Energy Driven Inflation Risks, Mounting US Debt & The Case Against Cutting Social Security

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1:39This is the Bloomberg Money Podcast. I'm Scarlett Fu with Tom Keen. Join us each week for a smart look at the forces shaping your financial life, powered by the reporting of our global newsroom. We'll explore how people are earning, investing, and building wealth. We're live Fridays at noon Eastern on Bloomberg Television. Subscribe to the podcast wherever you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.

2:15Good noon, everyone. Bloomberg Money, our show on personal finance, retirement and wealth management. I'm Scarlett Food. Tom Keen is off today. Coming up on the show today, Richard Haas, Centerview Partners Senior Counselor and President Emeritus of the Council on Foreign Relations. He makes the case that a strong foreign policy begins with meeting domestic challenges like a swelling national debt or a lopsided economy. Plus, we've got Ellen Zentner, Morgan Stanley, Wealth Management, Chief Economic Strategist and Global Head of Thematic and Macro Investing. She's done a ton of work on longevity and the new long-term opportunities that that creates.

2:51But first, let's get a snapshot of where things stand in the markets. Stocks are rising on a combination of falling oil prices and a pretty much as expected CPI report. For the Dow, the S &P and the Nasdaq, the first gain in five days. Notable that the S &P is still about 1.6 percent shy of a record high set back on August 13th. The VIX currently down right now to about 15, but it did get above 18 yesterday. Let's look at the cross-asset board because yields are backing off from multi-year highs. The 10-year yield now at 4.94 percent. It almost touched 5 percent overnight. but has managed to back away from that level.

3:26Dollar index, little change at this hour, and oil prices retreating after yesterday topping 104 a barrel. That is the U.S. benchmark WTI. It was a four-standard deviation move, I'm told. Tom Kean actually texted me and told me that. And diesel prices, of course, a product of oil rising past$6 a gallon. We're going to get into all of that shortly. So let's get into the conversation right now, because joining us at the Money Desk this afternoon is Bloomberg Money Managing Editor Nikki Waller, Bloomberg Intelligence ETF Senior Analyst Eric Valchunas, our Washington correspondent Tyler Kendall in New York today, and Bloomberg Opinion columnist Alison Schrieger, who's also author of the upcoming book Worth the Risk, the seven myths that keep us from taking the chances we need to take.

4:11So we got to start with the big data point today, which was inflation. And Alison, And those numbers came out today at consumer prices. Wholesale prices came out previously. They pretty much met or rose slightly more than expected. So if rate hike feels, what, inevitable at this point? Well, it was warm but not hot. And so the market's now pricing in maybe two rate hikes later this year. I think the question is, though, is that really going to be enough? I think what we're starting to see is maybe sort of what we don't want to realize, which is inflation might just sort of be settling around two and a half, three percent.

4:48And sort of this nice deflationary pressure that we had is played out. And if we really want to get inflation back to two, it's going to really take, you know, more than tough talk and a couple of rate hikes. And, you know, are we really willing to do what it takes to decrease demand? Because what we do is a lot of this inflation pressures from supply things like energy. So you're going to have to really bring down demand based from where it is now to get your hands around inflation. And it's not clear we really have the appetite for that. Right. That would require a series of rate hikes, not just one 25 basis.

5:18Potentially a recession or a recession. Nikki, you've been looking into the data points of the inflation report. What did you pick up? So one thing to look at is not just what happened last month, but what is going to happen in the future. We saw the other big number that you mentioned earlier, that diesel went up to six dollars a gallon. That that shows up in the CPI. Fuel costs, obviously a huge part of that number. But the other thing that we're going to see with all of those costs is that diesel is the price of getting your groceries to the grocery store. So even more price hikes are in store for things like the bananas and beans that you're going to be buying at the grocery store right now.

5:58Yeah, you know, when it comes to this oil spike and the Iran situation, there's been this like back and forth with the president, you know, wanting to have peace talks when oil goes too high, because he's well aware he does not want to have rates go up. It's horrible for the economy. I think the stock market is kind of a governing force over the whole apparatus. And so the idea that oil goes up, stocks go down, there's always reversal. So I think that's going to keep inflation in check. And I'm going to take the under on the rate hikes and go with zero or even a cut. You've been sticking to this point for a long time because it all goes back to the president does not want rate hikes.

6:32He wants rate cuts and it's pretty straightforward. Yeah. I mean, he sat there and interviewed this guy and I'm sure it came up. And I just think that's it. People overthink it. People overthink it. So, Tyler, you're here in New York, but of course, there was a lot of action in Dallas and you helped cover what was going on at the first ever midterm convention held by the Republicans. Did they bring up gas prices? Did they bring up affordability concerns? It's interesting because how we did see it brought up was through what is considered to be a rather unusual proposal with this potential for a$5 ,000 check to be sent to Americans if Republicans end up winning both chambers of Congress.

7:08We have to say that we did have the NEC director, Kevin Hassett, on Bloomberg Television earlier today who said that maybe this could be done through a reconciliation package, which we should put context behind. That would mean that Congress would have to get involved, even if the president has previously floated that maybe he could do it without their authority. I'll also point out we hear a lot from the president about tariff revenues. Yeah, our own analysts have crunched the numbers. This could be one trillion dollar proposal when we talk about all the concerns with the deficit, how difficult it is to politically cut spending in Washington.

7:39But after those tariff rebates refunds from the Supreme Court case, I think this year we're on track for somewhere close to one hundred and fifteen billion dollars. So we are much farther away from that trillion dollar. And so I want to come to you because that's an interesting point. The tariff revenue that came in, I mean, that does help at least slow the growth of our national debt, doesn't it? It does. I mean, that was one of the benefits, supposedly. I mean, I don't think it's going to take care of our debt problem. And when I try to be generous about tariffs, as an economist, I hate them.

8:10But, you know, it is a consumption tax, and I like those. But the problem is, I mean, I don't know how realistic this$5 ,000 check is, but I think we saw during the pandemic that sending everyone a check is then inflationary. inflationary. Yeah. And then increases the debt. So, you know, you're sort of then in a bit of a pickle that, you know, even no tariff revenue, even if we're tariffing 20 percent is going to get you out of, especially because that's another hit to prices. You know, we had the consumer sentiment report coming out of University of Michigan, and it shows sentiment people feeling lousier about the economy because of the rising gas prices, the rising diesel prices, Nikki, that you mentioned.

8:47But it always splits along whether you're a Democrat or a Republican, doesn't it? It does. And I think we see much more positive views of the economy on the red side of the House. At the same time, I think it is deteriorating broadly as people are experiencing the economy and not feeling good about it. Tyler, have the Democrats come up with any kind of counter-programming to what the Republicans said at the midterm convention to get their base fired up? I love that you asked this because this is actually every question that we asked every Democrat that joined us this week on Bloomberg television.

9:19It's difficult at this moment because in one regard, Democrats have the ability to kind of sit back and say that they don't control Congress at this point. So they're going to let Republicans run with what has been negative polling on this. I would point out in the consumer sentiment reading, we're seeing only 35 percent of Republicans believe that the government is doing a good job with the economy. That is at the lowest level since President Trump took office. But Democrats faced headwinds of their own, including intra-party fighting. But you look at the stock market, Eric, and I pointed out it's still about 1.6 percent shy of its record high.

9:51I mean, the stock market keeps chugging along because of corporate profits. And I know you've been making the case for a while now that the stock market is America's retirement vehicle and policymakers can't let it fail. Yeah, the political pressure is just it's going to get grow. It's going to grow and grow, especially as Allison said, you know, as Lynn Alden says, nothing stops this train. Both parties are going to spend. There is no nobody's going to who wants to tax or cut benefits. It's just politically unpopular. So the more the stock market becomes the retirement vehicle for Americans and creates the wealth effect for the top spenders, it's going to be a problem if it goes down too much.

10:25And I think investors sense this because the Fed and the Treasury has stepped in in times past. That's why VU and chill exists. You just buy VU and you don't do anything and it tends to work out. So through all these headlines all year of past 18 months, VU has just taken in about a billion a day, as well as a bunch of other ETFs that do the same thing. And that also puts like a ceiling on how much they can increase rates because they increase rates that lower stocks. That's the discount rate. And if they're taking out everyone's retirement wealth. Yeah. And when you look at retirement wealth, it is higher than it's ever been.

10:58Americans have an average of, I think,$151 ,000 in their 401ks. And we just reported from Fidelity last week that the number of 401k millionaires is higher than ever before. It's a matter of whether people do anything with it because it's on paper, right? It's not actualized just yet, but it creates that wealth effect. So putting this all together, Eric, because you talk about Vu and Chill, you wrote the book on Vanguard and its founder, Jack Bogle. I've heard you use Vanguard as both an adjective and a verb. The first person to do that. Why does Vanguard matter so much to how we save and how we invest?

11:33Yeah, because they made everything basically free. I mean, they created what's an investor utopia right now. You can basically just, you don't have to get out of bed. You just pick up your phone, type a few things, and own anything under the sun for almost no fee. And if Bogle hadn't set up Vanguard to be a mutually owned company that lowered fees naturally over 50 years, none of this would exist. There would really be no economic incentive to go this low. But honestly, he did it. We call it the Vanguard effect or the Bogle effect. And it's now hitting active, even actives now getting cheap. So investors are in a very good period right now and also think that's why they don't leave.

12:11It's not just the Fed put, but they feel like they found a product they can get married to. They don't need to date anymore with different active managers. They just buy VU and they are off the market. VU and chill or VU and retire at this point. All right. Thank you so much to our roundtable. Bloomberg Money Managing Editor Nikki Waller, Bloomberg Intelligence ETF Senior Analyst Eric Bauchunas, Bloomberg opinion columnist Alison Schrager, and Bloomberg Washington correspondent Tyler Kendall in New York today. You're listening to Bloomberg Money. Stay with us for more to come after this. The thing about AI for business, it may not automatically fit the way your business works.

12:48At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM.

13:17Welcome back to Bloomberg Money. I'm Scarlett Fu. Joining us now is Richard Haass, Centerview Partners Senior Counselor and President Emeritus at the Council on Foreign Relations. And of course, we're pleased to have you here on this 25th anniversary of 9-11. We're gonna talk about foreign policy, but more importantly, we're gonna talk about domestic policy too and the health of our domestic institutions. One of your thesis is that foreign policy begins at home. American power is not just nuclear weapons or aircraft carriers. It rests on the economic, political, and social strength of the US itself.

13:48So my question to you, Richard, is how strong are these foundations of American power in September 2026? Short answer, Scarlett, is they're not as strong as they were. And the short answer is they're not as strong as they need to be. People don't have the same confidence as us. They don't see us the same way politically, whether it's January 6th or other sorts of polarization. Economically, they look at the scale of our debt and basically say, are you Americans willing and able to deal with your obligations, your responsibilities? is because you're not just any other country. We are dependent upon you.

14:24They look at frictions in our society. So yeah, I think there's unfortunately real reason to be concerned about, if you will, the state of the country. And it creates a permission structure for other countries to do something similar for other actors to kind of follow in our footsteps. Well, we're certainly not setting an example a lot of them would want to emulate. That was the whole idea of soft power, that people would see the vibrancy of our economic system, our political system, our society, and they'd say, hey, we want to be more like them. I don't think a whole lot of other countries are doing that.

14:54Plus, we're not leaning on them in the same way. I mean, we're not going to push them, shall we say. To the contrary, you had these elections in Germany the other day. Instead of expressing concern about a right-wing pro-Russia and sympathetic to the Nazi past party, you have the president and Elon Musk congratulating them. So yeah, we're in a very different place. So the president has pulled the U.S. out of all kinds of multilateral organizations and agreements you've made the argument that this kind of retreat would ultimately make Americans feel less secure and less prosperous. And we see this reflected in lots of consumer sentiment surveys.

15:28Explain the connection here. Why should an American who is struggling with housing, with health care, with retirement care whether Washington continues to underwrite global order? Because what happens there doesn't stay there. Here we are today, 25 years after 9-11. What was one of the great lessons of 9-11? that stuff happening in places like Afghanistan could travel here. You had Saudis getting trained by terrorists in Afghanistan, coming over here, killing nearly 3 ,000 people in a single day. What does that tell us? The idea of a border, we have to rethink it. Well, more recently, COVID. What began, whether it was in a market or a laboratory in Wuhan, China, again came here and killed so many Americans.

16:13Look at trade. All the Americans have lost their jobs because of trade or new technology, or in some cases have gotten jobs because of the ability to export to others. So the idea of foreign policy being foreign, we really need a new template for that. We have to understand that what happens here, your first question, affects what goes on elsewhere, but also the other way. That we're not, you know, these two oceans, the Atlantic and the Pacific, whatever else they are, they're not moats. We are affected by what goes on elsewhere. Let's talk about fiscal policy, because today, you know, collectively, we're seeing the bond market and economists sending warning signals about the national debt, more than$40 trillion.

16:49How high does that$40 trillion of national public debt rank as a national security issue? It is a national security issue because the rest of the world loses confidence in our ability to manage our economy. They'll move away from the dollar. They'll stop financing the debt. we will then have to take all sorts of economic measures, for example, raising rates, not to cool an overheated economy, but simply to attract the financing that we that we want and need. And then we're not going to have that money available for other things, whether it's to build better schools or build bridges or be nice to have some high speed rail in this country.

17:25And we go down the list. There's a million things we won't be able to do. We've already kind of gotten close to that point. The service on the debt, essentially paying the interest on our debt, is now greater than what we spend on defense. That is crazy. This is money going down the drain. We want to spend money, the budget, on productive things. We want to invest in ourselves and our own future. We don't want to simply pay off our past profligacy. And that is what we're doing. Well, it brings to mind this erosion of trust. And it's not just foreign countries' trust in America. It's also our own trust in ourselves.

17:58There's a new poll from APNORC that shows more Americans have stopped believing in the government. Public trust in federal government information about inflation and cost of living is now 18 percent from 26 percent in 2024. Trust in information about the labor market down to 15 percent. Trust in elections and politics down to 13 percent. Can government or our institutions rebuild or repair that trust, Richard? First of all, it's really depressing to hear statistics like that. That's kind of what you get when politicians continually tear down the government, raise questions about the legitimacy of our elections.

18:35When we've looked at it, take the 2020 elections, we looked at it, what, it's 60 court cases. There was nothing there. When you have people talking about the deep state as though the government, the tens of millions of Americans who work for the government are somehow something else. No, they're us. They're our wives, our husbands, our children, our neighbors. And we want the best and brightest to go into government. We need to trust our country, our government, because we're so affected by its decisions, what it does and doesn't do. Look, it's going to take a few things. It's going to take leadership that stops tearing us down.

19:06That would help from the top, but also from the bottom. We need to, for example, have civics taught in our schools. You should not be able to get a high school or college degree, I would argue, without understanding the basics of democracy, the relationships between this country and its individual citizens, your rights, but also your obligations. What do you owe this country? We want more people to do public service, whether it's military or civilian, international or domestic. We have to rebuild the bonds that made this country so special. So when de Tocqueville came over here, what, 200, 150 years ago, he looked at America and he said, wow, this is a country that works together, that's unified.

19:42Again, here we are, 9-11. What happened after 9-11? Unity. We came together. What did President Bush do? He went to the mosque in Washington and said, we are all Americans. Whatever our religion, however we dress, we have to be there for one another. We need to hear a little bit more of that. All right. Fired up Richard Haass here on the 25th anniversary of 9-11. You're going to stick with us right now. Later on, according to that survey, more and more young people are also looking at other ways of building wealth. They're considering things like sports gambling and prediction markets as a form of investing.

20:14That's something we'll get into a little bit later on. This is Bloomberg Money.

20:21You're listening to Bloomberg Money. Stay with us for more to come after this.

20:47companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM.

21:02This is Bloomberg Money. I'm Scarlet Fu. Back with us is Richard Haas, a senior counselor at Centervue Partners and formerly with the Council of Foreign Relations. Bloomberg Money is our show on personal finance, retirement, wealth management. What's your personal strategy for investing, for saving? Look, I'm not smart enough to do market timing, so I tend to invest for the long term. I'm also heavily diversified. I'm uneasy right now. I'm a pessimist by nature, as you know from having had me on various shows. And there are times in life, I think, to make money. And there's also times in life not to lose money.

21:35So I would think I'm increasingly in the latter camp. So I'm still pretty invested. I'm also not a kid anymore. Because of where you are in your investing career or because of where we are geopolitically? The idea that we're going to get through the next couple of years without some type of a crisis. We haven't had a recession in a decade and a half. We talked about the$40 trillion debt. You have to be a real optimist to think that something's not going to happen. Energy infrastructure has not, for the most part, been destroyed in this war. What happens if that were to change? And then you would have$200 a barrel of oil.