WEBVTT - Bloomberg Surveillance TV: June 2, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:35.840 Bloomberg Terminal and the Bloomberg Business app. 0:00:36.560 --> 0:00:40.960 Joining us now is Brandon Ferris of the Steel Manufacturers Association. Brandon, 0:00:41.200 --> 0:00:43.000 thank you so much for being with us. I just 0:00:43.040 --> 0:00:46.560 want to start with how the increase in stealing aluminum 0:00:46.600 --> 0:00:50.760 tariffs works hand in hand with this deal for some 0:00:50.800 --> 0:00:53.920 sort of participation with dpon steel taking a stake of 0:00:54.040 --> 0:00:54.840 US steal. 0:00:56.320 --> 0:00:59.160 Absolutely well. Thank you for having me today, and with 0:00:59.240 --> 0:01:02.040 the deal and with what President Trump announced on Friday 0:01:02.040 --> 0:01:05.360 of raising the tariffs to fifty percent, President Trump is 0:01:05.400 --> 0:01:09.160 responding to an industry that has suffered from surges of 0:01:09.360 --> 0:01:13.759 dirt cheap steel from foreign imports, particularly from China, and 0:01:13.840 --> 0:01:17.399 so as part of this which was the largest investment 0:01:17.400 --> 0:01:21.360 in Pennsylvania history these fifty percent. Raising the tariffs to 0:01:21.400 --> 0:01:24.800 fifty percent helps protect the American steel industry. 0:01:25.440 --> 0:01:28.280 We've learned that the US imports about seventy percent of 0:01:28.280 --> 0:01:31.240 its steel needs is according to Morgan Stanley. So do 0:01:31.280 --> 0:01:34.360 you think actually they really need this level of protection. 0:01:36.640 --> 0:01:40.440 Yes, so even at twenty five percent, And the US 0:01:40.480 --> 0:01:43.840 International Trade Commission did a report on the two thirty 0:01:43.840 --> 0:01:46.800 two tariffs for steel, and what they found was that 0:01:46.840 --> 0:01:50.280 the price impacts were minimal, but what they really had 0:01:50.320 --> 0:01:54.280 a tremendous effect on was lowering the imports. Twenty four 0:01:54.360 --> 0:01:58.240 percent of imports were lowered when President Trump first instituted 0:01:58.280 --> 0:02:01.960 these tariffs in twenty eighteen. And so what we're still 0:02:02.040 --> 0:02:06.720 seeing is surges of steel into the US. China over 0:02:06.720 --> 0:02:10.080 the last year has dumped more than one hundred million 0:02:10.200 --> 0:02:13.480 tons into the global market. That is more than we 0:02:13.520 --> 0:02:15.960 make in the US in a year. So yes, we 0:02:16.080 --> 0:02:19.239 do believe that bumping up the number to fifty percent 0:02:19.400 --> 0:02:21.400 is going to be very helpful for our industry. 0:02:21.560 --> 0:02:24.400 Construction companies, I'm sure you've seen have worn that these 0:02:24.480 --> 0:02:26.840 levees are going to be increasing the cost of critical 0:02:26.880 --> 0:02:29.560 building materials. Do you have concern about the knock on 0:02:29.600 --> 0:02:32.160 effects what this fifty percent level means for the steel 0:02:32.160 --> 0:02:34.960 industry for things like construction as well as the auto sector. 0:02:36.880 --> 0:02:40.600 Absolutely, anytime a tear, for any time a trade knob 0:02:40.680 --> 0:02:43.600 is turned, you have to look at the ramifications. And 0:02:44.000 --> 0:02:47.640 when the International Trade Commission studied the two thirty two tariffs, 0:02:47.720 --> 0:02:51.480 what it found was for the downstream industries, zero point 0:02:51.600 --> 0:02:56.920 two percent increase on their prices, So again small increase 0:02:56.960 --> 0:03:00.960 on prices, but a major effect on taking the imports down. 0:03:01.240 --> 0:03:03.880 The Trump administration, though had or Trump himself had opposed 0:03:03.919 --> 0:03:07.280 this deal on the campaign trail. Are you happy about 0:03:07.280 --> 0:03:08.880 the nip on US steel deal. 0:03:10.720 --> 0:03:14.839 We're looking forward to receiving more information. Again, what we 0:03:14.880 --> 0:03:18.280 look at is right now it is the number one 0:03:18.400 --> 0:03:21.239 deal that has ever been announced in Pennsylvania. One of 0:03:21.280 --> 0:03:25.400 our other members, New Course Steel, had just recently announced 0:03:25.440 --> 0:03:28.919 the largest investment in West Virginia history. So two out 0:03:28.919 --> 0:03:33.040 of fifty states the largest investment in their history is steel, 0:03:33.280 --> 0:03:35.080 and so we like where this trend is heading. 0:03:35.400 --> 0:03:38.680 Brandon, you mentioned the dumping of steel in US markets 0:03:38.720 --> 0:03:41.720 coming from China, but let's be clear, this terifile effect 0:03:41.920 --> 0:03:44.520 much more than China. It is a sledgehammer, and you've 0:03:44.520 --> 0:03:47.760 seen complaints, for example, from the EU, from the UK. 0:03:48.560 --> 0:03:50.520 Is this the right method to take for what is 0:03:50.560 --> 0:03:53.000 a very serious problem. Should there have been something more 0:03:53.040 --> 0:03:55.080 surgical coming from the administration. 0:03:56.800 --> 0:03:59.360 We do believe that the two thirty two steel tariffs 0:03:59.400 --> 0:04:03.640 are searched, and with this, yes, we do believe that 0:04:03.720 --> 0:04:07.400 it will help our industry. And the problem is not 0:04:07.720 --> 0:04:12.160 just China, it's global overcapacity. Lots of countries use cheap 0:04:12.280 --> 0:04:15.280 Chinese steel to replace their own and then send theirs 0:04:15.320 --> 0:04:19.280 onto the global market, and so this will help solve 0:04:19.360 --> 0:04:20.280 that issue. 0:04:20.600 --> 0:04:23.600 So another concern, which again the most recent moves I'm 0:04:23.640 --> 0:04:26.280 sure you're hoping to concern, is something of just job 0:04:26.320 --> 0:04:30.360 stability and job security and any guarantees that the administration 0:04:30.440 --> 0:04:33.960 and many people hope that kneepon Steel will guarantee, Brandon, 0:04:34.000 --> 0:04:36.839 how far can those guarantees go when it is an 0:04:36.880 --> 0:04:39.440 industry that is facing a lot of changes, that is 0:04:39.480 --> 0:04:43.320 facing changes when it comes to technology that change the workforce. 0:04:43.360 --> 0:04:45.839 How long can job security be guaranteed. 0:04:48.279 --> 0:04:50.360 I can't speak for US Steel, but what I can 0:04:50.480 --> 0:04:52.720 say for all of our members is that they have 0:04:52.880 --> 0:04:55.880 a more full order book than they've had in years. 0:04:56.520 --> 0:04:59.960 And what we're hearing is that we're hearing growth. Nearly 0:05:00.120 --> 0:05:03.200 every one of our members has announced growth, and this 0:05:03.320 --> 0:05:06.719 means more jobs, this means more revenue, this means better 0:05:06.760 --> 0:05:09.760 benefits for the economy. And so right now, what we're 0:05:09.800 --> 0:05:12.440 looking at, and what we've looked at since President Trump 0:05:12.480 --> 0:05:16.240 first instituted these terraces in twenty eighteen, is a changed 0:05:16.320 --> 0:05:18.640 industry and a changed for the better. And that's what 0:05:18.680 --> 0:05:21.560 we're looking at when President Trump has recently made this 0:05:21.680 --> 0:05:23.440 change to fifty percent as well. 0:05:23.240 --> 0:05:26.040 Brandon, are you worried about the US losing customers if 0:05:26.200 --> 0:05:29.599 the US angers essentially Canada and the European Union, as 0:05:29.640 --> 0:05:33.080 some of its biggest exporters are the people who actually 0:05:33.080 --> 0:05:35.760 buy some of this steel and aluminum, maybe setting them 0:05:35.760 --> 0:05:38.960 to look elsewhere if suddenly prices are that much more expensive. 0:05:41.240 --> 0:05:44.880 What we can say is that most of the steel 0:05:44.960 --> 0:05:47.680 produced in the US is used in the US. We 0:05:47.720 --> 0:05:49.800 do have some trade with Canada, we do have some 0:05:49.880 --> 0:05:52.080 trade with Mexico, and I know that there are going 0:05:52.120 --> 0:05:55.599 to be negotiations this year talking about that. But as 0:05:55.640 --> 0:05:59.400 far as protecting the domestic steel industry, which is vital 0:05:59.560 --> 0:06:04.400 for economic security, energy security, national security. We believe that 0:06:04.520 --> 0:06:07.000 moving the tariffs up to fifty percent was a very 0:06:07.040 --> 0:06:07.560 good move. 0:06:08.000 --> 0:06:11.000 Brandon Faris of the Steel Manufacturers Association, thank you so 0:06:11.080 --> 0:06:24.560 much for being with us. Turning back to trade, China 0:06:24.720 --> 0:06:28.080 hitting back the Trump administration accusing the US and violating 0:06:28.400 --> 0:06:31.360 is trade truths. Former Trump trade official Kate Calluquids joins 0:06:31.440 --> 0:06:31.800 US now. 0:06:32.320 --> 0:06:35.000 Kate, thank you so much for being with us. What's 0:06:35.040 --> 0:06:35.800 your take. 0:06:35.920 --> 0:06:38.279 On the ratcheting up intensions that we saw between the 0:06:38.279 --> 0:06:41.480 officials in China and the US over the past four 0:06:41.560 --> 0:06:42.240 or five days. 0:06:43.320 --> 0:06:45.400 It has been a whirlwind. I think in the US 0:06:45.520 --> 0:06:49.000 China space. Of course, we saw huge tariffs, We saw 0:06:49.040 --> 0:06:52.880 those tariffs come down without much else agreed between the 0:06:52.880 --> 0:06:55.920 two parties, and now this war of words. I think 0:06:55.960 --> 0:06:58.040 it lends itself to the fact that some of the 0:06:58.520 --> 0:07:02.640 very baseline issues between the two nations remain very much 0:07:02.680 --> 0:07:05.880 in place, even though domestic pressure forced both sides to 0:07:05.880 --> 0:07:08.560 bring those tariffs down. So we're very much in the 0:07:08.640 --> 0:07:10.640 same space without the tear of pressure. 0:07:10.680 --> 0:07:13.320 I think, Kate, is there really going to be an 0:07:13.400 --> 0:07:17.520 agreement if there isn't some understanding between the two countries 0:07:17.840 --> 0:07:20.480 on the AI sector and advanced semiconductors. 0:07:22.000 --> 0:07:24.920 Well, you know, I suppose it depends on what China 0:07:25.000 --> 0:07:27.280 is willing to accept here, because I think that it's 0:07:27.440 --> 0:07:30.920 very clear from the United States perspective that these types 0:07:30.960 --> 0:07:34.200 of export restrictions on high tech goods are here to stay. 0:07:34.880 --> 0:07:38.920 In the big strategic economic competition with China, the focus 0:07:38.960 --> 0:07:42.920 from both sides, frankly in DC has been to restrict 0:07:43.040 --> 0:07:46.720 access of these technologies. So unless China is willing to 0:07:46.760 --> 0:07:49.800 accept that, I think we're not going to see an agreement. 0:07:49.840 --> 0:07:53.080 They're going to have to decide I think whether this 0:07:53.240 --> 0:07:55.400 is a status quo that they can move forward with. 0:07:55.880 --> 0:07:58.560 Is there a chance that the Trump administration gives in 0:07:58.640 --> 0:08:01.800 more and allows them some access to this sector. 0:08:03.000 --> 0:08:05.560 Well, you know, President Trump, of course, has sent some 0:08:05.640 --> 0:08:08.720 mixed messages around what he expects and hopes from China. 0:08:09.400 --> 0:08:12.840 After the tear off Detonte, the President announced his long 0:08:12.920 --> 0:08:15.880 term goal is to do business with China, which you 0:08:15.880 --> 0:08:18.640 know undermines a bit this notion that we could really 0:08:18.720 --> 0:08:20.000 sever our economies. 0:08:20.560 --> 0:08:21.760 So I wouldn't say never. 0:08:22.520 --> 0:08:25.520 The President certainly has shown, you know, willingness to walk 0:08:25.560 --> 0:08:27.840 back some of his strong rhetoric but this will be 0:08:27.880 --> 0:08:32.079 difficult because, you know, in a bipartisan way, Congress has 0:08:32.120 --> 0:08:33.520 been quite firm on this point. 0:08:33.880 --> 0:08:34.520 The rhetor grick. 0:08:34.559 --> 0:08:36.640 We've seen the war of words back and forth over 0:08:36.679 --> 0:08:39.760 the weekend from Friday to today. Could that derail a 0:08:39.800 --> 0:08:42.600 potential talk that Kevin has had said we should expect 0:08:42.640 --> 0:08:44.079 this week between the two leaders. 0:08:45.200 --> 0:08:48.160 I suppose it could, although the signals I see on 0:08:48.240 --> 0:08:51.000 the US side at least are very strong language from 0:08:51.000 --> 0:08:55.160 the President, softer language of course from his his you know, 0:08:55.400 --> 0:08:58.959 cabinet officials. We saw Ambassador Greer, Secretary Bessett try to 0:08:59.720 --> 0:09:02.920 walk back a bit the very strong tone to say 0:09:03.360 --> 0:09:06.800 things aren't going great, but we're hoping the leaders will speak. 0:09:06.880 --> 0:09:09.120 So the US at least is sending a very strong 0:09:09.200 --> 0:09:12.319 signal that it would like to see a leader level discussion. 0:09:12.640 --> 0:09:14.360 Do we have a sense, Kate of what the ultimate 0:09:14.400 --> 0:09:16.920 goal is? It feels like that's getting lost in all 0:09:17.000 --> 0:09:20.480 of this, is the idea to decouple with respect to 0:09:20.520 --> 0:09:22.719 tech between the US and China, to time or on 0:09:22.800 --> 0:09:25.960 video saying that that's not the answer. Is it to 0:09:26.040 --> 0:09:30.040 just isolate China with the allies that we have, albeit 0:09:30.080 --> 0:09:32.840 in a somewhat messy way, we don't have real sense 0:09:32.880 --> 0:09:34.480 of that through all of this, do you. 0:09:35.920 --> 0:09:36.120 Well? 0:09:36.160 --> 0:09:38.720 I wish I could help come up with a stronger 0:09:38.800 --> 0:09:42.480 clear plan here. The reality is the President has many, 0:09:43.000 --> 0:09:46.040 many goals when it comes to economic relationships with the 0:09:46.040 --> 0:09:48.280 rest of the world, and at times these do appear 0:09:48.440 --> 0:09:52.000 somewhat to conflict with one another. As I said, I 0:09:52.040 --> 0:09:54.800 do think his long term goal here is to reset 0:09:54.840 --> 0:09:57.760 the relationship with China, but to continue to have an 0:09:57.760 --> 0:10:01.480 economic relationship with China. Regrettably, I think some of these 0:10:01.520 --> 0:10:05.319 other discussions, whether it's with the Europeans, India, others, the 0:10:05.480 --> 0:10:11.440 stealing aluminum tariff announcements, cloud the the framework of where 0:10:11.480 --> 0:10:13.680 we're gonna go with China. So I'd say we're not 0:10:13.760 --> 0:10:16.560 quite there yet. I don't know that the President has 0:10:16.600 --> 0:10:18.880 been as specific as he needs to be with the 0:10:19.000 --> 0:10:21.040 Chinese as to where he hopes to go, and so 0:10:21.080 --> 0:10:23.359 we're gonna need to have a little bit more discussion 0:10:23.400 --> 0:10:25.640 before we can see something emerging. 0:10:26.000 --> 0:10:27.920 We heard over the weekend from a number of different 0:10:27.920 --> 0:10:31.040 advisors to President Trump that July ninth is the deadline 0:10:31.080 --> 0:10:33.200 and it will not be extended past that. In terms 0:10:33.240 --> 0:10:35.440 of the reciprocal tariffs, do you believe that. 0:10:37.640 --> 0:10:40.440 Well, I think the President is always flexible, and I 0:10:40.440 --> 0:10:42.720 think if we need to go beyond July ninth, we'll 0:10:42.720 --> 0:10:45.160 find a way to go beyond July ninth. Of course, 0:10:45.200 --> 0:10:47.840 the President is a bit on his heels given the 0:10:47.960 --> 0:10:50.880 court decision last week, but I think it means that 0:10:50.920 --> 0:10:54.439 he's going to show signals that he can move tariff's 0:10:54.480 --> 0:10:57.120 forward in other manners as we've seen. We saw the 0:10:57.120 --> 0:10:59.920 announcement on steel in aluminum. He has quite a few 0:11:00.040 --> 0:11:03.360 other tools in his toolbox to bring to the ready. 0:11:03.520 --> 0:11:07.280 So I think other nations really ought to continue negotiating 0:11:07.320 --> 0:11:09.840 with the United States and keep this date in mind. 0:11:09.880 --> 0:11:11.480 It benefits them as. 0:11:11.360 --> 0:11:15.199 Well to negotiate some deals before the President starts to 0:11:15.320 --> 0:11:18.199 use these other tariffs. But if we need to extend, 0:11:18.400 --> 0:11:22.439 I think the President and certainly Secretary Dissent has indicated 0:11:23.240 --> 0:11:25.160 if we need more time, we'll take more time. 0:11:25.480 --> 0:11:26.000 Just quickly. 0:11:26.080 --> 0:11:28.640 When you talk to your clients, what are the risk dates, 0:11:28.960 --> 0:11:31.640 the risk events that you have the flag to them 0:11:31.920 --> 0:11:34.080 saying this, actually you need to keep your eye out. 0:11:33.960 --> 0:11:37.640 For Well, when I talk to my clients, I really say, 0:11:37.840 --> 0:11:40.280 you know, predicting is too late in the game. We 0:11:40.360 --> 0:11:44.320 need to anticipate big outcomes as opposed to the actual 0:11:44.400 --> 0:11:47.200 when and the dates and to when they might occur, 0:11:47.320 --> 0:11:50.000 because we know the President wants to move on large 0:11:50.040 --> 0:11:54.000 scale sectoral tariffs beyond II but beyond China. We are 0:11:54.000 --> 0:11:57.200 anticipating several big decisions this summer when it comes to 0:11:57.240 --> 0:12:03.320 semiconductor tariffs, pharmaceuticals, copper, critical minerals, and a range of 0:12:03.360 --> 0:12:06.400 other two thirty two tariffs. We have impending review of 0:12:06.440 --> 0:12:09.720 the US Mexico Canada agreement. So when I speak to 0:12:09.760 --> 0:12:12.160 my clients, we're working to prepare for all of these 0:12:12.240 --> 0:12:16.520 eventualities to ensure that they're they're well positioned even before 0:12:16.559 --> 0:12:17.640 a date is announced. 0:12:17.880 --> 0:12:20.360 Kay Klukwitz, former Trump trade official, thank you so much 0:12:20.400 --> 0:12:33.240 for being with us. Anita Bajave of Bank of America, writing, 0:12:33.360 --> 0:12:36.319 we now forecast one hundred basis points of cuts next 0:12:36.440 --> 0:12:39.320 year with low conviction. Who pencil these cuts in for 0:12:39.360 --> 0:12:42.240 the second half of twenty twenty six? Aditya joins us 0:12:42.240 --> 0:12:44.800 now and Aditya thank you for that, because we're all 0:12:44.920 --> 0:12:49.040 humbly having low conviction about absolutely everything, So join the club. 0:12:49.280 --> 0:12:50.240 We're joining the club. 0:12:50.400 --> 0:12:52.440 I am curious what you make of some of those 0:12:52.520 --> 0:12:55.360 Chris Waller comments where he seems to talk about good 0:12:55.440 --> 0:12:57.640 news rate cuts at a time when so many other 0:12:57.679 --> 0:13:00.200 FED officials are saying, we have no clue. 0:13:00.559 --> 0:13:02.680 Thank you for having me. I think we have no clue. 0:13:02.679 --> 0:13:05.960 It is probably a more accurate representation of where we stand. 0:13:06.280 --> 0:13:10.280 The challenge here is that we had fairly favorable based 0:13:10.320 --> 0:13:12.520 effects on inflation for the first four months of the year, 0:13:12.559 --> 0:13:14.840 and so it isn't hugely surprising that we got down 0:13:14.840 --> 0:13:16.440 to about two and a half percent on the core. 0:13:16.800 --> 0:13:18.680 The problem is over the next eight months, the base 0:13:18.720 --> 0:13:22.199 effects are much less favorable, and so going down further 0:13:22.320 --> 0:13:25.000 is very unlikely, and in fact, it's more likely that 0:13:25.280 --> 0:13:29.000 as the tariff set in, inflation will increase on a 0:13:29.080 --> 0:13:29.920 year of year basis. 0:13:29.920 --> 0:13:30.040 Well. 0:13:30.080 --> 0:13:32.120 Chris Waller's argument in that was that you could look 0:13:32.160 --> 0:13:34.240 through that because we don't have the same tightness in 0:13:34.240 --> 0:13:36.480 the labor market, and the ability for employees to go 0:13:36.520 --> 0:13:38.520 to their employer and say, hey, inflation's going up, pay 0:13:38.559 --> 0:13:41.120 me more is limited because they just want to hold 0:13:41.160 --> 0:13:42.880 on to their jobs at this point. Is that a 0:13:42.920 --> 0:13:44.680 fair characterization of where we are? 0:13:45.040 --> 0:13:47.760 Okay, But if inflation's above target and you aren't sure 0:13:47.800 --> 0:13:49.680 whether you should look through the shock or not. And 0:13:49.720 --> 0:13:51.760 at the same time, the labor market's holding up, what's 0:13:51.760 --> 0:13:53.080 the why do you need to cut it all? 0:13:53.520 --> 0:13:54.760 Yeah, fair enough, We don't. 0:13:54.600 --> 0:13:56.440 Think they're cutting this year, just to be clear. 0:13:56.320 --> 0:13:59.840 So they're not cutting this year. But also another input 0:13:59.840 --> 0:14:01.679 in to this, and this is something Michael Gabe and 0:14:01.800 --> 0:14:04.040 Morgan Stanley has talked about. This idea that we're going 0:14:04.080 --> 0:14:06.800 to have low immigration and low immigration also means that 0:14:06.840 --> 0:14:10.400 the labor market's going to stay tight as employment growth slows. 0:14:10.960 --> 0:14:13.120 How much is that going to impact the outlook as 0:14:13.120 --> 0:14:14.000 this year progresses. 0:14:14.480 --> 0:14:16.760 That's a more difficult one. I think it'll be very 0:14:16.760 --> 0:14:19.800 differentiated sector by sector. You're going to be seeing some 0:14:19.960 --> 0:14:23.360 sectors that are more dependent on immigration that could see 0:14:23.600 --> 0:14:27.680 wage pressure, such as construction, measure, in hospitality, agriculture. But 0:14:27.760 --> 0:14:30.880 in aggregate, if you're basically shrinking the population, you're reducing 0:14:30.960 --> 0:14:32.920 supply and demands. So it could also end up being 0:14:32.920 --> 0:14:33.320 a wash. 0:14:33.600 --> 0:14:35.280 You said that if the labor market is holding up 0:14:35.280 --> 0:14:37.600 and inflation goes higher, why should the Fed do anything? Well, 0:14:37.640 --> 0:14:39.400 if inflation is going higher, shouldn't. 0:14:39.040 --> 0:14:39.560 It be hiking? 0:14:40.040 --> 0:14:42.440 Right? So that's a question that comes up every now 0:14:42.480 --> 0:14:45.160 and then I think there's some ways away from hiking, 0:14:45.240 --> 0:14:47.800 just because policy rates are already quite elevated, so they'll 0:14:47.800 --> 0:14:50.920 feel like they have some buffer. And again they'd rather 0:14:51.080 --> 0:14:54.080 be late than wrong. This is a point that we've 0:14:54.080 --> 0:14:56.080 made and I think it holds in both directions. 0:14:56.440 --> 0:14:59.120 So you think this potentially will happen even though you 0:14:59.200 --> 0:15:00.680 have a little bit of great salt on there the 0:15:00.720 --> 0:15:02.840 second half of twenty twenty six. So do you think 0:15:02.840 --> 0:15:05.680 we'll have certainty on trade policy out of Washington by 0:15:05.680 --> 0:15:07.160 the second half of twenty twenty six? 0:15:07.400 --> 0:15:09.440 Right, So the way we're thinking about the second half 0:15:09.480 --> 0:15:12.960 of twenty twenty six is that by that point inflation 0:15:13.120 --> 0:15:16.120 will the tariff riven. Inflation will start to roll off 0:15:16.160 --> 0:15:18.640 the year of a year rate because of base effects. 0:15:18.960 --> 0:15:21.920 So with inflation below three percent, maybe a slightly loser 0:15:22.000 --> 0:15:24.800 label market and different FED leadership, you might end up 0:15:24.840 --> 0:15:25.600 getting great cuts. 0:15:25.680 --> 0:15:28.080 You said, different FED leadership. This is the question that 0:15:28.080 --> 0:15:30.040 we all really want to ask. Is Chris Waller just 0:15:30.040 --> 0:15:30.840 trying to get the job? 0:15:31.640 --> 0:15:32.760 I'll let you decide that. 0:15:32.880 --> 0:15:34.600 Okay, Well, it seems like a lot of people would 0:15:34.600 --> 0:15:37.680 say yes. Is this the mainstream thought or could this 0:15:37.760 --> 0:15:38.840 be the mainstream thought? 0:15:39.080 --> 0:15:39.920 Of the Federal Reserve. 0:15:39.960 --> 0:15:42.160 Do you think that this is the person to watch 0:15:42.240 --> 0:15:44.880 to see the direction for the Federal Reserve in twenty 0:15:44.920 --> 0:15:46.400 twenty six Chris Waller. 0:15:46.480 --> 0:15:49.480 So he seems to be for now at least a 0:15:49.520 --> 0:15:51.480 bit of an outlier on the committee. I think what 0:15:51.520 --> 0:15:56.400 you're hearing from Chair Powell and then others like Hammock 0:15:56.760 --> 0:16:00.520 and Williams is that the FED is very patient right now. 0:16:00.640 --> 0:16:02.680 They just have no idea. Honestly, if you ask me 0:16:03.280 --> 0:16:05.240 told me that the FED should be preemptive, I would 0:16:05.240 --> 0:16:07.120 ask you, what is the FED even trying to preempt 0:16:07.200 --> 0:16:10.080 right now? There's risks in both directions to trade policy, 0:16:10.080 --> 0:16:14.040 there's risks in both directions to fiscal policy. Let's just 0:16:14.080 --> 0:16:16.680 wait and see how it plays out. So Waller seems 0:16:16.680 --> 0:16:19.760 to have a pretty optimistic outlook that we're going to 0:16:19.760 --> 0:16:21.560 be able to do good news rate cuts by the 0:16:21.640 --> 0:16:23.160 end of this year, and that just seems a little 0:16:23.160 --> 0:16:24.000 bit too soon for us. 0:16:24.040 --> 0:16:25.040 I'm sympathetic with this. 0:16:25.600 --> 0:16:27.680 The question though, of wait and see for a data 0:16:27.720 --> 0:16:30.200 dependent FED really raises a question of what are you 0:16:30.240 --> 0:16:34.120 waiting for? Because the data is so incredibly messy, not 0:16:34.160 --> 0:16:37.720 only from a backward looking forward looking midigum working kind 0:16:37.760 --> 0:16:39.880 of point of view, but also just from a data 0:16:39.880 --> 0:16:42.400 collection point of view, You've had a real question about 0:16:42.520 --> 0:16:45.760 lowering of response rates to some of the nonfarm payrolls. 0:16:45.800 --> 0:16:49.320 Responses sentiment surveys are basically throw a darted to dartboard. 0:16:49.360 --> 0:16:51.560 What do you do with the integrity of some of 0:16:51.560 --> 0:16:52.520 the data that we're getting. 0:16:52.720 --> 0:16:54.840 So the good news about the payroll surveys is that 0:16:54.880 --> 0:16:56.920 at least by the time you get to the third reading, 0:16:57.400 --> 0:16:58.880 the response rate is pretty decent. 0:16:58.960 --> 0:17:01.600 Yeah when you get that, yeah, you get that. 0:17:01.760 --> 0:17:02.520 Two months later. 0:17:02.880 --> 0:17:04.560 Okay, but the piping. 0:17:04.640 --> 0:17:07.560 Well, and then you have data that's unreliable. You have 0:17:07.640 --> 0:17:10.760 a FED that's not moving. The FED is not in 0:17:10.760 --> 0:17:13.199 the driver's seat. It is a political economy, and you 0:17:13.200 --> 0:17:15.360 can even see it in what's happening with the currency market. 0:17:15.960 --> 0:17:18.960 Interest rate differentials are not making a difference. Is it 0:17:19.000 --> 0:17:22.480 a problem that the FED is very passive right now? 0:17:22.480 --> 0:17:25.240 That they are very reactive? Is it a problem, especially 0:17:25.440 --> 0:17:27.399 if this economy heads in a worse direction. 0:17:27.760 --> 0:17:30.320 I wouldn't characterize the FED as fassive. I think they've 0:17:30.359 --> 0:17:33.840 actually been pretty clear about their stunds. They've pushed back 0:17:33.880 --> 0:17:37.320 against market pricing of rate cuts. They've made it very 0:17:37.359 --> 0:17:40.080 clear that they're concerned about inflation to a degree that 0:17:40.240 --> 0:17:42.080 was more than perhaps I would have expected. I mean, 0:17:42.080 --> 0:17:43.800 did you look at the minutes last week? It was 0:17:44.040 --> 0:17:46.600 it was really striking for me. They had this when 0:17:46.600 --> 0:17:49.720 they were the discussion around balance of risks. They basically 0:17:49.760 --> 0:17:53.920 gave you this laundry list of concerns about why inflation 0:17:54.040 --> 0:17:56.760 might end up being sticky, and then just a sentence 0:17:56.840 --> 0:17:59.119 or two in the other direction, right, which is probably 0:17:59.160 --> 0:18:02.360 written by. 0:18:02.920 --> 0:18:04.880 What is the danger? Just just lay it out for us. 0:18:05.040 --> 0:18:08.760 If the FOMC starts to coalesce a Chris Waller type 0:18:08.800 --> 0:18:12.560 of policy, outlook, what is the scenario? Why is that 0:18:12.560 --> 0:18:13.400 the wrong decision? 0:18:14.320 --> 0:18:17.040 I think it's concerning in the sense that we just 0:18:17.119 --> 0:18:20.680 don't know what policy is going to get implemented first, 0:18:21.040 --> 0:18:22.639 and then second, we don't know how it's going to 0:18:22.640 --> 0:18:26.240 affect the economy. Right, Basically, what we're looking at is 0:18:26.359 --> 0:18:29.880 a negative supply shop from the tariffs being offset by 0:18:29.920 --> 0:18:33.360 potentially a positive demand shock from fiscal policy. That can 0:18:33.400 --> 0:18:35.560 give you the offset that you're looking for on the 0:18:35.560 --> 0:18:37.199 fiscal side. It you can give you the offset that 0:18:37.200 --> 0:18:39.720 you're looking for on the output side. The problem is 0:18:39.760 --> 0:18:42.680 it can be additive on inflation, right. That's why they 0:18:42.720 --> 0:18:47.040 have to be very careful about the risks around inflation. 0:18:47.119 --> 0:18:49.440 And the other concern would be just that companies could 0:18:49.720 --> 0:18:52.240 raise their prices a little bit every year if they're 0:18:52.280 --> 0:18:55.080 concerned about losing market share. Right, So you could get 0:18:55.160 --> 0:18:58.120 less inflation in the short run, but stickier inflation over time. 0:18:58.280 --> 0:18:59.520 Just to give us a compass for how to look 0:18:59.520 --> 0:19:01.840 at the weak head, what data point do you think 0:19:01.920 --> 0:19:04.720 is going to be most relevant? The jolts, the job openings, 0:19:05.119 --> 0:19:07.760 the non farm payrolls report on Friday, or the Beige 0:19:07.760 --> 0:19:10.719 Book with all those quotes from specific regions telling you 0:19:10.800 --> 0:19:13.159 I feel good, I feel terrible, I feel inflation, I 0:19:13.200 --> 0:19:13.880 feel layoffs. 0:19:13.880 --> 0:19:16.399 I think it's the unemployment rate. You really want to 0:19:16.400 --> 0:19:19.440 watch the unemployment rate. I mean, typically the establishment survey 0:19:19.480 --> 0:19:22.159 is more reliable than the household survey. But as you 0:19:22.200 --> 0:19:25.399 mentioned earlier, we're in an environment where there's some very 0:19:25.440 --> 0:19:28.720 movement around immigration policy and that can effect leave a 0:19:28.760 --> 0:19:31.639 supply that can affect non farm payrolls. So the unemployment rate, 0:19:31.720 --> 0:19:34.720 as long as that stays four point two percent or below, 0:19:34.760 --> 0:19:36.680 I think the Fed's going to be very comfortable sitting 0:19:36.680 --> 0:19:37.080 where they are. 0:19:37.119 --> 0:19:39.320 Adj Bahave thank of America, Thank you so much. 0:19:39.359 --> 0:19:41.840 Great to see you. 0:19:50.040 --> 0:19:53.920