Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, financing and investment.
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Speaker 1: to say that, which joins by the Richmond Fed Presidents
Speaker 1: on BAKIN alongside the brilliant Bloombeg's Mike McKay. You're happy
Speaker 1: with that introduction, Mike and the brilliant President Mail. It's
Speaker 1: sou'm great to catch up. Thanks for being with us. Yeah,
Speaker 1: thanks for having So we get some Fed speak sixty
Speaker 1: minutes after the inflation report, So let's start that. Your
Speaker 1: response to that CPI print we've got a little bit earlier.
Speaker 1: It's about as expected. Uh, inflation is normalizing, but it's
Speaker 1: coming down slowly, and uh, you know, I just think
Speaker 1: there's gonna be a lot more inertia, a lot more
Speaker 1: persistence to an inflation then maybe we'd all want part
Speaker 1: of that is still COVID factors, access money in people's pockets,
Speaker 1: um uh, supply chain issues in places like cabinets and
Speaker 1: switch here's part of his business factors. There are businesses
Speaker 1: out there is still trying to recover lost margin. But
Speaker 1: I think the biggest thing is that after the experience
Speaker 1: of the last couple of years, UM businesses have now
Speaker 1: understood that pricing is a lover again. And as I
Speaker 1: talked to the folks in my district, I'm hearing people
Speaker 1: still out there pushing chrice and trying to see to
Speaker 1: try to test through the levels of an elasticity really
Speaker 1: are so one thing we've heard from Fed officials, including
Speaker 1: the chamit is that the disinflationary process has started. Is
Speaker 1: that something you agree with? Do you see much evidence
Speaker 1: of that? And where do you find the evidence? Well,
Speaker 1: if you look at the twelve month numbers, you can
Speaker 1: see they peaked several months ago and they're coming down steadily. UM.
Speaker 1: But that's one part of the puzzle, is inflation coming down.
Speaker 1: The other part is actually hitting our target and so
Speaker 1: just it's going to take a while to get to there.
Speaker 1: To the latest data that have come in, not just
Speaker 1: today's CPI but the jobs report, etcetera. Cha change your
Speaker 1: view of how far the Fed will have to go
Speaker 1: beyond perhaps what was in the SEP for December uh,
Speaker 1: And does it change your view of inflation dynamics? Well,
Speaker 1: I try not to get to wound up in any
Speaker 1: particular data read, particularly a January data read, large seasonality factors,
Speaker 1: all that sort of stuff, um um. But I do
Speaker 1: think what we are now in a position to do
Speaker 1: is to react to multiple months of data as they
Speaker 1: come in. We may or may not choose to take
Speaker 1: rates up further if inflation continues to persist, but we'll
Speaker 1: have to see what happens. Well. Based on what you're
Speaker 1: seeing right now in terms of the path of inflation,
Speaker 1: the dot plot said five point one in December. You
Speaker 1: think that's enough. I think we'll see we're going to
Speaker 1: get a pc at the end of the month, another
Speaker 1: CPI before the next meeting, and then I think as
Speaker 1: the meetings go on this year, we'll see what happens
Speaker 1: to inflation. If inflation settles, maybe we don't go quite
Speaker 1: as far. But if inflation persists at levels well above
Speaker 1: our our target, maybe we'll have to do more. Do
Speaker 1: you think that maybe you and the markets are on
Speaker 1: a different timeframe. You're going meeting to meeting, and they're
Speaker 1: looking out towards the end of three saying you should
Speaker 1: be cutting rates by then. I'm not sure I understand markets.
Speaker 1: You guys are much better than that than I am. UM.
Speaker 1: I'm very focused on what's happening in the demanding the economy.
Speaker 1: I'm very focused on what's happening to inflation, and I think, Uh,
Speaker 1: the way to think about my view on on rates
Speaker 1: is we're inflation to persists. We might have to do more.
Speaker 1: If inflation doesn't persist, maybe not. How to financial conditions
Speaker 1: thanked there into that code, into that view? How do
Speaker 1: you think about financial conditions? Well, there's lots of definitions
Speaker 1: of financial UM. I think that as we raise rates, UM,
Speaker 1: the market and all markets, you know, sort of respond
Speaker 1: to how we're doing any thing in the path that
Speaker 1: we forecast. UM. There are people who are out there
Speaker 1: saying financial conditions are back where they were a year ago,
Speaker 1: and I say, I don't know. It looks like rates
Speaker 1: are higher than they are a year ago. Certainly if
Speaker 1: you're trying to get a mortgage, that's what you think.
Speaker 1: And so UM, the financial markets make their forecasts and
Speaker 1: you know, lending conditions, whatever work off of that. UM
Speaker 1: I think you can try to manage it. But I'm
Speaker 1: in the world of trying to define your response function,
Speaker 1: try to live to your response function, and I think
Speaker 1: markets will catch up to what you're doing if we
Speaker 1: can dig a little bit deeper. We've had a decent
Speaker 1: equity market running here today. Credit sprints I think something
Speaker 1: like two dred basis points tighter than the whites of
Speaker 1: of last year. Do you see that as complicating your
Speaker 1: ability to tighten financial conditions and bring inflation back towards target?
Speaker 1: Is it something that's on your mind a lot. I
Speaker 1: think trying to manage markets, at least for me, as
Speaker 1: a full's errand and so I'm in the world of
Speaker 1: trying to manage what we can control. If demand stays hot,
Speaker 1: if inflation comes and elevated, have rates move more. There
Speaker 1: are lots of other scenarios of what happens to the economy,
Speaker 1: and we'll respond to those well. One of the questions
Speaker 1: that people are asking is does it make it harder?
Speaker 1: Does it is the market pushing back against you? And
Speaker 1: do you see inflation shouldn't maybe stickier because of that? Uh.
Speaker 1: And is it a question of you have to raise
Speaker 1: rates higher or leave them in place longer and wait
Speaker 1: for the cumulative weight of tightening to hit. Well, I
Speaker 1: think there's a very good case for leaving rates higher
Speaker 1: for a longer period of time to allow that tightening
Speaker 1: to hit. I do think the lesson of the seventies
Speaker 1: was very clear, which is, don't give up too early.
Speaker 1: And anything I've read, and I've talked to lots of
Speaker 1: other people who seem to have understood that market, they say,
Speaker 1: you know, if you go back to the Arthur Burns years,
Speaker 1: it was raise rates, economy weekends, lower rates, inflation comes
Speaker 1: back stronger, raise rates, economy weakens more. Lower rates. That
Speaker 1: doesn't seem like a path that makes a lot of sense.
Speaker 1: Does history way on you when you refer back to
Speaker 1: the seventies? Do you really feel the weight of that.
Speaker 1: I've done a lot of reading about it, and I think,
Speaker 1: for better for worse, we've got a really good episode
Speaker 1: where our predecessors did the right thing and got inflation
Speaker 1: back under control. And I think that's certainly an aspiration
Speaker 1: for for me and for us. You understand the view
Speaker 1: of market participants that and they hear things like the
Speaker 1: disinflationary process has started. They get the sense that we're
Speaker 1: moving away from that language that we want to learn
Speaker 1: from the lesson of the nineteen seventies, we want to
Speaker 1: be tighter for longer. They see that as new information.
Speaker 1: The first step, and you'll hate this word, the first
Speaker 1: step towards a so called pivot. Why isn't it that,
Speaker 1: Why isn't this a pivot? The first step towards what
Speaker 1: by acknowledging the disinflationary process has started? For some people,
Speaker 1: market participants that speak to us on a daily basis,
Speaker 1: they view that shift in language as a step away
Speaker 1: from the chairman power address we got in Jackson Hall, Wyoming,
Speaker 1: which was eight minutes down the camera, super blunt. That's
Speaker 1: going to be pain It's going to be painful, but
Speaker 1: if we don't do this, it's going to be even
Speaker 1: more painful. Four or five months later, with an ECOD,
Speaker 1: the market rallying between and a bit of deceleration in
Speaker 1: inflation data, it's now the disinflationary process has started, and
Speaker 1: that's the focal point for so many people. Why isn't
Speaker 1: that the first step towards a pivot that says, okay,
Speaker 1: we can back away. Should I just try to keep
Speaker 1: it simple for myself, which is, Um, nobody really knows
Speaker 1: how inflation is gonna play out over the next year,
Speaker 1: over the next two years, and so I think what
Speaker 1: I can do is talk about how I think about it.
Speaker 1: The way I think about it is inflation stays elevated.
Speaker 1: If it persists, we'll have to do more. Well. Your
Speaker 1: struggle with what the markets are thinking, But you're probably
Speaker 1: very good on what companies are thinking, because of course
Speaker 1: that's your background and you talk to CEOs all the time.
Speaker 1: What are companies thinking? You mentioned that some are still
Speaker 1: pushing the envelope on prices, but what's their outlook for
Speaker 1: growth and particularly employment and wages over the next six
Speaker 1: to nine months. So the way the way I put
Speaker 1: it is, everybody's got a recession playbook. It's in the drawer. Um,
Speaker 1: they've taken it out, they've dusted it off, they've updated it. Right,
Speaker 1: they have a very clear sense of if things were
Speaker 1: to turn south, what they do. For the most part,
Speaker 1: they haven't turned the pages of the playbook. And the
Speaker 1: reason they haven't turned the pages is that their business
Speaker 1: actually remains pretty sound. Now that's not true if you're
Speaker 1: in mortgage lending. That's not true obviously recently in the
Speaker 1: tech but in most of the businesses I talked to,
Speaker 1: it's still not the point where they pull that. And
Speaker 1: part of it is they've really fought hard for eighteen
Speaker 1: months to get workers, and they're really reluctant to shed
Speaker 1: workers if it turns out that they didn't need to.
Speaker 1: And so I think there's still a reluctance. And when
Speaker 1: you see things like the recent jobs report or some
Speaker 1: of the consumer spending data we've seen for January, you
Speaker 1: start to see that in the businesses actual demands that
Speaker 1: and they're just saying, we're not there yet. But of
Speaker 1: course we all know it. The world could turn and
Speaker 1: they could get there. I just don't think they're there yet. Well,
Speaker 1: that brings up an important question about your reaction function.
Speaker 1: When you're predicting that unemployment is going to rise significantly
Speaker 1: because you're trying to clamp down on demand and it
Speaker 1: doesn't happen, how do you incorporate that into your thinking
Speaker 1: about where you are. Well, I think we've taken rates
Speaker 1: to where we've taken and we've signaled, or at least
Speaker 1: i've signaled that if inflation persists, I'll continue to respond appropriately. UM,
Speaker 1: you do know that they're long and variable lags with rates,
Speaker 1: and so you're watching the demand side, not because the
Speaker 1: objective is to manage demand, but because the objective is
Speaker 1: to manage inflation, and so you're looking for signals that
Speaker 1: inflation comes down. You're looking for signals that demand is weakening,
Speaker 1: softening in places where that would be relevant to inflation
Speaker 1: coming down, and you play it out. Can you explain
Speaker 1: longer variable leans to us? Because some people have come
Speaker 1: on in the last twelve months and they've said to Mike,
Speaker 1: that sets myself to Lesa, it's on on Bloomberg TV
Speaker 1: and radio, and said, they're not that long at till
Speaker 1: they're pretty sure financial conditions will price it all in
Speaker 1: immediately they're tightened and you'll feel it pretty quickly. Are
Speaker 1: they that long? Are they that variable? You didn't like
Speaker 1: financial conditions a second ago, and so we'll work on that. UM.
Speaker 1: I do think we've seen in a number of sectors,
Speaker 1: particularly interest sensitive sectors, particularly sectors with the strength of
Speaker 1: the dollar matters, you've seen demand moved very very quickly
Speaker 1: and well before we started increasing rates. Mortgage rates increased
Speaker 1: and that of course meant the lag in that sector
Speaker 1: was less than the world we used to hide what
Speaker 1: we're doing. On the other hand, if you go in
Speaker 1: lots of other places, think health care for a second,
Speaker 1: a big part of the economy, it's not at all
Speaker 1: clear that the rate stuff we've done or doing is
Speaker 1: having that much impact on demand there. I think that's
Speaker 1: where it takes more time, and the studies I've seen
Speaker 1: suggests that there's a period of time to go from
Speaker 1: raising rates to the impact on demand. But I think
Speaker 1: the real issue here is from impact on demand in
Speaker 1: cract on inflation, and that's really when you talk about
Speaker 1: the long and variables to inflation. And then I get
Speaker 1: back to where I started, and I would just say,
Speaker 1: you know, there's the sales department, the finance department. The
Speaker 1: finance department loves raising prices because you know, it's the
Speaker 1: fastest way to move the bottom line. The sales department
Speaker 1: historically has been very nervous about doing it, either because
Speaker 1: of incentives or market share or whatever. After the experience
Speaker 1: of the last couple of years, the finance department has
Speaker 1: a lot more sway in that conversation than they used to.
Speaker 1: So how would you characterize the balance of risk at
Speaker 1: the moment with all of that in mind, that it's
Speaker 1: tremendously difficult. It's confront as a policymaker. Chapman Pal said
Speaker 1: repeatedly a few times last year that the risk of
Speaker 1: doing two little outweight the risk of doing so much.
Speaker 1: Is that still the case? It is for me? I mean,
Speaker 1: we're still in a three point four percent unemployment economy
Speaker 1: with inflation depending on which measure you want to look at,
Speaker 1: well over our target five six six on a twelve
Speaker 1: month basis. Um, feels to me like the risk is
Speaker 1: on the inflation side at this point rather than the
Speaker 1: economy side. We are talking with Richmond Fed President Tom
Speaker 1: Barkatt at Bloomberg Television and Radio. Thank you to all
Speaker 1: of our viewers and listeners around the world. Uh, what
Speaker 1: is your view in terms of the growth outlook at
Speaker 1: this point? It seems like we went through a phase
Speaker 1: of recessions inevitable then we're gonna have a soft landing.
Speaker 1: You have people saying no landing. Where do you come
Speaker 1: down on all of them? Um? You know, I keep
Speaker 1: trying to look at past recessions or past economic down
Speaker 1: you know, tightening cycles and ask the question of which
Speaker 1: this is most like. And of course the ones that
Speaker 1: are most recent in our memory are all recessions. Were
Speaker 1: something winged in from left field, whether that be nine
Speaker 1: eleven or the financial crisis or the pandemic UM. And
Speaker 1: so I think we may be looking at it economy
Speaker 1: more like the one that I remember back in the
Speaker 1: early nineties, where there was a tightening cycle UM and
Speaker 1: different sectors got hit one at a time. It seemed
Speaker 1: like much more of a rolling situation. And so the
Speaker 1: overall numbers perhaps aren't going to be as UH. Again,
Speaker 1: I'm assuming nothing comes in from left field, but aren't
Speaker 1: going to be as bad as the ones we remember
Speaker 1: them from two years ago or fifteen years ago. But
Speaker 1: we'll see. Well, when you sit down on March two
Speaker 1: with your new UH projections for the economy, are you
Speaker 1: marking up growth? Are you marking down growth? What do
Speaker 1: you think is going to have I've got a month before.
Speaker 1: I hate to make those projections, and I'm teasing, but
Speaker 1: I'm quite serious about it. We we have a real
Speaker 1: serious process. We run multiple models on this, We've taken
Speaker 1: all the more most recent data. We will get another
Speaker 1: jobs report, one perhaps with less seasonality impact, We'll get
Speaker 1: another PC and a CPI, and so I wouldn't want
Speaker 1: to front run our team and our models on that.
Speaker 1: For just in terms of risks around the few already
Speaker 1: projective from December, upside risk for growth, for inflation, for
Speaker 1: the terminal rate. How are you thinking about things currently? Well,
Speaker 1: the biggest surprise has been the jobs market. I mean
Speaker 1: the jobs report we got a couple of weeks ago
Speaker 1: was quite significant and much stronger than what I had anticipated.
Speaker 1: And so the question of my mind is going to be,
Speaker 1: are we gonna get another one like that in February
Speaker 1: or we're gonna get something in February that revises, corrects,
Speaker 1: moves it down. So I think that's that's really the
Speaker 1: key thing I'm looking at. In terms of growth. It's
Speaker 1: been surprising for all of us to see unemployment come lower.
Speaker 1: There was a take, I think last year, even I
Speaker 1: talk about it all the time, this is the Fed's job.
Speaker 1: They need to get unemployment up to get inflation down.
Speaker 1: And it sounded ugly, it was brutal. It's difficult to
Speaker 1: communicate as a policymaker. Do you still see it that way?
Speaker 1: Do you need to get an employment up to get
Speaker 1: inflation down. I see, we need to get inflation down
Speaker 1: to get inflation down. And what I mean by that is, um.
Speaker 1: You know, our tools work on demand, they work on
Speaker 1: lots of various things, but the key to this whole
Speaker 1: thing is getting inflation down. I don't start with unemployment.
Speaker 1: I start with inflation. And we'll see what happens on
Speaker 1: the employment market. We're still at three point four percent unemployment.
Speaker 1: That's a historically low number. You're talking nineteen sixty nine
Speaker 1: and before that, nineteen fifty one, and so um. You know,
Speaker 1: there's been a lot of talk about the jobs market
Speaker 1: so far quite strong. We'll see what happens. Are people
Speaker 1: in the companies in the Richmond district telling you that
Speaker 1: they are still having trouble finding people or as that eased, Um,
Speaker 1: it's not as desperate as it was a year ago
Speaker 1: or a year and a third ago. But it's still
Speaker 1: very tight um on the professionals, though I think that
Speaker 1: has kind of loosened. Some of the layoff announcements recently
Speaker 1: have sort of hit home. People trying to hire tech
Speaker 1: workers are having an easier time doing it. UM for
Speaker 1: the frontline service workers, still very tight UM, but people
Speaker 1: are getting by, whether it's lower service levels or not
Speaker 1: cleaning the hotel room every day. The place it's still
Speaker 1: screaming tight is skilled trades, construction, nurses, truck drivers. We
Speaker 1: just don't have as many as we need. Demand in
Speaker 1: a lot of those places remains elevated, and folks are
Speaker 1: really struggling to find those those folks. That's really where
Speaker 1: it's the titus. Let me actually about the balance sheet.
Speaker 1: It's been running in the background, it's been paint drying,
Speaker 1: but there have been concerns expressed in the short term
Speaker 1: money markets, and we're still seeing a lot of money
Speaker 1: put back into the REPO facility. Is it working the
Speaker 1: way you want it to? Are you getting the results
Speaker 1: that you want or is this also a case where
Speaker 1: the markets are not reflecting necessarily what you're trying to
Speaker 1: accomplish with QT. I think UH we did a bunch
Speaker 1: of actions we thought important at the time in terms
Speaker 1: of UH simulus and you know, supporting the markets back in.
Speaker 1: We're now trying to unwind that. I think our primary
Speaker 1: tool is the rate tool, it's not the balance sheet tool.
Speaker 1: The objective is to unwind the balance sheet UH expansion
Speaker 1: that we did and do it in a way that
Speaker 1: doesn't change any focus on our primary tool, which is
Speaker 1: the rate tool. You guys still seem to be focused
Speaker 1: on the rate tool, so I think, so far, so good.
Speaker 1: We're focused on the balance sheet too. So let's not
Speaker 1: that I'm sure you please that faith. We see it
Speaker 1: as plaint trying, but it's not. It wasn't just an
Speaker 1: objective to get the balance sheet up. You were looking
Speaker 1: for a consequence from doing that. You said the objective
Speaker 1: was to get the balance sheet down. You're not expecting
Speaker 1: to be a consequence there. I mean, first of all,
Speaker 1: the analysis of the impact of balance sheet movements is
Speaker 1: unbelievably difficult, arcane, opaque, and tortured, and so I've really
Speaker 1: struggled as i've kind of come into this to come
Speaker 1: to ground to it. Where I've landed is it's got
Speaker 1: to be symmetric. If you believe that a ain't the
Speaker 1: balance sheet does something, then you got to believe that
Speaker 1: drinking the ballot sheet does something else. So I've got
Speaker 1: no question about that. I do believe that on both
Speaker 1: the expansion side and the reduction side, it's a lot
Speaker 1: smaller than some of the estimates you'll see, um and
Speaker 1: you know people talk about the uh, the impact of
Speaker 1: buying more bonds, there's also a signaling effect when you're
Speaker 1: buying UM. I think the signal effect may actually outweigh
Speaker 1: the impact of buying the bonds um signal effect in
Speaker 1: terms of when you would finally raise rates or whatever.
Speaker 1: When you're shrinking the balance sheet, there's a shrinkage effect,
Speaker 1: and then there's a signaling effect. The shrinking effect, of course,
Speaker 1: I would say, is parallel to the expansion. And then
Speaker 1: the question is what is the signaling. The signaling tends
Speaker 1: to be around liquidity. That's the conversation that gets raised.
Speaker 1: I just would come back and say, UM, compared today's
Speaker 1: balance sheet to or nineteen's balance sheet, it's still so
Speaker 1: much larger that I have trouble seeing that liquid is
Speaker 1: actually being driven by what we're doing right now. Back
Speaker 1: at home, What worries the people of the Richmond district.
Speaker 1: I mean, we have the idea of a possibility of recession.
Speaker 1: We've got what's going on with energy prices because we
Speaker 1: don't know what's happening in Ukraine. There's this whole idea
Speaker 1: of the debt limit leading to a default. How much
Speaker 1: are people in your area focused on those things. Uh.
Speaker 1: The what I hear over and over and over again
Speaker 1: is that people hate inflation. Um, And that's what they're
Speaker 1: focused on. I mean, people hate inflation because it seems unfair.
Speaker 1: I mean you you you get a raise and then
Speaker 1: you spend the money you just got at the gas pump.
Speaker 1: It feels whichrarely taken away, creates uncertainty, um, and it's
Speaker 1: it's just exhausting. Uh. You know, it's exhausting to shop
Speaker 1: around for better prices, is exhausting to defend your prices
Speaker 1: to a to a customer. And so people are really
Speaker 1: excited about the pro the prospect that we might get
Speaker 1: inflation under control. But you don't have to look much
Speaker 1: beyond the sentiment and disease to see what people think
Speaker 1: about inflation. And that still is the overwhelming conversation we're having.
Speaker 1: I have to ask you this, Uh, it appears that
Speaker 1: at the Federal Reserve, you're going to be in the
Speaker 1: market for a new vice chairman, uh laale Braider. What
Speaker 1: does she bring to the FED and to the Open
Speaker 1: Market Committee? How would you characterize her tenure? Well, I
Speaker 1: don't know what will or won't happen, and from the administration.
Speaker 1: But Lales an asset. I mean, she's very smart, she's
Speaker 1: very capable, and she's an asset to us, and if
Speaker 1: she does something else, I'm sure she'll be an asset there.
Speaker 1: She's been seen as one of the doves on the board.
Speaker 1: Is there such a thing and was she? We have
Speaker 1: nineteen really really capable people in the committee, and I
Speaker 1: listened to every one of them, um, because they're every
Speaker 1: one of them brings a unique view and as we've
Speaker 1: learned in the UM you know, last few years, people's
Speaker 1: views changes the data comes in and so you know,
Speaker 1: I've got colleagues that you might think are doves who
Speaker 1: might go to the other I mean, I think so.
Speaker 1: It's I think people take the job very seriously and
Speaker 1: they're very genuinely interested in landing the plane on whatever
Speaker 1: is actually the situation in the moment, as opposed to
Speaker 1: i'll call it a pre existing leaning. There's really any descent?
Speaker 1: Why is that? Um? You mean descents or descent singular?
Speaker 1: Because UM, I have the privilege of sitting in the meeting,
Speaker 1: and there's lots of points of view, uh that are phrased,
Speaker 1: so I wouldn't be confused about the idea that there
Speaker 1: are a lot of different points of view, more clamority
Speaker 1: on that, because from the outside looking in sometimes it
Speaker 1: feels like group thick. There are people that come out,
Speaker 1: Let's say, I disagree with the decision, and this is
Speaker 1: why it's incredibly rat particularly from the board. How much
Speaker 1: of that is actually taking place inside the building around
Speaker 1: these decisions that we're just not aware of. Why isn't
Speaker 1: this group think? Well, Um, I spend my time every
Speaker 1: six weeks seven weeks for meetings. I go into the market.
Speaker 1: I don't spend a lot of time in my building.
Speaker 1: I'm trying to figure out as best I can what's
Speaker 1: happening in the economy from people who are participating in it. Um.
Speaker 1: I try to come up with my own points of
Speaker 1: view in terms of, you know, what's happening to economic
Speaker 1: conditions and where we ought to go with policy, And
Speaker 1: I show up with my points of view, and then
Speaker 1: every time I go there, I learned something, and I
Speaker 1: learned from people who are doing the exact same thing
Speaker 1: with their own independent views. I think the structure of
Speaker 1: the system is very well set up to gather independent views,
Speaker 1: and then of course the meetings are very well Uh.
Speaker 1: Lad an effort to put those on the table and
Speaker 1: try to to land on a place where you know
Speaker 1: you can get some version of consensus. One of the
Speaker 1: things people have been critical of is uh that there
Speaker 1: are nineteen members of the Open Market Committee who are
Speaker 1: speaking all the time and it can be confusing through
Speaker 1: markets and to the public. Do you see that as
Speaker 1: a valid critique? Well, Um, I'm privileged to be here,
Speaker 1: so I guess if I say no, then I'm exactly Um.
Speaker 1: I see a huge part of my job as trying
Speaker 1: to translate what we do into the district that I serve,
Speaker 1: and so um, like I said, I really am on
Speaker 1: the ground all the time. I'm doing chambers of commerces
Speaker 1: and small cities, and I think there's a real thirst
Speaker 1: for understanding, and I think there's real value to the
Speaker 1: people in our community hearing from an understanding people who
Speaker 1: they think are actually rational, not you know, people from Washington,
Speaker 1: if I could put it that way. And so I
Speaker 1: think there's huge value in that. You guys choose to
Speaker 1: cover it. I'll leave it to you whether that's the
Speaker 1: right thing to do or not. But but I don't
Speaker 1: see it as getting out the mess is actually talking
Speaker 1: to the constituents in my district. Just one final question,
Speaker 1: and you've been incredibly rightious with your time, so thank
Speaker 1: you for that song. It's the third year of pandemic economics,
Speaker 1: China's reopening. I feel like the consensus has been dead
Speaker 1: wrong every single year on every major risk. As we
Speaker 1: go into the third year rule of that, of all
Speaker 1: of this, how are you thinking about that challenge as
Speaker 1: a policy maker? Is there something you're hesitant on drawing
Speaker 1: too many conclusions on two prematurely right? I think we're normalizing,
Speaker 1: but you can't ignore the impact of the pandemic. That
Speaker 1: the pandemic is still having in the economy. Some of
Speaker 1: the things we've talked about. Business is reluctant to shed
Speaker 1: workers because of the history. Shortages and switch gears and
Speaker 1: cabinets A trillion plus and excess savings still out there,
Speaker 1: the infrastructure bill still being deployed. All of these things
Speaker 1: are if I could call it, um, you know, not
Speaker 1: normal artificial things that are in the economy today that um,
Speaker 1: we're in the economy three years ago. Now for me
Speaker 1: or for us, you have to take it as a given,
Speaker 1: and so you try to make policy against the economy
Speaker 1: you've got not the economy, and you wish you had UM,
Speaker 1: but but I think for sure you've still got that
Speaker 1: in the economy. Thank you. You can do as much
Speaker 1: for speak as you like, just so long as it's
Speaker 1: like you know, like every weekday day. I appreciate the time.
Speaker 1: Thanks for having Thank you. Thank you. Stephen Stanley joins
Speaker 1: US now chief you as economiscendender US Capital Marcus Steve Stanley,
Speaker 1: thank you for joining us with a brief here. You
Speaker 1: and I remember the idiocy where the world would stop
Speaker 1: M one, M two, M three. I think it was
Speaker 1: Thursday afternoon, long ago and far away. How silly are
Speaker 1: we being right now here eleven minutes twenty eight seconds away. Well,
Speaker 1: I do think there's a lot of seasonal noise in
Speaker 1: the data. We saw it with the January employment report.
Speaker 1: I think we'll see it again tomorrow with the retail
Speaker 1: sales numbers and to some degree with the c p I.
Speaker 1: And you had three very low readings to end last year,
Speaker 1: and everyone got really excited about inflation is under control UM.
Speaker 1: And then last Friday we got new seasonal adjustment. UH.
Speaker 1: They ran this seasonal adjustment program again and they revised
Speaker 1: up October, November, and December for the course. So all
Speaker 1: of a sudden, that downward momentum and inflation is kind
Speaker 1: of dissipated, and I think we're going to see more
Speaker 1: of that, more of that today. I'm I'm looking for
Speaker 1: a point for reading on the core with maybe some
Speaker 1: upside risk to that. Stephen, this conversation about super cool,
Speaker 1: can you just shine a light on some of the
Speaker 1: conversations you have with clients at the moment? Are they
Speaker 1: asking about that a lot to the expect an estimate
Speaker 1: from you? What do you say? Yeah, people are definitely
Speaker 1: starting to try to focus on that. I think you know,
Speaker 1: the key here really is the is this housing piece.
Speaker 1: I mean, we're taking that out. Um, it's over of
Speaker 1: the core. So you know, when you take that out,
Speaker 1: you're taking out a pretty big chunk. But the presumption
Speaker 1: is that that housing expenses are going up fast right now,
Speaker 1: but they're gonna come off later in the year because
Speaker 1: of the lags involved. We know that the housing market
Speaker 1: has is cool off, and so people are wanting to
Speaker 1: focus on, you know, on the other pieces in the core.
Speaker 1: But the broad point is that services prices tend to
Speaker 1: be very sticky and they've accelerated, and I think it's
Speaker 1: just going to take quite a bit of time for
Speaker 1: them to come back off with all of these seasonal adjustments. Steven,
Speaker 1: And as we watch some of the upward revisions even
Speaker 1: on the prior month's CPI that's heading into this current report,
Speaker 1: are we going to look back and say there wasn't
Speaker 1: that much disinflation at this point, that that was sort
Speaker 1: of a head fake at a time when services still
Speaker 1: were re accelerating. Yeah, well, if you look at what
Speaker 1: happened late last year, it was just a handful of
Speaker 1: very volatile categories that were pushing things down. I mean,
Speaker 1: gasoline was the most obvious one, but used car prices
Speaker 1: were falling rapidly. Airfares were falling rapidly, which was really
Speaker 1: the same thing as as gasoline prices. It was the
Speaker 1: you know, the reversal of the the big um spike
Speaker 1: that we saw an energy costs after the Russian invasion
Speaker 1: in Ukraine. So you could see at the time that
Speaker 1: it was not sustainable, the the low core readings that
Speaker 1: we were getting, the low headline readings that we were getting,
Speaker 1: And I think now we're getting back to something more
Speaker 1: in line with with where the fundamentals are all right.
Speaker 1: So now we're gonna get a FED parade, uh, including
Speaker 1: Tom Barkin joining John Farrell, Michael McKee coming up here.
Speaker 1: What are they gonna say if this is a heart
Speaker 1: of than expected print, Well, the FED has actually been
Speaker 1: leaning against the market enthusiasm and saying, hey, look, this
Speaker 1: is gonna be a tough task ahead of us. It's
Speaker 1: gonna take quite a bit of time. So it's not
Speaker 1: gonna be I told you so, but it's gonna be
Speaker 1: I think, much more steady as she goes for the
Speaker 1: FED than it had than it will be for the markets. Um.
Speaker 1: It feels like to me that the FED has really
Speaker 1: almost locked in a game plan here. They want to
Speaker 1: get rates just abuff five percent, which probably means two
Speaker 1: more quarter point hikes, and then they want to pause
Speaker 1: and give it a few months and see what happens. Um.
Speaker 1: And so I think the bar is probably relatively high
Speaker 1: for divergence from that short term game plan on either side.
Speaker 1: This is even to the breathlessness eight minutes six seconds away?
Speaker 1: Is this idiocy? Excuse me, I editorializer, John, Please excuse me,
Speaker 1: sir John, I'm sorry this s C. Mr Stanley of
Speaker 1: now casting. The beloved geniuses at Cleveland who I adore
Speaker 1: for their work on inflation for twenty in thirty years
Speaker 1: even they have dived into the value of now casting.
Speaker 1: Is there any statistical value to naval gazing now casting? Well,
Speaker 1: you know, I guess we've all, you know, as economists,
Speaker 1: we've all been doing that to a degree. I don't
Speaker 1: like to advertise my number on a day to day basis,
Speaker 1: but really, at the end of the day, the one
Speaker 1: price that we all can track very closely on a
Speaker 1: day to day basis is gasoline prices, and that is
Speaker 1: responsible for a good part of the uh, the high
Speaker 1: frequency noise in the data. Otherwise, I think, you know,
Speaker 1: it's pretty tough. I mean, how do we know there's
Speaker 1: gonna winther is gonna be an upside or downside surprise
Speaker 1: for example, And shelter costs or recreation costs or medical care.
Speaker 1: I mean, you know, we don't have a lot of
Speaker 1: data on that. So, um, there's certain things that we
Speaker 1: can track and others that we can't. Stephen, you've had
Speaker 1: time to dive into a first look at this interesting day, Ada,
Speaker 1: what's the adult take? So uh, it was largely as expected.
Speaker 1: But I would say it could have been worse. Um,
Speaker 1: we saw big decline and use car prices again, we
Speaker 1: saw big decline and airfares again, those things are not
Speaker 1: likely to continue for much longer. Medical care services prices
Speaker 1: were down point seven. That's probably, you know, an exaggeration
Speaker 1: of of what we're likely to see in that category.
Speaker 1: So I mean, obviously there are upside surprises too, But
Speaker 1: my point being that some of these volatile categories that
Speaker 1: had been driving down the readings in late continued in
Speaker 1: January and we still got a point four, which again
Speaker 1: I think speaks to what we were discussing before that
Speaker 1: as long as shelter costs are going up as rapidly
Speaker 1: as they have been, um, it's gonna be tough to
Speaker 1: get inflation down anywhere close to where the FED would
Speaker 1: like to see it. This is absolutely critical. There's no
Speaker 1: other way to put it here, folks. When we see
Speaker 1: it from an equity strategist like Lisien Saunders, an economist
Speaker 1: like Mr Stanley idea of housing is being overwhelming, How
Speaker 1: overwhelming is It's give us a percentage of our lives
Speaker 1: that are based off the set of housing data. You have,
Speaker 1: sure well, the c P I I think maybe exaggerates
Speaker 1: a little bit, but if you just combine rent and
Speaker 1: owner's equivalent rent, that those two account for a little
Speaker 1: over of course c p I. So when we talk about,
Speaker 1: you know, the super core idea, I mean we're taking
Speaker 1: out a big chunk of the numbers now that the
Speaker 1: weights are a little bit smaller in the PC deflator,
Speaker 1: which is the inflation indicator that FED most closely focuses on.
Speaker 1: But yeah, I mean within the CPI housing is is
Speaker 1: maybe the story we're gonna talk here with Steven Stanley
Speaker 1: of Santantier. Michael McKee is digging into the data, and
Speaker 1: we're thrilled to bring you Kenneth Rogoff of Harvard University
Speaker 1: with this perspective here in a bit, we're commercial free
Speaker 1: here to the top of the hour at least. Ye
Speaker 1: as we watch the yo yo action in markets, which
Speaker 1: really builds on what we've seen some kind of year,
Speaker 1: I mean it's really it's like a child's toy. What's
Speaker 1: going on right now in markets? And I am wondering, Steven,
Speaker 1: whether you're looking at the inclination to rally, which is
Speaker 1: something that we have seen so far this year, how
Speaker 1: much of a challenge does that present to a federal
Speaker 1: reserve on the margins is seeing seeing the disinflationary process
Speaker 1: that is too slow for comfort? Yeah? Well, I think,
Speaker 1: you know, the markets and the FED have not quite
Speaker 1: been on the same page for a while now. The
Speaker 1: markets have you know, embraced slower inflation late last year.
Speaker 1: The markets want a quick pet FED pivot later this year,
Speaker 1: and the FET has been trying to push back against
Speaker 1: that to no avail. Um. I thought, you know, Jarren
Speaker 1: Powe had a nice chance to really kind of um,
Speaker 1: you know, push back at the FMC meeting when he
Speaker 1: was asked about financial conditions, and he didn't. So I
Speaker 1: think the FED has taken the tack of we'll let
Speaker 1: the data, um, you know, determine how the markets react,
Speaker 1: and we think the data are going to play out
Speaker 1: in a way that will get things closer to where
Speaker 1: we think they should be. Um. You know, it's always
Speaker 1: a dangerous game when the FED tries to tries to
Speaker 1: influence asset prices. It's a dangerous game when they try
Speaker 1: to influence asset prices. And yet traditionally this was one
Speaker 1: of their main transmission mechanisms of monetary policy. How much
Speaker 1: do they get further away from their goal as financial conditions,
Speaker 1: by most measures ease substantially to some of the lowest
Speaker 1: levels going back some of the most accommodative levels, going
Speaker 1: back to early Yeah, and there's no doubt. I mean,
Speaker 1: as as the minute the market's sniff, you know that
Speaker 1: the Fed might not have to go quite as much. Uh,
Speaker 1: financial conditions ease so in in some ways it kind
Speaker 1: of um, it's a self equilibrating process. But from the
Speaker 1: Fed's perspective, the concern is that even if you get
Speaker 1: somewhat weak real economic data, inflation might prove sticky or stubborn.
Speaker 1: And that's the scenario that the market really hasn't been
Speaker 1: willing to contemplate much. Steven Stanley, thank you so much
Speaker 1: with Santanta this morning. This is a joy on a
Speaker 1: on a busy inflation day to have Kenneth brokeoff with
Speaker 1: us to say he's professor at Harvard University. His work
Speaker 1: for the nation at the International Monetary Fund defies the
Speaker 1: description of this time is different. A seminal book here
Speaker 1: that is must read, must own, but far more his
Speaker 1: courageous The Curse of Cash, which was on a number
Speaker 1: of years ago on this Inflation day, on this day
Speaker 1: where Lyle Brainerd will join the White House, there's things
Speaker 1: to talk about, but we will talk about crypto here
Speaker 1: in a moment with Professor Rogoff Kent. Thank you so
Speaker 1: much for joining us this morning to be here. Uh.
Speaker 1: There's some people making news on inflation. One of them
Speaker 1: is a guy named Summers, who I think you've got
Speaker 1: an in acquaintance with UT Cambridge. Is the character of
Speaker 1: this inflation the shock disinflations pre Eisenhower forty seven and
Speaker 1: through the fifties, Is it like the sixties and the
Speaker 1: worry prevocer or is this a different inflation? Well, I
Speaker 1: think the clearly is more alert than at an earlier time.
Speaker 1: On the other hand, I think, as Lisa has been
Speaker 1: saying and others, inflation still here. Uh, the economy is
Speaker 1: still strong, and I think they have to decide how
Speaker 1: to play it. And one thing I think people maybe
Speaker 1: aren't paying enough attention to is that when inflation comes down,
Speaker 1: don't be sure interest rates are going to come down
Speaker 1: as much as people got used to before nineteen two
Speaker 1: twenty two. I think the next decade we're going to
Speaker 1: land at a higher real interest rate. Interest before. So
Speaker 1: it's not just where that the fat doesn't just have
Speaker 1: to figure out, you know, how much is inflation? They
Speaker 1: have to figure out where do we put the interest
Speaker 1: rate long term so that we don't have inflation. My
Speaker 1: book of the summer's Olivia Blanchard's new monograph that's out.
Speaker 1: There's just absolutely brilliant on something academic our minus g
Speaker 1: to keep it simple as well. The heart of Professor
Speaker 1: Blanchard's thesis is there's other things going on here we're
Speaker 1: really not observing right now. It's just not as cookie
Speaker 1: cutter is simple. Is all the simple analysis that goes
Speaker 1: on day today. What's a thing going on here post pandemic?
Speaker 1: The changes our financing, particularly as Olivier talks about changes
Speaker 1: our debt analysis, Well, I think there are two things.
Speaker 1: One is I think inflation adjusted interest rates are going
Speaker 1: to land higher than Olivier does. I think if you
Speaker 1: look at history, yes there's a slight downward trend in
Speaker 1: the inflation adjusted interest rate, but it's very tiny compared
Speaker 1: to how much it fell after the financial crisis. And
Speaker 1: I think there's going to be more mean reversion than
Speaker 1: perhaps he does, but who knows. I mean, that's a
Speaker 1: lot of uncertainty. And I'd say a second point is
Speaker 1: China is not going to be the same in the
Speaker 1: next decade as they were in the last decade. Yeah,
Speaker 1: they're rebounding off COVID lockdown, but I think that's also
Speaker 1: really going to Those are two big changes and trends
Speaker 1: that we're going to see after the pandemic that we
Speaker 1: didn't have before. Why then, is it is it important
Speaker 1: for there to be essentially tighter financial conditions for longer? Right,
Speaker 1: because higher real interest rates imply it's not just an
Speaker 1: inflation story. Well, we had lower financial conditions for longer
Speaker 1: for a long time because people were scared after the
Speaker 1: financial crisis. Saving was really high, investment was really low.
Speaker 1: Now we've entered an era where debt has really gone
Speaker 1: up quite a bit, private and public, which has leads
Speaker 1: to some adjustment in the interest rate. Probably defense spending
Speaker 1: is going to go up, Spending on green transition is
Speaker 1: going to go up. More populous governments from Latin America
Speaker 1: to the United States to Europe. So I here a
Speaker 1: lot of factors that will lead to more of a normalization.
Speaker 1: So people are listening to you and they're thinking to themselves,
Speaker 1: is that good or bad for stocks? You know, ultimately
Speaker 1: is this good or bad for the markets? Because that's
Speaker 1: sort of how people have viewed all FED actions in
Speaker 1: recent years. Basically, tighter financials have been bad for markets,
Speaker 1: and yet an effective tightening has allowed markets to rally
Speaker 1: that much more. Can you see that sort of sustained
Speaker 1: momentum of financial markets even in the face of tighter
Speaker 1: monetary conditions of higher real rates, So higher reil rates
Speaker 1: will mean lower asset prices in general. But what's going
Speaker 1: on right now, of course, is that the economy is
Speaker 1: stronger than we would have guessed if the numbers were
Speaker 1: right from the last labor market reporting that that was incredible,
Speaker 1: it was eye popping, and then the economy is doing
Speaker 1: pretty well and that's good news. So if the interest
Speaker 1: rates are tighter from that, that's obviously good for markets.
Speaker 1: If you're just joining us on radio and television, welcome
Speaker 1: to Bloomberg Surveillance, a key inflation report Lisa's monitoring. Can
Speaker 1: I say green on the screen now? I think just
Speaker 1: here from the second features up three and they're really
Speaker 1: there's some serious gyration going on here before we get
Speaker 1: to the opening. Uh Vic's nineteen point four one the
Speaker 1: two year yield four point five to percent. We're thrilled
Speaker 1: to have a substantial conversation this morning with Professor Rogoff
Speaker 1: of Harvard University. Long ago and far away you exited
Speaker 1: the I m F and then but Chard was there
Speaker 1: with stiglets and post GFC. They looked at four percent inflation.
Speaker 1: What an uproar that ensued? And then I would suggest
Speaker 1: that Peterson Adam Posen has talked about three percent is
Speaker 1: a new appropriate level? Are we going to get away
Speaker 1: from an anchor two percent verbiage? Are we going to reset?
Speaker 1: I gonna make some news here can help me? Are
Speaker 1: we gonna Are we gonna reset this morning higher than
Speaker 1: a two percent level? I'm not gonna be able to
Speaker 1: help you, Tom. I think that's extraordinarily unlikely and frankly
Speaker 1: not a good idea. Yes, probably back in the day
Speaker 1: they should have set three percent instead of two percent,
Speaker 1: but they didn't. And you know they've really made commitments.
Speaker 1: If you change it, it means you might change it again.
Speaker 1: So I think what in fact will happen. I don't
Speaker 1: think we're going to have a soft landing, by the way.
Speaker 1: I think we're and a half soft, But not the landing.
Speaker 1: I think inflations they're gonna allow to be altobated for longer,
Speaker 1: but they're gonna say it's going to get back to
Speaker 1: two percent. We're just taking longer. I think that's going
Speaker 1: to be the rhetoric. I want to shift here to China,
Speaker 1: as you mentioned earlier, and to me, what's so important Kennon?
Speaker 1: I mentioned there's this guy named Obsfelder wrote a textbook
Speaker 1: a few years ago, a guy named Rogoff. It's it's
Speaker 1: I think it's nine thousand pages. Well, it's like in
Speaker 1: the Game of Thrones where they take it off. It
Speaker 1: just feels like it just feels it just feels like that.
Speaker 1: But Ken, what's so important here? As we go from
Speaker 1: Obsfeld and Rogoff to the work that Lal Brainer did
Speaker 1: with David Reicher twenty years ago on trade in labor
Speaker 1: some in your international economics with a challenge U Dr
Speaker 1: Brainer is going to have at the White House with
Speaker 1: this evil thing out there now China. She's expert on
Speaker 1: trade and labor multinational dynamics. Where are we heading on
Speaker 1: that with China? Well, first, let me say I have
Speaker 1: the utmost respect for Lyle. I actually worked under her
Speaker 1: at Brookings when I was a visiting scholar in her section.
Speaker 1: I've known her for a long time. She's terrific. I
Speaker 1: think trade economists are looking at the data so far
Speaker 1: and saying, what deglobalization. Everybody's talking about it, but it's
Speaker 1: not in the data yet. But if you look at
Speaker 1: the tensions with China, and I have to say, particularly
Speaker 1: if something goes on in Ukraine, say with Russia really
Speaker 1: escalating with nuclear neutron bomb or something, and China continuing
Speaker 1: to trade, we are going to have to be talking
Speaker 1: about secondary sanctions, which we had done with a round
Speaker 1: in North Korea, but we've absolutely not done with Russia.
Speaker 1: You want to trade with Russia, it's your business, it's fine.
Speaker 1: And and then that that really will be something. And
Speaker 1: a lot of the effects we saw in the labor
Speaker 1: market could be partly reversed. But short of that, uh,
Speaker 1: it's you know, modest the changes that were likely to see.
Speaker 1: The shift from Leo Brainerd from chair to the head
Speaker 1: of the Economic Council for President Biden does highlight also
Speaker 1: the very political nature of making some of the decisions
Speaker 1: that you talk about, the sort of adam pose and
Speaker 1: take on it that can of throw off take on
Speaker 1: it that the FED will allow inflation to remain higher
Speaker 1: for longer. How much is that a response to the
Speaker 1: sort of deglobalization that policy is going to hope for
Speaker 1: this admission that you don't want to kill the economy.
Speaker 1: How political is that decision of allowing inflation to run
Speaker 1: hot heading into later this year? Well, I mean, I
Speaker 1: personally have long said I just thought it was the
Speaker 1: right decision because basically we don't know what's going on.
Speaker 1: The labor market, you know, has all these distortions that
Speaker 1: are coming off. The economy has all these distortions that
Speaker 1: are coming off, and you don't want to, you know,
Speaker 1: raise a head like you know what you're doing. For sure,
Speaker 1: I wouldn't be surprised if interest rates und up at
Speaker 1: six to bring down inflation. But why do you want
Speaker 1: to get there right away? Why do you want to
Speaker 1: rush to that judgment? Maybe they're going to end up
Speaker 1: much lower. So I think I don't think it's it's
Speaker 1: clearly very political at some level because growth is strong
Speaker 1: but inflation is high. Which way do we choose? That
Speaker 1: is a political defision. It affects people differently. But the
Speaker 1: FED tries to approach it in a technocratic way. What
Speaker 1: you just said there that race could get to six,
Speaker 1: but why rush it? Right? This is an important point.
Speaker 1: So do you think that it is appropriate to do
Speaker 1: basis point increments or do you think that they should
Speaker 1: just sort of sit on their hands and wait for
Speaker 1: a number of months to really get underway, since there
Speaker 1: isn't a rush in your view. Honestly speaking, either strategy
Speaker 1: would be reasonable at this point, but they're kind of committed.
Speaker 1: I would say to do two quarter point hikes at
Speaker 1: this point, given the labor market data, given the inflation data,
Speaker 1: and I don't think it matters a lot one way.
Speaker 1: It would matter more if suddenly we don't know what
Speaker 1: they're doing. But I think the real message is that
Speaker 1: the who knew what was going to happen with the
Speaker 1: supermarket report and so I think there's a lot of
Speaker 1: uncertainty around and that means to move slower and cautiously.
Speaker 1: But you can't predict too far ahead. Ken I want
Speaker 1: to get and do this without first order difference equations,
Speaker 1: or they'll all turn the channel or drive off the road.
Speaker 1: I remember post Vulcar and Olivier mentioned this is in
Speaker 1: his book He and Jeff Sex wrote an essay, and
Speaker 1: boy were they taken to task that higher rates can
Speaker 1: be not crucial for worrying about debt sustainability. So many
Speaker 1: of our listeners and viewers are scared stiff that if
Speaker 1: we get higher rates or where we are now or
Speaker 1: the six percent you talk of, that we're not going
Speaker 1: to be able to fund our debt and our deficit.
Speaker 1: Are they linked or is it separate? I can we
Speaker 1: be comfortable with the higher rate regime given the debt
Speaker 1: of the nation, well, first of all, the United States
Speaker 1: as the global currency, so we have a lot of
Speaker 1: debt capacity. The questions how much it costs us the
Speaker 1: real outcome If we have too much doubt, as we'll
Speaker 1: get more inflation at some point. That's what just happened.
Speaker 1: We just had an effective partial default on debt. Inflation
Speaker 1: was much higher than anyone was expecting, and that put
Speaker 1: money in the government's pockets that options there. It's a
Speaker 1: soft partial default. That's what we're not talking about not
Speaker 1: paying the bills and last some crazy people in Congress
Speaker 1: decide to do that, and no time for crypto. There's
Speaker 1: a more important question. I believe it's a vacancy at
Speaker 1: the FED, would you consider being vice chairman of the
Speaker 1: Federal Reserve System. I don't think I'm likely to be
Speaker 1: a candidate for that, but thank you for asking. He's
Speaker 1: good because it's his it's his to offer the job,
Speaker 1: so it's good that he has checked it today. I
Speaker 1: disagree inflation. There was a lot though. This is a
Speaker 1: really important point because it was sort of edifying this
Speaker 1: adam pose in view, where why is there a push
Speaker 1: to get back to two percent inflation? Are we going
Speaker 1: to get that? Kind of you even if you want
Speaker 1: to see disinflation, then at what point is it enough
Speaker 1: disinflation to be okay? These are some of the discussions
Speaker 1: at a time when it is a political decision and
Speaker 1: the economy is still strong. I'm going to defend the
Speaker 1: land of Rogoff and that the common feature even if
Speaker 1: they disagree, so he mentioned at the beginning, he disagrees
Speaker 1: with Professor Blanchard, who's more quiescent about when we can
Speaker 1: come back in the real reaking stay down and all that.
Speaker 1: But the answer is these people have a hard earned
Speaker 1: humility by knowing the history of inflation. Fear is in
Speaker 1: Reinhardt and Rogoff. There's a there's a humility here, Lisa
Speaker 1: that I don't hear in the noise of Twitter and
Speaker 1: the noise of the rest of it. No one else
Speaker 1: on inflation to speak to after Kenneth Rogoff of Harvard
Speaker 1: and David Rosenberg of Toronto. David Rosenberg iconic here in
Speaker 1: parsing inflation. David, do you find any value in the
Speaker 1: new rationalization of looking at super core inflation a service
Speaker 1: sector toxic cocktail? Is that a value or not? Well,
Speaker 1: you know what the FETE is telling you with this
Speaker 1: new super duper core core index. It's of the CPI.
Speaker 1: So if the FET is focusing on of the index,
Speaker 1: then Lord help us. All uh, you know, but it's
Speaker 1: it's the same j. Powell that told us a year
Speaker 1: ago that you know that his new favorite yield curve,
Speaker 1: you know, was a three months three months forwards eighteen
Speaker 1: months from now because at that point it was the
Speaker 1: only curve that was possibly sloping, and now that's converted.
Speaker 1: So you know, I think that looked too fat for
Speaker 1: a host of reasons. Wants to maintain a type policy stance.
Speaker 1: I think inflation look inflation is like a race between
Speaker 1: watching grass grow and paint dry. But it's clearly peaked.
Speaker 1: It is coming. But David, to be serious here, the
Speaker 1: owner's equivalent red ticked up year over year seven point
Speaker 1: five to seven point eight. I find a super core fixation,
Speaker 1: basically juvenile. How does an adult like you look at
Speaker 1: this when our listeners in Canada in America are getting
Speaker 1: crushed by housing costs? Right? Well, look, just mentioned the number.
Speaker 1: I mean that the new Powell number was up point four.
Speaker 1: Call it a five percent annual rate um. So that's
Speaker 1: what's going to give them the green light to continue
Speaker 1: to raise rates. Uh, and they clearly want to go
Speaker 1: not just for the next meeting, with the meeting afterwards. Look, Tom,
Speaker 1: you know so much of the CPI, which Alan Greenspan
Speaker 1: famously called applauded statistic at an fl m C meeting
Speaker 1: UM several decades ago. So much of the service sector,
Speaker 1: the service sector that the FITS focused on, are imputed.
Speaker 1: I mean, these aren't real numbers. Their guestimates by the BLS.
Speaker 1: You know, whether you look at how do you measure
Speaker 1: inflation and financial services? I mean they look at the
Speaker 1: yeld herve or health services for example, they look at
Speaker 1: profit martians in the health insurance sector. I mean so
Speaker 1: much of this is just pure fluff. What I'm going
Speaker 1: to say is that, you know, let's take a look
Speaker 1: and see what inflation is doing for the things that
Speaker 1: you can see, touch or feel. Uh. And I'm talking,
Speaker 1: for example, about the core goods component, which is the
Speaker 1: most hyper cifical part of the CPI. And it was up,
Speaker 1: you know, it was almost flat, was up less than
Speaker 1: point one, you know, after a string of numbers that
Speaker 1: are either flat or negative, and that year or year
Speaker 1: trend is just literally collapsed. It was eleven point eight
Speaker 1: percent this time last year. Year on year, the core
Speaker 1: goods CPI is running at one point three right now, Tom.
Speaker 1: That's the lowest dispensince October. So I'd like to focus
Speaker 1: on things that don't evolve guestswork. I like to focus
Speaker 1: on things that don't require imputations from the BLS. I
Speaker 1: know that's what the best focused on, UM. But I
Speaker 1: think that the significant downdraft you're actually seeing in the
Speaker 1: core good CPI, to me, that is telling the tale. David.
Speaker 1: You know, you look at the markets here just this morning.
Speaker 1: The future is kind of mixed. Not really much going
Speaker 1: on in the yield market as well. It seems like
Speaker 1: investors are really don't know what to take out of
Speaker 1: this report here. What do you think, more importantly, the
Speaker 1: Federal Reserve will take out of today's data. Well, I
Speaker 1: think that based on what they're looking at, it's gonna
Speaker 1: add justification for them to go again in March. They
Speaker 1: clearly want to go again in May. Who knows what
Speaker 1: they're gonna do by the end of the year. They
Speaker 1: wanted the markets to price out those dual rate cuts
Speaker 1: by the end of three. They successfully done that, But
Speaker 1: who knows what we're gonna end up at the end
Speaker 1: of the year. I mean, look at the same feed
Speaker 1: that told us with their dot plots back in the
Speaker 1: beginning of two that we're going to finish last year
Speaker 1: less than one percent on the funds, right, we ended
Speaker 1: up north to four. So it's gonna be situational. But
Speaker 1: for the here and now, if you're looking at what
Speaker 1: the FET is looking at, the skis in the green
Speaker 1: light to go in March and to maintain a tightening
Speaker 1: bias and of the May meeting. How about on the
Speaker 1: just the broad economic front, David, I mean kind of
Speaker 1: hearing that the rhetoric shift away from recession talk, how
Speaker 1: do you think about that. Well, you know, it's funny
Speaker 1: how one number has influenced so many people's perception on
Speaker 1: the economy. I mean, be one thing, if we had
Speaker 1: like eight economic numbers coming in week eight, coming and strong,
Speaker 1: and then wow, we get this five seventeen on non
Speaker 1: farm payrolls. But every number has been lining up week.
Speaker 1: I mean, we know coming out of the fourth quarter
Speaker 1: that real private final sales as flat as a pancake.
Speaker 1: Virtually every real macro indicator was negative on a three
Speaker 1: month basis heading into the end of two and then bang,
Speaker 1: we get the non farm payroll number and it's everybody's expectations.
Speaker 1: But we know that employment, employment, like inflation, is a
Speaker 1: coincidence lagging indicator. It tells you nothing about the future.
Speaker 1: So I think people's minds have been muddled. They don't
Speaker 1: talk about what the household survey did, population account adjusted,
Speaker 1: They don't talk what happened. Let me ask a question,
Speaker 1: what happened to a DP worst number in twenty three months?
Speaker 1: It was it was forty hours before and non to
Speaker 1: become a relic. So I say that's a view of like,
Speaker 1: I think it's actually a bit of a joke. It's
Speaker 1: a classic case of hope climbing over experience. David, we're
Speaker 1: out of time. We're gonna have you back on when
Speaker 1: Montreal stops wearing those ridiculous light blue jerseys. David Rosenberg
Speaker 1: from Canada this morning. They're on the inflation for it.
Speaker 1: Honored to have him on. Subscribe to the Bloomberg Surveillance
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