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Speaker 2: Joining us now with PIMCO Pacific Investment Management Company. Let
Speaker 2: me Cantrell expert on Washington, the dynamics of public policy. Oh,
Speaker 2: she's having she's seven. No, she's having a glue street
Speaker 2: breaks of breakfast like these, having a full English. Hi,
Speaker 2: the woman I love to hate missus Key sees you
Speaker 2: and goes how much Van Cleef can you wear? Let
Speaker 2: me joins us this morning. Okay, I'm a Lisa Cook.
Speaker 2: I've been a and I did not see doctor Cook.
Speaker 2: I did not see her at checkson hole. She sort
Speaker 2: of slipped in and slipped down and I had to
Speaker 2: get back to feed the walk the dogs. But Libby,
Speaker 2: let's cut to the Chase Michigan State Bulletproof applied economics.
Speaker 2: She's studied under Berry icing Green at Berkeley. This is
Speaker 2: a front rate national economist in international economics. Why let's
Speaker 2: just start with the why. Why is this happening in
Speaker 2: your Washington.
Speaker 3: Well, well, good morning, Tom. I mean I think that
Speaker 3: you know, broadly speaking, this president is really upset that
Speaker 3: Jay Powell will not cut rates, obviously, and he is
Speaker 3: trying to influence the Fed Board any way that he can.
Speaker 3: I think he's he is frustrated with the structure of
Speaker 3: the Fed Board, where there are stagger terms. As we
Speaker 3: all know, these fourteen year terms which are some intended
Speaker 3: to outlive any one administration.
Speaker 2: On one president. But let me cut to the chase.
Speaker 2: You're expert on this, and this is what everybody's asking,
Speaker 2: whether they're for or against Ms. Cook. Where's a leg
Speaker 2: slight branch on this, where's the House and particularly where's
Speaker 2: a Phil Graham like Senate?
Speaker 3: Well, so that is I think the big point is
Speaker 3: that this is in many ways self defeating for the
Speaker 3: president because of course, not only does this potentially not
Speaker 3: have the impact on the ill curve that he wants
Speaker 3: to see and mortgage rates and what have you, but
Speaker 3: it also makes the confirmation of any future nominee that
Speaker 3: much more difficult. Remember that in order to get confirmed,
Speaker 3: a nominee needs fifty votes in the Senate. Republicans right
Speaker 3: now have fifty three. However, this is something that you
Speaker 3: all appreciate this nuance, but lots of financial press do not.
Speaker 3: The Senate Banking Committee, which is the first step to
Speaker 3: confirmation any nominee, cannot lose one Republican assuming Democrats vote
Speaker 3: against that person. So that means that that by doing this,
Speaker 3: the President has focused attention on that confirmation process and
Speaker 3: in my view, makes it a lot more difficult for
Speaker 3: him to get anybody who has any whiff of partisanship
Speaker 3: or any whiff of you know, being able to be
Speaker 3: influenced by the President in terms of minetary policy. So again,
Speaker 3: sort of self defeating me from the market's perspective in
Speaker 3: the short term, from a rate protecting the short ure.
Speaker 4: Yeah, it's really it's really funny. We only get Libby
Speaker 4: when summer recess is going on in the Senate and
Speaker 4: the Congress are out, and she actually can make her
Speaker 4: way up to New York. But Liby, I got to
Speaker 4: ask you this, you know, forget about you know, fit
Speaker 4: credibility for a minute. Let's talk about Intel. The US
Speaker 4: government's making eight point nine billion dollar investment in Intel's
Speaker 4: That's just the first of other investments that this government
Speaker 4: is going to be making in the private sector.
Speaker 3: Yeah, again, And to bring Congress into this. In order
Speaker 3: for the president the executive branch to make an equity
Speaker 3: investment in a company, you need congressional authorization. And the
Speaker 3: President is using the Chips Act funding, the majority of
Speaker 3: Chips Act funding for this investment in that bill. Sorry
Speaker 3: to get all you know propeller head on you, but
Speaker 3: in that bill there is no actual authorization for an
Speaker 3: equity investment. So I think there's a question about the
Speaker 3: legality of this particular veston. However, going forward, you would
Speaker 3: absolutely need Congress to authorize. And so no, I do
Speaker 3: not think it's a coming first.
Speaker 2: Day and Friday. We want you to come in Thursday
Speaker 2: and Friday as well. I got to get back to
Speaker 2: doctor Cook. You know, frankly, everybody knows wonderfully closely into
Speaker 2: King Green. This is one of his great students at Berkeley.
Speaker 2: She's being run over the coals. Where is the senator
Speaker 2: from Idaho? I'd been in his office. Creto has potatoes
Speaker 2: lined up in his office. Where is Tim Scott of
Speaker 2: the Carolinas? Where are these senators just to have due
Speaker 2: process for against Trump? Due process? Where is it?
Speaker 3: Libby and I would also add to that list where
Speaker 3: a Senator rounds, where is Senator Tillis, Where is Senator McCormick.
Speaker 3: I mean, these folks who you've just highlighted are all
Speaker 3: on the Senate Banking Committee. Senator Tim Scott of course
Speaker 3: being the chair of the Senate Banking Committee. And again
Speaker 3: this may sort of seem like, you know, kind of
Speaker 3: walky talk, but this is very important because this will
Speaker 3: be the first step for any nominee for the FED.
Speaker 3: And again, by focusing the attention, the public's attention on
Speaker 3: the credibility of the FED, on the independence of the Fed,
Speaker 3: he just raised the stakes and raised the bar in
Speaker 3: terms of I think again getting his own nominee confirmed.
Speaker 3: And I would say Stephen Myron as well, who he
Speaker 3: wants to get in place by the September meeting. This
Speaker 3: makes it a lot more difficult. That was always going
Speaker 3: to be very difficult anyway, but this makes it even
Speaker 3: harder to Okay, I got.
Speaker 2: To go to the Supreme Court. Damian wants to jump
Speaker 2: in here, folks, Lebby Cantrell. Where this with PIMPC you're
Speaker 2: with real expertise on Washington. If it goes and I'm
Speaker 2: speaking as a hack to the Supreme Court, do you
Speaker 2: see evidence that the Trump appointed justices will look at
Speaker 2: due process and tell their guy, no, you can't do
Speaker 2: that him.
Speaker 3: Well, they've already made a special case for the FED, right,
Speaker 3: They've already in their footnotes in their recent judgment around
Speaker 3: firing other chairmen of independent agencies, they've already basically carved
Speaker 3: out and said that the FED is a special case
Speaker 3: and that that the threshold for firing the chairman or
Speaker 3: a governor for the FED is going to be different
Speaker 3: from firing somebody at the FTC, for example, which is
Speaker 3: also another which is another independent agency. So you know
Speaker 3: who knows. I'm not. You know, I'm not. I'm not
Speaker 3: a lawyer, although sometimes I do like to play one
Speaker 3: on TV or radio, But I am not. But think
Speaker 3: think your point is a good one that in that
Speaker 3: this will this could very well be adjudicated by the
Speaker 3: Supreme Court. And the last thing the time I'll say
Speaker 3: this is I think this is by design. I think
Speaker 3: the President is fine challenging all of these norms because
Speaker 3: some of it will stick, and some of it has stick,
Speaker 3: and thereby he expands executive power in the process.
Speaker 2: Good morning, ninety nine in Washington. Libby Cantrell with this
Speaker 2: is PIMCO on this is really important legal matter of
Speaker 2: due process with Lisa Cook, the governor of the FED.
Speaker 2: There are presidents pointed by the regional section. There are governors.
Speaker 2: There are a set of vice chairman, and there is
Speaker 2: a chairman chairman. Poull may come back to be a governor.
Speaker 2: Just walk away. We'll see in the spring of next year.
Speaker 2: Damien Sasaur with Libby Kentrell.
Speaker 4: Well, I mean, I guess for me, is this a
Speaker 4: kill shot at the Fed? Bibby? I mean, you know
Speaker 4: he's been attacking the Fed. He's been attacking Powell. He's
Speaker 4: been attacking, attacking, attacking for so long now that the
Speaker 4: market just seems desensitized to it. I mean, do you
Speaker 4: believe and I guess you know you don't look at
Speaker 4: markets maybe as closely as others. Is any of this
Speaker 4: price then? I mean, could this result in greater dominick?
Speaker 4: Stop it?
Speaker 2: I just want to I want to.
Speaker 3: I want to, sir, Yes, I have expected doing d
Speaker 3: thanks job.
Speaker 5: No.
Speaker 3: So, I mean, you know we have been talking about
Speaker 3: a steeper yield curve really since the since the election, uh,
Speaker 3: partly because of deficits, partly because of concervative the independence
Speaker 3: of the Fed, and obviously that has been a way
Speaker 3: for us to make money for for our clients. I
Speaker 3: do think that the fact that we the equity market
Speaker 3: didn't really move all that much last night. The FX
Speaker 3: market kind of moved a little bit, but the you know,
Speaker 3: the bomb market's moved, you know, moving a little bit,
Speaker 3: obviously in a super yeal curve. But I do think
Speaker 3: there is your to your question, There is sort of
Speaker 3: this desensitization, this imperviousness, if you will, to these moves.
Speaker 3: And I do think people are actually assuming that the
Speaker 3: Senate will do its job. I do think that they
Speaker 3: will assume the summer.
Speaker 4: I mean, it's kind of the you know what I mean.
Speaker 3: You're just thinking, Wow, I can get a break.
Speaker 2: This is important. I want you to just said this
Speaker 2: because I think it's really important. John Farrell did a
Speaker 2: spectacular interview with the Secretary of the Treasury and the
Speaker 2: other person. People are saying, look, can Besson just I mean,
Speaker 2: I don't even know if best In plays golf. I mean,
Speaker 2: you know, it could takes some lessons with Damien he does,
Speaker 2: is beston going to come to the rescue here and
Speaker 2: appeal to the president for some common sense of due process.
Speaker 3: Yeah, I mean, I guess that's that's an open question.
Speaker 3: I mean, what we know about this treasury is that
Speaker 3: they have been, you know, very responsive to participants in
Speaker 3: the treasury market that they had. You know that s
Speaker 3: Secretary Busset in particular has leaned done the President when
Speaker 3: he has seen really the long end kind of get
Speaker 3: you know, you know, potentially get away from market back
Speaker 3: back in April. So, you know, I think that we
Speaker 3: can rely on this treasury to at least hear the input.
Speaker 3: But again, the president here is I mean, you know,
Speaker 3: he he has this sort of be in his bonnet.
Speaker 3: This is something that he wants to see change. Again.
Speaker 3: I just think that this is self defeated in many ways.
Speaker 2: It's part unfair question. But Damian sort of alluded to
Speaker 2: it earlier. Does Pimko feel the long end is drifting away,
Speaker 2: price down, yield up, Japan and the rest.
Speaker 3: Well, I mean, obviously we're seeing that with global gill curves,
Speaker 3: and so yeah, I think there is there's there're just
Speaker 3: a broader question about obviously about deficits about the political
Speaker 3: will around you know, any fiscal consolidation. Of course, we
Speaker 3: haven't seen any physical consolidation. We've seemed just just the opposite.
Speaker 3: And then a concern around you know, obviously inflation, which
Speaker 3: is you know, related to the independence of these central banks.
Speaker 3: So yeah, I think that we have we have been
Speaker 3: kind of calling for and position for seeper yeal curves
Speaker 3: in many developed markets, you know, including in the US.
Speaker 4: Libby when some summer recess ends, you know you're going
Speaker 4: to be getting back to work. You know it's going
Speaker 4: to be that sprint right to avoid the ever left work. Well,
Speaker 4: about myself, I'm internalizing I have to do this. But
Speaker 4: you know, for me, you know what are you going
Speaker 4: to be most focused on? You know, I mean, like
Speaker 4: I mean, we've just seen a lot of tax revenue.
Speaker 4: I mean hasn't been spent yet, but I mean these
Speaker 4: tarwerf the tariff revenue is there. Money is coming in.
Speaker 4: I know there's the big concern about the fiscal But
Speaker 4: you know, what do you expect in that run up
Speaker 4: to the end of September when you know, when people
Speaker 4: were turning.
Speaker 3: Yeah, So Congress comes back right next next week, and
Speaker 3: one big piece of unfinished business is to fund the
Speaker 3: government and avoid a government shutdown. The deadline for that
Speaker 3: is September thirtieth. I think again the market is desensitized
Speaker 3: to these arguments for good reason because it really doesn't
Speaker 3: necessarily affect the economy unless you see a prolonged government shutdown.
Speaker 2: Yeah.
Speaker 3: I do think that the chances of a government shutdown are.
Speaker 4: Not non negligible, not negligible.
Speaker 3: At all, and partly because you Democrats have very little
Speaker 3: power right now, and this is one lever of power
Speaker 3: that they can exert.
Speaker 2: Olby Clinic, Thank you so much. Let me cantrell with
Speaker 2: this is Pimco here, and of course on the back
Speaker 2: and forth between the White House and the Federal Reserve
Speaker 2: system involving the governor. Lisa. Stay with us. More from
Speaker 2: Bloomberg Surveillance coming up after this.
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Speaker 2: Its differently now with Kim Harvey at Duke University. We
Speaker 2: can do all sorts of different topics, but we need
Speaker 2: to get a briefing from Professor Harvey leading into the
Speaker 2: vice chair Lyle brainer will do that scheduling eleven. Man,
Speaker 2: it's doctor Harvey. Thank you so much for joining today.
Speaker 2: You were years ago a visiting scholar the Board of
Speaker 2: Governors of the Federal Reserve System. What is the Board
Speaker 2: of Governors? This is a set of offices in the
Speaker 2: Eccles building.
Speaker 6: It is a setup offices, and when I was there,
Speaker 6: the offices were really old and needed repair. So it's
Speaker 6: kind of ironic that they're actually doing repair today so
Speaker 6: many years later. But it is an important part of
Speaker 6: the FED. A lot of the research is done there,
Speaker 6: and I was visiting scholar many years ago.
Speaker 2: What does a governor do different than a Federal Reserve president,
Speaker 2: a vice chair like doctor Brainerd or the chair chairman Poul.
Speaker 2: How is a governor different? Yeah?
Speaker 6: So the FED is organized so there's a central part
Speaker 6: of the FED, which is the Board of Governors, and
Speaker 6: then there are regional feds and each of the regional
Speaker 6: feds as a presidency. And then there's a rotation on
Speaker 6: the fo MC, which is the most important component. So
Speaker 6: the FOMC is the key committee that makes the decisions
Speaker 6: on the rates.
Speaker 2: Let me bring in my colleague Damien Sasauer before Lyle Brainerd.
Speaker 2: We have Cam Harvey.
Speaker 4: Cam, does the whole cook issue? Does this really change things?
Speaker 4: Does really change someone's outlook on the FED, on their
Speaker 4: ability to act? I mean, you know, what's the real
Speaker 4: world impact on what Trump is, you know, basically proposing
Speaker 4: to do here.
Speaker 6: Yeah, it's pressure, So it's political pressure. And like, in
Speaker 6: a way, what we really value is an independent FED.
Speaker 6: So I've got some recent research that asks the question
Speaker 6: how important is it to be a reserve currency? And
Speaker 6: the US has got this privilege. So the people all
Speaker 6: over the world central banks hold US dollars. They hold
Speaker 6: not just the cash but treasury bonds, and that demand
Speaker 6: for the bonds actually reduces the yield, so it allows
Speaker 6: the US to have lower interest service cost on their debt.
Speaker 6: It allows the US to have leverage. So it is
Speaker 6: a privilege to actually have this. So one of the
Speaker 6: key components of having a reserve currency is to have
Speaker 6: an independent central bank, and that's been challenged right now.
Speaker 4: So I just want to ask you on that, right,
Speaker 4: I mean, because I agree with you, the dollars still
Speaker 4: the world's reserve currency. It's transactual dominance is unquestioned. But
Speaker 4: here's the deal. You know, will you know some of
Speaker 4: these appointments, some of the things that Trump is doing here,
Speaker 4: Will this give him greater access to what's going on
Speaker 4: inside the FED, the ability to really impact at the
Speaker 4: grassroots level, the way people are speaking to one another,
Speaker 4: the way people are sharing data with one another. Is
Speaker 4: that really what we're talking about here.
Speaker 6: So this is a very difficult issue because it could
Speaker 6: be that the FED is making a serious mistake. And
Speaker 6: I for the last couple of years have criticized the
Speaker 6: FED for keeping the FED punts rate too high, and
Speaker 6: then now all of a sudden in DC, they've jumped
Speaker 6: on that bandwagon.
Speaker 4: So it is delicate.
Speaker 6: The balance and the pressure here and there to get
Speaker 6: them to think about this more carefully could be useful.
Speaker 2: Kim Harvey with this Duke University, we continue with Professor Harvey.
Speaker 2: We welcome all of you on an extraordinary Tuesday here
Speaker 2: in August. Damien SASA are in for Pallsphenia. I'm Tim King.
Speaker 2: Good morning across the nation, good morning in the Carolinas,
Speaker 2: and of course on YouTube, subscribe to Bloomberg Podcast. Our
Speaker 2: new digital experience. Really humbled by that excellence. Now, Damien
Speaker 2: sassare with Professor Harvey.
Speaker 4: So, Cam, we know about the lag from monetary policy
Speaker 4: through to the real economy. You know, ray cuts just
Speaker 4: don't you know, have an impact on the everyday person overnight. Right,
Speaker 4: So talk to us about you know what if Trump
Speaker 4: gets out of his wish and he gets one hundred
Speaker 4: and fifty basis point cuts from the Fed before at
Speaker 4: the end of the first quarter of next year. I mean,
Speaker 4: if that were to happen, would that have any real
Speaker 4: world impact immediately?
Speaker 6: Oh, would have a dramatic impact. So you're talking one
Speaker 6: hundred and fifty basis points, Yeah, sure, bring it off,
Speaker 6: very dramatic. So more likely we'll have a few cuts.
Speaker 6: But it's there is a lag, but the lag is
Speaker 6: not as big as you might think. In any kind
Speaker 6: you reduce rates, you reduce the cost of capital. And
Speaker 6: when the cost of capital is decreased, that means there
Speaker 6: should be increased business investment and consumers will do things
Speaker 6: like buy a house that they were kind of waiting
Speaker 6: to do for the rates to come down. So I
Speaker 6: would say that if the rates did come down substantially,
Speaker 6: that that could be a significant boost for economic growth
Speaker 6: and potentially exactly at the right time where we're seeing
Speaker 6: a significant softening in the labor market.
Speaker 2: Kim Hervy, we're talking to the wonderful Stephen England or
Speaker 2: a standard Charter about how everybody's looking at the mix
Speaker 2: of our economics the summer of twenty twenty five, and
Speaker 2: we're worried about substituting and substitution effect and what are
Speaker 2: we going to do with tariffs and all that describe
Speaker 2: for us the risk to our income effect of dampened income,
Speaker 2: dampened investment, damp and real Dare I say damp phenomenal GDP?
Speaker 6: Is that a legitimate risk? Oh, it's definitely legitimate. So
Speaker 6: there's a lot of confusion over this teariff stuff. And
Speaker 6: just to be very clear, tariffs lead to a one
Speaker 6: time jump and price level. They're only inflationary if the
Speaker 6: tear freight continues to go up. And this is widely misunderstood.
Speaker 6: And it's also the case when you'd have tariffs, you
Speaker 6: would have a substitution effect as you mentioned, so you
Speaker 6: substitute alternative goods. But your point on the income effect
Speaker 6: is very important that right now what we need is
Speaker 6: increase growth. So growth has been in the first half
Speaker 6: not very robust. And given this significant weakening in the
Speaker 6: labor sector, we need some policies that are pro grows
Speaker 6: and increasing tariffs is not pro.
Speaker 4: Growth, Kim. You know, I was kidding a little bit
Speaker 4: earlier on when I talked about one hundred and fifty BIPs.
Speaker 4: But let's talk about the markets pricing, and right this minute,
Speaker 4: they're only pricing in an eighty percent probability of a
Speaker 4: step cut. They are only pricing in one hundred and
Speaker 4: twenty five basis points of cuts through the end of
Speaker 4: next year. That's equal to the fomc's dots medium of
Speaker 4: long term projections. It's right on the screws with the
Speaker 4: one year one year usois op rate. Talk to us
Speaker 4: about the propensity for yields to go higher from here
Speaker 4: if what you're saying is true and the tariff impact
Speaker 4: has only been front loaded, and now we're going to
Speaker 4: see the impact on inflation.
Speaker 6: Yeah, So again, let's be careful with the tariffs. A
Speaker 6: tariff could lead to a one time increase in prices,
Speaker 6: but it's only inflationary if it's a continuous policy of
Speaker 6: increasing tariffs. More seriously, tariffs could decrease economic growth. So
Speaker 6: it is not a pro growth policy whatsoever. And that
Speaker 6: decrease economic growth could cause issues in terms of uh,
Speaker 6: you know, yeah, fewer firms going out to the debt market,
Speaker 6: the government having some issues and raising funds, so there
Speaker 6: could be a lot of like knock on issues with
Speaker 6: the slower growth in financial markets.
Speaker 3: Obviously.
Speaker 4: Well, Cam, I think it's timely that we're talking about growth.
Speaker 4: I mean, it's GDP week here in the US, you know,
Speaker 4: and as we look into the second half, you know,
Speaker 4: I'm just looking at you know, some IMF projections. I'm
Speaker 4: looking at some of the bigger banks here, a lot
Speaker 4: of them are projecting that China growth is gonna is
Speaker 4: going to fall and fall quite significantly here. You know,
Speaker 4: what are your thoughts there, What are your thoughts on
Speaker 4: the impact that China is having on the rest of
Speaker 4: the world.
Speaker 6: So, China is obviously a very important engine of kind
Speaker 6: of world economic growth now so uh, and they are
Speaker 6: struggling in some respects, in particular in the property sector.
Speaker 6: As we've seen, they really need to grow, uh, and
Speaker 6: they need to grow more than the US needs to
Speaker 6: grow because they've got a demographic problem that's way more
Speaker 6: serious than the US Kim her So it's very important
Speaker 6: for them to have growth.
Speaker 2: Kim Harvey with US Duke University. Kim, I want to
Speaker 2: make this personal as we go to a former vice
Speaker 2: chair of Brainerd Low Brainerd came out of Wesleyan with
Speaker 2: bulletproof academics, and I would say, Kim, somewhat like you.
Speaker 2: It's not Richard Claired the dynamics stochastic general equilibrium theory.
Speaker 2: It's much more of a holistic policy view. And I
Speaker 2: would suggest we get that from Lisa Cook as well
Speaker 2: out of ken Green and Berkeley. Explain the place of
Speaker 2: policy centric economists at the FED, whether Harvey, Brainerd or Cook. Yeah.
Speaker 6: So one thing that's really important at the FOMC is
Speaker 6: to have diversity of viewpoints. So I'm always encouraged when
Speaker 6: there's some agreement. If it's just unanimous on everything, I'm
Speaker 6: worried about that. So we need to debate. And these
Speaker 6: are difficult times and we need a FED that has
Speaker 6: got a long term vision for the economy, that's willing
Speaker 6: to take some risk and is willing to admit that
Speaker 6: mistakes were made in the past, and most importantly to
Speaker 6: learn from those mistakes.
Speaker 2: This has been well timed Kim Harvey, Thank you so
Speaker 2: much generous for you to be with us on this
Speaker 2: August morning, Dictor Harvey at Duke University, stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: Now another headline across the Bloomberg terminal, this one the
Speaker 2: Washington Post. Who is Fed Governor Lisa Cook? And can
Speaker 2: Trump really fire her? To provide market economic perspective, Stephanie
Speaker 2: Roth joins us now as we've had some wonderful voices
Speaker 2: this morning as well, this uproar. Does the market look
Speaker 2: beyond it or can it actually adjust yield? The price
Speaker 2: of fixed income and all we do.
Speaker 7: If Trump actually succeeds in firing Cook, the result should
Speaker 7: be ten year rates should be rising because this is
Speaker 7: a real risk about the credibility of the FED and
Speaker 7: inflation fighting, the fighting ability of that. So from that perspective,
Speaker 7: it should actually be quite negative for markets. We should
Speaker 7: see ten year yields rise as a result, the dollar
Speaker 7: significantly weaker, in equities down. This is a really market
Speaker 7: negative move to the extent that this actually can happen,
Speaker 7: although are basically.
Speaker 2: It could help even your base cases, it can. I
Speaker 2: think that's what we see, Damien says are in the
Speaker 2: tape this morning.
Speaker 4: Well, Stephanie, earlier this morning we had a Peter chieron
Speaker 4: and he proposed that the Fed should be enacting some
Speaker 4: form of yield curve control. What are your thoughts on that?
Speaker 7: Yeah, I mean, I think that that's certainly a potential
Speaker 7: move because when we're thinking, when we see what the
Speaker 7: path of policy at this point, you're seeing, even though
Speaker 7: there's a pretty aggressive cutting path of the Fed, you
Speaker 7: still see that tenure yields are fairly elevated.
Speaker 4: I think, do you think there's a commitment for the
Speaker 4: FED to expand its balance sheet going forward?
Speaker 6: I don't.
Speaker 3: I don't.
Speaker 7: I don't think so. I think that would be sort
Speaker 7: of a troubling move. I don't think that's necessarily a
Speaker 7: good plan. So I think what we'll see is the
Speaker 7: Fed will do a cut in September and then beyond that,
Speaker 7: I think they're actually going to get a little bit
Speaker 7: troubled because inflation is likely to pick up pretty substantially.
Speaker 2: This is the heart of the matter. I mentioned this
Speaker 2: eight times at Jackson Hole. I'm embarrassed to say I'm
Speaker 2: going to do it again, but it's germane. Do you
Speaker 2: perceive this as a one off twenty five beat move
Speaker 2: or Ali? Greenspan is a vector in place, is a
Speaker 2: process in place to have a set of fed RIG cuts.
Speaker 7: The intention is never going to be to cut one
Speaker 7: time and then get sort of troubled by inflation.
Speaker 3: I think that will be the reality.
Speaker 7: Because certainly they're very much set up for the September cut.
Speaker 7: But what we'll probably see is employment look a bit
Speaker 7: better than what we saw in May and June, and
Speaker 7: then inflation look a little bit higher.
Speaker 4: So what do you think about the end of twenty
Speaker 4: twenty six three percent terminal rate? I mean, how do
Speaker 4: we get there? Do you think we get there?
Speaker 7: I don't think we get there. Interesting, I think we
Speaker 7: end up getting two to three cuts. I don't think
Speaker 7: we get to anything any close. Tennessily, where the markets priced?
Speaker 2: You get some economic data this morning into a busy
Speaker 2: economic week. This has been underplayed in the doldrums of August.
Speaker 2: PCE Price Index on August twenty nine, I believe that's Friday.
Speaker 2: We've got all sorts of second look at GDP on
Speaker 2: August twenty eighth. Not much going on in the twenty seven,
Speaker 2: but right now some economic data here and again durables
Speaker 2: X transportation a better number, cap goods x Boeing a
Speaker 2: better number, and so you know, again it's a tea
Speaker 2: leaf and Joan Hassi has taught me to take this
Speaker 2: three month moving average. But the bottom line is it's
Speaker 2: not all that bad. Philadelphia fed non manufacturing. Thank you
Speaker 2: Patrick Karker for the wonderful discussion in Jackson, OH is
Speaker 2: a pretty grim number, negative seventeen point five. But there's
Speaker 2: a set of economic data that I barely.
Speaker 4: Thought the.
Speaker 2: POK looks Yeah, it is. He did mention the eagles.
Speaker 2: I mean, I'm sure, Stephanie, is our economy slowing.
Speaker 7: We've slowed, but I don't think we're slowing from here.
Speaker 7: So Q two is probably the weakest point of the year,
Speaker 7: and then we'll see growth stabilize in Q three and
Speaker 7: then pick up into Q four. So Q Q two
Speaker 7: what happened in Q two If you think about it,
Speaker 7: especially when it comes to the employment data, it was
Speaker 7: a period of time where we had peak tariff uncertainty
Speaker 7: of thousands of people lost the work authorization. So it
Speaker 7: shouldn't be that surprising that payroll's growth was quite slow then.
Speaker 7: But what we should say is it get a little
Speaker 7: bit better and being at the break even pace of
Speaker 7: payrolls growth is in the sixty to eighty thousand range.
Speaker 7: If we see payrolls run at that type of trend,
Speaker 7: then that's a solid economy.
Speaker 4: So Stephanie, the reason you're I guess above consensus in
Speaker 4: terms of how the FED gets there at towards the
Speaker 4: end of twenty twenty six is it's going to be inflation, right,
Speaker 4: It's going to be higher prices, and that's going to
Speaker 4: stay the Fed's hand. I'm curious given what's going on
Speaker 4: in the market today, given what's going on with cook,
Speaker 4: you know what if the I mean, do you have
Speaker 4: any doubt that the Fed's going to make a decision
Speaker 4: as they have based on the data or based on
Speaker 4: what they think the data is going to be, or
Speaker 4: is there going to be another element that goes into
Speaker 4: your calculus when you're trying to determine where policy rates
Speaker 4: are going to be in a year and a half time.
Speaker 7: Yeah, I mean so, I think the disconnect at least
Speaker 7: between where I see the sort of the trajectory from
Speaker 7: here versus what the FED is looking at is the
Speaker 7: current trend in employment, which is.
Speaker 4: Cannot be influenced by some of these moves that that
Speaker 4: Trump is making in terms of the ability of the FED.
Speaker 4: I mean, do you think that calculus? I mean, aren't
Speaker 4: you know governor's going to be incentivized to cut rates
Speaker 4: just to appease the president? Or is that not going
Speaker 4: to add all factor into your thinking.
Speaker 7: I think the bigger factor here is going to be
Speaker 7: the next FED chair and how that shapes the leadership
Speaker 7: as opposed to as opposed to the pressuring of individual members.
Speaker 7: I think it's more about who's going to be in
Speaker 7: that seat and how do they sort of shape the
Speaker 7: narrative for the restaurant.
Speaker 2: Smartest thing I've heard in twenty four hours, Stephanie Rawthip
Speaker 2: will research. Okay, this goes back to green Span and
Speaker 2: Lawrence Meyer's wonderful book, A term at the FED is
Speaker 2: a risk. Here we get back to a green, spanning
Speaker 2: and dominant chairman.
Speaker 7: Is it's possible that will end up with a chairman that,
Speaker 7: you know, kind of makes the decisions for the rest
Speaker 7: of the board. That said, the people on the list,
Speaker 7: for the most part, are largely credible, somewhat institutional type
Speaker 7: of people, and if we get somebody like Waller, I
Speaker 7: would I would expect that the credibility will be maintained.
Speaker 2: I did my video with Joe and Tracy at the
Speaker 2: horse farm and there was a horse like by the way, No,
Speaker 2: we didn't play guitar. We were by the campfire, but
Speaker 2: you know, we we we we didn't. We were trying
Speaker 2: to use Chris Hillman. We're tried really to sing some
Speaker 2: Desert Rose band but it didn't work out quickly. Here, uh,
Speaker 2: Stephanie Wroth the inflation data on Friday? Is it in
Speaker 2: the survey or could it be market moving?
Speaker 7: I don't expect it to be market moving. We largely
Speaker 7: get most of the information from bp I, c PI
Speaker 7: and then import prices. Our expectation is cor PC comes
Speaker 7: in a point three.
Speaker 2: To one.
Speaker 7: Decimal points I'm sorry, decimal point.
Speaker 2: We get somebody in that just goes to the round
Speaker 2: big figure.
Speaker 7: You know in this environment you kind of can't do
Speaker 7: it because point three one is very different than point two.
Speaker 7: Seven point three one, of course, means that you are
Speaker 7: at risk of closer to something like round a point four.
Speaker 7: Our base cases that it shouldn't be market moving, it'll
Speaker 7: be something that rounds the point three.
Speaker 4: In the case she's talking, that's the smartest thing that
Speaker 4: someone said in twenty four and more than twenty four hours.
Speaker 4: Bruce Kasman would agree with you. We're talking you have
Speaker 4: to go out a few decimal places here to really
Speaker 4: get a sense of what's going on in inflation.
Speaker 2: This conversation happened at the new bar at the Waldorf
Speaker 2: Story by the Clock last night. Stephanie brought the bar
Speaker 2: to a complete silent moment. People were just like decimal
Speaker 2: points at the Waldorf Story of Bar. It's too much.
Speaker 2: We'll see Stephanie Roth. Don't go away. Thank you so much.
Speaker 2: We hope to see you the rest of this week
Speaker 2: as well. Stephanie Roth will research stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance podcast. Listen live each weekday
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Speaker 1: Atto with the Bloomberg Business app. You can also watch
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Speaker 2: Joining US now, Jordan Rochester had a fixed strategy a missuo, Jordan,
Speaker 2: the world's turned upside down. You're out on LinkedIn. The
Speaker 2: value that you're doing is really good. Equities, bonds, currencies, commodities.
Speaker 2: Jordan Rochester, what is your best tool now to assess
Speaker 2: where we're heading?
Speaker 5: Well, Tom, that's a very difficult question which tool.
Speaker 8: I think if you look at the sort of growth
Speaker 8: momentum in the surveys, we're kind of operating blind as
Speaker 8: to whether surveys are good anymore about the hard data.
Speaker 5: That's the tricky thing we have.
Speaker 8: It's especially tricky in the UK, but it's also becoming
Speaker 8: a problem with the US with this recent berless thing.
Speaker 8: But I think if you take into account, the overall
Speaker 8: message from an average of the surveys is that US
Speaker 8: growth had a pretty a soft spot around tariffs, of course,
Speaker 8: but maybe things aren't so bad.
Speaker 5: Tom.
Speaker 8: The equity market tells you that. I think profit margins
Speaker 8: amongst firms tell you that. So a mixture of those
Speaker 8: two factors.
Speaker 4: Jordan. You know my friends Joe up In and Bruce
Speaker 4: Kasman over at JP Morgan. They're looking for, you know,
Speaker 4: a divergence, so to speak, between US inflation and that
Speaker 4: in the Eurozone slash UK. Talk to us about that.
Speaker 4: What are you seeing, you know, grassroots, you know, boots
Speaker 4: on the ground in terms of price pressures. Is there
Speaker 4: anything there?
Speaker 2: Yeah.
Speaker 8: What's really fascinating about this cycle is because the Bank
Speaker 8: of England and the ECB have cut rates by more
Speaker 8: and you've got a bit of a different sort of
Speaker 8: narrative amongst their central bankers for the UK inflation sticky.
Speaker 5: It's frustratingly so.
Speaker 8: A mixture of exogious factors such as food price inflation
Speaker 8: but also tax changes by the chance of herself, have
Speaker 8: led to inflation being on a level towards three and
Speaker 8: four percent that is very uncomfortable for the Bank of England.
Speaker 8: The ECB a little bit different inflations hovering around too.
Speaker 8: They're very happy about that. They're letting everybody know how
Speaker 8: happy they are about that, and a sort of mission
Speaker 8: success message has been given out over the past couple
Speaker 8: of meetings. But their growth outlooks are very different to
Speaker 8: the US. The US still has exceptional growth compared to
Speaker 8: Europe and the UK in terms of their productivity, in
Speaker 8: terms of their entrepreneurism. Yet in the US the debate
Speaker 8: is more concerned about the impact of tariffs and inflation
Speaker 8: raising inflation, raising inflation, so you go definitely a divergence
Speaker 8: in central bank opinions, where in the UK it's sticky
Speaker 8: inflation but they want to cut. In the US it's
Speaker 8: potential inflation and they are concerned about cutting or not.
Speaker 4: Jordan, I've survived thirty five years of covering emerging markets,
Speaker 4: specifically because I've not had the you know what, to
Speaker 4: get parish on the dollar. Curious to hear your thoughts there.
Speaker 4: I mean, is there any length here to this, you know,
Speaker 4: this dollar weakness story.
Speaker 5: It's gotten harder.
Speaker 8: I've got to say, I'm very surprised by the reaction
Speaker 8: in markets to a chair Pals speech at Jackson Hole
Speaker 8: last week. Of course, the initial knee jerk made complete
Speaker 8: sense to me. But what's been surprising since and we
Speaker 8: were out yesterday in London on the bank holiday, is
Speaker 8: the lack of a follow through and in fact the
Speaker 8: dollars come off in terms of it come back against
Speaker 8: the euro at least. And that's a mixture of factors
Speaker 8: such as the French politics heating backup, but it's also
Speaker 8: market saying, look, we've got another CPI, we've got another
Speaker 8: NFP print before the actual FED meeting. Maybe we shouldn't
Speaker 8: go gun ho into this and fully priced in a
Speaker 8: rate cut because the market's not pricing in a full
Speaker 8: rate cut for the September meeting. Instead of twenty five,
Speaker 8: we're around twenty two on the screen right now.
Speaker 5: I thought we'd be closer to twenty five.
Speaker 8: So the big surprise for me is that we've not
Speaker 8: gone a bit more full blast into pricing in that
Speaker 8: rate cut lean to a weeker dollar. But bigger picture,
Speaker 8: I think the equity flow story into European equities we've
Speaker 8: seen banks outperform and defense outperform this year will be
Speaker 8: one of those factors that keeps the sort of long
Speaker 8: euro short dollar view in play. And then for the yen,
Speaker 8: I think the en out performs the dollar because of
Speaker 8: the banks of hats hiking cycle.
Speaker 2: I mean, it's sure, I look at all this and
Speaker 2: I go okay, but where can I make money? Do
Speaker 2: you have a currency pair that's a speculation out six
Speaker 2: months a year now did you find really attractive?
Speaker 8: Well, we're currently short dolly en and scratching our heads.
Speaker 8: Why that's it should be? All rates point to a
Speaker 8: much lower dolly en in terms of rate spread.
Speaker 4: So strong cooperating Jordan?
Speaker 8: Yeah, you know that right, it's not cooperating. The long
Speaker 8: euro trade we haven't got on. It looks a bit tired,
Speaker 8: but I do think it will be on a one
Speaker 8: twenty handle going into next year. And if you want
Speaker 8: to kind of avoid the dollar, you could be looking
Speaker 8: at short euro sterling expressions as well, because whilst the
Speaker 8: Bank of England view is very dubbish from myself compared
Speaker 8: to the market pricing, I think the ECB pricing is
Speaker 8: a bit out of whack and we should be pricing
Speaker 8: in a bit more dubbishness from the ECB next.
Speaker 2: Year, dovenish. Okay, So so what's your about using euro
Speaker 2: yen as a is like the euro yena and stereo.
Speaker 4: Jordan was going to talk about the Antipodeans, Oh, listen
Speaker 4: to you now.
Speaker 8: I think we're going to stick to just short Dolliyen
Speaker 8: is our clear ethics expression, and there's a lot there's
Speaker 8: lots of rage trades to be doing as well.
Speaker 2: Okay, Jordan, Ryandchester, thank you so much.
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