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A
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B
with a five hand now on the 30 year following that pie this morning, the CPI yesterday. We'll have more on that later this hour because the President is not talking about consumer inflation or wholesale inflation for that matter. He is talking about business though, as he touches down in Beijing. Air Force One arrived earlier today around 8 o' clock east coast time and of course we're about 12 hours apart right now. So the President's resting up for what will be a big summit tomorrow and the headline on the terminal knowing that the President has coming with any number of American CEOs, including now Jensen Huang as we mentioned on Air Force One, along with Elon Musk, the headline in video chips, Boeing Jets Stock Traders I Trump in China. We've got a summit trade underway here with everybody from Apple, Cisco and beyond, Micron and Qualcomm along for the ride here. Bloomberg's Tyler Kendall is in Beijing right now following the President's post on Truth Social in which Tyler he said he will ask Xi Jinping to open up Chinese markets to all of these companies. Is this turning into a trade mission?
- [02:11]
C
Well, Joe, at this point the White House certainly would like it to be. We heard President Trump yesterday saying that trade would be prioritized at the top of the agenda. We'll have to see what happens tomorrow. 10:15am Eastern for me, 10:15pm Local for me, 10:00pm Eastern for you tonight because that's where we're going to get this highly anticipated sit down between President Trump and Chinese President Xi Jinping. And we should keep in mind in the back of our minds here that our own analysts at Bloomberg Economics have said that this meeting is much more about keeping the stability between the US And China when it comes to their trading relationship to their general relationship more so than it is about making substantial progress amid what feels like a more in bold, emboldened Beijing coming to the table at this point in time, considering that the country has already weathered the trade war with the US So far. The White House, though, does say to expect some deliverables. We're watching really closely any announcements related to purchase agreements. When it comes to agricultural products. I'm watching soybeans and corn closely, also energy products. And then, of course, as Kelly had mentioned at the top of the program, maybe a potential deal here here for Boeing passenger aircraft, notably the 737 Max. We could potentially see an extension of the trade truce. Keep in mind, the US Effective tariff rate on Chinese imports right now sits at around 21%. But the trade truce isn't expected to expire until November. So the sides do have some time. We've sort of heard from U.S. officials that, that they're downplaying that there may be a formal commitment to extend the truce during this meeting. But really this meeting is to lay the ground for that extension to happen instead. Joe and Kelly, what feels more likely is that we will get this announcement around a potential US China Board of Trade. This would formally k kickstart the process to essentially formalize the ongoing dialogue to keep trade flowing between the two sides when it comes to items not related to national security. But with all of this said, even as the president is pushing this economic agenda here on the ground in Beijing, bringing all of these CEOs from the US it is important to note, of course, that Iran is looming very large over this conversation. And a senior administration official who briefed us ahead of this trip did say that President Trump is going to make it a point during this meeting to push back on some of Chinese policies regarding Iran, most notably that Beijing is the largest importer of Iranian crude.
- [04:42]
D
All right, Bloomberg's Tyler Kendall live in Beijing for us. Thank you so much. And to continue the conversation back here in Washington, I'm pleased to say. Joining us in our DC Studio is Chad Bown, senior director at the Peterson Institute of International Economics and former chief economist at the U.S. state Department. Chad, welcome to Bloomberg TV and Radio. It's good to have you. It strikes me that there's a bit of a contrast here on a day where we're talking about much more serious inflation pressure in the United States in an economy that looks like it has some issues. At the same time, we are bringing a laundry list of corporate executives which by all accounts are running companies that are Booming and retaining high profit and supporting financial markets as a result. There is a bit of a contrast here. So when you look at it in aggregate, I wonder how you see the United States is positioned going into these talks in terms of relative economic strength compared to China.
- [05:35]
E
Yeah.
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F
So I think the United States is actually in a relatively weak position actually going into the talks. Right. One of the reasons why some of the executives are on the trip is because China essentially stopped importing goods from the United States last year. Right. Exports, U.S. exports to China were down about 25% when China retaliated. The President has tried to convince China to start buying America's AI chips again. Right. And that's why the Nvidia leader is there, but they haven't yet been willing to do so. So there is a huge laundry of American exports that the President would like to have China open up on. Manufactured goods, but also agriculture too. Right. There's just a lot of asks that I think he has heading into. Heading into this summit.
- [06:18]
B
Well, you actually wrote the book how to Win a Trade War, so I'm deeply curious to hear your thoughts on whether this group of executives will help the President to that end. Because this is feeling much more like a trade mission, as I already suggested, than a diplomatic one, for instance, involving Iran. Is the President equipped to win this trade war?
- [06:36]
F
Well, I think unfortunately, and we'll see what comes out of the talks. But from, you know, the signals that have been that are being set by them, by the administration, you know, keeping expectations low. No, the United States is not in a position to win the trade war right now, when the main issue of the trade war is China's market dominance over certain essential products that American companies need. So things like rare earths and the permanent magnets and the shortages last year when China put those export controls on that essentially cut off the American automobile industry and almost forced them to shut down, or semiconductors coming out of this company called Nixperia. Right. So it's really China's market dominance that has given them the upper hand in all of this. And what is allowing them, at least at this stage, to be able to seem like they're winning the trade war. But it doesn't seem like that's really going to be on the agenda in terms of, you know, making further progress on those issues, aside from just kind of keeping the status quo. And right now, unfortunately, the status quo really isn't good enough for the United States.
- [07:33]
D
Well, so on that status quo, China was supposed to be relaxing some of those curbs on Rare earths and critical minerals that you were talking about, that was part of the original detente that was reached. Is that not actually happening in reality? How much of this is making sure that that agreements that have already been made are being held?
- [07:51]
F
So it is, right? So I think the evidence that we have so far is China has relaxed those. But that's part of the problem, right? Part of the issue is the United States needs to come out from under the fact that China produces 90% of the world's rare earths, 90% of these things called permanent magnets. And we need to create our own alternative sources of supply of these. And if on the other side China is all of a sudden said, well, you know, you can have them, you can have them at actually relatively low prices, that creates disincentives for our companies to actually create those alternative sources of supply. So those are the things that, you know, in this trade war game that's now being fought, those are the things unfortunately the United States needs to be
- [08:27]
B
doing are export controls on the table in this summit. You see Jensen Huang gets picked up like a hitchhiker in Alaska on the way. So suddenly, I guess we're talking about AI technology and advanced chips. This has been extremely controversial. But if you talk to Jensen Huang and he's been on Bloomberg a lot, he will tell you that if the United States wants to win the air race, then you need to get the world on an American made stack. And of course Nvidia has got a lot to do with that. It's been big pushback there. And even a of Republicans on Capitol Hill say that's simply not the way. You can't have deep seek using Blackwells, although apparently they got their hands on some. Anyway, does that begin to turn with this summit today?
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F
So we'll see. Right. And that's certainly the theory at least that the administration has been pushing as well, laxing those export controls. Right. The idea being that, well, maybe if we flood the zone with lots of American AI chips that will discourage the cheap. The chip ecosystem in China that has been coming along and making progress, from making further progress and you know, the American led tech stack to dominate in the future. But we'll see. So far, you know, despite offering up those chips, Xi Jinping has said no, we want our tech companies to continue to source locally wherever they can. But to your broader question, I think absolutely these export controls, if they're not directly part of the conversation, they're certainly just below the surface. They're where all the action is really between The US and China these days.
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D
Well, the President has indicated that Iran may not directly be part of the conversation either, Chad. And I just wonder if you really believe that will be the case, given that China may have stockpiled a whole lot of oil, but they're going to run low on that eventually. How close are we to that pressure point where China may want to be more actively involved in these conversations?
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F
I think China certainly has an incentive to be. How close we are to that pressure point with China is really, really hard to know.
- [10:23]
D
Not as much transparency.
- [10:25]
F
Yeah, exactly. Our system is quite different from theirs. And so what they actually have, how quickly they can shift to alternative sources of supply, whether it's coal, whether it's, you know, LNG or things like that, is, is always a bit, a little bit hidden. So I would imagine they're certainly worried about this. But whether or not they want to reveal that worry to the United States in this, in these negotiations and reveal that as a vulnerability, I would be surprised.
- [10:50]
B
A lot of tech and finance executives on this trip. How come no aggressive CEOs if soybeans are so important?
- [10:57]
F
Yeah, it's a good question. I mean, Cargill is there, right. But Cargill, you know, provides equipment for China to be able to grow its own agriculture. So I think that's. It's a really, really important issue. Now on the other hand, right, and one of the big concerns is just how dependent American farmers are on the Chinese market for their exports in crops like soybeans, and whether or not that's a good long term scenario for them, just given how volatile the US China relationship really is, that may be something that over the longer term needs to
- [11:28]
D
be rethought in our final minute here. Chad, the issue of Taiwan, how much could really change in terms of the trajectory of China's thinking around Taiwan given everything else we're seeing throughout the world and the areas in which the US has found its focus shifting?
- [11:46]
F
Yeah, Taiwan is always there as well. Right. And we know Xi Jinping has been very explicit about what his long term aspirations are with respect to Taiwan and eventual reunification with the mainland. What we really don't know is what the President of the United States position on this because he has said a number of things. So while it's something that will certainly be front and center on China's mind, hopefully that issue can kind of be put to the side and the two economies can really focus on some of the trade and economic issues which really, really did suffer in 2025.
- [12:22]
B
Chad Bown, how to win A trade war. It's great to have you with us on Bloomberg. Don't be a stranger. Absolutely. I'm Joe Matthew alongside Kailey Leinz in Washington. And we assembled our political panel for their take on all of this, including Bloomberg Politics contributor Rick Davis, our Republican strategist partner at Stone Court Capital. And Doug Farrer is back with us as well, Democratic strategist and principal at Maywood Strategies. Rick, I'm going to start with, with you here on the potential for deliverables. If China does buy 507, 37s, if there is an agreement on AI chips and maybe a tweaking of export controls, is this trip a success?
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F
Yeah.
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G
And I think they could actually drop some of the trade barriers. Right. So tariffs down, 30 billion on their part. 30 billion on our part. That's a, that's a good talking point in the Board of Trade. You know, find a way to create some bumpers in this relationship so it's not back to the Wild West. I think they would, they would describe that as a win on both sides. I mean, it is interesting that neither country is really making a priority. The geopolitical things that are happening around the world, whether it's Taiwan or Iran or Russia and Ukraine. China has been helping Russia sustain itself throughout this war. Certainly in previous summits that would have been a top topic. But I guess there's a sensitivity that they need to regain the economic trust in order to tackle some of these more divisive geopolitical issues. But yeah, I think they will have a productive, you know, short 30 hour summit. And the optics are great. Maybe Trump gets his mojo back when he gets home and, you know, can talk about successful visit with Xi and stabilizing global trade.
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D
Well, just quickly, Doug, on the optics, what, what does it look like to an American electorate that suggests they're unsatisfied with the President's foreign policy, at least when it comes to the war in Iran, unsatisfied with the trajectory of the economy. And here we are with the war and situation in the Middle east not resolved, the president jetting off to China and taking with him what, more than a dozen corporate executives. I just wonder how you think it plays.
- [14:35]
H
Yeah, it's not a great look. I mean, he got on Air Force One after saying I don't care about Americans financial position to fly to China with a bunch of billionaires and sell 500 planes to the Chinese. I mean, he's going there with an incredibly weak hand. The Strait of Hormuz is still closed, gas prices are high. Americans are deeply unhappy. He's the most unpopular he's been and any president has been in this Partizan era. And so, yeah, I don't think it's going to do a lot for the, for the Republicans who are worried about the upcoming midterm elections. And it's an opportunity for the Democrats to say that he's not fixing the structural problems with China, he's just selling airplanes, trying to maybe sell some soybeans, and that's it.
- [15:12]
D
All right, Doug Farrer and Rick Davis, our political panel today will be sticking with us as we have more conversations ahead here on Balance of Power to the point Doug was just making on some of the issues heading into the midterms around affordability and the messaging from Republicans and Democrats. We're going to get more into that conversation ahead with Congressman Susan Del Bene of Washington, Joe, who of course chairs the Democratic Congressional Campaign Committee. The question for her how much can the economic woes help Democrats insulate themselves from a bunch of redrawn congressional maps
- [15:41]
B
that favor Republicans affordability versus redistricting? That really seems to be her reality right now. This is a very fascinating moment to have Congresswoman Del Bennett with us. She'll be up next. Our panel will stay with us, too. Rick and Doug will weigh in on everything that we hear. Stay with us on Balance of Power. We'll have much more coming up up after this.
- [15:59]
I
Travel Smarter, Not Harder at America's Best Value Inn by Sonesta. With convenient locations from coast to coast and value packed comfort at every turn, it's a practical choice for road trips, quick getaways and everyday travel that keeps things simple without sacrificing comfort. And when you're a Sonesta Travel Pass member, staying at America's Best Value Inn means earning points toward free nights, upgrades and more every time you stay. Go to Sonesta.com to book your stay and unlock the best rates with Sonesta Travel Pass here today, Rome tomorrow. Join now@sinesta.com terms and conditions apply.
- [16:33]
A
You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg 11:30.
- [16:52]
B
We turn our attention to the midterm campaign trail, the effort to redistrict on both sides of the aisle, one that Republicans seem to have an upper hand on. Although we did get an important update with South Carolina yesterday, the state Senate voting down a measure that would have brought a vote on redistricting. And five Republicans joined Democrats in making that happen. So Kaylee, it seems to come down to it's almost like a stock analysis. You've got fundamentals and technicals. Think of the redistricting as the technicals and a affordability as the fundamentals. Because as Doug reminded us, the president saying yesterday he's not thinking about Americans financial situation as he goes abroad and negotiates with Iran, for instance. Democrats seizing on that as the true message on a day, second day in a row, Kelly, we got hotter than expected inflation data.
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D
Yeah. A6 handle on producer price inflation. The higher energy cost stemming from the closure of the strait of former is clearly trickling through to other aspects of wholesale inflation, creating a bit of a conundrum obviously for the Federal Reserve. Mind you, Kevin War should be confirmed as the next Fed chair within what, the next hour. That vote scheduled for 2:00pm Eastern Time on the Senate. So it's creating some difficulty for monetary policy which could create some difficulty politically for a president who has been pushing for lower interest rates. But the greater political difficulty, as you were speaking to Joe, of course, comes for the incumbent party. That's right in the midterms around these affordability issues. And as you alluded to, it doesn't seem that President Trump himself is too concerned about it. Let's just listen to him speaking to reporters before boarding Marine One at the White House yesterday about Americans financial situation.
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B
The only thing that matters when I'm talking about Iran, they can't have a nuclear weapon. I don't think about American financial situation.
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E
I don't think about any.
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B
But I think about one thing.
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E
You cannot let Iran have a nuclear weapon.
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B
That's all.
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D
So for more we turn to Congresswoman Susan Del Bene of Washington who chairs the Democratic Congressional Campaign Committee. It is her charge to get more Democrats elected to the House and try to flip it blue once again. Congresswoman, welcome back to Bloomberg TV and radio. There's what more than 40 districts that you've been targeting. Are you about to cut that sound bite of the president for campaign ads in every single one of them?
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J
You know, we have 44 districts in play across the country. Opportunities to flip districts and, and that number could grow. People are ang across the country. They see that Republicans and Trump said it himself, have no interest in addressing the issues that families are facing. Skyrocketing prices, housing, food, health care, energy costs, gas prices, all directly because of actions taken by Trump and Republicans in Congress. So folks are struggling and they're angry and they want folks who are going to stand up for them. That has given us opportunities all across the country, and we still do, because people want folks who actually are going to be voices for the American people, not a rubber stamp for Donald Trump.
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B
So our question then. Congresswoman, it's great to have you back, and you may have already just answered it. Do the fundamentals of your messaging about affordability overcome the technicals of redistricting? Can you win more seats than Republicans can redraw?
- [20:13]
J
So one, the American people are with us and across the board. Absolutely. Affordability is the number one issue. And people are angry. And so as Republicans try to rig the system because they know they're losing and you know, if you're winning in the hearts and the minds of the American people, you aren't off trying to redraw maps because you think that's the only way you can win. They're doing that because they know they're losing. But it doesn't change the fundamentals of how people feel. And so even when they redraw maps like they did in Texas, we have opportunities to pick up seats. They thought they changed seats to help support Republican candidates, but people are angry. They want folks who are going to stand up for them, and they've given us opportunities to pick up seats in Texas. As a result, Democrats are running over 12 points ahead in special elections since November of 2024 all over the country. And they're running ahead because of the broken promises from Republicans. Obviously, the broken promise to lower costs on day one has been huge. And people are feeling the brunt of that. And so they want, they want to change. And that's not true in just one part of the country. That's true all across the country.
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D
Well, are there other states besides Texas, Congresswoman, who have redrawn their maps that you think could have actually created more pickup opportunities? Is obviously the Democratic voters that pre existed. While they may not make up a majority in these districts anymore, they still have to go somewhere. And I wonder if it becomes a turnout game and you think that actually there are more opportunities to turn out Democratic voters and flip seats that they thought would be safely read.
- [21:52]
J
Well, remember when they redraw these maps, voters have to be go somewhere. And a lot of voters, and I would say not just traditionally Democratic voters, but voters who are struggling right now, their voices are still going to be heard. And so those folks are going to turn out. And the reason you've seen this big difference in special elections since November of 2024 is because people have seen the broken promise. They know what's happening across the country. They know that this administration and Republicans in Congress have not been willing to stand up for them. They're feeling the brunt of it. And comments like the president's comments that the financial situation of American families isn't important to him, those comments absolutely just continue to remind folks that he doesn't care and Republicans are indifferent to the struggles that families are facing. So, yes, those folks are going to still vote and they're going to vote for folks who are going to stand up for them.
- [22:51]
B
Well, as we spend some time here with the chairwoman, I'm wondering when you start making spending decisions on ads that may or may not include that. SOUNDBITE OF President Trump today, how you're going to be distributing funds in this race where it's been widely reported you're being outraised by Republicans. Congresswoman, how do you offset the money problem?
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J
So I think, first of all, we've had strong support across the country. Republicans are now trying to change campaign finance laws because they are in a, you know, they feel like they need outside their big kind of committees and others to be able to play in races to give them an advantage. Our candidates have been outraising their opponents, and we're in a strong position there across the country. But remember, even in these special elections, we've seen, even when Democrats have been outspent, we have flipped districts sometimes by over 30 points because we have great candidates talking about the issues that matter on the ground and, and who are want to serve and actually do their job as a representative, not as a rubber stamp. That's why you've seen these huge changes across the country already and why we have opportunities across the country and we will win. We are going to have the resources to compete all across the country.
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D
Finally, Congresswoman, and I ask you this, knowing you do sit on the Ways and Means Committee, there's obviously a live conversation now around a gas tax holiday to help offset the higher prices at the pump that consumers are facing. Obviously, there's a limited effect that that can have, but would you be supportive of that? Would you encourage Democrats in swing districts to support that as well? Can they be seen voting against that if it comes to the floor?
- [24:37]
J
So, first of all, we don't know what will come to the floor, but the huge increase we've seen in gas prices across the country is directly because of the war and the impact on the Strait of Hormuz that has caused skyrocketing gas prices all across the country. The real solution, the long term solution, is to end the war, to be in a place where we went into the president, went into this war of choice with no plan, with no strategy. The American people are paying the price with skyrocketing costs. So we want a long term solution and not a short term patch or even in a small patch at that. Comparatively, we need to make sure that the administration takes action. We're going to have another vote on war powers resolution come up before Congress tomorrow. This is how we really help address the needs of the American people and absolutely address the skyrocketing gas prices that are there, one piece of skyrocketing prices we have seen for families across the country.
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B
Congresswoman Susan Delbene, always great to have you back, Madam Chair, she chairs the dccc. And it's good to see you as always on Bloomberg TV and Radio. Let's play it again to the panel. Doug Ferrer and Rick Davis are back with us. Doug is the Democrat on our panel. So I'll start with you here. The idea, and Rick has weighed in on this and I think he agrees actually that Democrats have enough juice in messaging and history at your back to overcome the redistricting effort by Republicans. Where are you on this?
- [26:06]
H
Yeah, I think that's right. I mean, the president is so unpopular, things are so bad economically and really everyone sees it, including even some Republicans and voters. So I think, you know, yeah, they're going to probably do all right this time around. I think what happens down the line is really important because you're going to have to see states like New York, Illinois and others get off the sidelines, maybe even make some fundamental changes to their state laws that will allow them to sort of come back at the redistricting efforts we'll see across the South. So in the immediate, I think it's okay. In the long term, it's a really big opportunity for Democrats to stop bringing pencils to a knife fight and really understand what they're up against against him.
- [26:45]
D
Well, there is a redistricting effort across the south, but it seems that South Carolina, Rick is not going to be participating, at least for now. Is that the right call?
- [26:54]
G
Yeah. Look, I mean, we've talked about this before. When you talk about taking a icon in the House of Representatives, Jim Clyburn, and redistricting his seat out, you're going to, you're going to ruffle a lot of feathers and some of those are even GOP feathers in South Carolina. And five state senators, Joe, GOP state senators bolted from their party joined with the Democrats and said, no, we're not going to redistrict district. So I'm not surprised the president was warning about this. He was warning the state Senate. You know, he's keeping his eye on you. So you knew that they weren't getting their vote count they probably wanted so they had the present weigh in but it didn't work. And so I think you take that one redistrict seat out of the equation and just keep moving. I mean it's still advantage Republicans on redistricting, but definitely advantage Democrats on the election itself.
- [27:47]
D
All right, Rick Davis and Doug Farrer, our political panel today. Thank you both so much for joining us. Obviously, the redistricting effort dominating Republicans here at home, but as we just heard from Congresswoman Del Bennett is the affordability message that Democrats are clinging to. And we'll have more on the state of economy with Douglas Holt Eeken of the American Action Forum next.
- [28:06]
B
Stay with us on Balance of Power. We'll have much more coming up after this.
- [28:13]
I
Travel Smarter, not Harder at America's Best Value Inn by Sonesta. With convenient locations from coast to coast and value packed comfort at every turn, it's a practical choice for road trips, quick getaways and everyday travel that keeps things simple without sacrificing comfort. And when you're a Sonesta Travel Pass member, staying at America's Best Value Inn means earning points toward free nights, upgrades and more every time you stay. Go to Sonesta.com to book your stay and unlock the best rates with Sonesta Travel Pass here today, Rome tomorrow. Join now@sinesta.com terms and conditions apply.
- [28:47]
A
You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube
- [29:04]
B
on this PPE day. A second day in a row of doom scroll data with an enormous pop here and another superlative. That brings us back to 2022. Not unlike the CPI yesterday. PPE today showing wholesale inflation rising 6% from a year ago, core up 5.2% from April of 2025, reinforcing the idea here that the war in Iran is in fact impacting prices and Cayleigh not isolated to the energy market now that it is bleeding into core numbers for a second day in a row.
- [29:39]
D
Yeah, obviously painting a bit of a difficult inflation picture especially for the Federal Reserve and perhaps most especially for the man who is about to be confirmed as the chair of the Federal Reserve. Within the next hour, Kevin Warsh is expected to get the requisite votes in the United States Senate to be confirmed as Fed Chair. Of course, he already passed the procedural hurdle to get this done. He was already confirmed as a member of the Board of Governors yesterday. But this is going to be the big vote in the Senate in short order. And they're covering it for us is Bloomberg International economics and policy correspondent Michael McKee. So, Mike, obviously Kevin Wash hasn't exactly had an easy path to get to confirmation. It was held up for a long time because of Senator Tillis blockade over the DOJ investigation into Chairman Powell and cost overruns in terms of the renovations of the building. But is the actual hardest part for Kevin Warship not yet even begun? It's going to be once he's in the job and is faced with data like the kind we saw this morning.
- [30:34]
K
Oh, absolutely, because he comes into the job with a little angel or devil on his shoulder. The President of the United States has made it very clear what he wants Kevin Wash to do, which is cut interest rates, which is exactly what, given these inflation numbers, Kevin Wash can't do. And he's not going to be able to convince the other 18 members of the Open Market Committee, and he's certainly not going to be able to convince the market markets when you have inflation that is not only this high but accelerating. And so he's going to come into office with that on his shoulders. Now he wants to make a lot of reforms and other ideas for doing the way the Fed does business. And members of the Fed have said they're willing to listen. So he could spend some time on that. But it's going to be a while till he can do anything about inflation.
- [31:22]
B
Michael, what do you think of the vote itself, the lack of bipartisan support? If you've got only John Fetterman raising his hand as a Democrat does, does that begin to make a new challenge for the Fed chair? And is this the new normal?
- [31:39]
K
It does seem to be the new normal and not just for Fed nominations, for any nominations and really for any legislation at this point. But you go back, Lisa Cook was confirmed by one vote because the Democrats all voted for her and the Republicans refused. So this is something that you've got to live with in Washington. And it's really not going to make a difference when the people who are on the Fed board get confirmed. They sort of check their politics at the door. We assume that Kevin Warsh will do the same. And Democrats Republicans, you don't really know who they are. You can go back and look, look, Jay Powell was a Republican when he was nominated and you've got the Republican president who is very, very mad at Jay Powell.
- [32:24]
D
Well, certainly so. And of course Jay Powell may not go anywhere for the foreseeable future until he really feels that this entire legal inquiry is done and dusted on a permanent basis. Mike, of course Chairman Powell has said his own difficulties beyond the politics of all this, including having to handle the last time we saw inflation figures like this back in in 2022, in the aftermath of Russia's invasion of Ukraine and the aftermath of the bounce back from COVID At what point how many rounds of data like the kind we saw this morning would we need to see before we have start to have a similar conversation as we were having back then?
- [33:00]
K
Well, what you'd have to see is this kind of data showing that much more than energy is pushing up prices at this point and much more than tariffs. Tariffs because that's what's really driving inflation at the moment. Now we did see some second round effects in the last two days starting to creep in. If that happens and then people start to expect higher inflation, the Fed would move. But if the numbers are just up because we have these war related increases in energy prices that can't do anything about that, they can't open the Strait of Hormuz by raising interest rates and they might tip the economy into recession. So they're going to be on hold for quite a while. It's the best possible course for them.
- [33:42]
B
Great to have you in Washington as always. Michael McKee live on Capitol Hill. And we'll let you know of course when that vote takes place. It's expected in the next hour that will indeed confirm Kevin Warsh not only as a member of the Board of Governors which took place yesterday, but today as chair. Douglas Holtz Eakin has been listening to our conversation and we've been looking forward to bringing him into the program. President of the American Action Forum from former director of the cbo, the Congressional Budget Office. Douglas, it's great to see you. Welcome back to Bloomberg TV and Radio. I'm wondering your thoughts on the landscape that Kevin Wash is walking into here as the new Fed chair with the market today after this PPI report and yesterday's CPI seems to be betting on a rate hike more likely than a rate cut. Should he start turning away from truth social while he has the chance?
- [34:31]
E
Well, he's certainly walking into a challenging environment. I mean take take away the politics, you know, the transition from one Fed chair to another is always an important moment and often difficult to make it seamless. So they've got that going on to begin with. And you know, today's data is sobering. The PPI numbers suggest that there's some pipeline inflation that will show up in the CPI and the PC measures further down the road. That, that's, that's not great news. When you look at the CPI numbers that came out, the energy prices, we all understand food. Yeah. You know where that's coming from? Shelter inflation was over 7% in an annual rate. That's, that's a troubling number. And if you start to see those components, the ones that have been sticky in the past and have been problematic for the Fed to get to 2%, if they start bouncing back up, then, then you have a problem. And I think Warshaw's got to be looking at that really closely. And then the last thing I'll flag is that he has been making the case that these great productivity numbers are going to allow the Fed to cut even if all these other factors are taken into account. The great productivity numbers went away in the first quarter. We're at 8, 10 of a percent for the quarter. And you know, that doesn't add up to what he'd hoped. And he's got a real challenge facing him.
- [35:48]
D
Well, certainly. So, so when we have these questions around monetary policy's ability to navigate this economic environment and address some of these inflationary pressures, obviously the Fed doesn't necessarily have the tools to do that. But does the federal government have those tools either? Doug, if this is mostly an issue that is concentrated in the Middle east and specifically the Strait of Hormuz.
- [36:09]
E
Well, if it's strictly an energy story and it, it is relatively short lived, then as Michael pointed out, you can look past it, the Fed will look past it. There's nothing that fiscal policy could do in those circumstances if you start talking about longer horizons. Well, it'd be a good idea for fiscal policy to do the Fed a favor and not run $2 trillion deficits in full employment. So, you know, they've gotten no help whatsoever, independent of administration. So there's no appetite for that to change right now. We see that all the time. But there will have to be a reckoning in the months and years to come of what the federal budget looks like and how it has to be brought under control.
- [36:53]
B
Douglas, I just heard from a terminal user named Ryan who says, I thought Republicans were all about fiscal responsibility. He lists gas Tax relief, tariff checks, huge pentagon budget proposal, $25 billion dollars spent on Iran. Interestingly, he did not mention a ballroom. There's a question about spending, about fiscal responsibility in this administration, Douglas and we talked to someone who has your old job, Phil Swaggle, who is the current CBO director, and we asked him about this idea that Hank Paulson floated of having a break glass scenario inside the treasury if the bond market decides that it cannot endure this any longer. Here's what he said.
- [37:32]
J
Look, the fiscal trajectory is unsustainable, but when will we start to see it? This is when will we see the kind of slow undermining of the economy come into an acute phase? We're not there yet. That's the challenge for policymakers is that something, something has to be done. It doesn't have to be done the second, but it's certainly worth thinking about it and planning for the worst while taking action to avert it.
- [37:58]
B
Douglas Holz, Eakin, where are you on a break glass scenario?
- [38:04]
E
So there's a break glass scenario that involves the treasury and financial markets. There's the work that Secretary Treasury Besson is doing right now to set up swap lines to try to reinforce demand for the dollar and thus push off the day at which this break last year is needed. All of these things are financial engineering that avoid the fundamental problem, which is the mismatch between taxes and spending, and they won't fix anything. Only higher taxes and less spending will fix the fundamental problem. How you finance it. Red bills, green bills, purple bills, short term, long term, you can't disguise the fundamental problem that way. You can buy a little time, but that's all you really do.
- [38:46]
D
Well, and tell me if I'm drawing undue parallels here, Doug, but when you look at what's happening in the UK Right now, yes, there is obviously a massive question around Keir Starmer's future and whether or not he can hang on. But when you look at gilt yields at the highest in 30 years, there's obviously a question as to whether this is really about Starmer or a country that cannot seem to sort out its fiscal situation in terms of the amount that it would like to finance and its borrowing capability. And I wonder if what's happening in the gilt market you do think could soon come to treasury or if these things are fundamentally different.
- [39:19]
E
So I think you're you ask a good question because if you look at the numbers, you know, in the United Kingdom or France, they have deficits that are roughly 6% of GDP. The US has deficits roughly 6% of GDP. Debt to GDP is about 100%. That's where they are. And you're seeing international capital markets get a little skittish about those countries increase. Could that happen to the U.S. sure it could. We've been downgraded three times. The first two times they said things like, well, your politics are super toxic, you can't manage your finances. That was true, but it wasn't about the fundamentals. Moody said you have too much debt and interest takes up too much of your revenue. That's a very different kind of warning, and that says it can come here. And so I think both the performance of the gilts and the worries that coming out of the rating agencies, something policymakers ought to take more seriously.
- [40:12]
B
What's your hope on this trip to China, Douglas? The president's on the ground now in Beijing. He's got half of corporate America with him. And I realize there could be some big deals with Boeing, for instance, maybe in video, but how about when it comes to tariffs? The economic impact of tariff relief and the market reaction could be great. What do you think?
- [40:33]
E
You know, I think deals are great and if they're Boeing or crops or something, wonderful. But the real fundamental thing has been a the two largest economies being engaged in an outright trade war. And it's sometimes just a complete standstill and then be the enormous costs of reshuffling the trade arrangements on the globe because of the fallout of that trade war. So finding a way to stand down between the two countries, take away the tariff battle, allow the economics to dictate patterns of trade, not the geopolitics, would be an enormous step forward. That would be the best outcome, I think. But I don't think that's in the cards immediately. Steps toward it might happen.
- [41:16]
D
I guess we'll wait and see. In our final minute with you here, Douglas, if I could just ask you about this notion of a gas tax holiday. As we have now seen, a number of lawmakers don't ask. Legislation don't ask to achieve.
- [41:26]
K
Well, I would.
- [41:27]
D
I was hoping you might give it a letter, grade A to F. What's the read?
- [41:30]
E
F. F. F you do.
- [41:33]
D
For what reason?
- [41:34]
E
As the policy director, I was the policy director for the John McCain presidential campaign when he proposed a gas tax holiday. I had to travel this country defending it. It's a terrible idea. It won't do any good. It won't do any good. And when people realize it doesn't do any good, it backfires on you. So it's not even just buying time. Politically, it's a mistake take. They should walk away from it.
- [41:57]
B
Wow. 30 seconds, Douglas. Will it in fact raise gas prices by increasing demands?
- [42:06]
E
Pretty much set in the short run. I mean, for these holiday exercises, think three to six months. You know where your job is, you know what car you're driving, you know your commute. It's all locked in. You can't really change the demand very much. And so I don't think it drives it up. I think it puts some money in the pockets of the gasoline supply chain and if that's what you want to do in a crisis, have at it. But I don't think it's going to play politically.
- [42:30]
D
An F grade of the American Action Forum where he is president also. Yeah, former.
- [42:36]
E
About that.
- [42:37]
D
Congressional Budget Office director. We will do that. Douglas. We appreciate your time as always. We won't have Rick on the late edition, but I'm sure we can get that question.
- [42:45]
B
Let's get a call in right now. That was amazing. That's the kind of stuff you only see and hear on this program. Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already at Apple, Spotify or wherever you get your podcasts. And you can find us live every weekday from Washington, D.C. at noontime eastern@bloomberg.com
- [43:07]
A
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I
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