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Speaker 3: So here's the latest.
Speaker 2: This this morning, the Senate failing to reach a deal
Speaker 2: to extend funding, plunging the US government into a shutdown,
Speaker 2: putting a slew of economic data in jeopardy. John Lieber
Speaker 2: of your Asia Group right in the following even a
Speaker 2: macro economically significant shutdown could have knock on effects that
Speaker 2: delayed data releases for the next several months. As federal
Speaker 2: workers get up to speed, John joins us now for more. John,
Speaker 2: Welcome to the program. I want to pick the language
Speaker 2: of the president there that last line. We can get
Speaker 2: rid of a lot of things we didn't want. Is
Speaker 2: this going to be a different kind of shutdown.
Speaker 4: Yeah, absolutely, I mean, I think the fact is that
Speaker 4: Trump is playing a different game, by a different set
Speaker 4: of rules than I think the Democrats on Capitol Hill
Speaker 4: are playing right now. And he's been playing that all year,
Speaker 4: and he's playing that for his entire political career. And
Speaker 4: I think that there's a lot of unpredictable effects that
Speaker 4: are going to come out of this shutdown that we
Speaker 4: haven't seen before. If you look at the pattern this year,
Speaker 4: it's that Congress's authority has been usurped or even eliminated
Speaker 4: in many cases when it comes to decisions about what
Speaker 4: the federal government's doing, who they're funding, whether or not
Speaker 4: they're laying off workers, or even closing entire divisions, and
Speaker 4: Congress has been helpless to stop it. So part of
Speaker 4: the reason the Democrats are behind this shutdown, are rallying
Speaker 4: behind the shutdown, is because they want to force the
Speaker 4: power of the purse back over to Congress. I don't
Speaker 4: think Trump cares. And again, he's playing a different game.
Speaker 4: He now has the power to choose who's essential who
Speaker 4: is and he's going to take that opportunity in a
Speaker 4: way I don't think we've ever seen in the United
Speaker 4: States before and deem the functions that he prioritizes as
Speaker 4: essential and then cut off the ones that he doesn't.
Speaker 4: So this is a very different type of shutdown than
Speaker 4: we've seen before, even the one that Trump oversaw in
Speaker 4: twenty eighteen and twenty nineteen. The government was partially funded then,
Speaker 4: so you had the core defense functions and other security
Speaker 4: functions had an authorization from Congress to keep spending money.
Speaker 4: Right now, nobody does. So Trump's in charge, and he
Speaker 4: will be in charge until the Congress agrees to reopen
Speaker 4: the government.
Speaker 1: Does this administration try to make furloughs actually permanent.
Speaker 4: It could try, I mean, I think that's the decision
Speaker 4: that's up to the courts. I mean, one of the
Speaker 4: interesting phenomenon so far this year is that the courts
Speaker 4: are offully slow, and the Trump administration could be pretty quick,
Speaker 4: so they could use this as an excuse to try
Speaker 4: to furlough more workers. You know, there's been some resistance
Speaker 4: to those furloughs, even within the cabinet agencies that are
Speaker 4: run by Trump appoint because they want the people to
Speaker 4: do the work they're supposed to do. But now they
Speaker 4: suddenly have an excuse and the Clearly the White House
Speaker 4: sees a political advantage in forcing more of these layoffs
Speaker 4: in order to bring Democrats back to the table, and
Speaker 4: I expect that.
Speaker 1: They're going to use it well, John, three Democrats already
Speaker 1: back at the table last night in the sense that
Speaker 1: they voted for the Republican clean cr They only need
Speaker 1: to get five more Democrats to then reopen the government
Speaker 1: and keep it funding to the end of November. Do
Speaker 1: you think that Schumer is losing the moderate wing and
Speaker 1: potentially this is going to be a short shutdown.
Speaker 4: It could be. I mean, you know your base rate here.
Speaker 4: Your expectation should be that this is a relatively short shutdown,
Speaker 4: you know, because of these political pressures on members of
Speaker 4: Congress who don't want to see this happen. And the
Speaker 4: only thing you need is exactly what you said, You
Speaker 4: need seven Democrats to say we've had enough. We already
Speaker 4: know the universe. Of those seven Democrats, they're the ones
Speaker 4: that voted to end to open keep the government open
Speaker 4: this spring. And you mentioned Schumer. He's the one who's
Speaker 4: under the most pressure because he took just withering criticism
Speaker 4: for his decision to keep the government opened. But the
Speaker 4: fact and He's under a lot of pressure from the
Speaker 4: Democratic base to regain leverage over President Trump, leverage that
Speaker 4: simply doesn't exist through Congress right now. And so I
Speaker 4: think that he's in a really tough spot. Those other Democrats.
Speaker 4: I think this is an easier calculation. People like John
Speaker 4: Fetterman from Pennsylvania see that this is a tough thing
Speaker 4: for the Democrats to win, and over the next week
Speaker 4: or so, I expect those numbers are going to grow,
Speaker 4: and you know that will help to end this shutdown,
Speaker 4: probably sooner rather than later.
Speaker 5: That actually is exactly where I wanted to go John,
Speaker 5: this idea of in March what happened to Chuck Schumer
Speaker 5: when he what a lot of people, Democrats in particular, said,
Speaker 5: a cave to the Republican demands to keep the to
Speaker 5: keep the government open. Is this just performative to avoid that,
Speaker 5: to placate a certain side of the Democratic base. Is
Speaker 5: that how it's being read, at least in polls.
Speaker 4: Yeah, I mean, I think he's in a tough spot,
Speaker 4: and you know, I feel bad for the guy. There's
Speaker 4: no way to win this thing. Like he's got to
Speaker 4: keep his eye on the Democratic members who elected him
Speaker 4: to be leader. He's got to keep his eye on
Speaker 4: the Democratic voters who elected him to his Senate seat,
Speaker 4: and they problem, the fundamental problem for the Democrats right
Speaker 4: now is they don't have a strategy to push back
Speaker 4: on Trump. That they've been unable to land any punches,
Speaker 4: and they've been unable to draw any blood. His popularity
Speaker 4: is reasonably high for President Trump. He's hovering around the
Speaker 4: mid to low forties, which is much better than he
Speaker 4: was doing and is the entirety of his first term.
Speaker 4: And he's doing all kinds of controversial stuff that the
Speaker 4: Democrats hate, and they can't articulate the case against him.
Speaker 4: And until they figure out how to do that, Schumer
Speaker 4: and the other leadership are going to be looking for
Speaker 4: things like this that allow them to kind of shore
Speaker 4: up their base on the left and placate them a
Speaker 4: little bit and try to land these punches that so
Speaker 4: far they've been unable to do. I think this is
Speaker 4: a prime example of that.
Speaker 3: John. The markets flags they don't care, Do voters care.
Speaker 5: Has there been anything in the voting or the polling
Speaker 5: that shows that this is swaying the needle in any capacity?
Speaker 4: I suspect at some point the chaos will be enough
Speaker 4: and people will say, you know what, we don't like
Speaker 4: either of these jerks that are causing all these big problems.
Speaker 4: That's kind of where I think this ends up in
Speaker 4: the polling. I don't think it necessarily falls in the
Speaker 4: Republicans or Donald Trump. I don't think it necessarily falls
Speaker 4: in the Democrats. Maybe the president takes more responsibility because
Speaker 4: he's the executive executive. But you know, if you look
Speaker 4: at the elections, there's no evidence of these shutdowns, as
Speaker 4: we talked about last week, there's no evidence that these
Speaker 4: shutdowns make any difference in the elections whatsoever. In twenty thirteen,
Speaker 4: the Republicans were solely responsible for at the time a
Speaker 4: very long shutdown over Obamacare, and in twenty fourteen they
Speaker 4: won back a majority in the Senate. So there's just
Speaker 4: no evidence that this has lasting political effects. I think
Speaker 4: it could be a drag on the overall approval rating
Speaker 4: of lawmakers Washington. But I don't think either side is
Speaker 4: going to win or stands a lot to lose here, John,
Speaker 4: do you think it.
Speaker 2: Is time for new dataship in the Democratic body?
Speaker 4: Probably? I mean, I don't think there's anything. You know,
Speaker 4: I think that being a leader a tough tough job.
Speaker 4: I think it's a hard thing to do. They have
Speaker 4: a new leader in the House, and he's doing his best.
Speaker 4: I think in the Senate. You know, I wouldn't cast
Speaker 4: this persions on these guys. I used to work for
Speaker 4: the minority leader in the Senate and for the Republicans,
Speaker 4: and it's a tough job. It's a tough job keeping
Speaker 4: everybody happy. But you know, there again, the Democrats are
Speaker 4: not articulating the case against Trump, and their leadership is
Speaker 4: not helping them do that. So I think looking to
Speaker 4: Congress for your leadership right now is a mistake. And
Speaker 4: if I were the Democrats thinking about the next leader
Speaker 4: of the party who's going to be running for president,
Speaker 4: I'd be looking out to the states, to the governors,
Speaker 4: to people that aren't currently playing on the national stage.
Speaker 4: And the way Schumer is now, Schumer's got to do
Speaker 4: his own tough job managing his own caucus and playing
Speaker 4: the inside Washington game. And then these governors that are
Speaker 4: out in the states are the ones who I think
Speaker 4: will be the more effective messengers against Trump.
Speaker 2: Eventually stay with US Multpleinberg surveillance coming up after this,
Speaker 2: And if you were concerned about the step down in
Speaker 2: payrolls growth. I think that's more feel for concern off
Speaker 2: the back of that report.
Speaker 5: Yeah, at this point, we're looking at a ninety five
Speaker 5: percent chance that the FED is going to cut rates
Speaker 5: at the October twenty ninth meeting in at Washington, DC
Speaker 5: on the backs of this report. You also just saw
Speaker 5: the lowest reading on this ADP print going back to
Speaker 5: March of twenty twenty three, so definitely signaling some weakness.
Speaker 5: And essentially this gives ammunition to those you are saying
Speaker 5: the risk management tool here is catering to the labor market,
Speaker 5: not necessarily trying to tackle inflation.
Speaker 2: Greg Daka of VY is with a surround a table
Speaker 2: corrected morning, Good morning, this is all we've got. How
Speaker 2: useful is this number and what are the limitations around it?
Speaker 6: Well, I think it's useful in the sense that we
Speaker 6: don't have anything else. I would push back a little
Speaker 6: bit on the notion that the ADP is necessarily the
Speaker 6: best gauge of BLS reports when it comes to employment
Speaker 6: because it's just focused on the private sector.
Speaker 3: It also does not.
Speaker 6: Include all the details that we get out of the
Speaker 6: employment report, so it is a good reading in terms
Speaker 6: of having a perspective on the labor market, but it
Speaker 6: excludes some important parts of the labor market, including the
Speaker 6: public sector, where we're anticipating some further losses both at
Speaker 6: the federal level but also at the state and local
Speaker 6: level as we start the new year with less funding
Speaker 6: for many state and local governments. So I think the
Speaker 6: weakness is apparent in terms of labor demand in the
Speaker 6: labor market more broadly, whether you look at continuing claims
Speaker 6: for unemployment, whether you look at yesterday's data on job flows,
Speaker 6: the JOLT report showing the hiring rate and the quits
Speaker 6: rate at a ten year low, not just a few
Speaker 6: months low, but a ten year low, showing there's very
Speaker 6: little flow in the labor market. There is underlying softness
Speaker 6: in the labor demand components, and the labor supply, of
Speaker 6: course has been tremendously affected by the reduction and immigration.
Speaker 3: So it's a combo.
Speaker 6: But I think labor demand is weaker than labor supply
Speaker 6: at this juncture.
Speaker 5: Are you saying that we've been sort of in this
Speaker 5: stasis slow higher low fire range for a while and
Speaker 5: now we're actually seeing the labor ma market break to
Speaker 5: the downside.
Speaker 6: I think there are certainly risks to that the low
Speaker 6: higher low fire environment is not sustainable.
Speaker 3: It's an uncomfortable balance.
Speaker 6: You rarely stay in that balance for a prolonged period
Speaker 6: of time because either one of two things happens. Either
Speaker 6: you see employers starting to hire more that's the good story,
Speaker 6: that's positive story, or you see more layoffs because essentially
Speaker 6: there's a desire to manage costs. And let's not forget
Speaker 6: we are still in the midst of an environment where
Speaker 6: there are a number of supply shocks affecting the economy.
Speaker 3: Too.
Speaker 6: Many people are still reading the economy as if if
Speaker 6: we're guided by demand shocks. This is not the case.
Speaker 6: Supply shocks are increasingly important. Whether it's tariffs and trade disruptions,
Speaker 6: immigration disruptions, energy disruptions, capital disruptions, all of those factors
Speaker 6: are affecting economic trends in a way that we haven't
Speaker 6: seen before. Think of technological shifts as well, ai a big,
Speaker 6: big shock to the economy. We're not reading the economy
Speaker 6: in the proper way, and that's why many people are
Speaker 6: confused about the economic signals. The mixed signals are the
Speaker 6: reflection of an economy that is impacted by a significant
Speaker 6: number of supply shocks.
Speaker 5: Yeah, and essentially this is an economy and dramatic transformation.
Speaker 5: I just wonder how you square the idea of profits
Speaker 5: growing across Wall Street, across a lot of corporate America
Speaker 5: at the same time that we see this low higher
Speaker 5: low fire dynamic potentially breaking to the downside.
Speaker 6: Because everybody's taking about the consumer, about the market, about
Speaker 6: the business environment. It's not like that there is a
Speaker 6: tremendous degree of polarization across businesses, across consumers, across the
Speaker 6: economy when it comes to how these shocks are affecting
Speaker 6: different actors in the economy. Take tariffs. Tariffs are not
Speaker 6: affecting everyone in the same way. Those that are very
Speaker 6: price sensitive are seeing the prices a grocery stores rising,
Speaker 6: and they're pulling back on demand. They're seeing retail costs
Speaker 6: also rising. They're pulling back. Those that are at the
Speaker 6: higher end of the income spectrum, they're less concerned about
Speaker 6: an increase for a price ticket to go somewhere, to
Speaker 6: fly somewhere on vacation, but they're also gradually being more
Speaker 6: And the same applies to businesses, not all businesses, not
Speaker 6: all sectors are created.
Speaker 3: Equal in the face of this supply shock.
Speaker 6: If you're more heavily leaning towards the tech sector, then
Speaker 6: you're going to be benefiting from this AI boost. If
Speaker 6: you're a big corporation that is investing in AI, you're
Speaker 6: also going to be investing more in capex. We're seeing
Speaker 6: that in the GDP data. So it really depends on
Speaker 6: where you law on the spectrum of the economy and
Speaker 6: how exposed you are to these shocks.
Speaker 1: Rag what if we get a prolonged government shutdown and
Speaker 1: this is all the FED has to go off of.
Speaker 6: Unfortunately, this is not the best time to have a
Speaker 6: government shutdown. Of course, there is the immediate effect of
Speaker 6: essentially eight hundred thousand federal workers not being paid and
Speaker 6: being put on furlough that can have a notable impact
Speaker 6: on the economy. We estimate a drag of about a
Speaker 6: tenth of GDP growth for every week of government shutdown.
Speaker 6: But importantly, for business leaders, policy makers, and economists, this
Speaker 6: means we're flying blind in a highly foggy environment, and
Speaker 6: this is very risky.
Speaker 1: Can we get a shutdown induced recession in some pockets
Speaker 1: of the US economy?
Speaker 6: Perhaps in some pockets of the economy, but not necessarily.
Speaker 6: Broadly speaking, this is not significant enough to really bring
Speaker 6: the economy to its nees when it comes to a
Speaker 6: potential recession. But we are seeing some sectors that are
Speaker 6: seeing outsized declines in terms of economic activity. You look
Speaker 6: at the housing sector, for instance, a sector that is
Speaker 6: also hit by insufficient supply, but increasingly by the drag
Speaker 6: of demand from a low affordability environment. If you start
Speaker 6: to see more segments of the economy affected negatively by
Speaker 6: government shutdown, think about the area around DC, think about
Speaker 6: contractors that depend on federal funding. Then that could put
Speaker 6: further downward pressure on a housing market that is already struggling.
Speaker 6: So regionally and sectorally you could have these pressures that
Speaker 6: are outsized and that way on economic activity, not a
Speaker 6: broad based recession, but a more pronounced slowdown and potentially
Speaker 6: a contraction in some sectors some regions of the country.
Speaker 2: If you actually John, I guess, welcome to the program.
Speaker 2: Just mymusica of the ADEPA report, of course, tanking on
Speaker 2: additional importance this way, because we might not get The
Speaker 2: payrolls report this Friday came in at negative thirty two K.
Speaker 2: Negative thirty two k We were looking for fifty one
Speaker 2: thousand in our survey.
Speaker 3: That was the media estimate.
Speaker 2: A revision to the previous month as well, that was
Speaker 2: fifty four. It's now negative three. Greg just got this
Speaker 2: question from a Bloomberg subscriber. They said, the cyclists always
Speaker 2: stop spending, stop hiring, then stop firing. And the question
Speaker 2: they've got is the natural progression always the same in
Speaker 2: a slowdown.
Speaker 3: Is it any different this time?
Speaker 6: I think it's very different this time around because we're
Speaker 6: affected by supply sharks. Supply side dynamics are very different
Speaker 6: this time around than they've been any time over the
Speaker 6: past few decades, and I think that's why you're seeing
Speaker 6: these unusual evolutions when it comes to the different sectors
Speaker 6: of the economy. We have rarely seen a loaf higher,
Speaker 6: low fire, or even no higher no fire type of environment.
Speaker 3: That is not a comfortable balance.
Speaker 6: Again, I think we are likely to see further weakness
Speaker 6: on the labor demand side that's going to weigh on
Speaker 6: economic momentum.
Speaker 3: One key in the that I watch.
Speaker 6: I know it's a lagging indicator, but it's income growth.
Speaker 6: If you look at real disposable income growth, it's only
Speaker 6: been growing at a two percent pace, consumer spending is
Speaker 6: still growing close to three percent at one point. The
Speaker 6: dip into savings is not going to be sufficient to
Speaker 6: sustain spending, and the majority or sorry, the minority of
Speaker 6: people that are still doing most of the spending cannot
Speaker 6: do so forever. The higher income individuals are also gradually
Speaker 6: being impacted by higher prices and importantly by higher interest rates.
Speaker 6: If there starts to be some volatility in the equity
Speaker 6: market because of a government shutdown or because of other developments,
Speaker 6: then that could weigh on these individuals' desires and potentially
Speaker 6: means to spend.
Speaker 2: Stay with us, mulplinbeg, Savanna's coming up off to this, Tiffany,
Speaker 2: want to get PIMCO join NAPA. Mall, Tiffany, welcome to
Speaker 2: the prim Let's say this is all we've got, and
Speaker 2: there's a lot still to play for in October. It's
Speaker 2: only just started. I've got no idea how long the
Speaker 2: shutdown goes on for. But let's say this is all
Speaker 2: we've got. Is there anything that would stop this fet
Speaker 2: A reserve from just kind of interest rights again at
Speaker 2: the end of the month.
Speaker 7: No, I mean so, I think clearly this ADP report
Speaker 7: was weak and I think digging through the details of it,
Speaker 7: you know, I think there's an interesting bifurcation in large
Speaker 7: versus small and medium business sizes. This has been something
Speaker 7: we've been very focused on because we think that this
Speaker 7: economy is basically creating winners and losers.
Speaker 3: The tariffs, the.
Speaker 7: Technology improvements that we're seeing, the various tax cuts, all
Speaker 7: of that we think is benefiting somewhat more larger companies
Speaker 7: and it's a really really challenging environment for those small
Speaker 7: and midsized businesses. And that's where you saw the you know,
Speaker 7: some more of the weakness. I think that in terms
Speaker 7: of the ADP report, can you know the fact that
Speaker 7: it contracted If you adjust the payroll survey, the government
Speaker 7: survey for the overestimation and that survey over recent years,
Speaker 7: you know, you can get to numbers that look like
Speaker 7: they were contractionary of the last three months as well.
Speaker 7: So I think these surveys are given a consistent signal
Speaker 7: that we are seeing some some more concerning weakness in
Speaker 7: the labor market.
Speaker 5: And so right now you're seeing priced into the market
Speaker 5: one hundred and one percent chance of a twenty five
Speaker 5: basis point rate cut at the October twenty ninth press
Speaker 5: conference and meeting, and then in December again almost one
Speaker 5: hundred percent chance eighty eight percent chance of another cut.
Speaker 5: I just wonder, Tiffany, is that the solution to what
Speaker 5: essentially is the K shaped economy that's getting to be
Speaker 5: an even bigger K.
Speaker 7: Yeah, I mean so I think that's right there, there is.
Speaker 7: You know, I think interest rate cuts as a result
Speaker 7: of the fact that the shock that we're going through
Speaker 7: right now is both a demand and supply side shock.
Speaker 7: Tariffs and both immigration will have supply side effects as well.
Speaker 7: You know, of course central bank policy is not well
Speaker 7: suit did to deal with supply shocks, but nevertheless, policy
Speaker 7: is in restrictive territory, and you know, I think when
Speaker 7: you're in an economy that is going through this type
Speaker 7: of transition, given the policy U turns, arguing that it's
Speaker 7: closer to neutral is certainly very reasonable. And I think
Speaker 7: the interesting thing that we're seeing, you know, since the
Speaker 7: implementation of tariffs, is that the adjustment that the economy
Speaker 7: is making to tariffs is not primarily through price adjustments,
Speaker 7: but it actually looks like it's happening through the labor
Speaker 7: market as well as companies are trying to cut labor
Speaker 7: and other costs. So that just means, you know, we
Speaker 7: think that means the funeral reserve has room to cut
Speaker 7: interest rates. Here are they still have rates that are
Speaker 7: above neutral getting back to that is very reasonable in
Speaker 7: our minds, given the weakness of the labor market we're seeing.
Speaker 5: This is really a strange moment where you're seeing companies
Speaker 5: adapt and adjust to the teriffs by potentially cutting workers.
Speaker 5: That's what you're saying, not just raising prices and yet
Speaker 5: continuing to report really good earnings, continuing to really deliver
Speaker 5: and highlight the strength of the consumer. Can you square
Speaker 5: that circle? I mean, how does that make sense? The
Speaker 5: fact that the consumer are strong, layoffs are happening because
Speaker 5: that's the way the companies are dealing with this. Uh,
Speaker 5: and so that companies are profiting. At some point, does
Speaker 5: that flywheel stop going?
Speaker 3: Yeah?
Speaker 7: Well, I mean, I think it gets back to your
Speaker 7: point on the K shaped economy. So we see it
Speaker 7: on the business side as well. I think the largest
Speaker 7: businesses you know that you know that primarily make up
Speaker 7: the S and P index for example. You know, I
Speaker 7: think they're the relative beneficiaries of these various policies. So
Speaker 7: you have pretty large tax cuts that was that were
Speaker 7: also passed, and the one big beautiful bill that you
Speaker 7: know that will benefit companies that are relatively capital intensive.
Speaker 7: They do a lot of cabecs. They'll get upfront expensing
Speaker 7: for all of that, you know. And if those companies,
Speaker 7: you know, can offset those tax cuts, offset the tariff
Speaker 7: tariffs that they now have to pay, they're in a
Speaker 7: pretty good position.
Speaker 3: You know.
Speaker 7: The smaller and mid sized companies that maybe have less
Speaker 7: capex will be in a worse off position. So, you know,
Speaker 7: I think those are the companies right now that are
Speaker 7: facing the most pressure. You know, the broader indices of
Speaker 7: smaller companies like the Russell for example, it's not done
Speaker 7: as well. Those equities have not done as well this year.
Speaker 7: I think very reflective of that theme, you know, and
Speaker 7: I think the real question for the broader economy is,
Speaker 7: you know, is how you know, I would actually argue
Speaker 7: we're not seeing a huge amount of layoffs yet. What
Speaker 7: we've seen instead is that the gross hiring rates have declined,
Speaker 7: you know, very tremendously. So the question in our minds is,
Speaker 7: you know, how how how are these struggling businesses, how
Speaker 7: how much will they lay off labor over the coming months,
Speaker 7: you know, and will that cool off the broader economy.
Speaker 1: So today, can you see Fed officials arguing that instead
Speaker 1: of tariff induced inflation, we can have labor market weakness
Speaker 1: that's tiff induced. And shouldn't those that are concerned about
Speaker 1: the tariffs actually be on board with now wanting to
Speaker 1: cut rates.
Speaker 7: Yeah, I mean, I certainly think that is that's the
Speaker 7: argument that we're making, and I think that as you
Speaker 7: get more data that you will see more and more
Speaker 7: Federal Reserve officials coming around to that argument as well.
Speaker 7: I think Mary Daily in recent public comments, has made
Speaker 7: that data. Of course, Christopher Waller, Governor Waller has also
Speaker 7: come out with some pretty big concerns about the labor market.
Speaker 7: So I think that, Yeah, certainly, as we get more
Speaker 7: information and you have more certainty within the FOMC, you know,
Speaker 7: we think they cut interest rates, you know, a couple
Speaker 7: of more times this year as a result of that. Now,
Speaker 7: of course, the government shutdown, the fact that we aren't
Speaker 7: going to get potentially aren't going to get data releases
Speaker 7: or the data quality could be poorer over the next
Speaker 7: couple of months before we go into the November meeting
Speaker 7: could be problematic, you know, but again, of course the
Speaker 7: ADP data that we've gotten, some of the other private
Speaker 7: sources of data will be more important, and that's what
Speaker 7: they'll be using.
Speaker 1: Besides the fact that we're not going to get economic releases.
Speaker 1: How concerned are you about the government shutdown?
Speaker 7: Well, I mean, traditionally government shutdowns have just a temporary
Speaker 7: effect on the economy. The you know, the workers that
Speaker 7: are furloughed or that aren't paid Ultimately when the government
Speaker 7: opens will get back pay. So this is usually just
Speaker 7: a temporary effect, you know. Now it's possible that we
Speaker 7: could have a longer shutdown. We would argue that the
Speaker 7: effects start to get nonlinear after you get workers, contract
Speaker 7: workers and government workers that start to miss a couple
Speaker 7: of paychecks. I think one paycheck probably okay, but as
Speaker 7: you get more that are missed than that's when you
Speaker 7: start to see a bigger impact on consumption. The other
Speaker 7: thing is is that there could be permitting delays. You know,
Speaker 7: the government you know, does you know, does does give
Speaker 7: out permits for investment, and the longer that those kinds
Speaker 7: of services are shut down, you know, you could see
Speaker 7: some delays in investment as well, so you know, ultimately
Speaker 7: this this can get larger as time goes on. I
Speaker 7: think the largest government shut down historically has been, you know.
Speaker 3: Maybe a couple of weeks.
Speaker 7: We hope that the case again, but as of now,
Speaker 7: we think this is a temporary issue, but certainly we're
Speaker 7: monitoring the situation.
Speaker 3: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. Let's stay on
Speaker 2: the trade story. The President Steve Tarris on pharmaceuticals, heavy trucks,
Speaker 2: and furniture going into effect today. Joining us now the
Speaker 2: former White House trade official ca Calukuwitz Kate, welcome back
Speaker 2: to the program. Let's think about this meeting, series of
Speaker 2: meetings that take place in Asia over the next month
Speaker 2: or so. How are you thinking about what can be
Speaker 2: achieved on that trip.
Speaker 8: Well, when I listen to the predictions of Ambassador Greer,
Speaker 8: the US trade representative, I think I have to go
Speaker 8: on the side of these are deals with other Asian economies,
Speaker 8: probably not China, and I think if you remember back
Speaker 8: to Liberation Day, some of the highest heriffs were handed
Speaker 8: out to economies in Asia, and I think those countries,
Speaker 8: particularly the ones that have not gotten framework agreements yet,
Speaker 8: are still very anxious to hammer out some sort of deal.
Speaker 5: Kate, does the US need to present some sort of
Speaker 5: larger framework for its relationship with China as part of
Speaker 5: these trade deals with in particular Southeast Asia.
Speaker 3: Well, it's an interesting question.
Speaker 8: I mean, I think what we've seen, of course, is
Speaker 8: the agreements that Trump administration has struck so far have
Speaker 8: included provisions directed at China. So some sort of framework,
Speaker 8: a global framework, if you will, around shared objectives toward China,
Speaker 8: higher tariffs, provisions that try to cut down on transhipment,
Speaker 8: economic security. This is the language they use when encouraging
Speaker 8: trading partners to adopt similar measures to China. Now, what
Speaker 8: that means for the bilateral with China remains a bit unseen.
Speaker 5: At this point, though, Kate, do you get some sort
Speaker 5: of cohesive sense of the relationship that the US wants
Speaker 5: both with China as well as with Southeast Asia, which
Speaker 5: makes a lot of goods for the United States and
Speaker 5: is frankly the basis of a lot of the fast
Speaker 5: fashion and other retail brands in particular.
Speaker 8: Well, the reality for most of those economies, of course,
Speaker 8: is that the United States wants us to buy less
Speaker 8: from those economies, so Fast fashion, you know, furniture. We
Speaker 8: saw some moves this week on furniture. This is very
Speaker 8: impactful for that region. The President has been very clear
Speaker 8: about what he wants, and that is more production in
Speaker 8: the United States. So I think these agreements around the
Speaker 8: edges will be on items we can't make here. Critical
Speaker 8: minerals will be a focus, of course, with Taiwan trying
Speaker 8: to incentivize more moves on semiconductors. The question about what
Speaker 8: he wants with China, I think remains really questionable. We
Speaker 8: don't know he wants a deal with China, of course,
Speaker 8: but another comment that Ambassador Career made yesterday seemed to
Speaker 8: signal a bit of a heightened posture, a threat that
Speaker 8: tariffs could go back up after November tenth if we
Speaker 8: don't continue to make progress. So I don't know that
Speaker 8: we're getting closer to a bilateral deal with China.
Speaker 1: So what's going to come out of this meeting between
Speaker 1: President Trump and Shijipeg Because Trump says their meeting, yeah.
Speaker 8: Well, look a meeting is not They're not going to
Speaker 8: want to have that meeting result in heightened postures that
Speaker 8: take us away from a deal in the future. President
Speaker 8: Trump has been very clear he wants a deal with China,
Speaker 8: so I think that both sides will find a way
Speaker 8: to maintain the status quo. Both sides, though frankly, have
Speaker 8: been increasing pressure. The Chinese themselves this week added new
Speaker 8: provisions that will impact goods going to America. The United
Speaker 8: States added lists that impact the way we sanction and
Speaker 8: address foreign companies buying from China. So they're adding this
Speaker 8: is what we've seen. I think they add leverage and
Speaker 8: then they potentially negotiate that leverage away to keep the
Speaker 8: status quo.
Speaker 1: It's a great point. With all the tariffs coming out,
Speaker 1: a lot was missed in terms of the US expanding
Speaker 1: the export blacklist the entity list when it comes to China.
Speaker 1: So do you expect more moves things like that before
Speaker 1: Trump sits down with.
Speaker 8: Shi Well, I think this is this repeat that we
Speaker 8: have found ourselves in in this relationship. Until and unless
Speaker 8: we can articulate a grand vision for the trade relationship
Speaker 8: between the United States and China, I think we are
Speaker 8: going to create these false pieces of leverage that can
Speaker 8: then be negotiated back. So these are important moves that
Speaker 8: are being made. The United States as well, in a
Speaker 8: few weeks, will implement new tariffees on ships from China.
Speaker 8: This will be very dramatic.
Speaker 3: So these are all new.
Speaker 8: Things that can be negotiated in advance of a November
Speaker 8: tenth deal, while we retain everything else that's on the table.
Speaker 1: Kate, just to give us more context, is that what
Speaker 1: you think the H twenty chip reversal was about getting
Speaker 1: leveraged to then just unwind it.
Speaker 8: Well, I have to imagine that was part of it,
Speaker 8: because the Chinese made, you know, a seemingly big deal
Speaker 8: about getting access to that chip. The got access to
Speaker 8: the chip, and then they turned around and said we
Speaker 8: don't want it, and by the way, we're going to
Speaker 8: take action against Ynvidia. It all seemed sort of a
Speaker 8: false construct to me, so perhaps that was their intentional along.
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