1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,479 Speaker 2: Terminal and the Bloomberg Business app. Towson Slock of Apollo 10 00:00:37,760 --> 00:00:39,600 Speaker 2: note to the impact of the FED cutting one hundred 11 00:00:39,600 --> 00:00:42,440 Speaker 2: basis points, writing, the bottom line is that FED cuts 12 00:00:42,479 --> 00:00:46,279 Speaker 2: and associated developments in financial markets will boost GENIP over 13 00:00:46,320 --> 00:00:49,159 Speaker 2: the coming quarters by one percentage point and boost inflation 14 00:00:49,600 --> 00:00:50,840 Speaker 2: by zero point five. 15 00:00:51,159 --> 00:00:53,560 Speaker 3: Tawston joins us now for more. Torston, good morning morning. 16 00:00:53,600 --> 00:00:55,320 Speaker 2: It's going to see you, sir, and a happy new year. 17 00:00:55,520 --> 00:00:57,560 Speaker 2: You wrote, and I think it's important to recognize they 18 00:00:57,560 --> 00:01:00,280 Speaker 2: cut one hundred basis points in September and year has 19 00:01:00,320 --> 00:01:03,040 Speaker 2: moved one hundred basis points in the other direction. 20 00:01:03,280 --> 00:01:04,440 Speaker 3: What do you think explains that? 21 00:01:04,520 --> 00:01:07,640 Speaker 4: Well, that is really unusual. I mean, normally the textbook 22 00:01:07,640 --> 00:01:10,839 Speaker 4: would say if you cut interest rates, long rates should 23 00:01:10,880 --> 00:01:13,280 Speaker 4: also be going down. So why is it that when 24 00:01:13,280 --> 00:01:15,160 Speaker 4: they have cut one hundred basis points in September, that 25 00:01:15,240 --> 00:01:17,280 Speaker 4: we've now seen long rates go up one hundred basis 26 00:01:17,280 --> 00:01:19,440 Speaker 4: points since September? And that's opened up a lot of 27 00:01:19,480 --> 00:01:23,320 Speaker 4: conversations about is this because FED cuts were not warranted? 28 00:01:23,760 --> 00:01:26,839 Speaker 4: Is that because of fiscal policy, or is it because 29 00:01:26,840 --> 00:01:29,520 Speaker 4: of less demand from abroad? That's just a very important 30 00:01:29,600 --> 00:01:32,480 Speaker 4: quantification debate around why is it long rates are going up? 31 00:01:32,520 --> 00:01:34,600 Speaker 4: And an important part of that question is that the 32 00:01:34,680 --> 00:01:37,399 Speaker 4: term premium has gone up eighty basis points at least 33 00:01:37,400 --> 00:01:39,959 Speaker 4: according to the New York Fed, So using that. 34 00:01:39,920 --> 00:01:42,199 Speaker 3: Measure, eighty percent of the increase. 35 00:01:42,040 --> 00:01:45,600 Speaker 4: In long rates since September has potentially been driven by 36 00:01:45,640 --> 00:01:48,520 Speaker 4: worries about fiscal policy, at least issues that are not 37 00:01:48,640 --> 00:01:50,840 Speaker 4: explained by changing FED expectations. 38 00:01:50,920 --> 00:01:53,280 Speaker 5: So which of the three questions, which are the three 39 00:01:53,320 --> 00:01:55,520 Speaker 5: points that you're making do you lean on as a 40 00:01:55,520 --> 00:01:56,920 Speaker 5: reason behind the rise and yields? 41 00:01:56,960 --> 00:01:59,240 Speaker 4: Well, the challenge is when you do these decompositions and 42 00:01:59,280 --> 00:02:01,680 Speaker 4: trying to quantufy what are the sources of why long 43 00:02:01,760 --> 00:02:04,040 Speaker 4: rates are going up. Is that you don't know this 44 00:02:04,320 --> 00:02:07,080 Speaker 4: unexplained factor in the term premium. What's driving that? Is 45 00:02:07,080 --> 00:02:10,160 Speaker 4: that because of fiscal worries? Is it because of Some 46 00:02:10,160 --> 00:02:12,200 Speaker 4: people say it's just some technical issues with the yelk 47 00:02:12,240 --> 00:02:15,240 Speaker 4: curve steepening. In my view, I think at least it 48 00:02:15,240 --> 00:02:17,520 Speaker 4: tells you that there's something else going on, because if 49 00:02:17,560 --> 00:02:20,160 Speaker 4: you look at the chart, it is just really unusual 50 00:02:20,240 --> 00:02:22,320 Speaker 4: that long rates are going up when the Fed is cutting. 51 00:02:22,320 --> 00:02:24,560 Speaker 4: So that's why. If it is because the market is 52 00:02:24,560 --> 00:02:26,840 Speaker 4: worried about fiscal issues, then of course we need to 53 00:02:26,840 --> 00:02:29,200 Speaker 4: think about, well, what are the consequences as we get 54 00:02:29,240 --> 00:02:31,840 Speaker 4: some fiscal news potentially over the next several weeks. 55 00:02:31,960 --> 00:02:32,520 Speaker 3: A number of. 56 00:02:32,440 --> 00:02:34,120 Speaker 5: People have said this is a good thing and people 57 00:02:34,120 --> 00:02:36,560 Speaker 5: should embrace it. You see an actual normalization of the 58 00:02:36,600 --> 00:02:39,360 Speaker 5: yield curve, and that's fantastic. You have a newly positive 59 00:02:39,440 --> 00:02:42,800 Speaker 5: yield curve two tens now the steepest going back to 60 00:02:42,800 --> 00:02:45,400 Speaker 5: twenty twenty two. Do you think that it is a 61 00:02:45,480 --> 00:02:47,680 Speaker 5: positive development or a negative development? 62 00:02:47,720 --> 00:02:50,000 Speaker 4: Well, I think what's lying underneath this is that the 63 00:02:50,000 --> 00:02:52,520 Speaker 4: expectation was that or when the FED starts cutting, they 64 00:02:52,600 --> 00:02:54,680 Speaker 4: always caught a lot and of course, over the last 65 00:02:54,680 --> 00:02:56,840 Speaker 4: several quarters, the expectation was that the Fed will cut 66 00:02:56,840 --> 00:03:00,240 Speaker 4: a lot more relative to what's priced in at the moment. Now, 67 00:03:00,240 --> 00:03:02,680 Speaker 4: of course markets up pricing that rates will stay higher 68 00:03:02,680 --> 00:03:05,000 Speaker 4: for longer, and therefore we will not get all these cuts. 69 00:03:05,160 --> 00:03:07,560 Speaker 4: So the question therefore is, well, is that good or 70 00:03:07,600 --> 00:03:09,400 Speaker 4: bad news? Well, it's good in this sense that the 71 00:03:09,440 --> 00:03:12,600 Speaker 4: backdrop is that the economy is still strong. But the 72 00:03:12,639 --> 00:03:14,680 Speaker 4: bad news, of course is that rights higher for LONGO 73 00:03:14,720 --> 00:03:18,079 Speaker 4: will continue to weigh in particular on balanties that are weaker, 74 00:03:18,360 --> 00:03:20,640 Speaker 4: companies with a lot of leverage, companies with low converce 75 00:03:20,720 --> 00:03:23,680 Speaker 4: ratios will continue to get hit by rates higher for LONGO, 76 00:03:23,760 --> 00:03:26,240 Speaker 4: So higher for LONGA has a number of consequences that 77 00:03:26,280 --> 00:03:28,320 Speaker 4: are bringing back memories of what we saw in twenty 78 00:03:28,360 --> 00:03:30,760 Speaker 4: twenty two, when you had rates going up and starts 79 00:03:30,760 --> 00:03:32,840 Speaker 4: going down at the same time with yields. 80 00:03:32,560 --> 00:03:35,160 Speaker 1: Higher over the past since the Fed has been cutting, 81 00:03:35,160 --> 00:03:37,360 Speaker 1: and you're saying some of this is driven by fiscal 82 00:03:37,640 --> 00:03:40,200 Speaker 1: we haven't gotten the fiscal package yet, but the Trump 83 00:03:40,240 --> 00:03:41,920 Speaker 1: incoming trub administration has made it clear in the first 84 00:03:41,920 --> 00:03:43,520 Speaker 1: one hundred days they want to see something, whether or 85 00:03:43,560 --> 00:03:46,440 Speaker 1: not it's one reconciliation bill or two. So basically is 86 00:03:46,440 --> 00:03:49,040 Speaker 1: that just saying to the Fed, you're on pause until 87 00:03:49,080 --> 00:03:52,400 Speaker 1: we see exactly what comes out of this proposal. 88 00:03:52,800 --> 00:03:54,960 Speaker 4: Well, and I think also to your important point here 89 00:03:55,000 --> 00:03:56,840 Speaker 4: that it used to be that these bills would be 90 00:03:56,920 --> 00:03:59,560 Speaker 4: two separate bills, one with border and security in the 91 00:03:59,600 --> 00:04:01,480 Speaker 4: first bill that will be deal with first, and then 92 00:04:01,560 --> 00:04:03,480 Speaker 4: later we'll deal with what's going on in the tax front. 93 00:04:03,640 --> 00:04:05,840 Speaker 4: But combining all this, of course raises the risk that 94 00:04:05,840 --> 00:04:08,360 Speaker 4: I will get a bloomberg headline saying some pretty significant 95 00:04:08,440 --> 00:04:11,720 Speaker 4: number in terms of what the deficit impact is. So 96 00:04:11,800 --> 00:04:14,000 Speaker 4: if you do have a bigger risk of a higher 97 00:04:14,040 --> 00:04:17,640 Speaker 4: headline number, that also raise at least modestly the probability 98 00:04:17,640 --> 00:04:20,320 Speaker 4: that we'll get some at least potential list trust moment 99 00:04:20,360 --> 00:04:23,320 Speaker 4: where we could see a fairly significant number coming out 100 00:04:23,440 --> 00:04:26,039 Speaker 4: where instead of doing it drip wise throughout the year, 101 00:04:26,400 --> 00:04:28,680 Speaker 4: having a big number where suddenly markets say, wow, there's 102 00:04:28,720 --> 00:04:31,960 Speaker 4: already QT going on, there's a stock of T pills 103 00:04:32,000 --> 00:04:33,760 Speaker 4: that need to be rolled over, and on some of that, 104 00:04:33,800 --> 00:04:36,000 Speaker 4: we already have a sixty seven percent budget deficit. All 105 00:04:36,040 --> 00:04:38,680 Speaker 4: that combine means that treasury issuance continues to be a 106 00:04:38,760 --> 00:04:39,560 Speaker 4: very important topic. 107 00:04:39,640 --> 00:04:41,440 Speaker 1: What does that Liz trust moment look like in the 108 00:04:41,520 --> 00:04:42,200 Speaker 1: United States. 109 00:04:42,560 --> 00:04:44,800 Speaker 4: Well, the risk, of course is that if there is 110 00:04:45,520 --> 00:04:48,479 Speaker 4: still very significant budget deficit, and if we still have 111 00:04:48,640 --> 00:04:51,440 Speaker 4: significant issues with again the number of T bills outstanding, 112 00:04:51,480 --> 00:04:53,760 Speaker 4: any short dated debt that needs to be rolled over, 113 00:04:53,960 --> 00:04:56,400 Speaker 4: we still have QT there's a lot of conversations about 114 00:04:56,400 --> 00:04:58,640 Speaker 4: when that potentially will end. And on top of that, 115 00:04:58,680 --> 00:05:01,800 Speaker 4: if we do have new fiscal deficit spending and a 116 00:05:01,880 --> 00:05:04,160 Speaker 4: number that's much bigger than what the market is expecting, 117 00:05:04,520 --> 00:05:07,960 Speaker 4: that certainly raises their probability at least that we might 118 00:05:08,000 --> 00:05:10,360 Speaker 4: have some situation where the markets are saying, wow, that's 119 00:05:10,360 --> 00:05:13,680 Speaker 4: a lot of treasury issues. We already have discussions literally 120 00:05:13,800 --> 00:05:16,880 Speaker 4: every day when we have a treasury auction around hey, 121 00:05:17,080 --> 00:05:20,400 Speaker 4: what was the metrics on the auctions and what are 122 00:05:20,440 --> 00:05:23,520 Speaker 4: these numbers telling us? In terms of the overall physical sustainability, 123 00:05:23,560 --> 00:05:26,000 Speaker 4: which j. Powell of course always keeps on pointing out 124 00:05:26,160 --> 00:05:27,120 Speaker 4: is already unsustainable. 125 00:05:27,160 --> 00:05:28,800 Speaker 2: Leasa mentioned it already this morning we get a ten 126 00:05:28,880 --> 00:05:30,920 Speaker 2: year A little bit later you wrote about it's close 127 00:05:31,000 --> 00:05:33,720 Speaker 2: down twenty four the risk of a twenty twenty two 128 00:05:33,920 --> 00:05:35,760 Speaker 2: repeat in the market. 129 00:05:35,880 --> 00:05:36,960 Speaker 3: How great is that risk. 130 00:05:37,480 --> 00:05:40,080 Speaker 4: I think that is much higher than what the market is. 131 00:05:40,160 --> 00:05:41,839 Speaker 4: The probabilities of the markets are signing at the moment, 132 00:05:41,880 --> 00:05:44,760 Speaker 4: because remember the key issue in twenty twenty two was 133 00:05:44,800 --> 00:05:48,200 Speaker 4: that the sixty to forty portfolio really underperformed because rates 134 00:05:48,200 --> 00:05:50,640 Speaker 4: went up because inflation was going up, and at the 135 00:05:50,640 --> 00:05:51,840 Speaker 4: same time, starks went down. 136 00:05:52,160 --> 00:05:53,040 Speaker 3: And now we've had. 137 00:05:52,920 --> 00:05:55,000 Speaker 4: The Nike sworsh has been flatten. 138 00:05:54,640 --> 00:05:55,960 Speaker 3: Out on FED expectations. 139 00:05:56,080 --> 00:05:58,360 Speaker 4: So therefore, if we're now getting back through FED expectations 140 00:05:58,400 --> 00:06:00,479 Speaker 4: being roughly flat, we have a few cuts priced in. 141 00:06:00,839 --> 00:06:03,760 Speaker 4: Imagine if suddenly those expectations start to move up that 142 00:06:03,800 --> 00:06:06,080 Speaker 4: people are saying, well, maybe we'll get another hike. I 143 00:06:06,120 --> 00:06:07,880 Speaker 4: do think you a lot of equity investors will be 144 00:06:07,880 --> 00:06:09,600 Speaker 4: looking at that and saying, well, in that case, you 145 00:06:09,680 --> 00:06:12,560 Speaker 4: already had the trailing pe on Tesla at almost two hundred. 146 00:06:12,880 --> 00:06:15,080 Speaker 4: That's why some of these stocks and a trailing pepages 147 00:06:15,160 --> 00:06:18,160 Speaker 4: are incredibly expensive. And if you now have that, well, 148 00:06:18,160 --> 00:06:20,000 Speaker 4: maybe the FED has to do something more meeting high 149 00:06:20,080 --> 00:06:22,080 Speaker 4: rates again. Well, then I do think some of these 150 00:06:22,080 --> 00:06:24,560 Speaker 4: more sensitive names they will certainly see a bigger hit. 151 00:06:24,640 --> 00:06:27,120 Speaker 4: So that's why given all the stocks returns have been 152 00:06:27,160 --> 00:06:29,960 Speaker 4: drawn by a handful of stocks. I do think that 153 00:06:29,960 --> 00:06:32,400 Speaker 4: that makes it much more sensitive to if again the 154 00:06:32,480 --> 00:06:35,200 Speaker 4: Nikes Woll swifts up and we do get a situation 155 00:06:35,240 --> 00:06:37,480 Speaker 4: where the fit is pricing in more hikes. 156 00:06:37,240 --> 00:06:40,280 Speaker 2: Coming tost and a clinic as always going to see us, sir, 157 00:06:40,720 --> 00:06:53,520 Speaker 2: Thank you. Toston's luck there of a Pomo. Donald Trump 158 00:06:53,560 --> 00:06:56,599 Speaker 2: hadding to Capital Hell tomorrow as the president elects purshused 159 00:06:56,600 --> 00:07:00,720 Speaker 2: Republicans to pass a single massive bill concerning his priorities. 160 00:07:00,800 --> 00:07:03,760 Speaker 2: Trump look into secure a houseflow on immigration, energy, and 161 00:07:03,839 --> 00:07:07,040 Speaker 2: extension of the twenty seventeen Trump tax cuts by April. 162 00:07:07,240 --> 00:07:12,120 Speaker 2: The Republican Congressman French Hill of Arkansas. John Desnaphamore Congressman Hill, good. 163 00:07:12,000 --> 00:07:12,640 Speaker 3: To catch up with you. 164 00:07:12,720 --> 00:07:15,760 Speaker 2: As always, we'd love your opinion on what you think 165 00:07:15,840 --> 00:07:18,920 Speaker 2: is the best way to pursue the president's agenda. Is 166 00:07:18,920 --> 00:07:22,560 Speaker 2: it through going off to just one big bill? 167 00:07:22,840 --> 00:07:25,160 Speaker 6: Well, Jonathan, it's great to be with you. Yes, I 168 00:07:25,200 --> 00:07:28,080 Speaker 6: do support one bill because I think that's the easiest 169 00:07:28,080 --> 00:07:31,280 Speaker 6: way to get the votes for the President's priorities in 170 00:07:31,320 --> 00:07:36,240 Speaker 6: the House, which include, as you said, energy, permitting reform, 171 00:07:36,880 --> 00:07:40,960 Speaker 6: securing the border, and of course debating and completing an 172 00:07:41,000 --> 00:07:43,720 Speaker 6: extension of the Trump tax cuts from twenty seventeen. 173 00:07:44,080 --> 00:07:47,600 Speaker 5: Congressman, we've been debating around this table how much the 174 00:07:48,040 --> 00:07:50,240 Speaker 5: ten year yield has a seat at the table when 175 00:07:50,280 --> 00:07:52,320 Speaker 5: deciding what kind of bill and how big it is. 176 00:07:53,000 --> 00:07:56,640 Speaker 5: When the Congress meets and possibly passes this as soon 177 00:07:56,640 --> 00:07:57,240 Speaker 5: as April. 178 00:07:57,400 --> 00:07:58,360 Speaker 3: What's your view on this. 179 00:07:58,480 --> 00:08:01,280 Speaker 5: How much of a veto power does the bond market have? 180 00:08:04,040 --> 00:08:06,320 Speaker 6: Well, Lisa, look, I don't think it makes any difference 181 00:08:06,320 --> 00:08:08,720 Speaker 6: on that point, whether it's one bill or three bills. 182 00:08:08,760 --> 00:08:12,800 Speaker 6: To the point of your previous commentator, what I think 183 00:08:12,880 --> 00:08:15,240 Speaker 6: is concerning to me is that I wish we'd finish 184 00:08:15,400 --> 00:08:18,760 Speaker 6: Fy twenty five spending last Congress. I think that would 185 00:08:18,760 --> 00:08:21,840 Speaker 6: have been in the President's best interest. But instead this 186 00:08:21,920 --> 00:08:23,920 Speaker 6: first quarter, we're going to do both. We're going to 187 00:08:23,920 --> 00:08:26,800 Speaker 6: complete fiscal twenty five spending by the middle of March, 188 00:08:27,440 --> 00:08:30,080 Speaker 6: and we're going to try to do budget reconciliation with 189 00:08:30,160 --> 00:08:33,680 Speaker 6: the House and Senate before early April. That's a big lift, 190 00:08:34,320 --> 00:08:37,160 Speaker 6: and it may demonstrate a little uncertainty on the part 191 00:08:37,200 --> 00:08:39,080 Speaker 6: of the bond market, But I think the real issue 192 00:08:39,160 --> 00:08:43,440 Speaker 6: is let's get spending under control through budget reconciliation. That's 193 00:08:43,440 --> 00:08:47,360 Speaker 6: the purpose of budget reconciliation. It's a procedure by which 194 00:08:47,360 --> 00:08:50,000 Speaker 6: you can do big things in Congress using fifty one 195 00:08:50,040 --> 00:08:53,320 Speaker 6: percent vote margins in the House and Senate. President Obama 196 00:08:53,480 --> 00:08:56,600 Speaker 6: used it to create Obamacare. President Trump in his first 197 00:08:56,640 --> 00:09:00,920 Speaker 6: term used that to reform the tax code. Republicans in 198 00:09:00,960 --> 00:09:03,040 Speaker 6: the House and Senate this year want to use budget 199 00:09:03,400 --> 00:09:08,240 Speaker 6: reconciliation to get federal spending under control, while we also 200 00:09:08,360 --> 00:09:11,520 Speaker 6: extend the pro growth features of the Trump tax cuts. 201 00:09:11,600 --> 00:09:13,439 Speaker 5: Fowers were one of the concerns that we hear from 202 00:09:13,480 --> 00:09:15,440 Speaker 5: a lot of fixed income strategists who come on the 203 00:09:15,480 --> 00:09:18,400 Speaker 5: show is that they're not seeing where the cuts are 204 00:09:18,400 --> 00:09:21,680 Speaker 5: going to come into place in this reconciliation bill. Where 205 00:09:21,720 --> 00:09:23,040 Speaker 5: are they going to come. 206 00:09:24,559 --> 00:09:26,960 Speaker 6: We had a meeting all weekend where we work with 207 00:09:27,000 --> 00:09:32,079 Speaker 6: our committees of jurisdiction on determining cuts and spending across 208 00:09:32,120 --> 00:09:35,320 Speaker 6: the board. With the exceptions of what President Trump has 209 00:09:35,400 --> 00:09:38,600 Speaker 6: taken off the board, which would be Medicare and Social 210 00:09:38,600 --> 00:09:43,200 Speaker 6: Security benefit areas, the rest of it's on track. And 211 00:09:43,240 --> 00:09:45,720 Speaker 6: you know how much spending has gone up, and just 212 00:09:46,000 --> 00:09:50,120 Speaker 6: since the pandemic, we're running a two trillion dollar deficit 213 00:09:50,280 --> 00:09:54,760 Speaker 6: per year. Seven percent of GDP that's the part that's unsustainable. 214 00:09:55,040 --> 00:09:58,080 Speaker 6: Everyone in Congress knows that. So we've got to get 215 00:09:58,120 --> 00:10:01,560 Speaker 6: our spending on a more sustained, predictable front. I think 216 00:10:01,600 --> 00:10:04,360 Speaker 6: that would benefit the bond market if they saw that 217 00:10:04,440 --> 00:10:06,520 Speaker 6: kind of work on the part of Congress. 218 00:10:06,840 --> 00:10:09,120 Speaker 1: Well, we have the CBO talking about at least one 219 00:10:09,320 --> 00:10:12,800 Speaker 1: point of that one big beautiful reconciliation potential bill, which 220 00:10:12,840 --> 00:10:17,800 Speaker 1: would be just extending TCAJA over the upcoming decade, would 221 00:10:17,800 --> 00:10:21,559 Speaker 1: cost four trillion dollars. On top of that, the President 222 00:10:21,559 --> 00:10:24,600 Speaker 1: elect continues to talk about no tax on tips. How 223 00:10:24,679 --> 00:10:27,439 Speaker 1: much do you think can actually get through this Congress. 224 00:10:29,400 --> 00:10:33,280 Speaker 6: Well, look, am Marie, you had CBO also say that 225 00:10:33,800 --> 00:10:36,520 Speaker 6: the Tax Cuts and Jobs Act, when they did not 226 00:10:36,760 --> 00:10:41,800 Speaker 6: dynamically score it, would not produce increased revenues over a 227 00:10:41,840 --> 00:10:44,720 Speaker 6: ten year budget window. And in fact, since twenty seventeen, 228 00:10:44,800 --> 00:10:49,000 Speaker 6: you've seen record federal revenue pour into the country from 229 00:10:49,640 --> 00:10:53,520 Speaker 6: no more reversions, people bringing taxable income back, the investments 230 00:10:53,559 --> 00:10:56,559 Speaker 6: that were made. GDP growth, job growth, wage growth was 231 00:10:56,600 --> 00:11:00,360 Speaker 6: all up in those years following the Tax Cuts and 232 00:11:00,480 --> 00:11:03,520 Speaker 6: Jobs Act, but before the impact of the pandemic. So 233 00:11:03,800 --> 00:11:07,560 Speaker 6: I don't believe House Republicans are governed completely by the 234 00:11:07,600 --> 00:11:12,120 Speaker 6: opinions of CBO exclusively, even though that's an incredibly important 235 00:11:12,120 --> 00:11:16,320 Speaker 6: component because we've seen how in error estimates are from 236 00:11:16,400 --> 00:11:20,040 Speaker 6: the Joint Tax Committee and from CBO, not recently, but 237 00:11:20,080 --> 00:11:21,720 Speaker 6: for the past fifty years. 238 00:11:22,040 --> 00:11:25,520 Speaker 1: Congressman, you're also now the chair of a very powerful committee, 239 00:11:25,520 --> 00:11:28,320 Speaker 1: the House Financial Services Committee, and we see a number 240 00:11:28,360 --> 00:11:31,839 Speaker 1: of representatives going to mar Lago this upcoming weekend. Will 241 00:11:31,920 --> 00:11:33,520 Speaker 1: you be there and if so, what do you plan 242 00:11:33,600 --> 00:11:35,160 Speaker 1: to discuss with President Electrump. 243 00:11:37,160 --> 00:11:37,319 Speaker 4: Well? 244 00:11:37,360 --> 00:11:40,600 Speaker 6: President Trump has invited the committee chairs to a dinner 245 00:11:40,640 --> 00:11:43,080 Speaker 6: and we'll be talking about our priorities that we have 246 00:11:43,200 --> 00:11:46,400 Speaker 6: for the first few months of his administration and getting 247 00:11:46,400 --> 00:11:47,440 Speaker 6: his views on those. 248 00:11:49,160 --> 00:11:53,760 Speaker 1: What are your priorities specifically for the Financial Services Committee. 249 00:11:54,600 --> 00:11:56,679 Speaker 6: Well, you know we've talked about that many times. I've 250 00:11:56,720 --> 00:11:59,480 Speaker 6: got three big priorities. First, I want to right size 251 00:11:59,520 --> 00:12:05,559 Speaker 6: the regulatory system for particularly community banks. We think that's 252 00:12:05,600 --> 00:12:08,560 Speaker 6: an important feature that's gotten off track, particularly in the 253 00:12:08,559 --> 00:12:11,360 Speaker 6: Biden Harris administration. We want to make sure the SEC 254 00:12:11,440 --> 00:12:14,800 Speaker 6: is focused on capital formation and investor protection and orderly 255 00:12:14,880 --> 00:12:18,319 Speaker 6: markets and not a political agenda that former soon to 256 00:12:18,360 --> 00:12:21,360 Speaker 6: be former chairman Gary Ginsler had and finally, we want 257 00:12:21,400 --> 00:12:24,200 Speaker 6: to have a market structure for innovation in this country 258 00:12:24,240 --> 00:12:28,360 Speaker 6: where people can use blockchain, can use digital currencies and 259 00:12:28,520 --> 00:12:32,480 Speaker 6: digital assets to advance their business mission and make sure 260 00:12:32,480 --> 00:12:34,720 Speaker 6: that the US is a leader around the world in 261 00:12:34,800 --> 00:12:37,600 Speaker 6: this new Web three innovative technology. 262 00:12:37,720 --> 00:12:39,880 Speaker 1: Corson, we also need to talk about the FED. Yesterday 263 00:12:39,880 --> 00:12:43,040 Speaker 1: Michael Barr stepping down. You welcomed that. This morning the 264 00:12:43,080 --> 00:12:45,400 Speaker 1: Wall Street Journal in an editorial is talking about that 265 00:12:45,480 --> 00:12:48,880 Speaker 1: maybe a replacement for Michael Barr will meet Governor Bowman. 266 00:12:49,559 --> 00:12:50,480 Speaker 3: Would you welcome that. 267 00:12:52,480 --> 00:12:55,920 Speaker 6: Mickey Bowman's done an outstanding job as a governor on 268 00:12:55,960 --> 00:12:59,760 Speaker 6: the Federal Reserve. She comes to the Federal Reserve with 269 00:13:00,000 --> 00:13:03,319 Speaker 6: tactical experience both as a bank commissioner in Kansas as 270 00:13:03,360 --> 00:13:07,400 Speaker 6: well as a family connected to community banking business there 271 00:13:07,440 --> 00:13:09,760 Speaker 6: in the Heartland. She has been a great voice for 272 00:13:09,880 --> 00:13:13,240 Speaker 6: common sense and tailoring and regulation, and I think she 273 00:13:13,320 --> 00:13:15,839 Speaker 6: would be if President Trump made that decision, that would be, 274 00:13:15,920 --> 00:13:17,160 Speaker 6: in MA view, a good one. 275 00:13:17,320 --> 00:13:20,480 Speaker 2: Congressman, We're seeing some big shifts in corporate America as well. 276 00:13:20,520 --> 00:13:22,520 Speaker 2: We'd love your thoughts just to close up this conversation 277 00:13:22,600 --> 00:13:24,839 Speaker 2: and what we just heard from meta moments ago, and 278 00:13:24,880 --> 00:13:26,760 Speaker 2: if you missed it, because it only broke about fifteen 279 00:13:26,760 --> 00:13:29,000 Speaker 2: minutes ago, I'll give you summary off in this came 280 00:13:29,000 --> 00:13:31,959 Speaker 2: from Meta about fifteen minutes ago. That's starting in the 281 00:13:32,080 --> 00:13:34,200 Speaker 2: United States. They're going to be ending their third party 282 00:13:34,280 --> 00:13:37,120 Speaker 2: fact checking program and moved to a community notes model, 283 00:13:37,320 --> 00:13:39,480 Speaker 2: something we're more familiar with with the likes of X. 284 00:13:39,640 --> 00:13:42,680 Speaker 2: We're seeing some big shifts around corporate America. I think, 285 00:13:42,760 --> 00:13:46,400 Speaker 2: taking note of more conservative voices in the last few months, 286 00:13:46,400 --> 00:13:49,760 Speaker 2: particularly after the election in early November, that note that 287 00:13:49,880 --> 00:13:53,000 Speaker 2: is notable. I think Congressman Hill for corporate America, and 288 00:13:53,040 --> 00:13:55,040 Speaker 2: I just wonder how you're responding to things and what 289 00:13:55,160 --> 00:13:56,439 Speaker 2: you think of that shift. 290 00:13:57,640 --> 00:14:00,959 Speaker 6: Well, Jonathan, over the decade that I've been in Congress 291 00:14:01,000 --> 00:14:04,400 Speaker 6: for basically three decades before that, I was in corporate America, 292 00:14:04,480 --> 00:14:07,920 Speaker 6: both with public companies and private companies, and I've never 293 00:14:07,960 --> 00:14:12,920 Speaker 6: been a big fan for bringing politics, partisanship, and social 294 00:14:13,000 --> 00:14:16,920 Speaker 6: policy fads into the corporate boardroom. I think business should 295 00:14:16,960 --> 00:14:20,080 Speaker 6: be in the business of delivering a product that meets 296 00:14:20,120 --> 00:14:23,720 Speaker 6: the needs of consumers, all consumers, no matter what their 297 00:14:23,800 --> 00:14:26,800 Speaker 6: walk in life is. And so that's why I think 298 00:14:26,840 --> 00:14:31,239 Speaker 6: it's good that business appears to be getting back focused 299 00:14:31,280 --> 00:14:36,280 Speaker 6: on conducting their mission and leave the politics at home 300 00:14:36,560 --> 00:14:38,640 Speaker 6: or out with their friends. 301 00:14:39,040 --> 00:14:42,200 Speaker 2: French Chill affreciated time Congressman French Chaill got good to 302 00:14:42,240 --> 00:14:53,400 Speaker 2: be a vocon sell good to see us at fat 303 00:14:53,480 --> 00:14:56,840 Speaker 2: Governor Lisa Cook saying the FMC can proceed cautiously on 304 00:14:56,920 --> 00:15:00,360 Speaker 2: further rate cuts with inflation precious remaining. The Fullish conto 305 00:15:00,400 --> 00:15:03,680 Speaker 2: FED President Charles Evans writing, I expect inflation will return 306 00:15:03,680 --> 00:15:06,680 Speaker 2: to two percent within the Fed's current timetable. They don't 307 00:15:06,680 --> 00:15:08,960 Speaker 2: want some risk cutting rates and then need to backtrack 308 00:15:09,040 --> 00:15:11,280 Speaker 2: higher if inflation rises again. 309 00:15:11,560 --> 00:15:13,960 Speaker 3: Charles joined us now for more. Charles, welcome to the programs, sir. 310 00:15:14,000 --> 00:15:15,320 Speaker 2: I just want to go through a range of comments 311 00:15:15,360 --> 00:15:17,720 Speaker 2: we've had from FED officials over the past few days. 312 00:15:17,760 --> 00:15:21,120 Speaker 2: Governor Cook said inflation has been stickier. Governor Coogler said, 313 00:15:21,120 --> 00:15:23,360 Speaker 2: obviously our job is not done. Presidents Amy said, we're 314 00:15:23,400 --> 00:15:26,560 Speaker 2: uncomfortably above our target. Why do you suppose, with all 315 00:15:26,560 --> 00:15:28,600 Speaker 2: of that in mind, they reduced interest rates to the 316 00:15:28,680 --> 00:15:29,240 Speaker 2: last meeting. 317 00:15:31,440 --> 00:15:34,400 Speaker 7: Well, I think that the FED has done a readjustment 318 00:15:34,480 --> 00:15:37,160 Speaker 7: and the stance of monetary policy. They've cut rates by 319 00:15:37,200 --> 00:15:41,240 Speaker 7: one hundred basis points. Over the last year since September, 320 00:15:41,560 --> 00:15:44,120 Speaker 7: and the last cut in December was a close call, 321 00:15:44,160 --> 00:15:47,680 Speaker 7: according to char Powell. So I think they're well positioned 322 00:15:47,680 --> 00:15:49,360 Speaker 7: at this point to deal with the risk that they 323 00:15:49,400 --> 00:15:52,680 Speaker 7: expect to be facing this year, and I think they're 324 00:15:52,680 --> 00:15:55,440 Speaker 7: an awful lot of risks. Inflation has been bumpy, and 325 00:15:55,480 --> 00:15:58,840 Speaker 7: their focus is on getting inflation back to two percent. 326 00:15:59,000 --> 00:16:04,160 Speaker 7: They are looking at a projection themselves of core PCEE 327 00:16:04,200 --> 00:16:05,360 Speaker 7: at the end of this year at two and a 328 00:16:05,400 --> 00:16:08,120 Speaker 7: half percent. That's a little bit more than uncomfortably above 329 00:16:08,520 --> 00:16:12,760 Speaker 7: two percent, and they don't give any indication that they're 330 00:16:12,800 --> 00:16:14,720 Speaker 7: willing to sort of say, well, you know, two and 331 00:16:14,760 --> 00:16:17,600 Speaker 7: a half's really not that far above two percent. So 332 00:16:17,800 --> 00:16:20,840 Speaker 7: with their focus on two percent, I think I believe 333 00:16:20,880 --> 00:16:23,000 Speaker 7: the Fed policy makers that they are going to be 334 00:16:23,040 --> 00:16:26,600 Speaker 7: patient in adjusting monetary policy, and they're going to need 335 00:16:26,640 --> 00:16:28,080 Speaker 7: to see improvements and inflation. 336 00:16:28,400 --> 00:16:31,360 Speaker 5: How concerning is it to you that longer term rates 337 00:16:31,400 --> 00:16:34,280 Speaker 5: have risen so much since the Fed finished cutting by 338 00:16:34,320 --> 00:16:36,080 Speaker 5: one hundred basis points last year. 339 00:16:39,000 --> 00:16:40,440 Speaker 7: You know, there are a lot of things going on 340 00:16:40,640 --> 00:16:42,560 Speaker 7: at the same time, and so it is it is 341 00:16:42,600 --> 00:16:44,720 Speaker 7: the case that the FED funds rate is lower though 342 00:16:44,720 --> 00:16:47,400 Speaker 7: would put downward pressure on the tenure rate, for sure. 343 00:16:47,440 --> 00:16:51,360 Speaker 7: But it's also the case that you know, their you know, 344 00:16:51,360 --> 00:16:55,160 Speaker 7: fiscal deficits are continuing to be high. You know, there's 345 00:16:55,200 --> 00:16:58,640 Speaker 7: a lot of uncertainty about that. Our investor is going 346 00:16:58,640 --> 00:17:01,040 Speaker 7: to be responding to that, and I think it's natural 347 00:17:01,120 --> 00:17:04,399 Speaker 7: to suspect that funding rates could be higher at the 348 00:17:04,440 --> 00:17:09,040 Speaker 7: long end. It's also the case that productivity is higher. 349 00:17:09,720 --> 00:17:12,440 Speaker 7: AI offers a lot of promise. Growth has been above 350 00:17:12,480 --> 00:17:16,159 Speaker 7: two percent. Our assessments of long run trend tend to 351 00:17:16,160 --> 00:17:18,160 Speaker 7: be about two percent, but if they're higher, that would 352 00:17:18,200 --> 00:17:20,560 Speaker 7: also justify higher long term rates too. So there are 353 00:17:20,560 --> 00:17:23,360 Speaker 7: many things in play, plus all of the uncertainty associated 354 00:17:23,400 --> 00:17:26,119 Speaker 7: with volatility and tariff commentary. 355 00:17:26,640 --> 00:17:28,680 Speaker 5: How much you've concerned about the fact that the Fed 356 00:17:28,960 --> 00:17:31,879 Speaker 5: hasn't really put out a framework for how they're going 357 00:17:31,920 --> 00:17:35,239 Speaker 5: to deal with some of the potential policy changes that 358 00:17:35,280 --> 00:17:37,520 Speaker 5: are coming out. This was something that former New York 359 00:17:37,600 --> 00:17:40,200 Speaker 5: Fed President Bill Dudley was talking about. Do you think 360 00:17:40,200 --> 00:17:43,760 Speaker 5: there needs to be a better communication of scenario analysis 361 00:17:43,800 --> 00:17:46,840 Speaker 5: around tariffs and around potential immigration changes? 362 00:17:48,920 --> 00:17:53,080 Speaker 7: The FED communications is always difficult. It's difficult for central banks, 363 00:17:53,080 --> 00:17:56,760 Speaker 7: it's difficult for any institution that is dealing with uncertainty 364 00:17:56,800 --> 00:17:58,760 Speaker 7: and talking about what they're going to be doing over 365 00:17:58,760 --> 00:18:01,719 Speaker 7: the next six to eight months uncertainty. It is just 366 00:18:01,840 --> 00:18:06,000 Speaker 7: very difficult to describe in a way that you know 367 00:18:06,160 --> 00:18:10,439 Speaker 7: many many readers can can fully appreciate. The FED has 368 00:18:10,440 --> 00:18:13,480 Speaker 7: a number of communications tools. The Summary of Economic Projections 369 00:18:13,520 --> 00:18:16,000 Speaker 7: are one of them, and so you know, by the 370 00:18:16,040 --> 00:18:19,560 Speaker 7: FED Zone take, they've indicated that they're expecting inflation is 371 00:18:19,560 --> 00:18:21,840 Speaker 7: going to be higher than they previously thought for longer 372 00:18:21,880 --> 00:18:26,280 Speaker 7: and they need to take action. You could go through 373 00:18:26,359 --> 00:18:29,200 Speaker 7: a few different scenarios where well, it could be better 374 00:18:29,240 --> 00:18:32,359 Speaker 7: than that, and explain how you know the funds rate 375 00:18:32,400 --> 00:18:34,359 Speaker 7: would fall, or you could say it's going to be 376 00:18:34,400 --> 00:18:37,040 Speaker 7: worse than that. They have internal documents where they go 377 00:18:37,119 --> 00:18:41,119 Speaker 7: through that. I not convinced that the public would be 378 00:18:41,200 --> 00:18:45,360 Speaker 7: able to digest three scenarios when they have as much 379 00:18:45,359 --> 00:18:47,760 Speaker 7: difficulty with one. You'd constantly be going, well, which of 380 00:18:47,800 --> 00:18:50,080 Speaker 7: the three do you really think we should be paying 381 00:18:50,080 --> 00:18:50,600 Speaker 7: attention to? 382 00:18:50,920 --> 00:18:54,760 Speaker 1: Speaker Johnson is talking about this potential one big reconciliation 383 00:18:55,000 --> 00:18:57,600 Speaker 1: bill by May. If that is the case, does the 384 00:18:57,640 --> 00:19:00,320 Speaker 1: FED then just stay on the sideline and wait for 385 00:19:00,680 --> 00:19:04,000 Speaker 1: the policy chatter to become actual legislation. 386 00:19:06,920 --> 00:19:09,639 Speaker 7: Well, I think the typical fed approach Share Powell has 387 00:19:09,680 --> 00:19:12,160 Speaker 7: tried to describe this at the last couple of press conferences, 388 00:19:12,200 --> 00:19:15,840 Speaker 7: which is to you know, you know, observe the legislative process, 389 00:19:16,040 --> 00:19:19,000 Speaker 7: observe the progress. When do they get legislative language, when 390 00:19:19,040 --> 00:19:23,160 Speaker 7: is it about to actually take you know, and be enacted, 391 00:19:23,240 --> 00:19:25,200 Speaker 7: and what actually ends up in the bill. A lot 392 00:19:25,200 --> 00:19:27,960 Speaker 7: of things end up, you know, with the last minute 393 00:19:28,000 --> 00:19:29,840 Speaker 7: and a bill or get taken out, and so it's 394 00:19:29,920 --> 00:19:32,360 Speaker 7: very difficult to have confidence that you know exactly what 395 00:19:32,440 --> 00:19:35,840 Speaker 7: the stance of fiscal policy is until you get you know, 396 00:19:35,920 --> 00:19:39,000 Speaker 7: real language there. And I mean if you just go back, 397 00:19:39,320 --> 00:19:43,600 Speaker 7: you know previously, when you've talked about eliminating the Affordable 398 00:19:43,640 --> 00:19:46,840 Speaker 7: Care Act, that would have huge implications for the economy, 399 00:19:46,880 --> 00:19:49,000 Speaker 7: and it came down to a single vote, and so 400 00:19:49,440 --> 00:19:51,159 Speaker 7: you know, you have have to actually go through the 401 00:19:51,160 --> 00:19:55,040 Speaker 7: process before you can fully appreciate what that's going to 402 00:19:55,040 --> 00:19:56,919 Speaker 7: do the economy. That's part of the uncertainty that I 403 00:19:56,960 --> 00:19:59,160 Speaker 7: was talking about right up until the end. It could 404 00:19:59,200 --> 00:20:02,159 Speaker 7: go either way. Times wanted to conflate with very large 405 00:20:02,240 --> 00:20:03,760 Speaker 7: implications for the path of the. 406 00:20:03,720 --> 00:20:06,480 Speaker 3: Economy you've lived it. We appreciate your experience. 407 00:20:06,760 --> 00:20:09,359 Speaker 2: Former Chicago Fair president Charles Evans on the latest effort 408 00:20:09,359 --> 00:20:13,160 Speaker 2: from the Federal Reserve. This is the Bloomberg Surveillance Podcast, 409 00:20:13,280 --> 00:20:16,879 Speaker 2: bringing you the best in markets, economics, an gio politics. 410 00:20:17,119 --> 00:20:19,600 Speaker 2: You can watch the show live on Bloomberg TV weekday 411 00:20:19,640 --> 00:20:22,879 Speaker 2: mornings from six am to nine am Eastern. Subscribe to 412 00:20:22,880 --> 00:20:26,119 Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen, 413 00:20:26,400 --> 00:20:29,000 Speaker 2: and as always, on the Bloomberg Terminal and the Bloomberg 414 00:20:29,040 --> 00:20:29,600 Speaker 2: Business app.