Russians Are Now Feeling Real Economic Pain From Putin’s War

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3:14Well, President Trump dispatched top negotiators, including Special Envoy Steve Witkoff, for additional high-level meetings with both Russia and Ukraine, but said he would only be willing to meet the leaders of those countries if talks yielded a so far elusive pact to end the war. The president telling reporters, Tim, he had no deadline for an agreement. Yuri Yushikov, an aide to Russian President Putin, said he speaks often with Witkoff, but declined to comment on a Bloomberg News report that U.S. Envoy Witkoff advised the Kremlin aide in an October 14th phone call on how Putin should broach the issue of a peace plan with President Trump.

3:47His guidance included suggestions on setting up a Trump-Putin call before Zelensky's White House visit later that week and using a recent Gaza agreement as a way in. The president was asked about the reported conversation between Yuri Yushikov and U.S. Special Envoy Steve Witkoff last night on Air Force One. That's a standard thing, you know, because he's going to sell this to Ukraine. He's got to sell Ukraine to Russia. That's what a dealmaker does. You've got to say, look, they want this. You've got to convince them with this. That's a very standard form of negotiation. I haven't heard it, but I heard it was standard negotiation.

4:23And I would imagine he's saying the same thing to Ukraine because each party has to give and take. That was President Trump last night on Air Force One. Well, delighted to have back to talk about all of this, Elise Giuliano. She is Senior Lecturer in Political Science at Columbia University, Director of Graduate Studies at Columbia's Perriman Institute for Russian, Eurasian, and East European Studies, and Director of the Program on U.S.-Russian Relations. She is here in studio. So great to have you back with us, Elise. So I want to ask you, this Bloomberg-exclusive reporting on the conversation between Steve Witkoff, special envoy here in the U.S.

5:00for the president, and Yuri Yushikov, an aide to Russian President Putin, is this standard form of negotiation? Is this normal diplomacy, especially among non-ally countries? Well, yes, President Trump used the word standard. But usually what's standard is that you talk to your ally when you are trying to negotiate a ceasefire or an end to a war involving your ally. And Ukraine is the U.S. ally. But here, what it looks like is that Whitkoff actually, in a way, took Russia's side by telling Russia that they should call Trump prior to the meeting with Zelensky in the White House back in October.

5:38So that looks like they're, you know, the U.S. is choosing sides and choosing the wrong side, since it's Russia that attacked Ukraine and Russia that has been an adversary state of the U.S. for many years now. So in your view, how does it affect peace negotiations? So it can be very dangerous when you have a negotiator who doesn't understand the war or Russia or Ukraine. And Whitcoff worked in real estate in New York. And so he seems to me conceptualizes this conflict as a war over land or territory. And that's not necessarily a crazy assumption. There are a lot of wars over land or territory.

6:18But in this case, it's wrong. This is not Russia doesn't need the land or want them. What they want to do is destroy Ukrainian sovereignty. And this is Putin's goal. It's been his goal since 2022. And he continues, I believe, to seek that goal. So giving a little bit of land that that this is what this is what Whitcoff suggested, that we can find get to a peace agreement by giving up some territory, some land. It's not really what Russia is interested in. That is an important distinction, because I think even we say it's about Putin expanding a land grab. Right. So the difference is going back to the way U.S.S.

7:01are like what like what is it about really for President Putin? Putin. Well, why is it that Ukraine makes him so frustrating that it has its own independent nation? Right. So this is this takes a little bit more time to explain than we have. Sorry. But I would I guess I would say this is a whole semester, right? But I would say two things we can sort of summarize is that, number one, Putin wants Ukraine to still be in the neighborhood of Russia and a close ally of Russia, and that means an authoritarian kind of oligarchic state, it doesn't mean a member of the EU or NATO or democracy or an ally of the U.S.

7:41So keeping the West out of Ukraine is the fundamental goal of Russia. What is Putin so afraid of? Why is that so important? Having a large, powerful democracy on the border. And then there's this personal element as well, personal oligarchic friends of Putin who were expelled from positions of power in Ukraine over the past few years, as well as this concept that Ukrainians are not a nation, they're not a separate people, and they don't deserve statehood. They are little brother, Slavic little brothers of Russians. So this is why they're kidnapping children and taking Ukrainian children and saying you're actually Russian.

8:23Does it make you think differently about the U.S. relationship with Russia? It has worsened the U.S. relationship with Russia. It was already an adversarial relationship, as I mentioned, but now it's much, much worse. We see Americans arrested and used as just pawns in trades that Russia, as political prisoners, we see lack of any kind of diplomacy with regard to other countries in the world or other formerly common interests that the U.S. and Russia shared. So we seem to be enduring a kind of deep freeze in relations with Russia. And it doesn't look like a kind of ceasefire peace agreement is going to change some of those underlying issues.

9:08So, God, here we are in our fourth year on this war. I remember when it broke out. So does it mean that this is a fight to the bitter end. It feels kind of bitter if I look at the devastation in Ukraine, people, places, if you will. So is a peace plan even possible? So I would say, you know, it's good that the Trump administration is talking. Yeah. But the goal of Ukraine and the goal of the U.S. initially was to kind of find a ceasefire agreement and then take the time and the real hard work of diplomacy to reach a peace agreement, a peace treaty. These aren't usually documents or agreements that are reached quickly.

9:50So a ceasefire agreement would be wonderful. Ukrainians continue to suffer. They continue to die. I was just talking to my Ukrainian friend and she said that beyond not being able to sleep at night because of the huge number of drone and missile attacks that have increased this summer, she sometimes can't go to the hospital for her medical care because there's no hospitals closed and you never know when it's open or closed. So there's this tragic human, ongoing human element. And there are reasons why both sides might want to want a ceasefire at the present time. But there's also this kind of intransigent position of Putin, which is, again, the goal to undercut Ukrainian sovereignty and statehood.

10:29And I don't think he's moved off that goal because I think he still believes he can make progress on the battlefield. Well, if we think back to when this war started, there were many observers who thought it would be over within a week and Ukraine would have to cede to Russia. That did not happen. And we have no idea when it will end. But just in the last 30, 40 seconds we have with you, can you make a prediction on how it could end and when it could actually end? Well, it's a war of attrition right now and it's a drone war. And it does look like Russia's slowly making progress, but war is very unpredictable.

11:02And Russia's facing a lot of economic problems due to Ukrainian drone attacks on its energy and oil infrastructure. So both sides, like I said, do have an interest maybe in bringing it to a closer end, but I don't see that happening within the next six months or a year. I could be wrong. You know, things are unpredictable. And I think it's good that the Trump administration is talking to Ukraine and they're making progress on some issues. So they're hammering out what aspects of a peace agreement Ukraine might compromise on. And they likely will have to compromise on some territory, but they cannot compromise on what Russia is asking for right now because Russia could.

11:43I know already we're going to be coming back to you because I feel like I still have a million questions. Elise Giuliano, senior lecturer at Columbia. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

11:59What if data didn't sit still? What if intelligence moved with us. Not buried in reports, but activated in real time. Where lives are being shaped. Where decisions are being made. It all starts with a question. Where is the potential? Cotality turns data into clarity. Intelligence into insight. Insight into action. Because when intelligence moves, we all move forward. Cotality. Intelligence beyond bounds. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need.

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15:06Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Hey, let's get to the FedBeige book. It is out. It's a qualitative summer. You know that what's going on in the economy today based on info across the 12 Fed districts. It comes out approximately two weeks before a Fed meeting. And, Tim, yeah, last meeting is December 10th. Well, we're getting some headlines right now. Economic activity was little changed since the previous report, according to most of the 12 Federal Reserve districts, though two districts noted a modest decline and one reported modest growth.

15:39Overall consumer spending declined further, while higher end retail spending remained resilient. on the labor markets. Employment declined slightly over the current period, with around half of districts noting weaker labor demand. For more, let's bring in Stuart Paul. He's Bloomberg Economics, U.S. and Canada economist. He joins us here in the studio. So Stuart, thanks to you, I was able to go through some of those Facebook headlines. But what sticks out to you? The resilient spending among the higher income consumers is notable, and then weaker labor demand or weaker labor in the market is notable to me, too.

16:10Yeah. So when I saw the line about resilience at the upper end of the income distribution. Of course, I'm thinking about this K-shaped economy narrative that's so pervasive. But when it comes to policy, we know that FOMC members need to think about the economic aggregates. So then when we scroll down to the labor market, seeing employment declining, I think matters way more than resilience at the upper end of the income distribution. So if we have both spending in the aggregate declining, We have employment in the aggregate declining and firms feeling as though they can only pass through about 20 percent of higher input costs, which we saw reported in the Kansas City district.

16:50My favorite district in the Beige Book. I think that, again, the balance of risk is skewed towards the Fed needing to undergird the economy, maybe needing to take that additional rate cut in December. And in fact, I think they're going to deliver it. Does that say to you that the Fed has to cut come December? I don't think that the Beige Book is a deciding factor. But I think when we see the unemployment rate rising in the September report, when we see employment declining through early November, which is what the Beige Book's survey period includes, when we have those factors front of mind for policymakers, I think that it's enough to get that cut.

17:28Yeah, I'm seeing things kind of hitting on both the dual mandate that maybe things need to be addressed. Yeah, it's tricky. The Fed, we know, is not rushing to move into accommodative territory. And when we see the Beige Book citing prices rising moderately during the reporting period, including input cost pressures that are widespread among manufacturers, retailers, and when those are related to tariff-induced increases in input costs, it's no surprise that the Fed is trying to maintain this balance as best as it can. Claudia Samuels are with us, chief economist for New Century Advisors. She's one of the best known economists in the world, thanks to her research she's done on recessions.

18:06We talk about, Tom always talks about it, Tom Keene, the SOM rule, but we all do here at Bloomberg and what it tells us about the U.S. economy. She's with us from Washington, D.C. Stuart's going to stay with us. Hey, Claudia, you two have had maybe a few minutes, we hope, to go over the Beige Book. You've been listening also to Stuart Paul. What jumps out for you and what it says about the U.S. economy and where you think we are in the U.S. economy. Right. Well, I think the Beige Book was going to be an important input to this discussion of like how resilient is demand because we've seen, you know, we don't have our complete picture numbers like they're not going to get a GDP estimate even for the third quarter before they meet in December.

18:47So the Beige Book is comprehensive. It's qualitative, but it's structured and it does give us a flavor across lots of sectors across the country. So I think it is interesting that, you know, there's a highlight of the idea that the resiliency that we're seeing in some of the aggregates is being driven by higher income consumers. That does, you know, the Fed acts on like the country as a whole, like their mandate is is a national kind of an aggregate mandate. But it really is important for them to understand, like if there's broad based strength, that that says a lot more than if it's just, you know, one part of the economy is kind of holding things up.

19:20That's a much riskier place, even in when you're seeing good demand. So does, Claudia, does anything in the Beige Book today change your view or change how the Fed should be looking at its meeting on December 10th? So, you know, of all the data that they're going to have in hand in the Beige Book was certainly something, you know, that goes into that calculus. There's really not anything that's going to settle an argument. Right. The employment report was mixed. I mean, you can and I think in particular for even the people, say, Boston Fed President Susan Collins, who's one that sounds like she's probably not in favor of a cut in December.

19:59It's more of this issue. She just doesn't see the urgency. She doesn't see the deterioration. And we do know there is a whole, you know, burst of data that got delayed because of the shutdown that the Fed will get before their January meeting. So I think there is a really there is a reasonable case of like, well, why not just wait until January? That's not my that's not what I would do if I were them. But I can completely see her perspective. And I would be very hard pressed, I think, to win someone like her over to cutting in December. Now, Dr. Sam, I think you're right. It might be difficult to win over Boston Fed President Susan Collins.

20:33I'm glad that you brought her up. One of the most valuable things, of course, about the Beige Book is that we can see economic activity by district. And in this Beige Book, we see economic activity in Boston expanding slightly. Of course, I mentioned earlier in the program, I like to scroll down in the Beige Book right to Kansas City, because that's, of course, home of Kansas City Fed President Jeffrey Schmidt, the dissenter in October who is in favor of a rate hold during the October meeting. In this Beige Book, we're seeing Kansas City economic activity slowing. We're seeing growth slowing during the survey window with softer labor market conditions.

21:10So I'm wondering, you know, when you tally up the votes, where do you end up thinking everything is going to shake out when it comes to December? So I expect that we'll see a divided Fed come December. I my you know, I don't think things are a done deal at this point. I suspect there probably will be a cut in December. That may be the last cut that we see from the Powell Fed. Right. So just because you get in December doesn't mean we're like opening the gates for a whole set of cuts. But but I think we're going to we are in all likelihood going to see more dissents, four dissents, maybe five dissents, which has not happened in quite some time with the Fed.

21:52I don't think that's a sign of a problem. I think it's a sign of like there legitimately are reasons for the Fed to be conflicted. Inflation is still well above two percent, has been for years. There are still price pressures. The Beige Book talks about those costs that are still out there with businesses that could end up coming to consumers. And we have a labor market that while it's slow, there are some signs of faltering. It's not going over a cliff at the moment. Yeah. Right. So, like, I think there's a reason for them to disagree. It's a sign of like they're really serious about their job and they're thinking hard about a tough problem.

22:24I want to go to trade and tariffs in a moment, but I just want to follow up with you, Claudia. You said this could be the last cut of Fetcher Jay Powell's tenure. That tenure expires May 2026. I'm looking at 2026 Fed meetings and we have got three meetings, January, March, April. Are you saying that we wouldn't get any more cuts because of the debate or because the economy won't need it?

22:49so inflation is is elevated yeah right and i i think it's probably going to be until the middle of the year before we really see inflation kind of turn down the tariffs work their way through before we can you know really point to data and be like look it's going back to two percent right so it's going to take some time for that to work through and the fed when inflation is elevated they're going to want to be putting some restriction on the economy right so every cut they do takes a little bit more restriction out. And we can argue till the cows come home about what the quote unquote neutral rate is.

23:21But you know, if you're cutting, you're getting closer to it. So every cut is going to be harder to negotiate with inflation still elevated. And so I think that's where you could, you know, get to a place where it just if inflation is still high, unless you see clear deterioration in the labor market, which I very much hope we do not see because that would be very bad. But like that could be a game changer in it. But if we continue this kind of muddle through they really could do a pause for some time. And, you know, I think and that could be a because, again, inflation is it has been sticky above two percent.

23:55Claudia, you mentioned price pressures and the word tariff in the Beige Book appears 47 times. Most of them or many of them in the prices section are are how far into the economy or into these numbers have tariffs made their way? Like, have we seen the full effect of them yet? Are we seeing half of the effect of them right now? Can you measure that? I mean, there's absolutely a cottage industry out there of different estimates of the pass through of tariffs. I mean, we don't you know, we don't see them on the price tags, right? We can't just measure them. These are all estimates. And, you know, frankly, it has been surprising how slowly some of these tariff effects have shown up.