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Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg So

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Speaker 1: the President said he's ready to go with five hundred

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Speaker 1: billion dollars in new tariffs on Chinese goods imported to

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Speaker 1: the United States, saying the country has been taken advantage

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Speaker 1: of for too long. He told CNBC, I'm not doing

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Speaker 1: this for politics. I'm doing this to do the right

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Speaker 1: thing for our country. Joining us here in New York

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Speaker 1: is Jerame Schneider, PIMCO, head of short term portfolio manager.

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Speaker 1: I'm great to have you with us, Jerome, And honestly,

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Speaker 1: I don't know where to begin. Do you start with

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Speaker 1: the tariffs? Do you start with the White House pushing

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Speaker 1: back against hire rights? A strong we'll gets your retension. Yeah.

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Speaker 1: You recognize the fact that you know there's a lot

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Speaker 1: of uncertainty in the marketplace that leads a lot to

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Speaker 1: potential volatility, although we're not seeing it as realized volatility

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Speaker 1: in the marketplace. Most importantly, um, I think really what

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Speaker 1: you have to think about is the messaging and taking

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Speaker 1: a big step back, you know, even looking at some

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Speaker 1: of the testimony that we saw from Power recently, that's

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Speaker 1: actually probably the most important noteworthy thing because the other

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Speaker 1: segments are are really a little bit noise. But it's

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Speaker 1: going to take longer to play out the tariffs. While

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Speaker 1: there's good headlines to talk about, the reality is the

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Speaker 1: impact of that, They're going to take quite some time.

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Speaker 1: Um So we could be on the entire side of

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Speaker 1: letting a left tail event of on the tariffs and

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Speaker 1: having an entirely damaging sequence where it's a one point

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Speaker 1: five percent hit to GDP and a and a half

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Speaker 1: percent increased to inflation. But the reality is most importantly

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Speaker 1: that the rate hiking sequence remains intact and that at

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Speaker 1: least four now. As Jerne Power puts it, the best

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Speaker 1: way forward is to continue to acknowledge and improving economy,

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Speaker 1: which by the way, is what President Trump is is

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Speaker 1: defectively acknowledging and keeps beating the drum too along the way.

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Speaker 1: In John, as you captured correctly, there's two ways. One

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Speaker 1: is a five billion number, but the other was to

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Speaker 1: fitted and to say, the President wants to put tariffs

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Speaker 1: on every Chinese good yeah he imported, which the math

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Speaker 1: comes out to five oh five. Michael and and others

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Speaker 1: have made that nuance. I mean, basically, he wants to

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Speaker 1: go after it all, Am I right on the job

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Speaker 1: pretty much everything, if the numbers are anything to go

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Speaker 1: by this morning, Jerome, I think it's best to sort

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Speaker 1: of separate this into three parts and ask a really

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Speaker 1: basic question, where does the president have authority on trade

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Speaker 1: to slap five hundred to slap tarris on five hundred

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Speaker 1: billion dollars worth of imports um, on rates, and on

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Speaker 1: the dollar. We've had three comments on three different issues.

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Speaker 1: The President, i would argue, has authority, of course to

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Speaker 1: execute the tariffs on Chinese imports. Um. He could put

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Speaker 1: the pressure on the Federal Reserve. The Federal Reserve didn't

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Speaker 1: have to respond. And it's interesting the comments on foreign

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Speaker 1: exchange because you just wonder how much you can actually

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Speaker 1: do their well, jab buildings, everything and there ago. So

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Speaker 1: there's a an amount of job owning that the administration

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Speaker 1: and even in even some persuasion that the monetary policy

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Speaker 1: officials the FED could potentially do along the way. Ultimately,

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Speaker 1: You're right, the terrorists are his main level at this

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Speaker 1: point in time and to carry the message. And by

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Speaker 1: the way, he still has a good amount of support

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Speaker 1: on the Tarifa on the impact of terrorists and moving

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Speaker 1: that forward, that messaging forward from Congress itself. It doesn't

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Speaker 1: seem to be damaging. Although the facts from reading newspaper articles,

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Speaker 1: seeing companies like Whirlpool Held's impacting them on the real

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Speaker 1: time is actually probably going to become to be a

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Speaker 1: little bit more uh important to the discussion over the

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Speaker 1: over the next few weeks and months later in the

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Speaker 1: produgram we're going to talk about the imponents of central

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Speaker 1: bank independence with you. I just want to talk about

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Speaker 1: the market impact when the President pushes back against higher rights.

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Speaker 1: Have we seen any impact in the treasury market in

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Speaker 1: the implied probability of a FED right highlights this year?

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Speaker 1: Have we seen any movement at all? Does the market

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Speaker 1: buy it? Well, the knee jerk reaction was clearly yes.

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Speaker 1: But as we come into this into today, we're seeing

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Speaker 1: a muted yawn saying no. Um. When you take a

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Speaker 1: step back, most people are aware that while the FED

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Speaker 1: is independent in theory, structurally UM, it's very difficult to

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Speaker 1: change a FED governor and FED officials. Um, you have

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Speaker 1: to have four cause to do that. But the important

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Speaker 1: thing here is is that the messaging the dislike of

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Speaker 1: of of the higher rates really really isn't going to

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Speaker 1: weigh on Jerome pal He's made it clear he needs

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Speaker 1: more ammunition to effectively cut rates to fight the next recession,

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Speaker 1: and that's ultimately going to be more powerful to the

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Speaker 1: president should we encounter a recessionary environment. To to preserve

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Speaker 1: his credibility, I'm sure the president absolutely nailed microeconomics macroeconomics,

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Speaker 1: and when Fabosi covered a cover like you did when

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Speaker 1: he was at Wharton, Uh, if we assume that he

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Speaker 1: did not quite get through the classic Fabosi text, folks,

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Speaker 1: I'm going to guess six fifty pages, who's going to

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Speaker 1: inform him of the ramifications? Is that Kevin Hassett? Is

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Speaker 1: it David mel Pass, Is it Mr Cudlow? Who's going

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Speaker 1: to inform a president of Schnyder one on one? Well,

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Speaker 1: I mean you probably had a few people squirming in

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Speaker 1: their seat internally, Yes, probably, and Culo is probably at

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Speaker 1: the lead of the pack. So there's probably a discussion

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Speaker 1: that has probably had that is about the ramifications of

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Speaker 1: making such comments. Um, but what's sort of amazing to

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Speaker 1: me is that recognize that the FED is simply reacting

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Speaker 1: to the strong economy that the FED that the President

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Speaker 1: has has proclaimed and keeps announcing is so strong. And

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Speaker 1: so it's actually a result of the strong economy that

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Speaker 1: we have that the FED is going to continue to

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Speaker 1: on this path. So let's be clear here. Let's be

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Speaker 1: clear here. This was Larry Countlow. This is where it

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Speaker 1: started a couple of weeks ago with Larry Yes, this

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Speaker 1: is in interview with Fox Business. This hasn't started with

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Speaker 1: the Tangentially, the President was a lot more direct. Larry

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Speaker 1: Cutler was hardly very nuanced. We'll see the economic advisor

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Speaker 1: to President when he basically came out and said that

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Speaker 1: I hope the Federal Reserve understands that the increase in

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Speaker 1: growth will not be inflationary. That's that's hard years though.

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Speaker 1: On the banners up right now, you're gonna give our

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Speaker 1: audience a clinic. We're gonna let Joe Kerner and make

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Speaker 1: the headlines. The President says, I'm not thrilled by higher

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Speaker 1: interest rates. Who you explain to our audience the nominal

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Speaker 1: interest rate right now? Versus the importance of the real

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Speaker 1: interest rate, and will assume the presidents listening in, Yeah,

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Speaker 1: so ultimately the nominal interest rate is right now with

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Speaker 1: a benchmark rate rate between one point seven five and

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Speaker 1: two percent, and recognize the fact that we've gone another

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Speaker 1: hundred seventy five basis points from zero. What's really important

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Speaker 1: here is the ratifications of getting to the neutral rate,

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Speaker 1: or effectively what we believe is closer to you know,

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Speaker 1: a one percent real rate in terms of inflation, so

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Speaker 1: an inflation adjust one percent, we're not there. We're not there.

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Speaker 1: And so the Fed from a few different perspectives, and

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Speaker 1: that's one of them. The second is clearly um is

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Speaker 1: clearly getting the inflation rate, which is a factor that

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Speaker 1: higher than two percent pc UM. It ultimately translates to

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Speaker 1: where the destination of normal, uh, normal nominal interest rate

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Speaker 1: policy is going to be. So from our perspective, is

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Speaker 1: probably at least another three to or rate hikes the

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Speaker 1: cycle to get to that point. The Fed would actually

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Speaker 1: say more. Remember they still proclaimed three point four percent

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Speaker 1: is the nominal rate terminal destination of this rate hiking cycle.

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Speaker 1: So we got acommodati too, is it still accommodated things

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Speaker 1: to base that accommodate. Well, they would say yes because

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Speaker 1: a inflation is not so high and be financial conditions

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Speaker 1: haven't really changed that much over the past two to

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Speaker 1: three years. There's, of course that's some blips, but they're

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Speaker 1: really paying attention to financial conditions along their way to

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Speaker 1: to be a signal, to be a barometer of how

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Speaker 1: tight things are UM. And at this point it's it's

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Speaker 1: it's a yawn. We were going to set the hour

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Speaker 1: here and the rest of surveillance through the morning drome

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Speaker 1: right now. So we say thank you for coming. Greg

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Speaker 1: Villier publishing out moments ago on this sequence some discussion

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Speaker 1: of FED independence and says the damage has been done.

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Speaker 1: Joining us with Diane Swunk, with Grant Thornton as we

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Speaker 1: speak on this moment in monetary theory and this theory UM.

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Speaker 1: Diane uh Milton Friedman of Chicago, he said he literally

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Speaker 1: got into economics because of a guy at Rutger's name,

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Speaker 1: Arthur Burns. That Arthur Burns literally changed Milton Freeman's life. Mr.

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Speaker 1: Burns ran into a guy named Richard Nixon and in

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Speaker 1: April nineteen sixty had to vault for the FED chairman.

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Speaker 1: Eight years later, in sixty eight and put up with

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Speaker 1: a lot of Nixonian angst. Are we going to see

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Speaker 1: that again? We can only hope not. We know where

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Speaker 1: that went. And that Nixonian length. For all my admiration

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Speaker 1: for Chairman Greenspan was delivered by yet another person Arthur

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Speaker 1: Burns mentored, and that was Alan Greenspan as well. He

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Speaker 1: delivered the message from the administration to stimulate to ensure

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Speaker 1: his Nixon's reelection in nineteen seventy two, which helped to

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Speaker 1: seed the stagflation of the nineteen seventies. There are a

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Speaker 1: lot of things we did wrong back down, including protectionism,

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Speaker 1: wage and price controls that all helped on that front,

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Speaker 1: and over stimulating the US economy in the latter part

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Speaker 1: of the nineteen sixties with the Vietnam War. It's hard.

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Speaker 1: This is hard. This is something that almost every administration

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Speaker 1: I've known has at some point in time been angry

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Speaker 1: with the Okay, but I'll agree with that it's been

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Speaker 1: angry at the fact they and I totally take your

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Speaker 1: point that every administration goes through this, but there's a

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Speaker 1: difference this time. But there's a difference this time and

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Speaker 1: the sequence of discourse of this president how damaging will

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Speaker 1: it be? Not with one Cuddlo's comment to Trump's comment,

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Speaker 1: but the three, the fourth, the seventh eighth statement is

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Speaker 1: rates go up as you predict. Well, you know, I

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Speaker 1: actually think that J. Paul has anticipated this. I agree

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Speaker 1: with Greg. I read his note as well. I think

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Speaker 1: the world of Greg too, and I do think that

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Speaker 1: the Powell will navigate this as he must, in the

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Speaker 1: most independent way that he can. I think what's important

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Speaker 1: to remember about all this as well, is that the

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Speaker 1: appointments that we got in the Said prior to this,

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Speaker 1: which were really the hand of Gary Cohens, who has

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Speaker 1: now left the administration, are independent members of the Said.

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Speaker 1: Other times we suffered through this kind of crisis of

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Speaker 1: independence within the Said, We've also had week on people

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Speaker 1: around the Said chairman that couldn't help them navigate those

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Speaker 1: more turbulent waters. And I think now we do have

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Speaker 1: a lot of people that are very committed to the

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Speaker 1: independence of the Said to be able to help that happen.

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Speaker 1: And perhaps too early to call it a crisis of

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Speaker 1: Federal reserve independence, but typically when the Federal reserves independence

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Speaker 1: has stepped on, it's typically ame era of crisis. I mean,

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Speaker 1: it's not when GDP is close to three pc and

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Speaker 1: inflations low and unemployments low, and everything seems to be okay,

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Speaker 1: which just gives you a sort of a question in

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Speaker 1: my own mind, whether this could get a whole lot

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Speaker 1: worse over the next couple of years if the economy

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Speaker 1: isn't for forming the way this administration would like. Yes,

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Speaker 1: I mean this is already. The SET has been a

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Speaker 1: political Panada since two dozen and eight, when it intervened

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Speaker 1: to try to help the US economy became an easy scapegoat,

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Speaker 1: and its attacks on its independence are both are bio

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Speaker 1: Potterson in nature. So the SET is in a much

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Speaker 1: more precarious situation than it has been in the past.

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Speaker 1: Let's go back to the nineties, went back to the

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Speaker 1: Burns time. But the nineteen forties, you know, the SET

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Speaker 1: was pushed to print money to pay for World War Two.

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Speaker 1: We ended up with double digit inflation and recessions. And

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Speaker 1: Truman's own when he thought loyalists to become the head

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Speaker 1: of the said became the one who defined the fed's

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Speaker 1: independence and decide. Truman and helped us immensely, but also

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Speaker 1: someone who got Nixon very angry very early on in

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Speaker 1: his political career. John, that's important. I mean to cut

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Speaker 1: you off, but I think it's important what Dr Swax

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Speaker 1: is there, which is the idea. Boy, it was bad

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Speaker 1: before it was up and off the nineteen fifty one.

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Speaker 1: To Dan's point, even after that, pointed M. Chasey Martin,

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Speaker 1: there was still tension between truth. Said his job was

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Speaker 1: to take the punch bowl away from the part. We

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Speaker 1: don't do that. We don't do that on surveillance. It's

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Speaker 1: interesting Tom that we had Paul Tucker on a couple

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Speaker 1: of months ago, the former Bank of England officials, please yes.

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Speaker 1: And Paul really pointed out in his new book, Unelected Power,

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Speaker 1: that we now have the third pillar of unelected power,

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Speaker 1: the military, the judiciary, and now the federal reserve, central banks,

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Speaker 1: monkey policy, and within that pillar of the trilemma these

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Speaker 1: challenges Diane Swank, Arthur Burns didn't have to worry about

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Speaker 1: Twitter or the speed of cable news. I mean, he

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Speaker 1: had a pipe and he was smoking it in every

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Speaker 1: fourth week. They put out three adjectives. I mean, it's

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Speaker 1: changed right. His entire career. They threatened his entire career.

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Speaker 1: They leaked out a story saying he was asking for

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Speaker 1: triple his salary, which he was not, in order to

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Speaker 1: get him thrown out as chair of the Federal Reserve Um.

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Speaker 1: They threatened it, and it went through the newspaper, and

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Speaker 1: they used the news to leverage that leverage against them.

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Speaker 1: That said, I think it's really or stating and restating

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Speaker 1: right now. For all of the noise we've seen, and

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Speaker 1: I'm very concerned about tariffs and independence of the said,

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Speaker 1: it has become just that noise that we almost tune out.

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Speaker 1: The financial markets have not reacted nearly as dramatically as

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Speaker 1: one would expect if he really believed every single tweet

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Speaker 1: that was tweeted about economic policy. Dan, Sorry, thank you

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Speaker 1: so much for the Michigan history lesson. This is what

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Speaker 1: you do, John, when you get three degrees from the

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Speaker 1: University of Michigan, you you she steeped in history that

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Speaker 1: this was a really really nice sort of historical analysis

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Speaker 1: of federals of independence. A few minutes now our interview

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Speaker 1: of the day Adam Posen of the Peterson Institute of

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Speaker 1: course dr posing with public service, among other things, to

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Speaker 1: the Bank of England. Here's what you need to know.

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Speaker 1: Stanley Fisher two thousand and fifteen. He says, shut up

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Speaker 1: and read adam posing declarations are not enough financial sector

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Speaker 1: sources of central bank independence. This was Bernanke and Rottenberg

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Speaker 1: of a few years ago. Dr Posen, wonderful to have

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Speaker 1: you with us. What is President Trump stumbling into? Well, Tom,

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Speaker 1: thank you so much for the introduction and the time.

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Speaker 1: I don't think he's stumbling. I think it's one of

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Speaker 1: two things that are very conscious, but we don't know

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Speaker 1: which one yet. Either. President Trump is just venting and

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Speaker 1: treating the FAB as escapegoat and putting down to serve

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Speaker 1: a political marker, not to be blamed for any slow down,

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Speaker 1: And that, frankly doesn't get me that upset. I am

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Speaker 1: not one of these people thinks that if the President

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Speaker 1: breathes anything against the FED, the world will come to

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Speaker 1: an end. The risk is that this is actually the

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Speaker 1: start of a Nicksonian campaign trying to do to the

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Speaker 1: FED what the Nixon white House did to Arthur Burns

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Speaker 1: has FED forty years ago. I think that's unlikely, and

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Speaker 1: I think J. Powell and the current FED chair pal

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Speaker 1: and the current Federalists ulnerable than Arthur Burns has Fed was.

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Speaker 1: But given the way this white House has behaved in

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Speaker 1: other areas worried about that. What do you need about

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Speaker 1: the adults in the White House who have studied the

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Speaker 1: posing equivalent? What do you need from Cudlow, Hasset, Malpass

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Speaker 1: and the rest. What do they need to do to

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Speaker 1: message to their president? Well, I think the first message

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Speaker 1: has to be if if your goal is to keep

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Speaker 1: rates from going up unduly, and there is a legitimate

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Speaker 1: economic case for the Fed not to be too aggressive

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Speaker 1: and racing rates, that this is the surest way to

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Speaker 1: make sure they race rates. You know, if you challenge

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Speaker 1: their independence, um, then even they will need a absolutely airtight,

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Speaker 1: hugely visible, perfect high bar case uh to stop raising

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Speaker 1: rates on schedule. You're making it harder for them, and

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Speaker 1: I think I'm sure the adults you mentioned, at least

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Speaker 1: some subset of them have to be saying that to

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Speaker 1: the president. Adam, You've been at a central bank. You

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Speaker 1: sat on the Monkey Policy Committee at the Bank of England.

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Speaker 1: I'm just wondering, did you ever come across anything like

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Speaker 1: this and walked me through the kind of logistical process

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Speaker 1: of how a central bank absorbs that kind of comment

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Speaker 1: that we got from the President. Well, actually, yes, I

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Speaker 1: mean we did. We did get some of this from

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Speaker 1: the from both formally and informally from both labor and

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Speaker 1: conservative governments who were busy saying why aren't you doing

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Speaker 1: more on quee um and UH. In two thousand and

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Speaker 1: of course complained to me about that was a little

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Speaker 1: bit weird because I was the one pushing for it, um,

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Speaker 1: but pardon me um. But you know, the the bank

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Speaker 1: largely shrugged it off. And again, to be fair to

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Speaker 1: the British government, we had repeated indemnity is from the

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Speaker 1: from the Chancellor of the Exchequer of the Treasury saying

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Speaker 1: that if the if the bank having lost money doing

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Speaker 1: something for monetary policy, they would make it up, and

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Speaker 1: this was true. E c B, of course, is even

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Speaker 1: more independent. It's protected by treaty and so you see

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Speaker 1: a lot more scapegoating. You see government officials we talked

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Speaker 1: saying things to the e c B quite frequently when

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Speaker 1: the ECB gets upset, but then ignores them. If the

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Speaker 1: feed is different, because it doesn't have that kind of indemnity,

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Speaker 1: it doesn't have uh the protections the ECB does. Being

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Speaker 1: in an international treaty. It's the federals are that can

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Speaker 1: be reopened at any time by Congress. So ultimately the

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Speaker 1: fear as Congress gets its, it's uh its attitude towards

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Speaker 1: the fifth not the President. Adam in a final comment here,

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Speaker 1: Michael Bordo did a wonderful treatment on a giant Allan

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Speaker 1: Meltzer after Meltzer's death at the Hoover Institution and goes

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Speaker 1: back to mc chesney Martin and the idea that Martin

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Speaker 1: wasn't a PhD economists like Adam Posen is part of

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Speaker 1: this discussion here, and that Trump's lecturing a non PhD economist,

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Speaker 1: is that the delicacy we're gonna be talking about one

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Speaker 1: year out. No, Tom, I really don't think so, because

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Speaker 1: it can because first Chair Pow knows this brief um,

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Speaker 1: and you know there are a lot of non PhD

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Speaker 1: economists have served well in Central Bays. So I as

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Speaker 1: much as I liked having a union card, I would

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Speaker 1: never I don't. I don't think that's gonna be a issue.

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Speaker 1: But secondly, more importantly, if you're attacking the FED from

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Speaker 1: a populist perspective and saying, Okay, you're raising rates too fast,

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Speaker 1: and again there may be legitimate reason for doing that,

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Speaker 1: I would say, Um, you don't do it by being

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Speaker 1: a snob. You don't do if I say, oh, this

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Speaker 1: person isn't isn't sufficiently academic, You do it by saying

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Speaker 1: they're out of touch. And so they're probably just going

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Speaker 1: to paint Powell as a fit insider if they decide

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Speaker 1: to make it personal. Uh, not so much that academic

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Speaker 1: non academic bell a window into the battle to come.

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Speaker 1: This is most interesting, adam posing and short notice, thank

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Speaker 1: you so much for joining us with the Peterson Instead, folks,

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Speaker 1: markets crash right now, crashes the right word. We're down

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Speaker 1: on an inter day basis soliditude, standard deviations. I'm looking

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Speaker 1: always when it's occurs, folks. Dollar yen is the global

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Speaker 1: litmus paper of the system. We have been one thirteen

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Speaker 1: in the week end strong dollar environment. We came down

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Speaker 1: to one twelve and change off of the CNBC Joe

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Speaker 1: Cernan effort, and now with the President's treat we have

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Speaker 1: a stronger yen down to breaching one twelve, down to

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Speaker 1: one eleven. D X y blended index gives way gold

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Speaker 1: up for dollars, futures at negative six down futures negative

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Speaker 1: one oh five. The President tweets China, the European Union

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Speaker 1: and others have been manipulating their currencies and interest rates

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Speaker 1: lower while the United States is raising rates while the

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Speaker 1: dollars get stronger and stronger with each passing day, taking

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Speaker 1: away our big competitive edge as usual, not a leving

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Speaker 1: level playing field. Dot dot dot, which using and Trumpian tweeting,

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Speaker 1: presumes another tweet is to follow. We do not see

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Speaker 1: that yet. If it attends are Michael McKee will join

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Speaker 1: us here in a bit first. Jane Foley off the

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Speaker 1: rabble Bank desk in London. Jane, when you see an

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Speaker 1: inflammatory market moving phrase with d x Y finding a

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Speaker 1: new weakness right now? When the President of the United

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Speaker 1: States says China and the U have EU have been

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Speaker 1: quote manipulating their currencies, what do you tell robble bank clients, Well,

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Speaker 1: I mean, I think for most of our clients. Do

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Speaker 1: you understand that the year I certainly is a freely

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Speaker 1: floating currency. It hasn't been manipulated in terms of f

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Speaker 1: X intervention. But China, of course is a different case.

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Speaker 1: This is a currency which is managed. But the fact

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Speaker 1: of the matter is if the PBOC stepped away from

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Speaker 1: managing it, it is a currency which would fall. It

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Speaker 1: is a currency from where there would be an awful

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Speaker 1: lot of outflow, So they are manipulating it, but they're

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Speaker 1: manipulating it to keep it stronger than it would be otherwise.

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Speaker 1: And this is something which is very well known. So

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Speaker 1: these the fact about the Chinese economy or the currency

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Speaker 1: is not particularly surprising. But what is shocking markets right

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Speaker 1: now is the fact that the president is getting involved

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Speaker 1: on and policies on matters regarding monetary policy in the US. Now,

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Speaker 1: this is pretty unprecedented, at least it has been for decades,

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Speaker 1: and it could undermine the credibility of the Federal Reserve

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Speaker 1: in the US. This is something which is really quite worrying.

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Speaker 1: Jane away from your REMID and Foreign Exchange and FOCIL

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Speaker 1: touch on this with Michael McKee in the moment. The

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Speaker 1: second parenthetical phrase, while the u US is raising rates,

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Speaker 1: is that against the Fed or is he talking about

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Speaker 1: a make America great again four GDP economy. Well, it's

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Speaker 1: while be known that that Trump would like the dollar

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Speaker 1: to to to be soft because he wants to increase

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Speaker 1: the US exports and he wants to redress the US

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Speaker 1: trade deficit. However, the Federal Reserve, as we all know,

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Speaker 1: is raising interest rates because the US economy is so firm,

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Speaker 1: and that and that we we've had boosts on the

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Speaker 1: fiscal front. We've had really quite strong growth in the US.

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Speaker 1: And and and the risks are that inflation are tilted

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Speaker 1: to the upside, hence the FED hikes interest rates. So well,

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Speaker 1: the letter is doing is its job, is doing the

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Speaker 1: job that it's supposed to do. UM. Monetary conditions in

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Speaker 1: in the US are not overly bearing and not overly

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Speaker 1: expensive compared with growth UM. And so it is unusual

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Speaker 1: to have a president really criticizing the central bank. And

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Speaker 1: this is something I mean, there's been a debate over

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Speaker 1: the last few week exist whether or not the dollar

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Speaker 1: has become the new safe haven. But when you you

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Speaker 1: see a central bank be undermined, then that removes the

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Speaker 1: credibility of a currency. Jane Folly, thank you so much.

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Speaker 1: With Robin Bank this morning, we turned to our international

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Speaker 1: head of Economics and Policy, Michael McKee. What an extraordinary

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Speaker 1: tweet Michael, to see you now. You said earlier that

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Speaker 1: it is presidential job owing, but we'll have little effect

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Speaker 1: on the Feller reserve system. And yet what's it's interesting

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Speaker 1: like about economics? According to President Trump, is he uses

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Speaker 1: foreign exchange links it to interest rates. I guess in

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Speaker 1: a Fisherian section. We've just got another tweet out. I'm

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Speaker 1: told yes, here's the follow up. Let me read this, Michael.

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Speaker 1: I'm sorry to interrupt this thought. So we as usual

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Speaker 1: not a level playing field. The United States should not

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Speaker 1: be penalized because we are doing so well. Tightening now

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Speaker 1: hurts all that we have done. The U should be

429
00:23:56,640 --> 00:24:01,919
Speaker 1: allowed to recapture what was lost due to legal currency manipulation.

430
00:24:02,560 --> 00:24:07,960
Speaker 1: And all capital letters be a d, bad trade deals,

431
00:24:08,119 --> 00:24:12,920
Speaker 1: debt coming do and we are raising rates. Really, Mike,

432
00:24:13,080 --> 00:24:15,880
Speaker 1: I'm going to give you a really really important question

433
00:24:16,520 --> 00:24:20,440
Speaker 1: discuss all right, Well, let me start with a surveillance correction.

434
00:24:20,480 --> 00:24:22,959
Speaker 1: I said earlier today that the President gave the answer

435
00:24:22,960 --> 00:24:25,040
Speaker 1: that every president would give if he were asked the

436
00:24:25,119 --> 00:24:28,920
Speaker 1: leading question, and you're wrong now I was apparently wrong.

437
00:24:29,040 --> 00:24:32,159
Speaker 1: He did want to go after the FED. Um. I

438
00:24:32,320 --> 00:24:34,560
Speaker 1: stand by what I said earlier the Fed. This will

439
00:24:34,560 --> 00:24:36,960
Speaker 1: not affect what J. Powell and the rest of the

440
00:24:37,000 --> 00:24:40,240
Speaker 1: FED do. They will resist all the political pressure for

441
00:24:40,240 --> 00:24:43,600
Speaker 1: for one reason, Arthur Burns, nobody wants to have that

442
00:24:43,800 --> 00:24:47,280
Speaker 1: reputation when they leave the FED and Paul might not

443
00:24:47,359 --> 00:24:50,080
Speaker 1: get reappointed. He can't he can't be kicked off the FED,

444
00:24:50,359 --> 00:24:52,840
Speaker 1: but he might not get reappointed. I assume he would

445
00:24:52,880 --> 00:24:57,639
Speaker 1: take that risk. Um, the logic in this is the

446
00:24:57,680 --> 00:25:00,480
Speaker 1: economics in what the President is saying, he and Arness

447
00:25:00,520 --> 00:25:04,840
Speaker 1: important is all wrong. Um, we didn't lose it. To

448
00:25:04,880 --> 00:25:08,040
Speaker 1: be clear there, it's not in Rosen's microeconomics. It's not

449
00:25:08,119 --> 00:25:12,240
Speaker 1: in bernanke able bernankey. And and as Jane said, so well,

450
00:25:12,600 --> 00:25:16,040
Speaker 1: the FET is raising rates because the U. S. Economy

451
00:25:16,240 --> 00:25:18,600
Speaker 1: is doing so well. And then one of the reasons

452
00:25:18,720 --> 00:25:20,760
Speaker 1: growth is so high is the tax bill that the

453
00:25:20,800 --> 00:25:24,680
Speaker 1: president passed. But the president can do something about currencies.

454
00:25:24,920 --> 00:25:26,840
Speaker 1: When he isn't going to be able to affect the

455
00:25:26,840 --> 00:25:30,879
Speaker 1: FET the young out there where there's a market threat,

456
00:25:30,960 --> 00:25:34,160
Speaker 1: the president could do something to affect the value of currencies.

457
00:25:34,200 --> 00:25:36,160
Speaker 1: And I guess you look at the charts. He's doing

458
00:25:36,160 --> 00:25:38,399
Speaker 1: it right now. Yeah, he's doing it right now. And

459
00:25:38,520 --> 00:25:40,800
Speaker 1: I don't have a standard deviation move, but for those

460
00:25:40,800 --> 00:25:44,040
Speaker 1: of you are pros on Global Wall Street, it's it's

461
00:25:44,080 --> 00:25:49,000
Speaker 1: a sizeable move. Within this mic is an idea of

462
00:25:49,160 --> 00:25:54,399
Speaker 1: how institutions react. Let's begin with currency manipulation. The United

463
00:25:54,400 --> 00:25:59,120
Speaker 1: States of America has an adult process of gauging and

464
00:25:59,240 --> 00:26:06,199
Speaker 1: measuring other nations concerned currency manipulation, Has EU, has China

465
00:26:06,280 --> 00:26:10,840
Speaker 1: manipulated currencies? According to our smartest people, Well, the Treasury

466
00:26:10,840 --> 00:26:14,160
Speaker 1: puts out a report quarterly on whether or not or

467
00:26:14,400 --> 00:26:17,600
Speaker 1: every half year on whether or not countries have manipulated

468
00:26:17,640 --> 00:26:20,080
Speaker 1: their currencies, and they haven't found anybody over the last

469
00:26:20,080 --> 00:26:25,200
Speaker 1: twenty years since I believe um the nineteen nineties when

470
00:26:25,680 --> 00:26:29,760
Speaker 1: when China um pegged its currency to the dollar, nobody

471
00:26:29,840 --> 00:26:34,720
Speaker 1: has been accused of manipulating their currency. As Jane says,

472
00:26:34,720 --> 00:26:37,440
Speaker 1: everybody knows the Chinese manipulate their currency because it's a

473
00:26:37,440 --> 00:26:39,800
Speaker 1: paig currency. It's paid to the dollar. It's also paid

474
00:26:39,800 --> 00:26:43,440
Speaker 1: to a basket of foreign currencies. So they do buy

475
00:26:43,520 --> 00:26:46,600
Speaker 1: and sell dollars in order through treasuries, in order to

476
00:26:46,760 --> 00:26:49,680
Speaker 1: keep the value of the U n relatively stable against

477
00:26:49,880 --> 00:26:52,680
Speaker 1: the dollar, the euro. And she said, a free floating currency,

478
00:26:52,760 --> 00:26:55,880
Speaker 1: the dollar, a free floating currency. Those are not managed.

479
00:26:55,880 --> 00:26:57,959
Speaker 1: You can intervene in the currency market, but they're not managed.

480
00:26:58,280 --> 00:27:02,360
Speaker 1: And the Chinese one is my most measures overvalued at

481
00:27:02,359 --> 00:27:04,800
Speaker 1: this point, explain to our audience, and this is not

482
00:27:05,040 --> 00:27:09,080
Speaker 1: Stanley Fishers spelled a different way. But the Fisherian linkage

483
00:27:09,080 --> 00:27:14,440
Speaker 1: which the President attempts of irving Fisher of three generations ago,

484
00:27:14,440 --> 00:27:17,560
Speaker 1: I'm gonna guess nineteen twenty off the top of my head.

485
00:27:18,000 --> 00:27:23,040
Speaker 1: The President links currency to interest rates to his make

486
00:27:23,080 --> 00:27:27,040
Speaker 1: America Great Again economy. That's a valid assumption, isn't it.

487
00:27:27,200 --> 00:27:31,280
Speaker 1: They're all linked together. Uh. Currencies value helps determine the

488
00:27:31,560 --> 00:27:35,360
Speaker 1: cost of your goods that you sell overseas, and as

489
00:27:35,400 --> 00:27:38,600
Speaker 1: the dollar goes up, it makes American products less competitive.

490
00:27:38,640 --> 00:27:42,720
Speaker 1: Boeing jets become less competitive. That's a bad example in

491
00:27:42,720 --> 00:27:44,800
Speaker 1: the sense that there's only two jet makers out there,

492
00:27:44,880 --> 00:27:50,080
Speaker 1: so of it. So if you want to pick something else,

493
00:27:50,520 --> 00:27:53,920
Speaker 1: um a good I give you a good example. Washing machines. Um.

494
00:27:54,040 --> 00:27:56,639
Speaker 1: The Chinese have a lot of washing machines that they

495
00:27:56,760 --> 00:27:59,280
Speaker 1: try to sell. Uh. And we have some price increases

496
00:27:59,320 --> 00:28:01,840
Speaker 1: on us. Why shing machines because the President put tariffs

497
00:28:01,960 --> 00:28:05,000
Speaker 1: on Chinese washing machines. So there is an impact uh

498
00:28:05,560 --> 00:28:07,320
Speaker 1: from all of this, and the President is not wrong

499
00:28:07,359 --> 00:28:11,080
Speaker 1: about that. Interest rates, though, follow the economy and inflation,

500
00:28:11,119 --> 00:28:13,560
Speaker 1: they don't lead it. So the fact that interest rates

501
00:28:13,560 --> 00:28:16,600
Speaker 1: are going up is because our economy is doing better.

502
00:28:16,720 --> 00:28:19,560
Speaker 1: One final quick question. The president says the United States

503
00:28:19,600 --> 00:28:23,360
Speaker 1: should not be penalized. Who's penalizing us? Well, he's talking

504
00:28:23,359 --> 00:28:26,040
Speaker 1: about in economic terms because we lose ground and exports

505
00:28:26,040 --> 00:28:29,600
Speaker 1: because the dollar is stronger. Um. But we didn't. The

506
00:28:29,600 --> 00:28:32,160
Speaker 1: bill is not coming to It's a choice we make

507
00:28:32,240 --> 00:28:35,200
Speaker 1: to buy foreign goods because we don't say I promised,

508
00:28:35,240 --> 00:28:38,280
Speaker 1: Michael do a chart on relative strength. I'm waiting for

509
00:28:38,320 --> 00:28:42,560
Speaker 1: the many deviations. Michael Key holding a clinic here on

510
00:28:43,400 --> 00:29:00,400
Speaker 1: the micro and macro economics of presidential treats. Right now,

511
00:29:00,680 --> 00:29:04,960
Speaker 1: yen stronger one eleven eighty one. We've come a huge, huge,

512
00:29:05,120 --> 00:29:07,959
Speaker 1: two big figures in the last two days, from one

513
00:29:08,080 --> 00:29:11,360
Speaker 1: thirteen eleven down to one ton of eleven uh down

514
00:29:11,400 --> 00:29:15,000
Speaker 1: to one eleven eighty two right now, pim your thoughts

515
00:29:15,120 --> 00:29:18,280
Speaker 1: on the presidential tweets. Well, I guess the only thing

516
00:29:18,320 --> 00:29:21,280
Speaker 1: I would just say is that the market moving news

517
00:29:21,360 --> 00:29:23,680
Speaker 1: coming from the president that he does show the power

518
00:29:23,800 --> 00:29:27,760
Speaker 1: of the president power and um. You know, depending upon

519
00:29:27,880 --> 00:29:30,040
Speaker 1: which side of the trade you are, you've got to

520
00:29:30,120 --> 00:29:32,480
Speaker 1: recognize that this is a president that is going to

521
00:29:32,640 --> 00:29:36,600
Speaker 1: do unconventional things. And I think that our next guest

522
00:29:36,680 --> 00:29:38,600
Speaker 1: of Vince Signarella knows a lot of He knows a

523
00:29:38,640 --> 00:29:41,080
Speaker 1: lot about this. He's been long dollar short yet and

524
00:29:41,120 --> 00:29:44,360
Speaker 1: he just ruined his August vacation. Here how much blood

525
00:29:44,600 --> 00:29:48,240
Speaker 1: fish and how much agony is on the street as

526
00:29:48,280 --> 00:29:51,960
Speaker 1: the president pushes against strong dollar consensus. This is nasty

527
00:29:52,040 --> 00:29:53,280
Speaker 1: because you can't get out of the way of this

528
00:29:53,440 --> 00:29:55,360
Speaker 1: at all. I mean, this is like, you know, quick,

529
00:29:55,440 --> 00:29:58,760
Speaker 1: machine driven done. One minute, you're looking at dollar and

530
00:29:58,800 --> 00:30:01,160
Speaker 1: at one twelve and ft or so in the next minute.

531
00:30:01,160 --> 00:30:03,560
Speaker 1: It's what do you mean by machine driven? If the

532
00:30:03,600 --> 00:30:07,640
Speaker 1: President tweets two tweets including the phrase currency manipulation, you've

533
00:30:07,680 --> 00:30:10,040
Speaker 1: got you know, you got a high frequency funds are

534
00:30:10,120 --> 00:30:14,080
Speaker 1: tied to what Trump says, and every syllable is you know,

535
00:30:14,200 --> 00:30:16,600
Speaker 1: gets a one R and O in front of it,

536
00:30:17,080 --> 00:30:20,400
Speaker 1: and it triggers an actual by cell solution. So if

537
00:30:20,440 --> 00:30:23,560
Speaker 1: he says something about the dollar, we know that's negative immediately.

538
00:30:23,600 --> 00:30:25,560
Speaker 1: It's a dollar cells on a hike. In basis, is

539
00:30:25,600 --> 00:30:28,320
Speaker 1: a president doing a public service by clearing the markets,

540
00:30:28,400 --> 00:30:30,800
Speaker 1: by clearing the fat cats out? Now, not really, these

541
00:30:30,840 --> 00:30:33,120
Speaker 1: aren't fat cats. These are everyday guys who are probably

542
00:30:33,120 --> 00:30:36,520
Speaker 1: just getting run over. To be honest, why is anybody's surprised.

543
00:30:37,200 --> 00:30:39,640
Speaker 1: The thing actually that surprises me, and what the markets

544
00:30:39,680 --> 00:30:42,240
Speaker 1: aren't picking up is that, you know, while he's making

545
00:30:42,360 --> 00:30:46,520
Speaker 1: broad dollar gestures, he's you know, he's he's shooting the

546
00:30:46,560 --> 00:30:48,720
Speaker 1: big cannon. But what he's aiming at as China. And

547
00:30:48,840 --> 00:30:52,320
Speaker 1: this is specifically directed if it will be, I believe,

548
00:30:52,400 --> 00:30:55,480
Speaker 1: cleared up down the road against the UN, in against China.

549
00:30:55,680 --> 00:30:59,280
Speaker 1: This isn't being directed specifically at the Mexican paco where

550
00:30:59,320 --> 00:31:02,160
Speaker 1: the Canadian dollar or at the moment, this is largely

551
00:31:02,280 --> 00:31:05,400
Speaker 1: driven by what's going on in China, but he's he's

552
00:31:05,400 --> 00:31:07,920
Speaker 1: painting it with a wide brush because he does believe

553
00:31:08,000 --> 00:31:11,120
Speaker 1: we are being undermined by other countries as well in trade.

554
00:31:11,120 --> 00:31:13,280
Speaker 1: He was after the European Union the other day, But

555
00:31:13,400 --> 00:31:14,840
Speaker 1: what he's really looking at when he looks at the

556
00:31:14,840 --> 00:31:17,240
Speaker 1: European Union, he's looking at Germany. But you can't go

557
00:31:17,320 --> 00:31:19,360
Speaker 1: after Germany goes a single currency, so you look at

558
00:31:19,360 --> 00:31:21,280
Speaker 1: the whole Union. So you have to try to parse

559
00:31:21,360 --> 00:31:23,800
Speaker 1: where he's really going with this, and at the end

560
00:31:23,840 --> 00:31:26,760
Speaker 1: of the day, where he really wants to bangage China. Vince,

561
00:31:26,840 --> 00:31:29,080
Speaker 1: thank you so much, Vince Cigarella with us. He needs

562
00:31:29,120 --> 00:31:31,560
Speaker 1: to get back to his terminal to look at the

563
00:31:31,600 --> 00:31:34,880
Speaker 1: waves down in Japanese. Yeah, and the news flow is

564
00:31:35,080 --> 00:31:41,520
Speaker 1: absolutely extraordinary. Margaret Brennan, of course, is conversant in currency manipulation,

565
00:31:42,080 --> 00:31:45,400
Speaker 1: but I doubt that will be mentioned on Fascination this

566
00:31:45,520 --> 00:31:50,600
Speaker 1: week Pushed aside on CBS by the news flow. Are

567
00:31:50,680 --> 00:31:53,560
Speaker 1: you gonna play the Church Lady from SNL, Margaret, are

568
00:31:53,600 --> 00:31:55,640
Speaker 1: you gonna, you know, bring up Dana Carvey in the

569
00:31:55,760 --> 00:31:59,440
Speaker 1: video of the Church Lady that's special off of Mr

570
00:31:59,560 --> 00:32:05,480
Speaker 1: Coates immence yesterday? Gosh, I mean that was fascinating to watch.

571
00:32:05,600 --> 00:32:09,480
Speaker 1: He appeared gobsmacked. I mean, he just and I don't know.

572
00:32:09,640 --> 00:32:12,480
Speaker 1: I mean, he's not someone involved in protocol with planning

573
00:32:12,480 --> 00:32:15,000
Speaker 1: a state visit. But if the president did meet for

574
00:32:15,040 --> 00:32:17,320
Speaker 1: as long as he did with Vladimir Putin on Monday,

575
00:32:17,880 --> 00:32:20,800
Speaker 1: talking about such national security issues, you would have thought

576
00:32:20,840 --> 00:32:23,520
Speaker 1: by then he would have been debriefed. CBS has a

577
00:32:23,640 --> 00:32:26,200
Speaker 1: heritage of this. I did a play today, Margaret on

578
00:32:26,320 --> 00:32:30,680
Speaker 1: Kristcheff banging his shoe in middle October of nineteen sixty.

579
00:32:31,280 --> 00:32:35,440
Speaker 1: How will you study this historically unfascination this weekend? If

580
00:32:35,480 --> 00:32:37,920
Speaker 1: we have a Trump Putin visit at the White House,

581
00:32:38,200 --> 00:32:43,160
Speaker 1: How will you treat that Looking back, well, I think

582
00:32:43,200 --> 00:32:47,240
Speaker 1: it's important to frame it in terms of trying to

583
00:32:47,320 --> 00:32:49,800
Speaker 1: take the political filter off to the extent we can,

584
00:32:50,000 --> 00:32:52,880
Speaker 1: and put at least when the President says it's about

585
00:32:53,200 --> 00:32:56,520
Speaker 1: national security interests, that's usually what you meet with an adversary,

586
00:32:56,600 --> 00:33:00,800
Speaker 1: about diplomacy and trying to further what you both want

587
00:33:00,840 --> 00:33:03,320
Speaker 1: to get done, even though you have big differences. And

588
00:33:03,760 --> 00:33:05,960
Speaker 1: all the things the President said it was about a

589
00:33:06,080 --> 00:33:09,720
Speaker 1: nuclear arms control, a deal breakthrough in Syria, pushing back

590
00:33:09,760 --> 00:33:12,320
Speaker 1: on I Iran's presence in Syria, we haven't seen any

591
00:33:12,480 --> 00:33:15,360
Speaker 1: breakthroughs on any of those things. No agreements, and in

592
00:33:15,440 --> 00:33:17,680
Speaker 1: fact the White House is the only agreement was the

593
00:33:17,680 --> 00:33:21,760
Speaker 1: agreement to meet again. So I think judging them by

594
00:33:21,800 --> 00:33:24,600
Speaker 1: the own bar they set for themselves is kind of

595
00:33:24,680 --> 00:33:28,760
Speaker 1: where I begin my reporting. If Vladimir Putin says yes

596
00:33:28,880 --> 00:33:31,280
Speaker 1: to this invitation, it comes to the Oval Office in

597
00:33:31,360 --> 00:33:35,240
Speaker 1: the fall, I think that definitely has to be pushed

598
00:33:35,400 --> 00:33:38,920
Speaker 1: farther here, that this is not just a you know,

599
00:33:39,160 --> 00:33:42,240
Speaker 1: a tea party, This actually needs to be deliberable to

600
00:33:42,320 --> 00:33:46,520
Speaker 1: the American people. And and and Margaret pim goes exactly

601
00:33:46,680 --> 00:33:51,400
Speaker 1: to what My image was yesterday, which is Mr Putin's

602
00:33:51,560 --> 00:33:57,960
Speaker 1: standing in the Oval office and that well, it is

603
00:33:58,080 --> 00:34:02,440
Speaker 1: deeply insulting to these is an intelligence community who felt

604
00:34:02,480 --> 00:34:06,600
Speaker 1: that the President was picking him over them. Um. But

605
00:34:07,160 --> 00:34:10,319
Speaker 1: when it comes to diplomats, they would say, you only

606
00:34:10,400 --> 00:34:14,000
Speaker 1: give a reward for good behavior. Um. And we haven't

607
00:34:14,080 --> 00:34:17,080
Speaker 1: seen that yet from Russia. Russia right now is violating

608
00:34:17,120 --> 00:34:20,120
Speaker 1: the deal that they made with President Trump in Syria.

609
00:34:20,920 --> 00:34:23,360
Speaker 1: So we're not hearing the President call them out for

610
00:34:23,600 --> 00:34:27,239
Speaker 1: violating that Trump deal. That that's so called safe zone

611
00:34:27,280 --> 00:34:31,759
Speaker 1: area in Southwest area. It's just it's interesting to see, um,

612
00:34:32,880 --> 00:34:36,839
Speaker 1: how the president can justify that, Margaret, Any thoughts are

613
00:34:37,000 --> 00:34:44,919
Speaker 1: any information about where is John Kelly? Well, the chief

614
00:34:45,000 --> 00:34:47,719
Speaker 1: of staff was there in Healthinki and he was there

615
00:34:47,760 --> 00:34:51,759
Speaker 1: in that bilateral meeting that came um after the one

616
00:34:51,840 --> 00:34:55,120
Speaker 1: on one between the two leaders. So he is in

617
00:34:55,239 --> 00:34:57,719
Speaker 1: the room. He appears to be more on the sidelines.

618
00:34:57,800 --> 00:35:00,520
Speaker 1: So Margaret Brennan, thank you so much. Look forward to

619
00:35:00,600 --> 00:35:02,359
Speaker 1: face a nation. No doubt it will be a three

620
00:35:02,440 --> 00:35:05,320
Speaker 1: hour show. Uh this Sunday. You can hear Margaret Brennan

621
00:35:05,400 --> 00:35:08,960
Speaker 1: this weekend. Of course, I'm Bloomberg Radio. See here on CBS.

622
00:35:09,360 --> 00:35:11,960
Speaker 1: Listen to Face a Nation Sunday at two pm in

623
00:35:12,080 --> 00:35:14,160
Speaker 1: New York, Washington, d C. And now Bloomberg one or

624
00:35:14,200 --> 00:35:18,360
Speaker 1: six one Boston Newbury Report. That's Facing Nation this Sunday,

625
00:35:18,440 --> 00:35:21,719
Speaker 1: two pm. I'm Bloomberg Radio and of course in CBS

626
00:35:22,440 --> 00:35:33,640
Speaker 1: Sunday morning. Thanks for listening to the Bloomberg Surveillance podcast.

627
00:35:34,040 --> 00:35:38,960
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

628
00:35:39,120 --> 00:35:43,399
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

629
00:35:43,560 --> 00:35:47,400
Speaker 1: Keane before the podcast. You can always catch us worldwide.

630
00:35:47,880 --> 00:36:00,279
Speaker 1: I'm Bloomberg Radio two