Tariffs, The Fed, and Macro Focus with Morgan Stanley’s Ellen Zentner

Summary

Podcast Summary: Masters in Business – "Tariffs, The Fed, and Macro Focus with Morgan Stanley’s Ellen Zentner"

Host: Barry Ritholtz (Bloomberg)
Guest: Ellen Zentner, Chief Economic Strategist & Global Head, Thematic and Macro Investing, Morgan Stanley Wealth Management
Air Date: August 22, 2025

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Episode Overview

Barry Ritholtz sits down for a wide-ranging, deeply insightful conversation with Ellen Zentner, a leading voice in macroeconomics and thematic investment strategy at Morgan Stanley. They discuss her nontraditional journey to Wall Street, macroeconomic themes like demographics, AI, and housing, the challenges of tariffs and trade policy, data integrity, Fed independence, and offer a rare look behind the curtain of major economic events.

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Guest Background and Career Path

Ellen Zentner shares her unconventional path from Texas to Wall Street:

• Began college late after a "gap year" of partying, ultimately attending University of Colorado at Denver for its strong economics department ([03:27]).
• First professional role: Economic analysis at Texas State Comptroller’s office; worked with government figures, including then-Governor George W. Bush ([06:50]).
  • “Studying the fairness of the tax system in the state of Texas...gave me my love for the consumer and household behavior, which has lasted my whole career.” – Ellen Zentner ([07:37]).
• Jumped to Wall Street as Senior Economist, Bank of Tokyo Mitsubishi, during the financial crisis ([09:56]).
  • “I felt so lucky to be at a Japanese firm at that time because we had not taken part in mortgage backed security investing.” ([11:01])
• Joined Nomura before receiving the career-defining call from Vincent Reinhart to join Morgan Stanley ([21:47]).
  • “Just changing the name to such a well respected firm meant all the difference in my career.” ([22:22])
• In 2015, became Chief US Economist, later rising to Global Head of Thematic and Macro Investing ([23:18]).

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Key Topics & Insights

1. Major Economic and Market Trends

Demographics & The Youth Boom

• Zentner emphasizes the "youth boom" as a driving structural force in the U.S. economy ([29:37]).
  • “We’re here, we’re in it, and we were at the cusp of it then. Millennials were already starting to outnumber baby boomers.” – Ellen Zentner ([29:37])
  • Predicts significant, ongoing demand for housing, despite affordability and regulatory headwinds ([32:03])
  • “We estimate we will have an 18 million unit shortfall that we need to make up for.” – Ellen Zentner ([31:44])

Housing Market: Structural Under-Supply

• The U.S. faces an acute shortage due to under-building, regulatory barriers, labor shortages, and tariffs on materials ([31:44]–[33:53]).
  • “Home builders are going to have to respond by building smaller, less expensive homes. We think modular housing will have a big role to play as well.” ([33:14])

Artificial Intelligence as a Meta-Theme

• “AI is a generalized technology, so it flows through everything.” – Ellen Zentner ([35:13])
  • AI’s pervasive effect threads through all investment themes: defense, energy, demographics.
  • Large tech (“Mag 7”) are pivotal but small/mid-cap firms will benefit as well ([36:38]).
  • AI is crucial for countries with labor shortages: “There’s your incentive for countries like China, like Japan...maybe not like India right now, but India’s demographics are not good...further out.” ([39:48])

Fed Policy and Economic Myths

• Zentner dissects persistent myths about the Fed, particularly the idea that “markets lead the Fed” ([41:45]).
  • She emphasizes differences in decision frequency: “The Fed makes low frequency decisions in a high frequency world. The market is very high frequency.” ([42:03])
• On future rate cuts: believes one cut is likely, dismisses predictions of dramatic easing ([43:42]).
  • “Do you want a good economy or do you want the Fed to cut drastically?” – Ellen Zentner ([44:58])

Tariffs & Trade Policy

• Tariffs breed enormous uncertainty and disrupt confidence ([46:08]).
  • Zentner cautions against underestimating the lag and unpredictability in tariff impact:
    • “There’s no way to know the impacts of tariffs truly until well after the fact.”
  • Tariffs function as a “consumption tax" on businesses and households ([49:21]).

Consumer Spending & Wealth Polarization

• Slowing consumer spending stems from multiple factors: reversal of immigration (negative net new population), low-income pressure, and tariffs ([51:34]).
  • Top 20% of households drive 45% of all spending — their continued strength “masks weakness at the low end.” ([52:05])

2. Data Integrity & Fed Independence

Data Integrity

• Zentner raises concerns about the robustness and funding of economic data agencies ([54:09]).
  • “One thing that we do well historically is we measure data well. And we have the best, most robust data sets out of any other country we compare ourselves to. But it has been slipping.” ([57:13])

Fed Independence

• Zentner expresses real concerns about threats to the Fed’s independence, recalling the disastrous 1970s as a warning ([57:21]).
  • “Going back to US Exceptionalism, independent monetary policymaking is a pillar of US Exceptionalism.” ([59:56])

3. Policy, Markets, and Presidential Impact

• Zentner discusses the market’s “Trump collar” — aggressive policy moves when markets are strong, restraint when markets drop ([63:35]).
  • “He takes the stock market as the single best indicator of his approval rating.” ([64:34])
  • “...the President stayed the course.” ([65:20])
• Importance of trusted cabinet/Fed officials (e.g. Treasury Secretary Scott Besant) and how personnel changes can destabilize markets ([66:09]).

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Notable Quotes & Memorable Moments

• On Demographics:

  • “Economists love demographics. Demographics make the world go round.” – Ellen Zentner ([29:44])

• On AI:

  • “AI threads through all of that. It threads through all of it...your highest conviction weight is going to be on the AI tech and diffusion because it does thread through everything.” ([35:13])

• On Tariffs:

  • “Tariffs are a consumption tax. It’s like a VAT tax on US households and businesses.” ([49:21])

• On Fed and Markets:

  • “The Fed makes low frequency decisions in a high frequency world. The market is very high frequency.” ([42:03])

• On Data Integrity:

  • “We have the best, most robust data sets out of any other country we compare ourselves to. But it has been slipping.” ([57:13])

• On the 2016 Election Night:

  • “At 11am in the morning, which was now more than 24 hours later...I just left my PowerPoint presentation on the front page...and said, ask me whatever questions you have...I went without sleeping [for] 42 hours.” ([24:24]–[27:26])

• On Using Anecdotal Evidence:

  • “I am a very big believer in anecdotal evidence and I’ve been criticized for that in my career. It's not statistically sound...It’s a great way to connect to people, connect to your audience, get a message across.” ([76:29])

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Timestamps for Key Segments

• Introduction/Ellen’s Background: [02:46]–[10:52]
• From State Government to Wall Street: [09:56]–[15:02]
• Social Media Algorithms, Marketing, and Data: [15:02]–[19:52]
• Joining Morgan Stanley, Working with Vincent Reinhart: [21:16]–[23:18]
• 2016 Election Night Experience: [24:11]–[27:26]
• Youth Boom, Housing Shortfall: [29:32]–[33:31]
• AI as Meta-Theme, Demographics, Productivity: [35:13]–[41:17]
• Fed Policy and Economic Myths: [41:35]–[44:58]
• Tariffs and Trade Policy: [46:08]–[53:49]
• Data Integrity and Fed Independence: [54:09]–[61:48]
• Markets, Policy, and the Trump Collar: [63:10]–[66:57]
• Mentors and Books: [67:26]–[73:26]
• Advice for Students and Closing Thoughts: [75:14]–[77:15]

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Books & Media Recommended

• Books:
  • “A Piece of the Action: How the Middle Class Joined the Money Class” by Joe Nocera ([70:23])
  • “Player Piano” by Kurt Vonnegut ([71:09])
  • “The Bluegrass Conspiracy: An Inside Story of Power, Greed, Drugs and Murder” by Sally Denton ([72:13])
  • Other Vonnegut titles: “Slaughterhouse-Five,” “Cat’s Cradle” ([73:19])
• Streaming/Film:
  • “Love Island” – (for relaxation; shows her eclectic taste) ([69:01])
  • “Robot and Frank” (2013): explores AI, robotics, and aging in place ([74:12])

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Closing Advice

Ellen Zentner stresses networking and connections for early-career professionals:

• “Never leave that conversation without getting two more names from them of people they think you should contact...” ([75:27])

She also champions integrating anecdotal evidence with formal analysis:

• “I wish I had started using that in my career even earlier.” ([76:29])

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Overall Tone:
Candid, energetic, and thoughtful—Zentner and Ritholtz blend expertise and storytelling, making complex macroeconomic topics accessible and vivid.

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Summary for New Listeners

This episode stands out for its clear, practical take on how structural macro forces—demographics, AI, housing, trade, and government data—shape markets, what investors should watch, and how modern policy is made and navigated by global investment managers. Zentner's advice, her stories (including real-time work during 2016's election night and the financial crisis), and her knack for big-picture thinking make it a must-listen for anyone interested in economics, investing, or business leadership.

Transcript

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[Ellen Zentner]

Bloomberg Audio Studios Podcasts Radio news. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[Barry Ritholtz]

This week on the podcast what Can I say? Tour de force conversation about all things economic with Ellen Zentner. She's been at Morgan Stanley for just about a decade now, better part of a decade, she was chief economist. She has morphed into the chief economic strategist and global head of thematic and macro investing for Morgan Stanley Wealth Management. The firm runs something crazy number like $7 trillion. She's also a member of the firm's global investment committee. She's won every accolade and economic award you can as a Wall street economist. And her, her interest just ranges far and wide. We talk about everything from tariffs to Fed independence to data integrity at the bls. She's just a very thoughtful, insightful economist who spends a lot of time thinking about how can I fashion this information in a way that will be useful for my clients, many of whom are investors. And now in her new role at Morgan Stanley Wealth Management, she becomes the client she's helping to run that big pile of money. I thought this conversation was absolutely fascinating and I think you will also, with no further ado, my discussion with Morgan Stanley's Ellen Zentner.

[Ellen Zentner]

Hi, Barry. Thanks for having me. I'm really glad that you got my title correct and without losing your breath because it's a long one.

[Barry Ritholtz]

Well, you know, AI helped me assemble that and I know that's a theme of yours, so we'll get that to that a little later. It's been, it's been A while since we had you on the last time you were here. It was the first Trump administration. We're gonna talk about a lot of policy issues, but before we get there, I just wanna talk a little bit about your background. Cuz it's so interesting and, and not what we think of as the typical path to Wall Street. You get a bachelor's and an MBA from the University of Colorado. What was the original career plan?

[Ellen Zentner]

Yeah, bachelor's and master's from. From Denver, University of Colorado at Denver, which I think surprises people even more. Yeah, so I had, I had gotten a late start, as I would put it, with university after high school. I was partying, having a great time, gap year. It was. Well, it turned out to be an unplanned gap year. And you know, in the state of Texas, there's a lot of room. You don't need to live at home. Well, at least back then you didn't need to live at home in order to afford, you know, you could afford to live on your own. So I remember turning 18 and my mother looked at her watch and basically said, why are you still here? And so I moved out with my friends and was just having a great time. And so by the time I decided to get serious and said, hey, you know, I want to, I want to go somewhere else for university. I was starting university when my friends were graduating and so I wanted a commuter campus. And University of Colorado Denver was just a phenomenal place to be with an amazing economics department.

[Barry Ritholtz]

So Texas girl, up in Denver had to be a climate shock to you.

[Ellen Zentner]

It was a little strange. So we had registered sight unseen, my parents and I, we drove up the 15 hour drive from Austin, Texas to Denver. The first 12 hours are in the state of Texas and then you finally get out of the state.

[Barry Ritholtz]

That's crazy.

[Ellen Zentner]

That's starting in the middle.

[Barry Ritholtz]

Wait, wait, so New York to. I'm sorry, Texas to Colorado, Austin to Denver, Austin to Denver. Fifteen hours, 80% of which are still in the state of Texas.

[Ellen Zentner]

Are still in the state of Texas.

[Barry Ritholtz]

That's a big city.

[Ellen Zentner]

And then you go through one tiny corner called Raton Pass. That's where my Texas comes out. Raton Pass right there where Colorado and New Mexico and Texas come together. And you just slip right through into Colorado. And so we registered sight unseen. My mother woke me up. I was sleeping in the backseat of the car and she said, ellen, look. And I woke up and I looked out of the window and I saw the mountains. And I was like, mama, I'm home. I Had never seen mountains before.

[Barry Ritholtz]

Had you seen snow before?

[Ellen Zentner]

I had seen snow in Austin once every six years. On average it snowed. And so we made a snowman with a lot of rocks and sticks in it and leaves, but it was a snowman. But my mother had spent summers in Boulder, so my grandfather taught. Both my grandparents taught at University of Texas. My grandmother got her Ph.D. from Cornell in the early 30s. My grandfather got his Ph.D. from Columbia here in New York. They were both teaching at the University of Texas. He founded the physical education department at the University of Texas. And so here was a legacy. My mother grew up spending summers living in the dorm in Boulder because he would teach summers at University of Colorado in Boulder. And so she always talked about the mountains. And it just. When I decided to leave Texas for school, I said, that's where I want to go, is the mountains, even though I had no idea exactly what I was saying.

[Barry Ritholtz]

But you ended up not leaving Texas permanently after you get your MBA Revenue Estimating Division at the Texas State Government Comptroller's office, working with some guy named George W. Bush. Tell us a little bit about this.

[Ellen Zentner]

Guy that used to be the governor of the state of Texas, you know. But no, that was great. So I got my master's degree in economics and said, well, what do I do now? And so made sense to go back home to Austin. Now, at that time, for economists, your option was to work for the state or you could work for Utemco, which is University of Texas investment arm. Like, there's not a lot of areas for economists then. Now there's a, a thriving investment community, hedge funds, you name it. But then you worked for the state, and so it was a great way to start. Texas Legislature is a biennial legislature. It's only in session in odd years. So I think I worked really, really hard for five months every other year. And it was a wonderful, wonderful.

[Barry Ritholtz]

What do you do the rest of the time?

[Ellen Zentner]

The rest of the time? Let's see. In the late 90s, there was this thing called day trading with no restrictions at a firm. You just sort of like, have fun and be like, oh, I made a few thousand dollars today. Day trading? No, it was sort of a. Let's put it this way, it was a wonderful way to start where I could really dive deep into topics such as studying the fairness of the tax system in the state of Texas, doing economic development studies. We were a part of the study that helped attract the first Toyota Tundra plant to the state of Texas in San Anton, and working for Tamara Platt who was just so important in steering my career. She was the chief economist for the state of Texas at the time. PhD from University of Pennsylvania. You mentioned the Lawrence R. Klein Award. It was such an honor to receive that twice because Tamara had studied under Lawrence Klein at University of Pennsylvania. And so it was just being thrown into a macro role was such a huge determinant of my entire career. And studying things like household behavior in the state of Texas, which gave me my love for the consumer, and household behavior, which has lasted my whole career. So I lasted there for about five years and then started looking for something in New York.

[Barry Ritholtz]

And consumer and household behavior lasted your whole career to good effect and good result. Because as we've seen over the past 50 years, the US consumer is what drives the entire economy. So being an expert in that space, I can't imagine that hurt your. Either your career hasn't hurt or your economic forecast.

[Ellen Zentner]

And I've propelled many an economist off of the back of bringing them onto my team and saying, here you go, here's a huge consumer platform. Learn it and run it. And they have gone on to do amazing things. One of them still with me at Morgan Stanley. Paula Campbell Roberts. One of my shining, shining achievements in my career is seeing career at KKR flourish.

[Barry Ritholtz]

That's really interesting. So how do you go from the revenue estimating division in the Texas government to bank of Tokyo Mitsubishi on Wall Street? That seems like a big jump.

[Ellen Zentner]

It is a big jump. So part of it was that I felt state government was not where I wanted to be for the long run. There's something about something in my DNA, as it is with many people in finance, that attracts me to just a fast moving environment. I needed something that was much more dynamic.

[Barry Ritholtz]

And not closed every other year.

[Ellen Zentner]

Yeah, not closed every other year. Although I do sometimes long for the boring days of working at the state. So I knew that I needed to go to either a D.C. or Chicago or a New York. I wasn't quite sure where. And so while I was job searching, which back then involved looking in the newspapers or which is gonna sound, I mean, people are just gonna be like.

[Barry Ritholtz]

Resumes and mailing them out, mailing them.

[Ellen Zentner]

So many of them. But also, you know, I have a long rich history now with the national association for Business Economics and their jobs board, which was extremely antiquated then. Well, it didn't seem antiquated back then. People would be appalled at that jobs board now. But I actually found my job at bank of Tokyo mitSubishi through the NABE jobs board, which is still econjobs.org and so I think of NABE as being a partner in my career since I joined NAB in the late 90s. Long story short, I get this great job at bank of Tokyo Mitsubishi as the senior economist there. I basically was a one man band which was great because I had to wear every hat as economists for smaller institutions or with smaller research arms have to do. And what's so interesting about my time there, and I was there for eight years, is that during that time the financial crisis hit and I felt so lucky to be at a Japanese firm at that time because we had not taken part in mortgage backed security investing. We had already gone through a financial crisis of our own that had lasted a long time. Japanese firms were sitting on a pile of cash and it was at that time that the ceremonial check was walked across Broadway to purchase 20% of Morgan Stanley to keep Morgan Stanley afloat from bank of Mitsubishi, from mufg, which the check is written from bank of Tokyo Mitsubishi. So that happened. And what was interesting was when I eventually ended up at Morgan Stanley to hear what it was like for my colleagues from the other side on a Friday being told, you know, go home and we'll let you know on Sunday if you still have a job, if the doors are going to be open. And then being told on Sunday that you can go back to work. And the fear that they felt versus I didn't, I didn't feel total job security because I, for the first time I was seeing economics teams just on the whole just being cut and you had never seen that before. The economists are sort of, you know, we're kind of, we've got decent job security compared to the rest in finance. But sorry, this is when I could make a joke about certain news that came out after you could absolutely feel free. But no, I should, but anyhow, what.

[Barry Ritholtz]

I really so vividly remember, similar to you, I was in an institution that through a combination of dumb luck and what have you, was on the right side of that. So while the street was freaking out, I didn't feel personally the same job insecurity or pressure that everybody else did. But I had maintained an email list of 10 or 15,000 readers and most of the addresses were, you know, ms.com, ML.com, whatever the various institutional and you know, you would occasionally have somebody leave a position and you would have a bounce back rate each week of two, three emails. But 0809 I was seeing like 300, 400, 500 emails a week come back, this is no longer a valid email [e-mail] or whatever it happened.

[Ellen Zentner]

It was really alarming.

[Barry Ritholtz]

That was nothing I've ever experienced. Even 2000, which seemed like it was a disaster, didn't compare to this.

[Ellen Zentner]

Yeah, yeah. Never experienced anything like it. And so, and you know, I really think that that's when LinkedIn took off. Because I had signed up for LinkedIn at the time, but didn't use it. I'm still not a huge fan of social media. I know that's terrible to say, how can anybody be successful today without using social media?

[Barry Ritholtz]

I'm going to tell you, I think that was a formally minority position, like an outlier position. And now I think the consensus has built that the algorithm is awful. It manipulates us towards outrage. You look at the rising levels of depression amongst teenagers. It really tracks the rise of smartphones and social media. So I don't think it's as bad a thing to say in 2020.

[Ellen Zentner]

Maybe not anymore. Yeah.

[Barry Ritholtz]

But in 2015, people would have looked at you like, what do you mean? You don't like, what do you mean?

[Ellen Zentner]

Yeah.

[Barry Ritholtz]

Now I think, I think the verdict is in. Or.

[Ellen Zentner]

Yeah. Well, I think, and I think for 2008, you know, in finance, oftentimes the jobs we have, when your time is up, you're ripped out of your seat. Yeah.

[Barry Ritholtz]

With the box and a security guard escorting you to the job.

[Ellen Zentner]

Yeah. Because you have access to sensitive information. Like it's, that's, that's how for most of us in finance, that's how your departure is going to look one day. And so if you had joined LinkedIn, it was the way that you didn't lose all those contacts. And so I really think that's where, and certainly that's where I was like, okay, maybe I should keep up with people through LinkedIn. But I'll tell you that I have learned how to train those algorithms. So with Instagram, which I have since dropped altogether. But when I was on Instagram, I got so tired of being marketed to as a 50 plus year old woman. It was, every single ad was the best mascara for insert, you know, or it was the best insert, you know, blank for women over 50. So it was the best mascara for women over 50, the best shampoo for women over 50, the best, whatever. And it would always somehow show this beautiful woman that happened to be over.

[Barry Ritholtz]

50, wait till you're over 60 and just go through your spam folder and see the sort of stuff that they market to you.

[Ellen Zentner]

Yeah, it's a little insulting, but what I Did was I saw an ad one time for dog food. Now I don't have any pets. So I clicked on that ad, and it started showing me dog food ads. So I stopped purchasing things because this was the problem. I'm an impulse buyer, so I would purchase things on Instagram. But then Instagram started. It got my number. It knew what I was doing. And so then I thought, okay, I need to click on the dog food ad and now poke around in that site a little bit. And then, okay, I need to poke around the side of it and then add something to my cart and then just abandon it. And so for a while, I was able to train. If I just did that a couple times, then for 30 days, I would get dog ads, and I easily could continue to enjoy Instagram without buying a thing.

[Barry Ritholtz]

One of the things that has made Facebook so valuable is its ability to create not just targeted ads to you and your demographics. All right, you're a woman over 50. That's too blunt. They can also track your browsing history. They can link it to your zip code. They know how your town and county voted in the last election. They know your credit score and your purchase history. So you could really find. You know, the old joke in advertising is half of advertising dollars are wasted. We just don't know which half. As you bring in more and more technology to this, we're starting to figure out exactly how to not waste any dollars. Which is why some of the ads you get are kind of spooky and creepy. Like, hey, is my phone listening to me? No. Well, whether it is or not, your browsing just is so revealing of who you are.

[Ellen Zentner]

And it's true. But if you think about it, if we tie that back to the old days of just having to send out surveys for data and such, you know, as an economist, I want as much data as possible. I want it to measure everything you could possibly, you know, look at sideways. And I appreciate having that detailed data. My husband used to get irritated because, again, back in the old days, when someone might actually call to do a survey, I would be the one that would give them the time of day and answer the survey. Because I knew that as a practicing economist, I would really appreciate having that. That detail instead. Now, because it's being done by algorithms and machines, and there's not a personal call behind it, we're sort of alarmed that someone is getting that much information. But it's also because a good deal of it's not used to make the government more data, more accurate. Right. It's used to make a company more profitable by selling to you. So it is a bit different. But you know, if the government could employ those techniques and give me that kind of detailed data on our population, I would use it all day long.

[Barry Ritholtz]

Coming up, we continue our conversation with Ellen Zentner, chief economic strategist and global head of thematic and macro investing at Morgan Stanley, discussing thematic investing and her macro work at Morgan Stanley.

[Karen Moscow]

Hi, I'm Lisa Mateo introducing you to the new Stock Movers Report report from Bloomberg. These are short audio reports, five minutes or less, delivered right to your podcast feed. Throughout the day, Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for you to get informed. Listen a couple times throughout the day to find out what's moving equities and what. Search for Stock Movers on Apple podcasts, Spotify or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.

[Barry Ritholtz]

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. Ellen Zentner is my extra special guest. She's chief economic strategist and global head of thematic and macro investing for Morgan Stanley Wealth Management. Overall, the firm manages over $7 trillion. Let's talk a little bit about your role at Morgan Stanley. What brought you there from previously you were at Nomura and Bank of Tokyo Mitsubishi where what brought you to Morgan Stanley?

[Ellen Zentner]

Vincent Reinhart.

[Barry Ritholtz]

Oh, really?

[Ellen Zentner]

Yeah.

[Barry Ritholtz]

Of Reinhardt and Rogoff fame.

[Ellen Zentner]

Of Reinhart and Rogoff fame. Well, Reinhart, Reinhart and Rogoff. So the Reinhart and Rogoff mostly is Carmen Reinhart. But yeah, Vincent called me up one day and said, would you like to come work for me?

[Barry Ritholtz]

Had you known him previous?

[Ellen Zentner]

Of course I knew him previously. I was an economist.

[Barry Ritholtz]

I mean, you knew of him, but did you know him?

[Ellen Zentner]

I knew of him. I did not know him on a personal basis. It was an absolute surprise to get that call and I couldn't go there fast enough. So it wasn't just the Morgan Stanley name, which is wonderful to go to a place where just the name alone gives you a certain amount of gravitas. I was the same economist I was previously Doing the same work and the same methodologies, employing the same tools. But suddenly it was like, oh, she's at Morgan Stanley. So just changing the name to such a well respected firm meant all the difference in my career. But to specifically be able to go and learn from an economist who sat at the right hand of Alan Greenspan for so many years, being a Fed watcher and being able to then work for the quintessential Fed watcher and sort of plug the holes in my knowledge, it was just an opportunity, opportunity I couldn't pass up.

[Barry Ritholtz]

What was the role? You obviously didn't start as chief Economist.

[Ellen Zentner]

I started as his senior economist.

[Barry Ritholtz]

Oh, really? And then how much longer was it before you were elevated to chief Economist?

[Ellen Zentner]

Oh gosh, about a year and a half. So Vincent and I were able to overlap for about a year and a half before I took the chief economist role. You may or may not know that he and Carmen reside in Boston. And so being able to work full time from Boston, continue to support Carmen in her role at Harvard and also so a role that fits him so perfectly well as the chief economist, the financial chief Economist at BNY Mellon is just the perfect place to be. So I am very thankful for the time that we were able to spend together overlapping there at Morgan Stanley. And so in 2015, I then became the chief US economist.

[Barry Ritholtz]

So on the Morgan Stanley website is a little bio of you and in it you describe 2016 as a very significant and for you personally, career defining year. Why is that?

[Ellen Zentner]

I like to think back of periods in my career when my limits were tested. And it might be the financial crisis, it might be some other recession, it might have been Covid, but certainly 2016 we had a presidential election year and my limits were absolutely tested, both physically and mentally. So I had gone to D.C. the morning election. I had already voted in early, early voting. I had left on a 6am flight, which means I had to get up at 4 in the morning and went to D.C. for meetings. Then I flew on to New Orleans to prep for a conference and decided that I would go to the gym, as I love to do when I'm at the hotel, and then, you know, buckle down and get ready to watch the fun election results come. And watching the election results come in and then answering client questions at the same time and then seeing all of that unfold in a way that was surprising to many people. Where this cycle kicked off, where. Okay, wait, I thought I was going to go to the gym. Okay, not going to the gym. Wait, I need to Order some sort of dinner to the room. Okay, I can't eat. Then it was, oh, gosh, Asia is awake. Got to get on calls with Asia. Then it was, oh, boy, Europe's waking up. Got to get on calls with Europe, calls with my colleagues, calls with these clients, calls, calls, calls, calls, calls. At 11am in the morning, which was now more than 24 hours later, after I had gotten up, I decided that maybe I should at least try to close my eyes for a little bit. I closed my eyes, couldn't fall asleep. I had to go downstairs at the hotel to deliver an economic outlook to what had then become a standing room only event. Because look what's just happened. Let's hear from the Economist. And we had just put out. We had just put out our year ahead outlooks because those come out in November. And so I was there standing at the front of the room, and I just left my PowerPoint presentation on the front page, the holding screen, as a holding screen, and said, ask me whatever questions you have. I'm not going to have all the answers, but let's talk. And I don't even remember what I said. The time flew by. I then went back to the airport, tried to get on an earlier flight to go back, was still delayed. Finally got back at 11pm at night to New York. I could not fall asleep still, either on the flight or when I got home. And ultimately, finally I just gave up sleeping, went into the office, and 42 hours I went without sleeping.

[Barry Ritholtz]

At a certain point, your cognitive function just starts to fall off a cliff. But that was real. I similarly have a vivid recollection of just shock from so many people, questions that had to be really exciting.

[Ellen Zentner]

Yeah, so was it. And see, you say exciting now I live off of that stuff because of that.

[Barry Ritholtz]

Oh, you're an adrenaline junk. See, I could.

[Ellen Zentner]

Adrenaline. You're tested, you're limited. And what a great story to tell. I was also on the trading floor at 1am when Brexit happened. I had gone to sleep at 11, set the alarm for midnight. The alarm went off. I know that my husband immediately checked the phone. I heard him say, oh, shh. And I was like, what? What? And I was like, oh, my God. I had to get in the shower and get to the trading floor by.

[Barry Ritholtz]

1Am I just read this morning, nobody talks about Brexit anymore. I just read a data point that shocked me, which was the GDP of Italy just passed the GDP of the UK mind blown. And there are a lot of reasons, but clearly Brexit has to Be a significant part of that, Giant part of that.

[Ellen Zentner]

It's like, thank you UK for bringing some business back to us. Because here's a country that is dying. Their birth rates are non existent, their population has been shrinking. So how can GDP be growing? There's no fundamental basis for it, so it must be some sort of tectonic shift like Brexit.

[Barry Ritholtz]

Pretty fascinating. There's so much stuff. I don't wanna just get stuck in 2016. Let's go forward, let's look forward. One of the things you wrote about was the coming youth boom economy. And when we look at Gen z born between 97 and 2012, they and Gen Y are gonna dominate the US economy, really? In the next 10 years or so. They'll yield higher consumption. You wrote wages and housing demand stimulating GDP growth. This was a few years ago.

[Ellen Zentner]

Do you still hold to that was in 2019.

[Barry Ritholtz]

Yes. So the youth boom, is this still coming?

[Ellen Zentner]

Yeah. So we're here, we're in it, and we were at the cusp of it then. Millennials were already starting to outnumber baby boomers.

[Barry Ritholtz]

That's right.

[Ellen Zentner]

And then you've got Gen Z coming up behind them at that time that were just as large. So when you combine the two, and that's what we mean by the youth boom, you've got a demographic that is larger than any in our country's past and sets us apart on the global stage because our major trading partners are across G10. Nobody has those demographics now. Our birth rates have been falling and that is a problem. And that's a problem that, by the way, lights a fire under the need for AI as well. But our birth rates are higher than our major trading partners. And so comparatively speaking, that is something that's very important that drives the backdrop. Now economists love demographics. Demographics make the world go round. And demographics, when you look at any point in time, how well did the Census Bureau get demographic projections? Pretty well, because it turns out we sort of all age kind of along the same track. And what we know from detailed government data is we know how we tend to move through the world and spend and behave at certain age ranges. So you, as an economist, you can just let your demographic cohorts age through those buckets and know kind of how the spending shifts are going to take place, when are participation rates in the labor force going to peak, when do we hit peak earning years and peak working years and therefore first time home buying years, et cetera, et cetera. So you mentioned housing as being one of our key calls in 2019. Well, that was only accelerated during COVID for sure. There were many themes that were accelerated during COVID And housing is one of those. In terms of the incredible demand, I mean, we are going to be under building housing for a decade.

[Barry Ritholtz]

We have been underbuilding housing really since the first.

[Ellen Zentner]

We estimate we will have an 18 million unit shortfall that we need to make up for.

[Barry Ritholtz]

That's a giant number because it's giant, because we've been talking about 4 to 5 million currently. And that comes from the national association of Realtors and the association of Home Builders. So there's a little asterisk. Hey, is this.

[Ellen Zentner]

And think about that, that's currently. And then you grow that over time. You pair it with affordability. You pair it with the fact that our surveys do show that millennials in Gen Z by far still want to live in single family homes. They may not all be able to afford single family and so single family renting will be in high demand. We're going to need to build those units. Home builders are going to have to respond by building smaller, less expensive homes. We think modular housing will have a big role to play as well. And then you start to think about all the different ways we need to build homes as well. That shortfall in order to insure all those homes, we're going to have to think about climate friendly building materials, more climate resistance building materials, all the different ways that we can appease the insurance companies so that we can actually build in the areas and make up for those shortfalls. So I think housing is certainly from a thematic perspective, something that can, and it's a great example to me because it's something where this is a longer run structural theme, but it can fall out of favor at times cyclically because it is very interest rate sensitive. Right now, housing is not in a great place in the US Affordability is terrible and it's not just an interest rate problem. More of the home price is made up from regulatory impacts than anything else.

[Barry Ritholtz]

How much of this is a lack of supply? I know Jonathan Miller and folks like that have been writing supply is running 20 to 30% of what it normally is. And how much of it is a little bit of nimby? Once people buy a home, they don't want to see all the pretty scenery get knocked over and new houses put up over there. What's the solution to this?

[Ellen Zentner]

Well, I think the NIMBY really is a symptom of or a side effect of the regulation or sorry that the NIMBY not in my backyard Leads to is part of what leads to the heavy handed regulation. Right? And heavy handed regulation by far is a key contributor to the cost of overall housing. Then you add the cost of labor in a sector which has had a shortage of labor since 2008. And we only started to make up for that shortfall during the, what I call the immigration period where we were bringing in millions of immigrants a year in 2022, 2023 and part of 2024, only to see that reversal now put labor pressures on that sector again and then tariffs on materials that go into construction. So it's just, it's cost upon cost upon cost that home builders are having to deal with that help drive the affordability issues for the home buyers as well.

[Barry Ritholtz]

Huh. Really intriguing. So obviously thematic investing is a big part of your job. Is there any other theme bigger than artificial intelligence today?

[Ellen Zentner]

I'm going to say probably not, but artificial intelligence, it's a very broad. It's very broad. And so I would gear it more toward AI tech and diffusion, which has been a key pillar, thematic pillar for Morgan Stanley. But here's why it seems like my answer is just so easy and almost like not well thought out, almost flippant in a way. AI is a generalized technology, so it flows through everything. So whether you're thinking about a multipolar world theme which importantly includes defense, we had gone long global defense back in January and it was based on the fact that you've got your palantirs of the world and open AIs of the world working with the US government to modernize defense for tech and AI. And so if you think about, you know, four themes, say longevity, AI tech and diffusion, multipolar world and the energy of everything. AI threads through all of that. It threads through all of it. So when I think about say conviction weighting those themes, your highest conviction weight is going to be on the AI tech and diffusion because it does thread through everything.

[Barry Ritholtz]

So what's more important, the Magnificent Seven or the Magnificent 493 that are going to benefit from AI?

[Ellen Zentner]

Well, I think it's very difficult to not have those big, big tech names, let's say in a multi thematic portfolio or if you're trying to take advantage of an AI theme because they are big players in the space. I mean as soon as someone in this country moves into contracts with the US government, you've got an incredible amount of funding. Look at someone like Elon Musk, who is a creature of the government.

[Barry Ritholtz]

Sure.

[Ellen Zentner]

I mean, how much of his wealth comes from government contracts.

[Barry Ritholtz]

Tesla, SpaceX.

[Ellen Zentner]

Exactly. And so when these other players are wrapped up in government contracts and the government has put its priority in winning this seeming two horse race on AI against China, you would probably be ill advised to bet against that. It doesn't mean that AI tech and diffusion is just the mag 7. So of course in my role I can't talk about specific companies and you don't want to ever take specific company advice from an economist. I'll just say, but you've got very interesting players all the way down to mid cap and small cap, all the way down to Russell 3000 that are important in an AI tech and diffusion space.

[Barry Ritholtz]

Meaning they become more efficient, productive, profitable by deploying sort of like what we saw post Internet bust.

[Ellen Zentner]

And they become part of the fabric of that generalized technology that all companies end up using as AI diffuses across the economy.

[Barry Ritholtz]

Makes plenty of sense to me. What other big themes are you paying close attention to?

[Ellen Zentner]

Some big themes. And again, it's hard for me to get away of some sort of flavor of AI. So as an economist I'm going to go back to demographics every time. What are the incentives for adopting AI? Incentives for adopting are you've got to replace labor shortfalls. That's a huge incentive. And so if you are a country with falling birth rates and you can make up for that in several different ways. One is your existing population. You can put in policies to boost labor force participation. So have a more full participation from your current population. You can be sure that you are not just have an open immigration system. And I don't mean just opening your borders to indiscriminate flows, but an open immigration system, a traditional open immigration system where you have a sound process for integrating immigrants into the labor market, something the US has been very good at, something Europe is not very good at. Or you can replace that labor with AI and robotics. There's your incentive. There's your incentive for countries like China, like Japan, maybe not like India right now, but India's demographics are not good. Really, when you look further out a decade from now, 15, 20 years from now.

[Barry Ritholtz]

You know, it's funny, you keep talking about demographics. Isn't the trend throughout history that as a country becomes first less poor and then wealthier, the birth rates just drop.

[Ellen Zentner]

People don't want non kids, more affluent countries. It is a natural way of things. Countries that are able to, let me just say roll with that right, and boost productivity by making fuller use of your existing labor pool are those that still continue along that path of affluency The US has not just higher birth rates than our major trading partners, we've got higher rates of productivity. It's part of what US exceptionalism is built upon is that not only have we kept birth rates higher, which population growth and specifically growth in your labor force goes into the potential growth in your economy, those calculations, but we're also making those more productive. And it's part of our secret sauce of success. You know, when I talk about US Exceptionalism, I'm not even referring to markets, financial markets. I'm talking about the US having a more flexible labor market where we have higher rates of productivity. Very important that we continue to hang on to independent monetary policy, that we have stable currency. But that comparative advantage lies in your labor force and how far you can push it. And the US is just really good at that.

[Barry Ritholtz]

So let me ask you a thematic question. Only it's going to be a negative. What's the one economic myth you hear more than others? What question bubbles up from clients, from brokers and advisors, from people within that you wish would just go away?

[Ellen Zentner]

Maybe this gets too nuanced because economists love nothing more than getting nuanced. But it's like you got the chicken and the egg backwards.

[Barry Ritholtz]

Right?

[Ellen Zentner]

Right. So it's that the markets are pricing in that the Fed is going to do something at its next meeting and therefore the Fed has to do that.

[Barry Ritholtz]

But the markets have been so wrong about that for so long.

[Ellen Zentner]

Well, I think the markets over time have had a very difficult. So there's another one, don't fight the Fed.

[Barry Ritholtz]

Right.

[Ellen Zentner]

How many times did we say don't fight the Fed and markets fight the Fed and they lose, but the markets lead the Fed. Now the Fed makes sense. Low frequency decisions in a high frequency world. The market is very high frequency.

[Barry Ritholtz]

So that's a great way to describe that.

[Ellen Zentner]

Yeah. And so the fact of the matter is the market can respond on a dime when the data comes out, when financial conditions change. The Fed can't. The Fed has to look at it, it has to deliberate it, it has to gain a consensus and then it moves. Much of the time the market doesn't have it wrong. The market read the labor report, the most recent labor report, and said that's not good. And guess what? The Fed also thinks that's not good. Great, you're on the same page. But the market was able to price it in well ahead of the Fed actually delivering in September. So I do believe that the Fed is going to cut 25 basis points in September. Now this is with my hat on as the chief economic strategist of Morgan Stanley Wealth Management, there are others in the firm that also have views on the Fed. But you've asked me and the beauty of this podcast is that I get to give my views and you're only talking to me here. So I do think though that our focus on September, it can probably be best spent elsewhere in that the first cut is going to be the easiest because as Chair Powell said, modestly restrictive. Do you need to be modestly restrictive when job growth has slowed this sharply? If you don't need to be modestly restricted, just make an adjustment. They're not making any decisions about what happens after that. So the fact that do they or don't they cut in September? And by the way, 50 basis points, that's a hard no from me.

[Barry Ritholtz]

Right?

[Ellen Zentner]

Because I knew, I could tell. I could tell the question was on your lips.

[Barry Ritholtz]

It was about 100 basis points, somewhat.

[Ellen Zentner]

That's definitely even harder. No, but I do believe that once you have made that cut, it's a little harder to justify if the data don't keep coming in in the same fashion to say why that one adjustment was perfect, but not another. So I think where I would rather debate is how far do they need to go? And this is where I do disagree with some powers that be that the Fed is going to need to cut a lot. I think we're going to have a good economy next year. I think productivity is going to be picking up even more. I think there are parts of the one big beautiful bill with the investment incentives that are in it which are going to help put a floor into the economy. And, and we're not going to have an environment where the Fed's going to need to cut 150, 200 basis points.

[Barry Ritholtz]

To be fair, stocks are at all time highs. Real estate is at all time highs. Revenue and profits are at or near all time highs. It doesn't seem to be an economy begging for rate cuts even as we're starting to see a slowdown in some consumer spending and some hiring. But how much of that but that.

[Ellen Zentner]

Justifies lower rates doesn't tell you you need to cut drastically.

[Barry Ritholtz]

That's right.

[Ellen Zentner]

So do you want a good economy or do you want the Fed to cut drastically?

[Barry Ritholtz]

Well, we know what the President wants, what the economy needs and what the market wants. They may be something slightly different.

[Ellen Zentner]

Yeah. And if the Fed is watching it and objectively doing its job, then we will end up in the right place.

[Barry Ritholtz]

Coming up, we continue our conversation With Ellen Zentner, chief economic strategist for Morgan Stanley, discussing the state of today's economy in light of tariffs and trade policy. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest is Ellen Zentner. She is chief economic strategist and global head of thematic and macro investing for Morgan Stanley. The firm runs over $7 trillion. So you've written about tariff and trade policy. My question for you is how disruptive or destabilizing is this to either the US or global economy?

[Ellen Zentner]

So we've certainly seen disruption in confidence. Markets don't like opaqueness. They like certainty. And we could see that early on in the volatility of, wow, January hit and it was tariffs, tariffs, tariffs. And the market clearly was caught offsides, policymakers were caught offsides, economists were caught offsides. And so then you kick off the flurry of activity. What does this mean when the world order is being reset? And it can mean a whole host of things. It's one reason why all economists, all forecasters, have to take a very big slice of humble pie and take a big bite out of that, because the uncertainty bands of any kind of forecast you put out are going to be highly uncertain. There's no way to know the impacts of tariffs truly until well after the fact. And that's because tariffs fall here, there, and everywhere. You're going to have some degree of manufacturers in the countries that we import from eating the cost. You're going to have importers along the way eating the cost, wholesalers eating the cost, businesses that sell final goods eating the cost, and consumers having to eat some of that as well. The forecasting comes in where, okay, how much of each, what percentage of each? I think one thing that I've observed is businesses have been sitting on a good deal more cushion in terms of cash and free cash flow than I think anybody had suspected that they would be.

[Barry Ritholtz]

Meaning they have the ability to eat some of it.

[Ellen Zentner]

The ability to eat some of it. I do think that even after Chinese manufacturers surprised us in 2019, to the degree that they were willing to eat the costs, I think they've been able to continue to absorb it. I think ultimately for economists, because economists, by and large are wearing a lot of egg on our face for getting it wrong, for sounding the alarm. But companies were sounding the alarm, too. We're taking our cues from what the surveys are saying, what we're hearing directly from companies that I'm going to pass on these prices to consumers. I am not going to eat this. But then how much of that are companies talking their own book as well.

[Barry Ritholtz]

To be fair, it's the middle of August. Liberation Day was early April. We had a 90 day pause. We really haven't felt the full impact on tariffs and we probably won't until the fourth quarter or first quarter next year. So is it a little early to say, hey, no harm, no foul?

[Ellen Zentner]

No, I think it's definitely too early to say no harm, no foul. And I don't think anyone even in the administration is saying there won't be some bit of bearing the brunt of that among consumers, among businesses in the U.S. i think it's just that you've got one faction saying that it's going to be a lot less of an impact than some other factions. And no one really knows. Let's all be humble about it.

[Barry Ritholtz]

No one knows. But there seems to be a bit of a consensus that tariffs are a consumption tax. It's like a VAT tax on US Households and businesses. Is that overstating the threat or is that accurate?

[Ellen Zentner]

No, that's exactly how it works. To the extent that they that companies eat it on the margin or pass it on to households and households eat it and paying higher prices, that is exactly how it works. I mean, that is the economic theory of it that is sound. It's the degree to which the costs are absorbed and by what players along the import channel. That is the unknown factor. And I can tell you that, you know, what the President is doing or has been doing is changing global trade in a way that typically would play out over a decade or so in a very short period of time. And so that's led to a tremendous amount of uncertainty. And like you said, this may be something where the full tariff impacts aren't felt until the fourth quarter or first quarter of next year. And if that is the case, we'll deal with it when it comes. And Chair Powell and the Fed will be there to act very nimbly around that I am confident of. But has there been unfair trade practices? Absolutely. Do we need to renegotiate trade contracts? Absolutely. I was at the state of Texas during nafta. NAFTA was not renegotiated until it became the USMCA under Trump's first term. Why the global economy is so dynamic. How could a trade agreement put together in the 90s still be relevant in 2017, 2018, 2019? It makes no sense. So absolutely we need to be revisiting trade alongside a dynamic global economy on.

[Barry Ritholtz]

A more regular basis.

[Ellen Zentner]

On a more regular basis. We're just doing this over a short period of time. And that's created a good deal of disruption and uncertainty and volatility and guesswork, if you will, among the economics community.

[Barry Ritholtz]

So let's talk about that guesswork. There's going to be some of these tariffs showing up as on the household level. Is that a headwind for consumption? Same question about businesses. If they have to eat, some of the tariffs, that's going to affect profitability. There's no free lunch, is there?

[Ellen Zentner]

No, there's never a free lunch. So we are seeing consumer spending slow now. It's slowing for several reasons. One, we've had a reversal of immigration in the US that is no small number of people bodies consume. And so if you've got fewer bodies, they're consuming less.

[Barry Ritholtz]

And I want to say we have had a negative net new population this year for the first time I think in US history. Is that accurate?

[Ellen Zentner]

Yeah, I mean we've slowed to a trickle in population growth at times, but it is highly unusual. Highly unusual. You've got less bodies in the U.S. so you're consuming less now. Those bodies contributed to low income consumption. You've also got low income consumers in general in the US that when prices for goods go up from tariffs or for whatever reason, they're going to consume less. So consumer spending has been slowing. Now why hasn't it slowed even more so than it has when population growth has been negative from a reversal in immigration? Because the top end consumers are still spending. So the top income quintile in the US represents 45% of all consumer spending. If you take just the top two income quintiles, that's more than 60% of all consumer spending. And so we want what we want. And whether you say maybe that's still an artifact of COVID We were all taught we're going to die tomorrow, so spend it at the end of the day. Or it's just this tremendous, tremendous, tremendous increase in real estate wealth and tremendous increase in financial wealth. And even though our marginal propensity to consume out of that wealth is smaller, for upper income households, the growth in wealth is just enormous. And so when they're spending, it tends to mask weakness at the low end. But there are some risks along the horizon. Student borrowers have to start paying that back. I don't think that we're out of the woods and that because the economy is growing at half the pace it was last year. We're just fine. I think we can grow even more slowly before it gets better.

[Barry Ritholtz]

So let's talk about two issues that are policy concerns that you've raised. One is economic data integrity. We're recording this a few days after Trump fired the head of the bls. What sort of concerns does this raise in terms of protection of data integrity?

[Ellen Zentner]

So data integrity cuts both ways. So prior to that very high profile firing of the BLS commissioner, the concern among the economics community for quite some time has been that data integrity has been slipping. And the way we measure that is we look at survey response rates. And especially because the labor market report is the end all, be all, number one data point in the US that we follow, the response rates had been slipping. And now why is that? Well, there are myriad reasons. One is that we have frequent government shutdowns. And so when the lights aren't on and no one's there to police the survey and call you the business and say, hey, it's really important that you respond and you don't get that call as a business, it starts to instill in you this sense of, maybe this survey isn't so important. Maybe I don't need to answer that. And so what we've seen is after those episodes, you tend to have a slippage in response rates that you never quite get back. Another issue is we talked about the youth boom. I don't see a lot of youthful people jumping up and down to work for the government. Maybe that's because the systems are antiquated. I wonder, because you've got older generations at the government that are having to teach an antiquated programming language to younger generations coming in programming languages that don't exist anywhere else. And so how does that instill excitement among young people to come in and work for the government? We have also had a systematic underfunding of data agencies for quite some time as well. How can you overhaul your systems without the proper funding? And so it's something that the nab, the national association for Business Economics, has really followed this closely. We have a statistics committee that meets with all the heads of the statistical agencies. And the statistical agencies have a very strong outreach program to economists in academia, in government and in the private sector to say, here are methodologies. How can we do it better? And so we're constantly searching for ways to improve. And honestly, to their credit, half the time the private sector economists are like crickets. How can we do it better? Oh, you don't like the way we measure housing? Tell us how we can do it better. Cricket. Cricket. No, I just like to say I don't like the way you do it. I mean, but we're not really offering a lot of sound solutions. We're a massive economy. It's not easy to measure the data. But one thing that we do well historically is we measure data well. And we have the best, most robust data sets out of any other country we compare ourselves to. But it has been slipping. So what I will advocate for is funding the data agencies and encouraging them to overhaul their systems.

[Barry Ritholtz]

So let's talk a little bit about the Federal Reserve independence. How much risk is there that the Fed could get politicized?

[Ellen Zentner]

So we have to take the risk seriously. And I understand why folks might be concerned that we could be headed for a time when there's collusion between the White House and the Fed because we've been there before, so you could understand the concern. And that was a very different time between Arthur Burns and the Nixon White House. But it was a very real time and it led to the hyperinflation. And those of us of a certain age, we don't want to live through 1970s inflation.

[Barry Ritholtz]

That was an ugly decade, economically.

[Ellen Zentner]

That was an ugly decade. And I tell those harrowing tales to my team of waiting in line for gasoline with my mother, you know, because it was rationed or we couldn't get gasoline on a Sunday.

[Barry Ritholtz]

I remember I had a lawn mowing business and I would show up with my little red gas tank can and they would say, do you have an odd number license plate or an even number license plate? And my answer was always, I'm 12, I don't have a license plate. I just need a gallon of gas so I can mow Mrs. McCarthy's lawn down the street.

[Ellen Zentner]

I can't believe they had the nerve to ask a 12 year old, oh, no, you show up, but it shows you. Why should you, a 12 year old, get priority for someone that needs to commute to work?

[Barry Ritholtz]

But apparently.

[Ellen Zentner]

But my parents bought a house at 18% mortgage interest in 1980.

[Barry Ritholtz]

18%.

[Ellen Zentner]

And that was normal because if you didn't buy it that day, it was more expensive the next day. That's what strikes fear in the hearts of monetary policymakers, because that is inflation expectations. The price was going to be more expensive tomorrow, so you better buy it today.

[Barry Ritholtz]

Structural inflation expectations lead to consumer behavior that helps to drive prices higher.

[Ellen Zentner]

Yes. And it starts off that sort of vicious cycle. And so this is at the heart of, of why you need independent monetary policymaking. Because if the market believes that the Fed might keep rates easier than the economy would otherwise dictate, then is that going to again lead to something like runaway inflation? Is it going to lead to stagnation? And that's why every time there's some headline where the Fed's independence may be threatened, you see term premium increase at the long end of the yield curve, you see the stagnation playbook go, go into effect among investors. And you know, going back to US Exceptionalism, independent monetary policymaking is a pillar of US Exceptionalism.

[Barry Ritholtz]

Hmm. Really, really interesting. There have been a bunch of names floated for Fed chair other than Scott Bessant, who has said he's not interested and I think is probably the most thoughtful person that I've heard. Names I've heard thrown out. Any of those names make you remotely comfortable or what do you think about some of these trial balloons that keep getting tossed around?

[Ellen Zentner]

Yep. So I think I agree with you. I like the steady hand and careful thinking that comes from Treasury Secretary Bessen. It would actually in policy circles be a demotion to send the Treasury Secretary to become chair of the fomc.

[Barry Ritholtz]

That's a demotion.

[Ellen Zentner]

We think of it. So in markets I often hear this from investors is, wait, but the chair of the Fed is the most powerful person in the world. But in policy circles it is a lesser position than Treasury Secretary.

[Barry Ritholtz]

That's very interesting. It's a longer tenure, especially if we look at recent administrations. It's not like someone becomes Treasury Secretary and they're there for all four years. They seem to turn over pretty rapidly.

[Ellen Zentner]

That can be the case, right?

[Barry Ritholtz]

That can be the case.

[Ellen Zentner]

Not always.

[Barry Ritholtz]

We've had back to back six year terms for Powell. That's a pretty robust tenure.

[Ellen Zentner]

Four year terms, but yeah, and there tends to be a lot of longevity with Fed chairs because they also don't change typically with administrations and so and political parties. They tend to span political parties. So look, there are a lot of, you know, I obviously am going to have some personal favorites of mine that have been thrown out there, but unfortunately I'm not going to give you those names. But, but.

[Barry Ritholtz]

Well, just tell me who you really don't like.

[Ellen Zentner]

There is. Yes, yes, but I'll do the opposite. No, but there are plenty of names in there that have been tossed around as possibilities that would make fine FOMC chairs. I think what you're going to see is with each of those names as they float to the top, the markets will have their say on whether that is a candidate. That would be believed to be a mouthpiece of President Trump or not.

[Barry Ritholtz]

When I look at various cabinet members, Defense Intelligence, Health and Welfare, and most recently now, BLS can't say these are the best and the brightest. It's not Camelot under Kennedy and you could kind of under John F. Kennedy In 1960, you could kind of get away with that in certain cabinet positions. Am I wrong in saying markets won't tolerate someone like an RFK Jr and all of his anti vaccination attitudes at a place like NIH or CDC with a Fed chair, is the bar higher for the chairman of the Federal Reserve than other specific cabinet positions?

[Ellen Zentner]

Well, I think piggybacking on sort of your exact examples there, who directly has a hand in influencing financial markets, that is the Fed chair, that is the FOMC collectively, not just the Fed chair, but the FOMC as a collective body. And that's why the markets will always be most sensitive to who is the chair of the Fed.

[Barry Ritholtz]

So I want to ask a question about policy, not politics. But very often when we talk about, you know, anytime something comes up like Taco whatever, it seems to get overly politicized. But the one descriptor I heard that's kind of fascinating is that there isn't a Trump put, there's a Trump collar. And what that means is when markets are near all time highs, he's someone emboldened and can be very aggressive in doing things like firing the BLS commissioner when the market sells off and suddenly we're 10, 15, almost 20% off the highs. Hey, we're gonna put a pause on tariffs for 90 days. There's a little bit of a floor there. And hence the phrase Trump collar. I know we only have six or eight months worth of recent data. How important do you believe market prices are to this president and this administration?

[Ellen Zentner]

So in the first administration, you know, we were like, okay, we've got his number, We've got his number. He takes the stock market as the single best indicator of his approval rating. And so if the stock market pukes, if it's a huge sell off, he's going to listen. And so we went into this second Trump term with the markets assuming. Aha, yes. All we have to do is speak and will speak volumes with a sell off and he will change his tune. Well, that is not what happened. That's not what happened because the markets did puke. When it became apparent that he was going to be very aggressive on a trade policy in his second term, the market puked and the President stayed the.

[Barry Ritholtz]

Course so someone asked me my opinion as to what I think trade policy is going to look like going forward, given how frequently we've seen flip flops and back and forths and extensions and what I answered, and I'm curious as to your perspective on this. Tell me the last person who whispers in President Trump's ear before a decision is made and that'll tell me where the market will go. If it's Treasury Secretary Scott Bessen is the last person to speak to him. I think the markets would be pretty steady and on a gradual move higher if it happens to be someone like Pino Navarro. Well, buckle up. We're in for a bumpy ride. Fair way to describe the policy making in D.C. i think so.

[Ellen Zentner]

I mean, basically what you're getting at in a roundabout way is just who do the markets trust? Who do the markets trust? And I think you've had Treasury Secretary Besant that had an active role in that hair raising time between April 2 and April, April 9, meeting with Chair Powell, helping to persuade the president to sort of back off at that time, adding to that hair raising moment by threatening to fire Powell. The markets have come to know Besant as a calm and steady voice.

[Barry Ritholtz]

Steady is the word that always seems to pop into my head.

[Ellen Zentner]

Steady equals certainty, equals surety equals the opposite of volatility. And so the market markets will speak volumes as to who they believe they can trust.

[Barry Ritholtz]

Coming up, we continue our conversation with Ellen Zentner, chief economic strategist for Morgan Stanley. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. All right, so I only have you for a limited amount of time. Let's jump to our favorite questions, starting with who are your mentors who helped shape your career?

[Ellen Zentner]

Well, Tamara Platt, so I might have mentioned I worked for her at the state of Texas. She was a very influential chief economist at the state of Texas. And that was my, she was my first, Barry, you always remember your first. So she was the first chief economist that I worked for and has followed my career for the next 25 years. She's followed my career, I think my first foray into investment banking, my chief economist was David Ressler at Nomura Securities. He was a 26 year veteran chief economist at 26 year veteran of Nomura Securities. And he's now playing golf 24, seven in the South. But because it was my first foray into investment banking, into the high frequency world trading as a trading desk economist, he was very influential there and I still hear from him all the time. When he sees me in the media or he hears of some forecasting award or something like that, like he's still the proud papa today. And so those were two big early mentors of mine that helped shape my career.

[Barry Ritholtz]

That's great. Before we get to books and you actually brought a few books.

[Ellen Zentner]

I did.

[Barry Ritholtz]

I want to ask you about streaming. What are you listening to or watching? What's keeping you entertained?

[Ellen Zentner]

I really developed a love for streaming. I didn't watch TV before.

[Barry Ritholtz]

Same, very similar.

[Ellen Zentner]

The TV was never on in our apartment. And so with COVID I really, my eyes were opened. And so I really love documentaries. The one that I'm watching right now is on Billy Joel.

[Barry Ritholtz]

I'm literally just wrapping up the first. We stopped just before the Stranger.

[Ellen Zentner]

Yeah. So they must have made it for 50 somethings in this world. Right. So.

[Barry Ritholtz]

Well, if you grew up in the 60s, 70s, 80s, Billy, especially in New York or Long Island, Billy Joel was everywhere.

[Ellen Zentner]

Yeah. Which I'm of an age that I know him in real time, but I'm from the south, so I didn't know all of these things. So my streaming habits are extremely polarized and polarizing probably. So it's anywhere from documentaries. So I can expand my knowledge and expand my mind to the most base streaming reality shows like Love Island. And I am not kidding you, if anyone wants to say, wow, she really is a real person. It's the fact that I can enjoy Love island and then in the next, you know, hour, I can enjoy a documentary on Billy Joel.

[Barry Ritholtz]

So you have a couple of books here. Let's talk about books. What are, what are you reading now? What are some of your favorites?

[Ellen Zentner]

Yeah, I have a couple books. So when I, when I first, as you mentioned, I was on almost exactly eight years ago and I talked about Joe Nocera's book, A Piece of the how the Middle Class Became the Money Class. Still one of my favorite books on the rise of consumer credit in the US and our love hate relationship with it.

[Barry Ritholtz]

But it's been that analysis of how the middle class suddenly gained entry to homes, mortgages, cars, and lots of consumer discretionary goods. Huge boom for middle class America.

[Ellen Zentner]

Right? Yeah. Incredible. It really is still an incredible book. And every economist of mine that I have cover the consumer and study household behavior, they have to read it. So I brought in today Kurt Vonnegut's.

[Barry Ritholtz]

Player Piano Can't Go Wrong with Vonnegut.

[Ellen Zentner]

And so I have not read this book. But I'll tell you that what I'm showing you, if the listeners could See is a handwriting note from a colleague after watching a webcast of mine. How many people get handwritten notes? Still not many.

[Barry Ritholtz]

Right. But they catch your attention.

[Ellen Zentner]

And the webcast was me and Adam Jonas. And Adam Jonas is the. He was always referred to as the Tesla guy. He's probably the quintessential thought leader at Morgan Stanley. He's just got a celebrity following, and he is leading the charge on robotics and humanoids. And so after that webcast, I was sent this because this book, written in the 1950s, covered Rise of the corporation and replacement of the state, the ruthless efficiency of capitalism in dealing with labor, the overpowering of the worker by AI and automation. That's all in this book. Book from the 1960s.

[Barry Ritholtz]

75 years ago. Amazing.

[Ellen Zentner]

75 years ago. The other book I brought in. So again, just like my streaming habits, Eclectic is called the Bluegrass Conspiracy. An inside story of power, greed, drugs, and murder. This is the backstory to Cocaine, the movie, which is one of my favorite movies.

[Barry Ritholtz]

I haven't seen it because it sounds so crazy.

[Ellen Zentner]

Come on.

[Barry Ritholtz]

I mean, it just sounds like a wildly fictionalized account of a highly unlikely event. How's the book?

[Ellen Zentner]

The book, I am just starting, and I cannot wait to get through it because the movie. The only thing that. The movie that really happened, that was in the movie was that there was a dead bear found in a national park with a belly full of cocaine. That is the only thing in the.

[Barry Ritholtz]

Movie that was accurate.

[Ellen Zentner]

That was accurate. That actually is in the book. But there's a whole backstory here, and I cannot wait to read it. It comes highly recogn. So you can see that my taste in books runs the gambit as well, just like my streaming.

[Barry Ritholtz]

So if you haven't read Player Piano yet, have you read other Vonnegut? Have you read Cat's Cradle or Slaughterhouse Five?

[Ellen Zentner]

Have you read any Vonnegut?

[Barry Ritholtz]

All right, so everybody should read Slaughterhouse Five. And if you're at all remotely interested in science and technology, run amok. Cat's Cradle is his version of that. What makes him so fascinating is he finds these incredible concepts and just so simply explains them in such a compelling and entertaining fashion.

[Ellen Zentner]

But isn't it also scary how books can be written that long ago? And then here we are talking about humanoids and robotics because another, I have to say, piggybacking off of this idea of robotics and humanoids. 2013. Have you seen the movie Robot and Frank?

[Barry Ritholtz]

No.

[Ellen Zentner]

Robot and Frank. Frank Langella was in it. Susan Sarandon, Peter Sarsgaard, James Marsden Liv Tyler Great.

[Barry Ritholtz]

Wow, that's some cats.

[Ellen Zentner]

So talk about when we think about thematics, longevity is a thematic. AI tech and diffusion is a thematic in terms of thematic investing Robot and Frank is about a senior gentleman that he wants to age in place and to help him do that, his family buys him a home companion robot to.

[Barry Ritholtz]

Help him which is really not decades away.

[Ellen Zentner]

No, we're not that far off from that. In Japan they're already testing it. So this was in 2013. The kicker though is that it just so happens that Frank was a petty thief in his prior life. He's now going through early dementia. He was a petty thief and he co ops the robot to help him. That's the fun part of the movie. But Robot and Frank 2013 I'm gonna.

[Barry Ritholtz]

Absolutely check that out. Our last two questions what sort of advice would you give a recent college grad interested in a career in economics, finance, investing? What would your advice?

[Ellen Zentner]

I would say for them to find any and everyone they can think of that works in that field already the best is to if you can not to cold call but to try to find some sort of connection. Whether it's your wealth advisor and see who your wealth advisor. I get contacted by our wealth advisors that say hey, my client has a son who this do you mind if I put you in touch with him? Find some way and when you start to have conversations with people that are already working in areas where you think you want to work, never leave that conversation without getting two more names from them of people they think you should contact and can they make that opening for you so that you always have another conversation to be had?

[Barry Ritholtz]

Each call always asks for two more names. That's great advice for someone right out of college. And our final question, what do you know about the world of economics, investing, thematic investing, macro economy today? That might have been helpful 25 or so years ago. Really when you were first starting out.

[Ellen Zentner]

I think if I were to know that models are not the end all be all, I would have started using anecdotal evidence a lot earlier. I am a very big believer in anecdotal evidence and I've been criticized for that in my career. It's not statistically sound. I like to use my one man data sample, which is my husband, when I studied behavior and it's a great way to connect to people, connect to your audience, get a message across. And I'm a big believer in using anecdotal evidence when thinking about how to adjust your forecast subjectively. And so I wish I had started using that in my career even earlier.

[Barry Ritholtz]

Ellen, this has been absolutely a pleasure. It's been way too long since we had you in here. We have been speaking with Ellen Zentner. She's chief economic strategist and global head of thematic and macro investing for Morgan Stanley Wealth Management. They manage over $7 trillion in total assets. If you enjoy this conversation, well, be sure and check out any of the 547 we've done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you find your favorite podcast. And be sure and check out my new book, how not to Invest. The ideas, numbers and behaviors that destroy wealth and how to avoid them how not to Invest at your favorite bookstore. I would be remiss if I didn't thank the crack team that helps put these conversations together each week. Peter Nicolino is my my audio engineer. Anna Luke is my producer. Sean Russo is my researcher. Sage Bauman is the head of podcasts at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.