Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: It's August. It only means one thing. Economists and policymakers
Speaker 2: have descended on the mountains of Wyoming's Gran Teta National
Speaker 2: Park this week for the annual Symposium of Jackson Hall.
Speaker 2: More than one hundred participants, including several Central bank officials.
Speaker 2: Of course, gather market watchers are paying close attention. So
Speaker 2: today on the show, what do you need to know
Speaker 2: as this important economic event kicks off? And what signals
Speaker 2: could central bankers be sending to their economies. This is
Speaker 2: in the City.
Speaker 3: Welcome to the City of London, the.
Speaker 1: City of the City of London.
Speaker 2: Bank please mind the gap.
Speaker 3: Between the tre and the financial hearts of the country,
Speaker 3: the city, the city.
Speaker 1: Welcome to in the.
Speaker 2: City, sand clear of the doors and fronts and lack
Speaker 2: one with me back from holiday in the city and
Speaker 2: voter nomics host like Ra Stratton, Hello with us in
Speaker 2: the studio and in the city. Favorite senior reporter Phil
Speaker 2: Aldrich also newly back from holiday. Hey not on Jackson
Speaker 2: HOLWAYO mean, I love Jackson HOLWAYO mean, because something always happens.
Speaker 2: There's a big palsy speech. But also you see these
Speaker 2: you know central bankers that we talk about day and
Speaker 2: day out and casual wear.
Speaker 1: Do they do it well?
Speaker 2: I mean I think they do. They have like the
Speaker 2: dad jeans, dad sneakers. I actually want to buy a
Speaker 2: pair of jeans that really really sad. Phil's just looking perplexed.
Speaker 3: Fashion fishing, you know, the sophisticated wellies in rivers and
Speaker 3: things like that.
Speaker 2: I'm sure. Actually we've seen pictures of you know, chairman
Speaker 2: of Wall Street Banks with fly fishing waiters. Would you
Speaker 2: call them? I think what we need?
Speaker 1: Don't narry here, he's our resident fishing.
Speaker 2: Yeah.
Speaker 1: I've seen pictures of Dave in Waiders, haven't you. Yeah?
Speaker 1: This varying non essential economic commentary.
Speaker 3: Or is it?
Speaker 2: A lot of the focus FILT will be on, of course,
Speaker 2: you know, the US economy. A lot of it will
Speaker 2: be on all the other economies. But we had a
Speaker 2: crazy couple of days at the beginning of August because
Speaker 2: we were worried that suddenly this Goldilock scenario for the
Speaker 2: US economy would come crashing down, and I don't know
Speaker 2: whether that would have taken the UK economy.
Speaker 3: Was it? Yeah, it was, it was crazy. It kind
Speaker 3: of unraveled and then it re raveled within the space
Speaker 3: of a week or they say there was that there
Speaker 3: was a shock jobs jobs report, and then all the economists,
Speaker 3: as far as I could tell, thought that Psalm rule
Speaker 3: was the sort of catchual for you know, the future
Speaker 3: outlook for the world. And obviously the Song rule was
Speaker 3: signaling that there's going to be a recession in the US.
Speaker 3: But yeah, the the UK seems to be going the
Speaker 3: other way at the moment, doesn't it. I mean, labor parties,
Speaker 3: you know, the inheritance is terrible. The fiscal inheritance is
Speaker 3: still looking pretty dismal, but the economic inheritance in terms
Speaker 3: of the pickup in growth has been pretty good this year.
Speaker 3: So we seem pretty resistant.
Speaker 1: To feel is that the story out of Jackson Hole
Speaker 1: this year that previously they've been aligned and this year
Speaker 1: they are going to be coming with different conversation pieces.
Speaker 3: Well, yeah, I mean the story has been that there
Speaker 3: was a difference between Europe and the UK on one
Speaker 3: side and the US on the other. The US was
Speaker 3: like gangbusters economy and Europe and the UK were significantly
Speaker 3: slower and in the UK like consumption hasn't even really
Speaker 3: got back to pre pandemic levels. So there was always
Speaker 3: that kind of divergence, but it's now it's sort of
Speaker 3: switching track. Now the American economy looks like it's now
Speaker 3: on a downswing and the UK economy was on an
Speaker 3: upstream upswing. Europe is sort of in the middle. So
Speaker 3: I think that that divergence point will definitely be a
Speaker 3: discussion topic there. And so what would the policy response
Speaker 3: and how would the divergent policy responses be. But obviously,
Speaker 3: you know, and when it comes to interest rate trajectory,
Speaker 3: it's all the same way. It's all down from here.
Speaker 2: So why does Jackson Hole matter? I mean, there's a
Speaker 2: handful of these retreats where a lot of the top
Speaker 2: central bankers meet. But so you have the beautiful mountains,
Speaker 2: you have the fishing. It's a bit of a retreat.
Speaker 2: But then you could also, I guess, have big policy speeches.
Speaker 3: Yeah, you know, historically there have been major policy speeches
Speaker 3: there which have been hugely influential. But the other thing
Speaker 3: is it's the end of the summer. We're resetting for
Speaker 3: you know, the rest of the year and into early
Speaker 3: twenty twenty five, and so this is kind of an agenda.
Speaker 3: It's always been an agenda setting conference. Well, actually there was.
Speaker 3: It was it was a bit of an irrelevancy until
Speaker 3: Paul Volka went and he was there was when he
Speaker 3: was doing his uh you know, attack on inflation and
Speaker 3: raising interest rates aggressively and basically the whole world seemed
Speaker 3: to be lined up against him, and he went along
Speaker 3: to Jackson Hole that year. It was very early on
Speaker 3: in the in the in these events, and the entire
Speaker 3: economic fraternity seemed to just turn on him and he
Speaker 3: was aggressively attacked, and that's what sort of made Jackson
Speaker 3: Hole this kind of moment, This moment in the calendar
Speaker 3: was this kind of uh, you know, the excitement. Then
Speaker 3: I guess the way it works and is quite interesting
Speaker 3: is all these central bankers that they've got to kind
Speaker 3: of show off to each other. They've got to say, look,
Speaker 3: my brain is bigger than yours, and I've got my
Speaker 3: policy ideas that are going to be more transformative. So
Speaker 3: there's a you know, you know, economies are meant to
Speaker 3: be competitive, and this is like competitive economists, you know,
Speaker 3: trying to trying to be trying to come up with
Speaker 3: the new policies.
Speaker 1: With this year. Might you see or hear a little
Speaker 1: bit of humility that they don't necessarily feel that it's
Speaker 1: completely obvious the direction of travel and what they should do. Yes, yes,
Speaker 1: you're right when you said earlier the direction. It's all
Speaker 1: down from here. But isn't there a question about when
Speaker 1: and speed?
Speaker 3: And yeah, so that's where Yeah, you're right in terms
Speaker 3: of the divergent aspect of things. I think one of
Speaker 3: the big questions that they've they've they've got to answer,
Speaker 3: and again you'll see different answers, is you know now
Speaker 3: that we are cutting rates, when do you stop cutting?
Speaker 3: Where is the neutral rate? And no one has really
Speaker 3: set that out. And if you came out of Jackson
Speaker 3: Hole still with your finger in the air, you know,
Speaker 3: after this this week and just wondering where are we
Speaker 3: going to end up? And I think that would be
Speaker 3: a bit of a disappointment. And I'm not saying that
Speaker 3: they have to set specific numbers, but if that's the
Speaker 3: real big question that's coming for the next few months
Speaker 3: and there and they don't get ahead of that, that
Speaker 3: would be I think a little bit of a failure
Speaker 3: on the policy making front.
Speaker 2: I mean, I guess, as you know, J. Pewell's character
Speaker 2: is usually quite coy and we've moved away from a
Speaker 2: lot of forward guidance because in the past it hasn't
Speaker 2: worked out. But I spent a lot of time just
Speaker 2: wondering why it's so difficult to model all these things, right,
Speaker 2: I mean, I know we're data dependent, but we've gone
Speaker 2: through the fastest hiking cycle, you know, in the US,
Speaker 2: in the UK and in Europe probably in modern history.
Speaker 2: And they don't really know when the right time to
Speaker 2: cut is because they're waiting on monthly jobs data and
Speaker 2: inflation data. I mean, it feels a bit weird, doesn't it, Phil.
Speaker 3: Yeah, because especially as central banks are supposed to be
Speaker 3: looking forward two years, so that so all of their
Speaker 3: actions are really anticipating where life will be, inflation will
Speaker 3: be in a couple of years times. So they should
Speaker 3: they should have a framework with which they can decide
Speaker 3: that it is time to go at You know, whether
Speaker 3: you move one month or the next, I suppose doesn't
Speaker 3: really make an awful lot of difference. But if you're
Speaker 3: delaying for ages.
Speaker 2: But is it that it's more difficult to read the
Speaker 2: economy that now that it was in the past, or
Speaker 2: that because you raise rates so quickly, you don't really
Speaker 2: know where it lands.
Speaker 3: I don't think the economy is more difficult to read
Speaker 3: than it than it used to be. I don't think
Speaker 3: anyone would sit that. I guess what has been different
Speaker 3: is that the speed and pace of rate rises did
Speaker 3: not result in these sort of outcomes that people were
Speaker 3: anticipating before they started to do this. So here in
Speaker 3: the UK we started, we've done the first quarter point cut,
Speaker 3: and the sort of markets are now expecting a move
Speaker 3: every quarter rather than every meeting, and so that in
Speaker 3: itself causes a complication. So when you start cutting normally,
Speaker 3: you just go sequentially because you're cutting into a recession.
Speaker 3: This time, we're kind of sort of feeling our way
Speaker 3: back to the neutral rate. We're on a rate cutting cycle,
Speaker 3: but we're not going to cut rates now. We're going
Speaker 3: to wait. But then why are you waiting? And how
Speaker 3: do you organize the vote structure within the nine member
Speaker 3: Monetary Policy Committee to make sure that you do this? Yeah,
Speaker 3: it all becomes a bit strange and a bit of
Speaker 3: a sort of awkward process to manage.
Speaker 2: But the economy is okay, and that's quite surprising. We
Speaker 2: were talking like three four months ago about it possible,
Speaker 2: you know, really slowing down and the numbers are you know,
Speaker 2: have come in stronger than expected. So I don't know
Speaker 2: whether it's now time to worry about overheating or whether
Speaker 2: we should just enjoy the UK economy relatively stronger than
Speaker 2: other economies.
Speaker 3: Yeah, I think there's not really any signs of overheating
Speaker 3: because consumers spending hasn't hasn't taken off or anything. But
Speaker 3: and government spending is still a significant important part of
Speaker 3: the growth that we've been seeing. Business investment is picking up,
Speaker 3: which is it, Which is a good thing, But yeah,
Speaker 3: it could change where you think that find the glidepath
Speaker 3: to what it changes the what in that glidepath potentially
Speaker 3: where does where do interest rates end up?
Speaker 2: But it all goes back to also that you know,
Speaker 2: the fiscal event when we have the budget. So if
Speaker 2: you're in the Bank of England right now, you're not
Speaker 2: grappling in the dark, but you just don't really know
Speaker 2: some of the policies that the new government will put
Speaker 2: in place and what happens to taxation and what that
Speaker 2: means for inflation.
Speaker 3: Yeah, well there's I mean there's sort of suggestions that
Speaker 3: that Rachel Res may try and worry about twenty billion
Speaker 3: pounds more by maybe changing the debt rules or you know,
Speaker 3: changing arrangements around the Bank of England. Bizarrely, the growth
Speaker 3: has not delivered much stronger public finances. The public finances
Speaker 3: are getting worse, so it looks like she's going to
Speaker 3: have to borrow more as well as to tax cut
Speaker 3: tax rises to compensate for higher spending plans for all
Speaker 3: these these pay rises for public set to workers, So
Speaker 3: you could you could see this kind of inflationary stimulus
Speaker 3: caused by extra borrowing on top of the public set
Speaker 3: to pay rises which do have a have an impact
Speaker 3: on general demand a bit, and then on the minimum
Speaker 3: wage which comes into effect next year if they do
Speaker 3: push it up by about ten percent, which it looks
Speaker 3: like they're signaling for signaling. So the October budget is
Speaker 3: obviously going to be a critical moment, and it comes
Speaker 3: just a day before the Bank of Day or two
Speaker 3: before the Bank of England's November rate decision, which is
Speaker 3: the next one moment. Yeah, it's the next one which
Speaker 3: they're supposed there was expected to cut out, so you
Speaker 3: know that could that could prove quite a quite quite
Speaker 3: a lively meeting.
Speaker 1: So if you're so, if you're Andrew Bailey and you're
Speaker 1: at Jackson Hole, in your in your cools, in your
Speaker 1: core trainers and your cool. So you've probably got some
Speaker 1: advisor right now running around trying to source you something,
Speaker 1: something that will meet friends.
Speaker 2: Let's I don't think I've seen I don't think i've
Speaker 2: seen anyone.
Speaker 1: What what will? What will fran Lack will approve of?
Speaker 1: So if you are Andrew Bailey and you're at Jackson Hole,
Speaker 1: what what? How will people be approaching him so people say, oh,
Speaker 1: your experience is interesting and talk us through it, or
Speaker 1: or is there still a perception that everything is too
Speaker 1: unique to the UK for that too much we'll read across.
Speaker 3: No, I think I think the UK experience will I
Speaker 3: mean to the point of these divergent economies, So what
Speaker 3: the UK has experienced so far could be feeding into
Speaker 3: there will be lessons learned for America if it is
Speaker 3: about to is about to go on to slow down
Speaker 3: the coordination of monetary policy between central bankers, which you know,
Speaker 3: God does go on behind the scenes, that's obviously going
Speaker 3: to be critical, just to so that others get a
Speaker 3: sense of I don't know that. I mean, we've had
Speaker 3: quantitative easing we've What we've had here is a is
Speaker 3: a very transparent exposure of the fiscal risks of quantitative easing,
Speaker 3: which which the accounting in Europe and America really conceals
Speaker 3: to a degree. So but it's still it's you know,
Speaker 3: it is still the same problem, just hidden away there
Speaker 3: a bit. So there may be some discussions about we've
Speaker 3: had time to learn the full lessons the more of
Speaker 3: the full lessons of quantative easing. What our takeaway is,
Speaker 3: And of course that was the Bananky review, wasn't there
Speaker 3: for you know that? And like what the Bank of
Speaker 3: England is doing to upgrade its systems and to overhaul
Speaker 3: its practices.
Speaker 2: And there's a piece phil that I thought was great
Speaker 2: by Mohammadalarian, who often goes to Jackson holl And he
Speaker 2: was basically saying that you know that he's he's been
Speaker 2: certainly critical of the FED, and he said, look, the
Speaker 2: stakes are high for j. Powell at this Jackson Hole
Speaker 2: meeting because he needs to get ahead of the communication issue.
Speaker 2: So he needs Mohammadalau and believes that JA power needs
Speaker 2: to regain control of the economic and policy narrative. Is
Speaker 2: that true for all central banks, including the Bank of England.
Speaker 2: It's all now just communication to make sure that the
Speaker 2: markets don't go off rail so then need to come
Speaker 2: back when they kind of call them back to order.
Speaker 3: Yeah, I think this is quite a different policy loosening situation,
Speaker 3: like the communication is going to be is will be
Speaker 3: quite difficult, particularly in the US and in Europe. They're
Speaker 3: also moving slowly. I mean so far they've the Guard
Speaker 3: has handled that process. That's very well. Yeah, with the
Speaker 3: FED is it is definitely a lot more complicated because
Speaker 3: that market reaction to that Job's report and the assumption
Speaker 3: that you know, the US is headed for recession, you know,
Speaker 3: was you know, we'll put the frighteners on on the FED.
Speaker 3: You know, the UK economy is recovering, so you can
Speaker 3: cut rates more slowly into a recovering economy than you
Speaker 3: would do into a into a shrinking economy. You know,
Speaker 3: the trajectory in America is that way. The introject to
Speaker 3: me is downwards. So the pressure to do more rapid
Speaker 3: rate cuts in America would definitely be greater than it
Speaker 3: is here. And yet the economy is still very strong
Speaker 3: and there's still signs of inflationary pressures in places say
Speaker 3: that that is a much more tricky communication problem in
Speaker 3: the US that they face than we have here. I think,
Speaker 3: I think we we can't justify this kind of gradualism
Speaker 3: more easily.
Speaker 2: Thank you, Phil. So it's light there with a bit
Speaker 2: more nesto. Thanks Phil, Thanks Phil, Thank you, Thanks very much, Thanks.
Speaker 1: Very much, Phil.
Speaker 2: Thanks for listening to this week's In the City from Bloomberg.
Speaker 2: This episode was hosted by me Francin LaQuan and Allegra Stratton.
Speaker 2: It was produced by Summersati Production support and sound designed
Speaker 2: by Moses and Brandon. Francis Newman is our executive producer.
Speaker 2: Sh Bauman is Head of Podcasts Special thanks to Phil Aldric.
Speaker 2: Please subscribe, rate, and review wherever you listen to podcasts.