Surveillance: Tech Is Keeping Inflation Muted, Rosner Says

step in what could be something much more severe. The market though fairly relaxed in the face of this. What's your view, Well, I mean I think it's it's because it's just another front. Uh, you know, it's not really adding to anything, because the big ones really are, you know, what happens with China, and as long as China trade can used to progress, everything else is a little bit

of a side show. So we were worried about NAFTA because the direct impacts on the us UM and so that kind of got negotiated, even though it's still kind of ongoing. If we get a deal with China, it's gonna pardon the punt Trump. Everything else just in terms of the European equity market. This morning, folk taking a lot of this and it's stride as well. Surely Europe does it have the ability and willingness to respond to a propose trade war if that's what we do end

up with. And I'm not saying that's my base case or anybody's at this point, but let's assume we do. Does Europe have the ability and willing this to respond to that? In the same vein the Chinese do uh? You know, my guests would be they don't, uh, simply because China's you know, kind of going much more on on a partner to partner basis with US. Um. You know, they're a very large part of our economy. We're a very large part of theirs. I think with Europe they

have a lot more to lose. And and you know, it's probably not a coincidence that the U S is choosing this moment. What about the American economy right now? If we look at the American economy, if I look at the development of g d P, we migrate down. We've got maybe a first quarter that's ugly, some people even saying below one percent. But you've been resilient at a two point five two point six percent run right,

how do you get there? While you get there with the US consumer um, and you get there by the fact that, you know, things that people have been worrying about, for example, trade, housing, et cetera, have all actually been very minor net drags on growth or even net ads. Uh. You know, I'm gonna give a shout out to my good friend Neil Datta. He's been talking about the kind of the the the rebound and housing activity, um, and that being very unusual for late cycle as well. So um,

you know, once again it suggests like productivity and margins. Uh. If this is late cycle, this is the oddest late cycle we've ever seen. You and Neil Datta, and I'm glad you mentioned him. There's a gloomy day, John Farrow. They'll be like a gloomy statistic out or whatever. And basically you guys come out and go, yes, it's a gloomy statistic. But is the butt under consumption? Is the butt under investment? Is that that net exports will improve

away from this trade. I think the butt is is that you know, for for a lot of this data, we've been seeing that there's a reason why it's behaving the way it is in that time frame. We don't want to always put a rosy outlook on things. And if you look at the last consumer confidence data, for example, it was it was really bad. Uh, but it was really bad at a high level, so it was coming

down directionally. It's going badly. Um, but on a level basis, it's still extraordinarily high, and we have to keep that in perspective rather than just assuming that every slight downturn in the data is a negative. And John, that about describes the market stock market as well. It's on a level basis. You know what where we're on Swiss stocks, the s M I John, I'm sure you know that. I don't know it. The Swiss stock is changing in Swiss Frank's all just a brief question on the U

S economy. Is the United States ever in recent history imported a recession? Uh, It's it's quite difficult to do. Actually, if you half of US GDP is not just the consumer, but consumer spending on services, alright, so going to the doctor, getting the haircut, buying the cup of coffee in the morning. Um.

When you see very bad recessions in the US. It's when that's spending on services turns negative, right, and it doesn't have to turn negative by a lot because it's half of US g d P. But the flip side of that, though, is is very difficult to drive the US into a recession from overseas. This is really smart. I mean, I mean it's a really important observation. Well, can we continue the conversation? Yeah, continued, Please talking. I just thought you'd want an example of service sectors spending

that comes out of nowhere. Vet Bill got sick and I had to go to the veterinarian yesterday. Do you know that my veterinarian, I don't even make I go to the I make it right out to the Horseman School. You just you just make the check right out to some prep school in New York City. How much was the bell for those many minutes? It's like, you know, it's like going to the high fancy law firm or something.

Are you saying that you're keeping the United States insulated from the weakness about single handedly kept Drew Madison service series positive? An important question and something important to explore, because I just wonder to what degree we should be obsessing over the weakness abroad if you are exclusively based here in the United States. Good question. So what you want to watch out for is transmission mechanism through the US markets, particularly the equip markets. Uh. And this is

where the trade war has actually been pronounced. Right. People worry about the trade war. Stock prices go down. CEOs look at their stock prices going down and think to themselves, I can't have my stock, frice go down. I need to figure out a way to kind of encourage people to believe that my stock is better than everyone else's stock. Um. So when the problem occurs is when they look at that and they say, I know, I'm gonna cut jobs or cut investments in order to kind of make sure

that my numbers look good. Um And if you have enough people doing that at the same time, you end up talking your way into a recession. I think that's what you have to worry about. Dreamt of grit to catch you out with you Mental life investment manage market strategist on Europe. The perspective they put the chances of a tray to a tomp, the chances we should say in Washington lots going on. We'll get to that in a moment with Henrietta Treys on immigration the shocks that

we saw yesterday. Whatever your politics, let us digress to a conversation that was different at twelve noon yesterday than it is now at eight oh two Wall Street time. Henritta Treys is the Veta Partners. She spent a lot of time really focused on the border, and that discussion changed yesterday. Henrietta, how did you respond to is the languages of the moment a purge of homeland security. I

think it's incredibly important and underappreciated right now. The purge at homeland security is exclusively to do with the US Mexico border, which of course is about immigration. But my concern and investors concern is that cargo and freight is being seriously tripped up at the border, um to the point now where I understand from manufacturers they are running out of inventory of the supply chains that they depend

on from Mexico. UM. So I think that the shipping and the issue of that is the most important now. I mean, we're we're going to speak with Senator Grassley here. He's making the rounds today. But what can Capitol He'll do to amend a just a suage. What can Capital Will do to amend these announcements of yesterday. Honestly, I

don't think there's very much they can do. When I speak with Ways and Means, senior counsel on the trade committees, what they tell me is they can't move the U. S. M. C A, They can't alleviate concerns that the President has with saying NAFTA. They can't move anything legislatively. While this border crisis is happening, and as we head into Holy Week next week, it's expected to be compounded well within

the border crisis. I want to go to one single sentence in the Washington Post today, which is the idea of substantial quote unquote Central American families lined up at the border, which is clearly the emotion of the President of the United States, and I understand how that gets in the way of normal trade at El Paso, etcetera. Is that going to go away or is there a permanence to the accountable number of people at the border

who want in. I don't think this is going to go away, and I think it's gonna get worse our So I was speaking with some folks down on the border yesterday and they tell me that the administration is looking to bring in federal agents from every single sector

and agency that's available outside of narcotics and terrorism. So that means more federal agents at the southern border, which is creating these tremendous backlogs, and um really vetting really thoroughly the request for asylum whether or not you know, people when they are saying I can't go back home, it's too dangerous for me. The federal government, the Trump administration at least, is going to try to really do some due diligence and understand whether or not that threat

is real. And so that's going to be more time consuming, more folks are going to be vetted in a more aggressive manner, and this will likely not end at least for the next month, is my expectation. So, Henrietta, let's talk about the economic reality of all of this. Typically we think of the United States, it's rather insulated from international trade issues, but that southern border is important. When

does the reality of that start to bite? I think it's I think it's starting literally as we speak, so the drivers that are bringing goods to and from Mexico to various plants. You know, it's so integrated. We've been dealing with NAFTA since and these businesses don't have you know, big warehouses with with caches of whatever, you know, widget they need to import or put into their car assembly.

So they rely on this constant flow of traffic between the US and Mexico, and it's roughly one and a half billion dollars per day, and so tie up at the cargo side of you know, two hours is meaningfully impactaful because, uh, the driver can't make his next shipment,

he can't run on time. And speaking with the manufacturers associations yesterday, the expectation is that the manufacturing plants are going to have to cut entire lines of production because they don't have certain components to plug into whatever their final product is. It's what degree if it's old, does this issue these issues fold into the hold off of U S m C I At the moment, it's a hundred percent hold up. That's That's exactly what Ways and

Means was saying yesterday. Even well intentioned Democrats who want to push the U S M c A forward can't get their members to have a conversation about, say, you know, labor standards down in Mexico or environmental regulatory oversight UH or enforcement for that matter, because all they can talk about is the crisis at the southern border that is growing by the hour. What do we want from the Mexican government? I mean, I assume President Trump has a

very clear, boisterous Trumpian statement on what he wants. What does business want from the Mexican government to assist us

out of this quagmire? I think what I've noticed is that they are looking for, um, the Mexican government to take this vote on labor enforcement, which they're planning to do, I believe this week, if I'm not mistaken, UM, and then quickly give some deliverables to the Democrats on Capitol Hill who are looking not just to see passage of legislation about labor enforcement, UM, but actual action from Mexico.

So for the business community, whose number one priority is just making sure that NAFTA has maintained, you know, forget about US China or the new EU tariffs or any of the overarching trade issues. This is just about as you, as you mentioned a minute ago, how important it is how integrated our our Mexico and U S supply chains are. They have to have this open so for I think businesses right now they want the backlog cleared up at the border about physical imports, but mostly they want to

protect NAFTA. Is Steven Miller aware of Henrietta Treys conversation? Is he aware of the trade issues? Or do you just look at the White House and I guess he's our Director of Immigration as being uniquely fixed on the social issues. I consider U s tr Bob Lifeiser to be the one who's principally focused on all these trade

issues and this complicates his life dramatically. Um But I think Stephen Miller is much more in the camp of immigration, and when you look at President Trump and what his priorities are heading into an election, I think it's very clear that he's more focused on immigration than trade. Very Miller, well, he than the trade dynamics wrapped around these political emotions.

Henry the trades with Veta Partners. They get us up to speed on the next twenty four hours, looking forward to catching up right now with Laura Rose and a senior economists at Macro Policy Perspectives. Laura, great to have you with us on the program. Let's just begin with the next twenty four hours what are you looking for from cp I that print in twenty four hours time and Fed minutes to come up a little bit light.

So Hi, Jonathan, great to talk to you too. So, um, we think we're in a soft patch for core inflation, and we think tomorrow's report will confirm that we're looking for only a point one percent month on month game in core cp I and for the annual rate to actually decline from two point one to two. And now remember the Fed's target is specified in terms of core PC inflation. This is c p I, which is generally

a little bit higher. So this actually implies core PC inflation is moderating close to one point seven percent, probably by the end of this year. So we're moving away from target. Lord, you've got a very important paragraph and it really goes to your work with Juliet BMP Perry over the years, and that is technology imputing disinflation and deflation. John mentioned this earlier on recessage from abroad. Are we just are we seeing a disinflation because of all this

modern technology that's overlaid on our everyday lives. Absolutely. Um. So the way we think about it is that technology plays a peek a boo role in depressing inflation. It doesn't show up every month. It rotates from component to component, but it is a trend. And the trend is that we have a lot of innovations faster internet, you know, mobile devices, cloud computing, along with the growth of digital content, electronic marketplaces, the sharing economy. All of these things put

downward pressure on prices. What do they do to GDP? But the money question here is how many tents of a percentage point is not seen in GDP because all of this wonderment. I mean, that's that's a fair argument. You know, some people have looked closely at whether you know, there are measurement issues and in estimating productivity growth that they actually have found that that doesn't explain a whole lot.

So this is something that is depressing inflation. But uh, in terms of a measurement issue, there isn't strong evidence that that explains low predictives. Do you buy this gen Do you buy this idea that all this technology overlays not in GDP? I think there's a massive argument behind that, Tom, and I think a lot of people are making it. Laura. Another argument I want to sort of get through with you is a distinction between pc and CPI. What is

the clear distinction between the two gages of inflation. Well, they're they're different measures, they're conceptually different. PCE covers a wider set of prices. It covers public sector goods and services that are bought and purchased on behalf of individuals. Those aren't included in in CPI, and in fact it's the public sector purchases that we're seeing a lot of disinflation in. And healthcare is one example. So the government is a key setter, price setter in the market for healthcare.

It has rising obligations associated with an aging population. Um it sets prices again at the Medicare and Medicaid expenditures are about of the total healthcare market, so it's pricing decisions affect other prices and it's incentivized to set those prices low. So that's a source of inflation repression that we're seeing more in TC and c p I. But it's quite important. It's one factor that is keeping the

inflation environment very muted and Laura. For a lot of people who might have accidentally stumbled across Blomberg Radio not intending to listen to Financial news this morning, their reality and what they live just in terms of inflation is not what they hear when they listen to programs like this. We say that inflation is low, it's below target. That's not the America, that's not the Europe that some people

are living. That's true. I mean again, this is the average basket for the average you know individual in the US. It's not reflective of individual experiences in specific areas. So you know, one example of that is is rental how you know, apartment rents, which have been rising so much and I think a lot of people feel that burden. We actually see that as slowing somewhat um So rent growth has been very strong over the course of this expansion.

It has added to inflation shin when the unemployment rate was really high, so it kind of accounts for some missing inflation. Now we think that's starting to moderate. Well, provide clarity here for our audience. What is the inflation rate blending services and goods right now? Where does macro policy put that? So we expect overall core so that

strips out food and energy. We think we're going to moderate to two percent on a year on your basis, and we see that over the course of the next two years moderating slightly below that one nine or one eight. So prices are rising on a year on your basis a little bit under two percent, which is the FEDS mandate. La Rossa, thank you so much. Perspectives and John, that goes right to Mr Dragging tomorrow if you have the same conversation in Europe. I mean, where do you put

that run rate for year? What? One point four? I am ready looking forward to that news conference tomorrow. There is an election today, well know not some of the primaries are the small elections of the United Kingdom, Newport, South of Wales and all that, or maybe elections in the United States, but a genormous, an important election in Israel, of course, involving Mr Yahoo. We have the perfect guest to provide perspective, not one, but two tours of duty.

Is Ambassador of the United States to Israel, Martin Indick joins us, of course with the Counsul on Foreign Relations, and he distinguished fellow Martin. Within the news reporting there is discussion of the election, some focused, less focus. What is the single salient point you would make about this

moment for Israel? Tom Well, the moment itself is one in which Israel it's strong, enjoys strong relationships with the major powers, not just its traditional the States, but China and Russia and India, and emerging relationships with the our world. So things are pretty good for Israel at the moment. And of course the Netanya has a strong backing of Trump.

So the moment is really about Netanyahu himself and whether the people of Israel decide that they've had enough of him after ten continuous years of rule and corruption charges against him and a sense of a kind of royalty ruling Israel, whether they're ready for a change or whether they want to stick with the secure Netanyahu. Who is the other side, who is the alternative vote for the people of Israel this day? The leader of the opposing

forces is Benny Gantz. He's former Israeli Army chief of staff, and he has around him three other two other chiefs of staff, Gabishkenazi and bog and uh your Lapid, who is quite an attractive former anchor like yourself, Tom, but has become quite a fixture on the political scene as a centrist. So it's really a centrist, security oriented alternative that's being presented. What what's the mood of the people.

I mean with the election going. I don't want to get into any polling data or that, but is Israel completely focused on this election or is it just another cycle with Mr Netya, who alway Israeli has take their elections. Very big turnout could be inspected. It's always has been up in the in the in the high sixties seventy turnout, which is which is huge compared to the United States. It's a it's a raucous rambaptuous elections seen now over there.

Uh and and I think that that The other element that's important to remember is that there are many parties I think something like twenty seven parties contesting this. This is a proportional representation election in which the percentage votes that you get determined the number of seats that you get. So whoever wins, whether it's Gans or Orton, they're going to have to cobble together a coalition with smaller parties that are really boutique parties for the religious, for for

the right wing, for the center left. Is Mr Neyaho a centrist who has been forced to the right or is he comfortable with the boutique parties of the far right in Israel. He I would say he's a center right person himself in terms of his preferences and personality.

But he is above all a survivalist and a very good one at that, and that has led him in the in the recent past to form a coalition government of the right and extreme him right and religious parties, and that has proved to be a stable government for him at last go around. And so I think that will be his preference again, even though it does push him towards positions to the more extreme than he would

otherwise establish. If you're just joining us, Martin Indeck, with us with the Council on Foreign Relations, and of course to UH tours as Ambassador of the United States to Israel as well, Ambassador Indeck, I must take time on the Golden Heights. There are the photographs of the heights, the plateau looking down in the Sea of Galilee. I think for so many Americans removed from ninety seven and the other wars of the region, it's like, Okay, go

on heights. Explain to our audience the importance of the Golden Heights and why President Trump's announcement was so critical. Well, you're right, they are the heights, and they do look down on on Israel's northern valleys, and as a result, there is an inbuilt sense of concern about what would happen if the Syrians controlled those heights again as they did before nineteen sixty seven, when Israel occupied them in

a defensive war. The the fact of the matter is, however, that five Israeli prime ministers, including Prime Minister Netanyahu, have offered to withdraw fully from the Gallen Heights two the Valleys in order to achieve peace with Syria, and that the negotiations that took place in ninety nineties which I was involved in, lad lead to basic agreement on that in which the Syrian army would not move beyond Damascus, which is on the other side of the ns and

therefore it was possible to establish the military zones much like you have in the Sinai that have secured the piece between Israel and Egypt of more than four decades now. So you know, it's not impossible to work out security arrangements, but it's certainly impossible today when you you have such chaos in Syria and the Iranians pushing their militias to move to the Assyrian side of the goal on heights.

Nobody was ever suggesting that Israel should withdraw at this point, but to recognize Israel's sovereignty there was to do something else that I think is very damaging for the United States, which is to undermine a basic principle of international relations, that is the inadmissibility of the acquisition of territory by force. If we go down that road, Putin's acquisition of Crimea becomes legitimate. Esping, China's acquisition of becomes legitimate. Stami Saying's

invasion of Kuwait becomes legitimate. And so I think that's the danger in what Trump did here, Ambassador A delicate question. If the State Department has changed to be polite, whether it's Tillerson or Pompeio, whatever the phrases, do you have an optimism that over the years, over the administration, our administration's plural I should say that we can get our State Department in our diplomacy back to the time of Martin Index or even back to the time of Henry Kissinger. Yes,

I think so, but it's going to be difficult. Pompeio came in after the havoc that Tillerson wrought particularly at the highest levels of the professional feign service UH and has not yet been able to re establish the corpus that that was operating the bureaque bureaucratic side of the State Department for so many years. They are very professional people that have been treated badly treated as if they

were not professional civil servants. UM the top echelons that are normally peopled by the professional bureaucrats no longer those positions are simply not filled at the moment, and if this continues, you've also got large numbers of women and people of color who are no longer seeking those positions, and so the diversity that used to be there is starting to slip away as well. So I'm very worried

about it. I think pomp Peio has good intentions, but given the way that overall there's an attitude coming out of the White House disdained for the civil servants, of a sense that they're part of some deep state that's opposed to President Trump and his policies, I think is really making it difficult. And I think it's a mistake to view the civil service that way, and I think that the United States will be worse off not just in foreign policy, but more generally because of this UH

sustained attitude. Ambassador honored to have you with the stay of elections in Israel. Martin Indeck of the Council on Foreign Relations of former Ambassador of the United States to Israel. Sarah McGregor with US now with Bloomberg News Economics. A lot of critics in the last number of days, Sarah, over this i m F process, But the fact is they're usually the best tools they can, aren't they. I mean, they have to take the information that they're getting on

the ground from from the countries. And I think it is pretty significant. This cut that we're seeing today the third time the i m F has downgraded its global outlook in the past six months, and it talks about these downside risks. And overnight we saw the US threatened to put tariffs more tariffs on the EU and one of the downside risks that sees is this trade war.

And so you can imagine that as of today, already we can see that the forecast is looking even gloomier than what they may have seen when they, you know, compiled this report they submed out to net exports. I guess trade volume in world trade growth, folks, the equation why will C plus I plus G and on the back end is net exports. Is this I MF meeting Sarah going to be all about trade dynamic or could

they actually talk about business as usual? Absolutely? I think trade will be right up there high on the agenda. It's clear that the Trump administration is keen on continuing continuing to use these terraces as a tool of its trade policy, and now it seems to be opening up even wider this front against Europe. It's allies that hasn't resolved the steel terraces with Mexico and Canada, which means

the new NAFTA isn't passed. And I think that countries are really getting agitated, you know, score and trading partners about what this is going to mean for them, Sarah. One of the top headlines on the Bloomberg terminal here that really caught my eyes that the I m F cuts its twenty nineteen global outlook to the lowest since the financial crisis, so about ten years. Does the level

of its outlook reduction surprise you at all? As as a headline, it does seem surprising, right, But I think um, you know, the one sort of silver ligning that they seem to emphasize actually in the report is that they actually see things potentially improving in the second half of next year, and a lot of that's attributed to this um rate hYP pause that the FED has taken in some of the other central banks, you know, the stimulus

and the measures they are taking. But of course there's no guarantee that the Fed's gonna, um, you know, keep this policy on hold. It's sort of indicated right now, that's what it's looking at. But um, you know, there's really a lot of balls in the air with this forecast. Well, I like what Sarah and her team wrote up here, the idea of blaming Europe. I mean, it's McGregor rudeness there. But can I note Paul that not only are we blaming Europe for the markdown, but we actually raised China

growth a tenth of a percent. Yeah, that's interesting. It's you know, we thought we saw some green shoots, tom and bamboo, let's let's be correct over the last couple of months, and I think that might be including some fiscal stimulus and and so on and so forth. So Sarah, I mean, is there too early to call. I mean, what is the kind of the view on China here again? Is it? Is it best just to kind of call

it a stabilization from the I M S perspective? Well, absolutely, it's interesting because just I think even a few weeks or months ago, I think there was quite a pessimistic view about China and now they've had some good manufacturing data and again it's small, but you know, notable boost

to their forecast. Well, we should note that the I M S actually cut the US forecast again for nineteen you know, again, this is sort of an idea of the leverage that China might try and take from these trade talks to at a pivotal moment with the U S showing look, we're maybe a little bit stronger than you guys think we are right now. Yeah, I think that's pretty that that's a key point because we go into these trade negotiations, one of the questions always is

is which side needs it more? And I think one of the narratives on the you know, the China needs it more was boy, their count their economy really is slowing, and that the last second they can afford is another round of terror from the US, but this data suggests that they might be in a better position. Absolutely, Again it's small that that I MF did cut by a tenth but percentage point the China's forecast. But again it's

just a bit of an outlook. You know, if you've compared that, let's say, with even Europe, where Germany, Italy, France the forecasts had again with pretty big fundamental problems um identified there, you know, China doesn't look so bad right now, does it. Sara McGregor, thank you so much. 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.