Franklin Templeton President/CEO Jenny Johnson Talks Tariffs | Bloomberg Talks

Well, I think first of all, Vesson describes this as an interlocking engine — tariffs, taxes, and deregulation. In the US, you have about 18 months to make big changes before Congress might flip. So the first thing he did was tariffs. He needs the tax cuts, which are really an extension plus some additional cuts; if not extended, it's a massive tax increase. To pay for it, he plans to use tariffs, which currently bring in $80 billion a year but could rise to $600 billion, covering the $400-450 billion needed annually. Deregulation is also key for global businesses. The challenge is doing it all quickly. There are concerns about the budget deficit with a 120% debt-to-GDP ratio. Ideally, you take on deficits during bad times, but we've done it during good times, leaving no room for recession. However, if tariffs pay for the tax cuts, it's less of a problem. Also, government efficiency is part of the plan to reduce the deficit, which is at $1.8 trillion a year and unsustainable.

I don't know if it's a tantrum, but our view is you get only one cut this year, and the 10-year could end the year at 4.75%. You need buyers of our debt. The economy is still robust, despite a false recession signal from GDP imports. But businesses are hesitating on capex due to tariff uncertainty, and if that continues, it could trigger a recession.

Most institutions are long-term and won't make tactical shifts now. They're waiting to see what happens. European investors have pulled back slightly, but not from annoyance — they see opportunities in Europe, like defense spending, which has been the best performing index. Through the wealth channel, financial advisors advise clients to stay put because daily changes don't warrant shifts.