Who you put your trust in matters investors have put their trust and independent registered investment advisors to the two four trillion dollars. Why learn more and find your independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with David Gura. Daily we bring you insight from the best in economics, finance, investment and international relations.
Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and of course on the Bloomberg A lot to talk about this morning with Jeffrey You, investment Strategisy at ups Wealth Management, who joins us from London. Morning. Jeffrey, good morning. Let's start with with that dollar strength in your sense of how long that's that's going to persist? Again, We're looking down the barrel here of a transition to a new a new presidency here in the US. How is that
going affect things? We do think that pretty much and I should have run its course against some of the development again, some of the developed market currencies like Sterling and Europe for example. UM, we are going to get to a point where politics aside, the FED is going to be looking at this again saying okay, we thought we had a good inflation profile, but the dollar looks a bit too toppy right now? Is that going to
affect our inflation profile? And the moment they signal that it will be doing so, then I think we're going
to see a dollar reversal. So, um, I would you know the whole things a bit before saying right now, this is going to be the onset of another dollar surge, even after the recent moves that we've had a headline crossing the Bloomberg right now, Donald Trump said to pick Jeff Session, Senator Jeff Sessions of Alabama to be his attorney general, again reiterating that headline crossing the terminal here, Donald Trump said to pick Jeff Sessions for attorney general.
Senator Sessions met with Donald Trump yesterday at Trump Tower in Midtown, Manhattan, the transition team releasing a statement thereafter commenting on how positive the meeting was, but not going so far ast it to aim the pick. Yesterday Bloomberg reporting Jeff Sessions will be the next attorney general or Donald Trump's pick to be the next attorney general pending confirmation. Of course, Jenny, when you look at what we know
about Donald Trump from a policy perspective. What we've learned here over the last ten days or so, what conclusions can you draw about dollar strength? What have we heard that gives you an indication of where it might be in one word, reflationary, Right, so you know that that is the view right now, and I think you know
several people have commented on this already. We were in a very deflationary mindset, secular stagnation, and then suddenly someone comes along which rips apart um like the playbook and says, Okay, now we are going to go for a reflationary wave coming out of the world's largest economy. And this is in a context where say, in China we are seeing of secular down trends and growth, but they still have the ability to actually reflate as well, and I'll be
eaten a bad way. So now I think actually the onus is on Europe and so in the UK, and we've got the Autumn statement coming up, there's been talk of minor reflation to can the Eurozone, right, can the Eurozone actually now come through with reflationary policies. If this happens, then this mindset for seculate for secular stagnation, that we've had over the last few years, you know, might just start to turn around. But you know, it's only one piece of the puzzle right now, and talking about it
is one thing. Implementation is another thing. I can be as guilty as any of having a short term memory here going back to previous transitions, did we see the amount of market movement that we've seen in this one? It has been extraordinary and it seems like investors trying desperately here to process what's happening, what what could be happening? How different is this time versus the past? It's very different,
one because the result was so unexpected. And two it's so different because as people have highlighted the president elector he has no policy trail, right, and some it's it's a bit difficult to you know, take what he said, you en during the campaign of various sometimes and things contradicted each other, and try to apply a unique economic
philosophy there. But I think as the nominees start to, you know, fall in place, we get a better sense of their philosophies and we should have a better sense of, you know, how the economic policy is going to implemented. Up ahead, Jeff, for you with us with you be a skood morning everyone, Tom Keenan London with Mr You, David Gura in New York. Maybe David Gura transitioning this weekend in New Jersey. I'm not sure of that. Everyone
else seems to be doing it. Mr Trump will migrate out to Bedminster, New Jersey, perhaps from Midtown relief just for you. We didn't have time to talk about this morning, and I hope David will let me do this, which is we know the euro was linked with Germany and say the peripherals Spain, Portugal, Greece, etcetera. Earlier this week, literally the first chart I made in London was synthetic Deutscher Mark Italian Lira. Italy has a very expensive euro,
doesn't it. It does most of Southern Europe, of the low growth countries, they have an expensive domestic currency and the only way for them to achieve competitiveness, as we've seen in Greece um is through internality evaluation, very very painful, and that drives poplar. So I want you to get
in the debate. Let me frame it Horger Schmiding a barren Berg Bank saying do what the Spanish did, Do what the Irish did reform now and someone like Douglas David fokers landour Deutsche Bank saying no, they're not going to reform and this is an urgent matter to assist Italy towards some form of change given the linkage to Germany in the Europe. Do you think the view is with this constitutional shift, Well, the the referendum is required if Italy is to reform whatsoever. But what needs reform
right now in Italy is its entire growth structure. The problem playing in Italy. People often talk about it's a least debt ratios italyast debt has actually been relatively sustainable. Right. It's growth that has always been the problem. It's demographics and be that's been the problem as well. So now those things that takes time. So yes there can can be a sense of urgency. But right now, ever since some of the US election, I think the shift has
suddenly um the focus suddenly shifted towards right now. It's actually not an attacking game where we push for reform. It's a defensive gained suttenly, we pushed back against the populous forces. That's a completely different strategy that the Eurozone elite so to say that they need to look at what happens if this this referenumentally doesn't pass. What happens to the Italian economy, Well, at this point it's going to I wouldn't say prolonged uncertainty or anything, but people
just think, Okay, nothing's ever going to change. You're not going to lift your trend growth forecast for Italy or anyway whatsoever. But for the Eurozone as a whole. I think people are indeed concerned that this is another domino that the inexorable rise of populism, and they will lead
on to potentially disruptive results next year. In the French and German votes, we saw investors process that Brexit referentum in real time, perhaps influenced how they process the U S presidential elections going here into the Italian referendum in these other elections in Europe in the next few months. Would investors know now that that they didn't know what those first two rounds. Always expect the unexpected. So what you thought was consensus, you know what you thought that
very very accurate polling models and whatnot. No, we're telling you you must have a hedge the other way, so as you mentioned see how Sterling performed um overnight when the referend results came out in versus S ANDP futures and for example, almost exactly the same. But then the reaction afterwards it was quite similar, was quite similar in the way that the foot tea was doing fine and
now the smps don't fine too. I want to expand with you right now, and the basically because you're with UBS Wealth Management, I'm going to say it's a more conservative test to money management. Are people getting shell ACKed? That's an American phrase, Jeoffrey, and maybe that's lost in translation, Rachel. I'm not sure shell act shell actors are getting clobered pounded. Are people taking losses now? Or is everybody pretty much
out of the big trade of this big dollar move. Actually, if you look at in both events, are clients one they were over positioned in cash to begin with. You know, I think that that's a challenge that's been playing asset management in general over the last a few quarters. Also, so much uncertainty out there, you don't know how it's going to play out. I'd rather just staying ash and it's sort of work out, especially for UK clients holding a common assets for example, what's the level, what's the
level of opportunity? Now in the foreign exchange world, are you thinking big figures? Are you thinking I got to get the January? So right now in the FFX world, we are seeing massive distortions in terms of valuations, right Mexican pay so you know that? So how where whereas fair value should be seventeen eighteen something like that, and it's four big figures, are three big figures of absolutely no, Sterling wears fair value over the mediums a longer term.
Euro wears fair value over the mediums a longer term if you look at it as an economic and aggregate, right, So that gives you opportunities. And for our clients, we say eighty percent of your returns are still going to be delivered on your strategic as allocation. You take a five to seven year of you So in that context then there can be something to capture from the currency side, depending on your base currency of critically the alpha of big Well, we're gonna have to come back on this
is too much. Mathematics are for Friday, Jeff, for you with this ubs Jennifer Jacobs of course reporting a number of men. Let's go ten minutes ago. Uh, this is from two sources. The President alex said to pick the senator from Alabama, Jeffrey Jefferson Sessions, Jeff Sessions for Attorney General. I want to make clear that's from two sources. Uh. Jennifer Jacobs saying that, Uh, it is unclear if Mr
Trump is formally offered the job to Mr Sessions. We've offered the job of explanation of foreign exchange to Jeffrey, you of ubs Um, who always gives a clarity and and and it helps with that. A strong dollar, now, is it different than a strong dollar of the eighties pre Plaza accord or the strong dollar of the late nineties to two thousand one associated as a Reuben dollar. Is this strong dollar different? I do think it is because the US has balance of payments and the exposures
the USS balance of payments actually completely different. Now around the time the Plaza chord and clearly current accounts adjustment was needed and enduring the Reuben phase. Uh, the U s cycle was at sync with the e M cycle. This time around, I would say the main difference is the US can broadly afford a strong reflationary dollar and not really care about what happens the rest of the world.
I knew your answer. That's tricky on my part, jeff You if that's your answer about us, is it their problem? Is it Mexico's problem, Malaysia's problem, Turkey's problem. The theory is they're less exposed than you they used to be. I don't buy it, um, Turkey, you hit the nail on the head there. You know that probably if you measure debt ratios as a proportion or in the relative to their funding abilities, probably one of the most of
those currencies out there. So in that sense, Um, I would say, e M. Right now, use this how many moon period where markets are not really gunning for your currencies right now, look at your liabilities, look at your dollar exposures, try to hedge them, or just try to generate some savings as quickly as possible. Jeffer, you mentioned emerging markets, and I think about the potential for real change to trade policy in this country and globally when
you look at currencies. What could the potential effect there be if we see more protectionism, if we see the kind of terrors that people have been talking about. Now here's where it gets interesting, because I do think there is an opening. So let's assume that the US, you know, does turn its back to globalization. There is a unique opportunity for countries, especially in Asia and emerging market so to actually find their new trader courts and actually just
trade amongst themselves. The US is the biggest economy in the world, but it's not the only economy in the world, right so you know, they can actually generate demand that way as well. I don't think it's going to happen in the Eurozone. But this is why people are looking at the r CEP, you know, looking at a CM plus China, Japan, South Korea and New Zealand, India and Australia. You know, that's a chunky economic block they're put together.
Not going to be the same rules as what happened through on t t P or what probably APEC had in mind general. But it doesn't mean that with the US out of the game globalization and f t A is that's not going to be the way forward. And I was just saying UK doesn't really have a Pacific border right now, but why shouldn't UK joined the our CEP if it's so desperate for such agreements amongst like Minded countries and Eurozone. It's also sorts of turning its
back against globalization right now. So this is a challenge but also represents an opportunity. Big trade summit this weekend in Lima, Lima, Peru. We are you gonna be watching that closely for free signs? I think we will. But also the commentary um and than the body language between you know, the bilactual meetings between Asian leaders and President Obama and probably some of the comments that actually less interesting the comments are from Obama. Probably more interesting the
questions and that Asian leaders will be asking Obama. I'm gonna put this on on Twitter for its extraordinary chart of Turkish Lira and Jeffrey there's the mathematics of a curve on a log, which is called log quadratic. I'm sorry, this is log moon shot. It is a real depreciation of Turkish leader. We know the politics of Turkey and the interesting dual interest rate, etcetera. When do they scream
uncle to uncle drunk Uncle Donald? Well, so is it really, uh, you know, something that the Turkish government can actually do about if you look at what has fuel Turkish growth over the last few years, you know, borrowing in dollar debt, strong investment growth. Has been a lot of investment in the in the property sector as well, and now that's proving to be difficult to sustain. So they need reforms domestically right now to rebalance the economy in the same way.
You know that that China has been trying to rebalanced its company. You're seeing similar credit to GDP ratios. So again, use this window of opportunity to do so, otherwise it could be too late to have standard deviations off a monthly church that isn't ugly charge. Jeff for you, Thank you so much. Always good to see you in London. Here is with ubs Well management. David Gurraw. You know back and forth that will whether we see appointments today. Do you see any reporting that we may see further
appointments than the sources said on Jeff Sessions. I don't know. It's it's it's funny. I mentioned that we got a press release from the Trump transition team last night. Let me just pull that up quickly because it was so extraordinary. I thought, uh, he said here this was This was after he met with Donald Trump yesterday, noting the meeting, saying, well, nothing has been fine. Lights and he's still talking with
others as he forms his cabinet. The president elect has been unbelievably impressed with Senator Sessions and his phenomenal record as Alabama's Attorney general and U S Attorney. It's no wonder that the people of alabam are reelected him without opposition. So no clues like that, and maybe that's what we should be looking for. Statements like that after these meetings, you know, if they if they go well, an indication
that could be formalized. Shortly there after, he wrote a script looking for white smoke coming out of the Trump Tower at some points, Secretary of State, whatever it is, there's the the news Slow has been fierce over the last uh ten days. Also fierce in his economics has been Michael fre of JP Morgan. He has been absolutely brilliant about identifying the glide pass to a new level.
I knew what's called terminal value, terminal rate, and this linkages of our economic growth or subpar economic growth, two interest rates. All of that turned on its head with a Trump election, higher yield, stronger dollar. Michael Faroli his head spinning as he gets to the acclaimed JP Morgan note, no doubt to be published at six o'clock tonight. Help us here, Michael Farley, give us a head start. You
talked about three percent GDP the other day. What will be the theme tonight of your JP Morgan note, Thomas, you know, I would say we have the possibility of three GDP for a year or two if all of Trump's UH fiscal policy plans that he announces during his campaign where I'm so he talked about a tax cut that would run close to five billion dollars a year or six trillion dollars over ten years, and then's some pretty big members on institution and spending. So that's that's
kind of there in principle. I'm not political person, but I you know, I suspect we get something much smaller than that. So, uh, three percent for a year or two seems, but we don't think that's the most likely. If I'm one of your Booth school seminars, University of Chicago. The money question, Dr Feroli is simple, do you amend your new level of potential g d P or the terminal value of GDP because of Trump election and Trump economics?
We are not so Tom when you talk about potential GDP growth as you know, the commists usually like to think about labor supply and labor productivity and the two of those together kind of give you potential potential growth, and we don't really see these policy changes fundamentally altering those things in the long run. So when I just mentioned these tax cuts, is in the spending we think I could give you, you know, a nice short run philippas of activity, but not something that is going to
really change the productive capacity economy. We actually see the risks, you know, when we talk about potential GDP. Perhaps there are two kind of off setting risks. One is that you know, some of these more restrictive immigration policies could
actually lower labor supply. Uh. And there you know, an argument could be made that some of the tax policies would increase labor productivity, particularly if you reduce taxes on capital income and corporate income taxes in principle that should reduce the cost of capital to increase capital deepening and therefore productivity. Um, you know, we see those as kind of pretty small risks around the view that longer run
trend growth is. You know, we have it at a little bit below one and a half percent, and we don't know, as I said, we're not changing based on these kind of short run influences and disturbances to aggreate demand that would likely come about through some of these policies.
Michael Fairlie pulled back the curtain if you wouldn't just talk about the complexities of forecasting for for what this might look like in terms of what we know and what we're learning here as this transition goes on, I imagine you're you're playing with a lot of variables here. There's a lot we still don't know. Yeah, there are more than usual. So first we don't know what the
policy we're gonna get is going to be. And then once we get that policy, there's still a lot of uncertainty among economists how different aspects of fiscal policy kind of ricochet through the economy. So usually economists are just kind of dealing with the second part of the uncertainty, and the first. Being trained economists, I don't really know what's going to happen and wash and I read the papers like everyone else, and it seems like a you know,
a fall right now. So we're dealing with I think two layers of uncertainty, and that's really just on the fiscal policy. Um, there are other aspects of a the new administration that could also impact the economy, most notably trade policies. And that is a big wild card to degree to which he will follow through on some of
the things he said in the campaign. Yeah. I think about that and the greed which we've been talking about the contours of that fiscal policy package, how much will be tax cuts, how much we'll be spending on infrastructure. There hasn't been a lot of talk about trade, and I wonder if that leads you and others to believe that maybe we should take at face value what he said on the campaign trail. Are you able to forecast what what you know a change in tariffs might mean
for for the GDP, for for the economy generally. So that's a great question. You know, economists, UM, being pro free trade is almost an occupational requirement. UM. But we see the benefits of trade as being long run ones that deal with efficiency and efficient allocation of resources. We don't really think about benefits of free trade, or even the impacts of free trade from kind of a short
run business cycle standpoint. Uh. And so we're kind of flying blind and thinking about if we were suddenly, you know, erect tariff walls. How that would impact economy. We tend to think that it would be pretty disruptive because there are a lot of domestic producers who are even now
even more intertwined in global supply chain. Uh. You know, so as he thought saw like the Tohuco earthquake, that you know, once the supply chains get disrupted, that can really kind of reverberate through uh, through a lot of sections econmy So it's not clear that, um, yeah, I think there's a good kid to be made that you know, sort of rapidly erecting tariffs would uh, you know, it
could be pretty disruptive. I mean that really goes back to one of the one of the hearts of the selection and the linkage into your world, Michael faroli is, is the idea of new protectionalism, and around that the idea of neo mercantilism, which can be defined eight ways. Folks, it's the Friday, We're not going to do that. All it means is a more closed society, a zero sim society, a non growthy philosophy. Is that where we're heading. I don't know, so certainly there was a lot of chatter
that not just chatter during the campaign. Um, it seems like that has not been talked about quite as much since the election. Another thing I would say is that that doesn't seem to be a big priority of Congress uh enacting new tariffs. Now, there are you know a lot of gray areas in terms of where Congress and the President can act in terms of trade policy. Um, But in things that are going to fall into Congress, Uh, we don't see that, you know, big sea change in
terms of the attitudes towards TORD trade. I mean, even with TPP, we are already seeing some of that step back before the election. UM. So we're not expecting openness, of course, but but we don't see commerce kind of rushing to to enact the legislatively that would that would tear to Michael. To get us to our next section. Are the dots moving? Everything else seems to be moving, including the ground underbe Are the dots moving in real time?
I don't. Well, we still have a couple of weeks ago evidence things can change, But you know, I'm not not convinced that the dots are going to move. So on the one hand, some may choose some on the committee may choose to incorporate some added fiscal thrust into their outlook for next year and beyond. Others may not have sounded like yes, sir Terry Yellen was kind of
taking weights the attitude. Um. On the other hand, we've had a I would say, um, kind of material tightening in some financial conditions over the past week and a half. In particular, the dollar has moved, as I checked, about four percent, and that's you know, that does impact not only growth, but but inflation. It pushes them away from them from the branded on inflation. Michael Frowley was JP Morgan. They put out in a clay note Friday afternoons must
read on the street. And I do hope Michael, at some point your team puts their heads together about the conundrum of inflation adjusted wages. Tell us about the dynamic if inflation rises, rates up, dollar stronger. I get it. All. If inflation rises, is it just a given that nominal wages rise as well, so the real wage stays equal or even the real wage increases. Uh. I don't think it's given, certainly in the short run, and we've seen
this over you know, the last few years. Is when you get moves and headline inflation that can tend to be more volatile than than moves nominal wages that can depress real wages. But you know, over the long run, theory would suggest that real wages should grow in line with labor productivity, which has been um as you know,
not doing so well. And and for that reason, perhaps the kind of nominal wage boogie that that one should expect when things are you know, operating as they should at full you know, full employment might be quite a bit lower than it was. You know, what we used to think when we grew up, when we when we thought maybe nominal wages consistent with two percent inflation should
be four percent. Maybe now nominal wages wage growth should be more like three percent, because productivity growth just isn't the same as it was a decade or two ago. I just want to interject here. We're getting some news crossing the bloomberg here about Donald Trump's picked to head the c I. A representative Mike Pompeio said to be tapped by Trump to head the Central Intelligence Agency. He is a congressman from Kansas, the fourth district in Kansas,
which encompasses Wichita. Graduate of Harvard Law School, worked at Williams and Connolly Army veteran as well. Again. Frank Pompeo reportedly picked here by Donald Trump to be the head of the CIA. Michael, let me ask you about what we heard yesterday from Janet Yellen on Capitol Hill, tom asking about inflation. What's your sense of how fast inflation will will rise here in the new year, And did Janet Yellen say anything about the pace of rate increases
in two thousand seventeen UM. So, we've been looking for inflation to continue moving higher. We think core PC inflation gets a two percent by year end. You know, the markets obviously had a big change of heart or big change of views lately on inflation. Not sure really what what would justify that given what we see are likely going to be pretty modest changes in the growth outlook next year, given the the fiscal policy back drops, So uh, we could always see inflation break a little bit higher
than that. We certainly are. I think there's a lot of evidence we're close to full employment, UM. But also we just don't know what the composition said is gonna look like in in in a year or two, and are they going to be more hawkish or dubbish. I
don't think anyone has a good sense. But in terms of yelling signaling for next year, she she's stuck with the gradual pace uh, and once again defended it by referencing what me and Tom were talking about earlier, which is this idea that neutral rates are probably pretty low, and so that the distance they have to go to get uh the overnight and just right back to normal is actually not all that great. So she she said, you know, for seventeen probably um, not a very fast
paced pace of rate. You highlight the conundrum. Whatever anybody's politics, which is Cherry Yellen's normal or Michael Faroli's normal, is not the president alex normal. He has a mandate, in a clear mandate, to do better than normal, doesn't he. Well, he's talked about getting four GDP growth real GDP growth
um as his normal, and uh, I wish him luck. Um. It's I think there are some of these things that are very hard for policy to change, demographics being the most obvious, but then even productivity growth is a bit of a mystery where new ideas and new technology come from. You know, I think we know there are certain policies that can encourage it, but you know R and D tax credits and so so on, but they're not guaranteed to deliver it, and certainly not guaranteed to deliver it
in a short time span. So yeah, Michael, thank you so much. Michael far Eli on this Friday morning with great great news flow as well. He is with JP Morgan, who you put your trust in matters. Investors have put their trust in independent registered investment advisors to the tune of four trillion dollars. Why they see their roles to serve, not sell. That's why Charles Schwab is committed to the success over seven thousand independent financial advisors who passionately dedicate
themselves to helping people achieve their financial goals. Learn more and find your independent advisor dot com. David Gura in New York, Tom Keene in London, Bloomick Surveillance on Bloomberg Radio. We're getting reports that James Bullard, president and CEO of the St. Louis Fed in Germany, speaking with our colleague Matt Miller, talking about low productivity. Let's see what he had to say. It's really really low compared to what
it was historically. And uh, you know what exactly is driving down as a subject of research, but but just for purposes of thinking about the next two years or two and a half years, our approaches that probably that will continue going forward, probably will still see a slow productivity growth. Some of these programs, some of those fiscal change, physical initiatives, might help productivity go higher, but we'll we'll see as this thing develops. There's a lot of ifs
in your statements. There's a lot you know, at this point we're very early on and as what do you see they but do you see the risks to the upside or the risks to the downside? Looking at say the dot plot in two thousand seventeen. You know, even if a lot of I know markets are talking about well, maybe the FED would raise rates faster than previously expected. But it's supposed we did that, that would be a reaction to faster growth, that would be a reaction to
faster inflation. It would be appropriate monetary policy given those those kind of development. So I think I'd like to make a distinction between an appropriate monetary policy that's responding to things that are going on in the economy versus h we're just raising rates even though the forecast hasn't changed so um, so I think if we got into a faster rate rise environment, it would be for good reasons. Let me ask about some things, uh, that we've seen
in the markets. That dollar strength has been incredible lately on the d X, y up over a hundred um. The euro weakness. I think this is the longest streak of daily drops for the euro against the dollar in the history of the single currency. Does that concern you the speed with which we're seeing these assets fluctuate. Uh, there has been some volatility post election that the tenure
has come up, tenure yield has come up. But if you look at it in a bigger picture, over the last year since the Fed first made a move on the policy rate, you know, really we're coming back to levels that are consisting with December, and so that gives me some comfort that, uh, this these kinds of prices are probably not out of line. So basically what happened
was we raised rates in the dollar. Actually during actually fell and the yields fell, but almost seventy bases points contrary to what the Fed was trying to do, which was the opposite of what you would have thought. But now we're coming back up to those previous levels. So and a lot of that is expected inflation, which has been too low. And so to the extent it's been moving expected inflation closer to our two percent target, I think that's encouraging from a central banker's point of view.
So at least as of today, looking at the data, as of today, these moves are not uh, not shocking. That was St. Louis FED President James Bullard speaking to our colleague Matt Miller and Frankfort earlier today. This is Bloombrick Surveillance, brought you by Commonwealth Financial Network. When it's time to change the conversation, talk with the broker dealer r I A that's ready to listen eight six six four or six two three six three eight or visit
Commonwealth dot com to learn more. I want to bring you Lny Shulativa Bloomberg Intelligence joining us now. She us economist at at Bloomberg Intelligence. And later just react a bit to what James Bullard had to say there, especially when it comes to productivity. Absolutely so a lot of sets, because not just James Board, but many of them already told us that they're really concerned about productivity. Uh, that's why they see potential growth being lower this time around,
and that's why the neutral rate is lower. So that's a big concern. And and and obviously they hope that new um policy, new fiscal stimulus that hopefully we're gonna get at sometime next year, will help with low productivity. But this kinds of similus. They take time. They take time because first of all, they need we need the details, and we need time to England. Okay, well said Elena. What I think is the debate here, and folks, we had some great interviews on this Good Morning Steve Major
and the team at HSBC. Is this a one off level change whatever you're looking at, and then we sustain that level change or is it a one off level change and we dampened back to where we were pre the election? Which is it? I think it's Uh, it's moll a continued growth and expectations for the economy to grow at a higher rate. First of all, it's not
just the fiscal stimulates that will probably boost growth. Remember we're approaching full employment, and the economy by itself will you know, grow more, will grow faster just just because of the fund mental Really Uh, income growth will pick up. That's our foecust for next year, and consumer spending will need to provide the growth breach until infrastructure spending kicks in. Do you have any increase in investment spending with your enthusiasm about the consumer? I think that will take time
to materialize. Obviously, uncertainty has increased right after the election, but then it kind of sell and uh ass as long as we find out more about the ciscal plan and as the details start to emerge, we're gonna businesses will feel better about investing, about hiring people. In the
meantime though, it's it's all up to the consumer. Yeah, just very quickly here, How in line is James Bullard sense of timing with with Janet Yellens from what we heard yesterday in terms of of hikes for the new year, Yes, I think well, James Bullards dot we basically we knew where he was, right, He told us where he was one hike this year and then flat there upter So he's in line with what the consensus of the committee
is expecting this year. But we'll see, Yeah, he's I think he's not a boat the next year, right, Okay, Elena will have to leave it there. Elena Scholeva with us at Bloomberg Economics. We're gonna finish our last half hour here in London, and David I might mention, we
finished strong with Yakholm Fell's of Pimco. We've got a surprise last guest which really captures the fabric and emotion of this London post Brexit, but of Yakom fells On is profoundly important after the key debate here in London this week, Yakom fells you have been one of the most articulate voices in thinking about the breakup of Europe. Algersh Meeting earlier this week with Baron Bank was adamant that the German model everybody be responsible and do your
domestic economy can work. And David folcus Land out of Deutsche Bank just flat out disagreeing and saying Italy is in severe problem and the I m F may have to come in and assist. You're one of the leading of voices on this. Which way will this cut? Well? Look, tom As Meeting is a good old friend of mine, we worked together more than thirty years ago. But I
disagree with him on this one um. And the reason is that I think the politics of Europe has changed over the past year, and what we've seen in in the UK with the Brexit vote and in the US with Trump being elected. I think that's just a taste of things to come in Europe. And the reason why Europe held together in the past, and why each crisis was followed by a step towards more integration, it was simply that there was the political will to make this
work and to hold together. And I think what's happening in in countries like France, in the Netherlands and in Germany UH means that this will to keep things together is no longer there. Governments. Established governments are under pressure from populist movements and that's why I worry that if and when the next crisis hits, the euro may actually break up. David, I find this just extraordinary to hear
this from doctor Fills. Yeah, you saw it though in acute focus, though, Doctor Fels when you when you looked at the images of President Obama in Europe this week, meeting with the Chancellor angel A Mercal, meeting with Premister Lexacy prison in Greece, He's delivering one message. I think there are those who are open to hearing his message, but there is an awareness in Europe at the times have changed. Yes, absolutely, and I think you know Europe is now out on its own because they cannot be
sure that they still have an ally in the United States. Uh, they're very tricky negotiations coming with the UK on on Brexit. Um. And again governments are under pressure from populist movements. And as you know, we have a series of elections coming up next year. This December, we have the Italian vote on the constitutional reform. We have an Austrian presidential election that may see a nationalist president who is anti immigration
and anti you come into power. And then we have the Dutch, the French and the German elections next year in March, May and September. So I think the risk premium on European assets is likely to rise, um, and it's not going to be comfortable. What is the argum falls outlook for for oars of a recession you mean in Europe? Yes, I don't think your recession is on
the table because the ECB is very supportive. Um. What we've seen after the US election is that the euro has weakened versus the dollar and some other currencies, so that will help export US. No, I think Europe, the European economy is likely to bump sideways in a range of around one to one point five pc growth. So recession is not the thing I worry about. What I really worry about is the fabric and political fabric of Europe. Well,
I'm glad you mentioned the political fabric without question. Um, Yakom on surveillance today the image this was on Bloomberg television, folks, and you'd be amazed, folks, how we try to get lucky with the video footage that comes in and we fly with it in real time. And there we were Yacom fells with waiting for the camera in there in my years saying it's troops marching and this that the
other thing. And right as we went to the tape, we had Chancellor Miracles standing alone saying goodbye to President Obama. Is it your sense? Is one of our great watchers on Germany. This is a changing of the tide for Europe and for Germany. As we see a new president in the US. Well, we'll have to see what what his policies will be. But um, I think there is at least a possibility that you know Trump will turn more or that the US will turn more inward looking.
Europe has always relied on the United States as as as a very strong ally. Um Trump has seemingly good relationships to Russia to put in, I think that warries some people in Europe. So yeah, I think it's a turning of the tide. We'll have to see how how US foreign policy evolves, but I think what is clear is that Europe will have to take a tougher stance
on its own. And I think it is clear to governments that they will have to raise defense spending because this is something that that that that Trump wants to see. The tide turns into the gravitational force of president like Donald Trump. When it comes to the federal reserve, how do you begin to forecast out think about what the economy, the US economy looks like with a radically re envisioned federal Reserve. Well, I think that the key thing to watch is what we will actually get in terms of
fiscal expansion in the US. So will we really see the big tax cuts that Trump has been talking about? Will we see higher infrastructure spending? My guesses will get both of it, and that means the landscape for monetary
policy for the FED has has has really changed. UM. I think it is is almost impossible to conceive a situation where you get very expansionary fiscal policy and a FED that hikes interest rates more aggressively or even starts to uh starts to to to reduce its balance sheet, which is something that is being discussed, because that would be a scenario where you would see a very sharp increase in interest rates, and that could actually undo the
consensus in markets that rates will be lower for longer. UM. It could drive the dollar to unprecedented tie. We're already seeing some of this if you look at if you look at the d X Y today, which has has moved above on one. So uh, that kind of policy would actually fire back because a strong dollar would be bad for the US manufacturing sector UM and thus bad for the people who voted President Trump into office. Let's leave it there, YACOLM. Fels, thank you so much for
a short visit today. Greatly appreciate your comments on Europe. Yulcolm Fells is with Pim Good. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.
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