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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 Amerie Hordert. 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. Let's talk about the

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Speaker 2: future of this Federal Reserve, the White House casting a

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Speaker 2: wide net to replace fed share, Japower, the US Treasury

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Speaker 2: Secretary Scille Best and praising a quote very good meeting

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Speaker 2: with the former Saint Lewis FED President Jim Bullard during

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Speaker 2: his search. Jim joined us in a studio for more. Jim,

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Speaker 2: good morning, Good morning, thanks for being here. Not many

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Speaker 2: people get to experience what you've just experienced, sitting down

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Speaker 2: for a conversation to potentially become the fed Share.

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Speaker 3: Can you walk history what that was like, what's the

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Speaker 3: process like?

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Speaker 4: Well, as you say, they have a lot of a

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Speaker 4: lot of people on the list, and they're following through.

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Speaker 4: It's a transparent process. I think that's good. I think

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Speaker 4: all the I know virtually all the people on the list,

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Speaker 4: I think they're all good. So I think this was

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Speaker 4: a meeting just to talk in broad terms, but I

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Speaker 4: can't really report out, you know, details of what was said.

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Speaker 2: The Treasury Secretary incredibly downed into the economy on financial markets.

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Speaker 2: I'm sure you experienced that in your conversation with him.

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Speaker 2: I think you can share with us the kind of

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Speaker 2: questions I am matched that he's asking you when I

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Speaker 2: ask them to you, which essentially is how do you

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Speaker 2: view things right now? How do you think about the

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Speaker 2: labor market?

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Speaker 4: I thought the FEDS decision was a good one. Looks

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Speaker 4: like a sequence of three moves in a row through

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Speaker 4: the end of the year. Of course, you want to

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Speaker 4: be data dependent, and the chair stress that in the

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Speaker 4: press conference. But I think the committee was worried about

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Speaker 4: the non farm payrolls report that you know, revised the

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Speaker 4: previous months down considerably. You know, non farm payrolls is

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Speaker 4: kind of the key number for the Fed, so I

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Speaker 4: think that made them a little bit nervous. There are

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Speaker 4: stories that you can tell about why that's happening. But

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Speaker 4: on the other hand, you know, it could be weakness

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Speaker 4: and labor markets. So I think that tilted things toward

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Speaker 4: a little bit more dubbish policy. So they brought October

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Speaker 4: into the picture, and now you've got markets pricing probably

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Speaker 4: seventy five by the end of the year. That would

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Speaker 4: be a significant move by the end of the year.

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Speaker 4: And they have a little bit of optionality if the

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Speaker 4: data goes the other way. So it's a pretty good

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Speaker 4: decision from the point of view of how this works.

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Speaker 5: You said, they have optionality if the data goes the

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Speaker 5: other way. How high is the bar for strengthen the

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Speaker 5: economy to really prevent the FED at this point, given

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Speaker 5: everything from going three times this year.

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Speaker 4: Yeah, I think the committee is also spooked a little

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Speaker 4: bit by last year because last year the data looked

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Speaker 4: weak but then turned around abruptly, and so they'll be

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Speaker 4: nervous about that. It's hard to say exactly how high

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Speaker 4: the bars acid judgment call will have to be made

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Speaker 4: by members of the committee.

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Speaker 5: There's this other disagreement on the FED. Clearly there are

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Speaker 5: a lot of them, and understandably because in Wall Street

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Speaker 5: there are a lot of disagreements as well as to what.

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Speaker 6: The economic backdrop is.

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Speaker 5: But you could see a spread in terms of where

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Speaker 5: the neutral rate was from say three percent in terms

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Speaker 5: of the long term job for some of the Fed numbers,

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Speaker 5: or four percent for some of the others.

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Speaker 3: Where do you sit.

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Speaker 4: I think it's still fairly low, So you know, you

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Speaker 4: could argue maybe three in a quarter or something like that.

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Speaker 4: So if you're still above four percent with the policy rate,

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Speaker 4: you're still one hundred basis points above if that's your

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Speaker 4: If that's your number. So that's why I've been saying

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Speaker 4: they have room to maneuver. They have room to come

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Speaker 4: down some on the policy rate and still put downward

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Speaker 4: pressure on inflation. Inflation is still above target, and you

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Speaker 4: know it has been debated at length over the last

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Speaker 4: six months or so, but I think they're in pretty

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Speaker 4: good position right now.

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Speaker 3: How credible do you think it pursue two percent actually is?

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Speaker 4: I think the Committee is very dedicated to the two

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Speaker 4: percent target. I think it would be foolish to abandon

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Speaker 4: that target. It has set an international standard across all

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Speaker 4: the countries of the world. And if the lead economy says, oh,

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Speaker 4: you know, we're going to back off that then all

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Speaker 4: the other countries would back off, you'd be back into

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Speaker 4: the seventies and you'd have a lot of cash. So

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Speaker 4: that is not a good idea, and the committee will

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Speaker 4: try to get back to two percent. However, I think

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Speaker 4: you want to get back in a nice, smooth, asymptotic

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Speaker 4: path to two percent, and the forecasts always show that,

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Speaker 4: and that's all is the way the Fed thinks about it.

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Speaker 3: The two year rolling view.

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Speaker 2: Now, some people might say that's aspirational, magical forecasting. It's

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Speaker 2: just we're always forecasting this two years out but never

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Speaker 2: actually hits it based on history, which raises the credibility question.

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Speaker 2: The federal reserves cunning interest rates with inflation closer to

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Speaker 2: three than it is to two, with unemployment closer to

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Speaker 2: four than it is to five, and but that could

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Speaker 2: ease it all time highs. Is this the right time

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Speaker 2: to back away from that restrictive monetary policy that's going

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Speaker 2: to lead to that glidepath back towards two percent.

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Speaker 4: It's restrictive, but even when they come down, it'll still

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Speaker 4: be somewhat restrictive. I think one of the pieces of

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Speaker 4: risk management you have to think about here is suppose

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Speaker 4: the economy is tipping into a March slowdown, then the

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Speaker 4: Committee would want to be accommodative in that circumstance, and

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Speaker 4: you'd want to be below your neutral rate, so you'd

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Speaker 4: have a long way to go. You'd have to really

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Speaker 4: scramble if that happened. I'm not saying that's the base case,

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Speaker 4: but that's a possibility, and so you probably want to

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Speaker 4: be a little bit closer to neutral, so you didn't

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Speaker 4: have to work so hard if you got into that scenario.

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Speaker 5: One of the tests for a lot of people is

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Speaker 5: if inflation does go up, maybe say at the end

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Speaker 5: of this year early next year, which a lot of

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Speaker 5: people are expecting that it will, what's the Fed's response.

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Speaker 5: Do they keep cutting or do they look past it

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Speaker 5: is simply a one time price adjustment.

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Speaker 4: I think they made pretty clear that they're going to

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Speaker 4: look through temporary tariff effects and then they expect inflation

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Speaker 4: to resume its downward trend and the effects have been muted.

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Speaker 4: US Trade Representative does not have an inflation target, so

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Speaker 4: I think that you know, it's up to the FED

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Speaker 4: to determine what the inflation rate is going to be,

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Speaker 4: not trade policy, but so lots of things affect inflation,

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Speaker 4: and then you know, you have to get on your

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Speaker 4: sort of medium term path, and I think that's what

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Speaker 4: they're doing.

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Speaker 5: You mentioned earlier that there is a degree of fear

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Speaker 5: of repeating what we saw last year where they FED

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Speaker 5: cut by a undred basis points and we saw the

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Speaker 5: long end of the yield curve rise by one hundred

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Speaker 5: basis points and economic data pickback up. And I just

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Speaker 5: wonder how much you think the FED is open or

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Speaker 5: you would be open if you are on the FED now,

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Speaker 5: to adjust some of the balance sheet composition in response

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Speaker 5: to any move in the long end of the yield curve.

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Speaker 4: I think the balance sheet policy has been in the background.

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Speaker 4: I think that's appropriate. The Committee has been shrinking the

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Speaker 4: size of the balance sheet a little bit slower pace recently,

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Speaker 4: but I think they're pretty happy with that policy for now.

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Speaker 4: They want to get to this ample reserves level. There's

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Speaker 4: a good speech by my former colleague Chris Waller and Dallas,

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Speaker 4: so if you want some bedtime reading, you can read that.

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Speaker 4: But that was actually a very good back of the

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Speaker 4: envelope calculation about the balance sheet and all the pieces

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Speaker 4: of the balance sheet. So I think that's a good

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Speaker 4: place to start for those that want to understand current

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Speaker 4: balance sheet policy. The mortgage backed securities are going to

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Speaker 4: take a long time to go off. I do think

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Speaker 4: the Fed made a mistake in March April of twenty twenty.

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Speaker 4: We went all in on mortgage back securities, thinking that

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Speaker 4: the pandemic was going to harm the housing market, and

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Speaker 4: we got ninety two, one hundred and twenty days in

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Speaker 4: and boy it went the other way. Demand for housing

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Speaker 4: was way up. So unfortunately we added a lot of

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Speaker 4: mortgage backed securities over that two year period, but we're

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Speaker 4: going to have to let that gradually go off.

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Speaker 3: Would you AFFCD it for fifty this week?

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Speaker 7: No?

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Speaker 4: I don't think so. So I thought it was a

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Speaker 4: good decision because the Hawks could say that, Okay, we

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Speaker 4: only went twenty five, and we got optionality on the

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Speaker 4: future moves. But the Doves got the twenty five and

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Speaker 4: probably twenty five at October, and that's almost as good

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Speaker 4: as getting fifty today. And you do get the optionality

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Speaker 4: in their says.

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Speaker 2: When people talk about the institution, you know, so wow,

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Speaker 2: just based on what you've just said, do you think

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Speaker 2: people underestimate just how persuasi if you need to be

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Speaker 2: on the committee, the degree of negotiations that do take

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Speaker 2: place about the kind of things you just described.

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Speaker 4: It's a it's a you know, it's a big formal meeting,

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Speaker 4: and people are, you know, very good at making their arguments,

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Speaker 4: and they have the presidents have their own staffs. So

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Speaker 4: I mean, I love it. I think it's a great

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Speaker 4: it's it's a great place to make decisions. I think

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Speaker 4: also people have to understand that you're not talking so

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Speaker 4: much about what you're going to do on the day.

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Speaker 4: You're talking about what should our future path be over

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Speaker 4: the next six months and over the next two years,

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Speaker 4: but especially over the next six months, because you know,

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Speaker 4: you have to it's a big committee and you have

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Speaker 4: to be basically on board with you know, what you

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Speaker 4: to do. On that particular day.

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Speaker 5: You were very vocal about how you felt about the

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Speaker 5: dot plot back in the day.

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Speaker 6: Didn't like it.

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Speaker 3: Bring this up.

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Speaker 5: So significant to see your dot always just there at zero?

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Speaker 3: Are you going to get rid of it? Would you

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Speaker 3: get rid of it? I mean, what use?

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Speaker 4: I think we can do better than we have on

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Speaker 4: the dot plot. And at one point I talked about,

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Speaker 4: you know, dropping out completely. I did drop out of

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Speaker 4: the long long run dot part. But I think we

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Speaker 4: could do something like former chair Ben BERNANKEI outlined in

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Speaker 4: the recent conference that the FED had about the framework review,

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Speaker 4: and he mocked up a quarterly report that that could

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Speaker 4: be put out, and that would put out a forecast.

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Speaker 4: That's what other central banks do, and then members can

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Speaker 4: talk relative to that forecast. They could say, well, no,

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Speaker 4: I'm more optimistic about the economy, or i more pessimistic

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Speaker 4: about inflaier whatever. I think that would be closer to

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Speaker 4: an international standard. And that's probably the direction this should

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Speaker 4: go because the dot plot has its problems.

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Speaker 2: Stay with us more Bloomberg surveillance coming up after this.

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Speaker 2: Marissa Adams, the Europe and America's regional head of Global

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Speaker 2: Trade Solutions at HSBC, IT joins us now for more.

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Speaker 3: Marissa, welcome back.

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Speaker 2: We've got lots to talk about with you, including the

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Speaker 2: latest developments in the UK. I just want to start

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Speaker 2: with mitigation strategies. It's something you give us an update

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Speaker 2: on every time we talk. What are the mitigation strategies

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Speaker 2: now and how sustainable are they are? We reaching a

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Speaker 2: point where corporations have got to make a decision either

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Speaker 2: custom costs or pass this on.

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Speaker 1: Thanks Jonathan, and good morning to you and Lisa. We

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Speaker 1: are getting to a bit of an impasse now where

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Speaker 1: there is only so long that companies can delay their investments,

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Speaker 1: delay their decisions in terms of rejigging their supply chains,

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Speaker 1: are looking for new demand markets and we've obviously seen

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Speaker 1: a lot of first movers actually act quite quickly. But

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Speaker 1: we are getting to a point now where the uncertainty,

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Speaker 1: rather than the level of tariffs, is going to be

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Speaker 1: a challenge.

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Speaker 5: Well you say that, and that a lot of people

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Speaker 5: come on this show say peak uncertainty is behind us,

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Speaker 5: and actually there is enough stability in the trade picture.

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Speaker 3: I've lost you.

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Speaker 1: I can actually hear you.

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Speaker 5: Let's try to reestablish that, can you hear me? Now,

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Speaker 5: let's try to reestablish that? Which on that line, that's

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Speaker 5: the question to me, though, is you know she was

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Speaker 5: saying that the uncertainty will still remain an issue while

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Speaker 5: so many people have come on the show and talked

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Speaker 5: about how there is a greater degree of certainty now

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Speaker 5: which gives companies the ability to make the decisions you

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Speaker 5: were talking.

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Speaker 2: About, Francis Donald, what does she tell us RBC? She said,

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Speaker 2: we're getting to the point Rissa Adams was alluding to it.

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Speaker 2: We're getting to the point where corporation's got to think

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Speaker 2: about what to do here. Cut costs, lay off labor,

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Speaker 2: pass it on price hikes. It's exactly what my Gabe

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Speaker 2: and Morcanstani's thinking about too. A lot of people might

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Speaker 2: be surprised by this and say, you just market to market,

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Speaker 2: you're pushing this off. Many people said at the very beginning,

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Speaker 2: you're not going to see this overnight. It will take time.

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Speaker 2: This is a process. First, you had to get through

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Speaker 2: the pre tariff inventry. There have been other mitigation strategies

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Speaker 2: that were implemented. Now we're going to get further and

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Speaker 2: further through the year into the start of twenty six.

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Speaker 2: You get close to decision time. It's a decision they're

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Speaker 2: going to have to make.

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Speaker 5: This is the reason why the Christmas shopping season and

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Speaker 5: we keep talking about it and I realize it's still September.

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Speaker 5: It's a reason why it's going to be so important.

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Speaker 5: How much are consumers willing to accept some of the

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Speaker 5: higher prices and how much will some of these companies

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Speaker 5: have to continue with the cost mitigation plans. And that

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Speaker 5: I think is what a lot of people were thinking

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Speaker 5: about MRIs. I think we've re established you Sorry about

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Speaker 5: the technical glitch. I'm wondering, can you get a sense

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Speaker 5: of how much is hinging on the Christmas shopping season

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Speaker 5: and the idea of how much consumers are really willing

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Speaker 5: to adjust to higher pricing.

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Speaker 1: You know, we've seen two sides of this too. I

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Speaker 1: think firstly, we also saw the supply come forward for

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Speaker 1: that shopping season, which is obviously critical, and we saw

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Speaker 1: a lot of front loading coming through earlier in the year.

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Speaker 1: But whether those costs of actually been passed on at

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Speaker 1: this stage, I think is yet to be determined. I

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Speaker 1: was in a large big box store yesterday and obviously

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Speaker 1: all of the Christmas attire is in and all of

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Speaker 1: those goods are there already, so I think that might

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Speaker 1: be a little bit earlier than before. But whether they've

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Speaker 1: actually passed on costs at this stage is yet to

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Speaker 1: be seen. I think what's kind of interesting, and you

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Speaker 1: know we've been talking about you alluded to at the

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Speaker 1: beginning of the US and UK trade discussions. Obviously the

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Speaker 1: trade state visit here from the President really interesting that

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Speaker 1: whilst we obviously have this huge focus on goods trade

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Speaker 1: and I've spoken about it before with both of you.

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Speaker 1: Services trades really remains something credibly critical and actually very

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Speaker 1: much an area where if you look at the economies

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Speaker 1: of the future where we're trying to grow something that

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Speaker 1: they're putting an extra emphasis on. The economic trade agreement

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Speaker 1: that was reached in the particular the tech agreement that

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Speaker 1: was announced about two hundred million in investment here into

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Speaker 1: the UK really critical and we're seeing that clearly there

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Speaker 1: are delays in some of the tariffs they're coming through

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Speaker 1: on goods, but that isn't stopping business where services are

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Speaker 1: a key component to actually growing and moving forward.

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Speaker 5: So it means that the services businesses can have that

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Speaker 5: greater degree of certainty to make decisions.

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Speaker 6: I just wonder you talk.

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Speaker 5: About a greater degree of coalescing around some sort of

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Speaker 5: agreement between the US and UK. I want to talk

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Speaker 5: about China and this phone call between Jijinping and President

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Speaker 5: Trump later this morning, and I just wonder how much

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Speaker 5: companies that you work with that you advise have completely

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Speaker 5: written off China trade or have tried to completely immunize

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Speaker 5: themselves from that supply chain just because there doesn't seem

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Speaker 5: to be a definitive end to the uncertainty that you

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Speaker 5: say is so paralyzing.

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Speaker 1: So I think one of the key challenges with China

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Speaker 1: and the US is that China supply chain is very

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Speaker 1: very well built up. There's a huge amount of alliance

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Speaker 1: between the China and the US on that. So the

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Speaker 1: idea of shifting completely away just isn't really possible for

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Speaker 1: a lot of companies, whether that's in consumer retail, automotive,

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Speaker 1: some of the advanced manufacturing, even in the pharmaceutical sector.

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Speaker 1: So there are obviously elements that they can rejig and

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Speaker 1: look at other areas, but this is a critical goods

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Speaker 1: supply chain for the United States, and any sort of

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Speaker 1: certainty as that comes through on where those teriffs land

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Speaker 1: will be welcomed by the corporates that we work with,

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Speaker 1: stay with us.

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Speaker 3: More Bloomberg Surveillance coming up after this.

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Speaker 2: Joining us Now to extend the conversation, Jeanette lo A

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Speaker 2: Shatigas Janette, welcome to the show.

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Speaker 3: You just heard from Tanna.

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Speaker 2: They're talking about Chinese and the lack of buying of

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Speaker 2: soy beans here in America, important to core Republican districts

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Speaker 2: and states in this country. Janette do you think we're

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Speaker 2: any closer to nailing down those purchase agreements that really

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Speaker 2: dominated the conversations back in the president's first term.

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Speaker 8: Yeah, it's a great point, and thanks for having me on.

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Speaker 8: So there's a lot of talk about whether or not

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Speaker 8: there's going to be this grand deal between Shrump and she,

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Speaker 8: and I think I'm a little skeptical about that happening.

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Speaker 8: What we've seen is what Tayler kind of mentioned, it's

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Speaker 8: this de escalationion. It's kind of meaning the status quo

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Speaker 8: while there is this decoupling of the two countries.

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Speaker 9: And you're seeing that with the fights over.

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Speaker 8: Navidia ships and critical minerals coming to the US and

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Speaker 8: then US sending ships over to China, and then also

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Speaker 8: this piece about the agricultural the soybean purchases. So I

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Speaker 8: think what they're trying to do is they're showing their

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Speaker 8: pressure points on various sides to get a particular deal. This,

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Speaker 8: I mean, may all be about TikTok, but then also

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Speaker 8: trying to get some of these other pieces in place,

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Speaker 8: trying to get companies in China to actually buy Navidiot

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Speaker 8: ships after Trump said that he would allow that, getting

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Speaker 8: them to actually buy these soybean purchases, which obviously, as

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Speaker 8: you said, would be really important for critical constituencies in

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Speaker 8: the US for political reasons. And so then that's kind

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Speaker 8: of I think where we're going. So it's going to

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Speaker 8: probably be a smaller deal, and trying to figure out

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Speaker 8: how do we maintain some sort of status quote, how

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Speaker 8: do we maintain some sort of good trade relations while

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Speaker 8: at the same time we know both sides are kind

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Speaker 8: of decoupling from one another.

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Speaker 5: This is the reason why jedet I think a lot

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Speaker 5: of people are trying to understand how transactional this relationship

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Speaker 5: is and how rooted it is in ideology on this

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Speaker 5: idea of national security and trying to immunize the respective economies.

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Speaker 3: From one another.

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Speaker 5: Is there any signal in what we might hear about

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Speaker 5: from TikTok?

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Speaker 8: Yeah, I mean, I think the one thing that would

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Speaker 8: obviously be important is what does happen with the algorithm?

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Speaker 8: I mean, the Trump has been less focused on the

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Speaker 8: national security concerns that members of Congress have been with

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Speaker 8: regard to the TikTok deal, and if that algorithm is

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Speaker 8: still a licensed from byteedance, I think that's kind of

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Speaker 8: a sign that this is a little bit more transactional

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Speaker 8: and less about national security. But to the other point,

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Speaker 8: Trump is really focused on other key sectors where that's

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Speaker 8: really much more the focus for him for national security.

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Speaker 8: So he's much more focused on doing more domestic manufacturing

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Speaker 8: of semiconductors, pharmaceuticals, defense components, things of that nature in

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Speaker 8: the United States. Tech obviously is a big piece of that.

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Speaker 8: The AI race is a very big piece of that.

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Speaker 8: I think that's also what his broader picture is. So

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Speaker 8: being able to help in Navidia, I think would be

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Speaker 8: more in stative, almost more than TikTok.

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Speaker 5: FedEx came out last night and said that it was

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Speaker 5: going to take a billion dollar hit partly because of

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Speaker 5: Chinese deliveries that are going to be taken off the

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Speaker 5: table for them or limited as a result of some

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Speaker 5: of the changes in roles. A lot of companies have

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Speaker 5: just moved on, and so have investors from this story.

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Speaker 5: Is there anything that can come out of today or

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Speaker 5: the next couple of weeks with the negotiations that you

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Speaker 5: think a lot of companies, corporate executives, investors should be

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Speaker 5: paying attention to that could reintroduce a level of uncertainty

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Speaker 5: that really will make a difference.

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Speaker 8: Yeah, I mean, I think the bigger story is actually

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Speaker 8: I mean, so the call will be important in figuring

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Speaker 8: out what deliverables there may be and whether there is

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Speaker 8: something broader than when I outlined a few minutes ago.

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Speaker 8: But I think also obviously what happens with the court

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Speaker 8: case before the Supreme Court as to whether or not

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Speaker 8: not the tears that Trump imposed under the AIPA Trade Authority,

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Speaker 8: whether those can remain in place, that could be quite disruptive,

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Speaker 8: because we do think that the President will has a

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Speaker 8: backup plan that even if they're overturned by the Supreme Court,

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Speaker 8: they will be reimposed under other means. And I think

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Speaker 8: also we want to kind of watch to see if

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Speaker 8: there is the opportunity for more other tree deals in

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Speaker 8: this environment where we get more uncertain, and then also

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Speaker 8: kind of looking at these exemptions that keep popping up.

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Speaker 8: You know, we have the Japan tree deal on the

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Speaker 8: talk about doing some exemptions for.

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Speaker 9: Goods that the US doesn't produce.

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Speaker 8: We don't mind here things that are important for aircraft

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Speaker 8: and generic pharmaceuticals. And is there an increasing ability to

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Speaker 8: get a hold of those exemptions. I think that could

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Speaker 8: be important for the story larger going into the fourth

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Speaker 8: quarter as well.

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Speaker 2: Jeanette, this exemption story, I think coffee and that conversation

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Speaker 2: that was sparked by the report coming from the Washington Post,

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Speaker 2: I think is really important. A Republican from Nebraska, a

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Speaker 2: Democrat from California reportably introducing your bill to exclude coffee

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Speaker 2: from tariffs, and Jeanette, that bill may not go anywhere.

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Speaker 3: I've got no idea.

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Speaker 2: Perhaps it doesn't, but that's the first real sign I've

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Speaker 2: seen of Congress starting to impose itself a little bit here.

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Speaker 2: And I would love to get your perspective on this,

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Speaker 2: whether you believe that might be the first step of

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Speaker 2: many still to come further down the road. Yeah.

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Speaker 8: I mean there was another story as well this week

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Speaker 8: about how members of the House we're saying that they

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Speaker 8: want a trade task course and they want to put

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Speaker 8: a smaller limit on how long they can avoid trying

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Speaker 8: to repeal the national emergency that Trump imposed for these terroiffts.

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Speaker 8: And I think one of these issues is the consumer

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Speaker 8: piece coffee, you know, bananas, things like that.

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Speaker 9: Tuna is a one of those exemptions.

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Speaker 8: So I think there's also a focus on where are

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Speaker 8: costs actually hitting consumers, and then what is the trade

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Speaker 8: piece and the trade authority. So it does seem like, yes,

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Speaker 8: Congress is trying to maybe reassert itself. I don't necessarily

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Speaker 8: know how much it'll authority you'll be able to claw back.

440
00:21:42,440 --> 00:21:44,679
Speaker 8: I don't think the movement is that strong yet. But

441
00:21:44,720 --> 00:21:47,040
Speaker 8: I think if there were to be, you know, a

442
00:21:47,080 --> 00:21:50,159
Speaker 8: worsening economic situation, that is like kind of the emphasis

443
00:21:50,160 --> 00:21:52,320
Speaker 8: that you would need to actually see that happen, and

444
00:21:52,359 --> 00:21:54,720
Speaker 8: we don't see that happening in the near term.

445
00:21:56,080 --> 00:21:58,720
Speaker 3: Stay with us. Multilemberg Savanna's coming.

446
00:21:58,560 --> 00:22:10,879
Speaker 5: Up after this, Let's say, on this conversation, Claudia Som

447
00:22:11,160 --> 00:22:14,399
Speaker 5: of New Centry Advisors writing this, it's dual mandate of

448
00:22:14,440 --> 00:22:18,679
Speaker 5: maximum employment and price stability is intention cutting rates to

449
00:22:18,760 --> 00:22:22,879
Speaker 5: reduce the downside risks to employment increases the upside risks

450
00:22:22,920 --> 00:22:26,280
Speaker 5: to inflation. Claudia joins us. Now, Claudia, so great to

451
00:22:26,320 --> 00:22:28,239
Speaker 5: see you. And this is really the point that we

452
00:22:28,240 --> 00:22:30,600
Speaker 5: were trying to wrap our heads around. How much does

453
00:22:30,640 --> 00:22:34,560
Speaker 5: an emphasis on growth, a prioritization of the employment market

454
00:22:34,680 --> 00:22:37,639
Speaker 5: increase the risks of inflation in a way that isn't

455
00:22:37,680 --> 00:22:38,760
Speaker 5: fully appreciated.

456
00:22:40,440 --> 00:22:42,400
Speaker 6: Well, I think Powell is telling you is the feed

457
00:22:42,480 --> 00:22:45,880
Speaker 6: appreciates this. There is a tension. Inflation is elevated, It's

458
00:22:45,920 --> 00:22:48,399
Speaker 6: been elevated for more than four years, and it's probably

459
00:22:48,480 --> 00:22:50,320
Speaker 6: going to go a little bit higher before it starts

460
00:22:50,320 --> 00:22:53,720
Speaker 6: moving lower. Cutting rates is not going to help on

461
00:22:53,760 --> 00:22:56,320
Speaker 6: the inflation side. So, but I think to your point,

462
00:22:56,320 --> 00:22:59,920
Speaker 6: it's about which one is the more acute problem. We

463
00:23:00,080 --> 00:23:02,200
Speaker 6: go into a recession, which is not the Fed's baseline,

464
00:23:02,200 --> 00:23:05,400
Speaker 6: that is not my baseline, then we have a big problem.

465
00:23:05,600 --> 00:23:07,440
Speaker 6: And so that's what the FED is reacting to. If

466
00:23:07,440 --> 00:23:09,600
Speaker 6: inflation gets stuck, yes, that is a problem, and they

467
00:23:09,600 --> 00:23:11,280
Speaker 6: will have to come back to that, and it may

468
00:23:11,560 --> 00:23:13,840
Speaker 6: like cutting now may make that problem be real in

469
00:23:13,880 --> 00:23:16,199
Speaker 6: the future, but it's not as acute. So it's this

470
00:23:16,400 --> 00:23:19,760
Speaker 6: balance of risks that they're trying to sort you know,

471
00:23:19,840 --> 00:23:20,880
Speaker 6: to sort out right now.

472
00:23:21,160 --> 00:23:23,960
Speaker 5: And it's a balance of risks that seems to have

473
00:23:24,040 --> 00:23:27,879
Speaker 5: allowed inflation to be above their two percent mandate for

474
00:23:27,920 --> 00:23:31,200
Speaker 5: more than four years and potentially for six years based

475
00:23:31,200 --> 00:23:34,320
Speaker 5: on their forecast going forward. Is this a FED that

476
00:23:34,400 --> 00:23:38,800
Speaker 5: might say verbally two percent but might mean three percent.

477
00:23:40,320 --> 00:23:43,520
Speaker 6: It's certainly a FED that has shown its willingness to

478
00:23:43,640 --> 00:23:46,560
Speaker 6: give it time, right so the target is two percent,

479
00:23:46,560 --> 00:23:50,440
Speaker 6: but the target doesn't say two percent next month, next year, right,

480
00:23:50,480 --> 00:23:53,639
Speaker 6: They give themselves some runway to get there, and the

481
00:23:53,720 --> 00:23:56,720
Speaker 6: tradeoff has been, you know, allowing the labor market to

482
00:23:56,760 --> 00:23:59,159
Speaker 6: be more resilient. I mean, coming out of the surge

483
00:23:59,200 --> 00:24:01,800
Speaker 6: of inflation in twenty twenty one and twenty twenty two.

484
00:24:02,119 --> 00:24:04,159
Speaker 6: The FED could have gotten that down to two percent

485
00:24:04,280 --> 00:24:06,760
Speaker 6: really fast, but we would have had to have a recession,

486
00:24:06,800 --> 00:24:09,919
Speaker 6: a severe one to do that, and they chose not to. Right,

487
00:24:10,000 --> 00:24:12,720
Speaker 6: So you know, there's there's no free lunch here, right

488
00:24:12,800 --> 00:24:15,160
Speaker 6: Like these these the goals are intention and they still

489
00:24:15,160 --> 00:24:17,600
Speaker 6: continue to navigate this. And I think if you really

490
00:24:17,640 --> 00:24:19,840
Speaker 6: focus on and they say it in their framework, they

491
00:24:19,880 --> 00:24:23,399
Speaker 6: look at like how far like employment or inflation is

492
00:24:23,440 --> 00:24:26,040
Speaker 6: away from the goal and for how long it's going

493
00:24:26,080 --> 00:24:27,479
Speaker 6: to be away from the goal? And so I think

494
00:24:27,520 --> 00:24:30,240
Speaker 6: they made the right decision at this moment thinking about

495
00:24:30,280 --> 00:24:34,520
Speaker 6: the employment data has been pretty soft and disconcerting, but

496
00:24:34,680 --> 00:24:36,560
Speaker 6: keeping an eye on inflation at the same time.

497
00:24:36,960 --> 00:24:39,600
Speaker 7: You know, Chloie, I think the point you made there

498
00:24:39,680 --> 00:24:42,719
Speaker 7: about they could have brought inflation back to target more quickly,

499
00:24:42,760 --> 00:24:46,240
Speaker 7: but chose not to. As investors, I think your performances

500
00:24:46,320 --> 00:24:49,840
Speaker 7: was directly related to how quickly you realize that that

501
00:24:49,920 --> 00:24:52,080
Speaker 7: reality that they simply were not willing to do what

502
00:24:52,160 --> 00:24:54,720
Speaker 7: was necessary to get inflation back to target. But I

503
00:24:55,040 --> 00:24:57,040
Speaker 7: do want to ask you just to pivot a little

504
00:24:57,040 --> 00:24:58,680
Speaker 7: bit off of what you were saying and what we're

505
00:24:58,720 --> 00:25:02,359
Speaker 7: discussing here with inflation as point blankly as I can

506
00:25:03,240 --> 00:25:04,199
Speaker 7: or tariff's inflation.

507
00:25:07,000 --> 00:25:11,000
Speaker 6: Tariffs are going to increase prices, right, so there is

508
00:25:11,040 --> 00:25:14,000
Speaker 6: a period inflation is an increase in prisis, so there

509
00:25:14,080 --> 00:25:16,479
Speaker 6: is a period where it appears likely that they are

510
00:25:16,560 --> 00:25:19,560
Speaker 6: putting upward pressure and it's not just relative price changes.

511
00:25:20,040 --> 00:25:23,560
Speaker 6: But I agree with the sentiment that it is a

512
00:25:23,600 --> 00:25:27,919
Speaker 6: one time price level adjustment, right, so it's not inflationary

513
00:25:27,920 --> 00:25:30,640
Speaker 6: in the sense of creating inflation forever. But I do

514
00:25:30,680 --> 00:25:33,040
Speaker 6: get very concerned, and I frankly think the FED maybe

515
00:25:33,080 --> 00:25:36,280
Speaker 6: downplaying this risk somewhat at this point that as you've

516
00:25:36,280 --> 00:25:39,399
Speaker 6: had inflation hired closer to three percent for some time,

517
00:25:39,920 --> 00:25:41,919
Speaker 6: people are just going to build that in Like not

518
00:25:42,000 --> 00:25:44,959
Speaker 6: everybody's running a model of tariff effects and this and that,

519
00:25:45,000 --> 00:25:47,480
Speaker 6: and the FED independent, you know, like they just see

520
00:25:47,680 --> 00:25:49,679
Speaker 6: inflation and then when they have to plan for the

521
00:25:49,720 --> 00:25:51,720
Speaker 6: future a business or a family. They just kind of

522
00:25:51,840 --> 00:25:54,840
Speaker 6: use what they've seen recently. So I do worry there's

523
00:25:54,880 --> 00:25:57,760
Speaker 6: this creep of we just start building in the higher

524
00:25:57,760 --> 00:25:59,960
Speaker 6: inflation and then that that's where we get starck.

525
00:26:00,760 --> 00:26:03,479
Speaker 7: I agree with you conceptually. Obviously we view things through

526
00:26:03,480 --> 00:26:06,360
Speaker 7: the prism of inflation expectations, and you don't want consumers

527
00:26:06,400 --> 00:26:09,560
Speaker 7: to start adjusting behavior in that way. But what you

528
00:26:09,880 --> 00:26:13,440
Speaker 7: just articulated there was a worry that consumers would start

529
00:26:13,440 --> 00:26:15,359
Speaker 7: thinking about it this way. But isn't it fair to

530
00:26:15,400 --> 00:26:19,480
Speaker 7: say that the worry about future inflation expectations should be

531
00:26:19,480 --> 00:26:22,560
Speaker 7: treated subordinate to the reality of the slowdown in the

532
00:26:22,560 --> 00:26:23,800
Speaker 7: private sector job market?

533
00:26:25,560 --> 00:26:27,199
Speaker 6: But I think, I mean, you need to think of

534
00:26:27,240 --> 00:26:29,640
Speaker 6: the price setting process and the way people the way

535
00:26:29,680 --> 00:26:32,920
Speaker 6: businesses make decisions, the way they forecast their decisions is

536
00:26:32,920 --> 00:26:34,440
Speaker 6: an important one to make. So I don't want to

537
00:26:34,480 --> 00:26:37,760
Speaker 6: downplay the expectations. I will say there's another piece thinking

538
00:26:37,760 --> 00:26:41,080
Speaker 6: about inflation dynamics going forward, which is really the question,

539
00:26:41,200 --> 00:26:43,399
Speaker 6: like what is this doing to inflation two years from now,

540
00:26:43,400 --> 00:26:45,960
Speaker 6: three years from now? Is to think about this. These

541
00:26:46,080 --> 00:26:50,240
Speaker 6: tariffs are part of a major reshuffling of global trade,

542
00:26:50,840 --> 00:26:54,359
Speaker 6: and we have benefited. One of the pull down on

543
00:26:54,400 --> 00:26:56,680
Speaker 6: inflation that we've seen for many years in the United

544
00:26:56,720 --> 00:27:00,760
Speaker 6: States is through good imported goods. We have trade, we

545
00:27:00,840 --> 00:27:03,359
Speaker 6: have innovation, like that's actually been something that helps hold

546
00:27:03,359 --> 00:27:06,560
Speaker 6: inflation down. And even if it's not like a big effect,

547
00:27:07,040 --> 00:27:10,880
Speaker 6: losing that actually could give some lift to inflation over time.

548
00:27:10,960 --> 00:27:13,080
Speaker 6: So it's not just about what's in people's heads, like,

549
00:27:13,119 --> 00:27:15,840
Speaker 6: we really are reshuffling the deck in terms of the

550
00:27:15,840 --> 00:27:17,520
Speaker 6: way trade is done and the way the goods come

551
00:27:17,560 --> 00:27:18,240
Speaker 6: into the country.

552
00:27:18,280 --> 00:27:20,160
Speaker 5: And this is one reason why some people are saying

553
00:27:20,200 --> 00:27:22,200
Speaker 5: it's so hard to get a handle on exactly what

554
00:27:22,240 --> 00:27:24,800
Speaker 5: the new neutral rate is and how much higher inflation

555
00:27:24,960 --> 00:27:28,240
Speaker 5: just naturally will be in the economy. Claudia, You've researched

556
00:27:28,240 --> 00:27:30,280
Speaker 5: the labor market for a very long time, and I

557
00:27:30,320 --> 00:27:33,760
Speaker 5: wonder whether it makes sense to run the economy hot,

558
00:27:34,080 --> 00:27:36,600
Speaker 5: to run the labor market hot at a time of

559
00:27:37,040 --> 00:27:41,399
Speaker 5: dramatic transition in terms of the AI shifts, how quickly

560
00:27:41,440 --> 00:27:44,560
Speaker 5: that's changing some of the job roles, the necessity for

561
00:27:44,720 --> 00:27:48,720
Speaker 5: companies to actually invest in reskilling a lot of people.

562
00:27:49,200 --> 00:27:51,320
Speaker 3: Do you think that this is there of a new.

563
00:27:51,200 --> 00:27:54,640
Speaker 5: Priority that necessitates a faster pace of growth.

564
00:27:58,080 --> 00:28:01,399
Speaker 6: It's a difficult dynamic to make. I mean, running the

565
00:28:01,440 --> 00:28:04,920
Speaker 6: economy hot when we already have inflation that is elevated.

566
00:28:05,320 --> 00:28:08,160
Speaker 6: I mean, that's really a risky scenario. And I will say,

567
00:28:08,200 --> 00:28:10,840
Speaker 6: you know, just seeing like the Michigan Survey household survey

568
00:28:10,920 --> 00:28:13,880
Speaker 6: is coming out again, people are very clear, like when

569
00:28:13,880 --> 00:28:16,760
Speaker 6: they talk about what's wrong, like they're pretty pessimistic. Higher

570
00:28:16,800 --> 00:28:20,480
Speaker 6: prices is still a big issue. So inflation has come

571
00:28:20,520 --> 00:28:23,640
Speaker 6: down a lot, but it accumulates over time. So there

572
00:28:24,600 --> 00:28:26,399
Speaker 6: there's not an easy answer to that question. And a

573
00:28:26,400 --> 00:28:28,800
Speaker 6: lot of it is gauging as to exactly how hot

574
00:28:28,840 --> 00:28:30,679
Speaker 6: we're running it. Like I think you can make an

575
00:28:30,760 --> 00:28:33,960
Speaker 6: argument on the margin for maybe you know, going on

576
00:28:34,000 --> 00:28:36,920
Speaker 6: the side of let's let employment run, let's let investment run,

577
00:28:37,119 --> 00:28:38,960
Speaker 6: but you have to be careful because some of the

578
00:28:39,000 --> 00:28:41,200
Speaker 6: discussions about let's have a federal funds rate of say

579
00:28:41,200 --> 00:28:44,040
Speaker 6: one percent, that's not an on the margin discussion. That's

580
00:28:44,080 --> 00:28:47,240
Speaker 6: like a big overturning of like how hot we're willing

581
00:28:47,280 --> 00:28:48,800
Speaker 6: to go. And I think there we need to be

582
00:28:48,960 --> 00:28:52,640
Speaker 6: very careful because inflation is not something that people handle well.

583
00:28:53,760 --> 00:28:57,320
Speaker 2: This is the Bloomberg Surveandics podcast bringing you the best

584
00:28:57,320 --> 00:29:00,680
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585
00:29:00,720 --> 00:29:03,680
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588
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