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Speaker 1: Joining us now to discuss Mohammad al Aaron of Queens College, Cambridge, Mahammed,

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Speaker 1: always great to do this at the end of the

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Speaker 1: week with you. We're entering the choet period. That's the

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Speaker 1: good news. No fair to speak for two weeks given

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Speaker 1: what we've heard over the last few weeks. Mohammad, is

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Speaker 1: that November meeting a live meeting still?

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Speaker 2: No? I mean, I think the Mark is absolutely right

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Speaker 2: in thinking it's the minimus probability that we get a

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Speaker 2: hike in November. You know, John, it's good and bad

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Speaker 2: news that the Fed is going quiet. It's good news

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Speaker 2: because that added to the instability. I was really intrigued

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Speaker 2: yesterday during the event at the Economic Club of New

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Speaker 2: York when the speech was released, the tenure went down

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Speaker 2: below four ninety and stayed there as Chairman Powell was

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Speaker 2: reading the speech, and then when the Q and a started,

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Speaker 2: it got crazy. We saw it go all the way

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Speaker 2: up to four ninety nine and then come back down,

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Speaker 2: And it just shows you that right now it's very

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Speaker 2: hard to strike the right balance when you talking about

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Speaker 2: monetary policy. So it is a good thing that they

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Speaker 2: are going quiet because that's a source of instability. But fundamentally,

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Speaker 2: we need them to stabilize the bond market. The bond

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Speaker 2: market is critical, as you know, for other markets, for

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Speaker 2: the housing market, for the economy, and all this in

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Speaker 2: the US and beyond, and we're not going to get

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Speaker 2: stabilizers from the technical side. We're not going to get

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Speaker 2: stabilizers from the economic side, so we desperately need stabilizers

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Speaker 2: from the policy side.

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Speaker 1: Well, let's talk about where we've been. We were at

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Speaker 1: three point thirty on a ten year in spring of

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Speaker 1: this year, following the collapse of a couple of big banks.

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Speaker 1: How much since then we've had about one hundred and

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Speaker 1: seventy basis points. The question we've had of FED officials

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Speaker 1: now for weeks is whether that's a substitute for further timing.

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Speaker 1: Haven't They basically said that it could be, or at

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Speaker 1: least on the margin.

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Speaker 2: They have, but they don't quite grasp that there's a

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Speaker 2: big difference between the market tightening the long end and

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Speaker 2: they acting on the front end. And just look at

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Speaker 2: the shape of the curve, look at what has happened

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Speaker 2: to US ten year yields relative to Germany. That differential

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Speaker 2: now is at two hundred and five basis points. It's

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Speaker 2: almost double what it was twelve months ago. So yes,

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Speaker 2: it tightens. But it also and that's what the markets

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Speaker 2: are really worried about. It also opens a bigger scope

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Speaker 2: for accidents, for something breaking. In fact, I'm quite struck

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Speaker 2: by how often that phrase something breaking has been said

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Speaker 2: on Doomberg TV and elsewhere.

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Speaker 1: Well, let's get into that. The question I've asked a

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Speaker 1: few times this week, Mohammed, I'd love your response to it.

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Speaker 1: Do you think we fully realize the pain associated with

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Speaker 1: the losses in the long bond, not just in the

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Speaker 1: treasury market but also in buns in guilts worldwide.

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Speaker 2: We haven't. We haven't done. It still hasn't gone through

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Speaker 2: the system. You know, this morning, the thirty year guilt

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Speaker 2: is at the level we haven't seen since nineteen ninety seven,

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Speaker 2: at five point one five percent. There are people holding

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Speaker 2: these instruments and some of them have to be repriced,

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Speaker 2: and there will be implications to that repricing. So we haven't.

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Speaker 2: You know. The biggest risk, and you and I have

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Speaker 2: talked about it, is that what has been relatively contained

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Speaker 2: interest rate risk becomes credit risk and liquidity risk. That

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Speaker 2: is the one thing we're going to avoid and the

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Speaker 2: longer the instability in the bond market continues, the longer

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Speaker 2: we lack anchors, the greater the probability of interest rate

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Speaker 2: risk contaminating other risk factors, particularly credit risk and liquidity risk.

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Speaker 1: Marvid, let's talk about the Fed's job gun into next

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Speaker 1: year and at the moment, how do you weigh this

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Speaker 1: bond market sell off, the tiening this in the pipeline

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Speaker 1: already relative to the incoming data. You've talked a lot

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Speaker 1: about how hyper sensitive this feed is to incoming information

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Speaker 1: and the lack of a strategic view looking out beyond November,

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Speaker 1: beyond December. What needs to take place now?

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Speaker 2: So I think they need to pivot from excessive data

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Speaker 2: dependence to data dependence that has a greater forward looking component.

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Speaker 2: And that's what I was hoping what happened this week,

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Speaker 2: and it hasn't happened. So we are going to remain

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Speaker 2: in the situation of great uncertainty because there is no

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Speaker 2: vision as to where this economy is going. And remember, John,

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Speaker 2: it's not just about the uncertainties to do with financial

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Speaker 2: accidents with the economy. It is about the serious debates

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Speaker 2: and chap out referred to it. Where's our start, what

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Speaker 2: are the lagged effects of monetary tightening? What about QT?

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Speaker 2: What about the monetary policy framework? That's outdated. So there's

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Speaker 2: a lot of things that need to be discussed and

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Speaker 2: fixed in the said complex.

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Speaker 1: Is it a mistake to address that with any kind

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Speaker 1: of vision, Mohammad? When you just don't know, what do

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Speaker 1: you say?

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Speaker 2: You've got to have a vision, John. You cannot drive

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Speaker 2: a car without some understanding of what to road ahead

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Speaker 2: looks like. You can't just look at the review mirror

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Speaker 2: and try to adjust to every curve you just had.

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Speaker 2: That's not how you drive policy, and it's certainly not

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Speaker 2: how you drive policy when the impact of policy happens

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Speaker 2: with the lag. So, yes, you've got to have it.

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Speaker 2: This is the first fat I know that hasn't gotten it.

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Speaker 1: Well, let's go one step further, Man, what would your

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Speaker 1: vision be?

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Speaker 2: So my vision right now, as you know, is that

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Speaker 2: we live in a world where the supply side is

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Speaker 2: a problem. We're living in a world where the US

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Speaker 2: economy is weakening. Therefore, be careful of too much hiking.

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Speaker 2: That's the balance of risk excessive hiking. We still have

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Speaker 2: the lagged defects in the pipeline. We still have the

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Speaker 2: QT effects, so I would be I would make it

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Speaker 2: very clear that I'm unlikely to hike unless I am

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Speaker 2: surprised in a very big way by the lag defects

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Speaker 2: not happening. I would also add that we need to

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Speaker 2: have a discussion about the path to law end because

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Speaker 2: there's a risk that if we try to get to

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Speaker 2: two percent too quickly, we are going to break something

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Speaker 2: in the economy and something in finance because we're not

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Speaker 2: relaxing the supply side problems.

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Speaker 1: Mohammed, always appreciate your perspective. The good news now more

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Speaker 1: fed speak after Saturday, at least for a week or so.

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Speaker 1: Mohammed and Aaron, a good friend of this program and

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Speaker 1: a good friend of mine,