Surveillance: Russia Sanctions with Walsh

U S Secretary of Labor. Mr Secretary, it's great to catch out with you, sir. I cannot think of the last payrolls report that got this little attention pay rolls at six and seventy eight, because we're focused on everything now secretly Wolves, your take first of all, and then we need to get to the much, much bigger issues worldwide. Yeah, I know, you know, a good, solid report, good briade, base gains and all sectors pretty happy with that report.

Clearly we have more work to do. You're absolutely right. Uh, you know, my heart and prayers go out with the people of Ukraine. That that's kind of front and center for everybody, uh in the world. The world is certainly united behind Ukraine, and uh, you know, hopefully we can get back to Hopefully we can get through Ukrainian people can get through the challenges they have, and we can

go back to talking about the economy again. I would much prefer to be taking taking strong questions from you today about the economy and Ukraine people having peace and freedom today. Secondary Welsh, I agree with you. I think we all do. Let's get back to those days as soon as possible. Right now, as you know that we've got to talk about Russia. Microsoft moments ago, in the last thirty minutes made the decision to suspend new sounds

of products and services in Russia. Many companies are doing the same thing, whether they need to because of sanctions or they choose to because they feel like they have an obligation. Do you think so? For you as Secretary of Labor and for the administration as well, do American employers have a moral obligation to pull back from doing business with Russia. I think we have to do whatever we can in as many places we can to support

the Ukrainian people. Uh. You know, the President said it at the State of the Union the other night from the stage. I think a lot of countries and a lot of companies are doing what they need to do. I think that as we continue to move as the as the conflict continues to move forward, I think that there will be a lot more companies in America, and not just America, around the world will will be taking steps like this against Russia. The refiners in America also

not touching Russian crew as well. That choosing to pull back from that, Secretary Walch, is that a good thing? Yeah? Well, I think I think you know, as far as the conversations, what they're gonna be many conversations. I know that here in the United States, Speaker Pelosi, UH, send a mansion. Senator Makowski and some other folks you're asking for that, uh. And and I'm sure that U the President in the

White House, we're evaluating the different situations. But again, I think that the whole world is going to continue to to put sanctions on Russia as we move forward here. The pictures on the pictures that we're seeing broadcast from Ukraine are horrible and bring you when you go after buildings with all the people on the schools it's just uncalled for. So when refinance pulled back, I guess what I'm trying to work out secontarly, Welsh, is that you've

tried for an energy carve out. A lot of people still don't want to touch crude even if there is a carve out. I want to understand the message the administration is sending right now. Do you want refiners to buy that crude or do you want them to step back from it? Is that welcome development even though the sanctions aren't there. Well, again, I'm not in a position to be able to speak on that right now. I know that, as the President had laid out, the sanctions

last week are actually over the last ten days. Uh. He's been very thoughtful in doing them, working across the globe and doing them. And I think those I'm sure those conversations are happening right now with world leaders. There's a conversation that hasn't happened apparently, and I wonder if it has happened subsequently, I couldn't get this information from the Treasury Department in the last hour, so allow me

to put this question to you. This came from the Devon Energy CEO, big employer here in America, Crude Explorer, this is what they said to us this week. Secondary Welsh quote. I'm a little mystified that there hasn't been some dialogue. If they were to reach out you, the administration to them and maybe be a little bit more collaborative, it might provide some cover cover from investors who might

be disappointed their boosting output. Have you reached out to any employers in the old patch to boost production to this point, I'm not aware of any any conversation, but I'm sure that their conversation is going on. Again. I have not been part of those have not been party to those conversations. Uh. If asked and when asked and when told to you by by the President, I will absolutely be having those conversations. You have to wait to be told to to have that conversation. Well, certainly this

is a this is a very coordinated effort. When you look at what what what what's been going on here with the with the with the powers of the countries across the globe working collectively together, we've never seen I shouldn't say never, I mean having the strength of NATO seems so close together, really amazing and working collectively together so again, I think there's been there's been a process here as we move forward. Crewed right now, w t

I at one TOURVE eighty seven. You know as well as I know that wages haven't been keeping up with inflation. Is there anything you can do in the short term. When we had from the President earlier this week in the State of the Union, there were some big long term goals, long term investments that he wanted to make

to build out the productive capacity of the economy. Is the only thing we can do in the short term here secondary walls, I think, I think if if you're trying around inflation, I think what's happening here is I mean, we're in the midst of a worldwide pandemic. Certainly that's one we had the midst of dealing with supply chain issues. Now now we have a major conflict in the world that that that we're all eyes of the world are

on the Ukrainian people in Ukraine. And I think that as we move forward here in the question earlier, as oil supply, as oil supply gets cut back from Russia, if that's what ultimately happens, we're going to see increasing gas prices. And I think that there's a point here that we have to we have to just continue to move forward. The President has been very clear on on bringing down inflation. He talked about it at the State of the Union. But we're living in very interesting dynamic,

dynamic in times that are happening here. So again, there's lots of conversations and lots of actions that will be taken over the next weeks and months. You're in a difficult spot now, and understand that because you need to try and stand your lane and not get ahead of what other people haven't said yet. But have you spoken to the administration this morning and your message following the

overnight events which were shocking for so many people. I haven't heard anyone yet called that an escalation from the US administration. Secondly, Wolves, do you believe the events of last night were an escalation? Well, I'm sure the President's going to address that when he speaks later today. When

can we hear from him? I don't. I think he generally has a not too far from now, a couple of hours from now, I think he'll addressed he addresses that the country on the issue of of of the jobs, but certainly the biggest issue of of the day is Ukraine. The biggest issue of our moment is Ukraine. Well, I look forward to him from him a little bit later and understand. Secondly, Wolves, there's only so much you can say, sir, and it's only so much you can say this morning

as well. Thank you for paying with us, and I think we're both on the same page. When we can just talk about payrolls for ten minutes. I can't wait for that moment, sir. Secondly, well, Stan, thank you our conversation of the day on this term sanctions. Right now in Ukraine, there is a teacher and a nurse and they are leaving Ukraine and maybe they've got an eighteen month old with them. It was not war in Nigeria, but Wally Adyamo came to California as an eighteen month

old with his parents. He's done better than good out of Yale law, terrific in the Democratic Party with different public service positions in the Deputy Treasury Secretary Jones this morning. What will happen on sanctions sir this weekend? What I can say, um, good morning, thanks for having me, is that if President Putin continues to escalate his war in Ukraine, we will continue you to increase the sanctions that we've

put on Russia. It's important to see what's happening in the Russian economy today because the sanctions we've put on, inflation is likely North Russian markets have been shut down for days, and just earlier they announced they're going to shut them down for more days, which is the longest shutdown they've had since at least when they defaulted on

their debt. And in addition to that, any investor or market princison that I've talked to over the last week, what they're trying to do is take their money out of Russia, which means that the Russian economy is collapsing. You've had experience with that with Mr Finkett Black Rock, so you've served both spheres of government and finance. From where you sit. Can the Biden administration at unilaterally or

we must we wait for our allies. The thing that the President has discovered is that we are far more powerful working with our allies. And that's exactly what we've seen here, building alliance that doesn't only include our European partners, but also partners and allies in Asia, which has cut off Russia from access to the international financial system, the global economy. Mr Secretary, your words just moments ago. If Russia increases the war in Ukraine, we increase the sanctions

in Russia. Mrs Secretary, was last night an escalation? So I'll leave that to the judgment as we look at what happened last night. But our goal is to make sure that we continue to increase sanctions as they increase

their escalation. We took sanctions actions yesterday, were prepared to take additional actions to not only cut off the Russian economy but cut off Russian elites who are helping support President Putin, and we're going to continue to do that as long as President Putin chooses us to continue his work choice in Ukraine. You'll leave it for another department to decide whether that was an escalation. Then you have

to enforce the sanctions that the White House decides. So Mr Secretary, just help us understand how the sausage is made. Do you do the groundwork ahead of sanctions being announced or do you have to do the groundwork after they've been announced. Can you help me understand what order it comes through? Do you have to do a load of studies now to be prepared to execute on something that might be announced down on the road, or do you

wait for it to be announced. So in November, when we started to see Russian troops gathering outside of Ukraine, the President ordered Secretary yell And to start planning for the imposition of sanctions if Russia were to invade. He gave one order, which was to make sure that anything we did had a maximum impact on Russia and mitigated the impact on the United States and on our allies. And that's exactly what we've done, working closely with Europe and our allies in Asia, to make sure we design

sanctions that we could use if Russia invaded. And we have a number of things that we've already deployed, the number of things that we've planned for over the course the last few months to worry to deploy if Russia continued invasion of Let's talk about the stuff you planned for and haven't deployed. Have you got a plan for energy sanctions if you needed to deploy it? Has that

plan been made at Treasury? So going back to what the President gave us as an order, make sure that we maximized the pan on Russia and limit the cost to the American people are our allies. What we decided to do with regard to energy is make sure that we do nothing to increase the price of energy um immediately. So we're we've created a general licensing that energy can

be sold through pipelines by boat immediately. But what we're doing is that over the long term, we're degrading Russia's energy production capabilities so they can pump less energy from the ground in order to cut off their source of revenue overtime. So I understand what's being announced. I'm trying to understand whether you have a plan to deploy if you need to announce energy sanctions speak of Alosi says

band the oil band, Russian oil. I want to understand whether you've done the work at Treasury to execute that plan, if it needs to be executed. Does that plan exist at Treasury? So the plan that we have now is to do everything we can to make sure the market

remains well supplied. Now, what we have plans to do is to grade their ability to produce energy into the future, because the thing that we know is that if we do something immediately that increases the cost of energy, that will be a cost on the American people, and it will be money that goes into the pocket of President Putin if the cost of energy increases around the world.

So instead of increasing costs now, our goal is to make sure that we degrade their ability to produce oil overtime time, which will further starve them of the resources they need to to conduct the kind of wars they

are doing today in Ukraine. Mr Secretary, Does that mean that the sanctions that we've put out there so far are all of the sanctions that we can put out there at this time, because what you're talking about will take time, So even if there's an escalation, there cannot be the sanctions on oil without the having a conflict with this goal. No, that's not true. We have other sanctions options outside of the immediate sanctions on the energy industry.

What we have sanctions on the financial industry that we can continue to deploy, Sanctions on their defense industry we can continue to deploy. We have a number of options that we can do that will allow us to meet the President's objective, which is maximizing the cost on Russia and reducing the costs in the United States and on Europe. Our goals and make sure the energy market remains well supplied,

because that's important to the American people. But by making sure that energy prices stay low, it stars President Putin of the resources he needs to continue to fight the war in Ukraine and also to just ableize the region. Mr Secretary, how important is it to then get more production domestically, to encourage the domestic oil and shell producers to actually increase output, to create a buffer, to give

you more tools. What I can say is that the most important thing we canna do is make sure that the market today is well supplied, and we're doing that in the United States, but we're also doing that with our allies and partners to sexually give me Let's go back to the question, are you reaching down to domestic supplies of crude in America? Have you spoken to them? Deaf and Energy said to us this week. The CEO was mystified that you haven't reached out to boost production

at home. Have you done that? Have you spoken to domestic supplies? So as you know, well, um, the domestic supplier crude right now is at a peak and that it will take time for more supply to come online. We're focused on making sure that the energy markets are well supplied today because we want to make sure costs or reduce for American people today, and we're depriving President Putin of the resources he needs to fight the war today.

Over time, we need to do more to make or that the energy market is well supplied, and we're also focused on that as well. You said we're to peak with eleven points six million pounds of all the day back to the north of thirteen. Just looking at that off the Blomberg terminal, What what do you mean we're to peak? My point is that at the moment we are producing a great deal of energy in this country.

It will take time for additional energy to come online, but we want to make sure is that as it takes, as that energy comes online, we're well supplied today because we want to make sure that Americans who are going to the pump today are paying the lowest possible cost. That's going to require not just us to take action here in the United States, but other producers also to

make sure that the energy markets well supplied. You're a great student of history on this, Mr Secretary, And is this a see change for the politics and the energy politics of the Democratic Party, Does Joe Biden have to leave the Democrats to a new energy theory, a new energy philosophy. I don't think it is. I think that ultimately only we've always been for a well suppli at energy market. We know that in the immediate term that's

going to require us to rely on fossil fuels. But what we should learn from this is that ultimately being reliant on fossil fuels, fuels that often come from places like Russia, is not in anyone's interests. That's why the President is focused on making sure that we move to a clean energy future that's not only good for our security, but it's good for our planet over time. Mr Secretary, I'm a little bit confused, as many people are right now.

Crudes at one eleven on the Bloomberg right now, once in ninety we've got domestic oil suppliers, private companies essentially saying we just want to hear from the White House. We're surprised we haven't heard from the White House. They haven't heard from you, They haven't heard from the White House. It doesn't make sense, and you keep repeating the same thing over and over again. We need to make sure there's enough crude supply. You won't. We can't reach out

to domestic suppliers. We need to tighten the grip on Russia. The fact of the matter is people are stepping back from Russian crewed anyway. And as you know, and I'm just gonna repeat this for our audience, not for you, sir, three percent of crude imports last year for the United States came from Russia, just three So people are already stepping back from Russian crude. What is it you think will happen if the United States comes out and announces

that they're no longer importing Russian crude? What is it that you think will happen? And if you don't want to do that, are you essentially suggesting that you want domestic refiners to be buying Russian crude? Is that the goal of these sanctions still? But you want domestic refiners to be buying Russian crude? Still? Is that the message you want to send to the American public today? So I know that you've repeated twice now that we haven't

reached out to domestic producers. But as you know well, domestic producers are making decisions based on what they see in the market um their ability to make money in the market, and our goal is to make sure that we have a well supplied market. The President has been very clear about what our goal is is to make sure that with regard to sanctions, that we have a maximum impact on Russia and we minimize them impact on

the United States and our allies. That's why he's taken steps like reduced like working with our allies and partners to reduce the energy supplies that we have in store, and we're going to continue to take steps to try and reduce costs for the American people. It's a Secretary, thanks for a time today, said well, the U S Deputy try to read Secretary. Jeff Rosenberg of black Rock joins us right now. Jeff, have you ever seen a number as big as six thousand met with a collective

shrug in the market. Well, it's it's a reminder, Jonathan that that the market's focus is really not on on payrolls. But if we do just look at some of the implications of the payroll report, you know, clearly a very

strong report across the board. Mike McKee, if you're if you're looking, i mean check out the work week that may have been behind that kind of disappointing month over month A G. I can't quite see it here, but this is really a difficult period for markets because you know, as we heard earlier this week, you know, the Fed is is focused on inflation and its need to get on with normalization and raise rates, while the market is focused on the implications of of of the Russian invasion,

and that implication is a negative supply shock um you know, negative to growth, positive to inflation. It puts the Fed in a difficult position. More importantly, it puts us as investors in a difficult position that we can't really look to. Uh, you know, interest rates falling um from from from Fed policy easing in the face of any kind of growth slow down because of the inflationary aspect. So it's a

it's a very tricky environment. Obviously, market reaction is about Russia Ukraine, not really about the pay we say good morning to Larry Finco. I know is watching and hanging on every word, Mr Rosenberg. I don't want you to give away the palace secrets, but does black crack and have any sense in full faith and credit and in the credit markets of all on all this war that

you can mark to market. This Friday, Well, you know, what we're seeing in the credit markets, and this is this is kind of even you know, preceding some of uh, you know, the acceleration around the geopolitical uncertainties is you know, we're well off the tight levels and the tightest levels of spreads. You know, partly a lot of that was

was just repricing to a higher interest rate environment. I think now, you know, you have a difficult time disentangling the price signals because there's a liquidity uh premium risk premium being built into the market. Uh. And I think most of the price response so far as that, but we have to recognize that the negative supply shock and the stagflationary impact of that is really a tricky environment for for credit. But the growth side is ultimately a

bit more on the negative side. And you've seen some wider spreads across UH credit markets, and I think that's a a message that makes sense in terms of pricing in you know, some higher probabilities around some more negative scenarios for for how this all plays out, and so that higher risk premium you know, not yet really talking about default risk premium, but risk premium around the potential to to change some of the probabilities around um economic

outcomes around this this event. A lot of people who we spoke to this week so that they did rethink or they are rethinking actively their allocations in response to the developments between Ukraine with the Russian invasion. Have you done the same? Yeah? You know, you know there there is certainly kind of the initial playbook of you know, geopolitical risk is very hard for markets to sustainably reflect

in prices. I think that initial kind of hopeful response in terms of this could be a buying opportunity has really been replaced, particularly after the weekend sanctions, with a much harder reacitity that this could be going on for a much longer period with a much more persistent impact to energy prices and broader commodity prices. And that's the negative supply shock that you're seeing now roll out in

terms of forecast revisions. Forecast revisions so far are modest, but they're significant in terms of reduction and growth increase in inflation, a longer period of inflation. And then again to the challenge that puts to global central banks in terms of how do they manage the cross currents between growth and inflation a lot more focused in the U S here on inflation. I think for the e c B we're gonna see perhaps a different response given the central impact this has in a much larger impact on

the European growth outlook. So we're really upending a lot of assumptions. But I think clearly here the shock to commodities, the negative supply shock, prolonging the inflationary environment is is going to make this a little bit more durable in terms of market impact and economic impact as a geopolitical shock. Me you watch this move in your DNA just about holding onto one oh nine. What a breakdown. I can't convey enough. And of course this is something Mr Rosenberg

is so good at as the cross correlations. If this is not John flight nous, it's sort of a rolling wave tape to tape of stress euroswissy, not showing me euro your euro US dollar, but nevertheless extraordinary ruble at

one sevent five days of waitness for this euro. Just it goes through the banks in Europe, any credits still down by more than ten percent, Commas Bank down by eight, suck gent Damn by seven, Deutsche Bank Dawn by a little more than seven, Jeff, can you frame just how much of a problem we're facing in European markets and whether you'd go near it? Well, and the problem is

certainly centered there. You have you know, significant commodity shocked, significant growth shock UH and and and and the dependency that we know in terms of the Russian energy supplies is is centered obviously much more in Europe than in

the rest of the world. So you know this is you know, not only the growth impact, but the stock impact that you just described in terms of the financial linkage is for the banking sector, um all being reflected in this repricing here of Russian sovereign and and and credit risk premium. So UH, your second part of the question, I think it's a very difficult environment to assess the primary and secondary UH spillover effects, and so a more cautious stance is one that we're taking when we look

at some of the impacts UH in our portfolios. Jeff, looking forward to catching up with Rick a little bit later. I'll be catching up with Rick reader in the next hour on a stage. Mr o So David Kelly, a JPMUK and Asset Management. We're here from the White House. Well, you speak to Jeff, you speak to Jeff, catch up with do you want to swap them? Do you want Jeff? Would you like to come to me in the next hour and Rick can come. Okay, we can work it out.

We and he's very sensitive this morning, Jeff, I apologize for that and something. There's a difference between being long into the weekend, being short into the weekend, and just hands off into the weekend. I think a lot of people are very, very worried about just being wrong and this market just going completely in the other direction. I mean, on an ancient U S statistic, the vix is mid midway, it's thirty up to thirty five, and we're thirty three

point three three. So that's a journey. You're leaving us right, I'm going I was gonna wait for your dollar to bring you in one a weight hand or tumper. I'll give it a one oh nine or four serious clubs. We're making jokes, are John? Seriously? This is not a joke. Something on Thursday, just the final word between you and I t K on Thursday, c p I and then literally a CPI comes out present the guard is going to walk into the room. In Frankfurt, Germany, and deliver

a news conference I one on nine oh three. Were there any moment. Jeffrey Rosenberg, thank you so much for joining us. As always, black Rock, John Farrell, thank you so much for joining us. We get an important perspective from Tiffany Wild and Tiffany, thank you so much for waiting through the half hour. Really really all of us appreciate that. Tiffany, how separate is the United States right now with a boom economy? Yeah, well, first of all,

good morning coming Paul. I mean, I think I think what the SERAL report told you was that the US economy is coming into the new year with a lot of momentum. Um, you know. And you know, so we we got a booming jobs market, but not only that, we're seeing labor supply improve. Um. You know, the participation rate is improving, people are starting to come back, and importantly that is starting to cool off wages, um, you

know a little bit. Of course, wages are still running at you know, five point one percent according to this morning's data, um, you know, but that was against expectations of almost six percent, so you know, that's a big difference.

So that's going to be important for the FED. UM and It's also going to be important because you do have, um, you know, the conflict between Russia and Ukraine, you know, is going to have economic implications you know, for not only you know, Russia and Ukraine, but for Europe, and that will spill over to some extent to the United States. So it's just it's really good news that we're coming into that conflict, you know, with a very strong position

in the US economy. So, Tiffany, the headline unemployment rate is three point eight percent. Is that full employment? Um? You know, so I think I think we're getting there for sure. Um you know. So I think we were at three five right before the pandemic, and so I think that's an easy number that people look at. Um you know. So, so we're certainly close, um you know, if we're not there already. So the bottom line is is certainly from the monetary policy perspective, you know, subtle

reserve should be hiking interest rates. Um you know. But I think the question of you know, hiking interest rates and still you know, case of you know, maybe a quarter per meeting first is doing something like a fifty basis point rate hike, which many in the market have talked about you know, I think this payroll report definitely suggests that, you know, something more extreme like that fifty basis point rate hike is probably not needed at Pimco and Newport Beach. I mean, it's nothing to go up

and brunch in Hollywood about. You know, you just do it. I mean, Tiffany does it right, and she's probably gonna get in the car. It's gonna hit Mammoth Lakes this weekend, you know, little That's how they do it. That's how that's how Tiffany rolls. And I noticed a gallon of gas Tiffany and Mammoth Lakes, a regular gallon clocking in at five dollars. I mean, it's a political football, but it's also a reality for a huge part of America. When does the price of gas really impinge on your

Excel spreadsheet? Yeah, I mean so it already is, to be quite frank with you, So, you know, I think the issue here is is that, you know, obviously it when people have to pay war for gasoline, something that they need they can't really substitute into other products. It just means that they have less you know, real discretionary spending for other things. So it is it is bad

for for broader growth. UM. In the past, Um, the United States shale revolution has offset that somewhat, you know, but recently, um, you know, and and Jonathan Farrell's comments UM to Marty Walsh kind of got to this. But recently because of you know, environmental and other concerns, that production response in the United States in the oil patch has been much more sluggish. So it hasn't offset you know,

offset as much. And so you know, ultimately it will be bad for for United States growth to have um, you know, energy prices this high. Hopefully this will be you know, a temporary shock, um, you know, and things will will normalize at least eventually. UM. But I think that also, you know, that also puts the FED in a little bit trickier of a position, UM, because this, the Russia Ukraine situation is a supply side shock, which means higher inflation but yet lower growth. UM. And that's

a tricky position for the FED again. UM. You know. Ultimately we think they stay on course because the US is in such a strong position coming into this, um that they can still hike interest rates. Um. You know, but at some point, you know, they have to be mindful, you get a further escalation. UM, you get actual trade flow disruptions that are more material coming from Europe. UM. You know, that's going to drag on US growth much

more strongly. UM. And then that's going to kind of raise questions around if they need to pause or things like that. But for right now, we think Punto Reserve officials probably will continue on the path to monetary policy UM normalization that they've kind of laid out of the last several months. All right, so let's just go right there. W I r P go on the Bloomberg terminal shows me the markets kind of discounting maybe six rate hikes incounter your two. Is that seemed reasonable to you? Yeah,

I mean we we think it does. You know, obviously, you know there will be some uncertainty. Um. You know, as we've been saying, you know, stuff happens, and I think the you know, obviously this Russia Ukraine conflict is a is a prime example of that. But historically, you know, stuff happens, and and you have to worry about the contagion events, you know, the market contagion that the spirals from US. It's very difficult to pinpoint market vulnerabilities before

you have these types of events happen. So I think what we're watching right now at least to see if you know, the FED maybe goes a little bit slower, is if you do get some of that market contagion happening. So do you start to see it in credit, um,

you know, or even bank funding markets? So far we haven't, which is great news, um, you know, but I think it's appropriate for the market, you know, where the markets pricing about sixth rate high because we think more or less that's about right this year, um, given the risks you know that are out there. Tiffany, Thank you so much, Tiffany, Well to this storm. This is the Bloomberg Surveillance Podcast.

Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and Bloomberg Television each day from six to nine am for insight from the best Tonikon on finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg