Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: And as you probably heard me say, we picked up
Speaker 2: since just the election three trillion dollars in you go
Speaker 2: it worth or value, but three trillion dollars was picked
Speaker 2: up since November fifth, so that's pretty good.
Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
Speaker 3: and this week we're asking does the bomb market have
Speaker 3: it in for Donald Trump? And if so, should he care?
Speaker 4: With me?
Speaker 3: Anna Wong, Chief US Economists at Bloomberg Economics. She's worked
Speaker 3: at the FED and served in the Trump White House
Speaker 3: in twenty nineteen and twenty twenty once a comment at
Speaker 3: the Council of Economic Advisors. Hello, Anna, Hi, Stephanie, and
Speaker 3: Kate Davidson, managing editor who covers you economic policy for
Speaker 3: Bloomberg News in Washington, d C. Thanks for joining us, Kate, Hi, Stephanie,
Speaker 3: the rest of you listening. Maybe just getting settled into
Speaker 3: twenty twenty five, but the bond market investors of the
Speaker 3: world have been extremely busy since the start of the year.
Speaker 3: The bond market story is front and center. Is this
Speaker 3: sell off just getting going? If yields continue to rise,
Speaker 3: pushing up the cost of government borrowing, especially in the US,
Speaker 3: but also around the world.
Speaker 5: The market is telling you you're at some level here
Speaker 5: where you're really pushing your luck on. About what level
Speaker 5: do tenure yield or to rate really begin to hit
Speaker 5: the economy.
Speaker 1: I think that's the question.
Speaker 3: The yield on a US ten year treasury bond roughly
Speaker 3: what it costs Uncle Sam to borrow for ten years,
Speaker 3: has risen more than one percentage point since September, and
Speaker 3: could now with what's happened in the last few weeks,
Speaker 3: be heading for five percent. Now, that may not sound
Speaker 3: like much, but we haven't seen long term rates that
Speaker 3: high in nearly twenty years. Of course, everyone on Planet
Speaker 3: Bloomberg cares a lot about all aspects of this, constantly
Speaker 3: writing about it in the last few days. But I
Speaker 3: think the big question for this podcast is whether the
Speaker 3: incoming Trump administration should be worried about what's been happening
Speaker 3: in the bond markets, and specifically does it put at
Speaker 3: risk any of Donald Trump's grand plans, whether for immigration,
Speaker 3: trade wars, or tax cuts. Welcome to Trumpnomics, the Bloomberg
Speaker 3: podcast that looks at the economic world of Donald Trump
Speaker 3: how he's already shaped the global economy and what on
Speaker 3: earth is going to happen next, Anna. I mean, we've
Speaker 3: got quite a lot to cover, but I guess first
Speaker 3: we should spend a little bit of time on why
Speaker 3: you think bond yields the cost of borrowing has gone
Speaker 3: up so sharply in the last few weeks. Why are
Speaker 3: they selling bonds?
Speaker 4: Right? The answer to that question will crucially get to
Speaker 4: the core of your original question, which is will it
Speaker 4: restrain the Trump administration? Right? So, I've heard at least
Speaker 4: five different explanations for why ped year yields have risen
Speaker 4: by one hundred basis point even though the FED has
Speaker 4: cut by over one hundred basis point. These explanations range from, well,
Speaker 4: it's because the FED has lost credibility that they should
Speaker 4: not have cut by so much in the first place,
Speaker 4: and market is signaling that they don't believe they have
Speaker 4: attaped inflation. I've also heard maybe because investors have lost
Speaker 4: confidence over the fiscal sustainability. I've also heard maybe it's
Speaker 4: Trump's policies potentially being inflationary, the tariffs and the deportation. Finally,
Speaker 4: another explanation I've heard is maybe it's because China or
Speaker 4: other foreign central banks have been dumping US treasuries as
Speaker 4: they are defending their currencies. So out of all these explanation, personally,
Speaker 4: what I've found most convincing is that it's a combination
Speaker 4: of a resetting of expectation of FED rate cuts due
Speaker 4: to better economic growth prospect as well as and increase
Speaker 4: in real rate.
Speaker 3: Just to sort of spell that out a bit, I mean,
Speaker 3: coming into this year, or at least maybe when everyone
Speaker 3: went on their holidays, we were thinking we get some
Speaker 3: interest rate cuts and maybe lower mortgages from the Fed.
Speaker 3: They're getting control of inflation, and for a mixture of reasons,
Speaker 3: people in the markets have reassessed that view in the
Speaker 3: last week or two. And if you're Donald Trump, you'd say, well,
Speaker 3: because I won the election, everyone's super optimistic about the
Speaker 3: US economy, so maybe it doesn't need so many interest
Speaker 3: rate cuts because it's not in trouble. In fact, it's
Speaker 3: doing well. I guess that would be the positive spin
Speaker 3: that he might have on it if he spent his
Speaker 3: time thinking about interest rate expectations.
Speaker 4: If he truly thinks that way, then he wouldn't be
Speaker 4: trying to talk down the interest rates. They're so clearly
Speaker 4: worried and I do think he has some reasons to
Speaker 4: worry because, as I said, the reprising of the ten
Speaker 4: year yields started in September, but a lot of that
Speaker 4: action also happened after the December of RMC meeting, and
Speaker 4: in that meeting, the Fed sharply increased their inflation outlook
Speaker 4: in twenty twenty five on expectations of Trump policies, tariffs, policies, deportations,
Speaker 4: so the Minute suggest So if that's the case, then
Speaker 4: from the Fed perspective, the reason why they are not
Speaker 4: planning to cut as much in twenty twenty five partly
Speaker 4: has to do with Trump policies policies that has not
Speaker 4: happened yet, and that is already all baked into ten
Speaker 4: year yields and serving as a restraint to the economy. Right,
Speaker 4: So it's all basically acting as a restrictive force to
Speaker 4: the economy before those policies come in place.
Speaker 3: Okay, do you have a team of people under you
Speaker 3: that's sort of looking at the real economy and also
Speaker 3: looking at the Fed. But just from your perspective sitting
Speaker 3: in DC, is it kind of registering this change in
Speaker 3: bond yields sort of inside the Beltway with people thinking
Speaker 3: politically about the incoming administration and how incoming members of
Speaker 3: the administration, whether it's the new Treasury sector or others,
Speaker 3: are thinking about the world. Do you think this kind
Speaker 3: of registers or is it not something they really care about.
Speaker 5: I think it's slowly starting to and I think where
Speaker 5: we will be looking for it and listening for it
Speaker 5: first is among the members of Congress who tend to
Speaker 5: be more worried about deficit spending, the deficit and debt hawks.
Speaker 5: There's not as many of them as there used to be, clearly,
Speaker 5: but there are still a few. And remember, Republicans will
Speaker 5: be in control of the House, the Senate, and the
Speaker 5: White House, and so they can do a lot, but
Speaker 5: their majorities are not very large, and so all it
Speaker 5: takes is for a few concerned people to sort of
Speaker 5: throw a wrench into the process here, and if they
Speaker 5: are starting to be worried, if they're hearing from constituents,
Speaker 5: if they're hearing from builders, or if they're hearing from
Speaker 5: regular voters, hearing about interest rates, hearing about people concerned
Speaker 5: about inflation being stickier, and all of that kind of
Speaker 5: being reflected to a certain extent and higher yield. I
Speaker 5: think that that could raise some worries, and it's maybe
Speaker 5: starting to a little bit about how much more deficit
Speaker 5: spending they can do in the form of you know,
Speaker 5: def asit finance tax cuts or other things.
Speaker 3: Yes, because to your point, I mean, the reason it
Speaker 3: matters is if you've got this, this is about the
Speaker 3: cost of borrowing for government sur If it's gone up,
Speaker 3: it's potentially not just now but into the future the
Speaker 3: cost of doing things, the cost of expanding a deficit
Speaker 3: gets that much higher. You're going to be spending that
Speaker 3: much year upon year on the debts. Already, I think
Speaker 3: the debt service costs are bigger than the defense budget,
Speaker 3: which has raised some eyebrows of those who want to
Speaker 3: make sure that the US continues to be a great power.
Speaker 3: But you don't get the sense that Donald Trump all
Speaker 3: the people close to him are focused on the bond
Speaker 3: market as much as the stock market. Would it take
Speaker 3: a stock market decline to really change change the way
Speaker 3: he's thinking about the markets and the economy.
Speaker 5: Perhaps for Donald Trump, right, we know he cares very
Speaker 5: much about the stock market, but certainly his Treasury Secretary
Speaker 5: Scott Bessett is very much aware of what's happening in
Speaker 5: the barn market. He's made some comments, you know, the
Speaker 5: past few months about how Treasury Secretary Jennet Yellen has
Speaker 5: been managing the debt, and I would certainly expect that
Speaker 5: he will talk about this at his confirmation hearing in
Speaker 5: the Senate that's coming up soon. He'll be asked about it.
Speaker 5: But right I would think that the you know, yields
Speaker 5: tenure yields eclipsing that very you know significant, even if
Speaker 5: it's just psychologically significant five percent threshold would get a
Speaker 5: lot more intention in Washington.
Speaker 3: And it's worth saying the rally in the stock market
Speaker 3: that we've seen since Donald Trump was elected has been
Speaker 3: more or less pyped out by the stop market reacting
Speaker 3: in the last few days to the rising interest rates,
Speaker 3: because if you think about it, you know, if the
Speaker 3: rising cost of borrowing also means you can earn more
Speaker 3: on a bond, which means that it's less attractive to
Speaker 3: hold a stock, is you know, one way of thinking
Speaker 3: about it. So we have already seen a response on
Speaker 3: a stock market. What is interesting about this happening now,
Speaker 3: right is that we haven't actually seen a lot of
Speaker 3: the incoming Trump's Administration's policies coming in and most of
Speaker 3: them will add to growth, and if anything put the
Speaker 3: Fed in a position of maybe having to raise interest rates.
Speaker 3: Is that something that you think could happen in the
Speaker 3: next year? If you have tariffs potentially adding to inflation,
Speaker 3: a big tax cut package or a package that makes
Speaker 3: permanent the tax cuts from the previous Trump administration, surely
Speaker 3: that could send yields even higher.
Speaker 4: Yeah, so the tariffs, if the Trump was serious about
Speaker 4: imposing a universe tariffs, a twenty percent universal tariffs for example,
Speaker 4: could raise the core PC by one percentage point. Then
Speaker 4: it's possible that we will see a rake pike at
Speaker 4: the end of twenty twenty five or early twenty twenty six.
Speaker 3: But do you think there would be any voices in
Speaker 3: the White House saying, you know what, we don't want
Speaker 3: to bond market meltdown for people to start really questioning
Speaker 3: US debt or demanding you know, ever higher cost to borrow.
Speaker 3: Do you think that there it could potentially be a
Speaker 3: restraining force on any of the sort of big priorities
Speaker 3: that Donald Trump has coming into this administration.
Speaker 4: So if there is two people who would be those voices,
Speaker 4: it would be Scott Byssant and Kevin Hassett and.
Speaker 3: Just remind us what jobs they're going to have in
Speaker 3: the next administration.
Speaker 4: So Scott destined would be the US Treasury Secretary and
Speaker 4: Kevin Hassett would be the NEC director. And in their
Speaker 4: influence on Trump to a large extent depends on their
Speaker 4: personal relationship with Trump, and both of them had been
Speaker 4: known as not friendly to tear. I mean, they were
Speaker 4: basically in their core free traders if you look at
Speaker 4: the stuff they wrote years before they joined the Trump administration,
Speaker 4: and you know, we call it a couple of weeks ago.
Speaker 4: In fact it was I think it was just last week.
Speaker 4: There was a leak in Washington posts suggesting that some
Speaker 4: people in Trump orbit are proposing a more targeted tariff,
Speaker 4: and to extent that those are leaked by people in
Speaker 4: Scott Bessent's camp. And now this gets into palace intrigue ry,
Speaker 4: then it could be hurting the relationship of Scott Bessent
Speaker 4: and Trump because the folks around Trump, especially characters like
Speaker 4: Peter Navarro, who's playing a pretty important role as a
Speaker 4: shadowy person. Leak's actually flows distrust within the inner circle,
Speaker 4: and they're not supposed to leak and the fact that
Speaker 4: that story in Washington Post came out suggests that it's
Speaker 4: hurting the internal trust and it could I think it
Speaker 4: could take a toll on the personal relationship between people
Speaker 4: like Howard Ludnick and start the center Trump if that continues.
Speaker 3: Kate, we should probably spend a minute on that. Although
Speaker 3: it's not directly on the bomb market thing, it does
Speaker 3: go to the sort of expectations around economic policy and
Speaker 3: the thing we've tended to focus a lot on, which
Speaker 3: was the desire to put the promise to put tariffs
Speaker 3: on most imports coming into the US. You know, we
Speaker 3: did see last week a lot of back and forth
Speaker 3: and the sort of outbreak of different views on where
Speaker 3: the tariff policy is going. We had that Washington Post
Speaker 3: story that Anna just mentioned, but then quite a lot
Speaker 3: of pushback from people closer to Trump on whether or
Speaker 3: not they would be targeted those tariffs or whether actually
Speaker 3: would be closer to what he said on the campaign trail.
Speaker 3: I mean, we thought it was going to be terribly disciplined,
Speaker 3: but it's already there's a lot of debates breaking out
Speaker 3: into the public.
Speaker 5: I think we learned a lot in the first Trump
Speaker 5: term about how the Trump White House operates, and for sure,
Speaker 5: I think there are indications it will be different, won't
Speaker 5: be exactly the same. And as you mentioned, Stephanie Wright,
Speaker 5: in some sense that things are a bit more organized
Speaker 5: now you have different people running things. But at the
Speaker 5: core Trump, you know, he has people with a lot
Speaker 5: of different viewpoints, as you said, at different perspectives and
Speaker 5: different philosophies on these issues, on economic policy in particular,
Speaker 5: And one thing we did see last time is there's
Speaker 5: competition among those voices. There was then and there certainly
Speaker 5: will be again. It's obvious based on the stories that
Speaker 5: we're seeing. So I think a lot of it oftentimes
Speaker 5: depends on who's the last person in Trump's ear. When
Speaker 5: he's making a decision, He changes his mind on things,
Speaker 5: he changes his view. So that we are at the
Speaker 5: stage right now. We haven't gotten to the inauguration yet.
Speaker 5: We are about to start hearing from folks at their
Speaker 5: confirmation hearings, but we're trying to figure out who will
Speaker 5: have the most influence on these decisions, which view will
Speaker 5: went out with the president, and it is so hard
Speaker 5: to know at this point how these details are going
Speaker 5: to shake out.
Speaker 3: Just staying with you, Kate, because you oversee the FED coverage.
Speaker 3: I mean, we did have quite a lot of voices
Speaker 3: coming from the Fed in the last Fed policy makers
Speaker 3: in the last couple of weeks, and those have fed
Speaker 3: into these changing expectations around what the Fed's going to do.
Speaker 3: Do you think there's is there a risk or a
Speaker 3: sense that Trump administration officials or Donald Trump himself are
Speaker 3: just going to blame the FED for all of this
Speaker 3: and at some point we'll just say, oh, you know,
Speaker 3: this is the only reason the market's a week is
Speaker 3: because they're getting it wrong on interest rates and interest
Speaker 3: rates are going to be too high. Do you think
Speaker 3: there's a risk of that. Absolutely.
Speaker 5: I mean, I think we saw in his first term
Speaker 5: Trump was not shy about saying what he thought about
Speaker 5: the FED and monetary policy and criticizing when he thought
Speaker 5: they did something wrong. And to be fair, I think
Speaker 5: when I or something goes wrong, the FED could always
Speaker 5: take the blame. It's not exclusive to Donald Trump. But
Speaker 5: for sure, I think that there is a very big
Speaker 5: political risk for the Central Bank, and I think that
Speaker 5: they are probably bracing for a lot of incoming over
Speaker 5: the next year and a lot of pressure to ease
Speaker 5: up to help support the economy. I don't think that
Speaker 5: Trump is particularly concerned about whether it's appropriate that the president.
Speaker 5: There are these long standing norms that he shifted from
Speaker 5: that the White House shouldn't they shouldn't say anything. They
Speaker 5: shouldn't even say what they think interest rates should be.
Speaker 5: And Trump came out over the summer last summer and said,
Speaker 5: well why not. I mean, I should be able to
Speaker 5: have a say. I'm not telling them what to do,
Speaker 5: but I should say what reach should be. So I
Speaker 5: don't think he'll be shy about saying if he thinks
Speaker 5: they're doing the wrong thing, nor about telling them what
Speaker 5: they should be doing.
Speaker 3: Well, as you remember, our editor in chief, when he
Speaker 3: sat down with Donald Trump at Chicago in September, he
Speaker 3: he talked to him about the FED, and yeah, he
Speaker 3: was quite clear not only that he thought he should
Speaker 3: be able to give his advice, but they had a
Speaker 3: pretty easy job and they hadn't had to do very much.
Speaker 6: I think it's the greatest job in government. You show
Speaker 6: up to the office once a month and you say,
Speaker 6: let's say flipp acle and everybody talks about you like
Speaker 6: you're a god.
Speaker 4: Oh what will we do?
Speaker 6: I mean, I think I have the right to say
Speaker 6: I think you should go up or down a little bit.
Speaker 6: I don't think I should be allowed to order it,
Speaker 6: but I think I have the right to put in
Speaker 6: comments as to whether or not interest rates should go
Speaker 6: up or down, which I saw.
Speaker 3: Christine Legard, at the head of the European Central Bank
Speaker 3: came back saying, no, no, we actually do have quite
Speaker 3: a hard job.
Speaker 1: You should come and visit us. And you know I have.
Speaker 1: I have thousands of hard working people, economist, jurists, a
Speaker 1: computer scientist, and I can assure you that they work
Speaker 1: super hard every day, not just once a month.
Speaker 3: We should sort of spare a thought for the rest
Speaker 3: of the world in this. And I'm speaking in London,
Speaker 3: and I think London has particularly borne the brunt of
Speaker 3: this sort of change in market sentiment in the US,
Speaker 3: probably not entirely from anything that the UK done, but
Speaker 3: we've seen as the cost of borrowing has gone up
Speaker 3: in the US, it's also gone up everywhere, and particularly
Speaker 3: in the UK. It's not entirely clear why the pound
Speaker 3: has fallen. There's a sort of sense that whatever it
Speaker 3: means for the US and the sort of strength of
Speaker 3: the US economy, it is already exporting quite a lot
Speaker 3: of pain and quite a lot of policy challenges to
Speaker 3: other countries who are facing possibly you know, a tougher
Speaker 3: time with their economy than the US, you know, slower
Speaker 3: growth and are quite stubborn inflation. Anna, I mean this
Speaker 3: is something that this is something that has an international impact.
Speaker 4: And that's right. Indeed, I could see what you mean
Speaker 4: that that in fact, the UK tenure bond yields has
Speaker 4: increased by almost one hundred basis points since August, particularly
Speaker 4: sharply in December.
Speaker 3: And it sort of heightens the challenge that the Trump
Speaker 3: policies pose because you know, you have a strong US
Speaker 3: economy that people are already having to deal with, and
Speaker 3: then if he is adding fuel to the fire with
Speaker 3: these expansionary policies. Although it makes everyone feel very upbeat
Speaker 3: about the US, I guess the risk is it's also
Speaker 3: just sort of sucking money into the US and sharing
Speaker 3: a lot of higher cost of borrowing with other countries.
Speaker 3: But I'm fascinating when you were sort of briefing and
Speaker 3: writing memos in the Council of Economic Advisors under Trump
Speaker 3: and how much focus was there on the markets day
Speaker 3: to day. I mean, I don't imagine. I know Donald
Speaker 3: Trump probably wasn't sitting it looking at his Bloomberg terminal.
Speaker 4: But.
Speaker 3: Do you think there will be an awareness day to
Speaker 3: day about what's going on in a concern?
Speaker 4: So, first of all, when I was there, Larry Kudlow
Speaker 4: was the director of the NEC, so he talks to
Speaker 4: Trump all the time. He sits in the West wing,
Speaker 4: in fact, in a little room in the West Wing.
Speaker 4: And second, Trump also has Fox News on his television
Speaker 4: set all day long, so he would be staring at
Speaker 4: whatever News is showing, so he would be very aware
Speaker 4: of the market movement.
Speaker 3: And then ultimately, do you think it will still be
Speaker 3: come down to the stock market what the stock market does,
Speaker 3: rather than sort of what he might consider slightly more
Speaker 3: obscure changes in ten year yields and thirty year yields.
Speaker 4: Absolutely. So, I was there in Cea during the de
Speaker 4: escalatory phase of the trade war, and the factors that
Speaker 4: drove this subtle change in attitude toward taking a deal
Speaker 4: with China at that time was because the stock market
Speaker 4: has been falling and the manufacturing employment data was showing
Speaker 4: that in fact, manufacturing payrolls have been plunging ever since
Speaker 4: the tranch three of the tariffs of the massive tariffs
Speaker 4: on the consumption bits from China. So that was like
Speaker 4: the last two tranches of the US China tariff escalation,
Speaker 4: and so he could I think what he's doing is
Speaker 4: he will be trying to push the tariff hire to
Speaker 4: a point where he sees the markets begins to have
Speaker 4: a negative attitude, and when those cracks are forming, he's
Speaker 4: going to de escalate.
Speaker 3: Well, I think we're never going to have a full
Speaker 3: answer to this, but we will see how it unfolds
Speaker 3: over the next few months. I've heard quite a few
Speaker 3: economists over here anyways say to me they felt, at
Speaker 3: least for the US, that what had happened as a
Speaker 3: sort of healthy reset, and they even suggested that it
Speaker 3: could be a wake up call or a sound of
Speaker 3: warning sign for the incoming administration that they maybe don't
Speaker 3: want to overheat things too much early on when it
Speaker 3: comes to things like tax cuts and big constraints on
Speaker 3: immigration or trade wars. But it's certainly been a wake
Speaker 3: up call already for countries like the UK, and in
Speaker 3: the week's time, next time you hear this podcast, I
Speaker 3: will be on the top of a mountain at the
Speaker 3: World Economic Forum and Donald Trump will be president. Thank
Speaker 3: you very much Kate and Anna for joining us this week.
Speaker 5: Sure, thank you for having me.
Speaker 4: Thank you see you again.
Speaker 3: Thanks for listening to the first formal episode of Trumpernomics
Speaker 3: from Bloomberg. It was hosted by Me, Stephanie Flanders and
Speaker 3: I was joined by Anna Wong and Kate Davidson. Trumponomics
Speaker 3: is produced by Summersadi and Moses and Dam, with sound
Speaker 3: designed by Blake Maples. Brendan Francis Newnham is our executive producer.
Speaker 3: Please help others find the show, rate and review it
Speaker 3: wherever you listened