WEBVTT - Controlling the Economic Narrative From Jackson Hole

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>It's August. It only means one thing. Economists and policymakers

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<v Speaker 2>have descended on the mountains of Wyoming's Gran Teta National

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<v Speaker 2>Park this week for the annual Symposium of Jackson Hall.

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<v Speaker 2>More than one hundred participants, including several Central bank officials.

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<v Speaker 2>Of course, gather market watchers are paying close attention. So

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<v Speaker 2>today on the show, what do you need to know

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<v Speaker 2>as this important economic event kicks off? And what signals

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<v Speaker 2>could central bankers be sending to their economies. This is

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<v Speaker 2>in the City.

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<v Speaker 3>Welcome to the City of London, the.

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<v Speaker 1>City of the City of London.

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<v Speaker 2>Bank please mind the gap.

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<v Speaker 3>Between the tre and the financial hearts of the country,

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<v Speaker 3>the city, the city.

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<v Speaker 1>Welcome to in the.

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<v Speaker 2>City, sand clear of the doors and fronts and lack

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<v Speaker 2>one with me back from holiday in the city and

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<v Speaker 2>voter nomics host like Ra Stratton, Hello with us in

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<v Speaker 2>the studio and in the city. Favorite senior reporter Phil

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<v Speaker 2>Aldrich also newly back from holiday. Hey not on Jackson

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<v Speaker 2>HOLWAYO mean, I love Jackson HOLWAYO mean, because something always happens.

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<v Speaker 2>There's a big palsy speech. But also you see these

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<v Speaker 2>you know central bankers that we talk about day and

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<v Speaker 2>day out and casual wear.

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<v Speaker 1>Do they do it well?

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<v Speaker 2>I mean I think they do. They have like the

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<v Speaker 2>dad jeans, dad sneakers. I actually want to buy a

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<v Speaker 2>pair of jeans that really really sad. Phil's just looking perplexed.

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<v Speaker 3>Fashion fishing, you know, the sophisticated wellies in rivers and

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<v Speaker 3>things like that.

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<v Speaker 2>I'm sure. Actually we've seen pictures of you know, chairman

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<v Speaker 2>of Wall Street Banks with fly fishing waiters. Would you

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<v Speaker 2>call them? I think what we need?

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<v Speaker 1>Don't narry here, he's our resident fishing.

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<v Speaker 2>Yeah.

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<v Speaker 1>I've seen pictures of Dave in Waiders, haven't you. Yeah?

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<v Speaker 1>This varying non essential economic commentary.

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<v Speaker 3>Or is it?

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<v Speaker 2>A lot of the focus FILT will be on, of course,

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<v Speaker 2>you know, the US economy. A lot of it will

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<v Speaker 2>be on all the other economies. But we had a

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<v Speaker 2>crazy couple of days at the beginning of August because

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<v Speaker 2>we were worried that suddenly this Goldilock scenario for the

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<v Speaker 2>US economy would come crashing down, and I don't know

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<v Speaker 2>whether that would have taken the UK economy.

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<v Speaker 3>Was it? Yeah, it was, it was crazy. It kind

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<v Speaker 3>of unraveled and then it re raveled within the space

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<v Speaker 3>of a week or they say there was that there

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<v Speaker 3>was a shock jobs jobs report, and then all the economists,

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<v Speaker 3>as far as I could tell, thought that Psalm rule

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<v Speaker 3>was the sort of catchual for you know, the future

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<v Speaker 3>outlook for the world. And obviously the Song rule was

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<v Speaker 3>signaling that there's going to be a recession in the US.

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<v Speaker 3>But yeah, the the UK seems to be going the

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<v Speaker 3>other way at the moment, doesn't it. I mean, labor parties,

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<v Speaker 3>you know, the inheritance is terrible. The fiscal inheritance is

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<v Speaker 3>still looking pretty dismal, but the economic inheritance in terms

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<v Speaker 3>of the pickup in growth has been pretty good this year.

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<v Speaker 3>So we seem pretty resistant.

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<v Speaker 1>To feel is that the story out of Jackson Hole

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<v Speaker 1>this year that previously they've been aligned and this year

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<v Speaker 1>they are going to be coming with different conversation pieces.

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<v Speaker 3>Well, yeah, I mean the story has been that there

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<v Speaker 3>was a difference between Europe and the UK on one

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<v Speaker 3>side and the US on the other. The US was

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<v Speaker 3>like gangbusters economy and Europe and the UK were significantly

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<v Speaker 3>slower and in the UK like consumption hasn't even really

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<v Speaker 3>got back to pre pandemic levels. So there was always

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<v Speaker 3>that kind of divergence, but it's now it's sort of

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<v Speaker 3>switching track. Now the American economy looks like it's now

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<v Speaker 3>on a downswing and the UK economy was on an

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<v Speaker 3>upstream upswing. Europe is sort of in the middle. So

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<v Speaker 3>I think that that divergence point will definitely be a

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<v Speaker 3>discussion topic there. And so what would the policy response

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<v Speaker 3>and how would the divergent policy responses be. But obviously,

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<v Speaker 3>you know, and when it comes to interest rate trajectory,

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<v Speaker 3>it's all the same way. It's all down from here.

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<v Speaker 2>So why does Jackson Hole matter? I mean, there's a

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<v Speaker 2>handful of these retreats where a lot of the top

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<v Speaker 2>central bankers meet. But so you have the beautiful mountains,

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<v Speaker 2>you have the fishing. It's a bit of a retreat.

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<v Speaker 2>But then you could also, I guess, have big policy speeches.

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<v Speaker 3>Yeah, you know, historically there have been major policy speeches

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<v Speaker 3>there which have been hugely influential. But the other thing

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<v Speaker 3>is it's the end of the summer. We're resetting for

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<v Speaker 3>you know, the rest of the year and into early

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<v Speaker 3>twenty twenty five, and so this is kind of an agenda.

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<v Speaker 3>It's always been an agenda setting conference. Well, actually there was.

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<v Speaker 3>It was it was a bit of an irrelevancy until

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<v Speaker 3>Paul Volka went and he was there was when he

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<v Speaker 3>was doing his uh you know, attack on inflation and

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<v Speaker 3>raising interest rates aggressively and basically the whole world seemed

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<v Speaker 3>to be lined up against him, and he went along

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<v Speaker 3>to Jackson Hole that year. It was very early on

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<v Speaker 3>in the in the in these events, and the entire

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<v Speaker 3>economic fraternity seemed to just turn on him and he

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<v Speaker 3>was aggressively attacked, and that's what sort of made Jackson

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<v Speaker 3>Hole this kind of moment, This moment in the calendar

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<v Speaker 3>was this kind of uh, you know, the excitement. Then

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<v Speaker 3>I guess the way it works and is quite interesting

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<v Speaker 3>is all these central bankers that they've got to kind

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<v Speaker 3>of show off to each other. They've got to say, look,

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<v Speaker 3>my brain is bigger than yours, and I've got my

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<v Speaker 3>policy ideas that are going to be more transformative. So

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<v Speaker 3>there's a you know, you know, economies are meant to

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<v Speaker 3>be competitive, and this is like competitive economists, you know,

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<v Speaker 3>trying to trying to be trying to come up with

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<v Speaker 3>the new policies.

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<v Speaker 1>With this year. Might you see or hear a little

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<v Speaker 1>bit of humility that they don't necessarily feel that it's

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<v Speaker 1>completely obvious the direction of travel and what they should do. Yes, yes,

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<v Speaker 1>you're right when you said earlier the direction. It's all

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<v Speaker 1>down from here. But isn't there a question about when

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<v Speaker 1>and speed?

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<v Speaker 3>And yeah, so that's where Yeah, you're right in terms

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<v Speaker 3>of the divergent aspect of things. I think one of

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<v Speaker 3>the big questions that they've they've they've got to answer,

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<v Speaker 3>and again you'll see different answers, is you know now

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<v Speaker 3>that we are cutting rates, when do you stop cutting?

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<v Speaker 3>Where is the neutral rate? And no one has really

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<v Speaker 3>set that out. And if you came out of Jackson

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<v Speaker 3>Hole still with your finger in the air, you know,

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<v Speaker 3>after this this week and just wondering where are we

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<v Speaker 3>going to end up? And I think that would be

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<v Speaker 3>a bit of a disappointment. And I'm not saying that

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<v Speaker 3>they have to set specific numbers, but if that's the

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<v Speaker 3>real big question that's coming for the next few months

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<v Speaker 3>and there and they don't get ahead of that, that

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<v Speaker 3>would be I think a little bit of a failure

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<v Speaker 3>on the policy making front.

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<v Speaker 2>I mean, I guess, as you know, J. Pewell's character

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<v Speaker 2>is usually quite coy and we've moved away from a

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<v Speaker 2>lot of forward guidance because in the past it hasn't

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<v Speaker 2>worked out. But I spent a lot of time just

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<v Speaker 2>wondering why it's so difficult to model all these things, right,

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<v Speaker 2>I mean, I know we're data dependent, but we've gone

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<v Speaker 2>through the fastest hiking cycle, you know, in the US,

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<v Speaker 2>in the UK and in Europe probably in modern history.

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<v Speaker 2>And they don't really know when the right time to

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<v Speaker 2>cut is because they're waiting on monthly jobs data and

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<v Speaker 2>inflation data. I mean, it feels a bit weird, doesn't it, Phil.

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<v Speaker 3>Yeah, because especially as central banks are supposed to be

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<v Speaker 3>looking forward two years, so that so all of their

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<v Speaker 3>actions are really anticipating where life will be, inflation will

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<v Speaker 3>be in a couple of years times. So they should

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<v Speaker 3>they should have a framework with which they can decide

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<v Speaker 3>that it is time to go at You know, whether

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<v Speaker 3>you move one month or the next, I suppose doesn't

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<v Speaker 3>really make an awful lot of difference. But if you're

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<v Speaker 3>delaying for ages.

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<v Speaker 2>But is it that it's more difficult to read the

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<v Speaker 2>economy that now that it was in the past, or

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<v Speaker 2>that because you raise rates so quickly, you don't really

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<v Speaker 2>know where it lands.

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<v Speaker 3>I don't think the economy is more difficult to read

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<v Speaker 3>than it than it used to be. I don't think

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<v Speaker 3>anyone would sit that. I guess what has been different

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<v Speaker 3>is that the speed and pace of rate rises did

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<v Speaker 3>not result in these sort of outcomes that people were

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<v Speaker 3>anticipating before they started to do this. So here in

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<v Speaker 3>the UK we started, we've done the first quarter point cut,

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<v Speaker 3>and the sort of markets are now expecting a move

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<v Speaker 3>every quarter rather than every meeting, and so that in

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<v Speaker 3>itself causes a complication. So when you start cutting normally,

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<v Speaker 3>you just go sequentially because you're cutting into a recession.

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<v Speaker 3>This time, we're kind of sort of feeling our way

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<v Speaker 3>back to the neutral rate. We're on a rate cutting cycle,

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<v Speaker 3>but we're not going to cut rates now. We're going

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<v Speaker 3>to wait. But then why are you waiting? And how

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<v Speaker 3>do you organize the vote structure within the nine member

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<v Speaker 3>Monetary Policy Committee to make sure that you do this? Yeah,

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<v Speaker 3>it all becomes a bit strange and a bit of

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<v Speaker 3>a sort of awkward process to manage.

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<v Speaker 2>But the economy is okay, and that's quite surprising. We

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<v Speaker 2>were talking like three four months ago about it possible,

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<v Speaker 2>you know, really slowing down and the numbers are you know,

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<v Speaker 2>have come in stronger than expected. So I don't know

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<v Speaker 2>whether it's now time to worry about overheating or whether

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<v Speaker 2>we should just enjoy the UK economy relatively stronger than

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<v Speaker 2>other economies.

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<v Speaker 3>Yeah, I think there's not really any signs of overheating

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<v Speaker 3>because consumers spending hasn't hasn't taken off or anything. But

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<v Speaker 3>and government spending is still a significant important part of

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<v Speaker 3>the growth that we've been seeing. Business investment is picking up,

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<v Speaker 3>which is it, Which is a good thing, But yeah,

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<v Speaker 3>it could change where you think that find the glidepath

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<v Speaker 3>to what it changes the what in that glidepath potentially

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<v Speaker 3>where does where do interest rates end up?

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<v Speaker 2>But it all goes back to also that you know,

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<v Speaker 2>the fiscal event when we have the budget. So if

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<v Speaker 2>you're in the Bank of England right now, you're not

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<v Speaker 2>grappling in the dark, but you just don't really know

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<v Speaker 2>some of the policies that the new government will put

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<v Speaker 2>in place and what happens to taxation and what that

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<v Speaker 2>means for inflation.

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<v Speaker 3>Yeah, well there's I mean there's sort of suggestions that

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<v Speaker 3>that Rachel Res may try and worry about twenty billion

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<v Speaker 3>pounds more by maybe changing the debt rules or you know,

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<v Speaker 3>changing arrangements around the Bank of England. Bizarrely, the growth

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<v Speaker 3>has not delivered much stronger public finances. The public finances

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<v Speaker 3>are getting worse, so it looks like she's going to

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<v Speaker 3>have to borrow more as well as to tax cut

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<v Speaker 3>tax rises to compensate for higher spending plans for all

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<v Speaker 3>these these pay rises for public set to workers, So

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<v Speaker 3>you could you could see this kind of inflationary stimulus

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<v Speaker 3>caused by extra borrowing on top of the public set

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<v Speaker 3>to pay rises which do have a have an impact

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<v Speaker 3>on general demand a bit, and then on the minimum

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<v Speaker 3>wage which comes into effect next year if they do

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<v Speaker 3>push it up by about ten percent, which it looks

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<v Speaker 3>like they're signaling for signaling. So the October budget is

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<v Speaker 3>obviously going to be a critical moment, and it comes

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<v Speaker 3>just a day before the Bank of Day or two

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<v Speaker 3>before the Bank of England's November rate decision, which is

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<v Speaker 3>the next one moment. Yeah, it's the next one which

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<v Speaker 3>they're supposed there was expected to cut out, so you

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<v Speaker 3>know that could that could prove quite a quite quite

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<v Speaker 3>a lively meeting.

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<v Speaker 1>So if you're so, if you're Andrew Bailey and you're

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<v Speaker 1>at Jackson Hole, in your in your cools, in your

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<v Speaker 1>core trainers and your cool. So you've probably got some

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<v Speaker 1>advisor right now running around trying to source you something,

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<v Speaker 1>something that will meet friends.

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<v Speaker 2>Let's I don't think I've seen I don't think i've

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<v Speaker 2>seen anyone.

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<v Speaker 1>What what will? What will fran Lack will approve of?

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<v Speaker 1>So if you are Andrew Bailey and you're at Jackson Hole,

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<v Speaker 1>what what? How will people be approaching him so people say, oh,

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<v Speaker 1>your experience is interesting and talk us through it, or

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<v Speaker 1>or is there still a perception that everything is too

0:11:38.559 --> 0:11:40.760
<v Speaker 1>unique to the UK for that too much we'll read across.

0:11:40.920 --> 0:11:45.079
<v Speaker 3>No, I think I think the UK experience will I

0:11:45.120 --> 0:11:49.559
<v Speaker 3>mean to the point of these divergent economies, So what

0:11:49.640 --> 0:11:52.240
<v Speaker 3>the UK has experienced so far could be feeding into

0:11:52.559 --> 0:11:54.920
<v Speaker 3>there will be lessons learned for America if it is

0:11:54.960 --> 0:11:57.240
<v Speaker 3>about to is about to go on to slow down

0:11:57.679 --> 0:12:01.240
<v Speaker 3>the coordination of monetary policy between central bankers, which you know,

0:12:01.320 --> 0:12:04.000
<v Speaker 3>God does go on behind the scenes, that's obviously going

0:12:04.000 --> 0:12:06.199
<v Speaker 3>to be critical, just to so that others get a

0:12:06.240 --> 0:12:07.520
<v Speaker 3>sense of I don't know that. I mean, we've had

0:12:07.880 --> 0:12:10.800
<v Speaker 3>quantitative easing we've What we've had here is a is

0:12:10.840 --> 0:12:14.680
<v Speaker 3>a very transparent exposure of the fiscal risks of quantitative easing,

0:12:14.920 --> 0:12:19.719
<v Speaker 3>which which the accounting in Europe and America really conceals

0:12:19.720 --> 0:12:22.200
<v Speaker 3>to a degree. So but it's still it's you know,

0:12:22.240 --> 0:12:24.400
<v Speaker 3>it is still the same problem, just hidden away there

0:12:24.400 --> 0:12:28.320
<v Speaker 3>a bit. So there may be some discussions about we've

0:12:28.320 --> 0:12:30.800
<v Speaker 3>had time to learn the full lessons the more of

0:12:30.840 --> 0:12:33.640
<v Speaker 3>the full lessons of quantative easing. What our takeaway is,

0:12:34.080 --> 0:12:35.960
<v Speaker 3>And of course that was the Bananky review, wasn't there

0:12:36.000 --> 0:12:38.280
<v Speaker 3>for you know that? And like what the Bank of

0:12:38.280 --> 0:12:40.920
<v Speaker 3>England is doing to upgrade its systems and to overhaul

0:12:41.040 --> 0:12:41.640
<v Speaker 3>its practices.

0:12:41.679 --> 0:12:44.240
<v Speaker 2>And there's a piece phil that I thought was great

0:12:44.240 --> 0:12:47.880
<v Speaker 2>by Mohammadalarian, who often goes to Jackson holl And he

0:12:47.960 --> 0:12:50.520
<v Speaker 2>was basically saying that you know that he's he's been

0:12:50.559 --> 0:12:53.000
<v Speaker 2>certainly critical of the FED, and he said, look, the

0:12:53.040 --> 0:12:55.600
<v Speaker 2>stakes are high for j. Powell at this Jackson Hole

0:12:55.640 --> 0:12:58.080
<v Speaker 2>meeting because he needs to get ahead of the communication issue.

0:12:58.080 --> 0:13:01.840
<v Speaker 2>So he needs Mohammadalau and believes that JA power needs

0:13:01.840 --> 0:13:04.760
<v Speaker 2>to regain control of the economic and policy narrative. Is

0:13:04.760 --> 0:13:07.160
<v Speaker 2>that true for all central banks, including the Bank of England.

0:13:07.240 --> 0:13:09.320
<v Speaker 2>It's all now just communication to make sure that the

0:13:09.400 --> 0:13:13.439
<v Speaker 2>markets don't go off rail so then need to come

0:13:13.440 --> 0:13:15.160
<v Speaker 2>back when they kind of call them back to order.

0:13:16.160 --> 0:13:22.480
<v Speaker 3>Yeah, I think this is quite a different policy loosening situation,

0:13:22.679 --> 0:13:24.800
<v Speaker 3>like the communication is going to be is will be

0:13:24.880 --> 0:13:28.720
<v Speaker 3>quite difficult, particularly in the US and in Europe. They're

0:13:28.800 --> 0:13:31.920
<v Speaker 3>also moving slowly. I mean so far they've the Guard

0:13:31.920 --> 0:13:35.680
<v Speaker 3>has handled that process. That's very well. Yeah, with the

0:13:35.720 --> 0:13:38.520
<v Speaker 3>FED is it is definitely a lot more complicated because

0:13:38.600 --> 0:13:41.280
<v Speaker 3>that market reaction to that Job's report and the assumption

0:13:41.360 --> 0:13:43.880
<v Speaker 3>that you know, the US is headed for recession, you know,

0:13:44.360 --> 0:13:48.199
<v Speaker 3>was you know, we'll put the frighteners on on the FED.

0:13:48.840 --> 0:13:51.000
<v Speaker 3>You know, the UK economy is recovering, so you can

0:13:51.040 --> 0:13:54.480
<v Speaker 3>cut rates more slowly into a recovering economy than you

0:13:54.760 --> 0:13:57.640
<v Speaker 3>would do into a into a shrinking economy. You know,

0:13:57.760 --> 0:14:00.160
<v Speaker 3>the trajectory in America is that way. The introject to

0:14:00.200 --> 0:14:03.760
<v Speaker 3>me is downwards. So the pressure to do more rapid

0:14:03.800 --> 0:14:06.400
<v Speaker 3>rate cuts in America would definitely be greater than it

0:14:06.480 --> 0:14:09.080
<v Speaker 3>is here. And yet the economy is still very strong

0:14:09.360 --> 0:14:13.160
<v Speaker 3>and there's still signs of inflationary pressures in places say

0:14:13.200 --> 0:14:16.560
<v Speaker 3>that that is a much more tricky communication problem in

0:14:16.640 --> 0:14:20.160
<v Speaker 3>the US that they face than we have here. I think,

0:14:20.280 --> 0:14:24.600
<v Speaker 3>I think we we can't justify this kind of gradualism

0:14:24.840 --> 0:14:25.400
<v Speaker 3>more easily.

0:14:25.800 --> 0:14:28.360
<v Speaker 2>Thank you, Phil. So it's light there with a bit

0:14:28.400 --> 0:14:38.360
<v Speaker 2>more nesto. Thanks Phil, Thanks Phil, Thank you, Thanks very much, Thanks.

0:14:38.200 --> 0:14:38.760
<v Speaker 1>Very much, Phil.

0:14:41.480 --> 0:14:43.920
<v Speaker 2>Thanks for listening to this week's In the City from Bloomberg.

0:14:43.960 --> 0:14:47.080
<v Speaker 2>This episode was hosted by me Francin LaQuan and Allegra Stratton.

0:14:47.440 --> 0:14:50.920
<v Speaker 2>It was produced by Summersati Production support and sound designed

0:14:50.920 --> 0:14:54.920
<v Speaker 2>by Moses and Brandon. Francis Newman is our executive producer.

0:14:55.160 --> 0:14:59.360
<v Speaker 2>Sh Bauman is Head of Podcasts Special thanks to Phil Aldric.

0:14:59.680 --> 0:15:04.120
<v Speaker 2>Please subscribe, rate, and review wherever you listen to podcasts.