Xi Will Welcome Distraction of U.S. in Middle East, Cook Says

the Council on Foreign Relations, and he joins us now. Stephen, thank you for being with me. Um. You know, this decision comes about three and a half years after President Obama's effort to threaten assad with Basher Alissa, the president of Syria, with military action after an earlier chemical weapons attack that killed hundreds of people. He even used the term a red line. What does this say about what's happened in the last three and a half years and

whether there needs to be a policy change. Well, I think the last evening strike is a reflective effect that you have a different administration, uh, and that President Trump, who ran hard obviously against President Obama's record and ran on restoring American strength and credibility around the world. Couldn't

ignore uhhar lassa chemical attack. Uh it is um. I think a strike that is intended to send a message to the Syrian leader as well as his Russian and Iranian backers, But I don't think it augurs a major shift in American policy towards Syria. Does it send a message to other nations such as China. We know that the President is a meeting with the President Jijing Ping of China and Mara Lago. Well, it's a that's a very interesting question. Certainly, the timing with a major world

leader having bilateral meetings with the president is uh. It makes for an important demonstration of American resolve, especially since the President is going to be talking to the Chinese leader about North Korea. What my contacts in China are telling me is that she is probably going to shrug this off, take note of it, and actually welcome further American entanglement in the Middle East. Why is that because they feel that the United States will protect their oil

lifeline in importing oil from the Middle East to China. Well, it tends the United States down in the Middle East. Um. While and takes its attention away from developments in for example, of the South China Sea or in relations to North Korea. UM. This is from the Chinese perspective. Those parts of the world are within China's um sphere of influence, and as long as the United States is engaged in the Middle East,

there's less attention that can be paid to Asia. Well, you know, Steven, earlier in the program, I was speaking with Leonard Burschitsky, Bloomberview columnist joining us from Bear Lynn, and he made it clear that Russian President Vladimir Putin is not interested in a direct military confrontation with the United States. Having said that, then why place Russian troops and or aircraft in a particularly well in a harm's way perhaps, but also to play this kind of game

of chicken flying over the Baltic and Eastern Europe. What is the intent? Well, I think it's clear that the Russian president is interested in re establishing Russia as a global power. UH. Syria in particular has been a bridgehead for the Russians to re establish their influence throughout the Middle East. During the Soviet era of the Russians were quite active in the Middle East. UH and Putin clearly has strategy UH in order to UM make Russia great

again in the Middle East at the very least. Okay, but having us But I want I want to then turn that on to what you just said having to do with China. That if the Chinese are are in a sense happy that the United States is going to be pulled or is moving more into the Middle East in terms of its attention, that wouldn't the same be true for Russia. And if it is, then you know what does Vladimir Putin want? I mean, you give them a medal that says, all right, you are a world power.

Great now stop trying to turn things into a fight. I think the Russians and the Chinese have very different calculations. The Chinese pursue a foreign policy that's essentially a mercantile ist one, and you alluded to it before, h that is to ensure UM that energy supplies flow out of the region, and thus for the United States has been willing to ensure that provide the kind of security for that UM that allows the Chinese to enjoy um, enjoy

the energy resources of the Middle East unfettered. The Russians have a very different calculation UM, from the perspective of Vladimir Putin, the end of the Soviet Union was the worst day in the world, and that Russia is a great power that should be directly involved in the Middle East because the Middle East is relatively close to the

Russian homeland. Russia has problems of its own with Islamic extremism, and well, you had the bomb blast in St. Petersburg, but Russia in the subway that began the week on Monday, that's exactly right. And the Russians believe that UM support for leaders like Bashar al assad Uh in contrast to UH the United States. And this is from the Russian perspective,

which welcomed uprisings against these leaders UM. The Russians perceived that if these leaders follow these authoritarian dictators in the region fall, it'll bring to power Islamist Islamis Islamist extremists. De pardon me. It's kind of ironic, isn't it, though. I Mean, on the one hand, they're talking about combating terrorism, and yet the terrorism continues UH and then still keep

the same people in place. That is an irony. Of course, the United States attack Syrian air base with a barrage of cruise missiles last night retaliation for this week's chemical weapons attack against civilians. President Donald Trump casting the US assault that's vital to deter future use of poison gas. He also called on other nations to join in seeking to quote end the slaughter and bloodshed in Syria. Here

to tell us more is Tony Capacio. He is our Pentagon and National Security porter for Bloomberg and he joins us from Washington, d C. Tony, what can detail can you add to what we already know about these attacks? Okay? Well, I picked up this morning at the operation and the operation came together in about twenty four hours. So the Navy actually did two rehearsals of it. The two vessels involved the two rehearsals of it. And this is the US s ROSS in the US S Porter, correct, right,

they I'll give you some detail. The Ross fired Dity six of the latest model rate theon Block four E Tomahawk cruise missiles. The porter fired thirty four of them. Each missile took up minutes to sixty minutes to hit its target. And there were backups in the with the Bush Strike Group in the Persian Gulf in case any of these missiles and malfunctions and those those both those ships took the two rehearsals from what I was told where they went to the dry runs of lunch sequence

and actually launching. So it came together pretty fast. Now, the governor the Syrian government, uh, the governor of the homes of province Talala Bazari. He said that some Syrians had been killed and others wounded, but there were no precise details. Do we know anything about the results, not yet, but I mean, it's plausible they picked that time for forty am. Whenever is minimal would there the minimal activity of the air base. So that's pretty standard for these

type of operations. You know, it's conceivable that some some people were killed. I'm not going to discount it, but I don't have any incident into that. Now, all right, and let's talk about the implications for this. With the meeting that President Donald Trump is currently having with Chinese President j Ping. What kind of signal do you think that sends to him about one of their big topics,

which is North Korea's nuclear program. Well, I think the Chinese and North Koreans, now we'll have to reckon with the fact that They're dealing with a US president who moved pretty quickly, albeit with a precision limited strike. But he moved pretty quickly to retaliate with the minimal consultation with Congress he recalled during the Vietnam War, the Nixon wanted to invoke the kind of a madman theory with North North Vietnam in terms of whether he you know,

just how much he would do what he would do. Well, maybe there's a madman theory at play here. Trump showing that he's quick, impulsive, fast on the draw, and that might ship send a chill of North Korea or China spins Well. Rex Tillis, and Secretary of States, says, it clearly indicates the president is willing to take decisive action when called for. What does this mean for the U. S. Relationship with Russia, because, of course the President has called

for greater counter terrorism cooperation with Russia. I think the impact will be minimal because the U. S took pains. They contacted the Russians through they called this deconfliction link

that was set up there because over air strikes. You know, we did we tipped the Russians off, and locally we didn't tip them off through at the Moscow level, but we tipped the Russians off locally that this was gonna happen the US, that those cruise misses were precise enough, they did not hit the airfield areas where the Russians were sleeping or are stationed. You know, we give him advanced warning, and you know, Pim, I think it's going to show that the Russians did not tip the Syrians off.

That we don't know that definitively, will know that later today. But I don't think the Russians tipped the Syrians off. But there's no indications of planes taking off ahead of time. So I'm met sure what the long term implications on the US Russian relations are. I leaned towards it might

reinforce the fact that we can be trusted allies. Does it also change the dynamic when it comes to Vladimir Putin's support of President bush are Alissa that indeed, perhaps they are not as strong allies as previously thought if the Russian reaction is muted. I tend to agree with you there that the rush the relationship with Syrias not as a close as we thought. I mean, it depends on the reaction from Russian and so far it's been

freely muted. Well, the UN ambassador the Russians, a deputy UN Ambassador of Vladimir sorokof Is he warned that any negative consequences from the strike would be quote on the shoulders of those who initiated such a doubtful and tragic enterprise. Is he just using diplomatic language because he's got nothing else to say? Well, that's that's the first cut outrage. I mean the follow up will be more important in terms of what impact that's going to have in Syria.

If the Russians start painting or illuminating US planes with their radars and act in an active peak or retaliation subtle, not subtle, but a retaliation short of firing missiles, that'll be more of a leading indicator than whatever words come out of the U. N Ambassador Tony, What about Steve Bannon and his departure for the National Security Council. He has previously spoken about the US being overextended outside America. Do you think that the National Security Council's changed anything

to do with this? Yeah? I think one of one changes that the Pentagon was allowed to plan this on their own, really quickly, without a lot of back and forth was to National Security Council. I think that accounts in some respect for the fast, for the rapid nature of the the operation that the Pentagon was able to pose together on its own without without a lot of mother may I from the National Security Council. Indeed, just

the last point to you, Tony, what's next? Do we just wait and see or is there going to be some detail about some change in policy? I think it will be a what what we're gonna learn more from the Pentagon? Today's the battle damage assessment, you know, the nuts and bolts of military attack aftermath. I think you're going to see maybe a letter to Congress from the White House asking for an authorization for the use of military force on Syria. I think that that's one possible

the plausible follow up. All right, what we leave it there, but we look forward to you covering this topic for US. Tony Capacio as our Pentagon and National Security reporter for Bloomberg joining us from Washington, d C. This is Bloomberg. The unemployment rate falling to four and a half percent, that's down from four point seven percent. Why no, cheers? Well, payrolls only adding ninety eight thousand jobs last month. Economists, we're looking for about a hundred and eighty thousand to

be added. Here to tell us more about the report and it's the factor of wages is al A Grissani. He is a former assistant Labor Secretary under President Ronald Reagan. Al thanks for being in the studio and also joining us is Carlick Godnna. He's the chief US economist for Bloomberg Intelligence out. Let's come to you first and just make your case about wage growth. Two point seven percent increase year over year. You say that's not enough, No,

it's not. In good morning, pim um. If you look at wage growth over the last twenty years, it's been

steadily going down. And there was hope that with this recovery, which really started eight years ago when the Fed ease monetary rates in the Obama administration, that now with the pickup in the with the Trump administration and the change and all the things people are talking about, that we would finally see wages get back to growth, which would be really an indication of a real, sustained, long term recovery. What kind of number are you looking for if you

don't like two point seven percent? What what what do you think would work well? If you go back to the historical standards when really we were in real, real three to four percent GDP growth UH rates in the in the growing economy, you're looking at four to five percent wage growth that's needed to sustain a long term recovery. All right, let's go to car Record Dona, chief US economists for Bloomberg Intelligence. What do you think about this four to five percent wage increase? Do you think that

would do it? I think that would certainly help four to economic momentum and maybe push us back towards UH let's say eighties or nineties style growth rates from the two percent which has plagued the economy over the last eight years. What's the what's the relationship though between wage growth and productivity? Well, as workers become more expensive than employers will look for ways to minimize that input cost,

and so they invest in capital. And you're seeing it from automated UH register clerks at fast food joints or no clerks at all when you do the check out yourself that's increasingly exactly or self check out in a grocery or retail outlet. And so as wage pressures pick up, you'll get more productivity gains. But we've had relatively cheap labor over the last ten years or so, so there's not been a lot of incentive for employers to make those types of investments. That's changing now because we are

seeing a bit more wage pressure. Alright, what, having having said that out to you, if indeed we are entering a period of more rapid automation, where will the wage growth come from. If indeed the wages that employers will have to pay can alternatively be put into artificial intelligence robots and even dare I say it offshore, Yes, well, we have a let's add this to the equation. We have a secular change going on in the economy that speaks to this. The secular change is what you're talking about,

the move from labor to tomorrow automation, etcetera. And you can see it in the retail job numbers today thirty thou down. That may be the beginning of what we're starting to see as all these malls are closing and the retailers are pulling back. So that's a sign of what I'm talking about and the secular change. And do you think that that comes what from the competition from Amazon and other online retailers that that sort of stands in the way of this increases. And that's code for automation,

isn't it. And I see it my business too. We're all data and from nation businesses and the turnaround business are now becoming commoditized. So where's the value add going to come from the drive's wages in the future. It's got to be from intellectual capital businesses. It's got to be from value add from people that are providing insights. And that's the only place that I see where you're going to have the ability to demand more wages. That

sounds like high skilled workforce absolutely, Carca Donna. I mean, is there a chance that you're gonna see this wage increase of indeed what you just described increasing automation, so that really the only wage increase you're gonna see is people who have some kind of intellectual property that puts

them in absolute that's where it will be concentrated. But I mean, there's less job security, whether it's lower union membership or robots taking jobs, or just the internationalization of the or the globalization of the workforce, and so that means that the Phillips curve still works. Uh, this is a trade off between unemployment and inflation, but it's flatter

than it has bend in past economic cycles. And I don't want to make too much of us, because clearly this is not the focus of the wage the two point seven percent year over year wage increase. But we learned earlier in the week that black Rock, for example, moving away from some managed funds to replace them with more automated exchange traded fund or indexed products. That also

is part of this trend. Absolutely. So the point here is that you're not getting as much inflation or wage bang for your buck as the unemployment rate moves lower compared to pass cycles, which means that maybe full employment

going into the cycle were fed forecasters and whatnot. We're thinking it could be five and a quarter percent, was five percent, then it was just below five percent or four and a half, and so last of all, if you recall Janet Yellen throughout the idea in an academic forum that maybe full employment is materially lower than forecasters currently anticipate, and as we see unemployment rate grinding grinding down and we're not getting the wage pressures yet, that

reinforces that notion. Al Agressoni, what's your prescription for an increase in wages? Well, I think that back to the secular trends. I mean, while there's a change moving on to automation and lower skilled jobs are going to be replaced, you have to look at the positive side of the

secular trend. And we talked about this on one of your shows a couple of years ago, where we discussed that we could potentially become again a nation of entrepreneurs, people who are either and either have skills that are can command a higher wage like in the ellectual capital businesses, or people who have the ability to start and start and sustain and run their own business. But aren't those

people already doing that? I mean by definition, I mean, what is going to move the two point seven percent number higher? Well, what's gonna what's gonna move it higher is if you're uh, if you're making a choice to become an entrepreneur, right and you're in a startup business, that you're going to have a more greater demand and to hire somebody than somebody who's in a big corporation like Walmart, who can replace that body at any point

in time. So if you're looking for wage growth, I think it's going to come from the very high end of the intellectual scale, and it's going to come from the more entrepreneurial end of our economies. Thanks very much, Al Agrisani, he is the former assistant Labor Secretary under President Ronald Reagan. And our thanks of course to Carricka Donna, chief US economist for Bloomberg Intelligence. Always a pleasure. All right,

let's turn our attention now to headline economic news. The unemployment rate down to four and a half percent from four point seven, the economy adding just ninety eight thousand jobs last month. Economists were looking to add about a hundred and eighty thousand jobs. One of those economists was Vincent Reinhardt. He is chief economist Standish Melon Asset Management. He joins us from Boston, home to Bloomberg twelve hundred. Vincent, thank you for being with us. How did you get

it wrong? Great introduction, PIM, I like starting on the positive note, and the answer is most of us just forgot it was cold in March. Uh. Part of this weather. Part of it is let's calm down a little bit. The payroll employment is a erratic number. The Bureau of Labor Statistics tells us that a nine confidence interval around monthly changes and met payrolls is a hundred and a hundred thousand plus or minus. What does that mean? That means that if you thought it was a hundred and

eighty thousand expected this month. Uh, you wouldn't be statistically proved to be wrong if the number came in between eighty and two undred and eighty thousand. Oh well, I guess that that makes it very easy, doesn't it. It makes it perfectly. The good news is, in a statistical sense, I wasn't wrong. Okay, all right, that's like bumpers, you know, in a bowling alley. All right, so your contains So if let's take the you know, let's take this in perspective. First,

there were weather dislocations. Uh, that's and we see very strong employment growth from the household survey and week on the establishment survey. That's probably because when the BLS comes around to a household at at home because they're not working because of bad weather, they they believe they're employed. Whereas you go to the establishment and ask them, are you how many people are working for you today? Uh, they give them a lower number, so average the two

UM a low number nine number. Okay, so we're not gonna go We're not gonna go crazy about this, UH seemingly what the bond market is doing with that big move higher in the long pond. If that's the case, then what are the particulars of the report that you think are specifically interesting? Is that the labor participation rate? Is that the two point seven wage growth year over year number, or what part of the report do you find most useful? That's a great thing about the peril Fridays.

If the DLS puts out of twenty plus page report, there's always gonna be something that's interesting. I think there's a couple of things of note. One is Chenney Ellen's basically been right. You run accommodative monetary policy and you marry very well draw workers into the labor force. UH. In fact, there were very large games in household households, on the order of four hundred and seventy two thousand people coming into the labor force. UM. That's why the

unemployment rate UH goes down. We have peril rather unemployment. UH. Persons in the household reports fell by thousand, So that's good news. That's so, that's good news. So why would people be bidding up the price of the thirty year by fifteen thirty seconds? Why are we at two point nine six? Well, the world's are as key plays, uh and uh. But it was risky last week too, Yeah,

but maybe it feels a little risky, okay. Uh. The other I think part of it is actually averagary earnings that came in as an increase of two tents of a percent on the month, and the twelve month change picked lower to two point seven. So if you think the Fed is going to be acting because they're worried about inflation, then the Fed should explain to you where's the cost pressure got it? So don't worry about that at least right now, worry about something else. Right the Fed.

Fed's got a plan that it's going to be renormalizing monetary policy gradually. Nothing in this report says they can fulfill that plan. Well, Vincent, you know, just to pick up on that. On that point, I want to go back to the f O M meeting minutes that were released earlier this week about unwinding or dealing with the four and a half trillion dollar balance sheet at the

Federal Reserve. What are your thoughts there? So what first thing to observe, They're trying to telegraph it as as clearly as possible, because most of the people making those decisions are still shell shocked from the paper tantrum when slowing asset purchases a threat to produce such a big reaction in markets. Uh. Second thing to note is um that they view it as in part of substitute for rate action. So they're basically telling you there's three more

press conference meetings this year. The next to they'll raise the funds right at a quarter point. The third one they'll tell you they're slowing asset purchases UH reinvestments so that it's a balance sheet will vary gradually shrink. That's a good way to put it. Thank you very seccinctly appreciate it. Vincent Reinhardt, as always he's he's the chief economist, standish melon asset management. He wasn't wrong. He was within the margin of arab This is Bloomberg. Thanks for listening

to the Bloomberg pian L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio