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Seth Carpenter: Welcome to Thoughts on the Market. I’m Seth Carpenter, Morgan Stanley’s Global Chief Economist. Yesterday I sat down with my colleagues, Mike Gapen, Chetan Ahya and Jens Eisenschmidt, who cover the U.S., Asia, and Europe respectively. We talked about… Well, we didn’t get to the U.S. We talked about Asia. We talked about Europe.

 

Today, we are going to focus on the U.S. and maybe one or two more economies around the world.

 

It’s Wednesday, October 1st at 10am in New York.

 

Jens Eisenschmidt: And 4pm in Frankfurt.

 

Chetan Ahya: And 10 pm in Hong Kong.

 

All right, gentlemen. So yesterday we talked a lot about China, the anti-involution policy, and what’s going on with deflation there. Talked a little bit about Japan and what the Bank of Japan is doing. We shifted over to Europe and what the ECB is doing there – there were lots of questions about deflation, disinflation, whether or not inflation might actually pick up in Japan. So, [that] was all about soft inflation.

 

Mike, let me put you on the spot here, because things are, well, things are a little bit different in the U.S. when it comes to inflation. A lot of attention on tariffs and whether or not tariffs are going to drive up inflation. Of course, inflation, the United States never got back to the Fed’s target after the COVID surge of inflation.

 

So, where do you see inflation going? Is the effect of tariffs – has that fully run its course, or is there still more entrained? How do you see the outlook for inflation in the U.S.?

 

Michael Gapen: Yeah, certainly a key question for the outlook here.  So, core PCE inflation is running around 2.9 percent. We think it can get towards 3, maybe a little above 3 by year end. We do not think that the economy has fully absorbed tariffs yet; we think more pass through is coming. The President just announced additional tariffs the other day. We had them factored into our baseline.

 

I think it’s fair to say companies are still figuring out exactly how much they can pass through to consumers and when. So, I think the year-on-year rate of inflation will continue to move higher into year end. Hit 3 percent, maybe a little bit above. The key question then is what happens in 2026.

 

Is inflation driven by tariffs transitory – the famous T word; and the year-on-year rate of inflation will come back down? That’s what the Fed’s forecast thinks; we do as well. But as everyone knows, the Fed has started to ease policy to support the labor market. The economy has performed pretty well, so there’s a risk maybe that inflation doesn’t come down as much next year.

 

Seth Carpenter: Alright, so tariffs are clearly a key policy variable that can affect inflation. There’s also been immigration restriction, to say the least, and what we saw coming out of COVID – when people were reluctant to go back to work, and businesses were reporting lots of shortages of workers – is that in certain services industries, we saw some pressure on prices. So, tariffs mostly affect consumer goods prices. Is there a contribution from immigration restriction onto overall inflation through services?

 

Michael Gapen: I think the answer is yes; and I hesitate there because it’s hard to see it in real time. But it is fair to say the average immigrant in the U.S. is younger. They have higher rates of labor force participation. They tend to reside in lower income households. So, they’re labor supply heavy in terms of their effect on the economy. And yes, they tend to have larger relative presence in construction and manufacturing.

 

But in terms of numbers, a lot of immigrants work in the service sector, as you note. And services inflation has been to the upside lately, right? So, the surprise has been that goods inflation maybe hasn’t been as strong. The pass through from tariffs has been weaker. But in terms of upside surprises in inflation, it’s common services and in many cases, non-housing related services.

 

So, I’d say there’s maybe some nascent signs that immigration controls may be keeping services prices firmer than thought. But may be hard to tie that directly at the moment. So, it’s easier to say I think immigration controls may prevent inflation from coming down as much next year. It’s not altogether clear how much they’re pushing services inflation up. I think there’s some evidence to support that, and we’ll have to see whether that continues.

 

Seth Carpenter: Alright, so we’re seeing higher costs and higher prices from tariffs. We’re seeing less labor supply when it comes to immigration. Those seem like a recipe for a big slowdown in growth, and I think that’s been your forecast for quite some time – is that the U.S. was going to slow down a lot.

 

Are we seeing that in the data? Is the U.S. economy slowing down or is everything just fine?   How are you thinking about it? And what’s the evidence that there’s a slowdown and what are maybe the counterarguments that there’s not that much of a slowdown?

 

Michael Gapen: Well, I think that the data doesn’t support much of a slowdown. So yes, the economy did moderate in the first half of the year. I think the smart thing to do is average through Q1 and Q2 outcomes [be]cause there was a lot of volatility in trade and inventories. If you do that, the economy grew at about a 1.8 percent annualized rate in the first half of the year, down from about 2.5 percent last year. So, some moderation there, but not a lot.

 

We would argue that that probably isn’t a tariff story. We would’ve expected tariffs and immigration policies to have greater downward pressure on growth in the second half of the year. But to your question, incoming data in the third quarter has been really strong, and we’re tracking growth somewhere around 3 percent right now.

So, there’s not a lot of evidence in hand at present that tariffs are putting significant downward pressure on growth.

 

Seth Carpenter: So those growth numbers that you cite are on spending, which is normally the way we calculate things like GDP, consumption spending. But the labor market, I mean, non-farm payroll reports really have been quite weak. How do you reconcile that intellectual tension on the one hand spending holding up? On the other hand, that job creation [is] pretty, pretty weak.

 

Michael Gapen: Yeah. I think the way that we would reconcile it is when we look at the data for the non-financial corporate sector, what appears to be clear is that non-labor costs have risen and tariffs would reside in that. And the data does show that what would be called unit non-labor costs. So, the cost per unit of output attributable to everything other than labor that rose a lot. What corporates apparently did was they reduced labor costs. And they absorbed some of it in lower profitability. What they didn’t do was push price a lot.

 

We’ll see how long this tension can go on. It may be that corporates are in the early stages of passing through inflation, so we will see more inflation further out in a slowdown in spending. Or it may be that corporates are deciding that they will bear most of the burden of the tariffs, and cost control and efficiencies will be the order of the day. And maybe the Fed is right to be worried about downside risk to employment. So, I reconcile it that way. I think corporates have absorbed most of the tariff shock to date, and we’re still in the early stages of seeing whether or not they will be able to pass it along to consumers.

 

Seth Carpenter: All right, so then let’s think about the Fed, the central bank. Yesterday, I talked to Chetan about the Bank of Japan. There reflation is real Talked to Jens yesterday about the ECB where inflation has come down.  So, those other developed market economies, the prescriptions for monetary policy are pretty straightforward. The Fed, on the other hand,   they’re in a bit of a bind in that regard. What do you think the Fed is trying to achieve here? How would you describe their strategy?

 

Michael Gapen: I would describe their strategy as a recalibration, which is, I think, you know, technical monetary policy jargon for – where their policy stance is now; is not correct to balance risks to the economy. Earlier this year, the Fed thought that the primary risk was to persistent inflation. Boy, the effective tariff rate was rising quickly and that should pass due to inflation. We should be worried about upside risk to inflation. And then employment decelerated rapidly and has stayed low now for four consecutive months.

 

Yes, labor supply has come down, but there’s also a lot of evidence that labor demand has come down. So, I think what the Fed is saying is the balance of risks have become more balanced. They need to worry about inflation, but now they also need to worry about the labor market. So having a restrictive policy stance in their mind doesn’t make sense.

 

The Fed’s not arguing – we need to get below neutral. We need to get easy. They’re just saying we probably need to move in the direction of neutral. That will allow us to respond better if inflation stays firm or the labor market weakens. So, a recalibration meaning, you know, we think two more rate cuts into year end get a little bit closer to neutral, and that puts them in a better spot to respond to the evolving economic conditions.

 

Seth Carpenter: All right. That makes a lot of sense. We can’t end a conversation this year about the Fed, though, without touching on the fact that the White House has been putting a lot of pressure on the Federal Reserve trying to get Chair Powell and his committee to push interest rates substantially lower than where they are now.

 

Michael Gapen: You’ve noticed?

 

Seth Carpenter: I’ve noticed. From my understanding, a lot of people in markets have noticed as well. There’s been some turnover among policy makers. We have a new member of the Board of Governors of the Fed.

 

This discussion about Federal Reserve independence. How do you think about it? Is Chair Powell changing policy based on political pressure?

 

Michael Gapen: I don’t think so. I think there’s enough evidence in the labor market data to support the Fed’s shift in stance. We have certainly highlighted immigration controls, what they would mean for the labor force. And how that means even a slowing, growing economy could keep the unemployment rate low.

 

But it’s also fair to say labor demand has come down. If labor demand were still very strong, you might see job openings higher, you might see vacancies higher. You may even see faster wage growth. So, I think the Fed’s right to look at the labor market and say, ‘Okay, on the surface, it looks like a no hire, no fire labor market. We can live with that, but there are some layoffs underneath. There are signs of weakness. Slack is getting created slowly.’

 

So, I think the Fed has solid ground to stand on in terms of shifting their view. But you’re right, that looking forward into 2026 with the end of Powell’s term as chair and likely turnover in other areas of the board. Whether the Fed maintains a conventional reaction function or one that’s perhaps more politically driven remains an open question – and I think is a risk for investors.

 

Seth Carpenter:  want to change things up a lot here. Chetan, yesterday you and I talked about China. We talked about Japan. Two really big economies that I think are well known to investors.

Another economy in Asia that you cover is India. For a long time, we have said India was going to be the fastest growing major economy in the world. Do you still see it to be the case? That India’s got a really bright growth outlook? And in the current circumstance with tariffs going on, how do you think India is fairing vis-a-vis U.S. tariffs?

 

Chetan Ahya:  So yes, Seth, we are still optimistic about India’s growth outlook. Having said that, you know, there are two issues that the economy has been going through. Number one is that the domestic demand had slowed down because of previous tightening of fiscal and monetary policies. And at the same time, we have now seen this trade tensions, which will slow global trade. But also, directly India will be affected by the fact that the U.S. has imposed 50 percent tariff on close to 60 percent of India’s exports to the U.S.

 

So, both these issues are affecting the outlook in the near term. We still don’t have clarity on what happens on trade tensions, but what we have seen is that the government has really worked quite hard to get the economy going from domestic demand perspective.

 

And so, they have taken up three sets of policy actions. They have reduced household income tax. The central bank has cut interest rates because inflation has been in control. And at the same time, they have now just recently announced reduction in Goods and Services Tax, which is akin to like consumption tax.

 

And so, these three policy actions together we think will drive domestic demand growth from the fourth quarter of this year itself. It will still be not back up to strong growth levels. And for that we still need that solution to trade policy uncertainty. But I think there will be a significant recovery coming up in the next few months.

 

Seth Carpenter: All right. Thanks for that, Chetan. It’s such an interesting story going on there in India.

 

Well, Michael, Chetan,   thank the three of you for joining me today in this conversation. And to the listeners, thank you for listening. If you enjoy this show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or a colleague today.

 

With the 2025 ESMO Congress kicking off on October 17, buzz around potentially practice-changing and practice-informing abstracts, late-breaking abstracts, and sessions is generating excitement among breast oncologists across social media platforms.

Ahead of the highly anticipated congress, OncLive® launched 2 informal polls on X and LinkedIn to identify the most exciting breast cancer–related abstracts.

What Were the X and LinkedIn Poll Results of the Top Breast Cancer Abstracts and Topics?

The first poll initiated on X and LinkedIn highlighted 4 breast cancer abstracts, including 291O: DESTINY-Breast11, LBA20: ASCENT-03, LBA13: monarchE, and LBA17: VIKTORIA-1, which garnered a total of 23 votes on X and 49 votes on LinkedIn. Of note, the most anticipated abstract of the 4 trials is the phase 3 DESTINY-Breast11 trial (NCT05113251), accumulating votes from 65.2% of respondents on X and 61% on LinkedIn. Of note, the trial evaluates the efficacy and safety of neoadjuvant fam-trastuzumab deruxtecan-nxki (Enhertu; T-DXd) for the treatment of patients with high-risk, HER2-positive early nonmetastatic breast cancer.¹ Furthermore, the phase 3 monarchE trial (NCT03155997) landed second place in the X poll, receiving votes from 21.7% of respondents. The study is investigating the efficacy and safety of abemaciclib (Verzenio) for the treatment of patients with high-risk, node-positive, early-stage, hormone receptor (HR)–positive, HER2-negative breast cancer.²

On LinkedIn, however, the phase 3 ASCENT-03 trial (NCT05382299) earned second place (24%) in the poll. The study is assessing sacituzumab govitecan-hziy (Trodelvy) for the treatment of patients with previously untreated, locally advanced, inoperable or metastatic triple-negative breast cancer (TNBC).³ The remaining votes went to ASCENT-03 on X (8.7%), monarchE on LinkedIn (6%), and the phase 3 VIKTORIA-1 trial (NCT05501886; X, 4.3%; LinkedIn, 8%).

In a second poll, we asked breast cancer experts which topics they’re most excited to learn more about at the congress. Topics included antibody-drug conjugates (ADCs), CDK4/6 inhibitor approaches, targeted therapy, and early-stage management. With a slight variation of trends on X and LinkedIn, the topic that is generating the most buzz on both platforms is ADCs (X, 69.2%; LinkedIn, 72%). For X, this was followed by targeted therapy (15.4%), CDK4/6 inhibitors (7.7%), and early-stage management (7.7%). For LinkedIn, this was followed by CDK4/6 inhibitors (12%), targeted therapy (9%), and early-stage management (7%).

Read on for more information about the 4 highly anticipated trials presented at the 2025 ESMO Congress, along with session dates and times.

291O: DESTINY-Breast11: Neoadjuvant trastuzumab deruxtecan alone (T-DXd) or followed by paclitaxel + trastuzumab + pertuzumab (T-DXd-THP) vs SOC for high-risk HER2+ early breast cancer (eBC)

Session time: Saturday, October 18, 16:30-16:42

The DESTINY-Breast11 trial evaluated neoadjuvant trastuzumab deruxtecan followed by the combination of paclitaxel, trastuzumab (Herceptin), and pertuzumab (Perjeta; THP) for the treatment of patients with high-risk, locally advanced HER2-positive early-stage breast cancer. Patients were randomly assigned to receive either trastuzumab deruxtecan alone, trastuzumab deruxtecan followed by THP, or doxorubicin and cyclophosphamide followed by THP.¹

High-level results from the study, published in May, revealed that neoadjuvant trastuzumab deruxtecan plus THP demonstrated a statistically significant and clinically meaningful improvement in the primary end point of pathologic complete response rate compared with standard of care (SOC), which consisted of dose-dense doxorubicin and cyclophosphamide followed by THP. The secondary end point of event-free survival was not mature at the time of the analysis, although an early positive trend favored trastuzumab deruxtecan plus THP vs SOC.⁴

LBA20: ASCENT-03: A randomized phase 3 study of sacituzumab govitecan (SG) vs chemotherapy (chemo) in patients (pts) with previously untreated advanced triple-negative breast cancer (TNBC) who are unable to receive PD-(L)1 inhibitors (PD-[L]1i)

Session time: Sunday, October 19, 9:15-9:25

The open-label ASCENT-03 trial investigates and compares the progression-free survival (PFS) between sacituzumab govitecan compared with physician’s choice of treatment in previously untreated patients with locally advanced, inoperable or metastatic TNBC.³ Notably, patients on the study are randomly assigned to receive either sacituzumab govitecan alone at 10 mg/kg on days 1 and 8 of a 21-day cycle, or physician’s choice of treatment, which consists of either paclitaxel at 90 mg/m² on days 1, 8, and 15 of a 28-day cycle; nab-paclitaxel (Abraxane) at 100 mg/m² on days 1, 8, and 15 of a 28-day cycle; or gemcitabine at 1000 mg/m² plus carboplatin at area under the curve 2 on days 1 and 8 of a 21-day cycle. An update in May from Gilead, the developer of sacituzumab govitecan, demonstrated that the study met its primary end point of PFS.⁵

LBA13: monarchE: primary overall survival (OS) results of adjuvant abemaciclib + endocrine therapy (ET) for HR+, HER2-, high-risk early breast cancer (EBC).

Session time: Friday, October 17, 14:50-15:00

The phase 3 global monarchE trial is assessing adjuvant abemaciclib plus endocrine therapy for HR-positive, HER2-negative, high-risk early breast cancer. Patients on the trial (n = 5637) were randomly assigned to receive either abemaciclib at 150 mg plus endocrine therapy or endocrine therapy alone.^2,6

Of note, data from a preplanned interim analysis of overall survival (OS) revealed that approximately 80% of patients who were followed for at least 4 years showed a benefit with adjuvant abemaciclib in terms of reducing the risk of developing invasive disease-free survival events (HR, 0.680; 95% CI, 0.599-0.772; nominal P < .001). Of note, the OS data in the intention-to-treat population were immature.

LBA17: Gedatolisib (geda) + fulvestrant ± palbociclib (palbo) vs fulvestrant in patients (pts) with HR+/HER2-/PIK3CA wild-type (WT) advanced breast cancer (ABC): first results from VIKTORIA-1

The phase 3, open-label, global, VIKTORIA-1 study evaluated gedatolisib plus fulvestrant (Faslodex) with or without palbociclib (Ibrance) for the treatment of patients with HR-positive/HER2-negative advanced breast cancer with PIK3CA wild-type. Patients on the study were randomly assigned 1:1:1 to 3 treatment arms.⁷ In arm A, patients received gedatolisib at 180 mg once weekly on days 1, 8, and 15 for 3-weeks-on/1-week-off, plus palbociclib at 125 mg daily for 21-days-on/7-days-off, with fulvestrant at 500 mg on days 1 and 15 of cycle 1 and then every 4 weeks. In arm B, patients were treated with gedatolisib at 180 mg once weekly on days 1, 8, and 15 for 3-weeks-on/1-week-off, plus fulvestrant at 500 mg on days 1 and 15 of cycle 1, then every 4 weeks. Patients in arm C received fulvestrant at 500 mg on days 1 and 15 of cycle 1, then every 4 weeks. Of note, the median PFS in arm A was 9.3 months (95% CI, 7.2-16.6) vs 2.0 months (95% CI, 1.8-2.3) in arm C (HR, 0.24; 95% CI, 0.17-0.35; P < .0001), and the median PFS in arm B was 7.4 months (95% CI, 5.5-9.9) vs 2.0 months in arm C (HR, 0.33; 95% CI, 0.24-0.48; P < .0001).

Want to learn more about why these abstracts are generating buzz? Check out this preview article featuring exclusive expert insights and visit our conference coverage page for real-time updates on these presentations and more throughout the meeting.

References

1. Trastuzumab deruxtecan (T-DXd) alone or in sequence with THP, versus standard treatment (ddAC-THP), in HER2-positive early breast cancer. ClinicalTrials.gov. Updated August 3, 2025. Accessed October 2, 2025. https://clinicaltrials.gov/study/NCT05113251
2. Endocrine therapy with or without abemaciclib (LY2835219) following surgery in participants with breast cancer (monarchE). ClinicalTrials.gov. Updated April 20, 2025. Accessed October 2, 2025. https://clinicaltrials.gov/study/NCT03155997
3. Study of sacituzumab govitecan-hziy versus treatment of physician’s choice in patients with previously untreated locally advanced inoperable or metastatic triple-negative breast cancer (ASCENT-03). ClinicalTrials.gov. Updated September 5, 2025. Accessed October 2, 2025. https://clinicaltrials.gov/study/NCT05382299
4. Enhertu followed by THP before surgery showed statistically significant and clinically meaningful improvement in pathologic complete response in patients with high-risk HER2-positive early-stage breast cancer in DESTINY-Breast11 phase III trial. News release. AstraZeneca. May 7, 2025. Accessed October 2, 2025. https://www.astrazeneca.com/media-centre/press-releases/2025/enhertu-improved-pcr-in-early-stage-breast-cancer.html
5. ASCENT-03: Trodelvy demonstrates highly statistically significant & clinically meaningful improvement in progression free survival in patients with first-line metastatic triple-negative breast cancer who are not candidates for checkpoint inhibitors. News release. Gilead. May 23, 2025. Accessed October 2, 2025. https://www.gilead.com/news/news-details/2025/ascent-03-trodelvy-demonstrates-highly-statistically-significant–clinically-meaningful-improvement-in-progression-free-survival-in-patients-with-first-line-metastatic-triple-negative-breast
6. Adjuvant abemaciclib plus endocrine therapy for hormone receptor–positive, human epidermal growth factor receptor–negative, high-risk early breast cancer: results from a preplanned monarchE overall survival interim analysis, including 5-year efficacy outcomes. J Clin Oncol. 2024;42(9):987-993. doi:10.1200/JCO.23.01994
7. Sullivan B, Gorbatchevsky I, Layman R, Mayer E. VIKTORIA-1 pivotal phase 3 topline results from PIK3CA wild-type cohort. Celcuity. July 28, 2025. Accessed October 2, 2025. https://ir.celcuity.com/wp-content/uploads/2025/07/Celcuity-Phase-3-VIKTORIA-1-Topline-Results.pdf