May 21, 2025 • 32 mins
- Saira Malik, CIO and Head of Equities & Fixed Income at Nuveen
- Terry Haines, founder at Pangaea Policy
- Bill Dudley, former president of the Federal Reserve Bank of New York
- Aasem Khalil, Investment Banking Client Service Head at Goldman Sachs
Saira Malik, CIO and Head of Equities & Fixed Income at Nuveen, joins for a discussion on markets and outlook for softening US economic growth. Terry Haines, founder at Pangaea Policy, joins the program to discuss tax bill negotiations. Bill Dudley, former president of the Federal Reserve Bank of New York, joins to talk about his Bloomberg Opinion column on the Fed preparing for the unexpected. Aasem Khalil, Investment Banking Client Service Head at Goldman Sachs, joins our Lisa Abramowicz for a conversation about the US economy and deal and business environment.
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Episode Transcript
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Speaker 1 (00:00):
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. We begin this out
with stockslower after snapping a six day winning streak in
yesterday's session. Sarah Maleck of Neuvine writing markets face a
reality check due to two macro drivers, Moodies Downgroad of
US dead and continued tariff negotiations. Sarah joins Ustaff for more.
Sarah and Mornig, good morning. How important is that tax
bill to this bond market?
Speaker 3 (00:54):
I think it's very important to this spawn market. What
the bond market is worried about is that over the
longer term it will increase the deficit, and the bond
market doesn't like that. And that's where we're seeing yields
continue to back up, so we'll see where we end
up on that and the shorter term though the tax bill,
of course, will be stimulative for the economy, so it's
positive for the short term, not so positive for the
long term.
Speaker 2 (01:13):
Bonios at these levels and not constraining the discussion that
about down in Washington, when does it start to constrain
the sanquity market.
Speaker 3 (01:20):
I think at about five percent on the ten year,
equities will begin to get more nervous. Also, beyond the
tariff issues and the Moody's downgrade and downgrades of US
credit has generally not been positive for the markets. We
have bubbling up geopolitical issues between Iran and Israel, so
there's a lot of things for the markets to contend with,
and I think that's why equities are experiencing a hangover
this week.
Speaker 4 (01:38):
Was there any signal in the fact that you got
those bubbling up of tensions, the CNN report of Israel
looking at a strike in Iran, and the only movement
and change you really saw was in the oil price.
We were still selling treasuries, we were still selling the dollar.
Typically you'd expect those types of assets to rally. What
does that tell you.
Speaker 3 (01:54):
I think it's telling me there is a little bit
of this nervousness around the US as a safe haven
because of the tariff issues and the macro folatility that
we've seen this year. So I think the dollar continues
to be bearish in the longer term, not only because
the US economy is slowing, but because foreign investors are
a little bit concerned about the strength of the dollar
and the safe haven status, and they're seeing the same
thing with treasuries in terms of foreign buyers there, and
(02:16):
that is becoming somewhat of an issue that's been going
on all year.
Speaker 4 (02:19):
Can that ex sense to the equity market? Serena tang
Over at Morgan Stanley wrote a note just moments ago
overweight on US stock saying, still, Tina, there is still
no alternative? Is there an alternative to American stock markets?
Speaker 3 (02:31):
Well, if you look at US stocks, stocks will trade
on the fundamentals. First quarter earnings very strong, coming in
at about double the rate of expectations, twelve percent year
over your earnings growth, about three quarters of companies beating earnings,
so earning even then positive. And if you look at markets,
since they were covered off the bottom, you've seen a
lot of FOMO, a lot of inter a day buying,
so when you see these dips, retail investors are stepping
(02:52):
back in to buy. Also a lot of cash on
the sidelines. People do tend to unfortunately sell at the
wrong time and then chase their way back into the market.
So I think there is still more buys to the
upside for the US led by technology.
Speaker 4 (03:04):
Sucks more buys even though we are back at really
lofty multiples. Sarah, I thought this was part of the
problem to start the year, that we were just over exposed.
The US has not magically gone away.
Speaker 3 (03:14):
I think the US has fundamentally strong reasons for people
wanting to be exposed to it. It's a thirty percent
of the S and P five hundred, actually over thirty
percent is technology related. If you look at historical earnings growth,
about two thirds of that has been driven by those
tech earnings. We saw a very strong first quarter. The
AI boom is alive and well. We heard that from
companies like Microsoft this quarter, So I think the growth
(03:34):
legs for the US are still intact in place. I
totally agree with you. Markets are trading at a premium,
but a lot of people want to get back into
this US market, and I think that plus the earnings
growth gives it legs.
Speaker 2 (03:44):
From here, you'll line you just said it. The II
boom is alive and well, several months ago, it didn't
feel that way the original disruption in twenty twenty five
DAP's sake. Have we ever come that?
Speaker 3 (03:53):
I think we did. I think Deepsek was the big
story of the year for about a month and then
we got into tariffs and everybody forgot about Deep Seek.
It is something to watch. So the incremental spending on
artificial intelligence and what's going to be the ROI on that,
and also competing cheaper technologies like deep seak need to
be watched. But what we see with these companies is
demand for artificial intelligence. The productivity it can add to
(04:16):
companies is very strong. And these dominant players like Microsoft
that have spent tens of billions to get a leadership position,
they're going to remain in place as a leader.
Speaker 2 (04:24):
Have the win has changed? I think that is the
ultimate question. Has anything changed post Deepseek?
Speaker 3 (04:29):
I think that the winners are going to continue to win,
Like Microsoft. Other areas that we like are software companies
which I think people wondered, what is AI going to
do to software companies? I think for software it makes
them more productive. Also, it's showing traction in terms of
capturing clients and crossling with clients. So that's why we
like not only Microsoft, but companies like Viva, which is
a vertical industry software play in the life sciences industry.
(04:51):
I think these are some of the winners over time.
You need to be selective, but AI and the ones
that have dominated it for many years are going to
stay the leaders in the space.
Speaker 4 (04:58):
Honestly, it's remarkable looking at what's improved since the April
nay dear. First you get the communication services again, those
kind of big AI names number two and even before
the infotech sector is utilities again, a very AI exposed
kind of sector. Is that still the play again? Post
deep Seek? The thought was is that we won't need
as much energy that things have become more efficient. Can
(05:19):
you still bet on the utility players?
Speaker 3 (05:20):
I think you can, especially live in the infrastructure space,
which a big component of infrastructure is utility, So upgrading
your grids because of the electrification of the economy, supply
chains coming back down, coming back to the United States
and the infrastructure that we need to build. Their utilities
are going to be very necessary. There the energy needed
for data centers, which will be more proliferate in the
in the United States. All of that I think makes
(05:42):
utilities continue to be a strong play and a nice
AI derivative play.
Speaker 4 (05:46):
So these are the sectors that haven't been downgrading their
earnings as much. Where you have seen the downgrades comes
from the more consumer oriented sectors. You saw from Target
earnings this morning, some concern there in terms of demand.
You hear Walmart talking about raising prices. Can you buy
consumer oriented stocks right now? Or are things just too uncertain?
Speaker 3 (06:03):
Which consumer's in a tough space that it did lead
us out of the v shape or covery post the
Liberation Day malaise that we saw soft data on the
consumer is not strong. Outlooks from companies about the consumer
we're weak. We have not seen the impact of tariffs yet.
History tells us we will see that about three to
four months after tariff implementation. So it's very unclear, not
(06:23):
only in terms of tariffs, who's going to eat them?
Is it the consumer? Is it the producers. I think
it's a combination of both. Margin expansion has been what
has driven a lot of companies' earnings growth though, So
if companies are going to eat that cost of tariffs
and margins get at risk, it is probably some downside
for earnings growth going forward. Good news, we're at a
high level, growing at twelve percent year over year. I
think consumer is going to be challenged from here though,
(06:45):
high end consumer, low end consumer. Both areas could be challenged.
But the tax cuts in that bill could be somewhat
of a support form. But it's not our top pick
for a sector this year.
Speaker 2 (06:54):
You mentioned the self data, typically considered to be a
leading indicator. Do you believe it's a leading indicator or
a mislead in the kits at the moment, I think.
Speaker 3 (07:01):
It's mixed because it's tough with the consumer. Consumers tend
to be grumpy spenders, so when you see consumer spending
consumer sentiment weak, that's not necessarily a sign that consumers
are going to pull back on their spending. We've seen
a very resilient consumer during this cycle already in a
period of high inflation and high interstates, and remember pre
the tariffs, inflation has been trending in the right direction.
(07:22):
So if you add in about a ten percent based
tariff rate that adds about one percent to inflation, takes
you back to about that three percent level. If the
Fed sticks to their commitment to view tariff driven inflation
as transitory, and they get the couple of rate custs
this year, we think we'll see two, then maybe we
can get through this and consumer remains okay.
Speaker 2 (07:41):
If if the Fed sticks on a lot of if there
any resents belief they won't stick to that view.
Speaker 3 (07:46):
I think it really depends if the tariffs and inflation
driven by tariffs is really transitory, and if the underlying
base rate of tear of inflation continues to moderate as
we've been seeing. So that's really you know. I think
it's hard to say because all of this data from
Terra so we're not seeing it in the hard data.
Yet the economy looks pretty strong, earnings have been strong.
Speaker 2 (08:04):
I can I match this question. How will they know?
How are they not a difference between what's short lift
and most persistent? And how long is that going to
take to find out?
Speaker 4 (08:11):
Presumably it'll take a while to find out if inflation
is transitory. When do you see that? Do not see
it until next year? And then do you risk the
scenario where the FED is very reactionary and then they
only start cutting when you actually look at the whites
of the eyes of a labor market that's deteriorating.
Speaker 2 (08:25):
Are they too late that you mentioned Mike Key Pinalia
from Mulke and Stanley. No cuts for twenty twenty five, hey, places,
They're going to have to wipe that long get to
twenty six.
Speaker 3 (08:33):
I think the FED would run the risk of falling
behind the curve if they wait for the employment market
to crack. Looking at history, employment markets tend to crack
at the beginning of a recession. That's going to be
too late. I think they need to step in. If
inflation is trending in the right direction outside of teriff,
I think the FED needs to step in and get
that first cut going sometime this summer or in the
latest fall.
Speaker 2 (08:53):
Sarah, fiscal stamulus is good for mal kits, fiscal recklessness
is not. We've been asking this question or way on
this program. Do you think this is fisk stimulus or
fiscal recklessness.
Speaker 3 (09:02):
Well, the answer is it could be both, depending on
your timeframe. Shorter term fiscal stimulus longer term. Your risk
is that if you can continue to increase this deficit,
and we go into a recession, the deficit as a
percent of GDP will basically blow out because tax rects
will be down significantly when you're in a recession. So
that's the question for the markets. Do you want to
focus on the shorter term or the longer term. I
(09:24):
think right now markets are focused on the shorter term.
They're saying earning's growth is in the double digits. Hard
economic data looks fine. We like the stimulus that's coming
to the markets. Equities like that.
Speaker 4 (09:33):
What is the mechanism for us to concentrate on the
longer term? What changes need to happen, What do we
need to see that makes us concerned about rising deficits
and the potential recklessness of it.
Speaker 3 (09:43):
I think bond markets are the ones that are giving
you the yellow flag and saying, you know, something perhaps
isn't right here. Over the longer term, I think the
equity markets will pay attention. If yield to continue to rise,
if borrowing becomes even much more expensive, we're living in
a period of higher for longer inflation and interest rates,
equities will become more nervous. So it's the degree of
the rate of change in yields that's going to impact
(10:05):
equity markets, but we're not seeing that yet at this point.
I mean, this deficit has been something I feel like
we've discussed for so long. It's been an issue for years,
and really equities have somewhat ignored it, and I don't
think that can go on forever. But at this point,
I think we need to see a little more damage
done by the bond markets before it becomes front center
for equities.
Speaker 4 (10:22):
Is it also then distracting for what has been the
concern for the equity market until very recently, which is terras.
Sure you have ninety day pauses going on all around,
but teriff freights are still set to be much higher.
Are we getting distracted by taxes right now? Does the
equity market at some point come around to the concerns
of the damage done by higher prices coming in for importers.
Speaker 3 (10:42):
I mean, taxes are definitely the story of right now.
But in a couple of months we're going to see
the impacts on the economy from terras. If you look
at that baseline of about ten percent terrists for the
rest of the world, you actually skirt a recession. It
impacts GDP by about one and a half percent, and
you don't go into a deepercession. Of course, a lot
of their reability around these numbers and the level of
terrorists that we eventually end up with. But I think
(11:03):
the markets right now we're seeing we have a little
bit of visibility on where terrass fed end up and
what that might do for the economy. And we have
some reassurances from the Fed in terms of how they're
going to think about terrorists. And that's what I mean
markets are counting on. It's a fine line. It's a
tightrope that they're walking in this sense with premium multiples.
Speaker 5 (11:19):
But I do think that.
Speaker 3 (11:20):
US tech is where the earnings growth is. That's what
can continue to lead. But let's not forget the other
surprise of the year, which is international markets. I don't
think anyone expected them to outperform US markets to the
degree that they have.
Speaker 2 (11:31):
European banks to stand. The year just absolutely phenomenal ceremonic
ofneving Sarah go to see you ye decide. I always
appreciate it.
Speaker 6 (11:47):
Lawmakers on Capitol Hill, they're working through the night through
this Rules Committee, this hearing, the first panel. This hearing
wrapped up at four point thirty in the morning, so
you can just expect how long this may drag out
is going to be a slog But we do know
behind the scenes there were some deals cut and for
some more insight on that, we want to bring in
Terry Haynes and Penji a policy. Terry, you've seen the reporting,
(12:08):
I'm sure, and I'm sure you have a little bit
more insight. What do you make of the deal cut
when it comes to salt as well as pulling back
some of those clean energy investment? Is that going to
be enough to satisfy some of the naysayers?
Speaker 7 (12:24):
Good morning, and I think I think it probably is. Yeah.
The you know, the salt deduction, of course, has been
has been talked about quite a bit, so I won't reiterate,
but it sounds like that deal is going to be enough,
and as you pointed out earlier, we haven't seen it
papered yet, so so that may take a little bit
of time.
Speaker 3 (12:42):
And the.
Speaker 7 (12:45):
Green energy phase outs also are things that Republicans have
been interested in for quite some time, and so I imagine
the combination of that is going to be is going
to be enough. But Johnson will use the Memorial Day recess.
Kind of a hard backstop. This is kind of standard
procedure on the Hill and in the House particularly, a
(13:06):
hard backstop to get people to put up or shut up.
And I expect he'll have enough votes at the end
of the day.
Speaker 6 (13:13):
Of course, Congress needs a deadline in order to really
get something done. Terry, But even if Johnson is able
to get this through the House floor, give our audience
a sense of how difficult this is going to be.
When this bill goes to the Senate. Does it even
look recognizable when it.
Speaker 7 (13:29):
Comes back to the House, Well, it's going to look
different than the House.
Speaker 1 (13:33):
Certainly.
Speaker 7 (13:34):
Speaker Johnson went to the Senate yesterday and begged them
to keep it as close to the House version as possible,
and I'm sure that fell on deaf ears. The thing
you got to understand is that the Senate is the
House is a kind of a very majoritarian sort of body.
The Senate is much more collaborative. Think of these folks
since they only need Republican votes. Think of those fifty
(13:57):
three CEOs all negotiating with each other. That's what you're
going to get. You're going to see a very different
Senate bill. It's going to take weeks, and at the
end of that process, I think what you see is,
in capital pill parlance, you see the Senate trying to
jam the House. In other words, the Senate will do
its bill, say take it or leave it, and then
(14:18):
what's going to happen is the House is going to
have to be herded again in order to in order
to make this happen more on the Senate's terms than
the House. That's really where Trump comes in right at
the end.
Speaker 6 (14:32):
So what happens on the Senate terms when it comes
to salt, medicaid, and the clean energy tax cuts, I.
Speaker 7 (14:38):
Think I imagine that salt will be will still be
fairly generous. I imagine Medicaid gets softened at the edges.
You know, they're hardening up work requirements and some other
things in order to get House conservative votes. On Medicaid,
I imagine that gets softened again. And on green energy,
I imagine again it probably gets extend that a little bit.
(15:00):
The net effect of all three of those, frankly is,
are things that are politically more palatable but may have
the effect of, you know, nudging around the debt and
deficit problem even further.
Speaker 6 (15:15):
And you think this can get done by July fourth.
Speaker 7 (15:18):
How I think it's certainly possible. Firstly, you need you
need a political imperative, which is a fancy way of
saying that you need you need Trump the executive branch
to kind of light a fire under the Senate, not
let the momentum that's been built up by the House dissipate. Uh. Secondly,
you need that that to happen in the lead in
(15:40):
the Senate leadership as well, and I think it probably
does h Thirdly, Uh, you know now that the now
that the Senate's got a template from which to work,
what you will see is you will see senators the
law stripes on the Republican side, the only side that
matters in this unique process, coming out and actually you know,
(16:02):
giving their own red lines. So you begin to assemble
a coalition of fifty three Republican senatorslike not unlike the
herding that you've seen in the House.
Speaker 6 (16:15):
Terry, if this doesn't get done, what kind of tax
increases could we see going into next year?
Speaker 7 (16:21):
Well, if it doesn't get done, then you've got your bumper.
You got Trump on the bumper. They're saying, you're going
to have a you know, essentially a snapback to pre
seventeen tax law. So that's a you know, for people
that are used to the current situation, that's a huge increase.
I have sixty eight percent in my head because that's
what the President said. It may not be exactly that,
(16:44):
but it'd be something something fairly large. So, you know,
the kind of the looming economic undertow here is worth
remembering as well, and that creates its own its own
sort of urgency. The other thing about the July fourth
deadline that I want to make is there are basically
three kinds of things coming together. It's not just the
(17:05):
tax bill. It's also that reciprocal tariffs are being studied
and there will be a report out on that, and
I would look at that as a as a deadline
for a lot of these trade deals that are being
negotiated as well. So you have the opportunity to either
have a substantial lift coming out of Washington economically or
you know, or substantial downturn either way, frankly politically.
Speaker 4 (17:30):
Terry.
Speaker 6 (17:31):
The bond market this morning, on the long end, we
do see yields once again higher. You know, interest on
the debt is currently the fastest growing part of the
US budget. If they get this deal done, how are
they going to deal with the deficit after this?
Speaker 7 (17:43):
Well, they're not going to deal with it in this bill,
as you know. And there's an expectation by some who
who who don't understand the process, and people shouldn't necessarily
but that you know, this bill will wrap up all problems,
that will be the end of it, and that's not
the case. I think what you'll hear going forward is
(18:04):
a lot more from Secretary Besson's about his three three
three idea, the idea that now what we're going to
do is we've dealt with the taxes, we've dealt with manufacturing,
we're dealing with trade in a separate track. Now we're
going to turn our attention to spending discipline. So what
you're going to see in the first instance, I think
(18:25):
is you're going to see huge fights, months long fights, frankly,
over spending in the fall, not just because Republicans want
to show some fiscal discipline, but because Democrats also want
to resist a lot of the things that Republicans want
to prioritize on spending discipline. And then and they look
at that opportunity for spending in the fall as a
means of revivifying their brand, frankly, which is not in
(18:47):
a good place.
Speaker 6 (18:50):
Terry, thanks so much for your insight this morning, Jonathan
Terry Haynes. There, of course, of penjia policy.
Speaker 2 (19:04):
So here's the like sis this morning. Policy uncertainty leaving
FED officials in wait and see mode. They form a
New York Fed President Bill Dudley with this to say,
the Feed should prepare markets for the unexpected to an
unusual extent. The world's most powerful central bank leaves the
public in the dark. It can and should do better,
build joint Just now for more, Bill, Let's take it
to the top from the top and welcome to the program.
Speaker 3 (19:24):
Sir.
Speaker 2 (19:24):
What is the importance of a central bank articulating conveying
its reaction function? And where do you think the SEP
falls short at the moment?
Speaker 5 (19:34):
The advantage of conveying your reaction functions the markets can
anticipate in real time as the economic outlook changes, what
the Fed is going to do in the future, and
that actually actually speeds up the transmission of mandory policy
to the real economy.
Speaker 1 (19:45):
So the markets know how the FIT.
Speaker 5 (19:47):
Is going to adjust, market prices adjust immediately, and so
that makes the FEDS response communicated to the market, to
the comomy more quickly.
Speaker 1 (19:55):
So that's a really good thing right now.
Speaker 5 (19:57):
The Summary of Economic Projection is very much focused on
the moral forecasts of the nineteen fom C participants, and
so it doesn't really tell you much at all about
what the FED would do if the tariff impact turns
out to be larger on inflation or it turns out
to be larger on growth. How will the FED pivot?
How much will they cut rates? And this is why
a lot of central banks around the world publish staff
(20:17):
forecasts with scenarios or publish committee forecasts with scenarios, which
basically the scenarios give you some sense of what the
central bank will do if things turn out differently than expected.
Last week, Bernanki gave a presentation at the Federal Reserve
of the second annual Thomas Lawback Research Conference.
Speaker 1 (20:33):
He basically outlined why the FED needs to do this.
The FED is basically an outlier.
Speaker 5 (20:39):
Every other central bank does this in one form or
another that are peers of the FED, and this would
actually help the FED to both communicate and also pivot
when things turn out to be different than they expected.
If you had that scenario in say twenty twenty one
twenty two, the inflation might stay.
Speaker 1 (20:55):
Higher for longer.
Speaker 5 (20:56):
That probably made it easier for the Fed to terminate
skill as a purchase program earlier.
Speaker 2 (21:02):
Well, isn't this something that effective communication in the news
conference could address?
Speaker 5 (21:07):
Well, I think the problem with the news conference is
the questions are very much focused on the Central Forecast
and the Summary of Economic Projections and the DOC lot,
So we don't we don't we don't get into a
lot of detailed analysis of what if.
Speaker 3 (21:20):
Uh.
Speaker 1 (21:20):
You know, when Paul is asked.
Speaker 5 (21:22):
Questions about what would you do if this happens, he
usually says it's data dependent. We'll see if you have
if you actually sketched out alternative scenarios. That gives you
a little bit more meat on the bone to sort
of see how the federalis would react if things are turned.
Speaker 1 (21:34):
Out differently and expected.
Speaker 5 (21:35):
Federalies have already does this as part of the staff
forecasts that are given to the Federal over Market Committee presumers.
They do what are called alt sims, which basically our
simulations of.
Speaker 1 (21:47):
If the world turns out to be different. So this
is not like it's not being done internally already at
the FED.
Speaker 5 (21:52):
Just I think sharing a little bit more of this
information with the public would be very helpful.
Speaker 4 (21:56):
Well, Bill, there is one argument that part of the
reason market participants concentrate so much on that median outlook
is because it is anonymous that what we get in
the SEP, we don't know what each individual member thinks,
so it forces us to coalesce around that media. Should
there and could there be a scenario where we do
know what each individual member thinks, that it is no
longer an anonymous survey put out to the public.
Speaker 5 (22:18):
Well, another shortcoming of the Summary of Economic productions is
you can't connect the interest rate dot back to the
forecast that that person made for unemployment, inflation, and growth,
so you can't really discern an individual's person's reaction function.
There have been proposals been made from time to time
that let's actually publish what each person's forecast is so
you can actually sort of see that reaction function.
Speaker 1 (22:40):
I think that would be an improvement over what we
have today.
Speaker 5 (22:43):
But of course then people are going to be trying
to figure out which dot is the chairman's dot. And
I think, you know, communicating broadly to financial markets, to
people are less Fed watchers than me or you. I'm
not sure that connecting the dots really allows you to
provide that wants.
Speaker 1 (23:00):
But what will the FED do if things turn out
differently than expected.
Speaker 4 (23:03):
It does seem like we're an environment though, where Chair
Powell has been trying his hardest not to make news,
and part of that bill seems akin to what's happening
in politics, that President Trump is more likely to say
something about where the path they're going and his displeasure
for it. What changes if we do get something to
what you're proposing, where you get more scenarios, is there
increased political pressure? Is that a risk that the FED
(23:24):
should think about?
Speaker 5 (23:26):
Well, I think the political pressure of scenarios is that
you're writing down things that might be not so good.
So let's imagine that the FED wrote down a scenario
where the terrorists are going to turn out to.
Speaker 1 (23:35):
Be higher for longer. That's going to feed more into inflation.
Speaker 5 (23:39):
Now I'm sure President Trump wouldn't like that, but still
it's a possibility in terms of the economic outlook, and
the FED really does need to think about things beyond
the central forecast.
Speaker 2 (23:50):
Can we just wrap it up with something you've touched
on a few times. Bill, If the dual mandate is
in conflict at the end of the year, which side
of the mandate do you think they should prioritize.
Speaker 5 (24:00):
I think it's really difficult to say at this point
because it depends on what the risks are of making
a mistake. So let's imagine that you decided, oh, I'm
really more worried about the growth side, and then as
a consequence of that, inflation expectations became unanchored. Then you'd
have a real mess in your hand. You'd be back
in the nineteen seventies, not a great place to be.
So I think it's really not just about which factor
(24:20):
is more off target, but also what are the risks
of being wrong? And I think why the FED is
paused right now is because they don't want to be wrong.
This is a very tricky situation where you don't know
where the trade policy is going to land, you don't
know the impact of trade policy the on growth and inflation,
and you don't know how this is going to affect
households and businesses in terms of their attitude.
Speaker 1 (24:39):
It's sort of future inflation. BO.
Speaker 2 (24:41):
I appreciate your input, As always said Bill, doupting that
the former New York Fed President. What then you call them,
I'm blimbag opinion. So let's heap back to Dallas, Texas
and catch up with Lisa standing by with a special guest. Hey, Lisa,
(25:01):
Hey John.
Speaker 4 (25:02):
Yeah.
Speaker 8 (25:02):
One thing that companies don't have is a luxury to
wait and see, like so many Federal Reserve officials are
saying that they have to do. I am here with
someone who is pioneering the shift of investment banking into Dallas, Texas.
It is Ossium Khalil, who is the head of investment
banking Client Services at Goldman Sachs. And Goldman Sachs has
been rapidly expanding in Dallas. It's going to have the
(25:25):
second biggest office here behind New York. At a time
when you've seen just a flood of corporations move their
headquarters to Texas. It has been one of the biggest
absorbers of new corporate headquarters since the pandemic. Why Texas,
Why Dallas in particular?
Speaker 4 (25:39):
Awesome?
Speaker 9 (25:39):
Well, Lisa, thanks for having me. It's great to be here.
I'd say a couple of things. I moved down here
almost nine years ago at the firm's request, it was
a little bit of a surprise as a lifelong New Yorker,
happy surprise. It was a very happy surprise moving to
Dallas in retrospect. So we relocated here because the firm
head of view rightly that Dallas is an emerging city
and that there is an up and coming business population here,
(26:00):
that there was tons of market cap already located in
the city, and that more and more companies were going
to relocate to this region for a handful of reasons.
One is the centricity of Dallas. It's in the middle
of the country, so access to either coast is within
two and a half hours. Number Two, the university pipeline
here is incredible. You have SMUTCU, rice A and m UT, etc.
There is just a never ending flow of new talent
(26:22):
that's coming to the state through the context of universities
and who are looking for jobs in Dallas.
Speaker 8 (26:27):
At this point, everyone's been talking about taxes and how
there's certain states that are high tax states. There certain
states that are low tax states. There's certain that are
just lower cost. In general, New York City, as we
all know from having raised children there can be particularly expensive.
I'm just wondering how much that's really one of the
biggest drivers for a lot of these corporations.
Speaker 9 (26:46):
I think it's a factor. I'm not sure it's necessarily
the biggest driver of why people are relocating. Keep in mind,
DFW Airport is one of the most incredible tools that
Dallas has, meaning that if you run a global business,
like a lot of the corporations that are based here do,
you can access your customers all over the world with
a direct flight on American Airlines or one of the
other airlines in the city. It's pretty remarkable when you
think about how accessible the world is from Dallas. There's
(27:08):
plenty of space, the schools are good, the quality of
life is very high, so there are lots of things
to love about being here in Dallas as opposed to
just the taxes. But there's no question it's a factor.
I don't think it's the driving factor.
Speaker 8 (27:19):
I love that you're speaking to yourself from nine years ago. Awesome,
and it's really all of these advantages true.
Speaker 2 (27:25):
Trust me.
Speaker 8 (27:25):
I am curious about Wall Street South, so a lot
of people are Southwest. People have been talking about that
there's a new exchange that's going to be coming out.
We've seen a twenty seven percent increase in investment, banking,
and services staff in this city since the pandemic. How
much is this really going to be It's kind of
the Wall Street Southwest. How much do you really feel
(27:46):
that gravitational force?
Speaker 9 (27:47):
So I think this enormous momentum. So I can speak
for Golden Sachs. We're building a campus right here in
the heart of the city, which is really important for
us to be in Dallas proper. So a lot of
the corporations that have moved here have moved to some
of out the outlying cities around Dallas, so Plano, Frisco, McKinney,
these are about twenty thirty minutes outside of Dallas. It
was really important for Goldman Sachs as an urban firm,
(28:07):
to have our presence in the heart of the city.
So we're building our campus here. We have forty five
hundred people in the city already. When I got here,
we had less than nine hundred and nine years ago,
so the growth has been incredible and that's only going
to continue to happen. A lot of our competitors, I've
also established a presence in the city. So you have
people in Plano. There are folks that are in and
around kind of Wall Street South as you reference. But
(28:27):
I don't see any slow down. It's too good of
a place to live and to work and to be
quite frankly, to not have that kind of growth.
Speaker 8 (28:34):
What thing I'm struck by is that when I talk
to corporations in different cities, it seems like they have
a very different view on where the economy's at, on
kind of how ambitious to be with expansion plans, and
as we were saying, they don't have a luxury of
weight and sea like the Federal Reserve does. What are
you hearing in terms of just how much people are
putting on hold their mergers or acquisitions, their capital investment plans.
Speaker 9 (28:56):
So I'll give you a Texas perspective, and then I'll
give you more of a national and global one. Texas
respective is still one of optimisms. Generally speaking, this is
a state that's had incredible economic growth and will continue
to be one of the handful of states that grow
in the country. So that's great for Texas. When we
talk to CEOs and corporations in around the state and
in and around the country, people are cautiously optimistic. Right
People want to grow, They want to continue to drive
(29:18):
their businesses to create value over the long term. But
of course there's some caution given the geopolitical environment, given
the backdrop, But generally speaking, companies are still making decisions
that are going to allow them to grow over the
course of the next several years. So if you look
at the M and A environment, it's well, again i'd
phrase it is cautiously optimistic. Deals are still Happeningactions, transactions
are still being announced. So I'm actually large transactions have
(29:40):
been announced in the last couple of weeks. But if
you look at the middle market that call it two
to five billion dollar range, there's been a tremendous amount
of activity, double digit growth year over year.
Speaker 8 (29:49):
Which really highlights how there's sort of a disparity between
Smovori hearing out of the likes of say Target this
morning came out and talked about how consumers are really
pulling back and they're getting much more cautious, and then
you see other companies that are still expanding that don't
can't wait and see and are optimistic. Is there a
sense the US economy is just driving that forward? And
I ask you this not just as the head of
investment banking client services Goldmen Sacks, but also as someone
(30:12):
who sits on the corporate Advisory Board at the Dallas
FED and is very involved in all of these kinds
of conversations.
Speaker 9 (30:19):
Yeah, So again, I think that there is a view
that the US is still the best place to be
right and that they're going to the winds of change.
You're going to continue to shift back and forth. But still,
if you think about our economy, you think about what
the US has to offer, so to speak, particularly relative
to the rest of the world, this is still where
companies want to be and where companies want to operate.
There's no question there's concern about the state of the consumer.
There's no question there is concern about the forward for
(30:41):
the economy. Treasury auction as we were talking about earlier,
that comes into focus.
Speaker 8 (30:45):
Right, John.
Speaker 9 (30:47):
So there's a lot of things that are out there,
but again this cautious optimism that we will work our
way through. The fundamentals, of course are quite sound, will
work our way through some of the noise that's in
the markets today, and that over the long term. If
you're running a business and I've got a view that
this is the right thing for your company, You're going
to go ahead and execute on that strategy if it's
available aually the way, I'm sorry to say, financing markets
are wide open, so companies are not having as difficult
(31:09):
at time accessing capital to continue to grow.
Speaker 8 (31:11):
I just want to finish up. A lot of people
have said that Miami is the new Wall Street South,
Dallas is the new Wall Street Southwest, that New York's
getting a lot of competition. Do you think that the
Dallas office could ever be bigger than New York's office
for Goldman Sachs, or that this presence could really rival
it in a more material way.
Speaker 9 (31:29):
Well, I would never say never, but I will say
certainly that our headquarters are in New York. Goldman Sacks
will always be a New York based firm. But could
Dallas continue to grow in size? Of course, we're going
to continue to grow, right That momentum is there and
that's not going to change. Could be one day be
bigger than New York, It's certainly possible. We actually have
Our presence in India is larger than it is in
New York. Just give it again the size and the
scope of the firm. But we're quite proud of what
(31:51):
we've been able to build in Dallas. I think the
forwards very bright, so would expect more growth here, but
we don't mistake it. We are a New York based
firm and Dallas is going to continue to be a
very important part of the Golden Sacks system.
Speaker 8 (32:00):
Spoken like someone from New York City heading to Dallas
who has settled here with his family. Awesome, Khalil, thank
you so much for being with us. Really wonderful to
speak with you. That was awesome, Khalil of Gordman Sachs,
head of their own person banking client services and the
office here in Dallas at Texas, John, I just want
to thank you again for talking about that twenty year auction.
I do think it's going to be very important and
potentially the risk event.
Speaker 2 (32:20):
Of the day for one pm Eastern time must watch TV.
Thank you, Bramo. This is the Bloomberg Surveillance podcast, bringing
you the best in markets, economics, angiopolitics. You can watch
the show live on Bloomberg TV weekday mornings from six
am to nine am Eastern. Subscribe to the podcast on Apple,
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(32:42):
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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
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anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business app. We begin this out
with stockslower after snapping a six day winning streak in
yesterday's session. Sarah Maleck of Neuvine writing markets face a
reality check due to two macro drivers, Moodies Downgroad of
US dead and continued tariff negotiations. Sarah joins Ustaff for more.
Sarah and Mornig, good morning. How important is that tax
bill to this bond market?
Speaker 3 (00:54):
I think it's very important to this spawn market. What
the bond market is worried about is that over the
longer term it will increase the deficit, and the bond
market doesn't like that. And that's where we're seeing yields
continue to back up, so we'll see where we end
up on that and the shorter term though the tax bill,
of course, will be stimulative for the economy, so it's
positive for the short term, not so positive for the
long term.
Speaker 2 (01:13):
Bonios at these levels and not constraining the discussion that
about down in Washington, when does it start to constrain
the sanquity market.
Speaker 3 (01:20):
I think at about five percent on the ten year,
equities will begin to get more nervous. Also, beyond the
tariff issues and the Moody's downgrade and downgrades of US
credit has generally not been positive for the markets. We
have bubbling up geopolitical issues between Iran and Israel, so
there's a lot of things for the markets to contend with,
and I think that's why equities are experiencing a hangover
this week.
Speaker 4 (01:38):
Was there any signal in the fact that you got
those bubbling up of tensions, the CNN report of Israel
looking at a strike in Iran, and the only movement
and change you really saw was in the oil price.
We were still selling treasuries, we were still selling the dollar.
Typically you'd expect those types of assets to rally. What
does that tell you.
Speaker 3 (01:54):
I think it's telling me there is a little bit
of this nervousness around the US as a safe haven
because of the tariff issues and the macro folatility that
we've seen this year. So I think the dollar continues
to be bearish in the longer term, not only because
the US economy is slowing, but because foreign investors are
a little bit concerned about the strength of the dollar
and the safe haven status, and they're seeing the same
thing with treasuries in terms of foreign buyers there, and
(02:16):
that is becoming somewhat of an issue that's been going
on all year.
Speaker 4 (02:19):
Can that ex sense to the equity market? Serena tang
Over at Morgan Stanley wrote a note just moments ago
overweight on US stock saying, still, Tina, there is still
no alternative? Is there an alternative to American stock markets?
Speaker 3 (02:31):
Well, if you look at US stocks, stocks will trade
on the fundamentals. First quarter earnings very strong, coming in
at about double the rate of expectations, twelve percent year
over your earnings growth, about three quarters of companies beating earnings,
so earning even then positive. And if you look at markets,
since they were covered off the bottom, you've seen a
lot of FOMO, a lot of inter a day buying,
so when you see these dips, retail investors are stepping
(02:52):
back in to buy. Also a lot of cash on
the sidelines. People do tend to unfortunately sell at the
wrong time and then chase their way back into the market.
So I think there is still more buys to the
upside for the US led by technology.
Speaker 4 (03:04):
Sucks more buys even though we are back at really
lofty multiples. Sarah, I thought this was part of the
problem to start the year, that we were just over exposed.
The US has not magically gone away.
Speaker 3 (03:14):
I think the US has fundamentally strong reasons for people
wanting to be exposed to it. It's a thirty percent
of the S and P five hundred, actually over thirty
percent is technology related. If you look at historical earnings growth,
about two thirds of that has been driven by those
tech earnings. We saw a very strong first quarter. The
AI boom is alive and well. We heard that from
companies like Microsoft this quarter, So I think the growth
(03:34):
legs for the US are still intact in place. I
totally agree with you. Markets are trading at a premium,
but a lot of people want to get back into
this US market, and I think that plus the earnings
growth gives it legs.
Speaker 2 (03:44):
From here, you'll line you just said it. The II
boom is alive and well, several months ago, it didn't
feel that way the original disruption in twenty twenty five
DAP's sake. Have we ever come that?
Speaker 3 (03:53):
I think we did. I think Deepsek was the big
story of the year for about a month and then
we got into tariffs and everybody forgot about Deep Seek.
It is something to watch. So the incremental spending on
artificial intelligence and what's going to be the ROI on that,
and also competing cheaper technologies like deep seak need to
be watched. But what we see with these companies is
demand for artificial intelligence. The productivity it can add to
(04:16):
companies is very strong. And these dominant players like Microsoft
that have spent tens of billions to get a leadership position,
they're going to remain in place as a leader.
Speaker 2 (04:24):
Have the win has changed? I think that is the
ultimate question. Has anything changed post Deepseek?
Speaker 3 (04:29):
I think that the winners are going to continue to win,
Like Microsoft. Other areas that we like are software companies
which I think people wondered, what is AI going to
do to software companies? I think for software it makes
them more productive. Also, it's showing traction in terms of
capturing clients and crossling with clients. So that's why we
like not only Microsoft, but companies like Viva, which is
a vertical industry software play in the life sciences industry.
(04:51):
I think these are some of the winners over time.
You need to be selective, but AI and the ones
that have dominated it for many years are going to
stay the leaders in the space.
Speaker 4 (04:58):
Honestly, it's remarkable looking at what's improved since the April
nay dear. First you get the communication services again, those
kind of big AI names number two and even before
the infotech sector is utilities again, a very AI exposed
kind of sector. Is that still the play again? Post
deep Seek? The thought was is that we won't need
as much energy that things have become more efficient. Can
(05:19):
you still bet on the utility players?
Speaker 3 (05:20):
I think you can, especially live in the infrastructure space,
which a big component of infrastructure is utility, So upgrading
your grids because of the electrification of the economy, supply
chains coming back down, coming back to the United States
and the infrastructure that we need to build. Their utilities
are going to be very necessary. There the energy needed
for data centers, which will be more proliferate in the
in the United States. All of that I think makes
(05:42):
utilities continue to be a strong play and a nice
AI derivative play.
Speaker 4 (05:46):
So these are the sectors that haven't been downgrading their
earnings as much. Where you have seen the downgrades comes
from the more consumer oriented sectors. You saw from Target
earnings this morning, some concern there in terms of demand.
You hear Walmart talking about raising prices. Can you buy
consumer oriented stocks right now? Or are things just too uncertain?
Speaker 3 (06:03):
Which consumer's in a tough space that it did lead
us out of the v shape or covery post the
Liberation Day malaise that we saw soft data on the
consumer is not strong. Outlooks from companies about the consumer
we're weak. We have not seen the impact of tariffs yet.
History tells us we will see that about three to
four months after tariff implementation. So it's very unclear, not
(06:23):
only in terms of tariffs, who's going to eat them?
Is it the consumer? Is it the producers. I think
it's a combination of both. Margin expansion has been what
has driven a lot of companies' earnings growth though, So
if companies are going to eat that cost of tariffs
and margins get at risk, it is probably some downside
for earnings growth going forward. Good news, we're at a
high level, growing at twelve percent year over year. I
think consumer is going to be challenged from here though,
(06:45):
high end consumer, low end consumer. Both areas could be challenged.
But the tax cuts in that bill could be somewhat
of a support form. But it's not our top pick
for a sector this year.
Speaker 2 (06:54):
You mentioned the self data, typically considered to be a
leading indicator. Do you believe it's a leading indicator or
a mislead in the kits at the moment, I think.
Speaker 3 (07:01):
It's mixed because it's tough with the consumer. Consumers tend
to be grumpy spenders, so when you see consumer spending
consumer sentiment weak, that's not necessarily a sign that consumers
are going to pull back on their spending. We've seen
a very resilient consumer during this cycle already in a
period of high inflation and high interstates, and remember pre
the tariffs, inflation has been trending in the right direction.
(07:22):
So if you add in about a ten percent based
tariff rate that adds about one percent to inflation, takes
you back to about that three percent level. If the
Fed sticks to their commitment to view tariff driven inflation
as transitory, and they get the couple of rate custs
this year, we think we'll see two, then maybe we
can get through this and consumer remains okay.
Speaker 2 (07:41):
If if the Fed sticks on a lot of if there
any resents belief they won't stick to that view.
Speaker 3 (07:46):
I think it really depends if the tariffs and inflation
driven by tariffs is really transitory, and if the underlying
base rate of tear of inflation continues to moderate as
we've been seeing. So that's really you know. I think
it's hard to say because all of this data from
Terra so we're not seeing it in the hard data.
Yet the economy looks pretty strong, earnings have been strong.
Speaker 2 (08:04):
I can I match this question. How will they know?
How are they not a difference between what's short lift
and most persistent? And how long is that going to
take to find out?
Speaker 4 (08:11):
Presumably it'll take a while to find out if inflation
is transitory. When do you see that? Do not see
it until next year? And then do you risk the
scenario where the FED is very reactionary and then they
only start cutting when you actually look at the whites
of the eyes of a labor market that's deteriorating.
Speaker 2 (08:25):
Are they too late that you mentioned Mike Key Pinalia
from Mulke and Stanley. No cuts for twenty twenty five, hey, places,
They're going to have to wipe that long get to
twenty six.
Speaker 3 (08:33):
I think the FED would run the risk of falling
behind the curve if they wait for the employment market
to crack. Looking at history, employment markets tend to crack
at the beginning of a recession. That's going to be
too late. I think they need to step in. If
inflation is trending in the right direction outside of teriff,
I think the FED needs to step in and get
that first cut going sometime this summer or in the
latest fall.
Speaker 2 (08:53):
Sarah, fiscal stamulus is good for mal kits, fiscal recklessness
is not. We've been asking this question or way on
this program. Do you think this is fisk stimulus or
fiscal recklessness.
Speaker 3 (09:02):
Well, the answer is it could be both, depending on
your timeframe. Shorter term fiscal stimulus longer term. Your risk
is that if you can continue to increase this deficit,
and we go into a recession, the deficit as a
percent of GDP will basically blow out because tax rects
will be down significantly when you're in a recession. So
that's the question for the markets. Do you want to
focus on the shorter term or the longer term. I
(09:24):
think right now markets are focused on the shorter term.
They're saying earning's growth is in the double digits. Hard
economic data looks fine. We like the stimulus that's coming
to the markets. Equities like that.
Speaker 4 (09:33):
What is the mechanism for us to concentrate on the
longer term? What changes need to happen, What do we
need to see that makes us concerned about rising deficits
and the potential recklessness of it.
Speaker 3 (09:43):
I think bond markets are the ones that are giving
you the yellow flag and saying, you know, something perhaps
isn't right here. Over the longer term, I think the
equity markets will pay attention. If yield to continue to rise,
if borrowing becomes even much more expensive, we're living in
a period of higher for longer inflation and interest rates,
equities will become more nervous. So it's the degree of
the rate of change in yields that's going to impact
(10:05):
equity markets, but we're not seeing that yet at this point.
I mean, this deficit has been something I feel like
we've discussed for so long. It's been an issue for years,
and really equities have somewhat ignored it, and I don't
think that can go on forever. But at this point,
I think we need to see a little more damage
done by the bond markets before it becomes front center
for equities.
Speaker 4 (10:22):
Is it also then distracting for what has been the
concern for the equity market until very recently, which is terras.
Sure you have ninety day pauses going on all around,
but teriff freights are still set to be much higher.
Are we getting distracted by taxes right now? Does the
equity market at some point come around to the concerns
of the damage done by higher prices coming in for importers.
Speaker 3 (10:42):
I mean, taxes are definitely the story of right now.
But in a couple of months we're going to see
the impacts on the economy from terras. If you look
at that baseline of about ten percent terrists for the
rest of the world, you actually skirt a recession. It
impacts GDP by about one and a half percent, and
you don't go into a deepercession. Of course, a lot
of their reability around these numbers and the level of
terrorists that we eventually end up with. But I think
(11:03):
the markets right now we're seeing we have a little
bit of visibility on where terrass fed end up and
what that might do for the economy. And we have
some reassurances from the Fed in terms of how they're
going to think about terrorists. And that's what I mean
markets are counting on. It's a fine line. It's a
tightrope that they're walking in this sense with premium multiples.
Speaker 5 (11:19):
But I do think that.
Speaker 3 (11:20):
US tech is where the earnings growth is. That's what
can continue to lead. But let's not forget the other
surprise of the year, which is international markets. I don't
think anyone expected them to outperform US markets to the
degree that they have.
Speaker 2 (11:31):
European banks to stand. The year just absolutely phenomenal ceremonic
ofneving Sarah go to see you ye decide. I always
appreciate it.
Speaker 6 (11:47):
Lawmakers on Capitol Hill, they're working through the night through
this Rules Committee, this hearing, the first panel. This hearing
wrapped up at four point thirty in the morning, so
you can just expect how long this may drag out
is going to be a slog But we do know
behind the scenes there were some deals cut and for
some more insight on that, we want to bring in
Terry Haynes and Penji a policy. Terry, you've seen the reporting,
(12:08):
I'm sure, and I'm sure you have a little bit
more insight. What do you make of the deal cut
when it comes to salt as well as pulling back
some of those clean energy investment? Is that going to
be enough to satisfy some of the naysayers?
Speaker 7 (12:24):
Good morning, and I think I think it probably is. Yeah.
The you know, the salt deduction, of course, has been
has been talked about quite a bit, so I won't reiterate,
but it sounds like that deal is going to be enough,
and as you pointed out earlier, we haven't seen it
papered yet, so so that may take a little bit
of time.
Speaker 3 (12:42):
And the.
Speaker 7 (12:45):
Green energy phase outs also are things that Republicans have
been interested in for quite some time, and so I imagine
the combination of that is going to be is going
to be enough. But Johnson will use the Memorial Day recess.
Kind of a hard backstop. This is kind of standard
procedure on the Hill and in the House particularly, a
(13:06):
hard backstop to get people to put up or shut up.
And I expect he'll have enough votes at the end
of the day.
Speaker 6 (13:13):
Of course, Congress needs a deadline in order to really
get something done. Terry, But even if Johnson is able
to get this through the House floor, give our audience
a sense of how difficult this is going to be.
When this bill goes to the Senate. Does it even
look recognizable when it.
Speaker 7 (13:29):
Comes back to the House, Well, it's going to look
different than the House.
Speaker 1 (13:33):
Certainly.
Speaker 7 (13:34):
Speaker Johnson went to the Senate yesterday and begged them
to keep it as close to the House version as possible,
and I'm sure that fell on deaf ears. The thing
you got to understand is that the Senate is the
House is a kind of a very majoritarian sort of body.
The Senate is much more collaborative. Think of these folks
since they only need Republican votes. Think of those fifty
(13:57):
three CEOs all negotiating with each other. That's what you're
going to get. You're going to see a very different
Senate bill. It's going to take weeks, and at the
end of that process, I think what you see is,
in capital pill parlance, you see the Senate trying to
jam the House. In other words, the Senate will do
its bill, say take it or leave it, and then
(14:18):
what's going to happen is the House is going to
have to be herded again in order to in order
to make this happen more on the Senate's terms than
the House. That's really where Trump comes in right at
the end.
Speaker 6 (14:32):
So what happens on the Senate terms when it comes
to salt, medicaid, and the clean energy tax cuts, I.
Speaker 7 (14:38):
Think I imagine that salt will be will still be
fairly generous. I imagine Medicaid gets softened at the edges.
You know, they're hardening up work requirements and some other
things in order to get House conservative votes. On Medicaid,
I imagine that gets softened again. And on green energy,
I imagine again it probably gets extend that a little bit.
(15:00):
The net effect of all three of those, frankly is,
are things that are politically more palatable but may have
the effect of, you know, nudging around the debt and
deficit problem even further.
Speaker 6 (15:15):
And you think this can get done by July fourth.
Speaker 7 (15:18):
How I think it's certainly possible. Firstly, you need you
need a political imperative, which is a fancy way of
saying that you need you need Trump the executive branch
to kind of light a fire under the Senate, not
let the momentum that's been built up by the House dissipate. Uh. Secondly,
you need that that to happen in the lead in
(15:40):
the Senate leadership as well, and I think it probably
does h Thirdly, Uh, you know now that the now
that the Senate's got a template from which to work,
what you will see is you will see senators the
law stripes on the Republican side, the only side that
matters in this unique process, coming out and actually you know,
(16:02):
giving their own red lines. So you begin to assemble
a coalition of fifty three Republican senatorslike not unlike the
herding that you've seen in the House.
Speaker 6 (16:15):
Terry, if this doesn't get done, what kind of tax
increases could we see going into next year?
Speaker 7 (16:21):
Well, if it doesn't get done, then you've got your bumper.
You got Trump on the bumper. They're saying, you're going
to have a you know, essentially a snapback to pre
seventeen tax law. So that's a you know, for people
that are used to the current situation, that's a huge increase.
I have sixty eight percent in my head because that's
what the President said. It may not be exactly that,
(16:44):
but it'd be something something fairly large. So, you know,
the kind of the looming economic undertow here is worth
remembering as well, and that creates its own its own
sort of urgency. The other thing about the July fourth
deadline that I want to make is there are basically
three kinds of things coming together. It's not just the
(17:05):
tax bill. It's also that reciprocal tariffs are being studied
and there will be a report out on that, and
I would look at that as a as a deadline
for a lot of these trade deals that are being
negotiated as well. So you have the opportunity to either
have a substantial lift coming out of Washington economically or
you know, or substantial downturn either way, frankly politically.
Speaker 4 (17:30):
Terry.
Speaker 6 (17:31):
The bond market this morning, on the long end, we
do see yields once again higher. You know, interest on
the debt is currently the fastest growing part of the
US budget. If they get this deal done, how are
they going to deal with the deficit after this?
Speaker 7 (17:43):
Well, they're not going to deal with it in this bill,
as you know. And there's an expectation by some who
who who don't understand the process, and people shouldn't necessarily
but that you know, this bill will wrap up all problems,
that will be the end of it, and that's not
the case. I think what you'll hear going forward is
(18:04):
a lot more from Secretary Besson's about his three three
three idea, the idea that now what we're going to
do is we've dealt with the taxes, we've dealt with manufacturing,
we're dealing with trade in a separate track. Now we're
going to turn our attention to spending discipline. So what
you're going to see in the first instance, I think
(18:25):
is you're going to see huge fights, months long fights, frankly,
over spending in the fall, not just because Republicans want
to show some fiscal discipline, but because Democrats also want
to resist a lot of the things that Republicans want
to prioritize on spending discipline. And then and they look
at that opportunity for spending in the fall as a
means of revivifying their brand, frankly, which is not in
(18:47):
a good place.
Speaker 6 (18:50):
Terry, thanks so much for your insight this morning, Jonathan
Terry Haynes. There, of course, of penjia policy.
Speaker 2 (19:04):
So here's the like sis this morning. Policy uncertainty leaving
FED officials in wait and see mode. They form a
New York Fed President Bill Dudley with this to say,
the Feed should prepare markets for the unexpected to an
unusual extent. The world's most powerful central bank leaves the
public in the dark. It can and should do better,
build joint Just now for more, Bill, Let's take it
to the top from the top and welcome to the program.
Speaker 3 (19:24):
Sir.
Speaker 2 (19:24):
What is the importance of a central bank articulating conveying
its reaction function? And where do you think the SEP
falls short at the moment?
Speaker 5 (19:34):
The advantage of conveying your reaction functions the markets can
anticipate in real time as the economic outlook changes, what
the Fed is going to do in the future, and
that actually actually speeds up the transmission of mandory policy
to the real economy.
Speaker 1 (19:45):
So the markets know how the FIT.
Speaker 5 (19:47):
Is going to adjust, market prices adjust immediately, and so
that makes the FEDS response communicated to the market, to
the comomy more quickly.
Speaker 1 (19:55):
So that's a really good thing right now.
Speaker 5 (19:57):
The Summary of Economic Projection is very much focused on
the moral forecasts of the nineteen fom C participants, and
so it doesn't really tell you much at all about
what the FED would do if the tariff impact turns
out to be larger on inflation or it turns out
to be larger on growth. How will the FED pivot?
How much will they cut rates? And this is why
a lot of central banks around the world publish staff
(20:17):
forecasts with scenarios or publish committee forecasts with scenarios, which
basically the scenarios give you some sense of what the
central bank will do if things turn out differently than expected.
Last week, Bernanki gave a presentation at the Federal Reserve
of the second annual Thomas Lawback Research Conference.
Speaker 1 (20:33):
He basically outlined why the FED needs to do this.
The FED is basically an outlier.
Speaker 5 (20:39):
Every other central bank does this in one form or
another that are peers of the FED, and this would
actually help the FED to both communicate and also pivot
when things turn out to be different than they expected.
If you had that scenario in say twenty twenty one
twenty two, the inflation might stay.
Speaker 1 (20:55):
Higher for longer.
Speaker 5 (20:56):
That probably made it easier for the Fed to terminate
skill as a purchase program earlier.
Speaker 2 (21:02):
Well, isn't this something that effective communication in the news
conference could address?
Speaker 5 (21:07):
Well, I think the problem with the news conference is
the questions are very much focused on the Central Forecast
and the Summary of Economic Projections and the DOC lot,
So we don't we don't we don't get into a
lot of detailed analysis of what if.
Speaker 3 (21:20):
Uh.
Speaker 1 (21:20):
You know, when Paul is asked.
Speaker 5 (21:22):
Questions about what would you do if this happens, he
usually says it's data dependent. We'll see if you have
if you actually sketched out alternative scenarios. That gives you
a little bit more meat on the bone to sort
of see how the federalis would react if things are turned.
Speaker 1 (21:34):
Out differently and expected.
Speaker 5 (21:35):
Federalies have already does this as part of the staff
forecasts that are given to the Federal over Market Committee presumers.
They do what are called alt sims, which basically our
simulations of.
Speaker 1 (21:47):
If the world turns out to be different. So this
is not like it's not being done internally already at
the FED.
Speaker 5 (21:52):
Just I think sharing a little bit more of this
information with the public would be very helpful.
Speaker 4 (21:56):
Well, Bill, there is one argument that part of the
reason market participants concentrate so much on that median outlook
is because it is anonymous that what we get in
the SEP, we don't know what each individual member thinks,
so it forces us to coalesce around that media. Should
there and could there be a scenario where we do
know what each individual member thinks, that it is no
longer an anonymous survey put out to the public.
Speaker 5 (22:18):
Well, another shortcoming of the Summary of Economic productions is
you can't connect the interest rate dot back to the
forecast that that person made for unemployment, inflation, and growth,
so you can't really discern an individual's person's reaction function.
There have been proposals been made from time to time
that let's actually publish what each person's forecast is so
you can actually sort of see that reaction function.
Speaker 1 (22:40):
I think that would be an improvement over what we
have today.
Speaker 5 (22:43):
But of course then people are going to be trying
to figure out which dot is the chairman's dot. And
I think, you know, communicating broadly to financial markets, to
people are less Fed watchers than me or you. I'm
not sure that connecting the dots really allows you to
provide that wants.
Speaker 1 (23:00):
But what will the FED do if things turn out
differently than expected.
Speaker 4 (23:03):
It does seem like we're an environment though, where Chair
Powell has been trying his hardest not to make news,
and part of that bill seems akin to what's happening
in politics, that President Trump is more likely to say
something about where the path they're going and his displeasure
for it. What changes if we do get something to
what you're proposing, where you get more scenarios, is there
increased political pressure? Is that a risk that the FED
(23:24):
should think about?
Speaker 5 (23:26):
Well, I think the political pressure of scenarios is that
you're writing down things that might be not so good.
So let's imagine that the FED wrote down a scenario
where the terrorists are going to turn out to.
Speaker 1 (23:35):
Be higher for longer. That's going to feed more into inflation.
Speaker 5 (23:39):
Now I'm sure President Trump wouldn't like that, but still
it's a possibility in terms of the economic outlook, and
the FED really does need to think about things beyond
the central forecast.
Speaker 2 (23:50):
Can we just wrap it up with something you've touched
on a few times. Bill, If the dual mandate is
in conflict at the end of the year, which side
of the mandate do you think they should prioritize.
Speaker 5 (24:00):
I think it's really difficult to say at this point
because it depends on what the risks are of making
a mistake. So let's imagine that you decided, oh, I'm
really more worried about the growth side, and then as
a consequence of that, inflation expectations became unanchored. Then you'd
have a real mess in your hand. You'd be back
in the nineteen seventies, not a great place to be.
So I think it's really not just about which factor
(24:20):
is more off target, but also what are the risks
of being wrong? And I think why the FED is
paused right now is because they don't want to be wrong.
This is a very tricky situation where you don't know
where the trade policy is going to land, you don't
know the impact of trade policy the on growth and inflation,
and you don't know how this is going to affect
households and businesses in terms of their attitude.
Speaker 1 (24:39):
It's sort of future inflation. BO.
Speaker 2 (24:41):
I appreciate your input, As always said Bill, doupting that
the former New York Fed President. What then you call them,
I'm blimbag opinion. So let's heap back to Dallas, Texas
and catch up with Lisa standing by with a special guest. Hey, Lisa,
(25:01):
Hey John.
Speaker 4 (25:02):
Yeah.
Speaker 8 (25:02):
One thing that companies don't have is a luxury to
wait and see, like so many Federal Reserve officials are
saying that they have to do. I am here with
someone who is pioneering the shift of investment banking into Dallas, Texas.
It is Ossium Khalil, who is the head of investment
banking Client Services at Goldman Sachs. And Goldman Sachs has
been rapidly expanding in Dallas. It's going to have the
(25:25):
second biggest office here behind New York. At a time
when you've seen just a flood of corporations move their
headquarters to Texas. It has been one of the biggest
absorbers of new corporate headquarters since the pandemic. Why Texas,
Why Dallas in particular?
Speaker 4 (25:39):
Awesome?
Speaker 9 (25:39):
Well, Lisa, thanks for having me. It's great to be here.
I'd say a couple of things. I moved down here
almost nine years ago at the firm's request, it was
a little bit of a surprise as a lifelong New Yorker,
happy surprise. It was a very happy surprise moving to
Dallas in retrospect. So we relocated here because the firm
head of view rightly that Dallas is an emerging city
and that there is an up and coming business population here,
(26:00):
that there was tons of market cap already located in
the city, and that more and more companies were going
to relocate to this region for a handful of reasons.
One is the centricity of Dallas. It's in the middle
of the country, so access to either coast is within
two and a half hours. Number Two, the university pipeline
here is incredible. You have SMUTCU, rice A and m UT, etc.
There is just a never ending flow of new talent
(26:22):
that's coming to the state through the context of universities
and who are looking for jobs in Dallas.
Speaker 8 (26:27):
At this point, everyone's been talking about taxes and how
there's certain states that are high tax states. There certain
states that are low tax states. There's certain that are
just lower cost. In general, New York City, as we
all know from having raised children there can be particularly expensive.
I'm just wondering how much that's really one of the
biggest drivers for a lot of these corporations.
Speaker 9 (26:46):
I think it's a factor. I'm not sure it's necessarily
the biggest driver of why people are relocating. Keep in mind,
DFW Airport is one of the most incredible tools that
Dallas has, meaning that if you run a global business,
like a lot of the corporations that are based here do,
you can access your customers all over the world with
a direct flight on American Airlines or one of the
other airlines in the city. It's pretty remarkable when you
think about how accessible the world is from Dallas. There's
(27:08):
plenty of space, the schools are good, the quality of
life is very high, so there are lots of things
to love about being here in Dallas as opposed to
just the taxes. But there's no question it's a factor.
I don't think it's the driving factor.
Speaker 8 (27:19):
I love that you're speaking to yourself from nine years ago. Awesome,
and it's really all of these advantages true.
Speaker 2 (27:25):
Trust me.
Speaker 8 (27:25):
I am curious about Wall Street South, so a lot
of people are Southwest. People have been talking about that
there's a new exchange that's going to be coming out.
We've seen a twenty seven percent increase in investment, banking,
and services staff in this city since the pandemic. How
much is this really going to be It's kind of
the Wall Street Southwest. How much do you really feel
(27:46):
that gravitational force?
Speaker 9 (27:47):
So I think this enormous momentum. So I can speak
for Golden Sachs. We're building a campus right here in
the heart of the city, which is really important for
us to be in Dallas proper. So a lot of
the corporations that have moved here have moved to some
of out the outlying cities around Dallas, so Plano, Frisco, McKinney,
these are about twenty thirty minutes outside of Dallas. It
was really important for Goldman Sachs as an urban firm,
(28:07):
to have our presence in the heart of the city.
So we're building our campus here. We have forty five
hundred people in the city already. When I got here,
we had less than nine hundred and nine years ago,
so the growth has been incredible and that's only going
to continue to happen. A lot of our competitors, I've
also established a presence in the city. So you have
people in Plano. There are folks that are in and
around kind of Wall Street South as you reference. But
(28:27):
I don't see any slow down. It's too good of
a place to live and to work and to be
quite frankly, to not have that kind of growth.
Speaker 8 (28:34):
What thing I'm struck by is that when I talk
to corporations in different cities, it seems like they have
a very different view on where the economy's at, on
kind of how ambitious to be with expansion plans, and
as we were saying, they don't have a luxury of
weight and sea like the Federal Reserve does. What are
you hearing in terms of just how much people are
putting on hold their mergers or acquisitions, their capital investment plans.
Speaker 9 (28:56):
So I'll give you a Texas perspective, and then I'll
give you more of a national and global one. Texas
respective is still one of optimisms. Generally speaking, this is
a state that's had incredible economic growth and will continue
to be one of the handful of states that grow
in the country. So that's great for Texas. When we
talk to CEOs and corporations in around the state and
in and around the country, people are cautiously optimistic. Right
People want to grow, They want to continue to drive
(29:18):
their businesses to create value over the long term. But
of course there's some caution given the geopolitical environment, given
the backdrop, But generally speaking, companies are still making decisions
that are going to allow them to grow over the
course of the next several years. So if you look
at the M and A environment, it's well, again i'd
phrase it is cautiously optimistic. Deals are still Happeningactions, transactions
are still being announced. So I'm actually large transactions have
(29:40):
been announced in the last couple of weeks. But if
you look at the middle market that call it two
to five billion dollar range, there's been a tremendous amount
of activity, double digit growth year over year.
Speaker 8 (29:49):
Which really highlights how there's sort of a disparity between
Smovori hearing out of the likes of say Target this
morning came out and talked about how consumers are really
pulling back and they're getting much more cautious, and then
you see other companies that are still expanding that don't
can't wait and see and are optimistic. Is there a
sense the US economy is just driving that forward? And
I ask you this not just as the head of
investment banking client services Goldmen Sacks, but also as someone
(30:12):
who sits on the corporate Advisory Board at the Dallas
FED and is very involved in all of these kinds
of conversations.
Speaker 9 (30:19):
Yeah, So again, I think that there is a view
that the US is still the best place to be
right and that they're going to the winds of change.
You're going to continue to shift back and forth. But still,
if you think about our economy, you think about what
the US has to offer, so to speak, particularly relative
to the rest of the world, this is still where
companies want to be and where companies want to operate.
There's no question there's concern about the state of the consumer.
There's no question there is concern about the forward for
(30:41):
the economy. Treasury auction as we were talking about earlier,
that comes into focus.
Speaker 8 (30:45):
Right, John.
Speaker 9 (30:47):
So there's a lot of things that are out there,
but again this cautious optimism that we will work our
way through. The fundamentals, of course are quite sound, will
work our way through some of the noise that's in
the markets today, and that over the long term. If
you're running a business and I've got a view that
this is the right thing for your company, You're going
to go ahead and execute on that strategy if it's
available aually the way, I'm sorry to say, financing markets
are wide open, so companies are not having as difficult
(31:09):
at time accessing capital to continue to grow.
Speaker 8 (31:11):
I just want to finish up. A lot of people
have said that Miami is the new Wall Street South,
Dallas is the new Wall Street Southwest, that New York's
getting a lot of competition. Do you think that the
Dallas office could ever be bigger than New York's office
for Goldman Sachs, or that this presence could really rival
it in a more material way.
Speaker 9 (31:29):
Well, I would never say never, but I will say
certainly that our headquarters are in New York. Goldman Sacks
will always be a New York based firm. But could
Dallas continue to grow in size? Of course, we're going
to continue to grow, right That momentum is there and
that's not going to change. Could be one day be
bigger than New York, It's certainly possible. We actually have
Our presence in India is larger than it is in
New York. Just give it again the size and the
scope of the firm. But we're quite proud of what
(31:51):
we've been able to build in Dallas. I think the
forwards very bright, so would expect more growth here, but
we don't mistake it. We are a New York based
firm and Dallas is going to continue to be a
very important part of the Golden Sacks system.
Speaker 8 (32:00):
Spoken like someone from New York City heading to Dallas
who has settled here with his family. Awesome, Khalil, thank
you so much for being with us. Really wonderful to
speak with you. That was awesome, Khalil of Gordman Sachs,
head of their own person banking client services and the
office here in Dallas at Texas, John, I just want
to thank you again for talking about that twenty year auction.
I do think it's going to be very important and
potentially the risk event.
Speaker 2 (32:20):
Of the day for one pm Eastern time must watch TV.
Thank you, Bramo. This is the Bloomberg Surveillance podcast, bringing
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(32:42):
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