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- Tom Steyer, Galvanize Climate Solutions Co-founder, "Cheaper, Faster, Better: How We'll Win The Climate War" Author
- David Tinsley, BofA Institute Senior Economist
- William Dudley BBO, Bloomberg Economics & Former NY Fed President
Tom Steyer of Galvanize Climate Solutions says it's an "absolute necessity" for America to lead "the green transition." David Tinsley of BofA says, "The consumer continues to value experiences over goods." Former New York Fed President William Dudley believes the Fed is going to try to maintain its independent policy.
Bloomberg Audio Studios, Podcasts, radio News.
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
Former New York Fed President Bill Dudley, writing in his latest Bloomberg opinion piece, US Federal Reserve and it's chair Jerome Powell are greatly choosing not to act on any assumptions about what Donald Trump might do as president.
That said, if he falls.
Through on his more extreme campaign promises, they'll struggle to contain the economic consequences, a problem that equity investors ignore at their peril. Bill joins us, Now, Bill, you've been.
In the room.
You understand what this is like. Give us a sense, potentially of this tension that might grew between the Fed chair and President elect Trump.
Well on the sharp run, there's not going to be much atention because I think the Federal Reserve is still going to cut interest rates a bit further. But the longer term, if you look at what the President elect Trump is proposing, higher terrorists, deportations, and fiscal steamless, that's going to tend to boost inflation, disrupt economic growth because terrorists will corrupt, force people to reorient their supply chains, and it's going to make the economic environment more difficult. And so the Federal Reserve ultimately is going to react to that. But as Paul said in his press conference last week, we don't assume, we don't guess, we don't speculate, So they're not going to act until they actually see the Trump agenda actually take form. So don't expect any near term response from the Fed. But in the longer term, I think if Trump does what he said he's going to do, it's going to be difficult to economic ride well. Bill.
As you point out, though, if Trump does anything big or abrupt, in your words, the central banks response will occur too late to mitigate fully the economic impact. So what is the needle to thread to not respond too soon when we don't know the extent of things, but also not waiting too late that you just can't do anything at that moment.
Well, I do think there's a risk that if Trump is very aggressive in terms of his policy choices, that the Federal Reserve will be late. I'll be waiting to see what happens, and then when it does happen, it'll be bigger than expected and it'll have bigger consequences for growth and inflation. At that point, I think the Federal Reserve would be a little bit behind the curve and they might have to actually catch up. But that's not a near term story. That's probably late twenty twenty five, first half of twenty twenty six, just at the time that Paul is wrapping up his term.
Is Chuir, Good morning to you.
Bill. In your opinion piece this morning, you talk about an oddly divergent reaction from the bomb market and the equity market. I want to focus on the bomb market because it has been a wild ride. This morning. We waken up again and the bars have been reawakened. The question I put to you is this, we don't know the tariff, we don't know the tax, we don't know anything about the fiscal policy. Exactly with some broad parameters. When you look at the term premium in the bond market, the debate is how much more term premium there needs to be if there's going to be such a large deficit run. Some of the numbers throwing out there are pretty obscure, but we on the brink of where there needs to be a lot more term premium to hold US treasuries.
Well, I think that there needs to be some more more tanient term premium to reflect the uncertainty about the economic outlook and the unsustainable fiscal paths of the United States. That's one area where Pable actually did speak out last week. He did say that the fiscal path of the United States is unsustainable and if President elect Trump does all the things he wants to do in terms of corporate tax reduction, extending the twenty seventeen tax cuts, the fiscal situation is going to worsen, not improve going forward. So I think that the path to higher bodis is the most likely path. The other thing that's happened, of course, is people have change their expectations of where the Fed's going in terms of short term interest rates. A couple of months ago, people are respecting the federal fund rate to bottom below three percent. Now the markets are expecting the federal fund rate to bottom at around three and three quarters percent. So if you have a higher federal fund rate, then you're going to have a higher bondiold just by construction.
So the direction of travel you say, is higher in yields. When you look at the response from Power at that news conference, and we've touched on this with various people, are we going to hear much more? I don't know what the right word is, aggressive, demonstrative, exacting language from the FED? What word would you choose that the Fed's rhetoric needs to become more emboldant in twenty twenty five.
I think the FED is actually going to be very mild in terms of their language. They're going to set monetary policy based on what they think is appropriate given the growth and inflation. I'll look and as you noticed, it's going to take time for that to manifest this stuff because we don't really know exactly what the President Electrump is going to do, so I think the language will be actually not combative at all. You saw last week, you know, reporters asked Trump Powell about you know, what's how you can react to the Trump policy mix and pile basis in no common So I think then in the very short term, the Fed is going to keep its head down and conduct policy based on how the economy is doing right now.
Those who can take a step back to the reaction that we've seen here and then now, as you write in your column, you find the stock market response baffling. Equity bowls have been really excited about the prospects of tax cuts and deregulation. What are they missing?
Well, I think that the stock market has this notion that we're going to have deregulation, Uh, we're going to have corporate tax cuts, and that's going to boost corporate profit margins. And I think that's probably part fair part of the argument. But I think what they're missing is all the consequences of the other parts of the Trump agenda. Higher tariffs, higher inflation, they mean disruption, lower productivity growth, deportations affect the supply of labor, and unsustainable fiscal path means higher interest rates. When I look at the bond market versus the stock market, I think the bond market at bond mules rise that's been put increasing pressure on the stock market. We're starting from points that the stock market evaluations are already extremely high, So if bonials go up, I think that will weigh on the stock market. I would not be a big stock market bowl at this point.
Bill, given that backdrop, how difficult is this December meeting going to be for the Fed?
I don't think it's gonna be that difficult, because I think Paul laid it out pretty clearly last week. They think that the economy is the risk of inflation, and the layer market are roughly in balanced. They think monetary policy is still restrictive, so that they're heading back towards neutrals slowly. So I think at twenty five basic point rate to cut in December is still the most likely case. Now. If the economy continues to stay stronger than expected and inflation stays stickier than expected, then that December rate cut might be the last rate cut for a while. But that really depends on the data. The Fed right now is really data dependent in terms of they're going. The direction of rates is downward, but slowly because the Communists continued to perform pretty well on the growth side.
Last week, Powell was asked a number of time by journalists about what would happen if President elect Donald Trump tried to remove him, and this morning in the Wall Street Journal they talked about twenty eighteen and Powell then went what they're right reporting to Treasury Secretory Stephen Minuchin and said that he would fight his removal of salt by the president. Are you concerned about the independence of this Fed?
Well, I think you have to always be concerned about the independence of the FED when you have a president that seems to be a president elect that seems to be hostile to the Fed's independence. And the reason why we want an independent central bank is because historically independent central banks actually do a better job in terms of managing monitoring policy to achieve the outcomes that we want in terms of growth and inflation. So independence is really driven by the fact that you actually get better outcomes. That people think that the Federal serve is going to change course based on pressure from the President, that increases uncertainty and risk, and it also makes the FED very short sighted in terms of its policy agenda. So I think the FED, you know, basis of the Fed's going to try to maintain its independent poull I think it was very very clear last week when asked about whether he's playing the resign early no, whether Trump has the right to fire him legally, no, So Pob basically said pretty clearly, I'm going to finish out my term, which ends in May twenty twenty six, and so trying to close off the debate.
On that whole issue not permitted under the law. He kept saying that no, no, no, And the Wall Street Journal gives some insight in so he knows this because he went through it in twenty eighteen. Former New York Fed President Bill Dudley, thank you so much for your time and insight this morning. All right, let's turn back to US politics. Donald Trump's next cabinet beginning to take shape. Trump picking former New York Congressman Lee Zelden to lead the Environmental Protection Agency. Trump's saying Zelden will quote ensure fair and swift regulatory decisions. They'll be enacted in a way to unleash the power of American businesses. Joining us now as Tom Steyer, former Democratic presidential candidate, of course and the co founder of Galvanized Climate Solutions, thank you so much for joining us around the table.
So we're going to get a.
Trump two point out. Potentially they're going to roll back a lot of the work the Biden administration did. When it comes to the energy transition, how much does it matter because the market is already off to the races.
Well, let's talk for a second about what's really driving the energy transition, which is economics, prices, and markets. Over the last four years, solar prices have gone down by sixty percent. Solar sales have gone up four x. If you look at what's happened to batteries last year, just in one year they have in China, the price had If you look at what's going on in terms of ev sales, we look at it in the United States, still going up, but not going up that fast. If you look at what's going on in China, they went up eleven percent month over month. They went up fifty percent year over year. When you look around the world, what's going on is abundant renewable energy. That is actually the story. What we're seeing in the world is a huge move to renewable energy and the energy transition happening much faster than people in the United States understand. While we're talking about oil and gas, which is basically a stagnant market.
So what does that mean to have a drill baby drill policy at a time where you already have peak oil domestic production in the US and you have this transformation you're talking about.
So let's put some numbers on it so that we can really understand what we're talking about. The US is the biggest oil and gas producer in the world. We do about thirteen and a half million barrels a day. If we do drill babel baby drill, we could take thirteen and a half and move it to fourteen. In the context of the world oil market, we're doing about one hundred and two million barrels a day. That is not This is a stagnant market. Even Opek thinks that the total amount of oil sales will go up by eight percent in the next twenty five years. Solar sales went up four x in the last four years.
So what we're really.
Seeing is an exploding clean energy market. We're not going to ever, We're not running out of oil and gas. But what we're seeing is an abundance of renewable energy and an abundance of new technologies that are competing on price. You know, I wrote a book cheaper, faster, better, how we win the climate war? And really that's all we're seeing is market forces business. How do you win cheaper, it's cheaper, faster, it's faster and better. And so when we look around the world, governments can't repeal markets. China can't repeal markets, neither can Donald Trump. What we're seeing is people around the world acting based on prices, what's in their own interest and what's the best part.
There is another large source of energy demand that's really ramping up quickly besides the renewables, or it goes in tantem with the renewables, and that's the energy needed to power AI. Basically the amount equivalent to large cities needed to power just maybe even just metas AI demand. When you look at that, you look at the Trump White House push or the coming White House for deregulation, is there red tape that needs to be cut anyway to allow for this huge source of energy that's going to be needed to power the future?
Of course there is. I mean, when you look at the United States, we are very very slow in terms of permitting, we're very very slow in terms of adding new clean energy products or oil and gas projects to the grid. So yes, we have a very slow moving process because so many people are allowed to weigh in. It just takes so much time. And of course we should be moving much faster. But when we really look globally about where the new we're talking AI can move US energy consumption by twenty percent over the next decade. That's a huge move for us. But if you look around the world, if you see what's happening in Asia, Southeast Asia and South Asia, like in India, it is growing exponentially. They're going to do five times as much electricity by twenty fifty five times as much. And so when we really think about what's going on in terms of what's driving prices, what's driving volumes around the world, where the real business is what we're seeing is it's really in renewables.
It's interesting, just as we touch on that oil. On that oil subject, OPEC has released their report oil consumption is done eighteen percent since July. This is the fourth consecutive cut that they have in terms of demand, and that's to do the chinel. I want to focus on one of the things that erks Donald Trump's Donald Trump, we know is other people eating America's lunch and any move that he makes to step back on IRA, which has done very well in the Red States.
By the way, overwhelmingly in the words in the Red States.
So just how aggressive a pullbacks are going to be, because I can tell you what, there's a lot of European and global CEO city and out there are going I'm ready to eat your lunch. If you don't want to do if you don't want to build this business, We're ready to do it.
Look, that is the point I'm trying to make, which is America has to compete America. If we're going to this transition is happening, America should be leading it. This is an absolute necessity for us to be the leading economic country in the world, the leading political country in the world. And I think it's going to be clear no matter how mister Trump feels about what should happen, what is happening is this transition, and American companies can absolutely dominate here. But we have to choose to do it, and we have to put the money into it, and we have to put the manpower into it. So I look at this as a great chance for business. And it's just business. This is just about what is cheaper, faster, and better, and that is traditionally what Americans have done really well at.
Well, then what level of stimulus could we see from him? What level of incentive could we see for these areas. He's been very very very very heavy on the rhetoric against a lot of the incentives that were in the IRA, et cetera. So how does he temper without how does he balance this?
I really think that what's going to drive this is American business that it's of course the incentives of the IRA were important in terms of deployment of solar, of wind, and the sale of evs. But the truth is all of those things are going to keep happening globally. All of those things are going to keep happening in the United States. I mean, if you think about the idea of solar prices going down by sixty percent, if that would be oil going to thirty two bucks from eighty bucks to thirty two bucks, that didn't happen. But you know something, it's not stopping down sixty We'll go down another sixty percent and they'll be at the equivalent of fifteen bucks tom or the barrel of oil. If the that's dominance If the.
Private sector is doing this already, though, and there was concerns that spending too much at a time on inflation at one point during the Biden presidency hit more than nine percent, then what was the point of something like the Inflation Reduction Act. The former president future president and continues to talk about that he's happy with clean energy. He has someone like Elon must surrounding him, but he thinks it should be driven by the private sector.
It is going to be driven by the private sector. It is driven by the private sector. I think when I think about the Inflation Reduction Act, I think about an attempt to try to subsidize companies that are clean, to try and put them on a level playing field with companies that are polluting. That's really how I think about it. But over time, when these prices come down, the subsidies go the need for subsidies goes away. And that's really what Let me give you one example. Over the last three years, Texas has tripled the amount of solar it uses Texas they are by far the biggest wind producer in the United States. The four biggest wind producers in the United States are all deep red states. They're not doing it because they love the concept of renewables. They're doing it because it's cheaper, because it's good business. And that's what we're seeing is in fact, cheaper, faster, better marks, prices, economics. That's what's driving this world. People are talking, people are saying things, but really what's going on behind the scenes is just you know, you guys were talking about the dollar. What's driving the dollar? What's driving interest rates, prices and markets? You can't revoke them. We're in a world where, in fact we are going a very straightforward way, and we can talk about it and the sentiment can move back and forth. But if you look at the first Trump administration, actually clean energy did really well.
It did.
Yes, there was a lot of rhetoric, there was a lot of anger, there was a lot of emotion, but the fact of the matter is the world just got powering right through us. Tom.
We thank you for your time this morning.
It's great to see it.
Tom Styr of Galvani's Climate Solutions. According to Bank of America's new Consumer Checkpoint, the consumer shows solid momentum as we head into the holidays. The twenty twenty four Bank of America Holiday Survey suggests people are planning to spend twenty one hundred dollars outside of typical obligations and necessities this holiday season. That's up seven percent year over year. Joining us now, David Tinsley of a Bank of America Institute.
David, thanks so much for joining us right through your report.
So let me just get this straight. Are you seeing any signs at all of a consumer that is slowing down?
Yeah?
I would tend to take issue with the interview you were just showing there saying that the consumer looks stretched and is potentially slowing. I mean, in our data, what we're seeing is our credit and debit card data was up one percent year on year in October, and that's a pretty good number for this data series. And then, of course, if you overlay that with the i think four months in a row rise in consumer sentiment in the Michigan survey, and then when you look in our data again at what's going on in terms of way is going into people's bank accounts, the year on year growth there I think is around two percent or so across all income cohort So it's not obvious. I don't think to us that the consumer is slowing. I think we would characterize the situation as continued forward momentum.
David Emery and I've been talking about all morning different companies saying, look, consumers are putting off big ticket purchases until they know the outcome of this American election. Did you see the same pattern and some of the spending that there's going to be some form of financial firepower unleashed now with the election behind us.
You know, that's an interesting question. So in last month's checkpoint, we did note that we saw some consumer durable purchases, so big ticket items, some slow down there. So it could be that there is some pent up consumer demand in those sorts of areas. But overall the position is not is not a bad one in any case. I mean what we do see in our data, and I think this speaks to the kind of differential corporate experience is the consumer continues to be valuing experiences over goods goods, So in other words, it's meals out lodging in our fairs, those kind of things are the items of particular strength more so than on the goods side. So I think that explains some of the differential corporate newsflow on this.
David Tinsley, we Thank you so much for your time. David Tinsley, a Bank of America Institute on the Health of the consumer.
This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, antiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg Terminal and The Bloomberg Business Out two