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So Joe Biden's back from the border, and as he puts the finishing touches on a State of the Union address that, as I read on the terminal, is expected to call for higher taxes on the wealthy, more relief for the working class. It is unclear if he will be able to tout a cease fire in Israel. Remember that was the hope, as he said, hopefully by Monday, we'll have this done, and that doesn't mean that it
can't happen by Thursday. But with what's happening on the ground right now in Israel, there are a lot of questions about that. And that's where we start in a very busy day here on the north lawn of the White House with Bloomberg's Michelle Jim Risco, who is covering the White House for US today as the Italian Prime Minister visits. Just for an added layer of complexity in
our geopolitical soup, Michelle. The President's got a lot to think about as he sits down with the Italian PM, and I suspect that Ukraine will be the top of the conversation.
What can you tell us That's right.
Joe and tgif in a wild week, you know that twenty four hour here sounded really good to us.
There, you've done that today alone, talk about that's right.
Let's talk about what the Italian Prime Minister might be speaking with Biden about today. Yes, you mentioned Ukraine funding. I'm sure you hear a lot about that from the General later this hour. We're bound to hear more about that today from the White House, from Craine Jean Pierre, and from John Kirby, who will brief later today. But it'll be the same message that Ukraine urgently needs more resources.
Italy and the US both probably talking about more ways to find more funding, more resources to get to Ukraine in their defense against Russia at a critical time, just past the two year mark in that war. The other big issue that we expect might come up today is just counter China competing with China efforts. So you had a number of announcements this week and this wild week from the US side about policies including restrictions on Chinese
electric vehicles and data security. Those might come up and see where the two sides might meet together and cooperate in a G seven manner and talk about other ways that these two allies can counter China in different respects.
Well, I suspect that the matter of Israel is another one on the President's mind as they try to formulate a speech here next week. Michelle, they were hoping to be talking about a cease fire as early as Monday. Is it still possible to happen before the State of the Union.
Well, for sure, that's going to be on the agenda. That's going to be the focus of the President, alongside drafting that State of the Union speech this weekend when he heads to Camp David. He'll head there this afternoon. But you know what he said yesterday when he left for that dueling border visit yesterday on the south lawn of the White House, he told reporters yes Hope Springs Eternal,
that they would have a ceasefire by Monday. But then he followed that up saying, probably not by Monday, but you know, and the complications around talks with Israel on a seasfire just got more complicated with the tragic shooting incident yesterday in Gaza that they're still trying to find
answers for. On the US side, President Biden saying he was hearing two conflicting reports at least of what had happened there and who was responsible, and of course that kind of gets in the way of these negotiations around getting a hostage deal, ceasefire deal to get hostages out more aid in so a lot at work here. He's going to have a super busy weekend ahead of a very busy week next week.
I guess it'll be time well spent at Camp David with what he has ahead of him. And you can read a lot more about what we expect in the address here on the terminal, as I mentioned an increase in taxes on the wealthy Michelle and plans to highlight the Chips Act, which of course is now beginning to dole out money here to chip makers in the process of reshoring.
We'll see what else we get.
I suspect that there could be some news coming next week on the border as well.
You mentioned his visit.
We didn't well hear any details, Michelle, Could we get an executive order announced on Thursday night.
Oh, we'll see about that. I don't know if we'll have news from the State of the Union on that, but we do hear. You know, this is kind of a messaging battle right now. You saw from the dueling border visits yesterday, President Trump saying, you know, this is Biden's border crisis, and Biden shooting back that he wants cooperation. He extended a hand, he said to President Trump to
join him in this fight. But we'll see it's benefiting, clearly from polling, it's benefiting Trump right now to paint the President as not doing enough and to continue to try to push House Republicans to block these things, which Trump so far has been successful in doing well.
If you're watching us on YouTube right now, you see the very split screen that Michelle is describing.
Michelle, it's great to see you. Michelle.
Jem Risco reporting for US at the White House today. She will be in the Oval Office when the President sits down with the Italian Prime Minister and again, Ukraine is the purpose of this conversation as they try to find a plan B or are we on to c now I can't remember. There was a plan D at one point in the House, and we want to get started on this part of our conversation with a voice
of authority. It's not very often we have him in studio, but retired General Ben Hodges is with us now a senior advisor to Human Rights first of course, former Commanding General US Army Europe. It's great to see you in person. General, Thank you for being with us in Washington. Where to begin with the matter of Ukraine. It's looking like if there will be funding, there will be a longer wait, and the administration was warning us at the end of last year that time would run out by about now.
This is the first day of March.
Are we going to start seeing more of a deficit on the battlefield because of this or is Ukraine pushing the calendar?
Well, of course, this is a terrible situation for Ukraine armedforces and it's also unavoidable. I mean it's avoidable. This didn't have to have to happen like this. I think that we're going to see ammunition arriving from European countries here over the coming months, which they should. But the fact that the United States is failing to deliver ammunition is a terrible reflection not just on the Congress, but also on the administration. You know, everything starts with the objective,
what's the purpose? And the administration has not explained why this is so important to America that Ukraine is successful.
The assessment in Key right now is aiming for July that Russia could in fact punch through frontlines by the heart of the summer. What would that look like in terms of the war effort? Would that be a war lost?
So I think actually Russia does not possess the capability to knock out Ukraine or to punch through and exploit anyway. I mean, they don't have the large numbers of mounted formations and troops and logistics that could exploit like they lost. Ukraine lost Avdifka about two two and a half weeks ago. There's been no real exploitation of something like that. So
what I imagine is going to be happening this summer. There will be local tactical successes along the line by the Russian side, but General Seerski and the Ukrainian Armed Forces are going to stabilize this line for this year to buy time to build up ammunition. Build up new units, they've got to fix their personnel system. So this year I think is more of the year of industrial competition.
Well, and to that end, we're told that even if Congress approves the money tonight, while you're still in Washington, General, we don't have the means to make all of the stuff that we need or that Ukraine needs. That this has become a manufacturing chain problem, and we're not talking about that in this legislation. Are we have sixty billion dollars went out to our defense contractors here, what could they do with it?
Well, of course there are a variety of assets that are available that just need the funding to deliver it there. But what you're really referring to, of course, is the manufacturing of ALAS stuff, which is what they're what they're asking for, as well as puit long range precision munitions. You know, a little over a year ago I was speaking to a gentleman in the Pentagon and he said, we make about eight thousand rounds per month because that's
what we need for our own training. In less than a year, they quadrupled that number just by making it a priority and putting money on it. So the various companies that make ammunition expanded their capacity, and you know, I heard Senator Vancey of A said that America doesn't have the capacity to make more. This is the United States of America and he's from Ohio. That they, of course there's industrial capacity. Is there enough political will to do it?
Remains a big question around here, and the Europeans are looking across the ocean wondering if we're going to.
Make good on this.
At the same time, they've been slow to deliver shells to Ukraine. Can Ukraine count on its nearest neighbors.
It's an excellent point and it's a fair criticism of our European allies. But even Chancellor Schultz, the German bundhist councilor just a couple of weeks ago, was out there at a groundbreaking ceremony for a new ammunition plant in Germany. Now here's a guy that, nowhere in his past did he ever imagine he would be celebrating the opening of a new ammunition factory inside Germany. They're actually, I think is a lot of ammunition in Europe, but it needs
to be reprioritized. You remember the European Union announced they we're going to find a million rounds to to Ukraine. They've delivered three hundred thousand so far. It turns out about seventy percent of what is made in Europe goes to customers outside of Europe. So now heads of government need to reprioritize what they have.
They're still asking for long range missiles. I know that the Germans have been kind of on again, off again with this idea. Is there anything that we can do when it comes to advanced weaponry to help them right now?
Yes, the long range precision strike capability such as the American attack Ems or the German Taurus, the British storms shadow that there is no one weapon that changes everything. But every square inch of Russian occupied Ukraine is inside the range of a USA tackles. So, in other words, every Russian headquarters, every Russian artillery, every Russian logistics site could be hit. There's nowhere to hide, could be hit
if Ukrainians had that capability. You know, for whatever reason, the United States this administration has continued to refuse to provide that three hundred kilometer range A tackms. The Germans are hiding behind that a little bit.
Yeah, that would be more effective than something like an F sixteen for Ukraine.
Right now?
What did I Well, certainly it would make a huge difference. Right now, the F sixteens showing up. Probably I think we'll see Midsommers is when the Ukrainians will be ready to employ them. It's one thing to fly on, but to employ them effectively like our great Air Force does. Yes, you know that's an operation.
Abrams tanks are rolling. I saw a video of one of them on the ground in Ukraine.
Remember the argument at one point was this will not help, this will only slow them down. You've got a jet engine in this thing. You can't afford the fuel. Has it been a benefit or do we not know yet?
Well, of course it was a whopping thirty one that were provided. So now thirty one Abrams tanks you get thirty one of the best tank in the world. But again this goes back to the is the objective?
You know?
The administration Deli dalaied for months and months and months about whether or not to do it, and I heard I heard so many criticisms of the Abrams tank. Oh, it's so much fuel, it's so much maintenance, And I thought, well, why the hell do we have four thousand of them in the US Army. Sorry, it is a great tank, but you don't just take it off the shelf and use it. There is maintenance required in training to get
the full benefit of that of that great tank. What really matters is how is it employed by the Ukrainians. And I'm sure that they'll pick the best place where you get the most effect.
Out of it.
Just got about a minute left, General, we saw news of a hypersonic missile being employed by Russia in Ukraine. We're told that our patriot defense missile systems cannot catch those. Is that a game changer if we start seeing more use of that technology.
Well, first of all, I would never underestimate the of the Ukrainians to take what they have and make it better. I mean, we've provided things and then I like counterfire radar, and I found out that radar was even better than I knew it was well because they were able to You know, if you're getting if you're geting attacked by the Russians all day long, you get very innovative, very creative.
And Ukrainians are among the most tech savvy people I've ever met in my life, So I think they will figure out how to use what we provide, what the Brits provide, and they'll be able to It's not about quality, it's about quantity. They don't have enough.
I know you're typically living and working overseas, but you're always welcome here in Washington. We're always very curious to hear what you have to say. Are thoughtful, General Ben Hodges, It's great to meet you in person.
Thank you for coming in. Thanks for the opportunity, of course, great pleasure. I'm Jill Matthew and Washington. This is Balance of Power. You're listening to the Bloomberg Balance of Power podcast kinds just Live days at noon Eastern on Applecarplay and then rod Oro with the Bloomberg Business Ad. You can also listen live on Amazon Alexa from our flagship New York station, Jo Say Alexa play Bloomberg eleven thirty.
The President will propose higher taxes on the wealthy and businesses in his State of the Union address next week. Welcome to the fastest show in politics, as Joe Biden prepares to go to Camp David for the weekend to punch up his address to a joint session of Congress. After another round of economic data that could be key to the outcome of this election. I'm Joe Matthew in Washington alongside Kaylee Lions. It's good to see you, Kaylee. You made it to Friday.
Happy Friday, and Friday tou.
We saw data this week encouraging I guess we could say on inflation at least it hit targets sure, but also today the first dropping consumer sentiment in four months.
Yeah, actually the biggest intra month drop because this was the final read we got today, which dropped from the preliminary read by almost three points. That's the biggest intermonth intra month drop we've seen since March of twenty twenty. And we all know what happened in March of twenty twenty. That was the onset of the pandemic. So how much of a concerning sign is that, especially as we're seeing
gas prices moving up. Oil hit eighty dollars a barrel again on WTI for the first time since November.
Today.
Well, I'm glad to say we have the voice of an expert joining us with the view of the White House today.
Indeed we do. Jared Bernstein, in the chair of the White House Council of Economic Advisors, is joining us now live from the White House, North Lawn.
Jared.
Always good to have you on the show. Thank you very much for joining us, mister chairman. When we look at data like this which suggests that after a lot of conversation about consumer sentiment being on the upswing, maybe it is not actually that steady, perhaps not that sustainable, potentially still a little bit vulnerable. Does that make you nervous?
Well, the three month consumer sentiment index is up almost twenty five percent, and that is a much more reliable trend than this wiggle we got off the movement from the preliminary which was positive to the final which was negative. Look, your point about the gas price is a good one, and we're gonna have to keep watching this very carefully.
But I don't think anyone should change their view that consumer sentiment consumer confidence has been moving in a pretty reliable way, in a direction suggesting that economic improvements have been reaching people in a way that they weren't a few months ago. And those improvements, of course reflect easing inflationary pressures, a strong job market, rising real wage growth,
very strong consumer spending in GDP. So any one month can wiggle and bounce one way or another, but the trend remains a solid in that regard.
We're hearing talk mister chairman. It's good to see you.
Welcome back of a world in which there are no rate cuts.
In this calendar year.
You know, I wouldn't ask you about FED policy, but I just wonder what that says about the strength of this economy and whether it's a runaway train.
Well, I guess you have a lot of things going in different directions here. I mean, we had some inflation reports that came in above expectations, and then we had an inflation report that hit expectations dead on. We had a retail sales report that, if anything went the other way, more cool than hot. We have a job numbers that have been exceptionally strong. I think you really have to again, I think it's really important to look at the underlying trend.
One of the most important is the unemployment rate that's been below four percent for two years running. That's a great number. It's supporting as I mentioned earlier, nominal wage games that are beating inflation, so real wages up about ten months in a row. Again, a pretty reliable trend there. So one of my jobs is to, of course look at carefully and get all kinds of nervous about the high frequency data flow, but to really keep an eye on the underlying momentum, which remains strong.
Well, you say the underlying momentum remains strong, you point to the strength and the labor market specifically. When you look at this economy, mister chairman, do you see any sign of easing being necessary?
Well, I'm not going to get into what the Federal Reserve should do with monetary policy. What I will say is I just was looking at some of the forecasts for Q one GDP and I've seen numbers that are in the two percent range. Let's call that something like trend growth. Now, look, the way these hydraulics work, as you too well know, is that if the economy is growing a trend, the unemployment rate tends to stay around
where it is. And again, my very broad theory of the case is that as labor market remains strong and inflation continues to ease again, on trend continues to ease. And that too, by the way, is a very reliable forecast. Virtually every forecast I've seen has inflation continuing to east throughout the year. That's a recipe for rising real wages. Now on a comedy that's seventy percent consumer spending, that's
a good recipe for continued growth. I don't I'm not going to say you know anything about what the Fed should do there, but is that is and has been a reliable recipe to keep things moving forward in a good way for American households.
Jared, I'm sure you're looking forward to the State of the Union addressed. This is a big week ahead for the White House. I don't know to what extent you're involved in contributing to the framing of the economic argument that the President is going to make next week, but we're reporting that he's going to call for some familiar ideas, higher taxes on the wealthy and businesses. There are some other things that we can talk about outside of the economy.
But I wonder what it is that you're looking forward to message to the American people next week.
One of the reasons I get to come out here and talk to you is because I don't get ahead of the President, and certainly I'm certainly not going to do that when it comes to the State of the Union. But what I can tell you is the last part of your question is very much on point, which is the message to the American people, not referring anything to so too as we called it around here State of
the Union, but just the ongoing economic recovery. And I guess I do think that this narrative tends to get lost in the hurly burly of the everyday news flow, which I understand. I'm part of it, so are you sure? And we get it. But let's pull back a second and think about where we were and where we are. Okay, were when we got here. The vaccination rate was about zero, and we had a great vaccine, but it wasn't getting out there. We had families and businesses looking really worried
about getting to the other side of the pandemic. The President gets here, puts the rescue plan in place, gets checks and pockets, shots and arms, massive improvement in the vax rate, And here we are now, all these years later, in the midst of a remarkable recovery, particularly in the sense that people said we couldn't do it. I mean economists, tony economists said we couldn't get the inflation rate down by two thirds without giving up a bunch of points
on unemployment or on GDP. Well, I just told you we had a GDP north of three percent in Q four, tracking two percent in Q one. Unemployment we've talked about, and all of this with inflation down two thirds off of its peak. So I would consider this pretty remarkable recovery. Now, for President Biden, it only matters if it's reaching families at their kitchen tables, full stop. If I go in and tell him, I go in the oval and tell him about GDP in the stock market, he's gonna want
to know. For me, how is that helping families like the one I grew up in, Jared, and I will explain to him that we've got real wages growing for middle wage workers, growing for low wage workers, and in fact they're growing faster at the middle and the bottom of the high end. So the economy is delivering the
goods to a lot of working families as prices ease. Now, we've got more work to do, particularly on that price side, but moving in the right direction, and sentiment indices starting to reflect that well.
So on the price side, given everything that you just told us about how wages have increased, the consumption engine is still very much chugging along. GDP growth stronger than expected. All of that indicates that the demand is not going down in the way that perhaps was intended originally. And I just wonder how great of a risk do you think there is of a reacceleration in price pressures because demand has been so strong, Can you rule out that we will see another upswing in inflation?
Well, I think one of the things that we often do, and again it's understandable, especially with the high frequency reporting and scrutinizing every data report, is that we're looking at all these bank shots. If a happens, what will be in seeming for inflation. Sorry, we've got some noise in the background.
Biness goes on at the White House. We understand sir.
We love to see working people at work around here. One of THESA what I think we have to keep in mind is that the best indicator of inflation is inflation.
All right.
There are a lot of bank shots and a lot of ways demand can play through this. But our own analysis at the CEA has been quite clear, and I think this is largely confirmed by many other economists who have looked carefully at this, is that the disinflation we've achieved thus far has largely come from improvements on the economy supply side. In fact, that's almost axiomatic. When you think of inflation easing two thirds off of its peak without giving much on the demand side, It kind of
almost has to be supply side contributions. And our own work explains about eighty percent of the disinflation through supply chain on snarling through improvements in the labor force. In terms of labor supply, we think there's still more room to run there. So it's not enough to just look at the demand side of equation. You have to look at the supply side as well, and you have to look end of the day, beginning of the day, middle
of the day. Look at the inflation in the k switch again, have been easing solidly with a bump here or there in any given month.
I had an interesting encounter with Tom Swazi earlier this week, mister Chairman, the newest Democrat in the House of Representatives.
He was sworn in Wednesday evening.
This of course is George Santos's former seat, and he was asked by many of the folks who were there about how did he win? And he was talking mainly about the economy a little bit about the border as well, but he seemed to have a sense of what drives the angst, the frustration in many cases, the anger behind the MAGA movement, donald Trump supporters and many Republican voters around the country. And he pointed to wages as the
first thing. You make seven dollars ten dollars minimum wage, even fifteen dollars an hour, that means you're not pulling in more than twenty or thirty grand a year. You could hardly afford to live. It's impossible to get creancy. You can send your kids to college, secure your family. And he said that is the root of all of this. What's the message to those voters who are looking to Donald Trump for relief?
I think he asked, you really have to ask yourself who's fighting for whom. I think we saw this contrast to the border yesterday. This president is consistently fighting to solve the challenges that we face right now. I think his track record in challenge solving on the economy is extremely strong. That's what we've been talking about for the
last few minutes here. But I think the larger issue here, and answer your question, is which person which administration is going out there and trying to solve exactly the problem that newly minted Congressman Swazi was identifying. This president wakes up every day trying to figure out new ways to help families like the one he grew up in. Most recently that's been about lowering prices, going after junk fees, actually legislating lower prices for prescription drugs for health coverage.
The opposition wants to take that legislation away. They want to repeel it. Now, if you repeal something that's putting downward pressure on costs, guess what those pressures reverse and they go up. So I think it's a very clear matter of who's fighting for whom and who is essentially trying to create a sense of chaos and and dysfunction. This president is all about good, solid governance on behalf of working families, and he's got a track record to
prove it. And we've got some great unfinished business in the areas of housing, in the area of childcare and their lower costs that we'd like to keep working.
On well, and the ability to continue working on that will obviously depend on the outcome of the election in November. And on that note, Bloomberg together with Morning Consule, just released a survey yesterday of the swing stage which shows Biden is behind Trump and all seven of those that we pulled, and on the issue of the economy, almost consistently in every state within the data, the feeling of the national economy is much worse than the feeling of
the state economy or the local economy. As you get closer to home, people actually feel better. How do you make the rest that resonate nationally? How does what can the White House do to make the feeling about the economy as a whole better if it's not so bad when you're just looking at your neighborhood.
Well, first of all, let me just say that the poll that matters the most is the one which happens when folks pull the lever or fill in the voting forms,
and those polls have consistently favored Democrats. What I would say is that we have to keep our heads down, not pay, not get overly absorbed in the ups and downs of the kind of polls you just mentioned, which have proven to be pretty unreliable, I think when it comes to actual voting behavior, and focus on very much what we've accomplished and what we intend to continue to accomplish. When we got here, we had an unemployment rate that
was unacceptably high. And the very first speech economic speech with the President gab he talked about the importance of getting back to full employment. Well he did that. He got back to full employment very quickly, historically clicking, and we've stayed there. While we've stayed there, we've managed to work on improving the economy's supply side and unsnarl some of those chains, helping to increase labor supply, helping to increase the flow of goods into our retail sector, and
that's helped to ease inflation significantly. Meanwhile, he's legislated historic investments in the future, in clean energy, in lower health care costs, in domestic production of semiconductors, domestic production of EV cars and batteries. So it's a fantastic track record and it's one we will continue to talk about.
Now.
If you want to talk about some indices, you know, I would argue that a good question three or four months ago is why isn't everything you're telling me, Jared reaching the consumer sentiment indexes? But you can't make that argument so strongly anymore. We have the eumish sentiments up. Even with today's slip, it's up twenty five percent over the past three months. So it looks to me like the progress that we're made is actually starting to be
felt by more and more consumers. We're going to keep our head down and do all we can to continue to move in that direction.
And Jared, final question for you. You've been very generous with your time today, sir, and we appreciate it. But other news today comes from commercial real estate lender New York Community Bank Corp plunging again, saying it discovered material
weaknesses in how it tracks loan risks. Obviously, there are some idiosyncratic factors at play here, specifically for NYCB, but to what extent is the White House concern more generally about commercial real estate right now broader knock on effects that could have for the banking system.
CII has been on our watch list at CEA for a long time now, so this is not a new thing at all. What we try to do is get away from any particular case, and especially commenting on any particular case. We don't want to influence market moves at
all in this regard. What we're looking at is what we're looking at is the impact on the economy, the dynamics, the narrative that you and I have been discussing for the last few minutes out here, and what we see are bank, household and corporate balance sheets all looking pretty strong. Now there's been some increases in debt accumulation, there's been some increases in some default rates, but many of those, if you look at them historically, they're kind of coming
off the mat. They're back to around where they were pre pandemic. I think from our perspective, the most important thing is are those balance sheets as such that we think that the risk of systemic contagion is quite low, and I would argue that they are. If you look at the debt service that folks are paying as a share of their income, it still looks quite low, and that gives us some faith that we're in a good place with the buffers to absorb what we're seeing.
Mister Chairman, I feel like you brought us outside for outdoor class today.
I feel like I'm back on Boston Common. It looks like a beautiful one on the north lawn. Thank you for the seminar and for always being so generous. With your time.
Jared Bernstein is Chair of the White House Counsel of Economic Advisors.
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