Bloomberg Surveillance TV: June 5, 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. Have you received a call back from Mr. Musk? No.

Yes, look, Elon's a good friend. We texted late last night. We're going to talk this morning. I just want to make sure that he understands what I think everybody on Capitol Hill understands. This is not a spending bill, my friends. This is a budget reconciliation bill.

and what we're doing here is delivering the america first agenda this is all the president's priorities and all the priorities of the republican party everything we promise the american people that is what we are delivering with this piece of legislation and the reason we're using the reconciliation process

is because that is the only way to get around the 60-vote threshold in the Senate. Everybody probably recognizes Chuck Schumer and the Democrats are in no mood and not going to be helpful in delivering President Trump's agenda for the people. We have to do it this way. We can do it with 51 votes in the Senate only, and that's the urgency of the hour. And we have to do it quickly for all the reasons we can discuss this morning.

So did you get a sense from Elon Musk in those text exchange that he was going to stop his insistence on this bill that he thinks needs to be killed?

He seems pretty dug in right now, and I can't quite understand the motivation behind it. But I would tell you that what we're delivering in this bill is not only historic tax cuts, but historic savings as well. He seems to miss that. I mean, the projection is that this legislation is going to save us $1.6 trillion with a T. Now, there's never been a piece of legislation ever delivered in the history of government on the face of the earth

that saves that much money. So this is truly historic. Now, is it enough? No, because all three of us understand that we have a large federal debt. We've had deficits for some time, and it's a serious concern. In fact, it's the number one threat to our national security. But this is the biggest step in addressing that problem that Congress has ever delivered, and we must do it. And I will hasten to say this.

I've told Elon and tell everyone, this is the first of a series of steps that we will take to bring that debt under control. But you can't turn it on a dime. It took us decades to get into this situation. So we have to do it incrementally. And this is a huge step forward in that endeavor.

What's the driving force behind Elon Musk's problems with this bill? Has he asked you directly to potentially keep the electric vehicle benefits we saw under the Inflation Reduction Act of the Biden era into the bill? Look, I'll let everybody draw their own conclusions about Elon's motivations. I'll tell you that, I mean, obviously the EV mandate going away is, I'm sure, a concern for, you know, the leader of Tesla and other things as well. But I

I think there's a lot of confusion out there about what the legislation is. There's certainly a lot of misinformation. I mean, the Democrats have been engaged in this effort, this strategy for many, many weeks and many months. But remember, it took us over a year to develop this piece of legislation. We have 11 different committees in the House, all their areas of jurisdiction that worked on the reconciliation effort to reconcile the budget. And what we're going to deliver here, again, is historic tax relief

and savings at the same time. If we do not get this bill done, the tax cuts of 2017, the Tax Cuts and Jobs Act, will expire at the end of December. Every American will receive the largest tax increase in U.S. history all at once. It will be devastating for the economy. So we've addressed that here. We've made the tax cuts permanent, and we've infused it with a

the pro-growth series of policies that will get the economy going again. It will be jet fuel to the economy because we're going to reduce wasteful spending, we're going to reduce taxes, and we're going to reduce regulations as well. And that is what will allow job creators in the energy sector and everyone else to get

go in again. And your version of the bill, of course, increases the SALT deduction cap, which yesterday Senate Majority Leader John Thune said, quote, there isn't a single Republican senator who cares much about the SALT issue. You and I both know you cannot pass this bill without increasing the SALT deduction cap. How do you envision, though, that deduction changing, given the fact that no senator, Republican senator, wants to vote for this?

Well, I appreciate that they don't. They all come from red states, right? As do I. And we have very different perspective on salt than our colleagues in the blue states, for example, in California and in New York and New Jersey.

But that is the reality in the House, remembering, and they have to remember, my Senate friends and colleagues have to remember, I have to deliver 217 votes to get that thing across the line if they modify it. So I had lunch with my Senate friends Tuesday last, two weeks ago, before we passed the bill in the House on that Thursday.

And I encourage them to modify it as little as possible, right? Because I gave a metaphor. I said, my friends, I am crossing the Grand Canyon on a piece of dental floss, okay? The equilibrium that we reached here took quite a bit of time to get to where we are. And you can't load me up on either side. And if you go and slash the salt cap that we negotiated carefully for over a year, it's gonna make it very difficult for me to deliver the necessary number of votes. Remembering I can only lose three in the House

They can only lose three in the Senate to get this done. So we're all working together. It's one team, House and Senate together, united in this effort. They understand that. And I think they understand, certainly, Leader Thune and the leaders over there understand the complexity of what we're having to deal with. Speaker Johnson, just to sort of put a bow on it, so 40,000 is still likely to remain the cap?

That's what we negotiated here, and I'm certainly trying to hold to that number. Look, we've paid for it. I think we've got it worked out in all the math and the legislation, and I think it's something that I know they're not in love with it, but I certainly hope they'll tolerate it so we can maintain our vote tally over here.

Speaker Johnson, as you walk that piece of dental floss over the Grand Canyon, there is this question of how the bill is currently being used, whether it's for budget negotiations and budget reconciliation over the next decade or whether it's to negotiate trade agreements. There is $2.8 trillion of revenue that is being penciled in by the Congressional Budget Office.

from tariffs that might be used as a negotiating tactic, might not be. How do you understand the way that tariffs are looked at as part of this Budget Balancing Act?

Well, it hasn't been included in the calculations, and that's because groups like the CBO, the Congressional Budget Office, as you noted, won't give us any credit for that. But it is very real. I mean, the revenue is real, and it is realized. And it's not included in the calculation that we've made or they've made, but obviously it's a big factor. We believe that we're going to bring about

uh... a roaring economy again and it's not based on conjecture or groundless uh... optimism made this is based on the history we did this in twenty seventeen after the first two years the trump administration we pass the tax cuts and jobs act we reduce taxes we reduce regulations in the economy was roaring i mean you all remember before covid we had the greatest economy in the history of the world i mean everybody was doing better every demographic wages were up the job participation numbers were at record highs

inflation was down and manageable, things were going great and then COVID hit. So we're gonna do that same series of policies, implement that same philosophy, but this time, as I say, on steroids, and it's gonna make a major difference in everybody's lives. - Speaker Johnson, a lot of people in markets are concerned about a number of provisions here and actually don't think they will spur growth. One of them being section 899, which talks about taxing foreign investment in the United States from specific countries.

that have non-tariff barriers like the VAT tax and other things that have been contentious during negotiations of trade deals. How much do you see that dampening? I mean, is that a concern for you? Because right now, around the world, there are people wondering whether they can still invest in the United States without getting penalized for it. Yes, look.

There's a complexity to the tariff negotiations. I mean, we tip our hat to the White House and the president's strategy is working. As you know, there's more than 75 countries renegotiating their trade agreements right now, finalizing that even as we speak. That's going to be better for America because it will be more fair. You know, I'm always liking myself to be a Reagan Republican and free trade is one of our core principles that we've all, you know,

supported over the years and and every time i would say that over the last several years to president trump he would say yes free and fair trade and he's right i mean this is a disparity that must have needed to be addressed and it has been so we we think uh in total this is going to be good when it's all when all the dust settles on the tariff negotiations and the new trade agreement so it's going to be good for america and good for the world and and so we're factoring that in we're working in tandem with the white house and it's it's

So it's going to stay in. Speaker Johnson, just to be clear, that provision will stay in. That is important to you. Look, I think it is. I mean, obviously, the bill is still a live instrument that's being worked on in the Senate. So we'll see if they modify those provisions. But I think for now, I think that's good policy for us. And I want to say to foreign investors, you're in good stead to invest in America. This is the time to do it.

because the American economy is about to take off again, and it's going to be good for you and good for the world. We're the largest trading partner for most other nations. They need America, and a strong America is good for the whole world, and that is what we are going to bring about with these sound policies and pro-growth initiatives.

Speaker Johnson, you and your colleagues have a self-imposed July 4th deadline. Partially that is because you have to raise the debt ceiling. Are you considering raising the debt limit if this deal isn't finished by July 4th with a different measure?

Well, it'd be very difficult to do it. I mean, it would require a bipartisan measure in that regard. And I would like to believe that Chuck Schumer and the Democrats in the Senate would do the right thing, but I wouldn't count on that. That debt cliff, as we're regarding it, is coming soon. And that's why Secretary Besson has said we've got to get this done by Independence Day. And I think it'll be a great celebration for all of us. But it's not just because of the

the debt ceiling. It's also because we need to get tax relief and in this new roaring economy to the American people as quickly as possible. They're owed that. And this is going to be a great thing for everyone. And, you know, I have to also think about the politics of it. Right. We have a midterm election coming up in 2026. If we get this done soon and quickly this summer,

then everyone will feel those effects before they have to go vote again in that midterm election. We want to keep the House majority and keep this going for four years for President Trump and not two. And if we lost the majority, there's no doubt that the House Democrats would try to impeach the president and everything would be truly chaotic.

for investors and job creators and consumers. So we have to keep this going, keep the momentum going. The timeline's very important. And that's why I put this on a very aggressive schedule. I said back in the early part of this year that we would pass the big, beautiful bill out of the House before Memorial Day. And people laughed. They mocked me when I said that. But we beat it by four days. We're going to stay on track and we're going to deliver for the American people.

Well, you have exactly 29 days to hit that deadline. Are you saying there's no plan B for raising the debt ceiling if this bill is not done between House Republicans and House Senators?

Look, Republicans in the House and Senate will deliver and will take care of our business one way or the other. But I'm just telling you that the smartest and most efficacious way to do this is to stay on the schedule and deliver for the people. And that's what we're doggedly determined to do. We're laser focused on it. And if we if we take our focus off of that, then the strategy doesn't work. So I'm telling you that we are working on that regard. Leader Thune and I are in constant communication. He understands that deadline as well. The secretary of the Treasury and

the NEC and all the leaders in the White House and the administration understand that. So we're going to get it done. Speaker Johnson, how closely are you watching the bond markets right now, given the fact that we've seen a real sense of concern, particularly in longer duration U.S. treasuries?

We watch it closely. Look, I really do believe that delivering this historic legislation is going to be critically important for a lot of reasons, not the least of which is that Congress can send a very important signal to the bond markets, to the stock market, to investors everywhere, that we're very serious about this, not only in getting the U.S. economy roaring again, but

also in addressing the long-term debt and I think that's an important thing for everyone to understand we have a strategy that's a multiple steps as I said multiple step strategy to to address this over the next year two years three years and we're going to get the US economy back on sound footing we're the party of fiscal responsibility and you'll see that demonstrated day after day here

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.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

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President Trump slamming Fed Chair Jay Powell once again, saying, quote, too late, Powell must lower interest rates after a weak ADP data. Krishna Guha of Evercore writing, it would take a large and rapid increase in unemployment driven by increasing layoffs to cut in July. It is easy for the Fed to justify remaining in a wait and see mode. Krishna joins us now. Krishna, thank you so much for being with us.

A lot of people agree with you. At the same time, a September rate cut is pretty much baked in. Does that seem appropriate to you based on the economic data that has been weakening over the past couple of days? Look, I have a base case of a September cut, but I don't think it's anything close to a slam dunk.

I think right now the question is, does the labor market weaken enough over the next several months for the Fed to judge that it makes sense to lean against that weakening with a cut in September? I think to get that, you need unemployment moving up to something like four and a half percent by September. I think it's a close call, to be honest.

And this is the reason why I think a lot of people are looking at whether it is just going to be one print, whether it's going to be a collection of prints. Something that caught my eye yesterday, we all are so data dependent and yet this Bureau of Labor Statistics put out an addendum talking about how they collected fewer data points in the April CPI survey because of a lack of staff. And there's been this speculation about the actual

accuracy of some of these surveys as employment has gone down and frankly as responses have gone down. How much credence do you give to some of the data that we get? Do you think that it still has the same integrity? So in order to make good judgments, you have to have good data. It's as simple as that. Now, I still think that the U.S. government official statistics, BDA, BLS, are

are still the gold standard, but we have to be careful because, as you say, some response rates have been coming down, and now we're starting to worry about staffing cutbacks and other funding cutbacks potentially weakening the quality of these data series going forward. So in any moment in time, you want to look at the holistic picture of the data and all the private sector data, including very much online.

UNEMPLOYMENTS, CHALLENGER LAYOFFS, INDEED JOB POSTINGS AND SO ON. IT'S A CROSS CHECK AGAINST THE OFFICIAL DATA AND SOMETIMES GETTING AHEAD OF THE OFFICIAL DATA. I'LL TELL YOU, HAVING SEEN, FOR

how problematic it has become in the UK, where some of that core official government labor data just hasn't been reliable for some time. It can be very, very damaging. And that's a much smaller economy. So if you're not 100% trusting the data, you don't have policy uncertainty in Washington, D.C., what's your North Star these days?

Well, I think, look, I think we know from first principles that tariffs are going to slow growth and push up prices. What we're trying to understand is the relative balance of those effects.

I think that we're going to learn a fair amount over the next several months on both of these counts. But my hunch is that we'll learn more on the labor side than we will about what really matters on inflation, which is not the first round price impact, but whether it starts to get embedded into underlying inflation dynamics.

So I'm going to be looking at everything, official and private sector, company-level data and earnings calls and so on. But what I'm really trying to understand at this point is, do those inflation expectations stay anchored, A, because that's the precondition for even considering cuts? And then, B, do we get a material enough weakening in the labor market for the Fed to want to cut, to lean against that gathering any momentum? I think it may still be a little while before we really get visibility on this. But my hunch is that we'll have a feel for that.

how much the labor market is deteriorating by September, which makes it the logical moment to call the next move on rates.

Hi, Krishna. Lori Calvacina from RBC. I've been getting a lot of questions on small caps, which are related to rate cuts. And I'm wondering in your conversations, are you starting to see expectations that the Fed is actually going to do something in September? Are those moving up? Are those moving down? There's been a lot of dispersion. There's been a lot of shifts in kind of the vibe on the ground. What's your read of the tea leaves right now?

So the market has, with this most recent sort of patch of weaker data with ADP and with ISM services, markets moved to price in more conviction, high conviction around a September move and, you know, and sort of more than two cuts discounted through the end of the year. And, you know, obviously, if we get more rate cuts, provided that's not

not in the context of a recession. If that's a moderate weakening that the Fed's leaning against, that can potentially help the small caps and other stocks. But I think we've got to be a little careful interpreting this. I don't think we should interpret market pricing as saying September is anything close to certain. And I say that as somebody who has it as a narrow base case.

I think the reality is that there is still very much a pathway here where we end up with no cuts because the labor market doesn't weaken all that much. There's a pathway where we get two or three cuts, an intermediate case where there's some softening and the Fed's leaning against that as it emerges, but not before it does. And then there's still the recession case. You know, is that 25, 30 percent? Is it a bit more, a bit less?

And if we do break into recession this year, then the Fed will be cutting very, very aggressively. So remember that the market pricing is essentially the mean average, the weighted average of those three different parts. Krishna Guha of Evercore, thank you so much, as always, for joining us. Joining us now, Jordan Rochester of Mizuho. Jordan, your first take on this.

Well, it's a dovish outcome in terms of the inflation forecast, the 0.3 vision for the next two years in terms of the numbers for 2025 and 2026. However, the elephant in the room is what's not in this statement, which is their view on the impact of trade tariffs. We'll get that at 2045, that release. That for us will be the scenario analysis. Do they double the impact that they expect?

from tariffs. What about the 50% from Donald Trump? So a lot of this will have to come out in the press conference. So far, the moves are quite small, though. FX, euro slightly higher. And in the front end of the rate, you've only had a two basis point rally. So nothing too big. We wait to see what Lagarde says later on and those forecasts and those scenarios that come out later this afternoon. Well, some...

notice we have when it comes to trade, that the ECB statement says trade escalation would lead to lower growth and inflation. Jordan, how do you start thinking about if the European Union doesn't get a deal with the U.S. by July 9th?

Anne-Marie, I think the EU is probably at the bottom of the list in terms of the major partners. If you think about it, Japan, India, Vietnam, there's much more focus on those negotiations. When it comes to the EU, there's a lot of lobbying to go hard on the EU to reform some of the non-tariff barriers they have, such as the digital services tax with the US and various other sort of non-tariff measures. That's something that's very difficult to agree to by July the 9th. So what might happen is a stopgap, another delay.

essentially. That's the best that you could hope for. We saw that when Trump ramped up the tariff to 50 percent. We saw an immediate delay, really. It happened within a day or two after one phone call with Ursula von der Leyen. So I expect that the worst case scenario is the tariffs come in at the reciprocal levels, which are around the 20 to 25 percent level. And the EU will be facing an

of a summer of weaker data as a result and a more dovish ECB. So we're looking for more rate cuts from the ECB than the market's pricing. We like receiving the front end for September, for example. We expect rates to get down to 1.5. This market's pricing around 1.7. Now, if there is a deal done, it's still going to be a 10% minimum. So we're picking between bad and worse scenarios for the ECB. Is there a scenario, though, where you do think the ECB goes on pause and misses a meeting? No.

There is if you see PMIs continuously surprises, if you have an upside surprise in the PMIs on the next release. The difficult thing about that is the PMI comes the morning of the ECB meeting, so it's going to be really difficult to trade around that event. It could be if you have strong CPI, but if you look at the CPI data, we just had a big downside surprise in services CPI, and the curve in terms of what the link market is pricing has plummeted.

inflation below 2% for the rest of the year. So it's really hard to get a hawkish meeting. But Anne-Marie, I've got to be honest, some of the ECB hawks really have surprised me with their comments suggesting we should have a slower pace. They are the hawks, so hawks have to be hawkish. I think the core unit of the ECB and overall will still vote for a rate cut in July and not enough is priced. But we need to see how this press conference goes.

Hi, Jordan. I understood that there's a lot of attention to the upside risk of inflation coming from tariff policy, but I want to ask a question in the opposite direction. If inflation in the EU continues to undershoot the ECB's 2% target, is there a risk that real interest rates actually turn closer to that zero bound or even negative in the next two or three years?

I don't think the risk of that is too high, actually, because what we're seeing is inflation is coming down. The ECB's forecast today have it below 2% for the next two years, really. When it comes to the real yield, you've got to think about the nominal side as well. So we're dovish on the ECB in the short term, but actually kind of linking to the question Anne-Marie mentioned, the German fiscal stimulus will make it difficult for real yields to be materially weak, because what we're going to see in Q4 is the budget is passed in Germany and we'll have much larger amounts of issuance in 2026.

The hawks of the ECB might be able to hang on to that, but that is over six months away and quite difficult for this market to trade every single day. But for the long term, I find it very difficult to see real yields underperforming in Europe because of higher nominal yields I expect to see, with the German 10-year bond getting to 3.3%. How much of a sea change, a game changer, is German issuance for the ECB?

It's a massive game change. We've had many years where the weak growth in Europe was underpinned by the lack of or the fiscal austerity we saw in Germany for the past two decades, roughly speaking, compared to what others should have done. The Germans have a lot of fiscal firepower, debt to GDP in the 60% level sort of range. And the infrastructure alone, that package...

It's 500 billion euros over 10 years. So that's at least 1% to 1.25% of GDP from next year onwards. We don't yet know what the numbers will be on the fence. We don't yet know the numbers. We've got a sense of what it will be on tax cuts. We had the 42 billion to 47 billion from the headlines this week for corporation tax cuts. So the numbers will be large.

Germany starts from a very strong position, and that's why you're going to see the fiscal firepower matter quite a lot next year. It's a great question, Jordan, that Neil is raising at a time when potentially the ECB is looking at subpar inflation, inflation below that 2% level. How inflationary are some of these fiscal packages that Germany has floated?

Well, it depends on if you're going with tax cuts, that's immediately more inflationary than it comes to infrastructure spending. So we have to know the sizes of these numbers. So if the tax cuts, let's say it's 50 billion, that's a pretty sizable number for that. Well, that's something that will have to be reflected in their forecast. But it is just a German number. And you've also got the

problem with the rest of the eurozone is you don't have the same fiscal firepower. So the ECB can't get too optimistic from Germany alone. You have France, which is fiscally constrained. You've got Italy and Spain not really able to move the needle on things either. But then when it comes to the infrastructure spending from Germany, that is a big positive that markets like improves productivity and expected growth. But it won't translate to high inflation on day one because building bridges and so forth, it'll boost commodity prices and it'll raise the price of building services, but it won't affect

everything else in the main. Jordan Rochester of Mizzouho, thank you so much as always for the insights. If this government spending in defense goes towards things like R&D that have dual use civilian purposes, who could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth?

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

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Starting price for 25 megabits per second LTE internet plan with smartphone plan savings plus taxes, fees and economic adjustment charge. Terms apply. For J.D. Power 2024 award information visit jdpower.com slash awards. Joining us now Krishna Mamani of Lafayette College. Krishna, thank you so much for being here. Great to see you. How do you

How do you use data like this that isn't bad enough to cause the Fed to make a move, isn't good enough to give you confidence? It just sort of is sort of maybe a trend that we maybe can ignore, maybe need to pay attention to. Well, so if we ignore it, we ignore it at our peril. That is, I think the economy, as Waller, I think, rightly articulated, the economy is slowing.

It's not slowing at the precipitous pace, but it is definitely slowing. And you can see that it used to be in the soft data. Now the soft data improved, but the hard data is softening. So I think there is a substantial trend for slowing in the economy. It's, again, not precipitous, but gives the Fed the path to cut rates, not today, but in the later half of the year.

In your opinion, what would it take to see that cut? What would it take in terms of whether it's jobless claims or continuing claims or the unemployment rate, the mix of it all? How dire does the labor market data have to be to challenge the fact that the economy is fine and can continue to grow?

I think the Fed on that count has kind of been very clear. That is, at the end of the day, what they're focused on for cutting rates is really the employment picture.

If the employment picture deteriorates meaningfully, not one month, but a couple of months in sequence, I think that's what gets them there. Again, I think even if we get a soft employment report tomorrow, that is just not enough. However, if we see that in the third quarter and on a consistent basis, I think they have the pathway to cut rates. Even a data-dependent Fed that keeps saying that they need

certainty and they're very unclear at the moment where trade policy might mean for inflation?

Well, so I think from the Fed's perspective, tariff is really a wild card because they don't know. They don't have enough of an empirical framework to kind of figure that out. And for that, they will wait. On the other hand, if simultaneously, if the markets, if the employment markets are deteriorating quite substantially, I think they have the headroom in terms of where policy rates are today relative to where inflation is for them to be able to cut on a

proactive basis as opposed to just on a reactive basis. Following up on Nila's point quite substantially, what is that? 4.5% unemployment rate? What's the line in the sand? I don't think it's the unemployment number itself. It's really the trend in employment growth that on a consistent basis, several months, comes in significantly lower than what the trend rate has been. Like last year when they cut. Exactly.

But it raises a question about how much it would matter, right? How much we're kind of talking about the wrong issue. Is the issue really how much will take the Fed to cut? Or is the issue are we slowing or are we stalling out? And I think that that's the bigger question maybe for both bond markets and for the Fed. It's not just do you have to adjust things on the margins. It's longer term how much heat is left

in an economy that has a lot of question marks around it. - Well, that's a really good observation in the sense that even if the Fed cuts, let's say, in the third quarter or early part of fourth quarter this year,

the likely impact of that on the markets, at least equity markets, is probably not going to be as positive as people are expecting it to be because I think in the throes of a tariff situation, if they are cutting rates, then they are really, really worried. That's bad news that will end up being bad news for the equity markets. So that's why I think equity markets at this point, the only...

upside is really going to come from productivity growth, earnings growth, things like that. And that is not looking very likely at the moment. Right. I want to follow up on that statement and Lisa's question. And I realize we're asking you to ping pong between the real economy and the markets right now. But what is...

What are the growth drivers that you see in the second half of the year that really catapults the economy forward, that raises those productivity numbers? Is there something that we're waiting for to happen that could really trigger that growth? I don't think there's really anything substantial in the pipeline that can get you there.

I think the fiscal impetus that is or the fiscal impulse that has been in the place because of deficit financing is really what is carrying us through. In that mix, tariffs are basically a contractionary policy. So I think we are trying to balance. There's really no stimulus, significant stimulus coming into the economy until the tax package expires.

passes and then we see the implications of that in terms of further deficit increase. Michael McKee is still with us and he's been parsing through the data. Mike, in addition to a jobless claim, some really interesting trade data as you parse through it. What are you seeing?

Well, basically what we saw, Lisa, was a pull forward in imports. Imports dropped by 16.3 percent, and that pushed the overall trade deficit down by 55.5 percent. And the Census Bureau says those are the two largest declines in those categories ever. Now, it's all statistical noise in the sense that we didn't make a big deal out of the rise in the trade balance in January, February, because we knew it was the pull forward of imports. But it does

have an effect on the overall data. We'll see a bigger rise in second quarter growth than we saw the big fall, of course, in first quarter growth. And the one thing to point out about jobless claims is this is the biggest jump or the highest level, rather, in eight months.

and it's the highest two week in a row level in more than a year. So we do see some weakness here. Neil Dutta writing in that you have about a 260,000 level would be the break-even for jobless claims. And if we get above that, we're going to see weak payroll numbers. So we'll see what we get tomorrow. But, of course, we're starting to see the numbers come in. Procter & Gamble today saying it's going to lay off 7,000 people. So

it's starting to weaken out there. - Mike, before you go, just a quick note. How much are you getting people questioning the integrity of some of this data? As we got reports yesterday from the Bureau of Labor Statistics that they didn't collect data for CPI in certain regions in April due to budget cuts.

CPI is the one that's being affected most and first, but there are also concerns about the labor data as well. What's happening is the government has cut funding and not kept up funding for years, and then we had the DOGE cuts. So they're behind the eight ball. They can't really collect all the data that they have.

The data that they do collect is going to be used as well as it possibly can be, but just because you have fewer people collecting it and less data, you're going to have a wider margin of error. Michael McKee, thank you so much. Krishna, what exactly do you do with this, the idea that the granular data shows some degree of weakening, and yet there's a question about just how accurate it is on any given week?

Well, so it's kind of a sad state of affairs that the best statistical data collecting agency in the world is struggling to kind of do the surveys that we desperately need at this time of transition. But it is what it is. However, I think...

They do enough data collection for it not to be kind of disturbed in a significant way, and you can probably derive the basic trends out of the data that they're collecting. But I think, again, I would reiterate my point. It's a very sad state of affairs. But does the data even matter when the policy is changing so quickly?

Well, so data does matter because how would you expect a policymaker whose one mandate is employment to kind of react to it if they don't have accurate data and a really clear picture of what the impact of the various policies are on the economy. Without that, we are kind of, we are blind. And that would be a terrible state of affairs. I mean more for the markets, not the real economy, just to put it clearly.

I think to some extent markets do react to policy. And for the policy to be commensurate with the state of the economy, we need that data. Krishna Mamani of Lafayette College, don't be a stranger. Great to see you. Thank you so much for being here.

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