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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: And as you probably heard me say, we picked up

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Speaker 2: since just the election three trillion dollars in you go

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Speaker 2: it worth or value, but three trillion dollars was picked

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Speaker 2: up since November fifth, so that's pretty good.

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Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,

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Speaker 3: and this week we're asking does the bomb market have

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Speaker 3: it in for Donald Trump? And if so, should he care?

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Speaker 4: With me?

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Speaker 3: Anna Wong, Chief US Economists at Bloomberg Economics. She's worked

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Speaker 3: at the FED and served in the Trump White House

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Speaker 3: in twenty nineteen and twenty twenty once a comment at

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Speaker 3: the Council of Economic Advisors. Hello, Anna, Hi, Stephanie, and

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Speaker 3: Kate Davidson, managing editor who covers you economic policy for

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Speaker 3: Bloomberg News in Washington, d C. Thanks for joining us, Kate, Hi, Stephanie,

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Speaker 3: the rest of you listening. Maybe just getting settled into

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Speaker 3: twenty twenty five, but the bond market investors of the

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Speaker 3: world have been extremely busy since the start of the year.

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Speaker 3: The bond market story is front and center. Is this

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Speaker 3: sell off just getting going? If yields continue to rise,

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Speaker 3: pushing up the cost of government borrowing, especially in the US,

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Speaker 3: but also around the world.

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Speaker 5: The market is telling you you're at some level here

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Speaker 5: where you're really pushing your luck on. About what level

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Speaker 5: do tenure yield or to rate really begin to hit

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Speaker 5: the economy.

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Speaker 1: I think that's the question.

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Speaker 3: The yield on a US ten year treasury bond roughly

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Speaker 3: what it costs Uncle Sam to borrow for ten years,

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Speaker 3: has risen more than one percentage point since September, and

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Speaker 3: could now with what's happened in the last few weeks,

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Speaker 3: be heading for five percent. Now, that may not sound

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Speaker 3: like much, but we haven't seen long term rates that

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Speaker 3: high in nearly twenty years. Of course, everyone on Planet

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Speaker 3: Bloomberg cares a lot about all aspects of this, constantly

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Speaker 3: writing about it in the last few days. But I

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Speaker 3: think the big question for this podcast is whether the

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Speaker 3: incoming Trump administration should be worried about what's been happening

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Speaker 3: in the bond markets, and specifically does it put at

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Speaker 3: risk any of Donald Trump's grand plans, whether for immigration,

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Speaker 3: trade wars, or tax cuts. Welcome to Trumpnomics, the Bloomberg

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Speaker 3: podcast that looks at the economic world of Donald Trump

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Speaker 3: how he's already shaped the global economy and what on

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Speaker 3: earth is going to happen next, Anna. I mean, we've

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Speaker 3: got quite a lot to cover, but I guess first

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Speaker 3: we should spend a little bit of time on why

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Speaker 3: you think bond yields the cost of borrowing has gone

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Speaker 3: up so sharply in the last few weeks. Why are

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Speaker 3: they selling bonds?

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Speaker 4: Right? The answer to that question will crucially get to

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Speaker 4: the core of your original question, which is will it

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Speaker 4: restrain the Trump administration? Right? So, I've heard at least

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Speaker 4: five different explanations for why ped year yields have risen

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Speaker 4: by one hundred basis point even though the FED has

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Speaker 4: cut by over one hundred basis point. These explanations range from, well,

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Speaker 4: it's because the FED has lost credibility that they should

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Speaker 4: not have cut by so much in the first place,

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Speaker 4: and market is signaling that they don't believe they have

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Speaker 4: attaped inflation. I've also heard maybe because investors have lost

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Speaker 4: confidence over the fiscal sustainability. I've also heard maybe it's

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Speaker 4: Trump's policies potentially being inflationary, the tariffs and the deportation. Finally,

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Speaker 4: another explanation I've heard is maybe it's because China or

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Speaker 4: other foreign central banks have been dumping US treasuries as

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Speaker 4: they are defending their currencies. So out of all these explanation, personally,

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Speaker 4: what I've found most convincing is that it's a combination

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Speaker 4: of a resetting of expectation of FED rate cuts due

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Speaker 4: to better economic growth prospect as well as and increase

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Speaker 4: in real rate.

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Speaker 3: Just to sort of spell that out a bit, I mean,

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Speaker 3: coming into this year, or at least maybe when everyone

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Speaker 3: went on their holidays, we were thinking we get some

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Speaker 3: interest rate cuts and maybe lower mortgages from the Fed.

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Speaker 3: They're getting control of inflation, and for a mixture of reasons,

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Speaker 3: people in the markets have reassessed that view in the

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Speaker 3: last week or two. And if you're Donald Trump, you'd say, well,

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Speaker 3: because I won the election, everyone's super optimistic about the

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Speaker 3: US economy, so maybe it doesn't need so many interest

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Speaker 3: rate cuts because it's not in trouble. In fact, it's

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Speaker 3: doing well. I guess that would be the positive spin

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Speaker 3: that he might have on it if he spent his

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Speaker 3: time thinking about interest rate expectations.

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Speaker 4: If he truly thinks that way, then he wouldn't be

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Speaker 4: trying to talk down the interest rates. They're so clearly

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Speaker 4: worried and I do think he has some reasons to

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Speaker 4: worry because, as I said, the reprising of the ten

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Speaker 4: year yields started in September, but a lot of that

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Speaker 4: action also happened after the December of RMC meeting, and

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Speaker 4: in that meeting, the Fed sharply increased their inflation outlook

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Speaker 4: in twenty twenty five on expectations of Trump policies, tariffs, policies, deportations,

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Speaker 4: so the Minute suggest So if that's the case, then

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Speaker 4: from the Fed perspective, the reason why they are not

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Speaker 4: planning to cut as much in twenty twenty five partly

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Speaker 4: has to do with Trump policies policies that has not

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Speaker 4: happened yet, and that is already all baked into ten

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Speaker 4: year yields and serving as a restraint to the economy. Right,

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Speaker 4: So it's all basically acting as a restrictive force to

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Speaker 4: the economy before those policies come in place.

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Speaker 3: Okay, do you have a team of people under you

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Speaker 3: that's sort of looking at the real economy and also

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Speaker 3: looking at the Fed. But just from your perspective sitting

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Speaker 3: in DC, is it kind of registering this change in

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Speaker 3: bond yields sort of inside the Beltway with people thinking

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Speaker 3: politically about the incoming administration and how incoming members of

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Speaker 3: the administration, whether it's the new Treasury sector or others,

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Speaker 3: are thinking about the world. Do you think this kind

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Speaker 3: of registers or is it not something they really care about.

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Speaker 5: I think it's slowly starting to and I think where

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Speaker 5: we will be looking for it and listening for it

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Speaker 5: first is among the members of Congress who tend to

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Speaker 5: be more worried about deficit spending, the deficit and debt hawks.

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Speaker 5: There's not as many of them as there used to be, clearly,

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Speaker 5: but there are still a few. And remember, Republicans will

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Speaker 5: be in control of the House, the Senate, and the

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Speaker 5: White House, and so they can do a lot, but

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Speaker 5: their majorities are not very large, and so all it

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Speaker 5: takes is for a few concerned people to sort of

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Speaker 5: throw a wrench into the process here, and if they

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Speaker 5: are starting to be worried, if they're hearing from constituents,

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Speaker 5: if they're hearing from builders, or if they're hearing from

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Speaker 5: regular voters, hearing about interest rates, hearing about people concerned

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Speaker 5: about inflation being stickier, and all of that kind of

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Speaker 5: being reflected to a certain extent and higher yield. I

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Speaker 5: think that that could raise some worries, and it's maybe

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Speaker 5: starting to a little bit about how much more deficit

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Speaker 5: spending they can do in the form of you know,

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Speaker 5: def asit finance tax cuts or other things.

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Speaker 3: Yes, because to your point, I mean, the reason it

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Speaker 3: matters is if you've got this, this is about the

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Speaker 3: cost of borrowing for government sur If it's gone up,

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Speaker 3: it's potentially not just now but into the future the

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Speaker 3: cost of doing things, the cost of expanding a deficit

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Speaker 3: gets that much higher. You're going to be spending that

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Speaker 3: much year upon year on the debts. Already, I think

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Speaker 3: the debt service costs are bigger than the defense budget,

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Speaker 3: which has raised some eyebrows of those who want to

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Speaker 3: make sure that the US continues to be a great power.

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Speaker 3: But you don't get the sense that Donald Trump all

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Speaker 3: the people close to him are focused on the bond

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Speaker 3: market as much as the stock market. Would it take

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Speaker 3: a stock market decline to really change change the way

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Speaker 3: he's thinking about the markets and the economy.

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Speaker 5: Perhaps for Donald Trump, right, we know he cares very

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Speaker 5: much about the stock market, but certainly his Treasury Secretary

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Speaker 5: Scott Bessett is very much aware of what's happening in

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Speaker 5: the barn market. He's made some comments, you know, the

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Speaker 5: past few months about how Treasury Secretary Jennet Yellen has

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Speaker 5: been managing the debt, and I would certainly expect that

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Speaker 5: he will talk about this at his confirmation hearing in

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Speaker 5: the Senate that's coming up soon. He'll be asked about it.

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Speaker 5: But right I would think that the you know, yields

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Speaker 5: tenure yields eclipsing that very you know significant, even if

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Speaker 5: it's just psychologically significant five percent threshold would get a

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Speaker 5: lot more intention in Washington.

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Speaker 3: And it's worth saying the rally in the stock market

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Speaker 3: that we've seen since Donald Trump was elected has been

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Speaker 3: more or less pyped out by the stop market reacting

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Speaker 3: in the last few days to the rising interest rates,

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Speaker 3: because if you think about it, you know, if the

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Speaker 3: rising cost of borrowing also means you can earn more

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Speaker 3: on a bond, which means that it's less attractive to

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Speaker 3: hold a stock, is you know, one way of thinking

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Speaker 3: about it. So we have already seen a response on

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Speaker 3: a stock market. What is interesting about this happening now,

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Speaker 3: right is that we haven't actually seen a lot of

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Speaker 3: the incoming Trump's Administration's policies coming in and most of

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Speaker 3: them will add to growth, and if anything put the

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Speaker 3: Fed in a position of maybe having to raise interest rates.

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Speaker 3: Is that something that you think could happen in the

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Speaker 3: next year? If you have tariffs potentially adding to inflation,

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Speaker 3: a big tax cut package or a package that makes

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Speaker 3: permanent the tax cuts from the previous Trump administration, surely

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Speaker 3: that could send yields even higher.

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Speaker 4: Yeah, so the tariffs, if the Trump was serious about

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Speaker 4: imposing a universe tariffs, a twenty percent universal tariffs for example,

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Speaker 4: could raise the core PC by one percentage point. Then

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Speaker 4: it's possible that we will see a rake pike at

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Speaker 4: the end of twenty twenty five or early twenty twenty six.

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Speaker 3: But do you think there would be any voices in

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Speaker 3: the White House saying, you know what, we don't want

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Speaker 3: to bond market meltdown for people to start really questioning

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Speaker 3: US debt or demanding you know, ever higher cost to borrow.

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Speaker 3: Do you think that there it could potentially be a

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Speaker 3: restraining force on any of the sort of big priorities

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Speaker 3: that Donald Trump has coming into this administration.

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Speaker 4: So if there is two people who would be those voices,

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Speaker 4: it would be Scott Byssant and Kevin Hassett and.

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Speaker 3: Just remind us what jobs they're going to have in

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Speaker 3: the next administration.

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Speaker 4: So Scott destined would be the US Treasury Secretary and

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Speaker 4: Kevin Hassett would be the NEC director. And in their

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Speaker 4: influence on Trump to a large extent depends on their

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Speaker 4: personal relationship with Trump, and both of them had been

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Speaker 4: known as not friendly to tear. I mean, they were

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Speaker 4: basically in their core free traders if you look at

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Speaker 4: the stuff they wrote years before they joined the Trump administration,

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Speaker 4: and you know, we call it a couple of weeks ago.

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Speaker 4: In fact it was I think it was just last week.

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Speaker 4: There was a leak in Washington posts suggesting that some

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Speaker 4: people in Trump orbit are proposing a more targeted tariff,

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Speaker 4: and to extent that those are leaked by people in

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Speaker 4: Scott Bessent's camp. And now this gets into palace intrigue ry,

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Speaker 4: then it could be hurting the relationship of Scott Bessent

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Speaker 4: and Trump because the folks around Trump, especially characters like

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Speaker 4: Peter Navarro, who's playing a pretty important role as a

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Speaker 4: shadowy person. Leak's actually flows distrust within the inner circle,

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Speaker 4: and they're not supposed to leak and the fact that

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Speaker 4: that story in Washington Post came out suggests that it's

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Speaker 4: hurting the internal trust and it could I think it

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Speaker 4: could take a toll on the personal relationship between people

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Speaker 4: like Howard Ludnick and start the center Trump if that continues.

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Speaker 3: Kate, we should probably spend a minute on that. Although

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Speaker 3: it's not directly on the bomb market thing, it does

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Speaker 3: go to the sort of expectations around economic policy and

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Speaker 3: the thing we've tended to focus a lot on, which

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Speaker 3: was the desire to put the promise to put tariffs

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Speaker 3: on most imports coming into the US. You know, we

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Speaker 3: did see last week a lot of back and forth

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Speaker 3: and the sort of outbreak of different views on where

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Speaker 3: the tariff policy is going. We had that Washington Post

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Speaker 3: story that Anna just mentioned, but then quite a lot

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Speaker 3: of pushback from people closer to Trump on whether or

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Speaker 3: not they would be targeted those tariffs or whether actually

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Speaker 3: would be closer to what he said on the campaign trail.

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Speaker 3: I mean, we thought it was going to be terribly disciplined,

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Speaker 3: but it's already there's a lot of debates breaking out

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Speaker 3: into the public.

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Speaker 5: I think we learned a lot in the first Trump

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Speaker 5: term about how the Trump White House operates, and for sure,

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Speaker 5: I think there are indications it will be different, won't

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Speaker 5: be exactly the same. And as you mentioned, Stephanie Wright,

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Speaker 5: in some sense that things are a bit more organized

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Speaker 5: now you have different people running things. But at the

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Speaker 5: core Trump, you know, he has people with a lot

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Speaker 5: of different viewpoints, as you said, at different perspectives and

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Speaker 5: different philosophies on these issues, on economic policy in particular,

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Speaker 5: And one thing we did see last time is there's

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Speaker 5: competition among those voices. There was then and there certainly

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Speaker 5: will be again. It's obvious based on the stories that

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Speaker 5: we're seeing. So I think a lot of it oftentimes

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Speaker 5: depends on who's the last person in Trump's ear. When

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Speaker 5: he's making a decision, He changes his mind on things,

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Speaker 5: he changes his view. So that we are at the

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Speaker 5: stage right now. We haven't gotten to the inauguration yet.

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Speaker 5: We are about to start hearing from folks at their

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Speaker 5: confirmation hearings, but we're trying to figure out who will

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Speaker 5: have the most influence on these decisions, which view will

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Speaker 5: went out with the president, and it is so hard

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Speaker 5: to know at this point how these details are going

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Speaker 5: to shake out.

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Speaker 3: Just staying with you, Kate, because you oversee the FED coverage.

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Speaker 3: I mean, we did have quite a lot of voices

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Speaker 3: coming from the Fed in the last Fed policy makers

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Speaker 3: in the last couple of weeks, and those have fed

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Speaker 3: into these changing expectations around what the Fed's going to do.

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Speaker 3: Do you think there's is there a risk or a

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Speaker 3: sense that Trump administration officials or Donald Trump himself are

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Speaker 3: just going to blame the FED for all of this

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Speaker 3: and at some point we'll just say, oh, you know,

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Speaker 3: this is the only reason the market's a week is

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Speaker 3: because they're getting it wrong on interest rates and interest

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Speaker 3: rates are going to be too high. Do you think

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Speaker 3: there's a risk of that. Absolutely.

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Speaker 5: I mean, I think we saw in his first term

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Speaker 5: Trump was not shy about saying what he thought about

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Speaker 5: the FED and monetary policy and criticizing when he thought

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Speaker 5: they did something wrong. And to be fair, I think

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Speaker 5: when I or something goes wrong, the FED could always

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Speaker 5: take the blame. It's not exclusive to Donald Trump. But

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Speaker 5: for sure, I think that there is a very big

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Speaker 5: political risk for the Central Bank, and I think that

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Speaker 5: they are probably bracing for a lot of incoming over

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Speaker 5: the next year and a lot of pressure to ease

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Speaker 5: up to help support the economy. I don't think that

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Speaker 5: Trump is particularly concerned about whether it's appropriate that the president.

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Speaker 5: There are these long standing norms that he shifted from

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Speaker 5: that the White House shouldn't they shouldn't say anything. They

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Speaker 5: shouldn't even say what they think interest rates should be.

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Speaker 5: And Trump came out over the summer last summer and said,

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Speaker 5: well why not. I mean, I should be able to

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Speaker 5: have a say. I'm not telling them what to do,

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Speaker 5: but I should say what reach should be. So I

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Speaker 5: don't think he'll be shy about saying if he thinks

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Speaker 5: they're doing the wrong thing, nor about telling them what

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Speaker 5: they should be doing.

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Speaker 3: Well, as you remember, our editor in chief, when he

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Speaker 3: sat down with Donald Trump at Chicago in September, he

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Speaker 3: he talked to him about the FED, and yeah, he

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Speaker 3: was quite clear not only that he thought he should

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Speaker 3: be able to give his advice, but they had a

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Speaker 3: pretty easy job and they hadn't had to do very much.

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Speaker 6: I think it's the greatest job in government. You show

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Speaker 6: up to the office once a month and you say,

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Speaker 6: let's say flipp acle and everybody talks about you like

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Speaker 6: you're a god.

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Speaker 4: Oh what will we do?

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Speaker 6: I mean, I think I have the right to say

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Speaker 6: I think you should go up or down a little bit.

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Speaker 6: I don't think I should be allowed to order it,

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Speaker 6: but I think I have the right to put in

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Speaker 6: comments as to whether or not interest rates should go

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Speaker 6: up or down, which I saw.

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Speaker 3: Christine Legard, at the head of the European Central Bank

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Speaker 3: came back saying, no, no, we actually do have quite

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Speaker 3: a hard job.

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Speaker 1: You should come and visit us. And you know I have.

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Speaker 1: I have thousands of hard working people, economist, jurists, a

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Speaker 1: computer scientist, and I can assure you that they work

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Speaker 1: super hard every day, not just once a month.

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Speaker 3: We should sort of spare a thought for the rest

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Speaker 3: of the world in this. And I'm speaking in London,

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Speaker 3: and I think London has particularly borne the brunt of

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Speaker 3: this sort of change in market sentiment in the US,

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Speaker 3: probably not entirely from anything that the UK done, but

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Speaker 3: we've seen as the cost of borrowing has gone up

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Speaker 3: in the US, it's also gone up everywhere, and particularly

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Speaker 3: in the UK. It's not entirely clear why the pound

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Speaker 3: has fallen. There's a sort of sense that whatever it

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Speaker 3: means for the US and the sort of strength of

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Speaker 3: the US economy, it is already exporting quite a lot

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Speaker 3: of pain and quite a lot of policy challenges to

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Speaker 3: other countries who are facing possibly you know, a tougher

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Speaker 3: time with their economy than the US, you know, slower

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Speaker 3: growth and are quite stubborn inflation. Anna, I mean this

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Speaker 3: is something that this is something that has an international impact.

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Speaker 4: And that's right. Indeed, I could see what you mean

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Speaker 4: that that in fact, the UK tenure bond yields has

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Speaker 4: increased by almost one hundred basis points since August, particularly

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Speaker 4: sharply in December.

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Speaker 3: And it sort of heightens the challenge that the Trump

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Speaker 3: policies pose because you know, you have a strong US

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Speaker 3: economy that people are already having to deal with, and

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Speaker 3: then if he is adding fuel to the fire with

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Speaker 3: these expansionary policies. Although it makes everyone feel very upbeat

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Speaker 3: about the US, I guess the risk is it's also

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Speaker 3: just sort of sucking money into the US and sharing

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Speaker 3: a lot of higher cost of borrowing with other countries.

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Speaker 3: But I'm fascinating when you were sort of briefing and

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Speaker 3: writing memos in the Council of Economic Advisors under Trump

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Speaker 3: and how much focus was there on the markets day

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Speaker 3: to day. I mean, I don't imagine. I know Donald

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Speaker 3: Trump probably wasn't sitting it looking at his Bloomberg terminal.

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Speaker 4: But.

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Speaker 3: Do you think there will be an awareness day to

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Speaker 3: day about what's going on in a concern?

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Speaker 4: So, first of all, when I was there, Larry Kudlow

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Speaker 4: was the director of the NEC, so he talks to

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Speaker 4: Trump all the time. He sits in the West wing,

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Speaker 4: in fact, in a little room in the West Wing.

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Speaker 4: And second, Trump also has Fox News on his television

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Speaker 4: set all day long, so he would be staring at

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Speaker 4: whatever News is showing, so he would be very aware

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Speaker 4: of the market movement.

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Speaker 3: And then ultimately, do you think it will still be

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Speaker 3: come down to the stock market what the stock market does,

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Speaker 3: rather than sort of what he might consider slightly more

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Speaker 3: obscure changes in ten year yields and thirty year yields.

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Speaker 4: Absolutely. So, I was there in Cea during the de

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Speaker 4: escalatory phase of the trade war, and the factors that

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Speaker 4: drove this subtle change in attitude toward taking a deal

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Speaker 4: with China at that time was because the stock market

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Speaker 4: has been falling and the manufacturing employment data was showing

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Speaker 4: that in fact, manufacturing payrolls have been plunging ever since

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Speaker 4: the tranch three of the tariffs of the massive tariffs

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Speaker 4: on the consumption bits from China. So that was like

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Speaker 4: the last two tranches of the US China tariff escalation,

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Speaker 4: and so he could I think what he's doing is

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Speaker 4: he will be trying to push the tariff hire to

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Speaker 4: a point where he sees the markets begins to have

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Speaker 4: a negative attitude, and when those cracks are forming, he's

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Speaker 4: going to de escalate.

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Speaker 3: Well, I think we're never going to have a full

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Speaker 3: answer to this, but we will see how it unfolds

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Speaker 3: over the next few months. I've heard quite a few

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Speaker 3: economists over here anyways say to me they felt, at

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Speaker 3: least for the US, that what had happened as a

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Speaker 3: sort of healthy reset, and they even suggested that it

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Speaker 3: could be a wake up call or a sound of

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Speaker 3: warning sign for the incoming administration that they maybe don't

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Speaker 3: want to overheat things too much early on when it

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Speaker 3: comes to things like tax cuts and big constraints on

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Speaker 3: immigration or trade wars. But it's certainly been a wake

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Speaker 3: up call already for countries like the UK, and in

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Speaker 3: the week's time, next time you hear this podcast, I

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Speaker 3: will be on the top of a mountain at the

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Speaker 3: World Economic Forum and Donald Trump will be president. Thank

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Speaker 3: you very much Kate and Anna for joining us this week.

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Speaker 5: Sure, thank you for having me.

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Speaker 4: Thank you see you again.

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Speaker 3: Thanks for listening to the first formal episode of Trumpernomics

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Speaker 3: from Bloomberg. It was hosted by Me, Stephanie Flanders and

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Speaker 3: I was joined by Anna Wong and Kate Davidson. Trumponomics

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Speaker 3: is produced by Summersadi and Moses and Dam, with sound

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Speaker 3: designed by Blake Maples. Brendan Francis Newnham is our executive producer.

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Speaker 3: Please help others find the show, rate and review it

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Speaker 3: wherever you listened