Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownowitz Jay Lee. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple, Podcast, SoundCloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg Terminal Front
Speaker 1: audience worldwide on TV and radio. White House National Economic
Speaker 1: Council Director Brian Das joins us right now. Brian, fantastic
Speaker 1: to catch up with you, sir, core CP in America
Speaker 1: forty year high. This is the last inflation report before
Speaker 1: the mid terms. Does the White House take any responsibility
Speaker 1: for this or whatsoever? Well, Look, it's clear that inflation
Speaker 1: is a challenge. It is a global challenge affecting countries
Speaker 1: around the world. And I think the first and most
Speaker 1: important part point to make is that the United States
Speaker 1: is in a better position than virtually any other country
Speaker 1: three to address this challenge and do what is necessary
Speaker 1: to bring prices down without having to give up all
Speaker 1: of the economic gains that we have made. That continues
Speaker 1: to be our focus, and that will continue to be
Speaker 1: our focus until we get this job done. The challenge
Speaker 1: is getting bigger. The President acknowledged this week the potential
Speaker 1: for a very slight recession. His words, his assessment. You
Speaker 1: brief the President this week, Brian, if your internal forecasts
Speaker 1: become more or less negative over the last few months, well,
Speaker 1: I think it's important to look at this monthly data
Speaker 1: in in in context. We are seeing some progress. If
Speaker 1: you look at annualized headline inflation over the last three months,
Speaker 1: it was about two that's down from eleven percent in
Speaker 1: the prior quarter. Now, a lot of that is the
Speaker 1: significant reduction in energy prices and in gas prices at
Speaker 1: the pump. Obviously economists tend to strip those out and
Speaker 1: look at core, but for typical American families, for workers,
Speaker 1: the reduction in gas prices by more than a dollar
Speaker 1: gallon in most places in the country is a meaningful
Speaker 1: and real sign of progress. At the same time, we're
Speaker 1: seeing some elements of the transition which we anticipated, but
Speaker 1: now focus on the work ahead. Shelter inflation represented more
Speaker 1: than half of core inflation for the last couple of months,
Speaker 1: and obviously that's a place where we're gonna have to
Speaker 1: look very carefully because there is a well known understanding
Speaker 1: that that data operates with the lag and we're seeing
Speaker 1: some contemporaneous real time evidence of sharp deceleration in rental
Speaker 1: price appreciation, sharp deceleration in home price appreciation. So that's
Speaker 1: going to be an area that we're gonna have to
Speaker 1: stay very focused on here in the days of months.
Speaker 1: And can you see why people get really frustrated with politicians?
Speaker 1: Twelve months ago, six months ago, you would have said,
Speaker 1: strip out gasoline and look at what's happening gas square,
Speaker 1: And now it's leave gasoline in because gasoline is coming down, Bran,
Speaker 1: can you see why people are very frustrated with the
Speaker 1: why the White House has navigated this issue? No, Look,
Speaker 1: I would I take issue with that characterization. We always
Speaker 1: say that we look at the data, because we always
Speaker 1: say that we look at the data and the aggregate,
Speaker 1: and there's a reason to look in the fullness of
Speaker 1: overall inflation and then also to look at elements of
Speaker 1: the court. Like I just said, for typical American families,
Speaker 1: gas and food are big parts of their typical budget,
Speaker 1: and food prices UH in this report and in prior
Speaker 1: reports are moving up too fast, and that's something that
Speaker 1: we need to make more. We need to make more
Speaker 1: progress on. So we look at all of the data
Speaker 1: and understand, Uh, the point about gas prices is just
Speaker 1: a very salient one. Your outlet, various others over the
Speaker 1: course of the spring spent a lot of time focused
Speaker 1: on the increase in gas prices and the impact that
Speaker 1: has on the economy, on consumer sentiment. Now that they're
Speaker 1: coming down, it's important to recognize that that has an
Speaker 1: impact on the economy as well. Well. More recently, they've
Speaker 1: been come back up as why you know, it's why
Speaker 1: you've been very critical of Saudi Arabia over the last week.
Speaker 1: The presidents hold aback consequences for Saudi Arabia. Brian, what consequences?
Speaker 1: What are they? Well, I'm not gonna get ahead of
Speaker 1: the president, and as he said, he will make those
Speaker 1: decisions and and and make those announcements when he is
Speaker 1: prepared to do so. I think our focus right now
Speaker 1: is on continuing to make that progress. If you look
Speaker 1: nationally right now, gas prices are still down about a
Speaker 1: dollar and ten and learned twenty cents from their highs
Speaker 1: this summer. We're seeing some welcome moderation in certain areas
Speaker 1: of the country, the Midwest and California now and we
Speaker 1: still face this historically large gap between the wholesale price
Speaker 1: that that that energy companies pay for refined products, gas,
Speaker 1: deesel otherwise, and the retail price that consumers are paying.
Speaker 1: So that's a continued area of focus. Obviously, refinery and
Speaker 1: refinery capacity as an element of that, but that's one
Speaker 1: of many areas that we are working with the industry
Speaker 1: and trying to focus on what we can do from
Speaker 1: a practical perspective, from a policy perspective to try to
Speaker 1: move the ball forward on OPAKE plus. The NFC spokesperson
Speaker 1: John Kirby called the decision short sighted, a short sighted
Speaker 1: decision that benefited Russia. Can you understand why using the
Speaker 1: SPR as the strategic mid term reserve as a short
Speaker 1: sighted decision that only leaves this country even more exposed
Speaker 1: to the whims of OPEC PLUS next year. Look, I disagree.
Speaker 1: We said that the the OPEC decision was short sighted
Speaker 1: precisely because the lack of supply and reliable supply continues
Speaker 1: to be the dominant challenge globally in energy markets. The
Speaker 1: lack of supply continues to be the dominant risk, and
Speaker 1: the use of the Strategic Petroleum Reserve in a historic,
Speaker 1: but calibrated way starting last last winter was designed to
Speaker 1: address that problem and to help have additional supply on
Speaker 1: the market during this transition, and during a period where
Speaker 1: we knew Russian supply was coming off and US producers
Speaker 1: were ramping up. That's why if you talk to most
Speaker 1: energy market analysts, they will point to the fact that
Speaker 1: that use of the Strategic Petroleum Reserve as a bridge,
Speaker 1: as a bridge as US producers brought production back online,
Speaker 1: was one of the principal reasons that kept oil prices
Speaker 1: from moving up even more quickly over the course of
Speaker 1: the summer and into the fall. That's a prudent use
Speaker 1: of the asset as a transition as US producers ramp up,
Speaker 1: you say it's a prudent use of the asset. Other
Speaker 1: people are very worried about this. You've joined the SPR
Speaker 1: so it's lowest level in four decades. The some accusation
Speaker 1: that you're using you're putting the polls before America's energy
Speaker 1: securitt See Brian, the Saudies themselves set this morning that
Speaker 1: the US requested a one month delay to the outpack
Speaker 1: plus output. I wonder why that would be, Brian, Can
Speaker 1: you tell me whether you did ask the Saudis for
Speaker 1: a one month delay to that decision. Are they tilling
Speaker 1: the truth? Look, we clearly, we clearly communicated our views
Speaker 1: to OPEC members that we thought it was shortsighted for
Speaker 1: them to take the action that they were contemplating, and
Speaker 1: they announced with respect of the Strategic Patroleum Reserve. This
Speaker 1: was a calibrated decision to address the real issues in
Speaker 1: the market. We talked to US industry last winter. We
Speaker 1: identified that there was about a million barrel a day
Speaker 1: gap between what they were producing this winter and what
Speaker 1: they said that they could get production to buy late
Speaker 1: this fall. That million barrel gap was what we calibrated
Speaker 1: to make the decision on the use of the Strategic
Speaker 1: Patroleum Reserve. And people should feel confident that the Strategic
Speaker 1: Patroling Reserve continues to be an asset that we can
Speaker 1: deploy to address our economic and national security needs. That's
Speaker 1: always what has dictated the present's decision making on this,
Speaker 1: and that's what I will dictate his decision making on
Speaker 1: this going for And you didn't answer the question, so
Speaker 1: I'm going to ask it again. I'm going to share
Speaker 1: with you and share with our audience the quote from
Speaker 1: the Saudiasty Semonic. The Government of the Kingdom of Saudi
Speaker 1: Arabia would like to clarify the based on its belief
Speaker 1: in the importance of dialogue and exchange of views with
Speaker 1: its allies and partners outside of OPEC Plus regarding the
Speaker 1: situation in the all markets. The Government of the Kingdom
Speaker 1: clarified through its continuous consultation with the US Administration that
Speaker 1: all economic analyses indicate the postponing the OPEC PLUS decision
Speaker 1: for a month, according to what has been suggested, would
Speaker 1: have had negative economic consequences. Brian, again, it's a really
Speaker 1: straight question. Did you ask the Saudias to delay that
Speaker 1: decision for a month? Are they telling the truth or not. Look,
Speaker 1: I'm not going to I'm not going to get on
Speaker 1: air and disclose private conversations that remember shared it with us.
Speaker 1: I've got the opportunity to say it's true or not.
Speaker 1: Is it true or not? What I will say? What
Speaker 1: I will say. What I will say clearly is that
Speaker 1: the communications that we've had VOPEC members and continuing have
Speaker 1: been based on our assessment of the economic circumstances of
Speaker 1: supply and demanding global oil markets. We disagree with the
Speaker 1: assessment in that statement that it was economically the right
Speaker 1: or necessary or appropriate thing to do to reduce production
Speaker 1: at a time where the lack of global supply on
Speaker 1: the market continues to be the predominant challenge in global
Speaker 1: energy markets. That has been and continues to be the
Speaker 1: motivation behind all of our engagements Internet. Again, they're suggesting
Speaker 1: it's a political one, that your strategy is political, that
Speaker 1: you understand what they're suggesting, and what I'm saying to
Speaker 1: you is that our strategy I understand what they are suggesting,
Speaker 1: and what I'm saying to you is that our strategy
Speaker 1: has always been grounded in an assessment of the economics
Speaker 1: of the situation and what is prudent for the global economy,
Speaker 1: for U S economy and US families. So the way
Speaker 1: you would have some kind of viable energy policy from
Speaker 1: here is to mate the decision as to whether what
Speaker 1: we're experiencing right now is a one off shop or
Speaker 1: something more permanent, one off winter or think more permanent,
Speaker 1: a permanent shift away from Russian energy Brian, which one
Speaker 1: is it? We are in We were in a transition
Speaker 1: where we face some very immediate challenges, but absolutely energy
Speaker 1: markets globally and in the United States are going to
Speaker 1: go through a transition. We're never going to go back
Speaker 1: to the pre pandemic or the preputent invasion paradigm on
Speaker 1: energy policy. And that's frankly why, even as we have
Speaker 1: worked in to address very immediate term issues, including helping
Speaker 1: the Europeans increase their reserves of natural gas going into
Speaker 1: this winter, to try to address those immediate challenges, we
Speaker 1: have been focused on long term prudent energy policy and
Speaker 1: providing incentives, incentives for US producers of cleaner sources of
Speaker 1: energy to produce at scale and at speed that they've
Speaker 1: never done so before, and to do so in lower
Speaker 1: cost ways here in the United States, so that we
Speaker 1: can be a reliable supplier of clean, low cost electricity
Speaker 1: to our industry, to our own consumers and families, and
Speaker 1: to the world. The United States. The bidenminist station and
Speaker 1: focused on that, we prioritize that, and in fact, we
Speaker 1: have now legislated long terms incentives to drive exactly that
Speaker 1: kind of investment in the United States. And that's based
Speaker 1: on an understanding that we are going to continue to
Speaker 1: be in a historic energy transition, not just in the
Speaker 1: months ahead, but in the years ahead as well, Brian.
Speaker 1: If this is not a one off shock, if this
Speaker 1: is a permanent shift, can we complete the conversation by
Speaker 1: you telling me how it's a viable strategy, a sustainable
Speaker 1: approach to drain the SPR to a four decade low.
Speaker 1: If it's not about politics, why is that viable? Why
Speaker 1: is that strategy sustainable? Appreciate the question. It's a mischaracterization
Speaker 1: of how we use the Strategic Patrolling Reserve. We announced
Speaker 1: a policy that was explicitly designed as a temporary bridge
Speaker 1: over the course of months, a d eighty million barrels
Speaker 1: to bridge a temporary situation whilst whole U S producers
Speaker 1: were ramping up supply in the short term. Our long
Speaker 1: term challenges around energy are about investing in increasing the
Speaker 1: supply of clean energy in the United States and globally
Speaker 1: at massive scale. Those require different policy tools, which is
Speaker 1: why we've enacted historic, historic incentives three and seventy billion
Speaker 1: dollars in long term incentives to increase investment in the
Speaker 1: United States. That's the right long term policy solution. You
Speaker 1: We can take short term and temporary measures that are
Speaker 1: prudent and well calibrated alongside long term measures that's what
Speaker 1: we've been doing. Brands, we appreciate it's time this morning,
Speaker 1: except we're ready to thank you very much for choosing
Speaker 1: Blim Black sav and Blim Black Readio to have this conversation.
Speaker 1: Bryan Days that the National Economic Council Director, because I'm
Speaker 1: trying to suggest a one hour conversation with the managing
Speaker 1: director of the International Monetary Fund. Her entourage says, that's
Speaker 1: not gonna happen, so let's cut it down to twenty minutes.
Speaker 1: Managing directors, thank you so much for says I have
Speaker 1: a plan. Eric Martin briefed me over a beverage of
Speaker 1: my choice last night and gave me this beautiful planet discussion.
Speaker 1: We're going to rip up the script, and we have
Speaker 1: to because of inflation. When you speak to your pH
Speaker 1: d s, when you speak to get to go open
Speaker 1: and arrested with your doctorate as well, do you have
Speaker 1: a character or understanding of this inflation? What is the
Speaker 1: makeup of this inflation that won't seem to go away?
Speaker 1: The makeup is one disruptions from omicron and they continue
Speaker 1: in China. Two Russia's senseless war against Ukraine that has
Speaker 1: pushed energy and food prices up. We also are going
Speaker 1: to see some repositioning of supply chains that would have
Speaker 1: longer term impact on cost structures. But right now what
Speaker 1: we face is demand remains quite strong and supply has
Speaker 1: trouble meeting it. The most important task we have to
Speaker 1: secure our economies is to win the fight against inflation,
Speaker 1: and that means for central banks to show the results
Speaker 1: that is necessary and why we need to do that.
Speaker 1: Why do we need to win this war? Because if
Speaker 1: we do not have price stability, we undermine prospects for growth,
Speaker 1: and because we hit incomes of people seeing it moving quickly,
Speaker 1: the US real yells. Jim Careent of Morgan Stanley just
Speaker 1: mentioned most ten basis points a two year Hulmans I
Speaker 1: believe eighteen basis points. Do you suggest with the IMF
Speaker 1: suggests to central bankers, including German Powell, that they need
Speaker 1: to slow down the dialogue and assertitude, the rhetoric and
Speaker 1: extend the timeline out even its sacrificing a higher inflation
Speaker 1: to provide for financial stability. What we are suggesting is
Speaker 1: that the FAT needs to continue to be data driven.
Speaker 1: They need to look at the economy, they need to
Speaker 1: look at where the signals are in terms of are
Speaker 1: we reaching price stability or not, and then they need
Speaker 1: to look at the impact their decisions would have domestically
Speaker 1: but also internationally. Let's remember UH type of financial conditions
Speaker 1: also mean stronger dollar, also mean capital outflaws from emerging
Speaker 1: marketing developing economies. Of course, the FAT is primarily focused
Speaker 1: on domestic conditions. The responsibility of the PET is price
Speaker 1: stability in the United States, but also the FAT has
Speaker 1: been quite active to think of ways to support global stability,
Speaker 1: especially through extending swap lines to right now, we talked
Speaker 1: to UH people of the Green Book, the Financial Stability Book.
Speaker 1: What is the i MS present UH own on the
Speaker 1: quality of the liquidity ease in the market. Given this
Speaker 1: inflation report this morning, we we have seen financial stability
Speaker 1: risks increasing, but we are still primarily concerned about inflation
Speaker 1: running out of control. If it maintains so stubborn as
Speaker 1: it has been so far, then the most significant risk
Speaker 1: we faces that inflation expectations the anchor, and when they
Speaker 1: the anchor, that means then pressure on wages to go
Speaker 1: up would feel inflation from from other directions, and then
Speaker 1: the job of the fact would become harder and it
Speaker 1: needs to tighten even more. Two more questions, very very quickly.
Speaker 1: Here you met yesterday with certain members of the British government,
Speaker 1: I believe, a gentleman from the Bank of England and
Speaker 1: a beleaguer chancel of the Exchequer. Did you sport amount
Speaker 1: in the proverbial American woodshed, I mean give us the
Speaker 1: inside No, no one's no one's listening or protect right now.
Speaker 1: How did the bile go with the two members of
Speaker 1: the United Kings. It went really well. It was a
Speaker 1: very constructive meeting. We talked about the narrow path that
Speaker 1: the world economy has to walk on today and how
Speaker 1: important is not to make missteps out of this path
Speaker 1: and not to not to communicate in a way that
Speaker 1: maybe more more difficult. What I was very encouraged to
Speaker 1: see is that the two of them sitting together with
Speaker 1: the common purpose and the Chancellor talking about his intention
Speaker 1: to accelerate a projection of how he's going to anchor
Speaker 1: his budget in medium fiscal sustainability, and also his commitment
Speaker 1: for the Office for Budget Responsibility to come up with
Speaker 1: independent projections. That all tells us what we know that
Speaker 1: UK actually has strong institutions and they do work, even
Speaker 1: if at some point we may see some some this
Speaker 1: son't she'll be invited to the coronation dr or so much.
Speaker 1: Seth Carpenter, Global Chief Economists and Morgan Stanley joined us
Speaker 1: right now. Seth, you've had about seven minutes to pour
Speaker 1: over the details you'll take on this one, please yeah,
Speaker 1: absolutely so UM. I have to say I'll crow a
Speaker 1: little bit and congratulate my team. So are u S
Speaker 1: economics team, Ellen Setner, the chief Julian Richards who works
Speaker 1: for her. We were above consensus on our call for
Speaker 1: this print. I think the stickiness that you saw in
Speaker 1: the shelter inflation was one of the key things and
Speaker 1: so clearly a shock for the markets. The markets are
Speaker 1: are off because of it. But for us, this actually
Speaker 1: didn't come in very different from where our forecast was. Uh.
Speaker 1: There is persistence, especially in the services side of inflation.
Speaker 1: The apparel number, I thought was particularly useful. Though for
Speaker 1: a long time we and others have been talking about inventories,
Speaker 1: the pull back of the consumer from consumer goods. We're
Speaker 1: starting to see it. The challenge, obviously, in this context
Speaker 1: is it's when other bits of inflation, as Lisa pointed out,
Speaker 1: are just going up more strongly. Right now, we're seeing
Speaker 1: the swaps market price in a peak policy right for
Speaker 1: the rate for the Federal Reserve of four point eight
Speaker 1: five in March of next year, Seth, is that what's
Speaker 1: required for the Fed to move fast, to continue moving
Speaker 1: into next year despite some of the concerns about financial stability.
Speaker 1: I'm not sure that is what's required. That's a little
Speaker 1: bit above where our our call is for the peak grade,
Speaker 1: but only by a hike or so um. I think
Speaker 1: there's two way risk with that outlook we have seen.
Speaker 1: The last jobs report was was good, but still softer
Speaker 1: than the one before. And so if we get that
Speaker 1: downward trend continuing and non farm perils, if we get
Speaker 1: down into the one hundred something range, I don't I
Speaker 1: don't know that it's going to be obvious to the
Speaker 1: feather they need to keep going all the way up,
Speaker 1: you know, closer to Seth. I'm struck by what you said.
Speaker 1: There's certain other areas outside of shelter that we're stickier.
Speaker 1: And I'm thinking about airplane tickets, people saying that after
Speaker 1: a while, people wouldn't be willing to pay for something
Speaker 1: that often is a discretionary expenditure. You could see this
Speaker 1: with Ikea and Pepsi all raising prices and still having
Speaker 1: pretty good sales. Are you concerned that your team and
Speaker 1: that you have been a bit too sanguine about how
Speaker 1: quickly inflation could come down on the other side, about
Speaker 1: how pervasive even the wage stickiness is right now. Absolutely,
Speaker 1: If ever, there is a time for people who do
Speaker 1: economic forecasting to be humbled, this is it. Uh, It's very,
Speaker 1: very difficult. The sort of falling off of inflation for
Speaker 1: core goods has taken so much longer than we expected.
Speaker 1: I think. I think there's there's a lot of uncertainty here,
Speaker 1: the fact that the labor market is in fact cooling.
Speaker 1: We obviously got the Jolts data a couple of weeks
Speaker 1: ago that the market reacted to. We got non farm
Speaker 1: perils that was solid but still coming down. I really
Speaker 1: think that part of the economy is going to be key.
Speaker 1: Can the Fed continue the tightness, get the overall economy
Speaker 1: to slow down, get job creation to slow down. That
Speaker 1: I think will be the key to to where inflation
Speaker 1: goes over the medium term. If you're just tuning again
Speaker 1: live on TV and radio, you missed the fireworks core
Speaker 1: CP in America come again at a forty year high,
Speaker 1: inflation come again hot, equities heading south were down one
Speaker 1: point eight percent on the SMP, yields up at the
Speaker 1: front end of the yield curve, up fourteen basis points
Speaker 1: to four three, and expectations high going into the fed's
Speaker 1: next meeting. Last time they met, Seth. In the minutes yesterday,
Speaker 1: they said the cost of taking too little action to
Speaker 1: bring down inflation likely outweighs the cost of taking too
Speaker 1: much action. Seth, do you anticipate when they meet again
Speaker 1: in November that we think in the same thing. I
Speaker 1: think there will be wringing their hands quite a lot.
Speaker 1: This was obviously an important data point, but it was
Speaker 1: one data point. Um. The minutes also pointed out that
Speaker 1: at some point they're going to have a discussion about
Speaker 1: calibrating the size of the raid hikes because they don't
Speaker 1: want to go too far and and and do too much.
Speaker 1: So I think they're getting to the point now. Once
Speaker 1: we get close to four percent or over four percent,
Speaker 1: I think they really will be weighing both sides of
Speaker 1: that coin. Uh. The strength of the underlying economy is important,
Speaker 1: but inflation here is clearly clearly strong. You know, there
Speaker 1: was the point about used car prices having come down
Speaker 1: but new car prices staying strong. I think it's exactly
Speaker 1: those sorts of frictions that are going on in the
Speaker 1: goods and services market that is presenting such the conundrum. Well,
Speaker 1: there's a lot of friction right now in this bond market.
Speaker 1: Let me tell you how far can we push this up?
Speaker 1: Sixthing basis points a least on a two year I'm
Speaker 1: watching this and now we're at three. I mean, it
Speaker 1: just keeps going up higher. As the terminal rate now
Speaker 1: is looking at four point eight five percent, it is
Speaker 1: moving closer to that five percent handle that we heard
Speaker 1: about from Larry Summers, that we heard about from Bill Dudley,
Speaker 1: and people laughing, and I just say Bill Dumpy said
Speaker 1: that in the summer of now that he was talking
Speaker 1: about maybe summer twenty one, rather talking about maybe they'd
Speaker 1: have to go a whole lot further than people thought
Speaker 1: they would seth Carpenter, thank you so much for all
Speaker 1: the time that you've spent with us this morning. It's
Speaker 1: at Carpenter of Morganstown, Stanley right now. He's the President
Speaker 1: of the World Bank. Of course. David Melfest joins US.
Speaker 1: I need to clear something up off of a political article.
Speaker 1: And this is the uproar about senators in your tenure
Speaker 1: at the World Bank, where something was said, you're not
Speaker 1: a scientist. I fell off my chair because you are
Speaker 1: the physics major from Colorado College. Always clarify right now
Speaker 1: your position with the World Bank, given this turf floor,
Speaker 1: this political war in Washington. So it's very clear that
Speaker 1: people cause greenhouse gas emissions and that affects climate change,
Speaker 1: and so that should have been clear in the original remarks.
Speaker 1: And whether you're a scientist or not doesn't matter, and
Speaker 1: so it got off track. I think we're back on
Speaker 1: track because what the World Bank is doing is a
Speaker 1: massive amount with regard to climate change, both in countries
Speaker 1: that need adaptation living with the changes going on and
Speaker 1: with the mitigation. So there's this intense focus within the
Speaker 1: World Bank on these efforts. And what's great about this, folks,
Speaker 1: And this goes back decades and decades. One of the
Speaker 1: coolest science majors in America was the Colorado College. The
Speaker 1: way they taught science at CC was so different back
Speaker 1: when male passes there. In physics, let's go to the
Speaker 1: equation S equals V O t plus one f GT squared.
Speaker 1: There's the gravitational constant and they're not seeing till the
Speaker 1: derivative giant says that g matters. Right now, what does
Speaker 1: the new gravity of higher yields and inflation mean for
Speaker 1: the debt build up at the World Bank confronts So
Speaker 1: within physics, the gravity is always there. Within economics, there
Speaker 1: was this temporary period where interest rates could be at
Speaker 1: zero and there were various explanations of why that was working.
Speaker 1: Now it's to where there there is a connection between
Speaker 1: interest rates and inflation. So the central banks are moving
Speaker 1: up toward some kind of neutral where it's non inflationary.
Speaker 1: Fiscal policy is also changing massively. One of the themes
Speaker 1: of this week for for the for the advanced economies
Speaker 1: is how do you mesh those two policies, the fiscal
Speaker 1: and monetary policy, so they don't conflict with each other.
Speaker 1: So if that means you're tightening on one side, do
Speaker 1: you want to tighten on another? What does it mean
Speaker 1: for the World Bank? And there are billions of people
Speaker 1: in the world at heel to the Bank of England
Speaker 1: and to the Fed. It this is a really challenging
Speaker 1: and I call it a crisis facing development. People living
Speaker 1: in developing countries aren't getting capital. In fact, there's a
Speaker 1: capital outflow. They're seeing their currencies weaken and and a
Speaker 1: lot of their debt is in dollar terms, So as
Speaker 1: their currency weakens, the burden of the debt goes up
Speaker 1: and interest rates are going up. So that's really a
Speaker 1: trifecta triple uh, a triple burden going onto the countries.
Speaker 1: And many of them had built up debt under COVID
Speaker 1: because that was the that was the cyclical the countercyclical response.
Speaker 1: So there's been a lot of talk the last a
Speaker 1: couple of days about ways to have a better debt
Speaker 1: restructuring process for the countries that hit the wall, somehow
Speaker 1: seen through currency. From Mondale to Jacob Franklin on we've
Speaker 1: studied foreign exchange on this, but the modern equivalent is
Speaker 1: in the derivative space and the immediacy of overnight swap lines.
Speaker 1: This goes back to your bear Stearns tenure. Do you
Speaker 1: feel we have a stronger structure now with swap agreements
Speaker 1: with the rich guys the FED to allow the World
Speaker 1: bank community to have liquidity in these distorted times? Um, So,
Speaker 1: developing countries have a challenge and find finding swap lines.
Speaker 1: Some do with with the I m F or with
Speaker 1: the US FED, but for the poorer countries in general,
Speaker 1: they don't. They may be able to arrange something, but
Speaker 1: when that happens, that means you're under the gun. So
Speaker 1: a better way to do it is to find a
Speaker 1: way to get to actual debt reductions so that you
Speaker 1: can have light at the end of the tunnel, get
Speaker 1: out from under the debt. So that applies to the
Speaker 1: to the lower income countries. You know, we're up to
Speaker 1: where there are dozens and dozens that are where the
Speaker 1: debt is unsustainable, and that means you need to have
Speaker 1: some solution to go through it. That's under discussion challenging
Speaker 1: times to say the least. David Melvis, thank you so
Speaker 1: much for joining today. He is of course with the
Speaker 1: World Bank. This is the Bloomberg Surveillance Podcast. Thanks for listening.
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Speaker 1: the terminal. I'm Tom keene In. This is Bloomer