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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day
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Speaker 3: Turning to the economy, investors are watching for signals from
Speaker 3: policymakers heading into a key year for the Federal Reserve,
Speaker 3: with a new chair expected to be announced soon. Cleveland
Speaker 3: Fed President Beth Hammock among those preferring to hold rates
Speaker 3: higher for longer, while our next guest is taking the
Speaker 3: other side, voting for a fifty basis point cut at
Speaker 3: the Fed's last meeting. Joining us now is Federal Reserve
Speaker 3: Governor Stephen Myron.
Speaker 4: Very good morning to you, Steven, Thank you.
Speaker 5: So much for joining us. Good morning, thanks for having
Speaker 5: me back.
Speaker 3: So let's start with Beth Ham actually came out over
Speaker 3: the weekend, and we heard for Williams as well on
Speaker 3: Friday saying that potentially where we are right now, rates
Speaker 3: should be steady and they're looking at what's going on inflation.
Speaker 3: Even the Fed Shair was talking about, maybe you need
Speaker 3: to look at inflation the data we had with some
Speaker 3: grain of salt because of the government shutdown. How are
Speaker 3: you viewing that side of the Fed's mandate right now?
Speaker 6: Yeah, So I gave a speech on the inflation netlook
Speaker 6: last week, and you know, and I still believe everything
Speaker 6: I said last week in light of this week's print.
Speaker 6: Last week's print, I mean, look, there were a couple
Speaker 6: of anomalies in last week's print related to consequences of
Speaker 6: the government shutdown, which have distorted and delayed economic data
Speaker 6: that we need to make policy. But you know, and
Speaker 6: those consequences I think are not huge.
Speaker 5: There when you.
Speaker 6: Sort of get to when you get to sort of
Speaker 6: the ultimate PC print, which is what the Fed, which
Speaker 6: is what the FED targets, it's probably ultimately going to
Speaker 6: be in the neighborhood of two tenths of a point,
Speaker 6: maybe a tenth of that is going to be sheltered
Speaker 6: and tenth of the other stuff is going to be
Speaker 6: you know, calendar stuff like prices, like data were collected
Speaker 6: in the second half the month, or and Black Friday stuff.
Speaker 6: But we'll have to sort of see when we get
Speaker 6: the PC data. But it is true that the shelter
Speaker 6: stuff was somewhat distorted by some of the quirks of
Speaker 6: recovering from the shutdown.
Speaker 5: But it's also true that.
Speaker 6: The shelter data were distorted for most of the year
Speaker 6: because of really long lands with which shelter inflation is calculated.
Speaker 6: If you look at market rents, they've been running at
Speaker 6: about a one percent rate for about two years now, right.
Speaker 6: That's not indicative of any price pressures in housing whatsoever,
Speaker 6: but it takes a really long time for measured shelter
Speaker 6: inflation to catch up to that, just because of various
Speaker 6: quirks of the statistical measurement process that I got into
Speaker 6: my speech last week. So I do think there was
Speaker 6: maybe some downward bias in last week's print. But at
Speaker 6: the same time, there's been tons of upward bias in
Speaker 6: data for the entire year, and it's inappropriate to say, Okay, well,
Speaker 6: we have to adjust for the downward bias, but we're
Speaker 6: going to accept the upward bias that itself is a
Speaker 6: deeply biased position.
Speaker 5: We've got to be clear right about both.
Speaker 3: Well, do you feel like yourself included? But do you
Speaker 3: feel like members of the FED are cherry picking what
Speaker 3: about inflation they like or dislike?
Speaker 6: Well, I mean, you know, I think that for the
Speaker 6: last few months, we've had data come out in accordance
Speaker 6: with I think my view of the world. The inflation
Speaker 6: data has steadily come in cooler than expectations. The unemployment
Speaker 6: rate has poked up potentially above where people thought it
Speaker 6: was going to go, and so we've had data that
Speaker 6: should push people into a duvish direction. And I think
Speaker 6: it's somewhat problematic if you see those data coming out
Speaker 6: and you don't adjust your policy prescriptions in a duvish direction.
Speaker 6: What does that say about the reactiveness of policy to
Speaker 6: the economy? You know, I think it looks very it
Speaker 6: reflects very poorly upon the institution.
Speaker 7: At the end of that speech at Columbia, you nodded
Speaker 7: to the fact that recessions are inevitable. Fed's job, it's
Speaker 7: kind of forestall them as much as they can. Policymakers' jobs.
Speaker 7: For that, I'm very curious when you look at the
Speaker 7: labor market, in particularly the rise that we've seen in
Speaker 7: the unemployment rate. That's kind of rise we've seen customarily
Speaker 7: before recessions. How do you assess the risk of there
Speaker 7: being a recession here in the near term when you
Speaker 7: look at the labor market, for instance.
Speaker 6: So I don't see a recession in the near term,
Speaker 6: in part because we are adjusting our policy rate, belowering it,
Speaker 6: which is appropriate.
Speaker 1: You know.
Speaker 6: My view, as I've described is that ietya of shocks
Speaker 6: that hit the economy, you know, including changes to the
Speaker 6: population growth rate due to changes in the border policy,
Speaker 6: have pushed what we call the neutral rate down, and
Speaker 6: that policy needs to adjust downward to reflect that downward
Speaker 6: shift and neutral. If we don't adjust policy down, then
Speaker 6: I think that we do run risks of rising recessions.
Speaker 6: I don't think it's too late to prevent that, and
Speaker 6: so I think it's important that we keep on adjusting
Speaker 6: our policy rate down. But at the moment it's not
Speaker 6: my base case, in part because I think that we
Speaker 6: ultimately will end up continuing to adjust interestraights down.
Speaker 1: I want to ask you about the utility of the
Speaker 1: myrone descent.
Speaker 7: So we had the FED share asked that press conference
Speaker 7: about the increasing confractured nature of the FED Committee. We've
Speaker 7: talked about quiet descents as well. What are you achieving
Speaker 7: or so what's the reaction been to you dissenting as
Speaker 7: you have been kind of in the conversation among the committee.
Speaker 6: Yeah, so, look, I mean there's not really any strategy here.
Speaker 6: I'm just transparent and say what I think and always
Speaker 6: have and that gets me in a lot of trouble.
Speaker 7: And does it or is it a constructive So when
Speaker 7: you descend in the way in which you do, is
Speaker 7: it a constructive descent? Do you find that others are
Speaker 7: willing to engage with you and your perspective on inflation
Speaker 7: for instance?
Speaker 6: Yeah, Well, my perspective on inflation is you know, look
Speaker 6: at my first speech, I talked about inflation a little bit,
Speaker 6: but I mostly was focused on neutral.
Speaker 5: My speech last week.
Speaker 6: I really drew out a lot about my outlook for
Speaker 6: inflation that was sort of implicit in the first speech
Speaker 6: and sort of just cursely, curse cursorily treated, and I
Speaker 6: really drew that out. So my views and inflation haven't
Speaker 6: been out there, fully fleshed out for the committee for
Speaker 6: so long, and now running into holiday season. But I
Speaker 6: have found that that people are constructive, they want to
Speaker 6: discuss these things, and I think that's important. And you know, look,
Speaker 6: one positive benefit of me potentially dissenting like this is
Speaker 6: that it introduces more a wider variety of views. I
Speaker 6: think it's really really important to avoid group think. I
Speaker 6: think if you fall into group think, you stop questioning
Speaker 6: where you could be wrong, and then it just becomes
Speaker 6: much easier to be a complacent consensus that is in error.
Speaker 5: I think we've seen that over and over this year.
Speaker 5: For example, on tariffs.
Speaker 3: Let's talk potentially about tariffs. The President is pushing for
Speaker 3: this two thousand dollars tariff, give it in the Church
Speaker 3: Secretary talking about these tax refunds start of twenty twenty six,
Speaker 3: is there potential that more money in consumers pockets could
Speaker 3: goose inflation?
Speaker 6: Yeah, so there is potential for some of these factors
Speaker 6: to boost economic growth. With respect to sort of tax refunds,
Speaker 6: you know, I think that sorry, with respect to terriffic refunds,
Speaker 6: I think we need to sort of wait and see
Speaker 6: what the policy looks like before getting into analyzing its consequences.
Speaker 6: If there does end up being a policy with respect
Speaker 6: to tax refunds that are results of the already legislated
Speaker 6: tax bill, the One Be Beautiful Bill Act from last year.
Speaker 6: Those are already baked into the forecast and they will
Speaker 6: provide a little bit of demand stimulus. But there's so
Speaker 6: much other stuff going on as a result of policy,
Speaker 6: in O triple B, in deregulation, in other things that
Speaker 6: are going on in policy that ultimately push out the
Speaker 6: supply side of the economy too. And my view is
Speaker 6: that if you push out the demand side while you're
Speaker 6: putting the brakes in the supply side, you get inflation.
Speaker 6: If you push out supply and demand at the same time,
Speaker 6: it doesn't really have an effect on priceis do you.
Speaker 3: Think it was a mistake that when we had under
Speaker 3: the Biden administration the American Rescue Plan Inflation Reduction Act
Speaker 3: sending out checks to and consumers.
Speaker 5: Was that an error?
Speaker 6: Well, it's not appropriate for you know, for a member
Speaker 6: of the Federal Reserve described to man as an error
Speaker 6: or not. But I do think that if you if
Speaker 6: you hit if you hit the gas on demand while
Speaker 6: you're hitting the brakes on supply at the same time,
Speaker 6: it will result in higher prices.
Speaker 5: That is that is, that is an economic.
Speaker 3: When two thousand dollars checks do a similar reaction as
Speaker 3: we saw on by the other checks during the American
Speaker 3: Rescue plan.
Speaker 6: Well it depends what's happening on the supply. So two
Speaker 6: things matter. One is the state of the demand, state
Speaker 6: of aggregate demand outside of those checks. And if you
Speaker 6: go back several years, the economy was recovering on its
Speaker 6: own from COVID. Right, What COVID was not like you know,
Speaker 6: the great the financial crisis which had lingering deleveraging effects
Speaker 6: for a decade plus, which meant that demand was was
Speaker 6: persistently depressed. After COVID, you know, we started getting vaccines,
Speaker 6: we started getting at the virals. Places started opening back up.
Speaker 6: The economy started returning to normal on its own, and
Speaker 6: so demand was growing quite healthily, and jobs numbers were
Speaker 6: beating every month, and so throwing more economic support on
Speaker 6: top of that wound up sort of pushing and already
Speaker 6: expanding demand side to expand even further. Right now, you
Speaker 6: see the unemployment rate is tilting up on its own. Right,
Speaker 6: So demand is in a separate is in a very
Speaker 6: different place than it was in twenty twenty one, But
Speaker 6: so is supply, and I think that if you're taking
Speaker 6: policy steps that are going to push out supply, or
Speaker 6: supply is moving out for reasons other than policy, for
Speaker 6: instance AI, which I find difficult to quantify, but a
Speaker 6: lot of people put a lot of faith in if
Speaker 6: supply is moving out for whatever reasons, it can accommodate
Speaker 6: increasing demand, and so the effect on prices could be
Speaker 6: very different.
Speaker 7: On higher goods inflation, there is a prevailing narrative that
Speaker 7: the terroist policy has a lot to do with what's
Speaker 7: been pushing that up, and you kind of push back
Speaker 7: against that. You did that in the speech that you
Speaker 7: delivered at Columbia as well. At the same time, you
Speaker 7: talk a lot about humility, how much uncertainty there is.
Speaker 7: I think you nodded to Mervin King in that speech
Speaker 7: and what he's written about uncertainty.
Speaker 1: What's it going to take.
Speaker 7: Do you feel like you have a grasp of the
Speaker 7: effect of the tarist policy thus far or are you
Speaker 7: still waiting to figure out sort of what that's going
Speaker 7: to mean for the economy broadly, And yes when it
Speaker 7: comes to goods inflation.
Speaker 6: Yeah, So look in the speech I did discuss how
Speaker 6: there's this consensus has emerged that tariffs are a significant
Speaker 6: driver of inflation in the same way consensus emerged earlier
Speaker 6: in the year the tariffs are going to drive some
Speaker 6: sort of crazy recession, you know that was there. And
Speaker 6: I think that consensus is wrong, and I think and
Speaker 6: I think it's complacent. I described camera factuals, right. If
Speaker 6: you're describing a result in prices to tariffs, you need
Speaker 6: to say what the world would have been like without tariffs. Now,
Speaker 6: what most people do is they look at what we
Speaker 6: call the pre trends, what were the trends of various
Speaker 6: items before tariffs?
Speaker 5: Right?
Speaker 6: And most people select pre trends from the two decades
Speaker 6: before the pandemic, right when the world was very, very different.
Speaker 6: I don't think that that's really appropriate. Instead, the counter
Speaker 6: factors that I want to look at that I describe
Speaker 6: in the speech and I include pictures for them, are
Speaker 6: two things. One what are imported goods imported core goods
Speaker 6: in the PC index doing relative to overall core goods?
Speaker 6: And two what are what's happening on an international basis?
Speaker 6: And in both of those cases, I don't see anything
Speaker 6: that would indicate to me that tariffs are the are
Speaker 6: the driver of core goods inflation. When you look at
Speaker 6: imported goods versus overall core goods, they're inflating at similar rates.
Speaker 6: Importive goods don't stick out. We look at US core
Speaker 6: goods versus other countries. Again, US core goods are in
Speaker 6: the middle of the pack, and there hasn't been a
Speaker 6: change that would indicate to me that there's some sort
Speaker 6: of very significant terror show. So I think it's actually
Speaker 6: quite complacent for people to ascribe all this inflation to tariffs.
Speaker 6: And indeed, if you look at CPI core goods, and
Speaker 6: CPI bottomed down in the middle of last year, right
Speaker 6: seven or eight months before tariffs were implemented.
Speaker 3: I just want to get a sense before you leave us,
Speaker 3: how are you thinking about the next meeting, because it
Speaker 3: couldn't potentially be your last. Do you plan on dissenting
Speaker 3: in favor of fifty basis point cut again?
Speaker 6: Look, I plan on pushing for the policy that I
Speaker 6: think is appropriate at the time. I will say, when
Speaker 6: I got to the FED, we hadn't cut rates at
Speaker 6: all this year, and so it was very important for
Speaker 6: us to move rates down quickly. Since then, we've pushed
Speaker 6: rates down three times seventy five basis points of cuts
Speaker 6: to the policy rate, so the need for me to
Speaker 6: dissent for fifty becomes a little bit less as we
Speaker 6: come down. I haven't yet decided whether I'm going to
Speaker 6: push for twenty five or fifty next meeting. I think
Speaker 6: it depends on a variety of factors. So I could
Speaker 6: see voting for twenty five, but I do think it's
Speaker 6: important that we continue steadily reducing the policy rate.
Speaker 3: So basically, you'll vote for twenty five with the rest
Speaker 3: of the committee's there. If they're not going to push
Speaker 3: through twenty five, you may alert everyone of your disfatisfaction
Speaker 3: with them by going for fifty.
Speaker 6: Well, no, it depends. I think I want to see
Speaker 6: the data. You know, we're still witting on a lot
Speaker 6: of data because of the shutdown, right, so I want
Speaker 6: to see what the data do to my forecast going forward,
Speaker 6: and they and how they change my forecast going forward.
Speaker 6: But the truth is that I think that it was
Speaker 6: really important to vote to sorry to cut in bigger
Speaker 6: clips when policy was very high. As we continue reducing policy,
Speaker 6: I think you sort of get into into territory where
Speaker 6: you can start micromanaging instead of big instead of big
Speaker 6: cuts and I don't know whether we're here yet or
Speaker 6: it would sort of still take a couple more cuts
Speaker 6: to get there. But at some point you sort of
Speaker 6: start to become okay with sort of steady twenty five
Speaker 6: business point cuts instead of fifty business point cuts.
Speaker 4: Do you think it's going to be your last meeting?
Speaker 3: Has the White House reached out about whether or not
Speaker 3: you were going to stay on at the FED?
Speaker 5: I have no idea.
Speaker 6: I mean, look, you know, if nobody is confirmed in
Speaker 6: my seat by January thirty, first I assume that I
Speaker 6: will stay.
Speaker 5: I will stay in my seat.
Speaker 6: You know, you can stay in a seat until a
Speaker 6: successor is confirmed, and then beyond beyond that, you know,
Speaker 6: it'll all depend on who the President ultimately nominates to
Speaker 6: be the next chairman of the FED, because it'll depend on,
Speaker 6: you know, what seats are available and who the President
Speaker 6: wants to fill them.
Speaker 3: When it comes to the next chairman of the Federal Reserve.
Speaker 3: There are two individuals that you've worked closely with just
Speaker 3: this year alone, Kevin Hassett of course, and you were
Speaker 3: at the White House, and also Christopher Wallernent Waller of.
Speaker 5: Course with you at the FED.
Speaker 3: Can you just give us your evaluation of both those individuals,
Speaker 3: given the fact that you have a very good, I
Speaker 3: imagine relationship with both of them.
Speaker 5: Yeah.
Speaker 6: Look, they're both supremely talented economists and extremely effective individuals
Speaker 6: that I have the utmost respect for, and I think
Speaker 6: the country would be very lucky to have either of them.
Speaker 7: A quick question just about what you've witnessed in terms
Speaker 7: of the chairman's role at the FED.
Speaker 1: You've been there for a few months.
Speaker 7: Is there anything that's surprised you about the way that
Speaker 7: fed Share Powell is able to kind of go to
Speaker 7: get people to galvanize themselves around any kind of unanimity.
Speaker 7: The way that he runs the committee. I think we
Speaker 7: think about the fed sharers this kind of principal position.
Speaker 7: The President kind of makes us think that way that
Speaker 7: this is going to be a highly persons have a
Speaker 7: lot of determinism himself, but the FED Chair's responsibility is
Speaker 7: to try to get everybody on board with decisions. What
Speaker 7: if you wouldness about fed Share Powell's ability to do that,
Speaker 7: what would you say to the president down that facet
Speaker 7: a FED chair has to have to be effective.
Speaker 6: Look, you know, I think that there's obviously a lot
Speaker 6: of people on the committee who are not comfortable with
Speaker 6: with three cuts. And I think that's the wrong economic
Speaker 6: position at the moment, given the data that we have
Speaker 6: available to us, and the forecast that we have available
Speaker 6: to us, and the very well known, very well understood
Speaker 6: upward biases that are that are affecting inflation measurement at
Speaker 6: this moment in time, I think that's the wrong the
Speaker 6: wrong view, no question about it. Nevertheless, I think you
Speaker 6: have to give Chairman Powell, you know, a credit for
Speaker 6: having wrangled, you know, wrangled three cuts out of these
Speaker 6: guys in succession. And and it's a it's a it's
Speaker 6: a it's a it's a cat hurting task.
Speaker 5: Uh.
Speaker 6: And you know, and I think we have to, you know,
Speaker 6: we got to give a little.
Speaker 5: Credit for that.
Speaker 2: Stay with us, multiple IMPEX surveillance coming up off to.
Speaker 3: This still with us as Governor Stephen Myron, he heard
Speaker 3: that Neil Dutta of Renmack was coming up. So we
Speaker 3: want to stay around for this discussion because you heard
Speaker 3: something in the green room. You liked what Neil had
Speaker 3: to say, and you were potentially going to include it
Speaker 3: maybe in some of your speeches or right.
Speaker 4: Here on the program.
Speaker 6: I did look, I think I think Neil said something
Speaker 6: very eloquently which which I think is a really fantastic
Speaker 6: way of framing it, which is Neil said that there
Speaker 6: are three drivers of inflation. There's shelter, there's labor, and
Speaker 6: there's energy, and neither of them is remotely flashing orange
Speaker 6: right now, let alone the red. When you look at
Speaker 6: those three drivers, it looks like cool all around. So
Speaker 6: as a result, you know, you got to make some
Speaker 6: conclusions about where inflation's going.
Speaker 5: Over the next year or two. Yel what do you
Speaker 5: want me to say? I mean, it's true.
Speaker 8: I mean, well, so, I think the one thing I
Speaker 8: would say is that everyone's kind of lamenting the fact
Speaker 8: that the BLS made these assumptions around the last inflation number.
Speaker 8: What if assuming zero for shelter inflation was the right assumption.
Speaker 8: You know, there's a lot of focus on non housing
Speaker 8: services as well, but as the labor markets continue to
Speaker 8: cool off, the prices for those things will also cool off.
Speaker 8: I mean, the quits rate is actually at a cycle
Speaker 8: low in the private sector, so that tells me that
Speaker 8: workers don't really have the confidence to leave their jobs,
Speaker 8: which means that the balance of power in the jobs
Speaker 8: market I think has shifted towards employers, and so I
Speaker 8: think that's encouraging for the inflation outlook. And with respect
Speaker 8: to energy, I mean, look, retail gasoline prices are falling now.
Speaker 8: Obviously that's sort of a one time thing, but it
Speaker 8: will take pressure off of household inflation expectations, which the
Speaker 8: FED says that they're concerned about. So I'm encouraged by
Speaker 8: the inflation outlook, and I think the balance of risks
Speaker 8: are such that the FED should be supporting growth.
Speaker 3: But you're less encouraged by what's going on in the
Speaker 3: labor market.
Speaker 5: Is that correct?
Speaker 8: I mean, what's there to be encouraged about. All the
Speaker 8: jobs growth is basically coming from healthcare. I mean that
Speaker 8: was true in the last number as well. Cyclical industries
Speaker 8: are still slowing, and you have to look at you know,
Speaker 8: to me, it's important to kind of think about, you know,
Speaker 8: sort of an add up exercise looking at the underbelly
Speaker 8: of the jobs market and like where's the jobs growth
Speaker 8: coming from? You know, home build we talk about record
Speaker 8: high profit margins. A lot of that's driven by tech
Speaker 8: that's not a big driver of employment. You look at
Speaker 8: the margins for home builders home builder profit margins have
Speaker 8: been eroding. I mean, it's very challenging to keep buying
Speaker 8: people down at you know, at these at the rates
Speaker 8: that they've been doing. That opens up risk for residential
Speaker 8: construction jobs. What about mining? Oil prices are down, you
Speaker 8: think oil riggs are going to hire mining workers or lumber?
Speaker 8: Lumber prices are down too, right, So there's a lot
Speaker 8: of this sort of focus on how you know, I
Speaker 8: think tariffs are weighing on employment, But the truth is
Speaker 8: in things like oil and lumber and housing, I mean,
Speaker 8: prices are down and there's no there's no hiring going on.
Speaker 8: So I think by sort of putting it all the
Speaker 8: onus on the White House, I mean you're absolving the
Speaker 8: Fed in that regard, and I think that that's a mistake.
Speaker 8: I think there are things the Fed can do to
Speaker 8: support growth.
Speaker 5: The economy is weak because of what's going on the
Speaker 5: labor market.
Speaker 3: I mean, Neil's not exactly pointing out a rosy picture
Speaker 3: when it comes to jobs and employment.
Speaker 5: No he's not.
Speaker 6: And as I've said before, I think the Federal reserve
Speaker 6: is too tight. I think it's our job to balance
Speaker 6: prices in the labor market, and I think that we
Speaker 6: are not doing a great job of that at the moment.
Speaker 6: I think lower rates are appropriate, and I think, look,
Speaker 6: you know, one of the key factors here is that
Speaker 6: monetary policy hits the economy with lacks. Right, most people
Speaker 6: think those lags are about twelve to eighteen months. That means
Speaker 6: right now, we got to make policy for twenty twenty seven.
Speaker 6: And I think there's an excessive data dependence at the
Speaker 6: Federal Reserve because that makes you very backward looking. There's
Speaker 6: a lot of people who say, I want to see it,
Speaker 6: and you know, I need to sort of see this
Speaker 6: ABC in the data, right, But the data are right
Speaker 6: now giving you information from July.
Speaker 5: Right. It's very backward looking.
Speaker 6: And in some cases because the lags and shelter that
Speaker 6: we talked about earlier, the data are giving information about
Speaker 6: twenty twenty three right, not now. So we need to
Speaker 6: be making policy for twenty twenty seven. We should not
Speaker 6: be making policy for twenty twenty three. In the rear
Speaker 6: view mirror, I think it's really important for us to
Speaker 6: be forward looking about what developments and inflation the labor
Speaker 6: market are. And I think that's sort of paying attention
Speaker 6: to overly overly data dependent means your two rear view mirror.
Speaker 5: Driving, and I think that's an accident for missing turns.
Speaker 8: Do you think that there are things that FEED can
Speaker 8: do outside of red cuts to help revive labor market conditions?
Speaker 8: I mean, you know, we see this morning. You know
Speaker 8: JGB yields have exploded. I mean, I think you know
Speaker 8: there is an open question about how much red cuts
Speaker 8: would actually bring down longer term rates, right, So have
Speaker 8: you thought about balance sheet tools to kind of pull
Speaker 8: down longer term interest rates?
Speaker 5: I mean not at present.
Speaker 6: I still think we're in a relatively vanilla economic environment
Speaker 6: where lower front end rates will pull lower back end
Speaker 6: rates down over time.
Speaker 5: All LSEQL. Now, of course all else is never equal.
Speaker 6: But the type of regime you're describing where you cut
Speaker 6: the front end rate and that sort of causes the
Speaker 6: back end rate to sell off, that can occur. That
Speaker 6: tends to occur in places where there's uh, you know,
Speaker 6: worries about about about fiscal solvency and liquidity. And I
Speaker 6: don't really see any of that when you sort.
Speaker 5: Of look around.
Speaker 6: I think we're in a very in a very normal,
Speaker 6: uh normal environment where where lower lower front end rates
Speaker 6: would would support the bomb market.
Speaker 2: Stay with us, mult Blemberg, Savannah's coming up off to this.
Speaker 3: You are now joined by Marvin Low. Marvin, thank you
Speaker 3: so much for joining us this morning. You talk about
Speaker 3: while the low hanging fruit of the capital investment are falling,
Speaker 3: US rates has largely been priced and picked, there is
Speaker 3: some vegetation on the tree that to continue to support
Speaker 3: risk taking.
Speaker 5: Talk us to this vegetation.
Speaker 9: Yeah, I mean, I mean, ultimately, when we think about
Speaker 9: what investors absorbed this year, you know, it certainly is
Speaker 9: one where investors are willing to look through.
Speaker 4: Some of the noise.
Speaker 9: And you know, not to say that geopolitics are noise,
Speaker 9: but you know, generally speaking from a market perspective, asset
Speaker 9: values incorporate that uncertainty quite quickly. Is there anything that
Speaker 9: I see in the horizon that really kind of changes
Speaker 9: that positive ultimate environment?
Speaker 4: And you know, we still haven't.
Speaker 9: We still have a world where we're talking about lower
Speaker 9: rates from the FED, maybe.
Speaker 4: Not necessarily around the world.
Speaker 9: That's incredibly supportive, and the capital spend associated with what
Speaker 9: has been the driver for a lot of these equity
Speaker 9: value values are still out there.
Speaker 5: We didn't touch on the ten year yield up. It's
Speaker 5: up to basis points this morning.
Speaker 3: This is of course coming off across what's happening in Japan.
Speaker 3: Jgp's up six basis points. We still see Japanese yields rising.
Speaker 3: Is that a risk to the US story?
Speaker 4: You know what it is?
Speaker 9: Ultimately my view is that the Bank of Japan has
Speaker 9: the ability to some to cap that ultimately if they
Speaker 9: provide the market with some substance in terms of how
Speaker 9: high they're going.
Speaker 4: To go and what they need to do to control inflation.
Speaker 9: But until then, that uncertainty definitely pulls up US yields,
Speaker 9: definitely pulls up global yields, and from the perspective of
Speaker 9: what a lot of these economies want, which is lower
Speaker 9: long yields. Kind of given how important that long yield
Speaker 9: is to overall economic development, it's not a great thing.
Speaker 9: But we're also not at levels that create a massive
Speaker 9: amount of concern yet.
Speaker 7: I'll stick with your vegetation metaphor the ripeness of some
Speaker 7: of what's on the tree here.
Speaker 1: So the story here over the last.
Speaker 7: Few weeks has been about AI concerns over capital spending.
Speaker 7: I'm curious of where you think we are in that narrative.
Speaker 7: So looking ahead to twenty twenty six, we have we
Speaker 7: turned a page in any sort of way. How much
Speaker 7: is that going to color the way that you're looking
Speaker 7: at the market.
Speaker 9: So I think so, I think there are two things
Speaker 9: to think through here. One is just the AI process itself,
Speaker 9: and I think we're still an early in there. You know,
Speaker 9: there was a wonderful story in the Wall Street Journal
Speaker 9: about a vending machine and how AI was ultimately given
Speaker 9: the ability to figure out what to sell and what
Speaker 9: to buy and it didn't work. So we're still, you know,
Speaker 9: quite early in the process of it being integrated into
Speaker 9: our daily life. So from an investment perspective, that is
Speaker 9: still I think a piece of this out there. When
Speaker 9: we talk about the hyperscalers and the amount of investment
Speaker 9: needed to kind of get that into the economy, if
Speaker 9: you will, there are there are you know, winners and
Speaker 9: losers that people are picking right now, and I think
Speaker 9: that's healthy. Just to say that I'm going to buy
Speaker 9: anything at whatever cost is where you wind up in
Speaker 9: trouble in financial markets. So the fact that we're starting
Speaker 9: to rationalize our capital is a good part of this
Speaker 9: evolutionary process.
Speaker 7: How are you thinking about that rationalization? So what are
Speaker 7: you looking for? Is you kind of doesn't have to
Speaker 7: be the hyperscalers, but other kind of ancillary companies to AI.
Speaker 7: What are you looking at or what's giving you the
Speaker 7: most pauses you look at their kind of outlooks.
Speaker 9: From I think you touched on correctly. It is the
Speaker 9: little side of things. It is the amount of debt
Speaker 9: that's out there, and it is the fact that the
Speaker 9: amount of capital and debt available is not unlimited. And
Speaker 9: we know that, and it does show to a certain
Speaker 9: degree maturation of where we are in the cycle. But
Speaker 9: large deals are still getting done. So if in fact
Speaker 9: these large deals can get done and they cost more,
Speaker 9: it's probably coming from somewhere else. So let's think through
Speaker 9: kind of these knock on effects. Think about what parts
Speaker 9: of the market might be more effective.
Speaker 4: And it might not necessarily be AI.
Speaker 9: Right, it's a capital pool that finds an efficient investment.
Speaker 9: If it's all going to one place, that means that
Speaker 9: there's some rationalization elsewhere.
Speaker 3: Marbred, how do you think about the FED next year?
Speaker 3: Money markets pricing in to cuts.
Speaker 9: I think that's too much, you know, I personally I do,
Speaker 9: but I think it's too much by one If you
Speaker 9: will so in the grand scheme of how big this
Speaker 9: economy is. One rate cut here or there doesn't really
Speaker 9: make a difference. And really the fact that we haven't
Speaker 9: seen much movement in yields around this kind of one
Speaker 9: versus two type of discussion means that, you know, it's
Speaker 9: somewhat irrelevant. What winds up happening is that when you
Speaker 9: think about the reaction function, it's still to lower yields,
Speaker 9: which is ultimately supportive. We're not talking about higher yields
Speaker 9: that asymmetric. That asymmetry associated with kind of that decision
Speaker 9: tree is supportive for risk assets ultimately.
Speaker 3: You had Williams on Friday talking about distorted data. Beth Hammock,
Speaker 3: who's going to get a vote exactly this year to
Speaker 3: the Wall Street Journal, was talking about the fact that
Speaker 3: she is still concerned about inflation. What do you make
Speaker 3: of the underlying inflation data when we got Do you
Speaker 3: think it was distorted because of the collection issues we
Speaker 3: had with the government shutdown?
Speaker 10: Yeah?
Speaker 9: Yeah, I mean it was going to be a wonky
Speaker 9: number no matter what. You know, we didn't have collection
Speaker 9: throughout the month of October. We were quite short in
Speaker 9: terms of our surveys. In November and the amount of
Speaker 9: estimates that the bails needed to make was one where
Speaker 9: it really calls into question what you could do with it.
Speaker 9: The market didn't react to it, so the market looked
Speaker 9: through it. We've got a lot of data between now
Speaker 9: and the next FED meeting, and that's going to really
Speaker 9: provide much better guidance on where the economy is going.
Speaker 7: How much confidence do you have about your understanding how
Speaker 7: much inflation is out there at this point that Stephen
Speaker 7: Myron is going to come on later. One of his
Speaker 7: big criticisms is it's not just backward looking, it's too
Speaker 7: backward looking. We don't have a firm grasp sort of
Speaker 7: what the inflation.
Speaker 1: Picture looks like. How about you? How much are we
Speaker 1: fumbling through this right now?
Speaker 5: You know what?
Speaker 9: There there have been a lot of concerns with just
Speaker 9: the collection process four years. The response rate has been
Speaker 9: going down since the pandemic, not only in the US
Speaker 9: but but ultimately globally. We've got a lot of all
Speaker 9: data out there also to kind of support it. So
Speaker 9: I think we get a decent picture and all of
Speaker 9: us are living through, you know, our anecdotal evidence, if
Speaker 9: you will, you know, just kind of walking around New York,
Speaker 9: going to the supermarket. That all provides us with insights,
Speaker 9: so I think we will get a good picture of
Speaker 9: where ultimately inflation is. You know, it might take a
Speaker 9: little bit longer for the official data to get there,
Speaker 9: and then we can calibrate in our minds what policy
Speaker 9: is supposed to be. And that's where the FED discussion
Speaker 9: becomes really really important. If you know, the havings of
Speaker 9: the world are correct and they say that we should
Speaker 9: wait to see this inflation evolve, and in fact we're
Speaker 9: on this kind of hold period at least for the
Speaker 9: next couple of quarters, you can have some comfort that
Speaker 9: the FED is doing the right thing from that perspective.
Speaker 9: If there's a push, you know, really to cut to
Speaker 9: cut rates, even with the data that's pushing against it,
Speaker 9: that's when.
Speaker 4: We wind up with kind of concerns moving.
Speaker 1: From policy to personnel.
Speaker 7: Talking about Rick Reader, the two Kevin's, how are you
Speaker 7: watching all of this unfold?
Speaker 1: How much does it matter?
Speaker 7: You've seen that short list and there is so much
Speaker 7: in that ven diagram that these candidates share, these finalists share.
Speaker 1: How much will it matter who he picks?
Speaker 9: And you know what, I'm not that concerned with it.
Speaker 9: You know, I think that we're looking at qualified candidates.
Speaker 9: Certainly the administration has a view of where it thinks
Speaker 9: rates should be, and those candidates embrace that.
Speaker 4: But you know, we've got the.
Speaker 9: Federal Reserve Act, which has lasted decades in terms of
Speaker 9: really creating a strugg sure that's supposed to have, that's
Speaker 9: supposed to be able to keep the FED immune from
Speaker 9: you know, political if you will, interference into the process.
Speaker 9: I think that that's still out there, you know, Hammock
Speaker 9: and really the smidst of the world being vocal is
Speaker 9: part of that process. And you know, so long as
Speaker 9: we have that structure out there, you know, I think
Speaker 9: that's the independence aspect of the FED becomes something that
Speaker 9: investors are still comfortable with.
Speaker 2: Stay with us, Mault, Blomberg, Savannah's coming up after this.
Speaker 3: Here's the latest the term administration intensifying it's blockade against Venezuela,
Speaker 3: the Coast Guard targeting and pursuing a third sanctioned oil
Speaker 3: tanker off the country's coast. Joining us to discuss is
Speaker 3: Patrick mckenry, former chair of the House Financial Services Committee
Speaker 3: and a Bloomberg contributor.
Speaker 5: Thank you so much for joining us. Patrick. Really great
Speaker 5: to have you on this week.
Speaker 3: I'd love to ask, how do you think your former
Speaker 3: colleagues in Congress view what the administration is doing when
Speaker 3: it comes to Latin America.
Speaker 10: Well, the first question here is what does it do
Speaker 10: to prices? That's the most pertinent political issue here domestically
Speaker 10: number one. Number two, We've had roague regimes to our
Speaker 10: south for decades that have bucked US administrations. So in
Speaker 10: many respects, with the Trump administration saying they're pulling back
Speaker 10: from the world, there is still an expression and need
Speaker 10: for American politicians to show strength that our military might
Speaker 10: does matter, it can be effective. And this is one expression,
Speaker 10: and it does have a wider support among Republicans and
Speaker 10: Democrats on Capitol Hill than is currently being expressed.
Speaker 3: When it comes to price, Venezuela as at present not
Speaker 3: as important to the oil markets, say it was pre
Speaker 3: Hugo Chaves error. It's less than one percent of global supply.
Speaker 3: But at the same time, do you think that is
Speaker 3: the reason why the administration feels like they can intensify
Speaker 3: this pressure, Amadoro, No, this.
Speaker 10: Is a decade in the making, Frankly, and Venezuela and
Speaker 10: Cuba are inextricly linked. One funds the other, and they
Speaker 10: each prop each other up. And so this is viewed
Speaker 10: by I think you would see Marco Rubio and his
Speaker 10: State Department group look at this as a long needed
Speaker 10: work and necessary work right in our own backyard.
Speaker 7: I'm going to pick up on something that Ambria asked you,
Speaker 7: which is sort of about the broader South America strategy here,
Speaker 7: because I think that's something a lot of Americans probably
Speaker 7: haven't figured out or thought.
Speaker 1: A lot about yet.
Speaker 7: So we saw the US's commitment to Argentina earlier this year.
Speaker 7: We've seen the US embrace in Bolivia, another country in
Speaker 7: South America the US have kind of shunned for several
Speaker 7: recent years because it had a leftist leader in place.
Speaker 7: Do you have a holistic understanding what the US is
Speaker 7: trying to do here, not just in Venezuela, but but
Speaker 7: in the region overall. You talk about these rogue regimes.
Speaker 7: The plan is going forward now.
Speaker 10: It's popular in connection with our closest neighbors and biggest
Speaker 10: trading allies. This is always complicated when we're talking about
Speaker 10: foreign affairs with the Trump administration.
Speaker 5: What does it mean?
Speaker 10: What are the layers to it?
Speaker 1: And so on.
Speaker 10: But what we've generally seen is this administration one of
Speaker 10: more Central and South America to us economically and militarily.
Speaker 10: That is a different approach than we've seen in decades
Speaker 10: in Washington, but long standing since someone Row doctrine that
Speaker 10: we want to understand our neighbors and be their greatest
Speaker 10: strength and ally, and long neglected in recent decades. So
Speaker 10: it is a long It's an expression of a longer
Speaker 10: term American strategy of more in our neighbors to us.
Speaker 1: I imagine you have many former colleagues in the House.
Speaker 7: We're eager for the President to talk more about domestic issues.
Speaker 7: He did delivered that speech last week where he talked
Speaker 7: about affordability. Seems to have come around and have been pushed
Speaker 7: to around to talking about it more.
Speaker 1: What does that.
Speaker 7: Message need to sound like to your ears going into
Speaker 7: twenty twenty six to kind of reclaim the narrative here
Speaker 7: going forward about this administration's efforts when it comes to
Speaker 7: sort of writing the economy in the country.
Speaker 10: So Joe Biden tried the don't believe your lying eyes
Speaker 10: message to the American people what you feel is not
Speaker 10: really legitimate. That's not a good response from any politician,
Speaker 10: much less than president of the United States. So President
Speaker 10: Trump should not try to recreate that failed message Number one.
Speaker 10: Number two, he should acknowledge the reality, which is prices
Speaker 10: are higher now and that is putting a pinch on
Speaker 10: the American people. And when prices outstrip waging increases, the
Speaker 10: rising prices outstripped wage increases, the American people feel terrible.
Speaker 10: And so you's got to acknowledge that and then forcefully
Speaker 10: land the administration's policies and communicate on landing those policies.
Speaker 10: We still have tariffs unresolved, in trading agreements unresolved. We
Speaker 10: still have the new tax cut to be implemented in
Speaker 10: the coming year, in regulatory or relief. There's a lot
Speaker 10: that the President could talk about and needs to talk
Speaker 10: about of administration successes. But to tell the American people
Speaker 10: don't trust what they think they're experiencing isn't going to
Speaker 10: be a good wedding message.
Speaker 7: A lot to talk about, indeed, a lot to taut
Speaker 7: And I was struck on the show last week talking
Speaker 7: to a lot of folks from Wall Street who said, look,
Speaker 7: this is a year in which, in light of what
Speaker 7: you've just mentioned, the benefits of this tax and spending
Speaker 7: bill coming into effect, that there were things that could
Speaker 7: be quite advantageous for a lot of Americans. And yet
Speaker 7: we haven't heard a whole lot from the White House
Speaker 7: in terms of what they should be prioritizing, in terms
Speaker 7: of what they should be communicating to the American people.
Speaker 7: What has the most promises you've seen? Where should the
Speaker 7: White House be leaning in?
Speaker 10: No, look, President Trump's political strength is his view his
Speaker 10: economic strength, sorry capacity in the first term to turn
Speaker 10: the administrative to turn the whole administration on renewing and
Speaker 10: reviving the economy became his strongest political attribute, and that
Speaker 10: brought him back to the White House. The facts that
Speaker 10: the fact that he fixed the economy and make people
Speaker 10: feel better and get people on the right track. So
Speaker 10: he's got to fortunately communicate all of the things that
Speaker 10: they've done to make life better for the average American,
Speaker 10: and they've done a ton, but so much of that
Speaker 10: has to be realized, so the economic indicators start going
Speaker 10: in a positive direction for the average America and how
Speaker 10: families live, and he's got to talk about that on
Speaker 10: a repeated basis, in a sustained way.
Speaker 3: A dozen or so House lawmakers have already announced that
Speaker 3: they will not run for reelection, the latest being a
Speaker 3: least staphonic who also decided she's not going to go
Speaker 3: for the New York governor's race. How challenging do you
Speaker 3: think this is going to be for Republican leadership in
Speaker 3: the House.
Speaker 10: Well, the loss of Representative Stephanik is devastating. I mean,
Speaker 10: she's a highly talented, young, dynamic elected official, huge opportunity
Speaker 10: in her future, and for her to say she's stepping
Speaker 10: aside from politics is devastating for Republicans for sure, And
Speaker 10: that is the one announcements made me quite sad this year.
Speaker 10: But she's got a long life ahead and I think
Speaker 10: we'll come back to politics at some point. The announcements
Speaker 10: of retirements from the House show that the House has
Speaker 10: not gotten done as much as they wanted to get
Speaker 10: done this year long dis government shutdown. Everything was jammed
Speaker 10: in the one big beautiful bill. Not much else got
Speaker 10: done legislatively. This is a bad sign about the workplace
Speaker 10: environment on Capitol Hill and how the electeds view it.
Speaker 10: And the final piece is what Republicans view is their
Speaker 10: opportun tunerty to maintain control the US House next Congress.
Speaker 5: Those are the facts.
Speaker 10: We've had a year before I'm sorry, eleven months before
Speaker 10: the next election, so a lot can change in that time.
Speaker 10: But this at this end of year and going into
Speaker 10: the Christmas season, not a great time for House Republicans
Speaker 10: and a bad time as politicians are reassessing whether or
Speaker 10: not to run again.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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