WEBVTT - Bloomberg Surveillance TV: July 18th, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:37.280 Bloomberg Terminal and the Bloomberg Business App. Peter Roppenheimer of 0:00:37.320 --> 0:00:41.159 Goldman Sax, writing, while US fundamentals remain solid, the valuation 0:00:41.320 --> 0:00:45.080 premium is increasingly difficult to justify. Peter joins us now 0:00:45.120 --> 0:00:47.199 for more. Peter, Welcome to the program sir. Let's talk 0:00:47.200 --> 0:00:50.159 about the valuation fredium and the why. The data this 0:00:50.200 --> 0:00:53.000 week is good. The errings have been okay, We've got 0:00:53.000 --> 0:00:56.040 an FMC slowly leaning towards a rake cut. 0:00:56.240 --> 0:00:57.000 What's not to like? 0:00:59.280 --> 0:01:02.400 Well, John, this is a relative rather than an absolute story. 0:01:02.400 --> 0:01:04.760 You're right if interest rates are coming down, and we 0:01:04.800 --> 0:01:08.240 think they are, and the economy continues to grow, if 0:01:08.440 --> 0:01:11.119 even at a more moderate rate. Generally, that's a good 0:01:11.200 --> 0:01:14.319 backdrop for risk assets and for equities, and the US 0:01:14.440 --> 0:01:19.080 is no exception, particularly as it's increasingly again dominated by 0:01:19.480 --> 0:01:23.520 its biggest tech stocks, which are generating really strong earnings growth. 0:01:23.800 --> 0:01:27.800 But it's really the relative premium against other markets which 0:01:27.840 --> 0:01:31.759 has reached a record high, which is harder to justify 0:01:32.120 --> 0:01:36.200 when other markets are beginning to see their own tailwinds. Europe, 0:01:36.200 --> 0:01:40.520 for example, is enjoying stronger growth. You know, we think 0:01:40.560 --> 0:01:43.640 about last year, the US economy was growing at only 0:01:43.720 --> 0:01:48.480 three percent, Germany was stagnant. By next year they'd likely 0:01:48.560 --> 0:01:52.600 be growing at relatively similar rates, and yet the valuation 0:01:52.720 --> 0:01:57.240 gaps are extremely wide, and that's an opportunity we think 0:01:57.240 --> 0:01:58.000 to diversify. 0:01:58.240 --> 0:01:59.040 It is a question of. 0:01:59.040 --> 0:02:01.360 Where you diversify given the fact that a lot of 0:02:01.400 --> 0:02:04.160 people are expressing it through the currency, and the currency 0:02:04.240 --> 0:02:06.680 is having a balancing effect in so many ways, Given 0:02:06.720 --> 0:02:09.360 the fact that it might actually be a tailwind for 0:02:09.520 --> 0:02:13.320 US corporate earnings and a headwind for European ones, how 0:02:13.320 --> 0:02:15.480 do you factor that into this equation. 0:02:17.160 --> 0:02:20.160 That's a very good point and absolutely right, and particularly 0:02:20.160 --> 0:02:22.760 for the dominant tech stocks, which are very global in 0:02:22.880 --> 0:02:26.400 terms of their revenue streams, and they have very strong 0:02:26.480 --> 0:02:29.680 balance sheets. A week of dollar will help them. 0:02:29.760 --> 0:02:30.520 So that is. 0:02:30.480 --> 0:02:34.040 Good indeed for the dominant companies in the US, and 0:02:34.120 --> 0:02:38.000 from an earning translation perspective, it's a headwind in Europe 0:02:38.120 --> 0:02:42.519 or indeed Asia. But on the other hand, in terms 0:02:42.520 --> 0:02:45.920 of flows, what we're beginning to see is more appetite 0:02:46.000 --> 0:02:50.080 for US investors to spread their risks, to diversify, to 0:02:50.200 --> 0:02:53.800 benefit from some currency gains that they may get in 0:02:53.919 --> 0:02:58.080 cheaper markets like Europe or emerging markets for example. And 0:02:58.240 --> 0:03:02.800 indeed it's also an increase incentive for investors in Europe 0:03:02.960 --> 0:03:05.799 to keep more of their funds at home. So from 0:03:05.800 --> 0:03:09.480 an earning translation perspective, it's a headwind in Europe, it's 0:03:09.480 --> 0:03:13.680 a tailwind in the US. But from a diversification perspective 0:03:13.760 --> 0:03:17.760 for investors, I think this is likely to encourage a 0:03:17.800 --> 0:03:21.280 broader spread of assets than we've generally seen over the 0:03:21.360 --> 0:03:22.160 last decade. 0:03:22.320 --> 0:03:25.080 How interest rate sensitive is a story at a time 0:03:25.120 --> 0:03:28.480 where some people are talking about possibly an ECB cutting 0:03:28.560 --> 0:03:30.520 rates more quickly than a FED, and then a question 0:03:30.600 --> 0:03:32.920 of whether maybe the FED will cut rates just as 0:03:33.000 --> 0:03:37.080 quickly in perhaps a different composition at the FED. 0:03:39.520 --> 0:03:44.480 Well we're more mature through the interest rate cycle in Europe, 0:03:44.480 --> 0:03:46.760 at least in the euro Zone, we're expecting one more 0:03:46.840 --> 0:03:50.640 rate cut getting policy rates down to one on three quarters. 0:03:50.680 --> 0:03:53.240 We think we have a series of rate cuts to 0:03:53.240 --> 0:03:57.040 look forward to in the US to get policy rates 0:03:57.040 --> 0:04:00.480 down to three to three in a quarter. What I 0:04:00.520 --> 0:04:04.000 think is worth also emphasizing, though, is that while there 0:04:04.000 --> 0:04:07.040 are prospects for bigger rate cuts from a higher level 0:04:07.200 --> 0:04:10.560 in the US than perhaps in Europe, long term interest 0:04:10.640 --> 0:04:13.280 rates are not really coming down, and that's a reflection, 0:04:13.440 --> 0:04:18.159 of course, of concerns about debt sustainability and debt financing, 0:04:18.200 --> 0:04:20.440 not just in the US but in other countries as well. 0:04:20.839 --> 0:04:24.040 Bear in mind, in Germany, while we're getting these policy 0:04:24.120 --> 0:04:27.040 rate cuts, long term interest rates are actually edging up 0:04:27.080 --> 0:04:33.680 as it also finally increases its borrowing and fiscal spending, 0:04:33.720 --> 0:04:36.279 which is good for growth, good for the ecty market, 0:04:36.600 --> 0:04:39.440 but of course puts upward pressure on long term interest rates. 0:04:39.640 --> 0:04:42.640 Peter, speaking of Germany, the Bundesbank president, today came out 0:04:42.680 --> 0:04:46.200 and said that challenges to FED independence, which he calls 0:04:46.480 --> 0:04:50.080 in the DNA the autonomy of good central banking, would 0:04:50.160 --> 0:04:53.040 resonate beyond the shores of the United States. What kind 0:04:53.080 --> 0:04:56.200 of impact could we see if we were to see 0:04:56.240 --> 0:04:58.279 the President of United States get rid of Jpowe and 0:04:58.360 --> 0:05:02.000 fire him in Europe or inside Asia and emerging markets. 0:05:04.120 --> 0:05:09.520 Well, look, we shouldn't forget that independent central banks have 0:05:09.680 --> 0:05:13.200 not always been the norm throughout history, and this was 0:05:13.279 --> 0:05:17.400 something that really gained prominence in the nineteen nineties and beyond, 0:05:18.560 --> 0:05:23.479 and of course that has helped both to bring down inflation, 0:05:24.080 --> 0:05:27.440 to bring down inflation risk premia as investors have become 0:05:27.480 --> 0:05:32.120 more confident instability, and we've brought down risk premia and 0:05:32.160 --> 0:05:34.840 the cost of capital in general. I think anything that 0:05:34.960 --> 0:05:39.599 challenges the independence of the central bank will be reflected 0:05:39.720 --> 0:05:41.640 in high risk premia. But I think we're a long 0:05:41.680 --> 0:05:44.880 way away from that. And as you've been saying in 0:05:44.920 --> 0:05:48.760 your report, the conditions in the US are favoring interest 0:05:48.839 --> 0:05:52.719 rate cuts. Anyway, we're getting into a more benign phase 0:05:52.720 --> 0:05:55.320 of the cycle. After the big inflation rises that we 0:05:55.360 --> 0:05:59.240 saw following the pandemic, unemployments edging up a little bit, 0:05:59.480 --> 0:06:01.520 and there is room to cut rates. That's true in 0:06:01.560 --> 0:06:04.360 the US, it's true across Europe, the UK and other 0:06:04.440 --> 0:06:07.000 areas as well. And by the way, some weakness in 0:06:07.040 --> 0:06:10.000 the dollar and interest rates coming down in the US 0:06:10.440 --> 0:06:15.320 will resonate and be positive. I think beyond US shores 0:06:15.839 --> 0:06:19.360 very beneficial, for example, for emerging markets also, which have 0:06:19.480 --> 0:06:21.560 tended to lag behind over a long period of time. 0:06:21.720 --> 0:06:25.240 So I think there's a long way. We're a long 0:06:25.279 --> 0:06:30.840 way away yet from people really worrying about central bank independence. 0:06:31.000 --> 0:06:32.720 Let's hope you're right, sir, it's going to catch out. 0:06:32.720 --> 0:06:44.920 With Peter Roppenheimer, I've gone as SANX making the case 0:06:45.120 --> 0:06:47.479 for a raid cup Fed Governor Chris Waller tannag an 0:06:47.520 --> 0:06:50.040 audience here in New York. Looking across the soft and 0:06:50.080 --> 0:06:52.520 hard data, I get a picture of a labor market 0:06:52.760 --> 0:06:55.000 on the edge joining us now here in New York City, 0:06:55.120 --> 0:06:57.920 the Federal Reserve Governor Chris Waller, Governor Walla. 0:06:57.680 --> 0:07:00.839 Good Monica, say, Henry, nice to be here. 0:07:00.880 --> 0:07:03.000 It's good to see you, sir. Let's talk about why 0:07:03.000 --> 0:07:05.520 we're losing the luxury of white sink. Have we lost 0:07:05.560 --> 0:07:06.520 that already? 0:07:06.960 --> 0:07:07.680 No? I think we have. 0:07:07.920 --> 0:07:10.880 Like I said last night, the headline numbers for the 0:07:10.960 --> 0:07:14.160 lay remark what we're seeing are okay, But it's like 0:07:14.160 --> 0:07:16.440 when you get underneath and start looking at the data, 0:07:16.600 --> 0:07:19.600 the private sector is not doing as well as everybody thinks. 0:07:19.640 --> 0:07:22.600 It is, like most of the half of the employment 0:07:22.640 --> 0:07:25.120 growth we saw last month was in the public sector, 0:07:25.680 --> 0:07:28.360 and that means the private sector is not doing particularly well. 0:07:28.480 --> 0:07:32.760 So I was just joking that, you know, if you're 0:07:32.800 --> 0:07:35.200 walking on a lake and the ice is frozen and 0:07:35.360 --> 0:07:38.400 sound safe, but when you start hearing cracks, and that's 0:07:38.440 --> 0:07:40.880 what I feel like, it's too late once you go 0:07:40.920 --> 0:07:43.160 through the ice. So you've got to start prepping in 0:07:43.200 --> 0:07:45.360 advance before you have that happen. 0:07:45.480 --> 0:07:47.160 How do you squan that with what we've had from 0:07:47.160 --> 0:07:50.920 Corporate America so far, what Coporate America has told Lisa 0:07:51.080 --> 0:07:53.600 sitting down with Skull Kebby, if you United headlines talking 0:07:53.600 --> 0:07:56.320 about a rebound in the second half, what we've had 0:07:56.320 --> 0:07:58.160 from the big banks so far this week, how do 0:07:58.160 --> 0:08:00.440 you scamb what you'll see in the data, what we're 0:08:00.480 --> 0:08:01.840 hearing from CEOs. 0:08:02.120 --> 0:08:03.880 Yeah, I mean when I talked to CEOs, I get 0:08:03.920 --> 0:08:07.000 the same thing. We're in just hold pattern in terms 0:08:07.000 --> 0:08:10.840 of certainly the labor market. They're not hiring, they're not firing, 0:08:10.840 --> 0:08:12.760 they're just watching. And that's kind of what you see 0:08:12.800 --> 0:08:16.080 in this underlying private sector data. There's not much happening, 0:08:16.440 --> 0:08:18.360 so it wouldn't take much sort of tippet. 0:08:18.880 --> 0:08:20.640 Now, could I be wrong? Absolutely? 0:08:20.760 --> 0:08:22.920 I mean last year we got a couple of week 0:08:23.320 --> 0:08:25.720 labor market reports allowed us to cut in September, and 0:08:25.760 --> 0:08:28.320 then everything kind of reversed and went back up. 0:08:28.800 --> 0:08:32.040 So I'm not saying that couldn't happen again. 0:08:32.559 --> 0:08:35.319 But it's just we've constantly seen little bits of day 0:08:35.440 --> 0:08:39.120 continually coming down the page book. Yesterday came out some 0:08:39.240 --> 0:08:41.520 other stuff that we get out of the Joelts quits. 0:08:41.320 --> 0:08:42.280 Rates, hiring rates. 0:08:42.280 --> 0:08:44.800 So these things are not indicating a super healthy private 0:08:44.840 --> 0:08:45.720 sector labor market. 0:08:45.800 --> 0:08:48.760 As you know, you're facing potentially and I stress, potentially 0:08:48.840 --> 0:08:51.880 negative supply shels on both sides of the mandate. I 0:08:51.920 --> 0:08:53.760 want to say, on the labor market, just for one 0:08:53.800 --> 0:08:57.199 further night, immigration, how are you thinking about that when 0:08:57.240 --> 0:08:58.760 you look at a labor market at the moment when 0:08:58.800 --> 0:09:01.000 we have people coming on the program on Blindbecks event 0:09:01.040 --> 0:09:03.600 and some bloomback TV every single morning six till nine 0:09:03.800 --> 0:09:06.839 coming on here and saying look at the data, unemployment 0:09:06.880 --> 0:09:09.320 could stand these levels even with jump gains of fifty 0:09:09.360 --> 0:09:12.319 to one hundred thousand because of tightst immigration. How does 0:09:12.360 --> 0:09:14.400 that factor into your thinking as you look at the 0:09:14.480 --> 0:09:15.360 US slip amoun kit. 0:09:15.559 --> 0:09:17.920 Well, yeah, the labor market doesn't necessarily have to be 0:09:18.080 --> 0:09:21.360 affected by it because if workers flow in and they 0:09:21.360 --> 0:09:24.360 get jobs at roughly the same rate as the existing workers, 0:09:24.360 --> 0:09:26.760 the unemployment rate doesn't change even though the labor force 0:09:26.800 --> 0:09:28.920 is higher. And when they go back out, the same 0:09:28.960 --> 0:09:31.679 thing happens. If they leave the employment and leave the 0:09:31.720 --> 0:09:35.160 labor force, you don't see a big change. The inflationing 0:09:35.440 --> 0:09:38.480 now can potentially affect the break even rate that. 0:09:38.480 --> 0:09:41.079 You would need to have the market going well. 0:09:41.480 --> 0:09:43.160 And that's why we're still trying to kind of get 0:09:43.320 --> 0:09:45.920 a sense of because you basically brought five years of 0:09:45.960 --> 0:09:50.200 immigration forward and you know, of that eight or nine million, 0:09:50.280 --> 0:09:53.080 most of them haven't disappeared. So they're still here somewhere, 0:09:53.520 --> 0:09:55.120 whether they're going to work, they're not going to work, 0:09:55.200 --> 0:09:58.480 but they're still here. I don't where I think the 0:09:58.520 --> 0:10:00.960 immigration stuff. If immigration it was a big factory, you'd 0:10:00.960 --> 0:10:04.120 be seeing shortages and you might see some in you know, 0:10:04.200 --> 0:10:07.680 some industries. But like I pointed out that if you 0:10:07.760 --> 0:10:13.800 look at the new college graduate unemployment rate, it's seven percent, it's. 0:10:13.800 --> 0:10:15.920 Much higher than it has These are not. 0:10:15.960 --> 0:10:20.400 Jobs are being opened up because immigrants are not coming in. 0:10:21.240 --> 0:10:23.320 That it should be just the opposite, if immigrants are 0:10:23.400 --> 0:10:25.719 leaving and these jobs are open, and then the ounemployment 0:10:25.760 --> 0:10:27.880 right should go the other way. So that unemployment rate, 0:10:27.920 --> 0:10:29.960 to me, is telling me the immigration is not the 0:10:30.000 --> 0:10:30.760 source of the problem. 0:10:31.040 --> 0:10:32.000 Firms are just. 0:10:32.400 --> 0:10:35.559 Holding off on hiring decisions even if their earnings are 0:10:35.559 --> 0:10:36.000 doing well. 0:10:36.080 --> 0:10:38.199 That's That's just what I'm saying they're doing on the 0:10:38.240 --> 0:10:38.679 labor side. 0:10:38.720 --> 0:10:40.160 I wanted to sign as a mutual friend of Oance. 0:10:40.200 --> 0:10:41.760 That feels like he's missing out this morning, so I 0:10:41.760 --> 0:10:42.880 wanted to catch show with you as well. 0:10:42.960 --> 0:10:45.120 Now he's out Victor Idom always having a good time, 0:10:45.200 --> 0:10:45.640 isn't it. 0:10:45.760 --> 0:10:47.640 My McKay joined us now, Good one to Mike. 0:10:50.040 --> 0:10:52.439 Good morning John, and good morning Governor Waller. I would say, 0:10:52.480 --> 0:10:54.319 I'm sorry I'm not there with you, But I bet 0:10:54.400 --> 0:10:56.200 you're sorry you're not here with me. I know you 0:10:56.320 --> 0:10:56.640 got it. 0:10:57.000 --> 0:10:58.800 I've been there before. It's a nice place. 0:11:01.559 --> 0:11:03.680 You've made the case now a couple of times for 0:11:03.920 --> 0:11:07.559 a July rate cut, But how committed are you? Are 0:11:07.559 --> 0:11:10.400 you willing to dissent at this meeting if the majority 0:11:10.480 --> 0:11:11.200 votes the other way. 0:11:11.880 --> 0:11:14.440 Well, I never want to commit to an action before 0:11:14.480 --> 0:11:17.440 the meeting. Otherwise, if everybody committed before, you don't even 0:11:17.440 --> 0:11:20.520 need to have the meeting have a discussion. So the 0:11:20.559 --> 0:11:22.760 goal is to always go to the meeting, sit down, 0:11:22.960 --> 0:11:24.000 listen to all sides. 0:11:24.679 --> 0:11:26.320 People will try to convince me of their view. 0:11:26.360 --> 0:11:28.800 I'll try to convince some of my views, and in 0:11:28.920 --> 0:11:30.760 the end of the day, you make the decisions on 0:11:30.800 --> 0:11:34.480 what you think is the right outcome and the right data, 0:11:35.360 --> 0:11:37.439 how the data is coming in and right now I 0:11:37.520 --> 0:11:39.400 laid out my case last I don't think I could 0:11:39.400 --> 0:11:42.200 be any more clear, I hope, as to what my 0:11:42.240 --> 0:11:44.760 position is and why I think we need to do this. 0:11:45.000 --> 0:11:47.200 It's just how I read the data and how I 0:11:47.240 --> 0:11:49.880 think about going forward. How you respond to anything that 0:11:49.920 --> 0:11:50.920 involves tariffs. 0:11:53.880 --> 0:11:56.719 There's a lot of politics in this decision coming up, 0:11:58.000 --> 0:12:01.960 more than usual, and I'm wondering. Governor Bowman has also 0:12:02.080 --> 0:12:05.480 suggested she would prefer a rate cut in July. If 0:12:05.520 --> 0:12:08.480 two of you vote for a rate cut, if two 0:12:08.480 --> 0:12:10.840 of you were to descend, would you worry about the 0:12:10.880 --> 0:12:12.040 market reaction to that? 0:12:13.200 --> 0:12:13.440 You know. 0:12:13.559 --> 0:12:15.400 One of the things that has always bothered me since 0:12:15.400 --> 0:12:17.600 I took this job is the criticism that we are 0:12:17.679 --> 0:12:20.760 nothing but group think. All the meanings are the same, 0:12:20.920 --> 0:12:25.160 nobody does sense, nobody does anything, And I think this 0:12:25.240 --> 0:12:27.360 is healthy. I think this is a turning point in 0:12:27.400 --> 0:12:30.120 the way we want to think about policy. Some people 0:12:30.160 --> 0:12:32.200 don't want to cut, some do want to cut, but 0:12:32.800 --> 0:12:36.280 coming out and making the case either side, that's good 0:12:36.320 --> 0:12:38.800 healthy debate. Otherwise, if we're always going to do the same, 0:12:38.880 --> 0:12:40.880 the joke is, why don't you just have one person 0:12:40.920 --> 0:12:43.720 set policy and some of the other eighteen FMC members home. 0:12:44.320 --> 0:12:46.000 So this is healthy. I think this is what you 0:12:46.040 --> 0:12:47.840 want to see in a democracy. You want to see 0:12:47.880 --> 0:12:51.880 policy makers have serious, open discussion about where policies should go. 0:12:52.120 --> 0:12:54.520 It doesn't mean anything about politics or anything else. Is 0:12:54.800 --> 0:12:57.520 make the economic argument and then see if you can 0:12:57.520 --> 0:12:58.880 convince others to go along with you. 0:12:59.000 --> 0:12:59.920 And that's all I'm trying to do. 0:13:00.000 --> 0:13:02.679 We totally agree with you for the re code. We 0:13:02.720 --> 0:13:04.000 was sick of the grief think and it's good to 0:13:04.000 --> 0:13:06.280 have descent, you know. Mike essentially is asking if you 0:13:06.320 --> 0:13:08.160 will descent at the end of this month. Is there 0:13:08.240 --> 0:13:10.559 value and dissentic on the f web site. 0:13:11.120 --> 0:13:15.160 Well, I mean it's it's often the case that you dissent, 0:13:15.320 --> 0:13:17.640 if you make it very clear you think, at this 0:13:17.720 --> 0:13:19.800 moment in time, this is an important thing to do. 0:13:20.520 --> 0:13:22.319 If you were to go in and do kind of 0:13:22.400 --> 0:13:25.240 a jihadist I'm gonna dissent at every single meeting no 0:13:25.280 --> 0:13:26.200 matter what happens. 0:13:26.280 --> 0:13:28.480 Then you don't even have to show up. Everybody knows 0:13:28.520 --> 0:13:29.200 what you're gonna do. 0:13:29.880 --> 0:13:34.200 So it is important to make sure that if you dissent, 0:13:34.400 --> 0:13:37.960 you do it carefully and you have the right reasons, 0:13:38.320 --> 0:13:41.600 and it's not gonna turn into a serial dissenting potential case. 0:13:42.080 --> 0:13:44.920 I mean, that's how I take my job seriously and responsibly, 0:13:45.120 --> 0:13:47.640 so I only would think about doing this. I dissented 0:13:47.640 --> 0:13:50.040 on the balance sheet slowed down earlier this year because 0:13:50.080 --> 0:13:54.079 I felt like that was not needed. And that's kind 0:13:54.120 --> 0:13:55.319 of the situation we're in now. 0:13:59.360 --> 0:14:03.920 Uh, if you do cut, the markets will go one way. 0:14:03.960 --> 0:14:08.920 If you don't, they'll go another. Perhaps, are how critical 0:14:09.040 --> 0:14:12.320 is it to get to a rate cut fairly quickly? 0:14:12.360 --> 0:14:14.800 You've mentioned the danger to the labor market, But if 0:14:14.800 --> 0:14:17.400 you do wait till September, is that going to be 0:14:17.480 --> 0:14:17.960 too late? 0:14:18.600 --> 0:14:21.720 Well that's kind of the debate. What does it mean 0:14:21.840 --> 0:14:25.800 to wait six weeks. Is it that critical? And the 0:14:25.880 --> 0:14:28.360 answer is probably not. It could be, but it's also 0:14:28.400 --> 0:14:31.920 the reverse. Why wait till September? If it's just six weeks, 0:14:32.560 --> 0:14:35.680 that's exactly the thing. It doesn't kind of matter. Just 0:14:35.720 --> 0:14:37.960 start thinking about do I want to wait and risk 0:14:38.040 --> 0:14:40.400 something happening. This is what we saw last summer. By 0:14:40.440 --> 0:14:44.120 the way we left July, we left rates and then boom, 0:14:44.160 --> 0:14:48.360 we got a very weak bad labor market. Reports and 0:14:48.480 --> 0:14:51.960 unemployment rate jumped two tenths. Payrolls were way down from 0:14:51.960 --> 0:14:54.760 where they were, and people were screaming at us last August. 0:14:54.800 --> 0:14:58.040 You guys should have cut in July. So one month? 0:14:58.120 --> 0:15:01.080 Can it always is one month? Just remember that it's 0:15:01.120 --> 0:15:03.120 just one month. But we live in a world in 0:15:03.160 --> 0:15:05.280 which we have to respond to real time data to 0:15:05.360 --> 0:15:07.840 kind of sense of where the economy is going. And 0:15:08.080 --> 0:15:10.920 I've always said, if you worry about long and variable lags, 0:15:10.920 --> 0:15:14.040 which everybody always talks about, the whole point of that is. 0:15:14.000 --> 0:15:16.560 To get ahead of it, not wait for it to happen. 0:15:16.280 --> 0:15:19.640 And then hike a policy action that takes quarters or 0:15:19.680 --> 0:15:21.320 months down the road to actually. 0:15:21.040 --> 0:15:21.800 Have any impact. 0:15:21.960 --> 0:15:24.240 The new worries tariffs, We've just had a six minute 0:15:24.240 --> 0:15:26.120 conversation with you at that month. As your policy if 0:15:26.160 --> 0:15:27.640 built a case for lot of interest rights and no 0:15:27.640 --> 0:15:30.720 one's talked about trade or inflation. Two assumptions in your 0:15:30.720 --> 0:15:33.520 speech yesterday, and I think they are important assumptions. A 0:15:33.600 --> 0:15:36.400 large share of tariff increases won't be past threates consumers. 0:15:37.280 --> 0:15:40.320 Any increase would fink over the next yeeroside. What data 0:15:40.400 --> 0:15:41.960 underpinds that conclusion. 0:15:42.520 --> 0:15:46.120 Well, one, it's just first, it's just economic theory. So 0:15:46.400 --> 0:15:48.560 you put on a care as long as it's a 0:15:48.560 --> 0:15:52.000 one time tariff, and that's it. That's a one time 0:15:52.000 --> 0:15:54.160 price effect. I mean, this is economic theory. You could 0:15:54.240 --> 0:15:58.880 not get in any serious economic model persistent inflation from that. 0:15:59.240 --> 0:16:02.720 You would have to look up some other amplification mechanisms, 0:16:02.760 --> 0:16:04.760 and that's what people talk about. Wages will start going 0:16:04.840 --> 0:16:06.400 up and everything will get out of control. 0:16:06.920 --> 0:16:08.200 You're not seeing that at all. 0:16:08.320 --> 0:16:11.200 This is just not those kind of amplification mechanism there. 0:16:11.280 --> 0:16:17.280 Wage price spirals aren't happening. Tariffs are attacks, and in 0:16:17.360 --> 0:16:20.640 public finance you learn that you may levy attacks on 0:16:20.680 --> 0:16:22.520 a firm, but who bears the incidents? 0:16:22.880 --> 0:16:24.400 The burden of that tax. 0:16:24.520 --> 0:16:27.920 Can be a group of people or one person, not 0:16:28.120 --> 0:16:30.400 shore of the firm. So this is what I've heard 0:16:30.440 --> 0:16:32.680 from a lot of firms. If there's a ten percent tax, 0:16:33.120 --> 0:16:35.960 they'll force their suppliers to eat some of that cost 0:16:36.120 --> 0:16:38.680 workers meet some of that costs in terms of less 0:16:38.760 --> 0:16:41.280 hiring and things like that. The firm will take it 0:16:41.320 --> 0:16:44.480 out of their profit margins, and then lastly, some of 0:16:44.520 --> 0:16:47.120 it will get passed on. And as I mentioned last night, 0:16:47.120 --> 0:16:49.560 I've heard this for months now. Like the rule is 0:16:49.640 --> 0:16:52.120 ten percent, it's sorefully rule. If i'mb is a third 0:16:52.160 --> 0:16:55.560 to third a third suppliers of late to third firms 0:16:55.680 --> 0:16:57.400 lead to third consumer is going to eat a third 0:16:57.400 --> 0:16:59.760 of that tariff. So if you eat a third of it, 0:16:59.800 --> 0:17:02.200 and that's ten percent, like I've been arguing, this is 0:17:02.240 --> 0:17:06.280 like three tenths of a in three basic three tenths 0:17:06.320 --> 0:17:09.840 on the inflation rate for a few months, and that's it, 0:17:10.680 --> 0:17:13.080 and it'll persist. If you do twelve month over twelve month, 0:17:13.160 --> 0:17:15.440 that base effect will not go away for a while 0:17:15.440 --> 0:17:17.760 and then it'll just drop off a cliff. So that's 0:17:17.800 --> 0:17:19.199 why I've been arguing, you want to look at like 0:17:19.240 --> 0:17:22.520 three months and six months to see if these tariff effects. 0:17:22.640 --> 0:17:25.159 Pop up, and then go away, and so that's more 0:17:25.160 --> 0:17:26.560 than critical. We're looking at twelve month. 0:17:29.960 --> 0:17:32.520 Yes, but the way the president is putting these tariffs 0:17:32.560 --> 0:17:36.240 on might not match up with theory. Chris, the smooth 0:17:36.280 --> 0:17:38.919 hol attacks was passed and came into effect on a 0:17:38.920 --> 0:17:43.120 certain date. The president is not yet put on most 0:17:43.160 --> 0:17:45.439 of these tarffs they're in. Theory is still coming and 0:17:45.480 --> 0:17:47.960 we still haven't seen the Section two thirty two tariffs 0:17:47.960 --> 0:17:50.280 for the most part, the National defense tariffs that he 0:17:50.280 --> 0:17:53.560 wants to put on semiconductors and pharmaceuticals, et cetera. So 0:17:53.600 --> 0:17:57.000 if the process is stretched out, consumers could be hit 0:17:57.160 --> 0:18:00.800 by a series an ongoing series of tariff increases. And 0:18:00.840 --> 0:18:03.639 given what they've just been through, isn't there danger that 0:18:03.760 --> 0:18:05.960 inflation psychology starts to seep in? 0:18:06.600 --> 0:18:07.960 Well, that's exactly the point. 0:18:08.560 --> 0:18:10.520 All my example has been is if you put the 0:18:10.560 --> 0:18:13.119 ten percent uniform tariff on and keep it roughly in 0:18:13.200 --> 0:18:16.760 that range, than what I've described as will happen. If 0:18:16.800 --> 0:18:20.480 there's constantly a sequence of higher and higher and higher tariffs, 0:18:20.520 --> 0:18:23.719 then you are going to get this rolling potential impact 0:18:23.800 --> 0:18:25.399 on prices. 0:18:24.720 --> 0:18:26.160 That's true. 0:18:27.000 --> 0:18:30.120 If it's still just a question of delaying it, that 0:18:30.160 --> 0:18:32.879 doesn't change my argument. Whether you see the spike in 0:18:32.960 --> 0:18:36.680 July or it happens in June or Army, August or September. 0:18:37.240 --> 0:18:40.680 When it happens is irrelevant for the economics. 0:18:40.720 --> 0:18:42.560 That's a non start of an argument. 0:18:43.359 --> 0:18:46.280 Firms could also just spread it out in smaller increments 0:18:46.280 --> 0:18:49.000 over several months. The total effects still ends of being 0:18:49.000 --> 0:18:51.480 the same. They just get there in a later fashion 0:18:51.520 --> 0:18:54.359 and it'll be smaller amounts. So the bigger thing is 0:18:54.359 --> 0:18:57.000 if we just continually get another wave of tariffs, another 0:18:57.000 --> 0:18:59.800 wave of tariffs and other waves of tariffs, that's when 0:18:59.800 --> 0:19:02.600 things has become more problematic thinking about what's going to 0:19:02.640 --> 0:19:03.480 happen with the inflation. 0:19:03.760 --> 0:19:05.679 You don't think the feder was a should wait, I 0:19:05.720 --> 0:19:07.520 just want to talk about the experience of last year. 0:19:07.680 --> 0:19:09.639 I think LESA has done a fantastic job of covering 0:19:09.640 --> 0:19:12.240 this over the last six seven eight months. The move 0:19:12.280 --> 0:19:14.720 we saw last year one hundred basis point reduction in 0:19:14.720 --> 0:19:17.040 interest rates on Fed funds, and then we saw a 0:19:17.080 --> 0:19:20.320 corresponding move one hundred basis points higher at the long 0:19:20.400 --> 0:19:23.800 end of the yield curve. Yields down did not happen. 0:19:23.960 --> 0:19:26.280 It was yields up and mortgage costs up as well. 0:19:26.359 --> 0:19:29.040 How do you think one informed the other and how 0:19:29.119 --> 0:19:31.120 might that shape your approach to kind of interest rates 0:19:31.119 --> 0:19:32.080 this time around? 0:19:32.320 --> 0:19:34.240 Well, I think last September there was a lot of 0:19:34.240 --> 0:19:37.960 Remember the long term rates were going down through August 0:19:38.080 --> 0:19:42.280 in early September. This was not any contradiction of what 0:19:42.320 --> 0:19:45.320