WEBVTT - Bloomberg Surveillance TV: May 13, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.400 Terminal and the Bloomberg Business App. David Kelly of JP 0:00:37.479 --> 0:00:39.400 Morgan Asset Management joins us now to build on some 0:00:39.440 --> 0:00:41.839 of this. David, Welcome to the program Sir. What's your 0:00:41.880 --> 0:00:45.440 initial reaction to these numbers this morning? How useful are they? 0:00:47.200 --> 0:00:48.440 Well, you know, usually. 0:00:48.240 --> 0:00:51.440 When we're on this call on CPI day, it's like 0:00:51.560 --> 0:00:54.040 the biggest news of the week. But and you know, 0:00:54.360 --> 0:00:57.200 today obviously it's the terriff news. But also I think 0:00:57.240 --> 0:00:59.960 the other big part of the infliction story going forward 0:01:00.520 --> 0:01:03.720 is the fiscal stimulus that's beginning to emerge on Capitol Hill. 0:01:04.560 --> 0:01:07.679 Because what it looks like is Okay, the tariffs aren't 0:01:07.720 --> 0:01:12.479 here and consumers are relatively quiescent right now, and we're 0:01:12.480 --> 0:01:14.720 not seeing a lot of enthusiasm there with the airline 0:01:14.760 --> 0:01:17.319 fares and so forth down. But it looks like they're 0:01:17.319 --> 0:01:21.360 cooking into this bill stimulus for twenty five, twenty six, 0:01:21.440 --> 0:01:23.520 twenty seven, and twenty eight. They're implementing a lot of 0:01:23.560 --> 0:01:26.400 the President's promises on the campaign trailer in addition to 0:01:26.440 --> 0:01:29.400 extending the tax cuts. And if that comes through, you're 0:01:29.400 --> 0:01:33.400 going to have a surge in consumer spending in twenty 0:01:33.480 --> 0:01:37.040 twenty six help by fiscal stimulus. 0:01:36.600 --> 0:01:39.080 And perhaps even later in twenty twenty five. That'll keep 0:01:39.120 --> 0:01:40.080 inflation little higher. 0:01:40.160 --> 0:01:43.280 So this is good news and inflation, but I think 0:01:43.319 --> 0:01:46.520 the signs are that inflation is going to move up 0:01:46.600 --> 0:01:48.520 in the short run because of tariffs and then in 0:01:48.560 --> 0:01:51.360 twenty twenty six because of renewed physical stimulus. 0:01:51.480 --> 0:01:53.120 And David, is that a reason to be bullish the 0:01:53.160 --> 0:01:53.880 equity market? 0:01:55.920 --> 0:01:59.600 Probably not, you know, I mean, the equity market is 0:01:59.640 --> 0:02:02.360 hard an exactuary are right now, but it's hardly down 0:02:02.440 --> 0:02:04.720 here today, and it's I mean, we've done a sort 0:02:04.720 --> 0:02:06.480 of a round trip on tariffs here, but we still 0:02:06.600 --> 0:02:08.000 end up with the higher tarif rate than we had 0:02:08.000 --> 0:02:10.799 at the start, I think we got swer long term 0:02:10.840 --> 0:02:11.560 economic growth. 0:02:11.600 --> 0:02:13.600 So in some ways the relief rally has been. 0:02:13.520 --> 0:02:15.320 Stronger than the downturn, and I think it may be 0:02:15.360 --> 0:02:18.280 a little bit overdone. So i'd still call from people, 0:02:18.320 --> 0:02:22.040 you know, longer term that the huge premium that US 0:02:22.080 --> 0:02:24.440 equity prices have over the rest of the world probably 0:02:24.639 --> 0:02:27.639 isn't justified, and so I'd still be in the diversification 0:02:27.760 --> 0:02:30.680 camp here. I do think there's you know, a tenure 0:02:30.720 --> 0:02:33.640 treasure yield at four fifty to five is probably more 0:02:33.720 --> 0:02:37.519 reasonable than a big fall from here. But I think 0:02:37.520 --> 0:02:40.760 it's too early to be really bullish about equities because 0:02:40.800 --> 0:02:43.280 of fiscal students, because you know, we're talked about a 0:02:43.280 --> 0:02:46.040 full employment economy where the Fed's going to have less 0:02:46.080 --> 0:02:46.680 reason to cut. 0:02:47.080 --> 0:02:49.400 We've been struggling all morning with whether this really is 0:02:49.440 --> 0:02:52.080 the beginning of the return to the United States and 0:02:52.080 --> 0:02:54.000 the dialing back of some of the loss of US 0:02:54.080 --> 0:02:57.560 exceptionalism types of narratives, or whether this is just a 0:02:57.600 --> 0:03:02.079 pause in the go international trade. David, you talk about diversifying, 0:03:02.400 --> 0:03:04.000 what does that mean if you think that ten year 0:03:04.080 --> 0:03:05.680 yields are going to be in a four fifty to 0:03:05.720 --> 0:03:09.040 five range and you don't really find US equities particularly 0:03:09.080 --> 0:03:09.840 attractive right. 0:03:09.760 --> 0:03:13.000 Now, Well, it does mean international equities. 0:03:13.040 --> 0:03:15.560 I mean, yes, the US equity market is almost done 0:03:15.560 --> 0:03:18.720 around trip here to date, but European equities up very strongly. 0:03:18.800 --> 0:03:22.000 International equities in general are up strongly for the year, 0:03:22.520 --> 0:03:24.360 and the dollar is down. I think that will. 0:03:24.200 --> 0:03:28.000 Continue because you know, if we will still end up 0:03:28.000 --> 0:03:30.280 with significant tariffs at the end of all of this, 0:03:30.480 --> 0:03:33.520 even though we're seeing you know, calming down, we're going 0:03:33.560 --> 0:03:35.840 to end up with higher deficits. We're going to end 0:03:35.920 --> 0:03:39.480 up with lower immigration, probably lower economic growth. So I know, 0:03:39.560 --> 0:03:41.800 you know, this is a package and agenda that the 0:03:41.800 --> 0:03:44.880 public has voted for and that's why we have elections. 0:03:45.120 --> 0:03:48.040 But it does suggest a slower trajectory in US economic growth, 0:03:48.120 --> 0:03:51.360 with higher deficits, somewhat higher inflation in the short. 0:03:51.160 --> 0:03:54.960 To medium term. None of that is really very pro US. 0:03:55.000 --> 0:03:57.160 And the thing is, you know, I think the US 0:03:57.200 --> 0:04:00.560 will do okay, but does it deserve to be, you know, 0:04:00.600 --> 0:04:02.680 a fifty percent premium over the rest of the world 0:04:02.720 --> 0:04:06.440 in terms of pe ratios. So I'd say international equities yes, 0:04:06.600 --> 0:04:10.120 and then also alternatives, you know, just if fixing income's 0:04:10.160 --> 0:04:14.080 not going to help you because of higher inflation alternatives. 0:04:14.160 --> 0:04:16.960 There are plenty of alternative things like infrastructure, transportation, real 0:04:17.080 --> 0:04:19.359 estate which have a degree of inflation protection. So I 0:04:19.360 --> 0:04:23.240 think people just need to broaden their definition of diversification 0:04:23.240 --> 0:04:24.239 in this kind of environment. 0:04:24.440 --> 0:04:26.240 You mentioned the feeds response, and this has been a 0:04:26.240 --> 0:04:29.239 subject of pretty heated debate and prank. Frankly, it feels 0:04:29.279 --> 0:04:31.800 like people are bifurcated on just whether this gives a 0:04:31.800 --> 0:04:35.279 FED more incentive to cut rates just for the good 0:04:35.320 --> 0:04:39.720 reasons or less incentive. From your perspective, is this more 0:04:39.880 --> 0:04:43.800 of a reduction in potential inflation in terms of the 0:04:43.839 --> 0:04:46.440 lower terrifrate than it could have been that gives the 0:04:46.560 --> 0:04:49.240 FED more of an ability to cut rates without a 0:04:49.279 --> 0:04:51.880 recession at a time where the data that we just saw, 0:04:52.080 --> 0:04:55.400 albeit messy, does point to something of a much lower 0:04:55.400 --> 0:04:56.680 pace of price increases. 0:04:57.160 --> 0:05:00.160 Well, yes, but the fence target is two and I 0:05:00.240 --> 0:05:02.560 think they're on the consumption deflation and I think Jpal 0:05:02.640 --> 0:05:04.880 put it pretty well at his latest press conference. You know, 0:05:05.080 --> 0:05:06.840 they're going to have to look at where they think 0:05:06.880 --> 0:05:10.039 inflation's going, where they think unemployment is going. And I 0:05:10.080 --> 0:05:13.520 think the both fiscal stimulus that is beginning to emerge 0:05:13.520 --> 0:05:18.000 from Capitol Hill, and then also a somewhat lower tariffs. 0:05:18.160 --> 0:05:21.320 They suggest that the risk of recession is receding here. 0:05:21.400 --> 0:05:23.960 I think it's you've probably just gone below fifty percent, 0:05:24.200 --> 0:05:27.039 so risk of recession receding. Maybe the unemployment rate ends 0:05:27.040 --> 0:05:29.880 the year four and a half percent to five, but 0:05:30.000 --> 0:05:32.800 the CPI or oh sorry, the consumption phase could easily 0:05:32.839 --> 0:05:35.279 end the year above three percent. In fact, it probably will, 0:05:35.560 --> 0:05:38.720 so probably be further from consumption to flat target than 0:05:38.760 --> 0:05:39.920 from the unemployment target. 0:05:40.160 --> 0:05:41.800 In that kind of environment, there's not much. 0:05:41.680 --> 0:05:44.040 Excuse for the Fed to cut at all because we're 0:05:44.040 --> 0:05:45.960 at you're fairly close to a neutral level. 0:05:45.960 --> 0:05:48.240 So I think the Fed will take it very easy here. 0:05:48.480 --> 0:05:51.120 And it's and it's part of the story's tariffs, but 0:05:51.160 --> 0:05:54.120 the other part is putting more fiscal stimulus and higher 0:05:54.120 --> 0:05:55.600 depthicits into twenty twenty six. 0:05:55.920 --> 0:05:58.760 Really doesn't give the Federal Reserve a reason to be easy. 0:05:58.920 --> 0:06:01.159 It's your base case snake cuts, not David. 0:06:02.000 --> 0:06:04.680 No, not quite. I think we will get at least 0:06:04.760 --> 0:06:07.880 one cut this year. By the end of the year. 0:06:08.600 --> 0:06:10.560 I think the Fed realizes they can they can edge 0:06:10.640 --> 0:06:13.200 rates down a little bit, but I don't expect to 0:06:13.240 --> 0:06:15.560 cut in June. I don't expect to cut in July, 0:06:15.680 --> 0:06:18.160 to be honest, I think they'll want to see much 0:06:18.200 --> 0:06:21.080 more of a you know, a more much more certainty 0:06:21.080 --> 0:06:24.080 around what the terrif picture really is and how much 0:06:24.279 --> 0:06:27.960 stimulus is in this in this bill before they contemplate 0:06:28.080 --> 0:06:29.720 any for any cut. So I think we're gonna have 0:06:29.720 --> 0:06:31.640 to wait some time for the first rate cut. 0:06:31.839 --> 0:06:45.680 Interesting. David Kelly, the of JP Morgan David Gosa ju 0:06:45.800 --> 0:06:48.920 not to discuss Tiffany Welding of Pimco. Tiffany, welcome to 0:06:48.960 --> 0:06:50.919 the program. We were told to ignore some of the 0:06:51.000 --> 0:06:54.040 data throughout this morning. Can we ignore this data? 0:06:56.760 --> 0:06:57.000 Well? 0:06:57.120 --> 0:06:58.760 Yeah, I mean I think there is a lot. It 0:06:58.760 --> 0:07:00.839 sounds like there's a lot going on under the hood, 0:07:01.160 --> 0:07:04.039 But the overall message is that, you know, the US 0:07:04.160 --> 0:07:07.839 economy prior to any sort of tariff pass through was 0:07:07.880 --> 0:07:11.080 just on a continued path towards normalization. After you know, 0:07:11.120 --> 0:07:14.800 after the pandemic related shocks, inflation was was elevated, it's 0:07:14.840 --> 0:07:17.920 remained elevated, and I think overall this report, you know, 0:07:17.960 --> 0:07:21.200 suggests that some of that is coming down. And if 0:07:21.240 --> 0:07:24.840 it weren't for tariffs, the outlook would be towards more moderation. 0:07:25.400 --> 0:07:27.240 But I do think you have to discount this a 0:07:27.240 --> 0:07:30.760 little bit because we know eventually the tariff costs, which 0:07:30.840 --> 0:07:34.040 are major, you know, will be passed through to some extent, 0:07:34.160 --> 0:07:35.680 you know. Now, maybe one more point on that is 0:07:35.680 --> 0:07:37.480 I think the interesting thing is that we're hearing from 0:07:37.520 --> 0:07:39.880 some of these larger retailers, you know, as they are 0:07:39.920 --> 0:07:42.160 trying to hold the line on prices. It seems like 0:07:42.200 --> 0:07:45.160 as long as they can to increase market share, they 0:07:45.200 --> 0:07:49.400 had the ability to front run this by importing a 0:07:49.440 --> 0:07:51.840 lot of inventory ahead of time, you know, so they 0:07:51.920 --> 0:07:53.760 might have a bit more of a window before they 0:07:53.800 --> 0:07:55.040 really need to raise prices. 0:07:55.360 --> 0:07:57.160 That's said Tiffany. If you look at some of the 0:07:57.200 --> 0:08:00.480 details under the hood, there is this question about whether 0:08:00.560 --> 0:08:03.920 some of the components that contribute to the smallest increase 0:08:03.920 --> 0:08:07.160 since February of twenty twenty one are sticky, are durable, 0:08:07.160 --> 0:08:09.960 And I'm thinking of housing, which we were talking about 0:08:09.960 --> 0:08:13.800 with Emily Roland earlier, as well as the gasoline prices. 0:08:13.840 --> 0:08:16.440 How much is that going to be a disinflationary force 0:08:16.800 --> 0:08:18.920 that will be thematic through the rest of this year. 0:08:21.120 --> 0:08:24.640 Yeah, well, certainly we've seen a fall in gasoline prices, 0:08:24.880 --> 0:08:26.520 you know. I think the interesting thing is is if 0:08:26.560 --> 0:08:29.840 you look at US gasoline and other US energy prices, 0:08:29.880 --> 0:08:32.400 they have not fallen as much as global oil. So 0:08:32.480 --> 0:08:35.880 think it'll be maybe a little bit less disinflationary, you 0:08:35.920 --> 0:08:38.080 know than if you're just looking at oil prices, but 0:08:38.120 --> 0:08:39.800 you will get some benefit from that, you know. I 0:08:39.800 --> 0:08:42.880 think on the housing side, I think there's real questions here. 0:08:43.760 --> 0:08:47.560 The tariffs clearly will raise housing costs. The things that 0:08:47.600 --> 0:08:50.880 we import in terms of appliances, you know, and other 0:08:52.360 --> 0:08:56.560 inputs into building homes. Most of that comes from China, 0:08:56.920 --> 0:08:59.400 and so that will cost more, you know, and eventually 0:08:59.440 --> 0:09:02.760 that will filter through into higher rental prices, you know. 0:09:02.760 --> 0:09:05.840 Now I think near term against that, you know, we 0:09:05.840 --> 0:09:09.559 we've found evidence that the increased flow of migrants into 0:09:09.600 --> 0:09:13.640 the United States, you know, did raise rentals in sort 0:09:13.640 --> 0:09:18.880 of the lower you know, lower you know, smaller rental 0:09:18.920 --> 0:09:21.240 apartments and things like that. And we think that's why 0:09:21.280 --> 0:09:24.920 you saw, oh we are you know, moderate come down 0:09:24.920 --> 0:09:27.640 inflation come down there much slower than many people were expecting, 0:09:27.760 --> 0:09:30.800 is because you had this offsetting inflow. Now obviously that 0:09:31.520 --> 0:09:35.520 force is waning and potentially even reversing, so that could 0:09:35.520 --> 0:09:40.520 result in some faster deceleration near term and some rental costs, 0:09:40.520 --> 0:09:42.960 but I think ultimately the longer term outlook there is 0:09:43.000 --> 0:09:46.920 for stickier housing costs as a result of some of 0:09:46.960 --> 0:09:47.600 these tariffs. 0:09:47.679 --> 0:09:49.640 John pointed out that we're all kind of tying ourselves 0:09:49.640 --> 0:09:51.640 in pretzels as we try to get all these counter 0:09:51.679 --> 0:09:54.319 forces together, whether it's the immigration story, whether it's the 0:09:54.440 --> 0:09:57.120 terrorift story, whether it's what the economy was heading into 0:09:57.160 --> 0:09:59.760 all of this. You also asked me, and I had 0:09:59.760 --> 0:10:02.000 no answer about when the data would be clean, when 0:10:02.000 --> 0:10:04.120 we would get actually something that we could rely on. 0:10:04.200 --> 0:10:05.960 So I will ask you, at what point do you 0:10:06.000 --> 0:10:08.360 think that you can see sort of the new normal 0:10:08.640 --> 0:10:10.640 in the data or is that not really going to 0:10:10.720 --> 0:10:12.600 come back? Are we going to have to watch these 0:10:12.640 --> 0:10:15.959 trends sort of in parallel fashion and try to compile 0:10:16.000 --> 0:10:16.520 a picture. 0:10:18.480 --> 0:10:22.400 Well, I think that the new normal is I think 0:10:22.400 --> 0:10:24.600 we're quite a ways away from that, you know. I mean, 0:10:24.640 --> 0:10:27.240 I think the bottom line here is just taking a 0:10:27.280 --> 0:10:29.719 step back from from the headlines and things like that. 0:10:29.760 --> 0:10:34.640 The average effective tariff rate that we calculate as a 0:10:34.640 --> 0:10:38.920 result of these trade policies has increased more than any 0:10:38.920 --> 0:10:43.040 time in a century. That is a dramatic economic shock, 0:10:43.600 --> 0:10:46.439 and it will take time for that to flow through 0:10:46.600 --> 0:10:50.400 the system, you know, and we aren't going to see 0:10:50.440 --> 0:10:52.520 the quote unquote new normal on the back of that, 0:10:52.679 --> 0:10:55.079 we think for quite some time, you know. When I 0:10:55.120 --> 0:10:56.920 say quite some time, you know, maybe a year or 0:10:57.000 --> 0:11:00.000 more for the economy really to adjust, assuming these tariffs 0:11:00.160 --> 0:11:04.080 in place. So I guess to settle in and let's 0:11:04.080 --> 0:11:04.960 see what happens. 0:11:05.280 --> 0:11:07.679 Do you think you have a best guess right now, 0:11:07.920 --> 0:11:10.280 any kind of guess, any kind of tall you whatsoever, 0:11:10.760 --> 0:11:13.199 on the nature of that shock, Tiffany. I get that 0:11:13.240 --> 0:11:16.680 it's a policy shock, but it's an inflationary shock, a 0:11:16.760 --> 0:11:20.320 disinflationary shock, a growth shock, a negative supply shock. What 0:11:20.440 --> 0:11:21.320 kind of shock is it? 0:11:23.720 --> 0:11:23.920 Well? 0:11:23.960 --> 0:11:26.880 I think it acts like all of those that you mentioned, 0:11:27.559 --> 0:11:29.120 you know. And I think the bottom line is is 0:11:29.160 --> 0:11:33.600 because we haven't seen the type of a policy like 0:11:33.679 --> 0:11:37.600 this in quite some time, you know, we don't exactly 0:11:37.720 --> 0:11:40.880 know how it's going to filter through into the economy. 0:11:40.960 --> 0:11:41.120 You know. 0:11:41.240 --> 0:11:43.320 Again, we have the best guess about that, which is 0:11:43.320 --> 0:11:46.079 that we think you will get some price level adjustment 0:11:46.200 --> 0:11:51.319 that occurs because firms have to pass on the additional 0:11:51.360 --> 0:11:54.760 costs of tariffs, and they will do so eventually that 0:11:54.800 --> 0:11:59.720 will result in a real income squeeze because you don't 0:11:59.720 --> 0:12:03.800 see wages adjust as quickly. We ultimately think over time 0:12:03.840 --> 0:12:06.720 wages could adjust. But during that real income squeeze, that 0:12:06.880 --> 0:12:10.679 just means that real consumption you know, is hit by that, 0:12:11.200 --> 0:12:13.640 and there's some knock on second round effects from that. 0:12:13.720 --> 0:12:17.360 As volumes start to decline because prices are higher, you know, 0:12:17.400 --> 0:12:20.120 then that just means you potentially need to you know, 0:12:20.240 --> 0:12:24.520 to hire less people. You'll you'll probably get some margin squeeze. 0:12:24.840 --> 0:12:29.320 It could be detrimental to investment trends in the United States, 0:12:29.600 --> 0:12:32.280 you know. I think the magnitude of these things and 0:12:32.600 --> 0:12:34.960 how they play out over what time frame, you know, 0:12:35.000 --> 0:12:36.520 I guess is really the question here, you know. And 0:12:36.559 --> 0:12:39.520 then how inflation expectations adapt to all of this. I 0:12:39.520 --> 0:12:42.080 think the real concern from the Federal Reserve, for example, 0:12:42.200 --> 0:12:45.360 is that we've come off of a period of elevated inflation, 0:12:45.880 --> 0:12:48.040 you know, and having another shock that should be a 0:12:48.080 --> 0:12:51.480 one off, sort of temporary thing, can result in inflation 0:12:51.559 --> 0:12:55.720 expectations drifting higher, can start to creep into wage negotiations, 0:12:56.240 --> 0:12:58.520 and can result in more persistent inflation. I think that's 0:12:58.520 --> 0:12:59.720 what the Fed is concerned about. 0:13:00.360 --> 0:13:03.079 Appreciate yours take has always Tiffany Wilding there of pimcoat 0:13:13.400 --> 0:13:15.640 with us now for more montca Cuera of Mulk and 0:13:15.679 --> 0:13:17.400 Stanley Monica, good morning, get to see you. 0:13:17.440 --> 0:13:17.920 Good morning. 0:13:18.080 --> 0:13:20.520 Let's get to the congressional math and numbers. How narrow? 0:13:20.559 --> 0:13:22.360 How tight are the margins in the House. 0:13:22.840 --> 0:13:25.920 I'm very tight. They only have, you know, just just 0:13:25.960 --> 0:13:28.440 that fifty one percent majority that could get this budget 0:13:28.480 --> 0:13:32.600 reconciliation built through, Which is why it's so important that 0:13:32.840 --> 0:13:35.600 you know, the Salt Republicans and the fiscal hawks you know, 0:13:35.640 --> 0:13:38.960 all come together and get a deal. This I think 0:13:39.320 --> 0:13:42.560 slows them down in their effort to get a bill 0:13:42.640 --> 0:13:45.480 to the President by that Memorial Day. You know, we're 0:13:45.520 --> 0:13:48.520 thinking maybe they get it through committee by then, but 0:13:48.559 --> 0:13:50.880 we're already seeing those hiccups and things that are going 0:13:50.920 --> 0:13:53.120 to slow the pace of this. So we're still looking 0:13:53.280 --> 0:13:54.880 much further out into the summer. 0:13:55.080 --> 0:13:57.360 You now, did how many with the solution? How do 0:13:57.400 --> 0:14:01.839 you please Salt Republicans and the fiscal hooks simultaneously. 0:14:03.200 --> 0:14:06.440 I think that's a really good question. I think it's 0:14:06.440 --> 0:14:09.000 gonna be very hard to do. What you're likely to 0:14:09.080 --> 0:14:12.880 see is more movement on the tax revenue side. You 0:14:12.920 --> 0:14:17.280 can get some wiggle room on salt if say, for example, 0:14:17.440 --> 0:14:21.200 you put in caps on corporate salt deductions, right for example, 0:14:21.440 --> 0:14:25.240 So for those corporate spaces. Now there's lots of other 0:14:25.320 --> 0:14:28.400 options that they could explore as far as raising taxes 0:14:28.440 --> 0:14:31.200 on the margins, like maybe addressing the carried interest loophole. 0:14:31.760 --> 0:14:34.880 So again this is still early days. While we have 0:14:34.920 --> 0:14:38.040 a blueprint and we see where the priorities are, there's 0:14:38.080 --> 0:14:41.040 a lot of negotiation that still has to happen. And 0:14:41.080 --> 0:14:43.360 that's really exemplified by those two issues. 0:14:43.560 --> 0:14:46.880 Which of some of the campaign promises from President Trump, 0:14:46.960 --> 0:14:49.480 do you expect to have a harder time getting through 0:14:49.840 --> 0:14:50.840 to the final draft. 0:14:51.200 --> 0:14:51.400 Yeah. 0:14:51.440 --> 0:14:53.400 So one of the things that we've talked a lot 0:14:53.480 --> 0:14:57.880 about is the note tax on social security benefits. This 0:14:58.000 --> 0:15:00.920 is a huge sort of campaign proposal that was bringing 0:15:00.960 --> 0:15:03.480 a lot of seniors to the table that actually can't 0:15:03.520 --> 0:15:06.840 even be addressed in budget reconciliation because of the rules 0:15:06.840 --> 0:15:09.480 of the parliamentarian rules around it. So we think that 0:15:09.520 --> 0:15:11.160 if something like that is going to come up, it's 0:15:11.200 --> 0:15:13.960 either going to be a twenty twenty six campaign proposal 0:15:14.240 --> 0:15:16.840 or later in the year. Things like the no tax 0:15:16.880 --> 0:15:20.000 on tips, no tax on overtime, and now the senior's 0:15:20.080 --> 0:15:24.080 bonus are all on a temporary basis. So while we're 0:15:24.120 --> 0:15:27.280 getting a little bit of fulfillment on that campaign piece, 0:15:27.520 --> 0:15:29.760 it is still limited, and so that's important to just 0:15:29.840 --> 0:15:30.440 keep in mind. 0:15:30.520 --> 0:15:33.080 There's also the promise that there's going to be revenues 0:15:33.080 --> 0:15:36.400 that aren't necessarily written into the budget that come from tariffs. 0:15:36.440 --> 0:15:39.000 And this has been a pretty big proposal from a 0:15:39.040 --> 0:15:41.800 lot of Republicans that have argued we're not even including 0:15:42.080 --> 0:15:44.160 the pay fors that come from these levees. 0:15:44.680 --> 0:15:46.000 V Al budget lab. 0:15:45.880 --> 0:15:48.640 Estimated that all tariffs to date in twenty twenty five 0:15:48.880 --> 0:15:51.480 would bring in roughly two point three trillion dollars of 0:15:51.520 --> 0:15:53.480 the next decade if they were to remain in place, 0:15:53.520 --> 0:15:56.960 even accounting for some of the negative economic effects. How 0:15:57.040 --> 0:15:59.760 much is this going to be the quiet arguing point 0:16:00.000 --> 0:16:00.720 behind the scenes. 0:16:01.000 --> 0:16:03.400 I think that that loses steam as they've put in 0:16:03.440 --> 0:16:05.200 these pauses and capitulated. 0:16:05.600 --> 0:16:06.680 Even if you look. 0:16:06.560 --> 0:16:09.040 At the deal with China right now, where we've gone 0:16:09.040 --> 0:16:12.640 back down to that thirty percent TERI free if that expires, 0:16:12.760 --> 0:16:15.920 it would bump up to fifty four percent, So speaking 0:16:15.920 --> 0:16:18.120 of campaign promises, it would be right in line with 0:16:18.160 --> 0:16:21.680 Trump's campaign promises. What that means for this budget is 0:16:21.720 --> 0:16:24.359 that the potential revenues that could be used to offset 0:16:24.720 --> 0:16:26.520 aren't necessarily going to be there. In the same way, 0:16:26.560 --> 0:16:28.160 you're still going to be looking more at that seven 0:16:28.240 --> 0:16:31.400 hundred billion level that was first you know, analyzed. I 0:16:31.400 --> 0:16:34.480 think Yale also put out an analysis about that prior 0:16:34.680 --> 0:16:36.080 to the April announcement. 0:16:36.240 --> 0:16:37.880 This is a move in targative course, But what is 0:16:37.920 --> 0:16:40.240 your base case now for trade? What does policy look 0:16:40.320 --> 0:16:41.000 like by year end? 0:16:41.840 --> 0:16:43.800 By year end, I do think we get that that 0:16:43.840 --> 0:16:46.920 ten percent universal tariff. I think you have a fifty 0:16:46.920 --> 0:16:50.680 four to sixty percent on China. What's been interesting is 0:16:50.720 --> 0:16:56.200 how much we've capitulated on almost every single negotiating piece 0:16:56.200 --> 0:16:58.480 with China even to get us to that thirty percent 0:16:59.120 --> 0:17:02.560 right now. So there could be an additional wiggle room there, 0:17:02.880 --> 0:17:05.159 But I do think that we might actually end up 0:17:05.200 --> 0:17:07.479 right where Trump wanted us right and at the end 0:17:07.480 --> 0:17:09.400 of the year at that ten and sixty with some 0:17:09.680 --> 0:17:14.400 you know, very specific reciprocal tariffs that you know would 0:17:14.480 --> 0:17:16.640 impact other Asian countries. 0:17:16.840 --> 0:17:19.199 Do you have any sense of what was gained in 0:17:19.240 --> 0:17:22.520 some of these negotiations, particularly on the US side from China. 0:17:22.640 --> 0:17:24.920 Well, the only thing I think we know right now 0:17:25.119 --> 0:17:28.040 is that we're now going to be able to send 0:17:28.040 --> 0:17:30.639 over Boeing planes, right. That that's really the big you 0:17:30.640 --> 0:17:34.840 know give back. Plus they reduce their teriff weight on 0:17:35.000 --> 0:17:38.400 us to about ten percent on a on a temporary 0:17:38.440 --> 0:17:41.240 basis during that ninety day window, So we got a 0:17:41.280 --> 0:17:45.520 little bit back, not you know, anything significant over the 0:17:45.560 --> 0:17:48.600 long run. But I think that that just again highlights 0:17:48.640 --> 0:17:51.840 that while we're getting some certainty, we're starting. 0:17:51.600 --> 0:17:53.480 To see the the. 0:17:53.480 --> 0:17:56.280 You know plan get fleshed out, we are still very 0:17:56.359 --> 0:17:59.800 much in the sausage making process, and that this is 0:17:59.840 --> 0:18:02.240 not final. And so it does really get back to 0:18:02.280 --> 0:18:04.360 that you know, broader sort of call for us that 0:18:04.600 --> 0:18:07.600 you know, while markets are up, that is still market volatility, right, 0:18:07.640 --> 0:18:09.440 and so we're still in that Q one through Q 0:18:09.520 --> 0:18:12.160 three sort of market volatility window. And once we get 0:18:12.160 --> 0:18:14.880 this budget finalized, I agree with you know, besn't there's 0:18:14.920 --> 0:18:17.840 going to be a lot more cularity. Discussion isn't going 0:18:17.880 --> 0:18:19.880 to be about taxes anymore. We can pivot to other 0:18:19.960 --> 0:18:21.840 things and then it's going to be about that growth, 0:18:22.160 --> 0:18:23.520 that pro growth policy. 0:18:23.160 --> 0:18:26.720 Agenda, deregulation, tax counts, et cetera, something that Treasury Secretary 0:18:26.720 --> 0:18:28.959 would like us to spend a little bit more time on. 0:18:29.200 --> 0:18:30.879 I think away from trade, we would be. 0:18:30.840 --> 0:18:33.399 Happy to you if everybody wasn't trading around every single 0:18:33.400 --> 0:18:36.879 headline like a whack a mole in every single hour 0:18:37.119 --> 0:18:39.399 or day. And that's really the ultimate question. How do 0:18:39.440 --> 0:18:42.080 you get to that when there still is that uncertainty 0:18:42.160 --> 0:18:44.119 of is it just blowing planes? What happened to the 0:18:44.160 --> 0:18:47.600 rare earth's minerals. There's some discussion that maybe permitting is 0:18:47.640 --> 0:18:50.400 going to be easier for US companies, but unclear. 0:18:51.080 --> 0:18:53.159 I think it's a pretty safe assumption right now that 0:18:53.280 --> 0:18:55.960 ten percent baseline tariff is going to nowhere, based on 0:18:56.000 --> 0:18:58.480 the comments we've heard from the administration over the past 0:18:58.480 --> 0:19:00.320 few days. Monica, good to see you. I want to 0:19:00.320 --> 0:19:13.240 conquiror there of Morgan Stanley to extend the conversation with 0:19:13.320 --> 0:19:16.800 us now. Scana Montgomery, Knick of Barclay Scylli, Good mornings here, 0:19:16.920 --> 0:19:18.920 Good morning, you're a dollar this morning one a left 0:19:18.920 --> 0:19:20.879 and yesterday the biggest one day moved lower since the 0:19:20.960 --> 0:19:23.680 day after the election, good news for the dollar. How 0:19:23.720 --> 0:19:25.639 bad is the bad news for the Europeans. 0:19:25.960 --> 0:19:28.160 Yes, well, this is the issue right it's the euro 0:19:28.280 --> 0:19:30.920 has largely been trading as a liquid alternative to the dollar, 0:19:30.960 --> 0:19:33.240 and so yesterday it saw a lot of downside because 0:19:33.240 --> 0:19:35.080 it's a lot of upside when the dollar was under 0:19:35.080 --> 0:19:38.000 pressure as well. I think for the Euro itself, the 0:19:38.080 --> 0:19:41.360 domestic outlook isn't great from a growth perspective. You're bouncing 0:19:41.520 --> 0:19:44.920