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Speaker 2: Patiently waiting is Francis Donald really can't say enough about
Speaker 2: her contribution to the measurement of American GDP.
Speaker 3: The first thing I did this morning.
Speaker 2: Francis, after the shock of the airplane crash, is I
Speaker 2: went to the Francis Donald page, which is Atlanta GDP now,
Speaker 2: and it's there at three point seven percent, etc. And
Speaker 2: I just say to myself, it doesn't feel like a
Speaker 2: three point seven percent economy. This is your wheelhouse. What
Speaker 2: kind of GDP growth are we in now and into
Speaker 2: the next two three quarters.
Speaker 4: So maybe there's two questions there. There's what's our forecasted
Speaker 4: number and then what is actually the trend growth underlying?
Speaker 4: And we are still very much in heavy distortions from tariffs.
Speaker 4: This is the number one issue facing all forecasters is
Speaker 4: that we've had massive front loading of activity into Q
Speaker 4: one and you might remember that created distortions that led
Speaker 4: us to the downside, and now we have some offsets
Speaker 4: coming through from that, and yet underlying the surface, we're
Speaker 4: probably growing around one and a half to two percent.
Speaker 4: This is not a recession type of environment. It's a
Speaker 4: sub trend type of environment that'll be enough to inch
Speaker 4: that unemployment rate a little bit higher. But I've said
Speaker 4: this on the show before, Tom there are two Americas
Speaker 4: happening right now. Two American economies. There's the economy for
Speaker 4: the wealthy Americans and then there's one for low and
Speaker 4: middle income Americans. They're very different.
Speaker 2: Paul's looked at me, said, tell you're rude. Maybe I
Speaker 2: should properly introduce you, ladies and gentlemen. Francis Donald, she
Speaker 2: is chief economist at RBC.
Speaker 3: Was that okay, Paul? That was good? Thank you.
Speaker 5: We saved ourselves. CPI yesterday came in a little bit benign.
Speaker 5: I think it was the term I heard most used yesterday.
Speaker 5: What are you looking for at the producer level today
Speaker 5: in terms of inflation?
Speaker 4: Well, thank you for asking that question, because yesterday was
Speaker 4: all about why isn't tariffs in the CPI data yet?
Speaker 4: We were not expecting the tariffs to be in the
Speaker 4: CPI data yet? Might remember back in twenty eighteen with
Speaker 4: washing machines, took three to five months before we saw
Speaker 4: it show up. We talked a little bit about that
Speaker 4: front loading lots of inventory builds over the past few months.
Speaker 4: Those inventories have to be depleted before we start seeing
Speaker 4: that show up in CPI data. But the question is,
Speaker 4: and I'm sure you've asked it to many guests, how
Speaker 4: much of this is going to get transferred from producers
Speaker 4: and importers into consumers. And those metrics are very different.
Speaker 4: So CPI is one measurement of price pressures that will
Speaker 4: grow in the US economy, but we have to use
Speaker 4: a dashboard, We have to use a basket to understand
Speaker 4: which sectors are being most impacted and which consumers. Again,
Speaker 4: consumers very differently operating right now, are going to actually
Speaker 4: see those pressures come through?
Speaker 5: When then, do you think we'll see it? If we'll
Speaker 5: see it in some of the numbers.
Speaker 4: In terms of inflation, we get a couple more months,
Speaker 4: so later this summer we might see that flow through.
Speaker 4: But here's the thing. When I look at inflation, yes,
Speaker 4: we care about tariffs. Tariffs could be as much as
Speaker 4: half a percentage point on top of CPI. But I'm
Speaker 4: worried about inflation anyways. I'm not worried about growth in
Speaker 4: twenty twenty five. I'm concerned about some of the structural
Speaker 4: pressures that will mechanically push up inflation. I'm concerned that
Speaker 4: that oeer that's shelter based on some of our models,
Speaker 4: is going to stop falling. We had goods deflation and disinflation.
Speaker 4: We're not going to get that anymore. So there's upward
Speaker 4: pressure on inflation heading into the later part of this year.
Speaker 4: Tariffs or nor tariffs, and as we talked about before
Speaker 4: on this show, I'm worried about some of these bigger
Speaker 4: structural issues in play. A very tight labor market that's
Speaker 4: not because the economy is booming, but because America needs workers,
Speaker 4: not jobs, very big government spending inside this pipeline in play,
Speaker 4: and that wealthy consumer. So I get to high twos
Speaker 4: even without and play. And if we just focus on tariffs,
Speaker 4: we're going to miss some of the story underneath.
Speaker 5: What's that do to economic growth for the US here
Speaker 5: going forward? I mean that it seems like the recession
Speaker 5: talk is off the table. I haven't heard that too
Speaker 5: much in the last month or so, but still should
Speaker 5: we be concerned about slowing economic growth in the US.
Speaker 4: Well, maybe this is blasphemy for an economist, but I'm
Speaker 4: totally opposed to the recession no recession call being the
Speaker 4: defining element of your outlook, because you could have negative
Speaker 4: point one GDP and it be a recession and plus
Speaker 4: point one and it not be. The truth is this
Speaker 4: is not a great environment for most companies and households. So, yes,
Speaker 4: you'll have a job, you don't have to worry about
Speaker 4: losing your job. You've got to worry about your grocery bill.
Speaker 4: You got to worry about rent prices that are coming up.
Speaker 4: Those savings are not as high as they were before.
Speaker 4: And even though there is wage growth, it's decelerating. So
Speaker 4: this is a muddle through type of environment, and that's
Speaker 4: going to be more problematic then. Actually, sometimes I would
Speaker 4: prefer a short, quick reset recession and a reacceleration. This
Speaker 4: is not what this is.
Speaker 3: Francis Donald with us with RBC, and we will continue.
Speaker 2: We welcome all of you. On a very sober Thursday.
Speaker 2: A horrific plane crash in India. We just heard from
Speaker 2: Danny Lee and Bangkok. It seems to be now no
Speaker 2: survivors will have to get more details on that, but
Speaker 2: we'll have more coverage. John Tucker leading our coverage here
Speaker 2: out on YouTube and Bloomberg Podcasts, and of course Lisa
Speaker 2: Matteo working on this as well, and Michael Barr always
Speaker 2: on the news. We welcome you on your commute across
Speaker 2: the nation. We welcome you on YouTube. Subscribe to Bloomberg
Speaker 2: podcast growing each day. In Francis Donald's Canada, Good Morning,
Speaker 2: Serious XM Channel one T one that older technology hugely popular. Francis,
Speaker 2: I want to synthesize this Thursday away from this terrible
Speaker 2: plane crash. The fact is the dollar is on the precipice. Now,
Speaker 2: I don't want to overplay it with dollar gloom, but
Speaker 2: the fact is I'm looking at the Bloomberg launch pad
Speaker 2: and there's ten there. The Wall Street Journal out bed
Speaker 2: this morning on the trade sorry that Anne Marie Horden
Speaker 2: covered in London. This gets to the larger problem with
Speaker 2: mister Trump's teariff strategy strategy, that is, he doesn't have
Speaker 2: one calculate the uncertainties of all these things that are
Speaker 2: bouncing off of into the math and the certitude of
Speaker 2: our economy.
Speaker 3: Can you get.
Speaker 4: There well, there's all sorts of measures of uncertainty, and
Speaker 4: no surprising, whatever measure you're using is at an all
Speaker 4: time high. And what that means for forecasters but also
Speaker 4: for businesses. My clients, the CEOs that I.
Speaker 3: Talk do you hear from them?
Speaker 4: What I hear is we have to risk manage around
Speaker 4: downside and upside. We can't have one scenario that we
Speaker 4: base our business operations on. We have to plan and
Speaker 4: prepare for a wide range. But this uncertainty, it is
Speaker 4: not actual policy that is problematic here, although yes, there
Speaker 4: are some elements of it that are problematic. It's what
Speaker 4: is the game that we're playing. We cannot write the
Speaker 4: playbook until we know what the game is itself. And
Speaker 4: so forecasters and businesses are actually operating with much ward
Speaker 4: wider set of scenarios available to them.
Speaker 2: So you go into two forty five Ulette Avenue.
Speaker 3: I'm pronouncing that correctly.
Speaker 4: I'm not.
Speaker 3: Windsor, Ontario.
Speaker 4: Windsor Ontario.
Speaker 2: Yeah, I think it's it's sort of like edge of French,
Speaker 2: but it's in Ontario.
Speaker 3: I don't know.
Speaker 2: I'm lost, RBC branch in let in Windsor, Ontario. What's
Speaker 2: the confidence there to invest I.
Speaker 3: Don't see it.
Speaker 6: Well.
Speaker 4: Interesting, you chose windsor Windsor has one of the highest
Speaker 4: unemployment rates in the entire country candidates at unemployment rate,
Speaker 4: but then if you were to head to the beautiful
Speaker 4: island of Victoria, BC, you would find that the unemployment
Speaker 4: rate is three percent. What is this? This is what
Speaker 4: tariffs do and it's happening in America as well, which
Speaker 4: is that you're going to have sectors within the global economy,
Speaker 4: the US economy, the Canadian economy that are operating in
Speaker 4: very real I'll go back on my recession. No recession common,
Speaker 4: very real recessions. So this is going to make policymakers'
Speaker 4: lives very, very difficult because you can't ease rates for
Speaker 4: one place that's at eleven percent unemployment and high rates
Speaker 4: for another place where it's at three. So what we're
Speaker 4: trying to look for in a lot of the economic
Speaker 4: data right now in the United States and elsewhere, is
Speaker 4: do we see any evidence that there's bleeding outside of
Speaker 4: those specific trade sectors into the broader economy. We don't
Speaker 4: see that now, and we don't anticipate that that's going
Speaker 4: to happen.
Speaker 7: Interesting, but it could.
Speaker 4: So when we look at a lot of this data,
Speaker 4: from inflation to growth to jobs. There's two types of diagnosis.
Speaker 4: There is this sort of toxic cancer contained or has
Speaker 4: it mustasticized. That's going to be the defining element between
Speaker 4: does the United States end up in a much worse
Speaker 4: situation this year or can it be relatively well contained? Transitory, temporary,
Speaker 4: all those words we're not supposed to use.
Speaker 3: Francis, Thank you so much.
Speaker 2: French stunted with US chief economists at RBC to gets
Speaker 2: started in the morning here in the American economy makers
Speaker 2: lots of economic data, that important CPI data. Yesterday it
Speaker 2: was a PPI this morning the business a set of
Speaker 2: data onto retail sales.
Speaker 3: I think is tuesday.
Speaker 2: I'm guessing, yeah, Tuesday. Francis is looking at me, dummy.
Speaker 2: You should know that. Thank you Francis for that.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 3: This is an honor.
Speaker 2: My book of the Summer Within the Game is Kenneth
Speaker 2: Rogoff of Harvard University, our dollar, your problem. And what's
Speaker 2: so great is the academics of rogue off is so
Speaker 2: much the same but at the same time different from
Speaker 2: the prodigious abilities of Richard Claret of Columbia University at PIMCO,
Speaker 2: the former vice chairman of the FED.
Speaker 3: We're honored that he could join us here this morning.
Speaker 3: The dollar is weaker.
Speaker 2: Our audience just simply sees euro one sixteen into one
Speaker 2: forty three. There's a crisis of confidence. The Wall Street
Speaker 2: Journal in an editorial today, skewers, that's the right word, folks.
Speaker 3: Skewer is the.
Speaker 2: President on his trade policy. If it's our dollar, your problem,
Speaker 2: whose problem is it?
Speaker 3: This morning? To see the dollar at the precipice.
Speaker 7: I think there are a couple of things here.
Speaker 8: First in agreement, Canada is remarkable and it's a fantastic
Speaker 8: book that the dollar is a reserve currency. People hold
Speaker 8: it because it's a store of value. It's useful in
Speaker 8: trade and financial markets. It delivers privileges to the US
Speaker 8: lower borrowing costs. Me more importantly, the ability to borrow
Speaker 8: a lot more. Tom, I do think we want to
Speaker 8: put this in context. I don't see and I don't
Speaker 8: think Ken does based on what he's written, I don't
Speaker 8: see the dollar losing that status in the next say,
Speaker 8: five or ten years, simply because there's no viable alternative.
Speaker 8: But that doesn't mean the dollar is ever higher and
Speaker 8: ever stronger. So even a dominant reserve currency can have
Speaker 8: higher and lower bye and we may be in a
Speaker 8: period in which the dollar is trending down, not just
Speaker 8: against the year, a lot of currencies.
Speaker 2: When you were at Columbia, did you work with Hyman Minsky?
Speaker 2: Was he before you?
Speaker 7: Yes, Hymon Minsky was before he was before you.
Speaker 8: You were the im Mondel Mendel, and I was with
Speaker 8: Professor Mundel, but not Mince.
Speaker 3: I know this is this is sacrilege.
Speaker 2: But how does Richard Clarida link every central bank wants
Speaker 2: gold into our dollar confidence? And frankly over to a
Speaker 2: June eighteenth meeting, Claire, I've never said this Clarida on gold.
Speaker 7: Well, let me say this.
Speaker 8: This is I'm following this pretty closely because the purchases
Speaker 8: in the official data, the purchases of gold are large,
Speaker 8: and they've been they've been picking up. I'll share an
Speaker 8: anecdote with you. I was in Asia ten years ago
Speaker 8: seeing a very sophisticated official investor, official institution.
Speaker 7: And we were talking about gold even then.
Speaker 8: This is like twenty fourteen, twenty fifteen, and that was
Speaker 8: in the context of Kiwi Infinity. And I said to him, well,
Speaker 8: why invest in gold. You can buy an inflation indexed security.
Speaker 8: It gives you a hashid against inflation. And he looked
Speaker 8: at me and he said, gold doesn't default. And so
Speaker 8: I don't think the US is going to default either,
Speaker 8: but certainly we have seen that allocation. And again talk
Speaker 8: about back to the future. I mean central banks have
Speaker 8: been holding gold as a reserve for hundreds of years,
Speaker 8: and so we're sort of getting back into that mindset.
Speaker 2: So, Paul, if gold doesn't default like a gold wedding
Speaker 2: ring and a divorce, is that?
Speaker 3: Do you want to comment? No, thank you Rich.
Speaker 5: As a professor of economics at Club, you when you
Speaker 5: have your class or your module on teriffs, how do
Speaker 5: you present tariffs to your students?
Speaker 3: Great question.
Speaker 8: Well, in the throughout most of my career, which dates
Speaker 8: back to the nineteen eighties, tariffs have really not been
Speaker 8: front and center. So I have I actually typically did
Speaker 8: not teach on tariffs. I have I have brushed off
Speaker 8: on if I were to teach it, how I would
Speaker 8: teach it. And what's interesting if you look at MPER
Speaker 8: working papers, there's probably been a half dozen working papers
Speaker 8: in the last six months on tariffs, and in the
Speaker 8: previous forty years there were.
Speaker 7: One or two zero.
Speaker 8: So it isn't interest to picking up. But the short
Speaker 8: answer is, tariffs of the scale and scope that we're
Speaker 8: talking about now in the US are something we haven't
Speaker 8: seen in decades, and they have implications for the economy
Speaker 8: across the board. They generate revenue for the government, they
Speaker 8: divert some trade into the US, they onshore some investment,
Speaker 8: and so to actually take tariffs at the level that
Speaker 8: we're seeing now, say ten percent, seriously, is a pretty
Speaker 8: complex modeling exercise with a lot of moving parts.
Speaker 7: So I'll leave it at that.
Speaker 5: So as we think about it here, we haven't seen
Speaker 5: rising inflation. No, we haven't seen materially slower economic growth.
Speaker 5: We see a lot of the surveys at the University
Speaker 5: of Michigan and so on. Yeah, cite some concerns, but
Speaker 5: we haven't seen in the hard numbers. How do you
Speaker 5: think about the hard data versus the soft data, which
Speaker 5: is something that we've now been introduced.
Speaker 8: To great question, and let me just say up front,
Speaker 8: you have to acknowledge that in the last four prints,
Speaker 8: the January print was more ugly, but February through May
Speaker 8: in the CPI have been coming in much better than expected.
Speaker 8: A lot of folks, including me, thought we would begin
Speaker 8: to see some of the tariff show up in the
Speaker 8: CPI report we got yesterday because it's for the month
Speaker 8: of May, and in the month of May, the government
Speaker 8: was collecting a lot of tariff revenue and it did not.
Speaker 8: And as you mentioned, the economy seems to be holding
Speaker 8: in at roughly trend growth, the labor market holding in
Speaker 8: so so far so good. What it does tell me is,
Speaker 8: at minimum, we're not seeing in the data that US
Speaker 8: companies are using the tariffs as a reason or excuse
Speaker 8: to raise prices preemptively. We may see that once tariff's
Speaker 8: going to go to in fact more broadly, but yeah,
Speaker 8: so far, I think you have to acknowledge the US
Speaker 8: economies holding up quite well.
Speaker 2: The former vice Chairman of the Federal Reserve System, and
Speaker 2: a good conversation here with Richard Clarida this morning, always
Speaker 2: with Columbia University, and of course Pimco as well. Trotting
Speaker 2: out yesterday, I'll give the ft credit. I can't remember
Speaker 2: quite where I saw it is the John Edwards chart
Speaker 2: of two Americas. It is breathtaking on consumption seventy sixty
Speaker 2: nine percent of GDP whatever fifty x percent I believe
Speaker 2: is that forer de style. It is shocking what upper
Speaker 2: quintile is. It is shocking what the bottom third is
Speaker 2: not consuming in America? Does Clarita economics work in the
Speaker 2: polarity of the American consumer?
Speaker 3: Are we so bipolar?
Speaker 2: By Barbell if you will, Yeah, the normal fed talk
Speaker 2: doesn't work.
Speaker 7: Tom, It does work, but you have to recognize that.
Speaker 8: As I think I've said on this show before, I
Speaker 8: think the simplest way to think about it is that
Speaker 8: two thirds of Americans live in a home that they own,
Speaker 8: and around that percentage directly or indirectly owned stock. So
Speaker 8: if you own your house and you own stock, you've
Speaker 8: had a great run for five, you know, fifteen, twenty
Speaker 8: thirty years. But if you don't own your own house,
Speaker 8: you don't own stock, you've been falling further and further behind.
Speaker 8: And that's at least a third, maybe more of the
Speaker 8: country that is a factor in terms of the nuts
Speaker 8: and bolts of how the economy functions, how monetary policy
Speaker 8: is transmitted. So yes, Claria economics works in this world,
Speaker 8: but it only works if you acknowledge the divergence in
Speaker 8: those two parts of the economy.
Speaker 5: Rich, if I'm your Federal Reserve, I'm taking this summer off.
Speaker 5: I'm going to the beach. I'm not doing anything because
Speaker 5: that data doesn't mean I have to do anything. Is
Speaker 5: that a fair strategy here?
Speaker 8: Well, I certainly don't think they're going to do anything
Speaker 8: next week.
Speaker 3: Come I'm going to talk it up.
Speaker 8: The FED sides comets do anything next week, but there
Speaker 8: will be a press conference, and I think the Chair
Speaker 8: may use that as an opportunity to signal the direction
Speaker 8: of trouble. You know, one thing I've picked up on
Speaker 8: in the last week or so is FED speak not
Speaker 8: only from Chris Waller, but also President Bostic and President Goulesby.
Speaker 8: That does indicate at least to me that the Committee
Speaker 8: may be open to what some have called a good
Speaker 8: news rate cut. So I've been in this camp, which
Speaker 8: is the Fed's only going to cut rates if something
Speaker 8: breaks the unemployment rate goes up. GDP contracts again simply
Speaker 8: because it looked like with the initial tariff announcement the
Speaker 8: inflation hit would be so substantial. But given the better
Speaker 8: inflation data, and as I would point out, basically Clarida
Speaker 8: Galley Gertler monetary policy rule right now would have the
Speaker 8: FED cutting rate already, And so I think there is
Speaker 8: a case for them to begin to consider that. But
Speaker 8: I think the inclination probably will be to take the
Speaker 8: summer off and the time we got left.
Speaker 2: And I won't turn this into a Columbia dissertation, but
Speaker 2: let's go nineteen fifty one McChesney Martin. We basically yanked
Speaker 2: the Federal Reserve.
Speaker 3: System away from the Department of Treasury.
Speaker 2: We have a president who wants to yank it back.
Speaker 2: What stops President Trump from putting in FED leadership? Fed
Speaker 2: governors that understand the buck stops at the Treasury Building
Speaker 2: and not at the Eagles Building.
Speaker 8: Great question, one that I thought about and lived through
Speaker 8: to some extent. I'll make a couple points.
Speaker 3: One.
Speaker 8: The President does nominate FED officials, but to be confirmed
Speaker 8: requires a Senate confirmation process. The Senate is not a
Speaker 8: rubber stamp for FED nominees, and so I think that's
Speaker 8: important also to candid I think the market will have
Speaker 8: a say, and particularly for for FED chair and I
Speaker 8: don't think this will happen. But where the president to
Speaker 8: nominate someone who the markets believe would not be committed
Speaker 8: to price stability and would not be a primarily independent
Speaker 8: I think you'd see stocks down, rates out.
Speaker 7: Okay, but now I want to have I got cut.
Speaker 2: I gotta cut you off. This is too important to clari.
Speaker 2: Are you going to get a twenty five basis point,
Speaker 2: pop Y Honor if we end up with a Trump chairman,
Speaker 2: or are you talking about a stick where we get
Speaker 2: out over five percent? Rogue offf even hinted towards six
Speaker 2: percent given selected events.
Speaker 8: Not a twenty five basis point, you, Honor, A tangible
Speaker 8: a lift, yes, yes, and weaker.
Speaker 7: Risk assets stocks, credit spreads, higher.
Speaker 8: Yields, higher get I just don't think it would stick
Speaker 8: because I wouldn't want to be a nominee coming into
Speaker 8: my hearing with that market reaction to my to my
Speaker 8: The other thing, I'll say, tomm And it's a little
Speaker 8: bit wonkish, but look I'm on this show so I
Speaker 8: can be a little bit of a warm is Congress
Speaker 8: occasionally Congress knows what it's doing. And back in the
Speaker 8: thirties when the Federal Reserve Act was modified and amended,
Speaker 8: it was amended to disperse the authority for raising and
Speaker 8: lowering rates away from the chair towards a committee. So
Speaker 8: it's the green span FED, it's the paler Fat, it's
Speaker 8: the Bernanke Fed. But by statute, rate decisions are made
Speaker 8: by a majority vote of a committee. Five of the
Speaker 8: twelve members of that committee are reserve bank presidents who
Speaker 8: are not appointed by the White House. Seven of them
Speaker 8: are obviously upper fullstering governors. And so I do think
Speaker 8: that the system has an intelligent design, and so I'm
Speaker 8: not that concerned about that outcome.
Speaker 7: But if it were to happen, I think Ken is right.
Speaker 2: If Catherine Man of Brandai's holding court at the Bank
Speaker 2: of England, does the Bank of England get it right?
Speaker 2: In a more fractured and spread out debate versus green
Speaker 2: Spanning and certitude in Washington.
Speaker 8: A various stute comment because not all central banks have
Speaker 8: similar cultures. In fact, I remember a conversation with a
Speaker 8: senior back of England officials said that he actually viewed
Speaker 8: it as a as a feature, not a bug that
Speaker 8: in their system the governor occasionally is on the losing
Speaker 8: side of an interest rate vote. The descent, the culture
Speaker 8: of descent there is much more accepted than at the FED.
Speaker 7: There are descents at the FED.
Speaker 8: We've actually had some from some governors recently, but that
Speaker 8: is a difference.
Speaker 3: Yeah, brilliant Richard Claire to thank you so much.
Speaker 2: Thanks for making jimco and of course always with Colombia economics.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: I don't think Richard Clarita would be offended the giant
Speaker 2: of DSGE at Columbia Academics if I said this is
Speaker 2: the most important conversation of the day for Global Wall Street.
Speaker 2: Very difficult morning here with the plane crash, and Ian
Speaker 2: Lincoln joins us with the Bank of Montreal. They are
Speaker 2: the definitive Canadian bank, essentially the Bank of England, the
Speaker 2: Central Bank of Canada. Going back one hundred and fifty
Speaker 2: one hundred and seventy years Demo capital Markets. Ian Lincoln,
Speaker 2: you have a shockingly dense eight paragraphs this morning, unfixed income.
Speaker 2: Do you reaffirm here with a cacophony of the moment
Speaker 2: a disinflationary vector? Can we drive the ten year yield
Speaker 2: under four percent? Price up, yield down?
Speaker 6: I actually certainly think at this stage lower rates below
Speaker 6: four percent tenure yields will emerge as the path of
Speaker 6: lease resistance. Look at CPI yesterday, and as long as
Speaker 6: we don't see a material regime shift higher in realized
Speaker 6: inflation over the summer months, then by the end of
Speaker 6: the year we're going to see that disinflationary trend re
Speaker 6: established and presumably the FED back on the path of normalization.
Speaker 2: My question of the morning, including to Professor Clareda. Let
Speaker 2: me go to professor Lingen. How does a week dollar
Speaker 2: fold into this? I have BBDXY folks, the Bloomberg Dollar Index,
Speaker 2: which is wicked good math. Good morning ninety nine FM
Speaker 2: in Boston.
Speaker 3: It's a wicked good series. Em Lincoln and I have
Speaker 3: weak dollar.
Speaker 2: But does that correlate with the Lincoln call of lower yields?
Speaker 6: Well, I'm not redicating my call on a return of
Speaker 6: the dollar to prior strength. But if we do take
Speaker 6: another let's say, three five percent lower in the value
Speaker 6: of the dollar, that means we're going to be importing
Speaker 6: more inflation, and so that means the core inflation series
Speaker 6: could be stickier than we're expecting. So it's a challenge
Speaker 6: to lower rates, but I don't think that it will
Speaker 6: definitively drive that story given the trajectory of inflation at
Speaker 6: the moment.
Speaker 5: Ian what's your view of the consumer? Heres Again, seventy
Speaker 5: percent of the US ECON comes from the consumer as
Speaker 5: opposed to manufacturing. What's your view of the consumer?
Speaker 3: Here?
Speaker 6: At the moment, the consumer appears to be on surprisingly
Speaker 6: strong footing. We know what happened during the pandemic. Anyone
Speaker 6: who could locked in a super low thirty year mortgage
Speaker 6: rate a fair amount, and so there was a fair
Speaker 6: amount of capacity to consume. Now we're up against a
Speaker 6: rare moment for consumers where the dollar amount spent on
Speaker 6: mortgage interest is equal to the dollar amount spent on
Speaker 6: non mortgage interest. So that means that a lot of
Speaker 6: net borrowers are starting to feel the pinch of higher rates.
Speaker 6: In a way that we haven't seen in history, and
Speaker 6: that's a key index that we've been watching.
Speaker 5: If rates are higher, what happens. I mean, again, a
Speaker 5: lot of folks have a lot of credit card debt,
Speaker 5: they have a lot of mortgage debt.
Speaker 6: I think that that's precisely the issue. Rates are higher.
Speaker 6: People need to make choices in terms of what they consume.
Speaker 6: If we find ourselves faced with the another leg higher
Speaker 6: of inflation, that means in real terms that the consumer
Speaker 6: is going to be able to contribute less to growth
Speaker 6: still for the same nominal amount of growth. If prices
Speaker 6: are higher, you have negative or a drag on real growth.
Speaker 6: Cloth that's going to be the biggest risk.
Speaker 2: And to close the loop here, I've got twenty seconds
Speaker 2: to get into important economic data. So you're just suggesting
Speaker 2: a lower real yield. I mean, the basic idea is
Speaker 2: the fear of a higher real yield is unfounded.
Speaker 6: Sustainably. I think that that's right. I think real rates
Speaker 6: are going to move lower between now in the end
Speaker 6: of the year, certainly in twenty twenty six and beyond.
Speaker 2: And across the board. I have a disinflationary and a
Speaker 2: worse labor market tendency in this thirty this Thursday data.
Speaker 3: Does it shift the FED?
Speaker 6: I think that what it does is it keeps the
Speaker 6: FED from signaling fewer cuts in twenty twenty five. If
Speaker 6: there was a case to only suggest it between tenty
Speaker 6: five basis points worth of great cuts this year, I
Speaker 6: think this solidifies fifty basis points. So on net, it
Speaker 6: doesn't shift the FED, but it does leave them somewhat
Speaker 6: nervous and for the summer summer months for sure.
Speaker 5: Yeah, what's the greatest headwind to this US economy? Here?
Speaker 5: It seems like I'm looking at the inflation data today,
Speaker 5: it doesn't seem to be at least now inflation.
Speaker 6: I agree, it's non inflation. Frankly, I think that the
Speaker 6: one major uncertain one major headwind is the uncertainty introduced
Speaker 6: by the trade war. The rules keep changing, and as
Speaker 6: the rules keep changing, business leaders are struggling to know
Speaker 6: where to invest capital, struggling to know where and when
Speaker 6: to hire, and so they're simply staying on the sidelines,
Speaker 6: and that uncertainty can compound. And that's the biggest headwind
Speaker 6: and fear that I have at the moment.
Speaker 2: Dan Lingham, thank you so much, greatly, greatly appreciate that
Speaker 2: this one of the demon capital markets. He reaffirms a
Speaker 2: lower interest rate called price up yield down.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 3: Join us now.
Speaker 2: Incredibly well timed with the uncertainties out there, particularly on
Speaker 2: moving steel around and stuff like that. He's with Mercury
Speaker 2: at Resources antime. Posner is with us in the studio
Speaker 2: every time he's on. I wish it was longer.
Speaker 3: Longer. Let's squeeze us in right now.
Speaker 2: What are we missing in the steel debate besides the
Speaker 2: romance of the nineteen sixty two steel.
Speaker 3: Strike or that and the actual doing of steel? Where
Speaker 3: does America fit in right now? Yeah?
Speaker 9: Do we have a couple of hours at this point
Speaker 9: in time? Good morning, So going to be back and well,
Speaker 9: we saw recently a couple of weeks ago, the announcement
Speaker 9: of the partnership quote unquote partnership between nip On Steel
Speaker 9: and US Steel. So that's the big news in the
Speaker 9: steel industry. And at that same announcement that President Trump
Speaker 9: held during at his visit to US Steel, he announced
Speaker 9: new tariffs to go into effect, moving it up to
Speaker 9: fifty percent on import steel and aluminum, which was a
Speaker 9: bombshell for the industry off the cuff, and that was
Speaker 9: going to go in ef fact, that was a Friday
Speaker 9: when he was at US Steel announcing that new partnership
Speaker 9: and investment that we don't have any details on yet,
Speaker 9: by the way, but it was told that we were
Speaker 9: going to start seeing import steel and aluminum tariffs moved
Speaker 9: up to fifty percent the following Wednesday, so we sprung
Speaker 9: into action. The workload between that Friday announcement and the
Speaker 9: Wednesday and acting of the tariffs was pretty frantic on
Speaker 9: our front, working in dealing with our domestic steel business
Speaker 9: UH logistics and supply chain business and the import steel
Speaker 9: business that we do to rush steel imports off ships
Speaker 9: that were already on the water and import to clear
Speaker 9: them before the new fifty percent tariffs went into effects.
Speaker 9: So we oversaw the move the deployment of import steel
Speaker 9: at ports that where it was not supposed to be
Speaker 9: coming off of just to customs clear ahead of the
Speaker 9: new fifty percent tariffs, So we have steel out of
Speaker 9: place in a bunch of places.
Speaker 3: Fifty is a big number.
Speaker 9: It's a big number.
Speaker 5: What do we import a lot of steel?
Speaker 7: Is this going to impact?
Speaker 5: Who's going to impact? How's it going to impact.
Speaker 3: It's a big number.
Speaker 9: Yeah, it's going to impact you, me, Tom, Yeah, exactly,
Speaker 9: everybody and everybody else.
Speaker 3: Steel.
Speaker 7: Do we import a lot of steels?
Speaker 9: We import a lot of steel? Is not enough?
Speaker 5: Import it because it's better for us too import it
Speaker 5: versus to make it here, or we just can't make
Speaker 5: it here.
Speaker 9: Yeah, I'd say that's a more philosophical question. Of course,
Speaker 9: we want to have steel making capacity in the States
Speaker 9: for national security reasons, So I don't think there's anyone
Speaker 9: that would that would say that that's not a good idea.
Speaker 9: The fact of the matter is, as soon as those
Speaker 9: import tariffs were announced first twenty five percent, the domestic
Speaker 9: steel mills raised their prices sufficiently to take advantage of that,
Speaker 9: so that that hits us all in terms of inflation
Speaker 9: and consumer spending and so forth right, and import steel
Speaker 9: was still able to make sense even with the twenty
Speaker 9: five percent because of the domestic race.
Speaker 3: Can I continue with dumb questions of the day. Is
Speaker 3: the time to do it?
Speaker 5: This at the time?
Speaker 2: Is steel steel like a steel comes out of the
Speaker 2: romance of the Mangahela River in Pittsburgh or New Core
Speaker 2: on some field in the middle of the Midwest somewhere,
Speaker 2: or Texas.
Speaker 3: Whatever I'm dumb on this is that the same steels
Speaker 3: from South Korea?
Speaker 9: Yes, same basic steel, right, there's different lots of different grades.
Speaker 3: Types, specialties and stuff.
Speaker 9: Raid steal a steel, correct, right, it's made with iron ore,
Speaker 9: It's made with metallurgical coal.
Speaker 3: So you have a betage you're having a coke with
Speaker 3: President Trump? Right now? What's the Anton Posner intelligence steel strategy?
Speaker 9: My strategy? And I guess I'm announcing my candidacy for
Speaker 9: mayor Well no, not today, but anyway the other day, right,
Speaker 9: I know when was here. But anyway, here's the thing.
Speaker 9: We all want more investment in American industry, whether it's steel,
Speaker 9: whether it's aluminum. We could talk about aluminum for another
Speaker 9: two hours also, but it can't investment. It's not going
Speaker 9: to happen based on a tweet or a truth social right,
Speaker 9: how's it gonna happen. It's going to happen by putting legislation.
Speaker 9: In effect, it's going to take rolling up the sleeves
Speaker 9: in hard legislative work.
Speaker 5: So we need a.
Speaker 2: State policy to compete with the state policy of South Korea.
Speaker 9: Right, state policy to incentivize actual investment. You can't have
Speaker 9: LB credits. There's credits, there's support on energy, there's working
Speaker 9: with the unions to make it, there's infrastructure and supply change.
Speaker 9: Can't we do that because we're in a cycle where
Speaker 9: our election cycle is based on sound bites, right, So
Speaker 9: I'm I'm gonna get a little bit get a little
Speaker 9: bit off on that area. But you know, we're competing geopolitically,
Speaker 9: we're competing against countries that don't have elections, right, and
Speaker 9: that can make five, ten, twenty five year strategic plans
Speaker 9: on critical minerals and steeling.
Speaker 2: I went to launches with new Core two lifetimes ago. Yeah,
Speaker 2: and there was a complete panic about steel dumping. Is
Speaker 2: there steel dumping going on right now?
Speaker 7: Sometimes?
Speaker 6: There?
Speaker 9: Sometimes there is in certain types of steel and markets.
Speaker 9: It's very it can be, it's very special. That question
Speaker 9: time is very specialized. You might be talking about rebar,
Speaker 9: might be talking about wirerod coil or hot roll coils,
Speaker 9: bar it's a big baras like tomorrow, you want to
Speaker 9: just get.
Speaker 2: Regular.
Speaker 3: Note tell tell the intern from Duke to wake up
Speaker 3: in there. Maybe we can get in time back here.
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