PIMCO's Cantrill on When 'Surreal' US Shutdown Will End & GDP Impact

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00:00There's a lot of excitement because actually we have inflation data today, but that was a legal

00:04requirement. And then we go back to the shutdown and no data. How does the shutdown end?

00:11Yeah, well, nice to be with you. I mean, I think that is the main question for us and for our

00:17clients as well. You know, our concern was that if the government were to shut down,

00:22there would be no natural catalyst to reopen the government. If you recall, the longest full

00:28shutdown was back in 2013. That was for 16 days. And the catalyst to reopen the government then was

00:35in order to raise the debt ceiling. They funded the government and raised the debt ceiling.

00:39You fast forward to 2025 and there is no real catalyst. And in fact, it is a little bit eerie.

00:46In Washington, folks are incredibly comfortable with their political positions. President Trump,

00:51the Republicans, very comfortable denying a vote and denying negotiations on the Obamacare subsidies.

01:01Democrats, who are usually agitating to reopen the government, they're very comfortable keeping the

01:08government shuttered again in order to shine a spotlight on this issue of health care. So it is

01:14a little bit surreal, honestly, the fact that there are real implications for the real economy for data,

01:20as you as you mentioned. But again, folks are really comfortable. So our expectation,

01:25what we're telling clients is that we could see potentially the government reopening in November.

01:31Maybe we could be in Thanksgiving. The government could still be shuttered. There is, you know,

01:36it's an outlier, but there's also a tail risk that we may get to Christmas and the government's still

01:42shuttered. So this will, as you know, what our concern is, is this will have, you know, likely

01:47deeper economic impacts the longer this shutdown lasts. But again, no real political catalyst to

01:52reopen the government at this point.

01:56Libby, I mean, and this is something that we were discussing, you know, this morning is that

02:01there doesn't feel to be any urgency because of the news flow, because there's so much actually

02:06that Trump administration is also working on. But how much of this is they think they're winning

02:10the messaging around this, that this is about votes longer term or making the other party look bad?

02:18Yeah, I mean, I think that is right. Again, I think that both sides think that they are winning

02:22with their respective bases. And if you look at polling, that's probably in some ways true.

02:28Each side sort of blames the other, which is, you know, kind of the business as usual these days

02:34in in Washington. However, usually shutdowns are political loser for both parties, just just by and

02:42large. And I think this is no exception. As the longer this goes, and the more the government

02:48services are impaired, the more flights are delayed, the less able folks are to get a mortgage loan

02:55through FHA and what have you. I think the more folks are going to be mad at both sides. And you're

03:03already starting to see this a little bit in the polling. So that could be a catalyst. It could.

03:08But again, right now, both sides think that they're winning the messaging war. They think that they're

03:14winning kind of the political issue of the day. And, you know, as you said, there really is no urgency.

03:21The House is not even in session. I mean, the House hasn't been in session for now going on five

03:25weeks. And they look like they will be out of session again next week. So again, we are we're

03:30expecting November to be the earliest that the government opens. You could be we could be until

03:35Christmas, however. Libby, we also I mean, President Trump, from what we understand, you know,

03:43likes to negotiate. So could he just turn around and find a deal on health care?

03:46Yeah, he is the wild card. And I think that that is something that's it's a good thing to flag. I

03:52mean, he you know, he is you know, this is this is a something this is an issue. And just to just as

03:58a background, this is the issue kind of of the day. The issue of the focus here is around these

04:04enhanced Obamacare subsidies. They were passed and during COVID and then they were extended in 2022

04:11and they expired the end of this year. And so Democrats, I think this is a good political

04:17issue. If you look at just, again, polling voters usually rank health care as sort of the top three

04:23issue of, you know, in terms of the things that they vote on. So they do care about this. And I

04:29think that, you know, President Trump, he knows sort of the zeitgeist of voters as well. So he he is

04:35sort of the wild card here. You could see him pivot. I will just say, though, that, again, the longer

04:39this this occurs and the markets have sort of shrugged this off. But, you know, I think our

04:44concern is that you start having some nonlinear economic impacts. You know, our view is that if

04:49this stays shuttered until November, you could see a point being shaved off of GDP. Now, some of that

04:55will be reinstated when the government reopens and federal workers get repaid. But the longer this

05:00goes, the more potential you have for sort of deeper economic scarring. And of course, as you said,

05:05no data. And the longer this goes, not only are we not going to have data releases, you

05:10know, despite today, we're going to have no data collection. So that is that these are, I

05:15think, going to be increasingly problematic, both for me, for politicians. And again, Trump

05:20is the wild card here, but also for the real economy and then potentially for financial markets.

05:27Libby, how difficult is it to try and understand or what's your base case for what the talks between

05:32the U.S. and China could yield between the two presidents? And does that change the public

05:37discourse back in Washington? Yeah, I mean, it's a great question. And here I'm in London. I was in

05:43Europe earlier this week. And of course, this is, you know, one of the top questions that we're

05:48receiving from clients is sort of what to make of this dynamic. And I think that the best that

05:54financial markets can hope for from this potential meeting between President Xi and President Trump

05:59is really a detente and not a deal. I think that the expectation for, you know, phase two trade deal

06:07or what have you, or something even more fulsome than that, something that even President Trump has

06:11outlined over the last few days, you know, it's possible, but I don't think it's really probable

06:17at this point. And in some ways, President Xi is taking a page out of President Trump's playbook

06:23from Trump 1.0. He is using some of these sort of economic coercion tactics that the U.S. has used

06:30against China, you know, previously. And so, you know, this is, I think, quite a different dynamic

06:36than, again, sort of the previous administration or, you know, Trump 1.0, if you will. So again,

06:43I think that the expectation is, you know, detente, the best case scenario, but not a deal. And I will

06:48just say, and something we're flagging for our clients, is that there is a tail risk here. And

06:53this, as we've seen, this relationship can deteriorate pretty quickly, not only in terms

06:58of a ratcheting up of tariffs, but I think more importantly, you know, maybe to China and also

07:03to the U.S., these sort of export controls, whether it's on advanced technology or whether

07:08it's on rare earths. So this, you know, I think that is the tail risk in the market, that this thing,

07:13that this relationship, which is already fragile, sort of simmering, if you will, can boil over

07:18you know, really, really at any moment.

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