1 00:00:05,040 --> 00:00:08,880 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa Abram Woyd's 2 00:00:08,920 --> 00:00:11,879 Speaker 1: along with Tom Keane and Jonathan Farrell, join us each 3 00:00:11,920 --> 00:00:15,720 Speaker 1: day for insight from the best in economics, geopolitics, finance 4 00:00:15,760 --> 00:00:19,440 Speaker 1: and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 5 00:00:19,560 --> 00:00:22,759 Speaker 1: Spotify and anywhere you get your podcasts, and always on 6 00:00:22,840 --> 00:00:26,319 Speaker 1: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 7 00:00:26,600 --> 00:00:28,120 Speaker 1: We get lucky. We get to catch up with Bob 8 00:00:28,160 --> 00:00:30,440 Speaker 1: Michael twice in a week, once on a Sunday evening. 9 00:00:30,760 --> 00:00:33,160 Speaker 1: And this is more normal Bob, Good Morningtier from JP 10 00:00:33,200 --> 00:00:36,320 Speaker 1: Morgan Asset Management. Bob Mike McKee messaged me earlier and 11 00:00:36,360 --> 00:00:38,400 Speaker 1: he wanted to know one's Bob Michael on today? And 12 00:00:38,440 --> 00:00:40,280 Speaker 1: two what does Bob want me to ask in a 13 00:00:40,360 --> 00:00:44,160 Speaker 1: news conference? What is it today? Bob? Well, I think 14 00:00:44,159 --> 00:00:47,040 Speaker 1: he's got to ask that the FED was set up 15 00:00:47,080 --> 00:00:50,440 Speaker 1: the Federal Reserve Act of nineteen thirteen was designed to 16 00:00:50,479 --> 00:00:53,600 Speaker 1: prevent a run on banks. So they must have seen this. 17 00:00:53,720 --> 00:00:57,279 Speaker 1: They must have seen the deposit or outclothes. Are they 18 00:00:57,320 --> 00:01:00,800 Speaker 1: seeing anything else that wearies them? And what is that? 19 00:01:01,240 --> 00:01:04,480 Speaker 1: And I think there are things in the commercial property market. 20 00:01:04,920 --> 00:01:07,280 Speaker 1: There are things in the bank loan market where the 21 00:01:07,360 --> 00:01:11,959 Speaker 1: resets have doubled and tripled what borrowers are paying, So 22 00:01:12,040 --> 00:01:14,280 Speaker 1: there's still a lot out there. So, Bob, how did 23 00:01:14,319 --> 00:01:17,039 Speaker 1: they parse a message that goes from we want credit 24 00:01:17,040 --> 00:01:19,920 Speaker 1: conditions to tighten to oh, my goodness, it's not a 25 00:01:19,959 --> 00:01:22,680 Speaker 1: financial crisis, but things are tightening too quickly. How do 26 00:01:22,720 --> 00:01:25,800 Speaker 1: they parse that line to a market that doesn't like nuance? 27 00:01:27,640 --> 00:01:31,120 Speaker 1: They don't need to, Lisa, They've told us they're data dependent. 28 00:01:31,560 --> 00:01:35,119 Speaker 1: Look at the data they've won. They don't need to 29 00:01:35,200 --> 00:01:39,240 Speaker 1: pile on. Look at inflation. If you look at month 30 00:01:39,280 --> 00:01:42,720 Speaker 1: to date ten year tips, they're down thirty basis points 31 00:01:42,760 --> 00:01:46,160 Speaker 1: to two point one percent. Inflation expectations are coming down. 32 00:01:46,360 --> 00:01:50,080 Speaker 1: Look at the University of Michigan consumer sentiment one year 33 00:01:50,120 --> 00:01:54,120 Speaker 1: inflation expectations, they're down the most in two years. That's 34 00:01:54,400 --> 00:01:57,840 Speaker 1: pre when they started high grades. They're at three point 35 00:01:57,880 --> 00:02:00,960 Speaker 1: eight percent. And then if you go back to the charter, 36 00:02:01,120 --> 00:02:03,840 Speaker 1: they were set up to prevent a run on banks, Well, 37 00:02:04,080 --> 00:02:06,160 Speaker 1: they pushed it to the point where they had to 38 00:02:06,200 --> 00:02:09,440 Speaker 1: step in and stop a run on banks. So they've 39 00:02:09,480 --> 00:02:13,880 Speaker 1: achieved the maximum pressure they needed to to bring inflation down. 40 00:02:13,960 --> 00:02:17,200 Speaker 1: It's happening, it's in the data. You pause any weight, 41 00:02:17,560 --> 00:02:19,639 Speaker 1: then how do you make sense, Bob? If they probably 42 00:02:19,680 --> 00:02:23,280 Speaker 1: saw the outflows from depositors from some of these banks 43 00:02:23,360 --> 00:02:26,400 Speaker 1: before that speech, that testimony from j Power where he 44 00:02:26,440 --> 00:02:28,720 Speaker 1: opened the door to a fifty basis point rate hike, 45 00:02:28,760 --> 00:02:31,359 Speaker 1: how do they signal that the scenario has changed so 46 00:02:31,440 --> 00:02:34,360 Speaker 1: dramatically in two weeks, given that a lot of what 47 00:02:34,400 --> 00:02:37,520 Speaker 1: you're talking about, the winning of their war would have 48 00:02:37,560 --> 00:02:42,360 Speaker 1: been won before what we saw with Silicon Valley Bank. Honestly, 49 00:02:42,560 --> 00:02:46,760 Speaker 1: it really doesn't matter. These are the long and variable impacts. 50 00:02:47,040 --> 00:02:49,920 Speaker 1: They're already catching up to the economy. We're seeing it. 51 00:02:50,000 --> 00:02:52,760 Speaker 1: They're starting to bite hard. What's going to happen over 52 00:02:52,800 --> 00:02:55,440 Speaker 1: the next three to six months. Let's wait and see 53 00:02:55,440 --> 00:02:59,160 Speaker 1: what happens. For sure, We've looked at every time the 54 00:02:59,240 --> 00:03:03,280 Speaker 1: FED has piking rates. On average, it's been about thirteen 55 00:03:03,320 --> 00:03:07,280 Speaker 1: months to recession. So they could stop here and then 56 00:03:07,440 --> 00:03:09,400 Speaker 1: let's see what happens over the next year. We think 57 00:03:09,440 --> 00:03:12,800 Speaker 1: with quantitative tightening it actually pulls that forward into the 58 00:03:12,919 --> 00:03:14,480 Speaker 1: end of this year. So, Bob, at the start of 59 00:03:14,480 --> 00:03:16,639 Speaker 1: the year, when credit was ripping, high yield was doing 60 00:03:16,680 --> 00:03:19,119 Speaker 1: really well. You resisted the urge to parliament as well, 61 00:03:19,480 --> 00:03:21,400 Speaker 1: So I'd be interested to know what you've actually been 62 00:03:21,440 --> 00:03:23,600 Speaker 1: doing over the last couple of weeks as things have 63 00:03:23,639 --> 00:03:25,680 Speaker 1: started to go the other way and you weren't on 64 00:03:25,680 --> 00:03:27,400 Speaker 1: the wrong side of the trade, so to speed. But 65 00:03:27,560 --> 00:03:32,040 Speaker 1: what did you do. I'm holding on to our conservative 66 00:03:32,080 --> 00:03:36,839 Speaker 1: position where we've had hedges in the CDX market. You're 67 00:03:36,920 --> 00:03:39,880 Speaker 1: going to have to pry them out of my dying hands. 68 00:03:40,400 --> 00:03:43,480 Speaker 1: This is the start, this is not the end. So 69 00:03:43,560 --> 00:03:46,680 Speaker 1: let's talk about spread levels. So spread right now is 70 00:03:46,720 --> 00:03:49,760 Speaker 1: at four eighty was as tight as about three ninety 71 00:03:49,760 --> 00:03:52,000 Speaker 1: a number of weeks ago. You just talked me through, 72 00:03:52,040 --> 00:03:54,160 Speaker 1: Bob levels. You and I've talked about this before, but 73 00:03:54,720 --> 00:03:57,160 Speaker 1: the basic argument goes something like this, it's a high 74 00:03:57,280 --> 00:04:00,120 Speaker 1: quality index. It won't get wider in the way it 75 00:04:00,160 --> 00:04:03,600 Speaker 1: has done in recessions previously. Bob, you've pushed back against 76 00:04:03,600 --> 00:04:08,680 Speaker 1: that notion. Why yes, because I've lived through every other 77 00:04:08,760 --> 00:04:12,240 Speaker 1: cycle in the high yield market. People forget, this market 78 00:04:12,360 --> 00:04:15,600 Speaker 1: isn't one hundred years old. It's just over thirty years old. 79 00:04:15,840 --> 00:04:18,800 Speaker 1: And you hear that same story all the time. This 80 00:04:18,880 --> 00:04:22,600 Speaker 1: time it's different. But the problem is that fear always 81 00:04:22,600 --> 00:04:26,799 Speaker 1: replaces greed. People are scrambling for up in quality. We've 82 00:04:26,800 --> 00:04:28,760 Speaker 1: seen in the last week. You don't know where the 83 00:04:28,839 --> 00:04:31,520 Speaker 1: problems are going to happen, so you just try to 84 00:04:31,800 --> 00:04:35,479 Speaker 1: de risk every single time high Yield goes to a 85 00:04:35,520 --> 00:04:38,960 Speaker 1: minimum credit spread of eight hundred basis points over. I 86 00:04:39,000 --> 00:04:41,400 Speaker 1: think we're easily on track for that. I know last 87 00:04:41,400 --> 00:04:44,919 Speaker 1: time on Sunday, I think it was the evening we 88 00:04:45,000 --> 00:04:47,920 Speaker 1: talked a little bit about non bank lenders, which are 89 00:04:48,160 --> 00:04:51,680 Speaker 1: us in the market. So we're already starting to hear 90 00:04:51,720 --> 00:04:54,560 Speaker 1: from our clients that they want to know what we 91 00:04:54,680 --> 00:04:58,280 Speaker 1: hold in their portfolios. They're asking all their managers. So 92 00:04:58,400 --> 00:05:03,440 Speaker 1: we're going to start tight credit conditions ourselves, just because 93 00:05:03,640 --> 00:05:06,279 Speaker 1: our clients don't want us to take the kinds of 94 00:05:06,360 --> 00:05:08,520 Speaker 1: risks that they were comfortable a year or so ago. 95 00:05:08,880 --> 00:05:11,800 Speaker 1: That's not just us, it's every manager. It's in the 96 00:05:11,839 --> 00:05:15,360 Speaker 1: public markets, and it's for sure in the private markets. So, Bob, 97 00:05:15,400 --> 00:05:17,840 Speaker 1: how much has that accelerated over the past two weeks? 98 00:05:17,960 --> 00:05:20,839 Speaker 1: And John asked me earlier, even if this issue with 99 00:05:20,880 --> 00:05:23,719 Speaker 1: some of the medium sized businesses, medium sized banks rather 100 00:05:24,200 --> 00:05:26,719 Speaker 1: is resolved and we do get some sort of backstop 101 00:05:27,000 --> 00:05:29,520 Speaker 1: that staves off some sort of contagion risk or any 102 00:05:29,560 --> 00:05:33,080 Speaker 1: of these concerns. How much have credit conditions tightened over 103 00:05:33,120 --> 00:05:37,920 Speaker 1: the past two weeks anyway that will be persistent. Well, 104 00:05:37,920 --> 00:05:41,160 Speaker 1: they've tightened everywhere. We've talked about the central banks waiting 105 00:05:41,279 --> 00:05:48,200 Speaker 1: for those cumulative long variable lags to catch up. So 106 00:05:48,560 --> 00:05:52,200 Speaker 1: they're going to catch up. So unless they start cutting 107 00:05:52,320 --> 00:05:57,279 Speaker 1: rates or ending QT, that's going to be progressive. So 108 00:05:57,680 --> 00:06:00,680 Speaker 1: central banks are still tightening credit conditions when you look 109 00:06:00,680 --> 00:06:04,200 Speaker 1: at senior loan officers surveys, banks for sure have been 110 00:06:04,240 --> 00:06:07,360 Speaker 1: tightening credit conditions, and I think with what's happened over 111 00:06:07,360 --> 00:06:09,960 Speaker 1: the last couple of weeks, there's no going back on that. 112 00:06:10,040 --> 00:06:13,559 Speaker 1: And then I talked about non bank lenders. We're all 113 00:06:13,600 --> 00:06:16,720 Speaker 1: doing the work for the FED anyway they can hit 114 00:06:16,760 --> 00:06:20,120 Speaker 1: the pause button. The banks are still tightening credit conditions, 115 00:06:20,279 --> 00:06:22,520 Speaker 1: and as I said, non bank lenders are as well. 116 00:06:22,640 --> 00:06:25,240 Speaker 1: I hate these analogies, Bob, but you mentioned commercial real estate. 117 00:06:25,279 --> 00:06:27,440 Speaker 1: A lot of people are pointing at it. And if 118 00:06:27,480 --> 00:06:29,760 Speaker 1: you could say where we are in terms of the 119 00:06:29,760 --> 00:06:32,480 Speaker 1: devaluation in commercial real estate, are we at the beginning, 120 00:06:32,480 --> 00:06:34,120 Speaker 1: are we at the middle? How much further does it 121 00:06:34,200 --> 00:06:38,680 Speaker 1: have to go. Well, it depends where you are in 122 00:06:38,720 --> 00:06:43,200 Speaker 1: the snake. I think for sure that property companies are 123 00:06:43,200 --> 00:06:48,040 Speaker 1: already having problems with offices in central business districts, right, 124 00:06:48,440 --> 00:06:51,080 Speaker 1: and you're just now starting to see that in some 125 00:06:51,160 --> 00:06:55,919 Speaker 1: commercial mortgage backed securitizations. But there's the whole reap market, 126 00:06:55,960 --> 00:07:00,920 Speaker 1: there's the CMBs market, there's the whole regional bank market 127 00:07:00,960 --> 00:07:03,760 Speaker 1: where a lot of their loans are into the commercial 128 00:07:03,760 --> 00:07:07,479 Speaker 1: property market. And then there's the g setbacks. So these 129 00:07:07,520 --> 00:07:11,040 Speaker 1: things don't just tend to happen and go away. They 130 00:07:11,120 --> 00:07:14,120 Speaker 1: tend to build, and they're with us for a while. So, Bob, 131 00:07:14,160 --> 00:07:16,600 Speaker 1: just a final question from me. Number of weeks ago, 132 00:07:16,640 --> 00:07:19,720 Speaker 1: you said to me the whole curve three handle, two's 133 00:07:19,720 --> 00:07:22,280 Speaker 1: out to thirties. We've seen that. Are you saying right 134 00:07:22,320 --> 00:07:26,000 Speaker 1: the way down to three percent? Yes, I didn't say 135 00:07:26,040 --> 00:07:28,360 Speaker 1: three handle, I've said three percent. There we go, there's 136 00:07:28,360 --> 00:07:33,640 Speaker 1: the three point zo minimum. Wow. JP Morgan, the thirties 137 00:07:33,680 --> 00:07:40,840 Speaker 1: asset management, the brilliant Alicia Levine is alongside us today 138 00:07:40,880 --> 00:07:42,600 Speaker 1: here in New York. She's got a line poll has 139 00:07:42,640 --> 00:07:45,440 Speaker 1: no good choices today. There are no good choices today. 140 00:07:45,480 --> 00:07:47,200 Speaker 1: I'm just going to wit through the price action, and 141 00:07:47,200 --> 00:07:49,560 Speaker 1: then we'll get Alicia's thoughts on it. Equity futures right 142 00:07:49,600 --> 00:07:52,480 Speaker 1: now unchanged on the SMP five hundred yields up by 143 00:07:52,520 --> 00:07:55,120 Speaker 1: a single basis point on a ten year three sixty two. 144 00:07:55,280 --> 00:07:58,000 Speaker 1: We've talked about the journey of the two year since 145 00:07:58,040 --> 00:08:00,600 Speaker 1: the FED last met, from four point one sent all 146 00:08:00,640 --> 00:08:02,720 Speaker 1: the way to four point two percent, with a lot 147 00:08:02,760 --> 00:08:05,880 Speaker 1: of ziggin and zagging in between. Lisa, I feel bad 148 00:08:05,880 --> 00:08:08,080 Speaker 1: for the two years. It's gonna be tired. Its journey 149 00:08:08,120 --> 00:08:11,280 Speaker 1: has been long, it's been tumultuous, and we've been all 150 00:08:12,440 --> 00:08:14,920 Speaker 1: who slept either you feel bad for it for the 151 00:08:14,960 --> 00:08:17,120 Speaker 1: front end of the yield curve. Look, you got to 152 00:08:17,160 --> 00:08:18,960 Speaker 1: bear with us because we've all been up since for 153 00:08:19,160 --> 00:08:22,440 Speaker 1: you know, the past week and examining all of this, well, 154 00:08:22,480 --> 00:08:26,320 Speaker 1: it never ended, and we're dealing with head spinning realities right, 155 00:08:26,360 --> 00:08:28,880 Speaker 1: all of the complications you're just talking about passing through. 156 00:08:29,280 --> 00:08:31,760 Speaker 1: Then try to give a market response to that, which 157 00:08:31,760 --> 00:08:34,199 Speaker 1: always is wrong initially anyway, and it's always exactly what 158 00:08:34,320 --> 00:08:36,400 Speaker 1: you don't think. So it's sort of you know, what's 159 00:08:36,400 --> 00:08:38,640 Speaker 1: the point, Let's go back to bed. Alicia Evan joins 160 00:08:38,679 --> 00:08:41,640 Speaker 1: us right now, the head of Equities and Capital Markets 161 00:08:41,640 --> 00:08:45,160 Speaker 1: advisor at Bmy melon Mouth Management, Alicia, want to fool 162 00:08:45,160 --> 00:08:47,240 Speaker 1: to catch out with you. Great to be here today. 163 00:08:47,880 --> 00:08:51,040 Speaker 1: No good choices today, No good choices today. Twenty five. 164 00:08:51,600 --> 00:08:55,480 Speaker 1: We do twenty five because the market is giving the 165 00:08:55,559 --> 00:08:57,920 Speaker 1: FED twenty five in the pricing and so in a 166 00:08:58,040 --> 00:09:02,280 Speaker 1: sense it's the easier decision. I'm not sure they should 167 00:09:02,320 --> 00:09:04,840 Speaker 1: do twenty five here because I think what happened in 168 00:09:04,880 --> 00:09:07,360 Speaker 1: the last couple of weeks was possibly the beginning of 169 00:09:07,360 --> 00:09:11,280 Speaker 1: a credit issue as smaller and medium banks start to 170 00:09:11,440 --> 00:09:15,600 Speaker 1: withdraw on credit provision. But the FED will go twenty five. 171 00:09:16,200 --> 00:09:19,040 Speaker 1: And as you said, it's all in the messaging, and 172 00:09:19,080 --> 00:09:22,679 Speaker 1: as we've seen sometimes the messaging can be really complicated. 173 00:09:23,679 --> 00:09:25,880 Speaker 1: I would look to Christine Laguard, and I'd look to 174 00:09:25,960 --> 00:09:29,520 Speaker 1: the inflation number in the UK this morning, as you 175 00:09:29,559 --> 00:09:32,280 Speaker 1: were talking about earlier, as to signals of why we're 176 00:09:32,280 --> 00:09:34,599 Speaker 1: going to do twenty five today, and as to the 177 00:09:34,720 --> 00:09:37,200 Speaker 1: dat plots, I think the dat plots pretty much stay 178 00:09:37,280 --> 00:09:40,720 Speaker 1: on track here for those reasons. If the Christine Laguard 179 00:09:40,880 --> 00:09:44,600 Speaker 1: managed to message very well that they're keeping the two 180 00:09:44,840 --> 00:09:47,400 Speaker 1: separate and can keep it separate, and I think that's 181 00:09:47,400 --> 00:09:49,600 Speaker 1: what the FED ultimately is going to do today as well. 182 00:09:49,679 --> 00:09:52,040 Speaker 1: Let's take the headlines from the Guard earlier. There's no 183 00:09:52,080 --> 00:09:54,720 Speaker 1: trade off between price and financial stability. We will not 184 00:09:54,840 --> 00:09:57,840 Speaker 1: entertain trade offs from the primary objective. What does that 185 00:09:57,880 --> 00:10:00,400 Speaker 1: look like If Chairman Pound repeats exactly those saying words 186 00:10:00,720 --> 00:10:03,080 Speaker 1: later in the news conference, so I think you keep 187 00:10:03,280 --> 00:10:07,280 Speaker 1: ongoing increases in the statement. If he keeps to that 188 00:10:07,520 --> 00:10:10,280 Speaker 1: kind of we're going to keep the two separate, and 189 00:10:10,480 --> 00:10:12,800 Speaker 1: in your mind you need to keep this thing separate, 190 00:10:13,040 --> 00:10:16,080 Speaker 1: then I think you keep the ongoing increases with the 191 00:10:16,120 --> 00:10:18,840 Speaker 1: open endedness. I don't think the dots change, but you 192 00:10:18,880 --> 00:10:22,920 Speaker 1: do keep the ongoing increases. But being open to that, 193 00:10:22,960 --> 00:10:25,800 Speaker 1: the FED has the tools necessary to deal with the 194 00:10:25,840 --> 00:10:29,160 Speaker 1: financial stability issue and those two things will be separate 195 00:10:29,160 --> 00:10:32,160 Speaker 1: in the end. As we've seen all over, inflation on 196 00:10:32,200 --> 00:10:35,280 Speaker 1: the way down has not been linear, and I think 197 00:10:35,400 --> 00:10:40,480 Speaker 1: opening up the devishness that the market may want to 198 00:10:40,559 --> 00:10:43,640 Speaker 1: see risks that other piece of it. And it's I 199 00:10:43,679 --> 00:10:47,240 Speaker 1: think Laguard really showed the way to how to capture 200 00:10:47,280 --> 00:10:49,959 Speaker 1: this right here, So I would suspect that he's going 201 00:10:49,960 --> 00:10:54,640 Speaker 1: to separate it as well. Now, did something actually happen 202 00:10:55,280 --> 00:10:57,960 Speaker 1: in the real world two weeks ago with the banks, 203 00:10:58,000 --> 00:11:00,760 Speaker 1: and I think the answer is yes, right in the 204 00:11:00,800 --> 00:11:05,640 Speaker 1: real world, credit contraction has likely accelerated. So let's take 205 00:11:05,640 --> 00:11:07,600 Speaker 1: a step back and talk game theory, because that seems 206 00:11:07,640 --> 00:11:09,040 Speaker 1: to be what we're all doing right now, to try 207 00:11:09,080 --> 00:11:11,960 Speaker 1: to game out what they're signaling versus what they're going 208 00:11:12,000 --> 00:11:14,520 Speaker 1: to do, versus what they know, versus what you believe. 209 00:11:14,720 --> 00:11:18,160 Speaker 1: And I wonder if, as a market participant, you think 210 00:11:18,160 --> 00:11:21,520 Speaker 1: that ja Pell has less credibility not only in having 211 00:11:21,720 --> 00:11:23,680 Speaker 1: the authority on what they're going to do, but having 212 00:11:23,720 --> 00:11:27,320 Speaker 1: any extra visibility into the path of a market that 213 00:11:27,360 --> 00:11:33,200 Speaker 1: has been highly, highly in determined. So I think Japell's 214 00:11:33,240 --> 00:11:37,760 Speaker 1: credibility is intact here. He's been very single minded on 215 00:11:37,800 --> 00:11:41,640 Speaker 1: the inflation issue. There was some talk earlier in the 216 00:11:42,320 --> 00:11:45,480 Speaker 1: other press conferences and talking about this inflation eleven times, 217 00:11:45,720 --> 00:11:49,440 Speaker 1: but I think ultimately that the pivot was real, and 218 00:11:49,480 --> 00:11:51,840 Speaker 1: I think the pivot is still there. And I think 219 00:11:51,880 --> 00:11:54,320 Speaker 1: the thought that the FED actually does have the tools 220 00:11:54,320 --> 00:11:57,200 Speaker 1: to understand the financial stability issue and what's happening with 221 00:11:57,240 --> 00:11:59,720 Speaker 1: the banks is a very real and true thing. And 222 00:12:00,160 --> 00:12:02,520 Speaker 1: if they hike today, it is a signal that they 223 00:12:02,520 --> 00:12:06,160 Speaker 1: think they ring front fenced this and can prevent further deterioration. 224 00:12:06,720 --> 00:12:08,600 Speaker 1: So if you say that there really has been something 225 00:12:08,640 --> 00:12:12,040 Speaker 1: material that has happened in the economy, what's your investing 226 00:12:12,280 --> 00:12:14,840 Speaker 1: change as a result? Right, So that's the big question. Right. 227 00:12:14,840 --> 00:12:16,480 Speaker 1: We talk about the economy, but in the end, we 228 00:12:16,520 --> 00:12:19,560 Speaker 1: have to invest our clients money. So our thinking on 229 00:12:19,600 --> 00:12:23,040 Speaker 1: this originally was that the recession seemed to be pushed 230 00:12:23,040 --> 00:12:25,240 Speaker 1: out and maybe the end of twenty twenty three into 231 00:12:25,320 --> 00:12:28,360 Speaker 1: twenty twenty four, two weeks ago, when that inflation, all 232 00:12:28,400 --> 00:12:31,880 Speaker 1: those inflation reads came in really hot and the economy 233 00:12:31,880 --> 00:12:34,800 Speaker 1: seemed to be on fire. What we've said today is 234 00:12:34,840 --> 00:12:39,520 Speaker 1: that this event actually changes, that the recession comes back 235 00:12:39,559 --> 00:12:43,040 Speaker 1: into twenty twenty three, earnings likely go lower. We're pretty low, 236 00:12:43,040 --> 00:12:47,000 Speaker 1: and earnings this year anyway, we're neutrally weighted on equities. 237 00:12:47,280 --> 00:12:50,719 Speaker 1: We never really went for the full you know, disinflation 238 00:12:50,880 --> 00:12:53,920 Speaker 1: is here, climb back in hand over fist, get greedy, 239 00:12:54,200 --> 00:12:56,400 Speaker 1: because we simply didn't think that this was going to 240 00:12:56,520 --> 00:12:58,120 Speaker 1: be so easy to get out of in the end. 241 00:12:58,200 --> 00:13:00,440 Speaker 1: In the end, this is going to be a hike cycle. 242 00:13:00,480 --> 00:13:03,080 Speaker 1: The fastest in forty years four hundred and fifty basis 243 00:13:03,120 --> 00:13:06,280 Speaker 1: points today four hundred and seventy five basis points in 244 00:13:06,320 --> 00:13:08,520 Speaker 1: twelve months. How do you get out of this without 245 00:13:08,520 --> 00:13:11,360 Speaker 1: a recession or without something cracking. Well, in fact, something 246 00:13:11,360 --> 00:13:14,560 Speaker 1: did crack yep so, and that tends to be not 247 00:13:14,679 --> 00:13:18,240 Speaker 1: just one thing. So when there's an issue in the 248 00:13:18,320 --> 00:13:21,920 Speaker 1: regional banks, they pull back on lending, and that's what happens. 249 00:13:21,960 --> 00:13:23,800 Speaker 1: And as you know, more than fifty percent of the 250 00:13:23,880 --> 00:13:27,360 Speaker 1: lending to various sectors of the economy comes from these 251 00:13:27,400 --> 00:13:30,800 Speaker 1: banks with two hundred and fifty billion or under in assets. 252 00:13:30,880 --> 00:13:33,640 Speaker 1: So let's work through the second sinc bank liquidity issues, 253 00:13:33,760 --> 00:13:37,160 Speaker 1: credit issues because a tighter lending recession gets brought forward. 254 00:13:37,400 --> 00:13:39,080 Speaker 1: We can agree on the date when they really kicked 255 00:13:39,080 --> 00:13:43,560 Speaker 1: off February eighth, the Wednesday evening overnight into Thursday Wednesday, 256 00:13:44,440 --> 00:13:47,040 Speaker 1: the eighth of March thirty nine, ninety two on the SMP. 257 00:13:47,559 --> 00:13:50,520 Speaker 1: We're above that now, right Why because the market is 258 00:13:50,520 --> 00:13:54,600 Speaker 1: pricing in that the regulatory authorities have ring fenced this, 259 00:13:55,080 --> 00:13:59,360 Speaker 1: that they've prevented further deterioration in the system, in the 260 00:13:59,400 --> 00:14:02,440 Speaker 1: banking system. Had there been doubt, you would have seen 261 00:14:02,480 --> 00:14:05,160 Speaker 1: more of a deterioration, but it simply hasn't happened. So 262 00:14:05,200 --> 00:14:08,720 Speaker 1: the equity market is saying, look, you know, the FED 263 00:14:08,880 --> 00:14:12,280 Speaker 1: and the FDIC and the regulatory authorities have done the 264 00:14:12,360 --> 00:14:15,400 Speaker 1: right thing, and they've done it well, and the stragglers 265 00:14:15,480 --> 00:14:18,920 Speaker 1: left will be dealt with all things being equal, then 266 00:14:19,600 --> 00:14:22,480 Speaker 1: is a slower pace of rate hikes and potentially fewer 267 00:14:22,520 --> 00:14:24,360 Speaker 1: of them, which is what people have been expecting and 268 00:14:24,440 --> 00:14:29,840 Speaker 1: pricing in stimulative for risk assets. It will be taken 269 00:14:29,840 --> 00:14:33,080 Speaker 1: as such. It shouldn't be, but it will be taken 270 00:14:33,080 --> 00:14:35,960 Speaker 1: as such. The market is on a hair trigger waiting 271 00:14:36,000 --> 00:14:38,880 Speaker 1: for the pivot, right, I mean, if you think about 272 00:14:39,000 --> 00:14:42,480 Speaker 1: starting less July, it was the pivot, then we pivoted 273 00:14:42,480 --> 00:14:44,240 Speaker 1: from the pivot, then we went back to the pivot, 274 00:14:44,240 --> 00:14:48,360 Speaker 1: then we pivoted from the pivot. It's nuts, It's really nuts. 275 00:14:48,960 --> 00:14:52,120 Speaker 1: I don't understand why that with the six percent inflation, 276 00:14:52,600 --> 00:14:54,800 Speaker 1: the market is not understanding that, actually the FED is 277 00:14:54,800 --> 00:14:56,840 Speaker 1: going to keep on hiking as long as they ring 278 00:14:56,880 --> 00:15:01,040 Speaker 1: fence the stability issue and they it will keep on hiking. 279 00:15:01,160 --> 00:15:02,960 Speaker 1: We're missing a point, aren't We were just kind of 280 00:15:03,000 --> 00:15:05,120 Speaker 1: not trade in the recession. We want to trade the recovery. 281 00:15:05,160 --> 00:15:06,800 Speaker 1: To the recession we haven't had yet. We want the 282 00:15:06,800 --> 00:15:10,480 Speaker 1: trade after the trade, totally right. There's been a different 283 00:15:10,480 --> 00:15:13,600 Speaker 1: trade in the last couple of weeks, and the market 284 00:15:13,640 --> 00:15:16,520 Speaker 1: wants the trade after the trade because it's all happened 285 00:15:16,560 --> 00:15:20,920 Speaker 1: so fast. Think of how quickly those deposits left the bank, right, 286 00:15:20,960 --> 00:15:24,520 Speaker 1: it was people on apps, So the systems moved quicker. 287 00:15:24,800 --> 00:15:28,480 Speaker 1: Trading has moved, quicker. Regimes seem to move quicker, and 288 00:15:28,520 --> 00:15:30,600 Speaker 1: the market wants to price it in before we get 289 00:15:30,600 --> 00:15:32,440 Speaker 1: through the recession. No joke. I think we've had three 290 00:15:32,480 --> 00:15:36,080 Speaker 1: different regimes in the first quarter alone. Just take a 291 00:15:36,080 --> 00:15:37,720 Speaker 1: look a bit two year yield. I mean, we came 292 00:15:37,720 --> 00:15:39,760 Speaker 1: into this year and it was all right, cuts recession. 293 00:15:40,160 --> 00:15:42,760 Speaker 1: Then it was boom, no landing, more hikes maybe six 294 00:15:43,200 --> 00:15:45,880 Speaker 1: and now it's financial instability pause. The hiking cycle is 295 00:15:45,960 --> 00:15:50,560 Speaker 1: over and it's March twenty second. We haven't finished key one, right, 296 00:15:50,840 --> 00:15:53,400 Speaker 1: So the market keeps on pricing in the pivot. That's 297 00:15:53,440 --> 00:15:55,120 Speaker 1: the key thing. We keep on coming back to it. 298 00:15:55,160 --> 00:15:58,680 Speaker 1: We hold thirty eight hundred, we call that level. I 299 00:15:58,760 --> 00:16:01,560 Speaker 1: suspect we keep on bouncing around in this range between 300 00:16:01,600 --> 00:16:05,000 Speaker 1: thirty eight yo hundred. It's going to be a very 301 00:16:05,080 --> 00:16:08,160 Speaker 1: unsatisfying year, because they will be signs that there's some 302 00:16:08,240 --> 00:16:11,120 Speaker 1: credit content contraction along the way. Earns will come down. 303 00:16:11,800 --> 00:16:15,440 Speaker 1: Our portfolios are prepared for that. We thought this six 304 00:16:15,480 --> 00:16:18,200 Speaker 1: months ago. We never believe that there was no landing. 305 00:16:18,240 --> 00:16:20,120 Speaker 1: How do you have no landing when you're hiking like 306 00:16:20,160 --> 00:16:22,680 Speaker 1: this and you start from a nine percent inflation rate? 307 00:16:22,760 --> 00:16:26,600 Speaker 1: Just real quick here, Then what do you tell clients? Look, 308 00:16:26,680 --> 00:16:30,160 Speaker 1: we went we went. We were underweight bonds last year, 309 00:16:30,200 --> 00:16:33,080 Speaker 1: as we should have been. We went neutral umbonds. So 310 00:16:33,160 --> 00:16:37,200 Speaker 1: we increase our waiting to bonds. We are conservative. We 311 00:16:37,240 --> 00:16:39,360 Speaker 1: are telling clients it's going to be very volatile. We 312 00:16:39,400 --> 00:16:42,000 Speaker 1: do think you actually end the year higher than you 313 00:16:42,200 --> 00:16:44,760 Speaker 1: ended twenty twenty two. It's just not going to feel 314 00:16:44,880 --> 00:16:48,480 Speaker 1: very good. So with our higher rating on bonds and 315 00:16:48,600 --> 00:16:51,640 Speaker 1: our neutral unequities, we can pivot around there. But in 316 00:16:51,680 --> 00:16:54,520 Speaker 1: the end, we don't hold cash in our portfolios and 317 00:16:54,600 --> 00:16:57,800 Speaker 1: so we do relative relative trades and we think we're 318 00:16:57,840 --> 00:17:00,040 Speaker 1: well positioned for this. In the end, the call and 319 00:17:00,120 --> 00:17:04,240 Speaker 1: the real economy has been fairly fairly accurate. I'll say 320 00:17:04,280 --> 00:17:07,600 Speaker 1: that it's what the market does with that, which is 321 00:17:07,600 --> 00:17:09,399 Speaker 1: which is always the hot bit, which is always the 322 00:17:09,440 --> 00:17:12,399 Speaker 1: hard bit. But I think that the table pounding on 323 00:17:12,480 --> 00:17:15,119 Speaker 1: bonds is the right call. I'd always prefer to be 324 00:17:15,160 --> 00:17:18,240 Speaker 1: wrong about the economy and just right accidentally about the market, 325 00:17:18,280 --> 00:17:22,200 Speaker 1: that's correct, you know, Yeah, better to be lucky than right, right, Alicia, 326 00:17:22,400 --> 00:17:36,000 Speaker 1: this was great as always, Alicia fbny manon he yields 327 00:17:36,000 --> 00:17:38,199 Speaker 1: climbing just to touch higher. But the round trips that 328 00:17:38,240 --> 00:17:41,640 Speaker 1: we have seen again and again really a head spinning 329 00:17:41,640 --> 00:17:44,639 Speaker 1: for people trying to get their head around where we 330 00:17:44,680 --> 00:17:47,760 Speaker 1: are in terms of a disinflationary course or not. Jonathan 331 00:17:47,800 --> 00:17:50,840 Speaker 1: Pingle among them. He is chief US economist at UBS. 332 00:17:50,960 --> 00:17:53,200 Speaker 1: Joins us. Now, Jonathan, can you give us a sense 333 00:17:53,600 --> 00:17:55,640 Speaker 1: of how much has changed for you over the past 334 00:17:55,720 --> 00:18:00,760 Speaker 1: two weeks? Well, I mean getting the magnitude exactly right 335 00:18:00,960 --> 00:18:03,040 Speaker 1: right now is going to be just about impossible. And 336 00:18:03,080 --> 00:18:04,359 Speaker 1: I know I was listening to some of your earlier 337 00:18:04,400 --> 00:18:07,200 Speaker 1: conversation with Jonathan. I mean, this is one of those 338 00:18:07,240 --> 00:18:09,800 Speaker 1: things where we can definitely sort of sign the effect. 339 00:18:10,000 --> 00:18:12,320 Speaker 1: I mean, if you thought about the First National Bank 340 00:18:12,320 --> 00:18:17,520 Speaker 1: of Pharaoh, maybe they're double checking their liquidity capital levels. 341 00:18:17,880 --> 00:18:19,600 Speaker 1: You know they're gonna you know, they're they're gonna be 342 00:18:19,640 --> 00:18:22,040 Speaker 1: wondering what the bank examiners are looking for next. You know, 343 00:18:22,080 --> 00:18:24,320 Speaker 1: on the margin, this does go This is pretty likely 344 00:18:24,359 --> 00:18:28,520 Speaker 1: to imply tighter credit going forward, when credit was already 345 00:18:28,560 --> 00:18:31,359 Speaker 1: tightening in the US. So you know, we'll be watching 346 00:18:31,400 --> 00:18:33,520 Speaker 1: the same things you all are watching with the H 347 00:18:33,640 --> 00:18:36,080 Speaker 1: eight data, lending data for the provision of credit. But 348 00:18:36,160 --> 00:18:38,919 Speaker 1: certainly it's a net negative in our expectation for the 349 00:18:39,000 --> 00:18:40,919 Speaker 1: US economy. I've heard that the Bank of Faro has 350 00:18:40,960 --> 00:18:43,680 Speaker 1: an unlimited credit line out to ac Milan, but I'm 351 00:18:43,720 --> 00:18:46,080 Speaker 1: not going to confirm that, and that is just according 352 00:18:46,080 --> 00:18:48,840 Speaker 1: to sources. I'm curious though, from your vantage point. We 353 00:18:48,920 --> 00:18:51,720 Speaker 1: heard from a former FED governor this morning that all 354 00:18:51,760 --> 00:18:53,760 Speaker 1: things being equal, this is not a credit problem, that 355 00:18:53,760 --> 00:18:56,159 Speaker 1: there's not necessarily the same degree of credit tightening that 356 00:18:56,160 --> 00:19:00,520 Speaker 1: people are ascribing the recent turmoil to the market, that 357 00:19:00,680 --> 00:19:03,320 Speaker 1: in fact, there still is a very big inflation problem 358 00:19:03,760 --> 00:19:06,480 Speaker 1: on the ground. What data are you looking at for 359 00:19:06,560 --> 00:19:10,280 Speaker 1: your compass amid the noise, Well, you know, we are 360 00:19:10,320 --> 00:19:13,480 Speaker 1: still getting you know, real time weekly data on everything 361 00:19:13,640 --> 00:19:18,160 Speaker 1: from lending, mortgage applications, initial claims. We are getting regular 362 00:19:18,600 --> 00:19:21,760 Speaker 1: you know, price signals from you know, big data sources, 363 00:19:21,760 --> 00:19:25,120 Speaker 1: whether it's air fares used cars, right, So there's still 364 00:19:25,160 --> 00:19:27,960 Speaker 1: a lot of data that's coming in every day that's 365 00:19:28,000 --> 00:19:31,000 Speaker 1: going to allow us to assess, you know, what's unfolding 366 00:19:31,320 --> 00:19:33,719 Speaker 1: and pretty close to real times these days. I mean, 367 00:19:33,720 --> 00:19:35,520 Speaker 1: that was one of the things we really learned during 368 00:19:35,560 --> 00:19:38,640 Speaker 1: the pandemic was you know, the availability of a lot 369 00:19:38,640 --> 00:19:41,080 Speaker 1: of these new data sources. So you know, we are 370 00:19:41,119 --> 00:19:43,879 Speaker 1: watching all of that, um you know, in particular the 371 00:19:43,920 --> 00:19:47,000 Speaker 1: price data. But I think on net you know, we 372 00:19:47,000 --> 00:19:50,399 Speaker 1: were already starting to get bearish or were bearish about 373 00:19:50,400 --> 00:19:54,359 Speaker 1: the US economic outlook considering you know, there were some 374 00:19:54,440 --> 00:19:57,600 Speaker 1: tentative signs that the rebound and data we saw in 375 00:19:57,680 --> 00:20:01,560 Speaker 1: January really wasn't much of a re bound. And I 376 00:20:01,600 --> 00:20:03,879 Speaker 1: think if you really put yourself in the position of 377 00:20:04,840 --> 00:20:08,720 Speaker 1: a bank officer these days, you know, the guests are right. 378 00:20:08,760 --> 00:20:10,040 Speaker 1: I mean, we don't look at this as a giant 379 00:20:10,040 --> 00:20:13,080 Speaker 1: capital hole. It doesn't look like a sudden stop. But 380 00:20:13,200 --> 00:20:16,879 Speaker 1: on the margin, this does seem more likely to imply 381 00:20:17,040 --> 00:20:20,280 Speaker 1: less provision of credit than more, and less credit impulse 382 00:20:20,320 --> 00:20:23,159 Speaker 1: for the economy usually isn't very good for growth, which 383 00:20:23,400 --> 00:20:26,240 Speaker 1: raises also the issue of whether the VENT chair J. 384 00:20:26,320 --> 00:20:29,280 Speaker 1: Powell recognizes us today in the press conference we heard 385 00:20:29,280 --> 00:20:32,320 Speaker 1: from Betsy duca Is referencing her earlier and she said this, 386 00:20:32,680 --> 00:20:35,280 Speaker 1: Chairman Powell was clear he expected the projections to come 387 00:20:35,320 --> 00:20:38,960 Speaker 1: out in the SEP, the Summary of Economic Projections to 388 00:20:39,000 --> 00:20:42,439 Speaker 1: be higher, and I don't see any way that doesn't happen. 389 00:20:42,480 --> 00:20:44,360 Speaker 1: And she thinks that's going to be the big surprise 390 00:20:44,440 --> 00:20:47,080 Speaker 1: of today's press conference. Can you give us a sense 391 00:20:47,240 --> 00:20:49,879 Speaker 1: of how much you agree with that and what that 392 00:20:49,920 --> 00:20:53,000 Speaker 1: would mean for your estimates of how quickly recession would 393 00:20:53,000 --> 00:20:56,719 Speaker 1: take hold. Well, we do think that a they're going 394 00:20:56,760 --> 00:20:59,800 Speaker 1: to raise raise twenty five basis points at today's meeting, 395 00:21:00,040 --> 00:21:02,679 Speaker 1: and we do think that, you know, the median the 396 00:21:02,760 --> 00:21:05,520 Speaker 1: median DOT is going to revise up for twenty twenty 397 00:21:05,520 --> 00:21:08,320 Speaker 1: three by twenty five basis points compared to the December SEP. 398 00:21:08,640 --> 00:21:13,520 Speaker 1: So that might sound hawkish and it might be a surprise, 399 00:21:13,640 --> 00:21:17,440 Speaker 1: but we also think this comes with very data dependent language. 400 00:21:17,440 --> 00:21:19,160 Speaker 1: I mean, we think they are going to put right 401 00:21:19,240 --> 00:21:22,920 Speaker 1: in the statement something along the lines of at any 402 00:21:22,960 --> 00:21:26,920 Speaker 1: additional or any further increases in the target range will 403 00:21:26,960 --> 00:21:30,800 Speaker 1: be dependent upon economic data and implications for the outlook. 404 00:21:30,880 --> 00:21:33,760 Speaker 1: So I think when cher Powell frames the sep he 405 00:21:33,840 --> 00:21:35,760 Speaker 1: is going to frame it as and he's done this 406 00:21:35,800 --> 00:21:37,320 Speaker 1: in the past. He doesn't you know, it's not a 407 00:21:37,320 --> 00:21:40,240 Speaker 1: commitment device in his view, and he's been quite frank 408 00:21:40,280 --> 00:21:44,480 Speaker 1: about that. So we are expecting him to acknowledge that 409 00:21:44,560 --> 00:21:46,560 Speaker 1: base case for the committee. You know, they do need 410 00:21:46,600 --> 00:21:50,199 Speaker 1: to fight inflation, but we do expect him to admit 411 00:21:50,280 --> 00:21:53,240 Speaker 1: that this does depend upon, you know, how events on 412 00:21:53,359 --> 00:21:57,040 Speaker 1: fold going forward. Now going to the credit impulse, though, 413 00:21:57,359 --> 00:21:59,040 Speaker 1: we also do think he is going to make a 414 00:21:59,200 --> 00:22:03,159 Speaker 1: strong has that the banking system is resilient, safe, sound, 415 00:22:03,240 --> 00:22:06,560 Speaker 1: and well capitalized. So while he is going to deliver 416 00:22:06,640 --> 00:22:11,480 Speaker 1: this message of monitoring considering credit conditions, he is going 417 00:22:11,520 --> 00:22:16,399 Speaker 1: to I think, you know, on equivocally sound a confident 418 00:22:16,440 --> 00:22:20,439 Speaker 1: tone about the banks, which comes in tandem his conversation, 419 00:22:20,720 --> 00:22:22,520 Speaker 1: in tandem with what we're going to be hearing from 420 00:22:22,520 --> 00:22:25,399 Speaker 1: Treasury Secretary Jennet Yellen, and she testifies in front of 421 00:22:25,400 --> 00:22:27,000 Speaker 1: its Senate panel, so they have to be on the 422 00:22:27,040 --> 00:22:28,760 Speaker 1: same page as we were talking about earlier, and they're 423 00:22:28,760 --> 00:22:31,679 Speaker 1: probably going to speak to that same issue. Though we 424 00:22:31,720 --> 00:22:34,440 Speaker 1: are looking right now at a market that has repriced 425 00:22:34,440 --> 00:22:37,560 Speaker 1: in rate hikes and then repriced in rate cuts. And 426 00:22:37,600 --> 00:22:39,400 Speaker 1: it's been this sort of ping pong match, as we've 427 00:22:39,400 --> 00:22:41,720 Speaker 1: been talking about for a while between that right now 428 00:22:41,800 --> 00:22:44,240 Speaker 1: still pricing in cuts before the end of this year. 429 00:22:44,320 --> 00:22:47,760 Speaker 1: Do you think that that's premature based on the rhetoric 430 00:22:47,840 --> 00:22:52,320 Speaker 1: and based on the economic data that you're seeing come out, Well, 431 00:22:52,359 --> 00:22:56,280 Speaker 1: the economic data would not on its surface imply the 432 00:22:56,280 --> 00:22:58,280 Speaker 1: Fed should be cutting later this year. I mean, you know, 433 00:22:58,359 --> 00:23:02,159 Speaker 1: our forecast for corep see inflation for you know, a 434 00:23:02,200 --> 00:23:03,720 Speaker 1: week from now, is that it's still going to be 435 00:23:03,800 --> 00:23:07,359 Speaker 1: hung up at about four point seven percent. But you know, 436 00:23:07,440 --> 00:23:10,280 Speaker 1: we are forecasting that the FED is going to be 437 00:23:10,320 --> 00:23:13,320 Speaker 1: cutting rates later this year because you know, we do 438 00:23:13,400 --> 00:23:15,840 Speaker 1: expect a certain amount of disinflation to be setting in 439 00:23:15,880 --> 00:23:18,199 Speaker 1: as we roll through the middle of the year, and 440 00:23:18,240 --> 00:23:20,159 Speaker 1: we expect to see a much weaker economy in the 441 00:23:20,160 --> 00:23:23,520 Speaker 1: second half than the first half. So you know, so, 442 00:23:23,680 --> 00:23:26,119 Speaker 1: I mean, if you're looking at you know, you know 443 00:23:26,480 --> 00:23:29,280 Speaker 1: we have low claims, yes, we have you know, elevated 444 00:23:29,320 --> 00:23:33,680 Speaker 1: inflation right now, but our expectation is, you know, what's 445 00:23:33,680 --> 00:23:36,000 Speaker 1: been put in train with the rate hikes already, what 446 00:23:36,040 --> 00:23:39,199 Speaker 1: we're seeing in credit conditions is going to lead to 447 00:23:39,240 --> 00:23:42,360 Speaker 1: a meaningful slowdown later this year, Jonathan, how many times 448 00:23:42,400 --> 00:23:46,560 Speaker 1: this year have you changed your forecasts? Now? We haven't 449 00:23:46,600 --> 00:23:48,919 Speaker 1: changed it a whole lot since last November. Um. I 450 00:23:48,920 --> 00:23:51,239 Speaker 1: mean the main thing we've changed in our forecast was 451 00:23:51,880 --> 00:23:55,240 Speaker 1: taking on board the upside surprise in the January employment report, 452 00:23:55,280 --> 00:23:57,800 Speaker 1: and we did have to nudge up our inflation projections 453 00:23:58,480 --> 00:24:02,119 Speaker 1: in a report this week as the incoming January February data. 454 00:24:02,240 --> 00:24:06,199 Speaker 1: But you know, the broad contour of GDP and the 455 00:24:06,240 --> 00:24:08,960 Speaker 1: slowdown expect in the second half of the years really 456 00:24:09,000 --> 00:24:11,720 Speaker 1: been pretty much the same since we've made a pretty 457 00:24:11,720 --> 00:24:15,520 Speaker 1: big overhaul in the projections back in November where we 458 00:24:15,560 --> 00:24:18,600 Speaker 1: switched from expecting a soft landing to expecting a hard landing. 459 00:24:18,720 --> 00:24:20,560 Speaker 1: So how many times have you thrown up your hands 460 00:24:20,600 --> 00:24:23,679 Speaker 1: in frustration at the narrative changes that you've heard on 461 00:24:23,760 --> 00:24:26,159 Speaker 1: Wall Street that have really informed what you're seeing in 462 00:24:26,200 --> 00:24:29,959 Speaker 1: market pricing? Well, I mean throwing up my hands as 463 00:24:29,960 --> 00:24:31,679 Speaker 1: opposed to you know, you go from times where you 464 00:24:31,720 --> 00:24:34,400 Speaker 1: look like you're doing well to you know, the heaps 465 00:24:34,440 --> 00:24:38,240 Speaker 1: of criticism being layered upon you. But you know, but 466 00:24:38,960 --> 00:24:41,200 Speaker 1: the data is not going to go in a linear direction. 467 00:24:41,280 --> 00:24:43,040 Speaker 1: I mean, I think for me, the big surprise was 468 00:24:43,080 --> 00:24:46,119 Speaker 1: forecasting a two hundred and ninety thousand gain in the 469 00:24:46,200 --> 00:24:49,800 Speaker 1: January employment report and then seeing five seventeen and falling 470 00:24:49,800 --> 00:24:53,000 Speaker 1: out of my chair. But you know, you know, we've 471 00:24:53,040 --> 00:24:54,920 Speaker 1: been doing this a long time. You know, high frequency 472 00:24:54,960 --> 00:24:58,960 Speaker 1: forecasting is difficult. There are surprises along the way. But 473 00:24:59,040 --> 00:25:01,600 Speaker 1: I do think if we think now the starting point 474 00:25:01,640 --> 00:25:04,359 Speaker 1: of the US economy, where the level of activity has 475 00:25:04,400 --> 00:25:08,000 Speaker 1: been pushed up very high by the fiscal stimulus, that's faded. 476 00:25:08,600 --> 00:25:12,520 Speaker 1: We have undergone a very rapid monetary policy tightening cycle, 477 00:25:13,160 --> 00:25:15,200 Speaker 1: and you know, we're getting to a point now in 478 00:25:15,240 --> 00:25:17,200 Speaker 1: the labor market where there's sort of more and more 479 00:25:17,320 --> 00:25:20,679 Speaker 1: signs that hiring is kind of caught up with activity. 480 00:25:21,200 --> 00:25:23,040 Speaker 1: You know, I think you're at a point now where, 481 00:25:23,600 --> 00:25:26,439 Speaker 1: you know, further fiscal drag and some head wins for 482 00:25:26,480 --> 00:25:30,320 Speaker 1: households this year, the ongoing impact of the monetary policy tightening, 483 00:25:30,560 --> 00:25:33,720 Speaker 1: I think all points to a week or second half. 484 00:25:34,280 --> 00:25:36,000 Speaker 1: Jonathan Pingle, thank you so much for being with us. 485 00:25:36,080 --> 00:25:43,040 Speaker 1: Jonathan Pingle of UBS. Imagine turning up to the Federal 486 00:25:43,080 --> 00:25:45,920 Speaker 1: Reserve in August two thousand, A night that was Betsy Joe, 487 00:25:45,960 --> 00:25:49,000 Speaker 1: the former Fed governor, Betsy Joints, right, now, Betsy, can 488 00:25:49,040 --> 00:25:50,880 Speaker 1: we start there? Can you describe what that was like 489 00:25:51,240 --> 00:25:54,400 Speaker 1: starting on the Federal Reserve in August two thousand a night, 490 00:25:55,119 --> 00:25:57,399 Speaker 1: So it was August two thousand and eight. I was 491 00:25:57,440 --> 00:26:01,680 Speaker 1: sworn in about thirty minutes before my first FOMC meeting, 492 00:26:01,960 --> 00:26:04,720 Speaker 1: which was the last normal FOMC meeting there ever was. 493 00:26:05,560 --> 00:26:09,400 Speaker 1: And after my second f OMC meeting, we went into 494 00:26:09,440 --> 00:26:11,920 Speaker 1: the Chairman's office and voted to lend eighty five billion 495 00:26:11,960 --> 00:26:16,480 Speaker 1: dollars to AIG. So that's how I started my FED career. Well, Bessie, 496 00:26:16,520 --> 00:26:18,640 Speaker 1: can you tell me how different this moment is relative 497 00:26:18,720 --> 00:26:23,239 Speaker 1: to what you went through or those years ago? You know, 498 00:26:23,320 --> 00:26:27,359 Speaker 1: it's different, but it's it's the same. You know, the 499 00:26:27,440 --> 00:26:31,200 Speaker 1: Fed's job stays the Fed's job, regardless of what the 500 00:26:32,040 --> 00:26:35,399 Speaker 1: current events are, whatever the crisis of the day, the 501 00:26:35,480 --> 00:26:37,760 Speaker 1: FED has to keep its eye on what its job 502 00:26:37,800 --> 00:26:41,000 Speaker 1: actually is. Well, let's talk about what its job actually is. 503 00:26:41,000 --> 00:26:44,520 Speaker 1: There are dual mandates. One of them is inflation. That 504 00:26:44,600 --> 00:26:47,080 Speaker 1: is the first and foremost one, but it's also oversight. 505 00:26:47,160 --> 00:26:50,000 Speaker 1: How much has a lack of supervision over certain banks 506 00:26:50,040 --> 00:26:53,760 Speaker 1: complicated their role right now? I think supervision has been 507 00:26:53,800 --> 00:26:58,080 Speaker 1: a complicated factor and I think it's supervision, not regulation. 508 00:26:58,560 --> 00:27:02,879 Speaker 1: Those terms are off and used interchangeably, but regulation applies 509 00:27:02,920 --> 00:27:06,160 Speaker 1: to the rules of the road, if you were Supervision 510 00:27:06,520 --> 00:27:09,680 Speaker 1: is being in the banks, paying attention to what's happening 511 00:27:09,960 --> 00:27:12,879 Speaker 1: at each individual banks, not to banks as a whole. 512 00:27:13,200 --> 00:27:16,200 Speaker 1: And that's where it seems to me that the problem lies. 513 00:27:16,400 --> 00:27:18,920 Speaker 1: And this raises a question about how much signal there 514 00:27:19,000 --> 00:27:22,119 Speaker 1: is from a federal Reserve where the chair went before 515 00:27:22,200 --> 00:27:25,080 Speaker 1: Congress and really opened the door to a fifty basis 516 00:27:25,080 --> 00:27:28,080 Speaker 1: point rate hike just days before collapse of one of 517 00:27:28,080 --> 00:27:31,280 Speaker 1: the biggest banks, going back to the financial crisis. I'm 518 00:27:31,320 --> 00:27:33,600 Speaker 1: curious what you make of that and how much signal 519 00:27:33,640 --> 00:27:36,240 Speaker 1: there will be in terms of their visibility and other 520 00:27:36,320 --> 00:27:40,320 Speaker 1: problems in the banking sector today. So the role of 521 00:27:40,359 --> 00:27:43,000 Speaker 1: monetary policy is not to protect the balance sheet of 522 00:27:43,040 --> 00:27:45,800 Speaker 1: the banks, and the tools that the FED has to 523 00:27:45,880 --> 00:27:49,719 Speaker 1: deal with the financial system are very different than the 524 00:27:49,760 --> 00:27:53,560 Speaker 1: tools that the FED uses in monetary policy. So the 525 00:27:53,560 --> 00:27:57,200 Speaker 1: primary tool in the financial system is the fedsibility to lend. 526 00:27:57,320 --> 00:28:01,720 Speaker 1: That's why the FED was established to lend in liquidity crises, 527 00:28:01,800 --> 00:28:07,280 Speaker 1: which which at its core is so the facility that 528 00:28:07,359 --> 00:28:13,359 Speaker 1: they established the weekend after SVB failed is right in 529 00:28:13,400 --> 00:28:16,280 Speaker 1: their wheelhouse. That is their primary tool for dealing with 530 00:28:16,320 --> 00:28:18,920 Speaker 1: financial stability. A lot of people I think they'll separate 531 00:28:18,960 --> 00:28:21,280 Speaker 1: it from from the monetary policy decision. A lot of 532 00:28:21,320 --> 00:28:24,000 Speaker 1: people argue that it's not quantitative easing, that this is 533 00:28:24,040 --> 00:28:26,440 Speaker 1: not a reversal of quantitative tightening. That yes, the balance 534 00:28:26,480 --> 00:28:28,280 Speaker 1: sheet rowse by three hundred billion dollars, but it's a 535 00:28:28,280 --> 00:28:32,400 Speaker 1: different mechanism. It's not buying, it's lending. It's a different 536 00:28:32,440 --> 00:28:35,200 Speaker 1: type of stimulative effect. Do you draw the same distinction 537 00:28:35,320 --> 00:28:37,080 Speaker 1: or do you think that this is basically the end 538 00:28:37,320 --> 00:28:42,640 Speaker 1: of quantitative tightening. Actually, they would have to offset the 539 00:28:43,080 --> 00:28:47,280 Speaker 1: increase coming from the loans with a further sale of 540 00:28:47,280 --> 00:28:51,320 Speaker 1: the securities on the balance sheet to offset the quantitative 541 00:28:51,360 --> 00:28:53,960 Speaker 1: easing if you will, that's going to result from the 542 00:28:54,000 --> 00:28:59,000 Speaker 1: balance sheet growing because of of the loans that they're making. 543 00:28:59,080 --> 00:29:01,560 Speaker 1: If you go back to again two thousand and eight, 544 00:29:02,400 --> 00:29:06,440 Speaker 1: the whole quwe one was not actually did not change 545 00:29:06,480 --> 00:29:09,760 Speaker 1: the size of the FATS balance sheet at all. It 546 00:29:09,920 --> 00:29:13,840 Speaker 1: simply replaced the lending that the bank had done during 547 00:29:13,880 --> 00:29:18,400 Speaker 1: the crisis with security, so it kept the FATS balance 548 00:29:18,400 --> 00:29:22,000 Speaker 1: sheet from contracting but it didn't expand the FATS balance sheet. 549 00:29:22,000 --> 00:29:24,440 Speaker 1: It wasn't until QUE two and three that the FATZ 550 00:29:24,480 --> 00:29:26,760 Speaker 1: balance sheets started to expand, Betsie. A lot of the 551 00:29:26,840 --> 00:29:29,720 Speaker 1: post crisis apparatus that the Federal Reserve came up with 552 00:29:30,440 --> 00:29:33,440 Speaker 1: was designed to communicate low for longer. The dot plot 553 00:29:33,480 --> 00:29:35,560 Speaker 1: was an effective tool to do that. You could just 554 00:29:35,600 --> 00:29:38,080 Speaker 1: show going out years that we weren't looking to raise 555 00:29:38,160 --> 00:29:41,200 Speaker 1: hikes hike rates for a long long time. Betsy, how 556 00:29:41,240 --> 00:29:43,920 Speaker 1: do you think that dots will be used today for signaling? 557 00:29:45,320 --> 00:29:50,200 Speaker 1: So at his last press conference, Chairman Powell was very 558 00:29:50,320 --> 00:29:53,680 Speaker 1: very clear that he expected the projections to come out 559 00:29:53,760 --> 00:29:57,400 Speaker 1: in the SEP, the Summary of Economic Projections. He expected 560 00:29:57,680 --> 00:30:01,080 Speaker 1: those dots to be higher with the new projections. And 561 00:30:01,120 --> 00:30:03,800 Speaker 1: I don't see any way that that doesn't happen. So 562 00:30:04,960 --> 00:30:08,000 Speaker 1: the decision in the room needs to for FED credibility, 563 00:30:08,040 --> 00:30:10,920 Speaker 1: I think needs to match what its projections are. So 564 00:30:11,040 --> 00:30:14,640 Speaker 1: I would focus not just on what the decision is today, 565 00:30:15,120 --> 00:30:17,720 Speaker 1: but what are those projections say about what the terminal 566 00:30:17,800 --> 00:30:19,600 Speaker 1: rate is? And I think that's going to be the 567 00:30:19,640 --> 00:30:22,680 Speaker 1: big surprise, Betsy. You think that they're going to increase 568 00:30:23,120 --> 00:30:26,040 Speaker 1: those dots, They're going to increase the projection of where 569 00:30:26,080 --> 00:30:28,920 Speaker 1: Fed funds rates will ultimately end up despite some of 570 00:30:28,920 --> 00:30:32,600 Speaker 1: the turmoil recently. What's going to be the justification for that? 571 00:30:32,680 --> 00:30:35,000 Speaker 1: Are they going to double down on this idea of 572 00:30:35,040 --> 00:30:37,600 Speaker 1: inflation and that where we still haven't gotten restrictive enough 573 00:30:37,960 --> 00:30:41,640 Speaker 1: despite signs of credit tightening that has been accelerated over 574 00:30:41,640 --> 00:30:44,720 Speaker 1: the past few weeks. Well, the way I interpreted the 575 00:30:44,840 --> 00:30:49,280 Speaker 1: comments was that the expectation was that that inflation would 576 00:30:49,320 --> 00:30:52,680 Speaker 1: come down more slowly than they had expected, and the 577 00:30:52,720 --> 00:30:55,959 Speaker 1: dots come from expectations of inflation. If you remember, there 578 00:30:56,000 --> 00:30:58,840 Speaker 1: was a lot of discussion in that press conference, and 579 00:30:58,920 --> 00:31:01,080 Speaker 1: at one point Chairman Pals said, you know, my forecast 580 00:31:01,200 --> 00:31:04,360 Speaker 1: is different than yours. If your forecast is right, your 581 00:31:04,880 --> 00:31:07,360 Speaker 1: rate projection will be right. But if my forecast is right, 582 00:31:07,800 --> 00:31:10,200 Speaker 1: then your rate forecast is going to be wrong. And 583 00:31:10,880 --> 00:31:13,960 Speaker 1: I think it would be a mistake to not remember 584 00:31:13,960 --> 00:31:15,840 Speaker 1: that and not pay attention to it. But see, just 585 00:31:15,880 --> 00:31:18,400 Speaker 1: one final thing. One thing we've talked about over the 586 00:31:18,480 --> 00:31:20,480 Speaker 1: last couple of weeks is whether the FED knows things 587 00:31:20,480 --> 00:31:23,320 Speaker 1: that we don't know when it comes to financial stability. 588 00:31:23,440 --> 00:31:26,080 Speaker 1: When you watch the news conference later, are we watching 589 00:31:26,120 --> 00:31:28,960 Speaker 1: a chairman that knows things that we don't know about 590 00:31:28,960 --> 00:31:34,840 Speaker 1: a financial system. I think you will find that he 591 00:31:34,960 --> 00:31:37,920 Speaker 1: probably he certainly knows things that we don't know. But 592 00:31:38,240 --> 00:31:40,720 Speaker 1: whether they are things he's trying to hide, I don't 593 00:31:40,760 --> 00:31:44,400 Speaker 1: think that's necessarily true. Again, his credibility is his most 594 00:31:44,480 --> 00:31:48,040 Speaker 1: important asset, and so he's not going to be trying 595 00:31:48,040 --> 00:31:50,040 Speaker 1: to hide anything. But when they talk about the strength 596 00:31:50,080 --> 00:31:52,680 Speaker 1: of the banking industry right now, the banks are strong, 597 00:31:52,760 --> 00:31:59,200 Speaker 1: capital strong, asset quality is extremely good. This is this 598 00:31:59,240 --> 00:32:03,040 Speaker 1: is an interest rate risk issue, a liquidity issue, and 599 00:32:03,440 --> 00:32:06,040 Speaker 1: you know it goes back to the basics of banking. 600 00:32:06,080 --> 00:32:08,360 Speaker 1: This is more like the S and L crisis than 601 00:32:08,400 --> 00:32:10,040 Speaker 1: it is like two thousand and eight. What are the 602 00:32:10,040 --> 00:32:12,240 Speaker 1: flows of information that the FED has access to in 603 00:32:12,280 --> 00:32:20,120 Speaker 1: real time that we don't see bet Sea, I don't 604 00:32:20,200 --> 00:32:23,480 Speaker 1: know how much it's really that different. I mean, they 605 00:32:23,520 --> 00:32:25,960 Speaker 1: get a lot of information, and you have a staff 606 00:32:26,000 --> 00:32:29,680 Speaker 1: that compiles that information and reports it out on a 607 00:32:29,760 --> 00:32:34,280 Speaker 1: regular basis. The banking information is going to be coming 608 00:32:34,320 --> 00:32:39,360 Speaker 1: through the supervisory activities in the reserve banks, and my 609 00:32:39,440 --> 00:32:43,600 Speaker 1: guess is right now that the supervisors are in every 610 00:32:43,640 --> 00:32:47,280 Speaker 1: bank looking to see what the liquidity risk management looks like, 611 00:32:47,480 --> 00:32:50,440 Speaker 1: what does the interest rate risk management look like? And 612 00:32:50,480 --> 00:32:53,440 Speaker 1: what does the capital look like? Because you can plug 613 00:32:53,440 --> 00:32:57,400 Speaker 1: a temporary liquidity hall with borrowing that the Fed's doing, 614 00:32:57,960 --> 00:33:01,040 Speaker 1: and that will keep banks from having to sell the 615 00:33:01,160 --> 00:33:05,280 Speaker 1: securities that they own. But if those deposits are gone forever, 616 00:33:05,440 --> 00:33:09,360 Speaker 1: if there's a shift in the industry from the smaller 617 00:33:09,400 --> 00:33:11,920 Speaker 1: banks to the larger banks and it remains permanent, then 618 00:33:11,920 --> 00:33:15,680 Speaker 1: that's a problem for the smaller bank portion of the industry. Basie, 619 00:33:15,720 --> 00:33:17,760 Speaker 1: this was wonderful. I'd love to do this again ahead 620 00:33:17,760 --> 00:33:20,200 Speaker 1: of the next FET decision. Thank you, all right, Bessie 621 00:33:20,240 --> 00:33:33,120 Speaker 1: to thank you the former fat governor. The next guest 622 00:33:33,320 --> 00:33:36,920 Speaker 1: is really someone with tremendous experience both from the Treasure Department, 623 00:33:37,200 --> 00:33:41,880 Speaker 1: World Bank and also in the banking industry extensively. David Malpass, 624 00:33:42,040 --> 00:33:45,440 Speaker 1: who is World Bank Press, joining us here in our studios. 625 00:33:45,480 --> 00:33:47,360 Speaker 1: I want to start because a lot of people who 626 00:33:47,480 --> 00:33:50,479 Speaker 1: draw parallels to two thousand and eight, and given your 627 00:33:50,520 --> 00:33:53,720 Speaker 1: experience there, you were chief economists, top rated economist at 628 00:33:53,800 --> 00:33:57,680 Speaker 1: bear Stearns. Are there parallels to that moment and the 629 00:33:57,720 --> 00:34:01,360 Speaker 1: one we're in now. I think there are parallels and differences. 630 00:34:01,400 --> 00:34:04,680 Speaker 1: The parallels are there was really a maturity mismatch at 631 00:34:04,760 --> 00:34:08,880 Speaker 1: some institutions, and the FET had been raising rates, remember 632 00:34:08,880 --> 00:34:12,600 Speaker 1: a long period of rate hiking leading into oh eight. 633 00:34:13,960 --> 00:34:18,080 Speaker 1: But then some big differences. One is this time the 634 00:34:18,320 --> 00:34:23,560 Speaker 1: discount windows available to the major institutions. That wasn't the 635 00:34:23,600 --> 00:34:26,759 Speaker 1: case then, and so that gives some backstop and you're 636 00:34:26,760 --> 00:34:30,960 Speaker 1: seeing it really play out now. And another big difference 637 00:34:31,280 --> 00:34:34,560 Speaker 1: is the FET itself is buying a huge amounts of 638 00:34:34,640 --> 00:34:37,520 Speaker 1: duration and other central banks are as well, ECB and 639 00:34:37,560 --> 00:34:41,360 Speaker 1: Bank of Japan are holders of giant amounts of duration, 640 00:34:41,960 --> 00:34:44,319 Speaker 1: which wasn't the case in two thousand and eight. They 641 00:34:44,840 --> 00:34:48,960 Speaker 1: at that time, remember, central banks only only owned treasury bills. 642 00:34:49,239 --> 00:34:52,840 Speaker 1: So that creates a different complexion to the market and 643 00:34:52,920 --> 00:34:56,920 Speaker 1: a different set of tools that the regulators have to intervene. 644 00:34:57,840 --> 00:35:00,920 Speaker 1: So today I think the biggest shoe is where is 645 00:35:00,960 --> 00:35:03,600 Speaker 1: growth going to come from into the future. Before we 646 00:35:03,640 --> 00:35:05,399 Speaker 1: get to that point, I know you want to bleed 647 00:35:05,440 --> 00:35:06,880 Speaker 1: that over into the rest of the world, which is 648 00:35:06,880 --> 00:35:09,520 Speaker 1: an important point. I want to talk about the similarities. 649 00:35:09,560 --> 00:35:12,080 Speaker 1: You talk about a liquidity mismatch. A lot of people 650 00:35:12,160 --> 00:35:15,560 Speaker 1: draw the distinction a liquidity mismatch is not a credit 651 00:35:15,600 --> 00:35:18,160 Speaker 1: crisis is not a credit crunch. But back in two 652 00:35:18,160 --> 00:35:20,480 Speaker 1: thousand and eight, and actually I would argue earlier, the 653 00:35:20,560 --> 00:35:25,040 Speaker 1: liquidity mismatch led to a credit crunch. How close is 654 00:35:25,120 --> 00:35:28,680 Speaker 1: that sort of direct parallel? This sort of direct bleed 655 00:35:28,680 --> 00:35:33,959 Speaker 1: over into credit conditions. As interest rates are held down, 656 00:35:34,120 --> 00:35:36,840 Speaker 1: which was the case in oh four, oh five, oh six, 657 00:35:36,880 --> 00:35:40,560 Speaker 1: and now in this current or over the last ten years, 658 00:35:40,800 --> 00:35:43,799 Speaker 1: then that causes asset prices to go up. So there's 659 00:35:43,800 --> 00:35:47,520 Speaker 1: a workout period after that. So I think that's what 660 00:35:47,560 --> 00:35:50,839 Speaker 1: we're in now. How do you adjust asset prices if 661 00:35:51,000 --> 00:35:53,160 Speaker 1: yields are going to be much higher than what you 662 00:35:53,280 --> 00:35:56,359 Speaker 1: thought two years ago or one year ago. And that's 663 00:35:56,400 --> 00:35:59,520 Speaker 1: the challenge facing the market. How do you allocate the losses? 664 00:35:59,800 --> 00:36:02,759 Speaker 1: I'm hoping that they don't go to the poor, to 665 00:36:03,000 --> 00:36:07,239 Speaker 1: developing countries and to average taxpayers. That an issue is 666 00:36:07,280 --> 00:36:13,200 Speaker 1: if you've created all that asset price boom, can the 667 00:36:13,280 --> 00:36:17,520 Speaker 1: losses be allocated back into the same markets? And that's 668 00:36:17,560 --> 00:36:20,239 Speaker 1: a big challenge. So could you elaborate a little bit 669 00:36:20,400 --> 00:36:24,240 Speaker 1: on the disproportionate holding of the burden that you see 670 00:36:24,480 --> 00:36:27,200 Speaker 1: in some of the developing nations that may affect the 671 00:36:27,239 --> 00:36:30,680 Speaker 1: growth profile of the world. Over the last ten years 672 00:36:30,760 --> 00:36:33,960 Speaker 1: or so, there was this big concentration of wealth in 673 00:36:34,000 --> 00:36:37,120 Speaker 1: and narrow group in the advanced economies that was fueled 674 00:36:37,560 --> 00:36:40,520 Speaker 1: by both the fiscal deficits, the huge run up in 675 00:36:40,560 --> 00:36:45,280 Speaker 1: the debts across the advanced economies, and also the central 676 00:36:45,280 --> 00:36:50,400 Speaker 1: banks themselves buying duration that supports asset prices. Long term 677 00:36:50,440 --> 00:36:54,239 Speaker 1: assets go up when there is a giant buyer constant 678 00:36:54,280 --> 00:36:58,719 Speaker 1: buyer of those assets, and so that leaves not enough 679 00:36:58,760 --> 00:37:01,880 Speaker 1: capital elsewhere in the world. We've seen the slow growth 680 00:37:01,880 --> 00:37:06,080 Speaker 1: in developing countries in part because there's not good access 681 00:37:06,120 --> 00:37:10,120 Speaker 1: to global capital markets. And now going forward the challenges. 682 00:37:10,360 --> 00:37:12,520 Speaker 1: A lot of the world's capital is going to be 683 00:37:12,680 --> 00:37:16,279 Speaker 1: used by the advanced economies to keep rolling over the debt. 684 00:37:16,960 --> 00:37:19,840 Speaker 1: So a big challenge for billions of people around the 685 00:37:19,880 --> 00:37:23,160 Speaker 1: world is where is there going to be available capital. 686 00:37:23,239 --> 00:37:26,880 Speaker 1: They have this big population growth in many countries, and 687 00:37:27,000 --> 00:37:30,840 Speaker 1: yet the capital goes to countries that have declining populations. 688 00:37:31,080 --> 00:37:33,840 Speaker 1: So how much does that lowerer projection for global growth 689 00:37:34,160 --> 00:37:36,080 Speaker 1: and how much has that lowered it? Even over the 690 00:37:36,120 --> 00:37:40,319 Speaker 1: past couple of months, we had lowered it substantially a 691 00:37:40,400 --> 00:37:43,600 Speaker 1: year or a year and a half ago, recognizing that 692 00:37:43,640 --> 00:37:47,080 Speaker 1: there was inflation really was a challenge that the central 693 00:37:47,080 --> 00:37:49,880 Speaker 1: banks were going to be raising. Cost of capital goes up, 694 00:37:49,880 --> 00:37:53,120 Speaker 1: so growth forecasts go down. So in the latest what 695 00:37:53,120 --> 00:37:56,960 Speaker 1: we've seen is advanced economy growth expectations had gone up 696 00:37:57,400 --> 00:38:00,880 Speaker 1: some late last year. That's the US and in particular 697 00:38:01,320 --> 00:38:06,880 Speaker 1: as China lifted the embargo, the lockdown, and so as 698 00:38:07,440 --> 00:38:11,040 Speaker 1: we're looking at it now, the growth is slow but 699 00:38:11,280 --> 00:38:15,879 Speaker 1: positive in advanced economies, but in developing countries not much 700 00:38:15,920 --> 00:38:19,080 Speaker 1: investment taking place. That I think is the big challenge. 701 00:38:19,160 --> 00:38:22,440 Speaker 1: I'll be giving a big speech tomorrow at CSIS in Washington, 702 00:38:22,560 --> 00:38:27,359 Speaker 1: DC on the importance of private private capital enabling How 703 00:38:27,800 --> 00:38:30,280 Speaker 1: what are the tools and techniques and the world banks 704 00:38:30,320 --> 00:38:32,360 Speaker 1: in the middle of it trying to get countries to 705 00:38:32,400 --> 00:38:37,080 Speaker 1: be more attractive to capital investment. In the meantime, would 706 00:38:37,080 --> 00:38:39,680 Speaker 1: you get this FED decision later today? How does that 707 00:38:39,760 --> 00:38:42,719 Speaker 1: connect to the stripping out of capital from some of 708 00:38:42,760 --> 00:38:45,200 Speaker 1: the developing world. If the FED does go ahead and 709 00:38:45,280 --> 00:38:48,120 Speaker 1: high rates by twenty five basis points and increase their 710 00:38:48,160 --> 00:38:51,680 Speaker 1: forecast for where the terminal rate ends up, what kind 711 00:38:51,719 --> 00:38:55,240 Speaker 1: of magnified effect could that have? I heard you talking 712 00:38:55,320 --> 00:38:59,040 Speaker 1: before they'll be sending signals of the What the prospect is. 713 00:38:59,280 --> 00:39:03,440 Speaker 1: I think import is for the US and the advanced 714 00:39:03,440 --> 00:39:06,760 Speaker 1: economies to think about how do we encourage more supply 715 00:39:07,040 --> 00:39:09,960 Speaker 1: and that brings down the inflation rate, So central banks 716 00:39:10,000 --> 00:39:14,640 Speaker 1: can be more involved or recognized they are affecting the 717 00:39:14,719 --> 00:39:19,080 Speaker 1: lending that goes to small businesses, and so are the 718 00:39:19,239 --> 00:39:24,279 Speaker 1: ways with regulatory policy or with the bond with this 719 00:39:24,480 --> 00:39:29,800 Speaker 1: duration purchasing that the central banks do. So my view 720 00:39:30,239 --> 00:39:33,799 Speaker 1: is that when central banks by duration, that actually ends 721 00:39:33,880 --> 00:39:36,520 Speaker 1: up slowing growth on average. You know, if you look 722 00:39:36,520 --> 00:39:39,400 Speaker 1: back over the last ten years, there's been this anomaly 723 00:39:39,520 --> 00:39:43,680 Speaker 1: that they're buying huge amounts of bonds and yet you're 724 00:39:43,719 --> 00:39:47,719 Speaker 1: not getting the growth rate that you expected from that. 725 00:39:48,120 --> 00:39:50,200 Speaker 1: So going forward, I think there has to be a 726 00:39:50,239 --> 00:39:52,840 Speaker 1: really deep dive into how do we get more growth 727 00:39:52,880 --> 00:39:56,439 Speaker 1: and capital allocation worldwide? Until then, given that all things 728 00:39:56,480 --> 00:39:58,520 Speaker 1: being equal, a lot of central banks are turned to 729 00:39:58,520 --> 00:40:00,759 Speaker 1: the same playbook and you're actually the balance sheet we 730 00:40:00,800 --> 00:40:05,960 Speaker 1: expand in the US, how slow could global growth get? Yeah, 731 00:40:06,719 --> 00:40:09,680 Speaker 1: I think it can be even a recession, and that's 732 00:40:09,719 --> 00:40:13,759 Speaker 1: not off the table. The last recession. You could have 733 00:40:13,800 --> 00:40:17,200 Speaker 1: a global recession. We define that as when the growth 734 00:40:17,280 --> 00:40:20,960 Speaker 1: rate isn't equivalent to the population growth rate, so you 735 00:40:21,000 --> 00:40:25,279 Speaker 1: have people moving backward on average um. That depends a 736 00:40:25,280 --> 00:40:28,480 Speaker 1: lot on the big on the advanced economies. The US 737 00:40:28,600 --> 00:40:31,759 Speaker 1: is the is the by far the biggest economy, and 738 00:40:31,800 --> 00:40:35,040 Speaker 1: so it's growth rate matters, and so you people are 739 00:40:35,040 --> 00:40:38,680 Speaker 1: watching exactly what's going on in the in the Loan 740 00:40:38,760 --> 00:40:41,799 Speaker 1: Officer survey, for example, there was just a reference to 741 00:40:41,880 --> 00:40:44,560 Speaker 1: that on your show. That's that's an important one our 742 00:40:44,600 --> 00:40:49,160 Speaker 1: banks lending given that they see this, uh, these difficulties. 743 00:40:49,560 --> 00:40:51,920 Speaker 1: So all things being equal, are the chances of a 744 00:40:51,960 --> 00:40:56,359 Speaker 1: global recession much greater today than they were two weeks ago? No, 745 00:40:56,440 --> 00:41:00,920 Speaker 1: I would not say that there was. There was a 746 00:41:01,000 --> 00:41:06,239 Speaker 1: recognition of individual bank problems. They were strongly dealt with 747 00:41:06,480 --> 00:41:10,160 Speaker 1: by regulators. So the bigger issue rather than looking at 748 00:41:10,160 --> 00:41:12,560 Speaker 1: the near term impact, I think we have to just 749 00:41:12,640 --> 00:41:15,200 Speaker 1: stay with the idea of what's going to be done 750 00:41:15,239 --> 00:41:17,879 Speaker 1: for the next three year growth rate of the world. 751 00:41:18,080 --> 00:41:20,600 Speaker 1: How do you get out of this kind of trap 752 00:41:21,000 --> 00:41:25,239 Speaker 1: of higher and higher interest rates? And I think the 753 00:41:25,320 --> 00:41:27,799 Speaker 1: solution has to be more output. How do you how 754 00:41:27,840 --> 00:41:30,320 Speaker 1: do you how do you get more services, more goods 755 00:41:30,560 --> 00:41:33,760 Speaker 1: into the global markets in order to stop the inflation trend. 756 00:41:34,040 --> 00:41:36,120 Speaker 1: Given that, what do you hope j Powell does today? 757 00:41:36,320 --> 00:41:43,120 Speaker 1: Huh No, he's the policy makers to send very strong signals. Well, 758 00:41:43,160 --> 00:41:45,040 Speaker 1: I'm sure, and I'm sure people will read into them. 759 00:41:45,400 --> 00:41:48,080 Speaker 1: And why are you in New York? There's a big 760 00:41:48,160 --> 00:41:52,520 Speaker 1: UN conference today on water. Water is really important, clean 761 00:41:52,600 --> 00:41:56,080 Speaker 1: water for people, it helps children grow to their full height, 762 00:41:56,160 --> 00:42:00,839 Speaker 1: and it helps agriculture be able to produce. So big 763 00:42:00,880 --> 00:42:03,799 Speaker 1: conference on that, and I'm also doing other other Vince 764 00:42:03,840 --> 00:42:05,960 Speaker 1: in New York. David Malpass, thank you so much for 765 00:42:06,000 --> 00:42:08,239 Speaker 1: being with us. We really appreciate it. David Malpass, the 766 00:42:08,280 --> 00:42:11,520 Speaker 1: President of the World Bank. Subscribe to the Bloomberg Surveillance 767 00:42:11,560 --> 00:42:15,120 Speaker 1: podcast on Apple, Spotify and anywhere else you get your podcasts. 768 00:42:15,440 --> 00:42:18,320 Speaker 1: Listen live every weekday starting at seven am Eastern on 769 00:42:18,360 --> 00:42:21,719 Speaker 1: Bloomberg dot Com, the iHeartRadio app, tune In, and the 770 00:42:21,719 --> 00:42:24,960 Speaker 1: Bloomberg Business app. You can watch us live on Bloomberg 771 00:42:25,000 --> 00:42:28,640 Speaker 1: Television and always on the Bloomberg terminal. Thanks for listening. 772 00:42:28,719 --> 00:42:31,040 Speaker 1: I'm Lisa Abramowitz and this is Bloomberg