Bloomberg Surveillance TV: June 30, 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.

Former Kansas City Fed President Esther George expecting the Fed to stay on hold, writing the following, although inflation is not accelerating, it remains sticky and appropriately ties the Fed's hands on further rate adjustments. Esther joins us now for more. And Esther, for someone who used to lead the Jackson Hole Symposium, I apologize for Lisa. Just ignore everything Lisa just said. I love it. I love the forum and I love seeing you over there. OK, can I just say I'm the one person who. No, I'm not going to.

I apologize because I'm just going to say I love it. I love the experience. I love the land. I'm a big proponent. I'm staying longer so that I can go tour around and take hikes. But carry on. Pleasure. Esther is convinced. Yes. Thank you. Esther, let's start with that quote. It's an important one. Do you believe the labor market is strong enough to wait to see what happens with inflation?

Well, we're going to find out, obviously, with this week's report, how the labor market is faring. We have seen the labor market first kind of come into better balance, if you will. The number of job openings has come down. We do hear anecdotally that businesses are hanging on to people. In some cases, we'll see whether they're shedding people, what the labor force looks like itself with all of the

the policy changes that have been going on there so i think there's a lot to watch for in this particular report

that could begin to give us a sense of how the labor market's doing. You know, Esther, just to build on the Jackson Hole Symposium, this year it's talking about the changing nature of the labor market and how difficult it is to really measure it. To pair that with the number that we get on Thursday, there's this belief that it's going to be lower than many people have become accustomed to, but that still is healthy. How do we gauge a market and its health that is so in flux, both from the policy perspective and the technological perspective?

Yeah, it's especially hard, Lisa, because I think we have come off a period that was, I'm going to call it unusual, to have an unemployment rate in the neighborhood of 3.5%. And trying to diagnose what are the characteristics that are shaping that labor market is essential to how the Fed really calibrates its... You think about both sides of our calculation here.

that we have seen the bottom line number around who's in the workforce. We have seen the hiring numbers and

Trying to really assess that in a time of great uncertainty is one of the Fed's biggest challenges. There's a big debate right now on Wall Street in the push-pull of, is this market, albeit not strong, not overly weak, just weakening, whether it's still healthy enough or whether it potentially is showing real cracks, like Neil Dutta has pointed out, of a renaissance macro, especially given the fact that the hiring rate is so low and people are staying on the unemployment rolls for longer. Do you have...

- Do you have a take for that? Do you think that there should be more emphasis placed on one thesis than the other?

So I don't think you can wait one or the other. We know that the dynamics in our economy today are pushing in both directions. We've seen an economy that's beginning to slow. It's being hit by policy changes that businesses are trying to digest here. And so I think you really have to not lock into a particular narrative here, but be watching how those dynamics are unfolding.

Remember today, the economy is still in forward motion. It is still operating in a way that we see growth. Obviously, that can change with any particular data point or news announcement that we see.

But I think the fundamentals here suggest that we shouldn't read too much into any particular narrative at this stage. If April 2nd hadn't happened, I'd love to explore this with you. If it hadn't happened, given the downside surprises we've had from core CPI over the last, I think, four months and the uplift we've seen in continuing claims, which on the margin is slightly concerning, would you have voted for a rate cut based on that alone?

You know, Jonathan, I don't think so. And here's why. I view price stability as a prerequisite for sustained growth for a healthy labor market in the long run, which is what the Fed's mandate really is, is looking to the long run. And so I think when you see fiscal policy on the path that it's been on,

It would be by itself, I think, reason to be cautious right now in an environment where the Fed has not yet hit its inflation target. So I don't want to take anything away from the fact that we have made progress. But I would also want to be careful in that risk management scenario that you're not.

putting too much promise yet on a state of inflation that has yet to be achieved. Speaking of risk management, if we get an announcement from the president in October, even early as September, of who the next Fed chair is going to be, who his pick is, will that blur the lines of the Fed, its independence, and who's really leading the institution?

Well, I don't think so, as long as the current Fed chair is in his seat. He's been very clear, and I think he has every incentive to be focused on policies

that achieve the Fed's mandate. Does it complicate communication? Does it create a lot of noise? Of course it could. But I think any Fed chair is going to understand that their obligation to meeting their congressionally assigned mandate is really the priority. And in the end, you're doing that on behalf of the American public. You're not serving just one part of the government.

Esther, always appreciate your take on things. A clinic as always. Esther George there, the former Kansas City Fed president. 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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Terry Haines of Pangea Policy joins us now. Terry, in your opinion, is this real authentic resistance or just a little bit of theatre before the ultimate inevitable later this weekend? Good morning, John. I'm in the theatre category, I think, today. And I enjoy theatre, but it is theatre. You know, you...

Political bodies always wrangle around for votes. And this is a situation where there are 53 votes that absolutely matter. And they're jockeying for the most they can get in a situation. But at the end of the day here, they come together. And if anything, the weekend saga with Senator Tillis is a nightmare.

foreshadows that because you get a situation where there was so much pressure put on him and he's decided not to run for reelection. These guys all like their seats and they're probably gonna wanna stay. Terry, when it comes to who has the leverage right now, when there's competing factions in the Senate, which group is it?

Fundamentally, I think it's the people that are kind of the harder core versus the softer. Obviously, there's more of them, number one. Number two, they're pushing as hard as they can to get this thing done. They will make whatever smaller accommodations they have to the other faction to get some things done. But don't look for the Senate to automatically morph into kind of flip over to the soft side wholesale. When it comes to how this legislation, this process all comes together,

What is going on with the Byrd rule? Do you think we're setting up a president now where any party can come in and basically set policy and extend that policy within the next 10 years?

Oh, I think that's been going on for 60 years through the reconciliation process, frankly. Let me also say on the Byrd rule, the Byrd rule is a germanious rule, by which I mean whether or not it should be, some provision ought to be in a budget bill or not, whether it has budget impact at all. And those are rules of the Senate. And I know there's all this kerfuffle about Liz McDonough, the parliamentarian, but

But what she's doing is faithfully executing her job as a staffer, the parliamentarian, to interpret and finalize rules that the Senate itself has put into place. So this is not a situation where the staff's hijacking some process. And it's a terrible thing for any elected official to blame a staffer for that sort of thing.

This is a situation where the rules governing the particular budget process are in play. But back to your point though, both parties have been gaming this system for 60 years and I expect that to continue, yes. Terry, you said initially that you do think this is more theater than actual fissure in the Republican Party that could stymie this bill. And yet we're all playing the numbers game over the weekend that the senators, the congressional,

Republican senators can only afford to lose three votes, and currently there are four that are on the line. There's Ron Paul, Lisa Murkowski, Susan Collins, and now Tom Tillis, who isn't running for reelection, isn't necessarily constrained by potentially being primaried. Who caves on that front? Why do you see this as still getting over the finish line?

Because of the sequence of votes, generally speaking, what I think what Senator Murkowski, Senator Collins get is a little bit of softening on Medicaid provisions, maybe some other things that they're interested in. Senator Murkowski is always standing up for Alaska energy, and she should, and she'll work on that.

And at the end of the day, what you're going to have then once those accommodations are made, then you're going to have a situation where you have 52 on one side and Rand Paul on the other, and they will vote for final passage there. So we spent a lot of time wringing our hands earlier this year talking about the increasing budget deficit in the United States and how this is going to cause some sort of bond vigilante moment.

where you get real pushback in the bond market. We just had the best month for the bond market in terms of performance going back to February. At the same time, the Committee for Responsible Federal Budget says that this current iteration of the One Big Beautiful Bill is going to add $3.9 trillion to the deficit over the next decade. Which is it? Do you think that people are being a little overly sanguine about what this does to the deficit? Or do you think, like we heard from Steve Chivarone, that there are going to be real offsets that we haven't accounted for?

Well, two things. One, whoever's doing the interview with Secretary Besant, I hope they'll acknowledge that he was absolutely correct on how he thought markets would react in the medium and long term here, both on equities and in bonds. He called that and a lot of people didn't.

Secondly, Sangman, I don't know. The rules by which the CBO and outside groups concoct their views are artificial, and they exclude lots of things like politics.

like the impact of tariffs and growth, frankly. So yeah, I'm on Team Steve on this one, I think. Terry, when it comes to how this actually gets to the president's desk, what's going to happen in the House? Does the Freedom Caucus just fold like they did in 2017?

I've been for three months now been in the been advising markets that this thing was going to happen on or around July 4th. And now here we are. And I've also for probably a couple of months now been advising that the whole purpose here is the Senate's going to jam the House.

And the Senate bill will be the final bill. And I still think that. And frankly, if you listen, I mean, this is the buzz is kind of under bubbling under right now. But if you listen to what the House people say publicly, they expect that, you know, there's all kinds of talk about, you know, how we've accommodated the House and how we've been working together and all the rest.

What that is is a signal that we're going to end up having to take whatever the Senate does, and the president's going to have to come in and put the hammer down on some people. Hey, Terry, it's good to catch up with you this Monday morning. Good morning, sir. Terry Hines there of Pangea Policy.

Michael Kushner of Morgan Stanley believes we're currently in a sweet spot for markets. Doesn't feel like one. But we have the unemployment report, budget negotiations, tariff deadlines all coming up over the next two weeks or so. Michael joins us now for more. Michael, good morning. Good morning. It hasn't felt like a sweet spot for markets. I guess if you're away from all this and you see the stock market at record highs, it might feel good. But if you've been in it, the last three months has been brutal, hasn't it? Absolutely.

Absolutely. I'm really talking about a sweet spot from all the worries that we had just a couple of weeks ago. All the negative things which could happen have dissipated, at least for the time being. But we've got this calendar coming up this week and next couple of weeks through July that are quite impressively, potentially volatile. But like the digital service tax, we can't have yesterday. Again, positive news at the margin, just dripping it back into the market to reduce the intensity of worry.

Early November, when the election happened, we were wondering whether this bond market would push back. What would be the biggest constraint on this particular bill down in Washington, D.C.? And here we are, and this bond market is not pushing back at all. Why?

I think it's the confidence that rates are going to be cut, that the deterioration of the labor market is going to continue, and that continuation of the labor market, and the idea of the Fed policy being a balance between employment and inflation. As employment drifts weaker relative to inflation, inflation's been good the last couple of months,

But again, it's been good seasonally the last couple of years as well until the summer. That's why they cut rates last September. Is it going to deteriorate in the next couple of months? But if inflation deteriorates, I mean, if unemployment deteriorates, I think the Fed will react to that. It seems as though the bond market and stock market are getting excited about different things. The stock market is getting excited about AI and the potential for things to be sort of muddled along enough to allow companies to keep innovating and possible regulatory rollbacks.

The bond market's getting excited about enough weakening that the Fed can cut, but not too much weakening that it'll fall off a cliff. Is that basically where we're at? Exactly. Rate cuts in a still-growing economy is perfect. The economy's forecasted will deteriorate to 1% growth and back to trend growth next year as the Fed cut rates. How good a combination is this? So,

Why are we not talking about the Fed cutting rates at a time where the economy is still moving forward, to use Esther George's phrase, with a budget that is getting more deficit-driven? And those fears still here. The dollar being sold, institutional investors overseas, real questions about how much they will be the incremental buyer of treasuries. Why are we no longer talking about that?

talking about that whole dynamic at the long end? We still think there's going to be a steepening bias for that reason. Think about in terms of the back 10-year yields are longer, that we had a savings glut in the old days and a shortage of safe assets. The budget deficits were shrinking in Europe, the United States, shortage of safe assets. Now we have an explosion of safe assets, and that's going to put demand for long-term

demand to be substandard relative to the supply of longer-term government bonds, whether it's European, whether it's U.S. or other countries, pressures on budgets will continue, which again gets back to the point that why is the Fed going to be cutting rates aggressively, 100 base points in the next 12 months when fiscal policy is where it is and inflation is still problematic? Is this dollar weakness trend you think here to stay?

I think it is. And mostly it's valuation and the underpinnings of the strong dollar are slowly eroding. They're not collapsing, but they're eroding. It's a marginal change. If the U.S. is not going to maintain a multi-percentage point growth differential versus the rest of the world, just going to narrow a bit, given valuations where the dollar is, it's likely to fall. Fiscal policy is being more expansionary outside the United States, maybe inside the United States. Lisa's been talking about this idea of

the bond vigilantes maybe are absent right now from this $3.3 trillion to the deficit the CBO says this bill is going to cost, but maybe they're taking it out when it comes to unwinding in the dollar.

dollar dumpers. Is that what it is now? I think that's potentially it, that the world is overweight dollar assets and for good reason. And the dollars acted as a good hedge for those assets. So the S&P went down, the dollar went up. That was good. It balanced the risks of only U.S. assets. As that changes, that there's going to be more dollar hedging going on. So maybe not selling dollar assets, but look where equities are. Why are we worried? But the dollar, maybe we should be hedging our U.S. assets. Where are you comfortable taking duration risks right now?

The whole world's on the menu, by the way. Where are you comfortable taking that risk? I think it's sort of in shorter intermediate maturities. Less so today. So the answer's nowhere. The answer is no. This huge rally we've had, well, not huge, but a really big rally in two-year notes down to 375 with Fed funds still 4.5%.

We have to have 100 basis points of rate cuts in the next 9 to 12 months to justify current pricing, which is justifiable if it does happen. Same thing with 10-year treasuries. It's potentially okay if we do deliver 100 basis points of rate cuts. If we do deliver 100 basis points of rate cuts at a time where the economy is still strong, what happens to the yield curve, though? And this really does ultimately go to a question John asked earlier, which is a really important one. Is there a lesson from what we saw last year from the Fed's 100 basis point rate cut

and what that could mean for this one. - Exactly, the last time we had rate cuts last year, the minute they finished rate cuts, 10-year charges went up in yield. - Well, the same thing happened? - I think that's the same thing happened again. I'm not sure Fed rate cuts help mortgage rates. What's the president gonna say when that happens? That's precisely what happened last year.

I don't know. I mean, what does he say? Does he blame the Fed chair? Does he try to keep Powell in there to try to blame him? Does he say they should start quantitative easing and essentially monetize the debt, which is sort of the worst case scenario for the dollar? How do you jawbone this one or do you just say rates are too high, cut more? I mean, really, it's really unclear how you message this when it's a very simple message of get rates lower facing off with a very complicated economic reality of which rate you're talking about. The latter.

It's not enough. Cut more. So that brings in the later risk, which means a new Fed chair later on in 2025. What does all that mean to you? It means that monetary policy is going to be...

more uncertain next year. But I'm not sure that a Fed chair of the candidates that are being bandied about are that wildly different than what we've got today. It's a board of governors. It's a committee. If you get, oh, Kevin Warsh, one of these other gentlemen or women that are

being proposed will not radically change monetary policy. If we get conditions such that the economy is weakening, we'll get bigger rate cuts. - Well explore this with me. What if it was the NEC director? What if it was Kevin Hassett? Someone in the administration now, works closely with the president, when the president has said very, very clearly what he wants from monetary policy and then selects someone from within

the team within the White House, within the West Wing? It's going to be a little unprecedented, I think. Do we sell bonds and sell the dollar that morning? It would be interesting to see how the board works, how the FOMC works. I want to know what the market would do beforehand. I think it would be worried. The vote would be to sell bonds, sell FX. Yeah, I think so. That's the big risk. That's why we keep saying the market's going to get a vote on this long before the Senate. And that's the reason why it's sort of interesting that right now the market's saying, OK,

Keep going. Because right now, if you look at the bond market, you're not seeing any sign of real worry given the fact that we just had the best rally going back to February. Not the same kind of message, though, coming from the dollar. And not great music for the years of Kevin Hassett either over at the NEC, who some people might think would do a great job over at the Federal Reserve. But the problem is the perception of the market right now.

how the market would perceive a move like that and whether we would just sell bonds and sell the U.S. dollar in the face of that decision. If you're worried about institutional credibility and you put the person who is in charge of orchestrating the Trump agenda in charge of the Federal Reserve, that independence gets challenged in a very obvious and public way. Michael, good to see you. It's great to catch up, as always. Michael Cushman there of Morgan Stanley.

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Let's get back to trade. Global trade partners looking to strike a deal before President Trump's self-imposed deadline on July 9th. The former senior White House trade advisor, Kellyanne Sean, writing the following. I'm expecting to see most tariffs land between 10 to 25 percent. Kellyanne joins us now for more. Kellyanne, welcome to the program. What leads you to that conclusion, Kellyanne? 10 to 25 percent.

Thank you so much for having me. And I do agree with Anne-Marie. I think July 9th is feeling less like a deadline and more like a mindset in terms of how I expect to see some of these relationships roll out. I think that 10 percent is the safe zone. That's where the president has kept us for the last almost 90 days. And 25 percent is a really high tariff.

So I expect after all of these negotiations that the countries who get the best deal, like the UK, will end up with a 10% baseline tariff. And my expectation is that for everybody else, 25% is probably the upper range, plus we have some of these sectoral tariffs. And we're getting some of those indications from administration officials who are signaling that to the private sector as well. I like that. It's a mindset. So in this negotiation of mindsets with all of these countries,

What is the order, the pecking order? Who gets a deal first? Well, I think we're likely to see a mix of countries. And clearly, the administration has been targeting our biggest trading partners, those with whom we have the largest trade deficit, as the prime targets for the president's trade policy. Because if you get that right, everything else can flow through there. But what I expect to see is actually a mix. I think we'll see some large trading partners. I'm actually starting to put the European Union in that bucket. The president's talked about

India. We could see some Asian countries as well, Latin American countries, other European countries like Switzerland. Maybe we see Brazil, Argentina and countries like Israel in there. And then the president is going to assign a tariff rate to everyone else and give them the opportunity to come back and to renegotiate if they want something lower. So I think we'll see all of the above. So it feels like he'll just be negotiating for his entire term. Is that how you take it?

Well, if it's anything like Trump 1.0, then yes, I think this is a perpetual negotiation that we'll continue to see unfold. But here's what I really think we'll see, that over the next couple of days, starting with July 4th and rolling into July 9th, we'll see a series of deals announced. And these will effectively be like agreements in principle over some quarterbacks.

core obligations. And then the details of those deals will need to be further negotiated. And Secretary Besson has talked about Labor Day as a potential target date for finishing up some of those negotiations. And I think we'll see more stability in the market from there. But this is

continually a moving target. And I think countries who want a better deal six months, two years from now will have the opportunity to get that. So let me get this straight, Kellyanne. We're talking about July 9th soft deadline for concepts. And then for some more details, we're talking about Labor Day. What do companies do with all of this? I mean, are they paying the de facto tariffs at any given time? How do they sort of follow rules that have not yet been codified?

Yeah, I think those are really great questions. And I do think that we'll start to see a lay of the land come July 9th. And I think we'll see a greater lay of the land come this summer, fall. And that's where I really think the private sector is going to have more certainty as to what some of these tariff rates are likely going to be for the long haul.

But I don't think we'll ever get that certainty certainty because we also have these sectoral tariffs that the administration is continuing to roll out. We've heard that they have six or seven more investigations in the hopper of different products and sectors. So I think we'll continue to see this evolving. But I do think we'll get more certainty through the summer.

So there's been this theory out there that we'll see some of the trade negotiations and the trade deals that we've been discussing trickle into the economic data and trickle into earnings as soon as the next few weeks. Do you think that's feasible given the fact that companies don't have certainty and aren't willing to make big moves on either a supply chain level or even on a pricing level before they have that clarity?

Yeah, and I think the other thing that's in play right now is the one big, beautiful tax bill. And so what the administration would say, of course, is that it's not just our tariff policy, our trade policy, but you have to look at our tax policy, deregulations, energy diversity, all of these things to get the full picture as you're taking steps to invest in the United States and set up some of those supply chains. But I think for some of these sectoral tariffs, those are going to be stickier. So companies who are in steel, aluminum, autochrome,

Automotive, semiconductors, pharmaceutical products, I think they'll see some more certainty sooner. But I do think for everyone else, if you can sort of bake in an estimate of a 10 to 25 percent tariff, depending on where you're importing from, that's probably a good estimation of where things are going to land. And that's what I'm telling my clients. An entire trade conversation. We haven't talked about China yet. Kellyanne, just what's the next steps when it comes to this relationship between Beijing and Washington following the Geneva and London talks?

Yeah, I think things are going very slowly at the moment. And so right now we are working on implementing that original Geneva deal through the London framework. And so all eyes are focused on some of these export controls on the Chinese side, rare earths and rare earth magnets in particular on the U.S. side. Some of the countermeasures that were taken. The president mentioned yesterday that the chokehold the U.S. has is on China's aircraft and aerospace industry and that they need us for that.

the same way we need them for rare earth magnets. So I think we need to see a de-escalation with these two sectors right now in the next few weeks. And at that point, that August 12th deadline was supposed to be the date where we saw a broader set of

economic commitments being negotiated between the United States and China. But I do think the focus of August 12th is going to be relatively narrow, both on implementation and maybe seeing phase one roll out. But this is going to be a difficult relationship. And I think we're going to see this play out over the next year or two, not just the next couple of weeks. Kellyanne, a few more years of this. Can't wait. Kellyanne Shaw, the former senior Trump trade advisor.

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 App.

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