Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
Speaker 2: are live on Bloomberg Television weekday mornings from six to
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify
Speaker 2: or anywhere else you listen, and as always on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Former Kansas City
Speaker 2: Fed President es the George, expecting the Fed to stay
Speaker 2: on hold right in the following, although inflation is not accelerating,
Speaker 2: it remained sticky and appropriately ties the Fed's hands on
Speaker 2: further rate adjustments. Esther joint us now for more and
Speaker 2: Esther for someone who used to lead the Jackson Hole Symposium.
Speaker 3: I apologize for Lisa. Just ignore everything.
Speaker 2: Lisa to Yes, I love it, I love the forum,
Speaker 2: and I love seeing you over there.
Speaker 1: Okay, can I just say no, I'm not gonna part
Speaker 1: because I'm just going to say I love it, I
Speaker 1: love the experience, I love the land.
Speaker 4: I'm a big proposent.
Speaker 1: I'm staying longer so that I can go tour around
Speaker 1: and takes to carry at leisure.
Speaker 3: Yes, there is convinced.
Speaker 1: Yes, I thank you.
Speaker 2: So let's start with that quote.
Speaker 3: It's an important one.
Speaker 2: Do you believe the labor market is strong enough to
Speaker 2: wait to see what happens with inflation?
Speaker 5: Well we're going to find out, obviously with this week's
Speaker 5: report how the labor market is faring. We have seen
Speaker 5: the labor market first kind of come into better balance,
Speaker 5: if you will. The number of job openings has come down.
Speaker 5: We do hear anecdotally that businesses are hanging onto people
Speaker 5: in some cases. We'll see whether they're shutting people. What
Speaker 5: the labor force looks like itself with all of the
Speaker 5: policy changes that have been going on there. So I
Speaker 5: think there's a lot to watch for in this particular
Speaker 5: report that could begin to give us a sense of
Speaker 5: how the labor market's doing.
Speaker 1: You know, as you're just to build on the Jacksonville
Speaker 1: Symposium this year, it's talking about the changing nature of
Speaker 1: the labor market and how difficult it is to really
Speaker 1: measure it. To pair that with a number that we
Speaker 1: get on Thursday, there's this belief that it's going to
Speaker 1: be lower than many people have become accustomed to, but
Speaker 1: that still is healthy. How do we gauge a market
Speaker 1: and its health that is so influx, both in the
Speaker 1: policy perspective and the technological perspective.
Speaker 5: Yeah, it's especially hardly so because I think we have
Speaker 5: come off a period that was I'm going to call
Speaker 5: it unusual to have an unemployment rate in the neighborhood
Speaker 5: of three and a half percent. And trying to diagnose
Speaker 5: what are the characteristics that are shaping that labor market
Speaker 5: is essential to how the FED really calibrates.
Speaker 3: It's in.
Speaker 5: Well's see you think about both sides of our calculation
Speaker 5: here that we have seen the bottom line number around
Speaker 5: who's in the workforce, we have seen the hiring numbers,
Speaker 5: and trying to really assess that in a time of
Speaker 5: great uncertainty is one of the fit's' biggest challenges.
Speaker 1: There's a big debate right now on Wall Street in
Speaker 1: the push pull of is this market albeit not strong,
Speaker 1: not overly weak, just weakening, whether it's still healthy enough
Speaker 1: or whether it potentially is showing real cracks, like Neil
Speaker 1: Detta has pointed out of a renaissance macro, especially given
Speaker 1: the fact that the hiring rate is so low and
Speaker 1: people are staying on the unemployment rules for longer.
Speaker 3: Do you have a take for that? Do you think
Speaker 3: that there should.
Speaker 1: Be more emphasis placed in one thesis than the other.
Speaker 5: So I don't think you can wait one or the other.
Speaker 5: We know that the dynamics in our economy today are
Speaker 5: pushing in both directions. We've seen an economy that's beginning
Speaker 5: to slow, it's being hit by policy changes that businesses
Speaker 5: are trying to digest here, and so I think you
Speaker 5: really have to not lock into a particular narrative here,
Speaker 5: but be watching how those dynamics are unfolding. Remember, today,
Speaker 5: the economy is still in forward motion. It is still
Speaker 5: operating in a way that we see growth. Obviously, that
Speaker 5: can change with any particular data point or news announcement
Speaker 5: that we see. But I think the fundamentals here suggests
Speaker 5: that we shouldn't read too much into any particular narrative
Speaker 5: at this stage.
Speaker 2: If aight pril second hadn't happened, I'd love to explore
Speaker 2: this with you if it hadn't happened. Given the downside
Speaker 2: surprises we've had from core CPI over the last I
Speaker 2: think four months and the uplift we've seen in continuing claims,
Speaker 2: which on the market is slightly concerning. Which you have
Speaker 2: voted for a rake cup based on that alone.
Speaker 5: You know, Jonathan, I don't think so. And here's why.
Speaker 5: I view price stability as a prerequisite for sustained growth,
Speaker 5: for a healthy labor market in the long run, which
Speaker 5: is what the Fed's mandate really is is looking to
Speaker 5: the long run. And so I think when you see
Speaker 5: fiscal policy on the path that it's been on, it
Speaker 5: would be by itself. I think reason to be cautious
Speaker 5: right now in an environment where the FED is not
Speaker 5: yet hit its inflation target. So I don't want to
Speaker 5: take anything away from the fact that we have made progress,
Speaker 5: but I would also want to be careful in that
Speaker 5: risk management scenario that you're not putting too much promise
Speaker 5: yet on a state of inflation that has yet to
Speaker 5: be achieved.
Speaker 6: Speaking of risk management, if we get an announcement from
Speaker 6: the President in October, even earlier September, of who the
Speaker 6: next FED chair is going to be, who his pick is,
Speaker 6: well that blur the lines of the FED its independence
Speaker 6: and who's really leading the institution.
Speaker 5: Well, I don't think so. As long as the current
Speaker 5: FED chair is in his seat, He's been very clear,
Speaker 5: and I think he has every incentive to be focused
Speaker 5: on policies that achieve the Fed's mandate. Does it complicate communication,
Speaker 5: does it create a lot of noise? Of course it could,
Speaker 5: But I think any FED chair is going to understand
Speaker 5: that their obligation to meeting their congressionally assigned mandate is
Speaker 5: really the priority. And in the end, you're doing that
Speaker 5: on behalf of the American public. You're not serving just
Speaker 5: one part of the government.
Speaker 2: As to always appreciate your take on things, the clinic
Speaker 2: has always as the George that the former Kansas City
Speaker 2: FED President Terry Hynes of Pangaea Policy, John, just now, Terry,
Speaker 2: in your opinion, is this real authentic resistance or just
Speaker 2: a little bit of theater before the ultimate inevitable lights
Speaker 2: of this weekend?
Speaker 7: Good morning, John. I'm in the theater category, I think
Speaker 7: today and I enjoy theater, but it is theater.
Speaker 4: They you know, you.
Speaker 7: Political bodies always wrangle around for votes, and this is
Speaker 7: a situation where there are fifty three votes that absolutely
Speaker 7: matter and they're jockeying for the most they can get
Speaker 7: in a situation. But at the end of the day,
Speaker 7: here they come together, and if anything, the weekend saga
Speaker 7: with Senator Tillis is a pre foreshadows that because you've
Speaker 7: got a situation where you know, there was so much
Speaker 7: pressure put on him, he's decided not to run for reelection.
Speaker 7: These guys all like their seats and they they're probably
Speaker 7: gonna want to stay.
Speaker 6: Terry when it comes to who has the leverage right
Speaker 6: now when they're competing factions in the Senate, which group
Speaker 6: is it?
Speaker 7: Fundamentally, I think it's the people that are kind of
Speaker 7: the harder core versus the softer they're for. I mean,
Speaker 7: obviously there's more of them number one, number two there.
Speaker 7: They're pushing as hard as they can to get this
Speaker 7: thing done. They will make whatever smaller accommodations they have
Speaker 7: to to the other fashion to get some things done.
Speaker 7: But don't look for the Senate to automatically morph into
Speaker 7: kind of flip over to the soft side wholesale.
Speaker 6: When it comes to how this legislation, this process all
Speaker 6: comes together. What is going on with the bird rule?
Speaker 6: Do you think we're setting up a president now where
Speaker 6: any party can come in and basically set policy and
Speaker 6: extend that policy within the next ten years.
Speaker 7: Oh, I think that's been going on for sixty years
Speaker 7: through the reconciliation process. Frankly, let me also say on
Speaker 7: the Bird rule. The Bird rule is as a Germanist rule,
Speaker 7: by which I mean, you know whether or not it
Speaker 7: should be, you know, some provision ought to be in
Speaker 7: a budget bill or not, whether it has budget impact
Speaker 7: at all, and you know, those are rules of the Senate.
Speaker 7: And you know, I know there's all this kerfuffle about
Speaker 7: Liz MacDonough the parliamentarian, but what she's doing is faithfully
Speaker 7: executing her job as a staffer parliamentarian to interpret and
Speaker 7: finalize rules that the Senate itself has put into place.
Speaker 7: So this is not a situation where you know, the
Speaker 7: staff's hijacking some process, you know, and it's a terrible
Speaker 7: thing for any elected official to blame a staffer for
Speaker 7: that sort of thing. This is a situation where you know,
Speaker 7: the rules governing the particular budget process are in play.
Speaker 7: But back to your point, though, both parties have been
Speaker 7: gaming this system for sixty years and I expect that
Speaker 7: to continue.
Speaker 1: Yes, Terry, you said initially that you do think this
Speaker 1: is more theater than actual fissure in the Republican Party
Speaker 1: that could style of this bill. And yet we're all
Speaker 1: playing the numbers game over the weekend that the senator
Speaker 1: is the Congressional the Republican senators can only afford to
Speaker 1: lose three votes, and currently there are four that are
Speaker 1: on the line. There's Ron Paul, Lisa Murkowski, Susan Collins,
Speaker 1: and now Tom Tillis, who isn't running for reelection, is
Speaker 1: isn't necessarily constrained by potentially being primaried.
Speaker 4: Who cames on that front?
Speaker 1: Why do you see this is still getting over the
Speaker 1: finish line.
Speaker 7: Because of the sequence of votes. Generally speaking, I think
Speaker 7: what Senator Murkowski Senator Collins get is a little bit
Speaker 7: of softening on Medicaid provisions, maybe some other things that
Speaker 7: they're interested in. Senator Murkowski is always standing up for
Speaker 7: our last energy and as she should, and she'll work
Speaker 7: on that. And at the end of the day, what
Speaker 7: you're going to have then, once those accommodations are made,
Speaker 7: then you're going to have a situation where you have
Speaker 7: fifty two on one side and Ran Paul on the
Speaker 7: other and they will vote for final passage. There.
Speaker 1: So we spent a lot of time ringing our hands
Speaker 1: earlier this year talking about the increasing budget deficit in
Speaker 1: the United States and how this is going to cause
Speaker 1: some sort of bond vigilante moment where you get real
Speaker 1: pushback in the bond market. We just had the best
Speaker 1: month for the bond market in terms of performance going
Speaker 1: back to February. At the same time of the Committee
Speaker 1: for a Responsible Federal budok it says that this current
Speaker 1: iteration of the One Big Beautiful Bill is going to
Speaker 1: add three point nine trillion dollars to the deficit over
Speaker 1: the next decade.
Speaker 4: Which is it.
Speaker 1: Do you think that people are being a little overly
Speaker 1: sanguine about what this does to the deficit or do
Speaker 1: you think, like we heard from Steve Chivon, that they're
Speaker 1: going to be real offsets that we haven't accounted for.
Speaker 7: Well, two things. One, whoever's doing the interview with Secretary
Speaker 7: Best and I hope they'll acknowledge that he was absolutely
Speaker 7: correct on the on how he thought markets would react
Speaker 7: in the medium and long term here, both on both
Speaker 7: on equities and in bonds. He called that, and a
Speaker 7: lot of people didn't. The Secondly, seguine, I don't know
Speaker 7: the uh you know the rules by which the CBO
Speaker 7: and outside groups you know, cancoct their CANCCT. Their views
Speaker 7: are artificial and they exclude lots of things like the
Speaker 7: like the impact of tariffs and growth. Frankly, so yeah,
Speaker 7: I'm on teams Steve on this one.
Speaker 6: I think Terry when it comes to how this actually
Speaker 6: gets to the President's desk, what's going to happen in
Speaker 6: the House is the freedom call is just fold like
Speaker 6: they did in twenty seventeen.
Speaker 7: I've been for three months now been in the been
Speaker 7: advising markets that this thing was going to happen on
Speaker 7: or around July fourth, and now here we are. And
Speaker 7: I've also for probably a couple of months now had
Speaker 7: been advising that the whole purpose here is the Senate's
Speaker 7: going to jam the House, and the Senate bill will
Speaker 7: be the final bill. And I still think that. And Frankly,
Speaker 7: if you listen, I mean, this is that buzz is
Speaker 7: kind of bubbling under right now. But if you listen
Speaker 7: to what the House people say publicly, they expect that,
Speaker 7: you know, there's all kinds of talk about, you know,
Speaker 7: how we've accommodated the House and how we've been working
Speaker 7: together and all the rest. What that is is a
Speaker 7: signal that we're going to end up having to take
Speaker 7: whatever the Senate does, and the President's going to have
Speaker 7: to come in and put the hammer down on some people.
Speaker 2: Hey, Terry, it's going to catch very with it this
Speaker 2: Monday morning. Good morning's sir, Terry Hanks there of Pangaea policy.
Speaker 2: Michael Kutschmer of Morgan Stanley believes we're currently in a
Speaker 2: sweet spot for markets. Doesn't feel like one, but we
Speaker 2: have the unemployment report, budget negotiations, tariff dead blinds all
Speaker 2: coming up over the next two weeks or so. Michael
Speaker 2: joins us now for more. Michael, good mornch Good morning.
Speaker 2: It hasn't felt like a sweet spot for markets. I
Speaker 2: guess if you're away from all this and you see
Speaker 2: the start market of record highs, it might feel good.
Speaker 2: But if you've been in it, the last three months
Speaker 2: has been brutal, hasn't it.
Speaker 3: Absolutely.
Speaker 8: I really talk about the sweet spot from all the
Speaker 8: worries that we had just a couple of weeks ago.
Speaker 8: All the negative things which could happen have disappeared, you know,
Speaker 8: at least for the time being. But we've got this
Speaker 8: calendar coming up this week and next couple of weeks
Speaker 8: through July there are quite impressively potentially volatile, but like
Speaker 8: the digital service tax we canna yesterday, again positive news
Speaker 8: at the margin, just dripping it back into the market
Speaker 8: to reduce the intensity of worry.
Speaker 2: And in November when the election happened, we were wondering
Speaker 2: whether this bond market would push back what would be
Speaker 2: the biggest constraint on this particular bill down in Washington,
Speaker 2: d C. And here we are and this bond market
Speaker 2: is not pushing back it.
Speaker 8: So why I think it's the confidence that rates are
Speaker 8: going to be cut, that the deterioration and the labor
Speaker 8: market is going to continue, and that continuation of labor
Speaker 8: market and the idea of the Fed policy being a
Speaker 8: balance between employment and inflation as employment drifts weaker relative
Speaker 8: to inflation. Inflation has been good the last couple of months,
Speaker 8: but again it's been good seasonally the last couple of years.
Speaker 3: As well into the summer.
Speaker 8: That's why they cut rates less less September is it
Speaker 8: can deteriorate the next couple of months. But if inflation deteriorate,
Speaker 8: I mean, if the unemployment deteriorates, I think the Fed
Speaker 8: will will react to that, it seems.
Speaker 1: As though the bond market and stock market are getting
Speaker 1: excited about different things. Stock markets getting excited about AI
Speaker 1: and the potential for things to be sort of muddle
Speaker 1: along enough to allow companies to keep innovating and possible
Speaker 1: regulatory roll back. The bond market's getting excited about enough
Speaker 1: weakening that the Fed can cut, but not too much
Speaker 1: weakening that will fall off a cliff. Is that basically
Speaker 1: where we're at?
Speaker 8: Exactly the rate cuts in a still growing economy is perfect?
Speaker 8: Are the economies forecast will deteriorate, you know, one percent
Speaker 8: growth and back to trend growth next year as the
Speaker 8: Fed cut rates?
Speaker 3: How good a combination is this?
Speaker 1: So why are we not talking about the Fed cutting
Speaker 1: rates at a time where the economy is still moving forward,
Speaker 1: to use Ester George's phrase, with a budget that is
Speaker 1: getting more deficit driven and those fears still here, the
Speaker 1: dollar being sold, Institutional investors overseas real questions about how
Speaker 1: much they will be the incremental buyer of treasuries. Why
Speaker 1: are we no longer talking about that whole dynamic? At
Speaker 1: the long end, we.
Speaker 8: Still think there's gonna be a steepening buyers For that reason,
Speaker 8: I think about all in terms of back ten year
Speaker 8: heels are longer that we had to see a glut
Speaker 8: in the old days and a shortage of safe assets.
Speaker 8: The budget deficits were shrinking in Europe, the United States
Speaker 8: shortage of safe assets. Now we have an explosion of
Speaker 8: safe assets, and that's going to put demandual. For demand
Speaker 8: to be substandard relative to the supply of longer term
Speaker 8: government bonds. Whether it's European, whether it's US or other countries,
Speaker 8: pressures on budgets will continue, which again gets back to
Speaker 8: the point that why is the Fed going to be
Speaker 8: cutting rates aggressively one hundred base points in the next
Speaker 8: twelve months when fiscal policy is where it is and
Speaker 8: inflation is still problematic.
Speaker 6: Is this dollar weakness trend you think here to stay?
Speaker 8: I think it is, and mostly it's valuation and the
Speaker 8: underpinnings of the strong dollar are slowly eroding, not collapsing,
Speaker 8: but the eroding.
Speaker 3: It's a marginal change.
Speaker 8: If US is not going to maintain a multi percentage
Speaker 8: point growth differentials, the rest of the world just going.
Speaker 3: To narrow a bit.
Speaker 8: Given valuations where the dollar is, it's likely to fall.
Speaker 8: Fiscal policies be more expansionary outside the United States than
Speaker 8: maybe inside the United States.
Speaker 6: This has been talking with this idea how the bond
Speaker 6: vigilantes maybe are absent right now from this three point
Speaker 6: three trillion dollar to the deficit.
Speaker 3: The CBO says, this bill is going to.
Speaker 6: Cost, but maybe they're taking it out when it comes
Speaker 6: to unwinding in the dollar dollar dumpers.
Speaker 3: Is that what it is now?
Speaker 8: I think that's potentially it that the world is overweight
Speaker 8: dollar assets and for a good reason, and the dollars
Speaker 8: acted as a good hedge for those assets. So the
Speaker 8: S and P went down, the dollar went up.
Speaker 2: That was good.
Speaker 8: It balanced the risks of owning US assets. As that
Speaker 8: changes that there's been more dollar hedging going on. So
Speaker 8: maybe not selling dollar assets, BUTU look where equities are
Speaker 8: with why are we worried but the dollar?
Speaker 3: Maybe we should be hedging? Are US assets going?
Speaker 2: Where are you comfortable taking generation risks right now? The
Speaker 2: whole world's on the menu, by the way, Where are
Speaker 2: you comfortable taking that risk?
Speaker 8: I think it's sort of in shorter intermediate maturities, unless
Speaker 8: so to the ounces one. Yeah, well, well, well this
Speaker 8: huge rally we've had, well not huge, but really big
Speaker 8: rally into your notes down to three seventy five with
Speaker 8: FED funds still four and a half. But you have
Speaker 8: to have i know, a hound baselins of right cuts
Speaker 8: in the next nine to twelve months. They current pricing,
Speaker 8: which is justifiable if it does happen. Tame thing with
Speaker 8: ten year treasuries is potentially okay if we do deliver
Speaker 8: one hundred base points of ray cuts.
Speaker 1: If we do deliver one hundred basis points of rate
Speaker 1: cuts at a time where the economy is still strong,
Speaker 1: what happens to the yield curve?
Speaker 8: Though?
Speaker 1: And this really does ultimately go to a question John
Speaker 1: asked earlier, which is a really important one. Is there
Speaker 1: a lesson from what we saw last year from the
Speaker 1: Fed as one hundred basis point rate cut and what
Speaker 1: that could mean for this one?
Speaker 8: Exactly the last time we had rake cuts last year,
Speaker 8: the minute they finished rate cuts ten your treasure went
Speaker 8: up and yield the same thing.
Speaker 3: That's because same thing happened again.
Speaker 8: I'm not sure FED rate cuts help mortgage rates.
Speaker 2: What's the President going to say when that happens that's
Speaker 2: precisely what happened last year.
Speaker 1: I don't know, I mean, what does he say does
Speaker 1: he blame the FED chair, does he try to keep
Speaker 1: Powell in there to try to blame him. Does he
Speaker 1: say they should stare quantitative easing and essentially monetize the
Speaker 1: debt which is sort of the worst case scenario for
Speaker 1: the dollar. How do you job own this one? Or
Speaker 1: do you just say rates are too high? Cut more?
Speaker 1: I mean, really, it's really unclear how you message this
Speaker 1: when it's a very simple message of get rates lower,
Speaker 1: facing off with a very complicated economic reality of which
Speaker 1: rate you're talking.
Speaker 6: About a ladder?
Speaker 4: It's not enough cut.
Speaker 2: More So, that brings in the lights of risk, which
Speaker 2: means a new FED chair lights around in twenty twenty five.
Speaker 3: What does all that mean to you?
Speaker 8: It means that monetary policy is going to be more
Speaker 8: uncertain next year. But I'm not sure that a FED
Speaker 8: chair of the candidates that being bandied about or that
Speaker 8: wildly different than what we've got today.
Speaker 3: It's a board of governors, it's a committee. If you
Speaker 3: get Kevin.
Speaker 8: Worsh one of these other gentlemen or women that are
Speaker 8: being proposed, will not radically change monetary policy. If if
Speaker 8: we get conditions such that the economy is weakening, we'll
Speaker 8: get bigger rate.
Speaker 3: Explore this with me.
Speaker 2: What if it was the NEC director, what if it
Speaker 2: was Kevin hasse to someone in the administration now works
Speaker 2: closely with the president. When the President has said very
Speaker 2: very clearly what he wants from manage your policy, and
Speaker 2: then selects someone from within the team, within the White House,
Speaker 2: within the westwast it's.
Speaker 3: Going to be a little unprecedented.
Speaker 2: I think its going to be sound bonds and sound
Speaker 2: the dollar that monarch.
Speaker 3: It would be interesting to see.
Speaker 8: How the board works, how the FMC works.
Speaker 3: I want to know what the market would do beforehand.
Speaker 3: I think it would be worried.
Speaker 2: The vote would be to sell bonds, sell effects. Yeah,
Speaker 2: that's the big risk. That's why we keep saying the
Speaker 2: market is going to get a vote on this long
Speaker 2: before the Senate.
Speaker 1: And that's the reason why it's sort of interesting that
Speaker 1: right now the market saying, Okay, keep going, because right now,
Speaker 1: if you look at the bond market, you're not seeing
Speaker 1: any sign of real worry given the fact that we
Speaker 1: just had the best rally going back it's a February.
Speaker 1: Not the same kind of message they're coming from the dollar.
Speaker 2: And not great music for the ears of Kevin Hassett
Speaker 2: either over at the NEC who some people might think
Speaker 2: would do a great job over at the Federal Reserve.
Speaker 2: But the problem is the perception of the market right now,
Speaker 2: how the market would perceive a move like that, and
Speaker 2: whether we would just sell bonds and sound the US
Speaker 2: dollar in the face of that decision.
Speaker 1: If you're worried about institutional credibility and you put the
Speaker 1: person who is in charge of orchestrating the Trump agenda
Speaker 1: in charge of the Federal Reserve, that independence gets challenged
Speaker 1: in a very obvious and public way.
Speaker 2: Michael, good to see its credit catch up as always,
Speaker 2: Michael Chrishmer there of Morgan Stanley, Let's get back to
Speaker 2: tride God will trade partners look at to strike a
Speaker 2: deal before President Trump's self impost deadline. On July ninth,
Speaker 2: the former senior White House Trade advisor Kelly an Shaw
Speaker 2: right in the following I'm expecting to see most tariffs
Speaker 2: land between ten to twenty five percent, Kelly and joins
Speaker 2: us now for more, Kelly, I'm Micael to the program.
Speaker 2: What leads you to that conclusion, Kelly Ann ten to
Speaker 2: twenty five.
Speaker 9: Thank you so much for having me, and I do
Speaker 9: agree with Amrie. I think July ninth is feeling less
Speaker 9: like a deadline and more like a mindset in terms
Speaker 9: of how I expect to see some of these relationships
Speaker 9: roll out.
Speaker 4: I think the ten percent is the safe zone.
Speaker 9: That's where the President has kept us for the last
Speaker 9: almost ninety days, and twenty five percent is a really
Speaker 9: high tariff. So I expect after all of these negotiations
Speaker 9: that the countries you get the best deal, like the UK,
Speaker 9: will end up with a ten percent baseline tariff, and
Speaker 9: my expectation is that for everybody else, twenty five percent
Speaker 9: is probably the upper range. Plus we have some of
Speaker 9: these sectoral tariffs, and we're getting some of those indications
Speaker 9: from administration officials who are signaling that to the private
Speaker 9: sector as well.
Speaker 6: I like that it's a mindset. So in this negotiation
Speaker 6: of mindsets with all these countries, what is the order,
Speaker 6: the pecking order of who gets a deal first?
Speaker 9: Well, I think we're likely to see a mix of countries,
Speaker 9: and clearly the administration has been targeting our biggest trading partners,
Speaker 9: those with whom we have the largest trade deficit, as
Speaker 9: the prime targets for the President's trade policy, Because if
Speaker 9: you get that right, everything else can flow through there.
Speaker 9: But what I expect to see is actually a mix.
Speaker 9: I think we'll see some large trading partners. I'm actually
Speaker 9: starting to put the European Union in that bucket.
Speaker 4: The presidents talked about India.
Speaker 9: We could see some Asian countries as well, Latin American countries,
Speaker 9: other European countries like Switzerland. Maybe we see Brazil, Argentina
Speaker 9: and countries like Israel in there.
Speaker 4: And then the president.
Speaker 9: Is going to assign a teriff rate to everyone else
Speaker 9: and give them the opportunity to come back and to
Speaker 9: renegotiate if they want something lower.
Speaker 4: So I think we'll see all of the above.
Speaker 6: So it feels like he'll just be negotiating for his
Speaker 6: entire term. Is that how you take it?
Speaker 9: Well, if it's anything like Trump one point zero, then yes,
Speaker 9: I think this is a perpetual negotiation that we'll continue
Speaker 9: to see unfold.
Speaker 4: But here's what I really think.
Speaker 9: We'll see that over the next couple of days, starting
Speaker 9: with July fourth and rolling into July ninth, we'll see
Speaker 9: a series of deals announced and these will effectively be
Speaker 9: like agreements in principle over some core obligations, and then
Speaker 9: the details of those deals will need to be further negotiated,
Speaker 9: and Secretary Besson has talked about Labor Day as a
Speaker 9: potential target date for finishing up some of those negotiations,
Speaker 9: and I think we'll see more stability in the market
Speaker 9: from there. But this is continually a moving target, and
Speaker 9: I think countries who want a better deal six months
Speaker 9: two years from now will have the opportunity to get that.
Speaker 1: So let me get the straight kellym. We're talking about
Speaker 1: July nine soft deadline for concepts and then for some
Speaker 1: more details, we're talking about labor day. What do companies
Speaker 1: do with all of this? I mean, are they paying
Speaker 1: the de facto tariffs at any given time? How do
Speaker 1: they sort of follow rules that have not yet been codified.
Speaker 9: Yeah, I think those are really great questions. And I
Speaker 9: do think that we'll start to see a lay of
Speaker 9: the land come July ninth, and I think we'll see
Speaker 9: a greater lay of the land come this summer fall.
Speaker 9: And that's where I really think the private sector is
Speaker 9: going to have more certainty as to what some of
Speaker 9: these tariff rates are likely going to be for the
Speaker 9: long haul.
Speaker 4: But I don't think we'll ever get that.
Speaker 9: Certainty certainty because we also have these sectoral tariffs that
Speaker 9: the administration is continuing to roll out. We've heard that
Speaker 9: they have six or seven more investigations in the hopper
Speaker 9: of different products and sectors. So I think we'll continue
Speaker 9: to see this evolving, but I do think we'll get
Speaker 9: more certainty through the summer.
Speaker 1: So there's been this theory out there that we'll see
Speaker 1: some of the trade negotiations and the trade deals that
Speaker 1: we've been discussing trickle into the economic data and trickle
Speaker 1: into earnings as soon as the next few weeks. Do
Speaker 1: you think that's feasible given the fact that companies don't
Speaker 1: have certainty and aren't willing to make big moves on
Speaker 1: either a supply chain level or even on a pricing
Speaker 1: level before they have that clarity.
Speaker 3: Yeah.
Speaker 9: And I think the other thing that's in play right
Speaker 9: now is the one big, beautiful tax bill. And so
Speaker 9: what the administration would say, of course, is that it's
Speaker 9: not just our tariff policy, our trade policy, but you
Speaker 9: have to look at our tax policy, deregulations, energy diversity,
Speaker 9: all of these things to get the full picture. As
Speaker 9: you're taking steps to invest in the United States and
Speaker 9: set up some of those supply chains. But I think
Speaker 9: for some of these sectoral tariffs, those are going to
Speaker 9: be stickier. So companies who are and steel, aluminum, automotive, semiconductors,
Speaker 9: pharmaceutical products, I think they'll see some.
Speaker 4: More certainties sooner.
Speaker 9: But I do think for everyone else, if you can
Speaker 9: sort of bake in an estimate of a ten to
Speaker 9: twenty five percent tariff depending on where you're importing from,
Speaker 9: that's probably a good estimation of where things are going
Speaker 9: to land. And that's what I'm telling my clients an
Speaker 9: entire trade conversation.
Speaker 6: We haven't talked about China yet, Kelly, and just what's
Speaker 6: the next steps when it comes to this relationship between
Speaker 6: Beijing and Washington following the Geneva and London talks.
Speaker 9: Yeah, I think things are going very slowly at the moment,
Speaker 9: and so right now we are working on implementing that
Speaker 9: original Geneva deal through the London framework, and so all
Speaker 9: eyes are focused on some of these export controls the
Speaker 9: Chinese side, rare earths and rare earth magnets, in particular,
Speaker 9: on the US side, some of the countermeasures that we're taken.
Speaker 9: The President mentioned yesterday that the choke hold the US
Speaker 9: has is on China's aircraft and aerospace industry and that
Speaker 9: they need us for that the same way we need
Speaker 9: them for rare earth magnets. So I think we need
Speaker 9: to see a d escalation with these two sectors.
Speaker 4: Right now, in the next few weeks.
Speaker 9: And at that point, that August twelfth deadline was supposed
Speaker 9: to be the date where we saw a broader set
Speaker 9: of economic commitments being negotiated between the United States and China.
Speaker 9: But I do think the focus of August twelfth is
Speaker 9: going to be relatively narrow, both on implementation and maybe
Speaker 9: seeing Phase one roll out. But this is going to
Speaker 9: be a difficult relationship, and I think we're going to
Speaker 9: see this play out over the next year or two,
Speaker 9: not just the next couple of weeks.
Speaker 3: Kelly An, I see more years of this. Can't wait?
Speaker 3: Can I? I'm sure?
Speaker 2: The former senior Trump trade advisor. This is the Bloomberg
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