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

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

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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

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

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

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

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

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Speaker 2: Terminal and the Bloomberg Business app.

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Speaker 3: Joining us now around the table, Oksana Aronoff of JP

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Speaker 3: Morgan Asset Management, Oxana, thank you so much for joining us.

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Speaker 3: You just heard from Katy. They're talking about the markets

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Speaker 3: pricing in this Trump trade. When you look at the

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Speaker 3: rise in yields, is that economics or do you think

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Speaker 3: it's politics?

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Speaker 4: So I want to start answering that question actually by

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Speaker 4: zooming out a little bit, because we spend a lot

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Speaker 4: of time in markets trying to predict rates. Obviously that's

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Speaker 4: a backbone on the market, whether you're talking about bonds

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Speaker 4: or stocks. But the reality is that when we look

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Speaker 4: at the history of how good is the market consensus

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Speaker 4: provided by will work at predicting where the ten year

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Speaker 4: will be, It's actually pretty terrible. How good is the

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Speaker 4: FED at predicting where the FED funds will be? It's

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Speaker 4: actually pretty terrible because if you look at their dot

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Speaker 4: plot in an extreme example, in twenty twenty, they expected

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Speaker 4: the FED funds to stay at zero through most of

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Speaker 4: twenty twenty three. So with these things in mind, and

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Speaker 4: by the way, even when you know what the Fed

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Speaker 4: is going to do, and they do it like cut

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Speaker 4: fifty base points earlier this year, which seemed kind of

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Speaker 4: unnecessary given the strength of the economy, but they did it.

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Speaker 4: What has happened to the long end of the curve?

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Speaker 4: Against the calls of extending duration, the end of the

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Speaker 4: the longer end of the curve moved up with seventy

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Speaker 4: basis points. So all of this to say that I

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Speaker 4: think everyone needs to have a little bit of humility

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Speaker 4: and really focus on the economy and the data. And

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Speaker 4: Powell himself said last week that look, we're not going

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Speaker 4: to prejudge anything. We're going to be really looking at

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Speaker 4: the data. And I think that a lot of what's

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Speaker 4: in the mix right now with the new administration coming

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Speaker 4: in is potentially short term at least looks quite inflationary,

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Speaker 4: and that means, you know, possibly higher longer term rates,

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Speaker 4: which of course are also looking at the state of

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Speaker 4: our balance sheet. And that process started way before the election.

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Speaker 4: We'd been saying that. Look, look, regardless of who occupies

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Speaker 4: the White House in January, there is really no focus

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Speaker 4: on fiscal spending. I mean, everyone wants the accountability in theory,

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Speaker 4: but everyone wants.

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Speaker 3: To spend on the one percent on the ten yure.

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Speaker 4: So if you look at what the market is currently

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Speaker 4: pricing in for the Fed Funds rate, we have about

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Speaker 4: a three percent rate by the end of next year. Historically,

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Speaker 4: the spread between Fed funds and the ten year Treasury

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Speaker 4: is around one hundred and seventy five basis points. So

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Speaker 4: you do the math. So even if markets expectations come

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Speaker 4: true and we have a two point nine three percent

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Speaker 4: Fed Funds this time next year, is a five ten

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Speaker 4: year more likely or a four percent ten year more

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Speaker 4: likely or a three percent tenure right, So if you

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Speaker 4: believe in a positively sloping curve, that tenure is going

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Speaker 4: to be likely higher as opposed to lower. Not to

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Speaker 4: mention all of the longer term issues, that are inflationary

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Speaker 4: that we can talk about, but that's just the math. Now,

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Speaker 4: what will actually happen. Your guess is as good as

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Speaker 4: mine again, and that's why we do not pin the

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Speaker 4: fortune of our process on the directionality rates. And maybe

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Speaker 4: that's why we've actually outperformed strategies that track indicase in

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Speaker 4: fixed income by fourteen to sixteen percent over these last

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Speaker 4: very volatile three years in fixed income, which is a

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Speaker 4: lifetime of return I'm fixed income frankly.

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Speaker 5: Well to that point before we've gotten the fifty basis

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Speaker 5: points of cuts and yields move higher. So many people

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Speaker 5: have talked about the reinvestment risk in this market that

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Speaker 5: you need to be going into bonds because yields will

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Speaker 5: come lower. What psychological impact has it had for investors

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Speaker 5: for that not to play out? And how real still

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Speaker 5: at that moment is this reinvestment risk if there is

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Speaker 5: some potential for yields to go higher from here.

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Speaker 4: So right now, as we look out and it seems

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Speaker 4: that a higher for longer environment is more likely, and

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Speaker 4: the FED is going to be looked looking at the

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Speaker 4: data and to the extent that that data continues to

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Speaker 4: be strong, and we possibly see even an uptick in inflation,

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Speaker 4: they may stop cutting or even take some of those

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Speaker 4: cuts back. So we definitely believe there's nothing wrong with

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Speaker 4: cutting or not cutting, clipping that coupon at the front

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Speaker 4: end of the curve, and that's been the right tread.

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Speaker 4: And so we like things like high quality corporate floaters.

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Speaker 4: They still give you a yield above traditional kind of

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Speaker 4: front end money market type yields and incredibly high quality

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Speaker 4: to levels at kind of what's happening in the lower

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Speaker 4: credit market, because that same thinking has pushed people out

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Speaker 4: into lower rated, you know, junk created parts of the market.

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Speaker 4: You have high healed spreads today sitting at two hundred

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Speaker 4: and eighty five base points over treasuries. It is extremely

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Speaker 4: rare to see a spread inside of two seventy. This

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Speaker 4: is incredibly tight. And the last time we saw spreads

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Speaker 4: in these levels at these levels were just before the

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Speaker 4: JFC and just before kind of the bubble burst in

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Speaker 4: the late nineties early two thousands. Not to say that

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Speaker 4: we're heading there, but to say that, look, these valuations

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Speaker 4: are definitely pushing against historic yeah, ig.

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Speaker 5: Even more so. Seventy four ish, I think is to

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Speaker 5: spread at the moment tightest level since nineteen ninety eight.

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Speaker 5: John likes to ask this question. He's not here, so

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Speaker 5: I'll do it for him. Are we heading into an

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Speaker 5: environment where you could see yields on credit on IG

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Speaker 5: below that of treasuries?

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Speaker 4: So again, we've we've seen a lot of unprecedented things

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Speaker 4: unfold here. I would point out that the yield on

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Speaker 4: double b's, which is the higher tier of high yield,

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Speaker 4: versus the yield on three month treasuries right now within

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Speaker 4: hair's kind of distance of each other. So why would

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Speaker 4: you buy that junk rated right with a six handle

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Speaker 4: on it on it or a high five handle on

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Speaker 4: it where you can get basically that risk free in

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Speaker 4: three months to emails?

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Speaker 6: Right?

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Speaker 4: So, and if there should be a revaluation tomorrow, which

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Speaker 4: we think is very likely because to your point, IG

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Speaker 4: is quite tight and about half of it is triple

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Speaker 4: be rated. So you have this enormous cloud hanging over

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Speaker 4: the high yield market, and you've got names like following

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Speaker 4: like paramount Right. I don't really have an opinion of them,

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Speaker 4: but you are reading headlines around their credit quality. Are

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Speaker 4: they going to drop into the highield index that has

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Speaker 4: very serious ramifications for valuations?

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Speaker 2: There?

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Speaker 4: So at the end of the day, investors always have

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Speaker 4: to ask themselves a question of what is priced in?

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Speaker 4: And do I want to just let an index drag

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Speaker 4: me through the experience of this repricing, whether it's caused

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Speaker 4: by just higher for longer, whether it's caused by a

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Speaker 4: slowing of the account, whatever it is, or do you

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Speaker 4: want to have an active management approach that can actually

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Speaker 4: take advantage of these different valuations. To your point about

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Speaker 4: investment grade, one of the cheapest trades out there right

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Speaker 4: now is buying protection on credit via selling it on

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Speaker 4: investment grade cheap forty to fifty base points all time,

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Speaker 4: kind of low cost, and we're taking advantage of that.

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Speaker 4: But that's not the sort of thing you'll see in

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Speaker 4: a market risk driven strategy.

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Speaker 6: You say that credit is expensive and there are a

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Speaker 6: number of risks out there. I look at the Bloomberg

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Speaker 6: Corporate bond oas it's the lowest seventy four basis points.

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Speaker 6: It is the lowest in a century. What is the

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Speaker 6: biggest risk If we're sitting around this desk every day

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Speaker 6: talking about US exceptional and the fund flows that will

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Speaker 6: come in here, the FDI that will come in here,

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Speaker 6: the migration, not just migration to the dollar, but the

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Speaker 6: sheer flowed the dollar has been immense, So what is

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Speaker 6: it the challenges credit?

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Speaker 4: Then, So it's interesting you mentioned flow to the dollars.

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Speaker 4: So if you look at assets coming into the US ten, twelve,

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Speaker 4: fifteen years ago, we're overwhelmingly going into treasuries and credit. Yes,

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Speaker 4: today they're overwhelmingly going into equities. So there is incrementally

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Speaker 4: less dollars going into the dollar or less money going

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Speaker 4: into the dollar on the credit side. And when I

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Speaker 4: talk about and when you talk about you know, pricing

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Speaker 4: being very tight, spreads being very tight, it doesn't mean

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Speaker 4: we are expecting a recesion. The economy appears to be strong.

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Speaker 4: But the problem is when something is priced for perfection,

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Speaker 4: it takes anything other than perfection to move that price.

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Speaker 4: And lower rate of credit is notoriously volatile, right, So

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Speaker 4: just this higher for longer environment. If it doesn't materialize

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Speaker 4: that the FED gets us to you know, high twos

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Speaker 4: and we have to live here longer, that's a problem

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Speaker 4: for cash strap junk rated companies.

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Speaker 6: Give us your opinion. Steve Shoodo was with Danny and

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Speaker 6: I last week and we were talking about, oh, it'll be

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Speaker 6: the bond vigilantes that will restrain the fiscal largeess of Washington.

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Speaker 6: They will retire it will be nineteen ninety five and

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Speaker 6: stay sort of linked onto the desting one. There aren't

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Speaker 6: very many bond vigilantes left, So contextualize us for us.

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Speaker 6: Do you believe that you know he talks about a

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Speaker 6: migration to other markets with Danny and myself. Do you

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Speaker 6: think bob vigilantes can be reborn? Are?

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Speaker 7: There?

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Speaker 6: Are? There so few of them?

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Speaker 4: So again, I like to stick to the facts and

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Speaker 4: the data, and we know that where does the demand

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Speaker 4: for treasuries come from? Overwhelmingly it comes from the FED,

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Speaker 4: comes from US commercial banks, and it comes from foreign investors.

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Speaker 4: The feedest kittyeing. US commercial banks can I get rid

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Speaker 4: of their treasury holding fast enough. And foreign investors are

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Speaker 4: dominated by China, China and Japan, and China, of course

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Speaker 4: we know the issues around their relationship there. There are

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Speaker 4: not enough stores of value in the world, so China

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Speaker 4: has continued to buy our treasuries, but at a smaller,

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Speaker 4: lesser pace. So the major sources of demand for treasuries

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Speaker 4: are not what they used to be, and therefore we're

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Speaker 4: seeing some weaker auctions and so I can't speak to

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Speaker 4: the bond vigilantes, but we are certainly seeing some underpinnings

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Speaker 4: that are in the process of change. And these things

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Speaker 4: always happen slowly and then suddenly, and so that's been

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Speaker 4: part of the reason why we've seen the long end

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Speaker 4: of the curve migrate higher, along with better growth prospects,

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Speaker 4: perhaps a return of inflation. You know, on balance, probably

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Speaker 4: not back to nine percent, but somewhat of a return

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Speaker 4: to of inflation. All these things that are going to

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Speaker 4: be are not going to allow the tenure to move

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Speaker 4: significantly lower in the absence of some exist adrena's shock

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Speaker 4: that comes out of nowhere that we cannot see obviously,

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Speaker 4: but that's why we have high quality allocations and portfolios.

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Speaker 3: Ox on Off Jonathan was here. He'd called a clinic

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Speaker 3: and a He's disappointed he missed this. Thank you so

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Speaker 3: much for your time this Weeking Oksana aaronof Air of

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Speaker 3: JP Morgan Asset Management. Neil Rigison of ADP joins us.

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Speaker 3: Now she's looking forward to all of us and maybe

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Speaker 3: also playing a little bit scenario analysis when it comes

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Speaker 3: to twenty twenty five. Let's just start the week off.

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Speaker 1: What are you looking most forward to you know, I'm

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Speaker 1: looking at CPI because it's going to be so important

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Speaker 1: for how the Fed conducts itself over the remainder of

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Speaker 1: twenty twenty four. But I think the sleeper of the

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Speaker 1: week is initial jobless claims. Here's why we saw a

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Speaker 1: really negative private sector print from the BOS for October.

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Speaker 1: So we should see some indication in this high frequency

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Speaker 1: data that companies are laying off. We haven't yet. It's

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Speaker 1: still super low, and that's an indication that the BLS

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Speaker 1: number may be revised higher, or that the labor market

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Speaker 1: looks a bit stronger than that last report would suggest.

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Speaker 5: It's a really good point. It was the government sector

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Speaker 5: that added to jobs last time around, so in this

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Speaker 5: scenario where you don't see that coming through. Can we

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Speaker 5: also go back to this thing of okay, the last

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Speaker 5: month's data, it was all weird. It was hurricanes, it

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Speaker 5: was strikes. We basically have to discount it all.

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Speaker 1: I think there are some threads that we can hang

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Speaker 1: our hats on. This very low initial job will claims

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Speaker 1: number that's high frequency is one of them. We're seeing

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Speaker 1: strengthen the labor market at ADP. There was hiring in

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Speaker 1: the Jolts Report also coming out of BLS, so there

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Speaker 1: are some hangars we can use, but definitely we want

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Speaker 1: to look towards the future to see if there's evidence

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Speaker 1: of weakness. And then coming back to that CPI print

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Speaker 1: super important looking at services and the role that labor

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Speaker 1: market will play in pushing up or restraining service sector

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Speaker 1: inflation going forward, that's going to be very important.

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Speaker 5: Well, in the spirit of looking for it's a twenty

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Speaker 5: twenty five where the outlook is just so uncertain. We

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Speaker 5: don't have any great economic models for what adding seven

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Speaker 5: and three quarters of into the US deficit will mean.

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Speaker 5: Does the FED need to start talking about scenarios? Do

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Speaker 5: they need to start laying out different futures that they

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Speaker 5: might face, or should they continue with the line we

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Speaker 5: need to wait and see.

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Speaker 1: I think the FED is always looking at scenario so

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Speaker 1: I don't think this is a net new policy. I mean,

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Speaker 1: they have four hundred economists. They have to do something

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Speaker 1: with their time.

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Speaker 5: So I think.

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Speaker 2: CINEO analysis is the Salthius Joe.

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Speaker 6: At Washington common inflicted coit if you.

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Speaker 1: Go, scenario analysis is bill it hardcore into their policy framework.

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Speaker 1: What I think it's going to be very important for

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Speaker 1: a data dependent FED is to have a consistent framework,

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Speaker 1: and that's the task of the next few months is

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Speaker 1: to reevaluate that time framework. It's time. The last time

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Speaker 1: they revisited it was in twenty twenty. It was a

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Speaker 1: different inflation picture than now. They have to kind of

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Speaker 1: rejigger that framework to fit the scenario that they're in

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Speaker 1: right now. This idea that inflation may bounce back, it

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Speaker 1: might be a little bumpy, and that trajectory is very

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Speaker 1: different than too low inflation what we had going into

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Speaker 1: the pandemic.

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Speaker 6: The narrative iron tires. We will know incrementally. You know

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Speaker 6: whether it's twenty percent, thirty percent, and that could be

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Speaker 6: on your it could be on your allies, not your enemies,

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Speaker 6: on your enemies or perceived enemies. It's China sixty percent currently,

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Speaker 6: it's two percent on the trade weighted assets that are

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Speaker 6: imported into the United States of America. That is going

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Speaker 6: to go potentially to twenty percent of the imports into

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Speaker 6: the United States of America extrapolated not for me in

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Speaker 6: terms of potential inflation, but most of the drag on growth.

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Speaker 1: Right, So the US is benefited in this soft landing

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Speaker 1: outlook that looks like we're still on that trajectory from

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Speaker 1: a very steady global picture. The IMF has called global

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Speaker 1: the global economy underwhelming but steady, so it's not been

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Speaker 1: a headwind. It has hasn't been a tailwind. Tariffs could

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Speaker 1: change that event, whether global growth becomes that a tailwind

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Speaker 1: or a headwind in the short term versus the medium term,

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Speaker 1: versus the long term. Those are all scenarios that have

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Speaker 1: to be penciled in. But it's really important that people

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Speaker 1: remember that the administration during the first Trump term had

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Speaker 1: a product out out out out of list, a product

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Speaker 1: exclusion list. Yes, it wasn't a car across a board tariffs.

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Speaker 1: The carve outs matter and they'll continue to matter as

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Speaker 1: we go to these bigger, more macro tariff policy implementations.

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Speaker 1: What's on that list? And until we know what the

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Speaker 1: product exclusion list looks like, we can't really handicap what's

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Speaker 1: going to happen with the economy.

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Speaker 6: I saw some pretty good articles over the weekend talking

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Speaker 6: about Canada and obviously the amount of energy that's imported

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Speaker 6: from Canada, you know, and again that would be one

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Speaker 6: of your closestylists. It's certainly one of your closest trading partners.

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Speaker 6: As you look at the fiscal kind of narrative, and

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Speaker 6: this was one of the big stories and one of

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Speaker 6: the big things that we wrote about going into the election.

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Speaker 6: On the Harrison is going to be just under four

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Speaker 6: trillion dollars under Donald Trump if everybody gets a tax cut,

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Speaker 6: literally you get a tax cut, you get a tax cut,

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Speaker 6: you get a tax cut. I can't remember where that

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Speaker 6: came from. I think it's right, Maya McGinnis on yourself,

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Speaker 6: but on a signing more serious note, that is a

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Speaker 6: definicit of seven point seventy five trillion dollars. We're not

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Speaker 6: going to get everything that he promised, are we Again

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Speaker 6: you talk about the car btes. But it's also good

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Speaker 6: about what he's going to have to walk back from

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Speaker 6: a tax perspective.

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Speaker 1: Now, what's said on the campaign trail and was actually

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Speaker 1: done in DC. As someone who spent almost twenty years

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Speaker 1: in DC and several of those years as a government economist,

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Speaker 1: like trying to translate that policy into legislation into law,

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Speaker 1: they're very different things. The sausage making is real. Democracy

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Speaker 1: is hard, and putting it all together means that what

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Speaker 1: you say and what actually is done. Is very different

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Speaker 1: that being said.

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Speaker 6: You know, when you.

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Speaker 1: Look at the big picture, whoever, you know, the path

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Speaker 1: forward is with a very stable US economy. But the

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Speaker 1: big dragon, the big it's not even an elephant anymore.

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Speaker 1: The big dragon in the room is the fiscal deficit.

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Speaker 1: No one talked about that on the king page Tree.

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Speaker 1: It was not issue. Nobody wants to talk about it

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Speaker 1: because it's such a big dragon to slay. And so

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Speaker 1: that's a problem not just in the United States. It's

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Speaker 1: a problem throughout the world. And it is a problem

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Speaker 1: that could reignite inflation by crowding out investment and crowding

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Speaker 1: out the ease of capital allocation to other parts.

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Speaker 3: Of the world, which leads to a blow.

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Speaker 1: A capacity productivity, which lowers grows. So it is an issue.

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Speaker 3: Paying off your debts doesn't win elections. Could we potentially

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Speaker 3: though it win's economy. There is attention there. Could we

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Speaker 3: maybe be on the downward trajectory of this idea then

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Speaker 3: of US exceptionalism.

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Speaker 1: I don't think we're there. I think there is plenty

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Speaker 1: in the US that keeps the strong growth narrative alive,

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Speaker 1: but we can't take it for granted. Productivity is lower

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Speaker 1: now than it was going into the pandemic. That's worker productivity,

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Speaker 1: and the way this country grows, the way it's always grown,

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Speaker 1: is when there are more workers and those workers become

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Speaker 1: more productive. And we know that there's plenty of technology

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Speaker 1: out there that could make the US worker more productive.

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Speaker 1: The question is will it get translated through the capital

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Speaker 1: markets into the companies, especially the small and medium enterprises

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Speaker 1: that need to see that productivity enhancement with their workforce.

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Speaker 1: That's a big open question. And also the interest rates

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Speaker 1: we have to pay to move that capital is a

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Speaker 1: big open question, and fiscal debt could affect those rates.

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Speaker 3: The real sausage making Washington and the financial markets. Neila

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Speaker 3: Ridgison of ADP and also Bloomberg contributor, thank you so

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Speaker 3: much for joining us this morning. Plenty of data and

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Speaker 3: fedspee gundeck this week, including remarks from FED Chair j

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Speaker 3: Powell on Thursday, just one week after the FMC cut

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Speaker 3: rates by another twenty five basis points, former Obama economic

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Speaker 3: advisor Jason Furman writing, this monetary policy is going from

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Speaker 3: very contractortory to reasonably contractionary. This makes sense given that

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Speaker 3: inflation risks are much lower than before, but we are

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Speaker 3: still higher than recession risks. I expect another cut in December,

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Speaker 3: but core PCE inflation is likely to rise, making a

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Speaker 3: continued process of cuts at every meeting difficult. Jason Furman

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Speaker 3: of the Harvard Kennedy School joins us. Now, Jason, thank

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Speaker 3: you so much for your time. I know you're looking

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Speaker 3: at potentially this cut in December, but give us some

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Speaker 3: clues on what the heck twenty twenty five is going

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Speaker 3: to look like when policy can be vastly different that

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Speaker 3: this Fed needs to recalibrate for.

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Speaker 7: Yeah, first, separate from anything related to policy changes coming

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Speaker 7: from Donald Trump. We're probably going to end the year

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Speaker 7: with a core PCEE inflation, right, is something like two

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Speaker 7: point eight percent. That's usually your best bet for what

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Speaker 7: inflation is going to be going forward. Then you add

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Speaker 7: to that some fiscal expansion, some tariffs. We don't know

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Speaker 7: the magnitudes of those, but they both push in the

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Speaker 7: same direction. You're adding even more to inflationary pressures. I

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Speaker 7: think that's going to make it hard for the FED

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Speaker 7: to continue its process of rate cuts at anything like

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Speaker 7: in every meeting pace next year, maybe every other meeting

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Speaker 7: at best, with an exception, if the economy starts to weaken,

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Speaker 7: they'll be there. But absent that we have strong growth,

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Speaker 7: we have high inflation. Hard to keep.

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Speaker 5: Cutting, hang on, Jason, So save for their cutting bias,

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Speaker 5: should they even be cutting in December? Does that even

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Speaker 5: make sense with the environment that you just laid out.

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Speaker 7: Yeah, you know, interest rates will still be contractionary after

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Speaker 7: one more cut. In some sense, the way the Fed

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Speaker 7: operates is they always wait longer so until they're really sure,

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Speaker 7: and then they start a continuous process of change. And

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Speaker 7: that's where they are now. I think it would be

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Speaker 7: too shocking to the system to pull that one back.

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Speaker 7: Would almost also look a little bit political. But yeah,

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Speaker 7: after December, they need to take a hard look at

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Speaker 7: the data. And I don't think it's going to say,

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Speaker 7: you know, keep cutting.

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Speaker 5: If we can go to that environment where you have

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Speaker 5: higher yields and a stronger dollar because of whatever the

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Speaker 5: Trump policies are. But because they're not cutting every single meeting,

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Speaker 5: that means you globally have tighter financial conditions and maybe

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Speaker 5: force rate cuts elsewhere, which again feeds this feedback loop

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Speaker 5: of stronger dollar, higher yields in the US. Jason, what

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Speaker 5: is the likelihood of that type of global environment where

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Speaker 5: you do get this sort of doom loop with rate differentials.

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Speaker 7: Look, in some ways, a weaker currency is useful to

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Speaker 7: a lot of countries around the world which are struggling

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Speaker 7: with demand. The higher dollar and a CeNSE is shifting demand,

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Speaker 7: you know, from the United States to those countries. So

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Speaker 7: in some ways that's going to help with the global equalization.

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Speaker 7: But Europe is in just a very different places than

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Speaker 7: US right now. They have really weak growth. We have

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Speaker 7: really strong growth. That means monetary policy should be different

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Speaker 7: in those two economies.

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Speaker 6: Jason, good morning. You wrote in the Journal in September

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Speaker 6: time that Trump often listened to sensible advisors and walked

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Speaker 6: away from some terrible economic policies as a president. What

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Speaker 6: do you think he will walk away from memories and

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Speaker 6: making this point that he's watching the batting markets, He's

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Speaker 6: on Twitter and social he's watching everything. What's the worst

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Speaker 6: policy that he will walk away from from the campaign trail?

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Speaker 7: My guess is that, well, first of all, interfering heavily

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Speaker 7: with the federal Reserve, I think he'll walk away from that.

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Speaker 7: The market would punish that very severely. Second, I hope

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Speaker 7: he walks away from across the board tariffs on every

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Speaker 7: country in the world. The you know, on the one hand,

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Speaker 7: he does have a deep seated belief in that. On

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Speaker 7: the other that would just be really destructive to the

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Speaker 7: US economy. And where I don't think market will put

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Speaker 7: much pressure though, is on fiscal expansion. Do I think

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Speaker 7: he could do you know, the eight trillion dollars he

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Speaker 7: proposed on the campaign. Probably not. Do I think he

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Speaker 7: could add five trillion dollars to the deficit without tanking

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Speaker 7: the market? Absolutely? Yes, And so it's that fiscal expansion

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Speaker 7: that I think is the most likely to make it

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Speaker 7: through the screen.

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Speaker 6: I'm curious what you define as tanking the market. My

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Speaker 6: inbox is littered with five percent. It's like a number

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Speaker 6: that keeps ringing up on a cash register at the

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Speaker 6: moment on the bond yields. So so just told me

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Speaker 6: through that.

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Speaker 7: Yeah, look, we get to five percent on the ten

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00:22:38,920 --> 00:22:42,399
Speaker 7: year I think that will get attention probably from the

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Speaker 7: President and if not from you know, four Republicans and

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Speaker 7: the at least four Republicans in the Senate. That's what

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00:22:50,880 --> 00:22:53,720
Speaker 7: our fiscal conversation to date. You know, we had too

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00:22:53,760 --> 00:22:57,359
Speaker 7: much deficit increase over the last four years. Harris was

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Speaker 7: proposing too little deficit increase. Both are a part of this,

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Speaker 7: but part of why they have is that interest rates

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Speaker 7: have allowed it and the bond markets have allowed it.

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Speaker 7: You know, let's see if the bond market vigilantes come

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Speaker 7: back when they start hearing about these multi trillion dollar

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Speaker 7: deficit increases.

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Speaker 3: Well, Larry Summers was saying that maybe it's going to

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Speaker 3: be up to the bond market to educate lawmakers in Washington,

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00:23:20,200 --> 00:23:23,159
Speaker 3: d C. Do you think that's what forces Washington to

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Speaker 3: coalesce around actually being a little bit more disciplined when

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Speaker 3: it comes to the US trajectory the fiscal health.

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Speaker 7: Yeah, I think that's pretty much the main thing that

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Speaker 7: could get people's attention. I would have thought that the

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Speaker 7: Social Security and Medicare trust funds being exhausted within a

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Speaker 7: decade would get people's attention. I would have thought, you know,

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Speaker 7: nearly two trillion dollar deficit at a time when the

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Speaker 7: economy is really quite good would get people's attention. But

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Speaker 7: those haven't. So yeah, I think we need the market

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Speaker 7: at this point.

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Speaker 3: So that's basically a Liz Trust moment. Is there were

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Speaker 3: a timeline Jason that you think this could happen. I

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Speaker 3: mean with a publican trifecta nearly once we get the

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Speaker 3: results of the House, do you think it can happen

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Speaker 3: in twenty twenty five.

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Speaker 7: It can always happen, but it could always not happen.

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Speaker 7: And I realized that's super unhelpful. But it's not like

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Speaker 7: there's some mathematical link between here's the quantity of deficit

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Speaker 7: and debt and here's some discontinuous change in interest rates.

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Speaker 7: Markets are trying to assess not just where the deficit

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Speaker 7: and debt are, but where they feel policymakers could go

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Speaker 7: or would go with it with future actions. I think

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Speaker 7: with Liz Trust it was the sense that she was

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Speaker 7: just completely recklessly ignoring any sense of discipline around this

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Speaker 7: that then interacted with a set of quirks around insurance companies,

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Speaker 7: regulation and the like. Things like that are hard to

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Speaker 7: spot in advance, but yeah, that's what I would be

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Speaker 7: worried about if someone picked the unlikely event that someone

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Speaker 7: picked me to be Donald Trump's Treasury secretary.

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Speaker 3: I'd hate to say that too, but it's a very

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00:24:54,880 --> 00:24:59,680
Speaker 3: unlikely event. But former Obama economic advisor Jason Furman, thank

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Speaker 3: you so, MU much for joining us in your time

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Speaker 3: this Monday morning.

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Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best

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00:25:06,400 --> 00:25:09,720
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