WEBVTT - Bloomberg Daybreak Weekend: CPI, BOE, Debt Ceiling, AI 0:00:02.440 --> 0:00:05.200 This is Bloomberg Daybreak Weekend, our global look at the 0:00:05.240 --> 0:00:07.960 top stories in the coming week from our Daybreak anchors 0:00:08.000 --> 0:00:10.280 all around the world. And straight ahead on the program 0:00:10.800 --> 0:00:13.680 is inflation. What the Fed is really watching this coming week. 0:00:13.840 --> 0:00:15.480 I'm Tom Busby in New York. 0:00:15.720 --> 0:00:17.919 I'm Caroline Headge in London, where we're looking at the 0:00:17.960 --> 0:00:21.320 Bank of England's inflation fight ahead of its May rate decision. 0:00:21.480 --> 0:00:24.480 I'm Keiley Lynes in Washington, where President Biden is gearing 0:00:24.560 --> 0:00:27.040 up to meet with congressional leadership on the debt ceiling. 0:00:27.280 --> 0:00:30.240 I'm Ryan Curtis in Hong Kong. Where does Asia sit 0:00:30.320 --> 0:00:32.800 on the pluses and minuses of AI. 0:00:37.000 --> 0:00:41.000 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:41.040 --> 0:00:43.519 E Love Them Free on New York, Bloombergen ninety nine 0:00:43.520 --> 0:00:46.920 to one, Washington, DC, Bloomberg one O six one, Boston, 0:00:47.000 --> 0:00:51.800 Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 0:00:51.920 --> 0:00:55.200 XM one nineteen and around the world on Bloomberg Radio 0:00:55.280 --> 0:00:57.600 dot Com and via the Bloomberg Business App. 0:01:00.360 --> 0:01:00.960 Good day to you. 0:01:01.080 --> 0:01:03.520 I'm Tom Busby, and we begin today's program with the 0:01:03.640 --> 0:01:07.360 Fed's public enemy Number one, the fight against inflation, and 0:01:07.400 --> 0:01:11.000 this week's consumer price index and producer price index all 0:01:11.040 --> 0:01:14.319 about inflation. Joining me now to talk about this and 0:01:14.400 --> 0:01:16.360 whether it's what the FED is really watching at this point. 0:01:16.440 --> 0:01:19.760 Bloomberg's Global Economics and Policy Editor Michael McKee. 0:01:19.760 --> 0:01:21.319 Michael, welcome, Oh, thanks Tom. 0:01:21.920 --> 0:01:24.400 Well, we're coming off another rate hike from the Fed, 0:01:24.440 --> 0:01:27.360 the tenth one since just since last March. The central 0:01:27.360 --> 0:01:30.280 Bank's benchmark lending rate at a sixteen year high a 0:01:30.440 --> 0:01:32.919 rate a range of five to five and a quarter percent. 0:01:33.800 --> 0:01:37.399 But inflation is still hot, hot, hot. What do you 0:01:37.400 --> 0:01:38.240 think of that, Michael? 0:01:39.360 --> 0:01:41.160 I think the Fed has more work to do. That 0:01:41.200 --> 0:01:44.880 sounds like Jay Powell speaking when I say that they 0:01:44.920 --> 0:01:48.000 know that they are not there in terms of getting 0:01:48.080 --> 0:01:51.080 anywhere near their target yet. The inflation rate is still 0:01:51.120 --> 0:01:54.840 more than double the two percent target. But they do 0:01:54.960 --> 0:01:58.160 have ten rate cuts in the books, rate increases rather 0:01:58.200 --> 0:02:02.120 in the books, and that the full weight of that 0:02:02.200 --> 0:02:05.240 has not hit the economy yet. So they're betting that 0:02:05.280 --> 0:02:09.359 they are now in a position to be restrictive, that 0:02:09.400 --> 0:02:13.040 the FED funds rate is a restricted level, restrictive level 0:02:13.080 --> 0:02:15.239 now for the economy, and then it will just take 0:02:15.280 --> 0:02:21.000 time to tighten credit conditions and lead inflation to go lower, 0:02:21.320 --> 0:02:24.680 So they're going to wait and see. It means that 0:02:25.240 --> 0:02:28.560 the inflation numbers become even more important. As long as 0:02:28.560 --> 0:02:31.360 they don't go back up, then the Fed is not 0:02:31.400 --> 0:02:32.640 going to be raising rates again. 0:02:33.040 --> 0:02:36.000 And they have gone up, they've gone up, they've gone down. 0:02:36.400 --> 0:02:38.760 It's very fluid the inflation readings. 0:02:39.320 --> 0:02:43.040 Yeah, it depends on how much they were to go up. 0:02:43.040 --> 0:02:46.520 Now we're looking for in the CPI next week a 0:02:46.680 --> 0:02:51.240 relatively large rise in the headline number, which would probably 0:02:51.280 --> 0:02:55.320 be attributed to things like energy and food. The core 0:02:55.600 --> 0:02:57.800 is expected to go down, and the core is what 0:02:57.880 --> 0:03:00.799 the Fed is more concerned with. Higher on a year 0:03:00.800 --> 0:03:03.640 over your basis, but that's expected to decline and that 0:03:03.680 --> 0:03:05.720 would tell them that they're still on the right track. 0:03:05.840 --> 0:03:07.519 It's just going to take a while. 0:03:08.040 --> 0:03:11.320 And as they always say, data dependent, and by that 0:03:11.400 --> 0:03:13.280 late June meeting, we're going to get two months worth 0:03:13.360 --> 0:03:18.040 of jobs data, CPI, PPI, consumer spending reports. So there's 0:03:18.080 --> 0:03:19.440 a lot to consider for the Fed. 0:03:20.200 --> 0:03:23.680 Yeah, one gets tired of saying data dependent, but they 0:03:23.720 --> 0:03:27.080 really are in this case because now they've specifically hung 0:03:27.120 --> 0:03:31.920 their next decision on the data they had been saying 0:03:32.040 --> 0:03:36.000 month after month or meeting after meeting that they anticipated 0:03:36.040 --> 0:03:38.280 having to raise rates more, that they weren't at a 0:03:38.400 --> 0:03:42.240 point where they were restrictive. Now they're at that point, 0:03:42.880 --> 0:03:45.000 and it's a question of the data telling them whether 0:03:45.040 --> 0:03:48.440 they are accurate in estimating that or whether they think 0:03:48.480 --> 0:03:49.440 they need to do more. 0:03:50.160 --> 0:03:52.640 And the inflation target they have and they've had for 0:03:52.640 --> 0:03:56.280 a long time two percent, But the latest personal consumption 0:03:56.320 --> 0:03:59.520 expended your price index, as you said, more than double 0:03:59.560 --> 0:04:01.800 that for point two percent in March year over year. 0:04:02.360 --> 0:04:04.520 Now things are a lot better than they were, let's 0:04:04.520 --> 0:04:06.640 say last summer, when there was you know, an all 0:04:06.720 --> 0:04:10.840 time high or at least a you know, forty year high. 0:04:10.880 --> 0:04:13.160 What are we looking to see in the consumer Price 0:04:13.160 --> 0:04:16.240 Index on Wednesday? The PPI on Thursday. 0:04:16.360 --> 0:04:18.520 Well, the CPI, as I mentioned, is likely to go 0:04:18.600 --> 0:04:22.400 up on a headline basis, and the economist surveyed by 0:04:22.400 --> 0:04:25.800 Bloomberg think it'll tick down to a three ten percent 0:04:25.880 --> 0:04:28.039 gain for the core, which is what the Fed is 0:04:28.120 --> 0:04:30.920 more concerned about. On a year over year basis. That 0:04:30.960 --> 0:04:34.680 brings the core CPI to five point four percent from 0:04:34.680 --> 0:04:37.240 five point six percent. It's measured differently than the PCE. 0:04:37.640 --> 0:04:39.680 So the numbers are a little off, but we do 0:04:39.800 --> 0:04:43.600 get a sort of a much broader look at the 0:04:43.680 --> 0:04:47.279 categories of inflation in the CPI, So everybody wants to see, 0:04:47.400 --> 0:04:49.600 you know, where inflation may be, which is why it 0:04:49.640 --> 0:04:52.800 gets a lot of attention. The PPI is expected to 0:04:53.120 --> 0:04:57.720 rise a little bit, but it fell in the prior month, 0:04:57.800 --> 0:05:01.119 back in March, and so for April a small rise 0:05:01.440 --> 0:05:04.599 isn't going to change the year over year situation for 0:05:04.839 --> 0:05:09.440 a final demand, it'll bring it down. So at this 0:05:09.560 --> 0:05:12.080 point it looks like with both of these on a 0:05:12.160 --> 0:05:16.680 year over year basis, we're making progress. The question is 0:05:16.680 --> 0:05:18.880 is it going to be enough progress or will there 0:05:18.960 --> 0:05:25.239 be a surprise out there and will we see inflation rise? 0:05:25.320 --> 0:05:27.400 And then the Fed have to start thinking about or 0:05:27.440 --> 0:05:30.200 the markets at least start pricing a rate increase. 0:05:30.560 --> 0:05:33.960 Oh well, we all love surprises, but not that kind now, 0:05:35.240 --> 0:05:38.799 now rate increases and the converse of that, of course, 0:05:39.040 --> 0:05:42.880 rate cuts. You spoke to Fed Shair Jpowell about all 0:05:43.000 --> 0:05:45.839 this this past week. Let's listen now to what you 0:05:45.960 --> 0:05:47.320 said and his response. 0:05:47.920 --> 0:05:51.760 Can you tell us something about what your policy reaction 0:05:51.880 --> 0:05:55.160 function is, your policy framework is going forward? When you 0:05:55.200 --> 0:05:57.479 look at the economy at the next meeting. Are you 0:05:57.520 --> 0:06:02.240 looking at incoming data, which is by definition backward looking. 0:06:02.360 --> 0:06:05.279 Are you going to be forecasting what you think is 0:06:05.400 --> 0:06:08.719 going to happen? Are you ruling out the rate cuts 0:06:08.760 --> 0:06:10.640 that the market has priced in? 0:06:12.640 --> 0:06:15.680 It didn't catch the last part, ruling markets have priced 0:06:15.720 --> 0:06:17.800 in rate cuts by the end of the year. Rules 0:06:17.839 --> 0:06:18.920 are sorry, Okay. 0:06:19.040 --> 0:06:19.240 Got it. 0:06:19.480 --> 0:06:21.520 That's what are we looking at. I mean, we look 0:06:21.520 --> 0:06:24.880 at a combination of data and forecasts. Of course, the 0:06:24.920 --> 0:06:27.359 whole idea is to is to create a good forecast 0:06:27.440 --> 0:06:30.040 based on what you see in the data. So we're 0:06:30.080 --> 0:06:32.800 always always looking at both, you know, and it will, 0:06:32.800 --> 0:06:35.200 of course, it'll be the obvious things. It'll be readings 0:06:35.240 --> 0:06:39.240 on inflation, It'll be readings on wages, on economic growth, 0:06:40.360 --> 0:06:44.440 on the labor market, and all of those many things. 0:06:44.440 --> 0:06:48.400 I think a particular focus for us going now over 0:06:48.440 --> 0:06:52.200 the past six seven weeks now and going forward is 0:06:52.279 --> 0:06:57.400 going to be what's happening with credit tightening, our small 0:06:57.400 --> 0:07:01.200 and medium sized banks tightening credit standards, uh and and 0:07:01.279 --> 0:07:04.080 is that having an effect on on on loans, on 0:07:04.200 --> 0:07:07.000 lending and you know, so we can begin to assess 0:07:08.600 --> 0:07:11.280 how that fits in with monetary policy. That'll that'll be 0:07:11.280 --> 0:07:13.520 an important thing. I just you know, we'll be looking 0:07:13.560 --> 0:07:16.720 at everything. It's again, I would just point out we've 0:07:16.800 --> 0:07:21.080 raised rates by five percentage points, we are shrinking the 0:07:21.120 --> 0:07:25.040 balance sheet, and now we have credit conditions tightening, not 0:07:25.200 --> 0:07:27.120 just in the normal way, but perhaps a little bit 0:07:27.120 --> 0:07:28.960 more due to what's happened. 0:07:29.480 --> 0:07:30.800 And we have to factor. 0:07:30.520 --> 0:07:34.320 All of that in and and make our assessment of, 0:07:35.360 --> 0:07:38.400 you know, of whether our policy stance is sufficiently restrictive. 0:07:39.040 --> 0:07:40.920 And we have to do that in a world where 0:07:41.000 --> 0:07:44.360 policy works with long and variable legs. So this is challenging, 0:07:44.600 --> 0:07:46.840 but you know, we we will make our best assessment. 0:07:46.880 --> 0:07:48.200 And that's that's what we're thinking. 0:07:48.480 --> 0:07:50.840 What about the idea of rate cuts. 0:07:51.600 --> 0:07:52.040 Yeah, so. 0:07:54.440 --> 0:07:59.440 We on the committee have a have a view that 0:08:01.200 --> 0:08:05.080 inflation is going to come down not so quickly, but 0:08:05.200 --> 0:08:08.120 it'll take some time. And in that world, if that 0:08:08.160 --> 0:08:11.360 forecast is broadly right, it would not be appropriate and 0:08:11.400 --> 0:08:12.920 to cut rates, And we won't. 0:08:12.760 --> 0:08:15.080 Cut rates if you have a different forecast. 0:08:15.120 --> 0:08:18.320 And you know markets are have been from time to 0:08:18.320 --> 0:08:21.120 time pricing and you know, quite rapid reductions and inflation. 0:08:23.280 --> 0:08:25.840 You know, we'd factor that in, but that's not our forecast, 0:08:26.040 --> 0:08:28.320 and of course, the history of the last two years 0:08:28.320 --> 0:08:32.400 has been very much that inflation moves down. Particularly now 0:08:32.400 --> 0:08:36.559 if you look at non housing services, it really really 0:08:36.559 --> 0:08:40.520 hasn't moved much and it's quite stable. And you know, 0:08:40.559 --> 0:08:43.480 so we think we'll have to demand will have to 0:08:43.520 --> 0:08:46.320 weaken a little bit and labor market conditions, conditions may 0:08:46.360 --> 0:08:48.440 have to soften a bit more to begin to see 0:08:48.440 --> 0:08:51.160 progress there. And again, in that world, it wouldn't be 0:08:51.200 --> 0:08:53.280 it wouldn't be appropriate for us to cut rates. 0:08:53.760 --> 0:08:57.080 Okay, so Pal told you this is no time to 0:08:57.160 --> 0:08:59.360 cut rates, that there's still a lot of work to do, 0:08:59.400 --> 0:09:03.280 your drive and lower. So how much worse could it 0:09:03.360 --> 0:09:04.199 possibly get? 0:09:06.880 --> 0:09:09.880 Well, it's hard to see it getting significantly worse. We're 0:09:09.880 --> 0:09:12.520 seeing the labor market loosen up a little bit and 0:09:12.760 --> 0:09:16.920 we're seeing inflation come down. Some of those two things 0:09:17.000 --> 0:09:21.960 tied together. Supply chains have normalized, so those aren't a 0:09:22.160 --> 0:09:26.280 major issue, and commodity prices have sort of flattened out, 0:09:26.320 --> 0:09:31.440 except for energy. So overall, the prognosis is for inflation 0:09:31.559 --> 0:09:36.480 to keep coming down. It's not the rate of the 0:09:36.679 --> 0:09:39.679 level rather of inflation, it's the rate which it's moving. 0:09:39.720 --> 0:09:43.440 That people are diverging from the FEDS view. The FED 0:09:43.440 --> 0:09:45.960 things it will take time that they've gotten the low 0:09:46.000 --> 0:09:49.400 hanging fruit, and it will take significant time to squeeze 0:09:49.400 --> 0:09:52.360 the rest of the two point two percent or whatever 0:09:52.480 --> 0:09:56.880 inflation out of the system, and the markets seem to 0:09:56.920 --> 0:09:59.360 think that it'll go much faster than that. We'll see 0:09:59.360 --> 0:10:03.800 a big drop in overall inflation over the coming months, 0:10:04.240 --> 0:10:08.200 either because the FED is suggest successful or because we 0:10:08.240 --> 0:10:11.520 go into a recession, and either way, the market wants 0:10:11.559 --> 0:10:16.479 to price in rate cuts and the Fed is disagreeing 0:10:16.600 --> 0:10:19.640 with that. And one of their concerns, and one of 0:10:19.640 --> 0:10:23.560 the concerns they had in sort of announcing a pause 0:10:23.559 --> 0:10:26.160 without announcing a pause, is they didn't want markets to 0:10:26.200 --> 0:10:28.320 go too far. They didn't want people to start pricing 0:10:28.360 --> 0:10:31.400 in further rate cuts. But that's exactly what happened after 0:10:32.320 --> 0:10:38.160 pal suggested in that answer that maybe if inflation did 0:10:38.200 --> 0:10:41.600 come down fast, then the markets might be right. He's 0:10:41.640 --> 0:10:44.000 not arguing that it's going to but just that little 0:10:44.040 --> 0:10:46.480 crack was enough for traders to slither through. 0:10:46.720 --> 0:10:50.240 Michael, thank you. That is Bloomberg's Global Economics and Policy 0:10:50.320 --> 0:10:53.720 editor Michael McKee, and coming up on Bloomberg Day Break weekend, 0:10:53.720 --> 0:10:56.880 the Bank of England's fight against inflation. I'm Tom Busby, 0:10:57.320 --> 0:11:10.880 and this is Bloomberg. This is Bloomberg Daybreak weekend, our 0:11:10.920 --> 0:11:13.280 global look ahead at the top stories for investors in 0:11:13.320 --> 0:11:16.320 the coming week. I'm Tom Busby in New York. Up 0:11:16.360 --> 0:11:18.920 later on our program the dead ceiling and what the 0:11:18.960 --> 0:11:22.199 fight over it means for the economy. But first, UK 0:11:22.320 --> 0:11:25.480 economists expect just one more quarter point rate hike from 0:11:25.480 --> 0:11:28.360 the Bank of England next week, with rates peaking at 0:11:28.400 --> 0:11:32.680 four point five percent, very different from the marketview. For more, 0:11:32.760 --> 0:11:35.959 we go to Bloomberg Daybreak Europe co host Caroline Hepger. 0:11:36.240 --> 0:11:38.960 Tom, the Bank of England is deep into its drive 0:11:39.040 --> 0:11:42.600 to tame inflation, with traders betting on a five percent 0:11:42.640 --> 0:11:45.400 potential peak rate in the UK, but the endgame is 0:11:45.400 --> 0:11:48.240 still really far from clear. So joining me now is 0:11:48.240 --> 0:11:51.160 Bloomberg's chief UK economist Dan Hanson. Great to have you 0:11:51.240 --> 0:11:53.960 on the program. Dan, the path ahead then for the 0:11:53.960 --> 0:11:55.760 Bank of England in your view now. 0:11:56.559 --> 0:11:58.640 Yeah, I mean, I think you're right about the uncertainty 0:11:58.720 --> 0:12:01.839 you've got. In the last few data releases, You've had 0:12:01.880 --> 0:12:04.880 really big surprises on the inflation front, and actually in 0:12:04.920 --> 0:12:07.240 the most recent labor market report, you had a big 0:12:07.280 --> 0:12:10.320 surprise on wages as well, So I think in the 0:12:10.400 --> 0:12:13.280 very near term and just thinking about the next meeting, 0:12:13.559 --> 0:12:16.079 I think it's it seems very likely to us and 0:12:16.360 --> 0:12:18.520 to the market, and I think most economists that they'll 0:12:18.520 --> 0:12:22.480 liferrates again twenty five basis points. I think the question 0:12:23.160 --> 0:12:27.000 then is a lot around the guidance that they provide. 0:12:27.040 --> 0:12:30.920 Are they still going to focus on the idea that 0:12:30.960 --> 0:12:33.920 they'll only liferates again if they're surprised by the data, 0:12:34.280 --> 0:12:38.120 and if that's the case, I think it is uncertain 0:12:38.160 --> 0:12:40.600 whether they will raise rates again. I think there's a 0:12:40.679 --> 0:12:42.360 question whether they want to be a little bit more 0:12:42.360 --> 0:12:44.960 forceful this time round, given the scale of the surprises 0:12:45.000 --> 0:12:48.840 that we've seen in the data. But I think our 0:12:48.880 --> 0:12:52.920 base case is that they'll liferates in May, and they'll 0:12:52.920 --> 0:12:55.600 also liferates in June. And the reason we think they'll 0:12:55.640 --> 0:12:59.280 do that is because the data, particularly on core inflation, 0:12:59.480 --> 0:13:02.040 has been very very sticky, and I think they'll want 0:13:02.080 --> 0:13:05.319 to lean against that sort of risk of inflation persistence. 0:13:05.320 --> 0:13:07.480 And I think at the Bank there is this They've 0:13:07.520 --> 0:13:11.280 talked a lot about overtightening, but I think actually if 0:13:11.320 --> 0:13:14.080 you look at the whole, the Committee as a whole. 0:13:14.280 --> 0:13:17.120 I think there's probably a view that it's better to do 0:13:17.200 --> 0:13:18.840 a little bit more than a little bit less at 0:13:18.840 --> 0:13:20.800 this point, and as you said at the start there, 0:13:20.800 --> 0:13:24.199 they've come so far they really want to just finish 0:13:24.240 --> 0:13:24.719 the job off. 0:13:24.880 --> 0:13:27.000 Yeah, I mean, the consumer price index in the UK 0:13:27.080 --> 0:13:30.400 and double digits above ten percent. But there are concerns, 0:13:30.440 --> 0:13:34.880 aren't there, around banks breaking particularly in the US in Europe, 0:13:35.559 --> 0:13:40.000 consumers struggling with food and energy bills, but also rising 0:13:40.080 --> 0:13:44.240 interest rates. How concerned do you think that the bank 0:13:44.320 --> 0:13:47.160 is going to be about suchly financial stability and other 0:13:47.200 --> 0:13:49.360 parts of the economy that may suffer after such a 0:13:49.440 --> 0:13:50.160 rapid rise. 0:13:50.840 --> 0:13:52.320 I think they'll be very, very concerned. 0:13:52.320 --> 0:13:52.840 I said they are. 0:13:53.000 --> 0:13:57.120 They're one of the only major central banks that have 0:13:57.320 --> 0:14:00.960 voiced concerns about overtightening. Now, I think when they balance 0:14:01.040 --> 0:14:03.760 the risk of overtightening versus doing too little, I still 0:14:03.800 --> 0:14:07.360 think they're probably erring towards worrying about doing too little. 0:14:07.920 --> 0:14:11.080 But nonetheless, even you know, chief economist Hugh pill at 0:14:11.080 --> 0:14:13.320 the Bank has warned about it. We've got some very 0:14:13.440 --> 0:14:16.480 vocal doves at the Bank of England talking about overtightening, 0:14:17.760 --> 0:14:22.200 so I think events in the US will certainly play 0:14:22.280 --> 0:14:25.760 on their mind. Here in the UK, financial conditions have 0:14:26.120 --> 0:14:30.040 after the sort of where things reach fever pitch following 0:14:30.120 --> 0:14:33.000 SVB and credit Swiss, things have eased off a little bit. 0:14:33.040 --> 0:14:35.320 So I think you know there is a there is 0:14:35.360 --> 0:14:37.760 a clear path to higher rates. That's not going to 0:14:37.800 --> 0:14:40.960 be an impediment to than lifting rates further. I mean, 0:14:40.960 --> 0:14:43.920 I think one one area of resilience, and they'll take 0:14:43.960 --> 0:14:46.880 some in some ways I guess takes some comfort in 0:14:46.920 --> 0:14:49.359 though it makes their inflation fight harder. Is the resilience 0:14:49.440 --> 0:14:52.760 of consumer spending in the economy in general, which has 0:14:52.760 --> 0:14:54.760 held up much better since the start of the year 0:14:54.840 --> 0:14:58.600 than many had been expected. But as I say that, 0:14:58.600 --> 0:15:01.520 that makes their inflation anyways, that makes her inflation fight 0:15:01.640 --> 0:15:05.520 harder because you've got a stronger economy, a stronger labor market, 0:15:05.840 --> 0:15:07.960 and ultimately that means it's harder to get inflation to 0:15:08.000 --> 0:15:10.840 settle at two percent as it begins to drift downwards. 0:15:11.800 --> 0:15:15.120 Okay, Dan, stay there. As we're thinking about the Bank 0:15:15.160 --> 0:15:17.320 of England's decision next week, I also wanted to bring 0:15:17.360 --> 0:15:19.200 in an interview that I did with Stephen King who's 0:15:19.200 --> 0:15:22.640 the senior economic advisor at HSBC, so really renowned economists. 0:15:22.640 --> 0:15:25.680 Of course you're nodding vigorously. He has a new book 0:15:25.720 --> 0:15:28.240 out called We Need to Talk About Inflation, and he 0:15:28.400 --> 0:15:32.760 was so interesting on this point of accountability, responsibility of 0:15:32.800 --> 0:15:36.400 central bankers, the stickiness of inflation. Where we go from here. 0:15:36.480 --> 0:15:38.320 Just want you to have a little listen to a 0:15:38.360 --> 0:15:39.560 snippet from that interview. 0:15:40.280 --> 0:15:42.320 Every crisis is different, but at the same time there 0:15:42.320 --> 0:15:44.960 are some similarities and you can tease them out. One 0:15:44.960 --> 0:15:48.840 of the similarities is that most crises, inflation wise, start 0:15:48.880 --> 0:15:51.360 with us series of excuses for why inflation is different 0:15:51.360 --> 0:15:53.640 from what people had expected. So it's energy price shocks, 0:15:53.640 --> 0:15:56.280 it's food price shocks, it's price gouging, it, whatever it 0:15:56.360 --> 0:15:58.840 might be. But actually, looking back through history, and I've 0:15:58.840 --> 0:16:01.400 looked through a lot of history, it's probably fair to 0:16:01.440 --> 0:16:03.800 say that money plays some kind of role. That if 0:16:03.840 --> 0:16:07.560 you have overduse monetary policy, or you're debasing the coinage, 0:16:07.640 --> 0:16:09.880 or you're coin clipping or whatever it was a thousand 0:16:09.960 --> 0:16:13.160 years ago, what you're now seeing is a situation whereby 0:16:13.560 --> 0:16:16.440 I suspect monetary policy which is far too loose. During 0:16:16.560 --> 0:16:21.080 the pandemic, and in particular remained far too loose after 0:16:21.080 --> 0:16:23.520 the pandemic came to an end. So you had this 0:16:23.560 --> 0:16:26.560 sort of situation where by central bank has feared a 0:16:26.600 --> 0:16:30.760 Great Depression mark too, but that never materialized. We had 0:16:30.800 --> 0:16:33.120 a series of declines in GDP which was similar to 0:16:33.160 --> 0:16:35.000 the Great Depression, but we did not have the multiple 0:16:35.000 --> 0:16:37.400 bank failures. We didn't have the mass bankruptcy is the 0:16:37.400 --> 0:16:39.320 mass unemployment. We didn't have any of those kinds of 0:16:39.320 --> 0:16:43.240 things coming through. And as a consequence, I think that 0:16:43.320 --> 0:16:46.560 we've ended up with excessively loose monetary conditions which have 0:16:46.680 --> 0:16:50.320 helped drive the underlying inflation process. And of course, when 0:16:50.360 --> 0:16:52.800 inflation first picked up, people said, it's just semi conductive prices, 0:16:52.840 --> 0:16:55.840 it's just prices of secondhand cars or whatever. But we 0:16:55.920 --> 0:16:57.920 now know that it's not just semi conductive prices or 0:16:57.920 --> 0:17:00.880 secondhand cars. It's a whole range of goods, a whole 0:17:00.960 --> 0:17:03.640 range of services, and now in some countries at least 0:17:04.200 --> 0:17:07.720 wages also moving up in nominal terms. So inflation, I 0:17:07.760 --> 0:17:11.159 would suggest, is much more embedded than the majority of 0:17:11.160 --> 0:17:13.600 central bankers and forecasters expected. 0:17:13.800 --> 0:17:16.520 Do you think that central bankers have taken on board 0:17:16.520 --> 0:17:20.320 that idea that monetary policy was too loose for too long, 0:17:20.400 --> 0:17:22.199 that they are partly to blame. 0:17:23.000 --> 0:17:25.280 Well, I think that they are keen to avoid blame. 0:17:25.320 --> 0:17:27.240 And part of the reasons for avoiding blame, of course, 0:17:27.359 --> 0:17:29.880 is that if they're blamed, they then come under tremendous 0:17:29.920 --> 0:17:32.520 political scrutiny. You know, what do these technocrats get wrong? 0:17:32.920 --> 0:17:35.320 And of course the most important thing for central bankers 0:17:35.359 --> 0:17:38.440 to try to retain the independence of the central bank. 0:17:38.520 --> 0:17:41.119 So I think there is a weird kind of desire 0:17:41.160 --> 0:17:44.800 to blame everything other than themselves for what is actually transpired. 0:17:45.200 --> 0:17:48.119 But when you think about it, the fact that interest 0:17:48.160 --> 0:17:50.920 rates remain so low for so long that during the 0:17:50.960 --> 0:17:53.520 course of twenty twenty one, inflation was steadily picking up 0:17:53.760 --> 0:17:56.679 in the US, in the UK, in the Eurozone, and 0:17:56.840 --> 0:17:59.240 action in terms of monetary tithing didn't really take place 0:17:59.280 --> 0:18:01.240 until the very end of that year or into twenty 0:18:01.280 --> 0:18:04.159 twenty two. I would suggest that there was effect too 0:18:04.200 --> 0:18:06.879 little action too late, which is why now we've got 0:18:06.920 --> 0:18:09.200 the situation where by everyone's panicking about how far rates 0:18:09.240 --> 0:18:11.480 will have to go up because you're trying to sort 0:18:11.520 --> 0:18:15.639 of conduct a handbreak turn when the economy effectively has 0:18:15.640 --> 0:18:18.320 been sort of not much growing quickly, but there's been 0:18:18.400 --> 0:18:21.560 showing signs of building inflation and pressures for much longer 0:18:21.560 --> 0:18:22.560 than people had expected. 0:18:22.800 --> 0:18:27.199 That was Stephen King, Senior Economic advisored HSBC, who was 0:18:27.400 --> 0:18:29.760 talking to a Soboomberg radio about his new book We 0:18:29.880 --> 0:18:33.199 Need to Talk About Inflation, So very interesting on that 0:18:33.280 --> 0:18:36.719 topic of course, right back to you, Dan So just 0:18:36.800 --> 0:18:39.560 going back then to the Bank of England and talking 0:18:39.600 --> 0:18:42.240 about the kind of bigger themes around why inflation is 0:18:42.280 --> 0:18:45.040 so sticky right now. This is the central challenge for 0:18:45.080 --> 0:18:48.160 economists now and to understand how sticky it. 0:18:48.080 --> 0:18:53.120 Will remain, absolutely absolutely and I think the reason you've 0:18:53.119 --> 0:18:55.560 had this what I would call a perfect storm where 0:18:56.040 --> 0:19:00.240 inflation has gone up for reasons outside of the troll 0:19:00.280 --> 0:19:04.960 of central banks, to the most extent thing through energy prices, 0:19:05.000 --> 0:19:10.560 food prices, what traditionally we call externally driven inflation. But 0:19:10.640 --> 0:19:13.720 at the same time you've had a very very extremely 0:19:13.800 --> 0:19:16.680 i should say tight labor market and those two things 0:19:16.680 --> 0:19:20.520 have combined. You've had and you've seen workers bargain for 0:19:20.560 --> 0:19:23.159 a bigger share of the pie and you've seen wage 0:19:23.160 --> 0:19:26.600 gains go up. So I think for all central banks 0:19:26.600 --> 0:19:30.000 it's really a case of watching first of all, in 0:19:30.119 --> 0:19:32.120 terms of the sort of order of where you might 0:19:32.160 --> 0:19:34.240 see things begin. 0:19:34.160 --> 0:19:34.879 To caol off. 0:19:34.920 --> 0:19:39.159 You've got first it's the economy, then it's the labor 0:19:39.160 --> 0:19:42.119 market and unemployment. Then it's wages, then it's inflation, and 0:19:42.400 --> 0:19:44.919 it tends to sort of happen in that order. So 0:19:45.840 --> 0:19:50.160 at least in the UK, with demands holding up, there 0:19:50.200 --> 0:19:53.440 isn't a sign yet that the labor market can really 0:19:53.480 --> 0:19:57.119 loosen to any great extent that will put enough downward 0:19:57.160 --> 0:20:00.320 pressure on wage growth to ultimately deliver inflation. 0:20:00.560 --> 0:20:02.960 Back to Togg, Dan, thank you so much for your time. 0:20:03.000 --> 0:20:05.760 Bloomberg's chief UK economist, Dan Hanson, thank you so much 0:20:05.800 --> 0:20:07.920 for being with me. I'm Caroline Hepge here in London. 0:20:07.960 --> 0:20:10.320 You can catch us every weekday morning for Bloomberg day Break. 0:20:10.359 --> 0:20:12.840 You're at beginning at six am in London. That's one 0:20:12.880 --> 0:20:14.040 am on Wall Street. 0:20:14.080 --> 0:20:17.359 Tom, thank you, Caroline, and coming up on Bloomberg day 0:20:17.400 --> 0:20:20.480 Break weekend. The fight over the dead ceiling is intensifying. 0:20:20.600 --> 0:20:22.640 I'm Tom Busby and this is. 0:20:22.600 --> 0:20:31.720 Bloomberg broadcasting live from the Bloomberg It a active brokers 0:20:31.760 --> 0:20:35.480 studio in New York. Bloomberg Elemon three oh to Washington, DC, 0:20:35.640 --> 0:20:39.000 Bloomberg ninety nine one to Boston, Bloomberg one O six 0:20:39.160 --> 0:20:42.440 one to San Francisco, Bloomberg nine sixteen to the country, 0:20:42.480 --> 0:20:46.800 Serrius XM Channel one nineteen to London DAB Digital Radio, 0:20:46.880 --> 0:20:50.000 and around the globe the Bloomberg Business app in Bloomberg 0:20:50.080 --> 0:20:53.640 Radio dot Com. This is Bloomberg Daybreak weekend. 0:21:00.240 --> 0:21:00.400 Tom. 0:21:00.480 --> 0:21:02.560 Let's be in New York with your global look ahead 0:21:02.560 --> 0:21:05.119 at the top stories for investors in the coming week. 0:21:05.320 --> 0:21:08.640 The clock is ticking on the US debt ceiling. For more, 0:21:09.040 --> 0:21:11.159 Let's head to our Bloomberg ninety nine to one newsroom 0:21:11.200 --> 0:21:14.200 in Washington and sound on host Kaylee Line. 0:21:14.320 --> 0:21:16.560 Yeah, that's right, Tom. We learned this past week that 0:21:16.600 --> 0:21:20.040 the X state could be just weeks away. Treasury Secretary 0:21:20.080 --> 0:21:22.320