WEBVTT - Bloomberg Surveillance TV: January 13, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amerie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.280 Terminal and the Bloomberg Business app. So here's the latest 0:00:37.280 --> 0:00:40.440 this morning. How's Republicans meeting with President alec Donald Trump 0:00:40.440 --> 0:00:43.560 over the weekend to discuss the salt dedunction cam calling 0:00:43.600 --> 0:00:46.920 the talks positive but saying they got no firm commitments 0:00:46.920 --> 0:00:49.279 from Trump. The move shaping up to be a key 0:00:49.280 --> 0:00:52.400 sticking point for passing an upcoming tax package. Joined us 0:00:52.400 --> 0:00:54.560 now to discuss is mir Becginnis at the Committee for 0:00:54.600 --> 0:00:57.520 a Responsible Federal Budget? My welcome to the program. I 0:00:57.560 --> 0:00:59.279 just want to start in the market and then get 0:00:59.320 --> 0:01:01.480 to some of the poly How much more expensive is 0:01:01.520 --> 0:01:05.880 this bond market making the ambitions of Washington day say yeah. 0:01:05.680 --> 0:01:07.840 The bond market is a wake up call for when 0:01:07.840 --> 0:01:10.479 you have trillions and trillions of dollars of debt, higher 0:01:10.480 --> 0:01:13.679 interest rates having profound effect on your overall budget. And 0:01:13.720 --> 0:01:15.840 so the fact that we'll be paying a trillion dollars 0:01:15.840 --> 0:01:19.000 in interest payments this year, second largest largest item in 0:01:19.000 --> 0:01:21.760 the federal budget, squeezes out the space for talk of 0:01:21.800 --> 0:01:24.920 anything else spending increases, tax cuts, and it puts real 0:01:25.400 --> 0:01:28.120 pressure on the lawmakers to start thinking about fiscal issues, 0:01:28.319 --> 0:01:32.479 which is something I have been ignoring for the past years. 0:01:32.520 --> 0:01:34.960 And it is a reminder that there are real effects 0:01:35.000 --> 0:01:37.880 of borrowing too much, and we're starting to feel those effects, 0:01:37.920 --> 0:01:40.959 and this huge debt load is incredibly sensitive to those 0:01:41.000 --> 0:01:42.399 swings and rates well. 0:01:42.560 --> 0:01:46.000 Incoming Vice President elect JD. Van certainly taking notice of 0:01:46.000 --> 0:01:48.960 the bond market in his interview over the weekend when 0:01:48.960 --> 0:01:52.000 Fox News he mentioned bond yields rising twice and then 0:01:52.040 --> 0:01:55.240 net interest payment payments. My you're talking about last year 0:01:55.280 --> 0:01:57.160 being more than one trillion dollars, what are they on 0:01:57.240 --> 0:01:59.360 track to be this year? For twenty twenty five. 0:02:00.040 --> 0:02:01.600 This year it will be over trillion as well. 0:02:02.400 --> 0:02:05.720 Yeah, it's pretty that's pretty incredible in the terms, doesn't 0:02:05.720 --> 0:02:09.520 really give the incoming administration or Congress a ton of 0:02:09.600 --> 0:02:12.400 wiggle room if that is how much we are spending, 0:02:12.440 --> 0:02:14.240 and the bond market is pushing back on some of 0:02:14.280 --> 0:02:17.160 this spending. What do you make of all the talk 0:02:17.200 --> 0:02:21.160 of reconciliation, tax cuts, more money for the border. Do 0:02:21.200 --> 0:02:23.400 you have an understanding from Congress and what the top 0:02:23.400 --> 0:02:24.320 line figure would be. 0:02:25.440 --> 0:02:27.640 No, that's the big fight in Congress right now. 0:02:27.720 --> 0:02:30.000 So on one side, and this is the side that 0:02:30.080 --> 0:02:32.480 I have a preference for, there are members who are saying, 0:02:32.800 --> 0:02:34.960 my red line is I don't want to add to 0:02:35.000 --> 0:02:35.400 the debt. 0:02:35.800 --> 0:02:36.720 Our debt is too high. 0:02:36.800 --> 0:02:38.760 The only way that you change that, that you break 0:02:38.800 --> 0:02:41.760 that fever, is you start using reconciliation and budgets and 0:02:41.800 --> 0:02:44.440 other tools to bring the debt down. So there are 0:02:44.720 --> 0:02:47.440 some members and they're not enough, unfortunately, who are saying, 0:02:47.560 --> 0:02:49.120 I don't want to vote for something that would make 0:02:49.160 --> 0:02:49.800 the debt worse. 0:02:50.080 --> 0:02:51.640 But the discussions. 0:02:51.040 --> 0:02:55.000 Internally are talking about huge numbers because the tax cuts, 0:02:55.320 --> 0:02:58.360 extending them without offsets would be so expensive that there 0:02:58.360 --> 0:03:01.600 are discussions of a reconciliation. Number is high as four 0:03:01.960 --> 0:03:05.360 five six trillion dollars a new borrowing, which would be 0:03:05.480 --> 0:03:09.919 astronomically dangerous to the fiscal situation that as just mentioned, 0:03:10.120 --> 0:03:13.400 the bond market is already showing real nerves about how. 0:03:13.240 --> 0:03:16.320 Long do you think they will extend TCJA because they 0:03:16.360 --> 0:03:18.880 want to keep the top line number down, but they 0:03:18.880 --> 0:03:20.839 definitely want to make sure that they can get these 0:03:20.880 --> 0:03:22.080 tax extensions through. 0:03:23.000 --> 0:03:25.280 Well, you've honed in on one of the possible and 0:03:25.320 --> 0:03:26.920 in fact likely gimmicks that there is. 0:03:26.960 --> 0:03:30.360 So tax policy should be permanent. The purpose of tax 0:03:30.400 --> 0:03:31.640 policy is to allow. 0:03:31.880 --> 0:03:36.119 Individuals, families, and businesses to plan with certainty. But one 0:03:36.120 --> 0:03:38.320 of the tricks to keep the cost of the bill 0:03:38.440 --> 0:03:41.600 down when you're using reconciliation is to make those tax 0:03:41.640 --> 0:03:44.200 cuts temporary. That's why we're dealing with this now, because 0:03:44.200 --> 0:03:47.320 they weren't permanent. So the first effort will be to 0:03:47.360 --> 0:03:50.280 have offsets, to have spending cuts that will offset the 0:03:50.320 --> 0:03:53.120 cost of extending the tax cuts. But I worry and 0:03:53.200 --> 0:03:55.520 I think it's likely that in the end a number 0:03:55.520 --> 0:03:59.080 of those extensions will be temporary, talking about just two 0:03:59.280 --> 0:04:02.560 or four years, which will hide the costs, massive costs. 0:04:02.840 --> 0:04:04.920 We'll be back at the table having the same discussion 0:04:04.960 --> 0:04:05.400 in a couple of. 0:04:05.400 --> 0:04:07.560 Years if they do that, and none of the entities 0:04:07.560 --> 0:04:09.400 will be able to plan with a certainty that would 0:04:09.400 --> 0:04:14.840 make their investments decisions much more beneficial to the companies. 0:04:15.080 --> 0:04:19.960 How optimistic by are you about the Department of Government efficiency. 0:04:20.080 --> 0:04:22.760 I'm a huge fan about the DOTJE effort. I'm really 0:04:22.800 --> 0:04:26.320 excited about it for two reasons. One, it's so clearly needed. 0:04:26.600 --> 0:04:29.080 There are huge pockets of places where we could have 0:04:29.160 --> 0:04:32.520 massive savings in the federal government, from procurement for defense, 0:04:32.800 --> 0:04:36.040 from a huge healthcare industry that is remarkably inefficient in 0:04:36.120 --> 0:04:39.280 almost every aspect of how it works, to the regulations 0:04:39.360 --> 0:04:40.360 that they're looking at. 0:04:40.520 --> 0:04:42.160 So I think that's very exciting. 0:04:42.760 --> 0:04:44.760 I was concerned when they came out and said we're 0:04:44.760 --> 0:04:46.960 going to save two trillion dollars in a year, because 0:04:46.960 --> 0:04:50.359 that fiscal ambition is so far from reality that I 0:04:50.480 --> 0:04:53.120 was worried this was all bluster and kind of like 0:04:53.200 --> 0:04:57.440 the California hype cycle more than the reality of how 0:04:57.480 --> 0:04:58.240 budgeting works. 0:04:58.680 --> 0:05:00.960 But as I've seen the efforts that they're. 0:05:00.760 --> 0:05:03.200 Putting together and they've walked back that metric saying we're 0:05:03.200 --> 0:05:04.799 going to get as much as we can at trillions, 0:05:04.839 --> 0:05:08.719 maybe more likely over a year, I continue. 0:05:08.200 --> 0:05:09.080 To be encouraged. 0:05:09.120 --> 0:05:11.000 I think that they will find a lot of places 0:05:11.000 --> 0:05:13.840 in executive orders where you can save money. I think 0:05:13.880 --> 0:05:16.560 they will find a lot of regulatory changes. I just 0:05:16.600 --> 0:05:19.960 hope they're not all directed towards loosening regulations and the 0:05:19.960 --> 0:05:23.640 financial industry on crypto and AI, rather than thinking about 0:05:23.640 --> 0:05:26.000 where you can make things more efficiently and actually save 0:05:26.080 --> 0:05:30.480 the government real savings. The hardest pockets, though, are Social 0:05:30.520 --> 0:05:32.880 Security and Medicare, and they have said those are off 0:05:32.880 --> 0:05:35.520 the table, and as far as I'm concerned, that's really 0:05:35.560 --> 0:05:38.080 one of the tests of seriousness. Are you willing to 0:05:38.160 --> 0:05:41.000 go to where the money really is So far they 0:05:41.000 --> 0:05:43.080 have said that that is a red line. 0:05:43.279 --> 0:05:43.800 I get it. 0:05:43.880 --> 0:05:46.320 Politically those are hot buttons. Nobody in Congress wants to 0:05:46.320 --> 0:05:49.040 touch them. But anybody who steers about the budget. 0:05:48.720 --> 0:05:50.760 Knows that those are where the real savings are. 0:05:50.920 --> 0:05:53.440 We talk about they we're talking about a sort of 0:05:53.520 --> 0:05:56.719 loosely brought together a coalition of people in an area 0:05:56.760 --> 0:06:00.000 that isn't actually a department, they're not actually government officials. 0:06:00.040 --> 0:06:02.000 There's a real question about what kind of political cloud 0:06:02.040 --> 0:06:04.880 they'll have, especially at a time where everything gets watered down, 0:06:05.120 --> 0:06:07.359 when you have constituents that want everything so at what 0:06:07.440 --> 0:06:09.080 point do you believe there is a political will to 0:06:09.120 --> 0:06:11.800 get through some of these cuts that might be recommended 0:06:11.839 --> 0:06:12.360 by Doze. 0:06:12.640 --> 0:06:14.520 There's a great question, you know. 0:06:15.080 --> 0:06:17.040 I'm on one hand on the other today, But on 0:06:17.040 --> 0:06:19.120 one hand, I think we actually need. 0:06:18.960 --> 0:06:19.800 To outsource some of this. 0:06:20.000 --> 0:06:22.520 Congress has failed to do its job when it's come 0:06:22.560 --> 0:06:26.279 to fiscal oversight and the fiduciary responsibility for over a 0:06:26.360 --> 0:06:28.680 decade now, and it's been really disheartening to see that 0:06:28.880 --> 0:06:31.400 the only party that cares about fiscal responsibility is the 0:06:31.400 --> 0:06:34.240 minority party trying to stop the other one from doing something. 0:06:34.520 --> 0:06:37.080 There are very few people out there really talking about 0:06:37.120 --> 0:06:39.720 how to reduce our borrowing. 0:06:39.640 --> 0:06:40.760 So I think that's great. 0:06:41.080 --> 0:06:43.239 On the other hand, obviously a lot of the people 0:06:43.240 --> 0:06:46.680 who are involved in this have number of interests and 0:06:46.720 --> 0:06:49.719 potentially conflicts of interest with the federal government, and I 0:06:49.760 --> 0:06:51.880 think that's really worrisome at a time when we need 0:06:51.920 --> 0:06:55.760 to be rebuilding trust with how our leaders are serving 0:06:55.920 --> 0:06:58.680 as stewards for the overall economy and not just looking 0:06:58.760 --> 0:07:01.440 after their own interests. So I think their ability to 0:07:01.600 --> 0:07:06.919 disrupt and not care about the political constraints is incredibly encouraging. 0:07:07.200 --> 0:07:09.040 But I think we have to make sure that they're 0:07:09.120 --> 0:07:11.600 very transparent. It's very transparent about how they're doing it. 0:07:11.880 --> 0:07:14.880 Biggest concern I have President Trump. We've seen him in 0:07:14.920 --> 0:07:17.720 office before. He was not a fan of spending cuts. 0:07:17.720 --> 0:07:21.240 In fact, he increased spending massively on top of huge 0:07:21.280 --> 0:07:23.360 tax cuts, and the debt went up under him a 0:07:23.360 --> 0:07:24.320 lot because. 0:07:24.400 --> 0:07:26.320 He hasn't liked to say no to things. 0:07:26.720 --> 0:07:30.920 So I think you may see a real political meeting 0:07:31.040 --> 0:07:33.240 of the minds between those working on DOGE. 0:07:33.400 --> 0:07:34.960 Sorry, the opposite of meeting. 0:07:34.720 --> 0:07:37.600 Of minds between those working on DOGE and President Trump, who, 0:07:37.600 --> 0:07:40.160 when he realizes how hard these things are, says, ooh, 0:07:40.320 --> 0:07:42.840 that politically is going to be difficult, and I don't 0:07:42.880 --> 0:07:44.360 know how that will play out. 0:07:44.520 --> 0:07:46.880 We'll see if it's any different a second time around. 0:07:47.000 --> 0:07:49.080 May I appreciate your time? Mom aginnis that they commits 0:07:49.120 --> 0:08:01.239 a if a responsible federal budget on snare of co logic, 0:08:01.400 --> 0:08:04.840 which produces dates from response to catastrophic global events, joins us. 0:08:04.880 --> 0:08:07.640 Now for more, Let's get into some of the data 0:08:07.880 --> 0:08:09.480 and whether you can tell at the moment or it's 0:08:09.520 --> 0:08:11.720 too early. Just one went wrong care Well. 0:08:11.640 --> 0:08:13.840 It's one of those things where because the buyers were 0:08:13.880 --> 0:08:19.120 still spreading entertainment while increasing buyers, still not containing coming 0:08:19.160 --> 0:08:21.440 out with the short laws. Estimate your talk not on process, 0:08:21.480 --> 0:08:24.040 and it's're always subject to change. One of the things 0:08:24.080 --> 0:08:26.440 we are sort of putting you on is that this 0:08:26.800 --> 0:08:29.640 is likely going to be, you know, a twenty to 0:08:29.760 --> 0:08:32.839 thirty billion dollars in short loss event, definitely one of 0:08:32.880 --> 0:08:36.800 the most destructive wildfire events in the Los Angeles in history, 0:08:36.920 --> 0:08:38.120 maybe California history. 0:08:39.160 --> 0:08:41.160 John This comes to at a point when we've already 0:08:41.200 --> 0:08:45.200 had housing shortages in California, discussion around where people are 0:08:45.240 --> 0:08:47.079 going to live at a time where the average price 0:08:47.160 --> 0:08:49.560 in some of these areas was three million dollars for homes. 0:08:50.160 --> 0:08:52.640 How do you rebuild in a place at a time 0:08:52.880 --> 0:08:56.080 when you have labor shortages, having in construction in particular, 0:08:56.480 --> 0:08:58.719 when you have insurance premium that are going to have 0:08:58.760 --> 0:09:01.520 to go through the roof, have real questions about what 0:09:01.640 --> 0:09:03.480 additional risks are going to be going forward. 0:09:04.679 --> 0:09:05.600 It's a really good question. 0:09:05.679 --> 0:09:08.360 And when it comes to rebuilding, keeping this concept of 0:09:08.640 --> 0:09:11.400 this idea of mitigation in mind is really important. What 0:09:11.480 --> 0:09:16.079 we saw in look at historical examples like the campfire 0:09:16.360 --> 0:09:21.080 in Paradise back in twenty eighteen, rebuilding an entire community 0:09:21.280 --> 0:09:24.160 with fire risk in mind can do wonders in terms 0:09:24.200 --> 0:09:26.959 of reducing wildfire risk and actually have a pretty serious 0:09:26.960 --> 0:09:32.920 reduction on wildfire insurance premium. Not just individual mitigation at 0:09:32.960 --> 0:09:36.760 the homewater level class a roof making sure there's no 0:09:36.800 --> 0:09:40.840 combustible structures and status to via primary home, but making 0:09:40.880 --> 0:09:43.840 sure that when you rebuilt, keeping in mind natural fire 0:09:43.880 --> 0:09:47.800 breaks within the community and combining these individual mitigation and 0:09:47.920 --> 0:09:51.319 community level mitigation efforts can do wonders. You can reduce 0:09:51.400 --> 0:09:54.920 wildfire and short wildfire losses by seventy five percent and 0:09:55.040 --> 0:09:58.560 could have a direct impact on insurance premium as well. 0:09:58.600 --> 0:10:00.360 For homeowners you can move back the area. 0:10:00.960 --> 0:10:03.600 The issue is john and we've seen this in other areas. 0:10:03.640 --> 0:10:05.439 Also, is that a lot of the models, whether. 0:10:05.280 --> 0:10:08.520 It's fire risk or whether it's flood risk or not updated. 0:10:08.760 --> 0:10:09.880 They are outdated. 0:10:10.080 --> 0:10:13.160 They don't necessarily reflect the entire risk zones, and it's 0:10:13.200 --> 0:10:15.760 more expensive to put certain measures in place that could 0:10:15.840 --> 0:10:19.920 mitigate the risks. How resistant are officials when you talk 0:10:20.040 --> 0:10:22.760 with them about planning ahead if it costs more, if 0:10:22.800 --> 0:10:25.319 it actually does take more resources at a time where 0:10:25.360 --> 0:10:27.480 their resources are strapped in other places. 0:10:28.240 --> 0:10:30.760 It's a good question, and I think officials. 0:10:30.960 --> 0:10:33.360 Regulatory officials are more open to the idea of using 0:10:33.440 --> 0:10:36.520 these forward looking models, the still casting models as opposed 0:10:36.520 --> 0:10:37.959 to being reliant entirely. 0:10:37.720 --> 0:10:39.000 In historical loss experience. 0:10:39.320 --> 0:10:42.120 The models are updated frequently and finding we will have 0:10:42.240 --> 0:10:45.319 you to account for increasing risk, whether that be do 0:10:45.440 --> 0:10:48.959 the environment or were for example, fuel layers in patterns 0:10:49.040 --> 0:10:52.360 what have you, or for flood just the higher sea 0:10:52.440 --> 0:10:58.280 level increase frequency of flooding events. The models are accounting 0:10:58.360 --> 0:11:01.480 for these changes and the recent regulatory changes calippointed and 0:11:01.600 --> 0:11:02.920 effective at the beginning of this year. 0:11:03.360 --> 0:11:03.480 Right. 0:11:03.640 --> 0:11:08.520 Allowing carriers to use surpasital polar puward looking models means 0:11:08.559 --> 0:11:10.640 that in what we hope is what we believe will 0:11:10.640 --> 0:11:13.080 be the case, is a more healthy insurance industry within 0:11:13.160 --> 0:11:15.240 the state. There will be more carries to be able 0:11:15.240 --> 0:11:18.079 to provide more coverage at actually sound rates so that 0:11:19.240 --> 0:11:22.120 in the event of another natal disaster, then there will 0:11:22.120 --> 0:11:24.560 be finance available for home business owners to rebuild. 0:11:25.440 --> 0:11:29.600 But John, thousands of insurers chose not to renew home 0:11:29.679 --> 0:11:32.319 insurance policies of thousands of peoples. The for speaker of 0:11:32.360 --> 0:11:34.280 the Houses from California. He was telling me his mom 0:11:34.400 --> 0:11:37.040 just weeks ago lost her Geico insurance. What happens to 0:11:37.160 --> 0:11:38.040 those people. 0:11:39.120 --> 0:11:41.559 Well, they end up going to the sort of the 0:11:41.640 --> 0:11:44.360 insurer Last Resorts called the Fair Plant in California, and 0:11:44.520 --> 0:11:47.640 we've seen recently that more and more homeowners and cost 0:11:47.640 --> 0:11:50.280 owners have moved into the Fair Plan. A similar phenomenal 0:11:50.320 --> 0:11:52.800 we saw in recent years would be Citizens Insurance plant 0:11:52.840 --> 0:11:56.440 in Florida was to win insurance. And as these state 0:11:56.520 --> 0:11:59.760 backed insurance plants grow in terms of remember poll same place, 0:11:59.800 --> 0:12:03.400 but means there's a lot more risk, there's a lot 0:12:03.440 --> 0:12:05.840 more risk sort of within their books and a large 0:12:05.840 --> 0:12:08.040 an actors after event like what we're seeing at California 0:12:08.120 --> 0:12:10.360 now could have a pretty seriously impact to that state. 0:12:10.440 --> 0:12:14.839 Fact that's the fact insure Last Resort now in California 0:12:15.040 --> 0:12:18.480 carries you right in the state must participated in the 0:12:18.520 --> 0:12:22.199 Fair plan. If reserves reinsurance, any sort of bonds cat 0:12:22.240 --> 0:12:24.439 ponds that are in placed are used up as a 0:12:24.480 --> 0:12:27.360 result of this event, the insurance will make up that 0:12:27.440 --> 0:12:30.200 difference so that all quaims are paid. The downstream economic 0:12:30.240 --> 0:12:36.600 effects of that, how that applies to premiums or rates 0:12:36.600 --> 0:12:39.160 from forward remains to be seen, but those claims will 0:12:39.200 --> 0:12:41.040 be paying people will be able to be built if. 0:12:40.920 --> 0:12:42.240 They are part of being parent. 0:12:42.640 --> 0:12:45.240 John, appreciate your input this morning and your time. Thank you, sir, 0:12:45.360 --> 0:12:57.480 John Snaiver of Collogic joining usna is Michelle ma of 0:12:57.559 --> 0:13:00.760 the MasterCard Economics Institute. Michelle, good morning. It's good to 0:13:00.800 --> 0:13:01.040 see you. 0:13:01.200 --> 0:13:03.120 Good to see you, good to be here, great to catch. 0:13:03.000 --> 0:13:04.719 Up with you. As ol wis, how disruptive will this 0:13:04.840 --> 0:13:06.920 tight to be it amounts to come off the back 0:13:06.960 --> 0:13:08.240 of these fives, Well, of course. 0:13:08.080 --> 0:13:10.280 I mean that's probably one of the littlest things that 0:13:10.360 --> 0:13:13.400 we think about when considering the wildfires right now, in 0:13:13.440 --> 0:13:16.920 the devastation that's having on people and families and livelihoods. 0:13:17.000 --> 0:13:19.800 But of course, as economists and we're trying to understand 0:13:19.880 --> 0:13:22.880 what's happening in the economy in the markets, the high 0:13:22.920 --> 0:13:25.480 frequency data matters a lot, and it will be noisy 0:13:25.600 --> 0:13:27.520 in the coming months. So you're going to see a 0:13:27.559 --> 0:13:30.160 lot of people trying to x out the impact of 0:13:30.240 --> 0:13:32.679 California to the extent that that's possible. So a lot 0:13:32.720 --> 0:13:35.120 of that conversation, without the disruption. 0:13:34.920 --> 0:13:35.800 It would have been. 0:13:36.800 --> 0:13:39.679 It thill raises some issues, some nodes of pressure that 0:13:39.760 --> 0:13:42.000 we have, in particular in the housing market, the idea 0:13:42.080 --> 0:13:44.679 that they're going to have to rebuild at a time 0:13:44.760 --> 0:13:47.920 where housing shortages already were pretty prevalent in the area. 0:13:48.880 --> 0:13:51.599 How much room, how much slack is there in the 0:13:51.720 --> 0:13:54.959 economy to compensate for building to compensate for some of 0:13:55.040 --> 0:13:57.400 these things at a time was some people say it's 0:13:57.440 --> 0:13:59.440 a pretty finely balanced labor market. 0:14:00.080 --> 0:14:01.520 Well, of course, I mean you have to think about 0:14:01.800 --> 0:14:05.280 the inputs into the equation for rebuilding in terms of 0:14:05.400 --> 0:14:10.719 the raw materials, the labor, just the capacity to be 0:14:10.760 --> 0:14:12.959 able to add that much housing stock as quickly as 0:14:13.000 --> 0:14:16.120 it needs to be added. But that said, we also 0:14:16.160 --> 0:14:18.520 should be seeing a lot of stimulus into the area hopefully, 0:14:18.920 --> 0:14:22.240 which should help encourage and speed up that rebuilding process. 0:14:22.560 --> 0:14:23.560 But it's going to take time. 0:14:23.640 --> 0:14:26.040 The devastation is tremendous and. 0:14:26.080 --> 0:14:28.320 It still hasn't ended. As we were just talking about 0:14:28.360 --> 0:14:30.880 broadening out, there's a larger question about just where we 0:14:31.000 --> 0:14:33.440 are and how real the numbers were on Friday, how 0:14:33.520 --> 0:14:37.360 good they actually were, versus maybe overstating things with the 0:14:37.400 --> 0:14:40.880 preliminary read that wasn't necessarily verified. In other data, from 0:14:40.920 --> 0:14:44.160 what you're seeing from the mass card expenditures from all 0:14:44.200 --> 0:14:47.800 of the secondary and tertiary data. Do you think that 0:14:47.920 --> 0:14:50.280 this truly is a labor market that has more upside 0:14:50.320 --> 0:14:53.160 surprise than people are giving it credit for. I do. 0:14:53.280 --> 0:14:55.520 I mean, as you know, at the Economics Instituit, we've 0:14:55.560 --> 0:14:57.880 been very positive on the traructory of the economy this 0:14:58.000 --> 0:15:00.760 whole cycle, and a lot of that is because of 0:15:00.920 --> 0:15:04.040 this ability of the consumer to spend, which represents a 0:15:04.120 --> 0:15:07.640 positive feedback loop with the labor market. So any given 0:15:07.720 --> 0:15:10.120 jobs number we know subject to revision, you have to 0:15:10.160 --> 0:15:12.280 look at moving average. You don't want to over you know, 0:15:13.160 --> 0:15:16.200 put overemphasize one report, but if you do look at 0:15:16.240 --> 0:15:18.200 a moving average, when you think about what's happened in 0:15:18.320 --> 0:15:20.280 terms of the last several months, it has still been 0:15:20.720 --> 0:15:24.760 strong job creation and unemployment rate that is remaining sticky low, 0:15:25.440 --> 0:15:28.040 and measures of unemployment insurance when you look at jobless 0:15:28.040 --> 0:15:30.200 claims that are still very very low. So the labor 0:15:30.240 --> 0:15:33.160 market is supportive. Wage growth is continuing to run at 0:15:33.200 --> 0:15:36.200 a solid pace above the underlying pace of inflation for 0:15:36.320 --> 0:15:40.600 goods and services, and that's supporting consumer spending. As consumers spend, 0:15:40.960 --> 0:15:45.160 that then further drives this feedback back into the labor market. 0:15:45.280 --> 0:15:48.280 So on Friday's jobs numbers, we had very strong hiring 0:15:48.360 --> 0:15:51.000 in the retail sector for example. Part of that was seasonality. 0:15:51.160 --> 0:15:54.760 November was weaker, December stronger, but nonetheless that does represent 0:15:54.840 --> 0:15:57.200 the fact that consumers are engaging when it comes. 0:15:57.080 --> 0:16:01.520 To that concern about inflation. I know it's or with politics, 0:16:01.600 --> 0:16:04.160 but University of Michigan is showing that actually consumers are 0:16:04.240 --> 0:16:07.160 concerned about inflation going forward. Is that driven because of 0:16:07.240 --> 0:16:09.880 talk of terrorists and policy or is that just driven 0:16:10.000 --> 0:16:13.280 by they're still not comfortable with the price level they've 0:16:13.360 --> 0:16:15.200 seen of the course in the past two years. 0:16:15.280 --> 0:16:18.040 I think expectations are still resetting to that price level. 0:16:18.120 --> 0:16:20.640 Right when you talk to an average person out there, 0:16:20.640 --> 0:16:23.080 they're saying, but it used to be so much less 0:16:23.160 --> 0:16:25.680 expensive to buy this, and that less expensive might have 0:16:25.720 --> 0:16:29.040 been a week ago, a year ago, or five years ago, 0:16:29.160 --> 0:16:31.680 depending on when they've last purchased the item. So I 0:16:31.800 --> 0:16:35.600 do think expectations are still resetting. It depends on the product. 0:16:35.720 --> 0:16:38.200 Right when you think about groceries, for example, the last 0:16:38.640 --> 0:16:40.560 year and a half now, we've been in very steady 0:16:40.600 --> 0:16:42.960 and low inflation between one and one and a half 0:16:43.040 --> 0:16:46.240 percent for grocery inflation, So for food, You're starting to 0:16:46.360 --> 0:16:48.800 get consumers to feel more comfortable at this is probably 0:16:48.880 --> 0:16:51.320 the price that is sticking, and it makes sense they're 0:16:51.360 --> 0:16:54.600 not continuously seeing price increases, but there is a little 0:16:54.640 --> 0:16:56.760 bit of a you know, a discomfort of course amongst 0:16:56.800 --> 0:17:00.960 consumers after seeing such a big price level increase. That said, 0:17:01.120 --> 0:17:03.800 if you look at long run inflation expectations from the 0:17:03.880 --> 0:17:07.320 University of Michigan this whole cycle, they've actually been pretty 0:17:07.440 --> 0:17:11.120 well contained overall. So over the longer term, I think 0:17:11.200 --> 0:17:15.840 consumers still have a more disinflationary psychology that is sticky. 0:17:16.359 --> 0:17:18.600 How do you think the economy will deal with potentially 0:17:18.720 --> 0:17:21.240 broad based tariffs of the Income Administration? 0:17:22.080 --> 0:17:24.359 So it depends, as you know, how you define broad 0:17:24.359 --> 0:17:26.840 based tariffs. So there's so much uncertainty in terms of 0:17:26.880 --> 0:17:30.120 what the policy will actually end up being, and will 0:17:30.240 --> 0:17:32.800 adapt our views as we learn more. But I think 0:17:32.920 --> 0:17:35.080 in general, what we've seen in the past with tariffs 0:17:35.160 --> 0:17:37.560 is that it does prove to be somewhat of a 0:17:37.800 --> 0:17:41.399 temporary price level increase on those private products that are 0:17:41.880 --> 0:17:45.120 impacted by tariffs, and then it could also just change 0:17:45.160 --> 0:17:46.920 in general the cost of production. Going back to the 0:17:47.000 --> 0:17:50.280 conversation at Lisa before around the cost of rebuilding and 0:17:50.520 --> 0:17:53.160 housing construction, input costs of matter in every way. 0:17:53.200 --> 0:17:54.800 Of course, across the economy is leading. 0:17:54.680 --> 0:17:57.240 Twenty pill forward. From the data you've seen people buying 0:17:57.320 --> 0:17:58.600 juryable goods, any of that. 0:17:58.760 --> 0:18:01.280 So you know, it's really hard hard as routine whether 0:18:01.359 --> 0:18:03.480 or not that's happening. You do hear it and see 0:18:03.520 --> 0:18:07.359 it more visibly in terms of companies stockpiling and trying 0:18:07.400 --> 0:18:10.239 to make sure that they're importing as much as they can, 0:18:10.359 --> 0:18:13.440 particularly from areas that might be targeted in terms of tariffs. 0:18:13.880 --> 0:18:16.680 But for the consumer, that's something that's really hard to determine, 0:18:16.680 --> 0:18:19.680 whether it's a pull forward or just an acceleration of spend. 0:18:19.880 --> 0:18:22.280 Michelle, appreciate your time as always, got it, Thank you, 0:18:22.400 --> 0:18:25.840 Thank you very much. Michelle Mather of the MasterCard Economics Institute. 0:18:26.800 --> 0:18:30.320 This is the Bloomberg Sevenants podcast, bringing you the best 0:18:30.359 --> 0:18:33.680 in markets, economics, and geopolitics. You can watch the show 0:18:33.760 --> 0:18:36.639 live on Bloomberg TV weekday mornings from six am to 0:18:36.800 --> 0:18:40.520 nine am Eastern. 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