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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Wiley of black

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Speaker 2: Rock Rights in the following we still see tariffs causing

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Speaker 2: further contractions in cordly activity, but the cumulative impact may

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Speaker 2: be more limited. We stay risk one way. Joins us

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Speaker 2: now for more waken morning, Good morning. I might pick

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Speaker 2: up on that line, the cumulative impact, How are you

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Speaker 2: measuring that?

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Speaker 3: Well, there are two potential templates that we can mirror

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Speaker 3: what's happening by now. One is COVID, the pandemic. You

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Speaker 3: switch off and you switch on, But in your case

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Speaker 3: you're saying that you can switch off again and switch

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Speaker 3: on again. But we're talking about kind of being able

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Speaker 3: to switch it back on quite quickly. The other template

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Speaker 3: is Brexit, where you have multiple kind of years of

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Speaker 3: commulative scarring, where you have the economy below trend even today.

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Speaker 3: So right now, given how quickly we have seen walk back,

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Speaker 3: maybe the COVID type of template is appropriate in terms

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Speaker 3: of structure or scarring. But we're already seen some sort

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Speaker 3: of contraction, and I think technical contraction in the future

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Speaker 3: is not off the cards. It's not off the table,

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Speaker 3: but chances have been lessened because of the immutable or

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Speaker 3: seemingly at work to guide the destination of where we

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Speaker 3: end up.

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Speaker 2: When you say we stay risk on, what does that

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Speaker 2: mean in today's market?

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Speaker 3: It means positive on US equities and corporate in terms

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Speaker 3: of credit over US government bonds. I think what we

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Speaker 3: have seen so far this year, especially this week, is

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Speaker 3: that greater uncertainty doesn't mean greater certainty of a bad outcome.

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Speaker 3: People make false equivalents between the two, but there is

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Speaker 3: a huge, a huge difference. So when we talk about

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Speaker 3: kind of us that arithmetics, when we talk about supply

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Speaker 3: chain dependency, this full government, how quickly decoupling can happen,

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Speaker 3: if at all, which is why we are able.

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Speaker 4: We were able to stay.

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Speaker 3: Risk on despite elevated uncertainty in terms of policy making.

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Speaker 3: I would also say, you know, we talk about US

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Speaker 3: equity is recovering year today, US aquity is more than

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Speaker 3: recovering the draw down since a pro second, but US

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Speaker 3: government bonds haven't turn Premier went from thirty five basis

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Speaker 3: point on April second to seventy basis point. Dollar hasn't

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Speaker 3: recovered fully. So there is something more exceptional about US

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Speaker 3: equities than US corporates, and this is what we are

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Speaker 3: focused on in terms of our risk on strategy.

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Speaker 1: This is something a number of people have put up

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Speaker 1: talked about the fact that US exceptionalism still lies with

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Speaker 1: US big tech, and it still lies with some of

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Speaker 1: the mega trends as you've put them out there. It

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Speaker 1: doesn't lie necessarily with the dollar and US assets per se,

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Speaker 1: just by virtue of the US's position in the world.

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Speaker 4: I want to stick with tech.

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Speaker 1: This has been a bit of yours and sort of

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Speaker 1: structural theme just on a tactical level. Has the rally

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Speaker 1: already taken back all of the bullishness that you feel,

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Speaker 1: and for now it feels like maybe it's going to

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Speaker 1: take a breather. Even with some of these deals going

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Speaker 1: on in the Middle East.

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Speaker 3: Well tech has taken a blunt of market correction since

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Speaker 3: beginning of the year.

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Speaker 4: We think that there is more to go.

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Speaker 3: If you look at their guidance, they have all committed

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Speaker 3: to their previous copex spent, if not increasing. Broadly, companies

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Speaker 3: are guiding down their copex expectations. For hyperscalers, they continue

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Speaker 3: to be all in AI transformation, and multiples now look

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Speaker 3: a bit more attractive compared to beginning well compared to

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Speaker 3: before the cell off, right, So we do think that

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Speaker 3: there is more to go now. Bigger picture, we talked

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Speaker 3: about the walk back and how markets are kind of

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Speaker 3: jumping on incremental positive development, But the bigger picture is

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Speaker 3: we're still talking about a landing zone or for you,

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Speaker 3: as effective tariffs somewhere between ten to fifteen percent, there

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Speaker 3: is still five times more than the levels at the

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Speaker 3: beginning of the year, and everything considered, we're still talking

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Speaker 3: about an environment where we have higher tariffs, potentially lower

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Speaker 3: growth because of that, and potentially higher inflation because of that.

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Speaker 3: So I think that big picture is important to bear

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Speaker 3: in mind as we think about portfolio construction, and I

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Speaker 3: think markets jumping just to incremental positive news development is

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Speaker 3: a typical case of behavior buiers of anchoring. We just

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Speaker 3: look at kind of the incremental pieces, but the big

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Speaker 3: picture has you know, Tarraff represents us that inflationary shock,

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Speaker 3: and we still have higher tariffs compared to before.

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Speaker 1: Which feaks sort of the divergence between tech exceptionalism and

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Speaker 1: the rest of the universe. And I just wonder how

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Speaker 1: pressure the rest the universal stocks you see as really feeling,

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Speaker 1: especially if you do see potential risk to government bond

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Speaker 1: markets going forward.

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Speaker 3: Which is why we definitely prefer TAG and financials that

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Speaker 3: have been leading in the latest earning season compared to

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Speaker 3: the rest of the market, compared to small caps for examples.

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Speaker 3: So we see TAG as the drivers of US exceptionalism

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Speaker 3: in terms of US corporates, and maybe the rest of

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Speaker 3: the markets is passengers of US exceptionalism wave. And especially

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Speaker 3: at times like this where we're still talking about higher rates,

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Speaker 3: high for longer central banks not able to come to

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Speaker 3: the rescue of the economy as they were before. We

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Speaker 3: still want to focus on companies that can grow their margin,

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Speaker 3: that can grow their profitability. And if you look at

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Speaker 3: the latest earning season and also previously, TAG and financials

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Speaker 3: remain those sectors that we want to focus on.

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Speaker 4: What happened to the European trade?

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Speaker 3: Where is it now while we close the European underway

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Speaker 3: to lean into the European trade, But we're just neutral,

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Speaker 3: not positive.

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Speaker 4: What's holding your Backstille?

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Speaker 3: What's holding us back? Well, what we have seen so

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Speaker 3: far if you look at the rally back from the

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Speaker 3: lows posts April second, is that our performance of Europe

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Speaker 3: over US has stopped us started catching up now and

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Speaker 3: if you look at the hoops that mrs has to

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Speaker 3: jump through to get confirmed, there remains risks around implementation

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Speaker 3: of all these ambitious policies and reform targets. So we

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Speaker 3: do want to see more kind of clarity around the

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Speaker 3: ambitious targets for us to be positive across the board.

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Speaker 3: But we have liked European financials for a long time.

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Speaker 3: That have been our performing we have. We also see

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Speaker 3: opportunities in defense as a sector given the future spent

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Speaker 3: and lack of capacity in that in that space, So

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Speaker 3: being selective on European aqulities, definitely seeing a lot more

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Speaker 3: opportunities compared to the beginning of the year. But the

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Speaker 3: market has come a long way so I think you know,

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Speaker 3: one thing that we have seen so far is reversal

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Speaker 3: strategy as a near term way of navigating market volatility

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Speaker 3: has worked, and right now reversal strategy seems to support

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Speaker 3: you as.

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Speaker 1: There's this reason why people are sort of saying pass

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Speaker 1: to Europe, just want to finish up with China. Do

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Speaker 1: you think that there is morcos there given the fact

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Speaker 1: that it seems like there isn't a full scale decoupling,

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Speaker 1: and it does appear to be supported by some fiscal

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Speaker 1: as well.

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Speaker 5: Well.

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Speaker 3: We're also selective in China. We're neutral more broadly across

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Speaker 3: the Chinese acoli market, but we like technology in China

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Speaker 3: because of the innovation potential as well as China TAP

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Speaker 3: potentially going a bit more globally. And we also like

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Speaker 3: financials in China because of the national team's support as

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Speaker 3: well as funds closing there underweight. The reaction of Chinese

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Speaker 3: market to the latest development has been somewhat mixed because

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Speaker 3: the more we see kind of progress on the trade front,

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Speaker 3: the less likelihood there is for more support on the

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Speaker 3: policy side to come through. So now there is definitely

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Speaker 3: a positive momentum in that Previously people are talking about

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Speaker 3: maybe three handle for Chinese growth this year because of

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Speaker 3: the tariffs implication. But now people are very quickly upgrading

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Speaker 3: their forecast for Chinese growth this year, so selectively optunistic

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Speaker 3: and positive on Chinese Accoudis is our near term tactical view.

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Speaker 3: But over the longer term structural constraints around kind of

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Speaker 3: agent population lower growth that hasn't changed.

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Speaker 2: So those estimates revised herds are close to the five

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Speaker 2: percent already this week. Why it's going to say, why

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Speaker 2: so why? Thanks for dropping by? Thanks welly, that of.

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Speaker 4: Black Crock.

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Speaker 2: Against Notixanta has been varied on the dollars, and writes

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Speaker 2: the following, it's likely that we're at a multi year

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Speaker 2: turning point. I think the dollar should be moving substantially

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Speaker 2: Jensen's and that joins us now for more. Yeah, it's

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Speaker 2: good to see it, sir, and too long. Thanks for

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Speaker 2: dropping by. We've got some time to work through this.

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Speaker 2: You're looking at potentially a system level shark that leads

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Speaker 2: to a strategic reallocation of the US dollar away from

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Speaker 2: the US dollar to other currencies. Can you just set

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Speaker 2: the scene for us from thirty five thousand feet? What

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Speaker 2: do you think is happening here?

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Speaker 6: We've really been on a strong dollar trend since the

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Speaker 6: summer of twenty fourteen, right, So we've had this incredible

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Speaker 6: run in US equities, We've had US yields that were

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Speaker 6: generally higher than other places around the world, and investors

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Speaker 6: from Europe to Canada, Australia, Japan have been very comfortable

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Speaker 6: building up really big allocations to the US, unprecedented high locations.

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Speaker 1: Right.

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Speaker 6: And now we're coming into this year. A lot of

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Speaker 6: people were expecting, Oh, okay, Trump two is going to

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Speaker 6: smell a bit like Trump one.

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Speaker 4: People actually added.

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Speaker 6: Aggressively to their equity exposure into this year, right, and

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Speaker 6: then it has turned out that Trump two was not

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Speaker 6: really anything like Trump one, and a lot of people

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Speaker 6: are rethinking those allocations. And it's not just about the terriffs, right,

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Speaker 6: It's about what's happening with foreign policy, who are allies,

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Speaker 6: what's the natal arrangement going to be. There's a whole

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Speaker 6: host of issues, right. That means that a lot of

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Speaker 6: people are thinking about is it really prudent as somebody

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Speaker 6: who's allocating globally to have such incredible overweight in the

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Speaker 6: United States, so not talk about is the reserve currency

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Speaker 6: status going to disappear. But talk about people who've been very,

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Speaker 6: very overweight. Are they going to do some risk management

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Speaker 6: and take their allocation down? And I think the feedback

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Speaker 6: we get from speaking to chief investment officers all around

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Speaker 6: the world is that it takes a lot to shock them,

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Speaker 6: but they are shocked and they want to change the allocations.

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Speaker 2: To your point, this has been building for a decade,

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Speaker 2: a decade plus of dollar longs building across all asset classes.

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Speaker 2: What we're trying to understand now is, as we take

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Speaker 2: some of the air out of that trade, what are

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Speaker 2: the policies that you see that make the shift away

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Speaker 2: from the US dollars sustainable, durable, beyond just the chaos

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Speaker 2: of the last month or so. How do you think

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Speaker 2: about that at the moment? And do you consider them

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Speaker 2: a push dynamic bad policies in the US pushing capital out,

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Speaker 2: or a pull dynamic better policies elsewhere sucking capital in

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Speaker 2: which one is it?

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Speaker 7: Yes?

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Speaker 6: So the first thing I would say is that we

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Speaker 6: have a list of US polishes sharks, and that list

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Speaker 6: of policy shocks is actually generating polisher sharks elsewhere. Right.

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Speaker 6: So in Europe we've had now a historical change in

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Speaker 6: physical policy where essentially the physical rules have been rewritten.

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Speaker 4: Right, The rules that underpin.

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Speaker 6: The euro have now been changed in a way where

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Speaker 6: you can invest more effectively. Right, That's a big change.

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Speaker 6: So that's important for growth out look in Europe. We're

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Speaker 6: just talked about, as you mentioned, right, the NATO budget

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Speaker 6: potentially also totally different. Right, five percent numbers We used

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Speaker 6: to talk about whether we can get to two, right,

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Speaker 6: So big, big changes. So that's that's something that underpins

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Speaker 6: this idea that there are other places because if you

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Speaker 6: have more investment in Europe, you also have more bond issues, right,

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Speaker 6: So the whole supply and demand dynamic is changing. It

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Speaker 6: used to be the case that there was actually very

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Speaker 6: few assets to buy in Europe, and that's changing too.

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Speaker 6: If you look at the comparison between international investors and

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Speaker 6: US investors, in the US, you have an incredible home bias.

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Speaker 4: That's the other part of the story.

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Speaker 6: Right. If you look at all ehtfs that are issued

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Speaker 6: in fixed income in the US one point seven trillion,

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Speaker 6: there's only half a percent that has any foreign currency exposure.

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Speaker 6: So it can only go one way from here. That's

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Speaker 6: not going to be quick, but over time it will happen.

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Speaker 1: There's an important point here. You said that this isn't

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Speaker 1: necessarily the loss of the dollar as being a reserve currency.

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Speaker 1: This is just simply innormalization and diversifying away.

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Speaker 4: From the dollar.

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Speaker 1: Some people might say that this is a feature, not

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Speaker 1: a bug, of this administration, that they want a weaker

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Speaker 1: dollar in order to increase exports. And actually we're going

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Speaker 1: to see this increasingly as a part of policy, not

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Speaker 1: just as a potential consequence.

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Speaker 6: Yeah, I think you're right.

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Speaker 4: We certainly have.

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Speaker 6: People within the cabinet Scott Beston included right, that I

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Speaker 6: have a different nuance to dollar policy compared to the past.

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Speaker 6: There's always this focus on okay, how do we insource

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Speaker 6: some manufacturing and a week of dollars certainly would be

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Speaker 6: helpful in that regard.

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Speaker 4: And you're right.

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Speaker 6: I think if you look at the price action today,

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Speaker 6: it is influenced by these let's call it Bloomberg headlines

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Speaker 6: about career trade deals so and currency deals. So there's

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Speaker 6: an element of that. So nobody is going to be

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Speaker 6: fighting this trend. If the dollar is going gradually weaker.

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Speaker 4: How much more weakness is there?

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Speaker 1: And potentially do you see the euro as the biggest winner.

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Speaker 6: So again, we've literally been going in one direction for

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Speaker 6: eleven years on a trend basis, right, So we've just

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Speaker 6: started and if we have a big asset location shift,

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Speaker 6: it's something that can play out over a six to

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Speaker 6: nine month horizon and we can easily have, you know,

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Speaker 6: a five percent move down in the dollar index, right,

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Speaker 6: And then then we get to these questions, so, Okay,

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Speaker 6: is it going to be orderly or could there be

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Speaker 6: something that's more dramatic? Right, And what we had in

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Speaker 6: April I have never seen. I've been doing currency analysis

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Speaker 6: since two thousand, effectively, right, what we saw on April

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Speaker 6: we have never seen before, right where used bonds are

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Speaker 6: selling off, equity is selling off, and the dollar trades down.

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Speaker 6: So I think that was only for not that many

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Speaker 6: trading sessions, but it's still a warning sign that that

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Speaker 6: can happen, right, So I am in addition to what

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Speaker 6: we just spoke about, I think there's some addicial tail

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Speaker 6: risk that if the budget process is not one that

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Speaker 6: investors are comfortable with, I worry that we can have

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Speaker 6: some of the same dynamics as we had in April.

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Speaker 6: So that wouldn't be my central case, but the people

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Speaker 6: who are involved in these budget negotiations have to remember

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Speaker 6: what happened in April. The US bond market is not

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Speaker 6: a kind of indisputable safe haven anymore, and what happens

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Speaker 6: with the budget is absolutely gonna matter.

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Speaker 2: There's evidence that speaked not only investors, but also the

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Speaker 2: White House in the last month as well.

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Speaker 1: Yeah, you said yesterday, who's the bigger arbiter, Republicans or

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Speaker 1: the bond market? And I think a lot of people

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Speaker 1: are watching the bond market very.

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Speaker 2: Closely based on this conversation. It might be the bond

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Speaker 2: market again. It's going to see it. It's been too long.

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Speaker 2: Thanks for dropping by again to not if Alexante Data

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Speaker 2: Retail annings up with Walmart reporting on Thursday, offering another

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Speaker 2: read on the US consumer. The team at Bank for

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Speaker 2: America writing the following, spending momentum remains, though it's moderating.

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Speaker 2: Consumers appear to be pulling bank, particularly on bigger ticket

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Speaker 2: discretionary services like airline tickets and lodging. Holly O'Neil is

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Speaker 2: the president of Retail Banking and Bank for America, and

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Speaker 2: place is sayety joined us now, Holly, welcome back to

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Speaker 2: the program. I want to talk a little bit about

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Speaker 2: the consumer, and then we can get to what you're

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Speaker 2: doing operationally. But let's start with the consumer if we can.

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Speaker 2: What are you noticing and how is that different to

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Speaker 2: what we've seen previously over the past few years.

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Speaker 5: Well, the consumer appears to be continuing to spend. They're

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Speaker 5: very healthy. And you had the headline they spent in

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Speaker 5: April at a rat of about one percent and that's

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Speaker 5: our credit and debit data, and that was just slightly

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Speaker 5: cooler than they spent in March at one point one

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Speaker 5: percent growth year over year. So they have momentum, but

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Speaker 5: it's moderating a little bit, and I think the driver

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Speaker 5: of that is that they're supported by continued wage growth.

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Speaker 5: So we saw good wage growth in April, both in

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Speaker 5: higher income and lower income, though it is moderating a

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Speaker 5: little bit, So that theme is still healthy, but moderating.

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Speaker 2: Ollie, and please you broke up the income groups, because

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Speaker 2: we sit on that just for a bat. The low

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Speaker 2: income group have been squeezed for a while. We've seen

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Speaker 2: that in data repeatedly throughout this cycle coming out of

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Speaker 2: the pandemic. Do you see any stress coming up to

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Speaker 2: the upper income cohorts?

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Speaker 5: No, So the lower income household wage growth, just to

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Speaker 5: give you the numbers picked up by about one point

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Speaker 5: five percent in April, and that was that was stronger

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Speaker 5: than March. So March was one point four percent, So

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Speaker 5: that wage growth in the lower income cohort increased a

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Speaker 5: little bit. And I think that wage growth is continuing

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Speaker 5: to support the consumer and the consumer spending. When you

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Speaker 5: get deeper into the data, some of the credit data,

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Speaker 5: as an example, the lower income households are continuing to

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Speaker 5: hold up. Overall. We've seen thirty day delinquencies come down

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Speaker 5: a tad, so I think that consumer still is showing

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Speaker 5: signs of good health.

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Speaker 1: This really raises a question, Holly, about how much we

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Speaker 1: can really count on some of the soft data, which

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Speaker 1: indicated an incredible amount of nervousness and pessimism among consumers

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Speaker 1: in the United States during the month of April, in

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Speaker 1: particular after April second, are you saying you're just not

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Speaker 1: seeing it? But frankly, people can go out and gripe

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Speaker 1: about how concerned they are about the future of the world,

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Speaker 1: but then they go out in a spending spree.

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Speaker 5: We're not seeing it. And I think we often talk

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Speaker 5: internally about you know, you have to separate what consumers

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Speaker 5: are saying versus what they're doing, what we're seeing in

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Speaker 5: our data, and that data is telling us that they're

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Speaker 5: continuing to spend, although it is moderating. And so we

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Speaker 5: saw in April restaurants good spending there, but we did

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Speaker 5: see a dip down in airline and lodging, leisure travel

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Speaker 5: a little bit. So consumers are adjusting slightly, which leads

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Speaker 5: to that the momentum is dipping just slightly. But you

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Speaker 5: really do have to separate what consumers are saying in

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Speaker 5: a lot many of the confidence and sentiment numbers versus

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Speaker 5: what they're doing, what we're seeing in our data, whether

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Speaker 5: it's spending data, payment data, or credit data.

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Speaker 1: Holly, I want to congratulate you. You have basically just received

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Speaker 1: a pretty big promotion. You're running much more of the

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Speaker 1: consumer bank, and you come at a time when there's

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Speaker 1: a real question around how different the scenario is in

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Speaker 1: different parts of the United States, how it's not a

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Speaker 1: monolithic story at all, and how different regions are feeling

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Speaker 1: very different realities depending on what their local economies really

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Speaker 1: depend on. How different is the scenario that you're looking

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Speaker 1: at in the United States right now, depending on which

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Speaker 1: region you're in.

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Speaker 5: So we obviously have across the country foot and we

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Speaker 5: have thirty seven hundred financial centers in all of these

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Speaker 5: local communities. So you know, our goal is to really

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Speaker 5: deliver for our consumer clients, you know, approximately seventy million

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Speaker 5: of them uniquely to what their situation is, whether that's

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Speaker 5: geographic or that's individual. So you know, we are there

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Speaker 5: to adjust and course correct based on what our clients

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Speaker 5: are telling us and based on what they need.

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Speaker 2: Ollie, how are the interactions changing between customers? How different

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Speaker 2: are they now and how does that change what you

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Speaker 2: need out of your physical footprint.

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Speaker 5: So our physical our strategy is all about physical footprints

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Speaker 5: supported by digital and it's really the combination of the

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Speaker 5: boats that I think lead to the power of how

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Speaker 5: we can deliver for the consumer clients. So those thirty

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Speaker 5: seven hundred financial centers in local communities coupled with world

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Speaker 5: class digital capabilities, those digital capabilities continue to grow, they

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Speaker 5: continue to advance, and consumers love them. At the same time,

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Speaker 5: it does not substitute for face to face interaction that

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Speaker 5: we get in our financial centers. When a consumer client

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Speaker 5: really wants advice and guidance in their financial position. So

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Speaker 5: it's the combination of the two that I think really

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Speaker 5: deliver the power for our consumer clients.

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Speaker 1: Allie, how much have you been able to expand the

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Speaker 1: physical footprint in part because of the turmoil that happened.

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Speaker 4: It feels like ten.

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Speaker 1: Years ago, but not that long ago. I guess March

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Speaker 1: twenty twenty three in terms of some of the regional

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Speaker 1: banking turmoil. How much of this has just accelerated since

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Speaker 1: then as you look to take market share.

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Speaker 5: So we continue to expand into new markets. We continue

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Speaker 5: to build new financial centers in communities where we need them,

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Speaker 5: so we will continue to advance that agenda across the

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Speaker 5: country new markets. Idaho is a recent new market that

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Speaker 5: we've entered, and we've got more coming. So we will

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Speaker 5: continue to expand in new markets. We'll adjust our footprint

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Speaker 5: in existing markets, opening new financial centers. Over the last decade,

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Speaker 5: we've opened roughly to more than two hundred financial centers,

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Speaker 5: and as we look forward, we expect to continue to

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Speaker 5: open one hundred and fifty more over the next two

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Speaker 5: to three years.

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Speaker 2: Holly, I was dead wrong about all this. I thought

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Speaker 2: as we changed these interactions, we'd end up with a

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Speaker 2: smaller footprint that it would give banks a reason to

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Speaker 2: cut costs and reduce their physical footprint. Holly, why is

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Speaker 2: that not happening? And it's a space for that to

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Speaker 2: happen in the future.

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Speaker 5: It Yeah, Now, you're not wrong. It has happened. If

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Speaker 5: you look over the last decade, we started with six

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Speaker 5: thousand financial centers. We are down to thirty seven hundred.

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Speaker 5: That may tick down slightly overall as we do things

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Speaker 5: like consolidate, you know, close two financial centers in a

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Speaker 5: local community and open one new financial center, so you

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Speaker 5: will continue to see at the margins some reductions, but

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Speaker 5: that physical footprint, that engagement with our clients in their

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Speaker 5: local community is incredibly important as a compliment to the

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Speaker 5: digital reach that we have with our clients.

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Speaker 4: Holly, appreciate the clarity.

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Speaker 2: As always, it's good to catch up, Holly A they're there,

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Speaker 2: of Bank for America.

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Speaker 4: It's the latest.

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Speaker 2: This morning, President Trump calling for the FED to cut

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Speaker 2: interest rates once again, saying it's quote not fed to

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Speaker 2: America after a soft CPR report out just yesterday. Former

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Speaker 2: New York Fed President Bill Dudley right in the following,

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Speaker 2: the Fed has little choice when it doesn't know which

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Speaker 2: way the rescue. It must wait for more information. Right now,

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Speaker 2: any major move would have only a fifty to fifty

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Speaker 2: chance of a positive outcome. Bill joins us now for

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Speaker 2: more but welcome to the program. So why such a

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Speaker 2: negative assessment of the position that they're in right now?

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Speaker 8: Because they don't know where the terrorists are going to land.

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Speaker 7: Number one too, they don't know what the effects of

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Speaker 7: the terraces are going to be on growth versus inflation,

441
00:24:04,200 --> 00:24:07,440
Speaker 7: So they're uncertain about two dimensions. So they can't really

442
00:24:07,480 --> 00:24:08,880
Speaker 7: just sort of flip a coin and say, oh, we're

443
00:24:08,880 --> 00:24:10,760
Speaker 7: gonna worry about the growth mension because that could turn

444
00:24:10,760 --> 00:24:11,359
Speaker 7: out to be wrong.

445
00:24:11,920 --> 00:24:13,679
Speaker 8: So they have to sit and wait to wait for

446
00:24:13,720 --> 00:24:14,280
Speaker 8: more information.

447
00:24:14,440 --> 00:24:17,679
Speaker 7: I mean, if you were driving a car in a thunderstorm,

448
00:24:17,720 --> 00:24:20,080
Speaker 7: you want to put the car in an autopilot and

449
00:24:20,160 --> 00:24:23,680
Speaker 7: hope that you would get through safely. So he pulled

450
00:24:23,720 --> 00:24:25,480
Speaker 7: it the side of the road until the weather cleared up.

451
00:24:25,680 --> 00:24:27,919
Speaker 7: And that's what the FED has to do. You know,

452
00:24:28,240 --> 00:24:31,600
Speaker 7: the FED is going to be criticized for waiting. They

453
00:24:31,600 --> 00:24:33,880
Speaker 7: have to wait, and because they are waiting, they're probably

454
00:24:33,960 --> 00:24:36,840
Speaker 7: ultimately going to be late. But it's not the Fed's fault.

455
00:24:36,840 --> 00:24:40,680
Speaker 7: I would behave exactly the same way in the circumstances.

456
00:24:40,760 --> 00:24:43,360
Speaker 2: But what's the definition of light? And what's your definition

457
00:24:43,400 --> 00:24:45,840
Speaker 2: of light? Because he reflected on the move last summer

458
00:24:45,960 --> 00:24:48,400
Speaker 2: and he said, in some ways we were a little light,

459
00:24:48,600 --> 00:24:50,520
Speaker 2: and other people thought he was being preemptive.

460
00:24:50,560 --> 00:24:51,360
Speaker 4: What's light to you?

461
00:24:52,760 --> 00:24:56,760
Speaker 7: I think, ladies responding only after you've seen a criticizeable

462
00:24:56,840 --> 00:24:58,960
Speaker 7: increase in the unemploying rate, because at that point it's

463
00:24:58,960 --> 00:25:02,639
Speaker 7: really hard to avert recession. When I evaluate the risks

464
00:25:02,640 --> 00:25:04,680
Speaker 7: to inflation versus the risks of growth, here, I guess

465
00:25:04,680 --> 00:25:07,720
Speaker 7: I worry more about the downside risks of growth. But

466
00:25:07,760 --> 00:25:10,520
Speaker 7: the FED can't put all their marbles on that side

467
00:25:10,520 --> 00:25:15,320
Speaker 7: of the equation because inflation has been running above the

468
00:25:15,320 --> 00:25:17,840
Speaker 7: Fed's target for five years. And if they're wrong and

469
00:25:17,880 --> 00:25:22,240
Speaker 7: inflation expectations get unanchored, then it's a really difficult problem

470
00:25:22,320 --> 00:25:24,800
Speaker 7: getting inflation back down. So I think they have to wait.

471
00:25:25,400 --> 00:25:28,080
Speaker 7: Because they wait because there will be forced to weight.

472
00:25:28,160 --> 00:25:31,320
Speaker 7: They'll probably be late. Trump will blame the FED for

473
00:25:31,359 --> 00:25:34,800
Speaker 7: being late, But rally is Trump creates the conditions that

474
00:25:34,920 --> 00:25:36,280
Speaker 7: forces the FED to have to wait.

475
00:25:37,119 --> 00:25:39,920
Speaker 1: Bill, I'm just curious going forward, how much you see

476
00:25:39,960 --> 00:25:43,040
Speaker 1: the FED unwilling to move even if the unemployment rate

477
00:25:43,119 --> 00:25:45,639
Speaker 1: rises by half a percentage point, which is sort of

478
00:25:45,640 --> 00:25:47,359
Speaker 1: the trigger that a lot of people are looking at,

479
00:25:47,600 --> 00:25:50,840
Speaker 1: if you do see those inflationary pressures coming back.

480
00:25:51,800 --> 00:25:54,240
Speaker 7: Well, I think if the unplayer rate rose by above

481
00:25:54,240 --> 00:25:56,760
Speaker 7: four and a half percent, that would change the FEDS calculus.

482
00:25:56,800 --> 00:25:59,399
Speaker 7: It would be much more worried about the self reinforcing

483
00:25:59,440 --> 00:26:01,920
Speaker 7: deterioration the labor market leading to a full blown recession.

484
00:26:02,240 --> 00:26:04,280
Speaker 7: So I think the unploying rate is really the single

485
00:26:04,359 --> 00:26:07,719
Speaker 7: most important indicator. If it stays around where it is today,

486
00:26:08,119 --> 00:26:10,080
Speaker 7: if it's going to just sit and wait. If the

487
00:26:10,280 --> 00:26:13,240
Speaker 7: unployer rate starts rising quickly, then the Federal Reserve will

488
00:26:13,240 --> 00:26:14,840
Speaker 7: start to respond. But I think it's going to take

489
00:26:14,840 --> 00:26:17,160
Speaker 7: some time. I mean, the hard data on the economy

490
00:26:17,480 --> 00:26:19,639
Speaker 7: shows that the economy is still just fine. I mean,

491
00:26:19,680 --> 00:26:22,800
Speaker 7: the first core GDP report was very misleading because it

492
00:26:22,920 --> 00:26:26,360
Speaker 7: was mainly the fact that they couldn't count inventories properly

493
00:26:26,760 --> 00:26:29,080
Speaker 7: to match up with the big surgeon imports bill.

494
00:26:29,119 --> 00:26:30,639
Speaker 1: If you were still on the FED, and you have

495
00:26:30,720 --> 00:26:33,240
Speaker 1: been on the FED through crises and through really difficult

496
00:26:33,320 --> 00:26:36,800
Speaker 1: times where the market was moving faster than the underlying economy.

497
00:26:37,240 --> 00:26:39,280
Speaker 1: What data would you look at to get a real

498
00:26:39,400 --> 00:26:42,360
Speaker 1: read on what was going on in the United States.

499
00:26:44,160 --> 00:26:46,760
Speaker 7: Well, I think some of the bank banks have actually

500
00:26:46,800 --> 00:26:49,080
Speaker 7: pretty good, reallytime data in terms of what's happening sort

501
00:26:49,119 --> 00:26:50,800
Speaker 7: of credit cards, and they're not seeing much of a

502
00:26:50,960 --> 00:26:52,159
Speaker 7: slowdown at this point.

503
00:26:53,000 --> 00:26:54,080
Speaker 8: Initially unploned claims.

504
00:26:54,119 --> 00:26:57,280
Speaker 7: It gives you a pretty high frequency look at what's

505
00:26:57,280 --> 00:26:59,560
Speaker 7: happening to the labor market that doesn't show any deterioration

506
00:26:59,680 --> 00:27:02,480
Speaker 7: yet of note, So I think you're looking at things

507
00:27:02,880 --> 00:27:06,400
Speaker 7: at the margin that suggests that weaknesses are starting to accumulate.

508
00:27:06,520 --> 00:27:08,480
Speaker 7: Now what's interesting is that tariffts are actually starting to

509
00:27:08,520 --> 00:27:11,679
Speaker 7: bring in revenue, so fiscal policy and right now is actually.

510
00:27:11,400 --> 00:27:12,720
Speaker 8: Starting to become tighter.

511
00:27:12,920 --> 00:27:15,080
Speaker 7: And I'd also look at low income households because I

512
00:27:15,080 --> 00:27:17,000
Speaker 7: think that's where the squeeze is going to be the

513
00:27:17,040 --> 00:27:20,600
Speaker 7: most indicative significant. So if you start to see delinquency

514
00:27:20,720 --> 00:27:23,080
Speaker 7: rates on subprime all loans really start to hit up,

515
00:27:23,280 --> 00:27:25,200
Speaker 7: I mean they're already high. If they start to head

516
00:27:25,240 --> 00:27:28,000
Speaker 7: up even more substantially, that would be also a sign

517
00:27:28,320 --> 00:27:30,960
Speaker 7: of a growing strain on the growth side.

518
00:27:31,119 --> 00:27:32,760
Speaker 4: But at some point the FED will have to update

519
00:27:32,800 --> 00:27:33,360
Speaker 4: their numbers.

520
00:27:33,440 --> 00:27:36,800
Speaker 2: On March nineteenth, they put out these forecasts GDP at

521
00:27:36,800 --> 00:27:40,080
Speaker 2: one point seven percent for twenty twenty five PCEE at

522
00:27:40,080 --> 00:27:43,679
Speaker 2: swopoint a unemployment of four point four On June eighteenth,

523
00:27:43,680 --> 00:27:47,240
Speaker 2: they'll have to deliver an update. When we get that update, Bill,

524
00:27:47,560 --> 00:27:49,440
Speaker 2: what do you think it will look like relative to March.

525
00:27:50,840 --> 00:27:53,800
Speaker 7: I think they'll show somewhat slower growth to reflect the

526
00:27:53,840 --> 00:27:56,360
Speaker 7: fact that tarifs have gone up more than they anticipated,

527
00:27:56,400 --> 00:28:00,720
Speaker 7: and somewhat higher inflation to reflect the same consequence. So

528
00:28:00,840 --> 00:28:03,679
Speaker 7: I think he'll be even a more pessimistic forecast in

529
00:28:03,680 --> 00:28:05,359
Speaker 7: the sense that the Fed will be missing both of

530
00:28:05,400 --> 00:28:08,960
Speaker 7: its dual mandate objectives by a bigger magnitude. But they

531
00:28:08,960 --> 00:28:11,199
Speaker 7: still don't have clarity on what's happening to tarrofsts and

532
00:28:11,240 --> 00:28:12,919
Speaker 7: the impact of terrorists on the economy, and so I

533
00:28:12,920 --> 00:28:14,520
Speaker 7: think it's going to take a while for that to

534
00:28:14,560 --> 00:28:17,359
Speaker 7: be realized, and only then will the FED be able

535
00:28:17,400 --> 00:28:18,440
Speaker 7: to act.

536
00:28:18,320 --> 00:28:22,560
Speaker 2: One missing piece slower growth, somewhat higher inflation. What does

537
00:28:22,600 --> 00:28:25,440
Speaker 2: the median dot do, Bill, Because I think that implies

538
00:28:25,720 --> 00:28:27,680
Speaker 2: what their reaction function is, how they respond to that

539
00:28:27,760 --> 00:28:28,640
Speaker 2: kind of data mix.

540
00:28:28,960 --> 00:28:29,920
Speaker 4: Do you think it changes?

541
00:28:31,119 --> 00:28:32,960
Speaker 7: I think that you can make the case that the

542
00:28:33,000 --> 00:28:35,679
Speaker 7: Fed starts to cut rates in September, and maybe we

543
00:28:35,720 --> 00:28:38,240
Speaker 7: can still get three raycuts this year, which would be

544
00:28:38,280 --> 00:28:41,800
Speaker 7: consistent with the March set some rate of economic projections.

545
00:28:42,560 --> 00:28:45,160
Speaker 7: But obviously, as time passes and the Fed doesn't act,

546
00:28:46,040 --> 00:28:48,360
Speaker 7: the likelihood is the number of median number of rate

547
00:28:48,400 --> 00:28:51,240
Speaker 7: cuts starts to come down just because there's fewer meetings left.

548
00:28:51,640 --> 00:28:51,880
Speaker 4: Bill.

549
00:28:51,960 --> 00:28:54,000
Speaker 2: I appreciate your time as always, sir, and enjoy your

550
00:28:54,000 --> 00:28:56,840
Speaker 2: pieces on Bloomberg dot Com. On Bloomberg Opinion, they form

551
00:28:56,880 --> 00:28:59,920
Speaker 2: a New York Fed President Bill Dudley. There, they say,

552
00:29:00,000 --> 00:29:04,400
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