shock that translates into higher inflation that could come as soon as next week? - Right, so I think that's the question we're all grappling with, that we've not seen it in the hard data.
How long does it take? I don't think it's that long. I do think it's a little more delayed because we learn from the pandemic. Companies learn from the pandemic, consumers. I've not done any early shopping, but people have. I think this front loading, you're seeing it in the data. You're seeing it in the trade data. You're seeing it in companies sort of picking up or piling inventories. So the lag might be a little longer. What I'm watching is what do companies do? Do they pass on that cost?
Do prices go up? Do we see it next week in CPI? If prices are going up, that's when consumers have to decide where do they cut back because real incomes are not really growing. So maybe it shows up in prices first and then consumers start to pull back on demand or
Or do companies say our margins can afford to take that price increase? And in that case, when margin compression starts to build, do they start to lay off people? So I think we're gonna have to watch consumers. We're also watching companies. What do companies do? I think hiring freezes are happening to the layoff start.
And so it's the next few months. I don't think we're waiting till fourth quarter. I think the next few months you'll either see the consumers pulling back or you'll see companies trying to keep some margin and having to cut costs elsewhere.
And I guess the interplay of that will show up in the economic data, which the Fed will respond to. - It seems like the Chris Waller reaction function is to look through the price increases and look straight to what could potentially happen with the demand shock, what could happen to the labor market. Do you expect to get a better sense of whether that's consensus today at a meeting that Francis Donald is gonna sleep through?
I don't think we'll get such a clear signal from Chair Powell because we've, and I think there's a little bit of past dependency. We just lived through a transitory supply driven pandemic shock becoming a demand shock because we had a lot of fiscal stimulus and it fed through into wages and inflation expectations. So I think what we'll hear from Chair Powell is we haven't seen it in the data. We're watching inflation expectations.
Which is why I struggle with them being preemptive. But I do think when they see that data, and I think it's a matter of months, they can be very aggressive. The power led Fed doesn't necessarily move in 25 increments. They started hiking late and then they went in 75 increments. I think they're gonna start
almost by definition a little late because they're waiting on data that is lagging. But once they realize it, I think that's what the market's pricing in. The market's pricing in a scenario where they don't need to do anything because maybe we get these quick deals, credible quick deals.
or the scenario where the economy actually slows down and the Fed then aggressively cuts. I think we're pricing in this bimodal distribution, which is why the rate market's pricing in these rate cuts. I think actually the market can price in more if you start to see that hard data deteriorate. You say they're going to be late. I can think of one person who doesn't like people being late, particularly Chairman Powell. It's the President of the United States. That this afternoon is going to be somewhat interesting. Absolutely. I think you're going to get a live drip feed on Truth Social of him jawboating or potentially he talks to the press. He's going to say...
Chair Powell is wrong and should be cutting interest rates, but that's not going to be new. We've heard this all along from the president. The one thing that he has come out and said is he does not want to actually get rid of him, even though he has in the past used the word termination. Do you think this comes up in the news conference today? Or is this yesterday's news? I'm sure it'll come up. And I'm sure Chair Powell's prepared to say, we're apolitical, we're not even thinking about this. Because there is an argument, which I don't love, that because he's getting this pushback to cut, that Chair Powell may not cut.
No, I think they're looking at their mandate. The mandate, I agree it's backward-looking data, but the hard data is not suggesting that they need to cut here. So he's got an easy pass. I think it can get a lot harder if the unemployment rate starts to rise and inflation starts to rise. I think then he's going to have to explain why he's not cutting rates. But juxtapose this moment in time to before the election when he cut rates.
Why did he do it then? I think, you know, the labor market was showing signs of weakness. Now, I'd like to give the Fed credit that just because the cut rates, the labor market sort of recovered. No, I think it turns out that was a sort of noise in the data. We had those three-week payroll reports and Fed funds was at five and a half. So, the cut rates to take some of that edge off the economy to, you know, move rates lower
They didn't need to do more. The long end sold off. So I think the market pushed back and said, no, you actually don't need to cut a lot more. The Fed heard it. So I think that I don't think is political. He'll absolutely be asked that. But, you know, I think as long as he's not fired, I think it's a free country. People can push back. It's a low bar for you.
Right. As long as he's not fired. Let's build on some of this and unpack it. So on March 19th, we closed around 4.24 on 10s. This morning, we're around 4.24 on 10s, despite the fact we had a major policy shock down in Washington, D.C. You know where this is going. Number one question for portfolio managers right now, for anyone who's cross-asset, is the long bond going to provide me some comfort if things go wrong with the economy?
I'm not sure about the long bond. I think the long bond has supply demand for treasuries as much as the economic fundamentals of where Fed policy is going to be. The five-year, absolutely. We've been adding any backup in interest rates. We've been adding to the five-year. Concerns around deleveraging, we've been adding to the five-year because that's much more levered to...
to essentially Fed cuts and that endpoint. So we don't have to have necessarily a view, do they start cutting in July or September? What's the endpoint? I think it's gonna be below that 3%. So the five-year, I think, does provide you that hedge. You know, I think it's a true hedge. The long end, now we're talking about supply, demand, what's the end goal of tariffs? Is it to remove the trade deficit?
If it is to remove the trade deficit, the rest of the world doesn't need to hold as much in treasuries. I don't think that's the end goal, but I think the long end has a lot more supply demand. We're also talking about this reconciliation package. It's very hard to get the Medicaid cuts in there. So if Congress doesn't end up doing the cuts, but still manages to do all these tax cuts beyond the extension, I think that's going to put pressure on the long end.
If we have a politicized Fed at some point, inflation risk premiums can rise. So I think there's a lot more going on with the long end. I would stay away from the long end. We like curve steepness. But I think that zero to five is still rock solid. What has changed in the past month or really since the last Fed meeting that makes you that much less positive on the long end of the yield curve?
- April 2nd. - Wait, but what about it? - So I think the idea, and I think you all have talked about it, which I think was a great way of saying, is this a shock to the cycle of the system? And is this like a change in the US-led world order, or trading order, economic order? I mean, trade is all we, a lot of us have been talking about trade. The flip side of trade is that the rest of the world buys US assets. And if we're trying to reduce the trade deficit, it means that the net international capital position of the US is gonna change.
if the rest of the world doesn't need to own as much in U.S. assets, cost of capital is going to go up. It's not just for companies and consumers, for the U.S. government. And at the same time, what are we getting in terms of on the fiscal side? If we were getting significant fiscal retrenchment, I would have said, okay, demand's less, supply is going to be less too. We're not really seeing that. Now, you know, the tax bill is being talked about. So I think
April 2nd, I don't view that as necessary, just a negotiating chip and we'll just get better fair trade deals and we'll go back to where we were at the start of this year. I think the administration's trying and I think the damage is already being done. The rest of the world now sees the US not necessarily as a very credible trading partner.
And therefore, should capital come back to the US, I think we have to do a lot of work to attract that capital back. - Priya, when it comes to the tax bill, does the Fed need to cut if we get all the sweeteners the president has promised?
Not necessarily. But do we get that? And I think that's why the Fed, and I hope Chair Powell's asked about that, that how does the tax deal, it's another form of uncertainty. They did see, you know, what resulted in inflation becoming entrenched. I think part of it was fiscal, you know, right after the pandemic. So if we get significant fiscal stimulus that can offset tariffs, the Fed can step back.
I don't think we're going to get that and the Fed will realize it and then they'll have to cut more aggressively. But we don't know and they don't know and so they're just going to try and say nothing for an hour, which is going to be quite a challenge. It's going to be fun, right, isn't it? Live on Bloomberg TV later on this afternoon.
Keith Leonard of Truist is pushing back, writing, evidence suggests the near-term risk-reward profile is less favorable following the sharp market rebound. Keith, join us now for more. Keith, good morning. Great to be here. Just want to frame your year so far, just for the audience, because it's been pretty decent. You downgraded equities something like five days after equities topped out, all-time highs in the middle of February. You clearly think things have shifted again.
the risk-reward profile has changed given the aggressive rally we've seen off the lows. Where are you now? That's right. Well, we are thinking that the risk-reward is somewhat less favorable. At the lows, when we were down 19%, we were telling our investors to start thinking about upside risk, not just downside risk, because at that point, you were down 19%, you were pricing in a recession.
Well, largely pricing the recession. At this point, as you snap back, we've kind of really priced in a good scenario going forward. So if I look at it using this weight of the evidence approach, we still think the economy continues to slow down somewhat. Earning estimates likely have some downside. At the same time, when you look at the forward multiple for the market, you're around 20 and a half. At the peak, we were at 22.
I would argue that given the uncertainty, that we shouldn't be back at 22. And it's not just the tariffs. Don't forget, earlier this year when we were at the highs, we had DeepSeat come in. So on the margin, tech valuations should be somewhat lower than they were as well. So putting that all together, it doesn't mean we have to collapse. It doesn't mean we don't have some headlines to kept this market up. But we think the upside is likely capped around 5,800 on the upside. Maybe you squeeze because sentiment is still relatively negative. That's the biggest asset for the market right now.
There's information in the headline. There's information in how the market responds to the headline. What do you make of these moves this morning in response to the scheduled talks this weekend? You know, as we were talking a little bit earlier, I think a month ago, this would have really moved the market much more. I think, you know, we've moved up a lot. So some of this is priced in. The market is pricing in that we're going to get some tariff relief.
But the question that I think we're all wrestling with is how much damage has been done. And we still think, look at US GDP estimates. They would come into the year above 2%. They're at 1.3, 1.4. And then globally, you're seeing GDP estimates come down for China, for Europe, for the UK. So it's not just a US story. So I guess the challenge I have is that
At this valuation level, even if forward estimates stay somewhat resilient, you saw that with Disney this morning, you're still trading at a pretty hefty multiple and we still think there's some downside. Trying to keep an open mind what could go right and the tech side is something where we've seen spending still pretty healthy, so that's a good story.
But at this point on a shorter term basis, we just think the risk reward is a little bit less favorable. - Keith, President Trump's Maximus approach on April 2nd, this Liberation Day, that chart that came out, then continue ratcheting up on China 145%, did he cushion the market to then be able to absorb whatever rate he ends on, whether or not it's 10% tariff ring and 60% on China? - I think so. I mean, if you think about where we are right now, we're 15% above that low from early April. So we have a long, like a big cushion to get back down there.
So I do think, listen, you come out with the most aggressive stance, you pull it back. But again, the market at this point, when you've come back and where valuations are, I would say that the market is certainly expecting some tariff relief. But are we not going to see some slowdown? Businesses are still somewhat frozen. And I guess the other thing we've been wrestling with, too, is inflation.
there is a difference between the economy and the stock market, right? I mean, the economy, small and middle-sized businesses that we talk to are more concerned. The bigger companies are able to manage this somewhat better, and we all know that the S&P 500 is much more of a growth index with 40% plus in tech and communication. So there's this also, that's why I also think that low is a pretty good low because the
The technology earnings, unlike the overall market, are still moving higher at this point. - So where are you seeing opportunity then? If you are, sounds like tech companies, yes. Sounds like Russell 2000, no. It sounds like there's a real question though about bonds as an offset, about gold. It seems like structurally we have changed the assumptions
since April 2nd for at least some portfolio managers. - Yeah, early in the year, back in February, we did downgrade small caps, so we're less favorable for some of the things I mentioned. They are cheap, maybe a bit oversold. From a sector standpoint, because of the back and forth and the whiplash, what we're trying to do is we have a mixed sector approach. So we have our favorite technology of growth play is communication services. You're seeing that with
Not only the Metas and the Googles of the world, but also as we saw with Disney and Netflix. So there's some kind of secular growth there. Our favorite defensive area is utilities, but there's also a secular story there with AI, which we're seeing actually the last couple of days. And on the cyclical side, we're favorable on financials.
view is instead of trying to move back and forth each day with these moves, have your favorite area of defensive growth and cyclical as well. You said that your ceiling was about 5,800. What's your floor?
- Well, I think the floor is likely that low, that 48, 35, and maybe we find support before that, maybe 5,100 somewhere in that neighborhood. Again, keep an open mind. I think that floor is good as long as you don't go into recession. Our house view is we're around 50, 50, which is, that's where we're basically at. And you did have the VIX spike and the sentiment that you normally see at bottoms. The question is, do you just V-shape right to new all-time highs or come back down? And we do think the Fed is somewhat constrained.
This is the big issue we've all got as investors right now. Can the promise of deals continue sustaining this equity market? And is there a risk that between now and whatever the deal looks like, we hit an air pocket in the economic data? And if we do, do we have a good understanding of what is defensive in this equity market? Can you help us answer all that? Yeah, sure. I've got all the answers for us today. No, I think the biggest thing as I'm thinking about, again, I always think about, because we're a bit more defensive, what could go right as well?
Is the market gonna look through this as a short-term hit? If we're buying in companies, we're really buying them for the next five and 10 years, and that secular story of AI is still there. So I guess the question is, will the market see through some short-term pain, or at least a reduction in growth?
Listen, the market is a discounting mechanism, but at the same time, you almost have to see it to believe it. So I actually think that will constrain the upside. And listen, if we come back down and we think that we're past this, we'll likely look to maybe upgrade stocks again, but we're just not there based on the risk-reward at this point. By the way, I'm not waiting for clarity. I'm not waiting because everyone says, hey, we want clarity. By the time clarity comes, the market has moved
but I'm looking for a better risk-reward. And from an asset allocation standpoint, we're not saying to go like 30% cash. We have a little bit more cash. We have a little bit less equities. We still have high-quality bonds, which actually have been acting well. We upgraded investment-grade bonds on the spread widening recently. We've been bullish gold all year, though I will say short-term, it's a bit extended as well. We've seen an aggressive rally off the low. That's the number one question for me, Lisa. Can we keep this equity market grinding higher?
Can it be sustained just by the promise of deals? And can it be sustained by the promise of deals even if you bump into some weak, hard data? A lot of people say that's the ultimate check, hard data. When it actually does roll over, that is going to be what ultimately could check this sense that we've seen in the markets. I'm wondering about foreign demand.
and how much that changes in the meantime, how much there's been a structural shift for dollar-denominated assets that coincides with potential hard data that does roll over. Keith, let's finish on that. Priya Misra talked about this earlier on. We keep going back to this framework. Are we seeing a cycle-level shock or a system-level shock? And if you're still trying to figure that out, do investors abroad behave as if we are seeing a system-level shock and begin to diversify away from dollar-denominated assets? Is there a risk of that playing out? Do you see signs of it already playing out?
on the margin, but I don't think there's a wholesale change. I think there was kind of this abrupt change initially, but the way we're thinking about it from a portfolio standpoint, we've been Team USA for several years, and we still have a slight U.S. tilt, but it's like an accordion. You have
You have different scenarios happening. You have the currency moving a lot. We're bringing our bets in. We've been doing that since last fall. We added to EM a little bit. We added to development markets this year. I mean, it is notable that on this V-shaped recovery, while the US market's still below the highs, Europe's back to all-time highs. European financials are all-time highs. The other thing that's interesting, if you look at the returns,
For international developed, they're up about 12%. Almost like 9% is the currency on that side as well. Longer term, though, we still say, where's the best companies in the world? They're still in the U.S. So we have that battle, but I guess the bottom line is stay with the U.S.,
But bring in those bets. And I do think there is some signal in that the recovery has happened quicker overseas. It's still exceptional. What did Mark Roman say over at Apollo? It's just not hyper-exceptional anymore. It's heading down to just exceptional. And yet, what does just exceptional look like after so many decades of the U.S. being exceptional when it comes to the currency, when it comes to its funding markets, and then, of course, when it comes to tech development?
A lot has changed since the Fed last met on March 19th. One of the bigger changes in foreign exchange. Eurodollar was trading at 109 this morning, 113.61. Keith, it's good to see you, sir. Thank you. Keith Lerner there of Truist.
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Tom Porcelli of PGM Fixed Income has this to say. He's got thoughts. What started out as a year that could have been easily achieved trend growth has now quickly deteriorated. We will be lucky to see growth in the 1% range. Tom joins us now for more. Tom, good morning.
-Good to see you. -Good to see you all. How's everyone? Very well. Been very busy since we last spoke. A lot has changed since the Fed last met. March 19th, they put out an SEP. And in their SEP, their forecast for growth for this year, for 2025, was 1.7%. And that was a downgrade from the previous forecast. And we all sat around the table and said, "Well, look, compare that to where the median dot is." They've downgraded their assessment of growth, and the median dot is unchanged. They've not increased the outlook for interest rate cuts. My question to you, if they put an SEP out today,
and one is not due. But if they did and had to downgrade that GDP target 1.7% down to, say, 1%, what would the median dot do? So they would be in good company if they downgraded it to 1%. And yeah, the median dot, I think, would not move. And I think this really sort of drives home where they're leaning, right? I mean, in terms of dual mandate, it's entirely about inflation right now.
And the irony, of course, is I think the administration is sort of, as much as they desperately want the Fed to cut rates, I think all that's happening is actually it's just gonna sort of force that day out even further. So we expect cuts this year, but we just don't expect them immediately. I mean, we don't expect, I think even July is actually looking a little too early for us. So I think it'll be more back-loaded.
But I think that there's no question that if you have inflation above target, if you have inflation expectations that are starting the process of becoming unanchored, and if you're now waiting for the inflation thrust from tariffs, I think that this really sort of pushes the Fed to the sidelines. Can you help us out a little bit? No one knows anything about anything. These Fed officials have actually been going around the country listening to business leaders and talking with people. The whole Fed listens idea.
Are they gleaning any more information about the stasis in C-suites, the idea of what companies are doing and how that could trickle into the economy? - Yeah, I mean, honestly, it's littered in the Beige Book, right? I mean, in the Beige Book you can hear this. In the ISMs you can hear this. I mean, anything that actually has some sort of like, you know, sort of qualitative sort of assessment attached to it,
We hear it loud and clear in all of these reports. Now, I think this gets to a really important idea because Powell keeps on saying, hey, but the soft data is sort of softening, but the hard data remains firm. Okay, but at some point, the soft becomes the hard data. And I think we have to sort of recognize that. It's funny, I think the last few years have really done a disservice to this entire conversation because there has been a divergence between the hard and soft data for reasons that are pretty clear, right? I mean, which I'm happy to elaborate on.
So I think if you just lop off the last few years and you look at the hardware soft data, historically speaking, they do move together. So I think it's just a question of time now before it sort of translates. - Neil Todd has put out there this idea that hard data is getting inflated by the pull forward effect. - 100%. - And there's this feeling that you really have to look at the soft data, which is a much more accurate reflection now than say a year or two years ago. If that's true, why are you less worried
about some kind of real pernicious outcome for the economy given how negative the soft data has looked. - Yeah, so which is why we've taken down our growth expectations. I mean, and not just taken down our growth expectations, but raised our recession probabilities. It's a coin flip right now, whether or not you have a recession. We still expect economic expansion to continue at a much slower pace.
But I think we are taking that to account, I think in a very meaningful way, recognizing that the downside risk, I think, is growing seemingly by the day. - Coin flip based on what? What's the catalyst? Whether or not deals, credible deals get done with trading partners? - I think the window is closing rapidly. I think if you don't start to see some real deals,
which again, seemingly they're teeing that up right now. I think that the confidence that's already been wrecked, I think remains that way and people and companies stay on the sidelines. And I'll say one last thing on this, I think it's such an important idea that I think everyone's missing. Let's say you do get credible deals.
And if you have the threat of tariffs that remain in place even after the deals get done, which I can easily see a scenario like that playing out, then I think that just actually keeps already crumbled confidence pretty suppressed. This keeps going back to the theory that maybe we've started a process. The process has started. It becomes self-fulfilling. What is on your dashboard beyond just, say, volume going through the port of LA? What's next? How do the dominoes fall? Yeah.
I think it gets to exactly this idea that we were just talking about. I think the dominoes have to fall, and I think this is the most critical domino. It has to be, okay, tariffs are done. We've achieved what we wanted. Because if you keep the stick of tariffs out there, I think that the uncertainty that everyone keeps on talking about will just remain in place. There's a price for that uncertainty.
And right now that price, Lisa, is wait and see. A lot of companies, to your question, are just sitting there on their hands and saying, got to wait and see. In the meantime, though, they have to raise prices. So they might wait and see when it comes to their investments. They might wait and see when it comes to hiring people. But some of them, at least, have talked about how they can't wait and see when it comes to at least passing along that price increase, which is the reason why you might see that inflation aspect reflected faster than anything else. And actually, can I make one last point? Sure. I know that's like the cue for you wrapping it up.
So I think-- How did you know? I know your tricks. So I think just keep in mind something to this really important idea. If all of a sudden you start to see margin compression, right, profit margin compression, then the labor part of that equation becomes even worse. I mean, look, we're already expecting labor to slow down and there's already signs that that's happening. That would make it, I think, meaningfully worse. I have one more question. Somebody to go. Mike McKee says this is going to be really boring.
How could you make this interesting, this news conference? What would you ask the chairman? You know, so I think that this would be one of these events where I'm guessing Powell would love it if there was no press conference attached to this. You know, I don't know that there's anything more that he can say that's new. I think, in fact, in fairness to him, I think he's doing the right thing. I think he's basically saying we're waiting to see what happens. And I can live with that narrative. We know each other too well. Go away. Tom Porcelli, Peter. Tom, good to see you. Good to see you, guys.
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