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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. Andrew Holmholds the city
is alongside us. Now for more, Andrew, good morning to you. We'll start with job as claims and then we can get to all the.
Rest of it.
Claims are really really low, and you've been looking for a much weaker labor market into your end. Why doesn't that back up that theory.
It's a strange labor market. It's a different labor market than something that we've ever seen before, where we have really low hiring rates. We see the jold stato see the percentage of people who are getting hired into new jobs, and that number is low, so it is hard to get hired into a job.
That's the bad news.
The good news is what we're seeing in jobless claims and the initial claims at least that is showing us that.
The layoff rate is still low.
So we have a strange labor market where it seems like people are hanging on to the workers that they have, but they're not necessarily wanting to hire more workers.
So you think twenty five today, and you think fifty in December, and everyone else is thinking about twenty twenty five in the prospect of right hikes and not RT cuts.
How useful is the price section of.
The last twenty four hours to project out what twenty twenty five might break.
Yeah, I think not useful at all.
I really don't think that you're supposed to take a macro narrative away or a fed narrative away from what's going on in interest rate markets right now. If you look at what's happening in the macro fundamentals, we do have a softening of the labor market. I think that's clear after the last jobs report, where even if you adjust that job's report for hurricanes and for strikes, and I think that's part of why the market can't react to it. We also had the election coming up at
the time. But with all the distortion, it's hard to see. But if you draw a through line through it, what you see is the pace of job growth is slowing. You see the unemployment rate has risen from its lows, and it looks like, if anything, it's still trending higher, and that's going to make the FED think there's some downside risk to employment. And then you move to the inflation side. We just got numbers for the third quarter two point one six percent quarterly annualized core PC inflation.
That's essentially at target inflation. So if you're the FED, you're looking at inflation that's close to target.
You're looking at an unemployment.
Rate that's still low but maybe rising. The path is going to be towards lower rates. So I really don't understand the move in the market or the new narrative that this is a FED that might need to hike. No, this is a FED that's cutting.
I think a lot of people would agree that this FED probably isn't going to hike, though there was this one person out there who did put out the prospect of potential rate.
Highest number of people. Actually there is.
A feeling though, that they can't cut nearly as much, especially at a time where the death is it's probably going to expand, and at a time where even if if it's not accelerating, this is an economy that's pretty solid.
How do you push back against that?
Well, first of all, I'm not sure that it's an economy that's pretty solid. I know that we're seeing GDP growth that's running close to three percent. On the activity numbers, those look fine. Again, if you look at the labor market, it doesn't look as strong. And I think we just had a referendum in this country in some ways on the state of the economy, and the results were not positive for how people are experiencing this economy. And you
see that in some of the survey data. You see you ask people, our jobs plentiful, Our job's hard to get. You see that hard to get number that's been coming up. You see hard to get jobs number that's elevated.
Right now.
If you're the Fed, the mandatea is employment and the mandate is inflation. Inflation is close to target. You have a labor market that's softening. And remember back in August Jera Powell said we would not seek or welcome any further softening of the labor market. That means you need to get policy rates down towards neutral.
But this really highlights how messy the data is and how I can't really understand it because at the same time that you're saying that the election was a referendum of and that we've seen this in sentiment, at the same time, we're seeing the US City Surprise Economic Index rise to the clients level going back to April. At the same time ISM service as the employment component actually
increased more than expected. So how much are you looking at, say the rising inflation expectations as data to pay attention to or not pay attention two for the Federal Reserve, No, I think.
It's a fair point, and I think the signal to noise ratio in the data is just lower than it used to be. And in some ways we know why that's happening. If you look at the jobs report, the payrolls report, for instance, the response rate is much lower than it used to be, and that just means that that data is going to be noisier, and we see that in some of the revisions we've had just consistent
downward revisions to those jobs figures. So we get a jobs figure, you look at the city Economic Surprise Index as a positive surprise.
The market reacts to that.
Well, then I'm not sure if people are paying as much attention when a month later, two months later, sometimes a year later. Right with those preliminary benchmark provisions to the payrolls numbers that turned out to be eight hundred and eighteen thousand lower in terms of the level of jobs, and we thought it was those revisions have been to the downside, and that means we're actually looking at a weaker labor market than we thought. But the market's already reacted,
the narrative has already shifted. So what we're trying to do is look at the data as best we can draw those through lines in terms of where things are headed. Yes, I would agree right now we're running, you.
Know, good GDP growth.
We have an unemployment rate that's low four percents. That's not a bad thing either, not a bad place to be. But the question is where are we going from here?
I want to pick up your point about a referendum, was that because of jobs or price pressure and inflation?
I think it's a combination of the two, right, And that's why there is this idea that you're supposed to be, you know, maybe adding the unemployment rate.
To the inflation rate.
But when you look at the consumer sentiment surveys, for instance, you're absolutely right.
People are saying prices are high.
That's one of the reasons that they're unhappy with where the economy is.
The other thing that I think matters.
And maybe we don't pick it up as well in some of the survey data is look where interest rates are. And it goes back to the discussion that we're having with Lisa that you with fiscal concern. It means that longer term interest rates have risen again. It means mortgage rates are going to be close to their highs again.
Right.
We thought they were going lower because the Fed was cutting interest rates. Now they're higher again. Those are actually reasons that the Fed might end up being more dubvish. I understand it's a complicated scenario when you have loose fiscal policy that's raising interest rates and.
I can't jump in down.
Don't you think that that fifty basis point cut contributed to higher long end yields? Because before we're even talking about a Trump presidency or a Trump suite in a material way. Ever since they cut interest rates, yields bottomed within twenty four rounds at that period. They've been up by sixty seventy. I haven't twenty di since, but we're at three sixty last time around, So it's called eighty.
Had an eighty basis point move on a tenure. Don't you think the FED easing has had something to do with that?
Well, all else equal, if the FED is more dubbish, you're going to get a steeper yield curve. The level of short term interest rates is going to be lower relative to the level of long term interest rates. If you have a more dubbish FED, then you should be more concerned about medium term risks to inflation, about upside risks to growth in the longer run, and that's where you're going to have longer.
Higher yields further out the curve.
I think what happened here, though, was we were coming into that FOMC meeting. The data looked pretty bad, right, We had that jobs report that look pretty scary, the unemployment rate accelerating, and so the FED cut fifty basis points, and I think they were thinking maybe they should have cut twenty five basis points at the previous meetings to kind of roll those together, and you cut fifty the movie.
We've had higher in yields.
I would really go back to what Lisa is saying, we've had these consistent upside surprises in the data, and yields just track that higher. On the election, I think also playing into that move higher that you have in yields. But the longer discussion around that, I think is where is monetary policy going.
To be relative to fiscal policy.
We still have large deficits and that is going to be in the longer term.
Yields are higher.
So my opinion on this doesn't matter, But I have to respect the price section of the last twenty four hours. They aren't going to be service workers in the matter that don't have to pay taxes on tips anymore.
We're a few house seats away from this reality.
We're going to have corporate tax rates coming down from twenty one to fifteen conditions. I know these are big changes for the US economy, which should stimulate demand. You're already seeing that kind of confidence level being baked into bank stocks. That's the market screaming, and later on this afternoon. We can have a Federal Reserve with an easing bias talking about an economy and the way that you do.
I just feel like we're on.
Two completely different planets right now. Financial markets are going to be right over here, and SHAREM and pound is going to be right over there for how long when they put out projections for December? How much weight is a market participant? Can I put on their dob plot?
He's going to be doing a news.
Conference today based on a dot plot from September eighteenth, Andrew this Federal Reserve news conference today is absolutely ridiculous, And I just wonder how different the conversation is behind closed doors.
Can we at least acknowledge.
That that the conversation we hear in the news conference today is going to be radically different to the conversation behind closed doors. These guys have got to consider now a very, very very real different scenario for twenty twenty five than they had to a few months ago.
I think that's guaranteed.
I think that there will be a very interesting discussion that's going on at this FOMC meeting, and we'll see that in a number of years. In the transcript, we're going to hear today in the press conference is going to be as little guidance as possible, right, because they don't know, and really we don't know in general, because we didn't have a very robust policy discussion going into this election. Right, we talked a lot about politics, not a lot about.
You know that they're in the risk management business. So if I'm in the risk management business, and I face two very different scenarios in twenty twenty five, which is the polar opposite of each other. Your world recession and higher unemployment and Donald Trump's objectives low unemployment and a domestic boom. If you're the risk management business, why are you coming fifty in December?
I come back to inflation, right, because that's the other mandate. That's the other thing that I worry about. Is this potential stronger growth outcome in the economy going to drive inflation. Everything we're seeing is going in the opposite direction.
Right.
We have demand that is running below supply. Now, we have goods inflation that's come down. We have housing and inflat again. We're talking about mortgage rates that are back up towards their highs. We have the housing sector that's in contraction, So that's why the FED is in a very different position than the market here, because the Fed is looking at this and saying inflation looks under control. That's what they're saying behind closed sorts. They're not going
to say that to it in the press conference. Inflation looks under control. And I have this risk downside risk of the employment man did Now, if I'm wrong and we get stronger job growth and stronger GDP group, that's great. But I'm not going to be wrong at cutting rates now. That's why they're going to cut today.
It's going to be a very interesting few months ahead of us. Andrew, appreciate your time. So I was going to see it, buddy. Thank you, sir, Andrew Hanholst f citys Tonal. Trump pledging to boost the US economy when he returns to the presidency and deliver sweeping new tariff policies. Heidi Kruber Reddika of the Council and Form Relations saying Trump is clear, promise is made, promises kept his top two promises on tarifs and deportations.
He can move on unilaterally. Believe what he says. Heid.
He joined this now for more heardy, welcome to the program. I just want to reflect on twenty sixteen, just for a moment. In twenty sixteen, when he came into Pawer the year afterwards, the focus was on taxes. It took a couple of years to really start to shift towards tariffs. How quickly do you think you'll start with tariffs this time around?
And why so?
I think you know it's all going to be about tariffs, tariffs and more tariffs here because he can move very quickly. I'm thinking like day one, week one quickly, and the taxes are going to be in negotiation with Congress, so he doesn't have the unilateral authority to actually move on taxes. So be prepared for big time tariffs that he promised, you know, ten to twenty percent across the board and sixty percent on China, and that's that's those are big numbers.
So other countries are preparing to retaliate, and that will hit our exports. You will have supply chain disruptions. And so I think one of the debates right now is just how much of a shock we're looking at is a one time shock on the three plus three plus trillion that we have that we import, and how do
we calculate in factor in retaliation. Right now, Trump is actually not going to have his agencies staff to actually look at how you remedy or negotiate out of these the unilateral across the board, we trade with about two hundred, you know, two hundred countries and territories. So this is this is be long, and it's going to be messy, and it's going to be inflationary. It's going to be targeted at China, but Mexico is going to take the
BNT of it, EU big trading partners. It's where you saw a lot of the FX movement in Japan UH yesterday and UH and in the in the Yuan so and the PASA. So I think you're going to have a lot that's going to come and hit that first week that he's in office, because he knows what he wants to do.
Did you already think we're seeing the fallout of Trump's promises in the sense that basically we'll have the collapse of German government?
So I think that we I mean, Germany has its own dynamics. So it's a very good it's a very good question. But I think you know what what I what I would focus on more is what the direct impact will be on the on the US economy. You have a lot of reshuffling in various countries trying to figure out, you know, how they're going to manage uh, this transition to a Trump presidency in terms of UH.
You know, I think you talk about the changes happening in Germany, Well, the whole dynamic with Europe is about to change in a very big way.
You are going to have.
On the back of a very different policy towards Russia and Ukraine and and dealing with NATO. You're going to have a lot of deep conversations about what Europe and security is.
Going to look like moving forward.
Heidi, you think that Trump's going to come in and put his promises directly in focus. You have some individuals that are close to FOREGM presidents that say this is a negotiating tool. If he was to put sixty percent tariffs on Chinese imports, we could see a meltdown in financial markets. And what we learned from Trump from Trump one point zero is that he keeps an eye on what stocks are doing. Is that going to be basically a regulating force on Trump and his administration, So.
He does focus very much on the stock market. I think, you know, at some point he will have to focus on.
What's happening in.
Rates as well, because this is going to, you know, significantly complicate you know, we have FMC later today, and it complicates the Fed's job next year because you will have this combination of inflation growth and tax cuts on the table, so you're going to have a slower pace of easing. I can see some very difficult public conversations between j Powell and Trump that we didn't there's a
lack of them last time. But I think he's also Trump has also made it clear he wants a lot more influence on the FED.
But there are a lot of spillovers.
So if you're talking about fewer you know, lesser easing or a real potential of of rate hikes, which I think is plausible. The spillovers are to hire mortgage costs and corporate borrowing and huge spillovers. Not that I'm not sure Trump would care about emerging markets, but from from market perspective, emerging.
Markets will take the hit as well.
So you have a whole new, a whole new.
Risk set of risks on the table for for next year.
Heidi, you went through a lot there, and I want to pick out one aspect of it, the stock market performance, particularly of financials. There is this expectation that they'll be a mass wave of do you regulate that will really help the banking stocks.
You actually orchestrated.
Bank regulation, bank legislation heading into twenty eleven, and I'm just wondering how difficult will it be for Donald Trump's unilaterally deregulate the banking sector.
So I think anything that involves, you know, anything that involves any other parties and negotiating with any other parties is challenging. So deregulation on a whole host of issues banking or anything having to do with wanting to cut red tape in all of the and all of the permitting that he's that he's looking to do it, It's more complicated than I think anybody knows when they're going
into government. So I do think that it is going going to continue to be I mean, deregulation is going to be positive for certain industries and you know that is I think that is going to continue to be, you know, a longer term play in terms of what to watch for the Again, I'm going to go back to where I started. The real the real risk that I see near term is the impact on that that is tariff policy will have.
So it seems like just in terms of sequencing tariff's first, the deregulation will take a lot longer, and that'll be a more protracted type of implementation. You said something else, and I thought it was really interesting that you don't see some of these offices that are going to be negotiating with different countries and different agencies fully staffed. Why do you think so?
So, I mean, it takes a lot of time to get the right people in place and up to speed on the agenda.
Whether you have, you know, no.
Matter how talented your people are or how prepared your transition is you can have, it still takes a long time time to get up to speed and actually meet your counterparts.
So we do have and I think.
That you know, there are there are certain countries where I think Trump himself will want to have the direct bilateral negotiation, but there are only so many countries that he can that he can do that with, and they're they're going to that that is going to be as we've seen in the past, personality driven with the leaders of those countries. It's also it's going to uh, it's going to mean that you have any decision making on and on tariff relief, probably more on a on a
case by case, even company by company basis. So friends of Trump are probably are probably going to benefit from from from anything that would be relief on any on any tariffs.
Heney was great to get your perspective on things on tariff and what it could mean for the global economy, Heidi Cribarnica of the Council on Foreign Relations. So here's the lays. It's the Democratic Party searching for answers. After Donald Trump's decisive victory over Kamala Harris, Democrats are losing the majority in the Senate after dropping three seats to Republicans, with the House for the race for the House still
in the balance. Tobin Marcus of Wolf Research writing, Dems now find themselves in the wilderness, with big debates ahead about how to rebuild and on the GOP side, presumptive VP elect Vance instantly becomes the front runner for the twenty twenty eight nomination. It'll be an interesting few years in Washington, Tobin. It will be an interesting few years worldwide. It's good to have you backsair and thank you for
your coverage on election night with US. I want to start with the Democrats and this line from Vice President Krmala Harris, Whilst I can see this election, I do not concede the fight that fueled this campaign, Tobin. I can think of very few demographics that would like her to continue this given the shift in support that we saw towards Donald Trump. Do you think the Democrats will learn the right lesson from this basic.
I think that.
So. I mean, look, this is going to be a vigorously flought question about which direction the Democratic Party should go, and I think that the next primary campaign is going to be the forum for that fight. But the comparison that keeps coming to mind for me is nineteen ninety two, where at that point you were coming off of twelve
years of Republican governance. Reagan had engineered a broad realignment of the electorate, and what ended up happening was you had Clinton coming in not just running against Washington, but really running against the Democratic Party and trying to brand
him is a new kind of Democrat. So I think that is the move for a governor or somebody to know, to articulate kind of a critique of the direction that the party's been going for a while now, and to have that become the new banner for the party, so you know what that is and who that is I think remains to be determined, but that I think is the clear template for how the party should move forward, and I think there's momentum.
Tobin for me yesterday was the quote from Senator Bernie Sanders. It should come as no surprise at a Democratic Party which has abandoned working class people would find that the working class has abandoned them. He goes on, first it was the white working class, now it's Latino and black workers as well. While the Democratic leadership defends the status quo, the American people are angry and want change, and they're right.
Do you see this Democratic Party becoming more right because of this win trifecta nearly by the Republican Party, or do they go more progressive?
So again, I think that is going to be litigated.
I think certainly the progressive wing of the party, although it's not clear who their standard bearer will be, I think is going to attempt to make the case that they really made in both sixteen and twenty that the way for the party to move forward is to sort of move against ute unquote neoliberalism and sort of take
up this very thoroughgoingly progressive lefty stands. It's not surprising that that Sanders is take I don't think that's going to be the consensus across the party, and I don't really think that the that the broad wave against the Democratic Party that we saw on Tuesday was economic and nature in that way. Obviously, there's a huge amount of disatisfaction about the economy around the world. We've been seeing incumbent parties get just absolutely destroyed in the way of
the inflationary out versus the past few years. But I think it's hard to look at the pattern of results and see that as people kind of crying out for a progressive vision. I think that that there's a broad sense that the Democratic Party's values are out of touch with normal people, and I think that that's at least as cultural as it is economic.
You mentioned this question of who the standard bear is. I mean, even in this moment, Kamala Harris gave a speech and didn't really thank President Biden the way most people would expect. At the same time, President Biden is calling President Trump and organizing a meeting with him. It's very difficult to understand what exactly is even going on in the White House where this relationship is right now, do you have any understanding?
I mean, look, there's a huge amounts of continuity between the Biden and Harris camps.
I mean, just look at the campaign.
That being said, Harris does have kind of her own people, so it makes sense that we're seeing different messages from each of them.
At this point.
The kind of Harris campaign apparatus is not particularly relevant. You know, the Biden White House needs to actually do the transition. There are concrete things that need to happen to hand power over to Trump, and I think that'll happen.
In a basically normal way.
But in terms of the political future of the party, you know, I think that the different people who have their eye on twenty twenty eight are going to start setting up their own apparatus and carving out their own kind of power centers rather than I mean, we've really had a lot of kind of party elites trying to guide the party through.
Something from twenty twenty onwards.
You know, the coalescence around Biden during the twenty twenty primary was some sort of unusual degree of sort of centralized steering relative to what we normally see, which is kind of political entrepreneurism with you know again, sort of charismatic outsiders coming in trying to shake things up and taking over the party for themselves.
Jobin there was an incredible statistic from Jim read Over at Deutsche Bank that really crystallized how unique this moment is. He said that it is a first time since the late eighteen hundreds that the incumbent party of the White House has lost three consecutive presidential elections. So, yes, this is a Democrat versus Republican issue. This is a question about the identity, But there's something else afoot.
Can you give.
Us some color onto why we're seeing this type of trend.
Yeah, absolutely, And I think that the explanation for that is that we are on a multi decade secular decline.
Who share of people who say that the country is going in the right direction rather than on the wrong track. So incumbency traditionally has been an advantage.
The more that there is a persistent feeling that America is going in the wrong direction, that transcends who particularly is in control the more incumbency becomes a burden, and the more that you should expect sort of faster move of the metronome back and forth between parties. You know, that's not to guarantee that we're going to have another, you know, one term of partisan control, but Democrats winning back.
In twenty twenty eight.
But you know, we are going into another very unusual period where the president who just got elected it is a lame duck.
So Trump is not going to be up in twenty eight.
You know, as you sort of quote that you ran at the top from my last note, I fully expect advance it's going to be the most likely but not you know, not guaranteed, but most likely nominee for Republicans in twenty eight. We'll see who's running against him on the Democratic side. But I think that will be another opportunity for both parties to try and tap into the discontent of American voters and you know, argue that they're the ones to lead us in a new.
Direction as all the exit holes come together. As we do have the results, what's your sense of what the main issues really were that fed into that discontent, that sort of secular decline that people feel across the United States.
I think you have to look at inflation.
I think you look around the world and see you parties really of every ideological orientation getting really having it handage to them by voters around the world. You know, generally there's some you know, sort of rising strengths on the far right. But I think in many cases that's because the coumbments happened to be on the center of the center left.
In places where we did.
See or writing parties in power, whether that's the UK or Poland, we saw backlash against them also. So I think that, you know, it seems to me that whoever is presiding over first and foremost this period of high inflation, to some extent discontent about immigration, which also is kind of trying to you know, span national lines across the Western world. You know, those I think are the most salient elements of people's satisfaction about the status quo. The voters are rebelling against.
Hey, Tobin goods cantsch up Tobin markets there of war for research. I appreciate your time. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, an gio 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 Amp.