Tariffs May Crowd Out Investment, Coronado Says

is the photo of International Women's Day. If you just assume that all of accomplishment of men and women is about ability and smarts. What a wonderful photo of chair Yelling, Catherine Man, Julia Cornado and others assembled. I believe Ellen Zentner up I saw there from Morgan Stanley as well. Tell us about the energy in the room, and tell us what this meeting of the smartest minds of women economics,

what it meant for the young kids that were invited there. Yeah, yeah, well, I mean it was it was a celebration of Janet Yellen and her accomplishments. We wanted to say thank you to her, and I think for everybody in that room. She has been such a powerful figure for us, a powerful inspiration. Uh and it was a really warm, warm environment. Lots of lots of love in that room. Tell us where we're going to be in five years or ten years.

The loneliness of Cherry Yellen, the loneliness of Kathy Man at m I t a million years ago, Ellen Zetner all by herself at Namura on our way to the excellence at Morgan Stanley. And you've accomplished with particularly with your analysis of g d P. It was lonely. It's less lonely now where lonely? I mean, I I hope we're I hope it's even less lonely. I hope it's not a It doesn't make you unique to be a woman chief economist in ten years, I certainly hope that

to be true. Um And I think that there's a lot of people, both men and women, who are focused on changing uh so so so I'm optimistic for that path breaking here we forget it. And it's someone that everyone in economics knows was the absolute courage of Joan Robinson in London and in England, hugely contentious economics debates coming out of World War Two. I think there's also just a real awareness from a business perspective that actually it brings huge amounts of benefits to have diversity. I

can share you an anecdote. I can't name the names, but I know an individual that was an executive at a large apparel brand here in the United States, and the board were worried about female upper ourselves. And guess what the board was made up of, all males. They couldn't relate to women. And it's a problem the retailers have had that the board is so dominated by say, white males, they can't relate to most of the people that are actually selling product too, and therefore the company

very quickly becomes stale. And Julia, that's the point I think is more important. Absolutely absolutely awareness that the benefits not about the stake of having numbers numbers fairness. It's about getting things right. And that is true in the retail industry, and that's also true in the finance industry. Are you going to get the world right? In economics?

Are you going to forecast the world right if you don't have half of the population represented, and and and so representation matters not just a fairness but to getting things. Let's get it right right now? Does President Trump have it right that we can sustain make America great again GDP. I don't think that we can sustain three percent GDP. I think that we are going to have a very good year. I think that we are going to grow

above trend. But I think that, you know, at least the way we economists would look at things, when you do fiscal stimulus at full employment, what happens do we even have the workers to push GDP um Where we saw in the basebook yesterday, the labor market's very tight. It's very hard to find the workers to generate additional growth, even to sustain the strong growth that we have. So what happens is, and we've seen this in Q one GDP numbers the trade. We start sourcing that growth abroad.

Imports are rising. The trade deficit is actually, quite ironically right into the tariff debate today, which is if there's a dearth of exports. The other side of that, as you correctly state, as we're sourcing imports, right, we're sourcing imports. We're sourcing and you know when you do capex, actually a lot of the capex inputs are coming from abroad.

Uh So we're gonna trade is going to subtract maybe even up to a percentage point off Q one GDP because we are seeing strong demand and we have to source it abroad. Uh And and what will the tariffs due to all of this, um well, that has the potential to crowd things out a bit, create a bit of inflation, crowd out some of the investment. Are we going to sustain a one percent decline in GDP looking at exports and imports, that's a that's a loaded question. Yeah.

I mean, look, trade is very volatile, and and Q one is that's one of the areas that typically features in the week Q one pattern that we've had, so you don't want to extrapolate from that. But I think whether Q want Julia, no, no, no, it's not whether it's not whether it's statistical, it's season residual, seasonality. But I think in general, for the year as a whole, we should look for trade to be a bigger drag because of stronger imports and sourcing some of the demand

that we need from abroad. Julia Cornado, thank you so much for joining us today. Julia Cornado and AMP Joseph Cohine. We really wanted to put them together. We're bringing Peter Chat well, so we Missooi international head of European rate Strategy, and Jeffrey u UBS Private Banking head at UK Investment Office UBS Private Banking. He joined us right now. Jeff.

Let's begin with you, sir, as you look at the forward gardeners from the e c B. It's a delicate shift that they've talked about for a year, but they've dropped that pledge. Your thoughts absolutely, and but also I think there'll be many in the market who are saying, look, guys, and what took you so long? Right? So it's clearly on that some people are not a position for this. Um. I think the ECB will still, you know, taken easy.

Let's see what drug has to say. They're going to be keen on trying to avoid any type of a tantrum up ahead. But so far it looks like markets are taking this well. Pitter chat well, as Jeff points out, what did take so long? They've been talking about it for about two halve months. I guess it is relative to expectations. People just did not expect it to happen today, did you we We were not expecting this to go

at this point. The only reason that we would expect that it could go here is if the e c B is also ready to make a change to some of their forward guidance on the timing and the pace of interest rate hikes. So that's the way that this. As long as they're clear about this and they prevent the market from from pricing imminent rate heights, then this won't turn into something more significant that leads to wider spread. But just having a lower buon price a higher bund yield,

it's not the end of the world. I'm going to frame here after Bloomberg terminal, the sequence of headlines that I have out, I'll put that out on social for all of Bloomberg Radio and Jeff you what it is is just the tone of nine ten eleven headlines. It reminds me of Mark Kearney ten twelve months ago saying, you know, we have to wait until inflation goes up.

Did Mr Drag blinked this morning? Um? I wouldn't say he's unblinking, But it's just more you realizing that some things you need to change, and at this point, and also knowing that the market probably is in a better position to actually accept change at this point. So it is really that dynamicism place. Um and again you know the markets take it well, even with further normalization prospect up ahead, then he'll be happy with the results. This

is a real baby step though, Jeff. There'll be some listeners that are thinking, what are we getting excited about? What is this all about? As you said, Jeff, about time. But does this set us up for the removal of QA before the end of this year? Um? So, I think he is gradually laying the framework to actually push everyone in that direction, right, But so yes, you know, setting it up that is a clear intent that he's going to be looking at the reaction at the same time,

and also bearing in mind financial conditions. Euro's higher on that he doesn't want to enforce it all the way up to one thirty either in the short right, Peter chat well also ter for you are so audience, but let's go There is the ten year German yield near a technical resistance where higher yields really denotes a breakout.

I think it's important. I mean, yes, if you look at at a chart you might get concerned that they could go a lot higher from here, but you've got to think about the implication that that would have on financial conditions for the euro Area. And when you're giving, when you're taking away on the one hand, saying that que is not going to be increased, then I think the ECB is likely to also give something back, which is to try and reinforce and push out some of

the rate high expectations. So this is why I think I was going up to seventy seventy five basis points. Then it would probably still be viewed as a buying opportunity by investors. So Jeff, get me set up for the news conference that comes in about thirty forty minutes time with ECP President maryo Draki. Is it a hawker shift at seven five Eastern time? And then a dovish

news conference forty five minutes later. Um. I think the best news conferences you know will the ones where euro dollar is actually training exactly the same level as when the continents compared to then started markets and now pricing in them to be relatively confish. As long as he actually doesn't push things about that, I think you'll be fine with it. Jeff. What's so important here to me is the tone of the set of headlines. I just put out my screen. They're all different. Jam Ferrells looks

different than mine. Of ECB headlines and the colors in in Jeff, I just headlined to headline to headline, they're saying we're going to wait. Explain why they're waiting for more information. Is there just no inflation out there or is it something else? There are inflation expectations as always, and that they need to be anchored, right, So drag has always expressed this uson now let's see how the

break evens and move as well. Um that he needs evidence that inflation expectations on that anchored, that they can be sustained for a period of time and then there will be fully ready for a game baby steps in that direction, but he needs more evidence that those expectations are here to stay an extended period waiting running until inflation path has sustainably adjusted. That the language that that that kind of tone is still dovish as far as I agree and Peter chatwell, this is still a dovish

European Central Bank under President Trachy. They are not in a rush to remove accommodation. Regardless of this pickup we've seen over the last year for the general economy, I think they're not in a rush to remove accommodation, but the market needs reassurance. And see a lot of these these headlines that you're talking about, they're still pretty wishy washy. So the market doesn't really know what and how long an extended period is. The market doesn't know how quickly

rates will go up. And so these are the points that the ECB needs to make much more transparent in their forward guidance or in the press conference going award to prevent there from being what they what they call an unwarranted tiening of monetary conditions. But hold on a minute, Jeff, I remember the Federal Reserve using exactly the same language that the rates wouldn't rise until an extended period of time. Are they just taken a leaf out of the Federal

Reserves forward guidance playbook from several years ago? Well, I think if you look at how they said handled rate hikes last year, you know when there was sort of a shift, especially around the March meeting, from not much being priced for suddenly a lot being priced for the market absorbed it. Well, that's a very good playbook to follow. But again, going back to that sustain period, we've seen invasion data surprised to the upsides and surround like June

last year. So again that's barely a yeah, barely nine months at this point. They need a bit more time. And the problem Tom that the ECB is going to have an extended period of time for Mario drag is going to be a very different extendard period of time for Yen's Wideman, and I imagine the governing Council is going to be a lot more fragile and broken up divided as we approach your end. This has been wonderful Jeffrey, You Pierre chat well away from their clients to today.

We greatly appreciate you being with us with these ECB announcements. Joining us now are really wonderful. Guest, Isaac Boltanski is with a compass point and he is knee deep in the minutia of policy at Washington and particularly financial policy, and joins us now with comments that maybe most of us can understand. Um, Isaac, I'm gonna frame this for the politically accessible, is the senator from Massachusetts against the known world? Uh. For cable TV, it's great to have

Senator Warren on. She always creates a motion whether you agree or disagree with her. I get that. But is that as simple as financial regulation is, Dodd Frank, Senator Warren Or is there a greater complexity to what's going on right now? You know, I think you've really hit on something there. The the issue at hand is this regulatory relief bill for banks, and the proponents for this bill argue that it's going to usher in a new

wave of lending and and economic growth. The opponents, such as Senator Warren, suggests that it's going to do unleash this sort of mad Max hellscape on the lending environment, and and and hearken back to the predatory lending days

of of a decade plus ago. As with almost everything in d C and surely everything in the financial regulatory regime, the truth is far more nuanced and the the bill that's in question here is honestly a very targeted, narrow measured bill that would almost exclusively benefit the country's smallest banks, and generally there I'm speaking about banks below ten bill. In yes, of course, there are examples of larger banks

having benefits in this bill as well. Um it raises the UH the city or c car threshold from fifty billion to two d and fifty billion over time, which will provide some modicum of relief for those banks. And it has a custodian bank carve out which should help Sade Street and Bank of New York Mellon Northern Trust.

But on balance, this bill is skewed towards benefiting smaller banks, but you wouldn't know that from the rhetoric and the rhetoric here I think is is red hot in part because we're coming up on ten years from the crisis, but also because there are seventeen Democrats right now in the Senate who are supporting this bill, and so it's the first time that we've actually been a bipartisan push to alter the roles. That's what I can't say fair enough.

How unusual that is. Yeah, extraordinarily unusual, ISAI? What do you make of the retric then why do we still have this? And it can't just be because of the financial crisis that's gone by. The people think seriously that the regulatory regime that we have right now is good. I think that I think that the inherent complexy of financial policy makes it easier for hyperbole on both sides.

And that's why what I think that we're seeing firsthand here UM the explaining the supplementary leverage ratio and its impact the capital management is not exactly a political sound bite, but hitting the bank bill for rolling back Dodd Frank regulations is something that some senators are actually fundraising on right now. You know, I look, Isaac, and I just did this, folks, and you know I knew where I was going, but not really. JP Morgan operating income thirty

six billion, on its way to forty five billion. A big bank, PNC Financial of Pittsburgh operating incomes seven billion. So it's Isaac, forty five is compared to seven And the answer is that's a big That's a comparison of a super bank to a big, big, big regional bank. Are we treating all our banks too much the same? Within our legislation, our regulation, within the Washington ballet, it's something where yes, the the simple and unquestionable answer is yes.

And I think that UM regulation tends to benefit scale players. They have the capital and the personnel necessary to build the system. Where's the president on that? Does he want to help the small banks and the mere mortal regional banks. Yes? I think there is a bias, and thus far, all we've really seen as the president so far he met with the smallest bankers a few months ago and met with the credit unions a few weeks go, so we haven't seen him decided to meet with the larger players yet.

But yes, I think that there is an undeniable bias in DC on both sides of the aisle to help smaller banks. The question here is just how do you define that and what is the legislative vehicle that carries that. I said, this has been the policy push that's happened in the background throughout the last week, front and center

has being issues around trade. Your thoughts somewhere this is going and whether we have actually got an administration that ultimately is together on the same page and this is a negotiation tactic that they started the extreme and then they come in. Is that what this is? It appears that once again that framework is playing with the with the signals that there's a softening on the country exemptions for Canada in Mexico as it relates to the terraces. I am still unsure if that is strategy or or

bending to the broader pressure. It was striking to see how unified. Both parties were in their opposition in particular because Republicans want to run on the economic benefits of the tax cuts, and there is a real concern that these tariffs would eat into those benefits, and so you can always count on actors in d C looking for their own self interest. Isaac Bill Tansky, thank you so much. At the compass Point today, an update there on bipartisan

banking legislation. I can't remember when the last time I said this A thrilled death. Cynthia Coon's with us with Bloomberg News, who has been more than patient over the time, over the years and following the drug slash pharmaceutical business. Today's theme, I believe is the distribution of the pharmaceuticals. Cynthia Coon's. What is express Scripts actually do well? This is this takes a long time to explain, so I'll

try to keep it quick. But basically, what express Scripts does essentially is manage the drug benefit plans as there used for insurers and payers to determine what drugs to patients actually pay and how much we pay. So express Scripts is a line in the middle. They're considered a middleman, and what they do is they negotiate the drug prices with the actual manufacturers, and they make determinations about what

is a preferred draw first year, seconds year. So your co pay is dependent on decisions a lot of times made by Expressed Scripts. And the reason needs to get a little bit tricky is primarily because of exclusivity contracts, and so drug makers, really powerful drug makers can negotiate exclusivity contracts and get preferred status on these formularias, and other drugs that even might clinically be considered better alternative

is aren't necessarily getting coveraged. And all of this is happening through a system known as rebating, and drug makers are basically able to give rebates to Express Scripts. I read into a physician the other day that said, we've basically had a tipping point of American fraud in pricing of drugs. Do you know how profitable Express Scripts is by looking at their accounting statements or is it? Is it almost to the point where there's cash flows or

agreements or exclusive at ease that we don't observe. It's really hard to know. So it's easy to see, Okay, these are their profits and what theyre etcetera. But really what everyone wants is a little bit of a line of sight into the agreements that how much and you don't know that makers are paying for access and we can't see that. And there are commercial concerns that these guys have longsighted as to why they don't make that clear.

So their their negotiations with a big employer like like JP Morgan are obviously going to be different than our small employer, and that's sort of glee and so on. But where it gets really tricky is you have drugs that might be clinically superior and they're fighting or they're even equivalent, um, and they're fighting to get onto formularies and and companies are saying they can't get access and they think that's anti competitive. So we've seen suits along

those lines. And that's where did they do this deal because of Jeff Bezos? Is this just about Amazon and everybody's trying to get out in front of Jeff Bezos

running a you know, a bulldozer through the industry. I mean, that's a very astute observation and it very well may have played into the thinking of what can we do now from sickness perspective, how do we necessarily become something that's more valuable than a standalone ensure, and so that's not necessarily that's a very you know, that's a very smart thought. It's just very hard to know what what Amazon is going to do and how they're going to do it. And I think Amazon's impact, yes, it could

uh disintermediate the PBMs in the system. That they also will have a very big impact on drugs and drug pricing, and so there's a whole other dimension to that. So getting ahead of Amazon, yes, that's one way of thinking about it, but we're still in very early innings of knowing what Amazon is going to do and how they're going to disrupt this part of the supply chain. There is a huge dance going on at the moment, Cynthia that we should point out. Signal and Anthem were meant

to get together. It didn't happen. Anthem drop express Scripts at the same time Anthem go alone. So essentially you're left with these two that wanted a dance partner and haven't got one, and they need to get bigger. Is that what needs to happen in this space at the moment, Just get bigger and find a dance partner. Well, it's certainly, it's sort of like, because that's happening, it's going to continue to happen. I find that these sorts of things

become once the bigger. Once players start making moves like this and integrating, other companies start looking at it as um inevitable that that's what they need to do to be competitive. What's very interesting about this integration is it's not necessarily following classic logic. The deals that you cited made more sense than the perspective of okay, we're two insures, we make our businesses bigger. Of course that didn't pass muster with antitrust regulators, judges, et cetera. And so that's

why those didn't work out. And so what's happening now is we're seeing a lot of this vertical integration, and we don't know how these are going to work for shareholders necessarily. This Signal Express deal is more of a classical We've seen United Health has um a PBM. Do we know what that joint business model looks like? But when you think of the CBS deal, for example, retail and insurance, what does that look like? How does it

benefit the end consumer? We don't know yet. So while this is happening, and because there aren't that many dance partners last, like you say, then it's going to raise questions about how how well these deals are gonna showed us longer term term. Cynthia, thank you so much. I know it'll be a busy day. Cynthia Coon's with Bloomberg News and her work on pharmaceuticals and the major drug companies as well. 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 Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio