Our Potential to Grow is Strong, Kudlow Says

gotta stop the try story, hown't we? Jim? Yeah? The most interesting story, isn't it? How do you keep up every single morning? You know, you have to step back and ask. I think what we're watching is this is not the way to get people to the table. I think what we're learning and maybe the administration didn't really know this that China has a lot of options also, and they've got a more much more managed economy so

they can manage the disruptions from this. And by the way, they say they're not going to weaponize the currency, but when the currency goes down eight or nine percent, that lowers the cost of merchandise we buy from China by fifty to sixty. But so you you could fit into this story, it's hard to tell. Just to push back a bit, the move today doesn't seem completely controlled by China.

Their currency is weakening a little bit faster than that they would like, clearly because they're trying to stem some of those two clines. Uh, it's not clear thing about China's controlled. And that's why this is not a market currency. Uh. It is where it is because the People's Nank of China wants it that way. And now you know, and the capital flows are very controlled, right, the capital counts

very control. Is very tough to take money in and out of China's So I think everything about China's works traded, and I think this is what you know, what they're going through is an industrial industrialization of their economy. If they were to do what the Trump administration wants to do would be very disruptive for them. So it's not

so much that they're trying that they're fighting trumpets. That they've got to manage the how their own economy is developing in the middle of this tension with the Trump administration. So honestly, I think this is totally unconstructive attempting to control. Something doesn't mean you have control. It doesn't necessarily look like they have control. But I think they had more control than anybody in the world on their on their financial instruments, on their currencies. So it's hard to know.

I mean, I know there are pressures, but the thing is, it's very difficult for people to you know, normally you would worry that this is a sign of capital outflows, people panicking they're moving capital. You can't move capital out I mean, there are limits on what you can do, and you can be threatened to go to jail or whatever you want to do. Quite clearly, there's a difference between the pain that the Chinese are experiencing currently in the pain the experience in the summer of fifteen and

early six. You know, I'm not sure that was pain they were they were trying. They were trying to get into the basket of the SDR basket, right, So they were the I m F had issues with their currency was not looking like a market currency. So they were trying to go through a process of liberalizing. And the thing is they've it's it's they've got tremendous control. I think a lot of people would describe the equity market bursting is pain Jim, Well, not many people own This

is not like America. A very small percentage of people stand the composition of the owners ship, but quite created. There was some serious concern amidst the collapse that we saw in the equity market fifteen gone through sixteen economy. Honestly, I remember these worries we had about hard landing in China back in two and sixteen, right, and our market went down, And then you would if you stood back and you said, now, wait a minute, China can turn

lots of dials here. And then with six months later we we no longer worry about that, and we find out that car sales have doubled. So I really think it's very difficult to sessing. China's very managed, all right, So difficult to assess China. Some people are saying their signs that it is getting affected, but unclear. Let's turn to the US. We are expecting that job's number at eight thirty Eastern time today. Are we going to see some bleeds through from this too? For that's escalating between

the US and frankly the rest of the world. In the jobs number, I doubt it in the aggregate numbers. What people are saying is when you look at employment at very large companies, you're seeing a little bit of a slow down. That's where you might see it, but I think it's so subtle you won't you won't see it.

I think we're going to see something a two thousand jobs claims, which are the most reliable indicator we have on the US, are telling us that the labor market strengthen further in the last six months, and it seems like we're still running very strong. And I think the mystery in the US is where all these people coming from? If we're at low if we're at low levels of unemployment,

where are all these people coming from. Well, it's a reminder that there was a lot of hidden unemployment during the recession, and mob, bet you anything, we're gonna find out that just some flows of new immigration coming in. Yeah. How much do you think that the tariffs are sort of the trade tensions are going to lead too much higher inflation? I think pretty marginal, because, first of all, what is the impact of tariffs. It's not just harriffs

themselves that matters it. What matters is what's the cost of merchandise. So if you ask Walmart, what does the cost of your merchandise that you're purchasing from China while the currency is down eight or nine? UM. My guess is they would tell you not much. When you add the tariffs to the lower cost of merchandise. The story is much more complicated than just tariffs. It also depends on where the currency is doing. Um. Is this disruptive to the economy. I think it would be really marginal

impact on inflation. You'll see it more in the PPI level and the cost of steel and aluminum, where where it already has gotten into place. But I think in terms of uh things that we're buying from China, I bet we don't see much of it, and you'll see it in the import price trends. Jim Klassman, great, tap you with the syste Morning Champ, Morgan Shanks Commercial Bank

and head economists. So I want to bring up Mike Darta am Key m Holdings chief economists and Cheap Market strategist to get some more reaction on what Jonathan Farrow called a snooze fest before running out the door and leaving it in my hands. Michael, what's your take on this report? Thanks for having me on and I think it's pretty you know, pretty much in line with consensus. If we look at the fifty thousand upward revision to the previous two months, then you know, the actual headline

figure came, you know, right in line with consensus expectations. Importantly, I would remind viewers much better to look at moving averages because these monthly figures do bounce around, and we do see pretty significant revisions two previous months. So if you look at a three month moving average, we're still running over two, you know, to twenty, where I think to be exact. So that's well above the pace the FED thinks that we can sustain over a long period

of time. As a result, you know, you mentioned the bond market not really moving, so you know, these data would be consistent with the Fed still on track probably to do two more rate rises this year. All right, So two more rate rises this year? You know, I gotta say, are we moving past the paradigm where every payrolls report is you know, parsed in detail and people are trying to understand things, and people are saying, you

know what, we know that things are good. We know that in general the job market is strong on the margins. You're going to get some variations just month to month, but on the whole, unless there's something really dramatic, we don't really care, I think. So, you know, it's interesting the FED spent a few years telling us that they weren't on a preset course, but now it looks pretty much like a preset course and less something radical happens

to the macro data. So I don't think, you know, one month of you know, above or below really throws the FED much off track based on you know, what their current intentions are. And this number was you know, pretty much right in line. So I think you'd need a streak of surprises on on payrolls either much lower than expected or you know, if they're much hotter, especially at this stage of the recovery, then that would certainly reinforce the idea of a more hawkish FED relative to

you know, what's currently priced in. So, Mike, given given that backdrop, given the fact that the U s economy by all accounts is pretty strong right now, the focus moves more to trade, and we're getting sort of the retaliation from China to President Trump's additional tariffs on Chinese goods. China saying that it's going to levy tariffs between five and sixty billion dollars of additional US goods coming into

the country. Uh, you know, in retaliation. How much does that sort of dominate the whole picture at this point as this backdrop this sort of unknown about wage growth, etcetera, etcetera. It's pretty much unknown right now. I'm glad you brought that up. I mean, it's an important issue. So far, at least as it relates to the macro data and frankly the financial markets, it doesn't seem to be having

much of an impact at all. But you know, if you continue to see this ratcheting effect where tariffs are going up and then you retaliation, you know, we could start to see more harmful effects eventually impacting the macro data and financial markets were not there. But you know, the way we've been advising our clients to think about more restrictive trade policies is essentially like an adverse supply

side shock and economics one oh one. So if you're applying tariffs or taxes, price of a good goes up, output falls. You know, it's a headwind to efficiency. You know, your previous guest was talking about wages and productivity in the key to faster wage growth being through faster productivity. Well, a trade war certainly isn't going to help on efficiency

and productivity. And so you know, if we look at fiscal policy, we see some positives but also some negatives, and frankly, trade I think would have to go in the negative column. Mike, is a trade war inflationary or deflationary? Well, it is inflationary. So an adverse supply side shock, if you're shifting the supply curve to the left, prices go up, output falls um, so different than the demand shock, where they tend to go in the same direction. For the FED,

they do try to look beyond supply side shocks. So you know, supply shocks will tend to impact inflation in a temporary way, and it's you know, it's unclear how the FED would, you know, would really respond if this gets severe, But you know that what they're telling us is that they're going to try to look beyond it. So if you think about the feds dual mandate, what would a dual mandate tell the FED to do in

the event of an adverse supply shock. While on the one hand, you get higher inflation, so that would translate into more hawkish policy. But on the other you get weaker real growth and probably some disruptions in the labor market, which would cut the other way easing policy. So on net, you know, an adverse supply shock isn't good for the US economy, probably doesn't carry significant implications for monetary policy one way or the other. Mike Tarta, thank you so

much for being with us. Michael Darda is m k m's chief economists and market strategistic Thank you so much for we're spending time with those on this Perrolls Friday. It's great to see in front of the White House again. I've got about ten trillion dollars of assets under management with me around the table, and they're keen to get your insights on the job's report, a really solid jobs

report over the last few months. And around the panel, Lowry, we've been talking about whether there's more slack in this labor market. Do you think there is, Larry, Well, look, you know, depending on the measurements and so forth, I think there's a lot of people who are still outside of you know, what what i'd call the prime age workforce, which is what five to fifty four or some such CAPSUL economic advisors. My Great Power cabin hasn't has looked

at this um. The estimates are wide ranging, but the high end is twenty million. I'm a twenty two million people are outside of the prime age workforce. Now you might dispute that number. On the low side, I think their estimate was about ten to twelve million. So all labor markets have certainly firmed up, and the unemployment rate is down. I think it ticked down to three nine today, and you had a good jobs report today, including revisions,

it was two hundred and fifteen thousand. There are still a lot of Americans out there who could come back into the labor force. So I like that. I think our potential to grow is very strong, and with the right incentives, I think we'll get them back working. Yeah, and so continued speaking into Kevin Hassett previously. Nowtry it just seems that the administration is waiting for this supply side response. Has that been you'll rather nuw wance message

over to the federal reserve as well? Well? Let me stay with the supply side response and simply indicate it looks to me like we are in an investment boom, a capital goods boom, a cap X boom. Those numbers are ring in recent quarters, and I noticed the monthly is on you know, durables and factory orders are very very strong. You know. That was the key intention, the primary thrust thrust of our tax cut plan for businesses, UH,

corporate rate, full expensing, easy repatriation. I think it's working now. It's only been in what six seven months, but the early returns on that, just the last couple of quarters are very very very strong. That will elevate the whole growth rate and health of the economy. So I like that part a lot. And some analysts, probably not everybody, but some analysts are already making some calculations that the productivity rate, output per hour, output per person is now

starting to creep up again. I think it's probably too soon to um to say anything conclusively, but I've seen these uh, I've seen these views, and it looks like we may be moving back to say, one and a half to two percent productivity. We were virtually zero for quite some time. This is all good, This is all good, Larry.

I know, over the last couple of weeks we've had a real discussion around this table about whether trend growth in the United States has picked up, and it looks like, relatively speaking, the US is in a position of strength. Looking into China, Larry have sat around the table with the Chinese many many times. What is your opinion, your inside into what is happening with the Chinese economy currently? Well, look, I'm not an expert. I do try to follow it, and it looks to me, I don't know, you all

may disagree. It looks to me like the China economy is declining and growth it's weaken it almost across the board, and it looks like the people's value of China is trying to pump it up by you know, adding high powered money and and and new credit and so forth. The currency fall, the currency fall, I think is partly they've stopped defending the U on they think it's going to help offset the us UH effort to get rid

of their unfair trading. Some of the currency fall, though, I think it's just money leaving China because it allows the investment, and if that continues, that will really damage the Chinese economy. If money leaves China, and the currency could be a leading indicator they're gonna be in a heap of trouble, and so I'm gonna make the case that they are in a weak economic position. That's not a good place for them to be visa VI the

trade negotiations. First point. Second point, they better not underestimate President's Trump's President Trump's determination to follow through on our asks. Okay, I p theft, no go force, transcript technology, no go uh, non reciprocal trading, on tariffs and non tariff barriers. You know, the presidentcy's a trade reformer. We said many times, no tariffs, no tariff barriers, no subsidies. We want to see trade reforms. China is not delivering. Okay. Their economy is weak, their

currency is weak. People leaving the kind tree Um. Don't underestimate President Trump's determination to follow through. I'm just telling you. I can't speak for the Communist Party in China. I can't speak for our president. Do not underestimate his determination to change trading practices on a fair reciprocal plane. One thing you can definitely speak to, Larry is the strategy of the president. It just seems to me that the strategy of the administration at the moment is to exert

maximum pain on the Chinese economy. Is that the direction of travel for you guys, Larry, I'm sorry, what was the end question? It is the direction of travel for you guys to exert maximum plain pain on the Chinese economy to get them to come to the table and change their trade regime. Well, look, I would maybe rephrase it a bit um. I think what we're saying is

that we are serious and in trade. As you well know and your your guests, no negotiations often include the use of terrors and us in And has said time and time again that targeted tariffs are going to be part of the game plan with China unless until they begin to meet our requests, which so far they have not. In fact, in recent month or so, we've had hardly any conversations with them at all. There is some hints now that they may wish to talk, although I can't

say that with certainty. Look, I think the biggest news on the trade front, away from the transigent Chinese is our progress of the European Union that occurred last week. President had great meetings with President Younker. I was involved in that. We're breaking ground. We will have a number of announcements coming up by hope in the next thirty years so days with respect to transactions and market opening

and increase investments. With the European Union, the EU, as you know, turned down a China effort to make a deal. The U S EO said no, And so you've got now a better story with the U S and the EU. We're probably gonna have some positive news on Mexico. And I think the alliance what I sometimes called the trade Coalition of the willing to change China's unfair and illegal practices EU, Mexico, China, I'm sorry, uh, Japan, Australia, perhaps Canada will eventually join us as we negotiate an after.

I like the position we are in, and I think the President has played as cards very wisely. Larry, Just as a final question, the President has often gone off on his own and talks very high level with an individual leader. What is the prospect you think that we could see President Trump sit down with President she again and address these issues together. You know he President Trump liked bilaterals and he likes to go head to head.

You're quite right, that's a good insight. So if the opportunity present to itself, UM, I don't want to speak for the President. I don't want to get ahead of him on this tricky question you asked. But all I know is if the past is any prologue to the future. President Trump enjoys bilateral discussions. Look, we just had one

with the EU. President Younker and President Trump got together and probably probably did what nobody thought possible, which is not only to have a respectful, peaceable meeting, but to actually begin the process of making a grand deal to open up, tear down barriers, and open up markets. So there's your head to head model. Uh, you may well see it with China, We'll have to see. I don't know, Larry cud Look, it's great to see a healthy and fit in front of the White House again. It's thank

you so much to Jonathan Pharaoh. That was a tremendous interview with Larry Cutler of the U. S. Council of Economics advising President Trump. Now here were the preview of Sunday's Face the Nation is CBS is Margaret Brennan. Of course you can listen to Face the Nation Sunday two pm in New York, Washington, d C. And now Bloomberg one oh six one Boston, Newburyport face the nation this Sunday,

two pm on Bloomberg Radio. Margaret, with all of the back and forth this week, we've got the President who is seems to be in full campaign mode. Yes, three rallies this week. We had the one in Pennsylvania last night. We got another one coming up Saturday night in Ohio,

which undoubtedly will provide fodder for US Sunday morning. Um, we know the President last night, even though he had all of his top national security officials from the podium at the White House issuing stark warnings to Russia to knock it off and to stop interfering in the upcoming November elections, which they continue to do to oocracies in the crosshairs, according to the Homeland Security Secretary of the President didn't echo that language at Israeli and said once

again using terms like which hunt to describe the ongoing investigations into election meddling in t So, Margaret, who's your guest this week? We'll talk about some of that with familiar phase. Adam Shift, Democratic congressman's from California has been involved in some of those investigations. Well. Also, because we're headed towards September sooner than you might think, and back to school season, be taking a look at what's going

on with the state of education in America. Will bring in Arnie Duncan, the former education secretary from the Obama administration, has got a new book out, and talk to him about some of what the Trump administration is trying to do now and some of the track record of the Obama administration and what they attempted to do to help educate our kids. Just a little bit on Representative Adam

Shift of California. Is that going to also focus on the ongoing investigation into Russian meddling in the US presidential election, because the president, of course this week tweeting out that he wants Attorney General Jeff Sessions to push to conclude that investigation. The President did say that, which of course the Attorney General cannot do because he's refused himself from

the investigation, which further muddies the waters here. Uh. Some talking about this is really just a political tweet to um draw support of some of the President's uh you know, the most devoted supporters who are seeing this through political lens, which is what the President claims it is. All of which hunt Um, but with Adam Schiff, we will talk more about what Congress is doing or not doing to actually secure facilities. Last of what happened in sixteen, what

is happening right now? You have a head of cyber Command standing up at the White House podium saying we are going to take active measures against hackers who now are trying to interfere and divide America. You know, Margaret, I wonder just as a as a journalist when you're questioning people on either side. Adam Schiff obviously has very

strong views. Is it ever difficult to try to find I don't know, some kind of I don't want to say middle ground, but a place that feels more constructive than how heated the rhetoric has gotten on all sides. I think you're right. I think this is something that is very frustrating for those of us who want to focus on policy substance, on what is being done now to America versus getting people to to who are divided, to be less divided, to focus on the facts rather

than the opinions here. And that is something that if if you believe exactly what the intelligence community is telling you, that the aim is to have divide America when we only hear things through partisan lenses or see them that way, UM, it only helps that attempt to bide, and I think that's really frustrating. I think it is also very frustrating for me UM in trying to lead conversations when you do have everything put through the political uh filter once again,

and you rightly indicate their uh. The congressman from California has been involved with the House Intelligence Committee investigation, but he's also out there fundraising for the Democratic Party at the very same time. Can you separate those things? Um And? What he would say, what others would say, is when it comes to American security, they can Will the public

listen to the facts rather than the filter? I think is the challenge for us as journalists to keep it focused on that, um And, And that's why I think it was important for the White House to put out some of the national security professionals to make these arguments yesterday and say they're not out there for political reasons.

They're out there telling you what they're finding right now. Well, market, I guess there's no love lost between Adam Schiff and fellow California Congressman Devin Newness now that's always part of the the infighting there. They are two partisans and they very much are in disagreement with each other. That House Committee investigation concluded, and I will point out that the that trade Goudy, who has let his own investigations and House oversights himself, called these things really more of a

circus than a fact finding mission when Congress leads an investigation. Um. That aside, the reason that it will ultimately come down in many ways to what Congress believes or what they are able to turn up is because if we do get into a situation post November, post these congressional races where it comes down to not a procedure in court, but rather a political uh task here of impeachment, what is it, how is it that people will be uh, what is the fact that they are looking at? And

how will they be voted? Which is why this does come down to politics in terms of how it could damage the president in the long run. If if the Special Council doesn't have a case to bring to court, does he but will he bring to Congress. We'll be listening, Thanks very much, Margaret Brennan, host of Face the Nation.

Remember to listen to Face the Nation Sunday two pm in New York, Washington, d C. And now Bloomberg one oh six one Boston New report that's Face the Nation this Sunday at two pm on Bloomberg Radio, Governor Countie throwing himself back into the thick end of the Brexit debate, saying the chance of the UK dropping out of the European Union without a deal is uncomfortably high. A little bit of tension. There also some tension in the news

conference following a decision to high interest rates. Mr Cannie was asked about what our guest Danny blanche Flower thought about the labor market. Take a listen to this exchange. Given that Professor blanch flowers predictions for labor market and particularly earn his growth have been yeah, recently a lot more accurate in the banks, why is he wrong? And

you're right? Yeah, Where do I begin? Um? Um, Great respect for Professor blanch Flower, but his time in the MPC has passed, and this is the judgment of this MPC first point. Second is that I think one bigger point of context in terms of wages, which is not precisely go on your question. I'll get to your question, but going precisely is that um A, you know, given how low productivity is, um wage growth that is in the upper twos, low threes is actually wage growth. It's

consistent today with a two percent inflation target. Governor County there, speaking in the news conference following that interest rate high, Danny blanche Fled joining us now Dartmouth professor and former bo WE Monetary Policy Committee member, Danny, good morning too, and thank you for coming back your opportunity to Governor. Please Danny respond, Yeah, I like the great respect it. I mean, I think I think I think the answer was,

I mean disingenuous in the suggestion. And they continue to make the suggestion that wage growth is in the threes and the three and a half. Well that's what they have been forecasting to the last eighteen forecasts in a row. And they got all excited in December when they got a read of three and they said, yippee, here we are, We're completely right. And then wage growth deterior rated them, fell and slowed. So the forecasts, the forecast, they may

have been terrible. Everything in this basically in this decision to raise was essentially based on their forecast for wages, which I think I've shown have been completely terrible, and there was nothing in the data, so I really didn't buy it. And I thought the data this morning, the slowing of the services p M I sort of added added to the sort of r of groups think they made yesterday. And there's been a lot of people like

me saying, you know, this was a major mistake. The FD editorial this morning it says this is a major mistake, and I think I think it has been. I think the fundamental thing is about wages, as it will be in the Job's report this morning, and I've worked on I wrote my PhD thesis on it over maybe forty years ago, so I know about this stuff, and I think I think it was just they've just gone on and on and on saying, you know, it's all going

to explode. And the answer that listeners should have is, well, why today if in the last seven team forecast it happens, you're saying today it's gonna why should we ever believe you? Right? Well, Danny, I guess that. Then the question is how much harm did the Bank of England do with this rate hike? I mean, couldn't you say it's just innocuous and it gives them a little more ammunition to take care of another downturn well, and already slowing housing and chrome commercial

property markets are going to be impacted. And the way that I sort of think of it is, you've got three choices. You can punch yourself hard in the face, you can punch yourself gently in the face, or not punch yourself in the face. So I would choose option three. Um, and you said to me, is not is punching yourself in the face a little bit when you don't have too Is that a good idea? The answer is no, it's not a good idea. So, yes, they've made a

small mistake, better than making a big mistake. But I personally would have preferred them to not make a mistake at So and I was on yesterday without imposing both, he was on the MPC two and our views were the data was much more balanced than you would have thought, and there were clear arguments actually for a cut. So if there are arguments are strong arguments for a cut, and you say, well, it doesn't really hurt they've made an error, well, okay, it's better than making a really

big error. But it looks for our listeners that weren't with us yesterday. I just want to give the other end of the argument so you have a chance to respond to it. What do you make of the comment from Governor Carney where he basically says that you used to be on the MPC, this is today's MPC, And I don't think it was an insult. I think it was a suggestion that times were different back then. There was an expectation of a productivity rebound that we probably

won't get now that's the expectation from this MPC. What do you make of that kind of theory, Danny Well, I certainly have written about the fact that the world has changed, and I think it's fundamentally all to the labor market characteristics of altered. But I think my analysis of the labor market has actually got better and there's has got worse. So I think that obviously that the world has changed. Clearly we're at low rates for a

for a set of reasons. Um, I mean just because, I mean I remember being on there and being a lone voice then, so I guess I'm a lone voice now. Um. But we will see. But it looks it looked to me like this isn't an error. The market didn't receive it that well. But I literally think today that today we suddenly got a really bad services p M. I came in immediately afterwards. So you have very weak growth, no data is to sustain it, and the first piece

of data you get is bad. So yeah, maybe he can say that, but you know, I think that their analysis and their forecasts have been disastrous. Jenny blinch Flower, thank you so much for being with us. I'm gonna go ahead tonight. I'm gonna tell my son. You know, I have some advice for you from don't just if you're going to punch yourself in your face, don't do it. You don't want to do it hard, you don't want

to do it soft. You could just avoid it. Um. This from Dartmouth professor Jenny blanch Fly is great to catch up with Danny to one such an interesting exchange in the news conference at the Bank of England. M 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,