WEBVTT - Inflation Data and Unilateral Tariffs 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.480 --> 0:00:31.560 Patiently waiting is Francis Donald really can't say enough about 0:00:31.600 --> 0:00:35.560 her contribution to the measurement of American GDP. 0:00:36.120 --> 0:00:38.000 The first thing I did this morning. 0:00:38.200 --> 0:00:41.320 Francis, after the shock of the airplane crash, is I 0:00:41.360 --> 0:00:44.800 went to the Francis Donald page, which is Atlanta GDP now, 0:00:45.640 --> 0:00:50.199 and it's there at three point seven percent, etc. And 0:00:50.280 --> 0:00:52.440 I just say to myself, it doesn't feel like a 0:00:52.520 --> 0:00:57.040 three point seven percent economy. This is your wheelhouse. What 0:00:57.160 --> 0:01:01.120 kind of GDP growth are we in now and into 0:01:01.200 --> 0:01:02.480 the next two three quarters. 0:01:02.720 --> 0:01:05.880 So maybe there's two questions there. There's what's our forecasted 0:01:06.000 --> 0:01:09.520 number and then what is actually the trend growth underlying? 0:01:09.760 --> 0:01:13.880 And we are still very much in heavy distortions from tariffs. 0:01:14.160 --> 0:01:16.840 This is the number one issue facing all forecasters is 0:01:16.840 --> 0:01:20.480 that we've had massive front loading of activity into Q 0:01:20.640 --> 0:01:22.959 one and you might remember that created distortions that led 0:01:23.000 --> 0:01:25.520 us to the downside, and now we have some offsets 0:01:25.520 --> 0:01:28.440 coming through from that, and yet underlying the surface, we're 0:01:28.520 --> 0:01:31.360 probably growing around one and a half to two percent. 0:01:31.480 --> 0:01:34.319 This is not a recession type of environment. It's a 0:01:34.360 --> 0:01:37.479 sub trend type of environment that'll be enough to inch 0:01:37.560 --> 0:01:40.440 that unemployment rate a little bit higher. But I've said 0:01:40.440 --> 0:01:43.280 this on the show before, Tom there are two Americas 0:01:43.280 --> 0:01:46.440 happening right now. Two American economies. There's the economy for 0:01:46.480 --> 0:01:49.240 the wealthy Americans and then there's one for low and 0:01:49.240 --> 0:01:50.880 middle income Americans. They're very different. 0:01:51.120 --> 0:01:53.320 Paul's looked at me, said, tell you're rude. Maybe I 0:01:53.320 --> 0:01:56.920 should properly introduce you, ladies and gentlemen. Francis Donald, she 0:01:57.000 --> 0:01:58.840 is chief economist at RBC. 0:01:59.240 --> 0:02:00.760 Was that okay, Paul? That was good? Thank you. 0:02:00.880 --> 0:02:04.040 We saved ourselves. CPI yesterday came in a little bit benign. 0:02:04.240 --> 0:02:07.000 I think it was the term I heard most used yesterday. 0:02:07.680 --> 0:02:10.120 What are you looking for at the producer level today 0:02:10.120 --> 0:02:10.920 in terms of inflation? 0:02:11.040 --> 0:02:13.760 Well, thank you for asking that question, because yesterday was 0:02:13.840 --> 0:02:16.560 all about why isn't tariffs in the CPI data yet? 0:02:16.560 --> 0:02:18.600 We were not expecting the tariffs to be in the 0:02:18.639 --> 0:02:21.560 CPI data yet? Might remember back in twenty eighteen with 0:02:21.720 --> 0:02:24.200 washing machines, took three to five months before we saw 0:02:24.240 --> 0:02:26.120 it show up. We talked a little bit about that 0:02:26.200 --> 0:02:29.520 front loading lots of inventory builds over the past few months. 0:02:29.520 --> 0:02:32.600 Those inventories have to be depleted before we start seeing 0:02:32.680 --> 0:02:35.240 that show up in CPI data. But the question is, 0:02:35.280 --> 0:02:37.040 and I'm sure you've asked it to many guests, how 0:02:37.160 --> 0:02:39.799 much of this is going to get transferred from producers 0:02:39.800 --> 0:02:43.680 and importers into consumers. And those metrics are very different. 0:02:43.840 --> 0:02:47.040 So CPI is one measurement of price pressures that will 0:02:47.080 --> 0:02:49.440 grow in the US economy, but we have to use 0:02:49.440 --> 0:02:51.799 a dashboard, We have to use a basket to understand 0:02:51.800 --> 0:02:55.080 which sectors are being most impacted and which consumers. Again, 0:02:55.160 --> 0:02:58.400 consumers very differently operating right now, are going to actually 0:02:58.440 --> 0:02:59.600 see those pressures come through? 0:03:00.360 --> 0:03:02.480 When then, do you think we'll see it? If we'll 0:03:02.480 --> 0:03:04.040 see it in some of the numbers. 0:03:04.080 --> 0:03:06.120 In terms of inflation, we get a couple more months, 0:03:06.160 --> 0:03:08.480 so later this summer we might see that flow through. 0:03:08.560 --> 0:03:11.520 But here's the thing. When I look at inflation, yes, 0:03:11.560 --> 0:03:13.880 we care about tariffs. Tariffs could be as much as 0:03:13.919 --> 0:03:16.720 half a percentage point on top of CPI. But I'm 0:03:16.720 --> 0:03:19.920 worried about inflation anyways. I'm not worried about growth in 0:03:19.960 --> 0:03:22.880 twenty twenty five. I'm concerned about some of the structural 0:03:22.919 --> 0:03:26.280 pressures that will mechanically push up inflation. I'm concerned that 0:03:26.320 --> 0:03:28.960 that oeer that's shelter based on some of our models, 0:03:29.080 --> 0:03:32.760 is going to stop falling. We had goods deflation and disinflation. 0:03:32.880 --> 0:03:35.040 We're not going to get that anymore. So there's upward 0:03:35.080 --> 0:03:37.680 pressure on inflation heading into the later part of this year. 0:03:38.040 --> 0:03:40.880 Tariffs or nor tariffs, and as we talked about before 0:03:40.880 --> 0:03:43.320 on this show, I'm worried about some of these bigger 0:03:43.440 --> 0:03:47.080 structural issues in play. A very tight labor market that's 0:03:47.160 --> 0:03:50.920 not because the economy is booming, but because America needs workers, 0:03:50.960 --> 0:03:55.120 not jobs, very big government spending inside this pipeline in play, 0:03:55.320 --> 0:03:58.640 and that wealthy consumer. So I get to high twos 0:03:59.120 --> 0:04:02.280 even without and play. And if we just focus on tariffs, 0:04:02.320 --> 0:04:04.120 we're going to miss some of the story underneath. 0:04:04.840 --> 0:04:08.600 What's that do to economic growth for the US here 0:04:08.640 --> 0:04:11.240 going forward? I mean that it seems like the recession 0:04:11.280 --> 0:04:13.200 talk is off the table. I haven't heard that too 0:04:13.280 --> 0:04:15.520 much in the last month or so, but still should 0:04:15.520 --> 0:04:18.160 we be concerned about slowing economic growth in the US. 0:04:18.240 --> 0:04:20.680 Well, maybe this is blasphemy for an economist, but I'm 0:04:20.720 --> 0:04:23.600 totally opposed to the recession no recession call being the 0:04:23.600 --> 0:04:26.680 defining element of your outlook, because you could have negative 0:04:26.720 --> 0:04:29.640 point one GDP and it be a recession and plus 0:04:29.720 --> 0:04:32.200 point one and it not be. The truth is this 0:04:32.240 --> 0:04:37.360 is not a great environment for most companies and households. So, yes, 0:04:37.440 --> 0:04:39.240 you'll have a job, you don't have to worry about 0:04:39.279 --> 0:04:41.360 losing your job. You've got to worry about your grocery bill. 0:04:41.400 --> 0:04:43.480 You got to worry about rent prices that are coming up. 0:04:43.800 --> 0:04:46.120 Those savings are not as high as they were before. 0:04:46.279 --> 0:04:49.599 And even though there is wage growth, it's decelerating. So 0:04:49.680 --> 0:04:52.560 this is a muddle through type of environment, and that's 0:04:52.600 --> 0:04:55.760 going to be more problematic then. Actually, sometimes I would 0:04:55.760 --> 0:04:59.280 prefer a short, quick reset recession and a reacceleration. This 0:04:59.360 --> 0:04:59.960 is not what this is. 0:05:00.240 --> 0:05:02.800 Francis Donald with us with RBC, and we will continue. 0:05:02.839 --> 0:05:06.239 We welcome all of you. On a very sober Thursday. 0:05:06.279 --> 0:05:09.040 A horrific plane crash in India. We just heard from 0:05:09.120 --> 0:05:12.080 Danny Lee and Bangkok. It seems to be now no 0:05:12.480 --> 0:05:15.680 survivors will have to get more details on that, but 0:05:15.760 --> 0:05:18.280 we'll have more coverage. John Tucker leading our coverage here 0:05:18.920 --> 0:05:22.960 out on YouTube and Bloomberg Podcasts, and of course Lisa 0:05:23.000 --> 0:05:26.440 Matteo working on this as well, and Michael Barr always 0:05:26.800 --> 0:05:29.000 on the news. We welcome you on your commute across 0:05:29.000 --> 0:05:32.440 the nation. We welcome you on YouTube. Subscribe to Bloomberg 0:05:32.480 --> 0:05:37.239 podcast growing each day. In Francis Donald's Canada, Good Morning, 0:05:37.400 --> 0:05:44.760 Serious XM Channel one T one that older technology hugely popular. Francis, 0:05:45.360 --> 0:05:48.440 I want to synthesize this Thursday away from this terrible 0:05:48.480 --> 0:05:53.119 plane crash. The fact is the dollar is on the precipice. Now, 0:05:53.440 --> 0:05:56.200 I don't want to overplay it with dollar gloom, but 0:05:56.240 --> 0:05:58.839 the fact is I'm looking at the Bloomberg launch pad 0:05:59.360 --> 0:06:02.360 and there's ten there. The Wall Street Journal out bed 0:06:02.400 --> 0:06:05.120 this morning on the trade sorry that Anne Marie Horden 0:06:05.200 --> 0:06:09.320 covered in London. This gets to the larger problem with 0:06:09.440 --> 0:06:15.279 mister Trump's teariff strategy strategy, that is, he doesn't have 0:06:15.360 --> 0:06:19.720 one calculate the uncertainties of all these things that are 0:06:19.839 --> 0:06:23.839 bouncing off of into the math and the certitude of 0:06:23.880 --> 0:06:24.640 our economy. 0:06:24.920 --> 0:06:25.719 Can you get. 0:06:25.520 --> 0:06:28.320 There well, there's all sorts of measures of uncertainty, and 0:06:28.360 --> 0:06:31.520 no surprising, whatever measure you're using is at an all 0:06:31.600 --> 0:06:34.520 time high. And what that means for forecasters but also 0:06:34.680 --> 0:06:37.320 for businesses. My clients, the CEOs that I. 0:06:37.279 --> 0:06:38.520 Talk do you hear from them? 0:06:38.839 --> 0:06:41.240 What I hear is we have to risk manage around 0:06:41.279 --> 0:06:45.040 downside and upside. We can't have one scenario that we 0:06:45.120 --> 0:06:47.520 base our business operations on. We have to plan and 0:06:47.560 --> 0:06:50.680 prepare for a wide range. But this uncertainty, it is 0:06:50.839 --> 0:06:54.280 not actual policy that is problematic here, although yes, there 0:06:54.320 --> 0:06:56.880 are some elements of it that are problematic. It's what 0:06:57.160 --> 0:06:59.280 is the game that we're playing. We cannot write the 0:06:59.279 --> 0:07:02.320 playbook until we know what the game is itself. And 0:07:02.360 --> 0:07:06.080 so forecasters and businesses are actually operating with much ward 0:07:06.279 --> 0:07:08.400 wider set of scenarios available to them. 0:07:08.480 --> 0:07:11.440 So you go into two forty five Ulette Avenue. 0:07:11.480 --> 0:07:12.800 I'm pronouncing that correctly. 0:07:13.040 --> 0:07:13.520 I'm not. 0:07:15.080 --> 0:07:16.000 Windsor, Ontario. 0:07:16.000 --> 0:07:16.880 Windsor Ontario. 0:07:17.000 --> 0:07:19.480 Yeah, I think it's it's sort of like edge of French, 0:07:19.520 --> 0:07:20.480 but it's in Ontario. 0:07:20.600 --> 0:07:20.920 I don't know. 0:07:20.960 --> 0:07:26.520 I'm lost, RBC branch in let in Windsor, Ontario. What's 0:07:26.560 --> 0:07:28.400 the confidence there to invest I. 0:07:28.320 --> 0:07:29.040 Don't see it. 0:07:29.440 --> 0:07:29.640 Well. 0:07:30.040 --> 0:07:32.200 Interesting, you chose windsor Windsor has one of the highest 0:07:32.280 --> 0:07:38.280 unemployment rates in the entire country candidates at unemployment rate, 0:07:38.560 --> 0:07:40.280 but then if you were to head to the beautiful 0:07:40.280 --> 0:07:43.160 island of Victoria, BC, you would find that the unemployment 0:07:43.200 --> 0:07:45.880 rate is three percent. What is this? This is what 0:07:45.960 --> 0:07:48.440 tariffs do and it's happening in America as well, which 0:07:48.480 --> 0:07:51.000 is that you're going to have sectors within the global economy, 0:07:51.160 --> 0:07:54.080 the US economy, the Canadian economy that are operating in 0:07:54.360 --> 0:07:57.760 very real I'll go back on my recession. No recession common, 0:07:58.160 --> 0:08:02.000 very real recessions. So this is going to make policymakers' 0:08:02.040 --> 0:08:05.680 lives very, very difficult because you can't ease rates for 0:08:05.840 --> 0:08:08.760 one place that's at eleven percent unemployment and high rates 0:08:08.760 --> 0:08:11.240 for another place where it's at three. So what we're 0:08:11.240 --> 0:08:13.120 trying to look for in a lot of the economic 0:08:13.160 --> 0:08:15.560 data right now in the United States and elsewhere, is 0:08:15.760 --> 0:08:18.640 do we see any evidence that there's bleeding outside of 0:08:18.680 --> 0:08:22.320 those specific trade sectors into the broader economy. We don't 0:08:22.320 --> 0:08:24.560 see that now, and we don't anticipate that that's going 0:08:24.600 --> 0:08:24.960 to happen. 0:08:25.000 --> 0:08:26.400 Interesting, but it could. 0:08:26.480 --> 0:08:28.720 So when we look at a lot of this data, 0:08:28.760 --> 0:08:32.800 from inflation to growth to jobs. There's two types of diagnosis. 0:08:32.840 --> 0:08:36.120 There is this sort of toxic cancer contained or has 0:08:36.160 --> 0:08:39.400 it mustasticized. That's going to be the defining element between 0:08:39.440 --> 0:08:41.640 does the United States end up in a much worse 0:08:41.679 --> 0:08:46.600 situation this year or can it be relatively well contained? Transitory, temporary, 0:08:46.679 --> 0:08:48.120 all those words we're not supposed to use. 0:08:48.120 --> 0:08:49.160 Francis, Thank you so much. 0:08:49.200 --> 0:08:52.640 French stunted with US chief economists at RBC to gets 0:08:52.640 --> 0:08:55.400 started in the morning here in the American economy makers 0:08:55.520 --> 0:08:59.440 lots of economic data, that important CPI data. Yesterday it 0:08:59.480 --> 0:09:03.040 was a PPI this morning the business a set of 0:09:03.120 --> 0:09:04.760 data onto retail sales. 0:09:04.800 --> 0:09:05.760 I think is tuesday. 0:09:06.040 --> 0:09:09.520 I'm guessing, yeah, Tuesday. Francis is looking at me, dummy. 0:09:09.559 --> 0:09:12.680 You should know that. Thank you Francis for that. 0:09:18.600 --> 0:09:22.199 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:09:22.240 --> 0:09:25.400 weekday afternoons from seven to ten am Eastern Listen on 0:09:25.480 --> 0:09:29.160 Applecarplay and Android Auto with the Bloomberg Business app, or 0:09:29.320 --> 0:09:30.880 watch us live on YouTube. 0:09:31.080 --> 0:09:31.920 This is an honor. 0:09:32.559 --> 0:09:35.800 My book of the Summer Within the Game is Kenneth 0:09:35.880 --> 0:09:40.400 Rogoff of Harvard University, our dollar, your problem. And what's 0:09:40.480 --> 0:09:44.320 so great is the academics of rogue off is so 0:09:44.440 --> 0:09:47.600 much the same but at the same time different from 0:09:47.640 --> 0:09:52.120 the prodigious abilities of Richard Claret of Columbia University at PIMCO, 0:09:52.240 --> 0:09:53.800 the former vice chairman of the FED. 0:09:53.840 --> 0:09:57.880 We're honored that he could join us here this morning. 0:09:58.600 --> 0:09:59.920 The dollar is weaker. 0:10:00.120 --> 0:10:04.040 Our audience just simply sees euro one sixteen into one 0:10:04.160 --> 0:10:07.400 forty three. There's a crisis of confidence. The Wall Street 0:10:07.480 --> 0:10:11.439 Journal in an editorial today, skewers, that's the right word, folks. 0:10:11.840 --> 0:10:12.600 Skewer is the. 0:10:12.600 --> 0:10:18.320 President on his trade policy. If it's our dollar, your problem, 0:10:18.440 --> 0:10:19.400 whose problem is it? 0:10:19.440 --> 0:10:21.640 This morning? To see the dollar at the precipice. 0:10:23.400 --> 0:10:24.480 I think there are a couple of things here. 0:10:24.559 --> 0:10:29.800 First in agreement, Canada is remarkable and it's a fantastic 0:10:29.840 --> 0:10:33.839 book that the dollar is a reserve currency. People hold 0:10:33.880 --> 0:10:36.720 it because it's a store of value. It's useful in 0:10:36.800 --> 0:10:42.960 trade and financial markets. It delivers privileges to the US 0:10:43.280 --> 0:10:46.360 lower borrowing costs. Me more importantly, the ability to borrow 0:10:46.960 --> 0:10:49.640 a lot more. Tom, I do think we want to 0:10:49.640 --> 0:10:51.840 put this in context. I don't see and I don't 0:10:51.840 --> 0:10:53.800 think Ken does based on what he's written, I don't 0:10:53.800 --> 0:10:56.480 see the dollar losing that status in the next say, 0:10:56.480 --> 0:10:59.319 five or ten years, simply because there's no viable alternative. 0:10:59.600 --> 0:11:01.880 But that doesn't mean the dollar is ever higher and 0:11:01.880 --> 0:11:05.560 ever stronger. So even a dominant reserve currency can have 0:11:05.960 --> 0:11:07.720 higher and lower bye and we may be in a 0:11:07.800 --> 0:11:10.320 period in which the dollar is trending down, not just 0:11:10.360 --> 0:11:12.120 against the year, a lot of currencies. 0:11:12.160 --> 0:11:14.959 When you were at Columbia, did you work with Hyman Minsky? 0:11:15.120 --> 0:11:15.920 Was he before you? 0:11:16.280 --> 0:11:18.640 Yes, Hymon Minsky was before he was before you. 0:11:18.640 --> 0:11:21.600 You were the im Mondel Mendel, and I was with 0:11:21.720 --> 0:11:23.080 Professor Mundel, but not Mince. 0:11:23.640 --> 0:11:25.600 I know this is this is sacrilege. 0:11:25.600 --> 0:11:30.240 But how does Richard Clarida link every central bank wants 0:11:30.400 --> 0:11:35.360 gold into our dollar confidence? And frankly over to a 0:11:35.480 --> 0:11:40.040 June eighteenth meeting, Claire, I've never said this Clarida on gold. 0:11:40.800 --> 0:11:42.360 Well, let me say this. 0:11:42.360 --> 0:11:46.440 This is I'm following this pretty closely because the purchases 0:11:47.320 --> 0:11:51.000 in the official data, the purchases of gold are large, 0:11:51.000 --> 0:11:52.840 and they've been they've been picking up. I'll share an 0:11:52.840 --> 0:11:55.720 anecdote with you. I was in Asia ten years ago 0:11:55.800 --> 0:11:59.640 seeing a very sophisticated official investor, official institution. 0:11:59.760 --> 0:12:03.120 And we were talking about gold even then. 0:12:03.160 --> 0:12:05.520 This is like twenty fourteen, twenty fifteen, and that was 0:12:05.559 --> 0:12:09.920 in the context of Kiwi Infinity. And I said to him, well, 0:12:09.920 --> 0:12:12.839 why invest in gold. You can buy an inflation indexed security. 0:12:13.040 --> 0:12:15.920 It gives you a hashid against inflation. And he looked 0:12:15.920 --> 0:12:20.680 at me and he said, gold doesn't default. And so 0:12:21.240 --> 0:12:23.160 I don't think the US is going to default either, 0:12:23.880 --> 0:12:27.400 but certainly we have seen that allocation. And again talk 0:12:27.400 --> 0:12:29.599 about back to the future. I mean central banks have 0:12:29.679 --> 0:12:33.080 been holding gold as a reserve for hundreds of years, 0:12:33.120 --> 0:12:37.319 and so we're sort of getting back into that mindset. 0:12:36.640 --> 0:12:40.640 So, Paul, if gold doesn't default like a gold wedding 0:12:40.679 --> 0:12:41.800 ring and a divorce, is that? 0:12:42.880 --> 0:12:46.320 Do you want to comment? No, thank you Rich. 0:12:46.520 --> 0:12:49.000 As a professor of economics at Club, you when you 0:12:49.080 --> 0:12:53.760 have your class or your module on teriffs, how do 0:12:53.760 --> 0:12:55.360 you present tariffs to your students? 0:12:55.480 --> 0:12:56.120 Great question. 0:12:57.200 --> 0:13:01.280 Well, in the throughout most of my career, which dates 0:13:01.320 --> 0:13:04.480 back to the nineteen eighties, tariffs have really not been 0:13:04.600 --> 0:13:08.959 front and center. So I have I actually typically did 0:13:09.000 --> 0:13:11.839 not teach on tariffs. I have I have brushed off 0:13:12.360 --> 0:13:14.240 on if I were to teach it, how I would 0:13:14.320 --> 0:13:17.320 teach it. And what's interesting if you look at MPER 0:13:17.440 --> 0:13:20.760 working papers, there's probably been a half dozen working papers 0:13:20.800 --> 0:13:23.840 in the last six months on tariffs, and in the 0:13:23.880 --> 0:13:25.439 previous forty years there were. 0:13:25.360 --> 0:13:26.640 One or two zero. 0:13:27.000 --> 0:13:29.680 So it isn't interest to picking up. But the short 0:13:29.720 --> 0:13:33.200 answer is, tariffs of the scale and scope that we're 0:13:33.240 --> 0:13:36.040 talking about now in the US are something we haven't 0:13:36.040 --> 0:13:39.840 seen in decades, and they have implications for the economy 0:13:39.880 --> 0:13:43.800 across the board. They generate revenue for the government, they 0:13:43.920 --> 0:13:48.400 divert some trade into the US, they onshore some investment, 0:13:49.000 --> 0:13:51.680 and so to actually take tariffs at the level that 0:13:51.679 --> 0:13:54.680 we're seeing now, say ten percent, seriously, is a pretty 0:13:54.679 --> 0:13:58.800 complex modeling exercise with a lot of moving parts. 0:13:59.160 --> 0:14:00.400 So I'll leave it at that. 0:14:01.120 --> 0:14:03.600 So as we think about it here, we haven't seen 0:14:04.760 --> 0:14:10.400 rising inflation. No, we haven't seen materially slower economic growth. 0:14:10.400 --> 0:14:13.240 We see a lot of the surveys at the University 0:14:13.280 --> 0:14:15.360 of Michigan and so on. Yeah, cite some concerns, but 0:14:15.400 --> 0:14:17.079 we haven't seen in the hard numbers. How do you 0:14:17.120 --> 0:14:19.360 think about the hard data versus the soft data, which 0:14:19.400 --> 0:14:22.280 is something that we've now been introduced. 0:14:21.800 --> 0:14:24.480 To great question, and let me just say up front, 0:14:24.720 --> 0:14:27.920 you have to acknowledge that in the last four prints, 0:14:28.520 --> 0:14:31.960 the January print was more ugly, but February through May 0:14:32.080 --> 0:14:36.280 in the CPI have been coming in much better than expected. 0:14:37.200 --> 0:14:39.680 A lot of folks, including me, thought we would begin 0:14:39.760 --> 0:14:42.560 to see some of the tariff show up in the 0:14:42.600 --> 0:14:45.840 CPI report we got yesterday because it's for the month 0:14:45.880 --> 0:14:47.680 of May, and in the month of May, the government 0:14:47.760 --> 0:14:50.920 was collecting a lot of tariff revenue and it did not. 0:14:51.200 --> 0:14:54.160 And as you mentioned, the economy seems to be holding 0:14:54.160 --> 0:14:56.840 in at roughly trend growth, the labor market holding in 0:14:56.920 --> 0:15:02.160 so so far so good. What it does tell me is, 0:15:02.280 --> 0:15:05.080 at minimum, we're not seeing in the data that US 0:15:05.160 --> 0:15:08.880 companies are using the tariffs as a reason or excuse 0:15:09.040 --> 0:15:14.160 to raise prices preemptively. We may see that once tariff's 0:15:14.200 --> 0:15:16.680 going to go to in fact more broadly, but yeah, 0:15:16.760 --> 0:15:19.720 so far, I think you have to acknowledge the US 0:15:19.760 --> 0:15:21.600 economies holding up quite well. 0:15:21.720 --> 0:15:23.760 The former vice Chairman of the Federal Reserve System, and 0:15:23.840 --> 0:15:27.520 a good conversation here with Richard Clarida this morning, always 0:15:27.520 --> 0:15:31.600 with Columbia University, and of course Pimco as well. Trotting 0:15:31.600 --> 0:15:33.920 out yesterday, I'll give the ft credit. I can't remember 0:15:34.000 --> 0:15:36.960 quite where I saw it is the John Edwards chart 0:15:37.200 --> 0:15:42.680 of two Americas. It is breathtaking on consumption seventy sixty 0:15:42.760 --> 0:15:47.760 nine percent of GDP whatever fifty x percent I believe 0:15:47.840 --> 0:15:50.680 is that forer de style. It is shocking what upper 0:15:50.720 --> 0:15:54.440 quintile is. It is shocking what the bottom third is 0:15:54.480 --> 0:15:59.360 not consuming in America? Does Clarita economics work in the 0:15:59.400 --> 0:16:02.160 polarity of the American consumer? 0:16:02.560 --> 0:16:03.840 Are we so bipolar? 0:16:03.920 --> 0:16:07.360 By Barbell if you will, Yeah, the normal fed talk 0:16:07.440 --> 0:16:08.040 doesn't work. 0:16:08.960 --> 0:16:11.160 Tom, It does work, but you have to recognize that. 0:16:11.240 --> 0:16:14.880 As I think I've said on this show before, I 0:16:14.880 --> 0:16:16.960 think the simplest way to think about it is that 0:16:17.080 --> 0:16:20.040 two thirds of Americans live in a home that they own, 0:16:20.640 --> 0:16:23.960 and around that percentage directly or indirectly owned stock. So 0:16:24.000 --> 0:16:25.920 if you own your house and you own stock, you've 0:16:25.960 --> 0:16:29.160 had a great run for five, you know, fifteen, twenty 0:16:29.240 --> 0:16:31.640 thirty years. But if you don't own your own house, 0:16:31.720 --> 0:16:34.440 you don't own stock, you've been falling further and further behind. 0:16:34.480 --> 0:16:36.960 And that's at least a third, maybe more of the 0:16:37.480 --> 0:16:40.760 country that is a factor in terms of the nuts 0:16:40.800 --> 0:16:43.760 and bolts of how the economy functions, how monetary policy 0:16:43.880 --> 0:16:48.080 is transmitted. So yes, Claria economics works in this world, 0:16:48.160 --> 0:16:52.400 but it only works if you acknowledge the divergence in 0:16:52.760 --> 0:16:54.239 those two parts of the economy. 0:16:54.920 --> 0:16:58.160 Rich, if I'm your Federal Reserve, I'm taking this summer off. 0:16:58.280 --> 0:17:00.640 I'm going to the beach. I'm not doing anything because 0:17:00.640 --> 0:17:03.600 that data doesn't mean I have to do anything. Is 0:17:03.600 --> 0:17:05.040 that a fair strategy here? 0:17:06.359 --> 0:17:08.320 Well, I certainly don't think they're going to do anything 0:17:08.440 --> 0:17:09.760 next week. 0:17:10.640 --> 0:17:11.720 Come I'm going to talk it up. 0:17:11.760 --> 0:17:16.040 The FED sides comets do anything next week, but there 0:17:16.080 --> 0:17:18.000 will be a press conference, and I think the Chair 0:17:18.160 --> 0:17:21.119 may use that as an opportunity to signal the direction 0:17:21.240 --> 0:17:23.040 of trouble. You know, one thing I've picked up on 0:17:23.359 --> 0:17:26.359 in the last week or so is FED speak not 0:17:26.480 --> 0:17:31.480 only from Chris Waller, but also President Bostic and President Goulesby. 0:17:32.080 --> 0:17:34.800 That does indicate at least to me that the Committee 0:17:34.880 --> 0:17:36.880 may be open to what some have called a good 0:17:36.960 --> 0:17:39.720 news rate cut. So I've been in this camp, which 0:17:39.800 --> 0:17:42.160 is the Fed's only going to cut rates if something 0:17:42.240 --> 0:17:46.359 breaks the unemployment rate goes up. GDP contracts again simply 0:17:46.400 --> 0:17:49.040 because it looked like with the initial tariff announcement the 0:17:49.080 --> 0:17:52.440 inflation hit would be so substantial. But given the better 0:17:52.480 --> 0:17:55.679 inflation data, and as I would point out, basically Clarida 0:17:55.760 --> 0:17:59.119 Galley Gertler monetary policy rule right now would have the 0:17:59.160 --> 0:18:02.600 FED cutting rate already, And so I think there is 0:18:02.680 --> 0:18:06.600 a case for them to begin to consider that. But 0:18:06.720 --> 0:18:09.280 I think the inclination probably will be to take the 0:18:09.359 --> 0:18:11.880 summer off and the time we got left. 0:18:11.920 --> 0:18:14.359 And I won't turn this into a Columbia dissertation, but 0:18:14.480 --> 0:18:19.359 let's go nineteen fifty one McChesney Martin. We basically yanked 0:18:19.520 --> 0:18:20.520 the Federal Reserve. 0:18:20.320 --> 0:18:22.320 System away from the Department of Treasury. 0:18:22.800 --> 0:18:25.720 We have a president who wants to yank it back. 0:18:26.240 --> 0:18:31.920 What stops President Trump from putting in FED leadership? Fed 0:18:32.040 --> 0:18:36.760 governors that understand the buck stops at the Treasury Building 0:18:36.880 --> 0:18:38.119 and not at the Eagles Building. 0:18:40.119 --> 0:18:43.160 Great question, one that I thought about and lived through 0:18:43.240 --> 0:18:45.080 to some extent. I'll make a couple points. 0:18:45.359 --> 0:18:45.560 One. 0:18:46.680 --> 0:18:50.320 The President does nominate FED officials, but to be confirmed 0:18:50.440 --> 0:18:54.520 requires a Senate confirmation process. The Senate is not a 0:18:54.600 --> 0:18:58.880 rubber stamp for FED nominees, and so I think that's 0:18:58.920 --> 0:19:02.879 important also to candid I think the market will have 0:19:03.000 --> 0:19:07.440 a say, and particularly for for FED chair and I 0:19:07.480 --> 0:19:09.560 don't think this will happen. But where the president to 0:19:09.640 --> 0:19:12.480 nominate someone who the markets believe would not be committed 0:19:12.880 --> 0:19:16.400 to price stability and would not be a primarily independent 0:19:16.800 --> 0:19:18.800 I think you'd see stocks down, rates out. 0:19:18.880 --> 0:19:21.080 Okay, but now I want to have I got cut. 0:19:21.160 --> 0:19:23.720 I gotta cut you off. This is too important to clari. 0:19:24.160 --> 0:19:26.480 Are you going to get a twenty five basis point, 0:19:26.560 --> 0:19:30.520 pop Y Honor if we end up with a Trump chairman, 0:19:31.080 --> 0:19:32.880 or are you talking about a stick where we get 0:19:32.880 --> 0:19:35.920 out over five percent? Rogue offf even hinted towards six 0:19:36.040 --> 0:19:37.840 percent given selected events. 0:19:39.280 --> 0:19:42.040 Not a twenty five basis point, you, Honor, A tangible 0:19:42.520 --> 0:19:46.200 a lift, yes, yes, and weaker. 0:19:45.960 --> 0:19:48.360 Risk assets stocks, credit spreads, higher. 0:19:48.480 --> 0:19:50.680 Yields, higher get I just don't think it would stick 0:19:50.800 --> 0:19:52.840 because I wouldn't want to be a nominee coming into 0:19:52.920 --> 0:19:55.879 my hearing with that market reaction to my to my 0:19:56.560 --> 0:19:58.040 The other thing, I'll say, tomm And it's a little 0:19:58.080 --> 0:20:00.119 bit wonkish, but look I'm on this show so I 0:20:00.119 --> 0:20:02.920 can be a little bit of a warm is Congress 0:20:03.440 --> 0:20:05.960 occasionally Congress knows what it's doing. And back in the 0:20:06.080 --> 0:20:09.480 thirties when the Federal Reserve Act was modified and amended, 0:20:10.080 --> 0:20:14.600 it was amended to disperse the authority for raising and 0:20:14.680 --> 0:20:17.520 lowering rates away from the chair towards a committee. So 0:20:17.880 --> 0:20:20.080 it's the green span FED, it's the paler Fat, it's 0:20:20.080 --> 0:20:24.240 the Bernanke Fed. But by statute, rate decisions are made 0:20:24.320 --> 0:20:27.960 by a majority vote of a committee. Five of the 0:20:28.040 --> 0:20:30.679 twelve members of that committee are reserve bank presidents who 0:20:30.720 --> 0:20:33.960 are not appointed by the White House. Seven of them 0:20:34.119 --> 0:20:37.320