Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm term Keene
Speaker 1: jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. The
Speaker 1: story it comes from China retaliating said it would levy
Speaker 1: in additional tariff on imports of one hundred and six
Speaker 1: U S products including soybeans, automobiles, chemicals, and aircraft. This
Speaker 1: in response to proposed American duties on Chinese high tech goods.
Speaker 1: All of this in the last twenty four hours. To
Speaker 1: draw a distinction, a line between what is the proposal
Speaker 1: and what is actually policy, Chris Rapki joins us now
Speaker 1: MFUG Union Bank chief financial economist, Chris, Let's drain the
Speaker 1: draft just for a moment and look at what's on
Speaker 1: the table. Is this a negotiation or the first shot
Speaker 1: of a trade war? Yeah, I mean it sounded like
Speaker 1: China was just putting this out here, this is what
Speaker 1: they could do, but they didn't announce the date of
Speaker 1: enacting these tariffs, So it sounds like both sides are
Speaker 1: hitting each other pretty hard. In terms of rhetoric. But
Speaker 1: we're aways away from finding that exports between the two
Speaker 1: countries are going to slow down. Here, well, let's go,
Speaker 1: let's go into what's on the table to The United
Speaker 1: States has unveiled proposals for tariffs. They will be discussed
Speaker 1: over the next sixty days, and the Chinese have said,
Speaker 1: here are proposals, and in sixty days, if you implement
Speaker 1: these tariffs as policy, we will respond and this proposal
Speaker 1: will become policy. This seems to me, Chris like high
Speaker 1: stake negotiations for the next sixty days. Would that be
Speaker 1: an accurate description of what it is? Yeah, it is
Speaker 1: high stakes, I guess one of the one of the
Speaker 1: problems is that the president and his trade advisors have
Speaker 1: have drawn a line in the sand. It's almost a
Speaker 1: campaign promise that he's not going to back off of
Speaker 1: the president and that is they there's a three seventy
Speaker 1: billion dollar deficit in goods trade deficit in goods between
Speaker 1: US in China. He wants to cut that by a
Speaker 1: hundred billion. Well that a hundred billion out of three
Speaker 1: seventy five. That's a big, big number. I don't think
Speaker 1: he's gonna get that, So that's problem one. The other
Speaker 1: thing that disturbs me that may make this story have
Speaker 1: some legs besides just people pounding the table is the
Speaker 1: intellectual property idea. The fact that the administration seems to
Speaker 1: be going to bat for US companies doing business over there,
Speaker 1: doing joint ventures that they don't own, giving up their
Speaker 1: technology secrets to China production secrets for the goods they produce,
Speaker 1: and then walking away and getting nothing. That is more intractable.
Speaker 1: I don't know how they're going to resolve that, because
Speaker 1: that's like a thirty year trend towards that. How how
Speaker 1: are they going to reverse that? I don't know how.
Speaker 1: That's good. We can get into the China made proposals
Speaker 1: a little bit later with you, I'm sure for me,
Speaker 1: what's on the table from the Chinese was was a
Speaker 1: little bit of a heightened rhetoric kind of move from
Speaker 1: the Chinese themselves by bringing soybeans into the conversation. That's
Speaker 1: an escalation politically speaking for the United States. What's ironic
Speaker 1: about this whole situation is for the United States, they
Speaker 1: are reciprocating their own move from the Chinese tariffs of
Speaker 1: their own and the Chinese are saying well, it's only
Speaker 1: polite for us to reciprocate. The irony of that is
Speaker 1: is that it's the United States doing the reciprocating here
Speaker 1: and it's the Chinese escalating things. Would that be Would
Speaker 1: that be a decent read of what's happening here? This
Speaker 1: is an escalation from the Chinese, perhaps more from the
Speaker 1: United States to bring soybeans into the conversation. Yes, and
Speaker 1: it happened so quickly. It happened very very quickly. And
Speaker 1: I think what they're doing is they're reading the political
Speaker 1: tea leaves for the president and saying, you know, the
Speaker 1: heartland of the country year supporters produced soybeans, and they're
Speaker 1: going to go out of business if you can't offload
Speaker 1: these crops to somewhere else in the world, which of
Speaker 1: course they can't. So I think they're needling the president directly.
Speaker 1: I mean, John Farrell, I thought your data check was great,
Speaker 1: and yes I'm watching doll again as well, John, One
Speaker 1: of six eighteen is really not correlated with no In fact,
Speaker 1: you know what my take is this morning something the
Speaker 1: real price action is just sort of isolated into equities.
Speaker 1: It's an equity volume selected a real risk of story
Speaker 1: broad based risk off would be a big bit at
Speaker 1: the front end of the tracery curve and a market
Speaker 1: deciding that we're going to price out hikes right and
Speaker 1: see that right or wrong? John, What I've emphasized this
Speaker 1: morning is the complexities that are out there. Chris Repki
Speaker 1: Michael McKee had a brilliant observation that the China US
Speaker 1: back and forth on soybeans. Good morning all of you
Speaker 1: on serious SEXEMP Channel one nineteen in Iowa is Argentina
Speaker 1: because at the margin, I believe Argentina's the number two
Speaker 1: exporter to China on soybeans. So there's a game theory
Speaker 1: read to this that Dr Navarro and President Trump seemed
Speaker 1: to downplay. Where are you on the game theory the
Speaker 1: tip for tip of trade, I mean, it's a proven fact.
Speaker 1: There's a game theory, right, yeah. I guess what it
Speaker 1: illustrates is that there, you know, it's very difficult to
Speaker 1: be a winner in this environment. I mean, if you
Speaker 1: go back, didn't we slap some trade tariffs on I
Speaker 1: believe it was steel in the Bush administration which ended
Speaker 1: up coming back off. I think the problem is that
Speaker 1: it looks good that you can pound the table and
Speaker 1: put on a tariff, but it doesn't work like you
Speaker 1: thought it would. And and again, by trying to do this,
Speaker 1: you're trying to interrupt a trend towards globalization that has
Speaker 1: taken place over three decades. You can't pound the table
Speaker 1: and say we want to change it now. It's you
Speaker 1: don't reverse something in one day that's been a thirty
Speaker 1: year story. The problem is though, it's the Chinese haven't
Speaker 1: been liberalizing here, Chris, and at some point someone has
Speaker 1: to stand up and say enough is enough. The Maid
Speaker 1: in China program, and I promise that we would get
Speaker 1: there is a very very transparent program of the Chinese
Speaker 1: to say to the rest of the world, here the
Speaker 1: industries that by we want to dominate. Now. I think
Speaker 1: it would be pretty naive for the rest of the
Speaker 1: world to stand idly by and talk about glorious globalization
Speaker 1: and free trade while the Chinese keep their protectionist barriers
Speaker 1: to entry up and say, look, guys, in five we're
Speaker 1: going to dominate all of these industries. Enjoy your free trade,
Speaker 1: enjoy your globalism, and in your wake up and we'll
Speaker 1: be leading the world. Why should you stand by and
Speaker 1: just let that happen? Chris? Well, I guess that's what
Speaker 1: we're seeing happen. By the way that the way you painted,
Speaker 1: it's almost frightening, isn't it. It's kind of it's the
Speaker 1: battle of who's going to be great again? Are we
Speaker 1: going to make America great again? Is China going to
Speaker 1: become great? There has been a completely naive, naivety about
Speaker 1: the administration has gone by in the United States from
Speaker 1: America for the last twenty years about this Chris. There
Speaker 1: has been a wish, some optimism that the Chinese would
Speaker 1: wake up and be more like America and be more
Speaker 1: like Europe. And the message of the last few years
Speaker 1: is that is just not going to happen. Isn't the
Speaker 1: president onto something here? Yeah he is, but don't forget
Speaker 1: it's going to be very They can say they want
Speaker 1: to dominate certain industries, but it's not necessarily going to happen.
Speaker 1: There's a lot of cars coming in from South Korea
Speaker 1: right now. I don't see that changing. Um you know,
Speaker 1: I know China wants to develop to develop their own
Speaker 1: car industry like trucks and try and export those goods
Speaker 1: to the rest of the world. But it just saying
Speaker 1: it doesn't mean it's going to happen, So I don't know.
Speaker 1: I mean, I wouldn't go too far with the story
Speaker 1: on the part of China taking over the world. John Ferrell,
Speaker 1: how far did you grow up from Lancashire? Is that
Speaker 1: the said it right? They have a small team that
Speaker 1: was Red Liverpool. Well, now that's what you've got to
Speaker 1: live up. And then you've got Manchester United. Manchester United
Speaker 1: is in Lancashire, Mancha Manchester United is more of a
Speaker 1: Lancashire type of club. I did not know that it's
Speaker 1: more than Northern. You probably have more money. United supports that.
Speaker 1: I just pronounced it like John Lennon because of the
Speaker 1: son Chris roski Let's lecture Mr Farrell on the Great
Speaker 1: Debate here and John brings up an absolute classical economics
Speaker 1: take we all learned from William Stanley Jevons of Lancashire,
Speaker 1: England a million years ago about marginalia. How does the
Speaker 1: inherent Washington Trade Group explained to the president the marginale
Speaker 1: of William Stanley Jevons that the next action is more
Speaker 1: important than John's good idea of getting the marginal trade
Speaker 1: dynamics work right. Yeah, I mean, well, I mean to
Speaker 1: me this just shows you how what a slow process
Speaker 1: this is going to be. And if you know, there's
Speaker 1: nothing slow about the president at John's point, I know,
Speaker 1: but he wants that. But it's just, yeah, it's going
Speaker 1: to be very slow in occurring putting these tariffs on,
Speaker 1: seeing if it adjusts the trade flows. I mean in
Speaker 1: a certain fashion. I mean, uh, tariff, maybe that's not
Speaker 1: going to slow the exports coming in as much as
Speaker 1: you think as well, we don't. We don't know. There's
Speaker 1: so many unknowns here, Chris Rocky, We've got to leave
Speaker 1: it there. But great have you with a semifug Union
Speaker 1: Bank chief financial economists. Let's just raise the question why
Speaker 1: is BMW starting production in China? Should I tell you why?
Speaker 1: Because you have to produce in China. Otherwise, if you
Speaker 1: import those BMW's into China, you face significant tariffs for
Speaker 1: bringing luxury autos into China. It's because they have significant
Speaker 1: barriers to entry that many of these manufacturers have to
Speaker 1: actually produce in China. And this goes to the heart
Speaker 1: of the debate. Tom in Washington, d C. The heart
Speaker 1: of the debate is that the Chinese needs to open up,
Speaker 1: and this is what is happening Michelle Meyer with No
Speaker 1: Bank of America, Mary Lynch on international economics and really
Speaker 1: how it folds back into the g d P of
Speaker 1: the United States of America. Michelle, you're expert on American housing,
Speaker 1: but you do a lot lot more for Mr Harris
Speaker 1: and company. Do you change g DP models off of
Speaker 1: nasty trade tip for tat Eventually you do. UM, It
Speaker 1: just depends on how severe it gets. So for right now,
Speaker 1: our simulations of what's been put into effect thus far
Speaker 1: suggests a very small impact on the aggregate numbers UM.
Speaker 1: So it is a bit more inflationary, but um, you know,
Speaker 1: we're assuming somewhat limited paths through to overall consumer spending
Speaker 1: from this increase in in in and import prices UM.
Speaker 1: And then in terms of aggregate trade flows, again, it's
Speaker 1: not a huge number that's going to move the needle
Speaker 1: very much. So potentially it's light drag to GDP growth,
Speaker 1: potentially a slight increase in inflation UM. But where it
Speaker 1: becomes obviously a lot more problematic if it persists, if
Speaker 1: we continue to see this back and forth, is retaliation UM,
Speaker 1: where we put something in place, trying to put something
Speaker 1: in places other economies put UM some some sort of
Speaker 1: trade specifications in place, and it also ripples through the
Speaker 1: financial markets, and then we have a whole different ball games, Michelle,
Speaker 1: assuming these proposals actually get put in place and they
Speaker 1: actually become policy, I'm going to ask that really horrible
Speaker 1: question that economists have to answer, the percentage chance that
Speaker 1: actually these proposals become policy. Do you have any idea
Speaker 1: right now? Michelle, we don't. We don't, and luckily, as
Speaker 1: you know, as economists, obviously we have to do different scenarios. UM.
Speaker 1: But my approach in this environment where there's just been
Speaker 1: so many political unknowns is that I wait until policies
Speaker 1: have actually been implement did before we put them explicitly
Speaker 1: in our forecasts. Because there's so many moving parts. The
Speaker 1: headlines are changing a daily basis, so trying to calibrate
Speaker 1: your forecasts UM in real time is just virtually impossible. Well, ultimately, Michelle,
Speaker 1: you'd be kind of righting your forecast at a risk
Speaker 1: of something happening. Does the risk of something happening damage
Speaker 1: risk appetite in any way? Does it damage the economy
Speaker 1: as opposed to the reality of something happening. Well, again,
Speaker 1: that goes into the linkages and and the risk factors
Speaker 1: would be shown through financial conditions rather than the real economy.
Speaker 1: So until the policies are put in place, for the
Speaker 1: most part, economic actors are not going to change their
Speaker 1: their models. Maybe you have an uncertainty shock, you have
Speaker 1: some draw down in terms of production, or some concern
Speaker 1: in terms of how how companies are are are allocating
Speaker 1: their capital um. But really, until you have the actual
Speaker 1: policies and you have the clarity on what those policies
Speaker 1: look like, it's hard to say that you're going to
Speaker 1: see a reaction in the real economy. And your micro
Speaker 1: analysis was the first quarter we're getting huge invariable opinions. Yeah, well,
Speaker 1: the first quarter is plagued by residual seasonality and that's
Speaker 1: what's happening now too. So GDP growth is tracking sub
Speaker 1: two percent um. We're talking about one point seven percent
Speaker 1: for GDP growth UM, and that's not so surprising because
Speaker 1: we've seen it year after year, and you continue to
Speaker 1: have this divergence between what the GDP numbers are saying
Speaker 1: versus job growth. Job growth is very strong and GDP
Speaker 1: is very weak, which means productivity growth in the first
Speaker 1: quarter was John I saw residual seasonality open for Elison
Speaker 1: Crows there there were outstanding You're but honestly you're out
Speaker 1: of control this morning, Michelle mar you talk about GDP
Speaker 1: track and staff of two percent. What's your base case
Speaker 1: for the rest of the year. Because a lot of
Speaker 1: people would talk about this firm macro backdrop and that
Speaker 1: the fundamentals are still okay relative to expectations, things weren't
Speaker 1: okay through Q one. Does Q two look better? It
Speaker 1: does a little better in our opinion. How does it
Speaker 1: look better? I'll tell that we're looking for a rebound
Speaker 1: to mid three percent pace on for the following reasons.
Speaker 1: UM one is we do anticipate the consumer bounces back
Speaker 1: in the second quarter, and I think that generally speaking,
Speaker 1: conditions are favorable for the consumer. We've had strong job worth,
Speaker 1: we've had hints of wage growth UM consumer confidence measures
Speaker 1: are at very strong levels, and tax cuts kicked in
Speaker 1: UM in in their early spring, so UM that should
Speaker 1: then further boost consumer spending. They've already brought back their
Speaker 1: savings rate to a bit of a higher level, so
Speaker 1: I think to get that strong rebound in the second quarter,
Speaker 1: the onus is on the consumer UM and for right now,
Speaker 1: our expectation is that the consumer will show through goldilocks growth, Michelle,
Speaker 1: Is it over the story of low inflation and really
Speaker 1: stable output numbers out swhere? Were we're gonna be talking
Speaker 1: about that Friday? Um? You know, I think it's still
Speaker 1: largely an environment of goldilocks growth in that I don't
Speaker 1: think we're going to see big inflationary press sure's this year? Um?
Speaker 1: So you know, again to find goldilocks, is it three growth,
Speaker 1: three and a half percent growth or something softer? Um?
Speaker 1: I think it will end up seeing something a bit
Speaker 1: softer than that. So, yes, momentum will still be there.
Speaker 1: We will still see output improved. Um. And I don't
Speaker 1: think we're going to have a real inflation scare the
Speaker 1: next few months. Though very importantly we should note the
Speaker 1: base effects are favorable for core inflation, so we're going
Speaker 1: to see core inflation trend up on a year of
Speaker 1: year basis. But I don't think we're going to see
Speaker 1: signs of consecutive months and months surprises. Let me go
Speaker 1: to let me Michelle, let me go to what made
Speaker 1: you famous, which is housing dynamics. What is the elasticity
Speaker 1: or responsiveness of the thirty year fixed mortgage rate. Is
Speaker 1: that a fossil study or do you get value in
Speaker 1: gaming American housing by looking at what happens when we
Speaker 1: have higher thirty year fixed mortgage? I mean, I think
Speaker 1: you have to look at mortgage rates when you're analyzing
Speaker 1: the housing market. It's an important input as this um
Speaker 1: income creation and expectations for future income creation and where
Speaker 1: you are in terms of evaluation. Home price is relative
Speaker 1: to income and rent. So mortgage rates certainly a factor,
Speaker 1: and that is certainly a factor that said it higher,
Speaker 1: and it's it's potentially, you know, weighing on affordability. Now.
Speaker 1: I do think there are offsets from the fact that
Speaker 1: income creation has been stronger and that confidence generally speaking
Speaker 1: around housing has been strong An important fact when you
Speaker 1: think about home price appreciation and how mortgage rates are
Speaker 1: going to feed into that is the supply side. We
Speaker 1: still have a very thin market in terms of housing supply,
Speaker 1: so even an environmental mortgage rates are heading higher, it's
Speaker 1: obvious that's going to curb home price appreciation when you
Speaker 1: have such limited supply out there for the majority of
Speaker 1: the country. Michelle Ma, great to have you on the programs.
Speaker 1: Thank you for for Bank American maror Lynche. It is
Speaker 1: great to see a Bloomberg people go viral is Shira
Speaker 1: overdate did two days ago where they're brilliant work on
Speaker 1: Spotify and on their interesting transaction. Everybody picked you up, Shira,
Speaker 1: Mike Gallen over to a CEOs, gave you major face time.
Speaker 1: What was the distinction of the way you approached this
Speaker 1: novel transaction? What set your gad flight coverage apart from
Speaker 1: all the other bladder that was out there. I appreciate
Speaker 1: the compliment. That was very flattering. Uh So, look, one
Speaker 1: thing that really struck me yesterday as everybody was declaring
Speaker 1: victory about this unusual not I p O stock listing
Speaker 1: from Spotify, is just how few shares traded out of
Speaker 1: the gate. So normally, if you have a conventional ip O,
Speaker 1: companies look to sell, you know, a healthy percentage of
Speaker 1: their total shares, something like and Spotify. Again, it's not
Speaker 1: a conventional I p O. So these rules are a
Speaker 1: little bit different, but at least out of the gate,
Speaker 1: Spotify sold fewer than six million shares on Tuesday, which
Speaker 1: was about three percent of total shares that standing. I
Speaker 1: get the idea that the tech people are playing by
Speaker 1: their own rules. It's like class A, class being A,
Speaker 1: it's like Class A class Z. There's all sorts of
Speaker 1: stuff we go into. But the heart of the matter
Speaker 1: is Wall Street was boxed out of a traditional transaction,
Speaker 1: and yet you, in a select group of others say,
Speaker 1: wait a minute, they weren't. Goldman, Sachs, Alan and Company
Speaker 1: and others were actually involved. How can you have it
Speaker 1: both ways? Yeah, I agree with you that the narrative
Speaker 1: about this not I p O right, was that Spotify,
Speaker 1: uh defied conventional wisdom. They cut out Wall Street, cut
Speaker 1: out Lloyd Blank find right. They had three of the
Speaker 1: most prominent tech financial advisors working on this transaction, as
Speaker 1: you said, Allan and Company, Golden Sacks, Morgan Stanley, and
Speaker 1: they paid them thirty five million dollars, which is a
Speaker 1: lot of money. Yeah, but that's what Farrell gets for
Speaker 1: a week er review. I want to understand. This is critical.
Speaker 1: This is the dirt of the industry the way it works.
Speaker 1: As you call a black Rock, pim Cone, Fidelity and
Speaker 1: six other victims, and you say, what do you want
Speaker 1: for this dog? They set the price? Did that really
Speaker 1: happen here? Even though we're all pretending it didn't. Sort
Speaker 1: of so, I mean, I thought there was a really
Speaker 1: interesting details in our colleagues. Alex brinca story yesterday which
Speaker 1: was basically the bankers spent many weeks before the not
Speaker 1: the stock listing of Spotify calling up both owners existing
Speaker 1: owners of Spotify shares and potential buyers of Spotify shares
Speaker 1: to see at what price sellers might sell, and and
Speaker 1: took canvas for potential buyers. The real breaking news head
Speaker 1: at Tom Kane has stood up for this conversation in
Speaker 1: the studio. This is the first time I've seen you
Speaker 1: stand up for a story. There's a quality of lunch
Speaker 1: at the road shows, and Touch companies are notorious for
Speaker 1: not to mean like a real lunch. You always leave hungry.
Speaker 1: But John, what she just said is critical, which is
Speaker 1: there was really a pricing discovery going on, even though
Speaker 1: everybody was standing around outside of the price discovery share.
Speaker 1: The real story here, for me, at least from my
Speaker 1: own perspective, is that it was another tech company that
Speaker 1: didn't actually need to raise capital because they've been so
Speaker 1: well shounded in private markets. Isn't that the future here?
Speaker 1: We'll see? So A, I'm not sure that Spotify did
Speaker 1: itself any favors by not raising money. So this is
Speaker 1: a company that, yes, they have been cash flow positive,
Speaker 1: but they have ambitious plans to branch into new businesses
Speaker 1: that's going to require investment. So I do wonder if
Speaker 1: down the road it's going to look like a mistake
Speaker 1: that they didn't choose to raise money when they could
Speaker 1: have in a in an I p O um. But
Speaker 1: you're right that. I'm sure other tech companies that you know,
Speaker 1: like to defy conventional wisdom, or like to pretend that
Speaker 1: they defy conventional wisdom, will look at Spotify's direct listing
Speaker 1: and want to do the same. But the fact is,
Speaker 1: there aren't that many prominent tech companies, private tech companies
Speaker 1: that have healthy enough financials to go public without raising money.
Speaker 1: So Uber, you know, notoriously wildly unprofitable, you can't do
Speaker 1: a non I p O kind of event. Assume there's
Speaker 1: no rush for them to come to the public market
Speaker 1: to raise capital, because despite Uber's problems, sure you've you've
Speaker 1: picked up on this many a time, people throw money
Speaker 1: at them. Absolutely, and I think that is true of
Speaker 1: you know, a small elite category of private tech companies.
Speaker 1: They don't need the public markets to raise money, Sure Overday.
Speaker 1: It's been great to catch up with you. Some tremendous,
Speaker 1: tremendous columns coming out of Bloomberg, Gadfly and Shara in
Speaker 1: front of the Pack For me and Tom, I have
Speaker 1: to say, I've never seen Tom Kane stand up for
Speaker 1: a story in the Student. I'll take it as a compliment.
Speaker 1: I've never seen that baroness over date. You gotta shure
Speaker 1: some credit. I mean, folks, this is what it's like.
Speaker 1: I mean, shares in the wrenches on this thing. And
Speaker 1: she gets global pickup of you know, amid all the
Speaker 1: eighties seven other articles that were out there, which is
Speaker 1: very good. Sure of a Day on Spotify as well.
Speaker 1: It is good to get a calm and reason voice
Speaker 1: in here with the tumult that we see in economics
Speaker 1: in the markets. Stephen Friedman is with BMP Perry. But Stephen,
Speaker 1: I want to go back to a meeting I had
Speaker 1: over a decade ago in Beijing where the senior management
Speaker 1: of Paris be and p Perry bout Line being up
Speaker 1: with one of your chief representatives in China, and it
Speaker 1: was a private and scintillating conversation on the new capitalism
Speaker 1: of China. B mp Perry bid has an absolutely unique
Speaker 1: China view that really goes back more than two even
Speaker 1: three decades as well. What does your Asian death USK
Speaker 1: say about the Chinese view of these terror force Uh? Well,
Speaker 1: our China economists believes that the response from China will
Speaker 1: be um proportional, but ultimately keeping the doors open to negotiations.
Speaker 1: And I think that's what we're seeing so far in
Speaker 1: the response from China. Yes, they're clear that they will retaliate,
Speaker 1: but there's no date. There's a sense that we should
Speaker 1: be talking this problem through. It's supposed to jumping right
Speaker 1: to tariffs. You were at Wesleyan and Russian studies. You
Speaker 1: then did initiate the Johns Hopkins University. And part of
Speaker 1: this is time function. China has a far longer time
Speaker 1: function than any president of the United States. Do they
Speaker 1: just wait President Trump out? I think it's challenging in
Speaker 1: this situation because when I look at the Trump administration,
Speaker 1: it really does have this America First trade agenda, and
Speaker 1: we have a president who is relatively impatient on this front.
Speaker 1: So I think the administration is serious about moving forward
Speaker 1: with tariffs if absolutely necessary, and I think China would
Speaker 1: like to ds late the situation, and I think they're
Speaker 1: very willing to negotiate. Does it put a damper on
Speaker 1: economic growth in the United States if you had to
Speaker 1: bring in a few tweaks your g d P numbers.
Speaker 1: Not yet. No. I think if if we can steer
Speaker 1: a road towards negotiating on some of the I P
Speaker 1: practice UH questions, technology transfer, market access, that means that
Speaker 1: in the end, actually this could be enough positive for
Speaker 1: the U. S. It's a question of whether we can
Speaker 1: get there without going down the route of tariffs first.
Speaker 1: But as of yet, I haven't had to tweak my forecast.
Speaker 1: I think what would be um I opening in near
Speaker 1: term is if there's a sense that this is going
Speaker 1: to escalate, you have further declines in the stock market.
Speaker 1: There's a shock to business confidence, and that ultimately reigns
Speaker 1: in business spending and hiring. Because Q one, the estimates
Speaker 1: I'm saying, you know, is a general statement all over
Speaker 1: the place. I mean, nobody really is a hindle on it.
Speaker 1: Is Q one a one off in the United States?
Speaker 1: Is that, just like now a permanent theory that first
Speaker 1: quarters always nudgie. I think they're a little bit less
Speaker 1: confidence in projecting first quarter growth, there's a sense that
Speaker 1: there's some residual seasonality in the data. So I think we,
Speaker 1: along with many others, tend to look through any weakness
Speaker 1: uh in the first quarter numbers, seeing that a lot
Speaker 1: of the other indicators, survey data, for example, tells you
Speaker 1: that the economy is on a strong footing UM. I
Speaker 1: look at the FED in the certitude to three slash
Speaker 1: four rate hikes. Guy Johnson mentioned today offer London Desk
Speaker 1: that European inflation once again came in maybe on planning
Speaker 1: even a little light. How will chairman Power react if
Speaker 1: we don't get the inflation pick up everybody's presuming. So
Speaker 1: I think he's a bit different from yelling and that
Speaker 1: he's really more in the show me camp. He wants
Speaker 1: to see evidence of inflation moving higher. He's not going
Speaker 1: to move rates higher just based on what a model
Speaker 1: tells you inflation should be in a year. That being said,
Speaker 1: but we are seeing some strength in the inflation numbers
Speaker 1: as of late, and I think we get to the
Speaker 1: end of the year, core PC inflation should be a
Speaker 1: two percent maybe even two point one person. Now the
Speaker 1: question is whether that lasts uh UM beyond this year.
Speaker 1: Some of the strength that we've seen recently, it's likely
Speaker 1: to fade. For example, where is the strength services are goods,
Speaker 1: So it's been in service is very consistent, it's really
Speaker 1: hasn't lifted or turned around still and still basically in deflation. Yeah,
Speaker 1: so it's really a service of story, and we know
Speaker 1: that dominates the price basket. Where we've seen strength recently
Speaker 1: is in healthcare services. But that's that tends to fade
Speaker 1: over time. You tend to get these increases at the
Speaker 1: beginning of the year when the government resets Medicare parts
Speaker 1: Medicare prices. So we're getting almost like Europe where we've
Speaker 1: got union or quasa union labor resets which filter into
Speaker 1: the numbers in this case in terms of medical care inflation.
Speaker 1: I think that's that's exactly right. But the mix of
Speaker 1: this for our listeners that are buffeted by by the
Speaker 1: news flow in the president's tweets, whatever their politics, they
Speaker 1: agree or disagree with the president. I go back to
Speaker 1: a cross st data check is John Farrell mentioned today.
Speaker 1: It's full disclosure. It shows calmness out there without the
Speaker 1: new equity volatility. Do you do that? Do you separate
Speaker 1: the equity tick by tick from everything else out there
Speaker 1: and what it says about our system I do I
Speaker 1: I tend when there are there's breaking news like this,
Speaker 1: I tend to look first at the bond market. I
Speaker 1: think that gives me a better sense as to the
Speaker 1: level of concern out there. And we're seeing yields this
Speaker 1: morning are just down by a basis point or two
Speaker 1: across the curve. Within this again, is I guess the
Speaker 1: idea of going back to the Fed. And we've got
Speaker 1: John Williams coming over to the New York Fed. He
Speaker 1: does a thing called our Start. We let our coverage
Speaker 1: this morning with what is our start? I guess it's
Speaker 1: an inflation adjustment? And what to expect with John Williams
Speaker 1: our starret Are we going to a lower terminal rate
Speaker 1: where the new three point four percent g d P
Speaker 1: is under three and even something lower? You know? I
Speaker 1: don't think so. I think, Wow. What Williams has said
Speaker 1: is that, uh, the neutral FED funds rate is probably
Speaker 1: low by historical standards, and we'll remain low, but not
Speaker 1: not going lower at this point. If anything, I think
Speaker 1: there's a little bit more confidence on a committee that
Speaker 1: with the tax reform efforts increases in investment, that trend
Speaker 1: growth could be heading a bit higher. That might pull
Speaker 1: up the long term terminal FED funds. And then what's
Speaker 1: really cool it maybe less to me and our listeners,
Speaker 1: is productivity. And I go back. You know, it's almost
Speaker 1: like every other discussion is horse and cart. Does better
Speaker 1: economic growth make America great again lead to better productivity
Speaker 1: or is it the other way around? I think that
Speaker 1: I think it's an open question, to be honest. I
Speaker 1: think there is some suggestion that perhaps a pretty hot
Speaker 1: labor market and scarcity of labor could lead to investment
Speaker 1: that will improve will improve productivity over time. I think
Speaker 1: that's the car and hope. Uh. In the final time
Speaker 1: we've got you want to circle back to the news
Speaker 1: of the morning, which is the Terroiff's obviously in China,
Speaker 1: and that is in this folks. The late wonderful Alan
Speaker 1: Meltzer of Carnegie Mellon would take my head off for
Speaker 1: this right now. Alan Meltzer always said, aggregate the American economy.
Speaker 1: We're not smart enough to disaggregate. What the markets doing
Speaker 1: today is they're disaggregating Iowa and soybeans. They're disaggregating Washington
Speaker 1: State in Boeing aircraft. Can we do that in the
Speaker 1: modern economy? Can we disaggregate to the labor effects of
Speaker 1: Senator Grassley's Iowa or do we really still have to
Speaker 1: stay all in holistically as clearly as the bet of
Speaker 1: the president. I tend to look holistically and think that
Speaker 1: the scope of what's been announced so far is relatively small.
Speaker 1: But it's important to go down to the details as well,
Speaker 1: because we know that the tariffs that that are aimed
Speaker 1: at certain sectors that are politically sensitive can have longer
Speaker 1: term repercussion. Should I just call him import Texas? I mean,
Speaker 1: we're I read this and I don't remember it right now, folks,
Speaker 1: but there was a point somewhere out there where they
Speaker 1: invented the phrase tariffs two smooth the text word. It's
Speaker 1: an import text right, pretty pretty much so, and Trump
Speaker 1: has actually used language like that. I think he's often
Speaker 1: called it a reciprocal tax. Okay, well, well, how's this
Speaker 1: going to play out? I mean, it's tipped for TAD
Speaker 1: and that's easy media talk. I know there's going to
Speaker 1: be a delay, there's going to be meetings and all
Speaker 1: that bologna. The markets tell us this is playing out right, now. Yeah,
Speaker 1: so I think we should expect more announcements from the
Speaker 1: administration on trade just to get that even going beyond China.
Speaker 1: But as for this specific set of measures, there's a
Speaker 1: lot of time for negotiations that the administration isn't actually
Speaker 1: committing that it will definitely implement tariffs. So there is
Speaker 1: a way through this. So I think we can be
Speaker 1: cautiously optimistic that maybe there is an agreement reached through
Speaker 1: negotiations over the next several months. Stephen Freeman, thank you
Speaker 1: so much for the BNP parabout uh this morning. Wonderful
Speaker 1: to have him in a huge day of new slow
Speaker 1: Thanks for listening to The Bloomberg's Banlast podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.