Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: now look at monetary ramifications off this job report. In
Speaker 1: twenty nine minutes, Julia Cornado, Macro Policy Advisers joins us. Julia,
Speaker 1: I look at the reaction functions available or predictable to
Speaker 1: the FED. Do we understand them or we flying as
Speaker 1: blind as maybe something. I mean, I think it's pretty
Speaker 1: clear what the objective is for the FED, and that
Speaker 1: is to keep the recovery going as long as it
Speaker 1: possibly can. And so I think that's why we're talking about,
Speaker 1: you know, interest rate cuts. Now. The prescription when you're
Speaker 1: close to zero on interest rates is to move ahead
Speaker 1: of risks and not wait for the for them to
Speaker 1: fully materialize in the data. So we expect to see
Speaker 1: some jobs slowing today. We expect to see a slowing trend.
Speaker 1: We've we've seen the global economy slow ah and it
Speaker 1: looks like it's going to be taking out some insurance
Speaker 1: but John, I'm asking you this question too, because you've
Speaker 1: got to ask us a card because he's gonna want
Speaker 1: a rate cut. What does a rate cut accomplish, John Farrell,
Speaker 1: very very unlikely that it will accomplish much, given how
Speaker 1: loose financial conditions already are. And Julie, and We've asked
Speaker 1: the Federal Reserve chair this question. In the news conference.
Speaker 1: Tom Kane asked the vice chairman this question, What will
Speaker 1: it do if they cut rights at the end of
Speaker 1: this month. Well, let's keep in mind that the expectation
Speaker 1: of rap cuts is one of the reason financial conditions
Speaker 1: are so very true. So in the face of all
Speaker 1: of the risks that markets have to look out at,
Speaker 1: they have this insurance from the Fed to cut rates.
Speaker 1: They've built that in and that's kept financial conditions from
Speaker 1: going into a tightening cycle. And so that's that's exactly
Speaker 1: how policy works. That's the transmission mechanism. So it's not
Speaker 1: like it's going to ease them more, but markets have
Speaker 1: already heard the Fed loud and clear that they're going
Speaker 1: to move and that's one of the things that offset
Speaker 1: some of the risks out there. So Junior, essentially we
Speaker 1: just need to validate market expectations. But beyond that, I
Speaker 1: failed to see how it helps. I mean, it's the
Speaker 1: price of credit the problem in the United States right now,
Speaker 1: most people would say no, it's the price of credit
Speaker 1: the problem. In Europe right now, most people would say no.
Speaker 1: Likewise in Japan, where is the price of credit actually
Speaker 1: a problem? No, it's not really the price of credit,
Speaker 1: but it's short circuiting the transmission of these risks through
Speaker 1: the confidence channel, and so it's not necessarily and that
Speaker 1: we see that in financial conditions. Okay, this is really
Speaker 1: really important, and we're talking with Julia Cornado with really
Speaker 1: significant experience in thinking through the mathiness of all this
Speaker 1: over to the behavioral nous of all this the confidence channel.
Speaker 1: Why don't they just cut rates this afternoon after an
Speaker 1: average or a shorter rate. That would be an immediate
Speaker 1: confidence boost, isn't it? Well, if it if they cut
Speaker 1: rates in between meetings that looks like an emergency, that
Speaker 1: looks like panic, that wouldn't never fairly boost confidence. But
Speaker 1: if they move methodically and say, look, we're sking some slowing,
Speaker 1: We're going to address it. Don't worry, keep doing what
Speaker 1: you're doing, And that's how you keep confidence on track.
Speaker 1: It's a very tricky game, and we're in an uncertain
Speaker 1: period like this, but I think moving unexpectedly can actually
Speaker 1: hurt confidence. They try to set up expectations for easy policy, John,
Speaker 1: I can't. And they how important this discussion is the
Speaker 1: history of this of successes in too many failures of
Speaker 1: guessing the future. There's confidence issues critical Or here's the
Speaker 1: line from the chairman, announce of protection is worth a
Speaker 1: pound of cure at the moment, though, Julia, there seems
Speaker 1: to be seems to be a disagreement. I think that's
Speaker 1: a different song, Julia. I think there seems to be
Speaker 1: a disagreement between what announce of protection actually is between
Speaker 1: the Federal Reserve and where the market is currently. The
Speaker 1: market seeing announce of protection as a hundred basis points
Speaker 1: of cuts over the next twelve months. Does that sound
Speaker 1: like ann ounce of protection to you? That sounds like
Speaker 1: a lot. Uh. And I think that the said can
Speaker 1: afford to be more data dependent that they may have
Speaker 1: to deliver that much. It sort of depends on how
Speaker 1: much transmission we actually see to the real economy. So
Speaker 1: it's a little bit chicken and egg. You're you're right,
Speaker 1: about that UM, and I think that the FED can
Speaker 1: just stay on course. Cut in July, see how the
Speaker 1: data flow in. If another cut is needed, then they'll
Speaker 1: do another cut and on they go. What data matters?
Speaker 1: If the data flows in after this ginormous jobs report
Speaker 1: in fourteen minutes, fifteen minutes, what data matters, Well, the
Speaker 1: jobs data are very important, comprehensive data that they see. UM.
Speaker 1: The trade development, business investment is one one thing that
Speaker 1: they have identified right now, Well, business investment has been
Speaker 1: sort of sluggish, it's not contracting, it's sort of flattened
Speaker 1: out after a very strong couple of years. So they're
Speaker 1: watching that other intrasensitive sectors, cyclical sectors, housing, UM. And
Speaker 1: then again right now the job's report really is front
Speaker 1: and center because it's the resiliency of the domestic service
Speaker 1: sector that's key here, that makes the difference between sort
Speaker 1: of a bumpy soft landing to tend in a recession.
Speaker 1: This is critical service sector. You bring up probably the
Speaker 1: most important question for a lot of people at the moment.
Speaker 1: Looking at the labor market, manufacturing is really weak worldwide,
Speaker 1: and we started to see that weakness materialized in the
Speaker 1: United States as well. Whether it feeds into the service
Speaker 1: sector in a way that would produce a really big
Speaker 1: down turn beyond just returning to trent growth. Are you
Speaker 1: seeing any sign of that already, Julia, We haven't seen
Speaker 1: signs of, uh, something that's terribly worrisome. We have seen
Speaker 1: some slowing in the service sector indicators with everything else.
Speaker 1: The I s M non manufacturing indexes come down off
Speaker 1: the highest, so has the hiring component of that index.
Speaker 1: It's not yet moving towards contractionary territory though, so it
Speaker 1: looks okay. I think the resilience story still holds up. Um.
Speaker 1: But again, if that's not going to take chances by
Speaker 1: waiting around, hopefully they're going to stabilize that. And so
Speaker 1: that's what we're looking for in today's report and India
Speaker 1: July report. Then we'll get at the beginning of August
Speaker 1: to see how that domestic service sector holds up. For
Speaker 1: your statistical care folks, let's get a non farm number
Speaker 1: from Dr Coronado. Do you have a payrolls number off
Speaker 1: one sixties survey? Yeah, I'm I'm right around to survey
Speaker 1: m at one sixty five, So, uh, it's down. It's
Speaker 1: a bounce back from May, but a slower trend. Okay,
Speaker 1: it's still plenty. Remember our sort of break even is
Speaker 1: a hundred k. That's what we need to hold the
Speaker 1: unemployment rate steady. Uh So anything above that is not bad,
Speaker 1: and so that would be a decent number, but it
Speaker 1: would be down from where we have been nicely frame
Speaker 1: Rica don at one uh Dr Coronado at one six
Speaker 1: and also after careful surveillance research, Dr Coronado likes mint chocolate.
Speaker 1: Show choice. What is it about I scream with you today?
Speaker 1: Tell it's the time of year. It's that time of year,
Speaker 1: and returned to Jason Furman, a Harvard University a former
Speaker 1: chairman of the President's Council of Economic Advices and of
Speaker 1: course at the Peterson Institute as well. Dr Furman, what
Speaker 1: is the policy prescription right now for the two Americas
Speaker 1: we have? We have some kind of run rate of
Speaker 1: decent employment bouncing seventy two up to two, but a
Speaker 1: huge part of America seems disassociated from this fully employed America.
Speaker 1: What is your labor prescription? Yeah, I think you see
Speaker 1: it in the numbers. UM this month, year over year
Speaker 1: average hourly earnings up three point one. That's actually lower
Speaker 1: wage growth than what we had about months ago, when
Speaker 1: it was running at nearly three and a half percent
Speaker 1: a year. I the good news is that, you know,
Speaker 1: means the Fed just doesn't need to be very worried
Speaker 1: about inflation. Yet another reason they don't need to be um.
Speaker 1: The prescription for that is heart economy and continued um
Speaker 1: low unemployment rate. That hasn't been working as well as
Speaker 1: we'd liked, so I think we'd need to try a
Speaker 1: bit more of it. Adjacent, one theme for this program
Speaker 1: over the last couple of hours is whether we're returning
Speaker 1: to trend growth in and around two GDP and maybe
Speaker 1: returning to more mature payrolls growth. Something a little bit
Speaker 1: more conservative away from two hundred thousand towards say a
Speaker 1: hundred k. Today's number makes that call a little bit
Speaker 1: more complicated, Jason, what's your base case for that return
Speaker 1: to trend growth? Is that something you see slowly happening
Speaker 1: over time this year? Yeah, I see that happening slowly
Speaker 1: over time this year. I think that's exactly the right word.
Speaker 1: And you know, I think historically evidence this trend is
Speaker 1: more like one point seven five percent. I don't think
Speaker 1: we'll fall that far this year, but I think that's
Speaker 1: where we're heading. And you know, just look at the
Speaker 1: unemployment rate it has you know, basically you know, is
Speaker 1: falling at a lower rate than it was before. Um,
Speaker 1: so we're closing the gap more slowly than we were before.
Speaker 1: Jason Furman and John Ferrell will speak with Lawrence Cudlow
Speaker 1: of the White House here in a bit. He's going
Speaker 1: to spin a supply side message that things are good,
Speaker 1: debt is good, we can grow ourselves out of debt.
Speaker 1: What is the thing that Larry Cudlo gets most wrong? No,
Speaker 1: I think it's that the underlying trend growth of the
Speaker 1: economy is more like one seven five to per cent,
Speaker 1: and that you know, it's like a super tanker. It's
Speaker 1: not something that turns on a dime. It's not a
Speaker 1: new president elected and all of a sudden everyone changes
Speaker 1: their estimates um of trend growth. And just you know,
Speaker 1: look at job growth last year it was two hundred
Speaker 1: a month. This year it's about a hundred and seventy
Speaker 1: thousand a month. It's probably going to come down from
Speaker 1: there an absent master productivity growth. UM, we can't you know,
Speaker 1: we're not going to be able to generate the three
Speaker 1: growth at the White House. This is really important. It
Speaker 1: speaks to the tensions evidence certainly over the last forty
Speaker 1: eight hours in America, a polarized America. David blanche Flower
Speaker 1: may very clear that the one way to jump start
Speaker 1: all this is immigration, and then that there's all these
Speaker 1: jobs that are skilled jobs that are unwanted and a
Speaker 1: growing population would help that. How do you study right
Speaker 1: now productivity in the body count of America? Can we
Speaker 1: get to a better labor America with a present population growth?
Speaker 1: We definitely have very unfavorable demography right now. And you know,
Speaker 1: you can either have more babies in wait twenty years
Speaker 1: or have more immigrants and they can work right away. Um. Probably, Uh,
Speaker 1: you know, the ladder is a little bit more feasible.
Speaker 1: I mean, the latter is a little more feasible. And
Speaker 1: that comes from policy as well. You're an expert in
Speaker 1: policy prescription. I think you've been very fair, uh and
Speaker 1: indeed balanced and looking at those that are conservative and
Speaker 1: those are liberal as well. Into the election, how are
Speaker 1: we going to address the debate on productivity? I mean,
Speaker 1: this is hugely emotional in America. What is the best
Speaker 1: prescription besides the trope of you know, everybody needs to
Speaker 1: be more educated. I get that. What's the immediate prescription?
Speaker 1: The problem is is not one answer. There's a lot
Speaker 1: of different ingredients. Immigration actually doesn't just help with the
Speaker 1: labor force. It helps with productivity because you bring people
Speaker 1: in with a lot of skills and a lot to
Speaker 1: contribute to our economy. Um. I actually think we could
Speaker 1: do another round a business tactor form um And what
Speaker 1: way didn't didn't they get enough last time? Well? I
Speaker 1: don't think we need to lower business taxes, but if
Speaker 1: you take steps like shifting to expensing more favorable tax
Speaker 1: treatment of R and D. And if you do that,
Speaker 1: by the way, you can probably raise rates a bit
Speaker 1: and and bring in some more revenues. You sound like
Speaker 1: you're positively Johnsonian on this. Are you talking about true?
Speaker 1: I mean, I mean I'm gonna use the phrase generally,
Speaker 1: but an investment tax credit to really spur domestic incentives
Speaker 1: to create jobs. Well, we have expensing in the law,
Speaker 1: but then it phases out over a five year period. Um,
Speaker 1: i'd actually make that permanent. But then you need to
Speaker 1: do some other things to make that work, like bigger
Speaker 1: limits on interest deductibility and more. Uh, you know, and
Speaker 1: and and and potentially higher tax rate. But I think
Speaker 1: focusing on innovation. I mean, you know, the R and
Speaker 1: D tax credit is sometime with the United States pioneered,
Speaker 1: we're now way behind most of the world on it um.
Speaker 1: We could expand that, right I any day, folks, I
Speaker 1: expect Dr Ferman to start talking with the Texas accent
Speaker 1: as he goes all the sixties at LB Jan's. Jason
Speaker 1: Furman has always thank you for the view on policy
Speaker 1: here off really quite good jobs for Dr Ferman, of
Speaker 1: course with the Peterson Institute at Harvard University. Right now,
Speaker 1: perfect guest Michael Darter with us with them CAM Advisers,
Speaker 1: and we see this as Karen was mentioning with real
Speaker 1: seismic change in the market and shift. Michael, what I
Speaker 1: would point out, and this is looking, folks at four
Speaker 1: or five fancy charts which don't work on radio. We're
Speaker 1: about sixty or seventy sent back to where we were
Speaker 1: before rate cut certitude. With this good jobs report, do
Speaker 1: we eliminate or ameliorate or lesson rate cut certitude? Hi, Tom,
Speaker 1: thanks for having me on. I certainly hope not, because
Speaker 1: what you're dealing with here with payrolls is a coincident indicator,
Speaker 1: and the long leading indicators have been pointing down. Even
Speaker 1: with the backup in the tenure yield. Today you still
Speaker 1: have an inverted treasury yield curve. That's been the case
Speaker 1: for over a month now. And so if we're going
Speaker 1: to take one piece of coincident data and have a
Speaker 1: parade about the FED not easing policy, that yield curb
Speaker 1: in version is more likely to persist in the business
Speaker 1: cycle is more likely to end in about a year's time.
Speaker 1: What is the leading indicators that matter to Michael darda Well.
Speaker 1: I like to look at the yield curve. Um it's
Speaker 1: frequently dismissed because it is such a long leading indicator
Speaker 1: with variation from cycle to cycle. So it's not uncommon
Speaker 1: to see other data that still looks fine for quite
Speaker 1: some time. I look at monetary growth, so we've had
Speaker 1: some intermittent negative readings in the inflation adjusted and one
Speaker 1: money stock year over year. That tends to happen when
Speaker 1: the curved handcake. And then we can also look at
Speaker 1: credit markets and then some shorter term leading indicators like
Speaker 1: jobless claims, and in those indicators still look okay. And
Speaker 1: so you know this is an economy that's not falling
Speaker 1: off a cliff. It is slowing. But I think if
Speaker 1: the FET is going to try to quote unquote get
Speaker 1: tough and defy those July rate cut expectations, then we
Speaker 1: could be headed into troubled waters. This is so important
Speaker 1: in folks. I'm looking at the Bloomberg screen future is
Speaker 1: negative twelve. They are negative five earlier? Is Mr Darta
Speaker 1: mentions the yield two point zero one? Michael, I'm looking
Speaker 1: at the vanilla spread the twos in the tens you're
Speaker 1: expert at using the Bloomberg was spreads. I mean, all
Speaker 1: of a sudden, that vanilla curve was twenty four and
Speaker 1: twenty five and twenty six basis points point to five
Speaker 1: percentage points difference in yield between the ten year and
Speaker 1: the two year, and it flattens down to seventeen basis points.
Speaker 1: Is that the kind of thing that would be the
Speaker 1: final straw for the FED to see a point a
Speaker 1: negative point zero one basis points on two s tends? Unfortunately,
Speaker 1: I don't think the FED is actually paying that close
Speaker 1: of attention to the to the curve, whether it tends
Speaker 1: to twose. I'd like to look at the ten year
Speaker 1: relative to the bill rate or the policy rate. Most
Speaker 1: of the academic literature, Yes, I agree, business cycles, you
Speaker 1: looked at a rate that's more harnessed to the FEDS
Speaker 1: policy rates. So the two year note yield has expectations
Speaker 1: of rate cuts in a multiple rate cuts, which is
Speaker 1: why that spread is still positive. But for the FEDS part,
Speaker 1: I think they're looking, you know, mostly at the macroeconomic data.
Speaker 1: They're looking at payrolls, are looking at joldless claims, they're
Speaker 1: looking at the unemployment rate, and that's all well and good,
Speaker 1: But aside from claims, you're really looking at a set
Speaker 1: of coincidence or even lagging indicators. And you've got the
Speaker 1: stock market up strongly. So you have some members of
Speaker 1: the Fed getting increasingly uncomfortable with the amount of rate
Speaker 1: cut expectations that that we have in the market. So
Speaker 1: you could have a showdown here going into the July
Speaker 1: meeting where the Fed quote unquote tries to stand tough.
Speaker 1: I think that would be a serious and potentially catastrophic
Speaker 1: mistake for the business cycle. But we get more data
Speaker 1: between now in that meeting. I want to revisit again
Speaker 1: the kind of data that Vice Chairman Clarato will be
Speaker 1: looking at with this set of PhD s. I mean,
Speaker 1: is it just retail sales and that kind of consumption
Speaker 1: data seventy of the economy or is it more on
Speaker 1: the business side. You know, Tom, I think it's both.
Speaker 1: But one problem we have is you don't want to
Speaker 1: focus too much on one data point. And so let's
Speaker 1: take today, for example, two thousand, quite a strong number,
Speaker 1: but if you look at a three month average, we're
Speaker 1: running at about a hundred and seventy one thousand for
Speaker 1: overall payrolls for private sector people. Dr right, So go
Speaker 1: back to the January of this year, those three month
Speaker 1: averages were two forty five and two forty respectively. So
Speaker 1: so if we're looking at trends, there's a clear slowing trend.
Speaker 1: Now that doesn't necessarily mean that you're headed off of
Speaker 1: a cliff, but slowdowns by definition must pre recessions. So
Speaker 1: the FED should be a bit more alert here. Um,
Speaker 1: you've mentioned Vice Chair Clarita. He watches inflation expectations very carefully,
Speaker 1: and we've had a pretty significant pullback and bond market
Speaker 1: inflation expectations that alone in my books with Justice well,
Speaker 1: but this is important, Michael we've got service sector inflation.
Speaker 1: Three issue, we've got goods inflation near deflation. Do you
Speaker 1: see evidence yet, given all of the trade and manufacturing
Speaker 1: and slow down in that, do you see evidence yet
Speaker 1: that we are importing disinflation and deflation from abroad or
Speaker 1: from the US goods sector over to that core service
Speaker 1: sector inflation. Well, keep in mind that the core service
Speaker 1: sector inflation is sticky price inflation. It will tend to
Speaker 1: lag the business cycle. So I'm afraid what's happening here
Speaker 1: is forward looking bond markets are anticipating a slowdown in
Speaker 1: aggregate demand. So nominal GDP growth, which ran up to
Speaker 1: the high end of the recovery range last year, is
Speaker 1: already slowing and is likely to continue to slow. So really,
Speaker 1: if we're going to be importing disinflation, I think we're
Speaker 1: importing it from simply a slowdown in aggregate demand. Just
Speaker 1: the A S A D model, Tom, Yeah, Well, the
Speaker 1: S A D models one model to use. But can
Speaker 1: these models be efficacious for a FED? I mean, have
Speaker 1: they gone beyond beyond any kind of traditional econ one
Speaker 1: on one analysis to where they literally have to make
Speaker 1: it up as they go based on leading data? I
Speaker 1: think that the Fed's in a position now where they're
Speaker 1: they're going to be forced to take a bit of
Speaker 1: a leap of faith um in the forward looking indicators
Speaker 1: in order to avoid the risk of a downturn and
Speaker 1: a repeat of the zero lower bound scenario. If they're
Speaker 1: not willing to do that, then you know, it's more
Speaker 1: likely this business cycle comes to an end, and when
Speaker 1: the FED does get around it easing, they're going to
Speaker 1: have to do a lot more of it. And so
Speaker 1: let's try to avoid that eventuality if we can. But
Speaker 1: that means that you don't play this in a totally
Speaker 1: conventional way, fixated on coincident and lagging information. That's a
Speaker 1: good way to be continently behind the curve. Michael, thank
Speaker 1: you so much. Michael, daughter will clinic their folks, MKM partners.
Speaker 1: The Trump Administration's views on the jobs report. I'm pleased
Speaker 1: to say we join now on Bloomberg Television and on
Speaker 1: Bloomberg Radio by Larry Cuttlow, National Economic Council Director. Great
Speaker 1: to see you as always, Larry, Thank you, Jaathan appreciate it.
Speaker 1: Really really strong job number's a really nice bounce back
Speaker 1: from the month of May. Do you think we're overestimating
Speaker 1: some of the weakness that some people think will come
Speaker 1: through nineteen into well. I don't know why, you know,
Speaker 1: there's always this course of people who want to be pessimistic.
Speaker 1: I would simply say that the big numbers today two thousand, uh,
Speaker 1: you know, good wage increases, still about three low unemployment rate.
Speaker 1: We are still in a very strong prosperity cycle. It's
Speaker 1: a growth cycle. It's a prosperity cycle. Here July four
Speaker 1: life liberty and the pursuit have happened as things are
Speaker 1: looking pretty good. I can't explain the chronic pessimism. All
Speaker 1: say is we have very good pro growth policies, low taxes, deregulation, opening,
Speaker 1: energy trade reform. I think the incentives of our supply
Speaker 1: side policies are working, and I don't know why people
Speaker 1: don't want to see that. I'm very optimistic because you
Speaker 1: might guess, Larry, you haven't been afraid to wait. In
Speaker 1: to the debate around the Federal Reserve, a lot of
Speaker 1: people asking the question, what does July five the dates
Speaker 1: of today? I mean, for July thirty one, the Federal
Speaker 1: Reserve meeting, what is the case for a rate cut?
Speaker 1: After this labor market report Larry. Well, look, I don't
Speaker 1: think you know, here we go again. Um, I don't
Speaker 1: think there's a Phillips curve trade off between strong jobs,
Speaker 1: for example, and higher inflation and interest rates. I don't
Speaker 1: believe that. I think more people working and succeeding as fabulous,
Speaker 1: and I think the evidence shows that the inflation rate
Speaker 1: is rock bottom. You know, I was just looking at
Speaker 1: some of the market figures on the way over here again,
Speaker 1: and not only do you have an inverted you curve,
Speaker 1: which I think is somewhat troublesome for the longer term,
Speaker 1: but the break evens on the inflation, you know, the
Speaker 1: tips break evens the five year Jonathan is one and
Speaker 1: a half percent, and that's the CPI number. So the
Speaker 1: pc deflated that the FED users would be about thirty
Speaker 1: basis points less than that. So you're one a quarter
Speaker 1: percent inflation, which is way below the Fed's target and
Speaker 1: what most people want. And that's the reason I think
Speaker 1: they should take back the interest rate hike. Now I'm
Speaker 1: not encroaching on FED independence. I'm actually just reading the
Speaker 1: market tea leaves if you ask me, the Federal Act
Speaker 1: in its own time. But I'm just saying I think
Speaker 1: that's the case, and then I guess secondly, with a
Speaker 1: weak global economy, uh, taking out an insurance policy is
Speaker 1: not a bad thing. So, Larry, I think the debate
Speaker 1: a lot of people having is how level weights will
Speaker 1: actually help whether the price of credit is the problem
Speaker 1: inside the United States, whether the price of credit is
Speaker 1: the proble them in Europe. And most people are answering
Speaker 1: no to that question. How will the lower rate actually
Speaker 1: help address some of the issues you outline, Larry, Well, Look,
Speaker 1: I just don't want anything to interfere with this strong
Speaker 1: prosperity cycle. That's my principal point. And I think as
Speaker 1: market signals have been suggesting for quite some time, the
Speaker 1: interest rate story is that it looks unbalanced. I mean anytime.
Speaker 1: It's not that I'm going to inject stimulus here. I'm
Speaker 1: not really looking at that old model. I'm just saying
Speaker 1: that when ten year treasury paper is trading well below
Speaker 1: the FED funds rate or the three month treasury bill rate,
Speaker 1: I think that's a message to the FED that their
Speaker 1: target rate is too high. Frankly, and I think they're
Speaker 1: looking at that. I'm not sure that our views are
Speaker 1: much different than the Fed's views. I don't know when
Speaker 1: they'll act there an independent agency, but that that's my
Speaker 1: basic point. This is not so much about stimulus as
Speaker 1: putting more balance into the financial sector and the yokerve.
Speaker 1: Let's talk about trade chant weight. There's some talk, some
Speaker 1: reports we might get face to face meetings sometime soon,
Speaker 1: perhaps even next week. Can you talk to me about that?
Speaker 1: Could they begin next week to face to face talks
Speaker 1: between the United States and China. Well, I can't confirm
Speaker 1: the face to face next week. I know there are
Speaker 1: discussions ongoing that will get the two teams together at
Speaker 1: some point in the near future. What I want to
Speaker 1: say is, UM, they're on the phone, the leaders, the
Speaker 1: senior people on both sides, Liu Hey from China, Ambassador Lekheiser,
Speaker 1: Secretary Ammunition for the USA. They'll be on the phone.
Speaker 1: They've been on the phone. They'll be on the phone
Speaker 1: this coming week. I think a face some based meeting
Speaker 1: is in the cards. I don't want to get ahead
Speaker 1: of that story, but I think it's a positive story. UM.
Speaker 1: As you know, last week or two weekends ago, the
Speaker 1: President UM basically reopened the talks. I think it's always
Speaker 1: better to talk than not to talk. Let's talk about
Speaker 1: the content of those talks. Do we restart from fresh?
Speaker 1: Secretary Mannuchin said, we've been ninety percent of the way there.
Speaker 1: We were the way there, and I'm wondering if that's
Speaker 1: the starting position or whether we start again, Larry, which
Speaker 1: one is it? Well, I know that the US team
Speaker 1: much much favors where we left off last May. Now again,
Speaker 1: I don't want to get engaged in a lot of
Speaker 1: hypotheticals here, but I think what Steve Minushan is saying,
Speaker 1: and I think Bob Lah has your agrees. I know
Speaker 1: I certainly do. We made a lot of headway. Then
Speaker 1: the talks stopped in May, as you know, and now
Speaker 1: they're going to resume, So why not start from where
Speaker 1: we left off. We didn't have a deal, but we
Speaker 1: made progress on a lot of fronts. Now, I want
Speaker 1: to reiterate something because there's always things in the newspapers
Speaker 1: and on the media and whatnot. Let's not forget the
Speaker 1: basics here with respect to ending intellectual property, theft, forced
Speaker 1: transfer of technology, various cyber hacking and cyber interference issues,
Speaker 1: tariff and non tariff barriers, unbalanced trade conditions in general,
Speaker 1: and of course perhaps the most important one is the
Speaker 1: enforcement mechanisms. Now, having said that, Jonathan, the U S
Speaker 1: I believes we did make headway and that's exactly where
Speaker 1: we should pick up the story. The President indicated as
Speaker 1: much at the G twenty talks in Osaka. So that's
Speaker 1: our view. Basically, let's try to cross the finish line.
Speaker 1: But it's still going to be difficult, no question. Well,
Speaker 1: let's talk about some of those difficulties. The President has
Speaker 1: allowed Huawei to stop buying technology from U S firms
Speaker 1: once again, suspended another round of tariffs perhaps as well.
Speaker 1: What did the President get in return this last weekend, Larry, Well, look, um,
Speaker 1: the talks have been reopened, and there is the expectation
Speaker 1: that China almost in good faith. But I hope as
Speaker 1: a matter of continuing, policy will continue, or we'll pick
Speaker 1: up purchases of US various US imported goods and services,
Speaker 1: most particularly the agriculture and farming sector. We think that's
Speaker 1: actually um part of the goodwill agreement in return for which,
Speaker 1: as you noted, the President said, we will suspend tariff
Speaker 1: increases from this point on. But look, it's that so
Speaker 1: much tipped for TAD. You didn't get any new deals
Speaker 1: coming out of Osaka. What you got was a continuation
Speaker 1: of the talks, which is a good thing, and let's
Speaker 1: see if we could make any forward progress on where
Speaker 1: we left off last May. There never any preconditions, The
Speaker 1: United States has never suggested any preconditions for this. But
Speaker 1: I think the relaxation of the h of the tariff
Speaker 1: threat is a positive goodwill gesture. Larry, you've said in
Speaker 1: the past that the Kuawei issue is separate from the
Speaker 1: trade negotiations. It looks like it's part of the broad
Speaker 1: of trade negotiations. Now, can you confirm that, well, actual,
Speaker 1: I've never said that they were separate. UM. Maybe somebody
Speaker 1: else did. That's not my view. The President's view, which
Speaker 1: is what matters, is that they will be part of
Speaker 1: the general talks regarding trade, and I think that's quite
Speaker 1: evident from what happened in Osaka. And again, if there's
Speaker 1: any confusion, Jonathan, let me try to clear up with
Speaker 1: with respect to UM, shall we say a little UM,
Speaker 1: a little more lenient treatment of Huawei. We're not talking
Speaker 1: about family jewels, we're not talking about five G, we're
Speaker 1: not talking about core issues with respect to telecom and
Speaker 1: so forth. We're talking about what I've called general merchandise.
Speaker 1: The Commerce Department may decide to grant some additional licensing
Speaker 1: for telecom products that are the low tech and are
Speaker 1: readily available around the world. Jonathan, I hope. I want
Speaker 1: to make this as clear as I possibly can. Stuff
Speaker 1: that could be bought in Asia, for example, uh that
Speaker 1: will probably be relaxed. But Huawei remains on the end
Speaker 1: of the list. We remain very concerned that Huawei's relationship
Speaker 1: with the Chinese government may be a difficult problem sensitive
Speaker 1: issues for national security. We will not open licenses for
Speaker 1: any national security areas, be they chips or whatever. We're
Speaker 1: just looking at stuff that's readily available on world markets
Speaker 1: and does not have any national security inferences. But Larry,
Speaker 1: that gets a little bit complex because from a foreign
Speaker 1: diplomacy point of view, how can the United States have
Speaker 1: any diplomatic influence on foreign governments and their interaction with
Speaker 1: the likes of Huawei when the United States but suahwe
Speaker 1: is part of a broader bilateral trade negotiation. That gets
Speaker 1: a little bit complex, doesn't it. Well, I'm not sure Johnathan,
Speaker 1: where you're going on that one. I mean, remember, we
Speaker 1: are in very close touch with our allies, the Five Eyes,
Speaker 1: uh Germany, France regarding the Uahwei problem, I mean, the
Speaker 1: national security related issues are enormous in the US, in
Speaker 1: Asia and in Europe and all these governments, and we're
Speaker 1: in touch with them, you know, Secretary Pompeo, John Bolden
Speaker 1: and many others, including myself, We're in touch with these
Speaker 1: nations to talk about the Huahwei threat to our security.
Speaker 1: So this is part of the overall at diplomacy. I
Speaker 1: don't think it's a breaking diplomacy, and we're all working
Speaker 1: towards the same end, which is a safe and secure
Speaker 1: alliance to make sure that Chinese inroads into our security
Speaker 1: are prevented. Frankly, funny question for you, Larry, just on
Speaker 1: the timeline. Are you comfortable with these negotiations running into
Speaker 1: an election year? What do you need to get this
Speaker 1: addressed in the background of this year. Well, look, there's
Speaker 1: no timeline. We've said this again and again. I've said
Speaker 1: it on your show and others, trying to clarify. The
Speaker 1: President wants a quality deal. He said this in Osaka
Speaker 1: and he's many times before Osaka. We want to resolve
Speaker 1: the sticky issues. We want to resolve the security issues.
Speaker 1: We want to resolve the trade issues. This is of
Speaker 1: course crucial to the economy of the US, to manufacturing,
Speaker 1: to farming, to technology, you name it. So there's no timeline.
Speaker 1: The issue is we want quality, we don't have to
Speaker 1: have speed. And frankly, I don't think that's linked to
Speaker 1: the elections in I think that's a matter of US economic,
Speaker 1: trade and national security policy. We will only sign on
Speaker 1: to a deal that is in the interests of the
Speaker 1: United States. As President Trump is often said, it has
Speaker 1: to be a great deal. Larry right to catch with you,
Speaker 1: hope you Well, let's get to see it back in
Speaker 1: front of the Candra with this, Letty count that the
Speaker 1: National Economic Council Director joining us from Washington, Simon Kennedy,
Speaker 1: has done extraordinary duty for Bloomberg News over the last
Speaker 1: number of years, leading our Brexit coverage, leading all of
Speaker 1: our economic coverage as well, and drives forward the gossip.
Speaker 1: The i m F wrapped a little bit around the realities. Simon,
Speaker 1: your important story moments ago that Governor Kearney is vetted
Speaker 1: with Irish and British passports to be a European at
Speaker 1: the i m F. That is the tradition Michael Kabezeus
Speaker 1: and others over the years. Great, what is the likelihood
Speaker 1: of managing director Kearney. He's actively been discussed in European capitals.
Speaker 1: He ously been a subject of speculation both on Bloomberg
Speaker 1: stories and elsewhere this week, but we moved the store.
Speaker 1: We advanced the story a bit forward today in saying
Speaker 1: that his name is absolutely being discussed. Our conversations within
Speaker 1: European capitals about Mark Arney uh and even there's a
Speaker 1: chance that there could be finance ministers next week which
Speaker 1: a single nominee could could come back to have come
Speaker 1: out of Europe. He may be challenged by mergery, marketing,
Speaker 1: may even be challenged by European candidates. But it is
Speaker 1: interesting that, given he is not a European by birth,
Speaker 1: that European governments are still working to discuss his candidacy. Simon,
Speaker 1: you and I have sat in the bar of the St.
Speaker 1: Regis Hotel and wait for the white smoked rise out
Speaker 1: of the I m F headquarters in Washington. How do
Speaker 1: they actually pick a replacement to Madame Legarde? How do
Speaker 1: they what's the process? So the process is that an
Speaker 1: official process, the twenty four member Executive boarder of the
Speaker 1: I m F receives nominations and then UM picks a
Speaker 1: winning candidate. But of course you can't get past the politics.
Speaker 1: You can't get past nationalities. There is a tradition UM
Speaker 1: that the I m F job is picked by the
Speaker 1: European governments and that the World Bank presidency is picked
Speaker 1: by the US administration. UM consts every time the job
Speaker 1: came up, just did with David Malpas of the World
Speaker 1: Bank a few months ago, there's a debate about whether
Speaker 1: it should be opened up UH and every time the
Speaker 1: status quo is is maintained. So of course emerging markets.
Speaker 1: Emerging markets in the past have have pushed for pushed
Speaker 1: candidates on the basis of the increased heft that the
Speaker 1: likes of China, India, etcetera play in the world economy.
Speaker 1: They've never actually coalesced really behind a single candidate, though,
Speaker 1: and they can be outvoted by the U S and
Speaker 1: the Europeans on the on the executive board. But again
Speaker 1: we may see some European sy some emerging market candidates
Speaker 1: come forward, and then the test will be if other
Speaker 1: if all the emerging markets can kind of line up
Speaker 1: by one, and that would be a greater test. So simon,
Speaker 1: what do you think the whoever is the next head
Speaker 1: of the I m F, what is number one on
Speaker 1: the to do list for that next head? Well, number
Speaker 1: one is playing a part potentially ensuring up the world economy. Uh,
Speaker 1: were clearly slowing. It's in the worst shape since just
Speaker 1: after the financial crisis about a decade ago, um and
Speaker 1: so be ensuring that the I m F is a
Speaker 1: as a as a place at the table shoot things
Speaker 1: that start to go wrong. Incidentally, Mark Harney delivering a
Speaker 1: big speech this week on those risks UM and talking
Speaker 1: about the potential for a larger than currently anticipated slow down.
Speaker 1: Pretty good job application in that speech, UH, and so
Speaker 1: that would be their main, main role. But at the
Speaker 1: second time they're looking Christine Leguard will be leaving at
Speaker 1: the same time as a negotiation would be taken place
Speaker 1: over a recapital inkery getting more money, more firepower for
Speaker 1: the IMF. It's been a bit quiet lately, which is
Speaker 1: it's always a good thing when the IMF is not
Speaker 1: in the headlines. UM Argentina obviously getting the biggest loan
Speaker 1: ever last year, but generally the IMF has has had
Speaker 1: a quiet time, which is no bad thing, uh, and
Speaker 1: so the challenge really would be maintaining ability in the
Speaker 1: world economy. Simon Kennedy, what does the first Laguard press
Speaker 1: conference look like as Philip Laine sitting next to her,
Speaker 1: pushing her notes so she can act smart like you
Speaker 1: do with me. I don't think so. I think Christine
Speaker 1: regards a pretty as Bloomberg Bloomberg Opinion rights today, a
Speaker 1: pretty effective leader. She's had lots of big jobs in
Speaker 1: law and in finance ministry in France, at the i
Speaker 1: M f M. This is someone who you have seen
Speaker 1: her at the press, commerce and the like, who clearly
Speaker 1: is a master's her brief and it knows what today
Speaker 1: and to some extent she could actually be just reading
Speaker 1: by then, reading from the Mario Drug playbook. And that's
Speaker 1: not well, that's not criticism of her. Who Ever takes
Speaker 1: over from Mario Drug will more likely than not inherit
Speaker 1: a playbook from the Drug will have put in place
Speaker 1: in the final months of his of his presidency. That
Speaker 1: wasn't his intention, but the world economy might drive in
Speaker 1: that way. Is Mr Kennedy knows there's an art to
Speaker 1: this and some of the humor there of me saying,
Speaker 1: Philip Laying the esteemed Irish economists as chief economists, that
Speaker 1: UH E c B would push your notes very often
Speaker 1: to any given question, particularly from Bloomberg News assembled in
Speaker 1: frankfort Mario, dragging literally Paul reads off a statement. I
Speaker 1: mean often not It's not an unusual event, Paul assignment.
Speaker 1: I've got to rip up the script and go to
Speaker 1: a one four weaker pounds sterling. Does sterling matter within
Speaker 1: the litmus paper of Prime Minister Johnson, prime Minister Hunt
Speaker 1: or is it a beast of its own? I think
Speaker 1: it's I think they'll the prints has always been pretty
Speaker 1: good on this. I'm maintaining a currency step by markets. Um.
Speaker 1: Obviously it's going to take some place from breakfit and
Speaker 1: and internally Mark Connie uh and the Bank of England
Speaker 1: perhaps more hawkus than the said, and the see maintaining
Speaker 1: some kind of support under the pound because you know
Speaker 1: the free fall is becoming noticeable the last number of days.
Speaker 1: Can you give us a y? I mean, is it
Speaker 1: just political, the whole political stew of this government race
Speaker 1: they're in. I don't know, I don't know if that's
Speaker 1: really taking it taking having an effect to certainly some
Speaker 1: talk with the Bank England. The back Wingland is going
Speaker 1: to have to trim that the hawkishnist it's previously shown.
Speaker 1: The day has not been great. There is concern about
Speaker 1: Perhaps it's not the politics, but there's certainly the concernness
Speaker 1: and no deal breakfast is much greater. Now you've got
Speaker 1: to Jeremy Hunt and you've got Boris Johnson kind of
Speaker 1: trying to trying to prove their metal to the to
Speaker 1: the Conservative Party that still let them. Simon, thank you
Speaker 1: for the time this morning on short notice, Simon Kennedy
Speaker 1: running all of our economics and putting on an important report.
Speaker 1: It brings forward Governor Karney perhaps as a managing director.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio