Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Joining us now a
Speaker 2: man with experience of all of this, the former Speaker
Speaker 2: of the House, Kevin McCarthy. Speaking McCarthy, Welcome back to
Speaker 2: the program, sir. It's good to get your thoughts. I
Speaker 2: want to lead with a question that a Marie asked
Speaker 2: a little bit earlier on the program. When you're herding
Speaker 2: cats on Capitol Hill, is it easier or harder when
Speaker 2: the President of the United States is Donald Trump?
Speaker 3: Oh, it's so much easier.
Speaker 4: President Trump is stronger today than he was at any
Speaker 4: time as career. President Trump is stronger in the House. Remember,
Speaker 4: just to get this bill out of the House, they
Speaker 4: all said they weren't going to vote for it. President
Speaker 4: Trump came down to a conference, told both sides from Salt,
Speaker 4: it's over from the Freedom Caucus.
Speaker 3: That's over.
Speaker 4: Everyone who said they wasn't going to vote for it
Speaker 4: voted for it in twenty four hours.
Speaker 3: So this bill is going to get passed.
Speaker 4: The only thing that's holding up when this bill gets
Speaker 4: passed is the weather in DC and the attendance of
Speaker 4: how that people get here.
Speaker 5: Well, yeah, people now have to come back to Washington
Speaker 5: when they thought they were going to have this week off.
Speaker 5: Speaking McCarthy, So you think the Freedom Caucus will fold again?
Speaker 5: Will they fold by July fourth?
Speaker 3: I believe so. I mean, think about this.
Speaker 4: Mike Lee, Rick Scott, Ron John all voted for this
Speaker 4: bill in the Senate and they're not going to vote
Speaker 4: for it.
Speaker 3: So if they don't want to.
Speaker 4: Vote for and they vote no, they're sitting with the
Speaker 4: Democrats and want to increase taxes.
Speaker 3: They have no place to be.
Speaker 4: What they want to do is get the attention they
Speaker 4: always crave.
Speaker 3: So they talk about that now.
Speaker 4: But how many times can you cry wolf and say
Speaker 4: you're not going to vote for something, and in twenty
Speaker 4: four hours vote for it. They have done this numerous times.
Speaker 4: They want the President's attention. They say this so they
Speaker 4: can go down to the Oval Office and see the president,
Speaker 4: then go back home and say they saw the president.
Speaker 5: So do you think the rule vote which comes first
Speaker 5: will pass because we can't see the bill on the
Speaker 5: floor until that goes through.
Speaker 4: I believe yes, it'll pass. It's all going to come
Speaker 4: down to attendance today. How many people could make.
Speaker 3: It to DC.
Speaker 4: A lot of flights will were canceled. So do they
Speaker 4: have to delay it a day or not? But this
Speaker 4: bill will pass. Remember, it already passed the House, it
Speaker 4: has now passed the Senate, and you've got the July
Speaker 4: fourth deadline holding right behind you. There's a lot of
Speaker 4: pressure mounting here. President Trump has done a tremendous job
Speaker 4: on this, but he has become the speaker in the
Speaker 4: same timeframe. Every time he's leaned into a bill it's
Speaker 4: been able to pass.
Speaker 5: He's the closer, he's the speaker in chief. How concerned
Speaker 5: are basically just congressmen and women about being torched on truth?
Speaker 6: Social like Thomas Massey, Well, you look at Tom Tillis,
Speaker 6: I mean Tom Tillis, who had a lot inside this bill,
Speaker 6: was pushing people to put more inside the bill, turns
Speaker 6: around and decides not.
Speaker 3: To run for reelection.
Speaker 4: I think that plays on the mind of a lot
Speaker 4: of individuals, and people are now being able to look
Speaker 4: at the bill. At first, they're always arguing about what's wrong,
Speaker 4: what's they're not really looking at what's positive. That you're
Speaker 4: not raising taxes, You're actually getting the economy moving again.
Speaker 4: You're keeping your promises for those who are sitting in
Speaker 4: salt districts. And you had a list of there are
Speaker 4: people who are leaning no. Nick Layloda, he said he's
Speaker 4: for this bill. That's a big movement for because he
Speaker 4: actually improved salt for his district when it was ten
Speaker 4: thousand is now forty thousand. He can go back home
Speaker 4: and champion what he was able to achieve.
Speaker 3: At the same time, he votes as a victory.
Speaker 5: At the same time, though there really won't be a cap.
Speaker 5: The cap expires at the end of the year. So
Speaker 5: don't you think the salt calcius does have some.
Speaker 3: Level goes after five years.
Speaker 4: No, from the same standpoint, it wouldn't go totally go away,
Speaker 4: or people going to let these taxes all go away.
Speaker 4: He'd been able to achieve something while keeping taxes low.
Speaker 4: If he wanted salt to go away, raise taxes on
Speaker 4: all of his individuals and play that way, that's not
Speaker 4: why people elect him. They elect him there to go legislate,
Speaker 4: and that's exactly what he did. He improved the life
Speaker 4: of his constituents, and he can champion that and actually
Speaker 4: be celebrated back home.
Speaker 7: Each of the constituents were trying to improve the life
Speaker 7: of their region from an overarching federal perspective, which is
Speaker 7: a federal law.
Speaker 8: Do you think that this is a good bill.
Speaker 4: Yes, this is a very good bill, because what would
Speaker 4: happen if you did not pass this bill. Your taxes
Speaker 4: would go up, the economy would spur a little down.
Speaker 4: I mean, this is exactly keeping the promise. And if
Speaker 4: you want to put it in perspective, this bill is
Speaker 4: exactly what President Trump campaigned on.
Speaker 3: So the American people voted for that.
Speaker 4: He won the popular vote, something a Republican president has
Speaker 4: not done in more than thirty years. He says, no
Speaker 4: tax on tips. It's keeping his promise and it's the
Speaker 4: first thing people look at.
Speaker 3: And even if you didn't.
Speaker 4: Vote for him, you respect that you kept your promise.
Speaker 3: That's a change.
Speaker 4: You said you'd secure the border, you secured the board
Speaker 4: with all the respects, said you would move it to
Speaker 4: make sure the tax would done. Yes, whatever respect you
Speaker 4: want to give me, I'll take.
Speaker 3: I'll give you loads of respect.
Speaker 7: There's a real question right now about the deficit increasing
Speaker 7: and the fact that there is a perception and it
Speaker 7: was edified by the Congressional Budget Office saying that essentially
Speaker 7: this would take money out of the pockets of the
Speaker 7: lowest income individuals in the United States and it would
Speaker 7: add to the higher income individuals significantly in the form
Speaker 7: of tax cuts and other potential benefits. That isn't necessarily
Speaker 7: one of the agenda items that was promised on the
Speaker 7: campaign trail.
Speaker 8: Correct.
Speaker 3: Well, all due.
Speaker 4: Respect to you, if you look back at the tax
Speaker 4: bill that we're keeping in place, what happened after it
Speaker 4: was placed. People actually got more income, Companies gave thousand
Speaker 4: dollars checks to their employees. So the CBO can score
Speaker 4: it one way, but we know what reality is. We
Speaker 4: know what we're seeing right now as well, where the
Speaker 4: S and P five hundred set a new record. So
Speaker 4: I think that lives much stronger to the American public
Speaker 4: than anything else. When they keep their promise, the economy stronger,
Speaker 4: the border is secure. You're watching the Middle East go
Speaker 4: to a place we haven't seen in a long time,
Speaker 4: trying to end war in Ukraine. Yes, the world is
Speaker 4: a much better place because we elected President Trump, and
Speaker 4: yes he is keeping his promise and this aligns exactly
Speaker 4: with that, and America will be stronger for it.
Speaker 5: Speaking McCarthy, I'd love to talk to you about your
Speaker 5: relationship with both President Trump and your friend Elon Musk.
Speaker 5: Are you being called in to try to mediate this
Speaker 5: feud we see?
Speaker 4: I have not been called in, and I just know
Speaker 4: when two bulls fight, the only people who lose is
Speaker 4: the ground underneath it, and I don't want to be
Speaker 4: that turf. One thing I do know is when those
Speaker 4: two work together, there's nothing we can't achieve.
Speaker 3: So in the same mindset, I think.
Speaker 4: People need to take a deep breath. Let's get back
Speaker 4: to where we were before. Let's put America first and
Speaker 4: find the way that we make everybody stronger.
Speaker 2: Speaking McCarthy with respect and thanks, Thank you, sir.
Speaker 8: I appreciate your time as all.
Speaker 2: Thank you, Thank you, buddy, Thank you very much. The
Speaker 2: former Speaker of the House, Kevin McCarthy that Cisco's president
Speaker 2: and chief Product Office a G two ptal, saying we're
Speaker 2: on the verge of a second major inflection in the
Speaker 2: development writing AI. Agents will produce original insights and help
Speaker 2: us solve problems that we might never have dreamed of
Speaker 2: solving before. In this sense, I think agentic AI is
Speaker 2: the single most important technology leap of our lifetime so far.
Speaker 2: G two joined us now for more from Cisco, and
Speaker 2: he's quickly becoming like AI therapist Guto. Welcome back to
Speaker 2: the program, sir. That last line is pretty strong, G two.
Speaker 2: Bigger than the Internet, Bigger than that that big.
Speaker 9: That's one of these technology. Firstly, Jonathan, thank you for
Speaker 9: having me. I am sorry I couldn't be there in person.
Speaker 9: I'm in these beautiful London Bloomberg offices. So let me
Speaker 9: just say, if you take a step back, we are
Speaker 9: in the second major phase of AI. Where we used
Speaker 9: to be the past two and a half years. What
Speaker 9: we've experienced is chatbots intelligently answering questions for us. We're
Speaker 9: now squarely in the second phase, where agents will be
Speaker 9: able to conduct tasks and jobs almost fully autonomously. On
Speaker 9: behalf of humans, and it's going to completely unlocked potential
Speaker 9: that we haven't seen before. And I'm pretty excited about
Speaker 9: the potential of what this is going to be able
Speaker 9: to do to solve problems that we have not been
Speaker 9: able to tackle as of yet. That's probably the most
Speaker 9: under hyped part of AI in my opinion.
Speaker 2: Well, let's get into that that phrase unlocked potential. I'm
Speaker 2: thinking about unlocking potential for who people who are in
Speaker 2: the stocks, people who run the companies, or people who
Speaker 2: actually work at the companies and run the operations. The
Speaker 2: difference between say, job replacement and job enhancement. G two,
Speaker 2: what's the difference between the two?
Speaker 3: You know?
Speaker 9: So, the way I think about it is there's a
Speaker 9: definitive pattern and history of the way that technologies get
Speaker 9: to get adopted. First, the first phase is when people
Speaker 9: are fearful of the technology, and then they flourish with them.
Speaker 9: And we are currently in this mode of largely being
Speaker 9: skeptical of AI, thinking it's going to take our jobs.
Speaker 9: And like I said to you the last time I
Speaker 9: saw you, Jonathan, I worry less about AI taking my job.
Speaker 9: I worry about someone using AI better than me. That's
Speaker 9: probably going to take my job. And we should make
Speaker 9: sure that we democratize the use of AI for every
Speaker 9: person so that we can actually unleash our potential. And that,
Speaker 9: in my mind is an area that we don't talk
Speaker 9: enough about right now, which is what are the unsolved
Speaker 9: problems that we have not been able to solve because
Speaker 9: of original insights of AI that we will be able
Speaker 9: to solve today. Think about the kind of new businesses
Speaker 9: that people will be able to start, the kind of
Speaker 9: you know, diseases we'll be able to solve for now.
Speaker 9: I'm not delusional. It's not that this comes without any risk.
Speaker 9: Security and safety is a huge risk. We ought to
Speaker 9: make sure that we actually get all over that and
Speaker 9: band together as a community to make sure that we
Speaker 9: can solve those risks. But I'm a net optimist of
Speaker 9: AI rather than thinking that it's going to take every
Speaker 9: job that's available for humans right now.
Speaker 7: G Two that's pretty extreme prediction. There is this question
Speaker 7: of who potentially benefits within the labor market and who
Speaker 7: is left behind. And I wonder at Cisco, you talk
Speaker 7: to a lot of companies, how are they preparing their
Speaker 7: workforces and are they aware of how much retraining is
Speaker 7: necessary to keep their humans relevant.
Speaker 9: Yeah, I think there's You know, the most organizations right
Speaker 9: now are thinking about how is each job going to
Speaker 9: get reconfigured and what are we going to need to
Speaker 9: do to make sure that the augmentation of AI to
Speaker 9: a human makes the human more productive. What we want
Speaker 9: to do ultimately is make sure that AI can reach
Speaker 9: its full potential the humans can reach their full potential
Speaker 9: with AI. So, for example, at Cisco, we are hoping
Speaker 9: that there's going to be a lot of code that
Speaker 9: gets written autonomously. That doesn't mean that we're going to
Speaker 9: have less engineers. That means that the engineers will provide
Speaker 9: more insight, more oversight, and they'll actually think about new
Speaker 9: ideas because we are currently so constrained with engineering talent
Speaker 9: that we're not able to prosecute all the ideas that
Speaker 9: we have. And now we'll be able to actually get
Speaker 9: more through put capacity as a result of having AI
Speaker 9: being a companion for every engineer. And so I feel
Speaker 9: like every single job will need to get reconfigured slightly,
Speaker 9: will need to have be adjusted. But this is no
Speaker 9: different from any other previous technological revolution that we've had.
Speaker 9: With the Internet, you had to have the same with
Speaker 9: the personal computer. There was the same kind of reconfiguration
Speaker 9: of jobs. And yes, some of those will those will
Speaker 9: go away, and there'll need to be some retraining, but frankly,
Speaker 9: there'll be new jobs that emerge that we haven't seen
Speaker 9: up until now that allow us to actually move even faster.
Speaker 8: One of the.
Speaker 7: Issues, and one of the differences now versus the Internet
Speaker 7: or the industrialization or even the engine when it came out,
Speaker 7: is the speed of how quickly this is getting implemented,
Speaker 7: of how quickly the development is going. And we're getting
Speaker 7: to phase two before some people even understand the potential
Speaker 7: of phase one. By the time we get to phase three,
Speaker 7: they're going to be a whole host of people that
Speaker 7: don't even realize how behind they are. Just how big
Speaker 7: is that mismatch in terms of the speed of the
Speaker 7: evolution and how behind a lot of the workforce is
Speaker 7: to meet it.
Speaker 9: This is actually a really important point, Lisa, because the
Speaker 9: speed of the pace of change is something that we've
Speaker 9: never seen before. And frankly, that's why sitting on the
Speaker 9: sidelines and waiting for this thing to kind of play
Speaker 9: out before you jump in is exactly the wrong strategy.
Speaker 9: What we need to do is make sure that everyone's
Speaker 9: actually getting dextrous with the use of AI, because there's
Speaker 9: only two kinds of companies in my mind, those that
Speaker 9: are going to be extremely dexterous with the use of
Speaker 9: AI and others that will actually really struggle for relevance.
Speaker 9: And we want to make sure that there's more and
Speaker 9: more companies that are in the first category, not for second.
Speaker 9: And so I do feel like speeds an important dimension
Speaker 9: and in order to tackle that, every company just needs
Speaker 9: to make sure that they're actually thinking about getting and
Speaker 9: not sitting on the sidelines, but immersing themselves and experimenting
Speaker 9: with AI as quickly as possible so that they can
Speaker 9: get an instinct, they can get some kind of judgment
Speaker 9: of what this is going to look like over time.
Speaker 5: T Two, You're not just working with companies, you're also
Speaker 5: working with governments. From page of Wall Street Journal today
Speaker 5: is talking about how China's AI companies are basically challenging
Speaker 5: US superiority. Who is doing it well, who do you
Speaker 5: think is winning this race?
Speaker 3: Well?
Speaker 9: I think right now, you know, while US is in
Speaker 9: the lead, China is actually catching up fast. And so
Speaker 9: we need to make sure that we continue the base
Speaker 9: of innovation that's there, and what you want to see
Speaker 9: is that the US companies are becoming some of the
Speaker 9: standards for infrastructure buildout that might be all around the
Speaker 9: world for safety and security all around the world.
Speaker 3: You want to make.
Speaker 9: Sure that that happens. And that's why it's so important
Speaker 9: that you know the companies that win and the countries
Speaker 9: that win with the AI race are the ones that
Speaker 9: are also going to win economically. They're also going to
Speaker 9: win from a national security standpoint, So there's a lot
Speaker 9: of benefit to making sure that you're kind of immersing
Speaker 9: yourselves in an AI. I was recently in the Middle East,
Speaker 9: Lisa and we announced a partnerships with the Saudi government,
Speaker 9: with the Kingdom of Saudi Arabia as well as with
Speaker 9: the United Arab Emirates, where we're going to help with
Speaker 9: data center buildouts. And if you think about what the
Speaker 9: constraints of AI are, there are three things. There's power,
Speaker 9: there's compute, and there's networking capacity. Those are the constraints,
Speaker 9: and we need to make sure that this infrastructure gets
Speaker 9: modernized and that we have American companies that are helping
Speaker 9: in participating in these massive data center buildouts, which actually
Speaker 9: provide the infrastructure necessary for everyone to be able to
Speaker 9: have access to AI.
Speaker 2: GT just before you go, we're focused on payross this
Speaker 2: week at least has been doing a great job over
Speaker 2: the last week or so just bringing up highlighting continuously repeatedly,
Speaker 2: how difficult it is for graduates to get a roll
Speaker 2: at the moment. And I just wonder how this is
Speaker 2: going to impact high rink at the entry level over
Speaker 2: the next several years or so. As companies figure this out,
Speaker 2: then invest a lot in software, invest in the current
Speaker 2: staff to learn how to use some of these things.
Speaker 2: But I'm not sure they're going to hire up the
Speaker 2: same pace G two. And I wonder what your experience
Speaker 2: is now, both within Cisco and looking out speaking to
Speaker 2: other companies.
Speaker 9: You know, John, you and I talked about this last
Speaker 9: time as well. I actually tend to learn so much
Speaker 9: from the people that are AI natives that are just
Speaker 9: coming out of them out of the educational system, because
Speaker 9: they think they use AI very differently than folks that
Speaker 9: have been around for a while. And so I actually
Speaker 9: don't think it's a good strategy to not hire entry
Speaker 9: level candidates and just think that AI is going to
Speaker 9: replace those jobs. Frankly, I feel that you have an
Speaker 9: entry level candidate. With AI as a companion, you can
Speaker 9: start to see meaningful levels of compounding of value. And
Speaker 9: so I do feel like there's two categories of people
Speaker 9: that are actually doing really well with AI. The early
Speaker 9: entrants who've actually been AI native that know and have
Speaker 9: a very different instinct for how to use AI. And
Speaker 9: then the second ones are the highly experienced group of
Speaker 9: people that are using it well. What we need to
Speaker 9: do is we need to make sure that we train
Speaker 9: the people in the middle so that they're all not
Speaker 9: fearful of AI, but they're in fact starting to think
Speaker 9: about this as an accelerant to their personal productivity as
Speaker 9: well as the productivity of the companies.
Speaker 2: You're slowly converting.
Speaker 8: Me G.
Speaker 2: So it's wonderful to catch up. Enjoy London, So glad John,
Speaker 2: We'll see with New York soon. GT for town there
Speaker 2: at Cisco, Welly of black Rock Rights. In a world
Speaker 2: of weak macro anchors, mega forces like artificial intelligence are
Speaker 2: the new long term anchor for achieving durable returns.
Speaker 8: Why joint us now for more? Wykenmonic, good morning.
Speaker 2: Is it getting harder to find a long term macro
Speaker 2: anchor in this environment.
Speaker 1: Well, long term macro anchors have been lost. You look
Speaker 1: at inflation anchors, you look at long term growth anchors,
Speaker 1: you look at long term physical anchors, you look at
Speaker 1: even anchors in institutional confidence like the safe haven status
Speaker 1: of the dollar, but maybe also independence of the fact.
Speaker 1: So it's really hard to find long term macro anchor,
Speaker 1: which is why we actually think that it's easier to
Speaker 1: think about tactical as a location because of the mutable
Speaker 1: laws around us that and global supply chain. Paradoxically, there
Speaker 1: is greater certainty in our assessment in the near term
Speaker 1: than in the long term, which is the opposite of
Speaker 1: what has been always the case, which is why we're
Speaker 1: moving k targets in terms of the budget deployment from
Speaker 1: longer term strategic as a location towards tactical as location.
Speaker 1: This is one of the best tactical investment environments.
Speaker 2: So what's the tactical approach currently for you and the team?
Speaker 1: Right now? We are investing for the here and now,
Speaker 1: which is to recognize that so far this year we
Speaker 1: have focused a lot on tariffs, and we're still focusing
Speaker 1: on tariffs, which is very different from Trump term one
Speaker 1: where we had text cuts first and then we had tariffs.
Speaker 1: But now focus is going to shift also towards text cuts,
Speaker 1: also towards deregulation, potentially unleashing animal spirit. And yes, tariffs
Speaker 1: headlines are still flying around. But we do think that
Speaker 1: because of the constraints and immutable laws that I just
Speaker 1: talked about, we're going to get to some sort of
Speaker 1: lending spot, not likely derailing the tactical kind of risk
Speaker 1: con view that we still have. So right now, we
Speaker 1: still like US equities, and I would observe that at
Speaker 1: this juncture is no longer consensus and speakture investors across
Speaker 1: the world, Europe, the APEC. I would think that it's
Speaker 1: more divisive right now, but we still like it. The
Speaker 1: condition for sustained rest of the world europe outperformance over
Speaker 1: US haven't been met, which is why we're not We
Speaker 1: haven't chased the European equity our performance beyond closing the
Speaker 1: underweight too neutral earlier in the year.
Speaker 7: So you keep mentioning the immutable economic laws, and I
Speaker 7: think this is a really important point, and in the
Speaker 7: outlook that Black Rock put out, you did right. We
Speaker 7: think commutable economic laws to prevent or return to a
Speaker 7: maximal stance. How much does this just mean fade the extremes,
Speaker 7: fade the tail risks, because they always will come back
Speaker 7: to the center based on math.
Speaker 1: That's exactly right. If we faded extremes, which we did
Speaker 1: think about kind of how we up risked immediately after
Speaker 1: April ninth, then we would have captured and we have
Speaker 1: the twenty more than twenty percent ready from the April trove.
Speaker 1: So it's really recognizing that even though headlines can be
Speaker 1: very scary sometimes for markets, there are things governing how
Speaker 1: quickly things can change from status quo in the very
Speaker 1: near term. So if we want to close trade deficits
Speaker 1: and we lose a lot of the reliance on foreign funding,
Speaker 1: and given that the US has the highest financing needs
Speaker 1: among G seven in terms of percentage of GDP and
Speaker 1: one of the shortest average that maturity, there is something
Speaker 1: that cannot really be messed around with, which is why
Speaker 1: we believe, especially at times of a huge amount of
Speaker 1: uncertainty in market narratives, this strategy is rewarding and effect
Speaker 1: has worked really well this year.
Speaker 7: Just quickly, how fragile does that make this market that
Speaker 7: has become numb to extremes.
Speaker 1: I think markets are not yet numb to extremes in
Speaker 1: that you still see headlines like whipsawing day to day
Speaker 1: market volacility. We see equity sensitivity to incoming data at
Speaker 1: a much more elevated level compared to pre pandemic. We
Speaker 1: see rage sensitivity to incoming data like we're talking about
Speaker 1: month to month inflation print, but the long term ten
Speaker 1: years sensitivity to months to on inflation Prince is so
Speaker 1: much more elevated now, which means that markets are trying
Speaker 1: to extrapolate from incoming data what it means for the
Speaker 1: long term, which speaks to the laws of long term
Speaker 1: macro anchor. Which is why if we have a very
Speaker 1: clear kind of assessment of the fundamental picture that allows
Speaker 1: us to play the current environment taxically and reversal strategies
Speaker 1: in the middle of wildly swinging market narratives. Has been
Speaker 1: very rewarding for our active platform.
Speaker 2: Super thoughtful stuff. Welly, appreciate your time as always, thanks
Speaker 2: for being with us, say in New York while leader
Speaker 2: of Black Rob joining us now to discuss this and
Speaker 2: a whole lot more on the US economy. Joe Leaphone,
Speaker 2: the counsel at the Treasury Secretary Scale Bess and Joe,
Speaker 2: welcome back to the program, Sir. The words of Chairman Power,
Speaker 2: we didn't react at all. We're simply taking some time.
Speaker 2: Why is his position not a convincing one?
Speaker 8: Let me say this, Jonathan.
Speaker 10: The fact is that the tariffs, whether you look at
Speaker 10: the pc the CPI, import prices, all those metrics actually decelerate.
Speaker 10: So not only did the consensus get it wrong where
Speaker 10: inflation didn't pick up, it actually fell. The chair likes
Speaker 10: to look at the supercore metric, which is services excluding
Speaker 10: rents and energy, and that's actually fallen about a point
Speaker 10: point plus since last September when the Fed first began cutting.
Speaker 10: So many metrics show that inflation pressures are actually decelerating,
Speaker 10: which obviously means that real interest rates are expanding, meaning
Speaker 10: they're rising. So I don't want to be critical the
Speaker 10: Fed per se. The president's done of his own, has
Speaker 10: given his own spiel and and made some very powerful
Speaker 10: arguments why race shou should fall. But there's no question
Speaker 10: the inflation news has been much better than anybody thought.
Speaker 10: And tariffs, as we've said many times, the Secretary Beston
Speaker 10: has said, are not inflationary tariffs are. If they happen,
Speaker 10: they haven't impacted the domestic economy.
Speaker 8: It's a price level adjustment, Joe.
Speaker 5: We're still waiting for the tariff rates and the President
Speaker 5: is saying he's not moving the date next week. When
Speaker 5: I speak to individuals that are sitting on the other
Speaker 5: side of the US Trade Representative or treasure Secretary Scott Bessont,
Speaker 5: they say that they have been told and given assurances
Speaker 5: by this administration that if they are in good faith negotiations,
Speaker 5: that that deadline can be pushed back.
Speaker 10: Is that your understanding, Well, that's what Secretary Bestin has said,
Speaker 10: and Secretary recently said about ten to twelve countries are
Speaker 10: very close to a deal. There's about another twenty that
Speaker 10: are also negotiating good faith, and Secretary vest At recently
Speaker 10: highlighted that many deals could be done by Labor Day.
Speaker 10: So does a lot of good progress. But on the terrafts,
Speaker 10: I just want to be clear. The consensus view among
Speaker 10: almost everybody was that teriffs would start to impact the
Speaker 10: data in March. It didn't happen in March. It happened
Speaker 10: in April, it didn't happen in May. And we know
Speaker 10: there's a big number.
Speaker 8: Associated with the revenue.
Speaker 10: We could have three hundred billion of teriff for revenue
Speaker 10: this year.
Speaker 8: That's coming in.
Speaker 10: So we've got these huge increase in revenues. So they're there,
Speaker 10: and the reason the tariffs are impacting things in large
Speaker 10: part is because foreign producers, as we learn from the
Speaker 10: first Trump administration, are absorbing it in their margin.
Speaker 5: When it comes to Japan specifically, the President said that
Speaker 5: they're spoiled, and he talked about the fact that maybe
Speaker 5: he's going to go for a thirty thirty five percent rate.
Speaker 5: On a liberation day, they only had a twenty four
Speaker 5: percent rate. Do you see any country going above April
Speaker 5: second rates?
Speaker 10: The President is a very tough negotiator, and I'm confident
Speaker 10: that whatever winds up happening with Japan and everyone else
Speaker 10: is going to be in the US best interest. This
Speaker 10: is a negotiation, and again, as Secretary Bestins highlighted many times,
Speaker 10: as long as countries are negotiating in good faith, that's
Speaker 10: a positive and then we take it from there. But
Speaker 10: I do expect, as a Secretary said, there are deals forthcoming.
Speaker 7: The market response to all of this has been prettym
Speaker 7: much a strug. We've seen new record highs for equity markets,
Speaker 7: except the dollar has continued to weaken and weaken too,
Speaker 7: some of the lowest levels, weakest levels going back to
Speaker 7: twenty twenty two. At what point is that a concern
Speaker 7: for you, Lisa?
Speaker 10: First of all, a lot of that weakness is visa v.
Speaker 8: The Euro.
Speaker 10: If you look at the FEDS Real Broad Trade Weighted Index,
Speaker 10: which is about twenty six countries, as opposed to believe
Speaker 10: that the Bloomberg d x Y I think is only
Speaker 10: six or seven.
Speaker 8: It's a small small sample.
Speaker 10: If you look at the Real Broad the Real Broad
Speaker 10: Trade Weighted Index, it's close to one of the highest
Speaker 10: readings we've had since the Plaza the cordback in nineteen
Speaker 10: eighty five.
Speaker 8: So this notion that somehow there is the.
Speaker 10: Selling of US assets that the dollars week, some major
Speaker 10: financial outlets have talked about that, it's completely incorrect. It's
Speaker 10: not consistent with the TIC data. It's not inconsistent with
Speaker 10: the recent BIS report.
Speaker 8: We've talked about.
Speaker 10: Some of the selling of assets in April, that brief
Speaker 10: ceradi of selling was actually due to hedging, wasn't due
Speaker 10: to lack demand for US assets. So the dollar is
Speaker 10: the reserve currency. The dollar will be strong. The dollar
Speaker 10: is still strong, and I think those concerns are greatly misplaced.
Speaker 7: There is, though this building a worry about monetizing the
Speaker 7: debt in order to pay for some of this bill.
Speaker 7: This idea that you want to run the economy hot,
Speaker 7: this emphasis on growth in order to offset the increase
Speaker 7: in the deficit, at the same time that you're counting
Speaker 7: on inflation not to pick up. How do you sort
Speaker 7: of square that the idea that in the past, when
Speaker 7: you run the economy hot, it typically has come along
Speaker 7: with inflation, especially at times where there have been disruptions
Speaker 7: to supply chains.
Speaker 3: Yeah.
Speaker 10: Well, you know, in the first Stump administration, growth was
Speaker 10: nearly three percent and actually at three point four percent
Speaker 10: in the fourth quarter year on year in twenty nineteen,
Speaker 10: and inflation didn't pick up. The one big beautiful bill
Speaker 10: which is making its way through the Congress, as you know,
Speaker 10: increases supply side incentives to get growth to remain robust
Speaker 10: through capital investment, in capital deepening, inflation will continue to fall.
Speaker 8: The inflation news has been great, and that's the thing.
Speaker 8: If you look at the bond market, the.
Speaker 10: Equity market's rallied on a second half boom and bond
Speaker 10: market yields are down substantially.
Speaker 8: From where they were earlier in the year, So the.
Speaker 10: Capital markets are really responding very positively to what they expect.
Speaker 10: On the inflation side, break even inflation has been stable.
Speaker 10: So again, this notion some of that inflation is going
Speaker 10: to pick up, that growth leads to faster inflation. This
Speaker 10: Phillips curve mindset, if you will, completely wrong. We saw
Speaker 10: under the first Trump administration, as they said, very strong
Speaker 10: growth and low inflation.
Speaker 8: And by the way, I once you.
Speaker 10: Want to add the big problem with the CBO's numbers
Speaker 10: is they're only assuming one point eight percent GDP growth.
Speaker 8: That's woefully at woefully too low.
Speaker 10: If we have a seventeen point two percent revenue shary GDP,
Speaker 10: which is basically where we are now, and we grow
Speaker 10: it a much more plausible and realistic three percent, that
Speaker 10: gives you something like an extra almost an extra trillion
Speaker 10: dollars in revenue relative to what CBO was forecasting.
Speaker 8: Back in January.
Speaker 10: And that's not even adding the revenues that are coming
Speaker 10: from the tariff. So this notion that these deficits are
Speaker 10: going to stay super high and grow completely I think
Speaker 10: incorrect because it's based on a fallacious assumption of sub
Speaker 10: two percent growth, which is very.
Speaker 8: Very weak.
Speaker 2: That's the argument the President's making this morning so far.
Speaker 2: Just before you go, how much outreach is happening the
Speaker 2: Treasury and from the White House just to communicate to
Speaker 2: the public that the payrolls report might change, just the numbers.
Speaker 2: What's considered good given the amount of immigration we had
Speaker 2: over the last several years, and what's considered good now
Speaker 2: is going to change that. Maybe one hundred k now
Speaker 2: is actually a decent number, when one hundred k a
Speaker 2: few years ago, with mass migration crossing the southern border
Speaker 2: wasn't a good number. Do we have to reframe what's
Speaker 2: good and what's bad in this labor moment?
Speaker 8: No, I don't know.
Speaker 10: I mean, as you know, the payroll numbers are subject
Speaker 10: to significant revision. The income numbers are actually been very good.
Speaker 10: If the compensation figures in real terms, they're accelerating, feel
Speaker 10: like at blue collar wages. Average hourly earnings for super
Speaker 10: non advisory production workers are up almost two percent the
Speaker 10: first five months of President Trump's term. That's the best
Speaker 10: five months effectively to start a new administration ever going
Speaker 10: back sixty years. So the income trends are great. You know,
Speaker 10: a plumb rate's going to stay low. And again, if
Speaker 10: we get the one big beautiful bill, Jonathan, that is
Speaker 10: going to get rid of lot, get rid of a
Speaker 10: lot of the uncertainty that's there in the market where
Speaker 10: companies can make capital plans. Accordingly, they're not worrying about
Speaker 10: tax rates going up because again, if you look at
Speaker 10: small businesses, the pastor businesses, the Chapter S companies, they're
Speaker 10: paying the marginal rate. So when they get some certainty
Speaker 10: on that and they create forty percent of the jobs,
Speaker 10: you're going to see the labor markets tightened and growth
Speaker 10: accelerate in the second half.
Speaker 8: Of the year.
Speaker 2: I Joe appreciate time as always Jonah, only that have
Speaker 2: the counselor to a twice three secondary skill plessant on
Speaker 2: the labor market.
Speaker 3: There.
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Speaker 4: Mm hmm.