Episode summary
US Stocks Oscillate as Tech Shares Pare Drop
Bloomberg Surveillance
· · 8 min · Guests: David Rosenberg, Fares Hendi
Summary
David Rosenberg argued that the Federal Reserve is already well behind the curve and should be cutting rates now, not waiting for inflation to normalize further. He said the nominal neutral rate is around 3%, which means policy is still about 100 basis points too tight given slowing inflation and a labor market he sees weakening.
He tied that call to a softening consumer backdrop. In his view, lower-income households remain under pressure from falling purchasing power, but weakness is now spreading into the middle of the income distribution as well. He pointed to Walmart’s recent strength as evidence of trading down and said that signals reduced demand pressure, which should ultimately help push inflation lower.
Rosenberg also said the Fed should not signal a one-and-done approach. He expects a December cut and argued that the central bank should communicate more easing ahead because the consumer and business sector are priced off the curve, not the overnight rate. He added that the key labor-market issue is the trend in unemployment, not the current level, and warned that recessionary patterns often begin near today’s unemployment rate.
Key takeaways
- Rosenberg said the Fed is roughly 100 basis points above neutral and should already be easing policy.
- He expects the unemployment rate to rise toward 3% by late winter and toward 2% to 2.5% by the end of next year.
- He argued that consumer stress is moving beyond the low end and into the middle of the income distribution, with Walmart benefiting from trading down.
- He said a single rate cut would help lower-income households only “by a smidge” and that broader income support is still needed.
- He expects the Fed to cut in December and avoid signaling a one-and-done path.
Notable quotes
“Well, I'm of the view that the nominal neutral rate. Is no harden 3%”
“So I'm of the view that the Fed has no business being almost 100 basis points above neutral”
“Will one rate cut make a difference for the lower income thresholds? Probably by a smidge”
“So I think they'll cut in December”
How the episode opens
Well, I'm of the view that the nominal neutral rate. Is no harden 3%. So I'm of the view that the Fed has no business being almost 100 basis points above neutral when you consider the trend in underlying inflation, which has been gradually to the downside but is on the downside and the unemployment rate.
No, keep in mind we always talk about how inflation is still above the Fed's target. The Fed has a dual mandate and the unemployment rate is just a snake. Now to the second decimal place below four and a half percent.
And the Fed thinks it's going to be down to 4.4 next year, which I think is going to be a big surprise for them. But their view is that narrow or the full employment unemployment rate is 4.2%. So we're already above that and the unemployment rate is trending higher, whether that's due to demand or supply factor.
It doesn't matter. Black has been built up in the labor market. They should be at neutral already.
I'm of the view that we will be at 3% by late winter and on our way down towards 2 to 2 and a half by the end of next year. I want to pass David right now. I got Neil dotted with a brilliant chart driven article on a staggering America.
I've got Mike Green of Simplex Adams, Substack on a staggering America. I think Paul and I deal with this every day. There's a part of America flat on their back.
Does this rate cut help them or do we need one, two, three, four rate cuts to begin to help in America? It's not buying Google chips. Well, look, there's all sorts of structural or secular problems related to, let's call it income and wealth inequality that is undermined.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rate cut expectations
- us economic data
- ai chip competition
- tech stock moves
- treasury yields and dollar
Companies and tickers mentioned
- GOOGL
- GOOG
- META
- NVDA
- AMD
- ORCL
- AAPL
- AMZN
- Rosenberg Research
- Prevoir Asset Management
- Alphabet Inc.
- Meta Platforms Inc.
- Nvidia Corp.
- Advanced Micro Devices Inc.
- Oracle Corp.
- Apple Inc.
- Amazon.com Inc.
Watch the episode
Watch “US Stocks Oscillate as Tech Shares Pare Drop” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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