1 00:00:02,360 --> 00:00:09,920 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:36,879 Speaker 2: Terminal and the Bloomberg Business app. We begin this out 10 00:00:36,920 --> 00:00:40,600 Speaker 2: with stocks looking to recover as geopolitics fuels major volatility. 11 00:00:40,760 --> 00:00:43,960 Speaker 2: Sebastian Page of tro Price, writing this the bear case 12 00:00:44,360 --> 00:00:47,040 Speaker 2: is a prolonged war, prolonged closure of the stratiformers, and 13 00:00:47,240 --> 00:00:50,760 Speaker 2: escalating attacks on energy infrastructure. Our Brent range then would 14 00:00:50,760 --> 00:00:53,599 Speaker 2: be one hundred to one twenty. Sebastian joins us now 15 00:00:53,600 --> 00:00:55,840 Speaker 2: for more. So, welcome to the program. That's the bear case? 16 00:00:56,080 --> 00:00:57,040 Speaker 2: What's the base case? 17 00:01:00,120 --> 00:01:03,600 Speaker 3: Our research platform has been on overdrive over the weekend, 18 00:01:03,680 --> 00:01:06,800 Speaker 3: as you can expect, and I've been reading and reading 19 00:01:06,840 --> 00:01:11,280 Speaker 3: the research from our analysts, and John I can say 20 00:01:11,280 --> 00:01:15,040 Speaker 3: there is no base case. It's extremes on both sides. 21 00:01:15,360 --> 00:01:18,680 Speaker 3: I hate saying the range of outcomes is wide because 22 00:01:18,720 --> 00:01:22,800 Speaker 3: it always sounds like an out But we have two scenarios, 23 00:01:22,880 --> 00:01:28,120 Speaker 3: one short, one long, and the short scenario. You know, 24 00:01:28,200 --> 00:01:30,240 Speaker 3: I think the Wall Street Journal reported that this is 25 00:01:30,280 --> 00:01:33,720 Speaker 3: a bit of a race in terms of the missiles 26 00:01:33,720 --> 00:01:37,360 Speaker 3: and drones from Iran and then the defenses from the 27 00:01:37,360 --> 00:01:40,680 Speaker 3: golf countries that both are running out. And then you 28 00:01:40,880 --> 00:01:44,640 Speaker 3: just reported on news that you know, there's some I 29 00:01:44,640 --> 00:01:46,839 Speaker 3: don't know if you call it rumors or something else, 30 00:01:46,920 --> 00:01:49,440 Speaker 3: but there's some news items that are pointing towards the 31 00:01:49,480 --> 00:01:53,040 Speaker 3: short scenario and then the long scenarios an escalation, and 32 00:01:53,120 --> 00:01:57,480 Speaker 3: you just outlined it. So, John, there is no base case. 33 00:01:57,560 --> 00:02:00,520 Speaker 3: We're looking at scenarios. That's the only way too this 34 00:02:00,680 --> 00:02:04,360 Speaker 3: right now, between short and long. And what we want is, 35 00:02:04,480 --> 00:02:07,360 Speaker 3: you know, geopolitical hedging in the portfolio, which we've had 36 00:02:07,400 --> 00:02:11,079 Speaker 3: for a while, so we remain long relasset equities and 37 00:02:11,639 --> 00:02:14,440 Speaker 3: including energy but also metals and mining and commodities. 38 00:02:14,440 --> 00:02:16,760 Speaker 2: Scept went to bonds fits in as we can front 39 00:02:16,800 --> 00:02:17,840 Speaker 2: a shock like this one. 40 00:02:20,200 --> 00:02:22,480 Speaker 3: Yeah, you know, that's tough question. I'm kind of I'm 41 00:02:22,520 --> 00:02:24,760 Speaker 3: a bit of a correlation NERD. And one of the 42 00:02:24,840 --> 00:02:28,280 Speaker 3: studies I've done is a study of a correlation between 43 00:02:28,360 --> 00:02:31,280 Speaker 3: stocks and bonds. And if I were to boil it down, 44 00:02:31,360 --> 00:02:33,520 Speaker 3: because we talk and I know in surveillis we talk 45 00:02:33,560 --> 00:02:36,519 Speaker 3: about this about stocks and bonds and the stock bond correlation, 46 00:02:37,040 --> 00:02:39,799 Speaker 3: you can boil it down pretty simply. If you get 47 00:02:39,800 --> 00:02:43,320 Speaker 3: an inflation shock, both stocks and downs can go both 48 00:02:43,360 --> 00:02:45,840 Speaker 3: both stocks and bonds can go down together. If you 49 00:02:45,880 --> 00:02:49,080 Speaker 3: get a growth shock, then I still believe and the 50 00:02:49,120 --> 00:02:53,360 Speaker 3: evidence is there that treasuries remain a hedge for a 51 00:02:53,440 --> 00:02:56,239 Speaker 3: groad shock. Now, these things are always ingrained, so it's 52 00:02:56,320 --> 00:02:59,959 Speaker 3: which factor dominates well if you look at the current situation, 53 00:03:00,080 --> 00:03:04,079 Speaker 3: and inflation risk is clearly there. One of our analysts 54 00:03:04,120 --> 00:03:10,799 Speaker 3: studied several oil shocks and he calculated that peak oil 55 00:03:10,960 --> 00:03:15,760 Speaker 3: on average occurs twenty three days after the beginning of 56 00:03:15,919 --> 00:03:20,280 Speaker 3: the attacks or the military military intervention, and then that 57 00:03:20,320 --> 00:03:23,799 Speaker 3: oil rallies on average twenty seven percent. Again, these are averages, 58 00:03:23,880 --> 00:03:26,680 Speaker 3: a mix of extremes. The range of outcome is wide. 59 00:03:26,680 --> 00:03:30,359 Speaker 3: As much as I hate saying this, so it's it's 60 00:03:30,400 --> 00:03:32,919 Speaker 3: a matter of hedging. And you'll see that in those 61 00:03:32,960 --> 00:03:37,960 Speaker 3: cases when oil is driving and when inflation concerns are there, 62 00:03:38,000 --> 00:03:40,760 Speaker 3: and you saw the one year inflation swaps go up 63 00:03:41,400 --> 00:03:45,160 Speaker 3: around these events, well then bonds are not the same 64 00:03:45,200 --> 00:03:48,160 Speaker 3: hedge as they used to be, and you have to 65 00:03:48,200 --> 00:03:50,280 Speaker 3: have alternative hedges in the portfolios. 66 00:03:50,840 --> 00:03:52,280 Speaker 4: Seast how important. 67 00:03:52,040 --> 00:03:54,520 Speaker 5: Is nonfarm payils and Friday? And light of this, given 68 00:03:54,520 --> 00:03:56,760 Speaker 5: the fact that a lot of whether this is an 69 00:03:56,760 --> 00:03:59,720 Speaker 5: inflationary shock or whether this is potentially a shock to 70 00:03:59,760 --> 00:04:02,560 Speaker 5: grow is predicated on how much momentum there was heading 71 00:04:02,560 --> 00:04:05,720 Speaker 5: into this, I. 72 00:04:05,640 --> 00:04:09,280 Speaker 3: Think the geopolitical headlines will continue to dominate into Friday. 73 00:04:09,720 --> 00:04:13,880 Speaker 3: Non Farm payrolls are always important, no single data point matters, 74 00:04:13,960 --> 00:04:16,839 Speaker 3: but we still debate employment quite a bit in our 75 00:04:16,880 --> 00:04:21,960 Speaker 3: Asset Allocation Committee, especially in the context of AI. I 76 00:04:22,040 --> 00:04:26,400 Speaker 3: believe the unemployment picture is okay in the US for 77 00:04:26,480 --> 00:04:28,600 Speaker 3: the time being. You know, we're still at four point 78 00:04:28,600 --> 00:04:31,320 Speaker 3: three percent. I always remind people that the long run 79 00:04:31,360 --> 00:04:35,320 Speaker 3: average unemployment is five point seven percent, So the economy 80 00:04:35,360 --> 00:04:38,320 Speaker 3: in the US is humming. Of course, if you get 81 00:04:38,320 --> 00:04:41,040 Speaker 3: a tax on the consumer in the form of higher 82 00:04:41,040 --> 00:04:44,239 Speaker 3: gas lead prices, and then that can change the picture, 83 00:04:44,279 --> 00:04:46,719 Speaker 3: but that won't be in the non farm payroll numbers 84 00:04:46,760 --> 00:04:50,760 Speaker 3: on Friday. So I guess, Lisa, I'll say moderately important. 85 00:04:50,800 --> 00:04:53,440 Speaker 3: It's part of the mosaic, and we have to I 86 00:04:53,560 --> 00:04:56,359 Speaker 3: like the question because sometimes we get carried away with 87 00:04:56,440 --> 00:04:59,280 Speaker 3: geopolitical headlines. Of course, this is a major event. I 88 00:04:59,320 --> 00:05:02,680 Speaker 3: gu it's just like it's in some ways. Another word 89 00:05:02,720 --> 00:05:04,880 Speaker 3: I hate to use is unprecedented. But I'm using all 90 00:05:04,920 --> 00:05:07,240 Speaker 3: the words I hate to use this morning. But you know, 91 00:05:08,680 --> 00:05:13,040 Speaker 3: growth and inflation are still major forces driving the US economy, 92 00:05:13,080 --> 00:05:15,960 Speaker 3: and if we're running at five five and a half 93 00:05:16,160 --> 00:05:20,400 Speaker 3: six percent nominal growth, stocks should do okay. And by 94 00:05:20,440 --> 00:05:23,320 Speaker 3: the way, is a nice study by Merrilynage that shows 95 00:05:23,360 --> 00:05:28,000 Speaker 3: that about sixty years of geopolitical shocks and seventy percent 96 00:05:28,080 --> 00:05:30,880 Speaker 3: positive stock returns after a year and an average of 97 00:05:30,960 --> 00:05:34,000 Speaker 3: nine point five percent. So that kind of good sets 98 00:05:34,000 --> 00:05:36,840 Speaker 3: this narrative as you buy the dip, and you you 99 00:05:36,839 --> 00:05:39,840 Speaker 3: know it's a buying opportunity when you get a geopolitical shock. 100 00:05:39,920 --> 00:05:41,880 Speaker 3: But I think the picture right now is more nuanced 101 00:05:41,880 --> 00:05:47,000 Speaker 3: than we're advocating for hedges, including in the stocks portfolios, 102 00:05:47,000 --> 00:05:48,520 Speaker 3: including real acid equities. 103 00:05:48,720 --> 00:05:50,320 Speaker 5: Sebastian, I'm going to give you another word that you 104 00:05:50,360 --> 00:05:51,280 Speaker 5: probably hate using. 105 00:05:51,560 --> 00:05:52,840 Speaker 4: Is this market virtually. 106 00:05:52,520 --> 00:05:56,080 Speaker 5: Untradeable based on the lack of fundamental backing behind a 107 00:05:56,120 --> 00:05:59,360 Speaker 5: lot of the potential moves. 108 00:06:00,120 --> 00:06:03,080 Speaker 3: Yeah, I'm tradable. Here's another one, Lisa, thank you. I 109 00:06:03,120 --> 00:06:05,599 Speaker 3: think the markets are deep and liquid, and we talked 110 00:06:05,600 --> 00:06:08,200 Speaker 3: about treasuries. I mean those can remain ahead if we 111 00:06:08,240 --> 00:06:10,640 Speaker 3: get a growth shock, which I don't necessarily expect. 112 00:06:10,640 --> 00:06:11,880 Speaker 1: That's not the base case. 113 00:06:13,200 --> 00:06:16,159 Speaker 3: You see oil markets behave you know, we're already in 114 00:06:16,200 --> 00:06:19,760 Speaker 3: the eighties and crude. It's been interesting to follow the 115 00:06:20,000 --> 00:06:24,640 Speaker 3: oil price reaction on my Bloomberg terminal. You know, from 116 00:06:24,720 --> 00:06:27,359 Speaker 3: this idea that will escort ships around the Strait of 117 00:06:27,400 --> 00:06:29,760 Speaker 3: Hore moves and that will ensure them, and then you know, 118 00:06:30,279 --> 00:06:32,760 Speaker 3: you saw oil prices come down a little bit. But 119 00:06:32,800 --> 00:06:34,760 Speaker 3: then this morning it looks like, you know, we're back up, 120 00:06:34,800 --> 00:06:39,000 Speaker 3: and so you were just reporting about Wall streets skepticism. 121 00:06:39,040 --> 00:06:41,800 Speaker 3: I think this is hard to do, but overall markets 122 00:06:41,839 --> 00:06:42,839 Speaker 3: are behaving, Lisa. 123 00:06:43,120 --> 00:06:44,760 Speaker 2: So we're confronts in a lot of sharks and have 124 00:06:44,839 --> 00:06:46,800 Speaker 2: done over the past month or so. I think there's 125 00:06:46,839 --> 00:06:50,720 Speaker 2: three broad shocks, AI disruption being one, the second being 126 00:06:50,760 --> 00:06:52,360 Speaker 2: the JIT is in credit, and now the third is 127 00:06:52,480 --> 00:06:55,159 Speaker 2: the energy shock over the weekend. I'm interested in two 128 00:06:55,320 --> 00:06:58,760 Speaker 2: and three and the interplay between both the credit jitters 129 00:06:58,800 --> 00:07:01,760 Speaker 2: need a rate off set. I just wonder how you 130 00:07:01,760 --> 00:07:04,320 Speaker 2: were thinking about the prospect of the rate offset being 131 00:07:04,360 --> 00:07:08,440 Speaker 2: constrained by the story developing, which is three, the energy shock. 132 00:07:08,880 --> 00:07:11,360 Speaker 2: We're not getting a loosening of financial conditions. We're getting 133 00:07:11,360 --> 00:07:13,720 Speaker 2: a tightening of financial conditions at a time when credit 134 00:07:13,720 --> 00:07:16,440 Speaker 2: git is a heightening. They're not de escalating, And I 135 00:07:16,480 --> 00:07:17,920 Speaker 2: just wonder how you think that's going to play it 136 00:07:17,960 --> 00:07:18,640 Speaker 2: in the weeks to count. 137 00:07:20,680 --> 00:07:20,920 Speaker 1: Yeah. 138 00:07:20,960 --> 00:07:24,000 Speaker 3: Look, the major risk for multi asset investors is that 139 00:07:24,080 --> 00:07:26,760 Speaker 3: the treasuries don't behave as you need them to be 140 00:07:26,920 --> 00:07:30,000 Speaker 3: when stocks sell off. But let's I think I heard 141 00:07:30,000 --> 00:07:32,880 Speaker 3: Lori Calvaccina say on surveillance earlier this week, let's all 142 00:07:32,880 --> 00:07:36,720 Speaker 3: take a deep breath. Right right now, stocks are doing okay, 143 00:07:36,720 --> 00:07:41,680 Speaker 3: and I think there's this narrative that geopolitics won't drive everything. 144 00:07:42,040 --> 00:07:45,679 Speaker 3: You know, John, I have you have a AI tool 145 00:07:45,800 --> 00:07:48,720 Speaker 3: now on the Bloomberg terminal. It's in beta version, right, 146 00:07:48,720 --> 00:07:50,440 Speaker 3: but I was using it just for fun, and I 147 00:07:50,440 --> 00:07:52,720 Speaker 3: thought I mentioned it on the show and I was 148 00:07:52,760 --> 00:07:55,400 Speaker 3: looking out Okay, Wester relationship between oil and stock prices, 149 00:07:55,440 --> 00:07:59,440 Speaker 3: and only six percent of stock price volatility over time, 150 00:07:59,640 --> 00:08:02,760 Speaker 3: not during specific events, you know, can drive the S 151 00:08:02,800 --> 00:08:05,720 Speaker 3: and P five hundred. So it's a lot of different 152 00:08:05,840 --> 00:08:09,760 Speaker 3: factors splaying all at once. AI is a huge debate 153 00:08:09,920 --> 00:08:13,720 Speaker 3: on our Asset Allocation Committee, especially in terms of what 154 00:08:13,840 --> 00:08:17,120 Speaker 3: it will do to employment and how fast. Some of 155 00:08:17,160 --> 00:08:19,280 Speaker 3: us are saying, look, you know it takes a lot 156 00:08:19,320 --> 00:08:22,240 Speaker 3: of resources to clean your data and tag your data 157 00:08:22,280 --> 00:08:25,960 Speaker 3: and upgrade your infrastructure, so maybe actually hiring people to 158 00:08:26,040 --> 00:08:29,920 Speaker 3: deploy AI. This is just me being controversial. But then 159 00:08:30,000 --> 00:08:33,400 Speaker 3: we all know that over time it can replace jobs, 160 00:08:33,600 --> 00:08:36,600 Speaker 3: and how is this going to play out? I was 161 00:08:36,679 --> 00:08:40,520 Speaker 3: driving to work earlier this week listening to Bloomberg Surveillance 162 00:08:40,559 --> 00:08:44,240 Speaker 3: and my drives about thirty minutes Jonathan, And it was 163 00:08:44,320 --> 00:08:46,600 Speaker 3: thirty minutes I got to work, and there was no 164 00:08:46,720 --> 00:08:51,760 Speaker 3: discussion on surveillance of AI because of all the geopolitical risk, right, 165 00:08:52,000 --> 00:08:54,560 Speaker 3: and so as wow, they haven't they haven't talked about 166 00:08:54,600 --> 00:08:57,560 Speaker 3: AI or the FAT even once, and I'm at work 167 00:08:57,600 --> 00:09:01,160 Speaker 3: already it's been thirty minutes. But those factors, let's not 168 00:09:01,200 --> 00:09:04,200 Speaker 3: forget them. They still matter very much in portfolios and 169 00:09:04,280 --> 00:09:07,200 Speaker 3: Before all this happened, we saw industries fall one after 170 00:09:07,400 --> 00:09:10,400 Speaker 3: the other, which we ended up debating in our Asset 171 00:09:10,440 --> 00:09:14,280 Speaker 3: Allocation Committee. It's this idea of dispersion, John, and that's 172 00:09:14,320 --> 00:09:18,319 Speaker 3: going to continue dispersion across industries. Our portfolio managers like 173 00:09:18,400 --> 00:09:21,959 Speaker 3: healthcare stocks. It's interesting they like technology, but they also 174 00:09:22,160 --> 00:09:27,120 Speaker 3: like materials, and you know, even energy stocks. 175 00:09:27,440 --> 00:09:30,920 Speaker 4: Stay with us. More Bloomberg surveillance coming up after this. 176 00:09:40,240 --> 00:09:42,880 Speaker 2: So here's the lacest this morning and Givran reportedly coming 177 00:09:42,880 --> 00:09:45,840 Speaker 2: to the negotiating table. The New York Times reporting Iranian 178 00:09:45,880 --> 00:09:49,280 Speaker 2: intelligence operatives approach the US government over the weekend with 179 00:09:49,320 --> 00:09:52,000 Speaker 2: an offer to discuss terms to end the conflict. John 180 00:09:52,040 --> 00:09:54,000 Speaker 2: liber if you raise a group rights in the following, 181 00:09:54,120 --> 00:09:56,160 Speaker 2: the Iron conflict will likely take her off within two 182 00:09:56,160 --> 00:09:58,599 Speaker 2: to three weeks as the US and Israel successfully to 183 00:09:58,679 --> 00:10:01,440 Speaker 2: great Iran's military can abilities. John Jones, Now for more, 184 00:10:01,520 --> 00:10:03,880 Speaker 2: John Michael to the program. What gives you the confidence 185 00:10:04,240 --> 00:10:08,040 Speaker 2: that we'll end this in a ta to three week timeframe, Man. 186 00:10:07,880 --> 00:10:09,440 Speaker 6: I don't have a ton of confidence that this is 187 00:10:09,440 --> 00:10:11,319 Speaker 6: going to be over them, but there is an issue 188 00:10:11,520 --> 00:10:16,079 Speaker 6: where the military capabilities just aren't going to be what 189 00:10:16,160 --> 00:10:18,320 Speaker 6: they were when this whole thing began. So the Iranians 190 00:10:18,320 --> 00:10:21,360 Speaker 6: eventually run out of ballistic missiles. We just heard about 191 00:10:21,400 --> 00:10:24,880 Speaker 6: the large number that they've been launching against other countries 192 00:10:24,920 --> 00:10:27,480 Speaker 6: in the region. Eventually, you know, they do have a 193 00:10:27,559 --> 00:10:29,920 Speaker 6: large quantity of drones that I think the US is 194 00:10:29,920 --> 00:10:33,319 Speaker 6: going to have trouble getting access to before they're launched, 195 00:10:33,480 --> 00:10:38,000 Speaker 6: which means that a run's defensive offensive capabilities will remain 196 00:10:38,200 --> 00:10:42,480 Speaker 6: fairly aggressive for the for the immediate future. But at 197 00:10:42,480 --> 00:10:44,160 Speaker 6: some point this is going to taper off when they 198 00:10:44,200 --> 00:10:47,400 Speaker 6: start running out of ballistic missiles and the US starts 199 00:10:47,440 --> 00:10:50,320 Speaker 6: to run out of its ability to defend its own 200 00:10:50,320 --> 00:10:52,839 Speaker 6: ships in the region. Now, I think if you listen 201 00:10:52,920 --> 00:10:55,600 Speaker 6: to what Donald Donald Trump has been saying, he's been 202 00:10:55,640 --> 00:10:58,319 Speaker 6: pretty explicit that there's more to come here, that this 203 00:10:58,360 --> 00:11:01,720 Speaker 6: is kind of the initial phase of these strikes, and 204 00:11:02,000 --> 00:11:05,040 Speaker 6: we think this probably escalates over the next several days 205 00:11:05,080 --> 00:11:07,800 Speaker 6: to maybe a week or so as the US tries 206 00:11:07,840 --> 00:11:11,080 Speaker 6: to end this quickly. The US does not want to 207 00:11:11,080 --> 00:11:12,520 Speaker 6: be in this war for the long haul. 208 00:11:12,800 --> 00:11:12,959 Speaker 1: Now. 209 00:11:12,960 --> 00:11:15,160 Speaker 6: Of course, they're going to remain committed to the region 210 00:11:15,320 --> 00:11:19,480 Speaker 6: because what they need is regime compliance, not regime change, 211 00:11:19,760 --> 00:11:22,600 Speaker 6: and the way that they enforce regime compliance is by 212 00:11:23,559 --> 00:11:26,199 Speaker 6: maintaining a credible threat to bomb whoever. 213 00:11:25,960 --> 00:11:26,679 Speaker 1: Is coming next. 214 00:11:28,160 --> 00:11:30,120 Speaker 6: But we think the most intense part of this fighting 215 00:11:30,520 --> 00:11:32,319 Speaker 6: likely tapers off in the next few weeks. 216 00:11:32,480 --> 00:11:35,360 Speaker 5: How concerned are you, John about the asymmetry and cost 217 00:11:35,440 --> 00:11:38,440 Speaker 5: between what the US is deploying and what Iran is deplying. 218 00:11:38,440 --> 00:11:40,040 Speaker 5: And I'm thinking about all those drones that you said 219 00:11:40,040 --> 00:11:42,160 Speaker 5: are going to be hard to identify before they're launched. 220 00:11:42,520 --> 00:11:44,679 Speaker 5: The US is shooting them down with million dollar missiles. 221 00:11:44,720 --> 00:11:47,079 Speaker 5: Each of those drones is relatively cheap to produce. 222 00:11:47,240 --> 00:11:47,839 Speaker 4: How much of a. 223 00:11:47,760 --> 00:11:48,400 Speaker 5: Problem is that. 224 00:11:49,280 --> 00:11:51,439 Speaker 6: Yeah, it's a huge problem. I mean the advantage here, 225 00:11:51,480 --> 00:11:54,120 Speaker 6: of course, is the US is industrial capacity, which over 226 00:11:54,160 --> 00:11:55,720 Speaker 6: time is going to be able to make sure that 227 00:11:55,760 --> 00:12:00,640 Speaker 6: those ships are resupplied at any cost. Is trying to 228 00:12:00,640 --> 00:12:03,040 Speaker 6: increase the defense budget. It seems like Congress is more 229 00:12:03,120 --> 00:12:05,400 Speaker 6: or less willing to go along here. So the US 230 00:12:05,440 --> 00:12:09,480 Speaker 6: has a large store of production capabilities that it can 231 00:12:09,559 --> 00:12:13,360 Speaker 6: draw on with time. Iran doesn't, and it won't. It 232 00:12:13,360 --> 00:12:15,760 Speaker 6: probably has these stocks of drones, it's got these stocks 233 00:12:15,760 --> 00:12:18,000 Speaker 6: of missiles. It will run out of them at some point, 234 00:12:18,520 --> 00:12:20,520 Speaker 6: but they can cause a lot of damage in the meantime, 235 00:12:20,640 --> 00:12:23,199 Speaker 6: and that I think is the major concern for golf 236 00:12:23,240 --> 00:12:26,640 Speaker 6: partner states around Iran right now, less of a concern 237 00:12:26,679 --> 00:12:29,600 Speaker 6: for Israel given the distance that Israel has from Iran. 238 00:12:29,800 --> 00:12:31,679 Speaker 2: John, just quickly, how did you and the team react 239 00:12:31,720 --> 00:12:35,240 Speaker 2: when you heard the president's vague? I would say, framework 240 00:12:35,280 --> 00:12:37,240 Speaker 2: to have traffic through the stratiformers. 241 00:12:38,760 --> 00:12:40,120 Speaker 1: You know this could work. 242 00:12:40,559 --> 00:12:42,280 Speaker 6: I mean, if I'm a shipper, I don't want my 243 00:12:43,080 --> 00:12:46,320 Speaker 6: tankers destroyed or sunk, so it's obviously quite risky. But 244 00:12:46,360 --> 00:12:49,320 Speaker 6: the US is now putting taxpayer money behind ensuring that 245 00:12:49,320 --> 00:12:51,880 Speaker 6: these ships can get through. I think we have to 246 00:12:51,880 --> 00:12:54,600 Speaker 6: wait and see what the details look like. Legally, it 247 00:12:54,679 --> 00:12:57,839 Speaker 6: seems like he probably has the authority some flexibility the 248 00:13:00,040 --> 00:13:02,440 Speaker 6: DFC in order to do this. But I think that 249 00:13:02,800 --> 00:13:05,880 Speaker 6: you know and clearly they've thought. This isn't a totally 250 00:13:05,880 --> 00:13:08,000 Speaker 6: slap dashed plan. I think that they actually do have 251 00:13:08,640 --> 00:13:11,640 Speaker 6: some reasonable planning behind this that suggests they will be 252 00:13:11,679 --> 00:13:14,480 Speaker 6: able to compensate for losses. The question is are shippers 253 00:13:14,520 --> 00:13:18,280 Speaker 6: willing to take those losses and then need their risk. 254 00:13:18,679 --> 00:13:22,360 Speaker 4: Stay with US? More Bloomberg surveillance coming up after this. 255 00:13:31,480 --> 00:13:33,920 Speaker 2: If on move continues you'd slightly high for a third 256 00:13:33,960 --> 00:13:37,280 Speaker 2: consecutive day, inflationary fairs making a comeback, and some people 257 00:13:37,280 --> 00:13:39,160 Speaker 2: out there trimming Federae cup bets. 258 00:13:39,280 --> 00:13:39,800 Speaker 1: Feder Reserve. 259 00:13:39,840 --> 00:13:42,400 Speaker 2: Governor Stephen Myron, I'm pleased to say, joins us around 260 00:13:42,400 --> 00:13:44,520 Speaker 2: the table for a conversation about that and a whole 261 00:13:44,600 --> 00:13:44,920 Speaker 2: lot more. 262 00:13:44,960 --> 00:13:46,120 Speaker 4: Governor Maron go and Mornick. 263 00:13:45,920 --> 00:13:47,920 Speaker 1: Good morning, Thanks for having me, Thank you for being here. Sir. 264 00:13:47,960 --> 00:13:50,000 Speaker 2: Let's start with the shock over the weekend. What is 265 00:13:50,040 --> 00:13:52,760 Speaker 2: the prudent response for policymaker confronting a shock like the 266 00:13:52,800 --> 00:13:54,520 Speaker 2: one playing out in the Middle East. 267 00:13:54,840 --> 00:13:56,800 Speaker 7: Well, at the moment, I think it's too early to 268 00:13:56,800 --> 00:13:58,920 Speaker 7: sort of have any firm views. As a result of that, 269 00:13:59,160 --> 00:14:01,800 Speaker 7: oil's gone up. But the bigger question is does oil 270 00:14:01,840 --> 00:14:03,440 Speaker 7: stay up or does it come back down? And that, 271 00:14:03,640 --> 00:14:06,320 Speaker 7: of course will depend on how things play out. But 272 00:14:06,600 --> 00:14:08,680 Speaker 7: even that said, even if oil stays at these types 273 00:14:08,720 --> 00:14:10,680 Speaker 7: of levels, to me, it's difficult to get a lot 274 00:14:10,679 --> 00:14:12,679 Speaker 7: of read through as a result of that. Sure, oil 275 00:14:12,720 --> 00:14:15,520 Speaker 7: will feed into headline inflation, but the evidence that it 276 00:14:15,559 --> 00:14:18,000 Speaker 7: feeds into core inflation in any sort of material way 277 00:14:18,040 --> 00:14:20,440 Speaker 7: unless there's a huge move in oil prices, I think 278 00:14:20,520 --> 00:14:22,520 Speaker 7: is quite limited, so it's difficult for me to get 279 00:14:22,600 --> 00:14:25,320 Speaker 7: very excited about a policy implication of what's happened thus far. 280 00:14:25,520 --> 00:14:27,400 Speaker 2: So some people come on the producgram spike to Leister 281 00:14:27,520 --> 00:14:30,800 Speaker 2: nine said, these Fed Reserve officials might be conditioned by 282 00:14:30,840 --> 00:14:33,600 Speaker 2: the post pandemic experience coming out of twenty one into 283 00:14:33,600 --> 00:14:36,560 Speaker 2: twenty two and the inflation spike then and the energy 284 00:14:36,600 --> 00:14:39,120 Speaker 2: shock that developed at the time emin thing in Russia. 285 00:14:39,160 --> 00:14:40,960 Speaker 2: It's this different, I mean, a different place. 286 00:14:41,000 --> 00:14:41,520 Speaker 1: I think it is. 287 00:14:41,680 --> 00:14:43,280 Speaker 7: I think that attitude is a little bit of fighting 288 00:14:43,360 --> 00:14:45,240 Speaker 7: the last war, and I think that the Federal Reserve 289 00:14:45,280 --> 00:14:48,160 Speaker 7: for decades has had the view that you know that 290 00:14:48,960 --> 00:14:52,000 Speaker 7: headline headline inflation shocks like oil are best looked through, 291 00:14:52,040 --> 00:14:53,920 Speaker 7: and you sort of focus on core inflation because it's 292 00:14:53,920 --> 00:14:55,960 Speaker 7: indicative of weird inflation is going to go in the future, 293 00:14:56,120 --> 00:14:58,160 Speaker 7: and you focus on the labor market, and that type 294 00:14:58,160 --> 00:15:00,320 Speaker 7: of reasoning lead you to look through an oil shock. Now, 295 00:15:00,400 --> 00:15:02,360 Speaker 7: of course, what happened in twenty twenty two was a 296 00:15:02,360 --> 00:15:04,920 Speaker 7: bit different because the other policy settings were different. 297 00:15:05,000 --> 00:15:05,120 Speaker 1: Right. 298 00:15:05,120 --> 00:15:07,600 Speaker 7: Don't forget monetary policy was as expansionary as it had 299 00:15:07,720 --> 00:15:10,840 Speaker 7: ever been at the time. Fiscal policy was injecting trillions 300 00:15:10,840 --> 00:15:13,160 Speaker 7: of dollars into an economy that was recovering thanks to 301 00:15:13,240 --> 00:15:16,520 Speaker 7: vaccines and medical medical improvements and COVID passing on its own, 302 00:15:16,720 --> 00:15:18,640 Speaker 7: and so the policy environment was very different, and so 303 00:15:18,680 --> 00:15:21,840 Speaker 7: it was very easy for a slightly inflationary shock to 304 00:15:21,880 --> 00:15:25,120 Speaker 7: feed through into the broader economy and create this type 305 00:15:25,120 --> 00:15:27,960 Speaker 7: of persistent inflationary problem that the FED dealt with. 306 00:15:28,120 --> 00:15:29,960 Speaker 1: We don't have that right now. We don't have. 307 00:15:29,960 --> 00:15:32,680 Speaker 7: Fiscal policy that's slamming on demand. In fact, if anything, 308 00:15:32,720 --> 00:15:36,040 Speaker 7: supply is moving out quite aggressively, and monetary policy is 309 00:15:36,040 --> 00:15:39,280 Speaker 7: still modestly restrictive in my view. So the policy settings, 310 00:15:39,320 --> 00:15:42,280 Speaker 7: the economic environment is different. To focus on that as 311 00:15:42,280 --> 00:15:44,520 Speaker 7: you described moment ago to me is fighting the last war. 312 00:15:44,600 --> 00:15:45,880 Speaker 1: That was a unique circumstance. 313 00:15:46,160 --> 00:15:48,320 Speaker 5: At the same time, some people have argued that the 314 00:15:48,400 --> 00:15:51,120 Speaker 5: January jobs report raised a question about just how weak 315 00:15:51,160 --> 00:15:53,520 Speaker 5: the labor market actually was. Even Governor Chris Waller came 316 00:15:53,560 --> 00:15:55,720 Speaker 5: out and said, Okay, now it's a coin flip for 317 00:15:55,760 --> 00:15:58,000 Speaker 5: whether we should cut right to the March meeting. 318 00:15:58,400 --> 00:15:59,320 Speaker 4: If we do get. 319 00:15:59,120 --> 00:16:02,240 Speaker 5: Confirmation of that strength with the February payrolls report that 320 00:16:02,280 --> 00:16:05,200 Speaker 5: we get on Friday, would that make you rethink whether 321 00:16:05,240 --> 00:16:06,960 Speaker 5: March was an appropriate time to cut rates. 322 00:16:07,440 --> 00:16:10,240 Speaker 7: So look, for me, we've got two years of a trend, 323 00:16:10,240 --> 00:16:12,520 Speaker 7: two plus years of a trend of gradually weakening labor 324 00:16:12,520 --> 00:16:15,080 Speaker 7: markets that's sort of setting in twenty twenty in twenty 325 00:16:15,080 --> 00:16:19,520 Speaker 7: twenty three, it's way too early to reject the notion 326 00:16:19,600 --> 00:16:22,080 Speaker 7: that that trend continues based on one or two labor 327 00:16:22,080 --> 00:16:24,120 Speaker 7: market reports. And when you look at the totality of 328 00:16:24,160 --> 00:16:26,440 Speaker 7: labor market data, there's still evidence to me that it 329 00:16:26,440 --> 00:16:29,240 Speaker 7: needs more support from Montaria policy when I look at 330 00:16:29,360 --> 00:16:32,840 Speaker 7: things like employment levels of young folks and folks without 331 00:16:32,840 --> 00:16:35,560 Speaker 7: college degrees, When I look at people who areemployed for 332 00:16:35,600 --> 00:16:38,160 Speaker 7: long periods of time, long term unemployment, to me, that's 333 00:16:38,200 --> 00:16:40,760 Speaker 7: indicative of theirs still being slackened labor market that Montaria 334 00:16:40,800 --> 00:16:43,160 Speaker 7: policy can accommodate. So I think it's too early to 335 00:16:44,080 --> 00:16:46,400 Speaker 7: reject the notion that a two plus year trend is 336 00:16:46,480 --> 00:16:48,280 Speaker 7: over on the back of one print. 337 00:16:48,360 --> 00:16:50,320 Speaker 5: Are you concerned though, that right now the market is 338 00:16:50,400 --> 00:16:53,400 Speaker 5: moving the way that any rate cut would be perceived 339 00:16:53,520 --> 00:16:57,200 Speaker 5: as heightening long term inflation pressures just by virtue of 340 00:16:57,240 --> 00:16:59,760 Speaker 5: some of the supply shocks that we're seeing. And frankly, 341 00:16:59,840 --> 00:17:03,160 Speaker 5: the fact that people do see strength re emerging in 342 00:17:03,280 --> 00:17:06,480 Speaker 5: certain pockets of the economy. I mean, how worried are 343 00:17:06,520 --> 00:17:09,520 Speaker 5: you that a rate cut in March could be potentially 344 00:17:09,560 --> 00:17:11,119 Speaker 5: counterproductive and cause the. 345 00:17:11,119 --> 00:17:12,879 Speaker 4: Long en of the yield curve to rise? 346 00:17:13,560 --> 00:17:17,840 Speaker 7: Yes, So if you saw evidence in inflation markets that 347 00:17:17,960 --> 00:17:20,840 Speaker 7: markets were concerned about longer and inflation expectations, that's the 348 00:17:20,880 --> 00:17:22,640 Speaker 7: type of thing that would give me pause. 349 00:17:22,720 --> 00:17:24,360 Speaker 1: But I don't see evidence of that so far. 350 00:17:24,600 --> 00:17:27,240 Speaker 7: Short run inflation expectations have come up quite a bit, 351 00:17:27,400 --> 00:17:29,680 Speaker 7: and you look at CPI swaps, but that's just because 352 00:17:29,720 --> 00:17:32,600 Speaker 7: the mechanical read through of oil prices into headline inflation. 353 00:17:32,880 --> 00:17:35,000 Speaker 7: When you look at longer tenors, there hasn't been much 354 00:17:35,000 --> 00:17:36,640 Speaker 7: of a move, and so as a result, I don't 355 00:17:36,680 --> 00:17:38,960 Speaker 7: get the impression the market is concerned about longer and 356 00:17:39,000 --> 00:17:39,880 Speaker 7: inflation expectation. 357 00:17:40,040 --> 00:17:42,600 Speaker 2: You've used this price modestly restrictive a few times in 358 00:17:42,720 --> 00:17:45,800 Speaker 2: a conversation already. What is modestly restrictive to you? Can 359 00:17:45,880 --> 00:17:47,160 Speaker 2: you put numbers on that kind of thing? 360 00:17:47,280 --> 00:17:47,480 Speaker 1: Yeah? 361 00:17:47,480 --> 00:17:49,480 Speaker 7: I think we're probably about a point above neutral now, 362 00:17:49,560 --> 00:17:51,440 Speaker 7: and so my view is that we ought to start 363 00:17:51,440 --> 00:17:53,200 Speaker 7: by getting getting back towards neutral. 364 00:17:53,240 --> 00:17:55,240 Speaker 2: So the one hundred basis points and reductions. You want 365 00:17:55,240 --> 00:17:57,280 Speaker 2: this year is not to become accommodative. You believe it's 366 00:17:57,320 --> 00:17:58,720 Speaker 2: to get back to a neutral setting. 367 00:17:58,920 --> 00:17:59,920 Speaker 1: Yeah, pretty much. 368 00:18:00,119 --> 00:18:01,840 Speaker 2: What would it take for you to start thinking about 369 00:18:01,880 --> 00:18:03,600 Speaker 2: the need to get accommodative? 370 00:18:04,359 --> 00:18:06,520 Speaker 7: So I would, I would want to start thinking about 371 00:18:06,560 --> 00:18:09,359 Speaker 7: inflation coming in below the target, which is a risk 372 00:18:09,400 --> 00:18:11,000 Speaker 7: that I've highlighted if I end up being you know, 373 00:18:11,040 --> 00:18:12,440 Speaker 7: I've I've emphasized. 374 00:18:12,359 --> 00:18:13,879 Speaker 2: At risk, governor, what would be the source of that 375 00:18:14,000 --> 00:18:15,480 Speaker 2: risk to get below target inflation? 376 00:18:15,720 --> 00:18:19,280 Speaker 7: Sure, I've emphasized housing markets a lot that I'm expecting 377 00:18:19,320 --> 00:18:23,280 Speaker 7: a faster convergence down of renewal rents to new rents, 378 00:18:23,320 --> 00:18:25,760 Speaker 7: which will lead the housing inflation to converge quickly to 379 00:18:26,520 --> 00:18:30,199 Speaker 7: new rent levels. And there's reasons for that that I've 380 00:18:30,240 --> 00:18:31,800 Speaker 7: talked about at length. I don't need to repeat them 381 00:18:31,800 --> 00:18:34,199 Speaker 7: here unless you want me to. But if I end 382 00:18:34,280 --> 00:18:37,840 Speaker 7: up being right about housing and wrong about tariffs, and 383 00:18:37,880 --> 00:18:39,880 Speaker 7: so I've also argued, I've also argued that I don't 384 00:18:39,960 --> 00:18:43,400 Speaker 7: view tariffs as driving goods inflation. You know, I don't 385 00:18:43,520 --> 00:18:46,199 Speaker 7: view that because imported prices, imported good prices are not 386 00:18:46,240 --> 00:18:48,720 Speaker 7: inflating faster than all good prices, which is what you'd 387 00:18:48,720 --> 00:18:52,200 Speaker 7: expect to see. And given that backdrop, I don't view 388 00:18:52,200 --> 00:18:54,719 Speaker 7: tariffs as driving and as driving goods prices. So if 389 00:18:54,760 --> 00:18:56,479 Speaker 7: I end up being right about housing and we get 390 00:18:56,480 --> 00:18:58,919 Speaker 7: a sharp desileration in housing this year because of quirks 391 00:18:58,920 --> 00:19:00,879 Speaker 7: of how housing is measured and because of dynamics of 392 00:19:00,880 --> 00:19:03,880 Speaker 7: renewal rents versus new rents, and I end up being 393 00:19:03,920 --> 00:19:07,280 Speaker 7: wrong about goods prices and goods inflation comes down quickly 394 00:19:07,280 --> 00:19:09,560 Speaker 7: over the course of this year, then we're going to undershoot. 395 00:19:09,840 --> 00:19:11,000 Speaker 1: We're going to undershoot our target. 396 00:19:11,080 --> 00:19:12,280 Speaker 4: And you think that's a risk we need to get 397 00:19:12,280 --> 00:19:12,639 Speaker 4: ahead of. 398 00:19:13,880 --> 00:19:15,359 Speaker 7: No, I'm not saying we're gonna we need to get 399 00:19:15,359 --> 00:19:16,360 Speaker 7: ahead of that. 400 00:19:15,960 --> 00:19:18,359 Speaker 1: That would get me to argue we go balloon. 401 00:19:18,960 --> 00:19:21,280 Speaker 2: Conversation we're having about how preemptive you might need to 402 00:19:21,280 --> 00:19:23,320 Speaker 2: be in a moment like this when it's on the 403 00:19:23,320 --> 00:19:25,080 Speaker 2: committee of thinking let's wait and see, wait and see 404 00:19:25,119 --> 00:19:27,280 Speaker 2: what happens. Lisa was asking, how would you vote the 405 00:19:27,320 --> 00:19:29,760 Speaker 2: March committee meeting. Is this a moment to wait and 406 00:19:29,760 --> 00:19:31,160 Speaker 2: see or a moment to act? 407 00:19:31,720 --> 00:19:31,800 Speaker 1: No? 408 00:19:31,960 --> 00:19:34,520 Speaker 7: I think I think it's a moment to continue acting. 409 00:19:35,520 --> 00:19:38,040 Speaker 7: I have pulse I have projections for unemployment. I have 410 00:19:38,040 --> 00:19:41,000 Speaker 7: projections for labor markets, so to my for inflation, so 411 00:19:41,040 --> 00:19:43,440 Speaker 7: to my colleagues, and I believe it's appropriate to continue 412 00:19:43,440 --> 00:19:46,920 Speaker 7: acting in accordance with those projections until you get evidence 413 00:19:46,960 --> 00:19:48,960 Speaker 7: that you have to change your projections. And thus far 414 00:19:49,240 --> 00:19:52,080 Speaker 7: the evidence from event from events over the weekend haven't 415 00:19:52,160 --> 00:19:53,600 Speaker 7: led me to change any of my forecast for the 416 00:19:53,640 --> 00:19:55,840 Speaker 7: labor market for inflation over the medium terms, so it's 417 00:19:55,880 --> 00:19:57,080 Speaker 7: too early to respond to them. 418 00:19:57,200 --> 00:19:58,680 Speaker 5: You said that you think that the new story is 419 00:19:58,680 --> 00:20:00,600 Speaker 5: a point below the three points seven and five where 420 00:20:00,640 --> 00:20:03,040 Speaker 5: we currently are, and I'm just wondering how quickly you 421 00:20:03,080 --> 00:20:06,240 Speaker 5: think it's important to get to neutral based on the uncertainty, 422 00:20:06,400 --> 00:20:09,000 Speaker 5: based on the disagreements that people have about a where 423 00:20:09,040 --> 00:20:11,760 Speaker 5: neutral is and be how things are going to transpire. 424 00:20:12,240 --> 00:20:12,440 Speaker 1: Yeah. 425 00:20:12,480 --> 00:20:14,400 Speaker 7: So last year I was voting for fifties because we 426 00:20:14,400 --> 00:20:17,720 Speaker 7: were higher away from it, and then as we made 427 00:20:17,720 --> 00:20:20,520 Speaker 7: progress cutting and getting closer towards neutral, I felt it 428 00:20:20,560 --> 00:20:24,080 Speaker 7: was appropriate to say, ok now, I'm okay moving in 429 00:20:24,119 --> 00:20:26,919 Speaker 7: twenty five clips. I prefer to still continue moving in 430 00:20:26,920 --> 00:20:29,040 Speaker 7: twenty five clips until we got to neutral and then 431 00:20:29,080 --> 00:20:31,119 Speaker 7: to reevaluate because at the end of the day. I 432 00:20:31,119 --> 00:20:33,080 Speaker 7: don't see an inflation problem in the United States now. 433 00:20:33,119 --> 00:20:35,720 Speaker 7: Of course, if we get evidence that what's happening in 434 00:20:35,720 --> 00:20:38,760 Speaker 7: the Middle East is bleeding through into broader inflation, then 435 00:20:38,800 --> 00:20:39,760 Speaker 7: that would change my mind. 436 00:20:39,800 --> 00:20:40,879 Speaker 1: But thus far there's no evidence. 437 00:20:40,880 --> 00:20:42,640 Speaker 2: So Kevina, what would that evidence look like? What would 438 00:20:42,640 --> 00:20:43,600 Speaker 2: you look for? Specifically? 439 00:20:44,240 --> 00:20:46,960 Speaker 7: I'd look for inflation expectations starting to move as a result, 440 00:20:47,080 --> 00:20:49,720 Speaker 7: starting to move on it, or consume avice, I tend 441 00:20:49,720 --> 00:20:53,040 Speaker 7: to think that the market based ones are more important, 442 00:20:53,200 --> 00:20:56,439 Speaker 7: are more important to me, or evidence that or evidence 443 00:20:56,480 --> 00:20:59,480 Speaker 7: the economy is starting to in some sense overheat again. 444 00:21:00,600 --> 00:21:02,639 Speaker 7: Then I then I would be comfortable sort of changing 445 00:21:02,680 --> 00:21:05,480 Speaker 7: that view and moving more slow, moving even more slowly. 446 00:21:05,560 --> 00:21:07,600 Speaker 7: But at the moment, you know, I see, I see 447 00:21:07,600 --> 00:21:09,480 Speaker 7: it as appropriate to continue continue cutting. 448 00:21:09,480 --> 00:21:11,320 Speaker 5: Do you have any company on the committee? 449 00:21:12,000 --> 00:21:13,560 Speaker 7: Uh, you know, I can't speak for an I can't 450 00:21:13,560 --> 00:21:16,040 Speaker 7: speak for anyone else. And I think most people probably 451 00:21:16,160 --> 00:21:17,840 Speaker 7: end up sharing my view that it's too early to 452 00:21:17,880 --> 00:21:18,920 Speaker 7: draw dramatic conclusions. 453 00:21:18,960 --> 00:21:19,960 Speaker 1: As a result of that, we're. 454 00:21:19,760 --> 00:21:21,679 Speaker 5: Coming to a very different conclusion about what to do. 455 00:21:21,760 --> 00:21:23,919 Speaker 5: As a result of not drawing conclusions. They say, Okay, well, 456 00:21:23,960 --> 00:21:25,720 Speaker 5: then don't move you're saying keep moving. 457 00:21:25,800 --> 00:21:27,159 Speaker 4: So I mean that's this they started. 458 00:21:27,480 --> 00:21:30,000 Speaker 7: Every everybody is I think people are generally where they 459 00:21:30,000 --> 00:21:33,199 Speaker 7: were last week, right, And it's just too early to 460 00:21:33,280 --> 00:21:35,480 Speaker 7: change your mind based on based on what's going on, 461 00:21:35,960 --> 00:21:39,000 Speaker 7: my forecast for inflation and employment and my view call 462 00:21:39,080 --> 00:21:43,000 Speaker 7: for continuing continuing industry cuts. Other people disagree, you know, 463 00:21:43,080 --> 00:21:45,680 Speaker 7: and so they also haven't haven't moved yet. But as 464 00:21:45,680 --> 00:21:47,280 Speaker 7: we get information about. 465 00:21:47,040 --> 00:21:48,960 Speaker 2: It, TIMI thinks the words right, So the credit JED 466 00:21:49,040 --> 00:21:50,879 Speaker 2: is one, an AI another. I want to squeeze in 467 00:21:50,920 --> 00:21:53,080 Speaker 2: both then if we can, So let's start with the AI. 468 00:21:53,160 --> 00:21:55,760 Speaker 2: Jet says, so Block, a fintech company came out in 469 00:21:55,760 --> 00:21:58,119 Speaker 2: the last week or so and cut almost half of 470 00:21:58,119 --> 00:21:59,879 Speaker 2: its staff, and they set them make it a mas, 471 00:22:00,040 --> 00:22:03,000 Speaker 2: save AI productivity bad as a policy, make it for you. 472 00:22:03,040 --> 00:22:04,959 Speaker 4: Do you consider that noise or signal? 473 00:22:05,000 --> 00:22:05,520 Speaker 1: What is that? 474 00:22:06,240 --> 00:22:09,520 Speaker 7: So that's you know, that's one, that's one company. It's 475 00:22:09,560 --> 00:22:12,000 Speaker 7: indicative of what you could have more of. But this 476 00:22:12,119 --> 00:22:15,120 Speaker 7: is just how this is how productivity gains and technology work. 477 00:22:15,160 --> 00:22:17,640 Speaker 7: They allow you to produce more with fewer, fewer inputs, 478 00:22:17,640 --> 00:22:20,120 Speaker 7: with fewer, fewer resources. And so if you were able 479 00:22:20,119 --> 00:22:23,640 Speaker 7: to produce the same amount with fewer workers and less capital, 480 00:22:23,680 --> 00:22:26,679 Speaker 7: then your productivity goes up. That frees those workers not 481 00:22:27,000 --> 00:22:29,879 Speaker 7: necessarily into unemployment, but to do other work. And this 482 00:22:29,960 --> 00:22:32,320 Speaker 7: is this is this has always been the story of 483 00:22:32,840 --> 00:22:35,800 Speaker 7: human technological progress and the human economic growth. We create 484 00:22:35,800 --> 00:22:38,480 Speaker 7: new technologies, they destroy some jobs, and then they create 485 00:22:38,520 --> 00:22:38,880 Speaker 7: new jobs. 486 00:22:38,920 --> 00:22:40,159 Speaker 1: They free people to do new activity. 487 00:22:40,200 --> 00:22:41,400 Speaker 4: I don't think it's different this time. 488 00:22:42,119 --> 00:22:44,240 Speaker 1: Uh, you know, I don't have a reason for. 489 00:22:44,480 --> 00:22:47,000 Speaker 7: Like I said before, you know, it's too early projected 490 00:22:47,040 --> 00:22:49,840 Speaker 7: to your trend of of of labor market moving in 491 00:22:49,960 --> 00:22:53,560 Speaker 7: a gradual cooling direction. It's too early to reject tens 492 00:22:53,560 --> 00:22:55,960 Speaker 7: of thousands of years trend of how technology works in 493 00:22:55,960 --> 00:22:56,480 Speaker 7: the economy. 494 00:22:56,520 --> 00:22:57,400 Speaker 1: We've talked about. 495 00:22:57,240 --> 00:23:00,000 Speaker 2: These sources of risk and one is Spain the geopolitical problems. 496 00:23:00,080 --> 00:23:02,040 Speaker 2: This is another two and the third one is connected 497 00:23:02,040 --> 00:23:05,000 Speaker 2: in some cases to what's happening with AI. It's also 498 00:23:05,000 --> 00:23:07,400 Speaker 2: the credit jitters as well. So this riises the question 499 00:23:07,440 --> 00:23:11,520 Speaker 2: about potential financial risk for you and the committee. How 500 00:23:11,520 --> 00:23:12,959 Speaker 2: are you thinking about things as they develop? 501 00:23:13,080 --> 00:23:15,000 Speaker 7: But just one last point, an AI, even as it 502 00:23:15,280 --> 00:23:17,639 Speaker 7: destroys old jobs and creates new jobs, that is the 503 00:23:17,680 --> 00:23:19,520 Speaker 7: type of that is the type of job transition that 504 00:23:19,600 --> 00:23:22,480 Speaker 7: is typically accommodated by a central bank. Right, you don't 505 00:23:22,520 --> 00:23:24,479 Speaker 7: want to prevent the new jobs from being created by 506 00:23:24,480 --> 00:23:26,639 Speaker 7: having policy that's too restrictive. If you have an increase 507 00:23:26,680 --> 00:23:28,919 Speaker 7: in job loss due to new technology, you have to 508 00:23:28,960 --> 00:23:31,720 Speaker 7: accommodate that and allow the new jobs to get created 509 00:23:31,840 --> 00:23:32,760 Speaker 7: instead of preventing it. 510 00:23:32,800 --> 00:23:36,480 Speaker 4: Do support what's developing and credit. Sorry, oh, what's developing 511 00:23:36,480 --> 00:23:36,919 Speaker 4: and credit? 512 00:23:37,640 --> 00:23:40,879 Speaker 7: So look, you know, I am, like with vents in 513 00:23:40,920 --> 00:23:42,679 Speaker 7: the Middle East, I'm not at the point where I 514 00:23:42,680 --> 00:23:44,800 Speaker 7: have a strong read through from what's going on in 515 00:23:44,840 --> 00:23:46,119 Speaker 7: credit into the economy. 516 00:23:47,400 --> 00:23:47,800 Speaker 1: I don't. 517 00:23:47,840 --> 00:23:49,560 Speaker 7: I'm not at the point where I think where I 518 00:23:49,560 --> 00:23:52,119 Speaker 7: think there's any sort of policy response that's necessary or 519 00:23:52,119 --> 00:23:54,680 Speaker 7: adjustment to forecast this necessary. One thing that I think 520 00:23:54,720 --> 00:23:56,919 Speaker 7: is interesting about what's going on in credit is, to me, 521 00:23:57,119 --> 00:23:59,960 Speaker 7: it highlights the potential shortcoming of our financial conditions and disease. 522 00:24:00,359 --> 00:24:02,480 Speaker 7: We've got a lot of people who argue it's inappropriate 523 00:24:02,520 --> 00:24:04,320 Speaker 7: to cut because financial conditions are so loose. 524 00:24:04,320 --> 00:24:05,800 Speaker 1: They've been arguing that for a long time. 525 00:24:06,080 --> 00:24:09,159 Speaker 7: But one hypothesis of mine that I'm exploring is that 526 00:24:09,200 --> 00:24:11,760 Speaker 7: those financial conditions and disease aren't showing you what's going 527 00:24:11,760 --> 00:24:13,800 Speaker 7: on in private credit because you don't get the marks 528 00:24:13,800 --> 00:24:16,359 Speaker 7: for them, and to the extent that private credit has 529 00:24:16,400 --> 00:24:19,040 Speaker 7: been a major driver of credit growth over the last 530 00:24:19,040 --> 00:24:21,800 Speaker 7: half decade or so, that's missing from the financial conditions 531 00:24:21,800 --> 00:24:23,520 Speaker 7: and disease. So when we get these jitters in private 532 00:24:23,520 --> 00:24:26,240 Speaker 7: credit markets and then say, oh, financial conditions are so loose, 533 00:24:26,440 --> 00:24:28,080 Speaker 7: it's just because we decided not to look at the 534 00:24:28,080 --> 00:24:29,480 Speaker 7: part of the financial markets that are tight. 535 00:24:29,520 --> 00:24:30,600 Speaker 2: So I do you think we are seeing it on 536 00:24:30,680 --> 00:24:32,560 Speaker 2: warranted toynic of financial conditions so far? 537 00:24:33,200 --> 00:24:35,960 Speaker 7: Well, you know, sort of unwarranted is a bit is 538 00:24:35,960 --> 00:24:37,760 Speaker 7: a bit of a heavy load, But I do think 539 00:24:37,840 --> 00:24:40,280 Speaker 7: I do think it's it's I would be cautious about 540 00:24:40,280 --> 00:24:42,840 Speaker 7: concluding that financial conditions are so loose when you're getting 541 00:24:42,880 --> 00:24:45,360 Speaker 7: these things happening in private credit markets. 542 00:24:45,480 --> 00:24:47,560 Speaker 5: I just want to ask, have you talked to President 543 00:24:47,560 --> 00:24:48,240 Speaker 5: Trump recently? 544 00:24:49,119 --> 00:24:50,919 Speaker 1: Not since I resigned, now since you resigned. 545 00:24:50,960 --> 00:24:54,120 Speaker 5: I'm just wondering how difficult it is to conduct policy 546 00:24:54,359 --> 00:24:57,920 Speaker 5: with a huge unknown hanging over the committee about who 547 00:24:57,960 --> 00:24:59,359 Speaker 5: is going to be the next FED sure and what 548 00:24:59,400 --> 00:25:01,760 Speaker 5: this process is going to look like past April. 549 00:25:02,720 --> 00:25:03,320 Speaker 1: Well, I mean, I. 550 00:25:03,240 --> 00:25:04,679 Speaker 7: Think we have a pretty good idea of who's going 551 00:25:04,720 --> 00:25:07,080 Speaker 7: to be the next FED chairman. We don't have a 552 00:25:07,160 --> 00:25:09,480 Speaker 7: good idea yet of exactly when he will become the 553 00:25:09,520 --> 00:25:12,000 Speaker 7: next FED chairman, but I'm hopeful that we get that 554 00:25:12,040 --> 00:25:14,560 Speaker 7: type of that type of clarity soon. I think it 555 00:25:14,560 --> 00:25:15,840 Speaker 7: would be I think it would be great to have 556 00:25:15,840 --> 00:25:16,800 Speaker 7: that type of clarity gone. 557 00:25:16,840 --> 00:25:18,679 Speaker 2: It's a weird thing on the Federal Reserve and not 558 00:25:18,720 --> 00:25:20,840 Speaker 2: knowing when you're going to ACCEP just sort of like 559 00:25:20,920 --> 00:25:23,879 Speaker 2: there with an open ended calendar on what's going to 560 00:25:23,920 --> 00:25:24,440 Speaker 2: happen next. 561 00:25:24,600 --> 00:25:27,359 Speaker 7: It makes it difficult to plant it. 562 00:25:29,000 --> 00:25:32,560 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 563 00:25:32,560 --> 00:25:35,880 Speaker 2: in markets, economics, and geopolitics. You can watch the show 564 00:25:35,920 --> 00:25:38,879 Speaker 2: live on Bloomberg TV weekday mornings from six am to 565 00:25:39,000 --> 00:25:42,760 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 566 00:25:42,920 --> 00:25:45,159 Speaker 2: or anywhere else you listen, and as always, on the 567 00:25:45,160 --> 00:25:47,600 Speaker 2: Bloomberg Terminal and the Bloomberg Business app