From China to Iran: How Geopolitical Pressures Hit U.S., Fed & Consumers

SPEAKER_1 (0:01)

Let's bring Mali back into the conversation, and welcome in our next guest, Yelena Shulyatyeva, who's the Senior US. Economist for the Conference Board Economy Strategy Finance Center. Yelena, thank you so much for your time. So we've had this White House meeting between the US and Chinese President, wrapping up just in the last couple of hours or so. More pomp and pageantry as expected than policy, but we did have an early success today with the extension of that trade truce, even though it's only two months, falling short of expectations. But what have you made of it so far?

Yelena Shulyatyeva (0:31)

I would call it heavy on symbolism and optics and really lacking concrete deliverables. But in terms of the tariff truce extension, it's still a positive signal, although it only gives companies two more months.

But still, I think the direction is clear. Both sides want to avoid further escalation, which by itself is a positive signal, suggesting that maybe we're going to see more of the same going forward. But we're obviously on the US side, don't need further escalation in terms of tariffs, because as you rightfully mentioned, looking at oil prices, inflation is elevated and will continue to be so.

SPEAKER_3 (1:23)

And Yelena, I like what you just said there. Both sides want to avoid another escalation. So as far as how investors should view this, is this simply just a continuation of that need to avoid further escalation? Or is this the beginning of something they should be looking at as perhaps a broader stabilization in US-China relations?

Yelena Shulyatyeva (1:44)

There are tough questions still left, right? And we're not talking about a big elephant in the room, you know, AI and other things that have not been really mentioned in great detail.

So yes, you know, again, tariffs is a good thing. At least we don't have to worry about that for now. But a lot of strategic things remain quite open. And, you know, there are other things, including Iran and including, you know, Taiwan and other things that are right there. And we don't really hear much about that.

SPEAKER_1 (2:27)

We're obviously waiting to see any headlines around AI. I mean, what can the world's two biggest economies do when they're leading the AI race right now around guardrails? It didn't look like Trump was really in the business of doing anything beyond, you know, kind of keeping the status quo this morning in his Truth Social post. But I do want to talk about the US economy as well, Yelena, because we've had some pretty strong data points in the last 48 hours. I mean, the S&P Global PMI, this is a flash PMI, not the ISM, not the official stuff. The early September read, which is basically an indicator of what the numbers could be, moving the needle in a significant way yesterday, even making its way onto Main Street media, which tells you a lot.

What have you made of that?

Yelena Shulyatyeva (3:10)

Well, the US economy is driven by AI related investment. It's a new type of a K-shaped economy, I would say, when you really have this investment in AI, really driving growth and consumer is about to slow down. I, yes, you talk about a lot of resiliency in terms of the consumer spending, but I do think that we will see a slow down given all these different factors including oil prices, diesel prices, and eventually food prices will rise. So consumers will shift even more away from discretionary spending into necessities. And that kind of like bifurcation in economic growth is probably not the best thing. Although AI driven investment will probably continue to support economic growth, but we will probably see some moderation because of other things that are happening.

SPEAKER_3 (4:15)

And Yelena, how are you looking at that in terms of timing, the sustainability of the expansion being increasingly driven by investments, particularly in tech and infrastructure, while we're continuing to see the consumer face greater affordability pressures? You mentioned we might see a bit of a slowdown. What metrics are you watching most closely in determining whether or not we've re-entered a point of resilience or if that slowdown is coming? And how soon do you foresee this change?

Yelena Shulyatyeva (4:44)

As soon as the end of the year, holiday sales will always be a good test. It's always a good test, but this is one thing that I will be watching very closely.

Going into 2027, you will start seeing Medicaid, some certain rules on eligibility for Medicaid will change, as a result of a big and beautiful bill that boosted spending in the beginning of the year. So now we have to pay back for that, and we have to pay the price. And that could limit further certain income streams for certain consumers. So I think that we will see over the turn of the year, how consumers are doing, it will be a big test.