00:00We start with the jobs market, where soft data are holding the Federal Reserve back from cutting rates more and cutting them faster.
00:07Steve Ratner is chair and CEO of Willett Advisors, which manages the personal and philanthropic money of Michael Bloomberg, our founder and majority shareholder.
00:17Steve has been watching the U.S. economy closely as an investor and gave us his outlook.
00:23Steve, the labor market is really top and center.
00:27We've got a prior problem before we get to the state of the labor union, which is, what are the numbers because of the government shutdown?
00:34Why are we shutting down the government?
00:35Whether it's the right strategy or not, I don't know.
00:37But there's a legitimate purpose in what the Democrats are trying to do, which is health care.
00:42What most people don't understand is that in Trump 1.0, Trump tried to kill Obamacare overtly, through the front door, so to speak, and then John McCain famously voted it down.
00:52This time around, you've not heard them talk about Obamacare or the ACA or any of this stuff.
00:56But the fact is, they've been trying to kill health care.
00:59There's a lot of stuff in the one big beautiful bill, but there's also this provision that would expire at the end of the year that provides what are called enhanced premium tax credits to people making less than $150,000 a year, and particularly those making less than $65,000 a year, that are going to expire at the end of this year.
01:16This would cost millions of Americans their health care, and it would raise premiums by 18% for as many as 20 million Americans who buy their insurance on the exchanges.
01:25As soon as you say, what is it, enhanced premium tax credit, you sort of lose me, you know, because nobody is sort of saying, should we do away with Obamacare or not?
01:33Well, that's exactly their strategy, and the Democrats keep saying this is about health care, but I don't think the average American really understands about health care.
01:40There are 20-some-odd million, 20, 22 million Americans who buy their insurance on the exchanges.
01:46The insurance companies have already filed premium requests for next year.
01:49They have to do it by October 1st, and they're asking for an average of an 18% increase in premiums for people who buy that insurance because they expect so many people to drop out because of the loss of these credits that they raised.
02:01So people are going to find this out now.
02:03Now, you remember that the Medicaid cuts don't take effect until after the midterms.
02:08This takes effect now.
02:10And so people may not appreciate it today and support the Democrats for that reason, but by the end of this year, they're going to find out what this all means.
02:19So let's turn to the question of the labor market overall.
02:22You follow this closely.
02:23Where is it?
02:24Is it as soft as some people think right now?
02:27It's what people call a no-hire, no-fire labor market.
02:30It's kind of frozen.
02:32We saw in the ADP numbers this week, which are one indicator.
02:35They only show you the private side of the market, but they're sophisticated numbers and no reason to doubt them that hiring has really, really – now, I think for two reasons.
02:46One is uncertainty about the economy and tariffs and all the things we've been talking about for so long.
02:52And the other potentially is AI.
02:53We know that AI is going to have a major effect.
02:57You saw Doug McMillan of Walmart this week, for example.
02:59He has said privately to people that he thinks of as 2.1 or 2.2 million people.
03:05He might have a million people working five years down the road or something like that.
03:09It's going to have a major effect on our country, ultimately, I think, for the better, but with a lot of disruption along the way.
03:15And I think we're beginning to see those signs.
03:17If the labor markets are slowing at whatever rate, what does that tell the Fed?
03:22Because given the reasons they're slowing, do short-term interest rates have any effect on that?
03:28Well, in theory, they do.
03:31It takes a while.
03:32It's not the most direct transmission mechanism.
03:35But obviously, if you lower the cost of capital, business goes out and borrows more, spends more.
03:40It's good for the stock market.
03:41As we have seen, that creates a wealth effect.
03:43People who have stocks spend more.
03:46And that's the whole essence of monetary policy.
03:48But what I thought you were going to ask me, if you don't mind my saying, is that, as Powell said in his last press conference,
03:53the problem he has at the moment is he has to worry about both sides of his mandate.
03:56Usually, he has to worry about unemployment or inflation.
03:59Right now, he has to worry about both.
04:00We're not really in stagflation yet.
04:02But we have bits of that on both sides of the mandate.
04:05I think the one thing that may be hiding in all this is, again, AI.
04:10AI has the potential.
04:11And Trump, of course, did nothing to enhance AI particularly, other than doing a lot of press conferences with Sam Alden and whatnot.
04:18But AI has the potential to be a game changer.
04:21If we can raise our productivity rate by half a percentage point or a percentage point, it would have a dramatic effect on growth.
04:28It would allow for more growth without more inflation.
04:30I think that if the Fed were to follow what Trump and Myron want and cut interest rates by 200 basis points, you'd see a fair amount of inflation.
04:38And right now, we're not even at 2 percent, as we both know.
04:41President Trump came to office promising to help an industry you know well.
04:45You helped restructure it under President Obama, the auto industry.
04:49What has been the net effect of the various policies?
04:52I think if you talk to auto executives, and some of them have said this more or less publicly, some have said it more privately,
04:57I don't think really much of anything good has come out of this.
05:01And the stock market, if you look at the share prices, would agree with that.
05:05Much of anything good has come out of this for the auto industry.
05:08I think Mary Barra of GM has been reasonably candid about the challenges it poses for them.
05:14As Jim Farley of Ford has pointed out, GM imports more of its cars from Mexico and Canada than Ford does.
05:21So that is a problem for them.
05:22The import taxes on auto parts is a huge problem for them.
05:28But also the stop-start policies on electrification and CAFE standards and so on,
05:33where you go from one administration to the other, and you're trying to make five-year capital plans and product plans,
05:37and then suddenly there's a U-turn in policies.
05:40That's not good for them.
05:41You pointed out something that is really striking.
05:43On the one hand, the expiration this week of the EV tax credits.
05:47On the other hand, the CAFE standards.
05:49So it's sort of giving on the one hand and taking away on the other hand.
05:53So net-net, is that going to help the auto industry?
05:56Well, but what those two things do is it drives, no pun intended,
06:00the auto industry from producing small electric or very fuel-efficient cars
06:05to producing larger cars that are less fuel-efficient.
06:07So then they have to retool and reorganize all their production plans.
06:11And sure, maybe if those policies stay in place indefinitely, it would be good for them.
06:15Bigger cars tend to have higher profit margins, they're easier for us to compete against the foreign cars
06:19where they can make smaller cars more efficiently and so on and so forth.
06:23But we will have another president in three years, and this may all change again.
06:28And so it's not really great for American prosperity and capitalism to have these kind of stop-start policies.
06:35I think the government does have an important role in policy where there are what they call externalities,
06:41where there are effects of what a private actor does that aren't captured in the price mechanism in the market.
06:47And emissions and climate are the best example of that,
06:50that if you just let auto companies make whatever they want, you didn't have CAFE standards,
06:54you didn't have EV tax credits and so forth, we'd have bigger polluting cars.
06:58But if I were God, I would have done this very differently.
07:01I would have done it using the tax system, big tax on gasoline, things like that,
07:06to incentivize people and companies to move in the right direction,
07:10not these sort of very jerry-rigged, complicated, on-again, off-again regulatory policies.
07:16Why do we do it this way?
07:17Because consumers don't see it.
07:19They don't see the cost of CAFE standards.
07:21It's not part of the American culture.
07:23To come full circle, what do these policies and policy changes mean for employment in the auto industry,
07:29including the parts business?
07:31Well, let's just step back.
07:32I think not just the policies, but the auto industry, and I did spend some time in the auto industry,
07:37the auto industry has some really significant challenges.
07:40When you look at what the Chinese are doing, and yes, we have huge tariffs on their cars,
07:44so they don't come here at the moment,
07:46but when you look at what they're able to do and the prices at which they're able to produce
07:50and sell cars efficiently and how good the cars have become,
07:53they didn't know how to make cars for a long time.
07:55We kind of taught them how to make cars.
07:57At the wage rates we pay, with the other cost structure that we have in this country,
08:01it would be very tough for us to compete on a completely level playing field.
08:06So the question then becomes, how much protectionism, if you will,
08:10do you want to afford our auto industry because we think it's important to have an auto industry?
08:14If you talk to auto executives, as I know you do, they say it's not a completely level playing field.
08:18Can we out-innovate China to be able to overcome whatever subsidies are being given?
08:24I think even if we gave the subsidies, I think you'd find that the Chinese can produce better,
08:28cheaper cars than we can.
08:30I think their innovation is exceptional.
08:33I think their cost of production is exceptional.
08:36One of the advantages China has is a very large domestic market.
08:40Are we seeing sort of an epochal change, actually,
08:43from a world in which the United States was really a leader in auto production
08:47to one where we're not going to be?
08:49We're going to be the equivalent of a Europe.
08:52Well, I think we'll be somewhere in between.
08:53I think Europe's car industry has had many, many struggles,
08:58and to the extent they've been successful,
09:00it's heavily been the German luxury cars exporting to China, ironically.
09:05But, yeah, look, China does have, as you say, 1.3 billion people,
09:08and they're increasingly prosperous and able to buy cars.
09:11You know, over 50% of the cars sold in China now are EVs.
09:15I mean, they are in a whole other world compared to us
09:18in the transition away from internal combustion engines into electrification.
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