1 00:00:02,600 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg pien L Podcast. I'm Paul swing you, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma wits. Each day 3 00:00:07,680 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,440 Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:21,800 Speaker 1: that Bloomberg dot com trade that is certainly right back 8 00:00:21,840 --> 00:00:25,040 Speaker 1: on the front burner. Today, we welcome Michael McKee, international 9 00:00:25,040 --> 00:00:27,840 Speaker 1: economics and policy correspondent for Bloomberg News. He joins us 10 00:00:27,840 --> 00:00:31,600 Speaker 1: in our Bloomberg Interactive Broker studio uh here in New York. Michael, 11 00:00:31,600 --> 00:00:34,080 Speaker 1: thanks for joining us. What do you expect to hear 12 00:00:34,200 --> 00:00:38,000 Speaker 1: from Mr Leitheiser today in front of the Senate Finance Committee. Well, 13 00:00:38,040 --> 00:00:41,080 Speaker 1: we we've seen some headlines out from his text, and 14 00:00:41,240 --> 00:00:44,720 Speaker 1: he's going to of course tout the president's trade accomplishments, 15 00:00:44,720 --> 00:00:48,560 Speaker 1: because that's his job. The most interesting aspect of the 16 00:00:48,600 --> 00:00:52,880 Speaker 1: text so far is that he suggests that the new 17 00:00:53,080 --> 00:00:56,840 Speaker 1: NAFTA treaty, the U s m c A should be approved. 18 00:00:56,840 --> 00:00:59,840 Speaker 1: They expected to be approved because it was written with 19 00:01:00,200 --> 00:01:03,080 Speaker 1: democratic opposition in mind. Now we know that the Democrats 20 00:01:03,080 --> 00:01:06,120 Speaker 1: are are holding up some discussion of it because they 21 00:01:06,160 --> 00:01:09,959 Speaker 1: want changes to be made. Lightheiser seems optimistic about the 22 00:01:10,040 --> 00:01:12,040 Speaker 1: prospects for it, and he does a little bit of 23 00:01:12,080 --> 00:01:14,800 Speaker 1: a sales job for it. What will be most interesting 24 00:01:14,880 --> 00:01:17,680 Speaker 1: is in the questions and whether the Democrats lay out 25 00:01:17,720 --> 00:01:21,400 Speaker 1: specific terms they want. Also joining us is Sean Don 26 00:01:21,400 --> 00:01:24,280 Speaker 1: and senior trade reporter joining us from d C. So 27 00:01:24,560 --> 00:01:27,160 Speaker 1: the backdrop though, of course, is the tweet from President 28 00:01:27,160 --> 00:01:29,240 Speaker 1: Trump and he and g just talked on the phone 29 00:01:29,240 --> 00:01:30,319 Speaker 1: and they're going to have a meeting of the G 30 00:01:30,440 --> 00:01:34,240 Speaker 1: twenty and then G through CCTV also reaffirming that they're 31 00:01:34,280 --> 00:01:37,000 Speaker 1: going to have a meeting. Um, do we believe now 32 00:01:37,120 --> 00:01:40,120 Speaker 1: this is actually moving forward on? Yeah? Well that's I mean, 33 00:01:40,120 --> 00:01:42,000 Speaker 1: it's really interesting developments that we've just had in the 34 00:01:42,080 --> 00:01:44,960 Speaker 1: last hour. I think the most interesting thing about Bob 35 00:01:45,040 --> 00:01:48,320 Speaker 1: Leightheiser's prepared testimony is what's missing, and that is any 36 00:01:48,360 --> 00:01:51,920 Speaker 1: mention of China, really uh, in there any any addressing 37 00:01:51,960 --> 00:01:54,480 Speaker 1: it as one of the big issues, and it's the 38 00:01:54,520 --> 00:01:58,400 Speaker 1: elephant in the room, really uh in terms of US 39 00:01:58,440 --> 00:02:01,920 Speaker 1: trade policy. But he's really gonna be asked about the 40 00:02:01,960 --> 00:02:06,120 Speaker 1: President's tweet this morning. Uh, and uh like as you 41 00:02:06,160 --> 00:02:09,040 Speaker 1: say that the Chinese announcement as well, that there's phone 42 00:02:09,040 --> 00:02:11,800 Speaker 1: call has taken place, that's a big development. Um. There 43 00:02:11,840 --> 00:02:14,320 Speaker 1: were a lot of people questioning whether or not whether 44 00:02:14,760 --> 00:02:17,840 Speaker 1: such a meeting might even take place. At at the 45 00:02:17,840 --> 00:02:19,639 Speaker 1: G twenty, there were some people who thought that the 46 00:02:19,720 --> 00:02:22,200 Speaker 1: things were just two tents right now. Uh. So it's 47 00:02:22,200 --> 00:02:24,200 Speaker 1: a good sign that there that they're going to meet, 48 00:02:24,280 --> 00:02:28,000 Speaker 1: but we should remember, uh that there's a big gap 49 00:02:28,120 --> 00:02:31,680 Speaker 1: between the two sides uh in these talks right now. 50 00:02:31,919 --> 00:02:36,079 Speaker 1: And uh, it's unclear how much President Trump and j 51 00:02:36,320 --> 00:02:39,640 Speaker 1: and Pink can close that gap in just one meeting. So, Michael, 52 00:02:39,680 --> 00:02:42,880 Speaker 1: it seems like we've in terms of trade, things are 53 00:02:42,960 --> 00:02:45,600 Speaker 1: on a little bit better track with Mexico. It now 54 00:02:45,680 --> 00:02:50,000 Speaker 1: seems like a China may be on a similar track. 55 00:02:50,360 --> 00:02:52,440 Speaker 1: How do you think the markets are kind of pricing 56 00:02:52,520 --> 00:02:55,440 Speaker 1: right now global trade because it's been such a driver 57 00:02:55,880 --> 00:02:58,200 Speaker 1: of uncertainty the market's really since the fourth quarter of 58 00:02:58,280 --> 00:03:00,720 Speaker 1: last year. It's very hard to price because you don't 59 00:03:00,760 --> 00:03:03,840 Speaker 1: know with President Trump what he's going to do from 60 00:03:03,960 --> 00:03:09,600 Speaker 1: day to day. They've put into earnings and expectations about 61 00:03:09,639 --> 00:03:11,680 Speaker 1: as much as they can in terms of what a 62 00:03:11,720 --> 00:03:14,800 Speaker 1: trade war would mean, but there has been this reluctance 63 00:03:14,840 --> 00:03:16,959 Speaker 1: to fully price it in because they don't think it's 64 00:03:17,040 --> 00:03:19,720 Speaker 1: really going to happen. The President has sort of pushed 65 00:03:19,720 --> 00:03:22,280 Speaker 1: back against that, but then you know, with China, but 66 00:03:22,360 --> 00:03:24,840 Speaker 1: then with Mexico he raised the prospect and then he 67 00:03:24,919 --> 00:03:28,280 Speaker 1: dashed it again. So you know, how far will he 68 00:03:28,320 --> 00:03:30,920 Speaker 1: really go? That's a question. If I were on the 69 00:03:30,960 --> 00:03:36,080 Speaker 1: Senate committee, I suppose I would ask that question. But 70 00:03:36,120 --> 00:03:37,800 Speaker 1: I don't know if you get a straight answer from 71 00:03:37,800 --> 00:03:40,240 Speaker 1: Bob Leheizer, because I don't know if he knows the answer. 72 00:03:40,320 --> 00:03:43,160 Speaker 1: And uh, you know, the standard answer is, of course 73 00:03:43,200 --> 00:03:45,240 Speaker 1: the President is going to follow through, but it's not 74 00:03:45,320 --> 00:03:49,640 Speaker 1: in his interest in uh terms, to have an economy 75 00:03:49,680 --> 00:03:51,800 Speaker 1: that is going down, to have a stock market that's 76 00:03:51,880 --> 00:03:55,640 Speaker 1: rolling over. So there's definitely an incentive for him to 77 00:03:55,680 --> 00:03:59,360 Speaker 1: try to move forward with Shi Jinping, and that maybe 78 00:03:59,360 --> 00:04:01,560 Speaker 1: just enough to carry the market for a while. It 79 00:04:01,680 --> 00:04:03,920 Speaker 1: may not reach a deal, as Shaun says, but they 80 00:04:03,960 --> 00:04:06,960 Speaker 1: may at least say we're going to keep talking and 81 00:04:07,040 --> 00:04:09,839 Speaker 1: that will get priced in as good news. But if 82 00:04:09,960 --> 00:04:11,880 Speaker 1: the economy is holding up in Lukawa has a great 83 00:04:11,880 --> 00:04:13,680 Speaker 1: piece on the Bloomberg right now talks about how US 84 00:04:13,680 --> 00:04:15,800 Speaker 1: equities are a performing the rest of the world. Yet again, 85 00:04:15,840 --> 00:04:19,839 Speaker 1: our GDPs better than other countries. Yet again, inflation expectations 86 00:04:19,920 --> 00:04:22,680 Speaker 1: rolling over still higher than like you're a Germany, for example, 87 00:04:22,680 --> 00:04:24,839 Speaker 1: in Japan. I mean, if it's the best house and 88 00:04:24,839 --> 00:04:27,680 Speaker 1: a bad block thing, is that enough to sustain well 89 00:04:27,760 --> 00:04:30,359 Speaker 1: for a short time. I mean, the problem is we 90 00:04:30,400 --> 00:04:33,719 Speaker 1: don't know exactly what is causing the weakness that we 91 00:04:33,800 --> 00:04:37,000 Speaker 1: see in the United States. We know that in Germany, 92 00:04:37,120 --> 00:04:40,440 Speaker 1: for example, in Europe, the trade is weighing heavily on them, 93 00:04:40,680 --> 00:04:44,279 Speaker 1: and that's an issue. And so you you would figure 94 00:04:44,320 --> 00:04:46,440 Speaker 1: if they can reach some sort of trade accommodation that 95 00:04:46,520 --> 00:04:49,040 Speaker 1: things might get better. I was saying earlier that I 96 00:04:49,080 --> 00:04:51,400 Speaker 1: think the President may have just tweeted j Powell out 97 00:04:51,400 --> 00:04:55,760 Speaker 1: of having to do a really stole that dangerous radio 98 00:04:55,920 --> 00:05:00,599 Speaker 1: because because uh, you know, you got gotta wait. You 99 00:05:00,600 --> 00:05:02,880 Speaker 1: gotta wait and see what happens before you make any 100 00:05:02,880 --> 00:05:05,880 Speaker 1: monetary policy decision exactly, or put a trade on for 101 00:05:05,920 --> 00:05:07,800 Speaker 1: that matter. Just think about a trade one to put 102 00:05:07,839 --> 00:05:09,640 Speaker 1: something on this morning, and how's that trade has been 103 00:05:09,640 --> 00:05:12,039 Speaker 1: whipsald um Sean I want to bring you back. And 104 00:05:12,120 --> 00:05:14,240 Speaker 1: just as it relates to China, just give us a 105 00:05:14,279 --> 00:05:17,640 Speaker 1: sense of where you think the Chinese negotiators are in 106 00:05:17,720 --> 00:05:20,800 Speaker 1: terms of their position right now. How confident did they 107 00:05:20,839 --> 00:05:24,240 Speaker 1: feel as they potentially sit down with the US. Well, 108 00:05:24,240 --> 00:05:26,960 Speaker 1: I think the real danger in these negotiations right now 109 00:05:27,040 --> 00:05:28,800 Speaker 1: is that both sides feel like they're in a in 110 00:05:28,800 --> 00:05:32,040 Speaker 1: a strong position. You've heard the UH the argument that 111 00:05:32,160 --> 00:05:34,520 Speaker 1: everything is hunky dorry in the United States and it's 112 00:05:34,560 --> 00:05:36,120 Speaker 1: the you know, or it's the best house on a 113 00:05:36,160 --> 00:05:39,080 Speaker 1: bad block, if you will. I think the Chinese kind 114 00:05:39,080 --> 00:05:42,640 Speaker 1: of feel similarly that they're not in a bad position 115 00:05:43,000 --> 00:05:46,520 Speaker 1: and that, if anything, they have more power to pull 116 00:05:46,600 --> 00:05:49,160 Speaker 1: the levers they need to and respond to any slow 117 00:05:49,200 --> 00:05:51,240 Speaker 1: down in the economy. We heard that from Ye Gang, 118 00:05:52,120 --> 00:05:54,960 Speaker 1: the governor of the People's Bank of China, in a 119 00:05:55,000 --> 00:05:56,920 Speaker 1: Bloomberg interview a couple of weeks ago, where he said 120 00:05:56,960 --> 00:05:59,680 Speaker 1: they had lots of room UH to respond to to 121 00:06:00,120 --> 00:06:04,440 Speaker 1: any slow down and whereas the US may have less room, 122 00:06:04,440 --> 00:06:07,480 Speaker 1: and as Donald Trump keeps complaining, UH, he doesn't have 123 00:06:07,520 --> 00:06:11,440 Speaker 1: the ability to to pull the levers directly UH to 124 00:06:11,440 --> 00:06:14,600 Speaker 1: to boost the economy when he needs to. I think 125 00:06:14,600 --> 00:06:17,840 Speaker 1: why I'm just look, I was in China for ten days. Uh. Uh, 126 00:06:18,400 --> 00:06:21,520 Speaker 1: just back a week or so ago, and and one 127 00:06:21,560 --> 00:06:24,400 Speaker 1: of the common themes you hear on the ground in 128 00:06:24,520 --> 00:06:27,960 Speaker 1: China is that people are just bracing themselves and getting 129 00:06:28,000 --> 00:06:32,240 Speaker 1: ready for a more protracted trade conflict, and they're ready 130 00:06:32,279 --> 00:06:35,360 Speaker 1: to adapt. Sean Donna, thank you so much. Shawnas, senior 131 00:06:35,400 --> 00:06:37,880 Speaker 1: trade reporter for Bloomberg News, joining us in a Bloomberg 132 00:06:38,800 --> 00:06:41,680 Speaker 1: studio in Washington, d C. Michael McKee, international economics and 133 00:06:41,680 --> 00:06:44,360 Speaker 1: Policy correspondent for Bloomberg News, joining us live here in 134 00:06:44,440 --> 00:06:50,000 Speaker 1: Bloomberg Interactive Broker studio. We're gonna move on to a 135 00:06:50,080 --> 00:06:53,119 Speaker 1: story here that's just crossing the tape the White House 136 00:06:53,279 --> 00:06:57,000 Speaker 1: uh explored the legality of the mooting FED Chairman pal Uh. 137 00:06:57,040 --> 00:07:01,160 Speaker 1: To help us explore this new topic, we welcome Celia Motion. 138 00:07:01,760 --> 00:07:04,040 Speaker 1: She is of a Bloomberg News Selah, thanks so much 139 00:07:04,040 --> 00:07:05,880 Speaker 1: for joining us. Give us a sense of what you're 140 00:07:05,880 --> 00:07:09,320 Speaker 1: reporting right now. Yeah, so, survices have told us that 141 00:07:09,360 --> 00:07:12,240 Speaker 1: back in February, just about two months after the President 142 00:07:12,280 --> 00:07:16,160 Speaker 1: discussed whether he could fire Jerome Powell, UH, the White 143 00:07:16,200 --> 00:07:20,080 Speaker 1: House General Counsel's Office, the team of lawyers explored the 144 00:07:20,160 --> 00:07:24,680 Speaker 1: legalities around UM stripping Jerome Powell of his chairmanship and 145 00:07:24,760 --> 00:07:27,760 Speaker 1: leaving him just as a governor, which would allow the 146 00:07:27,760 --> 00:07:31,920 Speaker 1: President then to either nominate another existing governor he has 147 00:07:31,960 --> 00:07:35,680 Speaker 1: swore to choose from too that he himself placed on 148 00:07:35,720 --> 00:07:39,280 Speaker 1: the board UM to become chairman, because they said chairman 149 00:07:39,520 --> 00:07:41,640 Speaker 1: always has two jobs. They are the chair and they 150 00:07:41,640 --> 00:07:44,680 Speaker 1: are a governor one of seven governors. The other options 151 00:07:44,680 --> 00:07:47,200 Speaker 1: that the President would have UM if he was able 152 00:07:47,240 --> 00:07:51,960 Speaker 1: to demote essentially h Jerome Powell in that manner is 153 00:07:52,040 --> 00:07:56,239 Speaker 1: to nominate UH someone to fill one of the two 154 00:07:56,280 --> 00:08:00,160 Speaker 1: open governor seats and then make that new governor or 155 00:08:00,320 --> 00:08:05,360 Speaker 1: a chairman. So how unprecedented would a move like this being. 156 00:08:06,520 --> 00:08:09,080 Speaker 1: So this has never been tested. We don't actually even 157 00:08:09,120 --> 00:08:11,080 Speaker 1: know if it's possible, and I imagine that is what 158 00:08:11,200 --> 00:08:15,080 Speaker 1: the White House was exploring. UM it is legal experts 159 00:08:15,080 --> 00:08:17,360 Speaker 1: are telling us that this would most likely go to 160 00:08:17,400 --> 00:08:20,960 Speaker 1: the courts if chair Powell decided that he wants to 161 00:08:21,040 --> 00:08:23,160 Speaker 1: challenge Trump and say that he is not allowed to 162 00:08:23,200 --> 00:08:26,240 Speaker 1: demote me this way. The courts would then have to 163 00:08:26,280 --> 00:08:29,080 Speaker 1: look at the Federal Reserve Act and try to interpret it. 164 00:08:29,120 --> 00:08:32,320 Speaker 1: But this has never actually happened before. So is there 165 00:08:32,320 --> 00:08:36,199 Speaker 1: any evidence that this review of this type of motion, 166 00:08:36,320 --> 00:08:39,839 Speaker 1: the legality of it, was in fact directed by President Trump? 167 00:08:39,880 --> 00:08:42,800 Speaker 1: Is there any evidence of that? No, there's no evidence 168 00:08:42,840 --> 00:08:45,120 Speaker 1: of that. And there's also no evidence that the President 169 00:08:45,200 --> 00:08:48,480 Speaker 1: is at this very moment considering taking any action against 170 00:08:48,520 --> 00:08:51,120 Speaker 1: Powell like this? Do we do? We know how far 171 00:08:51,440 --> 00:08:54,520 Speaker 1: along this process got. Is there any sense of how 172 00:08:54,559 --> 00:08:58,480 Speaker 1: widespread it was and maybe how deep the the consideration was. 173 00:08:59,400 --> 00:09:01,280 Speaker 1: What I can tell you and what we reported in 174 00:09:01,280 --> 00:09:04,440 Speaker 1: the story that's on the terminal today, is that a 175 00:09:04,600 --> 00:09:09,079 Speaker 1: ruling was made by the White House lawyers on on 176 00:09:09,320 --> 00:09:11,439 Speaker 1: what this kind of strategy would look like and whether 177 00:09:11,480 --> 00:09:14,600 Speaker 1: this is a viable option, And that ruling has not 178 00:09:14,720 --> 00:09:19,760 Speaker 1: been revealed, even on background by sources. We do know that. UM. 179 00:09:19,760 --> 00:09:22,520 Speaker 1: The Wall Street Journal in at the beginning of April 180 00:09:22,559 --> 00:09:25,640 Speaker 1: reported that Trump told Powell and a phone call in 181 00:09:25,720 --> 00:09:27,600 Speaker 1: March that he said, you know, I guess I'm stuck 182 00:09:27,640 --> 00:09:29,760 Speaker 1: with you, which you know, take that from you know, 183 00:09:29,800 --> 00:09:32,480 Speaker 1: take from that what you want any sense now, I mean, 184 00:09:32,840 --> 00:09:36,840 Speaker 1: you know, the White House they've not not commenting presumably UM, 185 00:09:36,880 --> 00:09:39,000 Speaker 1: but just kind of what next next steps might be 186 00:09:39,559 --> 00:09:43,920 Speaker 1: UM for this issue. Absolutely not. They're not commenting at all, 187 00:09:44,000 --> 00:09:46,120 Speaker 1: and it looks like, you know, we're not expecting any 188 00:09:46,160 --> 00:09:49,360 Speaker 1: next steps. The legal um study has been done and 189 00:09:49,360 --> 00:09:51,079 Speaker 1: it's there just in case the White House needs that. 190 00:09:51,120 --> 00:09:54,200 Speaker 1: Are it's it's a FED chooses to edge their own research. 191 00:09:54,240 --> 00:09:57,120 Speaker 1: We don't know. Interesting, So Silely, I just you know, 192 00:09:57,360 --> 00:09:59,560 Speaker 1: finally here its just the obviously, as you mentioned and 193 00:09:59,559 --> 00:10:02,480 Speaker 1: as you re ported in this story, the relationship between 194 00:10:02,559 --> 00:10:06,600 Speaker 1: Chairman Pound and pre President Trump remains difficult. What is 195 00:10:06,600 --> 00:10:10,520 Speaker 1: the sense of how the the UM the Commission itself 196 00:10:10,720 --> 00:10:13,960 Speaker 1: is actually functioning right now? Is it feel like despite 197 00:10:13,960 --> 00:10:16,800 Speaker 1: the tensions, the Commission is still uh or that you 198 00:10:16,880 --> 00:10:21,160 Speaker 1: have still kind of getting work done? Yeah, you know, 199 00:10:21,440 --> 00:10:24,000 Speaker 1: so far the Powell has said, the chair has said 200 00:10:24,000 --> 00:10:26,920 Speaker 1: that there is no political influence. He's not going to 201 00:10:26,960 --> 00:10:29,480 Speaker 1: be influenced by the President or his comments or any 202 00:10:29,480 --> 00:10:32,480 Speaker 1: phone calls that they have behind closed doors. UM. The 203 00:10:33,120 --> 00:10:35,439 Speaker 1: We can also see that the Fed didn't about face 204 00:10:35,440 --> 00:10:40,000 Speaker 1: of monetary policy in January. Markets were so royaled after 205 00:10:40,040 --> 00:10:44,520 Speaker 1: the rate cut and the hawkish outlook for rates that 206 00:10:44,559 --> 00:10:46,720 Speaker 1: was given in December, and in January we started to 207 00:10:46,720 --> 00:10:49,560 Speaker 1: see the Fed pull you turn on that policy and 208 00:10:49,600 --> 00:10:51,760 Speaker 1: now we're you know, markets are expecting a lot of 209 00:10:51,760 --> 00:10:54,320 Speaker 1: economists are expecting not a rate cut tomorrow, but something 210 00:10:54,360 --> 00:10:57,240 Speaker 1: to be signaled and a possible rate cut in July 211 00:10:57,360 --> 00:10:59,920 Speaker 1: or later this year. So it doesn't make you think 212 00:11:00,000 --> 00:11:03,079 Speaker 1: that maybe the Trump is getting his way. We can't 213 00:11:03,120 --> 00:11:07,280 Speaker 1: really know, um whether that is because of what Trump said, 214 00:11:07,440 --> 00:11:12,240 Speaker 1: or whether that's just the Fed independently making those decisions. Soliah, 215 00:11:12,280 --> 00:11:15,480 Speaker 1: thank you so much for this reporting of this important story. 216 00:11:15,559 --> 00:11:23,120 Speaker 1: Celia moson Bloomberg News on the phone with us. The 217 00:11:23,200 --> 00:11:27,000 Speaker 1: Federal Reserves Open Market Committee meets today and tomorrow. The 218 00:11:27,040 --> 00:11:31,040 Speaker 1: market is eagerly awaiting comments tomorrow Fed Chairman Pal to 219 00:11:31,040 --> 00:11:33,400 Speaker 1: get a little preview of what we might hear. We 220 00:11:33,400 --> 00:11:37,360 Speaker 1: welcome Ira Jersey. Ira is chief US interest rate strategist 221 00:11:37,360 --> 00:11:39,520 Speaker 1: for Bloomberg Intelligence. He joins us from the b I 222 00:11:39,559 --> 00:11:42,800 Speaker 1: headquarters in Princeton, New Jersey. Ira, thanks so much for 223 00:11:42,880 --> 00:11:46,079 Speaker 1: being with us. What do you expect to hear from 224 00:11:46,160 --> 00:11:48,760 Speaker 1: Chairman Pal tomorrow? Given what we saw out of the 225 00:11:48,800 --> 00:11:51,720 Speaker 1: e c B this morning and even a follow up 226 00:11:51,760 --> 00:11:54,800 Speaker 1: tweet by President Trump about the euro what do you 227 00:11:54,800 --> 00:11:58,120 Speaker 1: expect to hear tomorrow? Yeah, good, good morning. So I 228 00:11:58,120 --> 00:12:00,880 Speaker 1: think a couple of things. I think firstly, the FED 229 00:12:01,120 --> 00:12:03,040 Speaker 1: is going to have to be more dubblish and just 230 00:12:03,200 --> 00:12:07,439 Speaker 1: in general. Um, so you look at things like inflation expectations, 231 00:12:07,480 --> 00:12:11,760 Speaker 1: both survey measures and from the Treasury inflation protected securities market, 232 00:12:11,880 --> 00:12:14,360 Speaker 1: and uh, they are going to have to acknowledge that 233 00:12:14,400 --> 00:12:18,160 Speaker 1: inflation expectations are well anchored, um and uh and even 234 00:12:18,160 --> 00:12:20,880 Speaker 1: moving lower. So so so that that's one thing that 235 00:12:20,920 --> 00:12:23,600 Speaker 1: you could look for in the first sentence. The second 236 00:12:23,679 --> 00:12:25,520 Speaker 1: is I think that the market that he's not going 237 00:12:25,600 --> 00:12:27,920 Speaker 1: to be quite as doublish maybe as the market is 238 00:12:28,040 --> 00:12:31,160 Speaker 1: anticipating at the moment. I do think that there's going 239 00:12:31,200 --> 00:12:32,880 Speaker 1: to be a doublish hilt. He's going to say that 240 00:12:32,920 --> 00:12:35,240 Speaker 1: the balance of risks maybe is to the downside at 241 00:12:35,240 --> 00:12:37,800 Speaker 1: the moment, But that doesn't mean that they're going to 242 00:12:37,840 --> 00:12:40,600 Speaker 1: cut three times this year, which is largely priced into 243 00:12:40,600 --> 00:12:44,720 Speaker 1: the market. So turning, so the stage is really set 244 00:12:44,720 --> 00:12:47,520 Speaker 1: by Mario Draggy or as President Trump refers to Mario 245 00:12:47,640 --> 00:12:50,439 Speaker 1: d which is just too cool for words. Um, do 246 00:12:50,679 --> 00:12:52,920 Speaker 1: you feel like the pressure that we're seeing the bond 247 00:12:52,920 --> 00:12:55,400 Speaker 1: market over in Europe? You know, negative thirty plus basis 248 00:12:55,440 --> 00:12:58,160 Speaker 1: points on the German tenure is going to inform the 249 00:12:58,160 --> 00:12:59,880 Speaker 1: FED at all, Like what do they do when they 250 00:13:00,040 --> 00:13:03,240 Speaker 1: look at something like that. Yeah, So, you know, Europe 251 00:13:03,240 --> 00:13:05,040 Speaker 1: in the US when it comes to the economy has 252 00:13:05,040 --> 00:13:07,320 Speaker 1: di verge a little bit. But the but kind of 253 00:13:07,320 --> 00:13:11,600 Speaker 1: the slowing trend in the economies is um has continued 254 00:13:11,679 --> 00:13:15,160 Speaker 1: in both jurisdictions. Although in the US we might avoid 255 00:13:15,320 --> 00:13:17,800 Speaker 1: a more prolonged slowdown. I think in Europe they're really 256 00:13:17,840 --> 00:13:21,680 Speaker 1: worried about about a more prolonged slowdown. They are worried 257 00:13:21,679 --> 00:13:25,040 Speaker 1: that inflation continues to be um, you know, not be 258 00:13:25,120 --> 00:13:27,720 Speaker 1: able to pick up at all. I think the problem 259 00:13:27,760 --> 00:13:30,480 Speaker 1: with all of these things is that there's forces at 260 00:13:30,480 --> 00:13:33,440 Speaker 1: work that monetary policy can't help with. So the fact 261 00:13:33,440 --> 00:13:36,360 Speaker 1: that you have low inflation and slow growth in Europe 262 00:13:36,400 --> 00:13:41,640 Speaker 1: in particular and places like Japan is largely a demographic issue. 263 00:13:41,800 --> 00:13:45,400 Speaker 1: It's aging populations and as well as low birth rates. 264 00:13:45,920 --> 00:13:49,760 Speaker 1: So it's not something you know, the monetary policy that 265 00:13:49,840 --> 00:13:52,680 Speaker 1: has to be easy, uh, kind of just to keep 266 00:13:52,720 --> 00:13:55,120 Speaker 1: things afloat. But how much easier can you get? So 267 00:13:55,200 --> 00:13:57,199 Speaker 1: one of the things that Mario drag You said overnight 268 00:13:57,760 --> 00:14:01,240 Speaker 1: was if the economic outlook doesn't prove we're likely to 269 00:14:01,280 --> 00:14:04,240 Speaker 1: cut interest rates. And you know, so what's happened is 270 00:14:04,280 --> 00:14:07,520 Speaker 1: you've had this rally in um in Europe and and 271 00:14:07,559 --> 00:14:10,000 Speaker 1: basically you're now pricing for an additional rate cut by 272 00:14:10,040 --> 00:14:12,240 Speaker 1: the ECB by the end of the year, and that's 273 00:14:12,320 --> 00:14:15,040 Speaker 1: pulled all of these interest rates flowers. So don't look 274 00:14:15,080 --> 00:14:18,400 Speaker 1: at don't look at European ten uere yields at negative 275 00:14:18,400 --> 00:14:21,400 Speaker 1: thirty two basis points as the as the measure, because 276 00:14:22,200 --> 00:14:26,040 Speaker 1: you can still buy a tenure bond in Germany funded 277 00:14:26,520 --> 00:14:30,280 Speaker 1: overnight in Germany and and still make money, right, So 278 00:14:30,320 --> 00:14:32,400 Speaker 1: that's that's the thing that we have to realize, is 279 00:14:32,440 --> 00:14:35,920 Speaker 1: that is that the carry from trades UH is not 280 00:14:35,960 --> 00:14:38,440 Speaker 1: necessarily as bad as it looks on the surface, just 281 00:14:38,480 --> 00:14:41,760 Speaker 1: seeing that it's negative thirty basis one is there an 282 00:14:41,840 --> 00:14:45,600 Speaker 1: argument to be made that the US FED should hold 283 00:14:45,640 --> 00:14:48,680 Speaker 1: out on rake cuts as long as possible, perhaps even 284 00:14:48,680 --> 00:14:52,840 Speaker 1: till the end of the year. They perhaps and I 285 00:14:52,880 --> 00:14:55,960 Speaker 1: think that if the data rebounds as the as the 286 00:14:55,960 --> 00:14:59,200 Speaker 1: Bloomberg Economics teams thinks, so Carl Rickadana and his team, 287 00:14:59,240 --> 00:15:01,240 Speaker 1: if the data amounts and there's not a reason for 288 00:15:01,280 --> 00:15:02,960 Speaker 1: them to do that, which is one reason I think 289 00:15:03,200 --> 00:15:05,920 Speaker 1: they will wait at least until July to see another 290 00:15:05,960 --> 00:15:10,200 Speaker 1: set of data before they actually consider cutting interest rates. Um. 291 00:15:10,320 --> 00:15:12,360 Speaker 1: That being said, there's other things they can do. So, 292 00:15:12,440 --> 00:15:15,320 Speaker 1: for example, one thing that would not surprise me um 293 00:15:15,520 --> 00:15:18,800 Speaker 1: is they could taper the quantitative tightening faster, so they 294 00:15:18,800 --> 00:15:21,760 Speaker 1: could actually maybe end balance sheet reduction by the end 295 00:15:21,760 --> 00:15:24,840 Speaker 1: of July potentially, And something like that would be a 296 00:15:24,960 --> 00:15:28,680 Speaker 1: debbish measure that they could take without actually without actually 297 00:15:28,680 --> 00:15:31,520 Speaker 1: cutting interest rates. So, because the problem is that they 298 00:15:31,520 --> 00:15:33,480 Speaker 1: don't have that many bullets, they you know, the feed 299 00:15:33,560 --> 00:15:36,720 Speaker 1: in particular doesn't want to cut interest rates less than zero. 300 00:15:36,840 --> 00:15:38,920 Speaker 1: I think J. Powell was pretty clear about that a 301 00:15:38,960 --> 00:15:41,440 Speaker 1: few weeks ago. So the thing is, if you can 302 00:15:41,480 --> 00:15:43,680 Speaker 1: only cut interest rates eight times, you don't want to 303 00:15:43,720 --> 00:15:45,240 Speaker 1: have to do that as your first step if you 304 00:15:45,240 --> 00:15:47,440 Speaker 1: can avoid it. So do you think so if they 305 00:15:47,440 --> 00:15:50,320 Speaker 1: did that, so they opted for balance sheet normalization now 306 00:15:50,440 --> 00:15:53,360 Speaker 1: versus later, like, does the market like it? Is it 307 00:15:53,520 --> 00:15:57,040 Speaker 1: devilish enough for them? Well? I think that that risk 308 00:15:57,080 --> 00:16:00,480 Speaker 1: asset markets would probably be more or less and change. 309 00:16:00,560 --> 00:16:03,560 Speaker 1: I think I think the bond market has already priced 310 00:16:03,560 --> 00:16:06,080 Speaker 1: for a lot of bad news and and certainly for 311 00:16:06,320 --> 00:16:07,760 Speaker 1: the FED to cut so I think if they did 312 00:16:07,800 --> 00:16:11,040 Speaker 1: something like that and said we're going to end quantitative tightening, 313 00:16:11,080 --> 00:16:13,080 Speaker 1: but don't look for but hint that there's not going 314 00:16:13,120 --> 00:16:15,680 Speaker 1: to be an interest rate cut in July, I think 315 00:16:15,680 --> 00:16:18,360 Speaker 1: the bond market, probably the two year notes and the 316 00:16:18,400 --> 00:16:20,800 Speaker 1: front end of the of the market. Short term maturities 317 00:16:21,040 --> 00:16:23,640 Speaker 1: they probably go up and yield, but long end maturities 318 00:16:23,720 --> 00:16:26,240 Speaker 1: probably stay where they are, just on the idea that 319 00:16:26,280 --> 00:16:30,280 Speaker 1: the Fed's not cutting enough with this negative sentiment hanging around. 320 00:16:30,360 --> 00:16:31,920 Speaker 1: And then a lot of this negative sentiment, of course, 321 00:16:31,920 --> 00:16:34,160 Speaker 1: could go away very quickly, as you saw today. I 322 00:16:34,160 --> 00:16:36,080 Speaker 1: mean we were we we were up a lot more 323 00:16:36,120 --> 00:16:38,440 Speaker 1: in the bond market. But then you know, Donald Trump 324 00:16:38,440 --> 00:16:40,280 Speaker 1: makes a tweet. The next thing, you know, five basis 325 00:16:40,360 --> 00:16:43,800 Speaker 1: points of that rally, today's rally goes away. And I 326 00:16:43,880 --> 00:16:47,880 Speaker 1: read just the she agrees President, she agrees is coming 327 00:16:47,880 --> 00:16:51,200 Speaker 1: on the redhead headline, come across the tape. She agrees 328 00:16:51,320 --> 00:16:55,080 Speaker 1: us China should keep talking. So just confirming the tweet 329 00:16:55,080 --> 00:16:58,760 Speaker 1: from President Trump. So is there something here that maybe 330 00:16:58,760 --> 00:17:01,960 Speaker 1: the market's missing? What be you know, just we've had 331 00:17:02,000 --> 00:17:04,080 Speaker 1: so much volatility just to pass well, let's just go 332 00:17:04,200 --> 00:17:07,240 Speaker 1: today for for that matter, Where could the FED or 333 00:17:07,240 --> 00:17:10,160 Speaker 1: how could the Fed really surprise the market, maybe even 334 00:17:10,320 --> 00:17:14,959 Speaker 1: on the downside tomorrow. Yeah, well, I I mean certainly 335 00:17:15,000 --> 00:17:17,080 Speaker 1: if the if the Fed cut tomorrow, that would be 336 00:17:17,119 --> 00:17:19,520 Speaker 1: a huge surprise. Um. I think that would be you know, 337 00:17:19,560 --> 00:17:22,600 Speaker 1: really good at least temporarily for risk assets, and um, 338 00:17:22,760 --> 00:17:25,760 Speaker 1: the market is not price for that. But I think 339 00:17:25,760 --> 00:17:28,600 Speaker 1: if they were to cut tomorrow, then we would probably 340 00:17:28,680 --> 00:17:31,320 Speaker 1: price out to cut in July, so you wouldn't you'd 341 00:17:31,359 --> 00:17:34,160 Speaker 1: see the very very short term market, so one month, 342 00:17:34,240 --> 00:17:36,760 Speaker 1: three months he bills for example, would move, but not 343 00:17:36,800 --> 00:17:39,679 Speaker 1: necessarily two year notes very much because we're already pricing 344 00:17:39,760 --> 00:17:41,800 Speaker 1: for two and a half more than two and a 345 00:17:41,840 --> 00:17:43,760 Speaker 1: half interest rate cuts by the by the end of 346 00:17:43,800 --> 00:17:46,760 Speaker 1: this year. Um, could they could they suggest that they're 347 00:17:46,760 --> 00:17:49,520 Speaker 1: going to Could they cut fifty basis points? They could? 348 00:17:49,600 --> 00:17:52,879 Speaker 1: I think that that would be highly highly unusual. Ira Jersey, 349 00:17:52,920 --> 00:17:55,840 Speaker 1: Thank you so much, Irish chief US interest rate strategist 350 00:17:55,880 --> 00:17:58,480 Speaker 1: for Bloomberg Intelligence, joining us on the phone from the 351 00:17:58,720 --> 00:18:02,800 Speaker 1: headquarters in Prince to New Jersey. Thanks for listening to 352 00:18:02,840 --> 00:18:05,720 Speaker 1: the Bloomberg P and L podcast. You can subscribe and 353 00:18:05,760 --> 00:18:09,720 Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast 354 00:18:09,760 --> 00:18:13,280 Speaker 1: platform you prefer. I'm pim Fox. I'm on Twitter at 355 00:18:13,440 --> 00:18:17,359 Speaker 1: pim Fox. I'm on Twitter at Lisa abramoits one before 356 00:18:17,359 --> 00:18:20,280 Speaker 1: the podcast, you can always catch us worldwide on Bloomberg 357 00:18:20,359 --> 00:18:20,639 Speaker 1: Radio