Former Treasury Secretary Steven Mnuchin discounted risks of a US recession, and played down the current selloff in equities, advising investors against overreacting to President Donald Trump’s aggressive trade tactics.
“We came in with the market being fully priced, so I think a 5% to 10% correction on the S&P or the Nasdaq actually makes sense,” Mnuchin said in an interview with Bloomberg’s Saleha Mohsin Thursday.
He spoke as the S&P 500 Index added to its recent selloff, with the gauge heading for its lowest close since September. Thursday’s drop followed threats by Trump to impose a 200% tariff on European alcoholic beverages, in the latest escalation in a growing transatlantic trade war.
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“We came in with the market being fully priced, so I think a 5% to 10% correction on the S&P or the Nasdaq actually makes sense,” Mnuchin said in an interview with Bloomberg’s Saleha Mohsin Thursday.
He spoke as the S&P 500 Index added to its recent selloff, with the gauge heading for its lowest close since September. Thursday’s drop followed threats by Trump to impose a 200% tariff on European alcoholic beverages, in the latest escalation in a growing transatlantic trade war.
See omnystudio.com/listener (https://omnystudio.com/listener) for privacy information.
Bloomberg Talks curates top interviews from around Bloomberg News. Hear conversations with the biggest names in finance, politics and entertainment. On Bloomberg Talks, we round up interviews with Fortune 500 CEOs, government officials, well-known investors and business leaders.
Listen to more Bloomberg Talks: https://youtube.com/playlist?list=PLe4PRejZgr0PymVnW5YWXAKoo_oh7FWmh&si=-VRYLfzBIcZszwHN
Subscribe to Bloomberg Podcasts: https://bit.ly/BloombergPodcasts
#Bloomberg #Podcast
Visit us: https://www.bloomberg.com/podcasts
Follow Bloomberg Podcasts on Twitter: https://twitter.com/podcasts
Visit our other YouTube channels:
Bloomberg Television: https://www.youtube.com/@markets
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00:00Bloomberg Audio Studios, podcasts, radio, news.
00:07We have Treasury Secretary Steven Mnuchin with us here.
00:10Thank you so much for joining.
00:12It's great to be here with you.
00:13You have a unique insight into this administration because you served all four years during the
00:18first term for President Trump.
00:20I wonder what you make of a difference that we're seeing with Trump this time around.
00:24He is a little less concerned about day-to-day market swings.
00:29We've seen big tariff talk, 200% tariffs, 25% tariffs, 10% across the board.
00:34And the S&P 500 has wiped out $5 trillion in part because of this.
00:40What do you make in the shift in Trump's thinking about markets?
00:44I think the execution is slightly different, but I think the fundamental economic policies
00:49are actually the same.
00:50And this goes back to what the president campaigned on in 2016, tax cuts, regulatory relief, and
00:57trade.
00:58These are the same things you're hearing about today.
01:00I would say it's critically important that the tax cuts are extended.
01:04And I know President Trump wants to add additional tax cuts.
01:08He's always been very focused on trade.
01:10I think that you're seeing a more aggressive trade policy in this administration.
01:16And I think one of the questions is, does the president want to use this to negotiate?
01:21Or does he want to use this to raise tariff revenue, which he's talked about significantly?
01:26Which if he's going to do that and use that to create tax cuts or pay down debt is an
01:32interesting strategy for effectively creating a consumption tax on foreign goods.
01:39Do you think that some of the tariff threats, pulling things back, bringing them back up,
01:44do you think that's a good policy?
01:45Well, I think the market is adjusting to his negotiating, which I think in the beginning
01:52the market thought that he wasn't serious about tariffs, despite the fact that I think
01:56and I've been saying he's very serious about tariffs.
02:00So I've suggested that if he wants to raise revenue, a 10% tariff across the board on
02:06everything would be very effective.
02:08They could score that as part of reconciliation, probably raise about $2.5 trillion.
02:14And that would be very effective in terms of creating tax cuts and paying down debt.
02:19It's been a lot, though, for investors and business leaders and CEOs to absorb.
02:23What's your what would your advice be to some of this constituency as they try to deal with
02:28and they get worried about all the stock market gyrations from these tariff threats?
02:32Well, my first advice would be don't overreact.
02:36I know there's some talk about are we going to go into a recession?
02:39I don't see us at all going into a recession.
02:43I think we could have a little bit of a slowdown in the economy as we pull back on government
02:48spending.
02:49But I don't think investors should be concerned about a recession.
02:52The second thing I would say is we came in with the market being fully priced.
02:57So I think a 5% to 10% correction on the S&P or the NASDAQ actually makes sense.
03:03The market's been really fueled by massive amounts of tech spending, particularly around
03:07AI.
03:08So some of this is a natural correction in the market.
03:11And some of this is the market worrying about tariffs and the impact on tariffs.
03:16We're talking a lot about tariffs.
03:18You mentioned taxes as well.
03:19What do you make of Trump's strategy to do tariffs before tax cuts this year?
03:25Well, I think it's just a timing issue.
03:28I think they're actually moving on what seems like an incredibly fast agenda, which is encouraging
03:35that Speaker Johnson says he's going to get a bill to the floor before Easter, which,
03:41if that's the case, that includes both tax cuts and border, that's a very impressive
03:46timing.
03:47And my concern about this one big, beautiful bill was it was going to take too long and
03:52that the president could get a quick, easy win on the border.
03:55And the tax issues, as you know, Soleil, are quite complicated.
03:58So these things have to be thought through carefully and balanced.
04:03You as Treasury Secretary in 2017 were the face of the administration's efforts to get
04:08that tax bill through Congress.
04:11Knowing based on that experience and what you know and see now of Washington, what do
04:15you think the chances are that there will be a successful extension of the tax cuts
04:19that Trump seeks?
04:20Oh, I definitely think there'll be a successful extension.
04:23I think it just depends what it includes.
04:26And look, we're very proud of the work we did in the first administration.
04:30And obviously, the tax cuts and jobs act was sweeping reform.
04:33I mean, it took all year because it impacted almost every single part of the economy.
04:39It dealt with domestic taxes, it lowered corporate taxes, it lowered individual taxes.
04:44It had business tax credits.
04:47Right now, they're dealing with a much smaller segment.
04:50The most important priority is, in my mind, extending the tax cuts, which from an operational
04:56standpoint is actually quite easy to do.
04:58And then they have to consider some of these other ideas that the president has thrown
05:02out and figure out how they could pay for them as well.
05:05Do you think that the salt cap is something that needs to be part of the bill?
05:09Well, it only needs to be part of the bill if that's what you need to do to get Republican
05:14votes to get the bill over the finish line.
05:17So there's no question that putting a cap on salt was a fundamental issue that we thought
05:25of fairness, treating all the states similarly.
05:29Having said that, I recognize there's a small majority in the House, and this clearly impacts
05:35places like New York disproportionately.
05:37And I understand why the New York members want to see that raised.
05:41So far, it seems like that might be one of the sticking points.
05:43Are there any other sticking points that you see bubbling up as this tax bill comes
05:47together?
05:48I think the bigger issue is the pay-fors.
05:51So you have some people who say this should be scored against current policy and it doesn't
05:56cost anything.
05:58The traditional way of scoring this is against what's the current law with the reduction
06:06of the tax cuts, and that would be over $4 trillion.
06:11So obviously, if you score it that way, the pay-fors are very significant.
06:16I am concerned, and you know, you've heard Treasury Secretary Besant and others talk
06:21about the deficit.
06:22I think the deficit is our number one problem today.
06:26So I think that whatever tax cuts are passed, at least some of them have to be paid for.
06:32That's one of the larger differences between 2017, when you worked on this, and now that
06:37the deficit is just so big.
06:38How much harder does that make Besant's job?
06:41I think it's quite significant.
06:43And you know, if you put this in context, when we did this, the entire tax bill cost
06:48a trillion and a half dollars.
06:50There was about $500 billion that we thought that was the difference between dynamic and
06:55scoring, and there was another $500 billion of things that were extenders.
06:59So we thought the true cost was closer to $500 billion and that we could easily grow
07:04the economy to pay for that.
07:07We're now talking about an economy that's much bigger.
07:10The numbers are much bigger.
07:11So the personal side alone is over $4 trillion.
07:16So the pay-fors are much more significant.
07:18We also have a much bigger budget deficit.
07:21We had much more fiscal room in 2017, and we had lower interest rates.
07:26So the interest on the debt wasn't as big of a problem.
07:29So you add all those things up, and yes, it's more difficult today.
07:35But it's also simpler in that the tax cuts themselves are much simpler.
07:40You know this so well.
07:42In 2017, you were a key negotiator.
07:45You were the face of the administration's efforts, like I said.
07:48How important do you think it is for the Treasury Secretary to lead the charge on tax bill creation
07:54and negotiations?
07:55I think it's very important because it's the president's signature achievement, and extending
08:01it is critically important for the administration.
08:05We got to know each other during those four years when you were in office.
08:07But one area that we never talked about that was never a big deal when you were there was
08:11the payments system.
08:13With your four years of experience, you know how sensitive and significant the work at
08:18the Bureau of Fiscal Service is.
08:21Are you concerned at all about DOJ's access to the payment system?
08:25Well, let's step back and just talk about the payment system.
08:29And you're right.
08:30We didn't talk about it much.
08:33Treasury is a gigantic payment processor for the federal government.
08:38So this is an important part of Treasury.
08:40But Treasury's role, as you can think of, is the bank.
08:43So what Treasury does is it takes in files from other parts of the government.
08:48The other departments certify those files.
08:52Treasury makes sure that it's in the proper form that it can execute them, and it executes
08:57them.
08:58So it's not Treasury's job to determine whether those payments are good payments or bad
09:03payments.
09:04You know, I'm very comfortable with what I understand Treasury Secretary has said in
09:10regards to the controls over the payment system.
09:13That's the most important issue.
09:15I think some of the things that Elon has said make a lot of sense.
09:19I mean, does it make sense that you put a category payment around the payment?
09:23Of course.
09:24Now, those are things that should be easily added.
09:29I will say what we did work on was the transparency issues associated with this.
09:36We put up on the Internet a system where you could see most of the government payments.
09:41So I think a lot of this topic today makes a lot of sense.
09:45But I'm comfortable today the system appears to be very safe.
09:49Do you think that investors should be worried about the U.S.'s ability to fulfill its debt
09:53obligations, considering how much activity there is around the payment system right now
09:57with Doge in there?
09:59Again, I know there were some concerns about Doge in the beginning.
10:03That seems to be taken care of and not an issue.
10:07Obviously, the bigger problem with the payments is going to be the government debt and the
10:11debt ceiling.
10:13One thing I've noticed that Secretary Besten is doing that's a little bit different than
10:17years past is putting a focus on lowering long-term bond yields instead of looking to
10:25the Federal Reserve to lower interest rates.
10:28I'm curious what you make of this strategy.
10:30Well, I think he's right in the sense of a large part of the economy is tied to longer
10:37term rates.
10:38So whether it's mortgages or other things and whether it's the five-year or the 10-year,
10:43there's a large part of the economy.
10:45For a long time, we had a very flat yield curve.
10:48Ultimately, what the Fed does will have an impact on long-term rates.
10:54I think if you actually look at the market today and you look at the dot plot, the Fed
11:00is telling you basically their expectation is that they will lower rates down to three
11:04and a half percent.
11:05It's just a question of when they get there.
11:08Right now, that's projected next year.
11:11And I think the 10-year Treasury already has that priced in.
11:14So I think it's built into the market today.
11:19In the last couple of weeks, we have seen yields drop due to recession fears.
11:23Do you think that Bessett might be getting what he wanted but for the wrong reasons?
11:28Well, I think he wants long-term Treasuries to come down.
11:32And I think part of that is around creating, as there's less government spending, there's
11:40no question and they can convince the market that they're going to cut the deficit.
11:45That will help long-term rates.
11:47But I'd say, look, the 10-year has been bouncing around in a 20 basis point range, which I
11:53consider to be a market range.
11:55One of my favorite things to ask current and former Treasury secretaries is about currency
11:59policy, something that we've spoken about as well.
12:01We're expecting, at least in the next couple of weeks, the first foreign exchange policy
12:05report coming out of the Treasury Department.
12:07When you were in office, you labeled China a currency manipulator.
12:11I wonder if you think that that is an effective tag to apply.
12:16I think it's one of the effective tags to apply.
12:18It's not the only effective tag.
12:20But I think it was one of the tools in the toolbox.
12:23And now it's more fun talking about currencies.
12:26Because I think, as you know, kind of like Treasury Secretary 101 is everybody's supposed
12:31to just say, oh, strong dollar, strong dollar.
12:34As you remember, when I was at Davos, I made for the first time a comment more on a stable
12:40dollar and the benefits of a strong dollar and the problems with a strong dollar.
12:46And the market reacted accordingly.
12:49But I really do think the policy should be a stable dollar policy.
12:55That's what's good for the U.S.
12:56That's what's good for the world.
12:58I think the dollar will be the reserve currency for the foreseeable future.
13:03But you don't want a dollar that's too strong, that hurts us from an economic standpoint.
13:08You can speak much more freely about currency policy now.
13:10Thank you so much for joining.