WEBVTT - Bloomberg Surveillance TV: August 14th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and a Marie Hortern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:37.560 Bloomberg Terminal and the Bloomberg Business app to discuss EDGYR 0:00:37.640 --> 0:00:40.159 Denny of Yard Denny Research joins us now for more 0:00:40.200 --> 0:00:42.680 and welcome to the program Sir. Can this market, as 0:00:42.720 --> 0:00:45.280 we've been discussed in have its cake and eat it too? 0:00:46.280 --> 0:00:50.080 It's doing it right now. For sure. We've had a 0:00:50.200 --> 0:00:55.360 very strong ballmarket really since October of twenty twenty two, 0:00:55.480 --> 0:00:59.040 and really it hasn't stopped. We had a correction at 0:00:59.080 --> 0:01:03.960 the beginning of the year related to uncertainty about Trump's 0:01:04.360 --> 0:01:10.800 employment policies for the government with DOGE, and uncertainty about tariffs, 0:01:10.880 --> 0:01:14.440 and so naturally, if you're an employer, you're going to 0:01:14.600 --> 0:01:18.520 hold off on hiring and not necessarily fire anybody. And 0:01:18.560 --> 0:01:20.480 so I think a lot of the soft patch, which 0:01:20.520 --> 0:01:23.600 is I think what it's been is related to uncertainty. 0:01:23.640 --> 0:01:25.760 And I think the markets are starting to conclude that, 0:01:25.840 --> 0:01:28.120 you know what, uncertainty is going to be with us 0:01:28.160 --> 0:01:30.679 here for a while, let's move on with our businesses. 0:01:31.200 --> 0:01:32.720 And I think the economy is in. 0:01:32.680 --> 0:01:36.000 Good shape at the Enthusiasm is starting to spread. Its 0:01:35.959 --> 0:01:39.199 starting to spread beyond the big text story. Two days 0:01:39.480 --> 0:01:42.240 of really decent days of gains for small caps. Now 0:01:42.280 --> 0:01:45.360 at whenever this market market participants get a sniff of 0:01:45.360 --> 0:01:47.720 out performance on a small caps the excitement starts to 0:01:47.720 --> 0:01:50.160 build again. Is this another headfake called the real deal? 0:01:51.240 --> 0:01:53.600 Well, you know, we've had lots of headshakes in that 0:01:53.720 --> 0:01:59.360 regard really since twenty eighteen. Roughly around then, we did 0:01:59.400 --> 0:02:04.960 see that midcaps consistently underperformed the large caps. The S 0:02:05.000 --> 0:02:07.360 and P five hundred, I'm looking at the S and 0:02:07.400 --> 0:02:10.200 P four hundred mid caps, S and P six hundred 0:02:10.240 --> 0:02:14.200 small caps. They just kept underperforming. Every now and then 0:02:14.280 --> 0:02:17.240 you'd get a head fake. And I won't be surprised 0:02:17.240 --> 0:02:19.760 if this is another head fake. I'm not telling anybody 0:02:19.960 --> 0:02:23.200 that it's not tradable. I think clearly it is tradable, 0:02:23.240 --> 0:02:26.080 as previous head fakes have been, but they don't last 0:02:26.160 --> 0:02:29.480 very long. And the reason is that earnings of this 0:02:29.760 --> 0:02:33.560 small cap MidCap companies just continue to be in a coma. 0:02:33.639 --> 0:02:37.640 They've been flatlining since twenty eighteen, and I think they're 0:02:37.680 --> 0:02:41.080 doing that because the good ones keep getting bought out 0:02:42.120 --> 0:02:44.520 by the large caps. So you never really get a 0:02:44.560 --> 0:02:47.640 situation where you can buy a small cap and have 0:02:47.680 --> 0:02:49.760 it turned into a Microsoft. 0:02:50.320 --> 0:02:52.280 If the FED were to cup by fifty basis points 0:02:52.320 --> 0:02:54.359 next month, would you change your view? Would you see 0:02:54.360 --> 0:02:55.760 this as something other than a headfake? 0:02:57.560 --> 0:02:59.840 Well, I think then I would just say we're in 0:02:59.840 --> 0:03:02.280 a melt up I mean, it feels like a melt 0:03:02.360 --> 0:03:06.320 up already. We've seen the correction at the early at 0:03:06.360 --> 0:03:08.880 the beginning of the year. We've seen multiples go from 0:03:09.000 --> 0:03:11.839 twenty two forward pe for the S and P five 0:03:11.919 --> 0:03:14.760 hundred at the beginning of the year down to eighteen. 0:03:14.840 --> 0:03:17.119 We didn't get down to fifteen. We didn't get down 0:03:17.160 --> 0:03:20.120 to ten. The market figured out and kind of agreed 0:03:20.160 --> 0:03:22.240 with me that the economy was resilient and we're not 0:03:22.280 --> 0:03:24.520 going to have a recession. And when it did that 0:03:24.639 --> 0:03:28.680 suddenly boom, we went right back up to twenty two, 0:03:28.720 --> 0:03:31.960 and so the market ain't cheap. And the reality is 0:03:32.040 --> 0:03:34.519 if the FED cuts when there's still, as you said, 0:03:34.520 --> 0:03:37.760 a lot of ambiguity about whether it really needs a cut, 0:03:38.320 --> 0:03:41.880 it doesn't really need a fifty basis point cutlet a 0:03:42.280 --> 0:03:45.600 twenty five basis point cut. The administration needs interest rates 0:03:45.640 --> 0:03:47.480 to come down because they'd like to see the interest 0:03:47.480 --> 0:03:50.240 costs of the debt come down. But the economy I 0:03:50.240 --> 0:03:53.400 think is going to surprise everybody in the next few months, 0:03:53.520 --> 0:03:56.960 especially the consumer as you also indicated, and show some 0:03:57.040 --> 0:04:00.400 resilience of the consumer part, and capital spend a lot 0:04:00.440 --> 0:04:03.000 of this technology related that's going to continue to go. 0:04:03.640 --> 0:04:07.880 So I think, you know, as the drums beat for 0:04:08.960 --> 0:04:11.200 more rate cuts here, and we're probably now going to 0:04:11.240 --> 0:04:15.280 get one in September, and then there'll be expectations for 0:04:15.320 --> 0:04:17.360 another one after that before the end of the year. 0:04:17.800 --> 0:04:20.440 I think we're in a melt up situation. So you know, 0:04:20.520 --> 0:04:22.360 right now, I'm still kind of sticking to a sixty 0:04:22.400 --> 0:04:25.360 six hundred and the s and P five hundred by 0:04:25.480 --> 0:04:27.960 year end because I think there's still a couple of 0:04:28.240 --> 0:04:32.039 indicators here that might suggest that maybe the FED shouldn't 0:04:32.040 --> 0:04:36.320 be lowering rates, but absent that, we could go right 0:04:36.360 --> 0:04:39.120 back to sixty nine hundred and seven thousand by the 0:04:39.200 --> 0:04:41.159 end of the year in a melt up situation. And 0:04:41.480 --> 0:04:43.800 the problem with melt ups is they're followed by meltdowns. 0:04:43.920 --> 0:04:45.400 Well, that's where I wanted to go at. This is 0:04:45.440 --> 0:04:47.680 something that you talked about a couple of months ago, 0:04:47.760 --> 0:04:49.920 that you're worried if the FED cuts rates too much, 0:04:49.960 --> 0:04:51.599 you could end up with a bubble, and that you 0:04:51.600 --> 0:04:54.320 could end up with late nineteen nineties type scenario that 0:04:54.480 --> 0:04:57.640 leads to the meltdown that you are referring to. How 0:04:57.680 --> 0:04:59.520 close are we to that if we do get the 0:04:59.560 --> 0:05:02.120 series rate cuts that the mark is currently pricing in. 0:05:02.960 --> 0:05:05.600 Well, before we go there, let's also point out. Let 0:05:05.640 --> 0:05:08.600 me also point out that at the end of last year, 0:05:09.080 --> 0:05:10.839 I also felt that there was no need for the 0:05:10.880 --> 0:05:13.680 Fed to lower interest rates, and I said that if 0:05:13.680 --> 0:05:16.800 the Fed did lower interest rates, bondiles would go up. 0:05:17.320 --> 0:05:19.240 Little did I know that the Fed would do one 0:05:19.320 --> 0:05:22.480 hundred basis points all told at the end of last year. 0:05:22.520 --> 0:05:25.320 And guess what the Bondi'll went up one hundred basis 0:05:25.360 --> 0:05:28.800 points and frustrated all those people who want to see 0:05:28.839 --> 0:05:32.640 mortgage rates come down and corporate corporate rates come down. 0:05:32.680 --> 0:05:36.760 So the Fed ease, but the bond vigilantes tightened, and 0:05:36.800 --> 0:05:40.640 we have that possibility again now. So just because the 0:05:40.640 --> 0:05:43.280 Fed eases, let's watch what the bond market does. It 0:05:43.320 --> 0:05:47.120 may not be very happy with the Fed moving to 0:05:47.200 --> 0:05:49.159 lower interest rates when the Fed's been telling us for 0:05:49.160 --> 0:05:51.919 a long time that they need to get their inflation 0:05:52.040 --> 0:05:54.599 rate down to two percent, and right now it's closer 0:05:54.600 --> 0:05:58.360 to three percent than two percent. But yeah, I mean, 0:05:58.440 --> 0:06:02.920 a nineteen ninety style scenario is a possibility. I mean, 0:06:03.000 --> 0:06:06.800 right now, AI looks like it's a much firmer footings 0:06:07.000 --> 0:06:10.279 with earnings than we saw back in the tech wreck 0:06:10.360 --> 0:06:13.560 that occurred in the late nineteen nineties early two thousands. 0:06:14.279 --> 0:06:17.320 But you know, in this market, you never know. I mean, 0:06:17.360 --> 0:06:20.920 deep Seek came out of nowhere in January and created 0:06:20.920 --> 0:06:22.480 a pretty nasty correction. 0:06:22.400 --> 0:06:24.520 Deep hoop, and then we bounced back pretty quickly, didn't 0:06:24.520 --> 0:06:26.200 we had. That's a stock market. I want to tease 0:06:26.240 --> 0:06:28.280 out what you just said about the bond market. Do 0:06:28.360 --> 0:06:30.479 you see then a similar backdrop this time around to 0:06:30.520 --> 0:06:33.240 what we saw take place back in September. 0:06:33.680 --> 0:06:37.520 Unfortunately, I do. I think that the bond market is 0:06:37.560 --> 0:06:40.840 not going to like the FED kind of caving into 0:06:41.000 --> 0:06:45.960 a political pressure and easing I mean, you know, I 0:06:45.960 --> 0:06:49.000 think a lot of FED officials are probably on the fence, 0:06:49.040 --> 0:06:52.000 but they're getting pushed over to the easing side by 0:06:52.040 --> 0:06:55.000 the political pressure. And that being the case, I think 0:06:55.040 --> 0:06:57.560 the bond vigilantes, I mean, that's what the bond vigilantis 0:06:57.600 --> 0:06:59.520 are supposed to do. They're supposed to maintain law and 0:06:59.640 --> 0:07:02.880 order in the credit markets and in the financial markets 0:07:02.880 --> 0:07:06.400 and the economy. If the sheriff decides to go out 0:07:06.400 --> 0:07:07.000 of the saloon. 0:07:07.360 --> 0:07:09.840 Not saying much lower order right now at appreciate your time, 0:07:10.920 --> 0:07:23.960 any reset, The former senior US intelligence official Norman Rule 0:07:24.000 --> 0:07:25.920 joins us now for more No when welcome back to 0:07:25.960 --> 0:07:28.840 the program, Sir. Is the president in a position to 0:07:28.920 --> 0:07:31.400 negotiate on behalf of the Ukrainians? 0:07:32.240 --> 0:07:35.360 Good morning. He is not in position to negotiate on 0:07:35.440 --> 0:07:39.280 behalf the Ukrainians. The Ukrainian President has made that clear, 0:07:39.560 --> 0:07:42.800 and the Europeans have done everything they can to send 0:07:42.800 --> 0:07:48.400 a unified message that Ukrainian territory is not something the 0:07:48.440 --> 0:07:52.520 president can offer in his talks and in fairness, the 0:07:52.520 --> 0:07:56.480 President has stated that he is not going to offer 0:07:56.600 --> 0:07:59.760 Ukrainian territory to the Russians, and indeed, we'll be doing 0:07:59.800 --> 0:08:04.680 what he can to acquire Ukrainian territory that Russia is 0:08:04.680 --> 0:08:08.720 occupied to return back to Ukrainian self. The question is 0:08:08.760 --> 0:08:12.119 how exactly does he do this, And indeed, in terms 0:08:12.200 --> 0:08:15.280 of the severe consequences that he would apply to Russia, 0:08:15.600 --> 0:08:19.480 that in itself requires some caution because to do that 0:08:19.680 --> 0:08:24.400 requires secondary sanctions on China and India, and as Secretary 0:08:24.480 --> 0:08:28.880 Bessent has stated, that would require European cooperation, and Europe 0:08:28.920 --> 0:08:33.040 has not been very enthusiastic about cooperation in that regard 0:08:33.120 --> 0:08:33.760 in the past. 0:08:34.160 --> 0:08:36.080 Norman, there's a lot to unpack there. I want to 0:08:36.080 --> 0:08:39.200 get into the ceasefire agreement the President Trump has talked 0:08:39.200 --> 0:08:42.559 about as a threshold to cross in this meeting tomorrow. 0:08:42.760 --> 0:08:45.760 What would that look like? Given the previous ceasefire agreements 0:08:45.760 --> 0:08:48.000 that already have been made and broken. 0:08:48.679 --> 0:08:53.960 A ceasefire agreement is unlikely. President Putin has violated most 0:08:53.960 --> 0:08:56.560 of those agreements, and right now we're watching each side 0:08:56.600 --> 0:09:00.760 do what they can to demonstrate strength. The Russia are 0:09:00.800 --> 0:09:05.120 conducting a series of ground operations that are allowing them 0:09:05.160 --> 0:09:09.720 to make short, sharp advances in the Donbas. The Ukrainians 0:09:09.760 --> 0:09:15.000 are conducting drone attacks on Russian energy facilities, which are 0:09:15.080 --> 0:09:20.000 important given that they Russia's economy is contracting further per 0:09:20.040 --> 0:09:23.920 the IMF will have only zero point nine percent GDP 0:09:24.080 --> 0:09:29.000 growth this year. So we're unlikely to see a cease 0:09:29.040 --> 0:09:33.240 fire take place unless each side is convinced that a 0:09:33.320 --> 0:09:36.160 piece steel is likely, and again we have no evidence 0:09:36.720 --> 0:09:39.680 for this in the near term. This said, the President 0:09:39.760 --> 0:09:41.800 is going to be doing his best to achieve that, 0:09:42.040 --> 0:09:44.760 and we're likely to see one in one meetings with 0:09:45.120 --> 0:09:48.800 President Putin and President Trump. The Europeans will be concerned 0:09:48.840 --> 0:09:52.360 about that. They have demonstrated that concern, and the President 0:09:53.880 --> 0:09:57.680 has demonstrated in the past that his relationship with Putin 0:09:57.760 --> 0:10:00.680 is very personal, and he sees that personal relationship is 0:10:00.679 --> 0:10:02.920 where his strength lies in achieving an agreement. 0:10:03.520 --> 0:10:06.240 There's a question, Norman, about whether the president really has 0:10:06.280 --> 0:10:08.080 as much leverage as he could if he's going into 0:10:08.120 --> 0:10:11.600 this without the Europeans agreeing to helping to enforce the 0:10:11.640 --> 0:10:14.440 secondary sanctions. Do you think that this is premature? Do 0:10:14.440 --> 0:10:17.160 you think that this is a good timing on the 0:10:17.200 --> 0:10:19.840 part of President Trump to go at this alone, given 0:10:19.880 --> 0:10:22.800 the lack of cooperation on some of the more punitive parts. 0:10:23.520 --> 0:10:26.040 Well, to be clear, I'm not sure that Europeans are 0:10:26.080 --> 0:10:29.720 ever going to be enthusiastic about supporting secondary sanctions on 0:10:29.880 --> 0:10:35.840 China and India, and at the same time Russia's sanction continue. 0:10:35.920 --> 0:10:40.840 Russia's economy continues to contract. It has contracted. The IMF 0:10:40.920 --> 0:10:44.680 has reduced its projections for GDP from one point five 0:10:44.760 --> 0:10:47.960 percent too point nine percent for this year and next year. 0:10:48.280 --> 0:10:52.679 Forty percent of Russia's economy is now devoted to military spending. 0:10:52.720 --> 0:10:55.200 It's likely to remain that way for the future, and 0:10:55.320 --> 0:10:58.880 Russia is losing a vast amount of personnel every day. 0:10:59.200 --> 0:11:04.480 The presidents I would expect that his private intelligence and 0:11:04.520 --> 0:11:08.280 economic briefings show a dire picture for the Russian economy, 0:11:08.320 --> 0:11:12.520 and he probably sees this as his lever over Vladimir Putin. 0:11:12.720 --> 0:11:15.559 So I though Putin will come in playing a stronghand 0:11:15.600 --> 0:11:18.559 trying to show battlefield gains, trying to show that he's 0:11:18.600 --> 0:11:21.120 going to win this war. I think the President's position 0:11:21.240 --> 0:11:23.800 is going to be, Look, you're a big country, an 0:11:23.800 --> 0:11:27.240 aging population, You've got great resources, you could be doing 0:11:27.280 --> 0:11:30.160 great things in the world. But you're driving your country 0:11:30.160 --> 0:11:32.400 into the ground, and the best way for you to 0:11:32.440 --> 0:11:35.480 save your country's future is to end this conflict. I 0:11:35.520 --> 0:11:38.000 think that's probably going to be the tactic the President 0:11:38.040 --> 0:11:39.080 may consider. 0:11:39.440 --> 0:11:41.000 No do you think that tactic will work? 0:11:42.280 --> 0:11:45.640 I doubt it. I think Vladimir Putin is a map changer. 0:11:45.679 --> 0:11:51.440 He is committed to changing the rule of Russia, to 0:11:51.520 --> 0:11:55.600 restoring the Russian Empire, the Soviet Empire. He doesn't believe 0:11:55.679 --> 0:11:58.880 Ukraine should exist as the country. I think he's committed 0:11:58.880 --> 0:12:02.680 to the maximalist gains. He may offer some sort of 0:12:03.040 --> 0:12:08.160 territorial concessions to restrain sanctions. He may try to delay 0:12:08.200 --> 0:12:13.120 further sanctions. We also have arms talks that the Vladimir 0:12:13.160 --> 0:12:15.960 Putin may hold out, and nuclear talks are something that 0:12:15.960 --> 0:12:19.400 we no longer raise in our discussions, but are too 0:12:19.760 --> 0:12:24.640 tremendously important, And I think Vladimir Putin may hold out arms, 0:12:24.720 --> 0:12:29.480 nuclear talks and Arctic cooperation as some way to continue 0:12:29.520 --> 0:12:33.880 engagement with the US. That may complicate the relationship. And 0:12:33.920 --> 0:12:37.120 again you don't hear nuclear talks and Arctic cooperation is 0:12:37.160 --> 0:12:40.320 something of great importance for Europe, but they are of 0:12:40.400 --> 0:12:44.400 importance to the United States for our national security. 0:12:44.040 --> 0:12:46.040 And no on what I hear from you is this 0:12:46.160 --> 0:12:50.520 doesn't end without compromising the integrity of Ukrainian territory. Now, 0:12:50.559 --> 0:12:52.720 I just wonder, with that in mind, nom how you 0:12:52.720 --> 0:12:54.920 think this does end or will it end? And if 0:12:54.920 --> 0:12:56.719 this can just continue for years on end? 0:12:57.800 --> 0:13:01.320 This ends when the Ukrainians did it ends. That's not 0:13:01.360 --> 0:13:05.200 a decision the American American government can make. This ends 0:13:05.200 --> 0:13:08.800 when the Russians decided. Ends. Again, that's not a decision 0:13:08.800 --> 0:13:16.360 the Americans can necessarily make. But at a certain point 0:13:16.600 --> 0:13:19.160 each that any deal that does come about in the 0:13:19.240 --> 0:13:21.880 end is probably going to leave each side unhappy. And 0:13:21.960 --> 0:13:25.400 the US government has communicated on a number of occasions 0:13:25.440 --> 0:13:29.000 that if there are going to be territorial decisions made 0:13:29.040 --> 0:13:30.920 in the end as part of a peace agreement, it 0:13:31.000 --> 0:13:34.040 probably and would involve concessions on each side that will 0:13:34.080 --> 0:13:37.120 leave each side unhappy. That's a tough thing to say, 0:13:37.160 --> 0:13:39.880 and obviously Ukrainians who have given blood are going to 0:13:39.880 --> 0:13:42.000 be unhappy to hear that. But that has been a 0:13:42.040 --> 0:13:45.439 previously stated US position. But again, that's a Ukrainian decision 0:13:45.480 --> 0:13:47.760 to make, and it's not a decision they're going to make. 0:13:47.800 --> 0:13:49.960 It present, and it's a decision they won't make unless 0:13:49.960 --> 0:13:50.720 they're at the table. 0:13:50.880 --> 0:13:53.199 No, thank you, sir. I appreciate your thoughts. The former 0:13:53.280 --> 0:13:57.000 senior US Intelligence official Norman Role with some sobering words 0:13:57.040 --> 0:14:09.160 there on the future of that role joining US natural 0:14:09.160 --> 0:14:12.400 discussed as the former Well Bank president David Malfast. David, 0:14:12.760 --> 0:14:14.719 my good friend. Welcome back to the program, sir. Let's 0:14:14.760 --> 0:14:17.200 talk about the leader of the Federal Reserve and the 0:14:17.240 --> 0:14:20.360 next FED share. What are the characteristics that we're looking 0:14:20.360 --> 0:14:22.400 for here, David in the next FED Share? 0:14:24.640 --> 0:14:28.960 Hi, John and Lisa. I think what is needed is 0:14:29.000 --> 0:14:32.000 a lot of change at the FED. So their characteristics 0:14:32.000 --> 0:14:35.480 are someone that will bring change and really confront the 0:14:35.520 --> 0:14:39.320 PhD economists that have been riding the FED. You heard 0:14:39.320 --> 0:14:41.800 some of that in your previous guests talking about the 0:14:41.840 --> 0:14:45.560 bond market vigilantes and the parent we all need, and 0:14:45.920 --> 0:14:48.600 so I think that getting the FED out of the 0:14:48.600 --> 0:14:52.720 way of the market and creating the rationale for a 0:14:52.840 --> 0:14:56.280 much lower interest rate curve along the curve, I think 0:14:56.320 --> 0:14:59.640 that's what's critical. I was very happy to see Secretary 0:14:59.640 --> 0:15:03.400 Bess yesterday talk about two things. One is the fifty 0:15:03.440 --> 0:15:08.160 basis point cut possibilities and also the need for foundational 0:15:08.280 --> 0:15:12.280 change at the FED. That to me means more loans 0:15:12.320 --> 0:15:15.200 for small businesses. So that's going to be one of 0:15:15.240 --> 0:15:19.920 the opportunities for the US as we change the supply chain. 0:15:20.320 --> 0:15:23.040 You said in some of your previous comments that the 0:15:23.040 --> 0:15:27.080 FED is using old models that are wrong on economics. 0:15:27.280 --> 0:15:29.640 Which models in particular do you think are incorrect? 0:15:31.920 --> 0:15:34.280 There's a long list. How long do you have? The 0:15:34.320 --> 0:15:38.080 Fillips curve doesn't work, The idea of ample reserves doesn't work. 0:15:38.240 --> 0:15:43.080 The idea of inflation targeting using backward looking data doesn't work. 0:15:43.280 --> 0:15:46.680 There's a big opportunity there. If you use forward looking 0:15:46.760 --> 0:15:50.520 price based data, you could get lower interest rates and 0:15:50.560 --> 0:15:53.880 the market would welcome it. That's what we saw yesterday. 0:15:53.920 --> 0:15:58.120 I think when the Secretary said foundational change, there are 0:15:58.160 --> 0:16:00.960 better ways to do this than what the FED has 0:16:01.040 --> 0:16:05.880 been doing. They lean against growth, Lisa, and that's been 0:16:06.080 --> 0:16:09.240 part of the problem that when the economy gets going, 0:16:09.480 --> 0:16:13.760 they say, oh, that's overheating, when actually that's what we want. 0:16:13.840 --> 0:16:18.760 That's the goal of economic policy to have non inflationary growth, David. 0:16:19.080 --> 0:16:21.200 A lot of people would say that when they don't 0:16:21.240 --> 0:16:24.400 tamp down on inflation. It's been acid price inflation. It's 0:16:24.440 --> 0:16:26.640 really run away, and that that has led to a 0:16:26.720 --> 0:16:28.720 number of pretty significant crashes. 0:16:29.200 --> 0:16:29.720 What are you. 0:16:29.720 --> 0:16:33.640 Pointing to in particular in terms of practical consequences that 0:16:34.200 --> 0:16:37.040 point to some of those policies. I mean, would what 0:16:37.040 --> 0:16:38.480 do you think the growth rate should be in the 0:16:38.560 --> 0:16:41.720 United States right now? If the Fed were using the 0:16:41.760 --> 0:16:43.440 models that you would. 0:16:43.200 --> 0:16:47.760 Like to use, I think the growth rate can be 0:16:47.880 --> 0:16:52.680 comfortably three percent real GDP growth, maybe four percent. The 0:16:52.720 --> 0:16:57.240 Fed has a potential GDP speed limit they just published 0:16:57.240 --> 0:16:59.560 on June eighteenth, the idea that it should be one 0:16:59.560 --> 0:17:03.400 point eight five percent per year. So that's that just 0:17:03.560 --> 0:17:08.240 doesn't make sense given the possibilities of regulatory change, the 0:17:08.320 --> 0:17:13.479 recent tax stabilization. So they took the tax cut that 0:17:13.680 --> 0:17:17.080 excuse me, the tax increased that Biden was planning and 0:17:17.119 --> 0:17:20.199 Biden Harris were planning, and took it off the table. 0:17:20.440 --> 0:17:27.520 So that's that allows businesses to begin investing for the future. Lisa, 0:17:28.040 --> 0:17:31.399 You know, the FED has perpetuated this idea ever since 0:17:31.440 --> 0:17:35.000 Paul Volker that high rates are the way to bring 0:17:35.080 --> 0:17:39.360 down inflation. The reality is more production is the way 0:17:39.400 --> 0:17:42.680 to bring down inflation, and Trump's doing that with all 0:17:42.680 --> 0:17:44.679 the changes going on in the economy. 0:17:45.080 --> 0:17:47.520 David, I'm happy for people to make the accusation that 0:17:47.520 --> 0:17:50.080 perhaps this FED share has been reckless with monetary policy, 0:17:50.320 --> 0:17:52.199 but I'm far more sympathetic to the idea that he's 0:17:52.240 --> 0:17:55.080 been recklessly dubvish. This is an individual that letter FED 0:17:55.080 --> 0:17:58.480 that let inflation absolutely rip. This is an individual that 0:17:58.560 --> 0:18:01.680 saw markets doing okay, equally still close to all time 0:18:01.760 --> 0:18:05.239 highs and interest rates one hundred basis points. David, Can 0:18:05.280 --> 0:18:11.360 we really make the argument they've been recklessly hawkish? 0:18:11.440 --> 0:18:14.439 Yes, they're hawkey is right now, and look at the 0:18:14.480 --> 0:18:17.919 difference in the environment they were cutting into. It was 0:18:17.960 --> 0:18:24.160 politicized in twenty twenty four, there were heavy regulation stopping business, 0:18:25.080 --> 0:18:29.000 there was no investment going on, and yet they were 0:18:29.400 --> 0:18:33.840 cutting thinking that inflation was transitory. What we have now 0:18:33.960 --> 0:18:36.640 is a big change going on in the economy, and 0:18:36.920 --> 0:18:41.359 I think the opportunity for capital to flow into the US. 0:18:41.520 --> 0:18:44.520 As you make the economy stronger, you're going to get 0:18:44.560 --> 0:18:48.600 support for the dollar. And again we have to look 0:18:48.600 --> 0:18:54.199 at how the markets reacted yesterday favorably, whereas when the 0:18:54.240 --> 0:18:59.200 FED was cutting during twenty twenty four, markets reacted unfavorably. 0:18:59.280 --> 0:19:01.440 So there's a huge look at. 0:19:01.400 --> 0:19:03.880 The difference between the market right now though, and what 0:19:03.920 --> 0:19:07.280 the federal Reserve is ultimately projecting. David, I don't think 0:19:07.280 --> 0:19:09.359 there's too much dayline. This is a market in a 0:19:09.359 --> 0:19:11.520 federal reserve that seems to be on course. Toccount interest 0:19:11.560 --> 0:19:14.080 rates somewhere between one hundred and one hundred and fifty 0:19:14.119 --> 0:19:16.240 basis points. What we heard from the Secretary of the 0:19:16.240 --> 0:19:19.040 Treasury yesterday was they need to come from one fifty 0:19:19.119 --> 0:19:21.919 to one seventy five. David, understand there should be a 0:19:21.920 --> 0:19:24.560 healthy debate, but is there really that much controversy between 0:19:24.600 --> 0:19:27.320 what the administration would like to see and what's ultimately 0:19:27.359 --> 0:19:29.639 being projected by both markets and a federal reserve alike 0:19:29.640 --> 0:19:33.080 over the next eighteen months. 0:19:33.800 --> 0:19:37.760 I think that's useful. The markets are are looking at 0:19:37.760 --> 0:19:40.960 what's going on in the economy and realizing that there 0:19:41.000 --> 0:19:44.159 can be a lower interest rate environment for the United 0:19:44.200 --> 0:19:47.680 States across the whole yield curve. I think that's important 0:19:47.760 --> 0:19:51.960 and that adds to growth. Look, the goal here is 0:19:52.000 --> 0:19:56.240 a virtuous circle where capital flows in, where growth goes 0:19:56.320 --> 0:20:00.639 up and production goes up, and that brings down prices, 0:20:00.800 --> 0:20:03.399 so then you can keep doing interest rate cuts. You 0:20:03.440 --> 0:20:07.600 get a virtuous circle. I think that's possible. It's going 0:20:07.680 --> 0:20:11.240 to be really important for the FED and PhD economists 0:20:11.280 --> 0:20:15.040 to get to realize that their models haven't been working 0:20:15.080 --> 0:20:18.719 over the years. We've had these wide swings and inflation 0:20:19.160 --> 0:20:23.560 and deflation and interest rates because the Fed's looking backwards. 0:20:23.840 --> 0:20:27.200 So we need new models, sweeping change in the models. 0:20:27.240 --> 0:20:30.400 That's been what I've pointed out, and it will benefit 0:20:30.480 --> 0:20:31.560 small businesses. 0:20:31.640 --> 0:20:34.719 That's the key, David, looking forward and using your models. 0:20:34.760 --> 0:20:35.960 What do you think the neutral rate is? 0:20:38.359 --> 0:20:41.600 I think the neutral rate is lower and the lower 0:20:41.640 --> 0:20:44.119 than where we are now. You know, the FED keeps 0:20:44.119 --> 0:20:47.320 saying that the interest rates are appropriate right now at 0:20:47.359 --> 0:20:50.960 four point four percent. How do they know that they're 0:20:51.000 --> 0:20:54.920 the ones setting that rate and paying banks a lot 0:20:54.960 --> 0:20:58.240 of them international banks. Forty percent of the money payout 0:20:58.280 --> 0:21:00.800 by the FED is going to internet actual banks, and 0:21:00.800 --> 0:21:05.160 they've paid one point three trillion dollars since they started 0:21:05.160 --> 0:21:09.480 paying interest to banks. So they're affecting the markets and 0:21:09.920 --> 0:21:12.639 they don't know what the neutral rate or what the 0:21:13.600 --> 0:21:14.639 bearable rate is. 0:21:15.440 --> 0:21:17.919 They do that it's taking a step at it. They 0:21:18.000 --> 0:21:20.359 think the longer term rates something close to three. So 0:21:20.440 --> 0:21:21.919 what do you think it is close to three, is 0:21:21.920 --> 0:21:23.760 like one fifty cent of where we are at the moment. 0:21:23.840 --> 0:21:25.679 What do you think it is? How much lower than 0:21:25.680 --> 0:21:26.199 that could it be? 0:21:26.480 --> 0:21:31.240 I think the strength of the US economy justifies lower 0:21:31.320 --> 0:21:35.199 rates across the curve, substantially lower, and the market is 0:21:35.240 --> 0:21:39.359 looking at that and already beginning to price that in, 0:21:39.720 --> 0:21:43.200 and it's part of the favorable environment being created. 0:21:46.680 --> 0:21:48.720 I think we've lost the connection with David Malpass. I 0:21:48.760 --> 0:21:50.679 was quite enjoying that, and I've done David. It was 0:21:50.680 --> 0:21:53.480 too a spirited conversation with the former World Bank President 0:21:53.800 --> 0:22:06.360 David Moultpass. If we're just surround the table, Nata Richardson 0:22:06.520 --> 0:22:09.280 of IDP, just a breakdown where we are on the economy, Nata, 0:22:09.359 --> 0:22:11.439 let's start with not just the data this morning, but 0:22:11.480 --> 0:22:14.200 the setup at the moment. As you look across your dashboard, 0:22:14.359 --> 0:22:15.240 what do you see. 0:22:15.880 --> 0:22:19.159 Well, what we're seeing is an economy that continues to 0:22:19.240 --> 0:22:23.080 chuggle on hiring. A momentum is slowed. I think that's clear. 0:22:24.000 --> 0:22:27.879 There's been some stasis in the labor market. But overall, 0:22:27.960 --> 0:22:30.439 when you look at the things that I look at, like, 0:22:30.960 --> 0:22:37.479 are companies cutting hours? No, our wages plummeting? No, Actually 0:22:37.560 --> 0:22:42.080 they're staying pretty well formed and really really steady. And 0:22:42.160 --> 0:22:45.480 so even though we're seeing a slowdown in the momentum, 0:22:46.080 --> 0:22:49.920 the underpinning of the labor market continues to be solid 0:22:50.240 --> 0:22:53.080 enough to support consumer spending. Now we'll get retail sales 0:22:53.160 --> 0:22:55.720 out in a bet, we'll get some confidence data out 0:22:55.760 --> 0:22:58.840 in the bet. This inflation surprises something that should be 0:22:58.920 --> 0:23:01.760