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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.

Kelvin Pang: And I'm Kelvin Pang, Head of Asia Credit Strategy.

Andrew Sheets: And today in the program we're going to finish our global tour of credit markets with a discussion of Asia.

It's Friday, June 20th at 2pm in London.

Kelvin Pang: And 9pm in Hong Kong.

Andrew Sheets: Kelvin, thank you for joining us. Thank you especially for joining us so late in your day – to complete this credit World tour. And before we get into the Asia credit market, I think it would just be helpful to frame at a very high level – how you see the economic picture in the region.

Kelvin Pang: We do think that the talks and potential deals will probably provide some reprieve towards the growth for the region, but not a big relief. We do think that tariff uncertainty will linger here, and it will keep growth low here; especially if we do think that CapEx of the region will be weaker due to tariff uncertainty. A weaker U.S. dollar, for example, plus monetary easing will help offset some of this growth drag. But overall, we do think that the Asia region could see 90 basis point down in real GDP growth from last year.

Andrew Sheets: So, we've got weaker growth in Asia as a function of high tariffs and high tariff uncertainty that can't be offset by further policy easing. In the context of that weaker growth backdrop, higher uncertainty – are credit spreads in the region wide?

Kelvin Pang: No, they're actually really low. They're probably at like the lowest since we start having a data in 2013. So definitely like a 12 to 13 year low of the range.

Andrew Sheets: And so why is that? Why do you have this kind of seemingly odd disconnect between some real growth challenges? And as you just mentioned, really some of the tightest credit spreads, some of the lowest risk premiums that we've seen in quite some time?

Kelvin Pang: Yeah, we get this question a lot from clients, and the short answer is that, you know, the technicals, right? Because the last two years, two-three years, we've been seeing negative net supply for Asia credit. A lot of that is driven by China credit. And if you look at year-to-date, non supply remain still negative net supply. And demand side, for example, has not really picked up that strongly. But it still offsets any outflows that we see the last two-three years; is offset by this negative net supply.

So, you put this two together, we have this very strong technicals that support very tight spread. And that's why spread has been tight at historical end in the last, I would say, one to two years.

Andrew Sheets: Do you see this changes?

Kelvin Pang: Yeah, we do think it's changed. We have a framework that we call the normalization of Asia Credit technicals. And for that to change, essentially our framework is saying that Treasury yields use need to go down, and dollar funding need to go down. Cheaper dollar funding will bring back issuers. Net supply should pick up. Demand for credit tends to do well in a rate cut cycle. Demand tends to pick up in a rate cut cycle.

So, if we have these two supports, we do think that Asia credit technicals will normalize. It's just that, you know, we have four stages of normalization. Unfortunately we are in stage two now, and we still have a bit of room to see some further normalization, especially if we don't get rate cuts.

Andrew Sheets: Got it. So, you know, we do think that if Morgan Stanley's yield forecasts are correct, yields are going to fall. Issuers will look at those lower yields as more attractive. They'll issue more paper in Asia and that will kind of help rebalance the market some. But we're just not quite there yet.

Kelvin Pang: Yeah, we feel like this road to rate cuts has been delayed a few times, in the last two-three years. And that has really been a big conundrum for a lot of Asia credit investors. So hopefully third time's a charm, right. So next year's a big year.

Andrew Sheets: So, I guess while we're waiting for that, you also have this dynamic where for companies in Asia, or I guess for any company in the world, borrowing money locally in Asia is quite cheap. You have very low yields in China. You have very low local yields in Japan. How do those yields compare with the economics of borrowing in dollars? And what do you think that, kind of, means for your market?

Kelvin Pang: Yeah, I think the short answer is that we are going to see more foreign issuers in local currency market. And, you know, we wrote a report in in March to just to pick on the dim sum corporate bond market. It benefits…

Andrew Sheets: And Kelvin, just to stop you there, could you just describe to the listener what a dim sum bond is? And probably why you don't want to eat it?

Kelvin Pang: Yes. So dim sum bond is basically a bond denominator in CNH. So, CNH is a[n] offshore Chinese renminbi, sort of, proxy. And it's called dim sum because it's like the most local cuisine in Hong Kong. Most – a lot of dim sum bonds are issued in Hong Kong. A lot of these CNH bonds are issued in Hong Kong, And that's why, [it has] this, you know, sort nickname called dim sum.

Andrew Sheets: So, what is the outlook for that market and the economics for issuers who might be interested in it?

Kelvin Pang: Yeah. We think it's a great place for global issuers who have natural demand for renminbi or CNH to issue; 10 years CGB is now is like 1.5-1.6 percent. That makes it a very attractive yield. And for a lot of these multinationals, they have natural renminbi needs. So, they don't need to worry about the hedging part of it. And what – and for a lot of investor base, the demands are picking up because we are seeing that renminbi internationalization are making some progress. You know, progress in that means better demand. So, overall, we do think that there is a good chance that the renminbi market or the dim sum market can be a bit more global player – or global, sort of, friendly market for investors.

Andrew Sheets: Kelvin, another sector I wanted to ask you about was the China property sector. This was a sector that generated significant headlines over the last several years. It's faced significant credit challenges. It's very large, even by global standards. What's the latest on how China Property Credit is doing and how does that influence your overall view?

Kelvin Pang: it's been four plus years, since first default started. and we've been through like 44 China property defaults, close to about 127 billion of total dollar bonds that defaulted. So, we are close to the end of the default cycle. Unfortunately, the end or default cycle doesn't mean that we are in the recovery phase, or we are in the speedy recovery phase. We are seeing a lot of companies struggling to come out restructuring.

There are companies that come out restructuring and re-enter defaults. So, we do think that it is a long way to go for a lot of these property developers to come out restructuring and to get back to a going concern, kind of, status – I think we are still a bit far. We need to see the recovery in the physical property markets. And for that to happen, we do need to see the China economy to pick up, which give confidence to the home buyers in that sense.

Andrew Sheets: So, Kelvin, we started this conversation with this kind of odd disconnect that kind of defines your market. You have a region that has some of the most significant growth risks from tariffs, some of the highest tariff exposure, and yet also has some of the lowest credit risk premiums with these quite tight spreads. If you look more broadly, are there any other kind of disconnects in your market that you think investors around the world should be aware of?

Kelvin Pang: Yeah, we do think that investors need to take advantage of the disconnect because what we have now is a very compressed spread. And we like to be in high quality, right? Whether it is switching our Asia high yield into Asia investment grade, whether it is switching out of, you know, BBB credit into A credit.

We think, you know, investors don't lose a lot of spread by doing that. But they manage to pick out higher quality credit. At the same time, we do think that one thing unique about Asia credit is that we have significant exposure to tariff risk. Asia countries are one of the few that are, you know; seven out the 10 countries that are having trade surplus with the U.S. And that's why we think that the iTraxx Asia Ex-Japan CDS index could be a good way to get exposure to tariffs. And the index did very well during the Liberation Day sell off. Now it's trading back to more like normal level of 70-75 basis point.

We do think that, you know, for investors who want long tariff with risk, that could be a good way to add risk.

Andrew Sheets: Kelvin, it's been great talking to you. Thanks for taking the time to talk.

Kelvin Pang: Thank you, Andrew.

Andrew Sheets: And thank you listeners as always, for your time. If you find Thoughts of the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Martijn Rats: Welcome to Thoughts on the Market. I'm Martin Rats, Morgan Stanley's Global Commodity Strategist.

Today I'll talk about oil price dynamics amidst escalating tensions between Israel and Iran.

It's Wednesday, June 18th at 3pm in London.

Industry watchers with an eye on the Brent Forward Curve recently noticed a rare smile shape: downward sloping in the first couple of months, but then an upward sloping curve later this year, and into 2026. Now that changed last Friday.

The oil market creates these various shapes in the Forward Curve, depending on how it sees the supply demand balance. When the forward curve is downward sloping, holding inventory really is quite unattractive; so typically, operators release barrels from storage under those conditions. The market creates that structure when the conditions are tight, and barrels indeed need to be released from storage.

Now on the other end, when the market is oversupplied, oil needs to be put into inventory, and the market makes this possible by creating an upward sloping curve. So, the curve that existed until only recently told the story of some near-term tightness first, but then a substantial surplus later this year and into 2026.

Now when the tensions in the Middle East escalated late last week, the oil complex responded strongly. But not only did the front-month Brent future, i.e. oil for delivery next month rise quite sharply by about 17 percent, the impact of the conflict was also felt across all future delivery dates. By now, the entire forward curve is downward sloping, which means that the oil market no longer is pricing in any surplus next year – a big change from only a few days ago.

Now, no doubt, Friday's events have sharply widened the range of possible future oil price paths. However, looking ahead, we would argue that oil prices fall in three main scenarios.  Together they provide a framework to navigate the oil market in the next couple of weeks and months.

First, let's consider the most benign scenario. Military conflict does not always correlate with disruptions to oil supply, even in major oil producing regions. So far, there is no reduction in supply from the region. If oil and gas infrastructure remains out of the crosshairs, it is entirely possible that that continues. In that case, we might see brand prices retract to around about $60 per barrel, down from the current level of about $76 per barrel.

Our second scenario recognizes that Iran's oil exports could be at risk either because of attacks on physical infrastructure or because of sanctions – mirroring the reductions that we saw during 2018’s Maximum Pressure Campaign by the United States. If Iran were to lose most of its export capacity, that would broadly offset the surplus that we are currently modeling for the oil market next year, which would then in turn leave a broadly balanced market. Now in a balanced oil market, oil prices are probably in a $75 to $80 per barrel range.

The third and most severe scenario encompasses a broad regional disruption, possibly pushing prices as high as 2022 levels of around $120 a barrel. Now, that could unfold if Iran targets oil infrastructure across the wider Gulf region, including critical routes like the Strait of Hormuz, through which a significant portion of the world's oil transits.

The situation remains very fluid, and we could see a wide spectrum of potential oil price outcomes. We believe the most likely scenario remains the first – our base case – with supply eventually remaining stable. However, the probabilities of the more severe disruptions whilst currently still lower, still justify a risk premium of about $10 per barrel for the foreseeable future. As we monitor these developments, investors should stay alert to signs such as further attacks on all infrastructure or escalations in sanctions, which could signal shifts towards our more severe scenarios.

Thanks for listening. If you enjoyed the show, please leave us a review wherever you listen. And share Thoughts on the Market with a friend or colleague today. 

Welcome to Thoughts on the Market. I’m Robert Feldman, Senior Advisor at Morgan Stanley MUFG Securities in Tokyo. Today I’d like to discuss Japan’s crucial contributions in global AI development.

It’s Tuesday, June 17, at 2 PM in Tokyo.

Japan has always been a world leader in advanced technology infrastructure and robotics. So it comes as no surprise that Japanese devices and materials play critical roles in the global AI supply chain. For investors, however, it's vital to understand Japan's unique systematic approach to AI and the lessons it offers other countries.

In Japan, AI has historically developed through this symbiotic interaction of four elements: Hardware, Software, Data, and Ethics. Japanese technology advances not only evolve, but they co-evolve – meaning that advances in one element make advances in others more urgent. And when those latter advances occur, chokepoints arise in yet other elements. However, unlike co-evolution in nature, where chance mutations just happen to reinforce each other, co-evolution in AI is driven by human intent. That is, humans see a chokepoint and address it with innovation.

These chokepoints – or bottlenecks in development – they’re crucial to the way we think about AI. Identifying the chokepoints allows firms and industries to innovate. And Investors should also pay particular attention to these chokepoints because that’s where the investment opportunities are.

For example, at a recent event, we asked a medium-sized Japanese retail food manufacturing company president – who is an energetic AI advocate – which factor was the biggest chokepoint for his firm. And he replied unequivocally, immediately, “Data.” His firm has some data; so do his competitors. But there is no common protocol for recording the data, contributing information to a common database, and still maintaining anonymity. So clearly, the chokepoint around Data suggests that this company will need innovative data solutions so that it can then take advantage of the other three key elements: the Hardware, the Software, and the Ethics.

Ethics is crucial because people won’t use AI unless there is an ethical basis. So in terms of this element – the ethics element – Japan's commitment to ethical AI development has been very flexible. On one hand, Japan has robust legal frameworks, like the Act for the Protection of Personal Information and subsequent amendments. These laws ensure that AI advances within a secure and ethical boundary. And the laws are not just on paper. They are actively enforced. A few years ago there was a landmark court ruling that upheld data privacy against unauthorized AI use. However, Japan also is flexible. The data rules are tweaked, to allow more practical approach to developing large language models.

Another unique part of Japan’s approach to ethics is the proactive emphasis on AI literacy. From corporate giants to small businesses, there is a concerted effort to train personnel not just in the AI technology but also in the ethical application, and thus ensure this well-rounded acceptable advancement in AI capability. This approach to training workers is not just altruism; Japan faces a severe labor shortage, and AI is widely viewed as a critical part of the solution. So good ethics are bringing faster AI diffusion.

Ultimately, on a global macroeconomic level, the winners from AI will be the corporations and the nations that do three things: First quickly introduce the technology; second, rapidly innovate new products and processes that use AI; and third, retrain labor and reallocate capital to produce these new and innovative products. With this macro backdrop, Japan’s intentional use of the symbiosis between Hardware, Software, Data, and Ethics gives Japan some unique advantages in accelerating AI diffusion and spurring economic growth. 

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief  U.S.  Equity Strategist. Today on the podcast, I’ll be discussing why we remain more  constructive than the consensus on large cap U.S. equities – and which sectors in particular.  

It's Monday, June 16th at 9:30am in New York. 

So, let’s get after it. 

We remain more constructive on U.S. equities than the consensus mainly because key gauges we follow are pointing to a stronger earnings backdrop than others expect over the next 12 months. First, our main earnings model is showing high-single-digit Earnings Per Share growth  over the next year. Second, earnings revision breadth is inflecting sharply higher from -25 percent in  mid-April to -9 percent today.  Third, we have a secondary Earnings Leading model that takes into account the cost side of the equation; and that one is forecasting mid-teens Earnings Per Share growth by the first half of 2026.  More specifically, it’s pointing to higher profitability due to cost efficiencies. 

Interestingly, this was something we heard frequently last week at the Morgan Stanley Financials Conference with many companies highlighting the adoption of Artificial  Intelligence to help streamline operations. Finally, the most underappreciated tailwind for S&P 500 earnings remains the weaker dollar which is down 11 percent from the January highs. As a reminder, our currency strategists expect another 7 percent downside over the next 12 months.   

The combination of a stronger level of earnings revisions breadth and a robust rate of change on earnings revisions breadth since growth expectations troughed in mid-April is a powerful tailwind for many large cap stocks, with the strongest impact in the Capital Goods and Software industries. 

These industries have compelling structural growth drivers. For Capital Goods, it’s tied to a  renewed focus on global infrastructure spending. The rate of change on capacity utilization is in  positive territory for the first time in two and a half years and aggregate commercial and industrial loans are growing again, reaching the highest level since 2020. The combination of structural  tech diffusion and a global infrastructure focus in many countries is leading to a more capital intensive backdrop. Bonus depreciation in the U.S. should be another tailwind here – as it incentivizes a pickup in equipment investment, benefitting Capital Goods companies most  directly. Meanwhile, Software is in a strong position to drive free cash flow via GenAI solutions from both a revenue and cost standpoint. 

Another sector we favor is large cap financials which could start to see meaningful benefits of de-regulation in the second half of the year. The main risk to our more constructive view remains long term interest rates. While Wednesday's below consensus consumer price report was helpful in terms of keeping yields contained, we find it interesting that rates did not fall on Friday with the rise in geopolitical tensions. As a result, the 10-year yield remains in close distance of our key 4.5 percent level, above which rate sensitivity should increase for stocks. On the positive side, interest rate volatility is well off its highs in April and closer to multi-year lows.  

Our long-standing Consumer Discretionary Goods underweight is based on tariff-related  headwinds, weaker pricing power and a late cycle backdrop, which typically means  underperformance of this sector.  Staying underweight the group also provides a natural hedge should oil prices rise further amid rising tensions in the  Middle East.  We also continue to underweight small caps which are hurt the most from higher oil prices and sticky interest rates.  These companies also suffer from a weaker dollar via higher costs and a limited currency translation benefit on the revenue side given their mostly domestic operations.  

Finally, the concern that comes up most frequently in our client discussions is high valuations.   Our more sanguine view here is based on the fact that the rate of change on valuation is more  important than the level.  In our mid-year outlook, we showed that when Earnings Per Share growth is above the  historical median of 7 percent, and the Fed Funds Rate is down on a year-over-year basis, the  S&P 500's market multiple is up 90 percent of the time, regardless of the starting point.

In fact, when  these conditions are met, the S&P's forward P/E ratio has risen by 9 percent on average. Therefore, our forecast for the market multiple to stay near current levels of 21.5x could be viewed as conservative. Should history repeat and valuations rise 10 percent, our bull case for the S&P 500 over the next year becomes very achievable.  

Thanks for tuning in; I hope you found this episode informative and useful.  Let us know what you think by  leaving us a review; and if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Michael Gapen: Welcome to Thoughts on the Market. I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.

Sam Coffin: And I'm Sam Coffin, Senior Economist on our U.S. Economics research team.

Michael Gapen: Today we're going to have a discussion about the potential economic consequences of the administration’s shift in immigration policies. In particular, we’ll focus much of our attention on the influence that immigration reform is having on the U.S. labor market. And what it means for our outlook on Federal Reserve policy.

It's Friday, June 13th at 9am in New York.

So, Sam, news headlines have been dominated by developments in the President's immigration policies; what is being called by, at least some commentators, as a toughening in his stance.

But I'd like to set the stage first with any new information that you think we've received on border encounters and interior removals. The administration has released new data on that recently that covered at least some of the activity earlier this year. What did it tell you? And did it differ markedly from your expectations?

Sam Coffin: What we saw at first was border encounters falling sharply to 30,000 a month from 200,000 or 300,000 a month last year. It was perhaps a surprise that they fell that sharply. And on the flip side, interior removals turned out to be much more difficult than the administration had suggested. They'd been targeting maybe 500,000 per year in removals, 1500 a day. And we're hitting a third or a half of that pace.

Michael Gapen: So maybe the recent escalation in ICE raids could be in response to this, right? The fact that interior removals have not been as large as some in the administration would desire.

Sam Coffin: That's correct. And we think those efforts will continue. The House Budget Reconciliation Bill, for example, has about $155 billion more in the budget for ICE, a large increase over its current budget. This will likely mean greater efforts at interior removals. About half of it goes to stricter border enforcement. The other half goes to new agents and more operations. We'll see what the final bill looks like, but it would be about a five-fold increase in funding.

Michael Gapen: Okay. So much fewer encounters, meaning fewer migrants entering the U.S., and stepped-up enforcement on interior removals. So, I guess, shifting gears on the back of that data. Two important visa programs have also been in the news. One is the so-called CHNV Parole Program that's allowed Cubans, Haitians, Nicaraguans, and Venezuelans to enter the U.S. on parole. The Supreme Court recently ruled that the administration could proceed with removing their immigration status.

We also have immigrants on TPS, or Temporary Protected Status, which is subject to periodic removal; if the administration determines that the circumstances that warranted their immigration into the U.S. are no longer present. So, these would be immigrants coming to the U.S. in response to war, conflict, environmental disasters, hurricanes, so forth.

So, Sam, how do you think about the ramping up of immigration controls in these areas? Is the end of these temporary programs important? How many immigrants are on them? And what would the cancellation of these mean in terms of your outlook for immigration?

Sam Coffin: Yeah, for CHNV Paroles, there are about 500,000 people paroled into the U.S. The Supreme Court ruled that the administration can cancel those paroles. We expect now that those 500,000 are probably removed from the country over the next six months or so. And the temporary protected status; similarly, there are about 800,000 people on temporary protected status. About 600,000 of them have their temporary status revoked at this point or at least revoked sometime soon. And it looks like we'll get a couple hundred thousand in deportations out from that program this year and the rest next year.

The result is net immigration probably falling to 300,000 people this year. We'd expected about a million, when we came into this year, but the faster pace of deportation takes that down. So, 300,000 this year and 300,000 next year, between the reduction in border encounters and the increase in deportations.

Michael Gapen: So that's a big shift from what we thought coming into the year. What does that mean for population growth and growth in the labor force? And how would this compare – just put it in context from where we were coming out of the pandemic when immigration inflows were quite large.

Sam Coffin: Yeah. Population growth before the pandemic was running 0.5 to 0.75 percent per year. With the large increase in immigration, it accelerated 1 - 1.25 percent during the years of the fastest immigration. At this point, it falls by about a point to 0.3 - 0.4 percent population growth over the next couple of years.

Michael Gapen: So almost flat growth in the labor force, right? So, translate that into what economists would call a break-even employment rate. How much employment do you need to push the unemployment rate down or push the unemployment rate up?

Sam Coffin: Yeah, so last year – I mean, we have the experience of last year. And last year about 200,000 a month in payroll growth was consistent with a flat unemployment rate. So far this year, that's full on to 160 - 170,000 a month, consistent with a flat unemployment rate. With further reduction in labor force growth, it would probably decline to about 70,000 a month. So much slower payrolls to hold the unemployment rate flat.

Michael Gapen: So, as you know, we've taken the view, Sam, that immigration controls and restrictions will mean a few important things for the economy, right? One is fewer consuming households and softening demand, but the foreign-born worker has a much higher participation rate than domestic workers; about 4 to 5 percentage points higher.

So, a lot less labor force growth, as you mentioned. How have these developments changed your view on exactly how hard it's going to be to push the unemployment rate higher?

Sam Coffin: So, so far this year, payrolls have averaged about 140,000 a month, and the unemployment rate's been going sideways at 4.2 percent. It's been going sideways since – for about nine months now, in fact. We do expect that payroll growth slows over the course of this year, along with the slowing in domestic demand. We have payroll growth falling around 50,000 a month by late in the year; but the unemployment rate going sideways, 4.3 percent this year because of that decline in breakeven payrolls.

For next year, we also have weak payroll growth. We also expect weak payroll growth of about 50,000 a month. But the unemployment rate rising somewhat more to 4.8 percent by the end of the year.

Michael Gapen: So, immigration controls really mean the unemployment rate will rise, but less than you might expect and later than you might expect, right? So that's I guess what we would classify as the cyclical effect of immigration.

But we also think immigration controls and a much slower growth in the labor force means downward pressure on potential. Where are we right now in terms of potential growth and where's that vis-a-vis where we were? And if these immigration controls go into place, where do we think potential growth is going?

Sam Coffin: Well, GDP potential is measured as the sum of productivity growth and growth in trend hours worked. The slower immigration means slower labor force growth and less capacity for hours. We estimated potential growth between 2.5 and 3 percent growth in 2022 to 2024. But we have it falling to 2.0 percent presently – or back to where it was before COVID. If we're right on immigration going forward and we see those faster deportations and the continued stoppage at the border, it could mean potential growth of only 1.5 percent next year.

Michael Gapen: That’s a big change, of course, from where the economy was just, you know, 12 to 18 months ago. And I'd like to circle back to one point that you made in bringing up the recent employment numbers. In the May job report that was released last week, we also saw a decline in labor force participation. It went down two-tenths on the month.

Now, on one hand that may have prevented a rise in the unemployment rate. It was 4.2 but could have been maybe 4.5 percent or so – had the participation rate held constant. So maybe the labor market weakened, and we just don't know it yet. But you have an idea that you've put forward in some of our reports that there might be another explanation behind the drop in the participation rate. What is that?

Sam Coffin: It could be that the threat of increased deportations has created a chilling effect on the participation rate of undocumented workers.

Michael Gapen: So, explain to listeners what we mean by a chilling effect in participation, right? We're not talking about restricting inflows or actual deportations. What are we referring to?

Sam Coffin: Perhaps undocumented workers step out of the workforce temporarily to avoid detection, similar to how people stayed out of the workforce during the pandemic because of fear of infection or need to take care of children or parents. If this is the case, some of the foreign-born population may be stepping out of the labor force for a longer period of time.

Michael Gapen: Right. Which would mean the unemployment rate at 4.2 percent is real and does not mask weakness in the labor market. So, whether it's less in migration, more interior removals, or a chilling effect on participation, then the labor market still stays tight.

Sam Coffin: And this is why we think the Fed moves later but ultimately cuts more. It's a combination of tariffs and immigration.

Michael Gapen: That's right. So, our baseline is that tariffs push inflation higher first, and so the Fed sees that. But if we're right on immigration and your forecast is that the unemployment rate finishes the year at 4.3, then the Fed just stays on hold. And it's not until the unemployment rate starts rising in 2026 that the Fed turns to cuts, right. So, we have cuts starting in March of next year. And the Fed cutting all the way down to 250 to 275.

Well, I think altogether, Sam, this is what we know now. It's certainly a fluid situation. Headlines are changing rapidly, so our thoughts may evolve over time as the policy backdrop evolves. But Sam, thank you for speaking with me.

Sam Coffin: Thank you very much.

Michael Gapen: And thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.