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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.
Publican Congressman French Hill of Arkansas Rock and a green tie with lots of dogs are on it. Joining us now. Congressman, I want to start with this question of how available congress members are going to be to implement some of these proclamations on truth social I know that you are up for leading the House Services Financial Services Committee. What would your priorities on day one?
Well, first, Lisa A Marie, great to be with you. First, I think we have to coordinate with the Income and Trump administration about their regulatory priorities.
That's number one.
Number two, we want to roll back the most egregious burdensome part of the Biden Harris regulatory agenda, whether that's at the CFPB or the SEC or through the bank regulators, we want more clarity, more transparency, less cost in the
system while preserving safety and soundness. Next, we need to pursue something that's unfinished business in this Congress, which is to create a market structure for digital assets and bring up that clarity for innovators, for coders, for venture capitalists who are engaged in the next next range of investment in the web Web three, which has got blockchain as a critical feature of it. So I'd say those are some of the top priorities among many, but those are some of the top priorities.
So those would be your priorities if you were to get the gavel. I'm told that this is been very competitive to lead this committee. We're going to see this vote take place in the next twenty four to forty eight hours. How close do you think you are to leading the committee and getting the nod?
Well, I've worked very hard over the last few months to talk about my vision for the committee, my ability to be ready day one to implement President Trump and House Republicans' Financial Services priorities and regulatory rollback using budget reconciliation, making community banking great again by both legislative and regulatory changes countering China. So I've talked about my experience. I was a private sector bank CEO, I've been a Denovo
Bank founder and CEO. I've been a public company director, and of course worked in the both the executive branch and the legislative branch, specifically on economic and financial services policy. So I've talked about why I believe I'm the best candidate based on that management experience, that ready to go vision I have for the Committee, and the work I've done here in the House.
When it comes to the first one hundred days of the Republican sweep through the House and the Senate and the White House, there's a debate now and incoming Senate Majority Leader John Fuhn is talking about but he wants to do two bills, border and energy in one and tax cuts in another. But your colleague in the House, Jason Smith, wants one large package with immigration, energy as well as those tax cuts. What do you think is the best path forward?
Well, and Marie, what I think we have to do is be on the same page I think Senate leadership, led by incoming Majority Leader John Thune, our great Speaker Mike Johnson, and the incoming leadership in the Trump administration need to have their own view and have it be a consistent and combined view for both the House and Senate. I think that maximizes the leverage we have for using bucket budget reconciliation. You have to navigate the parliamentarian and
the Senate. You have to make sure you have a clear plan, but most importantly, in a narrow majority in the House, we got to make sure we have republic can only votes for that. So that's why I think all three parties, the executive branch, the House, and Senate Republicans all need to be on the same page.
Congressman, we talk a lot with different investment managers about the sequencing next year and how things are going to get through from President Trump's agenda. People talking that probably we're going to get tariffs first. We see a great willingness to do that. Do you understand the mechanism by which tariffs bring revenues into the country in a way that could actually offset the deficit.
Well, that's a big, big step to make the assertion that tariffs are somehow going to offset a two trillion dollar death sit that is projected to be at that level for the next ten years. I think this is much more about setting long term spending reform and spending priorities, as opposed to that you're going to balance the budget
through some revenue mechanism. We need to get serious about prioritizing discretionary spending, but that's only a third of the budget, and we really need a bipartisan by cameral process to make long term spending reforms in what we think can call the mandatory spending programs, which is eighty percent.
Of the budget.
If we do that, we'll put America's financing on a much more sustainable course, and that will be the ticket, in my view, to countering China, meeting all of our domestic priorities, and having a long term future that doesn't continue to indebt the next generation.
So what do you think the end goal President Electroump has when it comes to the tariffs he's discussed on the campaign trail.
Well.
I think he wants to use tariffs as a major cudgel in bringing people to the negotiating table, and I believe one of the priorities will be make sure that the USMCA, which he negotiated as president and replaced the North American Free Trade Agreement, is working just as American policymakers.
Believed it should.
Maybe we could strengthen it, make sure that people can't take advantage.
Of it inappropriately.
Perhaps we could even add countries to it, which I think is an exciting prospect to use that as a real inducement to get more partners trading partners for the United States, Canada, and Mexico. And I think that would be a real ticket to bring FDI that the President talked about yesterday, foreign direct investment coming into the United States.
Congressman Hill, just to be clear, then, is it your expectation that we will not see sweeping tariffs, that it is simply a negotiating employee.
I think it's a principal cudgel that the President has in bringing people to the table to get better open access for American products and be treating our services and merchandise fairly and make sure that we can get into other countries on a fair and equitable basis. And over the years that's really deteriorated, and I think that's the purpose of using tariffs is to say you're not going to dump your products into our country at subsidized, cheap prices, and we want access to your markets.
Congressman, before we let you go, one other big question that we keep hearing about has been how much of the Doege Committee can really push through some of the efficiencies that can help offset a number of the expenditures. How willing do you think congress members are going to be to sign off on some of the proposals to cut staff dramatically across the board.
Well, look, I think the Doze exercise led by Elon Musk and Vivek Ramashwami is a good one. I think having outside voices take a look at the calcification of the barnacles that have been built up on the whole of state for decades is really important. And I think they'll have ideas that can be done by executive management on being more efficient and procurement, or policies about employment. But a lot of the tough changes will come that they'll recommend, it will have to be vetted by Congress
and approved by Congress. And I can say on the House Republican side, tremendous enthusiasm to see these two successful business guys brainstorm work with the cabinet secretaries and make constructive recommendations for making the government better, more efficient, and of course less costly to the American people.
Congressman, thank you so much. You are very generous with your time, and we look forward to speaking to you after that Thursday vote. Congressman French Hell on everything else. David Kelly of JP Morgan with a reaction to what we just got basically bang in line with expectations. I imagine you're going to sort of talk about how this is exactly as expected, the disinflationary trend intact.
What's your take?
Well, I think it's pretty interesting because when you dig into the data, what we have is rich American inflation. We've got poor world deflation. So if you actually look at the you know, where do we see inflation? In November we saw another four tenths. In airline affairs we saw another five tenths. And hotel rates we saw another six tenths. And new vehicle prices, so the stuff that the rich buy because they got money is going up.
But if you look at you know, energy in recent months has come down a lot and then as Michael was pointing out to the things that have been holding inflation up, which are shelter costs and auto insurance, we're both very mild in this report. So what that tells me is if borrowing some shock, the CPI numbers will trend down next year, and you know, the next few months are going to show some high year of year numbers. But by next spring, I think we're going to be
below two percent a year of year CPI. But it's really going to be.
Because of a lot.
Of ordinary goods and services, both by ordinary people seeing some deflation pressure. Even while things that the playthings and play activities and the rich get more expensive.
We are seeing right now, to your yells, take a leg lower as people. I'll look through this and get on board with what you're talking about, David, in terms of inflation coming in.
How do you.
Dismiss this idea that some of the drivers of inflation I'm thinking about airplane costs, I'm thinking of cars, I'm thinking about other sectors are likely starting to see another revival of inflation. How do you discount some of those anecdotes at a time where the cycle has been so confusing.
Yeah, I don't think that's likely to happen barring policies, some policy change, right. You know, what I focus on a lot is things like labor costs, and we see no evidence that American workers are getting the kinds of wage increases which would ultimately generate inflation from below. So
I don't think that's what's going to happen. But I do think that when the Federal Reserve looks at it, they're going to have to look with one eye on what's really going on the economy right now and one eye of what might be coming in terms of policy going forward. So I do expect that the dot plot next week will be a little bit more cautious than the one in September. I think they'll try and take some rat cuts off the table here in the host years,
even though I expect they'll cut in December. So right now, how I'd say, the inflation story is still benign. It's cooling, It's cooling very slowly, but it's still cooling. But the question is what are we going to do to that when we attack this with policy changes next year?
And of course, David, the Fed is not political, but how do they avoid a potential political firestorm if they start to take cuts off the table for twenty twenty five in what will be the first year of Trump's second term as president.
That seems like something.
That would absolutely invoke a truth social tweet opposed. So whatever you call it on next now, well, I.
Think they should try and sneak it into the Summary of Economic projections right now rather than disappoint with not cutting rates when people expect them to next year. And so I think we'll see a bit of that. I don't think, you know, I think that they won't assume, as Ja Palace point out, they don't speculate, they don't assume, they don't guess, they're I'm going to assume the impact of all of the potential immigration and tariff policies or
deed fiscal stimus in twenty twenty six on inflation. They won't assume that. But I think that the individual bank presidents will probably take a rate cutter two off the table for twenty twenty five twenty twenty six. I'm put in the Summary of economic projections and see if you know, because the danger of a big political firestorm over a dot plot when people, you know, when Americans faure I'm paying that much attention to the dot plot. I don't
think there's that great danger. I think it's better for them to set up expectations for less easy and going forward. Set that up now so they don't have to they don't have to defend not cutting when people expected them to in the middle of next year.
In the meantime, there's just been this huge surge in optimism as all these soft surveys really follow the politics pretty clearly. There's ones from CEOs from the Business Roundtable saying that they plan to spend more on capex, they plan to hire more small business Optimism is off the charts too, David. At what point does that go from soft data to hard data. Is there a potential for some of that to act as an inflationary force.
I don't think so, but I mean there is I think people are happy to have the election behind us. I think there is optimism on deregulation, but I think there is also a fair amount of concern about, you know, how far we're going to push things in terms of tariffs or in terms of deportations, and I think so.
I think there's a little bit of caution still out there, and I don't think that the amount of spending that's going to go into the economy is in twenty twenty five is going to cause more inflation, particularly because we've now got a stronger dollar, which is going to reduce import prices go weak global oil prices. We've got a kind of mediocre global economies. There's nothing external that's generating inflation. I don't see wages in the US generating internal inflation.
So right now, I think we're still on a you know, there's a very good track. It's it's steady growth, a little bit above trend growth, with inflation gradually easing down.
At the question.
You know, this is a really good economy for financial markets. The question is can we sustain it in twenty twenty five.
Constrictor immigration flows though, could that be a cause for potentially higher wages and wage inflation.
Oh yes, yeah. I mean if we do mass deportations of people who are currently working, whether they're legal or not, If they're currently working and we deport them. The problem is the native born working hit population in the United States is declining. So if we don't, if we slam the door on both legal and illegal immigration, then we'll have a problem. But I really don't think that's what's going to happen. I think we'll have to see how
it plays out. I think we will see some greater deportation, but I think American business is very anxious that we continue to have skilled workers from around the world come to the United States and help our economy grow, and I think that probably will be sustained.
David Kelly of JP Morgan, thank you as always for your insight. Joining us now is jap Brice and of Wells Fargo. Jay, your initial reaction to a hugely surprising print of exactly online what everybody was expecting.
Well, so you'll use a phrase. I'm sure, Danny you're familiar with this. It's kind of a damp squib, right, there's nothing to see here.
Yeah.
I agree with Mike, and I think this will I think the FOMC will go ahead now and cut by twenty five basis points next week. It'd be interesting really going forward because we're not at two percent yet. You know, if you take this number and you annualize it, you're at the core number. You're still running at three and a quarter percent. That's still well above where the FOMC
wants to see it now. Tomorrow we'll get you know, we'll get PPI and that will help us to true up our PCE numbers, which is the more important number for the Fed. But you know, this is this right here. There's nothing here that would say the Fed doesn't hike cut rates next week.
Which especially comes after the unemployment rate ticked up just a little bit in the prior NFP that we got last Friday. I just wonder what data is really going to become incredibly important going forward, or essentially if the Fed is going to really open up a blank check to do whatever it wants next year because of the policy uncertainty on the table.
Yeah. So, I mean the two big numbers are always going to continue to be, at least for the foreseeable future. It's going to be continued to be the labor market report in the CPI slash PCE sort of numbers. But they will look at the totality of the numbers. We'll get retail spending the day before the FOMC meets. You know, that's still an important number. It's not a list like those two, but those I think will be the real key numbers as we continue to move forward.
First of all, Jay, Thank you for using the phrase damp squid. Not enough people say it in this country, and it's perfect for a moment like this. What do you expect then, now that you know we're missing maybe like that tiny piece of the puzzle, But we have labor figures, we have CPI. When it comes to what they project forward for twenty twenty five, what are we likely to hear from the Fed? Is this an FOMC that wants to give themselves more optionality to pause at this moment?
Well, so, I don't expect Chair palan his press conference to be real specific about policy assumptions. I think we'll be interesting is when you look at the dot plot for twenty twenty five, I think that you're probably going to see a lot of dispersion there depending on what
policy assumptions different FOMC members are making. So you know, if you're the president of a FED somewhere and you think there's going to be lots of tariffs next year, you're probably going to have a higher dot than otherwise. And so we won't know what those assumptions are. I'm going to assume that during the FOMC meeting there will be a robust discussion about that, but we're not going to actually know what they discuss until five years from now when the actual transcripts come out, right.
But putting this all together, what's your base case for twenty twenty five? It feels like with this inflation data, basically Defense given this green light to cut next week, but what about for twenty twenty five?
So what we're assuming is what we've baked into our forecast is not the whole ten percent across the board tariff sixty percent on China. We've kind of taken half of that and we've said, Okay, we think it's probably going to come maybe in the second half of the year. So our base case is in the second half of next year you see a big slowdown in the US economy because of these tariffs, draining purchasing power and then
inflation coming up. And so you know, we have the Fed stopping in the summer of next year with their rad.
Cuts, and that means that the terminal rate.
Is three and a half to four, somewhere in that sort of vicinity.
So it'll be interesting to see whether they actually do revise their statement of economic projections next week. Jae Brice and Falls Fargot, Thank you. Wonderful to see you in person.
This is the Bloomberg Savnants podcast, bringing you the best in markets, economics, anngio politics. You can watch the show live on bloombag 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 Bloombag terminal and the Bloomberg Business app