1 00:00:00,280 --> 00:00:07,200 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,080 --> 00:00:09,840 Speaker 2: I have no intention of firing him. 3 00:00:10,240 --> 00:00:13,440 Speaker 1: I would like to see him be a little more 4 00:00:13,480 --> 00:00:17,480 Speaker 1: active in terms of his idea to lower interest rates. 5 00:00:26,920 --> 00:00:29,680 Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg. 6 00:00:29,800 --> 00:00:33,000 Speaker 3: Welcome to Trumperonomics, the podcast that looks at the economic 7 00:00:33,120 --> 00:00:36,400 Speaker 3: world of Donald Trump, how he's already shaped the global economy, 8 00:00:36,680 --> 00:00:39,680 Speaker 3: and what on earth is going to happen next. This week, 9 00:00:40,040 --> 00:00:43,120 Speaker 3: we're looking at what's at stake in the tussle between 10 00:00:43,159 --> 00:00:47,280 Speaker 3: President Donald Trump and the Federal Reserve Chair J Powell. 11 00:00:48,000 --> 00:00:49,880 Speaker 3: At the start of this week, stocks took a dip, 12 00:00:50,200 --> 00:00:53,600 Speaker 3: and this time they weren't reacting to tariff policies. It 13 00:00:53,720 --> 00:00:56,840 Speaker 3: was the president's comments about the Federal Reserve, the US 14 00:00:56,840 --> 00:01:02,200 Speaker 3: Central Bank, and its chair, Jerome or Powell. On Monday, 15 00:01:02,560 --> 00:01:05,920 Speaker 3: the President had posted on social media, there is virtually 16 00:01:06,000 --> 00:01:09,720 Speaker 3: no inflation, pointing to lower energy and egg prices, but 17 00:01:09,800 --> 00:01:12,839 Speaker 3: there can be a slowing of the economy unless mister 18 00:01:13,040 --> 00:01:18,400 Speaker 3: too late, a major loser. Lower's interest rates now in capitals. 19 00:01:18,720 --> 00:01:22,360 Speaker 3: And that followed another post saying Powell's termination quotes could 20 00:01:22,360 --> 00:01:26,440 Speaker 3: not come soon enough. Well late in the day Tuesday, 21 00:01:26,920 --> 00:01:30,560 Speaker 3: after we recorded our discussion this week, President walked back 22 00:01:30,600 --> 00:01:33,560 Speaker 3: some of those remarks, saying he had no intention of 23 00:01:33,600 --> 00:01:37,199 Speaker 3: firing FED Chair Jay Powell, but he couldn't resist adding 24 00:01:37,200 --> 00:01:38,880 Speaker 3: his own take on FED policy. 25 00:01:39,280 --> 00:01:41,600 Speaker 1: It is a perfect time to lower interest rates. 26 00:01:42,200 --> 00:01:45,480 Speaker 3: So the argument between the world's most powerful politician and 27 00:01:45,520 --> 00:01:49,400 Speaker 3: its most powerful central banker isn't over. And we know 28 00:01:49,440 --> 00:01:52,160 Speaker 3: from experience that once Donald Trump has someone in his sights, 29 00:01:52,560 --> 00:01:55,680 Speaker 3: he's likely to keep taking shots, especially if the target 30 00:01:55,800 --> 00:01:59,040 Speaker 3: is someone he can blame for a weakening economy. We 31 00:01:59,120 --> 00:02:02,160 Speaker 3: discussed in detail whether the President can actually fire j 32 00:02:02,320 --> 00:02:04,880 Speaker 3: Powell a few weeks ago, didn't go into that in 33 00:02:04,920 --> 00:02:08,280 Speaker 3: this week's conversation. My focus was on how investors are 34 00:02:08,320 --> 00:02:12,360 Speaker 3: reacting to those comments, those complaints about the FED, and 35 00:02:12,440 --> 00:02:15,639 Speaker 3: more broadly, what is at stake not just for the 36 00:02:15,760 --> 00:02:20,960 Speaker 3: US economy but also the world. And we have the 37 00:02:20,960 --> 00:02:25,360 Speaker 3: perfect people to engage on this, especially from a market perspective. 38 00:02:25,360 --> 00:02:29,280 Speaker 3: We have Krishna Guha, vice chair of Evercore ISI and 39 00:02:29,520 --> 00:02:33,000 Speaker 3: head of the Global Policy and Central Bank Strategy Team there. 40 00:02:33,400 --> 00:02:36,840 Speaker 3: Before being at Evercore, Crucially, Krishna was an executive vice 41 00:02:36,840 --> 00:02:40,080 Speaker 3: president and member of the management committee, head of Communications 42 00:02:40,080 --> 00:02:43,080 Speaker 3: Group at the New York Federal Reserve, and before that 43 00:02:43,480 --> 00:02:45,960 Speaker 3: he was a senior writer on global economics and Economic 44 00:02:46,000 --> 00:02:50,520 Speaker 3: policy at the FT. I think we overlapped briefly. Welcome Krishna. 45 00:02:50,880 --> 00:02:51,799 Speaker 3: Very good to have you on. 46 00:02:52,160 --> 00:02:53,959 Speaker 2: Wonderful to be Awathy is there. 47 00:02:55,760 --> 00:02:59,320 Speaker 3: And our own Kate Davidson back to talk to us, 48 00:02:59,320 --> 00:03:02,400 Speaker 3: managing Edis, who covers US economic policy for Bloomberg News 49 00:03:02,400 --> 00:03:04,720 Speaker 3: in Washington. Kate, I think you were actually on the 50 00:03:04,800 --> 00:03:08,280 Speaker 3: debut episode of Trumpnomics back in January, so I'm surprised 51 00:03:08,280 --> 00:03:09,720 Speaker 3: it's taking us this long to have you back. 52 00:03:10,080 --> 00:03:10,840 Speaker 4: Thanks for having me. 53 00:03:12,760 --> 00:03:18,960 Speaker 3: Thank so, Kate. Let me just ask you right at 54 00:03:18,960 --> 00:03:21,359 Speaker 3: the start, just to catch us up briefly on how 55 00:03:21,400 --> 00:03:24,560 Speaker 3: Donald Trump's view of J. Powell has changed, Because, of course, 56 00:03:24,600 --> 00:03:27,919 Speaker 3: you know, as we keep reminding ourselves, he appointed Jay 57 00:03:28,040 --> 00:03:32,959 Speaker 3: Powell to succeed Janet Yellen back in I think twenty seventeen, 58 00:03:33,000 --> 00:03:36,320 Speaker 3: in his first term. How quickly did he sour on him? 59 00:03:36,360 --> 00:03:37,280 Speaker 3: How did we get this far? 60 00:03:38,080 --> 00:03:40,480 Speaker 4: Yeah? I did go back. Actually I was curious about 61 00:03:40,480 --> 00:03:43,360 Speaker 4: this myself. I went back and watched that announcement in 62 00:03:43,400 --> 00:03:46,120 Speaker 4: the Rose Garden when he said he had chosen J. 63 00:03:46,360 --> 00:03:49,560 Speaker 4: Powell to succeed Janet Yellen. The question was whether she 64 00:03:49,600 --> 00:03:52,200 Speaker 4: would be nominated for another term. Of course, she wasn't, 65 00:03:52,200 --> 00:03:55,080 Speaker 4: and at the time he said he was confident, based 66 00:03:55,120 --> 00:03:57,640 Speaker 4: on Powell's record, that he had the wisdom and the 67 00:03:57,720 --> 00:04:01,480 Speaker 4: leadership to guide the economy through any challenge. 68 00:04:01,560 --> 00:04:06,800 Speaker 1: He's strong, he's committed, He's smart. Jay has earned the 69 00:04:06,920 --> 00:04:12,040 Speaker 1: respect and admiration of his colleagues for his hard work, expertise, 70 00:04:12,360 --> 00:04:17,159 Speaker 1: and judgment. He has proven to be a consensus builder 71 00:04:17,279 --> 00:04:23,479 Speaker 1: for the sound monetary and financial policy that he so 72 00:04:23,680 --> 00:04:24,880 Speaker 1: strongly believes in. 73 00:04:25,440 --> 00:04:27,760 Speaker 4: He had a lot of praise for j. Powell at 74 00:04:27,760 --> 00:04:31,560 Speaker 4: the time. It soured pretty quickly. If you recall in 75 00:04:31,680 --> 00:04:35,560 Speaker 4: twenty eighteen, shortly after Powell was confirmed, the FED had 76 00:04:35,600 --> 00:04:38,400 Speaker 4: been slowly raising interest rates. Right, We're coming off a 77 00:04:38,440 --> 00:04:40,880 Speaker 4: period of very low rates for a number of years, 78 00:04:41,279 --> 00:04:43,960 Speaker 4: and there was a thinking that among Fed officials they 79 00:04:43,960 --> 00:04:46,640 Speaker 4: wanted to try to get back to something resembling normal. 80 00:04:46,720 --> 00:04:49,680 Speaker 4: They were very slowly turning up the dial, and Trump 81 00:04:49,720 --> 00:04:52,240 Speaker 4: pretty quickly decided he didn't like that. He thought that 82 00:04:52,279 --> 00:04:55,599 Speaker 4: the FED should be helping the US, and the complaints 83 00:04:55,640 --> 00:04:58,799 Speaker 4: turned kind of personal. Right, I can't remember this specific 84 00:04:59,240 --> 00:05:01,599 Speaker 4: choice words, but I once sticks out when he said 85 00:05:01,600 --> 00:05:04,200 Speaker 4: that J. Powell was like a golfer with no touch. 86 00:05:04,240 --> 00:05:07,040 Speaker 4: You know, he couldn't put I mean, they got fairly colorful. 87 00:05:07,440 --> 00:05:10,000 Speaker 4: He was really clearly very angry, and it got to 88 00:05:10,040 --> 00:05:13,200 Speaker 4: the point where Bloomberg reported in December of twenty eighteen, 89 00:05:13,360 --> 00:05:15,839 Speaker 4: so just about a year after that Rose Garden announcement, 90 00:05:16,040 --> 00:05:19,279 Speaker 4: reported that Trump was actually considering firing Powell. So similar 91 00:05:19,320 --> 00:05:22,000 Speaker 4: headlines in the news. Again, he's feeling like this guy 92 00:05:22,040 --> 00:05:24,320 Speaker 4: that he originally put in there is not helping him. 93 00:05:24,360 --> 00:05:26,240 Speaker 4: That really feels like the tone of it is that 94 00:05:26,320 --> 00:05:28,760 Speaker 4: the economy could really be doing so much better if 95 00:05:28,800 --> 00:05:30,920 Speaker 4: only the FED would get on board and help out 96 00:05:30,960 --> 00:05:31,760 Speaker 4: by lowering rates. 97 00:05:32,200 --> 00:05:35,159 Speaker 3: We also saw during COVID and after when Trump was 98 00:05:35,200 --> 00:05:38,320 Speaker 3: no longer in office, the complaint, insofar as we heard it, 99 00:05:38,320 --> 00:05:40,360 Speaker 3: tended to be the other way, that the FED had 100 00:05:40,400 --> 00:05:44,960 Speaker 3: not raised interest rate enough in the Biden administration. In 101 00:05:45,000 --> 00:05:47,520 Speaker 3: his post over the weekend, when he talks about too 102 00:05:47,560 --> 00:05:50,960 Speaker 3: late Pale, part of the criticism he has is that 103 00:05:51,000 --> 00:05:52,920 Speaker 3: the FED was too slow to raise interest rates. So 104 00:05:52,920 --> 00:05:54,320 Speaker 3: of course he's not the only one, but you have 105 00:05:54,400 --> 00:05:56,960 Speaker 3: to observe he wants lower interest rates when he's in 106 00:05:56,960 --> 00:05:59,560 Speaker 3: the administration, when he's in the White House, and tends 107 00:05:59,600 --> 00:06:03,320 Speaker 3: to want higher ones when someone else's Krishna. This isn't 108 00:06:03,720 --> 00:06:07,320 Speaker 3: primarily a market show, but we've become one when what's 109 00:06:07,360 --> 00:06:10,240 Speaker 3: going on in the markets potentially affects the US and 110 00:06:10,320 --> 00:06:14,440 Speaker 3: global economy significantly. Going slightly back to basis, talk us 111 00:06:14,480 --> 00:06:21,120 Speaker 3: through how these latest attacks on the FED and potential 112 00:06:21,240 --> 00:06:26,479 Speaker 3: question marks about its independence are being perceived by markets, 113 00:06:26,480 --> 00:06:28,800 Speaker 3: and how we're seeing that in asset prices. 114 00:06:29,480 --> 00:06:34,080 Speaker 2: I think we got a pretty good foretaste in market 115 00:06:34,160 --> 00:06:37,960 Speaker 2: trading on Monday as to what kind of a train 116 00:06:38,000 --> 00:06:41,440 Speaker 2: wreck we would have if the President actually tried to 117 00:06:41,560 --> 00:06:45,880 Speaker 2: fire the FED chairman. So, as you know, we saw 118 00:06:46,200 --> 00:06:53,080 Speaker 2: a general sell America trade, stocks lower, bonds, lower, dollar lower. 119 00:06:53,480 --> 00:06:58,080 Speaker 2: That reflects the reduced attractiveness of US assets in a 120 00:06:58,080 --> 00:07:01,960 Speaker 2: world where the central bank might lose independence. The fact 121 00:07:01,960 --> 00:07:05,479 Speaker 2: that the currencies weakening at a time when the yield 122 00:07:05,560 --> 00:07:09,920 Speaker 2: the return supposedly risk free a US government securities is 123 00:07:09,960 --> 00:07:13,760 Speaker 2: going up is also a sign, of course, of investors 124 00:07:13,800 --> 00:07:16,920 Speaker 2: reallocating capital, at least of the margin, out of the 125 00:07:17,040 --> 00:07:22,400 Speaker 2: US and into other market places. We saw a steepening 126 00:07:22,440 --> 00:07:25,480 Speaker 2: of the yield curve. That's the difference between the shorter 127 00:07:25,640 --> 00:07:29,760 Speaker 2: dated government securities and the return on the longer dated 128 00:07:29,840 --> 00:07:34,280 Speaker 2: government securities. Again quite standard fare for this kind of shock. 129 00:07:34,840 --> 00:07:38,200 Speaker 2: I think if we were to see President Trump actually 130 00:07:38,280 --> 00:07:40,880 Speaker 2: try to make a move on chair power, which is 131 00:07:40,920 --> 00:07:44,720 Speaker 2: different from musing about this and threatening it, I think 132 00:07:44,720 --> 00:07:48,000 Speaker 2: you would see all those trades in multiples of what 133 00:07:48,040 --> 00:07:53,080 Speaker 2: we saw on Monday, but with one additional twist. Up 134 00:07:53,120 --> 00:07:56,240 Speaker 2: to this point, one of the really striking features of 135 00:07:56,280 --> 00:08:00,400 Speaker 2: this whole tariff's market saga is that you I've seen 136 00:08:00,400 --> 00:08:03,400 Speaker 2: clear evidence of a loss of confidence in the economic 137 00:08:03,440 --> 00:08:07,320 Speaker 2: policy of the US administration, but no loss of confidence 138 00:08:07,640 --> 00:08:10,800 Speaker 2: in the credibility of the FED. And we can actually 139 00:08:10,840 --> 00:08:16,560 Speaker 2: observe that because while the real rates and real risk 140 00:08:16,640 --> 00:08:21,360 Speaker 2: premiere on US government debts gone up, market inflation compensation 141 00:08:22,280 --> 00:08:23,520 Speaker 2: has not changed. 142 00:08:23,920 --> 00:08:26,320 Speaker 3: This is allowing for inflation. Yeah. 143 00:08:26,680 --> 00:08:29,080 Speaker 2: Now, so up to this point you might have thought 144 00:08:29,440 --> 00:08:32,720 Speaker 2: this is going to be stagflation trades. It has not 145 00:08:32,960 --> 00:08:36,480 Speaker 2: been up to this point. But if you actually tried 146 00:08:36,520 --> 00:08:40,520 Speaker 2: to move on FED independence, you would risk shifting towards 147 00:08:40,800 --> 00:08:46,600 Speaker 2: a stagflation environment and a stagflation trade in markets. Has 148 00:08:46,640 --> 00:08:49,199 Speaker 2: people lost faith in the central bank. 149 00:08:49,280 --> 00:08:51,880 Speaker 3: It's worth lingering on that. In effect, you're saying, as 150 00:08:51,880 --> 00:08:55,040 Speaker 3: far as the market's concerned, there is something worse than 151 00:08:55,120 --> 00:08:59,120 Speaker 3: unleashing a really damaging global trade war, and that's also 152 00:08:59,559 --> 00:09:03,480 Speaker 3: prevent your central bank from responding appropriately to the impact 153 00:09:03,480 --> 00:09:04,280 Speaker 3: of that trade wark. 154 00:09:04,640 --> 00:09:05,959 Speaker 2: That's exactly right, yes. 155 00:09:06,000 --> 00:09:09,480 Speaker 3: And that becomes a stagflation trade because you would be 156 00:09:09,480 --> 00:09:12,600 Speaker 3: looking at the kind of worse combination of a slowing 157 00:09:12,640 --> 00:09:16,319 Speaker 3: economy but also a FED that's not trying to reduce 158 00:09:16,360 --> 00:09:17,880 Speaker 3: the long term impact on inflation. 159 00:09:18,920 --> 00:09:20,960 Speaker 2: Yes. I mean, what we see in markets right up 160 00:09:20,960 --> 00:09:25,000 Speaker 2: to this point is that the market has confidence that 161 00:09:25,080 --> 00:09:27,640 Speaker 2: the FED will do whatever turns out to be necessary 162 00:09:28,080 --> 00:09:31,480 Speaker 2: to prevent this initial very big wave of one time 163 00:09:31,600 --> 00:09:36,280 Speaker 2: tariff inflation becoming embedded in the ongoing inflation rate, or 164 00:09:36,280 --> 00:09:38,559 Speaker 2: if you like, the technical version of this is also 165 00:09:38,600 --> 00:09:42,760 Speaker 2: in inflation expectations. But that's premised on the idea the 166 00:09:42,760 --> 00:09:45,520 Speaker 2: FED is free to do what it judges is needed. 167 00:09:46,200 --> 00:09:48,760 Speaker 2: If you lost confidence that the FED was able to 168 00:09:48,800 --> 00:09:53,680 Speaker 2: make those judgments independently on the merits, then people would 169 00:09:53,720 --> 00:09:57,679 Speaker 2: start to expect a higher inflation in the future, more 170 00:09:57,720 --> 00:10:01,320 Speaker 2: inflation risk and as you know, death, when people start 171 00:10:01,360 --> 00:10:04,680 Speaker 2: to expect more inflation, it's can very often become a 172 00:10:04,720 --> 00:10:06,480 Speaker 2: self fulfilling prophecy. 173 00:10:06,559 --> 00:10:09,960 Speaker 3: Kate just to you. I mean Scott Besson, the Treasury Secretary. 174 00:10:10,000 --> 00:10:12,200 Speaker 3: You know, up until this point his support for the 175 00:10:12,240 --> 00:10:15,360 Speaker 3: tariffs that the President is unleashed have sort of led 176 00:10:15,400 --> 00:10:19,480 Speaker 3: some people to question whether he does still have full 177 00:10:19,800 --> 00:10:22,800 Speaker 3: confidence of the financial markets. But Scott Besant was considered 178 00:10:22,840 --> 00:10:26,880 Speaker 3: to be someone who was a markets guy. He has 179 00:10:26,920 --> 00:10:29,600 Speaker 3: certainly said that he continues to have his weekly meetings 180 00:10:29,600 --> 00:10:32,640 Speaker 3: with Jay Powell and it's very cordial and everything's fine. 181 00:10:33,240 --> 00:10:35,720 Speaker 3: Do you have a sense of that that Scott Besant 182 00:10:36,160 --> 00:10:40,760 Speaker 3: is trying to prevent this going beyond just a criticism 183 00:10:40,880 --> 00:10:41,880 Speaker 3: of j Powell. 184 00:10:42,200 --> 00:10:44,240 Speaker 4: Yes, I mean I think he is certainly in the 185 00:10:44,320 --> 00:10:49,000 Speaker 4: camp that has and is continuing to make the argument 186 00:10:49,120 --> 00:10:51,080 Speaker 4: that it's not worth it, right. I mean, it's worth 187 00:10:51,120 --> 00:10:54,800 Speaker 4: remembering that the Jay Powell's term as chairman is up 188 00:10:54,920 --> 00:10:58,720 Speaker 4: in May of next year, so the Trump administration is 189 00:10:58,800 --> 00:11:01,920 Speaker 4: within a few months is going to starting to explore 190 00:11:02,080 --> 00:11:04,920 Speaker 4: who would they replace Powell with, regardless of whether he's 191 00:11:04,960 --> 00:11:07,080 Speaker 4: fired or not, just simply because his term is up, 192 00:11:07,120 --> 00:11:09,480 Speaker 4: you have to go through the vetting process, the Senate 193 00:11:09,520 --> 00:11:12,240 Speaker 4: confirmation process, that's going to take some time if you 194 00:11:12,280 --> 00:11:14,680 Speaker 4: got rid of Powell, if there's not a lengthy, drawn 195 00:11:14,679 --> 00:11:16,719 Speaker 4: out court battle, which we can assume there would be. 196 00:11:17,040 --> 00:11:19,240 Speaker 4: This is not like, you know, the next day, put 197 00:11:19,240 --> 00:11:21,040 Speaker 4: your person in there and they flip the interest rates, 198 00:11:21,040 --> 00:11:23,040 Speaker 4: which it just doesn't work this way. And so I 199 00:11:23,080 --> 00:11:25,640 Speaker 4: think that the argument from Besson and perhaps some others 200 00:11:25,640 --> 00:11:28,120 Speaker 4: that are close to the president is it's not worth 201 00:11:28,280 --> 00:11:31,920 Speaker 4: setting off the market chaos that Krishna just laid out 202 00:11:32,160 --> 00:11:35,320 Speaker 4: when you'll have the opportunity to do this in a 203 00:11:35,360 --> 00:11:36,200 Speaker 4: matter of months. 204 00:11:36,360 --> 00:11:39,679 Speaker 3: Anyway, school present, i think, has publicly made references to 205 00:11:39,720 --> 00:11:42,160 Speaker 3: the independence of the FED being a jewel box, and 206 00:11:42,200 --> 00:11:43,680 Speaker 3: you sort of think, well, maybe that's the sort of 207 00:11:44,240 --> 00:11:47,760 Speaker 3: veiled way of saying this isn't something you should mess with, Krishna. 208 00:11:47,840 --> 00:11:50,559 Speaker 3: We do have someone potentially in the wings who is 209 00:11:50,600 --> 00:11:54,720 Speaker 3: a perfectly credible replacement for j Powell. Kevin Walsh, someone 210 00:11:54,720 --> 00:11:57,720 Speaker 3: who was also in the running last time, is perceived 211 00:11:57,720 --> 00:12:01,040 Speaker 3: to be positioning himself as a tr Trump pick to 212 00:12:01,160 --> 00:12:03,760 Speaker 3: replace j Powell. If Trump were to say, look as 213 00:12:03,760 --> 00:12:07,880 Speaker 3: long as I replace Jay Powell with someone who markets like, 214 00:12:08,120 --> 00:12:09,040 Speaker 3: what's the problem. 215 00:12:09,400 --> 00:12:13,920 Speaker 2: The issue is whether you're setting up the next chair. 216 00:12:14,000 --> 00:12:17,600 Speaker 2: Let's hypothesize that it's Kevin Walsh. Are you setting him 217 00:12:17,640 --> 00:12:20,400 Speaker 2: up for success or are you setting him up for failure. 218 00:12:20,840 --> 00:12:24,480 Speaker 2: If Trump were to appoint Wash or a similarly qualified 219 00:12:24,559 --> 00:12:30,080 Speaker 2: candidate under regular order when Powell's term is up, I 220 00:12:30,120 --> 00:12:34,719 Speaker 2: think Wash, or indeed potentially one of several other potential 221 00:12:34,800 --> 00:12:39,160 Speaker 2: Trump picks, would be well positioned to service fed chair 222 00:12:39,360 --> 00:12:43,400 Speaker 2: and continue to command the confidence and credibility in the marketplace. 223 00:12:44,080 --> 00:12:48,080 Speaker 2: The problem is if you fire Powell and put somebody 224 00:12:48,120 --> 00:12:52,280 Speaker 2: in his place. Now, even if that person is individually credible, 225 00:12:52,320 --> 00:12:56,360 Speaker 2: for instance, like Kevin Walsh, you set them up to 226 00:12:56,440 --> 00:12:59,280 Speaker 2: fail because no one would ever believe that they were 227 00:12:59,320 --> 00:13:03,920 Speaker 2: making decision truly independently of the White House, to quote 228 00:13:03,960 --> 00:13:07,760 Speaker 2: the words of one commentator, Then the chair put in 229 00:13:07,800 --> 00:13:12,520 Speaker 2: that context would be seen as Trump's sock puppet, right, 230 00:13:12,880 --> 00:13:16,520 Speaker 2: and so it would be incredibly difficult for that person 231 00:13:16,640 --> 00:13:20,520 Speaker 2: to command the confidence of markets. And remember, if that 232 00:13:20,559 --> 00:13:24,640 Speaker 2: person did try to behave in an independent way that 233 00:13:24,760 --> 00:13:29,320 Speaker 2: are points crossed the President's preferences, the risk would be 234 00:13:29,360 --> 00:13:31,000 Speaker 2: that that person too could get fired. 235 00:13:31,440 --> 00:13:32,679 Speaker 3: Well, and I guess and the only way that you 236 00:13:33,080 --> 00:13:36,600 Speaker 3: show your independence to the markets is potentially to not 237 00:13:36,960 --> 00:13:40,240 Speaker 3: cut interest rates. If you're Donald Trump, you're not going 238 00:13:40,280 --> 00:13:42,360 Speaker 3: to get what you initially wanted when you replace him 239 00:13:42,360 --> 00:13:43,000 Speaker 3: in the first place. 240 00:13:43,240 --> 00:13:45,960 Speaker 2: Well, this is just an example step of how self 241 00:13:45,960 --> 00:13:50,920 Speaker 2: defeating this whole exercise is, because if you're the president 242 00:13:50,960 --> 00:13:53,960 Speaker 2: and you want the FED to cut rates, the best 243 00:13:54,000 --> 00:13:57,079 Speaker 2: way to maximize the likelihood that the FED cuts rates 244 00:13:57,360 --> 00:14:01,360 Speaker 2: and cuts them soon is not to raise any concerns 245 00:14:01,720 --> 00:14:05,280 Speaker 2: about FED independence. That might also lead to a lot 246 00:14:05,320 --> 00:14:09,360 Speaker 2: of confidence in inflation expectations and so forth, if the 247 00:14:09,400 --> 00:14:12,000 Speaker 2: president is able to take a deep breath and step 248 00:14:12,040 --> 00:14:15,280 Speaker 2: back from this, I actually think Powell is indicating that 249 00:14:15,320 --> 00:14:18,880 Speaker 2: the FED would in principle be prepared to cut rates 250 00:14:19,200 --> 00:14:22,960 Speaker 2: once unemployment moves up materially, even in the face of 251 00:14:22,960 --> 00:14:27,200 Speaker 2: a big one off tariff inflation wave, provided those expectations 252 00:14:27,200 --> 00:14:29,320 Speaker 2: and underlying inflation remained well behaved. 253 00:14:30,160 --> 00:14:32,680 Speaker 3: Kate, are we overdoing this in the sense that over 254 00:14:32,720 --> 00:14:36,040 Speaker 3: the years, maybe not so much recently before Donald Trump, 255 00:14:36,040 --> 00:14:38,800 Speaker 3: but you know, over the years, it's been pretty common 256 00:14:38,840 --> 00:14:43,120 Speaker 3: for presidents to complain about their FED chairs, to complain 257 00:14:43,160 --> 00:14:45,680 Speaker 3: that the FED wasn't cutting rates when they wanted them 258 00:14:45,720 --> 00:14:48,120 Speaker 3: to cut rates. Is there something different here than just 259 00:14:48,160 --> 00:14:50,720 Speaker 3: going back to the kind of old fashioned nineteen sixties 260 00:14:50,800 --> 00:14:53,040 Speaker 3: nineteen seventies of presidents complaining about the FED. 261 00:14:53,560 --> 00:14:56,560 Speaker 4: Well, I think what is certainly different from the first 262 00:14:56,600 --> 00:15:00,160 Speaker 4: Trump administration is the fact that you have people who 263 00:15:00,160 --> 00:15:04,280 Speaker 4: were otherwise viewed as mainstream quote unquote reasonable people who've 264 00:15:04,360 --> 00:15:07,720 Speaker 4: supported FED independence in the past, kind of you know, 265 00:15:07,800 --> 00:15:10,800 Speaker 4: not really coming to the Fed's defense. For example, you 266 00:15:10,880 --> 00:15:14,200 Speaker 4: had Kevin Hassett the White House, a National Economic Council director, 267 00:15:14,200 --> 00:15:17,000 Speaker 4: saying yes, the President is exploring this. I think this whole, 268 00:15:17,040 --> 00:15:20,480 Speaker 4: the whole legal question that's now been introduced around whether 269 00:15:20,560 --> 00:15:23,640 Speaker 4: the White House has the authority to fire heads of 270 00:15:23,680 --> 00:15:27,480 Speaker 4: independent agencies has introduced a new element here. I think 271 00:15:27,520 --> 00:15:30,520 Speaker 4: that that really raises the stakes. Whereas previously, I think 272 00:15:30,520 --> 00:15:33,720 Speaker 4: that central bankers felt that they had that protection and 273 00:15:33,760 --> 00:15:36,320 Speaker 4: it made it easier, certainly for them to ignore the noise. 274 00:15:36,720 --> 00:15:38,840 Speaker 4: And now, of course j. Powell and the FED is 275 00:15:38,840 --> 00:15:40,800 Speaker 4: going to say, they'll continue to ignore the noise. You know, 276 00:15:40,840 --> 00:15:43,160 Speaker 4: their job number one is to do what's best for 277 00:15:43,200 --> 00:15:45,080 Speaker 4: the economy, and they'll keep doing it. But it just 278 00:15:45,120 --> 00:15:47,080 Speaker 4: becomes that much harder to tune it out, and I 279 00:15:47,120 --> 00:15:49,200 Speaker 4: think it becomes kind of as Krishna was alluding to, 280 00:15:49,280 --> 00:15:52,040 Speaker 4: it's difficult to message around. Okay, maybe they do want 281 00:15:52,040 --> 00:15:53,640 Speaker 4: to cut rates, but how will it look now if 282 00:15:53,640 --> 00:15:55,760 Speaker 4: they've done it after Trump has been rating them and 283 00:15:55,920 --> 00:15:59,080 Speaker 4: insisting that they do it. It adds another element. 284 00:15:59,720 --> 00:16:01,520 Speaker 3: Quite apart from whether or not it was a safe 285 00:16:01,520 --> 00:16:04,280 Speaker 3: haven or the global reserve currency or anything else, or 286 00:16:04,320 --> 00:16:07,120 Speaker 3: the global superpower for that matter, It's had years and 287 00:16:07,240 --> 00:16:10,280 Speaker 3: years of hoovering up the line's share of global investment flows. 288 00:16:10,640 --> 00:16:12,920 Speaker 3: You know, investors have found year after year that the 289 00:16:13,040 --> 00:16:16,720 Speaker 3: US was beating other markets and was finding reluctantly maybe 290 00:16:16,880 --> 00:16:18,560 Speaker 3: that they had to keep putting their money in a 291 00:16:18,560 --> 00:16:21,840 Speaker 3: market which all the normal metrics said was overvalued. So 292 00:16:22,400 --> 00:16:24,880 Speaker 3: is part of this it's just an excuse. We're sort 293 00:16:24,880 --> 00:16:27,400 Speaker 3: of blaming Donald Trump, but actually its excuse for a 294 00:16:27,520 --> 00:16:32,560 Speaker 3: rebalancing in global investment that many people have expected to 295 00:16:32,600 --> 00:16:33,840 Speaker 3: see long before now. 296 00:16:34,720 --> 00:16:36,760 Speaker 2: I think you raised some very important points. I would 297 00:16:36,760 --> 00:16:39,280 Speaker 2: frame it a little differently. The way I think about 298 00:16:39,320 --> 00:16:43,720 Speaker 2: it is that initial conditions were such that the entire 299 00:16:43,800 --> 00:16:48,480 Speaker 2: world was essentially over allocated to the US. After years 300 00:16:48,560 --> 00:16:50,920 Speaker 2: in which the US was the only game in town 301 00:16:51,360 --> 00:16:56,400 Speaker 2: for asset markets, and so in those circumstances, it doesn't 302 00:16:56,480 --> 00:17:02,200 Speaker 2: take a very large shift in global preferences for people 303 00:17:02,280 --> 00:17:05,439 Speaker 2: to want to move capital out of the US and 304 00:17:05,640 --> 00:17:10,800 Speaker 2: into other markets, into other currencies, into other economies. But 305 00:17:10,880 --> 00:17:13,439 Speaker 2: the way I would think about that is that you 306 00:17:13,520 --> 00:17:16,320 Speaker 2: have to be additionally careful then if you are the 307 00:17:16,400 --> 00:17:20,919 Speaker 2: US administration, because you are starting from a position where 308 00:17:21,280 --> 00:17:23,479 Speaker 2: a lot of people don't really have a lot of 309 00:17:23,800 --> 00:17:27,040 Speaker 2: reason to add to their positions in the US. And 310 00:17:27,160 --> 00:17:29,840 Speaker 2: of course if you're running a fiscal deficit in particular, 311 00:17:30,280 --> 00:17:34,359 Speaker 2: you do need to continue to attract global capital into 312 00:17:34,480 --> 00:17:38,320 Speaker 2: the US to help fund the government deficit. More broadly, 313 00:17:38,680 --> 00:17:43,400 Speaker 2: it's the avowed intention of the Trump administration to attract 314 00:17:43,480 --> 00:17:46,199 Speaker 2: capital to come in to invest in the private sector 315 00:17:46,760 --> 00:17:51,200 Speaker 2: in the US as well. So I think the starting 316 00:17:51,240 --> 00:17:54,359 Speaker 2: point of the overallocation to the US is part of 317 00:17:54,400 --> 00:17:57,480 Speaker 2: the story here. But it's very clear that what's driving 318 00:17:57,480 --> 00:18:03,520 Speaker 2: this reallocation is a collapse of confidence in US growth 319 00:18:03,560 --> 00:18:09,280 Speaker 2: exceptionalism on the one hand, and some meaningful at the 320 00:18:09,320 --> 00:18:13,080 Speaker 2: margin erosion of confidence in US assets from a safe 321 00:18:13,080 --> 00:18:14,760 Speaker 2: haven perspective, and. 322 00:18:14,800 --> 00:18:16,879 Speaker 3: Just following on from that, because you also mentioned it 323 00:18:16,920 --> 00:18:19,400 Speaker 3: in a note that you've put out on that if 324 00:18:19,400 --> 00:18:21,800 Speaker 3: there was an actual attempt to fire J Powell, even 325 00:18:21,840 --> 00:18:23,640 Speaker 3: if it ended up going through the courts, and we've 326 00:18:23,720 --> 00:18:25,679 Speaker 3: established on this show before that there would be big 327 00:18:25,760 --> 00:18:29,360 Speaker 3: question marks about whether it would succeed if he actively 328 00:18:29,400 --> 00:18:33,040 Speaker 3: attempted to and we saw that kind of what you 329 00:18:33,160 --> 00:18:39,159 Speaker 3: call the stagflation trade playing out in US markets. You 330 00:18:39,200 --> 00:18:43,000 Speaker 3: have said that would also increase the chance of the 331 00:18:43,040 --> 00:18:48,159 Speaker 3: tariff crisis morphing into a more Liz Trust style fiscal crisis. 332 00:18:48,240 --> 00:18:50,640 Speaker 3: So just talk us through that. How does it take 333 00:18:50,720 --> 00:18:53,040 Speaker 3: us a bit closer to that even to have more 334 00:18:53,520 --> 00:18:55,080 Speaker 3: questioning of FED independence. 335 00:18:55,680 --> 00:18:58,000 Speaker 2: So I think the starting point for all of this 336 00:18:58,480 --> 00:19:01,720 Speaker 2: is to understand as I know everyone on this podcast does, 337 00:19:01,840 --> 00:19:05,920 Speaker 2: but members of the administration appear not to understand, which 338 00:19:05,960 --> 00:19:10,080 Speaker 2: is that the trades more strictly current account deficit is 339 00:19:10,640 --> 00:19:12,880 Speaker 2: the capital surplus. They are one and the same thing. 340 00:19:12,920 --> 00:19:15,560 Speaker 2: They're just two ways of describing the same thing. 341 00:19:15,880 --> 00:19:18,240 Speaker 3: If you're buying more from other countries than other countries 342 00:19:18,280 --> 00:19:20,320 Speaker 3: are buying from you, you need to borrow the money 343 00:19:20,520 --> 00:19:22,359 Speaker 3: to pay for those goods from someone. 344 00:19:23,160 --> 00:19:25,320 Speaker 2: But the point, though truly I think that I'm trying 345 00:19:25,359 --> 00:19:29,879 Speaker 2: to make here is that you can't conceptually think of 346 00:19:29,960 --> 00:19:34,439 Speaker 2: the external account, the trade balance, completely independent from the 347 00:19:34,480 --> 00:19:37,480 Speaker 2: capital account and the flows that are coming into the US, 348 00:19:37,480 --> 00:19:41,440 Speaker 2: including to finance the US government deficits. That's the sort 349 00:19:41,480 --> 00:19:45,479 Speaker 2: of conceptual point that we start from. The risk in 350 00:19:45,520 --> 00:19:49,160 Speaker 2: the current conjecture, the serious risk, that sort of more 351 00:19:49,200 --> 00:19:53,000 Speaker 2: than tail risk that's certainly not highly probable at this point, 352 00:19:53,359 --> 00:19:56,560 Speaker 2: is that the tariff crisis ultimately morphs into more of 353 00:19:56,600 --> 00:20:01,120 Speaker 2: a Liz Trust style fiscal crisis. And the path by 354 00:20:01,160 --> 00:20:05,679 Speaker 2: which that would happen is a global buyer's strike in 355 00:20:05,720 --> 00:20:08,640 Speaker 2: the treasury market at a time when the already very 356 00:20:08,720 --> 00:20:12,600 Speaker 2: large US structural deficit blew out further on an economic downturn, 357 00:20:13,080 --> 00:20:16,879 Speaker 2: a lack of serious fiscal consolidation in the legislation before Congress, 358 00:20:17,119 --> 00:20:19,919 Speaker 2: and the possibility that the administration might try to add 359 00:20:20,119 --> 00:20:23,600 Speaker 2: more unfunded tax cuts to try to buy its way 360 00:20:23,680 --> 00:20:27,040 Speaker 2: out of a recession. Now, to be very clear, the 361 00:20:27,160 --> 00:20:30,520 Speaker 2: US is not the UK. The US is the most 362 00:20:30,560 --> 00:20:33,240 Speaker 2: core market in the world, the most core economy in 363 00:20:33,240 --> 00:20:36,120 Speaker 2: the world, the most core bond market, the most core 364 00:20:36,200 --> 00:20:40,680 Speaker 2: currency market. The investments in the US are far stickier 365 00:20:41,280 --> 00:20:45,640 Speaker 2: than in any discretionary market like the UK. So we 366 00:20:45,720 --> 00:20:48,439 Speaker 2: must be very careful not to jump quickly to the 367 00:20:48,480 --> 00:20:51,800 Speaker 2: idea that the US will behave like the UK. But 368 00:20:52,640 --> 00:20:57,600 Speaker 2: even now without an actual assault on FED independence, merely 369 00:20:57,600 --> 00:21:01,399 Speaker 2: it threats to this. Given what's happening in terms of 370 00:21:01,480 --> 00:21:05,280 Speaker 2: the US withdrawal from international economic engagement, from trade, a 371 00:21:05,359 --> 00:21:08,720 Speaker 2: large trade integration, and so forth, there is a non 372 00:21:08,760 --> 00:21:13,120 Speaker 2: trivial risk that this could morph from a tariff crisis 373 00:21:13,119 --> 00:21:17,040 Speaker 2: to a fiscal crisis. If you also layer it on 374 00:21:17,119 --> 00:21:20,280 Speaker 2: top of that an effort to fire the central bank 375 00:21:20,680 --> 00:21:24,000 Speaker 2: chief and to bring the central bank under government control. 376 00:21:24,480 --> 00:21:27,159 Speaker 2: I think the risk of that global bias strike that 377 00:21:27,200 --> 00:21:29,520 Speaker 2: would take you from a tariff crisis to a sovereign 378 00:21:29,600 --> 00:21:32,920 Speaker 2: debt crisis would go up a lot kate. 379 00:21:33,320 --> 00:21:36,640 Speaker 3: The US is not the UK for sure. Even if 380 00:21:36,680 --> 00:21:39,760 Speaker 3: we were halfway, there is a question mark about how 381 00:21:39,760 --> 00:21:42,399 Speaker 3: the administration would respond. I mean, the classic way to 382 00:21:42,480 --> 00:21:45,119 Speaker 3: respond to that kind of bias strike, or even a 383 00:21:45,200 --> 00:21:49,400 Speaker 3: hint of a bias strike, would be to reassure markets 384 00:21:49,560 --> 00:21:53,480 Speaker 3: that the authorities are willing to raise interest rates to 385 00:21:53,600 --> 00:21:58,760 Speaker 3: support US assets, to support the currency. Combined with potentially 386 00:21:58,800 --> 00:22:02,600 Speaker 3: fiscal tightening. How likely do you think that would be 387 00:22:02,640 --> 00:22:03,680 Speaker 3: in this administration? 388 00:22:04,800 --> 00:22:07,159 Speaker 4: Well, I might have said this last time, staff, I 389 00:22:07,160 --> 00:22:09,639 Speaker 4: sound like a broken record in the newsroom anyway. 390 00:22:09,320 --> 00:22:12,080 Speaker 3: But we quite rightly started talking about the bomb market 391 00:22:12,080 --> 00:22:13,600 Speaker 3: at the beginning of the series. I suspect we will 392 00:22:13,640 --> 00:22:15,480 Speaker 3: keep getting back to it. But yeah, that's right. 393 00:22:15,960 --> 00:22:18,879 Speaker 4: No, But I think beyond doge, if you want to 394 00:22:18,920 --> 00:22:22,760 Speaker 4: consider that a serious effort to tighten belt, so to speak, 395 00:22:23,000 --> 00:22:25,840 Speaker 4: I don't think that there's really much of a real 396 00:22:25,920 --> 00:22:29,280 Speaker 4: effort by the administration to make the deep kinds of 397 00:22:29,359 --> 00:22:32,000 Speaker 4: cuts to spending that you would actually need to do 398 00:22:32,560 --> 00:22:36,240 Speaker 4: to restore fiscal sustainability. Right at the end of the day, 399 00:22:36,320 --> 00:22:39,679 Speaker 4: what Congress has typically done is they've come together to 400 00:22:39,840 --> 00:22:43,199 Speaker 4: make deals. Whether that's to enact spending, you know, and 401 00:22:43,200 --> 00:22:45,600 Speaker 4: continue funding the government, or to raise the debt ceiling. 402 00:22:45,840 --> 00:22:48,000 Speaker 4: They come together and they agree to spend more money. 403 00:22:48,320 --> 00:22:51,440 Speaker 4: And I think even right now that package that's under consideration, 404 00:22:51,840 --> 00:22:55,080 Speaker 4: there are some conversations about some Republicans saying that they 405 00:22:55,119 --> 00:22:57,520 Speaker 4: want to pay for all of that tax cut, they 406 00:22:57,560 --> 00:22:59,480 Speaker 4: want to offset it, they don't want to add to deficits. 407 00:22:59,640 --> 00:23:02,159 Speaker 4: But I think I think just looking at the record, 408 00:23:02,560 --> 00:23:05,040 Speaker 4: it's really hard to believe that there'd be any serious 409 00:23:05,119 --> 00:23:08,920 Speaker 4: effort to do that. So it's not a good situation 410 00:23:09,280 --> 00:23:10,440 Speaker 4: for sure, if that were to happen. 411 00:23:10,520 --> 00:23:14,040 Speaker 3: To put it mildly, kay, if the US seems an 412 00:23:14,119 --> 00:23:18,639 Speaker 3: unreliable place to park your money. There is a cost 413 00:23:18,680 --> 00:23:22,720 Speaker 3: to the world potentially of just not having a global 414 00:23:22,720 --> 00:23:25,560 Speaker 3: reserve currency that's kind of as attractive as what we 415 00:23:25,600 --> 00:23:27,400 Speaker 3: had before. It's not that it's going to be replaced, 416 00:23:27,440 --> 00:23:30,080 Speaker 3: it's just sort of we've lost that as a sort 417 00:23:30,080 --> 00:23:33,320 Speaker 3: of global public good, having a single reserve asset. I 418 00:23:33,320 --> 00:23:37,879 Speaker 3: guess the equivalent for US voters and US households is 419 00:23:37,920 --> 00:23:40,080 Speaker 3: that they're just their interest rates will just be that 420 00:23:40,200 --> 00:23:42,200 Speaker 3: much higher. I mean, they're not going to move into 421 00:23:42,200 --> 00:23:44,080 Speaker 3: some other currency, they're not going to change what they 422 00:23:44,119 --> 00:23:47,639 Speaker 3: invest in, but there could be just a sort of 423 00:23:47,720 --> 00:23:52,840 Speaker 3: significant premium on, for example, mortgage rates that will stick 424 00:23:52,880 --> 00:23:53,800 Speaker 3: around for a long time. 425 00:23:54,600 --> 00:23:56,480 Speaker 4: I think that's right. I think that if you think 426 00:23:56,480 --> 00:23:58,520 Speaker 4: about it from the Fed's perspective and what some of 427 00:23:58,560 --> 00:24:01,080 Speaker 4: them have said, they prefer that the American people don't 428 00:24:01,080 --> 00:24:02,719 Speaker 4: really know that much about what they do and who 429 00:24:02,800 --> 00:24:04,840 Speaker 4: they are, right if they're kind of below the radar. 430 00:24:04,920 --> 00:24:07,200 Speaker 4: That's a good thing, and as we saw in the 431 00:24:07,240 --> 00:24:09,760 Speaker 4: last few years, with inflation getting as high as it was, 432 00:24:09,880 --> 00:24:12,800 Speaker 4: the FED has become very unpopular again. I think if 433 00:24:13,000 --> 00:24:15,919 Speaker 4: interest rates were to be just in some higher place 434 00:24:16,040 --> 00:24:18,960 Speaker 4: because of this effort to undermine the Central Bank's credibility, 435 00:24:19,359 --> 00:24:23,400 Speaker 4: that would obviously have a huge impact on American households. 436 00:24:23,520 --> 00:24:28,760 Speaker 4: And it's hard to see how that is quickly reversed 437 00:24:29,080 --> 00:24:32,160 Speaker 4: right by perhaps the President interest installing someone new, even 438 00:24:32,160 --> 00:24:35,080 Speaker 4: if that person is credible and highly regarded. I think 439 00:24:35,119 --> 00:24:38,560 Speaker 4: that it's not just a financial market issue that we're 440 00:24:38,600 --> 00:24:41,720 Speaker 4: talking about. It's a real problem that will affect everyday 441 00:24:41,760 --> 00:24:43,320 Speaker 4: Americans for quite some time. 442 00:24:43,920 --> 00:24:46,800 Speaker 3: We'll give the last word to Krishna. You've obviously been 443 00:24:46,920 --> 00:24:50,200 Speaker 3: on different sides of this as a journalist, as an official, 444 00:24:50,480 --> 00:24:54,320 Speaker 3: and now as a very expert earn list for investors. 445 00:24:55,320 --> 00:24:59,440 Speaker 3: You're thinking about how to rate the probability of the 446 00:24:59,520 --> 00:25:02,359 Speaker 3: kind of exp dream scenario that you've laid out as 447 00:25:02,440 --> 00:25:05,120 Speaker 3: you try and advise investors. How are you thinking about 448 00:25:05,160 --> 00:25:07,119 Speaker 3: that in your gut? Is this something that will be 449 00:25:07,200 --> 00:25:11,879 Speaker 3: within the range of possible impacts on bouts of selling 450 00:25:11,960 --> 00:25:15,760 Speaker 3: of US assets that we've had in some previous eras 451 00:25:15,800 --> 00:25:18,000 Speaker 3: around two thousand and eight, for example, or do you 452 00:25:18,000 --> 00:25:20,320 Speaker 3: think you're seeing something more fundamental. 453 00:25:20,280 --> 00:25:22,800 Speaker 2: At this point in time. I'd sort of take the 454 00:25:22,840 --> 00:25:27,679 Speaker 2: middle position, which is, this is absolutely not business as usual. 455 00:25:28,160 --> 00:25:31,920 Speaker 2: Right to see upward pressure on US government yields real 456 00:25:32,040 --> 00:25:36,160 Speaker 2: yields when the economy outlook is somewhere between near recession 457 00:25:36,240 --> 00:25:40,520 Speaker 2: or recession, it's extremely abnormal. To see the yields go 458 00:25:40,640 --> 00:25:43,200 Speaker 2: up and the dollar go down on the same day, 459 00:25:43,240 --> 00:25:46,960 Speaker 2: which has happened repeatedly in the last few weeks, is 460 00:25:47,080 --> 00:25:52,199 Speaker 2: extremely abnormal. This is more like emerging market type behavior. 461 00:25:52,640 --> 00:25:56,400 Speaker 2: On the other side, I think it is way too 462 00:25:56,440 --> 00:26:00,440 Speaker 2: premature to declare the end of the dollar based global 463 00:26:00,480 --> 00:26:05,360 Speaker 2: regime and to proclaim a shift to some new global 464 00:26:05,359 --> 00:26:09,920 Speaker 2: international economic order. Maybe we end up there, but we're 465 00:26:09,960 --> 00:26:12,920 Speaker 2: certainly not there today and it's certainly not the dominant 466 00:26:12,920 --> 00:26:15,800 Speaker 2: probability going forward. So at the moment, I think we're 467 00:26:15,840 --> 00:26:19,400 Speaker 2: in the sort of an intermediate position where we are 468 00:26:19,440 --> 00:26:23,879 Speaker 2: seeing things that are extremely unusual and the very significant 469 00:26:24,400 --> 00:26:28,639 Speaker 2: in terms of reallocation away from the US. The imposition 470 00:26:28,800 --> 00:26:32,760 Speaker 2: of some risk premium on US assets, at least relative 471 00:26:32,840 --> 00:26:38,320 Speaker 2: to the truly riskless state that US assets previously exhibited, 472 00:26:39,119 --> 00:26:43,800 Speaker 2: and I think that is partly associated with some erosion 473 00:26:43,800 --> 00:26:48,040 Speaker 2: at the margin of the unique attractiveness of holding US 474 00:26:48,080 --> 00:26:52,359 Speaker 2: assets in a dollar based world, which is itself in 475 00:26:52,440 --> 00:26:55,480 Speaker 2: part related to the current policy choices of the administration 476 00:26:55,800 --> 00:26:59,920 Speaker 2: and partly to the possibility that some bigger regime ship 477 00:27:00,160 --> 00:27:04,520 Speaker 2: could lie ahead. So this is serious business cities not normal. 478 00:27:04,880 --> 00:27:07,439 Speaker 2: We are not yet at the point of a regime shift. 479 00:27:09,560 --> 00:27:13,960 Speaker 3: Christa Gurha, Kate Davidson, thank you so much, Thanks Steph, 480 00:27:13,960 --> 00:27:20,520 Speaker 3: Thank you, step Thanks for listening to Trumpnomics from Bloomberg. 481 00:27:20,560 --> 00:27:22,680 Speaker 3: It was hosted by me, Stephanie Flanders, and I was 482 00:27:22,760 --> 00:27:27,520 Speaker 3: joined by evercore A Size, Krishna Guha and Bloomberg's Kate Davidson. 483 00:27:27,920 --> 00:27:31,040 Speaker 3: Trumponomics is produced by Summersadi and Moses and with help 484 00:27:31,040 --> 00:27:33,960 Speaker 3: from Chris Martlu and Amy Keen, with special thanks this 485 00:27:34,040 --> 00:27:38,080 Speaker 3: week to Rachel Lewis Chrisky. Sound design is by Blake 486 00:27:38,160 --> 00:27:42,439 Speaker 3: Maples and Brendan Francis. Newden is our executive producer. To 487 00:27:42,520 --> 00:27:46,080 Speaker 3: help others find this show and appreciate it, please rate 488 00:27:46,119 --> 00:27:48,119 Speaker 3: and review it wherever you listen to podcasts.