Jennifer Lee Talks Markets; Fed

Summary

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Podcast Summary: "Jennifer Lee Talks Markets; Fed"

Podcast: Bloomberg Talks
Host: Bloomberg
Guest: Jennifer Lee, Senior Economist, BMO Capital Markets
Date: December 29, 2025

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Episode Overview

In this episode, the Bloomberg Talks team sits down with Jennifer Lee, Senior Economist at BMO Capital Markets, to discuss the economic outlook for the US in 2026, the resilience of consumer behavior, the Federal Reserve’s leadership and rate policy, USMCA trade talks, and the relative strength of the US dollar. The conversation provides a data-driven, global perspective on potential risks and opportunities ahead, with a particular focus on how current uncertainty and recent government actions might shape the market landscape.

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Key Discussion Points & Insights

Economic Outlook for 2026

• Greater Optimism Amid Lingering Risks:
  Jennifer expresses a cautiously optimistic tone for the US economy entering 2026, thanks to increased clarity around tariffs, but warns of “landmines” in the immediate months ahead, especially January.
  • “I’m a little bit more optimistic now than I was, you know, back in April...But that's not to say that there are lots of landmines in store for us in 2026...” (Jennifer Lee, 00:45)

Recent Economic Data & Key Indicators to Watch

• Thin Holiday Data, But Important Signals:
  • December Dallas Fed Manufacturing Index came in at -10.9 vs. expectations for -6 (01:20).
  • Pending home sales up 3.3% month-on-month, stronger than expected.
  • Jennifer highlights the recently released Q3 GDP growth at 4.3% (above expectations), calling it “pretty broad based,” especially on consumer spending in both nondurable goods and services (01:58).
• Skepticism on Clean Data:
  She points out that current data is still being revised and may not be reliable until “scrubbed.” The lasting impact from the government shutdown in Q4 2025 means Q1 2026 data could be messy or distorted.
  • "We can't break out the, you know, the bubbly just yet because we could be talking about shutdown again in the next couple of weeks." (Jennifer Lee, 02:58)
• Jobs & Inflation as Bellwethers:
  • Jobs data and inflation figures remain top indicators to watch. Jennifer’s focus is on how government revisions may impact the official economic narrative heading into 2026.

The US Consumer’s Resilience & Risks

• Strong Retail Sales, but Waning Confidence:
  Jennifer stresses that although retail sales data demonstrates robust consumer activity, there are signs of trouble based on confidence surveys.
  • Conference Board survey results show more Americans now believe jobs are “hard to get,” which could dampen consumer spending if job market weakness continues.
  • “Having a job, having a steady income—that’s going to be what is the main driver for the consumer and...for the Fed.” (Jennifer Lee, 04:16)

The Federal Reserve: New Leadership and Policy

• Transition at the Fed:
  In early January 2026, a new Fed Chair—known only so far as “Kevin”—will take over. Jennifer notes that consensus-building within the Fed is now especially important because not all officials agree on the timing or necessity of future rate cuts.
  • “He will have a very difficult job finding his way through the data...getting some sort of a majority within all the Fed voters...will be very critical.” (Jennifer Lee, 05:09)
• Interest Rate Path:
  No January 2026 rate cut is expected. Jennifer predicts three more cuts—but at a “slower pace,” likely in March, June, and September, all data-dependent (05:00-05:55).

Trade: USMCA Talks and Canadian Perspective

• Low Expectations for USMCA Talks:
  With USMCA renegotiations kicking off mid-January, Jennifer expresses uncertainty about the outcome and warns outcomes will hinge on how much “give and take” occurs.
  • “I think expectations...are kind of low right now. Not sure exactly what's going to happen, whether or not we're going to actually have an actual USMCA per se...” (Jennifer Lee, 06:10)
• Canadian Exposure:
  The outcome affects Canada significantly, with 75% of exports and 50% of imports tied to the US.

Global Central Banks and Rate Decisions

• Bank of Canada’s Pause:
  The Bank of Canada appears “done” with cuts for now, comfortable with current rates as inflation trends down. However, further cuts remain a risk if USMCA talks go poorly.
  • “Governor Maclen basically sounds like that they are done, that they're quite comfortable...But I think if there is a risk, the risk will be more cuts again, given how the USMCA fares.” (Jennifer Lee, 06:59)

US Dollar Outlook

• Surprising Resilience:
  Jennifer finds the US dollar one of the “toughest calls” and notes it remains resilient even as other markets bounce back. With most global central banks finishing easing cycles and some (like the Bank of Japan) preparing to tighten, the US dollar may weaken only “slowly.”
  • “Even though we do look for the US dollar to weaken, it's going to be a slow, slow, softish weakening trend, not a big drop.” (Jennifer Lee, 07:59)

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Notable Quotes & Memorable Moments

• “I’m a little bit more optimistic now than I was, you know, back in April...But that's not to say that there are lots of landmines in store for us in 2026...”
  — Jennifer Lee, 00:45

• "We can't break out the, you know, the bubbly just yet because we could be talking about shutdown again in the next couple of weeks."
  — Jennifer Lee, 02:58

• “Having a job, having a steady income—that’s going to be what is the main driver for the consumer and...for the Fed.”
  — Jennifer Lee, 04:16

• “He will have a very difficult job finding his way through the data...getting some sort of a majority within all the Fed voters...will be very critical.”
  — Jennifer Lee, 05:09

• “Even though we do look for the US dollar to weaken, it's going to be a slow, slow, softish weakening trend, not a big drop.”
  — Jennifer Lee, 07:59

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Timestamps for Important Segments

• 00:25: Episode introduction and guest welcome.
• 00:45: Jennifer Lee on 2026 economic outlook and tariff clarity.
• 01:20 – 03:00: Key data recap, focus on GDP, home sales, and manufacturing data.
• 03:31 – 04:40: US consumer resilience and warning signs in jobs confidence.
• 05:00 – 05:55: Changes at the Fed, rate cut speculation, and the importance of consensus.
• 05:55 – 06:43: USMCA trade talks and implications for North America.
• 06:43 – 07:49: Global central bank policy, Bank of Canada’s next moves, USMCA impact.
• 07:49 – 08:53: Outlook for the US dollar, global currency context.

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Summary Conclusion

Jennifer Lee delivers a nuanced, straightforward analysis of the 2026 US economic landscape, balancing cautious optimism with detailed warnings about persistent risks—especially potential government shutdowns, volatile data, and unresolved trade issues. While consumer spending and GDP remain resilient, shakiness in job market sentiment—and the unknowns surrounding new Federal Reserve leadership—are flagged as reasons for vigilance. On the global stage, trade realignments and central bank policies will shape both Canada’s economic response and the long-term trajectory of the US dollar. For investors and policymakers alike, the central themes of uncertainty, data revision, and policy adaptation loom large as the new year begins.

Transcript

[A]

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[B]

Bloomberg Audio Studios Podcasts Radio News let's talk.

[C]

About some economics because we're actually government back open economic data is flowing here. So let's get at it. Jennifer Lee, BMO Capital Markets senior economist, joins us here. Jennifer, thanks so much for joining us here. What's kind of your setup for the economic call here for the US in 2026? How are you thinking about that?

[B]

Well, good morning, happy holidays to you both and thank you very much for having me on. You know, so I will say I'm a little bit more optimistic now that I was, you know, back in April during Liberation Day. Given just that we have at least more certainty, a little bit more clarity on the terror front in terms of what the levels are. We're not talking about 50% anym something like that. Whether or not the legal they're legal is another story. But that sets up for a like at least a firmer I think a start to the year. We know what to expect. But that's not to say that there are lots of landmines in store for us in 2026 and just a lot of them coming in January in particular.

[D]

It's interesting. I'd love your take Jennifer, on what data to look at. Look in between Christmas and New Year it's pretty thin but we have had a little dose of it us to some December Dallas Fed manufacturing index felt a negative 10.9 today. The expectation had been for negative 6. And that's more about the manufacturing focus over there in Texas. But we're also seeing some of the pending home sales coming in much stronger than had been anticipated on a month on month basis for up 3.3%. If you looked at that number that broke at 10am what is the tell for you going into 2026 for the key data points that you want to look at.

[B]

So I'll be looking at I think everybody else will be looking at anything that's related to jobs, anything that's related to inflation. Funny you mentioning the data because we finally, finally got the Q3 GDP numbers out of the US just was last week right now 4.3% which was like whoa, blew me away. And it wasn't just, you know, exports, it wasn't just inventories or anything that it was pretty broad based. Very interesting. Take for example from the, from the consumer side a lot more spending on that side. Not just on it was just pretty broad based as well, but a lot on non durables and also on services. So you know, we can't discount the consumer just yet. But same time all that's a big look in the rearview mirror. That was all Q3 and now we're looking at Q4. And of course right now as we're starting Q1 in like in just a few days, but we have to get through this period of still not clean data. It still has to be scrubbed. I think we're going to be looking for a lot more revisions. You'll be interesting the first take of course and all the regional data and all that will make for a very interesting story. But I'm going to be more interested in the government data and what is going to happen after they revise them in the months ahead to see what the real story is going to be. But so far, you know, as of the first three quarters of the year, a very strong, a very resilient US Economy still and it's going to get messy because of the shutdown that we had in Q4. We're going to have that bounce back in Q1. But at the same time we can't break out the, you know, the bubbly just yet because we could be talking about shutdown again in the next couple of weeks. Sorry to say that. Sorry sort of put a damper in all this.

[C]

But yeah, that's the reality that's out there. So talk to us, the consumer out there. Jennifer, how do you see the consumer? I know we've got that case shaped economy out there. So maybe we've got to, you know, hem and hold a little bit. But it seems like the consumer is doing okay. Is that what you're seeing so far?

[B]

Again, you know we got the latest data that we got was from the retail sales report. The core measure was very strong, sets up for a, again a strong, still a strong quarter for this consumer. But still, you know, we have to be careful because of the shutdown and all that. At the same time, I'm very wary of the confidence surveys that we've been seeing. I mean and they can swing back and forth. But just particularly what we saw from the conference board survey that had dropped considerably. But you know, it wasn't about inflation because the inflation expectations component I believe was quite steady. It was all about jobs. And fewer people were saying that they found jobs plentiful. More people were saying that they are finding jobs hard to get. So that's Something that we have to be be very wary about because obviously at the end of the day it's having a job, having a steady income that's going to be what is the main driver for the consumer and the.

[D]

Main driver for the Fed. We're going to talk a lot more about the consumer after the next break. But talk to us, Jennifer, a little bit about one of the key issues you think we should be tiptoeing around is who is going to lead the Fed next and how they react to the data that they're given to. So it's going to be early January that we're going to be anticipating which Kevin it'll be right.

[B]

Which exactly. We do know for sure that is going to be his first name will be Kevin. The last name is to be but you know it's going to be he'll be having, he will have a very difficult job finding his way through the data. You know, obviously the analysis will be very important but also getting some sort of a majority within all the Fed voters because as we saw from the last Fed vote, there are quite a few that are not so confident that they are ready to cut rates again or just yet. You know, we are not looking for a January rate cut by any measure. I don't think anyone is right now. But you know, I think a couple more at the minimum rate cuts to come at a slower pace. You know, we're looking at March, September, March, June and September for the next rate cuts, three more to come. Everything obviously will be taken on a meeting by meeting basis and will be very data dependent. But having that majority will be very critical.

[C]

Jennifer, just when it seems like the market may have put tariffs in the rearview mirror, USMCA talks officially launch mid January. I mean what's going to happen there? I mean you've got a unique perspective up there in Canada. What's the expectation?

[B]

Oh, I think expectations I'm going to say I'm from my perspective, I think they're kind of low right now. Not sure exactly what's going to happen, whether or not we're going to actually have an actual USMCA per se or is it going to be a usc, a usm, you know what I mean, some sort of combination of that. But obviously there is going to be a lot of give and take from all parties. It's just going to be how much, you know, how much each party will be giving or taking will be will be critical. But it will definitely be a lot different I think than what than what we have right now let's talk more.

[D]

Global perspective now because you've got some great takes on global central banks, not just what's happening at the Fed, the Bank of Canada, what 2024 was a big year for rate cuts. In fact, 100 bits were done in 2025. Are we now done until those trade talks are a washout.

[B]

So it sounds like the bank, Governor maclen basically sounds like that they are done, that they're quite comfortable the words really like that, that they think that rates are about right where they are right now to get inflation back. So you know, at the bare minimum, sounds like nothing is going to happen. But I think if there is a risk, the risk will be more cuts again, given how the USMCA fares. I mean, the US is our biggest by far trading partner out there with about three quarters of our exports going to the U.S. over 50% of our imports coming from the U.S. so many businesses are very dependent on what happened. Sorry. So at that point, because of that, we do believe that how the, how the, how the, how the talks fare will depend, will determine what happens with the bank of Canada and of course with inflation in the economy.

[C]

How about what's your dollar here for 2026? The dollar has not bounced back like stocks have bounced back and other parts of the market have bounced back.

[B]

That has been one of the toughest calls, I'll tell you, to make the calls on the US Dollar, it's been like the US Economy, quite resilient. But you would imagine in theory, in a world where almost all the central banks are basically finished easing policy, maybe one more to go, maybe a couple more to go. But in some of them are getting ready to start to, to tighten or continue tightening in the case of the bank of Japan in that kind of environment. And then of course, with the Fed still on an easing bias, you would imagine that the US dollar would start to weaken. But it's sort of like how it's going to be all relative to everybody else in terms of the economy if the US economy continues to remain resilient, which we still expect, and we've got about 2% growth pencilled in for, for, for 20 actually help support the US dollar. So even though we do look for the US dollar to weaken, it's going to be a slow, slow, softish weakening trend, not a big drop.

[D]

Jennifer Lee I'm pleased to say.

[A]

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