1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,799 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:29,600 Speaker 1: and of course on the Bloomberg terminal. This is a 6 00:00:29,720 --> 00:00:32,480 Speaker 1: joy after I'm teen years at the Bank of America 7 00:00:32,600 --> 00:00:36,879 Speaker 1: and really truly someone really glowed perfectly to the American 8 00:00:36,960 --> 00:00:42,360 Speaker 1: housing market. Michelle Meyer has changed the shingle to MasterCard Economics. 9 00:00:42,440 --> 00:00:45,680 Speaker 1: She is the US chief Economists at MasterCard Economics, and 10 00:00:45,800 --> 00:00:49,280 Speaker 1: she is brave this morning to come on Surveillance. Michelle, boy, 11 00:00:49,320 --> 00:00:52,000 Speaker 1: it's your language changed. You're moving from the big bank 12 00:00:52,080 --> 00:00:57,320 Speaker 1: out the MasterCard. You are all wallet share and wallet shift. 13 00:00:57,960 --> 00:01:03,080 Speaker 1: How much is my wallet shift after this weekend? Well, Tom, 14 00:01:03,120 --> 00:01:05,360 Speaker 1: it's wonderful to be back on with you, and thank 15 00:01:05,360 --> 00:01:07,759 Speaker 1: you team for for having me back and being able 16 00:01:07,800 --> 00:01:10,240 Speaker 1: to now honor to be able to not represent and 17 00:01:10,319 --> 00:01:13,759 Speaker 1: that's to part Economics Institute. As you noted, Tom, it's 18 00:01:13,800 --> 00:01:16,919 Speaker 1: really is about the consumer. The consumer is the pulse 19 00:01:16,959 --> 00:01:19,679 Speaker 1: on the economy and what we're paying really really careful 20 00:01:19,680 --> 00:01:22,480 Speaker 1: attention to is whether or not you are seeing those 21 00:01:22,520 --> 00:01:25,399 Speaker 1: wallet chair ships. Right, we're able to, you know, really 22 00:01:25,400 --> 00:01:29,080 Speaker 1: get an understanding of of of the trends in consumer 23 00:01:29,200 --> 00:01:32,240 Speaker 1: spending on a granular level, you know, in terms of 24 00:01:32,280 --> 00:01:35,520 Speaker 1: the different categories. Spending on experience is spending on goods 25 00:01:36,040 --> 00:01:39,920 Speaker 1: and clearly spending on you know, necessities. I mean, I 26 00:01:39,920 --> 00:01:42,600 Speaker 1: think that's one of the key stories right now is 27 00:01:42,640 --> 00:01:47,520 Speaker 1: with the inflation shock of really concentrate and necessities food, gasoline. 28 00:01:48,720 --> 00:01:52,280 Speaker 1: You know, that's been a big, big, big increase in 29 00:01:52,280 --> 00:01:56,880 Speaker 1: the parents out there. Tuition and summer break is under experiences. 30 00:01:57,000 --> 00:01:59,320 Speaker 1: Just in case you didn't know that. What do you 31 00:01:59,400 --> 00:02:02,240 Speaker 1: learn from charge cards? I mean, your granularity in the 32 00:02:02,320 --> 00:02:05,720 Speaker 1: housing market was legendary. When you look at what we 33 00:02:05,800 --> 00:02:10,240 Speaker 1: actually do with our various sundry charge cards, what does 34 00:02:10,280 --> 00:02:15,200 Speaker 1: you tell you about our share and shift? Well, look, 35 00:02:15,240 --> 00:02:19,760 Speaker 1: I mean clearly, the the data is robust and and 36 00:02:20,240 --> 00:02:21,959 Speaker 1: uh you know, I mean the main data who we're 37 00:02:21,960 --> 00:02:24,200 Speaker 1: looking at the master card spending pull Stata, which is 38 00:02:24,240 --> 00:02:26,520 Speaker 1: going to be able to capture all types of emails 39 00:02:26,560 --> 00:02:29,520 Speaker 1: to some extent um. So it's a really holistic view 40 00:02:29,720 --> 00:02:33,120 Speaker 1: of the consumer um and right now, you are seeing 41 00:02:33,200 --> 00:02:37,280 Speaker 1: the consumer generally still bugging along, spending very strongly. Out 42 00:02:37,280 --> 00:02:40,160 Speaker 1: of course, we are looking at nominal spending trends, and 43 00:02:40,280 --> 00:02:43,000 Speaker 1: part of that increase is reflecting what you all were 44 00:02:43,040 --> 00:02:47,040 Speaker 1: just talking about with this this incredible inflation environment. UM. 45 00:02:47,120 --> 00:02:49,720 Speaker 1: So once you adjust for that, real spending is you know, 46 00:02:49,919 --> 00:02:53,120 Speaker 1: clearly more more modest given out price pressure. UM. But 47 00:02:53,200 --> 00:02:57,079 Speaker 1: the consumer is still out spending on a variety of items, 48 00:02:57,120 --> 00:03:00,799 Speaker 1: whether it is those necessities or still even durable goods. 49 00:03:00,840 --> 00:03:02,880 Speaker 1: You know, we're looking at things like furniture spending, which 50 00:03:02,880 --> 00:03:05,320 Speaker 1: is still looking very strong. Tom, you mentioned my love 51 00:03:05,360 --> 00:03:07,600 Speaker 1: for the housing market which still exists, and we're looking 52 00:03:07,680 --> 00:03:12,360 Speaker 1: at you know, really um detailed spend on housing related items, 53 00:03:12,360 --> 00:03:15,760 Speaker 1: which at the moment are still looking quite strong. And 54 00:03:15,760 --> 00:03:19,400 Speaker 1: Tom was talking earlier Michelle about Kent tiles of of income. 55 00:03:19,680 --> 00:03:23,040 Speaker 1: How much is what you're capturing really the upper echelons 56 00:03:23,080 --> 00:03:26,440 Speaker 1: of earners and not necessarily a holistic picture of the 57 00:03:26,600 --> 00:03:30,919 Speaker 1: entire consumer market. Well, I think whenever you're looking at 58 00:03:30,960 --> 00:03:33,919 Speaker 1: some you know, high frequency data that's not the official 59 00:03:33,960 --> 00:03:36,040 Speaker 1: stats coming out the government, you have to consider what 60 00:03:36,120 --> 00:03:38,840 Speaker 1: your panel looks like and what you're capturing. For the 61 00:03:39,080 --> 00:03:41,880 Speaker 1: for the broad economy. I mean, my senses is that 62 00:03:41,960 --> 00:03:45,760 Speaker 1: it is a really good representation. Um, you know, I 63 00:03:45,800 --> 00:03:49,480 Speaker 1: think the general risk is that the very tears are 64 00:03:49,520 --> 00:03:53,120 Speaker 1: probably a little bit underrepresented. In the middle of the population. 65 00:03:53,400 --> 00:03:57,080 Speaker 1: Is really what we're grasping there, um, you know, for 66 00:03:57,080 --> 00:04:00,920 Speaker 1: for the really low low income folks that aren't using 67 00:04:01,000 --> 00:04:03,880 Speaker 1: other types of payments, that are mostly using cash, that's 68 00:04:03,920 --> 00:04:05,760 Speaker 1: gonna be a really hard thing to capture in any 69 00:04:05,800 --> 00:04:08,880 Speaker 1: of these types of high frequency data points. Um. But 70 00:04:08,960 --> 00:04:11,200 Speaker 1: to be able to get that pulse of that you know, 71 00:04:11,400 --> 00:04:13,720 Speaker 1: middle income consumer, I think it's really the key. The 72 00:04:13,760 --> 00:04:15,920 Speaker 1: reason why I asked Michelle is because for a long time, 73 00:04:15,960 --> 00:04:18,000 Speaker 1: people didn't even have to dig into their savings. They 74 00:04:18,000 --> 00:04:20,560 Speaker 1: had so much cash they could just keep deploying it. 75 00:04:20,839 --> 00:04:22,760 Speaker 1: I want to get a sense of whether the ongoing 76 00:04:22,839 --> 00:04:26,279 Speaker 1: spending momentum that we're seeing is really coming from people 77 00:04:26,320 --> 00:04:28,960 Speaker 1: continuing to dig into their savings, or whether they're starting 78 00:04:28,960 --> 00:04:31,159 Speaker 1: to borrow more, whether they're starting to leverage up, and 79 00:04:31,160 --> 00:04:36,640 Speaker 1: whether that could actually get crimped by higher yields. Yeah. So, 80 00:04:36,680 --> 00:04:38,880 Speaker 1: I mean, if you look at the past year, it 81 00:04:39,000 --> 00:04:42,760 Speaker 1: was extraordinary and that we had very, very low debt 82 00:04:43,000 --> 00:04:46,200 Speaker 1: right the debt debt service ratio, the financial applications ratio 83 00:04:46,320 --> 00:04:49,839 Speaker 1: hit wreckor lows across a variety of income cohorts. And meanwhile, 84 00:04:49,880 --> 00:04:52,920 Speaker 1: we had extraordinary amount of savings given the environment we 85 00:04:52,920 --> 00:04:56,039 Speaker 1: were in, which was this you know, spectacular physical stimulus 86 00:04:56,080 --> 00:04:59,360 Speaker 1: and montary stimulus. That's reversing right, the fatas hiking interest 87 00:04:59,440 --> 00:05:02,320 Speaker 1: rates not saying the same degree in fiscal stimulus. So 88 00:05:02,400 --> 00:05:05,120 Speaker 1: naturally we're gonna say reversal there. We're saving starts to 89 00:05:05,160 --> 00:05:07,880 Speaker 1: come down, um, and leverage starts to come up. That's 90 00:05:07,880 --> 00:05:11,400 Speaker 1: where we are in the cycle. UM. So it's quite reasonable. 91 00:05:11,480 --> 00:05:14,080 Speaker 1: And I think that the silver lining is that at 92 00:05:14,120 --> 00:05:17,679 Speaker 1: least we have those buffers UM. And that's really important 93 00:05:17,680 --> 00:05:20,040 Speaker 1: to keep in mind when we're thinking about these headwinds 94 00:05:20,040 --> 00:05:22,839 Speaker 1: that are hitting the economy is what's the starting point? 95 00:05:22,920 --> 00:05:25,280 Speaker 1: And the starting point for the consumer is a more 96 00:05:25,320 --> 00:05:29,279 Speaker 1: solid one than we've seen during prior cycles. Brian emails 97 00:05:29,320 --> 00:05:33,720 Speaker 1: in from over by Hill's Kitchen, and Brian Michelle is 98 00:05:33,880 --> 00:05:36,240 Speaker 1: asking you what the when you look at all the 99 00:05:36,320 --> 00:05:38,880 Speaker 1: charge card data and that what does it change to 100 00:05:38,960 --> 00:05:42,680 Speaker 1: the duration the X axis of your inflation? Guests, Brian 101 00:05:42,720 --> 00:05:50,480 Speaker 1: wants to know that before eight thirty this morning. Help sure. So, look, 102 00:05:50,520 --> 00:05:54,119 Speaker 1: I mean the inflation story I think is very very clear, 103 00:05:54,160 --> 00:05:56,520 Speaker 1: which is that we are an environment where inflation has 104 00:05:56,600 --> 00:06:00,560 Speaker 1: risen meaningfula particularly well, come on, come on to the chase. 105 00:06:00,640 --> 00:06:03,800 Speaker 1: I'm not talking to Alexander. I'm talking to Michelle Myer Willing. 106 00:06:03,839 --> 00:06:07,160 Speaker 1: Inflation sustained or do you buy the story inflation is 107 00:06:07,200 --> 00:06:09,320 Speaker 1: going to ease up? Brian hold on, Brian, he's on 108 00:06:09,360 --> 00:06:14,000 Speaker 1: the phone here, Brian hold On, Okay, go told Brian, 109 00:06:14,120 --> 00:06:17,160 Speaker 1: doesn't give you one minute. Um, Look, I think inflation 110 00:06:17,320 --> 00:06:20,520 Speaker 1: is going to come off these extraordinary highs, but not 111 00:06:20,600 --> 00:06:23,839 Speaker 1: to play, not quickly. Um, there's a running of price pressure. 112 00:06:23,880 --> 00:06:27,599 Speaker 1: Inflation expectations have increased, and companies have pricing power, and 113 00:06:27,640 --> 00:06:30,559 Speaker 1: consumers have the ability to spend more as well, given 114 00:06:30,600 --> 00:06:33,400 Speaker 1: that they're also seeing wage increases. So you have both 115 00:06:33,800 --> 00:06:37,880 Speaker 1: a wage push and a cost push, and that is meaningful. 116 00:06:37,920 --> 00:06:39,840 Speaker 1: So it's gonna take a while for that to come 117 00:06:39,839 --> 00:06:43,000 Speaker 1: off entirely. That a clear answer. That was great, That 118 00:06:43,080 --> 00:06:45,520 Speaker 1: was classic. That was like, it feels like this v 119 00:06:45,640 --> 00:06:50,800 Speaker 1: body course would be Bran report. Accompliments to Michelle. Thank you. 120 00:06:50,960 --> 00:06:52,840 Speaker 1: It's gonna catch up. It's always right to see a 121 00:06:52,960 --> 00:07:03,640 Speaker 1: master Card. You know that Michell of master Card, Dan Skelly, 122 00:07:03,800 --> 00:07:05,680 Speaker 1: they head of market research and strategy of Mark and 123 00:07:05,760 --> 00:07:07,880 Speaker 1: Standing Weft Management. And then let's stop there. You've been 124 00:07:08,000 --> 00:07:10,200 Speaker 1: right this defensive shift. The question I think for a 125 00:07:10,240 --> 00:07:11,840 Speaker 1: lot of people and equities at the moment is whether 126 00:07:11,880 --> 00:07:14,920 Speaker 1: there is a tanctical opportunity to lean the other way? 127 00:07:15,240 --> 00:07:18,760 Speaker 1: What would you say to those people? Not yet? Jonathan 128 00:07:19,120 --> 00:07:22,320 Speaker 1: and so in good morning, Jonathan and Tom and Lisa. 129 00:07:22,440 --> 00:07:25,880 Speaker 1: So look we're not there yet. UM. The bond market, 130 00:07:25,960 --> 00:07:29,400 Speaker 1: the interest rate expectations have come a long way, as 131 00:07:29,480 --> 00:07:32,440 Speaker 1: we all know from last fall, UM. And so look 132 00:07:32,480 --> 00:07:34,800 Speaker 1: the markets are now called it nine ten percent off 133 00:07:34,840 --> 00:07:37,920 Speaker 1: their January all time highs UM. But we don't think 134 00:07:38,000 --> 00:07:40,440 Speaker 1: there's two things that are priced in at these levels, right. 135 00:07:40,560 --> 00:07:44,040 Speaker 1: So if we're expecting these rate heights and the markets 136 00:07:44,080 --> 00:07:47,080 Speaker 1: digested that with just a ten percent move, what can 137 00:07:47,160 --> 00:07:50,400 Speaker 1: we expect for QT and for balance sheet reduction? And 138 00:07:50,520 --> 00:07:52,800 Speaker 1: we can talk more about that, but also what can 139 00:07:52,880 --> 00:07:54,560 Speaker 1: we think about in terms of the hits of the 140 00:07:54,640 --> 00:07:58,160 Speaker 1: consumer and owns that our economists, as you know, recently 141 00:07:58,240 --> 00:08:00,920 Speaker 1: marked down her GDP forecast for this year by about 142 00:08:00,920 --> 00:08:04,000 Speaker 1: a percentage point due to higher oil and gas prices. 143 00:08:04,440 --> 00:08:06,840 Speaker 1: So we're not there quite yet, Jonathan. We're also, we 144 00:08:06,880 --> 00:08:10,120 Speaker 1: would add, we're entering a seasonal weak period. We're gonna 145 00:08:10,160 --> 00:08:12,920 Speaker 1: have some tax bills come do. Maybe Tom just finished 146 00:08:13,000 --> 00:08:15,800 Speaker 1: his as you as you noted, but the summer months 147 00:08:15,840 --> 00:08:18,440 Speaker 1: are seasonally weak for the markets. Dan. When you take 148 00:08:18,480 --> 00:08:20,880 Speaker 1: a look at tenure yield it's almost at three percent. 149 00:08:21,400 --> 00:08:23,560 Speaker 1: At what level do they start to matter? I mean, 150 00:08:23,600 --> 00:08:25,360 Speaker 1: we talked about this and I go back to something 151 00:08:25,440 --> 00:08:27,520 Speaker 1: we talked about two years ago, and it's become almost 152 00:08:27,560 --> 00:08:30,360 Speaker 1: obsolete at a time when yields have gone far faster 153 00:08:30,600 --> 00:08:32,680 Speaker 1: and far higher than a lot of people could thought. 154 00:08:33,040 --> 00:08:36,280 Speaker 1: What are you looking for here? So at least it's 155 00:08:36,360 --> 00:08:39,280 Speaker 1: your point. You gotta consider two factors. One is the 156 00:08:39,440 --> 00:08:43,000 Speaker 1: level and the speed and the pace of the increases. 157 00:08:43,080 --> 00:08:46,520 Speaker 1: And look, I think to date we've seen equity markets 158 00:08:46,600 --> 00:08:50,560 Speaker 1: discount incredibly fast paced. Right, so we've seen that last 159 00:08:50,600 --> 00:08:52,640 Speaker 1: call it three or four months. We're just talking about 160 00:08:52,960 --> 00:08:56,480 Speaker 1: how fast the pendulum swung in terms of great expectations 161 00:08:57,120 --> 00:08:59,240 Speaker 1: um and so look, I think you've seen most of 162 00:08:59,320 --> 00:09:02,439 Speaker 1: that discount in the equity market. On the other note, 163 00:09:02,520 --> 00:09:05,319 Speaker 1: when you think about level. Look, we've been arguing Mike 164 00:09:05,360 --> 00:09:09,199 Speaker 1: Wilson via his valuation math, has been arguing that higher 165 00:09:09,280 --> 00:09:12,960 Speaker 1: rates ultimately get translated into lower multiples. Okay, and we've 166 00:09:13,000 --> 00:09:15,920 Speaker 1: seen multiples come down quite a bit for the index, 167 00:09:16,559 --> 00:09:18,679 Speaker 1: but we think there could be further d rating to go. 168 00:09:18,880 --> 00:09:21,480 Speaker 1: And so you know when you talk about like um 169 00:09:21,679 --> 00:09:24,240 Speaker 1: an absolute level that really matters. If you get that 170 00:09:24,440 --> 00:09:27,840 Speaker 1: much above three percent, call it three and a quarter, now, 171 00:09:27,960 --> 00:09:30,600 Speaker 1: that's going to take another couple of multipoints, multiple points 172 00:09:30,640 --> 00:09:33,640 Speaker 1: out of the event. Then I look at the index 173 00:09:33,760 --> 00:09:36,560 Speaker 1: now and I look at sectors, and I just simply 174 00:09:36,720 --> 00:09:39,160 Speaker 1: put do I want to be passive or do I 175 00:09:39,240 --> 00:09:44,000 Speaker 1: want to be active? Here? Definitely a time to be active, 176 00:09:44,160 --> 00:09:48,080 Speaker 1: tom And truly an excellent question question. So the last 177 00:09:48,160 --> 00:09:52,360 Speaker 1: several years really going into COVID and coming out of 178 00:09:52,400 --> 00:09:56,280 Speaker 1: COVID was marked by a really tremendous wave for passive. 179 00:09:56,440 --> 00:09:58,959 Speaker 1: Right you could be in the index and do incredibly well, 180 00:09:59,440 --> 00:10:02,559 Speaker 1: a period of high returns at absolute low volatility, and 181 00:10:02,840 --> 00:10:06,360 Speaker 1: and frankly that repeated the previous cycle that was the 182 00:10:06,480 --> 00:10:10,280 Speaker 1: case from O eight oh nine until UH and things 183 00:10:10,320 --> 00:10:13,120 Speaker 1: have really changed. We've seen a true regime shift tom 184 00:10:13,559 --> 00:10:16,240 Speaker 1: at all levels of the economy in the market, and 185 00:10:16,320 --> 00:10:20,599 Speaker 1: we're seeing volatility obviously increased. We've had tremendous volatility this 186 00:10:20,760 --> 00:10:24,280 Speaker 1: year given the Fed interest rate cycle, but also geopolitics 187 00:10:24,360 --> 00:10:27,720 Speaker 1: obviously everything going on tragically in Ukraine as well. Uh 188 00:10:27,800 --> 00:10:31,800 Speaker 1: And so given higher volatility, given a late a cycle 189 00:10:31,880 --> 00:10:35,480 Speaker 1: that's a pre approaching late innings, we're seeing the greater 190 00:10:35,559 --> 00:10:39,160 Speaker 1: dispersion between stocks and sectors. And to the point earlier, 191 00:10:39,400 --> 00:10:42,280 Speaker 1: you want to be very cognizant of which sectors you overweight, 192 00:10:42,840 --> 00:10:45,720 Speaker 1: and so the defensive sectors have started to emerge as 193 00:10:45,760 --> 00:10:50,160 Speaker 1: a leadership group. They don't happen to be uh tremendously overweighted, 194 00:10:50,200 --> 00:10:52,360 Speaker 1: and some of the market cap weighted index, as you know, 195 00:10:53,120 --> 00:10:55,160 Speaker 1: just to round things out, we can squeeze this in. 196 00:10:55,240 --> 00:10:58,160 Speaker 1: I think, is it strange to see this with it's 197 00:10:58,240 --> 00:11:00,840 Speaker 1: up fifty visis points of the last couple of weeks 198 00:11:00,880 --> 00:11:03,040 Speaker 1: on a tenure, to see the defensives do so well, 199 00:11:03,320 --> 00:11:07,040 Speaker 1: the utilities erupt, they outperform, healthcare up, the likes of 200 00:11:07,080 --> 00:11:09,000 Speaker 1: the banks down and down hard. What does that speak 201 00:11:09,040 --> 00:11:10,920 Speaker 1: to you? What does it tell you about where beyond 202 00:11:10,960 --> 00:11:14,839 Speaker 1: the cycle? Yeah, it's an excellent point, John, So you're 203 00:11:14,880 --> 00:11:17,839 Speaker 1: seeing mixed messages from the bond market and stock market, 204 00:11:17,920 --> 00:11:21,040 Speaker 1: and typically what we've observed over time, and Mike's written 205 00:11:21,080 --> 00:11:23,559 Speaker 1: about this, is that when you see that divergence in 206 00:11:23,679 --> 00:11:26,520 Speaker 1: message from fixed income, from the bond market and from 207 00:11:26,520 --> 00:11:30,560 Speaker 1: the stock market, typically stocks are telling you very interesting signals. 208 00:11:30,840 --> 00:11:34,520 Speaker 1: And so to your point, that defensive leadership is telling 209 00:11:34,559 --> 00:11:37,600 Speaker 1: you definitely that stocks are more worried about growth, right, 210 00:11:37,679 --> 00:11:40,199 Speaker 1: and so that's the tricky tradeoff that the bet is 211 00:11:40,600 --> 00:11:43,440 Speaker 1: certainly going to consider them the next several months. They've 212 00:11:43,480 --> 00:11:47,480 Speaker 1: talked very aggressively about doing everything it takes to tame 213 00:11:47,559 --> 00:11:49,839 Speaker 1: the inflation tiger and put it back in its cage, 214 00:11:50,200 --> 00:11:52,920 Speaker 1: but we don't know if that's possible. Dan Scalia, Morchus Stanley, 215 00:11:52,960 --> 00:12:02,360 Speaker 1: Thank you, sir. This is the must read of the morning, 216 00:12:02,440 --> 00:12:05,360 Speaker 1: because not only does Bill Dudley's an academic, but also 217 00:12:05,440 --> 00:12:08,800 Speaker 1: as someone stealed and market economics as he was for 218 00:12:08,920 --> 00:12:13,120 Speaker 1: years at Goldman, Sachs really gets out the timeline and 219 00:12:13,280 --> 00:12:16,319 Speaker 1: says when and what is so important here in speaking 220 00:12:16,360 --> 00:12:18,920 Speaker 1: to the former president of the New York Fed is 221 00:12:19,000 --> 00:12:22,359 Speaker 1: he addresses with courage, not the easy guests of the seventies, 222 00:12:22,800 --> 00:12:26,160 Speaker 1: but things to learn from the nineteen sixties. William Dudley 223 00:12:26,240 --> 00:12:30,040 Speaker 1: senior advisor to Bloomberg Economics and writes uh for US 224 00:12:30,400 --> 00:12:34,000 Speaker 1: at Bloomberg Opinion. Bill Dudley, Robert J. Samuelson of The 225 00:12:34,040 --> 00:12:38,920 Speaker 1: Washington Post and his magisterial The Great Inflation and It's Aftermath. 226 00:12:39,480 --> 00:12:44,960 Speaker 1: Why is now like Walter Heller and Vietnam. Well, one, 227 00:12:45,040 --> 00:12:47,720 Speaker 1: we have lots of fiscal stimulus like we did then, 228 00:12:47,960 --> 00:12:50,360 Speaker 1: and then we had the Great Society Programs in Vietnam 229 00:12:50,440 --> 00:12:52,760 Speaker 1: war spending. And the second thing is the labor market 230 00:12:52,880 --> 00:12:55,800 Speaker 1: is extraordinarily tight. You know, everyone's focused on what's having 231 00:12:55,840 --> 00:12:58,439 Speaker 1: a headline inflation and has it peaked? And I think 232 00:12:58,480 --> 00:13:00,640 Speaker 1: they're missing the force from the tree is here, because 233 00:13:00,880 --> 00:13:02,880 Speaker 1: what's really going on is the layer market has not 234 00:13:03,040 --> 00:13:06,000 Speaker 1: been this type in many, many, many days. And that's 235 00:13:06,040 --> 00:13:07,960 Speaker 1: the problem because if the layer market is too tight, 236 00:13:08,320 --> 00:13:11,120 Speaker 1: wages are going to continue to strengthen. And if wages 237 00:13:11,160 --> 00:13:13,360 Speaker 1: continue to strengthen, we're not going to go back to 238 00:13:13,400 --> 00:13:16,840 Speaker 1: two percent inflation. Bill Dudley, that intern at Goldman Sexyn 239 00:13:16,960 --> 00:13:19,679 Speaker 1: Hats said that on the show here a couple of 240 00:13:19,800 --> 00:13:24,640 Speaker 1: days ago that the labor market is shockingly tight. Does 241 00:13:24,720 --> 00:13:27,800 Speaker 1: that lead to the wage spiral? Michaelle Meyer just spoke 242 00:13:27,840 --> 00:13:30,640 Speaker 1: about it, and frankly, that is the collective memory of 243 00:13:30,679 --> 00:13:34,280 Speaker 1: the sixties, isn't it. Well. I'm not sure how fast 244 00:13:34,400 --> 00:13:36,160 Speaker 1: what inflation will go up because we have a lot 245 00:13:36,200 --> 00:13:38,520 Speaker 1: of other factors pushing inflation down. But I think the 246 00:13:38,640 --> 00:13:40,760 Speaker 1: key thing to focus on is if the labor markets 247 00:13:40,840 --> 00:13:43,640 Speaker 1: this type, what's going to happen to wage inflation? Wage 248 00:13:43,640 --> 00:13:46,240 Speaker 1: inflation currently running around five and a half percent, depending 249 00:13:46,240 --> 00:13:49,960 Speaker 1: on which measure you you use, five alcent wage inflation 250 00:13:50,120 --> 00:13:52,720 Speaker 1: is not consistent with the sense to percent inflation objective. 251 00:13:53,040 --> 00:13:54,920 Speaker 1: So how do you get inflation down? You need to 252 00:13:55,000 --> 00:13:58,280 Speaker 1: push the unemployer rate up, and that's the problem. Every 253 00:13:58,360 --> 00:14:01,280 Speaker 1: time the federies are added type Terrey policy enough to 254 00:14:01,360 --> 00:14:04,000 Speaker 1: push the unemployment rate up, they've ended up in a 255 00:14:04,040 --> 00:14:06,559 Speaker 1: full scale recession. The key question just when is this 256 00:14:06,600 --> 00:14:08,320 Speaker 1: gonna occur? And it's not gonna occur in the near 257 00:14:08,440 --> 00:14:10,840 Speaker 1: term because the Fed hasn't yet made Terrey policy type 258 00:14:11,600 --> 00:14:13,959 Speaker 1: might not even happen in twenty three because we don't 259 00:14:14,000 --> 00:14:16,240 Speaker 1: really know how aggressive the fenter reserve is going to 260 00:14:16,280 --> 00:14:19,000 Speaker 1: be in terms of tightening Terrey policy but if the 261 00:14:19,080 --> 00:14:22,920 Speaker 1: FED delays, all that means is inflation will get more entrenched, 262 00:14:23,240 --> 00:14:25,000 Speaker 1: and then they'll have to do more later. So a 263 00:14:25,360 --> 00:14:28,040 Speaker 1: hard winning is inevitable. Whether it happens in twenty three 264 00:14:28,120 --> 00:14:29,880 Speaker 1: or twenty four, that depends on the Fed. Do you 265 00:14:29,920 --> 00:14:33,120 Speaker 1: anticipate they will delight by somewhat you've heard Bill? How 266 00:14:33,160 --> 00:14:35,840 Speaker 1: do you think they will respond to a mechanical peak 267 00:14:35,880 --> 00:14:39,040 Speaker 1: in inflation this year? Well, I think they're gonna take 268 00:14:39,120 --> 00:14:41,320 Speaker 1: some signal from the fact that inflation is coming down 269 00:14:41,360 --> 00:14:43,720 Speaker 1: because it's going to support their story about the transitory 270 00:14:43,840 --> 00:14:46,560 Speaker 1: factors being a primary driver of y. Inflation moved up. 271 00:14:47,240 --> 00:14:49,120 Speaker 1: But you know, if inflation is eight percent for a 272 00:14:49,200 --> 00:14:51,000 Speaker 1: year and then two percent for a year because all 273 00:14:51,000 --> 00:14:53,880 Speaker 1: the transitory factors are washing out, the average is still five. 274 00:14:54,400 --> 00:14:56,400 Speaker 1: And you know, if the labor market continues to tighten, 275 00:14:56,440 --> 00:14:58,520 Speaker 1: which I think is likely. You know, the automployer rate 276 00:14:58,640 --> 00:15:00,880 Speaker 1: is already it's a three points expercent. It couldn't fall 277 00:15:00,920 --> 00:15:03,480 Speaker 1: even further. Uh, it doesn't really matter what happens the 278 00:15:03,520 --> 00:15:06,400 Speaker 1: transitory inflation what It doesn't really matter what happens in 279 00:15:06,440 --> 00:15:08,400 Speaker 1: the headline inflation. You have to look beneath the service. 280 00:15:08,480 --> 00:15:10,440 Speaker 1: What's actually going on in terms of the tightness of 281 00:15:10,440 --> 00:15:13,440 Speaker 1: the liver market and its consequences for wage inflation. Bill, 282 00:15:13,480 --> 00:15:16,440 Speaker 1: what you're saying is pretty radical. You're suggesting that perhaps 283 00:15:16,520 --> 00:15:20,840 Speaker 1: the FED should cause the hard landing sooner and closer 284 00:15:20,920 --> 00:15:23,880 Speaker 1: to now than wait, because the consequences will be that 285 00:15:24,040 --> 00:15:27,240 Speaker 1: much worse. Is that accurate? Well, I don't know that 286 00:15:27,280 --> 00:15:29,640 Speaker 1: they should cause try to cause the recession. I mean, 287 00:15:29,680 --> 00:15:32,840 Speaker 1: I think they should always go for the soft landing. 288 00:15:33,440 --> 00:15:34,720 Speaker 1: But what they need to do it they need to 289 00:15:34,760 --> 00:15:37,760 Speaker 1: make Monterrey policy tighter sooner. And I think the big 290 00:15:38,280 --> 00:15:40,600 Speaker 1: discussion here about what what whether the fifth one a 291 00:15:40,640 --> 00:15:43,200 Speaker 1: good job or a bad job? Is the timing. We're 292 00:15:43,200 --> 00:15:45,520 Speaker 1: still at a quarter to a half percent federal funds 293 00:15:45,600 --> 00:15:47,320 Speaker 1: rate at the time that the unemployer rates three point 294 00:15:48,360 --> 00:15:50,760 Speaker 1: and you're over your CPI inflation is eight and a percent. 295 00:15:50,800 --> 00:15:53,880 Speaker 1: It's remarkable the Fed's late. They know they're late. That's 296 00:15:53,920 --> 00:15:56,240 Speaker 1: why we're talking about fifty basis point right high. Each 297 00:15:56,240 --> 00:15:58,240 Speaker 1: of the next couple of meetings. The FED wants to 298 00:15:58,280 --> 00:16:01,080 Speaker 1: get to neutral very quickly, if they haven't really signaled 299 00:16:01,160 --> 00:16:03,640 Speaker 1: much appetite for going very far beyond that. If you 300 00:16:03,680 --> 00:16:06,880 Speaker 1: look at the last summary of economic projections. The Madre 301 00:16:07,000 --> 00:16:09,760 Speaker 1: policy setting anticipated in at the end of twenty three 302 00:16:09,840 --> 00:16:12,960 Speaker 1: was just a very tight, very very very modestly tight 303 00:16:13,080 --> 00:16:15,400 Speaker 1: Monterrey policy setting. Well, but right now I'm looking at 304 00:16:15,440 --> 00:16:18,280 Speaker 1: work that page that forecasts where interest rates will be, 305 00:16:18,800 --> 00:16:22,840 Speaker 1: and in February three it's currently above two point three percent. 306 00:16:23,000 --> 00:16:25,240 Speaker 1: When we talk to strategists, they say this is priced in. 307 00:16:25,760 --> 00:16:29,000 Speaker 1: What should people be pricing in if your world were 308 00:16:29,040 --> 00:16:32,760 Speaker 1: the one in which the FED moved at an appropriate rate? Well, 309 00:16:32,800 --> 00:16:34,440 Speaker 1: I think, I mean, I think the Fed needs to 310 00:16:34,440 --> 00:16:36,440 Speaker 1: make Montreal policy tight, and I think that I've been 311 00:16:36,480 --> 00:16:38,480 Speaker 1: saying this for quite some time that that requires short 312 00:16:38,560 --> 00:16:41,400 Speaker 1: term rates and at least three or four percent. Obviously, 313 00:16:41,480 --> 00:16:44,480 Speaker 1: it depends on where inflation ends up. The inflation is 314 00:16:44,520 --> 00:16:46,640 Speaker 1: running three percent, then neutrals, not two and a half. 315 00:16:47,080 --> 00:16:49,120 Speaker 1: Of inflation is running three percent, then neutral is more 316 00:16:49,200 --> 00:16:51,000 Speaker 1: like three and a half to four. So it really 317 00:16:51,080 --> 00:16:53,400 Speaker 1: depends on where inflations. I mean. But when people talk 318 00:16:53,440 --> 00:16:55,840 Speaker 1: about the neutral federal fundrate, they act as if that 319 00:16:56,160 --> 00:16:59,160 Speaker 1: neutral federal fundrate doesn't matter on what underlying inflation is 320 00:16:59,520 --> 00:17:02,800 Speaker 1: higher their line inflation higher neutral feedle fundrate more for 321 00:17:02,880 --> 00:17:05,280 Speaker 1: the federal reserved to do in terms of tightening moder policy, 322 00:17:05,480 --> 00:17:07,200 Speaker 1: but just to clean that up just quickly, just on 323 00:17:07,240 --> 00:17:09,800 Speaker 1: the timeline, do you anticipate the longer they wait, the 324 00:17:09,920 --> 00:17:11,960 Speaker 1: higher the peak and the Fed funds right will have 325 00:17:12,040 --> 00:17:16,200 Speaker 1: to be yes, yes, Because the longer we sit with 326 00:17:16,280 --> 00:17:18,600 Speaker 1: a very very tight labor market, the more upward pressure 327 00:17:18,600 --> 00:17:20,600 Speaker 1: they'll be on wages. The more that upward pressure on 328 00:17:20,760 --> 00:17:23,679 Speaker 1: wages will feed into prices, and so the underlying inflation 329 00:17:23,800 --> 00:17:25,640 Speaker 1: rate will accept tend to drift higher. That that's really 330 00:17:25,680 --> 00:17:28,520 Speaker 1: the lesson of the nineteen sixties and the early nineteen seventies. 331 00:17:29,040 --> 00:17:32,439 Speaker 1: Each cycle inflation radgeted higher because the Federal Reserve did 332 00:17:32,520 --> 00:17:37,080 Speaker 1: not address that the issue forceful fully soon enough. So 333 00:17:37,359 --> 00:17:39,920 Speaker 1: if they delay, they'll have to ultimately do more. But 334 00:17:40,119 --> 00:17:43,119 Speaker 1: a fascinating raiding. We appreciate your time this morning, as always, 335 00:17:43,359 --> 00:17:46,000 Speaker 1: fantastic build down ply. The Blimberg opinion columnists and former 336 00:17:46,040 --> 00:17:49,480 Speaker 1: New York Fed President and Provocative rights to a conclusion 337 00:17:49,520 --> 00:17:51,520 Speaker 1: that reads as follows. The FEDS choice is clear. If 338 00:17:51,560 --> 00:17:54,280 Speaker 1: it acts sooner with inflation expectations still well anchored, the 339 00:17:54,320 --> 00:17:56,920 Speaker 1: cost in terms of folk on output and higher unemployment 340 00:17:56,920 --> 00:17:59,400 Speaker 1: should be relatively modest the final line of the whole 341 00:17:59,440 --> 00:18:03,000 Speaker 1: pace tom. If it waits and allows inflation expectations to 342 00:18:03,040 --> 00:18:05,200 Speaker 1: get out of hand, the bill will be much high. 343 00:18:11,160 --> 00:18:13,960 Speaker 1: Elena Poula Covid joins US now the Center for European 344 00:18:14,040 --> 00:18:17,960 Speaker 1: Policy Analysis. Elena's is the last time we have seen you. 345 00:18:18,600 --> 00:18:23,320 Speaker 1: Things have changed. A flagship of the Russian navy has sunk. 346 00:18:23,840 --> 00:18:28,600 Speaker 1: How does that change Mr Putin's body language? Well, the 347 00:18:28,680 --> 00:18:31,040 Speaker 1: sinking of the Muskvab that's the name of the ship, 348 00:18:31,400 --> 00:18:34,800 Speaker 1: was definitely a big hit to Russia. We even saw 349 00:18:35,160 --> 00:18:39,119 Speaker 1: Putin supporters, the talking heads in the Russian state control 350 00:18:39,200 --> 00:18:44,119 Speaker 1: media being really critical of the sinking of this flagship 351 00:18:44,240 --> 00:18:46,960 Speaker 1: vessel of the Russian fleet. It's not just the flagship 352 00:18:47,040 --> 00:18:50,200 Speaker 1: vessel of Russia. This was the largest ship operating in 353 00:18:50,240 --> 00:18:52,960 Speaker 1: the Black Seat. And what we've seen since then is 354 00:18:53,080 --> 00:18:57,000 Speaker 1: Russia and Mr Putin doubled down on their tax on Ukraine. 355 00:18:57,080 --> 00:19:00,399 Speaker 1: Just today we saw Russia hit with missile the western 356 00:19:00,520 --> 00:19:04,800 Speaker 1: city of viev Does Ukraine double down with this success? 357 00:19:05,480 --> 00:19:08,920 Speaker 1: And where the material they're getting from the west? Is 358 00:19:09,080 --> 00:19:12,080 Speaker 1: Ukraine more able to maybe not the drama of sinking 359 00:19:12,160 --> 00:19:15,679 Speaker 1: a ship, but do you perceive that they are engaged 360 00:19:15,880 --> 00:19:20,640 Speaker 1: and ready on this Monday. They've certainly been getting ready. 361 00:19:20,720 --> 00:19:23,520 Speaker 1: In your president Zelanski has been making his rounds with 362 00:19:23,680 --> 00:19:27,040 Speaker 1: all the western capitals and beyond that, fleeting from more weapons. 363 00:19:27,080 --> 00:19:29,680 Speaker 1: I think the situation we're seeing now is that the 364 00:19:29,800 --> 00:19:32,960 Speaker 1: window is really narrowing. Russia is starting to target those 365 00:19:32,960 --> 00:19:35,600 Speaker 1: supply lines. Now. We can't take it for granted that 366 00:19:35,760 --> 00:19:37,639 Speaker 1: we've been able to meet in the United States and 367 00:19:37,720 --> 00:19:41,160 Speaker 1: allies have been able to get those weapons into Ukraine. 368 00:19:41,640 --> 00:19:46,119 Speaker 1: Not Russia is targeting those UH military routes. So it's 369 00:19:46,160 --> 00:19:49,800 Speaker 1: going to become increasingly difficult. The Ukrainians are certainly tired. 370 00:19:50,240 --> 00:19:53,440 Speaker 1: They understand what's coming, a huge new offensive. Um. I 371 00:19:53,560 --> 00:19:57,240 Speaker 1: do think they gave themselves ready, but um there's still outnumbered. 372 00:19:57,280 --> 00:19:59,960 Speaker 1: Are now gone by the Russian side. Elena can give 373 00:20:00,119 --> 00:20:03,679 Speaker 1: the sense of what happens when or if Mariupa falls. 374 00:20:03,800 --> 00:20:06,240 Speaker 1: We understand that it is surrounded and it is an 375 00:20:06,240 --> 00:20:09,119 Speaker 1: a crucial piece of land for Russia because it provides 376 00:20:09,200 --> 00:20:12,000 Speaker 1: a land bridge to Crimea and connects to the don 377 00:20:12,040 --> 00:20:15,840 Speaker 1: Bass region of eastern Ukraine. How much will that be 378 00:20:16,040 --> 00:20:20,600 Speaker 1: a game changer when that occurs? So the Manupa, you know, 379 00:20:20,680 --> 00:20:22,480 Speaker 1: it's a it's a town that not many people have 380 00:20:22,600 --> 00:20:24,720 Speaker 1: ever heard of. Even a lot of Ukrainians hadn't hadn't 381 00:20:24,720 --> 00:20:28,359 Speaker 1: heard of it until it became this big strategic battle 382 00:20:28,880 --> 00:20:31,760 Speaker 1: uh for for the war. And even back in ten 383 00:20:31,760 --> 00:20:34,639 Speaker 1: we saw Russia try to surround Marupa and they failed, 384 00:20:34,960 --> 00:20:37,760 Speaker 1: and now they're you know, wrapping up the unfinished business. 385 00:20:37,800 --> 00:20:40,120 Speaker 1: In some ways, it will be a game changer from 386 00:20:40,119 --> 00:20:43,959 Speaker 1: a military perspective. The main reason for that because right now, 387 00:20:44,040 --> 00:20:47,520 Speaker 1: the only thing that stands between Russia's Eastern front and 388 00:20:47,720 --> 00:20:50,359 Speaker 1: sort of southern front where they have access from the 389 00:20:50,440 --> 00:20:54,240 Speaker 1: sea from Crimea where they can do an amphibious attack 390 00:20:54,320 --> 00:20:57,000 Speaker 1: and landing, for example, the only thing that's standing and 391 00:20:57,040 --> 00:21:00,520 Speaker 1: then being able to combine and join their forces Marupa 392 00:21:01,000 --> 00:21:03,680 Speaker 1: as soon as that happens, and unfortunately it is looking 393 00:21:03,800 --> 00:21:07,560 Speaker 1: like it's just a matter of days until Marupa falls. 394 00:21:07,920 --> 00:21:10,800 Speaker 1: Russia will be able to then put you know, let's 395 00:21:10,800 --> 00:21:14,800 Speaker 1: say marines in navy in from Crimea, take them to 396 00:21:14,920 --> 00:21:17,320 Speaker 1: the east. They'll be able to combine basically the southern 397 00:21:17,400 --> 00:21:21,399 Speaker 1: and the Eastern front and cut off any Ukrainian troops 398 00:21:21,440 --> 00:21:22,760 Speaker 1: they are it will have been able to get in 399 00:21:22,920 --> 00:21:24,920 Speaker 1: so far, But you know, what does this mean in 400 00:21:25,080 --> 00:21:27,720 Speaker 1: terms of the longer term? Also, because we've heard from 401 00:21:27,840 --> 00:21:30,320 Speaker 1: Vladimir Zelenski that this is game over for peace talks, 402 00:21:30,440 --> 00:21:32,359 Speaker 1: it seems like that's likely anyway, given some of the 403 00:21:32,440 --> 00:21:34,840 Speaker 1: images and and the and the rhetoric coming out from 404 00:21:34,880 --> 00:21:38,520 Speaker 1: both sides, given the fact that frankly, the humanitarian crimes 405 00:21:38,560 --> 00:21:41,159 Speaker 1: that the West is looking at to achieve this have 406 00:21:41,359 --> 00:21:44,359 Speaker 1: been stark. How does this move the conflict forward in 407 00:21:44,520 --> 00:21:48,120 Speaker 1: terms of the length and in terms of NATO's involvement. Well, 408 00:21:48,200 --> 00:21:50,359 Speaker 1: it certainly is giving Russia and would give Russia a 409 00:21:50,400 --> 00:21:53,280 Speaker 1: big upper hand, would give a much broader control of 410 00:21:53,359 --> 00:21:57,359 Speaker 1: Ukrainian territory, opportunities to launch much more offensive attacks. I 411 00:21:57,440 --> 00:22:01,679 Speaker 1: think it also makes the options for negotiations far far 412 00:22:01,800 --> 00:22:04,760 Speaker 1: more limited. They already were very very limited to begin with. 413 00:22:05,480 --> 00:22:09,040 Speaker 1: But clearly, you know, what we're uncovering in areas where 414 00:22:09,040 --> 00:22:12,600 Speaker 1: the Russian troops did leave around the capital Kiv is 415 00:22:12,800 --> 00:22:17,560 Speaker 1: a cruesome. It's atrocious, and that's likely, uh, not even 416 00:22:17,920 --> 00:22:20,000 Speaker 1: the tip of the iceberg as to what's been happening 417 00:22:20,040 --> 00:22:23,440 Speaker 1: in places like elsewhere. So I think it's going to 418 00:22:23,560 --> 00:22:27,080 Speaker 1: be a prolonged conflict. You know General Milly said this 419 00:22:27,240 --> 00:22:30,320 Speaker 1: a couple of weeks ago congressional testimony. We're not looking 420 00:22:30,400 --> 00:22:33,080 Speaker 1: at weeks or months or looking at years, and I 421 00:22:33,200 --> 00:22:35,320 Speaker 1: think that's really what we need to be thinking about, 422 00:22:35,440 --> 00:22:38,800 Speaker 1: is the alliance real? Trygedy, Elena, Thank you, Elena. Probably 423 00:22:38,800 --> 00:22:49,280 Speaker 1: a coverdet the Center for European Policy Analysis. Some guests 424 00:22:49,359 --> 00:22:52,120 Speaker 1: have to wait in the class act. John Lipsky has 425 00:22:52,200 --> 00:22:54,560 Speaker 1: of course waited for us for this morning with JOHNS. 426 00:22:54,640 --> 00:22:58,479 Speaker 1: Hopkins School of Advanced International Studies in his public service 427 00:22:59,000 --> 00:23:02,800 Speaker 1: to Christina or he gave his institution. Dr Livsky, thank 428 00:23:02,880 --> 00:23:05,960 Speaker 1: you so much for joining this morning. John. We are 429 00:23:06,359 --> 00:23:10,600 Speaker 1: drowning in once in a lifetime events, and you're right 430 00:23:10,960 --> 00:23:13,600 Speaker 1: is only you can do with your years of Salomon 431 00:23:13,680 --> 00:23:18,159 Speaker 1: Brothers and such of the new bread basket threat, frame 432 00:23:18,520 --> 00:23:24,040 Speaker 1: the bread basket threat for all of us well, very 433 00:23:24,200 --> 00:23:29,680 Speaker 1: very simply the UH. The war in Ukraine is looking 434 00:23:29,760 --> 00:23:32,360 Speaker 1: like it's going to make a very serious and potentially 435 00:23:32,480 --> 00:23:36,920 Speaker 1: long lasting disruption and world grain markets. Russia and Ukraine 436 00:23:37,040 --> 00:23:40,800 Speaker 1: are major sources of grain exports. Already we can see 437 00:23:40,920 --> 00:23:46,080 Speaker 1: the effect in UH food and importing, especially low income countries. 438 00:23:46,640 --> 00:23:49,680 Speaker 1: This is a potentially a serious threat, not in just 439 00:23:50,000 --> 00:23:52,480 Speaker 1: in the short term, but longer term as well. But 440 00:23:52,680 --> 00:23:55,920 Speaker 1: right now we've got to deal with the disruptions and 441 00:23:56,000 --> 00:23:59,600 Speaker 1: food markets, the rise in food prices that are really 442 00:23:59,680 --> 00:24:04,720 Speaker 1: put strains on many low income importing countries. You gave 443 00:24:04,760 --> 00:24:08,280 Speaker 1: it a historic speech in Vietnam ages ago which basically 444 00:24:08,359 --> 00:24:12,240 Speaker 1: reframe the relationship of communism with the Western world. I 445 00:24:12,320 --> 00:24:15,560 Speaker 1: want you to give that same speech this morning about 446 00:24:15,680 --> 00:24:19,520 Speaker 1: what our new fractured globalism looks like. John, what's it 447 00:24:19,600 --> 00:24:24,000 Speaker 1: looked like? Well, that's an open question and one that 448 00:24:24,200 --> 00:24:28,760 Speaker 1: was put pretty starkly by a secretary Treasury Secretary Yelling 449 00:24:28,960 --> 00:24:32,360 Speaker 1: in the speech last week, in which basically said it's 450 00:24:32,440 --> 00:24:36,240 Speaker 1: time for countries to line up in terms of their values, 451 00:24:36,520 --> 00:24:39,919 Speaker 1: especially in the context of the current war, and talked 452 00:24:39,960 --> 00:24:45,200 Speaker 1: about reframing the world trade system on what she referred 453 00:24:45,240 --> 00:24:49,560 Speaker 1: to a plural lateral in the words, not necessarily global 454 00:24:50,359 --> 00:24:56,399 Speaker 1: friends shoring basis, namely, like minded countries politically get together. 455 00:24:56,920 --> 00:25:00,760 Speaker 1: And that's a very much a new message from the 456 00:25:01,720 --> 00:25:05,040 Speaker 1: expansion of the World Trade Organization to a virtually global 457 00:25:05,119 --> 00:25:08,680 Speaker 1: organization in the past few decades. So this is really 458 00:25:08,760 --> 00:25:11,480 Speaker 1: an unknown we'll look at a test this week. Tom 459 00:25:11,880 --> 00:25:15,120 Speaker 1: the G twenty MINS finance ministers and central bankers are 460 00:25:15,160 --> 00:25:18,320 Speaker 1: set to meet on Wednesday and Thursday, and then the 461 00:25:18,640 --> 00:25:23,240 Speaker 1: International Monitoring Financial Committee IMFC of the IMF meets on Thursday. 462 00:25:23,760 --> 00:25:27,080 Speaker 1: We saw Mr by President Biden saying earlier that Russia 463 00:25:27,119 --> 00:25:30,560 Speaker 1: should be thrown out of the G twenty. Let's see 464 00:25:30,600 --> 00:25:34,840 Speaker 1: how these key meetings this week go in these terms, John, 465 00:25:35,200 --> 00:25:37,600 Speaker 1: what's the calculus right now for I m F officials 466 00:25:37,640 --> 00:25:40,040 Speaker 1: in terms of how to arrange who to keep in 467 00:25:40,200 --> 00:25:43,760 Speaker 1: their club as they do shift toward perhaps a pluralistic 468 00:25:44,119 --> 00:25:50,119 Speaker 1: not globalistic world. Well, Interestingly, organizations like the i m F, 469 00:25:50,240 --> 00:25:53,840 Speaker 1: the World Bank, and the United Nations are treaty based. 470 00:25:54,200 --> 00:25:57,719 Speaker 1: In other words, countries that belong. It's not just voluntary. 471 00:25:58,080 --> 00:26:01,639 Speaker 1: They've signed a treaty, they have lead obligations. The decisions 472 00:26:01,760 --> 00:26:05,840 Speaker 1: of these institutions have the force of international law. So 473 00:26:06,080 --> 00:26:10,119 Speaker 1: for sure, the in the short run, the Russian authorities 474 00:26:10,160 --> 00:26:12,520 Speaker 1: and others are going to be participating in the meetings 475 00:26:12,600 --> 00:26:16,600 Speaker 1: this week. How that goes will be very interesting, perhaps 476 00:26:16,840 --> 00:26:20,960 Speaker 1: more questionable. The G twenty is simply a voluntary group. 477 00:26:21,040 --> 00:26:25,240 Speaker 1: It's really nineteen countries plus the European Union. Uh, there's 478 00:26:25,320 --> 00:26:29,320 Speaker 1: no treaty. Underneath that there's no formal obligation. Let's see 479 00:26:29,359 --> 00:26:32,920 Speaker 1: if there's a willingness to keep this this institution that 480 00:26:33,160 --> 00:26:39,280 Speaker 1: was the principal creation institutional result of the global financial crisis. 481 00:26:39,440 --> 00:26:42,440 Speaker 1: Let's see if there's a willingness to keep it going. John, 482 00:26:42,480 --> 00:26:44,720 Speaker 1: what are you looking for in terms of how the 483 00:26:44,840 --> 00:26:46,920 Speaker 1: i m F directs is funding, especially in light of 484 00:26:46,960 --> 00:26:49,639 Speaker 1: what we started talking about, the bread basket issue, the 485 00:26:49,720 --> 00:26:53,240 Speaker 1: potential food shortages. What's the most effective use of I 486 00:26:53,440 --> 00:26:55,920 Speaker 1: m F funds to combat hunger and some of the 487 00:26:56,000 --> 00:27:00,240 Speaker 1: inflation that we're seeing in certain nations well, all in 488 00:27:00,320 --> 00:27:03,800 Speaker 1: the In the response to the COVID to the pandemic, 489 00:27:04,280 --> 00:27:08,440 Speaker 1: the fund developed some some short term lending facilities, additional ones, 490 00:27:08,560 --> 00:27:12,800 Speaker 1: especially oriented towards those low income countries most affected by 491 00:27:13,320 --> 00:27:18,159 Speaker 1: by the strains of the of the pandemic before the 492 00:27:18,280 --> 00:27:23,119 Speaker 1: fund right now looking towards the longer term strains, the 493 00:27:23,200 --> 00:27:26,520 Speaker 1: i m F has now created a new Resilience and 494 00:27:26,640 --> 00:27:31,720 Speaker 1: Sustainability Trust, which is a facility aimed at providing longer 495 00:27:31,880 --> 00:27:35,399 Speaker 1: term support for UH for low income countries, for the 496 00:27:35,480 --> 00:27:39,280 Speaker 1: lowest income countries. This is going to be funded by 497 00:27:40,119 --> 00:27:44,240 Speaker 1: donations of special drawing rights the i MS so called 498 00:27:44,280 --> 00:27:47,200 Speaker 1: paper gold that was there was a new distribution last 499 00:27:47,240 --> 00:27:50,000 Speaker 1: year of six and fifty billion. Much of it went 500 00:27:50,160 --> 00:27:54,480 Speaker 1: to the wealthier countries because it's distributed by quota. They're 501 00:27:54,560 --> 00:27:58,119 Speaker 1: being asked to donate to this new I m F facility, 502 00:27:58,240 --> 00:28:00,720 Speaker 1: the r s T as it's called for short, that 503 00:28:00,880 --> 00:28:04,960 Speaker 1: will provide new funding for low income countries. Let's see 504 00:28:05,000 --> 00:28:09,639 Speaker 1: what happens. To qualify, however, for this funding, countries have 505 00:28:09,840 --> 00:28:14,080 Speaker 1: to have a traditional fund stabilization program. So it's not 506 00:28:14,280 --> 00:28:17,520 Speaker 1: just a handout, it's you've got to put policies in 507 00:28:17,640 --> 00:28:20,200 Speaker 1: place that will help, that will be sustainable. And John, 508 00:28:20,240 --> 00:28:22,320 Speaker 1: I want to go back to the American economy long 509 00:28:22,359 --> 00:28:25,000 Speaker 1: You're going far Away. In a book that's sold twelve copies, 510 00:28:25,080 --> 00:28:28,680 Speaker 1: you and Jim Glassman a road about and absolutely nailed 511 00:28:29,359 --> 00:28:34,040 Speaker 1: the labor transformation that was to come from technology. We 512 00:28:34,160 --> 00:28:37,560 Speaker 1: are now at a point where it is just stunning 513 00:28:37,880 --> 00:28:41,800 Speaker 1: the need for technology and the technology has and the 514 00:28:41,960 --> 00:28:45,840 Speaker 1: technology have not. What's the next ten years looked like 515 00:28:46,440 --> 00:28:52,320 Speaker 1: in labor and technology? Oh boy, great question, of course, 516 00:28:52,760 --> 00:28:56,560 Speaker 1: Uh not, there's no obvious right answer. Let me say 517 00:28:56,640 --> 00:29:01,560 Speaker 1: just one thing in response to the short term situation 518 00:29:01,600 --> 00:29:06,320 Speaker 1: in the US with wages, the labor sector, wages and inflation. 519 00:29:07,080 --> 00:29:10,560 Speaker 1: And just a few minutes ago you talked to my 520 00:29:10,640 --> 00:29:14,480 Speaker 1: friend and colleague, Bill Dudley about what's happening in the 521 00:29:14,560 --> 00:29:18,040 Speaker 1: prospects for the US So far. What you've seen is 522 00:29:18,120 --> 00:29:22,640 Speaker 1: wage gains lag behind UH inflation. And I think one 523 00:29:22,680 --> 00:29:26,240 Speaker 1: of the important reasons is because so far people still 524 00:29:26,480 --> 00:29:30,880 Speaker 1: expect inflation is going to come back down to previous 525 00:29:31,040 --> 00:29:35,040 Speaker 1: to something close to previous rates. If that, if inflation 526 00:29:35,200 --> 00:29:39,680 Speaker 1: expectations in the general public start to deteriorate, then they're 527 00:29:39,720 --> 00:29:42,040 Speaker 1: going to have a different view about wages and we're 528 00:29:42,080 --> 00:29:45,320 Speaker 1: gonna have a different view about inflation in the near term. 529 00:29:45,760 --> 00:29:48,480 Speaker 1: Immediate what everybody can see in front of us is 530 00:29:48,760 --> 00:29:53,280 Speaker 1: the need for for climate for energy shifting energy sources 531 00:29:53,720 --> 00:29:58,000 Speaker 1: is going to require massive investments in infrastructure and other 532 00:29:58,120 --> 00:30:04,200 Speaker 1: forms of h of UH capital equipment. Where the funding 533 00:30:04,360 --> 00:30:07,240 Speaker 1: is going to come from is an open question. It's 534 00:30:07,360 --> 00:30:10,840 Speaker 1: not going to be coming primarily from governments. There's going 535 00:30:10,880 --> 00:30:15,640 Speaker 1: to have to be a major restructuring of capital sources 536 00:30:15,680 --> 00:30:20,080 Speaker 1: globally from the private from private sectors basically, and this 537 00:30:20,320 --> 00:30:23,880 Speaker 1: is going to be a discussion of great importance, not 538 00:30:24,080 --> 00:30:28,840 Speaker 1: just this week in Washington, but on ongoing how to 539 00:30:29,360 --> 00:30:33,720 Speaker 1: make sure capital markets direct, to direct the investments to 540 00:30:33,880 --> 00:30:38,600 Speaker 1: their most effective long term use. Deeply, deeply thoughtful stuff. John, 541 00:30:38,640 --> 00:30:41,720 Speaker 1: As always say thank you John Lipsk, the former I'm 542 00:30:41,840 --> 00:30:47,360 Speaker 1: f first Deputy Managing direct. This is the Bloomberg Surveillance Podcast. 543 00:30:47,680 --> 00:30:51,000 Speaker 1: Thanks for listening. Join us live weekdays from seven to 544 00:30:51,120 --> 00:30:55,160 Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television 545 00:30:55,560 --> 00:30:59,520 Speaker 1: each day from six to nine am for insight from 546 00:30:59,560 --> 00:31:04,080 Speaker 1: the best in economics, finance, investment, and international relations. And 547 00:31:04,240 --> 00:31:09,360 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 548 00:31:09,400 --> 00:31:12,720 Speaker 1: dot com, and of course on the terminal. I'm Tom 549 00:31:12,840 --> 00:31:15,120 Speaker 1: Keene and this is Bloomberg