1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:35,840 Speaker 2: Terminal and the Bloomberg Business App. 10 00:00:36,520 --> 00:00:37,760 Speaker 3: It's time for some calm. 11 00:00:37,840 --> 00:00:40,360 Speaker 2: Joining us now the seventy ninth Secretary of the Treasury, 12 00:00:40,680 --> 00:00:43,920 Speaker 2: Skill Besson. Mister Secretary, welcome to the program sir. Let's 13 00:00:43,920 --> 00:00:46,280 Speaker 2: pick up on that theme, not you calm in the markets, 14 00:00:46,320 --> 00:00:49,080 Speaker 2: but on inflation and where rates should be. As Amori 15 00:00:49,120 --> 00:00:51,599 Speaker 2: pointed out, we've had a string of softer th expected 16 00:00:51,640 --> 00:00:54,360 Speaker 2: inflation reads in this country. We've had four, we might 17 00:00:54,400 --> 00:00:57,080 Speaker 2: get five at a thirty Eastern time. Why do you 18 00:00:57,120 --> 00:00:59,160 Speaker 2: believe that's signal and non noise? 19 00:01:00,720 --> 00:01:04,600 Speaker 1: Well, I mean there's some persistence there, Jonathan. And look, 20 00:01:04,680 --> 00:01:08,559 Speaker 1: I do have access to the number of the night before, 21 00:01:08,600 --> 00:01:10,840 Speaker 1: but when I'm coming on TV. I don't look at it, 22 00:01:10,880 --> 00:01:12,520 Speaker 1: so I don't know what the number is going to 23 00:01:12,560 --> 00:01:16,640 Speaker 1: be at eight thirty, and I wouldn't. I don't know 24 00:01:16,680 --> 00:01:19,959 Speaker 1: whether it's going to be down, up, or flat, but 25 00:01:20,080 --> 00:01:24,200 Speaker 1: I wouldn't put too much emphasis on one number. I 26 00:01:24,520 --> 00:01:28,520 Speaker 1: think it's the trend. And I think one thing that 27 00:01:28,800 --> 00:01:33,240 Speaker 1: Wall Street, a lot of economist market in general got 28 00:01:33,240 --> 00:01:37,560 Speaker 1: wrong early on was that tariffs were going to cause 29 00:01:37,720 --> 00:01:40,920 Speaker 1: a substantial price level rise, which just hasn't happened. 30 00:01:41,120 --> 00:01:43,279 Speaker 2: And there are some people on the FMC the Federal 31 00:01:43,280 --> 00:01:46,000 Speaker 2: Reserve still worried about the prospect of that happening. Through 32 00:01:46,000 --> 00:01:48,600 Speaker 2: the summer, We've all sensed the frustration from the White 33 00:01:48,600 --> 00:01:51,640 Speaker 2: House across the administration with FED Chair J Powell, and 34 00:01:51,720 --> 00:01:53,240 Speaker 2: a lot of confusion. I think at this point that 35 00:01:53,320 --> 00:01:56,440 Speaker 2: maybe we can address in this conversation, is firing the 36 00:01:56,440 --> 00:02:00,280 Speaker 2: Federal Reserve Chair under active consideration in the White in 37 00:02:00,320 --> 00:02:02,120 Speaker 2: the Treasury in your administration. 38 00:02:03,360 --> 00:02:07,240 Speaker 1: President Trump said numerous times he's not going to fire J. Powell. 39 00:02:07,640 --> 00:02:12,320 Speaker 1: You know, he's working the refs. And I've said before 40 00:02:12,639 --> 00:02:15,040 Speaker 1: I'm a basketball fan. There are two schools of working 41 00:02:15,040 --> 00:02:18,280 Speaker 1: the refs. There's the Bobby Knight school, and there's the 42 00:02:18,560 --> 00:02:22,040 Speaker 1: Dean Smith School. President Trump seems to prefer the Bobby 43 00:02:22,120 --> 00:02:24,839 Speaker 1: Knight school. And I'll tell you, I went back over 44 00:02:24,880 --> 00:02:28,960 Speaker 1: the weekend and looked, and Bobby Knight won three NCAA championships. 45 00:02:29,600 --> 00:02:31,320 Speaker 3: My hero Dean Smith only won two. 46 00:02:31,960 --> 00:02:34,560 Speaker 2: Then Seat Director Kevin Hassett, I'm not sure what you'd 47 00:02:34,560 --> 00:02:36,960 Speaker 2: call him, but he was asked over the weekend, can 48 00:02:37,000 --> 00:02:39,280 Speaker 2: the FED chair be fired? He said, that's the thing 49 00:02:39,760 --> 00:02:42,680 Speaker 2: this being looked into. How should we understand those comments? 50 00:02:44,240 --> 00:02:49,679 Speaker 1: Look? And I will point out Kevin was a collegiate 51 00:02:49,720 --> 00:02:55,799 Speaker 1: basketball player. And I think, as President Trump said, he's 52 00:02:55,919 --> 00:03:00,720 Speaker 1: not looking to fire Chair Powell. And as I've said, 53 00:03:00,880 --> 00:03:03,600 Speaker 1: I'm not going to come. I'm not going to comment 54 00:03:03,720 --> 00:03:07,600 Speaker 1: on future policy or future mistakes the federal make. I'll 55 00:03:07,600 --> 00:03:11,280 Speaker 1: only comment on past mistakes. And look, they've had some 56 00:03:11,320 --> 00:03:14,600 Speaker 1: big forecasting errors and this may be one. 57 00:03:14,680 --> 00:03:17,440 Speaker 2: Now is there a reason for not firing Kim? And 58 00:03:17,480 --> 00:03:19,760 Speaker 2: I asked that question because the presidents also said that 59 00:03:20,160 --> 00:03:22,720 Speaker 2: his term is about to expire in May of next year. 60 00:03:22,840 --> 00:03:25,400 Speaker 2: Is that the reason to ultimately just wait? Or is 61 00:03:25,440 --> 00:03:28,359 Speaker 2: it something come? So you convinced by the negative consequences 62 00:03:28,360 --> 00:03:30,120 Speaker 2: associates it with such a move. 63 00:03:31,280 --> 00:03:36,119 Speaker 1: Look, I think an independent central bank is very important 64 00:03:36,240 --> 00:03:40,240 Speaker 1: for the conduct of monetary policy, and we can see 65 00:03:40,280 --> 00:03:44,480 Speaker 1: that in terms of both the financial markets, the term 66 00:03:44,600 --> 00:03:46,880 Speaker 1: premium and longer term debt. 67 00:03:47,560 --> 00:03:50,560 Speaker 2: You said previously the interview process would begin later on 68 00:03:50,600 --> 00:03:52,800 Speaker 2: in the fall. There's been plenty of speculation as to 69 00:03:52,800 --> 00:03:55,640 Speaker 2: whether that process would be brought forward, Missus Secretary, do 70 00:03:55,640 --> 00:03:58,320 Speaker 2: you still, as far as you understand, believe that's when 71 00:03:58,360 --> 00:04:00,560 Speaker 2: the interview process to replace the feed che will begin 72 00:04:00,640 --> 00:04:03,560 Speaker 2: in the fall, or as a formal process already started. 73 00:04:04,360 --> 00:04:07,720 Speaker 1: Well, look, there's a formal process that's already starting. There 74 00:04:07,760 --> 00:04:11,680 Speaker 1: are a lot of great candidates, and we'll see how 75 00:04:12,000 --> 00:04:16,800 Speaker 1: rapidly it progresses. It's President Trump's decision and it will 76 00:04:16,839 --> 00:04:18,680 Speaker 1: move at his speed. 77 00:04:19,040 --> 00:04:21,760 Speaker 2: Do you see any merits at all and selecting maybe 78 00:04:21,760 --> 00:04:24,760 Speaker 2: a candidate that's already on the committee on the FMC 79 00:04:24,960 --> 00:04:27,920 Speaker 2: versus taking a look at someone outside of the Federal Reserve. 80 00:04:29,320 --> 00:04:32,240 Speaker 1: Again, there are a lot of good candidates inside and 81 00:04:32,320 --> 00:04:33,479 Speaker 1: outside the Federal Reserve. 82 00:04:33,560 --> 00:04:37,360 Speaker 2: Jonathan has the chairman himself the Fed shat Jake Paw, 83 00:04:37,520 --> 00:04:40,640 Speaker 2: given you any indication whatsoever as to what he would 84 00:04:40,680 --> 00:04:44,120 Speaker 2: do once his term has expired, WILLI f ak as 85 00:04:44,120 --> 00:04:45,680 Speaker 2: the governor at the Federal Reserve. 86 00:04:46,800 --> 00:04:52,880 Speaker 1: Well, traditionally the FED chair also steps down as a governor, 87 00:04:53,120 --> 00:04:55,919 Speaker 1: and there's been a lot of talk of a shadow 88 00:04:56,040 --> 00:05:01,800 Speaker 1: FED chair causing confusion in advance of his or her nomination, 89 00:05:02,080 --> 00:05:03,960 Speaker 1: And I can tell you I think it'd be very 90 00:05:04,000 --> 00:05:07,359 Speaker 1: confusing for the market for a former FED chair to 91 00:05:07,600 --> 00:05:08,560 Speaker 1: stay on. 92 00:05:08,800 --> 00:05:12,080 Speaker 4: Also, mister Treasury Secretary, I love to talk to you 93 00:05:12,120 --> 00:05:15,080 Speaker 4: about what's going on in Video. This morning, Jensen Wang, 94 00:05:15,120 --> 00:05:18,200 Speaker 4: the CEO, out in a blog statement saying that the 95 00:05:18,240 --> 00:05:21,480 Speaker 4: company has quote provided an update to customers, noting that 96 00:05:21,520 --> 00:05:25,279 Speaker 4: in Nvidia is finding applications to sell the H twenty 97 00:05:25,360 --> 00:05:29,000 Speaker 4: GPU again. The US government has assured the company that 98 00:05:29,080 --> 00:05:31,800 Speaker 4: licenses will be granted, and the video hopes to start 99 00:05:31,839 --> 00:05:32,760 Speaker 4: deliveries soon. 100 00:05:33,520 --> 00:05:35,360 Speaker 3: Can you attest whether that. 101 00:05:35,200 --> 00:05:37,680 Speaker 4: That's true or not the United States is willing to 102 00:05:37,800 --> 00:05:41,400 Speaker 4: let Nvidia sell H twenties once again in China? 103 00:05:41,480 --> 00:05:44,920 Speaker 1: Well again, I emrie. I think that'd be a judgment 104 00:05:45,360 --> 00:05:52,880 Speaker 1: that the Chinese indigenous manufacturers, namely Huawei and some others 105 00:05:53,000 --> 00:05:57,359 Speaker 1: already have an equivalent chip. So if there's an equivalent chip, 106 00:05:57,520 --> 00:06:01,080 Speaker 1: then the Nvidia H twenty could be sold because I 107 00:06:01,080 --> 00:06:03,960 Speaker 1: can tell you the one thing that we do not 108 00:06:04,120 --> 00:06:10,440 Speaker 1: want is a digital Belton road springing up around the 109 00:06:10,480 --> 00:06:17,360 Speaker 1: world because other countries or China are substituting for our 110 00:06:17,400 --> 00:06:19,000 Speaker 1: American chip manufacturers. 111 00:06:19,560 --> 00:06:22,360 Speaker 4: This is the same chip though, that the Trump administration 112 00:06:22,640 --> 00:06:26,599 Speaker 4: blocked with export controls in April. So why the change 113 00:06:26,600 --> 00:06:27,880 Speaker 4: in policy now. 114 00:06:29,480 --> 00:06:34,960 Speaker 1: Emery, you might say that that was a negotiating chip 115 00:06:35,040 --> 00:06:38,159 Speaker 1: that we used in Geneva and in London. 116 00:06:39,040 --> 00:06:41,080 Speaker 4: So this was part of the trade talks when it 117 00:06:41,080 --> 00:06:42,600 Speaker 4: comes to Washington and Beijing. 118 00:06:43,440 --> 00:06:46,120 Speaker 3: Yes, was it a quid pro quo then. 119 00:06:46,760 --> 00:06:49,400 Speaker 4: As you said, it wasn't, But was it potentially to 120 00:06:49,480 --> 00:06:51,599 Speaker 4: make sure that you can get the licenses when it 121 00:06:51,640 --> 00:06:53,400 Speaker 4: comes to rare earths. 122 00:06:54,000 --> 00:06:57,680 Speaker 1: I think it was all part of a mosaic. They 123 00:06:57,760 --> 00:07:00,839 Speaker 1: had things we wanted, we have things they wanted, and 124 00:07:01,200 --> 00:07:03,920 Speaker 1: we're in a very good place. I expect to meet 125 00:07:03,960 --> 00:07:08,000 Speaker 1: my Chinese counterpart, the vice premiere, in the next few weeks. 126 00:07:08,520 --> 00:07:12,080 Speaker 4: So when and where will that meeting take place. 127 00:07:13,680 --> 00:07:17,040 Speaker 1: We're still working on that. The Chinese leadership has a 128 00:07:17,080 --> 00:07:20,600 Speaker 1: big conclave at the beginning of August, so we're trying 129 00:07:20,640 --> 00:07:23,119 Speaker 1: to work out whether that could be in a third 130 00:07:23,120 --> 00:07:25,480 Speaker 1: country before or after that conclave. 131 00:07:25,880 --> 00:07:29,800 Speaker 4: Well, the administration released the framework of the Geneva and 132 00:07:29,920 --> 00:07:31,880 Speaker 4: London talks. 133 00:07:31,960 --> 00:07:36,720 Speaker 1: Well, we have released some of it, and I'll tell 134 00:07:36,760 --> 00:07:43,640 Speaker 1: you that now having settled on tariffs on the export controls, 135 00:07:43,960 --> 00:07:46,640 Speaker 1: we can move on to the next stage of talks. 136 00:07:46,760 --> 00:07:50,600 Speaker 1: And I think it's very important both for the global economy, 137 00:07:50,600 --> 00:07:54,200 Speaker 1: for the US economy and for the Chinese economy, for 138 00:07:54,960 --> 00:07:59,560 Speaker 1: US to move on and talk about China opening its 139 00:07:59,640 --> 00:08:04,800 Speaker 1: market and the increase domestic and consumer production. 140 00:08:04,920 --> 00:08:05,200 Speaker 5: There. 141 00:08:05,640 --> 00:08:08,120 Speaker 4: Are you hoping to get to that next phase before 142 00:08:08,280 --> 00:08:13,240 Speaker 4: August twelfth, when that's currently the day taunt between these 143 00:08:13,280 --> 00:08:14,080 Speaker 4: two economies. 144 00:08:15,240 --> 00:08:18,560 Speaker 1: Yeah, Look, I think we're in a very good place. 145 00:08:18,720 --> 00:08:23,520 Speaker 1: And I tell market participants not to worry about August twelfth. 146 00:08:23,680 --> 00:08:26,200 Speaker 5: Should they worry about what's happening with Europe with respect 147 00:08:26,240 --> 00:08:28,640 Speaker 5: to thirty percent teriff rate? They don't seem to be worrying. 148 00:08:28,640 --> 00:08:31,040 Speaker 5: But I'm just curious whether that's the final rate or 149 00:08:31,080 --> 00:08:34,120 Speaker 5: whether the letter was part of a negotiation that Europe 150 00:08:34,400 --> 00:08:35,720 Speaker 5: received from President Trump. 151 00:08:37,120 --> 00:08:40,720 Speaker 1: Well, Lisa, you know what I would say is President 152 00:08:40,760 --> 00:08:43,960 Speaker 1: Trump's able to create a lot of leverage here, a 153 00:08:44,000 --> 00:08:48,760 Speaker 1: lot of leverage because he's indifferent. He's indifferent whether we 154 00:08:48,920 --> 00:08:52,880 Speaker 1: take in the thirty percent rate or whether the Europeans 155 00:08:52,920 --> 00:08:56,240 Speaker 1: come to us with a much better deal. As I've 156 00:08:56,280 --> 00:09:01,400 Speaker 1: been saying for a while that if countries or trading 157 00:09:01,440 --> 00:09:04,679 Speaker 1: blocks don't come with their best deals, then the rates 158 00:09:04,720 --> 00:09:10,360 Speaker 1: could boomerang back. So President Trump's leading this, And what 159 00:09:10,400 --> 00:09:13,280 Speaker 1: I will tell you is that a lot of the deals, 160 00:09:13,360 --> 00:09:16,840 Speaker 1: and this is where his leadership has been invaluable. A 161 00:09:16,880 --> 00:09:19,439 Speaker 1: lot of the deals that I thought were excellent deals 162 00:09:19,679 --> 00:09:22,720 Speaker 1: keep getting improved upon every time he takes up the 163 00:09:22,760 --> 00:09:24,160 Speaker 1: maximum pressure strategy. 164 00:09:24,400 --> 00:09:26,840 Speaker 5: There is a theory in markets, and you don't even 165 00:09:26,920 --> 00:09:27,720 Speaker 5: have to calm them. 166 00:09:27,760 --> 00:09:28,640 Speaker 3: They're pretty calm. 167 00:09:28,720 --> 00:09:31,240 Speaker 5: They're watching all of these rates and they're not freaking 168 00:09:31,240 --> 00:09:35,040 Speaker 5: out in parlance on Wall Street. They're taking this in stride. 169 00:09:35,240 --> 00:09:37,360 Speaker 5: We're close to all time highs, if not at all 170 00:09:37,400 --> 00:09:39,720 Speaker 5: time highs. Do you see this as giving a green 171 00:09:39,800 --> 00:09:42,400 Speaker 5: light to Trump? To President Trump to keep going, to 172 00:09:42,679 --> 00:09:45,680 Speaker 5: take hardline approaches and to keep trying to get better 173 00:09:45,720 --> 00:09:46,440 Speaker 5: and better deals. 174 00:09:47,720 --> 00:09:52,400 Speaker 1: Look, I think this narrative of this subsessive focus on 175 00:09:52,440 --> 00:09:56,120 Speaker 1: the market isn't right. President Trump views this as a 176 00:09:56,280 --> 00:10:01,600 Speaker 1: generational opportunity to reset trade in a fair and sound 177 00:10:01,840 --> 00:10:07,800 Speaker 1: manner for the American people. So the idea that some 178 00:10:07,920 --> 00:10:11,480 Speaker 1: market ups or downs are going to be the deciding 179 00:10:11,520 --> 00:10:17,440 Speaker 1: factor here. What we are concerned about, and President Trump 180 00:10:17,559 --> 00:10:21,520 Speaker 1: is laser focused on, is getting the best deals because 181 00:10:22,720 --> 00:10:28,880 Speaker 1: we were not having fair trade and now we're seeing 182 00:10:29,360 --> 00:10:33,000 Speaker 1: with these countries coming to the table, the quality of 183 00:10:33,000 --> 00:10:35,439 Speaker 1: the deals gets better and better. So we're not going 184 00:10:35,480 --> 00:10:38,680 Speaker 1: to rush just because of some market deadline. Now. I 185 00:10:38,720 --> 00:10:42,200 Speaker 1: think what the market's seeing is market's willing to look 186 00:10:42,240 --> 00:10:46,240 Speaker 1: forward three, six, twelve months and this is going to 187 00:10:46,240 --> 00:10:48,000 Speaker 1: be good for the US, is going to be good 188 00:10:48,000 --> 00:10:49,080 Speaker 1: for the global economy. 189 00:10:49,360 --> 00:10:51,120 Speaker 5: If you do get some sort of signal from the 190 00:10:51,160 --> 00:10:52,840 Speaker 5: market though that this isn't going to be good for 191 00:10:52,840 --> 00:10:55,240 Speaker 5: the US economy, Is there a trigger point? Is there 192 00:10:55,280 --> 00:10:57,560 Speaker 5: sort of a sense at which it acts as a 193 00:10:57,559 --> 00:10:59,840 Speaker 5: gut check and sort of pulls back some of them 194 00:10:59,880 --> 00:11:01,079 Speaker 5: to negotiating tactics. 195 00:11:02,440 --> 00:11:05,480 Speaker 1: Look, I think that the market understands what we're doing. 196 00:11:05,480 --> 00:11:11,440 Speaker 1: Sometimes individual market people don't. Sometimes the television personalities don't. 197 00:11:11,480 --> 00:11:15,440 Speaker 1: But good thing about President Trump is he always tells 198 00:11:15,480 --> 00:11:17,600 Speaker 1: you what he wants and what he wants this fair 199 00:11:17,640 --> 00:11:18,120 Speaker 1: trade here. 200 00:11:18,480 --> 00:11:20,560 Speaker 4: I won't take that as a slight on me and 201 00:11:20,600 --> 00:11:23,920 Speaker 4: my colleagues around the table, mister Treasury Secretary, But you 202 00:11:24,160 --> 00:11:27,160 Speaker 4: did tell me on April second, on Liberation Day, that 203 00:11:27,240 --> 00:11:30,000 Speaker 4: this was the ceiling when it comes to those rates. 204 00:11:30,040 --> 00:11:33,800 Speaker 4: But since then we have actually had some tariff rates 205 00:11:33,840 --> 00:11:37,320 Speaker 4: the President announced in letters higher than those rates he 206 00:11:37,400 --> 00:11:40,640 Speaker 4: announced on that big chart on April second. So is 207 00:11:40,679 --> 00:11:43,880 Speaker 4: there no longer a ceiling when it comes to tariff rates? 208 00:11:44,120 --> 00:11:45,960 Speaker 4: When you are dealing with trading partners. 209 00:11:47,240 --> 00:11:51,800 Speaker 1: I think that I said, if they come and they 210 00:11:52,000 --> 00:11:56,040 Speaker 1: negotiate in good faith in those are ceilings. And some 211 00:11:56,120 --> 00:12:00,000 Speaker 1: of the talks got off to very slow starts. 212 00:12:00,360 --> 00:12:03,080 Speaker 4: So who's negotiating good faith at this moment? Who's not? 213 00:12:04,960 --> 00:12:09,600 Speaker 1: Again? I congratulated the UK the other day, as I 214 00:12:09,679 --> 00:12:12,520 Speaker 1: told many of our trading partners, and Anne Marie I 215 00:12:12,559 --> 00:12:14,840 Speaker 1: may have said on that day or a few days 216 00:12:14,880 --> 00:12:18,520 Speaker 1: after April second, I'd advise countries to move quickly because 217 00:12:18,559 --> 00:12:21,520 Speaker 1: the President Trump the first deals are usually the best deals, 218 00:12:22,240 --> 00:12:26,000 Speaker 1: and the UK came in early, they got a great deal, 219 00:12:26,520 --> 00:12:30,080 Speaker 1: and everybody else is kind of dragging right now. 220 00:12:30,160 --> 00:12:32,760 Speaker 4: Well, when it comes to Japan, you're headed there at 221 00:12:32,800 --> 00:12:34,520 Speaker 4: the end of this week, do you expect to come 222 00:12:34,520 --> 00:12:35,240 Speaker 4: back with a deal. 223 00:12:36,240 --> 00:12:40,480 Speaker 1: I'm going to Japan to represent the United States government 224 00:12:40,480 --> 00:12:45,000 Speaker 1: and the American people at the International Expo, which we 225 00:12:45,160 --> 00:12:47,559 Speaker 1: used to know as the World's Fairs. So this coming 226 00:12:47,600 --> 00:12:50,440 Speaker 1: Saturday is going to be America's Day and I'll be 227 00:12:50,559 --> 00:12:55,360 Speaker 1: taking a delegation includes the Labor Secretary, Deputy Secretary of 228 00:12:55,480 --> 00:12:59,880 Speaker 1: State will be representing the US. So this is a 229 00:13:00,200 --> 00:13:02,359 Speaker 1: celebration of the US more than trade. 230 00:13:02,080 --> 00:13:03,280 Speaker 3: Talks, MISSUS Secretary. 231 00:13:03,280 --> 00:13:05,679 Speaker 2: Before you go, just to final question, I'm embarrassed to 232 00:13:05,720 --> 00:13:08,160 Speaker 2: say that my knowledge of college basketball is nothing like yours, 233 00:13:08,160 --> 00:13:09,520 Speaker 2: but I can tell you back in the nineties in 234 00:13:09,559 --> 00:13:12,679 Speaker 2: English football, there used to be a concept of player managers. 235 00:13:12,920 --> 00:13:15,320 Speaker 2: There used to be certain managers of football teams that 236 00:13:15,400 --> 00:13:18,480 Speaker 2: also put themselves on the field, and they play too effectively. 237 00:13:18,520 --> 00:13:19,400 Speaker 3: They had two jobs. 238 00:13:19,800 --> 00:13:22,840 Speaker 2: And I'm wondering, from your perspective, whether that's something you'd 239 00:13:22,880 --> 00:13:23,480 Speaker 2: be interested in. 240 00:13:23,600 --> 00:13:25,120 Speaker 3: We've seen that throughout the administration. 241 00:13:25,240 --> 00:13:27,680 Speaker 2: Is that something you think that you could pursue both 242 00:13:27,720 --> 00:13:30,120 Speaker 2: the Treasury Secretary and the Fed chap. 243 00:13:31,400 --> 00:13:34,679 Speaker 1: Look, I think I have the best job in town. 244 00:13:35,400 --> 00:13:38,600 Speaker 1: I will do what President Trump wants. We got a 245 00:13:38,600 --> 00:13:43,920 Speaker 1: lot of great fed candidates, and I'm confident it's going 246 00:13:43,960 --> 00:13:45,520 Speaker 1: to be a robot process. 247 00:13:45,600 --> 00:13:49,800 Speaker 2: Jonathan has he asked you, what's that? Has he asked you? 248 00:13:50,080 --> 00:13:51,240 Speaker 2: Are you part of the process. 249 00:13:52,800 --> 00:13:55,559 Speaker 1: I am part of the decision making process, but again 250 00:13:55,679 --> 00:13:58,440 Speaker 1: it's the final decision is going to be President Trump's. 251 00:13:58,640 --> 00:14:02,080 Speaker 2: Mister Secretary. I appreciate time. Thank you, the Treasury Secretary. 252 00:14:02,080 --> 00:14:04,640 Speaker 2: There scale beston on a range of issues, including trade 253 00:14:04,960 --> 00:14:17,559 Speaker 2: and the future of this Federal Reserve. Inflation data too 254 00:14:17,720 --> 00:14:20,520 Speaker 2: at eight thirty Eastern time, about an hour away joining 255 00:14:20,600 --> 00:14:23,040 Speaker 2: us now as Sarah Hunt of Alpine Saxon words, Sarah 256 00:14:23,120 --> 00:14:23,840 Speaker 2: and Mornic. 257 00:14:23,600 --> 00:14:24,040 Speaker 6: Good morning. 258 00:14:24,200 --> 00:14:25,000 Speaker 3: Is inflation dead? 259 00:14:26,520 --> 00:14:29,000 Speaker 6: I think it's quiet at the moment, but I wouldn't 260 00:14:29,000 --> 00:14:31,320 Speaker 6: completely rule it out. I think that there's some possibilities 261 00:14:31,320 --> 00:14:32,920 Speaker 6: that it could pick its head up. But I think 262 00:14:32,920 --> 00:14:35,200 Speaker 6: that it's hard for people to anticipate data when we 263 00:14:35,200 --> 00:14:36,960 Speaker 6: spend a whole lot of time anticipating a bunch of 264 00:14:36,960 --> 00:14:38,960 Speaker 6: stuff that didn't happen. So I think there's a little 265 00:14:39,000 --> 00:14:41,000 Speaker 6: bit of fatigue there. So it's hard to say right now. 266 00:14:41,040 --> 00:14:43,560 Speaker 2: It's difficult to forecast. There's still some debate over the data. 267 00:14:43,560 --> 00:14:46,880 Speaker 2: We've already had, what's underpinning the softer than expected reads 268 00:14:46,880 --> 00:14:48,440 Speaker 2: and why won't it last? 269 00:14:48,600 --> 00:14:51,640 Speaker 6: So if we think about whether or not companies did 270 00:14:52,000 --> 00:14:54,640 Speaker 6: pull a huge full of inventory forward and or people 271 00:14:54,640 --> 00:14:56,880 Speaker 6: started changing their behavior because they knew what was coming, 272 00:14:57,200 --> 00:14:59,640 Speaker 6: you can argue why that's soft now and why it 273 00:14:59,680 --> 00:15:02,640 Speaker 6: should rise if the rates are going higher. But you 274 00:15:02,880 --> 00:15:05,560 Speaker 6: still see these moving of the goalposts in terms of timing, 275 00:15:05,680 --> 00:15:08,200 Speaker 6: which allows companies to bring inventories back in again and 276 00:15:08,240 --> 00:15:11,360 Speaker 6: refresh that. So I could see a lot of bumpiness 277 00:15:11,360 --> 00:15:13,000 Speaker 6: in the data. And I also think that companies have 278 00:15:13,040 --> 00:15:14,760 Speaker 6: had a lot of time to prepare for this. And 279 00:15:14,840 --> 00:15:16,840 Speaker 6: if I'm sitting there, I want my margins to stay 280 00:15:16,880 --> 00:15:18,160 Speaker 6: where they are, so I'm going to try to do 281 00:15:18,200 --> 00:15:20,680 Speaker 6: whatever substituting i can. So I also think that there's 282 00:15:20,720 --> 00:15:23,800 Speaker 6: probably a lack of understanding how much of that substitution 283 00:15:23,920 --> 00:15:26,440 Speaker 6: has gone on, and I think that that is why 284 00:15:26,480 --> 00:15:29,760 Speaker 6: it could be bumpier and less dramatically higher than people 285 00:15:29,840 --> 00:15:32,160 Speaker 6: are expecting because they're expecting a really fast move. 286 00:15:32,280 --> 00:15:35,760 Speaker 5: I just wonder, can we expect immaculate disinflation ongoing immaculate 287 00:15:35,760 --> 00:15:38,520 Speaker 5: disinflation where there is no pain in the overall economy 288 00:15:38,640 --> 00:15:41,280 Speaker 5: at the same time that inflation is dead. Does that 289 00:15:41,320 --> 00:15:43,280 Speaker 5: seem consistent with you or is there kind of a 290 00:15:43,360 --> 00:15:46,880 Speaker 5: tension right now between employment data that's pretty okay, albeit 291 00:15:47,000 --> 00:15:51,240 Speaker 5: with very slow activity, and inflation that seems to be maybe, 292 00:15:51,280 --> 00:15:52,640 Speaker 5: if not dead in hospice. 293 00:15:54,000 --> 00:15:56,720 Speaker 6: It is one of those periods of time wherein figuring 294 00:15:56,720 --> 00:15:58,720 Speaker 6: out what that data means is going to be tricky. 295 00:15:58,800 --> 00:16:01,240 Speaker 6: It remains tricky. The earnings are going to matter for 296 00:16:01,280 --> 00:16:04,160 Speaker 6: the stock market. Inflation's going to matter to some degree, 297 00:16:04,360 --> 00:16:06,960 Speaker 6: but only if it's really surprising or gets much higher 298 00:16:06,960 --> 00:16:09,520 Speaker 6: than people are looking for, and then people start to 299 00:16:09,560 --> 00:16:11,840 Speaker 6: investors really start to worry. The question is what are 300 00:16:11,880 --> 00:16:14,640 Speaker 6: those trends look like. I mean, to Treasury Secretary Vessin's point, 301 00:16:14,800 --> 00:16:16,560 Speaker 6: it's not just about one number. It's about where the 302 00:16:16,600 --> 00:16:18,600 Speaker 6: trend is going. If it looks like the trend is reversing, 303 00:16:19,000 --> 00:16:20,720 Speaker 6: investors are going to like that a whole lot less. 304 00:16:20,840 --> 00:16:22,680 Speaker 5: Do you just not pay attention to the data at all? 305 00:16:22,720 --> 00:16:25,680 Speaker 5: And by ai Biden video and just you know, call 306 00:16:25,720 --> 00:16:26,280 Speaker 5: it a day. 307 00:16:26,280 --> 00:16:28,040 Speaker 6: It would have been the good trade for this year, right. 308 00:16:28,080 --> 00:16:30,040 Speaker 6: I mean, that's sort of what happened, is that you 309 00:16:30,040 --> 00:16:32,760 Speaker 6: had alldes concern about II going into the beginning of 310 00:16:32,800 --> 00:16:35,360 Speaker 6: the year. Then you had the trade situation. Everybody started 311 00:16:35,400 --> 00:16:37,800 Speaker 6: looking at every single earnings call from Microsoft or every 312 00:16:37,840 --> 00:16:40,400 Speaker 6: hyperscaler to parse exactly what they're spending was going to be. 313 00:16:40,520 --> 00:16:41,400 Speaker 3: There was this little bit of. 314 00:16:41,320 --> 00:16:43,200 Speaker 6: Freak out and then everybody got over it really quickly. 315 00:16:43,440 --> 00:16:45,800 Speaker 6: So that would have been that reversal, and that goes 316 00:16:45,840 --> 00:16:47,880 Speaker 6: back to the idea that the companies that have growth 317 00:16:47,920 --> 00:16:49,520 Speaker 6: and the companies that generate a ton of cash and 318 00:16:49,560 --> 00:16:51,560 Speaker 6: have good margins are the places that they end up 319 00:16:51,600 --> 00:16:53,000 Speaker 6: performing better than the rest of the market. 320 00:16:53,040 --> 00:16:54,560 Speaker 4: Anyway, it would have been good to get in on 321 00:16:54,720 --> 00:16:56,880 Speaker 4: Nvidia just last night, given the fact that they have 322 00:16:56,880 --> 00:16:59,160 Speaker 4: a blog post out saying that those eight twenty chips 323 00:16:59,160 --> 00:17:01,960 Speaker 4: at this administration and blocked are now going to be 324 00:17:01,960 --> 00:17:03,040 Speaker 4: able to go to China. 325 00:17:03,520 --> 00:17:04,000 Speaker 3: How do you. 326 00:17:04,040 --> 00:17:08,040 Speaker 4: Deal with this basically flip flop almost within weeks or 327 00:17:08,119 --> 00:17:11,119 Speaker 4: months of this administration when you're trying to direct what 328 00:17:11,280 --> 00:17:12,399 Speaker 4: to do in a portfolio. 329 00:17:13,119 --> 00:17:15,919 Speaker 6: Well, I mean, flip flop is an interesting term. I 330 00:17:15,920 --> 00:17:20,320 Speaker 6: think it's more about I mean, again to Treasury point, 331 00:17:20,560 --> 00:17:23,760 Speaker 6: it's changing those dynamics may have been part of that 332 00:17:23,800 --> 00:17:26,280 Speaker 6: discussion all along. So you have to assume that some 333 00:17:26,359 --> 00:17:28,320 Speaker 6: of the things that are coming out as X or 334 00:17:28,480 --> 00:17:31,159 Speaker 6: Y maybe x or Y under certain circumstances. But if 335 00:17:31,160 --> 00:17:32,879 Speaker 6: I change my mind, they're going to be different. So 336 00:17:32,920 --> 00:17:34,720 Speaker 6: that's got to be And I don't think that that's 337 00:17:34,920 --> 00:17:38,280 Speaker 6: entirely different from things that the way the world works anyway, 338 00:17:38,320 --> 00:17:40,760 Speaker 6: but I think that certainly in the near term, this 339 00:17:40,880 --> 00:17:44,560 Speaker 6: administration has been much different about market changes than other administrations. 340 00:17:44,560 --> 00:17:47,600 Speaker 2: It's not just in Nvidia, it's AMD, just Crossing resuming 341 00:17:47,640 --> 00:17:51,280 Speaker 2: ship chip shipments to China, wants their license clears that 342 00:17:51,400 --> 00:17:53,040 Speaker 2: stock is off in the free market as well. 343 00:17:53,160 --> 00:17:55,679 Speaker 5: Look, China's a big business for all of these chip providers, 344 00:17:55,760 --> 00:17:58,000 Speaker 5: and the key question is can they understand the rules 345 00:17:58,000 --> 00:18:00,720 Speaker 5: of the game enough to create chips that are compliant 346 00:18:00,880 --> 00:18:02,639 Speaker 5: with some of the constraints that have been put on 347 00:18:02,680 --> 00:18:04,000 Speaker 5: them from the US government. 348 00:18:04,119 --> 00:18:06,560 Speaker 2: Sarah, it's good to see you, Sarah Hunt, Vampoint, Snacks 349 00:18:06,640 --> 00:18:18,600 Speaker 2: and Woods. I want to bring a NILT data of 350 00:18:18,640 --> 00:18:22,200 Speaker 2: Renaissance Macro Neil. Welcome to the program, sir. That's not four, 351 00:18:22,359 --> 00:18:24,960 Speaker 2: it's five. Why is that signal and not noise? 352 00:18:27,080 --> 00:18:31,200 Speaker 7: Well, I mean I think look, we're obviously tariff revenues 353 00:18:31,240 --> 00:18:36,160 Speaker 7: are going up, right, and the effective tariff rate is rising. 354 00:18:36,440 --> 00:18:40,639 Speaker 7: That was the case in June. And despite that, inflation 355 00:18:41,400 --> 00:18:46,760 Speaker 7: missed expectations. So that means that I mean tariff's increased costs. 356 00:18:47,200 --> 00:18:50,560 Speaker 7: We all know that who ends up bearing the cost 357 00:18:50,720 --> 00:18:55,280 Speaker 7: is where the debate is. And you know, I think 358 00:18:55,320 --> 00:18:57,840 Speaker 7: at the margin, this probably reflects more of a margin 359 00:18:57,920 --> 00:19:00,480 Speaker 7: squeeze than anything else. It's not like prices for core 360 00:19:00,520 --> 00:19:04,679 Speaker 7: goods aren't going up. They are, but you have you know, 361 00:19:04,720 --> 00:19:06,480 Speaker 7: I mean, I was just looking at the data. You 362 00:19:06,520 --> 00:19:10,760 Speaker 7: see big increases in appliances, you see big increases in 363 00:19:11,480 --> 00:19:16,160 Speaker 7: all sorts of household furnishing and supplies. But it's also 364 00:19:16,280 --> 00:19:20,520 Speaker 7: important to remember that service sector inflation. Service sector prices 365 00:19:20,560 --> 00:19:24,720 Speaker 7: represents the lion's share of what people spend their money on, 366 00:19:24,800 --> 00:19:27,520 Speaker 7: and prices in those areas continue to go down. You know, 367 00:19:27,600 --> 00:19:31,040 Speaker 7: ultimately it's going to come down to nominal dollars spent, right, 368 00:19:31,119 --> 00:19:33,119 Speaker 7: So to the extent that people shift more of their 369 00:19:33,160 --> 00:19:36,080 Speaker 7: household budgets towards goods because the prices of those things 370 00:19:36,119 --> 00:19:40,480 Speaker 7: are going up, they'll have less leftover to spend elsewhere, 371 00:19:40,920 --> 00:19:43,960 Speaker 7: and that means that services are at risk and that's 372 00:19:43,960 --> 00:19:47,000 Speaker 7: why they'll ultimately see the prices for those things coming down. 373 00:19:47,040 --> 00:19:49,760 Speaker 7: So that to me seems to be what's going on. 374 00:19:50,320 --> 00:19:54,439 Speaker 7: The nominal anchor isn't changing to tariffs are resulting in 375 00:19:54,440 --> 00:19:58,760 Speaker 7: a relative price shift that's pushing up the prices for 376 00:19:58,840 --> 00:20:01,680 Speaker 7: consumer goods. That is clear if you look at the data. 377 00:20:01,680 --> 00:20:04,439 Speaker 7: That's obvious. Look at just look at household furnishings in 378 00:20:04,560 --> 00:20:10,200 Speaker 7: the latest report. But services are providing an important offset. 379 00:20:10,320 --> 00:20:12,280 Speaker 2: No is that a good enough reason for two FED 380 00:20:12,320 --> 00:20:14,800 Speaker 2: governors on the FMC later on this month to shake 381 00:20:14,880 --> 00:20:17,240 Speaker 2: their hand up and say, I think we should count rights. 382 00:20:19,720 --> 00:20:21,919 Speaker 7: I mean, I don't think they'll be as noisy about 383 00:20:21,920 --> 00:20:26,760 Speaker 7: it in July, only because you know, the last employment 384 00:20:26,840 --> 00:20:29,680 Speaker 7: report gave them some colm, right, because the unemployment rate 385 00:20:29,720 --> 00:20:32,439 Speaker 7: went down. But you know, ultimately, you know, for me, 386 00:20:32,520 --> 00:20:35,800 Speaker 7: it's about you know, what is nominal income doing. When 387 00:20:35,840 --> 00:20:39,080 Speaker 7: you take like the sum product of jobs, hours and 388 00:20:39,119 --> 00:20:41,280 Speaker 7: earnings and you look at it over the last several months, 389 00:20:41,320 --> 00:20:44,800 Speaker 7: it doesn't look particularly encouraging. At the same time, you've 390 00:20:44,840 --> 00:20:48,920 Speaker 7: seen the work week decline, particularly in the areas that 391 00:20:49,040 --> 00:20:53,080 Speaker 7: are seeing the most robust jobs growth, like education and health. Right, 392 00:20:53,119 --> 00:20:55,280 Speaker 7: So if you start to see jobs in those areas 393 00:20:55,320 --> 00:21:00,800 Speaker 7: slow down what's left, So you know, I still continue 394 00:21:00,800 --> 00:21:03,520 Speaker 7: to have like concerns about the job market over the summer, 395 00:21:04,119 --> 00:21:07,199 Speaker 7: but that just reinforces this weakness and nomenal income that 396 00:21:07,280 --> 00:21:10,880 Speaker 7: we've seen. So ultimately, you know, it all comes down 397 00:21:10,960 --> 00:21:14,840 Speaker 7: to like the household budget constraint and to the extent 398 00:21:16,040 --> 00:21:19,560 Speaker 7: that prices arising in one area, that means that quantity 399 00:21:19,600 --> 00:21:21,080 Speaker 7: is going to go down in other areas. 400 00:21:21,200 --> 00:21:23,000 Speaker 5: So Neil, just to sort of sum up what you've 401 00:21:23,040 --> 00:21:24,919 Speaker 5: been talking about, I think it's really interesting that you 402 00:21:24,920 --> 00:21:27,840 Speaker 5: see these numbers as not representing strength in the economy, 403 00:21:28,280 --> 00:21:32,080 Speaker 5: but a sign of weakness in places like services that 404 00:21:32,440 --> 00:21:35,680 Speaker 5: is bringing down the overall inflation rate that otherwise is 405 00:21:35,720 --> 00:21:40,280 Speaker 5: getting inflated by certain goods prices going up like home appliances. 406 00:21:40,520 --> 00:21:45,119 Speaker 5: At what point is that weakness necessary to keep inflation low? 407 00:21:45,200 --> 00:21:48,040 Speaker 5: In other words, not necessarily a reason for the FED 408 00:21:48,080 --> 00:21:50,040 Speaker 5: to cut, but to hold where they are so that 409 00:21:50,119 --> 00:21:53,840 Speaker 5: you can have that offset in a way that doesn't 410 00:21:53,840 --> 00:21:56,400 Speaker 5: allow inflation to really kick back up. 411 00:21:57,160 --> 00:21:58,920 Speaker 7: I mean, I don't think one rate cuts really going 412 00:21:58,960 --> 00:22:01,679 Speaker 7: to change that in any in any material way. I mean, 413 00:22:01,720 --> 00:22:05,960 Speaker 7: the FED policy is still restrictive. That means they can 414 00:22:06,119 --> 00:22:08,840 Speaker 7: they can start and they'd still be restrictive. It doesn't 415 00:22:08,840 --> 00:22:11,639 Speaker 7: they don't have to promise like a broad sloth of 416 00:22:11,960 --> 00:22:15,159 Speaker 7: raid cuts. In fact, they're not doing that. So you know, 417 00:22:15,200 --> 00:22:17,520 Speaker 7: I don't think a rate cut in July or even 418 00:22:17,560 --> 00:22:20,399 Speaker 7: one in September is going to materially, you know, change 419 00:22:20,400 --> 00:22:21,119 Speaker 7: that dynamic. 420 00:22:21,640 --> 00:22:23,400 Speaker 2: If you are just joining us, welcome to the program. 421 00:22:23,440 --> 00:22:25,680 Speaker 2: Equity is high here the open in about about fifty four 422 00:22:26,000 --> 00:22:29,160 Speaker 2: minutes away MONMTHENTS ago inflation data in the United States 423 00:22:29,240 --> 00:22:31,960 Speaker 2: month of a month headline CPI are from zero point 424 00:22:32,040 --> 00:22:34,720 Speaker 2: one percent the previous month to zero point three, in 425 00:22:34,800 --> 00:22:39,359 Speaker 2: line with expectations. But for cour CPI it's another downside surprise, 426 00:22:39,480 --> 00:22:42,560 Speaker 2: zero point two percent against an expectation of zero point three. 427 00:22:42,600 --> 00:22:46,640 Speaker 2: It's five consecutive months of softer than expected core CPI. 428 00:22:46,880 --> 00:22:48,600 Speaker 2: MI mckey's back with us for more. Mike, you've had 429 00:22:48,600 --> 00:22:50,280 Speaker 2: a second look. What jumps out to you? 430 00:22:51,400 --> 00:22:55,160 Speaker 8: Well, I think Neil pointed out the major tariff implications here. 431 00:22:55,200 --> 00:22:57,800 Speaker 8: We do see a four ten percent rise in apparel 432 00:22:57,840 --> 00:23:00,760 Speaker 8: overall and a significant rise in foot where up seven 433 00:23:00,800 --> 00:23:04,880 Speaker 8: tenths of a percent. Mail footwear in particular. Now those 434 00:23:04,880 --> 00:23:08,920 Speaker 8: things come from China. Other things coming from China that 435 00:23:09,440 --> 00:23:12,920 Speaker 8: go up or from other Asian countries. Furniture, as he mentioned, 436 00:23:13,200 --> 00:23:15,920 Speaker 8: was up four tenths of eight percent, household furnishings up 437 00:23:16,200 --> 00:23:19,240 Speaker 8: one percent, and appliance is up one point nine percent. 438 00:23:19,280 --> 00:23:21,320 Speaker 8: They were up eight tenths of a percent last month. 439 00:23:21,880 --> 00:23:23,960 Speaker 8: A lot of this probably has to do with the 440 00:23:24,000 --> 00:23:27,600 Speaker 8: tariffs on steel. We saw that when we had the 441 00:23:27,840 --> 00:23:32,200 Speaker 8: steel tariffs in the first Trump administration that appliance prices 442 00:23:32,359 --> 00:23:36,679 Speaker 8: went up. Food three tenths of eight percent. Still in line. 443 00:23:37,520 --> 00:23:41,520 Speaker 8: President added extra tariffs on tomatoes yesterday, but in June 444 00:23:41,600 --> 00:23:43,879 Speaker 8: they were down one and a half percent, and I 445 00:23:43,920 --> 00:23:45,840 Speaker 8: know a Marie is anxious to know that eggs were 446 00:23:45,840 --> 00:23:49,280 Speaker 8: down seven point four percent. One other thing that comes 447 00:23:49,320 --> 00:23:53,920 Speaker 8: in for the China aspect of it is toy prices 448 00:23:54,040 --> 00:23:57,199 Speaker 8: up one point eight percent. So we are seeing some 449 00:23:57,240 --> 00:24:00,920 Speaker 8: tariff pass through here. But again I would look at 450 00:24:00,920 --> 00:24:04,160 Speaker 8: what Neil was saying about service prices. They were relatively restrained, 451 00:24:04,240 --> 00:24:07,360 Speaker 8: up three tenths of eight percent. We saw medical care 452 00:24:07,440 --> 00:24:11,879 Speaker 8: and auto insurance prices very tame this month. So some 453 00:24:11,920 --> 00:24:14,480 Speaker 8: of the things that we had seen pushing up inflation 454 00:24:14,720 --> 00:24:18,040 Speaker 8: in the services categories have backed off for a while, 455 00:24:18,080 --> 00:24:18,760 Speaker 8: at least. 456 00:24:18,640 --> 00:24:19,840 Speaker 3: By McKay, Thank you, sir. 457 00:24:19,880 --> 00:24:22,240 Speaker 2: Equity high in response to some of this, we'ren by 458 00:24:22,240 --> 00:24:24,639 Speaker 2: four tenths of one percent on the SMP yields a 459 00:24:24,680 --> 00:24:26,960 Speaker 2: little bit lower. Across the bond market, the yield curve 460 00:24:27,160 --> 00:24:29,560 Speaker 2: looks like this tenure yields this morning, down by two 461 00:24:29,600 --> 00:24:32,280 Speaker 2: basis points, similar move on a thirty. So you don't 462 00:24:32,320 --> 00:24:35,520 Speaker 2: see the tariff inflation on a headline, but you start 463 00:24:35,560 --> 00:24:37,720 Speaker 2: to see it just a little bit beneath the surface, and. 464 00:24:37,720 --> 00:24:39,800 Speaker 5: You start to see what the response function is of 465 00:24:39,840 --> 00:24:42,399 Speaker 5: households that they might be cutting back maybe on eating 466 00:24:42,440 --> 00:24:46,280 Speaker 5: out to compensate for the increased costs elsewhere, which you 467 00:24:46,359 --> 00:24:49,280 Speaker 5: wonder on a compositional level, whether this tamps down overall 468 00:24:49,280 --> 00:24:52,520 Speaker 5: inflation even as you see pockets of higher prices in 469 00:24:52,560 --> 00:24:55,800 Speaker 5: select areas. Is that the path of travel or is 470 00:24:55,840 --> 00:24:58,920 Speaker 5: that just the current state of affairs as people take 471 00:24:59,000 --> 00:25:00,720 Speaker 5: stock of exactly what do scenariois. 472 00:25:00,800 --> 00:25:02,720 Speaker 2: We can have that discussion right now with David Kelly 473 00:25:02,760 --> 00:25:06,159 Speaker 2: of JP Morgan Assa Management. David, Welcome to the program, sir. 474 00:25:06,200 --> 00:25:12,040 Speaker 2: How much comfort can you take from this morning's inflation data. 475 00:25:10,600 --> 00:25:11,280 Speaker 9: And not a lot. 476 00:25:11,800 --> 00:25:13,960 Speaker 10: It's a very interesting report because you can see sort 477 00:25:13,960 --> 00:25:16,479 Speaker 10: of the fading of issues that were causing inflation over 478 00:25:16,480 --> 00:25:18,919 Speaker 10: the last few years, but you can also see the 479 00:25:18,960 --> 00:25:22,680 Speaker 10: beginnings of the inflation problem related to tariffs. So if 480 00:25:22,680 --> 00:25:25,360 Speaker 10: you look at owner's equivalent BREND to auto insurance, those 481 00:25:25,359 --> 00:25:27,720 Speaker 10: are the things that really held inflation up and they're 482 00:25:27,760 --> 00:25:30,000 Speaker 10: going away. And the other thing that really helped this 483 00:25:30,040 --> 00:25:32,520 Speaker 10: report is we had a further decline airline fares, a 484 00:25:32,560 --> 00:25:35,880 Speaker 10: further decline in lodging prices. There's a lot of weakness 485 00:25:35,880 --> 00:25:38,280 Speaker 10: in the tourism industry right now and that's in this report. 486 00:25:39,040 --> 00:25:42,240 Speaker 10: But when you look at core goods outside of new autos, 487 00:25:42,280 --> 00:25:44,320 Speaker 10: we're seeing those goods prices go up, and that's where 488 00:25:44,320 --> 00:25:46,080 Speaker 10: you're going to see this tariff inflation. And we have 489 00:25:46,200 --> 00:25:48,359 Speaker 10: only seen the thin end of the wedge here. It 490 00:25:48,400 --> 00:25:50,119 Speaker 10: takes a while for the tariffs to get it to 491 00:25:50,119 --> 00:25:52,680 Speaker 10: be implemented, takes a while for the revenue to be collected, 492 00:25:52,880 --> 00:25:54,800 Speaker 10: takes a while for the inventory to make it to 493 00:25:54,800 --> 00:25:57,320 Speaker 10: people's shelves, takes a while for the retailers to say, look, 494 00:25:57,359 --> 00:25:58,359 Speaker 10: I'm going to have to mark it up. 495 00:25:58,480 --> 00:25:59,359 Speaker 9: But it is coming. 496 00:26:00,200 --> 00:26:03,320 Speaker 10: So I fully agree with the Fed's forecast that inflation 497 00:26:03,440 --> 00:26:05,399 Speaker 10: is going to go up between now and the end 498 00:26:05,440 --> 00:26:07,160 Speaker 10: of the year, and they've got to stay on their guard. 499 00:26:07,280 --> 00:26:09,479 Speaker 2: And yet, David, they also believe it starts to come 500 00:26:09,520 --> 00:26:12,359 Speaker 2: back down again. In fact, for that reason, some officials, 501 00:26:12,400 --> 00:26:14,600 Speaker 2: including Governor Waller, believes you can look through it. 502 00:26:14,880 --> 00:26:16,679 Speaker 3: Do you think you can just look through it? 503 00:26:18,000 --> 00:26:20,640 Speaker 10: Not yet, because we also have a lot of fiscal 504 00:26:20,640 --> 00:26:23,840 Speaker 10: sugar in the first half of next year. What's going 505 00:26:23,880 --> 00:26:25,640 Speaker 10: to happen is that we had a lot of temporary 506 00:26:25,640 --> 00:26:28,320 Speaker 10: tax breaks put in for four years, but they start 507 00:26:28,359 --> 00:26:30,199 Speaker 10: at the start of this year. They're not going to 508 00:26:30,200 --> 00:26:33,160 Speaker 10: adjust in contact with holding schedules quickly enough. That means 509 00:26:33,200 --> 00:26:35,960 Speaker 10: a bumper season for refunds early next year. And you know, 510 00:26:36,000 --> 00:26:37,919 Speaker 10: we know from twenty twenty two that you've got supply 511 00:26:38,040 --> 00:26:40,439 Speaker 10: chain issues and then you give consumers a lot of 512 00:26:40,440 --> 00:26:43,639 Speaker 10: extra cash. What happens you end up with inflation. I mean, eventually, 513 00:26:43,680 --> 00:26:45,479 Speaker 10: I think it will fade a long run. I am 514 00:26:45,520 --> 00:26:48,640 Speaker 10: not an inflation hawk in America. I think inflation will fade, 515 00:26:48,760 --> 00:26:50,600 Speaker 10: but I think it's going to be sustained by some 516 00:26:50,640 --> 00:26:53,159 Speaker 10: of the provisions of the OBBBA. 517 00:26:53,119 --> 00:26:55,080 Speaker 9: And because of that, I think the Fed needs to 518 00:26:55,200 --> 00:26:55,920 Speaker 9: hold off here. 519 00:26:56,320 --> 00:26:59,240 Speaker 10: If we got clarity on tariffs, if we could say 520 00:26:59,280 --> 00:27:02,000 Speaker 10: this is what the terror are and they will go 521 00:27:02,200 --> 00:27:04,960 Speaker 10: no higher, then I think that makes it easier for 522 00:27:05,000 --> 00:27:06,920 Speaker 10: the Fed. So, you know, I think the administration really 523 00:27:07,000 --> 00:27:09,280 Speaker 10: needs to think about, Look, could we please whatever the 524 00:27:09,359 --> 00:27:13,320 Speaker 10: tariff policy is, let's make it and be done with it. 525 00:27:13,400 --> 00:27:15,639 Speaker 10: Because this uncertainty is the very thing that's making it 526 00:27:15,720 --> 00:27:18,159 Speaker 10: impossible for the Federal Reserve to say that that we're 527 00:27:18,200 --> 00:27:19,520 Speaker 10: out of the woods or will be out of the woods. 528 00:27:19,520 --> 00:27:22,600 Speaker 5: And inflation, David, is there a sort of a necessary 529 00:27:22,640 --> 00:27:25,439 Speaker 5: weakness that we need to see in consumer spending and 530 00:27:25,520 --> 00:27:29,359 Speaker 5: services at this point to make sure that inflation doesn't 531 00:27:29,400 --> 00:27:31,280 Speaker 5: take off? In other words, that pain that you know 532 00:27:31,440 --> 00:27:34,399 Speaker 5: was talking about, you can start seeing in the data 533 00:27:34,440 --> 00:27:35,200 Speaker 5: on the margins. 534 00:27:35,920 --> 00:27:37,639 Speaker 10: Well, that's a tough way to do it, I mean, 535 00:27:37,640 --> 00:27:40,240 Speaker 10: the way you want to if you're worried about a 536 00:27:40,280 --> 00:27:43,120 Speaker 10: long term inflation problem, it's only going to become because 537 00:27:43,280 --> 00:27:47,199 Speaker 10: wage growth sort of compensate for price increases. Now, we 538 00:27:47,240 --> 00:27:50,320 Speaker 10: still have a relatively weak labor force in terms of 539 00:27:50,359 --> 00:27:54,080 Speaker 10: their ability to demand wage increases. You know, I think again, 540 00:27:54,119 --> 00:27:55,600 Speaker 10: we have to think a little bit about it, how 541 00:27:55,640 --> 00:27:58,800 Speaker 10: immigration is affecting labor supply, and again there's huge question 542 00:27:58,880 --> 00:28:01,720 Speaker 10: marks there. As long as we don't see an acceleration 543 00:28:01,800 --> 00:28:04,879 Speaker 10: in wage growth, the inflation will fade. It's not just 544 00:28:04,880 --> 00:28:07,880 Speaker 10: a matter of consumer spending being weak. So long as 545 00:28:07,920 --> 00:28:11,240 Speaker 10: wage growth is controlled, inflation will fade again. But I 546 00:28:11,240 --> 00:28:13,879 Speaker 10: think it's way too early to say that. You know, 547 00:28:13,920 --> 00:28:15,800 Speaker 10: inflation's coming down to two percent. We've still got to 548 00:28:15,800 --> 00:28:17,800 Speaker 10: get past tariffs. We've got to get past the steamers 549 00:28:17,800 --> 00:28:20,120 Speaker 10: of effects of this fiscal bill, and that's really what's 550 00:28:20,359 --> 00:28:22,639 Speaker 10: causing the delay in any further FED easing. 551 00:28:22,800 --> 00:28:24,359 Speaker 3: No doubts have run MAAX still with us. 552 00:28:24,440 --> 00:28:27,800 Speaker 2: No, today's about prices, Thursdays about spending. Let's talk about 553 00:28:27,840 --> 00:28:30,240 Speaker 2: retail cells. How do you expect some of our understanding 554 00:28:30,240 --> 00:28:32,520 Speaker 2: of prices this morning to show up in spending in 555 00:28:32,560 --> 00:28:34,280 Speaker 2: retail cells light to this week? 556 00:28:35,359 --> 00:28:38,320 Speaker 7: Well, I mean, if goods prices are rising and the 557 00:28:38,400 --> 00:28:43,200 Speaker 7: consensus expects nominal retail sales to rise three tenths, that 558 00:28:43,280 --> 00:28:46,200 Speaker 7: basically tells you that real spending on goods is declining. 559 00:28:46,400 --> 00:28:50,560 Speaker 7: That's not exactly an encouraging situation. So you know, I 560 00:28:50,560 --> 00:28:55,360 Speaker 7: mean the fact that price increases are showing up, and 561 00:28:55,560 --> 00:28:57,400 Speaker 7: you know, it's more or less matching what you see 562 00:28:57,440 --> 00:29:00,640 Speaker 7: in the retail sales data. That base simply tells you 563 00:29:00,680 --> 00:29:02,720 Speaker 7: that the volume of good souls is going down. Look, 564 00:29:02,720 --> 00:29:07,520 Speaker 7: it comes back to P times Q whatever. You know, 565 00:29:07,880 --> 00:29:10,480 Speaker 7: whatever goes into price is going to come out of 566 00:29:10,560 --> 00:29:15,840 Speaker 7: quantity because the nominal anchor hasn't really changed. So you know, look, 567 00:29:15,880 --> 00:29:18,280 Speaker 7: I mean, I think consumers are actually quite resistant to 568 00:29:18,360 --> 00:29:22,480 Speaker 7: higher prices. With the exception of the University of Michigan data, 569 00:29:23,400 --> 00:29:27,720 Speaker 7: if you look at you know, other estimates for inflation expectations, 570 00:29:28,000 --> 00:29:31,200 Speaker 7: whether that's the New York FED Survey of Consumer Expectations, 571 00:29:31,680 --> 00:29:37,760 Speaker 7: Atlanta FED Business Inflation expectations, professional forecasters inflation expectations, it 572 00:29:37,920 --> 00:29:41,080 Speaker 7: suggests that, you know, people are resistant to higher prices 573 00:29:41,120 --> 00:29:43,240 Speaker 7: and they're acting as if you know, if you look 574 00:29:43,240 --> 00:29:46,120 Speaker 7: at the areas where people have been cutting back their consumption, 575 00:29:46,320 --> 00:29:47,960 Speaker 7: those are the areas where the prices have been going 576 00:29:48,040 --> 00:29:51,320 Speaker 7: up the most. So it's not particularly surprising. And the 577 00:29:51,400 --> 00:29:54,760 Speaker 7: labor markets remain still in a tricky spot. You know, 578 00:29:55,000 --> 00:29:58,479 Speaker 7: while the unemployment rate remains low, you still have you know, 579 00:29:58,520 --> 00:30:01,520 Speaker 7: a rising increase in you know, discourage workers, you know, 580 00:30:01,560 --> 00:30:03,720 Speaker 7: people that are out of the workforce but want a job. Now, 581 00:30:04,960 --> 00:30:07,720 Speaker 7: you know, companies are telling you, like the small businesses 582 00:30:07,760 --> 00:30:10,960 Speaker 7: are saying that there's uh, you know, poor sales are 583 00:30:11,040 --> 00:30:14,160 Speaker 7: bigger concerns. So you know, I think that that probably 584 00:30:14,200 --> 00:30:18,720 Speaker 7: reinforces ongoing weakness in wage growth. And you know that 585 00:30:18,760 --> 00:30:22,200 Speaker 7: means that households don't really have the capacity to absorb 586 00:30:24,000 --> 00:30:27,160 Speaker 7: higher prices, and that means that to cut back no, And. 587 00:30:27,040 --> 00:30:27,560 Speaker 3: It's a good point. 588 00:30:27,800 --> 00:30:29,640 Speaker 5: And David, I guess said, if you take what Neil 589 00:30:29,760 --> 00:30:31,960 Speaker 5: is saying, the idea that you do see world price 590 00:30:32,000 --> 00:30:34,880 Speaker 5: resistance by consumers, and if you do see this sort 591 00:30:34,920 --> 00:30:38,400 Speaker 5: of compensating for the extra expense and goods by pulling 592 00:30:38,400 --> 00:30:40,800 Speaker 5: back on services, what would the harm be for the 593 00:30:40,800 --> 00:30:43,040 Speaker 5: FED to cut rates by just twenty five basis points 594 00:30:43,160 --> 00:30:44,280 Speaker 5: or fifty basis points. 595 00:30:45,720 --> 00:30:49,520 Speaker 10: Well, any you know, any problems the economy is facing 596 00:30:49,600 --> 00:30:52,680 Speaker 10: is not really about interest rates being too high. 597 00:30:53,040 --> 00:30:54,480 Speaker 9: And I think that I think, you know, I think 598 00:30:54,480 --> 00:30:56,040 Speaker 9: we have to think carefully. 599 00:30:55,680 --> 00:30:58,960 Speaker 10: About long term policies, about helping the labor force grow, 600 00:30:59,600 --> 00:31:04,760 Speaker 10: about helping free enterprise and reduce regulation and reduce barriers 601 00:31:04,760 --> 00:31:07,360 Speaker 10: to business. And I think we need to focus on that. 602 00:31:08,080 --> 00:31:09,960 Speaker 10: I don't think the interest rates are too high right now. 603 00:31:09,960 --> 00:31:12,760 Speaker 10: I think the Fed's the steward of the dollar and 604 00:31:12,840 --> 00:31:15,760 Speaker 10: of our inflation outlook in the long run, and they've 605 00:31:15,760 --> 00:31:17,440 Speaker 10: said their commisioned to two percent inflation. 606 00:31:17,480 --> 00:31:18,920 Speaker 9: I think they should stick to their guns. 607 00:31:19,840 --> 00:31:21,920 Speaker 10: And you know, if the call them gets into trouble, 608 00:31:21,960 --> 00:31:23,640 Speaker 10: it's not because they kept rates too high. 609 00:31:24,000 --> 00:31:26,000 Speaker 2: No, I just want to give the final word just 610 00:31:26,040 --> 00:31:28,400 Speaker 2: on housing, which is something you've been following now for 611 00:31:28,480 --> 00:31:30,720 Speaker 2: months and months and months and flanking the weakness here. 612 00:31:30,880 --> 00:31:32,560 Speaker 2: Why is that so important to you, Neil. 613 00:31:33,280 --> 00:31:35,720 Speaker 7: Well, because it undercuts the argument that was just made, 614 00:31:35,760 --> 00:31:38,640 Speaker 7: which is that you know that interest rates are fine, right, 615 00:31:38,640 --> 00:31:41,200 Speaker 7: I mean obviously housing isn't weakening because of tariffs or 616 00:31:41,240 --> 00:31:44,800 Speaker 7: anything else. Housing is weakening because rates are too high. 617 00:31:44,840 --> 00:31:48,840 Speaker 7: And you're seeing, you know, a rising pile of completed 618 00:31:48,920 --> 00:31:51,320 Speaker 7: new unsold inventory. I mean that hasn't been as high. 619 00:31:52,320 --> 00:31:55,280 Speaker 7: That's that's been rising, you know, over the last year 620 00:31:55,400 --> 00:31:57,640 Speaker 7: or so, and that's starting to weigh on home prices, 621 00:31:57,680 --> 00:32:00,280 Speaker 7: which we see, so you know, I think think that 622 00:32:00,320 --> 00:32:03,600 Speaker 7: the housing market does provide some evidence that interest rates 623 00:32:03,600 --> 00:32:05,360 Speaker 7: are restraining economic activity. 624 00:32:05,800 --> 00:32:07,560 Speaker 2: Is that the FETs fault, or is that the fault 625 00:32:07,560 --> 00:32:08,520 Speaker 2: of Congress Nail. 626 00:32:10,640 --> 00:32:11,719 Speaker 9: The reason we're seeing that? 627 00:32:12,080 --> 00:32:15,320 Speaker 10: Sorry, sorry, The reason the reason I've got trouble in 628 00:32:15,320 --> 00:32:17,480 Speaker 10: the housing market is not because rates are too high now, 629 00:32:17,680 --> 00:32:20,080 Speaker 10: because rates were way too low for way too long 630 00:32:20,160 --> 00:32:23,160 Speaker 10: after the Great Financial Crisis, causing prices to jack up 631 00:32:23,160 --> 00:32:26,200 Speaker 10: to a level that cannot be supported at normal mortgage ing. 632 00:32:26,200 --> 00:32:28,520 Speaker 10: It's nothing wrong with mortgage it's the problem is home prices, 633 00:32:28,640 --> 00:32:31,040 Speaker 10: which are too high because rates were too low for 634 00:32:31,120 --> 00:32:31,560 Speaker 10: too long. 635 00:32:32,040 --> 00:32:34,560 Speaker 7: Well, mortgage rates are running six and a half to 636 00:32:34,600 --> 00:32:37,760 Speaker 7: seven percent and wage growth is rising just three percent, 637 00:32:37,840 --> 00:32:40,120 Speaker 7: so I think the math is actually getting quite challenging 638 00:32:40,240 --> 00:32:42,280 Speaker 7: for most people. That's why housing is not working. 639 00:32:42,960 --> 00:32:43,160 Speaker 1: Well. 640 00:32:43,280 --> 00:32:46,040 Speaker 10: It's challenging, but only because home prices are the anomaly here. 641 00:32:46,080 --> 00:32:48,640 Speaker 10: They're just too high because rates were too low for 642 00:32:48,720 --> 00:32:49,240 Speaker 10: too long. 643 00:32:51,120 --> 00:32:53,240 Speaker 2: I'm sitting back that, gents, I thought you'd continue no 644 00:32:53,320 --> 00:32:55,400 Speaker 2: doubts of Rammack, David Kelly, a JP Morgan, So the 645 00:32:55,400 --> 00:32:56,640 Speaker 2: two of you appreciate it. 646 00:32:56,680 --> 00:32:56,960 Speaker 3: Thank you. 647 00:32:57,760 --> 00:33:01,320 Speaker 2: This is the Bloomberg Seventans podcast, bringing you the best 648 00:33:01,360 --> 00:33:04,440 Speaker 2: in markets, economics, an gio politics. You can watch the 649 00:33:04,440 --> 00:33:07,400 Speaker 2: show live on Bloomberg TV. Weekday mornings from six am 650 00:33:07,600 --> 00:33:11,560 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 651 00:33:11,720 --> 00:33:13,920 Speaker 2: or anywhere else you listen, and as always, on the 652 00:33:13,960 --> 00:33:16,320 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.