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Speaker 3: Former New York Fed President Bill Dudley, writing in his
Speaker 3: latest Bloomberg opinion piece, US Federal Reserve and it's chair
Speaker 3: Jerome Powell are greatly choosing not to act on any
Speaker 3: assumptions about what Donald Trump might do as president.
Speaker 4: That said, if he falls.
Speaker 3: Through on his more extreme campaign promises, they'll struggle to
Speaker 3: contain the economic consequences, a problem that equity investors ignore
Speaker 3: at their peril. Bill joins us, Now, Bill, you've been.
Speaker 5: In the room.
Speaker 3: You understand what this is like. Give us a sense,
Speaker 3: potentially of this tension that might grew between the Fed
Speaker 3: chair and President elect Trump.
Speaker 6: Well on the sharp run, there's not going to be
Speaker 6: much atention because I think the Federal Reserve is still
Speaker 6: going to cut interest rates a bit further. But the
Speaker 6: longer term, if you look at what the President elect
Speaker 6: Trump is proposing, higher terrorists, deportations, and fiscal steamless, that's
Speaker 6: going to tend to boost inflation, disrupt economic growth because
Speaker 6: terrorists will corrupt, force people to reorient their supply chains,
Speaker 6: and it's going to make the economic environment more difficult.
Speaker 6: And so the Federal Reserve ultimately is going to react
Speaker 6: to that. But as Paul said in his press conference
Speaker 6: last week, we don't assume, we don't guess, we don't speculate,
Speaker 6: So they're not going to act until they actually see
Speaker 6: the Trump agenda actually take form. So don't expect any
Speaker 6: near term response from the Fed. But in the longer term,
Speaker 6: I think if Trump does what he said he's going
Speaker 6: to do, it's going to be difficult to economic ride well. Bill.
Speaker 4: As you point out, though, if Trump does anything big
Speaker 4: or abrupt, in your words, the central banks response will
Speaker 4: occur too late to mitigate fully the economic impact. So
Speaker 4: what is the needle to thread to not respond too
Speaker 4: soon when we don't know the extent of things, but
Speaker 4: also not waiting too late that you just can't do
Speaker 4: anything at that moment.
Speaker 6: Well, I do think there's a risk that if Trump
Speaker 6: is very aggressive in terms of his policy choices, that
Speaker 6: the Federal Reserve will be late. I'll be waiting to
Speaker 6: see what happens, and then when it does happen, it'll
Speaker 6: be bigger than expected and it'll have bigger consequences for
Speaker 6: growth and inflation. At that point, I think the Federal
Speaker 6: Reserve would be a little bit behind the curve and
Speaker 6: they might have to actually catch up. But that's not
Speaker 6: a near term story. That's probably late twenty twenty five,
Speaker 6: first half of twenty twenty six, just at the time
Speaker 6: that Paul is wrapping up his term.
Speaker 4: Is Chuir, Good morning to you.
Speaker 7: Bill. In your opinion piece this morning, you talk about
Speaker 7: an oddly divergent reaction from the bomb market and the
Speaker 7: equity market. I want to focus on the bomb market
Speaker 7: because it has been a wild ride. This morning. We
Speaker 7: waken up again and the bars have been reawakened. The
Speaker 7: question I put to you is this, we don't know
Speaker 7: the tariff, we don't know the tax, we don't know
Speaker 7: anything about the fiscal policy. Exactly with some broad parameters.
Speaker 7: When you look at the term premium in the bond market,
Speaker 7: the debate is how much more term premium there needs
Speaker 7: to be if there's going to be such a large
Speaker 7: deficit run. Some of the numbers throwing out there are
Speaker 7: pretty obscure, but we on the brink of where there
Speaker 7: needs to be a lot more term premium to hold
Speaker 7: US treasuries.
Speaker 6: Well, I think that there needs to be some more
Speaker 6: more tanient term premium to reflect the uncertainty about the
Speaker 6: economic outlook and the unsustainable fiscal paths of the United States.
Speaker 6: That's one area where Pable actually did speak out last week.
Speaker 6: He did say that the fiscal path of the United States
Speaker 6: is unsustainable and if President elect Trump does all the
Speaker 6: things he wants to do in terms of corporate tax reduction,
Speaker 6: extending the twenty seventeen tax cuts, the fiscal situation is
Speaker 6: going to worsen, not improve going forward. So I think
Speaker 6: that the path to higher bodis is the most likely path.
Speaker 6: The other thing that's happened, of course, is people have
Speaker 6: change their expectations of where the Fed's going in terms
Speaker 6: of short term interest rates. A couple of months ago,
Speaker 6: people are respecting the federal fund rate to bottom below
Speaker 6: three percent. Now the markets are expecting the federal fund
Speaker 6: rate to bottom at around three and three quarters percent.
Speaker 6: So if you have a higher federal fund rate, then
Speaker 6: you're going to have a higher bondiold just by construction.
Speaker 7: So the direction of travel you say, is higher in yields.
Speaker 7: When you look at the response from Power at that
Speaker 7: news conference, and we've touched on this with various people,
Speaker 7: are we going to hear much more? I don't know
Speaker 7: what the right word is, aggressive, demonstrative, exacting language from
Speaker 7: the FED? What word would you choose that the Fed's
Speaker 7: rhetoric needs to become more emboldant in twenty twenty five.
Speaker 6: I think the FED is actually going to be very
Speaker 6: mild in terms of their language. They're going to set
Speaker 6: monetary policy based on what they think is appropriate given
Speaker 6: the growth and inflation. I'll look and as you noticed,
Speaker 6: it's going to take time for that to manifest this
Speaker 6: stuff because we don't really know exactly what the President
Speaker 6: Electrump is going to do, so I think the language
Speaker 6: will be actually not combative at all. You saw last week,
Speaker 6: you know, reporters asked Trump Powell about you know, what's
Speaker 6: how you can react to the Trump policy mix and
Speaker 6: pile basis in no common So I think then in
Speaker 6: the very short term, the Fed is going to keep
Speaker 6: its head down and conduct policy based on how the
Speaker 6: economy is doing right now.
Speaker 4: Those who can take a step back to the reaction
Speaker 4: that we've seen here and then now, as you write
Speaker 4: in your column, you find the stock market response baffling.
Speaker 4: Equity bowls have been really excited about the prospects of
Speaker 4: tax cuts and deregulation. What are they missing?
Speaker 6: Well, I think that the stock market has this notion
Speaker 6: that we're going to have deregulation, Uh, we're going to
Speaker 6: have corporate tax cuts, and that's going to boost corporate
Speaker 6: profit margins. And I think that's probably part fair part
Speaker 6: of the argument. But I think what they're missing is
Speaker 6: all the consequences of the other parts of the Trump agenda.
Speaker 6: Higher tariffs, higher inflation, they mean disruption, lower productivity growth,
Speaker 6: deportations affect the supply of labor, and unsustainable fiscal path
Speaker 6: means higher interest rates. When I look at the bond
Speaker 6: market versus the stock market, I think the bond market
Speaker 6: at bond mules rise that's been put increasing pressure on
Speaker 6: the stock market. We're starting from points that the stock
Speaker 6: market evaluations are already extremely high, So if bonials go up,
Speaker 6: I think that will weigh on the stock market. I
Speaker 6: would not be a big stock market bowl at this point.
Speaker 3: Bill, given that backdrop, how difficult is this December meeting
Speaker 3: going to be for the Fed?
Speaker 6: I don't think it's gonna be that difficult, because I
Speaker 6: think Paul laid it out pretty clearly last week. They
Speaker 6: think that the economy is the risk of inflation, and
Speaker 6: the layer market are roughly in balanced. They think monetary
Speaker 6: policy is still restrictive, so that they're heading back towards
Speaker 6: neutrals slowly. So I think at twenty five basic point
Speaker 6: rate to cut in December is still the most likely case. Now.
Speaker 6: If the economy continues to stay stronger than expected and
Speaker 6: inflation stays stickier than expected, then that December rate cut
Speaker 6: might be the last rate cut for a while. But
Speaker 6: that really depends on the data. The Fed right now
Speaker 6: is really data dependent in terms of they're going. The
Speaker 6: direction of rates is downward, but slowly because the Communists
Speaker 6: continued to perform pretty well on the growth side.
Speaker 3: Last week, Powell was asked a number of time by
Speaker 3: journalists about what would happen if President elect Donald Trump
Speaker 3: tried to remove him, and this morning in the Wall
Speaker 3: Street Journal they talked about twenty eighteen and Powell then
Speaker 3: went what they're right reporting to Treasury Secretory Stephen Minuchin
Speaker 3: and said that he would fight his removal of salt
Speaker 3: by the president. Are you concerned about the independence of
Speaker 3: this Fed?
Speaker 6: Well, I think you have to always be concerned about
Speaker 6: the independence of the FED when you have a president
Speaker 6: that seems to be a president elect that seems to
Speaker 6: be hostile to the Fed's independence. And the reason why
Speaker 6: we want an independent central bank is because historically independent
Speaker 6: central banks actually do a better job in terms of
Speaker 6: managing monitoring policy to achieve the outcomes that we want
Speaker 6: in terms of growth and inflation. So independence is really
Speaker 6: driven by the fact that you actually get better outcomes.
Speaker 6: That people think that the Federal serve is going to
Speaker 6: change course based on pressure from the President, that increases
Speaker 6: uncertainty and risk, and it also makes the FED very
Speaker 6: short sighted in terms of its policy agenda. So I
Speaker 6: think the FED, you know, basis of the Fed's going
Speaker 6: to try to maintain its independent poull I think it
Speaker 6: was very very clear last week when asked about whether
Speaker 6: he's playing the resign early no, whether Trump has the
Speaker 6: right to fire him legally, no, So Pob basically said
Speaker 6: pretty clearly, I'm going to finish out my term, which
Speaker 6: ends in May twenty twenty six, and so trying to
Speaker 6: close off the debate.
Speaker 3: On that whole issue not permitted under the law. He
Speaker 3: kept saying that no, no, no, And the Wall Street
Speaker 3: Journal gives some insight in so he knows this because
Speaker 3: he went through it in twenty eighteen. Former New York
Speaker 3: Fed President Bill Dudley, thank you so much for your
Speaker 3: time and insight this morning. All right, let's turn back
Speaker 3: to US politics. Donald Trump's next cabinet beginning to take shape.
Speaker 3: Trump picking former New York Congressman Lee Zelden to lead
Speaker 3: the Environmental Protection Agency. Trump's saying Zelden will quote ensure
Speaker 3: fair and swift regulatory decisions. They'll be enacted in a
Speaker 3: way to unleash the power of American businesses. Joining us
Speaker 3: now as Tom Steyer, former Democratic presidential candidate, of course
Speaker 3: and the co founder of Galvanized Climate Solutions, thank you
Speaker 3: so much for joining us around the table.
Speaker 4: So we're going to get a.
Speaker 3: Trump two point out. Potentially they're going to roll back
Speaker 3: a lot of the work the Biden administration did. When
Speaker 3: it comes to the energy transition, how much does it
Speaker 3: matter because the market is already off to the races.
Speaker 1: Well, let's talk for a second about what's really driving
Speaker 1: the energy transition, which is economics, prices, and markets. Over
Speaker 1: the last four years, solar prices have gone down by
Speaker 1: sixty percent. Solar sales have gone up four x. If
Speaker 1: you look at what's happened to batteries last year, just
Speaker 1: in one year they have in China, the price had
Speaker 1: If you look at what's going on in terms of
Speaker 1: ev sales, we look at it in the United States,
Speaker 1: still going up, but not going up that fast. If
Speaker 1: you look at what's going on in China, they went
Speaker 1: up eleven percent month over month. They went up fifty
Speaker 1: percent year over year. When you look around the world,
Speaker 1: what's going on is abundant renewable energy. That is actually
Speaker 1: the story. What we're seeing in the world is a
Speaker 1: huge move to renewable energy and the energy transition happening
Speaker 1: much faster than people in the United States understand. While
Speaker 1: we're talking about oil and gas, which is basically a
Speaker 1: stagnant market.
Speaker 4: So what does that mean to have a drill baby
Speaker 4: drill policy at a time where you already have peak
Speaker 4: oil domestic production in the US and you have this
Speaker 4: transformation you're talking about.
Speaker 1: So let's put some numbers on it so that we
Speaker 1: can really understand what we're talking about. The US is
Speaker 1: the biggest oil and gas producer in the world. We
Speaker 1: do about thirteen and a half million barrels a day.
Speaker 1: If we do drill babel baby drill, we could take
Speaker 1: thirteen and a half and move it to fourteen. In
Speaker 1: the context of the world oil market, we're doing about
Speaker 1: one hundred and two million barrels a day. That is
Speaker 1: not This is a stagnant market. Even Opek thinks that
Speaker 1: the total amount of oil sales will go up by
Speaker 1: eight percent in the next twenty five years. Solar sales
Speaker 1: went up four x in the last four years.
Speaker 4: So what we're really.
Speaker 1: Seeing is an exploding clean energy market. We're not going
Speaker 1: to ever, We're not running out of oil and gas.
Speaker 1: But what we're seeing is an abundance of renewable energy
Speaker 1: and an abundance of new technologies that are competing on price.
Speaker 1: You know, I wrote a book cheaper, faster, better, how
Speaker 1: we win the climate war? And really that's all we're
Speaker 1: seeing is market forces business. How do you win cheaper,
Speaker 1: it's cheaper, faster, it's faster and better. And so when
Speaker 1: we look around the world, governments can't repeal markets. China
Speaker 1: can't repeal markets, neither can Donald Trump. What we're seeing
Speaker 1: is people around the world acting based on prices, what's
Speaker 1: in their own interest and what's the best part.
Speaker 4: There is another large source of energy demand that's really
Speaker 4: ramping up quickly besides the renewables, or it goes in
Speaker 4: tantem with the renewables, and that's the energy needed to
Speaker 4: power AI. Basically the amount equivalent to large cities needed
Speaker 4: to power just maybe even just metas AI demand. When
Speaker 4: you look at that, you look at the Trump White
Speaker 4: House push or the coming White House for deregulation, is
Speaker 4: there red tape that needs to be cut anyway to
Speaker 4: allow for this huge source of energy that's going to
Speaker 4: be needed to power the future?
Speaker 1: Of course there is. I mean, when you look at
Speaker 1: the United States, we are very very slow in terms
Speaker 1: of permitting, we're very very slow in terms of adding
Speaker 1: new clean energy products or oil and gas projects to
Speaker 1: the grid. So yes, we have a very slow moving
Speaker 1: process because so many people are allowed to weigh in.
Speaker 1: It just takes so much time. And of course we
Speaker 1: should be moving much faster. But when we really look
Speaker 1: globally about where the new we're talking AI can move
Speaker 1: US energy consumption by twenty percent over the next decade.
Speaker 1: That's a huge move for us. But if you look
Speaker 1: around the world, if you see what's happening in Asia,
Speaker 1: Southeast Asia and South Asia, like in India, it is
Speaker 1: growing exponentially. They're going to do five times as much
Speaker 1: electricity by twenty fifty five times as much. And so
Speaker 1: when we really think about what's going on in terms
Speaker 1: of what's driving prices, what's driving volumes around the world,
Speaker 1: where the real business is what we're seeing is it's
Speaker 1: really in renewables.
Speaker 7: It's interesting, just as we touch on that oil. On
Speaker 7: that oil subject, OPEC has released their report oil consumption
Speaker 7: is done eighteen percent since July. This is the fourth
Speaker 7: consecutive cut that they have in terms of demand, and
Speaker 7: that's to do the chinel. I want to focus on
Speaker 7: one of the things that erks Donald Trump's Donald Trump,
Speaker 7: we know is other people eating America's lunch and any
Speaker 7: move that he makes to step back on IRA, which
Speaker 7: has done very well in the Red States.
Speaker 1: By the way, overwhelmingly in the words in the Red States.
Speaker 7: So just how aggressive a pullbacks are going to be,
Speaker 7: because I can tell you what, there's a lot of
Speaker 7: European and global CEO city and out there are going
Speaker 7: I'm ready to eat your lunch. If you don't want
Speaker 7: to do if you don't want to build this business,
Speaker 7: We're ready to do it.
Speaker 1: Look, that is the point I'm trying to make, which
Speaker 1: is America has to compete America. If we're going to
Speaker 1: this transition is happening, America should be leading it. This
Speaker 1: is an absolute necessity for us to be the leading
Speaker 1: economic country in the world, the leading political country in
Speaker 1: the world. And I think it's going to be clear
Speaker 1: no matter how mister Trump feels about what should happen,
Speaker 1: what is happening is this transition, and American companies can
Speaker 1: absolutely dominate here. But we have to choose to do it,
Speaker 1: and we have to put the money into it, and
Speaker 1: we have to put the manpower into it. So I
Speaker 1: look at this as a great chance for business. And
Speaker 1: it's just business. This is just about what is cheaper, faster,
Speaker 1: and better, and that is traditionally what Americans have done
Speaker 1: really well at.
Speaker 7: Well, then what level of stimulus could we see from him?
Speaker 7: What level of incentive could we see for these areas.
Speaker 7: He's been very very very very heavy on the rhetoric
Speaker 7: against a lot of the incentives that were in the IRA,
Speaker 7: et cetera. So how does he temper without how does
Speaker 7: he balance this?
Speaker 1: I really think that what's going to drive this is
Speaker 1: American business that it's of course the incentives of the
Speaker 1: IRA were important in terms of deployment of solar, of wind,
Speaker 1: and the sale of evs. But the truth is all
Speaker 1: of those things are going to keep happening globally. All
Speaker 1: of those things are going to keep happening in the
Speaker 1: United States. I mean, if you think about the idea
Speaker 1: of solar prices going down by sixty percent, if that
Speaker 1: would be oil going to thirty two bucks from eighty
Speaker 1: bucks to thirty two bucks, that didn't happen. But you
Speaker 1: know something, it's not stopping down sixty We'll go down
Speaker 1: another sixty percent and they'll be at the equivalent of
Speaker 1: fifteen bucks tom or the barrel of oil. If the
Speaker 1: that's dominance If the.
Speaker 3: Private sector is doing this already, though, and there was
Speaker 3: concerns that spending too much at a time on inflation
Speaker 3: at one point during the Biden presidency hit more than
Speaker 3: nine percent, then what was the point of something like
Speaker 3: the Inflation Reduction Act. The former president future president and
Speaker 3: continues to talk about that he's happy with clean energy.
Speaker 3: He has someone like Elon must surrounding him, but he
Speaker 3: thinks it should be driven by the private sector.
Speaker 1: It is going to be driven by the private sector.
Speaker 1: It is driven by the private sector. I think when
Speaker 1: I think about the Inflation Reduction Act, I think about
Speaker 1: an attempt to try to subsidize companies that are clean,
Speaker 1: to try and put them on a level playing field
Speaker 1: with companies that are polluting. That's really how I think
Speaker 1: about it. But over time, when these prices come down,
Speaker 1: the subsidies go the need for subsidies goes away. And
Speaker 1: that's really what Let me give you one example. Over
Speaker 1: the last three years, Texas has tripled the amount of
Speaker 1: solar it uses Texas they are by far the biggest
Speaker 1: wind producer in the United States. The four biggest wind
Speaker 1: producers in the United States are all deep red states.
Speaker 1: They're not doing it because they love the concept of renewables.
Speaker 1: They're doing it because it's cheaper, because it's good business.
Speaker 1: And that's what we're seeing is in fact, cheaper, faster,
Speaker 1: better marks, prices, economics. That's what's driving this world. People
Speaker 1: are talking, people are saying things, but really what's going
Speaker 1: on behind the scenes is just you know, you guys
Speaker 1: were talking about the dollar. What's driving the dollar? What's
Speaker 1: driving interest rates, prices and markets? You can't revoke them.
Speaker 1: We're in a world where, in fact we are going
Speaker 1: a very straightforward way, and we can talk about it
Speaker 1: and the sentiment can move back and forth. But if
Speaker 1: you look at the first Trump administration, actually clean energy
Speaker 1: did really well.
Speaker 5: It did.
Speaker 1: Yes, there was a lot of rhetoric, there was a
Speaker 1: lot of anger, there was a lot of emotion, but
Speaker 1: the fact of the matter is the world just got
Speaker 1: powering right through us. Tom.
Speaker 3: We thank you for your time this morning.
Speaker 1: It's great to see it.
Speaker 3: Tom Styr of Galvani's Climate Solutions. According to Bank of
Speaker 3: America's new Consumer Checkpoint, the consumer shows solid momentum as
Speaker 3: we head into the holidays. The twenty twenty four Bank
Speaker 3: of America Holiday Survey suggests people are planning to spend
Speaker 3: twenty one hundred dollars outside of typical obligations and necessities
Speaker 3: this holiday season. That's up seven percent year over year.
Speaker 3: Joining us now, David Tinsley of a Bank of America Institute.
Speaker 4: David, thanks so much for joining us right through your report.
Speaker 3: So let me just get this straight. Are you seeing
Speaker 3: any signs at all of a consumer that is slowing down?
Speaker 1: Yeah?
Speaker 5: I would tend to take issue with the interview you
Speaker 5: were just showing there saying that the consumer looks stretched
Speaker 5: and is potentially slowing. I mean, in our data, what
Speaker 5: we're seeing is our credit and debit card data was
Speaker 5: up one percent year on year in October, and that's
Speaker 5: a pretty good number for this data series. And then,
Speaker 5: of course, if you overlay that with the i think
Speaker 5: four months in a row rise in consumer sentiment in
Speaker 5: the Michigan survey, and then when you look in our
Speaker 5: data again at what's going on in terms of way
Speaker 5: is going into people's bank accounts, the year on year
Speaker 5: growth there I think is around two percent or so
Speaker 5: across all income cohort So it's not obvious. I don't
Speaker 5: think to us that the consumer is slowing. I think
Speaker 5: we would characterize the situation as continued forward momentum.
Speaker 4: David Emery and I've been talking about all morning different
Speaker 4: companies saying, look, consumers are putting off big ticket purchases
Speaker 4: until they know the outcome of this American election. Did
Speaker 4: you see the same pattern and some of the spending
Speaker 4: that there's going to be some form of financial firepower
Speaker 4: unleashed now with the election behind us.
Speaker 5: You know, that's an interesting question. So in last month's checkpoint,
Speaker 5: we did note that we saw some consumer durable purchases,
Speaker 5: so big ticket items, some slow down there. So it
Speaker 5: could be that there is some pent up consumer demand
Speaker 5: in those sorts of areas. But overall the position is
Speaker 5: not is not a bad one in any case. I
Speaker 5: mean what we do see in our data, and I
Speaker 5: think this speaks to the kind of differential corporate experience
Speaker 5: is the consumer continues to be valuing experiences over goods goods,
Speaker 5: So in other words, it's meals out lodging in our fairs,
Speaker 5: those kind of things are the items of particular strength
Speaker 5: more so than on the goods side. So I think
Speaker 5: that explains some of the differential corporate newsflow on this.
Speaker 3: David Tinsley, we Thank you so much for your time.
Speaker 3: David Tinsley, a Bank of America Institute on the Health
Speaker 3: of the consumer.
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