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

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Speaker 2: We begin this sour with stock steady as investors prepare

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Speaker 2: for a week full of event risk. Muhammad al Aaron

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Speaker 2: of Queen's College, Cambridge writing a heavy data week on

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Speaker 2: tap for the US with the monthly jobs report, lots

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Speaker 2: of speaking engagements for policymakers, including Treasury Secretary Beston and

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Speaker 2: Fedcha Japewell, and the latest on tariffs and Doach. Mohammed

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Speaker 2: joins us now for more. Mohammed, Welcome to the program, Sir.

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Speaker 2: Where to begin? I think we start on Friday and

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Speaker 2: the rupture in Transatlantic relations and the breakdown in the

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Speaker 2: Oval Office. When you saw that and when you think

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Speaker 2: about the consequences it could have for the economic picture

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Speaker 2: in Europe, for military spending, and for what it could

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Speaker 2: mean for financial markets. To Muhammad, what are your thoughts

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Speaker 2: at the moment?

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Speaker 1: Thanks for having me, John. My thoughts is that Dad

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Speaker 1: feeds into some existing themes, both top down and bottom up,

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Speaker 1: and intensifies them. So top down, we've had issues of

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Speaker 1: fiscal realignment, and that's going to feed into fiscal realignment,

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Speaker 1: including putting pressure on the dead break in Germany, including

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Speaker 1: the question of how does it interact with what Dodge

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Speaker 1: is doing in the US. Secondly, it feeds into the

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Speaker 1: energy market and how you think about the energy market.

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Speaker 1: And third it feeds into the realignment of the global

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Speaker 1: order that also has a trade element to it and

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Speaker 1: a currency element to it. So we have all these

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Speaker 1: top down factors that are being amplified, and then the

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Speaker 1: bottom up factor that's being amplified is defense. And we

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Speaker 1: are seeing significant sector differences occurring as you would expect.

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Speaker 1: So I think every John not as unprecedented, which is

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Speaker 1: the words that the political science and the international relations

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Speaker 1: people are using, but in the field of economics and finance,

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Speaker 1: it is amplifying things that were there already.

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Speaker 2: So Mohammed, a number of weeks ago we said on

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Speaker 2: this program that the President of the United States may

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Speaker 2: well push the Europeans into doing things that might be

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Speaker 2: good for them. You wrote in the Financial Times about

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Speaker 2: a month ago the mounting risk to US exceptionalism. How

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Speaker 2: does some of these things across these dimensions play into

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Speaker 2: what you wrote about a month ago.

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Speaker 1: So, John, both the good news and the bad news

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Speaker 1: is we have a very action oriented administration has come in.

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Speaker 1: It has hit the ground running. If not sprinting, and

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Speaker 1: if you are a business, it feels like you're trying

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Speaker 1: to drink from a fire hose. There's energy issues, there's

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Speaker 1: immigration issues, there are trade issues that are public sector issues,

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Speaker 1: including public sector contract there are regulation issues, so you're

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Speaker 1: trying to absorb all this, and what we've seen is

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Speaker 1: sentiment has come down and there's been a weight and

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Speaker 1: see attitude because most of these things impact both your

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Speaker 1: income and your expenditure, so it's really hard to figure

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Speaker 1: out how all these things are going to play out.

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Speaker 1: Then there is the international relations side of it, your

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Speaker 1: trading side of it. So the worry that I have

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Speaker 1: is that the lack of ability by the public sector

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Speaker 1: to absorb all this results in a wait and see attitude.

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Speaker 1: That weight and sy attitude comes at a time when

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Speaker 1: we already have a bit of a whiff of stackflation

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Speaker 1: going on. And next thing, you know, people start questioning

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Speaker 1: US economic exceptionalism, and if they do, two things happen.

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Speaker 1: You start questioning the only reliable engine of growth for

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Speaker 1: the global economy, and you start questioning the shield that

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Speaker 1: markets have had against all sorts of geopolitical and political aspects.

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Speaker 3: That's a lot of hair on the American exceptionalism story.

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Speaker 3: And we've been talking to people about it for the

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Speaker 3: past couple of weeks about the concerns, the lack of certainty,

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Speaker 3: the on hold kind of nature of a lot of CEOs,

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Speaker 3: And yet when you ask them, they still say they

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Speaker 3: prefer to invest in the US over the rest of

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Speaker 3: the world. If Europe went through with a nine hundred

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Speaker 3: billion euro spending package defense and infrastructure, would that shift

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Speaker 3: for you? Would you see brighter shoots in Europe?

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Speaker 1: No, it wouldn't shift for me. I would still prefer

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Speaker 1: to US over Europe for the simple reason that Europe

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Speaker 1: doesn't have a genuine and durable growth engine. So maybe

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Speaker 1: defense contributes in the short term to growth, but they

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Speaker 1: need to get a handle on some really fundamental things.

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Speaker 1: I encourage everybody to read the Drug Report. The Drug

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Speaker 1: Report is a really good assessment of what has gone

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Speaker 1: wrong in terms of investment, in terms of competitiveness and productivity,

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Speaker 1: and what needs to go right, and that should be

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Speaker 1: your benchmark when you assess future growth prospects in Europe.

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Speaker 3: So what happens, Mohammed, if this American exceptionalism story is

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Speaker 3: challenged to the degree that you're laying out and a

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Speaker 3: lot of people are worried about. But there isn't a

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Speaker 3: brighter alternative in Europe.

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Speaker 1: That's the concern because remember I've always said the good

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Speaker 1: and the bad and the ugly of the global economy.

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Speaker 1: The good is the US, the baddest China, and the

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Speaker 1: ugly is Europe. And if you don't see China and

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Speaker 1: Europe converge up to the US, there's a risk that

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Speaker 1: the US will converge down to the other two. It

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Speaker 1: is a risk scenario. It is not the baseline I

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Speaker 1: want to stress. But in mid January, no one was

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Speaker 1: questioning US economic exceptionalism, and now, as you point out,

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Speaker 1: a lot more people are starting to worry about it.

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Speaker 4: Mohammad, what do you make of the tariffs? Do you

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Speaker 4: think they're actually going to come on tomorrow or do

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Speaker 4: you think the market consensus of that. Maybe China, of

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Speaker 4: course goes on, but there will be a pause, another

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Speaker 4: pause or a pass when it comes to Canada and Mexico.

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Speaker 4: Is the accurate way to view this?

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Speaker 1: I don't know, and Marie, I really don't know. I

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Speaker 1: don't think anybody knows about the president. But what has

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Speaker 1: become clear is that there are three sets of terriffs,

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Speaker 1: and that explain why the President was pursuing so many

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Speaker 1: objectives with tarifs. You know when he came out in

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Speaker 1: October and he said it's my favorite word. He said,

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Speaker 1: it can weige revenue, it can result in fairer trade,

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Speaker 1: it can put pressure on both adversaries and allies, and

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Speaker 1: in addition, it can protect US industry. And the initial

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Speaker 1: reaction of the economists was too many objectives for a

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Speaker 1: single tool, but we're seeing now what is happening. You

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Speaker 1: have a set of general tariffs that do the revenue

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Speaker 1: side and the reciprocity side, the fair trade side. You

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Speaker 1: have a set of sector specific tariff aluminium steel that

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Speaker 1: protect industry, and then you have a third set of

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Speaker 1: tariff's aim that particular countries to get particular outcomes. And

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Speaker 1: I think that that's the thing we're going to live

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Speaker 1: with for the next few months, is not the next

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Speaker 1: few years, which is a multifaceted trade policy.

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Speaker 2: Muhammad. For the first time in a long time, there

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Speaker 2: was a FED official in the last week that considered stagflation.

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Speaker 2: I'm sure you notice the same comments downside risk to

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Speaker 2: growth and upside risk to inflation. If we were to

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Speaker 2: have a FEDS Joe mantit the one into conflict. How

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Speaker 2: do you suppose would be the best way to approach

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Speaker 2: that situation.

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Speaker 1: It's tough. It's really tough. Stagflation is the nightmare of policymakers,

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Speaker 1: and it is the nightmare of FED with the dual mandate,

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Speaker 1: as you point out, So it's really tough. I worry,

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Speaker 1: like you had an introduction that we've had a reaction

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Speaker 1: we fed. So the FED is not going to be

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Speaker 1: getting ahead of this anytime soon. I hope it understands it,

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Speaker 1: but it's not going to be getting ahead of it

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Speaker 1: anytime soon. So the risk is John, that monetary policy

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Speaker 1: continues to amplify volatility rather than acting as an anchor

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Speaker 1: of stability. That's the risk we face right now.

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Speaker 3: Mommy, can you just give us a sense of the

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Speaker 3: trajectory of your belief that the economy can withstand all

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Speaker 3: of this in the United States? As the year has progressed,

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Speaker 3: I realized that it's the beginning of March. But how

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Speaker 3: much which more worried are you now than say two

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Speaker 3: weeks ago about a real calling into question of American

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Speaker 3: exceptionalism and a real rolling over of the US economy.

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Speaker 1: You know it's my nature. I've been worried for a while.

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Speaker 1: I put out an ft UP AD on February fourteenth

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Speaker 1: saying be careful that slowly we may see the erosion

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Speaker 1: of US economic exceptionalism, and that's bad news for everybody,

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Speaker 1: not just the US, for everybody. So I've been worried

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Speaker 1: for a while, and I've seen sort of three elements

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Speaker 1: that have made me worry. One is the way business

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Speaker 1: is reacting to all these policy changes, which increasingly is

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Speaker 1: wait and see. We think it's going to be fine,

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Speaker 1: but let's wait and see. Second, we know that the

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Speaker 1: lowest segments of the household income distribution is under enormous pressure,

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Speaker 1: and that has been a concern for a while. And

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Speaker 1: then the third issue is the risk of a FED

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Speaker 1: policy mistake. These things have been there and now they're

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Speaker 1: they've amplified because of what's been going on.

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Speaker 2: Muhammed, always appreciate your time. You're a good friend of

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Speaker 2: this program, a good friend of ours. We appreciate it.

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Speaker 2: Thank you, Sir Mohammed Aaron of Queen's College, Cambridge. There

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Speaker 2: on some of the challenges for officials worldwide and for

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Speaker 2: global markets as well,