Interpreting Fed Transparency, JD Vance, and the Roe Leak

Published May 6, 2022, 11:22 AM

Bloomberg Opinion with Vonnie Quinn: Deeper conversations on the week's most significant developments. This week, Jonathan Levin on interpreting transparency; Harvard's Theda Skocpol on the Stacey Abrams playbook - right there for Democrats seeing challenges piling up; Jonathan Bernstein on the meaning of JD Vance; and David Fickling on Pakistan's fundamental deficiency..

Welcome to Bloomberg Opinion listeners. I'm Bonny Quinn this week. What really matters here is whether Republican Party actors, especially other politicians, believe that trump endorsement mattered. Jonathan Bernstein on the JD vans Win. Also, you would expect national politicians to say, we need two more Senate seats to make a difference enough in the Senate to pass something. It's going to take clarity. Harvard professor Ceda Scotch Pole on how Democrats already have a playbook for battles, including whatever happens on Rovie Wade. They just need to use it. And later, as that import demand goes up, you end up with a balance of payments crisis and Pakistan goes to the I m F and that underpins the removal of Imran Khan from office. David Fickling on how Pakistan's growth seeds its own political turmoil. First though, to the whippiest of flippy weeks in the market. Jonathan Livin fed Watcher for Bloomberg Opinion. Jonathan, the Fed hiked by fifty basis points and it was seen as a dobbish move by the market. What does this say about market seption of the Federal Reserve. Yeah, well it was seen as dubblished because Powell came out and essentially ruled out the possibility of a future seventy five basis point hike, right, And markets had begun to price in a high probability of one of these jumbo sized moves as the Fed essentially recognizes that it has been behind the curve and J. Powell goes out and says we need to front mode policy. So he comes out and he says we're not currently thinking about seventy five basis points, and the market just ripped because it was preparing itself for that sort of worst case scenario. Of course, the interesting thing is the market is giving back almost all of them, exactly you. Right, Investors have a greater tendency to take risks when they know what the Fed will do, when it will do it, and by how much. So my question is, even after that fifty basis point interest rate increase, is the so called Powell put intact and operational. I really don't think that the power put is intact. I think, quite frankly, market misinterpreted POW. I think what's happening is that the market is saying to itself, Okay, Powell said seventy five basis points. But folks went home and they thought about this, and they said, well, he said, no, seventy five basis points. But he also praised Vulcar as he as he has done in the past, and he said, you know what, inflation is the biggest concern on my mind right now, and I'm going to do what it takes to fight the worst inflation this country as seeing in forty years. I think that tells you something about where he's ultimately going. So so you're saying that Powell preserved optionality, my meaning being that the FMC could still move by seventy five basis points or an act even an intermeding increase of the deemed it necessary. Well, I think I think a couple of things. I think he meant what he said when he said, at the moment, seventy five basis points was on the table. You know, had the market sustained its gains, I think maybe seventy five by this point would have been back on the table, because I think he doesn't want to see yields coming down and stock markets ripping like that. Um. But I think I think the broader message really is, it's where we're going to end up. I think the pace is important. I think that the FED is behind the curve and it isn't a bit of a rush to get where it's going. But ultimately the big question is where are we going to end up in the middle of You ask a Pardoner in question in one of your columns. Does the FED want to get to two percent enough to cause the recession? Does it? Yeah, that's the big question. I mean J. Powell essentially told us that he's willing to do that yesterday. My view is just that his view can change very quickly when a recession is breathing down on us and the political pressure is all around him. Say, you know, the stock market is off from its highs. It becomes a lot harder for him to go before the microphone and say I must press on when those are the circumstances around him. I think right now it's easy for him to go before the microphone and make these sort of declarations because the unemployment rate is so low, because the labor market is so hot. Yeah. And the other thing is that we have new language to parse. So I'm going to ask you to define softish landing. Is it a mild recession? That's the big question. I think the popular thing on the street is to say, if we do get a recession, and it would probably come in three maybe even that there's a high probability that it could be mildish. And the reason is the mild so strong we're becoming powell talker is at this point we are guilty as charged. But I think the bottom line, and I think Power himself knows this, is that when that unemployment rate starts picking up, it just starts to feed upon itself. So we may think, you know, we have a nice cushion. Now it'll probably be mild, but things can easily get out of control in a hiking cycle like this. How long before powell Ish becomes part of the lexicon? Jonathan, Oh my gosh, I hope to banish it as soon as possible. Fun Well, it certainly seems like Dovish hikes are all the rage of bank Covingland also with a so called Dovish hike this week, Roberto Early of Piper Sandler says qualitatively, the market reaction is on par with what is technically called a path surprise. Would you agree with that I think a lot of what we saw was essentially some of the famous short covering. And you know, I think the tell on all of that is that we woke up and we were essentially going in the opposite direction. I think, you know, essentially nothing happened, but the mood did a complete one eight And the reason is that people actually thought about what j Pal had said in its entirety. And I think the other thing that we have to have to remember finding is what's going on with commodities markets. Right oil began ripping higher, and the market just decided that it was going to ignore that because it had, you know, this thirty second sound bite from j Pal. But I think we have to remember that there are multitude of risks out there right now beyond whatever the FED decides to do. One of them is what's going on in Ukraine with Russia. Another one is China. And having noticed, if oil decides to rip high from here, should it go to one fifty? All bets are off. Jonathan live in in Miami, and don't forget listeners. Getting tough to be a Twitter at Bonnie Quinn or email v Quinn at Bloomberg dot net. Opinions and comments always welcome. Julianna Goldman wrote a call him this week in which he outlines a potential path to victory for Democrats on everything from the mid terms to abortion rights. In it, Julianna draws on the work of our next guest, Theta Sculptural Victors Thomas, Professor of Government and Sociology at Harvard University Professor, How do democrats use the Stacy Abrams playbook to achieve their ends? In particular regarding role, Well, it's the same for just about every pressing issue. A simple thing that I think we've learned from American politics in practice and even some of the best scholarship, is that people are persuaded by relationships. They're not simply persuaded by hearing about an issue one or two times in a TV ad or in the abstract. Politics happens in conversations among people who know each other, neighbors, coworkers, people who attend the same church, people who attend the same boarding events. So you have to have an underground presence to explain what an issue means, what its ramifications are, and why people should care about it. Now, the reason that we're speaking about the quote unquote. Stacy Abram's playbook is that your paper, which by the way, listeners can read via a link. And Julianna Goldman's column points out that democrats fortunes in Georgia shifted post fourteen. What happened well after years Georgia, as a sister state of North Carolina, reached a kind of boil in when they were crucial Senate contests that required high state wide turnout among Democrats. And we know that in this era, Democrats tend to include more and more college educated people of all backgrounds, but also minorities who are often make modest incomes and live in both rural and urban areas, at least in the South, and movements in both those states tried to turn people out and fell short. That was a moment in which groups working with Stacy Abrams, who at that time was in the Democratic Party minority in the state legislature, they look at the situation and learn some lessons. Bringing in outside consultants, registering voters, even delivering messages during a few weeks leading into a crucial election is not enough, particularly if you're talking about voters who may not be registered, or who, if registered, may not vote regularly. You have to have people in their communities, in their neighborhoods who can build relationships and talk to people about issues over many months, and Stacy Abrams obviously very successfully did that for that crucial Senate seat. In what should happen across the country in terms of building out what you call a lottice work well, For one thing, you have to take state politics seriously. And that's one of the things that happened was the various groups networked around stay Abrams in Georgia from It's not likely to happen overnight, but things are speeded up. If you think about politics is tapping into networks and organizations that already exist in people's daily lives, and in the case of issues that may seem obvious to highly educated voters. And I think it's fair to say that for many highly educated voters in the United States, their positions on abortion and access to abortion care those have been staked out for such people for quite a long time. It's not just women, men and women alike. But if you think about it, the people who are most affected by access to abortion care are I don't know, they tend to be lower income people working maybe multiple jobs, trying to raise children. A lot of people seek abortions already have children and don't think they can afford more. And they may be living in places where they haven't had a lot of access to health care of all kinds. They may not instantly understand what it means to have a draft Supreme Court opinion leak, and so they're gonna turn to people around them to understand the meaning of that. And even if they understand the meaning, they may not think their votes could make any difference in unless people explain that who you elect to your state legislature and who you turn out to vote for for Congress could matter. We talk about the thermostatic effect. When policy moves in the direction you voted, your less likely to mobilize. In this case, those who vote a Democrats will see policy move in the opposite direction and how they voted. So what does that mean for galvanizing action even among those who did vote before well, especially democratic constituencies have a tendency to despair if they don't get results, and of course their modern Republican party has been very good at making sure Democrats don't get results, even when they appear to quote control Congress. In the case of the abortion ruling, it's going to take clarity to one thing. You would expect national politicians to say, we need two more Senate seats to make a difference enough in the Senate to pass something that could codify the rights to have access to abortion care. Just having nominal control isn't enough. I don't think a lot of people out there on the Democratic side understand that necessarily. They don't understand that it isn't just a question saying Joe Biden has failed. Joe Biden doesn't have a working majority in the U. S. Senate for most of what he wants. Speaking of Joe Biden, what should he do? He should be clear about what this dakes are. I mean, for example, he's out there saying the White House is going to do everything I can to protect rarning rights. He should be straightforward. He should be straightforward that it's going to take an Act of Congress that he can sign into law, and then he needs two more Senate seats and we need to hold onto the House of Representatives, we Democrats. He should say, he should be clear, is there a danger of Democrats get stuck on the filibuster question and that narrative becomes the dominant narrative. Well, it is very important, but there's a real danger that activists are going to go into the streets and start yelling that Joe Manson should book to get rid of the filibuster. Always not going to He's made that clear, you know. I think at one point Joe Manchin said, if you want to get rid of the filibuster or like more Democrats, well that's right, that's exactly right. And there's nothing wrong with Joe Manchon. He's representing his state. Can the Stacy Abrams playbook be replicated in states where there already is a lot of work, where there already was a network up and running. He just perhaps not as effective as the one in Georgia. And you point out that the North Carolina network put into place by Reverend William Barber didn't work quite as well as the Georgia one, even though the intentions were the same. All the intentions were the same, but the actual presence of organizations and activiss was much more concentrated in the big cities. And that is a democratic problem. In a lot of states, Democrats don't have a lot of outreach into areas beyond metropolis, in the near suburbs, the wealthier suburbs or college town So in many states, for example, in the Midwest, it's going to take a longer time to build up a presence of people who are Democrats and are your neighbors. I don't think it's hopeless, and I don't expect this abortion battle to be the only battle that matters. With this very radical Supreme Court majority, the abortion decision is going to present problems for the Republican Party as well. So instead of thinking of it is something that's going to be settled instantly, and that's true of climate politics. It's true of a fight to get some kind of a basic family and child allowance or two lower prescription drug prices. And the Georgia lesson is that having a presence locally, focusing on state as well as national politics, it takes time. It may take multiple election cycles. Harvard's Ceta Scotch poll primary season kicked off in earnest this week, with Ohio and Indiana going to the polls. For a review, I spoke with Jonathan Bernstein Jonathan J. D Vance wins the primary and Ohio it will was to be a bellweather. What conclusions can we draw about a Trump endorsement from this particular race, Well, this is definitely score one for Trump. Four of the five major candidates who were vying for Trump's endorsement, that was basically the campaign for most of them, Dance got the nod. And because he was a bit behind in the polls and wound up winning fairly comfortably, that's going to be perceived as a Trump effect, showing the Trump's endorsement is worth a lot. It is also true that this is exactly the kind of situation where a high profile endorsement can make a big difference. It's a multi candidate race with five candidates putting on serious campaigns and without big policy differences for the most part between the candidates. So voters are looking for some sort of queue. Because voters don't get very involved. They see commercials, but you know, for primary most of them are not scouring issue statements and all that to try to figure out who it is. You know, just tell me who's the most conservative, tell me who's the real conservative. And so using a high profile endorsement to make that sort of decision is an easy endorsement for Trump to show he still has clout. And of course what really matters here is whether Republican Party actors, especially other politicians, believe that his endorsement mattered. And it does seem like they jumped on board immediately. Are we now going to see because of how Van's performed, candidates cast Republican primaries change up their positions and vie with each other for an endorsement because Vans changed his positions radically. Yeah, I think that, you know, there's sort of a difference between the policy position and seeking Trump's endorsement. Trump seems to mostly care about these days, is talking about is falsehoods about the election and supposed voter fraud and things like that. For the most part, you know, you can get away with talking about a whole lot of things besides from that, and he's not going to pay a whole lot of attention to it. What kind of effect it has on other candidates depends a lot on what happens over the rest of this month and the primary season, because there are a bunch of primaries coming up where Trump probably will not get the same kind of credit for winning. In fact, his candidates may lose a few races. He's got some trouble in Idaho and Pennsylvania, in Georgia that his candidates may very well not win. And next week we have Nebraska and West Virginia and West Virginia Trump is endorsed and incumbent Alex Mooney, but his competitor is also an incumbent, David McKinley, So obviously that will be a bell weather to McKinley voting for the infrastructure Billa, and that's apparently why Trump didn't endorse him. You know, it's hard to tell with Trump, because you know, he's not somebody who cares a lot about Paul. See what we heard about Ohio is that he watched the debate and thought that Vance was the most convincing candidate. So whatever. Um, He's got trouble in Nebraska because he's endorsed candidate who has been accused of sexual misconduct. He's got trouble in Idaho coming up later in the month, where he's endorsed the lieutenant governor who's taking on an incumbent governor, and the same thing in Georgia, where you know, he's put a lot of effort into supporting candidates for governor and for Secretary of State, against incumbents who did not help him try to overturn the election. You know, the other major thing that we can't ignore that happened this week was obviously the Row league, and it's very possibly going to be the opinion which will be out before the mid terms. Does this completely change the outlook for the mid terms? Now? I probably would be willing to go out on a limb and say it won't completely change the mid terms. I think it's very very hard to predict. We don't really have a lot of similar cases. You know, usually midterms ride not sort of directly on the economy, but on presidential approval, and that in turn depends on the economy, so inflation important. But in that it has hurt Biden's approval ratings, which drags down Democrats. We have not had a situation quite like the Row decision. It's still going to follow out Row, even if it winds up not fully overturning it, but most likely it's going to fully overturn Round, and that certainly could have political effects in November elections. But it's very very hard to predict what they'll be because it depends on individual actors and how they react to something. That hasn't happened before, right, and the Biden coalition so far has been a very odd coalition, and it will remain to be seen. Does this actually galvanize other kinds of voters, not just the suburban voter, but maybe young people to come out and vote and so on, because there had been a bit of an enthusiasm dampening, let's say, on the Democrat side up to now. Yeah. Absolutely, And you know, all of which is sort of normal. After people elected president, they tend to sort of think, okay, I've taken care of that, whereas the out party tends to gain enthusiasm because they get really upset about all the things the president is doing. Now this is a little different because usually policy moves in the president's direction, in the party's direction that's in office. This time policy is moving opposite that. So you normally have what political science called thermostat effect. As you get a democratic president, everybody in the country gets more conservative. If you have a Republican president, people get more liberal. We think that has to do with policy changing, But in this case, policy is changing in the other directions. So again, very hard to predict whether that motivates people or doesn't. Normally, I'd say, you know, we're over hyping things. Supreme Court decisions, no matter how important, people forget about it, or they don't vote on it, or it just reinforces what they were going to do anyway. But this is different enough and big enough that perhaps it will have some effect. But again, whether it does and what that effect would be I Jonathan Bernstein. There By the way, do get in touch. Comments and opinions always welcome at Volley Quinn on Twitter or email v Quinn at Bloomberg dot net. Last week you may remember we spoke with Halen Thompson, author of Disorder Hard Times in the twenty first century, the world economy is facing some pretty serious energy constraints. At any point when there's any significant growth, the world economy is now running into high energy prices. This thesis that fossil fuel economics are a significant contributor to crises and political change is something David Fickling has been writing about in relation to Pakistan in recent weeks. He joins from Sydney, Australia, David, Pakistan is in crisis again. Its finances are severely strained, inflation is running above and the RUPE has lost a fifth of its value against the U. S. Dollar in the last twelve months. For these and definitely many other reasons, Prime Minister in Ran Khan was ousted a month ago and fresh I m F talks are necessary so Pakistan can extend yet another emergency loan program. How did Pakistan arrive here? Again? Absolutely, I mean, this is a fascinating example of the way energy economics played into politics. And this is not the first instance that we've seen. In fact, really through fifty years odd of Pakistan's history, we've seen essentially the same thing, which is that every time the economy starts to grow quite rapidly, growing economy needs more energy, and Pakistan is energy poor. It needs to import a lot of this energy, particularly obviously petroleum, and as that important demand goes up, you end up with a balance of payments crisis and Pakistan goes to the I m F and it's heading to the IMF again. That underpins the removal of Imran Khan from office. The next bailout will be I think the nineteen Since the early seventies, so energy is an absolute constraint on Pakistan's growth rate, and for years now Pakistan has recognized this and has been trying to find ways to get around it. If you go back to the early tens when Noah's Sherriff was Prime minister, the actic at that point was to build a lot of nuclear power plants and lignite coal plants. There's lignite coal in Sinda Province in the desert there that would provide a domestic power su Pakistan. Historically, it's grid was powered largely by hydro electricity from the Indus Valley and up in the Himalayas, and then very substantially by fuel oil and natural gas, which has increasingly been imported. There's been a small amount of local natural gas, but that's dwindling. Imran Khan then came along and canceled some of those coal plants and focused very heavily on boosting hydro electric output even further. But it's clearly still not working because I think one of the fundamental problems here is that you have a growing household sector. The household sector still wants to use a lot of this natural gas and oil for transport and domestic cooking and heating and that sort of thing, and so the problem doesn't really go away and we're having yet another energy related balance of payments crisis. The one thing that's not happening here that I think should be happening is to look at the new renewables that we're seeing everywhere else in the world. This is a domestic source of energy. It's a very cheap source of energy. If you look just across the border from Pakistan Sin Province in Goodyar, at that area of India, you see a lot of wind and solar expansion. But Pakistan's only looking to target about sort of ten percent of wind and solar in the grid by thirty which by that point is really far too low. And this is the cheapest source of energy to Pakistan, but for reasons that aren't really very clear, it's still not making its way into the grid now. To be clear, these were obviously problems evident in Pakistan and other countries before the war, but Russia's war on Ukraine has exacerbated the situation. Tell Us how where does Pakistan import is energy from? Well, it's largely as far as the oil and gas is concerned, this is coming from the Gulf, from Opec. Of course, if you look at on the map, Pakistan is directly across from there. But yes, the importance of the Russia situation here is that that she's up the global cost of petroleum. And so even though Pakistan is not importing anything from Russia of any great scale, the cost of its imports go up. The volume doesn't go up, but the cost goes up, and that means that the pain is self in the current account and that ultimately leads into the balance of payments and that causes pressure on the currency and a visit to the I m F. And of course we're seeing this in so many different countries at the moment. Are they all experiencing the same thing for the same reason. So, for example, Sri Lanka, another country experiencing runaway inflation, it's also getting relief soon, it hopes from the I m F. We have Nigeria's national energy grid collapsing, we have protests and prove partially because of energy and inflation are the same reasons underpinning all of these political crises. I think it's a bit more diverse than that, because, of course you have a range of different economies in relation to energy. Of course, Nigeria you mentioned is a substantial exporter of energy. One of the world's bigger oil exporters. The issues of Nigeria's grid are much more to do with the general sort of dysfunction of Nigeria and government there. But of course energy is a global market. Food is a global market, and food is related to the energy market. Of course, producing food requires a lot of fertilizer. Fertilizer is largely made from natural gas, and just producing fertilizer in general is an energy intensive process. So these are sort of cascading situations that ultimately come back to a fact that the world's demand for energy is rising faster than the world's supply of energy, and that's being felt very intensely in the bit of the energy complex which is most easy to flex, and the just which is the fuel market. The fuel market can move energy globally. If I have a wind farm here in Australia, I cannot sell that electricity to the US, But if I have an oil field in Australia, I can sell that oil sit the Earth. So so the fuel market has traditionally been the way that the world's energy system balances out, and that's where we're feeling the pressure now. So, David, how realistic is Pakistan's plan to lower imported energy. It's trying to increase hydro electric power to the mix as supposed to a third of the mix by would that entail even more investment from China, which obviously carries its own risks. Everything that's driven the past decade of Pakistan's energy policy has related a lot to the fact that Pakistan is the biggest recipient of Chinese Belton Road funding and from the Nara Sharif Era when it was building a lot of this lignite coal plants, to the Imran can Era, which has focused more on major dime building project as a lot of Chinese capital and Chinese expertise that is driving that. I would argue that the dependence on hydro electricity is too great for a large country in Pakistan. You need diverse sources of energy. We see this in the example of China and Brazil. Actually in the past year they've both had problems of drought that has reduced the supply of hydro electricity. As the supply of hydro systy goes down, you need to go to other sources of energy. We know that the problem, of course with Pakistan is that it can't afford all this imported energy that it's dependent on. If that becomes contingent on drought, on the state of the monsoon, on the state of the snow melt from the Himalayas, then it's still not escaping this cycle of being constrained always by the energy supply. Pakistan has fantastic hydro potential, so it's fortunate in that sense, but it also does have fantastic solar and wind potential that could be instead of targeting ten percent, you could be targeting that that would balance out the hydro a little bit better. Pakistan is a poor country that has recently built a lot of coal fire power. It's likely that that's going to be in the mix for a while, but something that at least reduces the dependence on that and on imported fuel oil and natural gas, which according to government's plans, goes out of the economy altogether. But I have my dad to that whether that will be sustainable. David, what happens if the Middle Eastern countries start pumping more oil into the market. What is The points Hellen Thompson made last week was that the Saudias have to decide at some point who they want to provide oil too, is that the Russians, the Chinese, as the Europeans, and we're seeing Germany now even decided may be able to go it alone a little more. Where is Pakistan in a matrix like that, Well, it's not a key buyer to the extent of some other economies in the region. And I think the obvious ones that you need to talk about obviously mentioned China, but also right next door to Pakistan India UM. India's demand growth for oil and petroleum generally is seen as being the strongest in the world and even actually stronger than China potentially over the years ahead. And that's where a lot of the focus from Saudi Arabia has been. Of course, for quite a long time, there has been that this sort of ongoing m and A situation and between Saudi Aramco and Reliance Reliances, the Indian company that operates the world's biggest refinery, jam Nagar, quite close to the Pakistan border in Gujarat. Saudi Aramco for a long time was looking to make an investment in in Reliance, but Maka Shambani Reliance is chief executive. He has been moving in another direction. He's been moving towards towards renewables. He's looking to build a lot of hydrogen electrolyzers and this sort of thing, and those talks have essentially broken down. There's no prospects after several years where Saudi Aramco was essentially offering more and more generous terms to reliance, there's not really going to be a deal between those two countries where Pakistan fix into this. It's a smaller buyer, it doesn't have the diplomatic advantages of a major buyer like India, but it's still a significant customer in that Indian Ocean region. David, how many countries like Pakistan are out there with that specific set of problems. I think it's an unusual country in that it's a fifth largest country in the world by population. It is growing very fast, but it's still very poor. It's, you know, significantly poorer than than India and even Bangladesh at this point, which might be a comparable country. And of course it's very energy short. Another example Mexico that substantially wealthier, Brazil, Nigeria. These are all countries that are actually fairly self sufficient in energy. It's unusual to have a country of Pakistan's level of development that is as energy dependent and at a relatively low income level. Indonesia is another good example. It's traditionally been an all exportuit was at one time a member of OPEC, but as its economy has grown and as its population has grown, it's become more and more dependent on inputs from other countries for energy, and that becomes a problem. David Pickling, We're now choosing to end all conversations, not with you, though, as always we love to hear from you and Bonnie Quinn on Twitter or send your thoughts to v Quinn at Bloomberg dot Net. Were produced by Eric mollow Until next Time on Bloomberg Opinion. H

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