WEBVTT - Bloomberg Surveillance TV: March 4th, 2026 0:00:02.360 --> 0:00:09.920 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordert. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:36.879 Terminal and the Bloomberg Business app. We begin this out 0:00:36.920 --> 0:00:40.600 with stocks looking to recover as geopolitics fuels major volatility. 0:00:40.760 --> 0:00:43.960 Sebastian Page of tro Price, writing this the bear case 0:00:44.360 --> 0:00:47.040 is a prolonged war, prolonged closure of the stratiformers, and 0:00:47.240 --> 0:00:50.760 escalating attacks on energy infrastructure. Our Brent range then would 0:00:50.760 --> 0:00:53.599 be one hundred to one twenty. Sebastian joins us now 0:00:53.600 --> 0:00:55.840 for more. So, welcome to the program. That's the bear case? 0:00:56.080 --> 0:00:57.040 What's the base case? 0:01:00.120 --> 0:01:03.600 Our research platform has been on overdrive over the weekend, 0:01:03.680 --> 0:01:06.800 as you can expect, and I've been reading and reading 0:01:06.840 --> 0:01:11.280 the research from our analysts, and John I can say 0:01:11.280 --> 0:01:15.040 there is no base case. It's extremes on both sides. 0:01:15.360 --> 0:01:18.680 I hate saying the range of outcomes is wide because 0:01:18.720 --> 0:01:22.800 it always sounds like an out But we have two scenarios, 0:01:22.880 --> 0:01:28.120 one short, one long, and the short scenario. You know, 0:01:28.200 --> 0:01:30.240 I think the Wall Street Journal reported that this is 0:01:30.280 --> 0:01:33.720 a bit of a race in terms of the missiles 0:01:33.720 --> 0:01:37.360 and drones from Iran and then the defenses from the 0:01:37.360 --> 0:01:40.680 golf countries that both are running out. And then you 0:01:40.880 --> 0:01:44.640 just reported on news that you know, there's some I 0:01:44.640 --> 0:01:46.839 don't know if you call it rumors or something else, 0:01:46.920 --> 0:01:49.440 but there's some news items that are pointing towards the 0:01:49.480 --> 0:01:53.040 short scenario and then the long scenarios an escalation, and 0:01:53.120 --> 0:01:57.480 you just outlined it. So, John, there is no base case. 0:01:57.560 --> 0:02:00.520 We're looking at scenarios. That's the only way too this 0:02:00.680 --> 0:02:04.360 right now, between short and long. And what we want is, 0:02:04.480 --> 0:02:07.360 you know, geopolitical hedging in the portfolio, which we've had 0:02:07.400 --> 0:02:11.079 for a while, so we remain long relasset equities and 0:02:11.639 --> 0:02:14.440 including energy but also metals and mining and commodities. 0:02:14.440 --> 0:02:16.760 Scept went to bonds fits in as we can front 0:02:16.800 --> 0:02:17.840 a shock like this one. 0:02:20.200 --> 0:02:22.480 Yeah, you know, that's tough question. I'm kind of I'm 0:02:22.520 --> 0:02:24.760 a bit of a correlation NERD. And one of the 0:02:24.840 --> 0:02:28.280 studies I've done is a study of a correlation between 0:02:28.360 --> 0:02:31.280 stocks and bonds. And if I were to boil it down, 0:02:31.360 --> 0:02:33.520 because we talk and I know in surveillis we talk 0:02:33.560 --> 0:02:36.519 about this about stocks and bonds and the stock bond correlation, 0:02:37.040 --> 0:02:39.799 you can boil it down pretty simply. If you get 0:02:39.800 --> 0:02:43.320 an inflation shock, both stocks and downs can go both 0:02:43.360 --> 0:02:45.840 both stocks and bonds can go down together. If you 0:02:45.880 --> 0:02:49.080 get a growth shock, then I still believe and the 0:02:49.120 --> 0:02:53.360 evidence is there that treasuries remain a hedge for a 0:02:53.440 --> 0:02:56.239 groad shock. Now, these things are always ingrained, so it's 0:02:56.320 --> 0:02:59.959 which factor dominates well if you look at the current situation, 0:03:00.080 --> 0:03:04.079 and inflation risk is clearly there. One of our analysts 0:03:04.120 --> 0:03:10.799 studied several oil shocks and he calculated that peak oil 0:03:10.960 --> 0:03:15.760 on average occurs twenty three days after the beginning of 0:03:15.919 --> 0:03:20.280 the attacks or the military military intervention, and then that 0:03:20.320 --> 0:03:23.799 oil rallies on average twenty seven percent. Again, these are averages, 0:03:23.880 --> 0:03:26.680 a mix of extremes. The range of outcome is wide. 0:03:26.680 --> 0:03:30.359 As much as I hate saying this, so it's it's 0:03:30.400 --> 0:03:32.919 a matter of hedging. And you'll see that in those 0:03:32.960 --> 0:03:37.960 cases when oil is driving and when inflation concerns are there, 0:03:38.000 --> 0:03:40.760 and you saw the one year inflation swaps go up 0:03:41.400 --> 0:03:45.160 around these events, well then bonds are not the same 0:03:45.200 --> 0:03:48.160 hedge as they used to be, and you have to 0:03:48.200 --> 0:03:50.280 have alternative hedges in the portfolios. 0:03:50.840 --> 0:03:52.280 Seast how important. 0:03:52.040 --> 0:03:54.520 Is nonfarm payils and Friday? And light of this, given 0:03:54.520 --> 0:03:56.760 the fact that a lot of whether this is an 0:03:56.760 --> 0:03:59.720 inflationary shock or whether this is potentially a shock to 0:03:59.760 --> 0:04:02.560 grow is predicated on how much momentum there was heading 0:04:02.560 --> 0:04:05.720 into this, I. 0:04:05.640 --> 0:04:09.280 Think the geopolitical headlines will continue to dominate into Friday. 0:04:09.720 --> 0:04:13.880 Non Farm payrolls are always important, no single data point matters, 0:04:13.960 --> 0:04:16.839 but we still debate employment quite a bit in our 0:04:16.880 --> 0:04:21.960 Asset Allocation Committee, especially in the context of AI. I 0:04:22.040 --> 0:04:26.400 believe the unemployment picture is okay in the US for 0:04:26.480 --> 0:04:28.600 the time being. You know, we're still at four point 0:04:28.600 --> 0:04:31.320 three percent. I always remind people that the long run 0:04:31.360 --> 0:04:35.320 average unemployment is five point seven percent, So the economy 0:04:35.360 --> 0:04:38.320 in the US is humming. Of course, if you get 0:04:38.320 --> 0:04:41.040 a tax on the consumer in the form of higher 0:04:41.040 --> 0:04:44.239 gas lead prices, and then that can change the picture, 0:04:44.279 --> 0:04:46.719 but that won't be in the non farm payroll numbers 0:04:46.760 --> 0:04:50.760 on Friday. So I guess, Lisa, I'll say moderately important. 0:04:50.800 --> 0:04:53.440 It's part of the mosaic, and we have to I 0:04:53.560 --> 0:04:56.359 like the question because sometimes we get carried away with 0:04:56.440 --> 0:04:59.280 geopolitical headlines. Of course, this is a major event. I 0:04:59.320 --> 0:05:02.680 gu it's just like it's in some ways. Another word 0:05:02.720 --> 0:05:04.880 I hate to use is unprecedented. But I'm using all 0:05:04.920 --> 0:05:07.240 the words I hate to use this morning. But you know, 0:05:08.680 --> 0:05:13.040 growth and inflation are still major forces driving the US economy, 0:05:13.080 --> 0:05:15.960 and if we're running at five five and a half 0:05:16.160 --> 0:05:20.400 six percent nominal growth, stocks should do okay. And by 0:05:20.440 --> 0:05:23.320 the way, is a nice study by Merrilynage that shows 0:05:23.360 --> 0:05:28.000 that about sixty years of geopolitical shocks and seventy percent 0:05:28.080 --> 0:05:30.880 positive stock returns after a year and an average of 0:05:30.960 --> 0:05:34.000 nine point five percent. So that kind of good sets 0:05:34.000 --> 0:05:36.840 this narrative as you buy the dip, and you you 0:05:36.839 --> 0:05:39.840 know it's a buying opportunity when you get a geopolitical shock. 0:05:39.920 --> 0:05:41.880 But I think the picture right now is more nuanced 0:05:41.880 --> 0:05:47.000 than we're advocating for hedges, including in the stocks portfolios, 0:05:47.000 --> 0:05:48.520 including real acid equities. 0:05:48.720 --> 0:05:50.320 Sebastian, I'm going to give you another word that you 0:05:50.360 --> 0:05:51.280 probably hate using. 0:05:51.560 --> 0:05:52.840 Is this market virtually. 0:05:52.520 --> 0:05:56.080 Untradeable based on the lack of fundamental backing behind a 0:05:56.120 --> 0:05:59.360 lot of the potential moves. 0:06:00.120 --> 0:06:03.080 Yeah, I'm tradable. Here's another one, Lisa, thank you. I 0:06:03.120 --> 0:06:05.599 think the markets are deep and liquid, and we talked 0:06:05.600 --> 0:06:08.200 about treasuries. I mean those can remain ahead if we 0:06:08.240 --> 0:06:10.640 get a growth shock, which I don't necessarily expect. 0:06:10.640 --> 0:06:11.880 That's not the base case. 0:06:13.200 --> 0:06:16.159 You see oil markets behave you know, we're already in 0:06:16.200 --> 0:06:19.760 the eighties and crude. It's been interesting to follow the 0:06:20.000 --> 0:06:24.640 oil price reaction on my Bloomberg terminal. You know, from 0:06:24.720 --> 0:06:27.359 this idea that will escort ships around the Strait of 0:06:27.400 --> 0:06:29.760 Hore moves and that will ensure them, and then you know, 0:06:30.279 --> 0:06:32.760 you saw oil prices come down a little bit. But 0:06:32.800 --> 0:06:34.760 then this morning it looks like, you know, we're back up, 0:06:34.800 --> 0:06:39.000 and so you were just reporting about Wall streets skepticism. 0:06:39.040 --> 0:06:41.800 I think this is hard to do, but overall markets 0:06:41.839 --> 0:06:42.839 are behaving, Lisa. 0:06:43.120 --> 0:06:44.760 So we're confronts in a lot of sharks and have 0:06:44.839 --> 0:06:46.800 done over the past month or so. I think there's 0:06:46.839 --> 0:06:50.720 three broad shocks, AI disruption being one, the second being 0:06:50.760 --> 0:06:52.360 the JIT is in credit, and now the third is 0:06:52.480 --> 0:06:55.159 the energy shock over the weekend. I'm interested in two 0:06:55.320 --> 0:06:58.760 and three and the interplay between both the credit jitters 0:06:58.800 --> 0:07:01.760 need a rate off set. I just wonder how you 0:07:01.760 --> 0:07:04.320 were thinking about the prospect of the rate offset being 0:07:04.360 --> 0:07:08.440 constrained by the story developing, which is three, the energy shock. 0:07:08.880 --> 0:07:11.360 We're not getting a loosening of financial conditions. We're getting 0:07:11.360 --> 0:07:13.720 a tightening of financial conditions at a time when credit 0:07:13.720 --> 0:07:16.440 git is a heightening. They're not de escalating, And I 0:07:16.480 --> 0:07:17.920 just wonder how you think that's going to play it 0:07:17.960 --> 0:07:18.640 in the weeks to count. 0:07:20.680 --> 0:07:20.920 Yeah. 0:07:20.960 --> 0:07:24.000 Look, the major risk for multi asset investors is that 0:07:24.080 --> 0:07:26.760 the treasuries don't behave as you need them to be 0:07:26.920 --> 0:07:30.000 when stocks sell off. But let's I think I heard 0:07:30.000 --> 0:07:32.880 Lori Calvaccina say on surveillance earlier this week, let's all 0:07:32.880 --> 0:07:36.720 take a deep breath. Right right now, stocks are doing okay, 0:07:36.720 --> 0:07:41.680 and I think there's this narrative that geopolitics won't drive everything. 0:07:42.040 --> 0:07:45.679 You know, John, I have you have a AI tool 0:07:45.800 --> 0:07:48.720 now on the Bloomberg terminal. It's in beta version, right, 0:07:48.720 --> 0:07:50.440 but I was using it just for fun, and I 0:07:50.440 --> 0:07:52.720 thought I mentioned it on the show and I was 0:07:52.760 --> 0:07:55.400 looking out Okay, Wester relationship between oil and stock prices, 0:07:55.440 --> 0:07:59.440 and only six percent of stock price volatility over time, 0:07:59.640 --> 0:08:02.760 not during specific events, you know, can drive the S 0:08:02.800 --> 0:08:05.720 and P five hundred. So it's a lot of different 0:08:05.840 --> 0:08:09.760 factors splaying all at once. AI is a huge debate 0:08:09.920 --> 0:08:13.720 on our Asset Allocation Committee, especially in terms of what 0:08:13.840 --> 0:08:17.120 it will do to employment and how fast. Some of 0:08:17.160 --> 0:08:19.280 us are saying, look, you know it takes a lot 0:08:19.320 --> 0:08:22.240 of resources to clean your data and tag your data 0:08:22.280 --> 0:08:25.960 and upgrade your infrastructure, so maybe actually hiring people to 0:08:26.040 --> 0:08:29.920 deploy AI. This is just me being controversial. But then 0:08:30.000 --> 0:08:33.400 we all know that over time it can replace jobs, 0:08:33.600 --> 0:08:36.600 and how is this going to play out? I was 0:08:36.679 --> 0:08:40.520 driving to work earlier this week listening to Bloomberg Surveillance 0:08:40.559 --> 0:08:44.240 and my drives about thirty minutes Jonathan, And it was 0:08:44.320 --> 0:08:46.600 thirty minutes I got to work, and there was no 0:08:46.720 --> 0:08:51.760 discussion on surveillance of AI because of all the geopolitical risk, right, 0:08:52.000 --> 0:08:54.560 and so as wow, they haven't they haven't talked about 0:08:54.600 --> 0:08:57.560 AI or the FAT even once, and I'm at work 0:08:57.600 --> 0:09:01.160 already it's been thirty minutes. But those factors, let's not 0:09:01.200 --> 0:09:04.200 forget them. They still matter very much in portfolios and 0:09:04.280 --> 0:09:07.200 Before all this happened, we saw industries fall one after 0:09:07.400 --> 0:09:10.400 the other, which we ended up debating in our Asset 0:09:10.440 --> 0:09:14.280 Allocation Committee. It's this idea of dispersion, John, and that's 0:09:14.320 --> 0:09:18.319 going to continue dispersion across industries. Our portfolio managers like 0:09:18.400 --> 0:09:21.959 healthcare stocks. It's interesting they like technology, but they also 0:09:22.160 --> 0:09:27.120 like materials, and you know, even energy stocks. 0:09:27.440 --> 0:09:30.920 Stay with us. More Bloomberg surveillance coming up after this. 0:09:40.240 --> 0:09:42.880 So here's the lacest this morning and Givran reportedly coming 0:09:42.880 --> 0:09:45.840 to the negotiating table. The New York Times reporting Iranian 0:09:45.880 --> 0:09:49.280 intelligence operatives approach the US government over the weekend with 0:09:49.320 --> 0:09:52.000 an offer to discuss terms to end the conflict. John 0:09:52.040 --> 0:09:54.000 liber if you raise a group rights in the following, 0:09:54.120 --> 0:09:56.160 the Iron conflict will likely take her off within two 0:09:56.160 --> 0:09:58.599 to three weeks as the US and Israel successfully to 0:09:58.679 --> 0:10:01.440 great Iran's military can abilities. John Jones, Now for more, 0:10:01.520 --> 0:10:03.880 John Michael to the program. What gives you the confidence 0:10:04.240 --> 0:10:08.040 that we'll end this in a ta to three week timeframe, Man. 0:10:07.880 --> 0:10:09.440 I don't have a ton of confidence that this is 0:10:09.440 --> 0:10:11.319 going to be over them, but there is an issue 0:10:11.520 --> 0:10:16.079 where the military capabilities just aren't going to be what 0:10:16.160 --> 0:10:18.320 they were when this whole thing began. So the Iranians 0:10:18.320 --> 0:10:21.360 eventually run out of ballistic missiles. We just heard about 0:10:21.400 --> 0:10:24.880 the large number that they've been launching against other countries 0:10:24.920 --> 0:10:27.480 in the region. Eventually, you know, they do have a 0:10:27.559 --> 0:10:29.920 large quantity of drones that I think the US is 0:10:29.920 --> 0:10:33.319 going to have trouble getting access to before they're launched, 0:10:33.480 --> 0:10:38.000 which means that a run's defensive offensive capabilities will remain 0:10:38.200 --> 0:10:42.480 fairly aggressive for the for the immediate future. But at 0:10:42.480 --> 0:10:44.160 some point this is going to taper off when they 0:10:44.200 --> 0:10:47.400 start running out of ballistic missiles and the US starts 0:10:47.440 --> 0:10:50.320 to run out of its ability to defend its own 0:10:50.320 --> 0:10:52.839 ships in the region. Now, I think if you listen 0:10:52.920 --> 0:10:55.600 to what Donald Donald Trump has been saying, he's been 0:10:55.640 --> 0:10:58.319 pretty explicit that there's more to come here, that this 0:10:58.360 --> 0:11:01.720 is kind of the initial phase of these strikes, and 0:11:02.000 --> 0:11:05.040 we think this probably escalates over the next several days 0:11:05.080 --> 0:11:07.800 to maybe a week or so as the US tries 0:11:07.840 --> 0:11:11.080 to end this quickly. The US does not want to 0:11:11.080 --> 0:11:12.520 be in this war for the long haul. 0:11:12.800 --> 0:11:12.959 Now. 0:11:12.960 --> 0:11:15.160 Of course, they're going to remain committed to the region 0:11:15.320 --> 0:11:19.480 because what they need is regime compliance, not regime change, 0:11:19.760 --> 0:11:22.600 and the way that they enforce regime compliance is by 0:11:23.559 --> 0:11:26.199 maintaining a credible threat to bomb whoever. 0:11:25.960 --> 0:11:26.679 Is coming next. 0:11:28.160 --> 0:11:30.120 But we think the most intense part of this fighting 0:11:30.520 --> 0:11:32.319 likely tapers off in the next few weeks. 0:11:32.480 --> 0:11:35.360 How concerned are you, John about the asymmetry and cost 0:11:35.440 --> 0:11:38.440 between what the US is deploying and what Iran is deplying. 0:11:38.440 --> 0:11:40.040 And I'm thinking about all those drones that you said 0:11:40.040 --> 0:11:42.160 are going to be hard to identify before they're launched. 0:11:42.520 --> 0:11:44.679 The US is shooting them down with million dollar missiles. 0:11:44.720 --> 0:11:47.079 Each of those drones is relatively cheap to produce. 0:11:47.240 --> 0:11:47.839 How much of a. 0:11:47.760 --> 0:11:48.400 Problem is that. 0:11:49.280 --> 0:11:51.439 Yeah, it's a huge problem. I mean the advantage here, 0:11:51.480 --> 0:11:54.120 of course, is the US is industrial capacity, which over 0:11:54.160 --> 0:11:55.720 time is going to be able to make sure that 0:11:55.760 --> 0:12:00.640 those ships are resupplied at any cost. Is trying to 0:12:00.640 --> 0:12:03.040 increase the defense budget. It seems like Congress is more 0:12:03.120 --> 0:12:05.400 or less willing to go along here. So the US 0:12:05.440 --> 0:12:09.480 has a large store of production capabilities that it can 0:12:09.559 --> 0:12:13.360 draw on with time. Iran doesn't, and it won't. It 0:12:13.360 --> 0:12:15.760 probably has these stocks of drones, it's got these stocks 0:12:15.760 --> 0:12:18.000 of missiles. It will run out of them at some point, 0:12:18.520 --> 0:12:20.520 but they can cause a lot of damage in the meantime, 0:12:20.640 --> 0:12:23.199 and that I think is the major concern for golf 0:12:23.240 --> 0:12:26.640 partner states around Iran right now, less of a concern 0:12:26.679 --> 0:12:29.600 for Israel given the distance that Israel has from Iran. 0:12:29.800 --> 0:12:31.679 John, just quickly, how did you and the team react 0:12:31.720 --> 0:12:35.240 when you heard the president's vague? I would say, framework 0:12:35.280 --> 0:12:37.240 to have traffic through the stratiformers. 0:12:38.760 --> 0:12:40.120 You know this could work. 0:12:40.559 --> 0:12:42.280 I mean, if I'm a shipper, I don't want my 0:12:43.080 --> 0:12:46.320 tankers destroyed or sunk, so it's obviously quite risky. But 0:12:46.360 --> 0:12:49.320 the US is now putting taxpayer money behind ensuring that 0:12:49.320 --> 0:12:51.880 these ships can get through. I think we have to 0:12:51.880 --> 0:12:54.600 wait and see what the details look like. Legally, it 0:12:54.679 --> 0:12:57.839 seems like he probably has the authority some flexibility the 0:13:00.040 --> 0:13:02.440 DFC in order to do this. But I think that 0:13:02.800 --> 0:13:05.880 you know and clearly they've thought. This isn't a totally 0:13:05.880 --> 0:13:08.000 slap dashed plan. I think that they actually do have 0:13:08.640 --> 0:13:11.640 some reasonable planning behind this that suggests they will be 0:13:11.679 --> 0:13:14.480 able to compensate for losses. The question is are shippers 0:13:14.520 --> 0:13:18.280 willing to take those losses and then need their risk. 0:13:18.679 --> 0:13:22.360 Stay with US? More Bloomberg surveillance coming up after this. 0:13:31.480 --> 0:13:33.920 If on move continues you'd slightly high for a third 0:13:33.960 --> 0:13:37.280 consecutive day, inflationary fairs making a comeback, and some people 0:13:37.280 --> 0:13:39.160 out there trimming Federae cup bets. 0:13:39.280 --> 0:13:39.800 Feder Reserve. 0:13:39.840 --> 0:13:42.400 Governor Stephen Myron, I'm pleased to say, joins us around 0:13:42.400 --> 0:13:44.520 the table for a conversation about that and a whole 0:13:44.600 --> 0:13:44.920 lot more. 0:13:44.960 --> 0:13:46.120 Governor Maron go and Mornick. 0:13:45.920 --> 0:13:47.920 Good morning, Thanks for having me, Thank you for being here. Sir. 0:13:47.960 --> 0:13:50.000 Let's start with the shock over the weekend. What is 0:13:50.040 --> 0:13:52.760 the prudent response for policymaker confronting a shock like the 0:13:52.800 --> 0:13:54.520 one playing out in the Middle East. 0:13:54.840 --> 0:13:56.800 Well, at the moment, I think it's too early to 0:13:56.800 --> 0:13:58.920 sort of have any firm views. As a result of that, 0:13:59.160 --> 0:14:01.800 oil's gone up. But the bigger question is does oil 0:14:01.840 --> 0:14:03.440 stay up or does it come back down? And that, 0:14:03.640 --> 0:14:06.320 of course will depend on how things play out. But 0:14:06.600 --> 0:14:08.680 even that said, even if oil stays at these types 0:14:08.720 --> 0:14:10.680 of levels, to me, it's difficult to get a lot 0:14:10.679 --> 0:14:12.679 of read through as a result of that. Sure, oil 0:14:12.720 --> 0:14:15.520 will feed into headline inflation, but the evidence that it 0:14:15.559 --> 0:14:18.000 feeds into core inflation in any sort of material way 0:14:18.040 --> 0:14:20.440 unless there's a huge move in oil prices, I think 0:14:20.520 --> 0:14:22.520 is quite limited, so it's difficult for me to get 0:14:22.600 --> 0:14:25.320 very excited about a policy implication of what's happened thus far. 0:14:25.520 --> 0:14:27.400 So some people come on the producgram spike to Leister 0:14:27.520 --> 0:14:30.800 nine said, these Fed Reserve officials might be conditioned by 0:14:30.840 --> 0:14:33.600 the post pandemic experience coming out of twenty one into 0:14:33.600 --> 0:14:36.560 twenty two and the inflation spike then and the energy 0:14:36.600 --> 0:14:39.120 shock that developed at the time emin thing in Russia. 0:14:39.160 --> 0:14:40.960 It's this different, I mean, a different place. 0:14:41.000 --> 0:14:41.520 I think it is. 0:14:41.680 --> 0:14:43.280 I think that attitude is a little bit of fighting 0:14:43.360 --> 0:14:45.240 the last war, and I think that the Federal Reserve 0:14:45.280 --> 0:14:48.160 for decades has had the view that you know that 0:14:48.960 --> 0:14:52.000 headline headline inflation shocks like oil are best looked through, 0:14:52.040 --> 0:14:53.920 and you sort of focus on core inflation because it's 0:14:53.920 --> 0:14:55.960 indicative of weird inflation is going to go in the future, 0:14:56.120 --> 0:14:58.160 and you focus on the labor market, and that type 0:14:58.160 --> 0:15:00.320 of reasoning lead you to look through an oil shock. Now, 0:15:00.400 --> 0:15:02.360 of course, what happened in twenty twenty two was a 0:15:02.360 --> 0:15:04.920 bit different because the other policy settings were different. 0:15:05.000 --> 0:15:05.120 Right. 0:15:05.120 --> 0:15:07.600 Don't forget monetary policy was as expansionary as it had 0:15:07.720 --> 0:15:10.840 ever been at the time. Fiscal policy was injecting trillions 0:15:10.840 --> 0:15:13.160 of dollars into an economy that was recovering thanks to 0:15:13.240 --> 0:15:16.520 vaccines and medical medical improvements and COVID passing on its own, 0:15:16.720 --> 0:15:18.640 and so the policy environment was very different, and so 0:15:18.680 --> 0:15:21.840 it was very easy for a slightly inflationary shock to 0:15:21.880 --> 0:15:25.120 feed through into the broader economy and create this type 0:15:25.120 --> 0:15:27.960 of persistent inflationary problem that the FED dealt with. 0:15:28.120 --> 0:15:29.960 We don't have that right now. We don't have. 0:15:29.960 --> 0:15:32.680 Fiscal policy that's slamming on demand. In fact, if anything, 0:15:32.720 --> 0:15:36.040 supply is moving out quite aggressively, and monetary policy is 0:15:36.040 --> 0:15:39.280 still modestly restrictive in my view. So the policy settings, 0:15:39.320 --> 0:15:42.280 the economic environment is different. To focus on that as 0:15:42.280 --> 0:15:44.520 you described moment ago to me is fighting the last war. 0:15:44.600 --> 0:15:45.880 That was a unique circumstance. 0:15:46.160 --> 0:15:48.320 At the same time, some people have argued that the 0:15:48.400 --> 0:15:51.120 January jobs report raised a question about just how weak 0:15:51.160 --> 0:15:53.520 the labor market actually was. Even Governor Chris Waller came 0:15:53.560 --> 0:15:55.720 out and said, Okay, now it's a coin flip for 0:15:55.760 --> 0:15:58.000 whether we should cut right to the March meeting. 0:15:58.400 --> 0:15:59.320 If we do get. 0:15:59.120 --> 0:16:02.240 Confirmation of that strength with the February payrolls report that 0:16:02.280 --> 0:16:05.200 we get on Friday, would that make you rethink whether 0:16:05.240 --> 0:16:06.960 March was an appropriate time to cut rates. 0:16:07.440 --> 0:16:10.240 So look, for me, we've got two years of a trend, 0:16:10.240 --> 0:16:12.520 two plus years of a trend of gradually weakening labor 0:16:12.520 --> 0:16:15.080 markets that's sort of setting in twenty twenty in twenty 0:16:15.080 --> 0:16:19.520 twenty three, it's way too early to reject the notion 0:16:19.600 --> 0:16:22.080 that that trend continues based on one or two labor 0:16:22.080 --> 0:16:24.120 market reports. And when you look at the totality of 0:16:24.160 --> 0:16:26.440 labor market data, there's still evidence to me that it 0:16:26.440 --> 0:16:29.240 needs more support from Montaria policy when I look at 0:16:29.360 --> 0:16:32.840 things like employment levels of young folks and folks without 0:16:32.840 --> 0:16:35.560 college degrees, When I look at people who areemployed for 0:16:35.600 --> 0:16:38.160 long periods of time, long term unemployment, to me, that's 0:16:38.200 --> 0:16:40.760 indicative of theirs still being slackened labor market that Montaria 0:16:40.800 --> 0:16:43.160 policy can accommodate. So I think it's too early to 0:16:44.080 --> 0:16:46.400 reject the notion that a two plus year trend is 0:16:46.480 --> 0:16:48.280 over on the back of one print. 0:16:48.360 --> 0:16:50.320 Are you concerned though, that right now the market is 0:16:50.400 --> 0:16:53.400 moving the way that any rate cut would be perceived 0:16:53.520 --> 0:16:57.200 as heightening long term inflation pressures just by virtue of 0:16:57.240 --> 0:16:59.760 some of the supply shocks that we're seeing. And frankly, 0:16:59.840 --> 0:17:03.160 the fact that people do see strength re emerging in 0:17:03.280 --> 0:17:06.480 certain pockets of the economy. I mean, how worried are 0:17:06.520 --> 0:17:09.520 you that a rate cut in March could be potentially 0:17:09.560 --> 0:17:11.119 counterproductive and cause the. 0:17:11.119 --> 0:17:12.879 Long en of the yield curve to rise? 0:17:13.560 --> 0:17:17.840 Yes, So if you saw evidence in inflation markets that 0:17:17.960 --> 0:17:20.840 markets were concerned about longer and inflation expectations, that's the 0:17:20.880 --> 0:17:22.640 type of thing that would give me pause. 0:17:22.720 --> 0:17:24.360 But I don't see evidence of that so far. 0:17:24.600 --> 0:17:27.240 Short run inflation expectations have come up quite a bit, 0:17:27.400 --> 0:17:29.680 and you look at CPI swaps, but that's just because 0:17:29.720 --> 0:17:32.600 the mechanical read through of oil prices into headline inflation. 0:17:32.880 --> 0:17:35.000 When you look at longer tenors, there hasn't been much 0:17:35.000 --> 0:17:36.640 of a move, and so as a result, I don't 0:17:36.680 --> 0:17:38.960 get the impression the market is concerned about longer and 0:17:39.000 --> 0:17:39.880 inflation expectation. 0:17:40.040 --> 0:17:42.600 You've used this price modestly restrictive a few times in 0:17:42.720 --> 0:17:45.800 a conversation already. What is modestly restrictive to you? Can 0:17:45.880 --> 0:17:47.160 you put numbers on that kind of thing? 0:17:47.280 --> 0:17:47.480 Yeah? 0:17:47.480 --> 0:17:49.480 I think we're probably about a point above neutral now, 0:17:49.560 --> 0:17:51.440 and so my view is that we ought to start 0:17:51.440 --> 0:17:53.200 by getting getting back towards neutral. 0:17:53.240 --> 0:17:55.240 So the one hundred basis points and reductions. You want 0:17:55.240 --> 0:17:57.280 this year is not to become accommodative. You believe it's 0:17:57.320 --> 0:17:58.720 to get back to a neutral setting. 0:17:58.920 --> 0:17:59.920 Yeah, pretty much. 0:18:00.119 --> 0:18:01.840 What would it take for you to start thinking about 0:18:01.880 --> 0:18:03.600 the need to get accommodative? 0:18:04.359 --> 0:18:06.520 So I would, I would want to start thinking about 0:18:06.560 --> 0:18:09.359 inflation coming in below the target, which is a risk 0:18:09.400 --> 0:18:11.000 that I've highlighted if I end up being you know, 0:18:11.040 --> 0:18:12.440 I've I've emphasized. 0:18:12.359 --> 0:18:13.879 At risk, governor, what would be the source of that 0:18:14.000 --> 0:18:15.480 risk to get below target inflation? 0:18:15.720 --> 0:18:19.280 Sure, I've emphasized housing markets a lot that I'm expecting 0:18:19.320 --> 0:18:23.280 a faster convergence down of renewal rents to new rents, 0:18:23.320 --> 0:18:25.760 which will lead the housing inflation to converge quickly to 0:18:26.520 --> 0:18:30.199 new rent levels. And there's reasons for that that I've 0:18:30.240 --> 0:18:31.800 talked about at length. I don't need to repeat them 0:18:31.800 --> 0:18:34.199 here unless you want me to. But if I end 0:18:34.280 --> 0:18:37.840 up being right about housing and wrong about tariffs, and 0:18:37.880 --> 0:18:39.880 so I've also argued, I've also argued that I don't 0:18:39.960 --> 0:18:43.400 view tariffs as driving goods inflation. You know, I don't 0:18:43.520 --> 0:18:46.199 view that because imported prices, imported good prices are not 0:18:46.240 --> 0:18:48.720 inflating faster than all good prices, which is what you'd 0:18:48.720 --> 0:18:52.200 expect to see. And given that backdrop, I don't view 0:18:52.200 --> 0:18:54.719 tariffs as driving and as driving goods prices. So if 0:18:54.760 --> 0:18:56.479 I end up being right about housing and we get 0:18:56.480 --> 0:18:58.919 a sharp desileration in housing this year because of quirks 0:18:58.920 --> 0:19:00.879 of how housing is measured and because of dynamics of 0:19:00.880 --> 0:19:03.880 renewal rents versus new rents, and I end up being 0:19:03.920 --> 0:19:07.280 wrong about goods prices and goods inflation comes down quickly 0:19:07.280 --> 0:19:09.560 over the course of this year, then we're going to undershoot. 0:19:09.840 --> 0:19:11.000 We're going to undershoot our target. 0:19:11.080 --> 0:19:12.280 And you think that's a risk we need to get 0:19:12.280 --> 0:19:12.639 ahead of. 0:19:13.880 --> 0:19:15.359 No, I'm not saying we're gonna we need to get 0:19:15.359 --> 0:19:16.360 ahead of that. 0:19:15.960 --> 0:19:18.359 That would get me to argue we go balloon. 0:19:18.960 --> 0:19:21.280