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

Alison Schrager (0:02)

Bloomberg Audio Studios.

Zijia Song (0:04)

Podcasts, radio, news.

Scarlett Fu (0:07)

Bloomberg Money.

This is the Bloomberg Money podcast. I'm Scarlett Fu with Tom Keene. 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.

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Coming up on the show today, Richard Haass, Centerview Partners, Senior Counselor and President Meredith 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. But first, let's get a snapshot of where things stand in the markets. Stocks are rising on a combination of falling oil prices and in 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% 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%. It almost touched 5% overnight. But it has managed to back away from that level. Dollar index little change at this hour and oil prices retreating after yesterday topping 104 a barrel. That is the US benchmark WTI. It was a four standard deviation move, I'm told. Tom Keene actually texted me and told me that. Diesel prices, of course a product of oil rising past $6 a gallon. We're going to get into all of that shortly. Let's get into the conversation right now because joining us at our Money Desk this afternoon is Bloomberg Money Managing Editor, Nikki Waller, Bloomberg Intelligence ETF Senior Analyst, Eric Valtunas, our Washington correspondent, Tyler Kendall in New York today, and Bloomberg Opinion columnist, Alison Schreger, 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. So we got to start with the big data point today, which was inflation. And Alison, those numbers came out today, 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?

Alison Schrager (2:59)

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 gonna 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 2.5%, 3%.

And 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 gonna really take no more than tough talk and a couple rate hikes. And are we really willing to do what it takes to decrease demand? Cuz what we do is a lot of this inflation pressure is from supply things like energy, so you're gonna have to really bring down demand based on where it is and how to get your hands around inflation. And it's not clear we really have the appetite for that.

Scarlett Fu (3:47)

Right, that would require a series of rate hikes, not just one 25 basis point hike.

Alison Schrager (3:51)

Potentially a recession.

Scarlett Fu (3:52)

Or a recession. Nikki, you've been looking into the data points of the inflation report. What did you pick up?

Nikki Waller (3:57)

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 $6 a gallon.

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.

Eric Balchunas (4:31)

Yeah, 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.