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Let's welcome on board Ed Yardini as well. Remember you've got the FOMC meeting as well which is uh this week and the outcome is awaited. Ed, hi, good morning. Lots of talking points but first let's start off with what Donald Trump just said and now uh you know rice is becoming an issue when it comes to countries like India and China both.
Where do you think this entire you know tariff uh issue and you know it still stands status quo with India. Where do you think it's going to settle in? Well, it seems as long as Trump is president, we're going to have a tariff issue. It's an ongoing uh tool that um Trump uses in order to negotiate uh better trade terms for the United States.
And as different groups in the United States complain about uh unfair competition from overseas, uh Trump immediately thinks of using a tariff. So I it doesn't look like this is going to be an issue that just gets resolved and it's finished. Um right. Uh Ed, hi good morning. This is Hard Shan. Good evening where you're at.
But uh Ed, give us a sense on how you're seeing the uh the the evolving macros in the US. Uh and what kind of a policy are you expecting uh when we close this week out? Well, the [clears throat] the US economy still looks relatively resilient to me. Uh it seems as though GDP uh which is basically final demand for goods and services is actually growing pretty well.
But uh it's doing so despite a relatively weak labor market and that can only mean that productivity is doing quite well which is a very positive story. Uh but for the here and now, the Federal Reserve is obviously uh going to make a decision here uh on Wednesday, December 10th. And uh everybody's expecting that will be a rate cut of 25 basis points.
The only question is it will it be a doubbish or a hawkish uh rate cut. Uh the the hawkish idea of course would be that the Fed would signal that uh they are uh kind of done for a while. they may not uh they may decide to pause in January. Uh as a matter of fact, at his last press conference in October, Fed Chair Jerome Powell seemed very frustrated and pointed out they said basically said, "Look, we we cut the Fed funds rate by 150 basis points over the past year.
Let's give it a chance to work." Uh but the pressure has been put on the Fed to continue to lower rates. And uh I I think it may very well be that we won't see a a rate cut again for a few months going into next year. And and uh Ed uh uh what should the terminal rate settle at? Therefore, trying to get a sense, you'll have a new Fed governor come May.
You'll have a Fed uh the new Fed governor announced in the month of January. Uh where does the terminal rate go? Well, I'm thinking, you know, a lot of people are saying that uh a new Fed governor is going to be a loyalist to the president, which uh obviously would reduce the independence of the Fed.
On the other hand, it's quite possible that other members of the Federal Open Market Committee, the ones that vote, uh will conclude that u they don't have to tow the line. they don't have to be as much of in the consensus as they were in the past uh as guided as as led by the Fed chair. So I won't be surprised if we have not just two denters but three or four incoming uh decisions.
Uh but uh that's the the way it looks at at at this time. In terms of the terminal rate, I think Fed officials on a consensus basis think the federal funds rate at 3% is what they call neutral. It's it's the kind of nirvana long-term rate at which everything just settles out with low inflation and low unemployment.
That the problem I have with that is like last year the Fed lowered the Fed funds rate by 100 basis points and the bond yield went the other way. it went up a 100 basis points and even now on expectations that the Fed will cut the Fed funds rate the bond yield has actually been inching up recently. So uh to me the Fed has to recognize that the bond market also has an influence on the cost of credit and it's not clear that the Fed is as much in control of credit conditions as they'd like to believe.
Ed, do you think a bigger risk or a bigger watch point could be what the BOJ does because Fed already seems priced in right and and um I was just wondering what could be the potential implications of the yen carry trade or the reversal of that if the you know if the BOG tighten and if the cycle were to continue into 2026.
Yeah, I don't recall exactly when, but I think with several months ago, maybe a year ago, we had a day or two where the carry trade was stress tested and everybody thought this was sort of the beginning of a a spiral and uh it it seemed as though this the the carry trade issue got resolved within a day or two.
I I think there's uh maybe a bit of an exaggeration in terms of the kind of chaos uh that could uh be caused if the carry trade suddenly had to be reversed. I mean people who are borrowing in Japan know what the risks are. Uh many of them are are hedge funds and that's a game they they play. But I don't see that kind of causing any s systematic issues.
Uh in other words, I I think that whatever troubles occur in Japan will probably stay in Japan. It's kind of like what they say about Las Vegas. What happens in Vegas stays in Vegas. What I think what happens in Tokyo is going to stay in Tokyo is going to stay in Japan. Uh so it looks to me as though the Bank of Japan is uh I I think they'd like to continue to to raise interest rates.
Uh but of course the the new prime minister's totally against it. So you can have a very uh rough situation with monetary policy slamming on the brakes and fiscal policy slamming on the accelerator. That's not a good way to run an economy. Okay. Uh Ed, thanks so much for joining
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