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All right, let's broaden it out and talk about what's going on in the macro level because it is a big week for investors. We'll be getting a fresh reading on inflation this Thursday that could help build the case that the Fed should begin to cut interest rates in September. For more in the week ahead and what it means for the economy, we want to welcome in Veronica Clark, economist at City. Veronica, it's good to see you. And what I find really interesting about the City call on what's going to happen with interest rates is it's a good reminder it's not just about when they start. It's about what happens after that and how frequently um they they keep cutting rates. And you guys think we're going to have a streak here once they start going. Talk us through that.

Yeah, yeah, exactly. We we have the Fed cutting rates for the first time in September, which is is not so much out of consensus anymore. We're we're pricing about 20 basis points or so for for September. Um but yeah, where we're more out of consensus is what happens after that. We do think the Fed is cutting every meeting after that, so that includes November, December and and into the first half of of next year. Um and that consecutive cut call is increasingly premised on this idea that the labor market is softening. Um you know, we had very strong 200k plus payrolls on on Friday. Um but that unemployment rate ticking up I think will be increasingly concerning for for Fed officials. We're now at 4.1% on the unemployment rate. That's above the Fed's year end forecast. Um so I think that will really you know, will get us to those consecutive cuts.

And Veronica, when you're talking to clients and they ask you, what what are the risks to this call? What what do you tell them, Veronica?

Yeah, I mean, we we are still I think in a, you know, we're we're kind of in this trade-off of, are we going to have a soft landing, or we're going to weaken further? Um I think we have a a much easier time now than maybe a couple months ago of convincing people that things are slowing down. Um a couple months ago, you know, the story was reacceleration and and growth picking up again, maybe the Fed would have to hike again. Um that looks much less likely. Um but I think for us, it really just comes down to the the normal macro dynamics. You know, most recessions, most downturns do start very gradually, they start very slowly and then at some point, you encounter this non-linearity, you get the, you know, bigger increase in layoffs. We have seen this rise in initial jobless claims lately. It kind of feels like we're on the brink of that now. Um maybe the the biggest pushback is yeah, the the overall numbers still look pretty good. It's just the you know, extrapolating that trend does not look so good.

Veronica, what are the other warning signs that you're seeing in the data?

Yeah, I mean, I think it really does, you know, mostly come down to to the labor market. We've seen, you know, for a number of months now, you know, nine months or so, you know, hiring really pulling back, hours worked that are coming down. It looked to us like all of those early steps that employers would be trying to, you know, cut labor costs. They're not laying anyone off yet, but that would really be the last step. Um but as that, you know, dynamic has happened and it's been getting harder and harder to find work if you do happen to get laid off. We have seen this pullback in spending and we've had retail sales, you know, moving sideways to slightly lower for for a number of months now. And that pullback in spending, that's less business revenue. Maybe that's what gets you to that final step of of layoffs. Um so it is really just this gradual deterioration that we see.

Veronica, I'm curious to, you know, our central bankers are on Capitol Hill this week. J. Powell uh with his semi-annual testimony. I'm curious, Veronica, um you'll be listening. What what what do you think J. Powell has to say?

Yeah, I think that the risks tomorrow, we'll hear from him first tomorrow and then on Wednesday, are that he sounds relatively dovish. Um it's interesting that we're hearing from Powell first, you know, among Fed officials after that unemployment rate number on Friday. Um but he did sound like a, you know, a central banker who's getting more worried on the labor market, you know, employment side of the Fed's mandate. We've heard that from some of the other Fed doves also. Um I don't think he's going to, you know, you know, really flag, you know, alarm bells just yet. Um but I think he'll be increasingly worried with that unemployment rate rising.

At the same time, it feels like inflation is going in the Fed's direction, right? Um are you are you pretty confident that we're going to see a benign reading in CPI on Thursday?

Yeah, yeah. I mean, as confident as a forecaster can be, maybe. There's always things that can happen. You never know. Um but yeah, we're expecting another pretty favorable reading for for the Fed, a 0.2% month-on-month for core CPI. That's a very normal reading. Um even in the details of that, I think we might see, you know, finally some slowing in shelter inflation. That's been a very sticky strong component of inflation. That might look more normal on on Wednesday or on Thursday's data. Um so that would be, you know, the Fed getting more confidence that inflation is easing.

Veronica, great to have you on the show today. Thanks so much for joining us.

Thank you.