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BMO's Jennifer Lee Interview

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Moomoo News Nov 30, 2024 12:23 · 11k Views

Jennifer Lee, BMO Senior Economist, shared her outlook on the economy and what to expect in the month of December, looking ahead of the next Fed meeting. She spoke with Lizzy Burden on Bloomberg Markets.

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Transcript

  • 00:00 I want to start in the US we had this bumping core PC yesterday.
  • 00:03 Does it
  • 00:04 knock a December Fed cut off the table?
  • 00:08 Well, first of all, thank you very much for having me on today.
  • 00:10 The PC report overall was
  • 00:13 I'm going to say
  • 00:14 broadly stronger, even though you know,
  • 00:17 there was a
  • 00:17 a softer spending figure for the month of October, but it looked like that consumers were still spending on lots of areas, especially the key discretionary areas like
  • 00:27 dining out, staying at hotels.
  • 00:29 So
  • 00:30 some traveling going on
  • 00:31 recreational
  • 00:33 goods and vehicles, for example, that was still
  • 00:35 a lot of purchasing on that front and clothing.
  • 00:38 So the only part that was a little bit dicey was the fact that the core PC deflator was still a bit sticky
  • 00:43 and that sort of
  • 00:44 kind of focuses on the inflation front.
  • 00:46 We saw the latest
  • 00:47 CPI figure for October as well for the.
  • 00:50 Also a bit stickier as well.
  • 00:52 So it puts the whole December rate
  • 00:54 cut.
  • 00:55 Narrative,
  • 00:56 you know, under the radar, of course, and it's still very much undecided.
  • 00:59 We at Bank of Montreal, we are still sticking with our rate cut
  • 01:03 call again where everything is going to be data dependent.
  • 01:06 But right now it looks like you know, it's it's it's still
  • 01:09 coming down enough in
  • 01:10 given enough clearance for the Fed to start cutting again or to continue cutting
  • 01:14 in December.
  • 01:15 But once 2025 rolls around,
  • 01:18 you know, all options are open and we'll have to see how things go.
  • 01:22 Yeah, a lot of uncertainty heading into the new year with Donald Trump, of course,
  • 01:27 taking the White House again.
  • 01:29 I wonder why you've seen this rise in the US savings rate.
  • 01:31 Do you interpret that as the consumer, though getting more cautious?
  • 01:34 Of course, We're thinking a lot about the health of the consumer given the Thanksgiving holiday.
  • 01:39 Yes, well, it's interesting because it does have its ups and downs, obviously, right.
  • 01:43 And I like to think that, you know, with wages and salaries still rising and that's the, the big,
  • 01:47 I think the last most important factor for the consumer is that they continue to see,
  • 01:51 or the workers at least, because you see steady increases in incomes, you know, it's a .5%
  • 01:56 which is matching the average over the past year.
  • 01:58 So as long as
  • 01:59 everyone, all the workers continue to see a steady income,
  • 02:03 getting a steady paycheck,
  • 02:04 coming to the bank accounts,
  • 02:05 that is key.
  • 02:06 And yes, I think they're going to be putting aside a little bit for a rainy day because there's still
  • 02:10 uncertainty about how things are going to play out.
  • 02:13 At the same time, it was, it's interesting because, you know, a recent poll
  • 02:16 was showing that consumers want the president-elect
  • 02:19 to deal with high inflation and high food prices and grocery prices
  • 02:23 is one of his first things to do in his first 100 days.
  • 02:26 So we'll have to see how that pans out.
  • 02:27 But right now, you know, consumer confidence is high
  • 02:30 or is higher because, you know, there's a lot of hope coming in with the new administration.
  • 02:35 And given that uncertainty, if we look to the ECB now, why would they cut by 50 basis points if they could wait and see what Donald Trump's going to do?
  • 02:43 And given that there isn't that big of a gap between the December and January meetings, what do you reckon?
  • 02:50 So the
  • 02:51 everyone has been all the ECB
  • 02:53 governing council members have been pointing to a rate cut
  • 02:57 in December.
  • 02:57 So I think, I think 30 basis points is.
  • 03:00 I
  • 03:01 don't think that's
  • 03:02 might be discussed, but I think 25 basis points is the most
  • 03:05 reasonable move right now.
  • 03:07 It's going to be, again as
  • 03:09 President Zeligard has always said,
  • 03:11 data dependent meeting my meeting basis.
  • 03:14 So again, it's only going to be depending on how the data play out.
  • 03:18 And of course most of the data have been decreasingly
  • 03:20 latest German inflation report came in a little bit better than expected.
  • 03:23 That helped pave the way for a 25 basis point cut in December.
  • 03:26 But again,
  • 03:27 everything is going to be
  • 03:29 up in the air and we'll have to see how
  • 03:31 the new president come when the president-elect comes in and takes over on January 20th.
  • 03:35 We'll see how things pan out on the tariff front.
  • 03:37 But I think Europe is also quite nervous because Europe also has a trade surplus with the US so
  • 03:41 they want to try to figure out how they're going to avoid tariffs with the US.
  • 03:45 Yeah, I mean, Christine Lagarde, of course, encouraging negotiation rather than retaliation
  • 03:51 in an interview with the Financial Times.
  • 03:54 I wonder they when we talk about Germany and we talk a lot about its economic weakness,
  • 03:58 I wonder whether you think it should be learning from the periphery in Europe.
  • 04:02 I was speaking to
  • 04:03 an ECB official the other day that was pointing to success in Spain.
  • 04:07 Maybe that was something that we should be thinking about.
  • 04:11 Oh, interesting.
  • 04:12 OK.
  • 04:12 So Spain has actually been doing extremely well.
  • 04:14 But I think every, you know, every country has its own unique,
  • 04:17 you know,
  • 04:18 the own unique situation of what's dealing with right now.
  • 04:20 And,
  • 04:21 you know, Germany has had a lot of, you know,
  • 04:23 problems,
  • 04:24 you know, with the energy crisis, of course.
  • 04:26 So heavy reliance on
  • 04:28 on China,
  • 04:29 a slow transition to EVs and
  • 04:31 of course, the political situation isn't helping
  • 04:34 at all.
  • 04:35 You know, with the the coalition falling apart and
  • 04:37 having a Coffman's vote next
  • 04:39 later on next month.
  • 04:41 So it's difficult to put policies through.
  • 04:42 But where I am
  • 04:44 heartened is the fact that it sounds like more of these
  • 04:48 government officials are turning around and becoming sounding a little bit more relaxed about,
  • 04:52 or at least more
  • 04:53 sounding more flexible about
  • 04:55 relaxing the debt break a little bit.
  • 04:56 And even Angela Merkel came out and said, you know, that there is a time and place for it and now it's time to
  • 05:01 change things up a little bit and it's time to change
  • 05:03 the debt break and and, you know, release it a little bit and at least relax it.
  • 05:07 So
  • 05:07 there is hope for Germany as well, I think on that front.
  • 05:10 But it's still a long time coming.
  • 05:13 So you're confident that Germany can regain competitiveness.
  • 05:16 Do you do you see
  • 05:17 a willingness to
  • 05:19 implement Mario Draghi's report?
  • 05:22 I think there is willingness to do something.
  • 05:25 Whether or not they're going to be able to implement everything he says in that 400 pager
  • 05:30 report
  • 05:31 is another story.
  • 05:32 And then of course requires a lot more spending, right, $800 billion or €800 billion per year.
  • 05:37 And a lot of
  • 05:38 governments right now are sort of unwilling to spend, you know, you've got,
  • 05:42 you know, France, for example, trying to
  • 05:45 pass its budget.
  • 05:45 And I don't know how that's going to fair.
  • 05:47 But,
  • 05:48 you know, they're trying to rein in their spending, you know, and the opposite of Germany where we're trying to actually get into them to increase their spending.
  • 05:54 So a lot of difficulties on a country by country basis.
  • 05:57 But, you know, obviously, you know, what
  • 05:59 Muriel Draghi has to say is, is very important.
  • 06:01 And I think everyone is on board with it.
  • 06:03 It's just how to get there
  • 06:04 is the big question.
  • 06:05 And it's going to take a long time before we can get to an agreement on that.
  • 06:09 Jennifer, I just want to end right here where I am in the UK, because I know you've been known for your forecasting on the #
  • 06:16 The Bank of England has been relatively cautious
  • 06:19 by comparison to other central banks.
  • 06:22 There's no talk of jumbo cuts here.
  • 06:25 Are we going to see strength for sterling in 2025?
  • 06:29 Oh, you know what?
  • 06:30 The currency market has been almost impossible to call.
  • 06:32 I will say that.
  • 06:34 But the current, but I'm a little bit more
  • 06:36 relaxed, I guess with the UK only because the UK does not, it's not as worried.
  • 06:39 I don't think
  • 06:40 about tariffs with the US because they actually have a little bit of a deficit
  • 06:45 with the US, or at least it's a very small,
  • 06:47 you know,
  • 06:48 almost balanced trade with the with the US in some ways.
  • 06:50 But you know, it's, I think the difficulty is getting everyone within the NPC to figure out what they want to do because
  • 06:56 even though you've got, you know, the extreme dove,
  • 06:59 but then of course,
  • 07:00 everyone else on the other side of the, of the, of the equation is split between hawkish and dovishness.
  • 07:04 So it's certainly, and even between
  • 07:06 the Canada governor and their chief economist, you know, they can't agree either.
  • 07:09 So there's a little bit of difficulty there.
  • 07:11 But we still see that the Inc of England
  • 07:13 cutting rates, but not until February and maybe about
  • 07:16 75 to 100 basis points for next year.
  • 07:19 So hopefully we're going to see maybe a little bit more stability on the, on the pound.
  • 07:23 But again, everything is going to be up in the air depending on what happens in January on January 20th,
  • 07:27 2025.