Pace of inflation is moderating, but speed is key question: Vanguard's Patterson

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with the skepticism surrounding the inflation data what should you do with your money do you go all in on stocks do you proceed with some more caution let's ask rebecca patterson independent director at vanguard and the former chief investment strategist at bridgewater great to

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see you first of

Rebecca Patterson (Independent Director) 00:13.190

all good to see you

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do you hate to put it quite this way do you care about the the vagaries of whether this report is reliable or not can you can you wait it out do you look to the market reaction for the tell what do you do here

Rebecca Patterson (Independent Director) 00:25.910

you listen to john williams tomorrow on CNBC i mean that's going to be a hugely important interview that's much must watch TV because he is one of the top three people at the fomc his voice matters and he's going to have a view on this inflation report i agree with what steve

Rebecca Patterson (Independent Director) 00:42.910

liesman just said in this case no data no data probably would have been better than badly created data there wasn't a political issue here it was just that they didn't have the right time period they didn't they had to put fill insurance there so the numbers we got we don't have

Rebecca Patterson (Independent Director) 00:58.830

any idea what they mean so

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where does that leave you though in the camp that inflation is coming down and and that lower yields and fed cuts is all going to kind of support the rally into next year well we'll

Rebecca Patterson (Independent Director) 01:08.670

probably get payback for this number in the next report which will come out mid january so we're going to have a higher inflation number that month i'm looking at all the other inflation data we get we had the composite PMI the business sentiment survey out earlier this week it

Rebecca Patterson (Independent Director) 01:23.470

was showing when you take manufacturing services together inflation is rising now i do think we're on a disinflationary trend IE the pace of inflation is moderating the question for next year is the speed you know if we go from two point eight to two point six it's very

Rebecca Patterson (Independent Director) 01:39.510

different than two point eight to two in terms of what it means for the federal reserve and how much more easy and we can get next year people

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have compared this time to the internet boom in the late nineties from ninety six to two thousand the internet was effectively created OK the world wide web commerce et cetera remember that thing cyber monday created like nineteen ninety five because you had a work computer you

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have one at home during that time the fed was raising interest rates because they worried about what productivity gains may ultimately do to inflation if this is that time in a different way should the fed be cutting rates or should they be raising rates

Rebecca Patterson (Independent Director) 02:20.510

well the federal reserve isn't going to try to guess how much productivity growth lift and how disinflationary that'll be green space they're setting well greenspan was then this is now i think the consensus in the market is that next year is going to be a pretty good year from

Rebecca Patterson (Independent Director) 02:37.030

economic growth right we have fiscal tailwinds we'll probably have some continuing monetary tailwind deregulation coming through relative and i want to emphasize that more clarity around trade policy and we have a government that wants to do well in midterms which means make

Rebecca Patterson (Independent Director) 02:53.750

sure the economy is doing OK if we're in that world it's hard for me to see the need for the fed to cut much from here right if we have a robust economy that's growing above historical trend even with some disinflation the need to cut is just not screaming out at you so you

Rebecca Patterson (Independent Director) 03:12.350

could have one or two modest rate cuts but unless you get more softness in the labor market it's not going to happen and for the labor market i think what we want to be watching is small businesses next year they have not hired this year they have let workers go if we get some

Rebecca Patterson (Independent Director) 03:27.470

more clarity around trade if tariffs come down a little bit next year from current levels which could happen if the reciprocal tariffs are deemed illegal by the supreme court they'll be replaced but the overall tariff level will probably be slightly lower and then maybe we have

Rebecca Patterson (Independent Director) 03:42.550

a little clarity till the midterm at least in that world if you start to see a little bit of broadening in the economy economy from the fiscal stimulus that comes through tax refunds et cetera do the small cap companies start hiring again we know that they are forty six percent

Rebecca Patterson (Independent Director) 03:57.910

of employment in the united states so i don't have a strong view on that i'm actually a little bit in the skeptical camp but people i talk to who think we could have upside surprises in the market next year that would be one of the markers i'd watch the NFIB small business

Rebecca Patterson (Independent Director) 04:13.270

sentiment survey and job hiring from small companies if that starts to stabilize and move next year i think that would be an incredibly bullish sign