Fed Grapples with U.S.-Iran War, Tariffs in Tackling Inflation as Warsh Speaks at Jackson Hole

**SPEAKER_1** (0:00)
Welcome back to Opening Bell, and a happy Friday to you. We're getting you ready for the trading day. We're seeing US stock and next futures mixed. Carol Schleif is with me, Chief Market Strategist, BMO Wealth Management. Good morning, and it's nice to see you on this Friday. Some of your takeaways from the action this week, we certainly had a lot of nice moves and information from the tech space. How are you feeling this morning?

**Carol Schleif** (0:23)
Well, I think number one in the media and strategists are making a lot out of this talk for Warsh today.
It's nasty that we put this stuff on a summer Friday, one of our last few weekends. But I think overall, we've been super constructive on markets in general. There's a lot of roiling going on. You've had super strong performance here to date, but also it's important to rewind and look at how earnings came in. Because now with the Nvidia numbers in there and you look at the way that the quarter ended, you had across the board strength in revenues in aggregate up 15 percent on the S&P, and the bottom line is 50 percent. Even when you strip out some of the one-time events from realization of venture capital holdings from one tech to another, you had better than 30 percent earnings growth. So companies are really paying attention to margins, they're executing on a lot of different fronts, despite all the hardships that are thrown at them.

**SPEAKER_1** (1:22)
And so the takeaway here is onwards and upwards. You remain constructive. I know we have to see what the Fed does or does not do.
But for the big picture on strong earnings, do you think the market continues to move higher between now and the end of the year, new highs?

**Carol Schleif** (1:39)
We think it'll do it grudgingly, and we do, we continue to lean into an equity over weight overall with a preference for United States equities.
And you do have those solid fundamental underpinnings. You have increased volatility and potential for volatility because obviously we're dealing with higher rates, which means higher cost of capital, especially in the fixed income markets. You've got healthy corporate bond issuance teeing up. We've got some big IPOs theoretically coming in the final quarter too. So there'll be a lot of choices for investors, so that could lead to some volatility, especially around big weeks like next week when we get a lot of economic data next week. And with a Fed that's telling you it doesn't want to tell you how it's going to read the economic data, there could easily be some volatility around those numbers. But we think they'll continue to support the narrative that the economy is running quite well, even absorbing a return to more normalized inflation.

**SPEAKER_1** (2:39)
And so you think that the Fed will really stand pat for how long? I mean, we're waiting on jobs next week at the end of the week.
It certainly doesn't seem that they'll make any move here in the September meeting at just 35.7 percent likelihood of a hike. Stand pat for how long? Do they need to make any moves?

**Carol Schleif** (2:59)
We don't think they need to make any moves as long as the data continues to come in as it has. Granted, the inflation isn't where the Fed has stated its long-term target is.
One of the big questions we have out of the newer Fed, which we don't have results from the various task force yet is, will PCE be the thing that they lean on? Because obviously, PCE is what? 65 plus months well above what the Fed's target for that is. We'll need to assess that. Employment has been steady, and it's important to parse through those employment numbers too, and pull out the fact that you've got a lot of retirements going on. You've got a lot of boomers that felt like they couldn't retire a couple of years ago, and given healthy markets now are feeling more secure in that retirement, so you're seeing accelerating rates, but the core working age populous is still pretty well employed. As long as those numbers stay intact, our house view is pretty consistently be, Ben, we think they stay higher for a whole lot longer, but don't necessarily go higher or have room to cut at this point.

**SPEAKER_1** (4:07)
I wanted to ask you about earnings though. You did talk about the earnings going forward, and you have some concerns whether or not we could continue. Granted, this was a great earnings season. You had a couple of those Mag 7 names that really boosted the overall earnings growth numbers. However, it was still over 30 percent even without those two.