WEBVTT - Surveillance: Tariff Impact Very Small, NEC's Kudlow Says 0:00:02.600 --> 0:00:13.040 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:29.440 Bloomberg dot com, and of course on the Bloomberg Donald 0:00:29.440 --> 0:00:31.240 Trump was in Ohio. He said, let it go, let 0:00:31.280 --> 0:00:35.520 it go, and played it. We played the video a lot. 0:00:35.600 --> 0:00:39.080 He says, this is a tax on China? Is it thou? 0:00:39.400 --> 0:00:43.320 No economist I know agrees with that statement. That's what's 0:00:43.360 --> 0:00:46.360 so interesting about this round of tariffs. If and I say, 0:00:46.479 --> 0:00:49.360 if it is implemented on September one, these are the 0:00:49.360 --> 0:00:52.440 consumer items that were spared from the first few rounds 0:00:52.440 --> 0:00:54.640 of tariffs. It could be an incremental hit to growth 0:00:54.640 --> 0:00:56.480 if it's implemented. But this could be the thing that 0:00:56.560 --> 0:01:00.000 consumers feel if the price you fist stopped, smartphone starts 0:01:00.000 --> 0:01:02.000 to go a little bit higher. Went in on all 0:01:02.040 --> 0:01:03.720 of this. I'm pleased to say that dropping by the 0:01:03.760 --> 0:01:06.720 studio is Michelle Mayer be of a Merrill Lynch, Head 0:01:06.760 --> 0:01:10.720 of US Economics. Good morning to Michelle. Typically first Friday 0:01:10.720 --> 0:01:12.480 of the month, we'd be living with payrolls well in 0:01:12.520 --> 0:01:14.840 with trade this morning. What does that say about payrolls 0:01:15.120 --> 0:01:17.480 a little bit later? You know, I think it's the 0:01:17.520 --> 0:01:20.920 fact that you have these external factors that are overwhelming 0:01:21.280 --> 0:01:26.360 um the incoming data. So the what happens around trade 0:01:26.560 --> 0:01:29.920 is by far the most important risk factor out there, 0:01:30.160 --> 0:01:32.520 and it's going to be more of a forward looking 0:01:32.560 --> 0:01:35.840 story as well. Right, So what happens to jobs today 0:01:35.920 --> 0:01:38.120 is not necessarily going to be a function or a 0:01:38.160 --> 0:01:40.520 factor for how you think about growth in the future 0:01:40.880 --> 0:01:43.759 if these terraffs go into place. This is the view 0:01:43.760 --> 0:01:46.840 from Deutsche Bank going into the number. We're wait payrolls, 0:01:46.880 --> 0:01:49.480 but this data has been rendered largely irrelevant. If it 0:01:49.560 --> 0:01:52.960 is strong but reinforced latest bond, bold signals and negative risk. 0:01:53.080 --> 0:01:56.240 If the data is weak, how do you frame it 0:01:56.280 --> 0:01:58.760 for clients this morning, whether this data matters or not? 0:01:58.840 --> 0:02:01.160 What it means a bit strong? What it today? It's weak? Yeah, 0:02:01.200 --> 0:02:03.440 I mean I hate to say that jobs don't matter, 0:02:03.640 --> 0:02:05.720 you know, I hate to see any economic data doesn't matter, 0:02:05.760 --> 0:02:08.679 because you know, we do take all incoming information into 0:02:08.720 --> 0:02:12.120 our forecasts and think carefully about it. In jobs are important. 0:02:12.160 --> 0:02:14.760 They're important. They're telling us about you know, how many 0:02:15.040 --> 0:02:17.320 people are getting hired and how they're getting paid, etcetera. 0:02:17.440 --> 0:02:21.520 So it matters. Um, if we have a strong report, 0:02:21.560 --> 0:02:23.200 I think it tells us that there's a bit more 0:02:23.200 --> 0:02:26.400 resiliency of the U. S economy to some of these risks, 0:02:26.440 --> 0:02:28.799 and that companies, while they may be starting to cut 0:02:28.800 --> 0:02:31.440 back on their investment in capital, they're still investing in labor, 0:02:31.520 --> 0:02:34.040 and people still have jobs, and there's some ability for 0:02:34.080 --> 0:02:38.880 the consumer to withstand some of these tariffs. That said, 0:02:39.040 --> 0:02:41.920 of course, the big risk factor out there is what 0:02:42.000 --> 0:02:44.880 happens on trade, and that's where people and markets are 0:02:44.880 --> 0:02:47.960 most focused. Let's reset twelve months forward. What's your GDP call? 0:02:48.240 --> 0:02:50.520 GDP call for the United States? So we think we 0:02:50.560 --> 0:02:53.280 have growth essentially returning to trend one point eight percent 0:02:53.360 --> 0:02:56.720 on US sub two percent where you are now? And 0:02:56.760 --> 0:02:59.919 if if we put in a text on China, is 0:03:00.000 --> 0:03:04.080 the President puts it, you gotta mark that down right? Yeah, 0:03:04.160 --> 0:03:08.280 So that's the challenges. Actually, So are you modeling a grocerycession? Um? 0:03:08.560 --> 0:03:11.800 Well not yet? Um, So we think can I make 0:03:11.880 --> 0:03:13.639 some news here to come on? We think we're gonna 0:03:13.680 --> 0:03:17.600 be leveling off right around trend maybe one to two 0:03:17.639 --> 0:03:20.960 quarter basis you fast slightly below trend, but the the 0:03:21.000 --> 0:03:24.720 overall Tratractordia stuff. But but yes, I mean, I think 0:03:24.800 --> 0:03:27.160 it's partly gonna be a function of how central Bank's 0:03:27.200 --> 0:03:29.760 offset this shock from But what's important your Johan as 0:03:29.800 --> 0:03:34.600 an American politics one eight percent Michelle Meyer, trend doesn't 0:03:34.639 --> 0:03:37.880 get you reelected. That's what this is really about. Yeah, 0:03:37.960 --> 0:03:41.040 going into and the prospect of perhaps not getting a 0:03:41.120 --> 0:03:44.240 trade deal either, which seems to have been injecting submergency 0:03:44.240 --> 0:03:46.800 into the White House maybe over the last couple of days, Michelle, 0:03:46.880 --> 0:03:50.080 just on the payrolls reporting on global manufacturing. Manufacturing is 0:03:50.120 --> 0:03:52.480 in a recession worldwide at the moment. I think we 0:03:52.520 --> 0:03:54.400 can all agree on that. The risk is that it 0:03:54.440 --> 0:03:57.280 bleeds into services. Do you see that happening? Do you 0:03:57.320 --> 0:03:59.480 see it taking hold of the service sector in any 0:03:59.520 --> 0:04:02.720 way shape perform here in the United States at the moment. 0:04:02.920 --> 0:04:05.400 So it's really interesting is on manufacturing. Yes, it's a 0:04:05.480 --> 0:04:09.880 global manufacturing downturn um, but in the U s the 0:04:09.920 --> 0:04:12.760 manufacturing data has been marginally better. The I s M 0:04:12.800 --> 0:04:16.040 survey is still above fifty. It hasn't fallen into contraction. 0:04:16.160 --> 0:04:19.960 Territory manufacturing jobs based off last few reports and a 0:04:20.080 --> 0:04:24.160 DP this week are actually still increasing very modestly, but 0:04:24.279 --> 0:04:26.600 there is some growth. So I think would be really 0:04:26.920 --> 0:04:29.360 um interesting with today's report is whether or not the 0:04:29.440 --> 0:04:32.480 manufacturing sectors continue to have jobs. And then you know, 0:04:32.600 --> 0:04:34.560 what do you see on the services on the service side. 0:04:34.640 --> 0:04:38.240 So far, there's been little evidence of a spillover from 0:04:38.279 --> 0:04:42.800 these global um challenges into the service side economy, but 0:04:43.360 --> 0:04:45.320 obviously something we have to keep a very close eye on, 0:04:45.360 --> 0:04:48.160 and that's something that fed Chair Power is very concerned about. 0:04:48.480 --> 0:04:50.760 So far, so good for the U S consumers, so fast, 0:04:50.800 --> 0:04:52.640 so good for the labor market. You bring up fed 0:04:52.720 --> 0:04:56.080 Chair j Pown, So let's talk about it going into yesterday, 0:04:56.120 --> 0:04:59.360 the chances of a September right cut with fifty there 0:04:59.400 --> 0:05:03.320 and there about then after the trade news crossed the Bloomberg, 0:05:03.360 --> 0:05:06.560 guess what we approach almost percent for September right cut 0:05:06.839 --> 0:05:10.160 once more, that into play between White House trade policy 0:05:10.600 --> 0:05:14.200 and federal reserve easing. How important is that at the moment, Michelle, 0:05:15.160 --> 0:05:17.480 I think that is the key story, This idea of 0:05:17.520 --> 0:05:22.359 an adverse feedback loop where President Trump puts more pressure 0:05:22.400 --> 0:05:26.320 in terms of greater tariffs and that weekends economic growth. 0:05:26.360 --> 0:05:29.600 It creates some greater risk factors out there, and then 0:05:29.720 --> 0:05:33.000 you have the power put that becomes ever more powerful 0:05:33.640 --> 0:05:36.760 um and you see a central bank response. So for 0:05:36.839 --> 0:05:39.400 the markets to say, Okay, the terroors might happen, but 0:05:39.800 --> 0:05:42.520 we have a backstop that chair power is just going 0:05:42.600 --> 0:05:44.480 to cut. Do we have a backstop? I think we've 0:05:44.480 --> 0:05:47.239 got to talk about that. This belief that the chairman 0:05:47.279 --> 0:05:50.880 can underwrite trade policy from the White House, can it 0:05:50.960 --> 0:05:54.280 actually offset the global In fact, I would make the case, 0:05:54.400 --> 0:05:56.320 and I think Powell tried to make this cases that 0:05:56.400 --> 0:05:58.600 he doesn't want to be underwriting trade policy. He's got 0:05:58.640 --> 0:06:01.919 no choice, has it. And that's really where the friction 0:06:02.040 --> 0:06:04.360 I think comes from. It's not the intention to give 0:06:04.720 --> 0:06:06.600 President Trump a green light to go ahead and be 0:06:06.680 --> 0:06:09.520 tough on trade. But if you consider what his mandate is. 0:06:09.560 --> 0:06:13.720 Mandate is to support economic growth, insure maximum employment. And 0:06:13.920 --> 0:06:16.400 if you have a big shock, which they are taking 0:06:16.480 --> 0:06:19.159 as external, they assume this is a pure exhaugen of shock. 0:06:19.200 --> 0:06:21.240 They're not being political about it. They're saying, Okay, we 0:06:21.320 --> 0:06:22.839 have a big shock, we need to offset in la 0:06:22.960 --> 0:06:25.000 terre policy. If I look at the yields on my 0:06:25.080 --> 0:06:28.520 Bloomberg screen in the United States, one seventy two year 0:06:29.720 --> 0:06:34.760 year stunning to thirty year bond? Are those quote unquote 0:06:35.040 --> 0:06:38.960 good for America? So? You know, it sure looks like 0:06:39.279 --> 0:06:43.280 what two I'm thinking? You know, is that good for 0:06:43.440 --> 0:06:45.239 I mean, I know it's good for real estate guys 0:06:45.560 --> 0:06:47.400 like the guy who lives above the Gucci store on 0:06:47.440 --> 0:06:50.600 Fifth Avenue. But is it good for America? You know? 0:06:50.760 --> 0:06:53.320 So what it's I think the idea? Is that what 0:06:53.440 --> 0:06:56.520 it's signaling about where we are as an economy. No, 0:06:56.760 --> 0:06:58.360 it's not good, you know it would it be a 0:06:58.480 --> 0:07:00.719 much better signal if we had a love three percent 0:07:00.839 --> 0:07:02.840 on the tenure or even four percent a ten year, 0:07:02.880 --> 0:07:05.440 that would be a signal of an economy that's growing. 0:07:06.120 --> 0:07:09.560 GDP growth is trending three percent, inflation is running two percent. 0:07:09.800 --> 0:07:12.360 You know, that would obviously be a better story. Um 0:07:12.480 --> 0:07:15.280 so the fact that interest rates are so low it 0:07:15.480 --> 0:07:18.360 is indicative of an economy that trend growth is lower 0:07:18.480 --> 0:07:21.000 and inflation is more stubbornly low. Can we pretend it's 0:07:21.000 --> 0:07:23.560 a normal Friday? What's your non farm payrolls? Oh good, 0:07:23.600 --> 0:07:27.080 I've been waiting for that. I never asked today I 0:07:27.120 --> 0:07:30.200 will because nobody cares what it's we're looking for a 0:07:30.320 --> 0:07:33.400 hundred and seventy thousand, now, okay, one seventy car record? 0:07:33.440 --> 0:07:36.960 Dost want any five? Michelle Meyer? Thankanks, Michelle. I apologize 0:07:36.960 --> 0:07:39.960 we didn't do anything in the housing. I'm sorry. Next 0:07:40.000 --> 0:07:57.520 time we'll do that. Let's right now, fold this economics 0:07:57.600 --> 0:08:00.240 and the Trump uh is? He said in all Io 0:08:00.720 --> 0:08:04.040 tax on China shock into what it means for Washington. 0:08:04.120 --> 0:08:07.480 Henrietta trades joins us love having a run from Beta Partners. 0:08:07.760 --> 0:08:10.760 I mean, Henrietta, you're gonna tell me the House and 0:08:10.840 --> 0:08:17.440 the Senate support the President Trump's tax on China. Hey, 0:08:17.560 --> 0:08:19.960 tom Um, you know I was thinking. One of the 0:08:20.000 --> 0:08:22.280 best anecdotes I've got is when I was in a 0:08:22.360 --> 0:08:26.320 meeting with the Senate Majority whip at the time, John Corner, 0:08:26.400 --> 0:08:28.880 and speaking with his chief of staff and he and 0:08:28.920 --> 0:08:30.640 I asked him, you know, on a scale from one attend, 0:08:30.720 --> 0:08:32.600 how big a deal is this trade war? How big 0:08:32.640 --> 0:08:35.240 a deal are these China tariffs? And point blank the 0:08:35.280 --> 0:08:38.680 answer was three. It's the three. I would say, now, 0:08:39.240 --> 0:08:41.400 maybe it's at like a five or six based on 0:08:41.480 --> 0:08:44.520 my conversations with Senior Council in the last twenty four hours, 0:08:45.000 --> 0:08:47.520 but they're not inclined to stop them. The one the 0:08:47.600 --> 0:08:51.120 one tariff that really does spook them is the potential 0:08:51.200 --> 0:08:55.200 for tariffs on automobiles against the EU. But they'll only 0:08:55.320 --> 0:08:58.920 act on that after those. So, I mean, they don't 0:08:58.960 --> 0:09:02.000 care about the fiscal policy, one point x trillion dollar 0:09:02.080 --> 0:09:05.600 debt coming down the pike, what we're doing to our grandchildren, etcetera. 0:09:06.000 --> 0:09:09.560 You're telling me they're not going to matter about cell 0:09:09.600 --> 0:09:13.680 phone tariff and consumer product tariffs across all of America. 0:09:14.720 --> 0:09:18.080 I sincerely believe that. And they are looking at polling 0:09:18.200 --> 0:09:22.280 data from their constituents and amongst the Republican Party, you've 0:09:22.280 --> 0:09:27.839 got roughly approval for Republicans. I don't disagree. Yeah, and so, 0:09:28.040 --> 0:09:30.160 and that's what they're that's what's driving them. Um. I 0:09:30.240 --> 0:09:32.640 had one client who very astutely said, you know, if 0:09:32.679 --> 0:09:34.440 I was the president, I put this on in August 0:09:34.480 --> 0:09:37.040 when everybody's thought, nobody's going to pay attention, and that's 0:09:37.120 --> 0:09:38.920 low and behold, August first comes around, and that's what 0:09:39.000 --> 0:09:42.160 we got and it goes into effect September one. I 0:09:42.280 --> 0:09:45.400 just wonder what the minimum condition for progresses to back 0:09:45.480 --> 0:09:50.120 away from that any ideation. You know, I appreciate the question, 0:09:50.200 --> 0:09:51.800 but I would just push back a little bit because 0:09:51.800 --> 0:09:55.040 I get this from investors on the minute. The reality 0:09:55.120 --> 0:09:58.400 is it's USCR policy to provide a grandfather clause for 0:09:58.600 --> 0:10:01.439 inventories that have been ordered by the business community to 0:10:01.600 --> 0:10:05.160 travel from across the Pacific to get to their port 0:10:05.240 --> 0:10:07.560 in the United States. That is something we have seen 0:10:07.679 --> 0:10:10.800 five consecutive times in a row with the first, second, third, 0:10:10.840 --> 0:10:15.000 and fourth chranches and then uh the escalation to they 0:10:15.080 --> 0:10:19.160 provide three to five weeks of leeway for cargo to 0:10:19.480 --> 0:10:21.480 come across the ocean if they're on a ship, or 0:10:21.480 --> 0:10:23.199 if they're in the air, or what have you. And 0:10:23.280 --> 0:10:25.439 they even granted in an extra fifteen days in the 0:10:25.520 --> 0:10:29.000 last May escalation. This is not an indicator that they're 0:10:29.040 --> 0:10:32.880 not serious. There are there's no scenario above five percent 0:10:32.920 --> 0:10:35.800 odds that they don't put these tarasson September one. This 0:10:35.960 --> 0:10:38.679 four week grace period is literally the least they could 0:10:38.720 --> 0:10:42.120 do to prevent disruption to existing inventories. So let's talk 0:10:42.120 --> 0:10:44.840 about counter measures, then, Henriette the Chinese out this morning. 0:10:44.880 --> 0:10:47.240 If the US is going to implement the additional tariffs, 0:10:47.320 --> 0:10:50.720 China will have to take necessary counter measures. What did 0:10:50.760 --> 0:10:54.839 those counter measures look like? Well after the second round 0:10:54.880 --> 0:10:57.080 of tariffs, they switched from doing a dollar per dollar 0:10:57.160 --> 0:11:00.600 retaliation into a percentage based retaliation. So right now both 0:11:00.600 --> 0:11:03.400 sides the tariff roughly sixty percent of each other's inventories. 0:11:03.760 --> 0:11:07.280 This billion escalation from the U s side represents about 0:11:08.320 --> 0:11:12.560 UM maybe given the President decided that it was going 0:11:12.600 --> 0:11:14.520 to be a little bit more than that, UM, So 0:11:14.600 --> 0:11:17.160 I would expect China to retaliate by putting tariffs on 0:11:17.280 --> 0:11:20.600 maybe eight billion, which would be as a percentage basis 0:11:21.040 --> 0:11:23.280 tip for tat. And then we saw yesterday that they 0:11:23.320 --> 0:11:27.679 canceled from significant pork purchases. UM. There are anecdotal reports 0:11:27.760 --> 0:11:31.200 from the business community of increased red tape and all 0:11:31.240 --> 0:11:33.400 that that will continue. I'm glad you bring this up 0:11:33.440 --> 0:11:35.920 because it's eluded in the last twelve hours off this 0:11:36.040 --> 0:11:40.319 bombshell from the President that they have not purchased the 0:11:40.520 --> 0:11:46.200 agricultural products. Do you have evidence of that, Henrietta? Um? Well, 0:11:46.240 --> 0:11:49.120 I thought in your reporting from yesterday morning, UH that 0:11:49.280 --> 0:11:52.880 they canceled the port purchase, so I assume that that's valid. UM. 0:11:52.960 --> 0:11:55.200 And what we're looking for is not just a couple 0:11:55.240 --> 0:11:59.199 of million UM purchases from Swabians. So we need we 0:11:59.320 --> 0:12:01.760 need some were in the range of two hundred to 0:12:01.920 --> 0:12:05.600 three hundred billion dollar commitments from China in the next 0:12:05.679 --> 0:12:07.880 two years in order for President Trump to feel like 0:12:07.920 --> 0:12:10.599 he's delivered. Where will that come from? Where does that? 0:12:10.720 --> 0:12:12.800 I mean, does that corn or wheat or you know, 0:12:13.800 --> 0:12:15.839 it's got to be everything. So that's gotta be everything 0:12:15.880 --> 0:12:21.560 from soybeans to sorghum, corn wheat. Idiots? Why would they agree? Look, 0:12:21.600 --> 0:12:24.920 you're great at the non rudeness the Grace of Washington. 0:12:25.280 --> 0:12:28.800 John Farroll was extremely rude and I'm less extremely rude, 0:12:28.840 --> 0:12:32.880 but still rude. You're not the president made this announcement. 0:12:32.960 --> 0:12:36.280 I believe Secretary Monution was upset because he didn't brief 0:12:36.400 --> 0:12:39.559 the Chinese before the announcement. Why are they at the 0:12:39.640 --> 0:12:44.679 margin going to buy more agricultural products on this Friday morning. Oh, 0:12:45.040 --> 0:12:48.240 I wouldn't expect that they would, and they have basically 0:12:48.360 --> 0:12:51.120 said since um I want to I want to say, really, 0:12:51.200 --> 0:12:58.040 since December second, Argentina they committed to making substantial agriculture 0:12:58.040 --> 0:13:00.280 purchoses and that was what like seven months ago. They 0:13:00.320 --> 0:13:03.920 still have not. Okay, we gotta leave it there. Thanks 0:13:03.960 --> 0:13:23.360 for the great briefing. Henry. The Trades of Veta ellen'sner joint. 0:13:23.480 --> 0:13:26.640 She runs US Economics at Morgan Stanley. She's won every 0:13:26.679 --> 0:13:29.480 trophy out there and right now has a trophy call 0:13:29.600 --> 0:13:33.240 from the greater Morgan Stanley. A real cautious caution, I 0:13:33.320 --> 0:13:36.319 should say on the market, Ellen, are you gonna have 0:13:36.400 --> 0:13:40.120 to adjust your economic call, your Excel spreadsheet because of 0:13:40.200 --> 0:13:44.160 what the President announced yesterday? Yeah? So it's a it's 0:13:44.200 --> 0:13:47.280 a good question. I mean, you know, economists loathe making 0:13:47.559 --> 0:13:51.679 uh changes on the fly, but I think the at 0:13:51.720 --> 0:13:56.200 the very least, um subjectively, you know, you'll see recession 0:13:56.280 --> 0:13:59.440 probabilities go up. The models may not pick up these 0:13:59.520 --> 0:14:03.360 kinds of things yet, right, but subjectively, um, you you 0:14:03.559 --> 0:14:08.080 have to assume more risk and more recession risk specifically 0:14:08.640 --> 0:14:11.080 on the back of this kind of renounce What what's 0:14:11.080 --> 0:14:14.920 your run rate now twelve months forward? So twelve months forward, 0:14:15.040 --> 0:14:19.760 we've still got probability, um, but you can easily see 0:14:19.840 --> 0:14:24.880 that going higher. Uh, you know at at one in three. 0:14:25.080 --> 0:14:27.640 I would not be surprised right now, right because it's 0:14:27.680 --> 0:14:30.440 just the amount of uncertainty is incredible. Now, what's been 0:14:30.520 --> 0:14:34.520 keeping recession probabilities low in terms of just models, the 0:14:34.600 --> 0:14:39.360 real data, And one reason why the Fed resisted. UH. 0:14:39.560 --> 0:14:43.280 Many of the policymakers ended up resisting, delivering fifty basis points, 0:14:44.040 --> 0:14:47.040 which was, as you know, against our advice. UM. But 0:14:47.760 --> 0:14:50.600 UH failed to do that because they just traditional monetary 0:14:50.640 --> 0:14:52.280 policy making is I want to see it in the 0:14:52.400 --> 0:14:54.680 data first. I really don't like being pre emptive. I 0:14:54.720 --> 0:14:56.560 think chair pal had made a push to try to 0:14:56.640 --> 0:15:02.240 be preemptive, UM, but traditional monetary policy making one on 0:15:02.400 --> 0:15:05.280 Wednesday and they decided just to cut twenty five basis 0:15:05.320 --> 0:15:08.040 points because they couldn't see it in the real data. 0:15:08.120 --> 0:15:11.080 But at what point do you need to assume that 0:15:11.280 --> 0:15:15.000 that's coming? UH? And you know, the consumer is really 0:15:15.080 --> 0:15:18.400 the last holdout for the economy, you know in all 0:15:18.480 --> 0:15:21.720 your leading sectors, and the GDP benchmark revision showed this 0:15:22.320 --> 0:15:28.480 inventories down and falling, UH, investment down and falling profits 0:15:28.560 --> 0:15:32.080 and specifically undistributed profits. What do I have left over 0:15:32.120 --> 0:15:33.520 at the end of the day as a company to 0:15:33.720 --> 0:15:36.800 hire and to invest? All of that is down. So 0:15:36.920 --> 0:15:38.920 how long can you assume that the rest of the 0:15:39.000 --> 0:15:42.720 economy holds up? Ellen? We gotta let John Farrow in 0:15:42.800 --> 0:15:44.800 here because he's going to speak with free trader Lawrence 0:15:44.840 --> 0:15:47.240 car Ellen what do you want to know from the 0:15:47.280 --> 0:15:49.960 administration this morning? What do you think the main question 0:15:50.080 --> 0:15:52.840 is for so many people on Wall Street, I think 0:15:52.920 --> 0:15:56.440 we're always trying to gauge what the pin point is. Uh, 0:15:56.680 --> 0:16:01.000 you know, how can they assure American household old uh 0:16:01.240 --> 0:16:04.600 that uh, we're gonna be able to fight this fight 0:16:05.320 --> 0:16:08.560 without you losing your job? You know. And I think 0:16:08.600 --> 0:16:11.040 at the end of the day, that's what everyone wants 0:16:11.080 --> 0:16:13.960 to know. You know, at what cost are you willing 0:16:14.080 --> 0:16:17.520 to continue to play this game and keep uncertainty on 0:16:17.640 --> 0:16:19.680 such a high level. And then it just sounds felt 0:16:19.720 --> 0:16:22.760 like yesterday, And then in the little gaggle of reporters 0:16:22.840 --> 0:16:25.440 that the President spote too that he didn't seem too 0:16:25.480 --> 0:16:29.320 concerned about the market impact of his decision yesterday, that 0:16:29.400 --> 0:16:31.480 he wasn't too concerned. He said something along the lines 0:16:31.520 --> 0:16:34.720 of the market and market participants having fully understood what 0:16:34.840 --> 0:16:36.760 had happened. I'm not sure what that actually means, Ellen, 0:16:36.800 --> 0:16:38.280 but it's not a change, a little bit of a 0:16:38.320 --> 0:16:41.840 shift at this White House. Well, yeah, I think you know, 0:16:41.920 --> 0:16:44.920 early on it was always okay. The you know, President 0:16:44.960 --> 0:16:47.200 Trump's pain point is the stock market. And as long 0:16:47.240 --> 0:16:50.080 as the stock market is holding up. That's his queue 0:16:50.160 --> 0:16:52.840 that you can push this further. And if it's not 0:16:53.000 --> 0:16:56.080 holding up, then that would be uh you know, his 0:16:56.520 --> 0:17:01.120 uh uh circuit breaker, if you will, so, uh you know, 0:17:01.160 --> 0:17:05.159 apparently the FED is his circuit breaker, and that you know, uh, 0:17:05.560 --> 0:17:08.600 you know, he can get one basis points out of 0:17:09.240 --> 0:17:11.959 the f O m C in terms of interest rate 0:17:12.040 --> 0:17:15.240 cuts one way or another and one way that he's 0:17:15.320 --> 0:17:19.000 learned how to do that. Then is okay, you only 0:17:19.080 --> 0:17:23.040 delivered a basis point cut. You said that it's all 0:17:23.080 --> 0:17:25.960 about trade, I'll know to go further and get more cuts. 0:17:26.080 --> 0:17:29.760 How is he going to deliver a recession? Well, that's 0:17:29.840 --> 0:17:33.520 the So that's the risk, right, I mean, is are 0:17:33.560 --> 0:17:37.600 you really going to thread that needle so finely that 0:17:37.960 --> 0:17:40.639 you know that you can push it hard enough that 0:17:40.760 --> 0:17:43.480 the Fed's got your back so to speak, and will 0:17:43.560 --> 0:17:45.720 cut in order to keep the economy a flow because 0:17:45.720 --> 0:17:47.760 the FED can't play that game, right, They're not going 0:17:47.800 --> 0:17:50.600 to play a game of chicken with the president on 0:17:50.720 --> 0:17:53.440 the economy. Uh. And so but if you know the 0:17:53.560 --> 0:17:56.720 FED has uh your back, and then it gives you 0:17:56.800 --> 0:17:59.760 more cover to push trade further. But the risk is 0:17:59.840 --> 0:18:03.200 a course, as you note, recession risk or rising. The 0:18:03.320 --> 0:18:05.960 risk is that you push the economy into recession. And 0:18:06.119 --> 0:18:09.360 as you know, we don't elect the incumbent party. Um 0:18:09.560 --> 0:18:12.720 if we have recession in an election year. Uh, And 0:18:12.840 --> 0:18:15.760 so that is the risk, uh that that apparently the 0:18:15.800 --> 0:18:17.920 president is willing to take. So and then Chapman Pou 0:18:18.040 --> 0:18:20.760 tried his best not to get drawn into criticizing trade 0:18:20.800 --> 0:18:23.240 policy in the news conference. I'm sure he's trying his 0:18:23.400 --> 0:18:26.200 best not to be the guy that has to underwrite 0:18:26.440 --> 0:18:28.720 trade policy, but it just feels like that's who he 0:18:28.880 --> 0:18:31.440 is now. So it's September while and truly in play. 0:18:31.480 --> 0:18:35.399 Are you looking for a right cut? So after the so, 0:18:35.520 --> 0:18:37.760 as you know, we expected dipty basis points to be 0:18:37.840 --> 0:18:40.320 delivered on One of their argument was that the message 0:18:40.359 --> 0:18:42.159 that you send to markets is that you will be 0:18:42.280 --> 0:18:46.000 aggressive upfront and do whatever it takes. Having failed to 0:18:46.080 --> 0:18:49.480 do that, the market now has no confidence that the 0:18:49.560 --> 0:18:52.560 said will do whatever it takes. So that's one problem 0:18:52.600 --> 0:18:55.680 with not having started off aggressive. The risk there is 0:18:55.760 --> 0:18:58.640 that you're forced to do more as a follow up 0:18:59.119 --> 0:19:03.200 and deliver that at basis point cut. Anyway, UM, right 0:19:03.280 --> 0:19:05.600 now we have them, And this was an expectation we 0:19:05.680 --> 0:19:09.399 said on Wednesday that we have the next cut coming 0:19:09.440 --> 0:19:13.040 in October because you know, when when we look at 0:19:13.080 --> 0:19:15.600 the data pattern, inflation is going to be rising. Here 0:19:15.640 --> 0:19:18.959 going into the September meeting, we didn't see that jobs. 0:19:19.160 --> 0:19:21.280 You know, we don't see in our models that jobs 0:19:21.280 --> 0:19:22.959 are going to fall off or the consumer is going 0:19:23.000 --> 0:19:26.520 to fall off. But you know yesterday was a different day. Well, 0:19:26.640 --> 0:19:28.639 yesterday was a different day. If you were on the 0:19:28.680 --> 0:19:31.879 partial differentials on an X on the back of the equation, 0:19:32.200 --> 0:19:35.840 how much do you take down g d P with 0:19:35.960 --> 0:19:41.480 a ten percent terrifying everything remaining. So the modeling that 0:19:41.600 --> 0:19:45.560 we've done on ten percent on everything remain everything remaining 0:19:46.200 --> 0:19:49.760 ten percent if you just model it straight right, ten 0:19:49.880 --> 0:19:52.679 percent even though you're hitting a lot of consumer goods, 0:19:53.280 --> 0:19:56.240 UH does not make a material difference on GDP. And 0:19:56.359 --> 0:19:59.800 where we all weathered up about this, well, because here's 0:19:59.840 --> 0:20:02.639 the ladder, Tom, I'm getting ready to ladder you up. 0:20:03.240 --> 0:20:09.800 The ladder is in how it affects business confidence, consumer confidence, 0:20:10.119 --> 0:20:15.600 CAPEX jobs. It's in the non linearity of financialations and confidence. 0:20:15.760 --> 0:20:19.800 It's less so on just the direct mechanical impact to GDP, 0:20:19.880 --> 0:20:23.080 and of course those other factors or that's the fuzzy 0:20:23.160 --> 0:20:25.760 side of economics. There's a lot of judgment that goes 0:20:25.840 --> 0:20:30.520 into that because certainly today when margins are already running 0:20:30.680 --> 0:20:34.480 so stin, there's not a lot more room that have 0:20:34.720 --> 0:20:38.000 to absorb this kind of increase in Let's take the 0:20:38.040 --> 0:20:41.160 partition of the economy. Joelivarnio over into Texas was brilliant 0:20:41.200 --> 0:20:45.600 and emphasizing manufacturing off a cliff fine. The goods producing 0:20:45.720 --> 0:20:48.680 c p I is in the you know, deflation dis inflation. 0:20:49.040 --> 0:20:52.240 Are you predicting its service sector c p I given 0:20:52.560 --> 0:20:55.760 the Trump strategy will come down and begin to dampen 0:20:56.200 --> 0:20:59.040 general inflation like Dallas trimmed and all that. Does that 0:20:59.240 --> 0:21:02.760 roll over and come down or not? Well, not on 0:21:03.080 --> 0:21:07.440 any kind of timeline that markets certainly want to look at. 0:21:07.520 --> 0:21:10.200 So from teariffs, the mediate effect of course is again 0:21:10.320 --> 0:21:12.960 just going back to the mechanics of it. Uh is 0:21:13.280 --> 0:21:16.639 you know, import prices rise, then pp I prices, so 0:21:16.800 --> 0:21:19.919 you get at the wholesale level and then consumer prices. 0:21:19.960 --> 0:21:22.960 So teariff going in on September one, you could see 0:21:23.000 --> 0:21:25.800 it starts to show up in cp I numbers by 0:21:25.840 --> 0:21:30.320 say November December, uh and that and so yeah, you 0:21:30.440 --> 0:21:33.360 get that impact where it lifts inflation, but of course 0:21:33.440 --> 0:21:36.080 the FED looks through that. Uh, you know, it starts 0:21:36.160 --> 0:21:40.159 to affect impact consumer spending because they're not gonna unless 0:21:40.200 --> 0:21:43.280 income is out pacing that delta, you're not going to 0:21:43.359 --> 0:21:45.200 be able to overcome that. And you start to damp 0:21:45.240 --> 0:21:49.160 in consumer demand. And so after hitting aggregate demand, then 0:21:49.200 --> 0:21:52.520 it starts to have a gravitation on inflation. But you're 0:21:52.560 --> 0:21:56.080 talking it well into next year, where then it starts 0:21:56.119 --> 0:21:58.360 to turn inflation in the other direction. I got bad news. 0:21:58.440 --> 0:22:01.080 Jim Gorman just emailed in James Gorman, and he says, 0:22:01.080 --> 0:22:03.600 are you going to talk about jobs with Ellen? What 0:22:06.600 --> 0:22:09.080 do you think of Job's day? Please? So I think 0:22:09.160 --> 0:22:11.320 job's day is going to be perfectly fine. But I 0:22:11.400 --> 0:22:14.760 think markets are going to take this as backward looking, uh, 0:22:14.960 --> 0:22:17.600 you know, jobless claims. So there are two things that 0:22:17.600 --> 0:22:20.200 you got to look at. Right Where businesses laying off, well, 0:22:20.240 --> 0:22:22.520