Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's pivot to the US economy right now and gets
Speaker 2: a perspective there. Wilbert Ross, the former US Commerce secretary
Speaker 2: under Donald Trump, told Bloomberg where he thinks the US
Speaker 2: economy is heading.
Speaker 3: I think the US is heading toward probably a very
Speaker 3: mild recessionary period, and that shouldn't be too surprising. It
Speaker 3: was artificially propped up by all the great situations that
Speaker 3: had prevailed and all the chaos that was pumped into
Speaker 3: the economy in the aftermath of COVID. I think they
Speaker 3: all did that.
Speaker 2: Has Wilbur Ross, former US Secretary of Commerce under Donald
Speaker 2: Trump's first administration. They're talking about a very mild recessionary period.
Speaker 2: That's his expectation. Let's get another perspective on the US
Speaker 2: economy and on markets, on deals and much beyond. We're
Speaker 2: pleased to say we're joined by Ralph Schulstein, Evercore Chairman
Speaker 2: emeritus and black Rock co founder. Ralph, really nice to
Speaker 2: see you this morning. Welcome to the studio. Thanks very
Speaker 2: much for joining us. Let's start with your sort of
Speaker 2: in the moment market expectations. There's a lot of people
Speaker 2: wondering whether we're going to get a cut of twenty
Speaker 2: five fifty basis points from the Fed next week seems
Speaker 2: to matter. I wonder if in the ground scheme of things,
Speaker 2: that's the sort of thing that matters to you because
Speaker 2: of the signaling it might give to markets. What are
Speaker 2: you thinking?
Speaker 4: I do think it does matter, and if I were
Speaker 4: in the room, I would actually be pushing for a
Speaker 4: fifty basis point rather than a twenty five basis point cut.
Speaker 4: Not because I think the economy is on the verge
Speaker 4: of recession, but I think the balance of risks has
Speaker 4: shifted from a risk that inflation doesn't come down as
Speaker 4: we hope to a risk that unemployment and grows up
Speaker 4: faster than we would hope, and employment doesn't grow as
Speaker 4: fast as we would hope. And as a result, I
Speaker 4: think the argument for moving toward neutral is a pretty
Speaker 4: strong one.
Speaker 2: Okay, so you're in the fifty camp. Yes, it would
Speaker 2: that be saying to fifty.
Speaker 4: I'm not saying they'll do that. I'm saying that's what
Speaker 4: I think they should do.
Speaker 2: Yes, So if we is there a danger though, that
Speaker 2: if they did fifty, that that swoops the horses. Would
Speaker 2: this be taken as risk on or risk off?
Speaker 5: Do you think by not right?
Speaker 6: I think.
Speaker 4: I believe the right thing to do is fifty for
Speaker 4: two reasons. One, I think the balance of risks are
Speaker 4: more in the slower employment growth, and second, you know
Speaker 4: we're quite a ways away from neutral. The risks, even
Speaker 4: if they are balanced, we should be closer to neutral.
Speaker 4: And I think a path which starts at fifty rather
Speaker 4: than one that goes twenty five and then fifty, actually
Speaker 4: communicates a more relaxed view about how the economy is
Speaker 4: doing right now, whereas if you started at twenty five
Speaker 4: and then in November did fifty, it would actually spook
Speaker 4: the market a little bit.
Speaker 5: Good morning, l So just listenings that you fairly confident
Speaker 5: that a fifty would not signal that we're in a
Speaker 5: hard landing.
Speaker 6: No, I think you know we're so far.
Speaker 4: You know, obviously, when we were at zero, we were
Speaker 4: a long way from neutral. YEP, at five and a
Speaker 4: quarter to five and a half, we're also a long
Speaker 4: way from neutral. And if the risks of slower employment
Speaker 4: and inflation are roughly balanced, we should be closer to neutral.
Speaker 4: And to me, the statement should be we now have
Speaker 4: balanced risks. If anything, we have a little more risk
Speaker 4: that employment is going to grow too slowly and therefore
Speaker 4: or we should be getting on with the pop the
Speaker 4: path getting to neutral.
Speaker 5: Just to break it down a little bit, Which bits
Speaker 5: of the US economy do you think need rate cuts
Speaker 5: right now?
Speaker 6: Is it's the private sect?
Speaker 5: I look at company margins, they look fantastic, still really good.
Speaker 5: Is it? Is it the employment story or is it
Speaker 5: the governments that needs a right cut right now?
Speaker 4: Well, the government benefits from a rate cut, But the
Speaker 4: parts that I think need a rate cut are the
Speaker 4: rate sensitive sectors like housing and smaller business where all
Speaker 4: of their borrowing is tied to short rates, prime lines
Speaker 4: of credit, et cetera, and so and and by the
Speaker 4: you know, big business is doing great, margins are high,
Speaker 4: top line growth is decent. So I don't think the
Speaker 4: cases you know in the S and P five hundred
Speaker 4: or the Dow Jones, the cases in the part of
Speaker 4: the economy that actually generates the vast majority of new jobs.
Speaker 1: How much of that strength, though, is that the whim
Speaker 1: of what might happen in the political space in the
Speaker 1: next six months. I'm curious if we're talking about these
Speaker 1: interest rate cuts in this resilience. How much should the
Speaker 1: FED be thinking about the continuity or the potential increase
Speaker 1: of tariffs in the.
Speaker 6: Next six months. Well, the FED would always say that they.
Speaker 4: React to the economy, not to fiscal policy or to
Speaker 4: trade policy, and I think that's basically true. I think
Speaker 4: we are We're in a period right now of significant
Speaker 4: economic uncertainty. We're in this transition period from when inflation
Speaker 4: was too high and it's now coming down.
Speaker 6: It hasn't quite reached the Fed's target.
Speaker 4: Yet, but it's certainly moving in that direction, and unemployment
Speaker 4: is drifting upward, and you know, as you just heard
Speaker 4: from the former Commerce secretary, there certainly is you know,
Speaker 4: some risk that we will have not a soft landing
Speaker 4: but a mild recession. All of that means there's uncertainty.
Speaker 4: The political period adds additional uncertainty, and so that's kind
Speaker 4: of a chilling effect on significant moves by business.
Speaker 1: Well, Well, famously, in twenty nineteen, j. Powell basically announced
Speaker 1: an insurance cut to address the pain from tariffs. Which
Speaker 1: is why I'm wondering if that playbook sees a little
Speaker 1: bit of a repeat, and if terroriffs are even something
Speaker 1: the market, the economy has gotten used to or maybe
Speaker 1: is the budget perhaps the bigger worry.
Speaker 4: Well, I think the I think you have to separate
Speaker 4: what I would call trade balancing or tactical or targeted
Speaker 4: tariffs and blanket tariffs. Blanket tariffs I think presage and
Speaker 4: high tariffs presage a period of declining.
Speaker 6: Free trade, which we've already entered.
Speaker 4: Somewhat, and that is inflationary and very bad for markets.
Speaker 4: So if that happened, I think we would we'd certainly
Speaker 4: see an effect in the markets. The impact in the
Speaker 4: economy would be, you know, always uncertain.
Speaker 1: Well, we're already seeing you mentioned the difference in blank
Speaker 1: tariffs and target tarifs, already seeing that kind of a
Speaker 1: continuation of not just the Trump era, but even in
Speaker 1: the Bien era, a continuation of tariffs not just on
Speaker 1: China but on Europe as well. At what point is
Speaker 1: that so damaging to the economy.
Speaker 4: Well, the magnitude of them has not been that great
Speaker 4: so far, and I think as a general matter, the
Speaker 4: Biden administration has tried to balance you know, what they
Speaker 4: would call fair read and you know, a reasonable relationship
Speaker 4: with Europe and our allies in Asia, and not a.
Speaker 6: Whole scale attack on free trade.
Speaker 4: You know, being the special trade representative in the Biden
Speaker 4: administration has probably not been the most exciting job over
Speaker 4: the last four years.
Speaker 2: Yeah yeah, maybe let's talk about areas of the market
Speaker 2: that might be exciting and talk about deals, because that's
Speaker 2: something I'm sure your views on. We just see another
Speaker 2: example this morning, digital Bridge sets away the sale of
Speaker 2: a four billion dollar firm, edge Point, just another example
Speaker 2: of maybe some deals going through. We heard from Berkleay's
Speaker 2: this week, Goldwyn Sachs this week, both saying things are
Speaker 2: nothing to pick up on the deal's front, wishful thinking
Speaker 2: or actually seeing evidence of that.
Speaker 4: Well, there's definitely a some pickup in the nowt activity.
Speaker 6: If you look at the first.
Speaker 4: Eight months or so of this year, the dollar volume
Speaker 4: of announced transactions is up. Interestingly enough, the number of
Speaker 4: transactions is still down this year. There's you know, if
Speaker 4: I look at Evercor's business, we track a number of indicators.
Speaker 4: The least forward looking is our backlog, which is you know, tangible.
Speaker 4: The other measurable ones are new engagement letters signed earlier
Speaker 4: than that is, new conflicts clearance. When a client calls
Speaker 4: us up and says, hey, we're thinking of this will
Speaker 4: you help us? And even earlier than that, which is
Speaker 4: not quantifiable is active dialogue with our clients. The active
Speaker 4: dialogue with clients is way up, new engagement letters is up,
Speaker 4: and conflicts clearances are up somewhere in between those two.
Speaker 4: So there's definitely a significant amount of pent up activity.
Speaker 4: As we talked earlier, we're in a period of economic uncertainty.
Speaker 4: Economic uncertainty is the enemy of announced activity, So it's
Speaker 4: going to happen. It's a question of when it really starts.
Speaker 5: Do you think the Harris camp is generating economic uncertaincy?
Speaker 5: We don't know yet what the Horras camp is going
Speaker 5: to deliver in terms of its economic agenda. We seem
Speaker 5: to be light on detail.
Speaker 6: What is your sense of that?
Speaker 4: Well, I'm not sure if I had a scale here,
Speaker 4: and I watched the debate on Tuesday night, which I
Speaker 4: did at two am, that if going down was on
Speaker 4: the one side, was how specific was the candidate in
Speaker 4: terms of their economic policy. I'm not sure that the
Speaker 4: Trump side would go down more than the harriside. So
Speaker 4: I think that you know, both of them are trying
Speaker 4: to say, is little specifically that so that they don't
Speaker 4: offend anyone. I actually think she's been more specific than
Speaker 4: he has, at least in the last you know, since
Speaker 4: she's entered the race, and.
Speaker 6: You know, so, I don't think.
Speaker 4: I think the fact that these are two very different
Speaker 4: visions for America, definitely, and it's a you know, it's
Speaker 4: a toss up, definitely injects uncertainty. But I wouldn't put
Speaker 4: her policy as being.
Speaker 6: A principal contributor to that uncertainty.
Speaker 1: You talk about her specifics, her campaign is certainly outlined
Speaker 1: as she has as well in terms of continuation of
Speaker 1: the Biden policy, which is tackling drug pricing. She's talked
Speaker 1: about grocery prices, housing affordability. Economists and investors would listen
Speaker 1: to that and hear that and be concerned about that
Speaker 1: being a recipe for stagflation. Do you agree?
Speaker 6: No, I don't.
Speaker 4: I think that there are two elements to her policy.
Speaker 4: And by the way, I am a Democrat, so take
Speaker 4: this all with a grain of salt. I think there
Speaker 4: are two elements to her policy. One, it's a torque
Speaker 4: the benefits of our society a little bit toward the
Speaker 4: middle class and those less privileged. And I think her
Speaker 4: policies on housing, affordability, drug prices, childcare, and the child
Speaker 4: tax credit all are geared there. And you know there's
Speaker 4: going to be a massive debate next year about the
Speaker 4: extension of the Trump tax cuts. And I think the
Speaker 4: biggest difference between these two is the position that they
Speaker 4: will take on that. Whereas Trump is for extending all
Speaker 4: of them and for in fact expanding some of them
Speaker 4: on the corporate side, and She is clearly for expanding
Speaker 4: all of them for those below four hundred thousand dollars
Speaker 4: in income and cutting back on the corporate side. She's
Speaker 4: proposed twenty eight percent rather than twenty one percent, and
Speaker 4: probably eliminating some of the cuts that are beneficial to
Speaker 4: the most wealthy in our society. I don't think I
Speaker 4: think it's a policy focused on a little bit of
Speaker 4: retorking toward the middle class and below and a growth agenda.
Speaker 1: The counter argument that's would be that the Trump taskts
Speaker 1: did great for the economy. JB. Diamond has made that
Speaker 1: point a conversation for another time. Ralph Lasson, we have
Speaker 1: to leave it there, ever, Core Chairman emeritus and Blackrock
Speaker 1: co founder, we thank you so much for joining the program.