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Speaker 1: VI of a mL dot Com, slash VR, Mary Lynch,
Speaker 1: Pierced Fenner and Smith Incorporated. Ye. Welcome to the Bloomberg
Speaker 1: Surveillance Podcast. I'm Tom Keene with David Gura. Daily we
Speaker 1: bring you insight from the best of economics, finance, investment,
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Speaker 1: be Control. As I said, head a public policy at
Speaker 1: CLOM that joins me now at last week, Infrastructure Week,
Speaker 1: this week Workforce Development Week at the White House, they're
Speaker 1: eager to shift focus onto these economic initiatives. Is that working?
Speaker 1: Is that making any kind of a difference with them
Speaker 1: getting uh their agenda back front and center. Yeah, I mean,
Speaker 1: you know, it's um, there's certainly not for lack of trying. Um.
Speaker 1: You know, I think there is a lot of focus
Speaker 1: and fanfare around Infrastructure Week, for example last week and
Speaker 1: then this week with the Apprenticeship Executive Order. But I think,
Speaker 1: you know the reality is that this administration is being
Speaker 1: plagued by the Russia, Um, the Russia investigation, and even
Speaker 1: if there's nothing that is conclusive that comes out of
Speaker 1: that and the President and his administration and campaign are
Speaker 1: completely exonerated, you know it just it is yet another
Speaker 1: headwind um to getting done a very difficult and ambitious
Speaker 1: policy agenda under the best of circumstances. Honestly, so, Um,
Speaker 1: you know, they're the Congress, as you said, there's making
Speaker 1: some progress on healthcare, but certainly I think at this point, um,
Speaker 1: right after the election, they would have assumed that they
Speaker 1: would have been much farther. Has something changed about the
Speaker 1: level of engagement the administration has with business with executives
Speaker 1: in light of perhaps the president's trip to the Middle
Speaker 1: East in Europe were designed to withdraw from the Paris Agreement.
Speaker 1: I remember early on in the administration's tenure it seemed
Speaker 1: like big executives were coming through Washington very regularly. And
Speaker 1: again with these two weeks that we've had theme weeks
Speaker 1: focused on the economy, it doesn't seem like it had
Speaker 1: the star power, for lack of a better term, that
Speaker 1: the past weeks it had. Yeah, And I think that's
Speaker 1: I think that's exactly right. And I think there's UM,
Speaker 1: there's this business counsel that the President has put together,
Speaker 1: and you're to his credit, he started his administration really
Speaker 1: soliciting a lot of feedback from many different stakeholders, including
Speaker 1: folks in corporate America. I mean, it does seem like
Speaker 1: that solicitation has slowed down. And you're right. I mean,
Speaker 1: I think that there are some companies and you've already
Speaker 1: seen some folks even on Twitter and other forms of
Speaker 1: social media, sort of come out against the president UM
Speaker 1: around you know, around the Paris UH Treaty and other
Speaker 1: other more controversial items. So yes, and I think that's
Speaker 1: it's sort of anecdotal. You have seen a slowing down
Speaker 1: of engagement from from corporate America. With that said, I
Speaker 1: think folks are still hopeful that we will see some
Speaker 1: progress under regulation, that we will see some form of
Speaker 1: fiscal stimulus, tax reform, infrastructure. Though as you know, we
Speaker 1: both know, you know, every day is important and UM
Speaker 1: and the legislative calendar is incredibly tight and not in
Speaker 1: the favor of getting these ambitious things done. It strikes
Speaker 1: me you mentioned regulation. When you look at all this
Speaker 1: administration is trying to do, it is on regulation that
Speaker 1: we've gotten the most clarity. Of course, we have the
Speaker 1: House voting on this Financial Choice Act a few days ago,
Speaker 1: passing the House apparently dead on arrival in the Senate.
Speaker 1: But we did get this hundred fifty page document from
Speaker 1: the Treasury Department on regulation with instruction to regulatory agencies
Speaker 1: to reevaluate rules that are in place. Now, when you
Speaker 1: compare that, say to the principles for tax reform, there
Speaker 1: is more detail. Uh, and it seems likely that might
Speaker 1: lead to some change. Yeah, for sure. And um, you
Speaker 1: know we've we've been actually evaluating in our Investment committee
Speaker 1: in other places in PIMCO. You know that report in detail,
Speaker 1: and it was smart because that report, the bulk of
Speaker 1: the recommendations are things that the administration can do without Congress. Um,
Speaker 1: can do through the regulatory channels. But in a big
Speaker 1: butt here. Um. Anyone is familiar with Washington, especially on
Speaker 1: the regulatory side, these things take a long time. They
Speaker 1: have to go through the Administrative Procedures Act Notice for
Speaker 1: public comment. Uh. You know, it's just a long way
Speaker 1: of saying it will take time. So will we see
Speaker 1: some regulatory softening. We are expecting that you will, but
Speaker 1: probably not until the later part of twenty eighteen or
Speaker 1: twenty nineteen. How do you assess the level of engagement
Speaker 1: the White House has with Republicans and Democrats on on
Speaker 1: Capitol Hill right now somewhere invited to the White House
Speaker 1: earlier this week, it seems like the President's making an
Speaker 1: attempt to have overtures to members of Congress to to
Speaker 1: keep them involved in all this. How much do they
Speaker 1: want the White House involved when it comes to tax reform,
Speaker 1: when it comes to healthcare reform? Do they want it
Speaker 1: to be a in glove relationship that they want to
Speaker 1: work closely with the White House? Yeah, I mean, for
Speaker 1: I think they do. UM. But you know, at least
Speaker 1: at the sort of the beginning days of the administration,
Speaker 1: I think there was a lot of hope that, you know,
Speaker 1: unlike maybe the Obama administration, who did not necessarily have
Speaker 1: great relationships on the Hill on both sides of the aisle,
Speaker 1: that this would be sort of a new paradigm um
Speaker 1: again on both sides of the aisle, that this would
Speaker 1: maybe be there'll be some more bipartisanship, biparson comedy ushered
Speaker 1: in by the Trump administration. Unfortunately, we haven't seen that.
Speaker 1: Um and again this has to do with the approval
Speaker 1: rating among of Trump among Democrats, and it's around seven
Speaker 1: percent according to the last Gallop Pole. And as a result,
Speaker 1: there is no political adventive for Democrats to negotiate with
Speaker 1: the administration. Good morning, let be cantral with us. It's
Speaker 1: a really you know, it's sort of like David, It's
Speaker 1: a Friday where it's like briefing Friday. I feel like
Speaker 1: I need to read all weekends just to keep up
Speaker 1: with things. It's good to have Libby Cantra with Pimco
Speaker 1: with us. I I I look at Liberty and I
Speaker 1: have to go back to a guy I believe he
Speaker 1: dark in the door or at your shop a few
Speaker 1: years ago, a guy named el Arian. I think it
Speaker 1: took some courses at Cambridge a while back. Dr el
Speaker 1: Arian believes in the unknown unknowns. That's a really good
Speaker 1: concept for your Washington. What's your unknown unknown within all
Speaker 1: that we're being confronted with, right, I think there's the
Speaker 1: only certainty is uncertainty at this point. I mean there
Speaker 1: every day, as we were talking about before, I mean,
Speaker 1: the the news cycle is just um so replete with
Speaker 1: new developments that on their own would be major stories. Um,
Speaker 1: I think people are becoming a little bit desensitized. You know,
Speaker 1: I do think that the Russiest story. Again, we don't
Speaker 1: have a view on that and how that will turn out,
Speaker 1: but that will continue to play the president you mailed
Speaker 1: you mail. But the issue here is Robert Mueller is
Speaker 1: not going to be desensitized. That's the issue. All of
Speaker 1: us are. But David Garral helped me here. You're the
Speaker 1: Washington next as well. I can't believe Mr Mueller is
Speaker 1: going to be desensitized. No, in my sense of the
Speaker 1: investigation is it since very early stages, and so in
Speaker 1: terms of unknow unknowns, I think a huge X factor,
Speaker 1: Tom is just how long this is going to take.
Speaker 1: And so then we could go to the X files
Speaker 1: and if you see, you know, any leaks into your point,
Speaker 1: if this thing draw is sort of longer dated and
Speaker 1: is into I mean it is going to be. Um.
Speaker 1: It's so your question about engaging with the administration terms
Speaker 1: of members of Congress, it then becomes politically more difficult
Speaker 1: for Republicans to really um take up the mantle for
Speaker 1: the administration. And I think you're already seeing some distancing
Speaker 1: from Republican members but at this point they want to
Speaker 1: see things get done, and for for now, it does
Speaker 1: seem that aligning themselves with the administration still works to
Speaker 1: their advantage, although I don't know how long that will last.
Speaker 1: I mentioned this congressional baseball game glancingly at the top
Speaker 1: of the show, but a line stood out to me
Speaker 1: from some remarks the President made yesterday. He said, Steve Scalise,
Speaker 1: the injured majority whip, in his own way, may have
Speaker 1: brought some immunity to our long divided country. I have
Speaker 1: a feeling that Steve made a great sacrifice, but there
Speaker 1: could be some unity being brought to our country, let's hope.
Speaker 1: So how optimistic are you of that we we we
Speaker 1: have seen in these days since that terrible incident, Republicans
Speaker 1: Democrats sitting together, doing things together. Of course, an interview
Speaker 1: in the middle of that game last night with how
Speaker 1: Speaker Paul Ryan and that Minority leader Nancy Pelosi? Are
Speaker 1: you optimistic it's going to lead to to more comedy
Speaker 1: as you mentioned a few moments ago, And I hope,
Speaker 1: and I think most Americans hope. So I think, you know,
Speaker 1: a big difference between the Washington of today, even versus
Speaker 1: the Washington of ten or fifteen years ago, is that
Speaker 1: it's become political and personal. There are always political divisions,
Speaker 1: there's always some partisanship, but at the end of the day,
Speaker 1: it wasn't necessarily personal among members because they already had
Speaker 1: a foundation a relationship. They would go out to dinner together,
Speaker 1: their staffs to each other. I think that has changed
Speaker 1: with sort of the toxicity of the politics, and it's
Speaker 1: become much more personal. So as a result, these folks
Speaker 1: don't necessarily have as good relationships as I think they
Speaker 1: used to, and so they don't have a foundation for
Speaker 1: a negotiation. UM. So hopefully this type of you know,
Speaker 1: it's tragic event that could have a silver lining. I'm
Speaker 1: just not necessarily optimistic. Want to come back in redex
Speaker 1: healthcare as well. We talked about it earlier today with
Speaker 1: Libby Control, and it's so urgent here and immediate that
Speaker 1: we should do that one more time. Libby cantrol is
Speaker 1: with PIMCO. I guess I want to talk about something
Speaker 1: non inflammatory like healthcare, except let's start with a basic
Speaker 1: why why is it so secret in the Senate? I
Speaker 1: don't understand what does it? Two people know about it,
Speaker 1: and it's it's like in Raiders of the Lost Art,
Speaker 1: it's in the Covenant, eight stories down in the Pentagon. Well,
Speaker 1: I mean, and as we were talking about a little
Speaker 1: bit earlier, this this differs quite a bit from the
Speaker 1: Obamacare process, in which there were hundred hearings of the Senate,
Speaker 1: almost ninety hearings in the House. Um it was you know,
Speaker 1: arguably too public in that everybody had a point of view.
Speaker 1: I think Mitch McConnell, as we were talking about before,
Speaker 1: is trying to thread the needle here, and it is
Speaker 1: a um it is a small needle and a small
Speaker 1: hole because he is trying to pass a bill that
Speaker 1: is fundamentally unpopular with the American public um less than
Speaker 1: approve of the bill. But at the same time, he
Speaker 1: feels like if he doesn't then they are not fulfilling
Speaker 1: an important campaign promise. So this is really difficult politics here.
Speaker 1: I think that the conventional wisdom at this point is
Speaker 1: that Senator McConnell will may just bring up the bill,
Speaker 1: regardless if he has the votes or not, just to
Speaker 1: get some resolution on this. And we can talk about
Speaker 1: this in a little bit, but the sequencing of healthcare
Speaker 1: or the or the passage of healthcare predicates or the
Speaker 1: sequencing of these other things like the budget resolution, like
Speaker 1: tax reform. So they need to dispose of healthcare one
Speaker 1: way or the other in the next few months, or
Speaker 1: then their whole agenda could potentially be hijacked. The issue
Speaker 1: here is the ven diagram of it, all right, and
Speaker 1: I guess the capital is nothing but a giant than diagramy.
Speaker 1: From the House on one side the Senate on the other,
Speaker 1: they meet in the middle. When it comes to healthcare.
Speaker 1: Senate is starting from scratch on its own bill. What's
Speaker 1: the likelihood that that's going to resemble in any form
Speaker 1: what the House has put forward and that the House
Speaker 1: is going to be willing to accept whatever comes up? Well,
Speaker 1: and like like the House that has in terms of
Speaker 1: the Republican caucus, you know, the House has very conservative members,
Speaker 1: has very more moderate members. The Senate has the same dynamic.
Speaker 1: Uh So, I think it just depends on, you know,
Speaker 1: kind of whose fingerprints are on that bill. Um. That
Speaker 1: the hard thing, and again another political headwind here is
Speaker 1: what can pass the Senate may not be able to
Speaker 1: pass the House. However, I think if the Senate is
Speaker 1: able to get a bill out with you know, fifty
Speaker 1: and fifty two votes, right, this is going to be
Speaker 1: a partisan vote, fifty two Republicans in the Senate, so
Speaker 1: fifty six percent. You have to get of your caucus
Speaker 1: on board. If they can get that out, you know,
Speaker 1: my sort of presumption is that the House will feel
Speaker 1: like they have to pass it just again, get this
Speaker 1: off there, off their agenda. There are routines to Washington.
Speaker 1: Something that used to drive me crazy about it was
Speaker 1: how regularly the story was the same. And that's especially
Speaker 1: true when it comes to the death ceiling. With the
Speaker 1: debt limit, it would come up again and again and
Speaker 1: again in the debate. The conversation would be the same
Speaker 1: each time. What do you tie to it? If anything?
Speaker 1: Is this something that should be raised, etcetera, etcetera. Were
Speaker 1: there again? What are we hearing from this administration about that?
Speaker 1: And I say, we're there again. We really don't know
Speaker 1: when the actual date is that we're going to be
Speaker 1: up against that ceiling. Yeah, exactly. Um, so that's sort
Speaker 1: of the the ex date, the unknown date where Treasury
Speaker 1: exhaust its extraordinary efforts in terms of um, you know,
Speaker 1: the death ceiling limit to take a setback. It actually
Speaker 1: the deadline was March fifteenth, but then Treasury has been
Speaker 1: using extraordinary measures to delay that. Uh. You know, there's
Speaker 1: some thinking that it could be as early as August,
Speaker 1: although Secretary Minuchin was on the House testifying and saying
Speaker 1: that it probably was September. I think that, you know,
Speaker 1: the big question, here's what their strategy is going to be.
Speaker 1: And and to your point, there hasn't been a coherent
Speaker 1: strategy at least as of yet. Secretary Minutition wants a
Speaker 1: clean debt ceiling bill. Um mcmulvaney, oh and B director
Speaker 1: has said that he wants to have some provisions in
Speaker 1: terms of reducing spending. The problem with that is no
Speaker 1: Democrat will vote for it, and you need Democrats in
Speaker 1: order to lift the debt ceiling. I will just add
Speaker 1: to that the debt ceiling did not used to be
Speaker 1: as much of an issue. Um. It was a hard
Speaker 1: vote for members to take. But before two thousand eleven,
Speaker 1: this idea of adding things to it was really unpopular.
Speaker 1: Um and uh. And so you know, it's only really
Speaker 1: become a big issue over the last few years. But
Speaker 1: to your point, it could potentially be a big issue
Speaker 1: from the market's perspective, given the compression of the congressional
Speaker 1: calendar that you mentioned a few minutes ago. Do you
Speaker 1: think it's likely we're going to see changes to the
Speaker 1: the August recess. I know that lawmakers are love that recess,
Speaker 1: but there's take a note. Mr Gurr has just discovered
Speaker 1: the politicians only work thirty days a year. Well, I
Speaker 1: hope they take August recess because I want to take
Speaker 1: some vacation during August. But uh yeah, so you know,
Speaker 1: the August recess is sacro sanc among members of Congress.
Speaker 1: And I think you know, and I will I'll defend
Speaker 1: members here a little bit. And everyone thinks that they're
Speaker 1: on the beach. They really are going back to their districts.
Speaker 1: And you know, they of course they take some vacation
Speaker 1: with their families, but they really are going back to
Speaker 1: their districts and meeting the constituents. But I did work
Speaker 1: for a member of Congress um. But but I saw this,
Speaker 1: I mean I witnessed this live, that there were events
Speaker 1: in in the district. You know, regardless of what they're doing,
Speaker 1: they are it is sacro sanc. So I think under
Speaker 1: only extraordinary circumstances, I just I mean, it goes and
Speaker 1: it goes back, of course when it used to be
Speaker 1: by horseback and then by training where you had to
Speaker 1: go back and see people. This has been great. Let
Speaker 1: me carntil very generous of you be with us this
Speaker 1: morning with David Gura and time keeneild you where this
Speaker 1: worldwide coast to coast, this is bloomber. Let's get to
Speaker 1: our guests. Um, and he knows very much about the
Speaker 1: cf A. He is a c f A. As I
Speaker 1: am seeing Josephs with State Street Global Advisors with a
Speaker 1: particular look from Singapore on Southeast Asia and of course
Speaker 1: all of Asia and particularly on his Malaysia as well.
Speaker 1: Wonderful to speak to you this morning. Tell us the
Speaker 1: Southeast Asia policy towards China, not only Singapore and Malaysia,
Speaker 1: but is there a region, is a sphere? What is
Speaker 1: their relationship with China? I would say that the relationship
Speaker 1: is uh, it's been mixed. Adding on on the Jeo
Speaker 1: political side, as you've probably aware, there's always the South
Speaker 1: China see tension thing going on. So you know, while
Speaker 1: they're trying to defend you know, their sovereignty rights, um,
Speaker 1: you know, they could also be careful not to really
Speaker 1: antagonized China. When it comes to the economic front, Um,
Speaker 1: all these Southeast Asian countries certainly would welcome the Chinese participation.
Speaker 1: And as you know, the trade flows we did Nascia
Speaker 1: and as well as China is also very important. So
Speaker 1: so I would say that you know, from that perspective,
Speaker 1: the kind of view China as uh as as A
Speaker 1: as a big brother, um, that is going to be
Speaker 1: beneficial for economic terms, but also equally cautious when it
Speaker 1: comes to the the kind of geopolitical sphere. Yeah, we
Speaker 1: we we talked about the One Belt, One Road initiative
Speaker 1: in geopolitical terms largely, but what could it mean economically
Speaker 1: for the countries that stand to benefit or get resources
Speaker 1: from this, this Chinese Pact initiative. I think first that
Speaker 1: comes to mind would be on the infrastructure side. Um,
Speaker 1: you know, on the infrastructure side, it could be you know,
Speaker 1: in some cases would be pot it could be real
Speaker 1: roads constructions as well as the financing that comes to it.
Speaker 1: So I think in some of the areas, like the
Speaker 1: construction sectors, they could also benefit along the way. So
Speaker 1: I think that's going to create a second round effects
Speaker 1: for the economic growth. Let me ask you a bit
Speaker 1: about the Bank of Japan. As I mentioned, we've got
Speaker 1: a rate decision from the bo J just a few
Speaker 1: hours ago, capping off a week with a lot of
Speaker 1: central bank activity here in the US, we got more clearity,
Speaker 1: got some semblance of a roadmap for how the FED
Speaker 1: is going to begin to unwind its its balance sheet.
Speaker 1: How much eagerness is there from you and others to
Speaker 1: get more clarity on tapering from the b o J
Speaker 1: at this point. I think at this point BOG is
Speaker 1: playing a very careful game here close um, you know,
Speaker 1: choosing to keep the cards close to their chest. Um. Clearly,
Speaker 1: they are continuing to support the bond buying program. Uh,
Speaker 1: there's no sign that's going to ease at East at
Speaker 1: this stage. But equally they are fully aware of the
Speaker 1: fact that as the balance sheet continues to build at
Speaker 1: the central bank, at some point they will need to
Speaker 1: wind down. At this point, I do thing they are
Speaker 1: ready to do anything yet. So at this point I
Speaker 1: don't think they want to send a very clear signal
Speaker 1: to the market when that timeline comes. But I think
Speaker 1: they want to remain very flexible and to allow them
Speaker 1: more time to assess what are the options they have,
Speaker 1: What is the weapon of currency across Asia right now,
Speaker 1: we personal surveillance Asia d X, why the that Asian
Speaker 1: basket ex Japan or we look at Rettman, we look
Speaker 1: at the end. Is currency a weapon for the nations
Speaker 1: of Asia right now? I think it can be both
Speaker 1: to edge swords, so to speak. Now at this point
Speaker 1: in time, obviously the you know, at the beginning of
Speaker 1: the year, we're looking for a strong dollar, which it
Speaker 1: did happen, but subsequently now we're seeing a bit of
Speaker 1: a soft dollar. So from that standpoint, you know, generally
Speaker 1: the Asian countries will look for a dresdently reasonably kind
Speaker 1: of weak currencies to help to support the exports. But
Speaker 1: did would not want it to be two weeks that
Speaker 1: would create any sense of fear among investors, that would
Speaker 1: leave the countries from the capitol con perspective. So I
Speaker 1: think it's kind of like a double edged sword that
Speaker 1: they could do played very happily, and I don't think
Speaker 1: they want to really play too hot at this point.
Speaker 1: Thank you so much, Ken, seeing whether Saeson State Global
Speaker 1: Advisors out of Singapore with a great perspective. We don't
Speaker 1: do that enough, David, We don't do Southeast Asia enough.
Speaker 1: Runch you by Bank of America Mary Lynch. With virtual reality,
Speaker 1: virtually everything will change. Discover opportunities in a transforming world
Speaker 1: VI of a mL dot Com slash VR, Mary Lynch, Pierce,
Speaker 1: Fenner and Smith Incorporated. What I would suggest, David is
Speaker 1: our next guest is the absolute personification of application of
Speaker 1: math skills, the only equivalent and the sphere that we
Speaker 1: have of government tax analysis. Jane Sterley maybe at the
Speaker 1: legendary at the Urban Institute, and James Perturba, his colleague
Speaker 1: long ago at m I T this. This is a
Speaker 1: wonderful guy. Absolutely. Donald Marrin that joins us now. He's
Speaker 1: a director of Economic Policy Initiatives at the Urban Institute
Speaker 1: in Washington, d C. Former acting director of the Congressional
Speaker 1: Budget Office, from our deputy director of the Council of
Speaker 1: Economic Advisors at the White House. He joins us now
Speaker 1: on our phone line. Stunner and great to speak with
Speaker 1: you once again. And let's start with taxes, if we could.
Speaker 1: You for so long, the head of the Joint Urban
Speaker 1: Brookings Tax Policy Center. We've heard a lot about the
Speaker 1: border adjusted tax, the so called border adjusted tax. It
Speaker 1: was not something that was included on that list of
Speaker 1: principles the White House handed out at a briefing. Now
Speaker 1: a couple of months ago, there was a sense that
Speaker 1: maybe the White House might come around to it. What's
Speaker 1: what's your sense of the longevity of the vitality of
Speaker 1: the border adjusted tax in Washington, d C. Today? I
Speaker 1: think it's going to be much more vital in the
Speaker 1: analyst community than in the political community. The BAT, as
Speaker 1: we now call it, Uh, doesn't seem to have gotten
Speaker 1: the political attraction necessary to go forward. We saw House
Speaker 1: Ways and Means Committee Chairman Kevin Brady the other day
Speaker 1: beginning to talk about, well, maybe you can phase it
Speaker 1: in over time, things like that. Uh, And I gotta
Speaker 1: I gotta say I view that as sort of a
Speaker 1: sign of its impending demise politically. Yeah. How integral is
Speaker 1: it when you when you look at the Bryan Brady Blueprint,
Speaker 1: which I think is the fullest document we have, the
Speaker 1: fullest proposal we have for tax reform from the Republican side.
Speaker 1: How essential is the inclusion of a BAT of a
Speaker 1: border adjusted tax? Well, you should you should think about
Speaker 1: You know that the folks in the House want to
Speaker 1: do revenue neutral tax reform, so fundamental tax reform without
Speaker 1: changing how much money comes in. And so that's an
Speaker 1: exercise in giving people ice cream and getting them to
Speaker 1: eat spinach. And we mostly talk about the ice cream, right,
Speaker 1: you know, cutting the corporate rate, etcetera, etcetera. But you
Speaker 1: need some spinach in. There are some tax some revenue
Speaker 1: increases to offset that, and the BAT has been that
Speaker 1: way of doing it over ten years and round numbers
Speaker 1: that that was expected to bring in around a trillion dollars.
Speaker 1: That's a lot of money, even in Washington, and it
Speaker 1: was really essential to the goal of revenue neutrality. If
Speaker 1: if the BAT goes away, you're left with the question of, well,
Speaker 1: where does the money come from? Or do we give
Speaker 1: up on revenue neutral tax reform and just embrace a
Speaker 1: big tax cut. Tom. I just want to tell you
Speaker 1: in Park Slope now you can get asparagus gelato. So
Speaker 1: maybe the days of few of the future of spache
Speaker 1: ice cream, it's not that not that far away. Donald, Mary,
Speaker 1: let me ask you. I'm sorry, you know, just John
Speaker 1: and I do a number two value meal and from
Speaker 1: McDonald's here, just to keep raising our culinari. We had
Speaker 1: a sy can we go for ice cream? You ended
Speaker 1: up getting chocolate last we were there. Never seen this man? Uh, Donald, Mary,
Speaker 1: you mentioned a revenue new chality. Is this something that
Speaker 1: the White House has embraced? In other words, it's a
Speaker 1: component part of that Ryan Brady blueprint. Is Is it
Speaker 1: something the white House says it wants to see as well?
Speaker 1: So the White House says many things I think is
Speaker 1: the fair statement. Uh. Sometimes the White House talks about
Speaker 1: revenue neutral tax reform, you know, with some of that
Speaker 1: coming and unspecified asterisk ways from economic growth. Uh. Sometimes
Speaker 1: the President will tweet that, you know, he wants to
Speaker 1: do the biggest tax cut in American history. Uh. If
Speaker 1: you look at their budget, it was really hard to
Speaker 1: see how you got all the numbers to add up
Speaker 1: to revenue neutral tax reform. And so I guess the
Speaker 1: answer is yes, occasionally they talk about doing revenue neutral
Speaker 1: tax reform, but an awful lot of the signals you
Speaker 1: see are more tax cut than reform. I'm recalling an
Speaker 1: interview that our colleagues, Market Talvin Jennifer Jacobs did with
Speaker 1: the President a few weeks back. One of the things
Speaker 1: they asked him about was whether he would consider raising
Speaker 1: the gas tax, and he said, in fact, he was
Speaker 1: which was going against some orthodoxy there. When when you
Speaker 1: look at alternatives to the bad or other ways to
Speaker 1: to to pay for tax or for more tax cuts,
Speaker 1: what are they and do you think that Republicans are
Speaker 1: approaching them with with real seriousness? So next on the
Speaker 1: list is rolling back you know, more controversial tax provisions
Speaker 1: like rolling back deductibility of interest for business. Uh. If
Speaker 1: you were aggressive in doing that, you could raise around
Speaker 1: a trillion dollars. But that again is something that of
Speaker 1: course companies that rely on a lot of debt to
Speaker 1: finance their business have noticed that have organized against it.
Speaker 1: And you've seen that that would that would face a
Speaker 1: lot of political challenges on the hill. Uh. You could
Speaker 1: try to cut back spending as a way to offset
Speaker 1: the tax the tax cuts. We saw a few members
Speaker 1: of Congress float that in recent weeks. I think politically
Speaker 1: that's that's going to be a dead end. You can't
Speaker 1: you know, cut you know, food stamps or whatever in
Speaker 1: order to finance tax cuts. But that's out there. UM.
Speaker 1: I periodically go to secret meetings around Washington where the
Speaker 1: top you know, at least the ones I'm invited to
Speaker 1: tend to all be about carbon tax. Uh. That sort
Speaker 1: of you know, if you're if you if you believe
Speaker 1: that you know, climate change is the problem that we
Speaker 1: need to respond to. We're seeling seeing some rollback in regulations,
Speaker 1: but uh, you know, there's kind of a two birds,
Speaker 1: one stone thing you could do with a carbon taxes
Speaker 1: help reduce carbon emissions, uh, combat climate change, and at
Speaker 1: the same time, you know, a reasonable carbon tax could
Speaker 1: easily bring in a trillion or more over the next decade,
Speaker 1: and that that's money that could definitely make make doing
Speaker 1: a tax reform easier. Obviously, the political viability of the
Speaker 1: carbon tax and the current environment is very low, not zero,
Speaker 1: but very low. But so you hear people talk about that. Uh.
Speaker 1: You hear people talk about the magic of a dynamic
Speaker 1: scoring and whether that means you can have, you know,
Speaker 1: tax cuts that pay for themselves. Happily, we have professional agencies,
Speaker 1: the Joint Committee on Taxation and the Congressional Budget Office
Speaker 1: that you know, have the right approach to doing dynamic scoring,
Speaker 1: which gives you a little bit of an effect, but
Speaker 1: nowhere near a tax cuts pay for self kind of result. Uh.
Speaker 1: And then increasingly in recent weeks we've seen more discussion
Speaker 1: of not paying for tax cuts or you know, doing
Speaker 1: things like using a really long budget window and having
Speaker 1: temporary tax cuts that last, you know, for fifteen years. Uh,
Speaker 1: and then you know, be revenue neutral beyond that, which
Speaker 1: is kind of gimmickry. Can you can you get tax
Speaker 1: reform without it being bipartisan? In other words, Tom was
Speaker 1: talking a few minutes ago with Libby can Trill about
Speaker 1: the secrecy surrounding the negotiations over a healthcare bill in
Speaker 1: the Senate. Uh. It seems like I won't even say
Speaker 1: that things are on parallel tracks. It seems like Republicans
Speaker 1: are doing the bulk of the writing of this legislation
Speaker 1: and there isn't much democratic involvement. Can you have full
Speaker 1: tax reform, comprehensive tax reform without the involvement of both parties?
Speaker 1: So I guess, I guess there are two questions there.
Speaker 1: The first is whether you could pass tax reform, And
Speaker 1: the answer is yes. You know, we have this budget
Speaker 1: procedure known as reconciliation that avoid selobusters in the Senate.
Speaker 1: And so if you could literally get you know, enough
Speaker 1: Republicans in the House and you know, at least fifty
Speaker 1: Republicans in the standard on board for something that the
Speaker 1: President was willing to sign. Uh. In principle, you can
Speaker 1: do a tax reform as long as it's satisfied it's
Speaker 1: the requirements of reconciliation. Uh. And one of those is
Speaker 1: that it has to be uh not increase the deficits
Speaker 1: beyond the budget window. And then that leads to this
Speaker 1: whole discussion about, well, we usually use a tenure budget window,
Speaker 1: but if you made it longer, maybe you could have
Speaker 1: temporary thing. Um. But but the second piece is that, UM,
Speaker 1: it's hard to see how you have a permanent, persistent
Speaker 1: tax reform if you do it in a fully partisan manner. Um.
Speaker 1: You know, if your goal is to let's move us
Speaker 1: to a tax system that's going to guide us for
Speaker 1: decades into the future, uh, you know, you'd want that
Speaker 1: to be bipartisan and have by inn from both sides.
Speaker 1: And that's that's not where we are at the moment.
Speaker 1: Very quickly here, if you and I were stuck at
Speaker 1: Reagan Airport on a Friday afternoon's GOP understorm and hair
Speaker 1: Don Marin might ted, this is going to go up?
Speaker 1: Yeah not not? Not? Is he? Is he going to die? John?
Speaker 1: That was the PhD from the Massachusetts Institute of Technology,
Speaker 1: the Perturbitat and that. Yeah, they're gonna go up. We're
Speaker 1: going to continue with Don uh Marin David uh, it's
Speaker 1: it's great to get these guys. What a week it's been. Yeah,
Speaker 1: Richard Clarida, are you see have you recovered from our
Speaker 1: interview with Professor Clarena? You know, always at the printer.
Speaker 1: I've got like hundreds of pages printed out of the
Speaker 1: old Maren. Sorry if the old the old clarator put
Speaker 1: it on for the weekend, I know there'll be a
Speaker 1: quick on. The only one that got the math inaper
Speaker 1: was done, Maren. Let me turn to the budget if
Speaker 1: I could, Donald Marron, we have a budget proposal from
Speaker 1: the White House on the heels of a list of
Speaker 1: principles and later a skinny budget. Now we've got the
Speaker 1: full thing. Where do we go from here? The members
Speaker 1: of both parties on Capitol Hill Live expressed muted enthusiasm.
Speaker 1: Let's let's say, for the document that the White House
Speaker 1: has put forward. Where are we in the budget process? Yeah?
Speaker 1: So yeah, muted enthusiasm was probably generous to the to
Speaker 1: the reaction, uh you know, uh right, not a lot
Speaker 1: of support for the president's budget overall up on the hill,
Speaker 1: you know. So obviously the big driving thing is a
Speaker 1: we need to figure out how we're going to fund
Speaker 1: the government by September. Right end of September, we have
Speaker 1: the usual need to to finance things for the next year,
Speaker 1: and so we're gonna have this debate about defense spending
Speaker 1: domestic spending. President wants to increase defense spending and cut
Speaker 1: domestic expending UH at levels neither of which are politically viable.
Speaker 1: But so Congress is going to be trying to work
Speaker 1: forward to to something that's doable and remains to be
Speaker 1: seen whether that's possible UM. And then separately, you know,
Speaker 1: going back to the tax reform discussion, if you want
Speaker 1: to do tax reform in a partisan way, you need
Speaker 1: to get this structure known as reconciliation in place. And
Speaker 1: to get reconciliation in place, you have to pass a budget. UH.
Speaker 1: And so there's a lot of pressure on on the
Speaker 1: House in the Senate Republicans to come up with a
Speaker 1: budget that will outline specifically what the parameters are of
Speaker 1: what an allowable tax reform would look like. And tax
Speaker 1: reform really can't go forward unless they're able to do
Speaker 1: that Donaldman will have a guest on from the foreign
Speaker 1: policy world and talk about the the the code or
Speaker 1: newly formed Trump doctrine. When it comes to Trump's attitude
Speaker 1: towards the budget, can you can you draw some sense
Speaker 1: of direction from the proposal that we saw? Was this
Speaker 1: a Donald Trump budget or a Mick mulvaney budget. So
Speaker 1: a couple of things I'd say about the budget. So
Speaker 1: the first is, Uh, this administration isn't as constrained as
Speaker 1: recent ones by trying to have a budget that adds up. Uh.
Speaker 1: There's a giant asterisk in the middle of this budget
Speaker 1: for two trillion dollars over the next ten years, which
Speaker 1: is an enormous amount of money. Uh, it's very difficult
Speaker 1: to see how you make all the pieces fit together.
Speaker 1: And we've seen since the budget came out a lot
Speaker 1: of confusion commentary out of different parts of the administration
Speaker 1: about exactly what they want to do. So, you know,
Speaker 1: this is not like an Obama or Bush or Clinton
Speaker 1: budget where there was a lot of effort to put
Speaker 1: together something that was integral and whole and you know,
Speaker 1: maybe had a little hand waving, but nothing on the
Speaker 1: scale of what we see here. Uh. You know, it
Speaker 1: has enormous economic growth assumptions that are very hard to
Speaker 1: justify given our given our kind of you know, aging
Speaker 1: population and slowing labor force growth. So the first thing
Speaker 1: is kind of big picture, it doesn't all add up,
Speaker 1: and that seems to be from their point of view,
Speaker 1: I think, a feature rather than than a bug. Uh. Second,
Speaker 1: clearly this focus on shifting discretionary spending towards defense in
Speaker 1: a way from domestic programs UH and domestic operations of
Speaker 1: agencies UH, and clearly at levels that are beyond what's
Speaker 1: going to be politically viable. Obviously, hope that various proposals
Speaker 1: will will encourage economic growth, but again assumptions about success
Speaker 1: on that front that seem wildly optimistic. Help me with
Speaker 1: it with a phrase I've heard here over these last
Speaker 1: few weeks, that is the double count. People saying that
Speaker 1: within this budget proposal is a double count. What does
Speaker 1: it mean and why is it's so problematic? Sure, so
Speaker 1: that's the two trillion dollars. I mentioned that there there's
Speaker 1: a line item in the budget which is two trillion
Speaker 1: dollars of mostly revenue, a little bit spending decreases, but
Speaker 1: mostly incoming revenue. That comes from the stronger economic growth
Speaker 1: assumptions they have, which I should note are very very strong.
Speaker 1: They're they're assuming economic growth over the next ten years
Speaker 1: about one percentage point higher per year than the Congressional
Speaker 1: Budget Office. You know, that's a difference bigger than any
Speaker 1: we've seen at least I don't know years. Uh. And
Speaker 1: they've talked about doing revenue neutral tax reform, and they
Speaker 1: talked originally about some of that revenue neutrality coming from
Speaker 1: economic growth, so that in principle would be included in
Speaker 1: their tax reform proposal. But if you look in the budget,
Speaker 1: they claim that they're going to have tax reform that's
Speaker 1: revenue neutral, and then they have the separate line item
Speaker 1: for for the benefits of economic growth. And so the
Speaker 1: double counting is, well, can you have revenue neutral tax
Speaker 1: reform and have this two trillion of benefits from economic growth?
Speaker 1: A little unclear what the administration has been saying, but
Speaker 1: they seem to have pivoted now to saying that they're
Speaker 1: going to have tax reform that pays for itself. You know,
Speaker 1: there is revenue neutral um without including economic growth, but
Speaker 1: it's very unclear. You know, it's a highly unusual document
Speaker 1: from that perspective, Donald's that mentioned you were the acting
Speaker 1: head of the Congressional Budget Office for some time, and
Speaker 1: I was struck by the comments from mcmulvanity, the head
Speaker 1: of the Office of Management Budget a few weeks ago,
Speaker 1: commenting on the role of that office. Essentially he said
Speaker 1: that it is less relevant than it was. And you know,
Speaker 1: maybe it's it's it's time has passed, sheds some life
Speaker 1: for us, if you would, on the roll that it
Speaker 1: has played in d does play in policy making in Washington,
Speaker 1: and how extraordinary I think it might be the right word.
Speaker 1: It was the way that the House health Care bill
Speaker 1: was passed without going to the CBO first, That is
Speaker 1: out of custom. Let's say, sure. Uh. And so you know,
Speaker 1: if you jet back forward five years ago and the
Speaker 1: Watergate scandal, which I believe if I have my dates right,
Speaker 1: actually started today, uh, forty five years ago. Uh. A
Speaker 1: backdrop for that was not just the the criminal activities
Speaker 1: and concerns about the Nixon administration, but also there was
Speaker 1: great budget concerns about how he handled budget policy relative
Speaker 1: to Congress. And so Congress stepped up and said, you
Speaker 1: know what, we the Congress are going to exercise more control,
Speaker 1: more more discipline over how the government allocates its money,
Speaker 1: raises its money, and does its budget. And as part
Speaker 1: of that, it said, you know what to help us
Speaker 1: do that, Congress needs an office, the Congressional Budget Office,
Speaker 1: that is going to be our chief source of estimates
Speaker 1: and numbers about the budget implications of policy. And over
Speaker 1: the last forty five forty years, forty plus years, UH
Speaker 1: CBO has developed into a very trusted, nonpartisan source of
Speaker 1: objective analysis of the budget implications of policy. It's been
Speaker 1: very useful to policymakers to understand the implications of ideas
Speaker 1: they've been considering. And it's been incredibly useful in disciplining UH.
Speaker 1: The Office of Manage been a budget right the executive
Speaker 1: branch UH that you know, they know that if they
Speaker 1: put out estimates or something, the folks at CBO are
Speaker 1: going to put out estimates too. And if there's two wide,
Speaker 1: you know, to wide a gap there, people are going
Speaker 1: to look at scance or what what the executive branch
Speaker 1: is suggesting. So CBO has played this great role of
Speaker 1: both informing Congress about the budget implications of policy ideas
Speaker 1: and legislation, and also of disciplining the larger process so
Speaker 1: that people in the White House can't be too outlandish
Speaker 1: in their claims about the budget benefits of the policies
Speaker 1: they propose. How much can can can can Congress? Can
Speaker 1: lawmakers focus on on the budget as they're up against
Speaker 1: this funding deadline, the September funding deadline? In other words,
Speaker 1: do they do they have to prioritize that over the budget?
Speaker 1: Can they work on two things in tandem? I was
Speaker 1: struck again. I lived in Washington for some time. When
Speaker 1: I left, it seemed like we were in the era
Speaker 1: of the Continuing Resolution, that there were these sort of
Speaker 1: stop gap funding bills that had become the norm. Given that,
Speaker 1: how radical departure would it be to return to regular
Speaker 1: order to get a you know, a budget in place
Speaker 1: as they used to get them in place for many, many, many,
Speaker 1: many many decades. Yes, that would be a big departure, right,
Speaker 1: As you say, we've been in continuing resolution land for
Speaker 1: quite a while now, uh, and you know, and even
Speaker 1: that sometimes hard, right, So you know, when September comes around,
Speaker 1: we may again be at least having rhetorically a government
Speaker 1: shutdown discussion as folks work towards that deadline. You know,
Speaker 1: you can imagine that there's some parts of the budget
Speaker 1: where they're going to be able to do appropriations. Military
Speaker 1: construction is one that often has a lot of support,
Speaker 1: maybe some other pockets. Uh, But you know, clearly we're
Speaker 1: still going to be having discussions about how to spend
Speaker 1: money well beyond the September deadline. I'm sure at least
Speaker 1: parts of things are going to be done under a
Speaker 1: continuing resolution. Uh. But you know, step one is they
Speaker 1: need to pass a budget. And the budget would really
Speaker 1: have two broad pieces of information. And at first they
Speaker 1: would have the the instructions, the reconciliation instructions that can
Speaker 1: guide the tax reform debate. And then second it should
Speaker 1: have the top level spending numbers for the for you know,
Speaker 1: the various agencies and activities of the sederal government that
Speaker 1: could then uh spark the conversation about how exactly we're
Speaker 1: going to allocate that spending. So a lot of pressure
Speaker 1: on them to get a budget in place if they
Speaker 1: want to make any progress on tax reform and if
Speaker 1: they want to have a coherent funding the government discussion.
Speaker 1: But yeah, don't don't expect everything to be done by September.
Speaker 1: Donald Maren great to speak with you at this point
Speaker 1: I really appreciate at the time. That's Donald Marin. He
Speaker 1: is the director of the Economic Policy Initiatives at the
Speaker 1: Urban Institute think tank in Washington, d C. David Gurray
Speaker 1: here in New York. This is Bloomberg Surveillance on Bloomberg Radio.
Speaker 1: And let's pick things up right where we left and
Speaker 1: they're talking about housing with one Lindsay peg that she's
Speaker 1: the chief economist as stephile joining us today, Lindsay, great
Speaker 1: to talk to you, as always, any there detailing the
Speaker 1: weak housing starts numbers this morning, Let's let's go broad first.
Speaker 1: When you look at the housing market, the housing economy
Speaker 1: here in the US right now, how does it look well?
Speaker 1: If if we look at housing starts and housing permits,
Speaker 1: you can clearly see a declining trend. This is not
Speaker 1: a one off month of weakness, but we've actually seen
Speaker 1: now three consecutive months of waning activity in terms of
Speaker 1: new construction coming online. And in fact, we've now dragged
Speaker 1: that annual page of new construction down into net negative territory.
Speaker 1: So it doesn't necessarily bode well for the idea that
Speaker 1: the FETE has really been touting that the U S
Speaker 1: economy is on the track to gain momentum in some
Speaker 1: of these key sectors. As we look to the end
Speaker 1: of the second quarter and beyond into the second half
Speaker 1: of the year. Building permits down four point nine percent,
Speaker 1: well below what was what was expected. Fold this into
Speaker 1: the greater economy. You were beginning to do that there
Speaker 1: in your answer to the first question. But how important
Speaker 1: is housing to the overall health of the U s
Speaker 1: economy here in June of two tho seventeen. Well, housing
Speaker 1: is a very key contributor. It's not necessarily the large
Speaker 1: driver of economic activity as it was prior to the
Speaker 1: Great Recession. Of course, it's also no longer the large
Speaker 1: net drag on economic activity as it was in the
Speaker 1: aftermath of the Great Recession. But housing has been a
Speaker 1: consistent positive driver of top line growth, and it appears
Speaker 1: to be losing a significant amount of momentum. So when
Speaker 1: we take that out of the equation, it is housing
Speaker 1: is not contributing to top line growth. What are we
Speaker 1: left with? While the consumer the consumer, as we saw
Speaker 1: earlier this week very disappointing retail sales numbers, the consumer
Speaker 1: is still under pressure. Business investment is still very soft,
Speaker 1: Domestic manufacturing is still under pressure amid a very stagnant
Speaker 1: global economy and strong US dollars. So there's very few
Speaker 1: green shoots, if you will, that we can hang our
Speaker 1: hat on to say that the U. S. Economy is
Speaker 1: going to be gaining improvement or gaining momentum from this
Speaker 1: current very moderate pace. Lindsay, how much attention do you
Speaker 1: pay to the soft data? We've been focused on the divide,
Speaker 1: that sort of yawning divide between the soft data and
Speaker 1: the hard data over these last few months. Um, what
Speaker 1: what role does that play for you? To do the
Speaker 1: do the soft data play for you as you assess
Speaker 1: the health of the U. S. Economy? Well, if you
Speaker 1: had asked me a few years ago, I would have
Speaker 1: said it plays a much larger role. But what we
Speaker 1: see now is when we look at the soft data
Speaker 1: and for listeners, that meaning the survey data, asking consumers,
Speaker 1: asking businesses how they feel, what their plans are in
Speaker 1: terms of spending and investing, we have seen a growing
Speaker 1: divergence over what people say and what people do in
Speaker 1: more recent times, and so asking consumers how do you
Speaker 1: feel about your financial footing? They see much more upbeat.
Speaker 1: But then when we actually look at what they're spending
Speaker 1: patterns are. We see them continuing to curtail what they're
Speaker 1: purchasing on a months and months basis. So I would
Speaker 1: expect that growing divide to remain for quite some time
Speaker 1: and not necessarily translate into much stronger consumption or investment
Speaker 1: figures despite the improvement in the soft data as of late.
Speaker 1: And we'll get some figures from the University of Michigan
Speaker 1: on sentiment a little later this morning at ten o'clock
Speaker 1: at Wall Street time. Let me pivot here to ask
Speaker 1: you about what we heard from the Fed Reserve this week.
Speaker 1: From Fed Church Janet Yelling and her colleagues on the
Speaker 1: Federal Open Market Committee, I wonder how their sense of
Speaker 1: the US economy squares with yours, In other words, that
Speaker 1: do you share their view of the U s economy. Well,
Speaker 1: it's very clear that SET officials are acknowledging the recent
Speaker 1: soft data, particularly on the inflation side, but they did
Speaker 1: seem to sort of override that with their general sense
Speaker 1: of optimism that the economy is on relatively moderate footing
Speaker 1: and their expectation that the economy will continue to gain momentum.
Speaker 1: So it was as if the Federal reserve was watching.
Speaker 1: It was even walking this very thin line between recognizing
Speaker 1: the more dismal reality and continuing to tout their more
Speaker 1: positive expectations to support their more aggressive pathway for additional
Speaker 1: rate increases in the remaining six months of the year. Now,
Speaker 1: of course, if the data continues to disappoint, I do
Speaker 1: suspect that the FED will be forced to more realistically
Speaker 1: look at the economy and far back some of their
Speaker 1: expectations as well as their expectations for additional rate increases.
Speaker 1: To ask you quickly, We'll come back with you in
Speaker 1: just a moment, but in the thirty seconds we have
Speaker 1: left you before going to to break how much of
Speaker 1: this has to do with momentum? In other words, that
Speaker 1: the FED has begun to normalize and it wants to
Speaker 1: continue to normalize just because of that. It's it's on
Speaker 1: a particular path. Oh, absolutely, the FED doesn't want to
Speaker 1: look as if they made a mistake early on and
Speaker 1: now they have to arrest this pathway to normalization. So
Speaker 1: from the Fed's point of view, any sign of moderation,
Speaker 1: not solid, not strength, but moderation is good enough at
Speaker 1: this point to continue down the pathway to hire rate
Speaker 1: Let's see, we were talking a bit about the transitory.
Speaker 1: The excuse the excuse of transitory sists from the FED
Speaker 1: Reserve Chairwoman Janet Yellen. She outlined that in her comments
Speaker 1: following the f o MC announcement on Wednesday afternoon, what
Speaker 1: are the consequences of the FED were to get this wrong?
Speaker 1: In other words, if what they see as transitory isn't well,
Speaker 1: the concern is that I continue to raise rates and
Speaker 1: remove accommodative support for the economy at a time when
Speaker 1: we're actually losing momentum, so raising rates too fast and
Speaker 1: actually cooling what little activity levels that we're seeing in
Speaker 1: the U. S economy at this point, so essentially squashing
Speaker 1: the recovery, the very delicate recovery that we're still seeing.
Speaker 1: Now we're still, of course talking about very historically low rates,
Speaker 1: So I don't think we're at a level of concern
Speaker 1: at this point. But going forward, if the FED were
Speaker 1: to follow through with their more aggressive pathway, meaning an
Speaker 1: additional two rate increases by the end of the year,
Speaker 1: three or four rate increases within the bounds, that could
Speaker 1: be enough to again restrain the very modest levels of
Speaker 1: growth that we're seeing in the U s economy and
Speaker 1: force us into either a non accelerating pathway or worse,
Speaker 1: into recession. Lindsie, we were talking with Matt Tom's of Void,
Speaker 1: head of Fixed Income at Voyage just a few moments ago.
Speaker 1: I asked him what his expectation was for when the
Speaker 1: FED is going to begin to unwind the balance sheet.
Speaker 1: We got some clarity on the path forward from the
Speaker 1: Fed this week, we didn't get a specific a date.
Speaker 1: What's your sense of when it will begin and how
Speaker 1: long this process is going to take. Well, certainly at
Speaker 1: this week's meeting we did get some welcome details surrounding
Speaker 1: the process, surrounding the expectations in terms of caps being
Speaker 1: implemented and very gradually stepping up those caps, But you're right,
Speaker 1: we didn't get any specific commitment to a timeline of
Speaker 1: when this process is set to begin. Now. We did
Speaker 1: see a broad generality talking about if the economy evolved
Speaker 1: as expected, most committee members anticipated that this would begin
Speaker 1: by the end of the year, but that really was
Speaker 1: very squishy language. And if the economy does continue to
Speaker 1: show weakness as we expect, I think it's very likely
Speaker 1: that we push out balance sheet normalization into or beyond
Speaker 1: just is your expectation here We're going to get even
Speaker 1: more detail on this going forward. I gather it was
Speaker 1: somewhat of a surprise what we did learn on Wednesday
Speaker 1: when it comes to unwanting the balance sheet. Is there
Speaker 1: more that you would like to know that you expect
Speaker 1: we will hear from Janet yelling her colleagues and before
Speaker 1: this begins to go into effect. Well, certainly the market
Speaker 1: wants to be fed to be as transparent as possible.
Speaker 1: We certainly want to understand exactly the process that they're
Speaker 1: going to be putting in place to avoid any sort
Speaker 1: of adverse market reaction. But many of the questions that
Speaker 1: we have left in terms of the timing, how long
Speaker 1: will this take, the start date, the end date, the
Speaker 1: target level on the balance sheet once they're done tapering,
Speaker 1: All of these questions really can't be answered until the
Speaker 1: Fed knows exactly one when they're going to begin the process,
Speaker 1: and to how the markets evolving to this tapering process,
Speaker 1: because remember, even the details that we saw this week
Speaker 1: were a guideline. They were not a hard commitment, So
Speaker 1: if the market begins to show signs of weakness, they
Speaker 1: could easily taper the taper going forward. So again, a
Speaker 1: lot of these pieces are are moving pieces, and we
Speaker 1: won't know a firm answer until the FET initiates this process. Lindsay,
Speaker 1: hope to talk to you again soon. Great to speak
Speaker 1: with you as always. That's Lindsay Pie. She's the chief
Speaker 1: economist at step. David grew here in New York with
Speaker 1: someone we found by the salad bar at the Whole
Speaker 1: Foods on Columbus Circle. Tom came back with us here
Speaker 1: just couldn't say. You go out, folks, You go out
Speaker 1: for four minutes, and there's a fourteen billion dollar transaction.
Speaker 1: Retail world Chase a man, a man very familiar with
Speaker 1: the multibillion dollar transactions, as Robert Perfusa. He is with
Speaker 1: Jones Day m and a attorney there of course. Yeh.
Speaker 1: He handled Procter and Gamble's sale of its beauty business
Speaker 1: and Southern Company's acquisition of a g L Resources. He
Speaker 1: joins us now on our phone line, SPOB. Great to
Speaker 1: speak with you once again. Here. We've talked about what
Speaker 1: this means for Amazon, what this means for Whole Foods.
Speaker 1: Let's look at the deal itself. You're thirteen point seven
Speaker 1: billion dollars including Whole foods markets that give us your
Speaker 1: reaction to what we're earning this morning from these two companies, Well,
Speaker 1: it's pretty extraordinary because I can't figure out if this
Speaker 1: is a retail story, a text story, or a a grocery story,
Speaker 1: or an activist story. Maybe it's just all of the above. Um,
Speaker 1: it's quite an interesting development, and the market reaction, especially
Speaker 1: to the other grocery store retailers, is pretty dramatic. But um,
Speaker 1: it's I think we ought to like take a deep
Speaker 1: breath and say, gee, what is this? Well, Amazon, of
Speaker 1: course has been um moving to the grocery space, both
Speaker 1: in terms of its uh I think it's called fresh
Speaker 1: direct delivery model, and also the Amazon Go concept that
Speaker 1: you walk in you wouldn't have a have to stand
Speaker 1: in line at the cash register on the way out,
Speaker 1: So it's not new for them. And of course Whole
Speaker 1: Foods has had some pressure. It's had an activist actually
Speaker 1: activists for two years. You're you're deeply experienced it merging
Speaker 1: like company is and not like companies. I'm looking at
Speaker 1: the Bloomberg at the income statements, and this is Mars
Speaker 1: and venus. I got a grower, maybe a grower in
Speaker 1: Amazon and with Whole Foods. I got a low single
Speaker 1: digit disaster. How do you buy into a company on
Speaker 1: hope and faith if the revenue growth so mismatches is
Speaker 1: Amazon and Whole Foods. You know, the grocery business is
Speaker 1: a tough business. It's a low margin, low growth. I
Speaker 1: mean it's gonna be there. I mean people have to eat,
Speaker 1: after all, so eat no matter what they general economic
Speaker 1: conditions are. People are going to eat, whether they spend
Speaker 1: lots of money at the grocery store on an upscale
Speaker 1: brand or whether they go someplace else. In fact, as
Speaker 1: you know, uh, Whole food itself was thinking about a
Speaker 1: lower price point UM chain. So it's a tough business.
Speaker 1: It'll be interesting to see how this fits. Cultural dissimilarity
Speaker 1: in the merger context can lead to different results, and
Speaker 1: I'm not predicting that here necessarily, but you know, the
Speaker 1: M and A is uh littered with situations where companies
Speaker 1: have with very disparate cultures where it hasn't worked out
Speaker 1: so well. But we'll see. Um. I go back to
Speaker 1: the point I made earlier to me. The the the
Speaker 1: idea that that you should be shorting everybody else in
Speaker 1: the space just because of this deal is gosh, it
Speaker 1: just seems to me to be a real reaction. But
Speaker 1: one we're a question before you get onto your billable day.
Speaker 1: I want to know if Janet Yelling just bought Whole
Speaker 1: Foods is the reason this funny money is going on
Speaker 1: because the chair of the Fed has given you guys
Speaker 1: negative interest rates. The financial repression that everybody else has
Speaker 1: means that Mr Bezos can affect trans transactions like this. Well,
Speaker 1: there's no question that the low cost the capital of
Speaker 1: not just debt but but equity to um is feeling
Speaker 1: a lot of activity. In fact, but for the uncertainty
Speaker 1: and tax rates, I think we'd be in an astonishingly
Speaker 1: active m and an environment most mostly because of the
Speaker 1: overall gd the environment. We look forward to speaking to
Speaker 1: you in the coming days on this transaction and many
Speaker 1: others to come. Barbarafect with Jones day uh this morning.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
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Speaker 1: Gura is at David Gura. Before the podcast, you can
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