1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,400 Speaker 2: Terminal and the Bloomberg Business App. David Kelly of JP 10 00:00:37,479 --> 00:00:39,400 Speaker 2: Morgan Asset Management joins us now to build on some 11 00:00:39,440 --> 00:00:41,839 Speaker 2: of this. David, Welcome to the program Sir. What's your 12 00:00:41,880 --> 00:00:45,440 Speaker 2: initial reaction to these numbers this morning? How useful are they? 13 00:00:47,200 --> 00:00:48,440 Speaker 3: Well, you know, usually. 14 00:00:48,240 --> 00:00:51,440 Speaker 4: When we're on this call on CPI day, it's like 15 00:00:51,560 --> 00:00:54,040 Speaker 4: the biggest news of the week. But and you know, 16 00:00:54,360 --> 00:00:57,200 Speaker 4: today obviously it's the terriff news. But also I think 17 00:00:57,240 --> 00:00:59,960 Speaker 4: the other big part of the infliction story going forward 18 00:01:00,520 --> 00:01:03,720 Speaker 4: is the fiscal stimulus that's beginning to emerge on Capitol Hill. 19 00:01:04,560 --> 00:01:07,679 Speaker 4: Because what it looks like is Okay, the tariffs aren't 20 00:01:07,720 --> 00:01:12,479 Speaker 4: here and consumers are relatively quiescent right now, and we're 21 00:01:12,480 --> 00:01:14,720 Speaker 4: not seeing a lot of enthusiasm there with the airline 22 00:01:14,760 --> 00:01:17,319 Speaker 4: fares and so forth down. But it looks like they're 23 00:01:17,319 --> 00:01:21,360 Speaker 4: cooking into this bill stimulus for twenty five, twenty six, 24 00:01:21,440 --> 00:01:23,520 Speaker 4: twenty seven, and twenty eight. They're implementing a lot of 25 00:01:23,560 --> 00:01:26,400 Speaker 4: the President's promises on the campaign trailer in addition to 26 00:01:26,440 --> 00:01:29,400 Speaker 4: extending the tax cuts. And if that comes through, you're 27 00:01:29,400 --> 00:01:33,400 Speaker 4: going to have a surge in consumer spending in twenty 28 00:01:33,480 --> 00:01:37,040 Speaker 4: twenty six help by fiscal stimulus. 29 00:01:36,600 --> 00:01:39,080 Speaker 3: And perhaps even later in twenty twenty five. That'll keep 30 00:01:39,120 --> 00:01:40,080 Speaker 3: inflation little higher. 31 00:01:40,160 --> 00:01:43,280 Speaker 4: So this is good news and inflation, but I think 32 00:01:43,319 --> 00:01:46,520 Speaker 4: the signs are that inflation is going to move up 33 00:01:46,600 --> 00:01:48,520 Speaker 4: in the short run because of tariffs and then in 34 00:01:48,560 --> 00:01:51,360 Speaker 4: twenty twenty six because of renewed physical stimulus. 35 00:01:51,480 --> 00:01:53,120 Speaker 2: And David, is that a reason to be bullish the 36 00:01:53,160 --> 00:01:53,880 Speaker 2: equity market? 37 00:01:55,920 --> 00:01:59,600 Speaker 4: Probably not, you know, I mean, the equity market is 38 00:01:59,640 --> 00:02:02,360 Speaker 4: hard an exactuary are right now, but it's hardly down 39 00:02:02,440 --> 00:02:04,720 Speaker 4: here today, and it's I mean, we've done a sort 40 00:02:04,720 --> 00:02:06,480 Speaker 4: of a round trip on tariffs here, but we still 41 00:02:06,600 --> 00:02:08,000 Speaker 4: end up with the higher tarif rate than we had 42 00:02:08,000 --> 00:02:10,799 Speaker 4: at the start, I think we got swer long term 43 00:02:10,840 --> 00:02:11,560 Speaker 4: economic growth. 44 00:02:11,600 --> 00:02:13,600 Speaker 3: So in some ways the relief rally has been. 45 00:02:13,520 --> 00:02:15,320 Speaker 4: Stronger than the downturn, and I think it may be 46 00:02:15,360 --> 00:02:18,280 Speaker 4: a little bit overdone. So i'd still call from people, 47 00:02:18,320 --> 00:02:22,040 Speaker 4: you know, longer term that the huge premium that US 48 00:02:22,080 --> 00:02:24,440 Speaker 4: equity prices have over the rest of the world probably 49 00:02:24,639 --> 00:02:27,639 Speaker 4: isn't justified, and so I'd still be in the diversification 50 00:02:27,760 --> 00:02:30,680 Speaker 4: camp here. I do think there's you know, a tenure 51 00:02:30,720 --> 00:02:33,640 Speaker 4: treasure yield at four fifty to five is probably more 52 00:02:33,720 --> 00:02:37,519 Speaker 4: reasonable than a big fall from here. But I think 53 00:02:37,520 --> 00:02:40,760 Speaker 4: it's too early to be really bullish about equities because 54 00:02:40,800 --> 00:02:43,280 Speaker 4: of fiscal students, because you know, we're talked about a 55 00:02:43,280 --> 00:02:46,040 Speaker 4: full employment economy where the Fed's going to have less 56 00:02:46,080 --> 00:02:46,680 Speaker 4: reason to cut. 57 00:02:47,080 --> 00:02:49,400 Speaker 5: We've been struggling all morning with whether this really is 58 00:02:49,440 --> 00:02:52,080 Speaker 5: the beginning of the return to the United States and 59 00:02:52,080 --> 00:02:54,000 Speaker 5: the dialing back of some of the loss of US 60 00:02:54,080 --> 00:02:57,560 Speaker 5: exceptionalism types of narratives, or whether this is just a 61 00:02:57,600 --> 00:03:02,079 Speaker 5: pause in the go international trade. David, you talk about diversifying, 62 00:03:02,400 --> 00:03:04,000 Speaker 5: what does that mean if you think that ten year 63 00:03:04,080 --> 00:03:05,680 Speaker 5: yields are going to be in a four fifty to 64 00:03:05,720 --> 00:03:09,040 Speaker 5: five range and you don't really find US equities particularly 65 00:03:09,080 --> 00:03:09,840 Speaker 5: attractive right. 66 00:03:09,760 --> 00:03:13,000 Speaker 3: Now, Well, it does mean international equities. 67 00:03:13,040 --> 00:03:15,560 Speaker 4: I mean, yes, the US equity market is almost done 68 00:03:15,560 --> 00:03:18,720 Speaker 4: around trip here to date, but European equities up very strongly. 69 00:03:18,800 --> 00:03:22,000 Speaker 3: International equities in general are up strongly for the year, 70 00:03:22,520 --> 00:03:24,360 Speaker 3: and the dollar is down. I think that will. 71 00:03:24,200 --> 00:03:28,000 Speaker 4: Continue because you know, if we will still end up 72 00:03:28,000 --> 00:03:30,280 Speaker 4: with significant tariffs at the end of all of this, 73 00:03:30,480 --> 00:03:33,520 Speaker 4: even though we're seeing you know, calming down, we're going 74 00:03:33,560 --> 00:03:35,840 Speaker 4: to end up with higher deficits. We're going to end 75 00:03:35,920 --> 00:03:39,480 Speaker 4: up with lower immigration, probably lower economic growth. So I know, 76 00:03:39,560 --> 00:03:41,800 Speaker 4: you know, this is a package and agenda that the 77 00:03:41,800 --> 00:03:44,880 Speaker 4: public has voted for and that's why we have elections. 78 00:03:45,120 --> 00:03:48,040 Speaker 4: But it does suggest a slower trajectory in US economic growth, 79 00:03:48,120 --> 00:03:51,360 Speaker 4: with higher deficits, somewhat higher inflation in the short. 80 00:03:51,160 --> 00:03:54,960 Speaker 3: To medium term. None of that is really very pro US. 81 00:03:55,000 --> 00:03:57,160 Speaker 4: And the thing is, you know, I think the US 82 00:03:57,200 --> 00:04:00,560 Speaker 4: will do okay, but does it deserve to be, you know, 83 00:04:00,600 --> 00:04:02,680 Speaker 4: a fifty percent premium over the rest of the world 84 00:04:02,720 --> 00:04:06,440 Speaker 4: in terms of pe ratios. So I'd say international equities yes, 85 00:04:06,600 --> 00:04:10,120 Speaker 4: and then also alternatives, you know, just if fixing income's 86 00:04:10,160 --> 00:04:14,080 Speaker 4: not going to help you because of higher inflation alternatives. 87 00:04:14,160 --> 00:04:16,960 Speaker 4: There are plenty of alternative things like infrastructure, transportation, real 88 00:04:17,080 --> 00:04:19,359 Speaker 4: estate which have a degree of inflation protection. So I 89 00:04:19,360 --> 00:04:23,240 Speaker 4: think people just need to broaden their definition of diversification 90 00:04:23,240 --> 00:04:24,239 Speaker 4: in this kind of environment. 91 00:04:24,440 --> 00:04:26,240 Speaker 5: You mentioned the feeds response, and this has been a 92 00:04:26,240 --> 00:04:29,239 Speaker 5: subject of pretty heated debate and prank. Frankly, it feels 93 00:04:29,279 --> 00:04:31,800 Speaker 5: like people are bifurcated on just whether this gives a 94 00:04:31,800 --> 00:04:35,279 Speaker 5: FED more incentive to cut rates just for the good 95 00:04:35,320 --> 00:04:39,720 Speaker 5: reasons or less incentive. From your perspective, is this more 96 00:04:39,880 --> 00:04:43,800 Speaker 5: of a reduction in potential inflation in terms of the 97 00:04:43,839 --> 00:04:46,440 Speaker 5: lower terrifrate than it could have been that gives the 98 00:04:46,560 --> 00:04:49,240 Speaker 5: FED more of an ability to cut rates without a 99 00:04:49,279 --> 00:04:51,880 Speaker 5: recession at a time where the data that we just saw, 100 00:04:52,080 --> 00:04:55,400 Speaker 5: albeit messy, does point to something of a much lower 101 00:04:55,400 --> 00:04:56,680 Speaker 5: pace of price increases. 102 00:04:57,160 --> 00:05:00,160 Speaker 4: Well, yes, but the fence target is two and I 103 00:05:00,240 --> 00:05:02,560 Speaker 4: think they're on the consumption deflation and I think Jpal 104 00:05:02,640 --> 00:05:04,880 Speaker 4: put it pretty well at his latest press conference. You know, 105 00:05:05,080 --> 00:05:06,840 Speaker 4: they're going to have to look at where they think 106 00:05:06,880 --> 00:05:10,039 Speaker 4: inflation's going, where they think unemployment is going. And I 107 00:05:10,080 --> 00:05:13,520 Speaker 4: think the both fiscal stimulus that is beginning to emerge 108 00:05:13,520 --> 00:05:18,000 Speaker 4: from Capitol Hill, and then also a somewhat lower tariffs. 109 00:05:18,160 --> 00:05:21,320 Speaker 4: They suggest that the risk of recession is receding here. 110 00:05:21,400 --> 00:05:23,960 Speaker 4: I think it's you've probably just gone below fifty percent, 111 00:05:24,200 --> 00:05:27,039 Speaker 4: so risk of recession receding. Maybe the unemployment rate ends 112 00:05:27,040 --> 00:05:29,880 Speaker 4: the year four and a half percent to five, but 113 00:05:30,000 --> 00:05:32,800 Speaker 4: the CPI or oh sorry, the consumption phase could easily 114 00:05:32,839 --> 00:05:35,279 Speaker 4: end the year above three percent. In fact, it probably will, 115 00:05:35,560 --> 00:05:38,720 Speaker 4: so probably be further from consumption to flat target than 116 00:05:38,760 --> 00:05:39,920 Speaker 4: from the unemployment target. 117 00:05:40,160 --> 00:05:41,800 Speaker 3: In that kind of environment, there's not much. 118 00:05:41,680 --> 00:05:44,040 Speaker 4: Excuse for the Fed to cut at all because we're 119 00:05:44,040 --> 00:05:45,960 Speaker 4: at you're fairly close to a neutral level. 120 00:05:45,960 --> 00:05:48,240 Speaker 3: So I think the Fed will take it very easy here. 121 00:05:48,480 --> 00:05:51,120 Speaker 4: And it's and it's part of the story's tariffs, but 122 00:05:51,160 --> 00:05:54,120 Speaker 4: the other part is putting more fiscal stimulus and higher 123 00:05:54,120 --> 00:05:55,600 Speaker 4: depthicits into twenty twenty six. 124 00:05:55,920 --> 00:05:58,760 Speaker 3: Really doesn't give the Federal Reserve a reason to be easy. 125 00:05:58,920 --> 00:06:01,159 Speaker 2: It's your base case snake cuts, not David. 126 00:06:02,000 --> 00:06:04,680 Speaker 3: No, not quite. I think we will get at least 127 00:06:04,760 --> 00:06:07,880 Speaker 3: one cut this year. By the end of the year. 128 00:06:08,600 --> 00:06:10,560 Speaker 4: I think the Fed realizes they can they can edge 129 00:06:10,640 --> 00:06:13,200 Speaker 4: rates down a little bit, but I don't expect to 130 00:06:13,240 --> 00:06:15,560 Speaker 4: cut in June. I don't expect to cut in July, 131 00:06:15,680 --> 00:06:18,160 Speaker 4: to be honest, I think they'll want to see much 132 00:06:18,200 --> 00:06:21,080 Speaker 4: more of a you know, a more much more certainty 133 00:06:21,080 --> 00:06:24,080 Speaker 4: around what the terrif picture really is and how much 134 00:06:24,279 --> 00:06:27,960 Speaker 4: stimulus is in this in this bill before they contemplate 135 00:06:28,080 --> 00:06:29,720 Speaker 4: any for any cut. So I think we're gonna have 136 00:06:29,720 --> 00:06:31,640 Speaker 4: to wait some time for the first rate cut. 137 00:06:31,839 --> 00:06:45,680 Speaker 2: Interesting. David Kelly, the of JP Morgan David Gosa ju 138 00:06:45,800 --> 00:06:48,920 Speaker 2: not to discuss Tiffany Welding of Pimco. Tiffany, welcome to 139 00:06:48,960 --> 00:06:50,919 Speaker 2: the program. We were told to ignore some of the 140 00:06:51,000 --> 00:06:54,040 Speaker 2: data throughout this morning. Can we ignore this data? 141 00:06:56,760 --> 00:06:57,000 Speaker 3: Well? 142 00:06:57,120 --> 00:06:58,760 Speaker 1: Yeah, I mean I think there is a lot. It 143 00:06:58,760 --> 00:07:00,839 Speaker 1: sounds like there's a lot going on under the hood, 144 00:07:01,160 --> 00:07:04,039 Speaker 1: But the overall message is that, you know, the US 145 00:07:04,160 --> 00:07:07,839 Speaker 1: economy prior to any sort of tariff pass through was 146 00:07:07,880 --> 00:07:11,080 Speaker 1: just on a continued path towards normalization. After you know, 147 00:07:11,120 --> 00:07:14,800 Speaker 1: after the pandemic related shocks, inflation was was elevated, it's 148 00:07:14,840 --> 00:07:17,920 Speaker 1: remained elevated, and I think overall this report, you know, 149 00:07:17,960 --> 00:07:21,200 Speaker 1: suggests that some of that is coming down. And if 150 00:07:21,240 --> 00:07:24,840 Speaker 1: it weren't for tariffs, the outlook would be towards more moderation. 151 00:07:25,400 --> 00:07:27,240 Speaker 1: But I do think you have to discount this a 152 00:07:27,240 --> 00:07:30,760 Speaker 1: little bit because we know eventually the tariff costs, which 153 00:07:30,840 --> 00:07:34,040 Speaker 1: are major, you know, will be passed through to some extent, 154 00:07:34,160 --> 00:07:35,680 Speaker 1: you know. Now, maybe one more point on that is 155 00:07:35,680 --> 00:07:37,480 Speaker 1: I think the interesting thing is that we're hearing from 156 00:07:37,520 --> 00:07:39,880 Speaker 1: some of these larger retailers, you know, as they are 157 00:07:39,920 --> 00:07:42,160 Speaker 1: trying to hold the line on prices. It seems like 158 00:07:42,200 --> 00:07:45,160 Speaker 1: as long as they can to increase market share, they 159 00:07:45,200 --> 00:07:49,400 Speaker 1: had the ability to front run this by importing a 160 00:07:49,440 --> 00:07:51,840 Speaker 1: lot of inventory ahead of time, you know, so they 161 00:07:51,920 --> 00:07:53,760 Speaker 1: might have a bit more of a window before they 162 00:07:53,800 --> 00:07:55,040 Speaker 1: really need to raise prices. 163 00:07:55,360 --> 00:07:57,160 Speaker 5: That's said Tiffany. If you look at some of the 164 00:07:57,200 --> 00:08:00,480 Speaker 5: details under the hood, there is this question about whether 165 00:08:00,560 --> 00:08:03,920 Speaker 5: some of the components that contribute to the smallest increase 166 00:08:03,920 --> 00:08:07,160 Speaker 5: since February of twenty twenty one are sticky, are durable, 167 00:08:07,160 --> 00:08:09,960 Speaker 5: And I'm thinking of housing, which we were talking about 168 00:08:09,960 --> 00:08:13,800 Speaker 5: with Emily Roland earlier, as well as the gasoline prices. 169 00:08:13,840 --> 00:08:16,440 Speaker 5: How much is that going to be a disinflationary force 170 00:08:16,800 --> 00:08:18,920 Speaker 5: that will be thematic through the rest of this year. 171 00:08:21,120 --> 00:08:24,640 Speaker 1: Yeah, well, certainly we've seen a fall in gasoline prices, 172 00:08:24,880 --> 00:08:26,520 Speaker 1: you know. I think the interesting thing is is if 173 00:08:26,560 --> 00:08:29,840 Speaker 1: you look at US gasoline and other US energy prices, 174 00:08:29,880 --> 00:08:32,400 Speaker 1: they have not fallen as much as global oil. So 175 00:08:32,480 --> 00:08:35,880 Speaker 1: think it'll be maybe a little bit less disinflationary, you 176 00:08:35,920 --> 00:08:38,080 Speaker 1: know than if you're just looking at oil prices, but 177 00:08:38,120 --> 00:08:39,800 Speaker 1: you will get some benefit from that, you know. I 178 00:08:39,800 --> 00:08:42,880 Speaker 1: think on the housing side, I think there's real questions here. 179 00:08:43,760 --> 00:08:47,560 Speaker 1: The tariffs clearly will raise housing costs. The things that 180 00:08:47,600 --> 00:08:50,880 Speaker 1: we import in terms of appliances, you know, and other 181 00:08:52,360 --> 00:08:56,560 Speaker 1: inputs into building homes. Most of that comes from China, 182 00:08:56,920 --> 00:08:59,400 Speaker 1: and so that will cost more, you know, and eventually 183 00:08:59,440 --> 00:09:02,760 Speaker 1: that will filter through into higher rental prices, you know. 184 00:09:02,760 --> 00:09:05,840 Speaker 1: Now I think near term against that, you know, we 185 00:09:05,840 --> 00:09:09,559 Speaker 1: we've found evidence that the increased flow of migrants into 186 00:09:09,600 --> 00:09:13,640 Speaker 1: the United States, you know, did raise rentals in sort 187 00:09:13,640 --> 00:09:18,880 Speaker 1: of the lower you know, lower you know, smaller rental 188 00:09:18,920 --> 00:09:21,240 Speaker 1: apartments and things like that. And we think that's why 189 00:09:21,280 --> 00:09:24,920 Speaker 1: you saw, oh we are you know, moderate come down 190 00:09:24,920 --> 00:09:27,640 Speaker 1: inflation come down there much slower than many people were expecting, 191 00:09:27,760 --> 00:09:30,800 Speaker 1: is because you had this offsetting inflow. Now obviously that 192 00:09:31,520 --> 00:09:35,520 Speaker 1: force is waning and potentially even reversing, so that could 193 00:09:35,520 --> 00:09:40,520 Speaker 1: result in some faster deceleration near term and some rental costs, 194 00:09:40,520 --> 00:09:42,960 Speaker 1: but I think ultimately the longer term outlook there is 195 00:09:43,000 --> 00:09:46,920 Speaker 1: for stickier housing costs as a result of some of 196 00:09:46,960 --> 00:09:47,600 Speaker 1: these tariffs. 197 00:09:47,679 --> 00:09:49,640 Speaker 5: John pointed out that we're all kind of tying ourselves 198 00:09:49,640 --> 00:09:51,640 Speaker 5: in pretzels as we try to get all these counter 199 00:09:51,679 --> 00:09:54,319 Speaker 5: forces together, whether it's the immigration story, whether it's the 200 00:09:54,440 --> 00:09:57,120 Speaker 5: terrorift story, whether it's what the economy was heading into 201 00:09:57,160 --> 00:09:59,760 Speaker 5: all of this. You also asked me, and I had 202 00:09:59,760 --> 00:10:02,000 Speaker 5: no answer about when the data would be clean, when 203 00:10:02,000 --> 00:10:04,120 Speaker 5: we would get actually something that we could rely on. 204 00:10:04,200 --> 00:10:05,960 Speaker 5: So I will ask you, at what point do you 205 00:10:06,000 --> 00:10:08,360 Speaker 5: think that you can see sort of the new normal 206 00:10:08,640 --> 00:10:10,640 Speaker 5: in the data or is that not really going to 207 00:10:10,720 --> 00:10:12,600 Speaker 5: come back? Are we going to have to watch these 208 00:10:12,640 --> 00:10:15,959 Speaker 5: trends sort of in parallel fashion and try to compile 209 00:10:16,000 --> 00:10:16,520 Speaker 5: a picture. 210 00:10:18,480 --> 00:10:22,400 Speaker 1: Well, I think that the new normal is I think 211 00:10:22,400 --> 00:10:24,600 Speaker 1: we're quite a ways away from that, you know. I mean, 212 00:10:24,640 --> 00:10:27,240 Speaker 1: I think the bottom line here is just taking a 213 00:10:27,280 --> 00:10:29,719 Speaker 1: step back from from the headlines and things like that. 214 00:10:29,760 --> 00:10:34,640 Speaker 1: The average effective tariff rate that we calculate as a 215 00:10:34,640 --> 00:10:38,920 Speaker 1: result of these trade policies has increased more than any 216 00:10:38,920 --> 00:10:43,040 Speaker 1: time in a century. That is a dramatic economic shock, 217 00:10:43,600 --> 00:10:46,439 Speaker 1: and it will take time for that to flow through 218 00:10:46,600 --> 00:10:50,400 Speaker 1: the system, you know, and we aren't going to see 219 00:10:50,440 --> 00:10:52,520 Speaker 1: the quote unquote new normal on the back of that, 220 00:10:52,679 --> 00:10:55,079 Speaker 1: we think for quite some time, you know. When I 221 00:10:55,120 --> 00:10:56,920 Speaker 1: say quite some time, you know, maybe a year or 222 00:10:57,000 --> 00:11:00,000 Speaker 1: more for the economy really to adjust, assuming these tariffs 223 00:11:00,160 --> 00:11:04,080 Speaker 1: in place. So I guess to settle in and let's 224 00:11:04,080 --> 00:11:04,960 Speaker 1: see what happens. 225 00:11:05,280 --> 00:11:07,679 Speaker 2: Do you think you have a best guess right now, 226 00:11:07,920 --> 00:11:10,280 Speaker 2: any kind of guess, any kind of tall you whatsoever, 227 00:11:10,760 --> 00:11:13,199 Speaker 2: on the nature of that shock, Tiffany. I get that 228 00:11:13,240 --> 00:11:16,680 Speaker 2: it's a policy shock, but it's an inflationary shock, a 229 00:11:16,760 --> 00:11:20,320 Speaker 2: disinflationary shock, a growth shock, a negative supply shock. What 230 00:11:20,440 --> 00:11:21,320 Speaker 2: kind of shock is it? 231 00:11:23,720 --> 00:11:23,920 Speaker 3: Well? 232 00:11:23,960 --> 00:11:26,880 Speaker 1: I think it acts like all of those that you mentioned, 233 00:11:27,559 --> 00:11:29,120 Speaker 1: you know. And I think the bottom line is is 234 00:11:29,160 --> 00:11:33,600 Speaker 1: because we haven't seen the type of a policy like 235 00:11:33,679 --> 00:11:37,600 Speaker 1: this in quite some time, you know, we don't exactly 236 00:11:37,720 --> 00:11:40,880 Speaker 1: know how it's going to filter through into the economy. 237 00:11:40,960 --> 00:11:41,120 Speaker 3: You know. 238 00:11:41,240 --> 00:11:43,320 Speaker 1: Again, we have the best guess about that, which is 239 00:11:43,320 --> 00:11:46,079 Speaker 1: that we think you will get some price level adjustment 240 00:11:46,200 --> 00:11:51,319 Speaker 1: that occurs because firms have to pass on the additional 241 00:11:51,360 --> 00:11:54,760 Speaker 1: costs of tariffs, and they will do so eventually that 242 00:11:54,800 --> 00:11:59,720 Speaker 1: will result in a real income squeeze because you don't 243 00:11:59,720 --> 00:12:03,800 Speaker 1: see wages adjust as quickly. We ultimately think over time 244 00:12:03,840 --> 00:12:06,720 Speaker 1: wages could adjust. But during that real income squeeze, that 245 00:12:06,880 --> 00:12:10,679 Speaker 1: just means that real consumption you know, is hit by that, 246 00:12:11,200 --> 00:12:13,640 Speaker 1: and there's some knock on second round effects from that. 247 00:12:13,720 --> 00:12:17,360 Speaker 1: As volumes start to decline because prices are higher, you know, 248 00:12:17,400 --> 00:12:20,120 Speaker 1: then that just means you potentially need to you know, 249 00:12:20,240 --> 00:12:24,520 Speaker 1: to hire less people. You'll you'll probably get some margin squeeze. 250 00:12:24,840 --> 00:12:29,320 Speaker 1: It could be detrimental to investment trends in the United States, 251 00:12:29,600 --> 00:12:32,280 Speaker 1: you know. I think the magnitude of these things and 252 00:12:32,600 --> 00:12:34,960 Speaker 1: how they play out over what time frame, you know, 253 00:12:35,000 --> 00:12:36,520 Speaker 1: I guess is really the question here, you know. And 254 00:12:36,559 --> 00:12:39,520 Speaker 1: then how inflation expectations adapt to all of this. I 255 00:12:39,520 --> 00:12:42,080 Speaker 1: think the real concern from the Federal Reserve, for example, 256 00:12:42,200 --> 00:12:45,360 Speaker 1: is that we've come off of a period of elevated inflation, 257 00:12:45,880 --> 00:12:48,040 Speaker 1: you know, and having another shock that should be a 258 00:12:48,080 --> 00:12:51,480 Speaker 1: one off, sort of temporary thing, can result in inflation 259 00:12:51,559 --> 00:12:55,720 Speaker 1: expectations drifting higher, can start to creep into wage negotiations, 260 00:12:56,240 --> 00:12:58,520 Speaker 1: and can result in more persistent inflation. I think that's 261 00:12:58,520 --> 00:12:59,720 Speaker 1: what the Fed is concerned about. 262 00:13:00,360 --> 00:13:03,079 Speaker 2: Appreciate yours take has always Tiffany Wilding there of pimcoat 263 00:13:13,400 --> 00:13:15,640 Speaker 2: with us now for more montca Cuera of Mulk and 264 00:13:15,679 --> 00:13:17,400 Speaker 2: Stanley Monica, good morning, get to see you. 265 00:13:17,440 --> 00:13:17,920 Speaker 6: Good morning. 266 00:13:18,080 --> 00:13:20,520 Speaker 2: Let's get to the congressional math and numbers. How narrow? 267 00:13:20,559 --> 00:13:22,360 Speaker 2: How tight are the margins in the House. 268 00:13:22,840 --> 00:13:25,920 Speaker 6: I'm very tight. They only have, you know, just just 269 00:13:25,960 --> 00:13:28,440 Speaker 6: that fifty one percent majority that could get this budget 270 00:13:28,480 --> 00:13:32,600 Speaker 6: reconciliation built through, Which is why it's so important that 271 00:13:32,840 --> 00:13:35,600 Speaker 6: you know, the Salt Republicans and the fiscal hawks you know, 272 00:13:35,640 --> 00:13:38,960 Speaker 6: all come together and get a deal. This I think 273 00:13:39,320 --> 00:13:42,560 Speaker 6: slows them down in their effort to get a bill 274 00:13:42,640 --> 00:13:45,480 Speaker 6: to the President by that Memorial Day. You know, we're 275 00:13:45,520 --> 00:13:48,520 Speaker 6: thinking maybe they get it through committee by then, but 276 00:13:48,559 --> 00:13:50,880 Speaker 6: we're already seeing those hiccups and things that are going 277 00:13:50,920 --> 00:13:53,120 Speaker 6: to slow the pace of this. So we're still looking 278 00:13:53,280 --> 00:13:54,880 Speaker 6: much further out into the summer. 279 00:13:55,080 --> 00:13:57,360 Speaker 2: You now, did how many with the solution? How do 280 00:13:57,400 --> 00:14:01,839 Speaker 2: you please Salt Republicans and the fiscal hooks simultaneously. 281 00:14:03,200 --> 00:14:06,440 Speaker 6: I think that's a really good question. I think it's 282 00:14:06,440 --> 00:14:09,000 Speaker 6: gonna be very hard to do. What you're likely to 283 00:14:09,080 --> 00:14:12,880 Speaker 6: see is more movement on the tax revenue side. You 284 00:14:12,920 --> 00:14:17,280 Speaker 6: can get some wiggle room on salt if say, for example, 285 00:14:17,440 --> 00:14:21,200 Speaker 6: you put in caps on corporate salt deductions, right for example, 286 00:14:21,440 --> 00:14:25,240 Speaker 6: So for those corporate spaces. Now there's lots of other 287 00:14:25,320 --> 00:14:28,400 Speaker 6: options that they could explore as far as raising taxes 288 00:14:28,440 --> 00:14:31,200 Speaker 6: on the margins, like maybe addressing the carried interest loophole. 289 00:14:31,760 --> 00:14:34,880 Speaker 6: So again this is still early days. While we have 290 00:14:34,920 --> 00:14:38,040 Speaker 6: a blueprint and we see where the priorities are, there's 291 00:14:38,080 --> 00:14:41,040 Speaker 6: a lot of negotiation that still has to happen. And 292 00:14:41,080 --> 00:14:43,360 Speaker 6: that's really exemplified by those two issues. 293 00:14:43,560 --> 00:14:46,880 Speaker 5: Which of some of the campaign promises from President Trump, 294 00:14:46,960 --> 00:14:49,480 Speaker 5: do you expect to have a harder time getting through 295 00:14:49,840 --> 00:14:50,840 Speaker 5: to the final draft. 296 00:14:51,200 --> 00:14:51,400 Speaker 3: Yeah. 297 00:14:51,440 --> 00:14:53,400 Speaker 6: So one of the things that we've talked a lot 298 00:14:53,480 --> 00:14:57,880 Speaker 6: about is the note tax on social security benefits. This 299 00:14:58,000 --> 00:15:00,920 Speaker 6: is a huge sort of campaign proposal that was bringing 300 00:15:00,960 --> 00:15:03,480 Speaker 6: a lot of seniors to the table that actually can't 301 00:15:03,520 --> 00:15:06,840 Speaker 6: even be addressed in budget reconciliation because of the rules 302 00:15:06,840 --> 00:15:09,480 Speaker 6: of the parliamentarian rules around it. So we think that 303 00:15:09,520 --> 00:15:11,160 Speaker 6: if something like that is going to come up, it's 304 00:15:11,200 --> 00:15:13,960 Speaker 6: either going to be a twenty twenty six campaign proposal 305 00:15:14,240 --> 00:15:16,840 Speaker 6: or later in the year. Things like the no tax 306 00:15:16,880 --> 00:15:20,000 Speaker 6: on tips, no tax on overtime, and now the senior's 307 00:15:20,080 --> 00:15:24,080 Speaker 6: bonus are all on a temporary basis. So while we're 308 00:15:24,120 --> 00:15:27,280 Speaker 6: getting a little bit of fulfillment on that campaign piece, 309 00:15:27,520 --> 00:15:29,760 Speaker 6: it is still limited, and so that's important to just 310 00:15:29,840 --> 00:15:30,440 Speaker 6: keep in mind. 311 00:15:30,520 --> 00:15:33,080 Speaker 5: There's also the promise that there's going to be revenues 312 00:15:33,080 --> 00:15:36,400 Speaker 5: that aren't necessarily written into the budget that come from tariffs. 313 00:15:36,440 --> 00:15:39,000 Speaker 5: And this has been a pretty big proposal from a 314 00:15:39,040 --> 00:15:41,800 Speaker 5: lot of Republicans that have argued we're not even including 315 00:15:42,080 --> 00:15:44,160 Speaker 5: the pay fors that come from these levees. 316 00:15:44,680 --> 00:15:46,000 Speaker 3: V Al budget lab. 317 00:15:45,880 --> 00:15:48,640 Speaker 5: Estimated that all tariffs to date in twenty twenty five 318 00:15:48,880 --> 00:15:51,480 Speaker 5: would bring in roughly two point three trillion dollars of 319 00:15:51,520 --> 00:15:53,480 Speaker 5: the next decade if they were to remain in place, 320 00:15:53,520 --> 00:15:56,960 Speaker 5: even accounting for some of the negative economic effects. How 321 00:15:57,040 --> 00:15:59,760 Speaker 5: much is this going to be the quiet arguing point 322 00:16:00,000 --> 00:16:00,720 Speaker 5: behind the scenes. 323 00:16:01,000 --> 00:16:03,400 Speaker 6: I think that that loses steam as they've put in 324 00:16:03,440 --> 00:16:05,200 Speaker 6: these pauses and capitulated. 325 00:16:05,600 --> 00:16:06,680 Speaker 2: Even if you look. 326 00:16:06,560 --> 00:16:09,040 Speaker 6: At the deal with China right now, where we've gone 327 00:16:09,040 --> 00:16:12,640 Speaker 6: back down to that thirty percent TERI free if that expires, 328 00:16:12,760 --> 00:16:15,920 Speaker 6: it would bump up to fifty four percent, So speaking 329 00:16:15,920 --> 00:16:18,120 Speaker 6: of campaign promises, it would be right in line with 330 00:16:18,160 --> 00:16:21,680 Speaker 6: Trump's campaign promises. What that means for this budget is 331 00:16:21,720 --> 00:16:24,359 Speaker 6: that the potential revenues that could be used to offset 332 00:16:24,720 --> 00:16:26,520 Speaker 6: aren't necessarily going to be there. In the same way, 333 00:16:26,560 --> 00:16:28,160 Speaker 6: you're still going to be looking more at that seven 334 00:16:28,240 --> 00:16:31,400 Speaker 6: hundred billion level that was first you know, analyzed. I 335 00:16:31,400 --> 00:16:34,480 Speaker 6: think Yale also put out an analysis about that prior 336 00:16:34,680 --> 00:16:36,080 Speaker 6: to the April announcement. 337 00:16:36,240 --> 00:16:37,880 Speaker 2: This is a move in targative course, But what is 338 00:16:37,920 --> 00:16:40,240 Speaker 2: your base case now for trade? What does policy look 339 00:16:40,320 --> 00:16:41,000 Speaker 2: like by year end? 340 00:16:41,840 --> 00:16:43,800 Speaker 6: By year end, I do think we get that that 341 00:16:43,840 --> 00:16:46,920 Speaker 6: ten percent universal tariff. I think you have a fifty 342 00:16:46,920 --> 00:16:50,680 Speaker 6: four to sixty percent on China. What's been interesting is 343 00:16:50,720 --> 00:16:56,200 Speaker 6: how much we've capitulated on almost every single negotiating piece 344 00:16:56,200 --> 00:16:58,480 Speaker 6: with China even to get us to that thirty percent 345 00:16:59,120 --> 00:17:02,560 Speaker 6: right now. So there could be an additional wiggle room there, 346 00:17:02,880 --> 00:17:05,159 Speaker 6: But I do think that we might actually end up 347 00:17:05,200 --> 00:17:07,479 Speaker 6: right where Trump wanted us right and at the end 348 00:17:07,480 --> 00:17:09,400 Speaker 6: of the year at that ten and sixty with some 349 00:17:09,680 --> 00:17:14,400 Speaker 6: you know, very specific reciprocal tariffs that you know would 350 00:17:14,480 --> 00:17:16,640 Speaker 6: impact other Asian countries. 351 00:17:16,840 --> 00:17:19,199 Speaker 5: Do you have any sense of what was gained in 352 00:17:19,240 --> 00:17:22,520 Speaker 5: some of these negotiations, particularly on the US side from China. 353 00:17:22,640 --> 00:17:24,920 Speaker 6: Well, the only thing I think we know right now 354 00:17:25,119 --> 00:17:28,040 Speaker 6: is that we're now going to be able to send 355 00:17:28,040 --> 00:17:30,639 Speaker 6: over Boeing planes, right. That that's really the big you 356 00:17:30,640 --> 00:17:34,840 Speaker 6: know give back. Plus they reduce their teriff weight on 357 00:17:35,000 --> 00:17:38,400 Speaker 6: us to about ten percent on a on a temporary 358 00:17:38,440 --> 00:17:41,240 Speaker 6: basis during that ninety day window, So we got a 359 00:17:41,280 --> 00:17:45,520 Speaker 6: little bit back, not you know, anything significant over the 360 00:17:45,560 --> 00:17:48,600 Speaker 6: long run. But I think that that just again highlights 361 00:17:48,640 --> 00:17:51,840 Speaker 6: that while we're getting some certainty, we're starting. 362 00:17:51,600 --> 00:17:53,480 Speaker 3: To see the the. 363 00:17:53,480 --> 00:17:56,280 Speaker 6: You know plan get fleshed out, we are still very 364 00:17:56,359 --> 00:17:59,800 Speaker 6: much in the sausage making process, and that this is 365 00:17:59,840 --> 00:18:02,240 Speaker 6: not final. And so it does really get back to 366 00:18:02,280 --> 00:18:04,360 Speaker 6: that you know, broader sort of call for us that 367 00:18:04,600 --> 00:18:07,600 Speaker 6: you know, while markets are up, that is still market volatility, right, 368 00:18:07,640 --> 00:18:09,440 Speaker 6: and so we're still in that Q one through Q 369 00:18:09,520 --> 00:18:12,160 Speaker 6: three sort of market volatility window. And once we get 370 00:18:12,160 --> 00:18:14,880 Speaker 6: this budget finalized, I agree with you know, besn't there's 371 00:18:14,920 --> 00:18:17,840 Speaker 6: going to be a lot more cularity. Discussion isn't going 372 00:18:17,880 --> 00:18:19,880 Speaker 6: to be about taxes anymore. We can pivot to other 373 00:18:19,960 --> 00:18:21,840 Speaker 6: things and then it's going to be about that growth, 374 00:18:22,160 --> 00:18:23,520 Speaker 6: that pro growth policy. 375 00:18:23,160 --> 00:18:26,720 Speaker 2: Agenda, deregulation, tax counts, et cetera, something that Treasury Secretary 376 00:18:26,720 --> 00:18:28,959 Speaker 2: would like us to spend a little bit more time on. 377 00:18:29,200 --> 00:18:30,879 Speaker 2: I think away from trade, we would be. 378 00:18:30,840 --> 00:18:33,399 Speaker 5: Happy to you if everybody wasn't trading around every single 379 00:18:33,400 --> 00:18:36,879 Speaker 5: headline like a whack a mole in every single hour 380 00:18:37,119 --> 00:18:39,399 Speaker 5: or day. And that's really the ultimate question. How do 381 00:18:39,440 --> 00:18:42,080 Speaker 5: you get to that when there still is that uncertainty 382 00:18:42,160 --> 00:18:44,119 Speaker 5: of is it just blowing planes? What happened to the 383 00:18:44,160 --> 00:18:47,600 Speaker 5: rare earth's minerals. There's some discussion that maybe permitting is 384 00:18:47,640 --> 00:18:50,400 Speaker 5: going to be easier for US companies, but unclear. 385 00:18:51,080 --> 00:18:53,159 Speaker 2: I think it's a pretty safe assumption right now that 386 00:18:53,280 --> 00:18:55,960 Speaker 2: ten percent baseline tariff is going to nowhere, based on 387 00:18:56,000 --> 00:18:58,480 Speaker 2: the comments we've heard from the administration over the past 388 00:18:58,480 --> 00:19:00,320 Speaker 2: few days. Monica, good to see you. I want to 389 00:19:00,320 --> 00:19:13,240 Speaker 2: conquiror there of Morgan Stanley to extend the conversation with 390 00:19:13,320 --> 00:19:16,800 Speaker 2: us now. Scana Montgomery, Knick of Barclay Scylli, Good mornings here, 391 00:19:16,920 --> 00:19:18,920 Speaker 2: Good morning, you're a dollar this morning one a left 392 00:19:18,920 --> 00:19:20,879 Speaker 2: and yesterday the biggest one day moved lower since the 393 00:19:20,960 --> 00:19:23,680 Speaker 2: day after the election, good news for the dollar. How 394 00:19:23,720 --> 00:19:25,639 Speaker 2: bad is the bad news for the Europeans. 395 00:19:25,960 --> 00:19:28,160 Speaker 7: Yes, well, this is the issue right it's the euro 396 00:19:28,280 --> 00:19:30,920 Speaker 7: has largely been trading as a liquid alternative to the dollar, 397 00:19:30,960 --> 00:19:33,240 Speaker 7: and so yesterday it saw a lot of downside because 398 00:19:33,240 --> 00:19:35,080 Speaker 7: it's a lot of upside when the dollar was under 399 00:19:35,080 --> 00:19:38,000 Speaker 7: pressure as well. I think for the Euro itself, the 400 00:19:38,080 --> 00:19:41,360 Speaker 7: domestic outlook isn't great from a growth perspective. You're bouncing 401 00:19:41,520 --> 00:19:44,920 Speaker 7: terroriff's versus fiscal policy right now. Terrors are more growth 402 00:19:45,000 --> 00:19:47,359 Speaker 7: negatives and the fiscal we've had so far as positive, 403 00:19:47,720 --> 00:19:50,240 Speaker 7: so you need another kind of boost there before you 404 00:19:50,240 --> 00:19:52,000 Speaker 7: can get more positive on the Euro. And I think 405 00:19:52,119 --> 00:19:54,679 Speaker 7: the other issue is, you know, as the price segment 406 00:19:54,680 --> 00:19:57,080 Speaker 7: before alluded to, it's really hard to get a trade 407 00:19:57,080 --> 00:19:59,679 Speaker 7: deal with Europe because you're negotiating with a number of 408 00:19:59,680 --> 00:20:02,560 Speaker 7: country but you also have these non tariff trade barriers 409 00:20:03,000 --> 00:20:04,920 Speaker 7: that make it very hard. And you saw that even 410 00:20:04,920 --> 00:20:07,000 Speaker 7: with the US UK agreement, there wasn't a lot of 411 00:20:07,040 --> 00:20:10,240 Speaker 7: detail there, it was just an outline. So it seems 412 00:20:10,240 --> 00:20:12,440 Speaker 7: like that will be a headwind certainly for the air 413 00:20:12,480 --> 00:20:13,000 Speaker 7: going forward. 414 00:20:13,200 --> 00:20:15,760 Speaker 5: The trade wars in the past couple of weeks has 415 00:20:15,760 --> 00:20:17,680 Speaker 5: been treated as more of a problem for the United 416 00:20:17,680 --> 00:20:20,359 Speaker 5: States than the rest of the world, including Europe. Is 417 00:20:20,400 --> 00:20:23,600 Speaker 5: this the tipping point where that discussion changes and you 418 00:20:23,640 --> 00:20:26,440 Speaker 5: actually see more downside for the euro versus the dollar 419 00:20:26,800 --> 00:20:28,680 Speaker 5: because that narrative is going to flip on its head. 420 00:20:28,960 --> 00:20:31,000 Speaker 7: Yeah, I think it's something we certainly need to consider. 421 00:20:31,119 --> 00:20:33,520 Speaker 7: Part of the story for the dollar was that you 422 00:20:33,720 --> 00:20:36,119 Speaker 7: had this turn in the soft data that meant that 423 00:20:36,160 --> 00:20:39,800 Speaker 7: you had fed expectations reevaluated quite strongly, and that weighed 424 00:20:39,800 --> 00:20:41,240 Speaker 7: on the dollar a lot. And so you could say 425 00:20:41,240 --> 00:20:43,359 Speaker 7: to some extent, because you had that turning consumer and 426 00:20:43,400 --> 00:20:46,480 Speaker 7: corporate confidence, that fed into dollar weakness. Whereas you've not 427 00:20:46,600 --> 00:20:48,800 Speaker 7: had tariffs imposed on Europe for very long, so you 428 00:20:48,840 --> 00:20:50,840 Speaker 7: haven't seen it feed into the data in the same way, 429 00:20:51,040 --> 00:20:53,360 Speaker 7: and you haven't seen that corresponding weakness. So potentially there's 430 00:20:53,400 --> 00:20:56,080 Speaker 7: more growth worries priced in the US and elsewhere. And 431 00:20:56,119 --> 00:20:58,440 Speaker 7: I'll give you Canada as an example of what could happen. 432 00:20:58,480 --> 00:21:01,280 Speaker 7: Because Canada had tariffs imposed early, you saw that turn 433 00:21:01,280 --> 00:21:03,440 Speaker 7: and confidence that's turned into the hard data, and they've 434 00:21:03,440 --> 00:21:05,040 Speaker 7: had a couple of labor market reports that have been 435 00:21:05,160 --> 00:21:05,520 Speaker 7: very weak. 436 00:21:05,560 --> 00:21:08,720 Speaker 5: As a result, how much do rate differentials also start 437 00:21:08,720 --> 00:21:10,920 Speaker 5: to matter again at a time where people are pricing 438 00:21:10,960 --> 00:21:13,399 Speaker 5: in maybe fewer rate cuts by the fetch reserve. At 439 00:21:13,400 --> 00:21:16,199 Speaker 5: the same time, if the ECB might be prompted to 440 00:21:16,200 --> 00:21:18,320 Speaker 5: cut more in the face of weakness. 441 00:21:17,920 --> 00:21:19,920 Speaker 7: Well yeah, this is another reason that you should really 442 00:21:19,960 --> 00:21:22,719 Speaker 7: have euro dollar be a lower level, because rate differentials 443 00:21:22,720 --> 00:21:24,280 Speaker 7: tell you, and you can look at different points on 444 00:21:24,320 --> 00:21:26,480 Speaker 7: the curve, but they tell you that euro dollars should 445 00:21:26,480 --> 00:21:28,440 Speaker 7: be closer to one away than where it is currently. 446 00:21:28,760 --> 00:21:31,360 Speaker 7: And for us, we think those rate differentials should be 447 00:21:31,480 --> 00:21:33,399 Speaker 7: more in fear of the dollar. Even in terms of 448 00:21:33,600 --> 00:21:35,639 Speaker 7: we think the FED will be restrained by inflation. You 449 00:21:35,680 --> 00:21:38,840 Speaker 7: won't have unemployment rises you might have otherwise because you 450 00:21:38,920 --> 00:21:42,000 Speaker 7: have the supply side of the labor market constrained by immigration. 451 00:21:42,560 --> 00:21:44,240 Speaker 7: And so that means we see the FED cutting only 452 00:21:44,280 --> 00:21:47,359 Speaker 7: twice this year. And in contrast those other economies, because 453 00:21:47,400 --> 00:21:49,800 Speaker 7: they don't get the price level adjustment of tariffs, they 454 00:21:49,800 --> 00:21:52,879 Speaker 7: haven't retaliated at the same time, they have lower oil prices, 455 00:21:52,880 --> 00:21:55,320 Speaker 7: they've had a stronger currency, and there's likely going to 456 00:21:55,320 --> 00:21:58,560 Speaker 7: be the supply glut from China. That means disinflation is 457 00:21:58,560 --> 00:22:01,040 Speaker 7: more likely in these other places, and so for Europe 458 00:22:01,080 --> 00:22:03,480 Speaker 7: that means we see the ECB cutting towards one twenty five, 459 00:22:03,520 --> 00:22:05,240 Speaker 7: and that's a big gap to the US. 460 00:22:05,560 --> 00:22:07,720 Speaker 2: The damage done to the US dollar is multi dimensional. 461 00:22:07,800 --> 00:22:09,640 Speaker 2: It's not just about what's been happening with one thing, 462 00:22:09,680 --> 00:22:12,959 Speaker 2: it's across several different dimensions. How reparable is that damage 463 00:22:12,960 --> 00:22:15,359 Speaker 2: done with a simple truce between the US and China 464 00:22:15,680 --> 00:22:16,920 Speaker 2: over the weekend? Yeah? 465 00:22:16,960 --> 00:22:19,600 Speaker 7: I think over the weekend that was a big positive 466 00:22:19,640 --> 00:22:22,200 Speaker 7: surprise for the US because the expectation was terif rates 467 00:22:22,200 --> 00:22:24,919 Speaker 7: would be significantly higher than the levels we've gotten, and 468 00:22:24,960 --> 00:22:27,520 Speaker 7: we've actually gone from an average effective TERIF rate as 469 00:22:27,560 --> 00:22:29,439 Speaker 7: the beginning of last week of twenty five percent to 470 00:22:29,480 --> 00:22:32,280 Speaker 7: fifteen percent. So that's a big upside surprise for growth 471 00:22:32,320 --> 00:22:35,080 Speaker 7: for the US economy. At the same time, you've had 472 00:22:35,320 --> 00:22:37,520 Speaker 7: the soft data term with the hard data's holding out 473 00:22:37,600 --> 00:22:40,280 Speaker 7: quite well, and because of that, you could have a 474 00:22:40,320 --> 00:22:43,200 Speaker 7: more supported dollar environment. I think for US fear value 475 00:22:43,240 --> 00:22:46,000 Speaker 7: for euro dollars somewhere closer to one oh seven. You 476 00:22:46,119 --> 00:22:49,080 Speaker 7: have that gap because there was somewhat of a risk 477 00:22:49,119 --> 00:22:51,919 Speaker 7: premium priced in, but that risk premium, well, it might 478 00:22:51,960 --> 00:22:53,399 Speaker 7: be a little bit sticky it can come off if 479 00:22:53,440 --> 00:22:55,920 Speaker 7: you have more policies from the US administration that seem 480 00:22:56,000 --> 00:22:59,040 Speaker 7: practical or more pool growth, and that means you could 481 00:22:59,040 --> 00:23:02,359 Speaker 7: also have more into US assets, especially if other assets 482 00:23:02,359 --> 00:23:03,160 Speaker 7: aren't as attractive. 483 00:23:03,200 --> 00:23:05,600 Speaker 2: The dollar diversification, as you know, it's been a conversation 484 00:23:05,640 --> 00:23:08,680 Speaker 2: that predates the trade story. We've been seeing that diversification 485 00:23:08,720 --> 00:23:10,520 Speaker 2: at the central bank level to gold now for a 486 00:23:10,600 --> 00:23:13,399 Speaker 2: number of years is enough to unwind some of that. 487 00:23:13,920 --> 00:23:15,200 Speaker 2: Would you push back that far? 488 00:23:15,760 --> 00:23:18,000 Speaker 7: I mean, I think we'll see how it evolves if 489 00:23:18,040 --> 00:23:20,840 Speaker 7: it is truly an unwined story from dollar assets, and 490 00:23:20,920 --> 00:23:23,080 Speaker 7: it can take a while to play out, and you 491 00:23:23,160 --> 00:23:25,560 Speaker 7: might get kind of rounds of depreciation the dollar as 492 00:23:25,560 --> 00:23:28,560 Speaker 7: a result of it. But it's very hard to undo 493 00:23:28,640 --> 00:23:31,520 Speaker 7: a decade of policy that's been very flivable for the US, 494 00:23:31,840 --> 00:23:34,239 Speaker 7: and you're only seeing like little changes here and there 495 00:23:34,240 --> 00:23:36,600 Speaker 7: at the margins, and the flows don't really support a 496 00:23:36,640 --> 00:23:39,120 Speaker 7: broad on wine from the US to elsewhere. The only 497 00:23:39,119 --> 00:23:40,880 Speaker 7: place you really see it is in the Cophort data, 498 00:23:40,920 --> 00:23:43,840 Speaker 7: so in central bank reserves, those are diversified away from 499 00:23:43,880 --> 00:23:46,520 Speaker 7: the US. But it's been very slow over the last 500 00:23:46,520 --> 00:23:48,639 Speaker 7: five years. It's been about a percent a year that 501 00:23:48,680 --> 00:23:52,159 Speaker 7: you've seen diversify away. That was accelerated somewhat by the 502 00:23:52,240 --> 00:23:54,480 Speaker 7: Russian invasion of Ukraine because it was shown that the 503 00:23:54,560 --> 00:23:57,240 Speaker 7: USB US as a weapon. But since then you've also 504 00:23:57,320 --> 00:23:59,840 Speaker 7: had big sycle upswings in the dollars, so it's not 505 00:24:00,119 --> 00:24:02,639 Speaker 7: a detriment in terms of the story of the dollar. 506 00:24:02,720 --> 00:24:05,040 Speaker 2: More broadly, we could come back to the same question 507 00:24:05,240 --> 00:24:07,879 Speaker 2: that we were asking several weeks ago, is this a 508 00:24:07,920 --> 00:24:10,160 Speaker 2: negotiation or the new rules of the game that lead 509 00:24:10,200 --> 00:24:12,159 Speaker 2: to a system level shark? And it just feels like 510 00:24:12,200 --> 00:24:13,639 Speaker 2: a lot of people now going with a former and 511 00:24:13,680 --> 00:24:14,760 Speaker 2: certainly not the latter. 512 00:24:14,680 --> 00:24:16,919 Speaker 5: Talking about maybe this isn't a system level shark, or 513 00:24:16,920 --> 00:24:19,240 Speaker 5: we ultimately have the same trading system that we had before, 514 00:24:19,359 --> 00:24:20,520 Speaker 5: just with slightly higher terrorists. 515 00:24:20,680 --> 00:24:23,560 Speaker 2: Skyler, it's good to see you, Thanks for dropping by. 516 00:24:23,600 --> 00:24:27,160 Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best 517 00:24:27,160 --> 00:24:30,440 Speaker 2: in markets, economics, and geopolitics. You can watch the show 518 00:24:30,520 --> 00:24:33,480 Speaker 2: live on Bloomberg TV weekday mornings from six am to 519 00:24:33,600 --> 00:24:37,359 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 520 00:24:37,520 --> 00:24:39,760 Speaker 2: or anywhere else you listen, and as always on the 521 00:24:39,760 --> 00:24:42,200 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.