WEBVTT - Bloomberg Surveillance TV: June 16, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hortern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:35.840 Bloomberg Terminal and the Bloomberg Business app. 0:00:36.479 --> 0:00:39.400 Joining us now is Amanda Liner of a Black Rock. 0:00:39.520 --> 0:00:41.680 Amanda, a difficult time for the Federal Reserved to. 0:00:41.680 --> 0:00:44.480 Be meeting, given that their dueling risks seem to be 0:00:45.000 --> 0:00:48.960 their double mandate seems to be very much increasingly in conflict. 0:00:49.080 --> 0:00:50.400 Do you think we're going to learn anything at all 0:00:50.400 --> 0:00:50.720 this week? 0:00:50.960 --> 0:00:53.640 Good morning, Thank you for having me. That's the one 0:00:53.680 --> 0:00:55.320 thing that we are focused on. I would say the 0:00:55.320 --> 0:00:58.440 Summary of Economic projections has the potential to give us 0:00:58.480 --> 0:01:01.000 some incremental clarity on their reaction function. We think on 0:01:01.080 --> 0:01:04.039 the margin it will reflect a more challenging growth inflation mix. 0:01:04.160 --> 0:01:06.320 But keep in mind this is just the median of 0:01:06.400 --> 0:01:09.240 all of the different committee members. It's not actually a 0:01:09.240 --> 0:01:11.560 cohesive projection from the committee, so we need to kind 0:01:11.560 --> 0:01:13.840 of discount that. What we are most focused on is 0:01:14.120 --> 0:01:17.520 what would be the scenario analysis the reaction function if 0:01:17.520 --> 0:01:20.640 the dual mandate comes into tension. A few months ago 0:01:20.720 --> 0:01:24.200 you started see Chair pal Beth Hammock talk about that 0:01:24.360 --> 0:01:26.920 being on the radar. I think the incremental news it 0:01:26.959 --> 0:01:29.280 has become, as you alluded to, even more challenging with 0:01:29.319 --> 0:01:32.360 the geopolitical situation, So that would be the hopefully the 0:01:32.360 --> 0:01:34.319 one nugget that we will be looking for is how 0:01:34.319 --> 0:01:38.080 would they navigate that backdrop? What would they prioritize. The 0:01:38.200 --> 0:01:41.160 SEP already reflects an unemployment rate of four point four 0:01:41.200 --> 0:01:43.399 percent for this year, so we know that they are 0:01:43.440 --> 0:01:46.200 baking in some weakning in the labor market. How much 0:01:46.200 --> 0:01:48.200 weakening would we need to see in order for their 0:01:48.320 --> 0:01:49.040 posture to change. 0:01:49.080 --> 0:01:51.760 Earlier this year, there was a feeling that any inflationary 0:01:51.800 --> 0:01:54.960 shock from tariffs or trade tensions in general would be 0:01:55.000 --> 0:01:57.400 transitory they even use that word, or even short lived. 0:01:57.760 --> 0:01:59.320 Now there's a question of the dual shocks. 0:01:59.360 --> 0:02:01.240 You have the terror for risk, and then you also 0:02:01.320 --> 0:02:03.880 have potentially some sort of oil shop that is persistent. 0:02:03.920 --> 0:02:04.640 Even if it's not. 0:02:04.760 --> 0:02:06.760 The closure of the strait of removes, there is this 0:02:06.840 --> 0:02:09.480 feeling that there's going to be a higher premium. How 0:02:09.560 --> 0:02:12.119 much does that complicate things and create a more sort 0:02:12.120 --> 0:02:14.160 of long lasting inflationary impulse. 0:02:14.320 --> 0:02:15.440 I think you nailed it. 0:02:15.440 --> 0:02:18.680 It's not just the inflation data, but inflation expectations. So 0:02:18.760 --> 0:02:22.080 even though they're navigating to core PCE, which would exclude energy, 0:02:22.560 --> 0:02:24.480 if we do have a rise in oil prices that 0:02:24.600 --> 0:02:28.080 is sustained, does that alter inflation expectations for consumers and 0:02:28.120 --> 0:02:30.839 could not cause them to react. I would say there's 0:02:30.919 --> 0:02:32.959 kind of two fold impacts that we see from this 0:02:33.160 --> 0:02:36.240 geopolitical backdrop. Its one, should there be higher U premias 0:02:36.280 --> 0:02:38.799 and corporate credit? And then two are there actually sector 0:02:38.840 --> 0:02:42.440 specific implications if there are sustained supply chain disruptions. We 0:02:42.480 --> 0:02:44.600 haven't seen that yet, hopefully we don't, but those are 0:02:44.600 --> 0:02:46.799 really what we're focused on. And then the magnitude and 0:02:46.840 --> 0:02:49.240 the duration of that has yet to be seen. Even 0:02:49.280 --> 0:02:51.440 when the FED was I would think casually using the 0:02:51.440 --> 0:02:53.800 word transitory, when was that back in the March meeting? 0:02:54.200 --> 0:02:56.400 It was also CAVEATD with the healthy dose of we're 0:02:56.440 --> 0:02:59.320 not quite sure really where this is going. I remember 0:02:59.320 --> 0:03:01.600 that meeting very well, and so I think they're even 0:03:01.639 --> 0:03:03.519 hesitant to say that they'll be able to look through it. 0:03:03.560 --> 0:03:05.919 I think they're just raising the possibility that maybe they 0:03:05.960 --> 0:03:07.280 can look through it well. 0:03:07.320 --> 0:03:10.720 To the point of credit markets, again, it's another thing 0:03:10.800 --> 0:03:13.160 where we see spreads widen a little bit and then 0:03:13.240 --> 0:03:15.280 not really react that much. Where you have seen some 0:03:15.360 --> 0:03:18.280 weaknesses in the junkiest part of the market, is the 0:03:18.360 --> 0:03:20.560 risk real there? Could you start to see defaults pick 0:03:20.600 --> 0:03:21.160 up in that area? 0:03:21.240 --> 0:03:23.560 Sure, So two things I would say, our conversations and 0:03:23.639 --> 0:03:26.760 really since early may have focused on two sided risks 0:03:26.800 --> 0:03:29.880 exactly as you noted, widening episodes have been short lived, 0:03:29.880 --> 0:03:32.280 and actually the common refrain from a lot of investors is, oh, 0:03:32.280 --> 0:03:34.440 I wish I would have taken advantage of that. More So, 0:03:34.440 --> 0:03:36.560 that's a very real risk, and so we're very focused 0:03:36.600 --> 0:03:37.600 on the two sided risks. 0:03:38.000 --> 0:03:39.800 Where we are trading carefully. 0:03:39.400 --> 0:03:41.760 And have been are those kind of left tail pockets 0:03:41.760 --> 0:03:44.720 of the market that we're already under pressure before the 0:03:44.760 --> 0:03:48.640 economic data deteriated. So, for example, US Triple c's had 0:03:48.680 --> 0:03:52.280 interest coverage below one time's already last quarter, it's rebounded 0:03:52.280 --> 0:03:55.560 a bit. That was before the economic data deteriated. You 0:03:55.560 --> 0:03:57.440 see that in pockets of the leverage level market, you 0:03:57.440 --> 0:03:59.720 see it in pockets of private credit. So that's really 0:03:59.760 --> 0:04:02.800 where we need to focus is saying, Okay, let's not 0:04:02.920 --> 0:04:05.760 be too defensive. There's a real opportunity cost to being 0:04:05.840 --> 0:04:08.400 under risked. But at the same time, if a company 0:04:08.480 --> 0:04:11.320 was already having trouble growing into its capital structure, or 0:04:11.360 --> 0:04:14.720 a sector was already having trouble navigating this environment, nothing 0:04:14.720 --> 0:04:16.520 on the horizon's going to make it easier. And so 0:04:16.640 --> 0:04:18.800 that's really I think where we are are mindful. I 0:04:18.839 --> 0:04:21.400 will add, though the high yield and leverage learned default 0:04:21.440 --> 0:04:23.960 rates have been quietly creeping for the past year and 0:04:24.000 --> 0:04:27.159 a half and it has not derailed the performance of 0:04:27.240 --> 0:04:29.040 the speculative grade parts of the market. So I think 0:04:29.080 --> 0:04:31.680 what that's telling you is it's the smallest capital structures 0:04:31.680 --> 0:04:35.120 that are defaulting. It's oftentimes repeat defaulters, and that is 0:04:35.200 --> 0:04:36.640 by definition priced into the market. 0:04:36.680 --> 0:04:38.640 Well, if we do see I said, that falls in 0:04:38.720 --> 0:04:41.120 between that dual mandate and they can't take action and 0:04:41.160 --> 0:04:44.080 they can't cut and rates do remain elevated, does that 0:04:44.120 --> 0:04:45.839 start to spread well. 0:04:46.000 --> 0:04:50.200 Actually, somewhat counterintuitively, it's probably going to support the yield 0:04:50.240 --> 0:04:52.760 base bid for corporate credit, which has been a really 0:04:52.839 --> 0:04:55.679 powerful technical force. I would say the yield based buyer 0:04:55.680 --> 0:04:59.320 has exhibited some patients on and off, so they're sitting 0:04:59.400 --> 0:05:03.279 it out sometimes. But in general, structurally higher interest rates 0:05:03.279 --> 0:05:07.000 coupled with okay growth, even below trend growth, that's not 0:05:07.080 --> 0:05:09.839 a bad recipe for corporate credit. That would probably bring 0:05:09.880 --> 0:05:11.960 some of that yield based demand in off the simelines. 0:05:12.200 --> 0:05:13.880 This is also part of the reason why we like 0:05:13.920 --> 0:05:16.560 selectively moving down in quality. You were talking about the 0:05:16.600 --> 0:05:19.440 volatility and the treasury market. Kind of one of the 0:05:19.520 --> 0:05:22.920 understated differences between IG and highyield is high yeld as 0:05:22.920 --> 0:05:25.640 a shorter duration market, so you're kind of less exposed 0:05:25.680 --> 0:05:27.840 to those swings and treasuries, especially at the long end. 0:05:28.080 --> 0:05:30.600 Just real quickly, here is the private credit market exposed 0:05:30.600 --> 0:05:33.000 to for selling based the fact that you're seeing endowments 0:05:33.160 --> 0:05:36.080 of universities looking to raise money, not for selling. 0:05:36.200 --> 0:05:38.520 Illiquidity is a feature, not a bug, of private credit. 0:05:38.600 --> 0:05:41.080 What I think that is reflective of as a multitude 0:05:41.080 --> 0:05:43.680 of factors, and I think it's a positive that actually 0:05:43.800 --> 0:05:46.760 folks can make acid allocation shifts over time when they 0:05:46.760 --> 0:05:48.880 need to with liquid assets, but it's not a liquid 0:05:48.880 --> 0:05:49.800 market by design. 0:05:50.000 --> 0:05:52.240 Amandal Adam of Blackcroc, thank you so much for being 0:05:52.279 --> 0:05:53.800 with us as always. 0:06:03.120 --> 0:06:03.480 Right now. 0:06:03.520 --> 0:06:06.080 Aaron David Miller of the Carnegie and Townment for International 0:06:06.080 --> 0:06:08.760 Peace joins us erin. I just want to get your 0:06:08.800 --> 0:06:12.359 sense of how realistic it is for the calls for 0:06:12.440 --> 0:06:16.440 de escalation to actually resonate with either not on Yahoo 0:06:16.600 --> 0:06:18.120 or with Iran at. 0:06:18.000 --> 0:06:19.880 A time or both of them seem to be really 0:06:19.920 --> 0:06:20.440 digging in. 0:06:20.960 --> 0:06:22.600 Great question, Lucia, thanks for having me. 0:06:22.720 --> 0:06:25.680 I think it's completely unrealistic and detached from the current 0:06:25.720 --> 0:06:29.800 reality for three reasons. The Israelis want to destroy as 0:06:29.880 --> 0:06:32.240 much of Iran's nuclear program as possible, but they're going 0:06:32.320 --> 0:06:34.720 to have a very difficult time doing it, and they 0:06:34.760 --> 0:06:39.159 have escalation dominance and their superiority and political superiority. There's 0:06:39.200 --> 0:06:42.640 absolutely no pushback from anyone in the region, Europe, from 0:06:42.680 --> 0:06:45.600 the United States, from the Trump administration for the Israelis 0:06:45.600 --> 0:06:48.960 to stop. As one Israeli general put it, retired, we're 0:06:49.000 --> 0:06:51.719 playing soccer with the Iranians, but they have no goalie. 0:06:51.880 --> 0:06:55.600 The Iranians having invested five trillion dollars into this nuclear program, 0:06:55.760 --> 0:06:58.800 having been embarrassed and humiliated to a degree that is 0:06:58.920 --> 0:07:01.760 unprecedented problem in the history of Islamic Republic. 0:07:02.160 --> 0:07:03.600 Are not going to yield on this. 0:07:04.240 --> 0:07:10.040 How deep their ballistic missile inventory is, what twenty twenty 0:07:10.040 --> 0:07:12.800 five hundred ballistic missiles. They can keep this up for 0:07:12.840 --> 0:07:15.480 some time, and the Americans, I think, are faced. 0:07:15.480 --> 0:07:17.400 Trump administration is faced with a dilemma. 0:07:17.440 --> 0:07:19.760 He does not want to answer this war, but he 0:07:19.920 --> 0:07:24.200 cannot stop it. It reminds me of Lennon Johnson's description 0:07:24.320 --> 0:07:28.120 in the Vietnam War of a hitchhiker in a Texas hailstorm. 0:07:28.280 --> 0:07:30.400 I can't run, I can't hide, and I can't make 0:07:30.440 --> 0:07:33.680 it stop. Question for Trump, for all of this, I'm 0:07:33.720 --> 0:07:35.360 not sure Trump wants to make it stop. 0:07:35.760 --> 0:07:38.080 Well, that's actually something he's hinted at, this question of 0:07:38.080 --> 0:07:40.800 maybe they have to fight it out and just complete it. 0:07:40.800 --> 0:07:43.520 From that perspective, what is the ultimate goal though, Erin, 0:07:43.560 --> 0:07:45.920 I mean, given the fact that you just said that, 0:07:46.720 --> 0:07:50.000 as one general told you, Israel is playing soccer and 0:07:50.040 --> 0:07:51.320 Iran has no goalie. 0:07:51.520 --> 0:07:52.760 But what's the ultimate aim? 0:07:52.920 --> 0:07:54.120 Is it regime change? 0:07:54.360 --> 0:07:57.760 How do they achieve something that actually can be sustainable 0:07:57.800 --> 0:07:58.760 for the entire region. 0:07:59.200 --> 0:08:00.360 I mean critical question. 0:08:00.440 --> 0:08:03.080 Have you told me on October eighth that eighteen months 0:08:03.080 --> 0:08:06.800 into the Israeli Hamas Warren Gaza there will be absolutely 0:08:06.920 --> 0:08:09.360 no sign of this conflict debating, I would have said, 0:08:09.440 --> 0:08:13.520 you basically are a bad analyst. The fact is the 0:08:13.560 --> 0:08:16.960 Prime Minister in Gaza has identified. 0:08:16.360 --> 0:08:19.160 Total victory as a goal. I think what he would 0:08:19.240 --> 0:08:19.720 like to do. 0:08:19.840 --> 0:08:23.960 His aspirations would be regime change on one hand, and 0:08:24.040 --> 0:08:28.160 number two deploying the United States if he can to 0:08:28.240 --> 0:08:32.240 do what the Israelis cannot, which is to destroy four 0:08:32.360 --> 0:08:36.760 though and really make a not a dent, but a 0:08:36.880 --> 0:08:40.520 major crippling of the Iranian nuclear program, which would set 0:08:40.520 --> 0:08:44.000 it back at least at least two years. So I 0:08:44.040 --> 0:08:47.160 think right now there's no reason for Ninitaannao to stop. 0:08:48.000 --> 0:08:52.440 Ballistic missiles in Israel are very problematic. 0:08:52.559 --> 0:08:55.679 I mean, the Iranians are launching, maybe ten to fifteen 0:08:55.720 --> 0:08:59.640 percent are actually getting through and striking. But you've seen 0:08:59.640 --> 0:09:02.280 Ethan reported, you've seen some of the damage. Twenty four 0:09:02.400 --> 0:09:05.480 Israelis killed. I think the public will endure this for 0:09:05.559 --> 0:09:09.080 quite some time. So right now I see absolutely no 0:09:09.480 --> 0:09:12.640 way no off ramp, no possibility. 0:09:12.760 --> 0:09:14.120 And then you, of course raise the. 0:09:14.120 --> 0:09:18.439 Question is what, in fact would a negotiation, other than 0:09:18.520 --> 0:09:22.480 cessational hostilities, what would a negotiation between the United States 0:09:22.520 --> 0:09:29.480 and Iran produce? Two months of negotiations produced an impast 0:09:29.720 --> 0:09:32.000 and I think your writings are in no mood frankly 0:09:32.160 --> 0:09:35.360 right now for compromise erin. 0:09:35.320 --> 0:09:38.079 I hear you saying that there is not a likely 0:09:38.120 --> 0:09:41.680 off ramp in the near term. But for investors, what 0:09:41.760 --> 0:09:46.319 can we watch to look for any signs of de 0:09:46.600 --> 0:09:50.040 escalation or escalation from here? You know, what are the 0:09:50.120 --> 0:09:52.880 key points that you are looking for? 0:09:53.360 --> 0:09:53.440 Right? 0:09:53.520 --> 0:09:56.520 I mean d escalation I think right now is not 0:09:56.640 --> 0:09:58.840 in the cards. I think there's a really good chance 0:09:58.880 --> 0:10:01.720 that we'll be in for weeks in It's the escalatory 0:10:02.360 --> 0:10:04.120 possibilities that concerned me. 0:10:05.559 --> 0:10:09.680 This is your guys business, not mine. Would concern investors 0:10:09.679 --> 0:10:09.959 as well. 0:10:10.000 --> 0:10:13.840 And escalation, I think could occur in one of two ways. 0:10:14.040 --> 0:10:18.480 Number One, Iranian ballistic missiles actually end up surging and 0:10:19.000 --> 0:10:19.520 you end up. 0:10:19.440 --> 0:10:21.200 With a mass casualty event in Israel. 0:10:22.559 --> 0:10:25.760 Scores hundreds of Israelis are killed or wounded. 0:10:26.559 --> 0:10:27.520 The Trump administration. 0:10:27.600 --> 0:10:30.640 Under those circumstances, Congress are going to be hard pressed, 0:10:30.800 --> 0:10:35.240 I think to enter the conflict, and the second path escalation, 0:10:36.360 --> 0:10:39.040 or maybe there are three. Second path escalation, would be 0:10:39.160 --> 0:10:42.000 a bad decision in the part of the Islamic Republic 0:10:42.480 --> 0:10:47.600 to go after American assets, US forces in Iraq, Syria 0:10:48.600 --> 0:10:51.959 or obviously forces thirty to thirty five thousand Americans that 0:10:52.040 --> 0:10:54.560 are deployed in the Gulf, and they have many short 0:10:54.640 --> 0:10:58.600 range ballistic missiles, thousands of them that could produce that. 0:10:58.920 --> 0:11:02.640 The third possibility is that the Iranians try some sort 0:11:02.640 --> 0:11:07.480 of asymmetrical strategy in which they go after Israeli interests 0:11:07.480 --> 0:11:12.520 abroad Jewish interests abroad in a terror attack. I think 0:11:12.600 --> 0:11:17.440 that's a back door that would also probably bring in 0:11:17.440 --> 0:11:20.880 in the United States. But again we've watched over the 0:11:20.880 --> 0:11:24.000 course of the last eighteen months. We've steered clear of 0:11:24.040 --> 0:11:26.840 the one thing that investors worry about, the one thing 0:11:27.000 --> 0:11:29.559 I would worry about, the one thing the region worries. 0:11:29.320 --> 0:11:31.440 About, and that would be a major regional war. 0:11:31.760 --> 0:11:35.920 We've avoided that this is bringing us. The longer this 0:11:36.000 --> 0:11:40.560 goes on, the greater the chances of an escalatory cycle, 0:11:42.520 --> 0:11:46.439 an Iranian Saudi conflict and a US conflict, which would 0:11:46.520 --> 0:11:50.280 essentially push oil prices, probably well in excess one hundred dollars. 0:11:50.480 --> 0:11:53.000 Aron, just quickly, here one thing that the market keeps 0:11:53.000 --> 0:11:56.080 focusing on that could catalyze that kind of regional lord 0:11:56.160 --> 0:11:58.680 be shutting down the streets for moves. How realistic is 0:11:58.720 --> 0:12:01.680 that given the fact that to anger everybody in the neighborhood, 0:12:02.400 --> 0:12:03.160 I mean, the. 0:12:03.240 --> 0:12:06.440 Rinians could probably close it, and the Americans would definitely 0:12:06.520 --> 0:12:07.000 open it. 0:12:07.240 --> 0:12:08.800 But again we're talking about a. 0:12:08.760 --> 0:12:13.720 Prolonged delay, filled with uncertainties, all sorts of exit ramps 0:12:13.760 --> 0:12:16.560 of an unpleasant nature that is going to make this 0:12:16.720 --> 0:12:18.800 extremely unpredictable. 0:12:19.120 --> 0:12:21.760 Aaron David Miller of the Carnegie Endowment for International Piece, 0:12:21.800 --> 0:12:22.720 Thank you so much. 0:12:22.760 --> 0:12:35.880 For the insight. Here's eldest the Federal Reserves today meeting 0:12:36.040 --> 0:12:38.480 kicking off tomorrow. The f ONEC widely. 0:12:38.120 --> 0:12:41.880 Expected to hold rate steady but update its economic forecast, 0:12:41.920 --> 0:12:45.080 giving markets a clue about how officials will handle tariffs, 0:12:45.320 --> 0:12:48.600 inflation and more. Joining us now for that potential scenario 0:12:48.600 --> 0:12:50.559 analysis is Steve Verstudo of Mizuho. 0:12:50.640 --> 0:12:52.160 Steve, great to see you, Thank you so much for 0:12:52.200 --> 0:12:52.680 being here. 0:12:53.120 --> 0:12:53.679 Just before we. 0:12:53.640 --> 0:12:55.520 Get into what the Fed does, I want to bring 0:12:55.600 --> 0:12:58.040 you into the debate that Kelsey and I were having earlier. 0:12:58.320 --> 0:13:01.600 How important is it that in the risk on Friday 0:13:01.720 --> 0:13:04.839 and today you are not seeing bonds full faith and 0:13:04.880 --> 0:13:05.920 credit rally. 0:13:06.800 --> 0:13:08.360 I think there's a number of things. 0:13:08.400 --> 0:13:13.640 A people have questioned the dollars reserve currency status, people 0:13:13.640 --> 0:13:16.920 have questioned a lot of interesting information about where people 0:13:16.960 --> 0:13:19.360 are going from a global perspective in terms of investing 0:13:19.360 --> 0:13:20.360 in the United States. 0:13:20.679 --> 0:13:22.520 The reality is we haven't seen much. 0:13:22.720 --> 0:13:25.880 Okay, so yeah, the dollar is down a little bit, 0:13:25.920 --> 0:13:28.520 but on a DXY basis, it's still very, very healthy. 0:13:28.559 --> 0:13:31.560 Under Joe Biden, we were at ninety on a DXY basis, 0:13:31.600 --> 0:13:33.800 and we're talking about ninety seven ninety eight. 0:13:33.880 --> 0:13:35.640 Now, what's the big deal? 0:13:36.480 --> 0:13:38.600 The reality is, when you look at most markets, there's 0:13:38.720 --> 0:13:41.959 very little impact of anything. And I think this goes 0:13:42.000 --> 0:13:44.000 to the fact that there is no systemic risk in 0:13:44.040 --> 0:13:44.679 the economy. 0:13:44.840 --> 0:13:46.480 There is no balance sheet related risk. 0:13:47.000 --> 0:13:50.600 There's excess liquidity, there's excess global savings, and there's a 0:13:50.600 --> 0:13:52.360 lot of oil floating around in the world. And I 0:13:52.360 --> 0:13:54.600 think when you put all of that together, you can 0:13:54.640 --> 0:13:57.520 easily see why Marcus are just sitting there saying, Okay, 0:13:57.840 --> 0:13:59.840 we've tried to sell off several times. 0:14:00.000 --> 0:14:04.280 I've tried to rally several times. We've had eight recession calls. 0:14:03.920 --> 0:14:06.839 Since twenty twenty two. None of them have worked. Let's 0:14:06.880 --> 0:14:07.960 just get on with life. 0:14:08.120 --> 0:14:11.319 So you're essentially describing a bit of an equilibrium where 0:14:11.320 --> 0:14:12.000 everything is just. 0:14:12.000 --> 0:14:13.880 Kind of at this steady state. 0:14:14.080 --> 0:14:17.440 And so that gets me thinking about this concept of 0:14:17.480 --> 0:14:21.200 the neutral rate, which the FED estimates in the dot plot, 0:14:21.280 --> 0:14:22.520 and they're going to do another. 0:14:22.360 --> 0:14:23.400 Crack at that. 0:14:23.400 --> 0:14:26.120 That neutral rate has been taking higher, It's about fifty 0:14:26.120 --> 0:14:28.840 basis points higher over the last year, but the Fed 0:14:28.920 --> 0:14:32.680 still thinks that the current level of policy is restrictive. 0:14:33.160 --> 0:14:33.960 What do you think. 0:14:35.120 --> 0:14:37.280 I don't think the current level of policy is restrictive, 0:14:37.280 --> 0:14:39.600 having for quite some time, I think the FED rate 0:14:39.640 --> 0:14:42.000 cuts last year were a disaster. I think trying to 0:14:42.040 --> 0:14:44.120 repeat that again this year would be a bigger mistake. 0:14:45.320 --> 0:14:46.480 I think when you look at a two. 0:14:46.400 --> 0:14:48.760 Percent real greater growth in the economy, an inflation rate 0:14:48.800 --> 0:14:51.080 that's running about two two and a half percent, you're 0:14:51.120 --> 0:14:54.080 looking at four and a half percent neutral rate from 0:14:54.080 --> 0:14:57.160 a nominal FED funds rate perspective, And to me, where 0:14:57.160 --> 0:14:59.200 are we right now four and a half percent? I 0:14:59.200 --> 0:15:01.640 think we should be ending the year closer to five percent, 0:15:01.680 --> 0:15:03.480 because I think inflation will be three percent. 0:15:03.920 --> 0:15:06.120 And I think the only reason why you haven't seen 0:15:06.200 --> 0:15:08.560 inflation from tariffs coming. 0:15:08.240 --> 0:15:11.840 Through is because in this environment, while there's negotiations going on, 0:15:11.920 --> 0:15:14.120 a lot of CEOs are sitting there saying I'm not 0:15:14.160 --> 0:15:15.760 going to be the first one to move to raise 0:15:15.800 --> 0:15:18.320 prices because I don't want to lose market share. I 0:15:18.400 --> 0:15:21.200 pre inventoried a lot of stuff. I've got time, I've 0:15:21.200 --> 0:15:24.040 got opportunity. Let's see how this plays out before I'm 0:15:24.080 --> 0:15:24.920 make any decisions. 0:15:25.040 --> 0:15:27.000 Well, we would certainly agree with you in terms of 0:15:27.080 --> 0:15:29.640 the inflation assessment. We also took a look at that 0:15:29.720 --> 0:15:31.800 and said, yeah, I mean, you're not going to get 0:15:31.880 --> 0:15:35.000 negative goods prices on goods prices month over month on 0:15:35.040 --> 0:15:37.600 a persistent basis. But I do want to kind of 0:15:37.680 --> 0:15:41.600 drill into this idea of goldilocks and how long it 0:15:41.640 --> 0:15:46.080 can persist this equilibrium, particularly on the labor market side, 0:15:46.120 --> 0:15:49.600 because what caught my eye last week was continuing claims 0:15:49.640 --> 0:15:53.280 which continue to rise. Use just those cracks under the surface. 0:15:53.360 --> 0:15:55.640 Do you see those as a concern? Is there anything 0:15:55.640 --> 0:15:57.520 there for the FED to be worried about claims? 0:15:57.520 --> 0:16:00.280 And continuing claims on a forward moving average or at 0:16:00.360 --> 0:16:04.080 exceptionally low levels. When you look at the covered employment there, 0:16:04.280 --> 0:16:08.040 even at a lower level, there's no risk whatsoever in 0:16:08.080 --> 0:16:09.080 this labor market. 0:16:09.120 --> 0:16:10.320 And I think that's the key. 0:16:10.520 --> 0:16:12.760 I think if you're looking for one market where there's 0:16:12.800 --> 0:16:17.240 potentially a movement out of equilibrium, it is the labor market. 0:16:17.480 --> 0:16:20.920 But that is only a move towards a tighter labor market. Okay, 0:16:21.120 --> 0:16:23.320 once you get this tax cut done, and this tax 0:16:23.320 --> 0:16:26.280 cut I think will be bigger than anyone still currently thanks, 0:16:26.520 --> 0:16:28.080 I think you don't wind up seeing what a much 0:16:28.120 --> 0:16:30.920 tighter labor market and much greater push on inflation. And 0:16:30.960 --> 0:16:32.920 therefore I question whether or not the Fed's going to 0:16:32.960 --> 0:16:34.840 get the so called two rate cuts out this year. 0:16:34.880 --> 0:16:36.680 So you think that maybe the Fed's not going to cut. 0:16:36.720 --> 0:16:37.440 Is that kind of your call? 0:16:37.520 --> 0:16:40.000 Hour call has been the Fed shouldn't cut whatsoever, And 0:16:40.080 --> 0:16:41.680 therefore we believe the Fed won't cut. 0:16:41.920 --> 0:16:44.520 So there's a question here about longer term bonds and 0:16:44.520 --> 0:16:47.560 how that really bleeds through at a time when people 0:16:47.600 --> 0:16:49.640 have not seen this as a haven, and there's been 0:16:49.640 --> 0:16:52.240 a real question about the inflation risk being priced in 0:16:52.480 --> 0:16:54.720 or not. And I'm just wondering do you see yields 0:16:54.760 --> 0:16:57.680 going higher from here with questions about US assets as 0:16:57.720 --> 0:17:02.200 a haven as well as potential that's only exacerbated potentially 0:17:03.080 --> 0:17:06.120 by inefficiencies and oil shocks that might come up along 0:17:06.160 --> 0:17:06.440 the way. 0:17:06.680 --> 0:17:08.320 I mean, I think we're supposed to get to five 0:17:08.400 --> 0:17:10.040 percent on the tenure note. 0:17:10.160 --> 0:17:11.560 I don't think that's a disaster. 0:17:12.680 --> 0:17:14.840 When you look at what's happening in the boj market, 0:17:14.840 --> 0:17:17.560 for example, they're having a significant amount of problems. 0:17:17.560 --> 0:17:19.240 There is yields rise in Japan. 0:17:19.640 --> 0:17:22.159 You look at Europe, European rates probably aren't going to 0:17:22.160 --> 0:17:25.800 go up because Europe's a mess, and Christine Legard doesn't 0:17:25.840 --> 0:17:27.800 think she needs to cut interest rates and she does, 0:17:28.680 --> 0:17:31.200 so I think you've got this situation. Well, I'd rather 0:17:31.240 --> 0:17:34.280 buy Europe because Europe's more likely to go into deflation 0:17:34.640 --> 0:17:36.760 than by the US, where we're likely to have three 0:17:36.760 --> 0:17:39.120 percent inflation. So I don't think we have to get 0:17:39.160 --> 0:17:45.040 beyond the macro into this geopolitical concern about solvency and 0:17:45.119 --> 0:17:48.159 sovereignty and all this other garbage and reserve currency to 0:17:48.280 --> 0:17:51.840 explain what's happening in markets. What's happening in markets is 0:17:52.080 --> 0:17:56.160 you're reflecting relative interest rate differentials based on relative inflation 0:17:56.280 --> 0:17:57.480 differentials and. 0:17:57.400 --> 0:17:58.359 Relative real growth. 0:17:58.400 --> 0:18:01.320 And there's nothing that's mysterious about this. 0:18:01.359 --> 0:18:03.040 It's traditional macroeconomics. 0:18:03.280 --> 0:18:06.760 So we're continuing to work through one big, beautiful bill 0:18:06.880 --> 0:18:11.400 that's going on underneath all of these headlines that we've 0:18:11.400 --> 0:18:14.520 been dealing with. And I was curious, you know, the 0:18:14.560 --> 0:18:17.840 way I think about deficit expansion is there's deficit expansion 0:18:17.880 --> 0:18:19.240 and then there's fiscal impulse. 0:18:19.440 --> 0:18:23.000 So some of the improvement or. 0:18:23.000 --> 0:18:26.720 Deterioration in the deficit is a function of just extending 0:18:27.080 --> 0:18:31.119 the tax cut was isn't necessarily a fiscal impulse. How 0:18:31.160 --> 0:18:32.919 do you differentiate between the two? 0:18:33.000 --> 0:18:34.080 And you mentioned. 0:18:33.720 --> 0:18:36.920 Already that you see the risk is actually to more 0:18:37.040 --> 0:18:40.600 fiscal impulse and more deficit expansion from here. 0:18:41.080 --> 0:18:42.119 Yeah, no, I agree with you. 0:18:42.119 --> 0:18:43.639 I mean, if you were just going to extend the 0:18:43.680 --> 0:18:46.480 tax cut alone, you would not have a major positive 0:18:46.520 --> 0:18:49.199 impulse into the economy. But we're not going to do that. 0:18:50.240 --> 0:18:52.520