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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: You're listening to the Bloomberg Balance of Power podcast. Catch

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Speaker 2: live on YouTube.

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Speaker 3: A one and forty seven page piece of legislation. It's

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Speaker 3: the continuing resolution, the stop DAP measure that will keep

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Speaker 3: the government open past the deadline of midnight Friday. There's

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Speaker 3: a lot of stuff in this thing, from laws around pharmacy,

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Speaker 3: benefit managers, what happens with RFK stadium disaster relief, which

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Speaker 3: perhaps is the most palatable item in this for a

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Speaker 3: lot of lawmakers. And it even gives lawmakers a pay

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Speaker 3: raise through a cost of living adjustment that was first

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Speaker 3: noted and noticed by Bloomberg Government's Jack Fitzpatrick, who of

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Speaker 3: course covers Congress for BIGOV and he's joining me now

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Speaker 3: here in Balance of Power on Bloomberg TV and radio. So, Jack,

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Speaker 3: this is a monster piece of legislation. How did it

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Speaker 3: get so big?

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Speaker 4: It gets so big because you need to get people

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Speaker 4: to vote for it, and you already know a lot

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Speaker 4: of the hardline conservatives and maybe swing district members aren't

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Speaker 4: going to vote for it. So when they complain about

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Speaker 4: the fact that this is not the right way to legislate,

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Speaker 4: it's not a good idea to just drop fifteen hundred

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Speaker 4: pages in their lap right before a deadline. When they

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Speaker 4: complained that they didn't ask for a pay raise, you say, well,

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Speaker 4: you know, if you weren't going to vote for a

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Speaker 4: major piece of legislation anyway because you don't see it

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Speaker 4: as good governance, then.

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Speaker 5: You've played yourself out.

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Speaker 4: This is going to the members who represent rural America

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Speaker 4: and wanted agricultural economic relief for farmers. It's going it's

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Speaker 4: for the members who had hurricanes or wildfires or tornadoes

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Speaker 4: or floods and want disaster aid, and a bunch of

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Speaker 4: other members who had a bill that they wanted to

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Speaker 4: see enacted. Whether it's a measure to try to crack

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Speaker 4: down on hidden fees by hotels that's in there. There's

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Speaker 4: a wide variety of measures in here, because when you

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Speaker 4: get pushback from a number of members, you need to

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Speaker 4: say this is going to be bipartisan. We need a

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Speaker 4: large base of support. What can we put in this

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Speaker 4: bill to get your support, and so there's a lot

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Speaker 4: of input, and they're banking on Republicans and Democrats having

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Speaker 4: something to vote yes for, even if they complain about

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Speaker 4: the broader nature of a fifteen hundred page measure coming

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Speaker 4: to them two days before a shutdown.

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Speaker 3: Well, so then the next question is going to be

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Speaker 3: when they'll have the chance to vote yes or no

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Speaker 3: to this. Jack Speaker Johnson just yesterday was saying, I

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Speaker 3: want to stick to the usual process. I want this

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Speaker 3: to go through the Rules Committee, give everyone seventy two

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Speaker 3: hours to read this massive, massive bill. How is this

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Speaker 3: actually going to go down?

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Speaker 4: This seventy two hour rule seems unlikely now there's not

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Speaker 4: an official plan of action in the House. I spoke

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Speaker 4: to Mark Amiday, who's a senior member of the Appropriations Committee, yesterday,

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Speaker 4: who said, in his opinion, the obvious route is you

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Speaker 4: skip the Rules Committee. You don't give people seventy two hours.

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Speaker 4: Maybe they can get two days. You know, it came

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Speaker 4: out last night. We'll see exactly when they hold the vote.

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Speaker 4: But you do this under what's called suspension of the rules,

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Speaker 4: which means you skip the Rule Committee and you need

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Speaker 4: a two thirds supermajority to get it through rather than

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Speaker 4: the simple majority in the House. There is a lot

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Speaker 4: of bipartisan interest, so it seems like something that could

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Speaker 4: get two thirds in the House and that would speed

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Speaker 4: things up. Then though, you have to get it through

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Speaker 4: the Senate, and that will require unanimous consent on some

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Speaker 4: procedural step. So if anybody really wants to slow this

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Speaker 4: down and cause a shutdown, they can. It's a question

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Speaker 4: of who that member is and what the mood is

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Speaker 4: in the Senate, And I will say members usually want

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Speaker 4: to get out of here and go be with their

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Speaker 4: families ahead of Christmas. So we'll continue to see if

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Speaker 4: anybody wants to play the grinch in the Senate.

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Speaker 5: Those jet fumes very powerful thing.

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Speaker 3: So even assuming that all of this gets done this

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Speaker 3: time around, the government does not shut down right before

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Speaker 3: the holidays, we get our Christmas miracle. In that regard Jack,

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Speaker 3: then it becomes a question of March, because that's how

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Speaker 3: far the can is getting kicked down the road until

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Speaker 3: March fourteenth. Given how difficult this seems to have been,

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Speaker 3: how much harder is it going to be in March?

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Speaker 3: When Johnson, assuming he's stay speaker, is working with an

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Speaker 3: even smaller.

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Speaker 4: Majority that's a great question. It could be harder because

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Speaker 4: of the smaller majority, but it could be easier because one, Republicans,

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Speaker 4: when they're in the majority and they have the trifecta,

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Speaker 4: have a very clear leader. What the then president now

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Speaker 4: President elect Donald Trump says.

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Speaker 5: Is the rule for Republicans.

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Speaker 4: So if they're trying to wrangle votes and trying to

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Speaker 4: get members who are tough to get on board to

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Speaker 4: vote for a piece of legislation, if Trump gets involved

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Speaker 4: and says, absolutely, you need to support this, or we're

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Speaker 4: going to send people after you run against you in

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Speaker 4: your primary, that's a better motivator than they have right

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Speaker 4: now when they're just asking them to kick the can

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Speaker 4: down the road. If you can get Donald Trump and

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Speaker 4: Elon Muskin, Vivik Ramaswami, who are not being helpful to

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Speaker 4: Mike Johnson right now, to all work in the same direction,

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Speaker 4: then they can have a better organization in March potentially

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Speaker 4: than they do right now.

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Speaker 3: Well, one thing we do know for sure, Jack, is

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Speaker 3: that Matt Gates will not be taking part in the

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Speaker 3: next Congress. He already resigned from this one. And we

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Speaker 3: did get a piece of reporting today around Matt Gates

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Speaker 3: and the ethics investigation into him. Apparently the committee did

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Speaker 3: secretly vote to release that report even though he is

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Speaker 3: no longer a member. What do we know in that

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Speaker 3: regard and what precedent would it said if they do

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Speaker 3: release the Gates report after he has left the chamber.

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Speaker 4: There is an ongoing debate about the degree to which

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Speaker 4: this would set a new precedent. Representative Sean cast In,

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Speaker 4: a Democrat, who had been pushed for this report to

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Speaker 4: come out, has said that there are cases in which

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Speaker 4: a member has resigned while under investigation, in which they've

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Speaker 4: put the report out and they don't want to set

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Speaker 4: the precedent in his argument that you can avoid accountability

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Speaker 4: and scrutiny by stepping down right before a report comes out. Ultimately,

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Speaker 4: this is up to a vote. It takes a majority

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Speaker 4: vote on the committee. We don't know yet who which

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Speaker 4: Republican voted in favor of putting this out. I think

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Speaker 4: more information will come out about exactly where people stand,

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Speaker 4: but you can see that Gates is preparing for it.

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Speaker 4: He went on x and was posting about working hard

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Speaker 4: and playing hard in his thirties, saying he did not

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Speaker 4: do anything illegal. He did say that that can be embarrassing.

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Speaker 4: So this is not ideal for him, but obviously his

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Speaker 4: course of defending himself and saying that he did not

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Speaker 4: do anything legal will continue, and at least there's a

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Speaker 4: little bit of convenience to him that if you want

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Speaker 4: to bury this news, doing it right before the holidays

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Speaker 4: is probably the time.

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Speaker 3: All right, Jeff Fitzpatrick Bloomberg, Government Congress Reporter or live

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Speaker 3: from Capitol Hill for us today. Jack, thank you very much,

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Speaker 3: and we do have a little bit of news coming

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Speaker 3: from Congress right now. The other must pass piece of

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Speaker 3: legislation that needed to get done before your end, The

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Speaker 3: National Defense Authorization Act has just passed the Senate after

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Speaker 3: passing the House last week. The Senate voting eighty five

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Speaker 3: to fourteen to send that eight hundred and eighty four

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Speaker 3: billion dollar package to President Biden's desk. It's assumed Biden

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Speaker 3: will sign it. The question is going to be when

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Speaker 3: Biden gets a chance to sign this continuing resolution. I

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Speaker 3: want to stick on this Matt Gates thing, though, as

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Speaker 3: I reassemble or assemble our political panel, our signature one

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Speaker 3: at that Rick Davis Stone Court Capital Partner and Republican

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Speaker 3: Strategists alongside Jeanie Shanzano, Senior Democracy Fellow at the Center

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Speaker 3: for the Study of the Presidency in Congress and Democratic strategist.

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Speaker 3: So when we contend with the prospect of this Gates report,

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Speaker 3: which I know all three of us have been dying

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Speaker 3: to get our eyes on for a long time, now

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Speaker 3: being released in the coming days, Rick, I do have

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Speaker 3: to wonder, considering he is no longer a member of

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Speaker 3: the House and has withdrawn his name for consideration for

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Speaker 3: Attorney General, what will the ultimate impact of this actually be.

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Speaker 6: Well, there is a current underneath a lot of this

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Speaker 6: in Capitol Hill where people think he's going to show

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Speaker 6: up next year and get sworn in, because he did

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Speaker 6: get elected to another term. So even though he resigned

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Speaker 6: his former term, he is still eligible to take his seat.

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Speaker 6: And it wouldn't surprise me that part of the motivation

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Speaker 6: of the Ethics Committee is to release his report to

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Speaker 6: ensure that he doesn't change his mind and show up

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Speaker 6: and get sworn in as a member of the one

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Speaker 6: hundred and nineteenth Congress. And so when those possibilities exist,

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Speaker 6: people try to take some risks in order to stop

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Speaker 6: these kinds of things from happening.

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Speaker 5: As if he could hear us.

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Speaker 3: I just got a fundraising email from Matt Gates that

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Speaker 3: hit my inbox talking about how help is needed. He's

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Speaker 3: in the fight for his life, defending his name and honor.

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Speaker 3: He says, instead of spending a wonderful Christmas holiday with

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Speaker 3: my family, I'm forced to fight, fight, fight to defend myself.

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Speaker 3: If he's still friend raising, that does lead me believe

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Speaker 3: he does have future political ambitions that he's thinking about

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Speaker 3: deploying cash for. And maybe it's ultimately that, say Gubinatorial

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Speaker 3: Canvasy in Florida, that this ethics report will matter most.

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Speaker 1: For Yeah, that's right. I mean, this is somebody who

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Speaker 1: has spent his entire life in politics, his adult life,

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Speaker 1: and you know, it's hard to believe he would be

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Speaker 1: removed from that of his own accord, and so we

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Speaker 1: certainly think he wants to get back into it, even

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Speaker 1: though he had to withdraw his name or he decided

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Speaker 1: to withdraw his name. And his response on X about

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Speaker 1: this report that is coming out is long and it

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Speaker 1: is very very telling. Like Taylor Swift, he talks about

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Speaker 1: this as you know, activities that were in a different

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Speaker 1: era of his life in his thirties when he was

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Speaker 1: working hard and playing hard. He admits two things, although

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Speaker 1: not certainly not anything criminal, but that are very unbecoming

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Speaker 1: of somebody as a member of the House and a

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Speaker 1: member of Congress. And so I think the release of

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Speaker 1: this report is going to underscore for many people that

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Speaker 1: this is somebody who, if he chooses to run again

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Speaker 1: or tries, to Rick's point, to come back to Congress,

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Speaker 1: which I really doubt, they're going to have to raise

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Speaker 1: serious questions about that this is somebody who admits two things,

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Speaker 1: again not criminal, but that are very very telling about

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Speaker 1: who he is.

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Speaker 3: And of course all of these concerns percolating around past

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Speaker 3: conduct and character around Matt Gates or why he is

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Speaker 3: no longer an active nominee for the second Trump administration

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Speaker 3: never even got to a hearing. And Rick, we've been

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Speaker 3: wondering if any other nominees might meet the same feet

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Speaker 3: in pulling the Gates, if you will, of withdrawing themselves

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Speaker 3: from nomination before they can risk being voted down. One

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Speaker 3: of the nominees we've had greatest concern about, perhaps earlier

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Speaker 3: this month, if less so now, is Pete Hegseth, who's

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Speaker 3: been tapped to be the next Secretary of Defense, and

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Speaker 3: according to CNN, Senator Roger Ricker, who of course will

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Speaker 3: lead the committee hearing, says that hearing is set for

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Speaker 3: January fourteenth, almost a full week before Trump takes office.

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Speaker 3: How much drama could that bring just six days before

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Speaker 3: Donald Trump takes his oath at the Capitol.

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Speaker 6: Yeah, I think it's going to end at an element

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Speaker 6: of scrutiny on Washington that this time of year, during

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Speaker 6: a inaugural period is usually just happy, happy, joy joy.

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Speaker 6: That hearing will not be happy, happy, joy joy. The

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Speaker 6: biggest hurdle that Hegsath has is he's made representations to

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Speaker 6: the senators he's meeting with that the stories about him

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Speaker 6: are lives and that he has reformed his drinking, but

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Speaker 6: that the relationships discussed in the public domain aren't true.

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Speaker 6: If in his FBI report those things become more factual,

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Speaker 6: he's going to have a hard time explaining why he

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Speaker 6: said things were untrue when they came back in an

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Speaker 6: FBI background check is becoming fact and so that is

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Speaker 6: his vulnerability in that hearing, is members bringing those things

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Speaker 6: up and asking him those questions directly.

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Speaker 3: So, Genie, what do you make of the timing this

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Speaker 3: January fourteenth date. I fully understand trying to get as

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Speaker 3: much of the cabinet in there as possible so they

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Speaker 3: can be ready on day one when the President moves

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Speaker 3: into the White House. But Pete Hegseth one of the

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Speaker 3: first to go at least at this point.

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Speaker 1: Yeah, I mean, you know, it does make sense. I mean,

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Speaker 1: we do need a secretary of Defense in place, so

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Speaker 1: you know, the world is fraught with a lot of

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Speaker 1: challenges for the incoming administration. They should be ready. But

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Speaker 1: you know, to add another element to what these hearings

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Speaker 1: on the fourteenth can bring about, we heard Lindsey Graham

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Speaker 1: over the weekend saying, you know, the reason he's supporting

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Speaker 1: hag set at this point is because those allegations against

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Speaker 1: him were anonymous, and you know, to Rick's point, do

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Speaker 1: they come about in an FBI check, He's four answer to.

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Speaker 1: But also imagine now he has apparently released this woman

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Speaker 1: who made these allegations against him from her privacy of

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Speaker 1: their privacy agreement, and imagine if she decides to come

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Speaker 1: forward or doesn't decide is called up. We could have

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Speaker 1: really really difficult hearings for Pete Hegseth and his family

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Speaker 1: at that time, So you know, these would be Kavanaugh Lake,

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Speaker 1: these would be Clarence Thomas Lake, if indeed you see

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Speaker 1: a witness like that come forward, which is very very

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Speaker 1: possible since he has said or as lawyer has said,

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Speaker 1: she is now released from their agreement to maintain privacy.

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Speaker 3: We just have a minute left here, Rick, but we've

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Speaker 3: discussed the continuing resolution that was released last night, that

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Speaker 3: fact that Elon Musk and Viviak Ramaswami you are not

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Speaker 3: happy with it. Elon Musk just putting out a new

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Speaker 3: post on X that says, the more I learn, the

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Speaker 3: more obvious it becomes that this spending bill is a crime.

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Speaker 3: He's not being shy here, Rick, Do you think anyone

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Speaker 3: will be heeding his voice.

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Speaker 6: Yeah, Typically in Washington, when you stick your neck out

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Speaker 6: that far, it gets chopped off. And he's way too

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Speaker 6: new to this game in the sense of, you know,

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Speaker 6: having this sort of public posture is the head of

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Speaker 6: Doge and the Trump whisperer for all intensive purposes for

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Speaker 6: the last month to really get that far out in

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Speaker 6: front of this Now, I get it, it's his brand,

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Speaker 6: But does he back Donald Trump in a position of

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Speaker 6: calling up Johnson and saying, you know, we're not going

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Speaker 6: to pass this bill. I mean, like there are real

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Speaker 6: serious consequences to this kind of behavior, and I would

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Speaker 6: have said absolutely no chance that this bill could be

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Speaker 6: interrupted at this stage. But if if Ramaswami and Elon

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Speaker 6: Musk launch a campaign against this bill, they might be

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Speaker 6: able to get Donald Trump to throw it under the

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Speaker 6: bus and we could have a serious government shutdown right

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Speaker 6: before Christmas.

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Speaker 3: All right, Rick Davis and Jeanie Shanze no our signature

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Speaker 3: political panel. Thank you both so much.

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Speaker 2: You're listening to the Bloomberg Balance of Power podcast Ken

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Speaker 2: just live weekdays at noon Eastern on Applecarplay and then

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Speaker 2: ron Oto with the Bloomberg Business app. You can also

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Speaker 2: listen live on Amazon Alexa from our flagship New York station,

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Speaker 2: Just Say Alexa play Bloomberg eleven thirty.

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Speaker 3: On the nineteenth of January, we could see TikTok bands

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Speaker 3: in the US, unless, of course, they can successfully get

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Speaker 3: that blocked, as they've asked the Supreme Court to step

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Speaker 3: in here after, of course, the appeals court District Court

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Speaker 3: here in DC.

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Speaker 5: The federal court.

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Speaker 3: Did not agree with the company's contention that the law

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Speaker 3: passed by Congress that would see it banned if it's

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Speaker 3: not divested here in the US violates the right to

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Speaker 3: free speech in the First Amendment. The Supreme Court says

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Speaker 3: today they will hear TikTok's arguments, and they're scheduled for

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Speaker 3: January tenth, which leaves just nine days of wiggle room

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Speaker 3: here if the ban is indeed to be halted by

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Speaker 3: the deadline. So joining me now for more is Bloomberg's

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Speaker 3: Greg Store, who covers the Supreme Court for US. He's

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Speaker 3: here in the Washington, d C. Studio. So, Greg, it's

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Speaker 3: one thing for the Court to hear arguments on the

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Speaker 3: tenth How quickly could they rule?

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Speaker 5: Could they do so before the nineteenth?

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Speaker 7: They certainly could, just as one example, Bush Vigor back

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Speaker 7: in two thousand was a case that they turned around

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Speaker 7: in just a day or maybe a day and a half.

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Speaker 7: So they certainly have the ability to do that. There

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Speaker 7: is the issue of, you know, whatever happens with this law,

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Speaker 7: folks are going to need little time to plan their

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Speaker 7: actions accordingly. You know, the companies that are involved with TikTok,

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Speaker 7: like Oracle, which hosted on its servers.

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Speaker 8: So one would imagine the court will be sensitive.

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Speaker 3: To that well, it then raises the question on what

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Speaker 3: the Court's view of this entire case, maybe when it

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Speaker 3: is TikTok intends a First Amendment issue. The District Court

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Speaker 3: of Appeals basically said, no, it's not. Congress was well

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Speaker 3: within its authority, including on national security grounds, to put

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Speaker 3: this law into place. It was a three to zero decision.

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Speaker 3: Is there any indication the Supreme Court, which yes, as

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Speaker 3: a conservative majority, would view it differently.

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Speaker 8: Yeah, this is one where I'm not going to do

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Speaker 8: much predicting. Yet.

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Speaker 7: It was, as you said, a three to nothing decision

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Speaker 7: from the Federal Appeals Court here in Washington, including two

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Speaker 7: Republican appointed judges in the majority there, and they basically

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Speaker 7: said national security Trump's free speech in this case, that

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Speaker 7: Congress had legitimate concerns that the Chinese government was getting

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Speaker 7: access to Americans data and would be manipulating was manipulating

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Speaker 7: content what people see on TikTok, And the court said

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Speaker 7: we're going to defer to Congress's judgment on that, and

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Speaker 7: that Trump's the free speech cluse.

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Speaker 3: So if the Supreme Court were to view things differently,

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Speaker 3: which again obviously we can't predict for certain, but what

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Speaker 3: would that do to congressional authority if they were to say, actually, no,

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Speaker 3: the lawmakers in the legislative branch did not have this authority,

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Speaker 3: and the judicial branch knocks it down.

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Speaker 8: Yeah, that's a really good question.

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Speaker 7: You know, this is a court and the court has,

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Speaker 7: you know, over the century, has always been very deferential

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Speaker 7: on national security grounds. That's not its area of expertise.

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Speaker 7: So it would certainly be a very big deal where

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Speaker 7: the court to say that, But we'd want to look

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Speaker 7: at what the decision actually says. You know, they could

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Speaker 7: try to write it in a way that sort of says,

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Speaker 7: you know, maybe Congress went a little farther than it

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Speaker 7: needed to. It's got legitimate concern So there are ways

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Speaker 7: the court could at least try to narrow that ruling.

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Speaker 7: But unquestionably it would be a major.

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Speaker 3: Decision, So the outcome wouldn't necessarily be binary, like TikTok

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Speaker 3: is banned starting the nineteenth or not. Could there be

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Speaker 3: some nuance here, like a lengthening of the window for

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Speaker 3: TikTok to divest or asking Congress to rewrite the law

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Speaker 3: to address certain concerns.

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Speaker 8: Yeah, that so a couple of things there.

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Speaker 7: One they would certainly they could certainly leave open the

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Speaker 7: possibility of Congress rewriting the law. They wouldn't, you know,

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Speaker 7: ask them to, but they would suggest that it could

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Speaker 7: be fixed.

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Speaker 8: The second thing that they could do is TikTok has

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Speaker 8: asked for.

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Speaker 7: What they originally were asking for, was a temporary block

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Speaker 7: of the law, as you said, scheduled to go into

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Speaker 7: effect on January the nineteenth, and they said, you know,

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Speaker 7: block it for now and let the new administration come in.

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Speaker 7: Donald Trump this week said he has a warm spot

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Speaker 7: for TikTok because he thinks that it helped him in

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Speaker 7: the election. Yeah, you know, the Trump administration would be

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Speaker 7: in charge of enforcing the law. So TikTok, you know,

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Speaker 7: is at least hoping to kind of extend the window

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Speaker 7: into the Trump administration. So the Supreme Court could say,

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Speaker 7: as part of its ruling, we're upholding the law, but

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Speaker 7: we're going to temporarily block it for a longer period

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Speaker 7: of time to let everybody kind of, you know, figure

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Speaker 7: out how they're going to deal with stuff. The Court

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Speaker 7: does have some tools at its disposal.

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Speaker 3: All right, Well, well, look forward to seeing the developments with

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Speaker 3: this one. January tenth, again the date to write on

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Speaker 3: your calendars, Bloomberg's Greg store covering the court for us.

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Speaker 5: Thank you.

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Speaker 2: You're listening to the Bloomberg Balance of Power podcast kens

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Speaker 2: just Live weekdays at noon Eastern on Applecarplay, and then

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Speaker 2: broud Otto with the Bloomberg Business App. Listen on demand

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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 3: So we want to get more into the expectations here

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Speaker 3: and what exactly economically twenty twenty five could bring and

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Speaker 3: turn to Joe Livornia. He is chief economist with smb

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Speaker 3: Necosecurities SMBC rathern Eco Securities America. He also was the

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Speaker 3: chief economist at the National Economic Council during the first

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Speaker 3: Trump administration. Joe, welcome back to Bloomberg. Happy Fed day

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Speaker 3: to you, Thanks for being here. So you think the

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Speaker 3: booming equity market is more to do with expectations around

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Speaker 3: monetary policy than say, expectations of Donald Trump taking office

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Speaker 3: in January and everything that that will bring.

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Speaker 9: No, I don't believe that to be the case. I

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Speaker 9: think the Fed has to be much more careful the

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Speaker 9: money supply and credit creation. We've seen M two growth

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Speaker 9: accelerate in the last three months to almost a six

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Speaker 9: percent rate. The small caps and the financials and certain

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Speaker 9: sectors are very enthusiastic about President elect Trump coming back.

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Speaker 9: We see that in a small business survey where you've

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Speaker 9: just seen massive, basically vertical jumps and things like good

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Speaker 9: time to expand and expectations the economy improves. No, I

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Speaker 9: just think this is a part of a bigger narrative

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Speaker 9: where the FED just has not done a very good

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Speaker 9: job signaling its intentions and has been wrongfooted many times

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Speaker 9: on inflation. And I'm just worried in the short term

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Speaker 9: by the FED easing more and potentially getting more money

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Speaker 9: and credit creation, they make a potentially sticky inflation problem worse.

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Speaker 3: Well, Joe, you and I have had several conversations about

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Speaker 3: the future of inflation and the role, if anything, tariffs

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Speaker 3: could play in that. I know you see higher tariffs

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Speaker 3: as effectively bringing a one time price increase. They should

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Speaker 3: be viewed holistically with everything else economically the President elect

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Speaker 3: would like to pursue. But I guess my question for

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Speaker 3: you is how do you think the FED views it?

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Speaker 3: If it is a price increase, they ultimately see what

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Speaker 3: is the reaction function for monetary policy.

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Speaker 9: That's I'm happy you raise that question because I think

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Speaker 9: the I'm very bullish on growth next year, think inflation

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Speaker 9: will moderate because I see President President elect Trump's policies

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Speaker 9: as expanding the supply side of the economy. It's potential productivity,

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Speaker 9: basically its ability to produce the things that we want. However,

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Speaker 9: I think the FED has taking a much more demand

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Speaker 9: side Canesian approach. They view the inflation process as not

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Speaker 9: really a money and credit phenomenon, but rather where the

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Speaker 9: unemployment is relative to NEHRU or where the output gap is.

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Speaker 9: So that my fear is that they're going to look

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Speaker 9: at a tariff increase as being inflationary when it's not,

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Speaker 9: and when they should maybe be easing next year because

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Speaker 9: productive output increases. Instead they hold pat and that would

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Speaker 9: obviously set in motion a negative a reaction in markets

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Speaker 9: in the broader economy well, and.

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Speaker 3: When we consider the global economy, there's also the consideration

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Speaker 3: on not just what tariffs mean for higher prices in

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Speaker 3: the US potentially, but also if we are seeing higher

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Speaker 3: tariffs and it results in a if not outright decoupling,

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Speaker 3: a lessening of the trade relationship between the US and China,

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Speaker 3: the world's two largest economies, what the wider economic ramifications

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Speaker 3: of that could be not just here at home.

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Speaker 9: Yeah, I'm not worried about that because I think you've

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Speaker 9: already seen when President elect Trump talked about twenty five

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Speaker 9: percent tariffs on Canada and Mexico. There were quickly talks

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Speaker 9: where both respective leaders either went to see President Trump

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Speaker 9: in person or had conversations shortly thereafter, as reported in

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Speaker 9: the news. So I think again this is a negotiation.

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Speaker 9: Tariffs will be a very powerful, important tool that will

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Speaker 9: be used. I just think it's incorrect to look at

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Speaker 9: them as being inflationary, which I think some on the

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Speaker 9: FED will look at, and I think that would be

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Speaker 9: a monetary policy error, especially if we're cutting regulations and

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Speaker 9: oil prices and energy more broadly speaking, falls. That's where

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Speaker 9: you can get some real improvement on the pricing side,

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Speaker 9: because you get these second and third order effects when

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Speaker 9: energy prices fall, the inverse of what we had when

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Speaker 9: inflation surged back in twenty one and twenty two, when

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Speaker 9: oil prices were higher, you'll get the opposite.

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Speaker 3: Joe. Finally, I want to ask you about something else

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Speaker 3: in the news today, which is that we got the

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Speaker 3: text last night of a mammoth government funding continuing resolution

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Speaker 3: that there's been a lot of pushback from Elon Musk.

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Speaker 5: The vik Ramaswami don't like this. Now.

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Speaker 3: The President of the Elect's soun Donald Trump Junior says, the

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Speaker 3: American people didn't vote for this, They voted for the opposite.

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Speaker 3: They voted for transparency. This cannot pass just quickly.

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Speaker 1: Joe.

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Speaker 3: If we were to somehow stumble into a shutdown here

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Speaker 3: before the holidays, do you expect it would have a

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Speaker 3: real economic impact.

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Speaker 9: No. I love the fact that we're trying to get

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Speaker 9: rid of this pork barrel legislation and we're actually trying

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Speaker 9: to do something productive that's a bypar is an issue.

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Speaker 9: I don't look for the government to shut down. I

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Speaker 9: think ultimately the government will be open around the holidays,

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Speaker 9: and I'm hopeful that whatever we get on the budget resolution,

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Speaker 9: it'll be basically pushed.

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Speaker 8: To next year.

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Speaker 9: We're a more comprehensive, better form bill than probably what's

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Speaker 9: out there right now. You know what it comes out at.

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Speaker 9: In other words, I like what's happening. I think it's

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Speaker 9: important we have to have this discussion.

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Speaker 3: And we still have a minute left here, Joe, So

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Speaker 3: if you could ask the FED share Jerome Powell one

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Speaker 3: question in the press conference today, Assuming that what they

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Speaker 3: do deliver is a twenty five basis point rate cut.

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Speaker 9: What would it be Well, I would like to get

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Speaker 9: some more information on where the Fed thinks that's neutral

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Speaker 9: is and how they compare that to where financial conditions are.

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Speaker 9: Because monetary policy has not tightened effectively for most of

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Speaker 9: the economy. We've seen basically the cost of capital fall

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Speaker 9: quite dramatically because of the rise and equity prices, and

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Speaker 9: in very tight credit conditions. So why are you easing

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Speaker 9: policy when you could just wait? And why are we

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Speaker 9: so worried about what investors who are betting on FED

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Speaker 9: fund in the FED Fund's futures market? Why are we

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Speaker 9: so worried about disappointing those expectations. Wouldn't it be better

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Speaker 9: if policy was perhaps a little bit more two way

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Speaker 9: on the risk. Why is it that investors can't lose

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Speaker 9: money sometimes or why can't they be disappointed on where

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Speaker 9: monetary policy wants to go. I don't understand that. I

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Speaker 9: think the FED has done a really terrible job of

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Speaker 9: setting policy in a way that's led to major misallocations

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Speaker 9: of capital because they believe that they can't let wall

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Speaker 9: straight down I think that's ultimately very unproductive, and I

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Speaker 9: worry that if the FED does cut today, as they

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Speaker 9: likely will, you actually might get a more negative reaction

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Speaker 9: ultimately in the bond market than they just not cut

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Speaker 9: and let the market kind of evolve as I think

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Speaker 9: it will in a positive fashion. But I first want

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Speaker 9: to see inflation go lower, and the FEDS you do that, all.

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Speaker 3: Right, Joe Lavornia, thanks for joining us here on Bloomberg.

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Speaker 2: Thanks for listening to the Balance of Power podcast. Make

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Speaker 2: sure to subscribe if you haven't already.

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