Ryan, from your perspective, what about the US deficit and the fiscal pressures? They're obviously in focus in the markets, but are there any catalysts to look out for?

Well, I think if you look at the actual data on budget deficits in the United States, federal government budget deficits, they clearly have remained elevated roughly at around $2 trillion per year and that equates to over 6% of nominal US GDP.

And by all indications, we'll probably be looking at the same sort of magnitude of deficit over the next 12 months just as it was over the previous 12 months.

Now in terms of catalysts and deadlines, there are going to be some next year.

One deadline is going to be the US's need to raise the so-called debt limit.

The debt limit is currently far less than $2 trillion away.

So under current borrowing trends and current deficit trends, clearly that will be something that needs to be done.

So let's bring it back to what we're expecting in the near future.

Ryan, from your perspective, what about the US deficit and the fiscal pressures? They're obviously in focus in the markets, but are there any catalysts to look out for?

Well, I think if you look at the actual data on budget deficits in the United States, federal government budget deficits, they clearly have remained elevated roughly at around $2 trillion per year.

And that equates to over 6% of nominal US GDP.

And by all indications, we'll probably be looking at the same sort of magnitude of deficit over the next 12 months just as it was over the previous 12 months.

Now in terms of catalysts and deadlines, there are going to be some next year.

One deadline is going to be the US's need to raise the so-called debt limit.

The debt limit is currently far less than $2 trillion away.

So let's bring it back to what we're expecting in the near future.

How does that then lead back to the discussion around policy rates?

Yeah, I think it definitely plays a role and, and it's been common for Federal Reserve policymakers for many, many years to pay attention to financial conditions, and of course, that can relate to longer term interest rates, but it can also relate to other factors such as the equity markets or the foreign exchange value of the dollar.

But I think for the Fed, for the practical decision, do we raise rates in the second half of this year or not, it still I think comes down to the objective, which is to bring inflation lower, and that in our mind could end up being a very close call.

We have core PCE inflation currently running at around 3.3%.

It actually did take a small step down in June relative to May, but only by, uh, 0.1 percentage points, so that's, that's not, that's not much comfort, and of course, 3.3 is well above the Fed's, uh, 2% target for PCE inflation.

So if inflation even takes a s- a, a bit of a more upward movement in the second half of this year, I think that will put even more pressure on the Fed to act.

Uh, but we have been forecasting since the beginning of the year that the Fed will stay on hold in 2026 and, and, and into 2027.

Tell us why that matters and, and what you're expecting.

How does that then lead back to the discussion around policy rates?

Yeah, I think it definitely plays a role and, and it's been common for Federal Reserve policymakers for many, many years to pay attention to financial conditions, and of course, that can relate to longer term interest rates, but it can also relate to other factors such as the equity markets or the foreign exchange value of the dollar.

But I think for the Fed, for the practical decision, do we raise rates in the second half of this year or not, it still, I think, comes down to the objective, which is to bring inflation lower, and that in our mind could end up being a very close call.

We have core PCE inflation currently running at around 3.3%.

It actually did take a small step down in June relative to May, but only by, uh, 0.1 percentage points, so that's, that's not, that's not much comfort.

And of course, 3.3 is well above the Fed's, uh, 2% target for PCE inflation.

So if inflation even takes a s- a, a bit of a more upward movement in the second half of this year, I think that will put even more pressure on the Fed to act.

Tell us why that matters and, and what you're expecting.

Five task forces, I believe.

Yeah, absolutely.

So we had a taste, as I mentioned, about the new communication style under the Warsh-led Fed.

And that's really the subject of the first of five task forces, Fed communications.

But there is four other task forces that are expected to deliver results, some sort of results by the end of this year, according to Mr. Warsh.

And those relate to the balance sheet and also to the economic data sources that the Fed uses to make its decisions.

to the big theme about productivity and the labor market in the context of an ai economy and finally just how the fed should manage inflation in the first place it's inflation framework so to speak so i don't think any of these frameworks reviews or or task forces are are going to necessarily deliver immediate changes to how the Fed does its business with the exception of the communication style, which I think has already clearly evolved.

Ryan? And this is, of course, also related to the 2% inflation target, right? Yes, exactly.

What do you make of the tariff impact right now? And I say this on the heels of last night, us still trying to digest exactly what is going to be tariffed in terms of kitchen cabinets, bathroom vanities, uh, furniture, upholstery furniture, all these new sectoral tariffs the Trump administration announced.

Yeah, well, we're entering act two of tariffs, right? I mean, all the focus up and to this point has mostly been on these reciprocal tariffs, but those have had significant, significant sectoral exemptions, and now those exemptions are being filled in as we get these proposed tariffs on these products.

So that's just another reason why, you know, the full story of the effect on consumer prices has yet to be felt.

And yeah, we're gonna be watching really in the rest of, uh, the year, it's gonna be those sectoral tariffs that I think take most of the airplay.

And I just wonder how, when you look at this aggregate data, you can parse that out and understand why some people might be feeling really rotten about this- th- the pace of inflation and the state of the labor market while other people feel pretty good and are flying around the world?

Yeah, well, you know, I would say the macroeconomic data do actually bear out some of this characterization that you, you just said, because really since the start of this year, economic growth, we just got new GDP numbers, will probably be below 2% when, when this year is done.

But we won't necessarily be below 1%, right? So despite all the focus on the weaker employment growth numbers that we've seen come through in recent months, actually the expenditure data, the GDP data, the output data have held up reasonably well.

And I think that speaks to this split, where of course those that are seeing that hiring activity is slower, those trying to get a job are, are really being impacted by that softer job market.

The administration has argued, um, that these tariffs are just going to be a one-time price increase, but I keep wondering, because the tariff structure is so dragged out, um, doesn't that lead to incremental price increases over time?

Well, I think we're definitely gonna see a mix.

If you really talk to businesses, they're adopting different strategies.

Some businesses passed the tariff straight through, uh, right away, but that wasn't the majority.

The majority adopted other strategies, front-loading of inventory, selling down the pre-tariff inventory, and some have passed along a portion of those price increases, but not all of it.

So I do think we're gonna see an extended period where some products are affected by tariffs.

Now, is that gonna be enough to push the overall inflation number, let's say, to 3.5%, to 4%? I don't necessarily think we're gonna get that high.

What are you and the team expecting?