WEBVTT - Surveillance: Oil Demand with Morse 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferroll and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.800 --> 0:00:23.560 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot 0:00:23.560 --> 0:00:30.560 com and of course on the Bloomberg terminal. Joining us 0:00:30.600 --> 0:00:34.120 now for three hour conversation. I just Dr Morris joins 0:00:34.159 --> 0:00:36.040 his global head have come out of the research at 0:00:36.080 --> 0:00:39.880 City Group and truly expert on taking the global reach 0:00:40.159 --> 0:00:43.800 of our oil politics and crossing over to the micro 0:00:43.960 --> 0:00:47.199 economics at Emerita. Sent was just talking about and I 0:00:47.200 --> 0:00:49.680 don't want to talk about the martiality and cross and 0:00:49.720 --> 0:00:55.360 fancy micromumbo jumbo of supply and demand. The arch guess 0:00:56.120 --> 0:01:02.080 is the measurement of global recession again, the marginal emerging 0:01:02.120 --> 0:01:06.240 to market demand is the e M and Pacific RIM 0:01:06.400 --> 0:01:11.000 come out of COVID. Those are two titanic forces who 0:01:11.000 --> 0:01:16.440 will win global recession price down or burgeoning e M 0:01:16.520 --> 0:01:22.000 demand price up. I think it's the macro environment that wins. 0:01:22.440 --> 0:01:26.200 And actually we don't see the burgeoning the burgeoning demand 0:01:26.240 --> 0:01:28.800 coming out of China. There's a return to be sure, 0:01:28.840 --> 0:01:32.240 But we have to remember that while China was cutting 0:01:32.240 --> 0:01:34.320 off about a million barrels a day of oil and 0:01:34.440 --> 0:01:37.480 real demand, they were importing a record amount of oil. 0:01:37.920 --> 0:01:40.319 They were stockpiling, and that had an impact on the 0:01:40.319 --> 0:01:43.360 global market. We had our inventory drawing, they had their 0:01:43.400 --> 0:01:49.000 inventory building. I don't see the international implications of Chinese 0:01:49.040 --> 0:01:53.080 recovery having much of an impact on the global setting. Well, 0:01:53.120 --> 0:01:55.880 if that is the case, what are you watching is 0:01:55.920 --> 0:02:00.000 the dynamic that drives oil, as Emerita said, down to nine, 0:02:00.120 --> 0:02:03.120 the are you suggest even lower? What is the single 0:02:03.200 --> 0:02:07.720 distinction right now that drives us to that shock? I 0:02:07.760 --> 0:02:10.000 don't know whether there's a single distinction. I think it's 0:02:10.040 --> 0:02:13.440 called both supply and demand. So I think there's another 0:02:13.520 --> 0:02:16.639 view of supply that a Marita has not talked about. 0:02:17.040 --> 0:02:19.840 We see over two million barrels a day of Western 0:02:19.880 --> 0:02:23.840 Hemisphere growth this year, including a million three out of 0:02:23.840 --> 0:02:26.519 the United States. The US is already up a million 0:02:26.560 --> 0:02:28.960 barrels a day year on year. Canada looks for sure 0:02:29.280 --> 0:02:31.640 to be up three hundred thousand barrels a day, Mexico 0:02:31.800 --> 0:02:35.080 up on a hundred a day, uh Brazil up a 0:02:35.080 --> 0:02:37.240 couple of hundred a day, Argentina is up more than 0:02:37.280 --> 0:02:40.360 people thought then, as well as even up three hundred 0:02:40.360 --> 0:02:43.080 thousand a day year on year. So we think if 0:02:43.120 --> 0:02:46.040 you look closely at supply, it really is growing and 0:02:46.080 --> 0:02:48.680 it's accelerating as we move from here to the end 0:02:48.680 --> 0:02:51.280 of December. Your scenario work on a recession end got 0:02:51.280 --> 0:02:53.320 a ton of attention in the last couple of days. 0:02:53.360 --> 0:02:55.720 Can you help me understand what's behind that word recession? 0:02:56.160 --> 0:02:58.359 To you? What is that word? What does it mean? 0:02:58.400 --> 0:03:00.200 What kind of numbers are you thinking about? The US 0:03:00.240 --> 0:03:02.480 down to say forty five by the end of twenty three, 0:03:02.600 --> 0:03:05.960 sixty five by year end. So it really is on 0:03:06.000 --> 0:03:08.760 the why demand balance a drag on the demand side. 0:03:09.320 --> 0:03:12.680 Almost everybody has reduced their expectations of demand for the year. 0:03:13.000 --> 0:03:15.320 We reduced Stars by about a million, two hundred thousand 0:03:15.400 --> 0:03:18.079 meryls a day. We're at the two point four two 0:03:18.080 --> 0:03:21.120 point five million Barladay level. That's similar to where the 0:03:21.120 --> 0:03:22.760 E I A and the I A are and I 0:03:22.800 --> 0:03:26.160 expect that we'll be seeing further downward revisions in demand. 0:03:26.480 --> 0:03:29.520 Demand is simply not growing on an empirical basis to 0:03:29.600 --> 0:03:32.120 the greed that people had expected, and we've seen that 0:03:32.240 --> 0:03:35.200 US demand is down. And there was a Bloomberg quote 0:03:35.440 --> 0:03:39.000 yesterday that to somebody at Bloomberg saw demand as low 0:03:39.040 --> 0:03:41.400 as it was in fourteen. We think you've got to 0:03:41.440 --> 0:03:44.680 go back to thirteen to see demand at the levels 0:03:44.680 --> 0:03:47.280 that we're now seeing when it comes to transport fuels 0:03:47.320 --> 0:03:51.080 like diesel and gasoline. Uh. And if if the movement 0:03:51.120 --> 0:03:52.920 is going to be anywhere, it's gonna be downward. We're 0:03:52.960 --> 0:03:55.120 not gonna see. There's no evidence that we're going to 0:03:55.200 --> 0:03:58.440 see this summer surge in driving and summer surgeon demand. 0:03:58.480 --> 0:04:02.720 The price is too hot as it was. Uh. And 0:04:02.800 --> 0:04:06.640 that's a force in looking at global g d P 0:04:07.200 --> 0:04:09.760 from the perspective of one of the countries that's growing 0:04:09.760 --> 0:04:12.960 the fastest and has the most robust growth. The demand 0:04:13.040 --> 0:04:15.840 simply isn't there as people have thought. But if it's 0:04:15.880 --> 0:04:18.840 not an outright recession, if it's just growth that slows 0:04:18.880 --> 0:04:21.640 back toward trend, which is the case of some people 0:04:21.760 --> 0:04:25.560 out there, at how does that change the demand picture? 0:04:25.680 --> 0:04:30.320 What are we talking about then? If it's not sixty, well, 0:04:30.360 --> 0:04:33.120 we're talking about just our base case, and we still 0:04:33.160 --> 0:04:36.960 have recession at lower than but we're thinking in our 0:04:37.000 --> 0:04:39.200 base case, said oil is gonna go down to eighty five. 0:04:39.640 --> 0:04:42.400 And that's looking at it purely on a supply demand basis, 0:04:42.720 --> 0:04:46.279 looking at what the headwinds have been in the talent winds. 0:04:46.279 --> 0:04:50.880 We've had a lot of challenge underlying where oil prices 0:04:50.880 --> 0:04:53.320 have been. We might have some moral We don't know 0:04:53.360 --> 0:04:54.839 what the summer weather is going to be. It could 0:04:54.839 --> 0:04:57.719 be a very volatile period of time. But we're looking 0:04:57.800 --> 0:05:02.719 at a supply demand balance that's seeing inventory builds from 0:05:02.760 --> 0:05:05.119 here to the end of the year. And that's that's 0:05:05.160 --> 0:05:09.680 based on a uh, you know, purely empirical analysis of 0:05:09.720 --> 0:05:15.000 where we see kind of probability of supply. We don't 0:05:15.040 --> 0:05:17.640 know what's going to happen to Iranian supply. We don't 0:05:17.640 --> 0:05:20.080 know what's going to happen to Russian supply. By so far, 0:05:20.240 --> 0:05:23.400 Russian exports into the market have been higher than people 0:05:23.400 --> 0:05:26.320 have anticipated. And hire what the historical trend was a 0:05:26.400 --> 0:05:29.280 year ago. And this was a fascinating breed. Thanks for 0:05:29.320 --> 0:05:31.200 giving us some of your time this morning at a 0:05:31.279 --> 0:05:34.919 timely conversation too. After briefly look at it a handle 0:05:35.160 --> 0:05:36.960 on w T and I've said most of city life 0:05:41.839 --> 0:05:44.839 right now on fixed income. Kelsey Barrow joins US fixed 0:05:44.880 --> 0:05:48.680 income portfolio manager JP Morgan asset manage and putting real 0:05:48.680 --> 0:05:53.440 money to work. I believe it's price up, yield down. 0:05:54.480 --> 0:05:57.880 If on the first order condition of inflation coming in, 0:05:58.080 --> 0:06:01.919 how will bonds react and where is the opportunity to 0:06:02.000 --> 0:06:06.200 go from nine to say seven percent inflation? Yeah, So 0:06:06.320 --> 0:06:08.840 what we've been noticing in the market, and there has 0:06:08.839 --> 0:06:12.080 been incredible volatility in the inflation markets and in the 0:06:12.080 --> 0:06:15.680 bond markets recently, is that there has been a repricing 0:06:15.800 --> 0:06:19.120 of inflation, particularly when you look at the one year 0:06:19.160 --> 0:06:21.719 one year inflation swaps. So what the market expects not 0:06:21.800 --> 0:06:24.800 for this year, but for next year. It's erased all 0:06:24.880 --> 0:06:28.080 of that inflation risk premium that got baked into the 0:06:28.080 --> 0:06:31.039 market as a result of the invasion of Ukraine and 0:06:31.160 --> 0:06:33.679 all of the upside inflation that we've been talking about 0:06:33.720 --> 0:06:37.200 for essentially half a year um. And so what we're 0:06:37.320 --> 0:06:40.520 trying to debate right now is is this a true 0:06:40.600 --> 0:06:44.360 signal that inflation is going to decelerate or is the 0:06:44.400 --> 0:06:47.320 Fed actually going to need to continue to press because 0:06:47.360 --> 0:06:50.719 the data they're looking at actually is not showing any 0:06:50.800 --> 0:06:54.160 signal yet that they need to stop hiking rate. How 0:06:54.160 --> 0:06:57.960 do you use versus Chasmin and Michael Faroli's work, particularly 0:06:57.960 --> 0:07:00.839 on the labor economy. For only puts at it on 0:07:00.839 --> 0:07:03.360 the Weekly Prospects of Son on page one. He's got 0:07:03.360 --> 0:07:06.000 a buried on page seven where he's talking about the 0:07:06.040 --> 0:07:08.719 labor dynamics of the United States. How do you fold 0:07:08.800 --> 0:07:12.560 the labor question that John Farrell just mentioned into what 0:07:12.640 --> 0:07:15.040 yield and price are going to do? Yeah, well, the 0:07:15.120 --> 0:07:17.520 labor market is still very strong, and it does paint 0:07:17.520 --> 0:07:20.280 a very confusing picture. You have g d P which 0:07:20.320 --> 0:07:22.640 is weak. You have the Atlanta FED which is tracking 0:07:22.640 --> 0:07:25.240 at minus two percent. Now a lot of that is 0:07:25.280 --> 0:07:29.080 not necessarily organically driven. There's a two hundred basis point 0:07:29.160 --> 0:07:33.480 detraction in that in that forecast from inventories. But really 0:07:33.640 --> 0:07:35.840 what we look at in terms of are we in 0:07:35.840 --> 0:07:39.080 a recession is are we seeing the unemployment rate rise? 0:07:39.480 --> 0:07:43.080 And is nominal income falling? And neither of those things 0:07:43.120 --> 0:07:45.960 are happening. And to get the unemployment rate to rise 0:07:46.040 --> 0:07:48.400 this year, you're going to need to see a material 0:07:48.520 --> 0:07:52.400 deceleration payroll's growth, which is not what we're expecting. In fact, 0:07:52.480 --> 0:07:54.240 just to get it back to four percent by the 0:07:54.320 --> 0:07:58.040 end of the year, you would need fifteen job loss 0:07:58.160 --> 0:08:00.320 on average for the next seven months to get there, 0:08:00.520 --> 0:08:04.360 So we're not in that environment yet. Jobless claims is 0:08:04.400 --> 0:08:07.280 what we're watching to see if that's checking up. For now, 0:08:07.320 --> 0:08:09.600 the unemployment rate is on the decline. Never in my 0:08:09.760 --> 0:08:13.480 career have we hoped for job loss like It's honest, 0:08:13.680 --> 0:08:15.840 Lets be clear, I'm not sure Calcy is hoping for that. 0:08:16.120 --> 0:08:19.600 I'm not hoping for Ultimately, when you look at the 0:08:19.880 --> 0:08:22.320 tragetory of things, there is a belief that's what they're 0:08:22.320 --> 0:08:24.240 trying to engineer to take some of the heat out 0:08:24.240 --> 0:08:27.160 of this labor market, and there will be consequences. Unfortunately, 0:08:27.160 --> 0:08:29.440 this is how this works, CALSE. So we're trying to 0:08:29.520 --> 0:08:32.560 understand how much pain they're wanting tolerate, how far they 0:08:32.640 --> 0:08:34.720 wanted to push it, and what business The two year 0:08:34.760 --> 0:08:36.880 has at two eddy two if you think it's Fed 0:08:37.080 --> 0:08:40.920 cameras on hiking. So the two year yield right now 0:08:41.000 --> 0:08:43.920 is actually inverted to what the market expects the Fed 0:08:43.960 --> 0:08:46.360 funds rate to be in just three months time. So 0:08:46.559 --> 0:08:49.200 the market is really pushing the Fed right now and 0:08:49.240 --> 0:08:52.679 saying how much longer is this rate hiking cycle going 0:08:52.720 --> 0:08:56.280 to last? And in our view, it's going to last 0:08:56.400 --> 0:09:00.120 for a bit longer. Uh, it's not yet time for 0:09:00.160 --> 0:09:03.959 the Fed to us say that they've accomplished their missmission. 0:09:04.120 --> 0:09:07.480 Even with inflation expectations in the market declining, we do 0:09:07.600 --> 0:09:09.960 expect that the Fed will hike grade seventy five basis 0:09:09.960 --> 0:09:12.840 points in July. We expect them to hike another fifty 0:09:12.920 --> 0:09:14.920 And by the way, right now, the market is not 0:09:15.000 --> 0:09:18.360 even pricing in a full rate hike for December. We 0:09:18.400 --> 0:09:21.440 think that the market is getting just a bit, uh, 0:09:21.520 --> 0:09:24.199 going a bit overshot here in terms of the two 0:09:24.280 --> 0:09:27.400 year yield um, and it should be going higher. Well, 0:09:27.440 --> 0:09:29.600 I heard something similar for pre Amiser over at TV 0:09:29.720 --> 0:09:33.440 Securities earlier this morning, saying, essentially, inflation is still the problem, 0:09:33.440 --> 0:09:35.880 and the problem is going to stick around. Therefore, expect 0:09:35.880 --> 0:09:38.520 the Fed to stay the course and be more aggressive. 0:09:38.600 --> 0:09:40.720 She said. What all that leads to is a yield 0:09:40.800 --> 0:09:43.960 curve that is going to become even more deeply inverted. 0:09:44.040 --> 0:09:46.400 Is that the same camp you're in, Kelsey. We've been 0:09:46.440 --> 0:09:50.040 expecting the yield curve to invert. It has been inverting. 0:09:50.120 --> 0:09:52.560 Different parts of the yield curve have been inverting at 0:09:52.600 --> 0:09:56.040 different times. Right now we're seeing the belly lead in 0:09:56.080 --> 0:09:59.000 the inversion. So the five to tenure point is what 0:09:59.000 --> 0:10:02.720 what is leading, and that's because the market is is 0:10:02.800 --> 0:10:05.560 testing the FED again. They're testing the FED and saying 0:10:05.800 --> 0:10:08.880 can you really go through with this, particularly as the 0:10:08.960 --> 0:10:13.200 growth signals are really decelerating, and we noticed that the 0:10:13.360 --> 0:10:17.240 growth data that's been released more recently really is showing 0:10:17.240 --> 0:10:20.280 more of a deceleration than I think people thought that 0:10:20.360 --> 0:10:23.080 third revision to Q one GDP. I mean, no one 0:10:23.200 --> 0:10:25.520 looks at the third revision to Q on GDP. It 0:10:25.640 --> 0:10:30.520 showed really meaningful deceleration in services spending. And we need 0:10:30.559 --> 0:10:33.120 to be careful because we know that the consumer is 0:10:33.160 --> 0:10:36.199 this primary engine of growth and they're not as on 0:10:36.320 --> 0:10:39.360 as strong footing as we originally anticipated. I don't remember 0:10:39.400 --> 0:10:42.040 when we tried it on. Expectations have been fly ship 0:10:42.160 --> 0:10:45.360 and you Mitch either and here we are so confusing 0:10:45.400 --> 0:10:47.480 to me, I need to squeeze this in councy. It's 0:10:47.480 --> 0:10:50.720 just the final question. High spreads have been widened out 0:10:50.960 --> 0:10:55.080 for five straight sessions three. You and Bud Michael worked 0:10:55.080 --> 0:10:57.280 closely with each other. I just want to understand from 0:10:57.440 --> 0:10:59.760 from you and the team. Has that got interesting yet 0:10:59.800 --> 0:11:03.040 for you? It's a bit of a Noman's land right now, 0:11:03.120 --> 0:11:08.280 because spreads are too narrow if we are expecting a 0:11:08.320 --> 0:11:12.160 full blown recession, but they're probably too wide if we're 0:11:12.160 --> 0:11:15.000 going to escape recession. But in the longer term, we 0:11:15.040 --> 0:11:18.400 do think fundamentals in the corporate in the high old 0:11:18.440 --> 0:11:21.800 market are actually much better than they have been going 0:11:21.840 --> 0:11:25.320 into previous recessions. So if you think about it and 0:11:25.360 --> 0:11:28.880 think about defaults, defaults peaked around ten percent in the 0:11:29.000 --> 0:11:32.120 last in the Great Financial Crisis, we don't think they're 0:11:32.120 --> 0:11:34.640 going to peek at nearly as high as a rate 0:11:34.960 --> 0:11:37.680 and around six d basis points on spread that's already 0:11:37.679 --> 0:11:40.000 pricing in around a six percent to fault rate on 0:11:40.040 --> 0:11:43.880 a thirty five percent recovery rate. So actually a lot 0:11:44.080 --> 0:11:48.040 is priced in the market is considering a modest amount 0:11:48.040 --> 0:11:52.760 of default risk. But unfortunately the markets do tend to overshoot, 0:11:53.000 --> 0:11:55.480 and so it is possible that you continue to get 0:11:55.520 --> 0:11:58.000 that spread widening that goes beyond what we think is 0:11:58.000 --> 0:12:05.120 probably justify based on our default expectations in this next downturn. Kelsey, 0:12:05.160 --> 0:12:14.760 thank you so much greatly. He was at Barclays and 0:12:14.800 --> 0:12:18.920 he was absolutely brilliant, so brilliant, brilliant. He went off 0:12:18.960 --> 0:12:20.920 to point seventy two, where he has to watch the 0:12:20.960 --> 0:12:24.040 New York Mets. D. Mackie joins US now Chief Economists 0:12:24.080 --> 0:12:28.000 dead point seventy two on a very changed global economy, 0:12:28.360 --> 0:12:32.600 a very changed United States economy as well. Dean, what's 0:12:32.640 --> 0:12:35.360 great about your Stanford economics as you go to the 0:12:35.360 --> 0:12:39.680 micro data and you go traditional old school and say 0:12:39.920 --> 0:12:46.200 we must watch jobless claims. We'll see them tomorrow. Define 0:12:46.240 --> 0:12:52.520 surging jobless claims. Surging jobless claims would be a rise 0:12:52.640 --> 0:12:57.320 of in a fairly short amount of time. Uh. And 0:12:57.800 --> 0:13:00.360 you know, so far we've gone up, maybe from the 0:13:00.480 --> 0:13:03.760 very bottom. So right now I think we can confidently 0:13:03.800 --> 0:13:07.880 say we're not currently in a recession. Um and because 0:13:07.920 --> 0:13:11.040 that always happens in recession, jobless claimed surge, the unemployment 0:13:11.120 --> 0:13:14.960 rate surges, payroll growth declines. None of that's happening right now. 0:13:15.280 --> 0:13:17.439 It's not saying it won't happen at some point late 0:13:17.520 --> 0:13:20.640 this year, for example, but we can say what's happening 0:13:20.760 --> 0:13:24.040 right now with measures like that. The troops went out 0:13:24.040 --> 0:13:28.280 to the Hoover Institution of Stanford and they talked about 0:13:28.559 --> 0:13:31.880 regime change out of Bullard in this new word that's 0:13:31.920 --> 0:13:36.280 out there frontloading, Dean Mackie, If we front load our 0:13:36.400 --> 0:13:40.920 rate rises, what will that do to the real economy 0:13:40.960 --> 0:13:45.400 that wraps around labor. I think it depends how much 0:13:45.480 --> 0:13:49.240 frontloading they actually do. Um. You know. I think what 0:13:49.280 --> 0:13:52.160 we can say is, if the FED keeps going seventy 0:13:52.200 --> 0:13:54.960 five basis points a clip for an indefinite period, we 0:13:55.000 --> 0:13:57.920 will have a recession soon. Um So, so really it 0:13:58.000 --> 0:14:00.520 depends what the Fed means by that, you know. I 0:14:00.520 --> 0:14:02.920 think what we've been hearing and what we're seeing the 0:14:03.000 --> 0:14:05.920 dot plot is something like another seventy five and July, 0:14:06.080 --> 0:14:08.480 maybe a fifty and September, and then twenty five per 0:14:08.520 --> 0:14:11.120 meeting after that. If we do that, then I think 0:14:11.440 --> 0:14:14.240 the economy can stick day in a slowdown mode and 0:14:14.360 --> 0:14:17.000 not slip into recession. But if the Fed feels they 0:14:17.040 --> 0:14:19.320 can't slow down from that seventy five per meeting pace, 0:14:19.680 --> 0:14:22.800 that's really going to cover the economy. So Dean Tom 0:14:22.840 --> 0:14:25.200 doesn't care about the Fed minutes. Michael McKee didn't actually 0:14:25.240 --> 0:14:27.280 seem to care that much about the Fed minutes, do 0:14:27.320 --> 0:14:31.200 you Well, we certainly have to pay attention, um, you know, 0:14:31.200 --> 0:14:34.600 I don't think we'll probably have a decisively different view 0:14:34.640 --> 0:14:37.520 of the FED based on the minutes, but we you know, 0:14:37.640 --> 0:14:39.640 sometimes there is there are some things in there that 0:14:39.680 --> 0:14:42.160 are interesting and maybe color the outlook a little bit, 0:14:42.440 --> 0:14:45.360 but I wouldn't have great expectations for them. Okay, So 0:14:45.400 --> 0:14:47.160 as we talk about kind of front loading of the 0:14:47.240 --> 0:14:50.240 hikes of potentially seventy five and seventy five seventy five 0:14:50.320 --> 0:14:52.880 for who knows how long, at what point are we 0:14:52.920 --> 0:14:55.560 no longer going to be talking about hiking but cutting instead? 0:14:57.560 --> 0:15:01.200 You know? I think that again that depends partly on 0:15:01.280 --> 0:15:04.160 how rapidly the FED raises rates, Because if the FED 0:15:04.320 --> 0:15:07.720 does induce a very sharp slot on a recession, then 0:15:07.880 --> 0:15:10.880 cutting next year is quite possible. But if the FED 0:15:11.080 --> 0:15:14.000 is able to slow down and get on a gradual, 0:15:14.840 --> 0:15:18.240 more gradual hiking path, I don't think they'll necessarily be 0:15:18.240 --> 0:15:21.720 cutting soon. So it really depends on how much frontloading 0:15:21.720 --> 0:15:24.800 and how quickly the FED does. Dan let us talk 0:15:24.960 --> 0:15:31.400 about the arch glide path, which is the inflation migration downwards. 0:15:31.600 --> 0:15:34.520 If there's a kink in the curve, where's the kink? 0:15:34.600 --> 0:15:36.760 Where does this become hard? John and I are going 0:15:36.800 --> 0:15:39.360 to talk to Adam pose and in a few days, 0:15:39.400 --> 0:15:42.360 and he says the new two percent is three percent? 0:15:42.880 --> 0:15:46.640 Do you have a point six percent or five where 0:15:46.640 --> 0:15:50.360 the dialogue changes, because then it's way harder to push 0:15:50.360 --> 0:15:56.000 inflation lower. I don't think it works quite like that, 0:15:56.240 --> 0:15:59.400 tom So. I tend to think of it more as 0:15:59.600 --> 0:16:03.080 the different parts of inflation. So we know, goods inflation 0:16:03.120 --> 0:16:06.359 already is coming down. And if you talk to industrial 0:16:06.400 --> 0:16:09.440 analysts or people that are following those companies, they're talking 0:16:09.440 --> 0:16:13.000 telling us prices are falling in those industries already. And 0:16:13.040 --> 0:16:14.720 we're singing in the in the c P I and 0:16:14.760 --> 0:16:18.720 the PC goods care goods inflation is already falling. The 0:16:18.800 --> 0:16:21.640 services are really what's going to determine how far we 0:16:21.720 --> 0:16:25.080 can fall. And you know, I think that it's realistic 0:16:25.160 --> 0:16:27.840 that we fall down into the three percent range. Whether 0:16:27.880 --> 0:16:30.400 we can get down below that on core PC is 0:16:30.400 --> 0:16:33.280 a question mark, and it really depends on how rapidly 0:16:33.320 --> 0:16:35.600 wages are rising at that point. Let's go to the 0:16:35.680 --> 0:16:37.960 rate of change, and I don't mean metsmental relief. The 0:16:38.000 --> 0:16:40.080 Mets are killing it this year except for another team 0:16:40.120 --> 0:16:43.440 up in Bronx. But Dan Mackie very simply here, where's 0:16:43.480 --> 0:16:47.880 inflation in sixty days, ninety days? How rapidly do we 0:16:47.960 --> 0:16:51.040 come off the panic of eight nine percent and come down. 0:16:51.160 --> 0:16:55.320 How fast is that going to happen? Well, I tend 0:16:55.360 --> 0:16:57.640 to focus more on the PC because that's what the 0:16:57.640 --> 0:17:00.560 Fed follows, and we're at six and a half there. 0:17:00.600 --> 0:17:03.120 I think by year round we can be down into 0:17:03.160 --> 0:17:11.720 the three or four percent range. On Thank you, Thank you, sir. 0:17:17.680 --> 0:17:21.080 Henrietta Treys right now gives perspective on radio and television 0:17:21.119 --> 0:17:25.320 across America, Director of Economic Policy Research at Beta Partners, 0:17:25.359 --> 0:17:29.760 with some real tangible experience within the white marble of 0:17:29.800 --> 0:17:34.040 the Capital, Henrietta, we have been transfixed today by the 0:17:34.160 --> 0:17:37.240 questions of the Prime Minister, the drama of what's going 0:17:37.280 --> 0:17:41.640 on for Prime Minister Johnson and Theodic Kingdom. Would your 0:17:41.760 --> 0:17:46.200 world be better off if we had President's questions, if 0:17:46.240 --> 0:17:51.000 we had much more fiery, visible debate within Congress in 0:17:51.040 --> 0:17:56.040 the sleepfest it's become. I would love that. I think 0:17:56.040 --> 0:17:59.320 that would be fantastic. I think that politicians tend to 0:18:00.080 --> 0:18:02.600 speak more truthfully when they're put on the spot, and 0:18:02.760 --> 0:18:05.760 we're always looking for those little mistakes that might hold 0:18:05.840 --> 0:18:08.640 nuggets of truth, which we've seen from President Biden time 0:18:08.680 --> 0:18:10.880 and again. Um. I would I would love to see 0:18:10.880 --> 0:18:14.119 that in less agenda journalism, as Gilberts mentioning, it's a 0:18:14.160 --> 0:18:19.159 great idea. How unified other Democrats right now in the House. 0:18:19.640 --> 0:18:23.120 In the Senate, that's a great question. On the House 0:18:23.160 --> 0:18:25.399 side of my anxiety has been pretty high because we 0:18:25.440 --> 0:18:28.520 saw the Progressive Caucus UM really derail a lot of 0:18:28.520 --> 0:18:31.480 the BBB agenda in the back half of last year 0:18:31.520 --> 0:18:34.840 as they were negotiating that infrastructure bail and ultimately failed 0:18:34.880 --> 0:18:37.359 to sway the Senate, which is always the case, and 0:18:37.720 --> 0:18:40.959 the faster House members understand that senators always get their 0:18:41.000 --> 0:18:44.320 way the better. On the Senate side, you have a 0:18:44.480 --> 0:18:49.080 very shaky, you know, faux majority of just fifty senators, UM, 0:18:49.080 --> 0:18:50.800 and I think there are very few things that they 0:18:50.800 --> 0:18:54.120 can agree on. One of them is, Hey, healthcare really 0:18:54.200 --> 0:18:57.560 rallies voters during an election cycle. So let's do a 0:18:57.600 --> 0:19:01.560 reconciliation bill with the healthcare component climate change post very 0:19:01.600 --> 0:19:04.480 well with independent voters who are going to be so 0:19:04.520 --> 0:19:07.399 critical to turning out the vote favor of Democrats or 0:19:07.440 --> 0:19:11.080 Republicans in this next midterm cycle and the general election 0:19:11.119 --> 0:19:13.240 that's just a couple of years away. UM. And so 0:19:13.280 --> 0:19:16.080 if you can call together a bill that's a healthcare 0:19:16.119 --> 0:19:19.879 package and climate keep all the toxic stuff out. You 0:19:19.880 --> 0:19:22.040 can get a real bill passed through the House and 0:19:22.080 --> 0:19:25.920 set it by September. The reconciliation front, which is um 0:19:25.960 --> 0:19:29.159 I think something that will happen. Okay, So, Henrietta, if 0:19:29.200 --> 0:19:31.600 we kind of look at these two scenarios together. When 0:19:31.600 --> 0:19:35.320 we were watching the Boris Johnson in Parliament talking trying 0:19:35.320 --> 0:19:37.840 to get around the questions around his integrity, saying, but 0:19:37.880 --> 0:19:40.400 look at what we're doing. We're putting pounds into bank 0:19:40.400 --> 0:19:43.679 accounts of UK citizens today, We're cutting taxes, we are 0:19:43.720 --> 0:19:46.240 doing all of these things. On policy, President Biden also 0:19:46.280 --> 0:19:49.760 has been trying to take action, or at least signal 0:19:49.840 --> 0:19:52.520 action on policy when it comes to fighting inflation. Just 0:19:52.520 --> 0:19:55.359 look at the news yesterday of potential tariffs talks on 0:19:55.440 --> 0:19:58.040 ten billion dollars worth of worth of goods. How many 0:19:58.080 --> 0:20:00.439 more signals does the president have left a send? What 0:20:00.480 --> 0:20:03.040 other cards are there to play that are in his control? 0:20:04.280 --> 0:20:06.480 They're throwing everything at the wall here. UM I would 0:20:06.480 --> 0:20:08.359 say a couple of things on that. The ten billion 0:20:08.400 --> 0:20:11.919 dollars sounds big on paper, that represents roughly two percent 0:20:12.040 --> 0:20:14.480 of the overall tariffs that have been imposed against China, 0:20:14.880 --> 0:20:18.000 and the way that it's been expressed to us and 0:20:18.280 --> 0:20:20.680 via the news reporters you all have the great Jenny 0:20:20.760 --> 0:20:25.960 Letterard at Bloomberg, is to say that the consumer facing items, 0:20:26.000 --> 0:20:28.919 which are you know, your bicycles, you're back to school gear, backpacks, 0:20:29.200 --> 0:20:32.359 baseball gloves, those are all in List four A. So 0:20:32.600 --> 0:20:35.560 when investors think about those tariffs and what the administration 0:20:35.600 --> 0:20:38.600 is signaling, be mindful that those tariffs are only on 0:20:38.640 --> 0:20:41.320 at a seven and a half percent tax rate anyway, 0:20:41.359 --> 0:20:44.600 So you're talking about a very small portion at the 0:20:44.680 --> 0:20:48.240 lowest possible tax bracket today. So, Henrietta, what you're saying, 0:20:48.600 --> 0:20:51.560 we're not going to feel that. Voters aren't going to 0:20:51.640 --> 0:20:55.480 feel that. I sincerely doubt it. It It sounds very big 0:20:55.520 --> 0:20:57.879 ten billion dollars, but you're looking at three hundred and 0:20:57.880 --> 0:21:00.119 sixty billion dollars worth of goods that have entire and 0:21:00.200 --> 0:21:02.520 the only rate to reduce the seven and a half percent, 0:21:02.600 --> 0:21:05.320 not that exists for the other items that are hired 0:21:06.480 --> 0:21:10.480 in fight Apote. This is the Bloomberg Surveillance Podcast. Thanks 0:21:10.520 --> 0:21:13.840 for listening. Join us live weekdays from seven to ten 0:21:13.920 --> 0:21:18.399 am Eastern on Bloomberg Radio and on Bloomberg television each 0:21:18.480 --> 0:21:22.199 day from six to nine am for insight from the 0:21:22.240 --> 0:21:27.440 best in economics, finance, investment, and international relations. And subscribe 0:21:27.480 --> 0:21:32.440 to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, 0:21:32.520 --> 0:21:35.760 and of course, on the terminal. I'm Tom Keene, and 0:21:35.880 --> 0:21:37.720 this is Bloomberg.