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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 Amrie 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. Donald Trump and Carbala

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Speaker 2: Harris planning dueling economic addresses. Trump speaking at Georgia tomorrow

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Speaker 2: offering his plan to lower taxes for business owners, and

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Speaker 2: Harris sanks you'll deliver a speech this week outlining her

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Speaker 2: economic vision we get Lucky. This morning, we're joined by

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Speaker 2: Jason Furman, the professor at the Harvard Kennedy School and

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Speaker 2: former chair of the Council of Economic Advisors under President

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Speaker 2: Barack Obama. Jason, welcome back to the program sir. It's

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Speaker 2: been far too long before we get to the election race.

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Speaker 2: Let's just talk about the states of the economy. So

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Speaker 2: a lot of people are still talking about whether we

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Speaker 2: can achieve a SELT lending. Do you think it has

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Speaker 2: been achieved already?

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Speaker 3: I think we're close. But the next core PCE reading

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Speaker 3: on a twelve month basis is going to be probably

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Speaker 3: two point seven percent, So inflation isn't all the way there,

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Speaker 3: but labor markets are loose enough. I think inflation is

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Speaker 3: coming down, but there's still narrow perils on either side

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Speaker 3: of reinflation and reception, but a broad path to a

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Speaker 3: self lending in between those.

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Speaker 4: Paul takes one of the big risks, at least according

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Speaker 4: to Ardie Ardenny, who is just on with us. You

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Speaker 4: wrote this terrific, I bet in the Wall Street Journal,

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Speaker 4: terrific writing. I want to start with just the lead sentence.

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Speaker 4: The first modern presidential race between two candidates with undergraduate

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Speaker 4: degrees and economics hasn't thrilled economists.

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Speaker 5: Why not, Jason?

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Speaker 3: You know, campaigns are never the place where you're going

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Speaker 3: to completely thrill economists. But I think an awful lot

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Speaker 3: is the odors want to hear incredibly simple solutions to things.

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Speaker 3: Price gouging, stop Japanese investment in US steel mills, a

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Speaker 3: whole new areas that are in tact like tips, and

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Speaker 3: you know, none of these are ones that any economist

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Speaker 3: would recommend, but you know, there's just quite a lot

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Speaker 3: of pandering out there.

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Speaker 4: Well, but at this point some people would say, we

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Speaker 4: always get this to some degree, right, I mean, we

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Speaker 4: get pandering, we get promises that don't get fulfilled. You've

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Speaker 4: been in the political sphere before. How different is this time?

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Speaker 5: You know?

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Speaker 3: It feels a bit different. There's things I like in

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Speaker 3: these campaigns too, especially an awful lot I like in

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Speaker 3: the Harris campaign. So I don't want to say it's

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Speaker 3: all negative. It feels like more because there's more things

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Speaker 3: around limiting trade and controlling prices. A certain type of

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Speaker 3: government intervention as opposed to the standard you promising lots

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Speaker 3: of tax cuts or spending increases is more than normal thing.

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Speaker 3: This feels to me, the more interventionists, more getting in

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Speaker 3: the way of markets right after they've actually been really

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Speaker 3: quite successful.

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Speaker 6: And Jason, aren't they both doing this? I mean, Kamala

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Speaker 6: Harris was talking about price gouging on the federal level,

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Speaker 6: and then you have Donald Trump over the weekend talking

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Speaker 6: about capping credit card interest rates. Aren't these both proposals

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Speaker 6: price controls in the US economy.

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Speaker 3: Yeah, I mean Donald Trump doesn't seem to be the

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Speaker 3: type of person that respects free markets, competition, and all

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Speaker 3: the things that go into it. He believes very much

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Speaker 3: in a strong government. When he was president the first time,

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Speaker 3: he tried to direct investment this way and that. So yeah,

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Speaker 3: I don't think he's a particularly free market gun.

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Speaker 6: Can you give us a sense of how you view

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Speaker 6: if Donald Trump's not a free market guy, who is

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Speaker 6: Kamala Harris?

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Speaker 3: You know, I'm looking forward to that speech of this week.

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Speaker 3: I think we'll hear more about how she defines herself economically.

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Speaker 3: To a first approximation, you could expect a continuation of

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Speaker 3: the types of policies we saw in the bidenministration, but

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Speaker 3: remember a very very different context. I thought the initial

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Speaker 3: stimulus was too large, but that's not going to repeat itself.

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Speaker 3: We're not going to have, hopefully knock on wood, another

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Speaker 3: massive global pandemic that will create the conditions for something

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Speaker 3: like that. So, you know, there have been some some

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Speaker 3: whispers about being more pro business. She spent more time

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Speaker 3: with CEOs than President Biden. Did you know, pro business

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Speaker 3: has his pros and cons, But on balance, I think

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Speaker 3: wouldn't be a bad direction to move just a little

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Speaker 3: bit in the way of right.

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Speaker 6: Now, how different would we see a Kamala Harris as

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Speaker 6: a president if we get a sweep versus gridlock in Washington.

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Speaker 3: You know, I'm not sure about the whole theory that

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Speaker 3: gridlock is the most fiscally responsible outcome here. You know,

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Speaker 3: with gridlock you're going to be able to extend an

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Speaker 3: awful lot of the tax cuts. It's going to make

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Speaker 3: it hard to enact deficit reduction. In the past, you've

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Speaker 3: seen the parties make deals where one party gets extra

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Speaker 3: defense spending in exchange for the other getting non defense spending.

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Speaker 3: So the whole gridlock is good for the deficit thesis,

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Speaker 3: I'm really not sure. I believe if you had a

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Speaker 3: certain number of Democrats there the taxes you could raise

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Speaker 3: that you couldn't raise in divided government, and that might

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Speaker 3: result in a lower deficit than you'd otherwise have.

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Speaker 4: Jason, I want to finish where we begin. You begin

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Speaker 4: by saying that economists don't like the kind of tariffs

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Speaker 4: that either side are proposing, the kind of limits to

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Speaker 4: trade that we're seeing proposed, and yet we've seen increasing

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Speaker 4: threats to the supply chain we've seen increasing questions about

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Speaker 4: national security issues raised by certain fissures, the breakdowns that

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Speaker 4: we've seen. If we do get some of these gates,

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Speaker 4: some of these tariffs which both sides are proposing, does

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Speaker 4: that increase the risk of inflation or reignition of inflation

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Speaker 4: a really material way next year.

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Speaker 5: Yeah.

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Speaker 3: Look on tariffs is a massive difference between these candidates.

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Speaker 3: Donald Trump is calling for ten to twenty percent tariffs

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Speaker 3: on everything coming into the United States. That's stuff that

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Speaker 3: we're just not going to be making here, like ballpoint pens,

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Speaker 3: that stuff coming from countries that are close allies like Australia.

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Speaker 3: There's just no coherent theory around that, and it's just

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Speaker 3: at a scale that dwarfs anything that you've seen done

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Speaker 3: in the Biden administration or I think plasantly we'd be

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Speaker 3: done in the Harris administration. So absolutely, you follow through

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Speaker 3: on the Trump tariffs, you were going to get a

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Speaker 3: burst of inflation and a real quandary for the FED

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Speaker 3: because it'll both lower economic growth and raise inflation at

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Speaker 3: the same time.

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Speaker 2: Jason, we've got to leave it there. We'll continue that

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Speaker 2: conversation on the FED and the prospect maybe of rethinking

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Speaker 2: Ray cuts with ray hikes in twenty twenty five. If

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Speaker 2: that is the direction of travel, Jason Furman there at

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Speaker 2: the Harvard Kennedy School, Let's turn back to the market. Secondly,

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Speaker 2: futures right now up a quarter of one percent on

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Speaker 2: then as that one hundred, looking ahead to a busy

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Speaker 2: week of data and FED speak purchase ReRAM of Barclay

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Speaker 2: saying the following, even the fifty basis point kind appears

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Speaker 2: to have been a close call. The outcome bears the

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Speaker 2: distinct footprints, imprints of a compromise with hawks, trading the

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Speaker 2: fifty basis point cut in favor of hawkish messaging and

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Speaker 2: a relatively high bar for the unemployment rate to warrant

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Speaker 2: another aggressive cut. Pooja joins us now for more, Pooja,

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Speaker 2: I just want to get to your growth outlook, and

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Speaker 2: I just want to sit on your GDP outlook. Did

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Speaker 2: you raise your GDP out look after getting that surprise

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Speaker 2: move from the Fed last week?

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Speaker 5: We did.

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Speaker 7: We did good morning first of all, you know, and

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Speaker 7: we did raise it by about ero point five percent

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Speaker 7: ditch points for the end of Q four. So we're

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Speaker 7: still penciling in two percent growth for the fourth quarter

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Speaker 7: of this year, and then we've got a similar piece

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Speaker 7: of growth in fact through the end of next year.

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Speaker 7: Some of that was, of course, the easing and financial

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Speaker 7: conditions that we've seen over the bar. You know, a

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Speaker 7: couple of weeks we track the fed FCIG measure, which

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Speaker 7: translates you know, financial conditions into the impulse for growth

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Speaker 7: and it does suggest that growth could look better. So, yes,

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Speaker 7: to your question, we have raised our GDP forecast modestly

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Speaker 7: in the near horizon.

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Speaker 2: Yeah, how does that line up with your view on

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Speaker 2: the Fed's next move and the moves through twenty twenty five.

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Speaker 5: Yeah, that's a good question.

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Speaker 7: So look, our own baseline is for two twenty five

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Speaker 7: basis points cuts this year, so that's you know, broadly

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Speaker 7: in line with the medium projection for twenty twenty four.

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Speaker 7: For twenty twenty five, we've got three twenty five basis

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Speaker 7: points cuts, so that's a total of seventy five as

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Speaker 7: opposed to one hundred basis points cut that the FOMC

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Speaker 7: medium has And that's really predicated on the view that

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Speaker 7: you know, the economy is going to look pretty decent.

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Speaker 7: We don't have the unemployment rates staying you know, at

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Speaker 7: four point four percent, which is what the FOI s

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Speaker 7: has We in fact do see it taking lower. So

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Speaker 7: we do think that, you know, they could afford to

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Speaker 7: slow the pace of rate cuts going into twenty twenty five.

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Speaker 4: Put you wrote something in your recent report that I

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Speaker 4: thought was fascinating. Whatever was gained by the feds fifty

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Speaker 4: basis point rate cut may have come at a significant cost.

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Speaker 4: And you go on to say that it seems quite

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Speaker 4: likely similar Wall Street Channel articles again to what we

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Speaker 4: saw ahead of this latest fifty basis point rightcut during

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Speaker 4: that blackout period coming up. Any blackout period will be

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Speaker 4: interpreted as legitimate signals leading to unnecessary noise. This cost

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Speaker 4: may well exceed whatever benefit the FED achieved by front

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Speaker 4: loading one cut in our view, Can you just elaborate

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Speaker 4: on how much this adds to potential uncertainty for you?

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Speaker 5: Yeah, I think that's a great point.

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Speaker 7: So, you know, just to take a step back and

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Speaker 7: to recap what happened. You know, before the FED went

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Speaker 7: into the blackout period, we had a bunch of data

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Speaker 7: in hand.

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Speaker 5: I think the last print we had.

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Speaker 7: Was you know, the the non vampairo we heard from

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Speaker 7: FMC officials, namely you know Waller FMC member Williams. And

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Speaker 7: you know, the markets were essentially quite content to price

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Speaker 7: in a twenty five basis points ratecut. That was our

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Speaker 7: baseline as well. Everything looked good and then you know,

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Speaker 7: as you mentioned, we've got a bunch of these articles

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Speaker 7: and suddenly it raised the question and you know, put

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Speaker 7: the possibility that the FED could perhaps you know, go

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Speaker 7: a little more aggressive and go fifty basis points, and

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Speaker 7: then you know, the pricing moved, and surprisingly, the FED

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Speaker 7: actually ratified that movement market pricing. And we found that

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Speaker 7: quite you know, quite surprising, to be honest, because it

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Speaker 7: did not come on the back of data and in

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Speaker 7: fact came on the back of a bunch of articles.

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Speaker 7: And what this means is, if you know, something like

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Speaker 7: if there's a precedent for this, now, it's quite possible

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Speaker 7: that there's going to be a lot of noise and

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Speaker 7: volatility around around the blackout period if we get more

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Speaker 7: news information this way.

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Speaker 5: And in terms of the fact.

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Speaker 7: That the FED did not gain much is you know,

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Speaker 7: the markets are still pricing in about the same amount

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Speaker 7: of rate cuts as they work before the.

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Speaker 5: News articles came out. So it's not very clear.

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Speaker 7: To us what the FED achieved by by ratifying market

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Speaker 7: expectations going this route.

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Speaker 4: This might sound like a dumb question, but what is

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Speaker 4: the actual economic cost of of a little bit more

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Speaker 4: volatility around the blackout period?

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Speaker 5: Well, I think it can.

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Speaker 7: It can get you know, markets to run away with

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Speaker 7: the with the expectations. It's you know, you would think

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Speaker 7: that the data, hard data on economic activity.

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Speaker 5: What you're officially hearing from.

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Speaker 7: The f O and C guides market expectations. But if

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Speaker 7: you have you know, something like this, it can lead.

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Speaker 5: To a lot of volatility.

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Speaker 7: Market pricing could go different ways, and then if the

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Speaker 7: FED outcome looks very different to how the markets have moved,

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Speaker 7: it can create financial market volletin.

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Speaker 5: So I think that was the point that we were

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Speaker 5: trying to make.

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Speaker 7: That it creates unnecessary noise, especially after an error where

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Speaker 7: FED communication has been really on point and they've really

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Speaker 7: made an effort to do this so.

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Speaker 6: Well, given this, do you think the FED now has

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Speaker 6: a credibility problem?

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Speaker 7: That doesn't seem like it. When we think of monetary

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Speaker 7: policy credibility, we do tend to look at inflation expectations, right.

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Speaker 7: The credibility comes from the fact that how committed are

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Speaker 7: they towards their dual mandate and right now, there's no

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Speaker 7: question that they're very committed. You know, it does seem

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Speaker 7: like the focus is a little bit more on the

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Speaker 7: labor markets than it is on inflation, as it should

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Speaker 7: be given the inflation outcomes are pretty good.

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Speaker 5: So I think it's too early.

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Speaker 7: To start questioning any of that, but it does create

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Speaker 7: a bit of a kink in the communication policy PJ.

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Speaker 2: We've got to leave it there a free share to

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Speaker 2: catch up.

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Speaker 5: With.

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Speaker 2: It's around of time. But to continue the conversation. Bob

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Speaker 2: At of Unlimited bub good morning, and welcome to the program.

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Speaker 1: Good morning.

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Speaker 2: What did we achieve with the fifty paces point right

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Speaker 2: cut last week at the Federal Reserve?

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Speaker 1: Well, I think the biggest thing that the Fed highlighted

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Speaker 1: was that they were trying to paint the picture of

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Speaker 1: a strong economy and sufficient disinflation that they can deliver

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Speaker 1: big cuts relatively quickly into that scenario. Now you can

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Speaker 1: argue whether you actually believe that that's true, but I

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Speaker 1: think the path that they're laying out they're committed to,

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Speaker 1: and they believe it's data driven because they believe that

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Speaker 1: the inflation numbers are going to get back to their

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Speaker 1: two percent mandate, and that's very interesting for markets. It

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Speaker 1: might be too easy into a hot economy which got

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Speaker 1: a lot of effects, second and third order effects that

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Speaker 1: they might not expect. You believe in disinflation, No, probably not.

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Speaker 1: I think the thing that's interesting you inflation is still

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Speaker 1: running above the FEDS band aid. We have to remember

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Speaker 1: that no matter how you slice it, and easy into

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Speaker 1: that environment when you have a hot economy means that

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Speaker 1: we're probably more likely to get acceleration rather than deceleration

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Speaker 1: head The thing that's interesting about that is that the

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Speaker 1: FED probably won't see that data come out until they've

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Speaker 1: cut a few hundred basis points, and only then will

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Speaker 1: they be held accountable for the fact that the disinflation

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Speaker 1: might have reversed. And so I think it's a tricky

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Speaker 1: period over the course of the next fifteen eighteen months

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Speaker 1: when the FED isn't going to get the feedback loop

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Speaker 1: that their policy is too easy.

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Speaker 4: Just to put a bow on that, are you saying

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Speaker 4: that right now the risk of a reinflationary kind of

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Speaker 4: moment is greater or less priced into a market and

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Speaker 4: more real than say a downdraft and gross Well, certainly.

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Speaker 1: It's less priced into markets. When you look at long

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Speaker 1: term inflation expectations, the expectation is for you for inflation

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Speaker 1: to be at two percent or below two percent essentially forever.

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Speaker 1: And given the geopolitical dynamics, given the FEDS easing into

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Speaker 1: a relatively strong economy, given the fact that you start

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Speaker 1: you still see a lot of sticky dynamics and inflation,

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Speaker 1: particularly related to wages, which are showing some signs of reaccelerating.

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Speaker 1: That whole picture doesn't really align with the probabilities of

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Speaker 1: a certainty around two percent inflation and much more likely

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Speaker 1: that we have higher inflation ahead rather than lower inflation.

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Speaker 4: Normally, somebody with that kind of view would be bullish,

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Speaker 4: because if you believe in this sort of strong economy

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Speaker 4: that could foster some reignition of inflation that would be

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Speaker 4: probably positive for equity valuations. But you wrote the stock

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Speaker 4: market is priced perfection, and so far this quarter is

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Speaker 4: providing plenty of data points that the perfection is unlikely

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Speaker 4: to be achieved in reality.

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Speaker 1: Why well, I think when you're trading markets, you got

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Speaker 1: to trade against what the price and expectations are, and

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Speaker 1: we're at pees that are almost as high as they

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Speaker 1: were during the tech boom. We have forward earnings growth

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Speaker 1: expectations in the mid teens. That's a pretty strong scenario

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Speaker 1: already priced into the markets.

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Speaker 5: Now.

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Speaker 1: The FED is helping that along, and that's probably a positive.

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Speaker 1: But I think the story is much more around being

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Speaker 1: long stocks relative to bonds, because that's the scenario, you know,

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Speaker 1: of the growth reacceleration that probably isn't fully priced into

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Speaker 1: the market.

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Speaker 2: Let's introduce China into the conversation. They're now exploiting disinflation,

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Speaker 2: perhaps even deflation. How do the factor into your world

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Speaker 2: view right now?

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Speaker 1: Well, China's experiencing debt de leveraging, you know, akin to

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Speaker 1: what happened in Japan, and akin to classic balance sheet recession,

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Speaker 1: a classic balance sheet recession, and the policymakers there are

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Speaker 1: maybe driven by motivations that are not related to macroeconomic policy,

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Speaker 1: more like political motivations. And so for whatever reason, they're

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Speaker 1: choosing not to respond to the situation. And so China's

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Speaker 1: probably in this malaise for the foreseeable future. I think

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Speaker 1: the effects on the West are actually relatively limited. And

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Speaker 1: the reason why that is is, you know, China's deflationary

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Speaker 1: impulse has been basically the same for the last couple

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Speaker 1: of years. Probably China is not going to accelerate in

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Speaker 1: terms of getting a deeper and deeper or a worse

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Speaker 1: rate of deflation going on in the economy. And if anything,

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Speaker 1: you've seen it tick up. And so the big picture

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Speaker 1: is it's not it's probably not the main story that's

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Speaker 1: going on. When you're looking at US inflation, Western inflation

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Speaker 1: in general. What really matters. It's the labor markets. It's

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Speaker 1: all about the labor markets. It's all about that wage data.

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Speaker 1: If you look at the Atlanta Fed wage tracker data,

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Speaker 1: we're one to two points above where we were pre COVID,

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Speaker 1: And unless you believe productivity has matched that increase, that's

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Speaker 1: an underlying inflationary pressure that remains in the economy.

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Speaker 6: But Bob, isn't the deflationary pressure coming from China has

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Speaker 6: everything to do with the commodities market. Isn't that helping

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Speaker 6: Western economies?

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Speaker 1: Yeah, it certainly is an effect on the commodities markets.

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Speaker 1: And if you're trading you know, copper or other direct

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Speaker 1: commodities that China has a meaningful share of, that's going

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Speaker 1: to be an influence, a meaningful influence on that supply demand.

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Speaker 1: But the flow through of that to the to the

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Speaker 1: US inflation picture, it's pretty tiny compared to rents, labor,

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Speaker 1: the other sort of imported you know, the other sort

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Speaker 1: of important goods costs that you know, cars, new cars,

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Speaker 1: used cars, all of those things represent a much bigger

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Speaker 1: impact on US inflation and US policy.

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Speaker 6: Liz Young Thomas or guess at the top of the

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Speaker 6: hours talking about one risk would be reacceleration of commodity prices.

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Speaker 6: Do you see that where China is right now?

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Speaker 1: Commodity prices have basically been trading, you know, and particularly

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Speaker 1: oil prices, which is really the thing that matters, have

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Speaker 1: been trading in a tight range over the last couple

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Speaker 1: of years. After the move down eighteen months ago. You know,

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Speaker 1: I don't see meaningful pressures on the upside or the downside.

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Speaker 1: On the downside, on the downside, you've got a natural

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Speaker 1: cap in terms of you know, suppliers taking barrels off

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Speaker 1: the market if oil prices start to fall a little

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Speaker 1: too much. And on the upside, there's still a lot

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Speaker 1: of incremental production. You know, US production is near all

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Speaker 1: time highs. A lot of production that can come into

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Speaker 1: the market to put a cap on it. So that's

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Speaker 1: probably not the big story here. It's much more about

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Speaker 1: the sticky inflationary pressures in the economy. On the forward

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Speaker 1: looking basis.

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Speaker 4: How much would longer term yields have to rise to

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Speaker 4: make you a buyer.

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Speaker 1: Well, I think at this point you know you've got

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Speaker 1: to see inflation expectations move up considerably here, So I

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Speaker 1: think you know easily into the into the mid forest

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Speaker 1: before you start to have a real conversation that that's

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Speaker 1: a that's an attractive bid, particularly relative to stocks in

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Speaker 1: a stronger growth environment.

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Speaker 2: When you say inflation expectations, you're talking about markets based pricing.

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Speaker 2: Are you talking about consumer surveys the likes we see

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Speaker 2: from you, Mitch every other Friday.

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Speaker 1: But what you're looking for, mostly mostly in terms of

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Speaker 1: trading the bond market, it's all about price and break

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Speaker 1: even inflation. And so that that's the thing that if

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Speaker 1: you look at the market's basically priced to be, you know,

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Speaker 1: at two percent or below essentially forever or inflation swaps,

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Speaker 1: that's what you're trading. And those are the those are

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Speaker 1: the areas of the market that look particularly under price.

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Speaker 1: And the reality is if you're going to trade, if

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Speaker 1: you're gonna get exposure to duration right now, buy the

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Speaker 1: tips all right. You're you're seeing real yields that are

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Speaker 1: still pretty good on any long term perspective. You know,

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Speaker 1: around one and a half to two percent. That's a

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Speaker 1: pretty good real yield if you can lock it in

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Speaker 1: for twenty or thirty years without any rest.

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Speaker 2: Bob, it's good to see you. Let's do it again soon.

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Speaker 2: Thank you, sir, Bob Elliot. There are unlimited on this

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