WEBVTT - Bloomberg Surveillance TV: May 20, 2025 0:00:00.080 --> 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 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify, or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.319 Terminal and the Bloomberg Business app. Stephen Main, the chair 0:00:37.360 --> 0:00:39.800 of the White House Council of Economic Advisors, joins us 0:00:39.840 --> 0:00:42.040 now for more. Stephen, welcome back to the program, my friend. 0:00:42.120 --> 0:00:44.680 Let's talk about the President's message for House Republicans a 0:00:44.720 --> 0:00:46.960 little bit later this morning. What's top of mind? 0:00:48.200 --> 0:00:49.519 Good morning, Thanks for having us. 0:00:49.520 --> 0:00:51.600 Well, what's top of mind is the Council of Economic 0:00:51.600 --> 0:00:54.560 Advisors just published a paper it's available on our website 0:00:54.600 --> 0:00:56.279 talking about all the good stuff this tax bills are 0:00:56.280 --> 0:00:56.640 going to do. 0:00:56.880 --> 0:00:58.400 It's going to boost GDP relatives. 0:00:58.520 --> 0:01:00.320 Not passing the bill by about four point two to 0:01:00.360 --> 0:01:02.760 five point two percent is going to create seven million 0:01:02.840 --> 0:01:04.880 jobs and it's going to boost take home pay for 0:01:04.920 --> 0:01:07.800 a typical family of four by eight to thirteen thousand dollars. 0:01:07.880 --> 0:01:10.479 So these are really big effects relatives not passing the bill. 0:01:10.520 --> 0:01:12.560 It's imperative that we get this bill over the line. 0:01:12.720 --> 0:01:15.679 Steve, though, when I'm talking to individuals in Congress and 0:01:15.720 --> 0:01:18.559 then reading your white paper, you have a fifteen percent 0:01:18.600 --> 0:01:21.360 corporate tax rate in your white paper right now that's 0:01:21.440 --> 0:01:23.480 not being discussed in Congress. Do you think the President 0:01:23.560 --> 0:01:25.440 is going to bring that issue forward today? 0:01:26.640 --> 0:01:28.640 You know, I can't I can't prejudge the outcome of 0:01:28.680 --> 0:01:31.360 exactly what these talks will do, but that fifteen percent 0:01:31.720 --> 0:01:35.200 corporate rate on domestic manufacturing will help at the margin. 0:01:35.280 --> 0:01:37.480 But it's not the it's not the core of the 0:01:37.600 --> 0:01:39.840 proposal that you know. There were those numbers that I 0:01:39.880 --> 0:01:42.240 gave you will be pretty similar. If that doesn't make 0:01:42.240 --> 0:01:44.839 it into the final version, maybe it'll be a hair lower. 0:01:44.920 --> 0:01:46.280 But you have to keep in mind, there's a lot 0:01:46.319 --> 0:01:48.600 of stuff going into this bill, and any single one 0:01:48.600 --> 0:01:51.240 of these, any single one of these measures isn't enough 0:01:51.280 --> 0:01:53.000 to sort of, you know, change those numbers a lot. 0:01:53.040 --> 0:01:56.200 Because all these measures to combine together to improve the 0:01:56.240 --> 0:01:59.680 investment opportunities in America, to encourage firms to invest in, 0:01:59.720 --> 0:02:02.640 encourage firms to bind to invest, new equipment, new factories, 0:02:02.800 --> 0:02:03.440 all the stuff. 0:02:03.760 --> 0:02:06.120 There's a ton that's going into this bill, and that 0:02:06.200 --> 0:02:09.880 is why it's even so challenging for Speaker Johnson to 0:02:09.919 --> 0:02:12.640 get all these different factions on board. Something else you 0:02:12.720 --> 0:02:14.800 don't have in your paper, though, is what's going on 0:02:14.880 --> 0:02:19.119 in salt. Do you expect the salt cap to raise, say, 0:02:19.160 --> 0:02:20.400 thirty K forty K? 0:02:22.000 --> 0:02:23.919 Yeah, so I do expect there to be salt relief. 0:02:24.000 --> 0:02:26.240 The President has expressed support for this, and I think 0:02:26.240 --> 0:02:29.080 the President will deliver salt relief to American households. I 0:02:29.120 --> 0:02:31.160 don't know exactly what the number will shake out, and 0:02:31.600 --> 0:02:33.640 as you know, you know, this is how negotiations happen. 0:02:33.720 --> 0:02:35.440 One side says what it wants, the other side says 0:02:35.480 --> 0:02:37.560 what it wants. And the President is one of the 0:02:37.560 --> 0:02:40.000 best negotiators in history, and he's shown over a career 0:02:40.040 --> 0:02:43.360 spanning decades that he can forge hundreds of deals, and 0:02:43.400 --> 0:02:45.200 I think he'll forge another one right in front of us. 0:02:45.240 --> 0:02:45.440 Now. 0:02:45.919 --> 0:02:48.919 There is a good element in this that you're focusing 0:02:49.000 --> 0:02:50.960 on growth, and I do think that that is important. 0:02:50.960 --> 0:02:52.120 You can't cut too much. 0:02:52.160 --> 0:02:54.120 You have to offer some sweeteners. 0:02:53.560 --> 0:02:55.480 To keep growth going, to keep the revenue side of 0:02:55.480 --> 0:02:58.000 things going. I do wonder, though, how much of a 0:02:58.040 --> 0:03:01.120 constraint to debt side really is, given the fact that 0:03:01.520 --> 0:03:03.640 looks like things are getting a little yippie again in 0:03:03.680 --> 0:03:04.840 the bond market. 0:03:05.639 --> 0:03:05.919 Thanks. 0:03:05.919 --> 0:03:08.560 So, I'm so glad you mentioned that, because the truth 0:03:08.639 --> 0:03:10.520 is that we do have a plan for deficit reduction 0:03:10.560 --> 0:03:13.240 and we will deliver lower deficits. It just happens that 0:03:13.280 --> 0:03:15.600 some of those things fall outside of the scoring process. 0:03:15.639 --> 0:03:18.160 How CBO scores the bill because of the rules that 0:03:18.240 --> 0:03:20.359 Congress gave it. And so, for example, we're going to 0:03:20.400 --> 0:03:22.000 get better growth as a result of this bill, as 0:03:22.040 --> 0:03:24.000 a result of deregulation, as a result of the trade 0:03:24.040 --> 0:03:26.560 deals we're negotiating. We get growth to three percent. That 0:03:26.600 --> 0:03:29.800 generates four trillion dollars additional revenues over the ten year 0:03:29.840 --> 0:03:32.840 win budget window above the CBO baseline. That doesn't go 0:03:32.840 --> 0:03:36.920 into the scoring process because CBO doesn't account for improvements 0:03:36.920 --> 0:03:38.960 and economic growth. We're going to bring in hundreds of 0:03:39.000 --> 0:03:41.800 billions of dollars of revenue through tariffs, right, that's another 0:03:41.840 --> 0:03:44.240 point off the deficit. We're going to bring interest rates 0:03:44.280 --> 0:03:46.520 down through expanding the supply side of the economy, through 0:03:46.760 --> 0:03:50.520 more effective tax rates, through deregulation, through pushing the supply 0:03:50.600 --> 0:03:52.640 side out to meet the demand side, we get interest 0:03:52.720 --> 0:03:54.680 rates back to where they were pre COVID. That's another 0:03:54.720 --> 0:03:57.240 point off the deficit. And then there's cuts to waste, fraud, 0:03:57.240 --> 0:03:59.240 and abuse, some of which are in the bill, some 0:03:59.320 --> 0:04:01.800 of which are beingcomplished by those that's another fifty two 0:04:01.880 --> 0:04:04.360 hundred basis points off the deficit worth of GDP. So 0:04:04.440 --> 0:04:06.640 I just gave you three to four percent of GDP 0:04:06.960 --> 0:04:09.440 off the deficit. None of it falls into the scoring 0:04:09.480 --> 0:04:11.440 system that the CBO is doing part of the yet 0:04:11.480 --> 0:04:14.040 the conversation is for some reason dominated by CBO. 0:04:14.240 --> 0:04:16.120 Well, part of the reason why it's not being scored 0:04:16.200 --> 0:04:18.919 is because there are a lot of contingencies before you 0:04:18.920 --> 0:04:20.760 get to all of these realities. And I'll just pick 0:04:20.760 --> 0:04:22.559 out once, since we were talking about the bond market, 0:04:22.560 --> 0:04:25.200 the idea that yields go down as you increase the 0:04:25.240 --> 0:04:27.919 supply side of the economy, there's a pretty bumpy path 0:04:28.279 --> 0:04:31.080 to get there. Do you have enough faith in that 0:04:31.080 --> 0:04:35.000 that you ignore USGG three thirty eight year index GP, 0:04:35.160 --> 0:04:37.240 that you ignore the thirty year yield, you ignore the 0:04:37.279 --> 0:04:39.800 ten year yield in the near term and just have 0:04:39.920 --> 0:04:42.240 faith that longer term it will work out. 0:04:43.080 --> 0:04:43.279 Yees. 0:04:43.400 --> 0:04:46.520 So, look, you know, we're still dealing with the lingering pressure, 0:04:46.520 --> 0:04:50.120 the lingering inflation pressures due to President Biden's reckless fiscal policies. 0:04:50.200 --> 0:04:52.919 But we are bringing those inflation pressures down through pushing 0:04:52.920 --> 0:04:55.120 out the supply side of the economy. We've had now 0:04:55.240 --> 0:04:58.640 three inflation reports in a row below expectations. Core inflation 0:04:58.720 --> 0:05:00.880 on an annual basis is running the lowest level since 0:05:00.920 --> 0:05:03.520 March of twenty twenty one. And as we continue to 0:05:03.520 --> 0:05:06.000 control inflation, it will provide scope for interest rates to 0:05:06.000 --> 0:05:06.400 come down. 0:05:06.440 --> 0:05:07.440 I have no doubt about that. 0:05:07.800 --> 0:05:10.719 Well, Steve, you know, the American people are concerned about 0:05:10.760 --> 0:05:13.279 prices going up, the latest being Subaru. They're going to 0:05:13.279 --> 0:05:16.680 be increasing their vehicle prices citing quote market conditions aka 0:05:17.160 --> 0:05:20.599 concerns about what's going on with trade and tariffs. How 0:05:20.640 --> 0:05:23.480 can you say you're delivering on inflation when actually companies 0:05:23.520 --> 0:05:25.320 are warning that prices are going higher. 0:05:26.560 --> 0:05:26.880 Yeah. 0:05:26.920 --> 0:05:29.359 So, look, you know, imports are only fourteen percent of 0:05:29.400 --> 0:05:32.520 the economy. The ability of the ability of those types 0:05:32.560 --> 0:05:35.520 of things to really move the needle on inflation are limited, 0:05:35.520 --> 0:05:37.560 and what we saw in the tariffs in twenty eighteen 0:05:37.600 --> 0:05:41.200 twenty nineteen was zero macroeconomic evidence of inflation. What we've 0:05:41.200 --> 0:05:43.240 seen so far since the tariffs have been in and 0:05:43.320 --> 0:05:45.520 don't forget, we've been introducing tariffs since day one of 0:05:45.520 --> 0:05:48.760 this administration, and what we've seen as tariffs have started 0:05:48.800 --> 0:05:51.760 to come up has been no real meaningful macroeconomic effect 0:05:51.760 --> 0:05:54.200 in inflation. And so while there can be volatility in 0:05:54.200 --> 0:05:58.000 the short run, I do believe that US importers have flexibility. 0:05:58.040 --> 0:05:59.799 But where they get stuff from they can make stuff 0:05:59.800 --> 0:06:01.880 at hellme home, they can import from other countries that 0:06:01.880 --> 0:06:03.599 treat us better, that rate trade deals with US as 0:06:03.600 --> 0:06:06.240 opposed to countries that treat us worse, and that flexibility 0:06:06.279 --> 0:06:09.000 gives them leverage. That leverage allows them to force the 0:06:09.040 --> 0:06:12.000 burden of the tariffs on the other party on other countries. Now, 0:06:12.040 --> 0:06:13.800 in the fullness of time, that'll happen. But in the 0:06:13.839 --> 0:06:16.640 short run, can there be volatility in prices and economic 0:06:16.640 --> 0:06:19.440 activity just as there were in financial markets, Yeah, it 0:06:19.480 --> 0:06:22.479 can happen, But over time we have the leverage and 0:06:22.520 --> 0:06:23.960 that will allow us to force the burden of the 0:06:24.000 --> 0:06:25.080 tariffs onto other countries. 0:06:25.160 --> 0:06:27.120 When you think about tariffs, do you think they're going 0:06:27.160 --> 0:06:29.000 to be revenue raising or do you think that we're 0:06:29.000 --> 0:06:30.960 going to get deals so the revenue raising won't be 0:06:30.960 --> 0:06:33.440 as high. And do you have a number within the 0:06:33.480 --> 0:06:35.800 White House that you're discussing which how much you want 0:06:35.800 --> 0:06:38.480 to get in terms of revenue raises to offset this 0:06:38.640 --> 0:06:39.160 tax bill. 0:06:40.480 --> 0:06:40.800 Sure? 0:06:41.000 --> 0:06:42.960 So, first of all, what we've seen with some of 0:06:43.000 --> 0:06:45.120 the deals we've made so far is that there's still 0:06:45.160 --> 0:06:47.279 a ten percent tariff in place, and in the case 0:06:47.279 --> 0:06:50.040 of China, there's other tariffs too, the fentanyl tariffs, the 0:06:50.040 --> 0:06:52.320 tariffs from the first term as well, And so even 0:06:52.360 --> 0:06:54.920 if we strike deals, odds are will still be collecting 0:06:55.080 --> 0:06:57.640 some tariff revenue. But even if we end up bringing 0:06:57.640 --> 0:07:01.240 those tariff rates below or down to zero, you know 0:07:01.520 --> 0:07:04.880 that means more economic activity. If we're writing deals because 0:07:04.880 --> 0:07:07.960 we're succeeding in opening foreign markets to our exports, allowing 0:07:08.000 --> 0:07:11.320 American firms to sell into foreign markets the way we 0:07:11.400 --> 0:07:13.680 allow foreign firms to sell into our market, that means 0:07:13.720 --> 0:07:16.400 more economic activity here because of more exports. And if 0:07:16.440 --> 0:07:19.600 there's more economic activity, more exports coming out of America 0:07:19.680 --> 0:07:22.239 going to foreign markets. That's more income that gets taxed 0:07:22.240 --> 0:07:24.600 at the personal level, at the corporate level, and that's 0:07:24.640 --> 0:07:26.840 lots more revenue too. So either way you slice it, 0:07:26.920 --> 0:07:29.000 we get revenue from tariff's or we get revenue from 0:07:29.080 --> 0:07:31.200 higher GDP because we're selling more to other countries. 0:07:31.320 --> 0:07:33.760 Sounds like when win Steven les Typer ends up that way. 0:07:33.840 --> 0:07:36.800 Steven Marin there the White House Council of Economic Advisors 0:07:36.920 --> 0:07:48.640 chair joining us now here in New York City, the 0:07:48.760 --> 0:07:51.440 former Wealth Bank President David mount Pass, David and Moonic 0:07:51.720 --> 0:07:54.920 good Mornington more than a decade of warnings August twenty eleven, 0:07:55.000 --> 0:07:58.760 Standard of Pause August twenty twenty three, Fitch May twenty 0:07:58.840 --> 0:08:01.840 twenty five. We've ignored them for the best part of 0:08:01.880 --> 0:08:03.560 a decade. Should we stop paying attention? 0:08:04.440 --> 0:08:05.080 Absolutely? 0:08:05.800 --> 0:08:10.520 The fiscal situation is a real mess. I've written about 0:08:10.520 --> 0:08:12.880 it that the spending is out of control. So the 0:08:13.000 --> 0:08:16.360 question is how do you bring control to a Washington 0:08:16.440 --> 0:08:19.440 that really wants to grow. You know, the lobbyists right 0:08:19.480 --> 0:08:22.720 now are in seventh heaven because of the complexity, and 0:08:22.800 --> 0:08:27.240 so you have this system that is able to borrow 0:08:27.400 --> 0:08:31.200 and tax like crazy, and so then Washington sees that 0:08:31.320 --> 0:08:35.160 and says we should just spend double whatever we can 0:08:35.240 --> 0:08:37.080 bring in, and that's what they're doing. 0:08:37.800 --> 0:08:39.760 Now. Whose fault is that. 0:08:39.800 --> 0:08:43.720 Everybody wants to point fingers at everybody else. I think 0:08:43.800 --> 0:08:47.079 we've got to see a fundamental change in the spending system. 0:08:47.360 --> 0:08:51.440 Does started that, and now this Reconciliation Bill is the 0:08:51.559 --> 0:08:55.480 extension of that and enactment into law. Notably, it includes 0:08:55.520 --> 0:08:58.560 regulatory reform, which is going to help a lot with growth. 0:08:58.640 --> 0:09:02.000 But David until Washington sides to go and really look 0:09:02.000 --> 0:09:05.839 at Social Security. That's the biggest piece of the pie 0:09:05.920 --> 0:09:08.480 when it comes to spending. Really everything else is on 0:09:08.520 --> 0:09:10.800 the margins. Is this administration willing to go there? 0:09:11.280 --> 0:09:13.040 I don't think so, and I don't think they should. 0:09:13.080 --> 0:09:15.640 I think you have to build credibility with the public. 0:09:15.840 --> 0:09:18.760 Why would you go after Social Security? People put their 0:09:18.800 --> 0:09:22.760 money into it, and they then retirement is a really 0:09:22.800 --> 0:09:25.800 important part of people's lives and their children's lives as 0:09:25.840 --> 0:09:32.080 they watch. Don't do that age be raised. I don't 0:09:32.080 --> 0:09:35.760 think it's timely for that question to come on. You 0:09:35.840 --> 0:09:39.000 really have to show that you can cut some programs, 0:09:39.120 --> 0:09:42.520 downsize government, and set up a system where you actually 0:09:42.559 --> 0:09:46.720 make decisions so they're arguing about the fraud and waste 0:09:46.720 --> 0:09:50.360 in medicaid. I think that's a useful discussion of how 0:09:50.400 --> 0:09:52.760 can you get quite a bit of savings from a 0:09:52.800 --> 0:09:56.319 program that was expanded drastically. 0:09:56.400 --> 0:09:58.480 You talk about how this administration has to have trust 0:09:58.559 --> 0:10:02.720 with the constituents. Well, President promised a number of policy 0:10:02.760 --> 0:10:05.280 provisions on the campaign trail, lifting the salt tax, which 0:10:05.360 --> 0:10:09.080 was capped under his first administration, making sure that things 0:10:09.160 --> 0:10:11.440 like he did say he doesn't really want to touch medicaid, 0:10:11.440 --> 0:10:13.959 definitely doesn't want to touch medicare. How do you build 0:10:13.960 --> 0:10:17.000 that trust if these are some of the issues that 0:10:17.240 --> 0:10:18.320 are on the chopping block. 0:10:18.679 --> 0:10:21.200 I think by going to the hill and talking with members, 0:10:21.200 --> 0:10:27.559 but then also clear communication from the administration and from 0:10:27.880 --> 0:10:30.800 all around the country of people saying we want the 0:10:30.840 --> 0:10:34.320 government to stop spending so much money and then make 0:10:34.559 --> 0:10:38.560 decisions and start I've advocated start with small decisions and 0:10:38.600 --> 0:10:41.920 then make them bigger and bigger. Sometimes I've talked about 0:10:41.960 --> 0:10:44.880 it that you need to make three major spending decisions 0:10:44.920 --> 0:10:48.800 per week all the way through twenty twenty five, and 0:10:48.880 --> 0:10:52.520 so I think they're doing that sum in this reconciliation bill. 0:10:52.800 --> 0:10:53.839 It's really long. 0:10:53.960 --> 0:10:55.520 I don't know if you've looked at the bill, but 0:10:55.640 --> 0:10:57.400 it's intensely complicated. 0:10:57.520 --> 0:10:59.960 Well, you talk about that and how it's a daydream 0:11:00.160 --> 0:11:03.520 for a lot of lobbyists. I'm wondering if you speak 0:11:03.520 --> 0:11:05.800 to people in Washington, DC and get a sense of 0:11:06.160 --> 0:11:09.040 what kind of constraint bond yields are at a time 0:11:09.040 --> 0:11:10.840 where bond vigilantes are getting very excited. 0:11:11.679 --> 0:11:14.160 I think that was the big issue at the beginning 0:11:14.160 --> 0:11:17.120 of the Clinton administration. You know, spending had been growing, 0:11:17.160 --> 0:11:19.719 and so so you had the idea that I want 0:11:19.760 --> 0:11:23.880 to be reincarnated as the bond market because it's so important. 0:11:24.080 --> 0:11:27.480 I do think we've changed a lot since then. For one, 0:11:27.640 --> 0:11:30.559 the FED is buying lots of bonds, so that changes 0:11:30.600 --> 0:11:34.000 the dynamic in the bond market. The US economy is 0:11:34.040 --> 0:11:37.880 fundamentally really strong, and so I think we could have 0:11:38.000 --> 0:11:40.480 lower interest rates on the short end and the long 0:11:40.640 --> 0:11:44.360 end with if they could begin to think about the 0:11:44.400 --> 0:11:47.680 spending side and actually pull it down. So I'm not 0:11:47.760 --> 0:11:50.720 one that thinks there's so much a limit or a 0:11:50.800 --> 0:11:53.760 higher yield that we're that we're that we're going to 0:11:53.880 --> 0:11:56.320 have to see. I think more we have to see 0:11:56.320 --> 0:11:58.640 the growth come out of the regulatory changes. 0:11:59.000 --> 0:12:02.480 I'm ashaw you advocate for monetizing the debt in some capacity, 0:12:02.480 --> 0:12:05.360 given the fact that the Fed is buying bonds, albeit 0:12:05.400 --> 0:12:08.200 at a slowing pace, and has been known to do that. 0:12:08.920 --> 0:12:11.040 You know, I'm not a fan of qees. So since 0:12:11.080 --> 0:12:13.360 the beginning, I've said it was a shift in duration. 0:12:13.520 --> 0:12:19.320 The government was basically buying duration to cover up the 0:12:19.400 --> 0:12:22.600 lack of growth, and that took us from twenty ten 0:12:22.760 --> 0:12:25.640 all the way through twenty twenty one. So a giant problem, 0:12:26.080 --> 0:12:30.480 but that it's correctable. Is not a big step for 0:12:30.679 --> 0:12:35.720 the US FED to say it's going to downsize its portfolio. 0:12:36.040 --> 0:12:40.800 That would reduce that problem. That's already going on in Europe. Look, 0:12:41.000 --> 0:12:45.760 the ECB is selling off its bond portfolio or reducing 0:12:45.800 --> 0:12:49.240 the size of its portfolio fast and it hasn't hurt 0:12:49.240 --> 0:12:52.800 their yields, and so I think that's a lesson. So 0:12:53.080 --> 0:12:55.240 that shouldn't be the issue right now. The issue is 0:12:55.240 --> 0:12:59.120 the Fed is huge, it's doing regulatory control, it's not 0:12:59.280 --> 0:13:02.360 talking much about spending. It didn't talk during the Biden 0:13:02.400 --> 0:13:06.960 administration about the blowout and spending, and the interest rates 0:13:07.000 --> 0:13:10.720 as a result end up being higher than they should be. 0:13:11.080 --> 0:13:14.880 The models. You know, the models within the FED are 0:13:14.920 --> 0:13:17.600 not working at all. They're based on their fifty year 0:13:17.600 --> 0:13:21.240 old models, economic models of how the economy works, so 0:13:21.320 --> 0:13:23.079 that needs to be really rewritten. 0:13:23.400 --> 0:13:25.320 It's been ridiculous for quite a while, running a six 0:13:25.400 --> 0:13:28.960 percent Lodget deficit, thank you, with unemployment close to four percent, 0:13:29.320 --> 0:13:31.079 just absolutely ridiculous. 0:13:31.200 --> 0:13:32.760 And everybody knows that. 0:13:33.520 --> 0:13:37.560 And then they say, well, my politicians should stand up 0:13:37.559 --> 0:13:40.520 and go after social Security. That's not really the answer 0:13:40.559 --> 0:13:43.800 to me. You've got to make suicide name programs that 0:13:43.880 --> 0:13:46.760 we don't need. The public will support that and then 0:13:46.800 --> 0:13:48.600 build on it, and there's some of that in the 0:13:48.640 --> 0:13:52.160 Reconciliation bill. It's good to have President Trump engaged on it. 0:13:52.320 --> 0:13:54.520 David Mountpass is going to see you, sir, as always. 0:13:54.520 --> 0:13:56.840 As David said, the system is so large in Washington. 0:13:57.160 --> 0:13:59.680 You start to push against it, it pushes back pretty quickly. 0:14:00.000 --> 0:14:02.880 That's the reason why we've seen year after year people 0:14:02.880 --> 0:14:05.439 say the same issue and never remedy it because it 0:14:05.480 --> 0:14:06.320 is political service. 0:14:16.160 --> 0:14:18.560 Let's stick with the economy. Towson's slock Apollo writing, the 0:14:18.600 --> 0:14:20.840 list of headwinds is growing. The trade war is making 0:14:20.880 --> 0:14:24.680 products more expensive in Walmart, student loan payments and restarting, 0:14:24.760 --> 0:14:27.520 and the Moody's down grade is pushing up borrowing costs 0:14:27.560 --> 0:14:30.840 for consumers and for firms. Towson joins us now for 0:14:30.920 --> 0:14:33.520 more Torston, good morning. A lot to worry about, and 0:14:33.560 --> 0:14:35.320 FED official has just told us to take summer off, 0:14:35.360 --> 0:14:37.800 basically that they'll get back together in September. Consider what 0:14:37.840 --> 0:14:39.360 to do. Do you think they need to do something 0:14:39.360 --> 0:14:39.840 before then? 0:14:40.320 --> 0:14:41.760 I don't think they need to do a thing before, 0:14:41.840 --> 0:14:43.640 but I do think that the list of worries is 0:14:43.640 --> 0:14:45.640 indeed growing. It used to be the case for the 0:14:45.720 --> 0:14:48.160 last several months that we've been worrying mainly about the 0:14:48.200 --> 0:14:50.600 trade war. What is coming from the trade war, very 0:14:50.600 --> 0:14:53.000 importantly is what Jamie Diamond pointed out yesterday. 0:14:53.240 --> 0:14:53.600 Name it. 0:14:53.640 --> 0:14:55.960 Now we're going to see the negative effects of tariffs 0:14:56.000 --> 0:14:58.680 on earnings and therefore also on the economy. The yield 0:14:58.680 --> 0:15:01.560 budget LAP is quantified that the impact on GDP this 0:15:01.640 --> 0:15:04.760 year will be minus zero point seven. Normally GDP growth 0:15:04.800 --> 0:15:07.000 this too, So if I subtract minus zero point seven, 0:15:07.040 --> 0:15:09.040 that brings you so still one point three. That's not 0:15:09.120 --> 0:15:11.560 a recession, but it certainly something that will be pushing 0:15:11.880 --> 0:15:14.240 point rate up. In the same calculation by roughly half 0:15:14.240 --> 0:15:14.560 of percent. 0:15:14.600 --> 0:15:16.520 His point. So the first thing is tariffs. 0:15:16.560 --> 0:15:19.440 We are still waiting to see the actual effects of tariffs, 0:15:19.480 --> 0:15:22.040 both on earnings and on the economy. And the things 0:15:22.040 --> 0:15:24.720 that are being added now more recently is student loan 0:15:24.840 --> 0:15:28.040 payments are restarting, is beginning to hit people's credit scores. 0:15:28.080 --> 0:15:30.760 That's about nine million people now who potentially will have 0:15:30.760 --> 0:15:32.280 a hit to their credit scurse, and therefore we'll have 0:15:32.360 --> 0:15:34.920 challenges going out buying a house, going out buying a car, 0:15:34.960 --> 0:15:36.320 going out buying a wash on dryer. 0:15:36.480 --> 0:15:38.000 And third, and finally the downgrade. 0:15:38.160 --> 0:15:40.840 Yes, the market reaction yesterday may be more mild, and 0:15:40.920 --> 0:15:43.960 yes we did go from the US being hyper exceptional 0:15:44.200 --> 0:15:47.120 to just being exceptional. But it's certainly a risk with 0:15:47.200 --> 0:15:49.160 the fiscal discussion and in rates markets that we are 0:15:49.160 --> 0:15:51.360 also adding on to the layer in terms of the 0:15:51.400 --> 0:15:52.480 issues that we see. 0:15:52.280 --> 0:15:54.520 The stress and the buyer now pay later dates as well, 0:15:54.560 --> 0:15:56.920 and you've seen that build for a number of months. 0:15:56.920 --> 0:15:59.560 The question I would ask, the brutal reality is low 0:15:59.600 --> 0:16:01.800 income workers haven't had a good run for a long 0:16:01.800 --> 0:16:04.200 long time. That's been true even when people came on 0:16:04.240 --> 0:16:06.480 this program and said the economy was good. Do you 0:16:06.480 --> 0:16:09.000 see the stress mind grasing up income levels at all? 0:16:09.200 --> 0:16:10.480 That is exactly what's going on. 0:16:10.520 --> 0:16:13.560 So your saw Klana yesterday say that they were reporting 0:16:13.600 --> 0:16:17.080 that buy Now, Pay Later was seeing more weakness among consumers, 0:16:17.280 --> 0:16:19.960 and the issue is exactly that it's migrating up towards 0:16:19.960 --> 0:16:22.840 middle income households. You're seeing this also more broadly in 0:16:22.880 --> 0:16:25.720 for example, in the housing data. The Santa weekly data 0:16:25.800 --> 0:16:28.840 for traffic for home builders is beginning to slow. 0:16:28.600 --> 0:16:30.760 Down, and this spring selling season. 0:16:30.520 --> 0:16:33.200 Has basically been much weaker than the spring selling season 0:16:33.240 --> 0:16:35.200 we've seen for the last few years. So also the 0:16:35.200 --> 0:16:38.240 weakness in the housing market is leading indicator telling you 0:16:38.520 --> 0:16:41.760 that the middle income consumer is also beginning to look monstrous. 0:16:41.920 --> 0:16:42.640 So you don't. 0:16:42.480 --> 0:16:46.520 Necessarily see recession, but this downside to growth that comes 0:16:46.560 --> 0:16:49.480 at a time of pricing pressure something that looks a 0:16:49.520 --> 0:16:52.720 bit like stagflation. And I wonder some people say, well, 0:16:52.720 --> 0:16:55.080 if it's not a recession, then it's pretty good. Is 0:16:55.080 --> 0:16:58.000 this actually a worst case scenario for risk assets because 0:16:58.040 --> 0:17:01.360 there isn't a very obvious reaction function from the fat 0:17:01.520 --> 0:17:05.400 reserve from policy makers to respond to the fundamental underlying 0:17:05.520 --> 0:17:07.120 weakness in consumers. 0:17:07.400 --> 0:17:10.440 Exactly because inflation if that is now going up. We've 0:17:10.440 --> 0:17:13.280 heard all the stories from Walmart now super various. Of course, 0:17:13.320 --> 0:17:16.119 retailers are saying prices will be moving higher over the 0:17:16.160 --> 0:17:16.720 coming quarters. 0:17:16.720 --> 0:17:17.800 That's what everyone expects. 0:17:17.840 --> 0:17:20.240 This is a textbook definition of a trade will, namely 0:17:20.320 --> 0:17:23.680 higher prices because imports of containers that come in to 0:17:23.880 --> 0:17:24.560 Los Angeles. 0:17:24.560 --> 0:17:26.200 Of course, things will become more expensive. 0:17:26.320 --> 0:17:29.480 And that is exactly challenging the fed's room for maneuvering 0:17:29.720 --> 0:17:32.040 because they will have to keep rates higher for longer 0:17:32.240 --> 0:17:34.719 in response to almost no matter what growth is doing. 0:17:34.800 --> 0:17:36.879 If growth, of course gets into a deep recession, they 0:17:36.920 --> 0:17:39.240 will be cutting. But if growth is just weakening, and 0:17:39.280 --> 0:17:41.720 that is the expectation from the contentus, that's what we're 0:17:41.720 --> 0:17:44.840 seeing in the data, then you will have this stackflation situation, 0:17:44.880 --> 0:17:48.480 which is very uncomfortable from a FED perspective because inflation 0:17:48.560 --> 0:17:50.280 higher for longer says the fetch you would be hiking, 0:17:50.480 --> 0:17:52.480 But growth slowing down says the fetch should be cutting. 0:17:52.680 --> 0:17:54.479 So this becomes a question for the FED, do they 0:17:54.560 --> 0:17:56.480 like apples and oranges, Do they put more weight on 0:17:56.560 --> 0:17:59.040 inflation being high or do the more weight on growth 0:17:59.080 --> 0:17:59.520 slowing down? 0:18:00.119 --> 0:18:03.160 Something that that John was talking about Jamie Diamond yesterday 0:18:03.160 --> 0:18:06.800 talking about this complacency in markets, particularly with risk assets, 0:18:06.840 --> 0:18:09.280 given the fact that yes, you have these tariffs, but 0:18:09.359 --> 0:18:12.479 you also have this kind of backdrop that does pressure 0:18:12.520 --> 0:18:15.480 the consumer. Do you think that risk assets really are 0:18:15.520 --> 0:18:18.240 not pricing in this type of backdrop at a time 0:18:18.520 --> 0:18:21.200 when you've seen big rebounds in this wake of any 0:18:21.240 --> 0:18:21.880 kind of selloffs. 0:18:22.000 --> 0:18:24.080 I think the stock market is backward looking at the moment. 0:18:24.119 --> 0:18:26.080