June 24, 2025 • 22 mins
- Torsten Slok, Chief Economist at Apollo Management
- David Deptula, Geopolitical Intelligence Group Member at Academy Securities and retired Lieutenant General
- French Hill, Republican Congressman from Arkansas
- Innes McFee, Chief Global Economist at Oxford Economics
Torsten Slok, Chief Economist at Apollo Management, joins to discuss the potential for a slowing economy in 2025 and possibility of interest rate cuts. David Deptula, Geopolitical Intelligence Group Member at Academy Securities and retired Lieutenant General, discusses the latest on the Israel-Iran conflict. French Hill, Republican Congressman from Arkansas, talks about economic priorities of Congress and how he hopes the Senate will pass the Big Beautiful Bill. Innes McFee, Chief Global Economist at Oxford Economics, talks about the outlook for US and global economies amid changing value in the dollar.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
live on Bloomberg Television weekday mornings from six to nine
am Eastern. Subscribe to the podcast on Apple, Spotify or
anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. What does this mean
for the FX market and the US dollar? Nis mc
fee of Oxford Economics rights in the following. Although the
near term challenges to the dollars dominance have risen recently,
we think they're still relatively limited compared to the seismic
shift needed for the global economy to switch to another
principal currency. In this joints US Now for more and
it's welcome to New York. It's good to see you, thanks, John.
(00:55):
Let's get to this call. Why are you a little
bit more constructive on the dollar at least from this perspective?
Speaker 3 (01:00):
Well, I think John, what we're seeing is a lot
of cyclical pressure on the dollar. Clearly, the impacts of
tariffs and now oil as well is sort of stagflationary
at the margin for the US, whereas it's more straightforwardly
disinflationary for the US. At the same time, investors all
around the world have been very much overweight US assets,
(01:20):
and there's a little bit of a point at which
now they're sort of given this shock, they're reassessing that
and maybe doing a bit more hedging. And then thirdly,
course is a lot of uncertainly not just about tariffs,
but about fiscal policy as well and what that means
for yields and the term premium. So you know, to me,
a lot of that cyclical pressure is the reason why
the dollars depreciations down more than ten percent against the
(01:43):
major floating currencies. But that doesn't necessarily mean that we're
going to see some broader reassessment. At the end of
the day, the US remains the largest market, it remains
absolutely central to the global trading system, and at the
same time, you know, what we're going to see is
really big long term shifts to see that the dollar
(02:03):
are no no longer part of that major system.
Speaker 2 (02:05):
Long term is the right term. This is a long
term conversation, much more short term. If we can turn
to the calendar, July fourth, we've got this south Impost
deadline for the tax bill. July ninth, we've got this
other south Impost deadline for a whole host of tax
deals around the trade deals. I just wander from your
perspective being in London looking over to the United States,
how do you think about the next few weeks and
how things shake out?
Speaker 3 (02:26):
Well, I think you know, the mark is pretty much
on palls to see a lot of these deadlines come through.
As Ever, the market kind of thinks that, you know,
a couple of weeks down the line will get more clarity.
Clear think we might not, though, And if we don't,
then that's clearly going to be another catalyst for the
dollar to move a leg down.
Speaker 4 (02:43):
Perhaps.
Speaker 1 (02:43):
How much are we seeing the dollar week in as
a result of some of the fiscal spending and potential
inflationary impacts. I mean, this has been one of the
arguments that people have been making. The fiscal backdrop is
one reason why the US is losing fiscal dominance. Does
it have relevance at a time where there's fiscal expansion
in Europe as well.
Speaker 3 (03:00):
I think it does have relevance, but it is within
that broader context. I think, if you like, everyone's been
very focused on US fiscal policy at the moment, we're
starting to see a little bit more clarity from Europe
in terms of what will come at the end of
the day. Is I think it's actually broader than that.
We're obviously seeing a lot more issuance. The net supply
of safe assets, which has been so low for the
(03:20):
last decade, is rising and rising very substantially. But at
the same time we're also seeing a lot of macroeconomic volatility.
Fiscal policies changed from being very passive the last ten
years to being an active tool of demand management, and
that does have implications for the term premium. Term premium
should rise, we should see yields higher, even regardless of
where short term rates are going.
Speaker 1 (03:41):
Techning taking a step back for the book of this year,
there's been sort of a pendulum that's been swinging between
the risks of either inflation accelerating on the heels of
some of the supply sharks fiscal expenditures, versus some sort
of downgrade to growth that we've seen from terrorf some
some of these disruptions from even the oil shark, and
what that does to consumers. If we learned over the
past forty eight hours about what people's expectations and their
(04:04):
response to a potential oil shock or inflationary shock would be,
do we have greater sense that the inflation upside is
kind of being reduced somewhat?
Speaker 3 (04:13):
Well, I think, as you said earlier on, you know,
the Fed's very divided on this issue. Clearly, what we've
learned over the last forty eight hours is that the
market has kind of almost gone to price in a
risk premium on oil. That's pretty much where we were
in the middle of June. So there's a lot of
upside to that, I would argue, given that this already
seems to be a very fragile cease fire. But fundamentally,
(04:34):
you know, there are those that will want to ease early,
and that's a very defensible attitude, given that we know
that an increase in oil prices will have a detrimental
impact of growth later on and bring inflation down eventually.
But remember where we've just come from. The FED and
other central banks have just seen a huge inflation overshoot
in recent years. We're not confident as economists, as central
(04:57):
banks at the moment about the the second round impacts
from an increase in inflation. And I think, you know,
it's a very defensible attitude to want to wait and
see see how big that impact on prices will be
and therefore what the second round impacts will be. We
haven't even seen or even started to see the big
upside to the initial inflation shock, let alone what that
(05:19):
might do for second second round impacts.
Speaker 2 (05:21):
With all of that in mind, do you think July
is a life mating.
Speaker 3 (05:26):
We've long said that December is going to be when
they cut. There are good reasons for that. I think
we may well see the sense we've seen descents though
under Chair Pale before, I don't think that's necessarily a
deal breaker. I just don't think we're going to get
clarity over the data that's going to move the majority
of the committee towards wanting to cut.
Speaker 2 (05:45):
Look of some clarity from the Fed chair a little
bit later on this morning, and it's my fe of
ox economics and it's going to see I want to
guess now, as the Congressman A Frendshill of our consulted
chairman of the House Financial Services Committee, which the FED
share will be testifying before later on today. Congressman, welcome
(06:08):
back to the program. So always good to hear from you.
I'm going to start with a slightly provocative question. I'm paraphrasing,
care do you plan to work over this very dumb,
heart headed person a little bit later this morning.
Speaker 5 (06:20):
Well, Jonathan, it's great to be with you. We look
forward to having chair Power before the Committee this morning,
and I think he'll face questions on his outlook for
inflation and therefore what his views are about rate cuts
coming forward. I think that's the important issue of the day.
But he will also probably be complimented by members because
the FED has recently taken decisions to get out of
(06:42):
some of the environmental social governance groups that they were
involved in around climate change, something that House Republicans have
never thought the FED should be involved in over the
past few years. We want them focused on price stability,
number one, and number two, we want them focus on
a safe and sound banking system. We thought that was
a distraction.
Speaker 2 (07:02):
So we've got monetary policy and then we've got bank regulations.
So Congressman, let's start with the monastery policy. First, as
you're aware, and as I implied with that first question,
the White House is really ramping up the pressure on
the FED chair. Do you worry that the chair starts
to become more worried about the optics of kining interest
rates and focused on the data that might justify them.
Speaker 5 (07:20):
I really don't, Jonathan, because since World War Two we've
seen pressure from presidents on FED chairs, but we've seen
the FED chairs and the Board of Governors try to
be data driven in their decisions, and of course they've
made mistakes over that period of time. Which is while
the FED is a creation of Congress and I believe
(07:40):
strongly in an independent monetary policy, it's also true to
recognize that they're not immune from criticism. So there's a debate,
and you've already seen that debate shaping on the Open
Market Committee itself with the comments from Governor Waller and
Governor Mowman.
Speaker 1 (07:58):
Christmin, would you be willing or would you support the
idea of nominating someone to be the next FED chair
soon so that they can have an outsized influence over
the committee.
Speaker 5 (08:10):
I think it's my base case assumption that Chairman Powt
will serve out his term, and President Trump will make
a determination on who he thinks should be the next
chair at that time.
Speaker 1 (08:21):
Well, just the reason why I ask this is because
some people have speculated that that's what's going to happen.
We have heard from this administration that they are going
to consider potential future candidates, and there's a lot of
speculation that Chris Waller and Michelle Bowman are kind of
in the running and trying out. I mean, how much
would you like to see some of this noise taken
away from the real debate, which is what is the
(08:43):
predominant risk to markets? Is it potential weakening or is
it inflation?
Speaker 5 (08:48):
Well, jen as I say, I think certainly since World
War Two, the speculation about how presidents feel about their
FED chairs and who they might nominate to succeed a
FED chair has just been part of the markets, and
the markets understand that what's important is that the FED
gets it right and we focus on price stability, and
if the inflation forecast and inflation expectations are anchored at
(09:13):
that two percent level, then I think that's certainly something
that FED should take into strong consideration about a rate
cut in the coming meetings. And that's exactly the kind
of work I want them to do is use data analytics,
look at the trends in the market, look at their forecast,
and make that decision to the best of their ability.
Speaker 2 (09:31):
Many of those officials of Follockhurst on the policy outcomes
of other things. July fourth, we've got the South and
Post deadline to pass the one big beautiful bill July ninth,
and other South and Post deadlines to come to some
kind of trade deal with a whole bunch of countries. Congressman,
could you maybe have the FED chair a little bit
late to this morning. Where do you think we will
be in a few weeks time.
Speaker 5 (09:51):
Well, look, I think uncertainty is a part of life.
It's a part of the stock market and the bond
markets every single day. But if I look back at
the eighteen eighties, we had extraordinarily high inflation, we had
high budget deficits for the time, we had a defense
build up underway. We had a dollar that some deemed
significantly overvalued. And yet Ronald Reagan, through tax cuts, through
(10:14):
regulatory reductions, through the right monetary policy between Paul Volker
and Alan Greenspan, saw the economy grow and grow dramatically
and I think America is poised to grow dramatically. Look
at GDP since the summer of the pandemic, it was
about twenty one trillion dollars. Today it's twenty eight trillion dollars.
(10:38):
We're the preferred investment location for global investment around the world,
and I believe that that uncertainty will drop over the
coming weeks as we have clarity on taxes, clarity on
regulatory policy, and we dropped the slope, steep slope of
incredible amounts of federal spending coming out of the Biden administration.
Speaker 2 (10:56):
Congressman, just away from the events in Washington, DC this morning,
we'd love a comment from you on the news of
this morning elsewhere, particularly in the Middle East. The President
posting on social media just moments ago on a truce
between Iran and Israel, a very frustrated post from the President,
do not drop those bombs addressing Israel. If you do,
it's a major violation. Bring your pilots home and do
(11:18):
it now. And the tone as we understand of the
President leaving making his way to the NATO summit in Europe,
was a very frustrated, very frustrated president of the United
States with Israel, with Iran, and hopeful that maybe we
can establish a long lasting truce in the Middle East.
Do you think we can establish peace through strength in
the Middle East? And how much of a change is
that with this administration relative to the Biden administration over
(11:40):
the last few years.
Speaker 5 (11:42):
Well, I do think peace comes through strength, and that's
been demonstrated by President Trump, both in the Middle East
with his Abraham Accords in his first term and with
his efforts to end Iran's a dismissal of the West.
All during the Obama administration and Biden administration, we had
appeasement from the Democrats in the White House. They funded
(12:05):
Iran's missile operation, they relieve sanctions, they let them sell
all their oil on the open markets. They facilitated that
money going then to the houthis Hesballah Hamas, and we've
seen the damaging position on that. And so Trump is
returning to his pressure on Iran through ending the nuclear program,
(12:25):
not delaying it. And I think it's going to change
the balance of power in the Middle East for the better.
And I think it demonstrates peace through strength. And also
I think President the President going to the NATO meeting
will demonstrate that again as European countries now commit to
spending five percent of their gross domestic product on defense,
standing up a stronger, more robust industrial base and defense
(12:48):
posture for Europe. I think that's good for the Atlantic Charter,
for NATO, and I think it's good for future peace
in the Middle East.
Speaker 2 (12:55):
A Congressman, we appreciate your time, Sir Basie Morniga has
some best lover to hearing. Thank you, Sir, Congressman French
Shilden's elasis. This morning, President Donald Trump lashing out of
Israel and Iran, the President accusing both sides of violating
(13:16):
a ceasefire agreement and nearly two weeks of fighting between
the two nations. Joining US now is they retired Lieutenant
General David Debtula Retired Lieutenant General David Sutula joined US
right now, Lieutenant General. Can I just ask you this,
A lot's happened over the last few days. In your opinion,
what's changed.
Speaker 6 (13:35):
Well, I think John, what's changed is the fact that
Israel has achieved air superiority, if not air supremacy, over Iran,
and now Iran is understanding that it is subject to
israelly lethal effects whenever and wherever they want to. So
(13:59):
that has what has led Iran to initially agree to
consider negotiations. But as you saw in the violations of
the initial elements of the ceasefire, Iran continued to fire
ballistic missiles against Israel, resulting in death. So it's probably
(14:25):
going to take a bit more application of force on
the part of Israel, and quite frankly, the continued application
of force until Iran finally gets the message that if
they don't come to the negotiating table, they're going to
continue to see their regime and their capabilities weakened and
ultimately destroyed.
Speaker 1 (14:47):
There are two different questions here. There are a lot
of different questions. One is the market related question, which
is will oil supplies be disrupted. That seems to be
not so much, and that's what we're seeing priced into
the market. There's a larger question of well Iran's ambitions
to be a nuclear state really be hampered for a
longer term kind of time frame. What's your take on that,
(15:08):
given the four hundred kilograms of enriched uranium that currently
is missing in action.
Speaker 6 (15:15):
Yeah, Lisa, Actually that's a great question. At a fundamental level,
nuclear capability consists of three essential components in Israel and
the United States has targeted each of them. The first
one's human expertise, and that's the knowledge required to design
and construct nuclear weapons, resides in a small cadre of
(15:38):
specialized scientists and engineers, and Israel's made a concerted effort
to neutralize that capability. Then, as you mentioned, there's the
fissile material, most importantly uranium enriched weapons grade levels. Right now,
there are four to five hundred kilograms of enriched uranium
that still exists in Iran, but strikes on the enrichment
(16:02):
sites at Ferdo and Natons have severely disrupted the ability
to process it further. And then number three, there's the
weaponization and assembly infrastructure. So even with the knowledge and
material around needs the facilities to assemble a functioning nuclear weapon.
So two out of these three elements have been severely impacted.
(16:27):
So what remains is a fragmented element, if you will,
but it's hardly the foundation for a viable nuclear weapons program.
So I think you've seen Israel in the United States
cripple Iran's operational nuclear capability, but obviously there's the potential
to reconstitute.
Speaker 1 (16:47):
There's a question about deterrence when it comes to Iranian
nuclear ambition, it's also de terrence on a global scale
heading into NATO. What's your sense of whether this action
by the United States acts as a deterrent or not
to other states that might be contemplating nuclear status or
incursions into other areas around the world.
Speaker 6 (17:06):
Well, I think it's an excellent point, and I think
part of the benefit of what President Trump did is
not only and what I'm talking about is going forward
with the B two attacks against these processing facilities. First,
while that's setback around's potential to develop a nuclear weapon,
(17:29):
it was fundamental to restoring US credibility on the world stage.
You know, we've seen and we spent a lot of
time talking about this, but the disastrous withdrawal from Afghanistan
and then seeing the US being deterred by Putin. You
know what this action did was, Hey, look the United
(17:50):
States now acts behind its words. It just doesn't talk
and take no action. So I think that will have
an impact with respect to not just our potential adversaries,
but our allies alike.
Speaker 2 (18:04):
Lieutenant General. Always appreciate your time, sir, Thank you for
making a few minutes for us.
Speaker 5 (18:08):
This morning.
Speaker 2 (18:08):
Thank you the retired lieutenant general there, David dead Tooler.
Let's start with this one right here for the Federal
Reserve July thirtieth. Some people think that's too soon. Others say,
we can take some comfort from the inflation data over
(18:29):
the past few months. Is it signal or noise the
downside surprises we've had over the last several months.
Speaker 4 (18:35):
See, and if we really back up and think about
what's going on, this is saystaflation shark. Inflation is going up,
which says the fetch would be hiking. Growth is slowing down,
says the fetch would be cutting. So where are they
going to put their weight? Do they like apples to
the like oranges? Are they going in the tailor room
to put more weight on inflation and say, well, we
got to keep rates higher. That's clearly what Jay Powel
is saying. And that's, of course, at the moment, seems
(18:56):
to be the baseline, at least from the press conference
last week. But at this same time, if growth is
slowing down, and if we are really unlucky and growth
slows down very quickly, then of course the decision of
keeping rates higher will turn out to be a mistake.
So that's why the textbook does not give you an
answer to a deflation shock. And given we have a
staclation shark, ceclationary impulse coming from tariffs, ceculationery impulse coming
(19:17):
from restrictions of immigration including deportations, and also as deflationary
impulse coming from higher oil prices, all those things really
complicate the decision of where do they put their weight
on slowing growth or rising inflation.
Speaker 2 (19:28):
What will determine the response to that is how long
lived either the stag or theflation actually is exactly, And
on the inflation side of things, how instructive is the
labor market right now? Suggesting that maybe look at the
labor market, is we think up somewhat. I don't see
that as a source of inflation, and therefore I can't
make a strong argument for this inflation sparling and getting
out of control.
Speaker 4 (19:48):
That's true. So that's why there is certainly a case
to be made of this inflation spike is transatory. Of course,
as we know from when they said that last time,
they're probably very reluctant to use those words. But I
do think that the conclusion is, to your point, the
consensus does expect that inflation by the end of this
year will be higher than where, of course is today.
So that's why if we have three six months ahead
(20:08):
of us with some upward pushing inflation, the risk is
that companies will view this, just like they did in
twenty twenty one twenty two, as a chance to say, well,
maybe we need to think about pricing, and maybe therefore
that you could have risks that inflation does become moin grain.
Speaker 1 (20:21):
Is there anything that you can see that would make
you rethink the idea of stagflation, think that maybe things
are better than you're currently making them out to be.
I was looking at Nathan Sheets over at City Group saying,
one thing that is a surprised him again and again
is the resilience of the US economy and the fact
that it has been able to absorb all of these
shocks again and again.
Speaker 4 (20:38):
And that is absolutely correct. It is impressive how well
the economy has behaved so far. But that being said,
the consensus still expects the unemployment rate to go up
on Thursday next week when we get the next not
fine payroll. So the consensus is still saying, yes, the
economy may be strong, but the consensus still is saying
we expect the level of March a week and importantly
also with the restrictions on immigration and much less immigration
(20:58):
of course coming into the country, we may also have
the non farm payrolls is now on the long run
arreas around around fifty thousand, So that means that maybe
we have a long run level that we need to
compare with. There's also falling simply because immigration has changed
so much from where we were a few years ago.
So that's why the label market weakening could both be
structural in nature, it could also be cycnical, so it
raises a lot of debates around well, it's the label
(21:19):
market weakening because demand is weakening, or is label market
weekning simply for the structural reason that we have less
immigration than we had before.
Speaker 2 (21:26):
Just quickly fifty five zero we might have to get
used to fifty fifty thousand on payrolls Friday.
Speaker 4 (21:31):
Absolutely, because if you take the demographics, remember there was
the paper by Watson and Ebelberg from the Hamlins on
the project that they basically showed at Brookings that on
the Biden we had strong immigration. That meant that non
fund payrollscro us roughly around two hundred thousand every month.
But now we have literally border encounters are really running
at a basically zero rate. And at the same time
we have deportations of course running at an annual rate
(21:53):
roughly around a million people to be deported by the
end of the year. All that means the label force
is shrinking. That means that the number of jobs created
in the economy is going to be dramatically lower.
Speaker 2 (22:02):
Tolston always thought provoke, can always enjoy catching now with you.
Thank you, sir Alston slock There of Apollo. This is
the Bloomberg Surveillance podcast, bringing you the best in markets, economics,
angiot politics. You can watch the show live on Bloomberg
TV weekday mornings from six am to nine am Eastern.
Subscribe to the podcast on Apple, Spotify or anywhere else
(22:22):
you listen, and as always, on the Bloomberg Terminal and
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Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
live on Bloomberg Television weekday mornings from six to nine
am Eastern. Subscribe to the podcast on Apple, Spotify or
anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. What does this mean
for the FX market and the US dollar? Nis mc
fee of Oxford Economics rights in the following. Although the
near term challenges to the dollars dominance have risen recently,
we think they're still relatively limited compared to the seismic
shift needed for the global economy to switch to another
principal currency. In this joints US Now for more and
it's welcome to New York. It's good to see you, thanks, John.
(00:55):
Let's get to this call. Why are you a little
bit more constructive on the dollar at least from this perspective?
Speaker 3 (01:00):
Well, I think John, what we're seeing is a lot
of cyclical pressure on the dollar. Clearly, the impacts of
tariffs and now oil as well is sort of stagflationary
at the margin for the US, whereas it's more straightforwardly
disinflationary for the US. At the same time, investors all
around the world have been very much overweight US assets,
(01:20):
and there's a little bit of a point at which
now they're sort of given this shock, they're reassessing that
and maybe doing a bit more hedging. And then thirdly,
course is a lot of uncertainly not just about tariffs,
but about fiscal policy as well and what that means
for yields and the term premium. So you know, to me,
a lot of that cyclical pressure is the reason why
the dollars depreciations down more than ten percent against the
(01:43):
major floating currencies. But that doesn't necessarily mean that we're
going to see some broader reassessment. At the end of
the day, the US remains the largest market, it remains
absolutely central to the global trading system, and at the
same time, you know, what we're going to see is
really big long term shifts to see that the dollar
(02:03):
are no no longer part of that major system.
Speaker 2 (02:05):
Long term is the right term. This is a long
term conversation, much more short term. If we can turn
to the calendar, July fourth, we've got this south Impost
deadline for the tax bill. July ninth, we've got this
other south Impost deadline for a whole host of tax
deals around the trade deals. I just wander from your
perspective being in London looking over to the United States,
how do you think about the next few weeks and
how things shake out?
Speaker 3 (02:26):
Well, I think you know, the mark is pretty much
on palls to see a lot of these deadlines come through.
As Ever, the market kind of thinks that, you know,
a couple of weeks down the line will get more clarity.
Clear think we might not, though, And if we don't,
then that's clearly going to be another catalyst for the
dollar to move a leg down.
Speaker 4 (02:43):
Perhaps.
Speaker 1 (02:43):
How much are we seeing the dollar week in as
a result of some of the fiscal spending and potential
inflationary impacts. I mean, this has been one of the
arguments that people have been making. The fiscal backdrop is
one reason why the US is losing fiscal dominance. Does
it have relevance at a time where there's fiscal expansion
in Europe as well.
Speaker 3 (03:00):
I think it does have relevance, but it is within
that broader context. I think, if you like, everyone's been
very focused on US fiscal policy at the moment, we're
starting to see a little bit more clarity from Europe
in terms of what will come at the end of
the day. Is I think it's actually broader than that.
We're obviously seeing a lot more issuance. The net supply
of safe assets, which has been so low for the
(03:20):
last decade, is rising and rising very substantially. But at
the same time we're also seeing a lot of macroeconomic volatility.
Fiscal policies changed from being very passive the last ten
years to being an active tool of demand management, and
that does have implications for the term premium. Term premium
should rise, we should see yields higher, even regardless of
where short term rates are going.
Speaker 1 (03:41):
Techning taking a step back for the book of this year,
there's been sort of a pendulum that's been swinging between
the risks of either inflation accelerating on the heels of
some of the supply sharks fiscal expenditures, versus some sort
of downgrade to growth that we've seen from terrorf some
some of these disruptions from even the oil shark, and
what that does to consumers. If we learned over the
past forty eight hours about what people's expectations and their
(04:04):
response to a potential oil shock or inflationary shock would be,
do we have greater sense that the inflation upside is
kind of being reduced somewhat?
Speaker 3 (04:13):
Well, I think, as you said earlier on, you know,
the Fed's very divided on this issue. Clearly, what we've
learned over the last forty eight hours is that the
market has kind of almost gone to price in a
risk premium on oil. That's pretty much where we were
in the middle of June. So there's a lot of
upside to that, I would argue, given that this already
seems to be a very fragile cease fire. But fundamentally,
(04:34):
you know, there are those that will want to ease early,
and that's a very defensible attitude, given that we know
that an increase in oil prices will have a detrimental
impact of growth later on and bring inflation down eventually.
But remember where we've just come from. The FED and
other central banks have just seen a huge inflation overshoot
in recent years. We're not confident as economists, as central
(04:57):
banks at the moment about the the second round impacts
from an increase in inflation. And I think, you know,
it's a very defensible attitude to want to wait and
see see how big that impact on prices will be
and therefore what the second round impacts will be. We
haven't even seen or even started to see the big
upside to the initial inflation shock, let alone what that
(05:19):
might do for second second round impacts.
Speaker 2 (05:21):
With all of that in mind, do you think July
is a life mating.
Speaker 3 (05:26):
We've long said that December is going to be when
they cut. There are good reasons for that. I think
we may well see the sense we've seen descents though
under Chair Pale before, I don't think that's necessarily a
deal breaker. I just don't think we're going to get
clarity over the data that's going to move the majority
of the committee towards wanting to cut.
Speaker 2 (05:45):
Look of some clarity from the Fed chair a little
bit later on this morning, and it's my fe of
ox economics and it's going to see I want to
guess now, as the Congressman A Frendshill of our consulted
chairman of the House Financial Services Committee, which the FED
share will be testifying before later on today. Congressman, welcome
(06:08):
back to the program. So always good to hear from you.
I'm going to start with a slightly provocative question. I'm paraphrasing,
care do you plan to work over this very dumb,
heart headed person a little bit later this morning.
Speaker 5 (06:20):
Well, Jonathan, it's great to be with you. We look
forward to having chair Power before the Committee this morning,
and I think he'll face questions on his outlook for
inflation and therefore what his views are about rate cuts
coming forward. I think that's the important issue of the day.
But he will also probably be complimented by members because
the FED has recently taken decisions to get out of
(06:42):
some of the environmental social governance groups that they were
involved in around climate change, something that House Republicans have
never thought the FED should be involved in over the
past few years. We want them focused on price stability,
number one, and number two, we want them focus on
a safe and sound banking system. We thought that was
a distraction.
Speaker 2 (07:02):
So we've got monetary policy and then we've got bank regulations.
So Congressman, let's start with the monastery policy. First, as
you're aware, and as I implied with that first question,
the White House is really ramping up the pressure on
the FED chair. Do you worry that the chair starts
to become more worried about the optics of kining interest
rates and focused on the data that might justify them.
Speaker 5 (07:20):
I really don't, Jonathan, because since World War Two we've
seen pressure from presidents on FED chairs, but we've seen
the FED chairs and the Board of Governors try to
be data driven in their decisions, and of course they've
made mistakes over that period of time. Which is while
the FED is a creation of Congress and I believe
(07:40):
strongly in an independent monetary policy, it's also true to
recognize that they're not immune from criticism. So there's a debate,
and you've already seen that debate shaping on the Open
Market Committee itself with the comments from Governor Waller and
Governor Mowman.
Speaker 1 (07:58):
Christmin, would you be willing or would you support the
idea of nominating someone to be the next FED chair
soon so that they can have an outsized influence over
the committee.
Speaker 5 (08:10):
I think it's my base case assumption that Chairman Powt
will serve out his term, and President Trump will make
a determination on who he thinks should be the next
chair at that time.
Speaker 1 (08:21):
Well, just the reason why I ask this is because
some people have speculated that that's what's going to happen.
We have heard from this administration that they are going
to consider potential future candidates, and there's a lot of
speculation that Chris Waller and Michelle Bowman are kind of
in the running and trying out. I mean, how much
would you like to see some of this noise taken
away from the real debate, which is what is the
(08:43):
predominant risk to markets? Is it potential weakening or is
it inflation?
Speaker 5 (08:48):
Well, jen as I say, I think certainly since World
War Two, the speculation about how presidents feel about their
FED chairs and who they might nominate to succeed a
FED chair has just been part of the markets, and
the markets understand that what's important is that the FED
gets it right and we focus on price stability, and
if the inflation forecast and inflation expectations are anchored at
(09:13):
that two percent level, then I think that's certainly something
that FED should take into strong consideration about a rate
cut in the coming meetings. And that's exactly the kind
of work I want them to do is use data analytics,
look at the trends in the market, look at their forecast,
and make that decision to the best of their ability.
Speaker 2 (09:31):
Many of those officials of Follockhurst on the policy outcomes
of other things. July fourth, we've got the South and
Post deadline to pass the one big beautiful bill July ninth,
and other South and Post deadlines to come to some
kind of trade deal with a whole bunch of countries. Congressman,
could you maybe have the FED chair a little bit
late to this morning. Where do you think we will
be in a few weeks time.
Speaker 5 (09:51):
Well, look, I think uncertainty is a part of life.
It's a part of the stock market and the bond
markets every single day. But if I look back at
the eighteen eighties, we had extraordinarily high inflation, we had
high budget deficits for the time, we had a defense
build up underway. We had a dollar that some deemed
significantly overvalued. And yet Ronald Reagan, through tax cuts, through
(10:14):
regulatory reductions, through the right monetary policy between Paul Volker
and Alan Greenspan, saw the economy grow and grow dramatically
and I think America is poised to grow dramatically. Look
at GDP since the summer of the pandemic, it was
about twenty one trillion dollars. Today it's twenty eight trillion dollars.
(10:38):
We're the preferred investment location for global investment around the world,
and I believe that that uncertainty will drop over the
coming weeks as we have clarity on taxes, clarity on
regulatory policy, and we dropped the slope, steep slope of
incredible amounts of federal spending coming out of the Biden administration.
Speaker 2 (10:56):
Congressman, just away from the events in Washington, DC this morning,
we'd love a comment from you on the news of
this morning elsewhere, particularly in the Middle East. The President
posting on social media just moments ago on a truce
between Iran and Israel, a very frustrated post from the President,
do not drop those bombs addressing Israel. If you do,
it's a major violation. Bring your pilots home and do
(11:18):
it now. And the tone as we understand of the
President leaving making his way to the NATO summit in Europe,
was a very frustrated, very frustrated president of the United
States with Israel, with Iran, and hopeful that maybe we
can establish a long lasting truce in the Middle East.
Do you think we can establish peace through strength in
the Middle East? And how much of a change is
that with this administration relative to the Biden administration over
(11:40):
the last few years.
Speaker 5 (11:42):
Well, I do think peace comes through strength, and that's
been demonstrated by President Trump, both in the Middle East
with his Abraham Accords in his first term and with
his efforts to end Iran's a dismissal of the West.
All during the Obama administration and Biden administration, we had
appeasement from the Democrats in the White House. They funded
(12:05):
Iran's missile operation, they relieve sanctions, they let them sell
all their oil on the open markets. They facilitated that
money going then to the houthis Hesballah Hamas, and we've
seen the damaging position on that. And so Trump is
returning to his pressure on Iran through ending the nuclear program,
(12:25):
not delaying it. And I think it's going to change
the balance of power in the Middle East for the better.
And I think it demonstrates peace through strength. And also
I think President the President going to the NATO meeting
will demonstrate that again as European countries now commit to
spending five percent of their gross domestic product on defense,
standing up a stronger, more robust industrial base and defense
(12:48):
posture for Europe. I think that's good for the Atlantic Charter,
for NATO, and I think it's good for future peace
in the Middle East.
Speaker 2 (12:55):
A Congressman, we appreciate your time, Sir Basie Morniga has
some best lover to hearing. Thank you, Sir, Congressman French
Shilden's elasis. This morning, President Donald Trump lashing out of
Israel and Iran, the President accusing both sides of violating
(13:16):
a ceasefire agreement and nearly two weeks of fighting between
the two nations. Joining US now is they retired Lieutenant
General David Debtula Retired Lieutenant General David Sutula joined US
right now, Lieutenant General. Can I just ask you this,
A lot's happened over the last few days. In your opinion,
what's changed.
Speaker 6 (13:35):
Well, I think John, what's changed is the fact that
Israel has achieved air superiority, if not air supremacy, over Iran,
and now Iran is understanding that it is subject to
israelly lethal effects whenever and wherever they want to. So
(13:59):
that has what has led Iran to initially agree to
consider negotiations. But as you saw in the violations of
the initial elements of the ceasefire, Iran continued to fire
ballistic missiles against Israel, resulting in death. So it's probably
(14:25):
going to take a bit more application of force on
the part of Israel, and quite frankly, the continued application
of force until Iran finally gets the message that if
they don't come to the negotiating table, they're going to
continue to see their regime and their capabilities weakened and
ultimately destroyed.
Speaker 1 (14:47):
There are two different questions here. There are a lot
of different questions. One is the market related question, which
is will oil supplies be disrupted. That seems to be
not so much, and that's what we're seeing priced into
the market. There's a larger question of well Iran's ambitions
to be a nuclear state really be hampered for a
longer term kind of time frame. What's your take on that,
(15:08):
given the four hundred kilograms of enriched uranium that currently
is missing in action.
Speaker 6 (15:15):
Yeah, Lisa, Actually that's a great question. At a fundamental level,
nuclear capability consists of three essential components in Israel and
the United States has targeted each of them. The first
one's human expertise, and that's the knowledge required to design
and construct nuclear weapons, resides in a small cadre of
(15:38):
specialized scientists and engineers, and Israel's made a concerted effort
to neutralize that capability. Then, as you mentioned, there's the
fissile material, most importantly uranium enriched weapons grade levels. Right now,
there are four to five hundred kilograms of enriched uranium
that still exists in Iran, but strikes on the enrichment
(16:02):
sites at Ferdo and Natons have severely disrupted the ability
to process it further. And then number three, there's the
weaponization and assembly infrastructure. So even with the knowledge and
material around needs the facilities to assemble a functioning nuclear weapon.
So two out of these three elements have been severely impacted.
(16:27):
So what remains is a fragmented element, if you will,
but it's hardly the foundation for a viable nuclear weapons program.
So I think you've seen Israel in the United States
cripple Iran's operational nuclear capability, but obviously there's the potential
to reconstitute.
Speaker 1 (16:47):
There's a question about deterrence when it comes to Iranian
nuclear ambition, it's also de terrence on a global scale
heading into NATO. What's your sense of whether this action
by the United States acts as a deterrent or not
to other states that might be contemplating nuclear status or
incursions into other areas around the world.
Speaker 6 (17:06):
Well, I think it's an excellent point, and I think
part of the benefit of what President Trump did is
not only and what I'm talking about is going forward
with the B two attacks against these processing facilities. First,
while that's setback around's potential to develop a nuclear weapon,
(17:29):
it was fundamental to restoring US credibility on the world stage.
You know, we've seen and we spent a lot of
time talking about this, but the disastrous withdrawal from Afghanistan
and then seeing the US being deterred by Putin. You
know what this action did was, Hey, look the United
(17:50):
States now acts behind its words. It just doesn't talk
and take no action. So I think that will have
an impact with respect to not just our potential adversaries,
but our allies alike.
Speaker 2 (18:04):
Lieutenant General. Always appreciate your time, sir, Thank you for
making a few minutes for us.
Speaker 5 (18:08):
This morning.
Speaker 2 (18:08):
Thank you the retired lieutenant general there, David dead Tooler.
Let's start with this one right here for the Federal
Reserve July thirtieth. Some people think that's too soon. Others say,
we can take some comfort from the inflation data over
(18:29):
the past few months. Is it signal or noise the
downside surprises we've had over the last several months.
Speaker 4 (18:35):
See, and if we really back up and think about
what's going on, this is saystaflation shark. Inflation is going up,
which says the fetch would be hiking. Growth is slowing down,
says the fetch would be cutting. So where are they
going to put their weight? Do they like apples to
the like oranges? Are they going in the tailor room
to put more weight on inflation and say, well, we
got to keep rates higher. That's clearly what Jay Powel
is saying. And that's, of course, at the moment, seems
(18:56):
to be the baseline, at least from the press conference
last week. But at this same time, if growth is
slowing down, and if we are really unlucky and growth
slows down very quickly, then of course the decision of
keeping rates higher will turn out to be a mistake.
So that's why the textbook does not give you an
answer to a deflation shock. And given we have a
staclation shark, ceclationary impulse coming from tariffs, ceculationery impulse coming
(19:17):
from restrictions of immigration including deportations, and also as deflationary
impulse coming from higher oil prices, all those things really
complicate the decision of where do they put their weight
on slowing growth or rising inflation.
Speaker 2 (19:28):
What will determine the response to that is how long
lived either the stag or theflation actually is exactly, And
on the inflation side of things, how instructive is the
labor market right now? Suggesting that maybe look at the
labor market, is we think up somewhat. I don't see
that as a source of inflation, and therefore I can't
make a strong argument for this inflation sparling and getting
out of control.
Speaker 4 (19:48):
That's true. So that's why there is certainly a case
to be made of this inflation spike is transatory. Of course,
as we know from when they said that last time,
they're probably very reluctant to use those words. But I
do think that the conclusion is, to your point, the
consensus does expect that inflation by the end of this
year will be higher than where, of course is today.
So that's why if we have three six months ahead
(20:08):
of us with some upward pushing inflation, the risk is
that companies will view this, just like they did in
twenty twenty one twenty two, as a chance to say, well,
maybe we need to think about pricing, and maybe therefore
that you could have risks that inflation does become moin grain.
Speaker 1 (20:21):
Is there anything that you can see that would make
you rethink the idea of stagflation, think that maybe things
are better than you're currently making them out to be.
I was looking at Nathan Sheets over at City Group saying,
one thing that is a surprised him again and again
is the resilience of the US economy and the fact
that it has been able to absorb all of these
shocks again and again.
Speaker 4 (20:38):
And that is absolutely correct. It is impressive how well
the economy has behaved so far. But that being said,
the consensus still expects the unemployment rate to go up
on Thursday next week when we get the next not
fine payroll. So the consensus is still saying, yes, the
economy may be strong, but the consensus still is saying
we expect the level of March a week and importantly
also with the restrictions on immigration and much less immigration
(20:58):
of course coming into the country, we may also have
the non farm payrolls is now on the long run
arreas around around fifty thousand, So that means that maybe
we have a long run level that we need to
compare with. There's also falling simply because immigration has changed
so much from where we were a few years ago.
So that's why the label market weakening could both be
structural in nature, it could also be cycnical, so it
raises a lot of debates around well, it's the label
(21:19):
market weakening because demand is weakening, or is label market
weekning simply for the structural reason that we have less
immigration than we had before.
Speaker 2 (21:26):
Just quickly fifty five zero we might have to get
used to fifty fifty thousand on payrolls Friday.
Speaker 4 (21:31):
Absolutely, because if you take the demographics, remember there was
the paper by Watson and Ebelberg from the Hamlins on
the project that they basically showed at Brookings that on
the Biden we had strong immigration. That meant that non
fund payrollscro us roughly around two hundred thousand every month.
But now we have literally border encounters are really running
at a basically zero rate. And at the same time
we have deportations of course running at an annual rate
(21:53):
roughly around a million people to be deported by the
end of the year. All that means the label force
is shrinking. That means that the number of jobs created
in the economy is going to be dramatically lower.
Speaker 2 (22:02):
Tolston always thought provoke, can always enjoy catching now with you.
Thank you, sir Alston slock There of Apollo. This is
the Bloomberg Surveillance podcast, bringing you the best in markets, economics,
angiot politics. You can watch the show live on Bloomberg
TV weekday mornings from six am to nine am Eastern.
Subscribe to the podcast on Apple, Spotify or anywhere else
(22:22):
you listen, and as always, on the Bloomberg Terminal and
the Bloomberg Business app.
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