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Latch of economic data today.
We got the PCEE data, the inflation data, which is key for the Federal Reserve. I got the University of Michigan a sentiment data which is becoming more and more important to a lot of people's people try to sess out any potential impacts on this economy from changing terraff policies. So Michael McKee joins is here Bloomberg International Economics and Policy corspot It might be a lot of data points today. What kind of were you focusing on?
Well, a couple of things, because the income and spending numbers were interesting. In their incomes were up, A lot of that was transfer payments, but wages still growing strongly about half a percent a month, and spending was rebounded some but most of that was durable goods and it probably was people buying ahead, trying to get ahead of tariffs which then are reflected in the University of Michigan numbers.
The big drop in the headline number and the inflation numbers of one year inflation is now up to five percent and five to ten years up to four point one percent. That's going to get the FEDS attention. Inflation in the PCE numbers wasn't a big deal because it came in very close testaments. Although the core rose two point eight percent from two point seven percent, so that is a bit of bad news. And on a three month basis, the numbers are bad, but everybody kind of knew was coming with that.
How much weight are you placing on this you miss report.
It's a data point to look at and it gives you sort of context around what's going on. But consumer behavior doesn't necessarily follow consumer sentiment. People don't. It's not a good predictor for what's going to happen with consumer spending. It's more of a coincident predictor. And we've seen this decline for Michigan sentiment. When we get the retail numbers for March next month, we will probably see some softness because people were if they were feeling bad, they probably weren't spending.
But it doesn't tell you what.
They're going to do in the future.
Consumers expect prices to rise at an annual rate of four point one percent over the next five to ten years, the highest since February of nineteen ninety three.
So you were right to call that out.
That's that's not nothing.
So that you're right. That's going to get defense.
Yeah, that's going to get defense attention. They don't like the idea that inflation expectations start to get unmoored. A lot's going to depend on what comes out of the White House next week. And because we're all just flying blind at this point, Tom Barkin from the Richmond FED said yesterday there's a fog of uncertainty. But this isn't your usual fog. This is a pull over to the side of the road and turn your brights on the kind of fog because you can't see a thing out there.
And once we get some idea of what the tariffs are actually going to be, then people can start modeling them and we'll get a much better impression of what it might do to the economy.
With all this uncertainty out there, how do you think that the FED is really mapping out their next steps.
Well, they can't.
I mean, they're doing some what if scenarios right now. But I think starting on Wednesday, everybody's gonna be working overtime at all the FED offices trying to come up with ideas for this. And then Friday we hear from j. Powell, so we'll get straight from the horse. We'll get what the FED thinks of all this. They may not have a great idea yet, and as some Albert Alberto Musselam from Saint Louis said earlier this week, it's the second
round effects that worry you. It's you know, obviously prices are going to go up for certain goods that come across the border, but then how does that affect other goods that are either manufactured here or brought in, and how does it affect consumers expectations.
It's probably gonna take some.
Months before we have a real view.
Well, last night up in Greenwich, Connecticut, I had an interviewed former FED Vice Chairman Richard Clarida, and I think the biggest takeaway was he doesn't think DOSEE is going to come to the Federal Reserve Bank, but you can't say for sure. But that was one of the questions from the crowd, you know.
So, yeah, it's an interesting situation because the FED is theoretically an independent agency under law, and the Trump administration seems to not care about that being the law.
The twelve regional banks.
Are essentially private, they're not, They're only quasi governmental, and so the theory is doose can't affect them, right, but who Yeah, what.
Good is theory these days? Exactly?
All right, Michael McKay, thank you so much for joining us. As always, Michael McKey, international economics and policy correspondent for Bloomberg News, joining us live here in our Bloomberg Inactive Brokers studio.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Applecarclay and Android Auto with the Bloomberg Business Appum. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Let's check in with Nathan Dean. Nathan Dean is our senior policy Alice or Bloomberg Intelligence. He's down in Washington, d C. That's his lot in life, and he follows all the policy stuff coming out of Washington. You know, there's so much stuff coming out there that all I do is just read his stuff because I know he's focusing on the important stuff, and if he's looking at it, I'm going to look at it. Nathan Dean, thanks so much for joining us. Nathan, talk to us about terroris.
I think we've got Liberation Day next Wednesday. What's the feeling inside the beltwagh about how this administration's pursuing trade policy.
Yeah, so you know, April second, Liberation Day, it's going to be a really fast day.
Lots of red lines on the terminal that day.
But I think that what's going to happen is you're going to see a combination of tariffs that actually come in immediately, you know, President Trump. You know, we've been talking about automobiles all week, for example. You're also going to see some additional tariffs that are maybe just announcements saying and I think this is going to be more in the reciprocal camp, saying, like a tariff on a
certain country. We're looking at the European Union and we're interested to see what the White House does in terms of value added tacks, because the White House has taking the approach that that is considered a tariff, and then subsequently you are going to see the creation of this external revenue service. I think this is just a rebranding of an already existing agency or an already existing group.
And I think this is more of a pr.
Exercise to showcase how many tariffs come in so ultimately the Republicans can pass a tax package later this year. But again, lots of things happening, and we just continue to go back to our clients and say there's a lot of bluster out there, but incrementally these tariffs are coming on board. And for those in the auto space, you know exactly how the impact is.
I mean, everyone really is bracing for April. Second, what are people feeling on the ground as you talk to sources, especially since we did get that tariff news for autos that was a bigger magnitude than expected.
So you know, this is where it's kind of hard because there is a boy crying wolf mentality going around some people, and especially I think in some of the investors I talked to you from New York because they say that President Trump says we're going to do reciprocal tariffs, We're going to do on everything, and then Bloomberg News has great reportings saying no it's going to be sectoral instead. But I do think that there is this anticipation that
something is going to happen on Tuesday. Look, President Trump is hyped it up. So if it's automobiles, it's pharmaceutical, potentially it could be recicrable tariffs on countries like that, that something is coming on April. Second, I would look for the reporting over this weekend to see if we get any indication of that, because usually it will start to leak out. I would say about twelve twenty four
hours in advance of Tuesday. But you know, come Tuesday, there's going to be a lot of red lines on the terminal.
It's interesting, Nathan. We were talking to major Garrett CBS Television and he's going to be hosting Face Nation this Sunday. He says their program has been out to the White House asking for a voice on TARIS and they've gotten no response. And he was suggesting that perhaps that means the White House is not ready to really talk about their policies because they don't haven't decided on it yet. Would that surprise you No.
Actually, I think that's in line with our expectation as well. I mean, look, ultimately it's just one person, this is President Trump. So yes, you could talk to the Department of Commerce, you could talk to the US Trade Representative, you could talk to State and you're going to get three separate different answers on what.
This tariff policy is.
Now, why do we think President Trump's doing tariffs fairness? But ultimately I think a lot of it is trying to drive manufacturing back to the United States. But if you are another country and you give President Trump a great deal, he could say, I want to have a great deal. So again, it's very hard to predict. But incrementally these tariffs are coming on board. And we just continued, why is our clients that you have to prepare for them?
Because you don't want to be the boy who's cried wolf too many times.
Nathan's the leadest with this department. That's been in all the headlines. What's going on with Doze right now?
So you know, bloomerg News is reporting the DOGE has just meant gone over to the SEC this morning. This is the first time that you know, it's been reported that they're over there. But Elon Musk also just gave a little bit of a tidbit yesterday saying that he anticipates a lot of DOGE work we up by the end of May, and that could be good for Tesla investors, especially those that want Elon Musk to return back to
the car companies. So I would say that, you know, the DOGE Committee is still going through all the different agencies and they're still looking for areas to cut, but in terms of cutting the deficit, they really need Congress to do that because mandatory spending, there's not so much DOACHE can do there unilaterally. So I would just say that I think what's going to happen is the DOGE is going to continue to work in these agencies for
the next few months. But as we get closer to this tax extension debate, in this mandatory spending and debates on Medicaid for example, that's and I think a lot of the big ticket items are going to be debated because DOJ I don't think is going to be able to touch the mandatory spending right now.
All right, So we got the DOGE, we got the tarriffs. Big one for Wall Street is taxes. Talk to us about just the broad tax package and the tax discussion as it kind of fits in with budgets and all that kind of stuff.
That's the big stuff.
Yeah, this is the big, beautiful bill that President Trump likes to talk about. Essentially, they want to extend the twenty seventeen tax cuts. Now, in order to do that, using this process they called reconciliation, Congress has to figure out how to pay for around four point six trillion dollars and they have lots of time.
They have to do it by the end of this year.
But next week we are seeing momentum on the Senate adopting a budget resolution. Now, if you see this headline comes out says Senate adopts tax package, they're adopting a blueprint.
There's no specifics in here.
All they're doing is adopting a blueprint that allows them to continue to negotiate. Now, Speaker Johnson wants everything wrapped up by Memorial Day. I don't think he can get there. I would be more I would think it's going to more likely be after the August recess. But the biggest question what comes to the taxes is that, yes, I do think the taxes are going to be extended, but
what's the impact on the deficit. Because if they Republicans can't figure out a way to make this budget neutral, then potentially you could get in a situation where the deficit increases even more than what the Doge Committee's trying to do. I think they'll eventually try and figure something out, but it's one of the biggest questions for investors at this point.
And how are Democrats viewing this?
The Democrats are out of the picture on this because what the Republicans are doing is that they're using this process called reconciliation. This is the same way President Biden put the Inflation Reduction Act, the same process that President Obama put Obamacare through, but allows you to avoid the Democrats and avoid the filibuster. And you need a majority vote in the House, the majority vote in the Senate.
And this is why at least the Phonic.
Was pulled back from the un ambassadorship, because the Republicans need every single vote in that House in order to move this tax package forward.
So what's the timing here of some of this? Like again I got back to I'm going to pay attention when there's money involved, when Congress has going to be allocating money here. So for some of these tax packages, is it really a year end do we have that much time or do we have some interim mileposts that need to be hit.
Well, you know, the biggest interim on I would say there's really three things the markets should be paying attention to for twenty twenty five. The first is tariffs. We talked about that. The second is the debt ceiling. Now there's a lot of debt ceiling discussion and when this is going to happen. Most people think that X date, the date in which treasury runs out, is going to be in late.
July and August. Congress is going to have to figure out something.
Now President Trump wants to include this in that one big, beautiful bill, but we're telling our clients it doesn't matter whether it's included or not. We do think Congress is going to raise the debt ceiling, and I don't think you know, you could see some headlines and some scary headlines associated with fixed ink of markets, but I think Congress is going to be able to figure that out and then this tax debate extending it by the end
of the year. And I would just say that you know, Congress in Washington, whether it's Republican controlled, they're Democrat controlled, they don't like doing things until.
They absolutely have to do it.
So you see this debate, you see these political headlines, and you see these red lines in the terminal. But I don't think until they're actually faced with this idea that unless they do something, then bad things happen.
That's when you get a deal.
Headline crossing the Bloomberg terminal. Trump Carney agreed to meet after Canada's election, So again, maybe they can dial the rhetoric down a little bit. They're speaking of raising the debt sling my number four offspring call for me yesterday. He wanted to raise effectively the debt ceiling. I said no, And this is what Congress has to say. I told him, do one of two things, or both cut your spending
or generate more revenue for yourself. And that's basically I don't know why Congress can't say that.
If only a transferred. I'm curious here we're talking about. We're looking at Paul Atkins, right. This is Trump's nominee to the chair of the SEC. He's saying that his top priority in that role would be establishing a new framework for crypto regulation. What are you hearing on this?
Yeah, so yesterday, Senator sorry, a Commissioner ACT. Former Commissioner Akins had his Senate confirmation hearing, and it was very positive for the crypto industry. In his opening statement, he said, look, and I'm paraphrasing here, I want to bring regulatory clarity to an industry that doesn't have it, and that's just the noise to you know, that's what essentially Robinhood and coinbase and a lot of these other crypto players want to hear. Now, you know, we do think he's going
to be confirmed. We don't think that there's really going to be any hiccups with that. And I think he's going to have three major priorities in twenty twenty five, crypto essentially making the enforcement risk decrease to the point where it's not so much of a risk anymore. I would also note that crypto and the ICEC only has authority over securities, so for things like bitcoin or considered commodities, Congress still needs to act on this. The second thing
is just bringing capital formation back. This is you know, a lot of things in terms of private credit, making it easier for investors to invest into private funds. There's some rule makings that he potentially could do there and then finally market structure. Now this is important for like the New York Stock Exchange NASDAK Commissioner Atkins, it didn't really exactly like the way that market structure developed back in the early two thousands.
So I think he could do some tweaking.
There, but that's going to be more of a long term strategy than a short term.
You're a fount of knowledge, dude, I don't know how you keep it all straight. Nathan Dean, senior policy analyst at Bloomberg Intelligence down there in DC, he's in the swamps. We throw him down there. Somehow he figures it all out and he puts it down. He's got great research. Go to b I, go look at the policy stuff. He tells you what's going on in Washington, what it means for markets, what it means for individual industries, individual companies.
That's kind of research Nathan and his team are doing down there in Washington. And as we can tell just in the market performance this year, you got to know what's going on in DC because it moves markets in a big way.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Applecarclay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Let's not geopolitics here, because that remained front and center, not just on a geopolitical front, but also for investors and financial markets. Kristin Sorry, Kirsten Fontain Rose joins us. She's a president of Red six Solutions. She's also a senior Fellow at the Atlanta Council. I was a senior director for the Middle East in the last US administration.
Kirsten talk to us about how this world order is being reshaped here, the US pulling back on a lot of its prior commitments, whether you know it's some Europe or other parts of the world, and we saw some European countries, most notably Germany, say we're going to have to step up here. How do you think this process is going to play out over the next six months, year, two years, three years.
In the US perspective, this europe stepping up is really
good news. It's an ask that has been taking place for several years now and wasn't really taken seriously by Europe until the US came in and said the post World War two global order that gave a US security umbrella and provided sort of unlimited assistance in terms of both humanitarian assistants and development assistance is crazy expensive and frankly, it's been bankrupting the US, and for this kind of world order to continue, the rest of the world is
going to have to put some skin in the game. So the US has a national debt right now that costs it two billion dollars per day to simply pay the interest on That is the cost of maintaining this kind of security umbrella, this kind of assistance umbrella, and without other countries carrying a little bit more of the burden, the US simply can't continue that kind of world order.
So this is more balancing in the US view. It's more asking others to just put a little more of their own money, resources, manpower time into the places around the world that they are closer to that are more relevant to their own national security interests than.
To the US.
Let's talk a little bit more about defense spending in Europe. I cover US defense contractors and people have been a bit curious about what the implications will be of a potential Titan military spending budget, but when you put that against a lot of European arms makers, they're actually doing quite well, especially as they're amping up their defense spend. Can you just talk a bit about what's going on there.
Sure this might be really good for the European defense sector that often loses out to larger companies in the US that have a lot more money to put into R and D and the like, and recently even to Israeli companies as they've expanded their offerings. But for the US right now, this means we will see some of our own companies around the world losing contracts. We've seen that already, even in places like the UAE where other
offerings have been preferred in recent years. So this might give Europe a chance to boost its own domestic economies with a little more of the defense sector becoming more robust as they're buying more of their own products and selling to each other. The US readiness requirements will sustain our own defense industry, so that's not really a concern here. The one problem is that for Europe this could impact
NATO's interoperability. NATO is an example of one of those times when the whole is greater than the sum of its parts, and if each country is producing its own defense platforms, this could use NATO forces some of its hearts, you know, that whole. It could also lead to defense sector fratricide potentially where there's not enough budget in any single country to do the kind of R and D that would be required or to sustain an independent industry.
The result could be kind of reductions in production or in quality. So we hope we don't see that happen. One of the other concerns is that watching Europe have these competitive defense sector rising plans means that if you're putent, you're watching this and saying, my plan is working. I'm driving wedges between Western States.
That was kind of one of my thoughts here. I kind of thought NATO was a good thing since nineteen forty five, but maybe that needs to change in composition, I think to me, as a guide in the wool Wall Street Guide, to me, it all comes down the money. I can see a scenario where Germany's got the money. Maybe Poland can do it because of their geographic proximity Russia. They've been doing it anyway, But how about everybody else? Is Spain Italy portrait and some of these other countries.
Do they have the money to do anything meaningful here?
They may not be able to hear right, Places like Germany and Poland and Sweden will probably be able to sustain the increases in the defense budget that they've been promising. Other places may have a tougher time. But if I'm Europe,
what I'm going to do is divide up competencies. Instead of every country trying to create an entirely independent defense sector, I'm going to look at where there are competitive advantages of each one of those defense sectors, who's good at what, and perhaps then put all the eggs in those baskets, if you will, kind of divide and conquer about what kind of capabilities need to be built, and understand that perhaps all of NATO would buy this one thing from
this one country or the like. And I'm not recommending pushing the US to where it is no longer a player. That interoperability is entirely critical. But if Europe sees that it needs to get more skin in the game to keep the US there, that's the way they could do it.
We had a story in the Bloomberg Terminal today that said Russia says it wants to balance relations with the US and China. As we think about these dyni between these three countries, the US, ourselves, Russia, and China, how is that developing and how are we thinking about that when we think about defense.
We've heard this kind of argument before, and it's almost like Russia's taking a page of the playbook of Saudi Arabia, for instance, And what it means to us is, if you are Russia, you have seen such a depleted state of readiness in your own military, such a depleted position in your own defense sector. I mean, they've been forced to buy drone blueprints from Iran, and they used to be the great innovators in that part of the world.
So they're talking about turning to China because China continues to develop at a pretty rapid pace new defense technologies in preparation for what they see is also a standoff with the US, and Russia is hoping that this will be a little bit of a threat when they come to the table on negotiations with the US and separately with Ukraine. Russia is saying, we have this lever, we have this bargaining chip because we plan to grow closer to China. Who will then help us bolster our own defense.
The question we would have for Russia is with what money? How are you going to finance any kind of large defense spends or joint ventures with China. China's economy also would have a tech time affording it, So we think there's a lot of brain power, but maybe not a lot of resource behind that.
Kirsten, thank you so much for joining us. We really benefit from getting a few minutes of your time. Kirsten fontin Rose. She is the president of Red six Solutions, more than twenty years in the US national defense apparatus in various roles here, so getting her thoughts on I at the changing landscape here in global armaments, global military alliances. So we'll see how that plays out.
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