All eyes are on the Federal Open Market Committee, which meets next on June 17-18. While no rate cuts are expected at this point, things can change quickly. Join us live on June 20th at 1 p.m., as Lauren Saidel-Baker, economist at ITR Economics, provides her take on the meeting the new Summary of Economic Projections and Fed Chair Jerome Powell's press conference.
Transription:
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Gary Siegel (00:09):
Hi, and welcome to another Bond Buyer Leaders event. I'm your host Bond Buyer Managing Editor Gary Siegel. Today we're going to discuss the Federal Open Market Committee meeting and monetary policy. My guest is Lauren Saidel-Baker, economist at ITR Economics. Lauren, welcome and thank you for joining us.
Lauren Saidel-Baker (00:33):
Thanks. It's so great to be here.
Gary Siegel (00:37):
So is there anything in the FOMC statement, the summary of economic projections or Fed chair Jerome Powell's press conference that either surprised you or grabbed your attention?
Lauren Saidel-Baker (00:54):
There were no big surprises this time around. The market overwhelmingly expected a hold. They did in fact hold rates. I think the closest we could come to attention grabbing would be the real divergence ... two separate camps that are really emerging between officials on the open market committee that being there are roughly half divided between zero to one cuts for the remainder of the year and two to three cuts. Those two camps seem to be moving a little farther apart in terms of the dots plots when we got the SEP this time. So to really see a line in the sand, again, everything is data dependent. We're waiting to get additional information. Chair Powell did say that as we get closer there should be some convergence on that point, but it seems like differences are starting to emerge as much as we can call them differences when they are so far beneath the surface and the surface justice holding rates for now.
Gary Siegel (01:54):
So there are any implications of that divergence or is it just a question of the uncertainty that's in the markets now?
Lauren Saidel-Baker (02:05):
I think it really is acknowledging just what a unusual time we are in where we know there will be very real inflationary pressures and there's both the question of, well, what will those tariffs be to cause higher inflation leading up until June? We don't have final answers yet on what tariffs will be imposed on what types of goods, what countries. But even if we did have that certainty yet, there's still some question about the pass through both in terms of how long does it take, how stark will that affect be, and even once you move past that point, there seems to be some disagreement in terms of should we just look through this inflation as kind of a one-time bump and assume it won't continue. I think a lot of Fed officials are burned by the word transitory in the past experience, so they don't want to repeat that mistake. But going forward, all of these question marks around tariffs. The other big one that we had been watching was this war in the Middle East heating up. It seems like at least today we're getting some reports that that is now simmering down. Probably not going to expand into a broader global conflict, but war does tend to be inflationary. We've seen the impact on energy prices, oil prices especially. So there are these other question marks. Not to say we ever have certainty, but right now it seems like there's just a lot hanging in the balance.
Gary Siegel (03:28):
I believe the Fed will retire the word transitory.
Lauren Saidel-Baker (03:34):
Yes, there's a black line through that word in their dictionary.
Gary Siegel (03:39):
So where do you see monetary policy going? Do you see any cuts this year? What's your view?
Lauren Saidel-Baker (03:46):
We might get one more cut. My base case is for no movement, at least for the remainder of this year, and I'll go out even a little bit further and say I would be more surprised to see the next rate move be a cut rather than a rise. So again, maybe we get 25 more basis points. I absolutely do not expect significant decrease in interest rates from this point on, but as we talk more and more about inflation, it's not just those factors that I was mentioning. There are very fundamental reasons. If you look at liquidity, the velocity of money, the money supply, just where both fiscal and monetary policy have been, these things tend to cause inflation. And so with inflation coming back, that has been our base case for quite some time now that the second half of 2025 would see higher inflation rates. This is when we don't talk about cutting rates, right? We start to talk about raising them instead. So my overall view of monetary policy is we're about as good as things get in terms of borrowing costs. I see them going up in the longer term. Again, not immediately we'll have this kind of general shift back in policy and in tone, but by 2026 I don't think we'll be surprised to hear rate hike from the conversation.
Gary Siegel (05:08):
Well, given what you just said, how do these officials, half of them justify plans for a cut? If inflation is too high and they're predicting it's going to go even a little bit higher?
Lauren Saidel-Baker (05:23):
Yeah, I would love to ask them that myself to be perfectly honest because that is really the question. We have seen inflation really get away from the Fed once this decade. Again, we use that word transitory kind of as a joke, but it was a very real consideration that those inflationary impacts were transitory, that these things would not get quite so elevated as they did. So I think there's some amount of relief just in terms of disinflation and again on the consumer price index numbers, we are still seeing that disinflation PCE still generally holding downward not yet to the fed's target rate. I don't see us getting two 2% and so we had this same discussion recently with the ECB. Do officials, central bankers accept a slightly higher target for inflation? Admit that we won't get back down two 2%, but we're okay with things being a little bit more elevated.
(06:18):
That would be a little departure from at least what is traditionally assumed in these circles. So the question that I really have as we look at the balance of their dual mandate is that the labor market is still very strong. I don't see a need to be supporting the labor market in this economic moment. Yes, it's been loosening somewhat from its very, very tight starting point, but together that balance of risk, the inflation side on the one hand and the labor side on the other, it does seem to be skewing and I think we see this in fed speak, skewing more and more attention toward inflation. That's why I think expectations have already started to be pulled back. I think directionally we'll probably continue that. I expect those bottom dots on the plot to come up, not the top ones to go down to meet them.
Gary Siegel (07:12):
So are trade fears declining and is that warranted if they are?
Lauren Saidel-Baker (07:18):
I'm sorry, can you repeat the first part of that?
Gary Siegel (07:21):
Are trade fears declining?
Lauren Saidel-Baker (07:26):
I'm not sure the fears themselves are declining, but we are at least grinding into this new normal. I heard the best phrasing of tariffs the other day. They called it Mr. Miyagi tariffs one day it's tariffs on the next day tariffs off, and that's what it feels like. Initially early into President Trump's administration, we needed to know where tariffs would be. I heard this from all of my business clients saying, we just need certainty. I don't care if tariffs are low, high, somewhere in the middle. We just need to know where they will be so that if I say contract, a container ship out of China, I know what price I'm paying. When it gets to the US port now with maybe we've just all accepted it a little bit more, that there is this level of uncertainty. We know broadly the range that tariffs will be in.
(08:11):
It seems like something of a negotiation tactic, at least in the short term with these delays, tariffs on tariffs off again. So I think businesses are accepting a little bit more uncertainty, and so they're making these plans now. We've seen this coming for quite some time that this is the point of upturn in the macro cycle under very normal conditions, this is when businesses would be investing. They would be looking forward, especially with rates, as I said, probably about as low as they're going. This is the time to invest even if you need to borrow to make that investment happen with tariffs, that uncertainty, it was just pushing decisions later. And so we said we want to delay. We want to wait and see. Finally, you just can't keep waiting. We have to see, we have to make some decisions. I've heard this statement before, even if it's not the right decision, I just need to make a decision, right? I'd rather do it now than do it exactly correctly. So more and more I see sentiment shifting in that direction. So they trade fears are completely gone. That would be erroneous, but this amount of uncertainty, maybe we're just living in it for longer and getting more and more used to it.
Gary Siegel (09:23):
So inflation is still high and the economy is slowing down. In fact, GDP for last close negative, are we seeing stagflation? Is it going to get worse? Should we be worried about it?
Lauren Saidel-Baker (09:42):
The risks of stagflation, I absolutely agree. The risk has increased. Now that still is not my base case, not so much for the inflation side of things. Again, I do expect continued inflation, rising inflation in the second half of this year and in 2026, but it's the stag part that I just can't fully get behind. So while growth is slower, I don't see this cycle as being recessionary really. That GDP, the first quarter, GDP print, that was a mixed message. So yes, on the headline print it was contractionary. But if you dig into what actually drove that negative result, the big one was imports. We saw some amount of additional contraction in the government side of things with doge. Actually the big one was defense cuts, but really it was the timing of imports. Everyone wanted to pull their imports in, get goods to this country before those tariffs went into effect.
(10:37):
Everyone knew that Trump was very focused on tariffs this term. So that front loading, dragging imports from either the second or maybe even third quarter of this year into the first quarter mathematically that detracts from GDP. So I don't see that fundamental result as a bad result. I see it just as a quirk of the timing, consumer spending still increased, business investments still increased in the first quarter. GDP, it really just was that we took things in the country sooner rather than later. So I know I read headlines at the time that said, with one quarter GDP negative we're halfway to recession, right? That two or more consecutive quarter mark, I don't see this as being halfway to recession because we won't get a repeat of that, excuse me, tariff related, but the import front loading, that's not going to happen again in the second quarter. So I think we're pretty well supported going back to that tight labor market that supports our consumer, more people earning more money today. That's really the broad base for GDP growth that we see going forward. About two thirds of GDP is driven by consumer spending. So I think we're on broadly stable footing here. That said growth rates will not do what they did last cycle. We should not be expecting that and straight line projecting. So stag, maybe deflation. Absolutely. And again, the chances overall are ticking up not down.
Gary Siegel (12:00):
So you're expecting an increase in GDP in the second quarter?
Lauren Saidel-Baker (12:05):
Yes, I am.
Gary Siegel (12:07):
Okay. So Lauren, are you more worried about growth or inflation going forward?
Lauren Saidel-Baker (12:16):
Overall, I would be more concerned that the market isn't ready for this pace of growth. Like I said, I still do expect growth to be positive. I am not expecting a recession. I think the risk of recession has increased somewhat, not substantially, but somewhat since tariffs were introduced. But really when we talk about growth versus contraction, growth versus recession, it almost comes off as a binary. We're either growing or we're shrinking. Really I see the path forward being somewhere in the middle, we will still be growing. That is positive, but that pace of growth, it looks much more sluggish than we have seen. If you look at the last cyclical growth cycle that was in the wake of the pandemic, that was 2021 and two when we had first of all just the bounce back from shutting down the world and in addition, we in the United States had a ton of stimulus money really supporting that consumer side of things.
(13:12):
So that growth rate was really exaggerated due to so many other factors, we won't see that again. So if business leaders out there are just expecting growth, feels like my most recent growth memory, they're going to be way too far out in front of their skis. More moderate growth. I think just normalizing that expectation. Being ready for something that doesn't feel like a home run every time you swing. That's the big challenge. Now with that inflation is also going to be a persistent pressure that's more possible to overcome as long as you're prepared for it, as long as you get that mentality set. We all know what inflation feels like. We've had a much higher high very recently. So I don't think the inflation shock to the system will come in quite the same way. Overall for businesses, for the business world, this is just going to be margin erosion. This is going to be a margin squeeze in a lot of ways. So again, I see growth coming, but it's just a matter of what you can do with that growth that I think is the biggest risk.
Gary Siegel (14:12):
Do you think the Fed is more concerned about inflation or labor strength?
Lauren Saidel-Baker (14:20):
If you only looked at things like the dot plot and the headlines, you would say labor, but that is absolutely not true. They really are shifting their attention back toward inflation. It felt like it was under control for some amount of time. I had say late last year, earlier this year, we even got rate cuts as a result of inflation coming down enough. So now to see that momentum turning a little bit to the inflation side of the dual mandate, I think that's first of all very well founded. I think that is a good place for attention to be focused, but worry, I know they don't want to see erosion in the labor market. I don't think they will see it for many more fundamental reasons. Not monetary policy driven, but just demographics driven. If you look at the breakdown of our labor market today, we currently have just about one unemployed worker for each available job opening at the low point, the tightest that our labor market was this cycle, we had two open positions for every one job seeker.
(15:24):
So to directionally have moved off of that low. I know that feels like loosening, right? That feels like labor is more available, but broad historical scale, we generally spend much more time above that one-to-one ratio. That is we have multiple job seekers for each available position. That's what a normal labor market feels like. So there has to be a difference in thinking between directional loosening in the labor market and just the level of tightness. Now, like I said, demographics are the big thing here going forward. We just don't have too many new entrants to the labor market. If you look at labor force participation rates, they're still quite high. So that's fewer, I call them folks sitting on the sidelines who could be drawn in and age-wise, this generation, gen Z who's just now leaving school and entering the workforce, they're actually a much smaller generation given everything that we hear about them.
(16:18):
They're smaller than the millennial generation before them, and they are certainly nowhere near big enough in size to be one-to-one replacing all of these retiring baby boomers. So in terms of just how many folks we have to draw from, the numbers aren't there, immigration isn't really doing enough to help us. If anything, these mass deportations or threat of mass deportations, even if the deportations don't take place, that's drawing a little bit of the undocumented labor out of the labor pool. So generally I don't see massive loosening here unless I still, even with ai, that's the big question. Could we just automate away some of these jobs that we can't fill? Could we make people more productive? Well, yes we could, but we really aren't seeing it happen at least quite yet. So AI is not telling all the jobs. We still do need more people for these jobs.
Gary Siegel (17:11):
So I forgot to tell the audience there will not be a formal Q&A session, so if you have questions, just put them in the Q&A window and we will get to them before the end of the session. Now if that's taken care of, back to you Lauren, are you worried about the U.S. debt level and how does it impact the fixed income markets?
Lauren Saidel-Baker (17:35):
I am worried not for the near term. I'm worried about our debt more in the longer term. And again, I'm going to come back to the issue I just brought up, which is demographics. We are facing a real aging challenge here in the United States, and so headed into the end of this decade when those baby boomers will transition more and more of their resources, especially things like healthcare spending as you age. First of all, you take many, many more healthcare resources at the end of life, but as you age into a certain point that goes from your private employer sponsored health insurance onto the government books, we have Medicare, we have Medicaid, these massive programs, social security, I know I don't have to beat a dead horse there. That is very well understood to be in not the best shape given our demographic profile. So these massive programs that are just contributing to higher and higher deficits that will contribute to more and more debt.
(18:31):
That's worrisome to me from a directional standpoint. Now the big one is as we take on more debt, our interest payments on that debt with these relatively higher interest rates than we saw a decade ago, that is spiraling. This I think is my most shocking statistic that today are interest payments on the debt, not principal repayments, just the interest. It's a higher dollar value than our entire Department of defense budget for someone like the US that is really saying something, and so as we have just more interest, we have to roll that debt over. This problem is huge. It is not getting any better anytime soon. So from a total debt perspective, yes, we've known this is a problem for a very long time. I remember, I don't even know when they started, things like that debt clock in Times Square, right? You see the numbers and it's like this many dollar bills would go to the moon and back however many times.
(19:23):
It's just too big, I think for our brains to really comprehend. But we've been living with this. We've been kicking the can down the road for a very long time and we have been able to because of just where we're positioned in the United States, our growing economy, it's a good place to do business and we've had the demographics to support it. I think around the end of this decade, that's when the demographic piece just isn't in support anymore. That's working against us. The rest of the world getting older with us. This is going to be a really challenging time. So I am worried. I think at the end of the day, the market has to look at the US and say, we've accepted this gold standard of credit worthiness for so long, but what's really behind that? What is really underlying this full faith and credit of the US government that would have real yield implications clearly. But I think at the end of the day, if things get too bad, even our ability to roll over our debt could be challenged. I am not saying we're there anytime soon. I think that's a cataclysmic event if it does happen, but toward the end of this decade, that's when I would be getting a little bit more nervous.
Gary Siegel (20:28):
Well, this isn't a new problem. Going back to Alan Greenspan's term as chair of the Federal Reserve, he would constantly complain about the debt levels and how it was unsustainable,
Lauren Saidel-Baker (20:41):
Right? Yes, I agree completely. It's only sustainable for some amount of time and that amount of time is a big question mark. So I think we get used to what always has been the case.
Gary Siegel (20:54):
So today Chris Waller spoke and he said that the fed rate is probably a point to a point and a quarter above neutral. Do you think that's what the panel believes or do you think there's a big split and what do you think the fed's estimate of the neutral rate is? Because as we know, it's just an estimate. There's no actual way to figure it,
Lauren Saidel-Baker (21:19):
Right? Yes. What an academic exercise of the neutral rate. I wish we could one day prove or disprove that, but given how much is in flux right now, I'm around the 3% camp for their estimate of the neutral rate. Again, there seems to be that, like I said, that difference in camps almost converging into distinct groups, but overall, that seems to be historically where they've come down. I don't think that given how much is constantly happening and constantly changing, I think fed officials like to look through that volatility, look through that short term, and look to something a little bit more broad based when they're talking about an item like the neutral rate. So I think that is ballpark. Again, we could never quite know for sure, and some of these pressures that I would argue overweight, right? The concerns with neutral rate, those are going to be with us for some amount of time. So at the end of the day, I think the estimate of the neutral rate, it does just become an academic exercise. It probably won't be the factor primarily driving policy going forward, and I think fed officials know that.
Gary Siegel (22:34):
How serious do you think the Fed is about getting the 2% inflation target? Say if they got down to 2.5%, would that be enough?
Lauren Saidel-Baker (22:46):
They seem decreasingly serious about that 2%, and again, it does seem to be a good long-term equilibrium. We learn all of these terms in Econ 101, and then while we're slapped in the face by the real world and things like tariffs and things like labor constraints that are causing these ongoing wage cycles, it just doesn't seem to be the same gold standard of reaching 2%. I think if they were serious, we would not have seen the types of cuts that we got last year in interest rates were moving in the right direction was good enough, even if not hitting that level. At the end of the day, it's not just fiscal policy and these other pressures, monetary policy has been stimulative that has been showing with some amount of lead and lag time, a general pickup in inflation associated. So if they were really serious about 2%, if that was the absolute must do, mark, I think we would be getting very different messaging from the Fed, and I think we would've even seen a different path of rates.
Gary Siegel (23:52):
Lauren, the yield curve supposedly was the benchmark for determining if a recession was about to happen. Yet in this cycle, the yield curve has been worthless. Let's say. Do you think the yield curve still in the future will be a good indicator for a session, or is it no longer worth watching?
Lauren Saidel-Baker (24:20):
I think it's always worth watching, but even at the beginning of this yield curve inversion, this most recent cycle, we did a deep dive into the prior historical precedence and we found, I think it was something like an 88% chance of a yield curve inversion then signaling an upcoming recession. So even headed into this one, it was not a guarantee. It was an overwhelming likelihood, but well, that's the point, right? Of not every single precedent following the exact same path. Now, I think what did surprise a lot of market participants is just the degree, both severity of the inversion and just the duration of it. This was extreme, and so we fall into that trap of saying, well, this time is different, right? These other reasons caused something else to happen. Those were kind of famous last words. So we were watching that inversion and shocked again by the kind of severity of it.
(25:16):
But at the end of the day, I don't think this inversion itself has to result in a recession as long as it was and as deep as it was. It just falls into one of those outliers where we don't get that signal. Now. I think what's equally important is just the sentiment, right? This is telling us something about what the market believes their view of growth over the short term, over the long term, and that's important to get at. Even if it isn't a guarantee of recession, it's a really clear signal in a way that we don't always get from the market unless you have some of these metrics, these indicators to watch. I do a lot of research in my spare time on sentiment. I think it's fascinating to track, say consumer sentiment for example, because it actually has a better inverse correlation to retail sales than it has an actual correlation to retail sales. There just aren't that many good consumer sentiment indicators that do tell us what consumers will do. So coming from market participants who are a little bit more broadly informed, we see this with things like CEO confidence, it has a little bit of a better directional move here. This is just giving us that signal, giving us that read into the market. But as a guarantee of recession, I would say it never was that and lucky for better or for worse, it certainly did not give us that guarantee this time around.
Gary Siegel (26:43):
Other than questions being raised at the press conference, what is the impact of the poor relationship between Chairman Powell and President Trump?
Lauren Saidel-Baker (26:54):
Yes. Well, I think the bigger impact event would have been if Trump tried to remove Chair Powell. That would've been quite simply a mess. I think that really would've been detrimental to confidence in markets and the independence of the Fed. I think it would've brought us through this just long and messy court case. There was, I think something like a hundred year old Supreme Court precedent. We just would've gone so deep into the weeds for that all to be ironed out. I'm relieved from a not reading Supreme Court precedent point of view, I'm relieved we didn't go there. It seems like Trump is now satisfied to let Chair Powell finish out the remainder of his term as chairman going forward. I don't think anyone would be surprised for him not to be reappointed. That seems to be the base case. Trump does have a list, and I've looked into some of these individuals who seem to be on the short list for Fed share.
(27:51):
Again, we are not a political firm. I want to be very clear. I don't mean any of this in a politically good or bad way, but just the types of individuals that the Trump administration has been putting forward. These are not puppets that we're looking at for Fed share. These are not just someone to do what President Trump has said loudly should be the path of rates going forward. These are either academics, former governors in some cases, but qualified individuals. So I don't think the Fed chairmanship is headed for just who is this? What are they doing now? It seems like cooler heads are prevailing in terms of the market needs that confidence in this figurehead, and I want to use that word very intentionally because at the end of the day, the chair is the figurehead. They're not the one individual who determines rape policy.
(28:39):
We have a group of voting members, and even after the expiry of his term as Chair, Powell will still be in that group. So he still has one vote just as anyone else does. He mentioned in the press conference that he's not looking that far down the road. He kind of dodged the question of what will you do then, or certainly how he feels about it. We're economists and he's a central banker. None of us are supposed to have emotions. So he did that quite artfully. But at the end of the day, this is not a full turnover of those voting seats. That's really what matters here. We will have some degree of continuity even beyond that 2026 date when his term expires.
Gary Siegel (29:18):
So it sounds like you believe that Powell will stay on the board even if he's not chair, although that's pretty much unprecedented.
Lauren Saidel-Baker (29:28):
A lot of current times are unprecedented. So that's the direction I'm leaning. Again, he hasn't given us any indication. I think he would remain, but I guess that's just my personal opinion
Gary Siegel (29:41):
And it would be a good counterbalance given their poor relationship. It would be his way of getting back to Trump if he stays on the board.
Lauren Saidel-Baker (29:53):
Yeah, there's certainly no love lost there. So maybe it's a motion of continuity in this institution that he believes in so strongly. Maybe it's a little zinger at someone that he doesn't like so much. I'm sure it will be talked about in different ways in different circles
Gary Siegel (30:09):
Without a doubt. So is the Fed its independence preserved or is Trump still going to try to erode that in some way?
Lauren Saidel-Baker (30:23):
Yes, in some ways, all of the above. I do believe the Fed independence is stable. Again, president Trump backed down from removing Chair Powell, but at the end of the day, I think this brought up just how many of these Fed procedures, they are not encoded. They are norms, right? This is just how things have always been done. But how much of that would stand up to an interventionist president would stand up to something like a Supreme Court case? Again, based on the makeup of the court currently, it brought up some questions. So I think the market is right to look deeply into those questions. We don't have answers again, because this wasn't tried. We weren't pushed to the brink, which I think is a good thing for overall market sentiment, market stability. But at the end of the day, could a president do these things? Well, yes, maybe. And this really brought that to the forefront.
Gary Siegel (31:19):
What do you see as the biggest risk to the economy going forward?
Lauren Saidel-Baker (31:25):
The biggest risk is what we don't know yet. So it always seems to be some black swan event that I as an economist never could have considered. If you take me back to 2019, a health event, a public health event, that would be so far off of my radar. So right now, I think tariffs and the trade tensions, those are the biggest known unknown to this point, and even that seems to have simmered down. I really am watching. For something else like a world war that wouldn't necessarily be a downside risk, that would be upside risk to pricing. It would actually be an upside risk to activity. We typically see a lot of production increase when the war machine spins up. So I just mean in terms of diverging from the status quo, something coming from outside the world of economics is most likely to be that. Again, we're on a path for growth. Sluggish growth, yes. Higher prices, yes. But these quantities are all very firmly established in the leading indicators in those kind of fundamental trends that we follow. So I think pricing is the biggest wild card, but the biggest outright risk that is something that I will never see coming,
Gary Siegel (32:36):
And the Fed won't either
Lauren Saidel-Baker (32:38):
And the Fed won't either. Absolutely.
Gary Siegel (32:42):
So what does all this mean for the bond market? How do you see the bond market going forward?
Lauren Saidel-Baker (32:50):
So in the near term, again, there's a lot of noise that we really need to wade through. There are, I would say, very different pressures than we have seen up to this point in the growth cycle, which 2024 man, nothing to write home about just sluggish growth. Starting to see that industrial cycle pick back up steam, that's going to have some implications. So if you are looking longer term, that's where I'm starting to get a little bit more nervous, and by longer term, I mean five or so years out. That's where we see some of the storm clouds gathering on the horizon. I think the bond market is going to be the first to respond to those. We typically see that in kind of normal cycles. But I think an extreme cycle like this, especially given all of the concerns I raised earlier with just treasuries being really under fire, at the end of the day, I think that is going to cause some extreme swings, both flight to safety type swings that we usually see.
(33:50):
But then the question of our flight to safety, treasuries being the safest asset we can think of that doesn't really exist anymore. That's going to create a lot of, I think, tension and also a lot of, if not panic, at least volatility as we just look for a home for so much money. So right around 2030, that's where I do start to get nervous. Until that point, the rest of this decade, it looks pretty steady. Again, maybe we'll get a pandemic or a war, an alien invasion. I don't know what else could come down the line at us that we haven't experienced already. But there always does seem to be something absent that looking for generally slower growth, generally higher prices. But overall, I don't see the bottom falling out from the US economy. So that is giving me a measure of encouragement. If I could go so far as to sound like an optimistic economist, I think that's an oxymoron, but at least stability here. It seems to be the name of the game.
Gary Siegel (34:49):
Lauren, what questions are you getting from clients? What are they worried about?
Lauren Saidel-Baker (34:54):
So most of my clients are really focused in kind of the industrial manufacturing space, and the big worry right now is what I'm calling profitless prosperity. That is they're seeing their top line grow, but man, the bottom line is just not keeping pace because my wage costs are so much higher, it's hard to hire to even fill these positions. So my capacity is limited. So it really is that margin squeeze. And more than anything else, that is what I am warning about is just, yes, you can see your sales gross. So many businesses, they rate themselves almost right by that revenue number. That is the goal that they're here to hit. But you have to see this cycle a little bit deeper into the bottom line. It's labor prices, it's energy costs increasingly coming under scrutiny and man, so much upside pressure on energy prices, electricity prices, just with our data centers and AI investments eating up so much more of that supply. It really is, especially with tariffs with goods inflation. Now, resurging coming at us from all directions. So I think a lot of businesses can get overwhelmed by that and not keep on that steady growth path that they need to be with still investing, right? With relatively lower borrowing costs, now is the time to be doing it. So it's prosperity, and I think that's the biggest challenge. That's really what's going to separate companies at the end of this cycle.
Gary Siegel (36:20):
Well, that concludes our leader. I'd like to thank my guest, Lauren Seidel Baker economist at ITR Economics, and I'd like to thank everyone who tuned in to listen to us today. Have a good afternoon, everyone.
