Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I have no intention of firing him.
Speaker 1: I would like to see him be a little more
Speaker 1: active in terms of his idea to lower interest rates.
Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg.
Speaker 3: Welcome to Trumperonomics, the podcast that looks at the economic
Speaker 3: world of Donald Trump, how he's already shaped the global economy,
Speaker 3: and what on earth is going to happen next. This week,
Speaker 3: we're looking at what's at stake in the tussle between
Speaker 3: President Donald Trump and the Federal Reserve Chair J Powell.
Speaker 3: At the start of this week, stocks took a dip,
Speaker 3: and this time they weren't reacting to tariff policies. It
Speaker 3: was the president's comments about the Federal Reserve, the US
Speaker 3: Central Bank, and its chair, Jerome or Powell. On Monday,
Speaker 3: the President had posted on social media, there is virtually
Speaker 3: no inflation, pointing to lower energy and egg prices, but
Speaker 3: there can be a slowing of the economy unless mister
Speaker 3: too late, a major loser. Lower's interest rates now in capitals.
Speaker 3: And that followed another post saying Powell's termination quotes could
Speaker 3: not come soon enough. Well late in the day Tuesday,
Speaker 3: after we recorded our discussion this week, President walked back
Speaker 3: some of those remarks, saying he had no intention of
Speaker 3: firing FED Chair Jay Powell, but he couldn't resist adding
Speaker 3: his own take on FED policy.
Speaker 1: It is a perfect time to lower interest rates.
Speaker 3: So the argument between the world's most powerful politician and
Speaker 3: its most powerful central banker isn't over. And we know
Speaker 3: from experience that once Donald Trump has someone in his sights,
Speaker 3: he's likely to keep taking shots, especially if the target
Speaker 3: is someone he can blame for a weakening economy. We
Speaker 3: discussed in detail whether the President can actually fire j
Speaker 3: Powell a few weeks ago, didn't go into that in
Speaker 3: this week's conversation. My focus was on how investors are
Speaker 3: reacting to those comments, those complaints about the FED, and
Speaker 3: more broadly, what is at stake not just for the
Speaker 3: US economy but also the world. And we have the
Speaker 3: perfect people to engage on this, especially from a market perspective.
Speaker 3: We have Krishna Guha, vice chair of Evercore ISI and
Speaker 3: head of the Global Policy and Central Bank Strategy Team there.
Speaker 3: Before being at Evercore, Crucially, Krishna was an executive vice
Speaker 3: president and member of the management committee, head of Communications
Speaker 3: Group at the New York Federal Reserve, and before that
Speaker 3: he was a senior writer on global economics and Economic
Speaker 3: policy at the FT. I think we overlapped briefly. Welcome Krishna.
Speaker 3: Very good to have you on.
Speaker 2: Wonderful to be Awathy is there.
Speaker 3: And our own Kate Davidson back to talk to us,
Speaker 3: managing Edis, who covers US economic policy for Bloomberg News
Speaker 3: in Washington. Kate, I think you were actually on the
Speaker 3: debut episode of Trumpnomics back in January, so I'm surprised
Speaker 3: it's taking us this long to have you back.
Speaker 4: Thanks for having me.
Speaker 3: Thank so, Kate. Let me just ask you right at
Speaker 3: the start, just to catch us up briefly on how
Speaker 3: Donald Trump's view of J. Powell has changed, Because, of course,
Speaker 3: you know, as we keep reminding ourselves, he appointed Jay
Speaker 3: Powell to succeed Janet Yellen back in I think twenty seventeen,
Speaker 3: in his first term. How quickly did he sour on him?
Speaker 3: How did we get this far?
Speaker 4: Yeah? I did go back. Actually I was curious about
Speaker 4: this myself. I went back and watched that announcement in
Speaker 4: the Rose Garden when he said he had chosen J.
Speaker 4: Powell to succeed Janet Yellen. The question was whether she
Speaker 4: would be nominated for another term. Of course, she wasn't,
Speaker 4: and at the time he said he was confident, based
Speaker 4: on Powell's record, that he had the wisdom and the
Speaker 4: leadership to guide the economy through any challenge.
Speaker 1: He's strong, he's committed, He's smart. Jay has earned the
Speaker 1: respect and admiration of his colleagues for his hard work, expertise,
Speaker 1: and judgment. He has proven to be a consensus builder
Speaker 1: for the sound monetary and financial policy that he so
Speaker 1: strongly believes in.
Speaker 4: He had a lot of praise for j. Powell at
Speaker 4: the time. It soured pretty quickly. If you recall in
Speaker 4: twenty eighteen, shortly after Powell was confirmed, the FED had
Speaker 4: been slowly raising interest rates. Right, We're coming off a
Speaker 4: period of very low rates for a number of years,
Speaker 4: and there was a thinking that among Fed officials they
Speaker 4: wanted to try to get back to something resembling normal.
Speaker 4: They were very slowly turning up the dial, and Trump
Speaker 4: pretty quickly decided he didn't like that. He thought that
Speaker 4: the FED should be helping the US, and the complaints
Speaker 4: turned kind of personal. Right, I can't remember this specific
Speaker 4: choice words, but I once sticks out when he said
Speaker 4: that J. Powell was like a golfer with no touch.
Speaker 4: You know, he couldn't put I mean, they got fairly colorful.
Speaker 4: He was really clearly very angry, and it got to
Speaker 4: the point where Bloomberg reported in December of twenty eighteen,
Speaker 4: so just about a year after that Rose Garden announcement,
Speaker 4: reported that Trump was actually considering firing Powell. So similar
Speaker 4: headlines in the news. Again, he's feeling like this guy
Speaker 4: that he originally put in there is not helping him.
Speaker 4: That really feels like the tone of it is that
Speaker 4: the economy could really be doing so much better if
Speaker 4: only the FED would get on board and help out
Speaker 4: by lowering rates.
Speaker 3: We also saw during COVID and after when Trump was
Speaker 3: no longer in office, the complaint, insofar as we heard it,
Speaker 3: tended to be the other way, that the FED had
Speaker 3: not raised interest rate enough in the Biden administration. In
Speaker 3: his post over the weekend, when he talks about too
Speaker 3: late Pale, part of the criticism he has is that
Speaker 3: the FED was too slow to raise interest rates. So
Speaker 3: of course he's not the only one, but you have
Speaker 3: to observe he wants lower interest rates when he's in
Speaker 3: the administration, when he's in the White House, and tends
Speaker 3: to want higher ones when someone else's Krishna. This isn't
Speaker 3: primarily a market show, but we've become one when what's
Speaker 3: going on in the markets potentially affects the US and
Speaker 3: global economy significantly. Going slightly back to basis, talk us
Speaker 3: through how these latest attacks on the FED and potential
Speaker 3: question marks about its independence are being perceived by markets,
Speaker 3: and how we're seeing that in asset prices.
Speaker 2: I think we got a pretty good foretaste in market
Speaker 2: trading on Monday as to what kind of a train
Speaker 2: wreck we would have if the President actually tried to
Speaker 2: fire the FED chairman. So, as you know, we saw
Speaker 2: a general sell America trade, stocks lower, bonds, lower, dollar lower.
Speaker 2: That reflects the reduced attractiveness of US assets in a
Speaker 2: world where the central bank might lose independence. The fact
Speaker 2: that the currencies weakening at a time when the yield
Speaker 2: the return supposedly risk free a US government securities is
Speaker 2: going up is also a sign, of course, of investors
Speaker 2: reallocating capital, at least of the margin, out of the
Speaker 2: US and into other market places. We saw a steepening
Speaker 2: of the yield curve. That's the difference between the shorter
Speaker 2: dated government securities and the return on the longer dated
Speaker 2: government securities. Again quite standard fare for this kind of shock.
Speaker 2: I think if we were to see President Trump actually
Speaker 2: try to make a move on chair power, which is
Speaker 2: different from musing about this and threatening it, I think
Speaker 2: you would see all those trades in multiples of what
Speaker 2: we saw on Monday, but with one additional twist. Up
Speaker 2: to this point, one of the really striking features of
Speaker 2: this whole tariff's market saga is that you I've seen
Speaker 2: clear evidence of a loss of confidence in the economic
Speaker 2: policy of the US administration, but no loss of confidence
Speaker 2: in the credibility of the FED. And we can actually
Speaker 2: observe that because while the real rates and real risk
Speaker 2: premiere on US government debts gone up, market inflation compensation
Speaker 2: has not changed.
Speaker 3: This is allowing for inflation. Yeah.
Speaker 2: Now, so up to this point you might have thought
Speaker 2: this is going to be stagflation trades. It has not
Speaker 2: been up to this point. But if you actually tried
Speaker 2: to move on FED independence, you would risk shifting towards
Speaker 2: a stagflation environment and a stagflation trade in markets. Has
Speaker 2: people lost faith in the central bank.
Speaker 3: It's worth lingering on that. In effect, you're saying, as
Speaker 3: far as the market's concerned, there is something worse than
Speaker 3: unleashing a really damaging global trade war, and that's also
Speaker 3: prevent your central bank from responding appropriately to the impact
Speaker 3: of that trade wark.
Speaker 2: That's exactly right, yes.
Speaker 3: And that becomes a stagflation trade because you would be
Speaker 3: looking at the kind of worse combination of a slowing
Speaker 3: economy but also a FED that's not trying to reduce
Speaker 3: the long term impact on inflation.
Speaker 2: Yes. I mean, what we see in markets right up
Speaker 2: to this point is that the market has confidence that
Speaker 2: the FED will do whatever turns out to be necessary
Speaker 2: to prevent this initial very big wave of one time
Speaker 2: tariff inflation becoming embedded in the ongoing inflation rate, or
Speaker 2: if you like, the technical version of this is also
Speaker 2: in inflation expectations. But that's premised on the idea the
Speaker 2: FED is free to do what it judges is needed.
Speaker 2: If you lost confidence that the FED was able to
Speaker 2: make those judgments independently on the merits, then people would
Speaker 2: start to expect a higher inflation in the future, more
Speaker 2: inflation risk and as you know, death, when people start
Speaker 2: to expect more inflation, it's can very often become a
Speaker 2: self fulfilling prophecy.
Speaker 3: Kate just to you. I mean Scott Besson, the Treasury Secretary.
Speaker 3: You know, up until this point his support for the
Speaker 3: tariffs that the President is unleashed have sort of led
Speaker 3: some people to question whether he does still have full
Speaker 3: confidence of the financial markets. But Scott Besant was considered
Speaker 3: to be someone who was a markets guy. He has
Speaker 3: certainly said that he continues to have his weekly meetings
Speaker 3: with Jay Powell and it's very cordial and everything's fine.
Speaker 3: Do you have a sense of that that Scott Besant
Speaker 3: is trying to prevent this going beyond just a criticism
Speaker 3: of j Powell.
Speaker 4: Yes, I mean I think he is certainly in the
Speaker 4: camp that has and is continuing to make the argument
Speaker 4: that it's not worth it, right. I mean, it's worth
Speaker 4: remembering that the Jay Powell's term as chairman is up
Speaker 4: in May of next year, so the Trump administration is
Speaker 4: within a few months is going to starting to explore
Speaker 4: who would they replace Powell with, regardless of whether he's
Speaker 4: fired or not, just simply because his term is up,
Speaker 4: you have to go through the vetting process, the Senate
Speaker 4: confirmation process, that's going to take some time if you
Speaker 4: got rid of Powell, if there's not a lengthy, drawn
Speaker 4: out court battle, which we can assume there would be.
Speaker 4: This is not like, you know, the next day, put
Speaker 4: your person in there and they flip the interest rates,
Speaker 4: which it just doesn't work this way. And so I
Speaker 4: think that the argument from Besson and perhaps some others
Speaker 4: that are close to the president is it's not worth
Speaker 4: setting off the market chaos that Krishna just laid out
Speaker 4: when you'll have the opportunity to do this in a
Speaker 4: matter of months.
Speaker 3: Anyway, school present, i think, has publicly made references to
Speaker 3: the independence of the FED being a jewel box, and
Speaker 3: you sort of think, well, maybe that's the sort of
Speaker 3: veiled way of saying this isn't something you should mess with, Krishna.
Speaker 3: We do have someone potentially in the wings who is
Speaker 3: a perfectly credible replacement for j Powell. Kevin Walsh, someone
Speaker 3: who was also in the running last time, is perceived
Speaker 3: to be positioning himself as a tr Trump pick to
Speaker 3: replace j Powell. If Trump were to say, look as
Speaker 3: long as I replace Jay Powell with someone who markets like,
Speaker 3: what's the problem.
Speaker 2: The issue is whether you're setting up the next chair.
Speaker 2: Let's hypothesize that it's Kevin Walsh. Are you setting him
Speaker 2: up for success or are you setting him up for failure.
Speaker 2: If Trump were to appoint Wash or a similarly qualified
Speaker 2: candidate under regular order when Powell's term is up, I
Speaker 2: think Wash, or indeed potentially one of several other potential
Speaker 2: Trump picks, would be well positioned to service fed chair
Speaker 2: and continue to command the confidence and credibility in the marketplace.
Speaker 2: The problem is if you fire Powell and put somebody
Speaker 2: in his place. Now, even if that person is individually credible,
Speaker 2: for instance, like Kevin Walsh, you set them up to
Speaker 2: fail because no one would ever believe that they were
Speaker 2: making decision truly independently of the White House, to quote
Speaker 2: the words of one commentator, Then the chair put in
Speaker 2: that context would be seen as Trump's sock puppet, right,
Speaker 2: and so it would be incredibly difficult for that person
Speaker 2: to command the confidence of markets. And remember, if that
Speaker 2: person did try to behave in an independent way that
Speaker 2: are points crossed the President's preferences, the risk would be
Speaker 2: that that person too could get fired.
Speaker 3: Well, and I guess and the only way that you
Speaker 3: show your independence to the markets is potentially to not
Speaker 3: cut interest rates. If you're Donald Trump, you're not going
Speaker 3: to get what you initially wanted when you replace him
Speaker 3: in the first place.
Speaker 2: Well, this is just an example step of how self
Speaker 2: defeating this whole exercise is, because if you're the president
Speaker 2: and you want the FED to cut rates, the best
Speaker 2: way to maximize the likelihood that the FED cuts rates
Speaker 2: and cuts them soon is not to raise any concerns
Speaker 2: about FED independence. That might also lead to a lot
Speaker 2: of confidence in inflation expectations and so forth, if the
Speaker 2: president is able to take a deep breath and step
Speaker 2: back from this, I actually think Powell is indicating that
Speaker 2: the FED would in principle be prepared to cut rates
Speaker 2: once unemployment moves up materially, even in the face of
Speaker 2: a big one off tariff inflation wave, provided those expectations
Speaker 2: and underlying inflation remained well behaved.
Speaker 3: Kate, are we overdoing this in the sense that over
Speaker 3: the years, maybe not so much recently before Donald Trump,
Speaker 3: but you know, over the years, it's been pretty common
Speaker 3: for presidents to complain about their FED chairs, to complain
Speaker 3: that the FED wasn't cutting rates when they wanted them
Speaker 3: to cut rates. Is there something different here than just
Speaker 3: going back to the kind of old fashioned nineteen sixties
Speaker 3: nineteen seventies of presidents complaining about the FED.
Speaker 4: Well, I think what is certainly different from the first
Speaker 4: Trump administration is the fact that you have people who
Speaker 4: were otherwise viewed as mainstream quote unquote reasonable people who've
Speaker 4: supported FED independence in the past, kind of you know,
Speaker 4: not really coming to the Fed's defense. For example, you
Speaker 4: had Kevin Hassett the White House, a National Economic Council director,
Speaker 4: saying yes, the President is exploring this. I think this whole,
Speaker 4: the whole legal question that's now been introduced around whether
Speaker 4: the White House has the authority to fire heads of
Speaker 4: independent agencies has introduced a new element here. I think
Speaker 4: that that really raises the stakes. Whereas previously, I think
Speaker 4: that central bankers felt that they had that protection and
Speaker 4: it made it easier, certainly for them to ignore the noise.
Speaker 4: And now, of course j. Powell and the FED is
Speaker 4: going to say, they'll continue to ignore the noise. You know,
Speaker 4: their job number one is to do what's best for
Speaker 4: the economy, and they'll keep doing it. But it just
Speaker 4: becomes that much harder to tune it out, and I
Speaker 4: think it becomes kind of as Krishna was alluding to,
Speaker 4: it's difficult to message around. Okay, maybe they do want
Speaker 4: to cut rates, but how will it look now if
Speaker 4: they've done it after Trump has been rating them and
Speaker 4: insisting that they do it. It adds another element.
Speaker 3: Quite apart from whether or not it was a safe
Speaker 3: haven or the global reserve currency or anything else, or
Speaker 3: the global superpower for that matter, It's had years and
Speaker 3: years of hoovering up the line's share of global investment flows.
Speaker 3: You know, investors have found year after year that the
Speaker 3: US was beating other markets and was finding reluctantly maybe
Speaker 3: that they had to keep putting their money in a
Speaker 3: market which all the normal metrics said was overvalued. So
Speaker 3: is part of this it's just an excuse. We're sort
Speaker 3: of blaming Donald Trump, but actually its excuse for a
Speaker 3: rebalancing in global investment that many people have expected to
Speaker 3: see long before now.
Speaker 2: I think you raised some very important points. I would
Speaker 2: frame it a little differently. The way I think about
Speaker 2: it is that initial conditions were such that the entire
Speaker 2: world was essentially over allocated to the US. After years
Speaker 2: in which the US was the only game in town
Speaker 2: for asset markets, and so in those circumstances, it doesn't
Speaker 2: take a very large shift in global preferences for people
Speaker 2: to want to move capital out of the US and
Speaker 2: into other markets, into other currencies, into other economies. But
Speaker 2: the way I would think about that is that you
Speaker 2: have to be additionally careful then if you are the
Speaker 2: US administration, because you are starting from a position where
Speaker 2: a lot of people don't really have a lot of
Speaker 2: reason to add to their positions in the US. And
Speaker 2: of course if you're running a fiscal deficit in particular,
Speaker 2: you do need to continue to attract global capital into
Speaker 2: the US to help fund the government deficit. More broadly,
Speaker 2: it's the avowed intention of the Trump administration to attract
Speaker 2: capital to come in to invest in the private sector
Speaker 2: in the US as well. So I think the starting
Speaker 2: point of the overallocation to the US is part of
Speaker 2: the story here. But it's very clear that what's driving
Speaker 2: this reallocation is a collapse of confidence in US growth
Speaker 2: exceptionalism on the one hand, and some meaningful at the
Speaker 2: margin erosion of confidence in US assets from a safe
Speaker 2: haven perspective, and.
Speaker 3: Just following on from that, because you also mentioned it
Speaker 3: in a note that you've put out on that if
Speaker 3: there was an actual attempt to fire J Powell, even
Speaker 3: if it ended up going through the courts, and we've
Speaker 3: established on this show before that there would be big
Speaker 3: question marks about whether it would succeed if he actively
Speaker 3: attempted to and we saw that kind of what you
Speaker 3: call the stagflation trade playing out in US markets. You
Speaker 3: have said that would also increase the chance of the
Speaker 3: tariff crisis morphing into a more Liz Trust style fiscal crisis.
Speaker 3: So just talk us through that. How does it take
Speaker 3: us a bit closer to that even to have more
Speaker 3: questioning of FED independence.
Speaker 2: So I think the starting point for all of this
Speaker 2: is to understand as I know everyone on this podcast does,
Speaker 2: but members of the administration appear not to understand, which
Speaker 2: is that the trades more strictly current account deficit is
Speaker 2: the capital surplus. They are one and the same thing.
Speaker 2: They're just two ways of describing the same thing.
Speaker 3: If you're buying more from other countries than other countries
Speaker 3: are buying from you, you need to borrow the money
Speaker 3: to pay for those goods from someone.
Speaker 2: But the point, though truly I think that I'm trying
Speaker 2: to make here is that you can't conceptually think of
Speaker 2: the external account, the trade balance, completely independent from the
Speaker 2: capital account and the flows that are coming into the US,
Speaker 2: including to finance the US government deficits. That's the sort
Speaker 2: of conceptual point that we start from. The risk in
Speaker 2: the current conjecture, the serious risk, that sort of more
Speaker 2: than tail risk that's certainly not highly probable at this point,
Speaker 2: is that the tariff crisis ultimately morphs into more of
Speaker 2: a Liz Trust style fiscal crisis. And the path by
Speaker 2: which that would happen is a global buyer's strike in
Speaker 2: the treasury market at a time when the already very
Speaker 2: large US structural deficit blew out further on an economic downturn,
Speaker 2: a lack of serious fiscal consolidation in the legislation before Congress,
Speaker 2: and the possibility that the administration might try to add
Speaker 2: more unfunded tax cuts to try to buy its way
Speaker 2: out of a recession. Now, to be very clear, the
Speaker 2: US is not the UK. The US is the most
Speaker 2: core market in the world, the most core economy in
Speaker 2: the world, the most core bond market, the most core
Speaker 2: currency market. The investments in the US are far stickier
Speaker 2: than in any discretionary market like the UK. So we
Speaker 2: must be very careful not to jump quickly to the
Speaker 2: idea that the US will behave like the UK. But
Speaker 2: even now without an actual assault on FED independence, merely
Speaker 2: it threats to this. Given what's happening in terms of
Speaker 2: the US withdrawal from international economic engagement, from trade, a
Speaker 2: large trade integration, and so forth, there is a non
Speaker 2: trivial risk that this could morph from a tariff crisis
Speaker 2: to a fiscal crisis. If you also layer it on
Speaker 2: top of that an effort to fire the central bank
Speaker 2: chief and to bring the central bank under government control.
Speaker 2: I think the risk of that global bias strike that
Speaker 2: would take you from a tariff crisis to a sovereign
Speaker 2: debt crisis would go up a lot kate.
Speaker 3: The US is not the UK for sure. Even if
Speaker 3: we were halfway, there is a question mark about how
Speaker 3: the administration would respond. I mean, the classic way to
Speaker 3: respond to that kind of bias strike, or even a
Speaker 3: hint of a bias strike, would be to reassure markets
Speaker 3: that the authorities are willing to raise interest rates to
Speaker 3: support US assets, to support the currency. Combined with potentially
Speaker 3: fiscal tightening. How likely do you think that would be
Speaker 3: in this administration?
Speaker 4: Well, I might have said this last time, staff, I
Speaker 4: sound like a broken record in the newsroom anyway.
Speaker 3: But we quite rightly started talking about the bomb market
Speaker 3: at the beginning of the series. I suspect we will
Speaker 3: keep getting back to it. But yeah, that's right.
Speaker 4: No, But I think beyond doge, if you want to
Speaker 4: consider that a serious effort to tighten belt, so to speak,
Speaker 4: I don't think that there's really much of a real
Speaker 4: effort by the administration to make the deep kinds of
Speaker 4: cuts to spending that you would actually need to do
Speaker 4: to restore fiscal sustainability. Right at the end of the day,
Speaker 4: what Congress has typically done is they've come together to
Speaker 4: make deals. Whether that's to enact spending, you know, and
Speaker 4: continue funding the government, or to raise the debt ceiling.
Speaker 4: They come together and they agree to spend more money.
Speaker 4: And I think even right now that package that's under consideration,
Speaker 4: there are some conversations about some Republicans saying that they
Speaker 4: want to pay for all of that tax cut, they
Speaker 4: want to offset it, they don't want to add to deficits.
Speaker 4: But I think I think just looking at the record,
Speaker 4: it's really hard to believe that there'd be any serious
Speaker 4: effort to do that. So it's not a good situation
Speaker 4: for sure, if that were to happen.
Speaker 3: To put it mildly, kay, if the US seems an
Speaker 3: unreliable place to park your money. There is a cost
Speaker 3: to the world potentially of just not having a global
Speaker 3: reserve currency that's kind of as attractive as what we
Speaker 3: had before. It's not that it's going to be replaced,
Speaker 3: it's just sort of we've lost that as a sort
Speaker 3: of global public good, having a single reserve asset. I
Speaker 3: guess the equivalent for US voters and US households is
Speaker 3: that they're just their interest rates will just be that
Speaker 3: much higher. I mean, they're not going to move into
Speaker 3: some other currency, they're not going to change what they
Speaker 3: invest in, but there could be just a sort of
Speaker 3: significant premium on, for example, mortgage rates that will stick
Speaker 3: around for a long time.
Speaker 4: I think that's right. I think that if you think
Speaker 4: about it from the Fed's perspective and what some of
Speaker 4: them have said, they prefer that the American people don't
Speaker 4: really know that much about what they do and who
Speaker 4: they are, right if they're kind of below the radar.
Speaker 4: That's a good thing, and as we saw in the
Speaker 4: last few years, with inflation getting as high as it was,
Speaker 4: the FED has become very unpopular again. I think if
Speaker 4: interest rates were to be just in some higher place
Speaker 4: because of this effort to undermine the Central Bank's credibility,
Speaker 4: that would obviously have a huge impact on American households.
Speaker 4: And it's hard to see how that is quickly reversed
Speaker 4: right by perhaps the President interest installing someone new, even
Speaker 4: if that person is credible and highly regarded. I think
Speaker 4: that it's not just a financial market issue that we're
Speaker 4: talking about. It's a real problem that will affect everyday
Speaker 4: Americans for quite some time.
Speaker 3: We'll give the last word to Krishna. You've obviously been
Speaker 3: on different sides of this as a journalist, as an official,
Speaker 3: and now as a very expert earn list for investors.
Speaker 3: You're thinking about how to rate the probability of the
Speaker 3: kind of exp dream scenario that you've laid out as
Speaker 3: you try and advise investors. How are you thinking about
Speaker 3: that in your gut? Is this something that will be
Speaker 3: within the range of possible impacts on bouts of selling
Speaker 3: of US assets that we've had in some previous eras
Speaker 3: around two thousand and eight, for example, or do you
Speaker 3: think you're seeing something more fundamental.
Speaker 2: At this point in time. I'd sort of take the
Speaker 2: middle position, which is, this is absolutely not business as usual.
Speaker 2: Right to see upward pressure on US government yields real
Speaker 2: yields when the economy outlook is somewhere between near recession
Speaker 2: or recession, it's extremely abnormal. To see the yields go
Speaker 2: up and the dollar go down on the same day,
Speaker 2: which has happened repeatedly in the last few weeks, is
Speaker 2: extremely abnormal. This is more like emerging market type behavior.
Speaker 2: On the other side, I think it is way too
Speaker 2: premature to declare the end of the dollar based global
Speaker 2: regime and to proclaim a shift to some new global
Speaker 2: international economic order. Maybe we end up there, but we're
Speaker 2: certainly not there today and it's certainly not the dominant
Speaker 2: probability going forward. So at the moment, I think we're
Speaker 2: in the sort of an intermediate position where we are
Speaker 2: seeing things that are extremely unusual and the very significant
Speaker 2: in terms of reallocation away from the US. The imposition
Speaker 2: of some risk premium on US assets, at least relative
Speaker 2: to the truly riskless state that US assets previously exhibited,
Speaker 2: and I think that is partly associated with some erosion
Speaker 2: at the margin of the unique attractiveness of holding US
Speaker 2: assets in a dollar based world, which is itself in
Speaker 2: part related to the current policy choices of the administration
Speaker 2: and partly to the possibility that some bigger regime ship
Speaker 2: could lie ahead. So this is serious business cities not normal.
Speaker 2: We are not yet at the point of a regime shift.
Speaker 3: Christa Gurha, Kate Davidson, thank you so much, Thanks Steph,
Speaker 3: Thank you, step Thanks for listening to Trumpnomics from Bloomberg.
Speaker 3: It was hosted by me, Stephanie Flanders, and I was
Speaker 3: joined by evercore A Size, Krishna Guha and Bloomberg's Kate Davidson.
Speaker 3: Trumponomics is produced by Summersadi and Moses and with help
Speaker 3: from Chris Martlu and Amy Keen, with special thanks this
Speaker 3: week to Rachel Lewis Chrisky. Sound design is by Blake
Speaker 3: Maples and Brendan Francis. Newden is our executive producer. To
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