Episode summary
Expect 3 to 4 Rate Cuts from the Fed Next Year, Says Win Thin
Bloomberg Surveillance
· · Guests: Win Thin, John Williams
Summary
The guest argues that the Federal Reserve is likely to ease more next year than markets currently expect, because the labor market is weakening while inflation continues to trend lower. He points to the last seven months of job creation as evidence that hiring has slowed materially, and says the Fed should be front-loading rate cuts rather than waiting for perfect clarity from noisy data.
He sees recession risk as real but not dominant, putting the odds around 25% to 30%, and thinks the more likely outcome is a slowdown rather than a full downturn. The biggest question for 2026, in his view, is whether investment spending can offset a meaningful pullback in consumer demand. He says lower-income households are under pressure from inflation and layoffs, while spending remains concentrated among higher earners.
On growth, he expects government spending to be a net negative, net exports to remain difficult because of tariffs, and investment to be the main source of support. In housing, he says a modest recovery may be underway, but mortgage rates will not fall enough unless long-term Treasury yields come down, not just the Fed’s short rate.
Key takeaways
- The guest expects at least three, and maybe four, Fed cuts next year, versus the market’s more cautious pricing.
- He says the labor market is cracking and that underlying inflation is still coming down, making easier policy more likely.
- He puts recession odds at roughly 25% to 30%, but thinks a slowdown is more likely than a recession.
- He argues the consumer is weakening, especially at lower income levels, while spending is increasingly concentrated among higher earners.
- He sees investment as the main cushion for 2026 growth, but not enough to fully offset softer consumption.
- He says housing can improve only if long-term yields fall enough to bring mortgage rates down.
Notable quotes
“the underlying signal through all this noise is that labor market cracking and inflation is coming down”
“So, yes, you can quibble about the reliability of the data, but I think it's signals very clear”
“I'm looking for at least three, maybe four cuts next year”
“it's really up to investment. And again, I keep pointing to I that's been a big driver why a headline growth in the U.S. has been so strong”
How the episode opens
Look, there's I've seen some murmuring about, hey, you know, there's some of this data may be kind of sketchy, incomplete, but, you know, you can quibble about all you want. Maybe take your take there. But really, the underlying signal through all this noise is that labor market cracking and inflation is coming down.
So to me, that sets up Fed easing next year more than what the market's pricing in. I would just note the last seven months starting in May. We've only added 120,000 jobs total.
Mm hmm. Seven months. The seven before that was 1.2 million.
Yeah. If you add in Chair Powell assertion that monthly gains are overstated by 60 K, then we're talking about, you know, -340. Negative, negative two.
So, you know, it's all the other sort of concurrent ADP rebellion, all the other I think data really supports that. So, yes, you can quibble about the reliability of the data, but I think it's signals very clear. So the market is seems to be banking on two interest rate cuts next year from the Fed.
Powell was a bit conservative and seemed to signal, one, where are you at in all of that? Yeah. So I think the the the market's understating that the capacity of the Fed chair to ease again, I'm sort of more worried about the labor market then I think, than many in the market.
If you look at your WRP, my favorite pages it's I think the odds were Jan cut only 25%, which I think is pretty light, say right now. And I say it's a coin flip depending on what the deciding factor being the the January I'm sorry, the December jobs report that comes out in early January. So we've got another job report, another CPI report to retail sales report that's going to kind of, I think, inform the Fed.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rate cuts
- inflation target
- employment data
- treasury yields
- fed projections
Companies and tickers mentioned
- Bank of Nassau
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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