Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We begin this sour with stock steady as investors prepare
Speaker 2: for a week full of event risk. Muhammad al Aaron
Speaker 2: of Queen's College, Cambridge writing a heavy data week on
Speaker 2: tap for the US with the monthly jobs report, lots
Speaker 2: of speaking engagements for policymakers, including Treasury Secretary Beston and
Speaker 2: Fedcha Japewell, and the latest on tariffs and Doach. Mohammed
Speaker 2: joins us now for more. Mohammed, Welcome to the program, Sir.
Speaker 2: Where to begin? I think we start on Friday and
Speaker 2: the rupture in Transatlantic relations and the breakdown in the
Speaker 2: Oval Office. When you saw that and when you think
Speaker 2: about the consequences it could have for the economic picture
Speaker 2: in Europe, for military spending, and for what it could
Speaker 2: mean for financial markets. To Muhammad, what are your thoughts
Speaker 2: at the moment?
Speaker 1: Thanks for having me, John. My thoughts is that Dad
Speaker 1: feeds into some existing themes, both top down and bottom up,
Speaker 1: and intensifies them. So top down, we've had issues of
Speaker 1: fiscal realignment, and that's going to feed into fiscal realignment,
Speaker 1: including putting pressure on the dead break in Germany, including
Speaker 1: the question of how does it interact with what Dodge
Speaker 1: is doing in the US. Secondly, it feeds into the
Speaker 1: energy market and how you think about the energy market.
Speaker 1: And third it feeds into the realignment of the global
Speaker 1: order that also has a trade element to it and
Speaker 1: a currency element to it. So we have all these
Speaker 1: top down factors that are being amplified, and then the
Speaker 1: bottom up factor that's being amplified is defense. And we
Speaker 1: are seeing significant sector differences occurring as you would expect.
Speaker 1: So I think every John not as unprecedented, which is
Speaker 1: the words that the political science and the international relations
Speaker 1: people are using, but in the field of economics and finance,
Speaker 1: it is amplifying things that were there already.
Speaker 2: So Mohammed, a number of weeks ago we said on
Speaker 2: this program that the President of the United States may
Speaker 2: well push the Europeans into doing things that might be
Speaker 2: good for them. You wrote in the Financial Times about
Speaker 2: a month ago the mounting risk to US exceptionalism. How
Speaker 2: does some of these things across these dimensions play into
Speaker 2: what you wrote about a month ago.
Speaker 1: So, John, both the good news and the bad news
Speaker 1: is we have a very action oriented administration has come in.
Speaker 1: It has hit the ground running. If not sprinting, and
Speaker 1: if you are a business, it feels like you're trying
Speaker 1: to drink from a fire hose. There's energy issues, there's
Speaker 1: immigration issues, there are trade issues that are public sector issues,
Speaker 1: including public sector contract there are regulation issues, so you're
Speaker 1: trying to absorb all this, and what we've seen is
Speaker 1: sentiment has come down and there's been a weight and
Speaker 1: see attitude because most of these things impact both your
Speaker 1: income and your expenditure, so it's really hard to figure
Speaker 1: out how all these things are going to play out.
Speaker 1: Then there is the international relations side of it, your
Speaker 1: trading side of it. So the worry that I have
Speaker 1: is that the lack of ability by the public sector
Speaker 1: to absorb all this results in a wait and see attitude.
Speaker 1: That weight and sy attitude comes at a time when
Speaker 1: we already have a bit of a whiff of stackflation
Speaker 1: going on. And next thing, you know, people start questioning
Speaker 1: US economic exceptionalism, and if they do, two things happen.
Speaker 1: You start questioning the only reliable engine of growth for
Speaker 1: the global economy, and you start questioning the shield that
Speaker 1: markets have had against all sorts of geopolitical and political aspects.
Speaker 3: That's a lot of hair on the American exceptionalism story.
Speaker 3: And we've been talking to people about it for the
Speaker 3: past couple of weeks about the concerns, the lack of certainty,
Speaker 3: the on hold kind of nature of a lot of CEOs,
Speaker 3: And yet when you ask them, they still say they
Speaker 3: prefer to invest in the US over the rest of
Speaker 3: the world. If Europe went through with a nine hundred
Speaker 3: billion euro spending package defense and infrastructure, would that shift
Speaker 3: for you? Would you see brighter shoots in Europe?
Speaker 1: No, it wouldn't shift for me. I would still prefer
Speaker 1: to US over Europe for the simple reason that Europe
Speaker 1: doesn't have a genuine and durable growth engine. So maybe
Speaker 1: defense contributes in the short term to growth, but they
Speaker 1: need to get a handle on some really fundamental things.
Speaker 1: I encourage everybody to read the Drug Report. The Drug
Speaker 1: Report is a really good assessment of what has gone
Speaker 1: wrong in terms of investment, in terms of competitiveness and productivity,
Speaker 1: and what needs to go right, and that should be
Speaker 1: your benchmark when you assess future growth prospects in Europe.
Speaker 3: So what happens, Mohammed, if this American exceptionalism story is
Speaker 3: challenged to the degree that you're laying out and a
Speaker 3: lot of people are worried about. But there isn't a
Speaker 3: brighter alternative in Europe.
Speaker 1: That's the concern because remember I've always said the good
Speaker 1: and the bad and the ugly of the global economy.
Speaker 1: The good is the US, the baddest China, and the
Speaker 1: ugly is Europe. And if you don't see China and
Speaker 1: Europe converge up to the US, there's a risk that
Speaker 1: the US will converge down to the other two. It
Speaker 1: is a risk scenario. It is not the baseline I
Speaker 1: want to stress. But in mid January, no one was
Speaker 1: questioning US economic exceptionalism, and now, as you point out,
Speaker 1: a lot more people are starting to worry about it.
Speaker 4: Mohammad, what do you make of the tariffs? Do you
Speaker 4: think they're actually going to come on tomorrow or do
Speaker 4: you think the market consensus of that. Maybe China, of
Speaker 4: course goes on, but there will be a pause, another
Speaker 4: pause or a pass when it comes to Canada and Mexico.
Speaker 4: Is the accurate way to view this?
Speaker 1: I don't know, and Marie, I really don't know. I
Speaker 1: don't think anybody knows about the president. But what has
Speaker 1: become clear is that there are three sets of terriffs,
Speaker 1: and that explain why the President was pursuing so many
Speaker 1: objectives with tarifs. You know when he came out in
Speaker 1: October and he said it's my favorite word. He said,
Speaker 1: it can weige revenue, it can result in fairer trade,
Speaker 1: it can put pressure on both adversaries and allies, and
Speaker 1: in addition, it can protect US industry. And the initial
Speaker 1: reaction of the economists was too many objectives for a
Speaker 1: single tool, but we're seeing now what is happening. You
Speaker 1: have a set of general tariffs that do the revenue
Speaker 1: side and the reciprocity side, the fair trade side. You
Speaker 1: have a set of sector specific tariff aluminium steel that
Speaker 1: protect industry, and then you have a third set of
Speaker 1: tariff's aim that particular countries to get particular outcomes. And
Speaker 1: I think that that's the thing we're going to live
Speaker 1: with for the next few months, is not the next
Speaker 1: few years, which is a multifaceted trade policy.
Speaker 2: Muhammad. For the first time in a long time, there
Speaker 2: was a FED official in the last week that considered stagflation.
Speaker 2: I'm sure you notice the same comments downside risk to
Speaker 2: growth and upside risk to inflation. If we were to
Speaker 2: have a FEDS Joe mantit the one into conflict. How
Speaker 2: do you suppose would be the best way to approach
Speaker 2: that situation.
Speaker 1: It's tough. It's really tough. Stagflation is the nightmare of policymakers,
Speaker 1: and it is the nightmare of FED with the dual mandate,
Speaker 1: as you point out, So it's really tough. I worry,
Speaker 1: like you had an introduction that we've had a reaction
Speaker 1: we fed. So the FED is not going to be
Speaker 1: getting ahead of this anytime soon. I hope it understands it,
Speaker 1: but it's not going to be getting ahead of it
Speaker 1: anytime soon. So the risk is John, that monetary policy
Speaker 1: continues to amplify volatility rather than acting as an anchor
Speaker 1: of stability. That's the risk we face right now.
Speaker 3: Mommy, can you just give us a sense of the
Speaker 3: trajectory of your belief that the economy can withstand all
Speaker 3: of this in the United States? As the year has progressed,
Speaker 3: I realized that it's the beginning of March. But how
Speaker 3: much which more worried are you now than say two
Speaker 3: weeks ago about a real calling into question of American
Speaker 3: exceptionalism and a real rolling over of the US economy.
Speaker 1: You know it's my nature. I've been worried for a while.
Speaker 1: I put out an ft UP AD on February fourteenth
Speaker 1: saying be careful that slowly we may see the erosion
Speaker 1: of US economic exceptionalism, and that's bad news for everybody,
Speaker 1: not just the US, for everybody. So I've been worried
Speaker 1: for a while, and I've seen sort of three elements
Speaker 1: that have made me worry. One is the way business
Speaker 1: is reacting to all these policy changes, which increasingly is
Speaker 1: wait and see. We think it's going to be fine,
Speaker 1: but let's wait and see. Second, we know that the
Speaker 1: lowest segments of the household income distribution is under enormous pressure,
Speaker 1: and that has been a concern for a while. And
Speaker 1: then the third issue is the risk of a FED
Speaker 1: policy mistake. These things have been there and now they're
Speaker 1: they've amplified because of what's been going on.
Speaker 2: Muhammed, always appreciate your time. You're a good friend of
Speaker 2: this program, a good friend of ours. We appreciate it.
Speaker 2: Thank you, Sir Mohammed Aaron of Queen's College, Cambridge. There
Speaker 2: on some of the challenges for officials worldwide and for
Speaker 2: global markets as well,