Bloomberg Surveillance TV: May 14th, 2026 | Bloomberg Surveillance

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[00:00:36]So, here's the latest this morning.

[00:00:37]President Donald Trump extending an invitation to the Chinese President Xi Jinping. The two leaders participating in a state banquet following discussing trade and Iran last night. Former senior White House trade adviser Kelly Shaw writes the following. We have a long way to go in terms of navigating the future of USChina relations. Many of these conversations will continue well past September when the two leaders meet again on US soil. Kellyanne joins us now for more. Kellyanne, welcome to the program and Maria has alluded to this a few times that this leader in China has taken a more assertive stance on Taiwan at this meeting. With that in mind, how sustainable is this more stable phase of relations between the two countries?

[00:01:17]>> Yeah, good morning. I I think this is the most highly anticipated leadertoleer conversation of the year. Now certainly there have been a number of mentions of Taiwan predominantly on the Chinese side as part of the readout and this was some of the fear on the US side going into this meeting that we might see President Xi lean on President Trump to get some sort of concession when it comes to Taiwan. But what I'll say about she's comments is this is not unusual. And I think back to the last phone call that the two leaders had. The Chinese readout was almost entirely focused on Taiwan and weapon sales. It again it is not unusual for the Chinese to emphasize this. The US on the other side is basically not saying anything at all as part of the formal readout. And then you had Secretary Rubio just a few moments ago talking about the fact that the policy on the US side has not changed.

[00:02:09]So, while this will continue to be a pressure point and it's one that we're watching very closely, I I don't think anything has shifted, at least not yet.

[00:02:16]>> Well, let's talk about things that might be shifting right now. The Chinese leader talked about China opening more to trade. We've been talking about that for ages. The more intriguing part of this is everyone else shutting the door to them. We heard from the Treasury Secretary speaking to the press earlier on this morning who talked about Chinese investment and saying this, "What we want to do is make sure that some of these investments don't get referred to CPHAS." Kellyiana, are things changing on that front?

[00:02:41]>> Yeah, and this is one of the points that I was watching the most carefully in terms of what would come out of this summit. There have been a lot of talk about the board of trade and trying to manage the flow of goods going back and forth between the two economies, but there was really not a lot of clarity about what the investment commitments would look like and frankly a lot of concern by US lawmakers, by stakeholders that the president might allow more Chinese investment into the United States. And so I found this comment really curious as well. Now to the extent they are talking about an investment and to the extent they're talking about the fact that there may be some transactions where there's really no national security nexus they want to make sure that CPHAS is being used and calibrated appropriately. Maybe that's less concerning. But if what we're talking about is allowing large Chinese investment into strategic sectors in the United States, that's going to be very concerning for the president if he gets back home to that kind of outcome. We've also heard that there is some sort of at least speculation from the likes of Julian Emanuel earlier in the show that there could be some sort of trade tech for oil technology investments both into China in the form of selling chips and possibly China in the US in favor of some sort of help with a straight of ramuse. Are you expecting anything on that front?

[00:04:00]>> So my expectations overall for the summit were relatively low in terms of outcomes. I think the administration has forecasted for weeks not much to see here. We're enforcing the Busousan deal.

[00:04:12]And the fact that Jensen Wong was not included on the initial delegation list made it seem more likely than not that export controls would not be part of any sort of outcome. But of course, it wouldn't be a G2 summit, a Trump summit without a little bit of drama and some uh surprising deliverables at the end of this. we could see some sort of broker deal around these things, but it wasn't part of the formal negotiating agenda going in. So, I'll also be curious to see what comes out of of a potential transaction that way.

[00:04:42]>> Right now, how much do you expect China to reciprocate and come to the United States on September 24th as a president has requested or invited?

[00:04:51]>> Yeah, I I think this has been on the calendar for a while. These two leaders will likely meet face to face four times this year. So I have uh every expectation that President Xi will come to the United States this fall. Um the two leaders will meet again later in the year as well. Um this this is a very robust year in terms of potential developments. But what I will say is this is about managing the relationship.

[00:05:16]It's about keeping an otherwise rocky situation as stable as possible. These two economies are still going in very different directions, particularly in strategic sectors. And so having that leadertoleer touch point keeps the connectivity, keeps the stability without this whole thing falling off a cliff. And I think that's in the interest of both sides and that's where both leaders are thinking.

[00:05:38]>> Kelly, I'd go one step further. It's in the interest of the world to make sure there is never a direct conflict militarily between these two superpowers. But we have to face the reality. The reality is this has been an adversary that supports adversaries of the United States, including Iran. How do we tackle that issue this year?

[00:05:56]Yeah, I mean Iran, I'm not really expecting any sort of joint announcement by President Trump and President Xi on Iran other than the fact that they are both seeking some sort of deescalation and opening of the straight of moves and something to try to address the energy costs as well as the ongoing conflict and and to prevent it from spreading.

[00:06:16]Now that said, both sides do have an interest in deescalation and so I think that behind the scenes and in non-public ways, we are going to see some cooperation come on the back of this. I I completely agree with you that it is in the interest of the world to not have any of this break out into broader direct conflict and I think that's what both sides are trying to do in their own way while continuing to compete on economic and national security areas uh where it matters as well.

[00:06:44]>> Stay with us. More Bloomberg surveillance coming up after this.

[00:06:56]>> Nita Richardson of ABP joins us now for more. Nita, good morning.

[00:06:59]>> Good morning.

[00:07:00]>> We'll avoid that conversation. We'll talk about the data we just got. Retail sales and jobless claims. Is this data doing all right? Is this economy okay?

[00:07:07]>> The headline numbers are all okay. Um you look at those retail sales um impervious in some in some ways to recent shocks, impervious to downbeat sentiment. Uh you have a jobs market that's still functional, still producing jobs. Um and you have wage growth that's still holding its own. The interesting part is underneath the surface always.

[00:07:29]So going a level deeper, you know, just how much did energy prices impact retail sales? that iPhone is now a durable good, not something we switch out every two years. So there is some change in consumer spending. And then you got some data from the BLS saying that real wages actually edged down. Um they declined.

[00:07:51]And so you put all that together, yeah, it's a pretty good economy, but that doesn't mean there's not tensions underneath.

[00:07:58]>> You know, the one tension is real wages, the squeeze. You're worried about that?

[00:08:02]>> Yeah. And and here's why I'm worried. So when we look at our data at ADP and we're able to match uh individuals over time, we're seeing a couple things. The first thing we're seeing is very robust wage growth. Even when we put uh divided into the bottom quartile and the top quartile of income earners, wage growth is robust. But here's the rub. There is this widening inequality gap. Um we're tracking it in real time. Last year the the wealthiest 25% made about 500 times what the lowest bottom 25% I know you raise your eye it's a lot this year it's more like 640% more so we're seeing this widening gap and that's an issue because the wealthier the higher income you are you start saving you start investing good for you not so great for the economy consumers at that bottom end they spend more and when you don't have that savings lever and things prices go up, you start consuming as much and that is the concern when it comes to wages.

[00:09:03]>> This has been the conundrum when we talk about this all the time. It really is an increasing issue and you're seeing it politically, but you're not seeing it in the overall averages from economic data.

[00:09:12]At what point does it become more of a concern on the averages? Not just a political problem, but a market problem.

[00:09:19]Yeah, wage inequality is really just it's a long-term drag on economic potential for the reasons we are not a savings and investment uh economy. We are a consumptiondriven economy and if you have a a a significant portion of the new jobs, remember a lot of jobs that are coming on are those low paid hourly working jobs. So our labor market is being fueled by low paid jobs right now. And then you have those very same people uh who traditionally spend more out of their income not consuming as much because of higher energy prices. So if I could bottle bottle this up in like a tagline, monetary policy is a is really concerned with core consumers are really concerned with headline and this wage inequality hits right at that headline uh difference and and higher income and lower income when it comes to spending. What would help the lower income consumer more, a rate hike or a rate cut?

[00:10:16]>> That's a great question. Um, if you're in the bottom quartile, unfortunately, buying a house is probably not on your horizon. It's just too expensive now.

[00:10:25]So, uh, uh, borrowing money, it would help with credit card fees. If you're putting more and more of your consumption in debt or, uh, that that would be helpful. Um, but that's not the way to to increase growth. The way to increase wages is through productivity enhancement. So, if you can get an economy that invests in a way that creates more jobs and increases wages and standards of living, that's wonderful. But will, you know, a couple basis points downward or a couple rate cuts actually lead to those changes? It it it would be hard to see that in real time.

[00:11:01]>> Are we seeing the standard of living climb for everyone? this whole conversation and and forgive me for sort of digressing a bit, reminds me of an address from Margaret Thatcher to Parliament and she went at the the left wing of Parliament at the time and she talked about the gap between the rich and the poor and her accusation to people on the left in Parliament at the time was that the only thing you care about is making the gap smaller and you don't care if the poor get poorer. Do you remember that line from Margaret Thatcher?

[00:11:27]>> Now, for me, the gap alone is not concerning so long as everyone's living standards are improving. So if you see the upper income cohorts get a lot richer than lower income, but living standards for everyone climbs, you've got an argument to make that maybe we're moving in the right direction. Is that happening now? Has that been happening?

[00:11:44]>> Actually, you uncovered a tension that I have because you are seeing really robust wage growth even at the bottom quartile. So it's not that uh lower income people are not seeing their in uh wages increase faster than higher income people. It's quite the opposite. The problem is it's still not enough. And you still continue to see this gap widening. If the gap stayed the same or narrowed, there's an argument right in line with that. But the fact that is widening is problematic in terms of economic growth long term.

[00:12:15]>> Stay with us. More Bloomberg surveillance coming up after this.

[00:12:28]We begin this hour with stocks adding to record highs at a pivotal moment for the Federal Reserve. Rising inflation complicating the rate outlook as a new regime takes hold at the top of the central bank tomorrow. Joining us now in his final broadcast interview as a member of the Federal Reserve Board of Governors, Steven Min. Governor Marin, good to see you, sir.

[00:12:44]>> Good to see you. Thanks for having me back.

[00:12:46]>> We've got a moment to step back and sort of reflect on your experience at this institution. We talked lots about how you've been received externally. Can we just start with how you've been received internally over the last few months?

[00:12:57]>> Sure. This has actually been one of the biggest surprises, you know, given what all the drama at the beginning. I've been received internally, I think, very very politely, very cordially, and very kindly. And I think folks have largely um enjoyed some of the some of the intellectual conversations, some of the challenges that I've I've leveled against some of the ways that there had been thinking beforehand. And I think that the the overall response has been, you know, very welcoming and very kind.

[00:13:19]And that's one of the things that I'm most grateful for. What are the kind of ideas that have been received well that are shaping debates right now that will linger and continue beyond your departure?

[00:13:29]>> Yeah, sure. So, one, you know, so an example of one of those things is is the importance of regulations for determining the supply side of the economy. I mean, we spend a lot of time, you know, out in the financial world out in policy discussing the effects of a 33 versus 35% marginal tax rate. But the truth is that regulations are often infinite taxes and being told you're not allowed to do something versus you are allowed to do something is a very very strong difference. And this had played a very small role in a lot of the modeling discussions happening at the Fed in a lot of the outlooks uh that I sort of that I heard people present and I came in and and really hammered that idea and I think sort of moved it forward and now a lot of people talk about it very often internally and externally and you know sort of talk a lot about supply shocks.

[00:14:09]This is a positive supply shock that is unfolding and continues to unfold and will I hope mitigate some of the negative supply shocks we we also get hit by.

[00:14:16]>> Let's talk about another supply shock and I think it's been central to some of the arguments you've made on the committee and that's population growth.

[00:14:22]The negative population growth that we've seen which has lowered the break even rate for the labor market and contributed to arguments in some places for hotter stickier inflation. You've taken the other side of that. Can you just explain that for us? Yeah. So I think this is a really subtle issue with a lot of moving parts. Now at a very high level, what I would say historically is that we've seen a lot of countries in different places have declines in population growth rates and stagnant populations or shrinking populations. And I think the cross country and historical evidence is that it's unambiguously disinflationary or even eventually deflationary. Um now there's a few there's a few ways that that works. One is by reducing there sorry there's a few consequences of of lower population growth. One is it does reduce the break even in uh payroll growth rate. So the number of jobs you need to create every month to hold the unemploymentary constant. That does come down. That's a mildly hawkish implication because it means you shouldn't get so concerned about very very low job creation rates. However, there's also there's also dovish implications as well which are that it lowers the neutral rate. It brings interest rates down over time and we've sort of seen that across countries and historically historically to be the case. And it's also disinflationary through longived capital and and and consumer goods. And if you think about something like housing, right, the supply of houses is relatively fixed in the short run. And if you throw millions of new people into an economy, you're going to drive up the price of rents because they need places to live, right?

[00:15:42]You're going to create inflation. And that inflation is very, very persistent because of the way that housing inflation is calculated. It's very, very sticky. If you have declining population growth, you don't need as much you don't need as much home price growth. And that very inflationary tailwind gets taken away. and bec and ceases to be a major driver of inflation. And I think you sort of you've been seeing that start to play out in the data. Market rents in this country have been growing at a 1% rate for the last few years. This is one of the biggest components of the inflation indices. And I think you're going to continue seeing measured measured PCE and CPI rents and measured PC and CPI shelter inflation continue to converge down to those very low levels.

[00:16:19]So I think there's one hawkish implication which is the lower break even peril rate but there's also some very delvish implications which it reduces the neutral rate and it brings down inflation through some of these longived capital and investment goods.

[00:16:30]>> This is a longer term structure for how to think about inflation and the benchmark rate of the Federal Reserve and how it sort of uh it works with the sort of long-term inflation rate.

[00:16:41]Near-term though, one thing that you've been known for, a hallmark of your time on the Fed was that you voted to cut rates at least once at every single meeting. Do you think that that still holds even though in the short term it does seem like the inflationary shock is overwhelming potential structural changes that could lead to disinflation?

[00:17:00]>> I do. And and and I and I think I think this is I think this is maybe one of the biggest differences between me and a lot of other folks is that I take very seriously the idea of monetary policy lacks very very seriously. Monetary policy doesn't hit the economy right now. If we changed interest rates today, it wouldn't flow through into the economy until 12 to 18 months from now.

[00:17:18]Right now there's some disagreement over exactly how long those lags are, but I think 12 to 18 is is the consensus view.

[00:17:24]And therefore, for any shock that's hitting the economy today, you can't think about what the effect in the next few months is. You need to think about what the effect in the next 12 to 18 months is and sorry the effect 12 to 18 months out. So if oil goes higher, it's a supply shock. Straits of Hormuz are closed, right? That's going to boost the oil price today and with it a bunch of other stuff that's very tightly tied to energy prices like airfares, right?

[00:17:46]That's going to go higher very quickly within the course of a few months. And we've been living through that. And that is very real, right? There's no way that that is very real inflation. But it is not inflation that monetary policy can affect. monetary policy can affect 12 to 18 months from now. So, there's got to be a reason that you think airfares and oil prices are going to be moving higher in the summer of 2027 and the fall of in the fall of 2027, not the summer and fall of 2026. And so, it's those lags that really should be driving where you think about forward-looking monetary policy should be. And that's a lot of what I've tried to hone into when thinking about population growth and deregulation and saying that the traditional view that we should look through in oil shock should prevail.

[00:18:27]This is very, you know, vanilla basic, sorry, traditional monetary policy.

[00:18:31]>> Part of the problem is that the market doesn't agree, at least not in terms of where longerdated bonds are trading and where yields are shifting, where you see them shifting higher even as the front end stays where it is. Do you think that in this type of environment it's imperative to have some sort of Fed Treasury accord akin to what people have been talking about where the Treasury steps in to sort of uh influence the long end while the Fed cuts rates on the short end.

[00:18:57]>> So let me let me address those separately. So the market not agreeing is in part a hall of mirrors issue because if you have if the Fed says we're very backward-looking and inflation over the last 12 months is going to determine policy that affects 12 to 18 months from now. meaning pol you know the economy in 2027 is affected by data in 2025 in that world right so very very backward-looking if that's how the Fed communicates that it's sitting policy then the market is going to start to reflect that and so the market reflecting a lack of interest rate cuts right be is in part because the Fed is telling them we're backward-looking right and so so that that's going to create a self-reinforcement problem now on the Fed Treasury accord um you know so first of all you know I I won't be involved uh in that if it if it happens But you know, I have done some work on the balance sheet and I do think it is important that the one of the problems with having a very large balance sheet and lots of securities, lots of Treasury securities on the Federal Reserve balance sheet is it does start to get the Fed involved in questions that have some fiscal implications. Right? If we own a huge chunk of debt, then that means that we're we're we're impinging on on decisions that traditionally are the realm of the fiscal authority of what is the distribution of public death uh public debt that it issues that that's held by the public. Um and so I do think it is important that if you have a large balance sheet, there needs to be there needs to be, you know, sort of some clear delineation about who's doing who's doing what. And to me, these questions are really murky and they, you know, they implicate independence to an extent and therefore it's one of the reasons among many that I would favor having a smaller balance sheet.

[00:20:30]>> How close do you think the Fed should work with the Treasury to achieve that?

[00:20:34]How closely should the Fed work with the administration?

[00:20:37]>> Yeah. So, so my my view is that the Fed having a big balance sheet starts to implicate a lot of those lines and becomes and becomes problematic. So the Fed should strive to have as small a balance sheet as it can right to achieve its goals and implementation framework.

[00:20:51]And if we can sort of improve that implementation framework and make it smarter to reduce the minimum size of the balance sheet that we need, then that's a great thing. And that was a major thrust of the paper that I wrote uh in the spring with Aleandro Barbarino and Anthony Dirks and and and uh and uh and Alyssa Anderson and um and so that was a that was a major thrust of of of that work that was that was really important. Now in terms of coordinating right the Fed should do what it should do for monetary policy and the Treasury should do what it should do in terms of fiscal policy and the level of coordination should I think should I think be you know sort of separate right they should be doing what they what they want to do for each of their own priorities however there are times when there is going to be have when there is going to have to be that type of coordination so for example you know right now we're doing the reser these reserve management purchases where we're we're expanding our balance sheet to sort of provide minimum level of reserves into the economy to meet reserve demand. We're, you know, we're we're buying treasury bills. We're letting mortgages continue to mature off of our balance sheet or replace them with treasury bills, right? Like in theory, if we did enough uh, you know, sort of conversion of our balance sheet of our existing balance sheet into treasury bills, we might have be absorbing all of the supply, right? And then some. So this is an example of a time where there would have to be very tight coordination.

[00:22:10]>> We've got an administration right now very interested in financial markets.

[00:22:13]The president often looks at where the index level is in the equity market.

[00:22:16]We've got a Treasury Secretary that used to trade this stuff. Did you speak to them in your time at the Federal Reserve? Did the president ever pick up the phone and say, "Hey, Steve, what's happening? Tell me what you're seeing in the market, in the economy."

[00:22:27]>> Yeah. So, I spoke to the president when I go when I went to go resign from the Council of Economic Advisors. I went to bring my bring my my recommend sorry, my resignation letter. Um, but you know, he doesn't tell me anything. He doesn't tell the whole world, right? This this president is very forthright with his views and he tells journalists all the time, including Bloomberg journalists exactly, you know, exactly what's on his mind about about policy and where and and where it should be. So, no, I didn't I I'm not in receipt of any information that's not that's not public >> because we've started this conversation by talking about how you received internally. Externally, I thought unfairly at times, basically everything you said about interest rates and on the economy was always described as just doing the president's bidding at the institution at the Federal Reserve. Did people see it that way internally when you put your hand up and said, "I want to rate cut 25 basis points. I'm dissenting." Was there a roll of the eyes? Here we go. This is the president's guy doing the president's bidding.

[00:23:22]>> Well, thank you. Thank you for those words. I I do think it's I do think it's clear that I've disagreed with with lots of people um on policy on on lots of times. There have been times when there have been signals out of the White House that they wanted policy rates lower than I had my dots and there have been times when there's been signals out of the White House where they thought that I was too doubbish. Right? So, for example, the NEC director after my after my first vote said that he would have preferred a 25 basis point cut. Right?

[00:23:45]So, I clearly do my own thing and have my views and they're all I think grounded in very traditional economics and we were talking about population growth before. Like this is not new, right? Like six years ago we all would have been talking about is everybody becoming Japan? You know that would have come up several times a week, right?

[00:24:00]Like none of this is new. None of this is is is heterodox economics. None of this sort of says we need to discard with the entire framework. It's all within the traditional framework. Um and this is part of why I think the reception internally has been has been generally pretty good is because I'm engaging with folks on on on their ground, right? like I'm I'm within the world of normal economics and we're talking about what drives the interest rate and does pop the neutral interest rate and does population growth drive it and is it inflationary or or disinflationary. This is all well within sort of normal >> we're trying to figure out what kind of an institution Kevin Walsh is walking into how he'll be treated how difficult will be to get people on his side as he starts to think about changing this institution particularly when the former Fed chair will be sitting there as a governor on the board of governors. Can you help us understand that from a man inside the building what that might look like in the next few months?

[00:24:52]>> Yeah. So, I think one thing that's important to understand is that people at the Fed are responsive to arguments.

[00:25:00]Um, and as I said before, you know, I've been hammering deregulation among other things since the day I got there. And, you know, they start to respond, but it takes time, right? You know, it's it's it's a it's a it's a bit of a slowmoving um slowmoving process.

[00:25:14]>> How being there make it harder?

[00:25:16]Uh well um you know I I don't I don't know about I don't know about that. Um you know certainly uh Chairman Powell built a lot of the institutions and processes that exist that exist there and so you know so so that dynamic may you know sort of may may play into it. I don't know. Um but that'll be an issue for for for chairman doesn't wash to to deal with when he gets there.

[00:25:37]>> When when you heard the chairman in the news conference present to the press and to the world that he was staying gone as a governor. Was that the first time you heard of it or did he tell the board of governors ahead of time that that was his plan?

[00:25:46]>> Uh, no. He didn't he didn't tell me ahead of time that that was his plan, but he he'd always said that, you know, publicly and and privately there's something that it's something he might do. And so it wasn't it wasn't entirely a surprise.

[00:25:56]>> What was your reaction to it? Uh, you know, look, my reaction to that is is that when I was the incoming chairman of the Council of Economic Advisors last year, um, I was very grateful to the previous chairman, Jared Bernstein, for spending time with me on the phone, being very generous with his time, several hours over over over days and and weeks, giving me advice for how to be a good CE chairman. And I really appreciated that, and sort of how does the place run and what, you know, what are your responsibilities and and how do you do a good job? And I thought that was that was that was really generous of him. And I was really appreciative of that. And then I went out of my way to make sure they very quickly put his portrait on the wall of former CEA chairman in in in the offices in the Eisenhower building. Um, you know, it's to make sure that happened that happened quickly without delay. And and I was really grateful. So look, transitions are important and I think that, you know, it is maybe helpful to have someone there to give advice. Here's how to be an effective chairman. Here's how to leave the committee. Here's, you know, here's how the building works. It may be a little bit different than it was 20 years ago, right? Um, I think that can be helpful, but I still think it's important that it be a transition because you want to have people's loyalties undivided. You want to have there be very clearly one chairman. You want to have a place where there's no question about no question about who's in charge and there's no talk of rival factions and things being split. I think you want to have you want to have a sense of of unonymity and and and clarity. And so transitions are important and I think it can be helpful to have to have help in transition, but I still think it's important that it it it is a transition.

[00:27:18]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 6:00 a.m. to 9:00 a.m. Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.