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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.
And the Savannas. This morning, the FED Chair stay and put.
If my successor is not confirmed by the end of my term as chair, I would serve as chair pro tem until he is confirmed. I have no intention of leaving the board until the investigation is well and truly over, with transparency and finality. On the question of whether I will then continue to serve as a governor after my term ends and after the investigation or I have not made that decision yet.
So here's the latest.
This morning, the FED Chair Jay Powell, vowing to stay on at the Central Bank until the DOJ investigation into him comes to an end. Joining us now to Viscasis Kristna of Evercorn now Christa welcome. First of all, we've asked this question a number of times in the last twenty four hours. I'd love your perspective on it. Does that provide consistency or invite controversy?
I think Powell has made explicit something that I think was very clear to anyone who knew him. There is simply no way that he would even consider leaving the FED under the cloud of this investigation, not really because of what it means for him, but because of the precedent that it would create that a future FED official, even FED chair, could be, on the face of it, driven out or at least helped to the door by a DOJ investigation.
This line here, though, I think, is this interesting. The first line from the chairman was that if my successor is not confirmed by the end of my term as chair, I'll stay on. That makes sense, that's continuity. Market wants to see that. The second line was I have no intention of leaving the board until the investigation is well and truly over with transparency and finality. So ultimately a
lot of people will view that as defending central bank independence. Granted, the third point is interesting though, and this is the bit where I'm intrigued.
Krishner this line. At the moment on the.
Question of whether I will continue to serve as a governor after my term ends and after the investigation is over, I have not made the decision on that yet. What's the value of putting that out there?
Well, I think you're absolutely right that that was a very strong statement by Powell. And as you'll recall, it wasn't something he was forced to say because of questioning. It's something he volunteered. He had it written down, he knew he wanted to say that. Look, there's a sort of narrow sense in which we can interpret that in a why sense. The narrow sense is that Powell doesn't
want to look like he's offering a deal. If you drop the investigation, I walk right, that's almost as bad as looking like you're being hounded out by the investigation itself. So there's a narrow way in which we might interpret that language. But I'm inclined to read it also in a broader way. The Powell is telling us that he is seriously considering staying on as a governor, as a regular governor, at least for some time after the end of his term as chair, even if that investigation is dropped.
That is not something I would have really brought into a few months ago. But I think the DOJ investigation has backfired terribly on the administration, and I think that it feels like Powell is inclined to stay possibly either way at this juncture.
I'm struck by the historical parallel, and we were talking about this yesterday. The last person who is FED chair who then stayed on as governor was Baroner Eccles. His term ended as FED chair in nineteen forty eight, and he stayed on for a number of years after that. This is following the Breton Woods Accord, It followed the war, It followed a highly tumultuous period in central banking history.
Are we marking another period which is sort of setting off a new era for central banks where they have less power or frankly, they don't necessarily drive the bus, where Generation Q, as Michael Hartner just said, is over.
Well, certainly, you know the note we published on the FED meeting yesterday said specifically what you've just mentioned that, Look, this was actually in the circumstance is a pretty dubvish FED meeting, and it came with bullish upgrades to growth forecast. But we wrote the FED is not driving the bus. Now, that's in the specific context of a war, and a war that generates a very large shock to energy prices. I'd be wary of making a generalized statement with central
banks don't matter anymore. I think that would be and I'm not saying you're say that, but that would be far too sweeping. But certainly in the here and now, this is a context where the central banks are to a very large degree in reactive mode. They are not setting the agenda, They are not shaping where we are going. Does it feel to Powell potentially like this is a complex moment, both in terms of the world and in terms of the Fed's institutional situation, where it may be
advisable for him to stay for a while. I guess that's certainly something that you know he will be considering here. One question I think is whether it would be a disaster for Chair Wash if Powell stayed on. Not clear to me that's the case. I'm not sure they're particularly close, to say the least, But Powell is underlying pretty dubvish and there are versions of the world where Powell staying on as a regular governor could ultimately help bridge to getting one or two cuts done later this year.
Underwash, just real quick, here as the bar right now for the FED to hike rate at.
Some point, Well, the term some point obviously is elastic, right, But I think the bar to the FED hiking rates, let's say this year, I think is incredibly high. It's not literally impossibly high, but I think it's very, very high.
You know, look, we have an economy that faces growth as well as inflation risks, but one where you know, in the baseline case, both growth and core inflation in the US ought to be relatively relatively resilient, as in limited effect compared with the other economies in the rest of the world. So it's not obvious that this juncture a major shift in the direction of policy is appropriate. The market obviously has been pushing back and shaving FED rate cuts. That seems like the vector that is in
play at the moment. I tell you, we still think that it's possible to get to a couple of cuts this year, under Chair War. So our take is more dubvish than the market right now would think that all fared signals yesterday, they're still inclined to cuts the one rather than two. And the question is could the data plus the new chair potentially certainly lock in that one and maybe get them to two.
Stay with us.
More Bloomberg surveillance coming up after this. So here's the lisis this morning energy price is soaring as President Trump looks the curb attacks on infrastructure in the Middle East, claiming the US knew nothing. These ready strike on the critical South Pass gas field in Iran. This is what Edward Fishman of the Council on Foreign Relations has to say rise the following Iran his waging war on the
global economy. Its strategy is clear, keep the stratiformers effectively closed until prices rise enough to force President Trump to back down. The author of choke Points American Power in the Age of Economic Wolfat joins us now for more Atie good Monk.
Good to see John.
That's sounds some books. Let's talk about the significance of this chuck point. He's got control of this Iran.
I think that's the one thing we've learned is that Iran has established very clear control over the straight off hor moves and there's very little that the United States can do without committing ground forces to stop that. Trump entered the war assuming that Iran would not close the strait.
Because the theory.
Was that they would have to put thousands of sea mines in the strait to close it. And if they did that, what would happen? Iran would not be able to sell its own oil, so it would be economically suicidal. Well, Iran has kind of created a new kind of economic warfare with just using cheap drones that cost you ten thousand dollars a pop and only hitting about a dozen ships.
Right, they haven't hit that many ships.
They've changed the risk calculus of the entire entire shipping industry, and so they've really created this very low cost way of disrupting shipping and we don't have a great answer for it.
I'm glad you brought up the costs because these are howdie drones are ten to twenty thousand dollars to produce. How many is Iran right now have in stock. Because how cheap they are to produce, means they could potentially prolong this war for as long as possible.
I think that they could prolong as war as long as they want. If it's if we're talking about producing and using low cost drones, they've got tens of thousands of them. But I think more to the point, the room we're sitting in right now is bigger than you would need to actually produce to headrones.
And Iran is a huge country.
I think it's the fifteenth or sixteenth largest country in the world. So even in a scenario in which we've got air strikes for the next year and destroy every single thing in the country that looks like a military target, we're not going to be able to stop them from producing drones.
Members of Iran's parliament right now are debating potentially making it basically like we have on our transit system, you have to pay a fee in order to get through the Strait of Hermose. So basically, is the United States at some point seating all control of this international waterway to the regime?
Yeah, I mean, look, one of the core factors underlying American hegemony for decades has been that the United States provides open sea lanes. What Iran has shown now is that they actually control the Strait of Horn Moves. And even if this war were to end without regime change. So if this war ends and Iran's decimated militarily, but you still have the IRGC in control, Iran still controls
the Strait of Horror Moves. And to your point, Anne Marie, I mean, it's quite remarkable Iran negotiating bilaterally with not only the Indians and the Turks and the Chinese, but the French and the Italians. You know, US allies about creating kind of like a TSA pre check line to get through the Strait of Horror Moves. I mean, talk about leverage. It's quite remarkable and not honestly anything I would have expected going into this conflict.
You said, it's hard to see out unless US, the US makes real concessions, or the US ends boots in the ground. What would boots in the ground look like?
Sure, I think this is a really important point, because I do really think there's a binary right here. There's sort of two ways to reopen the strait. One is you cut a deal with the Iranians in which you're making painful concessions, probably leaving almost certainly leaving the regime in power. But beyond that, maybe drawing down some US four in the region, maybe providing some security guarantees to Iran in the form of Russian or Chinese boots on the ground, a kind of trip wire in Iran the
way that the United States has in NATO countries. I think if you were to put boots on the ground, what would you need to do If the goal is reopening the strait? You need two things. One, you need naval patrols in the straight over moves. The US Navy has not wanted to do this because we could lose these exquisite, exquisite warships just by short range missiles or drones.
But two, we would also need to occupy quite a lot of the coastal part of Iran in the Persian Gulf to get enough of a buffer zone so that it's out of range of the drones. To the point we made before, they're going to have drones, so we need to actually build a very big buffer zone to prevent.
Them from using them against ships.
How much of a tipping point is this in terms of the Middle East power as a financial center, as a place that's been attracting a lot of money, as sort of a new growth area that everyone wants to get into, at least until now.
You know, I think this is one of the more tragic elements of this war, because I think in the last few years golf countries have made really substantial strides to diversify away.
From just being commodities producers.
We've seen the UAE Saudi really invest in the future economy, becoming sort of hubs for data infrastructure AI et cetera. Well, guess what we've now seen for the first time in wartime a handful of data AWS data centers struck by Iran. And the real question I think that will come out of this is, even if there is some stability, will investors feel confident putting these really important AI data centers in the Middle East?
I'm not so sure. And then for the.
Perspective of the golf countries, they're going to have a big reconstruction bill. I mean, all these investors who come on your show, who are they going to for LPs. It's the sovereign wealth funds of these golf countries. They're not going to have as much money, I think, to splurge on Western private equity funds if they're needing to invest in rebuilding. The Rosla fund natural gas facility in cutter.
Had a funal question forty seconds round, a speculation will be forgating in the future. Because this is a super fluid situation. How do you think this sends?
Well, please do forgive me.
I do think that it's likelier that Trump escalates than that he caves.
So I've always.
Been skeptical that Taco applies in this scenario. Taco in a trade war, Trump can utilaterally suspend tariffs, and no one's all the wiser.
Everyone says, Okay, well, you know we won in this.
If Trump backs down militarily, he has to walk away with his tail between his legs, and we never know if Iron actually will even allow ships to go through the straight erformance.
Stay with us.
More Bloomberg surveillance coming up after this take squeeze in gas prices, particularly in Europe. Brent the big move overnight, of course, rising close to one twenty as around remps up attacks on energy infrastructure in the Middle East. Samantha down of Goldman Sax rights in the following. The developments underscore upside risk to our price forecasts from longer Holmers disruptions and persist damage to energy production even after Homer's reopens.
Sam joined US now for more, Sam, good morning, get to see you. Let's start where we kicked off this program this morning, Brent at one point fifteen, WTI at nineta and a spread starting to open up even more. What do you think it speaks to?
So I think the market is pricing in this probability that maybe the US government will restrict exports, and if you're not exporting TI to the rest of the world, then you have a bigger oversupply within the US. So the WTI prices would stay on the low end and sort of disconnect from international prices.
Can we explore that a little bit further? What would happen if they actually introduce that policy.
So if you're blocking exports, I think the main risk, for example, especially product experts that everybody's talking about, the main risk is that the refineries in the Golf Coast will lose those high margins they are seeing in the market right now, and they may choose, Okay, I don't have the same incentive to produce that I did just a minute ago. I might reduce my production. So it's not obvious what the net impact will be in terms
of product prices to the rest of the US. Also, because we don't know if other countries might retaliate at the moment. If you look at the northeast of the US, it has to net import products, same thing with the West coast that and Marie mentioned earlier. So it's not that easy to balance everything. Even on the crude side. Yes, the US produces a lot of light crude, but we import a lot of heavy crude. A lot of our refineries are set up to run a heavier type of crude.
So what if other countries retaliate on exporting that to the US. So it's not an obvious answer. It can lower the WTI prices, it can potentially even lower product prices for the rest of the country, but we don't know what other ramifications might be. And when we saw that in the past, we saw the oil industry lobby against those types of manas. So I am curious to see where those conversations end today.
Are you saying that you think the market's wrong, that you think that this gap has to close one way or another, potentially with WTI coming up to meet Brent Krude.
No, I think with these conversations happening, the market is just trying to price a probability that they go ahead with it, and I think because of the sharp spike in prices that we've seen so far, it almost puts everything on the table and in the hopes that, Okay, we produce a lot of oil, we produce a lot of products, maybe we can pull this off. So I think it's correct to price in a probability that happens. I just don't know if the outcome will be.
The desired one.
Are you surprised that the market, the paper market isn't reacting more strongly to what a lot of people are saying is a real shift that we saw yesterday. We're suddenly gas facilities came under attack, Suddenly oil facilities came under attack, both suffering damages that could potentially take them offline for a longer period of time. Are you surprised that there is an even bigger reaction, not only in current futures, but also three months, six months, twelve months out.
Yes, I am.
What we've seen is that your Middle East price rows up the most, and that makes sense, that's where the shock is. And when you look at Brent, not quite as much. You still see a big differential, and even in the Middle East, when you look at their physical prices, they are even higher than their financial prices. So it's almost like the market is saying, maybe this can still
be a short lived event. So you price the most your physical local market, then second you price your local financial market, and third you price the financial markets elsewhere. When this is not a given today that is going to be short lived. In fact, the escalation that we saw over the past few hours would I think suggest an increased risk that this goes on for a little
bit longer. So yes, I am surprised, and I would expect the longer this goes, the more those financial prices will embed those risks in it and will go higher.
I'm glad you bring up this point.
The essential closure straight of her moose is short lived because that can reopen if there's a day hunt actually hitting energy infrastructure and long term damage as already long term. How long for this all to be rebuilt and the supply chains to get back to normal when actually the product itself is getting hit.
That is a key point. I like to say that there are two variables first to watch in all this confusion. One is how much volume is out of the market, and that hasn't really changed because you're hitting infrastructure that wasn't really sending product or oil or gas through the strait to begin with. So you're not changing today what's coming out of the market. But the second variable to watch is how long this lasts. And the strait of her moose, to your point, is just one part of
that answer. The second part is, well, if you're desjoying infrastructure, this may take longer to fix.
This might not be a four.
Week run up of operations in a refinery that you chose to shut down. This might take longer. It might take a few months if you have extensive damage in some of that infrastructure. So that second variable, the risk of how long the disruption lasts. You're essentially making that risk higher. The more infrastructure gets hit, the higher the risk that disruptions last longer.
As we look ahead to Jdvan's vice president staying down with oil executives, the United States is not a monolith. If we have an export band control, what does this do for the West Coast that are so relyingt on Asian imports for their products.
Yeah, and it's difficult to move, so you produce a lot of those products in the Golf Coast and it's difficult to move to the west coast in particular because you're not going to have enough pipeline capacity to do it, so you have to ship it around and it's not quite as easy as shipping to the east coast, so it'll be a bit clunky, not without friction, which means prices can still stay higher.
For a little bit longer.
We've seen big knaves and cred big amazing gas prices. Have you started to see anything happen in acts in self commodities off the back of.
This, we're definitely getting a lot of questions on it, and we also see direct headlines saying Pakistan, Bangladesh, India supply to fertilize their plants in those locations already being curtailed because they don't have enough natural gas to do it. So we were talking to our chemicals and analysts in the US asking, well, the US still has supply, do we have any spare capacity to fill in that gap?
But the answer is well, the US has cheaper nature guests than everybody else to begin with, so we're already cranking this up as high as possible, so you don't have spare capacity to crank this up and planting season is coming, so everybody's going to need a lot of this stuff coming soon.
When do you think we'll be confronted by that reality.
Oh?
I don't think it takes long at all, because already supply is being affected, the production of fertilizers being affected, and planting season is coming.
This is the bloombergs Availments podcast, bringing you the best in markets, economics, and geo politics. You can watch the show live on Bloomberg 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 Bloomberg Terminal and the Bloomberg Business app.