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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. So here's the latest

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Speaker 2: this morning. How's Republicans meeting with President alec Donald Trump

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Speaker 2: over the weekend to discuss the salt dedunction cam calling

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Speaker 2: the talks positive but saying they got no firm commitments

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Speaker 2: from Trump. The move shaping up to be a key

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Speaker 2: sticking point for passing an upcoming tax package. Joined us

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Speaker 2: now to discuss is mir Becginnis at the Committee for

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Speaker 2: a Responsible Federal Budget? My welcome to the program. I

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Speaker 2: just want to start in the market and then get

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Speaker 2: to some of the poly How much more expensive is

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Speaker 2: this bond market making the ambitions of Washington day say yeah.

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Speaker 3: The bond market is a wake up call for when

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Speaker 3: you have trillions and trillions of dollars of debt, higher

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Speaker 3: interest rates having profound effect on your overall budget. And

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Speaker 3: so the fact that we'll be paying a trillion dollars

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Speaker 3: in interest payments this year, second largest largest item in

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Speaker 3: the federal budget, squeezes out the space for talk of

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Speaker 3: anything else spending increases, tax cuts, and it puts real

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Speaker 3: pressure on the lawmakers to start thinking about fiscal issues,

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Speaker 3: which is something I have been ignoring for the past years.

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Speaker 3: And it is a reminder that there are real effects

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Speaker 3: of borrowing too much, and we're starting to feel those effects,

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Speaker 3: and this huge debt load is incredibly sensitive to those

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Speaker 3: swings and rates well.

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Speaker 4: Incoming Vice President elect JD. Van certainly taking notice of

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Speaker 4: the bond market in his interview over the weekend when

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Speaker 4: Fox News he mentioned bond yields rising twice and then

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Speaker 4: net interest payment payments. My you're talking about last year

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Speaker 4: being more than one trillion dollars, what are they on

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Speaker 4: track to be this year? For twenty twenty five.

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Speaker 5: This year it will be over trillion as well.

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Speaker 4: Yeah, it's pretty that's pretty incredible in the terms, doesn't

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Speaker 4: really give the incoming administration or Congress a ton of

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Speaker 4: wiggle room if that is how much we are spending,

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Speaker 4: and the bond market is pushing back on some of

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Speaker 4: this spending. What do you make of all the talk

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Speaker 4: of reconciliation, tax cuts, more money for the border. Do

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Speaker 4: you have an understanding from Congress and what the top

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Speaker 4: line figure would be.

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Speaker 5: No, that's the big fight in Congress right now.

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Speaker 3: So on one side, and this is the side that

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Speaker 3: I have a preference for, there are members who are saying,

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Speaker 3: my red line is I don't want to add to

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Speaker 3: the debt.

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Speaker 5: Our debt is too high.

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Speaker 3: The only way that you change that, that you break

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Speaker 3: that fever, is you start using reconciliation and budgets and

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Speaker 3: other tools to bring the debt down. So there are

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Speaker 3: some members and they're not enough, unfortunately, who are saying,

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Speaker 3: I don't want to vote for something that would make

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Speaker 3: the debt worse.

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Speaker 5: But the discussions.

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Speaker 3: Internally are talking about huge numbers because the tax cuts,

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Speaker 3: extending them without offsets would be so expensive that there

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Speaker 3: are discussions of a reconciliation. Number is high as four

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Speaker 3: five six trillion dollars a new borrowing, which would be

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Speaker 3: astronomically dangerous to the fiscal situation that as just mentioned,

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Speaker 3: the bond market is already showing real nerves about how.

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Speaker 4: Long do you think they will extend TCJA because they

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Speaker 4: want to keep the top line number down, but they

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Speaker 4: definitely want to make sure that they can get these

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Speaker 4: tax extensions through.

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Speaker 3: Well, you've honed in on one of the possible and

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Speaker 3: in fact likely gimmicks that there is.

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Speaker 5: So tax policy should be permanent. The purpose of tax

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Speaker 5: policy is to allow.

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Speaker 3: Individuals, families, and businesses to plan with certainty. But one

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Speaker 3: of the tricks to keep the cost of the bill

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Speaker 3: down when you're using reconciliation is to make those tax

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Speaker 3: cuts temporary. That's why we're dealing with this now, because

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Speaker 3: they weren't permanent. So the first effort will be to

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Speaker 3: have offsets, to have spending cuts that will offset the

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Speaker 3: cost of extending the tax cuts. But I worry and

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Speaker 3: I think it's likely that in the end a number

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Speaker 3: of those extensions will be temporary, talking about just two

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Speaker 3: or four years, which will hide the costs, massive costs.

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Speaker 5: We'll be back at the table having the same discussion

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Speaker 5: in a couple of.

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Speaker 3: Years if they do that, and none of the entities

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Speaker 3: will be able to plan with a certainty that would

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Speaker 3: make their investments decisions much more beneficial to the companies.

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Speaker 1: How optimistic by are you about the Department of Government efficiency.

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Speaker 3: I'm a huge fan about the DOTJE effort. I'm really

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Speaker 3: excited about it for two reasons. One, it's so clearly needed.

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Speaker 3: There are huge pockets of places where we could have

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Speaker 3: massive savings in the federal government, from procurement for defense,

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Speaker 3: from a huge healthcare industry that is remarkably inefficient in

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Speaker 3: almost every aspect of how it works, to the regulations

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Speaker 3: that they're looking at.

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Speaker 5: So I think that's very exciting.

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Speaker 3: I was concerned when they came out and said we're

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Speaker 3: going to save two trillion dollars in a year, because

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Speaker 3: that fiscal ambition is so far from reality that I

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Speaker 3: was worried this was all bluster and kind of like

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Speaker 3: the California hype cycle more than the reality of how

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Speaker 3: budgeting works.

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Speaker 5: But as I've seen the efforts that they're.

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Speaker 3: Putting together and they've walked back that metric saying we're

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Speaker 3: going to get as much as we can at trillions,

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Speaker 3: maybe more likely over a year, I continue.

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Speaker 5: To be encouraged.

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Speaker 3: I think that they will find a lot of places

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Speaker 3: in executive orders where you can save money. I think

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Speaker 3: they will find a lot of regulatory changes. I just

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Speaker 3: hope they're not all directed towards loosening regulations and the

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Speaker 3: financial industry on crypto and AI, rather than thinking about

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Speaker 3: where you can make things more efficiently and actually save

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Speaker 3: the government real savings. The hardest pockets, though, are Social

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Speaker 3: Security and Medicare, and they have said those are off

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Speaker 3: the table, and as far as I'm concerned, that's really

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Speaker 3: one of the tests of seriousness. Are you willing to

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Speaker 3: go to where the money really is So far they

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Speaker 3: have said that that is a red line.

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Speaker 5: I get it.

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Speaker 3: Politically those are hot buttons. Nobody in Congress wants to

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Speaker 3: touch them. But anybody who steers about the budget.

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Speaker 5: Knows that those are where the real savings are.

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Speaker 1: We talk about they we're talking about a sort of

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Speaker 1: loosely brought together a coalition of people in an area

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Speaker 1: that isn't actually a department, they're not actually government officials.

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Speaker 1: There's a real question about what kind of political cloud

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Speaker 1: they'll have, especially at a time where everything gets watered down,

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Speaker 1: when you have constituents that want everything so at what

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Speaker 1: point do you believe there is a political will to

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Speaker 1: get through some of these cuts that might be recommended

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Speaker 1: by Doze.

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Speaker 5: There's a great question, you know.

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Speaker 3: I'm on one hand on the other today, But on

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Speaker 3: one hand, I think we actually need.

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Speaker 5: To outsource some of this.

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Speaker 3: Congress has failed to do its job when it's come

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Speaker 3: to fiscal oversight and the fiduciary responsibility for over a

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Speaker 3: decade now, and it's been really disheartening to see that

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Speaker 3: the only party that cares about fiscal responsibility is the

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Speaker 3: minority party trying to stop the other one from doing something.

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Speaker 3: There are very few people out there really talking about

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Speaker 3: how to reduce our borrowing.

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Speaker 5: So I think that's great.

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Speaker 3: On the other hand, obviously a lot of the people

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Speaker 3: who are involved in this have number of interests and

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Speaker 3: potentially conflicts of interest with the federal government, and I

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Speaker 3: think that's really worrisome at a time when we need

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Speaker 3: to be rebuilding trust with how our leaders are serving

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Speaker 3: as stewards for the overall economy and not just looking

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Speaker 3: after their own interests. So I think their ability to

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Speaker 3: disrupt and not care about the political constraints is incredibly encouraging.

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Speaker 3: But I think we have to make sure that they're

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Speaker 3: very transparent. It's very transparent about how they're doing it.

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Speaker 3: Biggest concern I have President Trump. We've seen him in

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Speaker 3: office before. He was not a fan of spending cuts.

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Speaker 3: In fact, he increased spending massively on top of huge

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Speaker 3: tax cuts, and the debt went up under him a

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Speaker 3: lot because.

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Speaker 5: He hasn't liked to say no to things.

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Speaker 3: So I think you may see a real political meeting

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Speaker 3: of the minds between those working on DOGE.

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Speaker 5: Sorry, the opposite of meeting.

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Speaker 3: Of minds between those working on DOGE and President Trump, who,

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Speaker 3: when he realizes how hard these things are, says, ooh,

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Speaker 3: that politically is going to be difficult, and I don't

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Speaker 3: know how that will play out.

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Speaker 2: We'll see if it's any different a second time around.

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Speaker 2: May I appreciate your time? Mom aginnis that they commits

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Speaker 2: a if a responsible federal budget on snare of co logic,

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Speaker 2: which produces dates from response to catastrophic global events, joins us.

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Speaker 2: Now for more, Let's get into some of the data

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Speaker 2: and whether you can tell at the moment or it's

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Speaker 2: too early. Just one went wrong care Well.

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Speaker 6: It's one of those things where because the buyers were

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Speaker 6: still spreading entertainment while increasing buyers, still not containing coming

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Speaker 6: out with the short laws. Estimate your talk not on process,

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Speaker 6: and it's're always subject to change. One of the things

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Speaker 6: we are sort of putting you on is that this

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Speaker 6: is likely going to be, you know, a twenty to

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Speaker 6: thirty billion dollars in short loss event, definitely one of

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Speaker 6: the most destructive wildfire events in the Los Angeles in history,

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Speaker 6: maybe California history.

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Speaker 1: John This comes to at a point when we've already

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Speaker 1: had housing shortages in California, discussion around where people are

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Speaker 1: going to live at a time where the average price

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Speaker 1: in some of these areas was three million dollars for homes.

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Speaker 1: How do you rebuild in a place at a time

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Speaker 1: when you have labor shortages, having in construction in particular,

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Speaker 1: when you have insurance premium that are going to have

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Speaker 1: to go through the roof, have real questions about what

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Speaker 1: additional risks are going to be going forward.

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Speaker 5: It's a really good question.

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Speaker 6: And when it comes to rebuilding, keeping this concept of

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Speaker 6: this idea of mitigation in mind is really important. What

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Speaker 6: we saw in look at historical examples like the campfire

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Speaker 6: in Paradise back in twenty eighteen, rebuilding an entire community

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Speaker 6: with fire risk in mind can do wonders in terms

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Speaker 6: of reducing wildfire risk and actually have a pretty serious

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Speaker 6: reduction on wildfire insurance premium. Not just individual mitigation at

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Speaker 6: the homewater level class a roof making sure there's no

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Speaker 6: combustible structures and status to via primary home, but making

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Speaker 6: sure that when you rebuilt, keeping in mind natural fire

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Speaker 6: breaks within the community and combining these individual mitigation and

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Speaker 6: community level mitigation efforts can do wonders. You can reduce

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Speaker 6: wildfire and short wildfire losses by seventy five percent and

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Speaker 6: could have a direct impact on insurance premium as well.

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Speaker 5: For homeowners you can move back the area.

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Speaker 1: The issue is john and we've seen this in other areas.

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Speaker 5: Also, is that a lot of the models, whether.

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Speaker 1: It's fire risk or whether it's flood risk or not updated.

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Speaker 4: They are outdated.

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Speaker 1: They don't necessarily reflect the entire risk zones, and it's

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Speaker 1: more expensive to put certain measures in place that could

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Speaker 1: mitigate the risks. How resistant are officials when you talk

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Speaker 1: with them about planning ahead if it costs more, if

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Speaker 1: it actually does take more resources at a time where

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Speaker 1: their resources are strapped in other places.

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Speaker 5: It's a good question, and I think officials.

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Speaker 6: Regulatory officials are more open to the idea of using

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Speaker 6: these forward looking models, the still casting models as opposed

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Speaker 6: to being reliant entirely.

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Speaker 5: In historical loss experience.

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Speaker 6: The models are updated frequently and finding we will have

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Speaker 6: you to account for increasing risk, whether that be do

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Speaker 6: the environment or were for example, fuel layers in patterns

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Speaker 6: what have you, or for flood just the higher sea

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Speaker 6: level increase frequency of flooding events. The models are accounting

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Speaker 6: for these changes and the recent regulatory changes calippointed and

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Speaker 6: effective at the beginning of this year.

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Speaker 3: Right.

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Speaker 6: Allowing carriers to use surpasital polar puward looking models means

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Speaker 6: that in what we hope is what we believe will

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Speaker 6: be the case, is a more healthy insurance industry within

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Speaker 6: the state. There will be more carries to be able

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Speaker 6: to provide more coverage at actually sound rates so that

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Speaker 6: in the event of another natal disaster, then there will

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Speaker 6: be finance available for home business owners to rebuild.

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Speaker 4: But John, thousands of insurers chose not to renew home

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Speaker 4: insurance policies of thousands of peoples. The for speaker of

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Speaker 4: the Houses from California. He was telling me his mom

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Speaker 4: just weeks ago lost her Geico insurance. What happens to

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Speaker 4: those people.

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Speaker 6: Well, they end up going to the sort of the

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Speaker 6: insurer Last Resorts called the Fair Plant in California, and

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Speaker 6: we've seen recently that more and more homeowners and cost

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Speaker 6: owners have moved into the Fair Plan. A similar phenomenal

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Speaker 6: we saw in recent years would be Citizens Insurance plant

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Speaker 6: in Florida was to win insurance. And as these state

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Speaker 6: backed insurance plants grow in terms of remember poll same place,

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Speaker 6: but means there's a lot more risk, there's a lot

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Speaker 6: more risk sort of within their books and a large

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Speaker 6: an actors after event like what we're seeing at California

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Speaker 6: now could have a pretty seriously impact to that state.

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Speaker 6: Fact that's the fact insure Last Resort now in California

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Speaker 6: carries you right in the state must participated in the

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Speaker 6: Fair plan. If reserves reinsurance, any sort of bonds cat

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Speaker 6: ponds that are in placed are used up as a

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Speaker 6: result of this event, the insurance will make up that

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Speaker 6: difference so that all quaims are paid. The downstream economic

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Speaker 6: effects of that, how that applies to premiums or rates

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Speaker 6: from forward remains to be seen, but those claims will

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Speaker 6: be paying people will be able to be built if.

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Speaker 5: They are part of being parent.

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Speaker 2: John, appreciate your input this morning and your time. Thank you, sir,

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Speaker 2: John Snaiver of Collogic joining usna is Michelle ma of

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Speaker 2: the MasterCard Economics Institute. Michelle, good morning. It's good to

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Speaker 2: see you.

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Speaker 7: Good to see you, good to be here, great to catch.

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Speaker 2: Up with you. As ol wis, how disruptive will this

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Speaker 2: tight to be it amounts to come off the back

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Speaker 2: of these fives, Well, of course.

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Speaker 7: I mean that's probably one of the littlest things that

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Speaker 7: we think about when considering the wildfires right now, in

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Speaker 7: the devastation that's having on people and families and livelihoods.

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Speaker 7: But of course, as economists and we're trying to understand

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Speaker 7: what's happening in the economy in the markets, the high

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Speaker 7: frequency data matters a lot, and it will be noisy

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Speaker 7: in the coming months. So you're going to see a

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Speaker 7: lot of people trying to x out the impact of

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Speaker 7: California to the extent that that's possible. So a lot

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Speaker 7: of that conversation, without the disruption.

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Speaker 2: It would have been.

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Speaker 1: It thill raises some issues, some nodes of pressure that

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Speaker 1: we have, in particular in the housing market, the idea

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Speaker 1: that they're going to have to rebuild at a time

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Speaker 1: where housing shortages already were pretty prevalent in the area.

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Speaker 1: How much room, how much slack is there in the

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Speaker 1: economy to compensate for building to compensate for some of

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Speaker 1: these things at a time was some people say it's

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Speaker 1: a pretty finely balanced labor market.

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Speaker 7: Well, of course, I mean you have to think about

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Speaker 7: the inputs into the equation for rebuilding in terms of

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Speaker 7: the raw materials, the labor, just the capacity to be

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Speaker 7: able to add that much housing stock as quickly as

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Speaker 7: it needs to be added. But that said, we also

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Speaker 7: should be seeing a lot of stimulus into the area hopefully,

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Speaker 7: which should help encourage and speed up that rebuilding process.

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Speaker 2: But it's going to take time.

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Speaker 7: The devastation is tremendous and.

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Speaker 1: It still hasn't ended. As we were just talking about

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Speaker 1: broadening out, there's a larger question about just where we

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Speaker 1: are and how real the numbers were on Friday, how

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Speaker 1: good they actually were, versus maybe overstating things with the

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Speaker 1: preliminary read that wasn't necessarily verified. In other data, from

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Speaker 1: what you're seeing from the mass card expenditures from all

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Speaker 1: of the secondary and tertiary data. Do you think that

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Speaker 1: this truly is a labor market that has more upside

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Speaker 1: surprise than people are giving it credit for. I do.

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Speaker 7: I mean, as you know, at the Economics Instituit, we've

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Speaker 7: been very positive on the traructory of the economy this

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Speaker 7: whole cycle, and a lot of that is because of

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Speaker 7: this ability of the consumer to spend, which represents a

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Speaker 7: positive feedback loop with the labor market. So any given

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Speaker 7: jobs number we know subject to revision, you have to

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Speaker 7: look at moving average. You don't want to over you know,

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Speaker 7: put overemphasize one report, but if you do look at

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Speaker 7: a moving average, when you think about what's happened in

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Speaker 7: terms of the last several months, it has still been

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Speaker 7: strong job creation and unemployment rate that is remaining sticky low,

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Speaker 7: and measures of unemployment insurance when you look at jobless

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Speaker 7: claims that are still very very low. So the labor

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Speaker 7: market is supportive. Wage growth is continuing to run at

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Speaker 7: a solid pace above the underlying pace of inflation for

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Speaker 7: goods and services, and that's supporting consumer spending. As consumers spend,

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Speaker 7: that then further drives this feedback back into the labor market.

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Speaker 7: So on Friday's jobs numbers, we had very strong hiring

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Speaker 7: in the retail sector for example. Part of that was seasonality.

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Speaker 7: November was weaker, December stronger, but nonetheless that does represent

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Speaker 7: the fact that consumers are engaging when it comes.

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Speaker 4: To that concern about inflation. I know it's or with politics,

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Speaker 4: but University of Michigan is showing that actually consumers are

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Speaker 4: concerned about inflation going forward. Is that driven because of

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Speaker 4: talk of terrorists and policy or is that just driven

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Speaker 4: by they're still not comfortable with the price level they've

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Speaker 4: seen of the course in the past two years.

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Speaker 7: I think expectations are still resetting to that price level.

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Speaker 7: Right when you talk to an average person out there,

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Speaker 7: they're saying, but it used to be so much less

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Speaker 7: expensive to buy this, and that less expensive might have

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Speaker 7: been a week ago, a year ago, or five years ago,

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Speaker 7: depending on when they've last purchased the item. So I

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Speaker 7: do think expectations are still resetting. It depends on the product.

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Speaker 7: Right when you think about groceries, for example, the last

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Speaker 7: year and a half now, we've been in very steady

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Speaker 7: and low inflation between one and one and a half

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Speaker 7: percent for grocery inflation, So for food, You're starting to

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Speaker 7: get consumers to feel more comfortable at this is probably

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Speaker 7: the price that is sticking, and it makes sense they're

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Speaker 7: not continuously seeing price increases, but there is a little

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Speaker 7: bit of a you know, a discomfort of course amongst

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Speaker 7: consumers after seeing such a big price level increase. That said,

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Speaker 7: if you look at long run inflation expectations from the

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Speaker 7: University of Michigan this whole cycle, they've actually been pretty

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Speaker 7: well contained overall. So over the longer term, I think

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Speaker 7: consumers still have a more disinflationary psychology that is sticky.

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Speaker 4: How do you think the economy will deal with potentially

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Speaker 4: broad based tariffs of the Income Administration?

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Speaker 7: So it depends, as you know, how you define broad

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Speaker 7: based tariffs. So there's so much uncertainty in terms of

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Speaker 7: what the policy will actually end up being, and will

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Speaker 7: adapt our views as we learn more. But I think

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Speaker 7: in general, what we've seen in the past with tariffs

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Speaker 7: is that it does prove to be somewhat of a

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Speaker 7: temporary price level increase on those private products that are

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Speaker 7: impacted by tariffs, and then it could also just change

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Speaker 7: in general the cost of production. Going back to the

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Speaker 7: conversation at Lisa before around the cost of rebuilding and

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Speaker 7: housing construction, input costs of matter in every way.

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Speaker 5: Of course, across the economy is leading.

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Speaker 2: Twenty pill forward. From the data you've seen people buying

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Speaker 2: juryable goods, any of that.

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Speaker 7: So you know, it's really hard hard as routine whether

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Speaker 7: or not that's happening. You do hear it and see

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Speaker 7: it more visibly in terms of companies stockpiling and trying

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Speaker 7: to make sure that they're importing as much as they can,

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Speaker 7: particularly from areas that might be targeted in terms of tariffs.

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Speaker 7: But for the consumer, that's something that's really hard to determine,

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Speaker 7: whether it's a pull forward or just an acceleration of spend.

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Speaker 2: Michelle, appreciate your time as always, got it, Thank you,

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Speaker 2: Thank you very much. Michelle Mather of the MasterCard Economics Institute.

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