Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each
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Speaker 2: to discuss the state of energy, not just domestically but worldwide,
Speaker 2: the seventeenth United States Secretary of Energy, Chris Right, Mister Secretary,
Speaker 2: welcome back to the program sir, looking forward to an
Speaker 2: in dev conversation with you about what you cover every
Speaker 2: single day. So, first of all, just on a run
Speaker 2: so we can deal with that. What is the current
Speaker 2: stance of the US officially on the use and import
Speaker 2: of the running crude?
Speaker 3: Oh, the sanctions are still in pl no change there.
Speaker 3: I think the Trump what President Trump was referring to
Speaker 3: there is Hey, if we make a large piece and
Speaker 3: sanctions come off, aron can flourish.
Speaker 2: If you could a decent understanding the miss the Secretary
Speaker 2: of just how much of running crud is being consumed
Speaker 2: and impulsive already as things stand, despite the sanctions.
Speaker 3: We do so, a RAM produces about three and a
Speaker 3: half million barrels a day, and they've been import they've
Speaker 3: been exporting about one and a half million barrels of
Speaker 3: oil a day, and the maximum pressure campaign that President
Speaker 3: Trump did in his last term tamp that down to
Speaker 3: only one hundred or two hundred thousand barrels a day.
Speaker 3: They cut off ninety percent of it. That was a
Speaker 3: possible strategy here as well, but hadn't been implemented yet.
Speaker 3: We tried to give negotiations a chance see if we
Speaker 3: can do it without maximum pressure.
Speaker 4: So is maximum pressure still on the table or is
Speaker 4: the ad ministration walking away from that?
Speaker 3: Well, the goal right now, of course, is to get
Speaker 3: a peace deal, is to get peace into the middle
Speaker 3: and spread the focus on commerce not conflict. So no,
Speaker 3: it's not actively being discussed right now, but the situation
Speaker 3: is still dynamic there. We want to see peace, prosperity
Speaker 3: and security as the future of the Middle East.
Speaker 4: When it comes to what's going on in Iran as well.
Speaker 4: In terms of the IAEA, the Foreign Minister said yesterday
Speaker 4: that basically they have no plans to having the Director
Speaker 4: General Raphael Grossy in Iran and doesn't sound like they're
Speaker 4: willing to give the inspectors the space, time and access
Speaker 4: they need to look at these nuclear facilities.
Speaker 5: What is the United States response to that?
Speaker 3: Yeah, look, this is early on.
Speaker 5: This is early on.
Speaker 3: Iran has just had most of its nuclear program entirely
Speaker 3: devastated by Israel and the United States. They're a little
Speaker 3: bit humbled, they're a little bit shell shocked right now.
Speaker 3: So yeah, I wouldn't put too much weight on those words,
Speaker 3: but a final peace steal certainly has to have confidence
Speaker 3: in a dismantlement of the Iranian nuclear program and that
Speaker 3: people can have security it won't be resurrected in the future.
Speaker 4: You deal with a lot of nuclear at the Energy
Speaker 4: Department before the US strikes, but after the Israeli strikes.
Speaker 4: Raphael Grossi told us that the IAEA cannot verify with
Speaker 4: the four hundred kilograms of sixty percent enriched uranium in
Speaker 4: Isfahan was currently where it was?
Speaker 5: Was it still there? Do the Irradians take it out?
Speaker 4: Doesn't the IAEA need to go in and verify where
Speaker 4: this enriched uranium is.
Speaker 3: I think that's quite likely part of a future negotiation
Speaker 3: or a future deal.
Speaker 2: Miss the Secretary. Of course, this is just one part
Speaker 2: of the conversaction and energy right now. I can tell
Speaker 2: you earlier on this morning, there's a report that you
Speaker 2: might have seen that came from reuts As. Actually the
Speaker 2: Administraction is readying a package of executive actions aimed a
Speaker 2: boosting energy supply to power the US expansion of artificial energy.
Speaker 2: Mister Secretary, what can you share with this this morning?
Speaker 3: Yeah, Look, artificial intelligence is an incredibly exciting development that's coming.
Speaker 3: It is going to revolutionize not just our economy but
Speaker 3: our health drug discovery, but it also plays huge role
Speaker 3: in national defense, which is why I've compared it to
Speaker 3: the Manhattan Project. It's critical, it'll be transformative, and we
Speaker 3: must lead. We cannot be second place in AI. And
Speaker 3: to do that, we have the scientist, we have the capital.
Speaker 3: You have to have a huge growth in US electricity production.
Speaker 3: So we need to get the morass in the way
Speaker 3: that's really hobbled the American energy system for the last
Speaker 3: four years, and we got to unleash American investment in
Speaker 3: American capitalism. That's going to take building a lot of
Speaker 3: new power generation.
Speaker 6: Mister Secretary, to build on that idea, what type of
Speaker 6: energy production are you looking at? I know that New
Speaker 6: York State was just looking at potentially creating a new
Speaker 6: nuclear energy plan.
Speaker 5: Is that one of the paths of travel.
Speaker 6: That you think is going to be pivotal for the
Speaker 6: United States?
Speaker 3: Absolutely, look to have a secure power glided into power AI.
Speaker 3: You need ninety nine point percent of the time on
Speaker 3: power and so that today our biggest source of reliable
Speaker 3: power today by far as natural gas. Our second biggest
Speaker 3: source is nuclear, and our third biggest source right behind
Speaker 3: that is coal. So those are the three keys to
Speaker 3: the future of our electricity grid. Nuclear we haven't built
Speaker 3: much for a while, so I was thrilled to see
Speaker 3: the governor's announcement embracing nuclear in New York. We have
Speaker 3: the governors of Tennessee and Georgia and Virginia passionate about
Speaker 3: getting new nuclear built in their states. So yes, one
Speaker 3: of our goals in this administration is is to launch
Speaker 3: the American nuclear renaissance.
Speaker 6: Mister Secretary, how do you encourage this type of investment
Speaker 6: at a time where the goal of the President has
Speaker 6: also been to lower prices. And we've seen this particularly
Speaker 6: in the energy space, where the President has been very
Speaker 6: vocal about the desire to see energy prices lower. And
Speaker 6: this has led to a number of oil rigs in
Speaker 6: the shell patch to be taken offline because it isn't
Speaker 6: profitable for a lot of these companies to be producing
Speaker 6: as much as they used to.
Speaker 5: How do you sort of square that circle?
Speaker 3: Yes, yeah, prices are supply and demand. Prices are supply
Speaker 3: and demand. But what we're doing in the administration is
Speaker 3: everything possible to lower the cost to produce energy in
Speaker 3: the United States. Cheaper to produce a barrel of oil
Speaker 3: or an mcf and natural gas, you know, or a
Speaker 3: ton of coal or a kilo one hour of electricity
Speaker 3: from nuclear plants. So that's deregulatory, that's common sense regulation
Speaker 3: focused on health and safety and the environment, but not
Speaker 3: the nonsense that just burdens burdens energy producers. Nuclear will
Speaker 3: be a little bit more expensive at the start, but
Speaker 3: I think that cost will be borne by hyperscalers. They
Speaker 3: want to see nuclear rearrives and they'll sign higher power
Speaker 3: purchase agreements to help kickstart nuclear we need to grow
Speaker 3: the energy supply and keep cost down. You're right, that's
Speaker 3: a challenge. You're right to bring that issue up, and
Speaker 3: that's what I work on seven days a week.
Speaker 2: Let's get at the regulatory burden. We're lucky to have
Speaker 2: someone in your seat that's actually ran an energy company
Speaker 2: in this country. As you know, permitting it is really
Speaker 2: difficult across many dimensions. You have to go state by
Speaker 2: state and the things you can do at the executive
Speaker 2: level to make this a lot easier. Could you describe
Speaker 2: those kind of things.
Speaker 3: That there are a number of things, and it is
Speaker 3: why we created the National Energy Dominance Council. That's really
Speaker 3: to bring people leaders from all different agencies that impact
Speaker 3: the ability to build things in our country together and
Speaker 3: say what We talked to producers and say, you know,
Speaker 3: why aren't you building that? And they'll give us a
Speaker 3: list of seven things. It'll take us seven years, and
Speaker 3: we're really worried about this one and that one. So
Speaker 3: we dive into those issues and say how can we
Speaker 3: simplify that. But I'll highlight a Supreme Court decision from
Speaker 3: just a few weeks ago on to get more oil
Speaker 3: out of Utah via train that've been held up for
Speaker 3: years through suits over NEPA, and the Supreme Court ruled
Speaker 3: eight to zero. Every Supreme Court justice involved in the
Speaker 3: case said, yes, we need to put NEPA back in
Speaker 3: its box. It's to check to make sure the environment's
Speaker 3: being considered. It's not to have years long, endless delays
Speaker 3: because if you delay something, you make it more uncertain,
Speaker 3: more expensive, and simply less things get built.
Speaker 2: Miss the Secretary, appreciate your time, sir, as always to
Speaker 2: break down the situation. Hopefully we can engage on this
Speaker 2: conversation again, Chris. Right there, the Energy Secretary of the
Speaker 2: United States, Tobin Marcus of All for Research, joins us
Speaker 2: now for more. Tobin, welcome to the program. I just
Speaker 2: want to pick up on the language, the words used
Speaker 2: by the COMMA secretary. How would lot mak we inked
Speaker 2: the deal? What's the deal? Do you have any details whatsoever?
Speaker 7: This seems to be the third time for the giving
Speaker 7: this particular deal because it seems to be a solidification
Speaker 7: of the framework to get back to the Geneva and
Speaker 7: census that was reached about two months ago. So it's
Speaker 7: good to have that lockdown. But it does not really
Speaker 7: look to me like that's delivering any kind of incremental
Speaker 7: relief or incremental steps forward. It's just solidifying the set
Speaker 7: of understandings that was required to keep the trading relationship
Speaker 7: from going further off track in terms of access to
Speaker 7: RARR earths on their side and the rollback of some
Speaker 7: of the incremental export controls on our side.
Speaker 4: I was at those talks in London. I still can't
Speaker 4: get from this administration and idea of what the language
Speaker 4: looks like. Who signed it. The Chinese say earlier this
Speaker 4: morning the US side will correspondingly cancel a series of
Speaker 4: restrictive measures taken against China, which measures.
Speaker 7: So it seems from my perspective that the Chinese have
Speaker 7: been primarily focused on the further expansion of export controls
Speaker 7: and took place after the Geneva meeting. So certainly the
Speaker 7: restrictions on natural gas liquids, on aerospace, on EA software,
Speaker 7: those are I think are clearly in the set of
Speaker 7: things that are going to be rolled off. The initial
Speaker 7: vote of contention from the Chinese side was this declaration
Speaker 7: that anyone using baway send chips is in violation of
Speaker 7: US export controls, that the uside characterized as a restatement
Speaker 7: of existing policy, and the Chinese side characterized as incremental
Speaker 7: expansion of export control. So that, in my mind is
Speaker 7: the question. I don't think that the US has committed
Speaker 7: to rolling that back, but that I think is sort
Speaker 7: of the final piece of wiggle room in how we
Speaker 7: understand this.
Speaker 5: This isn't a trade deal.
Speaker 4: This is just an understanding of some of the de
Speaker 4: escalation we've seen in these talks in Geneva and London.
Speaker 4: So where does this leave the relationship more long term,
Speaker 4: for more of a comprehensive agreement.
Speaker 7: It still looks very challenging to me. I think that
Speaker 7: the bullish narrative in markets immediately after the Geneva meeting
Speaker 7: was we've come down to thirty but of that thirty,
Speaker 7: twenty percent is FEDYL related, and that should be an
Speaker 7: easy thing for the Chinese side to alleviate Trump's concern
Speaker 7: on you know, this is an authoritarian society, Well like
Speaker 7: we should just think that they can flip a switch
Speaker 7: and do whatever they need to do on export controls
Speaker 7: on tentinal precursors to satisfy the US side. I think
Speaker 7: that's easier said than done, even to the extent that
Speaker 7: they can fully lay our substantive concerns, you know. I
Speaker 7: mean there have been multiple rounds of headlines from Boomberg
Speaker 7: among others about Vietnam aiming towards a twenty to twenty
Speaker 7: five percent teriff rate in their talks.
Speaker 5: Even if we've.
Speaker 7: Reached a deal, that's what the to look consist of,
Speaker 7: and we're taking Vietnam to twenty five, it does not
Speaker 7: really make sense to take off that twenty percent Fennel
Speaker 7: tariff and China at ten. It would be very upside
Speaker 7: down to go after Vietnam, where the main concerns have
Speaker 7: been around them as sort of an outlet for Chinese
Speaker 7: industrial over capacity and transshipping and so forth, and hit
Speaker 7: them harder than China itself. So I think we have
Speaker 7: a long way to go. I mean, the Chinese love
Speaker 7: slow delivered to mechanisms, and that's what we have in
Speaker 7: place now. And I think these talks will drag out
Speaker 7: for quite a while longer before we get further inco
Speaker 7: mentally easy.
Speaker 5: Isn't that Tobin?
Speaker 6: Kind of what we expect across the board, that this
Speaker 6: is going to be a process and they're going to
Speaker 6: be frameworks that are going to be announced on July ninth.
Speaker 5: That will then kick the can down the road.
Speaker 6: And right now the market is banking on escalate to
Speaker 6: de escalate, as John was talking about when it came
Speaker 6: to a run, but also when it comes to trade
Speaker 6: deals and what the path forward is likely to be
Speaker 6: for the president.
Speaker 7: Yeah, so I think I am less optimistic about exactly
Speaker 7: what these deals are going to deliver in terms of
Speaker 7: market relevant relief than I think sort of hull blue
Speaker 7: about deals in general and deal making as an enter
Speaker 7: would suggest, you know, latnux indication that there's going to
Speaker 7: be ten of these deals, and now we'll see they've
Speaker 7: been teasing a bunch of deals right around the corner
Speaker 7: for about two months now. But even if deals get
Speaker 7: rolled out, I mean, again in Vietnam being in my
Speaker 7: mind sort of the easiest or most important example, we
Speaker 7: seem to be aiming towards a significant increase in reciprocal
Speaker 7: terriff rates in that set of talks. So if we
Speaker 7: roll out that deal, that's not like good news for
Speaker 7: the market, it's not good news for I need to
Speaker 7: take one name that was mentioned just a moment ago,
Speaker 7: and similarly elsewhere, you know, like the sectoral tariffs have
Speaker 7: been the sticking point primarily with Japan, with India to
Speaker 7: some extent, they will be a huge sticking point with
Speaker 7: the EU, although those talks are not quite as far along.
Speaker 7: It doesn't really look to me like the US side
Speaker 7: is going to give on those. And so if we
Speaker 7: get a bunch of deals that don't drop the sectoral tariffs,
Speaker 7: I don't really think that this represents a big kind
Speaker 7: of dubbish impulse for markets.
Speaker 2: Type and appreciate your time and your opinion, Thank you, sir,
Speaker 2: type of Marcus there before Free said it's not just
Speaker 2: this morning the White House announcing imminem plans assigned trade
Speaker 2: agreements with ten countries, with the focus now shifting to
Speaker 2: the European Union. Marissa Adams of HSBC stand constructive, writing,
Speaker 2: we have entered a new era for trade. We don't
Speaker 2: expect things to go back to the way they were, Marissa,
Speaker 2: joints is now for more. Marissa, good morning, it's going.
Speaker 1: To see you. Good morning.
Speaker 5: Thanks for having me.
Speaker 2: You've said this before. Trade doesn't stand still, but it
Speaker 2: has changed. Can you just walk us all through how
Speaker 2: it's changed.
Speaker 1: Yeah, And it's really interesting because we did see disruption
Speaker 1: through the pandemic.
Speaker 5: You know, we've seen a different.
Speaker 1: Period of negotiations, but really posts April second, it's changed
Speaker 1: that I am at both on the supply side and
Speaker 1: the demand side. Now we've see these ten percent baseline
Speaker 1: tariffs that are now in place, and I think it
Speaker 1: is really clear. I always want to keep reminding people
Speaker 1: they're there, so whilst we have a lot of negotiations,
Speaker 1: ten percent is actually in place. But what's really changed
Speaker 1: is the speed of negotiations. And you know, we've heard
Speaker 1: this morning around the China deal. The Indian trade negotiators
Speaker 1: are in DC this week. There's optimism around you deal,
Speaker 1: and I think that this is actually quite a positive
Speaker 1: sign that quite quickly we're looking to come to agreements. Now,
Speaker 1: I would say there are deals in principle, they're not
Speaker 1: free trade agreements, and free trade agreements, as we know,
Speaker 1: take five to ten multiple years to really get down
Speaker 1: to the nitty gritty detail. But at least this is
Speaker 1: a positive sign that we're getting to some certainty For corporates.
Speaker 2: What are you seeing from individual corporations at the moment,
Speaker 2: what are they doing. We've been having this debate with
Speaker 2: economists and maybe it's better to have this debate with you.
Speaker 2: Are you seeing them take the hit on margins, pass
Speaker 2: it on to consumers, something in between? What are they doing?
Speaker 1: So it really depends sector bisector, and I think the
Speaker 1: one industry where we've seen at the most is in
Speaker 1: consumer retail. They have shorter order cycles, the lower margins,
Speaker 1: So what we're seeing there is that some of them
Speaker 1: are actually taking a hit to their bottom line. We've
Speaker 1: seen a few companies come out this week around that.
Speaker 1: The numbers, though still are fairly small, and I think
Speaker 1: ten percent is something that co corporates can absorb. When
Speaker 1: it starts to get to twenty five, thirty, forty fifty,
Speaker 1: that's at a stage where even if you want to
Speaker 1: compress your margins are going to have past pass costs
Speaker 1: on to consumers.
Speaker 6: How much confidence do they have in terms of where
Speaker 6: tariffs are going to be the highest i e. China,
Speaker 6: that they're actually moving production. How quickly is that happening?
Speaker 1: And it's a really good question in the sense that
Speaker 1: it depends if you are a shorter industry or a
Speaker 1: longer order industry. So we've seen in the tech industry,
Speaker 1: as an example, a lot of investment in semiconductors here
Speaker 1: in the United States. But a factory isn't built overnight.
Speaker 1: So we've got those commitments there, but five to six
Speaker 1: seven years.
Speaker 5: To build a factory.
Speaker 1: You're only going to do that once you know there
Speaker 1: is a certain path around how much more it will
Speaker 1: cost to come on shore. And again, margins is key.
Speaker 1: So some of those high margin tech industry tech businesses
Speaker 1: in the OEMs, they can afford to come back to
Speaker 1: the US. If you're in the ones that are a
Speaker 1: little bit narrow, you're still having to compete with OEMs
Speaker 1: in Asia for the ultimate end game. So that's where
Speaker 1: it becomes a bit of a challenge. So we've seen movement,
Speaker 1: and even over the past three four years there was
Speaker 1: a lot of movement into Latin America into Canada's trading partners,
Speaker 1: but even that is still five six seven years away
Speaker 1: from really being fully up and in production.
Speaker 6: John alluded to this earlier, and it's a really good point,
Speaker 6: the idea that ahead of any kind of tariff, there
Speaker 6: was a stockpiling of goods at prices pre tariff, and
Speaker 6: so we haven't really seen the ramifications either when it
Speaker 6: comes to margins or when it comes to consumer pricing,
Speaker 6: when does that run out?
Speaker 5: I mean, how long is that runway?
Speaker 1: Yeah, and Q one data actually, you know, you look
Speaker 1: at Q one data, really strong results. The wto trade
Speaker 1: index at quite a significant high that's seen, and that
Speaker 1: is really due to that front loading. I think we'll
Speaker 1: start to see some of the effects in Q four,
Speaker 1: But industry by industry, So if you look at the
Speaker 1: healthcare industry, I've been in New York this week speaking
Speaker 1: to a lot of pharmaceutical companies and they have long
Speaker 1: term contracts, so they are locked in for a year
Speaker 1: and a half two years for some of that production,
Speaker 1: so they may not actually see it for quite a time.
Speaker 1: Same thing with the energy sector, where you have long
Speaker 1: term energy sector contracts, but anything that is shorter order
Speaker 1: and where they're able to adjust, they will. Now one
Speaker 1: of your guests earlier was talking about the fact that
Speaker 1: exporters don't really seem to be taking the hit at
Speaker 1: this stage. That also might start to change because as
Speaker 1: you're starting to negotiate with those suppliers, is there a
Speaker 1: stage fore you you know, you've got to get them
Speaker 1: to lower their prices a little bit to offset the tariffs.
Speaker 1: So I think in Q four we'll start to see
Speaker 1: some of those effects.
Speaker 4: The political cell though for tariffs is to bring manufacturing
Speaker 4: not to Canada or Mexico but to the United States
Speaker 4: is ten percent getting it done.
Speaker 1: It's starting to create those conversations. And I think in
Speaker 1: addition to it's not just terriffs that's an impact. If
Speaker 1: there's tax incentives, if there's other regulatory incentives. Now, the
Speaker 1: other thing that is hasn't necessarily been expressed here is
Speaker 1: also about resiliency, and we saw after the pandemic, corporates
Speaker 1: were really focused on resiliency. How do you get those
Speaker 1: items actually into the country. So there is a huge
Speaker 1: benefit in the healthcare industry, for example, they have already
Speaker 1: done region for regions, so where they are supplying medications
Speaker 1: here in the United States, they've actually brought that production
Speaker 1: on shore. So it is really starting to happen. It's
Speaker 1: just that it's a little bit longer of an order
Speaker 1: cycle and they need some more incentives to actually make
Speaker 1: that investment.
Speaker 4: What about the sectoral tariffs that were potentially going to
Speaker 4: get when it comes to things like pharmaceuticals that are
Speaker 4: also going to be on what many would say more
Speaker 4: sound legal footing.
Speaker 1: And that I'd say is more of a concern for
Speaker 1: corporates than the percent. So where those land and how
Speaker 1: that means they have to rejig some of their supply
Speaker 1: chains is going to be a challenge, so.
Speaker 5: They're looking at that.
Speaker 1: What I would say is that the biggest challenge of
Speaker 1: the moment is still this uncertainty. So you don't want
Speaker 1: to make an investment. You're waiting to pause to move
Speaker 1: through that, and as a result of that, companies are
Speaker 1: delaying decisions.
Speaker 5: There's only so long you can delay.
Speaker 1: Now. I can't tell you whether three months is okay,
Speaker 1: six months is okay, at nine months, but we will
Speaker 1: start to see that and that is a challenge, especially
Speaker 1: if you want to supply onshore and also create more
Speaker 1: production capabilities in the United States.
Speaker 2: Just quickly, how has your business changed? How have you
Speaker 2: and the team had to winnovate? What kind of solutions
Speaker 2: have you had to come up with the corporations?
Speaker 1: So great question. Thank you very much for that. I
Speaker 1: appreciate it. And we are having to do three things.
Speaker 1: So the first thing is really doubling down on working
Speaker 1: capital treasurers and CFOs. I think over six seven years ago,
Speaker 1: we're lucky a little bit blessed in the low interest
Speaker 1: certain environment with less volatility, But now they're looking for
Speaker 1: more tools in their toolkits, so we're looking at ways
Speaker 1: to help them finance receivables, payables, inventory as well. So
Speaker 1: inventory finance is a relatively new product area where again
Speaker 1: you weren't having to hold so much on shore now
Speaker 1: you are. The second area is around services. So services
Speaker 1: trade is twenty six percent of global trade. It's growing
Speaker 1: at three times the break and actually we're seeing a
Speaker 1: lot of traditional goods manufacturers going into services trade. So
Speaker 1: we've started to create contract monetization facilities for that, financing
Speaker 1: those long term contracts that again are not traditional goods trade,
Speaker 1: but actually it is an exchange and trade of information.
Speaker 2: You've got ten seconds to time me the third one.
Speaker 1: The third one is we are working with them on
Speaker 1: how they look at new corridors.
Speaker 5: So I think HSBC we're.
Speaker 1: In over sixty markets. We have local presence with their suppliers,
Speaker 1: so we're helping them to advance the new markets.
Speaker 2: Perfect time, and we'll continue this conversation. I'm up against
Speaker 2: the heartbreaks. We've got to go, but it's good to
Speaker 2: see you. Thank you, thank you, very much. Marissa Adams
Speaker 2: there of HSBC joining us NAT's have that conversation. Alejandro
Speaker 2: Vindol of ned Davis Research, Al Hondre, welcome back to
Speaker 2: the program. Just frame things from your standpoint. Where's this
Speaker 2: labor market at right now? Chair and Pou spent hours
Speaker 2: talking about an economy that was solid. Do you believe
Speaker 2: it's solid?
Speaker 8: You know, of course solid is a relative. Colin again,
Speaker 8: thank you for having me back again. So the way
Speaker 8: I would frame the labor market, it's not a super
Speaker 8: technical term.
Speaker 5: But I would say it's okay.
Speaker 8: So we've been seeing signs of softening through a broad
Speaker 8: array of reports, whether it's the jobless claims from the
Speaker 8: continuing Claims data we saw yesterday rose to the highest
Speaker 8: since twenty eleven or twenty twenty one, I'm sorry, some
Speaker 8: weakness and payrolls, more balancing in the labor market from
Speaker 8: the Jolt survey. But if you look at most of
Speaker 8: that data, it's still quite far from their recessionary thresholds.
Speaker 8: So it still gives the Fed some time to sort
Speaker 8: of sit and wait and see how a lot of
Speaker 8: you know, these potential polye changes can impact growth and
Speaker 8: inflation in the coming months.
Speaker 5: Alle hundred.
Speaker 6: Can we continue to see the sort of just weakening
Speaker 6: but not weak trend When does weakening tip over into weak.
Speaker 8: Our base case scenario is kind of, you know, just
Speaker 8: sort of going about a slower pace of growth, not
Speaker 8: necessarily recession, which is I think of what you meant
Speaker 8: by week. Ultimately the base that the main thing to
Speaker 8: watch is the labor market. So we've kind of had
Speaker 8: these slow downs and growth over the past few years,
Speaker 8: some upticks, but we haven't fallen into that recession territory
Speaker 8: really because of that resiliency and the labor market.
Speaker 5: So that's why we're watching it so closely. I don't know.
Speaker 8: Our base case is that we kind of muddle through
Speaker 8: with about the same sort of this slowing in growth,
Speaker 8: but still away from recessionary thresholds. But again it's very
Speaker 8: dependent on policy. If most of the downside risks come
Speaker 8: into fruition, whether it comes through tariffs or higher inflation
Speaker 8: and increase uncertainty, we could see pronounced weakness in the
Speaker 8: labor market. If care sort of settle at a more
Speaker 8: reasonable level, we get the big beautiful bill with tax
Speaker 8: cuts in some expansionary policy, then that could sort of
Speaker 8: keep the labor market from falling over the edge. So
Speaker 8: just in general, a lot of uncertainty, pretty much what
Speaker 8: you guys were mentioning earlier.
Speaker 5: Which is what everyone's been talking about.
Speaker 6: We have a week until that July fourth self imposed
Speaker 6: deadline for the one big beautiful bill where no one's
Speaker 6: going to be going on vacation, essensibly because John canceled
Speaker 6: it or amor canceled it earlier. But there is this
Speaker 6: question going forward about how much the economic outlook could change,
Speaker 6: not only with a week from now that July fourth deadline,
Speaker 6: but also July ninth. How big is the sort of
Speaker 6: range of scenarios for you.
Speaker 8: Well, again, the base case and the highest probability of
Speaker 8: more than fifty percent is just slowing growth and then
Speaker 8: either stable or slightly higher inflation, So kind of what
Speaker 8: you guys mentioned before, that stagflation light. But there are
Speaker 8: some tail risks that you could maybe see things get
Speaker 8: extraordinarily better. Right, Let's just say we do miraculously get
Speaker 8: these ninety deals in ninety day within the next couple
Speaker 8: of weeks or less than that, actually within one week
Speaker 8: we get the big beautiful bill, that could be you know,
Speaker 8: maybe a tail positive upside surprise, but I think it's
Speaker 8: a lesser likely scenario. And then I talked before about
Speaker 8: the potential recessionary scenario, but I do think that's lower
Speaker 8: as well. So yeah, base case actually very in line
Speaker 8: with what the FED has said, is a slow down
Speaker 8: in growth below potential but still positive and slightly higher inflation.
Speaker 4: Well, you have individuals who are saying, like Michael Hartnett
Speaker 4: this morning, a pivot from tariff to text cuts, raycuts
Speaker 4: could lead to higher risk of a bubble in the
Speaker 4: second half of the year. But you think the second
Speaker 4: half of the year is still going to be talking
Speaker 4: about policy uncertainty.
Speaker 5: In Washington, d C. Yeah, I do think it'll.
Speaker 8: Part of it is I don't think these tariff deals
Speaker 8: are going to be done that quickly, so there's still
Speaker 8: going to be some back and forth and some uncertainty.
Speaker 8: We should have a little more uncertainty from the big
Speaker 8: beautiful bill. I would suspect that's probably going to get
Speaker 8: approved at least over the next month or so, or
Speaker 8: we get some closure there. But I do think the
Speaker 8: tariff uncertainty will continue, and the impact it's going to
Speaker 8: have on inflation will take some time.
Speaker 5: So I think we'll be watching the data.
Speaker 8: And then there's also a lot of other policies that
Speaker 8: have happened since the beginning of the year. We had
Speaker 8: the Doge cuts at the beginning of the year that
Speaker 8: could have reciprocal impacts on state and local governments. What
Speaker 8: we started seeing at the federal level, and then also
Speaker 8: the immigration policies. What are they going to do to
Speaker 8: the labor force? What are they going to do to growth?
Speaker 8: So it's not just those tariffs and big beautiful bill,
Speaker 8: but there's a lot of other things going on that
Speaker 8: may just have more of a delayed ripple effect as
Speaker 8: the year progresses, and just contributing uncertainty.
Speaker 4: How quickly do we need to get to some clarity
Speaker 4: and all these issues for the US to maintain this exceptionalism.
Speaker 8: Well exceptionalism, the way I describe it is just the fact,
Speaker 8: especially compared to the rest of the developed world, we
Speaker 8: just have the potential to grow so much faster.
Speaker 5: And it's pretty much just based on two things.
Speaker 8: We have generally faster labor force growth, we have faster
Speaker 8: productivity growth, and over short periods of time, it's really
Speaker 8: hard to see the effect, say the long term effect
Speaker 8: on the long term growth of those items. But if
Speaker 8: we were to see a huge production in our labor
Speaker 8: force because of maybe some of the immigration policy, some
Speaker 8: of the early retirement we've been seeing, that could create
Speaker 8: a downside risk to long term US exceptionalism and growth.
Speaker 8: And then, of course tariffs right holding all lost constant
Speaker 8: tariffs reduce competitiveness, They reduce the gains from comparative advantage,
Speaker 8: and could reduce that strong productivity the US has. On
Speaker 8: the other end, we're also just generally more productive than
Speaker 8: a lot of the developed world because we're less regulated,
Speaker 8: we have more fluid labor markets, we have lower taxes.
Speaker 8: Big Beautiful Bill will probably contribute to that as well.
Speaker 8: We're also energy independent, so there's a lot of things
Speaker 8: that still work in our favor, but there's a few
Speaker 8: policy items that could whittle down some of that advantage
Speaker 8: that we've had for several years now.
Speaker 2: Every time I see you, I want to move to
Speaker 2: the sumbub. Every single time I one that grill, I
Speaker 2: want that terrace, the trees in the back.
Speaker 5: I think she should run architectural idea.
Speaker 2: We move into Florida.
Speaker 5: Yeah, oh gosh, it's always beautiful. It's like perfect.
Speaker 2: We're moving to Florida. We're moving one hundred grad Dock.
Speaker 2: I have met Davis Freesaid. This is the Bloomberg Surveillance Podcast,
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