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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App. George is with us
now for more. So, George, let's talk about it. The data yesterday. Do you believe or not that that puts to bed the idea of where we're going to get a rake cut anytime soon?
Oh?
Yeah, I think it does push it off.
And I think that's what we're seeing across you know, all the forecasters and the market's been doing this all along, ever since, and and this is really the challenge, I mean, because once you get to a point where the market now is actually underpricing what the Fed has and they're it does really kind of you know, call into question the timing and timing is critical we you know, the June July and if now that's really pushed off, you know,
the election. Of course that doesn't really shouldn't play a role with the ifty data gets weaker and warrants an actual cut. But I do think that you know that they should cut in July. I have that that far. I'm not going to change up part of the view. I think that yesterday was an overreaction by the market. But we have a big challenge now here because we were banking on we collectively the global bomb market unsynchronized easing.
And now if you have this challenge, we have this unsenchronized easing, and.
The Fed's delayed.
Other central banks are going to be worried as well, so that this does add to volatility. That where it adds to volatility is in the ten year more so than in the two year.
Jeg's lots to unpacked. There the word over reaction, I want to get into that just a little bit more. Do you think an upside surprise of six basis points, because ultimately that's all it was. Do you think an upside surprise of six basis points was worth a twenty basis point move at the front end of the curve.
That just goes to show you how lack of conviction there is in the marketplace and positioning and how flows can change very quickly.
This is a very binary market.
When you're on hold and your data dependent both the markets and the FED, you know it's going to cause you know, these sort of sort of reactions in my opinion, although Jim Read.
Did put it well over from Deutsche Bank talking about how this really calls into the question about whether the bump is really a bump, and we'd been talking about this for a long time. At what point does it become a trend in something stickier? And really from all of the notes, it seems like people are saying this is sticky and if you discount that, that's going to be at your peril. Why are you discounting that?
Well, because look, the sticky versus accelerating inflation is a critical point.
And it's early in the year.
We again this, if we're data dependent, we have a long road ahead of us with a lot of things that can change on both, you know, the growth side versus the inflation side. And to just to kind of only focus on this inflation fear, I think that you know could call it the question, and I think, you know, the op ed from Muhammad al Arian is a good one.
I mean, this might be a world that we're going to be training between two and three percent on inflation and to jeopardize growth because of that's going to wait until they see the actual improvement as well as or weakness in the economy.
At that point is always too late.
Just to say on the over reaction concept and just what that says about positioning. We talked a lot about the pretty dramatic moves in the treasure market. In the currency market, as John was talking about, we saw the biggest one day rally in the dollar going back to the height of the banking crisis in March twenty twenty three. How much are you seeing this as really the difficulty and frankly the challenge to some sort of synchronized rate cutting cycle globally.
It really comes down to the FX markets.
I think that's clearly the case, and we look at what's going on with the dollar yen. This gets into a very potential vicious cycle where that that's why the ten year the dollar and oil are super critical. That macro trio is what's really going to dictate what happens going forward.
And let's not forget that.
We've had a very accommodative or I guess financial easy accommodative environment. If those three variables start moving in a way where it's detrimental to risk assets, then you'll get your tightening there too. So I think all this stuff is in play.
Joeyce We's sit on foreign exchange, the euro one O seven, dolly N one fifty three, cable one twenty five, that print yesterday that moving yields in rates stayside. Who does that upset more? The Bank of England, the BOJ or the ECB.
I think the bo J first, ECB second, BOE third. I think this is really coming down to like this this one fifty three one fifty five level.
It's really important on.
The dollar end and in a moving ECB. ME like I think like we've always looked at the ECB as making policy mistakes. I think they're trying to be proactive. I think they're trying to do the right thing. Uh, they probably will have to ease before the FED, and it's gonna be hard, and I think it's obviously a challenge for them, but they just kind of sit here, do nothing. It is not the right course of action either.
Do you think it tempt their ability to go further beyond flagging a June raid cup at this meeting this morning?
At a minimum, what could happen?
I mean because if you'll I want to always backpedal, and I think this could then enter into an environment where such a bank's ease and then they skip meetings and they try to really calibrate the message in between. I think that's really what they can do, try to really slow down the process. And that changed the narrative every other inflation report.
This is really difficult, George, because one fifty two Lisa's been talking about it was the line of the sand for intervention, and here we are at one fifty three. Steve England are a standard chant to put a note out ahead of this, So this is before the CPI print and this is what he said, a hot print
would mean fighting market fundamentals. That's a difficult intervention proposition given where the fundamentals are and how strong the tide is right now against the BOJ Do you think they can intervene in the effects market anymore so?
The challenge, of course, other other than just verbal intervention is that for the better part of the last eighteen months, as the FED was hiking and then concluding their hiking cycle, and then all these eases were priced in. I mean, in many ways Bank of Japan was hoping in banking on global central banks easing and that would take some pressure off the currency. And then now this really does
call into question that. And therefore, you know, do you start raising rates faster and then you get into the whole yen carry trade and the concerns around that. So I think that, you know, the Japan story is super critical. Obviously it's important to us, and I think that it does at a minimum need to have some sort of intervention. I don't think that a move beyond with fifty five will be tolerated, and I think that that we'll probably see something there, but we don't know obviously you know,
with clarity on what's going to happen there. But I do think that it's going to now move towards kenne buj actually raised rates even more than just ten bases points out of clip.
Does yesterday's print George really challenge this thesis that we've been hearing from a lot of guests, which is go outside of the US. There's more value elsewhere, whether it's risk assets or whether it's currency that generally it seems like the US is sort of overpriced. Does that get challenged fundamentally based on the fact that the US is still the one printing inflation as well as strong growth.
If you look across your world bond screen on your Bloomberg terminal, and as I'm sure you all do, the US is still one of the highest yielding for developed markets. I mean New Zealand, you know, and a few others maybe, but there's you know, the attractive yields in the US, and that's why I feel like it's gonna be hard for fixing.
Income to go unhinged. And you know, this.
Four to fifty level is critical psychologically, and we could go to four seventy five and a ten yeard wouldn't be surprised.
But nonetheless, there's.
You know, capital will come to the US because of our higher yields, and I think that's gonna benefit more fixed income than equities, considering where evaluations are.
Now interesting George, thank you, sir jo Cancaves of MBFJ on the bomb market join, I guess is City's rubber suckin city. I know you've got a city. Great Rubbert that coal for June for a right cut, and I just wonder is it just about holding on by his fingernails after that pp I print, Thanks.
So much for having me. Yeah, we're still holding on to that June call. I think it's a very close call at this point. As Michael McKee had said, you know, once you have three months of data, you start to think that might be a trend, and we've seen fairly hot inflation data throughout the first quarter of this year. We do think we have to see how it shakes
out with PPI. If core PCE is coming in around point three is probably the limit or maybe somewhere below that would be okay if you're running that type of rate. We think Shairpal would feel comfortable at least starting to ease in June. But again, if it comes in something like point three, that's probably the borderline of where you'd feel comfortable. So I think the inflation numbers are going against the call, and certainly the probability of it have
gone down. But that PPI will see how it shakes out with the core PCE estimates, But overall that's pretty good news, so we think. And also, this is a FED that seems to really want to get the easing cycle started at some point this year. So on balance, we're holding on to it. But again, you know, it's going to depend on those next few inflation prints and how the labor market evolves.
Well, for a while, you in the team of City have said this Federal Reserve has shifted emphasis. It's putting a greater emphasis on the potential for labor market weakness. And in line with that, I think the perceived reaction function from the market of the Federal Reserve has shifted as well. Maybe up until yesterday, there was this belief that the Federal Reserve could respond to adverse shocks, maybe weakness pronounced weakness in the labor market because of these
disinflationary trends. Robert, I'm trying to understand is whether that story is being damaged by the print of yesterday or not.
Do you think it has Yeah, this is a.
This is a tough question because that's certainly been part of the imputus for our calls. We do think there is enough signs of softness in the labor market, not so much in the overall aggregate numbers. So hiring is still strong. Jobs claim they are still low, but you are seeing things like hiring intentions fall significantly from small businesses. You seeing things like the hiring rate drop notably in
recent quarters. So we think there was a softness, that the FED was getting worried that the labor market was weakening too much and that you could be heading into a recession. I still think that's a big backbone of the call, but now that has to be weighed, as you said, against these stronger inflation prints. I do think if we do see more signs of weakening, the FED would lean more on that element and still like to
start this cutting cycle. But exactly as you said, it complicates the math because before we were getting inflation that was good enough and some signs of softening, but the last few months have been much stronger inflation than we were expecting.
Rober you keip saying that this is a FED that wants to cart and a lot of people have been asking why, and there are a lot of conspiracy theories, and then there are questions around just somewhere of the weakness, of where the weakness is coming from. We heard from Jason Thomas of Carlisle earlier this morning that one of the reasons why is the deficit, and as it balloons, borrowing costs are getting more punitive for the United States.
How much do you think that's factoring in the decision to try to cut rates at a time when a lot of that deficits financed through T bills.
Yeah, great, it's a great question.
Certainly.
On the one hand, those deficit numbers are looking very large, and interest costs have been growing significantly as a share of the overall deficit.
I don't think.
Though, that that's the primary concern of the FED. I think in the fed's mind that they feel like they've done enough.
They feel like.
They're restrictive, and they do feel like they're seeing enough progress on inflation and enough signs of loosening in the labor market and softening in the economy that they're willing to start to start easing, especially if they are starting to get concerned about those downside risk activity. So I don't think that that concern is primary in their mind.
But more broadly, I do think that is an issue that deficits are getting big, and that's something policy makers have to pay attention to as interest scars are high, but primarily the FED is focused on getting inflation back down the target and maintaining activity in the economy.
Rob Have you changed your long term inflation forecast for the United States and the heels of some of these prints and your belief that the FED will still cut.
No, we haven't changed the longer term outlook in terms of inflation will gradually go back down to target over the next few years. Have somewhat of a sticky path down because we think that services inflation is going to take longer than many people think to come back down to more stable levels, and as mentioned, still have the FED cutting in June. But I think the risks around
that forecast have changed. The risks are looking more tilted towards inflation states even higher for longer than we've had, and the risks are looking that the FED starts that easing cycle a bit later. So we're holding onto those similar views, but I think the risks have definitely tilted in a different direction.
Robin, this was great, fantastic hey from you have rubt Selkin there sit say just about holding on to this June right time. Let's tend to our next story. The NTSB said this investigation into last month's Baltimore bridge collapse is honing in on the vessel's electrical system. President Biden saying the federal government will pay for the bridge recovery and rebuild. I meanwhile, the Governor of Maryland saying he hopes to restore full service of the Port of Baltimore
by the end of May. A police to say that with us is Governor Wesmore. Governor, thanks for giving us your time this morning. I know it's been a very difficult month for you and the people of your state, very very difficult. I want to start with this because the President of the United States, President Joe Biden, has committed to funding the cost of the rebuild. How confident are you that he can get that financing through Congress.
Well, I'm confident that it's imperative that we can get it done. If you look at the economic impact of the Port of Baltimore, the Port of Baltimore is worthy and contributes about seventy billion dollars to the American economy. The Port of Baltimore is the largest port in this country for new cars, for heavy trucks, for agricultural equipment, for spices and sugars for coal. That a huge chunk of the American economy relies on the Port of Baltimore.
And so I'm thankful that the President has led and rightfully acknowledged that what happened.
Last week was not just a human catastrophe.
I mean, we lost six Marylanders during this catastrophe, and it was not just an economic catastrophe for Maryland or for the region. This was an economic catastrophe for the country.
And so our ability to.
Be able to rally in a bipartisan fashion and to be able to get the poor reopened and reopen the brit and get the bridge rebuilt is going to be a national priority.
So two issues that, so reopened the poor and reopened the bridge. Can we did with the first one? First, reopened the poor? How strikeful? But it is not going to be.
This is a remarkably complex operation.
We've never had at a maritime disaster like this, where you have not only a ship, a vessel that's the size of the Eiffel Tower and the weight of the Washington Monument that is now stuck in the middle.
Of the Potapsco River.
And part of the reason that it's stuck in the middle of the river is because it has a bridge, an iconic bridge that's sitting on top of it. Three to four thousand tons of steel are sitting on top of the bridge, and the remainder of the bridge is sitting at the bottom of the river.
So this is still a remarkably complex operation.
One where we have our divers who are in there every day and they literally cannot see anywhere between a foot or two in front of them because of the amount of wreckage that's in the water. And so the ability that we've now been able to open up two channels that can now have up to a fourteen foot depth so you can get certain commercial vehicles. We've had fifty nine commercial transfers that have already taken place, and hopefully by the end of May we'll have.
Fully functioning operations for the port.
Is a staggering accomplishment when you think about the speed in the coordination that was required in order to make that happen.
So end of May for the port governor. But what about the rebuild of the bridge, What does this timeline look like?
The rebuild of the bridge is going to be a longer timeline. The thing that we know is for that bridge that over thirty six thousand people went over that bridge every single day. That was the bridge that got people from where they lived to where they worked, from where they lived to where they worshiped for they lived to where they went to school.
It was also a key and.
A crucial part of port operations because for the Port of Baltimore, it's not just maritime operations. It's also rail and it's also truck operations that exists in the Port of Baltimore. And so in order to truly get the Port of Baltimore up and going in the same kind of fashion that it was before, getting that bridge rebuilt is going to be imperative, and we know that's going to be a longer timeline, but we are committed to making sure that we get the Key Bridge rebuilt.
And I know that's why you're going to be in Washington today to be speaking to lawmakers about the funding to rebuild this. I was struck by what Senator said yesterday. He says that he wants to get this rebuilt as soon as possible, but he said it's bureaucratic gilding and lend the environmental reviews kind of blaming it on Democrats. For this bureaucracy environmental reviews that could potentially make this a long term process and not as quick as say
you and residents of Maryland want to see. Do you agree with him that this should be really fast tracked.
Well, I'm thankful that Senator Cruz is a yes on making sure that we can get one hundred percent funding for it. I'm thankful that Senator Cruz understands how imperative it is that we both get the port reopened and also get the bridge rebuilt.
I also know that the White House.
I mean, I have my first phone call from the White House at three o'clock in the morning, the morning of the tragedy, and the White House has been with us every single step of the way. The Secretary of Transportation was literally down there boots on ground before noon to be able to assess the damage and assess what they can do to help. Yet to receive a phone call from Senator Cruz, I've yet to receive a visit from Senator Cruz.
I would welcome him to come to.
Baltimore for him to see exactly the circumstances in the situation that we're dealing with. And I'm sure when he came, he would also see that there are members of the Biden administration who have been on the ground the entire time, and I'm sure he would spend time with them as well when he came to Baltimore.
I know this needs to move quickly. This needs to move fast.
We need to focus on safety and we've got to get this thing rebuilt. And I'm glad we are building a bipartisan support structure around what's going to take and around what that can look like.
If you talk about how quickly it's important to rebuild the bridge, and I know a lot of people would agree from every facet of the region. How much are you exploring other types of financing if it doesn't come from the government, whether it's issuing medicipal bonds or getting public private partnerships.
I think that all options should be on the table, and all options are on the table.
You know.
I don't come from a political background. I'm frankly, I'm an army guy. I spend I was a paratroop with the eighty second Airborne Division, and then when I left the army, I started a business.
So I understand the role that.
The public sector, the private sector that philanthropy is also going to play in this and if you just look at the past week, you know we've used every lever at our disposal to be able to address this issue. I actually issued an executive order that released sixty million dollars of state funding.
That went towards supporting our port workers.
We actually signed legislation that focused on things like providing scholarships to the children of transportation workers who have died on the job, and also providing additional supports for businesses. We also helped launch something called the Maryland Tough Baltimore Strong Alliance, which is over eighty organizations, private sector businesses,
and philanthropy. We've now raised over fifteen million dollars. It's going towards port workers and also have a commitment from businesses to do things like they're not laying off their workers. If they have to temporarily move operations from the Port of Baltimore, they're going to bring them. They've committed to
bringing them back to the por Baltimore. So we know it's important to use every single lever at our disposal and that every sector, private sector, public sector philanthropy have all got to be involved in at the table in order for us to get to our.
Long term conclusions.
Well, as a Marylander, as a business owner, as a military man, you fully understand the importance of infrastructure and what the ramifications could be. The longer that this goes on is very drop dead time, where say it takes two years, and that's the maximum that it could take to rebuild this bridge and get operations to reopen the port,
to get things back up and running. Were Maryland Baltimore can withstand that versus after that where it becomes a real financial weight that has much more punitive consequences.
Well, it's a financial weight now, and it's the reason that we are moving as fast as humanly possible. It's the reason that we have twenty four to seven operations that are going right now, and that cadence, that speed, it's not going to stop. I'm committed to making sure that we are moving with speed on this because we have to remember there are ten of thousands of port workers that right now are being impacted by this, their entire communities that now have watched their way of life
completely upended. They are industries that the country relies on that are now at either a stop or a stall because of what has happened with this port tragedy, and so how imperative it is that we move fast on this. It sits with me every single day, and I know we are going to and I'm going to demand twenty four to seven operations until we accomplish four goals.
Bring closure to.
These families, reopen these channels, make sure we're taking care of our people who've been impacted by this, and getting the bridge rebuilt.
Governor, how much money do you need?
Well, the truth is that we don't have an official price tag on that right now. That we know this is going to be a long journey. We know this is going to be something that is expensive.
We also know though.
Taking place thus far, if you would have asked me two weeks ago, seeing what I saw, and said that.
Two weeks later we would have two.
Commercial channels open, that by the end of this month we should have up to a thirty five foot depth and draft that should be able to get a lot of the new cars and roll on roll off that the Port of Baltimore relies on up and going, and by the end of May we should have the port fully functioning. I would have said, when you look at the damage and the devastation that we saw.
I would have said that.
Seems very ambitious, but that's where we are, and so we know this is going to be a long journey. We know this is not going to be inexpensive journey, but it's a journey that we all have got to be committed to because this means everything to not just our region and our state, but to the long term growth of maritime operations in the American economy.
Governor, we appreciate your time, and I know this is going to be a long route ahead for you, and you'll stay and it's going to be an oncoming conversation and hopefully we can sold you again in the future, Governor Westmall, Thank you, sir, the governor that matter. That difficult conversation difficult time. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on Bloomberg TV weekday mornings
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