WEBVTT - Bloomberg Surveillance TV: January 7, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.479 Terminal and the Bloomberg Business app. Towson Slock of Apollo 0:00:37.760 --> 0:00:39.600 note to the impact of the FED cutting one hundred 0:00:39.600 --> 0:00:42.440 basis points, writing, the bottom line is that FED cuts 0:00:42.479 --> 0:00:46.279 and associated developments in financial markets will boost GENIP over 0:00:46.320 --> 0:00:49.159 the coming quarters by one percentage point and boost inflation 0:00:49.600 --> 0:00:50.840 by zero point five. 0:00:51.159 --> 0:00:53.560 Tawston joins us now for more. Torston, good morning morning. 0:00:53.600 --> 0:00:55.320 It's going to see you, sir, and a happy new year. 0:00:55.520 --> 0:00:57.560 You wrote, and I think it's important to recognize they 0:00:57.560 --> 0:01:00.280 cut one hundred basis points in September and year has 0:01:00.320 --> 0:01:03.040 moved one hundred basis points in the other direction. 0:01:03.280 --> 0:01:04.440 What do you think explains that? 0:01:04.520 --> 0:01:07.640 Well, that is really unusual. I mean, normally the textbook 0:01:07.640 --> 0:01:10.839 would say if you cut interest rates, long rates should 0:01:10.880 --> 0:01:13.280 also be going down. So why is it that when 0:01:13.280 --> 0:01:15.160 they have cut one hundred basis points in September, that 0:01:15.240 --> 0:01:17.280 we've now seen long rates go up one hundred basis 0:01:17.280 --> 0:01:19.440 points since September? And that's opened up a lot of 0:01:19.480 --> 0:01:23.320 conversations about is this because FED cuts were not warranted? 0:01:23.760 --> 0:01:26.839 Is that because of fiscal policy, or is it because 0:01:26.840 --> 0:01:29.520 of less demand from abroad? That's just a very important 0:01:29.600 --> 0:01:32.480 quantification debate around why is it long rates are going up? 0:01:32.520 --> 0:01:34.600 And an important part of that question is that the 0:01:34.680 --> 0:01:37.399 term premium has gone up eighty basis points at least 0:01:37.400 --> 0:01:39.959 according to the New York Fed, So using that. 0:01:39.920 --> 0:01:42.199 Measure, eighty percent of the increase. 0:01:42.040 --> 0:01:45.600 In long rates since September has potentially been driven by 0:01:45.640 --> 0:01:48.520 worries about fiscal policy, at least issues that are not 0:01:48.640 --> 0:01:50.840 explained by changing FED expectations. 0:01:50.920 --> 0:01:53.280 So which of the three questions, which are the three 0:01:53.320 --> 0:01:55.520 points that you're making do you lean on as a 0:01:55.520 --> 0:01:56.920 reason behind the rise and yields? 0:01:56.960 --> 0:01:59.240 Well, the challenge is when you do these decompositions and 0:01:59.280 --> 0:02:01.680 trying to quantufy what are the sources of why long 0:02:01.760 --> 0:02:04.040 rates are going up. Is that you don't know this 0:02:04.320 --> 0:02:07.080 unexplained factor in the term premium. What's driving that? Is 0:02:07.080 --> 0:02:10.160 that because of fiscal worries? Is it because of Some 0:02:10.160 --> 0:02:12.200 people say it's just some technical issues with the yelk 0:02:12.240 --> 0:02:15.240 curve steepening. In my view, I think at least it 0:02:15.240 --> 0:02:17.520 tells you that there's something else going on, because if 0:02:17.560 --> 0:02:20.160 you look at the chart, it is just really unusual 0:02:20.240 --> 0:02:22.320 that long rates are going up when the Fed is cutting. 0:02:22.320 --> 0:02:24.560 So that's why. If it is because the market is 0:02:24.560 --> 0:02:26.840 worried about fiscal issues, then of course we need to 0:02:26.840 --> 0:02:29.200 think about, well, what are the consequences as we get 0:02:29.240 --> 0:02:31.840 some fiscal news potentially over the next several weeks. 0:02:31.960 --> 0:02:32.520 A number of. 0:02:32.440 --> 0:02:34.120 People have said this is a good thing and people 0:02:34.120 --> 0:02:36.560 should embrace it. You see an actual normalization of the 0:02:36.600 --> 0:02:39.360 yield curve, and that's fantastic. You have a newly positive 0:02:39.440 --> 0:02:42.800 yield curve two tens now the steepest going back to 0:02:42.800 --> 0:02:45.400 twenty twenty two. Do you think that it is a 0:02:45.480 --> 0:02:47.680 positive development or a negative development? 0:02:47.720 --> 0:02:50.000 Well, I think what's lying underneath this is that the 0:02:50.000 --> 0:02:52.520 expectation was that or when the FED starts cutting, they 0:02:52.600 --> 0:02:54.680 always caught a lot and of course, over the last 0:02:54.680 --> 0:02:56.840 several quarters, the expectation was that the Fed will cut 0:02:56.840 --> 0:03:00.240 a lot more relative to what's priced in at the moment. Now, 0:03:00.240 --> 0:03:02.680 of course markets up pricing that rates will stay higher 0:03:02.680 --> 0:03:05.000 for longer, and therefore we will not get all these cuts. 0:03:05.160 --> 0:03:07.560 So the question therefore is, well, is that good or 0:03:07.600 --> 0:03:09.400 bad news? Well, it's good in this sense that the 0:03:09.440 --> 0:03:12.600 backdrop is that the economy is still strong. But the 0:03:12.639 --> 0:03:14.680 bad news, of course is that rights higher for LONGO 0:03:14.720 --> 0:03:18.079 will continue to weigh in particular on balanties that are weaker, 0:03:18.360 --> 0:03:20.640 companies with a lot of leverage, companies with low converce 0:03:20.720 --> 0:03:23.680 ratios will continue to get hit by rates higher for LONGO, 0:03:23.760 --> 0:03:26.240 So higher for LONGA has a number of consequences that 0:03:26.280 --> 0:03:28.320 are bringing back memories of what we saw in twenty 0:03:28.360 --> 0:03:30.760 twenty two, when you had rates going up and starts 0:03:30.760 --> 0:03:32.840 going down at the same time with yields. 0:03:32.560 --> 0:03:35.160 Higher over the past since the Fed has been cutting, 0:03:35.160 --> 0:03:37.360 and you're saying some of this is driven by fiscal 0:03:37.640 --> 0:03:40.200 we haven't gotten the fiscal package yet, but the Trump 0:03:40.240 --> 0:03:41.920 incoming trub administration has made it clear in the first 0:03:41.920 --> 0:03:43.520 one hundred days they want to see something, whether or 0:03:43.560 --> 0:03:46.440 not it's one reconciliation bill or two. So basically is 0:03:46.440 --> 0:03:49.040 that just saying to the Fed, you're on pause until 0:03:49.080 --> 0:03:52.400 we see exactly what comes out of this proposal. 0:03:52.800 --> 0:03:54.960 Well, and I think also to your important point here 0:03:55.000 --> 0:03:56.840 that it used to be that these bills would be 0:03:56.920 --> 0:03:59.560 two separate bills, one with border and security in the 0:03:59.600 --> 0:04:01.480 first bill that will be deal with first, and then 0:04:01.560 --> 0:04:03.480 later we'll deal with what's going on in the tax front. 0:04:03.640 --> 0:04:05.840 But combining all this, of course raises the risk that 0:04:05.840 --> 0:04:08.360 I will get a bloomberg headline saying some pretty significant 0:04:08.440 --> 0:04:11.720 number in terms of what the deficit impact is. So 0:04:11.800 --> 0:04:14.000 if you do have a bigger risk of a higher 0:04:14.040 --> 0:04:17.640 headline number, that also raise at least modestly the probability 0:04:17.640 --> 0:04:20.320 that we'll get some at least potential list trust moment 0:04:20.360 --> 0:04:23.320 where we could see a fairly significant number coming out 0:04:23.440 --> 0:04:26.039 where instead of doing it drip wise throughout the year, 0:04:26.400 --> 0:04:28.680 having a big number where suddenly markets say, wow, there's 0:04:28.720 --> 0:04:31.960 already QT going on, there's a stock of T pills 0:04:32.000 --> 0:04:33.760 that need to be rolled over, and on some of that, 0:04:33.800 --> 0:04:36.000 we already have a sixty seven percent budget deficit. All 0:04:36.040 --> 0:04:38.680 that combine means that treasury issuance continues to be a 0:04:38.760 --> 0:04:39.560 very important topic. 0:04:39.640 --> 0:04:41.440 What does that Liz trust moment look like in the 0:04:41.520 --> 0:04:42.200 United States. 0:04:42.560 --> 0:04:44.800 Well, the risk, of course is that if there is 0:04:45.520 --> 0:04:48.479 still very significant budget deficit, and if we still have 0:04:48.640 --> 0:04:51.440 significant issues with again the number of T bills outstanding, 0:04:51.480 --> 0:04:53.760 any short dated debt that needs to be rolled over, 0:04:53.960 --> 0:04:56.400 we still have QT there's a lot of conversations about 0:04:56.400 --> 0:04:58.640 when that potentially will end. And on top of that, 0:04:58.680 --> 0:05:01.800 if we do have new fiscal deficit spending and a 0:05:01.880 --> 0:05:04.160 number that's much bigger than what the market is expecting, 0:05:04.520 --> 0:05:07.960 that certainly raises their probability at least that we might 0:05:08.000 --> 0:05:10.360 have some situation where the markets are saying, wow, that's 0:05:10.360 --> 0:05:13.680 a lot of treasury issues. We already have discussions literally 0:05:13.800 --> 0:05:16.880 every day when we have a treasury auction around hey, 0:05:17.080 --> 0:05:20.400 what was the metrics on the auctions and what are 0:05:20.440 --> 0:05:23.520 these numbers telling us? In terms of the overall physical sustainability, 0:05:23.560 --> 0:05:26.000 which j. Powell of course always keeps on pointing out 0:05:26.160 --> 0:05:27.120 is already unsustainable. 0:05:27.160 --> 0:05:28.800 Leasa mentioned it already this morning we get a ten 0:05:28.880 --> 0:05:30.920 year A little bit later you wrote about it's close 0:05:31.000 --> 0:05:33.720 down twenty four the risk of a twenty twenty two 0:05:33.920 --> 0:05:35.760 repeat in the market. 0:05:35.880 --> 0:05:36.960 How great is that risk. 0:05:37.480 --> 0:05:40.080 I think that is much higher than what the market is. 0:05:40.160 --> 0:05:41.839 The probabilities of the markets are signing at the moment, 0:05:41.880 --> 0:05:44.760 because remember the key issue in twenty twenty two was 0:05:44.800 --> 0:05:48.200 that the sixty to forty portfolio really underperformed because rates 0:05:48.200 --> 0:05:50.640 went up because inflation was going up, and at the 0:05:50.640 --> 0:05:51.840 same time, starks went down. 0:05:52.160 --> 0:05:53.040 And now we've had. 0:05:52.920 --> 0:05:55.000 The Nike sworsh has been flatten. 0:05:54.640 --> 0:05:55.960 Out on FED expectations. 0:05:56.080 --> 0:05:58.360 So therefore, if we're now getting back through FED expectations 0:05:58.400 --> 0:06:00.479 being roughly flat, we have a few cuts priced in. 0:06:00.839 --> 0:06:03.760 Imagine if suddenly those expectations start to move up that 0:06:03.800 --> 0:06:06.080 people are saying, well, maybe we'll get another hike. I 0:06:06.120 --> 0:06:07.880 do think you a lot of equity investors will be 0:06:07.880 --> 0:06:09.600 looking at that and saying, well, in that case, you 0:06:09.680 --> 0:06:12.560 already had the trailing pe on Tesla at almost two hundred. 0:06:12.880 --> 0:06:15.080 That's why some of these stocks and a trailing pepages 0:06:15.160 --> 0:06:18.160 are incredibly expensive. And if you now have that, well, 0:06:18.160 --> 0:06:20.000 maybe the FED has to do something more meeting high 0:06:20.080 --> 0:06:22.080 rates again. Well, then I do think some of these 0:06:22.080 --> 0:06:24.560 more sensitive names they will certainly see a bigger hit. 0:06:24.640 --> 0:06:27.120 So that's why given all the stocks returns have been 0:06:27.160 --> 0:06:29.960 drawn by a handful of stocks. I do think that 0:06:29.960 --> 0:06:32.400 that makes it much more sensitive to if again the 0:06:32.480 --> 0:06:35.200 Nikes Woll swifts up and we do get a situation 0:06:35.240 --> 0:06:37.480 where the fit is pricing in more hikes. 0:06:37.240 --> 0:06:40.280 Coming tost and a clinic as always going to see us, sir, 0:06:40.720 --> 0:06:53.520 Thank you. Toston's luck there of a Pomo. Donald Trump 0:06:53.560 --> 0:06:56.599 hadding to Capital Hell tomorrow as the president elects purshused 0:06:56.600 --> 0:07:00.720 Republicans to pass a single massive bill concerning his priorities. 0:07:00.800 --> 0:07:03.760 Trump look into secure a houseflow on immigration, energy, and 0:07:03.839 --> 0:07:07.040 extension of the twenty seventeen Trump tax cuts by April. 0:07:07.240 --> 0:07:12.120 The Republican Congressman French Hill of Arkansas. John Desnaphamore Congressman Hill, good. 0:07:12.000 --> 0:07:12.640 To catch up with you. 0:07:12.720 --> 0:07:15.760 As always, we'd love your opinion on what you think 0:07:15.840 --> 0:07:18.920 is the best way to pursue the president's agenda. Is 0:07:18.920 --> 0:07:22.560 it through going off to just one big bill? 0:07:22.840 --> 0:07:25.160 Well, Jonathan, it's great to be with you. Yes, I 0:07:25.200 --> 0:07:28.080 do support one bill because I think that's the easiest 0:07:28.080 --> 0:07:31.280 way to get the votes for the President's priorities in 0:07:31.320 --> 0:07:36.240 the House, which include, as you said, energy, permitting reform, 0:07:36.880 --> 0:07:40.960 securing the border, and of course debating and completing an 0:07:41.000 --> 0:07:43.720 extension of the Trump tax cuts from twenty seventeen. 0:07:44.080 --> 0:07:47.600 Congressman, we've been debating around this table how much the 0:07:48.040 --> 0:07:50.240 ten year yield has a seat at the table when 0:07:50.280 --> 0:07:52.320 deciding what kind of bill and how big it is. 0:07:53.000 --> 0:07:56.640 When the Congress meets and possibly passes this as soon 0:07:56.640 --> 0:07:57.240 as April. 0:07:57.400 --> 0:07:58.360 What's your view on this. 0:07:58.480 --> 0:08:01.280 How much of a veto power does the bond market have? 0:08:04.040 --> 0:08:06.320 Well, Lisa, look, I don't think it makes any difference 0:08:06.320 --> 0:08:08.720 on that point, whether it's one bill or three bills. 0:08:08.760 --> 0:08:12.800 To the point of your previous commentator, what I think 0:08:12.880 --> 0:08:15.240 is concerning to me is that I wish we'd finish 0:08:15.400 --> 0:08:18.760 Fy twenty five spending last Congress. I think that would 0:08:18.760 --> 0:08:21.840 have been in the President's best interest. But instead this 0:08:21.920 --> 0:08:23.920 first quarter, we're going to do both. We're going to 0:08:23.920 --> 0:08:26.800 complete fiscal twenty five spending by the middle of March, 0:08:27.440 --> 0:08:30.080 and we're going to try to do budget reconciliation with 0:08:30.160 --> 0:08:33.680 the House and Senate before early April. That's a big lift, 0:08:34.320 --> 0:08:37.160 and it may demonstrate a little uncertainty on the part 0:08:37.200 --> 0:08:39.080 of the bond market, But I think the real issue 0:08:39.160 --> 0:08:43.440 is let's get spending under control through budget reconciliation. That's 0:08:43.440 --> 0:08:47.360 the purpose of budget reconciliation. It's a procedure by which 0:08:47.360 --> 0:08:50.000 you can do big things in Congress using fifty one 0:08:50.040 --> 0:08:53.320 percent vote margins in the House and Senate. President Obama 0:08:53.480 --> 0:08:56.600 used it to create Obamacare. President Trump in his first 0:08:56.640 --> 0:09:00.920 term used that to reform the tax code. Republicans in 0:09:00.960 --> 0:09:03.040 the House and Senate this year want to use budget 0:09:03.400 --> 0:09:08.240 reconciliation to get federal spending under control, while we also 0:09:08.360 --> 0:09:11.520 extend the pro growth features of the Trump tax cuts. 0:09:11.600 --> 0:09:13.439 Fowers were one of the concerns that we hear from 0:09:13.480 --> 0:09:15.440 a lot of fixed income strategists who come on the 0:09:15.480 --> 0:09:18.400 show is that they're not seeing where the cuts are 0:09:18.400 --> 0:09:21.680 going to come into place in this reconciliation bill. Where 0:09:21.720 --> 0:09:23.040 are they going to come. 0:09:24.559 --> 0:09:26.960 We had a meeting all weekend where we work with 0:09:27.000 --> 0:09:32.079 our committees of jurisdiction on determining cuts and spending across 0:09:32.120 --> 0:09:35.320 the board. With the exceptions of what President Trump has 0:09:35.400 --> 0:09:38.600 taken off the board, which would be Medicare and Social 0:09:38.600 --> 0:09:43.200 Security benefit areas, the rest of it's on track. And 0:09:43.240 --> 0:09:45.720 you know how much spending has gone up, and just 0:09:46.000 --> 0:09:50.120 since the pandemic, we're running a two trillion dollar deficit 0:09:50.280 --> 0:09:54.760 per year. Seven percent of GDP that's the part that's unsustainable. 0:09:55.040 --> 0:09:58.080 Everyone in Congress knows that. So we've got to get 0:09:58.120 --> 0:10:01.560 our spending on a more sustained, predictable front. I think 0:10:01.600 --> 0:10:04.360 that would benefit the bond market if they saw that 0:10:04.440 --> 0:10:06.520 kind of work on the part of Congress. 0:10:06.840 --> 0:10:09.120 Well, we have the CBO talking about at least one 0:10:09.320 --> 0:10:12.800 point of that one big beautiful reconciliation potential bill, which 0:10:12.840 --> 0:10:17.800 would be just extending TCAJA over the upcoming decade, would 0:10:17.800 --> 0:10:21.559 cost four trillion dollars. On top of that, the President 0:10:21.559 --> 0:10:24.600 elect continues to talk about no tax on tips. How 0:10:24.679 --> 0:10:27.439 much do you think can actually get through this Congress. 0:10:29.400 --> 0:10:33.280 Well, look, am Marie, you had CBO also say that 0:10:33.800 --> 0:10:36.520 the Tax Cuts and Jobs Act, when they did not 0:10:36.760 --> 0:10:41.800 dynamically score it, would not produce increased revenues over a 0:10:41.840 --> 0:10:44.720 ten year budget window. And in fact, since twenty seventeen, 0:10:44.800 --> 0:10:49.000 you've seen record federal revenue pour into the country from 0:10:49.640 --> 0:10:53.520 no more reversions, people bringing taxable income back, the investments 0:10:53.559 --> 0:10:56.559 that were made. GDP growth, job growth, wage growth was 0:10:56.600 --> 0:11:00.360 all up in those years following the Tax Cuts and 0:11:00.480 --> 0:11:03.520 Jobs Act, but before the impact of the pandemic. So 0:11:03.800 --> 0:11:07.560 I don't believe House Republicans are governed completely by the 0:11:07.600 --> 0:11:12.120 opinions of CBO exclusively, even though that's an incredibly important 0:11:12.120 --> 0:11:16.320 component because we've seen how in error estimates are from 0:11:16.400 --> 0:11:20.040 the Joint Tax Committee and from CBO, not recently, but 0:11:20.080 --> 0:11:21.720 for the past fifty years. 0:11:22.040 --> 0:11:25.520 Congressman, you're also now the chair of a very powerful committee, 0:11:25.520 --> 0:11:28.320 the House Financial Services Committee, and we see a number 0:11:28.360 --> 0:11:31.839 of representatives going to mar Lago this upcoming weekend. Will 0:11:31.920 --> 0:11:33.520 you be there and if so, what do you plan 0:11:33.600 --> 0:11:35.160 to discuss with President Electrump. 0:11:37.160 --> 0:11:37.319 Well? 0:11:37.360 --> 0:11:40.600 President Trump has invited the committee chairs to a dinner 0:11:40.640 --> 0:11:43.080 and we'll be talking about our priorities that we have 0:11:43.200 --> 0:11:46.400 for the first few months of his administration and getting 0:11:46.400 --> 0:11:47.440 his views on those. 0:11:49.160 --> 0:11:53.760 What are your priorities specifically for the Financial Services Committee. 0:11:54.600 --> 0:11:56.679 Well, you know we've talked about that many times. I've 0:11:56.720 --> 0:11:59.480 got three big priorities. First, I want to right size 0:11:59.520 --> 0:12:05.559 the regulatory system for particularly community banks. We think that's 0:12:05.600 --> 0:12:08.560 an important feature that's gotten off track, particularly in the 0:12:08.559 --> 0:12:11.360 Biden Harris administration. We want to make sure the SEC 0:12:11.440 --> 0:12:14.800 is focused on capital formation and investor protection and orderly 0:12:14.880 --> 0:12:18.319 markets and not a political agenda that former soon to 0:12:18.360 --> 0:12:21.360 be former chairman Gary Ginsler had and finally, we want 0:12:21.400 --> 0:12:24.200 to have a market structure for innovation in this country 0:12:24.240 --> 0:12:28.360 where people can use blockchain, can use digital currencies and 0:12:28.520 --> 0:12:32.480 digital assets to advance their business mission and make sure 0:12:32.480 --> 0:12:34.720 that the US is a leader around the world in 0:12:34.800 --> 0:12:37.600 this new Web three innovative technology. 0:12:37.720 --> 0:12:39.880 Corson, we also need to talk about the FED. Yesterday 0:12:39.880 --> 0:12:43.040 Michael Barr stepping down. You welcomed that. This morning the 0:12:43.080 --> 0:12:45.400 Wall Street Journal in an editorial is talking about that 0:12:45.480 --> 0:12:48.880 maybe a replacement for Michael Barr will meet Governor Bowman. 0:12:49.559 --> 0:12:50.480 Would you welcome that. 0:12:52.480 --> 0:12:55.920 Mickey Bowman's done an outstanding job as a governor on 0:12:55.960 --> 0:12:59.760 the Federal Reserve. She comes to the Federal Reserve with 0:13:00.000 --> 0:13:03.319 tactical experience both as a bank commissioner in Kansas as 0:13:03.360 --> 0:13:07.400 well as a family connected to community banking business there 0:13:07.440 --> 0:13:09.760 in the Heartland. She has been a great voice for 0:13:09.880 --> 0:13:13.240 common sense and tailoring and regulation, and I think she 0:13:13.320 --> 0:13:15.839 would be if President Trump made that decision, that would be, 0:13:15.920 --> 0:13:17.160 in MA view, a good one. 0:13:17.320 --> 0:13:20.480 Congressman, We're seeing some big shifts in corporate America as well. 0:13:20.520 --> 0:13:22.520 We'd love your thoughts just to close up this conversation 0:13:22.600 --> 0:13:24.839 and what we just heard from meta moments ago, and 0:13:24.880 --> 0:13:26.760 if you missed it, because it only broke about fifteen 0:13:26.760 --> 0:13:29.000 minutes ago, I'll give you summary off in this came 0:13:29.000 --> 0:13:31.959 from Meta about fifteen minutes ago. That's starting in the 0:13:32.080 --> 0:13:34.200 United States. They're going to be ending their third party 0:13:34.280 --> 0:13:37.120 fact checking program and moved to a community notes model, 0:13:37.320 --> 0:13:39.480 something we're more familiar with with the likes of X. 0:13:39.640 --> 0:13:42.680 We're seeing some big shifts around corporate America. I think, 0:13:42.760 --> 0:13:46.400 taking note of more conservative voices in the last few months, 0:13:46.400 --> 0:13:49.760 particularly after the election in early November, that note that 0:13:49.880 --> 0:13:53.000 is notable. I think Congressman Hill for corporate America, and 0:13:53.040 --> 0:13:55.040 I just wonder how you're responding to things and what 0:13:55.160 --> 0:13:56.439 you think of that shift. 0:13:57.640 --> 0:14:00.959 Well, Jonathan, over the decade that I've been in Congress 0:14:01.000 --> 0:14:04.400 for basically three decades before that, I was in corporate America, 0:14:04.480 --> 0:14:07.920 both with public companies and private companies, and I've never 0:14:07.960 --> 0:14:12.920 been a big fan for bringing politics, partisanship, and social 0:14:13.000 --> 0:14:16.920 policy fads into the corporate boardroom. I think business should 0:14:16.960 --> 0:14:20.080 be in the business of delivering a product that meets 0:14:20.120 --> 0:14:23.720 the needs of consumers, all consumers, no matter what their 0:14:23.800 --> 0:14:26.800 walk in life is. And so that's why I think 0:14:26.840 --> 0:14:31.239 it's good that business appears to be getting back focused 0:14:31.280 --> 0:14:36.280 on conducting their mission and leave the politics at home 0:14:36.560 --> 0:14:38.640 or out with their friends. 0:14:39.040 --> 0:14:42.200 French Chill affreciated time Congressman French Chaill got good to 0:14:42.240 --> 0:14:53.400 be a vocon sell good to see us at fat 0:14:53.480 --> 0:14:56.840 Governor Lisa Cook saying the FMC can proceed cautiously on 0:14:56.920 --> 0:15:00.360 further rate cuts with inflation precious remaining. The Fullish conto 0:15:00.400 --> 0:15:03.680 FED President Charles Evans writing, I expect inflation will return 0:15:03.680 --> 0:15:06.680 to two percent within the Fed's current timetable. They don't 0:15:06.680 --> 0:15:08.960 want some risk cutting rates and then need to backtrack 0:15:09.040 --> 0:15:11.280 higher if inflation rises again. 0:15:11.560 --> 0:15:13.960 Charles joined us now for more. Charles, welcome to the programs, sir. 0:15:14.000 --> 0:15:15.320 I just want to go through a range of comments 0:15:15.360 --> 0:15:17.720 we've had from FED officials over the past few days. 0:15:17.760 --> 0:15:21.120 Governor Cook said inflation has been stickier. Governor Coogler said, 0:15:21.120 --> 0:15:23.360 obviously our job is not done. Presidents Amy said, we're 0:15:23.400 --> 0:15:26.560 uncomfortably above our target. Why do you suppose, with all 0:15:26.560 --> 0:15:28.600 of that in mind, they reduced interest rates to the 0:15:28.680 --> 0:15:29.240 last meeting. 0:15:31.440 --> 0:15:34.400 Well, I think that the FED has done a readjustment 0:15:34.480 --> 0:15:37.160 and the stance of monetary policy. They've cut rates by 0:15:37.200 --> 0:15:41.240 one hundred basis points. Over the last year since September, 0:15:41.560 --> 0:15:44.120 and the last cut in December was a close call, 0:15:44.160 --> 0:15:47.680 according to char Powell. So I think they're well positioned 0:15:47.680 --> 0:15:49.360 at this point to deal with the risk that they 0:15:49.400 --> 0:15:52.680 expect to be facing this year, and I think they're 0:15:52.680 --> 0:15:55.440 an awful lot of risks. Inflation has been bumpy, and 0:15:55.480 --> 0:15:58.840 their focus is on getting inflation back to two percent. 0:15:59.000 --> 0:16:04.160 They are looking at a projection themselves of core PCEE 0:16:04.200 --> 0:16:05.360 at the end of this year at two and a 0:16:05.400 --> 0:16:08.120 half percent. That's a little bit more than uncomfortably above 0:16:08.520 --> 0:16:12.760 two percent, and they don't give any indication that they're 0:16:12.800 --> 0:16:14.720 willing to sort of say, well, you know, two and 0:16:14.760 --> 0:16:17.600 a half's really not that far above two percent. So 0:16:17.800 --> 0:16:20.840 with their focus on two percent, I think I believe 0:16:20.880 --> 0:16:23.000 the Fed policy makers that they are going to be 0:16:23.040 --> 0:16:26.600 patient in adjusting monetary policy, and they're going to need 0:16:26.640 --> 0:16:28.080 to see improvements and inflation. 0:16:28.400 --> 0:16:31.360 How concerning is it to you that longer term rates 0:16:31.400 --> 0:16:34.280 have risen so much since the Fed finished cutting by 0:16:34.320 --> 0:16:36.080 one hundred basis points last year. 0:16:39.000 --> 0:16:40.440 You know, there are a lot of things going on 0:16:40.640 --> 0:16:42.560 at the same time, and so it is it is 0:16:42.600 --> 0:16:44.720 the case that the FED funds rate is lower though 0:16:44.720 --> 0:16:47.400 would put downward pressure on the tenure rate, for sure. 0:16:47.440 --> 0:16:51.360 But it's also the case that you know, their you know, 0:16:51.360 --> 0:16:55.160 fiscal deficits are continuing to be high. You know, there's 0:16:55.200 --> 0:16:58.640 a lot of uncertainty about that. Our investor is going 0:16:58.640 --> 0:17:01.040 to be responding to that, and I think it's natural 0:17:01.120 --> 0:17:04.399 to suspect that funding rates could be higher at the 0:17:04.440 --> 0:17:09.040 long end. It's also the case that productivity is higher. 0:17:09.720 --> 0:17:12.440 AI offers a lot of promise. Growth has been above 0:17:12.480 --> 0:17:16.159 two percent. Our assessments of long run trend tend to 0:17:16.160 --> 0:17:18.160 be about two percent, but if they're higher, that would 0:17:18.200 --> 0:17:20.560 also justify higher long term rates too. So there are 0:17:20.560 --> 0:17:23.360 many things in play, plus all of the uncertainty associated 0:17:23.400 --> 0:17:26.119 with volatility and tariff commentary. 0:17:26.640 --> 0:17:28.680 How much you've concerned about the fact that the Fed 0:17:28.960 --> 0:17:31.879 hasn't really put out a framework for how they're going 0:17:31.920 --> 0:17:35.239 to deal with some of the potential policy changes that 0:17:35.280 --> 0:17:37.520 are coming out. This was something that former New York 0:17:37.600 --> 0:17:40.200 Fed President Bill Dudley was talking about. Do you think 0:17:40.200 --> 0:17:43.760 there needs to be a better communication of scenario analysis 0:17:43.800 --> 0:17:46.840 around tariffs and around potential immigration changes? 0:17:48.920 --> 0:17:53.080 The FED communications is always difficult. It's difficult for central banks, 0:17:53.080 --> 0:17:56.760 it's difficult for any institution that is dealing with uncertainty 0:17:56.800 --> 0:17:58.760 and talking about what they're going to be doing over 0:17:58.760 --> 0:18:01.719 the next six to eight months uncertainty. It is just 0:18:01.840 --> 0:18:06.000 very difficult to describe in a way that you know 0:18:06.160 --> 0:18:10.439 many many readers can can fully appreciate. The FED has 0:18:10.440 --> 0:18:13.480 a number of communications tools. The Summary of Economic Projections 0:18:13.520 --> 0:18:16.000 are one of them, and so you know, by the 0:18:16.040 --> 0:18:19.560 FED Zone take, they've indicated that they're expecting inflation is 0:18:19.560 --> 0:18:21.840 going to be higher than they previously thought for longer 0:18:21.880 --> 0:18:26.280 and they need to take action. You could go through 0:18:26.359 --> 0:18:29.200 a few different scenarios where well, it could be better 0:18:29.240 --> 0:18:32.359 than that, and explain how you know the funds rate 0:18:32.400 --> 0:18:34.359 would fall, or you could say it's going to be 0:18:34.400 --> 0:18:37.040 worse than that. They have internal documents where they go 0:18:37.119 --> 0:18:41.119 through that. I not convinced that the public would be 0:18:41.200 --> 0:18:45.360 able to digest three scenarios when they have as much 0:18:45.359 --> 0:18:47.760 difficulty with one. You'd constantly be going, well, which of 0:18:47.800 --> 0:18:50.080 the three do you really think we should be paying 0:18:50.080 --> 0:18:50.600 attention to? 0:18:50.920 --> 0:18:54.760 Speaker Johnson is talking about this potential one big reconciliation 0:18:55.000 --> 0:18:57.600 bill by May. If that is the case, does the 0:18:57.640 --> 0:19:00.320 FED then just stay on the sideline and wait for 0:19:00.680 --> 0:19:04.000 the policy chatter to become actual legislation. 0:19:06.920 --> 0:19:09.639 Well, I think the typical fed approach Share Powell has 0:19:09.680 --> 0:19:12.160 tried to describe this at the last couple of press conferences, 0:19:12.200 --> 0:19:15.840 which is to you know, you know, observe the legislative process, 0:19:16.040 --> 0:19:19.000 observe the progress. When do they get legislative language, when 0:19:19.040 --> 0:19:23.160 is it about to actually take you know, and be enacted, 0:19:23.240 --> 0:19:25.200 and what actually ends up in the bill. A lot 0:19:25.200 --> 0:19:27.960 of things end up, you know, with the last minute 0:19:28.000 --> 0:19:29.840 and a bill or get taken out, and so it's 0:19:29.920 --> 0:19:32.360 very difficult to have confidence that you know exactly what 0:19:32.440 --> 0:19:35.840 the stance of fiscal policy is until you get you know, 0:19:35.920 --> 0:19:39.000 real language there. And I mean if you just go back, 0:19:39.320 --> 0:19:43.600 you know previously, when you've talked about eliminating the Affordable 0:19:43.640 --> 0:19:46.840 Care Act, that would have huge implications for the economy, 0:19:46.880 --> 0:19:49.000 and it came down to a single vote, and so 0:19:49.440 --> 0:19:51.159 you know, you have have to actually go through the 0:19:51.160 --> 0:19:55.040