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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, financing and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. I'm pleased

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Speaker 1: to say that, which joins by the Richmond Fed Presidents

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Speaker 1: on BAKIN alongside the brilliant Bloombeg's Mike McKay. You're happy

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Speaker 1: with that introduction, Mike and the brilliant President Mail. It's

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Speaker 1: sou'm great to catch up. Thanks for being with us. Yeah,

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Speaker 1: thanks for having So we get some Fed speak sixty

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Speaker 1: minutes after the inflation report, So let's start that. Your

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Speaker 1: response to that CPI print we've got a little bit earlier.

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Speaker 1: It's about as expected. Uh, inflation is normalizing, but it's

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Speaker 1: coming down slowly, and uh, you know, I just think

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Speaker 1: there's gonna be a lot more inertia, a lot more

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Speaker 1: persistence to an inflation then maybe we'd all want part

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Speaker 1: of that is still COVID factors, access money in people's pockets,

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Speaker 1: um uh, supply chain issues in places like cabinets and

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Speaker 1: switch here's part of his business factors. There are businesses

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Speaker 1: out there is still trying to recover lost margin. But

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Speaker 1: I think the biggest thing is that after the experience

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Speaker 1: of the last couple of years, UM businesses have now

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Speaker 1: understood that pricing is a lover again. And as I

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Speaker 1: talked to the folks in my district, I'm hearing people

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Speaker 1: still out there pushing chrice and trying to see to

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Speaker 1: try to test through the levels of an elasticity really

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Speaker 1: are so one thing we've heard from Fed officials, including

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Speaker 1: the chamit is that the disinflationary process has started. Is

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Speaker 1: that something you agree with? Do you see much evidence

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Speaker 1: of that? And where do you find the evidence? Well,

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Speaker 1: if you look at the twelve month numbers, you can

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Speaker 1: see they peaked several months ago and they're coming down steadily. UM.

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Speaker 1: But that's one part of the puzzle, is inflation coming down.

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Speaker 1: The other part is actually hitting our target and so

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Speaker 1: just it's going to take a while to get to there.

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Speaker 1: To the latest data that have come in, not just

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Speaker 1: today's CPI but the jobs report, etcetera. Cha change your

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Speaker 1: view of how far the Fed will have to go

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Speaker 1: beyond perhaps what was in the SEP for December uh,

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Speaker 1: And does it change your view of inflation dynamics? Well,

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Speaker 1: I try not to get to wound up in any

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Speaker 1: particular data read, particularly a January data read, large seasonality factors,

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Speaker 1: all that sort of stuff, um um. But I do

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Speaker 1: think what we are now in a position to do

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Speaker 1: is to react to multiple months of data as they

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Speaker 1: come in. We may or may not choose to take

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Speaker 1: rates up further if inflation continues to persist, but we'll

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Speaker 1: have to see what happens. Well. Based on what you're

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Speaker 1: seeing right now in terms of the path of inflation,

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Speaker 1: the dot plot said five point one in December. You

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Speaker 1: think that's enough. I think we'll see we're going to

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Speaker 1: get a pc at the end of the month, another

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Speaker 1: CPI before the next meeting, and then I think as

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Speaker 1: the meetings go on this year, we'll see what happens

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Speaker 1: to inflation. If inflation settles, maybe we don't go quite

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Speaker 1: as far. But if inflation persists at levels well above

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Speaker 1: our our target, maybe we'll have to do more. Do

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Speaker 1: you think that maybe you and the markets are on

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Speaker 1: a different timeframe. You're going meeting to meeting, and they're

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Speaker 1: looking out towards the end of three saying you should

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Speaker 1: be cutting rates by then. I'm not sure I understand markets.

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Speaker 1: You guys are much better than that than I am. UM.

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Speaker 1: I'm very focused on what's happening in the demanding the economy.

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Speaker 1: I'm very focused on what's happening to inflation, and I think, Uh,

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Speaker 1: the way to think about my view on on rates

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Speaker 1: is we're inflation to persists. We might have to do more.

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Speaker 1: If inflation doesn't persist, maybe not. How to financial conditions

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Speaker 1: thanked there into that code, into that view? How do

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Speaker 1: you think about financial conditions? Well, there's lots of definitions

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Speaker 1: of financial UM. I think that as we raise rates, UM,

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Speaker 1: the market and all markets, you know, sort of respond

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Speaker 1: to how we're doing any thing in the path that

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Speaker 1: we forecast. UM. There are people who are out there

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Speaker 1: saying financial conditions are back where they were a year ago,

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Speaker 1: and I say, I don't know. It looks like rates

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Speaker 1: are higher than they are a year ago. Certainly if

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Speaker 1: you're trying to get a mortgage, that's what you think.

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Speaker 1: And so UM, the financial markets make their forecasts and

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Speaker 1: you know, lending conditions, whatever work off of that. UM

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Speaker 1: I think you can try to manage it. But I'm

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Speaker 1: in the world of trying to define your response function,

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Speaker 1: try to live to your response function, and I think

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Speaker 1: markets will catch up to what you're doing if we

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Speaker 1: can dig a little bit deeper. We've had a decent

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Speaker 1: equity market running here today. Credit sprints I think something

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Speaker 1: like two dred basis points tighter than the whites of

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Speaker 1: of last year. Do you see that as complicating your

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Speaker 1: ability to tighten financial conditions and bring inflation back towards target?

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Speaker 1: Is it something that's on your mind a lot. I

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Speaker 1: think trying to manage markets, at least for me, as

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Speaker 1: a full's errand and so I'm in the world of

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Speaker 1: trying to manage what we can control. If demand stays hot,

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Speaker 1: if inflation comes and elevated, have rates move more. There

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Speaker 1: are lots of other scenarios of what happens to the economy,

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Speaker 1: and we'll respond to those well. One of the questions

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Speaker 1: that people are asking is does it make it harder?

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Speaker 1: Does it is the market pushing back against you? And

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Speaker 1: do you see inflation shouldn't maybe stickier because of that? Uh.

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Speaker 1: And is it a question of you have to raise

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Speaker 1: rates higher or leave them in place longer and wait

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Speaker 1: for the cumulative weight of tightening to hit. Well, I

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Speaker 1: think there's a very good case for leaving rates higher

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Speaker 1: for a longer period of time to allow that tightening

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Speaker 1: to hit. I do think the lesson of the seventies

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Speaker 1: was very clear, which is, don't give up too early.

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Speaker 1: And anything I've read, and I've talked to lots of

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Speaker 1: other people who seem to have understood that market, they say,

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Speaker 1: you know, if you go back to the Arthur Burns years,

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Speaker 1: it was raise rates, economy weekends, lower rates, inflation comes

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Speaker 1: back stronger, raise rates, economy weakens more. Lower rates. That

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Speaker 1: doesn't seem like a path that makes a lot of sense.

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Speaker 1: Does history way on you when you refer back to

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Speaker 1: the seventies? Do you really feel the weight of that.

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Speaker 1: I've done a lot of reading about it, and I think,

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Speaker 1: for better for worse, we've got a really good episode

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Speaker 1: where our predecessors did the right thing and got inflation

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Speaker 1: back under control. And I think that's certainly an aspiration

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Speaker 1: for for me and for us. You understand the view

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Speaker 1: of market participants that and they hear things like the

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Speaker 1: disinflationary process has started. They get the sense that we're

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Speaker 1: moving away from that language that we want to learn

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Speaker 1: from the lesson of the nineteen seventies, we want to

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Speaker 1: be tighter for longer. They see that as new information.

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Speaker 1: The first step, and you'll hate this word, the first

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Speaker 1: step towards a so called pivot. Why isn't it that,

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Speaker 1: Why isn't this a pivot? The first step towards what

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Speaker 1: by acknowledging the disinflationary process has started? For some people,

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Speaker 1: market participants that speak to us on a daily basis,

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Speaker 1: they view that shift in language as a step away

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Speaker 1: from the chairman power address we got in Jackson Hall, Wyoming,

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Speaker 1: which was eight minutes down the camera, super blunt. That's

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Speaker 1: going to be pain It's going to be painful, but

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Speaker 1: if we don't do this, it's going to be even

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Speaker 1: more painful. Four or five months later, with an ECOD,

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Speaker 1: the market rallying between and a bit of deceleration in

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Speaker 1: inflation data, it's now the disinflationary process has started, and

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Speaker 1: that's the focal point for so many people. Why isn't

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Speaker 1: that the first step towards a pivot that says, okay,

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Speaker 1: we can back away. Should I just try to keep

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Speaker 1: it simple for myself, which is, Um, nobody really knows

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Speaker 1: how inflation is gonna play out over the next year,

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Speaker 1: over the next two years, and so I think what

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Speaker 1: I can do is talk about how I think about it.

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Speaker 1: The way I think about it is inflation stays elevated.

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Speaker 1: If it persists, we'll have to do more. Well. Your

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Speaker 1: struggle with what the markets are thinking, But you're probably

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Speaker 1: very good on what companies are thinking, because of course

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Speaker 1: that's your background and you talk to CEOs all the time.

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Speaker 1: What are companies thinking? You mentioned that some are still

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Speaker 1: pushing the envelope on prices, but what's their outlook for

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Speaker 1: growth and particularly employment and wages over the next six

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Speaker 1: to nine months. So the way the way I put

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Speaker 1: it is, everybody's got a recession playbook. It's in the drawer. Um,

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Speaker 1: they've taken it out, they've dusted it off, they've updated it. Right,

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Speaker 1: they have a very clear sense of if things were

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Speaker 1: to turn south, what they do. For the most part,

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Speaker 1: they haven't turned the pages of the playbook. And the

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Speaker 1: reason they haven't turned the pages is that their business

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Speaker 1: actually remains pretty sound. Now that's not true if you're

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Speaker 1: in mortgage lending. That's not true obviously recently in the

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Speaker 1: tech but in most of the businesses I talked to,

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Speaker 1: it's still not the point where they pull that. And

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Speaker 1: part of it is they've really fought hard for eighteen

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Speaker 1: months to get workers, and they're really reluctant to shed

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Speaker 1: workers if it turns out that they didn't need to.

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Speaker 1: And so I think there's still a reluctance. And when

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Speaker 1: you see things like the recent jobs report or some

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Speaker 1: of the consumer spending data we've seen for January, you

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Speaker 1: start to see that in the businesses actual demands that

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Speaker 1: and they're just saying, we're not there yet. But of

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Speaker 1: course we all know it. The world could turn and

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Speaker 1: they could get there. I just don't think they're there yet. Well,

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Speaker 1: that brings up an important question about your reaction function.

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Speaker 1: When you're predicting that unemployment is going to rise significantly

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Speaker 1: because you're trying to clamp down on demand and it

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Speaker 1: doesn't happen, how do you incorporate that into your thinking

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Speaker 1: about where you are. Well, I think we've taken rates

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Speaker 1: to where we've taken and we've signaled, or at least

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Speaker 1: i've signaled that if inflation persists, I'll continue to respond appropriately. UM,

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Speaker 1: you do know that they're long and variable lags with rates,

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Speaker 1: and so you're watching the demand side, not because the

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Speaker 1: objective is to manage demand, but because the objective is

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Speaker 1: to manage inflation, and so you're looking for signals that

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Speaker 1: inflation comes down. You're looking for signals that demand is weakening,

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Speaker 1: softening in places where that would be relevant to inflation

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Speaker 1: coming down, and you play it out. Can you explain

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Speaker 1: longer variable leans to us? Because some people have come

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Speaker 1: on in the last twelve months and they've said to Mike,

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Speaker 1: that sets myself to Lesa, it's on on Bloomberg TV

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Speaker 1: and radio, and said, they're not that long at till

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Speaker 1: they're pretty sure financial conditions will price it all in

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Speaker 1: immediately they're tightened and you'll feel it pretty quickly. Are

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Speaker 1: they that long? Are they that variable? You didn't like

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Speaker 1: financial conditions a second ago, and so we'll work on that. UM.

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Speaker 1: I do think we've seen in a number of sectors,

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Speaker 1: particularly interest sensitive sectors, particularly sectors with the strength of

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Speaker 1: the dollar matters, you've seen demand moved very very quickly

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Speaker 1: and well before we started increasing rates. Mortgage rates increased

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Speaker 1: and that of course meant the lag in that sector

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Speaker 1: was less than the world we used to hide what

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Speaker 1: we're doing. On the other hand, if you go in

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Speaker 1: lots of other places, think health care for a second,

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Speaker 1: a big part of the economy, it's not at all

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Speaker 1: clear that the rate stuff we've done or doing is

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Speaker 1: having that much impact on demand there. I think that's

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Speaker 1: where it takes more time, and the studies I've seen

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Speaker 1: suggests that there's a period of time to go from

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Speaker 1: raising rates to the impact on demand. But I think

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Speaker 1: the real issue here is from impact on demand in

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Speaker 1: cract on inflation, and that's really when you talk about

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Speaker 1: the long and variables to inflation. And then I get

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Speaker 1: back to where I started, and I would just say,

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Speaker 1: you know, there's the sales department, the finance department. The

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Speaker 1: finance department loves raising prices because you know, it's the

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Speaker 1: fastest way to move the bottom line. The sales department

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Speaker 1: historically has been very nervous about doing it, either because

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Speaker 1: of incentives or market share or whatever. After the experience

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Speaker 1: of the last couple of years, the finance department has

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Speaker 1: a lot more sway in that conversation than they used to.

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Speaker 1: So how would you characterize the balance of risk at

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Speaker 1: the moment with all of that in mind, that it's

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Speaker 1: tremendously difficult. It's confront as a policymaker. Chapman Pal said

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Speaker 1: repeatedly a few times last year that the risk of

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Speaker 1: doing two little outweight the risk of doing so much.

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Speaker 1: Is that still the case? It is for me? I mean,

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Speaker 1: we're still in a three point four percent unemployment economy

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Speaker 1: with inflation depending on which measure you want to look at,

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Speaker 1: well over our target five six six on a twelve

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Speaker 1: month basis. Um, feels to me like the risk is

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Speaker 1: on the inflation side at this point rather than the

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Speaker 1: economy side. We are talking with Richmond Fed President Tom

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Speaker 1: Barkatt at Bloomberg Television and Radio. Thank you to all

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Speaker 1: of our viewers and listeners around the world. Uh, what

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Speaker 1: is your view in terms of the growth outlook at

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Speaker 1: this point? It seems like we went through a phase

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Speaker 1: of recessions inevitable then we're gonna have a soft landing.

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Speaker 1: You have people saying no landing. Where do you come

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Speaker 1: down on all of them? Um? You know, I keep

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Speaker 1: trying to look at past recessions or past economic down

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Speaker 1: you know, tightening cycles and ask the question of which

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Speaker 1: this is most like. And of course the ones that

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Speaker 1: are most recent in our memory are all recessions. Were

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Speaker 1: something winged in from left field, whether that be nine

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Speaker 1: eleven or the financial crisis or the pandemic UM. And

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Speaker 1: so I think we may be looking at it economy

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Speaker 1: more like the one that I remember back in the

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Speaker 1: early nineties, where there was a tightening cycle UM and

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Speaker 1: different sectors got hit one at a time. It seemed

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Speaker 1: like much more of a rolling situation. And so the

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Speaker 1: overall numbers perhaps aren't going to be as UH. Again,

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Speaker 1: I'm assuming nothing comes in from left field, but aren't

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Speaker 1: going to be as bad as the ones we remember

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Speaker 1: them from two years ago or fifteen years ago. But

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Speaker 1: we'll see. Well, when you sit down on March two

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Speaker 1: with your new UH projections for the economy, are you

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Speaker 1: marking up growth? Are you marking down growth? What do

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Speaker 1: you think is going to have I've got a month before.

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Speaker 1: I hate to make those projections, and I'm teasing, but

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Speaker 1: I'm quite serious about it. We we have a real

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Speaker 1: serious process. We run multiple models on this, We've taken

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Speaker 1: all the more most recent data. We will get another

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Speaker 1: jobs report, one perhaps with less seasonality impact, We'll get

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Speaker 1: another PC and a CPI, and so I wouldn't want

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Speaker 1: to front run our team and our models on that.

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Speaker 1: For just in terms of risks around the few already

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Speaker 1: projective from December, upside risk for growth, for inflation, for

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Speaker 1: the terminal rate. How are you thinking about things currently? Well,

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Speaker 1: the biggest surprise has been the jobs market. I mean

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Speaker 1: the jobs report we got a couple of weeks ago

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Speaker 1: was quite significant and much stronger than what I had anticipated.

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Speaker 1: And so the question of my mind is going to be,

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Speaker 1: are we gonna get another one like that in February

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Speaker 1: or we're gonna get something in February that revises, corrects,

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Speaker 1: moves it down. So I think that's that's really the

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Speaker 1: key thing I'm looking at. In terms of growth. It's

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Speaker 1: been surprising for all of us to see unemployment come lower.

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Speaker 1: There was a take, I think last year, even I

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Speaker 1: talk about it all the time, this is the Fed's job.

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Speaker 1: They need to get unemployment up to get inflation down.

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Speaker 1: And it sounded ugly, it was brutal. It's difficult to

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Speaker 1: communicate as a policymaker. Do you still see it that way?

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Speaker 1: Do you need to get an employment up to get

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Speaker 1: inflation down. I see, we need to get inflation down

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Speaker 1: to get inflation down. And what I mean by that is, um.

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Speaker 1: You know, our tools work on demand, they work on

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Speaker 1: lots of various things, but the key to this whole

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Speaker 1: thing is getting inflation down. I don't start with unemployment.

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Speaker 1: I start with inflation. And we'll see what happens on

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Speaker 1: the employment market. We're still at three point four percent unemployment.

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Speaker 1: That's a historically low number. You're talking nineteen sixty nine

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Speaker 1: and before that, nineteen fifty one, and so um. You know,

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Speaker 1: there's been a lot of talk about the jobs market

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Speaker 1: so far quite strong. We'll see what happens. Are people

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Speaker 1: in the companies in the Richmond district telling you that

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Speaker 1: they are still having trouble finding people or as that eased, Um,

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Speaker 1: it's not as desperate as it was a year ago

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Speaker 1: or a year and a third ago. But it's still

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Speaker 1: very tight um on the professionals, though I think that

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Speaker 1: has kind of loosened. Some of the layoff announcements recently

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Speaker 1: have sort of hit home. People trying to hire tech

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Speaker 1: workers are having an easier time doing it. UM for

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Speaker 1: the frontline service workers, still very tight UM, but people

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Speaker 1: are getting by, whether it's lower service levels or not

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Speaker 1: cleaning the hotel room every day. The place it's still

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Speaker 1: screaming tight is skilled trades, construction, nurses, truck drivers. We

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Speaker 1: just don't have as many as we need. Demand in

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Speaker 1: a lot of those places remains elevated, and folks are

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Speaker 1: really struggling to find those those folks. That's really where

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Speaker 1: it's the titus. Let me actually about the balance sheet.

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Speaker 1: It's been running in the background, it's been paint drying,

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Speaker 1: but there have been concerns expressed in the short term

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Speaker 1: money markets, and we're still seeing a lot of money

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Speaker 1: put back into the REPO facility. Is it working the

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Speaker 1: way you want it to? Are you getting the results

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Speaker 1: that you want or is this also a case where

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Speaker 1: the markets are not reflecting necessarily what you're trying to

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Speaker 1: accomplish with QT. I think UH we did a bunch

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Speaker 1: of actions we thought important at the time in terms

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Speaker 1: of UH simulus and you know, supporting the markets back in.

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Speaker 1: We're now trying to unwind that. I think our primary

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Speaker 1: tool is the rate tool, it's not the balance sheet tool.

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Speaker 1: The objective is to unwind the balance sheet UH expansion

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Speaker 1: that we did and do it in a way that

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Speaker 1: doesn't change any focus on our primary tool, which is

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Speaker 1: the rate tool. You guys still seem to be focused

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Speaker 1: on the rate tool, so I think, so far, so good.

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Speaker 1: We're focused on the balance sheet too. So let's not

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Speaker 1: that I'm sure you please that faith. We see it

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Speaker 1: as plaint trying, but it's not. It wasn't just an

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Speaker 1: objective to get the balance sheet up. You were looking

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Speaker 1: for a consequence from doing that. You said the objective

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Speaker 1: was to get the balance sheet down. You're not expecting

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Speaker 1: to be a consequence there. I mean, first of all,

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Speaker 1: the analysis of the impact of balance sheet movements is

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Speaker 1: unbelievably difficult, arcane, opaque, and tortured, and so I've really

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Speaker 1: struggled as i've kind of come into this to come

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Speaker 1: to ground to it. Where I've landed is it's got

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Speaker 1: to be symmetric. If you believe that a ain't the

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Speaker 1: balance sheet does something, then you got to believe that

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Speaker 1: drinking the ballot sheet does something else. So I've got

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Speaker 1: no question about that. I do believe that on both

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Speaker 1: the expansion side and the reduction side, it's a lot

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Speaker 1: smaller than some of the estimates you'll see, um and

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Speaker 1: you know people talk about the uh, the impact of

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Speaker 1: buying more bonds, there's also a signaling effect when you're

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Speaker 1: buying UM. I think the signal effect may actually outweigh

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Speaker 1: the impact of buying the bonds um signal effect in

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Speaker 1: terms of when you would finally raise rates or whatever.

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Speaker 1: When you're shrinking the balance sheet, there's a shrinkage effect,

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Speaker 1: and then there's a signaling effect. The shrinking effect, of course,

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Speaker 1: I would say, is parallel to the expansion. And then

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Speaker 1: the question is what is the signaling. The signaling tends

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Speaker 1: to be around liquidity. That's the conversation that gets raised.

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Speaker 1: I just would come back and say, UM, compared today's

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Speaker 1: balance sheet to or nineteen's balance sheet, it's still so

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Speaker 1: much larger that I have trouble seeing that liquid is

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Speaker 1: actually being driven by what we're doing right now. Back

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Speaker 1: at home, What worries the people of the Richmond district.

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Speaker 1: I mean, we have the idea of a possibility of recession.

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Speaker 1: We've got what's going on with energy prices because we

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Speaker 1: don't know what's happening in Ukraine. There's this whole idea

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Speaker 1: of the debt limit leading to a default. How much

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Speaker 1: are people in your area focused on those things. Uh.

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Speaker 1: The what I hear over and over and over again

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Speaker 1: is that people hate inflation. Um, And that's what they're

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Speaker 1: focused on. I mean, people hate inflation because it seems unfair.

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Speaker 1: I mean you you you get a raise and then

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Speaker 1: you spend the money you just got at the gas pump.

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Speaker 1: It feels whichrarely taken away, creates uncertainty, um, and it's

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Speaker 1: it's just exhausting. Uh. You know, it's exhausting to shop

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Speaker 1: around for better prices, is exhausting to defend your prices

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Speaker 1: to a to a customer. And so people are really

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Speaker 1: excited about the pro the prospect that we might get

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Speaker 1: inflation under control. But you don't have to look much

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Speaker 1: beyond the sentiment and disease to see what people think

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Speaker 1: about inflation. And that still is the overwhelming conversation we're having.

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Speaker 1: I have to ask you this, Uh, it appears that

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Speaker 1: at the Federal Reserve, you're going to be in the

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Speaker 1: market for a new vice chairman, uh laale Braider. What

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Speaker 1: does she bring to the FED and to the Open

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Speaker 1: Market Committee? How would you characterize her tenure? Well, I

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Speaker 1: don't know what will or won't happen, and from the administration.

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Speaker 1: But Lales an asset. I mean, she's very smart, she's

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Speaker 1: very capable, and she's an asset to us, and if

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Speaker 1: she does something else, I'm sure she'll be an asset there.

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Speaker 1: She's been seen as one of the doves on the board.

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Speaker 1: Is there such a thing and was she? We have

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Speaker 1: nineteen really really capable people in the committee, and I

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Speaker 1: listened to every one of them, um, because they're every

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Speaker 1: one of them brings a unique view and as we've

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Speaker 1: learned in the UM you know, last few years, people's

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Speaker 1: views changes the data comes in and so you know,

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Speaker 1: I've got colleagues that you might think are doves who

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Speaker 1: might go to the other I mean, I think so.

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Speaker 1: It's I think people take the job very seriously and

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Speaker 1: they're very genuinely interested in landing the plane on whatever

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Speaker 1: is actually the situation in the moment, as opposed to

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Speaker 1: i'll call it a pre existing leaning. There's really any descent?

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Speaker 1: Why is that? Um? You mean descents or descent singular?

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Speaker 1: Because UM, I have the privilege of sitting in the meeting,

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Speaker 1: and there's lots of points of view, uh that are phrased,

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Speaker 1: so I wouldn't be confused about the idea that there

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Speaker 1: are a lot of different points of view, more clamority

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Speaker 1: on that, because from the outside looking in sometimes it

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Speaker 1: feels like group thick. There are people that come out,

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Speaker 1: Let's say, I disagree with the decision, and this is

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Speaker 1: why it's incredibly rat particularly from the board. How much

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Speaker 1: of that is actually taking place inside the building around

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Speaker 1: these decisions that we're just not aware of. Why isn't

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Speaker 1: this group think? Well, Um, I spend my time every

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Speaker 1: six weeks seven weeks for meetings. I go into the market.

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Speaker 1: I don't spend a lot of time in my building.

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Speaker 1: I'm trying to figure out as best I can what's

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Speaker 1: happening in the economy from people who are participating in it. Um.

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Speaker 1: I try to come up with my own points of

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Speaker 1: view in terms of, you know, what's happening to economic

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Speaker 1: conditions and where we ought to go with policy, And

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Speaker 1: I show up with my points of view, and then

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Speaker 1: every time I go there, I learned something, and I

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Speaker 1: learned from people who are doing the exact same thing

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Speaker 1: with their own independent views. I think the structure of

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Speaker 1: the system is very well set up to gather independent views,

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Speaker 1: and then of course the meetings are very well Uh.

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Speaker 1: Lad an effort to put those on the table and

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Speaker 1: try to to land on a place where you know

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Speaker 1: you can get some version of consensus. One of the

428
00:20:46,440 --> 00:20:49,159
Speaker 1: things people have been critical of is uh that there

429
00:20:49,200 --> 00:20:52,240
Speaker 1: are nineteen members of the Open Market Committee who are

430
00:20:52,280 --> 00:20:55,560
Speaker 1: speaking all the time and it can be confusing through

431
00:20:55,840 --> 00:20:58,680
Speaker 1: markets and to the public. Do you see that as

432
00:20:58,720 --> 00:21:03,560
Speaker 1: a valid critique? Well, Um, I'm privileged to be here,

433
00:21:03,600 --> 00:21:12,360
Speaker 1: so I guess if I say no, then I'm exactly Um.

434
00:21:12,840 --> 00:21:15,160
Speaker 1: I see a huge part of my job as trying

435
00:21:15,200 --> 00:21:19,000
Speaker 1: to translate what we do into the district that I serve,

436
00:21:19,560 --> 00:21:21,600
Speaker 1: and so um, like I said, I really am on

437
00:21:21,640 --> 00:21:24,160
Speaker 1: the ground all the time. I'm doing chambers of commerces

438
00:21:24,160 --> 00:21:26,919
Speaker 1: and small cities, and I think there's a real thirst

439
00:21:27,040 --> 00:21:31,199
Speaker 1: for understanding, and I think there's real value to the

440
00:21:31,200 --> 00:21:34,680
Speaker 1: people in our community hearing from an understanding people who

441
00:21:34,680 --> 00:21:39,200
Speaker 1: they think are actually rational, not you know, people from Washington,

442
00:21:39,240 --> 00:21:41,000
Speaker 1: if I could put it that way. And so I

443
00:21:41,000 --> 00:21:43,119
Speaker 1: think there's huge value in that. You guys choose to

444
00:21:43,160 --> 00:21:45,080
Speaker 1: cover it. I'll leave it to you whether that's the

445
00:21:45,160 --> 00:21:46,840
Speaker 1: right thing to do or not. But but I don't

446
00:21:46,880 --> 00:21:48,760
Speaker 1: see it as getting out the mess is actually talking

447
00:21:48,800 --> 00:21:51,600
Speaker 1: to the constituents in my district. Just one final question,

448
00:21:51,640 --> 00:21:53,440
Speaker 1: and you've been incredibly rightious with your time, so thank

449
00:21:53,440 --> 00:21:56,440
Speaker 1: you for that song. It's the third year of pandemic economics,

450
00:21:56,960 --> 00:21:59,520
Speaker 1: China's reopening. I feel like the consensus has been dead

451
00:21:59,520 --> 00:22:02,680
Speaker 1: wrong every single year on every major risk. As we

452
00:22:02,720 --> 00:22:04,440
Speaker 1: go into the third year rule of that, of all

453
00:22:04,480 --> 00:22:07,040
Speaker 1: of this, how are you thinking about that challenge as

454
00:22:07,080 --> 00:22:09,879
Speaker 1: a policy maker? Is there something you're hesitant on drawing

455
00:22:09,920 --> 00:22:14,439
Speaker 1: too many conclusions on two prematurely right? I think we're normalizing,

456
00:22:14,480 --> 00:22:17,720
Speaker 1: but you can't ignore the impact of the pandemic. That

457
00:22:18,040 --> 00:22:20,000
Speaker 1: the pandemic is still having in the economy. Some of

458
00:22:20,000 --> 00:22:22,320
Speaker 1: the things we've talked about. Business is reluctant to shed

459
00:22:22,320 --> 00:22:25,679
Speaker 1: workers because of the history. Shortages and switch gears and

460
00:22:25,760 --> 00:22:29,040
Speaker 1: cabinets A trillion plus and excess savings still out there,

461
00:22:29,160 --> 00:22:32,480
Speaker 1: the infrastructure bill still being deployed. All of these things

462
00:22:32,520 --> 00:22:35,000
Speaker 1: are if I could call it, um, you know, not

463
00:22:35,160 --> 00:22:38,359
Speaker 1: normal artificial things that are in the economy today that um,

464
00:22:38,400 --> 00:22:40,719
Speaker 1: we're in the economy three years ago. Now for me

465
00:22:40,840 --> 00:22:42,840
Speaker 1: or for us, you have to take it as a given,

466
00:22:43,000 --> 00:22:45,000
Speaker 1: and so you try to make policy against the economy

467
00:22:45,040 --> 00:22:47,640
Speaker 1: you've got not the economy, and you wish you had UM,

468
00:22:47,680 --> 00:22:49,639
Speaker 1: but but I think for sure you've still got that

469
00:22:49,680 --> 00:22:52,439
Speaker 1: in the economy. Thank you. You can do as much

470
00:22:52,520 --> 00:22:54,400
Speaker 1: for speak as you like, just so long as it's

471
00:22:54,440 --> 00:22:58,600
Speaker 1: like you know, like every weekday day. I appreciate the time.

472
00:22:58,640 --> 00:23:10,800
Speaker 1: Thanks for having Thank you. Thank you. Stephen Stanley joins

473
00:23:10,840 --> 00:23:16,000
Speaker 1: US now chief you as economiscendender US Capital Marcus Steve Stanley,

474
00:23:16,040 --> 00:23:18,359
Speaker 1: thank you for joining us with a brief here. You

475
00:23:18,440 --> 00:23:21,000
Speaker 1: and I remember the idiocy where the world would stop

476
00:23:21,160 --> 00:23:23,080
Speaker 1: M one, M two, M three. I think it was

477
00:23:23,160 --> 00:23:27,240
Speaker 1: Thursday afternoon, long ago and far away. How silly are

478
00:23:27,280 --> 00:23:32,960
Speaker 1: we being right now here eleven minutes twenty eight seconds away. Well,

479
00:23:33,040 --> 00:23:35,159
Speaker 1: I do think there's a lot of seasonal noise in

480
00:23:35,200 --> 00:23:38,199
Speaker 1: the data. We saw it with the January employment report.

481
00:23:38,240 --> 00:23:40,159
Speaker 1: I think we'll see it again tomorrow with the retail

482
00:23:40,200 --> 00:23:42,960
Speaker 1: sales numbers and to some degree with the c p I.

483
00:23:43,119 --> 00:23:46,120
Speaker 1: And you had three very low readings to end last year,

484
00:23:46,160 --> 00:23:50,440
Speaker 1: and everyone got really excited about inflation is under control UM.

485
00:23:50,480 --> 00:23:53,840
Speaker 1: And then last Friday we got new seasonal adjustment. UH.

486
00:23:54,240 --> 00:23:57,320
Speaker 1: They ran this seasonal adjustment program again and they revised

487
00:23:57,400 --> 00:24:00,320
Speaker 1: up October, November, and December for the course. So all

488
00:24:00,359 --> 00:24:02,880
Speaker 1: of a sudden, that downward momentum and inflation is kind

489
00:24:02,880 --> 00:24:04,960
Speaker 1: of dissipated, and I think we're going to see more

490
00:24:05,000 --> 00:24:06,879
Speaker 1: of that, more of that today. I'm I'm looking for

491
00:24:07,119 --> 00:24:09,760
Speaker 1: a point for reading on the core with maybe some

492
00:24:09,880 --> 00:24:13,000
Speaker 1: upside risk to that. Stephen, this conversation about super cool,

493
00:24:13,080 --> 00:24:14,359
Speaker 1: can you just shine a light on some of the

494
00:24:14,359 --> 00:24:16,560
Speaker 1: conversations you have with clients at the moment? Are they

495
00:24:16,600 --> 00:24:18,920
Speaker 1: asking about that a lot to the expect an estimate

496
00:24:19,000 --> 00:24:22,640
Speaker 1: from you? What do you say? Yeah, people are definitely

497
00:24:22,640 --> 00:24:24,960
Speaker 1: starting to try to focus on that. I think you know,

498
00:24:25,000 --> 00:24:28,399
Speaker 1: the key here really is the is this housing piece.

499
00:24:28,440 --> 00:24:31,600
Speaker 1: I mean, we're taking that out. Um, it's over of

500
00:24:31,640 --> 00:24:33,840
Speaker 1: the core. So you know, when you take that out,

501
00:24:33,840 --> 00:24:37,080
Speaker 1: you're taking out a pretty big chunk. But the presumption

502
00:24:37,240 --> 00:24:41,080
Speaker 1: is that that housing expenses are going up fast right now,

503
00:24:41,119 --> 00:24:43,160
Speaker 1: but they're gonna come off later in the year because

504
00:24:43,160 --> 00:24:45,919
Speaker 1: of the lags involved. We know that the housing market

505
00:24:45,960 --> 00:24:48,399
Speaker 1: has is cool off, and so people are wanting to

506
00:24:48,400 --> 00:24:52,000
Speaker 1: focus on, you know, on the other pieces in the core.

507
00:24:52,080 --> 00:24:56,840
Speaker 1: But the broad point is that services prices tend to

508
00:24:56,840 --> 00:24:59,640
Speaker 1: be very sticky and they've accelerated, and I think it's

509
00:24:59,680 --> 00:25:01,679
Speaker 1: just going to take quite a bit of time for

510
00:25:01,720 --> 00:25:04,639
Speaker 1: them to come back off with all of these seasonal adjustments. Steven,

511
00:25:04,680 --> 00:25:07,680
Speaker 1: And as we watch some of the upward revisions even

512
00:25:07,880 --> 00:25:11,640
Speaker 1: on the prior month's CPI that's heading into this current report,

513
00:25:11,960 --> 00:25:14,080
Speaker 1: are we going to look back and say there wasn't

514
00:25:14,119 --> 00:25:16,360
Speaker 1: that much disinflation at this point, that that was sort

515
00:25:16,400 --> 00:25:19,360
Speaker 1: of a head fake at a time when services still

516
00:25:19,400 --> 00:25:22,600
Speaker 1: were re accelerating. Yeah, well, if you look at what

517
00:25:22,720 --> 00:25:26,560
Speaker 1: happened late last year, it was just a handful of

518
00:25:26,720 --> 00:25:30,000
Speaker 1: very volatile categories that were pushing things down. I mean,

519
00:25:30,040 --> 00:25:33,000
Speaker 1: gasoline was the most obvious one, but used car prices

520
00:25:33,040 --> 00:25:36,680
Speaker 1: were falling rapidly. Airfares were falling rapidly, which was really

521
00:25:36,680 --> 00:25:39,040
Speaker 1: the same thing as as gasoline prices. It was the

522
00:25:39,480 --> 00:25:43,320
Speaker 1: you know, the reversal of the the big um spike

523
00:25:43,400 --> 00:25:45,679
Speaker 1: that we saw an energy costs after the Russian invasion

524
00:25:45,720 --> 00:25:49,159
Speaker 1: in Ukraine. So you could see at the time that

525
00:25:49,320 --> 00:25:52,919
Speaker 1: it was not sustainable, the the low core readings that

526
00:25:52,960 --> 00:25:55,119
Speaker 1: we were getting, the low headline readings that we were getting,

527
00:25:55,320 --> 00:25:57,840
Speaker 1: And I think now we're getting back to something more

528
00:25:57,880 --> 00:26:00,240
Speaker 1: in line with with where the fundamentals are all right.

529
00:26:00,280 --> 00:26:02,480
Speaker 1: So now we're gonna get a FED parade, uh, including

530
00:26:02,480 --> 00:26:06,080
Speaker 1: Tom Barkin joining John Farrell, Michael McKee coming up here.

531
00:26:06,400 --> 00:26:08,280
Speaker 1: What are they gonna say if this is a heart

532
00:26:08,320 --> 00:26:12,239
Speaker 1: of than expected print, Well, the FED has actually been

533
00:26:12,359 --> 00:26:15,719
Speaker 1: leaning against the market enthusiasm and saying, hey, look, this

534
00:26:15,800 --> 00:26:18,360
Speaker 1: is gonna be a tough task ahead of us. It's

535
00:26:18,359 --> 00:26:21,359
Speaker 1: gonna take quite a bit of time. So it's not

536
00:26:21,400 --> 00:26:23,320
Speaker 1: gonna be I told you so, but it's gonna be

537
00:26:23,560 --> 00:26:25,720
Speaker 1: I think, much more steady as she goes for the

538
00:26:25,720 --> 00:26:28,720
Speaker 1: FED than it had than it will be for the markets. Um.

539
00:26:28,760 --> 00:26:31,119
Speaker 1: It feels like to me that the FED has really

540
00:26:31,560 --> 00:26:33,800
Speaker 1: almost locked in a game plan here. They want to

541
00:26:33,840 --> 00:26:36,520
Speaker 1: get rates just abuff five percent, which probably means two

542
00:26:36,520 --> 00:26:38,919
Speaker 1: more quarter point hikes, and then they want to pause

543
00:26:39,119 --> 00:26:41,679
Speaker 1: and give it a few months and see what happens. Um.

544
00:26:41,760 --> 00:26:45,080
Speaker 1: And so I think the bar is probably relatively high

545
00:26:45,400 --> 00:26:48,440
Speaker 1: for divergence from that short term game plan on either side.

546
00:26:48,600 --> 00:26:52,160
Speaker 1: This is even to the breathlessness eight minutes six seconds away?

547
00:26:52,520 --> 00:26:56,480
Speaker 1: Is this idiocy? Excuse me, I editorializer, John, Please excuse me,

548
00:26:57,240 --> 00:27:01,639
Speaker 1: sir John, I'm sorry this s C. Mr Stanley of

549
00:27:01,720 --> 00:27:06,080
Speaker 1: now casting. The beloved geniuses at Cleveland who I adore

550
00:27:06,160 --> 00:27:09,399
Speaker 1: for their work on inflation for twenty in thirty years

551
00:27:09,520 --> 00:27:13,320
Speaker 1: even they have dived into the value of now casting.

552
00:27:13,440 --> 00:27:19,320
Speaker 1: Is there any statistical value to naval gazing now casting? Well,

553
00:27:19,359 --> 00:27:21,440
Speaker 1: you know, I guess we've all, you know, as economists,

554
00:27:21,440 --> 00:27:23,880
Speaker 1: we've all been doing that to a degree. I don't

555
00:27:23,880 --> 00:27:26,600
Speaker 1: like to advertise my number on a day to day basis,

556
00:27:26,680 --> 00:27:28,680
Speaker 1: but really, at the end of the day, the one

557
00:27:29,160 --> 00:27:31,800
Speaker 1: price that we all can track very closely on a

558
00:27:31,880 --> 00:27:34,600
Speaker 1: day to day basis is gasoline prices, and that is

559
00:27:35,000 --> 00:27:37,760
Speaker 1: responsible for a good part of the uh, the high

560
00:27:37,800 --> 00:27:41,040
Speaker 1: frequency noise in the data. Otherwise, I think, you know,

561
00:27:41,119 --> 00:27:43,520
Speaker 1: it's pretty tough. I mean, how do we know there's

562
00:27:43,560 --> 00:27:45,760
Speaker 1: gonna winther is gonna be an upside or downside surprise

563
00:27:45,840 --> 00:27:49,680
Speaker 1: for example, And shelter costs or recreation costs or medical care.

564
00:27:49,720 --> 00:27:51,480
Speaker 1: I mean, you know, we don't have a lot of

565
00:27:51,560 --> 00:27:53,960
Speaker 1: data on that. So, um, there's certain things that we

566
00:27:54,040 --> 00:27:56,560
Speaker 1: can track and others that we can't. Stephen, you've had

567
00:27:56,600 --> 00:28:00,240
Speaker 1: time to dive into a first look at this interesting day, Ada,

568
00:28:00,600 --> 00:28:06,040
Speaker 1: what's the adult take? So uh, it was largely as expected.

569
00:28:06,080 --> 00:28:08,240
Speaker 1: But I would say it could have been worse. Um,

570
00:28:08,680 --> 00:28:12,120
Speaker 1: we saw big decline and use car prices again, we

571
00:28:12,160 --> 00:28:15,520
Speaker 1: saw big decline and airfares again, those things are not

572
00:28:15,640 --> 00:28:19,560
Speaker 1: likely to continue for much longer. Medical care services prices

573
00:28:19,560 --> 00:28:23,520
Speaker 1: were down point seven. That's probably, you know, an exaggeration

574
00:28:23,640 --> 00:28:25,800
Speaker 1: of of what we're likely to see in that category.

575
00:28:25,920 --> 00:28:28,840
Speaker 1: So I mean, obviously there are upside surprises too, But

576
00:28:29,119 --> 00:28:31,600
Speaker 1: my point being that some of these volatile categories that

577
00:28:31,640 --> 00:28:37,000
Speaker 1: had been driving down the readings in late continued in

578
00:28:37,080 --> 00:28:39,680
Speaker 1: January and we still got a point four, which again

579
00:28:39,720 --> 00:28:42,040
Speaker 1: I think speaks to what we were discussing before that

580
00:28:42,160 --> 00:28:45,000
Speaker 1: as long as shelter costs are going up as rapidly

581
00:28:45,040 --> 00:28:47,560
Speaker 1: as they have been, um, it's gonna be tough to

582
00:28:47,600 --> 00:28:50,240
Speaker 1: get inflation down anywhere close to where the FED would

583
00:28:50,280 --> 00:28:52,560
Speaker 1: like to see it. This is absolutely critical. There's no

584
00:28:52,600 --> 00:28:55,200
Speaker 1: other way to put it here, folks. When we see

585
00:28:55,200 --> 00:28:58,400
Speaker 1: it from an equity strategist like Lisien Saunders, an economist

586
00:28:58,480 --> 00:29:03,840
Speaker 1: like Mr Stanley idea of housing is being overwhelming, How

587
00:29:04,040 --> 00:29:07,760
Speaker 1: overwhelming is It's give us a percentage of our lives

588
00:29:08,240 --> 00:29:11,200
Speaker 1: that are based off the set of housing data. You have,

589
00:29:12,240 --> 00:29:15,040
Speaker 1: sure well, the c P I I think maybe exaggerates

590
00:29:15,080 --> 00:29:17,440
Speaker 1: a little bit, but if you just combine rent and

591
00:29:17,520 --> 00:29:21,240
Speaker 1: owner's equivalent rent, that those two account for a little

592
00:29:21,240 --> 00:29:25,200
Speaker 1: over of course c p I. So when we talk about,

593
00:29:25,240 --> 00:29:27,600
Speaker 1: you know, the super core idea, I mean we're taking

594
00:29:27,600 --> 00:29:29,800
Speaker 1: out a big chunk of the numbers now that the

595
00:29:29,880 --> 00:29:33,120
Speaker 1: weights are a little bit smaller in the PC deflator,

596
00:29:33,160 --> 00:29:37,200
Speaker 1: which is the inflation indicator that FED most closely focuses on.

597
00:29:37,800 --> 00:29:41,520
Speaker 1: But yeah, I mean within the CPI housing is is

598
00:29:41,760 --> 00:29:44,680
Speaker 1: maybe the story we're gonna talk here with Steven Stanley

599
00:29:44,680 --> 00:29:47,200
Speaker 1: of Santantier. Michael McKee is digging into the data, and

600
00:29:47,200 --> 00:29:50,120
Speaker 1: we're thrilled to bring you Kenneth Rogoff of Harvard University

601
00:29:50,400 --> 00:29:53,280
Speaker 1: with this perspective here in a bit, we're commercial free

602
00:29:53,280 --> 00:29:55,040
Speaker 1: here to the top of the hour at least. Ye

603
00:29:55,120 --> 00:29:58,120
Speaker 1: as we watch the yo yo action in markets, which

604
00:29:58,160 --> 00:30:00,280
Speaker 1: really builds on what we've seen some kind of year,

605
00:30:00,560 --> 00:30:03,160
Speaker 1: I mean it's really it's like a child's toy. What's

606
00:30:03,200 --> 00:30:05,920
Speaker 1: going on right now in markets? And I am wondering, Steven,

607
00:30:05,960 --> 00:30:09,640
Speaker 1: whether you're looking at the inclination to rally, which is

608
00:30:09,640 --> 00:30:12,000
Speaker 1: something that we have seen so far this year, how

609
00:30:12,080 --> 00:30:14,160
Speaker 1: much of a challenge does that present to a federal

610
00:30:14,200 --> 00:30:18,400
Speaker 1: reserve on the margins is seeing seeing the disinflationary process

611
00:30:18,560 --> 00:30:22,360
Speaker 1: that is too slow for comfort? Yeah? Well, I think,

612
00:30:22,400 --> 00:30:24,240
Speaker 1: you know, the markets and the FED have not quite

613
00:30:24,280 --> 00:30:26,080
Speaker 1: been on the same page for a while now. The

614
00:30:26,120 --> 00:30:30,160
Speaker 1: markets have you know, embraced slower inflation late last year.

615
00:30:30,280 --> 00:30:34,200
Speaker 1: The markets want a quick pet FED pivot later this year,

616
00:30:34,440 --> 00:30:36,480
Speaker 1: and the FET has been trying to push back against

617
00:30:36,520 --> 00:30:39,480
Speaker 1: that to no avail. Um. I thought, you know, Jarren

618
00:30:39,520 --> 00:30:42,600
Speaker 1: Powe had a nice chance to really kind of um,

619
00:30:42,640 --> 00:30:45,920
Speaker 1: you know, push back at the FMC meeting when he

620
00:30:45,960 --> 00:30:48,680
Speaker 1: was asked about financial conditions, and he didn't. So I

621
00:30:48,680 --> 00:30:51,080
Speaker 1: think the FED has taken the tack of we'll let

622
00:30:51,080 --> 00:30:54,560
Speaker 1: the data, um, you know, determine how the markets react,

623
00:30:54,600 --> 00:30:56,800
Speaker 1: and we think the data are going to play out

624
00:30:56,800 --> 00:30:58,600
Speaker 1: in a way that will get things closer to where

625
00:30:58,600 --> 00:31:01,080
Speaker 1: we think they should be. Um. You know, it's always

626
00:31:01,120 --> 00:31:03,560
Speaker 1: a dangerous game when the FED tries to tries to

627
00:31:03,600 --> 00:31:06,600
Speaker 1: influence asset prices. It's a dangerous game when they try

628
00:31:06,640 --> 00:31:09,200
Speaker 1: to influence asset prices. And yet traditionally this was one

629
00:31:09,200 --> 00:31:12,760
Speaker 1: of their main transmission mechanisms of monetary policy. How much

630
00:31:12,800 --> 00:31:16,640
Speaker 1: do they get further away from their goal as financial conditions,

631
00:31:16,840 --> 00:31:20,080
Speaker 1: by most measures ease substantially to some of the lowest

632
00:31:20,160 --> 00:31:22,760
Speaker 1: levels going back some of the most accommodative levels, going

633
00:31:22,800 --> 00:31:26,720
Speaker 1: back to early Yeah, and there's no doubt. I mean,

634
00:31:26,880 --> 00:31:30,120
Speaker 1: as as the minute the market's sniff, you know that

635
00:31:30,200 --> 00:31:32,640
Speaker 1: the Fed might not have to go quite as much. Uh,

636
00:31:32,720 --> 00:31:35,360
Speaker 1: financial conditions ease so in in some ways it kind

637
00:31:35,360 --> 00:31:39,280
Speaker 1: of um, it's a self equilibrating process. But from the

638
00:31:39,320 --> 00:31:42,760
Speaker 1: Fed's perspective, the concern is that even if you get

639
00:31:43,080 --> 00:31:47,640
Speaker 1: somewhat weak real economic data, inflation might prove sticky or stubborn.

640
00:31:48,200 --> 00:31:51,000
Speaker 1: And that's the scenario that the market really hasn't been

641
00:31:51,040 --> 00:31:54,360
Speaker 1: willing to contemplate much. Steven Stanley, thank you so much

642
00:31:54,400 --> 00:32:01,600
Speaker 1: with Santanta this morning. This is a joy on a

643
00:32:01,720 --> 00:32:04,600
Speaker 1: on a busy inflation day to have Kenneth brokeoff with

644
00:32:04,640 --> 00:32:07,760
Speaker 1: us to say he's professor at Harvard University. His work

645
00:32:07,840 --> 00:32:11,400
Speaker 1: for the nation at the International Monetary Fund defies the

646
00:32:11,480 --> 00:32:14,400
Speaker 1: description of this time is different. A seminal book here

647
00:32:14,440 --> 00:32:17,760
Speaker 1: that is must read, must own, but far more his

648
00:32:17,920 --> 00:32:21,280
Speaker 1: courageous The Curse of Cash, which was on a number

649
00:32:21,520 --> 00:32:24,520
Speaker 1: of years ago on this Inflation day, on this day

650
00:32:24,520 --> 00:32:27,200
Speaker 1: where Lyle Brainerd will join the White House, there's things

651
00:32:27,240 --> 00:32:30,320
Speaker 1: to talk about, but we will talk about crypto here

652
00:32:30,560 --> 00:32:33,440
Speaker 1: in a moment with Professor Rogoff Kent. Thank you so

653
00:32:33,560 --> 00:32:36,320
Speaker 1: much for joining us this morning to be here. Uh.

654
00:32:36,320 --> 00:32:39,160
Speaker 1: There's some people making news on inflation. One of them

655
00:32:39,240 --> 00:32:41,040
Speaker 1: is a guy named Summers, who I think you've got

656
00:32:41,120 --> 00:32:45,520
Speaker 1: an in acquaintance with UT Cambridge. Is the character of

657
00:32:45,560 --> 00:32:51,600
Speaker 1: this inflation the shock disinflations pre Eisenhower forty seven and

658
00:32:51,680 --> 00:32:54,320
Speaker 1: through the fifties, Is it like the sixties and the

659
00:32:54,360 --> 00:32:58,800
Speaker 1: worry prevocer or is this a different inflation? Well, I

660
00:32:58,840 --> 00:33:03,840
Speaker 1: think the clearly is more alert than at an earlier time.

661
00:33:04,480 --> 00:33:07,719
Speaker 1: On the other hand, I think, as Lisa has been

662
00:33:07,760 --> 00:33:12,320
Speaker 1: saying and others, inflation still here. Uh, the economy is

663
00:33:12,400 --> 00:33:15,120
Speaker 1: still strong, and I think they have to decide how

664
00:33:15,160 --> 00:33:17,600
Speaker 1: to play it. And one thing I think people maybe

665
00:33:17,640 --> 00:33:21,720
Speaker 1: aren't paying enough attention to is that when inflation comes down,

666
00:33:22,120 --> 00:33:24,880
Speaker 1: don't be sure interest rates are going to come down

667
00:33:25,120 --> 00:33:29,920
Speaker 1: as much as people got used to before nineteen two

668
00:33:30,360 --> 00:33:33,120
Speaker 1: twenty two. I think the next decade we're going to

669
00:33:33,280 --> 00:33:37,280
Speaker 1: land at a higher real interest rate. Interest before. So

670
00:33:37,320 --> 00:33:40,120
Speaker 1: it's not just where that the fat doesn't just have

671
00:33:40,280 --> 00:33:43,040
Speaker 1: to figure out, you know, how much is inflation? They

672
00:33:43,040 --> 00:33:45,360
Speaker 1: have to figure out where do we put the interest

673
00:33:45,440 --> 00:33:48,400
Speaker 1: rate long term so that we don't have inflation. My

674
00:33:48,440 --> 00:33:51,560
Speaker 1: book of the summer's Olivia Blanchard's new monograph that's out.

675
00:33:51,600 --> 00:33:55,000
Speaker 1: There's just absolutely brilliant on something academic our minus g

676
00:33:55,160 --> 00:33:58,160
Speaker 1: to keep it simple as well. The heart of Professor

677
00:33:58,240 --> 00:34:02,440
Speaker 1: Blanchard's thesis is there's other things going on here we're

678
00:34:02,480 --> 00:34:05,640
Speaker 1: really not observing right now. It's just not as cookie

679
00:34:05,640 --> 00:34:09,120
Speaker 1: cutter is simple. Is all the simple analysis that goes

680
00:34:09,160 --> 00:34:13,279
Speaker 1: on day today. What's a thing going on here post pandemic?

681
00:34:13,960 --> 00:34:19,400
Speaker 1: The changes our financing, particularly as Olivier talks about changes

682
00:34:19,440 --> 00:34:23,640
Speaker 1: our debt analysis, Well, I think there are two things.

683
00:34:24,080 --> 00:34:27,480
Speaker 1: One is I think inflation adjusted interest rates are going

684
00:34:27,560 --> 00:34:30,880
Speaker 1: to land higher than Olivier does. I think if you

685
00:34:30,920 --> 00:34:35,279
Speaker 1: look at history, yes there's a slight downward trend in

686
00:34:35,560 --> 00:34:38,960
Speaker 1: the inflation adjusted interest rate, but it's very tiny compared

687
00:34:39,000 --> 00:34:41,839
Speaker 1: to how much it fell after the financial crisis. And

688
00:34:41,920 --> 00:34:44,839
Speaker 1: I think there's going to be more mean reversion than

689
00:34:44,920 --> 00:34:47,400
Speaker 1: perhaps he does, but who knows. I mean, that's a

690
00:34:47,480 --> 00:34:49,920
Speaker 1: lot of uncertainty. And I'd say a second point is

691
00:34:50,280 --> 00:34:52,200
Speaker 1: China is not going to be the same in the

692
00:34:52,239 --> 00:34:54,799
Speaker 1: next decade as they were in the last decade. Yeah,

693
00:34:55,040 --> 00:34:59,240
Speaker 1: they're rebounding off COVID lockdown, but I think that's also

694
00:34:59,360 --> 00:35:02,400
Speaker 1: really going to Those are two big changes and trends

695
00:35:02,960 --> 00:35:05,000
Speaker 1: that we're going to see after the pandemic that we

696
00:35:05,000 --> 00:35:07,680
Speaker 1: didn't have before. Why then, is it is it important

697
00:35:07,719 --> 00:35:10,759
Speaker 1: for there to be essentially tighter financial conditions for longer? Right,

698
00:35:10,760 --> 00:35:14,120
Speaker 1: because higher real interest rates imply it's not just an

699
00:35:14,160 --> 00:35:18,760
Speaker 1: inflation story. Well, we had lower financial conditions for longer

700
00:35:18,880 --> 00:35:20,920
Speaker 1: for a long time because people were scared after the

701
00:35:20,920 --> 00:35:24,479
Speaker 1: financial crisis. Saving was really high, investment was really low.

702
00:35:24,920 --> 00:35:27,480
Speaker 1: Now we've entered an era where debt has really gone

703
00:35:27,520 --> 00:35:30,360
Speaker 1: up quite a bit, private and public, which has leads

704
00:35:30,400 --> 00:35:34,160
Speaker 1: to some adjustment in the interest rate. Probably defense spending

705
00:35:34,239 --> 00:35:38,600
Speaker 1: is going to go up, Spending on green transition is

706
00:35:38,640 --> 00:35:42,680
Speaker 1: going to go up. More populous governments from Latin America

707
00:35:42,880 --> 00:35:45,080
Speaker 1: to the United States to Europe. So I here a

708
00:35:45,160 --> 00:35:48,480
Speaker 1: lot of factors that will lead to more of a normalization.

709
00:35:48,600 --> 00:35:50,760
Speaker 1: So people are listening to you and they're thinking to themselves,

710
00:35:50,840 --> 00:35:52,520
Speaker 1: is that good or bad for stocks? You know, ultimately

711
00:35:52,640 --> 00:35:55,839
Speaker 1: is this good or bad for the markets? Because that's

712
00:35:55,880 --> 00:35:58,080
Speaker 1: sort of how people have viewed all FED actions in

713
00:35:58,120 --> 00:36:01,280
Speaker 1: recent years. Basically, tighter financials have been bad for markets,

714
00:36:01,280 --> 00:36:05,200
Speaker 1: and yet an effective tightening has allowed markets to rally

715
00:36:05,280 --> 00:36:07,920
Speaker 1: that much more. Can you see that sort of sustained

716
00:36:08,320 --> 00:36:12,080
Speaker 1: momentum of financial markets even in the face of tighter

717
00:36:12,200 --> 00:36:16,120
Speaker 1: monetary conditions of higher real rates, So higher reil rates

718
00:36:16,200 --> 00:36:20,640
Speaker 1: will mean lower asset prices in general. But what's going

719
00:36:20,680 --> 00:36:23,279
Speaker 1: on right now, of course, is that the economy is

720
00:36:23,320 --> 00:36:26,480
Speaker 1: stronger than we would have guessed if the numbers were

721
00:36:26,600 --> 00:36:30,799
Speaker 1: right from the last labor market reporting that that was incredible,

722
00:36:30,840 --> 00:36:33,640
Speaker 1: it was eye popping, and then the economy is doing

723
00:36:33,640 --> 00:36:35,800
Speaker 1: pretty well and that's good news. So if the interest

724
00:36:35,880 --> 00:36:39,200
Speaker 1: rates are tighter from that, that's obviously good for markets.

725
00:36:39,239 --> 00:36:41,560
Speaker 1: If you're just joining us on radio and television, welcome

726
00:36:41,600 --> 00:36:45,560
Speaker 1: to Bloomberg Surveillance, a key inflation report Lisa's monitoring. Can

727
00:36:45,600 --> 00:36:47,600
Speaker 1: I say green on the screen now? I think just

728
00:36:47,640 --> 00:36:50,759
Speaker 1: here from the second features up three and they're really

729
00:36:50,960 --> 00:36:54,440
Speaker 1: there's some serious gyration going on here before we get

730
00:36:54,480 --> 00:36:58,120
Speaker 1: to the opening. Uh Vic's nineteen point four one the

731
00:36:58,160 --> 00:37:01,040
Speaker 1: two year yield four point five to percent. We're thrilled

732
00:37:01,320 --> 00:37:04,799
Speaker 1: to have a substantial conversation this morning with Professor Rogoff

733
00:37:04,840 --> 00:37:08,480
Speaker 1: of Harvard University. Long ago and far away you exited

734
00:37:08,719 --> 00:37:11,640
Speaker 1: the I m F and then but Chard was there

735
00:37:11,640 --> 00:37:15,240
Speaker 1: with stiglets and post GFC. They looked at four percent inflation.

736
00:37:15,320 --> 00:37:18,280
Speaker 1: What an uproar that ensued? And then I would suggest

737
00:37:18,280 --> 00:37:21,759
Speaker 1: that Peterson Adam Posen has talked about three percent is

738
00:37:21,800 --> 00:37:25,160
Speaker 1: a new appropriate level? Are we going to get away

739
00:37:25,239 --> 00:37:29,040
Speaker 1: from an anchor two percent verbiage? Are we going to reset?

740
00:37:29,400 --> 00:37:31,200
Speaker 1: I gonna make some news here can help me? Are

741
00:37:31,239 --> 00:37:34,040
Speaker 1: we gonna Are we gonna reset this morning higher than

742
00:37:34,080 --> 00:37:36,600
Speaker 1: a two percent level? I'm not gonna be able to

743
00:37:36,600 --> 00:37:40,720
Speaker 1: help you, Tom. I think that's extraordinarily unlikely and frankly

744
00:37:40,760 --> 00:37:44,959
Speaker 1: not a good idea. Yes, probably back in the day

745
00:37:45,160 --> 00:37:47,680
Speaker 1: they should have set three percent instead of two percent,

746
00:37:47,840 --> 00:37:51,239
Speaker 1: but they didn't. And you know they've really made commitments.

747
00:37:51,520 --> 00:37:54,560
Speaker 1: If you change it, it means you might change it again.

748
00:37:54,640 --> 00:37:57,479
Speaker 1: So I think what in fact will happen. I don't

749
00:37:57,480 --> 00:37:59,480
Speaker 1: think we're going to have a soft landing, by the way.

750
00:37:59,480 --> 00:38:02,320
Speaker 1: I think we're and a half soft, But not the landing.

751
00:38:02,440 --> 00:38:05,680
Speaker 1: I think inflations they're gonna allow to be altobated for longer,

752
00:38:05,680 --> 00:38:07,840
Speaker 1: but they're gonna say it's going to get back to

753
00:38:07,880 --> 00:38:10,960
Speaker 1: two percent. We're just taking longer. I think that's going

754
00:38:11,000 --> 00:38:13,640
Speaker 1: to be the rhetoric. I want to shift here to China,

755
00:38:13,680 --> 00:38:16,640
Speaker 1: as you mentioned earlier, and to me, what's so important Kennon?

756
00:38:16,680 --> 00:38:19,280
Speaker 1: I mentioned there's this guy named Obsfelder wrote a textbook

757
00:38:19,280 --> 00:38:21,839
Speaker 1: a few years ago, a guy named Rogoff. It's it's

758
00:38:21,880 --> 00:38:24,360
Speaker 1: I think it's nine thousand pages. Well, it's like in

759
00:38:24,400 --> 00:38:26,400
Speaker 1: the Game of Thrones where they take it off. It

760
00:38:26,480 --> 00:38:29,640
Speaker 1: just feels like it just feels it just feels like that.

761
00:38:29,920 --> 00:38:32,000
Speaker 1: But Ken, what's so important here? As we go from

762
00:38:32,000 --> 00:38:35,319
Speaker 1: Obsfeld and Rogoff to the work that Lal Brainer did

763
00:38:35,360 --> 00:38:38,760
Speaker 1: with David Reicher twenty years ago on trade in labor

764
00:38:39,760 --> 00:38:44,480
Speaker 1: some in your international economics with a challenge U Dr

765
00:38:44,520 --> 00:38:46,719
Speaker 1: Brainer is going to have at the White House with

766
00:38:46,840 --> 00:38:50,560
Speaker 1: this evil thing out there now China. She's expert on

767
00:38:50,719 --> 00:38:54,640
Speaker 1: trade and labor multinational dynamics. Where are we heading on

768
00:38:54,760 --> 00:38:57,640
Speaker 1: that with China? Well, first, let me say I have

769
00:38:57,719 --> 00:39:01,480
Speaker 1: the utmost respect for Lyle. I actually worked under her

770
00:39:01,680 --> 00:39:04,920
Speaker 1: at Brookings when I was a visiting scholar in her section.

771
00:39:05,000 --> 00:39:08,120
Speaker 1: I've known her for a long time. She's terrific. I

772
00:39:08,200 --> 00:39:10,759
Speaker 1: think trade economists are looking at the data so far

773
00:39:10,840 --> 00:39:14,879
Speaker 1: and saying, what deglobalization. Everybody's talking about it, but it's

774
00:39:14,880 --> 00:39:17,640
Speaker 1: not in the data yet. But if you look at

775
00:39:17,640 --> 00:39:20,800
Speaker 1: the tensions with China, and I have to say, particularly

776
00:39:21,239 --> 00:39:25,320
Speaker 1: if something goes on in Ukraine, say with Russia really

777
00:39:25,480 --> 00:39:30,680
Speaker 1: escalating with nuclear neutron bomb or something, and China continuing

778
00:39:30,719 --> 00:39:33,440
Speaker 1: to trade, we are going to have to be talking

779
00:39:33,440 --> 00:39:36,560
Speaker 1: about secondary sanctions, which we had done with a round

780
00:39:36,600 --> 00:39:40,560
Speaker 1: in North Korea, but we've absolutely not done with Russia.

781
00:39:40,640 --> 00:39:43,360
Speaker 1: You want to trade with Russia, it's your business, it's fine.

782
00:39:43,960 --> 00:39:47,120
Speaker 1: And and then that that really will be something. And

783
00:39:47,320 --> 00:39:49,360
Speaker 1: a lot of the effects we saw in the labor

784
00:39:49,440 --> 00:39:53,560
Speaker 1: market could be partly reversed. But short of that, uh,

785
00:39:53,600 --> 00:39:57,320
Speaker 1: it's you know, modest the changes that were likely to see.

786
00:39:57,800 --> 00:40:01,879
Speaker 1: The shift from Leo Brainerd from chair to the head

787
00:40:01,920 --> 00:40:04,600
Speaker 1: of the Economic Council for President Biden does highlight also

788
00:40:04,640 --> 00:40:07,600
Speaker 1: the very political nature of making some of the decisions

789
00:40:07,600 --> 00:40:09,279
Speaker 1: that you talk about, the sort of adam pose and

790
00:40:09,320 --> 00:40:11,200
Speaker 1: take on it that can of throw off take on

791
00:40:11,239 --> 00:40:13,760
Speaker 1: it that the FED will allow inflation to remain higher

792
00:40:13,800 --> 00:40:17,560
Speaker 1: for longer. How much is that a response to the

793
00:40:17,640 --> 00:40:20,319
Speaker 1: sort of deglobalization that policy is going to hope for

794
00:40:20,480 --> 00:40:22,719
Speaker 1: this admission that you don't want to kill the economy.

795
00:40:22,760 --> 00:40:26,120
Speaker 1: How political is that decision of allowing inflation to run

796
00:40:26,160 --> 00:40:29,719
Speaker 1: hot heading into later this year? Well, I mean, I

797
00:40:29,800 --> 00:40:32,360
Speaker 1: personally have long said I just thought it was the

798
00:40:32,440 --> 00:40:35,920
Speaker 1: right decision because basically we don't know what's going on.

799
00:40:36,400 --> 00:40:39,480
Speaker 1: The labor market, you know, has all these distortions that

800
00:40:39,520 --> 00:40:42,400
Speaker 1: are coming off. The economy has all these distortions that

801
00:40:42,440 --> 00:40:45,600
Speaker 1: are coming off, and you don't want to, you know,

802
00:40:46,000 --> 00:40:48,560
Speaker 1: raise a head like you know what you're doing. For sure,

803
00:40:48,840 --> 00:40:51,520
Speaker 1: I wouldn't be surprised if interest rates und up at

804
00:40:51,560 --> 00:40:55,560
Speaker 1: six to bring down inflation. But why do you want

805
00:40:55,560 --> 00:40:57,360
Speaker 1: to get there right away? Why do you want to

806
00:40:57,440 --> 00:40:59,839
Speaker 1: rush to that judgment? Maybe they're going to end up

807
00:41:00,040 --> 00:41:04,120
Speaker 1: much lower. So I think I don't think it's it's

808
00:41:04,160 --> 00:41:09,640
Speaker 1: clearly very political at some level because growth is strong

809
00:41:09,719 --> 00:41:12,160
Speaker 1: but inflation is high. Which way do we choose? That

810
00:41:12,360 --> 00:41:16,120
Speaker 1: is a political defision. It affects people differently. But the

811
00:41:16,120 --> 00:41:19,480
Speaker 1: FED tries to approach it in a technocratic way. What

812
00:41:19,600 --> 00:41:21,600
Speaker 1: you just said there that race could get to six,

813
00:41:22,480 --> 00:41:25,240
Speaker 1: but why rush it? Right? This is an important point.

814
00:41:25,600 --> 00:41:27,680
Speaker 1: So do you think that it is appropriate to do

815
00:41:28,320 --> 00:41:30,439
Speaker 1: basis point increments or do you think that they should

816
00:41:30,440 --> 00:41:32,239
Speaker 1: just sort of sit on their hands and wait for

817
00:41:32,239 --> 00:41:34,759
Speaker 1: a number of months to really get underway, since there

818
00:41:34,800 --> 00:41:39,080
Speaker 1: isn't a rush in your view. Honestly speaking, either strategy

819
00:41:39,239 --> 00:41:42,680
Speaker 1: would be reasonable at this point, but they're kind of committed.

820
00:41:43,080 --> 00:41:45,839
Speaker 1: I would say to do two quarter point hikes at

821
00:41:45,840 --> 00:41:49,320
Speaker 1: this point, given the labor market data, given the inflation data,

822
00:41:49,600 --> 00:41:51,879
Speaker 1: and I don't think it matters a lot one way.

823
00:41:51,880 --> 00:41:54,880
Speaker 1: It would matter more if suddenly we don't know what

824
00:41:54,920 --> 00:41:57,840
Speaker 1: they're doing. But I think the real message is that

825
00:41:57,920 --> 00:41:59,880
Speaker 1: the who knew what was going to happen with the

826
00:42:00,000 --> 00:42:02,880
Speaker 1: supermarket report and so I think there's a lot of

827
00:42:02,960 --> 00:42:06,960
Speaker 1: uncertainty around and that means to move slower and cautiously.

828
00:42:08,000 --> 00:42:10,799
Speaker 1: But you can't predict too far ahead. Ken I want

829
00:42:10,800 --> 00:42:14,000
Speaker 1: to get and do this without first order difference equations,

830
00:42:14,040 --> 00:42:16,279
Speaker 1: or they'll all turn the channel or drive off the road.

831
00:42:16,960 --> 00:42:19,799
Speaker 1: I remember post Vulcar and Olivier mentioned this is in

832
00:42:19,840 --> 00:42:22,040
Speaker 1: his book He and Jeff Sex wrote an essay, and

833
00:42:23,640 --> 00:42:27,359
Speaker 1: boy were they taken to task that higher rates can

834
00:42:27,400 --> 00:42:32,120
Speaker 1: be not crucial for worrying about debt sustainability. So many

835
00:42:32,160 --> 00:42:34,719
Speaker 1: of our listeners and viewers are scared stiff that if

836
00:42:34,760 --> 00:42:37,360
Speaker 1: we get higher rates or where we are now or

837
00:42:37,400 --> 00:42:40,160
Speaker 1: the six percent you talk of, that we're not going

838
00:42:40,200 --> 00:42:43,520
Speaker 1: to be able to fund our debt and our deficit.

839
00:42:44,000 --> 00:42:47,640
Speaker 1: Are they linked or is it separate? I can we

840
00:42:47,680 --> 00:42:50,800
Speaker 1: be comfortable with the higher rate regime given the debt

841
00:42:50,920 --> 00:42:53,799
Speaker 1: of the nation, well, first of all, the United States

842
00:42:53,840 --> 00:42:56,120
Speaker 1: as the global currency, so we have a lot of

843
00:42:56,160 --> 00:42:59,239
Speaker 1: debt capacity. The questions how much it costs us the

844
00:42:59,680 --> 00:43:02,680
Speaker 1: real outcome If we have too much doubt, as we'll

845
00:43:02,719 --> 00:43:05,840
Speaker 1: get more inflation at some point. That's what just happened.

846
00:43:05,880 --> 00:43:09,680
Speaker 1: We just had an effective partial default on debt. Inflation

847
00:43:09,840 --> 00:43:13,439
Speaker 1: was much higher than anyone was expecting, and that put

848
00:43:13,480 --> 00:43:16,279
Speaker 1: money in the government's pockets that options there. It's a

849
00:43:16,360 --> 00:43:20,200
Speaker 1: soft partial default. That's what we're not talking about not

850
00:43:20,320 --> 00:43:23,759
Speaker 1: paying the bills and last some crazy people in Congress

851
00:43:23,800 --> 00:43:26,040
Speaker 1: decide to do that, and no time for crypto. There's

852
00:43:26,040 --> 00:43:28,319
Speaker 1: a more important question. I believe it's a vacancy at

853
00:43:28,360 --> 00:43:30,719
Speaker 1: the FED, would you consider being vice chairman of the

854
00:43:30,760 --> 00:43:34,160
Speaker 1: Federal Reserve System. I don't think I'm likely to be

855
00:43:34,200 --> 00:43:37,640
Speaker 1: a candidate for that, but thank you for asking. He's

856
00:43:37,640 --> 00:43:40,000
Speaker 1: good because it's his it's his to offer the job,

857
00:43:40,120 --> 00:43:45,000
Speaker 1: so it's good that he has checked it today. I

858
00:43:45,200 --> 00:43:50,360
Speaker 1: disagree inflation. There was a lot though. This is a

859
00:43:50,400 --> 00:43:52,640
Speaker 1: really important point because it was sort of edifying this

860
00:43:52,719 --> 00:43:56,320
Speaker 1: adam pose in view, where why is there a push

861
00:43:56,360 --> 00:43:59,319
Speaker 1: to get back to two percent inflation? Are we going

862
00:43:59,400 --> 00:44:02,000
Speaker 1: to get that? Kind of you even if you want

863
00:44:02,000 --> 00:44:04,479
Speaker 1: to see disinflation, then at what point is it enough

864
00:44:04,520 --> 00:44:07,560
Speaker 1: disinflation to be okay? These are some of the discussions

865
00:44:07,560 --> 00:44:09,600
Speaker 1: at a time when it is a political decision and

866
00:44:09,640 --> 00:44:11,640
Speaker 1: the economy is still strong. I'm going to defend the

867
00:44:11,680 --> 00:44:14,560
Speaker 1: land of Rogoff and that the common feature even if

868
00:44:14,560 --> 00:44:17,200
Speaker 1: they disagree, so he mentioned at the beginning, he disagrees

869
00:44:17,239 --> 00:44:20,440
Speaker 1: with Professor Blanchard, who's more quiescent about when we can

870
00:44:20,480 --> 00:44:23,080
Speaker 1: come back in the real reaking stay down and all that.

871
00:44:23,400 --> 00:44:26,240
Speaker 1: But the answer is these people have a hard earned

872
00:44:26,440 --> 00:44:31,000
Speaker 1: humility by knowing the history of inflation. Fear is in

873
00:44:31,360 --> 00:44:34,640
Speaker 1: Reinhardt and Rogoff. There's a there's a humility here, Lisa

874
00:44:34,680 --> 00:44:38,200
Speaker 1: that I don't hear in the noise of Twitter and

875
00:44:38,239 --> 00:44:49,800
Speaker 1: the noise of the rest of it. No one else

876
00:44:50,280 --> 00:44:53,520
Speaker 1: on inflation to speak to after Kenneth Rogoff of Harvard

877
00:44:54,120 --> 00:44:58,759
Speaker 1: and David Rosenberg of Toronto. David Rosenberg iconic here in

878
00:44:58,880 --> 00:45:03,520
Speaker 1: parsing inflation. David, do you find any value in the

879
00:45:03,560 --> 00:45:09,240
Speaker 1: new rationalization of looking at super core inflation a service

880
00:45:09,280 --> 00:45:14,640
Speaker 1: sector toxic cocktail? Is that a value or not? Well,

881
00:45:14,680 --> 00:45:16,480
Speaker 1: you know what the FETE is telling you with this

882
00:45:16,560 --> 00:45:21,840
Speaker 1: new super duper core core index. It's of the CPI.

883
00:45:22,920 --> 00:45:26,200
Speaker 1: So if the FET is focusing on of the index,

884
00:45:26,280 --> 00:45:29,960
Speaker 1: then Lord help us. All uh, you know, but it's

885
00:45:30,000 --> 00:45:32,799
Speaker 1: it's the same j. Powell that told us a year

886
00:45:32,840 --> 00:45:36,080
Speaker 1: ago that you know that his new favorite yield curve,

887
00:45:36,200 --> 00:45:39,520
Speaker 1: you know, was a three months three months forwards eighteen

888
00:45:39,560 --> 00:45:41,759
Speaker 1: months from now because at that point it was the

889
00:45:41,800 --> 00:45:45,440
Speaker 1: only curve that was possibly sloping, and now that's converted.

890
00:45:45,520 --> 00:45:47,920
Speaker 1: So you know, I think that looked too fat for

891
00:45:47,960 --> 00:45:50,960
Speaker 1: a host of reasons. Wants to maintain a type policy stance.

892
00:45:51,160 --> 00:45:55,240
Speaker 1: I think inflation look inflation is like a race between

893
00:45:55,239 --> 00:45:58,200
Speaker 1: watching grass grow and paint dry. But it's clearly peaked.

894
00:45:58,360 --> 00:46:02,600
Speaker 1: It is coming. But David, to be serious here, the

895
00:46:02,640 --> 00:46:05,680
Speaker 1: owner's equivalent red ticked up year over year seven point

896
00:46:05,719 --> 00:46:09,400
Speaker 1: five to seven point eight. I find a super core fixation,

897
00:46:09,760 --> 00:46:13,520
Speaker 1: basically juvenile. How does an adult like you look at

898
00:46:13,560 --> 00:46:17,840
Speaker 1: this when our listeners in Canada in America are getting

899
00:46:17,880 --> 00:46:23,040
Speaker 1: crushed by housing costs? Right? Well, look, just mentioned the number.

900
00:46:23,080 --> 00:46:26,160
Speaker 1: I mean that the new Powell number was up point four.

901
00:46:27,120 --> 00:46:29,799
Speaker 1: Call it a five percent annual rate um. So that's

902
00:46:29,800 --> 00:46:32,360
Speaker 1: what's going to give them the green light to continue

903
00:46:32,360 --> 00:46:35,120
Speaker 1: to raise rates. Uh, and they clearly want to go

904
00:46:35,239 --> 00:46:38,279
Speaker 1: not just for the next meeting, with the meeting afterwards. Look, Tom,

905
00:46:38,480 --> 00:46:41,440
Speaker 1: you know so much of the CPI, which Alan Greenspan

906
00:46:41,560 --> 00:46:44,680
Speaker 1: famously called applauded statistic at an fl m C meeting

907
00:46:45,320 --> 00:46:48,640
Speaker 1: UM several decades ago. So much of the service sector,

908
00:46:48,640 --> 00:46:51,480
Speaker 1: the service sector that the FITS focused on, are imputed.

909
00:46:51,719 --> 00:46:55,880
Speaker 1: I mean, these aren't real numbers. Their guestimates by the BLS.

910
00:46:55,960 --> 00:46:57,520
Speaker 1: You know, whether you look at how do you measure

911
00:46:57,520 --> 00:46:59,680
Speaker 1: inflation and financial services? I mean they look at the

912
00:46:59,719 --> 00:47:02,920
Speaker 1: yeld herve or health services for example, they look at

913
00:47:03,239 --> 00:47:06,480
Speaker 1: profit martians in the health insurance sector. I mean so

914
00:47:06,600 --> 00:47:08,799
Speaker 1: much of this is just pure fluff. What I'm going

915
00:47:08,880 --> 00:47:10,919
Speaker 1: to say is that, you know, let's take a look

916
00:47:10,920 --> 00:47:13,200
Speaker 1: and see what inflation is doing for the things that

917
00:47:13,280 --> 00:47:16,000
Speaker 1: you can see, touch or feel. Uh. And I'm talking,

918
00:47:16,080 --> 00:47:19,040
Speaker 1: for example, about the core goods component, which is the

919
00:47:19,080 --> 00:47:22,960
Speaker 1: most hyper cifical part of the CPI. And it was up,

920
00:47:23,200 --> 00:47:25,040
Speaker 1: you know, it was almost flat, was up less than

921
00:47:25,080 --> 00:47:28,480
Speaker 1: point one, you know, after a string of numbers that

922
00:47:28,560 --> 00:47:31,000
Speaker 1: are either flat or negative, and that year or year

923
00:47:31,040 --> 00:47:34,279
Speaker 1: trend is just literally collapsed. It was eleven point eight

924
00:47:34,280 --> 00:47:37,160
Speaker 1: percent this time last year. Year on year, the core

925
00:47:37,200 --> 00:47:40,400
Speaker 1: goods CPI is running at one point three right now, Tom.

926
00:47:40,560 --> 00:47:44,720
Speaker 1: That's the lowest dispensince October. So I'd like to focus

927
00:47:44,760 --> 00:47:47,680
Speaker 1: on things that don't evolve guestswork. I like to focus

928
00:47:47,680 --> 00:47:50,520
Speaker 1: on things that don't require imputations from the BLS. I

929
00:47:50,520 --> 00:47:52,840
Speaker 1: know that's what the best focused on, UM. But I

930
00:47:52,880 --> 00:47:55,759
Speaker 1: think that the significant downdraft you're actually seeing in the

931
00:47:55,800 --> 00:47:59,200
Speaker 1: core good CPI, to me, that is telling the tale. David.

932
00:47:59,239 --> 00:48:01,680
Speaker 1: You know, you look at the markets here just this morning.

933
00:48:01,680 --> 00:48:04,040
Speaker 1: The future is kind of mixed. Not really much going

934
00:48:04,080 --> 00:48:05,880
Speaker 1: on in the yield market as well. It seems like

935
00:48:05,880 --> 00:48:08,439
Speaker 1: investors are really don't know what to take out of

936
00:48:08,480 --> 00:48:11,400
Speaker 1: this report here. What do you think, more importantly, the

937
00:48:11,440 --> 00:48:15,960
Speaker 1: Federal Reserve will take out of today's data. Well, I

938
00:48:16,000 --> 00:48:18,360
Speaker 1: think that based on what they're looking at, it's gonna

939
00:48:18,600 --> 00:48:21,799
Speaker 1: add justification for them to go again in March. They

940
00:48:21,840 --> 00:48:25,040
Speaker 1: clearly want to go again in May. Who knows what

941
00:48:25,080 --> 00:48:26,640
Speaker 1: they're gonna do by the end of the year. They

942
00:48:26,920 --> 00:48:30,400
Speaker 1: wanted the markets to price out those dual rate cuts

943
00:48:30,520 --> 00:48:34,239
Speaker 1: by the end of three. They successfully done that, But

944
00:48:34,320 --> 00:48:35,759
Speaker 1: who knows what we're gonna end up at the end

945
00:48:35,760 --> 00:48:37,399
Speaker 1: of the year. I mean, look at the same feed

946
00:48:37,520 --> 00:48:39,719
Speaker 1: that told us with their dot plots back in the

947
00:48:39,760 --> 00:48:42,680
Speaker 1: beginning of two that we're going to finish last year

948
00:48:42,800 --> 00:48:44,879
Speaker 1: less than one percent on the funds, right, we ended

949
00:48:44,920 --> 00:48:48,000
Speaker 1: up north to four. So it's gonna be situational. But

950
00:48:48,080 --> 00:48:49,840
Speaker 1: for the here and now, if you're looking at what

951
00:48:49,920 --> 00:48:51,680
Speaker 1: the FET is looking at, the skis in the green

952
00:48:51,760 --> 00:48:53,760
Speaker 1: light to go in March and to maintain a tightening

953
00:48:53,760 --> 00:48:56,480
Speaker 1: bias and of the May meeting. How about on the

954
00:48:56,800 --> 00:49:00,239
Speaker 1: just the broad economic front, David, I mean kind of

955
00:49:00,280 --> 00:49:04,279
Speaker 1: hearing that the rhetoric shift away from recession talk, how

956
00:49:04,280 --> 00:49:07,080
Speaker 1: do you think about that. Well, you know, it's funny

957
00:49:07,120 --> 00:49:10,799
Speaker 1: how one number has influenced so many people's perception on

958
00:49:10,800 --> 00:49:12,719
Speaker 1: the economy. I mean, be one thing, if we had

959
00:49:12,760 --> 00:49:16,800
Speaker 1: like eight economic numbers coming in week eight, coming and strong,

960
00:49:16,920 --> 00:49:19,960
Speaker 1: and then wow, we get this five seventeen on non

961
00:49:20,040 --> 00:49:22,799
Speaker 1: farm payrolls. But every number has been lining up week.

962
00:49:23,080 --> 00:49:24,919
Speaker 1: I mean, we know coming out of the fourth quarter

963
00:49:25,000 --> 00:49:27,800
Speaker 1: that real private final sales as flat as a pancake.

964
00:49:28,239 --> 00:49:31,520
Speaker 1: Virtually every real macro indicator was negative on a three

965
00:49:31,520 --> 00:49:34,640
Speaker 1: month basis heading into the end of two and then bang,

966
00:49:35,160 --> 00:49:38,680
Speaker 1: we get the non farm payroll number and it's everybody's expectations.

967
00:49:38,680 --> 00:49:42,200
Speaker 1: But we know that employment, employment, like inflation, is a

968
00:49:42,280 --> 00:49:45,240
Speaker 1: coincidence lagging indicator. It tells you nothing about the future.

969
00:49:45,400 --> 00:49:48,200
Speaker 1: So I think people's minds have been muddled. They don't

970
00:49:48,200 --> 00:49:52,080
Speaker 1: talk about what the household survey did, population account adjusted,

971
00:49:52,080 --> 00:49:53,959
Speaker 1: They don't talk what happened. Let me ask a question,

972
00:49:53,960 --> 00:49:57,000
Speaker 1: what happened to a DP worst number in twenty three months?

973
00:49:57,200 --> 00:50:00,239
Speaker 1: It was it was forty hours before and non to

974
00:50:00,360 --> 00:50:03,880
Speaker 1: become a relic. So I say that's a view of like,

975
00:50:06,360 --> 00:50:07,920
Speaker 1: I think it's actually a bit of a joke. It's

976
00:50:07,960 --> 00:50:12,120
Speaker 1: a classic case of hope climbing over experience. David, we're

977
00:50:12,160 --> 00:50:14,160
Speaker 1: out of time. We're gonna have you back on when

978
00:50:14,200 --> 00:50:18,719
Speaker 1: Montreal stops wearing those ridiculous light blue jerseys. David Rosenberg

979
00:50:18,760 --> 00:50:21,440
Speaker 1: from Canada this morning. They're on the inflation for it.

980
00:50:21,560 --> 00:50:25,320
Speaker 1: Honored to have him on. Subscribe to the Bloomberg Surveillance

981
00:50:25,320 --> 00:50:29,719
Speaker 1: Podcast on Apple, Spotify, and anywhere else you get your podcasts.

982
00:50:30,120 --> 00:50:34,200
Speaker 1: Listen live every weekday starting at seven am Eastern. I'm

983
00:50:34,239 --> 00:50:37,759
Speaker 1: Bloomberg dot Com, the I Heart Radio app, tune In,

984
00:50:38,040 --> 00:50:41,440
Speaker 1: and the Bloomberg Business app. You can watch us live.

985
00:50:41,640 --> 00:50:45,920
Speaker 1: I'm Bloomberg Television and always on the Bloomberg Terminal. Thanks

986
00:50:45,960 --> 00:50:49,840
Speaker 1: for listening. I'm Tom Keane, and this is Bloomberg