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Welcome to the Monday edition of Bloomberg Sound On. We're back in Washington. I'm Joe Matthew and glad you joined us. It's been an important couple of days here over the course of the weekend. I want to bring you up to date for starters on what is happening in Israel.
Our top story today on the Fastest Show in Politics, as Israel widens the offensive in Gaza, remembering, of course, the truce fell apart last week and they've had a couple of days to plan what everyone's calling the next phase here the IDF expanding operations across Gaza and looking to the south now with the expectation of a ground invasion of southern Gaza imminently as many of the territors, the territories two point two million people being urged to evacuate,
and in many cases it's again which is starting to create a lot of confusion, remembering the first evacuation was to the south, but of course in many cases Hamas followed the civilians there, and the IDF is now following them. They've been dropping leaflets, they've been issuing maps now marking zones that have been broken into more than two thousand blocks, to try to give people a sense of where they
should be going. And it's all coming against the call for restraint here in the US from the administration, from members of Congress as well as the Pentagon. Here we heard from the Secretary of Defense, Lloyd Austin, who is speaking at an event here, the Secretary at a keynote speech the Reagan National Defense Forum in Simi Valley. This is from over the weekend, the sec def Floyd Austin.
Here, that's kind of a fight. The center of gravity is the civilian population, and if you drive them into the arms of the enemy, you replace a technical victory with a strategic defeat. So I have repeatedly made clear to Israel's leaders that protecting Palestinian civilians and Gaza is both a moral responsibility and a strategic imperative.
That's where we start our conversation with Brett Bruin.
I'm glad to say he's with US today, A longtime diplomat now President of the Global Situation Room here in Washington, D C. Brett, What are your thoughts as we appear to be walking into phase two now and it could be one that is even more deadly for civilians living in the Palestinian area here, specifically Gaza.
Well, I think it's important, Joe, to account for what Israel sees as their top priority, and that is to reduce, if not eliminate, Hamas's capability for attacking them. And important to bear in mind that those attacks continue. In fact, they were what broke the ceasefire between Israel and Hamas. So Israel sees this very much through the lens of we have to to protect our population, we have to
protect civilians. And at the same time, you know Secretary Austin's admonishment or advice to Israel, I don't know that it goes very far, because on the one hand, yes, is repeating the obvious, but on the other Israel would look to the US, look to the UK, to others who had operations in Iraq, Afghanistan and contented with many of the same issues. And yet we would not necessarily have taken kindly to the Israelies telling us how we should carry out those attacks.
I really get it.
But to the Secretary's point, it might not really matter what the US has to say here if the math is correct that we've heard from any number of analysts here in.
Congressman Seth Molton mentioned himself, you.
Know, for every member of hamas you kill is not as important as how many civilians you kill and how many terrorists you create.
Bread without question, and you know, having served on a contingency operating base in a rock outside of to create very far in that military operation and how heavy you go into those military operations has a direct link to the support that you enjoy from the local population. And yet, at the same time, and this is where I think it's really important for listeners of sent on, many of whom are policy makers, and work up on the hill,
what is the alternative? What is the solution or the strategy that you're proposing, Because we've seen a number of members of Congress saying, well, they simply should create a coalition of allies and they should establish a two state solution. But it's the question of how you get there. And I haven't heard anyone yet articulate that in a cogent way.
Game.
I do understand that as we spend time with Brett Bruin, I also wonder about our own assets in the region. Here, Brett, it was quite a wild weekend for the US Navy, shooting down three drones during an extended attack in the Red Sea, the Pentagon saying that US forces are considering all appropriate responses to the attacks, a string of attacks on commercial vessels, they say, representing a direct threat to international commerce and maritime security.
Is this not a new front?
It is, without question and perhaps the most clear and present danger that American forces in the region have faced in recent years. And Joe I think it raises a critical question for Congress, which still has to resolve the longer term budget implications, as well as obviously the appointment
of several senior military positions. Why are we handicapping ourselves we engaged in some of these other distractions when the focus ought to be on the safety of our soldiers, our naval forces, which at the moment clearly are facing significant threats.
Significant threats from Iran backed militants. We should be specific about this, and we've seen this come from Houthi rebels in Yemen, for instance, repeatedly, how much more concerned are you about the situation there as we have two carrier strike groups in the region.
Bred about what we might see next.
I think that Iran is taking advantage of this moment to engage and in fact, to accelerate some of its activities. Let's not forget they're obviously still quite frustrated with the fact that they were not able to achieve sanctions relief under the Bided administration. They're cognizant of the fact we're
heading into another presidential as well as congressional cycle. These factors, I fear Joe are going to lead us to seeing more efforts not only within the region, but more broadly from Iran as they're trying to increase the pressure on Washington to provide them with some sort of sanctions relief.
Bredi's great to have you, Global Situation Room, President, a former diplomat with us again here on Bloomberg Sound on a voice we frequently rely on at times like these, trying to feel our way through what the next steps might be.
Here.
US Central Command says those attacks on the US vessel in the Red Sea were quote fully enabled by Iran unquote in response to the Israel Hamas war, and they don't even necessarily think that the warship was targeted. They may have been going after commercial vessels, but that is still, of course not going to be workable. Here as we assemble our panel for their thoughts on an important weekend, Rick Davis and Genie Shanzano join now Bloomberg Politics con Try, Rick,
how concerned are you with is continued attack. We'll get to the situation on the ground in Gaza, but the continued attacks on US warships in that area, in some cases with sophisticated weaponry, well, I think.
That it undermines or underlines a lot of the discussion we've been having about the current concerns you mentioned about opening up multiple fronts, you know, whether it's through Lebanon in the West Bank, or through the Hoodies or directly with others from Syria that are all part of a terror ring supplied by Iran. And the fact that we are leaning in on this attack and saying that the Hoodies were directly coordinating with Iran Is I think raises
the bar quite a bit on us response. Our job, our Navy's job is to keep sea lanes open in that part of the world. So whether they're attacking our ships in a military way or commercial vessels, it makes no difference to the US Navy that they're there to protect both commercial vessels and civilian lives and they're going to do that. And as I understand too, there were a number of drones coming too close to the naval vessels.
Whether they were monitoring, attacking, or what, we don't know, but my understanding is that the Navy responded as if it was a lethal attack, and as well they should. The Hoodies have been known to take on much bigger foes in these kind of hit and run episodes.
They've been trying to board tankers in the area.
They've attacked US ships before, Genie, should we be more focused on what's happening here in the tertiary zone around Israel.
We're talking a lot about.
What's happening on the ground right now in Gaza, But our ships are being attacked, that's right.
And the who Thi's taken public responsibility for these attacks, and the USS Carnee involved it all day Sunday, they say, over seven hour hours addressing these attacks. And you know whether or not the USS corney or the United States was, you know, the focus or the target. The reality is they were under attack and defending, as Rick said, these ship lanes, and so we have no choice and let's
just go back to when this all started. Right after October seventh, the administration said, in addition to getting our American hostages back and doing what we can for civilians and non humanitarian grounds, our number one focus has got to be containment. We cannot get dragged into this any further. So while that happens Sunday, what is Bloomberg reporting today, Vladimir putin coming to Saudia Ragia a very rare trip
for somebody in the midst of a war. So you couple that all together in this issue of containment, very very concerning as it looks like we are getting dragged and pulled potentially into this further, and that is something that is not in the United States interest.
As far as what's happening in Gaza, Rick, should we be asking about another truce? This is the first thing that most folks ask when they talk to administration officials. It's coming up obviously with lawmakers here because it appears that everybody's gone home negotiators have left the table, they've left cutter, or we beyond the point of a truce or a pause being rebuilt to get the rest of these hostages out.
I don't think so.
I mean it required pretty significant hostilities, the Israeli army moving into Gaza in order to facilitate the first discussion of a hostage release, and maybe that's what it'll take this time too. I would say that all the discussion
this weekend about civilian casualties. Of course there should be a moral imperative to say civilian lives, but these are also civilians who have fostered a relationship with with Hamas, who have been trained since they we're in school as young children to hate and want to kill Israel and to hate the United States. So it's not like we're in a benign environment where these people are victims of Hamas.
They have been supporting Hamas as long as Hamas has been their government, and it's just a very unusual situation where a terrorist organization is running a country.
It is a pretty remarkable genie, and we haven't figured out the funding situation here. We'll get into this a little bit more coming up later in the hour.
Here.
But if Congress can't get out of its own way to figure out a funding package for Israel, will this conversation move on to something else? Does Tel Aviv actually need the money that we've been talking about here? I'm trying to get a sense of the urgency because the White House says time is running out in Ukraine. I don't hear that claim about Israel.
We don't hear it. But it is critically important that the United States Congress step up and not step on its own foot as you were talking about, and get this funding done. You know, it may not be as
critical right this moment. They will be able to proceed without it, but it is important that we give the funding and we do it, but it's got to be done properly, and that means the United States policy has got to be clear, and that is you know what you hear so much feedback on in New York just over the weekend, more and more demonstrations and people need
to be heard on this. The administration has to be clear before that funding goes out as to what we expect, and that means the funding has to be given in line with our priorities and policies. There can't be a blank check with there never should be when it comes to giving public money to another country.
Sure, as we're reminded, that is typically the case when we're giving funding to a country like Israel or Ukraine, and we're going to talk ahead about exactly what the path might be here, not just strings attached, but what a border deal could happen. I guess those might be considered strings and if Israel and Ukraine can move at once, because we've got a new message from the White House. The Budget Director has sent a letter up to the Hill saying Ukraine is out of time and if it's
not handled now, we'll be out of money. We'll talk about that next with Rick Davis and Jeanie Shanzano on the Monday edition of Sound On.
I'm Joe Matthew. This is Bloomberg.
You're listening to the Bloomberg Sound on podcast. Catch the program live weekdays at one Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa play Bloomberg eleven thirty.
The Budget Director at the White House has sent a letter up to Capitol Hill about Ukraine, and it's not great. Shilanda Young writes, without congressional action, by the end of the year, we will run out of rec sources to procure more weapons and equipment for Ukraine. The very simple line quote, we are out of money to support Ukraine, and she points in this letter interestingly to specific defense systems that are being made in key states. Hello Republicans, Alabama, Georgia, Texas.
That's where a lot of this money would go, of course, to American defense contractors. But if it all hinges on a deal surrounding the border. We didn't have a good weekend. Talks apparently fell apart on Friday, and we just crossed a headline on the terminal here sent a GOP moving in wrong direction on border. So let's reassemble the panel for their take. Rick Davis and Genie Shanzano joint of course Bloomberg Politics contributors. Shilanda Young, the budget director. Genie
is pretty serious in this note. She says there is no magical pot of funding available to meet this moment. We are out of money and nearly out of time. Will it have an impact?
On the debate, it should and I think it will. And she makes a critically important point about where this money is coming from and going to rather, and it's a point that the President has been trying to stress. He tried to stress it in his oval or in his Oval Office address. The administration has been trying to make it. I'm glad Sholan Dejung is making it now
because it is critically important. This money is not just going out of the United States to another country with no positive impact on the United States beyond the issue of autocracy, which is critical enough and defending democracy, it also is a boon to our economy. So they're trying to make that important, important argument. And of course now they are facing in the House a speaker who has twice voted against funding but as now publicly said he
will support it provided we get something on border. So you know, the message has reached somebody who has been on the fence on this in the past, and they know that. But they're trying to reach over even the heads of the leaders, to the representatives from the Red States and make this case and also obviously to people living in the Red States who depend on these jobs
in the defense industry and others. It's a really important argument for them to be making vociferously at this point because time is running out.
As they say, we'll get into the border potential at least for a border deal here in just a second, Rick, But I wonder your thoughts on the message. There's another line that jumps out here. By the end of the year, we will run out of resources to procure more weapons and equipment for Ukraine and to provide equipment from US military stocks.
So we now know we've drawn down.
Our supplies as far as we can here. There does seem to be more information here than we've heard recently. Basically, by the end of the year, we are out will that motivates skeptical Republicans.
You know, look, I mean, it helps put pressure on skeptical Republicans. It helps also support Ukraine itself in the sense that you know, we're trying to get this through before the end of the year, and it sends a message to the Europeans that you know, if in fact you can't count on us, you need to be prepared to fill the vacuum. Europe's done a good job of supporting Ukraine. There are issues with Ukraine funding in Europe,
just like there are here. And I think the White House is doing the right thing by putting everybody on notice that the war's going to continue whether or not we get this package passed before the end of the year. I'm hopeful that Langford center Langford is right. On a Sunday show, he said he could get it done before the end of the year, and that would make I think a big impact.
Here is Senator James Langford.
As Rick mentioned his take on talks, He's been at the center of these negotiations.
A reason that this hasn't been done in decades because it's hard, it's very technical work, and there's a lot of challenges that are in it, and anytime you deal with border security, there are a lot of complicating features in this.
So we're going through very, very detailed work.
Speaking on ABC this week, Genie, it's his job, I guess, to sound optimistic here as one of the lead negotiators.
Are you you know he did. I was stunned by how optimistic he sounded, pleasantly surprised, and of course then we hear democrats walked away. The reality is, you know, obviously as usual in the Senate, as hard as this is, you can imagine them coming to an agreement, But it is this push in my mind from the House for Hr Two that is going to make this a non starter in the Senate. And I think that's where we
have to see movement. You know, things always look worse before they get better in Congress, so hopefully that's the case here. But to Langford's point and the history, we know, we have been talking about Congress moving forward on immigration for decades to no avail. If they can do this with on the books eight days left in the House session before they end in December, I will be stunned and happy beyond. But I am not as optimistic as Langford, and I do hope I'm wrong, But how do you
do this? And if they don't do it now, how they do it in an election year? You know, it's almost unthinkable in my mind.
We're spending time with Rick and Jeanie on Bloomberg Sound On It's the Monday edition, and we're glad you're with us here on the radio, on the satellite, or on YouTube. Of course, the Republican majority in the House, Rick is dealing with a slightly smaller majority here, and I have to ask you both about George Santos's exit last week, because one of the first things he did was retweet a video from this program from sound On, and I want to bring you back to the interview we had.
I guess it was Thursday, the day he was expelled, with Nicole Malia Takis, his colleague from New York who called for his removal. Here she is just to jog the memory the Republican from New York.
We have to take action and remove him now. He will have his day in court as it relates to the criminal charges, but in terms of being able to continue his service in Congress, we believe we have seen enough and that he does not merit to continue serving in this body, and his constituents do deserve better.
Well. Lo and behold.
That was posted to Twitter, and George Santos reposted it with quite the message. He writes, let's talk about hypocrisy. Can someone ask to call Molly as stock tips? When did she become a savant in stock trading? He goes on to accuse her of insider trading and more. It gets very personal to the extent that I wouldn't be comfortable reading this on the air and he hasn't stopped there.
He's in a back and forth now with Representative Brandon Williams, who he refers to as drunken Brandon Williams and refers to assault charges.
Here on Twitter.
I'm not even sure what to ask what you think about this, Rick, But you've got an arsonist here. It looks like who's going to try to out lawmakers as long as he can. Could this be a problem for the Republican conference?
I love that phrase, he's a political arsonist and so yeah, I mean, will he be a problem for Republican lawmakers? No, they've turned the page. No one's going to pay any attention to this guy. Is he full of fabrications, lies, and innuendo. Absolutely, That's how he got into this trouble. So I don't think anybody's going to take seriously much
of what he says. And frankly, I suspect he probably has to turn his attention to his legal problems, you know, which is the only thing you know that keeps him from right now wearing an orange jumpsuit for the rest of his life. So we'll see how it all ends with the fabulous. But no, I don't think anybody on Capitol Hill is spending ten minutes on this one today.
Well, Genie, I'm just glad to know he's watching you and Rick on YouTube here, and I guess he's got a lot of time to do that now to the former congressman, we're on one to three every day. The media might care though, if you keep lobbing Molotov cocktails like this, they're going.
To follow up on some of them.
Genie, Well, that could be uncomfortable for a few members of Congress, couldn't it.
Absolutely, And that's what he promised when he was leaving. And I urge everybody to go back and listen to what Nicole Maliatak has told you. She had a lot of courage to say it. She is absolutely right. We know why he is lobbing these absolutely unsubstantiated claims against her. I only wish her own leadership had the fortitude and the strength to vote with her to throw him out,
because that's absolutely the right decision in this case. Although I should say now that he's out here right, he has more time to listen to and watch sound on so there's always a benefit here, you know.
I guess that's good for anybody. Rick Davis We'll keep you posted on where this goes. But is one less seat rick an actual game changer for Speaker Johnson when it's already that tight, does it matter?
You know, Look, if he's going to try and pass legislation on party line votes, sure that really makes it tough. We'll see that coming up. If he decides to go forward with impeachment against the President and the Secretary of Homeland Security, that can be a party line vote where only a couple of members could scuttle the efforts that he have to put that on the agenda. So sure it doesn't help in one single bit.
You're listening to the Bloomberg Sound on podcast catch us live weekdays at one Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listening on demand wherever you get your podcasts, and.
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We welcome you to the Monday edition with a very direct message coming from the White House today on funding for Ukraine. We're going to talk to Jack Fitzpatrick about this. As budget Director Salanda Young sends a letter under knowing certain terms here it reads, we are out of money
to Ukraine. You can't get much more direct than that without congressional action, She writes, by the end of the year will be out of resources to brook here more weapons and equipment for Ukraine, and to provide equipment from US military stocks, which we've been doing for both Ukraine and Israel. Let's bring Jack Fitzpatrick into the conversation from Bloomberg Government, He joins, sort of at this time every week,
It's nice to see you, Happy Monday. We've got a lot of things I want to talk to you about the border situation as well, but of course it all.
Ties into Ukraine. Who's that letter for?
That is for Congress.
That is a legislative deadline to the speaker, though, who's the audience? Yeah, to the speaker, to anybody who could be pressured, and it maybe effectively it's more to senators because they are taking the lead in negotiations, but they have to go back and forth between Senate Republicans and House Republicans. Our colleagues who have covered this very closely, have heard from people close to the situation that since last week when Speaker Johnson spoke to Senate Republicans, things
have not moved in the right direction. And so it's a combination of Senate Republicans, the Speaker to Congress because they didn't have a deadline yet. And I don't say that to undermine you know, I'm not pushing back that it's an actual deadline, but in terms of legislation, Congress needs an end date, and they didn't have one until now. They're being told by the White House if this doesn't happen by the it's not happened, I.
Fill in the blank. Seems like they could have done that earlier. But we've been asking a lot of folks, even on this program. There is no magical pot of funding. She your rights available to meet this moment. We're out of money and nearly out of time. But if that hinges on a deal over the border and it's tied somehow to funding for Israel. To your point, Ukraine's timeline is not Congress's timeline here, right.
I mean, this letter from the White House seeks to align them and say, Congress, you need to get something done in time to actually be useful to Ukraine. Now, it's important to keep in mind that if this really melts down and it does not seem to be going very well, right now, these negotiations and the border talks include everything because the Ukraine hinges on the border talks. Currently leadership is planning to tie Israel funding into that. If the border talks don't strike a deal, there will
have to be conversations about what alternatives are there. Does Israel move alone? Is there any way to help Ukraine in a more scaled back way other than the request from the White House. We haven't gotten to those alternate paths, so right now they are just saying the pressure's on for all of this, which hinges on a border deal to happen in the next few weeks.
James Langford was on the Sunday Shows ABC this week. He was asked about it sounded we talked about this with Rick and Genie a while ago, surprisingly optimistic considering what everyone's hearing, the headlines that are even crossing the terminal today. Granted this is twenty four hours ago. Here's what he said.
There's a reason that this hasn't been done in decades because it's hard, it's very technical work, and there's a lot of challenges that are in it, and anytime you deal with border security there are a lot of complicating features in this So we're going through very, very detailed work and.
It wasn't just border security where we're talking about Jack. We're talking about, you know, actually changing asylum law along with some other very controversial proposals. Is it changing form as we're going here, or have they walked away from the table.
Well, there's a lot that is still moving. The core issue that they're not just discussing funds for border security measure per se has not changed. And that's the major challenge is if you get into asylum policy and then a disagreement over that has led to what about parole opportunities? And is parole used to undermine any of these changes? It's very complex.
Role was a big sticking point.
This is much more complex and difficult then you know, if you remember the shutdown over border wall funding, that was a fight over how much money. This is way more complex than aure and that fundamentally has not changed. That's been the big issue here.
And we have how many legislative days to figure this out? I mean, is his optimism shared by the leadership that this is done by the end.
Of the year.
Langford seems a lot more optimistic than other people, and that played out even on Twitter or x. Today he posted again that talks are continuing. If you compare and contrast that post to Mike Johnson's post about the White House not making significant concessions, Langford is the optimistic one. They're supposed to be in session until December fifteenth. Congress has a way of pushing that back and missing one mini deadline and making another deadline. So you know, the
end of the calendar year is the real deadline. Before Christmas, I guess is functionally the deadline.
When do we start talking about another cr.
While they fund the government. Yes, they have the supplemental They have until January nineteenth for four bills, February second for eight bills. They they are not making a lot of progress on funding the government. They need to agree to top line levels, at least the basics of how much they're going to spend for each of the twelve bills between the House and Senate. I've asked a number
of times. They have not made progress on that. The more emergency issue is still Ukraine funding, because if the deadline effectively is the end of the year, that's a lot way before January nineteenth. If not for that, they could have tied them together. But apparently that's not the case.
Boy.
Okay, cr call Kevin McCarthy, right, see how that's going to go. Great to talk to you, Jack. Good luck this week. I know everyone's flying back into town. Jack Fitzpatrick. Of course, I have Bloomberg Government with us here on Bloomberg Sound on, and I want to pull you back now as we cast our eyes to the other end of Pennsylvania Avenue, the White House and the talk of
recession that hasn't materialized yet. Remember Bloomberg Economics said one hundred percent chance we go into a recession this year. The anniversary of that call, I believe, just passed, and so now they you know, it's easy to say, hey, well what never happened, guys, unless it started already. We're going to bring in Tom Orley from Bloomberg Economics to talk about this in a moment.
Remember, let's go back through time.
Here.
Here's Joe Biden in June. This is the twentieth.
Every month is going to be a recession. Next Monthenxus, there's two.
Thirds of the economists and the major leaders in the bags think we're not.
Going to have a recession.
Okay, let's fast forward a month. This is mid July now and the Treasury Secretary Janet Yellen, talking about this call, the constant questions about the recession.
Growth is slowed, but our labor market continues to be quite strong. I don't expect a recession. I think that we're on a good path to bringing inflation down. The most recent inflation data, we're quite encouraging that we're making progress on getting inflation down. But as I'd hoped and expected, that would occur in the context of a strong labor market, and we continue to see that.
Yeah, Goldilock's economy right, steady, sustainable growth, as we've discussed with members of the administration and with the economists who support that view. But then I read the writings of Anna Wong this morning at Bloomberg Economics. We have long argued a recession will begin toward the end of this year, and the reason data corroborate that view. So are we in when already? Is the question for Tom Orlick, who joins us at the table now from Bloomberg Economics.
Tom, it's great to see you.
You've put a lot of time into this research and you're feeling pretty good about your call. Did a recession begin in October.
So I think it's important to stay take a step back on this, Joe, you can pull the in off the ledge. Let's not forget that it wasn't so long ago that the United States was suffering from ten percent close to ten percent inflation. Now, how does the Federal Reserve deal with inflation? Well, it deals with inflation by squeezing.
Demand in the economy.
And when you squeeze demand in the economy, what happens You raise unemployment and the economy goes into a recession. So our expectation, our forecast, the call, long standing call from Anna and her team, which you mentioned, is for the US to go into a mild recession starting around now and stretching into the first part of next year. Now, if that's what happens, that would be an extraordinarily lucky
escape for the US economy. If you told economists back when inflation was pushing towards double digits, you can get out of this with just the mildest of downturns. I think pretty much anyone, including Janet Yellen, probably would have taken that offer. That's our expectation, and when we look at the unemployment data, which has already edged up from its trough of I think three point five percent up
to three point nine percent. What we're seeing is labor market signals which are pretty firmly aligning with that view.
Last time we had two months of contraction, we were told that it was not a recession. I think a lot of people actually learned a lot about economics over the course of those weeks. Many were politically motivated to say that that's crazy, but most economists agreed that the stars did not align to show a recession, even with the contraction that we saw. How would you qualify it then give us an advanced view of what that would look like.
So I think that the layman's understanding of a recession is its two sequential quarters.
Solves forgiving contraction in the economy.
Right, So two negative GDP prints in a row. Frankly, that's not a bad definition of a recession, but it's not the definition which the US follows. The US has a group of sort of very very senior econom missed at the NBER, and their job is to look at a bunch of different data. How much spending is going on, how much investment is going on, what's happening in labor markets and make a judgment about whether the US economy is in recession or not posthumously exactly. They don't do
it in real time. Now, that brings us to the question of these recession rules, right, Probably the most famous of them the Psalm rule, named for Claudia sam formerly a FED economist now I think one of the contributors to Bloomberg opinion. And what Claudiusalm noticed is well, if there's an increase in unemployment from its trough by about zero point five percentage points, then almost always that's a signal that the US economy isn't about to go into
a recession, it's already in a recession. Where are we now, Well, the unemployment rate hasn't quite increased zero point five percentage points, but it's already increased zero point four percentage points, and we expect it to make up that remaining distance in the payrolls print this Friday.
It's interesting that we talk about soft landing. Nobody's really qualified what that would look like either. Is it possible that a mild recession you're describing is a bit of a soft landing.
So it's interesting, Joe, I mean if you follow the kind of macroeconomic debate on Twitter, it's kind of knives out right, and the soft landing optimists have got their knives out, the hard landing pessimists have got their knives out.
But if you look at what actually the soft landing optimists and the hard landing pessimists are forecasting, there's not a vast gulf between them, right, The soft landing optimists would concede that the economy is going to slow and the unemployment, which has already drifted up a bit, will probably drift up a little bit higher. The hard landing pessimists, and that's the camp we're in, say, yeah, it's going to slow and there's going to be a mild contraction.
And guess what.
Employment isn't going to drift up to four point twenty four point three, it's going to drift up all the way to five percent.
Okay, So maybe there's not that much difference between the two, is what you're suggesting. So there's a fine line between a horror and a soft landing the way you're describing them.
Yeah, I think if we let's imagine we were in a world where let's imagine we were in a world where the economy was growing at a steady two percent pace and there was a zero point five percent variation from one quarter to the next. Right, I think most people, most people in the markets, would not regard that as
an incredibly consequential move. It's the fact of where we are in the cycle, right, It's where we are in the cycle as the fared approaches the end of its tightening, as unemployment starts to drift up, which means that that margin of difference between the optimists and the pessimists right now also happens to be the margin of difference between a soft landing at a mild recess.
Credible.
You know, this is good news for Joe Biden. It might sound contrarian, but that means the recession's done before the campaign gets real the general election in the middle of next year.
So I think folks who think deeply about the relationship between politics and the economy and the elections, what they tend to say is that views on the economy get baked in about.
Six months before the vote.
There you go, right, So, from Biden's perspective, what's happening right now is important, yes, But what is going to be really important is what's happening in May, June, July next year. Now, if our call plays out, what could be happening is the beginning.
Of a recovery?
Yes, and that's something. Don't be a stranger, Tom Orloker. We always love talking to Tom from Bloomberg Economics.
The call us out.
What do you think we're in a recession right now? Ask your neighbor. You might be surprised by the answer. I'm Joe, Matthew and Washington. This is sound On.
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