Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Veronica Clark
Speaker 1: of course at the City Group, Veronica, not only do
Speaker 1: you talk about the place of inflation right now, but
Speaker 1: you say, if anything, you'll be surprised to the upside.
Speaker 1: What parts of American inflation push us to the upside? Yeah, yeah,
Speaker 1: when we do our places and forecasts, Yeah, we really
Speaker 1: do a very detailed bottoms up forecast. And we're still
Speaker 1: seeing strengthen things like shelter prices. I think everyone could
Speaker 1: be maybe overestimating how quickly those still might slow. But
Speaker 1: really it comes down to those core non shelter service prices.
Speaker 1: That's what Powell has focused us on. Those can stay
Speaker 1: persistently strong. Things like medical services, recreation can definitely see
Speaker 1: a lot of upside there. Still, let's focus on medical inflation.
Speaker 1: It's such a large part of the inflation pie. What
Speaker 1: is your year over year forward on medical inflation? Dare
Speaker 1: I say it's double digit. I don't know if we'll
Speaker 1: quite get to double digits, but I think we can
Speaker 1: definitely see that that component picking up, not even necessarily
Speaker 1: in CPI data that we're going to get tomorrow, but
Speaker 1: I would look more for PPI data later in the week.
Speaker 1: That's what will matter for pc inflation. But you can
Speaker 1: definitely see that running consistently at five, you know, maybe
Speaker 1: six percent, you know, getting closer to double digits. Maybe
Speaker 1: not quite there yet, though, Veronica, you think this federal
Speaker 1: reserve can go further? You in a team over a
Speaker 1: city group. The big question at standing is ultimately, to
Speaker 1: what extent the banking stress of the last month is
Speaker 1: a substitute for right hikes? Veronica, Why do you and
Speaker 1: the team think that what we've seen develop in the
Speaker 1: last month is contained, that the worst of it is done. Yeah,
Speaker 1: I think we're seeing things stabilized now. And it's not
Speaker 1: that we wouldn't expect no impact on activity or inflation
Speaker 1: from tightening lending. And this is probably does mean that
Speaker 1: lending standards tighten more and credit pulls back a bit more.
Speaker 1: But we should have already been expecting some of that,
Speaker 1: of course, you know, from from higher rates, and it's
Speaker 1: not that you're going to see it immediately. You know,
Speaker 1: this is much more a second half of the year,
Speaker 1: end of the year type issue for the broader economy
Speaker 1: and then for the Fed that you know, the more
Speaker 1: near term pressing issue is that you'll still have three
Speaker 1: months or so at least of pretty consistently strong inflation prints,
Speaker 1: and it seems hard to see a scenario where they're pausing,
Speaker 1: where we're still running course CPI at point five every month.
Speaker 1: Just to frame the current split the divergence, you're well
Speaker 1: aware that the market is trading well below the FETs
Speaker 1: dolt fe year end for NICA. You're on the other
Speaker 1: side of this, you're well above the dolt for year end.
Speaker 1: Just give me some numbers on that. Why'd you see
Speaker 1: the terminal write still for this federal se Yeah, we
Speaker 1: still have that terminal rate at five and a half
Speaker 1: to five seventy five, So that's twenty five basis point
Speaker 1: hike in May, another in June, another in July. And
Speaker 1: again it comes down to this timing issue. Where it
Speaker 1: will have tomorrow's CPI report before the May meeting. It's
Speaker 1: probably a lower bar for them to hike still in May.
Speaker 1: You know, that's what the dots show. But before the
Speaker 1: June meeting, after the May meeting will have two more
Speaker 1: CPI prints, and those look like they can stay consistently strong.
Speaker 1: And then at the June meeting, you know, we'll have
Speaker 1: an update to projections for inflation growth and the dots,
Speaker 1: and it seems unlikely to us that the Fed will
Speaker 1: have to be revising higher their inflation forecast and then
Speaker 1: not still hiking. I think that that keeps them going
Speaker 1: the markets. Of course, we'll just get their overtime as
Speaker 1: we get consistently strong inflation data. For this is really important.
Speaker 1: What you just said there's stopped the show. You and
Speaker 1: Andrew are reaffirming a set of rate moves higher. So
Speaker 1: when you talk to Keith with I mean, I know
Speaker 1: you're not on speaking terms, but how does your banking
Speaker 1: team at City Group adapt in I guess the crisis
Speaker 1: is over, but adapt to flows in banking giving your
Speaker 1: economic call? How do they adapt to that? Yeah, I
Speaker 1: certainly don't want to speak for them, but I think
Speaker 1: you know the system as a whole. You know, we
Speaker 1: know that there are these issues, but it does seem like,
Speaker 1: you know, the fed's facilities are working to control liquidity
Speaker 1: issues and that if things do stabilize. Well, we know
Speaker 1: that the FED has all of those other tools to
Speaker 1: deal with financial stability, but we do still have this
Speaker 1: price stability problem. And their only tool really deal with
Speaker 1: inflation is rates. So so where does a money market
Speaker 1: fund go? I mean, I don't want you to be
Speaker 1: a rate strategist for City Group, but if I got
Speaker 1: the own horse Clark call, I think I'm looking at
Speaker 1: a money market fund to five and a half or
Speaker 1: even higher percent, right, Yeah, I mean yeah, we certainly
Speaker 1: would have yeah, short term guilds going higher. Again, you
Speaker 1: could see more more deposit outflows, of course, but we
Speaker 1: were that was already happening even even before the banking crisis.
Speaker 1: But that is what needs to happen. You know, you
Speaker 1: need people to stop spending. You know, you need credit
Speaker 1: to contract, and that's what slows the economy and brings
Speaker 1: down inflation. Johnny, you know, I look at this, John,
Speaker 1: and besides, your compliance officer just fell off the chair.
Speaker 1: Listen to that. I mean, if you get a city
Speaker 1: group framework. What does that do to so for Libra
Speaker 1: all the IRA Jersey stuff, what does that do to
Speaker 1: somebody watching this or listening to this, to that money
Speaker 1: market choice five point six five percent, that's not five percent,
Speaker 1: that's a bigger percent with a vengeance. Did you go there,
Speaker 1: so Veronico which you pointed out that would be a
Speaker 1: feature and not a bug of monasty policy. This is
Speaker 1: what they're trying to achieve. But given what we've seen
Speaker 1: develop in the last month, do you not think that
Speaker 1: would contribute to renewed stress in a financial system? Yeah,
Speaker 1: it's that's certainly a risk skin We have seen some
Speaker 1: of those cracks show up at this point. But I
Speaker 1: mean I think that for the FED, at least, you know,
Speaker 1: they would see there all their other tools that they've used,
Speaker 1: you know, the new facility, the discount window as helping
Speaker 1: to control those financial stavility issues. And it is a
Speaker 1: really tough situation. I'm not saying it's a it's an
Speaker 1: easy thing for them. It could be an uncomfortable a
Speaker 1: couple of months here, but you do still unfortunately have
Speaker 1: an inflation issue. Can we talk about what's developed in
Speaker 1: the labor market as well, on Friday, what we saw
Speaker 1: was a really resilient NFPN on fun payrolls print. Once again,
Speaker 1: we've had a year of those just upside surprise, upside surprise,
Speaker 1: but I don't think we've had a downside surprise since
Speaker 1: the March report, which came in early April of last year.
Speaker 1: For because some people look back to the data of
Speaker 1: last week and they're looking for noise versus signal. Was
Speaker 1: the data before the payrolls print the noise or the
Speaker 1: signal because we had a string of misses going into
Speaker 1: that print. Yeah. Yeah, we had some software im readings,
Speaker 1: We had job openings that came down revisions to initial
Speaker 1: and continuing jobs. Claims that maybe those look a lot
Speaker 1: higher now and are trending a bit higher. I would say,
Speaker 1: you know, a lot of this data we should still
Speaker 1: take with somewhat of a grain of salt, especially that
Speaker 1: claims data there looks like to some seasonal pattern that
Speaker 1: didn't get worked out with some seasonal factor revisions. And
Speaker 1: I would say, you know, all of it is consistent
Speaker 1: with you know, an economy that should be slowing but
Speaker 1: but certainly is not you know, headed off a cliff
Speaker 1: into an immediate recession. But we should be expecting, you know,
Speaker 1: ism services in a fifty fifty five rage, we should
Speaker 1: be expecting job openings to be coming down. And I
Speaker 1: think you know the labor market data of course on Friday,
Speaker 1: it is still a very strong labor market. The unemployment
Speaker 1: rate is still very low. It looked a lot like
Speaker 1: a twenty nineteen kind of jobs print. But when you're
Speaker 1: running core inflation that's pretty consistently at five percent, you
Speaker 1: have to be worried that, you know, a tight labor
Speaker 1: market like that will just add to the upside risk
Speaker 1: for inflation. Ironica, this was quite as a white four o'clock.
Speaker 1: Then I've a city working alongside Andrew Holland Hoist with
Speaker 1: a col F effete to take rights to five fifty.
Speaker 1: This is an extremely important conversation because of the number
Speaker 1: of narratives in Washington and all my years of doing this.
Speaker 1: The spring meetings of the IMF and MOROCCO later this
Speaker 1: year in October, there's five six. It's like it's like
Speaker 1: Howard Johnson's years ago. They're twenty eight flavors of narratives
Speaker 1: and where we're heading. A student of this is Douglas
Speaker 1: Rhdicker managing partner International Capital Strategies, but far more and
Speaker 1: a former executive board member of the IMF and affiliated
Speaker 1: with democratic politics in Washington. Doug, thank you so much
Speaker 1: for joining us. You're advass or a million years ago
Speaker 1: and you're sitting there and they go, look, I am F.
Speaker 1: There's two narratives. What happened? Why do we have fourteen
Speaker 1: narratives now? Oh? Look, I don't think you can start
Speaker 1: with the IMF of twenty thirty four years ago. I
Speaker 1: think it's a completely different institution I think right now,
Speaker 1: and it has very little to do in the IMF
Speaker 1: and more to do with the world. So I guess
Speaker 1: we're better off if there's not one overwhelming crisis. If
Speaker 1: you go back to the Greek crisis, the Euro crisis, COVID,
Speaker 1: even in Russia, Ukraine, those were dominant themes that squeezed
Speaker 1: everything else side of the room. I guess, if you
Speaker 1: want to look at this through rose colored glasses, the
Speaker 1: fact that we have multiple different narratives is probably better
Speaker 1: than we're all overwhelmed by a single one. That doesn't
Speaker 1: mean any single one of those is easy to resolve,
Speaker 1: or the week is going to come out with anything
Speaker 1: that is concrete, but at least it's better than one
Speaker 1: thing that everybody's focused on because it's existential. There is
Speaker 1: in the financial times today and I've been searching for
Speaker 1: this for three years, folks, three years. What's the right
Speaker 1: phrase for the attitude we have from the Great Financial
Speaker 1: Crisis and Russia? Sharma X Morgan Stanley at the Rockefeller
Speaker 1: Foundation absolutely nails it this morning, calling it the rescue culture?
Speaker 1: Is that what we're trapped in where every institution goes
Speaker 1: there could be no pain, there could be no anks,
Speaker 1: nobody can go out of business. Every deposit's got to
Speaker 1: be covered. Do we have an international rescue culture? We
Speaker 1: have a domestic international rescue culture. We have an international
Speaker 1: rescue culture, whether it's called rescue culture or an entitlement culture. Yeah,
Speaker 1: I think everybody assumes that there's a put, some form
Speaker 1: of put. Whether that put is a central bank put
Speaker 1: or a fiscal authorities put or an IMF put. Everybody
Speaker 1: feels somewhat entitled. You've got me sounding much more pessimistic
Speaker 1: and negative than I thought I would be. But the
Speaker 1: fact of the matter is, Yes, imagine if Bramo was
Speaker 1: here walking out, do you think that sense of encondlement
Speaker 1: is mispiced. Well, I guess it's well placed if in
Speaker 1: the end those authorities actually blink and write the checks. Right. So,
Speaker 1: if the game is do we want to avoid another Lehman?
Speaker 1: If that's the moral hazard play, then fundamentally, countries believe, countries, companies,
Speaker 1: investors believe that when things get really bad, somebody, thing,
Speaker 1: some institution is going to bail me out of the
Speaker 1: worst consequences. And to date that's been a fairly solid bet.
Speaker 1: I don't think it's sustainable, but you know, not being
Speaker 1: sustainable can be two years, twenty years. I mean there's
Speaker 1: a long time. Right in the long run, we're all dead.
Speaker 1: What did we learn last month with re cost to
Speaker 1: exactly this? Well, so what I think it's too early
Speaker 1: to know what the long term consequences are of SVB, credit, Swiss, etc.
Speaker 1: And by the way, I divide the two into totally
Speaker 1: different camps, but let's lump them together for the purposes
Speaker 1: of this, which is to say yes rather than letting
Speaker 1: unfettered capitalism creative destruction play out. Everything is systemic. You
Speaker 1: want to know what it is? We learned? We learned it.
Speaker 1: Everything is systemic. So when SVB is suddenly systemic. It
Speaker 1: was the sixteenth largest bank in the country. It was
Speaker 1: not systemic by traditional metrics. But suddenly, when it turns
Speaker 1: out that your Zoom call might not happen on Monday
Speaker 1: because Zoom was a big deposit or at SVB, that's systemic.
Speaker 1: I don't know if that's how we contemplated systemic when
Speaker 1: we started there. So if everything is now systemic, is
Speaker 1: it just implied that old deposits are in short? Oh? Look,
Speaker 1: I think that both Secretary Yellen and other authorities have
Speaker 1: gone very far to making sure that they send the
Speaker 1: message that implicitly yes, but explicitly they don't have the
Speaker 1: congressionally mandated authority to say yes. So they're saying yes
Speaker 1: with a caveat, or they're saying no with an asterisk. Yes,
Speaker 1: but we can't say yes. But yeah, go to sleep
Speaker 1: at night thinking and knowing that your deposits are in short. Dog,
Speaker 1: your work is to combine economics with law years ago,
Speaker 1: scotton arps and all that. And then Salomon Brothers is well,
Speaker 1: I am fascinated how you respond to an I am
Speaker 1: F five year call of economic gloom of global GDP
Speaker 1: three percent or less malpass came out at World Bank
Speaker 1: and had a two handle on some form of present
Speaker 1: global growth. That's not Barack Obama's better America or better
Speaker 1: global How do we get so negative, so fast, so
Speaker 1: entrenched in our gloom? So I have high regard for
Speaker 1: the economic teams at the Bank and the Fund, and
Speaker 1: there's a caveat coming. There's a butt. The butt is
Speaker 1: there's a certain amount of group think that trickles into
Speaker 1: a lot of this, and so you have desk economists
Speaker 1: who factor in their individual country projections into the regional,
Speaker 1: into the WO or the GFSR, and what you end
Speaker 1: up with is not necessarily a holistic, strategically oriented five
Speaker 1: year forecast. It's almost bottoms up, to the point where
Speaker 1: it's two bottoms up. That's the single best discussion of that. Ever,
Speaker 1: i'll take it one step too far. Maybe it's the
Speaker 1: space to make the accusation that some of these full
Speaker 1: costa political and not Bison economics. It depends on how
Speaker 1: you define political. And what I mean by that is
Speaker 1: I actually think there's a lot of people who are
Speaker 1: very technocratic, who keep their heads down, who have their
Speaker 1: pencils to their papers or the equivalent, and they are
Speaker 1: making their forecasts based on their best estimates without regard
Speaker 1: to politics. I think there are some other decisions at
Speaker 1: these institutions program lending, certainly policy choices that are highly politicized,
Speaker 1: probably more than ever before, or at least in the
Speaker 1: last several decades. Let's the dog you're being way to
Speaker 1: pullite Kenneth Rogoff, who's got a non equates with the
Speaker 1: International Monetary Fund. Ken's bend borderline scathing that the IMF
Speaker 1: has become the World Bank. Do you agree, Well, it
Speaker 1: hasn't become, but it's certainly trending in that direction. I
Speaker 1: think the current managing director of the ims instincts and
Speaker 1: experience are much more aligned with her experience at the
Speaker 1: World Bank. And I would make the counter argument that
Speaker 1: David Malpass in taking a harder line on lending to
Speaker 1: China or enforcing China to the table to be more
Speaker 1: transparent and more conciliatory towards debt restructure, and has taken
Speaker 1: a more stingy which would traditionally be seen as an
Speaker 1: IMF style approach to some of the emergency lending coming
Speaker 1: out of coaching. Should we make some news? He and
Speaker 1: you suggested that Joe Gavis should be at the World
Speaker 1: Bank and Maupass should be at the IMS. Oh, I
Speaker 1: would never make a suggestion about personnel at that level
Speaker 1: when those decisions have already been taken, whether in fact
Speaker 1: they were the perfect fit for the job under the
Speaker 1: circumstances that we now have. Let's say, I think both
Speaker 1: of them have done an admirable job in their current positions,
Speaker 1: and I wish them the best. They were given a pandemic,
Speaker 1: we got to remember absolutely, and they were they inherited.
Speaker 1: As I say, this China card, which you know, the
Speaker 1: IMAT traditionally spent a lot of time as it should.
Speaker 1: It's it's man they dealing with debt restructuring, debt relief,
Speaker 1: debt issues and emerging markets and frontier markets, and that
Speaker 1: certainly is something that each one of them has handled
Speaker 1: in a different way. Tuck, this was great. Should do
Speaker 1: this more often. We should come down, come down to
Speaker 1: DC just to catch up with Doug Douglas roddicker there
Speaker 1: on the World Bank and the IMF. Let's get straight
Speaker 1: to Mike Schumach at the global head of macro Strategy
Speaker 1: at whilst Fargo. Mike, great to have you with us,
Speaker 1: sir as always good to see Mike. Good morning. Let's
Speaker 1: talk about the call from City. We'll kick things off
Speaker 1: there City Ronica Clark on this program thirty minutes ago
Speaker 1: talking up rates of five fifty to five seventy five
Speaker 1: on FED funds. Mike, are you in that capital. No?
Speaker 1: And at this point, Ian look, the third wants to hike,
Speaker 1: probably wants maybe twice more, but it's really torn because
Speaker 1: it's got these VA's troubles and regional banks get into
Speaker 1: five seventy five seems like a stretch impossible. No, but
Speaker 1: we're not in their camp right now. At the moment,
Speaker 1: the conversation shifted, Mike has gone away from how father
Speaker 1: fed will go to how Father'll have to cut back. Mike.
Speaker 1: The IMF putting out its research it's outlook, suggesting that
Speaker 1: rates will return to pre pandemic levels. Mike, would you
Speaker 1: go that now? I look, the IMF's entitled to make
Speaker 1: forecasts like anybody else. But here's the thing, John, when
Speaker 1: you think about the dynamics over the last six to
Speaker 1: twelve months, complete shift in psychology, Inflation still stubborn in
Speaker 1: a lot of countries. I think that's going to keep
Speaker 1: rates pretty well above pre pandemic levels for a long time,
Speaker 1: so back to twenty nineteen levels, not any time soon,
Speaker 1: many many years. Is your macro strategy, Mike Schumacher based
Speaker 1: around service sector core not coming down? I mean you've
Speaker 1: got a better view on headline core is somewhat persistent here.
Speaker 1: What does service sector core do to the Wells Fargo call? Yeah, frankly,
Speaker 1: time people care a lot about service sector core because J.
Speaker 1: Powell cares about it. So I'm in that camp too,
Speaker 1: Mister Powell's important to you, it's important to me, it's
Speaker 1: important new investors. So we've got core staying pretty stubborn,
Speaker 1: frankly for a while. So yes, you probably see some moderation,
Speaker 1: maybe not much in a couple of days or tomorrow,
Speaker 1: I guess when it comes out, but fairly soon, but
Speaker 1: still well above where the Fed wants it to be.
Speaker 1: So we're all looking at that. We focus on it,
Speaker 1: but not anywhere near the comfort zone yet. So if
Speaker 1: I stay on J. Powell, then look at the three
Speaker 1: month T bill, and then I look at the three
Speaker 1: month T bill guestament out eighteen months this morning, I
Speaker 1: see a very sustained three months yield. Does that drive
Speaker 1: even higher in the coming quarters. Yeah, it's really interesting
Speaker 1: time to think about just how much easing the market's
Speaker 1: priced in. So it's got these two factors out there.
Speaker 1: One inflation bad FED wants to squel chip that implies
Speaker 1: more hikes. Number two financial system angst rickety structure, etc.
Speaker 1: Than apply a lot more cuts. We think there are
Speaker 1: too many cuts priced in, both for this year and
Speaker 1: for next year. The big test is going to come
Speaker 1: in the second part of this month, a lot of
Speaker 1: earnings releases. If the system gets past that, I think
Speaker 1: you'll see the number of cuts priced for twenty three
Speaker 1: and twenty four go down a lot, and that should
Speaker 1: push up things like the two year yield. Bring it
Speaker 1: in close. A managing director of the IMF just emailed
Speaker 1: me and says, ask Schumacher, what we see tomorrow? Mike Schumacher,
Speaker 1: what do we see tomorrow on the inflation report? Yeah,
Speaker 1: focus on Coral. We've got that coming in at point
Speaker 1: four percent, and that's probably not going to shock anybody time.
Speaker 1: But we think about how the market reacts to surprises
Speaker 1: as well. In in our view, it's very skewed. So
Speaker 1: let's say Core comes in hot point five point six.
Speaker 1: We think you get much more of a reaction to
Speaker 1: a hot print than a week one, because again, the
Speaker 1: FED wants to hike, and in our simple calculus, the
Speaker 1: Fed's going to ease only if something breaks. So Core
Speaker 1: coming in at point four point five even point three
Speaker 1: doesn't really change that aspect of the Fed's decision making
Speaker 1: two banks breaking, John, didn't get it, Dog. That's the question,
Speaker 1: isn't it hasn't something broken? Something additional? John, So something
Speaker 1: you've got a huge band aid on it, whether it's
Speaker 1: Credit SWEETE, whether it's SVB, take your pick. And now
Speaker 1: it's the question of, as your last guest pointed out,
Speaker 1: where is the strike on that put? Is that put
Speaker 1: still there? Should investors rationally think it is? Perhaps so?
Speaker 1: But you need to have the least for the FED
Speaker 1: to come in or the ECB or the SNB another
Speaker 1: big debacle out there for the markets to become even
Speaker 1: more unnerved. Well, they immediate concerned with Spilova, Mike. If
Speaker 1: you drawn conclusions on how much Spilova we're going to
Speaker 1: see from those incidents really tough to see and quantify
Speaker 1: at this point, John, SVB, it seems like it's pretty localized.
Speaker 1: When you think about Credit Sweee it's a more challenging,
Speaker 1: difficult unwind. But assuming that deal close is pretty soon,
Speaker 1: probably not a ton of spillover. But I think the
Speaker 1: bigger issue is, in particular in the US, you've got
Speaker 1: thousands of banks in a particular or something like a
Speaker 1: hundred that range between ten billion and one hundred billion
Speaker 1: in assets. We simply don't have a lot of visibility
Speaker 1: into those balance sheets. So structures right now the huge
Speaker 1: but collectively, could there be a problem perhaps what Michael
Speaker 1: keep returning to the question I've returned to them, what
Speaker 1: are the longer variable lacks of a banking shock? And
Speaker 1: is it too soon to draw conclusions? If you the
Speaker 1: Federal Reserve and you sit there on May third, do
Speaker 1: you have the incoming information, the sufficient information you need
Speaker 1: to make that cool? No, you don't know at that point.
Speaker 1: You'll know if you had an immediate problem that's going
Speaker 1: to be evident in the next week or two. But
Speaker 1: there simply is not enough time to know. Is the
Speaker 1: system really on solid footing right now? A lot of
Speaker 1: clients talk about things like commercial real estate, where does
Speaker 1: echo Probably doesn't look that great. Will the fed up
Speaker 1: that information on the third? No, I doubt it. What
Speaker 1: about deposit flight deposit beatas how much does having an
Speaker 1: iPhone and a fancy app change those beatas well? They
Speaker 1: get faster, they get higher, but to what degree we
Speaker 1: can't tell. Neither can the FED quite yet, Mike, John
Speaker 1: Williams and the New York Fed said, basically, it's not
Speaker 1: our fault. It's not because we went from zero to
Speaker 1: four point five five percent in a space of twelve months.
Speaker 1: We didn't have anything to do with this these incidents
Speaker 1: maybe asyncratic, Mike, would you take the same page as
Speaker 1: John Williams at the New York Fed? Well, I think
Speaker 1: you've got to focus on monetary policy versus the Fed's
Speaker 1: regulatory authority, and does it make a lot of sense
Speaker 1: to have those really embedded in the same institution. We
Speaker 1: did a call recently with Sheila Beart. She said, no,
Speaker 1: they should be split to some degree. So monetary policy, yes,
Speaker 1: it's been aggressive, but frankly, the FED weight a long
Speaker 1: time to get tough too. It could have moved certainly
Speaker 1: back in twenty one. I think that would have helped
Speaker 1: quite a bit, and it chose to wait the governorship,
Speaker 1: thank you, sir. So Unfortunately we have to do an
Speaker 1: audible with John Bolton, former National security advisor to President Trump,
Speaker 1: Ambassador to the United Nations under George W. Bush. And
Speaker 1: for those of you in radio, Bolton appears today with
Speaker 1: arm in sling. No doubt one of the people going
Speaker 1: after Bolden. What did you do to the other guy, Ambassador?
Speaker 1: Did you hit him hard? It was pretty Graham. I
Speaker 1: have to say, I'm sure it was some Bolton drama there.
Speaker 1: Let's get to the drama of the moment, and I
Speaker 1: want to begin with a Wall Street Journal reporter jailed
Speaker 1: in Russia. You have been inflammatory and said throw the
Speaker 1: bums out, you want the ambassador of Russia to be
Speaker 1: removed from the soil of United States of America. Discussed that. Well, look,
Speaker 1: this is obviously an entirely political decision by the Kremlin.
Speaker 1: They're taking this reporter hostage. They're accusing him of espionage.
Speaker 1: We know that's not true, because it's been a long
Speaker 1: long time since we've used reporters for that purpose in
Speaker 1: order to protect them from exactly this kind of thing. Clearly,
Speaker 1: the Russians want to exchange the reporter for something. We
Speaker 1: don't know what yet. But I think instead of pleading
Speaker 1: with him to let this hostage go and he is
Speaker 1: a hostage and effect. I think we've got to declare
Speaker 1: the Russian ambassador persona non grid. I think we ought
Speaker 1: to go to our NATO allies and ask them to
Speaker 1: do the same, because it could have happened to any
Speaker 1: one of their journalists. A strong response is the only
Speaker 1: thing the Russians understand, and if we don't, if we
Speaker 1: don't start now, Gershkevich could be in jail for a
Speaker 1: long time. Best of Bolton, I want to continue this discussion,
Speaker 1: but because of time in such an ample news flow,
Speaker 1: we've got to move on, John Bolton, we have an
Speaker 1: intelligence lead. This is not Matt Damon, and I know
Speaker 1: Matt Damon was going to play the part of you
Speaker 1: in another movie. It's not the Bourne identity, it's not
Speaker 1: paper under park benches, and that this is your world
Speaker 1: being affected by digital technology digital media. Do we need
Speaker 1: to radically change our intelligence distribution because of new technology? Well,
Speaker 1: I think there's a lot we can do to safeguard
Speaker 1: classified material better, and I would certainly say, based on
Speaker 1: what we know publicly, the presumption at this moment is
Speaker 1: this is some kind of leak out of the Pentagon
Speaker 1: or other US sources, and we don't know whether we're
Speaker 1: at the end of it or not. It could be more. However,
Speaker 1: I would also caution at this point that we not
Speaker 1: draw too many conclusions that this could be an influence
Speaker 1: operation by somebody we don't know who. And once you
Speaker 1: get into the world of counter intelligence, it makes being
Speaker 1: in a hall of mirrors look easy. It's very complicated,
Speaker 1: and depending on how sophisticated the actor might be, really
Speaker 1: can wrench your mind around. So we've seen some anomalies
Speaker 1: in what's been reported. Just this morning in South Korea,
Speaker 1: South Korea Time, the government there said that the information
Speaker 1: that looked to be leaked about about their consideration of
Speaker 1: selling artillery shells to Ukraine was false. So we don't
Speaker 1: know whether that's disinformation too. But all I'm saying is, well,
Speaker 1: I don't have any basis on which to contest what
Speaker 1: seems to be the case that this is a US
Speaker 1: league and therefore a huge US problem. I just think
Speaker 1: we need to be very careful before we jumped to
Speaker 1: too many conclusions. Look at this, ambassador. I'm gonna do
Speaker 1: an audible here, and it's just a general question for
Speaker 1: the American public, not Republican democrat in your experience, how
Speaker 1: removed is the intelligence community's process in day to day
Speaker 1: grind from the way it's perceived by Hollywood. Is Hollywood
Speaker 1: accurate or are they just off the mark on a
Speaker 1: movie by movie basis. Well, the Hollywood movies are very exciting,
Speaker 1: and some of that does occur. But but you know,
Speaker 1: we collect the huge amounts of intelligence through what we
Speaker 1: call euphemistically national technical means, meaning electronic and other forms
Speaker 1: of surveillance. Frankly, we need a lot more human intelligence
Speaker 1: collection than we have, and we need a greater clandestine
Speaker 1: operations capability than we have. I think puritans in the
Speaker 1: foreign policy establishment have looked down on clandestine operations for
Speaker 1: a long time. We're in a very dangerous world. Could
Speaker 1: we could use a lot more? But it's it's something
Speaker 1: I think Americans, if they really knew what our intelligence
Speaker 1: collection capabilities were, would be very proud of what we're
Speaker 1: able to do. John Bolton, I want to move to
Speaker 1: the bipartisan thrust of Washington against China. Is it should
Speaker 1: we be cautious because there's such a fixed bipartisan nature
Speaker 1: to our anger over China? Do we overreact? Well? I
Speaker 1: don't think we've overreacted yet, and I agree with you
Speaker 1: that there's certainly an unusual character, the bipartisan nature of
Speaker 1: the concern about China. But I do think the underlying
Speaker 1: concern is one. I think China is essentially an existential
Speaker 1: threat to US and the West as a whole in
Speaker 1: the century, and their challenge is really across the board.
Speaker 1: It's not just political and military, although it's very much
Speaker 1: in those sectors. It's economic as well. Decades of stealing
Speaker 1: our intellectual property, discriminating against foreign investors and traders, manipulating
Speaker 1: the international financial system to its advantage. There's a lot
Speaker 1: that's gone on for a long time we're just really
Speaker 1: beginning to appreciate and catch up to. So I think
Speaker 1: the bipartisan concern here is warranted. Among others, who's talked
Speaker 1: to James Stravitas, of course, the former admiral about a
Speaker 1: Pacific Rim build out. I know that the United States
Speaker 1: has a new dialogue with the Philippines among others. Does
Speaker 1: Bolton suggest that we need to rebuild out our military
Speaker 1: in the Pacific Rim, not just for Taiwan, but also
Speaker 1: for the South China. See, I think we need to
Speaker 1: rebuild it across the board. I think the next American
Speaker 1: president needs defense budget increases in the range of what
Speaker 1: Ronald Reagan did during his presidency, maybe even more. I
Speaker 1: think that implies even greater cuts to domestic expending to
Speaker 1: get our deficit down. But let's be clear, we've been
Speaker 1: asleep at the switch for a long time here. The
Speaker 1: going back to the end of the Cold War, people
Speaker 1: said it was the end of history. We had a
Speaker 1: peace dividend. We've got to put all that behind us.
Speaker 1: We face a very wide range of threats. Let's just
Speaker 1: take the Pacific. Get a map out that has the
Speaker 1: Pacific Ocean in the middle of it. It's a long
Speaker 1: way away. We need probably fifty more naval war vessels
Speaker 1: in our fleet just to deal with the Pacific, let
Speaker 1: alone increases for the rest of the world. John Bolton,
Speaker 1: what's so important here is those of us of a
Speaker 1: certain vintage remember our intelligence misestimates of the Soviet Union.
Speaker 1: Do you have a confidence in our intelligence of China?
Speaker 1: Or do we make the same gauging misguiding that we
Speaker 1: did with the Soviet Union? Do we know what we're
Speaker 1: talking about with Beijing? Well, I think we've got pretty
Speaker 1: good estimates on key areas. Some of it's visible to
Speaker 1: us already. Their capabilities for offensive cyber operations, for example,
Speaker 1: the military build up that they've undertaken in anti access
Speaker 1: area denial weapons to push us back from the western
Speaker 1: shores of the Pacific, Their anti satellite weapons capabilities to
Speaker 1: blind our eyes in the sky and time of crisis
Speaker 1: or conflict, that is out there, as is the evidence
Speaker 1: of things like weaponizing what otherwise look like commercial companies
Speaker 1: Wahwei Zte. They're not telecommunications firms. They're arms of the
Speaker 1: Chinese state trying to take control of fifth generation telecommunications.
Speaker 1: John Bolton, thank you for joining Bloomberg Surveillance this morning.
Speaker 1: Former Ambassador Bolton, of course, is work with the National
Speaker 1: Security Council as well. Always Controversy. Subscribe to the Bloomberg
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Speaker 1: I'm Tom Keane, and this is Bloomberg.