William Blair macro analyst Richard de Chazal breaks down rising geopolitical tensions, sticky inflation risks, Fed policy uncertainty, and the durability of U.S. growth amid fiscal stimulus and the evolving AI-driven productivity cycle
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Podcast Transcript
00:21, Chris T
Hey everybody. Welcome back to Monthly Macro. Today is Friday, January 30th, 2026. I'm joined, once again, by William Blair Macro analyst Richard de Chazal. I should probably say Happy New Year.
Richard is back with us this month to help make sense of the macro backdrop, as he always does. So, glad to have you here, Richard. Welcome back.
00:42, Richard D
Great, Chris. Thanks. Good to be back.
00:45, Chris T
All right. So, let's start globally. You know, geopolitical risks have been climbing again, whether it's Venezuela, Iran, U.S.-EU relations, tensions with China. Which of these do you see as the biggest threat to the current growth resilience? And what do you think the U.S. is actually trying to achieve with all of this?
01:04, Richard D
Yeah. Thanks, Chris. I mean, yeah, definitely a full-on start to the year and anyone, and I'm thinking of myself here really, who felt that President Trump was going to dial it down a bit on the shock and awe heading into midterm elections this year has, so far, been wildly mistaken. So, a bit off on that.
But, you know, to your question, you know, why is he doing all this stuff? I think, basically, to get the answer, you just have to look at, you know, what they've written. So, if you look at November, they published their national security strategy document. Or what they're saying. So, if you listen to Scott Bessent or, you know, other members of the administration or the president himself, you know, I think that they're telling us what they're doing.
And, I think, Bessent, and I'm going to I'm going to read a short quote here because I thought it was pretty good and I included it in, you know, our weekly document I just published today. But, I think he outlined what they're doing pretty well.
And he says this: “So I think that this is the beginning of a process. We're going to reindustrialize. We've gone to a highly financialized economy. We've stopped making things—especially a lot of things that are relevant for national security. I think one of the few good outcomes from COVID was we had a beta test for maybe some kind of kinetic war with a large adversary. And it turned out that these highly efficient supply chains were not strategically secure. So, we don't make our own medicines. We don't make our own semiconductors. We don't make our own ships anymore. So I think if I were to say, “Was there any good outcome from COVID?” it was that it woke the world up to these supply chain problems.”
So, what's happening is that the U.S. has watched China grow from essentially a closed, agrarian economy only as far back as 1980. And in just a couple of short decades, basically become a global superpower that's now threatening the global hegemonic position of the U.S.
And, I think, up until recently, there was this view that, you know, the rules for global trade and finance are pretty well set. They're well established. We all respect them. And, you know, we're going to give China some space to develop into this, sort of, larger developed market economy. And, then, you know, they're going to grow, in turn, into this massive consumer of American goods and services. And then the West will be winners from that. And we'll be supplying the Chinese with all of this stuff.
And, you know, I think to be fair, both the Biden and Trump administrations, you know, figured out, that that hasn't really been happening. You know, that China has continued to play on this unlevel playing field. You know, they've gone around the world securing control of strategic resources. They've had the Belt and Road Initiative, China 2025, and the U.S. and the rest of the world has maybe been asleep at the wheel here, why they’ve done all this.
So Bessent saying, you know, Covid was the wake-up call and now it's time to reduce those vulnerabilities. So, I think, you know, what the plan is here is, this is a focus entirely on China. It's all about re-securing global dominance across the board. I think it's viewed as an existential threat.
So, I think what's happening is that there's this, kind of, single-minded pursuit to stop China in its tracks. And then everything else that's going on is just the U.S. trying to, sort of, tie up loose ends so it can take control over energy, natural resources, rare earths, semiconductors, medicines, wherever it feels like it's been exposed. So, you know, why is it not supporting Europe more over Ukraine?
I think because it wants Russia on side, vis-à-vis China. You know, why is it now bothering with Iran? I think because Iran is the country that's also been supplying energy to China. It's also been funding all sorts of other terrorist mischief around the world. So, it needs that sorted out. You know, it wasn't in control of Venezuela where China had been making inroads.
But that's part of this, sort of, Western hemisphere. So, Trump à la sort of Donroe strategy that he's been talking about feels that, that that's within, sort of, the U.S.'s sphere of influence within his sandbox. So, you know, he wants to, kind of, push China out of there and take control of that oil. You know, going to the Middle East, it wants an Israel-Palestinian deal. It wants peace in the Middle East. Why? So, it doesn't have to waste resources fighting, never-ending wars there. And, of course, it also gets control over the energy there, which also then gives it leverage over China. You know, it also wants the Europe to rearm. So, part of these deals are, it's forcing Europe to buy weapons from the U.S., which, you know, helps their growth.
But why? So, it can pay the U.S. back for all the subsidies they've been giving Europe over the postwar period in the form of this, sort of, NATO defense umbrella. And, it also, ideally, wants, you know, the EU to be able to defend itself against Russia, which then means that frees up the U.S. military to focus its energies entirely on China.
So, it wants a strong Europe that's going to be able to defend itself militarily. And that's also going to reduce the amount of resources that the U.S. has to spend on their own military. So, you know, on top of that, it wants control of the financial system, it wants control of the dollar, probably through, you know, Treasury stablecoins.
You know, it wants control of monetary policy, you know, not only so it can lower rates and increase growth, but also to lower debt. I think also, there's a control function there, too, in the sense that the Fed, obviously, is a very significant player in global financial markets, which could be then weaponized. So, I think there's, perhaps, some thought there.
I think that's kind of the story. It's really a focus on China. Let's clear up all this other stuff so we don't have to waste our time with that and dedicate more resources that we don't really want to dedicate to that stuff. And, that's what I think is happening, you know, what's the biggest risk in all of this?
Well, I think, you know, there's a lot on their plate. I mean, I think they're juggling a lot of balls all at once. You know, they're not pulling allies along with them. This is, sort of, a solo mission. And, you know, the risk is that foreigners start to push back on that, foreign allies start to push back on that.
There's a risk that financial markets push back a bit on that. I mean, I think the U.S. is in a powerful spot where it knows that there isn't really any alternative to using the dollar in financial markets, but there could be sort of some volatility there that that could be uncomfortable.
09:39, Chris T
Hoping we can pivot to inflation. I know there's a growing belief that global inflation will continue easing into 2026. And you've been pushing back on that consensus. Where do you see the risks?
09:50, Richard D
Yeah, I think I think that's where the consensus is a little bit complacent on inflation. You know, I think there's this view that inflation is going to sort of gently drift down to 2% by the end of this year. Economic growth is itself at this, sort of, cozy equilibrium of 2% every quarter this year. And, there's just enough weakness on the consumer and the labor market to get us there, and also to allow more rate cuts.
Except t I don't think that's really the reality. I mean, you’ve got GDP that grew 3.8% in the second quarter, 4.4% in the third, and it's tracking 4.2% in the fourth quarter. So, pretty strong. The labor market, I think, as Chair Powell said this week, it's largely the supply side story, a bit of demand as well. And if you scratch, kind of, below the surface on some of those employment reports, it doesn't seem to be quite as weak as, you know, many in the market think, you know, wage growth is ticking a little bit higher.
We've seen the participation rate, particularly for prime-age workers, very high and, sort of, stuck at that high level, which is not something you would see when you have a very weak labor market. You've got monetary policy that is neutral. Rates have been coming down for the last four or five months, so that carries with it, some stimulus there, if you look at financial conditions as a metric, so how accommodative is monetary policy according to financial markets.
Those are, basically, at extreme accommodative reading, so financial markets are in no way saying that that monetary policy is tight. And then we have very loose fiscal policy. So, you know, we've got government deficits at 6%, as far as the eye can see. And then, starting into this year, we've got all the benefits of the One Big Beautiful tax bill kicking in.
So, remember, this is particularly helpful for consumers, conveniently or strategically heading into the into the midterm elections in November. But, they're going to have a bumper tax refund season this year, starting with, you know, benefits from those no tax on tips, no tax on overtime, childcare tax credit increases. We had increased caps on salt tax deductibility.
We have tax cuts for estate. No tax on auto loan interest payments. So, it's a bit of a bonanza there. And if that wasn't enough, then the Trump administration is also talking about these $2,000 tariff dividend checks. You know, who knows if those are going to get through Congress or in what way, shape, or form. But, you've got all of that coming through.
Plus, we're in the midst of, you know, a boom in AI, in energy, we have geopolitical tensions, so that's sort of adding to stress on supply chains and globalization. And more recently, we've had a weaker dollar, which could be moderately inflationary. So, I'm not saying we're going to have this great surge in inflation, but I think there are headwinds to the disinflationary narrative that the market is quite sort of clinging to.
And, I think that, you know, inflation could turn out to be stickier than what they're opening now.
13:41, Chris T
Yeah. So how does that shape your view of Fed policy? Who blinks first?
13:45, Richard D
Yeah, I think, good question. I've been of the view for a while now that basically, if I was sitting on the FOMC, which I'm not obviously, but you know, if I was a voting member there, I would be hitting the pause button and basically remain there for the foreseeable future. I think the policy setting right now is about right.
So, my dot would be on the no change in rates for this year. The reality is President Trump is, we think, just going to announce the appointment of Kevin Warsh as the new Fed Chair. I think he's extremely well qualified. I actually think he has the potential to be, maybe a bit of a hawk in doves clothing for Trump.
So, of the, maybe Waller would be a bit more of that. But of the other candidates, sort of Hassett or Rick Rieder, they were probably a little bit more genuinely dovish. I think Kevin Warsh has, in the past, sounded a lot more hawkish than he has in the last year.
My point is, is that whoever is going to be that new Fed Chair, so it sounds like it's going to be Warsh, they were, sort of, hand-picked to be quite dovish and to support rate cuts. So, realistically, I think, you know, you have to say that, agree with it or not, we'll probably have at least one rate cut this year. All things being equal.
But, here's the risk, is that if the data continues to be relatively strong and the Fed are, you know, holding rates or pushing them down further, you know, on the short end, because they promised to, that, you know, does transfer risk to the longer end of the yield curve where we could see more pressure.
15:37, Chris T
There's been a lot more noise around Fed independence in the last couple months, investigations, court cases, political pressure. How should investors think about that?
15:47, Richard D
Yeah. So, there’s definitely been a lot of Fed bashing going on coming out of the White House. I'd say that central bank independence is very important and should definitely be the goal of most countries. I think most economic studies show that countries with independent central banks tend to have lower and more stable rates of inflation than those without.
And, you know ,that should generate lower interest rates. I think where it's really most important is for emerging market countries. So, they're the ones who typically lack the most credibility, so they have problems with corruption, etc.. And, you know, a really strong independent central bank for these countries can be very helpful in attracting confidence of foreign investors and bringing in foreign capital.
I think it's also very important for developed markets, central banks, to, sort of, set the gold standard for those countries to want to achieve and follow. But, I think, you know, if you have no independence and you're just running monetary policy around an election cycle, that's probably going to be a bit of a disaster for your economy.
It's going to scare off foreign investors. You're going to have more of a boom-bust cycle. But I don't think central bank independence, you know, is as thick an iron wall, if you will, as, you know, it's sometimes purported to be, you know, in the U.S. So, I drew up a chart, recently, looking at the cumulative record of dissents on the FOMC from Fed governors who are political appointees and Fed presidents who aren't.
And, it basically shows, very clearly, that governors dissent far less than presidents do. And, when they do, it's overwhelmingly towards lowering rates, not raising them, whereas the opposite is true for the seemingly more hawkish Fed president. So, at the end of the day, you know, the Fed knows that it operates at the pleasure of Congress. And, so some, you know, erosion at the margin can be expected.
You know, it is a little bit concerning when you have such aggressive attacks on the independence of the Fed, but also if we zoom out to look at, sort of, the really big picture of maybe where we're going, and this is actually something we talked about in the past, Chris, is if in general, we're heading towards more a world of fiscal policy dominance, where the central banks role becomes less want of fighting inflation and more one of keeping rates down to make the debts more sustainable.
And that’s, perhaps, driven less by the President, you know, pushing for lower rates and more simply by the size of the federal debt and pure necessity. You know, maybe from, you know, Trump is, kind of, just accelerating the inevitable. So, it's definitely not an ideal situation where you want to be. But, you know, maybe that that's the direction we were heading anyways.
19:38, Chris T
All right, let's bring it back to domestic economics. We've seen mixed U.S. data, you know, softer payrolls but strong GDP. How sustainable does this growth pulse look to you?
19:50, Richard D
It’s definitely very patchy. And, it hasn't helped that we've had this shutdown and a lack of data and sometimes not the best quality data. But, I think it's still looking durable. I don't think we're heading into any kind of recession. This administration clearly wants to run things very hot. If we look at both consumer and corporate sector balance sheets, they're pretty strong.
And I think companies have a willingness and ability to invest. So, that's where I think the growth is coming from, less so from consumer spending, which I think is, kind of, going to be sort of okay, kind of in line GDP-ish. But, I think the point is, is that, you know, these strong balance sheets give you a decent amount of resiliency there.
And, you know, we have seen some softer payroll. But, again, it's more nuanced because maybe that's, you know, it seems like it's more due to supply side changes where you have demographic shifts where population growth is slowing because of less birth and lower birth rates, and more boomers moving out of the labor market and huge cuts to to immigration.
So, that slows, by definition, the pace of growth in the job market. But, overall, I think for now it's still looking fairly durable.
21:20, Chris T
I have to bring AI up, you know, I think we do it every Monthly Macro now, but it continues to dominate the narrative. How much of the current productivity boost is real, and how concerned are you about an AI bubble, would you say?
21:32, Richard D
I think it's real. I think what we're seeing, at the moment, in terms of, so we've seen some pretty good productivity numbers over the last couple of quarters. I think that's actually driven less by AI and more from capital deepening that we saw taking place in the post-COVID period. So, I think a lot of companies, you know, found that their capital stock was really old and needed upgrading, and they, sort of, spent a lot of money on that, during the pandemic.
And, I think, the productivity we're seeing now is, kind of, a lagged impact from that, rather than AI, which I think is, kind of, more coming in the future. But, I'm quite positive about where productivity is going actually. So, I think we're really in the early stages of what's going to be a strong productivity upcycle, which could last for, you know, a decade or more.
And I think that's being driven by the structurally tight labor market. So, I think why my explanation of why productivity really sucked for the last couple of decades is because, you know, I think companies, if they're choosing between labor and capital, labor was very cheap and very abundant. And, you know, they could crush wages, labor unions were, sort of, disappeared, compensation costs were crushed.
And labor's flexible and, you know, easy to manipulate. So you didn't really need very strong productivity growth. But I think today, as I just mentioned, where the labor force, that, sort of, pool of available labor is much, much smaller. It means that, you know, there's a, there's potential for wage costs to move up and pressure margins.
And I think that companies need to invest in a lot more capital to offset that shortage of labor and get automation to keep those margins high. And I think they're starting to do that. And I think the AI boom is just, kind of, enhancing all of that. On top of that, is it a bubble?
You know, bubble is certainly a very loaded term. I think what we've definitely had is a bunch of tech and VC companies over the last few years really throwing a lot of money at startups, you know, thinking, hoping that we're at the cusp of something really big and somewhere they're going to strike gold. And no doubt, you know, in places they will.
But, there's definitely going to be some losers along the way from that. So, you know, is it a massive bubble that's going to pop and drag the whole economy down with it? At this point, I don't really think that's the case. Again, balance sheets are pretty good. And this hasn't really been, and I think this is crucial up to now, this hasn't really been driven by leverage, which is what always gets you into trouble.
It's been more, sort of, equity financed and financed out of free cash flow. That could be changing now because we're starting to see debt issuance by some of these tech companies really heating up. But, I think, for the moment, we're still pretty well positioned. But, it does feel like we're maybe moving to, sort of, a new phase of the bull market where we're going to have to do more due diligence, maybe take a more active portfolio approach and start to look more at quality characteristics, rather than, sort of, maybe some of the junkier stuff that had performed well up to now.
25:42, Chris T
Before we wrap, what do you think markets are most mispricing right now?
25:46, Richard D
Think in the next few months, you know, if we do start to see this fiscal stimulus really kick in, I think you're probably going to hear more about potential upside risks to inflation and maybe even the possibility of a rate hike. And that's definitely not what markets are thinking about at the moment.
26:06, Chris T
And if you had to pick one indicator to watch closely in Q1, what would it be?
26:11, Richard D
I think, you know, it's always about employment. You know, if I get to choose two, I take the unemployment rate and initial jobless claims. If you're only giving me one, Chris, I’d probably do the jobless claims simply because, you know, no one indicator is perfect. But, you know, at least what's good about them is they don't get revised, you know, and historically, they have a pretty good track record of, you know, of what's going on in the economy and the labor market.
So I'd, I'd stick with that.
26:47, Chris T
All right. Well, that's all the time we have today. So, Richard, thanks as always for the insights. And, you know, thank you all for joining Monthly Macro. We'll see you next time.
26:56, Richard D
Thanks, take care.