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Speaker 1: Have you received a callback from mister Musk.
Speaker 3: Yes, Look, Elon's a good friend. We texted late last night.
Speaker 3: We're going to talk this morning. I just want to
Speaker 3: make sure that he understands what I think everybody on
Speaker 3: Capitol Hill understands. This is not a spending bill, of
Speaker 3: my friends, this is a budget reconciliation bill. And what
Speaker 3: we're doing here is delivering the America First agenda. This
Speaker 3: is all the President's priority and all the priorities of
Speaker 3: the Republican Party. Everything we promise the American people, that
Speaker 3: is what we are delivering with this piece of legislation.
Speaker 3: And the reason we're using the reconciliation process is because
Speaker 3: that is the only way to get around the sixty
Speaker 3: vote threshold in the Senate. Everybody probably recognizes Chuck Schumer
Speaker 3: and the Democrats are in no mood and not going
Speaker 3: to be helpful in delivering President Trump's agenda for the people.
Speaker 4: We have to do it this way.
Speaker 3: We can do it with fifty one votes in the
Speaker 3: Senate only, and that's the urgency of the hour, and
Speaker 3: we have to do it quickly.
Speaker 4: For all the reasons we can discuss this morning.
Speaker 5: So did you get a sentence from Elon Muster in
Speaker 5: those tex exchange that he was going to stop his
Speaker 5: insistence on this bill that he thinks needs to be killed.
Speaker 3: He seems pretty dug in right now, and I can't
Speaker 3: quite understand the motivation behind it. But I would tell
Speaker 3: you that what we're delivering in this bill is not
Speaker 3: only historic tax cuts, but historic savings as well.
Speaker 4: He seems to miss that.
Speaker 3: I mean, the projection is that this legislation is going
Speaker 3: to save us one point six trillion dollars with a t. Now,
Speaker 3: there's never been a piece of legislation ever delivered in
Speaker 3: the history of government on the face of the earth.
Speaker 4: That saves that much money. So this is truly historic. Now,
Speaker 4: is it enough?
Speaker 3: No, because all three of us understand that we have
Speaker 3: a large federal debt. We've had deficits for some time,
Speaker 3: and it's a serious concern. In fact, it's the number
Speaker 3: one threat to our national security. But this is the
Speaker 3: biggest step in addressing that problem that Congress has ever delivered,
Speaker 3: and we must do it.
Speaker 4: And I will hasten to say this.
Speaker 3: I've told Elon and tell everyone this is the first
Speaker 3: of a series of steps that we will.
Speaker 4: Take to bring that debt under control. But you can't
Speaker 4: turn it on a dime.
Speaker 3: It took us decades to get into this situation, so
Speaker 3: we have to we have to do it incrementally, and
Speaker 3: this is a huge step forward in that endeavor.
Speaker 5: What's the driving force behind Elon Musk's problems with this bill?
Speaker 5: Has he asked you directly to potentially keep the electric
Speaker 5: vehicle benefits we saw under the Inflation Reduction Act of
Speaker 5: the Biden error into the bill.
Speaker 3: Look, I'll let everybody draw their own conclusions about Elon's motivations.
Speaker 3: I'll tell you that I mean, obviously, the EV mandate
Speaker 3: going away. I'm sure a concern for the leader of
Speaker 3: Tesla and other things as well. But I think there's
Speaker 3: a lot of confusion out there about what the legislation is.
Speaker 3: There's certainly a lot of misinformation. I mean, the Democrats
Speaker 3: have been engaged in this effort, this strategy for many,
Speaker 3: many weeks and many months. But remember it took us
Speaker 3: over a year to develop this piece of legislation. We
Speaker 3: have eleven different committees in the House, all the areas
Speaker 3: of jurisdiction that worked on the reconciliation effort to reconcile
Speaker 3: the budget. And what we're going to deliver her again
Speaker 3: is historic tax relief and savings. At the same time,
Speaker 3: if we do not get this bill done, the tax
Speaker 3: cuts of twenty seventeen, the tax cuts and JOBZAC will
Speaker 3: expire at the end of December. Every American will receive
Speaker 3: the largest tax increase in US history, all at once.
Speaker 3: It would be devastating for the economy. So we've addressed
Speaker 3: that here. The tax cuts permanent, and we've infused it
Speaker 3: with a pro growth series of policies that will get
Speaker 3: the economy going again. It will be jet fueled to
Speaker 3: the economy because we're going to reduce wasteful spending. We're
Speaker 3: going to reduce taxes, and we're going to reduce regulations
Speaker 3: as well, and that is what will allow job creators
Speaker 3: in the energy sector and everyone else to get going again.
Speaker 5: And your version of the bill, of course, increases the
Speaker 5: salt deduction cap, which yesterday Senate Majority Leader John Thune said, quote,
Speaker 5: there isn't a single Republican senator who cares much about
Speaker 5: the salt issue. You and I both know you cannot
Speaker 5: pass this bill without increasing the salt deduction cap. How
Speaker 5: do you envision that deduction changing given the fact that
Speaker 5: no senator Republican senator wants a vote for this.
Speaker 4: Well, I appreciate that they don't.
Speaker 3: They all come from red states, right as do I,
Speaker 3: and we have very different perspective on salt than our
Speaker 3: colleagues in the Blue states, for example, in California and
Speaker 3: New New York, in New Jersey. But that is the
Speaker 3: reality in the House. Remembering they have to remember my
Speaker 3: senate friends and colleagues have to remember I have to
Speaker 3: deliver two hundred and seventeen votes to get that thing
Speaker 3: across the line if they modify it. So I had
Speaker 3: lunch with my senate friends Tuesday, last two weeks ago
Speaker 3: before we passed the bill in the House on that Thursday,
Speaker 3: and I encouraged them to modify it as little as possible,
Speaker 3: right because I gave a metaphor. I said, my friends,
Speaker 3: I am crossing the Grand Canyon on a piece of
Speaker 3: dental flaws. Okay, the equilibrium that we reached here took
Speaker 3: quite a bit of time to get to where we are,
Speaker 3: and you can't load me up on either side. And
Speaker 3: if you go and slash the salt cap that we
Speaker 3: negotiated carefully for over a year, it's going to make
Speaker 3: it very difficult for me to deliver the necessary number
Speaker 3: of votes. Remembering I can only lose three in the House.
Speaker 3: They can only lose three in the Senate to get
Speaker 3: this done.
Speaker 4: So we're all working together.
Speaker 3: It's one team, House and Senate together, united in this effort.
Speaker 3: They understand that, and I think they understand certainly Leader
Speaker 3: Thun and the leaders over their understand the complexity of
Speaker 3: what we're having to deal.
Speaker 1: With here, Spiky Johnson.
Speaker 6: Just to sort of put a bow on it, so
Speaker 6: forty thousands still likely to remain the cap.
Speaker 3: That's what we negotiated here, and I'm certainly trying to
Speaker 3: hold to that number, and look, we've paid for it.
Speaker 3: I think we've got it worked out and all the
Speaker 3: math and the legislation, and I think it's something that
Speaker 3: I know they don't they're not in love with it,
Speaker 3: but I certainly hope they'll tolerated so we can maintain
Speaker 3: our vote tally.
Speaker 6: Over here, Speaker Johnson, as you walk that piece of
Speaker 6: dentalfloss over the Grand Canyon. There is this question of
Speaker 6: how the bill is currently being used, whether it's for
Speaker 6: budget negotiations and budget reconciliation over the next decade, or
Speaker 6: whether it's to negotiate trade agreements. There is two point
Speaker 6: eight trillion dollars of revenue that is being penciled in
Speaker 6: by the Congressional Budget Office from tariffs that might be
Speaker 6: used as a negotiating tactic might not be How do
Speaker 6: you understand the way that tariffs are looked at as
Speaker 6: part of this budget balancing Act?
Speaker 3: Well, it hasn't been included in the calculations, and that's
Speaker 3: because groups like the CBO, the Congressional Budget Office, as
Speaker 3: you noted, won't give us any credit for that.
Speaker 4: But it is very real.
Speaker 3: I mean, the revenue is real, and it is realized
Speaker 3: and it's not included in the calculation that we've made
Speaker 3: or they've made, but obviously it's a big factor. We
Speaker 3: believe that we're going to bring about a roaring economy again,
Speaker 3: and it's not based on conjecture or ground list optimism.
Speaker 3: I mean, this is based on the history. We did
Speaker 3: this in twenty seventeen, after the first two years of
Speaker 3: the Trump administration, when we passed the tax cuts and
Speaker 3: Jobs ac We reduce taxes, we reduced regulations, and the
Speaker 3: economy was raringw I mean you all remember it. Before COVID,
Speaker 3: we had the greatest economy in the history of the world.
Speaker 3: I mean, everybody was doing better every demographic wages were up,
Speaker 3: the job participation numbers where at record highs, inflation was down,
Speaker 3: and manageable things were going great.
Speaker 4: And then COVID hit. So we're going to do that same.
Speaker 3: Series of policies, implement that same philosophy, but this time,
Speaker 3: as I say, on steroids, and.
Speaker 4: It's going to make a major difference for every and
Speaker 4: everybody's life.
Speaker 6: Speaker John said, a lot of people in Marcus are
Speaker 6: concerned about a number of provisions here and actually don't
Speaker 6: think they will spur growth. One of them being Section
Speaker 6: eight ninety nine, which talks about taxing foreign investment in
Speaker 6: the United States from specific countries that have non tariff
Speaker 6: barriers like the VAT tax and other things that have
Speaker 6: been contentious during negotiations of trade deals.
Speaker 1: How much do you see that dampening?
Speaker 6: I mean, is that a concern for you, because right
Speaker 6: now around the world there are people wondering whether they
Speaker 6: can still invest in the United States without getting penalized
Speaker 6: for it.
Speaker 3: Yes, Look, there's a complexity to the tariff negotiations. I mean,
Speaker 3: we tip our hat to the White House, and President's
Speaker 3: strategy is working. As you know, there's more than seventy
Speaker 3: five countries renegotiating their trade agreements right now, finalizing that
Speaker 3: even as we speak, that's going to be better for America.
Speaker 4: Because it will be more fair. You know.
Speaker 3: I'm always liking myself to be a Reagan Republican and
Speaker 3: free trade is one of our core principles that we've
Speaker 3: all supported over the years. And every time I would
Speaker 3: say that over the last several years to President Trump,
Speaker 3: he would say, yes, free and fair trade, and he's right.
Speaker 3: I mean, this is a disparity that must have needed
Speaker 3: to be addressed and it has been, so we think
Speaker 3: in total, this is going to be good when it's all,
Speaker 3: when all the dust settles on the tariff negotiations and
Speaker 3: the new trade agreement. So it's going to be good
Speaker 3: for America and good for the world. And so we're
Speaker 3: factoring that in. We're working in tandem with the White House,
Speaker 3: and it's it's part of going to stay in calculation
Speaker 3: in the la.
Speaker 6: Laker Johnson, just to be clear that provision will stay
Speaker 6: in that is important to you.
Speaker 4: Look, I think it is.
Speaker 3: I mean, obviously the bill is still a live instrument
Speaker 3: that's being worked on in the Senate, so we'll see
Speaker 3: if they modify those provisions. But I think for now,
Speaker 3: I think that's good policy for US. And I want
Speaker 3: to say to foreign investors, you're in good stead to
Speaker 3: invest in America. This is the time to do it,
Speaker 3: because the American economy is about to take off again
Speaker 3: and it's going to be good for you and good.
Speaker 4: For the world.
Speaker 3: We're the largest trading partner for most other nations. They
Speaker 3: need America, and a strong America is good for the
Speaker 3: whole world. And that is what we are going to
Speaker 3: bring about with these sound policies and pro growth initiatives.
Speaker 5: Speaking, Johnson, you and your colleagues have a self imposed
Speaker 5: July fourth deadline. Partially that is because you have to
Speaker 5: raise the debt ceiling. Are you considering raising the debt
Speaker 5: limit if this deal isn't finished by July fourth with
Speaker 5: a different measure, Well.
Speaker 4: It'd be very difficult to do it.
Speaker 3: I mean, it would require a bipartisan measure in that regard,
Speaker 3: and I would like to believe that Chuck Schumer and
Speaker 3: the Democrats and the Senate would do the right thing.
Speaker 3: But I wouldn't count on that. That debt cliff, as
Speaker 3: we're regarding it, is coming soon, and that's why Secretary
Speaker 3: Besson has said we've got to get this done by
Speaker 3: Independence Day, and I think it'd be a great celebration
Speaker 3: for all of us. But it's not just because of
Speaker 3: the debt ceiling. It's also because we need to get
Speaker 3: tax relief in this new roaring economy to the American
Speaker 3: people as quickly as possible. They're owed that and this
Speaker 3: is going to be a great thing for everyone. And
Speaker 3: you know, I have to also think about the politics
Speaker 3: of it. Right, we have a midterm election coming up
Speaker 3: in twenty twenty six. If we get this done soon
Speaker 3: and quickly this summer, then everyone will feel those effects
Speaker 3: before they have to go vote again in that midterm election.
Speaker 3: We want to keep the House majority and keep this
Speaker 3: going for four years for President Trump and not two.
Speaker 3: And if we lost the majority, there's no doubt that
Speaker 3: the House Democrats would try to impeach the president and
Speaker 3: everything would be truly chaotic for investors and job creators
Speaker 3: and consumers. So we have to keep this going, keep
Speaker 3: the momentum going. The timeline's very important, and that's why
Speaker 3: I put this on a very aggressive schedule. I said
Speaker 3: back in the early part of this year that we
Speaker 3: would pass the big, beautiful bill out of the House
Speaker 3: before Memorial Day, and people laughed, they mocked me when
Speaker 3: I said that. But we beat it by four days.
Speaker 3: We're going to stay on track and we're going to
Speaker 3: deliver for the American people.
Speaker 5: Well, you have exactly twenty nine days to hit that deadline.
Speaker 5: Are you saying there's no plan B for raising the
Speaker 5: debt ceiling if this bill is not done between House
Speaker 5: Republicans and House Senators.
Speaker 3: Look, Republicans in a House and Senate will deliver and
Speaker 3: we'll take care of our business one way or the other.
Speaker 4: But I'm just telling you.
Speaker 3: The smartest and most efficacious way to do this is
Speaker 3: to stay on this schedule and deliver for the people.
Speaker 3: And that's what we're dog determined to do or laser
Speaker 3: focused on it. And if we take our focus off
Speaker 3: of that, then the strategy doesn't work. So I'm telling
Speaker 3: you that we are working on that.
Speaker 4: Regard.
Speaker 3: Leader Thuon and I are in constant communication. He understands
Speaker 3: that deadline as well. The Secretary of the Treasury and
Speaker 3: the NEEC and all the leaders in the White House
Speaker 3: and the administration understand that.
Speaker 4: So we're going to get it done.
Speaker 6: Speaker Johnson, how closely are you watching the bond markets
Speaker 6: right now, given the fact that we've seen a real
Speaker 6: sense of concern, particularly in longer duration US treasuries.
Speaker 4: We watch it closely.
Speaker 3: Look, I really do believe that delivering this historic legislation
Speaker 3: is going to be critically important for a lot of reasons,
Speaker 3: not the least of which is that Congress can send
Speaker 3: a very important signal to the bond markets, to the
Speaker 3: stock market, to investors everywhere that we're very serious about this,
Speaker 3: not only in getting the US economy roaring again, but
Speaker 3: also in addressing the long term debt, and I think
Speaker 3: that's an important thing for everyone to understand. We have
Speaker 3: a strategy that's some multiple steps, as I said, multiple
Speaker 3: steps rategy to address this over the next year, two years,
Speaker 3: three years, and we're going to get the US economy
Speaker 3: back on sound footing. We're the party of fiscal responsibility,
Speaker 3: and you'll see that demonstrated day after day.
Speaker 6: Here President Trump's slamming FED cher J.
Speaker 1: Powell once again saying.
Speaker 6: Quote too late, Powell must lower interest rates after a
Speaker 6: week ADP data. Krishna Guha of Evercore writing it would
Speaker 6: take a large and rapid increase in unemployment driven by
Speaker 6: increasing layoffs to cut in July. It is easy for
Speaker 6: the FED to justify remaining and await and see mode.
Speaker 1: Krishna joins us.
Speaker 6: Now, Trisha, thank you so much for being with us.
Speaker 1: A lot of people agree with you.
Speaker 6: At the same time, a September rate cut is pretty
Speaker 6: much baked in. Does that seem appropriate to you based
Speaker 6: on the economic data that has been weakening over the
Speaker 6: past couple of days.
Speaker 7: Look, I have a base case of a September cut,
Speaker 7: but I don't think it's anything close to a slam dump.
Speaker 7: I think right now, the question is does the labor
Speaker 7: market weaken enough over the next several months for the
Speaker 7: FED to judge that it makes sense to lean against
Speaker 7: that weakening where the cuts in September, I think to
Speaker 7: get that you need unemployment moving out to something like
Speaker 7: four and a half percent by September. I think it's
Speaker 7: a close call, to be honest.
Speaker 6: And this is the reason why I think a lot
Speaker 6: of people are looking at whether it is just going
Speaker 6: to be one print, whether it's going to be a
Speaker 6: collection of prints.
Speaker 1: Something that caught my eye yesterday.
Speaker 6: We all are so data dependent, and yet this Bureau.
Speaker 1: Of Labor Statistics put out.
Speaker 6: In a dendum talking about how they collected fewer data
Speaker 6: points in the April CPI survey because of a lack
Speaker 6: of staff. And there's been this speculation about the accuracy
Speaker 6: of some of these surveys as employment has gone down
Speaker 6: and frankly, as responses have gone down. Cretence, do you
Speaker 6: give to some of the data that we get? Do
Speaker 6: you think that it still has the same integrity?
Speaker 7: So in order to make good judgments, you have to
Speaker 7: have good data. It's as simple as that. Now, I
Speaker 7: still think that the US government official statistics ba bls
Speaker 7: are still the gold standard, but we have to be
Speaker 7: careful because, as you say, some response rates have been
Speaker 7: coming down, and now we're starting to worry about staffing
Speaker 7: cutbacks and other funding cutbacks potentially weakening the quality of
Speaker 7: these data series going forward. So in any moment in time,
Speaker 7: you want to look at the holistic picture of the data,
Speaker 7: all the private sector data, including very much on the employments,
Speaker 7: challenger layoffs, indeed, job postings and so on, as a
Speaker 7: crosscheck against the official data, and sometimes getting ahead of
Speaker 7: the official data. But I'll tell you, having seen for instance,
Speaker 7: how problematic it has become in the UK, where some
Speaker 7: of that core official government labor data just hasn't been
Speaker 7: reliable for some time, it can be very, very damaging.
Speaker 1: And that's a much smaller economy.
Speaker 5: So if you're not one hundred if you're not one
Speaker 5: hundred percent trusting the data, you don't have policy uncertainty.
Speaker 1: In Washington, DC.
Speaker 5: What's your north start of these days?
Speaker 7: Well, I think, look, I think we know from first
Speaker 7: principles that tariffs are going to slow growth and push
Speaker 7: up prices. Right, what we're trying to understand is the
Speaker 7: relative balance of those effects. I think that we're going
Speaker 7: to learn a fair amount over the next several months
Speaker 7: on both of these counts. But my hunches that will
Speaker 7: learn more on the labor side than we will about
Speaker 7: what really matters on inflation, which is not the first
Speaker 7: round price impact, but whether it starts to get embedded
Speaker 7: into underlying inflation dynamics. So I'm going to be looking
Speaker 7: at everything official and private sector company level data and
Speaker 7: earnings calls and so on. But what I'm really trying
Speaker 7: to understand at this point is do those inflation expectations
Speaker 7: stay anchored A, because that's the precondition for even considering cuts,
Speaker 7: And then B do we get a material enough weakening
Speaker 7: in the labor market for the FED to want to
Speaker 7: cut to lean against that gathering any momentum. I think
Speaker 7: it may still be a little while before we really
Speaker 7: get visibility on this. My hunch is that will have
Speaker 7: a feel for that how much the labor market is
Speaker 7: deteriorating by September, which makes it the logical moment to
Speaker 7: call the next move on rates.
Speaker 8: Hi christ nat Lori Calvasina from RBC. I've been getting
Speaker 8: the good to see you. I've been getting a lot
Speaker 8: of questions on small caps which are related to rate cuts,
Speaker 8: And I'm wondering in your conversations, are you starting to
Speaker 8: see expectations that the Fed is actually going to do
Speaker 8: something in September? Are those moving up? Are those moving down?
Speaker 8: There's been a lot of dispersion, There's been a lot
Speaker 8: of shifts in kind of the vibe on the ground.
Speaker 8: What's your read of the tea leaves right now?
Speaker 7: So the market has has with this most recent sort
Speaker 7: of patch of week of data with ADP and with
Speaker 7: ISM services, markets move to price in more conviction, high
Speaker 7: conviction around a September move, and you know, and more
Speaker 7: than two cuts discounted through the end of the year.
Speaker 7: And you know, obviously, if we get more rate cuts,
Speaker 7: provided that's not in the context of a recession, and
Speaker 7: that's a modern weekning that the Fed's leaning against, that
Speaker 7: can potentially help your small caps and other stocks. But
Speaker 7: I think we've got to be a little careful interpreting this.
Speaker 7: I don't think we should interpret market pricing is saying
Speaker 7: September is anything close to certain, and I say there's
Speaker 7: somebody who has it as a narrow base case. I
Speaker 7: think the reality is that there is still very much
Speaker 7: a pathway here where we end up with no cuts
Speaker 7: because the labor market doesn't weaken all that much. There's
Speaker 7: a pathway where we get two or three cuts, and
Speaker 7: that the intermediate case, where there's some softening and the
Speaker 7: FEDS leaning against that as it emerges, but not before
Speaker 7: it goes, and then it is still the recession case,
Speaker 7: you know, is that twenty five thirty percent is it
Speaker 7: a bit more, a bit less, And if we do
Speaker 7: break into a session this year, benefit will be cutting
Speaker 7: very very aggressively. So remember that the you know, the
Speaker 7: market pricing is essentially the mean average weighted average of
Speaker 7: those three different parts.
Speaker 6: Krishna Kuhoe Evercoren, thank you so much as always for
Speaker 6: joining us today. Joining us now, Jordan Rochester of Mizuho, Jordan.
Speaker 1: Your first take on.
Speaker 9: This, well, it's a dubbish outcome in terms of the
Speaker 9: inflation forecast, a point three version for the next two years.
Speaker 10: In terms of the numbers for twenty five and twenty six.
Speaker 9: However, the elephant in the room is what's not in
Speaker 9: this statement, which is their view on the impact of
Speaker 9: trade Tarists will get that at two forty five. That
Speaker 9: release that for us will be the scenario analysis. Do
Speaker 9: they double the impact that they expect from taris? What
Speaker 9: about the fifty percent from Donald Trump? So a lot
Speaker 9: of this will have to come out in the press conference.
Speaker 9: So far the moves are quite small though FX euro
Speaker 9: slightly higher and in the front tend you only had
Speaker 9: a two base two basis point rally, so nothing too big.
Speaker 10: We wait to see what regards says later.
Speaker 9: On and those forecasts and those scenarios that come out
Speaker 9: late this afternoon.
Speaker 5: Well some notice we have when it comes to trade
Speaker 5: that the ECB statement says trade escalation would lead to
Speaker 5: lower growth and inflation. Jordan, how do you start thinking
Speaker 5: about if the European Union doesn't get a deal with
Speaker 5: the US by July ninth?
Speaker 9: And Marie, I think the EU is probably at the
Speaker 9: bottom of the list in terms of the major partners
Speaker 9: if you think about it, Japan, India, Vietnam. There's much
Speaker 9: more focus on those negotiations when it comes to the EU.
Speaker 9: There's a lot of lobbying to go hard on the
Speaker 9: EU to reform some of the non tariff barriers they have,
Speaker 9: such as the digital services tax with the US and
Speaker 9: various other sort of non tariff measures. That's something that's
Speaker 9: very difficult to agree to by July the ninth. So
Speaker 9: what might happen is a stop gap, another delay Essentially,
Speaker 9: that's the best that you could hope for. We saw
Speaker 9: that when Trump ramped up the tariff to fifty percent,
Speaker 9: we saw an immediate delay. Really, it happened within a
Speaker 9: day or two to one phone call with Verst them
Speaker 9: on the land. So I expect that the worst case
Speaker 9: scenario is the taffs come in at the reciprocal levels,
Speaker 9: which are around the twenty to twenty five percent level,
Speaker 9: and the EU will be facing a summer of weaker
Speaker 9: data as a result and a more dubbish ECB.
Speaker 10: So we're looking for more rate cuts from the ECBs.
Speaker 10: In the market's pricing.
Speaker 9: We like receiving the front end for September, for example,
Speaker 9: we expect rates to get down to one point five.
Speaker 10: This market's pricing around one point seven.
Speaker 9: Now, if there is a deal done, it's still going
Speaker 9: to be a ten percent minimum, So it's we're picking
Speaker 9: between bad and worse scenarios for the ECB.
Speaker 5: Is there a scenario though, where you do think the
Speaker 5: ECB goes on pause and this is.
Speaker 9: A meeting, there is if you see PMIS continuously surprises.
Speaker 9: If you have an upside surprise and the PMIS on
Speaker 9: the next release. The difficult thing about that is the
Speaker 9: PMI comes the morning of the ECB meeting, so it could.
Speaker 10: Be really difficult to trade around that event.
Speaker 9: It could be if you have strong CPI, but if
Speaker 9: you look at the CPI data, we just had a
Speaker 9: big downside surprise in services CPI and the curve in
Speaker 9: terms of what the linker market is pricing has inflation
Speaker 9: below two percent for the rest of the year.
Speaker 10: So it's really hard to get a hawkish meeting.
Speaker 9: But a Marie, I've got to be honest, some of
Speaker 9: the ECB hawks really have surprised me with their comments
Speaker 9: suggesting we should have a slower pace.
Speaker 10: They are the hawks, so hawks have to be hawkish.
Speaker 9: I think the core unit of the ECB and overall
Speaker 9: still vote for a rate cut in July and not
Speaker 9: enough priced. But we need to see how this press
Speaker 9: conference goes.
Speaker 11: Hi Jordan, I understood that there's a lot of attention
Speaker 11: to the upside risk of inflation coming from care policy,
Speaker 11: but I want to ask a question in the opposite direction.
Speaker 11: If inflation in the EU continues to undershoot the ECB's
Speaker 11: two percent target. Is there a risk that real interest
Speaker 11: rates actually turn closer to that zero bound or even
Speaker 11: negative in the next two or three years.
Speaker 9: I don't think the risk of that is too high, actually,
Speaker 9: because what we're seeing is inflation is coming down. The
Speaker 9: eastb's forecast today have it below two percent for the
Speaker 9: next two years. Really, when it comes to the real
Speaker 9: yield you got to think about the nominal side as well.
Speaker 10: So we're dubbish on the ECB in the short term.
Speaker 9: But actually, kind of linking to the question Amory mentioned,
Speaker 9: the German fiscal stimulus will make it difficult for real
Speaker 9: yields to be materially weak, because what we're going to
Speaker 9: see in Q four is the budget is passed in
Speaker 9: Germany and will have much larger amounts of issuance in
Speaker 9: twenty twenty six. The hawks of the ECB might be
Speaker 9: able to hang on to that, but that is over
Speaker 9: six months away and quite difficult for this market to
Speaker 9: trade every single day.
Speaker 10: But that for the long term, I find it.
Speaker 9: Very difficult to see real yields and performing in Europe
Speaker 9: because of higher nominal yields. I expect to see with
Speaker 9: the German tenure bun getting to three point three percent.
Speaker 11: How much of a sea change A game changer is
Speaker 11: German issuance for the ECV.
Speaker 9: It's a massive game change. We've had many years where
Speaker 9: the weak growth in Europe was underpinned by the lack
Speaker 9: of or the fiscal austerity we saw in Germany for
Speaker 9: the past two decades. Roughly speaking, compared to what others
Speaker 9: should have done, the Germans have a lot of fiscal
Speaker 9: firepower debt to GDP in the sixty percent level sort
Speaker 9: of range, and the infrastructure alone that package is five
Speaker 9: hundred billion euros over ten years, so that's at least
Speaker 9: one percent to one point two five percent of GDP
Speaker 9: from next year onwards. We don't yet know what the
Speaker 9: numbers will be on the fence. We don't yet know
Speaker 9: the numbers. We've got a sense of what it will
Speaker 9: be on tax cuts. We had the forty two billion
Speaker 9: to forty seven billion from the headlines this week for
Speaker 9: corporation tax cuts, so the numbers will be large. Generally
Speaker 9: starts from a very strong position and that's why you're
Speaker 9: going to see the fiscal five power matter quite a
Speaker 9: lot next year.
Speaker 6: It's a great question Joan that Neil is raising at
Speaker 6: a time when potentially the ECB is looking at sub
Speaker 6: par inflation, inflation below that two percent level. How inflationary
Speaker 6: are some of these fiscal packages that Germany has floated.
Speaker 9: Well, it depends on if you're going with tax cuts,
Speaker 9: that's immediately more inflationary. Then it comes to infrastructure spending,
Speaker 9: So we have to know the sizes of these numbers.
Speaker 9: So if the tax cuts we've taken, let's say it's
Speaker 9: fifty billion, that's pretty sizeable number for that or that
Speaker 9: that's something that will have to be reflected in their forecast.
Speaker 10: But it is just a German number.
Speaker 9: And you've also got the problem with the rest of
Speaker 9: the Eurozone is you don't have the same fiscal fire powers.
Speaker 9: The ECB can't get too optim mystic from Germany alone.
Speaker 9: You have France which is fiscally constrained. You've got Italy
Speaker 9: and Spain not really able to move the needle on
Speaker 9: things either. But then when it comes to the infrastructure
Speaker 9: spending from Germany, that is a big positive that markets like,
Speaker 9: improves productivity and expected growth, but it won't translate to
Speaker 9: high inflation on day one because building bridges and so forth.
Speaker 9: It will boost commodity prices, and it'll raise the price
Speaker 9: of building services, but it won't affect everything else in
Speaker 9: the main.
Speaker 1: Jordan Rochester with a zoo.
Speaker 6: Thank you so much as always for the insights. Joining
Speaker 6: us now, Christna Mamani of La fay At College, Krishna,
Speaker 6: thank you so much for being here.
Speaker 1: Great to see you.
Speaker 6: How do you use data like this that isn't bad
Speaker 6: enough to cause the Fed to make a move, isn't
Speaker 6: good enough to give you confidence. It just sort of
Speaker 6: is sort of maybe a trend that we maybe can ignore,
Speaker 6: maybe need to pay attention.
Speaker 12: To well, so if we ignore it, we ignore it
Speaker 12: at our peril. That is, I think the economy has
Speaker 12: wall or I think rightly articulated the economy is slowing.
Speaker 12: It's not slowing at the precipitous pace, but it is
Speaker 12: definitely slowing. And you can see that it used to
Speaker 12: be in the soft data. Now the soft data improved,
Speaker 12: but the hard data is softening. So I think there
Speaker 12: is a substantial trend for slowing in the economy. It's
Speaker 12: again not precipitous, but gives the FED the path to
Speaker 12: cut rates, not today but in the later half of
Speaker 12: the year.
Speaker 11: In your opinion, what would it take to see that cut.
Speaker 11: What would it take in terms of whether it's jobless
Speaker 11: claims or continuing claims, or the unemployment.
Speaker 1: Rate, the mix of it all.
Speaker 11: How dire does the labor market data have to be
Speaker 11: to challenge the fact that the economy is fine and
Speaker 11: can continue to grow.
Speaker 12: I think the FED on that count has kind of
Speaker 12: been very clear. That is, at the end of the day,
Speaker 12: what they're focused on for cutting rates is really the
Speaker 12: employment picture. If the employment picture deteriorates meaningfully, not one month,
Speaker 12: but on a couple of months in sequence, I think
Speaker 12: that's what gets them there. Again, I think even if
Speaker 12: we get a soft employment report tomorrow.
Speaker 10: That is just not enough.
Speaker 12: However, if we see that in the third quarter and
Speaker 12: on a consistent basis, I think they have the pathway
Speaker 12: to cut.
Speaker 5: Rates, even a data dependent FED that keeps saying that
Speaker 5: they need certainty and they're very unclear at the moment
Speaker 5: where trade policy might mean for inflation.
Speaker 12: Well, so, I think from the FEDS perspective, the tariff
Speaker 12: is really a wild card because they don't know, they
Speaker 12: don't have enough of an empirical framework to kind of
Speaker 12: figure that out. And for that they will wait. On
Speaker 12: the other hand, if simultaneously, if the markets, if the
Speaker 12: employment markets are deteriorating quite substantially, I think they have
Speaker 12: the headroom in terms of where policy rates are today
Speaker 12: relative to where inflation is, for them to be able
Speaker 12: to cut on a proactive basis as opposed to just
Speaker 12: on a reactive basis.
Speaker 5: Falling up on Neilla's point quite substantially. What is that
Speaker 5: four point five percent unemployment in the sand?
Speaker 12: I don't think it's the unemployment number itself, it's really
Speaker 12: the trend in employment growth that on a consistent basis
Speaker 12: several months comes in significantly lower than what the trend
Speaker 12: rate has been so last.
Speaker 1: Year when they got exactly.
Speaker 6: But it raises a question about how much it would matter,
Speaker 6: right how much we're kind of talking about the wrong issue.
Speaker 6: Is the issue really how much will take the FED
Speaker 6: to cut?
Speaker 1: Or is the issue? Are we slowing or are we
Speaker 1: stalling out?
Speaker 6: And I think that that's the bigger question, maybe for
Speaker 6: both bond markets and for the FED. It's not just
Speaker 6: do you have to adjust things on the margins, it's
Speaker 6: longer term how much heat is left in an economy
Speaker 6: that has a lot of question marks around it.
Speaker 12: Well, that's a really good observation in the sense that
Speaker 12: even if the FED cuts let's say in the third
Speaker 12: quarter or early part of fourth quarter this year, the
Speaker 12: light impact of that on the markets, at least equity
Speaker 12: markets is probably not going to be as positive as
Speaker 12: people are expecting it to be, because I think in
Speaker 12: the throes of a tariff situation, if they are cutting rates,
Speaker 12: then they are really really worried that's bad news that
Speaker 12: will end up being bad news for the equity market.
Speaker 12: So that's why I think equity markets at this point
Speaker 12: the only upside is really going to come from productivity growth,
Speaker 12: earnings growth, things like that, and that is not looking
Speaker 12: very likely at the moment.
Speaker 11: I want to follow up on Matt Steven and Lisa's question,
Speaker 11: and I realize we're asking you to pingpong between the
Speaker 11: real economy and the markets right now, But what are
Speaker 11: the growth drivers that you see in the second half
Speaker 11: of the year that really catapults the economy for that
Speaker 11: raises those productivity numbers. Is there something that we're waiting
Speaker 11: for to happen that could really trigger that growth.
Speaker 12: I don't think there's really anything substantial in the pipeline
Speaker 12: that can get you there. I think the fiscal impetus,
Speaker 12: that is, but fiscal impulse that has been in the
Speaker 12: place because of deficit financing, is really what is carrying
Speaker 12: us through. In that mix, tariffs are basically a contractionary policy,
Speaker 12: so I think we are trying to balance. There's really
Speaker 12: no stimulus, significant stimulus coming into the economy until the
Speaker 12: tax package passes, and then we see the implications of
Speaker 12: that in terms of further deficit increase.
Speaker 6: Michael McKee is still with us and he's been parsing
Speaker 6: through the data. Mike, in addition to a job, was
Speaker 6: claimed some really interesting trade data.
Speaker 1: As you pass through it, what are you seeing?
Speaker 13: Well, basically what we saw these it was a pull
Speaker 13: forward in imports. Imports dropped by sixteen point three percent,
Speaker 13: and that pushed the overall trade deficit down by fifty
Speaker 13: five and a half percent, and the Census Buro says
Speaker 13: those are the two largest declines in those categories ever.
Speaker 13: Now it's all statistical noise in the sense that we
Speaker 13: didn't make a big deal out of the rise in
Speaker 13: the trade balance in January February because we knew it
Speaker 13: was the pull forward of sorts. But it does have
Speaker 13: an effect on the overall data. We'll see a bigger
Speaker 13: rise in second quarter growth. Then we saw the big
Speaker 13: fall of course in first quarter growth. And the one
Speaker 13: thing to point out about jobless claims is this is
Speaker 13: the biggest jump, or the highest level rather in eight months,
Speaker 13: and it's the highest two week in a row level
Speaker 13: in more than a year, So we do see some
Speaker 13: weakness here. Neil Dna writing in that you have about
Speaker 13: a two hundred and sixty thousand level would be the
Speaker 13: break even for jobless claims, and if we get above that,
Speaker 13: we're going to see week payroll numbers.
Speaker 1: So we'll see what.
Speaker 13: We get tomorrow. But of course we're starting to see
Speaker 13: the numbers come in Procter and Gamble today saying it's
Speaker 13: going to lay off seven thousand people. So it's starting
Speaker 13: to weaken out there.
Speaker 6: Mike, before you go, just a quick note, how much
Speaker 6: are you getting people questioning the integrity of some of
Speaker 6: this data, as we got reports yesterday from the Bureau
Speaker 6: of Labor Statistics that they didn't collect data for CPI
Speaker 6: in certain regions in April due to budget cuts.
Speaker 13: CPI is the one that's being affected most and first,
Speaker 13: but there are also concerns about the labor data as well.
Speaker 13: What's happening is the government has cut funding and not
Speaker 13: kept up funding for years, and then we have the
Speaker 13: DOGE cuts, so they're behind the eight ball. They can't
Speaker 13: really collect all the data that they have. Now, the
Speaker 13: data that they do collect is going to be used
Speaker 13: as well as it possibly can be, but just because
Speaker 13: you have fewer people collecting it and less data, you're
Speaker 13: going to have a wider margin of error.
Speaker 6: Michael mckae, thank you so much, Krishna. What exactly do
Speaker 6: you do with this the idea that the granular data
Speaker 6: shows some degree of weakening, and yet there's a question
Speaker 6: about just how accurate it is on any given week.
Speaker 12: Well, so it's kind of a sad state of affairs
Speaker 12: that the best statistical data collecting agency in the world
Speaker 12: is struggling to kind of do the surveys that we
Speaker 12: desperately need at this time of transition.
Speaker 4: But it is what it is.
Speaker 12: However, I think they do enough data collection for it
Speaker 12: not to be kind of disturbed in a significant way,
Speaker 12: and you can probably derive the basic trends out of
Speaker 12: the data that they're collecting. But I think again I
Speaker 12: would reatterate my point. It's a very sad state of affairs.
Speaker 5: But does the data even matter when the policy is
Speaker 5: changing so quickly?
Speaker 12: Well, so data does matter, because how would you expect
Speaker 12: the policy maker whose one mandate is employment to kind
Speaker 12: of react to it if they don't have accurate data
Speaker 12: and a really clear clear picture of what the impact
Speaker 12: of the various policies are on the economy. Without that,
Speaker 12: we are kind of we are blind, and that would
Speaker 12: be a terrible state of affairs.
Speaker 5: I mean, most of the market's not the real economy.
Speaker 12: It is just so I think to some extent, markets
Speaker 12: do react to policy, and for the policy to be
Speaker 12: commensurate with the state of the economy, we need that data.
Speaker 6: Christian Momoni of La Fair College don't be a stranger.
Speaker 1: Great to see you. Thank you so much for being here.
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