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Terminal and the Bloomberg Business app. We begin this hour with Stoff sitting near all time highs, the S and P five hundred approaching six thousand, notching its forty ninth record so far this year, Equities heading towards their best week of twenty twenty four as Trump takes back the White House and Vin Powell continues cunning interest rates. Joining us now Mohammad Erin of Queen's College, Cambridge. Mohammed, Welcome to the program. I know you watch the news conference,
so let's start there. What would your takeaway?
So three takeaways?
John One is as expected in terms of the characterization of policy, desire to maintain optionality. And then where I really felt for him, John is not in his response to the question Visa VIVI the President elect, where pow the lawyer came out very strongly. It is this sort of muddled view of what is going on and inability to pivot forward. So think of his responses to the question of decomposition of the bond yield. Think of his characterization of real wages, does he want them higher, does
he want them lower? Think of his characterization of the labor market. And then that key question by Mike McKee when he said you've.
Looked backwards, what about forward?
And he Powell ended up talking backwards, And you get very strongly a couple of feelings. Certainly I did what I felt for him. One is he's become totally hostage to data. And two is that he is.
In this world of the seventies.
And eighties where once you are away from the extremes of really high inflation or the threat of deflation, that somehow we believe monetary policy can fine tune outcomes, and we know that if you overrely on demand management to fine tune, you end up with all sorts of creduital damage. I really felt for him, but not for the political reasons that most of the media is covering right now.
Somehow, as you've said this a few times, the lack of a strategic underpinning. Could you just provide some clarity
on what you think that underpinning should be. Given the lack of clarity we have about the so called trifecta down in Washington, d C. What policy might look like, the margins that work through to get that clarity for twenty twenty five and really to sit there in December, which I think we all agree, is that much harder meeting to make a decision on interest rates and to provide forecasts.
It shouldn't have been a harder meeting, John, It shouldn't have been a hard to meeting because there was great clarity back in July, and you and I talked about this that it was time to start reducing rates, that he could have done it twenty five, twenty five, twenty five, we were a distance from most estimate of the neutral rate, which is somewhere in the upper threees I think, And there's a distance to.
Go, and you would use the restrict interst of policy.
Instead, we got no change in July fifty in September, then a sense you know what fifty was a mistake, We got the twenty five and now, as Lisa pointed out, probably is are changing vis December. You know, this is not what policy should be doing, but this is what policy ends up doing. When you are excessively data dependent. You have a pass towards closer to neutral, You have reasons why you should pursue this, and if the election promises tend to end up to be reality, then you
could change a strategic view. But as he rightly said, we don't know how much of this will end up being actual implementation.
His strategic view, Mohammed seems to be let's cut by twenty five as they just did, and then maybe twenty five again in December, and then the question really becomes a blank slate. He said that they will have more data to really make that assessment, putting the focus much more on CPI. Do you think it was a mistake for him to reintroduce the emphasis on the FEDS mandate of inflation after basically kicking it to the curb and focusing simply on the employment picture.
Yeah, it was such a confused discussion. I mean, he was pushed on core.
Inflation twelve months, because he had only focused on headline inflation, so the two point one versus two point seven. So he got a question, what about the two point seven that you haven't mentioned? And then we got into the discussion of is it twelve months, is it three months? Is it six months? He himself previously I had said, look at the twelve month's number. Now we look at the three months number six number. Just like we went through so many definitions of core and super core.
And everything else.
I mean, yes, he added confusion when there's actually little need to add confusion right now on that issue.
So what do you think the FED should be doing if ideally if they were going to have a framework, or what framework should they follow? And I say this as Jim Bianco over at Piancre Research says that right now to cut rates again might be worse than transitory.
So I don't agree with that. I think that we are a distance away from what the neutral rate is.
I think that inflationary expectations are relatively anchored, not at two percent. But you know my view that two percent is too low, and certainly now is too low an inflation target for this economy unless you want to structurally weaken it in a significant manner. They should be on a path of until we get significant new information on what's ahead.
I'd stress what's ahead, we will.
Be on a path for now of maintaining a twenty five basis points cut and the other thing I have stress it is time to get out about this framework. They have this mindset they have that they're the only game in town. They are not the only game in town. They should leave center stage right now and become more of an observer and wait to see what plays out. But you know, once you are on center stage, you've been the only game in town for so long it is really difficult to exit stage left.
So Muhammad, that's your advice to the policy maker. Is your advice different to a market participant? Because markets, as you know, are anticipatory. The FED you've suggested is overreactionary. So I want to understand from your perspective now what you would say to a market sticipant whether they should be pricing in a big positive growth shop that could come with some additional in flight.
So attend.
The direction of travel is clear, more growth, slightly higher inflation, a higher public sector borrow requirement and a huge sucking sound where a lot of phone capital.
Will end up in the US. That is the direction of travel.
What you've got to figure out, and it's hard, and that's why we've got to market is the magnitudes of these things.
But I think John, the direction of travel is clear.
The magnitudes are going to become clearer as we get firm indications not only of what the policy proposals are, but who's going to implement these policies.
The appointments are going to be very important going forward.
I couldn't agree more.
Do you think this could be a bigger problem for the rest of the world that it will be the United States?
Oh? Absolutely. This is a period in which US dominance of the global system is going to increase, both for positive reasons and for negative reasons. In the short term, the rest of the world simply cannot build enough pipes.
Around the US.
They're trying, and they've been doing it, but these pipes are very small compared to the size of the US. Over the longer term, you will see more pipes being built around the US at the core of the system.
Muhammad the journalist yesterday and the press conference get a for effort for trying to get J Powell talk about politics, but he wasn't going anywhere near this. Do you actually have concerns about the independence of the FED?
So I would have gone even less. I mean, he gave the legal response.
This was J Pile, J Powell the lawyer, coming out in a very strong way. If I had been him, I would have simply said, I'm not going to discuss this issue.
I wouldn't have said no. I would have said I.
Would simply say I would not have discussed this issue. Saying no opens up a whole new host of things.
Do you think saying no was hostile to the former president going to be future president?
I think if it wouldn't surprise me if it's viewed as hostile. I think what Chair Power was trying to do is give the legal answer. However, it can be easily viewed as hostile.
Yes, based on your view of the US gaining that sucking sound of capital away from the rest of the world, do you think that sucking sound will also go to finance the deficit in a way that.
Really caps off yields.
It doesn't really allow them to rise as high as some people are threatening such as five percent.
Yes, I mean so, there's two interpretations of why yields came down.
One is the market has revisited.
The other, which I favor more, is that US bonds relative to the rest of the world became really cheap and people reallocated away.
If you look at what.
Happened to the differentials visa be the rest of the world, US bond in relative space, and most of the time, as you know, Lisa, this market solves in relative space in the advanced world. It solves more in absolute space in emerging markets, but in the advanced world they tend.
To solve in relative space.
And relative to other advanced economies, the US yields were looking.
Very attractive, Muhammed.
It's wonderful to catch up with you, sir.
We're lucky to get some time with you. You want to get now? Is Ryan Peterson a flex sport right? Welcome to the program, sir, let's start with this. How busy are you right now? And as business increased a ton over the last few weeks.
Yeah, well, you know, not just necessarily because of the Trump, of the possibility of a trumple actually, but we also have a looming port strike on the East Coast. Remember the Port they went on strike last month, but they got a ninety day hiatus and January fifteenth that contract end, so that all the East Coast sports right before Trump gets elected may go back on striking. So a lot of people are trying to get goods in before that might happen. So there's always something in global trade.
Was called union Joe, how do you think the port negotiations will go under President elect Trump?
Yeah, it's a really big question.
It's sort of like who he listens to, because he himself says back in October made statements in favor of the union and saying, hey, they need to write to negotiate.
Against these FOURIGN companies.
At the same time, his main advisor and how Elon Musk has said, well that the union's demands for no automation are ridiculous and need to be stopped. So it's a really big open question who's Trump going to listen to and how does that play out?
Because of that dynamic, do you think these talks could really drag on and how long could we see them dragging into twenty twenty five?
Well, that's one big concern is sort of the talks are happening five days before the inauguration, and so is you know, what's the current BIDE administration's.
Role and how committed are they to making that happen.
And then that's of course with the backdrop of territs WI, which we were also alluding to here in your intros. Trump's going to want to come in and have that priority. But it's very hard to govern when there's always something coming at you, right, Ryan.
Just to zoom out a little bit, there is this question you mentioned that things are getting very busy. A lot of people are front loading some of their orders to get a hoad of both whatever policy changes might come, as well as that potential strike. Can you give us some sense, some scope of just how much busier it is, how much rates are able to go up for you as people do try to get ahead of that uncertainty.
Yeah, I mean, you know you're seeing volumes a little bit higher, but it's very hard to attribute to any one thing in this It's a very complex, dynamic world. So I wouldn't want to say, oh, the volumes are up this much because of because of tariffs or because of looming changes in policy. So I don't have a specific number to tie to it. That said, we've seen it every time. Whenever there's new tariffs, you see a
big surge. You saw it with the BIDA mistration earlier this year when they increased three oho one Section three oh one tariffs on Chinese steel, for example. That led to a big push and ocean freight rates went up about.
Three x earlier this year. From long run.
Historical average, it costs about two thousand dollars to ship a container from Asia to the US. That went up to over six seven thousand dollars in the spot market this summer, and it was it was driven by that.
It was driven by.
People pulling goods in both before the port strike and before the tariffs. So we've seen this movie before, and we're probably heading right back into something similar.
I'd like to lead into this idea that we've seen this movie before. We've had the experience of the twenty eighteen different tariffs that came to play twenty seventeen, twenty eighteen. There's a real question about how much companies have already rejiggered their supply chains to adjust to a new reality, new pressures, a new focus on near shoring and on shoring. How much have you seen a real shift in the patterns of your clients in terms of where they ship from now.
It's been massive over the last decade, and not just driven by the terriffs, although it's a big factor, but also driven by labor costs Chinese. Chinese labor costs have gone up, and good for the workers in China, they're getting paid more, but they're no longer the low cost source of labor for the world, and so companies have been relocating that the companies that can have been relocating, especially Vietnam, India, Mexico have been sort of like three big winners, but many other countries too.
And that said, there are a lot of supply.
Chains where you just can't get it done outside of China. The manufacturing expertise the ecosystem of component suppliers and for that I'm specifically talking about electronics or a few other sectors, but really the electronics sector has a real hard time moving out of moving manufacturing out of China. And then the other big factor, the other big industry here is
e commerce. Chinese e commerce parcels, so going direct to consumer all the way from China are close to fifty percent of the world's air freight now, and that is already being discussed to shut that down or to impost tariffs on it. Remember, those fly duty free under the current regulations, and even the Biden administrations and the current CBP has a directive Customs and Border Protection excuse me as a directive to take away those tariff exemptions that may make those non competitive.
So there's a lot of different.
Factors here, and I think you'll see an escalation because remember, these new tariffs are on top of the ones that the Trump and Biden administration put in. They're not It's not just like we're back to Trump's tariffs. Biden never took them away, and they'll be talking about adding on to those.
You mentioned Vietnam and you mentioned Mexico, and I just wonder, especially given some of the threats that we've heard from the Trump campaign, how much you see from the flows that Mexico is kind of a trojan horse for Chinese goods And the same with Vietnam.
Yeah, in both cases, you've seen exports from China to these countries increase by twenty percent over the last two years, and so that implies there were either being goods there as raw materials into a manufacturing process, or in some cases there's probably some fraud where they're just relabeling things and saying made in Mexico was actually made in China. I think it's probably much more of the former, much more of raw materials moving in, and so it's not
necessarily the market finds a way. You know, it's very hard to when when a country like China is so good at manufacturing, very hard for businesses to avoid using that. They're just going to have a competitive advantage and the markets route around it. And the other factor here is that it's it's expensive. Trucking is expensive, so moving a container or a truckload of cargo from Mexico up to the United States is not cheaper than shipping a container
from Vietnam to the United States. Ocean freight, the physics are unmatched, so it's so much cheaper than land freight. So it's not necessarily that just because Mexico is closer in terms of distance, that it's cheaper.
There's one sailing rood I wanted to ask you about, given we were going to have a change of an administration come January, the Red Sea, do you think We're going to see more freight go through there.
We've already started to see a little bit of restoring of services through the Red Sea just in the last month. And that's before Trump. You know, even anyone had an idea that Trump would win. Some carriers are starting to
brave that. I think there's a real possibility for a breakthrough, but I'm not I don't have any insight into, you know, what Trump might do with her on or the HOOTI rebels there, but I think you should expect a new set of initiatives, policies, and potentially potentially military.
Action, but very unclear.
One interesting story I thought didn't get enough attention was that this allegation that the houtis the rebels in Yemen or the really the government in Yemen has been taking bribes effectively and running a toll road to the tune of two billion dollars a year from ocean carriers and ocean shippers to move cargo through and sort of.
A payoff to not shoot down.
That's a really crazy development if true, and I like to see more about it. I don't have any sources on that other than reading it in the news.
Well, I now a reporter around this table. That's going to change that story a little bit more now, Ryan, appreciate that.
Ryan.
Let's do this again soon. This was super sharp. Really appreciate your time, Ryan Peterson. There of flex for Casey of signum Global Advice is writing. Broadly speaking, we see Trump beginning his second term unrestrained Republican trifecta Supreme Court majority, popular mandate. This may be a once in a generation chance for Republicans to ennact sweeping change. Rob John just now for more, Rob, Good morning morning. Can we start
with a trifecta you think it gets done? What kind of margins are you looking for?
Really tate margins. I mean it's going to be as if not tighter than what we're seeing currently. Of the twenty five seats still to be called, I think Republicans very easily win or comfortably win nine of them, so that gets them to two nineteen, and there.
Are other sheets Democrats will win in there.
There are about five or six seats that are absolutely toss ups.
At this point.
So the best Republicans can hope for, I think is two twenty maybe two twenty one.
But it looks a lot like it does today.
House majority with Tom Emmer this morning Punchable News says, I don't care if it's two eighteen, two nineteen, two twenty. I don't give a damn. As long as you have the majority, we're going to be successful. But if you have two eighteen, basically everyone becomes a king.
No, yeah, everybody becomes a king. I think it's worse for at least Deephonik, who would like to be appointed somewhere else, and they don't want to deal with the special election in New York at this point that would take away their majority.
If it was that slim.
But I mean, frankly, Donald Trump is president elect, which means in the House, Donald Trump is king. I mean they are going to take their shots not from Mike Johnson or anybody else.
They're going to take them from Trump.
So besides at least Stefan and who may go over to the UN, what does the leadership look like in the House.
I think it's Speaker Johnson. I think it's Speaker Johnson will stay in his seat.
He did what he had to do.
I mean, he retains the Republican majority very likely at this point. And you know, other than that, I frankly don't think it matters very much because I think this will be a session which legislation is done top ten.
It'll come from Trump, It'll come from.
The White House, and the Senate very likely to fall online the House probably even more so.
So.
What's the first order of business?
The border or taxes?
I think it's the border. I think it's oil and gas, both through executive action. I think taxes will take a little bit longer because we will see I mean, it's not a budget negotiation between Republicans and Democrats. It'll be a budget negotiation between the center and the right of Republicans, and we'll see that done through budget reconciliation.
That'll take a number of months.
Will what will the immigration proposal look like? Is it going to be mass deportations.
I think we will hear about mass deportations. I think it's very unlikely we'll see that in the short term, frankly, because it just requires so many billions and billions of dollars to do that. There isn't an obvious path forward for mass deportations. I think very likely what we see is targeted deportations of illegal immigrants who have committed crimes
on US soil. Will get pictures and videos of immigrant being taken across the border and buses, and we're very likely to see remain in Mexico reinstated.
But deporting tens of millions of.
Illegal immigrants really really hard to do without additional funding from Congress, which would take a lot longer.
You know, one of the most interesting conversations that we've had, I thought was Representative french Hill yesterday, where we were talking about the budget deficit and his concern about it. And he is a Republican, he is a House member, he is a supporter of Trump, and he poured a lot of cold water over some of the proposals that we heard from Elon Musk and the feasibility of cutting
two trillion dollars of the budget so easily. So how much pushback will there be within even the Republican Party as far as expanding the deficit to the degree that some people project that the plans would do.
I think there will be some pushback, but I think almost necessarily we will see an extension of the Trump tax cuts, all of them, not just some of them. And you know, there really isn't any obvious spending to commensurate with that level of tax cuts. So otherwise, put, I think we are going to see an expansion of the deficit almost necessarily.
So work through the kind of policies that run the campaign that you think could get done.
No tanks, he's on tips that happens. Probably not. You don't think that happens.
Well.
I think over the past six months, what we've seen is Donald Trump run frankly, a phenomenal campaign. Of course today we know it was a winning campaign. I think a lot of what he was discussing, does he want to get it done?
Maybe?
Are they priorities to get done in this first one hundred two hundred days where we'll see a bulk of the legislation get done.
I think probably not.
So that's one policy copor tank's write down to fifteen percent with conditions?
What about that?
Yeah?
I think so.
I mean again, the campaign talked about twenty percent, eighteen percent. I think those were campaign poys because frankly, a corporate rate cut doesn't play very well among working the working class. I think Republicans are going to do all that they can to get it down to fifteen percent.
Let's talk about inside the White House. Josey Wiles was announced last night, Trump calls her his ice baby. Who else do you expect to join the cabinet?
We see Rick Cornell at State.
If it's not Rick Cornell, it'll probably be from the Senate, maybe Rubio. It could also be Bob O Brian. But but I would I would tap at Grenell at this point. You know, we're all asking ourselves who Treasury is going to be. It's Scott Best and I think is at the top of the list. But Howard Lutnek has I think become more popular in the campaign and transition teams over the course of the past week or month. So I would look at Howard Levenink as well.
What do these names swirling around the potential cabinet picks for President Trump tell you about where his mind is and how maybe the next four years will play out.
Well, I think that the Trump two point oh team will be more ready to govern than the Trump one point oh team was. I mean, we have to remember that in Trump one point zero we also had a Republican trifecta. There was not a lot of major legislation that got done in that period before the midterms. I think we will see a different Trump administration with a lot more momentum, a lot more efficient whether without Elon Musk,
you know, really running the efficiency efficiency show. So what I think we're going to see is it's a technocratic cabinet, but it's also a cabinet very very willing to implement Trump's policies.
You say technocratic cabinet. Yesterday Donald Trump came out with the plan to eradicate deep state.
It started talking.
About a series of measures to give him the ability to remove certain people, certain bureaucrass as he calls them, different members of the government. How much are those some of the things that we can expect to hear versus the technocratic aspects that you're talking about.
Well, I think at a very high level, top level cabinet positions, these people are really smart. These people have their hands in policy, and they're going to be ready to go underneath that. So some of the more professional but still policy related jobs, Trump wants to ensure that those people are pursuing his agenda and not their own.
The easiest way for him to do that is to enact something called Section FI, which could allow for him to fire up to fifty thousand policy level positions subcabinet do we think he's going to fire fifty thousand people, you know, on January twentieth, twenty. First, no, do I think that that's a helpful threat for Trump to ensure that the people working under him and under his cabinet are pushing the ball forward.
I think it is helpful. So I think we hear a lot more.
About Session f The reason why I ask this is because when you say ready to govern, that could mean a lot of different things. Is it pushing through legislation, is it looking for the types of provisions that could allow some of these more dramatic provisions to go into effect.
Which is it?
Well, I think first it's it will be done by executive action. And again I think that the two opportunities for him to do that on the border, not so much major immigration reform, but border enforcement in particular. And I do think very quickly we will see that. You know, Trump returned to the drill baby, drill talking points opening up federal land for more oil.
And gas production.
Whether or not we see them in the market in the short term, I'm skeptical, but it is what it is. The second, on the legislative front, I think it will be tax focused. I think everything else sort of in the first one hundred days probably falls to the wayside.
Up it's going to see. As always said, thank you Rupkese. As Saganum Global advises. This is the Bloomberg Sevenans podcast, bringing you the best in markets, economics, and geopolitics. 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.