WEBVTT - Lighthizer Signals Progress On USMCA, But Not On China

0:00:02.600 --> 0:00:05.320
<v Speaker 1>Welcome to the Bloomberg pien L Podcast. I'm Paul swing you,

0:00:05.360 --> 0:00:07.680
<v Speaker 1>along with my co host Lisa Brahma wits. Each day

0:00:07.680 --> 0:00:10.240
<v Speaker 1>we bring you the most noteworthy and useful interviews for

0:00:10.280 --> 0:00:12.520
<v Speaker 1>you and your money, whether at the grocery store or

0:00:12.560 --> 0:00:15.440
<v Speaker 1>the trading floor, find a Bloomberg Penl podcast on Apple

0:00:15.520 --> 0:00:17.960
<v Speaker 1>podcast or wherever you listen to podcasts, as well as

0:00:17.960 --> 0:00:21.800
<v Speaker 1>that Bloomberg dot com trade that is certainly right back

0:00:21.840 --> 0:00:25.040
<v Speaker 1>on the front burner. Today, we welcome Michael McKee, international

0:00:25.040 --> 0:00:27.840
<v Speaker 1>economics and policy correspondent for Bloomberg News. He joins us

0:00:27.840 --> 0:00:31.600
<v Speaker 1>in our Bloomberg Interactive Broker studio uh here in New York. Michael,

0:00:31.600 --> 0:00:34.080
<v Speaker 1>thanks for joining us. What do you expect to hear

0:00:34.200 --> 0:00:38.000
<v Speaker 1>from Mr Leitheiser today in front of the Senate Finance Committee. Well,

0:00:38.040 --> 0:00:41.080
<v Speaker 1>we we've seen some headlines out from his text, and

0:00:41.240 --> 0:00:44.720
<v Speaker 1>he's going to of course tout the president's trade accomplishments,

0:00:44.720 --> 0:00:48.560
<v Speaker 1>because that's his job. The most interesting aspect of the

0:00:48.600 --> 0:00:52.880
<v Speaker 1>text so far is that he suggests that the new

0:00:53.080 --> 0:00:56.840
<v Speaker 1>NAFTA treaty, the U s m c A should be approved.

0:00:56.840 --> 0:00:59.840
<v Speaker 1>They expected to be approved because it was written with

0:01:00.200 --> 0:01:03.080
<v Speaker 1>democratic opposition in mind. Now we know that the Democrats

0:01:03.080 --> 0:01:06.120
<v Speaker 1>are are holding up some discussion of it because they

0:01:06.160 --> 0:01:09.959
<v Speaker 1>want changes to be made. Lightheiser seems optimistic about the

0:01:10.040 --> 0:01:12.040
<v Speaker 1>prospects for it, and he does a little bit of

0:01:12.080 --> 0:01:14.800
<v Speaker 1>a sales job for it. What will be most interesting

0:01:14.880 --> 0:01:17.680
<v Speaker 1>is in the questions and whether the Democrats lay out

0:01:17.720 --> 0:01:21.400
<v Speaker 1>specific terms they want. Also joining us is Sean Don

0:01:21.400 --> 0:01:24.280
<v Speaker 1>and senior trade reporter joining us from d C. So

0:01:24.560 --> 0:01:27.160
<v Speaker 1>the backdrop though, of course, is the tweet from President

0:01:27.160 --> 0:01:29.240
<v Speaker 1>Trump and he and g just talked on the phone

0:01:29.240 --> 0:01:30.319
<v Speaker 1>and they're going to have a meeting of the G

0:01:30.440 --> 0:01:34.240
<v Speaker 1>twenty and then G through CCTV also reaffirming that they're

0:01:34.280 --> 0:01:37.000
<v Speaker 1>going to have a meeting. Um, do we believe now

0:01:37.120 --> 0:01:40.120
<v Speaker 1>this is actually moving forward on? Yeah? Well that's I mean,

0:01:40.120 --> 0:01:42.000
<v Speaker 1>it's really interesting developments that we've just had in the

0:01:42.080 --> 0:01:44.960
<v Speaker 1>last hour. I think the most interesting thing about Bob

0:01:45.040 --> 0:01:48.320
<v Speaker 1>Leightheiser's prepared testimony is what's missing, and that is any

0:01:48.360 --> 0:01:51.920
<v Speaker 1>mention of China, really uh, in there any any addressing

0:01:51.960 --> 0:01:54.480
<v Speaker 1>it as one of the big issues, and it's the

0:01:54.520 --> 0:01:58.400
<v Speaker 1>elephant in the room, really uh in terms of US

0:01:58.440 --> 0:02:01.920
<v Speaker 1>trade policy. But he's really gonna be asked about the

0:02:01.960 --> 0:02:06.120
<v Speaker 1>President's tweet this morning. Uh, and uh like as you

0:02:06.160 --> 0:02:09.040
<v Speaker 1>say that the Chinese announcement as well, that there's phone

0:02:09.040 --> 0:02:11.800
<v Speaker 1>call has taken place, that's a big development. Um. There

0:02:11.840 --> 0:02:14.320
<v Speaker 1>were a lot of people questioning whether or not whether

0:02:14.760 --> 0:02:17.840
<v Speaker 1>such a meeting might even take place. At at the

0:02:17.840 --> 0:02:19.639
<v Speaker 1>G twenty, there were some people who thought that the

0:02:19.720 --> 0:02:22.200
<v Speaker 1>things were just two tents right now. Uh. So it's

0:02:22.200 --> 0:02:24.200
<v Speaker 1>a good sign that there that they're going to meet,

0:02:24.280 --> 0:02:28.000
<v Speaker 1>but we should remember, uh that there's a big gap

0:02:28.120 --> 0:02:31.680
<v Speaker 1>between the two sides uh in these talks right now.

0:02:31.919 --> 0:02:36.079
<v Speaker 1>And uh, it's unclear how much President Trump and j

0:02:36.320 --> 0:02:39.640
<v Speaker 1>and Pink can close that gap in just one meeting. So, Michael,

0:02:39.680 --> 0:02:42.880
<v Speaker 1>it seems like we've in terms of trade, things are

0:02:42.960 --> 0:02:45.600
<v Speaker 1>on a little bit better track with Mexico. It now

0:02:45.680 --> 0:02:50.000
<v Speaker 1>seems like a China may be on a similar track.

0:02:50.360 --> 0:02:52.440
<v Speaker 1>How do you think the markets are kind of pricing

0:02:52.520 --> 0:02:55.440
<v Speaker 1>right now global trade because it's been such a driver

0:02:55.880 --> 0:02:58.200
<v Speaker 1>of uncertainty the market's really since the fourth quarter of

0:02:58.280 --> 0:03:00.720
<v Speaker 1>last year. It's very hard to price because you don't

0:03:00.760 --> 0:03:03.840
<v Speaker 1>know with President Trump what he's going to do from

0:03:03.960 --> 0:03:09.600
<v Speaker 1>day to day. They've put into earnings and expectations about

0:03:09.639 --> 0:03:11.680
<v Speaker 1>as much as they can in terms of what a

0:03:11.720 --> 0:03:14.800
<v Speaker 1>trade war would mean, but there has been this reluctance

0:03:14.840 --> 0:03:16.959
<v Speaker 1>to fully price it in because they don't think it's

0:03:17.040 --> 0:03:19.720
<v Speaker 1>really going to happen. The President has sort of pushed

0:03:19.720 --> 0:03:22.280
<v Speaker 1>back against that, but then you know, with China, but

0:03:22.360 --> 0:03:24.840
<v Speaker 1>then with Mexico he raised the prospect and then he

0:03:24.919 --> 0:03:28.280
<v Speaker 1>dashed it again. So you know, how far will he

0:03:28.320 --> 0:03:30.920
<v Speaker 1>really go? That's a question. If I were on the

0:03:30.960 --> 0:03:36.080
<v Speaker 1>Senate committee, I suppose I would ask that question. But

0:03:36.120 --> 0:03:37.800
<v Speaker 1>I don't know if you get a straight answer from

0:03:37.800 --> 0:03:40.240
<v Speaker 1>Bob Leheizer, because I don't know if he knows the answer.

0:03:40.320 --> 0:03:43.160
<v Speaker 1>And uh, you know, the standard answer is, of course

0:03:43.200 --> 0:03:45.240
<v Speaker 1>the President is going to follow through, but it's not

0:03:45.320 --> 0:03:49.640
<v Speaker 1>in his interest in uh terms, to have an economy

0:03:49.680 --> 0:03:51.800
<v Speaker 1>that is going down, to have a stock market that's

0:03:51.880 --> 0:03:55.640
<v Speaker 1>rolling over. So there's definitely an incentive for him to

0:03:55.680 --> 0:03:59.360
<v Speaker 1>try to move forward with Shi Jinping, and that maybe

0:03:59.360 --> 0:04:01.560
<v Speaker 1>just enough to carry the market for a while. It

0:04:01.680 --> 0:04:03.920
<v Speaker 1>may not reach a deal, as Shaun says, but they

0:04:03.960 --> 0:04:06.960
<v Speaker 1>may at least say we're going to keep talking and

0:04:07.040 --> 0:04:09.839
<v Speaker 1>that will get priced in as good news. But if

0:04:09.960 --> 0:04:11.880
<v Speaker 1>the economy is holding up in Lukawa has a great

0:04:11.880 --> 0:04:13.680
<v Speaker 1>piece on the Bloomberg right now talks about how US

0:04:13.680 --> 0:04:15.800
<v Speaker 1>equities are a performing the rest of the world. Yet again,

0:04:15.840 --> 0:04:19.839
<v Speaker 1>our GDPs better than other countries. Yet again, inflation expectations

0:04:19.920 --> 0:04:22.680
<v Speaker 1>rolling over still higher than like you're a Germany, for example,

0:04:22.680 --> 0:04:24.839
<v Speaker 1>in Japan. I mean, if it's the best house and

0:04:24.839 --> 0:04:27.680
<v Speaker 1>a bad block thing, is that enough to sustain well

0:04:27.760 --> 0:04:30.359
<v Speaker 1>for a short time. I mean, the problem is we

0:04:30.400 --> 0:04:33.719
<v Speaker 1>don't know exactly what is causing the weakness that we

0:04:33.800 --> 0:04:37.000
<v Speaker 1>see in the United States. We know that in Germany,

0:04:37.120 --> 0:04:40.440
<v Speaker 1>for example, in Europe, the trade is weighing heavily on them,

0:04:40.680 --> 0:04:44.279
<v Speaker 1>and that's an issue. And so you you would figure

0:04:44.320 --> 0:04:46.440
<v Speaker 1>if they can reach some sort of trade accommodation that

0:04:46.520 --> 0:04:49.040
<v Speaker 1>things might get better. I was saying earlier that I

0:04:49.080 --> 0:04:51.400
<v Speaker 1>think the President may have just tweeted j Powell out

0:04:51.400 --> 0:04:55.760
<v Speaker 1>of having to do a really stole that dangerous radio

0:04:55.920 --> 0:05:00.599
<v Speaker 1>because because uh, you know, you got gotta wait. You

0:05:00.600 --> 0:05:02.880
<v Speaker 1>gotta wait and see what happens before you make any

0:05:02.880 --> 0:05:05.880
<v Speaker 1>monetary policy decision exactly, or put a trade on for

0:05:05.920 --> 0:05:07.800
<v Speaker 1>that matter. Just think about a trade one to put

0:05:07.839 --> 0:05:09.640
<v Speaker 1>something on this morning, and how's that trade has been

0:05:09.640 --> 0:05:12.039
<v Speaker 1>whipsald um Sean I want to bring you back. And

0:05:12.120 --> 0:05:14.240
<v Speaker 1>just as it relates to China, just give us a

0:05:14.279 --> 0:05:17.640
<v Speaker 1>sense of where you think the Chinese negotiators are in

0:05:17.720 --> 0:05:20.800
<v Speaker 1>terms of their position right now. How confident did they

0:05:20.839 --> 0:05:24.240
<v Speaker 1>feel as they potentially sit down with the US. Well,

0:05:24.240 --> 0:05:26.960
<v Speaker 1>I think the real danger in these negotiations right now

0:05:27.040 --> 0:05:28.800
<v Speaker 1>is that both sides feel like they're in a in

0:05:28.800 --> 0:05:32.040
<v Speaker 1>a strong position. You've heard the UH the argument that

0:05:32.160 --> 0:05:34.520
<v Speaker 1>everything is hunky dorry in the United States and it's

0:05:34.560 --> 0:05:36.120
<v Speaker 1>the you know, or it's the best house on a

0:05:36.160 --> 0:05:39.080
<v Speaker 1>bad block, if you will. I think the Chinese kind

0:05:39.080 --> 0:05:42.640
<v Speaker 1>of feel similarly that they're not in a bad position

0:05:43.000 --> 0:05:46.520
<v Speaker 1>and that, if anything, they have more power to pull

0:05:46.600 --> 0:05:49.160
<v Speaker 1>the levers they need to and respond to any slow

0:05:49.200 --> 0:05:51.240
<v Speaker 1>down in the economy. We heard that from Ye Gang,

0:05:52.120 --> 0:05:54.960
<v Speaker 1>the governor of the People's Bank of China, in a

0:05:55.000 --> 0:05:56.920
<v Speaker 1>Bloomberg interview a couple of weeks ago, where he said

0:05:56.960 --> 0:05:59.680
<v Speaker 1>they had lots of room UH to respond to to

0:06:00.120 --> 0:06:04.440
<v Speaker 1>any slow down and whereas the US may have less room,

0:06:04.440 --> 0:06:07.480
<v Speaker 1>and as Donald Trump keeps complaining, UH, he doesn't have

0:06:07.520 --> 0:06:11.440
<v Speaker 1>the ability to to pull the levers directly UH to

0:06:11.440 --> 0:06:14.600
<v Speaker 1>to boost the economy when he needs to. I think

0:06:14.600 --> 0:06:17.840
<v Speaker 1>why I'm just look, I was in China for ten days. Uh. Uh,

0:06:18.400 --> 0:06:21.520
<v Speaker 1>just back a week or so ago, and and one

0:06:21.560 --> 0:06:24.400
<v Speaker 1>of the common themes you hear on the ground in

0:06:24.520 --> 0:06:27.960
<v Speaker 1>China is that people are just bracing themselves and getting

0:06:28.000 --> 0:06:32.240
<v Speaker 1>ready for a more protracted trade conflict, and they're ready

0:06:32.279 --> 0:06:35.360
<v Speaker 1>to adapt. Sean Donna, thank you so much. Shawnas, senior

0:06:35.400 --> 0:06:37.880
<v Speaker 1>trade reporter for Bloomberg News, joining us in a Bloomberg

0:06:38.800 --> 0:06:41.680
<v Speaker 1>studio in Washington, d C. Michael McKee, international economics and

0:06:41.680 --> 0:06:44.360
<v Speaker 1>Policy correspondent for Bloomberg News, joining us live here in

0:06:44.440 --> 0:06:50.000
<v Speaker 1>Bloomberg Interactive Broker studio. We're gonna move on to a

0:06:50.080 --> 0:06:53.119
<v Speaker 1>story here that's just crossing the tape the White House

0:06:53.279 --> 0:06:57.000
<v Speaker 1>uh explored the legality of the mooting FED Chairman pal Uh.

0:06:57.040 --> 0:07:01.160
<v Speaker 1>To help us explore this new topic, we welcome Celia Motion.

0:07:01.760 --> 0:07:04.040
<v Speaker 1>She is of a Bloomberg News Selah, thanks so much

0:07:04.040 --> 0:07:05.880
<v Speaker 1>for joining us. Give us a sense of what you're

0:07:05.880 --> 0:07:09.320
<v Speaker 1>reporting right now. Yeah, so, survices have told us that

0:07:09.360 --> 0:07:12.240
<v Speaker 1>back in February, just about two months after the President

0:07:12.280 --> 0:07:16.160
<v Speaker 1>discussed whether he could fire Jerome Powell, UH, the White

0:07:16.200 --> 0:07:20.080
<v Speaker 1>House General Counsel's Office, the team of lawyers explored the

0:07:20.160 --> 0:07:24.680
<v Speaker 1>legalities around UM stripping Jerome Powell of his chairmanship and

0:07:24.760 --> 0:07:27.760
<v Speaker 1>leaving him just as a governor, which would allow the

0:07:27.760 --> 0:07:31.920
<v Speaker 1>President then to either nominate another existing governor he has

0:07:31.960 --> 0:07:35.680
<v Speaker 1>swore to choose from too that he himself placed on

0:07:35.720 --> 0:07:39.280
<v Speaker 1>the board UM to become chairman, because they said chairman

0:07:39.520 --> 0:07:41.640
<v Speaker 1>always has two jobs. They are the chair and they

0:07:41.640 --> 0:07:44.680
<v Speaker 1>are a governor one of seven governors. The other options

0:07:44.680 --> 0:07:47.200
<v Speaker 1>that the President would have UM if he was able

0:07:47.240 --> 0:07:51.960
<v Speaker 1>to demote essentially h Jerome Powell in that manner is

0:07:52.040 --> 0:07:56.239
<v Speaker 1>to nominate UH someone to fill one of the two

0:07:56.280 --> 0:08:00.160
<v Speaker 1>open governor seats and then make that new governor or

0:08:00.320 --> 0:08:05.360
<v Speaker 1>a chairman. So how unprecedented would a move like this being.

0:08:06.520 --> 0:08:09.080
<v Speaker 1>So this has never been tested. We don't actually even

0:08:09.120 --> 0:08:11.080
<v Speaker 1>know if it's possible, and I imagine that is what

0:08:11.200 --> 0:08:15.080
<v Speaker 1>the White House was exploring. UM it is legal experts

0:08:15.080 --> 0:08:17.360
<v Speaker 1>are telling us that this would most likely go to

0:08:17.400 --> 0:08:20.960
<v Speaker 1>the courts if chair Powell decided that he wants to

0:08:21.040 --> 0:08:23.160
<v Speaker 1>challenge Trump and say that he is not allowed to

0:08:23.200 --> 0:08:26.240
<v Speaker 1>demote me this way. The courts would then have to

0:08:26.280 --> 0:08:29.080
<v Speaker 1>look at the Federal Reserve Act and try to interpret it.

0:08:29.120 --> 0:08:32.320
<v Speaker 1>But this has never actually happened before. So is there

0:08:32.320 --> 0:08:36.199
<v Speaker 1>any evidence that this review of this type of motion,

0:08:36.320 --> 0:08:39.839
<v Speaker 1>the legality of it, was in fact directed by President Trump?

0:08:39.880 --> 0:08:42.800
<v Speaker 1>Is there any evidence of that? No, there's no evidence

0:08:42.840 --> 0:08:45.120
<v Speaker 1>of that. And there's also no evidence that the President

0:08:45.200 --> 0:08:48.480
<v Speaker 1>is at this very moment considering taking any action against

0:08:48.520 --> 0:08:51.120
<v Speaker 1>Powell like this? Do we do? We know how far

0:08:51.440 --> 0:08:54.520
<v Speaker 1>along this process got. Is there any sense of how

0:08:54.559 --> 0:08:58.480
<v Speaker 1>widespread it was and maybe how deep the the consideration was.

0:08:59.400 --> 0:09:01.280
<v Speaker 1>What I can tell you and what we reported in

0:09:01.280 --> 0:09:04.440
<v Speaker 1>the story that's on the terminal today, is that a

0:09:04.600 --> 0:09:09.079
<v Speaker 1>ruling was made by the White House lawyers on on

0:09:09.320 --> 0:09:11.439
<v Speaker 1>what this kind of strategy would look like and whether

0:09:11.480 --> 0:09:14.600
<v Speaker 1>this is a viable option, And that ruling has not

0:09:14.720 --> 0:09:19.760
<v Speaker 1>been revealed, even on background by sources. We do know that. UM.

0:09:19.760 --> 0:09:22.520
<v Speaker 1>The Wall Street Journal in at the beginning of April

0:09:22.559 --> 0:09:25.640
<v Speaker 1>reported that Trump told Powell and a phone call in

0:09:25.720 --> 0:09:27.600
<v Speaker 1>March that he said, you know, I guess I'm stuck

0:09:27.640 --> 0:09:29.760
<v Speaker 1>with you, which you know, take that from you know,

0:09:29.800 --> 0:09:32.480
<v Speaker 1>take from that what you want any sense now, I mean,

0:09:32.840 --> 0:09:36.840
<v Speaker 1>you know, the White House they've not not commenting presumably UM,

0:09:36.880 --> 0:09:39.000
<v Speaker 1>but just kind of what next next steps might be

0:09:39.559 --> 0:09:43.920
<v Speaker 1>UM for this issue. Absolutely not. They're not commenting at all,

0:09:44.000 --> 0:09:46.120
<v Speaker 1>and it looks like, you know, we're not expecting any

0:09:46.160 --> 0:09:49.360
<v Speaker 1>next steps. The legal um study has been done and

0:09:49.360 --> 0:09:51.079
<v Speaker 1>it's there just in case the White House needs that.

0:09:51.120 --> 0:09:54.200
<v Speaker 1>Are it's it's a FED chooses to edge their own research.

0:09:54.240 --> 0:09:57.120
<v Speaker 1>We don't know. Interesting, So Silely, I just you know,

0:09:57.360 --> 0:09:59.560
<v Speaker 1>finally here its just the obviously, as you mentioned and

0:09:59.559 --> 0:10:02.480
<v Speaker 1>as you re ported in this story, the relationship between

0:10:02.559 --> 0:10:06.600
<v Speaker 1>Chairman Pound and pre President Trump remains difficult. What is

0:10:06.600 --> 0:10:10.520
<v Speaker 1>the sense of how the the UM the Commission itself

0:10:10.720 --> 0:10:13.960
<v Speaker 1>is actually functioning right now? Is it feel like despite

0:10:13.960 --> 0:10:16.800
<v Speaker 1>the tensions, the Commission is still uh or that you

0:10:16.880 --> 0:10:21.160
<v Speaker 1>have still kind of getting work done? Yeah, you know,

0:10:21.440 --> 0:10:24.000
<v Speaker 1>so far the Powell has said, the chair has said

0:10:24.000 --> 0:10:26.920
<v Speaker 1>that there is no political influence. He's not going to

0:10:26.960 --> 0:10:29.480
<v Speaker 1>be influenced by the President or his comments or any

0:10:29.480 --> 0:10:32.480
<v Speaker 1>phone calls that they have behind closed doors. UM. The

0:10:33.120 --> 0:10:35.439
<v Speaker 1>We can also see that the Fed didn't about face

0:10:35.440 --> 0:10:40.000
<v Speaker 1>of monetary policy in January. Markets were so royaled after

0:10:40.040 --> 0:10:44.520
<v Speaker 1>the rate cut and the hawkish outlook for rates that

0:10:44.559 --> 0:10:46.720
<v Speaker 1>was given in December, and in January we started to

0:10:46.720 --> 0:10:49.560
<v Speaker 1>see the Fed pull you turn on that policy and

0:10:49.600 --> 0:10:51.760
<v Speaker 1>now we're you know, markets are expecting a lot of

0:10:51.760 --> 0:10:54.320
<v Speaker 1>economists are expecting not a rate cut tomorrow, but something

0:10:54.360 --> 0:10:57.240
<v Speaker 1>to be signaled and a possible rate cut in July

0:10:57.360 --> 0:10:59.920
<v Speaker 1>or later this year. So it doesn't make you think

0:11:00.000 --> 0:11:03.079
<v Speaker 1>that maybe the Trump is getting his way. We can't

0:11:03.120 --> 0:11:07.280
<v Speaker 1>really know, um whether that is because of what Trump said,

0:11:07.440 --> 0:11:12.240
<v Speaker 1>or whether that's just the Fed independently making those decisions. Soliah,

0:11:12.280 --> 0:11:15.480
<v Speaker 1>thank you so much for this reporting of this important story.

0:11:15.559 --> 0:11:23.120
<v Speaker 1>Celia moson Bloomberg News on the phone with us. The

0:11:23.200 --> 0:11:27.000
<v Speaker 1>Federal Reserves Open Market Committee meets today and tomorrow. The

0:11:27.040 --> 0:11:31.040
<v Speaker 1>market is eagerly awaiting comments tomorrow Fed Chairman Pal to

0:11:31.040 --> 0:11:33.400
<v Speaker 1>get a little preview of what we might hear. We

0:11:33.400 --> 0:11:37.360
<v Speaker 1>welcome Ira Jersey. Ira is chief US interest rate strategist

0:11:37.360 --> 0:11:39.520
<v Speaker 1>for Bloomberg Intelligence. He joins us from the b I

0:11:39.559 --> 0:11:42.800
<v Speaker 1>headquarters in Princeton, New Jersey. Ira, thanks so much for

0:11:42.880 --> 0:11:46.079
<v Speaker 1>being with us. What do you expect to hear from

0:11:46.160 --> 0:11:48.760
<v Speaker 1>Chairman Pal tomorrow? Given what we saw out of the

0:11:48.800 --> 0:11:51.720
<v Speaker 1>e c B this morning and even a follow up

0:11:51.760 --> 0:11:54.800
<v Speaker 1>tweet by President Trump about the euro what do you

0:11:54.800 --> 0:11:58.120
<v Speaker 1>expect to hear tomorrow? Yeah, good, good morning. So I

0:11:58.120 --> 0:12:00.880
<v Speaker 1>think a couple of things. I think firstly, the FED

0:12:01.120 --> 0:12:03.040
<v Speaker 1>is going to have to be more dubblish and just

0:12:03.200 --> 0:12:07.439
<v Speaker 1>in general. Um, so you look at things like inflation expectations,

0:12:07.480 --> 0:12:11.760
<v Speaker 1>both survey measures and from the Treasury inflation protected securities market,

0:12:11.880 --> 0:12:14.360
<v Speaker 1>and uh, they are going to have to acknowledge that

0:12:14.400 --> 0:12:18.160
<v Speaker 1>inflation expectations are well anchored, um and uh and even

0:12:18.160 --> 0:12:20.880
<v Speaker 1>moving lower. So so so that that's one thing that

0:12:20.920 --> 0:12:23.600
<v Speaker 1>you could look for in the first sentence. The second

0:12:23.679 --> 0:12:25.520
<v Speaker 1>is I think that the market that he's not going

0:12:25.600 --> 0:12:27.920
<v Speaker 1>to be quite as doublish maybe as the market is

0:12:28.040 --> 0:12:31.160
<v Speaker 1>anticipating at the moment. I do think that there's going

0:12:31.200 --> 0:12:32.880
<v Speaker 1>to be a doublish hilt. He's going to say that

0:12:32.920 --> 0:12:35.240
<v Speaker 1>the balance of risks maybe is to the downside at

0:12:35.240 --> 0:12:37.800
<v Speaker 1>the moment, But that doesn't mean that they're going to

0:12:37.840 --> 0:12:40.600
<v Speaker 1>cut three times this year, which is largely priced into

0:12:40.600 --> 0:12:44.720
<v Speaker 1>the market. So turning, so the stage is really set

0:12:44.720 --> 0:12:47.520
<v Speaker 1>by Mario Draggy or as President Trump refers to Mario

0:12:47.640 --> 0:12:50.439
<v Speaker 1>d which is just too cool for words. Um, do

0:12:50.679 --> 0:12:52.920
<v Speaker 1>you feel like the pressure that we're seeing the bond

0:12:52.920 --> 0:12:55.400
<v Speaker 1>market over in Europe? You know, negative thirty plus basis

0:12:55.440 --> 0:12:58.160
<v Speaker 1>points on the German tenure is going to inform the

0:12:58.160 --> 0:12:59.880
<v Speaker 1>FED at all, Like what do they do when they

0:13:00.040 --> 0:13:03.240
<v Speaker 1>look at something like that. Yeah, So, you know, Europe

0:13:03.240 --> 0:13:05.040
<v Speaker 1>in the US when it comes to the economy has

0:13:05.040 --> 0:13:07.320
<v Speaker 1>di verge a little bit. But the but kind of

0:13:07.320 --> 0:13:11.600
<v Speaker 1>the slowing trend in the economies is um has continued

0:13:11.679 --> 0:13:15.160
<v Speaker 1>in both jurisdictions. Although in the US we might avoid

0:13:15.320 --> 0:13:17.800
<v Speaker 1>a more prolonged slowdown. I think in Europe they're really

0:13:17.840 --> 0:13:21.680
<v Speaker 1>worried about about a more prolonged slowdown. They are worried

0:13:21.679 --> 0:13:25.040
<v Speaker 1>that inflation continues to be um, you know, not be

0:13:25.120 --> 0:13:27.720
<v Speaker 1>able to pick up at all. I think the problem

0:13:27.760 --> 0:13:30.480
<v Speaker 1>with all of these things is that there's forces at

0:13:30.480 --> 0:13:33.440
<v Speaker 1>work that monetary policy can't help with. So the fact

0:13:33.440 --> 0:13:36.360
<v Speaker 1>that you have low inflation and slow growth in Europe

0:13:36.400 --> 0:13:41.640
<v Speaker 1>in particular and places like Japan is largely a demographic issue.

0:13:41.800 --> 0:13:45.400
<v Speaker 1>It's aging populations and as well as low birth rates.

0:13:45.920 --> 0:13:49.760
<v Speaker 1>So it's not something you know, the monetary policy that

0:13:49.840 --> 0:13:52.680
<v Speaker 1>has to be easy, uh, kind of just to keep

0:13:52.720 --> 0:13:55.120
<v Speaker 1>things afloat. But how much easier can you get? So

0:13:55.200 --> 0:13:57.199
<v Speaker 1>one of the things that Mario drag You said overnight

0:13:57.760 --> 0:14:01.240
<v Speaker 1>was if the economic outlook doesn't prove we're likely to

0:14:01.280 --> 0:14:04.240
<v Speaker 1>cut interest rates. And you know, so what's happened is

0:14:04.280 --> 0:14:07.520
<v Speaker 1>you've had this rally in um in Europe and and

0:14:07.559 --> 0:14:10.000
<v Speaker 1>basically you're now pricing for an additional rate cut by

0:14:10.040 --> 0:14:12.240
<v Speaker 1>the ECB by the end of the year, and that's

0:14:12.320 --> 0:14:15.040
<v Speaker 1>pulled all of these interest rates flowers. So don't look

0:14:15.080 --> 0:14:18.400
<v Speaker 1>at don't look at European ten uere yields at negative

0:14:18.400 --> 0:14:21.400
<v Speaker 1>thirty two basis points as the as the measure, because

0:14:22.200 --> 0:14:26.040
<v Speaker 1>you can still buy a tenure bond in Germany funded

0:14:26.520 --> 0:14:30.280
<v Speaker 1>overnight in Germany and and still make money, right, So

0:14:30.320 --> 0:14:32.400
<v Speaker 1>that's that's the thing that we have to realize, is

0:14:32.440 --> 0:14:35.920
<v Speaker 1>that is that the carry from trades UH is not

0:14:35.960 --> 0:14:38.440
<v Speaker 1>necessarily as bad as it looks on the surface, just

0:14:38.480 --> 0:14:41.760
<v Speaker 1>seeing that it's negative thirty basis one is there an

0:14:41.840 --> 0:14:45.600
<v Speaker 1>argument to be made that the US FED should hold

0:14:45.640 --> 0:14:48.680
<v Speaker 1>out on rake cuts as long as possible, perhaps even

0:14:48.680 --> 0:14:52.840
<v Speaker 1>till the end of the year. They perhaps and I

0:14:52.880 --> 0:14:55.960
<v Speaker 1>think that if the data rebounds as the as the

0:14:55.960 --> 0:14:59.200
<v Speaker 1>Bloomberg Economics teams thinks, so Carl Rickadana and his team,

0:14:59.240 --> 0:15:01.240
<v Speaker 1>if the data amounts and there's not a reason for

0:15:01.280 --> 0:15:02.960
<v Speaker 1>them to do that, which is one reason I think

0:15:03.200 --> 0:15:05.920
<v Speaker 1>they will wait at least until July to see another

0:15:05.960 --> 0:15:10.200
<v Speaker 1>set of data before they actually consider cutting interest rates. Um.

0:15:10.320 --> 0:15:12.360
<v Speaker 1>That being said, there's other things they can do. So,

0:15:12.440 --> 0:15:15.320
<v Speaker 1>for example, one thing that would not surprise me um

0:15:15.520 --> 0:15:18.800
<v Speaker 1>is they could taper the quantitative tightening faster, so they

0:15:18.800 --> 0:15:21.760
<v Speaker 1>could actually maybe end balance sheet reduction by the end

0:15:21.760 --> 0:15:24.840
<v Speaker 1>of July potentially, And something like that would be a

0:15:24.960 --> 0:15:28.680
<v Speaker 1>debbish measure that they could take without actually without actually

0:15:28.680 --> 0:15:31.520
<v Speaker 1>cutting interest rates. So, because the problem is that they

0:15:31.520 --> 0:15:33.480
<v Speaker 1>don't have that many bullets, they you know, the feed

0:15:33.560 --> 0:15:36.720
<v Speaker 1>in particular doesn't want to cut interest rates less than zero.

0:15:36.840 --> 0:15:38.920
<v Speaker 1>I think J. Powell was pretty clear about that a

0:15:38.960 --> 0:15:41.440
<v Speaker 1>few weeks ago. So the thing is, if you can

0:15:41.480 --> 0:15:43.680
<v Speaker 1>only cut interest rates eight times, you don't want to

0:15:43.720 --> 0:15:45.240
<v Speaker 1>have to do that as your first step if you

0:15:45.240 --> 0:15:47.440
<v Speaker 1>can avoid it. So do you think so if they

0:15:47.440 --> 0:15:50.320
<v Speaker 1>did that, so they opted for balance sheet normalization now

0:15:50.440 --> 0:15:53.360
<v Speaker 1>versus later, like, does the market like it? Is it

0:15:53.520 --> 0:15:57.040
<v Speaker 1>devilish enough for them? Well? I think that that risk

0:15:57.080 --> 0:16:00.480
<v Speaker 1>asset markets would probably be more or less and change.

0:16:00.560 --> 0:16:03.560
<v Speaker 1>I think I think the bond market has already priced

0:16:03.560 --> 0:16:06.080
<v Speaker 1>for a lot of bad news and and certainly for

0:16:06.320 --> 0:16:07.760
<v Speaker 1>the FED to cut so I think if they did

0:16:07.800 --> 0:16:11.040
<v Speaker 1>something like that and said we're going to end quantitative tightening,

0:16:11.080 --> 0:16:13.080
<v Speaker 1>but don't look for but hint that there's not going

0:16:13.120 --> 0:16:15.680
<v Speaker 1>to be an interest rate cut in July, I think

0:16:15.680 --> 0:16:18.360
<v Speaker 1>the bond market, probably the two year notes and the

0:16:18.400 --> 0:16:20.800
<v Speaker 1>front end of the of the market. Short term maturities

0:16:21.040 --> 0:16:23.640
<v Speaker 1>they probably go up and yield, but long end maturities

0:16:23.720 --> 0:16:26.240
<v Speaker 1>probably stay where they are, just on the idea that

0:16:26.280 --> 0:16:30.280
<v Speaker 1>the Fed's not cutting enough with this negative sentiment hanging around.

0:16:30.360 --> 0:16:31.920
<v Speaker 1>And then a lot of this negative sentiment, of course,

0:16:31.920 --> 0:16:34.160
<v Speaker 1>could go away very quickly, as you saw today. I

0:16:34.160 --> 0:16:36.080
<v Speaker 1>mean we were we we were up a lot more

0:16:36.120 --> 0:16:38.440
<v Speaker 1>in the bond market. But then you know, Donald Trump

0:16:38.440 --> 0:16:40.280
<v Speaker 1>makes a tweet. The next thing, you know, five basis

0:16:40.360 --> 0:16:43.800
<v Speaker 1>points of that rally, today's rally goes away. And I

0:16:43.880 --> 0:16:47.880
<v Speaker 1>read just the she agrees President, she agrees is coming

0:16:47.880 --> 0:16:51.200
<v Speaker 1>on the redhead headline, come across the tape. She agrees

0:16:51.320 --> 0:16:55.080
<v Speaker 1>us China should keep talking. So just confirming the tweet

0:16:55.080 --> 0:16:58.760
<v Speaker 1>from President Trump. So is there something here that maybe

0:16:58.760 --> 0:17:01.960
<v Speaker 1>the market's missing? What be you know, just we've had

0:17:02.000 --> 0:17:04.080
<v Speaker 1>so much volatility just to pass well, let's just go

0:17:04.200 --> 0:17:07.240
<v Speaker 1>today for for that matter, Where could the FED or

0:17:07.240 --> 0:17:10.160
<v Speaker 1>how could the Fed really surprise the market, maybe even

0:17:10.320 --> 0:17:14.959
<v Speaker 1>on the downside tomorrow. Yeah, well, I I mean certainly

0:17:15.000 --> 0:17:17.080
<v Speaker 1>if the if the Fed cut tomorrow, that would be

0:17:17.119 --> 0:17:19.520
<v Speaker 1>a huge surprise. Um. I think that would be you know,

0:17:19.560 --> 0:17:22.600
<v Speaker 1>really good at least temporarily for risk assets, and um,

0:17:22.760 --> 0:17:25.760
<v Speaker 1>the market is not price for that. But I think

0:17:25.760 --> 0:17:28.600
<v Speaker 1>if they were to cut tomorrow, then we would probably

0:17:28.680 --> 0:17:31.320
<v Speaker 1>price out to cut in July, so you wouldn't you'd

0:17:31.359 --> 0:17:34.160
<v Speaker 1>see the very very short term market, so one month,

0:17:34.240 --> 0:17:36.760
<v Speaker 1>three months he bills for example, would move, but not

0:17:36.800 --> 0:17:39.679
<v Speaker 1>necessarily two year notes very much because we're already pricing

0:17:39.760 --> 0:17:41.800
<v Speaker 1>for two and a half more than two and a

0:17:41.840 --> 0:17:43.760
<v Speaker 1>half interest rate cuts by the by the end of

0:17:43.800 --> 0:17:46.760
<v Speaker 1>this year. Um, could they could they suggest that they're

0:17:46.760 --> 0:17:49.520
<v Speaker 1>going to Could they cut fifty basis points? They could?

0:17:49.600 --> 0:17:52.879
<v Speaker 1>I think that that would be highly highly unusual. Ira Jersey,

0:17:52.920 --> 0:17:55.840
<v Speaker 1>Thank you so much, Irish chief US interest rate strategist

0:17:55.880 --> 0:17:58.480
<v Speaker 1>for Bloomberg Intelligence, joining us on the phone from the

0:17:58.720 --> 0:18:02.800
<v Speaker 1>headquarters in Prince to New Jersey. Thanks for listening to

0:18:02.840 --> 0:18:05.720
<v Speaker 1>the Bloomberg P and L podcast. You can subscribe and

0:18:05.760 --> 0:18:09.720
<v Speaker 1>listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast

0:18:09.760 --> 0:18:13.280
<v Speaker 1>platform you prefer. I'm pim Fox. I'm on Twitter at

0:18:13.440 --> 0:18:17.359
<v Speaker 1>pim Fox. I'm on Twitter at Lisa abramoits one before

0:18:17.359 --> 0:18:20.280
<v Speaker 1>the podcast, you can always catch us worldwide on Bloomberg

0:18:20.359 --> 0:18:20.639
<v Speaker 1>Radio