Latest inflation numbers coming in in line with expectations this morning. The consumer price index dipping below 3% for the first time since March of 2021. For more what this data can tell us about the state of the economy and the expectation for Fed rate cuts, we want to bring in Nouriel Roubini. He's Hudson Bay Capital's senior advisor. It's great to have you here on set. Thanks much for joining us.

Great being with you today.

So, let's talk about where things stand right now because you're well known as Dr. Doom, but I've actually been recently some, reading some of your recent commentary, and you sound a bit optimistic. So, what's your assessment right now of where things stand for the economy?

Well, there's been an ongoing debate for the last year on whether the US is going to have a hard landing, softish landing means a short and shallow recession, soft, or even a no landing scenario. And the views have been swinging over time. A year ago, people were worried about a hard landing, then people say it's going to be a short and shallow recession, then went to soft, then for a few months looks like the economy is growing too fast, no landing, now back to soft, and now worries again about a recession. I think that my baseline will be that probably we're going to have a soft landing that we're not going to have a recession. Um, the risk of recession is probably rising. There has been some softness in manufacturing PMIs, some parts of the consumer sector. The labor market is softening, but it's not contracting. So, my baseline will be still for a soft landing overall.

That's usually the baseline though before a recession comes historically, right? So, what are you potentially not dooming about right now? This is your specialty, to be Dr. Doom.

Well, you know, I usually say I'm Dr. Realist, not Dr. Doom. You cannot always predict a recession. The stock market, by the way, has predicted, you know, 10 out of the last three recessions, the same thing with the bond market and the yield curve. The markets have been wrong about both the economy and about the Fed for the last year and a half. Right now, they're thinking they're going to do four rate cuts this year. I think probably the number on employment that came out of July was a bit of a fluke. There is some softening of the labor market, but the increase in unemployment rate is driven by an increase in the labor supply, not a contraction in labor demand. So, I think the economy is cooling off. Some parts of the economy are softer, but unless, I would say, the August employment report is going to be really poor, and I don't expect it to be really poor, the Fed is going to start cutting rate in September, but it might be only 25 basis points, and then they're going to wait, of course. The next decision is going to be right after the election. We might have another rate cut if the labor market gets really soft, then you could have maybe 50 basis points in November. We could have a cumulative of 75, but my baseline would not be that the Fed, uh, cuts rates by 100 basis points this year with something between 50, maybe to 75.

What is a really poor, uh, labor market report? Is it something similar to what we saw last month or would you have to see much more in terms of that further deterioration?

Well, last month was not really that bad. First of all, the number can be revised upward or downward. Were driven by a number of technical factors. There was even a hurricane. There was some situation with construction workers in California. The job creation was less than expected, unemployment rate slightly higher, but usually when unemployment rate goes higher because there is a fall in demand, a contraction in employment, that's a signal of recession. In this case, for the last few months, we've seen that actually unemployment has gone higher, not because demand for labor is falling, but rather the supply of labor. People are re-entering labor supply. The increase in the supply is greater than the increase in demand, and therefore, we have an increased unemployment rate. That's actually good news, means that there is a softening in wage inflation, that the labor market is okay. So, to have a bad report, we need to have either zero or negative job creation. That's a true signal that maybe firms are starting to cut on employment. That will be a bad signal, but I don't expect that will be the case in August.