Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 1: top stories in the coming week from our Daybreak anchors
Speaker 1: all around the world, and straight ahead on the program
Speaker 1: of peek at what the FED is really thinking about
Speaker 1: interest rates. I'm Tom Busby in New York. I'm callin
Speaker 1: Headker here in London, where we're looking at the consequences
Speaker 1: of all in Ukraine. I'm Joe Matthew in Washington. What's
Speaker 1: at stake as President Biden visits pol I'm Bryan Curtis
Speaker 1: in Hong Kong. We read the tea leaves on where
Speaker 1: the incoming bo j Governor Casual Uda is going with
Speaker 1: the whip in his hand. That's all straight ahead on
Speaker 1: Bloomberg Daybreak Weekend on Bloomberg. He Love on three O
Speaker 1: New York, Bloomberg one, Washington, d C, Bloomberg one oh
Speaker 1: six one, Boston, Bloomberg nine sixties, San Francisco, d A
Speaker 1: B Digital Radio, London, Sirius XM one nine team and
Speaker 1: around the world on Bloomberg Radio dot Com and via
Speaker 1: the Bloomberg Business App. Good day to you, Tom Busby,
Speaker 1: and we begin today's program with the Fed and minutes
Speaker 1: from the Fed's latest policy meeting coming out on Wednesday
Speaker 1: and joining me to talk about it. Bloomberg's Global Economic
Speaker 1: and Policy editor Michael McKee. Michael, thanks for joining us.
Speaker 1: Happy to be here now. These minutes from the f
Speaker 1: O m C from their last meeting. It's wrapped up.
Speaker 1: On February one, the central bankers announced the pretty modest
Speaker 1: basis point hike in benchmark rates. The key, of course,
Speaker 1: is what policymakers see looking ahead. So what are we
Speaker 1: hoping to see this time? Well, ordinarily you'd say you
Speaker 1: don't get that much from the minutes because it's three
Speaker 1: weeks old, and we've had a lot of data since then,
Speaker 1: and we have had a lot of data that may
Speaker 1: have changed their views. And this week we got some
Speaker 1: of those views start to starting to change in public,
Speaker 1: with Cleveland Feds Loretta Mester, for example, saying that she
Speaker 1: thought that they should have done fifty basis points at
Speaker 1: that February first meeting. Uh, that would have been something
Speaker 1: we were looking for. In the minutes. Well, let's hear
Speaker 1: a sound from Loretta Mester right now on why she
Speaker 1: says the case was made for a much bigger basis
Speaker 1: point hike. So at this juncture, the incoming data have
Speaker 1: not changed my view that we will need to bring
Speaker 1: the FED funds rate above five and hold it there
Speaker 1: for some time to be sufficiently restricted to ensure that
Speaker 1: inflation is on a sustainable path back to two. Indeed,
Speaker 1: at our meeting two weeks ago, setting aside what financial
Speaker 1: market participation participants expected us to do, I saw a
Speaker 1: compelling economic case for a fifty basis point increase. We
Speaker 1: should have brought the top of the target range to five. Alright,
Speaker 1: Loretta Mester, there, and now let's go back some of
Speaker 1: the things that you just talked about. These data points
Speaker 1: that really may have been exactly what she was referring
Speaker 1: to about better than forecast jobs report for January, better
Speaker 1: than forecast Q four GDP, better than forecast retail sales
Speaker 1: for the same month, and and how that may have
Speaker 1: influenced the FED in the last three weeks. It's gonna
Speaker 1: be interesting to see how it might have influenced the FED,
Speaker 1: because we've seen inflation come down a lot in November
Speaker 1: and December and then rebound in January in both the
Speaker 1: CPI and the p p I. And maybe it's telling
Speaker 1: us what the FED has been trying to tell us
Speaker 1: that the inflation genie is still not back in the bottle.
Speaker 1: It's going to take a while to bring that down,
Speaker 1: and they need to do more for longer, raised rates
Speaker 1: higher for longer, which is something they've been saying for
Speaker 1: a long time. Uh. The real dichotomy seems to be
Speaker 1: on the growth side, where uh many of these FED officials,
Speaker 1: including Mester, uh, including Tom Barkin earlier um saying that
Speaker 1: we think there's gonna be a recession or darn close
Speaker 1: to it. Uh. Laura Mester said that business contacts in
Speaker 1: her district are preparing for one. And yet, as you mentioned,
Speaker 1: the retail sales numbers and other signs of growth have
Speaker 1: come in fairly strong. So when does that happen? Right?
Speaker 1: And you spoke to Richmond FED President Barkin just this
Speaker 1: past week and got some great insight from him. So
Speaker 1: let's listen to what he told you about FED rate hikes. Well.
Speaker 1: I try not to get to wound up in any
Speaker 1: particular data read, particularly a January data read large, seasonality factors,
Speaker 1: all that sort of stuff, um um, But I do
Speaker 1: think what we're now in a position to do is
Speaker 1: to react to multiple months of data as they come in.
Speaker 1: We may or may not choose to take rates up
Speaker 1: further if inflation continues to persist, We'll have to see
Speaker 1: what happens. All right, there's Richmond FED President Thomas Barkin
Speaker 1: there now, Michael, what other insights could you glean from
Speaker 1: your conversation with him. Well, he's basically saying that the
Speaker 1: FED is going to be data dependent, which of course
Speaker 1: we all know, which means that their horizon is shorter.
Speaker 1: They're looking between meetings what's changed, rather than where we
Speaker 1: think will be at the end of the There they're
Speaker 1: all predicting that we're going to see inflation come down further.
Speaker 1: There are differences in the opinion of opinion in terms
Speaker 1: of how fast that's going to be. The question is,
Speaker 1: in the meantime, what are they going to do? And
Speaker 1: they're looking at each meeting as a decision point based
Speaker 1: on the data that they have brought in, Whereas many
Speaker 1: in the markets had been looking out farther into two
Speaker 1: thousand twenty three and saying we're going to see us
Speaker 1: slow down, or we're gonna see a recession, or we're
Speaker 1: gonna see inflation come down. And so basically markets had
Speaker 1: been rallying on the thought that the Fed wouldn't have
Speaker 1: to do much more and we'd have lower interest rates.
Speaker 1: Now the market seem to be catching up with the
Speaker 1: Fed and the idea that this is going to take
Speaker 1: longer than expected and they're going to raise rates faster
Speaker 1: and farther than expected. Now, the benchmark lending rate is
Speaker 1: not the only arrow in the Fed's quiver. There's also
Speaker 1: other quantitative easing measures they can take their tremendous balance sheet.
Speaker 1: What else can we maybe expect to see from the Fed?
Speaker 1: Maybe not at the March meeting, but later this year, Well,
Speaker 1: that would depend on what happens in Washington. The Fed's
Speaker 1: gonna keep the balance sheet reduction going at the rate
Speaker 1: it has been sixty billion a month and there's no
Speaker 1: reason for them to change it at this point. There
Speaker 1: have been concerns of the markets that it might be
Speaker 1: disruptive to the markets, that it might lead to some
Speaker 1: liquidity issues in various markets, and we're not really seeing
Speaker 1: that yet, so they can keep going. Um, the issue
Speaker 1: becomes if we get a debt ceiling problem, if we
Speaker 1: violate the dead ceiling, then uh, do the market sees
Speaker 1: up and does the FED have to start expanding its
Speaker 1: balance sheet again? To try to get us out of
Speaker 1: the hole. That's gonna be something that's gonna worry the
Speaker 1: markets as we get closer to that X state, which
Speaker 1: the Congressional Budget Office said this week was maybe between
Speaker 1: July and September, and so you'll probably see some repricing
Speaker 1: as we get closer to that date, depending on the
Speaker 1: news out of out of Capitol Hill. Now without the
Speaker 1: thing the markets and the FED are are really focused on,
Speaker 1: and that is housing and its impact on the economy.
Speaker 1: So we're getting a report on existing home sales next week.
Speaker 1: We just had some pretty encouraging data from home builders.
Speaker 1: They see things maybe turning around. We've seen uh interest
Speaker 1: rates fluctuate a little bit, maybe giving a little boost.
Speaker 1: How important is housing right now and could we be
Speaker 1: poised for a turnaround in the spring? Well, housing is
Speaker 1: a an important part of the overall US economy, smaller
Speaker 1: than it used to be, but it is also the
Speaker 1: most interest sensitive. So as the FED raises rates, we've
Speaker 1: seen a real fall off in housing activity. Now, mortgage
Speaker 1: rates are kind of holding in. The question is do
Speaker 1: they start to come down a little bit. They've fluctuated
Speaker 1: some and does pend up demand get people to buy anyway.
Speaker 1: That seems to be happening a little bit. We're not
Speaker 1: at a a an inflection point yet, but we do
Speaker 1: seem to be getting close to the bottom in housing
Speaker 1: and we're starting to see more activity. Home housing starts
Speaker 1: were weaker than expected in the month of January, but
Speaker 1: they may rebound as we get into this spring because
Speaker 1: the builders have a lot of backlogs that they're still
Speaker 1: trying to work off. And one thing we don't know
Speaker 1: is is there a problem building because they can't find
Speaker 1: enough workers. We know there's a shortage of construction workers
Speaker 1: out there, and that just feeds into the whole stronger
Speaker 1: economy thing. So a lot is tied up in the
Speaker 1: housing market. Um, not to mention its contributions to inflation.
Speaker 1: Well boy, and three jobs essentially for every home that
Speaker 1: goes up. But if you can't find qualified workers, those
Speaker 1: homes are not going to go up. Yeah. That's been
Speaker 1: the real problem with new home construction and sales. Alright,
Speaker 1: So let's circle back to the next meeting of the FED.
Speaker 1: It's in March, just a few weeks away, and there's
Speaker 1: a lot of growing talk right now about not a
Speaker 1: basis point hike, but a fifty basis point hike, and
Speaker 1: we heard from Mester just this past week. Are there
Speaker 1: any other Hawks comments you've heard from fits that that
Speaker 1: would indicate that we're looking at a much bigger hike
Speaker 1: here and that would really disrupt things. Well, so far,
Speaker 1: it's only been a little bit of speculation in the
Speaker 1: sense that Mester said she would have raised raids fifty
Speaker 1: basis points at the last meeting. She did not say
Speaker 1: what she would do at the next meeting, and others
Speaker 1: have sort of made the case that yes, we do
Speaker 1: need to do more. But you go back to their
Speaker 1: last but dot plot that came out in December, and
Speaker 1: at that point they said we were going to go
Speaker 1: over five percent to five point one percent, and there
Speaker 1: was almost a majority for going above five point one
Speaker 1: percent to five point five. And so it is very
Speaker 1: possible that the data that are coming in stronger than
Speaker 1: expected will push them in that direction. And if you
Speaker 1: were gonna go higher than we're at four seven five, now,
Speaker 1: if you want to go to five point five, then
Speaker 1: you might as well do a fifty basis point move. Um,
Speaker 1: so it becomes a more realistic possibility. Now we have
Speaker 1: another CPI report, another pp I report, another jobs report,
Speaker 1: all those before the next FED meetings, so a lot
Speaker 1: could change in the way that all these numbers changed
Speaker 1: from December to January. A lot could change between January
Speaker 1: and February. So we'll have to see which gets us
Speaker 1: back to the old FED thing about where data dependent.
Speaker 1: And we're going meeting by meeting, all right, well about
Speaker 1: five weeks away, and Michael McKee, Bloomberg's Global Economic and
Speaker 1: Policy editor, thank you once again for all your insight.
Speaker 1: Coming up on Bloomberg Daybreak weekend, It's almost one year
Speaker 1: since Russia's invasion of Ukraine. The situation there remains tense.
Speaker 1: I'm Tom Busby, this is Bloomberg. This is Bloomberg Daybreak Weekend,
Speaker 1: our global look ahead at the top stories for investors
Speaker 1: in the coming week. I'm Tom Busby in New York.
Speaker 1: Up later in our program, a lot of political changes
Speaker 1: in Washington, all of which could make or break for
Speaker 1: Democrats or Republicans. But first, next week marks one year
Speaker 1: since the start of the full scale invasion of Ukraine.
Speaker 1: For more on what's happening now, let's head to London
Speaker 1: and bring in Bloomberg Daybreak anchor Caroline Hepger, Tom Vladimir
Speaker 1: Putin's war in Ukraine is an energy war against the
Speaker 1: whole of Europe. For more, I'm joined by Bloomberg's oil
Speaker 1: trading team leader in Europe, All Nightingale and Rachel Morrison,
Speaker 1: who is our gas power and renewables reporter. Welcome to
Speaker 1: both of you, um to talk about, you know, an
Speaker 1: immensely difficult subject. Next week we'll see the one year
Speaker 1: commemoration of the start of this invasion of Ukraine. It
Speaker 1: has had such huge implications for the whole of you
Speaker 1: of a hot war, it's really changed everything. Rachel, can
Speaker 1: I start with you though, and just talk about whether
Speaker 1: Europe has stopped using Russian energy now for good? Is
Speaker 1: that one of the big consequences of this conflict. Well,
Speaker 1: gas in particular was a really big week point for
Speaker 1: Europe when it came to dependency on Russia, and that
Speaker 1: was one of the first things that the European Union
Speaker 1: thought to do was to try to reduce that dependence.
Speaker 1: And in a lot of countries it seems to be
Speaker 1: that piped gas from Russia has been almost entirely replaced.
Speaker 1: What it's been replaced with is liquefied natural gas or
Speaker 1: l n G. And a lot of that does actually
Speaker 1: come from Russia, so we're not completely independent from from
Speaker 1: Moscow in getting those supplies, but how we received them
Speaker 1: has completely changed. Alack, how do you think about this
Speaker 1: energy security? You know, has come to the forum like
Speaker 1: it has really done before, not not for many decades
Speaker 1: in Europe. Well, in both oil and gas, there's a
Speaker 1: huge mutual dependency, or there was a huge mutual dependency
Speaker 1: between Russia and Europe, and in the oil market we've
Speaker 1: seen a ban on almost all imports from Russia. How
Speaker 1: that that's clearly going to last in the short term
Speaker 1: and may continue for a period after, because how do
Speaker 1: you walk back from that? You know, there's a lot
Speaker 1: that has to happen, both in the conflict itself and
Speaker 1: then in the repairing of relationships before Europe can never
Speaker 1: resume Russian imports, but it's a huge source of supply
Speaker 1: and something that hasn't been painless for Europe or for Russia. Rachel,
Speaker 1: how did you manage to avoid a sort of energy breakdown?
Speaker 1: That was the doomsday scenario? Wasn't it that when this
Speaker 1: sort of shock attack happened, the idea that might be
Speaker 1: rolling black house on continental Europe yes, that's right. When
Speaker 1: the Nord Stream pipeline was attacked, that did cut off
Speaker 1: a vital supply line to Europe. And ways in which
Speaker 1: we've managed that some have been fortunate, like a really
Speaker 1: mild winter helped us to use less gas, but also
Speaker 1: the message coming from the European Union and from governments
Speaker 1: to use less. The target or consumption cuts were voluntary,
Speaker 1: but we did see countries like France, like Germany taking
Speaker 1: this really seriously, so people across Europe using less. We've
Speaker 1: switched on coal fired power stations as well. That has
Speaker 1: not had you know, that's something great for the environment
Speaker 1: and for emissions, but that has helped reduce the need
Speaker 1: for gas. And yes, this winter has been mild and
Speaker 1: continues to be so, so we've still got much more
Speaker 1: gas and storage than we usually have at this time
Speaker 1: of year, which will help us going into next winter.
Speaker 1: So it's been a kind of combination of action by
Speaker 1: people kind of pulling together to try to save energy
Speaker 1: and also good fortune. What has it meant for gasoline
Speaker 1: and diesel prices for fuel across Europe, Well, I think
Speaker 1: it's been a bullish force. There's been a long period
Speaker 1: of uncertainty about what would happen with the supply of
Speaker 1: the raw crude that goes into world refineries that makes
Speaker 1: the fuels. And Russia itself is the biggest or was
Speaker 1: the biggest single supplier of diesel to the European Union
Speaker 1: until an imports band began on. So are we're still
Speaker 1: in the early phases of understanding how the various bands
Speaker 1: will play out. Um, but it has been a source
Speaker 1: of supply concern. And if we start to see a
Speaker 1: real pick up in Chinese in the Chinese economy, and
Speaker 1: that's always been the big driver of demand growth in
Speaker 1: the old market. But if if that really does come
Speaker 1: into play and we see any kind of loss of
Speaker 1: Russian supply, I think there's a concern that prices could
Speaker 1: could push higher. Rachel has Europe, then you know, to
Speaker 1: continue that the idea around energy independence. Has Europe managed
Speaker 1: to replace Russian energy? Is it kind of rebranded Russian
Speaker 1: energy or what is it being replaced by? Because again,
Speaker 1: the kind of the move towards renewables has been given
Speaker 1: a bit a big shove by by this fact. Yes,
Speaker 1: you could describe it in that way. We've really replaced
Speaker 1: Russian piped gas with l erg a lot of that's
Speaker 1: coming from the US from catar and fundamentally we are
Speaker 1: short of gas in Europe and globally until when more
Speaker 1: exboot capacity comes online in the US. So if there
Speaker 1: are factors that changed the supply balance and that energy
Speaker 1: harder to get hold of or more expensive, then that
Speaker 1: will change things. There were sort of in this quite
Speaker 1: um strange situation where prices have fallen a lot. There's
Speaker 1: lots of supply around China. The economy hasn't banked back
Speaker 1: as quickly as people thought from COVID, and so the
Speaker 1: pictures looking pretty good. But what we hear in the
Speaker 1: market is that can change very quickly. You know, we
Speaker 1: might see demand pick up from somewhere. We might see
Speaker 1: problems like the three Portum which had a huge fire
Speaker 1: in the US and stopped exports from there. You know,
Speaker 1: anything can happen. We might have cold weather next year.
Speaker 1: So although we're looking quite good at the moment for
Speaker 1: this year and restocking gas reserves, there's still quite a
Speaker 1: lot of risk, aren't there in the market. And it
Speaker 1: isn't easy to replace this huge amount of gas that
Speaker 1: we were getting from Russia, and we've managed it so far,
Speaker 1: but it's not. You know, it's not sort of plane
Speaker 1: sailing from here by any stretch. Yeah, that's interesting. The
Speaker 1: energy transition, Rachel, you mentioned, um, you know, what are
Speaker 1: we expecting to see them? There's a real kind of
Speaker 1: division about how quickly Europe is moving in terms of
Speaker 1: the energy transition. Yes, it's one of the sort of
Speaker 1: most straightboard solutions to the volatility in gas is to
Speaker 1: just use less of it, but that's difficult in the
Speaker 1: short term. Renewables projects do take time to build. One
Speaker 1: of the biggest issues that we hear from developers is
Speaker 1: about red tape surrounding kind of planning and actually getting
Speaker 1: projects built so that flows everything done and those can't
Speaker 1: really be sped up anymore than they are at the moment.
Speaker 1: The European Union is looking at ways to try to
Speaker 1: get those projects online quicker, but while that takes time,
Speaker 1: then fossil fuels are the sort of easiest replacement. And
Speaker 1: last year emissions, particularly in Germany, they didn't meet any
Speaker 1: of the reduction targets that they were supposed to do
Speaker 1: because they were using more cold to try to use
Speaker 1: less gas. If that continues, what that means for sort
Speaker 1: of interim climate targets in twenties thirty and whether we
Speaker 1: see a kind of broader backsliding on emissions reductions at
Speaker 1: a time when really we should be pushing forward and
Speaker 1: you know, getting net zero as quickly as possible. Okay,
Speaker 1: thank you so much for being with the Splinberg's All
Speaker 1: Trading team leader here in Uniting and Rachel Morrison, or
Speaker 1: Gas Power and Renewables reporter as we think around the
Speaker 1: consequences of Putin's war in Ukraine. I'm Carline Heber here
Speaker 1: in London. You can catch us every weekday morning for
Speaker 1: Bloomberg Daybreak. You're at beginning at six am in London.
Speaker 1: That's one am on Wall Street. Tom. Thank you, Caroline,
Speaker 1: and coming up on Bloomberg Daybreak weekend more on NATO
Speaker 1: efforts to repel Russia and President Biden's trip to Poland
Speaker 1: and elsewhere. I'm Tom Busby and this is Bloomber broadcasting
Speaker 1: live from the Bloomberg Interactive Broker Studio in New York.
Speaker 1: Bloomberg elmon Frio to Washington, d C, Bloomberg to Boston,
Speaker 1: Bloomberg one O six one to San Francisco, Bloomberg nine
Speaker 1: to the country. Sirius XM Channel one nineteen to London,
Speaker 1: d A B Digital Radio and around the globe the
Speaker 1: Bloomberg Business Act and Bloomberg Radio dot Com. This is
Speaker 1: Bloomberg day Break Weekend I Tom Busby in New York
Speaker 1: with your global look ahead at the top stories for
Speaker 1: investors in the coming week. President Biden heading out on
Speaker 1: a trip to Poland as we approached the one year
Speaker 1: mark of Russia's invasion of Ukraine. It's an important trip
Speaker 1: and for more let's add to our Bloomberg News room
Speaker 1: in Washington and Sound On host Joe Matthew. Joe, thank you,
Speaker 1: Tom and joining us now to talk about this trip.
Speaker 1: Bloomberg's National Security Editor Nick wadhams he runs our national
Speaker 1: security team and it's great to see Nick. White House
Speaker 1: Press Secretary Karine John Pierre says this is a critically
Speaker 1: important opportunity to speak to both the international community and
Speaker 1: Americans back at home. Here's how she put it in
Speaker 1: the briefing room. Look, this is going to be the
Speaker 1: one year. He's going there ahead of the one year
Speaker 1: anniversary and sending a strong message of solidarity and UH
Speaker 1: and the President understanding to reaffirm right our support for
Speaker 1: the Ukrainian people as they're fighting back against the boot
Speaker 1: the rude war that Russia started almost a year ago,
Speaker 1: almost a year nick. There are a lot of themes
Speaker 1: running through this support for Ukrainians, solidarity with NATO, message
Speaker 1: to the Russians that the US isn't giving up here.
Speaker 1: And I suppose a photo up for American voters to
Speaker 1: maintain some domestic support. Although we know that there's already
Speaker 1: a little bit of pushback by some House Republicans when
Speaker 1: it comes to Ukrainian funding. What's the real audience for
Speaker 1: this trip? Well, you know, I think there are multiple audiences.
Speaker 1: One is back home. Obviously Republicans have not the most
Speaker 1: Republicans who actually have power are not calling for an
Speaker 1: actual reduction and funding, but they do want more scrutiny. Uh.
Speaker 1: So he's got to keep um folks together back home
Speaker 1: to keep the money and the weapons flowing to Ukraine. Uh.
Speaker 1: It's also directed at Europe because there is a concern
Speaker 1: that now that we're a year on, you know, Ukraine
Speaker 1: is firing an awful lot of artillery shells, they're losing weaponry,
Speaker 1: they're using up all those uh long range missiles and
Speaker 1: other things. So there really needs to be a continuous
Speaker 1: flow of of financial support, uh and also military support,
Speaker 1: and that's going to have to come from the US,
Speaker 1: but it's also going to have to come from other countries.
Speaker 1: So you know, the US has been the primary backer
Speaker 1: of Ukraine's military as well as its economic lifeline. So
Speaker 1: President Biden's going over there to sort of give a
Speaker 1: shot in the arm to all these efforts and say, okay, listen,
Speaker 1: it has been in a year that's gone so fast,
Speaker 1: but we cannot let up. John Kirby spoke about this
Speaker 1: as well. He speaks for the National Security Apparatus at
Speaker 1: the White House. Wants to talk about the importance of
Speaker 1: the international community's resolve and unity in supporting Ukraine for
Speaker 1: now going on a year. Wouldn't it be great if
Speaker 1: the President didn't have to make a trip around a
Speaker 1: one yearniversary of a war that never should have started. Sadly,
Speaker 1: that's where we are, and he wants to make sure
Speaker 1: that he's sending that strong message not only of the
Speaker 1: United States resolve but the international community resolve. Well, it
Speaker 1: is where we are. We have a sense of what
Speaker 1: this trip is going to be like. Obviously there you know,
Speaker 1: this is a massive photo opportunity is he going to
Speaker 1: speak on the border, will he be seen mingling with
Speaker 1: troops with people who live there, or do we not
Speaker 1: have a sense of that. Well, they have not released
Speaker 1: a lot of that information yet, but you can expect
Speaker 1: um that there will be obviously meetings with Polish leaders,
Speaker 1: there will be meetings with Americans. I'm sure there will
Speaker 1: be an effort to get close to the border, though
Speaker 1: obviously there are security risks around that. So uh, I'm
Speaker 1: sure that the team is is figuring that that out
Speaker 1: right now. I mean, it is so interesting that clip
Speaker 1: you played for me, because it's like, well, uh, the
Speaker 1: message of unity and and they keep repeating this is
Speaker 1: about showing unity, and it's it's both showing unity, but
Speaker 1: it's also reinforcing unity. So you know, trying to make
Speaker 1: sure that he is keeping those allies on board. Poland
Speaker 1: is a great example. They want to push harder, they
Speaker 1: want more. They are very worried, you know, Ukraine is
Speaker 1: on their border. Uh. And then you have other countries
Speaker 1: like France, for example, which is a little bit more
Speaker 1: hesitant about what to supply, though they have supplied a
Speaker 1: fair amount of weaponry and and how fast to do it.
Speaker 1: So it's it's they're they're talking about a message of
Speaker 1: unity that's directed of Vladimir Putin, but it's also directed
Speaker 1: back at the Alliance itself. Let's talk a little bit
Speaker 1: more about that, because the Munich Security Conference that's underway
Speaker 1: ahead of this anniversary has has brought about some tough
Speaker 1: memories for some, particularly at Eastern Europe. It was nine
Speaker 1: teen thirty eight at that very same event, think Neville Chamberlain,
Speaker 1: eight five years ago. The checks know this as the
Speaker 1: Munich betrayal. They know that, Look, there's a window of
Speaker 1: opportunity here in war. Fatigue is a real thing in
Speaker 1: the West. How concerned are they? Well, I mean this
Speaker 1: is this is very much a message directed at Vladimir
Speaker 1: Putin as well. So his forces have launched a counter
Speaker 1: offensive again, a sort of counter to the Ukrainian counter offensive,
Speaker 1: firing off massive missile barrages. They have managed to take
Speaker 1: some more territory, but they have stalled out in other areas,
Speaker 1: and there are real divisions you've seen back and forth
Speaker 1: between the Wagner group, this this private military group that's
Speaker 1: fighting on the Russian side, and the Russian General Staff
Speaker 1: reports that Russia has now lost half of its tanks
Speaker 1: and basically doesn't have uh well trained troops to send
Speaker 1: in anymore. So they're really trying to show Russia listen,
Speaker 1: if you want to keep prosecuting this war, it is
Speaker 1: going to be extremely costly for you. Munich, you know,
Speaker 1: Munich has really changed over the years because the Munich
Speaker 1: Security Conference has become, uh, this venue for Western countries
Speaker 1: to gather in one space. I mean, I've been in that.
Speaker 1: In that place, it's crazy. You'll be walking through this
Speaker 1: crowded hall and oh, there's the German Chancellor, there's the
Speaker 1: German Oh there's Justin Trudeau. You're sort of rubbing suddenly
Speaker 1: in a room, rubbing shoulders with all these major power players.
Speaker 1: This is really the place. I mean, in a way,
Speaker 1: it's perfect timing for Joe Biden because this is really
Speaker 1: the place where Western officials and people from around the
Speaker 1: world gather and make these pledges of unity, you know,
Speaker 1: stressing the importance of the of the global order that
Speaker 1: you know, the international laws and norms, and so it's
Speaker 1: a perfect place to sort of direct that message back
Speaker 1: at Putin. Talk to us Nick about what's happening on
Speaker 1: the battlefield right now. General Mark Millie spoke a couple
Speaker 1: of days ago along with the Defense Secretary to reporters,
Speaker 1: describing this again as a war of attrition, but one
Speaker 1: that is really gutting to your point earlier, the run
Speaker 1: in military. Here's what he said. Their progress is slow.
Speaker 1: It's a war of electrician and taking heavy cassties. Their
Speaker 1: leadership and morale is not great. Um, and they're struggling mightily. However, Uh,
Speaker 1: they do have numbers. Uh. And as you know, uh,
Speaker 1: President Putin did a call up of several hundred thousand. Uh,
Speaker 1: and those folks have been arriving on the battlefield, so
Speaker 1: they do have numbers. At what point, though, to those
Speaker 1: numbers show the diminishing returns of opening prisons, for instance,
Speaker 1: grabbing anyone you can and sending them into the battlefield.
Speaker 1: At a certain point, you can't win a war that way. Well,
Speaker 1: I mean, you're right, And we do have reports that
Speaker 1: that Russia is trying to be a little bit more
Speaker 1: parsimonious in the way that it fires artillery shells and
Speaker 1: things like that. There are suggestions that it is running out.
Speaker 1: But you know, the numbers are so big, and compared
Speaker 1: to Ukraine, whose army is is quite a bit smaller,
Speaker 1: so there's there is a real numbers game that is
Speaker 1: that it is hard to square against. I mean, Russia
Speaker 1: is is not going to be running out of boots
Speaker 1: on the ground. They may not be super high quality soldiers,
Speaker 1: but they're they're not running out of that particularly soon.
Speaker 1: The other problem you have here is that this is
Speaker 1: obviously a war, but Ukraine so far has been restricted
Speaker 1: from hitting Russian targets inside Crimea, which Russia took in
Speaker 1: twenty fourteen, or inside of Russia itself. That's a very
Speaker 1: deliberate policy by the West because they don't want to
Speaker 1: start a wider war with NATO. But you have this
Speaker 1: issue where a lot of Russian assets are essentially untouched.
Speaker 1: One of the big ones is its air force, and
Speaker 1: uh General Milliye has talked about this before. Russia has
Speaker 1: used its air force to some degree, but not to
Speaker 1: the fullest extent possible. So Ukraine is very much focused
Speaker 1: on defense and protecting from incoming missiles and fighter jets
Speaker 1: and things like that, but they are not targeting Russian
Speaker 1: forces on the ground inside Russia. And that's something that
Speaker 1: Russia is using to its advantage for sure. And of
Speaker 1: course the call for fighter jets, cant and news. As
Speaker 1: we go into the second year, we've seen a lot
Speaker 1: of different levels of hardware balked at and then eventually delivered. Uh,
Speaker 1: is that actually what they need? The Pentagon would tell
Speaker 1: you that it's actually not that they need air defenses.
Speaker 1: Ukraine says, please send the jets, right. I mean this
Speaker 1: sort of fits a pattern with the Ukrainians where they
Speaker 1: they go from one piece of kit to the next.
Speaker 1: And you know, a couple of months ago it was
Speaker 1: all about tanks and now it's a huge focus on
Speaker 1: the fighter jets. I mean it's Uh. The bigger issue though,
Speaker 1: that Ukraine argues is again that they are too too
Speaker 1: They are focused on defense and they want to be
Speaker 1: able to in some ways go on offense. And that's
Speaker 1: that's a situation that Russia is exploiting and using to
Speaker 1: its advantage. Great conversation and great insights from Nick Wadhams,
Speaker 1: who runs our national security team for Bloomberg News here
Speaker 1: in Washington. Nick, many thanks to you. Will be looking
Speaker 1: for your reporting on the one year mark next week.
Speaker 1: Thanks Joe, Tom Back to you. Bloomberg's Joe Matthew reporting
Speaker 1: from our Bloomberg One newsroom in Washington, and you can
Speaker 1: hear Joe on sound on weekdays five to six pm
Speaker 1: right here on Bloomberg Radio. Coming up on Bloomberg Daybreak Weekend,
Speaker 1: japan Central Bank faces a tangled policy web. Tom Busby,
Speaker 1: This is Bloomberg. This is Bloomberg Daybreak Weekend. Our global
Speaker 1: look ahead at the top stories for investors in the
Speaker 1: coming week. I'm Tom Busby in New York. Some changes ahead,
Speaker 1: some problems for Japan's Central Bank. And for more on
Speaker 1: what we're watching, let's go to Hong Kong and Bloomberg
Speaker 1: Daybreak Asia host Brian Curtis and his colleague Doug Chrisner.
Speaker 1: Tom challenges a bound for the incoming Governor of the
Speaker 1: Bank of Japan, Kazuo Da. How do you stimulate growth
Speaker 1: without further stoking inflation? How do you reform the yield
Speaker 1: curve control program without driving j g B yields up
Speaker 1: and the end sharply higher. Now, the combination of yield
Speaker 1: curve control and quantitative easing has earned the b o
Speaker 1: J into the largest owner of stocks and government bonds
Speaker 1: in Japan. The b OJ's balance sheet has jumped to
Speaker 1: the equivalent of five dty seven billion dollars. That's equal
Speaker 1: to a hundred and thirty percent of g d P.
Speaker 1: Yet instead of releasing the economy's animal spirits, it's driven
Speaker 1: investors abroad. So the question how does the new governor
Speaker 1: get that money back without driving the end substantially higher. Well,
Speaker 1: joining us is through all of this is Kathleen Hayes,
Speaker 1: Bloomberg's Global Policy and Economy editor. Kathleen, thanks very much
Speaker 1: for joining us. Let's start off with the simplest question,
Speaker 1: or maybe it's not so simple. What's the biggest challenge
Speaker 1: that Kazuoita faces. Well, the biggest challenge is starting to
Speaker 1: walk down the path of normalization, and you've just laid
Speaker 1: out all the difficulties. Uh Inflation is rising in Japan.
Speaker 1: It's far above its target, but a lot of it
Speaker 1: is commodity price driven, and the b O J currently
Speaker 1: doesn't think that's potentially sustainable. So they feel that the
Speaker 1: current crew says, look, we can't stop monetary easing, and
Speaker 1: we're getting there's going to be a new governor at
Speaker 1: the HELM, but there's still gonna be a lot of
Speaker 1: the same people on the board, so it's not as
Speaker 1: though you're gonna have a wholesale change because you get
Speaker 1: a new governor and uh, he is well respected, well
Speaker 1: known within and out without outside of the Bank of
Speaker 1: Japan and in japan economic circles and globally. But it's
Speaker 1: just even starting. It is going to be tough because
Speaker 1: of the ramifications it could quickly have in the market.
Speaker 1: So from what I've read, he seems to be characterized
Speaker 1: as being methodical. He's a gradualist, as one of our
Speaker 1: colleagues put a pragmatist and dubbed an owl in the
Speaker 1: tradition of Christine Legarde, who said she was neither a
Speaker 1: hawk nor a dove, but aimed to be the wiser bird.
Speaker 1: So in terms of creating kind of a stable environment
Speaker 1: for the conversation to begin and not disrupt markets, not
Speaker 1: create a volatil right of course, And I think whoever
Speaker 1: would have gotten that job had it been Deputy Governor
Speaker 1: am A Miya who turned the JAB down. He didn't
Speaker 1: think he was. He thought he was too close to
Speaker 1: the process of creating this whole system, and he was.
Speaker 1: He was the architect of Yale curve control itself. That
Speaker 1: he didn't think he could he could appropriately review it.
Speaker 1: And that's what's going to happen first, and that's been
Speaker 1: signaled by Prime Minister Fumyo Kishida for about the past
Speaker 1: two or three months. There. In a ten years ago
Speaker 1: led by former Prime Minister Abe uh there the government
Speaker 1: made a new accord with the b o J to
Speaker 1: get to two percent inflation as quickly as they could
Speaker 1: and then committed to two years and never exactly got there.
Speaker 1: Uh So that's the first thing. And I think this
Speaker 1: is going to be methodical. I think it's gonna be
Speaker 1: step by step, and everybody has said for the past
Speaker 1: three or four months, I've asked this question communication. You
Speaker 1: need somebody who's a good communicator because communicating what you're
Speaker 1: doing and why to the markets is going to be critical.
Speaker 1: Well to your point, I mean, is a big champion
Speaker 1: of forward guidance. I mean, he was one of the
Speaker 1: kind of pioneers in that from what I've read about
Speaker 1: the way in which the b o J offers forward guidance.
Speaker 1: Of course, he's never had to do it himself, since
Speaker 1: we shouldn't say that since five and let's remember too
Speaker 1: that he established he was part of a very hubbish,
Speaker 1: dubbish crew. But they needed it, you know, they were
Speaker 1: still struggling a lot with inflation and ultimately growth, but
Speaker 1: he voted for He helped us. You're in quantitative easing
Speaker 1: negative rates, so this is not some guy who's got
Speaker 1: We can't really tell if he's a hawker dot. I
Speaker 1: think the best central bankers they're not inherently hawkish or dovish.
Speaker 1: They're inherently people who want to figure it out. All right, Kathleen,
Speaker 1: out of time now, but thanks very much for shedding
Speaker 1: some light on these big challenges ahead for the Bank
Speaker 1: of Japan and its new governor. Kathleen Hayes Bloomberg's Global
Speaker 1: Policy and Economy editor. I'm Brian Curtis, along with Doug Krisner.
Speaker 1: You can catch us every weekday here for Bloomberg Daybreak Asia,
Speaker 1: beginning at seven am in Hong Kong and six pm
Speaker 1: on Wall Street. Tom. Thank you, Brian and Doug. And
Speaker 1: that does it for this edition of Bloomberg Daybreak Weekend.
Speaker 1: Join us again Monday morning at five am Wall Street
Speaker 1: time for the latest on markets overseas and the news
Speaker 1: you need to start your day. I'm Tom Busby. Stay
Speaker 1: with us. Top stories and global business headlines are coming
Speaker 1: up right now.