Bloomberg SurveillanceBloomberg Surveillance hosted by Tom Keene & David Gura
February 12th, 2025
Featuring:
Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, Gina Martin Adams, Chief US Equity Strategist at Bloomberg Intelligence, and Kristy Akullian, Head of iShares Investment Strategy, Americas at BlackRock, react to CPI
Huw van Steenis, Vice Chair at Oliver Wyman, joins for a discussion on private credit, the US economy, and global growth
Tina Fordham, founder at Fordham Global Foresight, and Ebrahim Rahbari, analyst at Fordham Global Foresight, join for a roundtable on geopolitics and global markets
French Hill, US Republican Rep from Arkansas, discusses his new role as in Congress as the Chairman of the House Financial Services Committee and President Trump's spending initiatives
Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Go to Lizzie Saunders. Now the inflation report here in four minutes with John Tucker and then finished strong with Lizen as we can full disclosure, folks, in honor of the Los Angeles Angels, we're playing nickelback at the end of the hour. We're giving Lizanna warnings down here, turn it down and choose us listen, and I want to go to the heart of the matter. And you have had leadership on this in the industry, going back to your days with lou Rukaiser. In the last ten years, a given blended stock fund is up twelve percent per year. In the last ten years, a given blended bond fund is up two percent per year. Inflation is a friend of stock investors right.
In fact, a lot of people think of asset classes like gold is sort of the ultimate inflation hedge, but the over the very long term, the only asset class that has consistently outperformed inflation is us equity. So you're absolutely right, Tom, And.
Where are we now in that continuum?
I mean, in honor of pictures and catchers las in you know, Ger has given us the innings metaphor, where are we in the confidence to be in equities with inflation and all.
The other noise.
Well, here's here's the tricky thing about inflation. When you're in a more volatile inflation backdrop, like was the case in the mid sixties to the mid nineteen nineties, that's an era where we've been calling the temperamental era. That was an era when bond yields and stock press were inversely correlated. And that's because inflation was more voladyle you had bigger swings in inflation, there was more heightened concern about some of those swings in inflation, so as of for instance, higher yields and that backdrop often meant inflation was reigniting negative for equities. Fast forward to the period from the mid nineties up until the first year or two of the pandemic, the so called Great Moderation era, that relationship was completely opposite, and bond yields and stock prices moved consistent with one another, and that was because we had very little inflation volatility, not a lot of inflation risks, So higher yields was typically a sign of stronger growth without the attendant problem of inflation. We're back in that negative correlation territory right now, and I do think it could mean we're in a different secular backdrop.
David Girl squeeze one in the ear before CPI.
Yeah, Lizanne.
In these data, we're not going to get an indication of what Donald Trump's policies might mean for inflation in this country. But I wonder if we can go back to twenty eighteen when we had the first kind of round of a Trump trade war, what can we learn sort of from that experience that might be applicable here.
If anything, Well, we didn't see overall inflation pick up. You didn't see it in PCE and PCE goods. But if you pull out the tarift goods and track them in twenty eighteen into twenty nineteen, a significant amount of inflation in those tarifft goods. I think, by the way, guys, I think the PPI report might be a better tell in terms of terriflated stuff than the CPI report.
I took tomorrow off time. I'm not going to be here for PBI crushed.
Lizianne and I are prose, We'll be here.
Lizzie Ane Saunders with US was schwab two point one three percent is a seven basis point move there to a higher yield regime. Lizzie Sanders, it's unfair to go into the minuti here because you know you're doing this in real time, and you know I understand that. But across the board, Allah what Anna Wang said, This is not just one statistic month, critically month over month, which is what Mike McKee really looks at.
Year over year.
Jason furmaning to give us an ecumenical study in about an hour.
All inflation boats rise here, don't they?
They do?
You're right, the core headline, the month over month, the year over year, the overall headline all hotter than expected. And it's in keeping with some of what we've seen in inflation expectations. Now. The University of Michigan version of inflation expectations had an extreme divide in terms of along party lines, Democrats having a huge expectation for higher inflation vice versa for Republicans, but given has gone from one point nine percent or so last fall up to you in the well end of the mid two. So you're seeing it in other areas, and I think this it's certainly supportive of what we heard from Powell yesterday, which is there in no rush nice to move back to easy pology.
I said the vix would lag. We just had a seventeen print in the VIX up a stick. A stick is Lizanne Saunders talk for one big figure.
I have to use that jargon.
I appreciate that, Lizan here even a bitdog down fifteen hundred bitdog now at ninety four thousand is well. David Gerden, Tim Keen on YouTube, thank you so much for being with us across the nation and your commute and your living room and office.
Honored dev liz Enne Saunders with this. Charles Schwab, David.
Lizen, let's pull back a little bit here because we see the immediate market reaction. It's something I wanted to ask you about because we had the Michigan survey last week and saw the reaction there. There has been a reaction, dare I say, at times an overreaction to some of these most recent data points. As you look at it more holistically, how is the market processing sort of the broader view that we're getting of the US economy.
Yeah, one of the interesting things, and you're picking this up in some surveys of institutional managers engaging what is driving stocks? And I think we've actually moved a little bit away from things like monetary policy and brawl macro trends and more of the connectivity to what stocks are doing are the specific fundamentals. But there is that policy component too. I think the NFIB data out yesterday was pretty compelling, engagingly small businesses reaction to the manner by which we get these terror related announcements, and everybody is now trying to dig in using the fine tooth comb figuring out which industries, which companies are hurt or benefited on the import side of things, on the export side of things. And I think that's going to come into play more and more at the individual stock level because of that shift to fundamentals and things like earnings now that we're an earning season driving stock prices more than just broad monetary policy or just valuation expansion. So I think that's an important shift relative to last year.
I put out to worp Here on the Bloomberg toime. I see traders shifting their next FED rate cut prediction to December from September, so pushing it back even farther.
Still.
Yeah, and you know we're the economist, Lizanne Saunders.
I mean, are we ready with it in stock market, lizan for the shock of stability and rate cuts or even the parlor game of rate increases. We're nowhere mentally near ready for that, are we.
I think we're mentally ready for a pause that lasts throughout the course of the year. There's been you know, even before the CPI report, you had only a little more than one cut priced in. Now that's gotten pushed out. I think that is the parlor game because a data dependent FED, and added to that the policy uncertainty. To say, yeah, we're confident that the Fed's going to cut in December, that's just the fools errand to do that. I think you're absolutely right, though I don't think the market is prepared if the Fed feels they actually have to turn back into tightening model.
Right.
I want to go to Nominal GDP Jason Furman's essay. There's the new Foreign Affairs as lights out. Steven Levitsky with a great article, David, and I will talk about that in a bit, Firman, look take it a look back twenty twenty Hindsight on the Biden administration and Liz n He mentions nominal GDP. If I get a higher or stable inflation component, do you model out ample real GDP to keep the corporate animal spirits going well?
I think nominal GDP is important. That feeds into revenue growth, which is a little bit more correlated to things like employment trends and also pricing power. So it's the I think it's the volatility in the inflation component that matters a little bit more than the level because of the uncertainty factor that creeps in when you have when you're in an era of volatility. In terms of that that deflator.
Right now reporting on Twitter with a real job, see Saunders has an entire team to do Twitter. She hasn't done a tweet since I led Zeppelin announcers summer too. Catherine Jones out on Twitter, wishwab oof CPI up over up court up not what the market was hoping for. That report. David Gura from Kathy Jones.
Well, you've given me a great segue here, because I know that Kathy and Lizen have a podcast together on investing in Rich Clarita was on that most recent episode. He won't return our calls, but he was on with them. What did you take away, Lezann from what he had to say about inflation? What was the headline from his commentary on how he's seeing inflation today.
There's a tremendous amount of uncertainty, and adding in the policy uncertainty makes it a difficult exercise. There certainly is a slight bias on the upside, and there's the stickiness component of it. But you know he's no longer at the FED. But don't I don't envy the folks there, Powell coming out yesterday saying we don't take that into consideration, but we know some FED members are taking that policy uncertainty into consideration and trying to gauge their own outlooks.
As we wrap up here, I go back to my first question to you, that is just noting the fact that this isn't reflective of what we've seen in this new administration. We've talked this morning all week about the kind of inherent inherently inflationary policies we could see put in place here, chief among them the terrorist policy from this administration. How do you think about that visa v inflation going forward here and how that's going to color this market in the months to come.
Well, if we go to sort of the maximum end of what's been proposed, and then for what that means for inflation, you can look at data out of folks like Peterson Institute. You're talking about a close to a one percent jump in inflation, but that is really not as a step up in prices more so than a trigger for ongoing year over year or month over month higher inflation rates. I think though, that's important because consumers tend to think and level terms, specifically, what were prices back in twenty nineteen pre pandemic, what are they now? So it is important in the sense that the average person thinks in level terms, whereas books like us get into the weeds of month over month and year over year and core course services x housing. So I think the level step up is going to be felt, even if it doesn't translate into an ongoing higher inflation rate.
Lizanne, just you give us a pro tip here. Where are you able to buy eggs?
Right now? Where's Lezianne Saunders buying eggs?
I really want to know at the supermarket? I just hey, what I need to pay for eggs?
That's it you need to be.
I haven't gone out and bought my own chickens to.
Range.
Yeah, Luzianne Saunders, thank you so much to pick up from where Luzanne was, Gina Martin Adams. If we get inflation, is it a constructive inflation that can solidify revenue growth across the Bloomberg Intelligence world.
It does look like we're going to see revenue recovery in the index. The pace of revenue recovery is probably somewhat grim relative to expectations. I think that the really big key to twenty twenty five is not that we continue to recover. It's that we may not be able to recover at the pace that is expected by the equity market. There's this really interesting dichotomy in the equity market right now as you're seeing it play out real time, and that is we're expecting not only very strong revenue growth, very strong earnings growth to emerge, but we're also expecting the FED to cut and that environment is inconsistent, and so that's why you see the market reacts so negatively to CPI. But also when we look at the average price reaction to earnings growth when stocks are reporting, even when they're reporting beats, their price reaction has been fairly grim. So I think we've got to work that dichotomy out. We've got to work that friction out of the system. The market's got to get more rational expectations and also generally get in line with what the FED is doing, and the FED is saying, we're on hold.
Can you help me?
This is a dumb question, but I note the dichotomy and wonder why it's persisted as long as it has. So Tom asking a very good question. Are we going to hear anything different from the FED chairman today? We heard him say yesterday a lot of what he said the last press conference. He's been sort of reading from the same hymnal over and over and over again. How has this dichonomy persisted? What's going to be the catalyst that gets the market to kind of move away from what seems like a fool's expectation that there are going to be cuts.
In the near term.
Right?
I think it's a great question, and I think that dichotomy can be explained by what's happening in the segments inside the equity market. So the greatest expectations really are centered around AI tech TMT industries, where we've seen the greatest degree of earnings growth. These also tend to be less inflation sensitive groups, right, They're more thematic. It's all based on AI and our anticipation of AI really changing the productivity outcomes for the world, and that is deeply embedded in tech expectations. We're seeing those expectations reverse somewhat, especially as a result of deep seak, but we've really seen he expectations in a process of rationalizing since June of last year when MAG seven peaked in terms of their performance relative to the S and P five hundred. But it's just slowly getting dismantled. People aren't really giving up on that. At the same time, the rest of the market has been very slow to recover, and the rest of the market outside of TMT industries is really story. Has really started to count on the FED getting their back enabling that recovery, so that two of the two story two speed market is still a big story into twenty twenty five and.
Gida Martin Adam's with us here off the inflation report with a VICS out over six seventeen point zero five. I want to emphasize folks out on Twitter the series of charts from our guest Kathy Jones.
We were just busting our chops.
She does brilliant work at Schwab and she's got a wonderful chart showing the inflation stasis since the kids went back to school in September. Michael McDonough owns a high ground on this. Everyone in the industry uses Michael McDonough's colorful bar charts of the makeup and it's just as simple as this. David Gurrol McDonagh goes right to the Gurray Index. Super course, CPI month over month is a spike up, but further than what many people expected.
I'm noting here as I think about all of this, and Tom, maybe you want to pick up on this. As we were talking about sort of what fed chair Drumpell might have to deal with. We've talked about the tweet from the President this morning, and we've seen this FED chair so expertly. Tom bat Away suggestions from reporters outside analysts that it could kind of succumb to political pressure. Safe to say, this makes this job much more difficult that that tweet this morning, coupled with the inflation data today, makes it harder still for this fed shair to weather that kind of political The.
Political absolutely, and the question is we know this president's beliefs from his business career, and it was only a matter of time till we got the kind of tweets that we got today is as well, Jane, do businesses can they adapt and adjust? My core theme is corporations always adapt. Can they adapt given a leveling of inflation and not a true disinflation?
Yeah, I think it's a great question. And what we tend to see is that really depends upon the degree to which producer prices accelerate. This, I think is the crux of the problem for corporations right now, is, at least until this data point, producer prices we're accelerating at a faster pace than consumer prices. Producer prices of course are littered with energy products, but also industrial goods sort of those core imports are a huge and input to ultimate company costs. So it really is not just necessarily about a acceleration or stabilization of inflation. But it's the difference between the costs that they're paying for inputs and what they can charge the consumer on the other end that's been working against them now for two months. We'll see the course of this week if it continues to work against corporate margin outcomes. But it is a very different climate than we've been in for the last two years. Admittedly, we not only had disinflating inflation, but we also had producer prices decelerating faster than consumer prices. That was the idyllic environment for corporates. We're moving past that, and so you should expect a period of give and take at the very least to emerge. On top of that, you've got a lot of business uncertainty right now.
Even in small.
Businesses, which vastly celebrated the election post November, have started to pull back expectations because they don't know what the rules of the road are, and so we need some stabilization and policymaking to help enable growth.
There got to run.
Let's do this again. Let's get her in the studio again.
Gina Martinatams Bloomberg Intelligence, Brilliant and double digit earnings growth David Kelly's schedule to be with us here with JP Morgan, but we're going to e squeeze this sit in right now as best we can again. Futures in negative fifty six off the CPI report, the vicx's of seventy level, I'm gonna call it stasis, but a huge yield reset out nine basis points and a ten yure yield four point sixty two percent.
I watched a ten year real.
Yield as Christi Alcunian does at Blackrock.
Two point one to three percent is well.
Joining us now from Blackrock is Christie Acullian, head of I Shares Investment Strategy. So you go home and blow up the year view because a higher inflation? Are you going like, why am I here? I got to go back and rewrite forty pages.
Well, I'm certainly wishing I was on twenty minutes ago, but not right now. We all I'd say, you know, I think that you know, we came into this year pretty bullish. We've been overweight US equities, but I feel really good and confident about the places that we've chosen to allocate to within that as opposed to just broad based. So we've been talking for a long time about the need to stay up in quality. We've been staying away from small caps. What you saw in the inflation data today is that it's on a relative basis, at least, it's those higher quality companies that we think can outperform. Small caps are going to face the head winds of higher exposure to those higher interest rates.
What is you and guardy when you're a black rock, they're on speaking terms when you're.
A g I hope so boet.
What is the marginal appetite for equity ETFs right now?
Is every day like OMG, the money's coming in? Or are people scared stiff?
No?
I think people are still very much allocating to the equity markets. It's been an incredible year for fixed income as well, so that's been certainly breaking records. But one thing that was so interesting to us is that even in a twenty five percent positive year for equity markets last year, we saw three times more money allocated to cash funds money markets. So we still think there's a lot of money on the sidelines. We're still talking to investors about putting money to work. And interestingly, even though we saw growth underperform value in January we saw one of the largest spreads in terms of allocation to growth ETFs relative to value. So people are still convicted in this market. They're still convicted in the AI theme. Again, we just think that it's important to do so in a high quality way. So something like qua L has been what kind of our top ticker? What is qua L is our our quality ETF. So it's it's an equity market sector neutral. You get the top quality coming from it's eighty.
Percent of triple leverage dot cash fund. That's how you do it. I talked to Larry about its registration.
Jean Martin Adams a moment ago was talking about this different environment that you know, what we've seen here in terms of an idyllic environment for corporates is changing, and I saw you nodding out of the corner of my eye. How do you see that challenge manifesting itself here in the months ahead.
Yeah, absolutely, and certainly it is an environment where we see and expect to see a lot of uncertainty, and uncertainty, as we know, is bad for markets, it can be bad for consumers, it can be bad for companies. But we're still really grounded in what we're seeing in terms of earning. So you know, broadly, I think the macro picture still looks positive and that growth is still really strong. Corporate earnings have come back stronger than expected, so we're really focused on those fundamentals.
Tell me about leverage. I keep bringing this up and I make jokes about it, folks, but it's not funny. Leverage kills you. And the answer is it's all the.
Rage right now, double leverage, triple leverage, mag seven whatever. What do you actually see from people buying or selling leverage? And also what do you see in your research.
Yeah, it's not a space that we play, so you know, we are not in the runt director.
Play triple leverage.
We like to, you know, we think about the appropriate nature of funds for all types of investors. So we like to launch institutional quality funds that can be used by end investors and direct investors as well. So again we're focusing on portfolio building blocks, not necessarily trade.
So that's that's just not our space.
Trying to get his triple leverage, don't Cashlio trying to.
Talk about quality of what I said, it would be a perfect blackrock product.
He's thinking of going to think about that one. I do hear still a chorus among managers and advisors talking about small caps. This is a moment for small caps. Are you singing from that him mill? Are you in that chorus as well? Or are you steering clear?
We have been pushing back against that for a while, and I think the modal question we get from investors that we speak to is now finally the moment for small caps. We saw and sort of anticipated we were going to get a short, sharp rally after the election, but it wasn't something that we wanted to chase, and specifically we didn't want to chase it because we think the fundamentals are still against that trade. So small caps are more exposed to higher interest rates, and also they tend to need accelerating growth, and even though we think growth is going to stay positive, we do think it's going to decelerate this year. So the sad answer for a lot of the folks that we see a lot of the positioning data that we look at, investors are very overweight small caps. We still don't think that it's the moment for that just now.
This is brilliant. We got to have you back here.
I want to sign absolutely not yeah, absolutely, Really David Kelly with this year in a bit Christy as simple as I can the MAG seven in the loveer. Are people buying at the margin or is there a new test here to the MAG seven.
I think investors are looking for the broadening out trade, but they're still looking for large cap growth. So you know, again we're not seeing as many flows into small caps, not into index value at least, I think there's opportunity in the active space. But you know, when we look at the composition of returns last year from twenty to twenty four, you know we saw about half of the S and P five hundred returns were due to earnings per share growth to fundamentals, and half was due to valuation expansion. If you look at large cap growth, eighty percent of that was driven by fundamentals. If you look at at value, it was less than half driven by fundamentals, and small cap zero of it driven by fundamentals. So again, people are following the earnings, people are following the growth. We like the corporate profitability story and where we're saying of it away from small guts are you basing I'm based in San Francisco.
It's better there's a time.
Can you get us good Giants tickets? Take care of you.
He's going to go over just a little rock to French Shields minor league stadium and then hop.
On over goes back friend Carl did. He went to every major league stadium. That's so cool for a summer. I think it was several summers.
You know, you don't want to come in the summer, September sometime.
Early, Christie, thank you, don't be a stranger. Christian with Blackrock is well right now. The sixteen point eight three and a lot more red on the screen.
It's like, you nailed that. I mean, my.
Word, g what he sponds currencies come on and he's just absolutely nailing it here. But yields are higher. Seriously, the tenure yield out nine basis points. I'm going to get right to it now. We're what we're going to do here, This is so important. We're going to blow out the show open and the song ending here. Nickelback to David Kelly or Nickelback.
Succeeded in getting us to scuttle.
That's you know, and David knows where I'm going on this.
When David Kelly and I met, we were younger, to say the least. And one of the great moments of this bullmarket and the oddities of equities, bonds, currencies, commodities is there's not a lot of people with bull market experience when it ends. David Kelly joins us now with JP Morgan. I just can't say enough about the team he's put together there of thinking responsibly about investment. And you were weaned on this in Boston at Putnam. You and I have tattooed to our soul the collapse of the Putnam Voyager Fund.
It was the go Go fund.
Now I'm going to suggest, David, we don't have that exuberance right now that I don't see it.
But what's the radar you and your team use so that we.
Can avoid the the Voyagers of this decade.
You know, there's a there's a very old saying that that you don't make the same mistake twice. The problem about the family mistakes is a very broad family, and there's always some cousin or relative of the mistake you made. That's actually, that's actually, that's actually a quote from from the book Reminiscences of a Stock Operator, which means which everyone should read every five years actually, But if you look at the megacap tech companies, it's not the same thing as a dot com bubble, of course, but you still have very high valuations and you still got and you've got more concentration in the S and P five found it now than you had back in the dot com bubble. So there are bubbly aspects to this market. And the market is price for perfection. And then if you have an imperfect number like the CPI number today, then you take a shillacking. And the thing that the thing that gets hit the most at the end of a bubble of a bull market, your build markets end up being bubble markets is the thing that is the area that the bubble is concentrated. And that's the thing that's most important different people to think about it. Doesn't you know, markets will come, bear markets, building markets will come and go, but you don't want to be overweighted the overhyped at the peak of a bull market. And that's what I think investors need to think about.
I keep coming back to this, and we've talked a lot about the FED being data dependent versus data point dependent. How do you view the data that we got today in kind of a wider, more holistic lens. We see the reaction in the markets thus far, but what does it tell us that we didn't know yesterday or a week ago.
Actually not as much as you think that. The thing about when you have a surprise on CPI, people forecast CPI pretty well because all the core things are pretty easy to forecast. What causes a problem is the usual suspects, and the usual suspects are auto insurance, airline fares.
Hotel rates.
So tail rates were up one point two percentine airline fares were up one point four percent, and auto insurance is up two percent.
All things that Thomas been complaining about at length in.
Recent christ Paris last night versus twelve months ago, I'm spending two thousand more dollars.
Yep, that's a fact from X to X plus two thousand.
I mean that's the Hampton in Well, yeah, you know, that's that's.
A wealth effect.
We've both been doing this long enough that you know it used to be a wealth effects and consumption weren't that important. But there is so much wealth right now relative to twenty years ago, thirty years, forty years ago, that when you have a wealth surge like we did last year. Well, rich people spend money and what to rich people spend money taking trips to Paris?
Joining us here at at the our top. David Kelly of JP Morgan, this is so important. We're going to forego the festivities of the market open. We forego nickelback. You know that was my pictures and Catchers thing you should have.
Seen years ago.
Kelly would be down to Peter Lynch would be backed up twelve rowers back and Kelly's down.
By the third base. Doug guy, you know rock star seats.
David, I want you to talk about the moment we're in and how people scared participate in the equity markets. JP market is this huge platform of measured of a measured approach within a new media frenzy you and I did live years ago, and.
Yes, absolutely, and you've just got to watch valuations. There are plenty of things in global equity markets who took up perfectly reasonable price tax. There's just a few things which dominate US markets who don't have reasonable price tags.
And you've just.
Got to be determined to focus on I'm going to buy stuff at reasonable valuations. This makes sense both US stocks and international stocks and I'm going to try to do everything I can underweight the stuff that is carrying pe ratos of thirty times or thirty five times or one there and twenty times.
You just need to do that.
We don't.
You never know the hour or the day that a bull market breaks and you end up in a bear market. You just don't know how to time that. But you do know what you know, how you position yourself before that. He determines how you're going to go through it. So you know, overall the economy looks good, but we've got a lot of a lot of policy uncertainty. The problem is the equity marketers price for perfection, and or part of the equity marketers price for more than perfection. You just need to be underwaigh that.
I'll show my age here. But does a bull market end with a bang or a whimper? Customarily? You said you'd know the nearly hour.
That's a really sophisticated question.
Seriously, No, it ends, it ends with the bank.
I'm sorry.
It's not going to just win bad.
That's we're past the point where the market can simply slide back into a bad year or two. We're going to have We're gonna have a significant bear market at some stage. We don't know when it's going to start, and you don't want to not participate. There's just just don't participate in the stuff that looks obviously crazy in terms of valuations.
David kellyers with a JP market, how do you fold in Casman and Feroli's work? Michael Feroley making history. I'm going to say, a decade eight years ago, with a shot wucking potential GDP number under two percent?
Do you work off of JP?
Morgan economics modeling still a disinflationary tendency. John Williams yesterday reaffirming a path back to two percent? Is that a foundational call?
Still? I agree with them on that.
You know, I look at their stuff very very very closely. We work independently, but I agree with them that because if you look yes, we've got a surprising number today, but if you look at shelter, shelter was four point six percent year over year last month, it's four point four percent right now, and it is still too high based on what we know is going on in the rental market. Auto insurance you know, saw two percent increase, but it's a double digit year over year it's not going to be double digit year over year by the end of the year, so it will that part will go away. But what I am concerned about, and I think the FED is concerned about, is what happens if we have more tariffs, what happens if immigration gets much tougher you've got higher wages, And what happens if we have physical cinemas in twenty twenty six. And that's what's keeping the FED more nervous.
Thirty seconds, every single parent I know wants their kids to go to school in Europe.
It's the new rage here sell Trinity right now.
Everybody's looking at Saint Andrew's this and go down to Paris and you know the Rome and all that.
The real academics is at Dublin, isn't it.
Well it's you actually have a pretty good time there too, but you know it, what's a college education?
Media guys, and you about life in Dublin.
David Kelly, there were wisdom on his Dublin. Thank you so much for JP Morgan. This was a real treat to have him in here.
You're listening to the Bloomberg Surveillance podcast Catch us Live weekday afternoons from seven to ten am Eastern. Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
I got a.
Script with Hugh von Stein is like a plan, Like if he and Iron Davos we have a plan, We go see Barry at the piano bar and life goes on. The President is just got the way of my script, President Trump putting out moments ago a tweet interest rates should be lowered, something which would go hand in hand with upcoming tariffs.
Let's rack and roll America. So I got to start with that.
Yeah, joining us now the king of British rock and roll, steins encyclopedic and banking and of course at however, whyman it is?
Well?
Can a president force rates lower? Or Chairman Powells speaking this morning?
Gosh, that's a great question to start.
I was.
I was happy on the skiing than this.
Look.
I think I think central bankers like to move at their own speed, don't they, And they ought to like to move incrementally where possible. So I think it's going to be tough.
Look taffs it taffs.
I think the market's still pricing in that they're going to be small and surgical rather than broad based.
If that's right, they're not.
As inflationary, so that you can see as inflation comes down there's an opportunity to cut rates further. Look, you know, if I think about it from the bank CEO's and see if I as I talked to, they're actually having a really good moment.
They're in a purple patch.
Why are they in a good moment if the rest of us are in chaos?
Well, so it's a really great question. So look, we've got a steeper your curve, so they love that. Deposits are building up, so they got grit better funding. The credit environment is still really benign. You know, there's very few bankruptcies and actually with bars with the bars and rules being kicked either into touch or certainly being what I think of as a bureaucratic fudge. If there's mere bank capital neutral whan it's BKX is up forty three percent in the last year. That beats fangs. In fact, you would love this. The European bankshop forty seven. The European banks are being rehabilitated. You have to come back to Europe to talk about them.
Sometimes in a hero these off life support out and get a question, get a question.
As we get our popcorn and watch the second of these two days of hearings, No doubt there will be some questions about bars or three in Capital And as J. Powell persists without Michael Barr, the other mic bar by his side, what does the future look like when it comes to sort of the regulatory remit of the Fed Reserve? What sense do we have the contours of that post Michael Barr.
It's a great question to look so, so Tom and I've discussed before. If we look back in two years ago what went wrong, it was a failure of supervision. It wasn't actually my failure of the rules. It was just they weren't being implemented California. Out in California. That the four banks which went, but certainly the first three there were just people looking somewhere else rather than looking at proper one, good old fashioned risk management and rekignetars. So the supervision really needs to be improved, and I think there's some work ongoing, and you could say Flick needs to be.
Part of that.
I think two.
I think the thing I learned was that the big banks were in great shape. And so actually you don't need to have bolster them with copper, gold plated, platinum plated, you know, cryptoplated, you know.
Regulation.
But maybe there's a little bit tightness around the central about the smaller banks. Maybe the regional banks do need a little bit more supervision. So I think it's quite incremental, and I think we're getting back to sanity after this nineteen percent proposed increase.
I had a question for friendship the Congress been in chair of the Financial Services Commante didn't have time for it.
I'll put it to you.
He talks a lot about how regulation is preventing de novo banks from coming under the scene, that he doesn't think there were enough kind of smaller community banks. Are there too many banks in this country? Where is the need for even more banks in the US banking system.
So I think it's true stateside, but the world over, heavy duty regulations have for smaller bank it makes it much much tougher to start up. That said, in the state, if you think about the banking system, we got your top eighteen twenty four banks who are in pretty good shape. Then you've got sort of close to three thousand community banks. They sit on one of three computer systems they're actually have scale because they're drag and drop on a really high quality platform. It's the belly in the middle, and so in fact the two years ago it was the belly which the four banks got in trouble. That's where we need to memonade.
But let me frame this like for.
Script.
Why no, Gert, your question was brilliant. Why do we need to lean forward here? Hugh von Stein has came out of turn Need Oxford, PP and E and he had to get a day job, so he went to Morgan Stanley where he was definitive on banks in Europe but worldwide as well, and took down trophies like twelve years in a row or something. They had to force him out just so somebody else could win the damn trophy. He's herd of Mark Kearney at the Bank of England as well. But to your question, is definitive Trump loves Andrew Jackson.
Yes, I mean is that where we're going? Portrait is back up on the wall. I know in the Oval office, but I don't know if you want to talk about Andrew Jackson.
You should feel free if you.
Want, well we get we can if you want, but you should get Neil Ferguson On. I mean, I think, well, Neil always taught me and she had dinner with Dick Burner last night, who you may remember, the chief economist and Bog and Sandy.
Back the day.
I think I owe her money or Dick some great form and I'm sure take this.
But so he said, like, you know, the key lesson is that these clever PhDs, they haven't done economic history. And actually we learned that in the financial crisis. So actually, whether it's Jackson or whether Actu, you got back to the nineteenth century and actually, you know, think about the impact of Tariff's about counter counters, president deficits history really matters. I think Neil's a better guess key on that.
No, this is really important.
And to Richard Berner, folks at Morgan Stanley and with Stephen Roach changed American economics. I think Dick Berner and Iron this forward guidance things.
Folks.
You hear me talk about the dot plots McKee and I are like, you know, are you kidding me? And the answer is maybe they'll go away. A lot of that came.
From the excellence of Richard Berner. Hugh, I got to rip up the script.
Here we have a glorious person at Bloomberg Intelligence, Robert Schiffman, who writes on debt and credit and MAGA.
He has just put out a.
Brilliant note suggesting that all this angst about capital raised there could be done with.
Debt issue Ince because they don't have any debt and they make more money than God and free Kishlow.
Do you think the bankers like you used to be will convince MAGA raising their capital is an easy process because of the wonderful financial position they're in, and they can raise billions in debt.
It's a great question.
So look, let's stick on the bits which I have confidence, and let's move to the tricky a bit.
Please.
It's raining fixed income up moment. The inflows to fixed income. I think this year will Last year was a record in the States. I think it's gonna be a new record based on what I've seen in January and early February. So it's raining fixed income. The demand for yield is huge, and I think the way to put it is after twenty years where people didn't look at their fixeding come portfolios, the last three years, it's come back. So the demand side there. But as You've debated tons of times. The structure of markets has changed a lot, and so it's going to be ETFs or it's private credit, and so there's there's a following out. So I think the demand. I think you could issue plenty more debts.
Okay, So like take a round number one hundred billion dollars sixty seven companies. In the old days, you'd sit at Morgan Stanley and there'd be like four phone calls, right, that's right. Can they do one hundred billion in debt with seven phone calls?
And the answers, yes, they could do.
But it's not necessarily the banks taking it down in it ogre, it's actually the investor side which is taking it down because the banks don't have that kind of capacity.
Fair or Lord just sit on it.
At least come out sovereign.
But I think let's go back to his street.
So when Neil, in fact, when Nail and I chatting, this is a recycling of Petro dollars. Why is it that everyone's in the Middle East? Is because those dollars need to find a home and actually they are funding the states and actually that could be one of the windfalls over the next four years is actually the recycling of these petro dollars.
As Tom Venmo's doctor, Bernard, let me ask you about how what we've heard from Mark Rowan and his cohort lately is resonating in the c suites of the big banks on Wall Street. His ambition to grow private credit and to sort of present himself as this not even alternative but sort of driving forward for financing. What are banks doing in the face of that to compensate or compete with with what he's saying.
Look, so it's fascinating how many banks now talk about are prepared to accept there is a partnership model rather than just a counterpart. But I think there's two ways slice it. The traditional private credit business is higher yielding, it's leverage finance, mid market finance. And the way I think about it is that there's a retranching or reslicing of the banking system. The senior risk is being taken by the banks and the junior risk is being sold. And I think, I said to Tom, I almost think that private credit is the a zen pic to the banking industry. It's helping them shad weight. But and here's a big butt. The risk now is the private credit firms are raising so much insurance money. Over half of all inflows to private credit last year I think came from insurers. Well, let's we find they need investment grade. So there you're now getting into the territory of the banks. Private credit only has about five six percent share of that asset back lending, right, that's where they're going next, and that will put them into more confrontations chilling.
It's like talking to David Goldman when he was at Bank of America in like two thousand and six or two thousand and seven to translate this, folks, and he will help me out here.
If private credit.
Is going to pick up the pieces from the major banks and lesser quality what are called junior tranches, is there an implied leverage within those tranches?
I mean, are they pure and clean or is there a shadow leverage within the new system.
Of private credit and frankly private equity that we don't see.
Look, this is what the number one question from regulators've always been having dealing with a lot of central bank governors.
This is.
Surveillance dire so but no, that's a great question. Actually the banking is doing work on exactly that issue. What's interesting though, is if you think about the insurers who are putting money to work, they need investment grade assets, right, and that's about forty three.
Percentage pure clean They don't.
Do let's say nad finance, so fun finance. The insurers do none of that. That's all being done by more than other parts of the ecosystem. So even if there is leverage, it's in sort of hands which are prepared to accept risky beds rather than the low risk beds.
So there is it.
Kind of It's okay in a way what the good always thinking life. We need the right holders the right risk, you know, in a way what we learn from let's say G capital they had long dated loans, but with short deposits, we want long data exactly, so we need to pass out loans to pass out the risk.
So go to the axis with your expert on in at private equity. They have not been able to liquidize previous investments. Are you optimistic private equity can monetize their successes this year and in the next year twenty twenty six, and does private credit will? They have the same challenges of getting out of the stuff once they get into it.
It's two great questions.
So that's a hat trick.
You guys work this out before.
This is my script obviously, isn't it.
I got to rehearse.
It's tough.
So all of the bankers that I talked to start, we're in November, we're jumping for joy about a huge IPO calendar for this year.
I haven't seen it though.
Maybe they did it just in time for bonuses and they were talking it out.
Yeah, except there yesterday and said exact so.
Sorry, okay, your credittionally with that.
But obviously now they're saying in February it's it's okay, but it's a bit slow, and it's that indigestion in the sponsor community. In fact, if you got some great data, if you look at M and A strategic m and A so like company buying company, it's sort of more average levels the last fifteen years. It's A it's bouncing. It should be a little bit higher mid market M and A. Again in line, it's this sponsor M and A which is weak, and that's why the private credit side are having to strike out for fresh pasture. So I think, look, you know, markets are here to embarrass and confront us at the moment, it looks like it's going to be a reasonable but sluggish year.
David, give one more in here with Hugh von steinas.
Just ask you lastly about the kind of relationship between public and private and partnerships that might come out of this new administration. So we saw the scene in the Oval Office with Larry Ellison and Sam Altman and talk of financing a big data center project in Texas and elsewhere. Obviously, as we talked about in Lampoon a little bit a moment ago, there is the speculation about a sovereign wealth fund here in the US. How do seasoned private sector professionals look at that and navigate these proposals that you know, admittedly don't have a lot of meat on the bone at this point. But does the notion of a public private partnership change under this administration?
Oh gosh, it's a great question. Well, in some ways you do already have a several wealth fund. If I might be so bold with Freddie and Fanny, I mean, they effectively are for now cheap fantasy moment, So I think.
You can do that.
I mean, obviously it depends whether it's through tax credits, through structures. How stable are the structures, what's the longevity the partnership? But I think everyone's looking at this minute they have you have an obligation to look at this seriously.
Thirty seconds you came up with the phrase asset management.
Barbell. Hugh von Stein is on the ETF.
Boom oh, look the fixing committee off the charts. They infloced last year in the States, tripled.
On the free lunch.
So the bit which is growing is like, let's call it active ETF. And it's the same discussion we had twenty years ago. Let's say the PIMCO Total Return fun They're saying, I'll do the index and a little bit of Tabasco too, and the extra Tabasco gets you there. And there are Last year there were two I'm not doing company names this morning, but two funds who did really well in that space. I'm I think that active ETF space for fixed income remains really interesting.
Michael Burr wants to know use Tabasco on your full.
English right, try not.
Missus Venstein, thank you so.
Really.
With Oliver Wyman and Dante, I should mention the brilliant and banks and there they are researching European banks.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Tina Fordham has provided phenomenal transatlantic perspective over the recent years, and she's just continually delivered to us on international relations and how it folds into the markets. She becomes ever stronger, joined by Ibra Mubari who was at City Group and legendary and Fordham and Robari together today is really what Bloomberg Surveillance is all about. Tina, the moment that we're in right now, I assume your five page report has become a twenty page report. Distill it into one observation of how, whatever our political persuasion, how we survive this testing of an executive branch versus a legislative branch in a judicial branch.
Thank you for the introduction and the low pressure question. How do we think about these unprecedented times? We keep an open mind and we check our priors because we've never been here before.
We've never been here before, So how do you check your priors.
It's really important to constantly test your expectations, your confirmation bias, to seek a wide range of opinions, which is why I love working with Ibraham because he keeps me intellectually honest.
Well, this is a great thank you for selling Ibram to us. I'm going to cut to the chase. The dollar is the prior. Is the great shock of what is to come with this Trump to administration, a fragility or super strength to the US dollar.
I think eventually it'd be a frigidity, actually, and we've got a first taste of that over the last couple of weeks. So in the currency world, I actually think it points to that handing over to the end as maybe the place to hide in difficult times. But is it's it And as Tina mentioned, many many moving parts. So I keep it with Chapale, who we'll hear from later today. Be humble and nimble, check your priors and try to work out what are the preferences and what are the constraints of policymakers along the.
Way A question for both of you.
I'll start with you first over him, and that is during the campaign, we heard a lot from Scott Besson among others about the prospects that they're being a shadow fed share, who kind of telegraph what the next fed shair would think or do. And I guess we're getting a taste of that this morning from the President. He's opining on X and Truth Social about these inflation numbers. Biden inflation up, he tweeted this morning. He suggested the interest rates should be lower before this testimony that you just mentioned, perhaps he is the shadow fed share. There was so teas during the campaign trail. But in terms of what's on precedent, and I go back to a question I asked Tom a few minutes ago, and that is how much more difficult does it get for Jerome Palell to weather the commentary, the critique, the criticism, the politics of this moment. He's indicated over and over again that he's up for it, but this is going to become increasingly difficult for him.
So form my vantage point, it actually is getting significantly more difficult. And we've seen that in J. Powell in his last few press conferences. And he used to be very effective in communicating and he's become much less effective and clearly the new administration is a big reason, but I also think it's because he holds a lot less effective sway over his committee. The committee seems to be a lot more politicized. There's a lot of talk about Powell being politicized, but I actually think it's other people in the committee and on both sides. So you see some unnamed governors being significantly more dubbish, and some people speculative they're aiming to be his successor. But maybe more relevantly, there are a number of people who have tilted from being very dubbish to much less dubbish when we have had very little data to speak of so far. So I think it is a it's a much more difficult environment. He is much less effective as a leader. Some people will speak of.
Lame duck Christ to that point. I mean he's dealing with the same uncertainty that we are. He's going to field as many questions today as yesterday, perhaps more just about the tariff's policy, how that might affect the economy. He's going to try to bat that down, but there's going to be increasing demand for him to indicate how he's thinking through these issues.
There's a lot of pressure for anybody in a leadership rule to both demonstrate their integrity but also not be perceived as sending the wrong signal to this administration. I think it's important that we don't normalize this, however, because what we are talking about as we think about lower trust and institutions that includes the FED, that includes the courts that in Congress was always low on that list. And for investors, that means that the nonlinearities that are present in the system make it a lot harder to do what market participants like to do, which is say signal versus noise.
In our studios, we are thrilled to bring you this hour.
Even Rabari and Tina Fordham of for Fordham Global Foresight, I can't say enough usually in London, and to have them in our studios. Treat it is really really a treat. I'm gonna can I do an audible Yeah, you are the one I want to talk to on this, and that we have a president going through a routine visit with the Hashemi King of Jordan, Abdullah the second folks, this yes, it takes you back to the movie Lawrence of Arabia The Ignorance of America, of where Jordan fits in to the matrix of the levant is there's there's no measurement of how dumb I am in everybody else. I had a very well reported interview with Elcci at Davos years ago. Elceci of Egypt said enough, I'm not even going explain to Republicans now in support of Trump the delicacy of how the president is treating Jordan, Egypt, in the rest of the broader Middle East.
Well, it's consistent with a kind of an American approach to the world, which is get them in a room, knock heads, and you know, make a deal. And so Trump's logic is very, very appealing. But other countries have politics too. King Abdullah of Jordan has fifty percent of his population is Palestinian. He can't simply roll over and expect to stay in power, and his presence in the region is very important for his stability.
And he's been holistic for America from his time at Eglebrooke and Deerfield years ago in Western at Massachusetts. I mean, this is a guy that's always been on the American team. Is he the buffer to Iran? I mean, on the map, it tells me that Jordan is the buffer to Persia. Am I right on that.
I think Syria as a wild card and the kind of power vacuum there may be more relevant for Iran itself in a weak position. And what we don't know is what kind of discussion Natan Yahoo of Israel is having with the president and this move toward maximum pressure what that means, because making it harder for Abdullah to sit on that throne, pressuring Cisi in Egypt could cause what US political scientists called unintended consequences and make a difficult situation worse.
You were sitting at Ebrahm's going top. Don't ask me about the Egyptian David save us.
Please see presparent in mind what we were talking about a moment ago, that there is so much here that's unprecedented and not normal. How useful is it for you to go back and look at the first term to sort of divine what might be happening here? Is this Trump two point zero? Is it a revision of the manual that we had that first time around, or is it simply a very different guidebook.
I think it's still very useful.
Yeah, And in fact, the way to approach it is to think about what is similar to the first term and what is different, And I've continued to highlight that there are big macroeconomic differences.
We are now in the.
World where the economy is robust, stock markets are at all time highs, and inflation is a major concern. So that shakes how this administration will respond. It doesn't need to stimulate the economy. It will worry about inflation and net net that means the less fiscally expansionary than many people would have thought. But we've had a number of developments that are very much in line with how this administration worked the first time around, and I think the most relevant of them is it loves to experiment. It loves to take risks, it loves to send trial balloons, and it's very keen.
To reverse course.
It likes to act first.
See what the response is and then judicate.
In addition to that.
It likes to as Tina likes to call it, flood the zone, distract and maybe divide potential opposition. So there's a number of and confused. So there's a number of lessons in the first turn that I think investors in the general public would be in a good position to.
Heat Tina we're seeing that now there's this big confact that's going to happen in in the coming days the Munich Security Conference, and the Vice President has gone from Paris to there. He'll speak there. I look at the bloomberg and see a headline this morning. Ukraine NATO membership is not a realistic goal, according to Pete Hegseth, the new Defense Secretary. From where you sit, what is the next chapter of.
I mean, Ukraine joining NATO, I don't think has been a realistic goal. But Ukraine with having a European perspective, as the EU likes to say, is a realistic goal, and that is an anchor for the European Union. I think, you know, the military strategists like to quote the old saying that no plan survives first contact with the enemy. When Vice President Vance gets to Munich, he'll get an earfull and be confronted with the European reality because Russia's.
On our doorstep.
We've got several NATAL member states that are very concerned. This isn't just about creating a d military rised zone in the occupied territories. If it were that simple land for peace, it would already have been done.
What is your counsel to someone like me, someone listening who watched what unfolded yesterday in the Oval Office, Donald Trump talking about Gaza as a place that's not worth anything. It's his to buy, indicating their's, but no thought into sort of where people there would go if this essentially ethnic cleansing were to happen, people were to be moved out, not thinking through all of these steps. How do you how much weight do you give to what seemed like not thought out, perhaps offhand comments like that versus a broader kind of strategic bent when it comes to the Middle East or other places.
Well, first of all, I think he's serious. I think he I think he is a real estate developer. He made similar comments about North Korea right.
About you could be the next he sees.
You know, waterfront, ocean front.
Ter Putin responded that.
Mister Putin, President Putin can watch and and wait, just like President She right. Remember during We've talked about this, during COVID, they thought America was in decline and they're just watching to see the chaos ensue.
I can't say enough about Angela's stent, whether she was on fire her book Putin's World, she was really forceful about we underestimate putin at this Trump moment, Ibra Mubari, Tina Fordham with his foreigner of global foresighted generous amount of time and we're going to continue.
We welcome all of you across the nation and worldwide on YouTube subscribe to Bloomberg Podcast.
I can tell you this is what the show's about. Catherine Mann nailed it. She went to the bank. She got sick of you guys. She got sick, said Saya and Catherine Mann, who folks came up with a whole dysfunction of China, us etc.
Doctor Mann went to the Bank of England and she has been a resilient, cautious hawk.
There is that the new town Ibra Marbury is even with this inflation report, even the middle ground or dare I say the doves tilt hawkish over the next year.
Well, I think what everybody really appreciates about Catherine is again that she has an open mind, but at the same time she is a very structured thinker. And what was catching my eye recently with her is she was an ardent hawk on the Bank of England's NPC for the last you know, probably two years. She was on the dubbish end of the spectrum when I worked with her, and then in the very last meeting she seemed to flip back again and highlighted that there are some points of pressure in the UK economy that in fact pulled her into the idea that maybe they should be cutting by fifty basis points, cut by fifty basis points, when previously she was in the you know, in the rear guard that suggested that the Bank of England should be should be very very cautious. Now the lesson in there for me is for somebody like her who is not an internal NPC member at the Bank of England, historically they've been treated with a bit of a discount by markets because they see is less influential.
I would say, pay a lot more attention.
To her than you normally would because it's it's times of great uncertainty, it's times where people don't really have much of an anchor, where these people have more influence.
I got you just find a question in an honor Viillam Bauder, who invented modern city research.
The debt in the deficit is tangible. Americans love to ignore the debt and the deficit.
Ibra Robari Is this a time where we need to focus on the debt, the deficit in our interest expense.
I think yes and yes for two reasons.
I think one is you know the need ter One one, this administration has actually focused on it, and again I think people have been missing how focused they are on to some degree, managing what they see as a vulnerability in terms of the level of debt and deficit and how.
Much power they have.
I mean, the standard answer you get from anybody on US fiscal is well, the executive can't really do very much. It's Congress's job. Congress is so dysfunctional and divided. We are seeing them taking action. They're trying to cut spending. They have a lot more power over over Congress than previous administrations have had. So there's I think interesting fiscal action going on right now, which is different from what people expect. There's the bigger question that a lot more people ask about, which is, you know, when are we entering the period of physical crisis in the US. And there I think massive topic to watch, but that timing. You know, if anything is actually slightly pushed back relative to what we thought a couple of months ago, then you know what people were expecting.
This is we're out of time.
This is what We'll have many occasions to talk.
In town.
Yes, but I don't have to be in town, but yes, I will be coming more often.
Okay, wonder the German election.
Can we do something to a London hotel process.
I'd like to speak to you about New York hotel.
Sterling's unbelievable.
It's harder, it's harder than ever. But it's wonderful to have these conversations. And I think the appetite for this kind of open minded you know, checking your priors. It has to be the way forward. We haven't seen this movie before, No, we haven't.
And we're working on. David and I are reading as much as we can to stay up on this. Stephen Levinski and the New Foreign Affairs and Jason Furman and of course Tina Fordham writing every day. Tina Fordham, even Bumbari, thank you so much for joining Bloomberg.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
After decades of service to his constituents in Arkansas, has the worst job in Washington. He has had a House Financial Services Committee, the Republican from Arkansas, and he joins us right now, French, I got eight ways to go here, but I got to look to the second third week of March, where the challenge is a government shutdown.
Budget challenges. You're going to be in the heart of this.
So I'm going to go to someone on your committee like Monica de la Cruz, the Latina from Texas. Fine, Okay, the conservative southerns that don't want to budget on the budget, how are mainstream Republicans like you going to convince them to keep the United States of America running.
Well?
Thomas, is such an important question. Great to be with you this morning. This is something we should have done in December, and it was a horrible mistake in my judgment not to complete the funding for FY twenty five in the previous Congress. Under the Biden administration, we would have had roughly the same characteristics we would have had an incoming Trump administration and incoming Senate. I think we would have gotten substantially the same deal. And now we're on trying to do budget reconciliation, which is a much more important task, and yet we face, as you point out, a government shutdown.
Republicans have to stick together.
We should use the Fiscal Responsibility Act numbers from last year and negotiate with the Senate now a Republican Senate who wants to spend a little bit more on defense, and get this behind us so that we could go to the main event of focus on reforming regulation, reforming productivity in the federal government, reforming spending, extending pro growth tax cuts.
Give us your sense of how much optimism you have that's going to happen here. I know there's a lot of nervousness and apprehension that time is running short. There are different views on this. We were spending the last few weeks talking about will be one bill or two biller?
Three bit three bills.
I know you've been involved in the same game there on the hill. Do you see a path forward here? How much clarity do you have at this point?
Yeah?
Well, first, on Tom's question about FYY twenty five finishing FYY twenty five before March fourteenth, I have medium confidence the worst case scenario would be to continue a CR till like September thirtieth. First of all, once you hit April first, you'll have a one percent across the board cut twenty five spending, and crs are terrible for government management. We'll end up spending billions more because we operate under a CR.
We won't be able to start.
Any new programs at the Defense Department, which is a priority for the administration. So that makes me lean to yes, we'll get something done on March fourteenth, on fiscal twenty five, as the budget reconciliation the big game. I do support one bill here in the House because I think that's how we hold the Republican coalition together best here. And as you know, Senator Graham and the Senate's taking a different approach.
Congressman Hill, what is the view from the Longworth House Office building of what we're seeing the White House do? Of course, the historical precedent has been that Congress controls the purse, makes decisions about funding. We are seeing this administration take a more active role, shall we say, in determining what gets funded and what doesn't. How much comfort do you have with seeding some of that power to your friends and colleagues in the other brands, the executive brand of Pennsylvania Avenue.
Well, think you found on money that's appropriated. Congress does control those purse strings and they direct that spending.
But in the broad swaths of federal.
Spending, you have directions to agencies spend this money on these general topics, and that's what the appropriated money says. And then you have article to authority with a lot of discretion about how to spend it. And I think that's what President Trump's attempting to look at. Is the spending done at the end of the Biden administration and proposed to be spent here in the first few weeks of his administration.
Is it in alignment with his goals that he.
Has in foreign policy, for example, at USAID, And that's a classic Article to authority to take a look at that, make sure it's in alignment with their policies. With that said, you can't do these things without both the legislative branch and the executive branch ultimately working together.
Then, Frenchchill, you know, you and I have known each other since time began, and I've never seen a private citizen in the Oval office standing there with his arms crossed like.
He owned the high ground. You are one of the rare beasts that came.
To Congress actually running a business in Little Rock. What's your advice to your fellow moderate brethren of the Democratic and Republican persuasion?
What do they need to do in the coming days?
Well, first, let's look at doje Tom. It's a good idea to go in and look at for efficiency and government in the executive branch and make recommendations to the legislative branch when you want to spend money differently or have a different number of full time equivalent positions in an agency. That's perfectly a good suggestion, and we haven't done it in years. I'd say since nine to eleven. The government's been focused on growing, not remotely focused on productivity or realigning or investing in technology or doing anything in a different way. We've been completely distracted by the war on terrorism, THEA crisis, and then recovery from that, and then the pandemic. So I think it's over time to scrape the barnacles from the ship of state when it comes to regulatory policy, personnel policy. But there's a right way and a wrong way to do it. And I would encourage the administration to plan, communicate, and consult with Congress on how the best way to do that is.
As for the right way to do it, I think of you as a young man serving as a deputy Assistant Secretary of the Treasury departmentunder Nicholas Brady, and I wonder if you could have imagined you would have non appointed, non confirmed private sector individuals going in and looking at the payment system there in the Treasury Department. Does that make you uncomfortable having the history that you have with the Treasury Department to see the way that Doge has been approaching the sort of fiscal health the books, for lack of a better word, of the federal government.
Well, when I heard about that story over the weekend last week, called Secretary of Assent. We talked about it last Monday, and he assured me that anything that Doge was doing was in the control of the Treasury Department, and that some people were working there for it review purposes. But he implied to me that he's got that under control. For making those recommendations, We're going to hold him accountable. He's the Treasury Secretary. So anything that Doge is doing in a Cabinet agency. We just need to remind the American people, Members of Congress, the Trump administration, we're holding the Cabinet Secretary accountable for, as I say, planning, efficiency changes, budget changes, personnel changes. We're holding them accountable here in Congress.
We got some news overnight that Jonathan mccurnan, formerly the FDIC, has been picked to head the CFPB. And this has been an agency that's been in the crosshairs. I think it's safe to say you've had your criticisms with that agency over these last few years. And I want to ask you about some comments that the general lady from Cambridge, Massachusetts made on our heir last night, the senior Senator from Massachusetts, Elizabeth Warren, and she said, look, it's not up to the executive branch to decide whether or not an agency like the CFPB exists or what form it takes. That's up to Congress. The point that she's making is you and other lawmakers, if you don't like what this bureau, this agency is doing, you could take action yourselves. Lawmakers could decide whether or not it should continue to exist. Do you agree with the argument that she's making there that fundamentally it's not up to the executive branch, not up to this administration to decide what agencies, what parts of this government should stick around or be disappeared.
Well, as a general matter, you'd have to look at statute by statute, agent by agency by that. But as a general statement, sure, I mean Congress creates agencies, Congress can end agencies. There's nothing so permanent though, as a temporary government program, as President Reagan reminded us. But let's talk about Elizabeth Warren. She's the founding mother of the CFPB. She created it to be insulated from oversighted, insulated from appropriations, and insulated from any meddling by Congress. And that's what irritated Congress, and that's why I support changing the agency dramatically.
But Frinchell, I had a couple final questions. This is important, as you mentioned the senator from the Commonwealth.
Where do we find a middle ground? You are one of the leaders of the middle ground in Washington. How does Senator Warren and someone over on the MAGA write find a common feature around people like french Hill.
Well, it's a great question, and I've hearded Senator Warren to consider that exactly she's concerned about the big banks taking over the world. Well, she's created that with Dodd Frank, who concentrates more power into those big banks. I've encouraged her to consider tailoring policies for all the rest of the banking system, and also considering compromise on the CFPB but putting it under congressional appropriations and having a bipartisan commission right overseas its work.
Those are middle ground points.
French, I don't care. Here's what I care about.
My father worshiped Bill Dickie of Little Rock, Arkansas, the x Yankees.
Million years ago.
Your minor league ball team, the Arkansas Travelers Texas League. They play in the Dickey Stadium. How's a state of minor league baseball in Little Rock? Is we have pitchers and catchers today.
Boy Strong, there's no better place to be on an early summer night. The price is right, the fun is great, and it's fun to beat the teams in the Texas League. And it's something I love doing with not only my family but all my friends.
There were the Seattle Mariners. You think I could see the Red Sox, you know, down in Arkansas?
Kind of maybe every time I feel in on this show. We have like three trips we need to take on the heels of each show. Do that little baseball sounds like it's a plan to me.
We'll touch you right, We'll put you right behind home plate.
Of the beloved Barney Frank. I hope you do as well as Barney Frank. He's having the Financial Services Committee in Washington. The Republican Little Rock Friendshill joining us.
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