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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and am Marie 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. We've got a lot to discuss President Trump extending trade talks with China for another sixty days as both countries continue to win out key differences. Joining us now to discuss that and a whole lot more. The seventy Night Secretary of the Treasury, Scott Besson, mister Secretary, good morning, good to see it.
Warren John.
You're a cover model. Now you're famous. Can we get that front cover up for Business Week this month? Mister Secretary? I remember when you were just Scott Besson and we could go for breakfast to get the three of us and no one would bother you. What happened.
I don't know, but I hope it's not the curse the cover because it tolf his Historically, the being on the cover is a curse.
So well, the secrety market is not curse that keeps grinding out all time highs. There is some confidence that we're selling some issues on the trade front. There's one issue that came up this week that we'd love to hear from you about, and that's in Vidia. Where did this agreement come from? You've been quite innovative this administration on trade issues. Where did this come from? Who came up with it?
The President?
The president, As I tell everyone, the President is one of the most open minded people I know. He does everything at first principles. Why do we do things this way? Why shouldn't we do it the other way? And you know, I think that this is a very unique solution allows in Nvidia to expand into China.
It can make in Vidia chips.
The bellweather for Chinese technology, and then the US taxpayer gets a share of that.
Key was unique? Is it unique to Invidia an empty or is this a model for other companies?
I think we could see it in other industries over time. I think you know right now this is unique, but now that we have the model and the beta test, why not expand it.
What do you say to people who think we're putting a price on national security concerns by basically selling export licenses.
There are no national security concerns here. We would not sell any of the advanced chips. So the H twenties, I don't know whether you say there are four or five six levels down the chip stack. What we do not want here, Anne Marie, is for Huawei to have a digital Belton road. So we do not want the standard to become Chinese across the world or even in China.
Well, we have exclusive reporting that Beijing is now sending out letters to firms saying, actually, shrug off those H twenty and use our domestick champions. Is this something you might discuss with your counterpart.
Sure, we can discuss that.
But it also tells me that they are worried about the Nvidio chips becoming the standard in China. Look In video is an incredible product. A lot of the technology in China is they're piggybacking, And I'll use piggybacking as a kind word for acquiring our technology do you mean stealing your words? And yes, that's what I mean.
And the.
In video Jensen Wang just stays years ahead of them.
Criticism came from the Wall Street Ternal Editorial Board though about this new unique policy. They say it's a step toward government control of private business. Are you concerned some of these polies are starting to look like the country you're actually trying to de risk from central planning basically out of the old No.
No, no, no, not at all, because where we got was with this unfettered trade. We did not have secure trade or fair trade, and so now we are trying to make it secure. So you don't want to We're not sending out the highest level chips, and we don't want to sell everything to everybody. So there is a need for intervention. And you know, the Wall Street Journal just let her rip with kind of a bunch of grumpy old men over there.
I was with them yesterday.
This is going to raise some revenue. What do you plan to do with it?
Paid on the debt.
It's all going to go to play down the debt. Because we have heard some stories about the money going back to consumers, going back to citizens of the United States, taxpayers.
Well, President President Trump's talked about that, and look at these the bottom fifty percent of wag journers in the One Big Beautiful Bill are getting a lot of money back. No tax and tips, no tax on over time, no tax on Social Security loans are going to be tax deductible. So I think if we could make a substantial dent in the debt repayment, then we could talk about a program like that.
Could you share with us the kind of numbers you're thinking about at the moment, just in terms of revenue raising, and not just the Nvidia deal. I'm talking about the terraffs on top of that. What are we raising at the moment month on months.
Well, Johnson, I've been saying that we could hit three hundred billion this year, and I think that number is going to be low. I think I'm going to I always like to come in low and then surprise on the upside. But I think in the next days or weeks I may have to move that number up substantially.
You've heard the debate playing out on Wall Street now for a number of months. Who's going to pay the teriffs? By definition, the importer will pay the tariff. The more important question here is who absorbs the costs, whether it's the foreign supplier, whether it's the domestic company here in the United States, or the end consumer. We've got some data yesterday, You've seen it. We've all looked at it.
Limited tariff pass through relative to what was expected. Because of that, a lot of people are suggesting that maybe companies are absorbing costs in a way we didn't anticipate. Perhaps the past through will be more muted in the future. Are you comfortable with where things are now or do you think things might rebalance in the months to count.
Jonathan, I think your framing there is exactly right, exactly right, because that obviously that the tariff itself is paid at the port, but what if the producer in the other country has lowered their price the ten fifteen to twenty percent, so that there is no price change with the tariff.
And obviously our largest trade deficit is with China, and China does not have the same profit objective that other Western democracies do, so that is an employment agency, and my view has been that they would continue to eat the tariffs. They are doing that, so I think what we've seen is likely to continue happening. I also think there are probably a lot of corporate margins that got very fat during COVID. We're seeing a return to normal pre COVID margins.
You see this as some kind of redistribution between corporate America and maybe the consumer Main Street and Wall Street.
I think this administration is all about Main Street, but Wall Street's at a new high. So it's this fault equivalency. It's not either or I tell everyone, I call it parallel prosperity. Wall Street's done great, Main Street can now do great.
Wall Street might do even better if the Federal Serve cuts interest rates. The President was pretty clear yesterday put out this comment, Jerome too late, pal must now lower the interest rate. Is it reasonable to give them a bit more time to draw conclusions about what's happening here?
Well, I think what we could see is that, let's first of all, what if the BLS data had been the higher quality and we'd had those numbers, Jonathan. So if we'd seen those numbers in May in June, I suspect we could have had rate cuts in June and July. So that tells me that there's a very good chance of a fifty basis point rate cut, and I think President Trump is very good at giving these nicknames. And I think the reason that the Jay Powell gets a nickname too late is because he wants to go into
a series of rate hikes. He's not willing. He's not Alan Greenspan, who is very forward thinking. They try to be more data driven, which I think is a mistake because I think we are going back into an economy like we had in the nineties, So you know, it's just very old fashioned thinking. But I do think we could go into a series of rate cuts here, starting with a fifty basis point rate cut in September.
Fifty basis rate cut in September. Does that signal that the economy, though, is not doing well.
That signals that there's an adjustment and the rates are too constrictive if you look at it any model that the if you we should probably be one hundred and fifty one hundred and seventy five bases points lower. So I think the committee needs to step back. I think probably one of the most politicized governors just went off the board and that she was very very political, I believe, and I think that.
Does she do that gave you that impression I'd love to know. Sorry I mentioned you're referring to Governor Kugler. What does she do that game?
I think there's a lot of inside baseball. And look, Governor Kugler, you read what she was saying when Kamala Harris was running, that we needed rake cuts, we needed this, We got to phone the runway and then all of a sudden it was hard to know whether we know TDS.
Was it Trump that.
Dimension syndrome or Trump derangement syndrome or tariff arrangement syndrome.
You get the opportunity to remake the Federal Reserve. The president gets the opportunity to remodel reshape the Federal Reserve. And I'm not talking about the remodeling that maybe the current chairman's going through. We'll talk about that another time. I want to talk about the complexion and character of the committee, the changes that you're making at the moment. Stephen Maron, let's start with Stephen. How quickly can you get more and confirmed?
We'll see. The President has great sway with Leader Thom. Leader Thom has been a great partner during the tax deal, and I think that he would like to see Stephen, who I've known for a long time, get on there as soon as possible. So I'm hopeful about the September meeting. And Jonathan, the President's concerned about the building and those massive costs overrun, which just tell you that there is no accountability at that organization.
There's no oversight in terms of the spending.
But the President and I are both concerned about the foundations of the FED, the foundations of the FED and how did this happen and why did it happen? And you know, how did the leadership let it happen.
When it comes to Director Myron, do you expect him to stay on past the January term that expires from Coogler seat?
I wouldn't expect that.
So who are some names you're thinking of the Cooglar seat? Because everyone has been focused on who is going to fill the chairmanship role? Who are you thinking to fill that extra seat?
Well, e Marie, we're working on the big list right now. I think they're going to be a couple more names revealed today. They're going to be private sector names. So we had a series or a list of current FED members. We're going to have some private sector very well respected, very well respected people and then we will get to the second seat.
Can you give us some names, a little bit of a tease, maybe people that have been on this program.
Well, I just did tease telling you there'll be some private sector names.
Okay, when it comes to the FED chair, though, can you give us a sense of how many names you're actually thinking about.
Well, I'm going to interview.
I'm going to cast a wide net ten to eleven people, and then there'll be a group of us who are meeting with them, and we want to talk about monetary policy. We want to talk about regulatory policy, which is very, very important because the FED step I think bigfoot of the other regulators. The Fed's one of three regulators, Federal Reserve, OCC and FDIC, and I think that they need to understand that they are one of three.
And then the.
Third is the institution itself, which I think is what President Trump has been focused on quite a bit too.
After you do this process, how many names are going to give to the President and when does he start those in person interviews?
We don't have a timeline.
By putting Stephen Myron in that gives us more time, and again, I want to cast a wide net. The President's very open minded before he chose A Powell. Janet Yellen was interviewed, John Taylor was interviewed. Two of them couldn't have been more different, so they were under consideration.
I give you credit for coming up with a really credible list to replace the frontal Reserve chair, Jake pab without a doubt. I think most people that come on this program agree with that. What I want to talk about is the BLS now because there's some controversy around this pick. I'm sure you've heard some of the concerns.
E J.
Anthony had said the following earlier this week before getting the pick from the President. Until this issue with Payrose is corrected, he said, quote, the BLS should suspend issuing the monthly jobs report, but keep publishing the more accurate, though less timely, quarterly data. We'd love your thoughts on this. Is that something you'd support, not at all?
And look what somebody says when.
There are are private citizens is very very different.
You know. I called for a shadow fed chair.
And now that I'm in the seat, I don't think we need to do that. And I was there when EJ was interviewed, and he is incredibly qualified, and I think The most important thing here is that we get back to the integrity of the numbers, because it just became okay, just like so many things in our government, to get sloppy. And ej is precise. He has a doctorate in economics. I think President Trump put a lot of thought into this. He was very thorough in his
questioning of him. So what we want is good data, because you can't make good decisions without good data.
As I just said, is very likely.
That the FED would have been doing something else in June in July if they had had this data.
Well, let's talk about the data we've got and the process we have, and how we might improve that process. As you know that data is prone to big revisions in your career on More Street, we've all been dealing with this for a long long time because of the process and the lack of time. And the response is it is constantly reviewed month on month as you get more responses from America. How can we improve that process so this data is less prone to these big revisions.
Well, I've been in government now for seven months and I can tell you that if we take the irs, which I'm now ahead of, they've been working on a tech upgrade.
Since nineteen ninety. Nineteen ninety, we.
Brought in a young person to fix that. The tech upgrade has been underway for longer than he is old, so he wasn't born when the tech upgrade started. So, you know, I just think like this idea that we're accepting this mediocrity in government. Why don't we bring things into the twenty first century? Why don't we bring it
into the digital age? Because I don't know about political bias one way or the other, but what I can tell you is that the sample response size kept getting smaller and smaller, and then they they filled in the cells. Anytime you get judgment versus data, then things become qualitative and not quantitative. And I think EJ is going to do a great job of bringing back quantitative standards. I think he like these attacks in the press. I think they're all wrong.
It's not in the press, it's even within conservative economic circles that don't think that he is credible to run the commission. Is the Trump administration open to putting more resources then to bls, maybe lifting a hiring freez Well and Marie.
That's more of a democratic idea that you know, we need more. It's always money. It's always money. It's New York City schools, Chicago schools, DC schools. You get terrible outcomes. I think that he's going to sit back, look at the process, and how can we use technology to do this better. I got the Treasury and it was shocking.
We process one point five billion payments a year, and five hundred million of them, one third of them did not have what's known as a task Treasury accounting symbol on them, and people are just hitting sin sin Sin. And it wasn't a gigantic leap just to try to get people to do their jobs.
This has big implications for how people view credible economic data, but also the markets as well. So let's talk about financial markets. In the bond market, you've always been a ten year man. The spread between the two year and the ten year, I think has been really stable over the last several months, where we've start to see some leakages between tens out of thirties. That thirty year bond. As a tracery secretary, I remember you referring to yourself
as the nation's top bond salesman. What's the usefulness of issuing a thirty year bond when it feels like at the moment we're outsourcing borrowing cost to what happens in Japan, what might happen in the UK, what happens in Europe. What's the value of issuing that.
That's a great question, Jonathan, And look, we are committed to keeping inflation expectations glow and this is a global phenomenon, whether it's the ten or the thirty. The US tenure is one of the few ten years where the yield is down on the year, So that tells me that there's credibility from Treasury, credibility from FED, that the inflation expectations are well anchored. But there's definitely leakage from the Japanese have an inflation problem. I've spoken to Governor u Wada,
my opinion not his. They're behind the curve, so they're going to be hiking and they need to get their inflation problem under control. In Germany, we saw a substantial spike in German rates in the past week also, so you know, our thirty year is getting dragged along with that. We've been refilling the Treasury General account, which during the debt ceiling standoff got run down, and we're doing that with short term bills.
Do you see more reason then to pare back on thirty year issuants? With all this in mind, and this is a change again for you now and to see as you look at these developments and rethink, how are your thoughts on that matter evolving?
Yeah, they are evolving, and we'll see where things go. I do think as we bring down this big deficit that we inherited, I think that the US, that the entire US curve, can have a parallel shift down relative to the rest of the world.
Do you think you can work with the Federal Reserve on this matter? So if we take the weighted average maturity of FED holdings at the moment, believe that's running it about nine years, the issuance of the average maturity about standing bills notes bawns, that's closer to six. Do you need to narrow that gap a little bit?
Yeah.
Look, I don't think the FED needs to get back into the large scale asset purchase business, and we've had very good demand, especially in the belly of the curve, which is where asset managers seem most interested.
Now, when it comes to other things you're working on in Washington, D C. There's still this stock band legislation that has been circulating around Congress. Is a president prepared to sign that bill.
I don't think we have the perfect bill yet, but I am going to start pushing for its single stock trading band because it is the credibility of the House and the Senate that you look at some of these eye popping returns, whether it's a Representative Pelosi, Senator Widen, every hedge fund would be jealous of them, and the American people deserve better than this. People don't shouldn't come to Washington to get rich, They should come to serve
the American people. And it brings down trust in the system because I can tell you that if any private citizen traded this way, the sec would be knocking on their door.
Do you think it needs to extend? They'll beyond single stocks? These individuals can still have ets and other products.
Well, what I used to do my old firm was you could buy ETFs had to be widely held ETF so they couldn't be of a small size, and there was a long holding period. The House and the Senate, they're supposed to be working for the American people, their constituents. They're supposed to be making law and they shouldn't be
trading every day. I'm not going to name names, but there was one person in Congress who had twelve or thirteen hundred trades two years ago, and my hedge fund didn't have that many trades.
Do you think it needs to also extend to the executive branch and include the president and the vice president?
I think that they would be fine on the single stock and the holding period.
Maybe they're just great tritus. As the secretary. Do you not think they're just great tritus.
It is a statistical anomaly.
You know. Warren Buffett wrote an essay once and he talked about the zoo and Graham and Dodville, and if all the orangutangs.
In that zoo kept typing the Bible, then there's something going on in that zoo.
There is something going on on Capitol Hill in terms of information.
Leakage that is statistically they are not sound.
Do you think those restrictions should extend to the executive branch?
Sorry?
Do you think those restrictions should extend to the White House?
Well, I mean they already extend the Treasury.
Is the president about this? Is he comfortable?
Well, the presidents come out and favor this, and King Jefferies is in favor of this too. And I can tell you if if I were Congress and I were looking at my ratings with the American people, I would be pushing this because again, it's an extractive class. You should not come to d C expecting to line your pocket. You should come to d C to do the people's business.
We couldn't agree more. And it's been greatly disappointing to see that there's tight restrictions on how journalists trade than over some members of Congress in Washington.
Yeah.
I mean again, it is one of the things that I think we can do to get trust back into the system.
Just wanted to finish on the President's visits to Alaska going into weekend. Emory's going to be that what do you think we can accomplish this weekend.
I think the President has been thinking about this a long time. He believes, as do I, that this war never would have started if he had been president, and he is committed to ending the bloodshed, but not in any calls, not in any costs. I think everyone has been frustrated with President Putin. We expected that he would come to the table in a more fulsome way. It
looks like he may be ready to negotiate. And we've put secondary terriffs on an Indian on the Indians for buying Russian oil, and I could see if things don't go well, then sanctions or secondary terriffs could go up.
What about China, They're the main purchasers of Russian crude.
Again, I'm not going to get ahead of the President, but the President is the best at creating leverage for himself and he will make it clear to President Putin that all options are on the table.
So sanctions can go up, or they can also be loosened.
Sanctions can go up, they can be loosened, they can have a definitive life, they can go on indefinitely. There's this Russian shadow fleet of ships around the world that I think we could crack down in them. But a Marie and Jonathan, the one message I would leave you with the President Trump is meeting with President Putin, and the Europeans are in the wings, carping about how he should do it, what he should do it. But the
Europeans need to join us in these sanctions. They need to The Europeans need to be willing to put on these secondary sanctions. I was at the G seven meeting in Canada with President Trump, and the Europeans kept talking about Senator Graham's bill to do the secondary tariffs. And I looked at all the leaders around the table and I said, is everyone at this table willing to put a two secondary tariff on China? And you know what, everybody wanted to see what kind of shoes they were wearing.
I imagine the Germans went very quiet, and that's been a problem for a long time.
Yeah, it's put up her, shut up time. The president is creating his own leverage. We need the Europeans to come in and help create more leverage.
Mister secretary. I'm appreciate your time. Good to see if you're enjoying this. I get the fill that you're enjoying this. All right, it's good to see it. You seem happy.
I think things are going well.
Janette Love, I should take us at bad Company. The team I've had rights in the following to bank. Now it's not about whether it's a count rights in September, but by how much. Jeannette joined us now from more Jenet, welcome to the program. Also a big question about who's going to be on the committee by the time we get to the middle of September, and whether step and Myron can be confirmed by then. What are you telling clients about the prospects of that happening.
Yeah, I mean, so.
This is something that's kind of interesting because we think that the Trump administration would definitely like him to be on the FED Board before the September meeting. And the question also is do they want him on the board before September twelfth, when the dot plots and the forecast
have to be submitted. So if the Senate's not coming back until September second, We've looked at prior cabinet appointees early on in this Trump administration, as well as Murn's appointment earlier this year to the Council of Economic Advisors, and in general it takes about thirteen.
Days for a cabinet member to be appointed.
So if the Senate comes back on September second, that does give enough time for him to be on the FED Board by the September sixteen, seventeenth meeting, but it may not give him enough time to be in time for September twelfth, might mean that the Senate Banking Committee has to come in earlier to get this confirmation process moving, to at least hold the hearing in advance, so then they can start moving to a committee vote when they come back officially from recess, and then move to the
Senate floor.
Jendan, how likely is that they're going to move this quickly?
You know?
I think it's might depend on whether or not there's pressure coming from the Trump administration if he asks them to treat this like a early cabinet member early on in the administration. Obviously, Marco Rubio was confirmed quite quickly with only I think five days. So if it's going to depend if there's some pressure there to actually get this moving, since obviously that's not usual for members to be called back into recess called back from recess early.
But I think that's where there's going to have to be that pressure point is whether or not that occurs to get the Senate to actually move and try to advance this a little bit more quickly.
And when it comes to Steve Meyron, he has the benefit of already going through this process. What's the likelihood of EJ and TONI getting confirmed to run BLS?
Yeah, I mean, I think that there's probably going to be deference to the administration about getting his appointees in place. We haven't really seen any major pushback significantly from.
A few Trump nominees overall.
And I think the other thing to kind of watch too with the Fed appointment is watch a Senator like Tim Tillis, Tom Tillis and see if he might actually start to raise some questions. Does he also have a no vote in committee that could slow down the process.
I think that's something else to kind of watch out for.
But I think if in terms of the BLS appointee, there's going to be an effort to try to get his appointees to the positions. That's obviously been a fight within the Republicans and the Democrats in the Senate and whether or not they should have abandoned recess in the first place, because there's been such a lag in getting some of these nominees confirmed.
When it comes to Antony, though, there's been a lot of pushback in conservative economic circles about his nomination, and when you look at who's on the Senate Committee on Health, Education, Labor, and Pensions, it's some Republicans where he cannot lose a single vote that hasn't had a problem with voicing their concerns with the Trump administration. They gave Bill Cassidy, Ron Paul Susan Collins, Lisa Murkowski. Do you think he really can get out of committee?
Well, I think, obviously, as we've seen in the past, what happens in the hearing is most important.
So if there's information.
That comes up with the hearing, that could change how those senators view the nominee and their ultimate vote.
On the decision.
But as we've seen in the past, some of these same senators have had to issues with prior Trump nominees, but then when push comes to shove, they actually do vote them through committee, and they do vote them through on the floor. So I think the hearing will be quite instructive, but it's always something to kind of keep in.
Mind, given even conservative economists think this individual's highly bias and politicized. Our clients telling you that they're concerned about the accuracy of the data going forward.
I think this is starting to become a conversation. We're starting to hear some questions about whether or not there could be some politicization coming now with a number and whether or not people can feel like they can trust the numbers as much.
It's not an overt.
Concern at this point, but I think that that's obviously going to be something that's going to be in the back of investors' minds just thinking about whether or not there is some option going down the road, and now that we've had this argument come up with the past BLS commissioner and with a past jobs data, whether or not there could be some sort of either manipulation or the ability to put someone in there who could have a sway on the data.
Janie, I would think that that's what you.
Ask if I got to jump in forgive me when you engage with clients, are they worried about this? Is there something that comes up repeatedly or something the comfortable with at the moment.
At the moment, I think it's not a significant concern. I think obviously how things play out over the next couple of months will make will have a bigger impact. But of course you are hearing questions just about whether the process might have a change now that we're seeing some movement, we're seeing a shake up at the BLS, things of that nature. Obviously, there are also some client
who think that, you know, some reform is necessary. So I think that there's also kind of like let's do a little bit of a wait and see approach to this and see what might happen as this new individual comes in.
Jennet, thank you, appreciate your time as always, Jennet Low there, Ohstatiga is a bad company. Braz An Selder is a child swap right of the following, slightly harder services inflation suggests the possibility the core PC prints will be a little higher, though September is still clearly on the table for a federal reserve. Ray Cup Lizenne joins us right
now for more. Lizane, welcome to the program. Some confidence maybe that we're seeing limited tariff pass through, but maybe I think recently some nerves emerging that perhaps we're starting to see evidence of demand destruction. How concerned list are you about that?
Well, you know, one thing that I think needs to be pointed out when you look at what was perceived to be fairly benign core goods inflation up only about on and a quarter percent on a year of year basis, is what the direction has been. So many people forget
that we were actually with core goods. We were in deflation territory as recently as the second half of last year, So that's a full three percentage point more than increase from where we were at the latter part of last year, where you had core goods in deflation to the tune of negative two percent. So you've gone from negative two percent to one and change, and now you've got this
hook higher on the services side. So I think this kind of data, inflation data, labor market data, you really need to dig under the surface to get a true sense of what the impact is as to whether the FED will cut it depends on the next set of reports. I think the mapping to PCE suggests you could see a little bit of a hotter move that doesn't tend to be as market moving as CPI and PPI, But that's what I'd be keeping an eye on.
As Honess. You know, the range of outcomes is still really really wide. The way things out right now now, they might change in several months time. We talked a lot Michael mckeby's on the program earlier, and we were talking about how much companies were absorbing at the moment and whether they pass it on in the months to come or whether they cut costs. Do you think September is still too early to draw any firm conclusions.
I think it is too early. But what I will say, and this has already been under way, and I think it will continue in the September and thereafter as it relates to the FED, I think you're likely to continue to see a wider dispersion of perspectives from members of the FED, certainly when they're in the federal open mouth committee mode out there speaking, but even in things like the Summary of Economic projections and particularly the dots plot, you're seeing a wider array. We had two descents with
the most recent meeting of the July meeting. I think that that sort of dissent probability stays relatively high, with a wider range depending on who the individual is on that committee expressing their views going forward. So I think that's kind of the name of the game, at least in the near term.
Well, if the tariff impact is mixed under the surface, when do you think we'll actually see it fully priced in?
Well, the problem is that this was not you know a lot of people talked about the inflation impact being one time in nature, one time price level reset. The problem is there's no one time as it relates to the implementation of tariffs. It has been such rifle shot on off delays terraffs being used as a tool beyond just raising revenues or improving the trade deficit. So I
think we've got the rolling nature of this. You know, several years ago we talked a lot about rolling recessions, so we didn't think you were going to see an actual economic recession, but pockets of weakness at different times. I think that's manifesting itself in the inflation data too, meaning the rolling nature of it, where you see pockets of impact on the upside, you maybe get some pockets of offset on the downside, as opposed to anything that
is one time in nature. And I think that will also continue to be the name of the game because there isn't anything one time about how we're getting information on tariffs, and that increasingly makes it more difficult for companies to map out a longer term pricing strategy.
Well when it comes to the FED, do they even have the luxury of waiting to see the full impact. If the labor market Lausanne is weakening.
That would be the primary reason why September is on the table. The FED is essentially inferred, not that they're ignoring the inflation side of their mandate, but the trigger to move back to easier policy, per what they did last fall, is probably more on the labor market side versus the inflation side, unless you have a major, major
spike in inflation from here. That's precisely what happened last fall when the Fed did launch what became only three rate cuts, but they launched it with a fifty and that was because of pretty significant concerns turned out to be somewhat unfounded, but significant concerns about the labor market. So the inflation data is going to be parsed like it always is, but I think it's the labor market side of their mandate that will ultimately be the trigger for what they do.
And by how much. Listen, let's push some of this conversation into the equity market record, Hon, the SMP record. Hon. Then that's that one hundred as we kick off Wednesday morning. Beneath the index. How much adjustment are you seeing in individual equities to the prospect of so called demand destruction? When you hear about companies like Kava, like Sweet Green facing a bit of a consumer slowed down.
Yeah, there's a lot of consolidation happening under the surface, which if you're only looking at at what the indexers are doing, I think you don't pick up on that. I've talked to a lot of people who say, oh, TeX's the best performing sector. It's actually the second best performing sector on a year to day basis, comm services being the other. But they're often lumped together. But each of those sectors only has about a rounding sixty percent of their stocks in the same kind of breadth pattern
as the index overall. In the case of the Nasdaq one hundred all time highs, but less than fifty percent of the stocks are at all time highs. You've got only actually, I think it's less than thirty percent of stocks within the S and P five hundred have outperformed the index itself over the past month, and you don't get much above a third of the index over any trailing period one year, one month, three months, six months. So there's a bit more weakness and rotation and churn
happening under the surface. It's somewhat similar to what we have seen in periods in the past, both in twenty twenty three and twenty twenty four, and I think the fuller story, not the real story, but the fuller story maybe getting told under the surface of these cap weighted indexes.
Do you think that narrow breadth and high current centration is necessarily something to be concerned about? Zan Then that's the ultimate question for a lot of people. I hear people point it out all the time, and then we just keep grinding out new old time highs. Is it necessarily problematic?
Note if the market continues to do well, But if you look at the early part of this year, the period between February nineteenth, which at that time was an all time high and the intra day low on April ninth, those areas of the market, the megacap, tech, tech related mag seven, whatever categorization you wanted to use, those were the areas that had the bigger draw downs relative to the index. So that that period between mid February and early April was one where the indexes were dragged down
even more. But you did have some ballasts within the market in areas that had not done well. So yeah, you're absolutely right. If the market continues to do well and momentum is on the market side. I think the pain trade is still probably higher, but that could be a situation that unfolds fairly quickly and akin to what we saw in that mid February to mid April period.
That sound I appreciate it. Time As always, this sounds some us that a child swamp. I think what joined around the time boat by another Yankees fan? Is that right?
As soon as I saw the mug, I said, why aren't you disc.
I was trying HIDEX.
I'm pretty sure it's our best at treasure secretaries are red SOX fans, so.
I don't want to.
I don't want to antagonize him, you know.
On during this entire interview, Tom force Selli of PGM Joints is around the table with Tomking.
Morning, get good to see you.
It's going to see it. Let's talk about the state of this economy. Let's start with the labor market first. Where are we?
I mean, you know, I've been on this program many times for many months saying there are all these cracks forming, and that is as true today as it was, you know, sort of six months ago when we were driving that point home.
So nothing has changed for us in that regard.
In fact, what I would say, is the payroll report, the much maligned recent pay roll report. To me, that was just a manifestation of all the other things that had been going on prior. So I don't, I wouldn't. We weren't all shocked and bothered by it. I think it was just sort of revealing what was already in place.
So let's stay on payrolls. Yeah, step down, clearly, very obvious. We've gone from a decent clip of gains to something closer to stall speed. I want to understand from your perspective whether you think that cements this idea that we've seen a technical turn, whether it's more evidence for a structural shift, something developing on the supply side.
Yeah, so we think that things are slowing down, right, I mean I think that's an important idea. Like, we don't think we're like cyclically, we're about to slip into a recession. Instead, what we've been saying is we're in the sort of muddle through backdrops, and we would define that as sort of, like you a one percent ish kind of growth, one to one and a half percent growth, And so that report is actually very consistent with our view in that regard. So when I think about FED
response function. We actually think the Fed they are supposed to cut. I mean, I don't think that's for us. That's been our long standing call that they would start cutting again in September, and so we feel good about that overall. So well, sorry, we feel good about the call overall. I mean, being slowing down is never obviously agree to state you feel.
Good about the call of the FED cutting in September. The Trager secretary is calling for fifty basis point.
Yeah, So look, do I have sympathy for that idea?
The answer to that is, tell me.
What the payroll report is going to look like, you know, in a month from now or whatever it is, a couple of weeks from now, because I think you're gonna need evidence for that. If it's just a sort of another another really soft report like we saw, I don't
know if that's the evidence enough to go fifty. But you know, to me, it's it's sort of semantics in some way, because whether they go fifty or twenty five, I think they're pulling forward a lot of the cuts that they sort of were prt that the FED was pricing in over the balance of the next year and a half.
If they go fifty though, what signal does that mean for how the Fed thinks of the economy right now?
Yeah, I think it really drives home that, look, the Fed already and I feel like a lot of us, me included, I feel like a lot of us forget this. The Fed already had cuts teed up, right, They already were expecting two cuts this year, so they were expecting a softer economic backdrop. And so I think in that context,
it's just very in keeping with what they're viewing. Show me another really poor payroll report it I'll give you the evidence for Hey, maybe they need to do more, but I think for right now it's pretty consistent.
We get one more papers report. I've got no idea what Senate. We'll get that on September fifth. A week later, they don't tell you, absolutely cluarless to be a less it share nothing with me. A week later we'll get the CPI report. I want to finish on inflation, and turns to that side of the dual mandate. Limited tariff passed through relative to what was expected? Do you think it remains that when the months to count?
No, Actually, I think you're seeing limited passed through now because companies did a really smart thing. They built inventories in a really meaningful So that's sort of buffering the sort of the flow of the tariff inflationary impulse into inflation. But I'll give you one really interesting thing to think about. You know, it's funny we're having this conversation about our payrolls calculator, right, Obviously we can have the same conversation
about inflation inflation. There are so many flaws in the calculation of inflation. So if I look at if I swap out something as simple it's not that it's so simple because it's a big component.
But if I swap out.
Oeer for you know, sort of a market measure of rents like apartment list.
Inflation is running at a one percent pace right now.
I mean, I think all of this sort I think that to me is the right way of thinking about what the starting point for.
It Isn't that giving you a lead on what you think ultimately is going to happen with service inflation down the road?
Yeah?
So I think from our perspective, what it means is that you are going to get this lift higher in inflation. But you know you so what so you lift sort toward the target as opposed to being above target now and going even further above target. I mean, I think if you look at inflation with just making some very modest and I think very reasonable adjustments, you probably want to getting back to target.
This situation that is not something that you think will constrain the fensibility to reduce right and respect to softness in the light.
Yeah, I don't. I mean, I think the FED has the right line on this. I think it is going to be a temporary sort of one time shift time you say.
The fedesi right line, some fedid vigils at the FED, Yes, have the right line. Yes, I don't know where the whole committee is. Where's the whole comittee on this?
Yeah, I mean, and as you would expect, there's just a divergence of views, I think, seemingly at this point. But it does seem that the sort of the momentum is drifting toward people having the right line, which is to say, cutting in September.
If we're not going to see the full tariff impact, say till twenty twenty six. Can you see a scenario with a FED is cutting at the end of this year, maybe starting in September and then having to think about hikes next year.
Yeah, so this is a really important idea in the context of this is not COVID, right. I mean, I think people are looking at this sort of this this drift that we're going to see higher in inflation, and I think that, you know, they're scarred. I think including FED officials is specifically pell I think right called the transitory So I think they're scarred because of the whole you know, let's call it transitory mistique. But it's this is not that you know, we imply people with mountains
of cash through a helicopter drop of money. We didn't create a pent up demand scenario by shutting down an otherwise really healthy economy and then turning back on.
So I think the setup is so different, right to see it's going to see you, sir, good same time. Thank you for being here. Tom por Sei of PGM Fixed Income. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, antient politics. You can watch the show live on bloomblog TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and, as always on the bloom blog, terminal and the Bloomberg Business app.