Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: global economy to you, and I'm Stephanie Flanders. This week
Speaker 1: we're talking about money, how to make it and how
Speaker 1: to make sure it keeps its value. It's something we
Speaker 1: all have to think about, but if you're a central bank,
Speaker 1: it's your only job, and the stakes are a lot
Speaker 1: higher because the decisions of central bank takes can affect
Speaker 1: the cost of living the life of an entire country,
Speaker 1: maybe the whole world. The central bank you're sitting in
Speaker 1: happens to be the US Federal Reserve. For the past
Speaker 1: fifteen twenty years, the story of central banks and their
Speaker 1: job has been dramatic but pretty easy to grasp. The rules.
Speaker 1: Whenever economy has got into trouble, the central bank would
Speaker 1: slash interest rates to new lows and flood the economy
Speaker 1: with cheap cash. The economy got better, but never quite
Speaker 1: enough to bring rates back to where they were before
Speaker 1: the crisis, so money stayed cheap. This recovery, those feeling
Speaker 1: a bit different. At least an advanced economies like the US,
Speaker 1: demand is coming back faster than supply, and inflations hitting
Speaker 1: rates we haven't seen in years it's all driving fears
Speaker 1: that one of these central banks is about to monumentally
Speaker 1: screw up, either keep the money flowing too long lose
Speaker 1: control of prices, or raise interest rates too soon and
Speaker 1: choke the recovery. Now the risks look rather different in
Speaker 1: the US and the UK right now. So I've asked
Speaker 1: Bloomberg economists on both sides of the Atlantic to come
Speaker 1: on the show to explain it, or our chief a
Speaker 1: mere economist, Jamie Rush, formerly at the UK Treasury, and
Speaker 1: David Wilcox, now our Director of US Economic Research, but
Speaker 1: for many years in charge of all the forecasts and
Speaker 1: all the economic research produced by the Federal Reserve. You're
Speaker 1: gonna hear them in a few minutes. But first, the
Speaker 1: story of a central bank that tried something new just
Speaker 1: under a year ago and changed the way money works
Speaker 1: in the economy almost overnight. It's called Picks and his
Speaker 1: brazil economy reporter Maria and Louisa Kapoora to explain how
Speaker 1: it's taken the country by a store Feaston Peaks or
Speaker 1: Mega Picks. Wasn't something in Brazilian's used to say a
Speaker 1: year ago. But now you hate everywhere, I mean really everywhere,
Speaker 1: I beat my ren Thry big size split the restaurant
Speaker 1: built with friends Bia Biggs. I even paid my activities
Speaker 1: with Biggs and it's just millions like me. I don't know.
Speaker 1: I have picked since it came out in November. I
Speaker 1: cho speaks because it was easy to make men transfers.
Speaker 1: That was in Carlo Garti Silva native from what are
Speaker 1: and who I run into. He was having coffee in
Speaker 1: a restaurant in the southeast region of Brasilia. Most of
Speaker 1: the payments he makes nowadays on most of the transfers
Speaker 1: he makes to his family. You speaks a new payment
Speaker 1: platform that's sweeping across Brazil. I made the picks of
Speaker 1: three thousand three eyes as a low one. That was
Speaker 1: my last PIX transaction. The mobile payment platform, created by
Speaker 1: Brazil's Central Bank less than a year ago, has changed
Speaker 1: the financial landscape of Brazil. Now, more than a hundred
Speaker 1: and ten million users have transferred money through Pigs, which
Speaker 1: lives within a bank's mobile phone app in just the
Speaker 1: same way sell do us for US base banks. As
Speaker 1: if to underline the bad streach of a new payment system.
Speaker 1: While waiting at a stoplight in Brasilia, I noticed a
Speaker 1: woman going car to car packing for money. Her cardboard
Speaker 1: sign said she accepted pigs. Pigs was creating an attempt
Speaker 1: to simplify banking transfers and make them cheaper, while also
Speaker 1: boosting competition. But the success of Picks has highlighted another
Speaker 1: potential benefits of the system, an increasing financial inclusion by
Speaker 1: bringing people like the woman I saw at the spotlight
Speaker 1: into the country's banking system. And that's just huge for Brazil,
Speaker 1: where three percent of people don't have a bank account.
Speaker 1: You need to have a bank account to access Peaks,
Speaker 1: but once you do, you can enter the platform just
Speaker 1: by registering your phone number, your textually or just your email.
Speaker 1: Here's bank chief Roberto campus net To speaking in an
Speaker 1: interview with the Council of the America's in August. I
Speaker 1: think Picks became a very popular, you know, gain a
Speaker 1: lot of space, a very popular project that the Central
Speaker 1: Bank did. The message from the very beginning was it's
Speaker 1: not only a substitution effect, but also you increase the
Speaker 1: number of payments if you're gonna enable new business models,
Speaker 1: which should increase the volume overall, should increase the ability
Speaker 1: of small companies or companies that sell things that have
Speaker 1: a small chicken to get into the market people the
Speaker 1: self employed. We actually see people sending things on the
Speaker 1: street and accepting picks this day, so it's becoming again
Speaker 1: a very popular thing. We never expected the reach. You know,
Speaker 1: we have two eighty two million keys, we have seven
Speaker 1: point four million entities companies using Picks is catching on
Speaker 1: so quickly, in part because it's just so easy to use,
Speaker 1: said Brenda Lovo, senior advisory at Bussis Central Bank and
Speaker 1: part of the team managing Picks. It's always available for
Speaker 1: four hours a day, seven days a week. The funds
Speaker 1: are instantly available at the peas accounts. So uh, it's
Speaker 1: a very easy and people intuitive way of transferring money
Speaker 1: using the themartphone. The pandemic turn not to be fertile
Speaker 1: ground for the growth of Picks. People were cooked at home,
Speaker 1: avoiding contact, and businesses were closed and suddenly here comes Peaks,
Speaker 1: making digital transfers as easy and fast as using cash.
Speaker 1: By September, about eighty nine billion dollars have moved through
Speaker 1: the system, And just to give you an idea of
Speaker 1: what that means, PIX moves fifty times the amount of
Speaker 1: money ordinary text too. Here's again Brazil's Central Bank. We
Speaker 1: expected that PICKS would be very used here in Brazil,
Speaker 1: but we thought that it would take a certain amount
Speaker 1: of time because people have their own abits of using
Speaker 1: means of payments. For here in Brazil, we use a
Speaker 1: lot of cash, and we use a lot of cred
Speaker 1: cards and that cards, so Brazilians were not familiar to use.
Speaker 1: There's much funds to start a payment, and PIX was
Speaker 1: a really new thing that came in Brazil, but it
Speaker 1: ocplied this space really really really fast. Uh. Picks UH
Speaker 1: is the instant payments seems that that that have the
Speaker 1: fast adoption in its first year. Picks has been especially
Speaker 1: game changing for small business owners like Hanada's Leveda Pets,
Speaker 1: who runs a small cat sitting business in the central
Speaker 1: Brazilian city of Ours Class. Picks lower the costs for
Speaker 1: my customers because the transfer feed that each bank charged
Speaker 1: me could be as high as thirty percent of my take.
Speaker 1: So PIGS brought me more financial control element cannot with
Speaker 1: a sales vaccination great growing every day. The economy now
Speaker 1: is almost fully reopened and people are entering out stopping
Speaker 1: by the bank now it's much easier, and yet PIGS
Speaker 1: is still growing. In July, it broke its own record
Speaker 1: of fourty million payments in just one day. Julian Afraida
Speaker 1: works at a pastor shop which began using pigs just
Speaker 1: five months ago. The work with all credit and debit cards.
Speaker 1: The pigs was very practical and many clients wanted it,
Speaker 1: and it makes payments for deliveris easier. In three seconds,
Speaker 1: she sees the payments in her account see pick. Sometimes
Speaker 1: it takes less than that. It's super fast and we
Speaker 1: don't pay fees to banks. Credit cards can take as
Speaker 1: long as thirty days for us to see the money,
Speaker 1: and with debit cards, if the purchase is made on
Speaker 1: a weekend, we'll always see it the next Monday. But
Speaker 1: Pigs is automatic. There's just one hitch. Brazil is a
Speaker 1: high crime country and criminals have also begun to capitalize
Speaker 1: on the success of pigs. Express Kidnappings are also back,
Speaker 1: and people are being snatched off the street at gunpoint
Speaker 1: and forced to pull out all their stabings from the
Speaker 1: closest ATM machine. To now the bad guys only need
Speaker 1: to force them to make up pigs. Accounts are traceable
Speaker 1: in picks, but criminals use fake ones or false names.
Speaker 1: The Central Bank responded rather quickly with new limits on
Speaker 1: transfers at night, and other safety measures have also been
Speaker 1: taken to address the possibility of hackers entering PICKS database.
Speaker 1: And if the numbers tell us anything is that for
Speaker 1: hundreds of thousands of resilience, the risk of using Peaks
Speaker 1: is outweighed by the reward in costs and convenience. But
Speaker 1: Picks needs to grow to achieve financial inclusion. Here's Leonard
Speaker 1: Roja Suarez, director of the Latin American Initiative at the
Speaker 1: Center for Global Development in Washington, d C. And so
Speaker 1: Peaks is great for at lower in financial cost, increase
Speaker 1: the security, and improve the consumer spirit. But that is
Speaker 1: true only for those that have a bank account, because
Speaker 1: that's a requirement of PIGS. For those that do not
Speaker 1: have a bank account, bank account, or do not have
Speaker 1: a smartphone, they will not be able to access the
Speaker 1: up and so that would leave about thirty of the
Speaker 1: Brazilian population out of being able to use the app.
Speaker 1: Some of those changes seem to be already happening. Offline
Speaker 1: payments are in the words, along with programs that will
Speaker 1: allow people to withdraw money from stores using PICKS and
Speaker 1: bank chief Campus Nettle says we haven't seen the full
Speaker 1: scope of PICKS yet. In fact, he estimates we've only
Speaker 1: seen five of its posessial and if that is true,
Speaker 1: Brazil could be on the brink of a digital revolution.
Speaker 1: For Blue Venus, I'm Maria least couple well, no good
Speaker 1: deed goes unpunished. Our brazil economist Adriana Dupeter just informed
Speaker 1: me that PICKS has been so successful the government's thinking
Speaker 1: of slapping a financial transactions tax on it to help
Speaker 1: fill the whole in the government's public finances. So I
Speaker 1: guess there are some things about Brazil that technology can't change.
Speaker 1: But now we move from a digital revolution for central
Speaker 1: banks to just a very difficult decision. As I mentioned
Speaker 1: at the start of the show, the rapid recovery we've
Speaker 1: seen in a lot of advanced economies this year has
Speaker 1: produced something we haven't seen in a long time inflation
Speaker 1: rising prices. The annual rate of inflation last month in
Speaker 1: the US hit five point four percent. That's the highest
Speaker 1: in more than a decade, and only the second highest
Speaker 1: reading this century. Now, this was supposed to be a
Speaker 1: short term blip, a temporary side effect of the extraordinary
Speaker 1: impact of COVID nineteen. But it's dragging on a bit,
Speaker 1: and some pretty influential economists, including my old boss, the
Speaker 1: former Treasury Secretary Larry Summers, say the Federal Reserve and
Speaker 1: maybe other central banks are in danger of falling asleep
Speaker 1: at the wheel. Well. As mentioned at the start, I
Speaker 1: have our Director of US Economic Research, David Wilcox, and
Speaker 1: chief a Mere economist, Jamie Rush here to discuss all this.
Speaker 1: I mean, David, you spent a long time at the FED.
Speaker 1: They say, institutions always at risk of fighting the last war?
Speaker 1: Is it? Is it too focused on lack of demand,
Speaker 1: which has been such a problem off and on for
Speaker 1: the past ten or twenty years, and now not focused
Speaker 1: enough on too much demand and actually too much inflation.
Speaker 1: I don't think so, Stephanie. For sure, the Federal Reserve
Speaker 1: is facing challenging circumstances with pandemic induced economic collapse the
Speaker 1: likes of which we haven't seen in at least a
Speaker 1: century in the United States. But let's remind ourselves the
Speaker 1: dominant narrative in the US for the past two decades
Speaker 1: has been inflation that ran too low, not too high.
Speaker 1: It was frustrating for the Federal Reserve that they persistently
Speaker 1: undershot their two percent objective. Another key ingredient in the
Speaker 1: environment right now in the US has been the astonishing
Speaker 1: downward move in interest rates around the globe, and that's
Speaker 1: left central banks, including the Federal Reserve, with too little
Speaker 1: room to cut rates in order to fight recessions. To
Speaker 1: try to push back against those two developments, the FED
Speaker 1: put in place a new framework one year ago under
Speaker 1: which they pledged to be more tolerant of inflation running
Speaker 1: a little above the two percent objective. So, while the
Speaker 1: situation remains very fluid and very uncertain, the bigger risk
Speaker 1: from the Fed's point of view, in my assessment, is
Speaker 1: that inflation set eggs below the two percent objective once
Speaker 1: again after the current set of snarl ups in the
Speaker 1: supply chains are resolved. I think they're right to stack
Speaker 1: the odds on inflation in favor of inflation running a
Speaker 1: little above two I guess there's two things here. There's
Speaker 1: that the forecasts that the Federal Reserve might have or
Speaker 1: policy makers might have a different that they just don't
Speaker 1: think inflation is going to stick around as long as
Speaker 1: as other forecasters do. And then there's something else which
Speaker 1: just to say we we do think inflation maybe we'll
Speaker 1: stick around for a bit, but we think that's we're
Speaker 1: more tolerant of that than we might have been in
Speaker 1: previous eras. Yes, I think that's just right. Monetary policy
Speaker 1: is risky business. It's not for the timid of heart. Um. Certainly,
Speaker 1: there are some prominent voices, and you mentioned Larry Summers
Speaker 1: being perhaps the loudest of all, that are warning the
Speaker 1: FED that they are on the brink of losing control
Speaker 1: of inflation. But the consensus view remains much more benign
Speaker 1: than that. My own views tend towards the more benign
Speaker 1: end of the range. I think we're likely to have inflation,
Speaker 1: that's a little about two a year or two from now,
Speaker 1: but I don't anticipate that. The most likely outcome is
Speaker 1: that I will see inflation as a persistent problem for
Speaker 1: the FED to deal with by them. And I guess
Speaker 1: when you talk about FED stuff until not very long ago,
Speaker 1: a lot of those people used to used to work
Speaker 1: for you. It's all very well saying, well, we want
Speaker 1: to build ourselves a bit of room for maneuver for
Speaker 1: the future, so if inflation goes higher, that's not such
Speaker 1: a big issue. But if you've lost credibility, if you
Speaker 1: seem to be acting too late, then I guess the
Speaker 1: risk is that you then have to do too much.
Speaker 1: I mean, how concerned will they be about that? To think, Well,
Speaker 1: let's distinguish two instituencies here. The job of the staff
Speaker 1: is to try to give their best professional judgment. They're
Speaker 1: acting like physicists, admittedly in an improve in an imperfect world.
Speaker 1: But their job is to lay out their expectation the
Speaker 1: range of uncertainties around that expectation. Policymakers, you're absolutely right,
Speaker 1: have to take into consideration a larger constellation of issues,
Speaker 1: including things like credibility and reinforcing the meaning of the
Speaker 1: new framework that the FED adopted just a year ago. Um,
Speaker 1: the FED staff is as good as they get, uh,
Speaker 1: and I think they are really free of any kind
Speaker 1: of larger sort of pressures that that might be on
Speaker 1: other elements. Their job is to just simply if their
Speaker 1: best professional judgment, they don't need to take into account
Speaker 1: issues of credibility or other matters like that. What would
Speaker 1: it take to change the fat's mind? Do you think
Speaker 1: that how much inflation would you have to see? For
Speaker 1: how long? I mean, when we see these numbers. You
Speaker 1: see very high house price inflation, you see rents taking off,
Speaker 1: you know some things which are not one would think,
Speaker 1: not entirely just related to these supply chain issues that
Speaker 1: we've had coming out of COVID. Yeah, what will be
Speaker 1: required to change the FATS mind is really, I think
Speaker 1: a break and inflationary psychology that we haven't seen really
Speaker 1: since the early nineteen eighties. Um, if it becomes the
Speaker 1: dominant narrative that businesses are putting in place price increases
Speaker 1: because they know their competitors are, if they're granting wage
Speaker 1: increases because they know that they're workers are being bid
Speaker 1: away by others who were offering higher salaries. If workers
Speaker 1: are demanding larger pay increases because their cost of living
Speaker 1: is going up not only over the past year, but
Speaker 1: they expected over the coming year. Those are the basic
Speaker 1: ingredients of a classic wage price spiral, and that's what
Speaker 1: will prompt the FIT to conclude that inflation expectations are
Speaker 1: no longer anchored as they have been for the past
Speaker 1: two decades, and that in turn will prompt the FIT
Speaker 1: to slow the economy in order to contain inflation pressures.
Speaker 1: I'm going to bring Jamie Russian now are a mere
Speaker 1: chief chief economists because if you we tend to think
Speaker 1: of terms of hawks and doves at central banks, and
Speaker 1: it greatly annoys the policymakers that sitting there because they
Speaker 1: think they have very interesting, nuanced views. But the hulks,
Speaker 1: broadly speaking, are the ones who want to raise interest
Speaker 1: rates with money more expensive, and the doves are the
Speaker 1: ones who want to keep money very flowing, very loosely
Speaker 1: and freely. If we have a flock of doves still
Speaker 1: encamped at the Federal Reserve building in the US, there
Speaker 1: are certainly a few hawks, and one very prominent hawk
Speaker 1: we've been hearing from from the Bank of England recently.
Speaker 1: Jamie talk us through the situation there, because it feels
Speaker 1: like the forecasters and the central bank are facing the
Speaker 1: same uncertainties in the UK and some of the same inflation,
Speaker 1: but coming up with rather different conclusions. Yeah, I think
Speaker 1: that's right. So if you go back even just a
Speaker 1: few months, there seemed to be a consensus among global
Speaker 1: central banks that they were just tread carefully, if in
Speaker 1: fact there was any treading to be done at all,
Speaker 1: and so the bank wasn't expected to lift interest rates
Speaker 1: until three in the UK, and they were going to
Speaker 1: tolerate any sort of inflation if as long as it
Speaker 1: was going to be temporary. But now wage pressure is
Speaker 1: picked up a bit, and not just in the places
Speaker 1: that have been affected by COVID, the most energy costs
Speaker 1: are up, which is obviously pushing headline inflation up a lot.
Speaker 1: And it seems that the Bank of England's lost its nerve.
Speaker 1: The governor is increasingly vocal about the risks of inflation,
Speaker 1: and that's prompted markets to bring forward the timing of
Speaker 1: expected rate hikes not two but to next month. So um,
Speaker 1: it's been a really really big shift in the Bank's
Speaker 1: rhetoric and how markets are perceiving it, and indeed they're
Speaker 1: expecting another eight basis points or so of of hikes
Speaker 1: next year as well. So it's just worth it's worth
Speaker 1: emphasizing just how big a change that was. So, as
Speaker 1: you said at the start, only a few months ago,
Speaker 1: probably the beginning of the summer, we were expecting interest
Speaker 1: rates to stay basically at zero, just above zero in
Speaker 1: the UK for at least another year or a year
Speaker 1: in a bit, so no change until three and now
Speaker 1: we're not only expecting maybe three quarters of a percentage
Speaker 1: point worth of cuts next year, but even a rise
Speaker 1: this year, so that interest rates in the year's time,
Speaker 1: the official base rate could be one percentage point rather
Speaker 1: than more or less zero. Now, I can't think of
Speaker 1: a time when you've had such a dramatic change. You
Speaker 1: said that the bank, the bad governor had lost its
Speaker 1: lost his nerve. That normally sounds like a bad thing.
Speaker 1: Do you think he's making a mistake? Well, so, I
Speaker 1: think there's two questions here. Are they making mistake about
Speaker 1: the policy that they're taking now? So they have they
Speaker 1: are accommodating market expectations and higher rates, which is tightening.
Speaker 1: It's happen. That's happening right now. Basically it's feeding through
Speaker 1: to borrowing costs in the wider economy as we speak.
Speaker 1: So people expecting rates to go up and pushes the
Speaker 1: market rates. So when I go and get a bortgage
Speaker 1: or where if I'm trying to borrow as a business,
Speaker 1: I'm already paying more because people are expecting interests exactly right.
Speaker 1: So if you think about the five year borrowing cost
Speaker 1: in markets, like the risk free rate that's gone up
Speaker 1: fifty basis points over the past few months, eventually that's
Speaker 1: going to feed through to your five year mortgage if
Speaker 1: that's if that's what you've chosen. Um, so these things
Speaker 1: are going to start affecting people even before interest rates
Speaker 1: have actually gone up. So I think that's an important point.
Speaker 1: So if there is a policy mistake happening, it's being
Speaker 1: made now. It's not something that's about to happen, it's
Speaker 1: it's already happening. So so there's that, and I think,
Speaker 1: you know, is it a mistake? Well, we don't actually know.
Speaker 1: It may prove to be the case that inflation does
Speaker 1: pick up sustainably and actually this is going to look
Speaker 1: like quite a smart move in a year or so
Speaker 1: is time. Equally, you could see that unemployment goes up
Speaker 1: as the end of the furlough scheme in the UK happens,
Speaker 1: and and that pushes down on on on wage pressure
Speaker 1: and therefore inflation tips back downwards, which case would look
Speaker 1: like a mistake because it needlessly delayed the recovery. I
Speaker 1: think the bigger question though, is whether there is a
Speaker 1: TJ error being made here? Is that is it better
Speaker 1: to be if you're going to be wrong? Is it
Speaker 1: is it better to be wrong by going too early
Speaker 1: or by going too late, And in my opinion, it
Speaker 1: is better to be to to raise interest rate it's
Speaker 1: too late, because a little bit of extra inflation isn't
Speaker 1: going to be too damaging into the bank's credibility, is
Speaker 1: not going to hurt people too much, especially if it's
Speaker 1: it's driven by wage increases UM. Compared with what we've seen,
Speaker 1: which is a rapid repricing of interest rates. The possibility
Speaker 1: that this has actually some some some nonlinear effects, meaning
Speaker 1: that the economy could respond worse to a sudden increase
Speaker 1: in interest rates than than than one that's been very
Speaker 1: carefully choreographed over the course of say six months UM.
Speaker 1: And so I think that is actually the bigger danger.
Speaker 1: You could have a position here where the bank is
Speaker 1: as has endorsed a lot of tightening, and that it
Speaker 1: could it could affect demand, it could affect the housing market.
Speaker 1: It could have really quite a few unintended consequences. So
Speaker 1: the strategic decision from from in my view, is probably
Speaker 1: not the right one. It sounds like you're making a
Speaker 1: similar argument to what one would make in the US.
Speaker 1: I guess one argument is that the UK is in
Speaker 1: a worse position than the US and particularly is a
Speaker 1: bit more vulnerable to inflation taking off because it's also
Speaker 1: just had this kind of recently self inflicted wound of Brexit.
Speaker 1: Is there a sense in which the Bank of England
Speaker 1: needs to be a bit more concerned about triggering an
Speaker 1: inflationary spiral than the US. We've also had quite a
Speaker 1: lot more inflation than the US. We haven't really had
Speaker 1: a deflation concern in the UK the way that you
Speaker 1: have in say America or the Eurozone. We've been able
Speaker 1: to deliver quite a lot of inflation even through these
Speaker 1: last few years. I don't think the Bank needs needs
Speaker 1: to be especially concerned just because of the additional disruptions
Speaker 1: caused by Brexit. I mean, we always have this this
Speaker 1: this backdrop of supply chain disruption more broadly due to COVID.
Speaker 1: It's very difficult to unpick the Brexit distructions from the
Speaker 1: COVID disruptions. So I think, in in short, there isn't
Speaker 1: an obvious reason why you should adopt a different policy
Speaker 1: in Britain from the one that is being adopted in
Speaker 1: the Europe and in the US. And in fact, by
Speaker 1: going quite by adopting a very different strategy, you do
Speaker 1: introduce some new risks, and that you are going to
Speaker 1: see some potentially big movements in the exchange rate. For example,
Speaker 1: if the if you if the UK goes and goes
Speaker 1: alone on Manuch policy and raises raising interest rates a
Speaker 1: year before the FED, so that there is there is
Speaker 1: I mean, there is some safety in in in sticking
Speaker 1: with the herd. And I guess I had a final
Speaker 1: question for both of you, which is before two thousand
Speaker 1: and eight, and certainly all the time I was learning
Speaker 1: economics in in high school and university. You know, we
Speaker 1: tended to think that recessions were going to be caused
Speaker 1: one way or another by central banks, because that was
Speaker 1: how most recessions have been. The immediate trigger for most
Speaker 1: recessions had been central banks checking up interest rates in
Speaker 1: response to inflation that they'd allowed to get out of control.
Speaker 1: But that hasn't been true of the last two recessions,
Speaker 1: and we've kind of maybe forgotten about that dynamic. But
Speaker 1: are we back in the world where you would bet
Speaker 1: that the next recession, whenever it comes on either side
Speaker 1: the Atlantic, is most likely to come from a screw
Speaker 1: up by the central banks. David, I think the risk
Speaker 1: of that is much higher now. Than it was previously. UM.
Speaker 1: What we know is that the macro environment is a
Speaker 1: risky place to operate, and recessions come from lots of
Speaker 1: different causes. The two thousand recession in the United States
Speaker 1: was caused by an asset bubble collapse, the two thousand
Speaker 1: eight by the housing market collapse, two thousand twenty the pandemic.
Speaker 1: Each one has its own narrative. Classically, the textbooks that
Speaker 1: I grew up with emphasized that the that the Fed
Speaker 1: Reserve let inflation get out of control more or less
Speaker 1: because of a lack of focus. I don't think that's
Speaker 1: going to be the storyline that the textbook five and
Speaker 1: ten years from now tells as its main narrative. But
Speaker 1: we just don't know. And so that's why I, for one,
Speaker 1: I'm going to stay tuned and Jamie, next time we
Speaker 1: have a recession that you're going to be looking first talk.
Speaker 1: I agree with David. I think it's become much more risky.
Speaker 1: I mean, one one one obvious risk is just that
Speaker 1: the impressed in support means it's going to be uncommonly
Speaker 1: difficult to unwind UM. But I think one interesting thing
Speaker 1: would be if central banks have to choose to have
Speaker 1: a recession in order to get information, and I mean
Speaker 1: we haven't had that from really a long time. It's
Speaker 1: one thing caused one by mistake. And let let it
Speaker 1: be said they have done that in the past. They
Speaker 1: used to make I think that's actually a book. But
Speaker 1: it's fear of doing having to do that which is
Speaker 1: driving a lot of central bank behavior now as we
Speaker 1: see it, um certainly from parts for the banking especially.
Speaker 1: But yeah, I think if they had to choose to
Speaker 1: have a recession to get inflation back under control, I
Speaker 1: think that would be keeping me up at nine hours
Speaker 1: a central bank Jamie Rush, David Wilcox, thank you very much,
Speaker 1: Thanks so much. Good to be with you. Since we're
Speaker 1: talking about hawks and doves, I should mention that one
Speaker 1: of the great hawks in the European central banking scene
Speaker 1: has just announced he's standing down against Wiedman, head of
Speaker 1: the German Bunder's Bank. For more than a decade. He
Speaker 1: became known as Doctor No for voting against pretty much
Speaker 1: all of the European Central Bank did to support the
Speaker 1: Eurozone economy in the crisis years. With him going, the
Speaker 1: hawks that the ECB have lost their strong man, but
Speaker 1: don't worry. Something tells me there's plenty more just like him,
Speaker 1: waiting in Frankfort to take his place. Well that's it
Speaker 1: for this episode of Stephonomics. We'll be back next week
Speaker 1: in the meantime. If you like the program, please rate
Speaker 1: it and follow at Economics on Twitter for more news
Speaker 1: and analysis from Bloomberg Economics. This episode was produced by
Speaker 1: Magnus Hendrickson, and the story from Brazil was based on
Speaker 1: reporting by Shannon Sims and Maria Eloisa Couple. Special thanks
Speaker 1: also to Danielle Cavallo, is Adora Columbia, Luana Race, Jamie Rush,
Speaker 1: and David Wilcox. Mike Sasso is executive producer of Stephonomics
Speaker 1: and the head of Bloomberg podcast Is francescan Lead