Speaker 1: Welcome to the Bloomberg pien L Podcast. I'm Paul swing you,
Speaker 1: along with my co host Lisa Brahma wits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: that Bloomberg dot com trade that is certainly right back
Speaker 1: on the front burner. Today, we welcome Michael McKee, international
Speaker 1: economics and policy correspondent for Bloomberg News. He joins us
Speaker 1: in our Bloomberg Interactive Broker studio uh here in New York. Michael,
Speaker 1: thanks for joining us. What do you expect to hear
Speaker 1: from Mr Leitheiser today in front of the Senate Finance Committee. Well,
Speaker 1: we we've seen some headlines out from his text, and
Speaker 1: he's going to of course tout the president's trade accomplishments,
Speaker 1: because that's his job. The most interesting aspect of the
Speaker 1: text so far is that he suggests that the new
Speaker 1: NAFTA treaty, the U s m c A should be approved.
Speaker 1: They expected to be approved because it was written with
Speaker 1: democratic opposition in mind. Now we know that the Democrats
Speaker 1: are are holding up some discussion of it because they
Speaker 1: want changes to be made. Lightheiser seems optimistic about the
Speaker 1: prospects for it, and he does a little bit of
Speaker 1: a sales job for it. What will be most interesting
Speaker 1: is in the questions and whether the Democrats lay out
Speaker 1: specific terms they want. Also joining us is Sean Don
Speaker 1: and senior trade reporter joining us from d C. So
Speaker 1: the backdrop though, of course, is the tweet from President
Speaker 1: Trump and he and g just talked on the phone
Speaker 1: and they're going to have a meeting of the G
Speaker 1: twenty and then G through CCTV also reaffirming that they're
Speaker 1: going to have a meeting. Um, do we believe now
Speaker 1: this is actually moving forward on? Yeah? Well that's I mean,
Speaker 1: it's really interesting developments that we've just had in the
Speaker 1: last hour. I think the most interesting thing about Bob
Speaker 1: Leightheiser's prepared testimony is what's missing, and that is any
Speaker 1: mention of China, really uh, in there any any addressing
Speaker 1: it as one of the big issues, and it's the
Speaker 1: elephant in the room, really uh in terms of US
Speaker 1: trade policy. But he's really gonna be asked about the
Speaker 1: President's tweet this morning. Uh, and uh like as you
Speaker 1: say that the Chinese announcement as well, that there's phone
Speaker 1: call has taken place, that's a big development. Um. There
Speaker 1: were a lot of people questioning whether or not whether
Speaker 1: such a meeting might even take place. At at the
Speaker 1: G twenty, there were some people who thought that the
Speaker 1: things were just two tents right now. Uh. So it's
Speaker 1: a good sign that there that they're going to meet,
Speaker 1: but we should remember, uh that there's a big gap
Speaker 1: between the two sides uh in these talks right now.
Speaker 1: And uh, it's unclear how much President Trump and j
Speaker 1: and Pink can close that gap in just one meeting. So, Michael,
Speaker 1: it seems like we've in terms of trade, things are
Speaker 1: on a little bit better track with Mexico. It now
Speaker 1: seems like a China may be on a similar track.
Speaker 1: How do you think the markets are kind of pricing
Speaker 1: right now global trade because it's been such a driver
Speaker 1: of uncertainty the market's really since the fourth quarter of
Speaker 1: last year. It's very hard to price because you don't
Speaker 1: know with President Trump what he's going to do from
Speaker 1: day to day. They've put into earnings and expectations about
Speaker 1: as much as they can in terms of what a
Speaker 1: trade war would mean, but there has been this reluctance
Speaker 1: to fully price it in because they don't think it's
Speaker 1: really going to happen. The President has sort of pushed
Speaker 1: back against that, but then you know, with China, but
Speaker 1: then with Mexico he raised the prospect and then he
Speaker 1: dashed it again. So you know, how far will he
Speaker 1: really go? That's a question. If I were on the
Speaker 1: Senate committee, I suppose I would ask that question. But
Speaker 1: I don't know if you get a straight answer from
Speaker 1: Bob Leheizer, because I don't know if he knows the answer.
Speaker 1: And uh, you know, the standard answer is, of course
Speaker 1: the President is going to follow through, but it's not
Speaker 1: in his interest in uh terms, to have an economy
Speaker 1: that is going down, to have a stock market that's
Speaker 1: rolling over. So there's definitely an incentive for him to
Speaker 1: try to move forward with Shi Jinping, and that maybe
Speaker 1: just enough to carry the market for a while. It
Speaker 1: may not reach a deal, as Shaun says, but they
Speaker 1: may at least say we're going to keep talking and
Speaker 1: that will get priced in as good news. But if
Speaker 1: the economy is holding up in Lukawa has a great
Speaker 1: piece on the Bloomberg right now talks about how US
Speaker 1: equities are a performing the rest of the world. Yet again,
Speaker 1: our GDPs better than other countries. Yet again, inflation expectations
Speaker 1: rolling over still higher than like you're a Germany, for example,
Speaker 1: in Japan. I mean, if it's the best house and
Speaker 1: a bad block thing, is that enough to sustain well
Speaker 1: for a short time. I mean, the problem is we
Speaker 1: don't know exactly what is causing the weakness that we
Speaker 1: see in the United States. We know that in Germany,
Speaker 1: for example, in Europe, the trade is weighing heavily on them,
Speaker 1: and that's an issue. And so you you would figure
Speaker 1: if they can reach some sort of trade accommodation that
Speaker 1: things might get better. I was saying earlier that I
Speaker 1: think the President may have just tweeted j Powell out
Speaker 1: of having to do a really stole that dangerous radio
Speaker 1: because because uh, you know, you got gotta wait. You
Speaker 1: gotta wait and see what happens before you make any
Speaker 1: monetary policy decision exactly, or put a trade on for
Speaker 1: that matter. Just think about a trade one to put
Speaker 1: something on this morning, and how's that trade has been
Speaker 1: whipsald um Sean I want to bring you back. And
Speaker 1: just as it relates to China, just give us a
Speaker 1: sense of where you think the Chinese negotiators are in
Speaker 1: terms of their position right now. How confident did they
Speaker 1: feel as they potentially sit down with the US. Well,
Speaker 1: I think the real danger in these negotiations right now
Speaker 1: is that both sides feel like they're in a in
Speaker 1: a strong position. You've heard the UH the argument that
Speaker 1: everything is hunky dorry in the United States and it's
Speaker 1: the you know, or it's the best house on a
Speaker 1: bad block, if you will. I think the Chinese kind
Speaker 1: of feel similarly that they're not in a bad position
Speaker 1: and that, if anything, they have more power to pull
Speaker 1: the levers they need to and respond to any slow
Speaker 1: down in the economy. We heard that from Ye Gang,
Speaker 1: the governor of the People's Bank of China, in a
Speaker 1: Bloomberg interview a couple of weeks ago, where he said
Speaker 1: they had lots of room UH to respond to to
Speaker 1: any slow down and whereas the US may have less room,
Speaker 1: and as Donald Trump keeps complaining, UH, he doesn't have
Speaker 1: the ability to to pull the levers directly UH to
Speaker 1: to boost the economy when he needs to. I think
Speaker 1: why I'm just look, I was in China for ten days. Uh. Uh,
Speaker 1: just back a week or so ago, and and one
Speaker 1: of the common themes you hear on the ground in
Speaker 1: China is that people are just bracing themselves and getting
Speaker 1: ready for a more protracted trade conflict, and they're ready
Speaker 1: to adapt. Sean Donna, thank you so much. Shawnas, senior
Speaker 1: trade reporter for Bloomberg News, joining us in a Bloomberg
Speaker 1: studio in Washington, d C. Michael McKee, international economics and
Speaker 1: Policy correspondent for Bloomberg News, joining us live here in
Speaker 1: Bloomberg Interactive Broker studio. We're gonna move on to a
Speaker 1: story here that's just crossing the tape the White House
Speaker 1: uh explored the legality of the mooting FED Chairman pal Uh.
Speaker 1: To help us explore this new topic, we welcome Celia Motion.
Speaker 1: She is of a Bloomberg News Selah, thanks so much
Speaker 1: for joining us. Give us a sense of what you're
Speaker 1: reporting right now. Yeah, so, survices have told us that
Speaker 1: back in February, just about two months after the President
Speaker 1: discussed whether he could fire Jerome Powell, UH, the White
Speaker 1: House General Counsel's Office, the team of lawyers explored the
Speaker 1: legalities around UM stripping Jerome Powell of his chairmanship and
Speaker 1: leaving him just as a governor, which would allow the
Speaker 1: President then to either nominate another existing governor he has
Speaker 1: swore to choose from too that he himself placed on
Speaker 1: the board UM to become chairman, because they said chairman
Speaker 1: always has two jobs. They are the chair and they
Speaker 1: are a governor one of seven governors. The other options
Speaker 1: that the President would have UM if he was able
Speaker 1: to demote essentially h Jerome Powell in that manner is
Speaker 1: to nominate UH someone to fill one of the two
Speaker 1: open governor seats and then make that new governor or
Speaker 1: a chairman. So how unprecedented would a move like this being.
Speaker 1: So this has never been tested. We don't actually even
Speaker 1: know if it's possible, and I imagine that is what
Speaker 1: the White House was exploring. UM it is legal experts
Speaker 1: are telling us that this would most likely go to
Speaker 1: the courts if chair Powell decided that he wants to
Speaker 1: challenge Trump and say that he is not allowed to
Speaker 1: demote me this way. The courts would then have to
Speaker 1: look at the Federal Reserve Act and try to interpret it.
Speaker 1: But this has never actually happened before. So is there
Speaker 1: any evidence that this review of this type of motion,
Speaker 1: the legality of it, was in fact directed by President Trump?
Speaker 1: Is there any evidence of that? No, there's no evidence
Speaker 1: of that. And there's also no evidence that the President
Speaker 1: is at this very moment considering taking any action against
Speaker 1: Powell like this? Do we do? We know how far
Speaker 1: along this process got. Is there any sense of how
Speaker 1: widespread it was and maybe how deep the the consideration was.
Speaker 1: What I can tell you and what we reported in
Speaker 1: the story that's on the terminal today, is that a
Speaker 1: ruling was made by the White House lawyers on on
Speaker 1: what this kind of strategy would look like and whether
Speaker 1: this is a viable option, And that ruling has not
Speaker 1: been revealed, even on background by sources. We do know that. UM.
Speaker 1: The Wall Street Journal in at the beginning of April
Speaker 1: reported that Trump told Powell and a phone call in
Speaker 1: March that he said, you know, I guess I'm stuck
Speaker 1: with you, which you know, take that from you know,
Speaker 1: take from that what you want any sense now, I mean,
Speaker 1: you know, the White House they've not not commenting presumably UM,
Speaker 1: but just kind of what next next steps might be
Speaker 1: UM for this issue. Absolutely not. They're not commenting at all,
Speaker 1: and it looks like, you know, we're not expecting any
Speaker 1: next steps. The legal um study has been done and
Speaker 1: it's there just in case the White House needs that.
Speaker 1: Are it's it's a FED chooses to edge their own research.
Speaker 1: We don't know. Interesting, So Silely, I just you know,
Speaker 1: finally here its just the obviously, as you mentioned and
Speaker 1: as you re ported in this story, the relationship between
Speaker 1: Chairman Pound and pre President Trump remains difficult. What is
Speaker 1: the sense of how the the UM the Commission itself
Speaker 1: is actually functioning right now? Is it feel like despite
Speaker 1: the tensions, the Commission is still uh or that you
Speaker 1: have still kind of getting work done? Yeah, you know,
Speaker 1: so far the Powell has said, the chair has said
Speaker 1: that there is no political influence. He's not going to
Speaker 1: be influenced by the President or his comments or any
Speaker 1: phone calls that they have behind closed doors. UM. The
Speaker 1: We can also see that the Fed didn't about face
Speaker 1: of monetary policy in January. Markets were so royaled after
Speaker 1: the rate cut and the hawkish outlook for rates that
Speaker 1: was given in December, and in January we started to
Speaker 1: see the Fed pull you turn on that policy and
Speaker 1: now we're you know, markets are expecting a lot of
Speaker 1: economists are expecting not a rate cut tomorrow, but something
Speaker 1: to be signaled and a possible rate cut in July
Speaker 1: or later this year. So it doesn't make you think
Speaker 1: that maybe the Trump is getting his way. We can't
Speaker 1: really know, um whether that is because of what Trump said,
Speaker 1: or whether that's just the Fed independently making those decisions. Soliah,
Speaker 1: thank you so much for this reporting of this important story.
Speaker 1: Celia moson Bloomberg News on the phone with us. The
Speaker 1: Federal Reserves Open Market Committee meets today and tomorrow. The
Speaker 1: market is eagerly awaiting comments tomorrow Fed Chairman Pal to
Speaker 1: get a little preview of what we might hear. We
Speaker 1: welcome Ira Jersey. Ira is chief US interest rate strategist
Speaker 1: for Bloomberg Intelligence. He joins us from the b I
Speaker 1: headquarters in Princeton, New Jersey. Ira, thanks so much for
Speaker 1: being with us. What do you expect to hear from
Speaker 1: Chairman Pal tomorrow? Given what we saw out of the
Speaker 1: e c B this morning and even a follow up
Speaker 1: tweet by President Trump about the euro what do you
Speaker 1: expect to hear tomorrow? Yeah, good, good morning. So I
Speaker 1: think a couple of things. I think firstly, the FED
Speaker 1: is going to have to be more dubblish and just
Speaker 1: in general. Um, so you look at things like inflation expectations,
Speaker 1: both survey measures and from the Treasury inflation protected securities market,
Speaker 1: and uh, they are going to have to acknowledge that
Speaker 1: inflation expectations are well anchored, um and uh and even
Speaker 1: moving lower. So so so that that's one thing that
Speaker 1: you could look for in the first sentence. The second
Speaker 1: is I think that the market that he's not going
Speaker 1: to be quite as doublish maybe as the market is
Speaker 1: anticipating at the moment. I do think that there's going
Speaker 1: to be a doublish hilt. He's going to say that
Speaker 1: the balance of risks maybe is to the downside at
Speaker 1: the moment, But that doesn't mean that they're going to
Speaker 1: cut three times this year, which is largely priced into
Speaker 1: the market. So turning, so the stage is really set
Speaker 1: by Mario Draggy or as President Trump refers to Mario
Speaker 1: d which is just too cool for words. Um, do
Speaker 1: you feel like the pressure that we're seeing the bond
Speaker 1: market over in Europe? You know, negative thirty plus basis
Speaker 1: points on the German tenure is going to inform the
Speaker 1: FED at all, Like what do they do when they
Speaker 1: look at something like that. Yeah, So, you know, Europe
Speaker 1: in the US when it comes to the economy has
Speaker 1: di verge a little bit. But the but kind of
Speaker 1: the slowing trend in the economies is um has continued
Speaker 1: in both jurisdictions. Although in the US we might avoid
Speaker 1: a more prolonged slowdown. I think in Europe they're really
Speaker 1: worried about about a more prolonged slowdown. They are worried
Speaker 1: that inflation continues to be um, you know, not be
Speaker 1: able to pick up at all. I think the problem
Speaker 1: with all of these things is that there's forces at
Speaker 1: work that monetary policy can't help with. So the fact
Speaker 1: that you have low inflation and slow growth in Europe
Speaker 1: in particular and places like Japan is largely a demographic issue.
Speaker 1: It's aging populations and as well as low birth rates.
Speaker 1: So it's not something you know, the monetary policy that
Speaker 1: has to be easy, uh, kind of just to keep
Speaker 1: things afloat. But how much easier can you get? So
Speaker 1: one of the things that Mario drag You said overnight
Speaker 1: was if the economic outlook doesn't prove we're likely to
Speaker 1: cut interest rates. And you know, so what's happened is
Speaker 1: you've had this rally in um in Europe and and
Speaker 1: basically you're now pricing for an additional rate cut by
Speaker 1: the ECB by the end of the year, and that's
Speaker 1: pulled all of these interest rates flowers. So don't look
Speaker 1: at don't look at European ten uere yields at negative
Speaker 1: thirty two basis points as the as the measure, because
Speaker 1: you can still buy a tenure bond in Germany funded
Speaker 1: overnight in Germany and and still make money, right, So
Speaker 1: that's that's the thing that we have to realize, is
Speaker 1: that is that the carry from trades UH is not
Speaker 1: necessarily as bad as it looks on the surface, just
Speaker 1: seeing that it's negative thirty basis one is there an
Speaker 1: argument to be made that the US FED should hold
Speaker 1: out on rake cuts as long as possible, perhaps even
Speaker 1: till the end of the year. They perhaps and I
Speaker 1: think that if the data rebounds as the as the
Speaker 1: Bloomberg Economics teams thinks, so Carl Rickadana and his team,
Speaker 1: if the data amounts and there's not a reason for
Speaker 1: them to do that, which is one reason I think
Speaker 1: they will wait at least until July to see another
Speaker 1: set of data before they actually consider cutting interest rates. Um.
Speaker 1: That being said, there's other things they can do. So,
Speaker 1: for example, one thing that would not surprise me um
Speaker 1: is they could taper the quantitative tightening faster, so they
Speaker 1: could actually maybe end balance sheet reduction by the end
Speaker 1: of July potentially, And something like that would be a
Speaker 1: debbish measure that they could take without actually without actually
Speaker 1: cutting interest rates. So, because the problem is that they
Speaker 1: don't have that many bullets, they you know, the feed
Speaker 1: in particular doesn't want to cut interest rates less than zero.
Speaker 1: I think J. Powell was pretty clear about that a
Speaker 1: few weeks ago. So the thing is, if you can
Speaker 1: only cut interest rates eight times, you don't want to
Speaker 1: have to do that as your first step if you
Speaker 1: can avoid it. So do you think so if they
Speaker 1: did that, so they opted for balance sheet normalization now
Speaker 1: versus later, like, does the market like it? Is it
Speaker 1: devilish enough for them? Well? I think that that risk
Speaker 1: asset markets would probably be more or less and change.
Speaker 1: I think I think the bond market has already priced
Speaker 1: for a lot of bad news and and certainly for
Speaker 1: the FED to cut so I think if they did
Speaker 1: something like that and said we're going to end quantitative tightening,
Speaker 1: but don't look for but hint that there's not going
Speaker 1: to be an interest rate cut in July, I think
Speaker 1: the bond market, probably the two year notes and the
Speaker 1: front end of the of the market. Short term maturities
Speaker 1: they probably go up and yield, but long end maturities
Speaker 1: probably stay where they are, just on the idea that
Speaker 1: the Fed's not cutting enough with this negative sentiment hanging around.
Speaker 1: And then a lot of this negative sentiment, of course,
Speaker 1: could go away very quickly, as you saw today. I
Speaker 1: mean we were we we were up a lot more
Speaker 1: in the bond market. But then you know, Donald Trump
Speaker 1: makes a tweet. The next thing, you know, five basis
Speaker 1: points of that rally, today's rally goes away. And I
Speaker 1: read just the she agrees President, she agrees is coming
Speaker 1: on the redhead headline, come across the tape. She agrees
Speaker 1: us China should keep talking. So just confirming the tweet
Speaker 1: from President Trump. So is there something here that maybe
Speaker 1: the market's missing? What be you know, just we've had
Speaker 1: so much volatility just to pass well, let's just go
Speaker 1: today for for that matter, Where could the FED or
Speaker 1: how could the Fed really surprise the market, maybe even
Speaker 1: on the downside tomorrow. Yeah, well, I I mean certainly
Speaker 1: if the if the Fed cut tomorrow, that would be
Speaker 1: a huge surprise. Um. I think that would be you know,
Speaker 1: really good at least temporarily for risk assets, and um,
Speaker 1: the market is not price for that. But I think
Speaker 1: if they were to cut tomorrow, then we would probably
Speaker 1: price out to cut in July, so you wouldn't you'd
Speaker 1: see the very very short term market, so one month,
Speaker 1: three months he bills for example, would move, but not
Speaker 1: necessarily two year notes very much because we're already pricing
Speaker 1: for two and a half more than two and a
Speaker 1: half interest rate cuts by the by the end of
Speaker 1: this year. Um, could they could they suggest that they're
Speaker 1: going to Could they cut fifty basis points? They could?
Speaker 1: I think that that would be highly highly unusual. Ira Jersey,
Speaker 1: Thank you so much, Irish chief US interest rate strategist
Speaker 1: for Bloomberg Intelligence, joining us on the phone from the
Speaker 1: headquarters in Prince to New Jersey. Thanks for listening to
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