1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:36,959 Speaker 2: Terminal and the Bloomberg Business App. What does this mean 10 00:00:37,000 --> 00:00:39,000 Speaker 2: for the FX market and the US dollar? Nis mc 11 00:00:39,080 --> 00:00:41,680 Speaker 2: fee of Oxford Economics rights in the following. Although the 12 00:00:41,720 --> 00:00:44,760 Speaker 2: near term challenges to the dollars dominance have risen recently, 13 00:00:45,080 --> 00:00:47,720 Speaker 2: we think they're still relatively limited compared to the seismic 14 00:00:47,760 --> 00:00:50,400 Speaker 2: shift needed for the global economy to switch to another 15 00:00:50,440 --> 00:00:52,960 Speaker 2: principal currency. In this joints US Now for more and 16 00:00:53,000 --> 00:00:55,040 Speaker 2: it's welcome to New York. It's good to see you, thanks, John. 17 00:00:55,160 --> 00:00:56,760 Speaker 2: Let's get to this call. Why are you a little 18 00:00:56,800 --> 00:01:00,000 Speaker 2: bit more constructive on the dollar at least from this perspective? 19 00:01:00,520 --> 00:01:01,959 Speaker 3: Well, I think John, what we're seeing is a lot 20 00:01:01,960 --> 00:01:05,000 Speaker 3: of cyclical pressure on the dollar. Clearly, the impacts of 21 00:01:05,200 --> 00:01:09,320 Speaker 3: tariffs and now oil as well is sort of stagflationary 22 00:01:09,640 --> 00:01:12,319 Speaker 3: at the margin for the US, whereas it's more straightforwardly 23 00:01:12,360 --> 00:01:16,959 Speaker 3: disinflationary for the US. At the same time, investors all 24 00:01:17,000 --> 00:01:20,880 Speaker 3: around the world have been very much overweight US assets, 25 00:01:20,959 --> 00:01:22,600 Speaker 3: and there's a little bit of a point at which 26 00:01:23,040 --> 00:01:25,840 Speaker 3: now they're sort of given this shock, they're reassessing that 27 00:01:25,880 --> 00:01:28,600 Speaker 3: and maybe doing a bit more hedging. And then thirdly, 28 00:01:28,680 --> 00:01:30,679 Speaker 3: course is a lot of uncertainly not just about tariffs, 29 00:01:30,680 --> 00:01:32,559 Speaker 3: but about fiscal policy as well and what that means 30 00:01:32,600 --> 00:01:35,959 Speaker 3: for yields and the term premium. So you know, to me, 31 00:01:36,600 --> 00:01:39,600 Speaker 3: a lot of that cyclical pressure is the reason why 32 00:01:39,600 --> 00:01:43,000 Speaker 3: the dollars depreciations down more than ten percent against the 33 00:01:43,080 --> 00:01:47,560 Speaker 3: major floating currencies. But that doesn't necessarily mean that we're 34 00:01:47,560 --> 00:01:50,360 Speaker 3: going to see some broader reassessment. At the end of 35 00:01:50,400 --> 00:01:53,320 Speaker 3: the day, the US remains the largest market, it remains 36 00:01:53,360 --> 00:01:56,880 Speaker 3: absolutely central to the global trading system, and at the 37 00:01:56,920 --> 00:01:59,480 Speaker 3: same time, you know, what we're going to see is 38 00:02:00,160 --> 00:02:03,280 Speaker 3: really big long term shifts to see that the dollar 39 00:02:03,280 --> 00:02:05,320 Speaker 3: are no no longer part of that major system. 40 00:02:05,440 --> 00:02:07,560 Speaker 2: Long term is the right term. This is a long 41 00:02:07,640 --> 00:02:09,840 Speaker 2: term conversation, much more short term. If we can turn 42 00:02:09,880 --> 00:02:12,320 Speaker 2: to the calendar, July fourth, we've got this south Impost 43 00:02:12,360 --> 00:02:15,240 Speaker 2: deadline for the tax bill. July ninth, we've got this 44 00:02:15,320 --> 00:02:17,960 Speaker 2: other south Impost deadline for a whole host of tax 45 00:02:18,040 --> 00:02:20,800 Speaker 2: deals around the trade deals. I just wander from your 46 00:02:20,840 --> 00:02:23,280 Speaker 2: perspective being in London looking over to the United States, 47 00:02:23,440 --> 00:02:25,200 Speaker 2: how do you think about the next few weeks and 48 00:02:25,200 --> 00:02:26,000 Speaker 2: how things shake out? 49 00:02:26,840 --> 00:02:28,799 Speaker 3: Well, I think you know, the mark is pretty much 50 00:02:28,840 --> 00:02:31,360 Speaker 3: on palls to see a lot of these deadlines come through. 51 00:02:32,200 --> 00:02:34,040 Speaker 3: As Ever, the market kind of thinks that, you know, 52 00:02:34,120 --> 00:02:36,200 Speaker 3: a couple of weeks down the line will get more clarity. 53 00:02:36,440 --> 00:02:38,680 Speaker 3: Clear think we might not, though, And if we don't, 54 00:02:38,760 --> 00:02:41,360 Speaker 3: then that's clearly going to be another catalyst for the 55 00:02:41,440 --> 00:02:43,280 Speaker 3: dollar to move a leg down. 56 00:02:43,320 --> 00:02:43,720 Speaker 4: Perhaps. 57 00:02:43,960 --> 00:02:46,040 Speaker 1: How much are we seeing the dollar week in as 58 00:02:46,040 --> 00:02:48,400 Speaker 1: a result of some of the fiscal spending and potential 59 00:02:48,400 --> 00:02:50,680 Speaker 1: inflationary impacts. I mean, this has been one of the 60 00:02:50,800 --> 00:02:53,679 Speaker 1: arguments that people have been making. The fiscal backdrop is 61 00:02:53,720 --> 00:02:56,600 Speaker 1: one reason why the US is losing fiscal dominance. Does 62 00:02:56,600 --> 00:02:58,760 Speaker 1: it have relevance at a time where there's fiscal expansion 63 00:02:58,760 --> 00:02:59,560 Speaker 1: in Europe as well. 64 00:03:00,280 --> 00:03:02,119 Speaker 3: I think it does have relevance, but it is within 65 00:03:02,160 --> 00:03:05,240 Speaker 3: that broader context. I think, if you like, everyone's been 66 00:03:05,320 --> 00:03:07,639 Speaker 3: very focused on US fiscal policy at the moment, we're 67 00:03:07,639 --> 00:03:11,480 Speaker 3: starting to see a little bit more clarity from Europe 68 00:03:11,520 --> 00:03:13,440 Speaker 3: in terms of what will come at the end of 69 00:03:13,480 --> 00:03:15,440 Speaker 3: the day. Is I think it's actually broader than that. 70 00:03:15,760 --> 00:03:18,079 Speaker 3: We're obviously seeing a lot more issuance. The net supply 71 00:03:18,160 --> 00:03:20,920 Speaker 3: of safe assets, which has been so low for the 72 00:03:20,960 --> 00:03:24,280 Speaker 3: last decade, is rising and rising very substantially. But at 73 00:03:24,280 --> 00:03:26,960 Speaker 3: the same time we're also seeing a lot of macroeconomic volatility. 74 00:03:27,320 --> 00:03:30,160 Speaker 3: Fiscal policies changed from being very passive the last ten 75 00:03:30,280 --> 00:03:33,320 Speaker 3: years to being an active tool of demand management, and 76 00:03:33,360 --> 00:03:36,240 Speaker 3: that does have implications for the term premium. Term premium 77 00:03:36,280 --> 00:03:40,160 Speaker 3: should rise, we should see yields higher, even regardless of 78 00:03:40,160 --> 00:03:41,480 Speaker 3: where short term rates are going. 79 00:03:41,600 --> 00:03:43,800 Speaker 1: Techning taking a step back for the book of this year, 80 00:03:43,920 --> 00:03:46,040 Speaker 1: there's been sort of a pendulum that's been swinging between 81 00:03:46,040 --> 00:03:48,600 Speaker 1: the risks of either inflation accelerating on the heels of 82 00:03:48,640 --> 00:03:52,280 Speaker 1: some of the supply sharks fiscal expenditures, versus some sort 83 00:03:52,320 --> 00:03:55,320 Speaker 1: of downgrade to growth that we've seen from terrorf some 84 00:03:55,320 --> 00:03:57,560 Speaker 1: some of these disruptions from even the oil shark, and 85 00:03:57,600 --> 00:04:00,840 Speaker 1: what that does to consumers. If we learned over the 86 00:04:00,880 --> 00:04:04,240 Speaker 1: past forty eight hours about what people's expectations and their 87 00:04:04,280 --> 00:04:07,440 Speaker 1: response to a potential oil shock or inflationary shock would be, 88 00:04:07,720 --> 00:04:11,000 Speaker 1: do we have greater sense that the inflation upside is 89 00:04:11,120 --> 00:04:12,800 Speaker 1: kind of being reduced somewhat? 90 00:04:13,280 --> 00:04:15,440 Speaker 3: Well, I think, as you said earlier on, you know, 91 00:04:15,560 --> 00:04:18,480 Speaker 3: the Fed's very divided on this issue. Clearly, what we've 92 00:04:18,520 --> 00:04:20,359 Speaker 3: learned over the last forty eight hours is that the 93 00:04:20,400 --> 00:04:23,240 Speaker 3: market has kind of almost gone to price in a 94 00:04:23,360 --> 00:04:25,839 Speaker 3: risk premium on oil. That's pretty much where we were 95 00:04:25,880 --> 00:04:27,800 Speaker 3: in the middle of June. So there's a lot of 96 00:04:27,880 --> 00:04:30,040 Speaker 3: upside to that, I would argue, given that this already 97 00:04:30,080 --> 00:04:34,320 Speaker 3: seems to be a very fragile cease fire. But fundamentally, 98 00:04:34,440 --> 00:04:37,239 Speaker 3: you know, there are those that will want to ease early, 99 00:04:37,680 --> 00:04:40,440 Speaker 3: and that's a very defensible attitude, given that we know 100 00:04:40,560 --> 00:04:44,680 Speaker 3: that an increase in oil prices will have a detrimental 101 00:04:44,680 --> 00:04:47,280 Speaker 3: impact of growth later on and bring inflation down eventually. 102 00:04:47,880 --> 00:04:50,279 Speaker 3: But remember where we've just come from. The FED and 103 00:04:50,360 --> 00:04:53,680 Speaker 3: other central banks have just seen a huge inflation overshoot 104 00:04:53,720 --> 00:04:57,880 Speaker 3: in recent years. We're not confident as economists, as central 105 00:04:57,880 --> 00:05:01,719 Speaker 3: banks at the moment about the the second round impacts 106 00:05:01,760 --> 00:05:04,320 Speaker 3: from an increase in inflation. And I think, you know, 107 00:05:04,600 --> 00:05:06,760 Speaker 3: it's a very defensible attitude to want to wait and 108 00:05:06,800 --> 00:05:10,920 Speaker 3: see see how big that impact on prices will be 109 00:05:11,200 --> 00:05:13,080 Speaker 3: and therefore what the second round impacts will be. We 110 00:05:13,120 --> 00:05:16,000 Speaker 3: haven't even seen or even started to see the big 111 00:05:16,080 --> 00:05:19,240 Speaker 3: upside to the initial inflation shock, let alone what that 112 00:05:19,320 --> 00:05:21,160 Speaker 3: might do for second second round impacts. 113 00:05:21,200 --> 00:05:22,640 Speaker 2: With all of that in mind, do you think July 114 00:05:23,040 --> 00:05:23,800 Speaker 2: is a life mating. 115 00:05:26,000 --> 00:05:28,960 Speaker 3: We've long said that December is going to be when 116 00:05:29,000 --> 00:05:31,640 Speaker 3: they cut. There are good reasons for that. I think 117 00:05:31,680 --> 00:05:33,640 Speaker 3: we may well see the sense we've seen descents though 118 00:05:33,720 --> 00:05:37,840 Speaker 3: under Chair Pale before, I don't think that's necessarily a 119 00:05:37,880 --> 00:05:40,040 Speaker 3: deal breaker. I just don't think we're going to get 120 00:05:40,040 --> 00:05:42,600 Speaker 3: clarity over the data that's going to move the majority 121 00:05:42,760 --> 00:05:45,200 Speaker 3: of the committee towards wanting to cut. 122 00:05:45,560 --> 00:05:47,599 Speaker 2: Look of some clarity from the Fed chair a little 123 00:05:47,640 --> 00:05:49,040 Speaker 2: bit later on this morning, and it's my fe of 124 00:05:49,040 --> 00:06:00,200 Speaker 2: ox economics and it's going to see I want to 125 00:06:00,200 --> 00:06:02,440 Speaker 2: guess now, as the Congressman A Frendshill of our consulted 126 00:06:02,520 --> 00:06:05,200 Speaker 2: chairman of the House Financial Services Committee, which the FED 127 00:06:05,240 --> 00:06:08,400 Speaker 2: share will be testifying before later on today. Congressman, welcome 128 00:06:08,400 --> 00:06:10,320 Speaker 2: back to the program. So always good to hear from you. 129 00:06:10,360 --> 00:06:13,360 Speaker 2: I'm going to start with a slightly provocative question. I'm paraphrasing, 130 00:06:13,400 --> 00:06:15,560 Speaker 2: care do you plan to work over this very dumb, 131 00:06:15,600 --> 00:06:17,880 Speaker 2: heart headed person a little bit later this morning. 132 00:06:20,040 --> 00:06:22,080 Speaker 5: Well, Jonathan, it's great to be with you. We look 133 00:06:22,120 --> 00:06:24,920 Speaker 5: forward to having chair Power before the Committee this morning, 134 00:06:25,320 --> 00:06:28,400 Speaker 5: and I think he'll face questions on his outlook for 135 00:06:28,520 --> 00:06:31,719 Speaker 5: inflation and therefore what his views are about rate cuts 136 00:06:31,760 --> 00:06:34,320 Speaker 5: coming forward. I think that's the important issue of the day. 137 00:06:34,839 --> 00:06:38,240 Speaker 5: But he will also probably be complimented by members because 138 00:06:38,279 --> 00:06:42,000 Speaker 5: the FED has recently taken decisions to get out of 139 00:06:42,040 --> 00:06:45,320 Speaker 5: some of the environmental social governance groups that they were 140 00:06:45,360 --> 00:06:49,000 Speaker 5: involved in around climate change, something that House Republicans have 141 00:06:49,080 --> 00:06:52,000 Speaker 5: never thought the FED should be involved in over the 142 00:06:52,000 --> 00:06:56,040 Speaker 5: past few years. We want them focused on price stability, 143 00:06:56,240 --> 00:06:58,279 Speaker 5: number one, and number two, we want them focus on 144 00:06:58,320 --> 00:07:01,120 Speaker 5: a safe and sound banking system. We thought that was 145 00:07:01,160 --> 00:07:01,839 Speaker 5: a distraction. 146 00:07:02,320 --> 00:07:05,080 Speaker 2: So we've got monetary policy and then we've got bank regulations. 147 00:07:05,080 --> 00:07:07,400 Speaker 2: So Congressman, let's start with the monastery policy. First, as 148 00:07:07,400 --> 00:07:10,000 Speaker 2: you're aware, and as I implied with that first question, 149 00:07:10,080 --> 00:07:11,960 Speaker 2: the White House is really ramping up the pressure on 150 00:07:12,000 --> 00:07:14,280 Speaker 2: the FED chair. Do you worry that the chair starts 151 00:07:14,280 --> 00:07:16,440 Speaker 2: to become more worried about the optics of kining interest 152 00:07:16,480 --> 00:07:19,200 Speaker 2: rates and focused on the data that might justify them. 153 00:07:20,360 --> 00:07:23,840 Speaker 5: I really don't, Jonathan, because since World War Two we've 154 00:07:23,840 --> 00:07:27,640 Speaker 5: seen pressure from presidents on FED chairs, but we've seen 155 00:07:28,160 --> 00:07:30,880 Speaker 5: the FED chairs and the Board of Governors try to 156 00:07:30,920 --> 00:07:33,680 Speaker 5: be data driven in their decisions, and of course they've 157 00:07:33,720 --> 00:07:36,720 Speaker 5: made mistakes over that period of time. Which is while 158 00:07:37,120 --> 00:07:40,880 Speaker 5: the FED is a creation of Congress and I believe 159 00:07:40,920 --> 00:07:44,960 Speaker 5: strongly in an independent monetary policy, it's also true to 160 00:07:45,000 --> 00:07:49,720 Speaker 5: recognize that they're not immune from criticism. So there's a debate, 161 00:07:49,760 --> 00:07:53,560 Speaker 5: and you've already seen that debate shaping on the Open 162 00:07:53,600 --> 00:07:56,960 Speaker 5: Market Committee itself with the comments from Governor Waller and 163 00:07:57,200 --> 00:07:58,000 Speaker 5: Governor Mowman. 164 00:07:58,440 --> 00:08:00,960 Speaker 1: Christmin, would you be willing or would you support the 165 00:08:01,040 --> 00:08:03,920 Speaker 1: idea of nominating someone to be the next FED chair 166 00:08:04,240 --> 00:08:08,040 Speaker 1: soon so that they can have an outsized influence over 167 00:08:08,160 --> 00:08:08,800 Speaker 1: the committee. 168 00:08:10,320 --> 00:08:13,960 Speaker 5: I think it's my base case assumption that Chairman Powt 169 00:08:14,000 --> 00:08:16,480 Speaker 5: will serve out his term, and President Trump will make 170 00:08:16,520 --> 00:08:19,520 Speaker 5: a determination on who he thinks should be the next 171 00:08:19,640 --> 00:08:20,600 Speaker 5: chair at that time. 172 00:08:21,160 --> 00:08:23,280 Speaker 1: Well, just the reason why I ask this is because 173 00:08:23,280 --> 00:08:25,320 Speaker 1: some people have speculated that that's what's going to happen. 174 00:08:25,760 --> 00:08:28,440 Speaker 1: We have heard from this administration that they are going 175 00:08:28,480 --> 00:08:31,720 Speaker 1: to consider potential future candidates, and there's a lot of 176 00:08:31,760 --> 00:08:34,880 Speaker 1: speculation that Chris Waller and Michelle Bowman are kind of 177 00:08:34,920 --> 00:08:37,240 Speaker 1: in the running and trying out. I mean, how much 178 00:08:37,240 --> 00:08:40,360 Speaker 1: would you like to see some of this noise taken 179 00:08:40,520 --> 00:08:43,400 Speaker 1: away from the real debate, which is what is the 180 00:08:43,400 --> 00:08:46,480 Speaker 1: predominant risk to markets? Is it potential weakening or is 181 00:08:46,480 --> 00:08:47,040 Speaker 1: it inflation? 182 00:08:48,800 --> 00:08:51,840 Speaker 5: Well, jen as I say, I think certainly since World 183 00:08:51,840 --> 00:08:55,120 Speaker 5: War Two, the speculation about how presidents feel about their 184 00:08:55,160 --> 00:08:57,839 Speaker 5: FED chairs and who they might nominate to succeed a 185 00:08:57,920 --> 00:09:01,480 Speaker 5: FED chair has just been part of the markets, and 186 00:09:01,520 --> 00:09:04,760 Speaker 5: the markets understand that what's important is that the FED 187 00:09:04,840 --> 00:09:07,840 Speaker 5: gets it right and we focus on price stability, and 188 00:09:07,880 --> 00:09:13,480 Speaker 5: if the inflation forecast and inflation expectations are anchored at 189 00:09:13,480 --> 00:09:16,240 Speaker 5: that two percent level, then I think that's certainly something 190 00:09:16,240 --> 00:09:19,640 Speaker 5: that FED should take into strong consideration about a rate 191 00:09:19,720 --> 00:09:22,959 Speaker 5: cut in the coming meetings. And that's exactly the kind 192 00:09:22,960 --> 00:09:25,959 Speaker 5: of work I want them to do is use data analytics, 193 00:09:26,720 --> 00:09:29,000 Speaker 5: look at the trends in the market, look at their forecast, 194 00:09:29,040 --> 00:09:31,040 Speaker 5: and make that decision to the best of their ability. 195 00:09:31,200 --> 00:09:34,040 Speaker 2: Many of those officials of Follockhurst on the policy outcomes 196 00:09:34,040 --> 00:09:37,199 Speaker 2: of other things. July fourth, we've got the South and 197 00:09:37,240 --> 00:09:40,080 Speaker 2: Post deadline to pass the one big beautiful bill July ninth, 198 00:09:40,120 --> 00:09:41,960 Speaker 2: and other South and Post deadlines to come to some 199 00:09:42,040 --> 00:09:45,280 Speaker 2: kind of trade deal with a whole bunch of countries. Congressman, 200 00:09:45,320 --> 00:09:47,320 Speaker 2: could you maybe have the FED chair a little bit 201 00:09:47,360 --> 00:09:49,000 Speaker 2: late to this morning. Where do you think we will 202 00:09:49,040 --> 00:09:50,400 Speaker 2: be in a few weeks time. 203 00:09:51,880 --> 00:09:54,400 Speaker 5: Well, look, I think uncertainty is a part of life. 204 00:09:54,400 --> 00:09:56,679 Speaker 5: It's a part of the stock market and the bond 205 00:09:56,720 --> 00:09:59,720 Speaker 5: markets every single day. But if I look back at 206 00:09:59,720 --> 00:10:03,240 Speaker 5: the eighteen eighties, we had extraordinarily high inflation, we had 207 00:10:03,280 --> 00:10:05,880 Speaker 5: high budget deficits for the time, we had a defense 208 00:10:06,000 --> 00:10:09,319 Speaker 5: build up underway. We had a dollar that some deemed 209 00:10:09,480 --> 00:10:14,000 Speaker 5: significantly overvalued. And yet Ronald Reagan, through tax cuts, through 210 00:10:14,080 --> 00:10:20,520 Speaker 5: regulatory reductions, through the right monetary policy between Paul Volker 211 00:10:20,760 --> 00:10:25,680 Speaker 5: and Alan Greenspan, saw the economy grow and grow dramatically 212 00:10:25,800 --> 00:10:30,120 Speaker 5: and I think America is poised to grow dramatically. Look 213 00:10:30,160 --> 00:10:33,839 Speaker 5: at GDP since the summer of the pandemic, it was 214 00:10:33,880 --> 00:10:37,720 Speaker 5: about twenty one trillion dollars. Today it's twenty eight trillion dollars. 215 00:10:38,080 --> 00:10:42,520 Speaker 5: We're the preferred investment location for global investment around the world, 216 00:10:42,640 --> 00:10:45,160 Speaker 5: and I believe that that uncertainty will drop over the 217 00:10:45,160 --> 00:10:48,240 Speaker 5: coming weeks as we have clarity on taxes, clarity on 218 00:10:48,280 --> 00:10:52,440 Speaker 5: regulatory policy, and we dropped the slope, steep slope of 219 00:10:52,800 --> 00:10:56,080 Speaker 5: incredible amounts of federal spending coming out of the Biden administration. 220 00:10:56,400 --> 00:11:00,160 Speaker 2: Congressman, just away from the events in Washington, DC this morning, 221 00:11:00,240 --> 00:11:02,320 Speaker 2: we'd love a comment from you on the news of 222 00:11:02,360 --> 00:11:05,000 Speaker 2: this morning elsewhere, particularly in the Middle East. The President 223 00:11:05,040 --> 00:11:08,120 Speaker 2: posting on social media just moments ago on a truce 224 00:11:08,160 --> 00:11:11,640 Speaker 2: between Iran and Israel, a very frustrated post from the President, 225 00:11:11,720 --> 00:11:14,440 Speaker 2: do not drop those bombs addressing Israel. If you do, 226 00:11:14,559 --> 00:11:17,920 Speaker 2: it's a major violation. Bring your pilots home and do 227 00:11:18,040 --> 00:11:20,480 Speaker 2: it now. And the tone as we understand of the 228 00:11:20,520 --> 00:11:23,920 Speaker 2: President leaving making his way to the NATO summit in Europe, 229 00:11:23,920 --> 00:11:27,360 Speaker 2: was a very frustrated, very frustrated president of the United 230 00:11:27,360 --> 00:11:30,800 Speaker 2: States with Israel, with Iran, and hopeful that maybe we 231 00:11:30,840 --> 00:11:33,000 Speaker 2: can establish a long lasting truce in the Middle East. 232 00:11:33,000 --> 00:11:35,520 Speaker 2: Do you think we can establish peace through strength in 233 00:11:35,520 --> 00:11:37,000 Speaker 2: the Middle East? And how much of a change is 234 00:11:37,000 --> 00:11:40,840 Speaker 2: that with this administration relative to the Biden administration over 235 00:11:40,840 --> 00:11:41,679 Speaker 2: the last few years. 236 00:11:42,800 --> 00:11:45,480 Speaker 5: Well, I do think peace comes through strength, and that's 237 00:11:45,720 --> 00:11:49,280 Speaker 5: been demonstrated by President Trump, both in the Middle East 238 00:11:49,320 --> 00:11:52,640 Speaker 5: with his Abraham Accords in his first term and with 239 00:11:52,720 --> 00:11:57,040 Speaker 5: his efforts to end Iran's a dismissal of the West. 240 00:11:57,520 --> 00:12:01,280 Speaker 5: All during the Obama administration and Biden administration, we had 241 00:12:01,320 --> 00:12:05,040 Speaker 5: appeasement from the Democrats in the White House. They funded 242 00:12:05,080 --> 00:12:08,600 Speaker 5: Iran's missile operation, they relieve sanctions, they let them sell 243 00:12:08,600 --> 00:12:12,560 Speaker 5: all their oil on the open markets. They facilitated that 244 00:12:12,720 --> 00:12:16,920 Speaker 5: money going then to the houthis Hesballah Hamas, and we've 245 00:12:16,960 --> 00:12:20,280 Speaker 5: seen the damaging position on that. And so Trump is 246 00:12:20,320 --> 00:12:25,760 Speaker 5: returning to his pressure on Iran through ending the nuclear program, 247 00:12:25,800 --> 00:12:28,040 Speaker 5: not delaying it. And I think it's going to change 248 00:12:28,080 --> 00:12:30,120 Speaker 5: the balance of power in the Middle East for the better. 249 00:12:30,520 --> 00:12:33,679 Speaker 5: And I think it demonstrates peace through strength. And also 250 00:12:33,720 --> 00:12:36,440 Speaker 5: I think President the President going to the NATO meeting 251 00:12:36,480 --> 00:12:39,960 Speaker 5: will demonstrate that again as European countries now commit to 252 00:12:39,960 --> 00:12:43,880 Speaker 5: spending five percent of their gross domestic product on defense, 253 00:12:44,280 --> 00:12:48,680 Speaker 5: standing up a stronger, more robust industrial base and defense 254 00:12:48,760 --> 00:12:51,640 Speaker 5: posture for Europe. I think that's good for the Atlantic Charter, 255 00:12:52,440 --> 00:12:54,880 Speaker 5: for NATO, and I think it's good for future peace 256 00:12:54,880 --> 00:12:55,600 Speaker 5: in the Middle East. 257 00:12:55,679 --> 00:12:58,280 Speaker 2: A Congressman, we appreciate your time, Sir Basie Morniga has 258 00:12:58,280 --> 00:13:01,040 Speaker 2: some best lover to hearing. Thank you, Sir, Congressman French 259 00:13:01,040 --> 00:13:13,559 Speaker 2: Shilden's elasis. This morning, President Donald Trump lashing out of 260 00:13:13,679 --> 00:13:16,920 Speaker 2: Israel and Iran, the President accusing both sides of violating 261 00:13:16,960 --> 00:13:20,240 Speaker 2: a ceasefire agreement and nearly two weeks of fighting between 262 00:13:20,280 --> 00:13:22,800 Speaker 2: the two nations. Joining US now is they retired Lieutenant 263 00:13:22,880 --> 00:13:27,320 Speaker 2: General David Debtula Retired Lieutenant General David Sutula joined US 264 00:13:27,400 --> 00:13:29,400 Speaker 2: right now, Lieutenant General. Can I just ask you this, 265 00:13:29,600 --> 00:13:32,640 Speaker 2: A lot's happened over the last few days. In your opinion, 266 00:13:32,720 --> 00:13:33,760 Speaker 2: what's changed. 267 00:13:35,320 --> 00:13:40,480 Speaker 6: Well, I think John, what's changed is the fact that 268 00:13:40,720 --> 00:13:46,880 Speaker 6: Israel has achieved air superiority, if not air supremacy, over Iran, 269 00:13:47,120 --> 00:13:51,760 Speaker 6: and now Iran is understanding that it is subject to 270 00:13:53,480 --> 00:13:59,120 Speaker 6: israelly lethal effects whenever and wherever they want to. So 271 00:13:59,400 --> 00:14:05,760 Speaker 6: that has what has led Iran to initially agree to 272 00:14:05,920 --> 00:14:12,360 Speaker 6: consider negotiations. But as you saw in the violations of 273 00:14:12,720 --> 00:14:18,720 Speaker 6: the initial elements of the ceasefire, Iran continued to fire 274 00:14:18,760 --> 00:14:25,880 Speaker 6: ballistic missiles against Israel, resulting in death. So it's probably 275 00:14:25,920 --> 00:14:28,840 Speaker 6: going to take a bit more application of force on 276 00:14:28,880 --> 00:14:33,239 Speaker 6: the part of Israel, and quite frankly, the continued application 277 00:14:33,360 --> 00:14:37,880 Speaker 6: of force until Iran finally gets the message that if 278 00:14:37,920 --> 00:14:41,080 Speaker 6: they don't come to the negotiating table, they're going to 279 00:14:41,080 --> 00:14:45,400 Speaker 6: continue to see their regime and their capabilities weakened and 280 00:14:45,880 --> 00:14:47,080 Speaker 6: ultimately destroyed. 281 00:14:47,280 --> 00:14:48,840 Speaker 1: There are two different questions here. There are a lot 282 00:14:48,840 --> 00:14:51,560 Speaker 1: of different questions. One is the market related question, which 283 00:14:51,600 --> 00:14:54,640 Speaker 1: is will oil supplies be disrupted. That seems to be 284 00:14:55,200 --> 00:14:57,320 Speaker 1: not so much, and that's what we're seeing priced into 285 00:14:57,360 --> 00:15:01,200 Speaker 1: the market. There's a larger question of well Iran's ambitions 286 00:15:01,240 --> 00:15:04,840 Speaker 1: to be a nuclear state really be hampered for a 287 00:15:05,000 --> 00:15:08,720 Speaker 1: longer term kind of time frame. What's your take on that, 288 00:15:08,880 --> 00:15:12,800 Speaker 1: given the four hundred kilograms of enriched uranium that currently 289 00:15:12,920 --> 00:15:13,800 Speaker 1: is missing in action. 290 00:15:15,600 --> 00:15:20,720 Speaker 6: Yeah, Lisa, Actually that's a great question. At a fundamental level, 291 00:15:21,680 --> 00:15:27,040 Speaker 6: nuclear capability consists of three essential components in Israel and 292 00:15:27,080 --> 00:15:30,120 Speaker 6: the United States has targeted each of them. The first 293 00:15:30,120 --> 00:15:33,960 Speaker 6: one's human expertise, and that's the knowledge required to design 294 00:15:33,960 --> 00:15:38,360 Speaker 6: and construct nuclear weapons, resides in a small cadre of 295 00:15:38,400 --> 00:15:42,840 Speaker 6: specialized scientists and engineers, and Israel's made a concerted effort 296 00:15:42,920 --> 00:15:46,760 Speaker 6: to neutralize that capability. Then, as you mentioned, there's the 297 00:15:46,800 --> 00:15:54,440 Speaker 6: fissile material, most importantly uranium enriched weapons grade levels. Right now, 298 00:15:54,720 --> 00:15:57,840 Speaker 6: there are four to five hundred kilograms of enriched uranium 299 00:15:58,160 --> 00:16:02,720 Speaker 6: that still exists in Iran, but strikes on the enrichment 300 00:16:02,920 --> 00:16:08,680 Speaker 6: sites at Ferdo and Natons have severely disrupted the ability 301 00:16:08,720 --> 00:16:11,960 Speaker 6: to process it further. And then number three, there's the 302 00:16:12,040 --> 00:16:16,640 Speaker 6: weaponization and assembly infrastructure. So even with the knowledge and 303 00:16:16,760 --> 00:16:21,320 Speaker 6: material around needs the facilities to assemble a functioning nuclear weapon. 304 00:16:21,680 --> 00:16:27,280 Speaker 6: So two out of these three elements have been severely impacted. 305 00:16:27,680 --> 00:16:33,720 Speaker 6: So what remains is a fragmented element, if you will, 306 00:16:34,440 --> 00:16:38,600 Speaker 6: but it's hardly the foundation for a viable nuclear weapons program. 307 00:16:38,920 --> 00:16:41,720 Speaker 6: So I think you've seen Israel in the United States 308 00:16:41,760 --> 00:16:46,640 Speaker 6: cripple Iran's operational nuclear capability, but obviously there's the potential 309 00:16:46,680 --> 00:16:47,800 Speaker 6: to reconstitute. 310 00:16:47,920 --> 00:16:50,520 Speaker 1: There's a question about deterrence when it comes to Iranian 311 00:16:50,600 --> 00:16:53,400 Speaker 1: nuclear ambition, it's also de terrence on a global scale 312 00:16:53,480 --> 00:16:56,840 Speaker 1: heading into NATO. What's your sense of whether this action 313 00:16:56,960 --> 00:16:59,880 Speaker 1: by the United States acts as a deterrent or not 314 00:17:00,320 --> 00:17:03,480 Speaker 1: to other states that might be contemplating nuclear status or 315 00:17:03,840 --> 00:17:05,879 Speaker 1: incursions into other areas around the world. 316 00:17:06,880 --> 00:17:09,640 Speaker 6: Well, I think it's an excellent point, and I think 317 00:17:09,760 --> 00:17:16,160 Speaker 6: part of the benefit of what President Trump did is 318 00:17:16,200 --> 00:17:20,080 Speaker 6: not only and what I'm talking about is going forward 319 00:17:20,200 --> 00:17:25,159 Speaker 6: with the B two attacks against these processing facilities. First, 320 00:17:25,520 --> 00:17:28,719 Speaker 6: while that's setback around's potential to develop a nuclear weapon, 321 00:17:29,080 --> 00:17:32,840 Speaker 6: it was fundamental to restoring US credibility on the world stage. 322 00:17:34,240 --> 00:17:36,199 Speaker 6: You know, we've seen and we spent a lot of 323 00:17:36,200 --> 00:17:40,400 Speaker 6: time talking about this, but the disastrous withdrawal from Afghanistan 324 00:17:40,480 --> 00:17:44,840 Speaker 6: and then seeing the US being deterred by Putin. You 325 00:17:44,880 --> 00:17:50,080 Speaker 6: know what this action did was, Hey, look the United 326 00:17:50,080 --> 00:17:55,160 Speaker 6: States now acts behind its words. It just doesn't talk 327 00:17:55,200 --> 00:17:58,320 Speaker 6: and take no action. So I think that will have 328 00:17:58,400 --> 00:18:02,640 Speaker 6: an impact with respect to not just our potential adversaries, 329 00:18:02,880 --> 00:18:04,240 Speaker 6: but our allies alike. 330 00:18:04,680 --> 00:18:07,080 Speaker 2: Lieutenant General. Always appreciate your time, sir, Thank you for 331 00:18:07,119 --> 00:18:08,159 Speaker 2: making a few minutes for us. 332 00:18:08,160 --> 00:18:08,600 Speaker 5: This morning. 333 00:18:08,640 --> 00:18:11,760 Speaker 2: Thank you the retired lieutenant general there, David dead Tooler. 334 00:18:21,480 --> 00:18:23,200 Speaker 2: Let's start with this one right here for the Federal 335 00:18:23,200 --> 00:18:26,960 Speaker 2: Reserve July thirtieth. Some people think that's too soon. Others say, 336 00:18:27,080 --> 00:18:29,320 Speaker 2: we can take some comfort from the inflation data over 337 00:18:29,359 --> 00:18:31,840 Speaker 2: the past few months. Is it signal or noise the 338 00:18:31,880 --> 00:18:35,159 Speaker 2: downside surprises we've had over the last several months. 339 00:18:35,240 --> 00:18:37,200 Speaker 4: See, and if we really back up and think about 340 00:18:37,200 --> 00:18:40,760 Speaker 4: what's going on, this is saystaflation shark. Inflation is going up, 341 00:18:40,880 --> 00:18:43,520 Speaker 4: which says the fetch would be hiking. Growth is slowing down, 342 00:18:44,280 --> 00:18:45,960 Speaker 4: says the fetch would be cutting. So where are they 343 00:18:46,040 --> 00:18:47,600 Speaker 4: going to put their weight? Do they like apples to 344 00:18:47,680 --> 00:18:49,960 Speaker 4: the like oranges? Are they going in the tailor room 345 00:18:50,000 --> 00:18:52,520 Speaker 4: to put more weight on inflation and say, well, we 346 00:18:52,640 --> 00:18:54,720 Speaker 4: got to keep rates higher. That's clearly what Jay Powel 347 00:18:54,800 --> 00:18:56,800 Speaker 4: is saying. And that's, of course, at the moment, seems 348 00:18:56,840 --> 00:18:58,920 Speaker 4: to be the baseline, at least from the press conference 349 00:18:59,000 --> 00:19:00,920 Speaker 4: last week. But at this same time, if growth is 350 00:19:00,920 --> 00:19:03,400 Speaker 4: slowing down, and if we are really unlucky and growth 351 00:19:03,400 --> 00:19:06,520 Speaker 4: slows down very quickly, then of course the decision of 352 00:19:06,600 --> 00:19:08,840 Speaker 4: keeping rates higher will turn out to be a mistake. 353 00:19:08,960 --> 00:19:11,119 Speaker 4: So that's why the textbook does not give you an 354 00:19:11,160 --> 00:19:13,080 Speaker 4: answer to a deflation shock. And given we have a 355 00:19:13,119 --> 00:19:17,240 Speaker 4: staclation shark, ceclationary impulse coming from tariffs, ceculationery impulse coming 356 00:19:17,240 --> 00:19:20,840 Speaker 4: from restrictions of immigration including deportations, and also as deflationary 357 00:19:20,880 --> 00:19:23,720 Speaker 4: impulse coming from higher oil prices, all those things really 358 00:19:23,720 --> 00:19:26,040 Speaker 4: complicate the decision of where do they put their weight 359 00:19:26,160 --> 00:19:28,000 Speaker 4: on slowing growth or rising inflation. 360 00:19:28,080 --> 00:19:30,320 Speaker 2: What will determine the response to that is how long 361 00:19:30,359 --> 00:19:33,159 Speaker 2: lived either the stag or theflation actually is exactly, And 362 00:19:33,240 --> 00:19:35,520 Speaker 2: on the inflation side of things, how instructive is the 363 00:19:35,600 --> 00:19:39,159 Speaker 2: labor market right now? Suggesting that maybe look at the 364 00:19:39,240 --> 00:19:42,000 Speaker 2: labor market, is we think up somewhat. I don't see 365 00:19:42,000 --> 00:19:45,000 Speaker 2: that as a source of inflation, and therefore I can't 366 00:19:45,000 --> 00:19:47,440 Speaker 2: make a strong argument for this inflation sparling and getting 367 00:19:47,440 --> 00:19:48,040 Speaker 2: out of control. 368 00:19:48,240 --> 00:19:50,560 Speaker 4: That's true. So that's why there is certainly a case 369 00:19:50,560 --> 00:19:53,920 Speaker 4: to be made of this inflation spike is transatory. Of course, 370 00:19:54,000 --> 00:19:55,679 Speaker 4: as we know from when they said that last time, 371 00:19:55,680 --> 00:19:58,359 Speaker 4: they're probably very reluctant to use those words. But I 372 00:19:58,359 --> 00:20:00,440 Speaker 4: do think that the conclusion is, to your point, the 373 00:20:00,720 --> 00:20:02,919 Speaker 4: consensus does expect that inflation by the end of this 374 00:20:03,000 --> 00:20:06,159 Speaker 4: year will be higher than where, of course is today. 375 00:20:06,200 --> 00:20:08,480 Speaker 4: So that's why if we have three six months ahead 376 00:20:08,520 --> 00:20:10,840 Speaker 4: of us with some upward pushing inflation, the risk is 377 00:20:11,080 --> 00:20:13,359 Speaker 4: that companies will view this, just like they did in 378 00:20:13,359 --> 00:20:16,320 Speaker 4: twenty twenty one twenty two, as a chance to say, well, 379 00:20:16,320 --> 00:20:18,840 Speaker 4: maybe we need to think about pricing, and maybe therefore 380 00:20:18,920 --> 00:20:21,520 Speaker 4: that you could have risks that inflation does become moin grain. 381 00:20:21,760 --> 00:20:23,360 Speaker 1: Is there anything that you can see that would make 382 00:20:23,359 --> 00:20:25,800 Speaker 1: you rethink the idea of stagflation, think that maybe things 383 00:20:25,800 --> 00:20:27,919 Speaker 1: are better than you're currently making them out to be. 384 00:20:28,040 --> 00:20:30,320 Speaker 1: I was looking at Nathan Sheets over at City Group saying, 385 00:20:30,720 --> 00:20:32,560 Speaker 1: one thing that is a surprised him again and again 386 00:20:32,640 --> 00:20:35,040 Speaker 1: is the resilience of the US economy and the fact 387 00:20:35,080 --> 00:20:37,280 Speaker 1: that it has been able to absorb all of these 388 00:20:37,280 --> 00:20:38,320 Speaker 1: shocks again and again. 389 00:20:38,480 --> 00:20:40,960 Speaker 4: And that is absolutely correct. It is impressive how well 390 00:20:41,000 --> 00:20:43,520 Speaker 4: the economy has behaved so far. But that being said, 391 00:20:43,560 --> 00:20:46,320 Speaker 4: the consensus still expects the unemployment rate to go up 392 00:20:46,359 --> 00:20:48,080 Speaker 4: on Thursday next week when we get the next not 393 00:20:48,160 --> 00:20:50,960 Speaker 4: fine payroll. So the consensus is still saying, yes, the 394 00:20:50,960 --> 00:20:53,480 Speaker 4: economy may be strong, but the consensus still is saying 395 00:20:53,640 --> 00:20:55,560 Speaker 4: we expect the level of March a week and importantly 396 00:20:55,600 --> 00:20:58,720 Speaker 4: also with the restrictions on immigration and much less immigration 397 00:20:58,760 --> 00:21:00,879 Speaker 4: of course coming into the country, we may also have 398 00:21:01,000 --> 00:21:03,280 Speaker 4: the non farm payrolls is now on the long run 399 00:21:03,359 --> 00:21:06,040 Speaker 4: arreas around around fifty thousand, So that means that maybe 400 00:21:06,119 --> 00:21:07,439 Speaker 4: we have a long run level that we need to 401 00:21:07,440 --> 00:21:10,440 Speaker 4: compare with. There's also falling simply because immigration has changed 402 00:21:10,440 --> 00:21:12,440 Speaker 4: so much from where we were a few years ago. 403 00:21:12,440 --> 00:21:14,720 Speaker 4: So that's why the label market weakening could both be 404 00:21:14,800 --> 00:21:17,159 Speaker 4: structural in nature, it could also be cycnical, so it 405 00:21:17,240 --> 00:21:19,720 Speaker 4: raises a lot of debates around well, it's the label 406 00:21:19,760 --> 00:21:22,840 Speaker 4: market weakening because demand is weakening, or is label market 407 00:21:22,840 --> 00:21:25,040 Speaker 4: weekning simply for the structural reason that we have less 408 00:21:25,040 --> 00:21:26,200 Speaker 4: immigration than we had before. 409 00:21:26,320 --> 00:21:29,000 Speaker 2: Just quickly fifty five zero we might have to get 410 00:21:29,080 --> 00:21:31,720 Speaker 2: used to fifty fifty thousand on payrolls Friday. 411 00:21:31,560 --> 00:21:34,560 Speaker 4: Absolutely, because if you take the demographics, remember there was 412 00:21:34,560 --> 00:21:37,040 Speaker 4: the paper by Watson and Ebelberg from the Hamlins on 413 00:21:37,080 --> 00:21:39,639 Speaker 4: the project that they basically showed at Brookings that on 414 00:21:39,760 --> 00:21:42,720 Speaker 4: the Biden we had strong immigration. That meant that non 415 00:21:42,760 --> 00:21:45,560 Speaker 4: fund payrollscro us roughly around two hundred thousand every month. 416 00:21:46,000 --> 00:21:48,800 Speaker 4: But now we have literally border encounters are really running 417 00:21:48,800 --> 00:21:51,280 Speaker 4: at a basically zero rate. And at the same time 418 00:21:51,480 --> 00:21:53,679 Speaker 4: we have deportations of course running at an annual rate 419 00:21:53,720 --> 00:21:55,600 Speaker 4: roughly around a million people to be deported by the 420 00:21:55,680 --> 00:21:57,400 Speaker 4: end of the year. All that means the label force 421 00:21:57,480 --> 00:21:59,760 Speaker 4: is shrinking. That means that the number of jobs created 422 00:21:59,800 --> 00:22:02,160 Speaker 4: in the economy is going to be dramatically lower. 423 00:22:02,440 --> 00:22:04,879 Speaker 2: Tolston always thought provoke, can always enjoy catching now with you. 424 00:22:04,920 --> 00:22:08,280 Speaker 2: Thank you, sir Alston slock There of Apollo. This is 425 00:22:08,320 --> 00:22:12,679 Speaker 2: the Bloomberg Surveillance podcast, bringing you the best in markets, economics, 426 00:22:12,720 --> 00:22:15,680 Speaker 2: angiot politics. You can watch the show live on Bloomberg 427 00:22:15,720 --> 00:22:18,880 Speaker 2: TV weekday mornings from six am to nine am Eastern. 428 00:22:19,160 --> 00:22:22,520 Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else 429 00:22:22,560 --> 00:22:25,199 Speaker 2: you listen, and as always, on the Bloomberg Terminal and 430 00:22:25,280 --> 00:22:26,480 Speaker 2: the Bloomberg Business app.