Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business App. This from Axios in
Speaker 2: the last twenty four hours on Treasury Secretary Scott Beston,
Speaker 2: here's the quote. The Secretary isn't happy. He let the
Speaker 2: President know.
Speaker 1: This is something that people keep talking about. His concern
Speaker 1: was that it was going to royal markets, it would
Speaker 1: be counterproductive, and they would actually make it more difficult
Speaker 1: for them to nominate someone who would be more Trump
Speaker 1: friendly to the Federal Reserve, which seems to be exactly
Speaker 1: what is happening.
Speaker 2: Joining us nas Patrick mccanry, the former chat the House
Speaker 2: Financial Service Committee. Patrick, Welcome to the program. This pursuit
Speaker 2: of the feder Reserve, does it introduce some financial stability risk.
Speaker 3: Clearly, and this is the reason why you're reporting. We
Speaker 3: just heard about Secretary Best and telling the present directly
Speaker 3: is displeasure. Look, the substance of the question here is
Speaker 3: whether or not the Chair of the Federal Reserve lined
Speaker 3: before Congress. And what I would tell you is, having
Speaker 3: experienced multiple dozens of testimonies by various FED chairs, the
Speaker 3: FED chair coming to Congress is the most brief person
Speaker 3: that appears before Congress period. The briefing book is really
Speaker 3: the question here, not the FED chair. Was the briefing
Speaker 3: book appropriately written to answer members of Congress questions about
Speaker 3: the building project? I believe it was, And the amount
Speaker 3: of discipline the FED puts into ensuring they have an
Speaker 3: accurate briefing book for the FED, for any FED chair,
Speaker 3: and I think that's the missing nuance of this story.
Speaker 4: But there is no nuance here.
Speaker 3: The President's flooding the zone on economic issues to open
Speaker 3: the year. We're going to see a whole lot more
Speaker 3: of this in the coming weeks. But he's coming out
Speaker 3: guns of blazing with both progressive, populist and conservative and
Speaker 3: market shaking ideas all in one week.
Speaker 5: Buttrick you spent a ton of time with the FED Chair. Actually,
Speaker 5: he has a ton of political capital on the Capitol.
Speaker 5: He spent a lot of time with Republicans and Democrats.
Speaker 5: Do you think that that's what we're seeing played out
Speaker 5: right now? All those meetings he has taken all the
Speaker 5: political capital he put into going into meeting senators and
Speaker 5: meeting House members. When you hear senator like Kennedy saying
Speaker 5: we need this like we need a hole in the head,
Speaker 5: it sounds like they are upset with what the DOJ
Speaker 5: is doing.
Speaker 4: Yes, and that is exactly what you're seeing.
Speaker 3: Is this is why we got to listen and watch
Speaker 3: Bloomberg because this is the type of nuance you need
Speaker 3: to understand. The FED Chair puts an enormous amount of
Speaker 3: time each week into ensuring his relationships around Washington.
Speaker 6: D C.
Speaker 3: I'm the beneficiary of that with the last four FED
Speaker 3: Chairs in my service in Congress, and it means that
Speaker 3: if there's a jump ball, you give them the benefit
Speaker 3: of the doubt because you have a relationship with them
Speaker 3: and you know them.
Speaker 4: That's the goal.
Speaker 3: It doesn't always work, the outreach doesn't always work. Doesn't
Speaker 3: mean you have a good relationship, but at the very least.
Speaker 3: The FED chair and all FED chairs have put a
Speaker 3: lot of effort into ensuring they have relationships on the
Speaker 3: hill that they have they have a political capital in
Speaker 3: the tank so that when times get sideways or bad,
Speaker 3: they will they will defend you or be helpful to you.
Speaker 3: And this is a moment where you see that Japal
Speaker 3: has put an enormous amount of equity that he's built
Speaker 3: up on the hill in both the House and Senate side.
Speaker 4: Both with Republicans and Democrats.
Speaker 5: Some market participants say that because of what is going on,
Speaker 5: he's going to stay on the Federal reserve in his
Speaker 5: governor's seat till twenty twenty eight. If he were to
Speaker 5: do that, do you think Republicans will actually view that
Speaker 5: move as him being basically not withholding up to the
Speaker 5: independence of the FED. Because it's very non traditional for
Speaker 5: a FED chair to do so well.
Speaker 3: It's a term of office number one and number two
Speaker 3: a tradition that former chairs roll off the FED board.
Speaker 3: It's a good practice for former FED chairs to roll
Speaker 3: off the board. It allows their successor of the time
Speaker 3: and runway to get up to speed. But in this case,
Speaker 3: these are I would say this phase threats to counterbalance
Speaker 3: the president in the Department of Justices threats here, and
Speaker 3: that shows that JPAL is not powerless in the situation.
Speaker 3: The FAILL Reserve is not powerless in this situation. That's
Speaker 3: one element of it. The other element of it is
Speaker 3: that is clearly saying to the White House, think of
Speaker 3: your nominees. Think of your nominees that have to go
Speaker 3: before Capitol Hill in this context. And I think this
Speaker 3: means that the President's first nominee to be share of
Speaker 3: the Fileral Reserve is going to have one heck of
Speaker 3: a time dealing with members of Congress given this context
Speaker 3: of duj intervention.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: So here's the latest. This morning. US productivity accelerating at
Speaker 2: its fastest paced than two years, fueling hopes for further
Speaker 2: AI driven gains. Norrian Rabini is the chairman of Rabini
Speaker 2: Macro associate to me, writes the following, The US remains
Speaker 2: at the center of a technology driven positive supply shock,
Speaker 2: the racist growth and lowest inflation over time. Norrian joint
Speaker 2: is now for more neurial Good morning, good to see you,
Speaker 2: good seeing you. Fantastic to catch up with you, sir,
Speaker 2: you polish not just for a year ahead, but three
Speaker 2: to twenty thirty. Can you flash that out for us
Speaker 2: a little bit more?
Speaker 7: Yes, I mean everybody's talking about AI, J and AI,
Speaker 7: but this is only one of the fifteen technology of
Speaker 7: the future.
Speaker 6: They're allreated to AI.
Speaker 7: But is AI semiconductor by medical research, quantum fusion, defence tech, fintech,
Speaker 7: new material science, you name it. And it's a race
Speaker 7: between US and China. I don't think it's a zero
Speaker 7: sum game. US is going to do well, China's going
Speaker 7: to do well. But my estimate is that the US
Speaker 7: potential growth is estimated today to be only one point
Speaker 7: eighty percent, could be as i's four percent by the
Speaker 7: end of the decade. And I've done a bit of
Speaker 7: a bottom LP analysis. And by the way, the data
Speaker 7: productivity after the gfc I was a productivity between two
Speaker 7: thousand and nine and nineteen was only one percent. Since
Speaker 7: twenty nineteen, in spite of the deep during COVID, that's
Speaker 7: doubled to almost two percent one point nine in twenty
Speaker 7: twenty four was two point four percent, and the number
Speaker 7: from Q three suggests was almost five percent. And by
Speaker 7: the way, the Atlanta Fed no cast for Q four
Speaker 7: GDPs today is five point one percent, probably too high,
Speaker 7: but given that one, given the job number, you'll have
Speaker 7: another high PRODUCTIVY growth.
Speaker 6: Now I don't think the product.
Speaker 7: Growth is four percent or five percent, but there's definitely
Speaker 7: an acceleration.
Speaker 2: Jobs is key. Is a jobless growth so called jobless growth?
Speaker 6: Yeah, well, it's a jobless growth. There are three stories.
Speaker 7: One is that the GDP number are wrong and the
Speaker 7: GDP number are going to be revised.
Speaker 6: Towards the weaker labor numbers.
Speaker 7: The other one is that now the gp growth is
Speaker 7: strong and you're going to have some adjustment upward of
Speaker 7: the revised data. I think the third explanation is the
Speaker 7: more correct one. You can have strong GDP growth and
Speaker 7: having weak labor growth because we're having a productivity revolution.
Speaker 7: If you're looking, for example, at the revenue real revenue
Speaker 7: per worker of SMP five hundred firms since the launch
Speaker 7: of CHAD GPT in November twenty twenty two, the average
Speaker 7: has increased for SMP five hundred firms by fifteen percent
Speaker 7: in the last three years, so it's almost five percent
Speaker 7: per year.
Speaker 6: And if you look at the bisector, of.
Speaker 7: Course, a lot of it is closer to twenty percent
Speaker 7: in tech and communications services, but it's very large also
Speaker 7: across the board. So both at the micro data level
Speaker 7: SMPFA and the firms and the macro one number, we're
Speaker 7: seeing a productive revolutionary in the numbers.
Speaker 1: I'm kind of dealing with whiplash right now because we
Speaker 1: just had the Roy Metel CEO on defense sector in
Speaker 1: Europe booming for all the wrong reasons, this idea that
Speaker 1: he's more worried about the state of the world than
Speaker 1: ever before. And here doctor doom is coming on to
Speaker 1: tell us about how productivity boom is going to bring
Speaker 1: everything to a better place. Why are you less concerned
Speaker 1: about this overlay of rearmament and militarization that is also
Speaker 1: coming in tandem with its productivity boom.
Speaker 7: Well, there are geopolitical risk in the world, and I'm
Speaker 7: aware of them. The question is whether I have a
Speaker 7: significant economic and market effect. Look at the biggest one,
Speaker 7: the two well day were between Easily and Iran last June.
Speaker 7: All prices went up a little bit, stock markets wobbled,
Speaker 7: and then given the Dran did not attack the old
Speaker 7: facility of the Gulfies or blocked the street of hormos.
Speaker 7: It went away, and that was a big, big deal Venezuela.
Speaker 7: You know, we can discuss that length, but the macro
Speaker 7: and market implication are close to zero. It's just less
Speaker 7: than a million barrels a day. Russia Ukraine is a mess,
Speaker 7: but it's not going to have an impact on global market.
Speaker 6: Economy the way it did in twenty twenty two.
Speaker 7: So and US China, they are of course in a
Speaker 7: competitive strategic competition, but right now the trade tension for
Speaker 7: all the reasons we know, are some limited. So every
Speaker 7: time there is a geopoliga risk, people say stuff could happen,
Speaker 7: But so far those that we've seen in the last
Speaker 7: few decades, living aside the seventies with the shocks of
Speaker 7: Young Kippur and the a Islamic Revolution have not a
Speaker 7: market effect.
Speaker 8: Do you think, though, that the United States is going
Speaker 8: to lose some of its luster as an investment haven
Speaker 8: in terms of the ongoing conflict between the US and
Speaker 8: traditional allies like Europe.
Speaker 1: Have you seen anything like that or do you think
Speaker 1: that's overstaid in productivity really is.
Speaker 6: Going to rule the rust.
Speaker 7: You know, I've been saying since last year that tech
Speaker 7: trump stariffs because I think that the upside coming from
Speaker 7: tech is two hundred business points. Well, if you add
Speaker 7: all the impacts of the bad circulationary policies of Trump trade,
Speaker 7: the restrictions of migration, physical definity, trying to affect the
Speaker 7: independence of the FED, the rule of law, the maximum
Speaker 7: From an empedia point of view, it could be a
Speaker 7: negative fifty business points downside to potential growth. So you
Speaker 7: have an upside of two hundred from technology, you have
Speaker 7: a downside of fifty. Is a ratio four to one,
Speaker 7: So tech Trump starff. So the stuff that is technology
Speaker 7: is first or everything else including geopolitics is second or older.
Speaker 5: Is this why the AI trade the market pretty much
Speaker 5: shrugged off at independence yesterday as a serious concern.
Speaker 7: You know, I believe that you know there is some
Speaker 7: fraudiness of course in the AI sector. But if you
Speaker 7: talk to all these companies, I think that they would
Speaker 7: all argue that we are maybe to worst five years
Speaker 7: away or best three years away from AGI. However you
Speaker 7: want to define it. Now, if we are achieving artificial
Speaker 7: general intelligence, the valuation of the say, not every of
Speaker 7: the mark seven is going to reach AGI, but maybe
Speaker 7: three or four will.
Speaker 6: So the value of a firm that.
Speaker 7: Is going to be having AGI is going to be
Speaker 7: five xs of its current value.
Speaker 6: So that's the RaSE.
Speaker 7: So if you think of it this way, yeah, there
Speaker 7: is some fraudings, there can be a correction. But with
Speaker 7: US growth at two percent for the last few decades,
Speaker 7: the average return on SMP five hundred was twelve percent
Speaker 7: including dividends of Nasdaq was sixteen percent, and was with
Speaker 7: two percent. Suppose growth is not two three, let alone
Speaker 7: three and a half four. American exceptionalism has to become
Speaker 7: even stronger, because if it was American exception it's with
Speaker 7: one point eight percent road. With higher roads, it has
Speaker 7: to be better than that on average. Now there'll be
Speaker 7: winners and losers. But within the publicly traded firms, all
Speaker 7: the carn ecolomy, and among the startups, many of them
Speaker 7: are going to go bust. But if you're looking at
Speaker 7: the medium the horizon with higher growth, you've got to
Speaker 7: have higher returns. And we're seeing based on the data
Speaker 7: on real revenue growth for a segreef Avander firms, then
Speaker 7: most of those productivity grains are gotten by the firms.
Speaker 7: Real wages are growing less than productivity. In liberal costs
Speaker 7: are falling. That's why there is my least, that's why
Speaker 7: people are worrying about affordability. But from a profitability point
Speaker 7: of view, the corporate sector is doing great.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Tifinitely wanting a pincoat joined us no more, Tifinitely welcome
Speaker 2: to the program. We'd love you if you on one.
Speaker 2: The data we just go up. But so the outlook
Speaker 2: for inflation, is there a better story to tell?
Speaker 9: Yeah, well, I mean it sounds like it was a
Speaker 9: very mixed bag, as Mike McKee just described. You know,
Speaker 9: it seems like the softer than expected numbers came really
Speaker 9: from the good side, and even on the good side,
Speaker 9: it was it was very much a mixed picture. So
Speaker 9: you have TERRIORF related passed through that's happening at a
Speaker 9: very uneven paced depending on industries. So you had electronic products,
Speaker 9: you know, that appeared prices were down quite a bit,
Speaker 9: but other things like apparel were up. So it's a
Speaker 9: pretty it looks like a pretty confusing number, quite frankly,
Speaker 9: you know. And on top of that, you did have
Speaker 9: government related distortions because of the shutdown, you know, so
Speaker 9: I think the FED will have to parse through this.
Speaker 9: You know, the way that we read the you know,
Speaker 9: the Tea leaves more recently is that after seventy five
Speaker 9: basis points of cuts that they've implemented in the second
Speaker 9: half of twenty twenty five, they're much closer to neutral.
Speaker 9: They're on the higher end of their own range estimated
Speaker 9: range for neutral, and as a result of that, with
Speaker 9: the labor market stable, they they're pretty comfortable pausing here
Speaker 9: to just get more information and see what happens.
Speaker 1: It was quite a confusing number is an evergreen statement
Speaker 1: for the past twelve months and probably the next twelve
Speaker 1: lots of data that we're about to get. Tiffany, I
Speaker 1: just wonder when do you think that we will get
Speaker 1: a number that is not confusing, that gives us a
Speaker 1: little bit more information, given the fact that this is
Speaker 1: a muddied economy with slow hires, slow fire, the idea
Speaker 1: that maybe you're getting disinflation, you're not getting a job's recovery,
Speaker 1: but at the same time you're getting growth.
Speaker 9: Yeah, yeah, I mean so, I do think that you know,
Speaker 9: we we've heard from from various you know, companies and
Speaker 9: other industry sources that the holiday shopping season was was
Speaker 9: going to be a key season where they were trying
Speaker 9: to hold prices, you know, maybe even you know, elevate
Speaker 9: discounts in order to gain market share, and then more
Speaker 9: potential tariff passed through would be likely in the first
Speaker 9: part of next year. You know, we also had an
Speaker 9: inventory story. You had a bunch of stocking ahead of tariffs.
Speaker 9: You know, companies were holding higher inventories, you know, and
Speaker 9: some of that was probably getting them through the holiday season.
Speaker 9: So I think it's really going to be a little
Speaker 9: bit of a test, you know, early next year, you know,
Speaker 9: to see how companies react to this new regime.
Speaker 8: You know.
Speaker 9: The other part of this, of course, is that we
Speaker 9: have a Supreme Court decision coming out that will have
Speaker 9: implications for tariffs. The administration has talked about rebuilding the
Speaker 9: current regime even if the Supreme Court strikes down you know,
Speaker 9: the tariffs on legal issues, so that adds are wrinkled
Speaker 9: to this, you know. And then the final thing that
Speaker 9: you know, we'll have material implications is that we do
Speaker 9: have offsetting fiscal stimulus that's coming. This will be one
Speaker 9: of the biggest refund tax seasons in recent memories. So
Speaker 9: the economy overall doing strong, they're winners and losers under
Speaker 9: the surface, you know. And on top of that, we
Speaker 9: are getting some fiscal stimulus, so we'll have to see
Speaker 9: how inflation evolves amid all those factors. We think early
Speaker 9: next year, which sector of the really year, excuse me,
Speaker 9: which sector.
Speaker 1: Of the economy, Tiffany, do you think is going to
Speaker 1: drive inflation given the fact that people don't think it's
Speaker 1: going to come from housing, and so far it hasn't
Speaker 1: really come from manufacturing.
Speaker 9: Yeah, well so, I mean, I I think that the
Speaker 9: labor market as well, is not really a place that
Speaker 9: you're seeing inflationary pressures. It's really it's really the wealth
Speaker 9: effect right now that appears to be driving you know,
Speaker 9: elevated domestic demand, more resilient consumption than I think anyone
Speaker 9: was expecting. You know, we're tracking consumption growth in the
Speaker 9: second half of the year, you know, two and a
Speaker 9: half percent, and that's in a time when you have
Speaker 9: real label real labor income growth at one So you're
Speaker 9: clearly getting a wealth effect here that's keeping demand elevated,
Speaker 9: you know, So that appears to be the source of
Speaker 9: demand and some potential inflationary pressures, you know, and just
Speaker 9: how that comes out in the data. Again, it's a
Speaker 9: winners and losers economy, and that that should be reflected
Speaker 9: in the CPI as well. The housing side has been
Speaker 9: a relative loser here. It does look like to us
Speaker 9: that rents will moderate, you know, quite dramatically. We think
Speaker 9: they could be below a pre pandemic trend. But on
Speaker 9: the other side of that, you're you are still getting
Speaker 9: some of this TERRAF related pass through that's keeping core
Speaker 9: good is elevated. You know, that should peak in the
Speaker 9: first part of this year and moderate there after. But
Speaker 9: but in the meantime we are we are still getting it.
Speaker 5: Given this latest data, do you think it opens the
Speaker 5: door for the Fed maybe not to cut, but to
Speaker 5: be dubvish.
Speaker 9: I mean, I think that the Fed will, you know,
Speaker 9: I think I think they certainly will, you know, they will,
Speaker 9: uh they they will say that inflation, you know it
Speaker 9: does has looked better than expected, and I think I
Speaker 9: think that's absolutely right, you know. So with that, you know,
Speaker 9: I think there's certainly reason for them to have an
Speaker 9: outlook of continued interest rate cuts towards their estimates of neutral.
Speaker 9: So I think the conversation you know, from Federal Reserve
Speaker 9: officials is throughout this year is really going to shift
Speaker 9: from you know, where do we think neutral interest rate
Speaker 9: policy really is at this point? You know, I think
Speaker 9: post you know, after the teriff related price adjustments happened.
Speaker 9: You know, underlying inflation you know, does look pretty good here.
Speaker 9: And so when you have inflation that's getting close to
Speaker 9: target and a labor market that's stable, you know, you
Speaker 9: really need to think about where is neutral policy. So
Speaker 9: that's the conversation we think they'll be having in twenty
Speaker 9: twenty six.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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