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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 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. Krishna Gouer of Evercore writing,

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Speaker 2: we think any effort to remove Pale would lead to

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Speaker 2: a surge in stagflation, trades, further curve steepning dollar sharply lower,

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Speaker 2: and a much larger increase in the risk premium on

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Speaker 2: us set. So please to say that Krishner is bank

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Speaker 2: with us on a program for more Christian Welcome back

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Speaker 2: to the program, sir, and good morning. You wrote about

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Speaker 2: it going into the weekend last week. You said that

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Speaker 2: if you love the trade of the back of the

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Speaker 2: trade tobacco, then you'll love the fed independence trade the

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Speaker 2: loss of fed independence. Can you talk to us about that, Krishna,

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Speaker 2: did we get a flavor for it in yesterday's session?

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Speaker 3: So I think we did get a little foretaste yesterday

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Speaker 3: of what kind of a train wreck it would be

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Speaker 3: in markets if the presidents ever decided to actually try

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Speaker 3: to fire FED chair Pal. Now, to be very clear,

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Speaker 3: I continue to think that it is not likely. It's

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Speaker 3: not fifty percent or higher probability that Trump will actually

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Speaker 3: try to terminate Pal, but it's clearly a non trivial risk,

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Speaker 3: a serious risk, and when it's put before markets, you

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Speaker 3: get the verdict that you got yesterday, yield higher dollar,

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Speaker 3: lower stocks, lower, fundamentally reduced attractiveness of US assets across

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Speaker 3: the board. That is I think a cautionary message, and

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Speaker 3: I hope pits being heard in the right places. Remember

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Speaker 3: that up to this point, what we've seen in markets

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Speaker 3: is a clear sign of erosion of confidence in US

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Speaker 3: administration economic policy making. But we have not seen a

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Speaker 3: loss of confidence in the FED. We can prove that

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Speaker 3: because up to this point the inflation break evens have

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Speaker 3: stayed very well behaved. The market is not priced in

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Speaker 3: stagflation trades. But if you ever got to the point

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Speaker 3: where FED independence was actually being broken or an attempt

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Speaker 3: to break it in real time. I think what you'd

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Speaker 3: see is a shift towards stagflation trades, as well as

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Speaker 3: a broader intensification of across the board market weakness and

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Speaker 3: US assets.

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Speaker 2: So, Christian, let's talk about what we've seen so far.

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Speaker 2: We have seen and rebalancing away from dollar denominated assets.

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Speaker 2: We've seen that over the last several weeks. How much

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Speaker 2: toothpaste do you think is out of the tube? How

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Speaker 2: much damage is done? Parable?

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Speaker 4: Is that damage?

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Speaker 5: Well?

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Speaker 3: I think right now we're in an intermediate spot between

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Speaker 3: business as usual ups and downs in markets and the

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Speaker 3: kind of fundamental tectonic regime shift that one of your

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Speaker 3: earlier guests was quoted discussing just before this segment began.

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Speaker 3: What we've been seeing in the last few weeks is

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Speaker 3: absolutely not business as usual. We've seen substantial upward pressure

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Speaker 3: on real yields and the real term premium that investors

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Speaker 3: demands a hold US government debt despite a deteriorating economic outlook.

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Speaker 3: We've also seen the dollar go down on days when

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Speaker 3: the yields have been going up. That's the sort of

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Speaker 3: thing that you normally see in emerging markets and is

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Speaker 3: a sign that capital is being reallocated out of the

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Speaker 3: US at the margin. But I think it's still premature

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Speaker 3: to talk about a fundamental regime shift. We're not there yet.

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Speaker 3: You know, the dollar was overvalued coming in on many measures,

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Speaker 3: so some dollar retracement is not perhaps extraordinary. The world

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Speaker 3: was over allocated to the US, So again, reallocation out

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Speaker 3: of the US at the margin not in itself the

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Speaker 3: sign that the old regime is breaking. But there are

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Speaker 3: lots of warning signs here. And of course the subtlety

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Speaker 3: here is that if there is even a significant risk

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Speaker 3: that we could be looking at an economic regime change,

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Speaker 3: and that is going to affect asset prices today well

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Speaker 3: in advance of whether when we discover whether the regime

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Speaker 3: is actually shifting or not.

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Speaker 6: Okay, so christ, let's game out what it would look

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Speaker 6: like if, to use your phrase, we did see a

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Speaker 6: real Liz Trust type moment in the United States, with

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Speaker 6: a real loss of confidence both in fin independence as

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Speaker 6: well as policy certainty going forward in the United States.

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Speaker 6: What would that look like in terms of asset prices

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Speaker 6: going forward?

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Speaker 3: Well, so, what I wanted to sort of point to

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Speaker 3: here is to begin with that the starting position is

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Speaker 3: very different. Right, The US is not the UK. The

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Speaker 3: US is the core holding in every global investors portfolios,

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Speaker 3: the core holding in every official sector portfolio, the dollar

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Speaker 3: dominant currency. So it takes a lot more to generate

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Speaker 3: the type of liz Trust dynamics in the US than

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Speaker 3: it did in the UK. And we're definitely not there yet.

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Speaker 3: But what would that pathway look like. That pathway would

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Speaker 3: essentially involve morphing from a tariff crisis to a fiscal crisis,

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Speaker 3: and the mechanism by which that would happen is a

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Speaker 3: global buyers strike in the treasury market at the time

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Speaker 3: when the deficit blew out on an economic downturn, lack

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Speaker 3: of serious physical consolidation in tax legislation, and potentially even

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Speaker 3: some doubling down on unfunded tax cuts down the lines

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Speaker 3: try to pull the US out of that recession. To

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Speaker 3: be really clear, that's not my forecast. It's not even

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Speaker 3: my main risk case. My main risk case is a

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Speaker 3: garden variety recession. But it is more than a tail

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Speaker 3: risk at this point already, And if the FED chair

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Speaker 3: were to be fired, I think the risk of that

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Speaker 3: morphing from a tariff crisis to a fiscal crisis would

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Speaker 3: move up a lot.

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Speaker 1: You keep saying we're not in a fundamental regime shift.

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Speaker 1: Yet we're not at this Liz Trust moment yet. So

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Speaker 1: the catalyst for you might be something on the fiscal front. Well,

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Speaker 1: what happens when the tax negotiations become the new main

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Speaker 1: driver and the president is pushing for more than just TCJA.

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Speaker 3: So I think the area that we all need to

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Speaker 3: be focused on and thinking about is the interaction between

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Speaker 3: the trade policy, the tariffs more broadly pulling back from

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Speaker 3: international economic insecurity engagement on the part of the US,

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Speaker 3: and the fiscal front, where the US is already running

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Speaker 3: a large structural deficit, and as you point out, you know,

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Speaker 3: this tax legislation moving through that looks at this stage

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Speaker 3: unlikely to tackle serious fiscal consolidation, with pressures to add

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Speaker 3: more tax cuts, you know, to what is already in

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Speaker 3: the hopper. So as every you know, as every economist

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Speaker 3: NERD will tell you, a trade deficit is simply a

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Speaker 3: capital surplus. And so when you start to to, you know,

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Speaker 3: to pull away from international economic engagement on the trade side,

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Speaker 3: it almost inevitably is going to have consequences on the

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Speaker 3: capital account side as well. And that's where we've got

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Speaker 3: to be careful because a good part of that capital

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Speaker 3: is funding the US deficit.

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Speaker 2: Christna looking forward to continuing the conversation with you, sir.

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Speaker 2: Brilliant as always, Krista go with that of Emma Coore.

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Speaker 2: Robert Starkna City marking down growth expectations, writing quote, we

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Speaker 2: see global growth falling from just down to three percent

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Speaker 2: last year to two point one percent in twenty twenty five,

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Speaker 2: as our forecasts have been marked down for a broad

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Speaker 2: group of economies, including the United States. Rob Joint just

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Speaker 2: now for more rop good morning, good morning, two point

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Speaker 2: one percent. That's global recession territory, isn't it.

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Speaker 4: It's starting to get into that territory.

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Speaker 7: It would be a distinctly weak year, much weaker than

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Speaker 7: we saw over the last few years when we grew

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Speaker 7: just a bit below global trend, but still probably would

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Speaker 7: skirt that definition of global recession. But that being said,

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Speaker 7: I think the risk to the forecasts are skewed strongly

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Speaker 7: to the downside, especially because within that forecast we still

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Speaker 7: have China growing at a decent rate despite this trade

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Speaker 7: war going on between the US and China, and we

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Speaker 7: don't have a US recession.

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Speaker 4: In the forecast, we have low growth but no recession.

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Speaker 7: If those two downside risk materialize, you can easily get

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Speaker 7: into global recession.

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Speaker 2: Just sit on China for a bait. What's driving that growth?

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Speaker 7: Well, it's interesting if you go back not too long ago,

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Speaker 7: we were actually marking up growth in China. We were

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Speaker 7: marketingmp growth in Europe. These narratives were getting more positive

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Speaker 7: in China. We were starting to see signs that private

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Speaker 7: sector demand was picking up. You had the positive AI

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Speaker 7: story that was developing in the investments around that. But

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Speaker 7: this trade war is kind of reversed that narrative and the.

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Speaker 4: Headwinds are going to be substantial.

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Speaker 7: We do see the government coming out with more stimulus

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Speaker 7: to try and offset some of that, which is why

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Speaker 7: that forecast is not even lower on the year. But

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Speaker 7: you know, it's going to be a big challenge of

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Speaker 7: this trade war pers that persists.

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Speaker 4: How much can.

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Speaker 6: There be a huge divergence between the rest of the

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Speaker 6: world and the United States or the rest of the

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Speaker 6: world actually takes off and it starts expanding at a

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Speaker 6: faster rate, Especially based in the fact that rates can

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Speaker 6: keep going lower, you might get disinflationary forces in certain places,

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Speaker 6: and you have the potential for stimulus at the same

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Speaker 6: time that money is flowing into their economies and away

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Speaker 6: from the United States. And it's a pretty potentially rosy

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Speaker 6: scenario for outside of the United States to diverge.

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Speaker 2: Yeah.

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Speaker 7: Absolutely, And if you look at the contours of our forecast,

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Speaker 7: you get a lot of softness in the US, you

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Speaker 7: get softness elsewhere. And it depends on how these tariff

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Speaker 7: negotiations and tariff uncertainty evolves. But other parts of the

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Speaker 7: world hold up relatively well outside of China. Most of

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Speaker 7: the EMS, we've been marking some of them down slowly,

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Speaker 7: but most of them still have pretty solid growth forecasts.

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Speaker 7: But I do think that the policy uncertainty and the

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Speaker 7: tariffs that are emitting from the US is going to

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Speaker 7: weigh on a lot of economies.

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Speaker 4: I mean, for Europe it's a good example.

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Speaker 7: We had one percent growth over the next four quarters

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Speaker 7: prior to these tariff stresses. Now we have close to

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Speaker 7: zero growth or just above that. So I think for

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Speaker 7: the rest of the world, it's going to be hard

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Speaker 7: to grow or at a solid rate, given that these

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Speaker 7: tariffs are still looming large and trade uncertainty is still

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Speaker 7: looming large.

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Speaker 6: How much would you have to see to get more

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Speaker 6: constructive on the global outlook where suddenly a week or

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Speaker 6: dollar actually helps support US companies. You end up with

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Speaker 6: a little bit more in terms of certainty with.

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Speaker 4: Trade deals, and suddenly all of this sort.

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Speaker 6: Of negativity versus course the hard data has been solid

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Speaker 6: and things are looking a little bit more like they

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Speaker 6: were maybe three months ago.

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Speaker 8: Yeah.

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Speaker 7: Absolutely, And I think we're in that ninety day pause,

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Speaker 7: and if we start to get trade deals materializing over

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Speaker 7: that period and there starts to be signs that the

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Speaker 7: administration is backing off of its tougher stance on tariffs,

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Speaker 7: not backing off entirely. We do think those trade deals

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Speaker 7: are going to have probably a ten percent minimum tariff,

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Speaker 7: those sectoral tarifs will stay in place. But if you

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Speaker 7: start to see us moving away from that very high

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Speaker 7: level of uncertainty where we don't know what the tariff's

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Speaker 7: going to look like in a week or two weeks,

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Speaker 7: and you start to get those deals emerging, I think

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Speaker 7: the global economy is still going to have a tough

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Speaker 7: patch for the next few quarters, but I could see

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Speaker 7: that forecast for the global economy that's at two point

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Speaker 7: one moving up a bit if that uncertainty starts coming

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Speaker 7: off the boil. But right now, I think the risks

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Speaker 7: again are still skewed to the downside, especially because more

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Speaker 7: tariffs are probably likely to be announced in coming weeks

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Speaker 7: and we don't know how these negotiates are going to go.

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Speaker 1: And these negotiations are for trading partners, not China, where

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Speaker 1: America gets most of it's good good How long can

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Speaker 1: you wait around and not have a trade deal with China?

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Speaker 7: Yeah, And I think that's the challenging situation, is that

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Speaker 7: this trade war feels untenable from both sides. You're looking

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Speaker 7: at tariffs on many goods that go across both borders

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Speaker 7: of well over one hundred percent.

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Speaker 4: That trade is going to be uneconomical.

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Speaker 7: So if you keep those tariffs on, trading those categories

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Speaker 7: is basically going to fall to zero over time. And

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Speaker 7: we still get in a direct sense, that's not even

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Speaker 7: including indirect trade throughout other countries, over thirteen percent of

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Speaker 7: our imports from China, So it's a big headwind. I

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Speaker 7: think we're probably going to see the temperature cool down

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Speaker 7: there as well, but the longer that persists, the deeper

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Speaker 7: the risks are. Especially one risk in that conversation is

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Speaker 7: what happens with global supply chains? Are we going to

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Speaker 7: get shortages and stresses like we saw during the pandemic.

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Speaker 7: Given that China is still deeply entwined in global supply chains, can.

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Speaker 1: China still grow if other countries put their walls up?

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Speaker 7: Well, that's going to be another tough conversation is if

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Speaker 7: this trade war persists. Are other countries is going to

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Speaker 7: put on tariffs on China to kind of gain favor

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Speaker 7: with the US, and we're going to have the world

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Speaker 7: kind of breaking up into spheres again. I hope we

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Speaker 7: don't go down that route. But China, I think will

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Speaker 7: be okay for you know, the near term because they

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Speaker 7: have enough policy stimulus space, they have a lot of

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Speaker 7: connectivities with other economies. But if we're in a persistent

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Speaker 7: deep trade war, it's going to wait significantly on their

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Speaker 7: economy over the medium term.

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Speaker 2: From the perspective of price stability, the Europeans might have

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Speaker 2: to if you say a chane of USCN y ufcm

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Speaker 2: y has gone from seven forty to eight forty since

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Speaker 2: the stand of February, they're going to have to eat

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Speaker 2: a lot of Chinese exports isn't that the biggest threat

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Speaker 2: to price stability on the continent right now?

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Speaker 7: It's a big challenge because these exports have to go somewhere,

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Speaker 7: and again, thirteen percent of US imports, that's a lot

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Speaker 7: of goods.

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Speaker 4: You know. Some of that we think is going to.

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Speaker 7: Be rerouted through other economies, as we were talking.

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Speaker 4: About that eventually go to the US.

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Speaker 7: But if the administration cracks down on that, that cuts

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Speaker 7: off an important channel for those products, and a natural

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Speaker 7: point for where those could.

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Speaker 4: Go is Europe.

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Speaker 7: But I think if that starts to happen, you again

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Speaker 7: have a conversation, well, did the Europeans start to put

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Speaker 7: on trade barriers of their own to kind of protect

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Speaker 7: their own domestic industries.

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Speaker 4: So this could get even.

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Speaker 7: Messier quicker, really quick, which is saying a lot given

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Speaker 7: how MESSI it's been over the last few weeks.

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Speaker 2: Just to sit on Europe, do you think they'll have

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Speaker 2: to that economy at the moments that still speed. I

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Speaker 2: know a lot of people are excited about a prospective

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Speaker 2: fiscal stimulus, but we were already talking about zero percent

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Speaker 2: growth on the continent. What's this going to do to them?

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Speaker 2: Disinflationary price section at the time we have zero percent

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Speaker 2: growth on the continent.

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Speaker 7: Yeah, exactly, and that's the real challenge. And I think

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Speaker 7: in the near term they have other challenges to face

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Speaker 7: as well, primarily also negotiating with the US, and I

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Speaker 7: think that puts them in a very difficult spot, which

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Speaker 7: is another that I think other countries are going to

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Speaker 7: be putting pressure on the US and on China to

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Speaker 7: kind of come to the table and make some sort

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Speaker 7: of deal, because as you said, this is going to

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Speaker 7: be another challenge for Europe that is going to be

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Speaker 7: difficult to handle. Actually in an environment where again, if

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Speaker 7: you go back a few months ago, you were finally

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Speaker 7: starting to get a positive narrative emerge out of Europe

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Speaker 7: for the first time in several years. Unfortunately that's largely

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Speaker 7: gone away with the current trade stresses. That could come

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Speaker 7: back if these trade sesses move away, but I think again,

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Speaker 7: at a minimum, they're going to be facing challenges from

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Speaker 7: both sides.

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Speaker 2: From the USA and huge changes in the past few months.

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Speaker 2: For rob it's going to say thank you, sir, Robert

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Speaker 2: Suckerman of City Alex no Rastat at the Kaido Institute, Alex,

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Speaker 2: welcome to the program. This is what you had to

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Speaker 2: say on the fat if they were controlled by the president,

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Speaker 2: rights would fold in flesh and with spiral growth wood

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Speaker 2: Snack Knight a disaster. Ultimately, that seems unlikely, but we

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Speaker 2: should all be vigilant to that possibility. Alex, Why do

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Speaker 2: you think it remains somewhat unlikely?

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Speaker 8: Remains someone unlikely because the law is fairly clear on this.

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Speaker 8: The ability of the president to remove and replace the

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Speaker 8: share of the Federal Reserve at whim seems to be

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Speaker 8: outside of his power. This hasn't been tested, of course,

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Speaker 8: in the last one hundred and twelve years of the

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Speaker 8: Federal Reserve system existing, but it seems fairly robust. So

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Speaker 8: you know, this president surprises us all the time, right,

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Speaker 8: But I think the law is probably on our side here.

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Speaker 1: So when it comes to ousting J. Powell, though, do

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Speaker 1: you think the President is doing this to actually have

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Speaker 1: a scapegoat if his tariff negotiations don't go as planned.

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Speaker 8: I think there's no downside for President Trump politically for

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Speaker 8: challenging Chairman Powell.

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Speaker 5: If he doesn't get what.

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Speaker 8: He wants, he doesn't get a new FED chair, then

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Speaker 8: he can always blame it on him.

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Speaker 5: If he does get what he wants.

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Speaker 8: Then he has control over the Central Bank of the

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Speaker 8: United States, which can help help him politically, So there's

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Speaker 8: really no downside. Of course, the major downside is on

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Speaker 8: the US economy.

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Speaker 5: If he succeeds, if he succeeds.

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Speaker 8: In getting power with the Central Bank, ending central bank

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Speaker 8: independence in the United States, then you'll have those negative

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Speaker 8: economic consequences that I talked about, higher inflation, lower growth,

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Speaker 8: more political and economic uncertainty. But if he doesn't get

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Speaker 8: control of the FED, but he just threatens it, then

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Speaker 8: there's a chance that either Powell or future Chairman of

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Speaker 8: the Federal Reserve will listen more to the threats of

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Speaker 8: politicians like they did in the nineteen seventies when we

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Speaker 8: had stagflation, and then we'll have this poor economic outcomes

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Speaker 8: going forward.

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Speaker 1: Alex where is Congress in all of this, both when

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Speaker 1: it comes to tariff and trying to wrankle back some

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Speaker 1: of the control on tariff policy, and also when it

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Speaker 1: comes to FED policy.

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Speaker 4: J Powell does have a boss.

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Speaker 5: It's Congress.

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Speaker 8: So I have been asking where Congress is for basically

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Speaker 8: my entire career on almost every issue. I mean, the

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Speaker 8: long term trend for Congress is to pull back its

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Speaker 8: power and a grant more and more power to the president.

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Speaker 8: So Congress is like a dead institution.

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Speaker 5: It's not a dying institution.

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Speaker 8: They make noises sometimes they introduced legislation to try to.

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Speaker 5: Reign in the president.

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Speaker 8: There is recently resolution introduced by Senator Powell to reduce

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Speaker 8: his the president's power to set tariff rates. There are

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Speaker 8: numerous challenges in the courts saying that no Congress has

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Speaker 8: its power, but ultimately it's very difficult to make Congress

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Speaker 8: exercise its power if it simply doesn't want to. And

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Speaker 8: what we are seeing right now is a Congress not

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Speaker 8: taking up its powers and responsibilities to either reign in

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Speaker 8: the president or to govern. And they are focusing importantly

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Speaker 8: on the tax cuts bill. They're focusing importantly on the

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Speaker 8: Tax Cuts and Jobs Act extending that, but outside of that,

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Speaker 8: they are not considering major pieces of legislation or getting

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Speaker 8: a wrangle or reigns on this president.

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Speaker 4: Will that change?

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Speaker 1: Will they become more vocal as we head into the

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Speaker 1: midterm elections?

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Speaker 5: That's probably they probably will.

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Speaker 8: Now for Republicans who control, you know, the House, of course,

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Speaker 8: be more vocal is dangerous because the head of their

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Speaker 8: party of course is President Trump, and he is in charge,

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Speaker 8: and sort of the cause of a lot of this

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Speaker 8: economic uncertainty is his arbitrary wielding of power, so they

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Speaker 8: face a dangerous.

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Speaker 5: They'll trade off there.

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Speaker 8: But modern Republicans, I think will definitely start to step

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Speaker 8: up and try to distance themselves from the President if

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Speaker 8: the economy gets worse and it looks like a terrible

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Speaker 8: midterm election for them.

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Speaker 5: Democrats, of course, will always be.

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Speaker 8: Out there criticizing President Trump no matter how good things

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Speaker 8: are or how bad things are, but they will probably

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Speaker 8: be louder if things get worse. But they might be

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Speaker 8: louder in the sense of if the Republicans saying, well,

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Speaker 8: you know, this means that President Trump means more power.

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Speaker 8: So that doesn't necessarily bode well if they start to

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Speaker 8: be louder.

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Speaker 2: What a moment, Alex, Thank you, sir Alex Narrista of

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Speaker 2: the Cato Institute. He has to take from the full

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Speaker 2: of the your Fed, President buil Dumpley right in this

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Speaker 2: Trump's pressure on the FED is counterproductive. Not only does

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Speaker 2: it increase the motivation for the FED to weight, but

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Speaker 2: it also makes households and businesses more concerned about the

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Speaker 2: inflation consequences should the Fed's independence come to an end.

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Speaker 2: Build joined just now for more, but welcome to the program.

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Speaker 2: So in good morning, I want to pick up on

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Speaker 2: the first part of that second line. Not only does

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Speaker 2: it increase the motivation for the FED to wait? Can

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Speaker 2: you build on that a bit bill motivate to wait?

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Speaker 2: Where does that motivation come from?

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Speaker 5: Well, Fed's credibility is really important.

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Speaker 9: And if the fedest scene is sort of caving to

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Speaker 9: political pressure, that impairs the Fed's credibility. And if the

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Speaker 9: FED credibility is impaired, that's going to lead to higher

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Speaker 9: inflation expectations. So this is why the Trump pressure on

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Speaker 9: the FED is counter productive. It's basically putting markets on edge.

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Speaker 9: And we can basically see that just in the last

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Speaker 9: twenty four hours, goal prices up dollar a weeker bodials

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Speaker 9: up at the time that people are expecting rate cuts.

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Speaker 9: I mean, the market still expects the FED to cut

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Speaker 9: interest rates this year by seventy five to one hundred

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Speaker 9: basis points.

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Speaker 5: So we see the market responses. They don't like the

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Speaker 5: fact that there's this uncertainty about the Fed's independence. This

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Speaker 5: is so from Presidents Trump's perspective, this is really counterproductive.

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Speaker 2: Well, just to build on that, another way of saying

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Speaker 2: that would be that when the independence of the FED

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Speaker 2: is threatened, the threshold to move is higher, they dig in.

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Speaker 2: Is that a fair way of putting good.

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Speaker 5: I don't think it's so much that they dig in

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Speaker 5: to be stubborn.

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Speaker 9: I think the fact is, though, that if the Fed's

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Speaker 9: independence's under threat, if they move, then people wonder what's

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Speaker 9: the motivation. Is the FED moving because it's the right

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Speaker 9: thing to do, or is the FED moving because they're

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Speaker 9: under pressure? And the extent that people think that the

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Speaker 9: Fed's moving because they're under pressure, that undermines the credibility

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Speaker 9: of the FED, and so the FED has to take

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Speaker 9: that on board in terms of their thinking.

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Speaker 1: So basically, what you're saying is they cannot move for

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Speaker 1: a while now given Trump's higher because it'll look like

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Speaker 1: they would be placating this White House.

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Speaker 5: Well, it depends on the economic news.

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Speaker 9: Obviously, if the unemployerent rate goes up significantly, then the

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Speaker 9: Fed's going to cut rates because there's not be any

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Speaker 9: question about whether it was a response to the President's

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Speaker 9: Trump's pressure.

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Speaker 5: But if there is a question.

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Speaker 9: About why the FED is moving, then the FED has

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Speaker 9: to take that on board in terms of their decision making.

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Speaker 1: What do you expect the FED to do this year?

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Speaker 1: Do you think they'll are going to have a bias

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Speaker 1: towards which part of their mandate inflation or growth concerns

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Speaker 1: in the labor market.

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Speaker 9: Well, I think in the short term they're going to

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Speaker 9: have to be patient because obviously there's a lot of

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Speaker 9: concern about where we're going to actually land on trade

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Speaker 9: policies and tariffs number two, the terrorist to the extent

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Speaker 9: that they do go up significantly, which seems likely, is

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Speaker 9: going to flow into the prices and we're so we're

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Speaker 9: going to see some higher inflation data, and I think

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Speaker 9: the Fed's worried about the fact that missing the inflation

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Speaker 9: mandate for the fifth year in a row could cause

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Speaker 9: inflation expectations become unanchored, and if that were to happen,

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Speaker 9: that'd be terrible. You know, one reason why things worked

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Speaker 9: out so well over the last few years is that

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Speaker 9: inflation expectations did stay well anchored, so the FED didn't

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Speaker 9: have to push the unemployment rate up to get inflation

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Speaker 9: back down relatively close to their target. Inflation expectations become

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Speaker 9: un anchored, the job becomes much more difficult. So the

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Speaker 9: FED has to be very careful not to act too prematurely,

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Speaker 9: because if inflation expectations go up, their job becomes much

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Speaker 9: more difficult. They was.

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Speaker 2: Six years ago. You wrote a piece for Bloomberg Opinion.

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Speaker 2: I'm sure you remember it well because it was controversial

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Speaker 2: at the time. You said the Federal Reserve shouldn't enable

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Speaker 2: President Donald Trump, that the Central Bank should refuse to

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Speaker 2: play along with an economic disaster in the making. Does

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Speaker 2: that apply this time around?

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Speaker 9: Well, if it shouldn't take politics into consideration in terms

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Speaker 9: of their monetary policy decisions, they should do what they

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Speaker 9: think is appropriate to achieve their dual mandate of a

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Speaker 9: stable employment, full employment and price stability. And I think

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Speaker 9: that's what they're going to do this time. I mean,

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Speaker 9: I don't think the Fed's political all and I think

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Speaker 9: that's completely appropriate.

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Speaker 5: But the FED has.

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Speaker 9: To be aware of the confidence that people have in

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Speaker 9: the FED and the Fed's ability to be independent, and

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Speaker 9: to the extent that confidences eroded, that weighs on the

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Speaker 9: effectiveness of monetary policy.

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Speaker 2: Bill, just to bring that up again, do not stand

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Speaker 2: by that piece anymore. But you work back way back

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Speaker 2: into my night saying I.

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Speaker 9: Stand by it in the sense that the FED has

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Speaker 9: to do what they think is appropriate to achieve their

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Speaker 9: dual mandate objectives, and if the administration is doing things

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Speaker 9: that are kind of productive to that, then the FED

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Speaker 9: needs to take that on board. But the FED shouldn't

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Speaker 9: be acting in a political manner. The FED needs to

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Speaker 9: be completely independent of politics, and I think they are.

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Speaker 1: Do you think the FED is completely independent independent of politics?

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Speaker 1: Given the fact that the FED chair has been outspoken

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Speaker 1: about the.

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Speaker 9: Tariff regime, I think the FED chairman just talking what

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Speaker 9: everyone can see. I mean, higher terrorists are bad for prices.

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Speaker 9: They're going to drive up the inflation in the short term.

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Speaker 9: To not say that would not be credible from the

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Speaker 9: Fed's perspective.

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Speaker 2: Bill, I appreciate your time, sir, as always pot down

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Speaker 2: to be that a former New York FED president and of

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Speaker 2: course a columnists for Bloomberg Opinion. This is the Bloomberg

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Speaker 2: Sevenans podcast, bringing you the best in markets, economics, antiopolitics.

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Speaker 2: Mm hm