Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Oh boy,
Speaker 1: another politician out with a book. Yeah, except Vince Cable
Speaker 1: is like I have never seen before. Hit the ball
Speaker 1: out of the park. Writing three and even four years ago.
Speaker 1: He opens Open Arms June seven of two thousand nineteen
Speaker 1: Into the future, Indian sources report a border incident on
Speaker 1: the line of control. In cash Mirror, Mr Cable joins
Speaker 1: us today. Vince first of all can graduations and getting
Speaker 1: out in front of the news is I have never
Speaker 1: ever seen in fiction? How did you do that? Well,
Speaker 1: it's it's it's a political thriller and a love story,
Speaker 1: and it's set in the UK. But I have a
Speaker 1: longstanding association with India and I first first went there
Speaker 1: over half a century ago. I have Indian in laws.
Speaker 1: I love the country and I'm aware of how important
Speaker 1: it is, but also of the dangers of conflict. And
Speaker 1: you have these two nuclear powers, you have a big
Speaker 1: division based on religion, and of course those divisions are
Speaker 1: reflected in British society because we have a large form
Speaker 1: Pakistan former India population. And I set my drama around
Speaker 1: an arms contract between Britain and India. At your post Brexit,
Speaker 1: Britain's trying to push arms exports and we we find
Speaker 1: ourselves in the middle of that historic conflict, which remarkably
Speaker 1: has remained subdued for for many years, and give them
Speaker 1: the potential for damage. What do we misunderstand? So this
Speaker 1: is a thriller. Yesterday we you know, we saw the
Speaker 1: tensions unfold actually in real time, and we've covered it
Speaker 1: extensively here on Bloombridge surveillance between Indian Pakistan. But what
Speaker 1: do we misunderstand about the shift in geopolitics around the world. Well,
Speaker 1: I think probably we're underestimating the risk. I mean, these
Speaker 1: are two nuclear powers. There is an unresolved dispute of
Speaker 1: a territory which is also reflected in populist politics. I mean,
Speaker 1: both these are democratic countries. They both rely heavily on
Speaker 1: the Indian governments on kind of Hindu nationalism, the Pakistan
Speaker 1: government on Muslim radicals. Um, you know, temperate temper, temper
Speaker 1: as easily rise. I mean, we've been fortunate that they've
Speaker 1: had some very rational statesmanlike leaders on both sides who
Speaker 1: steered and clear of conflict. But the potential for disaster
Speaker 1: is I'm afraid also real. But is this the retrenchment
Speaker 1: of you know, the the superpower that is the US
Speaker 1: is from playing a bigger role in the region. Well,
Speaker 1: it's certainly part of it. I mean, actually, at the moment,
Speaker 1: I think probably China has more influence in the region
Speaker 1: because of its very big investment in Pakistan. But the
Speaker 1: United Nation, the Artied States traditional they played a role
Speaker 1: in both sides. They valued India because of its economic
Speaker 1: importance and its democracy. Once upon a time, you may
Speaker 1: remember J. K. Gab Braith was sent as now as
Speaker 1: a symbol um. And of course on the Pakistan side,
Speaker 1: the United States supported them for geopolitical reasons. The United
Speaker 1: States has largely walked away. Uh. And then that's one
Speaker 1: of the factors that I think adding to the installability
Speaker 1: Dr Cable, as you mentioned John Kenneth Gilbert through working
Speaker 1: with John F. Kennedy a few years ago and all
Speaker 1: that symbolism. You attended the meetings of Endurer Gandhi and
Speaker 1: Margaret Thatcher of another time and place, give us an update.
Speaker 1: What is the special relationship right now of the United
Speaker 1: Kingdom with India. Probably not as big as a lot
Speaker 1: of British people would like to believe, of course it
Speaker 1: is was probably part of the British Empire. We left
Speaker 1: a big legacy, much of it good, some of it bad,
Speaker 1: including the partition of India. Um. But the real role
Speaker 1: that Britain plays is the fact that we now have
Speaker 1: a substantial minority in the UK of migrants who came
Speaker 1: here from the subcontinents some of them from Passion, from Pakistan,
Speaker 1: many of them from Kashmir, and many Indians who came
Speaker 1: here as well. And so in a way, but the
Speaker 1: good and the bad of the Indian subcontinents has been
Speaker 1: transplanted into British society. That's that is the main link
Speaker 1: we now have. How all the world's economy and I
Speaker 1: guess linked to that geopolitics change in the next ten years. Well,
Speaker 1: because India is becoming a superpower and this is it
Speaker 1: will I mean in population terms, it will overcome overtake China.
Speaker 1: Its economy is extremely dynamic egg um and it's it's
Speaker 1: a peculiar case I think it's a very state controlled economy,
Speaker 1: but with a very dynamic private sector. There's this saying
Speaker 1: that they in India the government goes to sleep at
Speaker 1: night and the economy starts to function um and it
Speaker 1: is growing at you know, six seven eight percent a year.
Speaker 1: It is rapidly overtaking China. It's got a long time lag.
Speaker 1: Within a few years time it will have probably have
Speaker 1: the third biggest economy in the world. And I think
Speaker 1: smart people are beginning to appreciate it's important. So Pakistan
Speaker 1: too is is a major economic part potentially, So you know,
Speaker 1: the Western world is underestimating. I think that the shift
Speaker 1: in the center of gravity of the world economy, of
Speaker 1: which India is a critical part. Vince Cable, thank you
Speaker 1: so much for joining as of course he is the
Speaker 1: leader of the UK Liberal Democratic Party, joining us today.
Speaker 1: So our top story a gloomy report from the O
Speaker 1: E c D telling you, ever think you already knew
Speaker 1: the global economy suffering from trade tensions and political uncertainty,
Speaker 1: clouding prospects for the future. The organization cutting the outlook
Speaker 1: again to three point three percent for global growth from
Speaker 1: three point five and warning there may be worse ahead.
Speaker 1: Joining us here in New York is Alan Ruskin, Deutsche
Speaker 1: Bank Global co head of f X Strategy. Good morning
Speaker 1: to Allen. Morning John. How useful is a forecast from
Speaker 1: the O E C D and let's trub in the
Speaker 1: I M F for that matter too. Yeah. Look, these
Speaker 1: are very big organizations that have certain advantages like big
Speaker 1: economic models, but they're obviously not the most number in
Speaker 1: a sense, so they can't change their forecasts and the dime,
Speaker 1: I would argue in this particularly instance, they are really
Speaker 1: following probably a set of market expectations and following the
Speaker 1: data rather than necessary leading it. Well, let's talk about
Speaker 1: the data we have had. We had a really really
Speaker 1: hot print on the I s M in America yesterday.
Speaker 1: Non manufacturing is SAM recovering dramatically. We're getting back to
Speaker 1: that early story of just strength in America and weakness
Speaker 1: our swear. Well, it does still seem to be some
Speaker 1: sense of American exceptionism, because, however, much of the US
Speaker 1: may be slowing, and that's obviously a question mark. However
Speaker 1: much it is slowing, it's probably slowing less than most
Speaker 1: other places. Um. Now, the I s M data, as
Speaker 1: you mentioned, is truly exceptional. At the same time, you're
Speaker 1: probably going to get some oddly week GDP data, albeit
Speaker 1: distorted for quarter one data that could be say sub
Speaker 1: one percent even Um. So it's gonna be interesting. It's
Speaker 1: gonna be quite hard to read the tea leaves as
Speaker 1: far as the data is concern. When people were reading
Speaker 1: the Federal Reserve tea leaves and looking for the pivot
Speaker 1: from Chairman Pal they pushed that view of patients through
Speaker 1: the equity market is done very well. They pushed it
Speaker 1: through credit, it's done very well. They try to push
Speaker 1: it through foreign exchange by assuming we would get a
Speaker 1: week a dollar we haven't had one. What's coming on, Alan, Yes,
Speaker 1: I think that's very much a story of relativism. So
Speaker 1: there you have to compare what's going on in in
Speaker 1: the US versus places like the EU and and particularly Japan. Um.
Speaker 1: What you've seen is the thought process of, well, look,
Speaker 1: if the US is slowing and the FEDS actually not
Speaker 1: going to be doing anything, then the ECB is not
Speaker 1: going to be doing much either, and the ECB is
Speaker 1: going to get locked into negative interest rates at the
Speaker 1: peak of its interest rate cycle, which is widely seen
Speaker 1: as diabolical. So UM it's that that's hamstringing the euro
Speaker 1: in particular. We talked about this at length yesterday. Yesterday
Speaker 1: was fascinating folks, between Liz Economy and a set of
Speaker 1: interviews on China, and also what Mr Ruskin speaks of
Speaker 1: your which is the X axis of negative interest rates.
Speaker 1: We're pushing five years of negative German two year. That's
Speaker 1: not in my textbooks, is it. No, we're we're well
Speaker 1: out of the realms of textbooks unless you've been reading
Speaker 1: the one that has been written in Japanese really for
Speaker 1: the last twenty ideas go out in the last twenty
Speaker 1: four US say that's what Europe faces. Perhaps Japanification. Absolutely,
Speaker 1: it looks very very similar. Indeed, actually that there's this
Speaker 1: sort of sense that you get locked into extremely low
Speaker 1: interest rates. The loudest drag in Europe not Japanify. Well,
Speaker 1: I think the first step would be to look to
Speaker 1: fiscal policy, because oddly enough, Europe has been following relatively
Speaker 1: austere fiscal policies, particularly in Germany, where they've been running
Speaker 1: a surplus. So why are you running a surplus in
Speaker 1: this particularly environment because the currency is an artificial construct, Yes,
Speaker 1: but no, there's there's but there's politics behind it as well.
Speaker 1: I mean, just fell off their chairs in Frankfort at
Speaker 1: Deutsche Bank. Um, where should where should Europe be? For
Speaker 1: Germany and you know, grab your bed, you'll be okay,
Speaker 1: just take a guess. One fifty we can say, we
Speaker 1: can say for the problem Europe has allen. And you
Speaker 1: know this, there is zero consensus for countercyclical fiscal policy
Speaker 1: in Europe. The Europeans, the South might want it, the Italians,
Speaker 1: the Spanish for that matter too, maybe the Greeks, but
Speaker 1: they've been forced by the North and the core of
Speaker 1: Europe to go down a different path. Um, that's right,
Speaker 1: and in some ways you I think John making the
Speaker 1: argument that well, forget Japanification. In fact, Europe's in a
Speaker 1: worse situation than Japan because it doesn't really have its leavers,
Speaker 1: you know, can't pull the levers and policy, no policy
Speaker 1: response whatsoever, which is why the o E c D
Speaker 1: report is backward looking as it is. It's slightly concerning
Speaker 1: because it raises the concern that many people have it's
Speaker 1: a slow down in Europe, the lack of a policy response.
Speaker 1: As we go through to the ECB meeting tomorrow, what
Speaker 1: options do they actually have Allan Well, I think their
Speaker 1: main option is really to roll over l t R
Speaker 1: O two and the like, really keep the liquidity flowing there.
Speaker 1: It that's not an exit story, really, and they have
Speaker 1: thought they were going to be in an exit situation
Speaker 1: at this point in time, so I think they do
Speaker 1: have their hands tied unfortunately, and if we do see
Speaker 1: a growth slowdown, it's inopportune and they might have missed
Speaker 1: the boat in terms of normalize. So the thing we're
Speaker 1: gonna hear more and more over the next coming weeks,
Speaker 1: I assume, is the carry trade and by the US dollar.
Speaker 1: Is that the story for you, Allen, Well, it's it's
Speaker 1: certainly a story that we've been telling for a while,
Speaker 1: and particularly on the carry side of things, a little
Speaker 1: bit less so on the sort of by US dollar.
Speaker 1: And there's been a very active debate, not only in
Speaker 1: terms of what you want to be long in terms
Speaker 1: of carry and let's say you just want to be
Speaker 1: long the whole gamut of em high heeled for the
Speaker 1: time being, at least whilst the U S stock market
Speaker 1: is hanging in and the power put looks to be
Speaker 1: in play, so you want the whole gamut of E
Speaker 1: M longs, and you probably want to be financing it
Speaker 1: with a little bit of yen, a little bit of euros,
Speaker 1: and perhaps some dollars, but the dollar is not necessary
Speaker 1: pewing up its hand as the obvious funding current. Can
Speaker 1: you in focus? This is a little bit of pro
Speaker 1: jury gonna here, but we'll go there on a on
Speaker 1: a cold day in New York? Can you finance the
Speaker 1: carry trade with negative interest rates? Yes? You love it?
Speaker 1: What do you do? How do you do it? And
Speaker 1: the forward points are even more in your favor? The
Speaker 1: microphones over there falling off my still getting excited. I know,
Speaker 1: how do you finance with negative interest? Can I do that?
Speaker 1: With college tuition? You can? You can? How do you do?
Speaker 1: The forward points are exactly reflective really of interest rates spreads,
Speaker 1: and the forward points, whether the rates are zero or negative,
Speaker 1: will be they're adjusted, uh, you know, and appropriate for
Speaker 1: what that interest rate. So I go forward and like
Speaker 1: nine years, swissy grab a negative interest rate? Yeah, and
Speaker 1: and you know, and and historically you will find that
Speaker 1: currentries which have these very low interest rates are expected
Speaker 1: to appreciate over time. And if you think they're not
Speaker 1: going to appreciate, then you can take bet in the
Speaker 1: other direction of that. If you're driving off the road
Speaker 1: right now, don't worry. I'm driving off the road in
Speaker 1: the studio. So Alan Ruskin was some of the complexities
Speaker 1: that carried there. He is with Deutsche Bank. It is
Speaker 1: now a great pleasure to bring to you the tenth
Speaker 1: President of the Federal Reserve Bank of New York, William Dudley,
Speaker 1: out of Williston, out of Berkeley, where he took his
Speaker 1: PhD in New College of Florida a few years back.
Speaker 1: Bill Dudley has been an original economist. He wrote a
Speaker 1: chapter for me with a wonderful at mcelvy years ago
Speaker 1: in my book, and in that he said, there is
Speaker 1: not a moment to lose Bill Dudley. Wonderful to have
Speaker 1: you with us today on the FED A few other
Speaker 1: topics as well. What is there not a moment to
Speaker 1: lose for the markets to hook back with that policy.
Speaker 1: The distance of the dots is substantial, isn't it. Well,
Speaker 1: there's a quite a bit of distance between the last
Speaker 1: summer economic projections and what the market currently thinks. I
Speaker 1: think the key question is when the Fed says their patients,
Speaker 1: does that mean they're done? And I think the answer
Speaker 1: is not necessarily. I think what's gonna happen is we're
Speaker 1: gonna have a pretty weak first quarter and that's going
Speaker 1: to probably reinforce the idea that the SET is done.
Speaker 1: But I think the economy is going to pick up
Speaker 1: steam after that. Some of the issues that we're holding
Speaker 1: the economy back, like the tightening of financial conditions that
Speaker 1: we saw in the fourth quarter, the questions about Chinese growth,
Speaker 1: uncertainties about trade policy. I think those things are going
Speaker 1: to be resolved, mainly positively in the first half of
Speaker 1: the year, So I think fit tightening maybe back on
Speaker 1: the table in the second half of two thousand. So Bill.
Speaker 1: Over the last couple of months, the Federal Reserve has
Speaker 1: come under some criticism about the way it's communicated. It's
Speaker 1: changed towards a position of patients. How does the Federal
Speaker 1: Reserve refinance communication in the coming months to adjust and
Speaker 1: guide the market towards the reality you to described? Well,
Speaker 1: I think the SET is trying to get the market
Speaker 1: to focus less on what it says about its own
Speaker 1: projections and more about the economic outlook. The economic outlook
Speaker 1: is what's going to drive the SET, and what what
Speaker 1: changed in the fourth quarter was we had a lot
Speaker 1: of new developments, financial conditions tightened growth abroad, sload, there
Speaker 1: are uncertainties about trade policy, and inflation was very cuiescent.
Speaker 1: The unemployer rates stopp declining even though perial growth was strong.
Speaker 1: So there's a whole bunch of factors that pushed the
Speaker 1: FED in the direction of being patient. Whether those factors
Speaker 1: persist or not will determine whether in fact patients means
Speaker 1: done well. Bill has been quite co recently to get
Speaker 1: an understanding of the FATS reaction function, because there's been
Speaker 1: a lot of discussion about allowing for an overshoot on
Speaker 1: the inflation target of in and around two In your mind,
Speaker 1: is this the fect that's willing to tolerate a bit
Speaker 1: of an overshoot, And how does that complicate things if
Speaker 1: you say to the market with data dependent, but the
Speaker 1: market doesn't know how you depended on the data. Well,
Speaker 1: I think the discussion about inflation is really a longer
Speaker 1: term issue about do they want to move away from
Speaker 1: their current policy, which is a bygonese policy. In other words,
Speaker 1: if they miss inflation below two percent for a long
Speaker 1: period time, their next move is to try to get
Speaker 1: back to two percent, not above two percent. That's the
Speaker 1: current policy. They're now having discussions about whether that's not
Speaker 1: maybe that's not the right policy because that might lead
Speaker 1: inflation expectations to decline over time. So they're thinking about
Speaker 1: refining their their inflation objectives. But that's different. That's not
Speaker 1: going to happen right in the very near term. They're
Speaker 1: going on a big project over the next six to
Speaker 1: twelve months to evaluate whether their inflation targeting regime is
Speaker 1: the proper one. Taking the near term, it's really gonna
Speaker 1: be about growth pressure on resources and whether that shows
Speaker 1: up in any inflation pressure. And I think the feed
Speaker 1: is going to be tolerant of inflation slightly above two percent.
Speaker 1: But if they think they commun has a lot of momentum,
Speaker 1: if they think inflation is going to keep climbing, then
Speaker 1: they're going to start to tighten again. You're just joining
Speaker 1: us William Dudley, a Bloomberg opinion piece. Don't assume that
Speaker 1: the FET is done at raising rates that according to
Speaker 1: Bill Dudley. Dr Dudley on paragraph seven, you do what
Speaker 1: you do best, which is hide your mathematics. You talk
Speaker 1: about threshold effects, and you also talk about inertial force.
Speaker 1: The physics of monetary policy. Where is the inertial force
Speaker 1: right now in our monetary policy? Well, it takes you know,
Speaker 1: it takes a bit of information for the FED to
Speaker 1: sort of change his mind. So we had a lot
Speaker 1: of evidence in the fourth colore that pushed the FED
Speaker 1: off the off the notion of continuing to tighten in
Speaker 1: the near tray. Now it's going to take that evidence reversing,
Speaker 1: quite a bit of reversal before the FED starts to
Speaker 1: decide to tighten again. Uh So, you know, if you
Speaker 1: look at the FED monrey policy through history, the FED
Speaker 1: doesn't move erratically, don't They don't go up and then down,
Speaker 1: up and then down. They tend to move in in
Speaker 1: st cycles. And that's start shows you that there's thresholds
Speaker 1: effects to get them to move in one direction or
Speaker 1: the other. And once they start moving, it takes quite
Speaker 1: a bit of information to get them to stop. And
Speaker 1: once they've stopped, it takes quite a bit of information
Speaker 1: to get them to move again. But can we just
Speaker 1: take the opportunity to lift the lid on the decision
Speaker 1: making process at the f O m C. Whenever we
Speaker 1: have guests come into radio with Tom and I to
Speaker 1: see how the sausage is made. They're always surprised by
Speaker 1: how messy it really is, and largely because of what
Speaker 1: Tom and I are doing behind the scenes. It's very messy. Tom,
Speaker 1: I'm just wondering how messy it is at the f
Speaker 1: O m C because the market is literally gripping on
Speaker 1: every hanging on every single word you guys put out.
Speaker 1: How to come How do you decide on the word
Speaker 1: everyone's going to go out there and talk about patients.
Speaker 1: Patiences are what you guys sing kumbay are patients? I
Speaker 1: mean patients means what it says that it means I'm
Speaker 1: going to be now to do anything. It doesn't mean
Speaker 1: I'm done. But do you sit around the table bill
Speaker 1: and decide that that's the words You're all going to
Speaker 1: go out and trot around for the next month or so.
Speaker 1: Talk me through the decision making process. How do you
Speaker 1: guys come up with the words? These words are not
Speaker 1: chosen lately. I mean, if you see something that's in
Speaker 1: a speech or in a chair's press conference, those words
Speaker 1: are very close, carefully osen. If someone is speaking extemporaneously,
Speaker 1: then you can discount those words a little bit because
Speaker 1: people obviously can't be point as precise when they're speaking,
Speaker 1: when they're writing. So the words are very important, picking
Speaker 1: those words with care and deliver and after careful deliberation.
Speaker 1: And it's also words that are picked that you know
Speaker 1: their socialized across the committee. I mean typically what happen
Speaker 1: typically the the chair wants the committee to be together, right,
Speaker 1: and so there's you know, there's gonna be some discussion
Speaker 1: about are these kind of words the words that are
Speaker 1: appropriate or not? Bill, I want you to weigh in
Speaker 1: here on the raging debate and the scope of the
Speaker 1: time that we've got left with you this morning. Modern
Speaker 1: monetary theory. Lawrence Summer's writing in The Post on it yesterday,
Speaker 1: Ken Rogoff writing in Project Syndicate, Paul Krugman coming out
Speaker 1: forcefully against a theory advocated by Stephanie Kelton of Stony Brook,
Speaker 1: and she's written this up in Bloomberg Opinion as well.
Speaker 1: I don't want to go into a great dissertation right
Speaker 1: now in MMT, but part of it is a belief
Speaker 1: that the legislative branch can make a decision making or
Speaker 1: can execute decision making on fiscal slash monetary policy in
Speaker 1: a more efficacious way than they fed a reserve system.
Speaker 1: Do you see any evidence of that that there can
Speaker 1: be a better process of execution of our fiscal policy
Speaker 1: other than from the Fed. Look, I did not subscribe
Speaker 1: to monitor Monterey theory at all. I mean, the fact
Speaker 1: that you issued debt in your own currency means you
Speaker 1: can't default, that's true, But that doesn't mean you can't
Speaker 1: have a huge hyperinflation problem. And this was tried in
Speaker 1: that we were a republic of tried in Zimbabwe and
Speaker 1: we had a little episode of this in the in
Speaker 1: the nineteen sixties and nineteen seventies. This is a really
Speaker 1: a correct pot theory in my opinion that said, could
Speaker 1: there be better coordination of Monterrey policy and fiscal policy?
Speaker 1: Absolutely so, if the if the FED were trapped at
Speaker 1: the zul or bound for interest rates, it would be great.
Speaker 1: If we had a fiscal policy at that time that
Speaker 1: was strongly procyclical, that was actually prod support to the economy.
Speaker 1: One thing I'd like to see is the fiscal stabilizers,
Speaker 1: automatic fiscal stabilizer strengthened so if there is an economic downturn,
Speaker 1: people know that the government's gonna cut fiscal you know,
Speaker 1: east fiscal policy and that's going to stimulate the that
Speaker 1: would help the FED do his job. So better coordination
Speaker 1: between the fiscal side and the entrey policy side would
Speaker 1: help the economy bill. This is so important. You and
Speaker 1: Ed mkelvey were so far out front on concerned and
Speaker 1: the ramifications of a growing debt or deficit. Where we
Speaker 1: are now, according to CBO, is so much worse than
Speaker 1: McKelvey and Dudley ever thought about. How do you reframe
Speaker 1: There's not a moment to lose on our fiscal policy
Speaker 1: in two thousand twenty or two thousand. Well, I think
Speaker 1: the problem is that the markets right now are just
Speaker 1: not worried about it. Uh. You know, even though the
Speaker 1: deficit past is not good, that debt service costs are
Speaker 1: going to climb very very sharply over the coming years,
Speaker 1: the baby generations and retire and time and spending costs
Speaker 1: are gonna go up. Markets are just not worried about it.
Speaker 1: And so I think the problem is until markets start
Speaker 1: to become more concerned about it, there's not gonna be
Speaker 1: any parissure on the policy making side to do to
Speaker 1: do anything meaningful about it. Can I get one quote
Speaker 1: from you from Vice Chairman Clarity, He calls it a
Speaker 1: solid American economy. Do you agree with that assessment. Yeah,
Speaker 1: I think that I think it is. I mean, I
Speaker 1: think the thing that strikes me is that the household
Speaker 1: sector in particular is in very good shape. You've had
Speaker 1: strong employment growth, you have rising wages, you have very
Speaker 1: little increase in household debt burden, debt service costs are
Speaker 1: the lowest they've been going back several several decades. Uh. So,
Speaker 1: I think the household sector, which is you know, the commy,
Speaker 1: is in really good shape. I think there's some questions
Speaker 1: about other areas like investment, but that's probably being driven
Speaker 1: by uncertainties about trade policy. Resolve the uncertainties about trade policy.
Speaker 1: I think investment will bounce back. So I think the
Speaker 1: US economy isn't quite good shape. I don't see much
Speaker 1: prospect for a recession in the near term. Bill Dudley,
Speaker 1: thank you so much, President of the s Bank of
Speaker 1: New York and now with University's Center for Economic Want
Speaker 1: Line Opinion, we have now Sarah House John I US
Speaker 1: now West Farga Security senior economists. Great to have you
Speaker 1: with Sarah. So we caught up with the former New
Speaker 1: York Fed President William Dudley Bill said, don't assume the
Speaker 1: fattest done rising rights. Do you agree with that, Sarah,
Speaker 1: I do agree with that. So we currently expect the
Speaker 1: Fed to go ahead and move again in the third
Speaker 1: quarter for many of the reasons that that Dudley laid out. So, UM,
Speaker 1: we look at the overall reason for the FEDS pause. So,
Speaker 1: of course we've seen global growth slow down. UM, we've
Speaker 1: seen a lot of concerns about the trade war. I
Speaker 1: think the shutdown uncertainty had some had some play in
Speaker 1: this too, and of course the tightening in financial conditions. Well,
Speaker 1: we're still seeing some concerns about about the global slowdown,
Speaker 1: so I don't think that's likely to go away that soon.
Speaker 1: But UM, it looks like we'll get some sort of
Speaker 1: resolution on on the trade war. UM. Shutdown has been resolved,
Speaker 1: We've already seen some indicators like consumer confidence back bounce back,
Speaker 1: and of course financial conditions have have reversed. In fact,
Speaker 1: if you look at the Bloomberg Financial Conditions Index, they're
Speaker 1: actually the easiest they've been since last October. So UM,
Speaker 1: we think that that growth will bounce back UM in
Speaker 1: the second quarter, and that will give the FED the
Speaker 1: green light to go ahead and move. In Q three, Sarah,
Speaker 1: let me ask you this a question I asked Mr Dudley.
Speaker 1: The Federals says they are data dependent. Do you have
Speaker 1: a clear, a really strong understanding of how they are
Speaker 1: dependent on the data. So I think you know they're
Speaker 1: they're looking at a mix. Obviously, it's not just just
Speaker 1: one one or two indicators. Um, you know they're they're
Speaker 1: giving I think a lot of weight or um at
Speaker 1: least we think they'll be giving weight towards the employment
Speaker 1: and inflation measures. So we expect inflation to pick up
Speaker 1: a little bit from from where it is here. So
Speaker 1: not not at a point where we'd really have to
Speaker 1: see the said ratchet up the pace of tightening, but
Speaker 1: we think inflation is going to hold firm a core
Speaker 1: inflation roughly two percent, maybe even a couple of tents
Speaker 1: over that by by the end of the year. And
Speaker 1: you know, the employment data continues continues to look strong,
Speaker 1: and so um, just considering the continued solid momentum that
Speaker 1: we see there. Um, given that those are are the
Speaker 1: primary focal points of the said, we think that that's
Speaker 1: going going to give them again that that green light
Speaker 1: to go ahead and move, but clearly they've been watching
Speaker 1: more um more more areas than than they have in
Speaker 1: the past and incorporating those those moves and financial conditions well, Sarah,
Speaker 1: Seemingly it seems to be financial conditions that is becoming
Speaker 1: increasingly important because we just had one of the strongest
Speaker 1: prints for this cycle of the non manufacturing is m
Speaker 1: just yesterday. The US economy, going by the data, still
Speaker 1: looks pretty strong, Sarah. Yet the only thing that's really
Speaker 1: changed radically of the last six months was the price
Speaker 1: section in markets, So let's talk about that. Increasingly, financial
Speaker 1: markets and financial conditions seem to be a much much
Speaker 1: bigger isshic for this Federal Reserve than just the economic
Speaker 1: day to an isolation, Why is that, Sarah, Well, I
Speaker 1: think it's it's where we are in the cycle. So
Speaker 1: it's it's the fact that you know, we're we're getting
Speaker 1: to a point where policy is roughly neutral, so we
Speaker 1: would expect to see what the Fed is doing have
Speaker 1: a bigger impact on on financial market. Um. The issue
Speaker 1: is that you know, there's there's a little bit of
Speaker 1: a little bit of a push poll, so financial conditions tighten,
Speaker 1: the FED gets easier, financial conditions ease, well, then the
Speaker 1: FED can be um, perhaps a little bit more more aggressive.
Speaker 1: So I think that implies that we would get perhaps
Speaker 1: more volatility is as we see kind of that back
Speaker 1: and forth between FED language and the market reactions. So
Speaker 1: what as well as Fargo's see, is the state of
Speaker 1: the consumer in the United States. I mean, what's the
Speaker 1: granularity you're crunching through every day? Yeah, so the consumer
Speaker 1: is really the strong point. I mean, look at Coles yesterday.
Speaker 1: I mean this is completely separate served from you. But
Speaker 1: who would have thought that a midline departments or would
Speaker 1: have done as well as calls did? They did really well, right,
Speaker 1: And that's what's really underpinning our our forecast for another
Speaker 1: year of above potential growth and is the strength of
Speaker 1: the consumer. So we're seeing pretty strong income growth, so
Speaker 1: especially when you look at at the labor income UM,
Speaker 1: so the fact that we have seen such strong job
Speaker 1: growth rising wages, and that's really filtering through, I think
Speaker 1: towards more of those middle and lower income consumers. So UM,
Speaker 1: the wage growth has actually been the strongest at the
Speaker 1: lowest end, and I think that is supporting UM. So
Speaker 1: you know some of these you know, maybe more more
Speaker 1: middle middle tier companies. So, Sarah, how long before the
Speaker 1: hawks at the f m C stop making some noising
Speaker 1: and listen to you? There you go creating a trend.
Speaker 1: I I think, I think there's still sometimes so even
Speaker 1: as we see a core inflation picking up to about
Speaker 1: two point two percent by by the end of the year,
Speaker 1: that's really not a threat to to the FED, and
Speaker 1: especially I think as they are coming around to the
Speaker 1: fact that they can let an inflation drift a little
Speaker 1: bit above above two percent. So of course the target
Speaker 1: is still formerly two as as Bill Dudley was was
Speaker 1: just talking about with with you guys. But I think
Speaker 1: the FEDS getting increasingly comfortable with a little bit of
Speaker 1: an overshoot. So I think I think the hawks will
Speaker 1: will be pretty quiet. Senta House, great to catch up
Speaker 1: with you whilst FAGA security as we count you down
Speaker 1: to pay rolls Friday. I don't know if you're worried
Speaker 1: about your portfolio. You've got company that would be the
Speaker 1: President of the United States. He likes stocks up. Slam
Speaker 1: Molson is with Bloomberg in Washington, where she looks at
Speaker 1: Treasury affairs and White House affairs, and the distance from
Speaker 1: Treasure to White house. How long is it like a
Speaker 1: football fieldsy it is maybe twenty steps, like if Minutia
Speaker 1: wants to go over and see the presidency go underground
Speaker 1: kind of things, not underground, but it's it's fifteen twenty
Speaker 1: steps the way. That's the way it's always been with
Speaker 1: the Gallatin statue out front. And so you and Jennifer
Speaker 1: Jacobs written up a linkage here of a trade discussion
Speaker 1: with the stock market. Now to back up, we didn't
Speaker 1: have a hannoy North Korea discussion with the stock market,
Speaker 1: did we? No, we didn't. But since the fourth quarter
Speaker 1: of last year, investors have really taken note that these
Speaker 1: tariffs are actually happening. I think they realize that the
Speaker 1: threats are real, that the tariffs are real, the tip
Speaker 1: for tat port side of this trade war is real,
Speaker 1: and so investors are reacting to a number of things,
Speaker 1: including having this concern around the uncertainty of the trade war.
Speaker 1: So stock markets are down. One research study show that
Speaker 1: stock markets are twelve percent lower than they would have
Speaker 1: been without the tip for tat tariffs between cane that study,
Speaker 1: that's really interesting, not off the top of my head,
Speaker 1: but that's good. That's a surveillance tradition. I really don't
Speaker 1: know where I read that, but I read it somewhere.
Speaker 1: It's okay, we do that. We don't do that in Washington,
Speaker 1: we do that in New York, New York. Thank you. Um.
Speaker 1: When you look at the president's believe the stock market,
Speaker 1: which I think has been widely chronicled, how's he tied
Speaker 1: into agriculture terroffts? I mean, am I right? The reporting
Speaker 1: is agriculture America is flat on its back? Is that?
Speaker 1: I mean bankruptcies in the in Middle America, in the
Speaker 1: Red States, you know, Wisconsin, Illinois, Indiana, bankruptcies amongst farmers
Speaker 1: are the highest or higher than who When the cabinet
Speaker 1: cares about that, I know the President cares about that.
Speaker 1: I'm just going to guess there and say, yes, does
Speaker 1: the Secretary Commerce care about that? Does the Secretary of
Speaker 1: Treasury care about that? I hope they do because that
Speaker 1: feeds into the economic agenda that they themselves are helping
Speaker 1: Trump achieve under this administration. Is there any discussion of
Speaker 1: a lessoning of tariffs or an elimination of them and
Speaker 1: start all over. There is definitely a talk of a
Speaker 1: lessoning of tariffs. A d escalation is what markets want.
Speaker 1: A de escalation it was, is what China wants. Uh,
Speaker 1: there is talk of that tariff so far seen the
Speaker 1: most obvious enforcement mechanism for any kind of a deal,
Speaker 1: but it remains to be seen. I mean, the delay,
Speaker 1: the ones from this past Friday that we're supposed to
Speaker 1: go into effect for delayed. So we already have a
Speaker 1: little bit of a de escalation. But but that bar
Speaker 1: that's down the street from our office in Washington, I've
Speaker 1: seen you in there a couple of times. Save face.
Speaker 1: It's a great bar. Everybody in Washington has to save face. Right,
Speaker 1: How do we save face if we de escalate tariffs?
Speaker 1: It depends on what China offers. I think a lot
Speaker 1: of it is just going to be optics. How President
Speaker 1: the standing next to China's and mar Lago where two
Speaker 1: years ago they stood and had their first honyone meeting.
Speaker 1: It's the optics they want. President Trump wants a meeting
Speaker 1: at mar Lago assigning agreement. Question why Lago? That is
Speaker 1: the White House of the South. Okay, but can't China
Speaker 1: say no, we wanted to ampan Canada. Jackson also likes
Speaker 1: the photo op I mean, remember the sn e d
Speaker 1: the whole The highlight for China during this Hank Paulson
Speaker 1: created dialogue between the US and China was the photo op. Okay,
Speaker 1: we did like four or five interviews yesterday in China
Speaker 1: and they were fascinating. Elizabeth Economy at the consolet Foreign
Speaker 1: Relations really talked about the saving face going on in
Speaker 1: domestic China. From where you sit in Washington, Uh, Sleigh
Speaker 1: a motion with us right now out of our Washington
Speaker 1: News Beer on her story on Trump stock market and trade.
Speaker 1: Is this discussion changing because of the way the US
Speaker 1: perceives the fragile dynamics president she has in China. Trump
Speaker 1: has repeatedly commented on the strong position that the US
Speaker 1: is in considering how China's economy is slowing and what
Speaker 1: is going on in China like internal domestic politics. But
Speaker 1: if he wants a deal, he's also getting pressured. I
Speaker 1: mean it is a bi part, isn't concern now? Chuck
Speaker 1: Schumer says the best thing Trump has ever done is
Speaker 1: go tough on China. Trump doesn't want to lose face
Speaker 1: before Chuck Schumer either. On the one thing, we're back
Speaker 1: to save face. That's all anybody from Washington safe, but
Speaker 1: but silly, We're gonna go to Mara Lago. I mean,
Speaker 1: think about Hannoy. I was in here at two am.
Speaker 1: I listened to the press conference the reversal in Hannoi
Speaker 1: in I'll say, fourteen hours plus the minus a couple
Speaker 1: of hours. Are we going to get the same thing
Speaker 1: in your world of China and trade? It is absolutely possible.
Speaker 1: This is what happens when there's one to one diplomacy.
Speaker 1: That's what we saw with North Korea. It all comes
Speaker 1: Trump has said, and his aids have said over and
Speaker 1: over to me, uh behind closed doors. They've said it
Speaker 1: to the world on camera and in press conferences that
Speaker 1: it all depends on what Trump and President and China's
Speaker 1: g decide when they are So you're telling this is
Speaker 1: critical now, you're telling me when you're reporting just we
Speaker 1: saw in that White House meeting X number of days ago.
Speaker 1: Were you in the Oval office during the Lightheiser meeting?
Speaker 1: The light Okay, maybe Kevin was there, I can't remember
Speaker 1: the Lightheiser dressed down. I'm going to call it. You know,
Speaker 1: is that still in effect where the president's ad hocking
Speaker 1: absolutely ad hoc administration. Now there is a always a chance.
Speaker 1: Pompeo said this last week in an interview earlier this week,
Speaker 1: I can't keep your secretary state. Yeah, Secretary of State,
Speaker 1: Pompeo said, it is possible that Trump walks away like
Speaker 1: you did with North Korea, he walks away with China.
Speaker 1: But the difference is that Trump really wants to an
Speaker 1: equities rally from a China deal. He has noticed that
Speaker 1: every time he tweets, every time Minutian or someone goes
Speaker 1: out there and talks positively about China investors. Yes, and
Speaker 1: so when someone walks into the Oval Office, when top
Speaker 1: White House people walk into the Oval Office, they know
Speaker 1: you better know how the stock markets are doing right
Speaker 1: now because President the President is gonna ask if trade
Speaker 1: falls apart, even if we save face, this is the
Speaker 1: safe face interview. Can sheriffs go down? Where we go?
Speaker 1: We really made no decision. We're going to kick the
Speaker 1: trade can down the road. But to our listeners in
Speaker 1: the Midwest, do they cut tariffs as they wait for
Speaker 1: the can to move down the road. Yeah, it's absolutely
Speaker 1: almost like a two part Yeah, anything is possible. There's
Speaker 1: a giant gray area. This is what I've been up
Speaker 1: here in New York, trying to explain to investors that
Speaker 1: I've been talking to that you know, in markets have
Speaker 1: made a very binary choice of either it's gonna be
Speaker 1: a good deal or a bad deal. But there is
Speaker 1: a vast gray area tick that the president could that
Speaker 1: China could exploit here. But within this discussion there has
Speaker 1: to be a timeline. Do you do your secretary minution
Speaker 1: have a timeline if he has when he hasn't told me.
Speaker 1: All we know is that there's a hundred fifty pages document.
Speaker 1: But a hundred and fifty page document, that's a that
Speaker 1: would be fabulous. No, it's something sort of a deal
Speaker 1: making the m o U s and we're not going
Speaker 1: to call them. It's according to minutia. The last time
Speaker 1: we heard about some big document, there was nothing. This
Speaker 1: is critical. The summary of your reporting is, we don't
Speaker 1: know exactly, and it's been so much fun to report that.
Speaker 1: This is brilliant. Come back to New York more often.
Speaker 1: Salmon with us is well writing in Bloomberg Today with
Speaker 1: Jennifer Jacobs. It's a really interesting story, an immediate story
Speaker 1: about the President and said to push for China deal
Speaker 1: with market gains. In my we of course speak to
Speaker 1: Slea in uh Washington a FM, and her studios at
Speaker 1: her news bureau in Washington. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio