Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Joining us now is Stephen Meyer and the Chairman of
Speaker 2: the Council of Economic Advisors. Steven Welcome back to the
Speaker 2: program sir, thanks for making some time for us this morning.
Speaker 2: Let's just take a little assessment of where things are
Speaker 2: right now. So through the week, GDP first contraction since
Speaker 2: twenty twenty two, consumer confidence the week is since May
Speaker 2: twenty twenty, manufacturing shrinking on the m report, and then
Speaker 2: we just have this very solid payross report. What's your assessment, Stephen,
Speaker 2: of where things are at the moment.
Speaker 1: Good morning, Thanks for having me, and let me just
Speaker 1: say that I know that surveillance usually ends at nine,
Speaker 1: so I look forward to you guys benefiting from the
Speaker 1: President's forthcoming no tax and overtime. So thanks for staying
Speaker 1: a few extra minutes. But no, look, you know, I think,
Speaker 1: you know, I think there's been an ongoing disconnect between
Speaker 1: the hard data and the soft data. And the hard
Speaker 1: data continued to perform very well. One hundred and seventy
Speaker 1: seven thousand jobs last month, a beat of forty thousand jobs.
Speaker 1: That's the President's second jobs they beat in a row.
Speaker 1: And on top of that, you've got eleven thousand construction jobs,
Speaker 1: you know, expanding and expanding construction construction sector in spite
Speaker 1: of the president's cut crack down on the border, disproving
Speaker 1: critics again, and the hard data continued to be okay.
Speaker 1: And I think it's worth emphasizing that these data represent
Speaker 1: the period after the president's historic actions with teriffs in
Speaker 1: April second, So.
Speaker 2: Steve, when we need to get into that, because there
Speaker 2: are some people that we've spoken to that worry about
Speaker 2: the next report. They think that this could show up
Speaker 2: in the main report, and I've heard the words downside
Speaker 2: risks repeatedly. Are you confident that some of that's avoidable?
Speaker 1: So you know, look, you know, given given the historic
Speaker 1: scope and speed with which the President acted to put
Speaker 1: American workers in firms first for the first time in decades,
Speaker 1: you know, it shouldn't be surprising if there's if there's
Speaker 1: some company volatility, and that extends to financial markets that
Speaker 1: we've seen, and it could extend to economic data also,
Speaker 1: as companies sort of substitute activity from one month to another.
Speaker 1: But you know that that remains to be seen. But
Speaker 1: so far in the hard data, we're not seeing any
Speaker 1: real evidence of that to be the case, and as
Speaker 1: you pointed out, you know there are various soft data
Speaker 1: sentiment indices look not as good, but those tend to
Speaker 1: be influenced by financial markets, and there's been enormous volatility
Speaker 1: there lately, as you guys are aware, and they tend
Speaker 1: to be influenced a lot by politics, but historically the
Speaker 1: correlation between those in activity has been weaker in the
Speaker 1: last few years than it would have been, say, ten
Speaker 1: years ago.
Speaker 2: We are seeing it show up in some hard data,
Speaker 2: and that's trade volumes. We just caught up with the
Speaker 2: Port of LA director Jens Soroka, Stephen. I wonder if
Speaker 2: you've been in touch with them and how you see
Speaker 2: this plank out. They're telling us now the trade volumes
Speaker 2: are about to fall, that what they're about to see
Speaker 2: through their poor could drop by something like a third
Speaker 2: thirty percent, and then from there this could ripple through
Speaker 2: the US economy. What's the sequencing of things from your standpoint?
Speaker 1: Thanks, So, as I mentioned a moment ago, there can
Speaker 1: be some volatility in the economic data, and I think
Speaker 1: it's worth emphasizing that. You know, there are some firms
Speaker 1: that want to see the outcome of trade negotiations which
Speaker 1: will be coming soon, and they want to see the
Speaker 1: tax bill pass, which again will be coming soon. And
Speaker 1: as a result, they may substitute activity from one month
Speaker 1: to another, from one quarter to another, but it all
Speaker 1: gets averaged out over time. These are not the types
Speaker 1: of activities for which activity would get canceled permanently. And
Speaker 1: as you mentioned at the start, the GDP report contained
Speaker 1: a five point drag from import activity. So we're just
Speaker 1: coming off of a quarter with an enormous amount of
Speaker 1: imports that by the way, there was a data anomaly
Speaker 1: in the in the GDP data that I'm sure you
Speaker 1: know most of your audience is aware of by now.
Speaker 1: But after such a huge import drag on the economy
Speaker 1: in the first quarter, it wouldn't be surprising if there
Speaker 1: were a little bit less imports subsequently. I mean, but
Speaker 1: this stuff all averages out over time, and that's why
Speaker 1: it's important to look at measures of underlying GDP growth,
Speaker 1: underlying economic activity, and those were quite strong.
Speaker 2: As you know, the market is very focused on trade
Speaker 2: talks right now, and that's why we've seen equities recover
Speaker 2: to the extent they have over the past week. Stephen,
Speaker 2: the US says China wants to talk. China's going around
Speaker 2: saying the US wants to talk. I don't think the
Speaker 2: market really cares about that. The market just wants to
Speaker 2: see talks. What's the timeline for actual talks.
Speaker 1: So the President has repeatedly said in recent weeks, and
Speaker 1: he's been very clear that he thinks that we will
Speaker 1: do a deal with China. I think the President is right.
Speaker 1: And as I keep pointing out, the President has one
Speaker 1: of the best track records on making deals in the
Speaker 1: entire history of the country. He is able to pull
Speaker 1: deals that have a hat that nobody thinks are possible.
Speaker 1: He pulled the Phase one deal with China add of
Speaker 1: a had in twenty eighteen twenty nineteen, in spite of
Speaker 1: all the in spite of all the doubters, many people
Speaker 1: didn't think that was possible, but he achieved it. And
Speaker 1: so I think the President is right that we will
Speaker 1: have a deal with China. I can tell you. I
Speaker 1: can tell you that you know I have good reason
Speaker 1: for that optimism. I think that it's in the interest
Speaker 1: of both economies to lower the temperature, to create breathing space,
Speaker 1: to continue talking, to figure out how we can get
Speaker 1: to a new stable equlibrium on trade, and I think
Speaker 1: that a little bit of de escalation will be quite helpful.
Speaker 1: So I would be surprised if tariff rates are where
Speaker 1: they are now, you know, within you know, within within
Speaker 1: a few weeks from now, a few weeks.
Speaker 3: So you're saying within a few weeks the one hundred
Speaker 3: and forty five percent tarif rate on China is bound
Speaker 3: to come down. And to where, Stephen, Well, I can't.
Speaker 1: Get ahead of negotiations. I can't make commitments. I'm not
Speaker 1: part of the trade negotiating team. I'm not a trade negotiator.
Speaker 1: But what I can tell you is the President has
Speaker 1: been very clear that he thinks that there will be
Speaker 1: a deal with China, and I think the President is right,
Speaker 1: and I think that both I think it's in the
Speaker 1: interest of both sides to come to a de escalation
Speaker 1: that lowers the temperature and creates breathing space.
Speaker 3: Well, China this morning put out a statement the Commerce Ministry,
Speaker 3: so this is official saying China is currently evaluating this.
Speaker 3: Do you have a sense when the President is going
Speaker 3: to get on the phone with Shijipang.
Speaker 1: I don't. I don't, And again, you know, I'm not
Speaker 1: a trade negotiator. I'm an economic advisor. That's the scope
Speaker 1: of my role. What I'm giving you is is my expectations.
Speaker 1: You know, I can't get ahead of the negotiations. I
Speaker 1: can't commit anyone.
Speaker 2: Steve, and I wonder if you could give us some
Speaker 2: insight though, just to the approach, the approach we're taking
Speaker 2: at the moment. The Choicery Secretary mentioned just yesterday that
Speaker 2: maybe we could revisit the purchase agreements that we struck
Speaker 2: with China back in twenty twenty. Is that something we'd
Speaker 2: look to do with other nations as well?
Speaker 1: You know, Look, I mean I think that there's a
Speaker 1: wide variety of terms that can be included in the
Speaker 1: different negotiations, and each country is different, each trading partner
Speaker 1: is different, and I suspect that each trading each trading
Speaker 1: agreement that has reached will end up being different too.
Speaker 1: But things like that should definitely be on the table.
Speaker 1: And I think it's up to other countries to show
Speaker 1: America that they mean to make trade more fair, they
Speaker 1: need to make trade more reciprocal, and they mean to
Speaker 1: create better markets for US exports. The way that we
Speaker 1: accept their exports into our markets. And purchases like the
Speaker 1: type you're describing, you know, could work towards that ends.
Speaker 3: Well, the Europeans are looking at increasing the purchases of
Speaker 3: US goods to fifty billion euros to address what they
Speaker 3: say is the problem in the trade relationship. Is that
Speaker 3: enough to get a deal done between Washington and Brussels?
Speaker 1: Again, I can't you know, I'm not a trade negotiator.
Speaker 1: I'm not making deals with people. I'm just an economic advisor,
Speaker 1: and you know, I can't say, you know, I can't
Speaker 1: prejudge the outcomes of those deals. However, what I will
Speaker 1: say is that talking is better than not talking, and
Speaker 1: I do believe in the ability the president to create
Speaker 1: deals that nobody expects. And once you start on that process,
Speaker 1: I think that there will be fertile ground for countries
Speaker 1: to see eye to eye to make the trade fear
Speaker 1: more symmetric, more durable, more resilient, and create a more
Speaker 1: long lasting, stable global trading system.
Speaker 2: Well, the Japanese are talking, and I think this is
Speaker 2: something that you can offer some insight on an assessment
Speaker 2: on what this could mean for financial markets in the economy,
Speaker 2: And we'd love to know the kind of advice you'd
Speaker 2: give In the oval to the President of the United States,
Speaker 2: the Japanese finance minister was asked if Japan's holding of
Speaker 2: treasuries could be a negotiation tool, and the response was this,
Speaker 2: here's the quote. It does exist as a card. Whether
Speaker 2: or not we use that card is a different decision. Steven,
Speaker 2: what's your reaction to that.
Speaker 1: My reaction is that I'm not the Treasury secretary and
Speaker 1: you should ask my need for a couple of blocks down.
Speaker 2: Do you have an assessment on what that would mean
Speaker 2: for markets in the economy though.
Speaker 1: I don't, but you know, for markets in the economy,
Speaker 1: I think that you know, capital flows will ultimately in
Speaker 1: the long run follow economic growth and economic opportunity, and
Speaker 1: that's why the President is focused. I'm creating the most dynamic, strongest,
Speaker 1: healthiest economy in US history. And we're talking a lot
Speaker 1: about trade. But there's two other elements to the package also,
Speaker 1: and those are tax really for Americans, no tax on tips,
Speaker 1: no tax and overtime, no tax on social Security, and
Speaker 1: incentives for corporate investments, lower corporate rates on domestic manufacturing, expensing,
Speaker 1: things like that. And also deregulation, getting regulations out of
Speaker 1: the way so that American firms can produce in America
Speaker 1: without layers and layers of red tape that make financing difficult,
Speaker 1: that delay projects and just make it unattractive to invest
Speaker 1: in the United States. And as we succeed in creating
Speaker 1: the economy we want by passing the tax bill, the
Speaker 1: Big beautiful tax Bill, by proceeding with the deregulatory effort
Speaker 1: and getting government out of the way and putting American
Speaker 1: workers on fair ground via trade renegotiation and tariffs, then
Speaker 1: we're going to create the economy that will attract capital flows.
Speaker 1: So all of this stuff in the short run, you know,
Speaker 1: it's a little bit noise, but in the long run,
Speaker 1: capital will follow economic opportunity, and this administration is focused
Speaker 1: single mindedly on creating economic opportunity for American firms and workers.
Speaker 3: So, Steve, let's quickly talk about the Big beautiful bill.
Speaker 3: What kind of revenue do you expect from the tariffs
Speaker 3: to offset the tax cuts the President wants to get
Speaker 3: across the line.
Speaker 1: So when you talk about things like offsets, you know
Speaker 1: that's ultimately you know, usually people talk about that as
Speaker 1: part of the reconciliation process, which is basically, you know,
Speaker 1: as as your audience knows a legal artifact of how
Speaker 1: the of how the sausage gets made in Washington, and
Speaker 1: how bills, you know, and how bills come together and
Speaker 1: get signed into law. The tariff revenue is sort of
Speaker 1: a different bucket. And you know, I'm not at a
Speaker 1: liberty to share our internal number, but what I would
Speaker 1: say is I would be surprised if we had tariff revenue,
Speaker 1: you know, that was less than hundreds of billions of
Speaker 1: dollars a year, and that's very substantial. You know. So
Speaker 1: when you think about when you think about the revenue
Speaker 1: that you can raise from tariffs ultimately paid for by
Speaker 1: by foreigners, use that revenue to help finance preservation of
Speaker 1: the president's historic twenty seventeen tax cuts. Use that revenue
Speaker 1: to help finance additional tax relief for American firms and workers.
Speaker 1: I think that's a winning combination, Steve.
Speaker 3: Right now, the market is basically just only pricing in
Speaker 3: the fact that there's going to be an extension of
Speaker 3: current policy. How confident are you that you get some
Speaker 3: of those sweeteners like you just mentioned, no tax on
Speaker 3: tips actually done in this package. Given how slim the
Speaker 3: Republican majority is in the Senate and the House.
Speaker 1: Oh, I'm very confident that we will get this package
Speaker 1: over the line. I'm extremely confident we'll get this package
Speaker 1: over the line. The entire Republican Party is unified and
Speaker 1: committed to using tax incentives to create a vibrant, robust, healthy,
Speaker 1: and dynamic economy. And that was what created the first
Speaker 1: Trump economic boom, and it's what will help create the
Speaker 1: second Trump economic boom as well.
Speaker 2: Steven, just to find a word on the Federal Reserve,
Speaker 2: if we may. The President's been outspoken, as you know,
Speaker 2: he said we should reduce interest rates. The Treasury Secretary
Speaker 2: Scott Besson made the argument that look at where the
Speaker 2: front end of the yield curve is right now, the
Speaker 2: two year trading below Fed funds, that's evidence that this
Speaker 2: market things were too tight and the Fed should cut rates.
Speaker 2: I just wander, from your perspective, how you to weigh in?
Speaker 2: Do you think this complicates the optics for the Federal Reserve?
Speaker 2: Does it make it harder for them to ease over
Speaker 2: the next several months?
Speaker 1: Sure? So, you know, I think everyone's entitled to an
Speaker 1: opinion on interest and where they should be, and the
Speaker 1: President actually has a pretty good track record of his opinions.
Speaker 1: He was right in twenty eighteen, twenty nineteen that inflation
Speaker 1: wasn't an issue and that interest rates were too high,
Speaker 1: and eventually consensus came around to his view. And again
Speaker 1: he was right in twenty twenty one that interest rates
Speaker 1: are too low and inflation was coming back big time,
Speaker 1: and again consensus came around to his view. So everyone's
Speaker 1: entitled to an opinion on these matters. I think the
Speaker 1: President has a great track record on them as the
Speaker 1: Secretary of Besson, who's a fabulous track record as an
Speaker 1: investor on these subjects. And everyone's entitled to their view,
Speaker 1: you know. As to whether it interferes with the things
Speaker 1: you're talking about, I don't think so. I think the
Speaker 1: track record of the Federal Reserve speaks for itself.
Speaker 2: Stevid, Can I just say, I really wanted to catch
Speaker 2: out with you. I did this for free. Now over time, okay,
Speaker 2: but I'll tight the tax right. I would tight the
Speaker 2: tax fright, Steven, Thank you, sir, Steven. Tax brick is coming,
Speaker 2: Thank you, sir. The Chairman of the Council of Economic
Speaker 2: Advisors