Matt Damon & His Clean Water Venture

far this year. In response to the press conference, it was interesting to hear what j. Powell said about trade, even though he said that they do not do trade policy. He said trade is a new risk, a low prile profile risk that has become more prominent to the outlook with respect to how much it could curtail it. Here with us. Ibrahim Rabari, the Group head of Global Macroeconomics, joining us here in our eleven three studios. Ibrahim, thank

you so much for being with us. I want to start with trade because J. Powell, uh, you know, pretty much stayed the course yesterday. But trade is really the big question. And from your perspective, based on what we know from President Trump's administration, how much do you think the rhetoric that we have heard so far will curtail economic growth this year. Well, thank you as a pleasure to be here today, and I I think our base cases it won't curtail activity that much, at least in

the US this year. And that's on the assumption that we will see something along the lines of what the media reported it will be announced today, and that the response to that will be fairly moderate from from other countries, notably China. Of course, in that scenario, I think trade might be roughly neutral even for for for the U S or ever so slightly negative because of course some US companies are actually going to benefit from what these

from what the administration tries to achieve. Well, let's let's just be very clear here. So we've already gotten the steel tariffs, but what we're really talking about today is the potential crackdown on theft of intellectual property from China. So that is what we're talking about. We're expecting possibly fifty billion dollars of sanctions in some in some form

or another from President Trump today. I want to talk specifically about the escalations there because we are hearing that China would retaliate by way of grains and the mid and the Midwest States, So given a sort of escalation of that, would that change your outlook? No, And I think if it, If it, if it is limited indeed to retaliation that's perhaps targeted the specific states, mostly in the agricultural sector, then I think it's significant for those sectors.

But I don't think it will be more than a very minor influence on our micro forecast the feds overall outlook as well, and therefore monitory policy. We're gonna catch up with Bloomberg's Tom mackenzie from Beijing a little bit later in the program to get more details on how China may rest bond to the tariffs that could be unvilolated by the President. I want to get your view on the Federal Reserve. Abraham, what have we learned about

the reaction function of Chairman Power yesterday? Well, relative to I think the uncertainty and and and and some expectations, I think he came through as very gradualist and in some sense as very little changed from the leadership under under his predecessor, and clearly reactive. So I think the most significant statement in the press conference was that the committee didn't see any signs of an acceleration of inflation, so that tells me they're going to stay the course.

I think it's still the expectation that we will see a higher quarter until quote unquote something breaks. But we're certainly not seeing a change of tack. The message seems to be shown me the data. Now. Federal Reserved chair Janet Yellen used to say, we're data dependent. But this sounds like an individual that is truly going to be data dependent, who is not married to a certain economic model in the expectations of what might develop based on that.

Is that your interpretation too, I I would certainly think that he's not quite as as wedded to a certain way of looking at the data. In the sort of academic tradition of Phillips curves, neutral rates, they came up very often as well. I don't think he's more data dependent than Chairman Yellen was, but I think he was at least clearer that he didn't see the trade off between growth and inflation in a way that would necessarily

push him to catch up with that outlook. Meanwhile, perhaps for Powell isn't necessarily offering up a prediction of where he sees the credit cycle. But some investors have some prominent investors and they're starting to see, in particular Scotland Minard of Guggenheim Investment Management seeing a flat yield curve in a year and a recession six to nine months

after that. Do you agree so? I think the risk of a recession or at least a significant downturn over the next two to three years is pretty high, and I would guess it would be associated with a flat yield curve as well. Now, of course, the uncertainty around it is high. To when we think about downturns. What we have to think about is vulnerabilities and shocks. Vulnerabilities are clearly going up. Shocks are hard to predict. But I think that two to three horizon seems very plausible.

Just in terms of yesterday, the disappointment for very hawkish expectations was that we didn't quite make it to four hikes. We did drift higher in terms of their projections for rates through through and Tilsa's point this flattening of the curve. You do have this situation where rates in twenty are actually materially higher above where they see the long term neutral rate. What do you make of that dynamic in

terms of the forecasting at the moment Abrahim. I think it is very interesting, and I think particularly what's been going on for the over the last six months is actually very interesting. If you go back to September, only five people at the on the effort and see were at three percent or higher. Now it's twelve, so it's

a really big change in that specific number. I personally think one reason why that number is now three in four percent above the long term neutral rate is actually so that they don't have to raise rates faster today. So it's a warning sign for things not to get out of fans that may have some coming influence. Does this play into that idea that they are still slightly cautious about the potential of overheating. I think they're cautious, but at the same time, again, I think they're kind

of they're fairly reactive. So I think what the new chair laid out yesterday's I think the data have to convince him that inflation is picking up faster than expected. How much is this out of the Fed's hands. How much of this has to do with the fact that the US is issuing a great proportion of debt on the short end to finance its deficit, thus raising the rates in the near term at the expensive growth of the long term leading to a flattening of the yield curve,

even if the FED is somewhat cautious. So very recently, we've seen a lot of movement in in in the short term for a variety of reasons. As you mentioned, issuance is one. We've seen the tax band effect, corporate behavior as well. And the FED of course is also changing it's it's it's balance sheet. But in terms of the steepening or flattening dynamic that we've seen over the last couple of months, the long and actually did move

significantly too. And I think there it isn't really it is really these factors, even though tax plan and FED balance sheet coming. But to leasis point, Abraham, something is happening at the front end in terms of short term borrowing costs, whether you go through Libel commercial paper, what you see in short data, investment grade treasury bills, borrowing costs in the short term getting higher. Now, is that going to result in tide of financial conditions in a

way that perhaps the FED doesn't actually quite want just yet. Yes, And I was curious to see that nobody asked them about that specific failure of the press pack in the news conference, isn't it? Well, you tell your colleagues, but you know what I think you will. I do think. I mean there's a debate. I think there is a moderate degree of financial tightening coming through on that score. Might expectation for now is it will actually reverse and that I think the Fed is going to wait to

see to see that happen. And it is linked to some of these influences like the tax plan, but perhaps also Treasury issue. Abraham rack Barr is Citty Group, Head of Global Macroeconomic it's a big question how much will a full blown trade war crimp the economic growth that we've seen so far. Lara ram is going to answer that question for us in complete detail, and you can trade on it from here on out. Laura Ram is Chief US Economists. So give us a number, alright, uh number?

Percent of of a crimp in the U economy? Yeah, you know, small, really small. I think you know, less than point one percent um in terms of economic impact of tariffs. I think one of the questions we have to ask ourselves. You know, two months ago, this market rally seemed unstoppable. It was a one way rocket going higher, and I think it speaks to the fear and power of the you know, any kind of protectionism that we've has actually stopped, Like what's changed now two months ago?

It's really been this trade rotoric and you know, the economy is still looking solid. Um, global economies are still looking solid. The FED is getting a little more confident, but their outlook really hasn't changed. And in fact, we've had all this new government stimulus that makes the economy look even better. This rhetoric has power, and I think we all need to be humble in the face of that.

So here's my question. Everyone is saying that, you know, the U. S economy is gaining steam, it could possibly get an even bigger bump because of the tax cuts. What could change that would make you advise your clients that it is time to be more cautious. So I'm already there, Um, I think because saying sounds good, Because you know, markets are so forward looking and there's already so much good news priced in. How do we get better news priced in? From here? Everybody has been tripping

over themselves to raise their GDP forecasts. So when I look ahead, I see, you know, our an economy that's still really powered by the consumer. Well that's great, but it's really powered more by wealth gains than wage gains. And how do we connect that to financial markets? Because why do we care about the economy. We care about the economy because it's what drives our financial returns and

our financial picture. And when you connect those dots, it makes the consumer hyper sensitive to changes in market sentiment. So when I look out across growth over the next year, we're still overly reliant on the consumer business investment. Green shoots of recovery there, but not you know, really confident traction. And so I see it is a more precarious picture

with a lot of good news already priced in. Okay, So when you're saying that it's dependent on wealth gains, in other words, are you saying that a sell off in equities could potentially lead directly to aid economic downturn, especially without wage gains for the US consumers, and especially given the fact that US consumers have actually packed on quite a bit of non mortgage debt which is set

to reprice given the higher short term rates. Yeah, and you know, downturn is probably strong, but you know, moderation from here, and I you know, look at the savings rate. A lot of people discount that, and I think that's a mistake because people have forgotten how it felt to be over levered going into the last um you know, downturn.

And I think right now, when we look at what is powering the consumer, Yes, everyone has a job, but the wages just aren't there a short time borrowing Colston ready started to push higher UM no matter what you look at, what's the net effect of that on the US economy at the moment, and that has a significant impact. A lot of the treasury debt that's being issued is short term debt, so that raises the funding costs for

the government. And yeah, all these credit card debts, you know, um, you know, the short term debt that consumers have taken on. A lot of that is UH is priced off of the short end of the curve. So I think it's this chipping away and it's human nature, right, we all get too pessimistic and then we all get too optimistic.

And that's what I saw at the end of last year, everybody just embracing that goldilocks growth and financial market environment and forgetting that we've had, you know, complacency to me is really set in and where advising investors to be prepared for much higher volatility and to be really prepared for a much more difficult investment terrain to navigate. It's so interesting for me to hear you talk about consumer leverage because most analysts an economists I speak to write

it off. They say, if you look at it, it's you know, on a sort of per GDP growth basis or per household wealth level, it's really not that big of a deal. And yet you raise a really good point, which is there's sort of a two tier system here. We've got the consumers that don't have mortgages, that are paying higher fixed costs with rents, etcetera. Have taken out a record amount of debt, whereas the wealthiest have remained

a pretty pretty well set. Can you talk about how significant this is for the economic out look going forward? So you know, this is one of the things, UM, that we still need to really pay attention to because as we haven't seen the wage gains come through, it's

really impacting everything. I was speaking to UM a group of you know, human resources executives UM that really are at large UM nationally publicly traded companies they talk about the fact that they are still being very cautious on the wage front and doing everything they can to not increase wages UM partly because as they're publicly traded, they are really reticent to pass that along, you know, through

their earning statements. So I think we have to wonder where we get to the quarter where either they end up passing along those higher costs and the earnings look less favorable. Um. But all of it really speaks to the fact that this tightness in the labor market and this UM strain on the consumer household balance sheet, something's

out a gift. So, as John was pointing out, really uh wisely, the rise and interest rates, the rise in short term rates and we're talking lib or, which is one of the benchmarks, but also two year yields, and and uh take it, take it the range. How much will this directly go into higher defaults and delinquencies on this consumer debt? So, you know, so far delinquents to rates look really good, which is one of the things that most analysts used to UM discount concern about this

UM and defaults. Higher debt levels, they're never a problem until it's a big problem. UM. So you know, speaking to the credit investor leaks, so that turns around you and says, credits okay because default right alone, Yeah, exactly, that's exactly right. So we're all sort of frogs in the pot, you know, but the heat is slowly getting turned up. So I think, you know, it really just speaks to the fact that, um, when we get optimistic about growth, we need to still be realistic. You know.

Optimism to me is still two and a half percent growth, so low relative to past economic cycles. And the reason for that is because when we look at the consumer and we look at how the consumer is power going forward, there just isn't a lot of juice left in the juice box, you know, there's I think we're really coming to a place where we either need to see business investment pick up significantly or we need to see wages

ride rise, which means inflation um. And I think the fact that the consumer is so reliant on wealth gains means that there is a vulnerability there to a correction the stock market, which is new for us watching the economy. It's been great to cash shot with you managing to make it over from Philadelphia to New York City and some terrible weather over night. So thank you very much for joining us FS Investment Solutions Chief US Economists. Today

is World Water Day. We should recognize that and to solve the global water crisis, it would take donations of about two hundred and billion dollars a year. Two hundred billion dollars a year. How much do you think pim the aid is annually? It's actually eight billion dollars, which is a huge gap. Here to talk about how to bridge that gap is Gary White and Matt Damon, co founders of water dot Org and Water Equity. Matt Damon is also known as his for his side gig of

acting Um. But I want to start with you, Gary. I want to talk about bridging this gap, how you're trying to attract investors, what the interest is and frankly for our audience, are their actual returns here or is this just a charity play? No, there actually are returns here.

And I think that what underpins this is that you know, there's billions of people who lack access to water and sanitation, and the reason this can work as an invest business investment model is because they spend hundreds of billions of dollars every year coping with this crisis. So they're spending time walking to collect water hours each day. Women will spend two hundred million hours today walking to collect water.

They could be spending that time at a productive activity, or they're sick because of contaminated water, or in urban areas, they're having to pay for water from water vendors uh

sometimes twenty of their income. So it seems like there's a market here, and what we've been able to do is to connect investors with small loans micro loans at the household level so that women can get a water tap at their house as opposed to walking hours each day to get water, and then they can use those savings or the time they spend working at a paying

job to repay the loan. So we found a way to connect investors who want to have that social impact, but also our fund provides a targeted three and a half percent financial return to investors while helping people escape the water crisis. So, Matt, I want to talk about your involvement in this. Obviously, um you are known for other things other than water preservation. You're also known for the many Hollywood movies and awards that you've garnered over

your lifetime. Um, I'm just wondering what attracted you to this and uh and sort of what has your celebrity Brian mean, who are you trying to sort of target here? Uh? Well, UM, I got interested in in the issue of water and sanitation in two thousand six on a on a trip that I took to kind of learn about issues extreme poverty. Just the enormity of it just floored me. And the fact that nobody, uh I wasn't aware of anybody really talking about it. And um so I started to try

to get involved and and and and do something. I started something called H two Africa and we were basically trying to raise raise funds for little ENGOs that we're doing good work um throughout Africa. And and but I still, as as I started to get more familiarized with the issue and the complexity of it, I was trying to think about how I could really maximize my impact. And and that was what made me think I should I should partner with the kind of pre eminent expert I

could find. And that's what led me to to Gary and and Gary's being very humble about this idea of of micro lens. He kind of pioneered this idea of taking the the concept of microfinance and applying it to the water sector. And he did that because he had spent his entire adult life in these communities and and had that realization that people were paying for water. The

poorest of the poor. We're getting their water somehow, either either with their time or they were in many cases, as he said, that spending up to their income just to get that water. And so, but what they didn't have with savings, so he knew they could pay off alan if if if if we fronted the money. You know, in a lot of these uh urban areas that you know, the municipality is piping water right under the feet of the people who live in these slums that they're they're

just not connected to it. So they're paying ten to fifteen times more for their water than the middle class in their country. So so the theory went, And when I first met Gary, this was kind of in its nascent stages, but the theory went, well, if we could front them the money, um, they could pay the loan back and and then they'd be connected and they'd have bought all this time back and so and so, you know, not only would they you know, would they be uh

able to pay pay off the loan. They'd have more income in the future because they'd have more time to work at at at a job, rather than waste all this time standing in line or going on you know, collecting water um. And the idea has really Gary called it water credit. That idea has been more successful than we ever really could have hoped. I mean, it's been just wonderful to see what's happened. These loans payoff at um. You know, these are the poorest people on the planet

paying these loans back. It's really it's really wonderful to see. And and they're participating in their own solutions, and it's just kind of shattering this image that the poorest of the pork can't can't uh you know, can't can't change their circumstances if they're you know, if if they're given you know, a hand up, it's just it's just they're given this opportunity and they absolutely take advantage of it.

And and we went from in two thousand twelve reaching our first million people too, we're reaching a million a quarter now. And it's a really scalable idea and and in fact, our micro finance partners in in the countries were work and when we talk to them, the biggest bottleneck they identified for their work was access to affordable capital. Because the demand is absolutely there. We could be doing this so much more if we just had more money.

And that's how we came to this concept of water Equity, just to put the question maybe to both you, is the issue that the water is disappearing or that you have crumbling infrastructure all over the world and that you have governments that are not centralized in the way that they think about this resource. Yeah, so there is certainly an under investment in the infrastructure as we see in Cape Town, you know, South Africa right now. And so it really is all about capital and drawing it in.

And I think, you know, Matt's talking about kind of one end of that that capital spectrum, and that is like the poor person who needs out micro loan. But what we see emerging is capital coming in from the social impact investing space. So we launched water Equity as a spinoff from water dot org and it's dedicated solely to being an investment fund manager raising these funds from the capital market so that we can then connect poor women with the loans that they need for water and sanitation.

And so Water Equity now is in the midst of raising a fifty million dollar fund on the heels of our first successful fund, and we raised thirty seven million of that UH that capital to date. So this allows you, know, to just put it bluntly, for every million dollars an investor comes into this fund with we reach a hundred thousand people with water or sanitation, and at the end of the fund life, the investors get their principle back and they get an annual distribution targeted at three and

a half percent. So this is like a real investment opportunity that is also backed actually by a ten percent guarantee that we rolled into the fund as well. So the it''s a solid investment that's going to help poor people get more access to water and sanitation. So, Matt, I want to get your perspective when you talk about it. I mean, you had a high profile advertisement about this that aired during the Super Bowl, so this isn't just

targeted to the institutional investors. I'm wondering what response you've gotten from the broader world the rest of us, UH from your push and kind of what you're trying to create because it's not just the investment, clearly, Yeah, I mean that it's funny. One of the biggest hurdles we have to clear is just trying to explain the problem because it's so unrelatable, uh, for for so many of us in the West, right, Um, access to to to to clean water is not something that we that we

tend to think about. Um, the water in our toilets is cleaner than the water a hundred million people have access to. So so one of the partnerships we have is with Stella Artois and and um, we've that we're in our fourth year of a partnership with them, and we've reached through them one and a half million people with with clean water. And and they've been they've been wonderful partners. And they obviously they did that Super Bowl ad which was which you know, their marketing team is

just so good. They're really helping us message quickly, like you know, in a thirty second spot, Okay, here's the problem, this is the magnitude of it, and then give their consumers and on ramp to kind of do something about it. Do you get pushed back just in terms of you know, what makes you able to do this as a Hollywood elite? You know, they're sort of that pushback from the from the recent oscars. You know, what do you what do

you say to that? I'm I'm I'm just trying to do kind of what I was raised to do, which is used whatever sphere of influence. I have to do something that I think is good and and and in this case, it's not me kind of or Gary coming in and and and swooping in as any kind of savior. It's it's it's actually these in credibly poor people. Of our borrowers are women, because this is an issue that disproportionately affects women and girls. Um. But they're they're the

ones paying these loans back. They're the ones doing this incredible thing. We're just we're just trying to facilitate it, um and and and you know the reality is we've hit ten point eight million people at this point. So I at that point, I don't care what anybody says. It's it's working and we're going to keep doing it. Thank you so much for being with us. Matt Damon and Gary White, they're co founders of water dot org and water Equity On this World Water Day huge issue.

They say that in order to solve the global water crisis, it would take donations of an estimated two hundred billion dollars a year. That sounds massive, but it sounds less so when you think of the two hundred and fifty trillion dollars in private capital that is sitting in global financial markets. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 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