Do you care about Egypt?
We should all care about Egypt. We went back and looked at the last time an event like this happened in the Middle East. We determined that Iran back in 2009 had some similar events, and what we saw then among investors was a massive flight to quality. Over that time, 10-year [Treasury] yields rallied about 40 basis points, so I think something like that is certainly something we should be braced for.
Tell us about retail sales booming as jobs struggle.
We are looking at around 3 percent growth in consumer spending over the course of a year. That might sound O.K., but the truth is, we should be significantly higher than this given the recession that we just came out of. We are growing at half the pace relative to other severe, post-recession recoveries.
Why is that?
If you look at the distribution of jobs, growth has really been concentrated in just three categories. Together they account for 75 percent of all job gains. It's professional, medical, and—shockingly—manufacturing.
What about inflation?
I think we are probably going to have slightly more inflation than the market now presently thinks. The consensus outlook is around 1 percent to 1.5 percent for core inflation by the end of the year. We think it is going to be closer to 2.2 percent.