00:00 Speaker a
Of course, you followed the consequences of tariffs in the US and worldwide. Hm, we know that when and how rates were set, there is a retardation. The chair Powell talked about it. What is your attitude to the question, when will we start seeing it more and will those effects be maintained?
00:34 Seth Carpenter
Yes, I know. Here is the main, most important issue, so we tried to do a lot of work by looking at what happened in 2018, for example, looking at everything we can find out, UH, looking at the changes in supply chain prices. In the macro, it seems that about three, four months after the rates are implemented that you are starting to see it in inflation, and then there are probably two, maybe three quarters before you start seeing tariffs that reduce economic growth. If you remember back in 2018, UH, when President Trump was previously president, 2018 In the second half, rates were introduced. We have seen certain production disorders, as two -thirds of what we import from China are capital goods or intermediate goods that enter the US production. Thus, rates are only US production taxes. We saw that 2018 In the second half, industrial production begins to produce and continues to decline in 2019. So where are we this time? Well, we know we just got inflation data in June, and it seems that most tariff sensitive categories began to show that pickup. So it is the three or four months back to we mean. So, we hope that inflation data to constantly show tariff sensitive, UH, categories for the next few months, really, UH, an increase in the third quarter inflation. And then, you know, in the fourth quarter, we will probably see a big economy that comes from tariffs that we will increase due to immigration restrictions. So we see that everything as we expected is playing data.
03:21 Speaker a
So Seth, it means that the people on the street who waited for the Fed will reduce their rates, they may be disappointed for a while, not to mention the president himself.
03:42 Seth Carpenter
Yes, I think it’s right. Our basic case, as soon as we announced that the rates would appear faster, higher, before we initially thought, they were all really aggressive, at the beginning of the year, we changed our prediction. We said if this is the case, the Fed will probably not reduce the rates all this year in 2025. Logic is and is very consistent with what Powell, chairman, said yesterday that inflation is still over the goal, and now the labor market is fine. Thus, there is no reason to reduce the Fed Fed in such circumstances. If inflation increases from here, it gives them even more reason to stay where they are slightly restrictive. And even if we start to notice some deterioration of the economy, a certain slowdown in the labor market, if the inflation is still high and growing at that time, their rods to reduce prices until the inflation is growing. So, as we understand that this year they are unlikely to reduce the rates. UH, a month ago, two months ago, the market was in a very different place than a month ago, two months ago, deciding where everything is now, the market is slightly less than even the odds of lowering September, reducing expectations for this year’s reduction. UH, I would say that the market is formed in the same approach as we have.
05:57 Speaker a
UM Seth, as if looking at a case analysis, I know you are looking at cars and automatic prices that have not yet seen the effect of tariffs. Hm, could you go through it as an example, how to show how they get these lags and effects?
06:33 Seth Carpenter
Absolutely. The automotive industry is now an exception that proves the rule in this case. UH, this is a very large industry and is still dominated by a much smaller number of firms. And what we think we hear anecdotically and maybe see data is that some bigger firms are waiting for the time being. They absorb some costs in their margin until they better understand where these rates will end. There is also a feeling that they can wait and find out if, you know, maybe they can take a certain market share because, you know, other firms are facing higher costs. And if you can keep your prices for a while and take a certain market share while the rest of the industry is suffering, this is another option. So I think the automotive industry now causes some pain, given the costs that cannot last forever. So we hope that those prices and cars will also begin to appear in the next few months, perhaps a little more late than the rest of the economy.