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 am Marie Hordern join us each
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Speaker 2: the former senior Trum Trade advisor Kelly. I'm Shaw Kelly,
Speaker 2: and welcome back to the program. The Press Secretary says
Speaker 2: it will work. Our question is what will work? What
Speaker 2: is the ultimate objective?
Speaker 3: Well, good morning, as I'm saying to most of my clients,
Speaker 3: Happy Liberation.
Speaker 4: Day to those who observe, the truth is, we don't know.
Speaker 3: When I heard your last guest say that he has
Speaker 3: said I don't know seventeen times, and I think that's
Speaker 3: where most advisors are at the moment.
Speaker 4: It could be a number of actions. It could be
Speaker 4: anything from.
Speaker 3: Reciprocal tariffs where a series of countries have a number
Speaker 3: that's assigned to them that represents their tariff and non
Speaker 3: tariff barriers. It could be a global sweeping tariff, or
Speaker 3: it could be some mix in between.
Speaker 5: Kellyan, what is the goal of these tariffs? What is
Speaker 5: the president leaning on at the moment? Because we heard
Speaker 5: that they're supposed to be revenue raisers, and at the
Speaker 5: same time, in the next breath, we hear people from
Speaker 5: thedministration say that he wants to cut deals with some
Speaker 5: trading partners.
Speaker 6: Yeah.
Speaker 3: From my perspective, I think the president has two primary objectives.
Speaker 3: So first is to address the long standing trade deficit,
Speaker 3: that trillion dollar trade deficit that the United States has
Speaker 3: with a number of countries around the world and predominantly
Speaker 3: coupled in about fifteen economies. The second goal is really
Speaker 3: about just this uneven playing field. And when I was
Speaker 3: in the first Trump administration, I heard him talk about
Speaker 3: this all the time, the fact that it was just
Speaker 3: fundamentally unfair that other countries had higher tariffs than the
Speaker 3: United States, And so I think he's looking to level
Speaker 3: the playing field. Now he does talk about revenue as well,
Speaker 3: but to my mind, that really is a secondary concern
Speaker 3: and I think he's really going after the brass ring,
Speaker 3: which is to remake the global trading system and to
Speaker 3: rebalance it in a way that more accurately reflects US interests.
Speaker 5: If that's the goal, and having worked for him and
Speaker 5: being a trade expert, what do you think is the
Speaker 5: appropriate prescription we might get from the President today?
Speaker 3: Yeah, I think that the President is likely and again
Speaker 3: I heavily caveat this with nothing is final until the
Speaker 3: President says it, so I think he is likely to
Speaker 3: target those countries that are the worst defenders in terms
Speaker 3: of tariff and non tariff barriers. We may see a
Speaker 3: more global measure applied to the rest of the economy,
Speaker 3: but I think he's going to be focused on those
Speaker 3: handful of countries.
Speaker 4: And to my mind, this kicks off a negotiation. This
Speaker 4: is not the end.
Speaker 3: This is not the certainty that I know a number
Speaker 3: of businesses and the markets are looking for. I think
Speaker 3: this gives other countries an opportunity to come to the
Speaker 3: table and say, look, we hear your concerns. We will
Speaker 3: cut some of these barriers too, and that the United
Speaker 3: States and those trading partners on a bilateral basis would
Speaker 3: begin to reciprocally lower their barriers.
Speaker 7: Kelly. And one of the questions I got asked on
Speaker 7: Locked outside the US is how many rounds this is
Speaker 7: going to be? And at what point do we know
Speaker 7: that whatever we offer sticks? How should we answer those
Speaker 7: two questions?
Speaker 3: Yeah, I mean, one of the features of President Trump's
Speaker 3: negotiating strategy and his style is ambiguity, and it is
Speaker 3: very rare to get that kind of certainty.
Speaker 4: But what we did see play out.
Speaker 3: During Trump one were a number of deals that were
Speaker 3: cut and inked, including the NAFTA renegotiation which became the USMCA.
Speaker 3: We saw the Coorus agreement renegotiated. There was a deal
Speaker 3: with Japan, there was a deal with China. So I
Speaker 3: do think that there is precedent for having that certainty
Speaker 3: at the end of what will be a rocky negotiateation period.
Speaker 4: But I do think we're.
Speaker 3: Looking at the next several months to next couple of
Speaker 3: years with some of those trading partners before we actually
Speaker 3: get there.
Speaker 8: Kelly.
Speaker 1: And this raises execution risk, and people have talked about
Speaker 1: this repeatedly that confidence among CEOs CFOs consumers has been
Speaker 1: falling off a cliff amid the uncertainty that may be
Speaker 1: a feature and may be prolonged over the next months
Speaker 1: and years. How concerned are you about this execution risk.
Speaker 9: Yeah.
Speaker 3: I think two things are happening at the same time,
Speaker 3: and they're really in opposition to one another. On the
Speaker 3: one hand, the President is looking to reshape the global
Speaker 3: trading system, which requires breaking a lot of glass.
Speaker 4: And not giving his bottom line.
Speaker 3: On the other hand, he's trying to attract investment from
Speaker 3: businesses around the world, and.
Speaker 4: Those two goals really require different strategies.
Speaker 3: So the administration is trying to land the plane on
Speaker 3: both I think in terms of execution, and the administration
Speaker 3: has an uphill battle. They're trying to do something that's
Speaker 3: never been done before. They're also trying to message this
Speaker 3: to the American people, and I think that whatever President
Speaker 3: Trump says at four pm today will be one of
Speaker 3: the most consequential speeches of his presidency because he's effectively
Speaker 3: going to ask the American people for a long leash
Speaker 3: to allow him to negotiate some of these deals and
Speaker 3: fix some of these systemic issues. So we'll have to
Speaker 3: see how this plays out.
Speaker 5: The Press Secretary said that some of these tarifs will
Speaker 5: be effective immediately. So do you expect tariffs using AEPA
Speaker 5: or Section three three eight to come out today and
Speaker 5: begin tomorrow?
Speaker 9: Yeah.
Speaker 3: I think there are three types of legal authorities the
Speaker 3: president can use to impose tariffs effectively immediately. So AIPA
Speaker 3: is one. Section three three eight of the Trade Act
Speaker 3: of nineteen thirty is another. And then there's also Section
Speaker 3: one twenty two of the Trade Act of nineteen seventy four,
Speaker 3: which is about balance of payments. So he'll certainly have
Speaker 3: to rely on one of those. I don't know which
Speaker 3: one the President is going to use. I tend to
Speaker 3: think it might be IEPA, but any one of those
Speaker 3: authorities would give him the ability to impose tariffs right away.
Speaker 6: Now.
Speaker 3: I will be looking to see what the executive order
Speaker 3: actually says and whether by immediately that means exactly at
Speaker 3: twelve oh one on April third, or whether there are
Speaker 3: a couple of days to give importers some grace or
Speaker 3: even a ship on the water exception, which is what
Speaker 3: we saw on the fentanyl terraffs.
Speaker 2: I just placed the announcement comes after the close now
Speaker 2: and not the original three pm. The Secretary best and
Speaker 2: guardedans towards Kelly. I appreciate your time as always the
Speaker 2: former senior Trump trade advice at Kelly, I'm shure Binky
Speaker 2: Shadow at Deutsche Bank, writing a credible relents on trade
Speaker 2: policy is necessary for upside risk to materialized. The clock
Speaker 2: is ticking. Binky joined this now for more binking of monitor.
Speaker 2: Good morning's at seven k year end your head.
Speaker 6: It's a long ways.
Speaker 2: I agree, I great, just love to But if you're
Speaker 2: still at seven, play.
Speaker 6: The record that you know I am not bullish near term.
Speaker 10: We expect basically this year end that's nine months out,
Speaker 10: it's three quarters out. If you think about you know
Speaker 10: what happens if we have sort of a mild recession,
Speaker 10: let's say second and the third quarter. You know, the
Speaker 10: tried and tested equities playbook would tell you that equity's
Speaker 10: bottom in the middle of the recession. So that would
Speaker 10: be June first, recoup all of their losses.
Speaker 6: And that means at the point you're kidding me, but.
Speaker 2: You think this year we could have a recession and
Speaker 2: still end the year at seven K.
Speaker 6: I do believe.
Speaker 10: So if it's a mild recession, that's actually what typical
Speaker 10: playbook would tell you. So where I would say, you know,
Speaker 10: the pushback in your tone is really, I mean, we're
Speaker 10: just going to happen two quarter recession. We're going to
Speaker 10: have a recession.
Speaker 1: Somebody who comes out has a seven thousand price target
Speaker 1: at a time when everyone's downgrading it below fifty five hundred,
Speaker 1: and you say, well, I'm not bullish.
Speaker 9: You know, well, everybody else will look at it.
Speaker 6: And say you're pretty bull So we already had fifty
Speaker 6: six hundred. So we're going to stay here for nine months.
Speaker 6: The equity market is not good at staying in the
Speaker 6: same place, though.
Speaker 10: I would point out that in Trade War one point oh,
Speaker 10: the equity market went nowhere and neither up nor down
Speaker 10: huge moves, but nowhere for eighteen months actually, so we
Speaker 10: are very well aware of that period, and it does
Speaker 10: play into how we think about things.
Speaker 1: Is this predicated on the idea that some of the
Speaker 1: soft data is not going to be predictive of hard data,
Speaker 1: and that potentially you get some resolution in the near term,
Speaker 1: some clarity on policy, and potentially a federal reserve that
Speaker 1: helps out.
Speaker 6: I would say not quite.
Speaker 10: What I would say is, actually there's two distinct sources
Speaker 10: of basically soft data. I would say, the low consumer
Speaker 10: confidence is not necessarily very predictive for what consumers spending
Speaker 10: and the business cycle is going to do.
Speaker 6: But consumer confidence is.
Speaker 10: Extremely important for presidential job approval ratings. And after an
Speaker 10: initial honeymoon period, you know, job approval ratings tend to
Speaker 10: go down to consumer confidence. And you know, the way
Speaker 10: I would just note or remind is consumer confidence is
Speaker 10: exactly where it was when President Biden left, and so
Speaker 10: there's a lot of room for us to go down,
Speaker 10: and we would go down on bad growth news, bad inflation.
Speaker 6: News, political developments.
Speaker 10: Now, I would say the other part of the soft data,
Speaker 10: which is CEO confidence, is extremely important driver off the
Speaker 10: actual hard corporate data and indicative off it. Now we
Speaker 10: you know, CEO confidence is Tier two data, so we
Speaker 10: don't have very regular reporting and the like. But there
Speaker 10: are some measures that are basically fallen off a cliff
Speaker 10: from me, and we are now below twenty twenty two
Speaker 10: levels on the CEO magazine. We are European Financial Crisis
Speaker 10: twenty twelve levels. Whether that, you know, translates to a
Speaker 10: good and comprehensive measure of CEO confidence remains to be seen.
Speaker 10: The measures all generally move, you know, together, so there's
Speaker 10: every reason to believe it. Maybe not the extent and degree,
Speaker 10: but you know, I think the biggest risk here is
Speaker 10: corporates go right back into the bunker, and once they
Speaker 10: go back into the bunker, they don't come.
Speaker 6: Out very quickly.
Speaker 5: So what policies in Washington do you need to see
Speaker 5: to get to your year end target?
Speaker 10: You know that that basically the tariffs are you know,
Speaker 10: in negotiation, a relent, just as happened in Trade War one.
Speaker 5: Point out any they gets wrapped up in nine months.
Speaker 10: I think you know, if there is a relent or
Speaker 10: rationality if you want to call it, that, you know
Speaker 10: we could get.
Speaker 6: There pretty quickly.
Speaker 7: So so Binga, I want to take it away from
Speaker 7: your seven thousand target and.
Speaker 6: Also Forcember thirty first at four pm. Yes, yes, yes.
Speaker 7: Over the last quarter, the S and P has underperformed
Speaker 7: zero stocks as hundred by seventeen percentage.
Speaker 6: Ones, which is remarkable.
Speaker 7: Some people think this is just the beginning that we
Speaker 7: are going to have a normalization of valuations over the
Speaker 7: next few quarters. Some of it think it's overdone.
Speaker 6: Where are you on this?
Speaker 10: We think it's got a long ways to go basically,
Speaker 10: and really the issue is where the Europe can grow.
Speaker 10: We have again the cross currents that we've been talking about.
Speaker 10: We have the tariffs, you know, as the negative. But
Speaker 10: you know, if I look at ur at our, I
Speaker 10: mean it's sitting right at one O eight, which is
Speaker 10: a very reasonable place to sit.
Speaker 7: So if you.
Speaker 10: Believe growth starts to pick up, and I would say
Speaker 10: the ingredients for growth to pick up in Europe were
Speaker 10: already basically there before all of the German developments.
Speaker 6: So the German developments, you know.
Speaker 10: Are another positive and another reason to believe that growth
Speaker 10: will come. And if growth comes, we will get the
Speaker 10: earnings and.
Speaker 6: That's all the basic Isn't that a problem for you?
Speaker 7: SMP seven thousand? Isn't that a problem that some of
Speaker 7: the oxygen now gets sucked out by Europe flows are
Speaker 7: no longer persistently to the US, The US no longer
Speaker 7: sucks up global capital and you lose a critical technical
Speaker 7: that has supported your your abolishness about the SP Isn't
Speaker 7: that an issue for.
Speaker 6: You at the margin? Yes?
Speaker 10: But I mean you know right now, what I would
Speaker 10: do is I would be overweight Europe, which is what
Speaker 10: we are, and I would also overweight the US. I
Speaker 10: mean remember that we're already down, you know, around eight percent,
Speaker 10: So it is looking better. And if you look at
Speaker 10: relative performance tends to form in a channel. We have
Speaker 10: just moved from the US relative to stock six hundred.
Speaker 10: We were at the tippy top. We are now exactly
Speaker 10: the middle. That's why I say, you know, we're just
Speaker 10: about it.
Speaker 6: What are you underway there? So you're overweighting everything? What
Speaker 6: are you just looking at it?
Speaker 10: That was about the S and P relative to the
Speaker 10: stock six hundred in local currencies, we are right in
Speaker 10: the middle of the channel. So there is more room
Speaker 10: for the US to underperform without really changing the trend.
Speaker 10: And so what has happened so far the seventeen point
Speaker 10: that that's half of in the middle of the channel,
Speaker 10: so it can continue without basically upsetting the channel.
Speaker 6: But for the channel to continue or for the channel.
Speaker 10: To break, you know, it's really about whether European earnings
Speaker 10: start to grow.
Speaker 2: For as long as I've known you, for a long
Speaker 2: long time, you've been bullish and right, and I've been
Speaker 2: skeptical and wrong. But this is the most bearish seven
Speaker 2: K conversation.
Speaker 6: In my life. I'm glad you didn't ask me what
Speaker 6: my twenty twenty six target is so I don't have one.
Speaker 2: So wors is the seven K in the United States?
Speaker 10: Look, the economy is still in good shape. We are
Speaker 10: closer to the edge. The risks have grown, There's no
Speaker 10: question about it, and there's no obvious large, big imbalances
Speaker 10: outside the US government, I.
Speaker 6: Would say, and so it's all very possible.
Speaker 10: But yes, we are getting close to the edge and
Speaker 10: the risks have gone up a lot.
Speaker 1: So what would make you t embarish?
Speaker 6: No relent on trade?
Speaker 10: You know, trade policy continues the way that it is,
Speaker 10: and you know, just general lack of clarity and policy.
Speaker 6: So what I'm saying is if.
Speaker 10: Policy stepped out of the way, the equity.
Speaker 6: Market and the economy would be just fine. It is
Speaker 6: policy that is the big negative right now.
Speaker 3: Is there a.
Speaker 1: Statute of limitations where there needs to be some clarity
Speaker 1: before which the damage becomes more entrenched and you have
Speaker 1: to start to model it out.
Speaker 6: That's exactly right, Yeah, is it?
Speaker 1: What is that statute of limitations?
Speaker 10: That statute of limitations is once you know, we get
Speaker 10: to a point in this slowing that potentially nonlinearities start
Speaker 10: to kick in. I mean, if you look at late
Speaker 10: market in the US, it's a pretty delicate balance. I mean,
Speaker 10: it's been very, very steady, so I'm not sure delicate
Speaker 10: is the right word, but it is delicate behaviorally.
Speaker 6: It's just been stuck there for quite a while.
Speaker 10: In terms of hiring rates and firing rates both are
Speaker 10: at very very level, so it is kind of stuck.
Speaker 6: Thank you, you're a good sport.
Speaker 2: It's going to hear from minute as always as the
Speaker 2: catch and over this they get you out of there
Speaker 2: at Deutsche Bank. Seth Carpenter of Morgan Stanley, writing, our
Speaker 2: base case remains that the focus of US tarras will
Speaker 2: be on China, but if trade tensions escalate beyond our
Speaker 2: base case, the dragon corporate confidence on Capex and the
Speaker 2: business cycle will intensify.
Speaker 6: Seth.
Speaker 2: John just now for more, Seth, welcome to the program.
Speaker 2: It's been too long, my friend. Let's talk about later
Speaker 2: a four pm Eastern time. And I think, more importantly
Speaker 2: for a lot of people in this market, how is
Speaker 2: the Federal Reserve going to navigate this moment?
Speaker 8: It's great, great set of questions, Jonathan, and this, I
Speaker 8: think the set of questions that just about everyone in
Speaker 8: Marcus is asking. First the uncertainty here is huge. We've
Speaker 8: heard some more commentary of the way else where. They're
Speaker 8: clearly still resetting what they're going to do with tariffs,
Speaker 8: and so I think even inside the administration there's some uncertainty.
Speaker 8: Yet the FED is left in this truly difficult circumstance
Speaker 8: where tariffs very clearly seem to push up price levels,
Speaker 8: which should boost inflation, as reported in the CPI all
Speaker 8: the regular data. My base case, as is the FEDS,
Speaker 8: is that that inflationary boost is going to be temporary
Speaker 8: and should fade over time. But should I don't think
Speaker 8: it's going to be good enough for the Federal Reserve.
Speaker 8: I think will be very hard for them to say, Wow,
Speaker 8: this inflation will go away. I know because of my
Speaker 8: models that growth is going to take a big hit
Speaker 8: in two quarters or maybe into next year. So let
Speaker 8: me cut interest rates now despite inflation heading back up
Speaker 8: towards three percent. I just don't see them doing that,
Speaker 8: and so I think they're going to have to wait
Speaker 8: once we see inflation from tariffs start to kick in.
Speaker 8: They're going to wait on the sidelines with policy in
Speaker 8: their minds in restrictive territory and see how the tariffs
Speaker 8: play out through the ECCONO. They're going to believe they'll
Speaker 8: be temporary on inflation. They're going to want that confirmed
Speaker 8: in the data. They're going to believe that it will
Speaker 8: cause the economy to slow down. But until they start
Speaker 8: to see it in the hard data, and make no
Speaker 8: mistake about it, the market has got the right answer
Speaker 8: here about a slowdown, But I think for the wrong reasons.
Speaker 8: There's not a ton of hard data yet that reveal
Speaker 8: the slowdown. I think all of that is still in
Speaker 8: the offering.
Speaker 1: So it sounds like you don't really see a FED
Speaker 1: put in the offing to try to really give a
Speaker 1: boost to both economic growth and confidence in markets, which
Speaker 1: raises the question about a policy put on the other side,
Speaker 1: what is currently being priced in. We were just talking
Speaker 1: with Mohammadalarian who is here, and he said that he
Speaker 1: sees it as a fifty to fifty percent chance of
Speaker 1: a Reagan Thatcher reording of an international trade versus Jimmy
Speaker 1: Carter on steroids. Market's currently pricing in about eighty twenty.
Speaker 6: What do you see?
Speaker 8: I mean, I think it's I think it's very hard.
Speaker 8: When I talk to clients investors around the world, there
Speaker 8: are as many views there as there are investors that
Speaker 8: you talk to, and so I think you can see
Speaker 8: the same acid pricing reflecting multiple different narratives. I think
Speaker 8: people just don't know, and so I don't think you
Speaker 8: can take anything for granted from massive pricing right now.
Speaker 8: I think it remains to be seen. I think the
Speaker 8: escalation scenario where the US imposes some tariffs and then
Speaker 8: other governments imposer retaliatory tariffs and then we escalate from there,
Speaker 8: that really is a potential massive shift. And I don't think,
Speaker 8: as some people have said, it's just a question of
Speaker 8: near term pain versus longer term gain. I think if
Speaker 8: you get that escalation scenario, then you're just talking about
Speaker 8: fundamentally less productive economies around the world. It's not a
Speaker 8: zero sum game. It could actually be a net loss
Speaker 8: for the whole global order.
Speaker 6: So let me put you on the spot.
Speaker 7: If I may on Sunday, one of your competitors came
Speaker 7: out and they'll had three elements to their new forecast
Speaker 7: one pc inflation from three to three and a half
Speaker 7: percent for the year two fourth quarter on fourth quarter growth.
Speaker 6: Down to one percent.
Speaker 1: Three.
Speaker 7: The FED cuts not twice, but three times this year.
Speaker 6: What do you agree with?
Speaker 7: What do you disagree with on those three elements?
Speaker 8: Yeah, so I think the main thing I would disagree
Speaker 8: with a bit is the timing. So we've got one
Speaker 8: and a half percent as a baseline growth rate, but boy,
Speaker 8: lots of room for downside there. And that's a pretty
Speaker 8: conservative assumption on things like where tariffs go and how
Speaker 8: much this immigration restriction, which we should have a whole
Speaker 8: conversation about that. I think it is the most underappreciated
Speaker 8: policy from a macro perspective. But so one and a
Speaker 8: half percent, one percent, I think both of those are
Speaker 8: very very plausible direction of travels just down for growth
Speaker 8: inflation higher from here.
Speaker 6: I think that's right.
Speaker 8: Our point forecast is a bit below three percent, but
Speaker 8: I can't rule out the higher number you cited, And
Speaker 8: for all the same reasons, tariffs could be stronger than
Speaker 8: we think, we could get more immigration restriction. I think
Speaker 8: the key difference for US is the FED is in
Speaker 8: very difficult situation. Data for US economic activity lag. The
Speaker 8: FED is going to have to pay attention to both
Speaker 8: inflation and growth, and before they start to cut in
Speaker 8: response to the slow in growth, they're going to have
Speaker 8: to accumulate enough information that says very clearly, growth is
Speaker 8: a much bigger problem than inflation. That is very hard
Speaker 8: to do with inflation bottoming out and starting to rise
Speaker 8: back up, especially if it gets past three percent, I
Speaker 8: think you really need much more accumulated softness before J.
Speaker 8: Powell and company are going to be ready to look
Speaker 8: through three percent or higher inflation, says.
Speaker 1: Do you see the market then as being wrong pricing
Speaker 1: in three cuts by the end of this year, increasing
Speaker 1: that chance as a chance of some sort of weakening
Speaker 1: does seem to rise?
Speaker 4: I do think so.
Speaker 8: I mean the market has to price things on a
Speaker 8: probabilistic basis, and so there are lots of different scenarios
Speaker 8: implied in that price. I would say, if you're relative
Speaker 8: to a straight reading of where the market is, they
Speaker 8: don't they have too much priced in in terms of
Speaker 8: cuts this year, nowhere near enough priced.
Speaker 6: In for next year.
Speaker 2: Seth Campenter, Seth, appreciate your time. Thanks for making time
Speaker 2: for us this morning, Seth Carpenter. There of Morgan Stanley,
Speaker 2: here's a take from Julia Coronado of macro Policy Perspectives,
Speaker 2: writing a recession has not become the baseline, though investors
Speaker 2: see the combination of Trump policies as a supply shark
Speaker 2: that the FED tools may not be able to address.
Speaker 2: Julia joined us now for more, Julia, you're super dowed
Speaker 2: into the FOMC. So let's get straight into it.
Speaker 6: Just from a cost.
Speaker 2: Perspective, By definition, the tarists are paid by the importer.
Speaker 2: We've got that. How do you think the cost will
Speaker 2: be shared through the economy.
Speaker 9: Well, it's going to.
Speaker 11: Be split between profit margin pressure and consumer's loss of
Speaker 11: purchasing power.
Speaker 9: And exactly how that breaks down sort of depends.
Speaker 11: We're not in the pandemic, so consumers don't have they're
Speaker 11: not flush with cash.
Speaker 9: They're not just going to accept any price increase.
Speaker 11: And we've heard that in some of the comments to
Speaker 11: the surveys that have come in that you know, businesses
Speaker 11: are struggling with.
Speaker 9: How to pass that on.
Speaker 11: How much will consumers bear and how much must they absorb?
Speaker 9: But it's going to be a hit in either way.
Speaker 11: You know, it's going to be a hit to profit margins,
Speaker 11: it's going to be a hit to consumer purchasing power,
Speaker 11: and it will come with a burst of inflation.
Speaker 9: And that's the problem for the FED.
Speaker 11: They're already above their target, never got back down where
Speaker 11: they wanted to be, and it looks like it's going
Speaker 11: to be a while before.
Speaker 9: We get there. Julia.
Speaker 1: One argument is that this Fed to reserve is very
Speaker 1: aware of the scarring that takes place what unemployment rises
Speaker 1: to a certain level, and they want to cater to
Speaker 1: the economy first, even if inflation does run.
Speaker 9: A bit higher.
Speaker 1: Do you think that this market right now is misguided
Speaker 1: in their understanding that the Fed could cut rates by
Speaker 1: three times and looking through some of those one time
Speaker 1: inflationary pops.
Speaker 11: I think the tension right now in the market pricing,
Speaker 11: as far as I can see, is it's perfectly reasonable
Speaker 11: to think that the Fed might lean towards the unemployment mandate.
Speaker 9: And cut three times.
Speaker 11: But that means the economy has to be really bad.
Speaker 11: It means that the unemployment rates not just up a
Speaker 11: tick or two. It means it's risen and is rising beyond.
Speaker 9: Four and a half percent.
Speaker 11: We're sort of heading into a recession and they need
Speaker 11: to start ensuring the economy. That is the scenario in
Speaker 11: which the FED cuts three times, it's a perfectly plausible scenario.
Speaker 9: We're sort of leaning in that direction ourselves.
Speaker 11: We could see a rising chance that we could see
Speaker 11: a recession in Q three or Q four of this year.
Speaker 9: And it's not just about the terriffs. It's about the
Speaker 9: combination of policies.
Speaker 11: One thing that we don't discuss enough is the disruption
Speaker 11: from dose cuts and contracts, and disruption to sectors that
Speaker 11: are usually very stable, like healthcare, like state and local
Speaker 11: governments that may start feeling the pinch and they've been
Speaker 11: driving job gains, So we could see a turn for
Speaker 11: the worst and that could lead the FED to cut.
Speaker 11: But that doesn't seem to be the sort of sanguine
Speaker 11: middle road that the market is pricing in terms of equities.
Speaker 7: So I'm trying to understand, Julia, how hot are you
Speaker 7: leaning into Because the dominant view right now, to the
Speaker 7: extent there is a dominant view, is that the soft
Speaker 7: patch is in the next few months. By the time
Speaker 7: you get to the end of the year, you have
Speaker 7: the regulation kicking in, you have favorable things kicking in.
Speaker 7: Whereas you said, the risk of recession is highest in
Speaker 7: the third and fourth quarter, if I heard you correctly, So.
Speaker 11: Yeah, I have a very different profile from this idea.
Speaker 11: We go through a soft patch, what drives growth up.
Speaker 9: In the second half.
Speaker 11: Tax cuts, that's going to be really that's a high
Speaker 11: barge because of the extent of the TCJA.
Speaker 9: You can play all the budget tricks you want.
Speaker 11: The reality of the macro impulse is that you're just
Speaker 11: not going to get that much fiscal impulse very likely,
Speaker 11: and in fact, what we're seeing on the dose front
Speaker 11: is that you're going to get a lot of disruption
Speaker 11: in fiscal policy. Whether or not those contracts are ultimately paid,
Speaker 11: Cutting them off and injecting uncertainty across a number of
Speaker 11: sectors is likely to dampen their enthusiasm or willingness to
Speaker 11: higher employees. Deregulation we constantly hear this. I can see
Speaker 11: that in the finance sector. I can see that potentially
Speaker 11: more m and ah, you know, less.
Speaker 9: Bank regulation or at least a lighter touch. But your
Speaker 9: where else am I going to see it?
Speaker 11: You know, energy, you know already we had massive production,
Speaker 11: low prices. In fact, prices are too low to get
Speaker 11: much more production.
Speaker 9: Where else?
Speaker 11: Tell me the channel that deregulation is going to boost
Speaker 11: the economy in the second half of the year, What
Speaker 11: sector benefits from this?
Speaker 5: Juliet When it comes to this, holistic approach the Trump
Speaker 5: administration tariff's deregulation, tax cuts. What you're saying there is
Speaker 5: that deregulation and the tax cuts, which to your point
Speaker 5: really are just tax extension of current policy, aren't enough
Speaker 5: to offset what the investors view as bad policy or
Speaker 5: less optimistic policy when it comes to the markets of
Speaker 5: the tariffs exactly.
Speaker 11: And then remember we're not just talking about tariffs. It's
Speaker 11: uncertainty around the tariffs. President Trump likes to hold that
Speaker 11: uncertainty over over other countries, over.
Speaker 9: Essentially the economy. And so it's not going to just
Speaker 9: go away today.
Speaker 11: That today is just another sort of step along a
Speaker 11: road of an ongoing trade war of.
Speaker 9: Tariffs and retaliation.
Speaker 11: Then let's layer on the doze disruption to federal contracts.
Speaker 11: Then let's layer on the very restrictive imagration policy that
Speaker 11: is so draconian that it is leading a lot of workers,
Speaker 11: or at least some workers anecdotally, not to show up
Speaker 11: to work, not to engage in economic activity, for fear
Speaker 11: of being snatched off the street and deported. And that
Speaker 11: has been All of these things have been real tailwinds
Speaker 11: for the macro economy.
Speaker 9: The immigration piece is not insignificant.
Speaker 11: To go from an abundant environment of labor supply and
Speaker 11: growing demand to one where it's shrinking is a big
Speaker 11: shift in the environment, and we haven't yet seen that
Speaker 11: flow into the hard data, but I think the soft
Speaker 11: data is starting to pick that up.
Speaker 9: I noticed the comments to the Dallas.
Speaker 11: Fed service sector survey yesterday. We're very interesting along these lines.
Speaker 11: They talk about the hit from immigration, they talk about
Speaker 11: what it's going to do in terms of constraining the
Speaker 11: construction sector. So you know, that's as we feel, that's
Speaker 11: very direct. So you know, I think these things are
Speaker 11: going to come forward and show up in the hard data.
Speaker 11: And we're just focused on tariffs, but there's a whole
Speaker 11: range of policies that are not growth friendly, so lots.
Speaker 6: To get through.
Speaker 2: Julia, appreciate your perspective. Thanks for joining us. Judia Currentada
Speaker 2: there of macro policy perspectives. This is the Bloomberg Surveillance podcast,
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