Bloomberg Surveillance TV: June 24, 2025
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie 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 6 to 9 a.m. 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.

What does this mean for the FX market and the US dollar? Ines McPhee of Oxford Economics writing the following. Although the near-term challenges to the dollar's dominance have risen recently, we think they're still relatively limited compared to the seismic shift needed for the global economy to switch to another principal currency. Ines joins us now for more. Ines, welcome to New York. It's good to see you. Thanks, John. Let's get to this call. Why are you a little bit more constructive on the dollar, at least from this perspective?

Well, I think, John, what we're seeing is a lot of cyclical pressure on the dollar. Clearly, the impacts of tariffs and now oil as well is sort of stagflationary at the margin for the US, whereas it's more straightforwardly disinflationary for the US. At the same time,

investors all around the world have been very much overweight US assets and there's a little bit of a point at which now they're sort of given the shock, they're reassessing that and maybe doing a bit of more hedging. And then thirdly, of course, there's a lot of uncertainty not just about tariffs but about fiscal policy as well and what that means for yields and the term premium. So, you know, to me, a lot of that cyclical pressure is the reason why the dollar's depreciating. It's down more than 10% against the major floating currencies.

But that doesn't necessarily mean that we're going to see some broader reassessment. At the end of the day, the U.S. remains the largest market. It remains absolutely central to the global trading system. And at the same time, you know, what we're going to see is really big long-term shifts to see that the dollar is no longer part of that major system. Long term is the right term.

This is a long-term conversation, much more short-term if we can turn to the calendar. July 4th, we've got this self-imposed deadline for the tax bill. July 9th, we've got this other self-imposed deadline for a whole host of tax deals, rather trade deals. I just wonder from your perspective, being in London, looking over to the United States, how you think about the next few weeks and how things shake out?

Well, I think, you know, the market's pretty much on pause to see a lot of these deadlines come through. As ever, the market kind of thinks that, you know, a couple of weeks down the line we'll get more clarity. Clearly, we might not, though. And if we don't, then that's clearly going to be another catalyst for the dollar to move a leg down, perhaps.

How much are we seeing the dollar weaken as a result of some of the fiscal spending and potential inflationary impacts? I mean, this has been one of the arguments that people have been making. The fiscal backdrop is one reason why the U.S. is losing fiscal dominance. Does that have relevance at a time where there's fiscal expansion in Europe as well?

I think it does have relevance, but it is within that broader context. I think, if you like, everyone's been very focused on US fiscal policy at the moment. We're starting to see a little bit more clarity from Europe in terms of what will come. At the end of the day, I think it's actually broader than that. We're obviously seeing a lot more issuance. The net supply of safe assets, which has been so low for the last decade, is rising and rising very substantially. But at the same time, we're also seeing a lot of macroeconomic volatility.

Fiscal policies change from being very passive the last 10 years to being an active tool of demand management. And that does have implications for the term premium. The term premium should rise. We should see yields higher, even regardless of where short-term rates are going. Taking a step back, for the bulk of this year, there's been sort of a pendulum that's been swinging between the risks of either inflation accelerating on the heels of some of the supply shocks, fiscal expenditures,

versus some sort of downgrade to growth that we've seen from tariffs and some of these disruptions from even the oil shock and what that does to consumers. What have we learned over the past 48 hours about what people's expectations and their response to a potential oil shock or inflationary shock would be? Do we have a greater sense that the inflation upside is kind of being reduced somewhat?

Well, I think as you said earlier on, the Fed's very divided on this issue. Clearly what we've learned over the last 48 hours is that the market has kind of almost gone to price in a risk premium on oil that's pretty much where we were in the middle of June. So there's a lot of upside to that, I would argue, given that this already seems to be a very fragile ceasefire.

But fundamentally, there are those that will want to ease early and that's a very defensible attitude given that we know that an increase in oil prices will have a detrimental impact to growth later on and bring inflation down eventually.

But remember where we've just come from. The Fed and other central banks have just seen a huge inflation overshoot in recent years. We're not confident as economists, as central banks at the moment about the second round impacts from an increase in inflation.

And I think, you know, it's a very defensible attitude to want to wait and see, see how big that impact on prices will be and therefore what the second round impacts will be. We haven't even seen or even started to see the big upside to the initial inflation shock, let alone what that might do for second round impacts. With all of that in mind, do you think July is a live meeting?

We've long said that December is going to be when they cut. There are good reasons for that. I think we may well see dissents. We've seen dissents, though, under Chair Powell before. I don't think that's necessarily a deal-breaker. I just don't think we're going to get clarity over the data that's going to move the majority of the committee towards wanting to cut. Looking for some clarity from the Fed Chair a little bit later on this morning. Ennis McPhee of Oxford Economics. Ennis, good to see you.

If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

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Joining us now is the Congressman of French Hill of Arkansas, Chairman of the House Financial Services Committee, which the Fed Chair will be testifying before later on today. Congressman, welcome back to the program, sir. Always good to hear from you. I'm going to start with a slightly provocative question. I'm paraphrasing, Keir. Do you plan to work over this very dumb, hard-headed person a little bit later this morning?

Well, Jonathan, it's great to be with you. We look forward to having Chair Powell before the committee this morning. And I think he'll face questions on his outlook for inflation and therefore what his views are about rate cuts coming forward. I think that's the important issue of the day. But he'll also probably be complimented by members because the Fed has recently taken decisions to get out of some of the environmental social governance groups that they were involved in around climate change.

Some of the House Republicans have never thought the Fed should be involved in over the past few years. We want them focused on price stability, number one. And number two, we want them focused on a safe and sound banking system. We thought that was a distraction. So we've got monetary policy and then we've got bank regulation. So, Congressman, let's start with the monetary policy first. As you're aware...

And as I implied with that first question, the White House is really ramping up the pressure on the Fed chair. Do you worry that the chair starts to become more worried about the optics of cunning interest rates than focused on the data that might justify them?

I really don't, Jonathan, because since World War II, we've seen pressure from presidents on Fed chairs, but we've seen the Fed chairs and the Board of Governors try to be data-driven in their decisions. And of course, they've made mistakes over that period of time, which is while the Fed is a creation of Congress, and I believe strongly in an independent monetary policy, it's also true to recognize that they're not immune from criticism.

So there's a debate, and you've already seen that debate shaping on the Open Market Committee itself with the comments from Governor Waller and Governor Bowman. Congressman, would you be willing or would you support the idea of nominating someone to be the next Fed chair soon so that they can have an outsized influence over the committee?

I think it's my base case assumption that Chairman Powell will serve out his term and President Trump will make a determination on who he thinks should be the next chair at that time.

Well, just the reason why I ask this is because some people have speculated that that's what's going to happen. We have heard from this administration that they are going to consider potential future candidates. And there's a lot of speculation that Chris Waller and Michelle Bowman are kind of in the running and trying out. I mean, how much would you like to see some of this noise taken away from the real debate, which is what is the predominant risk to markets? Is it potential weakening or is it inflation?

Well, again, as I say, I think certainly since World War II, the speculation about how presidents feel about their Fed chairs and who they might nominate to succeed a Fed chair has just been part of the markets and the markets understand that.

What's important is that the Fed gets it right and we focus on price stability. And if the inflation forecast and inflation expectations are anchored at that 2% level, then I think that's certainly something the Fed should take into strong consideration about a rate cut in the coming meetings. And that's exactly the kind of work I want them to do, is use data analytics

look at the trends in the market, look at their forecast and make that decision to the best of their ability. And many of those officials are folliclous on the policy outcomes of other things. July 4th, we've got a self-imposed deadline to pass the one big beautiful bill. July 9th, another self-imposed deadline to come to some kind of trade deal with a whole bunch of countries. Congressman, could you maybe have the Fed chair a little bit later this morning? Where do you think we will be in a few weeks' time?

Well, look, I think uncertainty is a part of life. It's a part of the stock market and the bond markets every single day. But if I look back at the 1980s, we had extraordinarily high inflation. We had high budget deficits for the time. We had a defense buildup underway. We had a dollar

that some deemed significantly overvalued. And yet Ronald Reagan, through tax cuts, through regulatory reductions, through the right monetary policy between Paul Volcker and Alan Greenspan, saw the economy grow and grow dramatically. And I think America is poised to grow dramatically. Look at GDP since the summer of the pandemic.

It was about $21 trillion. Today it's $28 trillion. We're the preferred investment location for global investment around the world. And I believe that that uncertainty will drop over the coming weeks as we have clarity on taxes, clarity on regulatory policy, and we drop the slope, steep slope of incredible amounts of federal spending coming out of the Biden administration. Congressman, just away from the events in Washington, D.C. this morning, we'd love a comment from you on the news

of this morning elsewhere, particularly in the Middle East. The president posting on social media just moments ago on a truce between Iran and Israel, a very frustrated post from the president. Do not drop those bombs addressing Israel. If you do, it's a major violation. Bring your pilots home and do it now. And the tone, as we understand,

of the president leaving making his way to the nato summit in europe was a very frustrated very frustrated president of the united states with israel with iran and hopeful that maybe we can establish a long-lasting truce in the middle east do you think we can establish peace through strength in the middle east how much of a change is that with this administration relative to the bad administration of the last few years well i do think peace comes through strength and that's uh... been demonstrated

by President Trump, both in the Middle East with his Abraham Accords in his first term and with his efforts to end Iran's dismissal of the West. All during the Obama administration and Biden administration, we had appeasement from the Democrats in the White House. They funded Iran's missile operation. They relieved sanctions. They let them sell all their oil on the open markets. They facilitated that money going then to the Houthis

Hezbollah, Hamas, and we've seen the damaging position on that. And so Trump is returning to his pressure on Iran through ending the nuclear program, not delaying it. And I think it's going to change the balance of power in the Middle East for the better.

And I think it demonstrates peace through strength. And also, I think the president going to the NATO meeting will demonstrate that again, as European countries now commit to spending 5% of their gross domestic product on defense, standing up a stronger, more robust,

industrial base and defense posture for Europe. I think that's good for the Atlantic Charter, for NATO, and I think it's good for future peace in the Middle East. Congressman, we appreciate your time, sir. Busy morning ahead for you. Best of luck with the hearing. Thank you, sir. Congressman French Hill there.

Here's the latest this morning. President Donald Trump lashing out at Israel and Iran. The president accusing both sides of violating a ceasefire agreement to end nearly two weeks of fighting between the two nations. Joining us now is the retired Lieutenant General David Deptula. Retired Lieutenant General David Deptula joins us right now. Lieutenant General, can I just ask you this? A lot's happened over the last few days. In your opinion, what's changed?

Well, I think, John, what's changed is the fact that Israel has achieved air superiority, if not air supremacy, over Iran. And now Iran is understanding that it is subject to Israeli lethal effects whenever and wherever they want to.

So, that is what has led Iran to initially agree to consider negotiations, but as you saw in the violations of the initial elements of the ceasefire, Iran continued to fire ballistic missiles

against Israel resulting in death. So it's probably gonna take a bit more application of force on the part of Israel. And quite frankly, the continued application of force until Iran finally gets the message that if they don't come to the negotiating table, they're gonna continue to see their regime and their capabilities

and ultimately destroyed. There are two different questions here. There are a lot of different questions. One is the market-related question, which is, will oil supplies be disrupted? That seems to be not so much, and that's what we're seeing priced into the markets. There's a larger question of,

Will Iran's ambitions to be a nuclear state really be hampered for a longer term kind of timeframe? What's your take on that, given the 400 kilograms of enriched uranium that currently is missing in action?

Yeah, Lisa, actually that's a great question. At a fundamental level, nuclear capability consists of three essential components. And Israel and the United States has targeted each of them. The first one's human expertise.

And that's the knowledge required to design and construct nuclear weapons resides in a small cadre of specialized scientists and engineers. And Israel's made a concerted effort to neutralize that capability. Then, as you mentioned, there's the fissile material. Most importantly, uranium enriched to weapons grade levels. Right now, there are 400 to 500 kilograms of enriched uranium that still exists in Iran.

But strikes on the enrichment sites at Ferdow and Natanz have severely disrupted the ability to process it further. And then number three, there's the weaponization and assembly infrastructure. So even with the knowledge and material, Iran needs the facilities to assemble a functioning nuclear weapon. So two out of these three elements...

have been severely impacted. So what remains is a fragmented element, if you will, but it's hardly the foundation for a viable nuclear weapons program. So I think you've seen Israel and the United States cripple Iran's operational nuclear capability, but obviously there's the potential to reconstitute.

There's a question about deterrence when it comes to Iranian nuclear ambition. It's also deterrence on a global scale heading into NATO. What's your sense of whether this action by the United States acts as a deterrent or not to other states that might be contemplating nuclear status or incursions into other areas around the world?

Well, I think it's an excellent point. And I think part of the benefit of what President Trump did is not only, and what I'm talking about is with going forward with the B2 attacks against these processing facilities. First, while that set back Iran's potential to develop a nuclear weapon, it was fundamental to restoring US credibility on the world stage.

We've seen and we can spend a lot of time talking about this, but the disastrous withdrawal from Afghanistan and then seeing the US being deterred by Putin, what this action did was

Hey, look, the United States now acts behind its words. It just doesn't talk and take no action. So I think that will have an impact with respect to not just our potential adversaries, but our allies alike. Lieutenant General, always appreciate your time, sir. Thank you for making a few minutes for us this morning. Thank you. The retired Lieutenant General there, David Deptula.

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Let's start with this one right here for the Federal Reserve. July 30th. Some people think that's too soon. Others say we can take some comfort from the inflation data over the past few months. Is it signal or noise, the downside surprises we've had over the last several months? See, and if we really back up and think about what's going on, this is a stagflation shock.

Inflation is going up, which says the Fed should be hiking. Growth is slowing down, which says the Fed should be cutting. So where are they going to put their weight? Do they like apples? Do they like oranges? Are they going in the Taylor rule to put more weight on inflation and say, well, we got to keep rates higher? That's clearly what Jay Powell is saying. And that's, of course, at the moment seems to be the baseline, at least from the press conference last week. But at the same time, if growth is slowing down,

and if we are really unlucky and growth slows down very quickly, then of course the decision of keeping rates higher will turn out to be a mistake. So that's why the textbook does not give you an answer to a stagflation shock. And given we have a stagflation shock, stagflationary impulse coming from tariffs, stagflationary impulse coming from restrictions on immigration, including deportations,

and also inflationary impulse coming from high oil prices. All those things really complicate the decision of where do they put their weight on slowing growth or rising inflation. - As you unfold, what will determine the response to that is how long lived either the stag or the flation actually is. - Exactly. - And on the flation side of things, how instructive is the labor market right now?

suggesting that maybe look at the labor market is weakening up somewhat i don't see that as a source of inflation and therefore i can't make a strong argument for this inflation sparring and getting out of control that's true so that's why there is certainly a case to be made of that this inflation spike is transitory of course as we know from when they said that last time they're probably very reluctant to use those words but i do think that the conclusion is to your point the consensus does expect that inflation by the end of this year will be higher

than where it of course is today. So that's why if we have three, six months ahead of us with some upward push in inflation, the risk is that companies will view this just like they did in 2021, 22 as a chance to say, well, maybe we need to think about pricing and maybe therefore

that you could have risks that inflation does become more ingrained. Is there anything that you could see that would make you rethink the idea of stagflation? Think that maybe things are better than you're currently making them out to be. I was looking at Nathan Sheets over at Citigroup saying, one thing that is just a surprise to me again and again is the resilience of the U.S. economy and the fact that it has been able to absorb all of these shocks again and again. And that is absolutely correct. It is impressive how well the economy has behaved so far. But that being said, the consensus still expects the unemployment rate to go up.

on Thursday next week when we get the next non-farm payroll. So the consensus is still saying, yes, the economy may be strong, but the consensus still is saying we expect the labor market to weaken. And importantly also, with the restrictions on immigration and much less immigration, of course, coming into the country, we may also have the non-farm payrolls now on the,

or long run average of around 50,000. So that means that maybe we have a long run level that we need to compare with that's also falling simply because immigration has changed so much from where we were a few years ago. So that's why the labor market weakening could both be structural in nature, it could also be cyclical. So it raises a lot of debates around, well, is the labor market weakening because demand is weakening or is the labor market weakening simply for the structural reason that we have less immigration than we had before? - Just quickly, 50, five zero. We might have to get used to 50, 50,000 on payrolls Friday.

Absolutely. Because if you take the demographics, remember there was the paper by Watson and Edelberg from the Hamilton Project that they basically showed at Brookings that under Biden we had strong immigration that meant that non-farm payrolls brought roughly around 200,000 every month. But now we have

literally border encounters are really running at a basically zero rate. And at the same time, we have deportations, of course, running at an annual rate, roughly around a million people to be deported by the end of the year. All that means the labor force is shrinking. That means that the number of jobs created in the economy is going to be dramatically lower. Torsten, always thought provoking, always enjoy catching up with you. Thank you, sir. Torsten Slok there of Apollo.

This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business Hour.

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The data that matters for your investments. The entire auto sector is higher today. And analysis on the companies making news on Wall Street. Tesla's been a stock that's been in focus. Shares have really been all over the map this morning. Listen to the Stock Movers Report from Bloomberg. Let's talk about.

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