June 5, 2025 • 34 mins
- Mike Johnson, Republican Speaker of the House of Representatives
- Krishna Guha, Vice Chairman and Head of Central Bank Strategy at Evercore ISI
- Jordan Rochester, Head: FICC Strategy at Mizuho
- Krishna Memani, CIO at Lafayette College
Mike Johnson, Republican Speaker of the House of Representatives, joins for a discussion on the House tax bill and how he hopes his party will look to get it passed through the Senate. Krishna Guha, Vice Chairman and Head of Central Bank Strategy at Evercore ISI, joins for a discussion on the outlook for the US economy and the Fed. Jordan Rochester, Head: FICC Strategy at Mizuho, reacts to the ECB decision and discusses dollar strength. Krishna Memani, CIO at Lafayette College, reacts to jobless claims and discusses how the labor market could impact US markets.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
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 a Marie Hortern. 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
(00:33):
Bloomberg Terminal and the Bloomberg Business App.
Speaker 1 (00:36):
Have you received a callback from mister Musk.
Speaker 3 (00:40):
Yes, Look, Elon's a good friend. We texted late last night.
We're going to talk this morning. I just want to
make sure that he understands what I think everybody on
Capitol Hill understands. This is not a spending bill, of
my friends, this is a budget reconciliation bill. And what
we're doing here is delivering the America First agenda. This
is all the President's priority and all the priorities of
(01:01):
the Republican Party. Everything we promise the American people, that
is what we are delivering with this piece of legislation.
And the reason we're using the reconciliation process is because
that is the only way to get around the sixty
vote threshold in the Senate. Everybody probably recognizes Chuck Schumer
and the Democrats are in no mood and not going
to be helpful in delivering President Trump's agenda for the people.
Speaker 4 (01:23):
We have to do it this way.
Speaker 3 (01:24):
We can do it with fifty one votes in the
Senate only, and that's the urgency of the hour, and
we have to do it quickly.
Speaker 4 (01:31):
For all the reasons we can discuss this morning.
Speaker 5 (01:32):
So did you get a sentence from Elon Muster in
those tex exchange that he was going to stop his
insistence on this bill that he thinks needs to be killed.
Speaker 3 (01:41):
He seems pretty dug in right now, and I can't
quite understand the motivation behind it. But I would tell
you that what we're delivering in this bill is not
only historic tax cuts, but historic savings as well.
Speaker 4 (01:52):
He seems to miss that.
Speaker 3 (01:54):
I mean, the projection is that this legislation is going
to save us one point six trillion dollars with a t. Now,
there's never been a piece of legislation ever delivered in
the history of government on the face of the earth.
Speaker 4 (02:07):
That saves that much money. So this is truly historic. Now,
is it enough?
Speaker 3 (02:11):
No, because all three of us understand that we have
a large federal debt. We've had deficits for some time,
and it's a serious concern. In fact, it's the number
one threat to our national security. But this is the
biggest step in addressing that problem that Congress has ever delivered,
and we must do it.
Speaker 4 (02:27):
And I will hasten to say this.
Speaker 3 (02:29):
I've told Elon and tell everyone this is the first
of a series of steps that we will.
Speaker 4 (02:34):
Take to bring that debt under control. But you can't
turn it on a dime.
Speaker 3 (02:39):
It took us decades to get into this situation, so
we have to we have to do it incrementally, and
this is a huge step forward in that endeavor.
Speaker 5 (02:46):
What's the driving force behind Elon Musk's problems with this bill?
Has he asked you directly to potentially keep the electric
vehicle benefits we saw under the Inflation Reduction Act of
the Biden error into the bill.
Speaker 3 (03:00):
Look, I'll let everybody draw their own conclusions about Elon's motivations.
I'll tell you that I mean, obviously, the EV mandate
going away. I'm sure a concern for the leader of
Tesla and other things as well. But I think there's
a lot of confusion out there about what the legislation is.
There's certainly a lot of misinformation. I mean, the Democrats
(03:22):
have been engaged in this effort, this strategy for many,
many weeks and many months. But remember it took us
over a year to develop this piece of legislation. We
have eleven different committees in the House, all the areas
of jurisdiction that worked on the reconciliation effort to reconcile
the budget. And what we're going to deliver her again
is historic tax relief and savings. At the same time,
(03:44):
if we do not get this bill done, the tax
cuts of twenty seventeen, the tax cuts and JOBZAC will
expire at the end of December. Every American will receive
the largest tax increase in US history, all at once.
It would be devastating for the economy. So we've addressed
that here. The tax cuts permanent, and we've infused it
with a pro growth series of policies that will get
(04:06):
the economy going again. It will be jet fueled to
the economy because we're going to reduce wasteful spending. We're
going to reduce taxes, and we're going to reduce regulations
as well, and that is what will allow job creators
in the energy sector and everyone else to get going again.
Speaker 5 (04:19):
And your version of the bill, of course, increases the
salt deduction cap, which yesterday Senate Majority Leader John Thune said, quote,
there isn't a single Republican senator who cares much about
the salt issue. You and I both know you cannot
pass this bill without increasing the salt deduction cap. How
do you envision that deduction changing given the fact that
(04:39):
no senator Republican senator wants a vote for this.
Speaker 4 (04:44):
Well, I appreciate that they don't.
Speaker 3 (04:46):
They all come from red states, right as do I,
and we have very different perspective on salt than our
colleagues in the Blue states, for example, in California and
New New York, in New Jersey. But that is the
reality in the House. Remembering they have to remember my
senate friends and colleagues have to remember I have to
deliver two hundred and seventeen votes to get that thing
across the line if they modify it. So I had
(05:07):
lunch with my senate friends Tuesday, last two weeks ago
before we passed the bill in the House on that Thursday,
and I encouraged them to modify it as little as possible,
right because I gave a metaphor. I said, my friends,
I am crossing the Grand Canyon on a piece of
dental flaws. Okay, the equilibrium that we reached here took
quite a bit of time to get to where we are,
(05:29):
and you can't load me up on either side. And
if you go and slash the salt cap that we
negotiated carefully for over a year, it's going to make
it very difficult for me to deliver the necessary number
of votes. Remembering I can only lose three in the House.
They can only lose three in the Senate to get
this done.
Speaker 4 (05:44):
So we're all working together.
Speaker 3 (05:45):
It's one team, House and Senate together, united in this effort.
They understand that, and I think they understand certainly Leader
Thun and the leaders over their understand the complexity of
what we're having to deal.
Speaker 1 (05:55):
With here, Spiky Johnson.
Speaker 6 (05:56):
Just to sort of put a bow on it, so
forty thousands still likely to remain the cap.
Speaker 3 (06:02):
That's what we negotiated here, and I'm certainly trying to
hold to that number, and look, we've paid for it.
I think we've got it worked out and all the
math and the legislation, and I think it's something that
I know they don't they're not in love with it,
but I certainly hope they'll tolerated so we can maintain
our vote tally.
Speaker 6 (06:17):
Over here, Speaker Johnson, as you walk that piece of
dentalfloss over the Grand Canyon. There is this question of
how the bill is currently being used, whether it's for
budget negotiations and budget reconciliation over the next decade, or
whether it's to negotiate trade agreements. There is two point
eight trillion dollars of revenue that is being penciled in
(06:38):
by the Congressional Budget Office from tariffs that might be
used as a negotiating tactic might not be How do
you understand the way that tariffs are looked at as
part of this budget balancing Act?
Speaker 3 (06:53):
Well, it hasn't been included in the calculations, and that's
because groups like the CBO, the Congressional Budget Office, as
you noted, won't give us any credit for that.
Speaker 4 (07:01):
But it is very real.
Speaker 3 (07:02):
I mean, the revenue is real, and it is realized
and it's not included in the calculation that we've made
or they've made, but obviously it's a big factor. We
believe that we're going to bring about a roaring economy again,
and it's not based on conjecture or ground list optimism.
I mean, this is based on the history. We did
this in twenty seventeen, after the first two years of
(07:23):
the Trump administration, when we passed the tax cuts and
Jobs ac We reduce taxes, we reduced regulations, and the
economy was raringw I mean you all remember it. Before COVID,
we had the greatest economy in the history of the world.
I mean, everybody was doing better every demographic wages were up,
the job participation numbers where at record highs, inflation was down,
and manageable things were going great.
Speaker 4 (07:43):
And then COVID hit. So we're going to do that same.
Speaker 3 (07:46):
Series of policies, implement that same philosophy, but this time,
as I say, on steroids, and.
Speaker 4 (07:51):
It's going to make a major difference for every and
everybody's life.
Speaker 6 (07:53):
Speaker John said, a lot of people in Marcus are
concerned about a number of provisions here and actually don't
think they will spur growth. One of them being Section
eight ninety nine, which talks about taxing foreign investment in
the United States from specific countries that have non tariff
barriers like the VAT tax and other things that have
been contentious during negotiations of trade deals.
Speaker 1 (08:17):
How much do you see that dampening?
Speaker 6 (08:19):
I mean, is that a concern for you, because right
now around the world there are people wondering whether they
can still invest in the United States without getting penalized
for it.
Speaker 3 (08:28):
Yes, Look, there's a complexity to the tariff negotiations. I mean,
we tip our hat to the White House, and President's
strategy is working. As you know, there's more than seventy
five countries renegotiating their trade agreements right now, finalizing that
even as we speak, that's going to be better for America.
Speaker 4 (08:45):
Because it will be more fair. You know.
Speaker 3 (08:47):
I'm always liking myself to be a Reagan Republican and
free trade is one of our core principles that we've
all supported over the years. And every time I would
say that over the last several years to President Trump,
he would say, yes, free and fair trade, and he's right.
I mean, this is a disparity that must have needed
to be addressed and it has been, so we think
(09:08):
in total, this is going to be good when it's all,
when all the dust settles on the tariff negotiations and
the new trade agreement. So it's going to be good
for America and good for the world. And so we're
factoring that in. We're working in tandem with the White House,
and it's it's part of going to stay in calculation
in the la.
Speaker 6 (09:22):
Laker Johnson, just to be clear that provision will stay
in that is important to you.
Speaker 4 (09:28):
Look, I think it is.
Speaker 3 (09:29):
I mean, obviously the bill is still a live instrument
that's being worked on in the Senate, so we'll see
if they modify those provisions. But I think for now,
I think that's good policy for US. And I want
to say to foreign investors, you're in good stead to
invest in America. This is the time to do it,
because the American economy is about to take off again
and it's going to be good for you and good.
Speaker 4 (09:49):
For the world.
Speaker 3 (09:50):
We're the largest trading partner for most other nations. They
need America, and a strong America is good for the
whole world. And that is what we are going to
bring about with these sound policies and pro growth initiatives.
Speaker 5 (10:00):
Speaking, Johnson, you and your colleagues have a self imposed
July fourth deadline. Partially that is because you have to
raise the debt ceiling. Are you considering raising the debt
limit if this deal isn't finished by July fourth with
a different measure, Well.
Speaker 4 (10:16):
It'd be very difficult to do it.
Speaker 3 (10:17):
I mean, it would require a bipartisan measure in that regard,
and I would like to believe that Chuck Schumer and
the Democrats and the Senate would do the right thing.
But I wouldn't count on that. That debt cliff, as
we're regarding it, is coming soon, and that's why Secretary
Besson has said we've got to get this done by
Independence Day, and I think it'd be a great celebration
for all of us. But it's not just because of
(10:37):
the debt ceiling. It's also because we need to get
tax relief in this new roaring economy to the American
people as quickly as possible. They're owed that and this
is going to be a great thing for everyone. And
you know, I have to also think about the politics
of it. Right, we have a midterm election coming up
in twenty twenty six. If we get this done soon
and quickly this summer, then everyone will feel those effects
(10:59):
before they have to go vote again in that midterm election.
We want to keep the House majority and keep this
going for four years for President Trump and not two.
And if we lost the majority, there's no doubt that
the House Democrats would try to impeach the president and
everything would be truly chaotic for investors and job creators
and consumers. So we have to keep this going, keep
the momentum going. The timeline's very important, and that's why
(11:21):
I put this on a very aggressive schedule. I said
back in the early part of this year that we
would pass the big, beautiful bill out of the House
before Memorial Day, and people laughed, they mocked me when
I said that. But we beat it by four days.
We're going to stay on track and we're going to
deliver for the American people.
Speaker 5 (11:35):
Well, you have exactly twenty nine days to hit that deadline.
Are you saying there's no plan B for raising the
debt ceiling if this bill is not done between House
Republicans and House Senators.
Speaker 3 (11:47):
Look, Republicans in a House and Senate will deliver and
we'll take care of our business one way or the other.
Speaker 4 (11:52):
But I'm just telling you.
Speaker 3 (11:54):
The smartest and most efficacious way to do this is
to stay on this schedule and deliver for the people.
And that's what we're dog determined to do or laser
focused on it. And if we take our focus off
of that, then the strategy doesn't work. So I'm telling
you that we are working on that.
Speaker 4 (12:08):
Regard.
Speaker 3 (12:08):
Leader Thuon and I are in constant communication. He understands
that deadline as well. The Secretary of the Treasury and
the NEEC and all the leaders in the White House
and the administration understand that.
Speaker 4 (12:19):
So we're going to get it done.
Speaker 6 (12:20):
Speaker Johnson, how closely are you watching the bond markets
right now, given the fact that we've seen a real
sense of concern, particularly in longer duration US treasuries.
Speaker 4 (12:31):
We watch it closely.
Speaker 3 (12:32):
Look, I really do believe that delivering this historic legislation
is going to be critically important for a lot of reasons,
not the least of which is that Congress can send
a very important signal to the bond markets, to the
stock market, to investors everywhere that we're very serious about this,
not only in getting the US economy roaring again, but
also in addressing the long term debt, and I think
(12:54):
that's an important thing for everyone to understand. We have
a strategy that's some multiple steps, as I said, multiple
steps rategy to address this over the next year, two years,
three years, and we're going to get the US economy
back on sound footing. We're the party of fiscal responsibility,
and you'll see that demonstrated day after day.
Speaker 6 (13:11):
Here President Trump's slamming FED cher J.
Speaker 1 (13:23):
Powell once again saying.
Speaker 6 (13:25):
Quote too late, Powell must lower interest rates after a
week ADP data. Krishna Guha of Evercore writing it would
take a large and rapid increase in unemployment driven by
increasing layoffs to cut in July. It is easy for
the FED to justify remaining and await and see mode.
Speaker 1 (13:42):
Krishna joins us.
Speaker 6 (13:43):
Now, Trisha, thank you so much for being with us.
Speaker 1 (13:45):
A lot of people agree with you.
Speaker 6 (13:46):
At the same time, a September rate cut is pretty
much baked in. Does that seem appropriate to you based
on the economic data that has been weakening over the
past couple of days.
Speaker 7 (13:57):
Look, I have a base case of a September cut,
but I don't think it's anything close to a slam dump.
I think right now, the question is does the labor
market weaken enough over the next several months for the
FED to judge that it makes sense to lean against
that weakening where the cuts in September, I think to
(14:19):
get that you need unemployment moving out to something like
four and a half percent by September. I think it's
a close call, to be honest.
Speaker 6 (14:28):
And this is the reason why I think a lot
of people are looking at whether it is just going
to be one print, whether it's going to be a
collection of prints.
Speaker 1 (14:36):
Something that caught my eye yesterday.
Speaker 6 (14:37):
We all are so data dependent, and yet this Bureau.
Speaker 1 (14:41):
Of Labor Statistics put out.
Speaker 6 (14:42):
In a dendum talking about how they collected fewer data
points in the April CPI survey because of a lack
of staff. And there's been this speculation about the accuracy
of some of these surveys as employment has gone down
and frankly, as responses have gone down. Cretence, do you
give to some of the data that we get? Do
(15:03):
you think that it still has the same integrity?
Speaker 7 (15:07):
So in order to make good judgments, you have to
have good data. It's as simple as that. Now, I
still think that the US government official statistics ba bls
are still the gold standard, but we have to be
careful because, as you say, some response rates have been
coming down, and now we're starting to worry about staffing
(15:30):
cutbacks and other funding cutbacks potentially weakening the quality of
these data series going forward. So in any moment in time,
you want to look at the holistic picture of the data,
all the private sector data, including very much on the employments,
challenger layoffs, indeed, job postings and so on, as a
crosscheck against the official data, and sometimes getting ahead of
the official data. But I'll tell you, having seen for instance,
(15:53):
how problematic it has become in the UK, where some
of that core official government labor data just hasn't been
reliable for some time, it can be very, very damaging.
Speaker 1 (16:03):
And that's a much smaller economy.
Speaker 5 (16:04):
So if you're not one hundred if you're not one
hundred percent trusting the data, you don't have policy uncertainty.
Speaker 1 (16:09):
In Washington, DC.
Speaker 5 (16:11):
What's your north start of these days?
Speaker 7 (16:14):
Well, I think, look, I think we know from first
principles that tariffs are going to slow growth and push
up prices. Right, what we're trying to understand is the
relative balance of those effects. I think that we're going
to learn a fair amount over the next several months
on both of these counts. But my hunches that will
(16:36):
learn more on the labor side than we will about
what really matters on inflation, which is not the first
round price impact, but whether it starts to get embedded
into underlying inflation dynamics. So I'm going to be looking
at everything official and private sector company level data and
earnings calls and so on. But what I'm really trying
to understand at this point is do those inflation expectations
(16:58):
stay anchored A, because that's the precondition for even considering cuts,
And then B do we get a material enough weakening
in the labor market for the FED to want to
cut to lean against that gathering any momentum. I think
it may still be a little while before we really
get visibility on this. My hunch is that will have
a feel for that how much the labor market is
deteriorating by September, which makes it the logical moment to
(17:22):
call the next move on rates.
Speaker 8 (17:24):
Hi christ nat Lori Calvasina from RBC. I've been getting
the good to see you. I've been getting a lot
of questions on small caps which are related to rate cuts,
And I'm wondering in your conversations, are you starting to
see expectations that the Fed is actually going to do
something in September? Are those moving up? Are those moving down?
There's been a lot of dispersion, There's been a lot
of shifts in kind of the vibe on the ground.
(17:46):
What's your read of the tea leaves right now?
Speaker 7 (17:49):
So the market has has with this most recent sort
of patch of week of data with ADP and with
ISM services, markets move to price in more conviction, high
conviction around a September move, and you know, and more
than two cuts discounted through the end of the year.
(18:09):
And you know, obviously, if we get more rate cuts,
provided that's not in the context of a recession, and
that's a modern weekning that the Fed's leaning against, that
can potentially help your small caps and other stocks. But
I think we've got to be a little careful interpreting this.
I don't think we should interpret market pricing is saying
(18:31):
September is anything close to certain, and I say there's
somebody who has it as a narrow base case. I
think the reality is that there is still very much
a pathway here where we end up with no cuts
because the labor market doesn't weaken all that much. There's
a pathway where we get two or three cuts, and
that the intermediate case, where there's some softening and the
FEDS leaning against that as it emerges, but not before
(18:53):
it goes, and then it is still the recession case,
you know, is that twenty five thirty percent is it
a bit more, a bit less, And if we do
break into a session this year, benefit will be cutting
very very aggressively. So remember that the you know, the
market pricing is essentially the mean average weighted average of
those three different parts.
Speaker 6 (19:13):
Krishna Kuhoe Evercoren, thank you so much as always for
joining us today. Joining us now, Jordan Rochester of Mizuho, Jordan.
Speaker 1 (19:29):
Your first take on.
Speaker 9 (19:30):
This, well, it's a dubbish outcome in terms of the
inflation forecast, a point three version for the next two years.
Speaker 10 (19:36):
In terms of the numbers for twenty five and twenty six.
Speaker 9 (19:38):
However, the elephant in the room is what's not in
this statement, which is their view on the impact of
trade Tarists will get that at two forty five. That
release that for us will be the scenario analysis. Do
they double the impact that they expect from taris? What
about the fifty percent from Donald Trump? So a lot
of this will have to come out in the press conference.
So far the moves are quite small though FX euro
slightly higher and in the front tend you only had
(20:00):
a two base two basis point rally, so nothing too big.
Speaker 10 (20:04):
We wait to see what regards says later.
Speaker 9 (20:05):
On and those forecasts and those scenarios that come out
late this afternoon.
Speaker 5 (20:09):
Well some notice we have when it comes to trade
that the ECB statement says trade escalation would lead to
lower growth and inflation. Jordan, how do you start thinking
about if the European Union doesn't get a deal with
the US by July ninth?
Speaker 9 (20:23):
And Marie, I think the EU is probably at the
bottom of the list in terms of the major partners
if you think about it, Japan, India, Vietnam. There's much
more focus on those negotiations when it comes to the EU.
There's a lot of lobbying to go hard on the
EU to reform some of the non tariff barriers they have,
such as the digital services tax with the US and
various other sort of non tariff measures. That's something that's
(20:45):
very difficult to agree to by July the ninth. So
what might happen is a stop gap, another delay Essentially,
that's the best that you could hope for. We saw
that when Trump ramped up the tariff to fifty percent,
we saw an immediate delay. Really, it happened within a
day or two to one phone call with Verst them
on the land. So I expect that the worst case
scenario is the taffs come in at the reciprocal levels,
(21:05):
which are around the twenty to twenty five percent level,
and the EU will be facing a summer of weaker
data as a result and a more dubbish ECB.
Speaker 10 (21:13):
So we're looking for more rate cuts from the ECBs.
In the market's pricing.
Speaker 9 (21:16):
We like receiving the front end for September, for example,
we expect rates to get down to one point five.
Speaker 10 (21:21):
This market's pricing around one point seven.
Speaker 9 (21:23):
Now, if there is a deal done, it's still going
to be a ten percent minimum, So it's we're picking
between bad and worse scenarios for the ECB.
Speaker 5 (21:31):
Is there a scenario though, where you do think the
ECB goes on pause and this is.
Speaker 9 (21:34):
A meeting, there is if you see PMIS continuously surprises.
If you have an upside surprise and the PMIS on
the next release. The difficult thing about that is the
PMI comes the morning of the ECB meeting, so it could.
Speaker 10 (21:47):
Be really difficult to trade around that event.
Speaker 9 (21:49):
It could be if you have strong CPI, but if
you look at the CPI data, we just had a
big downside surprise in services CPI and the curve in
terms of what the linker market is pricing has inflation
below two percent for the rest of the year.
Speaker 10 (22:01):
So it's really hard to get a hawkish meeting.
Speaker 9 (22:03):
But a Marie, I've got to be honest, some of
the ECB hawks really have surprised me with their comments
suggesting we should have a slower pace.
Speaker 10 (22:09):
They are the hawks, so hawks have to be hawkish.
Speaker 9 (22:11):
I think the core unit of the ECB and overall
still vote for a rate cut in July and not
enough priced. But we need to see how this press
conference goes.
Speaker 11 (22:20):
Hi Jordan, I understood that there's a lot of attention
to the upside risk of inflation coming from care policy,
but I want to ask a question in the opposite direction.
If inflation in the EU continues to undershoot the ECB's
two percent target. Is there a risk that real interest
rates actually turn closer to that zero bound or even
(22:42):
negative in the next two or three years.
Speaker 9 (22:44):
I don't think the risk of that is too high, actually,
because what we're seeing is inflation is coming down. The
eastb's forecast today have it below two percent for the
next two years. Really, when it comes to the real
yield you got to think about the nominal side as well.
Speaker 10 (22:57):
So we're dubbish on the ECB in the short term.
Speaker 9 (22:59):
But actually, kind of linking to the question Amory mentioned,
the German fiscal stimulus will make it difficult for real
yields to be materially weak, because what we're going to
see in Q four is the budget is passed in
Germany and will have much larger amounts of issuance in
twenty twenty six. The hawks of the ECB might be
able to hang on to that, but that is over
six months away and quite difficult for this market to
trade every single day.
Speaker 10 (23:20):
But that for the long term, I find it.
Speaker 9 (23:22):
Very difficult to see real yields and performing in Europe
because of higher nominal yields. I expect to see with
the German tenure bun getting to three point three percent.
Speaker 11 (23:31):
How much of a sea change A game changer is
German issuance for the ECV.
Speaker 9 (23:37):
It's a massive game change. We've had many years where
the weak growth in Europe was underpinned by the lack
of or the fiscal austerity we saw in Germany for
the past two decades. Roughly speaking, compared to what others
should have done, the Germans have a lot of fiscal
firepower debt to GDP in the sixty percent level sort
of range, and the infrastructure alone that package is five
(23:58):
hundred billion euros over ten years, so that's at least
one percent to one point two five percent of GDP
from next year onwards. We don't yet know what the
numbers will be on the fence. We don't yet know
the numbers. We've got a sense of what it will
be on tax cuts. We had the forty two billion
to forty seven billion from the headlines this week for
corporation tax cuts, so the numbers will be large. Generally
starts from a very strong position and that's why you're
(24:19):
going to see the fiscal five power matter quite a
lot next year.
Speaker 6 (24:21):
It's a great question Joan that Neil is raising at
a time when potentially the ECB is looking at sub
par inflation, inflation below that two percent level. How inflationary
are some of these fiscal packages that Germany has floated.
Speaker 9 (24:36):
Well, it depends on if you're going with tax cuts,
that's immediately more inflationary. Then it comes to infrastructure spending,
So we have to know the sizes of these numbers.
So if the tax cuts we've taken, let's say it's
fifty billion, that's pretty sizeable number for that or that
that's something that will have to be reflected in their forecast.
Speaker 10 (24:52):
But it is just a German number.
Speaker 9 (24:54):
And you've also got the problem with the rest of
the Eurozone is you don't have the same fiscal fire powers.
The ECB can't get too optim mystic from Germany alone.
You have France which is fiscally constrained. You've got Italy
and Spain not really able to move the needle on
things either. But then when it comes to the infrastructure
spending from Germany, that is a big positive that markets like,
improves productivity and expected growth, but it won't translate to
(25:16):
high inflation on day one because building bridges and so forth.
It will boost commodity prices, and it'll raise the price
of building services, but it won't affect everything else in
the main.
Speaker 1 (25:25):
Jordan Rochester with a zoo.
Speaker 6 (25:26):
Thank you so much as always for the insights. Joining
us now, Christna Mamani of La fay At College, Krishna,
thank you so much for being here.
Speaker 1 (25:42):
Great to see you.
Speaker 6 (25:43):
How do you use data like this that isn't bad
enough to cause the Fed to make a move, isn't
good enough to give you confidence. It just sort of
is sort of maybe a trend that we maybe can ignore,
maybe need to pay attention.
Speaker 12 (25:55):
To well, so if we ignore it, we ignore it
at our peril. That is, I think the economy has
wall or I think rightly articulated the economy is slowing.
It's not slowing at the precipitous pace, but it is
definitely slowing. And you can see that it used to
be in the soft data. Now the soft data improved,
but the hard data is softening. So I think there
(26:17):
is a substantial trend for slowing in the economy. It's
again not precipitous, but gives the FED the path to
cut rates, not today but in the later half of
the year.
Speaker 11 (26:29):
In your opinion, what would it take to see that cut.
What would it take in terms of whether it's jobless
claims or continuing claims, or the unemployment.
Speaker 1 (26:38):
Rate, the mix of it all.
Speaker 11 (26:40):
How dire does the labor market data have to be
to challenge the fact that the economy is fine and
can continue to grow.
Speaker 12 (26:49):
I think the FED on that count has kind of
been very clear. That is, at the end of the day,
what they're focused on for cutting rates is really the
employment picture. If the employment picture deteriorates meaningfully, not one month,
but on a couple of months in sequence, I think
that's what gets them there. Again, I think even if
(27:12):
we get a soft employment report tomorrow.
Speaker 10 (27:14):
That is just not enough.
Speaker 12 (27:16):
However, if we see that in the third quarter and
on a consistent basis, I think they have the pathway
to cut.
Speaker 5 (27:23):
Rates, even a data dependent FED that keeps saying that
they need certainty and they're very unclear at the moment
where trade policy might mean for inflation.
Speaker 12 (27:32):
Well, so, I think from the FEDS perspective, the tariff
is really a wild card because they don't know, they
don't have enough of an empirical framework to kind of
figure that out. And for that they will wait. On
the other hand, if simultaneously, if the markets, if the
employment markets are deteriorating quite substantially, I think they have
(27:54):
the headroom in terms of where policy rates are today
relative to where inflation is, for them to be able
to cut on a proactive basis as opposed to just
on a reactive basis.
Speaker 5 (28:03):
Falling up on Neilla's point quite substantially. What is that
four point five percent unemployment in the sand?
Speaker 12 (28:10):
I don't think it's the unemployment number itself, it's really
the trend in employment growth that on a consistent basis
several months comes in significantly lower than what the trend
rate has been so last.
Speaker 1 (28:23):
Year when they got exactly.
Speaker 6 (28:25):
But it raises a question about how much it would matter,
right how much we're kind of talking about the wrong issue.
Is the issue really how much will take the FED
to cut?
Speaker 1 (28:34):
Or is the issue? Are we slowing or are we
stalling out?
Speaker 6 (28:37):
And I think that that's the bigger question, maybe for
both bond markets and for the FED. It's not just
do you have to adjust things on the margins, it's
longer term how much heat is left in an economy
that has a lot of question marks around it.
Speaker 12 (28:49):
Well, that's a really good observation in the sense that
even if the FED cuts let's say in the third
quarter or early part of fourth quarter this year, the
light impact of that on the markets, at least equity
markets is probably not going to be as positive as
people are expecting it to be, because I think in
(29:10):
the throes of a tariff situation, if they are cutting rates,
then they are really really worried that's bad news that
will end up being bad news for the equity market.
So that's why I think equity markets at this point
the only upside is really going to come from productivity growth,
earnings growth, things like that, and that is not looking
very likely at the moment.
Speaker 11 (29:29):
I want to follow up on Matt Steven and Lisa's question,
and I realize we're asking you to pingpong between the
real economy and the markets right now, But what are
the growth drivers that you see in the second half
of the year that really catapults the economy for that
raises those productivity numbers. Is there something that we're waiting
for to happen that could really trigger that growth.
Speaker 12 (29:52):
I don't think there's really anything substantial in the pipeline
that can get you there. I think the fiscal impetus,
that is, but fiscal impulse that has been in the
place because of deficit financing, is really what is carrying
us through. In that mix, tariffs are basically a contractionary policy,
so I think we are trying to balance. There's really
(30:14):
no stimulus, significant stimulus coming into the economy until the
tax package passes, and then we see the implications of
that in terms of further deficit increase.
Speaker 6 (30:24):
Michael McKee is still with us and he's been parsing
through the data. Mike, in addition to a job, was
claimed some really interesting trade data.
Speaker 1 (30:32):
As you pass through it, what are you seeing?
Speaker 13 (30:33):
Well, basically what we saw these it was a pull
forward in imports. Imports dropped by sixteen point three percent,
and that pushed the overall trade deficit down by fifty
five and a half percent, and the Census Buro says
those are the two largest declines in those categories ever.
Now it's all statistical noise in the sense that we
didn't make a big deal out of the rise in
(30:55):
the trade balance in January February because we knew it
was the pull forward of sorts. But it does have
an effect on the overall data. We'll see a bigger
rise in second quarter growth. Then we saw the big
fall of course in first quarter growth. And the one
thing to point out about jobless claims is this is
the biggest jump, or the highest level rather in eight months,
(31:17):
and it's the highest two week in a row level
in more than a year, So we do see some
weakness here. Neil Dna writing in that you have about
a two hundred and sixty thousand level would be the
break even for jobless claims, and if we get above that,
we're going to see week payroll numbers.
Speaker 1 (31:33):
So we'll see what.
Speaker 13 (31:34):
We get tomorrow. But of course we're starting to see
the numbers come in Procter and Gamble today saying it's
going to lay off seven thousand people. So it's starting
to weaken out there.
Speaker 6 (31:44):
Mike, before you go, just a quick note, how much
are you getting people questioning the integrity of some of
this data, as we got reports yesterday from the Bureau
of Labor Statistics that they didn't collect data for CPI
in certain regions in April due to budget cuts.
Speaker 13 (31:57):
CPI is the one that's being affected most and first,
but there are also concerns about the labor data as well.
What's happening is the government has cut funding and not
kept up funding for years, and then we have the
DOGE cuts, so they're behind the eight ball. They can't
really collect all the data that they have. Now, the
data that they do collect is going to be used
(32:20):
as well as it possibly can be, but just because
you have fewer people collecting it and less data, you're
going to have a wider margin of error.
Speaker 6 (32:27):
Michael mckae, thank you so much, Krishna. What exactly do
you do with this the idea that the granular data
shows some degree of weakening, and yet there's a question
about just how accurate it is on any given week.
Speaker 12 (32:40):
Well, so it's kind of a sad state of affairs
that the best statistical data collecting agency in the world
is struggling to kind of do the surveys that we
desperately need at this time of transition.
Speaker 4 (32:52):
But it is what it is.
Speaker 12 (32:55):
However, I think they do enough data collection for it
not to be kind of disturbed in a significant way,
and you can probably derive the basic trends out of
the data that they're collecting. But I think again I
would reatterate my point. It's a very sad state of affairs.
Speaker 5 (33:13):
But does the data even matter when the policy is
changing so quickly?
Speaker 12 (33:17):
Well, so data does matter, because how would you expect
the policy maker whose one mandate is employment to kind
of react to it if they don't have accurate data
and a really clear clear picture of what the impact
of the various policies are on the economy. Without that,
we are kind of we are blind, and that would
be a terrible state of affairs.
Speaker 5 (33:38):
I mean, most of the market's not the real economy.
Speaker 12 (33:40):
It is just so I think to some extent, markets
do react to policy, and for the policy to be
commensurate with the state of the economy, we need that data.
Speaker 6 (33:50):
Christian Momoni of La Fair College don't be a stranger.
Speaker 1 (33:52):
Great to see you. Thank you so much for being here.
Speaker 2 (33:55):
This is the Bloomberg Seventans 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 you listen, and as always on the
Bloomberg Terminal and the Bloomberg Business app.
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 a Marie Hortern. 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
(00:33):
Bloomberg Terminal and the Bloomberg Business App.
Speaker 1 (00:36):
Have you received a callback from mister Musk.
Speaker 3 (00:40):
Yes, Look, Elon's a good friend. We texted late last night.
We're going to talk this morning. I just want to
make sure that he understands what I think everybody on
Capitol Hill understands. This is not a spending bill, of
my friends, this is a budget reconciliation bill. And what
we're doing here is delivering the America First agenda. This
is all the President's priority and all the priorities of
(01:01):
the Republican Party. Everything we promise the American people, that
is what we are delivering with this piece of legislation.
And the reason we're using the reconciliation process is because
that is the only way to get around the sixty
vote threshold in the Senate. Everybody probably recognizes Chuck Schumer
and the Democrats are in no mood and not going
to be helpful in delivering President Trump's agenda for the people.
Speaker 4 (01:23):
We have to do it this way.
Speaker 3 (01:24):
We can do it with fifty one votes in the
Senate only, and that's the urgency of the hour, and
we have to do it quickly.
Speaker 4 (01:31):
For all the reasons we can discuss this morning.
Speaker 5 (01:32):
So did you get a sentence from Elon Muster in
those tex exchange that he was going to stop his
insistence on this bill that he thinks needs to be killed.
Speaker 3 (01:41):
He seems pretty dug in right now, and I can't
quite understand the motivation behind it. But I would tell
you that what we're delivering in this bill is not
only historic tax cuts, but historic savings as well.
Speaker 4 (01:52):
He seems to miss that.
Speaker 3 (01:54):
I mean, the projection is that this legislation is going
to save us one point six trillion dollars with a t. Now,
there's never been a piece of legislation ever delivered in
the history of government on the face of the earth.
Speaker 4 (02:07):
That saves that much money. So this is truly historic. Now,
is it enough?
Speaker 3 (02:11):
No, because all three of us understand that we have
a large federal debt. We've had deficits for some time,
and it's a serious concern. In fact, it's the number
one threat to our national security. But this is the
biggest step in addressing that problem that Congress has ever delivered,
and we must do it.
Speaker 4 (02:27):
And I will hasten to say this.
Speaker 3 (02:29):
I've told Elon and tell everyone this is the first
of a series of steps that we will.
Speaker 4 (02:34):
Take to bring that debt under control. But you can't
turn it on a dime.
Speaker 3 (02:39):
It took us decades to get into this situation, so
we have to we have to do it incrementally, and
this is a huge step forward in that endeavor.
Speaker 5 (02:46):
What's the driving force behind Elon Musk's problems with this bill?
Has he asked you directly to potentially keep the electric
vehicle benefits we saw under the Inflation Reduction Act of
the Biden error into the bill.
Speaker 3 (03:00):
Look, I'll let everybody draw their own conclusions about Elon's motivations.
I'll tell you that I mean, obviously, the EV mandate
going away. I'm sure a concern for the leader of
Tesla and other things as well. But I think there's
a lot of confusion out there about what the legislation is.
There's certainly a lot of misinformation. I mean, the Democrats
(03:22):
have been engaged in this effort, this strategy for many,
many weeks and many months. But remember it took us
over a year to develop this piece of legislation. We
have eleven different committees in the House, all the areas
of jurisdiction that worked on the reconciliation effort to reconcile
the budget. And what we're going to deliver her again
is historic tax relief and savings. At the same time,
(03:44):
if we do not get this bill done, the tax
cuts of twenty seventeen, the tax cuts and JOBZAC will
expire at the end of December. Every American will receive
the largest tax increase in US history, all at once.
It would be devastating for the economy. So we've addressed
that here. The tax cuts permanent, and we've infused it
with a pro growth series of policies that will get
(04:06):
the economy going again. It will be jet fueled to
the economy because we're going to reduce wasteful spending. We're
going to reduce taxes, and we're going to reduce regulations
as well, and that is what will allow job creators
in the energy sector and everyone else to get going again.
Speaker 5 (04:19):
And your version of the bill, of course, increases the
salt deduction cap, which yesterday Senate Majority Leader John Thune said, quote,
there isn't a single Republican senator who cares much about
the salt issue. You and I both know you cannot
pass this bill without increasing the salt deduction cap. How
do you envision that deduction changing given the fact that
(04:39):
no senator Republican senator wants a vote for this.
Speaker 4 (04:44):
Well, I appreciate that they don't.
Speaker 3 (04:46):
They all come from red states, right as do I,
and we have very different perspective on salt than our
colleagues in the Blue states, for example, in California and
New New York, in New Jersey. But that is the
reality in the House. Remembering they have to remember my
senate friends and colleagues have to remember I have to
deliver two hundred and seventeen votes to get that thing
across the line if they modify it. So I had
(05:07):
lunch with my senate friends Tuesday, last two weeks ago
before we passed the bill in the House on that Thursday,
and I encouraged them to modify it as little as possible,
right because I gave a metaphor. I said, my friends,
I am crossing the Grand Canyon on a piece of
dental flaws. Okay, the equilibrium that we reached here took
quite a bit of time to get to where we are,
(05:29):
and you can't load me up on either side. And
if you go and slash the salt cap that we
negotiated carefully for over a year, it's going to make
it very difficult for me to deliver the necessary number
of votes. Remembering I can only lose three in the House.
They can only lose three in the Senate to get
this done.
Speaker 4 (05:44):
So we're all working together.
Speaker 3 (05:45):
It's one team, House and Senate together, united in this effort.
They understand that, and I think they understand certainly Leader
Thun and the leaders over their understand the complexity of
what we're having to deal.
Speaker 1 (05:55):
With here, Spiky Johnson.
Speaker 6 (05:56):
Just to sort of put a bow on it, so
forty thousands still likely to remain the cap.
Speaker 3 (06:02):
That's what we negotiated here, and I'm certainly trying to
hold to that number, and look, we've paid for it.
I think we've got it worked out and all the
math and the legislation, and I think it's something that
I know they don't they're not in love with it,
but I certainly hope they'll tolerated so we can maintain
our vote tally.
Speaker 6 (06:17):
Over here, Speaker Johnson, as you walk that piece of
dentalfloss over the Grand Canyon. There is this question of
how the bill is currently being used, whether it's for
budget negotiations and budget reconciliation over the next decade, or
whether it's to negotiate trade agreements. There is two point
eight trillion dollars of revenue that is being penciled in
(06:38):
by the Congressional Budget Office from tariffs that might be
used as a negotiating tactic might not be How do
you understand the way that tariffs are looked at as
part of this budget balancing Act?
Speaker 3 (06:53):
Well, it hasn't been included in the calculations, and that's
because groups like the CBO, the Congressional Budget Office, as
you noted, won't give us any credit for that.
Speaker 4 (07:01):
But it is very real.
Speaker 3 (07:02):
I mean, the revenue is real, and it is realized
and it's not included in the calculation that we've made
or they've made, but obviously it's a big factor. We
believe that we're going to bring about a roaring economy again,
and it's not based on conjecture or ground list optimism.
I mean, this is based on the history. We did
this in twenty seventeen, after the first two years of
(07:23):
the Trump administration, when we passed the tax cuts and
Jobs ac We reduce taxes, we reduced regulations, and the
economy was raringw I mean you all remember it. Before COVID,
we had the greatest economy in the history of the world.
I mean, everybody was doing better every demographic wages were up,
the job participation numbers where at record highs, inflation was down,
and manageable things were going great.
Speaker 4 (07:43):
And then COVID hit. So we're going to do that same.
Speaker 3 (07:46):
Series of policies, implement that same philosophy, but this time,
as I say, on steroids, and.
Speaker 4 (07:51):
It's going to make a major difference for every and
everybody's life.
Speaker 6 (07:53):
Speaker John said, a lot of people in Marcus are
concerned about a number of provisions here and actually don't
think they will spur growth. One of them being Section
eight ninety nine, which talks about taxing foreign investment in
the United States from specific countries that have non tariff
barriers like the VAT tax and other things that have
been contentious during negotiations of trade deals.
Speaker 1 (08:17):
How much do you see that dampening?
Speaker 6 (08:19):
I mean, is that a concern for you, because right
now around the world there are people wondering whether they
can still invest in the United States without getting penalized
for it.
Speaker 3 (08:28):
Yes, Look, there's a complexity to the tariff negotiations. I mean,
we tip our hat to the White House, and President's
strategy is working. As you know, there's more than seventy
five countries renegotiating their trade agreements right now, finalizing that
even as we speak, that's going to be better for America.
Speaker 4 (08:45):
Because it will be more fair. You know.
Speaker 3 (08:47):
I'm always liking myself to be a Reagan Republican and
free trade is one of our core principles that we've
all supported over the years. And every time I would
say that over the last several years to President Trump,
he would say, yes, free and fair trade, and he's right.
I mean, this is a disparity that must have needed
to be addressed and it has been, so we think
(09:08):
in total, this is going to be good when it's all,
when all the dust settles on the tariff negotiations and
the new trade agreement. So it's going to be good
for America and good for the world. And so we're
factoring that in. We're working in tandem with the White House,
and it's it's part of going to stay in calculation
in the la.
Speaker 6 (09:22):
Laker Johnson, just to be clear that provision will stay
in that is important to you.
Speaker 4 (09:28):
Look, I think it is.
Speaker 3 (09:29):
I mean, obviously the bill is still a live instrument
that's being worked on in the Senate, so we'll see
if they modify those provisions. But I think for now,
I think that's good policy for US. And I want
to say to foreign investors, you're in good stead to
invest in America. This is the time to do it,
because the American economy is about to take off again
and it's going to be good for you and good.
Speaker 4 (09:49):
For the world.
Speaker 3 (09:50):
We're the largest trading partner for most other nations. They
need America, and a strong America is good for the
whole world. And that is what we are going to
bring about with these sound policies and pro growth initiatives.
Speaker 5 (10:00):
Speaking, Johnson, you and your colleagues have a self imposed
July fourth deadline. Partially that is because you have to
raise the debt ceiling. Are you considering raising the debt
limit if this deal isn't finished by July fourth with
a different measure, Well.
Speaker 4 (10:16):
It'd be very difficult to do it.
Speaker 3 (10:17):
I mean, it would require a bipartisan measure in that regard,
and I would like to believe that Chuck Schumer and
the Democrats and the Senate would do the right thing.
But I wouldn't count on that. That debt cliff, as
we're regarding it, is coming soon, and that's why Secretary
Besson has said we've got to get this done by
Independence Day, and I think it'd be a great celebration
for all of us. But it's not just because of
(10:37):
the debt ceiling. It's also because we need to get
tax relief in this new roaring economy to the American
people as quickly as possible. They're owed that and this
is going to be a great thing for everyone. And
you know, I have to also think about the politics
of it. Right, we have a midterm election coming up
in twenty twenty six. If we get this done soon
and quickly this summer, then everyone will feel those effects
(10:59):
before they have to go vote again in that midterm election.
We want to keep the House majority and keep this
going for four years for President Trump and not two.
And if we lost the majority, there's no doubt that
the House Democrats would try to impeach the president and
everything would be truly chaotic for investors and job creators
and consumers. So we have to keep this going, keep
the momentum going. The timeline's very important, and that's why
(11:21):
I put this on a very aggressive schedule. I said
back in the early part of this year that we
would pass the big, beautiful bill out of the House
before Memorial Day, and people laughed, they mocked me when
I said that. But we beat it by four days.
We're going to stay on track and we're going to
deliver for the American people.
Speaker 5 (11:35):
Well, you have exactly twenty nine days to hit that deadline.
Are you saying there's no plan B for raising the
debt ceiling if this bill is not done between House
Republicans and House Senators.
Speaker 3 (11:47):
Look, Republicans in a House and Senate will deliver and
we'll take care of our business one way or the other.
Speaker 4 (11:52):
But I'm just telling you.
Speaker 3 (11:54):
The smartest and most efficacious way to do this is
to stay on this schedule and deliver for the people.
And that's what we're dog determined to do or laser
focused on it. And if we take our focus off
of that, then the strategy doesn't work. So I'm telling
you that we are working on that.
Speaker 4 (12:08):
Regard.
Speaker 3 (12:08):
Leader Thuon and I are in constant communication. He understands
that deadline as well. The Secretary of the Treasury and
the NEEC and all the leaders in the White House
and the administration understand that.
Speaker 4 (12:19):
So we're going to get it done.
Speaker 6 (12:20):
Speaker Johnson, how closely are you watching the bond markets
right now, given the fact that we've seen a real
sense of concern, particularly in longer duration US treasuries.
Speaker 4 (12:31):
We watch it closely.
Speaker 3 (12:32):
Look, I really do believe that delivering this historic legislation
is going to be critically important for a lot of reasons,
not the least of which is that Congress can send
a very important signal to the bond markets, to the
stock market, to investors everywhere that we're very serious about this,
not only in getting the US economy roaring again, but
also in addressing the long term debt, and I think
(12:54):
that's an important thing for everyone to understand. We have
a strategy that's some multiple steps, as I said, multiple
steps rategy to address this over the next year, two years,
three years, and we're going to get the US economy
back on sound footing. We're the party of fiscal responsibility,
and you'll see that demonstrated day after day.
Speaker 6 (13:11):
Here President Trump's slamming FED cher J.
Speaker 1 (13:23):
Powell once again saying.
Speaker 6 (13:25):
Quote too late, Powell must lower interest rates after a
week ADP data. Krishna Guha of Evercore writing it would
take a large and rapid increase in unemployment driven by
increasing layoffs to cut in July. It is easy for
the FED to justify remaining and await and see mode.
Speaker 1 (13:42):
Krishna joins us.
Speaker 6 (13:43):
Now, Trisha, thank you so much for being with us.
Speaker 1 (13:45):
A lot of people agree with you.
Speaker 6 (13:46):
At the same time, a September rate cut is pretty
much baked in. Does that seem appropriate to you based
on the economic data that has been weakening over the
past couple of days.
Speaker 7 (13:57):
Look, I have a base case of a September cut,
but I don't think it's anything close to a slam dump.
I think right now, the question is does the labor
market weaken enough over the next several months for the
FED to judge that it makes sense to lean against
that weakening where the cuts in September, I think to
(14:19):
get that you need unemployment moving out to something like
four and a half percent by September. I think it's
a close call, to be honest.
Speaker 6 (14:28):
And this is the reason why I think a lot
of people are looking at whether it is just going
to be one print, whether it's going to be a
collection of prints.
Speaker 1 (14:36):
Something that caught my eye yesterday.
Speaker 6 (14:37):
We all are so data dependent, and yet this Bureau.
Speaker 1 (14:41):
Of Labor Statistics put out.
Speaker 6 (14:42):
In a dendum talking about how they collected fewer data
points in the April CPI survey because of a lack
of staff. And there's been this speculation about the accuracy
of some of these surveys as employment has gone down
and frankly, as responses have gone down. Cretence, do you
give to some of the data that we get? Do
(15:03):
you think that it still has the same integrity?
Speaker 7 (15:07):
So in order to make good judgments, you have to
have good data. It's as simple as that. Now, I
still think that the US government official statistics ba bls
are still the gold standard, but we have to be
careful because, as you say, some response rates have been
coming down, and now we're starting to worry about staffing
(15:30):
cutbacks and other funding cutbacks potentially weakening the quality of
these data series going forward. So in any moment in time,
you want to look at the holistic picture of the data,
all the private sector data, including very much on the employments,
challenger layoffs, indeed, job postings and so on, as a
crosscheck against the official data, and sometimes getting ahead of
the official data. But I'll tell you, having seen for instance,
(15:53):
how problematic it has become in the UK, where some
of that core official government labor data just hasn't been
reliable for some time, it can be very, very damaging.
Speaker 1 (16:03):
And that's a much smaller economy.
Speaker 5 (16:04):
So if you're not one hundred if you're not one
hundred percent trusting the data, you don't have policy uncertainty.
Speaker 1 (16:09):
In Washington, DC.
Speaker 5 (16:11):
What's your north start of these days?
Speaker 7 (16:14):
Well, I think, look, I think we know from first
principles that tariffs are going to slow growth and push
up prices. Right, what we're trying to understand is the
relative balance of those effects. I think that we're going
to learn a fair amount over the next several months
on both of these counts. But my hunches that will
(16:36):
learn more on the labor side than we will about
what really matters on inflation, which is not the first
round price impact, but whether it starts to get embedded
into underlying inflation dynamics. So I'm going to be looking
at everything official and private sector company level data and
earnings calls and so on. But what I'm really trying
to understand at this point is do those inflation expectations
(16:58):
stay anchored A, because that's the precondition for even considering cuts,
And then B do we get a material enough weakening
in the labor market for the FED to want to
cut to lean against that gathering any momentum. I think
it may still be a little while before we really
get visibility on this. My hunch is that will have
a feel for that how much the labor market is
deteriorating by September, which makes it the logical moment to
(17:22):
call the next move on rates.
Speaker 8 (17:24):
Hi christ nat Lori Calvasina from RBC. I've been getting
the good to see you. I've been getting a lot
of questions on small caps which are related to rate cuts,
And I'm wondering in your conversations, are you starting to
see expectations that the Fed is actually going to do
something in September? Are those moving up? Are those moving down?
There's been a lot of dispersion, There's been a lot
of shifts in kind of the vibe on the ground.
(17:46):
What's your read of the tea leaves right now?
Speaker 7 (17:49):
So the market has has with this most recent sort
of patch of week of data with ADP and with
ISM services, markets move to price in more conviction, high
conviction around a September move, and you know, and more
than two cuts discounted through the end of the year.
(18:09):
And you know, obviously, if we get more rate cuts,
provided that's not in the context of a recession, and
that's a modern weekning that the Fed's leaning against, that
can potentially help your small caps and other stocks. But
I think we've got to be a little careful interpreting this.
I don't think we should interpret market pricing is saying
(18:31):
September is anything close to certain, and I say there's
somebody who has it as a narrow base case. I
think the reality is that there is still very much
a pathway here where we end up with no cuts
because the labor market doesn't weaken all that much. There's
a pathway where we get two or three cuts, and
that the intermediate case, where there's some softening and the
FEDS leaning against that as it emerges, but not before
(18:53):
it goes, and then it is still the recession case,
you know, is that twenty five thirty percent is it
a bit more, a bit less, And if we do
break into a session this year, benefit will be cutting
very very aggressively. So remember that the you know, the
market pricing is essentially the mean average weighted average of
those three different parts.
Speaker 6 (19:13):
Krishna Kuhoe Evercoren, thank you so much as always for
joining us today. Joining us now, Jordan Rochester of Mizuho, Jordan.
Speaker 1 (19:29):
Your first take on.
Speaker 9 (19:30):
This, well, it's a dubbish outcome in terms of the
inflation forecast, a point three version for the next two years.
Speaker 10 (19:36):
In terms of the numbers for twenty five and twenty six.
Speaker 9 (19:38):
However, the elephant in the room is what's not in
this statement, which is their view on the impact of
trade Tarists will get that at two forty five. That
release that for us will be the scenario analysis. Do
they double the impact that they expect from taris? What
about the fifty percent from Donald Trump? So a lot
of this will have to come out in the press conference.
So far the moves are quite small though FX euro
slightly higher and in the front tend you only had
(20:00):
a two base two basis point rally, so nothing too big.
Speaker 10 (20:04):
We wait to see what regards says later.
Speaker 9 (20:05):
On and those forecasts and those scenarios that come out
late this afternoon.
Speaker 5 (20:09):
Well some notice we have when it comes to trade
that the ECB statement says trade escalation would lead to
lower growth and inflation. Jordan, how do you start thinking
about if the European Union doesn't get a deal with
the US by July ninth?
Speaker 9 (20:23):
And Marie, I think the EU is probably at the
bottom of the list in terms of the major partners
if you think about it, Japan, India, Vietnam. There's much
more focus on those negotiations when it comes to the EU.
There's a lot of lobbying to go hard on the
EU to reform some of the non tariff barriers they have,
such as the digital services tax with the US and
various other sort of non tariff measures. That's something that's
(20:45):
very difficult to agree to by July the ninth. So
what might happen is a stop gap, another delay Essentially,
that's the best that you could hope for. We saw
that when Trump ramped up the tariff to fifty percent,
we saw an immediate delay. Really, it happened within a
day or two to one phone call with Verst them
on the land. So I expect that the worst case
scenario is the taffs come in at the reciprocal levels,
(21:05):
which are around the twenty to twenty five percent level,
and the EU will be facing a summer of weaker
data as a result and a more dubbish ECB.
Speaker 10 (21:13):
So we're looking for more rate cuts from the ECBs.
In the market's pricing.
Speaker 9 (21:16):
We like receiving the front end for September, for example,
we expect rates to get down to one point five.
Speaker 10 (21:21):
This market's pricing around one point seven.
Speaker 9 (21:23):
Now, if there is a deal done, it's still going
to be a ten percent minimum, So it's we're picking
between bad and worse scenarios for the ECB.
Speaker 5 (21:31):
Is there a scenario though, where you do think the
ECB goes on pause and this is.
Speaker 9 (21:34):
A meeting, there is if you see PMIS continuously surprises.
If you have an upside surprise and the PMIS on
the next release. The difficult thing about that is the
PMI comes the morning of the ECB meeting, so it could.
Speaker 10 (21:47):
Be really difficult to trade around that event.
Speaker 9 (21:49):
It could be if you have strong CPI, but if
you look at the CPI data, we just had a
big downside surprise in services CPI and the curve in
terms of what the linker market is pricing has inflation
below two percent for the rest of the year.
Speaker 10 (22:01):
So it's really hard to get a hawkish meeting.
Speaker 9 (22:03):
But a Marie, I've got to be honest, some of
the ECB hawks really have surprised me with their comments
suggesting we should have a slower pace.
Speaker 10 (22:09):
They are the hawks, so hawks have to be hawkish.
Speaker 9 (22:11):
I think the core unit of the ECB and overall
still vote for a rate cut in July and not
enough priced. But we need to see how this press
conference goes.
Speaker 11 (22:20):
Hi Jordan, I understood that there's a lot of attention
to the upside risk of inflation coming from care policy,
but I want to ask a question in the opposite direction.
If inflation in the EU continues to undershoot the ECB's
two percent target. Is there a risk that real interest
rates actually turn closer to that zero bound or even
(22:42):
negative in the next two or three years.
Speaker 9 (22:44):
I don't think the risk of that is too high, actually,
because what we're seeing is inflation is coming down. The
eastb's forecast today have it below two percent for the
next two years. Really, when it comes to the real
yield you got to think about the nominal side as well.
Speaker 10 (22:57):
So we're dubbish on the ECB in the short term.
Speaker 9 (22:59):
But actually, kind of linking to the question Amory mentioned,
the German fiscal stimulus will make it difficult for real
yields to be materially weak, because what we're going to
see in Q four is the budget is passed in
Germany and will have much larger amounts of issuance in
twenty twenty six. The hawks of the ECB might be
able to hang on to that, but that is over
six months away and quite difficult for this market to
trade every single day.
Speaker 10 (23:20):
But that for the long term, I find it.
Speaker 9 (23:22):
Very difficult to see real yields and performing in Europe
because of higher nominal yields. I expect to see with
the German tenure bun getting to three point three percent.
Speaker 11 (23:31):
How much of a sea change A game changer is
German issuance for the ECV.
Speaker 9 (23:37):
It's a massive game change. We've had many years where
the weak growth in Europe was underpinned by the lack
of or the fiscal austerity we saw in Germany for
the past two decades. Roughly speaking, compared to what others
should have done, the Germans have a lot of fiscal
firepower debt to GDP in the sixty percent level sort
of range, and the infrastructure alone that package is five
(23:58):
hundred billion euros over ten years, so that's at least
one percent to one point two five percent of GDP
from next year onwards. We don't yet know what the
numbers will be on the fence. We don't yet know
the numbers. We've got a sense of what it will
be on tax cuts. We had the forty two billion
to forty seven billion from the headlines this week for
corporation tax cuts, so the numbers will be large. Generally
starts from a very strong position and that's why you're
(24:19):
going to see the fiscal five power matter quite a
lot next year.
Speaker 6 (24:21):
It's a great question Joan that Neil is raising at
a time when potentially the ECB is looking at sub
par inflation, inflation below that two percent level. How inflationary
are some of these fiscal packages that Germany has floated.
Speaker 9 (24:36):
Well, it depends on if you're going with tax cuts,
that's immediately more inflationary. Then it comes to infrastructure spending,
So we have to know the sizes of these numbers.
So if the tax cuts we've taken, let's say it's
fifty billion, that's pretty sizeable number for that or that
that's something that will have to be reflected in their forecast.
Speaker 10 (24:52):
But it is just a German number.
Speaker 9 (24:54):
And you've also got the problem with the rest of
the Eurozone is you don't have the same fiscal fire powers.
The ECB can't get too optim mystic from Germany alone.
You have France which is fiscally constrained. You've got Italy
and Spain not really able to move the needle on
things either. But then when it comes to the infrastructure
spending from Germany, that is a big positive that markets like,
improves productivity and expected growth, but it won't translate to
(25:16):
high inflation on day one because building bridges and so forth.
It will boost commodity prices, and it'll raise the price
of building services, but it won't affect everything else in
the main.
Speaker 1 (25:25):
Jordan Rochester with a zoo.
Speaker 6 (25:26):
Thank you so much as always for the insights. Joining
us now, Christna Mamani of La fay At College, Krishna,
thank you so much for being here.
Speaker 1 (25:42):
Great to see you.
Speaker 6 (25:43):
How do you use data like this that isn't bad
enough to cause the Fed to make a move, isn't
good enough to give you confidence. It just sort of
is sort of maybe a trend that we maybe can ignore,
maybe need to pay attention.
Speaker 12 (25:55):
To well, so if we ignore it, we ignore it
at our peril. That is, I think the economy has
wall or I think rightly articulated the economy is slowing.
It's not slowing at the precipitous pace, but it is
definitely slowing. And you can see that it used to
be in the soft data. Now the soft data improved,
but the hard data is softening. So I think there
(26:17):
is a substantial trend for slowing in the economy. It's
again not precipitous, but gives the FED the path to
cut rates, not today but in the later half of
the year.
Speaker 11 (26:29):
In your opinion, what would it take to see that cut.
What would it take in terms of whether it's jobless
claims or continuing claims, or the unemployment.
Speaker 1 (26:38):
Rate, the mix of it all.
Speaker 11 (26:40):
How dire does the labor market data have to be
to challenge the fact that the economy is fine and
can continue to grow.
Speaker 12 (26:49):
I think the FED on that count has kind of
been very clear. That is, at the end of the day,
what they're focused on for cutting rates is really the
employment picture. If the employment picture deteriorates meaningfully, not one month,
but on a couple of months in sequence, I think
that's what gets them there. Again, I think even if
(27:12):
we get a soft employment report tomorrow.
Speaker 10 (27:14):
That is just not enough.
Speaker 12 (27:16):
However, if we see that in the third quarter and
on a consistent basis, I think they have the pathway
to cut.
Speaker 5 (27:23):
Rates, even a data dependent FED that keeps saying that
they need certainty and they're very unclear at the moment
where trade policy might mean for inflation.
Speaker 12 (27:32):
Well, so, I think from the FEDS perspective, the tariff
is really a wild card because they don't know, they
don't have enough of an empirical framework to kind of
figure that out. And for that they will wait. On
the other hand, if simultaneously, if the markets, if the
employment markets are deteriorating quite substantially, I think they have
(27:54):
the headroom in terms of where policy rates are today
relative to where inflation is, for them to be able
to cut on a proactive basis as opposed to just
on a reactive basis.
Speaker 5 (28:03):
Falling up on Neilla's point quite substantially. What is that
four point five percent unemployment in the sand?
Speaker 12 (28:10):
I don't think it's the unemployment number itself, it's really
the trend in employment growth that on a consistent basis
several months comes in significantly lower than what the trend
rate has been so last.
Speaker 1 (28:23):
Year when they got exactly.
Speaker 6 (28:25):
But it raises a question about how much it would matter,
right how much we're kind of talking about the wrong issue.
Is the issue really how much will take the FED
to cut?
Speaker 1 (28:34):
Or is the issue? Are we slowing or are we
stalling out?
Speaker 6 (28:37):
And I think that that's the bigger question, maybe for
both bond markets and for the FED. It's not just
do you have to adjust things on the margins, it's
longer term how much heat is left in an economy
that has a lot of question marks around it.
Speaker 12 (28:49):
Well, that's a really good observation in the sense that
even if the FED cuts let's say in the third
quarter or early part of fourth quarter this year, the
light impact of that on the markets, at least equity
markets is probably not going to be as positive as
people are expecting it to be, because I think in
(29:10):
the throes of a tariff situation, if they are cutting rates,
then they are really really worried that's bad news that
will end up being bad news for the equity market.
So that's why I think equity markets at this point
the only upside is really going to come from productivity growth,
earnings growth, things like that, and that is not looking
very likely at the moment.
Speaker 11 (29:29):
I want to follow up on Matt Steven and Lisa's question,
and I realize we're asking you to pingpong between the
real economy and the markets right now, But what are
the growth drivers that you see in the second half
of the year that really catapults the economy for that
raises those productivity numbers. Is there something that we're waiting
for to happen that could really trigger that growth.
Speaker 12 (29:52):
I don't think there's really anything substantial in the pipeline
that can get you there. I think the fiscal impetus,
that is, but fiscal impulse that has been in the
place because of deficit financing, is really what is carrying
us through. In that mix, tariffs are basically a contractionary policy,
so I think we are trying to balance. There's really
(30:14):
no stimulus, significant stimulus coming into the economy until the
tax package passes, and then we see the implications of
that in terms of further deficit increase.
Speaker 6 (30:24):
Michael McKee is still with us and he's been parsing
through the data. Mike, in addition to a job, was
claimed some really interesting trade data.
Speaker 1 (30:32):
As you pass through it, what are you seeing?
Speaker 13 (30:33):
Well, basically what we saw these it was a pull
forward in imports. Imports dropped by sixteen point three percent,
and that pushed the overall trade deficit down by fifty
five and a half percent, and the Census Buro says
those are the two largest declines in those categories ever.
Now it's all statistical noise in the sense that we
didn't make a big deal out of the rise in
(30:55):
the trade balance in January February because we knew it
was the pull forward of sorts. But it does have
an effect on the overall data. We'll see a bigger
rise in second quarter growth. Then we saw the big
fall of course in first quarter growth. And the one
thing to point out about jobless claims is this is
the biggest jump, or the highest level rather in eight months,
(31:17):
and it's the highest two week in a row level
in more than a year, So we do see some
weakness here. Neil Dna writing in that you have about
a two hundred and sixty thousand level would be the
break even for jobless claims, and if we get above that,
we're going to see week payroll numbers.
Speaker 1 (31:33):
So we'll see what.
Speaker 13 (31:34):
We get tomorrow. But of course we're starting to see
the numbers come in Procter and Gamble today saying it's
going to lay off seven thousand people. So it's starting
to weaken out there.
Speaker 6 (31:44):
Mike, before you go, just a quick note, how much
are you getting people questioning the integrity of some of
this data, as we got reports yesterday from the Bureau
of Labor Statistics that they didn't collect data for CPI
in certain regions in April due to budget cuts.
Speaker 13 (31:57):
CPI is the one that's being affected most and first,
but there are also concerns about the labor data as well.
What's happening is the government has cut funding and not
kept up funding for years, and then we have the
DOGE cuts, so they're behind the eight ball. They can't
really collect all the data that they have. Now, the
data that they do collect is going to be used
(32:20):
as well as it possibly can be, but just because
you have fewer people collecting it and less data, you're
going to have a wider margin of error.
Speaker 6 (32:27):
Michael mckae, thank you so much, Krishna. What exactly do
you do with this the idea that the granular data
shows some degree of weakening, and yet there's a question
about just how accurate it is on any given week.
Speaker 12 (32:40):
Well, so it's kind of a sad state of affairs
that the best statistical data collecting agency in the world
is struggling to kind of do the surveys that we
desperately need at this time of transition.
Speaker 4 (32:52):
But it is what it is.
Speaker 12 (32:55):
However, I think they do enough data collection for it
not to be kind of disturbed in a significant way,
and you can probably derive the basic trends out of
the data that they're collecting. But I think again I
would reatterate my point. It's a very sad state of affairs.
Speaker 5 (33:13):
But does the data even matter when the policy is
changing so quickly?
Speaker 12 (33:17):
Well, so data does matter, because how would you expect
the policy maker whose one mandate is employment to kind
of react to it if they don't have accurate data
and a really clear clear picture of what the impact
of the various policies are on the economy. Without that,
we are kind of we are blind, and that would
be a terrible state of affairs.
Speaker 5 (33:38):
I mean, most of the market's not the real economy.
Speaker 12 (33:40):
It is just so I think to some extent, markets
do react to policy, and for the policy to be
commensurate with the state of the economy, we need that data.
Speaker 6 (33:50):
Christian Momoni of La Fair College don't be a stranger.
Speaker 1 (33:52):
Great to see you. Thank you so much for being here.
Speaker 2 (33:55):
This is the Bloomberg Seventans 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 you listen, and as always on the
Bloomberg Terminal and the Bloomberg Business app.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
CrimeLess: Hillbilly Heist
It’s 1996 in rural North Carolina, and an oddball crew makes history when they pull off America’s third largest cash heist. But it’s all downhill from there. Join host Johnny Knoxville as he unspools a wild and woolly tale about a group of regular ‘ol folks who risked it all for a chance at a better life. CrimeLess: Hillbilly Heist answers the question: what would you do with 17.3 million dollars? The answer includes diamond rings, mansions, velvet Elvis paintings, plus a run for the border, murder-for-hire-plots, and FBI busts.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com