1 00:00:02,520 --> 00:00:09,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio News. We're coming here to Iceland, Draikivik, 2 00:00:09,600 --> 00:00:13,080 Speaker 1: where we're delighted to be joined by Governor Adrianna Kugler. 3 00:00:13,320 --> 00:00:15,640 Speaker 1: Governor Kugler, thank you for joining us. So there's been 4 00:00:15,640 --> 00:00:18,560 Speaker 1: a lot of talk about central bank independence. Jay Powell 5 00:00:19,200 --> 00:00:22,320 Speaker 1: under attack many times by Donald Trump saying, look that 6 00:00:22,600 --> 00:00:24,840 Speaker 1: actually the Fed did not cut How do you think 7 00:00:24,880 --> 00:00:27,040 Speaker 1: and how would you explain to the markets and maybe 8 00:00:27,040 --> 00:00:29,920 Speaker 1: the president of why we're currently in a witnessy mode 9 00:00:29,920 --> 00:00:30,320 Speaker 1: for the Fed. 10 00:00:31,360 --> 00:00:34,640 Speaker 2: Thank you, friend seein for having me here, and so 11 00:00:34,800 --> 00:00:37,400 Speaker 2: let me tell you a little bit. Obviously, we held 12 00:00:37,520 --> 00:00:41,560 Speaker 2: a steady at four point three percent, and I supported 13 00:00:41,600 --> 00:00:44,680 Speaker 2: that because the way I think about it is that 14 00:00:44,800 --> 00:00:50,240 Speaker 2: our policy rate is currently moderately restrictive, and I think 15 00:00:50,320 --> 00:00:52,680 Speaker 2: it makes sense to keep it that way, and it 16 00:00:52,720 --> 00:00:54,720 Speaker 2: makes to keep sense to keep it that way for 17 00:00:54,760 --> 00:00:58,160 Speaker 2: a number of reasons. First of all, we have been 18 00:00:58,280 --> 00:01:01,480 Speaker 2: seeing the progress on this inflation is low down a 19 00:01:01,520 --> 00:01:06,720 Speaker 2: little bit. We have also seen an increase in inflation expectations, 20 00:01:06,840 --> 00:01:10,839 Speaker 2: and we want to keep long run inflation expectations very 21 00:01:10,880 --> 00:01:15,119 Speaker 2: well anchored. So that's the second reason. Third, we see 22 00:01:15,319 --> 00:01:19,880 Speaker 2: some risks upside rates to inflation from the tarts that 23 00:01:19,959 --> 00:01:22,920 Speaker 2: are currently in place, and given that, it makes sense 24 00:01:22,959 --> 00:01:26,880 Speaker 2: to make sure we keep again the federal funds rate 25 00:01:27,000 --> 00:01:31,039 Speaker 2: moderately restricted. On the real side of the economy, on 26 00:01:31,040 --> 00:01:35,360 Speaker 2: the other hand, things have remained resilient. The employment rate 27 00:01:36,360 --> 00:01:40,160 Speaker 2: is still high, and the unemployment rate is still currently 28 00:01:40,200 --> 00:01:44,840 Speaker 2: at historically low rates. And by the same token, private 29 00:01:44,840 --> 00:01:49,600 Speaker 2: activity is judged by PDFP, the private domestic final purchases 30 00:01:51,240 --> 00:01:55,200 Speaker 2: numbers shows us that private activity grew at three percent. 31 00:01:55,840 --> 00:02:00,240 Speaker 2: We saw some conflicting evidence between imports and inventory is 32 00:02:00,280 --> 00:02:05,200 Speaker 2: but overall we see health is still in the real economy. 33 00:02:05,720 --> 00:02:09,280 Speaker 2: So that gives us time to make sure that we 34 00:02:09,360 --> 00:02:13,320 Speaker 2: continue to make progress on inflation and we keep our 35 00:02:13,639 --> 00:02:16,760 Speaker 2: inflation expectations very well anchoraged. 36 00:02:17,440 --> 00:02:20,960 Speaker 1: How problematic or the uncertainty actually of the tariffs. To 37 00:02:21,040 --> 00:02:24,440 Speaker 1: look at scenarios for GDP inflation and rates. So do 38 00:02:24,480 --> 00:02:27,239 Speaker 1: you look at scenarios or do you look at baseline projections? 39 00:02:27,600 --> 00:02:30,600 Speaker 2: Yeah, thank you for asking that we look at a 40 00:02:30,919 --> 00:02:35,440 Speaker 2: broad range of scenarios, in fact, because it is particularly 41 00:02:35,520 --> 00:02:38,960 Speaker 2: important during this time period of a lot of uncertainty. 42 00:02:39,080 --> 00:02:41,120 Speaker 2: Uncertainty is the world of the day, Is you know, 43 00:02:41,880 --> 00:02:44,400 Speaker 2: and so the way we see it is that we 44 00:02:44,440 --> 00:02:46,280 Speaker 2: don't know which way this is going to go. We 45 00:02:46,360 --> 00:02:49,400 Speaker 2: started at two point six percent effective tariferate at the 46 00:02:49,440 --> 00:02:52,480 Speaker 2: beginning of the year. It depends who you are, but 47 00:02:52,560 --> 00:02:57,200 Speaker 2: it's somewhere between twenty and twenty seven percent according to 48 00:02:57,320 --> 00:03:01,160 Speaker 2: many analysis and we do our own analysis but also 49 00:03:01,200 --> 00:03:05,359 Speaker 2: look at private sector analysis on this issue. So it's 50 00:03:05,360 --> 00:03:08,760 Speaker 2: still very high. It may still change. It could come 51 00:03:08,840 --> 00:03:13,120 Speaker 2: down because there could be negotiations or exemptions. It could 52 00:03:13,120 --> 00:03:16,840 Speaker 2: go up some if additional tips get put into place. 53 00:03:17,200 --> 00:03:20,480 Speaker 2: So we're not sure even about the magnitude of the tips. 54 00:03:20,919 --> 00:03:23,720 Speaker 2: We don't know which products are going to be affected 55 00:03:23,760 --> 00:03:28,760 Speaker 2: by the tips. At this point. We have a baseline case, 56 00:03:28,760 --> 00:03:31,280 Speaker 2: as you said, as to the ones that already have 57 00:03:31,360 --> 00:03:33,880 Speaker 2: been implemented, but we don't know if that's going to 58 00:03:34,080 --> 00:03:36,920 Speaker 2: change in the next week, in the next months, in 59 00:03:37,000 --> 00:03:40,240 Speaker 2: the in the next year. So we're keeping close attention 60 00:03:40,440 --> 00:03:44,880 Speaker 2: to many different scenarios and paying attention as to how 61 00:03:44,960 --> 00:03:49,200 Speaker 2: that may affect the economy. So obviously that that is 62 00:03:49,240 --> 00:03:51,880 Speaker 2: the question of the day, how will it affect economy? Right? 63 00:03:52,760 --> 00:03:55,280 Speaker 1: First of all, what's your takeaway from from you know, 64 00:03:55,320 --> 00:03:58,240 Speaker 1: first quarter GDP, and how you see you as consumers 65 00:03:58,320 --> 00:03:59,120 Speaker 1: behaving right now. 66 00:03:59,720 --> 00:04:02,680 Speaker 2: Yeah, as I said, on the real side of the economy, 67 00:04:03,760 --> 00:04:06,560 Speaker 2: what we've got is GDP for the first quarter, so 68 00:04:06,600 --> 00:04:10,880 Speaker 2: it's backward looking, and that backward looking number is showing 69 00:04:10,960 --> 00:04:14,400 Speaker 2: us exactly when one would have expected, which is a 70 00:04:14,440 --> 00:04:18,240 Speaker 2: lot of from loading, so from loading of imports ahead 71 00:04:18,279 --> 00:04:21,960 Speaker 2: of the targets, people trying to buy, both producers and 72 00:04:22,080 --> 00:04:26,240 Speaker 2: consumers trying to get those products before the times get 73 00:04:26,279 --> 00:04:30,200 Speaker 2: put into place. That showed been a huge increase in 74 00:04:30,440 --> 00:04:35,400 Speaker 2: imports and some increase in inventories, but not as much. 75 00:04:35,800 --> 00:04:39,320 Speaker 2: So overall, the GDP numbers showed some witness to point 76 00:04:39,360 --> 00:04:43,520 Speaker 2: three percent minus point three percent. But if you look 77 00:04:43,560 --> 00:04:46,599 Speaker 2: at the private side, on the other hand, you see 78 00:04:47,080 --> 00:04:51,360 Speaker 2: a very resilient economy with three percent growth in PDFB 79 00:04:51,680 --> 00:04:56,159 Speaker 2: the private domestic final purchases part of the economy, which 80 00:04:56,160 --> 00:05:02,040 Speaker 2: shows a resilient consumer and a resilient investors. Well, now 81 00:05:03,080 --> 00:05:08,720 Speaker 2: if you look at some of the more real time data, 82 00:05:08,000 --> 00:05:11,360 Speaker 2: the picture could look a little different. We did see 83 00:05:12,040 --> 00:05:16,440 Speaker 2: high retail sales, but if you ask the consumer what 84 00:05:16,680 --> 00:05:21,560 Speaker 2: they think they're going to do ahead, there's a falling 85 00:05:21,640 --> 00:05:25,240 Speaker 2: consumer confidence and people are thinking, well, maybe you won't 86 00:05:25,279 --> 00:05:29,160 Speaker 2: hold back. Investors are thinking, well, investment may come down 87 00:05:29,360 --> 00:05:33,200 Speaker 2: because we don't know what is coming ahead, and they're 88 00:05:33,240 --> 00:05:34,800 Speaker 2: concerned about TIFFs. 89 00:05:34,760 --> 00:05:37,559 Speaker 1: And there's a lot of talk. Of course, unemployment will rise. 90 00:05:37,880 --> 00:05:40,839 Speaker 1: You could also see terraffs actually putting inflation up. So 91 00:05:41,000 --> 00:05:42,880 Speaker 1: at some point, if it happens in the third quarter 92 00:05:43,000 --> 00:05:45,760 Speaker 1: or the fourth quarter, if you have this employment going up, 93 00:05:45,760 --> 00:05:48,440 Speaker 1: but also inflation being pushed by terriffs, does a higher 94 00:05:48,520 --> 00:05:51,960 Speaker 1: unemployment bring this inflation? Does it somehow make the job 95 00:05:51,960 --> 00:05:53,200 Speaker 1: a little bit easier for the Fed? 96 00:05:54,080 --> 00:05:58,760 Speaker 2: So there are two effects, right, one upside race to 97 00:05:59,160 --> 00:06:05,120 Speaker 2: inflation and upside riads to unemployment or the slow down 98 00:06:05,160 --> 00:06:08,800 Speaker 2: in economic activity. You're right, I think. The way I 99 00:06:08,839 --> 00:06:12,760 Speaker 2: think about it is we're already seen, especially from surveys 100 00:06:12,760 --> 00:06:18,240 Speaker 2: of manufacturers, some indications about tarists putting upward pressure and 101 00:06:18,360 --> 00:06:22,799 Speaker 2: prices in particular and the cause of materials. Those calls 102 00:06:22,839 --> 00:06:26,400 Speaker 2: already been passed on to the consumer. That's already shown 103 00:06:26,520 --> 00:06:29,840 Speaker 2: up in those surveys, whether it's sm surveys, the surveys 104 00:06:29,839 --> 00:06:34,520 Speaker 2: that are done by the regional FEDS. So that's definitely 105 00:06:34,520 --> 00:06:37,240 Speaker 2: showing up in the data, and its showed up in 106 00:06:37,360 --> 00:06:42,160 Speaker 2: goods prices and goods inflation going up as well. That's 107 00:06:42,240 --> 00:06:45,560 Speaker 2: happening now down the road. You're right, there could be 108 00:06:45,600 --> 00:06:49,480 Speaker 2: a slow down, and that's slow down partly because of uncertainty, 109 00:06:49,880 --> 00:06:54,359 Speaker 2: but also because real disposable income is going to fall. 110 00:06:54,400 --> 00:06:58,359 Speaker 2: Also because the real value of financial assets may fall, 111 00:06:58,440 --> 00:07:01,800 Speaker 2: and that will decrease wealth, and so those two effects 112 00:07:01,800 --> 00:07:05,640 Speaker 2: are going to push down aggregate demands. In addition to that, 113 00:07:05,839 --> 00:07:08,760 Speaker 2: I would point out that there could be reallocation of 114 00:07:08,800 --> 00:07:12,360 Speaker 2: economic activity and a reduction in productivity, and that could 115 00:07:12,400 --> 00:07:17,880 Speaker 2: come up. For example, new businesses or existing businesses start 116 00:07:17,920 --> 00:07:21,000 Speaker 2: producing things that used to be produced by those abroad 117 00:07:21,640 --> 00:07:25,560 Speaker 2: and then you're having lower productivity. That could put some 118 00:07:25,800 --> 00:07:30,720 Speaker 2: potentially some downward pressure on prices coming up from the 119 00:07:30,760 --> 00:07:35,240 Speaker 2: other side, but it's not clear whether they'll exactly counteract 120 00:07:35,320 --> 00:07:38,000 Speaker 2: each other. I would say one has to be cautious 121 00:07:38,440 --> 00:07:41,120 Speaker 2: to think that that in itself is going to do 122 00:07:41,360 --> 00:07:43,400 Speaker 2: the trick of getting prices back now. 123 00:07:44,160 --> 00:07:46,320 Speaker 1: Governor Jemakogle, thank you so much for joining us.