EU’s Von der Leyen to Meet Trump in Bid to Clinch Trade Deal

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2:13This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy, plus global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Masser and Tim Stenevek on Bloomberg Radio.

2:37Carol Massar:Okay, so as we said, trade definitely on the minds of investors. So too is next week's Fed meeting amid a Fed chair that is continuing to be in the crosshairs of President Trump. Let's get into today's macro, all that's coming at us, all that's coming at the Fed chair. We've got with us Bloomberg TV and radio international economics and policy correspondent Michael McKee. Mike, first of all, are we getting more certainty about the U.S. economic outlook because of what we're seeing in the data points, because we're starting to get movement on trade agreements? Any signs that things are settling into a clear economic trend here in the United States?

3:11I hate to disappoint you, but no. We've had indications that we're getting some tariff pass-through into inflation from the CPI and PPI. Not a lot yet. But the biggest problem is Donald Trump's tariffs, for the most part, have not gone into effect. August 1st, in theory, is the deadline. We don't know if there'll be a taco on that. some sort of delay. He's suggesting that that could happen if they're negotiating with the European Union at that time. But if and when the tariffs do come in, it's obviously going to put pressure on companies and company margins. And so we will then start to see who passes through, how much and what kind of impact on inflation and consumer psychology there is from all this.

3:59The president earlier today, Mike, was asked about the money that the U.S. has brought in or is bringing in when it comes to tariffs. He was asked by reporters before he made his way to Scotland. And he did say that we could use the tariff money for rebates to Americans. Help me out with that from the perspective of something inflationary, but also less on the inflation side and more on how much money has the U.S. brought in when it comes to tariffs? They brought in about$100 billion so far, but bringing in the money is kind of a misnomer. Somebody's got to pay that, right? We're not printing money here.

4:39This is not coming as a gift from the clouds, nor are the foreign countries paying it. Some of the costs may be absorbed by foreign exporters lowering prices. But most of this is at the moment either coming out of consumers' pockets or coming out of corporate pockets, say, compression of margins. Now, that still means that somebody's paying it because that comes then out of shareholders' pockets. So there is an effect on the economy. We just haven't seen a huge impact yet because there haven't been a huge amount of tariffs in place. But we are seeing higher prices for cars. We are seeing higher prices for appliances, things made out of steel.

5:22so we are going to have an effect the question is how much and and who's going to directly affect whether he gives people money back or not that seems like a weird idea to me because the he's campaigned so much and people have campaigned so much on the deficit and he's argued that his big beautiful plan is not going to increase the deficit well if i if i get some revenue that is supposed to offset the deficit and then I start handing it out to people, I'm not going to reduce the deficit.

5:53Carol Massar:All right. Really good to keep kind of all of these things in mind. One of the things I'm thinking too, though, is about the trade deals yet to come. China, EU, these are some of the big ones. Right. And the question is, what are these deals actually going to be? So far, we don't have any signed actual point by point agreements. The British are still working out the details with the United States. And so you can imagine for China, it's going to be very complicated. For Japan, it's going to be very complicated. And then the most complicated of all is going to be the EU because the EU, while it negotiates as a block on trade, is 28 different, 29 different countries.

6:30And some of them aren't going to like parts of this. The president also today saying that on trade deals, most of the deals are letters instructing tariff rates. So those letters we got a couple of weeks ago that say 10 to 15 percent tariff rate, some higher, some lower, depending on your country of choice. He's calling those deals. He's calling those deals because he's trying to make this all look look good. And to the extent that he's allowed to put tariffs on, and that's an open legal question. And next week on August 1st, they're also hearing this case at the appeals court on whether or not he can impose the tariffs under the International Economic Emergency Act that he has cited.

7:13If he can't, then all of this falls apart. If he can, then the question is, how legal are these agreements in terms of both sides living up to them? He made a deal with China, in theory, in the first term, which they didn't live up to. and any kind of real trade agreement has to be ratified by Congress. So, you know, we don't quite know where this is all going to end up. And this is just sort of the ongoing chaos that we have been seeing.

7:44Carol Massar:Mike, the assumption that we're going to have all this investment going on in the United States, building of factories, manufacturing happening here. I keep going back to this quote from a story I read, I think it was on Monday, and this was a senior economist for Emerging Asia and Texas. in Texas. And the individual said, at a 15 % to 20 % tariff level, it's still profitable for U.S. companies to import from abroad rather than produce similar goods at home. So she said this in a Bloomberg story. So if we are thinking that there's going to be a lot of economic momentum out of all of this investment, that's not something we should assume?

8:17Carol Massar:Or I don't know, how do you? No, you can't assume it. And it's one of the interesting things about the Japan deal is they said they were going to invest$550 billion. Well, is that$550 billion new dollars over what period? Or does this include factories that are already under construction? It's really hard to tell what any of this means. There was a lot of money lined up to build factories under the Inflation Reduction Act, the kind of misnamed one from Joe Biden. And are they counting that? We just don't know. And we don't know whether companies are going to follow through. We've had a lot of cases where we've seen promises made that were not kept in the long run.

9:08So it's all kind of amorphous at this point. The only thing we know for sure is if the tariffs do go on, we will see inflation, even if we don't know how much. You weren't here with us yesterday. I'm sorry. I apologize. We could have used you. I wanted to get your reaction to what happened at the Federal Reserve yesterday afternoon, the back and forth between the president and the Fed chair. The tensions kind of actually seeming to dissipate a little bit. Yeah, I think both sides kind of wanted that, as I've been saying on this program for a long time. And now I'm copying on other programs. You know, Trump is a master of the squirrel.

9:46And he's been using these Fed attacks lately to distract from Epstein, and that's pretty obvious. But also, he set up a fall guy. If we do get a lot of inflation or if we do see the economy start to weaken, then it's Jay Powell's fault. It's definitely not going to be President Trump's fault, according to President Trump. So you've got that going on. But then you had the president after yesterday's meeting saying it was an honor to go to the Fed and the Fed today saying it was an honor to host the president. I think both sides want to back off a little bit from this. Trump's decided probably not worth it to try to fire him and go through all that.

10:33And the Fed's going to just say we're going to do our job and stick to our needing. We'll still get a tweet on Wednesday or Thursday after the Fed decision and they don't cut rates. but I don't think we have to take it too seriously anymore.

10:47Carol Massar:All right. All right. That's good to know, but certainly keeps us on our toes. Mike, thank you. Have a great weekend. Bluebird TV and radio, international economics and policy correspondent, our own Michael McKee. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful.

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12:44Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. All right.

12:55Carol Massar:Now we want to get back to talking a little bit about the Fed. That has certainly been top of mind, I want to say, over the past week or two easily and certainly in the last 24 hours. Yes, we saw with President Trump yesterday, whose unprecedented walkthrough at the Fed's now controversial building renovation project with Fed Chair Jay Powell ultimately ended with a sign of relief for the Fed Chair, who's been under pressure for months to slash interest rates. I have one dispute, and the dispute is there could be some things with money and, you know, where it comes from, how it's come from, how it's printed, where it's printed, all of the standard things with the Fed.

13:32But I just want to see one thing happen. Very simple. Interest rates have to come down. I just don't think it's necessary. And I believe that he's going to do the right thing. I believe that the chairman is going to do the right thing. I mean, it may be a little too late, as the expression goes, but I believe he's going to do the right thing. That's President Trump yesterday after he toured the construction project at the Fed with Fed Chair Jay Powell. I mean, the continued presidential criticism of the Fed Chair, we continue to wonder in these unprecedented times whether or not legally the president can actually get rid of the Fed head.

14:06With us is Catherine Judge Harvey J. Goldschmidt, professor of law at Columbia Law School, also the author of Direct, The Rise of the Middleman Economy and the Power of Going to the Source. Her research focuses on banking, financial crises, regulatory architecture, and intermediation design beyond finance. She joins us from New Jersey. Professor Judge, simple question. Can the president fire Fed Chair Jay Powell?

14:30Carol Massar:Not based on what we've seen so far. He does have the ability, if there's causal reason to fire Jay Powell, to fire Jay Powell. But I think what yesterday's visit made clear is he is nowhere close to satisfying that legal standard. The very fact that we saw him try to trump up an inflated cost estimate based on trying to bring in a third building was in many ways a concession by the president that he really didn't have the case that he needed for removal. So I think right now, Powell and the Fed should feel very good. All right. So maybe he can't fire Fed Show Jay Powell, but he can still do some damage, right, by the constant criticism?

15:07Carol Massar:He can do damage. He can do damage. And really what's hard there is it's damage not just to Powell. It's damage to the Federal Reserve as an institution. And I would actually say a lot of damage has been done and more likely to still come. I mean, one of the challenges is that right now the markets really trust Jay Powell and for a very good reason. He has been an incredible Fred chair. He's been clear about what he's trying to achieve and how he plans to achieve it. And both during President Trump's first term and during this term, when he has faced pressure that he feels like is not warranted given kind of economic conditions, he is focused on serving the long term aims of keeping inflation in check while also promoting employment.

15:50Carol Massar:And so the real challenge that the president is creating is he's creating an environment where it's going to be very hard for the next Fed chair to come in and build up that same type of credibility. Talk a little bit about that and the potential response. And I know you focus on this from the law perspective, but what would that mean if the Fed chair doesn't necessarily have credibility in the next Fed chair? It could mean a lot of different things. I mean, so first, one of the challenges is that the president wants lower rates. A Fed chair can't necessarily deliver lower rates. The Fed chair is one vote of 12 votes on the Federal Open Market Committee, the FOMC, that determines monetary policy.

16:27Carol Massar:So one of the first challenges that a new Fed chair is going to face is how to get seven votes, how to get the support that he needs in order to drive through the agenda that it seems like the president clearly wants to see. Longer term, the challenge is not just to the president, but to the country. I mean, at this point, we have an incredible deficit. one of the easiest ways for any country to reduce the effective burden of its deficit is just to inflate it away. And so our creditors are going to be looking very carefully at whether or not we're willing to maintain a central bank that has the independence needed to be able to assure creditors that we're not going to try to use that technique.

17:02Carol Massar:And I think without that credibility, there's going to be significant costs in terms of financing. Professor Judge, one last question. We are next talking with Rob Kaplan. He's former president of the Dallas Fed. Curious what you might ask him when it comes to Jay Powell and that presidential pressure and anything else related to the Fed. Yeah, I mean, actually, I think Kaplan's a wonderful person to talk to because the reserve banks are an underappreciated element of how the Fed has stayed independent. I mean, if you actually go back to the 1935 Act, a lot of the question was, how much power are we going to give to the board in the centralized position?

17:34Carol Massar:How much presidential influences are going to be over the board? And how much are we actually going to reduce the capacity of any administration to shape policy by putting meaningful authority in the hands of the 12 reserve banks across the country, which are going to have five of the 12 seats on the FOMC. So I think one of the things to really focus on with Kaplan and that we should be looking at generally is when are the threats going beyond the chair? Because we've seen tussles between presidents and chairs in the past. And when might the president take steps that really endanger or threaten the broader institution, including the reserve banks.

18:11Carol Massar:All right. You're a gem and you set us up so well. I'm so glad we could get some time with you. Catherine Judge, she's Harvey J. Goldschmidt, professor of law at Columbia Law School, author of Direct, The Rise of the Middleman Economy and the Power of Going to the Source.

18:38our flagship New York station. Just say Alexa play Bloomberg 1130. It's not just buyout firms that want to slice of the 12 trillion dollar pool of retirement savings and 401k and other defined contribution plans. Their private credit brethren want in to.

18:54Carol Massar:I bet they do. Yeah. So yeah, when word spread last week that President Trump is keen to spur more private assets into retirement funds, the biggest direct lenders to him were more than prepared. I mean, this has been I feel like in the works, a lot of conversations over the last couple of years. I mean, how could they not want it? Yeah. Everybody's been talking about private credit. It's an opportunity for money to go into these funds. So we're talking KKR, Blackstone, Blue Owl, already set up partnerships with 401k managers, trade groups, and industry executives have also been lobbying officials in Washington and making their case to the public.

19:27It's all part of a long-running effort to expand private credit's reach. Back with us for a check on this and more when it comes to private credit is Christina Padgett, Associate Managing Director, Head of Leverage Finance Research and Analytics over at Moody's. She joins us from the Catskills. From your perch at Moody's, where you look at research when it comes to leverage finance and analytics, how do you look at the possibility of private credit becoming available to 401k and other defined contribution plans? What would that do? Well, it depends how it's done, right? And so from the perspective of the retail investor, you want to make sure that there's broader reporting, that there's more transparency, some of the things that haven't been necessarily incredibly consistent with the way private credit operates.

20:13So private credit will probably have to change somewhat if it becomes more available to a, you know, to a retail investor. Some of the other concerns that we have are on the other side of the coin where if you actually get all this additional capital, do you have sufficient assets to apply that capital to in the right time horizon? So there's finding the right assets and then there is educating the new consumer of private credit, the retail investor, which tends to be a much less sophisticated investor and one that has different needs than an institutional investor, particularly insurance. There's a big difference between an insurance company that's a long-term investor and a retail investor that thinks retirement, but then has other events in their life that may interfere with that goal.

21:07I'm getting some very heated instant messages, IBs on the Bloomberg Terminal, from a listener right now about this. He argues that it's terrible for 401ks. And he says he's curious why you think private credit is so excited to get retail involved. I would say it's pretty clear why private credit would be interested. They have been seeing a sort of a slowdown in their ability to raise capital on the institutional side. They're growing bigger all the time. They see opportunities. So this is another, for lack of a better word, bundle of cash to invest. And if you think for a moment about why there's this need for capital, there are some tailwinds to the industry, meaning that both Europe and the U.S.

21:58is looking to grow capital formation. There's deglobalization, which actually encourages some onshoring and investing in onshoring. And then in Europe, you'll have additional defense spending. So there are reasons why there's additional capital that needs to be deployed. The difference is how private credit operates for institutional investors versus how they might operate within a 401k kind of dynamic. And not only how they operate, but also what products, what private credit products become available to that. I'll just go ahead and say it like a less sophisticated audience, group of people, a clientele.

22:41How do you protect that mom and pop investor who's trying to save for retirement from something that might not necessarily be as, I guess a financial advisor might say, prudent as a low cost index fund? Well, certainly it may not be as conservative as a low index fund, but and it will be more pricey probably. Right. Your fees will be higher. the offer is that returns will be higher as well. The things that will have to change for this to sort of happen smoothly is that you will need to do some more educating, and it doesn't mean that every 401k investor will be engaged with this, but you also will probably see changing in reporting requirements.

23:37I mean, regulatory environment has been looser lately, but in general, we expect to see better reporting, more transparency when you offer something to the retail investor. And it's hard to joke that in advance. We haven't seen what that looks like.