00:00 Joe
Joe, let’s start with you. Uh what are your initial takeaways here?
00:06 Joe
It’s a very good print. Energy dragged it down. We saw that the the very much long awaited improvement in shelter. I think that the unfortunate thing is that because the tariffs are on the way, this is the last clean print we’re going to see before we get those tariff-induced inflation increases that are going to impact the aggregates over the next 60 to 90 days.
00:54 Speaker A
Tom, if this trend continues of cooling inflation, do we see the Fed getting an excuse to cut?
01:03 Tom
Well, if if the trend of cool inflation continued, but uh I think as Joe rightly pointed out, I don’t know that’s what we should expect. In fact, to be more clear, I think we should expect the exact opposite. Um I mean, there’s there’s now a lot of inflation in toe. Uh and it’s what happened what happened yesterday, I think this is an important idea. What happened yesterday with, you know, this um, you know, seemingly the pause, um which hopefully uh goes beyond a pause, is that we’ve we’ve removed the deep left tail scenario. But even with the pause, you still have 10% baseline tariffs. You still have tariffs on Canada, Mexico. You still have auto tariffs. I mean, these tariffs are going to wind up showing up still um through the inflation channel, which will ultimately wind up hitting growth um over the balance of the year. So I think it’s still right to expect um the Fed to um cut over the balance of of this year. We’re still looking for two cuts. Um, but I think again, Joe is right. I I I think that, you know, this this number is um probably going to be a one-off and what will likely be a firmer inflation prints over the coming year.
03:07 Joe
Tom, with that in mind, and it’s a solid reminder because yesterday everything changed, or at least seemingly so because there are still going to be to your point, those 10% tariffs. So it’s just not as high unless it’s some of what’s already been kind of targeted towards China here and that got ratcheted up even higher here. So when you consider how much is also tied to China with the broader inflationary picture because of the import and export mix that we do have, how does this continue to show up and and where would consumers see the first impacts there as the Fed would be looking through some of the indexes within prints like this?
04:13 Tom
Yeah, I so I think what we have to keep in mind is, you know, when we look at what the impact is likely going to be from the from the tariffs that are already in place, right? And the tariffs that seemingly uh may not go away, right? I stress the may not go away. We’ll we’ll see. Clearly there’s a lot of negotiating going on down in DC. Um, but for what we see from what we see today, um, you’re looking at uh a removal of anywhere between a half and one full percentage point from growth uh over the balance of the year. So if your, you know, baseline expectation for growth was 1 and a half percent, um if these uh um tariffs that are that are still in place actually come to fruition, um your 1 and a half percent could easily become zero. Um, and in an environment like that, that means that you’re going to want to seeing some margin compression, um, which means that the the the real risk is that you see companies go after labor. Um, and then which case I think that really puts the Fed very much in play.