Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: Ellen Zenter with us Morgan Stanley. Ellen, We've got a
Speaker 1: lot of focus on the American labor economy, but I
Speaker 1: want to get your call because you've been so good
Speaker 1: about lower g d P. If you take the consumer
Speaker 1: and x them out, was this is zero percent economy
Speaker 1: in the last ninety days. No, not a zero percent economy,
Speaker 1: but I mean it's clear that the consumer has been
Speaker 1: propping up the economy, which is good because it's of
Speaker 1: our economy. But you know, economists always like better balanced growth.
Speaker 1: We wish the growth wasn't just being sure them by
Speaker 1: to say the consumer and housing um And I think
Speaker 1: we will get better balanced growth next year. But that's
Speaker 1: going to hinge importantly on whether trade policy is less
Speaker 1: uncertain and global growth is a bit stronger. And I
Speaker 1: know those are two big ifs, but if you give that, yeah,
Speaker 1: two big is. But if you get that then it's
Speaker 1: better balanced growth next year, even though slower growth compared
Speaker 1: with this year. So I wanted to be clear this
Speaker 1: tug of war between consumption and business investment. You expect
Speaker 1: to see business investment improved before consumption tracks. Yeah, that's
Speaker 1: what we're expecting. Um. If it doesn't, then you would
Speaker 1: be talking about recession. We're just not seeing that in
Speaker 1: in the of the indicators, and certainly not any of
Speaker 1: the leading indicators. You know, if if businesses crack and
Speaker 1: start laying off workers, and it doesn't matter how healthy
Speaker 1: the consumer is, they'll stop spending. UM. But if you
Speaker 1: get better tone on trade, then you know, you have
Speaker 1: to ask yourself what happens following manufacturing slowdowns that don't
Speaker 1: lead to recession? And you can see the at the
Speaker 1: I s M starts bottoming and then starts to move up.
Speaker 1: My guess is probably later this year into Q one,
Speaker 1: we'll see that it formed a bottom and started turning
Speaker 1: back up. And so that's a nice thing. But what
Speaker 1: what happens in environment where doesn't lead to recession, but
Speaker 1: you still got this undercurrent of incredible uncertainty? Will eventually
Speaker 1: investor UH firms have to invest in replacement capital? Just
Speaker 1: to support even domestic demand. And so you get at
Speaker 1: least some modicum of business investment UH, and so that's
Speaker 1: positive rather than declining investment as we've had this year.
Speaker 1: And then how difficult would it be to get a
Speaker 1: clean rate on this payroll support in forty minutes? It'll
Speaker 1: be near impossible, UH, just because we know how many
Speaker 1: GM strike UH workers were on strike official report came
Speaker 1: out forty six thousand. But how many downstream manufacturers furloughed
Speaker 1: workers UM or in an idled UH their their productions
Speaker 1: for those weeks of October that the strike UH harried on. UM.
Speaker 1: You know what we do as forecasters. As you've got
Speaker 1: a model, UM, you forecast payrolls for that month. There's
Speaker 1: nothing that suggests payrolls were very soft over the month.
Speaker 1: And then on the back end of that, you shave
Speaker 1: off the number that you think would be associated with
Speaker 1: the GM strike. And that's how we come up with
Speaker 1: our number of around ninety thousand for private payrolls. You
Speaker 1: add the strikes back into that, UH, and you've got
Speaker 1: something around a hundred and fifty private payrolls. Nothing really
Speaker 1: pointed to a deterioration in labor growth consumers still very
Speaker 1: upbeat about the labor market. In October. Initial jobless claims
Speaker 1: would suggest that the knock on effects from the GM
Speaker 1: strike we're not that large. I mean the striker the
Speaker 1: striking workers cannot file jobless claims, but other workers that
Speaker 1: are affected can and jobless claims were still extraordinarily low
Speaker 1: during the survey week. So that's why there's nothing fundamental
Speaker 1: there that says is a horrible labor market. You're just
Speaker 1: gonna have an ugly looking number because of GM. And
Speaker 1: I'm glad that chair Pal addressed it in his Q
Speaker 1: and A uh this week. Um, he doesn't see he
Speaker 1: would not have seen the full employment report, but he
Speaker 1: would have seen the manufacturing segment of it because they
Speaker 1: have to have that to put out the Federal Reserve
Speaker 1: Industrial Production Report. Ellen, I'm wondering about hourly earnings. The
Speaker 1: expectation on the survey is three percent uh, and that's
Speaker 1: up from two point nine percent, and the prior reading
Speaker 1: average hourly earnings expected to be higher as well. What
Speaker 1: do you take away from that? What do you need
Speaker 1: to see to sustain the strength in the consumer? Yeah,
Speaker 1: highly so, so it is it is um. Uh. You
Speaker 1: know how many jobs are we creating our way? Is
Speaker 1: wage growth holding up? Uh? What kind of financial market
Speaker 1: income are we getting? The top income quentile represents of
Speaker 1: all consumer spending and they can at time spend out
Speaker 1: of that increased wealth. But labor market income is the
Speaker 1: overall over our waching driver. And you've got slower job
Speaker 1: growth and wage gains that aren't picking up materially. And
Speaker 1: so we've had, uh, you know, we've got I wouldn't
Speaker 1: call it weak, um, but less of a firm backdrop
Speaker 1: for consumer spending just from labor market income. And that's
Speaker 1: one reason why we expect spending to be slower going
Speaker 1: into compared with with this year. But that's not saying
Speaker 1: anything terrible, right, We've got about two point six percent
Speaker 1: growth and consumer spending this year. That's incredible, and mostly
Speaker 1: from lower interest rates. Next year, you don't drop it
Speaker 1: interest rates further, but you still maintain that support. But
Speaker 1: job growth continues to slow, and so that does mean
Speaker 1: less support for consumer spending. We're expecting around two percent
Speaker 1: consumer spending growth and if we get that is very
Speaker 1: unlikely that we get a recession. Well, let's turn to
Speaker 1: the FEDOM what it means for the Federal Reserve. There's
Speaker 1: a debate at the moment, Allen As. I'm sure you
Speaker 1: know that the benchmark, for further reason is now a
Speaker 1: material reassess of the outlook at the FED. That's the
Speaker 1: benchmark for another cod if you've got an idea of
Speaker 1: what the material reassessment of the outlook actually is. Yeah,
Speaker 1: when I think about it, I just think about, well, well,
Speaker 1: what are the positive things that that chair pal and
Speaker 1: if I keep pointing to jobs, jobs, jobs, consumer, consumer,
Speaker 1: consumer and UH and the two are linked, right, So
Speaker 1: you gotta watch initial jobless claims as that trend. So
Speaker 1: that's four week moving average, so we're not looking at
Speaker 1: natural disaster effects, we're not looking at holiday effects. When
Speaker 1: that starts trending higher, you could pretty much put a
Speaker 1: time stamp on how much longer UH the expansion will last.
Speaker 1: And so that's that's something that they certainly would be
Speaker 1: watching closely. The number of things. And what's so important
Speaker 1: here is everybody trots out the jobs claims is a
Speaker 1: is an optimistic thing. To five percent of my mail
Speaker 1: doesn't agree with the vector of jobless claims. A huge
Speaker 1: part of America, it feels there under employed. Good morning
Speaker 1: David blanche Flower at Dartmouth or they feel that they're
Speaker 1: not participating in all this good news at one G
Speaker 1: d P. I mean today's jobs report, is it really
Speaker 1: a picture of America? Yeah, I think it's a picture
Speaker 1: of America because the job's report, if you look into
Speaker 1: the unemployment uh numbers you've got, you've still got a
Speaker 1: high amount of folks that are underemployed. You've got some
Speaker 1: better unemployment rate numbers uh that are that are partly
Speaker 1: reflecting simply people leaving the labor market. Um. But I
Speaker 1: would caution here that when you look at a lot
Speaker 1: of those metrics under employment metrics, they're no worse today
Speaker 1: uh than they have been in prior expansions. Uh. In fact,
Speaker 1: they're back at at lows before the financial crisis. And
Speaker 1: so they're always going to be underemployed, they're always going
Speaker 1: to be part time for economic reasons, they're always going
Speaker 1: to be discouraged workers. But I don't find that they're
Speaker 1: particularly higher much higher amounts than we have had in
Speaker 1: the in the past. But to pick up on Time's point, Alan,
Speaker 1: we have seen delinquencies and defaults picking up with credit
Speaker 1: card receivables auto loans. People talking about a two tier
Speaker 1: economy with the lower income Americans falling behind UH and
Speaker 1: increasingly have to access credit. How much does that matter
Speaker 1: for the overall economy? And it certainly matters on the
Speaker 1: specific level. But from an economic perspective, so I think,
Speaker 1: so there's a socio economic UH story to tell here,
Speaker 1: and there's an overall economic story to tell here. We
Speaker 1: always want the consumers to participate across the board, across
Speaker 1: income groups, and one of the best ways to do
Speaker 1: that is a very strong labor market. As you know,
Speaker 1: we can see when we look at delinquencies. And what
Speaker 1: I would UH say is that if you if you
Speaker 1: strip out subprime UH from the rest of UM UH
Speaker 1: credit UH, you can see that that is the area
Speaker 1: that's driving up credit card delinquencies at driving up auto delinquencies. Now,
Speaker 1: that is what we should be seeing at this late
Speaker 1: stage of an expansion. You always see credit dynamics or
Speaker 1: credit deterioration turn up in the low income subprime groups first,
Speaker 1: and then it spreads out to more credit products and
Speaker 1: then marches up the income chain. So to me, this
Speaker 1: is something natural that we should be seeing now. Now
Speaker 1: from a socio economic standpoint now, it's terrible. It's terrible.
Speaker 1: If you look at rents and healthcare as a share
Speaker 1: of overall income, it's an increasing burden series burden for
Speaker 1: low income groups UM and that just continues to add
Speaker 1: to income inequality in the US and is much more
Speaker 1: long term and long lasting issue than just what are
Speaker 1: they going to do over this cycle. This has been
Speaker 1: wonderful Allen Saner, thank you so much again. Chief of
Speaker 1: Coloms Stanley is well this morning. Why don't you bring
Speaker 1: in our steam guest series. He helped us a lot
Speaker 1: on said happy to say Jeff Rosenberg joined us now
Speaker 1: blank Financial Senior portfolio manager. Money to Jeff, morning, your
Speaker 1: first tight place. That's a strong report, and you know
Speaker 1: this is you're talking about thirty one under it on
Speaker 1: the SMP. This is this is all about, you know
Speaker 1: what we'll get a little bit later this morning in
Speaker 1: terms of I s M, but it's about really pushing
Speaker 1: back hard against this recession risk that had been on
Speaker 1: the top line. We'll see what happens at at ten am.
Speaker 1: Market expectations are for that to also rebound, and you're
Speaker 1: going to have a story coming out of today which is,
Speaker 1: you know, good news on the trade. Uh, you know
Speaker 1: the Fed, yes, there may be done cutting rates, but
Speaker 1: they did what they needed to do, and the economy
Speaker 1: is showing signs that it doesn't need as much support,
Speaker 1: you know, and that's a pretty good story. The president
Speaker 1: needs to job own a need for a rate cut
Speaker 1: or certainly gross accommodation. And let's say politically, Jeff Rosenberg,
Speaker 1: that goes to one point nine g d P with
Speaker 1: this better than good report, can black rocket? Can you
Speaker 1: model a higher GDP statistic forward? Not not hugely? You know,
Speaker 1: we're we're basically yet trend. And and the issue is,
Speaker 1: and again it goes back to that I S M figure,
Speaker 1: is that you know, the consumer side of the economy
Speaker 1: has not been affected. And what the Job's report today
Speaker 1: is about is a stronger than expected report really eases
Speaker 1: the concern. And the concern has been will this trade uncertainty,
Speaker 1: will the manufacturing uncertainty, the decline in in the business
Speaker 1: side spill over in the form of decreased hiring that
Speaker 1: eventually shows up in consumers that seems to certainly be
Speaker 1: diminished as as a risk. And and so you know
Speaker 1: that's a that's a that's strengthening the outlook for the
Speaker 1: ability to avoid recession. That doesn't necessarily get you back
Speaker 1: up to the three percent level because the investment side,
Speaker 1: the business side, there's been a drag. Jeff, you and
Speaker 1: I talked about this in FED day and again thank
Speaker 1: you to you and black Rock for your contribution. While
Speaker 1: we saw the press conference, and you and I talked
Speaker 1: about one indicator, which is a three month tenures spread.
Speaker 1: It's come in a little bit in the gloom of
Speaker 1: the last couple of days. Andrew holl And Horset City Group,
Speaker 1: I think had the same tone you have, which was
Speaker 1: where whatever series Global Wall Street looks at, we're right
Speaker 1: now at a tipping point, almost on a knife edge,
Speaker 1: a constructive knife edge. We really don't know which way
Speaker 1: this is gonna tip. Do you agree with that idea? Yeah, exactly.
Speaker 1: And and just to to frame it, you know, what's
Speaker 1: going on is there is an elevated risk of recession
Speaker 1: coming mainly from you heard you heard Powell. You know
Speaker 1: layout the reasons global growth slowing, trade uncertainty, US manufacturing,
Speaker 1: and business confidence declining. And and that is in contrast
Speaker 1: to the strength you know, today's payroll report, the revisions.
Speaker 1: This is about the strength of the consumer, the strength
Speaker 1: of the labor markets. And so when you see these
Speaker 1: increases in recession risk recession risks, which way does it go?
Speaker 1: Most of the time it goes back to expansion, But
Speaker 1: one out of four times it turns into recession. And
Speaker 1: so that's been the concern. I think today it's going
Speaker 1: to be about easing some of that concerns UH and
Speaker 1: risk on fields to the market. Jeff Rozenberg of Black Rock,
Speaker 1: I'm looking right now, I'm wondering if this strength is
Speaker 1: enough to make this not just a noisy, dismissable report,
Speaker 1: but something very significant showing ongoing strength, ongoing bringing of
Speaker 1: workers into the labor force. Well, well, you know, particularly
Speaker 1: with the revisions, which which gets you back up to
Speaker 1: the faster than the most recent pace. You know, certainly
Speaker 1: there was a lot of noise around the strike and
Speaker 1: as Jonathan's leading was saying, there's gonna be a lot
Speaker 1: of kind of apologies for the week report today. Now
Speaker 1: it's more a little bit of head scratching of maybe
Speaker 1: it's not weakening as much as we thought, and a
Speaker 1: lot of these concerns are are less likely to show up.
Speaker 1: You know, it's it's a high frequency report. So you
Speaker 1: know what, we'll move on to the next data release here,
Speaker 1: but there's certainly a trend here with the pivot at
Speaker 1: the beginning of the month. On trade is really the
Speaker 1: critical issue here, that's the source of the recession risk.
Speaker 1: Now we can debate whether or not that's going to
Speaker 1: be for the long run a permanent state of trade uncertainty.
Speaker 1: You can't really argue that is the case. But you know,
Speaker 1: the market's focus on what's right in front of their faces,
Speaker 1: and what's right in front of their faces is some
Speaker 1: good data, some easing on the trade front, and all
Speaker 1: of that is supportive of of of a good economic backdrop.
Speaker 1: Does this mean your interview with Mr Cudlow is an
Speaker 1: hour long? Now? Unfortunately he be about fifteen minutes because
Speaker 1: he's gonna want to talk this morning. Jeff, this is
Speaker 1: why it's so so difficult right now for market participants.
Speaker 1: You know that famous line there's two types of forecasters,
Speaker 1: those that a wrong and those that don't know. They
Speaker 1: don't know, And Jeff, I just wonder if we all
Speaker 1: don't know what's going to happen with the trade story,
Speaker 1: how can we make a market cool when it's so
Speaker 1: so crucial to developments into next year. Well, yeah, you
Speaker 1: have to recognize the uniqueness of the of the trade
Speaker 1: risk in that it is inherently political, which means nobody knows,
Speaker 1: there's no distribution, you can't really predict it. So you
Speaker 1: have to build in the uncertainty into your portfolio allocation,
Speaker 1: your process. That's what we do. Uh. And then you
Speaker 1: just have to be able to react to the change
Speaker 1: in the environment. And that's what's going on in the markets.
Speaker 1: That's why October basically is back up across markets, is
Speaker 1: because they're reacting to the change and and and the
Speaker 1: market will be highly reactive if there's a change to
Speaker 1: the negative, much as we've seen in the pattern on
Speaker 1: the trade negotiations. They're hot, they're cold. You can't really
Speaker 1: predict it, but it's certainly is the driver right now
Speaker 1: moving markets. Jeff, before we let you go, just a
Speaker 1: word on the markets in the bond market right now,
Speaker 1: where's the team at black Rock really focused? So we're
Speaker 1: focused on this, this recession risk notion and and and
Speaker 1: how do you build portfolio is in that kind of environment,
Speaker 1: and it's about resilience. You can't deny that there is
Speaker 1: a late cycle aspect to our markets. There is a
Speaker 1: heightened sense of recession risk again today. Yes, high frequency
Speaker 1: that's going to take some of those risks down. But
Speaker 1: the stance of where we are in the bond markets,
Speaker 1: as Tom was asking before, you know, it's on a
Speaker 1: nice edge. And so when you're in that kind of
Speaker 1: environment bond investors, you know, we we have to play defense.
Speaker 1: That's our job in the portfolios. So that's what we're concentrated. Jeff,
Speaker 1: thanks so much, greatly appreciate your effort with US. Is
Speaker 1: on FEDS Day, FED Day with Jeffrey Rosenberger Black Rock
Speaker 1: in here today on a better than good jobs report.
Speaker 1: We are right now, just moments away Jonathan Faraoll Tom
Speaker 1: Keene sitting down with Richard Clarada, vice Chairman of the
Speaker 1: Federal Reserve. They will be breaking down this strong jobs numbers,
Speaker 1: getting a look at what that means for the FED
Speaker 1: going forward. Right now, John Farrell, Tom Keene joining us
Speaker 1: now from Bloomberg Television and Radio exclusive interview. I'm pleased
Speaker 1: to welcome to the show. Richard Clarenda Federal is a
Speaker 1: vice chairman and my surveillance radio co host. Tom Keene
Speaker 1: making his debut on this set as well. Good morning, Jens.
Speaker 1: It's good to see you, and it's a change. This
Speaker 1: is different than you and I expected two hours ago.
Speaker 1: It's a solid JOLS report that we thought we might
Speaker 1: have to make some excuses for maybe sixty minutes ago.
Speaker 1: It comes out a lot better and I think it
Speaker 1: would be great here. Maybe i'll take a broader chech
Speaker 1: with a vice chairman, and I know there's lots coming
Speaker 1: off of Michael McKee's first question at the FED press
Speaker 1: conference the other day. Vice chairman, thank you again for
Speaker 1: joining us or at Bloomberg. I want to go back
Speaker 1: to a word identified with the vice chairman of the FED,
Speaker 1: and that is solid. We just had a more than
Speaker 1: solid jobs report. The President of the United States tweeting
Speaker 1: out about it a few days ago, he tweets out,
Speaker 1: maybe we need lower rates to find for us as
Speaker 1: a starter. What is the new solid that you see
Speaker 1: into next year. Well, this was certainly a very solid
Speaker 1: labor market report. As we sat in our statement, you know,
Speaker 1: we have ongoing growth in the economy. We have inflation
Speaker 1: near our objectives, so the economy is in a very
Speaker 1: good place. You know, growth is as we've characterized growth
Speaker 1: as moderate, right Now, the global economy has been slowing
Speaker 1: and that and that's a factor, but the U. S
Speaker 1: economy is very resilient. Uh and the and these are
Speaker 1: good numbers. Both the GDP number and the labor market
Speaker 1: number surprised a bit on the upside, So that's a
Speaker 1: good thing. And those numbers, those g d P numbers,
Speaker 1: are they politically acceptable to this nation? Is great for
Speaker 1: economists like you to talk about one point nine as
Speaker 1: a center tendency, but is that politically well, I'm not
Speaker 1: going to get into the politics tom our job at
Speaker 1: the FED. We have a dual mandate maximum employment, price stability.
Speaker 1: We've made some adjustments in our policy right we think
Speaker 1: they are and will continue to give significant support to
Speaker 1: the economy. And we're we're we're a favorable outlook for
Speaker 1: the economy. Let's talk about the outlook, the balance of
Speaker 1: risks around the outlook right now, how would you describe
Speaker 1: the balance of risk around that outlook? Rich Well, John,
Speaker 1: I would say for most of the year, the balance
Speaker 1: of risk had probably been tilted a little bit to
Speaker 1: the downside, not so much because of the US, but
Speaker 1: we're part of the global economy. We've got a global slowdown,
Speaker 1: there are some pretty powerful global disinflationary pressures, and as
Speaker 1: we said in July, uh in, in September, and this week,
Speaker 1: we felt it was appropriate to make some adjustment in
Speaker 1: our policy to provide some insurance or cushion against really
Speaker 1: sort of a softening global economy. You know, you saw
Speaker 1: that at the IMF a week or so ago, downgrading
Speaker 1: the global outlook. So we think the economy is in
Speaker 1: a good place. We think monetary policies and the balance
Speaker 1: of risk that still tilted to the downside, I would
Speaker 1: say somewhat Yeah. Looking at the economic assessment of the
Speaker 1: Federals of Shaman, we're trying to understand what a material
Speaker 1: reassessment of the outlook would be to reach that benchmark
Speaker 1: for another move. Can you give us some clamority on that.
Speaker 1: What is a material reassessment of the outlook? How much
Speaker 1: data does one need to make that assess? Well, first
Speaker 1: of all, let's remember what is the baseline outlook. The
Speaker 1: baseline outlook is for ongoing continued growth, a very solid
Speaker 1: labor market, and inflation near our objective. Obviously, if we
Speaker 1: saw accumulating evidence that we were missing on employment, we
Speaker 1: were missing on inflation, and we were missing on the
Speaker 1: growth needed to suspain full employment and price stability, then
Speaker 1: we would have to factor that in. We will be
Speaker 1: data dependent, but we're saying our baseline outlook now is
Speaker 1: policies in a good place. The next meeting is a
Speaker 1: live meeting. Every meeting is alive. We're just trying to
Speaker 1: figure out what the next meeting actually is. Do you
Speaker 1: need a month of data to take another look at this?
Speaker 1: Do you need three months of data to take another
Speaker 1: look at this? How long does one need? Well, well, Jonathan,
Speaker 1: we meet eight times a year, and as we indicated,
Speaker 1: as we did back in October, we need to we can.
Speaker 1: We have had meetings in between. So yeah, we're just
Speaker 1: take the data as it comes in. The data comes in.
Speaker 1: But the fact is there's an arch debate about two.
Speaker 1: America's David blanche Flower up at Darkness talks about the underemployed.
Speaker 1: It's fine, day of models, it's fine to speak is
Speaker 1: a public voice as you are now, Professor Clarata. But
Speaker 1: the truth of the matter is there's two. America's chairman
Speaker 1: Powell is addressing this with a more social mandate from
Speaker 1: the Fed. How do you address in the next year
Speaker 1: two America's one employed fully employed and the other really struggling. Well, Tom,
Speaker 1: let me talk about that, because I think Chair Pale
Speaker 1: has has very effectively conveyed what we at the FED believe.
Speaker 1: You know, we have basically one instrument, which is to
Speaker 1: raise or lower the policy rate. So obviously it's a
Speaker 1: very complex economy. But what we do know, and we've
Speaker 1: had these FED listened to events. We've had fourteen FED
Speaker 1: listened events this year, and what we've heard from those
Speaker 1: events is the substantial, robust benefits of having a fully
Speaker 1: employed economy, the wage gains at the lower end of
Speaker 1: the income distribution opportunity. Now, Congress has given us a
Speaker 1: dual mandate max employment and price stability. We have the
Speaker 1: privilege not to be presiding over time when we're close
Speaker 1: to full employment, and we think there's a real benefit
Speaker 1: to keeping the economy there. So that's the way we're
Speaker 1: focused on it. But let's talk about that Joe mandate.
Speaker 1: So what de Great do you think the f X
Speaker 1: channel at the moment is hampering your ability to hit it? Well?
Speaker 1: Foreign exchange rates obviously go up and down for a
Speaker 1: lot of reasons, and I'm not going to say too
Speaker 1: much more about it than that as as a fed
Speaker 1: uhanning and let me finesse it just a little bit.
Speaker 1: Then I don't want the policy for scription. I just
Speaker 1: want an assessment. Really, to what degree, to what extent
Speaker 1: do you think the fex channel is it currently stands,
Speaker 1: is curtaining your ability to hit your inflation? So I
Speaker 1: would not I would not say that that's an impediment
Speaker 1: to our hitting our inflation target. We had a news
Speaker 1: story out here yesterday, a legitimate reported news story on
Speaker 1: the Chinese response where they demand tariffs be lowered. Can
Speaker 1: you afform Professor Clarret of Columbia University teaching econ one
Speaker 1: oh one, who pays tariffs? Help us with this? Right now?
Speaker 1: Let's slow down. Here's this arch issue. My chart of
Speaker 1: the year is customs collections out three, four or five
Speaker 1: standard deviations. Inform all of us, including the president watching
Speaker 1: right now, who pays for these tariffs? Well, Tom, I'm
Speaker 1: not going to get into trade policy one number two.
Speaker 1: That's a very complex issue. It involves the incidents of
Speaker 1: the tariff, it evolves profit margins, it involves exchange rates.
Speaker 1: I have not looked into it, and I have nothing
Speaker 1: for you on that what we have them in the
Speaker 1: U S economy quite clearly. Playing into all of this
Speaker 1: is a tug of wall between the resilient consumer and
Speaker 1: weak business investment. When you look at at the moment,
Speaker 1: is it your round like that you think business investment
Speaker 1: picks up before we see a crack in the consumer
Speaker 1: or is it the other way around? How should I
Speaker 1: think about that? First of all, John, we don't see
Speaker 1: a crack in the consumer. I've said publicly in some
Speaker 1: recent speeches that in my professional career, which goes back
Speaker 1: more than thirty years, in the aggregate, the U. S.
Speaker 1: Consumer has never been in better shape. Saving trade as high. Uh,
Speaker 1: there's been deleveraging, income gain are strong. So we don't
Speaker 1: see the consumer cracking. There has been a slowdown in
Speaker 1: a weakening and business investment. That's a complex issue and
Speaker 1: I think it involves a global slow down and some
Speaker 1: other factors um and that's why one of the reasons
Speaker 1: why that that we decided in July to provide some
Speaker 1: modestly more accommodative policy in some sense to try to
Speaker 1: offset some of those headwines. We have seen a rebound
Speaker 1: in housing, so the housing sector is now contributing to
Speaker 1: growth for the first time in about six quarters, and
Speaker 1: so you have to look at the whole picture. I think, John,
Speaker 1: what is a hawkish cut? That was the phrase two
Speaker 1: days ago. Could you enlighten us? We cut interest rates,
Speaker 1: but there's a hawkish tone to that. Well, we get
Speaker 1: a language of hawkish cut, Thomas. You know, I spent
Speaker 1: decades as a FED watcher, and if I were still
Speaker 1: a FED watcher, I would be commenting on that. I
Speaker 1: can just tell you what we did do. We provided
Speaker 1: additional accommodation at the meeting, and we indicated then and
Speaker 1: I'll say again, we think that monetary policy is now
Speaker 1: in a good place will benefit from that additional accommodation
Speaker 1: and the timeline that you get from consecutive rate cuts, Well,
Speaker 1: Milton Friedman taught us that monetary policy operates with the lag.
Speaker 1: We just put these adjustments in policy in place, and
Speaker 1: so we would expect to see that begin to impact
Speaker 1: the economy. Uh. You know, beginning in the fourth quarter
Speaker 1: and and into next year. Generally interest sensitive sectors are
Speaker 1: going to benefit. Durable goods uh. In UH in particular,
Speaker 1: you'll take Rich and the type of others at the
Speaker 1: Federals of US being that announced the protection is worth
Speaker 1: a pound of fuel. That was the argument when we
Speaker 1: were in and around two and a half percent of
Speaker 1: the FED funds. Right now we've dropped seventy five basis points.
Speaker 1: Do you still make the very same argument or do
Speaker 1: you have a different calculation to make well again, we
Speaker 1: provided accommodation precisely because we saw some of these headwinds
Speaker 1: and we thought that account recalibration of policy was appropriate.
Speaker 1: And as Chair Pal indicated in all restate, I think
Speaker 1: and we think monetary policy is in a good place.
Speaker 1: Whether it's the excellence of Stanley Fisher, and I think
Speaker 1: a lot of people watching Vice Chairman Fisher said, who
Speaker 1: is that guy? The same thing with you? They don't
Speaker 1: know the youre clarative of dynamic stochastic general equilibrium. It's
Speaker 1: probably just as well a lot of people would say that.
Speaker 1: The I m F did a meeting in Vienna two
Speaker 1: weeks ago where they talked about your work in this
Speaker 1: new phase of fiscal space, dovetailing fiscal policy, and do
Speaker 1: you agree with the central bankers at its time now
Speaker 1: on a global basis and even on an American basis,
Speaker 1: to find a fiscal relief to all the burden put
Speaker 1: on monetary officials. You know, Tom, I really don't want
Speaker 1: to get into fiscal policy other than to say that, um,
Speaker 1: that's really a decision in our case for the Congress
Speaker 1: and the President. The way we conduct policy at the
Speaker 1: FED as we take fiscal policy as an input into
Speaker 1: our outlook. And I'll just leave it. Leave it at that,
Speaker 1: we engineered a self landing the economy right now. First
Speaker 1: of all, that the growth in the economy and the
Speaker 1: prosperity of the economy is due to hard working you know,
Speaker 1: indivisuals and companies, and so that's really the source of
Speaker 1: the strength of the economy right now. Again, I would
Speaker 1: characterize the economy is operating, you know, in the range
Speaker 1: of trend growth. There's a range of estimates of train growth.
Speaker 1: What we do know is that unemployment rates near fifty
Speaker 1: year low. Let me also say that there's we saw
Speaker 1: a good indication on wages in this report. They're picking up.
Speaker 1: I don't see we as a FED don't see wage
Speaker 1: inflation as a source of concern. It's not showing up
Speaker 1: an excessive price inflation. And let me say one more thing.
Speaker 1: The share of income going to labor has increased in
Speaker 1: the last several years plus three years or so by
Speaker 1: about two percentage points. That's not getting enough attention as
Speaker 1: it deserves. And so as this economy expands and prospers,
Speaker 1: we do see those gains going to labor and I
Speaker 1: think that you know, that's a positive development right now
Speaker 1: in the range of train growth that was already of response.
Speaker 1: What is the range of train growth and what do
Speaker 1: you think train growth is? Well, you know, we we
Speaker 1: have a summary of economic projections at the at the
Speaker 1: FED that we released four times a year. There's a
Speaker 1: range of views on that. I think the current median
Speaker 1: of the group is one point seven at one point
Speaker 1: eight percent. Suffice to say, I'm more optimistic on trained
Speaker 1: growth than the media. Why would you put it, Well,
Speaker 1: there's a customer at least among the governors of not
Speaker 1: revealing our dots. But let me just say, I'm more
Speaker 1: optimistic than the media. And do you think they can
Speaker 1: get back to those levels? Well, productivity is a function
Speaker 1: of not only innovation, but capital investment and skills in
Speaker 1: the labor force. But I have said an I continue
Speaker 1: to believe. I think that we've seen a bottoming. We
Speaker 1: had a really slow stretch of productivity growth through about
Speaker 1: a decade, and I think it bottomed out about three
Speaker 1: years ago, and I think that is a positive. Does
Speaker 1: the economy lead productivity or does productivity lead the economy?
Speaker 1: You know that's the sixty two or two next year. Okay,
Speaker 1: let me ask you, this mid cycle is all the
Speaker 1: vogue I mentioned Hawkers cutting. You wouldn't give me an
Speaker 1: honest answer on that. Give us a the British short term,
Speaker 1: medium term, long term? What in God's name is mid cycle?
Speaker 1: What is that signal to our viewers and listeners worldwide? Well,
Speaker 1: let me focus on what late saw CCLE is late
Speaker 1: cycle as you think a recession probability is elevated. All right,
Speaker 1: so you're not We're not late. We're not late cycle.
Speaker 1: Let's just say we're not late. It's the mid nineties
Speaker 1: parallel to what we're experiencing now. A good comparison? Is
Speaker 1: that useful? I think no parallel is perfect. Circumstances always differ.
Speaker 1: But I myself, in several comments, including in interviews on
Speaker 1: this station and speeches, have made reference to the to
Speaker 1: the episodes because what they illustrate is that one will
Speaker 1: one Central Banks under the leadership of Vulkeran Greenspan. Once
Speaker 1: you achieve price stability, it does give the central bank
Speaker 1: more ability to be nimble within a business cycle to
Speaker 1: adjust and recalibate rates. And we saw that under Chair
Speaker 1: Greenspan in the nineties. Uh and I think in retrospect
Speaker 1: that was a decade longer expansion and that was certainly
Speaker 1: a positive support for that well said, But we are
Speaker 1: now near the zero bound, worried about Japanification, worried about
Speaker 1: Jon Moens that uh, JP Morgan talk in about a
Speaker 1: vector of the ten year you'll down give us some
Speaker 1: comfort that that dynamics in the nineties can work here
Speaker 1: so close to the zero bound. That's a very good point, Tom,
Speaker 1: and that is a difference from the nineties, and that
Speaker 1: rates were starting from a higher level then you know,
Speaker 1: we we made the decision as a committee in July,
Speaker 1: September and October, understanding where rates are now, where the
Speaker 1: economy is, that it was appropriate to provide this accommodation.
Speaker 1: My my good friend and colleague John Williams at the
Speaker 1: New York Fed had done some very important work on
Speaker 1: thinking about how to do monetary policy near the zero bound.
Speaker 1: And what I've said many times in my professional career
Speaker 1: going back twenty five years. Is policy has to be
Speaker 1: forward looking because of the long and variable lags. If
Speaker 1: you have an opportunity to adjust policy to offset shocks,
Speaker 1: you should take that advantage of that. And that's what
Speaker 1: I think we've done. What's the trade off the rich, Well,
Speaker 1: the trade off is monetary policy is more art than science.
Speaker 1: It requires judgment, It requires a humble understanding that our
Speaker 1: models aren't perfect. Um. I you have to put all
Speaker 1: of that into the mix. But again, just let me
Speaker 1: say I'm very happy with where we are now with
Speaker 1: the stands. Amne, you sound pretty optimistic about the U.
Speaker 1: S economy. I've got to say that's my psycho end
Speaker 1: of FUS fifteen minutes of this interview. I am an
Speaker 1: opt My mother and father raised me to be an
Speaker 1: optimist objective that objectively, the economy is in a good place.
Speaker 1: This is the longest this is the longest economic expansion
Speaker 1: in US history, going back to the eighteen fifties. Unemployment
Speaker 1: at a fifty year log, inflation near target, and our
Speaker 1: focus at the FED is solely to put in place
Speaker 1: policies that helped to keep us part of it in
Speaker 1: the clarative charm is you're from Illinois. You've got a
Speaker 1: different few hubbards from Florida. Claratas of Illinois many others.
Speaker 1: Is a wonderful geography to our and were and we're
Speaker 1: both the sons of public school teachers. Well, okay, we'll
Speaker 1: go with that as well. Good morning to all the
Speaker 1: teachers there. But I'm going to say this right now,
Speaker 1: there's a different view in the Midwest. Right now, it's
Speaker 1: a Midwest flat on its back because of these tariffs
Speaker 1: and agriculture. It's a Midwest flat on its back from
Speaker 1: manufacturing euro Upe to mystic. As John mentions, you mentioned
Speaker 1: the words solid, but it's only solid to a part
Speaker 1: of America. How can authorities and the Fed drag the
Speaker 1: rest of America somewhat flat on their back into a
Speaker 1: better America? Thoma's a good point. As I mentioned a
Speaker 1: moment moment ago, the Federal Reserve essentially has one policy instrument,
Speaker 1: which is to raise or lower the policy rate. It's
Speaker 1: a big economy, three million people, fifty states, UH, and
Speaker 1: there are a lot of dynamics at play. UH. And
Speaker 1: we're humble in the ability of our tools to really
Speaker 1: focus on the overall aggregate um economy. I'm obviously cognizant
Speaker 1: of those concerns and those challenges, but we're just trying
Speaker 1: to stick and do what we can to contribute to
Speaker 1: where the economy is right now, let's explore the optimism
Speaker 1: just a little bit further. What is it about the
Speaker 1: current economy that differs from the middle of this year
Speaker 1: when the right cutting cycle the adjustment actually started. What
Speaker 1: you take more confidence in now that you didn't see
Speaker 1: this year? Well, what I would say, Johnathan, we've done
Speaker 1: the adjustment. I I would be less oftenistic about the
Speaker 1: economy if we had not made those seventy five basis
Speaker 1: point adjustments. And so I think the optimism is a
Speaker 1: context of where policy is relative to relative to the headwinds,
Speaker 1: and I think I think that's been born out. Some
Speaker 1: folks were talking about the consumer is going to turn over,
Speaker 1: or you know, the labor market. I mean, going into today,
Speaker 1: how many UH speculations did we see of a terrible
Speaker 1: labor market report? So that third quarter data came in
Speaker 1: as on you know, on the upside surprise, and I
Speaker 1: and I think you factoring in what the adjustments we've
Speaker 1: made in policy is a is an important part is
Speaker 1: this confidence in the economy that will in the policy setting.
Speaker 1: The hard data on the economy is the economy is resilient.
Speaker 1: Our baseline and I think shared by many others as
Speaker 1: the economy will continue to be resilient, certainly compared to
Speaker 1: the situation that you see in Europe and another uh
Speaker 1: other countries. I mean it's a it's a global challenge
Speaker 1: as well. We kid about Chairman Paulos Central Bank or
Speaker 1: the world. Let me have you be vice chairman Bankers
Speaker 1: to the world right now. The United States must lead
Speaker 1: with a solid banking system, Bernanky, one oh one. The
Speaker 1: United States must lead with a productive productivity differential. Is
Speaker 1: that at risk right now with a political turmoil The
Speaker 1: headline of the paper of the New York Times today
Speaker 1: bringing me back to Watergate of the seven piess as
Speaker 1: well within the stew that we're in, what's the leadership
Speaker 1: the FED can provide to get us the two thousand
Speaker 1: twenty and again, we have a time, we have a
Speaker 1: very clear specific mandate from Congress. We don't get into politics.
Speaker 1: We have we have our tools, and we're trying to
Speaker 1: use the tools to keep the economy um in a
Speaker 1: very good place and I'll just leave it at that.
Speaker 1: You find it gets more difficult to adjust monitoring policy
Speaker 1: and narrowette right sauce lower broad It is a factor
Speaker 1: that you have to consider. We're part of the US
Speaker 1: as part of a global capital market. Capital flows in
Speaker 1: and out of countries. When rates are lows of rates
Speaker 1: are low abroad, capital flow is into the US. That
Speaker 1: has implications for financial conditions. Uh in in the US,
Speaker 1: and rates are lower abroad for a reason, and they're
Speaker 1: lower abroad because growth is disappointing, and that also has
Speaker 1: an impact on the US. I'm gonna I'm gonna go
Speaker 1: to leadership again. We spoke Boomberg Surveillance spoke to Berry
Speaker 1: Icon Green of Berkeley the other day is archbook Globalizing Capital.
Speaker 1: What does the globalizing message our central bank can do
Speaker 1: to provide leadership to Coronto La guard Carney, but more
Speaker 1: importantly emerging market bankers as well. What is the to
Speaker 1: do list globally for this central bank? Well that that
Speaker 1: that's an ambitious question. I think what we're focused on
Speaker 1: is obviously the dollars a very important part of the
Speaker 1: global financial system, and I think the most important thing
Speaker 1: that we can do is to keep keep price stability
Speaker 1: as an important part of our of our goals and
Speaker 1: achievements UM And certainly we can go back to the
Speaker 1: nineteen seventies, the US was not providing leadership with high
Speaker 1: involved in place, and we gonna important here and this
Speaker 1: is really important, folks. As we speak to Richard Claire,
Speaker 1: to the vice chairman of the Federal Reserve System, there's
Speaker 1: John as you and I cover every day, this path
Speaker 1: over decades. Marty Feldstein, the late Martin Feldstein telling me
Speaker 1: two decades ago about this persistence in Japan, and then
Speaker 1: it comes over to Europe and now the fear not
Speaker 1: here as it comes over to us. We talk about
Speaker 1: current market helps. Why they say some Q eight I
Speaker 1: get so many paper around this table that either scream
Speaker 1: it's que and then they scream it's no qui. Why
Speaker 1: is this no qwik, Well, it's not que, John, this
Speaker 1: is really central banking one oh one. Historically, central banks,
Speaker 1: well before the Qui era, grew their balance sheets with
Speaker 1: purchases of short dated treasury bills because there's an in
Speaker 1: as economies grow and prosper, there's an increase in demand
Speaker 1: for central bank liabilities, and the central banks did not
Speaker 1: organically grow their balance sheet. That would create a liquidity problem.
Speaker 1: So this is not qui QWI was really targeting the
Speaker 1: long end the yeld curve, tenure treasuries, thirty year mortgages
Speaker 1: were basically just buying tea bills right now and adding
Speaker 1: liquidity to the financial system. So it's not cure. You
Speaker 1: confident you can continue buying tea bills reach your objective
Speaker 1: without coming down further out the curve. Can you do
Speaker 1: it all three tea bills? That's what we said we
Speaker 1: we we believe that we can do it through T bills.
Speaker 1: We've indicated in the announcement we made in October eleven
Speaker 1: that we will be adding T bills to our portfolio
Speaker 1: at least through the middle of next year, and we're
Speaker 1: confident that that's the right right course. Well, at the
Speaker 1: New York Fed, John Williams and the team, they have
Speaker 1: to manage this on a daily basis. I know you
Speaker 1: said you don't want to talk about the fiscal dynamics
Speaker 1: of that, but do you have a different set of
Speaker 1: challenges with a nine hundred billion plus deficit and the
Speaker 1: vector of that deficit as you manage the T bill
Speaker 1: and further out repo market. Tom, I don't think it's
Speaker 1: a challenge, is just obviously something that we have to
Speaker 1: factor UH in, and under John's leadership, you know, we're
Speaker 1: certainly on top of that. Richard Clamored a special thanks
Speaker 1: to the Federal Reserve Vice Chairman. Is good to see
Speaker 1: you again. It's going to see rich Thank you very much.
Speaker 1: The conversation continues on this program. I'm pleased to say
Speaker 1: that from the White House. For the view on the
Speaker 1: job report from the White House, I'm pleased to say
Speaker 1: Larry Caudlow joins US National Economic Council Director. Good morning
Speaker 1: to Larry, Bryan Javan. Thank you. It was a much
Speaker 1: better jobs report than people expected. Your assessment, please, well, look,
Speaker 1: it was much better, and when you do the accounting
Speaker 1: across the board, you gotta look under the hood. Actually
Speaker 1: it was a three hundred and three thousand increase in
Speaker 1: non farm Paerill jobs. If you go through this, you
Speaker 1: start with your base case unadjusted a hundred thousand. But
Speaker 1: but but but the prior to months were revised up
Speaker 1: ninety five a thousand, So that gets you to two
Speaker 1: twenty three. Adjust for the GM that's sixty add that
Speaker 1: back and add the UH. The census takers back your
Speaker 1: three hundred and three thousand. It's a remarkable number, and
Speaker 1: I want to say it kind of confirms you and
Speaker 1: I have spoken about this in recent months. The huge
Speaker 1: strength in the household survey, which add another big month
Speaker 1: two hundred forty one thousand, that often is a leading
Speaker 1: indicator for the payroll survey. That's what we're seeing. The
Speaker 1: labor markets in the economy fundamentally are a lot stronger
Speaker 1: than people think. Here's another one for you that I
Speaker 1: want to get out two hundred and thirty five. I
Speaker 1: beg your pardon. Three hundred and twenty five thousand. Increase
Speaker 1: in the labor force three hundred twenty five thousand. Now
Speaker 1: that's been in a steady uptrend, and it tells us
Speaker 1: you've got a lot of people coming out of the woodwork.
Speaker 1: They're returning back to the labor force, probably attracted by
Speaker 1: good wages. You know the nons provisor reproduction wage increase
Speaker 1: twelve months three and a half percent. That's better than
Speaker 1: their managers who were running about three. So these numbers
Speaker 1: are across the board virtually a blowout number, I think,
Speaker 1: quite unexpected. Don't write off the economy just yet. I'll
Speaker 1: tell you it's got a lot of fundamental strength. Really
Speaker 1: really thinks some Lowry and most people would agree with you.
Speaker 1: We get the ice manufacturing to run about six minutes,
Speaker 1: so maybe and I, you and I could talk about
Speaker 1: that in just a moment. Let's talk about trade reports
Speaker 1: of a cool happening today between US and Chinese trade negotiates. Lowry,
Speaker 1: could you tell us a little bit more about what
Speaker 1: you'll be discussing on that's cool? Uh, Look at our
Speaker 1: lead negotiators, Treasure Secretary Manution, Trade Ambassador Laiheiser. Are they
Speaker 1: made at this point? They may be talking as you
Speaker 1: and I are talking. In any event, they're talking with
Speaker 1: Vice Premier Leu China. The trade talks are going very well.
Speaker 1: If you look carefully at the comments coming out of
Speaker 1: the official organs, the Financial Ministry, the r In Ministry,
Speaker 1: the Commerce Ministry in China, they're all very upbeat, very positive,
Speaker 1: the very productive talks. You know. Um, I can't go
Speaker 1: into deep details, obviously, but but I can't say this.
Speaker 1: The chapter on agriculture is virtually completed. That's not only
Speaker 1: the forty to fifty uh billion dollar increase in agriculture
Speaker 1: purchases but also market openings, lower non tariff barriers, very
Speaker 1: very important. The Financial Services Chapter is virtually completed. That
Speaker 1: will provide a hundred percent ownership for American banks, security firms,
Speaker 1: insurance firms operating in China. UH. The Currency Chapter is
Speaker 1: virtually completed. That will provide for currency stability with obviously
Speaker 1: safeguards against manipulation. The Intellectual Property Chapter, we've come a
Speaker 1: long way on that. I don't think it's been completed.
Speaker 1: It's still under discussion, but we've made very good progress.
Speaker 1: The deal is not completed. The deal is not done.
Speaker 1: There are issues to go on enforcement that's gonna be
Speaker 1: very very important. There will be issues on forced technology transfer,
Speaker 1: very very important. Those may slip into Phase two, but
Speaker 1: I will tell you we've come a long way. President
Speaker 1: Trump himself has indicated a desire to complete this phase
Speaker 1: one deal. President She has indicated likewise. As you know
Speaker 1: from your own reporting, there's been there's now a new
Speaker 1: search for a new venue where the two leaders can
Speaker 1: meet because the Chilean thing, the APEX thing fell through
Speaker 1: at Santiago, So we'll see. But again, it is not completed.
Speaker 1: I'd be perfectly honest about that. But enormous progress, very
Speaker 1: constructive talks which are continuing today. Let me the mid
Speaker 1: music is much better over the last two months. No
Speaker 1: one would deny that. Just want me through the specifics though.
Speaker 1: What is holding us back in Phase will, what's left
Speaker 1: to be agreed, what's holding you back? I can't be
Speaker 1: too specific, as you might imagine. Uh, I'm gonna let
Speaker 1: our brilliant negotiators do their billity negotiating. But as I
Speaker 1: said before, I went through the different chapters. Agriculture chapter
Speaker 1: looks good, Financial services looks good, currency looks good. Intellectual
Speaker 1: property theft much improved, Okay, still much more work to
Speaker 1: do on forced tech transfer uh and UM enforcement is
Speaker 1: very very important, very very important, and that's where they'll
Speaker 1: be working on. So I don't want to go any
Speaker 1: further below that surface. All I'll say is we've come
Speaker 1: further than we were last May when we thought we
Speaker 1: you know, had of the deal. UM. President Trump himself,
Speaker 1: I believe yesterday suggested that Phase one would be perhaps
Speaker 1: of what we hope ultimately to get done. But the
Speaker 1: outlook for Phase one is very positive right now, and
Speaker 1: you can see it again. I encourage people. I know
Speaker 1: there's a lot of reporting that goes on, picking up
Speaker 1: snippets here and there. I myself just like to look
Speaker 1: at the official statements from the key Chinese ministries. Those
Speaker 1: statements are very positive. Jonathan Threa, December tariff hikes still
Speaker 1: on the table. Larry Well, they're still on the table
Speaker 1: until this Phase one deal is completed or or worst case,
Speaker 1: not completed. I don't want to speculate. That's up to
Speaker 1: President Trump how he's going to handle that. But the
Speaker 1: President has hinted that depending on the process of Phase one,
Speaker 1: he may be willing, I say, may be willing to
Speaker 1: take a look at those tariffs. As you know, we
Speaker 1: suspended some other tariffs as a good will gesture and
Speaker 1: a negotiating gesture. I think that's also the good So
Speaker 1: I don't want to speculate on how it will work
Speaker 1: in December fift or later. That's all a part of
Speaker 1: these negotiations that are ongoing. I don't want to speculate either.
Speaker 1: I just want to understand what the concessions are that
Speaker 1: the US administration want from the Chinese for that December
Speaker 1: terrifying to go away. What are the specifics? Well, again,
Speaker 1: I can't repeat the laundry list As I say, the
Speaker 1: chapters I mentioned before all going very very well. But
Speaker 1: there must be something specific, Larry, that they haven't followed
Speaker 1: through on to make the threat of December terrifyings go away.
Speaker 1: What is it? I can't talk that way. I can't
Speaker 1: go that into that kind of depth. Um. After today's
Speaker 1: discussions between Minutian Liehiser and Device Premier, Um, perhaps the
Speaker 1: Secretary or the ambassador may wish to reveal that or not.
Speaker 1: It's not my role to do that. Remember, of course
Speaker 1: you have these teleconference meetings. They go on for quite
Speaker 1: some time. The deputies have been meeting. But of course, Um,
Speaker 1: all of our trade group, the so called Principles Trade Group,
Speaker 1: of which I'm a member, we will report to President Trump,
Speaker 1: and President Trump is going to make those final decisions.
Speaker 1: The President makes the final call. We expect he always will.
Speaker 1: We've reported this week that's some of the thornier issues
Speaker 1: to be down with in safe Phase two, the Chinese
Speaker 1: just one. But John, Larry, are you confident Nate will?
Speaker 1: And what gives you that confidence? Um? I didn't, you know.
Speaker 1: I don't want to speculate on that job than to
Speaker 1: be honest, because the way I look at it. The
Speaker 1: fact that we're in this Phase one is itself a
Speaker 1: big breakthrough, and to some extent that was a concession
Speaker 1: by President Trump. Rather than go for the entire which
Speaker 1: you might say a grand slam home run, better to
Speaker 1: look at it in segments, in phases. That was change
Speaker 1: and the president's thinking a couple of weeks ago. It
Speaker 1: was recommended to him by the Trade Principles Group, and
Speaker 1: it came from successful negotiations when the Chinese were here
Speaker 1: a couple of weeks ago. My view on these things
Speaker 1: is not to try to predict long term. My view
Speaker 1: is let's stay right here and now and look at
Speaker 1: what's in front of this on the Phase one agenda,
Speaker 1: which I have done my best to outline to you,
Speaker 1: I don't want to speculate on the long run. I
Speaker 1: think look negotiations. If you ever been involved with him,
Speaker 1: good things beget other good things, or vice versa, bad
Speaker 1: things beget other bad things. The way I see it
Speaker 1: and my I'm doing my best to report this to
Speaker 1: you without divulging too much. But the as the mood
Speaker 1: music is good, the negotiations are going well. You see
Speaker 1: here here's the thought. Let me give you one additional
Speaker 1: thought the official statements from China. I know I mentioned
Speaker 1: this a second ago. Let me repeat this in the past,
Speaker 1: in the past, going back, I mean, I've been here
Speaker 1: on two years doing this NonStop. Many times we had
Speaker 1: a more optimistic view, but then we would get statements
Speaker 1: and commentaries from officials in the key Chinese ministries that
Speaker 1: suggested not so much optimism this time around regarding Phase one.
Speaker 1: Please note how optimistic the Commerce Ministry, the Foreign Ministry,
Speaker 1: the Finance Ministry, and their leaders, how optimistic, how positive,
Speaker 1: the constructive they have been. I use that as a
Speaker 1: leading indicator. Jonathan, So, I don't want to get ahead
Speaker 1: of this story. I don't want to predict. All I'm
Speaker 1: saying is the Phase one talks which are here right
Speaker 1: before us, and which represented a change in the entire
Speaker 1: framework of negotiations. Those talks are not complete, but they
Speaker 1: are going well. Let's talk about leading indicators. The I
Speaker 1: M just down forty eight point three downside surprise sub
Speaker 1: fifty pretty much every industry to halve out of eight
Speaker 1: team reporting contraction in October, Larry, can you see how
Speaker 1: this tension between the United States and SHAW starting to
Speaker 1: bleed into the manufacturing segment? Of the US economy. Well, look,
Speaker 1: I think there have been in fact impacts my own views.
Speaker 1: I think you know that the impact on the US
Speaker 1: economy has been minimal. The impact on the Chinese economy
Speaker 1: has been much much greater for a variety of reasons,
Speaker 1: um perhaps four times as much. Look on the manufacturing
Speaker 1: members the market, I s M was a better number
Speaker 1: than this I s m UH. Today's jobs report, by
Speaker 1: the way, when you adjust for GM, actually showed a
Speaker 1: twenty four thousand increase in manufacturing jobs. That's the best
Speaker 1: number we've had in quite a while. One of our problems, though, Jonathan,
Speaker 1: is a European recession. We export a huge volume of
Speaker 1: manufacturing related sales to Europe, and Europe, as you know,
Speaker 1: is virtually intercessions completely flat. That has hurt us a lot.
Speaker 1: So that and of course, as we've discussed the headwinds
Speaker 1: from severe, severe monetary tightening, particularly last year, I think
Speaker 1: I've hurt that sector. Now, monetary policy fortunately has finally
Speaker 1: turned around. It's moving in the right direction. The target
Speaker 1: rate has come down to what one and a half
Speaker 1: three quarters, The YEO curve is normalizing, the balance sheet
Speaker 1: and the monetary base are expanding. So those are pluses.
Speaker 1: So we've gone from extreme tightness to a somewhat more
Speaker 1: accommodated position. That's good. That's gonna help. Manufacturing is gonna
Speaker 1: help everything. Um, the European story is a dragon manufacturing.
Speaker 1: But my hope here and again these jobs and numbers.
Speaker 1: It's three hundred and three thousand blowout jobs number today.
Speaker 1: I think our economy is stronger under the surface, and
Speaker 1: folks think ye. I think business investment is going to
Speaker 1: be on the way back. I think on trade where
Speaker 1: there is uncertainty, I grant your point. Um, China looks better.
Speaker 1: U S m c A still looks good. Reports from
Speaker 1: Capitol Hill are very good on U. S m c A, UM,
Speaker 1: Canada and Mexico obviously our gigantic markets for our manufacturing,
Speaker 1: exports and so forth, so that's going to be very
Speaker 1: helpful as well. So let's see, let's play this thing,
Speaker 1: you know, day to time, month at the time, and
Speaker 1: so forth, lotry. Most people would say that the European
Speaker 1: economy is slowing down because of what has happened in China,
Speaker 1: and what has happened in China is because of the
Speaker 1: tension between the United States and the Chinese but you
Speaker 1: and I could go back and forth from that, I'm
Speaker 1: sure for a long long time. Do you want to
Speaker 1: deal with a little bit of business with you? Fear
Speaker 1: Christman per Show and that's a merger this week. Per
Speaker 1: Show is owned twelve owned by Don Fang, a Chinese
Speaker 1: motor corporation. I'm just wondering, is the United States the
Speaker 1: your administrations taking a look at that deal? Uh? Not yet,
Speaker 1: I can report not yet. We will obviously look at
Speaker 1: it very very carefully, but not yet. What's the president set?
Speaker 1: President has not commented on that deal. You think, Larry,
Speaker 1: it's worth having a look because of a sensitivity around
Speaker 1: Shanee's own companies. This would be one of the big
Speaker 1: Detroit car companies in the United States, owned essentially by
Speaker 1: Chinese Mode of Corporation because of its ownership of Puja.
Speaker 1: We'll take your carefuital look at it. Look, m we
Speaker 1: want to do business around the world, providing that it's
Speaker 1: to our benefit, the United States benefit. I mean, I
Speaker 1: presume the other country too. But President Trump is here
Speaker 1: to defend the American economy and the American workforce, so
Speaker 1: we're not afraid of do in business with their national companies.
Speaker 1: Lord knows. With respect to the Chinese story, we obviously
Speaker 1: are alert and on guard. We have to make sure
Speaker 1: that whatever China business developments occur do not occur to
Speaker 1: the detriment of our not only our economy, but our
Speaker 1: own national security. Hence the idea of having sensitivities. As
Speaker 1: you know, we have export controls, we have an entity list,
Speaker 1: and now this automobile deal probably won't be part of
Speaker 1: that entity list. I don't think that would qualify, but
Speaker 1: I don't want to speculate that's a Commerce Department decision.
Speaker 1: Secretary Ross himself will be looking at that, so I
Speaker 1: don't want to go too far. So I'm just saying
Speaker 1: we will welcome a good deal. We hope it gets
Speaker 1: more production in the United States, more production in the
Speaker 1: United States, more factories and workers and employment in the US,
Speaker 1: and with respect to the Chinese angle, we will take
Speaker 1: a very careful look at it. Larry, it's almost great
Speaker 1: to catch up. You appreciate your time today and you've
Speaker 1: got a busy one over the White House with the
Speaker 1: tri tulks going with the Chinese. Your National Economic Council
Speaker 1: Director that Larry Caudlock joining us from the White House.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
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Speaker 1: Radio