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Welcome to the Tuesday edition of Ballance of Power. I'm Joe Matthew live in Washington, where it's all about CPI Day today. Everyone up early, including Molly Smith, to put pen to paper or I guess type away on the numbers here. We're going to dive into this with Molly in a second. With the headline not what the administration wants to see. Remember the hotter than expected jobs report
on Friday. Well, now US core inflation is topping forecasts again and this has, of course implications for the Federal Reserve. Not to mention the outcome of this presidential election. Top line and core inflation up four tenths from January. Molly Smith set the alarm extra early today as Bloomberg Economics editor to crank this out.
At eight thirty.
That's got to be a little bit of heartburn, right, I mean, when the big ones hit like this the job's day, the CPI day, everybody is watching.
It certainly wakes you up at that hour, for sure, Joe, and I gotta say, like, just hearing Charlie run through the market trading right now, I'm just baffled at like why stocks are up as much as they are. I would love to hear what good news investors saw on this, because I really didn't see it from my seat.
Okay, so let's get into it.
Because you know, on Friday we were talking about the push pull of the jobs report, and you know, you can find a good story to tell if you look at it the right way. In this case, shelters up, Gasolina's up, cars up, clothing, airfares.
Have you tried to book a flight lately? This is what people are talking about at home.
Yeah, exactly.
So, like you just said, this was just a lot of you know, pretty robust reading across the board. I mean, I guess if you really wanted to slice and dice it, the positive here, so to speak, was that there was a bit of a pullback in this really narrow category of services inflation that the FED looks at very closely.
If you've heard people describe core services x housing. So this is what this one pulled back a bit from like a very strong January reading, but really went more from like rising very sharply to still rising pretty quickly. So I wouldn't say it was exactly a slam dunk in terms of people looking for positive news to take away. Maybe that shelter inflation also did come down a bit, but shelter combined with gasoline, contributed to over sixty percent of the rise in the overall CPI in the month.
So these are things that people pay.
For every day. So if you're the average American consumer right now, it certainly doesn't make you feel good to know that your housing costs and gasoline are still very much rising.
Yeah.
Right, Is there hope at least in the bullets behind energy prices? I mean, obviously gasoline has seasonal factors here, or maybe you see some relief in the next couple of months or is that wishful thinking.
It's certainly possible. I mean, this was the first rise in the whole energy category that we saw in five months, so you know, lately that had been a driver more of disinflation on the overall headline. But as you said, these things are seasonal you know, patterns can change, and also when you see airfares so high, more people might want to drive, and then that could drive up the you know, demand for gasoline and therefore the price of that as well.
No, and the cycle continues. What can you tell us about airfares? The biggest monthly advance? Did I read that right?
Yes, the biggest monthly advanced since May of twenty two, so that one really came up quite a bit in the month. And it's interesting because we saw a report earlier today from Southwest saying that they're going to have to reduce capacity given all of the struggles that they're
having with fewer Boeing deliveries. As you know, we certainly know about that story and how that's been playing out, but I think that's something you could I think Ryan Air may have also warned of something similar to capacity constraints, so that's of course also just going to push up prices more so. So I'm not sure if that was a factor in the February reading, but certainly could be in the months ahead.
Have you flown since the door blowout, Molly.
I flew in last month. I did fly, So maybe I'm contributing to the problem, but I think about it as well in advance, and they were it was like a two hundred dollars round trip fair to Atlanta, So I think that's pretty good.
Pretty good. Might be twice that by now? Did you try to sit you know, see people getting on the plane. They're trying to figure out where the door plug is, even if there is one on the plane, and then they buckle up before being told. That's a fascinating element of this for me.
I don't know about you.
Yeah, I mean, look, I would do it too if I was nervous that a part of the plane was going to blow out when I was, you know, thirty thousand feet of the air, So any precaution necessary.
All right, So we've got PPA by tomorrow. Does this take on new meaning because I have to ask you about the FED here, of course, Molly Smith. Everybody says that this means we're not going to see anything o June.
At the earliest.
Yeah, it looks like that's where most of the bets are circling around. So we're getting PPI on Thursday. I believe in that one's going to be like the last major inflation report that we get before the Fed's meeting next week. Obviously, don't think really anyone right now is expecting a rate cut at that meeting, so that's very much penciled in to be a fifth straight hold on interest rates. So the PPI is important. This is prices paid to U as producer, so it's a measure of
wholesale inflation. And this is really more important when you're talking to economic forecasters because there are categories within the PPI that filter into what's known as the PCE, and
that's the Fed's preferred inflation measure. There were some of those parts in the inflation report today as well, So a lot of economists say once the PPI numbers come out, that's when they start to firm up their estimates for PCE, which by the way, is running much lower than the CPI does, in part because it doesn't wait shelter as heavily, so that one is trending a lot closer to the feds two percent target, and that's really more the one that drives policy in their opinion.
Fascinating. She's the smartest person in the room, which.
Is why we try to talk around times like this when the data are so important.
Molly Smith it's great to see Molly. Thank you.
We'll connect on the next major data point. I am sure, Bloomberg Economics editor, we bring you to the source. I hope you get to sleep at some point.
Molly.
You know it's primary day because every time we talk about this economics stuff, we have to do it against the backdrop of politics, and if you're Joe Biden, this is topic number one, right unless, of course, I'm told that the poll says the border is more important than
the economy. But we're coming pretty close here, certainly, as we head around the rest of the country with primary elections, and today we've got some big ones, none bigger or more influential, are potentially more revealing than the one in Georgia. As I read in the AJAC the Atlanta Journal Constitution, Georgia primary could set a presidential rematch, but there is
more to it than that. As we try to read Tea leaves here, results could give both of these men, Joe Biden and Donald Trump, insight into the depths of their voter support. And that's where we start our conversation with Andre Gillespie back with us to talk about Georgia politics, and by that I guess I mean national politics, because it's pretty hard to separate the two. Associate Professor of Political Science at Emory University, it's great to see you.
What will we learn tonight from Georgia that we can apply to the rest of the nation.
Well, today is a day for both the Democratic and the Republican parties to practice there get out the vote efforts and their mobilization strategies.
We know already who's going.
To win these primaries, and we know that at some point tonight, whether it's in Georgia or Mississippi, Donald Trump is the thrush across the delegate threshold to be able to secure the Republican nomination. That's likely to happen for President Biden sometime next week, perhaps Florida or Ohio. But since we know that they have no competition anymore, or nominal competition at best on the Democratic side, I think what we're going to be paying attention to is who
bothers to show up. It's important in Georgia to keep in mind that people have been voting for weeks already in early voting. But if we see robust turnout on both sides, I think that that is a harbringer of how competitive.
The race is going to be in Georgia, and.
This election is really going to come down to which campaign gets their people out to vote. This isn't about persuasion, it is about mobilization.
You mentioned the early vote.
I wonder to what extent that might influence the outcome with folks voting when Nicki Haley was still in the race. Could that bring some noise to these numbers, not to Donald Trump's benefit.
Well, so Georgia has a hybrid system where delegates are allocated. The winner gets a certain number of delegates, and then delegates are also allocated via congressional district. You know, it is possible that Haley could win a district, but as we saw on Super Tuesday last week, even in places where you would expect Republicans to be more moderate, Donald Trump actually did really well in those types of counties.
So I think it really does become a question of whether or not Nikki Haley could still win some delegates in say the fifth congressional district, you know, or maybe one of the more Democratic leaning districts. Who's to say either way, between Georgia or Mississippi, And it's probably more likely to be Mississippi. Donald Trump is going to have enough delegates to be the presumptive Republican nominee.
Well, that's interesting.
You mentioned turnout, and I wonder what the level of interest is in Georgia when you go to ground, what are people talking about, how are the ads playing, et cetera.
So you know, it's still pretty early.
The Biden campaign in particular has just done an ad by and so we're gonna see what the fruit of that look like in the coming weeks. I think it's just really important and symbolic to note that both Donald Trump and Joe Biden were in Georgia on Saturday, and so I look at that as an unofficial kickoff of the twenty twenty four general election cycle.
The fact that they were.
Here having competing rallies before a primary election, but during the week where it became very very clear that these were likely going to be the presumptive nominees, I think is symbolically really important. Georgia is a state that Democrats cannot lose if they want to continue to hold the White House, and it is a state that Republicans wouldn't
want to lose because it's a psychological blow. So it's going to be important until the polls showed that one of these candidates has a definitive and consistent lead.
I'm spending time with Andre Gillespie of Emory University here on balance of power. Andre, you were with us back in December of twenty two when we came to Atlanta
for the special Senate election. Of course, Raphael Warnock beat herschel Walker, and there was a conversation in the air as we spoke to officials like Secretary of Raffensburger, even the way your governor was talking at the time of a conservative Republican not in the MAGA camp, and there was a question about exactly what a Georgia Republican might look like. This is a different world. It seems like we're in now, isn't it.
Well, I mean, it is a slightly different circumstance.
So Brian Kemp and Brad Raffensberger are not MAGA Republicans, but they're Republicans and loyal ones at that. You know, it is highly unlikely that they're going to endorse Joe Biden, or vote for Joe Biden, or even abstain from voting in the presidential election. Because of the tension that they
have had with the Trump campaign. So they, you know, may not be walking arm in arm and campaigning in lockstep with Donald Trump, but it's highly unusual to expect for them to, you know, not ultimately be supportive of former President Trump of the Republican nominee.
Sure, I do hear you, But my god, if you went back to that day when we spoke about the Senate race, could you have imagined, projecting a year out that Donald Trump would be the commanding favorite in the Republican primary in Georgia.
It's not surprising. Primary elections tend to turn out your most politically active and your most ideologically extreme voters, and so there is a tendency in primary elections for the extremes to actually really be the discuss the deciding vote in terms of who the nominee is going to be. And so in this case, Donald Trump still enjoys high levels of support among the base, and so the base is turning out in strong numbers to ratify their choice
for a candidate. It doesn't negate Brian Kemp's operation in the state, his history with voters in the state, or his incumbency advantage in twenty twenty two, and so you can do both at the same time. And so Republicans can still support somebody who they've known for years who has a strong operation in the state, while at the same time supporting this new wave of a Republican candidate like Donald Trump and his allies.
Well, so under could Joe Biden win Georgia again today? Would he be able to pull this off again? And what will you be looking for tonight to help answer that question?
So, I mean it is a bit of an apples to kind of pairs or oranges comparison. But you know, if there is very lackluster turnout in the Democratic primary, that probably isn't a good warning sign. And so the Biden campaign would have to make sure that they are redoubling their efforts to set up field offices across the state and sending people out to do the hard work of talking to voters on their doorsteps and on their phones to make sure that they actually do turn out
to vote in an election. There's still a numerical disadvantage for Democrats in the state. What Democrats have been able to demonstrate in the last few election cycles, though, is that if they're running against a very problematic Republican candidate.
They may be able to make the case to get more Democrats to turn out to vote, but Democrats are going to have to find every possible Democratic voter and make sure that they actually show up to vote in November, otherwise they probably will lose the race.
Have you heard talk of irregularities, security concerns, anything that the secretary has been trying to avoid.
No, I haven't heard anything.
I don't expect that they're going to be those types of allegations made tonight. You know, it could be in part because Donald Trump is expected to coast to victory in the state, but it's you know, it's important for us to keep in mind that Brad Rathvensberger brings an engineer's eye to running elections, and so he has done everything humanly possible to make sure that there are no errors in the contest and that the vote is counted accurately and fairly.
And I think voters should have confidence in that.
Well, I'm glad you could come talk to us today. I don't know if the apples to pairs comparison. Maybe I get to be in the class, but I'm trying andrig Gillespie It's great to see you. Happy Primary day in Georgia. Come back and see us again.
You're listening to the Bloomberg Balance of Power podcast. Can just live weekdays at noon Eastern on Applecarplay and then roud Oto with 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.
We are broadcasting to you live from Washington, where, of course, inflation data is not just something that Marcus pay attention to. It's something the White House pays attention to as well. Joe President Biden having to put out a statement in reaction to this slightly hot CPI we got today saying, as he said in the State of the Union, we have more to do to lower costs and give the middle class a fair shot.
That's right, and by that I mean another four years to finish the job.
And that has been the refrain from the White House.
Maybe we hear more of that if we start to see a reacceleration here, I guess it's more of a plateau. But it makes us realize that this does not or it reminds us that this does not move in a straight line, and we wanted to talk to Annawong about that, who joined from here in Washington, Bloomberg Economics, chief US economist. We're going all the way to the top here. Anna, thank you for joining us. How would you characterize this?
Is it a plateau at four tenths or is there something else going on here?
I think it is a sigh of relief, and that's the reason why the market was rallying and response on the day of today's CPI release as opposed to January, even though the core CPI in January and February are the same at zero point four percent. And the reason why is because everyone today was watching how the owner's equivalence rent inflation is doing. In January, that OEUR category jumped and it's supposed to be a stickier form of inflation,
so everybody was worried. But in today's report we saw that it came back on track for disinflation in the rest of the year, So that was what caused a sigh of relief. And Powell also thinks that rent housing rents will be coming down, will be the key driver of disinflation this year. So I guess for everybody who's you know, driving the market rally today. It is due to that relief that one powerful force of disinflation is still on track.
And yet Anna, we're still not at two percent. You mentioned Fed Shair Jerome Powell. How is the FED likely to look at today's data? Does it provide them any real evidence that they need to cut rates anytime soon that they should?
Yeah?
So you know.
Also another factor contributing to the high reading today and January is this thing called residual seasonality. Generally, businesses like to mark up prices in January and February. So I think Powell already know this because we heard from him in his testimony last week that he said he didn't need to see better inflation print. In fact, he even said it could be a little little bit worse, because I think he expected that the seasonal factors will lead
to higher January and February reading. And according to our projection, so even if inflation continue at this path, and we are still likely going to see the twelve month change in core PCEE getting down to two point five percent or below by middle of.
The year, Gasoline and shelter contributing to over sixty percent here and of the overall monthly advance, one of those in terms of energy gas prices could be quite volatile. We could actually see some movement there. Is it possible that that's the key to a lower reading next month?
Well, yeah, you're right, Joe. Gasoline is very volatile. We just had two months of negative reading, so it could be that next month could be up or down. But the most importantly, the FED is going to look through gasoline and we rather the Fed will be focusing on inflation expectations one year ahead. And from New York Fed's data yesterday, we saw that inflation expectations is actually coming down. So that's what matters for the Fed.
All right, Annawong, Chief US economists for US at Bloomberg Economics, thank you so much as always for joining us, especially on CPI Day. But of course it isn't just CPI Day here in Washington. It is also Robert her testimony Day. As Joe and I were talking about, today is the day in which he is appearing before the Judiciary Committee along with other guests like the Oversight Committee Chairman Jim Comer, who came to ask questions. And it's really showing a
bit of partisanship. Joe I would say on how exactly the Special Council's report related to President Biden is going down, depending on what side.
Of the eye.
I love that Jim Comer came in so like it was like a little like a jazz improv session there with the chairman from the Oversight Committee.
This is interesting.
Robert Hurts playing defenseyeh today and I neither side seems to like what he's saying because he doesn't seem to be fulfilling the roles that they were hoping he would today.
Is that fair well?
On the one hand, Democrats don't like what he said in the report about the presidents and his poor memory is Robert Hurr described it. On the other hand, Republicans don't like that Robert Hurr made the decision not to charge President Biden for wilfully retaining documents when we've seen Donald Trump charge in some case in Florida with many counts of wilful retention of classified national security information. So that's what you're really seeing play out in the room.
Today, That's right.
I think Republicans wanted him to talk about this mister Magoo that he met, though he's not doing that. Democrats don't want to completely blow away his credibility because he also decided not to charge Joe Biden. Yes, and sees these two cases, the Biden and Trump cases, is being very different.
Well, let's get another voice into this conversation. Joining us here in our studio in Washington is former Republican congressman from Virginia, Denver. Reglmans. Are always great to see you, especially to see you in studio with us table on Bloomberg TV at the table and radio at the table. Indeed, of course you're not in the room with everybody else today. But is anyone getting what they want out of this testimony? If it's what's the point of it?
I think the point is to make sure that they get YouTube videos that they can actually show back in their districts.
Okay, So like any other here, Yeah.
It's like shockingly partisan, right, so you know, and so that's what you know, that's what my consultants would tell me to do, or my chief right just like Okay, Denver, who cares what the world is saying. You're talking to your district right now. So what you're saying, like when comer comes in, it's the same thing, you know, it's a it's click type of politics. It's click politics right now.
And why I mean, it's really hard to split hairs and then try to make the Democrats and Republicans happy. And you know, somebody who actually read the Mole report, I know that's nuts, but somebody who actually did it, I need to read the whole her report. But when you try to actually split the middle, or you want to, you want to create a narrative on somebody's age or memory at that level, and then not charge at the same time, I really don't know what they were trying
to do. And then it's the law. It's either illegal or not. Maybe just talk about intent. But it's not surprising to me that it's shockingly partisan today.
His line, I needed to show my work Denver the question, of course, why would you go there? Why would you even characterize his memory or his physical ability?
You're not a doctor. Did he make the case for why?
No? I don't think so. And I think that's the thing that surprised me a little bit almost. You know, it would be like me, you know, doing investigation. I have this new AI company I have now, right, and it's like me doing investigation. We get to that final point, and I said, well, we would actually go after this person, but you know what, actually they meant to steal a Snickers bar, not a zero bar from what we can
see and what we talked about. But on the other hand, so since he stole the wrong thing and he's not really very good at things, we're just not going to charge him. It just doesn't make any sense to me. It's you know, and I did something wrong, you didn't, or you didn't. And that's the same thing with the
Mole report. Either you did something wrong, you didn't. And I think when they're trying to split the baby and it's just politicized right now, I think it's really a detriment to the American people, and I think it's actually a bit of an insult.
Well, of course, doing the business of the American people is what Congress was elected to do. They are literally representatives of each of their districts. So when we think about the business they're doing hearings like this, they are potentially going to be voting on a TikTok bill tomorrow that would see it banned if Byite Dance doesn't divest it.
And then on the twenty second they're going to try to fund the rest of the government, the harder parts of the government to fund, including homeland security, the Defense Department. Is there work working. Are you confident that they're going to be able to do those next six appropriations bills when they're also doing things like we're seeing today.
You know, the short answer is no, not very confident. And you know, for instance, when I know some of these representatives actually trying to I would say, ferret through the TikTok technology or what it actually means to actually ban TikTok, or looking at other types of things, I don't know if they're behind the door actually talking about what other type of operations look with that type of technology. When you talk about information operations or radicalization, I don't
even think they have the ability to digest it. I don't think they have the intelligence to do so. I think when you're looking at the other bills, it's become so partisan. And now what do we have a one or two seat separation, maybe three seat separation based on
who shows up the day. Let me tell you, I think it's going to be a knockdown, drag out, and I think you're going to see the screamers and the partisans really coming to play, and I think it's going to be literally insane for allow the saying to watch them.
I want you to tell us what happened with this TikTok thing, because six months ago it was quiet, it was crickets. There was this massive effort to block the talk we're going to ban it. There were four different bills, Democrats and Republicans acting like they liked each other, and then they hired lobbyists and dumped millions of dollars on the district and.
The story went away. That in itself is a story if you ask me.
But how did it come back? Well, it's an election year, so you know with election year, there's probably some polling going on or things like that, or they're getting constituent calls. But also you have lobbyists on both sides. I mean, you think about TikTok going away, how does that open up the market for other competitors? Number one, Donald Trump absolutely yesterday. This is about finances. This is about actually
pay to play. This is rent seeking, right, So that's what you're a Look, gosh, I'm being very blunt here. I apologize that, but that's what's happening, right, Now the thing when you're talking about TikTok, I despise parts of TikTok based on the fact I was in information warfare. Sort of do that today right with the company that we have. When you're talking about and I've told people
that information wars the forever war. When you're looking at TikTok, there's other things I would rather do to look at TikTok for data purposes and information rather than totally ban it, I think again, But that's nuance now you're talking about you actually have to have Republicans and Democrats talking to experts in the technical field on the nuance of the specific bill. And nuance is not part of this tribalism
that's going on today. It's like you know, how many sticks can I bang together and run through the woods and screen you know, painted and bizarre earth paints. You know, that's really what they're doing. And so that's what you're seeing right now as you're seeing a lobbyist, a massive lobby flow coming in that's actually trying to dictate one way or the other where Democrats where Republicans are going to go on the TikTok situation.
Well, and of course they in the House will have a chance to vote on this measure tomorrow. That's the working plan. This goes to the floor on Wednesday. The Senate, though, seems much more and some of what you're hearing from senators who seem more reluctant about this particular legislation are concerns around maybe the First Amendment on constitutionality, also the fact that this is a private company specifically being called out in a piece of legislation. Are those concerns warranted?
Well, the thing is, if you're banning TikTok, what does that do to Facebook? The senator? You know, the Senate's showing some nuance right now. Now you're talking about okay, what is the cut off line when you're talking about radicalization and statistics or you're talking about ownership of as said corporation, and what does that actually do for the future of any type of I would say, any type
of controls on this type of language. I mean that, you know, for me, being a First Amendment guy and also understanding that there's really bad things happening in the radicalization space, there has to be nuance where again, you're not really representing the American people. You're representing special interests based on what your fundraising looks like, and based on
what you're pulling and cross tabs looks like. And I get it, you want to win your race, but maybe do something and tell the truth to the American people. Try to have some nuance in your thinking. When you're going from nuance that is not a word that no, I don't even know if they don't expel that a Congress we spend time with someone who knows. The former Congressman Denver Riggleman is with us here on Balance of Power.
We're gonna spend time later today with the President of Poland on the later edition of Balance of Power.
He's meeting with Speaker Mike Johnson right now. The matter of Ukraine, of course, is what they're talking about. What does Mike Johnson say to a foreign head of state like this, coming with an ask when there is absolutely no answer.
He's dancing on eggshells right now. And what he's trying to do is use a lot of big syllable words to say nothing. That's what's happening behind closed doors right now. And you know, I wonder Mike Johnson has got to have I don't want to say this in a really I come to Jesus on what's going on in Ukraine, and I think I think Poland can help him with that.
There's got to be funding for Ukraine. Anybody who's outside of that box right now, I think is in real trouble because if we actually take away from Ukraine or that support, Poland's going to be very worried about Russia right now. So again, I would love to be in that discussion right now. You know, my background is Eastern European affairs. I deployed there, you know, for Operation Allied Force on the Romanian Serbian border. I know a little bit about Russia, just a little. But I would love
to be in there right now. But I can't imagine how that conversation is going with Mike Johnson having to appeal to the base of his party in the Freedom Caucus and talking, you know, to a representative from Poland at that level, it's got to be a mind numbingly crazy conversation right now.
Well, and not just the members of his own conference, but former President Trump as well, who we know has opinions on Ukraine and whether or not the US should continue to fund the war. Just make sure the war comes to an end in whatever capacity. If you were in Poland, if you were part of the Polish government, would you fear second Trump administration?
Should they?
Anybody saying should? Yeah? And I would say that the head of the Freedom Caucus is in mar A Lago, by the way, So I mean that's really what we got. And I would say that the Speaker actually go to mar A Lago before he actually makes any decision going forward, because President Trump is the nominee for the presidential race
in twenty twenty four and could possibly win. So yeah, I think I think what you're saying right now, I would think that anybody who's saying in the Polish government is like, for the for the love of God, we hope that Trump doesn't win. Pretty remarkable.
He's meeting with the President a little bit later on before he makes his way here, Kaylee. I suspect that'll be a very different conversation, but he'll be able to tell the President about what he heard today.
Absolutely, and I think they're going to be very blunt in that conversation. And again I can't believe is the United States of America we have a GOP that's mostly against Ukraine. Funding. It seems like we're an upside down world right now.
Must be incredible coming back to Washington and walking freely as a former congressman.
Oh yeah, that's right, whatever you want.
I would rather stick a pencil on my eye than be in Congress right now. So I'm happy.
Uh never, don't be a stranger. Great to see you, as great to see it.
Denver Wrigglelman, the former congressman, former Air Force intelligence, founder of RIG Security, and author of The Breach, The Untold story of the investigation into January sixth.
This is Bloomberg.
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Thanks for being with us.
Tuesday edition of Balance of Power here on Bloomberg TV and radio and on YouTube. You can always find the podcast if you showed up late, go to Apple, Spotify or wherever you do that stuff and subscribe. As we focus on the economy, of course, something that is of dire concern to the Biden administration. With CPI day, bringing hotter than expected inflation, and Kaylee, this is the second time in a row we've seen a hotter than expected print, getting some folks to wonder, is this bad news for
Joe Biden? Could we see a reacceleration of inflation that would not be out of the question.
Or could we just see progress in a deceleration of inflation. If this all proves sticky, does the price pressure relief that has been underway continue? And of course this isn't just potentially a problem for political figures like the President of the United States, but non political figures as well, like say the chairman of the Federal Reserve. Because, of course, Joe, the market is still anticipating that by midway through this year,
the Fed could be cutting interest rates. The problem is, if inflation isn't doing what they want, is the Fed going to feel comfortable doing that?
These are big questions when you're trying to plan a campaign, nevermind forecast the economy.
Absolutely, and there are big questions that we pose to our guests, like the one joining us now, We're very lucky to say. Danny Blinchfeower, a tenured professor of economics at Dartmouth College, is with us. Professor, always great to have you on Bloomberg TV and radio. When you look at the data today, some of the more sticky components of inflation potentially that we're watching here, do you see signs that policy can or should ease in the not so distant future.
Well, there's nothing in data today. I think that changed my view from yesterday. And I always say to people, I mean I was a person who sat and said interest rates, and I think very often the debate in public is not quite the debate the policymakers have, because when you change interest rates, that impacts things in about eighteen months time, and you always should be thinking what's going to happen there? And has this latest piece of information changed my view of things? And I think the
answer to that is no, We're running steady. But the problem you're rightly picking it up is that the economy has been a puzzle. Inflation has remained stickier than you would have thought given the rate rises, and consumer spendings remained stickier and held up more than you had thought. There are, however, worrying signs, and I would be focused on the labor market and also looking at the rest of the world because the UK and other European countries
are clearly in recession. China's pretty slowly. So the answer is, I don't think there's much would change my view. That big issue still is have those rate rises that have been in place for a while now have they fully had an effect? And the Fed, I guess we'll be sitting waiting and watching. I don't think it rules anything out. The market's a little up on the news, but I'm worried that something bad is still coming.
Danny Blanchflower, last time you joined us, we made clear that you would have failed me in your economics class. So I'm going to be careful here. But based on what you just said, if you're saying interest rates, that's I'm sorry, I can copy from Kayley's paper in here. But if you're eighteen months out on interest rates, that would indicate that we're not there yet right, that there is more of an impact to come.
Well, I would have thought so, I mean things if you think of that logic a single bank is called the forecast to rise and think I mean, in a sense, that's what we have to think about. I would like to just focus back on some worrying signs. The question in a sense, is always the two sets of worrying. The seemer confidence predicts recession. The other thing that tells you you're in recession particularly is in the labor market.
And I think very worrying has been the big employment drops that you've seen on the household account in the last four or five months, even bigger the last six months. The declining in and blown on that account is even bigger than it was in the last six months in twenty oh seven as recession started. So maybe the dream world we're in, the positive environment we're in, will continue, but there are worrying signs that because that's that in a sense, is that is the thing that picks up recession.
So in a sense that the Fed must always think, well, okay, there are worrying signs here. To err on the side of actually cutting rates would probably be the right thing to do. I probably would, you know, as always known as a dove, I would certainly be considering a rate cut. I certainly would rule out, as others have suggested, anything about a great rise, because the risks I think are to the downside and the market.
See, well, we talked well, Danny, we talked about the labor market where you see some concern with the acting Labor Secretary here in the US Julie Sue. Just last night on Balance of Power. I asked her specifically about wages, because she was touting the higher wages that people have received in part due to union contracts that have been negotiated over the last year, and whether or not that could refuel inflation lead to that kind of wage price
spiral people often talk about. This was her response to that question.
We want to see real wage increases because more money in workers' pockets is a good thing. More money in the you know, at the kitchen table, right where families are making hard decisions about what they're gonna buy and how to you know, how to write, how to how to live a secure life. You're never gonna hear me say that making sure that working people get what they
deserve is a bad thing. I don't think that we have to choose between people families paying prices that they can afford and getting wages that are going to allow them to feel some security. It's a false choice.
So she says, it's a false choice, Danny. She also went on to tell us that what we're seeing in the labor market is the very definition of a soft landing that there doesn't need to be a decision made between getting inflation under control and potentially breaking the labor market. To what extent is that actually true.
Well, I think that you've started to see some real wage growth, and obviously that's a good thing. And I think the contrast to the wage price spiral we saw in the past was when there were union contracts that built in escalator clause. It's automatic escalator clauses, it's inflation.
We haven't really seen any of that. We've seen a little bit emergence of work of power as economies have strengthened, and we've seen a little bit of a pickup in strike activity across the United States, but I don't think there's any evidence of a wage price spiral, and economies
take a little time to move. The balance of power between labor and capital has swung over the last two decades so strongly in the favor of capital it would be hard to tell people Aha, a slight movement back towards labor means that the central bank has to plunge
in again and make workers worse off. Certainly not something in the sense that you'd expect the Biden administration to want to see so I think it is really sitting holding with expectations that perhaps we will see worsening in labor markets, worsening in other things, and the Central Bank will have to cut rates, not least because of what's going on in the world. Look at what's gone on in China. China has just seems to have just come
out of a deflation situation. But the rest of the world is looking at America as a fine place in the economy doing well. The last thing they want to do is make another error.
We're talking about today's CPI data and the economy with Danny Blanchflower. Lastly, Danny as prices. A big part of this CPI report is that the wild card that will tell whether Joe Biden has a good economy to tout by the end of this campaign.
Well, I mean, oil prices are a pretty tough one to forecast. Given the stuff that's going on in the Persian Gulf and the problems that are there. The ability to control the global oil price is pretty It's pretty Despite what Donald Trump and others say, the President of the United States doesn't actually control the global The global oil price it's called a global price, and global shocks
impact it. So I think we'll see. I think that's obviously if there was to be a considerable spike in the you know, in oil, that would be bad because it would be it would impact people, even impact their spending because they have to spend more at the pump. So yes, I think it's something that you really want to be mindful for. But again, once off spikes of the oil price and not something that the central bank
should respond to. It's once off things just will They'll spike today, they'll have an effect on inflation today, and in twelve months time they'll drop away. But you know, these are complicated issues. The central bank has done pretty dumb well. I didn't think the economy would be doing as well. In a sense, I've been more of a doom merchant than I probably should have been. But we'll see going forward. Everything rose with an election coming.
Well, that is the exact place I wanted to go with you, Danny, because sure, monetary policy definitely has an influence on the economy, but fiscal policy does as well. And actually, in the statement that President Biden put out addressing today's CPI report, saying there is more work to
do to bring crisis down. He said, Look, I requested a lot of this in my budget, and as we heard in the State of the Union last week, the idea that he wants to see, you know, tax breaks for people who own homes within certain income groups, child care, universal pre K, these kinds of things that may not actually become reality, but he's at least asking for them. I'm coupled with higher taxes on the renchin on companies.
I'm not sure if you've had a chance to look through the budget, but how should we be thinking about fiscal policies influence on the economy now and going forward if some of these things actually do become a reality.
Well, I think the reality is that the whole series of economics papers, particularly from a famous economist called Ray Fair, who talked about how elections are won and how important the state of the economy is in determining whether the incumbent wins or not. So I don't think the administration has missed that fact and understands that if people are feeling good on the economy, that the incumbent gets the
credit for it. And oftentimes you'll see even manipulation in the sense that the budget disproportionately spent in places that the president would like to win himself and for his party to win. So you'd expect to see that right now. And in some sense the Congress says, well, look, I don't want to do that. I don't want to give the incumbent help. But that's really where we are. A booming economy is good for the incumbent. If the on rate rise, inflation rate rises, then the narrative will be
the president is to blame for it. But in a sense he can say, well, look how good the economy is. Look how good it is compared to the rest of the world. This does look like a rosy scenario. Vote for me, and so this is crucial. This is crucial not just the scale of the budget, but who it's spent on and where it's spent, and you'd expect it to be spent disproportionately if the president could have his way in places that are for him to win.
Let you get back to fishing, Danny.
It's great to see you, Danny Blanche get back with us from Dartmouth College.
I hope you're well.
Let's keep tabs with Danny as we work our way through the cycle. This is kind of interesting as you've started this line of questioning now.
Kaylee, I feel like we check back every couple.
Of months thee how it feels absolutely as we should, especially as we progress into the summer months when potentially we're going to be having more realistic conversation about cutting back rates. And he seems to be a little bit more worried about what's happening in the labor market than we opten here here he went.
Back to it a couple of times without being asked, which is important.
Yeah, we'll find out about that lag.
Effect when we get into the middle end of the summer when it really does count. To Kayley's point going into the debates in the general. Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already, at Apple, Spotify, or wherever you get your podcasts, and you can find us live every weekday from Washington, DC at noontime Eastern at Bloomberg dot com.