1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,840 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,040 Speaker 2: Terminal and the Bloomberg Business app. We begin this out 10 00:00:37,080 --> 00:00:39,519 Speaker 2: with stocks adding to losses following an underwhelming start to 11 00:00:39,600 --> 00:00:42,800 Speaker 2: tech earnings. Jim Caron of Morgan Stanley Investment Management joined 12 00:00:42,880 --> 00:00:46,080 Speaker 2: us now for more. Jim, welcome the numbers from Alphabet, 13 00:00:46,159 --> 00:00:48,360 Speaker 2: the numbers from Tesla. Do we have a capex problem, 14 00:00:48,440 --> 00:00:51,159 Speaker 2: a spending issue, or a positioning and price problem in 15 00:00:51,159 --> 00:00:51,839 Speaker 2: this market? 16 00:00:53,040 --> 00:00:56,080 Speaker 3: I think it's a readjustment in prices, honestly. I mean, 17 00:00:56,160 --> 00:00:58,560 Speaker 3: you know, look, there's been a lot of expectations for 18 00:00:58,720 --> 00:00:59,560 Speaker 3: many of these companies. 19 00:00:59,600 --> 00:01:01,120 Speaker 4: The earning have been decent. 20 00:01:01,320 --> 00:01:04,240 Speaker 3: It's just that they're not beating expectations in the way 21 00:01:04,280 --> 00:01:06,480 Speaker 3: that maybe you know, people want. 22 00:01:06,280 --> 00:01:07,640 Speaker 4: Them to going forward. 23 00:01:07,680 --> 00:01:10,000 Speaker 3: And look, the earnings run so far for the first 24 00:01:10,040 --> 00:01:12,440 Speaker 3: half of this year have been very strong. Of course, 25 00:01:12,480 --> 00:01:15,000 Speaker 3: the markets are forward looking. They're looking into the next 26 00:01:15,000 --> 00:01:17,720 Speaker 3: six months, into the next twelve months, and what they're 27 00:01:17,760 --> 00:01:20,000 Speaker 3: saying is that the pace of earnings is just not 28 00:01:20,120 --> 00:01:23,280 Speaker 3: going to be what it was because effectively this run 29 00:01:23,400 --> 00:01:28,560 Speaker 3: rate of very you know, accelerated earnings is really unsustainable. 30 00:01:28,760 --> 00:01:31,520 Speaker 4: But that's okay because these companies. 31 00:01:31,080 --> 00:01:35,240 Speaker 3: In this sector has actually been performing, you know, not 32 00:01:35,360 --> 00:01:37,240 Speaker 3: so well this year. It's actually, you know, the value 33 00:01:37,280 --> 00:01:39,479 Speaker 3: sector is the broadening of the market that's done better 34 00:01:39,560 --> 00:01:42,160 Speaker 3: this year so far. So I think markets are being 35 00:01:42,240 --> 00:01:45,880 Speaker 3: very efficient in terms of taking down some of these 36 00:01:46,480 --> 00:01:50,760 Speaker 3: you know, more technology company prices in the growth sector 37 00:01:50,840 --> 00:01:55,360 Speaker 3: prices in anticipation of slowing earnings going forward. So this 38 00:01:55,440 --> 00:01:58,200 Speaker 3: isn't to me an alarm bell, It's just the natural 39 00:01:58,240 --> 00:02:01,200 Speaker 3: progression of the of the earning cycle. 40 00:02:01,520 --> 00:02:03,800 Speaker 2: So Jim, just to build on that peak earnings growth 41 00:02:04,160 --> 00:02:06,440 Speaker 2: is a sufficient enough reason aligned to stay away from 42 00:02:06,440 --> 00:02:06,960 Speaker 2: these names. 43 00:02:08,480 --> 00:02:12,040 Speaker 3: I wouldn't say that because it's a question of it's 44 00:02:12,040 --> 00:02:14,800 Speaker 3: a question of the valuation. I think that yes, you know, 45 00:02:14,919 --> 00:02:17,560 Speaker 3: second quarter earnings will probably mark the peak. I mean, 46 00:02:17,600 --> 00:02:19,800 Speaker 3: it's going to be hard to beat that going forward, 47 00:02:20,160 --> 00:02:22,120 Speaker 3: But that doesn't mean that the cash flow and that 48 00:02:22,200 --> 00:02:25,840 Speaker 3: the run rate of cash going forward is going to 49 00:02:25,840 --> 00:02:28,320 Speaker 3: all of a sudden dry up. Look, what we're hearing 50 00:02:28,520 --> 00:02:31,480 Speaker 3: from the broader economy is that they have a lot 51 00:02:31,520 --> 00:02:34,720 Speaker 3: of demand for technology, for compute and for all of 52 00:02:34,760 --> 00:02:39,880 Speaker 3: these things that that many of these you know, hyperscalers provide. 53 00:02:40,240 --> 00:02:41,919 Speaker 3: So the demand I think is going to be there 54 00:02:41,919 --> 00:02:43,919 Speaker 3: and it's only going to grow. It's just that the 55 00:02:44,040 --> 00:02:47,600 Speaker 3: earnings growth rate may not be as fast as it was, 56 00:02:48,080 --> 00:02:50,040 Speaker 3: you know, like in the first half of this year, 57 00:02:50,680 --> 00:02:53,360 Speaker 3: just going forward. And I think that's why these you know, 58 00:02:53,360 --> 00:02:56,639 Speaker 3: many of these companies are adjusting in price, and that's 59 00:02:56,680 --> 00:03:00,760 Speaker 3: actually a very good healthy sign. And meanwhile, File John, 60 00:03:00,880 --> 00:03:03,160 Speaker 3: you know, as all of this is happening, the equity 61 00:03:03,160 --> 00:03:05,640 Speaker 3: markets are holding up, and they're holding up because the 62 00:03:05,680 --> 00:03:06,720 Speaker 3: market's broadened out. 63 00:03:06,880 --> 00:03:09,400 Speaker 4: So to me, this is you know, you know, this 64 00:03:09,520 --> 00:03:10,000 Speaker 4: is okay. 65 00:03:10,320 --> 00:03:13,200 Speaker 1: How unusual is it, Jim to see the stock market 66 00:03:13,200 --> 00:03:16,160 Speaker 1: holding up and the broadening out continue with yields continuing 67 00:03:16,160 --> 00:03:16,680 Speaker 1: to climb. 68 00:03:17,680 --> 00:03:22,240 Speaker 3: If we were having this conversation six months ago, nine 69 00:03:22,280 --> 00:03:25,040 Speaker 3: months ago, we would have said that if many of 70 00:03:25,080 --> 00:03:28,959 Speaker 3: these hyperscaler stocks go down and bond yields go up, 71 00:03:29,240 --> 00:03:33,000 Speaker 3: that would absolutely spell spell a disaster for you know, 72 00:03:33,000 --> 00:03:36,840 Speaker 3: for equity prices broadly. But that's not happening right now, 73 00:03:37,040 --> 00:03:39,640 Speaker 3: and I think that's a really important signal for us 74 00:03:39,720 --> 00:03:40,400 Speaker 3: to take away. 75 00:03:40,760 --> 00:03:46,640 Speaker 4: So is it unusual, Yes, it's unusual? Is it? Is it? 76 00:03:46,720 --> 00:03:48,000 Speaker 4: Is it a shock right now? No? 77 00:03:48,240 --> 00:03:51,880 Speaker 3: Because what we're seeing is is the other sectors of 78 00:03:51,920 --> 00:03:53,920 Speaker 3: the markets, the other broadening. If you look at the 79 00:03:53,960 --> 00:03:56,400 Speaker 3: healthcare sector, if you look at the consumer, if you 80 00:03:56,440 --> 00:03:59,000 Speaker 3: look at financials, if you look at industrials, if you 81 00:03:59,000 --> 00:04:02,280 Speaker 3: look at materials, all of these other sectors are holding up, 82 00:04:02,680 --> 00:04:05,040 Speaker 3: and they're making up for some of the losses that 83 00:04:05,080 --> 00:04:07,600 Speaker 3: we're seeing in the technology sector. 84 00:04:07,440 --> 00:04:10,200 Speaker 4: That people were quite frankly, we're worried about. 85 00:04:10,440 --> 00:04:14,160 Speaker 1: Let's say next week, Kevin worsh comes out and announces 86 00:04:14,360 --> 00:04:16,600 Speaker 1: that the FED had just hiked rates by twenty five 87 00:04:16,640 --> 00:04:20,640 Speaker 1: basis points, is prepared to take further action to limit inflation, 88 00:04:20,760 --> 00:04:24,080 Speaker 1: and frankly gives what the market already has priced in. 89 00:04:24,279 --> 00:04:26,640 Speaker 1: Would that affect things in a negative way or in 90 00:04:26,680 --> 00:04:27,599 Speaker 1: a positive way? 91 00:04:28,480 --> 00:04:31,359 Speaker 3: Yeah, that's a really good question, I'm going to say 92 00:04:31,400 --> 00:04:36,000 Speaker 3: that it's actually going to impact things in a negative way. 93 00:04:36,360 --> 00:04:38,200 Speaker 3: And the reason I'm going to say that is, you know, 94 00:04:38,279 --> 00:04:40,800 Speaker 3: number one, I don't think that the FED is going 95 00:04:40,800 --> 00:04:44,479 Speaker 3: to hike rates you know, this year. But the other 96 00:04:44,520 --> 00:04:47,080 Speaker 3: issue here is that this is a supply side shock. 97 00:04:47,520 --> 00:04:51,480 Speaker 3: The Fed's tools monetary policy is there when the economy 98 00:04:51,520 --> 00:04:54,760 Speaker 3: is overheating because of demand side issues you know that 99 00:04:54,800 --> 00:04:58,279 Speaker 3: are taking place, you know, higher wages, you know, rampant hiring, 100 00:04:58,400 --> 00:04:59,960 Speaker 3: a lot of spending, things like that. 101 00:05:00,560 --> 00:05:02,280 Speaker 4: When you have a supply shock. 102 00:05:02,040 --> 00:05:04,760 Speaker 3: When you have an oil or an energy you know 103 00:05:04,880 --> 00:05:08,479 Speaker 3: shock that's coming through. A rate hike is basically just 104 00:05:08,520 --> 00:05:11,880 Speaker 3: saying we're going to hike into something that's going to 105 00:05:11,880 --> 00:05:14,440 Speaker 3: slow the market in the future. Higher oil prices is 106 00:05:14,480 --> 00:05:17,240 Speaker 3: a headwind to the market. Why would you hike into 107 00:05:17,520 --> 00:05:20,720 Speaker 3: a headwind into the market. It doesn't to me, that 108 00:05:20,720 --> 00:05:22,839 Speaker 3: doesn't make a lot of sense. So that's why I 109 00:05:22,839 --> 00:05:25,440 Speaker 3: think the markets would take it negatively when it. 110 00:05:25,400 --> 00:05:27,960 Speaker 5: Comes to what they should do. Though, higher oil prices 111 00:05:28,000 --> 00:05:31,640 Speaker 5: potentially can become entrenched in this economy, especially when you're 112 00:05:31,640 --> 00:05:34,920 Speaker 5: dealing with an economy that is farmed to road to table. 113 00:05:34,960 --> 00:05:37,640 Speaker 5: When it comes to things like groceries. At some point, 114 00:05:37,680 --> 00:05:39,320 Speaker 5: is the FED going to have to move given the 115 00:05:39,320 --> 00:05:42,360 Speaker 5: fact that last year they said the cuts were insurance cuts. 116 00:05:43,720 --> 00:05:47,240 Speaker 3: Yeah, So if it does become a pervasive, you know, 117 00:05:47,320 --> 00:05:50,800 Speaker 3: higher level of inflation that's seeping into the core, you know, 118 00:05:50,839 --> 00:05:54,240 Speaker 3: and it's becoming very, very permanent, then you know, absolutely 119 00:05:54,520 --> 00:05:57,440 Speaker 3: the FED would have to hike interest rates. I don't 120 00:05:57,480 --> 00:05:59,599 Speaker 3: think that we're there yet, though. I don't think that 121 00:05:59,600 --> 00:06:02,640 Speaker 3: we're seeing really you know, the material signs of that 122 00:06:02,640 --> 00:06:05,800 Speaker 3: that would be running through their large scale macroeconomic models, 123 00:06:05,800 --> 00:06:09,599 Speaker 3: what they call the FRBUS models. So I still think, 124 00:06:09,640 --> 00:06:11,520 Speaker 3: you know, look, there might be a descent, I mean, 125 00:06:11,560 --> 00:06:13,960 Speaker 3: you know, and I think that Warsh needs to explain that. 126 00:06:14,480 --> 00:06:16,560 Speaker 3: But I think that you know, a lot of what 127 00:06:16,600 --> 00:06:19,240 Speaker 3: Warsh is really looking at is task worse and trying 128 00:06:19,240 --> 00:06:21,640 Speaker 3: to decipher the data and have new data points come 129 00:06:21,680 --> 00:06:24,599 Speaker 3: in that can help them, you know, disseminate this information. 130 00:06:25,040 --> 00:06:27,359 Speaker 3: But I you know, and it's a great question, but 131 00:06:27,440 --> 00:06:29,640 Speaker 3: I just don't think that we're at the point where 132 00:06:29,680 --> 00:06:33,120 Speaker 3: we're seeing widespread inflation to the point where the FED 133 00:06:33,160 --> 00:06:35,320 Speaker 3: would feel the need to hike interest rates, at least 134 00:06:35,360 --> 00:06:36,039 Speaker 3: not at this moment. 135 00:06:36,160 --> 00:06:38,440 Speaker 2: Gym. This is new territory, and given the average age 136 00:06:38,480 --> 00:06:40,320 Speaker 2: on a trading floor right now, it might be territory 137 00:06:40,360 --> 00:06:42,840 Speaker 2: that they've never experienced before. We're going into a meeting 138 00:06:42,920 --> 00:06:44,719 Speaker 2: next week and we don't really know what's going to happen, 139 00:06:44,960 --> 00:06:46,680 Speaker 2: and that might be a feature, not a bug of 140 00:06:46,760 --> 00:06:49,400 Speaker 2: new leadership. You've written about this gem. Do you think 141 00:06:49,440 --> 00:06:53,000 Speaker 2: they are strategically reintroducing volatility into the front end of 142 00:06:53,080 --> 00:06:54,520 Speaker 2: the curve? Can we just start there? 143 00:06:55,080 --> 00:06:55,320 Speaker 6: Yeah? 144 00:06:55,480 --> 00:06:56,720 Speaker 4: I do, John. 145 00:06:56,760 --> 00:06:59,000 Speaker 3: I mean, look, so the way that I think that 146 00:06:59,080 --> 00:07:01,600 Speaker 3: Warsh is approaching this is that he wants to have 147 00:07:01,680 --> 00:07:06,000 Speaker 3: more contemporaneous, more real time policy reaction, meaning you know, 148 00:07:06,080 --> 00:07:08,600 Speaker 3: fed interest sights hikes and cuts, and you know, depending 149 00:07:08,640 --> 00:07:10,880 Speaker 3: on the cycle. Think of the front end of the 150 00:07:10,920 --> 00:07:15,360 Speaker 3: market as a shock absorber to inflation and inflation expectations. 151 00:07:15,720 --> 00:07:17,960 Speaker 3: If you get the shock absorber right, you get a 152 00:07:18,000 --> 00:07:20,120 Speaker 3: smooth ride for the back end of the curve. And 153 00:07:20,160 --> 00:07:22,080 Speaker 3: the back end of the curve could get more normal, 154 00:07:22,200 --> 00:07:25,800 Speaker 3: stabilized interest rates. And that's where most people borrow, that's 155 00:07:25,800 --> 00:07:28,520 Speaker 3: where corporates borrow, that's where people borrow for mortgages, for cars, 156 00:07:28,560 --> 00:07:32,360 Speaker 3: autos and everything else. So I think the uncharted territory 157 00:07:32,400 --> 00:07:36,080 Speaker 3: that we're moving into here is that is that Warsh 158 00:07:36,080 --> 00:07:39,760 Speaker 3: will likely be more volatile in terms of his short 159 00:07:39,880 --> 00:07:45,040 Speaker 3: term views on inflation and interest rate policy. But that's 160 00:07:45,160 --> 00:07:47,400 Speaker 3: there to smooth out the long in and I think 161 00:07:47,400 --> 00:07:50,440 Speaker 3: this is a very very different FED right now that's 162 00:07:50,440 --> 00:07:53,560 Speaker 3: going to introduce more supply side indicators, not just rely 163 00:07:53,840 --> 00:07:57,760 Speaker 3: solely on demand side indicators, to help, you know, make 164 00:07:57,800 --> 00:07:59,560 Speaker 3: their policy decisions going forward. 165 00:08:00,240 --> 00:08:13,200 Speaker 2: Stay with us. Molblomberg, Savannan's coming up after this under 166 00:08:13,240 --> 00:08:15,559 Speaker 2: Savannahs this morning, doubling down on the wall. 167 00:08:16,960 --> 00:08:18,920 Speaker 6: We don't need the hormone street, but we do it 168 00:08:18,920 --> 00:08:21,160 Speaker 6: because we have to do it, because we cannot let 169 00:08:21,240 --> 00:08:24,240 Speaker 6: Iran have a nuclear weapon. They're getting hit so hard 170 00:08:24,720 --> 00:08:27,559 Speaker 6: and they want to make a deal. But I say 171 00:08:27,600 --> 00:08:31,800 Speaker 6: they're not ready to make a deal because every time 172 00:08:31,840 --> 00:08:34,320 Speaker 6: they make a deal they want to change it and everything. 173 00:08:34,320 --> 00:08:36,200 Speaker 6: They're not ready. They'll be ready very soon. 174 00:08:36,480 --> 00:08:37,240 Speaker 4: So here's the laces. 175 00:08:37,280 --> 00:08:39,840 Speaker 2: This morning, how Speaker Mike Johnson delivering a win for 176 00:08:39,880 --> 00:08:42,160 Speaker 2: President Donald Trump's effort to fund the panic on the 177 00:08:42,160 --> 00:08:45,360 Speaker 2: House narrowly passing a record one point five trillion dollar 178 00:08:45,440 --> 00:08:48,440 Speaker 2: defense bills, setting up billions more and spending for the 179 00:08:48,440 --> 00:08:49,440 Speaker 2: war with a run. 180 00:08:49,600 --> 00:08:51,480 Speaker 5: So when it comes to this, the President really wanted 181 00:08:51,520 --> 00:08:54,280 Speaker 5: Congress to act. The House did. The issue is we're 182 00:08:54,280 --> 00:08:56,760 Speaker 5: probably not going to see the Senate take this up 183 00:08:56,880 --> 00:08:59,440 Speaker 5: very quickly. This is part of reconciliation. They proved ninety 184 00:08:59,440 --> 00:09:02,760 Speaker 5: five billion. Part of that, as you mentioned, seventy three 185 00:09:02,800 --> 00:09:06,040 Speaker 5: billion in funding for the Iran war, twelve billion in 186 00:09:06,120 --> 00:09:09,040 Speaker 5: farm aid, and ten billion aimed at incentivizing states to 187 00:09:09,080 --> 00:09:11,720 Speaker 5: adopt elements of the Save America Act. So all these 188 00:09:11,720 --> 00:09:14,960 Speaker 5: are the President's priorities. The issue is only the House 189 00:09:15,160 --> 00:09:17,360 Speaker 5: was able to push it forward, and it potentially it 190 00:09:17,400 --> 00:09:19,560 Speaker 5: might be a very hard vote ahead of the midterm 191 00:09:19,559 --> 00:09:22,800 Speaker 5: elections for some individuals to take that vote. And I 192 00:09:22,840 --> 00:09:25,840 Speaker 5: don't see Senate Majority Leader Foon acting on this very quickly. 193 00:09:25,840 --> 00:09:27,200 Speaker 4: Well, let's talk about the view from the House. 194 00:09:27,240 --> 00:09:29,880 Speaker 2: The Republican Congressman French Hill voting to pass the budget, 195 00:09:29,960 --> 00:09:33,280 Speaker 2: saying that bill, this bill enshures our military has what 196 00:09:33,360 --> 00:09:36,600 Speaker 2: it needs to deter our adversaries and defend American interests 197 00:09:36,640 --> 00:09:40,239 Speaker 2: around the globe. Congressman Hill joined us now for more Congressmen, 198 00:09:40,320 --> 00:09:42,200 Speaker 2: welcome back to the program. It's been too long, my friend, 199 00:09:42,240 --> 00:09:44,439 Speaker 2: let's get into some of these issues. You understand why 200 00:09:44,520 --> 00:09:46,960 Speaker 2: the asymmetric nature of this conflict we have at the moment, 201 00:09:47,440 --> 00:09:51,280 Speaker 2: the American workforce, the American military is spending an absolute fortune, 202 00:09:51,400 --> 00:09:54,480 Speaker 2: an absolute fortune right now to fight and defend American 203 00:09:54,480 --> 00:09:57,040 Speaker 2: interests and global interests for that matter. In that strait, 204 00:09:57,280 --> 00:10:00,400 Speaker 2: the Iranians are able to use very cheap one way 205 00:10:00,400 --> 00:10:03,040 Speaker 2: attack throuns. Do we really want to get drawn in 206 00:10:03,080 --> 00:10:06,640 Speaker 2: to an enduring billion dollar skeet shooting over in Iran 207 00:10:07,040 --> 00:10:08,680 Speaker 2: for as long as the I can see? 208 00:10:10,240 --> 00:10:12,360 Speaker 7: Well, First, thanks for having me back. It's always good 209 00:10:12,360 --> 00:10:14,840 Speaker 7: to be with the team Blueberg early in the morning. 210 00:10:15,960 --> 00:10:19,800 Speaker 7: The spending bill for budget reconciliation was important to make 211 00:10:19,800 --> 00:10:20,120 Speaker 7: sure we. 212 00:10:20,240 --> 00:10:21,840 Speaker 4: Keep our stocks high. 213 00:10:22,320 --> 00:10:25,040 Speaker 7: And I think it's important for the American people understand 214 00:10:25,080 --> 00:10:28,559 Speaker 7: that after decades of trying to pay the Iranians offer 215 00:10:28,600 --> 00:10:35,280 Speaker 7: the Iranians diplomatic capability the long standing Obama negotiation, the 216 00:10:35,520 --> 00:10:38,960 Speaker 7: risks to Iran having a nuclear weapon were rising, and 217 00:10:39,160 --> 00:10:43,960 Speaker 7: Iran's provocative nature threatening its Gulf neighbors, using terror with 218 00:10:44,000 --> 00:10:46,959 Speaker 7: the Hoho Thi's to close the Red Sea, to attack Gaza, 219 00:10:47,400 --> 00:10:50,880 Speaker 7: to continue to disrupt in Syria and Lebanon. I think 220 00:10:50,920 --> 00:10:53,120 Speaker 7: the President just took the decision we have got to 221 00:10:53,160 --> 00:10:56,760 Speaker 7: prevent them from having a nuclear weapon, which she initiated 222 00:10:56,800 --> 00:11:00,240 Speaker 7: this spring. So I agree that Iran should and have 223 00:11:00,280 --> 00:11:04,800 Speaker 7: a nuclear weapon, and we also need global open seas 224 00:11:04,920 --> 00:11:07,560 Speaker 7: in the Persian Gulf. I would hope that we would 225 00:11:07,640 --> 00:11:12,080 Speaker 7: have more support from around the world for those international waters, 226 00:11:12,120 --> 00:11:13,880 Speaker 7: and I think that's something that I've been a little 227 00:11:13,880 --> 00:11:17,720 Speaker 7: disappointed in. Our strategy is not the maintenance of those 228 00:11:17,760 --> 00:11:18,439 Speaker 7: sea lanes. 229 00:11:19,040 --> 00:11:21,199 Speaker 5: Well, we do have the Senate majority leader though, when 230 00:11:21,200 --> 00:11:23,160 Speaker 5: it comes to the funding saying earlier this week that 231 00:11:23,200 --> 00:11:25,319 Speaker 5: he's not going to move on the House budget blueprint 232 00:11:25,400 --> 00:11:28,800 Speaker 5: until the Senate solves the September thirtieth funding fight. So 233 00:11:28,840 --> 00:11:30,640 Speaker 5: when do you actually think we're going to be able 234 00:11:30,720 --> 00:11:33,840 Speaker 5: to get that money that you think is critical to 235 00:11:34,080 --> 00:11:36,400 Speaker 5: our troops and military actually out the door. 236 00:11:38,080 --> 00:11:40,000 Speaker 7: Well, I would hope we could get that done before 237 00:11:40,080 --> 00:11:43,240 Speaker 7: September thirtieth, is the answer to your question. I think 238 00:11:43,600 --> 00:11:47,400 Speaker 7: Senator Thune recognizes that the House has now passed Also, 239 00:11:47,520 --> 00:11:50,520 Speaker 7: you didn't mention it, but a continuing resolution fully funding 240 00:11:50,559 --> 00:11:54,160 Speaker 7: the government until December fourth. That's also a tool that 241 00:11:54,280 --> 00:11:56,600 Speaker 7: John Thune has that he can bring to the Senate 242 00:11:56,640 --> 00:12:01,480 Speaker 7: floor because he's fearful that Democrats and once again to 243 00:12:01,520 --> 00:12:04,880 Speaker 7: try to get an election advantage, if somebody considers it one, 244 00:12:05,120 --> 00:12:07,559 Speaker 7: we'll try to shut the government down. Chuck Schumer's done 245 00:12:07,600 --> 00:12:10,720 Speaker 7: that twice over the last during this Congress for the 246 00:12:10,760 --> 00:12:13,880 Speaker 7: longest shutdown in American history. And what I think John 247 00:12:13,920 --> 00:12:18,000 Speaker 7: Thune has now in his arsenal of suggestions is one, 248 00:12:18,080 --> 00:12:21,640 Speaker 7: we have a cr to fund government with no additions 249 00:12:21,679 --> 00:12:23,920 Speaker 7: through December four so that we don't have a government 250 00:12:24,000 --> 00:12:27,160 Speaker 7: shut down. And secondly, he could use the Budget Reconcile 251 00:12:27,800 --> 00:12:32,200 Speaker 7: Reconciliation Act in the Senate potentially to fund government for 252 00:12:32,280 --> 00:12:35,400 Speaker 7: the rest of the fiscal years. So he's got some choices, 253 00:12:35,440 --> 00:12:38,439 Speaker 7: and I'm sure he'll work with his new Budget Committee chair, 254 00:12:38,800 --> 00:12:42,360 Speaker 7: Senator Johnson replacing Lindsey Graham, on what those options are. 255 00:12:42,720 --> 00:12:44,599 Speaker 5: Was this a hard vote to take? The majority of 256 00:12:44,640 --> 00:12:47,760 Speaker 5: Americans opposed this war, and now gasoline prices are north 257 00:12:47,800 --> 00:12:49,959 Speaker 5: of four dollars a gallon across the United States. 258 00:12:51,400 --> 00:12:54,160 Speaker 7: Well, I don't think anyone wants high gas prices, There's 259 00:12:54,200 --> 00:12:58,000 Speaker 7: no question about that. And it's unfortunate that the Iranians 260 00:12:58,040 --> 00:13:01,040 Speaker 7: don't recognize that they have a once in a lifetime 261 00:13:01,120 --> 00:13:06,360 Speaker 7: opportunity to return their country to an open society that 262 00:13:06,960 --> 00:13:09,920 Speaker 7: lives in peace with its neighbor, not the largest exporter 263 00:13:10,160 --> 00:13:14,920 Speaker 7: of terror or threatening Europe and Asia with ballistic missiles 264 00:13:14,960 --> 00:13:18,120 Speaker 7: and a nuclear weapon. And so I think that balance 265 00:13:18,200 --> 00:13:20,640 Speaker 7: is pretty clear to me. It's been fifty years fied 266 00:13:20,760 --> 00:13:25,960 Speaker 7: my entire working career. We faced assault from Iran killing Americans, 267 00:13:26,080 --> 00:13:29,760 Speaker 7: killing our allies, threatening our interests, trying to assassinate our 268 00:13:29,800 --> 00:13:32,439 Speaker 7: officials on our own soil here in the United States, 269 00:13:33,080 --> 00:13:35,160 Speaker 7: And so I think that balance is just something we 270 00:13:35,280 --> 00:13:38,600 Speaker 7: have to cope with. But no one wants high gas prizes. 271 00:13:38,640 --> 00:13:40,400 Speaker 7: What we want is the Iranians to come to the 272 00:13:40,440 --> 00:13:44,160 Speaker 7: negotiating table and stick with a deal. And that's what 273 00:13:44,720 --> 00:13:47,480 Speaker 7: we need to continue to have our allies, including the 274 00:13:47,480 --> 00:13:50,959 Speaker 7: Pakistanis and others help forcefully make that case. 275 00:13:51,200 --> 00:13:54,000 Speaker 1: Congressman, can we afford a protracted fight right now with 276 00:13:54,120 --> 00:13:57,080 Speaker 1: our yields climbing, with our deficits climbing, with the bill 277 00:13:57,160 --> 00:14:00,880 Speaker 1: already significantly higher than some people were prepared to pay for. 278 00:14:02,880 --> 00:14:05,439 Speaker 7: Look, it's not whether we can afford. There are a 279 00:14:05,480 --> 00:14:07,360 Speaker 7: lot of challenges that we have in the world that 280 00:14:07,400 --> 00:14:12,559 Speaker 7: we have to be prepared for China infiltrating our telecommunication 281 00:14:12,720 --> 00:14:16,559 Speaker 7: networks and threatening our infrastructure. Here requires a major investment. 282 00:14:17,440 --> 00:14:21,880 Speaker 7: Countering that is a significant investment countering terror around the 283 00:14:21,880 --> 00:14:26,320 Speaker 7: world that threatens our interest and our allies interest, Countering 284 00:14:26,400 --> 00:14:31,360 Speaker 7: Putin's advances in Europe and his unwillingness to quit his 285 00:14:31,480 --> 00:14:34,960 Speaker 7: invasion of Ukraine. All these things cost money. In America 286 00:14:35,280 --> 00:14:39,680 Speaker 7: is in a leading position both in intelligence and in 287 00:14:39,720 --> 00:14:40,760 Speaker 7: military affairs. 288 00:14:40,920 --> 00:14:43,360 Speaker 4: Commers, I guess I'm watching the bodial space. 289 00:14:43,400 --> 00:14:46,240 Speaker 1: Not to surprise you here in my seat, but I'm 290 00:14:46,280 --> 00:14:48,600 Speaker 1: watching how yields have reached the highest levels going back 291 00:14:48,640 --> 00:14:51,680 Speaker 1: to earlier of last year. Looking at the fact that 292 00:14:51,760 --> 00:14:54,320 Speaker 1: a rate hike is almost evenly priced in next week 293 00:14:54,640 --> 00:14:58,320 Speaker 1: for FED Chair Kevin worsh do you think it's appropriate 294 00:14:58,480 --> 00:15:01,720 Speaker 1: potentially hike rates a bit to bring down the long 295 00:15:01,800 --> 00:15:03,640 Speaker 1: end of the yield curve as the US is facing 296 00:15:03,680 --> 00:15:06,440 Speaker 1: all these bills that are getting more expensive to pay. 297 00:15:08,000 --> 00:15:10,360 Speaker 7: Well, that's a decision the Federal Reserve will have to make. 298 00:15:10,440 --> 00:15:12,440 Speaker 7: I think what we have to do in Congress is 299 00:15:12,520 --> 00:15:15,360 Speaker 7: make sure we meet the needs of the national defense 300 00:15:15,440 --> 00:15:17,760 Speaker 7: to counter the threats that we have that are threats 301 00:15:17,800 --> 00:15:21,560 Speaker 7: that we've inherited for decades and coped with for decades. 302 00:15:21,600 --> 00:15:25,960 Speaker 7: These are not new threats, not new forces that we face, 303 00:15:26,080 --> 00:15:30,880 Speaker 7: whether it's Ukraine, the Middle East generally the Gulf, or 304 00:15:31,040 --> 00:15:34,080 Speaker 7: Iran's threatening in the region. So I just think we 305 00:15:34,160 --> 00:15:38,040 Speaker 7: have to be prepared, preparing for common defense and funding 306 00:15:38,080 --> 00:15:41,560 Speaker 7: that is one of our most important obligations here in Congress. 307 00:15:41,880 --> 00:15:44,360 Speaker 7: We of course want the Iranians to come to the table. 308 00:15:44,680 --> 00:15:50,720 Speaker 7: You've seen the volatility since February in global oil prices 309 00:15:50,800 --> 00:15:53,600 Speaker 7: based on what's happening there, and the minute they come 310 00:15:53,640 --> 00:15:57,000 Speaker 7: to the table bring peace and work with their neighbors 311 00:15:57,600 --> 00:16:01,320 Speaker 7: to reopen the golf. I think you see obviously, gas 312 00:16:01,360 --> 00:16:05,680 Speaker 7: prices and crude oil prices dropped precipitously as they've we've 313 00:16:05,720 --> 00:16:08,280 Speaker 7: already witnessed at least twice in the last few months. 314 00:16:08,680 --> 00:16:12,200 Speaker 2: Stay with us more Bloomberg surveillance coming up after this. 315 00:16:21,440 --> 00:16:24,400 Speaker 2: Yield's still climbing. Here's the take from Sophia Kearney, Letterman 316 00:16:24,520 --> 00:16:27,520 Speaker 2: of FAH and Financial writing. We think the FED will 317 00:16:27,520 --> 00:16:29,280 Speaker 2: be on hold for the remainder of this year and 318 00:16:29,320 --> 00:16:32,000 Speaker 2: through the first half of next year. That being said, 319 00:16:32,080 --> 00:16:34,440 Speaker 2: there is more likelihood of a hike than account. Sofia 320 00:16:34,520 --> 00:16:36,120 Speaker 2: joins us now for more, Sophia, good morning, good to 321 00:16:36,120 --> 00:16:38,040 Speaker 2: see you, good morning, Thanks for dropping by, Thanks for 322 00:16:38,080 --> 00:16:40,520 Speaker 2: being here. What's the argument for a hold given this 323 00:16:40,600 --> 00:16:41,480 Speaker 2: backdrop right now? 324 00:16:41,600 --> 00:16:43,040 Speaker 8: You know, I think the big thing is one you 325 00:16:43,040 --> 00:16:45,040 Speaker 8: guys just hit on it. Things are changing very rapidly. 326 00:16:45,120 --> 00:16:47,680 Speaker 8: Right a week and a half ago after CPIPPI is 327 00:16:47,720 --> 00:16:49,440 Speaker 8: maybe a different picture than where we are now with 328 00:16:49,680 --> 00:16:52,400 Speaker 8: WTI crewed at ninety and Brent almost at one hundred. 329 00:16:53,080 --> 00:16:55,000 Speaker 8: But that being said, you know, the FED is working 330 00:16:55,000 --> 00:16:56,960 Speaker 8: off the data they have, and we did just get 331 00:16:57,000 --> 00:17:00,960 Speaker 8: that better than expected June inflation data. So I think 332 00:17:01,040 --> 00:17:04,000 Speaker 8: that this meeting puts them on a hold. That being said, right, 333 00:17:04,200 --> 00:17:06,200 Speaker 8: more likelihood of a hike than a cut without a 334 00:17:06,240 --> 00:17:08,320 Speaker 8: doubt this year. And I think the really big risk 335 00:17:08,440 --> 00:17:10,240 Speaker 8: is where do we go from here with what we've 336 00:17:10,240 --> 00:17:13,199 Speaker 8: seen in oil, with what we see in expectations, and 337 00:17:13,240 --> 00:17:14,880 Speaker 8: from what we have. You know, we know there are 338 00:17:14,920 --> 00:17:17,360 Speaker 8: several people on the FED Lori Logan, Beth Hammick, Neil 339 00:17:17,400 --> 00:17:21,000 Speaker 8: Kashgari that dissented only a couple of months ago because 340 00:17:21,280 --> 00:17:23,800 Speaker 8: they really were worried about inflation. And now there's more 341 00:17:23,840 --> 00:17:24,920 Speaker 8: upside inflation. 342 00:17:24,680 --> 00:17:26,680 Speaker 2: Risk see Pippi of the last week. 343 00:17:26,800 --> 00:17:28,600 Speaker 4: Why is that a source of comfort for you? 344 00:17:29,080 --> 00:17:30,840 Speaker 8: Well, you know, I wouldn't say it's a source of comfort. 345 00:17:30,880 --> 00:17:32,800 Speaker 8: I do think we cheer one good data report. Right, 346 00:17:32,840 --> 00:17:34,880 Speaker 8: we just got the jobless claims number super low. 347 00:17:35,440 --> 00:17:36,640 Speaker 4: But we also have to remember it's. 348 00:17:36,560 --> 00:17:38,199 Speaker 8: One month, and it was one month that was so 349 00:17:38,359 --> 00:17:40,439 Speaker 8: good that in the context of inflation, you have to 350 00:17:40,440 --> 00:17:42,760 Speaker 8: go that's just one month. I think part of it 351 00:17:42,800 --> 00:17:45,439 Speaker 8: is a reaction to firms are a lot quicker to 352 00:17:45,520 --> 00:17:47,880 Speaker 8: change prices right now. Right, we had oil come down, 353 00:17:47,920 --> 00:17:50,359 Speaker 8: and we saw the immediate reaction not just in energy 354 00:17:50,400 --> 00:17:52,720 Speaker 8: prices but also in different core inflation. 355 00:17:52,840 --> 00:17:54,080 Speaker 4: Right, core was the big surprise. 356 00:17:54,800 --> 00:17:56,880 Speaker 8: We saw that core inflation that was flat, that actually 357 00:17:56,920 --> 00:17:59,119 Speaker 8: came down to two point six percent. And so the 358 00:17:59,160 --> 00:18:00,639 Speaker 8: other way you think about it, now it's going the 359 00:18:00,680 --> 00:18:02,840 Speaker 8: other direction. Our firm's going to be equally as fast 360 00:18:02,920 --> 00:18:06,080 Speaker 8: to pass along price and increases from fuel Again, so 361 00:18:06,119 --> 00:18:07,560 Speaker 8: I think we have to put that in the context 362 00:18:07,560 --> 00:18:09,640 Speaker 8: of its one month. But I do think it sends 363 00:18:09,680 --> 00:18:12,000 Speaker 8: the FED into the meeting next week on that sort 364 00:18:12,040 --> 00:18:14,600 Speaker 8: of weight and see more than ready to take action. 365 00:18:15,000 --> 00:18:18,160 Speaker 1: Do yields at this level start to impede economic activity 366 00:18:18,160 --> 00:18:18,760 Speaker 1: in the US. 367 00:18:19,240 --> 00:18:21,480 Speaker 8: You know, I don't think just yet, because again I 368 00:18:21,480 --> 00:18:23,639 Speaker 8: think we're in this very volatile period. But I think 369 00:18:23,720 --> 00:18:26,720 Speaker 8: the longer we're here, maybe that being said, you just 370 00:18:26,800 --> 00:18:30,800 Speaker 8: mentioned it, we have seen a less interest rate sensitive economy. Right, 371 00:18:30,880 --> 00:18:33,159 Speaker 8: even in the last couple of years, when you know, 372 00:18:33,200 --> 00:18:35,879 Speaker 8: the FED tightened rapidly, we saw we keep joking this 373 00:18:35,920 --> 00:18:39,399 Speaker 8: word resilient, this remarkably resilient economy, and we've continued to 374 00:18:39,440 --> 00:18:42,040 Speaker 8: see that growth. So I think it depends on how 375 00:18:42,119 --> 00:18:44,600 Speaker 8: long we see yields at these high levels, because the 376 00:18:44,640 --> 00:18:46,920 Speaker 8: big thing is we've put in a very volatile period. 377 00:18:47,000 --> 00:18:48,600 Speaker 8: Right If you look at the evolution of the yield 378 00:18:48,640 --> 00:18:52,119 Speaker 8: curve over just this last six months, we've been high 379 00:18:52,160 --> 00:18:55,119 Speaker 8: and low, largely high since the war in Iran began. 380 00:18:55,200 --> 00:18:56,879 Speaker 8: But we're seeing a lot of movement, and I think 381 00:18:56,960 --> 00:18:59,560 Speaker 8: it becomes we have to see a sustained hold at 382 00:18:59,560 --> 00:19:00,399 Speaker 8: these highlight levels. 383 00:19:00,720 --> 00:19:03,080 Speaker 1: If it's a more volatile market and it's a more 384 00:19:03,160 --> 00:19:06,480 Speaker 1: volatile world, does it make sense for FED policy to 385 00:19:06,560 --> 00:19:08,760 Speaker 1: be more volatile as well, in terms of not just 386 00:19:08,800 --> 00:19:11,400 Speaker 1: forward guidance to the lack thereof but also for them 387 00:19:11,440 --> 00:19:13,320 Speaker 1: to be able to kick up rates one month and 388 00:19:13,320 --> 00:19:14,639 Speaker 1: then take them down another month. 389 00:19:14,800 --> 00:19:16,760 Speaker 8: Yeah, I think that might be where we're headed, right, 390 00:19:16,800 --> 00:19:19,240 Speaker 8: with that lack of Ford guidance, lack of commitment to 391 00:19:19,320 --> 00:19:22,800 Speaker 8: a path forward, they want to be nimble and maybe 392 00:19:22,840 --> 00:19:24,800 Speaker 8: that's a good thing, right. A lot of people think 393 00:19:24,800 --> 00:19:26,840 Speaker 8: this is a big shift. We've had J. Powell for 394 00:19:26,880 --> 00:19:29,280 Speaker 8: a long time, for eight years, who was very clear 395 00:19:29,280 --> 00:19:31,879 Speaker 8: in his Ford guidance, very communicative, but he really was 396 00:19:31,920 --> 00:19:33,959 Speaker 8: the one that set that precedent. Right. We haven't always 397 00:19:33,960 --> 00:19:36,400 Speaker 8: had a FED that is this communicative. Then we've gotten 398 00:19:36,480 --> 00:19:38,680 Speaker 8: used to and so we might be going back to this. 399 00:19:39,080 --> 00:19:41,760 Speaker 8: Every meeting is a live meeting, depending on what needs 400 00:19:41,800 --> 00:19:42,359 Speaker 8: to be done. 401 00:19:42,560 --> 00:19:44,000 Speaker 5: You think next week is live as well. 402 00:19:44,400 --> 00:19:46,440 Speaker 8: I think it's live, but I don't expect that they 403 00:19:46,520 --> 00:19:48,359 Speaker 8: will make a change. I do think there's a not 404 00:19:48,480 --> 00:19:50,080 Speaker 8: a small chance there could be descents. 405 00:19:50,440 --> 00:19:50,600 Speaker 2: Right. 406 00:19:50,640 --> 00:19:52,960 Speaker 8: Again, we have heard some vocal people that are in 407 00:19:53,080 --> 00:19:56,359 Speaker 8: favor of raising rates, that concern of inflation. Again, I 408 00:19:56,400 --> 00:19:59,720 Speaker 8: mentioned Beth Hammick Lori Logan, But I don't think that 409 00:19:59,760 --> 00:20:02,920 Speaker 8: there's necessarily the group yet that's ready to make that change. 410 00:20:03,000 --> 00:20:05,760 Speaker 2: Do you think that does Wash a favor dissenting next week. 411 00:20:06,720 --> 00:20:10,359 Speaker 8: Maybe do you think you mean giving him some credibility and. 412 00:20:10,240 --> 00:20:13,240 Speaker 2: That, Yeah, on the margin, maybe having him anchor inflation 413 00:20:13,320 --> 00:20:16,040 Speaker 2: expectations without really doing anything, Yeah, I think it could. 414 00:20:16,040 --> 00:20:17,880 Speaker 8: That's a great point, right, It could sort of set 415 00:20:17,880 --> 00:20:20,720 Speaker 8: the tone that we are ready to react. And Walsh 416 00:20:20,800 --> 00:20:23,800 Speaker 8: has been nothing but clear that inflation is the Fed's 417 00:20:23,880 --> 00:20:24,600 Speaker 8: number one mandate. 418 00:20:24,680 --> 00:20:24,960 Speaker 6: Right that. 419 00:20:25,080 --> 00:20:28,720 Speaker 8: The statement from June was quite short, but it ended 420 00:20:28,840 --> 00:20:31,919 Speaker 8: very clearly we will get inflation back to two percent. 421 00:20:32,040 --> 00:20:34,800 Speaker 8: He reiterated that week last week when he was doing 422 00:20:34,800 --> 00:20:38,560 Speaker 8: his congressional testimony. They are committed to two percent inflation, 423 00:20:38,600 --> 00:20:41,399 Speaker 8: and so maybe those descents with that would tweak the market. 424 00:20:41,440 --> 00:20:45,040 Speaker 8: I think to think, ooh, September probably is live that 425 00:20:45,080 --> 00:20:46,760 Speaker 8: could actually maybe help him. 426 00:20:47,119 --> 00:20:50,680 Speaker 2: This is the Bloomberg's Events podcast, bringing you the best 427 00:20:50,680 --> 00:20:54,240 Speaker 2: in markets, economics, angiopolitics. You can watch the show live 428 00:20:54,359 --> 00:20:57,320 Speaker 2: on Bloomberg TV weekday mornings from six am to nine 429 00:20:57,400 --> 00:21:01,119 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 430 00:21:01,160 --> 00:21:03,760 Speaker 2: anywhere else you listen, and as always on the Bloomberg 431 00:21:03,840 --> 00:21:05,680 Speaker 2: Terminal and the Bloomberg Business app. 432 00:21:09,760 --> 00:21:10,160 Speaker 8: MHM