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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 1: Publican Congressman French Hill of Arkansas Rock and a green

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Speaker 1: tie with lots of dogs are on it. Joining us now. Congressman,

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Speaker 1: I want to start with this question of how available

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Speaker 1: congress members are going to be to implement some of

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Speaker 1: these proclamations on truth social I know that you are

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Speaker 1: up for leading the House Services Financial Services Committee. What

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Speaker 1: would your priorities on day one?

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Speaker 3: Well, first, Lisa A Marie, great to be with you. First,

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Speaker 3: I think we have to coordinate with the Income and

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Speaker 3: Trump administration about their regulatory priorities.

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Speaker 4: That's number one.

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Speaker 3: Number two, we want to roll back the most egregious

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Speaker 3: burdensome part of the Biden Harris regulatory agenda, whether that's

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Speaker 3: at the CFPB or the SEC or through the bank regulators,

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Speaker 3: we want more clarity, more transparency, less cost in the

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Speaker 3: system while preserving safety and soundness. Next, we need to

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Speaker 3: pursue something that's unfinished business in this Congress, which is

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Speaker 3: to create a market structure for digital assets and bring

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Speaker 3: up that clarity for innovators, for coders, for venture capitalists

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Speaker 3: who are engaged in the next next range of investment

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Speaker 3: in the web Web three, which has got blockchain as

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Speaker 3: a critical feature of it. So I'd say those are

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Speaker 3: some of the top priorities among many, but those are

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Speaker 3: some of the top priorities.

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Speaker 5: So those would be your priorities if you were to

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Speaker 5: get the gavel. I'm told that this is been very

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Speaker 5: competitive to lead this committee. We're going to see this

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Speaker 5: vote take place in the next twenty four to forty

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Speaker 5: eight hours. How close do you think you are to

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Speaker 5: leading the committee and getting the nod?

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Speaker 3: Well, I've worked very hard over the last few months

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Speaker 3: to talk about my vision for the committee, my ability

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Speaker 3: to be ready day one to implement President Trump and

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Speaker 3: House Republicans' Financial Services priorities and regulatory rollback using budget reconciliation,

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Speaker 3: making community banking great again by both legislative and regulatory

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Speaker 3: changes countering China. So I've talked about my experience. I

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Speaker 3: was a private sector bank CEO, I've been a Denovo

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Speaker 3: Bank founder and CEO. I've been a public company director,

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Speaker 3: and of course worked in the both the executive branch

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Speaker 3: and the legislative branch, specifically on economic and financial services policy.

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Speaker 3: So I've talked about why I believe I'm the best

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Speaker 3: candidate based on that management experience, that ready to go

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Speaker 3: vision I have for the Committee, and the work I've

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Speaker 3: done here in the House.

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Speaker 5: When it comes to the first one hundred days of

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Speaker 5: the Republican sweep through the House and the Senate and

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Speaker 5: the White House, there's a debate now and incoming Senate

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Speaker 5: Majority Leader John Fuhn is talking about but he wants

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Speaker 5: to do two bills, border and energy in one and

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Speaker 5: tax cuts in another. But your colleague in the House,

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Speaker 5: Jason Smith, wants one large package with immigration, energy as

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Speaker 5: well as those tax cuts. What do you think is

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Speaker 5: the best path forward?

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Speaker 3: Well, and Marie, what I think we have to do

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Speaker 3: is be on the same page I think Senate leadership,

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Speaker 3: led by incoming Majority Leader John Thune, our great Speaker

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Speaker 3: Mike Johnson, and the incoming leadership in the Trump administration

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Speaker 3: need to have their own view and have it be

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Speaker 3: a consistent and combined view for both the House and Senate.

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Speaker 3: I think that maximizes the leverage we have for using

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Speaker 3: bucket budget reconciliation. You have to navigate the parliamentarian and

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Speaker 3: the Senate. You have to make sure you have a

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Speaker 3: clear plan, but most importantly, in a narrow majority in

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Speaker 3: the House, we got to make sure we have republic

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Speaker 3: can only votes for that. So that's why I think

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Speaker 3: all three parties, the executive branch, the House, and Senate

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Speaker 3: Republicans all need to be on the same page.

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Speaker 1: Congressman, we talk a lot with different investment managers about

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Speaker 1: the sequencing next year and how things are going to

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Speaker 1: get through from President Trump's agenda. People talking that probably

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Speaker 1: we're going to get tariffs first. We see a great

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Speaker 1: willingness to do that. Do you understand the mechanism by

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Speaker 1: which tariffs bring revenues into the country in a way

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Speaker 1: that could actually offset the deficit.

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Speaker 3: Well, that's a big, big step to make the assertion

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Speaker 3: that tariffs are somehow going to offset a two trillion

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Speaker 3: dollar death sit that is projected to be at that

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Speaker 3: level for the next ten years. I think this is

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Speaker 3: much more about setting long term spending reform and spending priorities,

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Speaker 3: as opposed to that you're going to balance the budget

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Speaker 3: through some revenue mechanism. We need to get serious about

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Speaker 3: prioritizing discretionary spending, but that's only a third of the budget,

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Speaker 3: and we really need a bipartisan by cameral process to

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Speaker 3: make long term spending reforms in what we think can

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Speaker 3: call the mandatory spending programs, which is eighty percent.

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Speaker 4: Of the budget.

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Speaker 3: If we do that, we'll put America's financing on a

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Speaker 3: much more sustainable course, and that will be the ticket,

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Speaker 3: in my view, to countering China, meeting all of our

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Speaker 3: domestic priorities, and having a long term future that doesn't

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Speaker 3: continue to indebt the next generation.

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Speaker 5: So what do you think the end goal President Electroump

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Speaker 5: has when it comes to the tariffs he's discussed on

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Speaker 5: the campaign trail.

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Speaker 4: Well.

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Speaker 3: I think he wants to use tariffs as a major

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Speaker 3: cudgel in bringing people to the negotiating table, and I

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Speaker 3: believe one of the priorities will be make sure that

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Speaker 3: the USMCA, which he negotiated as president and replaced the

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Speaker 3: North American Free Trade Agreement, is working just as American policymakers.

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Speaker 4: Believed it should.

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Speaker 3: Maybe we could strengthen it, make sure that people can't

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Speaker 3: take advantage.

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Speaker 4: Of it inappropriately.

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Speaker 3: Perhaps we could even add countries to it, which I

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Speaker 3: think is an exciting prospect to use that as a

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Speaker 3: real inducement to get more partners trading partners for the

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Speaker 3: United States, Canada, and Mexico. And I think that would

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Speaker 3: be a real ticket to bring FDI that the President

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Speaker 3: talked about yesterday, foreign direct investment coming into the United States.

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Speaker 6: Congressman Hill, just to be clear, then, is it your

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Speaker 6: expectation that we will not see sweeping tariffs, that it

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Speaker 6: is simply a negotiating employee.

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Speaker 3: I think it's a principal cudgel that the President has

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Speaker 3: in bringing people to the table to get better open

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Speaker 3: access for American products and be treating our services and

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Speaker 3: merchandise fairly and make sure that we can get into

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Speaker 3: other countries on a fair and equitable basis. And over

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Speaker 3: the years that's really deteriorated, and I think that's the

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Speaker 3: purpose of using tariffs is to say you're not going

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Speaker 3: to dump your products into our country at subsidized, cheap prices,

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Speaker 3: and we want access to your markets.

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Speaker 1: Congressman, before we let you go, one other big question

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Speaker 1: that we keep hearing about has been how much of

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Speaker 1: the Doege Committee can really push through some of the

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Speaker 1: efficiencies that can help offset a number of the expenditures.

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Speaker 1: How willing do you think congress members are going to

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Speaker 1: be to sign off on some of the proposals to

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Speaker 1: cut staff dramatically across the board.

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Speaker 3: Well, look, I think the Doze exercise led by Elon

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Speaker 3: Musk and Vivek Ramashwami is a good one. I think

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Speaker 3: having outside voices take a look at the calcification of

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Speaker 3: the barnacles that have been built up on the whole

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Speaker 3: of state for decades is really important. And I think

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Speaker 3: they'll have ideas that can be done by executive management

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Speaker 3: on being more efficient and procurement, or policies about employment.

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Speaker 3: But a lot of the tough changes will come that

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Speaker 3: they'll recommend, it will have to be vetted by Congress

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Speaker 3: and approved by Congress. And I can say on the

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Speaker 3: House Republican side, tremendous enthusiasm to see these two successful

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Speaker 3: business guys brainstorm work with the cabinet secretaries and make

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Speaker 3: constructive recommendations for making the government better, more efficient, and

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Speaker 3: of course less costly to the American people.

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Speaker 1: Congressman, thank you so much. You are very generous with

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Speaker 1: your time, and we look forward to speaking to you

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Speaker 1: after that Thursday vote. Congressman French Hell on everything else.

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Speaker 1: David Kelly of JP Morgan with a reaction to what

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Speaker 1: we just got basically bang in line with expectations. I

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Speaker 1: imagine you're going to sort of talk about how this

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Speaker 1: is exactly as expected, the disinflationary trend intact.

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Speaker 4: What's your take?

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Speaker 7: Well, I think it's pretty interesting because when you dig

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Speaker 7: into the data, what we have is rich American inflation.

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Speaker 7: We've got poor world deflation. So if you actually look

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Speaker 7: at the you know, where do we see inflation? In

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Speaker 7: November we saw another four tenths. In airline affairs we

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Speaker 7: saw another five tenths. And hotel rates we saw another

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Speaker 7: six tenths. And new vehicle prices, so the stuff that

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Speaker 7: the rich buy because they got money is going up.

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Speaker 7: But if you look at you know, energy in recent

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Speaker 7: months has come down a lot and then as Michael

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Speaker 7: was pointing out to the things that have been holding

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Speaker 7: inflation up, which are shelter costs and auto insurance, we're

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Speaker 7: both very mild in this report. So what that tells

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Speaker 7: me is if borrowing some shock, the CPI numbers will

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Speaker 7: trend down next year, and you know, the next few

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Speaker 7: months are going to show some high year of year numbers.

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Speaker 7: But by next spring, I think we're going to be

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Speaker 7: below two percent a year of year CPI. But it's

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Speaker 7: really going to be.

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Speaker 4: Because of a lot.

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Speaker 7: Of ordinary goods and services, both by ordinary people seeing

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Speaker 7: some deflation pressure. Even while things that the playthings and

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Speaker 7: play activities and the rich get more expensive.

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Speaker 1: We are seeing right now, to your yells, take a

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Speaker 1: leg lower as people. I'll look through this and get

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Speaker 1: on board with what you're talking about, David, in terms

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Speaker 1: of inflation coming in.

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Speaker 4: How do you.

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Speaker 1: Dismiss this idea that some of the drivers of inflation

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Speaker 1: I'm thinking about airplane costs, I'm thinking of cars, I'm

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Speaker 1: thinking about other sectors are likely starting to see another

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Speaker 1: revival of inflation. How do you discount some of those

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Speaker 1: anecdotes at a time where the cycle has been so confusing.

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Speaker 7: Yeah, I don't think that's likely to happen barring policies,

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Speaker 7: some policy change, right. You know, what I focus on

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Speaker 7: a lot is things like labor costs, and we see

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Speaker 7: no evidence that American workers are getting the kinds of

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Speaker 7: wage increases which would ultimately generate inflation from below. So

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Speaker 7: I don't think that's what's going to happen. But I

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Speaker 7: do think that when the Federal Reserve looks at it,

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Speaker 7: they're going to have to look with one eye on

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Speaker 7: what's really going on the economy right now and one

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Speaker 7: eye of what might be coming in terms of policy

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Speaker 7: going forward. So I do expect that the dot plot

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Speaker 7: next week will be a little bit more cautious than

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Speaker 7: the one in September. I think they'll try and take

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Speaker 7: some rat cuts off the table here in the host years,

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Speaker 7: even though I expect they'll cut in December. So right now,

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Speaker 7: how I'd say, the inflation story is still benign. It's cooling,

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Speaker 7: It's cooling very slowly, but it's still cooling. But the

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Speaker 7: question is what are we going to do to that

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Speaker 7: when we attack this with policy changes next year?

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Speaker 6: And of course, David, the Fed is not political, but

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Speaker 6: how do they avoid a potential political firestorm if they

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Speaker 6: start to take cuts off the table for twenty twenty

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Speaker 6: five in what will be the first year of Trump's

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Speaker 6: second term as president.

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Speaker 4: That seems like something.

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Speaker 6: That would absolutely invoke a truth social tweet opposed. So

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Speaker 6: whatever you call it on next now, well, I.

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Speaker 7: Think they should try and sneak it into the Summary

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Speaker 7: of Economic projections right now rather than disappoint with not

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Speaker 7: cutting rates when people expect them to next year. And

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Speaker 7: so I think we'll see a bit of that. I

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Speaker 7: don't think, you know, I think that they won't assume,

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Speaker 7: as Ja Palace point out, they don't speculate, they don't assume,

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Speaker 7: they don't guess, they're I'm going to assume the impact

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Speaker 7: of all of the potential immigration and tariff policies or

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Speaker 7: deed fiscal stimus in twenty twenty six on inflation. They

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Speaker 7: won't assume that. But I think that the individual bank

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Speaker 7: presidents will probably take a rate cutter two off the

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Speaker 7: table for twenty twenty five twenty twenty six. I'm put

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Speaker 7: in the Summary of economic projections and see if you know,

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Speaker 7: because the danger of a big political firestorm over a

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Speaker 7: dot plot when people, you know, when Americans faure I'm

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Speaker 7: paying that much attention to the dot plot. I don't

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Speaker 7: think there's that great danger. I think it's better for

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Speaker 7: them to set up expectations for less easy and going forward.

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Speaker 7: Set that up now so they don't have to they

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Speaker 7: don't have to defend not cutting when people expected them

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Speaker 7: to in the middle of next year.

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Speaker 6: In the meantime, there's just been this huge surge in

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Speaker 6: optimism as all these soft surveys really follow the politics

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Speaker 6: pretty clearly. There's ones from CEOs from the Business Roundtable

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Speaker 6: saying that they plan to spend more on capex, they

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Speaker 6: plan to hire more small business Optimism is off the

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Speaker 6: charts too, David. At what point does that go from

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Speaker 6: soft data to hard data. Is there a potential for

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Speaker 6: some of that to act as an inflationary force.

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Speaker 7: I don't think so, but I mean there is I

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Speaker 7: think people are happy to have the election behind us.

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Speaker 7: I think there is optimism on deregulation, but I think

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Speaker 7: there is also a fair amount of concern about, you know,

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Speaker 7: how far we're going to push things in terms of

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Speaker 7: tariffs or in terms of deportations, and I think so.

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Speaker 7: I think there's a little bit of caution still out there,

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Speaker 7: and I don't think that the amount of spending that's

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Speaker 7: going to go into the economy is in twenty twenty

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Speaker 7: five is going to cause more inflation, particularly because we've

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Speaker 7: now got a stronger dollar, which is going to reduce

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Speaker 7: import prices go weak global oil prices. We've got a

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Speaker 7: kind of mediocre global economies. There's nothing external that's generating inflation.

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Speaker 7: I don't see wages in the US generating internal inflation.

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Speaker 7: So right now, I think we're still on a you know,

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Speaker 7: there's a very good track. It's it's steady growth, a

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Speaker 7: little bit above trend growth, with inflation gradually easing down.

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Speaker 4: At the question.

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Speaker 7: You know, this is a really good economy for financial markets.

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Speaker 7: The question is can we sustain it in twenty twenty five.

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Speaker 5: Constrictor immigration flows though, could that be a cause for

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Speaker 5: potentially higher wages and wage inflation.

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Speaker 7: Oh yes, yeah. I mean if we do mass deportations

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Speaker 7: of people who are currently working, whether they're legal or not,

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Speaker 7: If they're currently working and we deport them. The problem

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Speaker 7: is the native born working hit population in the United

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Speaker 7: States is declining. So if we don't, if we slam

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Speaker 7: the door on both legal and illegal immigration, then we'll

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Speaker 7: have a problem. But I really don't think that's what's

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Speaker 7: going to happen. I think we'll have to see how

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Speaker 7: it plays out. I think we will see some greater deportation,

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Speaker 7: but I think American business is very anxious that we

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Speaker 7: continue to have skilled workers from around the world come

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Speaker 7: to the United States and help our economy grow, and

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Speaker 7: I think that probably will be sustained.

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Speaker 1: David Kelly of JP Morgan, thank you as always for

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Speaker 1: your insight. Joining us now is jap Brice and of

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Speaker 1: Wells Fargo. Jay, your initial reaction to a hugely surprising

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Speaker 1: print of exactly online what everybody was expecting.

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Speaker 4: Well, so you'll use a phrase. I'm sure, Danny you're

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Speaker 4: familiar with this. It's kind of a damp squib, right,

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Speaker 4: there's nothing to see here.

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Speaker 7: Yeah.

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Speaker 4: I agree with Mike, and I think this will I

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Speaker 4: think the FOMC will go ahead now and cut by

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Speaker 4: twenty five basis points next week. It'd be interesting really

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Speaker 4: going forward because we're not at two percent yet. You know,

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Speaker 4: if you take this number and you annualize it, you're

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Speaker 4: at the core number. You're still running at three and

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Speaker 4: a quarter percent. That's still well above where the FOMC

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Speaker 4: wants to see it now. Tomorrow we'll get you know,

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Speaker 4: we'll get PPI and that will help us to true

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Speaker 4: up our PCE numbers, which is the more important number

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Speaker 4: for the Fed. But you know, this is this right here.

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Speaker 4: There's nothing here that would say the Fed doesn't hike

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Speaker 4: cut rates next week.

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Speaker 1: Which especially comes after the unemployment rate ticked up just

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Speaker 1: a little bit in the prior NFP that we got

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Speaker 1: last Friday. I just wonder what data is really going

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Speaker 1: to become incredibly important going forward, or essentially if the

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Speaker 1: Fed is going to really open up a blank check

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Speaker 1: to do whatever it wants next year because of the

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Speaker 1: policy uncertainty on the table.

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Speaker 4: Yeah. So, I mean the two big numbers are always

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Speaker 4: going to continue to be, at least for the foreseeable future.

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Speaker 4: It's going to be continued to be the labor market

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Speaker 4: report in the CPI slash PCE sort of numbers. But

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Speaker 4: they will look at the totality of the numbers. We'll

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Speaker 4: get retail spending the day before the FOMC meets. You know,

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Speaker 4: that's still an important number. It's not a list like

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Speaker 4: those two, but those I think will be the real

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Speaker 4: key numbers as we continue to move forward.

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Speaker 6: First of all, Jay, Thank you for using the phrase

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Speaker 6: damp squid. Not enough people say it in this country,

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Speaker 6: and it's perfect for a moment like this. What do

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Speaker 6: you expect then, now that you know we're missing maybe

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Speaker 6: like that tiny piece of the puzzle, But we have

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Speaker 6: labor figures, we have CPI. When it comes to what

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Speaker 6: they project forward for twenty twenty five, what are we

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Speaker 6: likely to hear from the Fed? Is this an FOMC

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Speaker 6: that wants to give themselves more optionality to pause at

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Speaker 6: this moment?

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Speaker 4: Well, so, I don't expect Chair palan his press conference

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Speaker 4: to be real specific about policy assumptions. I think we'll

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Speaker 4: be interesting is when you look at the dot plot

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Speaker 4: for twenty twenty five, I think that you're probably going

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Speaker 4: to see a lot of dispersion there depending on what

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Speaker 4: policy assumptions different FOMC members are making. So you know,

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Speaker 4: if you're the president of a FED somewhere and you

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Speaker 4: think there's going to be lots of tariffs next year,

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Speaker 4: you're probably going to have a higher dot than otherwise.

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Speaker 4: And so we won't know what those assumptions are. I'm

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Speaker 4: going to assume that during the FOMC meeting there will

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Speaker 4: be a robust discussion about that, but we're not going

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Speaker 4: to actually know what they discuss until five years from

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Speaker 4: now when the actual transcripts come out, right.

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Speaker 5: But putting this all together, what's your base case for

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Speaker 5: twenty twenty five? It feels like with this inflation data,

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Speaker 5: basically Defense given this green light to cut next week,

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Speaker 5: but what about for twenty twenty five?

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Speaker 4: So what we're assuming is what we've baked into our

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Speaker 4: forecast is not the whole ten percent across the board

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Speaker 4: tariff sixty percent on China. We've kind of taken half

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Speaker 4: of that and we've said, Okay, we think it's probably

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Speaker 4: going to come maybe in the second half of the year.

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Speaker 4: So our base case is in the second half of

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Speaker 4: next year you see a big slowdown in the US

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Speaker 4: economy because of these tariffs, draining purchasing power and then

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Speaker 4: inflation coming up. And so you know, we have the

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Speaker 4: Fed stopping in the summer of next year with their rad.

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Speaker 1: Cuts, and that means that the terminal rate.

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Speaker 4: Is three and a half to four, somewhere in that

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Speaker 4: sort of vicinity.

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Speaker 1: So it'll be interesting to see whether they actually do

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Speaker 1: revise their statement of economic projections next week. Jae Brice

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Speaker 1: and Falls Fargot, Thank you. Wonderful to see you in person.

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