Bloomberg Surveillance TV: July 6th, 2026

Summary

Bloomberg Surveillance TV: July 6th, 2026 – Episode Summary

Overview

The July 6th, 2026 episode of Bloomberg Surveillance TV centers on navigating today's volatile financial landscape, fueled by shifting Federal Reserve policy, fluctuating energy prices, and global geopolitical tensions. Hosts Jonathan Ferro, Lisa Abramowicz, and Annmarie Hordern are joined by Mike Wilson (Morgan Stanley), Henrietta Horden, and Kevin Walsh to analyze implications for markets, discuss the future of capex in tech, and preview the geopolitical and economic stakes of upcoming global events like the NATO summit.

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1. Market Setups, Fed Policy, and Rates Landscape

Key Points & Insights:

• Stability & Volatility in Rates:
  • The rates market, caught between expectations of both hikes and cuts, is in a new adjustment regime under a less predictable Fed.
  • Higher volatility is expected, but over time wider opinion dispersion tends to result in lower price volatility.
• Back-End Rates Focus:
  • There's a coordinated focus from the new Treasury and Fed to anchor the "back-end" of the yield curve amid heavy US debt issuance.
• Market Reaction to Policy Shifts:
  • A reduction in forward guidance is being interpreted as increased hawkishness, already priced in since the new Fed chair's nomination.
  • Precious metals slumped and the dollar strengthened after this shift.

Notable Quotes:

• "We're in that adjustment period now and I think that's one of the reasons why the market's been a little choppy... we're getting used to this new regime." – Mike Wilson [02:44]
• "A wider dispersion of estimates actually leads to lower volatility over time." – Mike Wilson [03:14]

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2. Sector Rotation: The Broadening Trade & Capex Dynamics

Key Points & Insights:

• Crude Reset Favors Equity Rotation:
  • A precipitous drop in crude prices (from triple-digits to $60s WTI) has removed urgency for near-term Fed hikes and reignited "the broadening trade."
• Performance of Small Caps and Sectors:
  • Russell 2000 small caps surged 20% last quarter, and S&P 500’s equal-weighted index benefited.
• Tech Capex & Hyperscalers:
  • The prior divergence between tech “spenders” (hyperscalers) and “beneficiaries” isn’t sustainable, and mean reversion is underway.
  • Anticipate a correction in semiconductor stocks (chips), with declines of 30-40% possible, even in a bull market.

Notable Quotes:

• "The broadening trade literally stopped the day that the attacks happened and we had the big spike in oil... Now it’s reignited." – Mike Wilson [04:32]
• "You can't have the spender stocks trading poorly and the beneficiary stocks continuing to go straight up... it's unstable." – Mike Wilson [05:38]
• "High beta stocks can correct 30, 40% in a bull market. Just look at the 200 day moving average." – Mike Wilson [09:16]

Timestamps:

• Broadening Trade Discussion: [04:10] – [06:00]
• Tech Capex & Corrections: [06:00] – [09:45]

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3. Geopolitics: NATO Summit, Strait Tensions, and Energy Chokepoints

Key Points & Insights:

• NATO Summit Outlook:
  • The summit is expected to shift discussion from the ongoing war and energy/fertilizer price spikes to joint defense actions, e.g., with Germany.
• Energy Security:
  • The war has given Iran control over a critical strait, normalizing the imposition of "tolls" or "environmental fees" for energy transit—deeply unpopular among NATO states.
  • Temporary sanction waivers are only as solid as current US policy, creating uncertainty for insurers, banks, and Europe.
• Global Risk Reassessment:
  • The region’s instability is prompting worldwide strategic reviews to avoid future chokepoints (e.g., diversification, alternate routes, or pipelines)—raising shipping, insurance, and transport costs for the foreseeable future.
• US Congress Focus:
  • While Taiwan may have receded as a public issue, it remains a core US Congressional priority for bipartisan support and strategic protection.

Notable Quotes:

• "Iran now has control of the Strait... and is using different countries as an example of how to set up a toll, call it a climate assessment, call it an environmental fee..." – Henrietta Horden [15:16]
• "We're going to see a scramble to try to create alternatives to whatever choke point there might be in the entire world." – Henrietta Horden [16:47]

Timestamps:

• NATO & Energy Chokepoints: [14:01] – [18:37]

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4. Fed Policy Critique: Kevin Walsh and Rate/Fiscal Management

Key Points & Insights:

• Kevin Walsh on the Fed Chair:
  • The Fed lacks clarity in its "reaction function" and offers minimal forward guidance, causing market uncertainty and volatility.
  • The absence of formal forecasts or “dots” allows hawkish members to dominate and gives the chair "cover" to avoid accountability.
• Strategic Ambiguity:
  • Walsh contends this ambiguity may be strategic, enabling the Fed chair to balance committee pressures and political optics.
  • Key debate: Can (or should) the US inflate its way out of its debt, or must it rely on real growth?
• “One and Done” Policy Risk:
  • Walsh expects a one-time hike to establish credibility, then a pause to maintain flexibility—drawing parallels with the ECB and political calculations ahead of US midterms.
• Balance Sheet Nuances:
  • Walsh argues that while balance sheet talk is often used for optics, actual rate policy is what matters; true policy shifts require committee consensus.

Notable Quotes:

• "Just to say, you know, kind of swear on the monetary policy bible stack and say, you know, I believe in price stability, I mean that's fine, but the question is how you actually achieve that." – Kevin Walsh [20:47]
• "By not saying anything, you allow the hawks on the committee to become ascendant." – Kevin Walsh [24:34]
• "I think if there's a risk, it's that the President was duped." – Kevin Walsh [27:48]

Timestamps:

• Fed Critique Starts: [20:29]
• Walsh's Insights: [20:41] – [28:20]

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5. Market Outlook: Year-End, Financials, and Operating Leverage

Key Points & Insights:

• Year-End S&P 500 Outlook Remains Bullish:
  • Mike Wilson remains confident in 8,000+ S&P year-end target, citing the "broadening story" and underappreciated operating leverage.
• Financials:
  • Outperformance in money-center banks noted, though the group may pause as the yield curve flattens.
  • Loan growth is accelerating—even as labor markets show mild softness—helping revenue and the operating leverage theme.
• Strategy of Administration:
  • The aim is "privately driven organic economic expansion," reducing dependency on government hiring or spending while boosting productivity.

Notable Quotes:

• "The fact that we’re rotating now... almost confirms the thesis we've had all year, which is this is not just a tech story... the broadening story is the story that I think people have really underestimated." – Mike Wilson [10:32]
• "Loan growth is accelerating and that's feeding this whole broadening out story of the economy." – Mike Wilson [11:14]

Timestamps:

• Year-End & Bank Discussion: [10:30] – [12:08]

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Notable Quotes – Quick Reference

• "A wider dispersion of estimates actually leads to lower volatility over time." – Mike Wilson [03:14]
• "You can't have the spender stocks trading poorly and the beneficiary stocks continuing to go straight up... it's unstable." – Mike Wilson [05:38]
• "Iran now has control of the Strait..." – Henrietta Horden [15:16]
• "By not saying anything, you allow the hawks on the committee to become ascendant." – Kevin Walsh [24:34]

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Timestamps – Important Segments

• Fed rates, back-end focus, and volatility: [02:37] – [04:12]
• Sector rotation and broadening trade: [04:12] – [10:30]
• Geopolitics, NATO, and energy chokepoints: [14:01] – [18:37]
• Fed Chair assessment/critique: [20:29] – [28:20]
• Year-End S&P, banks, and leverage: [10:30] – [12:08]

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Podcast Tone & Language

The discussion is analytical, candid, and occasionally tongue-in-cheek, especially in the Fed critique. The language extends from technical (yield curves, capex-to-sales, EPS revision breadth) to accessible explanations and clear attributions.

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Bottom Line

This episode offers an essential, nuanced snapshot of summer 2026: a market in flux, grappling with new monetary policy realities, shifting sector leadership, and the rippling global effects of geopolitical instability. With sharp commentary from leading strategists and macro thinkers, listeners walk away with a richer understanding of what’s driving markets and policy behind the headlines.

Transcript

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[Jonathan Ferro]

This is the Bloomberg Surveillance Podcast. Joe I'm Jonathan Ferro, along with Lisa Abramowicz and Annmarie Horden. 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 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App. Mike Wilson of Morgan Stanley writing Falling energy prices, peaking tariff inflation and contained services keep the Fed on hold rather than hiking this year. Lower real rates should support equities and further fuel the broadening trade. I'm pleased to say that Mike joins us around the table for the next hour. He joins us for more. Mike, good morning. Good to see you.

[Mike Wilson]

Good morning.

[Jonathan Ferro]

Let's just start with the stability we're seeing in the rates market and how important that is to set the stage for what you're anticipating in the next few months.

[Mike Wilson]

Yeah, I mean, I think you were saying it earlier. I was listening to the show. I mean, there's somebody expecting a hike, there's someone expecting a cut and we're on hold. And this is, I think what we've got to get used to is that with the new chair probably not giving as much guidance, he's going to allow the market to kind of figure it out on its own and have these differing, different views. We're in that adjustment period now and I think that's one of the reasons why the market's been a little choppy or even correcting in the last month or so is we're getting used to this new regime which is going to be higher volatility and potentially the bond market. But over time, I think what's going to end up happening is the market's going to settle down. It's going to, it's actually more, more estimates. A wider dispersion of estimates actually leads to lower volatility in the pricing over time. But we're in that adjustment period, so we think rates are lower ultimately, particularly at the back end. And oh, by the way, we've, we' talked about this on the show many times. New treasury secretary, you know, new Fed chair, this kind of new Fed treasury accord to really anchor the back end. That's what they're focused on. You got to get the back end down or at least anchored because you have so much debt that you have to basically finance.

[Jonathan Ferro]

Do you think in the meantime we're confusing a reduction in guidance with an increase in hawkishness?

[Kevin Walsh]

Yes.

[Jonathan Ferro]

In the meantime?

[Mike Wilson]

Yeah, I think that's right. And the market's pricing that now. So that's the good news is that we've already had that adjustment and that adjustment started four months ago. Right. This is why precious metals have traded really poorly. You know, the day that WASH was announced as a nominee, the gold market peaked and that that was a sign the dollar has been stronger. So once again, the market has really gotten ahead of this.

[Jonathan Ferro]

So rates of reset, we've come down from around 4.2% to 4.1. There's a belief this morning, at least, we've removed the urgency to hike as soon as July so we can put that story to bed. Cruise decline, massive reset in crude from triple digits down to the 60s on WTI. Does that open the door within the equity market? And let's talk about the stock market exclusively. Does that open the door to, to the broadening trade again?

[Mike Wilson]

Yeah, that's that's our call basically is that that was happening at the beginning of the year. Then we had Venezuela and then Iran. By the way, the market priced Iran before the invasion even happened or the attacks happened because. Because once again it was pretty well signaled. And so that's when the broadening trade stopped. The broading trade literally stopped the day that the attacks happened and we had the big spike in oil and then the pricing of the Fed to hike rates. Since I say mid May, which is when we reiterated the broading call, we had a different view than most. We thought oil prices would come down and that has allowed now Fed pricing to sort of stabilize and that has allowed the broadening trade to reignite.

[Jonathan Ferro]

Small caps have performed nicely. Just had a massive quarter up by more than 20% on the Russell. We've seen the broadening trade speak to the performance we've seen in the equal weight on the S&P 500 as well. Let's talk about the Max 7, which increasingly was called the like 7. You've got to know at this morning talking about maybe the money going back into the hyperscalers, just walk us through how you're thinking about what's happened in tech and that divergence between the big spending companies and the beneficiaries of all that spending and the divergence that's really widened in the last few months.

[Mike Wilson]

Yeah, I mean there's a symbiotic relationship between the spenders and the beneficiaries and typically they trade sort of in lockstep. And a couple of things we've been writing about for the last several months, number one, capex to sales, that particular factor has been straight up since the big beautiful bill was passed. Right. That basically the government's incenting businesses to spend money today rather than later. And so that capex of sales factor has been driving a lot of stocks higher. That looks like it's peaking now. And by the way, the hyperscaler stocks started to trade poorly about a month and a half ago and into this idea and but that that's not sustainable. You can't have the spender stocks trading poorly and the beneficiary stocks continuing to go straight up. And now what we saw last week, you know, announced that perhaps they're going to sell some excess capacity, maybe turn into a provider of capacity. That is just a reason for these things to take a break. Also, peak rate of change on revision breadth. Right. The memory stocks revisions have been spectacular but there's they can only go so high. So all of that's kind of happening at the same time. And I expect the hyperscalers now to stabilize. That's what's going on the last couple of weeks. And the semiconductor stocks are going to, are going to correct. That's a good, that's a good development. That doesn't mean the capex cycle is over, but that ebbing and flowing between the two is a natural kind of governing factor because you can't have this divergence continue. It's unstable.

[Jonathan Ferro]

Your words take a break. That's interesting. Some people have called it a narrative shift for the overall trade and maybe a shift in spending too. Why is it one and not the other?

[Mike Wilson]

Well, we don't know for sure but we've had three of these already, John. So since Chat GPT was announced in November 22nd we've had three of these sort of mini cycles within the broader structural CapEx cycle, which is that the market starts to question oh, the return on capital isn't good enough to support this kind of capex. What happens then? The stocks trade poorly and then the CEOs of those companies come out and say well you know, maybe we won't spend as aggressively. And then it ebbs the other way. And so that's, that's the story, that's the dance back and forth. Now there is going to be a period, there is going to be a time, we don't know when it's going to happen yet where the capex cycle will exhaust itself. And we will have, you know, we've talked about this, there is going to be mal investment here. We don't think that that spending cycle is over because they just started raising the capital in the credit market so they're going to spend the capital. Okay, so but we can have these many cycles within in the structural bull

[Jonathan Ferro]

market of I think, as you know though, forget the spending that's not yet happened is the intentions that matter and a deceleration in capex intentions from here. How do you think this market is going to internalize the prospect of that in the coming months?

[Mike Wilson]

Well, it's doing it right now so we talk about as a peak rate of change or you know, trough rate of change, second derivative growth. And that's exactly what's going on. There's two things we're focused on earnings revision breadth for the semiconductor stocks themselves are like 75%. That's about as high as it goes. We've documented that. So that's going to roll over. It doesn't mean it goes negative but the deceleration on that can Cause those stocks to correct and then of course the hyperscalers will benefit if the market perceives these companies as being somewhat capex disciplined that they're not going to do willy nilly spending in a way where free cash flow goes to zero or negative. And by the way, free cash flow expectations for some of those companies are going towards zero. That's why they've underperformed. So it's this stance, like I said, back and forth. And now in the last week and a half the hyperscaler, some of the hyperscaler stocks have started to trade better. That's a good sign that we're going to have a slow correction. This could last, you know, four, six, eight weeks, something like that. And then we'll probably have the next up cycle for the semi.

[Jonathan Ferro]

And these new names that were in bear markets, I'm talking about Matter and Microsoft. Matter had a better week last week. Chips, you keep using this word, correct? When I hear that I'm just thinking what do you mean by that? How much is the downside? How big is the downside for some of these chip names?

[Mike Wilson]

Well, these are high beta stocks. I mean they can correct 30, 40% in a bull market. No, by the way, just look at the 200 day moving average. That's a, that's probably a really good gauge. These stocks are so extended relative to those moving averages. That's how you got to think about it. Those moving averages exist for a reason, right? They always return to the moving averages. Does it happen in a violent way or does it happen kind of gradually over time? We'll have to wait and see. But yeah, 30% correction in these stocks is, I mean, well within possibility. In fact, some of them already have corrected.

[Jonathan Ferro]

You can have a 30% correction in chips. Just bear with me here. And you can still see the index move up and to the right on the S&P 500 even with the massive weight. And they have.

[Mike Wilson]

Well we didn't say that. That's what I'm mean. That's part of our call too is that we think this rotation is happening in a downtape, okay? Unlike the correction we saw in the precious metals stocks in January because they're such a small part of the index. Energy stocks had a big correction after having a great run in January and February. Now the market traded off a little bit because of the war itself. So I agree with what you're saying or your premise or your question which is since these stocks are such a big part of the index, it's going to be really hard for the index to make any upward progress until this rotation has sort of happened.

[Jonathan Ferro]

This is a summer story for you?

[Mike Wilson]

Oh, yeah. This. I don't, I mean, we're not bearish on the year end. We're, we're still 8,000 plus for year end and we've had that call for quite a while based on the earnings story. So that earnings story is very much intact. In fact, the fact that we're rotating now to some of these other areas almost confirms the thesis we've had all year, which is this is not just a tech story, that's a great story. But the broadening story is the story that I think people have really underestimated the rolling recession from a year ago, this operating leverage story, which I think is still very underappreciated.

[Jonathan Ferro]

Do you think the banks can start working now too?

[Mike Wilson]

Well, they have been, I mean, the money center banks and the capital markets banks really have been your stock.

[Jonathan Ferro]

Absolutely. Goldman stocks. Fantastic. I'm talking about the other, the regionals.

[Mike Wilson]

And so they've started to perform and that's been an area we've been highlighting. Now the yield curve is flattening still or, you know, is having trouble kind of steepening. So I think that group could pause a bit. We took that off of our list of favorites for the, for the broadening trade this week. But ultimately between now and year end, we think, we do think the banks are going to do quite well because this is the strategy of the treasury and the Fed is they want more lending going through the traditional lending sector. So while the yield curve is flattening, loan growth is accelerating and that's feeding this whole broadening out story of the economy. This is a strategy of the administration. They want a privately driven organic economic expansion and that's what we're getting. Notwithstanding that maybe the labor market isn't as robust as some people were hoping. But that's also then feeding the earnings story, right? Because you're seeing revenue growth without a crazy need to hire a bunch of people. And that's the operating leverage story 101.

[Jonathan Ferro]

Stay with us. More Bloomberg surveillance coming up after this.

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[Jonathan Ferro]

Henry Torez, Invader Part is looking forward to the NATO summit, saying it's a prime opportunity to direct attention away from the war and the energy fertilizer price spike it has created, so investors should be prepared for a flurry of announcements. Henrietta joins us now for more. Henrietta, welcome. What kind of announcements are you looking for?

[Henrietta Horden]

Well, as you mentioned with Tyler, I think the idea of a joint defense effort with Germany is exactly what the doctor ordered. You know, the President is really looking to deflect away from from what is happening in the Strait and there are so many issues, not least of which is the toll that still hasn't been agreed to and which NATO nations have a real problem with. So I expect them to talk about pretty much anything other than that throughout the next two days. The other piece would obviously be Russia and Ukraine and the discussion there as the United States Congress provides substantial funding to not just Ukraine in their various appropriations bills, but also to the neighboring regions, Latvia, Lithuania and the Baltic region a whole and as you were mentioning before, trying to ensure that we keep troops in the region as well in Poland and elsewhere across NATO nations.

[Jonathan Ferro]

And the toll let's talk about it. I get the Europeans and others aren't happy about it, but right now it feels like that's the price of admission to get energy moving again. Is there anything they can do about it?

[Henrietta Horden]

Yeah, that's exactly it the result of this war is that Iran now has control of the Strait. You see it with the U turns of tankers happening throughout the weekend and on a daily basis as people deal with the general uncertainty of where these 80 mines are in the region. So Iran has the ability here and is using different countries as an example of how to set up a toll, call it a climate assessment, call it an environmental fee, whatever you want to call it. You're normalizing relations with the irgc. And this is in many of the NATO nations opinions I've heard from Canada, for example, directly and France directly, simply untenable. They don't want to work with a state sponsor of terrorism. And I would also point out that Treasury Secretary Bessant has created waivers for all these sanctions, but those are only going to hold as long as the administration decides that they will. They've already reversed that several times since the start of the war. And they don't have a lot of comfort from banks or insurers or NATO nations about what the policy is going to be in the future. So this is going to take a while to unfurl, probably much longer than the Aug. 20 deadline.

[Mike Wilson]

Henrietta Heights Mike Wilson, I had a question with respect to just how the world may get around the Strait itself, in the sense that what this war has highlighted is how crazy it is that we have this choke point to begin with. And how fast do you think the world itself will start to migrate towards perhaps drilling for resources elsewhere or building alternative ways to get the oil out of the region through pipelines, etc. How fast can that happen and will this be talked about over the weekend?

[Henrietta Horden]

Yeah, perfect point, Mike. I mean, the way to think about this is that it was so, so obvious that going to war with Iran would result in some sort of closure of the Strait. No administration has done it before. Very transparent, very understood. This was a potential choke point. We have many of them around the world, whether it's in the Red Sea, the Black Sea, the Southeast Asian areas. There are problems like this all around the world. So you're going to see now a scramble to try to create alternatives to whatever choke point there might be in the entire world. And what I think, you know, for investor purposes is what this means and particularly for the Federal Reserve chairman as they consider inflation is permanently higher insurance risk, permanently higher costs of doing the shipping, higher tanker rates. And those are all things that we're seeing across the board. So whatever level this settles at is almost guaranteed to be higher than it was before the president made the decision on February 28 to start the bombing.

[Mike Wilson]

And what about Taiwan? Is that, is that something that people are still talking about in the, in the mainstream? It seems like that's kind of taken a back seat.

[Henrietta Horden]

Yeah, absolutely. Great point. So Taiwan has taken a back seat publicly, but in D.C. it's still paramount. You have a pretty substantial bipartisan focus group, a stand, not a standing committee, but a select committee on China relations that focuses directly on Taiwan. And I would say that as you look at BIS and what they're doing with export control restrictions, they're very focused on Taiwan. Members of Congress are very focused on Taiwan. So it may not be front and center for this administration. And there's a lot of questioning of how the president's allegiances towards Taiwan differ from prior administrations. But I would say Republicans and Democrats are unified in wanting to continue to provide protections to Taiwan, whatever that takes.

[Jonathan Ferro]

Stay with us. More Bloomberg surveillance coming up after this.

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[Jonathan Ferro]

Here's a tape from Noel Dutta of Ranmac writing June's employment report. Report is a reminder that the economy remains uneven. Inflation remains too high and so the threat of hikes is not receding now joins us now for more now. Good morning.

[Kevin Walsh]

Good morning.

[Jonathan Ferro]

Good to see you in person, buddy. I'm not going to bury the lead. You are not impressed with Kevin Walsh, Fed Chair. Why?

[Kevin Walsh]

Well, I mean, I think he's kind of blurring the lines between the Fed having a reaction function and forward guidance. You know, getting rid of forward guidance is fine. No one needs to be spoon fed every single meeting in a advance. That's not what this is about. But just to say, you know, kind of swear on the monetary policy bible stack and say, you know, I believe in price stability, I mean that's fine, but the question is how you actually achieve that. And he actually, and in my opinion he hasn't really done much to tell us how that will be achieved. So it's really about how they respond to data and how that kind of drives their decision making process. And we don't really know much about, about that. Which, you know, if the market has one view of it and the Fed obviously has the whip and they know more about their own reaction function, the market, it could mean that the closer you get to these meetings we won't know their reaction function until it's revealed, in which case it creates some, some volatility in the financial markets. I think it's fine so long as things are stable, as guests have been saying. But you know, that may not always be the case. So he's going to have to tell us eventually and I would say sooner rather than later.

[Jonathan Ferro]

In the meantime, is the ambiguity strategic? Do you think it is beneficial?

[Kevin Walsh]

I think for him it is. Right? I mean in the sense that I think by failing to, I mean he's been very vocal about not wanting to submit dots, give a forecast, anything like that. But I think because the hawks really are ascendant on the committee, the last jobs number didn't matter one way or the other. It's really about the influence inflation data that's going to break the tie, so to speak. But by not submitting a dot, he absolves himself of having to take responsibility for the hawks on the committee. You know, and so it's kind of interesting. I mean you do see some guidance from people like President Trump, NEC Director Hassett talking about what? Well, you know, in his heart of hearts he's actually dovish but he has these sort of people he has to deal with. And so, you know, I think it kind of, it absolves him from having to kind of take responsibility if he's able to say, look, I didn't submit something.

[Mike Wilson]

At the end of the day though, don't we need higher inflation to grow out of the debt problem? And so he's talking about rewriting the data sets that they're going to use to sort of justify maybe inflation is really only 2.5, but reality is every American knows it's much higher than that. We've been going through this song and dance for 10 years. So what's that framework look like? And what is the real target inflation rate, you think, to actually grow out of the debt problem?

[Kevin Walsh]

I don't know, Mike. We'll have a task force for that. I mean, to borrow from our chairman. No, I don't. Look, I don't think you can inflate your way out of this. I mean, you have to grow your way out of it. I remember back after the financial crisis, people were making the same argument we had to, you know, and what ended up happening, we essentially grew our way out of it. Right. We had sort of stable growth, stable inflation. And over time, you know, things kind of evened out in the bond market. So. Yeah, I mean, I don't think he's leaning into the inflation piece of it to the extent he's been leaning any, into anything in terms of dealing with it. It's the productivity boom, the AI sort of golden age thesis that's been the linchpin for, you know, for Wash, I think.

[Mike Wilson]

Right. So not letting it, don't, don't kill the boom, as President Trump likes to say. And so having this obscurity around what I'm actually looking at gives them the freedom to maybe not be so reactive to the data sets.

[Kevin Walsh]

Well, sure, but at the same time, by not laying out a strategy, that's the only thing that people are, I mean, the vacuum is ultimately going to be filled by something. And so what's, I mean, then you do, in an odd way, by trying to get people off the data, you actually push them towards the data because they don't actually know what strategy you have.

[Jonathan Ferro]

What do you think he is in his heart of hearts?

[Kevin Walsh]

I think he's, I mean, I've, I've thought he's hawkish and I think it's almost like a revealed preference. By not saying anything, you allow the hawks on the committee to become ascendant.

[Jonathan Ferro]

And so, and that's what he wants is by design.

[Kevin Walsh]

You haven't done, and you wouldn't have done that if he didn't at some level, kind of good a agree with them. You know, the idea that you can, you know, the sort of productivity golden age, if you were thinking about that, honestly, the fact that inflation is above target to pull a Greenspan would basically mean to allow productivity to remain whatever it is to bring inflation down to target. So you wouldn't be advocating for, for cuts, which is what he's doing. So. But you know, generally, generally speaking, I think if you didn't lay out a strategy, you allowed the hawks to fill the void. You wouldn't have done that had you not believed or kind of agreed with them at some level. Right.

[Jonathan Ferro]

Base case for you, we've got bank of America on the one side looking for three hikes, Citi on the other looking for something closer to two cuts this year. That's how things are right now on Wall Street. That's quite a spread. What do you feel?

[Kevin Walsh]

Well, I think if there was going to be a Fed that was dysfunctional enough to deliver a one and done, it would be this one under Kevin Wash. So that sort of, I mean, to, to me it's sort of, why wouldn't you think the hawks kind of come back for more and from his seat? I actually think it makes sense because you can show that you gave a hike, you stood up to the President, you're establishing yourself, your credibility with the market, and now we kind of can get past this and say, look, we got the hike. I mean, almost like the ecb, you kind of take some of the tail out of the inflation risk and you maintain your optionality. So there's a way for them to perhaps go once without having the market price in a lot more.

[Mike Wilson]

And what about balance sheet? Because that's been the real sort of angle on war. She's a balance sheet hawk. And maybe he's less hawkish on race, which is, who knows? But do you think it requires market volatility to get them to increase the rmp, for example, or to start doing more liquidity?

[Kevin Walsh]

And so I think that, like, this is one of these things where people say things to get the job, to create distinctions between themselves and the people that were there before. And the balance sheet is a good example of that. It's kind of like, you know, hitting Yellen over the head with how she's dealing with bill management and then coming in and then doing literally the same thing. All of these things are going to be met by committee. I think that's, you know, that's something that people say to rationalize it, right? Like, oh, he's not really hawkish. He's just talking on the balance sheet so he can be dovish on rates. Like it doesn't work that way because the balance sheet is not really a tool of monetary policy. The only tool is rates. So I don't, I don't, I don't, I don't think it's, to me, it's not a big, a big factor being

[Jonathan Ferro]

hawkish on rates, though. We had this conversation earlier in the hour. Has it allowed the longer end of the yield curve to stabilize? And is that something that both the treasury and this Fed would look at and say that's beneficial? That's the kind of approach we, we need right now?

[Kevin Walsh]

Yeah, I mean, I think, I mean that like the first meeting was the most hawkish meeting that you've had in the press conference era. We had like what, like a 1315 basis point rise in two year yields. So, you know, talking helped take some of the risk out of the back end. Yes, I would agree with that.

[Jonathan Ferro]

Do you think he fooled the President,

[Kevin Walsh]

do you think, do you think he

[Jonathan Ferro]

fooled the President in the interview process?

[Kevin Walsh]

What do you mean? Oh, fooled him. Oh, fooled him. Yeah. I think if there's a risk, it's that the President was duped. Yeah.

[Jonathan Ferro]

How's that going to play out if he was duped?

[Kevin Walsh]

I mean, I think there seems to be like, I don't know, I mean your, your colleague Joe Wiesenthal said, I think, you know, maybe war hikes and Trump is oddly chill about it. And I don't know, it sounds like he's giving him a lot of grace at the moment to depends how close

[Jonathan Ferro]

we are to the midterms if that happens. Right.

[Kevin Walsh]

That's why I say get it out of the way sooner.

[Jonathan Ferro]

This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business. APPLAUSE

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This week on Leaders with me, Francine Lacqua, I speak to tennis legend Rafa Nadal about how he stayed competitive despite injury.

[Mike Wilson]

I was able to enjoy the victories probably more than if I will not have this issue.

[Jonathan Ferro]

One iconic match in my mind was I am almost dead and whether he

[Mike Wilson]

misses playing, I don't miss Dennis because there was nothing else to offer.

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Listen and watch Leaders with me, Francine Lacqua on Bloomberg Television or wherever you get your podcasts.