1 00:00:00,160 --> 00:00:02,440 Speaker 1: Global wall streets paid a lot of attention this week 2 00:00:02,440 --> 00:00:04,600 Speaker 1: to those CPI numbers that came out for the United States. 3 00:00:04,760 --> 00:00:07,600 Speaker 1: Some people are, if not declaring victory, close to declaring 4 00:00:07,680 --> 00:00:09,680 Speaker 1: victory over inflation. Are they premature? 5 00:00:10,280 --> 00:00:12,960 Speaker 2: Look, those were good numbers. Those were better numbers than 6 00:00:13,000 --> 00:00:16,800 Speaker 2: I would have expected, better numbers than I think most 7 00:00:16,840 --> 00:00:22,120 Speaker 2: people would have expected. And I think inflation performance has 8 00:00:22,239 --> 00:00:27,080 Speaker 2: been more favorable certainly that I have expected over the 9 00:00:27,200 --> 00:00:31,800 Speaker 2: last year. I've thought a lot about that, David, and 10 00:00:32,040 --> 00:00:35,640 Speaker 2: I think there are two or three factors to emphasize. 11 00:00:36,520 --> 00:00:41,159 Speaker 2: The first is that policy has been much tighter than 12 00:00:41,320 --> 00:00:46,480 Speaker 2: was anticipated. In July of twenty twenty two, markets were 13 00:00:46,800 --> 00:00:51,320 Speaker 2: assigning a probability of under ten percent to the level 14 00:00:51,360 --> 00:00:56,720 Speaker 2: of tightness in policy that we have seen so far. 15 00:00:56,920 --> 00:01:01,720 Speaker 2: So more tight policy has led to better outcomes on inflation. 16 00:01:02,240 --> 00:01:05,720 Speaker 2: That doesn't mean inflation fears were unwarranted. It means that 17 00:01:06,160 --> 00:01:10,040 Speaker 2: people took the fear seriously, which was good. I think 18 00:01:10,080 --> 00:01:14,399 Speaker 2: that's one important aspect. I do think that given how 19 00:01:14,520 --> 00:01:18,640 Speaker 2: strong the economy has been, there's still a surprise in 20 00:01:18,760 --> 00:01:22,640 Speaker 2: what's happened to inflation, and that I think has to 21 00:01:22,720 --> 00:01:28,319 Speaker 2: do in part with transitory factors, transitory factors that were 22 00:01:28,360 --> 00:01:33,080 Speaker 2: pushing inflation up from bottlenecks that are now mean reverting 23 00:01:33,120 --> 00:01:37,200 Speaker 2: and are pushing inflation down. So I think there's been 24 00:01:37,240 --> 00:01:41,000 Speaker 2: a little bit of prematurity in some of the declarations 25 00:01:41,160 --> 00:01:44,920 Speaker 2: of victory. And I'm not sure the inflation figures over 26 00:01:44,959 --> 00:01:47,240 Speaker 2: the next two years are going to be quite as 27 00:01:47,280 --> 00:01:52,360 Speaker 2: favorable as the market is expecting, especially in light of 28 00:01:52,400 --> 00:01:59,360 Speaker 2: the geopolitical risks around oil and some other commodities. So 29 00:01:59,400 --> 00:02:02,400 Speaker 2: we'll have to say, see whether we're really able to 30 00:02:02,480 --> 00:02:07,640 Speaker 2: get down to two percent quite as easily as many 31 00:02:07,760 --> 00:02:13,040 Speaker 2: people imagine. And that's an aspect of this situation as well. 32 00:02:13,520 --> 00:02:16,640 Speaker 2: And I think the third thing to say, David is 33 00:02:16,720 --> 00:02:21,840 Speaker 2: we don't really have a completely clear sense of where 34 00:02:21,880 --> 00:02:26,320 Speaker 2: the economy is right now and where it's going. So 35 00:02:26,840 --> 00:02:32,440 Speaker 2: I still think a soft landing is a difficult outcome. 36 00:02:32,560 --> 00:02:36,200 Speaker 2: It still would not be my prediction, even as I'd 37 00:02:36,240 --> 00:02:41,360 Speaker 2: recognize that it looks more plausible today than it probably 38 00:02:41,400 --> 00:02:43,880 Speaker 2: did six months or a year ago. 39 00:02:44,440 --> 00:02:47,520 Speaker 1: More plausible. But there are those economists who are warning 40 00:02:47,560 --> 00:02:50,680 Speaker 1: that some indicators actually are tipping more toward recession than 41 00:02:50,720 --> 00:02:53,359 Speaker 1: perhaps the markets are anticipating. For example, the sam rule, 42 00:02:53,360 --> 00:02:55,480 Speaker 1: which is one measure of it is not that far 43 00:02:55,560 --> 00:02:58,200 Speaker 1: away from actually pointing toward recession, and there are other 44 00:02:58,200 --> 00:03:00,360 Speaker 1: indicators as well. What is the risk I now have 45 00:03:00,360 --> 00:03:02,200 Speaker 1: a recession of the first half of next year. 46 00:03:03,960 --> 00:03:08,040 Speaker 2: It's certainly it's certainly under fifty to fifty David. I 47 00:03:08,080 --> 00:03:11,600 Speaker 2: think it's probably on the order of twenty twenty five 48 00:03:13,400 --> 00:03:17,880 Speaker 2: twenty five percent that ultimately something will happen which will 49 00:03:17,919 --> 00:03:24,200 Speaker 2: cause the nber to data recession is having begun in 50 00:03:24,240 --> 00:03:30,040 Speaker 2: the first half of the year. In general, when recessions come, 51 00:03:30,560 --> 00:03:33,400 Speaker 2: we don't even know that we're in them till they've 52 00:03:33,840 --> 00:03:38,960 Speaker 2: been underway for several months, so I think you've got 53 00:03:38,960 --> 00:03:44,080 Speaker 2: to recognize that as a real risk. On the other hand, 54 00:03:44,200 --> 00:03:47,880 Speaker 2: with what we've been seeing in the employment reports, incomes 55 00:03:47,920 --> 00:03:53,320 Speaker 2: are continuing to grow, so I don't think that is 56 00:03:53,480 --> 00:03:59,440 Speaker 2: the preponderant scenario. I was a bit surprised when early 57 00:03:59,480 --> 00:04:04,440 Speaker 2: in the week you saw retail stocks on fire, suggesting 58 00:04:04,520 --> 00:04:09,040 Speaker 2: that the possibility of recession was coming completely out of 59 00:04:09,080 --> 00:04:15,800 Speaker 2: the market. That doesn't seem smart or wise to wise 60 00:04:16,200 --> 00:04:20,640 Speaker 2: to me as a market response. You know, I think 61 00:04:20,720 --> 00:04:27,159 Speaker 2: that some people may have too much confidence in Mother Fed. 62 00:04:27,720 --> 00:04:31,720 Speaker 2: They think that if inflation's low, then the FED will 63 00:04:31,760 --> 00:04:35,120 Speaker 2: be able to prevent any recession. Well, they should remember 64 00:04:35,160 --> 00:04:38,320 Speaker 2: the speeches that they were giving rightly a year or 65 00:04:38,360 --> 00:04:42,960 Speaker 2: two ago about how monetary policy operates with substantial lags. 66 00:04:43,520 --> 00:04:47,839 Speaker 2: And so, I don't know what is exactly in store, 67 00:04:48,360 --> 00:04:51,320 Speaker 2: but to think that if something adverse is in store, 68 00:04:51,800 --> 00:04:55,520 Speaker 2: it can be immediately and completely managed, would, I think, 69 00:04:55,600 --> 00:04:56,520 Speaker 2: be a real mistake.