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: bringing Stephanie Roth of Wolf Research into the conversation. Stephanie
Speaker 2: in morning, Good morning, your reaction to this one please?
Speaker 3: It was a strong one, Gren.
Speaker 4: We had some you know, down revisions to the prior month,
Speaker 4: but the net trend is pretty strong. The challenge is
Speaker 4: looking forward. There's a pretty big cliff from an economic
Speaker 4: perspective in heading into the next couple of months, and
Speaker 4: if we don't get a significant downward shift in the
Speaker 4: tariff rate from China, then things like the strength and
Speaker 4: transportation and warehousing is going to very much shut off.
Speaker 5: If I were a pessimist, not that I am. But
Speaker 5: if I were a pessimist, if I wanted to look
Speaker 5: at the negative side of this, I would say it
Speaker 5: gives a FED no excuse to even come close to
Speaker 5: cutting rates, and that potentially they have no reason to
Speaker 5: signal that they are concerned about a true weakening in
Speaker 5: the economy that is politically fraught as well as not
Speaker 5: represented in the data. How much does that increase the
Speaker 5: backside of the year and the potential weakness that you
Speaker 5: could see down the line if the FED is disinclined
Speaker 5: to really make any movement, I think that's right.
Speaker 4: There's no reason for the FED to be cutting or
Speaker 4: signaling that they're going to be cutting anytime soon. At
Speaker 4: this point, the economy is fine. They have to be
Speaker 4: reacting to the unemployment rate, which is kind of steady
Speaker 4: as the four to two, and they're concerned about the
Speaker 4: inflation backdrop, but for now they just have to sit
Speaker 4: and wait. They have to wait until they see an
Speaker 4: actual rise in the unemployment rate before they can make
Speaker 4: notable changes. And at this point the economy is okay
Speaker 4: and consumption has been okay up until this point, so
Speaker 4: it's just wait and see for the FED.
Speaker 5: On the flip side, to Muhammed's point, and this is
Speaker 5: the reason why this is such a mentally twisting kind
Speaker 5: of moment. You could say, well, the economy has a
Speaker 5: lot of momentum. We're coming into this very strong. We
Speaker 5: might get something of a hip, but it might be
Speaker 5: a disinflationary shock of anything, which might help out the FED,
Speaker 5: and then we end up back in the soft landing
Speaker 5: type of narrative. How much does this give you confidence
Speaker 5: that we still have that potential even amid all of
Speaker 5: the uncertainty.
Speaker 4: So base case at this point is the economy Ken
Speaker 4: Averter session, although barely if policymakers actually start to change
Speaker 4: their tune a little bit, which we are starting to
Speaker 4: see out of Washington to Stoma extent and the headlines
Speaker 4: around potentially some of the conversations with China certainly helps.
Speaker 4: So base cases that they'll change their tune a little bit.
Speaker 4: If we end up with ten percent across the board
Speaker 4: tariffs and tariffs on China fifty percent maybe forty percent,
Speaker 4: then the economy can be okay. This year you just
Speaker 4: have a one percent or so shock on the economy,
Speaker 4: But having this solid momentum heading into this certainly does help.
Speaker 1: How much do you how much time do they have
Speaker 1: to change their tune, as you say, to avoid the
Speaker 1: most difficult damage.
Speaker 3: We have a couple of weeks, weeks, not months.
Speaker 4: We have weeks, not months. I was just talking to
Speaker 4: the guests from the Port of la just just just
Speaker 4: before this, and they were discussing the you know, the
Speaker 4: amount of time, especially smaller retailers have. They don't have
Speaker 4: these big warehouses.
Speaker 3: They have a couple of weeks.
Speaker 4: Take a bike shop, for example, they have just a
Speaker 4: couple of weeks worth of inventory and they wait for
Speaker 4: the next shipment, and if the shipments aren't coming in,
Speaker 4: it's going to become a problem. They're going to have
Speaker 4: to just shut down because they'll have one or two
Speaker 4: bikes left for sale.
Speaker 2: These are the empty shams that people worry about if
Speaker 2: you are just joining us. Seven minutes ago, we just
Speaker 2: got the payrolls report. It came in at one seventy seven.
Speaker 2: The media estimate our survey was one thirty eight. The
Speaker 2: unemployment rate expected to hold at four point two percent,
Speaker 2: and it did four point two percent. They're the two
Speaker 2: headline numbers we often think about, my McKey, you look
Speaker 2: beyond the headlines. Some up for us if you just
Speaker 2: missed it, what did you miss? Well?
Speaker 6: Right now, what I'm seeing is some impacts. It looks
Speaker 6: like in the tariff areas or two be tearifft areas.
Speaker 6: Computers lost four construction lost four thousand jobs, se my
Speaker 6: conductors lost.
Speaker 3: Eleven one hundred.
Speaker 6: Primary metal jobs were down by one hundred, apparel jobs
Speaker 6: down by three hundred, and government workers down by nine thousand.
Speaker 6: Leave out the postal service, but they got some dodge
Speaker 6: cuts too, and you have eight and a half thousand,
Speaker 6: so you are seeing some impacts from the administration's moves
Speaker 6: already in terms of the unemployment rate, the unemployment rate
Speaker 6: actually rises by a few basis points. The three digits
Speaker 6: is four point one eighty seven from four point one
Speaker 6: five to two. So we came very close to getting
Speaker 6: a four point three handle, but it didn't move. And
Speaker 6: as you're talking about, unless the fancies the unemployment rate moving,
Speaker 6: they're not moving.
Speaker 2: The equity bills get and everything they won this morning, Lisa,
Speaker 2: I better jobs put the potential for talks between the
Speaker 2: US and China, and potentially a ninth consecutive to have
Speaker 2: gains on the SMP.
Speaker 5: I guess I'm trying to understand, if you flip this
Speaker 5: of its head and you talk about real strength in
Speaker 5: the economy and you talk about the potential for a deal,
Speaker 5: are we underestimating the inflationary pressure? Are we underestimating just
Speaker 5: how much growth there is that potentially is not being
Speaker 5: accounted for by the Fed or by the rest of
Speaker 5: the universe.
Speaker 2: I don't know.
Speaker 3: I'm just wondering.
Speaker 5: Maybe people were saying there's a difference between the bond
Speaker 5: market and the stock market, and the bond market's so
Speaker 5: smart and it's always right. Maybe the stock market was
Speaker 5: right and all of a sudden you need to repose
Speaker 5: things on the other end.
Speaker 2: Pretzels, is that what we're making this smilet. Let me
Speaker 2: put it this way. Whether this number is weak or strong,
Speaker 2: the risk was always that we extrapolated it out. The
Speaker 2: policy shock that we've had in the last month is
Speaker 2: so large that the distortions you'll see in the data
Speaker 2: not just this month, the month after that, the month
Speaker 2: after that. Just to go back to Gen Soroka again
Speaker 2: at the Port of la he's telling you, he's basically
Speaker 2: telling you what things look like now and how long
Speaker 2: it'll take to get things back to normal. Even if
Speaker 2: you strike a deal tomorrow, which is.
Speaker 5: The reason why if you take a look at the
Speaker 5: two year yield, it's almost completely retraced back to where
Speaker 5: it was before this print. Because people are looking through this,
Speaker 5: they're saying, this is not what we're going to experience
Speaker 5: in the upcoming months.
Speaker 2: Jeff Rosenberg of Black Rock jumps into the conversation. Now, Jeff,
Speaker 2: welcome to the program. We want your thoughts on where
Speaker 2: things are, how we're set up going into the opening
Speaker 2: bow fifty minutes away.
Speaker 7: Yeah, you know, first point here, just agree with Muhammad's
Speaker 7: take that this is about where is the economy coming
Speaker 7: into the shock, and this is a good report, and
Speaker 7: that's important. You've got more resilience when you're coming to
Speaker 7: a shock from a place of strength. You know, you
Speaker 7: look through the report, across payrolls, across earnings, hourly hours worked,
Speaker 7: it's all strong.
Speaker 3: Now, that's that's the first point.
Speaker 7: The second point is, unfortunately, it's really less relevant to
Speaker 7: the go forward because this is kind of you know, yes,
Speaker 7: it's our first hard data, but it's really pre the
Speaker 7: tariff shock. And as we're discussing that tariff shock and
Speaker 7: the size and the scope and the amount of exemptions,
Speaker 7: that's evolving, but none of this data really reflects the
Speaker 7: impact of the shock, and we'll have to see that
Speaker 7: data show up. And that's the third point here, is
Speaker 7: that the FED and they're going to have to wait,
Speaker 7: and they're going to have to wait until they see
Speaker 7: any kind of impact in terms of arise in the
Speaker 7: unemployment rate. And until you see that, you're not going
Speaker 7: to really see any kind of expectations of FED intervention.
Speaker 3: And as the other guest was saying.
Speaker 7: It's very hard for them to be preemptive and to
Speaker 7: go to forecast dependence. This is data dependence, and this
Speaker 7: is lagging data, and so that will be, you know,
Speaker 7: really one of the last things to show up as
Speaker 7: we talk about that in months ahead.
Speaker 8: Traffic And if I may push you a little bit
Speaker 8: on what you just said, So how you're navigating all
Speaker 8: these serious puzzles soft data versus hot data. What about
Speaker 8: the sequencing You hear some people say, yeah, we're going
Speaker 8: to slow down, but don't worry, there's deregulation, there's tax
Speaker 8: cuts coming, We're going to bounce right up. There's so
Speaker 8: many issues right there that people are debating in a
Speaker 8: very genuine manner. When you put it all together when
Speaker 8: you look at the growth aight for the US. The
Speaker 8: IMF last week took it down from two point seven
Speaker 8: to one point eight for this year. A lot of
Speaker 8: people thought they would go further down. They will go
Speaker 8: more towards one percent. Where's blackrok right now in terms
Speaker 8: of how all this nets out in terms of growth
Speaker 8: for the US this year.
Speaker 7: You know, we have a very broad diversified group of investors,
Speaker 7: so Blackrock as a totality has a lot of different
Speaker 7: investors with a lot of different points of view. I'll
Speaker 7: tell you my point of view on this is that
Speaker 7: we've had a shock.
Speaker 3: Is the shock going.
Speaker 7: To be as big as you know the immediate market
Speaker 7: reaction in the post Liberation Day announcements. No, you see
Speaker 7: the walk back from that, But the shock has affected
Speaker 7: outcomes and the uncertainty.
Speaker 3: About how big that will be.
Speaker 7: Yes, we've probably cut off the tail because the administration's response,
Speaker 7: the concern about financial markets and the negative reception, the
Speaker 7: concern from the real economy participants, and the real effects
Speaker 7: that these very very initial tariff policies we're having.
Speaker 3: We're seeing that walked back.
Speaker 7: However, you still have the damage to be seen and
Speaker 7: that means likely some degree of slowdown. And even if
Speaker 7: the tariff rates are much reduced from the initial proposal,
Speaker 7: you're still talking about this kind of uncertainty. You know,
Speaker 7: the FED brought back into the language a transitory effect
Speaker 7: on inflation from the one time tariff increase. The big
Speaker 7: question will be in an environment that is much more
Speaker 7: used to price increases. You know, what are the second
Speaker 7: order effects on inflation and inflation expectations as you see that,
Speaker 7: you know, what should be a one time effect, is
Speaker 7: it really a one time effect? And those will be
Speaker 7: you know, the big focus I think you know in
Speaker 7: our outlook, the vulnerability here is is the markets have
Speaker 7: kind of repriced very quickly any kind of risk premium.
Speaker 3: You see it in the round trip inequities. You see
Speaker 3: it in the round trip and high yield spreads.
Speaker 7: So there's not a lot of margin for safety with
Speaker 7: respect to market pricing.
Speaker 3: So for us, that's meant.
Speaker 7: A little bit more of taking the opportunity is the
Speaker 7: market has kind of moved to very quickly price in
Speaker 7: more optimistic take to take a little more defensive positioning
Speaker 7: in our portfolio.
Speaker 2: Jeff, what does defensive positioning actually look like? What does
Speaker 2: that mean in today's market, Yeah, for us.
Speaker 7: You know, we run a liquid alternative fund that is
Speaker 7: positioned as an alternative diversifier. So when we're thinking about
Speaker 7: like our upside downside, we're going to be much more
Speaker 7: sensitive to downside protection. And so defensiveness means up in quality.
Speaker 7: For example, in our credit space, it means reducing some
Speaker 7: of the more equity sensitive areas within the portfolio that
Speaker 7: have the highest kind of beta, highest market reaction to
Speaker 7: economic sensitivity to the potential that tariffs actually end up
Speaker 7: leading to a much more adverse outcome for the economy.
Speaker 7: And it means on the duration side, on the interest
Speaker 7: rates side, because the flip side of the tariff piece
Speaker 7: for growth is as I was just talking about the
Speaker 7: kind of inflation and inflation uncertainty, and that leads to
Speaker 7: a very different kind of bond market reaction where you
Speaker 7: could have a twist steepening where you know, if the
Speaker 7: FED preferences growth over inflation in a stagflationary shock, you
Speaker 7: may have the back end longer maturity.
Speaker 3: Rates not doing what you expect them to do.
Speaker 7: And so that means kind of shortening our what we
Speaker 7: call key rate duration. Where are we getting our exposures
Speaker 7: for the diversification looking much more to the front end
Speaker 7: of the curve than historically you would have thought, Hey,
Speaker 7: the back end is really the best place. In today's environment,
Speaker 7: I think the back end is much more vulnerable and
Speaker 7: a stagflationary kind of outcome really changes how you think
Speaker 7: about defensive positioning and fixed income portfolio.
Speaker 5: You were talking to priamsra earlier JP Morgan Asset Management.
Speaker 5: She said that thirty year treasuries were the risk asset
Speaker 5: right now and doesn't really want to go there.
Speaker 3: Do you feel the.
Speaker 7: Same, Yeah, it's a similar it's a similar viewpoint.
Speaker 2: Now.
Speaker 3: You got to be careful because there are a lot
Speaker 3: of cross currents.
Speaker 7: There's a lot of potential for policy intervention and some
Speaker 7: other changes, and you have to also be careful that
Speaker 7: market positioning is preas talking about, it's a very popular,
Speaker 7: kind of crowded viewpoint that the back end is vulnerable.
Speaker 7: That being said, I think the base case is and
Speaker 7: we've seen it here. We saw it in the post
Speaker 7: tariff announcement, a big curve steepening that you do have
Speaker 7: the potential here. You know, it used to be in
Speaker 7: the zero interest rate environment post GFC flight to quality
Speaker 7: was a curve flattener you wanted to own the thirty year.
Speaker 7: In an earlier era, long before the GFC, we used
Speaker 7: to think flight to quality was a curve steepener, and
Speaker 7: I think we're back into that kind of environment. It
Speaker 7: makes it a little bit challenging for investors who are
Speaker 7: kind of cash limited because you don't get the same
Speaker 7: kind of return for a dollar investment. It means you
Speaker 7: need a little bit more flexibility in your portfolio toolkit
Speaker 7: to use things like futures and leverage to equate your
Speaker 7: diversification irrespective of where you are on the yield curve,
Speaker 7: And a little bit more flexibility in the toolkit allows
Speaker 7: investors like ourselves to be able to do that.
Speaker 2: Jeff, thanks for jopping buying Jeff rosenbook of black Rock.
Speaker 2: On the Latest in this Market, The Latest on the
Speaker 2: Jobs Market one hundred and seventy seven k An upside
Speaker 2: surprise on the jobs report with an industry breakdown. My
Speaker 2: mckageo on this now with more Mike, what do you
Speaker 2: go well.
Speaker 6: John, Looking at some of the areas where you would
Speaker 6: think the tariffs would have an impact, at least they
Speaker 6: might some point, they haven't yet Today retailers lost one
Speaker 6: point eight thousand jobs. But building materials, this is the
Speaker 6: time of year when people would hire more for building
Speaker 6: materials and garden centers. They were up by two point
Speaker 6: seven by two thousand, seven hundred, and as I mentioned,
Speaker 6: construction workers were up. Healthcare and social workers this is
Speaker 6: the category that would include some of the workers that
Speaker 6: would be laid off in terms of contractors or some
Speaker 6: of the aid programs that the administration is slashed. But
Speaker 6: they were up by seven point six thousand, seven six hundred.
Speaker 6: So we're still seeing people getting hired into areas in
Speaker 6: which you'd think there would be job cuts or that
Speaker 6: they may be coming at some point, but we haven't
Speaker 6: gotten there yet. Only two thousand people listed as job
Speaker 6: losers this past month. So right now it looks like
Speaker 6: the economy is still the labor market at least is
Speaker 6: still pretty strong.
Speaker 2: Mamma Kay, thank you. Breaking down the lap of market
Speaker 2: for us this morning. Breaking down the commentary from the
Speaker 2: White House, Amrie, the President with a few things to say,
Speaker 2: a few.
Speaker 1: Things to say, so about gasoline. He's saying it just
Speaker 1: broke a dollar ninety eight. I'm actually looking at what
Speaker 1: the national average is just above three dollars. He's talking
Speaker 1: about energy down, employment strong, and get to the punchline.
Speaker 1: Of course, he's saying this is a perfect moment for
Speaker 1: the Fed chair j Powell to lower interest rates. The
Speaker 1: job boning, Jonathan.
Speaker 2: Continues, Stephanie is at the perfect time for Japowe to
Speaker 2: lower interest rates.
Speaker 8: It is not the perfect time.
Speaker 4: It's the opposite. The economy is running okay right now.
Speaker 4: They don't want to get ahead of this. They're going
Speaker 4: to have to just wait and see what the impact
Speaker 4: is from an employment perspective, and then an inflation perspective.
Speaker 4: By the way, inflation could be running.
Speaker 3: Up towards four percent at most.
Speaker 2: Joins us now of Raymond James, and welcome to the program.
Speaker 2: I want to get your thoughts on some of the
Speaker 2: fiscal risk down in Washington, DC and how you think
Speaker 2: things are stacking up.
Speaker 9: Yeah, John, So, I think the number one goal of
Speaker 9: this budget today is to get all of us to
Speaker 9: repeat the point that it cuts or proposed to cut
Speaker 9: one hundred and sixty three billion dollars. When I look
Speaker 9: at the Hill and they're working on this reconciliation bill,
Speaker 9: if they do what they want to do, the final
Speaker 9: tab of this bill is going to be somewhere between
Speaker 9: five and seven trillion dollars. Were going to have some
Speaker 9: cuts and that may bring it down to three to
Speaker 9: five trillion dollars, but let's be clear, that's going to
Speaker 9: be the single most expensive bill in the history of
Speaker 9: the United States. And so if I'm the president of
Speaker 9: the United States and I'm asking Republicans to do that,
Speaker 9: I probably want to create a narrative through doze, through
Speaker 9: this budget, through tariffs, through the Treasury Secretary that we're
Speaker 9: trying to cut government spending, that we're trying to get
Speaker 9: a new revenue store, and with the Treasury Secretary telling
Speaker 9: everyone they're concerned about the bond market. So this is
Speaker 9: a political document as much as a budget. Today they'd like.
Speaker 1: To create a narrative, ed, but does that narrative become reality?
Speaker 9: Well, everything in politics, everything in life is compared to
Speaker 9: what and so this is where they're also kind of,
Speaker 9: you know, kind of laying this out amory where they're saying,
Speaker 9: you have a choice as a congressional Republican, which one
Speaker 9: do you want to vote for the largest tax increase
Speaker 9: in the United States history or the largest tax cut
Speaker 9: in the United States history, and if you vote for
Speaker 9: kind of the largest tax cut, you are supporting the president.
Speaker 9: And for Republicans, it's increasingly difficult to be opposed to
Speaker 9: this president. And so yes, they're creating that narrative, and
Speaker 9: they're creating a juxtaposition that most Republicans are going to take.
Speaker 8: And I totally understand the first level of narrative. But
Speaker 8: there's a second level of narrative, and that has to
Speaker 8: do with the composition of the budget and in particular
Speaker 8: the different impact of a significant spending cut and a
Speaker 8: tax cut. They operate differently, and there is a second
Speaker 8: narrative that says, you know what, this budget in the
Speaker 8: short term will tip us closer to a recession. What
Speaker 8: do you make of that?
Speaker 9: Yeah, Mohammed, I think what the narrative I get out
Speaker 9: of that is that this is administration who is very
Speaker 9: clearly focused on cuts on the domestic side of things,
Speaker 9: and yes, there are fiscal impacts of that, but they're
Speaker 9: also trying to send the message that they want to
Speaker 9: increase defense spending. This budget will be the first trillion
Speaker 9: dollar proposal for annual spending on the defense budget. In
Speaker 9: the reconciliation build. They want to add another one hundred
Speaker 9: and fifty billion dollars to front and load that. I
Speaker 9: think what we're seeing is historically in DC there's a
Speaker 9: bit of a balance and discretionary spending between defense in
Speaker 9: non defense, and this is a president who's saying, let's
Speaker 9: skew this more towards defense versus non defense. How that
Speaker 9: impacts the ultimate economy to be determined. But I think
Speaker 9: what Republicans would say is when you add up the
Speaker 9: kind of domestic R and D tax credit, bonus appreciation,
Speaker 9: no tax on tips, no tax on social security, they
Speaker 9: would say that's fiscal stimulus and could offset on the
Speaker 9: kind of private sector what the government might be cutting
Speaker 9: from this budget.
Speaker 2: Appreciate the updates, sir, as always, thanks for jumping on
Speaker 2: at MOS. There of Raymond James. Joining us now is
Speaker 2: Stephen Meyer and the chairman of the Council of Economic Advisors.
Speaker 2: Stephen Welcome back to the program, sir, thanks for making
Speaker 2: some time for us this morning. Let's just take a
Speaker 2: little assessment of where things are right now. So through
Speaker 2: the week, GDP first contraction since twenty twenty two, consumer
Speaker 2: confidence the week is since May twenty twenty, manufacturing shrinking
Speaker 2: on the m report, and then we just have this
Speaker 2: very solid payrolls report. What's your assessment, Stephen of where
Speaker 2: things are at the moment.
Speaker 10: Good morning, Thanks for having me, And let me just
Speaker 10: say that I know that surveillance usually ends at nine,
Speaker 10: So I look forward to you guys benefiting from the
Speaker 10: President's forthcoming no tax in overtime. So thanks for staying
Speaker 10: a few extra minutes. But no, Look, you know, I think,
Speaker 10: you know, I think there's been an ongoing disconnect between
Speaker 10: the hard data and the soft data. And the hard
Speaker 10: data continue to perform very well. One hundred and seventy
Speaker 10: seven thousand jobs last month, a beat of forty thousand jobs.
Speaker 10: That's the President's second jobs they beat in a row.
Speaker 10: And on top of that, you've got eleven thousand construction jobs,
Speaker 10: you know, expanding and expanding construction construction sector in spite
Speaker 10: of the President's cut crack down on the border, disproving
Speaker 10: critics again. And the hard data continued to be okay.
Speaker 10: And I think it's worth emphasizing that these data represent
Speaker 10: the period after the president's historic actions with tariffs in
Speaker 10: April second.
Speaker 2: So Steve and we need to get into that because
Speaker 2: there are some people that we've spoken to that worry
Speaker 2: about the next report. They think that this could show
Speaker 2: up in the May report, and I've heard the words
Speaker 2: downside risks repeatedly. Are you confident that some of that's avoidable?
Speaker 10: So you know, look, you know, given given the historic
Speaker 10: scope and speed with which the President acted to put
Speaker 10: American workers in firms first for the first time in decades,
Speaker 10: you know, it shouldn't be surprising if there's if there's
Speaker 10: some company volatility, and that extends to financial markets that
Speaker 10: we've seen, and it could extend to economic data also,
Speaker 10: as companies sort of substitute activity from one month to another.
Speaker 10: But you know that that remains to be seen. But
Speaker 10: so far in the hard data, we're not seeing any
Speaker 10: real evidence of that to be the case. And as
Speaker 10: you pointed out, you know there are various soft data
Speaker 10: sentiment indices that look not as good, but those tend
Speaker 10: to be influenced by financial markets, and there's been enormous
Speaker 10: volatility there lately, as you guys are aware, and they
Speaker 10: tend to be influenced a lot by a lot by politics.
Speaker 10: But historically the correlation between those in activity has been
Speaker 10: weaker in the last few years than it would have
Speaker 10: been say, ten years ago.
Speaker 2: We are seeing it show up in some hard data,
Speaker 2: and that's trade volumes. We just caught up with the
Speaker 2: Port of LA director Jane Soroka, Stephen, I wonder if
Speaker 2: you've been in touch with them and how you see
Speaker 2: this plank out. They're telling us now the trade volumes
Speaker 2: are about to fall, that what they're about to see
Speaker 2: through their port could drop by something like a third
Speaker 2: thirty percent, and then from there this could ripple through
Speaker 2: the US economy. What's the sequencing of things from your standpoint?
Speaker 10: Thanks, So, as I mentioned a moment ago, there can
Speaker 10: be some volatility in the economic data, and I think
Speaker 10: it's worth emphasizing that. You know, there are some firms
Speaker 10: that want to see the outcome of trade negotiations which
Speaker 10: will be coming soon, and they want to see the
Speaker 10: tax bill pass, which again will be coming soon, and
Speaker 10: as a result, they may substitute activity from one month
Speaker 10: to another, from one quarter to another, but it all
Speaker 10: gets averaged out over time. These are not the types
Speaker 10: of activities for which activity would get canceled permanently. And
Speaker 10: as you mentioned at the start, the GDP report contained
Speaker 10: a five point drag from import activity, so We're just
Speaker 10: coming off of a quarter with an enormous amount of
Speaker 10: imports that by the way, there was a data anomaly
Speaker 10: in the GDP data that I'm sure you know most
Speaker 10: of your audience is aware of by now. But after
Speaker 10: such a huge import drag on the economy in the
Speaker 10: first quarter, it wouldn't be surprising if there were a
Speaker 10: little but less important subsequently. I mean, but this stuff
Speaker 10: all averages out over time, and that's why it's important
Speaker 10: to look at measures of underlying GDP growth, underlying economic activity,
Speaker 10: and those were quite strong.
Speaker 2: As you know, the market is very focused on trade
Speaker 2: talks right now, and that's why we've seen equities recover
Speaker 2: to the extent they have over the past week.
Speaker 8: DA.
Speaker 2: When the US says China wants to talk, China's going
Speaker 2: around saying the US wants to talk. I don't think
Speaker 2: the market really cares about that. The market just wants
Speaker 2: to see talks. What's the timeline for actual talks.
Speaker 10: So the President has repeatedly said in recent weeks, and
Speaker 10: he's been very clear that he thinks that we will
Speaker 10: do a deal with China. I think the President is right,
Speaker 10: and as I keep pointing out, the President has one
Speaker 10: of the best track records on making deals in the
Speaker 10: entire history of the country. He is able to pull
Speaker 10: deals that have ave had that nobody thinks if possible.
Speaker 10: He pulled the Phase one deal with China Ada have
Speaker 10: had in twenty eighteen twenty nineteen, in spite of all
Speaker 10: the in spite of all the doubters. Many people didn't
Speaker 10: think that was possible, but he achieved it. And so
Speaker 10: I think the President is right that we will have
Speaker 10: a deal with China. I can tell you. I can
Speaker 10: tell you that I have good reason for that optimism.
Speaker 10: I think that it's in the interest of both economies
Speaker 10: to lower the temperature, to create breathing space, to continue talking,
Speaker 10: to figure out how we can get to a new
Speaker 10: stable equilibrium on trade. And I think that a little
Speaker 10: bit of de escalation will be quite helpful. So I
Speaker 10: would be surprised if tariff rates are where they are now,
Speaker 10: you know, within you know, within within a few weeks
Speaker 10: from now, a few weeks.
Speaker 1: So you're saying within a few weeks the one hundred and
Speaker 1: forty five percent tariff rate on China is bound to
Speaker 1: come down and to where Stephen.
Speaker 10: Well, I can't get ahead of negotiations. I can't make commitments.
Speaker 10: I'm not part of the trade negotiating team. I'm not
Speaker 10: a trade negotiator. But what I can tell you is
Speaker 10: the President has been very clear that he thinks that
Speaker 10: there will be a deal with China, and I think
Speaker 10: the President is right, and I think that both I
Speaker 10: think it's in the interest of both sides to come
Speaker 10: to a de escalation that lowers the temperature and creates
Speaker 10: breathing space.
Speaker 1: Well, China this morning put out a statement the Commerce Ministry,
Speaker 1: so this is official saying China is currently evaluating this.
Speaker 1: Do you have a sense when the President is going
Speaker 1: to get on the phone with Shijipang.
Speaker 10: I don't. I don't, And again you know, I'm not
Speaker 10: a trade negotiator. I'm an economic advisor. That's the scope
Speaker 10: of my role, giving you as my expectations. You know,
Speaker 10: I can't get ahead of the negotiations. I can't commit anyone.
Speaker 2: Steve, and I wonder if you could give us some
Speaker 2: insight though, just to the approach, the approach with tanking
Speaker 2: at the moment. The Choicey Secretary mentioned just yesterday that
Speaker 2: maybe we could revisit the purchase agreements that we struck
Speaker 2: with China back in twenty twenty. Is that something we'd
Speaker 2: look to do with other nations as well?
Speaker 10: You know, Look, I mean I think that there's a
Speaker 10: wide variety of terms that can be included in the
Speaker 10: different negotiations, And each country is different, each trading partner
Speaker 10: is different, and I suspect that each trading agreement that
Speaker 10: is reached will end up being different too. But things
Speaker 10: like that should definitely be on the table. And I
Speaker 10: think it's up to other countries to show America that
Speaker 10: they mean to make trade more fair, they mean to
Speaker 10: make trade more reciprocal, and they mean to create better
Speaker 10: markets for US exports. The way that we accept their
Speaker 10: exports into our markets, and purchases like the type you're describing,
Speaker 10: you know, could work towards that ends well.
Speaker 1: The Europeans are looking at increasing the purchases of US
Speaker 1: goods to fifty billion euros to address what they say
Speaker 1: is the problem in the trade really relationship. Is that
Speaker 1: enough to get a deal done between Washington and Brussels?
Speaker 10: Again, I can't you know, I'm not a trade negotiator,
Speaker 10: I'm not making deals with people. I'm just an economic advisor,
Speaker 10: And you know, I can't say you know, I can't
Speaker 10: prejudge the outcomes of those deals. However, what I will
Speaker 10: say is that talking is better than not talking, and
Speaker 10: I do believe in the ability of the President to
Speaker 10: create deals that nobody expects. And once you start on
Speaker 10: that process, I think that there will be fertile ground
Speaker 10: for countries to see eye to eye to make trade fairer,
Speaker 10: more symmetric, more durable, more resilient, and create a more
Speaker 10: long lasting, stable global trading system.
Speaker 2: Well, the Japanese aren't talking, and I think this is
Speaker 2: something that you can offer some insight on, an assessment
Speaker 2: on what this could mean for financial markets of the economy,
Speaker 2: and we'd love to know the kind of advice you'd give.
Speaker 2: In the oval to the President of the United States,
Speaker 2: the Japanese finance minister was asked if Japan's holding of
Speaker 2: treasuries could be a negotiation tool, and the response was this,
Speaker 2: here's the quote. It does exist as a card. Whether
Speaker 2: or not we use that cord is a different decision. Stephen,
Speaker 2: what's your reaction to that.
Speaker 10: My reaction is that I'm not the Treasury secretary, and
Speaker 10: you should ask my neighbor. A couple of blocks down, do.
Speaker 2: You have an assessment on what that would mean for
Speaker 2: markets in the economy, though.
Speaker 10: I don't, but you know, for markets in the economy,
Speaker 10: I think that, you know, capital flows will ultimately in
Speaker 10: the long run follow economic growth and economic opportunity. And
Speaker 10: that's why the President is focused on creating the most dynamic, strongest,
Speaker 10: healthiest economy in US history. And we're talking a lot
Speaker 10: about trade, but there's two other elements to the package also,
Speaker 10: and those are tax really for Americans, no tax on tips,
Speaker 10: no tax and overtime, no tax on social Security. And
Speaker 10: incentives for corporate investment, lower corporate rates on domestic manufacturing,
Speaker 10: you know, expensing things like that. And also deregulation, getting
Speaker 10: regulations out of the way so that American firms can
Speaker 10: produce in America without layers and layers of red tape
Speaker 10: that make financing difficults, that delay projects and just make
Speaker 10: it unattractive to invest in the United States. And as
Speaker 10: we succeed in creating the economy we want by passing
Speaker 10: the tax bill, the big beautiful tax bill, by proceeding
Speaker 10: with a deregulatory effort and getting government out of the
Speaker 10: way and putting American workers on fair ground via trade
Speaker 10: renegotiation and tariffs, then we're going to create the economy
Speaker 10: that will attract capital flows. So all of this stuff,
Speaker 10: in the short run, you know, it's a little bit noise,
Speaker 10: but in the long run, capital will follow economic opportunity,
Speaker 10: and this administration is focused single mindedly on creating economic
Speaker 10: opportunity for American firms and workers.
Speaker 1: So, Steve, let's quickly talk about the big beautiful bill.
Speaker 1: What kind of revenue do you expect from the tariffs
Speaker 1: to offset the tax cuts the President wants to get
Speaker 1: across the line.
Speaker 10: So when you talk about things like offsets, you know
Speaker 10: that's ultimately you know, usually people talk about that as
Speaker 10: part of the reconciliation process, which is basically, you know,
Speaker 10: as as your audience knows a legal artifact of how
Speaker 10: of how the sausage gets made in Washington and how bills,
Speaker 10: you know, and how bills come together and get signed
Speaker 10: into law, the tariff revenue is sort of a different bucket.
Speaker 10: And you know, I'm not at a liberty to share
Speaker 10: our internal number, but what I would say is I
Speaker 10: would be surprised if we had tariff revenue, you know,
Speaker 10: that was less than hundreds of billions of dollars a year,
Speaker 10: and that's very substantial, you know. So when you think
Speaker 10: about when you think about the revenue that you can
Speaker 10: erase from tariffs ultimately paid for by foreigners, use that
Speaker 10: revenue to help finance preservation of the President's historic twenty
Speaker 10: seventeen tax cuts. Use that revenue to help finance additional
Speaker 10: tax relief for American firms and workers. I think that's
Speaker 10: a winning combination, Steve.
Speaker 1: Right now, the market is basically just only pricing in
Speaker 1: the fact that there's going to be an extension of
Speaker 1: current policy. How confident are you that you get some
Speaker 1: of those sweeteners like you just mentioned no tax on
Speaker 1: tips actually done in this package, given how slim the
Speaker 1: Republican majority is in the Senate and the House.
Speaker 10: Oh, I'm very confident that we will get this package
Speaker 10: over the line. I'm extremely confident we'll get this package
Speaker 10: over line. The entire Republican Party is unified and committed
Speaker 10: to using tax incentives to create a vibrant, robust, healthy,
Speaker 10: and dynamic economy. And that was what created the first
Speaker 10: Trump economic boom, and it's what will help create the
Speaker 10: second Trumpet i'mic boom as.
Speaker 3: Well, Steven.
Speaker 2: Just a final word on the Federal Reserve, which we may.
Speaker 2: The President's been outspoken, as you know, he said we
Speaker 2: should reduce interest rates. The Treasury Secretary Scott Besson made
Speaker 2: the argument that look at whether front end of the
Speaker 2: yield curve is right now, the two year tried in
Speaker 2: below Fed funds, that's evidence that this market things were
Speaker 2: too tight and the Fed should cut rates. I just
Speaker 2: wander from your perspective, how you weigh in. Do you
Speaker 2: think this complicates the optics for the Federal Reserve? Does
Speaker 2: it make it harder for them to ease over the
Speaker 2: next several months?
Speaker 3: Sure?
Speaker 10: So you know, I think everyone's entitled to an opinion
Speaker 10: on interest rates and where they should be. And the
Speaker 10: President actually has a pretty good track record of his opinions.
Speaker 10: He was right in twenty eighteen twenty nineteen that inflation
Speaker 10: wasn't an issue and that interest rates were too high,
Speaker 10: and eventually consensus came around.
Speaker 3: To his view.
Speaker 10: And again he was right in twenty twenty one that
Speaker 10: interest rates are too low and inflation was coming back
Speaker 10: big time, and again consensus came around to his view.
Speaker 10: So everyone's entitled to an opinion on these matters. I
Speaker 10: think the president has a great track record on them
Speaker 10: as the Secretary of Besson, who's a fabulous track record
Speaker 10: as an investor on these subjects. And everyone's entitled to
Speaker 10: their view, you know. As to whether it interferes with
Speaker 10: the things you're talking about, I don't think so. I
Speaker 10: think the track record of the Federal Reserve speaks for itself.
Speaker 2: Stephen. Can I just say I really wanted to catch
Speaker 2: up with you. I did this for free, no overtime, Okay,
Speaker 2: but I'll take the tax break. I will take the
Speaker 2: tax break, Stephen. Thank you, sir, Stephen, My tax break
Speaker 2: is coming. Thank you, sir. The Chairman of the Council
Speaker 2: of Economic Advisors. This is the Bloomberg Surveillance Podcast, bringing
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