WEBVTT - Surveillance: US Inflation Surge 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa Brownowitz Jay Lee. We bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Apple, Podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.680 dot com, and of course on the Bloomberg Terminal Front 0:00:29.720 --> 0:00:32.879 audience worldwide on TV and radio. White House National Economic 0:00:32.880 --> 0:00:36.239 Council Director Brian Das joins us right now. Brian, fantastic 0:00:36.320 --> 0:00:38.720 to catch up with you, sir, core CP in America 0:00:38.880 --> 0:00:42.120 forty year high. This is the last inflation report before 0:00:42.120 --> 0:00:44.919 the mid terms. Does the White House take any responsibility 0:00:44.920 --> 0:00:50.519 for this or whatsoever? Well, Look, it's clear that inflation 0:00:50.560 --> 0:00:53.400 is a challenge. It is a global challenge affecting countries 0:00:53.440 --> 0:00:55.120 around the world. And I think the first and most 0:00:55.120 --> 0:00:57.840 important part point to make is that the United States 0:00:57.880 --> 0:01:00.000 is in a better position than virtually any other country 0:01:00.040 --> 0:01:03.279 three to address this challenge and do what is necessary 0:01:03.320 --> 0:01:05.680 to bring prices down without having to give up all 0:01:05.680 --> 0:01:08.440 of the economic gains that we have made. That continues 0:01:08.480 --> 0:01:10.240 to be our focus, and that will continue to be 0:01:10.280 --> 0:01:13.399 our focus until we get this job done. The challenge 0:01:13.440 --> 0:01:16.080 is getting bigger. The President acknowledged this week the potential 0:01:16.120 --> 0:01:19.120 for a very slight recession. His words, his assessment. You 0:01:19.160 --> 0:01:21.920 brief the President this week, Brian, if your internal forecasts 0:01:21.959 --> 0:01:26.240 become more or less negative over the last few months, well, 0:01:26.280 --> 0:01:29.440 I think it's important to look at this monthly data 0:01:29.560 --> 0:01:32.920 in in in context. We are seeing some progress. If 0:01:32.959 --> 0:01:35.920 you look at annualized headline inflation over the last three months, 0:01:35.920 --> 0:01:39.120 it was about two that's down from eleven percent in 0:01:39.160 --> 0:01:41.319 the prior quarter. Now, a lot of that is the 0:01:41.440 --> 0:01:44.440 significant reduction in energy prices and in gas prices at 0:01:44.480 --> 0:01:47.120 the pump. Obviously economists tend to strip those out and 0:01:47.160 --> 0:01:50.400 look at core, but for typical American families, for workers, 0:01:50.680 --> 0:01:52.960 the reduction in gas prices by more than a dollar 0:01:53.040 --> 0:01:56.040 gallon in most places in the country is a meaningful 0:01:56.080 --> 0:01:59.120 and real sign of progress. At the same time, we're 0:01:59.120 --> 0:02:01.880 seeing some elements of the transition which we anticipated, but 0:02:02.000 --> 0:02:06.120 now focus on the work ahead. Shelter inflation represented more 0:02:06.160 --> 0:02:09.120 than half of core inflation for the last couple of months, 0:02:09.600 --> 0:02:11.120 and obviously that's a place where we're gonna have to 0:02:11.160 --> 0:02:15.080 look very carefully because there is a well known understanding 0:02:15.120 --> 0:02:17.320 that that data operates with the lag and we're seeing 0:02:17.360 --> 0:02:21.600 some contemporaneous real time evidence of sharp deceleration in rental 0:02:21.600 --> 0:02:25.799 price appreciation, sharp deceleration in home price appreciation. So that's 0:02:25.800 --> 0:02:27.080 going to be an area that we're gonna have to 0:02:27.160 --> 0:02:29.080 stay very focused on here in the days of months. 0:02:29.120 --> 0:02:31.800 And can you see why people get really frustrated with politicians? 0:02:31.840 --> 0:02:34.359 Twelve months ago, six months ago, you would have said, 0:02:34.400 --> 0:02:36.799 strip out gasoline and look at what's happening gas square, 0:02:37.240 --> 0:02:40.760 And now it's leave gasoline in because gasoline is coming down, Bran, 0:02:40.840 --> 0:02:42.639 can you see why people are very frustrated with the 0:02:42.639 --> 0:02:46.919 why the White House has navigated this issue? No, Look, 0:02:47.000 --> 0:02:50.200 I would I take issue with that characterization. We always 0:02:50.240 --> 0:02:51.840 say that we look at the data, because we always 0:02:51.840 --> 0:02:53.360 say that we look at the data and the aggregate, 0:02:53.680 --> 0:02:55.600 and there's a reason to look in the fullness of 0:02:55.600 --> 0:02:57.800 overall inflation and then also to look at elements of 0:02:57.800 --> 0:03:00.959 the court. Like I just said, for typical American families, 0:03:01.200 --> 0:03:04.360 gas and food are big parts of their typical budget, 0:03:04.480 --> 0:03:07.720 and food prices UH in this report and in prior 0:03:07.760 --> 0:03:10.639 reports are moving up too fast, and that's something that 0:03:10.800 --> 0:03:12.919 we need to make more. We need to make more 0:03:12.919 --> 0:03:14.920 progress on. So we look at all of the data 0:03:14.919 --> 0:03:17.800 and understand, Uh, the point about gas prices is just 0:03:17.840 --> 0:03:20.840 a very salient one. Your outlet, various others over the 0:03:20.840 --> 0:03:22.720 course of the spring spent a lot of time focused 0:03:22.760 --> 0:03:24.720 on the increase in gas prices and the impact that 0:03:24.720 --> 0:03:27.480 has on the economy, on consumer sentiment. Now that they're 0:03:27.480 --> 0:03:29.520 coming down, it's important to recognize that that has an 0:03:29.520 --> 0:03:31.560 impact on the economy as well. Well. More recently, they've 0:03:31.560 --> 0:03:33.359 been come back up as why you know, it's why 0:03:33.400 --> 0:03:36.040 you've been very critical of Saudi Arabia over the last week. 0:03:36.200 --> 0:03:40.240 The presidents hold aback consequences for Saudi Arabia. Brian, what consequences? 0:03:40.280 --> 0:03:43.680 What are they? Well, I'm not gonna get ahead of 0:03:43.680 --> 0:03:46.440 the president, and as he said, he will make those 0:03:46.480 --> 0:03:49.760 decisions and and and make those announcements when he is 0:03:49.800 --> 0:03:53.000 prepared to do so. I think our focus right now 0:03:53.080 --> 0:03:55.840 is on continuing to make that progress. If you look 0:03:55.920 --> 0:03:58.840 nationally right now, gas prices are still down about a 0:03:58.920 --> 0:04:01.600 dollar and ten and learned twenty cents from their highs 0:04:02.080 --> 0:04:05.680 this summer. We're seeing some welcome moderation in certain areas 0:04:05.720 --> 0:04:08.560 of the country, the Midwest and California now and we 0:04:08.680 --> 0:04:12.840 still face this historically large gap between the wholesale price 0:04:13.560 --> 0:04:17.239 that that that energy companies pay for refined products, gas, 0:04:17.279 --> 0:04:20.119 deesel otherwise, and the retail price that consumers are paying. 0:04:20.400 --> 0:04:23.080 So that's a continued area of focus. Obviously, refinery and 0:04:23.080 --> 0:04:26.240 refinery capacity as an element of that, but that's one 0:04:26.279 --> 0:04:28.320 of many areas that we are working with the industry 0:04:28.320 --> 0:04:30.520 and trying to focus on what we can do from 0:04:30.520 --> 0:04:33.560 a practical perspective, from a policy perspective to try to 0:04:33.600 --> 0:04:36.680 move the ball forward on OPAKE plus. The NFC spokesperson 0:04:36.760 --> 0:04:40.800 John Kirby called the decision short sighted, a short sighted 0:04:40.800 --> 0:04:44.560 decision that benefited Russia. Can you understand why using the 0:04:44.680 --> 0:04:47.160 SPR as the strategic mid term reserve as a short 0:04:47.200 --> 0:04:49.760 sighted decision that only leaves this country even more exposed 0:04:49.800 --> 0:04:54.200 to the whims of OPEC PLUS next year. Look, I disagree. 0:04:54.240 --> 0:04:56.440 We said that the the OPEC decision was short sighted 0:04:56.560 --> 0:05:01.760 precisely because the lack of supply and reliable supply continues 0:05:01.800 --> 0:05:05.479 to be the dominant challenge globally in energy markets. The 0:05:05.560 --> 0:05:08.720 lack of supply continues to be the dominant risk, and 0:05:08.760 --> 0:05:12.000 the use of the Strategic Petroleum Reserve in a historic, 0:05:12.080 --> 0:05:16.600 but calibrated way starting last last winter was designed to 0:05:16.680 --> 0:05:21.599 address that problem and to help have additional supply on 0:05:21.680 --> 0:05:24.400 the market during this transition, and during a period where 0:05:24.400 --> 0:05:27.400 we knew Russian supply was coming off and US producers 0:05:27.400 --> 0:05:29.560 were ramping up. That's why if you talk to most 0:05:29.760 --> 0:05:32.160 energy market analysts, they will point to the fact that 0:05:32.160 --> 0:05:34.840 that use of the Strategic Petroleum Reserve as a bridge, 0:05:34.920 --> 0:05:37.760 as a bridge as US producers brought production back online, 0:05:38.080 --> 0:05:40.600 was one of the principal reasons that kept oil prices 0:05:40.600 --> 0:05:43.320 from moving up even more quickly over the course of 0:05:43.360 --> 0:05:45.760 the summer and into the fall. That's a prudent use 0:05:45.839 --> 0:05:49.280 of the asset as a transition as US producers ramp up, 0:05:49.320 --> 0:05:51.479 you say it's a prudent use of the asset. Other 0:05:51.520 --> 0:05:53.839 people are very worried about this. You've joined the SPR 0:05:53.960 --> 0:05:57.080 so it's lowest level in four decades. The some accusation 0:05:57.160 --> 0:06:00.000 that you're using you're putting the polls before America's energy 0:06:00.000 --> 0:06:03.400 securitt See Brian, the Saudies themselves set this morning that 0:06:03.480 --> 0:06:06.479 the US requested a one month delay to the outpack 0:06:06.520 --> 0:06:08.680 plus output. I wonder why that would be, Brian, Can 0:06:08.680 --> 0:06:10.800 you tell me whether you did ask the Saudis for 0:06:10.800 --> 0:06:13.359 a one month delay to that decision. Are they tilling 0:06:13.400 --> 0:06:18.120 the truth? Look, we clearly, we clearly communicated our views 0:06:18.440 --> 0:06:20.880 to OPEC members that we thought it was shortsighted for 0:06:20.920 --> 0:06:23.800 them to take the action that they were contemplating, and 0:06:23.839 --> 0:06:27.720 they announced with respect of the Strategic Patroleum Reserve. This 0:06:27.839 --> 0:06:32.080 was a calibrated decision to address the real issues in 0:06:32.120 --> 0:06:35.120 the market. We talked to US industry last winter. We 0:06:35.200 --> 0:06:37.560 identified that there was about a million barrel a day 0:06:37.560 --> 0:06:39.640 gap between what they were producing this winter and what 0:06:39.680 --> 0:06:42.800 they said that they could get production to buy late 0:06:42.880 --> 0:06:47.000 this fall. That million barrel gap was what we calibrated 0:06:47.000 --> 0:06:49.240 to make the decision on the use of the Strategic 0:06:49.240 --> 0:06:52.719 Patroleum Reserve. And people should feel confident that the Strategic 0:06:52.760 --> 0:06:55.960 Patroling Reserve continues to be an asset that we can 0:06:56.000 --> 0:06:59.560 deploy to address our economic and national security needs. That's 0:06:59.600 --> 0:07:02.320 always what has dictated the present's decision making on this, 0:07:02.400 --> 0:07:04.560 and that's what I will dictate his decision making on 0:07:04.600 --> 0:07:06.400 this going for And you didn't answer the question, so 0:07:06.400 --> 0:07:07.920 I'm going to ask it again. I'm going to share 0:07:07.960 --> 0:07:10.600 with you and share with our audience the quote from 0:07:10.600 --> 0:07:13.679 the Saudiasty Semonic. The Government of the Kingdom of Saudi 0:07:13.680 --> 0:07:16.200 Arabia would like to clarify the based on its belief 0:07:16.200 --> 0:07:18.080 in the importance of dialogue and exchange of views with 0:07:18.120 --> 0:07:21.040 its allies and partners outside of OPEC Plus regarding the 0:07:21.080 --> 0:07:23.280 situation in the all markets. The Government of the Kingdom 0:07:23.320 --> 0:07:26.960 clarified through its continuous consultation with the US Administration that 0:07:27.080 --> 0:07:30.960 all economic analyses indicate the postponing the OPEC PLUS decision 0:07:31.000 --> 0:07:34.000 for a month, according to what has been suggested, would 0:07:34.000 --> 0:07:37.080 have had negative economic consequences. Brian, again, it's a really 0:07:37.080 --> 0:07:40.680 straight question. Did you ask the Saudias to delay that 0:07:40.760 --> 0:07:45.000 decision for a month? Are they telling the truth or not. Look, 0:07:45.040 --> 0:07:47.920 I'm not going to I'm not going to get on 0:07:48.080 --> 0:07:51.760 air and disclose private conversations that remember shared it with us. 0:07:51.920 --> 0:07:53.800 I've got the opportunity to say it's true or not. 0:07:54.080 --> 0:07:55.840 Is it true or not? What I will say? What 0:07:55.920 --> 0:07:58.400 I will say. What I will say clearly is that 0:07:58.440 --> 0:08:01.840 the communications that we've had VOPEC members and continuing have 0:08:01.960 --> 0:08:05.800 been based on our assessment of the economic circumstances of 0:08:05.840 --> 0:08:08.680 supply and demanding global oil markets. We disagree with the 0:08:08.680 --> 0:08:12.640 assessment in that statement that it was economically the right 0:08:12.800 --> 0:08:16.440 or necessary or appropriate thing to do to reduce production 0:08:16.520 --> 0:08:19.200 at a time where the lack of global supply on 0:08:19.240 --> 0:08:22.760 the market continues to be the predominant challenge in global 0:08:22.840 --> 0:08:26.080 energy markets. That has been and continues to be the 0:08:26.160 --> 0:08:29.560 motivation behind all of our engagements Internet. Again, they're suggesting 0:08:29.640 --> 0:08:33.800 it's a political one, that your strategy is political, that 0:08:33.840 --> 0:08:36.240 you understand what they're suggesting, and what I'm saying to 0:08:36.280 --> 0:08:39.320 you is that our strategy I understand what they are suggesting, 0:08:39.320 --> 0:08:40.880 and what I'm saying to you is that our strategy 0:08:40.920 --> 0:08:44.000 has always been grounded in an assessment of the economics 0:08:44.040 --> 0:08:47.400 of the situation and what is prudent for the global economy, 0:08:47.559 --> 0:08:49.840 for U S economy and US families. So the way 0:08:49.840 --> 0:08:52.520 you would have some kind of viable energy policy from 0:08:52.520 --> 0:08:54.680 here is to mate the decision as to whether what 0:08:54.720 --> 0:08:57.200 we're experiencing right now is a one off shop or 0:08:57.240 --> 0:09:00.840 something more permanent, one off winter or think more permanent, 0:09:00.840 --> 0:09:03.960 a permanent shift away from Russian energy Brian, which one 0:09:04.040 --> 0:09:08.040 is it? We are in We were in a transition 0:09:08.040 --> 0:09:11.520 where we face some very immediate challenges, but absolutely energy 0:09:11.559 --> 0:09:13.920 markets globally and in the United States are going to 0:09:13.960 --> 0:09:16.400 go through a transition. We're never going to go back 0:09:16.440 --> 0:09:20.240 to the pre pandemic or the preputent invasion paradigm on 0:09:20.360 --> 0:09:23.160 energy policy. And that's frankly why, even as we have 0:09:23.280 --> 0:09:27.320 worked in to address very immediate term issues, including helping 0:09:27.360 --> 0:09:30.720 the Europeans increase their reserves of natural gas going into 0:09:30.760 --> 0:09:33.240 this winter, to try to address those immediate challenges, we 0:09:33.320 --> 0:09:36.679 have been focused on long term prudent energy policy and 0:09:36.720 --> 0:09:40.920 providing incentives, incentives for US producers of cleaner sources of 0:09:41.040 --> 0:09:44.240 energy to produce at scale and at speed that they've 0:09:44.280 --> 0:09:47.320 never done so before, and to do so in lower 0:09:47.360 --> 0:09:49.880 cost ways here in the United States, so that we 0:09:49.920 --> 0:09:53.839 can be a reliable supplier of clean, low cost electricity 0:09:53.920 --> 0:09:57.320 to our industry, to our own consumers and families, and 0:09:57.400 --> 0:10:00.280 to the world. The United States. The bidenminist station and 0:10:00.400 --> 0:10:02.640 focused on that, we prioritize that, and in fact, we 0:10:02.679 --> 0:10:06.040 have now legislated long terms incentives to drive exactly that 0:10:06.120 --> 0:10:08.480 kind of investment in the United States. And that's based 0:10:08.480 --> 0:10:11.200 on an understanding that we are going to continue to 0:10:11.280 --> 0:10:14.640 be in a historic energy transition, not just in the 0:10:14.679 --> 0:10:16.520 months ahead, but in the years ahead as well, Brian. 0:10:16.559 --> 0:10:18.480 If this is not a one off shock, if this 0:10:18.520 --> 0:10:21.480 is a permanent shift, can we complete the conversation by 0:10:21.480 --> 0:10:25.120 you telling me how it's a viable strategy, a sustainable 0:10:25.160 --> 0:10:28.480 approach to drain the SPR to a four decade low. 0:10:28.880 --> 0:10:31.959 If it's not about politics, why is that viable? Why 0:10:32.040 --> 0:10:37.120 is that strategy sustainable? Appreciate the question. It's a mischaracterization 0:10:37.120 --> 0:10:40.240 of how we use the Strategic Patrolling Reserve. We announced 0:10:40.240 --> 0:10:43.360 a policy that was explicitly designed as a temporary bridge 0:10:43.640 --> 0:10:46.000 over the course of months, a d eighty million barrels 0:10:46.040 --> 0:10:50.160 to bridge a temporary situation whilst whole U S producers 0:10:50.160 --> 0:10:52.800 were ramping up supply in the short term. Our long 0:10:52.920 --> 0:10:56.640 term challenges around energy are about investing in increasing the 0:10:56.679 --> 0:10:59.960 supply of clean energy in the United States and globally 0:11:00.080 --> 0:11:03.600 at massive scale. Those require different policy tools, which is 0:11:03.600 --> 0:11:08.559 why we've enacted historic, historic incentives three and seventy billion 0:11:08.600 --> 0:11:11.640 dollars in long term incentives to increase investment in the 0:11:11.679 --> 0:11:15.000 United States. That's the right long term policy solution. You 0:11:15.000 --> 0:11:17.120 We can take short term and temporary measures that are 0:11:17.120 --> 0:11:20.520 prudent and well calibrated alongside long term measures that's what 0:11:20.559 --> 0:11:23.000 we've been doing. Brands, we appreciate it's time this morning, 0:11:23.000 --> 0:11:25.440 except we're ready to thank you very much for choosing 0:11:25.440 --> 0:11:28.160 Blim Black sav and Blim Black Readio to have this conversation. 0:11:28.240 --> 0:11:42.719 Bryan Days that the National Economic Council Director, because I'm 0:11:42.800 --> 0:11:45.640 trying to suggest a one hour conversation with the managing 0:11:45.720 --> 0:11:50.000 director of the International Monetary Fund. Her entourage says, that's 0:11:50.040 --> 0:11:52.400 not gonna happen, so let's cut it down to twenty minutes. 0:11:52.600 --> 0:11:55.439 Managing directors, thank you so much for says I have 0:11:55.520 --> 0:11:58.079 a plan. Eric Martin briefed me over a beverage of 0:11:58.160 --> 0:12:01.760 my choice last night and gave me this beautiful planet discussion. 0:12:02.240 --> 0:12:04.040 We're going to rip up the script, and we have 0:12:04.200 --> 0:12:08.200 to because of inflation. When you speak to your pH 0:12:08.360 --> 0:12:10.720 d s, when you speak to get to go open 0:12:11.080 --> 0:12:14.839 and arrested with your doctorate as well, do you have 0:12:14.960 --> 0:12:18.920 a character or understanding of this inflation? What is the 0:12:19.080 --> 0:12:22.199 makeup of this inflation that won't seem to go away? 0:12:23.200 --> 0:12:29.600 The makeup is one disruptions from omicron and they continue 0:12:29.720 --> 0:12:36.199 in China. Two Russia's senseless war against Ukraine that has 0:12:36.280 --> 0:12:41.280 pushed energy and food prices up. We also are going 0:12:41.440 --> 0:12:46.199 to see some repositioning of supply chains that would have 0:12:46.520 --> 0:12:51.079 longer term impact on cost structures. But right now what 0:12:51.360 --> 0:12:56.800 we face is demand remains quite strong and supply has 0:12:57.480 --> 0:13:04.599 trouble meeting it. The most important task we have to 0:13:04.800 --> 0:13:09.760 secure our economies is to win the fight against inflation, 0:13:10.600 --> 0:13:13.720 and that means for central banks to show the results 0:13:13.800 --> 0:13:17.319 that is necessary and why we need to do that. 0:13:17.600 --> 0:13:20.959 Why do we need to win this war? Because if 0:13:21.040 --> 0:13:25.760 we do not have price stability, we undermine prospects for growth, 0:13:26.440 --> 0:13:31.480 and because we hit incomes of people seeing it moving quickly, 0:13:31.640 --> 0:13:34.439 the US real yells. Jim Careent of Morgan Stanley just 0:13:34.600 --> 0:13:37.760 mentioned most ten basis points a two year Hulmans I 0:13:37.840 --> 0:13:42.040 believe eighteen basis points. Do you suggest with the IMF 0:13:42.200 --> 0:13:45.800 suggests to central bankers, including German Powell, that they need 0:13:45.880 --> 0:13:49.439 to slow down the dialogue and assertitude, the rhetoric and 0:13:49.559 --> 0:13:54.640 extend the timeline out even its sacrificing a higher inflation 0:13:55.080 --> 0:13:59.160 to provide for financial stability. What we are suggesting is 0:13:59.280 --> 0:14:02.880 that the FAT needs to continue to be data driven. 0:14:03.240 --> 0:14:06.120 They need to look at the economy, they need to 0:14:06.200 --> 0:14:10.199 look at where the signals are in terms of are 0:14:10.280 --> 0:14:13.640 we reaching price stability or not, and then they need 0:14:13.679 --> 0:14:17.800 to look at the impact their decisions would have domestically 0:14:18.320 --> 0:14:23.440 but also internationally. Let's remember UH type of financial conditions 0:14:23.680 --> 0:14:28.600 also mean stronger dollar, also mean capital outflaws from emerging 0:14:28.640 --> 0:14:33.400 marketing developing economies. Of course, the FAT is primarily focused 0:14:33.440 --> 0:14:38.040 on domestic conditions. The responsibility of the PET is price 0:14:38.080 --> 0:14:41.880 stability in the United States, but also the FAT has 0:14:41.960 --> 0:14:47.360 been quite active to think of ways to support global stability, 0:14:47.840 --> 0:14:53.480 especially through extending swap lines to right now, we talked 0:14:53.520 --> 0:14:57.720 to UH people of the Green Book, the Financial Stability Book. 0:14:57.720 --> 0:15:00.680 What is the i MS present UH own on the 0:15:00.840 --> 0:15:04.360 quality of the liquidity ease in the market. Given this 0:15:04.520 --> 0:15:09.080 inflation report this morning, we we have seen financial stability 0:15:09.560 --> 0:15:16.600 risks increasing, but we are still primarily concerned about inflation 0:15:16.960 --> 0:15:22.640 running out of control. If it maintains so stubborn as 0:15:22.720 --> 0:15:27.960 it has been so far, then the most significant risk 0:15:28.080 --> 0:15:33.400 we faces that inflation expectations the anchor, and when they 0:15:33.560 --> 0:15:37.560 the anchor, that means then pressure on wages to go 0:15:37.800 --> 0:15:43.720 up would feel inflation from from other directions, and then 0:15:43.800 --> 0:15:46.400 the job of the fact would become harder and it 0:15:46.520 --> 0:15:50.880 needs to tighten even more. Two more questions, very very quickly. 0:15:50.960 --> 0:15:55.240 Here you met yesterday with certain members of the British government, 0:15:55.280 --> 0:15:57.240 I believe, a gentleman from the Bank of England and 0:15:57.280 --> 0:16:01.000 a beleaguer chancel of the Exchequer. Did you sport amount 0:16:01.000 --> 0:16:04.280 in the proverbial American woodshed, I mean give us the 0:16:04.360 --> 0:16:07.200 inside No, no one's no one's listening or protect right now. 0:16:07.760 --> 0:16:10.200 How did the bile go with the two members of 0:16:10.240 --> 0:16:12.840 the United Kings. It went really well. It was a 0:16:12.960 --> 0:16:18.320 very constructive meeting. We talked about the narrow path that 0:16:18.480 --> 0:16:22.440 the world economy has to walk on today and how 0:16:22.560 --> 0:16:25.720 important is not to make missteps out of this path 0:16:26.320 --> 0:16:28.600 and not to not to communicate in a way that 0:16:28.760 --> 0:16:33.440 maybe more more difficult. What I was very encouraged to 0:16:33.560 --> 0:16:36.480 see is that the two of them sitting together with 0:16:36.600 --> 0:16:40.560 the common purpose and the Chancellor talking about his intention 0:16:40.640 --> 0:16:44.520 to accelerate a projection of how he's going to anchor 0:16:44.680 --> 0:16:49.680 his budget in medium fiscal sustainability, and also his commitment 0:16:50.360 --> 0:16:54.800 for the Office for Budget Responsibility to come up with 0:16:55.080 --> 0:17:00.120 independent projections. That all tells us what we know that 0:17:00.400 --> 0:17:05.480 UK actually has strong institutions and they do work, even 0:17:05.600 --> 0:17:09.440 if at some point we may see some some this 0:17:09.880 --> 0:17:14.280 son't she'll be invited to the coronation dr or so much. 0:17:18.560 --> 0:17:21.520 Seth Carpenter, Global Chief Economists and Morgan Stanley joined us 0:17:21.600 --> 0:17:23.440 right now. Seth, you've had about seven minutes to pour 0:17:23.520 --> 0:17:26.440 over the details you'll take on this one, please yeah, 0:17:26.440 --> 0:17:29.720 absolutely so UM. I have to say I'll crow a 0:17:29.760 --> 0:17:31.879 little bit and congratulate my team. So are u S 0:17:31.920 --> 0:17:35.400 economics team, Ellen Setner, the chief Julian Richards who works 0:17:35.440 --> 0:17:37.639 for her. We were above consensus on our call for 0:17:37.720 --> 0:17:40.080 this print. I think the stickiness that you saw in 0:17:40.119 --> 0:17:42.680 the shelter inflation was one of the key things and 0:17:43.160 --> 0:17:45.840 so clearly a shock for the markets. The markets are 0:17:46.000 --> 0:17:48.200 are off because of it. But for us, this actually 0:17:48.240 --> 0:17:51.520 didn't come in very different from where our forecast was. Uh. 0:17:51.680 --> 0:17:55.440 There is persistence, especially in the services side of inflation. 0:17:56.040 --> 0:17:59.200 The apparel number, I thought was particularly useful. Though for 0:17:59.280 --> 0:18:02.920 a long time we and others have been talking about inventories, 0:18:03.000 --> 0:18:05.800 the pull back of the consumer from consumer goods. We're 0:18:05.840 --> 0:18:08.520 starting to see it. The challenge, obviously, in this context 0:18:08.680 --> 0:18:11.800 is it's when other bits of inflation, as Lisa pointed out, 0:18:11.920 --> 0:18:14.040 are just going up more strongly. Right now, we're seeing 0:18:14.080 --> 0:18:16.680 the swaps market price in a peak policy right for 0:18:16.720 --> 0:18:19.440 the rate for the Federal Reserve of four point eight 0:18:19.560 --> 0:18:22.720 five in March of next year, Seth, is that what's 0:18:22.760 --> 0:18:25.520 required for the Fed to move fast, to continue moving 0:18:26.040 --> 0:18:28.920 into next year despite some of the concerns about financial stability. 0:18:30.160 --> 0:18:32.560 I'm not sure that is what's required. That's a little 0:18:32.600 --> 0:18:35.359 bit above where our our call is for the peak grade, 0:18:35.400 --> 0:18:38.160 but only by a hike or so um. I think 0:18:38.200 --> 0:18:41.359 there's two way risk with that outlook we have seen. 0:18:41.960 --> 0:18:45.359 The last jobs report was was good, but still softer 0:18:45.480 --> 0:18:46.920 than the one before. And so if we get that 0:18:47.600 --> 0:18:50.320 downward trend continuing and non farm perils, if we get 0:18:50.400 --> 0:18:53.080 down into the one hundred something range, I don't I 0:18:53.119 --> 0:18:54.560 don't know that it's going to be obvious to the 0:18:54.600 --> 0:18:56.479 feather they need to keep going all the way up, 0:18:56.800 --> 0:19:00.359 you know, closer to Seth. I'm struck by what you said. 0:19:00.600 --> 0:19:04.040 There's certain other areas outside of shelter that we're stickier. 0:19:04.160 --> 0:19:06.760 And I'm thinking about airplane tickets, people saying that after 0:19:06.800 --> 0:19:09.280 a while, people wouldn't be willing to pay for something 0:19:09.359 --> 0:19:12.159 that often is a discretionary expenditure. You could see this 0:19:12.600 --> 0:19:16.840 with Ikea and Pepsi all raising prices and still having 0:19:16.960 --> 0:19:20.440 pretty good sales. Are you concerned that your team and 0:19:20.520 --> 0:19:22.719 that you have been a bit too sanguine about how 0:19:22.880 --> 0:19:26.160 quickly inflation could come down on the other side, about 0:19:26.200 --> 0:19:31.679 how pervasive even the wage stickiness is right now. Absolutely, 0:19:31.720 --> 0:19:33.480 If ever, there is a time for people who do 0:19:33.560 --> 0:19:37.000 economic forecasting to be humbled, this is it. Uh, It's very, 0:19:37.119 --> 0:19:42.159 very difficult. The sort of falling off of inflation for 0:19:42.320 --> 0:19:44.680 core goods has taken so much longer than we expected. 0:19:45.280 --> 0:19:47.680 I think. I think there's there's a lot of uncertainty here, 0:19:48.040 --> 0:19:50.560 the fact that the labor market is in fact cooling. 0:19:50.600 --> 0:19:52.600 We obviously got the Jolts data a couple of weeks 0:19:52.600 --> 0:19:55.080 ago that the market reacted to. We got non farm 0:19:55.119 --> 0:19:57.960 perils that was solid but still coming down. I really 0:19:58.040 --> 0:20:00.640 think that part of the economy is going to be key. 0:20:01.080 --> 0:20:05.360 Can the Fed continue the tightness, get the overall economy 0:20:05.400 --> 0:20:08.159 to slow down, get job creation to slow down. That 0:20:08.320 --> 0:20:10.400 I think will be the key to to where inflation 0:20:10.480 --> 0:20:12.560 goes over the medium term. If you're just tuning again 0:20:12.640 --> 0:20:14.720 live on TV and radio, you missed the fireworks core 0:20:14.800 --> 0:20:17.280 CP in America come again at a forty year high, 0:20:17.320 --> 0:20:20.040 inflation come again hot, equities heading south were down one 0:20:20.080 --> 0:20:22.359 point eight percent on the SMP, yields up at the 0:20:22.400 --> 0:20:24.840 front end of the yield curve, up fourteen basis points 0:20:24.920 --> 0:20:28.080 to four three, and expectations high going into the fed's 0:20:28.160 --> 0:20:31.200 next meeting. Last time they met, Seth. In the minutes yesterday, 0:20:31.600 --> 0:20:33.560 they said the cost of taking too little action to 0:20:33.640 --> 0:20:36.360 bring down inflation likely outweighs the cost of taking too 0:20:36.440 --> 0:20:39.480 much action. Seth, do you anticipate when they meet again 0:20:39.480 --> 0:20:43.200 in November that we think in the same thing. I 0:20:43.320 --> 0:20:46.040 think there will be wringing their hands quite a lot. 0:20:46.600 --> 0:20:49.200 This was obviously an important data point, but it was 0:20:49.280 --> 0:20:53.240 one data point. Um. The minutes also pointed out that 0:20:53.400 --> 0:20:55.400 at some point they're going to have a discussion about 0:20:55.440 --> 0:20:58.120 calibrating the size of the raid hikes because they don't 0:20:58.160 --> 0:21:00.920 want to go too far and and and do too much. 0:21:00.960 --> 0:21:03.360 So I think they're getting to the point now. Once 0:21:03.440 --> 0:21:05.920 we get close to four percent or over four percent, 0:21:05.960 --> 0:21:08.399 I think they really will be weighing both sides of 0:21:08.480 --> 0:21:11.800 that coin. Uh. The strength of the underlying economy is important, 0:21:12.320 --> 0:21:16.160 but inflation here is clearly clearly strong. You know, there 0:21:16.280 --> 0:21:18.360 was the point about used car prices having come down 0:21:18.480 --> 0:21:21.520 but new car prices staying strong. I think it's exactly 0:21:21.600 --> 0:21:23.760 those sorts of frictions that are going on in the 0:21:23.880 --> 0:21:27.080 goods and services market that is presenting such the conundrum. Well, 0:21:27.080 --> 0:21:28.840 there's a lot of friction right now in this bond market. 0:21:28.960 --> 0:21:30.840 Let me tell you how far can we push this up? 0:21:30.880 --> 0:21:33.840 Sixthing basis points a least on a two year I'm 0:21:33.880 --> 0:21:36.440 watching this and now we're at three. I mean, it 0:21:36.520 --> 0:21:38.719 just keeps going up higher. As the terminal rate now 0:21:39.400 --> 0:21:41.639 is looking at four point eight five percent, it is 0:21:41.720 --> 0:21:44.280 moving closer to that five percent handle that we heard 0:21:44.280 --> 0:21:46.440 about from Larry Summers, that we heard about from Bill Dudley, 0:21:46.720 --> 0:21:48.760 and people laughing, and I just say Bill Dumpy said 0:21:48.760 --> 0:21:51.560 that in the summer of now that he was talking 0:21:51.560 --> 0:21:54.400 about maybe summer twenty one, rather talking about maybe they'd 0:21:54.440 --> 0:21:56.960 have to go a whole lot further than people thought 0:21:56.960 --> 0:21:59.000 they would seth Carpenter, thank you so much for all 0:21:59.040 --> 0:22:00.520 the time that you've spent with us this morning. It's 0:22:00.560 --> 0:22:13.720 at Carpenter of Morganstown, Stanley right now. He's the President 0:22:13.800 --> 0:22:16.679 of the World Bank. Of course. David Melfest joins US. 0:22:16.920 --> 0:22:20.000