Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,
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Speaker 1: by the Studio of New York City on Police To
Speaker 1: say is John Riding, rd Q Economics, Chief economist and
Speaker 1: founding partner. Good morning to John. Eight thirty that GDP
Speaker 1: print comes, what's the guide? Well, our view is slumber
Speaker 1: is going to come in around three and a half percent.
Speaker 1: But I think the thing number to focus on within
Speaker 1: the report is how strong the capital spending numbers are,
Speaker 1: and that is going to be the driver as we
Speaker 1: go forward. And I think it's going to be a
Speaker 1: fairly solid number on business equipment spending, which is key
Speaker 1: for productivity growth going forward and raising the potential GDP
Speaker 1: growth rate rather than just the cyclical GDP growth rate.
Speaker 1: Then we've got these really noisy aspects like inventories and
Speaker 1: the impact of net net exports. What are you expecting there, John, Well,
Speaker 1: the trade deficit is going to continue to widen, and
Speaker 1: we we had something of a bit of an artificial
Speaker 1: narrowing in the second quarter on amongst other things, high
Speaker 1: sorry being exports in an attempt to beat the terrorists. UM.
Speaker 1: But as we UH so, that trade GAPP is gonna
Speaker 1: widen because we've got a strong economy that's close to
Speaker 1: full employment. And if we're gonna have a capital spending boom,
Speaker 1: where are we going to get the capital equipment from?
Speaker 1: The US actually runs a deficit now on capital goods
Speaker 1: because so as we invest more in the U S
Speaker 1: economy in the short run, that deficit is going to widen,
Speaker 1: and I think it's going to be a little bit
Speaker 1: offset by higher inventories. But that's why we like to
Speaker 1: put aside those swing factors and focus on what one
Speaker 1: might an economic GDP identity terms C plus I consumer
Speaker 1: spending plus fixed investment spending UM, And that to me
Speaker 1: is the number to keep an eye on as we
Speaker 1: uh both in the past and go forward, as you
Speaker 1: try and look through the noise and get a better
Speaker 1: handle on underlying growth. Neil cash Calorie of the Minneapolis
Speaker 1: Fed out with an alped in the Wall Street Journal
Speaker 1: saying the Fed should take a pause. What's the argument
Speaker 1: against that now? Well, I think the argument against it
Speaker 1: it is where we are in the economy. You know,
Speaker 1: we important to remember that we have growth rates, and
Speaker 1: the growth rates have been rising, and we have levels
Speaker 1: of the economy, and the level of the economy relative
Speaker 1: to its potential is pretty high. So the FEDS achieving
Speaker 1: its subjectives. We have a troop sent inflation rate, we
Speaker 1: have full employment possible, and the trajectory is too strong
Speaker 1: employment growth still and the declining and employment rates. So
Speaker 1: we the FED is going to seek to norm alize,
Speaker 1: to renormalize interest rates, and you do that when the
Speaker 1: economy is strong, not not when the economy is weak.
Speaker 1: So to take a pause, the problem then comes is
Speaker 1: how do you restart if you need to restart? Did
Speaker 1: Neil Coush Curry, John, thanks so much for mentioning that out.
Speaker 1: But did Neil couch Curry not study his data dependent
Speaker 1: history and that every central bank at all times is
Speaker 1: ex post they have to wait to see GDP before
Speaker 1: they pause. Right, Well, I I think the absolutely data dependent.
Speaker 1: But there's you know, there's a third element to which
Speaker 1: is the financial stability element. Now, we were at levels
Speaker 1: of the equity market that maybe three four or five
Speaker 1: years ago. We wouldn't have imagined that we would have
Speaker 1: gotten this far. And everything's worrying about the delta from
Speaker 1: the um, you know, from the high, but we have
Speaker 1: to look at the high we're coming from. And we
Speaker 1: also have to look at you know, Joe Fellman in
Speaker 1: your TV show earlier was talking about Amazon and what
Speaker 1: you know, you try talking about the missus and he's
Speaker 1: talking about but yeah, but look at the absolute numbers
Speaker 1: of revenue growth, look at the absolute number of profit growth.
Speaker 1: Turned to you know, one of my favorite functions on
Speaker 1: Bloomberg E a go, which gives you the earnings analysts
Speaker 1: analysis children thirty companies on the S and P five
Speaker 1: reported better than eight percent revenue growth better than earnings growth.
Speaker 1: We have to remember if it's a little better or
Speaker 1: a little worse. We also have to remember to look
Speaker 1: at the absolute magnitudes. And thus magnitudes are strong, and
Speaker 1: that's an environment in which I think monastery policy and
Speaker 1: interest rates should be renorted. And John, I did a
Speaker 1: seventeen year regression of Amazon, and we're above the trend,
Speaker 1: no question about that. But you'd be shocked how we're
Speaker 1: not that far above the trend. Negative in the pre market. Yeah,
Speaker 1: it's it's a better company on a company that big.
Speaker 1: That's real money. So John, let's talk about that. Because
Speaker 1: we had several Federal Reserve official always including I believe
Speaker 1: Loretta Mesta and Rich Clarada, came out this week discussing
Speaker 1: the market, saying that essentially it won't inflict the pain
Speaker 1: on the economy that some people think. Are you in
Speaker 1: that camp? I am, because the economy hasn't grown into
Speaker 1: the level of the market as it weren't from the
Speaker 1: consumer demand side. So, like one of the points that
Speaker 1: has been made by h vicecheck Clarity essay was the
Speaker 1: savings rate. Now, the savings rate turns out it's double
Speaker 1: what we thought the savings rate was on the numbers
Speaker 1: mentioned measured last year by you know, by the GDP report.
Speaker 1: So when the equity market declines and that reduces wealth,
Speaker 1: that impacts spending if people feel they're going to be
Speaker 1: short of their financial objectives. Now I I think that
Speaker 1: the equity market have to go down a long way
Speaker 1: from here to put that phenomenon into play. The idea
Speaker 1: what we need to raise the savings rate. Turns out,
Speaker 1: you know, the savings rate is at a much higher
Speaker 1: level than we than we pre obviously thought. So I
Speaker 1: don't think that the equity market feeds back onto the
Speaker 1: real economy here. And I do think that the Feds right,
Speaker 1: that the underlying fundamentals of the economy right now are
Speaker 1: are quite strong. And uh, you know, we're just not
Speaker 1: used to volatility that we have some market volatility here.
Speaker 1: Can we do the fun bit now? Yeah? Can we
Speaker 1: do the fun bit? I missed this on TV. Did
Speaker 1: you miss this? It's because you were preparing for one
Speaker 1: of your other propermi So, John Riding is a massive
Speaker 1: Preston North End fan. Explain it to our American audience.
Speaker 1: You want to explain that to American audience? Job, because
Speaker 1: I can't explain it to them. Preston at End is
Speaker 1: one of the oldest football clubs where soccer teams, who'd
Speaker 1: say in the US, founded in eighteen eighty um, one
Speaker 1: of the first team to win the Football League when
Speaker 1: I started hundred and thirty years ago. And it's my hometown.
Speaker 1: I am. I'm very close club. I sponsor one of
Speaker 1: the players there, Seawan McGuire are who also plays for
Speaker 1: the Republic of Ireland's national team. Very cool, that's Preston
Speaker 1: North End and and you get a shirt. You get
Speaker 1: a Preston North End Jersey with Keane on the bag
Speaker 1: and three number three, and this was your ice hockey number.
Speaker 1: There was way back high school, high school, high school,
Speaker 1: that you're gonna wear this in the gym. John, I'm
Speaker 1: looking at the size of it. They got an x L.
Speaker 1: That's not no. No, it needs to have a few
Speaker 1: more exes that Carol b nice, it needs Yes, there
Speaker 1: needs to be a few more cut What do I
Speaker 1: frame it? I think you should frame this. I think
Speaker 1: it's great. I think John Rinding and I should sign it.
Speaker 1: I should say that on the back of my chair
Speaker 1: at the World headquarters. They have from a wonderful fan
Speaker 1: up in Montreal, a generous fan, a real Montreal Canadians jersey.
Speaker 1: And that's where the number three comes from. The number
Speaker 1: three was wonderful defenseman named J. C. Trumble who died
Speaker 1: way too young. Well, he was my hero when I
Speaker 1: was at Williams. Well, you have a lot of fans
Speaker 1: in in Preston. I said that, shure, it came from
Speaker 1: the club. And obviously than desfined yourself in the northwest
Speaker 1: of England. For some reason, they would be more than
Speaker 1: happy to host you. Well, thank you one sport, Manchester
Speaker 1: United or Liverpool when you can support press exactly. I mean,
Speaker 1: you know, is this Tom's new club? Because it was
Speaker 1: west Ham live from the Preston North End Interactive Studio.
Speaker 1: We cant do that. We could do that Good Morning
Speaker 1: Interactive Brokers. We could go which you can't do the
Speaker 1: show from what happens in football this weekend. I mean
Speaker 1: when there's a small World Series game out in l
Speaker 1: A Hailey from Rodeo Drive just emails in says, yeah,
Speaker 1: I looked at the weather seventy five degrees. It's like
Speaker 1: Pet Carroll. They're not going to be freezing at Fenway Park,
Speaker 1: are they. They won't be needing heaters. It's like they
Speaker 1: had the other night and they dug out. Okay over
Speaker 1: there now, I was just reaching for my exciting. I
Speaker 1: am very excited, but I think a lot going on
Speaker 1: what happens. Let me do this and we'll come back
Speaker 1: and talk about John's viewing habits for Saturday in Premiere
Speaker 1: Like John wrighty, thank you as always for your wisdom
Speaker 1: on economics and guiding me toward Preston North End. Well,
Speaker 1: we would like to welcome Dallas FED President Robert Kaplan.
Speaker 1: He is joining us from Mexico City this morning. His district,
Speaker 1: of course, very tightly integrated with Mexico. But I've got
Speaker 1: to start with the markets today, Mr President, You've heard
Speaker 1: over the last few minutes where we are today back
Speaker 1: down again. A lot of people are saying this is
Speaker 1: the Fed's fault. What do you make of what's been
Speaker 1: going on in markets lately? Well, I'll avoid in this
Speaker 1: position commenting too much on market changes other than the say, uh,
Speaker 1: some amount of volatility in the markets, and up and
Speaker 1: down I think is typical. The one thing I would
Speaker 1: comment on as I watch earnings reports, and I talked
Speaker 1: about thirty c e o s a month, And I
Speaker 1: think this story is consistent. Input costs or higher across
Speaker 1: the board, labor materials, steal aluminum, and I think companies
Speaker 1: are struggling for whether they can pass those increases on
Speaker 1: in price increases or whether they're facing margin erosion. And
Speaker 1: I see in the corporate earnings reports very consistent story
Speaker 1: from what I'm hearing from companies. Well, is there a
Speaker 1: level change, a percent move, or something that would cause
Speaker 1: you to believe that maybe the FED should slow down
Speaker 1: take a pause, not move in December. What I'm looking
Speaker 1: for is what impact and what this all indicates about
Speaker 1: the strength of the underlying economy and and also the
Speaker 1: impact on financial conditions. So it's not a market move
Speaker 1: up or down per se, it's it's still ill. Uh,
Speaker 1: what is my outlook for the economy and what is
Speaker 1: my assessment of financial conditions in the economy that might
Speaker 1: impact of future growth prospects. Well, if it's not you,
Speaker 1: if it's not the Fed, some say it is a
Speaker 1: weaker outlook for growth, particularly with earnings going into two
Speaker 1: thousand nineteen. Of you that yesterday new vice chairman Rich
Speaker 1: claire to seemed to disagree with in his speech, have
Speaker 1: you changed your forecast in any way up or down
Speaker 1: going into two thousand nineteen. So, Mike, as you know
Speaker 1: from our previous conversations all year this year, I've been
Speaker 1: saying two thousand eighteen was going to be a very
Speaker 1: strong year. We've got a substantial amount of fiscal stimulus,
Speaker 1: not just a tax agreement, but also the budget bill
Speaker 1: which increased government spending. And we've been forecasting all year
Speaker 1: that two thousand nineteen growth would be weaker than two
Speaker 1: thousand eighteen, and that two thousand twenty would be a
Speaker 1: little bit weaker still as fiscal stimulus where is off
Speaker 1: and we still got this head wind of an aging
Speaker 1: population and slowing workforce growth. So my my outlook is
Speaker 1: pretty consistent. But I've been expecting some moderation of growth
Speaker 1: because I've been believing that the fiscal stimulus is gonna
Speaker 1: wane as we head to the end of this year
Speaker 1: and into next year. One of the other big stories
Speaker 1: people have been talking about is, of course Donald Trump's
Speaker 1: criticisms of j. Powell and the FED. Jetty Yellow very
Speaker 1: strong in the Financial Times today saying Trump does have
Speaker 1: the potential to undermine the FED? How much should we
Speaker 1: worry about that? So? UH, I think people outside the
Speaker 1: FED UH, as appropriate, should be feel free to comment
Speaker 1: on this. I think in my position I won't comment
Speaker 1: on it other than to say my job is to
Speaker 1: do UH economic analysis and make judgments on monetary policy
Speaker 1: without regard to political considerations or political influence, and I
Speaker 1: think criticism comes with the territory. So I think my
Speaker 1: mission and our mission at the FETE is the same. Well,
Speaker 1: you being set up for to be the fall guy
Speaker 1: for any kind of economic shortfall. So I think it's
Speaker 1: very important that I not worry about that. I think
Speaker 1: we're in a very challenging situation that you and I
Speaker 1: have talked about before. We've got healthy growth in the
Speaker 1: United States, but fiscal stimulus is part of that growth. Uh,
Speaker 1: it's gonna wane in nineteen and twenty and the and
Speaker 1: the trick is how to get the judgment and the
Speaker 1: balance right between moving toward a neutral stance but avoiding
Speaker 1: being predetermined or rigid in in what that destination ultimately
Speaker 1: is and the pace of it. And so I think
Speaker 1: that's still the challenge. And that's a that's complicated enough
Speaker 1: with worry without me worrying about other extraneous factors. Let's
Speaker 1: talk about the Baige Book suggests a lot of concern
Speaker 1: about tariffs in the American business. What impact are you
Speaker 1: seeing or forecasting? So it's unusual for me to talk
Speaker 1: to a CEO that is not seen cost increases pretty
Speaker 1: much across the board, labor, costs, materials, Uh, It's it's typical.
Speaker 1: The only question c e o s have is as
Speaker 1: can they pass those increases on in terms of prices.
Speaker 1: In some industries they are doing that. In other industries.
Speaker 1: Given the dynamics of the industry, they can't. And I
Speaker 1: think the Beige book is very consistent, and so that's
Speaker 1: why if the tariff situation intensifies, my guess is input
Speaker 1: cost pressures are going to intensify also. UH. And it's
Speaker 1: not having a big effect on headline GDP growth, but
Speaker 1: it's having a very big effect on companies and industries
Speaker 1: and their ability to manage their costs well. Can companies
Speaker 1: in your district race prices depends on the industry. Uh,
Speaker 1: In certain industries they can, and and in particular, if
Speaker 1: it's a consumer facing industry, UH, they may not have
Speaker 1: pricing power and they may suffer margin erosion. And there's
Speaker 1: a whole range of consumer facing industries, including by the way,
Speaker 1: the home builders who really aren't able effectively. They're finding
Speaker 1: to pass on cost increases and they're either gonna see
Speaker 1: UH volume declines because of sticker shock on the part
Speaker 1: of the consumer, or they're gonna have to find a
Speaker 1: way to to moderate their costs because they just don't
Speaker 1: have pricing power. We're getting closer to the neutral rate.
Speaker 1: You've pegged it like it's about two seven five to
Speaker 1: three percent. How close are you to possibly making a
Speaker 1: policy mistake. So I've said that the estimate of the
Speaker 1: neutral rate, it's a concept, it's imprecise, it's uncertain, it's
Speaker 1: part of the mosaic I look at. And I've said
Speaker 1: it could be it could be two and a half
Speaker 1: to three, two and three quarters, it could be two
Speaker 1: and three quarters to three. We're gonna have to make
Speaker 1: that judgment over the next year as as the economy unfolds.
Speaker 1: But to your point, I'm very sensitive, uh, to not
Speaker 1: being rigid or predetermined about the pace at which we
Speaker 1: get there. And the reason is, again, I expect GDP
Speaker 1: growth in two thousand and eighteen to be strong, but
Speaker 1: I expect it to moderate as this fiscal stimulus starts
Speaker 1: to wane in nineteen and twenty. And we've still got
Speaker 1: to deal with the headwinds of slowing workforce growth due
Speaker 1: to aging and sluggish productivity. So I think getting this
Speaker 1: balance right is going to require me to keep an
Speaker 1: open mind, not be two predetermined or pre judge and
Speaker 1: uh and so I think that's the challenge of this
Speaker 1: and uh and so we'll have to make these judgments,
Speaker 1: and I will make these judgments as we head along
Speaker 1: this path. I, speaking of judgments, effective FED funds are
Speaker 1: again trading at the top of their range right at
Speaker 1: ioe ER right now as they were in June. How
Speaker 1: much of a problem is that? And do you anticipate
Speaker 1: we will see in November or in December an adjustment
Speaker 1: to the ioe R rate. So we'll have to see. Uh,
Speaker 1: it's always possible we'll have to make more technical adjustments.
Speaker 1: And part of what we're judging as we wind down
Speaker 1: the balance sheet is what is the demand for reserves
Speaker 1: in the banking system and in the economy and uh,
Speaker 1: And I think we're gonna have to be open minded
Speaker 1: to learning from this. There's no textbook on how you
Speaker 1: normalize interest rate policy and wind down a balance sheet,
Speaker 1: and so I think it's critical to be open to learning.
Speaker 1: And I think we're doing that right here. And so
Speaker 1: it's possible we'll have to make more technical adjustments in
Speaker 1: the months ahead. Would that be something that could be
Speaker 1: done in November? We we don't expect any kind of
Speaker 1: rate move because it's a non press conference meeting, but
Speaker 1: something like that, would you feel free to approve an
Speaker 1: ioe ER adjustment. I don't want to pre judge what
Speaker 1: we're gonna do. But I think it's one of one
Speaker 1: of the things that Yeah, I I think it's important
Speaker 1: to keep an open mind in each meeting about about
Speaker 1: addressing this if it needs to be addressed. No FED
Speaker 1: district more closely tied to Mexico than yours. You are
Speaker 1: in Mexico, CD, you give us a feel for what
Speaker 1: you think about the incoming Mexican administration. What are you
Speaker 1: expecting in the economic relationship between the two countries. Well,
Speaker 1: on the positive side, UH, I think it's been important
Speaker 1: for the United States and for both countries from Mexico
Speaker 1: and the United States to move forward getting an UH
Speaker 1: the trade agreements in this hemisphere updated and resolved, and
Speaker 1: I think it removes an enormous uncertainty. But it also
Speaker 1: and from our research at the Dallas Bed, improves US
Speaker 1: competitiveness and allows us to add US jobs. And so
Speaker 1: we're glad that's get being done. That's good for both countries.
Speaker 1: There's a lot of uncertainty about the privatization and modernization
Speaker 1: of this country and a lot of the reforms that
Speaker 1: have been done over the last five years, and I
Speaker 1: think the jury is still out as to whether those
Speaker 1: reforms will continue or whether they'll be put on hold
Speaker 1: or slow down. And that's the part we don't know.
Speaker 1: UH next to two point oh going to change anything. UH,
Speaker 1: it'll it'll create some changes. I think the most important
Speaker 1: thing about NAFTA two point oh or the North American
Speaker 1: Trade Agreement is that it's that it's going to get resolved.
Speaker 1: I think you could quibble about certain provisions, whether it's
Speaker 1: going to help improve US competitiveness and our global competitiveness,
Speaker 1: But I think the most important headline is that removing
Speaker 1: the uncertainty is good for the United States and it's
Speaker 1: good for Mexico. We talked about input costs UH and
Speaker 1: global competitiveness. Getting this agreement is important to the United
Speaker 1: States because seventy of the imports from Mexico or intermediate
Speaker 1: goods part of integrated supply chains and logistic arrangements that
Speaker 1: we think make the US more competitive and allow the
Speaker 1: US to add jobs. And so that parts the critical part.
Speaker 1: Back to rates for a moment, We have a question
Speaker 1: from a viewers. It wasn't strong enough in asking you
Speaker 1: about a potential pause when you look at the interest
Speaker 1: rate sectors of the economy, autos and particularly housing and
Speaker 1: the impacts of higher rates and even the lack of
Speaker 1: tax deductions in the high tax states. Does that lead
Speaker 1: you to think maybe you've gone too far or you're
Speaker 1: getting really close to it. No, Listen, I watch housing
Speaker 1: very carefully, and I talked to home builders. We have
Speaker 1: a number in our district and a couple of number
Speaker 1: of national home builders do a lot of business in
Speaker 1: Texas because it's growing so fast. And you may know,
Speaker 1: and we've been watching this closely at the Dallas fed
Speaker 1: new home sales in Dallas and Houston, which are two
Speaker 1: of the asses growing cities in the United States, new
Speaker 1: home sales have been sluggish, and in fact they've been weak,
Speaker 1: and so we we're doing a lot of work at
Speaker 1: our district trying to understand how that slowing fits in
Speaker 1: with overall economic growth. And one of the conclusions I
Speaker 1: would come to is there's all there's a the input costs,
Speaker 1: labor shortages, higher input costs, and yes, higher mortgage rates
Speaker 1: are all part of the story. And so we're watching
Speaker 1: this carefully. It's been weak for the last three months.
Speaker 1: I'm not ready to say that it's an indicator of
Speaker 1: the of the weakening in the economy, but I can
Speaker 1: tell you we're watching it very carefully, and again it
Speaker 1: comes in the context of my own base case expectation
Speaker 1: the growth was going to weaken as we headed into
Speaker 1: night two thousand nineteen. So I'm just watching what this
Speaker 1: tells us if anything about about the trend in GDP growth.
Speaker 1: New Vice Chair Clarena is gonna ahead yet another FED
Speaker 1: sub committee on communication. What can we expect? What's wrong
Speaker 1: with the way you communicate now? And how would you
Speaker 1: fix it? Well, I'm and I'm on that subcommittee, uh
Speaker 1: with Vice Chair Clarata. Uh. I wouldn't put it that
Speaker 1: there's something wrong. I think a good organization is constantly
Speaker 1: re reviewing its communications, it's frameworks, uh, the way it operates.
Speaker 1: I think that's healthy. Uh. And I think I think
Speaker 1: the FED is moving toward doing that, and I would
Speaker 1: hope doing it on some regular basis. And I think
Speaker 1: that's wise and as an as an as an institution
Speaker 1: where it's critical that we keep our independence. I think
Speaker 1: part of keeping your independence is earning it by revisiting
Speaker 1: the way you conduct yourself, including communication and your frameworks.
Speaker 1: So I think us doing that is a good thing.
Speaker 1: We speaking of communication in our FT interview, Jennet Yellen
Speaker 1: talks about how there was internal dissent in the Open
Speaker 1: Market Committee over Keilly, A group calling itself the Three Amigos,
Speaker 1: which included j Powell, worried that it would trigger financial instability.
Speaker 1: How united is the committee now on the policy path
Speaker 1: that now Chairman Paul has set. So there's debate around
Speaker 1: the committee, and I hope there will be debate. I
Speaker 1: think debate and disagreement is one of the things I've
Speaker 1: been very impressed by at the Federal Open Market Committee.
Speaker 1: And I don't think you want a situation where we
Speaker 1: all agree completely, and we've got a number of us
Speaker 1: all I'll speak for myself believe that we should be
Speaker 1: gradually and patiently moving toward a more neutral stance. I mean,
Speaker 1: we don't need to have our foot on the accelerator.
Speaker 1: But not everybody agrees with that, and there's a lot
Speaker 1: of disagreement as to the pace and where neutral is.
Speaker 1: And I think that disagreement is healthy. And when I
Speaker 1: go to an f O m C meeting, I state
Speaker 1: my case and my arguments, but I listened very carefully
Speaker 1: to the others around the table, and and I'm open
Speaker 1: being persuaded and changing my views. And I think that's
Speaker 1: a good dynamic, and I hope it continues, all right.
Speaker 1: Robert Kaplan, president of the Dallas FED, coming to us
Speaker 1: today from our Mexico City of Bureau. Nancy cortis Transit.
Speaker 1: She's rational correspondent for CBS. Nancy, the news flow is
Speaker 1: exceptionally volatile. Is there any reporting from CBS that these
Speaker 1: suspicious packages, these bombs will affect the elections. I think
Speaker 1: we don't have any reporting right now that would indicate
Speaker 1: that these particular packages will affect the election one way
Speaker 1: or the other. I do know that they're sort of
Speaker 1: gripping the country right now. We can now report that
Speaker 1: there is a twelve package the has been discovered that
Speaker 1: was addressed to James Clapper, the former Director of National
Speaker 1: Intelligence UM. Consistent with the other packages, this one was
Speaker 1: in New York City. Uh. We also know that there's
Speaker 1: a package that UM may have been sent to another
Speaker 1: member of Congress that is being investigated. UH. So this
Speaker 1: is an ongoing situation. There are sure to be many
Speaker 1: more developments before Face the Nation on Sunday. And he
Speaker 1: mentioned John Dickerson hosting He's going to be sitting down
Speaker 1: with UM the House Speaker, Paul Ryan. He's also talking
Speaker 1: with Chris Coons, Senator of Delaware UM and this is
Speaker 1: an ongoing situation. We know that the that the FBI
Speaker 1: is looking at one postal sorting facility in Opelaca, Florida,
Speaker 1: where some of these packages may have been processed and
Speaker 1: and then sent on their way, But we don't think
Speaker 1: that that's the only facility they're looking at. Can we just, Nancy,
Speaker 1: we just focus on the election for us a little
Speaker 1: bit longer and get your thoughts on what is going
Speaker 1: on in Texas. Uh, I know you've been following that
Speaker 1: race because of Representative Beto O'Rourke uh, trying to unseat
Speaker 1: Republican Texas Senator Ted Cruz. Yes, and I was in
Speaker 1: Texas earlier this week, went to a couple of a
Speaker 1: work events. He was trying to do some counter programming
Speaker 1: because it was the same day that President Trump was
Speaker 1: coming into town to campaign with crews, and so, uh
Speaker 1: he knew that there was going to be a lot
Speaker 1: of attention to that. So uh A Roorke held eight
Speaker 1: events of his own, going back and forth to different
Speaker 1: early voting sites and really drawing pretty remarkable crowds. Taking
Speaker 1: pictures with hundreds of people who lined up to UH
Speaker 1: to get a chance to meet him. So certainly there's
Speaker 1: a lot of energy surrounding his candidacy. Whether there are
Speaker 1: enough voters who share his views in the state of
Speaker 1: Texas to get him elected is still an open question.
Speaker 1: He's obviously trailing in the polls. Um. There was a
Speaker 1: great of enthusiasm surrounding President Trump's visit as well, you know,
Speaker 1: as they're watching this line of thousands of people sneaking
Speaker 1: for hours as they tried to get in to see
Speaker 1: the President of the United States. This is a state
Speaker 1: that the President won by nine points. UM and UH
Speaker 1: and Ted Cruz, there's no question has an advantage there.
Speaker 1: But we're seeing interesting early voting numbers. Obviously, this is
Speaker 1: a race that has really energized the elector there. Well,
Speaker 1: you know, I'm sure you saw the reports in the
Speaker 1: Houston Chronicle earlier in the weeks saying that quote a
Speaker 1: shocking number of people turned out to vote on Monday.
Speaker 1: They said it looked like more like a Black Friday
Speaker 1: shopping morning than it did a line up for a vote.
Speaker 1: It shattered early voting records for a midterm election in
Speaker 1: in Texas, not just in Houston but across the state.
Speaker 1: And but uh, you know, it's you have to be
Speaker 1: careful about drawing conclusions from early voting because sometimes times
Speaker 1: all that means is that one side is very energized
Speaker 1: and they do a lot of their voting and early voting,
Speaker 1: and there aren't that many people left the cast a
Speaker 1: ballot in the general election. It could also be that
Speaker 1: all the really enthusiastic people come out of the beginning
Speaker 1: of early voting and then there's less, uh, there's less
Speaker 1: at the end. So it is a noteworthy phenomenon and
Speaker 1: we're keeping an eye on it, but it's too soon
Speaker 1: to say what it means for that race. Nancy, Thanks
Speaker 1: for the bravy. Nancy quartis with incredible news flow. She
Speaker 1: is the chief Congressional correspondent at CBS. A place to
Speaker 1: site now for the Trump administration's views on the g
Speaker 1: d P Report, which joined now in Bloomberg Television and
Speaker 1: on radio by Mick Mulvigny, US Office and Management and
Speaker 1: Budget Director. Hey Make, it's great to catch out with
Speaker 1: you again. Thanks for joining the program. Let's start with
Speaker 1: that GDP. Thanks, Let's start with that GDP. Now shall
Speaker 1: we um, it looks solid and everyone's asked the same question.
Speaker 1: Makes so I'll ask you to view isn't sustainable? Yeah,
Speaker 1: we really do think that it is. Again, you look
Speaker 1: at some of the technicals, you get down deep in
Speaker 1: the numbers. This is a sustainable growth cycle that we
Speaker 1: are in. It's a supply driven growth cycle that we're in.
Speaker 1: And one of the things that we draw attention to
Speaker 1: a try draw attention today is how mild the inflation
Speaker 1: numbers were and what came out this morning one point
Speaker 1: six percent, well below what people expected, but not what
Speaker 1: we expected here at the White House. We've been telling
Speaker 1: people for the last year that this is a different
Speaker 1: type of demand, a different type of growth cycle driven
Speaker 1: by the supply in the market, which would typically put
Speaker 1: less pressure on inflation. So we really do feel like
Speaker 1: we're in that that goldilocks moment where we're getting good
Speaker 1: g d P growth, but we don't have the inflation
Speaker 1: that traditionally might have seen with this type of market. Um,
Speaker 1: maybe it takes pressure off of the Fed to raise rates,
Speaker 1: as they've indicated that they want to do. So m
Speaker 1: all things seem to be pointing in the right direction
Speaker 1: right now, and this is a group of economist some
Speaker 1: moll straight make the ice space so every day they
Speaker 1: just don't believe. This story carries on into I'm looking
Speaker 1: at the projections from the medium project of the Economist
Speaker 1: week track here at Bloomberg on the Street, and the
Speaker 1: expectation is that GDP spies the two point five percent.
Speaker 1: Where were you on that, Mick and how bigs the spread? Sure,
Speaker 1: we were still our projections are still roughly in that
Speaker 1: three percent three percent range for the next couple of years.
Speaker 1: We do think that is that's that's sustainable. Keep in mind,
Speaker 1: and I don't know who you're talking to, but a
Speaker 1: lot of folks are just heavily invested in seeing that
Speaker 1: number not come in at three percent, especially folks who
Speaker 1: are tied at the previous administration wanted you and me
Speaker 1: to believe that one point nine percent was the best
Speaker 1: you could do forever. Keep in mind Paul Krugman said
Speaker 1: one time, I think that you could make him complete
Speaker 1: dictator of the country, and he couldn't get you up
Speaker 1: but a couple of tents of a percentage point um.
Speaker 1: Now there's a lot of folks who again missed this time.
Speaker 1: The three point five percent is higher than a lot
Speaker 1: of folks expected. That inflation number is lower than a
Speaker 1: lot of folks expected. But again at the administration, it's
Speaker 1: right where we thought we would be given the policies
Speaker 1: we put in place over the first seven quarters. So
Speaker 1: make right where we thought we would be on GDP.
Speaker 1: The economy is at booming. We can't argue against that.
Speaker 1: Tax revenue essentially flat in fist, go why tax revenues flat?
Speaker 1: It's up a little bit. We still took in record
Speaker 1: revenues last year. It's down on the corporate side, which
Speaker 1: you would expect given the lower rates at the beginning
Speaker 1: of the of the dynamism that would come from a
Speaker 1: from a tax cut, but individual tax receipts set all
Speaker 1: time records. Keep in mind that the budget deficit that
Speaker 1: we rolled out, and I think it was seven eight
Speaker 1: a couple of weeks ago, was actually seventy billion dollars
Speaker 1: less than the Congressional Budget Office estimated as recently so
Speaker 1: I think June or July in the summertime. So revenues
Speaker 1: continue to to to sort of meet our expectations. It's
Speaker 1: the spending side of the ledger right now that's driving
Speaker 1: a lot of that deficit. All of that deficit actually
Speaker 1: um and it's the discretionary part of that spending that's
Speaker 1: contributing greatly to that. One of the reasons you saw
Speaker 1: the President speak so strongly about reducing discretionary spending at
Speaker 1: the Cabinet meeting last week. So, now the deficits of problem,
Speaker 1: but the revenues really are not. What's what's leading us
Speaker 1: down that that deficit path right now, it's the spending
Speaker 1: side of the ledger Many people might sit here and say, well,
Speaker 1: that's rich and this is just a classic example of
Speaker 1: politicizing the deficit and making adount spending. It's pretty clear
Speaker 1: the income tax receipts on coming out outside of the
Speaker 1: consumer income side of the agenda. What do you say
Speaker 1: back to that, that's gonna take some time for those
Speaker 1: those tax cuts in the corporate text cuts to sort
Speaker 1: of to kick in when you lower corporate rates. Yeah,
Speaker 1: in the first couple of quarters, receipts are going to
Speaker 1: be less than you expected. But all of our projections
Speaker 1: long term or that when you get to year seven, eight, nine, ten,
Speaker 1: and then outside of what we call the budget window,
Speaker 1: and in DC we budget by tenuring increments outside of
Speaker 1: the budget window. You're talking about corporate receipts that far
Speaker 1: exceed what we expected before the tax cuts. So yeah,
Speaker 1: we did expect corporate rates, corporate collections to come down.
Speaker 1: That's exactly what happened. But again, all of the money
Speaker 1: that comes in and again to us, a dollar a dollar,
Speaker 1: whether we take it from you or your employer. Money
Speaker 1: to us is just a dollar. Those receipts are at
Speaker 1: all time highs. Is the Republican Party still the poty
Speaker 1: of fiscal responsibility? Make well, well, we'll find out. That's
Speaker 1: certainly the president of fiscal responsibility. That's why you saw
Speaker 1: him unveiled the the Nickel Plan, which was his idea.
Speaker 1: By the way, it was not not me pushing that
Speaker 1: on him. He understands the the the import of the deficit.
Speaker 1: He understands that the imports of the discretionary side of
Speaker 1: a ledger. So when he sat down last week with
Speaker 1: the cabinet and said, look, everybody's gotta cut five percent
Speaker 1: from last year, he was deadly serious. So uh, as
Speaker 1: far as the President is concerned, yeah, he's still very
Speaker 1: fiscally responsible. We encourage Congress when they get back after
Speaker 1: the election to follow that lead. Let's talk about the
Speaker 1: cot to spending shown we each agency five percent. Does
Speaker 1: that include defense spending as well? Make it does? Actually,
Speaker 1: I think the number he actually set the number for
Speaker 1: defense at seven hund billion, which is about a two
Speaker 1: and a half per set reduction for defense. So I
Speaker 1: think he's treating that slightly separately. But again, everyone will
Speaker 1: do more with less than they had last year in
Speaker 1: our budget. Also, you might see some agencies state Department,
Speaker 1: for example, education, actually have reductions that exceed five percent.
Speaker 1: So now the president has spending in his mind and
Speaker 1: it is a focus of his right now, and you're
Speaker 1: gonna see that trickle down through the budgets from the
Speaker 1: various cabinet agencies. I just wonder whether that's going to
Speaker 1: be enough. I'm looking at interest payments of five billion plus,
Speaker 1: I'm looking at a deficit of seven billion, and most
Speaker 1: people expect those numbers to get worse. No bets. Uh yeah, well,
Speaker 1: and certainly, Uh, we're very cognizant of what happens with
Speaker 1: the interest rates because we're the largest borrower in the world,
Speaker 1: so interest rates grew up. We're very interest rates sensitive.
Speaker 1: I think that five billion dollar number doesn't kick in
Speaker 1: for a couple of years out. I think we're someplace
Speaker 1: in the in the low threes this year. But uh,
Speaker 1: but the right we are getting in that direction. Yes,
Speaker 1: we are absolutely concerned about it, which is one of
Speaker 1: the reasons the presidents I think the last three budgets
Speaker 1: are the last two budgets the President's offered some of
Speaker 1: the greatest broadest spending reductions ever. Keep in mind, if
Speaker 1: Congress had passed our budget two years ago, we'd be
Speaker 1: well on our way to a balanced budget. We didn't
Speaker 1: do that. Congress shows not to do that. That's fine. Um,
Speaker 1: they have a chance now to put this five percent
Speaker 1: reduction in place beginning with this year spending plans. So
Speaker 1: it's slightly confusing to a lot of paper. In the
Speaker 1: same way we talk about fiscal responsibility and kind of
Speaker 1: spending by five, we're also talking about another tax cut.
Speaker 1: Can you make sense of that for us? Sure? I
Speaker 1: think the President really wants to do more, even more
Speaker 1: for the middle class. Um. The tax cuts and reform
Speaker 1: package that we've passed last year was huge boon to
Speaker 1: the middle class, especially in terms of things like the
Speaker 1: child care tax credit. But if the President can figure
Speaker 1: out a way in a fiscally responsible manner to to
Speaker 1: give another ten percent reduction to the middle class. That's
Speaker 1: good for the economy, it's good for people. It helps
Speaker 1: build on what we've seen, which is house home take
Speaker 1: home pay is up dramatically. I think, uh, it's up
Speaker 1: like three in the last seven quarters. And that's on
Speaker 1: a real basis. UM. So the lower taxes of the
Speaker 1: middle class, raise their wages, raise their bonuses, um. And
Speaker 1: it just helps build the middle class, which you know
Speaker 1: means a lot to the president. But it's in the
Speaker 1: tacit admission from this administration that we kind of fold it.
Speaker 1: I'm sorry to hear your questions and the tacit admission
Speaker 1: by this administration that we kind of fold another tax
Speaker 1: cut in America. No, no, no, and um. And you know,
Speaker 1: I think I've talked about this before in terms of
Speaker 1: they're being different types of deficits. There's some deficits they
Speaker 1: come from wealth transfer payments, which don't contribute very much
Speaker 1: to growth. There's deficits that might come, for an example,
Speaker 1: by government from government investment of things like infrastructure research
Speaker 1: that has some return on that investment. And there's there's
Speaker 1: the tax that deficits as they come from letting you
Speaker 1: and me and everybody watching this program keep more of
Speaker 1: their own money through tax reductions. That's the most efficient
Speaker 1: allocation of resource. We do think that's the help the
Speaker 1: thing that helps us grow the economy. And again we've
Speaker 1: been right. So everybody who says you couldn't do this,
Speaker 1: now you should be asking them the question, why is
Speaker 1: it that you were wrong and Trump was right. We've
Speaker 1: got the three percent you didn't say was achievable. It
Speaker 1: looks like you'll have it for at least the next
Speaker 1: couple of quarters. What what was wrong with what those
Speaker 1: folks said coming into this administration that we were able
Speaker 1: to to to to prove right on I agree with you.
Speaker 1: Many economist said we couldn't get to three. We go
Speaker 1: to three. In fact, we had a full handle in
Speaker 1: the previous quote. I think when many people will disagree
Speaker 1: with you is that it's come with a big price.
Speaker 1: It's come with a much much bigger fiscal deficit. And
Speaker 1: the spending plans that we've heard this week just want
Speaker 1: to touch the sides. Um Again. This the spending plans
Speaker 1: that we were roll out I think are fiscally responsible. Um.
Speaker 1: So again, keep in mind who spends the money, Congress
Speaker 1: spends the money. That's whey the constitution works. We can
Speaker 1: send our budgets to the Hill, and we have done
Speaker 1: that for the last two years. Do it again this year.
Speaker 1: We'd like Congress to pay close for attention to it.
Speaker 1: And now that I think everybody knows. People don't realize this.
Speaker 1: But if you watch the cabinet meeting last week, you
Speaker 1: saw the President talk about it in public. But as
Speaker 1: soon as the door closed. Ordinarily that would be when
Speaker 1: the President turns to me and says, Mick, tell us
Speaker 1: about the budget. But he didn't do that. This year.
Speaker 1: The President talked about this himself for twenty minutes. Back
Speaker 1: I didn't say a word. This is the president's idea.
Speaker 1: The president now has spending in his sights, and we're
Speaker 1: going to bring the full force the administration behind getting
Speaker 1: some fiscal responsibility. Keep on, how we did so well
Speaker 1: with the budget back in the nineteen nineties was we
Speaker 1: didn't really cut spending. We grew the economy in the
Speaker 1: late nineteen nineties and had fiscal restraint. Revenues grew faster
Speaker 1: than expenses. That's what we're trying to get back to.
Speaker 1: So make it just saves to me that we've going
Speaker 1: back to the all politics, that what's going to happen
Speaker 1: after the midterms is the classic cogument, the classic blame
Speaker 1: game between the Democrats and Republicans, just not to deal
Speaker 1: with what's in front of them right now, which is
Speaker 1: a debt problem. Um. Again, the political atmosphere is pretty hyperparison.
Speaker 1: There's no question about that. I don't think I'm making
Speaker 1: news when I say that it would be curious to
Speaker 1: see what gets done in the Lane Duck. All I
Speaker 1: can say to your answers on spending was I think
Speaker 1: the President has laid down the marker. President said, look,
Speaker 1: I want I want a five percent across the board reduction.
Speaker 1: I want defense even to do less or do more
Speaker 1: with less than they had less year. I don't know
Speaker 1: how any president of the United States could could spend
Speaker 1: a could send a stronger fiscally conservative message. He makes
Speaker 1: always try to catch you. Thanks for dropping bond. A
Speaker 1: busy morning for you, guys, I'm sure, and some solid
Speaker 1: numbers for the U. S. Economy once again in the
Speaker 1: previous court. Thank you very much, Mick mc vulvaney. The
Speaker 1: U S Office a bunchet office, a management and budget director,
Speaker 1: joining us from outside the White House. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.