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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.
Joining us now, Chris Harvey of Wells Fargo. Chris, good to see you, sir. Good morning. Good morning. You said it a number of weeks ago. We had a crisis of confidence last month. Have we addressed that crisis of confidence? We've addressed it. So the big issue was, was the administration hearing the feedback loop from the markets, from individuals, from people in Congress? And the answer is yes, they've heard that, right? And they've adjusted their behavior. That's a good thing.
To your point about what does a trade deal look like, that's a big question, right? So what we're saying is, hey, you're at the high end of the range. If you get some granularity on a trade deal, yes, we can break out at the high end of the range, but you need granularity. And what does that exactly look like? That's the big question. And with who? I speak to economists and they're still worried about the hard data catching down to the soft. I speak to investors and they're willing to look through some of it, focused on the forward look offered by the policy moves down in Washington. How would you weigh it one?
versus the other? - You can look through the data if you start to have confidence that we're moving forward and we're making big, granular gains with folks in Asia, folks in Europe, North America. If you believe in that, you'll look through the data. If you think, ah, this is kind of a hiccup and we're back to tariff, tariff, tariff, then you're not gonna look through it. It's that simple. - Trade deals might happen with most of the trading partners,
barring China, though? How do you look through any of this when you don't know how the trade deal is going to look with China and where that final rate is going to settle on? Yeah, so I would agree with you that China, the administration believes or seems to believe that China's the existential threat. And so you really don't want to deal with them. I think a lot of the rhetoric around China and the U.S.,
That's all that is. I'm not expecting anything really positive. But if you do get some positive or constructive development from Asia, from the EU, from North America, you can start to make some real gains and you're not as worried about the economy. The other thing that I think the administration is saying is, hey, if we're going to disintermediate China, you're going to get some of those spoils. You're going to step up to the plate and help us out. And that's a good thing. And the last thing I would say is that the underlying economy, while it's slowing down,
It wasn't in a bad place before all this started. You sound positive on trade deals. Do you think we're past peak uncertainty? I think we're past peak uncertainty. And what we do is we look at it this way. He went very hard very early. In order to get that pressure back, I think you'd have to put us into recession. I don't think this administration wants to go into recession because what it would mean. It would mean a higher deficit, more job losses, more
you'd have a negative wealth effect and popularity won't be rising as you get closer to the midterm elections. So I think we have, but it's not smooth sailing from here. - The stocks have recovered at the index level on the S&P since April 2nd. The dollar has not recovered. As you look at things right now, given the dislocations of the last month, are there certain things being left behind, certain things you want to lean into?
So our thought process isn't that different. We wanted good risk awards, we wanted to balance that with some low vol or defensive. The thing that's new and different to us is at the margin, a lot of the AI trade is looking a lot more attractive. A lot of these names are in a bear market. The risk awards, valuations have come down significantly. And when we talk about the AI trade, it's things in utilities, it's things in industrials, it's things in tech, it's not just tech alone.
And so what we're seeing on the margin is that AI trade or the risk reward is becoming a lot more attractive. And that's what we're seeing becoming more positive on the margin. Outside of the AI trade, can you say the same about the rest of the market? At the index level, if you're looking at the S&P this morning, the risk reward profile of the S&P 500 going into a couple of weeks of important trade negotiations, what's that profile now?
The profile, so you can go one of two ways, right? If you look at the second half of the year, do you believe the Fed's going to be cutting rates? We do. Do you believe that the economy is going to go in and slow down but not, right? Let's talk about recession for a second, right? If it's a recession because balance sheets are upside down and backwards, you can't pull out of that. You need the creative destructive process to stop that. Here, what we're doing is we're repricing risk, we're repricing expectations. You can pull out of that so the economy can improve. We
We haven't had M&A or real M&A in a while. We've talked about that. We haven't seen the benefits of the deregulation. We can talk about that. And then again, if we start moving from tariffs to taxes, right, we go from stick to carrot, it's a lot different market, right? But how quickly do you think they actually get this tax bill over the finish line?
How do I think it or when do I think it? When do you think? I think you have to get something granular by, say, January because nobody wants to stick around in D.C. in August. The other thing is I also think you have to get...
That's the practicality. The other thing is I think you have to get it done. You have to get that vote on by fourth quarter, right? If you're going to get it done by fourth quarter, you have to, you're going to wrangle, you're going to push, you're going to pull, and all that has to happen in third quarter, in September, October, and then the votes start going November, December, and it gets signed in December. John's asked this question before, which is a really good point. Is a removal of a headwind
or do you think we're gonna see a tailwind 'cause they're talking about everything like no tax on tips, no tax on social security? - I don't think it's a tailwind, right? It's just not big, for our view, it's just not big enough. It's just a removal of a headwind. And that's positive because you've got some really big headwinds in the form of tariffs and taxes. - But it's baked in.
It is baked in, but again, if you believe that deregulation, you haven't seen the benefits of deregulation, you're going to have taxes out of the way. What are we talking about? We're talking about uncertainty. Suddenly we have certainty, now we can price things a lot differently. The Treasury Secretary writing over the weekend in a Wall Street Journal.
Scott Besson saying this, the American people should expect to hear the engine humming during the second half of 2025, which is basically what Chris Harvey just told us then. And he's basically just talking about the fact that you have to look at all these policy proposals together. He talks about all the time this three-legged stool.
And right now, everyone's only been talking about tariffs. He's like, wait till we start talking about taxes. Wait till you start seeing deregulation actually usher itself through the economy. We'll see more jobs, more manufacturing, more growth, a more robust national defense, higher wages, lower taxes, less burdensome regulation, cheaper energy, less national debt, less dependence on China. Is all of that achievable in the back half of this year? That's a lot.
Is all of that achievable? Probably not all of that's achievable. Some of that is achievable. And as long as we make progress on a good chunk of that, I think we're in a pretty good spot. But yeah, that's a lot to do in a very short period of time. He adds also one more point to that list, which is also with a strong dollar. Right. How is that possible? Don't know.
So what I do know is that they've talked about lower oil. We have lower oil. They've talked about lower rates. Rates appear to be coming down. I do think we're going to be cutting in the second half of the year.
Dollar, I don't know how you get a stronger dollar from here. It's questionable. You could, right? Because coming into this year, everyone thought the dollar was strong. It rolled over. So maybe expectations are wrong once again. We'll see. Can we finish on energy equities? So I can mention what's happening in the commodity this morning. Brent is down. WTI is down. OPEC Plus is pushing. I should say the Saudis are pushing more supply into the market. How difficult are things on the equity side in energy?
So we've been underweight energy for a while. It's performed pretty well, partly because a lot of stocks are value stocks, but now they're beginning to underperform. I would say on the energy side, it actually hasn't been a bad year. You've seen some pretty good runs on the energy names, but I think that's more because of the value stock and their characteristics than the underlying fundamentals. Chris, it's good to see you, as always. Thanks for dropping by. Chris Harvey of Wells Fargo.
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Joining us now is the former Trump White House trade official, Kate Kalukiewicz. Kate, welcome back to the program. I just want to set the scene because I think things this time around are different to what we saw back in the president's first term in the White House. The different buckets, the different objectives that you've been focused on, Kate, can we just start there?
Absolutely, because there are many different buckets. You've just focused on one, which, of course, is China, which I think I'd keep in a separate bucket for now. The president is very incentivized at the moment to negotiate deals with respect to a different bucket, the reciprocal tariffs. He's very anxious, I think, to announce a deal this week to show that these reciprocal tariffs are producing the sort of leverage that he has indicated they will.
to bring countries to the table to resolve these longstanding trade imbalances that he has so prioritized. One way of addressing a trade imbalance, if you're purely focused on one thing, the trade deficit, would be to revisit the purchase agreement struck several years ago. But Kate, given the incentives and objectives elsewhere, I'm just wondering whether that's sufficient this time around.
Well, look, I think the president is anxious to show some wins here fairly soon. So if I'm a trading partner and I'm thinking about what I can do to get to the table, to get a deal in principle announced, it's through these large scale purchases because there's something that can be achieved relatively quickly, especially when compared to some of these longstanding non-tariff barriers that the president has complained about.
We heard Treasury Secretary Besant last week signal that the Trump administration continues to be concerned about the phase one deal and the purchases that China has not made. So I think that's a fairly good signal that they'd be willing to accept that as some down payments. Kate, at the moment, a lot of smoke signals coming out of Washington from the president himself, almost insinuating that we're going to get a deal as soon as this week. Who is that going to be with?
That's a great question. You know, I think if I'm a trading partner, I am also watching this press very, very closely. You know, the president is under increasing pressure to produce a deal because, of course, the American public are growing concerned about all of these tariffs. I think congressional Republicans as well are weighing in privately, wanting the president to show that we are not going to be under these tariff raids forever.
So if I'm a foreign trading partner and I see this pressure, it does increase my leverage as well. You know, we have seen, of course, increased optimism around talks with Japan, Korea and India. So I suspect one of these nations will will be the first to go.
John mentioned earlier the fact that trade deals take a very long time, which is maybe why the administration is going to lean on purchase agreements. We know the president from the first administration does not like MOUs, but can you give us a sense of what kind of outline we could see when actually he announces an agreement with a trading partner?
Yeah, you know, trade deals do take a long time. And as a former trade negotiator, including with the European Union, you know, these comprehensive single undertakings take years and years and years. These are not those trade deals, though. And I think it is important to remember the United States is bringing to the table one offer, and that is not to implement reciprocal tariffs. It's really up to the trading partner to signal what it is prepared to do in return. So I think
the president would be willing, in principle, to accept some very high-level commitments that it can pocket and then move on toward more regulatory reform or longer-term tariff reduction. So I do think we could have, you know, some of these very high-level, in principle, agreements, not MOUs per se, but agreements from our trading partners, as you said, to make high-value purchases, to bring tariffs down unilaterally.
But in some ways, I think we can move faster than some of these previous free trade agreements that we had done in the past. Kate, you've been in the room. Can you just share with us your experience? We all hear lots about the European bureaucracy. How difficult is it to negotiate with the Europeans?
It's incredibly difficult, not least of all, of course, because the European Union is comprised of 27 individual countries. Now, of course, they have allowed the European Commission to negotiate trade deals on its behalf, but we have very different economies and very different personalities of these member states.
Now, Europe, of course, represents quite a lot of significant trade barriers that the president often talks about. And these are based in historically difficult regulatory environments. So it will be exceptionally difficult for the European Union to produce the sort of deal that the president is looking for.
unless the president is willing, of course, to include topics that are not really trade related. The military spending issue always comes to the fore and we'll have to see if the Europeans are willing to put that on the table. And that has to be done also at the national level. So Kate, when you approach these talks with the Europeans, just what do you do differently? Do you push on certain nations to put pressure on the Commission, on other countries? How does this work?
Yeah, typically the United States, of course, because it has these longstanding relationships with member state governments, tends to approach leader level discussions in that way. The European Commission is not the natural counterpart for President Trump. And so this is another reason, of course, that we've seen challenges here.
Now, President Trump, as we saw in his visit to Italy, has a very close relationship with the Italians. The Germans and the French and their roles, of course, will play leader level discussions as well. And all of this will be to create some political pressure on the European Commission to come to the table. Kate Kalukowicz. Kate, thank you. As always, the former Trump White House trade official.
The former St. Louis Fed President Jim Bullard joins us for more. Jim, welcome back to the program, my friend. How would you approach a meeting like this week's meeting, given all the information, additional information you've had to take in over the last month or so? I think the committee is in good shape for this meeting. Markets aren't expecting a move and I don't think there is going to be a move. A lot of the debate will be about how to approach meetings through the summer and
And that's a traditional dynamic of the Fed. But, you know, they did lower 100 basis points in the second half of 2024. That put them in, you know, great position for this year. You got the strong jobs report on Friday. You've got inflation still coming down. So it's actually looking pretty good for the Fed. Things could go a lot of ways in the trade war. It could go very badly, but I think it could also go very well.
and markets are starting to price that in. They're starting to realize that it's not the U.S. that's protectionist, it's the other countries that are protectionist. And the other countries, I think, are starting to realize that they could come to the table
They could probably reduce some of their trade barriers and some of their non-tariff trade barriers. And they could probably get a deal, at least a sketch of a deal, pretty shortly or so. So we'll see exactly how this plays out. But from the Fed's point of view, why do anything until you get a little more of the uncertainty resolved? So, Jim, that's an important perspective. And it's a perspective that I haven't heard much of from the Fed Chair, Jay Powell. Do you think he has acknowledged sufficiently
the potential that this goes okay, this goes right. In fact, it could be good. I haven't heard people talk about it very much. I think actually this is, yeah, it can go two ways. It can go very badly, for sure. You could have, let's say, the Chinese just throw up their hands and say, you know, we just can't do it and we're going to go some other direction. But
I don't think they're going to do that. I think all the incentives are for them and many others to come to the table, offer something. They probably have been too protectionist over the years. They have had too many non-tariff trade barriers. They can probably put something on the table that would get a deal. And that would be better for everybody. You'd get faster growth globally. You'd get faster growth in the U.S.,
And it would be a good outcome. So there is some upside potential. That's why I think you've got the stock market sniffing this out and moving up nine sessions in a row. This is more of a constructive view on what the administration is trying to do. Do you think we could see the Fed potentially offer two versions, dual guidance, like we've seen from some companies?
That's been discussed. Scenario analysis is a good thing to do in a time of high uncertainty, and then you could kind of map out some potential outcomes and then let the market put its own probabilities on those various paths.
It's hard to get the committee to sort of agree on which scenarios should we have and so on. So it's not the easiest thing to do. But if you look at older staff guidance that goes into the meeting, they have scenario analysis in there. And you can look at the ones that were released five years ago or so. So they do do that. It's kind of hard to talk about it other than individual members talking about it.
When we have the, of course, the Treasury Secretary talking about things like strategic uncertainty, how difficult does that make the Fed look, not just the next few months, but also this entire four years of the Trump administration, where that is going to be a feature, not a bug? The strategic uncertainty, yes. Well,
You know, part of a negotiation is to stake out an extreme position initially and stick to it. And that's how you get good outcomes from a negotiating perspective. From a monetary policy perspective, you always want everything to be perfectly smooth and no uncertainty at any point. And so there is a bit of a clash and that's just the way it's going to be, I think, for the next four years. Jim, what's on your dashboard at the moment?
We mentioned that we caught up with the Port of Valais director just before the weekend on Friday, and he mentioned the amount of volume that was coming off arrivals this week. And we were trying to work out the next dominoes to fall from there, whether that started a process which could spill negatively into the economy. What's on your dashboard at the moment for you personally?
Yeah, I think the tariffs between China and the U.S. are prohibitive. So this isn't about, gee, you can raise your price either in China or in the U.S. a little bit, people will still buy your good. You're not going to sell anything with these kinds of tariffs. So I think you guys have the right language. This is like a trade embargo.
That's very serious and can't go on for very long. So that's something we're certainly watching. I was looking at some charts this morning about number of ships coming and piling up in Long Beach and so on.
So that's definitely something to watch. I do think that these management teams of big companies especially, and smaller ones as well, really, are very sophisticated. They've been through a trade war before. They've got some strategies about how to handle this. So in some ways there's some insurance there, there's some mitigation.
You can't go on too long at this level of tariffs. And that's why I think many of these countries will see the light and come to the table. Hey, Jim, appreciate the update, sir. As always, Jim Bullard there, the former St. Louis Fed president.
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Erin McLaughlin there at the conference board writes the following. The focus needs to be on getting a China trade deal. The current tariff level is unsustainable. Erin joins us now for more. Erin, good morning. Good morning. Do you want the good news? The administration agrees with you. Yes. It's unsustainable. Does that mean tariffs are coming down then in the next few weeks?
You know, I think it'll be really interesting. I think what we're going to see is that there are going to be deals struck potentially with the other Asian economies while we sort of wait for China. You know, we keep hearing that there is discussions with China. Then we hear that maybe there isn't. So my sort of my thinking is that we're going to see deals with the other Asian countries ahead of time. Before we get the bigger deals, how distorted will this economic day to be through the summer?
Well, and that's really what we're waiting for is the data, just like the Fed is. One data point, which is not directly about consumer spending that we look at, is our own Consumer Confidence Index and the expectations part of that index, which is
continues to be at more than a decade low. It's in sort of that recessionary territory. We're also looking at port numbers, including the fact that the Port of LA is taking in about a third less cargo right now than it usually does in this time of year. When it looks at the expectations of consumers, what does this environment remind you of? What other point in time have you seen some of the survey data look like we have today?
It looks like the Great Recession or the years after the Great Recession, which took a lot of time to come out of that moment. It doesn't necessarily look like the pandemic because the pandemic obviously was something that sort of gumming up of supply chains was caused by an external factor. This is obviously something that is policy related and something that
could change, can change potentially. - We know that consumers are nervous about inflation and prices going higher because of the tariffs, but what you're also seeing is employment deterioration, this idea that prospects for getting a job is also challenging. - Yes, and that makes consumers more nervous than anything. You know, having a job, and we've seen in our history of looking at this,
When consumers have a job, they're going to spend. But when they don't have a job or they really think that their job is at risk, then they will sort of pull back spending and just concentrate on sort of the necessities. And they won't be asking for pay rise. What does that tell you? The attitude towards the labor market right now, what does that tell you about the risk, the perceived risk of second round effects from the tariffs and what it could mean for prices?
I think it means that, well, on the company side, you know, the conference board, our members are companies. So many of them are right now trying to figure out how to best communicate and analyze how to pass on prices or how not to, and really how to message with their consumers. And I think for consumers themselves,
it's really a matter of sort of pulling back and wait and see. But that's sort of that continual uncertainty that sort of, you know, makes it increasingly risky. Is there a particular date on the calendar that you're worried about an air pocket in the data? Is it weeks away, months away? I think it is...
somewhere between weeks and months. I think it is six to eight weeks away, which is, you know, at the conference board, similar to Goldman Sachs. We are thinking that July may be the first meeting where the Fed, you know, takes another look at interest rates. The Polaris CEO last week said that they're implementing a recession playbook. Do you see other companies having to do that now? And how self-fulfilling is that? That's a great question. I
It can be self-fulfilling from a consumer side. Obviously, we're still in a consumer-based economy. I think it's very interesting that companies are having, as we've seen with some of the earnings reports, they almost have two scenarios, the scenario A, scenario B. But no matter what, for companies to plan to onshore production, if that really is the goal here, is something that takes years, if not up to a decade, depending on what you produce.
So it's very, very hard to have a long-term playbook if you really don't know how long these trade and tariffs are going to be in place. - Right, so you just wait on the sidelines. So you think we're gonna see this hard data in July, but companies are already saying they're doing things like a recession playbook. Do you just feel like the Fed then is bound to be late?
It's hard to tell because obviously the employment numbers are still strong. Inflation is still pretty flat or coming down. So what is their, they have to have a reason, a data point in order to make an adjustment.
We'll get more data later on this morning, 10 a.m. Eastern time. You'll get the ISM services print. Erin, it's good to see you. Thank you. Erin McLaughlin there at the conference board. 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 6 a.m. 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. ♪
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