Inflation is a Major Risk, Rahbari Says

what we actually do. Tony Fratto I saw last night, of course, his representation of President Bush, Eric Cantor Republican congressman for years, and it was good to see as well. Jane Spurling, he has a tennis play here from Minnesota, and of course to not one but two tours of duty with a National Economic Council for Democrat at presidents Jean, wonderful to catch up with you. How does this president avoid a double fault you're on the other side of

the aisle. How does this president get through this widely anticipated speech? Well, I think it's difficult for him because you know, on one hand, he's coming to Davos at a time where it's you know, Tom, It's not like two thousand and nine, you know, where you know, or other times where that the economy is really you know, in danger. This is the time where the U. S. Economy has been growing for eight years, the global economy is looking a little bit solid, so there's not a

sense of panic. He's obviously trying to in every way. He can take a little credit for it, But I think the hard thing is is that he has proven to be, both at home and abroad, a very divisive figure.

And you know, Tom, I talked to some people in the travel and tourism industry who say that the travel and tourism industry and United States is not sharing as much in the recent growth because comments and attitudes uh devisiveness by you know, Trump has discouraged a lot of people from vacationing in the United States, So, you know, it's it's I think there seems to be so far some effort to try to be a tiny bit more conciliatory, but you know, I think it's going to take a

lot both at home and abroad at the same time. He might do that at home right now, he has a very divisive immigration stance that that that offends people both in the countries people come from as well as the one United States. Let me bring in my colleague. Well, you know, Jeane Sproling wanted if you could just offer what specifically or who specifically do you want to meet or accomplish at Davos. Is there a person that you want to speak to that you don't know? Seriously, because

I'm trying to understand. You know, a lot of people spend a lot of time and money going and there's got to be in the back of their mind this concept of Okay, it was a win. What would be a win for Gene Spurling other than meeting Tom King? Well, of course reuniting. Reuniting with Tom is a win. But you know, first of all, I'm fortunate because i'm what's called on the Stewardship Board for Economic Conclusion, so I'm invited to participate without having to pay the big fees um.

But I find, you know, I find there's two things. One, you re you reunite with people. You know, I had a chance to talk at length with both Al Gore and John Kerre, you know, two people I've worked for in the past. You don't see all the time. Secondly, uh, there's issues where you can throw yourself into. So I think one of the big issues that was focused on here unfortunately not being focused on but in the United States policy wise, is the whole issue of automation. UH.

You know, will this be on a continuum? Will there be less jobs? You know, who's got the best uh social safety network for dealing with this? So I got to be in a board in a meeting where I was with the Minister of Finance from Canada, with the Minister of Finance from Sweden, UH, with top officials from Norway. That ability to talk about something about what's the effect of robots of automation and compare what different countries are doing.

That's something that you can do uniquely in Davos that it's very hard to do when you're just you know, sitting in the office in California and Washington v Shape Spurling. This is a way few more remit but it matters. We have Greg Valier coming up, of course, with the how Washington is fixated on the Russia's set of Russia investigations. I had breakfast this morning with Jane Harmon, the most interesting congresswoman. We were reminiscing about Watergate and our thoughts

about it. How consumed is the Washington that Jane spur knows with the Mueller investigation, Well, I think that Genes s burrowing. This citizen is very concerned that this particular president is really taking down certain basic core values that would have all United US aren't. Basic respect for freedom of the press, basic respect for the truth, and basic respect for the rule of law. So for me, Tom, what I'm most concerned about is, you know, let the

rule of law play out. When I see people who are unimpeachable by Bob Muller, you know, the Republican War hero FBI. When I see people attacks, when I see people in implication that some people could be above the law, those things bother me. I'm you know, I'm somebody who's you know, doesn't want to declare guilt or innocence. I want a fair investigation, but I want a commitment to the rule of law. And when I see that, deeply worried as un Jean, thank you so much for the

effort to catch up with us here. And uh, I'll tell you, folks, Dalbos has never been turned on its head like this moment. Honor to speak with Jean Spurling. We are enthused that we bring to you today for an extended period. Mr Gregory Vllier, Hoverizon Investments. He writes a piercing note each morning has read across all of Washington and our political economics, and I might also point out on our economic politics as well. Greg, I want to get to the president's speech, but first we have

to talk about your title today. The Mueller bombshell described for us why this time is different is Mr Mueller speaks of the president and the investigation. Well, Tom quite simply, Trump wanted Muller fired. I believe the account in the New York Times and other papers. No one really is uh denying it other than the President, of course, calls it fake news. Here's the big thing. He wanted him fired, and Underling, his attorney, said no, I think he still

wants him fired. And we get more indictments in the next few weeks. The nuance in your report, and of course this is a huge distraction folks to the president in a speech urin Davos, and you go into this, Greg, it's not so much firing but pardoning. Should we anticipate that if this smooths forward, the president pardons or critically, if he pardons before the investigation's end. I think it's on the table, just as firing uh Mueller was on the table last summer. I don't think they've ever left

the table. So yes, pardons, I think are still in the mix. Pim Fox, you've know the zeitgeist in America a lot better than I do here in a happy valley. Well, I just want to ask Greg Val, what do you think this is going to do for the mid term elections. What's the arithmetic for a House and Senate seats? I think I think opinions are pretty much dug in. If you like Trump, you're going to vote Republican. If you don't,

you're not. I don't know if this changes that many votes, but it is a distraction from the immigration bill, from infrastructure, from the budget. All these things that have to be dealt with I think now get obscured by this explosive new story. So how many seats do you believe the Republicans might lose in the House. I'd say at least twenty twenty four is the magic number where the Democrats would take over. It's a very very close call. But let's say the House is basically tied. I think then

there will be a vote to indict or impeach. Then it goes to the Senate. And here's the bottom line, guys, are there really sixty seven votes in the Senate to convict? I'm not right sure we're there, you know, I want to rip up the script here, pim and we're going here from Washington discussion folks. Of course, what the president will say in a few minutes here will shift over to Mr Villiers view on the speech. But but Greg, if this is something this is like civics one oh one.

If the Democrats quote unquote take over, can they reverse what they oppose? Is a lot of this stuff unreversable, a lot of watch stuff time, the things the president has done that upset the Demoican No, I get it. Oh, here's here's another really crucial point. Trump's veto is still good. Let's say the Republicans do poorly in both houses. There

still are not enough votes to override a veto. So there's not going to be some activist left wing Congress that can shut things down his throat in the next two years. The votes aren't there, Greg, is there a possibility that the president will be able to escape any particular personal blame. Sure. I mean, he's got more teflon than any president I've ever seen, you know, Trump and porn star. Nobody cares. Maybe Milannia cares, But I don't see anything really that sticks with this guy. So yeah,

I'm not sure how badly it will hurt him. But again, in this city that's preparing for indictments, it's a really big deal. Well in the city, it's not the country. So is it possible that this will bring even more scorn and resignation to the legislators and to the actual political class that seems to think that this is the most important thing, whereas most people are just getting up and going to work. Yeah, that's a very good point, and people are going to have extra money in their paychecks.

I think this economy is going to heat up, unemployment goes below four percent, maybe we get the three seven by the summer. So for for many Americans, this is just a witch hunt, background noise. But again, in this town, I can't overstate, guys, how big an impact the story

has had this morning. If you're just joining us worldwide, thrilled to bring in for an extended amount of time, that's warning Gregory Vale Horizon investments his thoughts not only on his economic politics in Washington, but of course the moment in Davos, Switzerland, Pim Fox in New York, I'm Tom Keane in uh Davos, That's where I am right still there in Switzerland. I'm getting the point Pim, where I'm waking up going where am I? Well, Davos, Switzerland.

Let me let me ask greg one of one other question here, which is that, um, all right, So let's say that this investigation, uh, it proceeds and so on. Is there a way for the president to just move beyond this by saying, Okay, they made some mistakes. The people who are going to be indicted are indicted. Let the justice system work and get back to business. I think that one of the very key factors is that it goes to Trump's family, Donald Trump Junior, Jared Kistner.

It's really easy to get an indictment on perjury in a town is rule as DC, a grand jury will have died on perjury. Maybe there's something on money laundering. If it goes to his family, he's going to say enough is enough. This guy has gone too far. And within that actually this came up at breakfast this morning. Pim. We're with the idea that the president has different protections

versus each and every other person. Greg, that's true that within all of this world that the president flies back to, he's playing by a different rule book because he's the president. Is that true? Absolutely? And I don't think he's used to being treated by people in quite this way, having his own family members come under scrutiny like this, so he could react in a in a very host hostile way.

And you know, there's one other angle, guys. He still has tremendous support in the Republican Party, and I think a lot of Republicans and congress are scared to take him on because they lose their primaries. Let's switch to uh, the moment in hand, which is of course in Davis. We welcome all of you on Lomberg Radio worldwide, Good Morning Radio London and those listening digitally in this Europe

PIM Fox in New York. I'm Tom Keane at these meetings of the World Economic Forum, and without question, I can say this, folks, without hesitation, the most extraordinary Friday in forty eight years of meetings in Davos, I've been here for fourteen years, and there's flat out no comparison. I can't measure the number of people that came to the Congress Center today by foot, by fancy Mercedes Benz or on just the little shuttle or bus who uh

came with their suitcases. Where you just gotta believe they're gonna listen to this hugely anticipated speech and then get out of dodge, which is what you do on Friday, and a few people on Saturday. Uh Here in uh Davos, the President will speak, Greg Valier, uh with us. Greg. If if I look here at uh the speech and the way it's anticipated, I think it's changed. You wrote a few days ago that you thought this would really be something you were right. But what's changed the last

few days is we listened to this speech. Well here's my suspicion, guys. I think there was a lot of pushback from Wall Street types who contacted Trump and his advisors and said, look, you don't want to bash your own currency in America. First is one thing, but to to talk down the dollar and to talk about trade disputes is not real constructive for the markets. So I think he's listened to that so maybe he'll tone it

down a bit today. But I think there's a new mind frame on the dollar, and I think that the dollar with all of the mother stuff would trade reputes. I think the dollar may stay under pressure, Greg Value, thank you so much. With the Horizon investments. The Imberbari joining us now a head of global macro economics at City Group. That must have been wonderful news it for him to hear that Katherine Man would join your shop. Yeah, absolutely, Toma.

We were absolutely delighted that Katherine will join us very shortly in a few weeks, and even more delighted that our current if economy is built about it's gonna stay with us. Yes, I think it's it's a great luck for our organization. I should point out to Professor Bowder will continue as a senior advisor to all of the City Group platform. Abram. What I noticed in there, and it made me think of Kathy Mann, was where the President twice mentioned free trade, fair trade. But then within

our international economics this odd word reciprocity. What is reciprocity to a frontline economists like yourself, it is in uh, the term of cute interest, because of course this is I think very much aimed at the ongoing the dialogue with China, and I think the concern that China is not quite sticking to the same rules as many other countries in the world economy, including the YES, but not only the US, may have seen a number of other countries,

the EU and Japan also have expressed concerns about elements of trade with China, and I think in this specific case, it means that we are likely to see further measures similar to some that we've seen over the last few weeks. You saw measures on solar panels, on the washing machines. I think this is a pre announcement that more is to follow in the next few months. Mr Rakbary, the Treasury Secretary Stephen Manuchin says, or at least a Bloomberg headline has him saying that he was not trying to

move the dollar by his comments. What you have is any reaction or any thoughts about that. I have to say, I'm i'm I was a little bit surprised about the commons. We have in the past, together with Bill and Bower, we've written about the Treasury strong dollar policy. We always thought it's a little bit of a misnomer for two reasons. One because over the last few decades the dollar has

actually depreciated fairly, fairly consistently over a longer horizons. And the second is that the Treasury is primarily concerned with, of course, funding the government and low borrowing costs. So for me, strong dollar really meant it's a stable asset, so you should extract the high price I eat low treasury yields. So it didn't make a great deal of things for me to to express these sort of uh, mixed sentiments about whether you would prefer strong or a

weak dollar. But it fits with the I would say, a slightly more recantilist tone of the policy debate in

Washington when it comes to trade. Okay, and is it possible that not only the Treasury secretaries comments, but more specifically the comments and the speech by President Donald Trump is part of an overall tactic for negotiations, particularly when it comes to trade, be powerful and beuh if you want, if you will, sort of strident, so that you have a negotiating position that then really puts you at an advantage when you have to sit down with Mexico and Canada,

for example, U to renegotiate NAFTA, as the US Commerce Secretary Wilbur Ross saying that it is fixable. Yes, I do think that a lot of these statements obviously have a negotiations element to them, But at the same time we we shouldn't think that they are purely negotiation tactic in the sense that we we should expect them to take action to pursue more trade remedies, to improve more restrictions on important also on probably foreign investment in the

United States. Of course there's going to be an element of compromise, but that rhetoric will be followed with action, Abraham with within all of this is a definition of multilateral, bilateral, and maybe a unilateral president. Now, the President made nice in the speech. Everyone can agree with that. But was it a true bilateral speech or is it a bilateral speech that says, if you play our way, then it

will be bilateral. Yes, I still think I mean the I think the keyword of the administration's new approach to trade is still sovereignty. And I think sovereignty is still much easier to to make consistent with bilateral arrangements then with multilateral arrangements, in particular with bodies like the w t O, who seem to be compromising sovereignty to some degree.

I don't think we learned much in this speech about about these issues, but I think it's we should expect the focus to remain on bilateral Is there a possibility that we're going to see an increase in acceleration in inflation this year? And I point to the g D the first print for gross domestic product in the United States at two point six percent. We're speaking earlier with Greg Valier uh he was talking about how the possibility that the U. S economy could overheat. It's it's certainly

one of the major risks. I mean, from from our perspective, we don't think we'll see much of a pickup in invasion other than for sort of statistical reasons. We have a number of statistical pas effects over the course of this year in the US, but we think inflation underlying inflation will be fatly close to two and it's not that far even now. But at the same time, I

think inflation is a major risk. We have seen growing signs that we have labor shortages and that companies find it increasingly hard to find workers, which usually you should expect to push away to somewhat, but we've also observed over the last few years that that link is by no means as as close as it as it used to be. When it came to the GDP number today, of course it was a little bit below expectations, but it's still, you know, meaningfully about what we think is

probably the sustainable growth rate in the US. So at the margin, I think probably does put inflation pressure up, but as I said, really probably only very weakly. So I'm not holding my breath for inflation to pick up too aggressively this year. Does the President's speech at all challenge the particular leaders of Europe when it comes to things such as tax overhaul and regulation overhaul, I don't think necessarily the speech did, even though of course that

the President did a good job. You certainly try very hard to sell the achievement of this administration. But I think the tax reform as such does. I mean both both that the corporate tax rate is being brought down significantly in the US, but also the number of other measures, the base erosion measures, FDI related measures that I think do have a meaningful competitive impact. We should say a bit.

For example, looking at the corporate tax rates. The US is really just moving to the middle of the pack. It was the lag of many other countries have been reducing corporate tax rates over the last two decades. Every one more question if we could, and we can make it quick. I know you've got to get to your travels, as everyone in Davos is doing. What does the City Group call on euro is a single point estimate? Deutsche Bank and George Sarah Ellis see the drama of one thirty.

Can you give us a drama single point estimate like that? I believe it's nine at the end of this year. It's very close. It's certainly the idea that it will it will continue to be strong. That is remarkable. Inari, thank you so much, just on short notice, his head

of Global econom macroeconomics. I should say for UH City Group, working of course with a little Bouder and Catherinine here in Davos, we finished strong with someone who I've spoken to somewhere between six and twelve times UH, and I believe I've spoken to her on every continent of the Earth, including Antarctica. And I am finally meeting with Davos kujin Is at the London School of Economics and his shingles

from Harvard University. You studied under Kenneth Rogoff. What level of torture is that the best kind of torture, the best mentor? I have to say, what do you do with Ken Rogoff when you don't get the math and he does well? I would, uh, I would? I would say I'm gonna work harder. You could work harder and there were no tears involved. I'm sure, Jen, you become an immediate and important voice on analysis of the Chinese economy.

And it is perfect to have you to close out our coverage here because in every dabos the US two days, there's a backstory. And I know, Mr Trump, you're listening to this in the car to Marine one and then on ZERI on Zurich. I'm sorry, but the President of United States wasn't the backstory. What was the backstory was China and the rekindling of t p P. How badly does America need this multilateral trade agreement that I believe

does not include China. Look, you know, China is making its own efforts to create its own you know, regional trade arrangement, part of the Belt Road initiative is actually to enhance trade and these kind of relationships with each other. Um, the question is, you know, other countries such as Vietnam, the TPP is going forward even without the USS participation. So I think that on all aspects, you know, the regional trade is happening anyways. The regional trade is happening anyways.

Take a given country you mentioned, Vietnam, do I understand they can play it both ways. They can do t p P and they can also go down the trade road with China. Oh. Absolutely, It's not just Vietnam. In fact, a lot of these countries, especially in Asia, are playing, in my in my view, a dangerous game, a political game, either siding with let's say India and the US or in China. So for example, in Sri Lanka, Sri Lanka

was looking for infrastructure investment from China. However, some political party came and said, you know, let's not side with China's side with the US and India, and they were were waiting for the loans which never came, and they wanted to go back to China, and China was like wait a second, that's you know. So we're seeing a lot of these countries possibly playing both sides depending on what political party, what kind of political mission they have

the financial question. One of the great themes here from many on Asia and particularly Chinese government representatives is China has a better handle on monitoring, an understanding and simply counting their challenge and enormous debt. Do you buy it? I actually do buy it in the sense that the numbers look worrisome to say the least, and there are

other problems like xx capacity and slowing growth. However, the difference is that the government has a huge array of tools and instruments and they can coordinate lenders and borrows at any given single time. So the point is that it does look the numbers look worrisome, but um at a moment of need, there will be no financial panic because the government will step in, and that I think is different from the West. If you're just joining his

k Gen of the London School of Economics. As we close out our Davos covered here and wiout question, the theme of last forty hours away from the distraction the President visiting, and that of course is on uh on China. The President mentioned fair free and trade reciprocity, a huge body of Americans would suggest, we're not doing free or fair trade with China. How do you take free, fair and reciprocity and bring it over to this strategic relationship.

I think that what we are not giving enough credit to China is right now, or at least we're not aware of, is that they need to turn from systemic taker to give her and they are actually making strides even though that might take some time too towards that to be able to give back to the global system. So when the President Trump came to China, China made some concessions in terms of liberalizing certain financial services. That is actually a signal that China from now on will

start to give back to the global system. But this the result resolution of these problems by having trade wars and slapping terrorists, you know, onto each other, is not really the best solution. Paul Kirkman wrote about it this morning in Folks. For those of you that are critics of the professor, this maybe happens to be his wheelhouse and talking about war machines and solar panels. Am I right?

When you teach at LC and you throw a chalk at the young undergraduates, uh, you would suggest there's lose lose in these kind of decisions that the President made. Well, you know the trade models. That's what the trade models tell you. That's what you know in theory, that's what the research tells you. It doesn't talk about employment, it doesn't talk about inequality issues, which are obviously very important.

But we're ascribing a lot more of these current problems to trade than to technology, because trade is a me versus US versus then, but technology would be US versus robots. So obviously, under political pressure, trade is a great way to blame others. And Dr Krugman talks about the findings of the United States International Trade Commission, and this is

very sophisticated stuff, folks. The idea that a given thing, in this case washing machines, uh didn't take away any US jobs, but they would have been US jobs created if they weren't competing with us. That's pretty original, isn't it That we're almost extrapolating out a trade to be well, I think you know, first of all, solar panels, washing machines. Let me just say that China's trying to get rid of a lot of that excess capacity. Anyways, it's trying

to move out of lower end manufacturing. So it's so, but this is critical. It's not about washing machines coming back to the United States. The washing machines are built in Vietnam exactly. Well, a lot of these will not move back to the US. It will be moved to

other countries. However, what we ignore is that through the exports of China into the US, it's created a lot of jobs on services, business services, and the most recent academic study says that when you properly account for the jobs at Chinese exports or Chinese imports from the U S perspective create on net trade, you know jobs were not displaced in great numbers. I look at um just unfortunately, time for one more question. Look forward to seeing you

in London and in her Professor Chin. When I look at uh all of the President's speech, it seems to be an original bilateralism. This is what America is going to do and if you want to participate, great. How will China respond to the Trump message versus more traditional international relations that we've seen for decades. To be completely candid, China understands the importance of a country first. However, China is going to take the other role of creating global

platforms cooperation. I think that is the difference. Kin, thank you so much for joining us today and short notice. She was here, of course, observing the President like any and all. She's professor of economics in London School of Economics. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, Soundclout, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before

the podcast. You can always catch us worldwide. I'm Bloomberg Radio