"US employment down by 20,000 a month…labor market contracting" [People of Wall Street Park Shin-young met]

Rosenberg Research CEO David Rosenberg interview

"Fed likely to cut rates more aggressively next year than expected"

"AI-driven stock gains are propping up top-end US consumption"

"Precious metals, healthcare, aerospace, defense, energy sectors promising"

Labor market contraction, the economy would take a direct hit if the AI boom cools…

This is the current US economic risk pointed out by David Rosenberg, CEO of well-known Wall Street research firm Rosenberg Research. In a recent phone interview with The Korea Economic Daily, Rosenberg diagnosed that "the (US) labor market is not merely cooling but contracting." He firmly said it was "not realistic at all" for the US central bank (Fed) to expect growth and slowing inflation next year. He forecast that the policy rate will be cut faster than expected due to labor and consumption weakness. He also noted that although AI company investment is active, AI investment alone is insufficient to support the US economy since consumption accounts for 70% of the economy. Nonetheless, he identified healthcare, aerospace, defense and energy as investable areas even in these challenging conditions. The following is a Q&A.

▶ The Fed cut rates yesterday. Has inflation been controlled?

"I viewed this FOMC outcome as considerably more dovish than market expectations. The dot plot can be ignored. It's useless for guiding the future.

Powell gave a lot of meaningful information. Stripping out the tariff effect, the implication was that inflation is in the low 2% range. He said tariffs are creating a substantial part of the excess in prices.

▶ Was the cut a preemptive move because of growth slowdown concerns?

"The bigger news was the Fed's research results. Looking at the past six months, the conclusion was that employment has fallen by 20,000 per month. Official statistics show an increase of 40,000 per month, but in reality it's the opposite. The labor market is not simply cooling but contracting. If neutral rate is 3%, the current rate is still above it. Core inflation is heading toward the target, the tariff effect could weaken from Q1 next year, and unemployment is rising."

▶ Could the Fed act cautiously next year? There could also be pressure from Trump.

Whoever runs the Fed, and whatever political pressure exists, there's a high chance rates will be cut more aggressively next year than markets expect. I think they will be cut quite strongly."

▶ There was a clear split between hawks and doves within the Fed. What does that mean for the policy path?

"Hawks or doves, they ultimately rely on the data. It's just that interpretations differ. Some members expect rates to fall below 3% next year. I'm on that side. Conversely, some members signaled they want to raise rates next year. They view the US economy very optimistically."

▶ Which side are you on?

"I'm not optimistic about the US economy next year. I believe core inflation will reach the target faster than hawks expect. The labor market is showing clear signs of strain. Ultimately, the data will decide which side is right."

▶ The Fed raised its growth outlook and lowered its inflation forecast in the SEP. Do you think that's realistic?

"Not realistic at all. According to the Fed's outlook, growth would exceed potential in 2026–2027 while unemployment projections barely change and inflation falls. That doesn't make logical sense.

This outlook is a collective forecast of 19 people. Some are good at forecasting, others are not."

▶ Did next year's growth forecast account for base effects from this year's shutdown?

"As Powell said, a large part of the upward growth revision is a statistical reflection of the government shutdown timing. The growth lost at the end of this year appears to shift to early next year when the government reopens — it's close to a numbers game. Don't fixate on the dot plot and projections; pay attention to Powell's narrative. Excluding tariff effects, prices are in the low 2% range, and the key explanation is that employment has been falling by 20,000 per month since April."

▶ Despite warnings of a slowdown, Black Friday and Cyber Monday consumption looked solid.

"People point to Black Friday, but the important thing is the monthly flow. Real retail sales in September were negative, and real consumer spending in September was flat. You can't be optimistic about US consumption based on a one-day event. Black Friday was strong because discounts were large and demand, especially among lower-income households, surged looking for deals. Judging overall consumption by a single day's performance is inappropriate."

▶ The bond yield curve has steepened rapidly as inversion unwound. Some say it's a sign of a soft landing. Is this time different?

"You can't view a steepening curve as a signal that 'the economy is fine.' The long bond speaks to risk premia, not the economy. Given the explanation that employment has recently fallen by 20,000 per month, it's wrong to be optimistic based solely on the curve."

▶ But the US economy is holding up fairly well.

"The economy is holding up because of corporate AI capital spending boom and the wealth effect created by the stock market. Especially the top 10% of consumption is propping up the economy. Without the stock market's wealth effect, consumption might already be in recession. The key question is sustainability. The US economy has never been this dependent on the stock market. If the market corrects or enters a bear market and top-end consumption falters, the economy could become acutely vulnerable. Ultimately, the stock market is the hinge."

▶ Some argue AI companies are investing with cash, not debt, so it's different from the dot-com bubble.

"I view it as as powerful as the late-1990s internet cycle. Its economic spillovers are large. In fact, aside from AI capital spending, there's little else that could be called growth.

AI is not 70% of the US economy. Consumption is 70% of the US economy. Outside of the AI investment boom, what holds the economy together is spending by top consumers. Even with an AI investment boom, the economy can worsen if the stock market wobbles. Looking at the dot-com bubble, it wasn't recession that caused stock prices to crash, but the stock price crash that promoted the recession. We must learn from history."

▶ Dimon said there's a 'cockroach' in the private credit market. How big is the private credit risk?

"Dimon is much closer to that opaque market than I am. I'm not looking to argue with Dimon. His warning deserves attention. Especially since he is typically very optimistic, him talking about a bubble and 'cockroaches' is a signal. This market is lightly regulated, data are limited, and books are not marked to market like public markets."

▶ But major investment banks give positive views on private credit.

"Be skeptical of consistently optimistic messages from financial institutions. They have products to sell. A better question is, 'Why is Warren Buffett holding over 30% of his assets in cash?' That nearly $40 billion in cash suggests he's seeing something. Buffett isn't a seller of products; he seeks to maximize shareholder value."

▶ So should we view Buffett as taking a neutral position in the market?

"When the government asked Buffett for help rescuing banks after the financial crisis, he built liquidity to 'pick up the broken pieces' in the next bear market. He prepared to do that. He remains in a very good position now.

▶ Overseas investors, including Koreans, still see few alternatives to US stocks. Korea also has the won depreciation issue.

"I'm fairly negative on the dollar. Major central banks around the world have mostly finished cutting rates, but the Fed has more room to cut. That divergence could weigh on the dollar. As we move into next year, the chance of shifts in US political landscape grows, and if policy tilts further left, it could be a headwind for risk assets. Diversification will be key in 2026. Hold cash as well."

▶ Any other investment recommendations?

"There are investment opportunities. I think precious metals could remain in a bull market. Sectors that transcend the business cycle, such as utilities, healthcare, aerospace and defense, exist. You should pick sectors rather than buy the entire index. Consumer staples are also interesting. They underperformed this year but could rebound depending on political and policy variables, such as a Supreme Court (tariff) ruling."

▶ Dollar outlook.

"Whoever runs the Fed, US rates are likely to fall further, possibly more than the market has priced. That would be negative for the dollar and relatively positive for most currencies, including the won. It could also be favorable for dollar-priced gold, silver and commodities. Energy could be a 'dark horse' sector in 2026. It may be a year when buying the index alone makes it difficult to make money."

▶ What's the biggest risk to the US economy next year? AI-related stocks?

"If disappointment emerges in AI and it spreads beyond a few stocks, the stock market becomes the biggest risk. Right now, I see this as the sixth major price bubble in the past 100 years. Bubbles eventually burst, but no one times them. The biggest economic risk in 2026 is that this bubble deflates in the stock market. Then one of the 'crutches' supporting the economy — top-end consumers — would be shaken, and the shock could be very large."

New York = Correspondent Park Shin-young nyusos@hankyung.com