WEBVTT - Surveillance: Moving Forward on Tariffs, Says CEA's Hassett 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jaily. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:30.200 Bloomberg dot Com, and of course, on the Bloomberg The 0:00:30.240 --> 0:00:33.640 Interview of the Day on the American labor economy will 0:00:33.640 --> 0:00:36.080 occur in the nine o'clock hour with Kevin Hassett our 0:00:36.159 --> 0:00:39.120 John Farrell speaking with the Chairman of the President's Council 0:00:39.120 --> 0:00:42.960 of Economic Advisors. Except as not Hassett's lame duck. He's 0:00:42.960 --> 0:00:45.440 out the door and we all know in advance, depending 0:00:45.479 --> 0:00:48.120 on what the report is, what Dr Hassett will say. 0:00:48.320 --> 0:00:51.360 This is the Interview of the Day. Jason Furman links 0:00:51.400 --> 0:00:54.960 economics with policy like no one in America. He's the 0:00:55.080 --> 0:00:59.000 liberal the conservatives have to read on the American economy, 0:00:59.000 --> 0:01:02.080 and Dr Furman joins us right now, Jason, I'm gonna 0:01:02.080 --> 0:01:05.080 cut to the chase. Do we know what technology is 0:01:05.160 --> 0:01:11.360 doing to our labor economy? Technology is a good thing 0:01:12.400 --> 0:01:16.240 that creates a high class problem. It gives us more options, 0:01:17.000 --> 0:01:20.200 it gives us potentially higher incomes. But if we don't 0:01:20.200 --> 0:01:23.280 invest in education, training and the like. You know, we 0:01:23.319 --> 0:01:27.000 won't get that. Are we seeing the investment now? I 0:01:27.040 --> 0:01:29.360 mean this is something John and I were just traveling, 0:01:29.360 --> 0:01:32.520 and you see the investment in infrastructure of the investment 0:01:32.520 --> 0:01:36.039 in education. Uh. We had a David Rubinstein interview with 0:01:36.080 --> 0:01:40.399 Melinda Gates about investment in young kids? Where is the 0:01:40.600 --> 0:01:44.160 state of investment on a long term basis leads to 0:01:44.240 --> 0:01:48.040 a better labor economy? Too little? On all of those 0:01:49.120 --> 0:01:51.320 young kids were about twenty second in the O E 0:01:51.400 --> 0:01:56.520 C D in terms of preschool R and D. Private 0:01:56.640 --> 0:01:59.840 is great. Our companies are investing in research, but we're 0:01:59.840 --> 0:02:02.600 not doing the basic research on the government side that 0:02:02.960 --> 0:02:05.720 has been falling for decades as a share of the 0:02:07.000 --> 0:02:09.480 UM and our infrastructure. You know, in many ways it's 0:02:09.560 --> 0:02:12.160 very good. We have great ports in America UM, but 0:02:12.280 --> 0:02:15.160 there's there's a lot more we could do. Jason, I 0:02:15.160 --> 0:02:16.360 want you to give us a little bit of a 0:02:16.360 --> 0:02:18.640 clinic and it can almost clinic if possible, on the 0:02:18.639 --> 0:02:21.880 difference between g D P what is it versus g 0:02:22.040 --> 0:02:25.200 D I? What is it? And then walk me through 0:02:25.280 --> 0:02:28.160 the spread between them both right now and what that 0:02:28.280 --> 0:02:31.640 story is. Talent you you're all able bernanke this morning. 0:02:31.680 --> 0:02:33.280 That's very cool. This is this is one of my 0:02:33.320 --> 0:02:36.799 favorite topics, and I'm thrilled you asked. We can. As 0:02:36.800 --> 0:02:40.040 I teach my students, you can measure the economy two ways. 0:02:40.680 --> 0:02:44.639 You can add up everything everyone spends, or you can 0:02:44.680 --> 0:02:49.320 add up one's income, profits, etcetera. And in theory does 0:02:49.400 --> 0:02:53.000 come to the same number. In practice, both of them 0:02:53.040 --> 0:02:55.960 are measured with error, and so the actual measures you 0:02:56.000 --> 0:02:59.840 get are different. Right now, over the last year, GDP 0:03:00.120 --> 0:03:03.480 has grown at three point two. G d I, which 0:03:03.480 --> 0:03:06.679 adds up everyone's income, has only grown at one point eight. 0:03:07.880 --> 0:03:10.800 That is the biggest gap between those two measures that 0:03:10.800 --> 0:03:14.040 we've seen since the Great Recession. It's an unusually large 0:03:14.080 --> 0:03:17.679 gap for any time in the last seventy years. All 0:03:17.720 --> 0:03:21.200 the headline numbers are about the GDP at three point two. 0:03:21.560 --> 0:03:26.000 Based on my analysis, historically, the truth is about halfway between. 0:03:26.040 --> 0:03:28.079 When you have two bad measures, the best thing to 0:03:28.200 --> 0:03:30.960 imperfect measures, the best thing to do is combine them. 0:03:31.040 --> 0:03:33.840 In this case, combined them about fifty fifty. So I 0:03:33.880 --> 0:03:36.880 think our economy could be running more like a two 0:03:36.960 --> 0:03:39.800 two and a half percent growth rate route now rather 0:03:39.880 --> 0:03:42.040 than the three point to a lot of people seem 0:03:42.120 --> 0:03:45.040 to think it's growing up. And that's okay, Jason, that's 0:03:45.080 --> 0:03:48.000 not bad. But what is it about adverse scenarios that 0:03:48.080 --> 0:03:51.520 explains why there is this massive spread between both g 0:03:51.640 --> 0:03:54.760 d I and g d P. You know, it's just 0:03:55.160 --> 0:03:57.880 pure measurement. Art's not something you can explain because in 0:03:58.000 --> 0:04:00.520 theory are the same and you're just adding stuff up 0:04:00.560 --> 0:04:02.800 and it's a different set in the data and sometimes 0:04:02.840 --> 0:04:05.280 they give you different answers. And that's why, um, you 0:04:05.280 --> 0:04:08.000 want to combine. And that's actually especially important around turning points. 0:04:08.000 --> 0:04:11.480 I mean GDP. In the middle of two thousand seven, 0:04:11.880 --> 0:04:16.920 GDP was growing at nearly a five percent rate. It 0:04:16.960 --> 0:04:21.839 looks great. The economy looked really really hot, um, you know, 0:04:21.880 --> 0:04:25.200 as as late as December two thousand seven. But um, 0:04:25.240 --> 0:04:27.760 you know, but it actually was turning and that was 0:04:28.240 --> 0:04:31.880 showed up in the revised data years later. Along the 0:04:31.920 --> 0:04:35.200 lines of John's wonderful questions on how we Parsons split 0:04:35.240 --> 0:04:38.359 the economy, Dr Ferman, we have the idea of a 0:04:38.440 --> 0:04:41.760 better than good domestic economy and then you bolt on 0:04:41.880 --> 0:04:44.880 trade dynamics and it's not as pretty obviously trade war 0:04:45.360 --> 0:04:49.359 and all that. Do you, as an adviser to presidents 0:04:49.400 --> 0:04:53.400 aggregate in the sum of the economy, or right now, 0:04:53.440 --> 0:04:58.440 should our listeners and viewers should they partition a domestic 0:04:58.560 --> 0:05:02.720 performance verse is a really ugly trade side or external 0:05:02.800 --> 0:05:07.000 side right now? Yeah, I mean the external sides about 0:05:07.720 --> 0:05:10.880 of the US economy. So I think sometimes people make 0:05:10.920 --> 0:05:15.360 the mistake of overstating it. You know, the steel tariffs. 0:05:15.360 --> 0:05:18.320 I think they were a bad policy, but I never 0:05:18.360 --> 0:05:22.920 expected a large macro consequence of them. If you layer 0:05:22.960 --> 0:05:26.880 the Mexico on top of the China, you're now starting 0:05:26.880 --> 0:05:30.080 to talk about potentially more than a percent of GDP, 0:05:31.080 --> 0:05:35.000 at which point you're talking about phine up the difference 0:05:35.000 --> 0:05:38.839 between a boom and a recession, but definitely increasing the 0:05:38.920 --> 0:05:43.400 risks of a recession by by a reasoning in some ways, Jason, 0:05:43.440 --> 0:05:45.200 do you think the issue with Mexico might be more 0:05:45.240 --> 0:05:48.479 important for the domestic US economy than the tension with 0:05:48.520 --> 0:05:52.360 the Chinese at the moment? Oh? Yeah. Our exports to 0:05:52.440 --> 0:05:55.080 Mexico are about twice as large as a share of 0:05:55.080 --> 0:05:57.600 our economy, and that actually understates it. If you look 0:05:57.640 --> 0:06:00.960 at value added all of the things that move back 0:06:00.960 --> 0:06:03.919 and forth. Um, it's it's a lot more than that 0:06:03.960 --> 0:06:07.520 and a five percent tariff. If if only five percent 0:06:07.560 --> 0:06:09.599 of the content comes from Mexico, that's like a hundred 0:06:09.640 --> 0:06:13.520 percent on Mexico. Third of our auto parts are coming 0:06:13.520 --> 0:06:16.159 from there. I think it's a potentially really big deal 0:06:16.200 --> 0:06:19.000 for the U. S economy. What's the log linear function 0:06:19.040 --> 0:06:22.000 of five percent tears, ten percent tears and ump up 0:06:22.080 --> 0:06:26.160 up we go. What's the impact is President Trump increases 0:06:26.200 --> 0:06:30.360 the tariffs on Mexico over time? Yeah, I think it's 0:06:30.400 --> 0:06:32.600 I think it's not log linear. I think it goes 0:06:32.400 --> 0:06:35.120 the other way. Um that you know, for ver each 0:06:35.160 --> 0:06:40.039 increment you do up, um, it could potentially get even worse. 0:06:40.200 --> 0:06:43.760 Do we know that? Or is it a mystery? Oh? People? 0:06:43.800 --> 0:06:46.240 People were people turned through those numbers and and and 0:06:46.240 --> 0:06:49.800 and tend tend tend to find that what you is 0:06:49.839 --> 0:06:52.320 a mystery? Is what is it? Jeod expectations? You know, 0:06:52.600 --> 0:06:56.000 if this dread is pulled back later today on Mexico, 0:06:57.000 --> 0:07:00.839 will businesses that are building supply chains thinks that the 0:07:00.880 --> 0:07:03.520 thread is gone forever or will they feel they need 0:07:03.560 --> 0:07:06.000 to redo their supply chains just in case it comes back. 0:07:06.440 --> 0:07:08.320 I have a strong suspicion about the answer to that, 0:07:08.400 --> 0:07:10.720 but I can't prove it is Jason Furman. What a 0:07:10.800 --> 0:07:13.760 joy yesterday to speak to Austin gouls Be of Chicago 0:07:14.200 --> 0:07:17.000 about Alan Krueger's new book on rock eComics. This is 0:07:17.040 --> 0:07:22.600 the final book of Alan Krueger, who recently died, Jason Furman. 0:07:23.280 --> 0:07:25.520 When we look at Alan Kruger's work, it is about 0:07:25.520 --> 0:07:27.960 the minimum wage. Do you have any study of the 0:07:28.080 --> 0:07:33.160 fifteen dollars in our hour is causing harm? We've only 0:07:33.160 --> 0:07:37.160 done fifteen dollars an hour in high wage places. There 0:07:37.200 --> 0:07:40.320 was one study or Seattle. I think unfortunately it was 0:07:40.400 --> 0:07:43.880 flawed and I wouldn't take anything from good today. UM, 0:07:44.160 --> 0:07:47.400 I personally would be nervous if we very rapidly went 0:07:47.440 --> 0:07:52.280 to fifteen dollars an hour UM for Alabama, New Mexico 0:07:53.120 --> 0:07:58.560 and um Main those are much lower wage places than 0:07:58.840 --> 0:08:02.640 Seattle or the parts of Scala foreigners have gotten they're already. Jason, 0:08:02.720 --> 0:08:05.200 is great to catch out with your Friday. Really appreciate 0:08:05.240 --> 0:08:08.000 your time, really intri instance staff Jason firm. And there 0:08:08.000 --> 0:08:26.040 the former Council of Economics chair John Ferrell. Why don't 0:08:26.040 --> 0:08:30.160 you bring him Dr Cornado and the forty seven flavors 0:08:30.200 --> 0:08:32.960 of Jobs Day today. Let's do it right now, so 0:08:33.120 --> 0:08:36.520 payrolls Friday is what ten eleven minutes away the median 0:08:36.720 --> 0:08:39.720 estimate here at Bloomberg in our survey is one hundred 0:08:39.760 --> 0:08:44.640 and seventy five thousand is two hundred and sixty three, Julia, 0:08:44.760 --> 0:08:47.480 you're looking for ten k south of the median estimate. 0:08:47.480 --> 0:08:49.760 It's not a big move lower from there. But what 0:08:49.880 --> 0:08:52.800 has been impressive, and we usually discussed it every Friday 0:08:52.880 --> 0:08:55.559 of the first Friday of every single month here at Bloomberg, 0:08:55.880 --> 0:08:58.880 is just how strong this economy has been able to 0:08:58.880 --> 0:09:03.600 produce in and around every single month. Can we keep 0:09:03.600 --> 0:09:08.000 doing that way above what we think is sort of equilibrium, 0:09:08.080 --> 0:09:11.800 which is closer to a hundred to k. So that 0:09:11.920 --> 0:09:16.320 has been sustained by improvement in labor force participation amongst 0:09:16.320 --> 0:09:19.920 primate workers, and that kind of faded in the last 0:09:19.960 --> 0:09:22.480 couple of months, but I expect that to be one 0:09:22.559 --> 0:09:25.240 area where we see it returned this month. So I 0:09:25.280 --> 0:09:28.600 expect to pop up in primate participation. I still see 0:09:28.600 --> 0:09:31.400 an upward trend there and that that's what helps sustain 0:09:31.480 --> 0:09:35.080 these these gargantuan job games month after months. So I 0:09:35.120 --> 0:09:37.079 do think there's some room to run there too. I 0:09:37.440 --> 0:09:40.760 primate participation for both men and women. And again we're 0:09:40.760 --> 0:09:44.640 talking about twenty five fifty four year old tire. It's 0:09:44.640 --> 0:09:48.200 still below last cycle and certainly the nineties cycle. So 0:09:48.280 --> 0:09:51.880 there's no reason that these workers can't re engage with 0:09:51.960 --> 0:09:54.720 the workforce. Let's talk about that. Some people that think 0:09:54.760 --> 0:09:56.880 this may be unique, this cycle might be unique, and 0:09:56.920 --> 0:09:59.880 maybe the participation rate can stay somewhere in and around 0:10:00.240 --> 0:10:03.360 the low sixties. Where do you see a heading. Well, 0:10:03.400 --> 0:10:07.120 we do have the downward pressure from the retiring baby boomers. 0:10:07.160 --> 0:10:10.319 So that is sort of a demographic reality that may 0:10:10.360 --> 0:10:13.400 fluctuate to some greater or lesser degree depending on whether 0:10:13.440 --> 0:10:16.720 they retire earlier or later. But we know that's a 0:10:16.800 --> 0:10:20.440 depressing force. It's going to hold it relatively black. And 0:10:20.480 --> 0:10:24.760 the question really revolved around how much younger workers are 0:10:25.080 --> 0:10:29.920 able to engage um and and return after periods outside 0:10:29.920 --> 0:10:35.400 the labor force. Julia Mrs Keene emails in and says 0:10:35.480 --> 0:10:42.320 Dr Coronado, please define prime age? Is that is that 0:10:42.440 --> 0:10:45.280 fifty nine to sixty two? What's so? I don't mean 0:10:45.320 --> 0:10:47.840 to say that you're not prime in your prime time, 0:10:47.920 --> 0:10:51.880 because you certainly are you um and uh and in 0:10:52.000 --> 0:10:56.679 trime you know, probably should expand the definition. Yes, I 0:10:57.040 --> 0:11:00.520 agree with that. What is primate? Surely to to people 0:11:00.559 --> 0:11:05.000 like you? What is primates? The typical definition from the 0:11:05.040 --> 0:11:08.920 Bureau of Labor Statistics is people aged twenty five to 0:11:09.040 --> 0:11:13.599 thirty excuse me, to fifty four. So you're definitely post schooling. 0:11:14.160 --> 0:11:18.320 You know, whether you've gotten a and or a master's degree, 0:11:18.559 --> 0:11:23.040 you're probably largely done. And then uh, you're probably not 0:11:23.160 --> 0:11:26.920 yet moving into retirement. So that's that's when you should Well, 0:11:26.960 --> 0:11:31.800 I got that one nailed. What is the prime ates 0:11:31.880 --> 0:11:35.320 changed over thirty fifty years? I mean, do you shift 0:11:35.400 --> 0:11:38.760 that out and expand to an older audience like we're 0:11:38.760 --> 0:11:41.840 all doing with our kids. We I mean, so the 0:11:41.880 --> 0:11:44.960 BLF has not done that, but you know you can 0:11:45.080 --> 0:11:47.760 expand it certainly, you can look at whatever age groups 0:11:48.280 --> 0:11:50.760 that you're interested in. And we have seen a trend 0:11:50.840 --> 0:11:55.520 towards later retirements, both for economic reasons because people took 0:11:55.559 --> 0:11:58.920 a huge hit in the Great Recession and couldn't retire 0:11:59.559 --> 0:12:03.760 um and then also because people are you know, living longer, 0:12:04.000 --> 0:12:08.160 they're more in service after jobs where they can work longer. Uh, 0:12:08.200 --> 0:12:11.360 And so we are seeing people engage in the labor 0:12:11.440 --> 0:12:13.800 force for longer and longer. If you talk to people 0:12:13.840 --> 0:12:16.559 like David John at a RP who spoke at the 0:12:16.640 --> 0:12:21.520 Chicago He thinks there's a lot of scope for engagement 0:12:21.520 --> 0:12:24.480 of older workers, you know, even on a part time basis, 0:12:24.920 --> 0:12:26.760 Like a lot of people do want to engage in 0:12:26.800 --> 0:12:29.960 the labor force at older age. The Bloomberg And of 0:12:29.960 --> 0:12:32.640 course this is from a pewer of labor statistics. Folks. 0:12:32.840 --> 0:12:36.360 We're making jokes about it, but their granularity of participation 0:12:36.960 --> 0:12:40.520 is wonderful. They have here John and statistic US labor 0:12:40.600 --> 0:12:46.360 force participation for World War two, Korean War in Vietnam males, 0:12:47.120 --> 0:12:50.000 which has obviously been declining with death. But but I 0:12:50.040 --> 0:12:53.120 mean the granularity is extraordinaries some real day town. Yeah, 0:12:53.200 --> 0:12:58.439 Julia Cornado, thank you so much. Really appreciated than sticking 0:12:58.440 --> 0:12:59.959 with this, you know, as we approached the pay for 0:13:00.240 --> 0:13:02.240 I don't know, there's some quick reaction with Julia. So 0:13:02.320 --> 0:13:05.199 let's digest some of that data, shall we. Seventy five 0:13:05.320 --> 0:13:09.559 K the median estimate one seventy five A big downside 0:13:09.559 --> 0:13:12.040 surprise in the FX market a week a dollar down 0:13:12.080 --> 0:13:15.000 a third of one percent, back to a ninety six 0:13:15.040 --> 0:13:17.280 handle on the dollar index. In the bond market, this 0:13:17.360 --> 0:13:20.280 is how treasuries shape up. Yields coming in four basis 0:13:20.280 --> 0:13:23.200 points on tens, coming in seven basis points on a 0:13:23.200 --> 0:13:25.679 two year yield, Your two year yield one eighty one, 0:13:25.760 --> 0:13:28.880 your ten year two point zero eight percent. The interesting 0:13:28.920 --> 0:13:32.760 part though, risk assets hanging in their future still just 0:13:32.880 --> 0:13:35.640 about positive up five points and positive two tents of 0:13:35.679 --> 0:13:38.319 one percent. But looking at the economic data tom to 0:13:38.480 --> 0:13:41.439 Julius point earlier in the program, there were some concerns 0:13:41.480 --> 0:13:44.280 around the big census story and how volatile it might 0:13:44.280 --> 0:13:46.440 make the headline number. If you look at the change 0:13:46.440 --> 0:13:51.800 in private payrolls ninety k that's a massive downside surprise 0:13:51.840 --> 0:13:55.600 as well. The estimate was one and with revisions down 0:13:55.720 --> 0:13:58.840 as well. Dr Cornetta could help us with that, Julia. 0:13:58.920 --> 0:14:02.439 We get a report our that has some constructive elements. 0:14:02.520 --> 0:14:04.280 I think, I think we need to go to the 0:14:04.360 --> 0:14:09.560 ADP Mouldy double digit number over to non farm payrolls 0:14:09.559 --> 0:14:12.840 seventy five, the two month revision. This is something. This 0:14:12.880 --> 0:14:17.679 is important, folks. Negative seventy thousand one month doesn't make 0:14:17.720 --> 0:14:22.920 your report, but if this extrapolates out what happens. Yeah, 0:14:22.960 --> 0:14:25.480 this is a worrisome report. I mean, we're seeing the 0:14:25.560 --> 0:14:29.160 weakness isn't just doesn't look to be concentrated in one sector. 0:14:29.240 --> 0:14:32.520 It looks we got the expected weakness in manufacturing and 0:14:32.600 --> 0:14:36.560 goods producing sectors, but also weakness and private service sectors. 0:14:36.600 --> 0:14:42.120 So retail was job losses, information technology saw job losses, 0:14:42.400 --> 0:14:46.440 and the government actually subtracted seventeen excuse me, fifteen thousand 0:14:46.480 --> 0:14:49.720 workers instead of adding about this thing, which is what 0:14:49.800 --> 0:14:52.960 was mostly expected. Do you see your census in there? 0:14:52.960 --> 0:14:54.560 Did you have time? You have to see a sense 0:14:54.600 --> 0:14:58.160 of statistic So so it looks like census is not 0:14:58.240 --> 0:15:01.200 only not hiring, but the uh actually most of the 0:15:01.280 --> 0:15:03.240 job losses in the government sector were on the state 0:15:03.280 --> 0:15:06.600 and local side. So um, yeah, a lot of a 0:15:06.600 --> 0:15:09.760 lot of a lot of weakness here. You know. To 0:15:09.800 --> 0:15:12.760 see the service sector crack like this is is something 0:15:12.800 --> 0:15:15.960 we definitely need to keep an eye on. Okay, Julia Cornado, 0:15:16.040 --> 0:15:18.920 thank you so much, greatly, greatly appreciate the perspective today 0:15:18.960 --> 0:15:35.160 with the macro policy perspective, working in fixed income but 0:15:35.240 --> 0:15:37.960 with a wonderfully holistic and I should also point out 0:15:38.080 --> 0:15:42.480 mathematical bassis. Jeffrey Rosenberg of Black Rock, Jeff, I want 0:15:42.480 --> 0:15:44.840 to rip up the script right now and go to 0:15:44.920 --> 0:15:49.440 Walton out on Twitter. Who's got a brilliant observation. Let 0:15:49.440 --> 0:15:52.400 me quote it exactly, Jeff Rosenberg, just like we quote 0:15:52.400 --> 0:15:56.080 the President when he tweets. I wonder how retirees in 0:15:56.160 --> 0:15:59.440 Germany are supposed to live off of a negative fixed income. 0:16:00.000 --> 0:16:03.000 Where do people in Germany think the money for retirees 0:16:03.520 --> 0:16:08.000 comes from the tooth ferry? Jeff. This this was something 0:16:08.040 --> 0:16:13.720 in London a theme. How do savers exist in negative 0:16:13.760 --> 0:16:19.160 interest rate nations? Well, they camp with their savings into 0:16:19.360 --> 0:16:25.120 safe assets and um you basically force savers out of 0:16:25.160 --> 0:16:28.120 the currency, which means you know something U s and 0:16:28.160 --> 0:16:30.040 msters don't think a lot about. But in the rest 0:16:30.040 --> 0:16:33.720 of the world there's a lot more willingness. And when 0:16:33.760 --> 0:16:36.400 you have a negative interest rate structure, you're forced to 0:16:36.520 --> 0:16:39.840 take your money outside of the U outside of your 0:16:39.840 --> 0:16:41.800 home country. You know, you look in Japan where they've 0:16:41.840 --> 0:16:45.040 had zero interest rates for a much longer experience. It's 0:16:45.040 --> 0:16:50.560 just a much longer experience with foreign investing, and you're 0:16:50.600 --> 0:16:52.440 forced to do that. So you have to move out 0:16:52.440 --> 0:16:56.160 the risk spectrum. It's uncomfortable. Um or you have to 0:16:56.240 --> 0:16:59.880 change your expectations in terms of how you plan for 0:17:00.040 --> 0:17:02.920 retirement and what you're expected return is. And even though 0:17:02.920 --> 0:17:05.359 we don't face negative interest rates, we face the same 0:17:06.480 --> 0:17:10.560 issues of the lower expected returns. Jeff, I'm looking at 0:17:10.600 --> 0:17:14.040 the German tenure yield. I'm looking at, folks, what's called 0:17:14.040 --> 0:17:17.040 a two standard deviation study. You and I took this 0:17:17.359 --> 0:17:19.639 final year where you know, we had to take a 0:17:19.640 --> 0:17:21.720 break because we were going to Fort Lauderdale or whatever. 0:17:21.920 --> 0:17:26.719 Rosenberg did standard deviations in fourth grade. I mean, Jeff Rosenberg, 0:17:27.240 --> 0:17:31.840 I'm sorry. The vector on the German tenure yield speaks 0:17:31.880 --> 0:17:37.879 of instabilities to come. What are those instabilities? Well know, 0:17:38.200 --> 0:17:42.119 the German tenure yield has been declining alongside of the 0:17:42.240 --> 0:17:45.600 U S yield and global yields, all pricing in a 0:17:45.600 --> 0:17:49.080 global growth slow down, the differences. They're starting from a 0:17:49.200 --> 0:17:52.000 much lower point. So right now the German tenure yield 0:17:52.480 --> 0:17:57.280 is negative two point negative point to five five and 0:17:57.320 --> 0:18:00.479 it's done a very steep downward trajectory. A lot of 0:18:00.520 --> 0:18:02.560 the other stories in the rest of the world away 0:18:02.560 --> 0:18:04.680 from the US, is that the growth has been slowing 0:18:04.720 --> 0:18:07.960 there as well. Uh, there's a lot more challenge when 0:18:08.040 --> 0:18:12.480 when the ECB is at the effective lower bound um, 0:18:13.080 --> 0:18:16.320 they have fewer tools. This was yesterday's news in terms 0:18:16.359 --> 0:18:19.280 of the ECB meeting. UH, and they're they're going to 0:18:19.400 --> 0:18:23.879 have to continue to try to support with perpetually, you know, 0:18:24.400 --> 0:18:28.000 negative interest rates. Jeff Rozenberg, We're gonna fold you over 0:18:28.040 --> 0:18:30.560 to being a trade expert. We see futures advanced, they 0:18:30.560 --> 0:18:35.640 explode from flat, DWAL futures up, SMP futures up eleven. 0:18:36.119 --> 0:18:38.800 I think it's called a bull market, and the yields churn. 0:18:39.320 --> 0:18:42.640 Here is the sequence of headlines that have come out 0:18:43.119 --> 0:18:45.399 a moment ago. I'm going to be very careful with this, folks, 0:18:45.560 --> 0:18:48.679 because this is a moving UH target. The president of 0:18:48.720 --> 0:18:53.640 Mexico feels Mexico thinks economy is doing fine. We respect 0:18:53.760 --> 0:18:56.720 rating companies points of view, of course, to rating companies, 0:18:57.240 --> 0:19:02.480 UH modifying their constructive view on Mexico. The oil company 0:19:02.520 --> 0:19:07.040 paymex has no problem to restructure debt, the oil company 0:19:07.080 --> 0:19:09.879 to start producing more by year end. He goes on 0:19:10.000 --> 0:19:13.520 to say, um, I am optimistic. Will we will reach 0:19:13.600 --> 0:19:17.320 a deal with the United States. I will review my 0:19:17.600 --> 0:19:23.120 stance on US situation on Saturday, and Bloomberg would note 0:19:23.119 --> 0:19:27.880 that the Mexican pace erases losses as the US payrolls. Uh, 0:19:28.440 --> 0:19:32.520 excuse me. Information came in this show's Jeff Rosenberg. If 0:19:32.520 --> 0:19:36.520 we get constructive Mexico and Chinese trade talk, how markets 0:19:36.560 --> 0:19:40.400 flip on a dying doesn't it? Well, it's been the issue, 0:19:40.560 --> 0:19:43.520 and the issue is that, going back to May six 0:19:44.000 --> 0:19:48.480 and and the China breakdown, that markets were really expecting 0:19:48.760 --> 0:19:51.760 a very different outcome than what they got. They were 0:19:51.800 --> 0:19:56.200 expecting a deal to go through unnecessarily sure how much 0:19:56.280 --> 0:19:59.479 teeth that deal would have, and that whole expectation has 0:19:59.520 --> 0:20:02.000 been under mind and in the aftermath has been a 0:20:02.119 --> 0:20:05.120 ratcheting up. Now, the Mexico thing was a new development. 0:20:05.480 --> 0:20:08.959 Let's use tariffs to address a non trade related issue, 0:20:09.160 --> 0:20:13.520 which only further heightens uncertainty. But the but the punchline 0:20:13.600 --> 0:20:18.359 here is that policy has moved from expansionary and supportive 0:20:18.840 --> 0:20:24.000 to to contractionary through the degree it increases uncertainty, and 0:20:24.000 --> 0:20:27.200 businesses don't like uncertainty. Uncertainty is bad for growth. Jeff, 0:20:27.240 --> 0:20:28.719 I want to get a little wonky here. We can 0:20:28.760 --> 0:20:31.480 do that with a gentleman from Carnegie Mellon, and that 0:20:31.680 --> 0:20:35.639 is the left tail of all that we observe. We 0:20:35.680 --> 0:20:38.679 had a wonderful conversation this morning with our Cameron christ 0:20:39.160 --> 0:20:41.960 about the difference in yield between three months and two 0:20:42.040 --> 0:20:45.240 year and then the difference in yield between two year 0:20:45.400 --> 0:20:50.800 in tenure and the dynamics there are extraordinary. What do 0:20:50.920 --> 0:20:57.159 these extraordinary yield curve discontinuities, what do they mean to 0:20:57.240 --> 0:21:00.640 the stability of the real risk part of the curve 0:21:00.640 --> 0:21:05.080 of the left tail? Well, it's it's clearly and this 0:21:05.119 --> 0:21:07.080 has been the story for a while. But the bond 0:21:07.160 --> 0:21:12.879 market is telling you about its concerns. Everything we've been 0:21:12.880 --> 0:21:16.440 talking about this morning, from the payroll report to uncertainties 0:21:16.480 --> 0:21:19.840 created by trade is a decline in growth and a 0:21:19.920 --> 0:21:23.399 potential shock thank you growth, And that's what the bond 0:21:23.400 --> 0:21:26.400 market is, This is saying and expecting. This is why 0:21:26.400 --> 0:21:29.640 we have Jeff Rosenberg on, folks. This is so so 0:21:29.640 --> 0:21:34.760 so important. There are four or five, three, seven things 0:21:34.880 --> 0:21:38.000 that always make a determinant of price. And on the 0:21:38.119 --> 0:21:41.600 Fisherian rule going back a zillion years, Irving Fisher it's 0:21:41.760 --> 0:21:44.080 you see it in the bond market. Price up, you'll 0:21:44.160 --> 0:21:46.800 down or the other way as well. And Jeff, I 0:21:46.880 --> 0:21:53.200 agree with you that growth worries have overwhelmed every other analysis. 0:21:53.320 --> 0:21:55.960 Is that correct? That is correct, and it's a real 0:21:56.040 --> 0:21:59.200 pivot from where we were only you know, six seven 0:21:59.200 --> 0:22:01.800 weeks for where the pivot on trade that were the 0:22:01.840 --> 0:22:05.520 concern was on inflation and what that meant for the 0:22:05.560 --> 0:22:08.600 ability of the Fed to raise rates in the process 0:22:08.640 --> 0:22:12.080 of normalization. And and this is occurring again in an 0:22:12.160 --> 0:22:16.040 environment where global growth has been weakening, and with the 0:22:16.080 --> 0:22:20.440 weakening in the outlook from trade and uncertainty, you added 0:22:20.480 --> 0:22:23.359 to a sense that this is really a new risk 0:22:23.600 --> 0:22:26.840 to a recessionary outcome. And that's what the bond markets 0:22:26.840 --> 0:22:30.440 basically started pricing in. And then with that comes the expectation, 0:22:30.480 --> 0:22:32.479 of course that the it is going to react, and 0:22:32.560 --> 0:22:35.760 now all the narrative around the insurance cut and when 0:22:35.800 --> 0:22:37.840 will they move and how much will they move by 0:22:37.880 --> 0:22:40.320 and the bond markets pricing in a lot. Jeff Rosen, 0:22:40.560 --> 0:22:56.560 thank you so much. Kevin Hasset is out of the 0:22:56.760 --> 0:23:00.879 Wonderful Economics Program at the University of Pennsylvania. He has 0:23:00.920 --> 0:23:04.160 been on the show in different guys as many times 0:23:04.600 --> 0:23:09.040 recently as chairman of President Trump's Council of Economic Advisors. 0:23:09.080 --> 0:23:12.720 He has been someone who was always pushed for free trade. 0:23:13.160 --> 0:23:16.359 It is good to have a job today conversation with 0:23:16.760 --> 0:23:19.479 Kevin Hassett is leaving the White House. Here he is 0:23:20.080 --> 0:23:23.640 with John Pharaoh. Now we can get the Trump administration's 0:23:23.680 --> 0:23:25.760 views on the job for a called we joined on 0:23:25.840 --> 0:23:28.719 TV and on radio by Kevin Hassett, Council of Economic 0:23:28.720 --> 0:23:31.080 Advisors Chairman, Kevin. Great to see you, as it always. 0:23:31.160 --> 0:23:34.119 Let's just stop arose report your initial thoughts, Kevin on 0:23:34.160 --> 0:23:37.720 that downside surprise, Well, you know, I think that it 0:23:37.800 --> 0:23:40.480 was a little bit below our expectation and the market expectation, 0:23:40.560 --> 0:23:42.520 but there were some special factors. I think one of 0:23:42.560 --> 0:23:44.760 the special factors that we were following closely that have 0:23:44.880 --> 0:23:46.720 not seen a lot of people talk about is the 0:23:46.720 --> 0:23:49.320 impact of the flooding, which you know, shut down I 0:23:49.520 --> 0:23:51.920 twenty nine made it so that a whole bunch of 0:23:51.960 --> 0:23:54.280 the ports could not operate. And our estimate is that 0:23:54.400 --> 0:23:56.879 knocked maybe about forty thousand jobs off the number. And 0:23:56.920 --> 0:23:58.480 if you had that back in then you know, it's 0:23:58.600 --> 0:24:01.000 pretty much close to a normal up and down. For sure, 0:24:01.000 --> 0:24:02.800 there's a little bit of job slowing, but we're still 0:24:02.800 --> 0:24:05.000 looking at I think, you know, controlling for that a 0:24:05.040 --> 0:24:07.680 three month average that's probably you know, next week is 0:24:07.680 --> 0:24:09.920 going to look in the one range, which is about 0:24:09.920 --> 0:24:11.800 what we've had for the last two years, just in 0:24:11.960 --> 0:24:13.720 terms of a trade story and the damage that it 0:24:13.760 --> 0:24:16.120