1 00:00:00,040 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:36,720 Speaker 2: Terminal and the Bloomberg Business App. Here's if you're on 10 00:00:36,720 --> 00:00:39,240 Speaker 2: Wall Street this morning. Julian and Emmanuel have evercore writing 11 00:00:39,280 --> 00:00:43,519 Speaker 2: the President's speech last night, celebrated American values, intensified the 12 00:00:43,600 --> 00:00:46,680 Speaker 2: Parlisan divide in Washington, and maintained the uncertainty around the 13 00:00:46,720 --> 00:00:49,479 Speaker 2: situation with Iran. Julian joins us now for more. Julian, good, 14 00:00:49,479 --> 00:00:52,400 Speaker 2: Mornic Coome morning. I read your recent note. Despite valuations, 15 00:00:52,560 --> 00:00:56,560 Speaker 2: despite geopolitical anxiety, despite the political anxiety, despite a series 16 00:00:56,600 --> 00:00:59,960 Speaker 2: of blow ups, the index has been really, really resilient. 17 00:01:00,040 --> 00:01:00,800 Speaker 2: What does that tell you? 18 00:01:01,440 --> 00:01:04,800 Speaker 3: It tells us that you know the backdrop, the macro 19 00:01:04,920 --> 00:01:08,080 Speaker 3: backdrop in a year where we're getting better earnings growth, 20 00:01:08,120 --> 00:01:10,560 Speaker 3: it's likely going to be double digits when all is 21 00:01:10,640 --> 00:01:14,120 Speaker 3: said and done in twenty twenty six. Long term yields 22 00:01:14,200 --> 00:01:18,520 Speaker 3: staying very very you know sedate, particularly when you think 23 00:01:18,560 --> 00:01:22,640 Speaker 3: about the rest of the world stimulus and the potential 24 00:01:22,680 --> 00:01:26,520 Speaker 3: for rate cuts. It says that sucks. Likely going higher, 25 00:01:26,840 --> 00:01:27,560 Speaker 3: definitely passed. 26 00:01:27,600 --> 00:01:29,280 Speaker 4: The state of the union is in Vidia. The big 27 00:01:29,319 --> 00:01:30,959 Speaker 4: event of this week. I mean, how big of a 28 00:01:30,959 --> 00:01:33,399 Speaker 4: signific of a market moving event is just going to be. 29 00:01:33,560 --> 00:01:37,600 Speaker 3: It's very big. I mean, what's fascinating to us is, 30 00:01:38,400 --> 00:01:41,720 Speaker 3: you know, we're comfortable with being contrarians, and when we 31 00:01:41,760 --> 00:01:45,479 Speaker 3: came into twenty twenty six, we felt that, you know, 32 00:01:46,120 --> 00:01:51,160 Speaker 3: being overweight the AI centric names and themes was really 33 00:01:51,200 --> 00:01:55,040 Speaker 3: in consensus, and that changed very quickly. The mood around 34 00:01:55,040 --> 00:02:01,160 Speaker 3: technology remains very guarded, the positioning remains very frankly, and 35 00:02:01,240 --> 00:02:03,280 Speaker 3: a lot of that has to do with the build 36 00:02:03,360 --> 00:02:06,720 Speaker 3: up around Iran and so you know, look, we know 37 00:02:07,160 --> 00:02:10,560 Speaker 3: that the report today will be good. They will beat 38 00:02:10,600 --> 00:02:13,160 Speaker 3: on the metrics. It's just a question of how the 39 00:02:13,240 --> 00:02:17,960 Speaker 3: shares will respond, and frankly, the market is poised for 40 00:02:18,400 --> 00:02:20,760 Speaker 3: likely a good share price response. 41 00:02:21,120 --> 00:02:23,040 Speaker 4: So I'm wonder if what's good for in video is 42 00:02:23,040 --> 00:02:25,400 Speaker 4: bad for everything else. We've seen this rotation through the 43 00:02:25,440 --> 00:02:27,480 Speaker 4: rest of the economy at a time when there's a 44 00:02:27,520 --> 00:02:30,040 Speaker 4: lot of anxiety about the labor market, where you're seeing 45 00:02:30,040 --> 00:02:32,280 Speaker 4: those pressures. We got home depot yesterday, we got lows 46 00:02:32,320 --> 00:02:37,079 Speaker 4: this morning, raising the specter of uncertainty really pressuring consumers. 47 00:02:37,440 --> 00:02:40,680 Speaker 4: At what point is in Nvidia a counter indicator to 48 00:02:40,720 --> 00:02:43,640 Speaker 4: the economic cycle and could their earnings reverse some of 49 00:02:43,680 --> 00:02:45,440 Speaker 4: the broadening out that we've seen. 50 00:02:46,720 --> 00:02:50,680 Speaker 3: Look and again, think about the backdrop that we've had 51 00:02:51,760 --> 00:02:56,680 Speaker 3: the leading sectors this year, energy industrials, the deep cyclicals, 52 00:02:56,720 --> 00:03:02,000 Speaker 3: but also consumer staples. In terms of the action and 53 00:03:02,040 --> 00:03:06,800 Speaker 3: the interpretation of earnings, all is well, except you know, 54 00:03:06,840 --> 00:03:10,720 Speaker 3: you've had these occasional blow ups. But in our mind, 55 00:03:10,880 --> 00:03:14,680 Speaker 3: if anything in Nvidia is likely to and remember, the 56 00:03:14,720 --> 00:03:19,400 Speaker 3: public hasn't really soured on technology because the labor market, 57 00:03:19,520 --> 00:03:23,359 Speaker 3: as difficult as it is to actually fathom with all 58 00:03:23,360 --> 00:03:27,239 Speaker 3: the policy changes of the last year, is still relatively strong, 59 00:03:27,880 --> 00:03:30,920 Speaker 3: and that bodes well really across the S and P. 60 00:03:31,040 --> 00:03:31,639 Speaker 5: Five hundred. 61 00:03:31,760 --> 00:03:33,720 Speaker 1: You mentioned Iran the Present spent a lot of time 62 00:03:33,800 --> 00:03:36,480 Speaker 1: last night talking about this. Do you think that this 63 00:03:36,560 --> 00:03:38,560 Speaker 1: is going to be potentially an next catalyst for the market. 64 00:03:38,680 --> 00:03:41,440 Speaker 3: There's no question about it. And what's interesting is is, 65 00:03:42,040 --> 00:03:44,520 Speaker 3: you know sometimes there is an eye roll when we 66 00:03:44,560 --> 00:03:48,560 Speaker 3: talk about options, but actually the options market is telling 67 00:03:48,600 --> 00:03:53,080 Speaker 3: you right now that investors are very edged for a 68 00:03:53,120 --> 00:03:58,080 Speaker 3: more challenging outcome in Iran. You look at the prediction markets, 69 00:03:58,120 --> 00:04:01,000 Speaker 3: the market, they think something is going to happen. While 70 00:04:01,080 --> 00:04:04,600 Speaker 3: I got news for you. The skew the price of 71 00:04:04,680 --> 00:04:08,880 Speaker 3: downside puts versus upside calls in the triple ques is 72 00:04:08,920 --> 00:04:12,520 Speaker 3: as wide as it was during the trough of the 73 00:04:12,560 --> 00:04:16,559 Speaker 3: April tariff tantrum and so very contrariant. And the same 74 00:04:16,640 --> 00:04:19,839 Speaker 3: thing in terms of bullishness in the oil market, as 75 00:04:20,000 --> 00:04:23,120 Speaker 3: bullish as it was when oil was one hundred and 76 00:04:23,120 --> 00:04:26,480 Speaker 3: twenty dollars a barrel when Russia invaded Ukraine initially. 77 00:04:26,560 --> 00:04:30,520 Speaker 1: So the market is screaming military intervention, not diplomatic offramp. 78 00:04:30,640 --> 00:04:31,120 Speaker 6: That's right. 79 00:04:31,200 --> 00:04:35,160 Speaker 3: And so for us, the surprise, I mean our base cases, 80 00:04:35,240 --> 00:04:39,479 Speaker 3: we think there will be some either off ramp or 81 00:04:40,040 --> 00:04:43,520 Speaker 3: limited military engagement. Because think about it, we heard it 82 00:04:43,640 --> 00:04:45,839 Speaker 3: last night, we hear it all the time. If the 83 00:04:45,880 --> 00:04:49,480 Speaker 3: oil price spikes further, you are losing the war on 84 00:04:49,520 --> 00:04:52,799 Speaker 3: the affordability issue, and that means you're going to lose 85 00:04:53,160 --> 00:04:57,640 Speaker 3: the midterms. So that's really, you know, a least desired outcome. 86 00:04:57,720 --> 00:04:59,800 Speaker 2: They give news so far as the rights have banked 87 00:05:00,120 --> 00:05:01,839 Speaker 2: that we've got ten year bond yods back down to 88 00:05:02,279 --> 00:05:04,680 Speaker 2: four percent. What's the signal an equity gund like you 89 00:05:04,760 --> 00:05:06,760 Speaker 2: takes from the move that we've seen in fixed income. 90 00:05:07,000 --> 00:05:12,080 Speaker 3: Well, it's this dual edge, you know, thought that the 91 00:05:12,839 --> 00:05:16,279 Speaker 3: you know, the violence under the surface. You've had crashes 92 00:05:16,320 --> 00:05:19,960 Speaker 3: in software, you've had crashes in silver, you've had crashes 93 00:05:20,040 --> 00:05:25,159 Speaker 3: in all to investment managers that the message from all 94 00:05:25,200 --> 00:05:28,360 Speaker 3: of this is that the credit market is disturbed and 95 00:05:28,440 --> 00:05:31,400 Speaker 3: maybe we're having a growth scare. But frankly, if you 96 00:05:31,440 --> 00:05:35,400 Speaker 3: look at the broad credit market, it still behaves very nicely, 97 00:05:35,839 --> 00:05:37,719 Speaker 3: even though there's pockets of distress. 98 00:05:37,920 --> 00:05:40,160 Speaker 2: Jenny, Let's talk about the consumer and how that's been 99 00:05:40,240 --> 00:05:42,920 Speaker 2: priced in the equity market. We've got discretionary down by 100 00:05:42,960 --> 00:05:44,880 Speaker 2: close to four percent for the year so far, state 101 00:05:45,000 --> 00:05:47,520 Speaker 2: was up fifteen Ist an economic story in there or 102 00:05:47,560 --> 00:05:48,320 Speaker 2: is that all AI? 103 00:05:49,400 --> 00:05:52,920 Speaker 3: It is very largely AI, frankly, and if you think 104 00:05:52,960 --> 00:05:56,720 Speaker 3: about it, so when we did our foundational work on AI, 105 00:05:56,760 --> 00:06:02,599 Speaker 3: we really digested what the job impact would be across sectors. 106 00:06:03,040 --> 00:06:07,719 Speaker 3: And actually, when thinking about it, right, the least impacted 107 00:06:07,760 --> 00:06:13,920 Speaker 3: sectors metals and mining, agriculture, consumer staples, all the sectors 108 00:06:13,920 --> 00:06:19,920 Speaker 3: that have ripped year to day. The most impacted sectors financials, software, 109 00:06:20,200 --> 00:06:23,520 Speaker 3: the legal profession, all of the places where you've seen 110 00:06:23,920 --> 00:06:27,560 Speaker 3: tape bombs on and off. And so you know, to us, 111 00:06:27,880 --> 00:06:30,279 Speaker 3: this is also typical behavior that you get in the 112 00:06:30,279 --> 00:06:32,880 Speaker 3: first quarter of the new year, that kind of rotation. 113 00:06:33,440 --> 00:06:36,520 Speaker 3: But there isn't really in our mind a broader. 114 00:06:36,240 --> 00:06:39,719 Speaker 2: Message financials and the banks, where a consensus overweight into 115 00:06:39,720 --> 00:06:42,000 Speaker 2: the new year has not changed for the year ahead. 116 00:06:41,800 --> 00:06:47,040 Speaker 3: For you, we've had it and inline rating. Look that 117 00:06:47,120 --> 00:06:51,960 Speaker 3: they have been expensive, they remain expensive. And obviously, again 118 00:06:53,240 --> 00:06:56,599 Speaker 3: you know, while we don't see anything systemic, this is 119 00:06:56,640 --> 00:07:00,400 Speaker 3: an environment where we're shooting first and asking questions later. 120 00:07:00,640 --> 00:07:03,839 Speaker 3: We'd rather not be in areas where there's going to 121 00:07:03,839 --> 00:07:04,520 Speaker 3: be more shooting. 122 00:07:05,240 --> 00:07:08,720 Speaker 2: Stay with us more Bloomberg surveillance coming up after this. 123 00:07:18,080 --> 00:07:21,160 Speaker 2: President Trump defending his economic record in a marathon State 124 00:07:21,200 --> 00:07:24,120 Speaker 2: of the Union. According to a recent poll from IPSOS, 125 00:07:24,160 --> 00:07:26,680 Speaker 2: americans are split on who can better handle the cost 126 00:07:26,720 --> 00:07:29,800 Speaker 2: of living crisis, including thirty three percent who say they 127 00:07:29,840 --> 00:07:33,240 Speaker 2: trust neither Trump nor congressional Democrats joining us now to 128 00:07:33,280 --> 00:07:35,680 Speaker 2: discuss his anam post of the Peterson Institute Adam a 129 00:07:35,800 --> 00:07:38,760 Speaker 2: one welcome bank to the program. As always a affordability 130 00:07:38,800 --> 00:07:40,840 Speaker 2: issue set to get worse and no better in the 131 00:07:40,880 --> 00:07:41,400 Speaker 2: year ahead. 132 00:07:42,720 --> 00:07:45,200 Speaker 5: I think they are John, thanks for having me back, 133 00:07:45,400 --> 00:07:48,520 Speaker 5: and I feel the first time in my life, I 134 00:07:48,520 --> 00:07:50,960 Speaker 5: feel a little bit of sympathy for Donald Trump because 135 00:07:50,960 --> 00:07:53,480 Speaker 5: it's just not that much he can do on affordability. 136 00:07:54,920 --> 00:07:59,400 Speaker 5: He would have to try to intervene directly into particular 137 00:07:59,520 --> 00:08:04,400 Speaker 5: market that matter, like housing or food, which he's not 138 00:08:04,480 --> 00:08:07,560 Speaker 5: averse to doing, but even the Congress is not willing 139 00:08:07,600 --> 00:08:09,680 Speaker 5: to do, and it's not clear those would be more 140 00:08:09,720 --> 00:08:14,400 Speaker 5: than for show. And I think there remains a headwind, 141 00:08:14,640 --> 00:08:18,000 Speaker 5: excuse me, a tailwind to prices because the labor market's 142 00:08:18,040 --> 00:08:20,760 Speaker 5: a lot stronger than people think, because the FED is 143 00:08:20,800 --> 00:08:24,040 Speaker 5: not as tight as people think because of the tariffs, 144 00:08:24,080 --> 00:08:27,800 Speaker 5: and in the background, the migration issue is starting to hit. 145 00:08:28,560 --> 00:08:31,600 Speaker 5: The other point, though, is as Lisa and Anne, Marie 146 00:08:31,640 --> 00:08:34,599 Speaker 5: and everybody said, he didn't make any major budget proposals. 147 00:08:34,600 --> 00:08:37,400 Speaker 5: He didn't make any major policy proposals of any kind, 148 00:08:37,880 --> 00:08:40,560 Speaker 5: and so against my prior forecast that there was going 149 00:08:40,600 --> 00:08:42,959 Speaker 5: to be a handout, Maybe inflation will be a little 150 00:08:42,960 --> 00:08:45,840 Speaker 5: lower than I feared, because he's not going to blow 151 00:08:45,880 --> 00:08:47,240 Speaker 5: out the budget quite as much. 152 00:08:47,280 --> 00:08:49,800 Speaker 1: But Adam, couldn't he do something when it comes to affordability, 153 00:08:49,800 --> 00:08:52,840 Speaker 1: when it comes to terror, specifically, just let the Supreme 154 00:08:52,880 --> 00:08:56,360 Speaker 1: Court's ruling stand and don't now have new deals of 155 00:08:56,400 --> 00:08:58,680 Speaker 1: ten or fifteen percent with one twenty two's. 156 00:09:01,120 --> 00:09:04,600 Speaker 5: I didn't mention that because it's something he's clearly not 157 00:09:04,720 --> 00:09:09,760 Speaker 5: willing to do. He could take down tariffs unilaterally, and 158 00:09:10,000 --> 00:09:14,640 Speaker 5: just since basically every ally we trade with, including Canada, 159 00:09:14,679 --> 00:09:19,240 Speaker 5: including Europe, including Japan, including Korea, has lower tariffs on 160 00:09:19,360 --> 00:09:22,800 Speaker 5: US now than we have on them. And as Governor 161 00:09:22,880 --> 00:09:25,640 Speaker 5: Svan Burger pointed out, none of the things he claimed 162 00:09:25,640 --> 00:09:30,439 Speaker 5: about manufacturing or jobs or trade deficits were true. Some 163 00:09:30,480 --> 00:09:32,280 Speaker 5: of the things he said were true, but those weren't. 164 00:09:33,559 --> 00:09:36,720 Speaker 5: And so yeah, he could reduce prices, but even that 165 00:09:36,840 --> 00:09:40,240 Speaker 5: wouldn't That'd be a great idea, and it'd be good 166 00:09:40,240 --> 00:09:42,600 Speaker 5: for the country and good for the average working American, 167 00:09:43,160 --> 00:09:48,080 Speaker 5: but it wouldn't necessarily translate into price drops. So as 168 00:09:48,280 --> 00:09:50,640 Speaker 5: all of you have been saying, a decline in the 169 00:09:50,720 --> 00:09:54,120 Speaker 5: rate of inflation isn't the same as seeing prices for 170 00:09:54,200 --> 00:09:57,840 Speaker 5: things people spend on declining. You need real income growth 171 00:09:57,880 --> 00:09:59,040 Speaker 5: for that, Adam. 172 00:09:59,200 --> 00:10:01,440 Speaker 4: The one thing that struck me as a potential market 173 00:10:01,480 --> 00:10:05,680 Speaker 4: moving influence was his discussion of tariffs as reshaping the 174 00:10:05,720 --> 00:10:07,680 Speaker 4: way we pay income taxes. In other words, no income 175 00:10:07,720 --> 00:10:11,840 Speaker 4: taxes and increased tariffs to account for the bulk of 176 00:10:11,880 --> 00:10:14,240 Speaker 4: all income for the nation. He went on to say, 177 00:10:14,400 --> 00:10:16,400 Speaker 4: as time goes by, I believe the tariffs paid for 178 00:10:16,559 --> 00:10:19,040 Speaker 4: by foreign countries will, like in the past, talking about 179 00:10:19,040 --> 00:10:22,520 Speaker 4: the late seventeen hundreds, eighteen hundreds substantially replaced the modern 180 00:10:22,600 --> 00:10:25,480 Speaker 4: day system of income tax Is there anything that you 181 00:10:25,559 --> 00:10:27,960 Speaker 4: take from that that could be codified. Do you see 182 00:10:28,000 --> 00:10:29,600 Speaker 4: that as a feasible path forward. 183 00:10:30,360 --> 00:10:33,719 Speaker 5: It's not feasible, Lisa, I mean, it's just wrong when 184 00:10:33,760 --> 00:10:37,520 Speaker 5: the US government was surrounding on taxes, just like some 185 00:10:37,559 --> 00:10:41,880 Speaker 5: subsa Aeran, African and Central American countries today have tariffs. 186 00:10:41,920 --> 00:10:44,440 Speaker 5: That's a big part of their tax It's because they 187 00:10:44,480 --> 00:10:47,000 Speaker 5: can't collect taxes in a more efficient way. All they've 188 00:10:47,040 --> 00:10:50,520 Speaker 5: got our troops at the border. And because the society 189 00:10:50,559 --> 00:10:54,040 Speaker 5: and the economies are not very well developed, a tariff 190 00:10:54,120 --> 00:10:57,600 Speaker 5: system doesn't work. It also isn't paid for by the 191 00:10:57,640 --> 00:11:00,440 Speaker 5: foreign countries. No matter how many times the president says that, 192 00:11:00,520 --> 00:11:04,200 Speaker 5: no matter how many times his people try to attack research, 193 00:11:04,440 --> 00:11:08,560 Speaker 5: it's universally recognized. It's just right there in the data. Now, 194 00:11:08,640 --> 00:11:11,880 Speaker 5: how much of that's the consumer versus companies is a question. 195 00:11:12,040 --> 00:11:14,680 Speaker 5: How much that becomes inflation is a question, but there's 196 00:11:14,720 --> 00:11:17,920 Speaker 5: absolutely no question it is the American purchasers of the 197 00:11:17,960 --> 00:11:21,960 Speaker 5: inputs and of the products who pay the terriffs. But finally, 198 00:11:22,280 --> 00:11:25,920 Speaker 5: even with the Supreme Court ruling, tariff revenues are going 199 00:11:25,960 --> 00:11:30,800 Speaker 5: to go down because if tariffs stay up, then people 200 00:11:30,920 --> 00:11:34,319 Speaker 5: change behavior. They start buying more American products, or they 201 00:11:34,320 --> 00:11:38,360 Speaker 5: start forgoing foreign products, or they start substituting in ways 202 00:11:38,360 --> 00:11:41,600 Speaker 5: that are not good, or over time, you bring some 203 00:11:41,640 --> 00:11:45,000 Speaker 5: stuff home even though it's less competitive, and so what 204 00:11:45,120 --> 00:11:48,360 Speaker 5: happens is you end up spending less on foreign goods. Now, 205 00:11:48,360 --> 00:11:51,920 Speaker 5: that's not a good thing, but from a revenue point 206 00:11:51,920 --> 00:11:54,719 Speaker 5: of view, it's definitely not a good thing, because then 207 00:11:54,760 --> 00:11:57,160 Speaker 5: if you're spending less on foreign goods, there's less terriffs, 208 00:11:57,240 --> 00:11:59,840 Speaker 5: and so my view is we're already well passed peak 209 00:12:00,360 --> 00:12:03,480 Speaker 5: tear for revenues, even if the President were to let 210 00:12:03,480 --> 00:12:04,000 Speaker 5: them laves. 211 00:12:04,400 --> 00:12:06,079 Speaker 2: And I'm just to final question, just to go back 212 00:12:06,120 --> 00:12:08,840 Speaker 2: to the summer of twenty twenty four, you warned ahead 213 00:12:08,840 --> 00:12:11,320 Speaker 2: of that election, given the policies that we're being proposed, 214 00:12:11,360 --> 00:12:13,840 Speaker 2: that this Federal Reserve might have to prepare the market 215 00:12:14,040 --> 00:12:16,800 Speaker 2: and the country for higher interest rates. They can't interest 216 00:12:16,880 --> 00:12:20,360 Speaker 2: rates subsequently in the year ahead, Adam, Given where things 217 00:12:20,360 --> 00:12:23,160 Speaker 2: stand and your revision to your outlook on inflation, where 218 00:12:23,160 --> 00:12:25,840 Speaker 2: are you now on Fed policy? 219 00:12:25,920 --> 00:12:28,800 Speaker 5: John? Thanks for asking. If it turns out that the 220 00:12:28,840 --> 00:12:33,319 Speaker 5: President doesn't put in a budget request for bailouts and 221 00:12:33,840 --> 00:12:36,480 Speaker 5: handouts to people and out of the midterm elections, I'll 222 00:12:36,520 --> 00:12:39,240 Speaker 5: be surprised. But then I have to reduce my happily 223 00:12:39,360 --> 00:12:42,320 Speaker 5: my inflation forecast from four percent to three point five 224 00:12:42,400 --> 00:12:44,520 Speaker 5: or less on CPI at the end of the year. 225 00:12:45,400 --> 00:12:49,240 Speaker 5: But I also think that the Fed, as a large 226 00:12:49,320 --> 00:12:52,960 Speaker 5: number of FMC members have indicated over the last several weeks, 227 00:12:53,360 --> 00:12:56,760 Speaker 5: the FED is not going forward with an easing bias. 228 00:12:56,880 --> 00:12:59,400 Speaker 5: They should not be going forward with an easing bias. 229 00:12:59,480 --> 00:13:02,520 Speaker 5: The labor market is much stronger than people think. The 230 00:13:02,559 --> 00:13:05,400 Speaker 5: pain is real for people, but that's different from us 231 00:13:05,400 --> 00:13:08,240 Speaker 5: saying that there's a cyclical weakness in the labor market. 232 00:13:08,280 --> 00:13:12,040 Speaker 5: You have to separate those two things. And in that situation, 233 00:13:12,240 --> 00:13:15,839 Speaker 5: and as your guests and manual mentioned, credit markets are 234 00:13:15,840 --> 00:13:18,680 Speaker 5: holding up pretty darn well and a Reming credit remains 235 00:13:18,720 --> 00:13:22,280 Speaker 5: pretty available. So I don't think the Fed's going to 236 00:13:22,320 --> 00:13:24,720 Speaker 5: be cutting as many times this year, even before we 237 00:13:24,800 --> 00:13:29,920 Speaker 5: get into the independence politics, as markets currently project. 238 00:13:30,120 --> 00:13:43,000 Speaker 2: Stay with us. Maulblinberg Savandan's coming up offter this by 239 00:13:43,040 --> 00:13:45,400 Speaker 2: some facts in that state of the Union, President Trump 240 00:13:45,400 --> 00:13:49,560 Speaker 2: remaining defile, that is, tarifagenda will continue despite the Supreme 241 00:13:49,600 --> 00:13:50,199 Speaker 2: Court's ruling. 242 00:13:51,559 --> 00:13:55,160 Speaker 7: They're a little more complex, but they're actually probably better. 243 00:13:55,280 --> 00:13:57,760 Speaker 7: Congressional action will not be necessary. 244 00:13:57,800 --> 00:13:59,400 Speaker 5: It's already time tested. 245 00:13:59,120 --> 00:14:02,360 Speaker 7: And approved, and as time goes by, I believe the 246 00:14:02,360 --> 00:14:06,840 Speaker 7: tariffs paid for by foreign countries will, like in the past, 247 00:14:07,520 --> 00:14:11,520 Speaker 7: substantially replaced the modern day system of income tax. 248 00:14:12,120 --> 00:14:14,280 Speaker 2: Formacenia White House trying to devise a county on show 249 00:14:14,360 --> 00:14:15,800 Speaker 2: rights in the follow and it may not be a 250 00:14:15,880 --> 00:14:18,040 Speaker 2: straight cuts and pace, but I expect at least some 251 00:14:18,080 --> 00:14:21,240 Speaker 2: tariffs to increase the fifteen percent in the coming days. 252 00:14:21,320 --> 00:14:23,560 Speaker 2: Canny On Johness, Nawim Walk Kenny and welcome to the program. 253 00:14:23,560 --> 00:14:26,400 Speaker 2: Help us understand where we are. It was ten, then 254 00:14:26,400 --> 00:14:27,880 Speaker 2: I of the weekend it was fifteen, and then we 255 00:14:27,920 --> 00:14:30,000 Speaker 2: came into the weaken it's ten. What is it and 256 00:14:30,040 --> 00:14:30,640 Speaker 2: what's it goin to be? 257 00:14:31,880 --> 00:14:34,480 Speaker 6: Well, right now it's a hurry up and wait. 258 00:14:34,600 --> 00:14:37,880 Speaker 8: So it's technically a ten percent tariff that went into 259 00:14:37,920 --> 00:14:41,680 Speaker 8: effect at twelve oh one am yesterday, but I do 260 00:14:41,800 --> 00:14:44,360 Speaker 8: understand from the administration that they are still looking to 261 00:14:44,400 --> 00:14:48,840 Speaker 8: implement the President's fifteen percent tariff increase. Part of the 262 00:14:48,920 --> 00:14:51,680 Speaker 8: challenge is that Section one twenty two. It's a really 263 00:14:51,800 --> 00:14:55,440 Speaker 8: wonky statute. It's never been used. It does allow you 264 00:14:55,480 --> 00:14:58,000 Speaker 8: to carve some countries out, it allows you to carve 265 00:14:58,040 --> 00:14:59,000 Speaker 8: out some goods. 266 00:14:59,120 --> 00:15:00,400 Speaker 6: It's not really clear that it. 267 00:15:00,400 --> 00:15:03,160 Speaker 8: Allows you to differentiate between countries in terms of the 268 00:15:03,240 --> 00:15:07,200 Speaker 8: overall tariff rate. So once you get to fifteen, you're 269 00:15:07,240 --> 00:15:11,240 Speaker 8: actually increasing tariffs above some of these agreed trade agreements, 270 00:15:11,240 --> 00:15:13,800 Speaker 8: and you're also putting tariffs on countries like Australia, the 271 00:15:13,920 --> 00:15:16,200 Speaker 8: UK and a lot of Western hem countries, so it's 272 00:15:16,600 --> 00:15:18,640 Speaker 8: a little more complicated to work out legally. 273 00:15:18,880 --> 00:15:20,040 Speaker 6: I think that's part of the delay. 274 00:15:20,040 --> 00:15:22,720 Speaker 8: But I'm still expecting that fifteen percent tariff increase. 275 00:15:23,000 --> 00:15:25,400 Speaker 1: So if the rate is higher than what this administration 276 00:15:25,520 --> 00:15:27,720 Speaker 1: has agreed to with some trading partners, and they want 277 00:15:27,720 --> 00:15:30,600 Speaker 1: trading partners to abide, but those agreements, are we going 278 00:15:30,640 --> 00:15:31,440 Speaker 1: to get carve outs. 279 00:15:32,800 --> 00:15:35,000 Speaker 8: So I've actually talked to some of our trading partners 280 00:15:35,000 --> 00:15:36,920 Speaker 8: about this, and you know, some of them are a 281 00:15:37,680 --> 00:15:39,400 Speaker 8: little concerned that they're going to end up with a 282 00:15:39,480 --> 00:15:42,720 Speaker 8: teriff rate that's above the agreed rate, and they're talking 283 00:15:42,720 --> 00:15:46,000 Speaker 8: to the administration about that. So I think the administration 284 00:15:46,080 --> 00:15:48,240 Speaker 8: is going to look for some flexibilities in terms of 285 00:15:48,240 --> 00:15:52,520 Speaker 8: whatever proclamation comes out next, but you know they're going 286 00:15:52,560 --> 00:15:54,840 Speaker 8: to have to do so within legal constraints. They just 287 00:15:54,880 --> 00:15:57,200 Speaker 8: had IEPA tariff struck down, They're going to be really 288 00:15:57,240 --> 00:16:00,440 Speaker 8: conscious of not wanting to have these ones enjoying struck 289 00:16:00,480 --> 00:16:00,840 Speaker 8: down to. 290 00:16:01,160 --> 00:16:03,680 Speaker 1: Well, are one twenty twos legal? They have never been 291 00:16:03,760 --> 00:16:04,800 Speaker 1: used either in the past. 292 00:16:05,840 --> 00:16:07,960 Speaker 8: Well, certainly a law on the books, and if you 293 00:16:08,000 --> 00:16:12,400 Speaker 8: look at the CIIT decision that initially struck down the tariffs, 294 00:16:12,680 --> 00:16:15,600 Speaker 8: one of the bases was because the core thought that 295 00:16:15,680 --> 00:16:17,600 Speaker 8: the president should have used one twenty two in the 296 00:16:17,600 --> 00:16:20,760 Speaker 8: first place. So there's certainly scope to use Section one 297 00:16:20,840 --> 00:16:23,000 Speaker 8: twenty two. It's just really a matter of how you 298 00:16:23,080 --> 00:16:25,680 Speaker 8: implement it. And I think that's really what the administrations 299 00:16:26,000 --> 00:16:27,960 Speaker 8: wanting to make sure they're doing, to make sure that 300 00:16:28,000 --> 00:16:29,800 Speaker 8: these tariffs don't get struck down again. 301 00:16:29,920 --> 00:16:32,360 Speaker 4: There was at tension yesterday, Kelly, in between this focus 302 00:16:32,360 --> 00:16:35,520 Speaker 4: and affordability and this focus on tariffs and trying to 303 00:16:35,560 --> 00:16:38,280 Speaker 4: explain how tariffs are actually structurally going to be better 304 00:16:38,320 --> 00:16:41,600 Speaker 4: longer term because it could potentially reduce income taxes and 305 00:16:41,680 --> 00:16:45,760 Speaker 4: other aspects that consumers pay. I just wonder how capped, 306 00:16:46,040 --> 00:16:49,440 Speaker 4: how it hampered the president is from increasing either the 307 00:16:49,480 --> 00:16:52,280 Speaker 4: one twenty twos to fifteen percent or implementing some of 308 00:16:52,280 --> 00:16:55,960 Speaker 4: the others based on the affordability aspects of his agenda. 309 00:16:57,440 --> 00:16:59,080 Speaker 6: Yeah, I think it's a great question. 310 00:16:59,240 --> 00:17:02,560 Speaker 8: I mean, really, what's going on here is the administration 311 00:17:02,640 --> 00:17:04,919 Speaker 8: looks at the data, they look at the tariffs, and 312 00:17:04,960 --> 00:17:08,879 Speaker 8: they say that, look, we haven't seen significant price increases 313 00:17:08,920 --> 00:17:11,160 Speaker 8: on the backs of some of these, in some cases 314 00:17:11,320 --> 00:17:12,840 Speaker 8: really high tariff rates. 315 00:17:13,119 --> 00:17:14,400 Speaker 6: We haven't seen some of the. 316 00:17:14,359 --> 00:17:18,359 Speaker 8: Economic catastrophes that everyone predicted would happen if the administration 317 00:17:18,440 --> 00:17:22,160 Speaker 8: put in a universal baseline tariff. And so this idea 318 00:17:22,320 --> 00:17:26,040 Speaker 8: that tariffs are leading to this affordability crisis doesn't really register, 319 00:17:26,600 --> 00:17:28,840 Speaker 8: but it does register in the minds of voters. And 320 00:17:28,880 --> 00:17:31,720 Speaker 8: you have a situation in which voters are linking tariff 321 00:17:31,760 --> 00:17:35,000 Speaker 8: increases to price increases and to the fact that they're 322 00:17:35,040 --> 00:17:39,040 Speaker 8: having trouble affording grocery store, energy prices and a lot 323 00:17:39,080 --> 00:17:41,280 Speaker 8: of things that voters will vote on in terms of 324 00:17:41,320 --> 00:17:44,800 Speaker 8: how they're feeling about the economy. And so the administration 325 00:17:44,880 --> 00:17:46,960 Speaker 8: has some work to do in terms of trying to 326 00:17:47,040 --> 00:17:50,400 Speaker 8: message this to the American people going into the midterms, 327 00:17:50,760 --> 00:17:53,920 Speaker 8: but I don't see the administration significantly pivoting. You heard 328 00:17:53,960 --> 00:17:56,719 Speaker 8: the President doubling down last night that tariffs were a 329 00:17:56,720 --> 00:17:59,679 Speaker 8: core part of his economic policy. We might see some 330 00:17:59,720 --> 00:18:02,560 Speaker 8: tea on the margins, but I don't expect a full 331 00:18:02,600 --> 00:18:04,760 Speaker 8: scale reversal of any of this policy. 332 00:18:04,880 --> 00:18:07,560 Speaker 4: There's also a question of what the IEPA ruling by 333 00:18:07,600 --> 00:18:10,600 Speaker 4: the Supreme Court does to international agreements, so with some 334 00:18:10,640 --> 00:18:13,880 Speaker 4: of our trade partners, given that certainly the European Union 335 00:18:13,920 --> 00:18:15,760 Speaker 4: has already pushed back We're going to be speaking with 336 00:18:15,840 --> 00:18:18,560 Speaker 4: Ambassador Jamison Greer, the trade representative for the United States, 337 00:18:18,640 --> 00:18:20,919 Speaker 4: later this morning. I'm just wondering what you're wondering about, 338 00:18:21,080 --> 00:18:22,920 Speaker 4: what your biggest questions are for him. 339 00:18:24,359 --> 00:18:28,120 Speaker 8: Yeah, and certainly seeing the EU hit pause on its 340 00:18:28,160 --> 00:18:32,159 Speaker 8: consideration of that implementing legislation was predictable. I think the 341 00:18:32,200 --> 00:18:34,919 Speaker 8: EU in some cases has been looking for a reason 342 00:18:35,000 --> 00:18:37,399 Speaker 8: to kind of walk away from this deal for some time. 343 00:18:37,840 --> 00:18:40,320 Speaker 6: The US implemented back in August. 344 00:18:40,480 --> 00:18:42,720 Speaker 8: The EU hasn't cut a single tariff line since that 345 00:18:42,800 --> 00:18:45,760 Speaker 8: turn Bary agreement. So this isn't a surprise, but I 346 00:18:45,800 --> 00:18:48,560 Speaker 8: do expect that to escalate. I think in terms of 347 00:18:48,560 --> 00:18:51,760 Speaker 8: what to ask Ambassador Greer, I'm curious about when we'll 348 00:18:51,760 --> 00:18:54,880 Speaker 8: see some of these Section three oh one investigations, what 349 00:18:54,960 --> 00:18:57,280 Speaker 8: the TERRAFF structure might look like, whether it's going to 350 00:18:57,320 --> 00:19:00,400 Speaker 8: cover all trading partners or just some trading partners. 351 00:19:00,800 --> 00:19:01,520 Speaker 6: Really trying to. 352 00:19:01,480 --> 00:19:03,520 Speaker 8: Get a sense of what the next five to six 353 00:19:03,560 --> 00:19:06,520 Speaker 8: months look like. This companies are trying to navigate this 354 00:19:06,600 --> 00:19:07,680 Speaker 8: new tariff landscape. 355 00:19:07,800 --> 00:19:09,680 Speaker 2: Let's talk about the next two months. So A Marie 356 00:19:09,760 --> 00:19:12,520 Speaker 2: mentioned that matig in China between the President and the 357 00:19:12,600 --> 00:19:15,200 Speaker 2: Chinese leader KellyAnn, do you sense that he's lost some 358 00:19:15,280 --> 00:19:18,680 Speaker 2: leverage here, given how constrained he might be now at 359 00:19:18,680 --> 00:19:21,119 Speaker 2: home and the point that over the last year that 360 00:19:21,200 --> 00:19:25,200 Speaker 2: China has run a record trade surplus even with these tariffs. 361 00:19:26,480 --> 00:19:28,960 Speaker 8: Yeah, I think it's a good question as well, especially 362 00:19:28,960 --> 00:19:32,119 Speaker 8: going into the President Trump President She visit. 363 00:19:32,600 --> 00:19:36,240 Speaker 6: But I guess my big takeaway is long term, the. 364 00:19:36,240 --> 00:19:40,480 Speaker 8: United States already has teriff leverage over China. They're doing 365 00:19:40,520 --> 00:19:42,800 Speaker 8: all of these three oh one investigations to get more 366 00:19:42,880 --> 00:19:46,120 Speaker 8: terrorf authority over other countries, but we have that existing 367 00:19:46,160 --> 00:19:46,800 Speaker 8: three oh one. 368 00:19:47,280 --> 00:19:49,200 Speaker 6: We also have an ongoing three. 369 00:19:49,160 --> 00:19:52,760 Speaker 8: Oh one investigation into China's compliance with the Phase one deal, 370 00:19:53,240 --> 00:19:56,000 Speaker 8: and there's a host of other levers the United States has, 371 00:19:56,040 --> 00:20:00,360 Speaker 8: from financial tools to export controls and other mechanisms really 372 00:20:00,440 --> 00:20:04,120 Speaker 8: get leverage over China. Going into some of these discussions, 373 00:20:04,560 --> 00:20:06,720 Speaker 8: I think my base case for an outcome is pretty 374 00:20:06,760 --> 00:20:09,080 Speaker 8: low to begin with. I think the administration is really 375 00:20:09,080 --> 00:20:12,560 Speaker 8: looking to just keep a stable relationship between President Trump 376 00:20:12,560 --> 00:20:16,680 Speaker 8: and President She and the trade arrangement that they negotiated 377 00:20:16,680 --> 00:20:20,200 Speaker 8: in Busan, not expecting any massive deliverables there. 378 00:20:20,240 --> 00:20:22,480 Speaker 6: So I think it's a pretty steady state. 379 00:20:22,200 --> 00:20:26,200 Speaker 8: With China remarkably, But it is a good question as 380 00:20:26,200 --> 00:20:28,040 Speaker 8: to what some of this means in terms of the 381 00:20:28,080 --> 00:20:31,399 Speaker 8: President's negotiations with other trading partners, where it's not as 382 00:20:31,480 --> 00:20:34,199 Speaker 8: clear what teriff authority he has to threaten some of 383 00:20:34,200 --> 00:20:36,040 Speaker 8: these big foreign policy related. 384 00:20:35,760 --> 00:20:37,800 Speaker 2: Tariff kumming and we have tariffs on them, But do 385 00:20:37,840 --> 00:20:42,359 Speaker 2: we have influence since we still have influence, I. 386 00:20:42,880 --> 00:20:45,159 Speaker 8: Do, but I do think the next few days are 387 00:20:45,200 --> 00:20:47,960 Speaker 8: a bit rocky until we do get some more certainty 388 00:20:48,200 --> 00:20:51,639 Speaker 8: over what the president's tariff agenda is going to look like, 389 00:20:52,040 --> 00:20:55,240 Speaker 8: the authorities that he's going to use. I think the 390 00:20:55,280 --> 00:20:58,840 Speaker 8: relationships with most of our trading partners will be stabilized. 391 00:20:59,240 --> 00:21:02,520 Speaker 8: You know, when it comes to the US China relationship, 392 00:21:02,840 --> 00:21:05,160 Speaker 8: there's a lot of soft power at play, and I think. 393 00:21:04,960 --> 00:21:06,119 Speaker 6: That's what you're alluding to. 394 00:21:06,720 --> 00:21:09,840 Speaker 8: And certainly having a core decision which goes against one 395 00:21:09,880 --> 00:21:14,240 Speaker 8: of the President's key policies isn't the best thing going 396 00:21:14,240 --> 00:21:16,440 Speaker 8: into this meeting, But at the same time, I don't 397 00:21:16,480 --> 00:21:19,000 Speaker 8: think it's devastating, and I think there's a really long 398 00:21:19,080 --> 00:21:22,359 Speaker 8: time between now and March thirtieth when the President goes 399 00:21:22,400 --> 00:21:25,639 Speaker 8: in terms of actions that can be taken, that's a 400 00:21:25,680 --> 00:21:28,720 Speaker 8: lifetime in terms of the trade agenda and the negotiating agenda, 401 00:21:28,800 --> 00:21:31,119 Speaker 8: so we'll see what happens in the next couple of weeks. 402 00:21:31,960 --> 00:21:35,480 Speaker 2: This is the Bloomberg Survendics podcast, bringing you the best 403 00:21:35,560 --> 00:21:38,880 Speaker 2: in markets, economics, antient politics. 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