Interview, Conference Presentation
Macro questions and market strength
- U.S. economic growth and real disposable income are forecast at approximately 2.5% annually, with core PCE inflation projected to decline to 2.5% by year-end.
- Effective U.S. tariff rates may increase by 4 to 7 percentage points, a move that could trigger a flattening of the equity uptrend and create a two-sided risk environment.
- The Federal Reserve is expected to delay rate cuts due to stable unemployment and growth in the low-to-mid-2% range, potentially resulting in rates moving sideways for a considerable duration before declining at both short and long maturities.
- Consumption is anticipated to expand by 2.5% assuming no major shifts in saving rates, while the payroll break-even rate currently sits near 150,000 monthly jobs but could adjust to 50,000–100,000 if net immigration stabilizes at low levels.
- Market sentiment has shifted toward viewing upside growth surprises as barriers to further Fed easing, with a stronger dollar increasingly driven by tariff risks and low prospects for significant dollar weakening.
- Aggressive or broad-based trade action poses an equity-negative tail risk that is likely underpriced, potentially causing the yield curve to invert as markets price in slower near-term cuts but lower long-term yields.
- Despite tariff uncertainties, the base case for equities remains moderately friendly, with offshore China and European equities viewed as having more scope for relief than U.S. markets which are already priced for positive news.
- The tailwind of underlying economic momentum is expected to outweigh the drag from tariffs, although a significant weakening of the dollar is considered to have low probability given the current backdrop.
- The "catch-up inflation" dynamic where firms raise prices to match past cost increases is gradually diminishing, and January's higher inflation figure is viewed as a predictable anomaly due to annual price resets.
- Financial conditions remain accommodative and unemployment stable, supporting the sustainability of current high interest rates for an extended period before gradual reductions occur.