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Bloomberg Audio Studios Announcer
Bloomberg Audio Studios Podcasts Radio news 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.
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Joe
So I wonder if Trump has the PGA Championship on the plane television on Air Force One on his way back from China. I would imagine so. It's a long flight. You got to entertain yourself somehow. In part, the President did that by speaking to the reporters on Air Force One as he journeys back from China about the trip after we heard him speaking next to Chinese President Xi Jinping in the last day of their summit together today, where we understand much was discussed, yet not as much formally committed to, but this is how President Trump has characterized things.
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President Donald Trump
This has been an incredible visit. I think a lot of good has come of it. We've made some fantastic trade deals, great for both countries. President Xi is an incredible guy, got along, made a lot of great trade deals, including over 200 planes for Boeing with a promise of 750 planes. We didn't discuss tariffs. I mean, they're paying tariffs, they're paying
- [01:59]
Joe
substantial tariffs, but they of course did not talk about tariffs and any number of other issues according to the Chinese. And there's a bit of a back and forth on what exactly was said because the readouts don't completely align. There was a deal, as Kaylee mentioned, to sell 200 Boeing jets. There does not seem to be a purchase requirement or guarantee whether it's jets or beef. Also, beef imports resumed. So the news seems to be surrounding Taiwan and the conversation that these two world leaders had, which is where we start with Tyler Kendall, Bloomberg's Washington correspondent, is still on the ground in Beijing picking up the pieces after this three day summit. Tyler, will Taiwan be the takeaway
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Tyler Kendall
at this point? Joe it definitely was the largest point of contention and in fact just breaking in the last few moments. We're getting a statement from Taiwan, apparently, in response to President Trump being a non committal about that $14 billion weapons package that is queued up for his approval, Taiwan's Foreign Affairs Ministry reportedly saying in part, quote, regarding arms sales to Taiwan, this is not only a security commitment to Taiwan, but also a joint deterrent against regional threats. This definitely dominated the conversation and did threaten to derail the mood here in Beijing, which was rather cordial, if you will, considering that both sides had said that they were going to prioritize stability. And I think that's the other big takeaway from the meeting that happened here in Beijing, which is that the dialogue is going to continue. The two sides were stable enough that they're going to keep the conversation going. As Chinese state media confirmed earlier today that Chinese President Xi Jinping will accept President Trump's invitation to come to the US this fall. Because beyond that, a lot of the deliverables as you're outlining, didn't have that many firm details. Yes, we got the Boeing deal. In fact, we can confirm that Boeing officials were still here on the ground in Beijing today, meeting with top economic officials in an apparent good sign for that deal. But we didn't see many details around agricultural purchases, for one example, or energy products, as President Trump had pledged that there were conversations around these items. In fact, there had been an expectation, right, that we could even see some movement on Nvidia's H200 chips, considering that Nvidia CEO Jensen Huang last minute attended this summit. President Trump did say that they spoke about those chips behind closed doors, but ultimately not about whether China would be a buy a buyer, allow companies to buy those chips, saying that instead China wants to develop them on their own. So still a lot of questions here, but it is clear that the conversation is going to continue.
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Joe
All right, Bloomberg's Tyler Kendall live in Beijing for us. Great work throughout the last several days. Tyler, thank you so much. And we want to go live to Capitol Hill next as we're preparing to be joined by Republican Congressman Vince Fong of California. And I want to begin with the issue of Taiwan, as Tyler was just talking about some of the tension that existed in the remarks around Taiwan here. Let's listen to how President Trump characterized what she asked of him and what his response was earlier.
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President Donald Trump
He doesn't want to see a movement for independence. He says, look, you know, we've had it for thousands of years and then at a certain period of time and left that we were going to get it back. And the Korean War, a lot of things happen. All this but no, on Taiwan, he feels very strongly I made no commitment either way.
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Joe
On Taiwan, he feels very strongly I made no commitment either way. And that's where we bring in now Congressman Vince Vong, as I mentioned, representing California's 20th district, the Republican joining us live here on Bloomberg TV and radio. Congressman, welcome. The President also apparently has not decided whether or not to commit to a $14 billion arms sale to Taiwan. He suggested he will be making a decision about that soon, knowing, of course, Congress has already greenlit that sale. Do you hope that he decides to move forward?
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Congressman Vince Fong
Well, this is certainly going to be a flashpoint that will continue on to the future. But yes, I mean, we need to support Taiwan. You know, you see the great powers competition that the United States is engaged with which China, with China. You know, China is trying to dominate and out compete America in a variety of areas, whether it's AI, whether it's, whether it's in technology, about quantum, whether it's on space. You know, you look at biotech as well robotics and so, you know, we are going to have to deal with this relationship for the long term, but we need to support Taiwan and it's going to be a continuous challenge for us as a country.
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Joe
Well, I'm just trying to figure out, Congressman, we appreciate your joining us here if anything has actually changed. We've heard some tough rhetoric over the past couple of days, but should America's friends in Taiwan be more worried today than they were before this summit?
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Congressman Vince Fong
I don't think so. I mean, certainly, look, the President is going to China from, in a position of strength. You know, again, as I've said before, you know, China, that the rise of China and the great powers competition. I mean, this is, this is going to be the, the issue that will dominate our relationship in the, in the global relationships across the world when it comes to stability for the, for, for the next century. And so we are going to have to confront this challenge head on. The President is certainly tackling that. He is going to China. He is confronting the President. He is going to negotiate, he is going to talk, he is going to address these issues forthrightly and bring them to the forefront. I mean, we can't, we can't hide from the fact that this is going to be an issue that, that we're confronting. But at the end of the day, we have a President now that is willing to address it immediately with a sense of urgency.
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Joe
Well, and it's understood, Congressman, that just the act of, of talking of participating in a summit like this is important. In and of itself. But is the President walking away with enough firm in, in hand? Where are all the deals that we expected to come from this, the commitments to China that China we thought might make when it comes to purchases of US Products? Are you disappointed?
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Congressman Vince Fong
No. I mean, look, this is the first of many conversations and many, many interact the United States and China. The President is going in with his eyes wide open. Again, you know, China is not our friend. And so when we look at the competition that we're engaged in, look, they're stealing our ip. They are, they are, they're, they're terrible on human rights. When you look at the challenges right now in cybersecurity, you know, we just had a briefing on Mythos and the vulnerabilities that it has exposed. China is actively trying to develop those same AI platforms to, to exploit our vulnerabilities. When you look at commercial space, they are trying to be dominant, dominant in that arena. You look at emerging technology, biotechnology, you know, 80% are probably the reagents and the, the things that make our medical devices and our, and our, and our pharmaceutical products come from China. I mean, think about this. If we were back in the, during the Cold War, we would never allow the Soviet Union to make 70 to 80% of the things that make our economy function. Fast forward to today. China does make 70 to 80% of the things that make our economy function. So the President is trying to put an industrial policy together. He is trying to rebalance the relationship, ensure that America is strong in a variety of industries. This is going to be an important thing. And the President is leading from the front.
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Joe
What do you make of some of the analysis today from Bloomberg? A paltry set of deliverables underscoring the rushed and chaotic planning for the trip as he grappled with the Iran war and a range of domestic issues. Axios. Nearly every force shaping US China relations is in fact pulling them apart. And the Washington Post in pageantry and politics. China Summit yields Xi's Goal Equal footing with the U.S. it's that last point I want to ask you about, Congressman. The image of these two superpowers on similar footing. What the President referred to as the G2 in an interview yesterday seems to favor China, does it not?
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Congressman Vince Fong
I don't think so. I mean, I think, I think that's a lot of rhetoric. We're going to look at the specifics, but again, the President is leading. I mean, you look at the previous administration and the ministries before that. I mean, we are dealing and confronting a real challenge. We are in a great powers competition. I mean, as I said before, you know, China is going to be the challenge. They are, they could either be a force for good in partnership with us or they could be a force for instability. And so this is something that, you know, we are, our eyes are wide open when it comes to Taiwan, when it comes to the entire Indo Pakom region, when it comes to our competition in a variety of industries, I mean, we have to lead. And when you look at the president's investments in bringing back manufacturing, when you look at the use of tariffs to expand our leverage, when you look at the investments, when it comes to hardening our supply chain, when bringing back critical minerals to the United States, when you look at our leadership and I all of this is to confront the growing threat that China poses to us.
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Joe
Congressman, finally, as you have a seat on the Transportation Committee, I'd love to ask you, as we consider another geopolitical challenge the US Is facing, it's obviously how to extract ourselves from the conflict with Iran and how to get the Strait of Hormuz back open and energy flowing out of the Middle east once again. The president has floated an idea of a federal gas tax holiday. Do you support it, knowing it could mean a hit in the fund that funds so much of our critical transit infrastructure?
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Congressman Vince Fong
Well, we're looking at it. I mean, certainly affordability is, is probably the top issue facing Americans right now. Gas prices. Number one in California, gas prices has, has surpassed $6. As someone who advocated for suspension of the state gas tax, we should look at the suspension of the federal gas tax. But it's not a permanent solution. We certainly have to look for ways to keep the Highway Trust Fund solvent. So we're looking at every single angle to, to fund our roads. But we have to bring back the price of gasoline. The solution to the price of reducing the price of gasoline is to expand supply, to invest in energy infrastructure, to expand our refining capacity. These are the things that President Trump is doing. Contrast President Trump's energy policy to the policy of Gavin Newsom. No question, Gavin Newsom has made California weaker and more vulnerable. We cannot follow down that path. We need to follow President Trump's lead in expanding energy production. That is the long term solution to reducing gas prices and making America energy secure.
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Joe
Congressman, it's great to have you. Thanks for being part of our conversation today. With us live from Capitol Hill, Congressman Vince Fong, California's 20th district. As we assemble our political panel for their take on what we just heard, Bloomberg Politics contributor Rick Davis is with U.S. republican strategist and partner, partner at Stone Court Capital, alongside Democratic strategist Jim Kessler from Third Way. Jim, what do you think about that response on a gas tax holiday? It doesn't appear the leadership is in favor on Capitol Hill. Does this see the light of day?
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Jim Kessler
It's hard to say. Gas this time last year was $3.19 a gallon. Right now it's $4.55 a gallon. And it is purely because a war of choice in Iran, that was a bad idea. That's taking, it's going to take months and months, perhaps years longer than anyone anticipated and is not going to achieve its results. So, you know, gas tax, I believe, is 18 cents. And you know, that would be nice to go from 455 to 437. It would drain our resources in which we fund roads and bridges. But, you know, this is a, this is a problem of Donald Trump's making and frankly, nobody else.
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Joe
Well, Rick, I know that you see the political opportunity for basically anyone who's in elected office right now to pursue a federal gas tax holiday. My question is, how quickly do you think it realistically could happen? How quickly would it need to happen to have the desired effect?
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Rick Davis
Yeah, I know. I disagree with many economists who say it's bad policy, but it's good politics. And the reality is that Congress has done little to help support the Americans who feel the pinch on cost of living. And, and, and this is one area that they can at least side with the American public. The reality is that getting, you know, the feeling of it is the feeling of action, not the feeling at the pump. I mean, Americans are never really going to be impacted politically by a couple cents at the gallon coming down. But if they see Washington at least making an effort to try and, and take over their priorities of cost of living, of affordability and doing something about it, it can soothe what is right now a pretty grumpy, angry consumer.
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Joe
All right. Rick Davis and Jim Kessler will be back with us for more in just a few moments as we continue on here.
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Stay with us on balance of Power. We'll have much more coming up after this.
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Bloomberg Audio Studios Announcer
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Joe
James has said it more than once. It's going to take years of therapy to unpack all of this, and he's apparently not alone. You fight about politics with the family, with your brothers, sisters, your parents. Do you avoid certain people so you don't have to get into it? You dread the holidays because you know how the conversation is going to end. You are not alone, as it turns out. Great story in Politico magazine that made me think of our panel today. With anxiety over politics reaching new heights and crises flashing across our screens, mental health professionals say they are seeing an influx of patients distraught about the news coming out of Washington. Pretty wild. Veronica Calkins, a clinical director at Pacific Mind Health, says it's the first time we're actually seeing people initiate therapy because of political anxiety. It started after the president's second inauguration, and there's polling that might make some of this feel justified. 65% of Americans, you know, we always talk about what issue they favor. Check this out. 65% of Americans say politics is a significant source of stress in their lives. This is the American Psychological association doing polling on politics. More interesting than that, the leading cause of stress concern about the future of our nation. 76% outranking the economy or work or money. Maybe we're getting to something. This is why we have a panel every day. It's somewhat therapeutic for me and we should bring them in now. Bloomberg Politics contributor Rick Davis, our Republican strategist and partner at Stone Court Capital, is with us and delighted to see Jim Kessler, Democratic strategist, executive vice president for policy at Third Way. And these two guys used to work together and fought a couple of battles in the olden days. So it's always a lot of fun to put them back together here. Rick, I don't think you're the type to seek therapy. You're the guy upsetting everybody. Right. You're a political strategist.
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Rick Davis
I'm afraid I may be the cause of some of that crisis in the therapy. In fact, I've avoided talking to therapists for fear that I would destroy their careers. At the same time, I'm sure Jim feels the same way as I do, but. Yeah, I get it. Come on, it's supposed to be stressful.
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Joe
Politics is a blood.
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Rick Davis
You want to get in it, you want to pay attention to it, you're going to pay a price.
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Joe
Are you surprised to hear these numbers, Jim? Maybe not. 76% say their stress is about the future of the nation. What does that tell us about the environment we're in?
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Jim Kessler
I wrote those numbers down as you were saying them because I'm going to use them. I think it feels accurate to me. And just quick anecdote. We have a second home in Cleveland, and when Donald Trump one that his most recent, the second term, my wife said to me, kid, you're on your own. I'm heading out there. And we basically live in separate places and see each other maybe, you know, 10 days out of 30 in a month. Typically, she's like, you fight them. I'm done.
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Joe
Well, Jim, it's come to this. You're living the life of a lawmaker. You never thought it would happen.
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Jim Kessler
Exactly.
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Joe
You see your spouse two days out of the week. Well, this isn't what we came together to talk about, but I guess the thing that concerns me is we're just starting the midterm campaign cycle here, and it's all coming with this massive effort to redistrict the country. And I'm guessing this is adding to a lot of uncertainty and anxiety as well. Look no further than South Carolina, where the Republican Governor Henry McMaster is expected to announce a special session today to push forward a 70 gerrymander to basically remove Democrats from the map. Rick, we've been going back and forth on this state by state. Will South Carolina be the next one?
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Rick Davis
Well, just to be precise, remove one Democrat from the map, Jim Clyburn, who may be one of the most powerful Democrats in Congress today. So this is a big one and I think everyone's going to watch with bated breath. The governor, Henry McMaster, great guy, chose not to call special session. The Senate couldn't pass a two thirds vote to call it themselves. Now he's flipped. Probably got a few calls from the White House and he's calling him back today. Come on back, guys. We're going to vote to do this. But I must admit, the people who don't want to do it are Republican rank and files who are sitting there saying it's going to create more vulnerability for our districts by trying to grab one Democratic district. And really, we'll see how the fallout occurs. This could be either a very wise decision or a very foolish one.
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Joe
What's your view on South Carolina specifically, Jim Kessler? Because if, if you talk to the man who holds that seat, Jim Clyburn, he says, go ahead, redraw it, I'll win it anyway.
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Jim Kessler
He just may. And there's a very real possibility that if they redraw the state, the way the maps, the Republican maps look like, it'll go from a 6 to 1 state to a 5 to 2 state, Democrats could possibly pick up a seat. Now, that's because the environment is so bad for Republicans right now. Donald Trump is so unpopular and he's underwater on a lot of issues that even in South Carolina, at a seat that might be like a Trump plus 10 or 11 Democrats could win that seat. So I agree with Rick, like, beware what you wish for because you might not get it, you know, in this case.
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Joe
Well, Rick, you mentioned bloodsport, and I think more people are getting the tune here. There's a new political poll out specific to redistricting gerrymandering. The poll shows both parties believe that it is influential or decisive and back it to counter the other party. For Democrats, 63% either support or strongly support an effort to neutralize Republican gains. Only 8% oppose it. Republicans, not quite as much, but 54% either support or strongly support an effort to match or neutralize Democratic gains in redistricting with 10% against it. We're just going to redraw the whole country here, right? It's not just this cycle, Rick. They're going to keep redrawing maps going into 2028. Oh, for sure.
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Rick Davis
I think that Virginia is a classic example where they didn't do the process early enough to be able to make this cycle based on what the court said. But for sure they'll do it for the next cycle. And, and they'll be followed by, you know, many, many other states who aren't getting it done this year who will try to do it next cycle. And by the way, I mean, like, a poll like that is just a recitation of the party's talking points. I mean, if you're listening to Republicans on Fox news, you're, you're that 54% saying, yeah, we got to stop the Democrats. And if you're a Democrat listening on cnn, you're, you're saying, oh, my God, the Republicans are stealing the election. We got to do this. So, like, it's not like the people are waking up every morning worrying about redistricting. They're, they're hearing the talking points on the networks that they watch that only give them the party point of view. And they're now regurgitating that to any pollster who will, you know, call them up.
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Joe
Yeah. To be clear, this isn't about supporting the concept in a vacuum. This is about neutralizing what the other party is doing. To Rick's point, I want to ask you both about Texas because the President was asked about it on the plane back home last evening, of course, a massive and very important Republican primary. It's gone to a runoff there between John Cornyn, Ken Paxton, the Attorney General. Whoever wins that will go up against a Democrat by the name of James Talrico. And you've actually heard him on this program. He's become a bit of a occult hero on the left thanks to his interviews with Joe Rogan, Bill Maher, etc. The President's obsessed with his diet. The fact that he used to be a vegan, apparently, and in Texas, that's, you know, that's a problem. I guess he's not a vegan anymore. I did some research on this. This goes back to a talk that he gave to the Texas Humane Legislation Network about four years ago in which the seminarian said that the, this, his statehouse campaign was a non meat campaign. They only purchased products from local vegan businesses. Well, but a storm was created here. So they've been trying to turn this around because I guess he eats meat now. He went to a state fair, ate a hickory smoked Big Tex turkey leg, bacon and egg breakfast tacos. He caught fried alligator in his mouth. The President still calls him a vegan, although he doesn't say it that way.
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President Donald Trump
Listen, I'm looking at it very strong. I like them both. I mean, I'll tell you what I do think. I think the Democrats have a weird, a weird candidate, six genders, a real hit on Jesus. I mean, this guy is bad news with his mask from relatively recently. And he's vegan. He's a vegan. All of a sudden he's not a vegan. He was a vegan. Now all of a sudden he's not. Texas doesn't like vegans. I either one of them will easily win the race.
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Joe
I'm so confused. Six genders, he said. A real hit on Jesus. This guy's bad news. He's a vegan. Vegan. The fact is he was asked about endorsing in this race and I guess he's not ready to. Rick, is he going to whittle this down between Cornyn and Paxton? What's going to happen in Texas?
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Rick Davis
You know, right now it seems satisfied to let him, you know, bail it out and, and let the, let the voters of Texas, at least the Republicans decide who they're going to put up. And, and actually this is quite unusual for him to even weigh in on this race. It's probably one of the most important Republican races in the country and he's really kind of, you know, left it alone. So he also then started talking about, oh gosh, I beat all those guys in Indiana. Maybe he's going to pull a Venezue if we're not careful about this. Right? Yeah. It works so well in Venezuela. I'm going to try it in Iran. So who knows, who knows what he's going to do? But the clock's ticking. The primary is going to occur soon and it may not make a difference one way or another. And the last thing he wants to do is endorse someone who might lose, wrecking his perfect track record on, on endorsement. So that's probably what's going to drive most of the outcome here.
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Joe
The comments about Talrico reminds me of when Trump was insulting Afton Bain, that candidate in Nashville because she hated country music, apparently. Can you get elected in Texas, Jim, if you're a vegan?
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Jim Kessler
You know, the ad maker who created where's the Beef ad passed away yesterday. So I think this is all very topical.
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Joe
Fantastic.
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Jim Kessler
So I just want to go like, look, I think Talarico has a real shot. I think if Paxton's the nominee, he's got a better shot. But I also want to put this in perspective. To win in Texas, a Democrat needs to win 74% of self identified moderate voters. That's not impossible to do. There have been Democratic candidates who have won upwards of 70, 75% of the moderate vote. But that's what you need to do there. That is the, the ideological breakdown of the state is such that that is your task. And you know, as compared to, let's say in Maine, Graham Platner needs to win 51% of moderates to win the state of Maine. Roy Cooper needs to win 64% of moderates to win North Carolina, so it's a tough race for any Democrat. In Texas, the wind is at our back because Trump is so unpopular even in Texas, he's not that popular. But vegan or not vegan, like, that's what you have to do. And that's hard.
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Joe
Yeah, fascinating. Joe Settlemayer, the auteur behind the where's the Beef ad, indeed has passed at 92, directed nearly 1,000 comedic commercials. This one for Wendy's we will never forget. Well played, Jim Kessler. Stay with us on Balance of Power. We'll have much more coming up after this.
- [29:31]
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- [30:45]
Bloomberg Audio Studios Announcer
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.
- [31:01]
Joe
What a story. The bond market in particular seems to be telling today as Charlie was running you through a upward pressure that we are seeing Yields up about 10 basis points points on the 10 year the 2 year yield as Charlie mentioned back above 4%. The short end of the curve is not signaling that it expects easier monetary policy to be coming anytime soon. In fact, there's live conversation as to whether or not the Federal Reserve is going to find itself in a position in the not so distant future where it has to consider tightening policy and hiking rates once again, even though clearly that is not what President Trump has been pushing for, not what he is hoping that his new Fed chair, Kevin Warsh, will deliver. Because, yes, it will be Chair Warsh no longer Chair Powell. Today is the last day of Jerome Powell's term on top of the Fed. And what a time he has had from a few inflationary events like trade war, Covid and the emergence from the pandemic, the shock emanating from Russia's invasion of Ukraine, the whole story around transitory inflation, and then, of course, a whole separate story unrelated to the economy itself, around the renovation of the Fed's building here in Washington and the pursuit of him as a result. Let's just get a recap of the chairmanship that was Powell's.
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Jerome Powell
Thank you very much, Mr. President, for the faith that you have shown in me through this nomination. The spread of the coronavirus has brought new challenges and risks. In response, we have eased the stance of monetary policy to provide some more support to the economy. The effect on inflation will be neither particularly large nor persistent. We expect that they'll be transitory or temporary. The word transitory has different meanings to different people. I think it's, it's probably a good time to retire that, that word.
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President Donald Trump
It looks like it's about 3.1 billion. One up a little bit or a lot. So the 2.7 is now 3.1 and. Yeah, it just came out.
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Joe
I haven't heard that from anybody.
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Jerome Powell
The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President. After my term as Chair ends on May 15, I will continue to serve as a governor for a period of time to be determined. I plan to keep a low profile as a governor. I won't see you next time.
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Joe
All right, hold your hard hats. We're joined by an important voice on this final day of Mr. Powell's tenure as chair, and that would be none other than Lael Brainard. As we told you with us in studio, the former director, National Economic Council in the Biden administration, former vice chair, Federal Reserve, now at Georgetown. It's wonderful to have you with us here, and we have many questions about Jay Powell's tenure, your firsthand experience. But I do have to start with what's happening here in the bond market. This is overwhelming the stock market today. Is this everything about the PPI CPI we saw this week? Is it about the concern of it getting Worse because of a closed Strait of Hormuz or is there more going on here?
- [33:59]
Lael Brainard
Well, I think there are a number of things going on. Obviously there's some carryover from overseas where the UK government dynamics are carrying over into the US at the very long end. But as you say, both CPI coming in very hot and PPI input prices, freight, suggesting that we're going to see additional pressures, upward pressures on consumer inflation in the months ahead. And of course, really very few people expect the Strait of Hormuz to be open and that oil to be moving into global markets, certainly not before the end of May, probably not well into the summer. And that means means that as Kevin Warsh enters the Fed, it is a inflationary set of risks that he has to contend with.
- [34:51]
Joe
Well, therefore making it very difficult to pursue rate cuts. But how high is the bar in your mind to actually tighten policy further? How hard would it be to hike rates knowing that this also could ripple down and have a potentially negative growth impact?
- [35:07]
Lael Brainard
Well, I think the day one job for Kevin Warsh walking into the Federal Reserve is to move the Fed away from the easing bias that has now been in place since late last year. It's no longer appropriate. We've had a massive inflationary shock. It's piling on top of earlier inflationary shocks and we're seeing that core PC inflation is moving up, likely to come in around 3.3%. So the first business for Kevin Warsh is to actually move away from that easing bias. And of course, that's exactly the reverse of the reason the President gave for trying so hard to replace Jay Powell.
- [35:47]
Joe
I was taken by your op ed in the FTSE in which you talk about inflation pressures in the future when people expect inflation to persist. You right. It tends to change pricing behavior by businesses and a temporary shock becomes a persistent one. You know about this because you've lived it. What does it mean for the second half of this year?
- [36:10]
Lael Brainard
Well, I think we started to see some of that in the PPI data with margins going up. And that is the kind of behavior when consumers expect gas prices to keep going up, then those gas station margins can go up as well. We are seeing it in freight costs. Everything is going to be affected by diesel packaging costs for food. So we still have some inflationary pressure coming for the consumer in the months ahead. And when I talk to consumers, and you can see it in the consumer surveys, their inflation expectations have gone jumped much higher. But they also just are very resigned to prices, prices never coming back down. So they say, I Hear about tariff refunds, I'm never going to see those refunds in lower prices. I see gas prices going up. When am I actually going to see some relief. So I think that concern about a series of supply shocks really leading into changing inflation expectations is one that the Fed has to show they're taking seriously.
- [37:18]
Joe
Well, and of course for consumers, if your wages are not, not keeping up with this, it feeds into the sentiment downdraft we've been experiencing. We saw that borne out in the CPI with wages being outpaced by inflation for the first time in three years. When do you expect that this starts to have a greater impact on the, on the economy itself, on consumer demand overall, on demand for labor, as the Fed contends with the other part of its dual mandate?
- [37:42]
Lael Brainard
Well, what's interesting, as you said, average hourly earnings actually negative for the first time in a very long time this month. And it does affect consumers on the lower end. So what we are seeing, I think with consumers on the lower end, I hear from them that they are using where they have access to credit, they're using credit more, they're running down their buffers. When you look at those overall retail sales numbers though, those were very strong, I would say, given where we are with oil prices. And that just speaks to the K shaped economy, the very top of the consumer income kind of distribution really driving that ongoing uplift to consumption. So that's why we're seeing, I think, this big vibe chasm. Consumer sentiment being extremely negative, but consumers continuing to power growth speak to the
- [38:40]
Joe
significance of this day for Jay Powell. I don't know what happens inside the Fed on a chair's last day. Are there fireworks? Is there a cake? We're wondering, maybe there's an official handling of the, of the gavel. But as we recall the, the stylings of Jay Powell and the challenges he faced in dealing with this administration. Will the relationship between the Chair and the President ever be the same again?
- [39:04]
Lael Brainard
Well, I think that will be the biggest legacy of Chair Jerome Powell is just the integrity with which he led this institution and really protected its independence during a time when the President mounted a series of unprecedented actions, firing a governor, undertaking a criminal investigation. So I think the Chair's legacy is really going to be around preserving the independence of the Federal Reserve. And I think he actually gives Kevin Warsh a much stronger position to start from than might have been the case otherwise.
- [39:45]
Joe
But what does it do to Kevin Warsh's starting position that Chairman Powell is still going to be hanging around, not as chair, but As a governor, he says he wants to keep a low profile. But what impact do you expect that will have inside the Fed?
- [39:58]
Lael Brainard
Well, I certainly know from working with Chair Powell, when he was Governor Powell, that he's very constructive. As he said, he will be low profile. I really expect that to be the case. So I imagine, and he of course worked with Governor Kevin Warsh. I expect that they'll establish a good working relationship. What it means, of course, is that the consistent dissenter, the, the, the CEA chair for President Trump, Stephen Myron, is rotating off, at least for the time being. And so that actually makes Kevin Warsh's job a little bit easier if in fact he decides he is going to move away from that easing bias and recognize there may be two sided risks to rates.
- [40:46]
Joe
Speak about the cultural shift inside the Fed when a new chair shows up. This is obvious, obviously a very close group of people, you go behind closed doors and make very difficult decisions. But I'm sure that there's a camaraderie there in a style that's impacted by a new person holding the gavel.
- [41:03]
Lael Brainard
Well, the staff are absolute professionals. I mean, these are people who have deep expertise, but they understand that they are providing advice and depth. But the policymakers, the chair is, is leading on policy and so they will offer up that same sage advice, uncolored by their own views, to the incoming chair. And similarly, I think board members and the regional presidents tend to be very serious. They take the data very seriously. You've heard how they're parsing the data right now, how they themselves are shifting. But they are also very collegial.
- [41:43]
Joe
Well, of course, a lot of conversations do happen behind closed doors, but we also hear frequently from Fed governors or officials on the fomc and it seems Kevin Warsh thinks that maybe is too frequent, at least judging by his testimony in his confirmation hearing. Not even just in terms of speeches and the like, but in putting out a summary of economic projections, for example. I wonder what you think we might expect in terms of a shift in the, at the very least amount of guidance that financial markets are getting given by the Fed.
- [42:10]
Lael Brainard
It is possible, given that he will now be making the recommendations on the statement and will also be making recommendations on what kinds of communications the committee's making. There are a number of things he could do. He could decide to put forward a statement that doesn't include forward guidance at all. He could decide to drop his press conferences or move to every second press conference. He could guide the committee over time to decide to no longer issue summaries of economic projections. So those are all things that he could do. The question mark, yeah. So I think that is the question mark. If in fact he wants to be leading the Fed and providing that voice that is the kind of preeminent voice on Fed policy. He may find that he wants some of those tools. And in particular, the every meeting press conference has raised the chair's voice relative to other members.
- [43:11]
Joe
We all remember trying to gauge what Alan Greenspan was going to say based on how fat his briefcase was. We would have paid good money for a news conference back then. Do you expect that regular news conferences will follow each meeting?
- [43:24]
Lael Brainard
I think that was one of the question marks that his testimony left open. What he won't be able to change is the number of times that the regional presidents and board members speak. And so it would be, I think, to his disadvantage to retreat from the field and leave the markets to interpret based on other members of the committee alone.
- [43:49]
Joe
Yeah.
- [43:49]
All right. So great to have you. The former vice chair of the Fed and former director of the National Economic Condition Counsel in the Biden Administration, Lael Brainard, here with us.
- [44:00]
Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already, 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
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