Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 1: top stories in the coming week from our Daybreak anchors
Speaker 1: all around the world, and straight ahead on the program.
Speaker 1: Fed Chair J Powell heads for Capitol Hill. I'm Tom
Speaker 1: Busby in New York. I'm Stephen card in London, Whereishi
Speaker 1: Stanaka is hoping to build on an improvement in ties
Speaker 1: with his European neighbors as he heads to France for
Speaker 1: a summit with President and Nanionncom. I'm Joe Matthew in Washington,
Speaker 1: where we're preparing for President Biden to drop his new budget.
Speaker 1: I Ran Curtis in Hong Kong. We look at President
Speaker 1: she touting intense changes to China's governance. That's all straight
Speaker 1: ahead on Bloomberg Daybreak Weekend on Bloomberg eleven, FREEO, New York,
Speaker 1: Bloomberg ninety nine one, Washington, d C, Bloomberg one oh
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Speaker 1: on Bloomberg Radio dot com and via the Bloomberg Business App.
Speaker 1: Good day to you. I'm Tom Busby, and we begin
Speaker 1: today's program with Federal Reserve Chair Jay Powell, the FED head.
Speaker 1: We'll be giving a semi annual monetary policy report to
Speaker 1: Congress this week. Also a look at the strength of
Speaker 1: the US labor market with the February jobs report. This
Speaker 1: is coming Friday. Now. Joining me now to talk about
Speaker 1: all of that. Bloomberg's International and Economics policy correspondent Michael McKee. Michael,
Speaker 1: thank you for being here. Lovely to be here. All right.
Speaker 1: Inflation still soubornly high, borrowing rates keep going higher, consumers
Speaker 1: are worried despite the strength and the job market and
Speaker 1: the stock market as apparently stalled. What will Chairmer and
Speaker 1: Powell's message to be to lawmakers. Well, higher for longer
Speaker 1: is going to be the shorthand version of what he's
Speaker 1: going to be saying. The question is how high and
Speaker 1: for how long the latest data have, As you mentioned,
Speaker 1: I've been particularly great. We have seen strength in the
Speaker 1: labor market and strength in wages, and consumers have been
Speaker 1: spending a lot of money, which all would be good
Speaker 1: in a normal period, but with inflation where it is,
Speaker 1: the FED would like to see some sort of slowdown
Speaker 1: in demand. So the question is, did the latest numbers
Speaker 1: that we've gotten push the Fed. Will it push the
Speaker 1: Fed to do fifty basis points instead of twenty five
Speaker 1: basis points on March twenty second? And how long do
Speaker 1: they think they need to leave rates high? We had
Speaker 1: some Fed speakers saying at least through the end of
Speaker 1: the year. We'll see where the chairman is on that. Yeah,
Speaker 1: we had several top FED officials talking about being open
Speaker 1: to bigger interest rate hikes if necessary. Here's what Minneapolis
Speaker 1: Fed President Neil cash Carey had to say about that
Speaker 1: this week. There's a lot of attention to the next
Speaker 1: meeting in March. Is it going to be twenty five
Speaker 1: or is it going to be fifty? I'm open minded
Speaker 1: at this point about whether it's twenty five or fifty
Speaker 1: basis points. To me much what's much more important than
Speaker 1: whether it's twenty five or fifty is what we signal
Speaker 1: in what's called the plot. I've got my own dot plot,
Speaker 1: and it's all about inflation and trying to combat it.
Speaker 1: How bad is inflation right now or how does the
Speaker 1: FEDS c inflation right now? And why does the scene
Speaker 1: to be getting worse? To you, ask anybody on the street,
Speaker 1: anybody in the store, You know, it just keeps getting worse. Well,
Speaker 1: the problem is nothing moves in a straight line. Inflation
Speaker 1: has come down significantly. It was around nine percent when
Speaker 1: the FED got started, and now we're in the sixes
Speaker 1: for CPI and the fives for the FEDS indicator PC.
Speaker 1: So we have seen a big drop in inflation. It's
Speaker 1: about halved, but it's still significantly above where the FEDS
Speaker 1: target is, the two percent target. And at this point,
Speaker 1: the easy, low hanging fruit to bring inflation down much
Speaker 1: of that has gone away. We've already seen a decline
Speaker 1: in goods prices, we have seen energy prices come down.
Speaker 1: It's the stuff on the services side, driven in many
Speaker 1: cases by higher wages that's still has to be attacked
Speaker 1: by the Fed. And that's why they're thinking they're going
Speaker 1: to need to be at a higher rate for longer,
Speaker 1: because they need to have the full weight of the
Speaker 1: infest rates they've increased hit decision making in the economy. Now,
Speaker 1: this idea of higher rates for longer to come, will
Speaker 1: it be a tough sell to Congress? I mean there's
Speaker 1: a lot on his plate, Pal's plate. How is he
Speaker 1: going to sell it to these and what's the reception
Speaker 1: going to be first to the House, then to the Senate. Well,
Speaker 1: the FED chairman is always caught between the two political
Speaker 1: parties up on Capitol Hill. Each one will try to
Speaker 1: turn the testimony to try to see if there's some
Speaker 1: support from the FED chair for their political views. In
Speaker 1: this case, it's the Democrats who are worried about infest
Speaker 1: rates being too high for too long because they're worried
Speaker 1: about unemployment going up, and usually when unemployment goes up,
Speaker 1: the lowest on the economic scale suffer the most. The
Speaker 1: answer to that, Paul will say is, we don't think
Speaker 1: we have to have unemployment goal up a lot, because
Speaker 1: the market is a labor market and the economy are
Speaker 1: so strong it can withstand some higher interest rates. Republicans
Speaker 1: will counter that by saying, while the economy is so strong,
Speaker 1: inflation is not coming down fast enough, so you need
Speaker 1: to do more. And Pau will try to steer a
Speaker 1: course between the two of them, protecting the Fed's independence
Speaker 1: and saying we will do what's best for the economy
Speaker 1: in our best judgment and laying out those goals for
Speaker 1: the economy. For his policy for interest rates, I mean,
Speaker 1: he's not going to win against divided Congress is you
Speaker 1: can't ever win up on Capitol Hill. No matter what
Speaker 1: the Fed Chairman says, somebody is going to be unhappy
Speaker 1: with it, and many of them will give speeches rather
Speaker 1: than ask questions because that's what politicians do. One of
Speaker 1: the interesting things to watch is going to be what
Speaker 1: he says about the debt limit. That's going to be
Speaker 1: a question that someone will bring up, and he has
Speaker 1: largely avoided any kind of characterization about what it would
Speaker 1: do to the economy. He says, only there's that's only
Speaker 1: one solution, raise the debt limit, and I'm not going
Speaker 1: to talk about it beyond that. But you can imagine
Speaker 1: that both sides will try to get him to comment
Speaker 1: in some way, and it's also totally out of his purview.
Speaker 1: That is Congress's exactly. Well, it's an economic issue for
Speaker 1: the US, so the Fed chairman has credibility on economic issues,
Speaker 1: so they'll try to get him to The Republicans will
Speaker 1: ask him to say that we need to cut spending
Speaker 1: significantly because we're on an unsustainable fiscal path, which he
Speaker 1: has said before. He just hasn't said that you need
Speaker 1: to do it today, And the Democrats will say, well,
Speaker 1: you're going to crash the economy if you breach the
Speaker 1: debt limit and default, and he doesn't want to get
Speaker 1: in between the two sides. Got it all right, Michael,
Speaker 1: Let's start to this Friday's February jobs report in the
Speaker 1: state of the US labor market. Boy, we have a
Speaker 1: real surprise in January, over half a million jobs added,
Speaker 1: the unemployment rate, the Lowison's nineteen sixty nine first time
Speaker 1: jobless claims. The last few weeks we've seen an upside
Speaker 1: surprise there. What are we looking at for the labor
Speaker 1: market for jobs added in February, Well, we're kind of
Speaker 1: in the same position we were a month ago, where
Speaker 1: economists are looking for a significant slowdown from last month.
Speaker 1: They're looking for about the same number that they forecast
Speaker 1: last month, two hundred and twenty thousand and an unemployment
Speaker 1: rate that's unchanged at three point four percent. Both would
Speaker 1: be very strong numbers. It's a little harder to characterize
Speaker 1: the total jobs numbers in that way because of five
Speaker 1: hundred and seventeen thousand jobs in January, but a lot
Speaker 1: of people, a lot of you kind of think that
Speaker 1: that was a function of the weather and some seasonal
Speaker 1: adjustment changes that the bl makes and so that it
Speaker 1: should come down. But at this point there doesn't seem
Speaker 1: to be any significant sign in any of the other
Speaker 1: indicators of labor market strength that would suggest we're seeing
Speaker 1: the kind of results that the FED is expecting a
Speaker 1: rising unemployment rate because demand is falling in the economy.
Speaker 1: This is a completely different time. We're coming out of
Speaker 1: the pandemic recession and employers couldn't find workers for a
Speaker 1: very long time, and in some sectors they still can't,
Speaker 1: and so it seems that at this point companies are
Speaker 1: holding on to workers rather than letting them go as
Speaker 1: they might ordinarily do when the economy slows. And anecdotally
Speaker 1: we hear of tech sector workers being laid off on
Speaker 1: moss at some big companies finding jobs elsewhere. Whether it's
Speaker 1: a autowindustry, yeah, well, the tech industry is those are
Speaker 1: high scaled people generally, and so they can find jobs
Speaker 1: more easily. I remember a CEO of a tech company
Speaker 1: telling me a couple years ago every company is a
Speaker 1: tech company now because we all have websites and we
Speaker 1: all have technology that needs to be maintained. So there
Speaker 1: are jobs out there. It's more the people on the
Speaker 1: lower end construction workers. With housing slowing, there should be
Speaker 1: an impact on construction, but we haven't seen it yet.
Speaker 1: Retail sales, there should be an impact on retail sales workers,
Speaker 1: and we haven't seen it yet. That's what everybody's waiting for,
Speaker 1: is some of those early signs that maybe the economy
Speaker 1: is slowing in companies or don't need as many workers,
Speaker 1: but it hadn't happen yet. Well, speaking of retail sales,
Speaker 1: we heard from some major retailers last week. Most reported
Speaker 1: pretty solid holiday quarterly sales, but just about all of
Speaker 1: them with week outlooks for the full year expecting a
Speaker 1: big pullback in consumer spending, a lot of worries about
Speaker 1: the economy slowing. What does this tell us about retailers,
Speaker 1: about the economy and how retailers see consumers right now. Well,
Speaker 1: I think retailers are like everybody else, reading the headlines
Speaker 1: and listening to everybody talk about the inevitable recession, the
Speaker 1: most the longest awaited recession in history. Perhaps it may
Speaker 1: be the goodot of recessions, and so they're talking at
Speaker 1: this point like they're preparing, they've drawn up the plans
Speaker 1: for dealing with a recession. But they haven't put them
Speaker 1: into practice yet because we haven't seen a pullback significantly
Speaker 1: in consumer spending, and so where you may see it
Speaker 1: first is in retail inventories. They may not buy as
Speaker 1: much stuff ahead of time. The question is how long
Speaker 1: do they hold off, because when you get into June,
Speaker 1: that's about the time that they start ordering for the
Speaker 1: holiday season. And they've got to try to make a
Speaker 1: prediction for the holiday season, and this year I can
Speaker 1: imagine it's going to be very difficult. Well, Michael McKay,
Speaker 1: Bloomberg's International Economics and Policy correspondent, Thank you so much
Speaker 1: for being here, Michael. Coming up on Bloomberg Daybreak weekend,
Speaker 1: Britain's Prime minister meets with France's leader, Emmanuel McCrone. I'm
Speaker 1: Tom Buzzby and this is Bloomberg. This is Bloomberg Daybreak weekend,
Speaker 1: our global look ahead at the top stories for investors
Speaker 1: in the coming week. I'm Tom Busby in New York.
Speaker 1: Up later in our program Biden's next budget and Republican
Speaker 1: pressure for spending cuts. But first after the post breaks
Speaker 1: it agreement on Northern Ireland reach between the EU and
Speaker 1: the UK, the British Prime Minister has another important European
Speaker 1: rendezvous looming as he heads to Paris for a summit
Speaker 1: with Francis Emmanuel Macrone. For more, let's hit to London
Speaker 1: and bring in Bloomberg Daybreak europe banker Stephen Carroll tom
Speaker 1: Rishis Nach's trip to Paris falls neatly after he's resolved
Speaker 1: the biggest beef with his neighbors, disagreements over the post
Speaker 1: Brexit trading grils for Northern Ireland. This Franco British summit
Speaker 1: has meant to relaunch closer ties between the UK and
Speaker 1: France after years of strained relations. To discuss what's on
Speaker 1: the agenda, I'm joined out by Bloomberg opinion columnist Leonel
Speaker 1: Laurent in Paris and tries Raphael with me here in
Speaker 1: London now. I want to just set up our conversation
Speaker 1: with the snippet of a Bloomberg interview with Luke Alice,
Speaker 1: the CEO of the world's largest publicly traded hedge fund,
Speaker 1: Man Group, expressing a sentiment I think many people have
Speaker 1: felt after the UK's deal with the EU last week,
Speaker 1: if we never had to talk about Brexit again, the
Speaker 1: UK would be more investable. I hope that the last
Speaker 1: couple of days gives us a firm place to move
Speaker 1: forward for the relationship with Europe and that will definitely
Speaker 1: improve the way people think about the UK. Okay terres
Speaker 1: Raphael with me in studio. How relieved will Rishi sacB
Speaker 1: that this meeting with Emmanuel Macron doesn't have to be
Speaker 1: about Brexit. Oh, I think it's symbolically very important that
Speaker 1: they're meeting, and the fact that you know, he's just
Speaker 1: got this Winter Framework, the kind of updated, reworked Northern
Speaker 1: Ireland Protocol, makes it more than symbolic, because I think
Speaker 1: it gives him the opportunity to build on that momentum
Speaker 1: and try to uh, you know, reach some kind of
Speaker 1: agreement with Macrol on mutual areas of interest for SUNAC
Speaker 1: that is clearly going to you know, be that list
Speaker 1: would be topped by h stopping migrant votes boats, which
Speaker 1: was one of his five priorities that he set out
Speaker 1: earlier this year. And you know, I don't think there's
Speaker 1: been leone will check me in this. I don't think
Speaker 1: there's been a bilateral h big bilateral since twenty eighteen,
Speaker 1: so so we're really looking at a kind of reset
Speaker 1: of Anglo French relations which have over the I was
Speaker 1: going to say years, but centuries. You had everything from
Speaker 1: the time ward arrival read to alliance. So I think
Speaker 1: it's quite important. And yes, Brexit not top of the
Speaker 1: list for once, Yes, Leonella Ryan Paris. What's in this
Speaker 1: for France? Then, what does a manual Macron want to achieve?
Speaker 1: Basically Macro also wants to kind of get over the
Speaker 1: Brexit period, the Brexit hump, not because France had as
Speaker 1: bad a time as the UK. I mean, the fact
Speaker 1: is that mac Horn was reelected recently, while the UK
Speaker 1: has gone through several prime ministers, but the whole Brexit
Speaker 1: effect has kind of faded. In terms of France's leadership
Speaker 1: in Europe, France is feeling a bit trapped at the
Speaker 1: moment because Germany really seems to be capitalizing the most
Speaker 1: in terms of leadership in the wake of the Ukraine War.
Speaker 1: France is kind of having trouble with German either. The
Speaker 1: relationship there is kind of stuck, and so I think
Speaker 1: it's looking around for friends. And the UK historically has,
Speaker 1: as Terres says, it's been an enemy but also a friends.
Speaker 1: You have a kind of freenemy relationship, but the two
Speaker 1: countries look more alike today than they did around Brexit,
Speaker 1: because they're both kind of service based economies that have
Speaker 1: a proud history of military hitability and intervention. They're both
Speaker 1: kind of looking for their place in this geopolitically risky world.
Speaker 1: They've they've both pledged a support for Ukraine and so
Speaker 1: I think mac Hall's really gonna try to look for
Speaker 1: defense and an industrial policy as his priorities in this meeting.
Speaker 1: So as one of the things that you mentioned it
Speaker 1: their immigration and this migration channel across the English Channel.
Speaker 1: Soonac frames that is being stopping small boats as being
Speaker 1: one of his key policy goals. What would look like
Speaker 1: an advance for Rishi Sonac from this encounter on that issue. Yeah,
Speaker 1: I think there will have to be something concrete that
Speaker 1: he can point to at the end of this meeting
Speaker 1: on small boat And it may be I mean that
Speaker 1: really problems got a lot worse when the UK, you know,
Speaker 1: could no longer be part of the I mean, someone
Speaker 1: could argue defunct Dublin arrangement for returning refugees. But also
Speaker 1: I think access you know, maybe to UM maybe it's
Speaker 1: not direct access, but some way of tapping into EU databases,
Speaker 1: police cooperation, um, you know, that combination of policing returns.
Speaker 1: I mean, this is a it's a really difficult issue.
Speaker 1: I don't think they're going to just somehow snap their
Speaker 1: fingers and come up with a way of stopping the
Speaker 1: migrant boats. But you know, as we saw with the protocol,
Speaker 1: so much depends on good faith negotiations and so much
Speaker 1: depends on the trust between leaders and having a different
Speaker 1: UK Prime minister fronting this I think well has a
Speaker 1: potential to make a difference. I mean, let's not forget
Speaker 1: you know, it was twenty twenty one. We had Jacob
Speaker 1: riesmog tweeting that the French are still sore about Agincourt
Speaker 1: and Trafalgar. We had Liz trust saying, you know, she
Speaker 1: wasn't really sure whether France was a you know, friend
Speaker 1: or foe. So all of that kind of um mood
Speaker 1: music really soured the ability of these bilateral you know
Speaker 1: talks to achieve anything. And you know, as Lionel rightly said,
Speaker 1: the full crumb of that relationship, which is completely off
Speaker 1: the headlines for years, has been the defense and security relationship,
Speaker 1: and that arguably wasn't that affected by Brexit. You know,
Speaker 1: the Lancaster House treaties that were signed in twenty ten
Speaker 1: between Cameron and Sarkoz the sharing of nuclear facilities. You know,
Speaker 1: those were fifty year agreement and I think that the
Speaker 1: other one was was a combined expeditionary force. So things
Speaker 1: have been at a stalemate since twenty sixteen. But the
Speaker 1: security and defense side of things are very much, you know,
Speaker 1: at the heart of that relationship. And you know, the
Speaker 1: Lionel says that these are geostrategic twins in many ways.
Speaker 1: They're the two nuclear powers in Europe. They're the two
Speaker 1: powers that use their military as a key part of
Speaker 1: their foreign policy. You know, they have similar economies. And
Speaker 1: the big change now is there is war in Europe,
Speaker 1: and really I think that just changes everything for both countries.
Speaker 1: And that's made this this um you know, the alliance
Speaker 1: and the partnership and the friendship side of this bilateral
Speaker 1: relationship far more important than the niggling issues between them.
Speaker 1: Whether it's accus, which is obviously, you know, not such
Speaker 1: a small issue. It was quite important to the French
Speaker 1: and the small boats issue, which is hugely politically important
Speaker 1: to sooner. The other issue that the europe is facing
Speaker 1: as a whole, and I include the UK, so we're
Speaker 1: referring geographically the Inflation Reduction Act posing a question about
Speaker 1: subsidies rivaling the US. So far, the US talking about
Speaker 1: its plan to rival at the UK hasn't caught up
Speaker 1: so much yet. Could this be an area perhaps of cooperation. Yeah,
Speaker 1: that's a really interesting question because the EU has come
Speaker 1: up with its own response. Actually, Lionel's written very well
Speaker 1: on that recently, and it's it's it's a complicated response.
Speaker 1: They're different pillars. Parts of it, you know, include easing
Speaker 1: the regulatory environment, but there's also you know, a nod
Speaker 1: to UM, you know, opening the floodgates potentially for more
Speaker 1: state aid and that makes UM the UK nervous because
Speaker 1: it doesn't have its own response. I think, you know,
Speaker 1: it would be interesting to see whether from the readout
Speaker 1: there are any discussions about coordinating, because I think it
Speaker 1: is Sunac ideologically is is you know, would be an
Speaker 1: opponent of this, uh, you know, of of of state
Speaker 1: aid becoming the answer here, and because we know that
Speaker 1: France and Germany, the deeper pockets, will be the ones
Speaker 1: to uh you know, throw more at their industries. At
Speaker 1: the same time, Britain will need to formulate its own response.
Speaker 1: The only other thing I would add is, you know
Speaker 1: Maccolm's European political community, which was something that you know,
Speaker 1: trust signaled support of, is one way that you know
Speaker 1: the two could potentially also find common ground outside the EU.
Speaker 1: SUNAC could potentially throw some support behind that as well.
Speaker 1: Excellent plenty to watch out for. Thank you to our
Speaker 1: powerhouses of Bloomberg Opinion, Leonel Laurent Entorez Raphael for your
Speaker 1: views as we look ahead to some of which of
Speaker 1: course we will be covering here on Bloomberg Radio. I'm
Speaker 1: Stephen Carlin London. You can catch us every weekday morning
Speaker 1: here for Bloomberg Daybreak. You're at beginning at six am
Speaker 1: in London and one am on Wall Streets. Tom, thank you,
Speaker 1: And coming up on Bloomberg Daybreak weekend, President Biden's budget
Speaker 1: proposal is about to come out. How much support can
Speaker 1: he win from Republicans? I'm Tom Busby and this is
Speaker 1: Bloomberg Broadcasting live from the Bloomberg Interactive Broker Studio in
Speaker 1: New York. Bloomberg Elomon FREEO to Washington, DC, Bloomberg ninety
Speaker 1: nine one to Boston, Bloomberg one O six one to
Speaker 1: San Francisco, Bloomberg nine sixty to the country, Sirius XM
Speaker 1: Channel one nineteen to London, DAB digital radio, and around
Speaker 1: the globe the Bloomberg Business app in Bloomberg Radio dot Com.
Speaker 1: This is Bloomberg Daybreak Weekend. I've Tom bust be in
Speaker 1: New York with your global look ahead at the top
Speaker 1: stories for investors in the coming week. President Biden presumably
Speaker 1: putting the finishing touches on his twenty twenty four budget request.
Speaker 1: We're expecting to come out this coming Thursday. Joining us
Speaker 1: now with some insight on what to expect and just
Speaker 1: how tricky this one will be. Bloomberg Sound On host
Speaker 1: Joe Matthew. Thank you Tom. The budget, of course, is
Speaker 1: a blueprint. It's far from a final version of the
Speaker 1: President's been talking about some of his top priorities lately.
Speaker 1: Folks in Congress. They want to eliminate a lot of
Speaker 1: healthcare coverage, so its mega Republicans, increased costs for millions
Speaker 1: of Americans. Joining us now for some insights, Bloomberg Government's
Speaker 1: Jack Fitzpatrick, who specializes in the budget process. He covers
Speaker 1: appropriations and it's great to see it. Jack did we
Speaker 1: get a clue. Where have we been getting clues about
Speaker 1: the president's budget in the recent string of speeches, Like
Speaker 1: the State of the Union, of course would be the
Speaker 1: big one, So this won't actually be much of a
Speaker 1: surprise when he drops it. The big stuff is not
Speaker 1: going to be surprising, but it is. There's some nuance
Speaker 1: here that a lot of the president's top priorities that
Speaker 1: we heard about in the State of the Union, when
Speaker 1: he's gone after Republicans saying well, now they want to
Speaker 1: go after your Medicaid, they used to want to go
Speaker 1: after your Social Security, Medicare, I'm going to stop that.
Speaker 1: A lot of that is what he opposes about things
Speaker 1: that Republicans have brought up. It's not necessarily clear how
Speaker 1: he weaves that into a budget proposal now, I will say,
Speaker 1: even talking to members of Congress over the last week,
Speaker 1: I talked to Brendan Boyle, the top Democrat on the
Speaker 1: House Budget Committee, who said, really, the top stuff he's
Speaker 1: looking for in the budget is protecting and maintaining the
Speaker 1: things that Democrats feel they have already accomplished, whether it's
Speaker 1: an Affordable Care Act, making sure Republicans don't chip away
Speaker 1: at Medicaid, or anything like that, or even making sure
Speaker 1: the money continues to go out in an infrastructure bill.
Speaker 1: This does not appear to be one of those budgets
Speaker 1: where there's one ask that he's making of Congress. That's
Speaker 1: the big thing. It's really almost more about what he
Speaker 1: wants Republicans to not do any things he likes, and,
Speaker 1: like you said, preserving what's already been accomplished in the
Speaker 1: last two years. You mentioned a major entitlement program though,
Speaker 1: and I wonder what we're going to hear about Social Security, Medicare,
Speaker 1: and so on, following this sort of endless debate recently
Speaker 1: with Kevin McCarthy, the new Speaker of the House. Yeah,
Speaker 1: so that has already started to play out through the
Speaker 1: debt limit debate. You've heard Democrats come out and say,
Speaker 1: you know, if we want to get into a conversation
Speaker 1: separate from the debt limit about the solvency of Social Security,
Speaker 1: we could lift the cap on the maximum taxable income
Speaker 1: for Social Security payroll taxes. But really largely it seems
Speaker 1: that Democrats and now Republicans are kind of joining them,
Speaker 1: are saying we're keeping our hands off of this. Republicans
Speaker 1: kind of feel that maybe they either touched the third
Speaker 1: rail or got accused of touching the third rail. But
Speaker 1: when you look back to the State of the Union,
Speaker 1: they clearly are trying to make it as explicit as
Speaker 1: possible that there's not really a social Security and Medicare
Speaker 1: solvency conversation happening on the hill. It will have to
Speaker 1: happen in the next it's i think twelve years before
Speaker 1: one of the deadlines, even shorter before another, but it's
Speaker 1: not happening now. So it'd be a surprise if the
Speaker 1: budget really got into that, and there's no bipartisan will
Speaker 1: to really start those conversations at this point. It's become
Speaker 1: a huge talking point, of course for this president who
Speaker 1: likes to point to Senator Rick Scott's proposal, and we've
Speaker 1: talked about it a lot here on Bloomberg Radio, to Sunset,
Speaker 1: these programs, and that's not what the leadership is saying.
Speaker 1: Kevin McCarthy and Mitch McConnell have both made clear to
Speaker 1: your point that Social Security Medicare are off the table.
Speaker 1: But the President had a lot of fun with this
Speaker 1: at the SA, like at the State of the Union,
Speaker 1: getting Republicans to yell and boo and he's still making
Speaker 1: hay out of this in his speeches. Everybody who says
Speaker 1: we're not going to cut Medicare social Security. When I
Speaker 1: asked them to join us and reject the cuts Medicare,
Speaker 1: wasn't it something? They all stood up. They all stood up,
Speaker 1: and they're all on camera, got all their pictures. Like
Speaker 1: I said, I believe in conversion. Believe in conversion, as
Speaker 1: he said that night. This is interesting though, because Republicans
Speaker 1: think that he's being disingenuous. He's been actually criticized quite
Speaker 1: a bit for it, knowing that that is not a
Speaker 1: real debate at the moment. Jack, right, Well, it's clearly
Speaker 1: not a debate at the moment because anyone who is
Speaker 1: interested in tying Social Security and Medicare changes to the
Speaker 1: debt limit have backed off and said, well, clearly it's
Speaker 1: not happening now. Part of this is the politics of
Speaker 1: using the word cut or slash. If Republicans say we
Speaker 1: should raise the eligibility age, we should other things to
Speaker 1: lower the projected increase in costs, like more means testing,
Speaker 1: which essentially would be cutting for higher earners. They are
Speaker 1: There are Republicans, including you know, at one point last
Speaker 1: year Jody Arrington, the new House Budget Chair, said we
Speaker 1: need to use the debt limit to get some sort
Speaker 1: of policy change or at least process change for major
Speaker 1: entitlement solvency. And the Republicans are going to come into
Speaker 1: that saying we want to reduce the trajectory of spending.
Speaker 1: There are a bunch of examples of lawmakers who have
Speaker 1: said that kind of thing. They don't take kindly when
Speaker 1: you say, oh, so you're going to slash social security?
Speaker 1: Obviously democratic politicians they're going to kill it all together. Yeah.
Speaker 1: Democratic politicians are going to hear that and say, well,
Speaker 1: that's a cut. There's been such a back and forth
Speaker 1: on I didn't say cut, I met I said maybe
Speaker 1: we should change the age of eligibility. That it's it's
Speaker 1: spiraled out of control at this point, and that has
Speaker 1: contributed to the fact that no, clearly the debt limit
Speaker 1: is not going who trigger some sincere debate over the
Speaker 1: solvency of these programs. Whenever that happens, it'll be later,
Speaker 1: and even in the president's budget proposal or separate. It
Speaker 1: does not sound like there's a lot of motivation to
Speaker 1: have a real conversation. So it's a big semantics debate,
Speaker 1: and that's how we got here, right, And we're not
Speaker 1: going to change this apparently anytime soon, at least not
Speaker 1: in this budget debate. The war in Ukraine is another
Speaker 1: big question, Jack Fitzpatrick. This president has been bumping up
Speaker 1: against some Republican members of the House, even some progressive Democrats,
Speaker 1: who have been tiptoeing around the idea of, you know,
Speaker 1: not just no blank checks, but let's have a concerted
Speaker 1: debate over what we're going to be spending. Now. There
Speaker 1: are tens of billions approved last year, right that will
Speaker 1: still likely carry us through this year. So is this
Speaker 1: something that will come up again in this budget debate.
Speaker 1: I don't know exactly when it's going to come up again.
Speaker 1: It is going to come up again in some capacity.
Speaker 1: You're right that there was about forty billion dollars included
Speaker 1: for Ukraine in the December omnibus spending bill that carries
Speaker 1: you for a while. There will be a more regular
Speaker 1: debate on aid to Ukraine. That was a big supplemental
Speaker 1: sort of emergency spending bill. This when they fund the
Speaker 1: State Department. And there will be things in the budget
Speaker 1: proposal that says, here's what we want to go through
Speaker 1: the State Department. Here's the bilateral assistance we want for
Speaker 1: this country. In that country, they have that debate for
Speaker 1: the appropriations bills. It's smaller than a big forty billion
Speaker 1: dollar bill, but there is a debate brewing on to
Speaker 1: what is the extent of the economic assistance we want
Speaker 1: to send Ukraine through the regular State Department aid that
Speaker 1: kind of thing. I will say I spoke within the
Speaker 1: last week or so with Mario Diaz Ballart, who's the
Speaker 1: new House Republican essentially in charge of funding the State
Speaker 1: Department through the Appropriations Committee. He said, you've got to
Speaker 1: be skeptical about funding. House Republicans want to cut a
Speaker 1: lot of spending, even for Ukraine, even for things they
Speaker 1: might support, they are going to be very skeptical. There
Speaker 1: are others like Lindsay Graham in the Senate who does
Speaker 1: not agree with that. There's going to be a debate
Speaker 1: to some degree about regular funding. I would not be
Speaker 1: surprised if within the next year the President says we
Speaker 1: actually also need another big bill for Ukraine. That would
Speaker 1: be an even bigger fight. So there are probably a
Speaker 1: couple fights to come. So on Ukraine. We're not overdoing
Speaker 1: this though in covering this in the media that either
Speaker 1: the Republicans say no more blank checks, they're walking away
Speaker 1: from Ukraine. Is it safe to say a majority of
Speaker 1: Republicans on Capitol Hill still support funding this war effort
Speaker 1: as opposed to the conversation happening at CEPAK For instances,
Speaker 1: to some degree, I think there's a lot of debate,
Speaker 1: but it's a very mainstream Republican position to say, we
Speaker 1: do need to continue sending aid to Ukraine. When you
Speaker 1: get into the finer points of how much defense aid,
Speaker 1: how much economic aid, which a lot of Democrats would
Speaker 1: say is extremely important, Republicans get a bit more skeptical.
Speaker 1: There are differences between House Republicans and Senate Republicans, are
Speaker 1: a difference in how they're going to draft the initial
Speaker 1: bills and what they're going to do and it comes
Speaker 1: to a final vote, it's they're a bit fractured. It's
Speaker 1: hard to pin down the exact Republican position, but yeah,
Speaker 1: the idea that Republicans have walked away from Ukraine, that would,
Speaker 1: at least I can say, that's a minority position, it's
Speaker 1: not the Republican position. Fascinating as ever, you can find
Speaker 1: him on the terminal. Jack Fitzpatrick at Bloomberg Government. It's
Speaker 1: great to see it. Jack, many thanks thanks for having me.
Speaker 1: Tom back to you all right, Thank you, Joe. When
Speaker 1: you can hear Joe Matthew on Sound on New Time
Speaker 1: one to three pm Wall Street Time. Starting Monday on
Speaker 1: Bloomberg Radio and coming up on Bloomberg Daybreak Weekend, China's leader,
Speaker 1: Shi Jin Thing is moving to intensify his control over
Speaker 1: the country. I'm Tom Busby, and this is Bloomberg. This
Speaker 1: is Bloomberg Daybreak Weekend, our global look ahead at the
Speaker 1: top stories for investors in the coming week. I'm Tom
Speaker 1: Busby in New York. China's president, as we've been boarding,
Speaker 1: is spending time these days trying to become even more powerful.
Speaker 1: For a look at why, Let's go to Hong Kong
Speaker 1: and Bloomberg Daybreak Asia host Brian Curtis and his colleague
Speaker 1: Doug Krisner. Tom. The so called Two Sessions are underway
Speaker 1: in Beijing this weekend, as the National People's Congress and
Speaker 1: the Advisory Body the CPPCC president Shi Jinping is consolidating
Speaker 1: the Communist Party's grip on power. Earlier this week, he
Speaker 1: laid out plans for changes to China's bureaucracy, and he
Speaker 1: spoke of more influence on the private sector indeed, and
Speaker 1: he said those changes would be intense. Now the party
Speaker 1: would roll out plans for deepening reform in the financial sector,
Speaker 1: and officials would exercise more control over the science and
Speaker 1: technology industries. Joining us now to talk a little bit
Speaker 1: about what's happening. What's really happening in China is Bloomberg
Speaker 1: opinion columnist Shuley ren So. Shuley, some of this that
Speaker 1: we just talked about runs a little counter to what
Speaker 1: we thought was going to be the main focus, which
Speaker 1: is the targets and the stimulus and the economy going forward.
Speaker 1: Let's talk a little bit about this consolidation of power.
Speaker 1: What is presidency up to. I think he's starting to
Speaker 1: realize that Chinese Communist parties bureaucracy is not quite working.
Speaker 1: I mean, we last year we heard a lot of
Speaker 1: local government debt problem for instance, right, and a lot
Speaker 1: of it is COVID zero controls. And then the government
Speaker 1: stimulus checks into infrastructure building, but a fair chunk is
Speaker 1: inefficiencies in the system. So I think he's trying to
Speaker 1: make this whole gigantic apparalyus working better. On the other hand,
Speaker 1: there is also a power consolidation, right like if he
Speaker 1: won't if he thinks that he is the man who
Speaker 1: will put China a CCP in power for the next
Speaker 1: five hundred years, he needs power or consolidating to him
Speaker 1: into his inner circles military, economical, and the financial. So
Speaker 1: how much of the debt problem for some of the
Speaker 1: regional governments has to do with the property market and
Speaker 1: the implosion in real estate a lot. So before COVID
Speaker 1: local governments they get about forty percent of their income
Speaker 1: from tax local taxes with the arrest thirty percent from
Speaker 1: land sales, and another thirty percent from government from central
Speaker 1: government tax transfers. And then because of the property market ISLAM,
Speaker 1: thirty percent of their income was kind of gone. Right,
Speaker 1: that is a big hit. And I would like to
Speaker 1: go back to talking about the conflict between central and
Speaker 1: the local governments. So basically in the early nineteen nineties,
Speaker 1: the central government realized that it was getting very poor,
Speaker 1: whereas local governments, say like in the Guangdong province or
Speaker 1: in Shanghaiedi, economy was doing much better. So they changed
Speaker 1: the whole phisical system entirely, and then basically like the
Speaker 1: biggest tax revenues such as the vat the value added,
Speaker 1: the taxes, they will all going to the central government,
Speaker 1: and then the central government will they said, okay, how
Speaker 1: much money do I give to the local government As
Speaker 1: a compromise, they were saying, okay, as a local government,
Speaker 1: you can sell land and the revenue from that lend
Speaker 1: sales comes to you. And that's why local governments always
Speaker 1: have incentive to boost it's a real estate market, because
Speaker 1: that boosts their lands sale value and so and so forth.
Speaker 1: And you can see a lot of the economic problems
Speaker 1: that China is facing today comes from the fiscal reform
Speaker 1: in the early nineteen nineties, during which the central government
Speaker 1: was taking the bigger chunk of the tax revenue, leaving
Speaker 1: the local government with less money. Many researchers say that
Speaker 1: this will mean more party officials at the helm in
Speaker 1: a lot of state owned institutions and with huge influence
Speaker 1: on private companies. So I think the big question is
Speaker 1: is this more about loyalty and control or is it
Speaker 1: more about execution and efficiency. It's both. It's just like
Speaker 1: asking President Shijing pings and high Prussian campaign, is it
Speaker 1: more about political control or about getting rid of the
Speaker 1: dirt in the system. I think it's both. Shuli, thanks
Speaker 1: so much for joining us. Bloomberg opinion columnist Shule Ren
Speaker 1: with us, I'm Brian Curtis along with Doug Krisner. You
Speaker 1: can catch us every weekday here for Bloomberg Daybreak Asia,
Speaker 1: beginning at seven am in Hong Kong and six pm
Speaker 1: on Wall Street. Tom, thank you, Brian and Doug. And
Speaker 1: that does it for this edition of Bloomberg Daybreak Weekend.
Speaker 1: Join us again Monday morning at five am Wall Street
Speaker 1: time for the latest on markets overseas and the news
Speaker 1: you need to start your day. I'm Tom Buzbee. Stay
Speaker 1: with us. Top stories and global business headlines are coming
Speaker 1: up right there.