Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: Terminal and the Bloomberg Business app. We begin this out
Speaker 2: with stocks looking to recover as geopolitics fuels major volatility.
Speaker 2: Sebastian Page of tro Price, writing this the bear case
Speaker 2: is a prolonged war, prolonged closure of the stratiformers, and
Speaker 2: escalating attacks on energy infrastructure. Our Brent range then would
Speaker 2: be one hundred to one twenty. Sebastian joins us now
Speaker 2: for more. So, welcome to the program. That's the bear case?
Speaker 2: What's the base case?
Speaker 3: Our research platform has been on overdrive over the weekend,
Speaker 3: as you can expect, and I've been reading and reading
Speaker 3: the research from our analysts, and John I can say
Speaker 3: there is no base case. It's extremes on both sides.
Speaker 3: I hate saying the range of outcomes is wide because
Speaker 3: it always sounds like an out But we have two scenarios,
Speaker 3: one short, one long, and the short scenario. You know,
Speaker 3: I think the Wall Street Journal reported that this is
Speaker 3: a bit of a race in terms of the missiles
Speaker 3: and drones from Iran and then the defenses from the
Speaker 3: golf countries that both are running out. And then you
Speaker 3: just reported on news that you know, there's some I
Speaker 3: don't know if you call it rumors or something else,
Speaker 3: but there's some news items that are pointing towards the
Speaker 3: short scenario and then the long scenarios an escalation, and
Speaker 3: you just outlined it. So, John, there is no base case.
Speaker 3: We're looking at scenarios. That's the only way too this
Speaker 3: right now, between short and long. And what we want is,
Speaker 3: you know, geopolitical hedging in the portfolio, which we've had
Speaker 3: for a while, so we remain long relasset equities and
Speaker 3: including energy but also metals and mining and commodities.
Speaker 2: Scept went to bonds fits in as we can front
Speaker 2: a shock like this one.
Speaker 3: Yeah, you know, that's tough question. I'm kind of I'm
Speaker 3: a bit of a correlation NERD. And one of the
Speaker 3: studies I've done is a study of a correlation between
Speaker 3: stocks and bonds. And if I were to boil it down,
Speaker 3: because we talk and I know in surveillis we talk
Speaker 3: about this about stocks and bonds and the stock bond correlation,
Speaker 3: you can boil it down pretty simply. If you get
Speaker 3: an inflation shock, both stocks and downs can go both
Speaker 3: both stocks and bonds can go down together. If you
Speaker 3: get a growth shock, then I still believe and the
Speaker 3: evidence is there that treasuries remain a hedge for a
Speaker 3: groad shock. Now, these things are always ingrained, so it's
Speaker 3: which factor dominates well if you look at the current situation,
Speaker 3: and inflation risk is clearly there. One of our analysts
Speaker 3: studied several oil shocks and he calculated that peak oil
Speaker 3: on average occurs twenty three days after the beginning of
Speaker 3: the attacks or the military military intervention, and then that
Speaker 3: oil rallies on average twenty seven percent. Again, these are averages,
Speaker 3: a mix of extremes. The range of outcome is wide.
Speaker 3: As much as I hate saying this, so it's it's
Speaker 3: a matter of hedging. And you'll see that in those
Speaker 3: cases when oil is driving and when inflation concerns are there,
Speaker 3: and you saw the one year inflation swaps go up
Speaker 3: around these events, well then bonds are not the same
Speaker 3: hedge as they used to be, and you have to
Speaker 3: have alternative hedges in the portfolios.
Speaker 4: Seast how important.
Speaker 5: Is nonfarm payils and Friday? And light of this, given
Speaker 5: the fact that a lot of whether this is an
Speaker 5: inflationary shock or whether this is potentially a shock to
Speaker 5: grow is predicated on how much momentum there was heading
Speaker 5: into this, I.
Speaker 3: Think the geopolitical headlines will continue to dominate into Friday.
Speaker 3: Non Farm payrolls are always important, no single data point matters,
Speaker 3: but we still debate employment quite a bit in our
Speaker 3: Asset Allocation Committee, especially in the context of AI. I
Speaker 3: believe the unemployment picture is okay in the US for
Speaker 3: the time being. You know, we're still at four point
Speaker 3: three percent. I always remind people that the long run
Speaker 3: average unemployment is five point seven percent, So the economy
Speaker 3: in the US is humming. Of course, if you get
Speaker 3: a tax on the consumer in the form of higher
Speaker 3: gas lead prices, and then that can change the picture,
Speaker 3: but that won't be in the non farm payroll numbers
Speaker 3: on Friday. So I guess, Lisa, I'll say moderately important.
Speaker 3: It's part of the mosaic, and we have to I
Speaker 3: like the question because sometimes we get carried away with
Speaker 3: geopolitical headlines. Of course, this is a major event. I
Speaker 3: gu it's just like it's in some ways. Another word
Speaker 3: I hate to use is unprecedented. But I'm using all
Speaker 3: the words I hate to use this morning. But you know,
Speaker 3: growth and inflation are still major forces driving the US economy,
Speaker 3: and if we're running at five five and a half
Speaker 3: six percent nominal growth, stocks should do okay. And by
Speaker 3: the way, is a nice study by Merrilynage that shows
Speaker 3: that about sixty years of geopolitical shocks and seventy percent
Speaker 3: positive stock returns after a year and an average of
Speaker 3: nine point five percent. So that kind of good sets
Speaker 3: this narrative as you buy the dip, and you you
Speaker 3: know it's a buying opportunity when you get a geopolitical shock.
Speaker 3: But I think the picture right now is more nuanced
Speaker 3: than we're advocating for hedges, including in the stocks portfolios,
Speaker 3: including real acid equities.
Speaker 5: Sebastian, I'm going to give you another word that you
Speaker 5: probably hate using.
Speaker 4: Is this market virtually.
Speaker 5: Untradeable based on the lack of fundamental backing behind a
Speaker 5: lot of the potential moves.
Speaker 3: Yeah, I'm tradable. Here's another one, Lisa, thank you. I
Speaker 3: think the markets are deep and liquid, and we talked
Speaker 3: about treasuries. I mean those can remain ahead if we
Speaker 3: get a growth shock, which I don't necessarily expect.
Speaker 1: That's not the base case.
Speaker 3: You see oil markets behave you know, we're already in
Speaker 3: the eighties and crude. It's been interesting to follow the
Speaker 3: oil price reaction on my Bloomberg terminal. You know, from
Speaker 3: this idea that will escort ships around the Strait of
Speaker 3: Hore moves and that will ensure them, and then you know,
Speaker 3: you saw oil prices come down a little bit. But
Speaker 3: then this morning it looks like, you know, we're back up,
Speaker 3: and so you were just reporting about Wall streets skepticism.
Speaker 3: I think this is hard to do, but overall markets
Speaker 3: are behaving, Lisa.
Speaker 2: So we're confronts in a lot of sharks and have
Speaker 2: done over the past month or so. I think there's
Speaker 2: three broad shocks, AI disruption being one, the second being
Speaker 2: the JIT is in credit, and now the third is
Speaker 2: the energy shock over the weekend. I'm interested in two
Speaker 2: and three and the interplay between both the credit jitters
Speaker 2: need a rate off set. I just wonder how you
Speaker 2: were thinking about the prospect of the rate offset being
Speaker 2: constrained by the story developing, which is three, the energy shock.
Speaker 2: We're not getting a loosening of financial conditions. We're getting
Speaker 2: a tightening of financial conditions at a time when credit
Speaker 2: git is a heightening. They're not de escalating, And I
Speaker 2: just wonder how you think that's going to play it
Speaker 2: in the weeks to count.
Speaker 1: Yeah.
Speaker 3: Look, the major risk for multi asset investors is that
Speaker 3: the treasuries don't behave as you need them to be
Speaker 3: when stocks sell off. But let's I think I heard
Speaker 3: Lori Calvaccina say on surveillance earlier this week, let's all
Speaker 3: take a deep breath. Right right now, stocks are doing okay,
Speaker 3: and I think there's this narrative that geopolitics won't drive everything.
Speaker 3: You know, John, I have you have a AI tool
Speaker 3: now on the Bloomberg terminal. It's in beta version, right,
Speaker 3: but I was using it just for fun, and I
Speaker 3: thought I mentioned it on the show and I was
Speaker 3: looking out Okay, Wester relationship between oil and stock prices,
Speaker 3: and only six percent of stock price volatility over time,
Speaker 3: not during specific events, you know, can drive the S
Speaker 3: and P five hundred. So it's a lot of different
Speaker 3: factors splaying all at once. AI is a huge debate
Speaker 3: on our Asset Allocation Committee, especially in terms of what
Speaker 3: it will do to employment and how fast. Some of
Speaker 3: us are saying, look, you know it takes a lot
Speaker 3: of resources to clean your data and tag your data
Speaker 3: and upgrade your infrastructure, so maybe actually hiring people to
Speaker 3: deploy AI. This is just me being controversial. But then
Speaker 3: we all know that over time it can replace jobs,
Speaker 3: and how is this going to play out? I was
Speaker 3: driving to work earlier this week listening to Bloomberg Surveillance
Speaker 3: and my drives about thirty minutes Jonathan, And it was
Speaker 3: thirty minutes I got to work, and there was no
Speaker 3: discussion on surveillance of AI because of all the geopolitical risk, right,
Speaker 3: and so as wow, they haven't they haven't talked about
Speaker 3: AI or the FAT even once, and I'm at work
Speaker 3: already it's been thirty minutes. But those factors, let's not
Speaker 3: forget them. They still matter very much in portfolios and
Speaker 3: Before all this happened, we saw industries fall one after
Speaker 3: the other, which we ended up debating in our Asset
Speaker 3: Allocation Committee. It's this idea of dispersion, John, and that's
Speaker 3: going to continue dispersion across industries. Our portfolio managers like
Speaker 3: healthcare stocks. It's interesting they like technology, but they also
Speaker 3: like materials, and you know, even energy stocks.
Speaker 4: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: So here's the lacest this morning and Givran reportedly coming
Speaker 2: to the negotiating table. The New York Times reporting Iranian
Speaker 2: intelligence operatives approach the US government over the weekend with
Speaker 2: an offer to discuss terms to end the conflict. John
Speaker 2: liber if you raise a group rights in the following,
Speaker 2: the Iron conflict will likely take her off within two
Speaker 2: to three weeks as the US and Israel successfully to
Speaker 2: great Iran's military can abilities. John Jones, Now for more,
Speaker 2: John Michael to the program. What gives you the confidence
Speaker 2: that we'll end this in a ta to three week timeframe, Man.
Speaker 6: I don't have a ton of confidence that this is
Speaker 6: going to be over them, but there is an issue
Speaker 6: where the military capabilities just aren't going to be what
Speaker 6: they were when this whole thing began. So the Iranians
Speaker 6: eventually run out of ballistic missiles. We just heard about
Speaker 6: the large number that they've been launching against other countries
Speaker 6: in the region. Eventually, you know, they do have a
Speaker 6: large quantity of drones that I think the US is
Speaker 6: going to have trouble getting access to before they're launched,
Speaker 6: which means that a run's defensive offensive capabilities will remain
Speaker 6: fairly aggressive for the for the immediate future. But at
Speaker 6: some point this is going to taper off when they
Speaker 6: start running out of ballistic missiles and the US starts
Speaker 6: to run out of its ability to defend its own
Speaker 6: ships in the region. Now, I think if you listen
Speaker 6: to what Donald Donald Trump has been saying, he's been
Speaker 6: pretty explicit that there's more to come here, that this
Speaker 6: is kind of the initial phase of these strikes, and
Speaker 6: we think this probably escalates over the next several days
Speaker 6: to maybe a week or so as the US tries
Speaker 6: to end this quickly. The US does not want to
Speaker 6: be in this war for the long haul.
Speaker 1: Now.
Speaker 6: Of course, they're going to remain committed to the region
Speaker 6: because what they need is regime compliance, not regime change,
Speaker 6: and the way that they enforce regime compliance is by
Speaker 6: maintaining a credible threat to bomb whoever.
Speaker 1: Is coming next.
Speaker 6: But we think the most intense part of this fighting
Speaker 6: likely tapers off in the next few weeks.
Speaker 5: How concerned are you, John about the asymmetry and cost
Speaker 5: between what the US is deploying and what Iran is deplying.
Speaker 5: And I'm thinking about all those drones that you said
Speaker 5: are going to be hard to identify before they're launched.
Speaker 5: The US is shooting them down with million dollar missiles.
Speaker 5: Each of those drones is relatively cheap to produce.
Speaker 4: How much of a.
Speaker 5: Problem is that.
Speaker 6: Yeah, it's a huge problem. I mean the advantage here,
Speaker 6: of course, is the US is industrial capacity, which over
Speaker 6: time is going to be able to make sure that
Speaker 6: those ships are resupplied at any cost. Is trying to
Speaker 6: increase the defense budget. It seems like Congress is more
Speaker 6: or less willing to go along here. So the US
Speaker 6: has a large store of production capabilities that it can
Speaker 6: draw on with time. Iran doesn't, and it won't. It
Speaker 6: probably has these stocks of drones, it's got these stocks
Speaker 6: of missiles. It will run out of them at some point,
Speaker 6: but they can cause a lot of damage in the meantime,
Speaker 6: and that I think is the major concern for golf
Speaker 6: partner states around Iran right now, less of a concern
Speaker 6: for Israel given the distance that Israel has from Iran.
Speaker 2: John, just quickly, how did you and the team react
Speaker 2: when you heard the president's vague? I would say, framework
Speaker 2: to have traffic through the stratiformers.
Speaker 1: You know this could work.
Speaker 6: I mean, if I'm a shipper, I don't want my
Speaker 6: tankers destroyed or sunk, so it's obviously quite risky. But
Speaker 6: the US is now putting taxpayer money behind ensuring that
Speaker 6: these ships can get through. I think we have to
Speaker 6: wait and see what the details look like. Legally, it
Speaker 6: seems like he probably has the authority some flexibility the
Speaker 6: DFC in order to do this. But I think that
Speaker 6: you know and clearly they've thought. This isn't a totally
Speaker 6: slap dashed plan. I think that they actually do have
Speaker 6: some reasonable planning behind this that suggests they will be
Speaker 6: able to compensate for losses. The question is are shippers
Speaker 6: willing to take those losses and then need their risk.
Speaker 4: Stay with US? More Bloomberg surveillance coming up after this.
Speaker 2: If on move continues you'd slightly high for a third
Speaker 2: consecutive day, inflationary fairs making a comeback, and some people
Speaker 2: out there trimming Federae cup bets.
Speaker 1: Feder Reserve.
Speaker 2: Governor Stephen Myron, I'm pleased to say, joins us around
Speaker 2: the table for a conversation about that and a whole
Speaker 2: lot more.
Speaker 4: Governor Maron go and Mornick.
Speaker 1: Good morning, Thanks for having me, Thank you for being here. Sir.
Speaker 2: Let's start with the shock over the weekend. What is
Speaker 2: the prudent response for policymaker confronting a shock like the
Speaker 2: one playing out in the Middle East.
Speaker 7: Well, at the moment, I think it's too early to
Speaker 7: sort of have any firm views. As a result of that,
Speaker 7: oil's gone up. But the bigger question is does oil
Speaker 7: stay up or does it come back down? And that,
Speaker 7: of course will depend on how things play out. But
Speaker 7: even that said, even if oil stays at these types
Speaker 7: of levels, to me, it's difficult to get a lot
Speaker 7: of read through as a result of that. Sure, oil
Speaker 7: will feed into headline inflation, but the evidence that it
Speaker 7: feeds into core inflation in any sort of material way
Speaker 7: unless there's a huge move in oil prices, I think
Speaker 7: is quite limited, so it's difficult for me to get
Speaker 7: very excited about a policy implication of what's happened thus far.
Speaker 2: So some people come on the producgram spike to Leister
Speaker 2: nine said, these Fed Reserve officials might be conditioned by
Speaker 2: the post pandemic experience coming out of twenty one into
Speaker 2: twenty two and the inflation spike then and the energy
Speaker 2: shock that developed at the time emin thing in Russia.
Speaker 2: It's this different, I mean, a different place.
Speaker 1: I think it is.
Speaker 7: I think that attitude is a little bit of fighting
Speaker 7: the last war, and I think that the Federal Reserve
Speaker 7: for decades has had the view that you know that
Speaker 7: headline headline inflation shocks like oil are best looked through,
Speaker 7: and you sort of focus on core inflation because it's
Speaker 7: indicative of weird inflation is going to go in the future,
Speaker 7: and you focus on the labor market, and that type
Speaker 7: of reasoning lead you to look through an oil shock. Now,
Speaker 7: of course, what happened in twenty twenty two was a
Speaker 7: bit different because the other policy settings were different.
Speaker 1: Right.
Speaker 7: Don't forget monetary policy was as expansionary as it had
Speaker 7: ever been at the time. Fiscal policy was injecting trillions
Speaker 7: of dollars into an economy that was recovering thanks to
Speaker 7: vaccines and medical medical improvements and COVID passing on its own,
Speaker 7: and so the policy environment was very different, and so
Speaker 7: it was very easy for a slightly inflationary shock to
Speaker 7: feed through into the broader economy and create this type
Speaker 7: of persistent inflationary problem that the FED dealt with.
Speaker 1: We don't have that right now. We don't have.
Speaker 7: Fiscal policy that's slamming on demand. In fact, if anything,
Speaker 7: supply is moving out quite aggressively, and monetary policy is
Speaker 7: still modestly restrictive in my view. So the policy settings,
Speaker 7: the economic environment is different. To focus on that as
Speaker 7: you described moment ago to me is fighting the last war.
Speaker 1: That was a unique circumstance.
Speaker 5: At the same time, some people have argued that the
Speaker 5: January jobs report raised a question about just how weak
Speaker 5: the labor market actually was. Even Governor Chris Waller came
Speaker 5: out and said, Okay, now it's a coin flip for
Speaker 5: whether we should cut right to the March meeting.
Speaker 4: If we do get.
Speaker 5: Confirmation of that strength with the February payrolls report that
Speaker 5: we get on Friday, would that make you rethink whether
Speaker 5: March was an appropriate time to cut rates.
Speaker 7: So look, for me, we've got two years of a trend,
Speaker 7: two plus years of a trend of gradually weakening labor
Speaker 7: markets that's sort of setting in twenty twenty in twenty
Speaker 7: twenty three, it's way too early to reject the notion
Speaker 7: that that trend continues based on one or two labor
Speaker 7: market reports. And when you look at the totality of
Speaker 7: labor market data, there's still evidence to me that it
Speaker 7: needs more support from Montaria policy when I look at
Speaker 7: things like employment levels of young folks and folks without
Speaker 7: college degrees, When I look at people who areemployed for
Speaker 7: long periods of time, long term unemployment, to me, that's
Speaker 7: indicative of theirs still being slackened labor market that Montaria
Speaker 7: policy can accommodate. So I think it's too early to
Speaker 7: reject the notion that a two plus year trend is
Speaker 7: over on the back of one print.
Speaker 5: Are you concerned though, that right now the market is
Speaker 5: moving the way that any rate cut would be perceived
Speaker 5: as heightening long term inflation pressures just by virtue of
Speaker 5: some of the supply shocks that we're seeing. And frankly,
Speaker 5: the fact that people do see strength re emerging in
Speaker 5: certain pockets of the economy. I mean, how worried are
Speaker 5: you that a rate cut in March could be potentially
Speaker 5: counterproductive and cause the.
Speaker 4: Long en of the yield curve to rise?
Speaker 7: Yes, So if you saw evidence in inflation markets that
Speaker 7: markets were concerned about longer and inflation expectations, that's the
Speaker 7: type of thing that would give me pause.
Speaker 1: But I don't see evidence of that so far.
Speaker 7: Short run inflation expectations have come up quite a bit,
Speaker 7: and you look at CPI swaps, but that's just because
Speaker 7: the mechanical read through of oil prices into headline inflation.
Speaker 7: When you look at longer tenors, there hasn't been much
Speaker 7: of a move, and so as a result, I don't
Speaker 7: get the impression the market is concerned about longer and
Speaker 7: inflation expectation.
Speaker 2: You've used this price modestly restrictive a few times in
Speaker 2: a conversation already. What is modestly restrictive to you? Can
Speaker 2: you put numbers on that kind of thing?
Speaker 1: Yeah?
Speaker 7: I think we're probably about a point above neutral now,
Speaker 7: and so my view is that we ought to start
Speaker 7: by getting getting back towards neutral.
Speaker 2: So the one hundred basis points and reductions. You want
Speaker 2: this year is not to become accommodative. You believe it's
Speaker 2: to get back to a neutral setting.
Speaker 1: Yeah, pretty much.
Speaker 2: What would it take for you to start thinking about
Speaker 2: the need to get accommodative?
Speaker 7: So I would, I would want to start thinking about
Speaker 7: inflation coming in below the target, which is a risk
Speaker 7: that I've highlighted if I end up being you know,
Speaker 7: I've I've emphasized.
Speaker 2: At risk, governor, what would be the source of that
Speaker 2: risk to get below target inflation?
Speaker 7: Sure, I've emphasized housing markets a lot that I'm expecting
Speaker 7: a faster convergence down of renewal rents to new rents,
Speaker 7: which will lead the housing inflation to converge quickly to
Speaker 7: new rent levels. And there's reasons for that that I've
Speaker 7: talked about at length. I don't need to repeat them
Speaker 7: here unless you want me to. But if I end
Speaker 7: up being right about housing and wrong about tariffs, and
Speaker 7: so I've also argued, I've also argued that I don't
Speaker 7: view tariffs as driving goods inflation. You know, I don't
Speaker 7: view that because imported prices, imported good prices are not
Speaker 7: inflating faster than all good prices, which is what you'd
Speaker 7: expect to see. And given that backdrop, I don't view
Speaker 7: tariffs as driving and as driving goods prices. So if
Speaker 7: I end up being right about housing and we get
Speaker 7: a sharp desileration in housing this year because of quirks
Speaker 7: of how housing is measured and because of dynamics of
Speaker 7: renewal rents versus new rents, and I end up being
Speaker 7: wrong about goods prices and goods inflation comes down quickly
Speaker 7: over the course of this year, then we're going to undershoot.
Speaker 1: We're going to undershoot our target.
Speaker 4: And you think that's a risk we need to get
Speaker 4: ahead of.
Speaker 7: No, I'm not saying we're gonna we need to get
Speaker 7: ahead of that.
Speaker 1: That would get me to argue we go balloon.
Speaker 2: Conversation we're having about how preemptive you might need to
Speaker 2: be in a moment like this when it's on the
Speaker 2: committee of thinking let's wait and see, wait and see
Speaker 2: what happens. Lisa was asking, how would you vote the
Speaker 2: March committee meeting. Is this a moment to wait and
Speaker 2: see or a moment to act?
Speaker 1: No?
Speaker 7: I think I think it's a moment to continue acting.
Speaker 7: I have pulse I have projections for unemployment. I have
Speaker 7: projections for labor markets, so to my for inflation, so
Speaker 7: to my colleagues, and I believe it's appropriate to continue
Speaker 7: acting in accordance with those projections until you get evidence
Speaker 7: that you have to change your projections. And thus far
Speaker 7: the evidence from event from events over the weekend haven't
Speaker 7: led me to change any of my forecast for the
Speaker 7: labor market for inflation over the medium terms, so it's
Speaker 7: too early to respond to them.
Speaker 5: You said that you think that the new story is
Speaker 5: a point below the three points seven and five where
Speaker 5: we currently are, and I'm just wondering how quickly you
Speaker 5: think it's important to get to neutral based on the uncertainty,
Speaker 5: based on the disagreements that people have about a where
Speaker 5: neutral is and be how things are going to transpire.
Speaker 1: Yeah.
Speaker 7: So last year I was voting for fifties because we
Speaker 7: were higher away from it, and then as we made
Speaker 7: progress cutting and getting closer towards neutral, I felt it
Speaker 7: was appropriate to say, ok now, I'm okay moving in
Speaker 7: twenty five clips. I prefer to still continue moving in
Speaker 7: twenty five clips until we got to neutral and then
Speaker 7: to reevaluate because at the end of the day. I
Speaker 7: don't see an inflation problem in the United States now.
Speaker 7: Of course, if we get evidence that what's happening in
Speaker 7: the Middle East is bleeding through into broader inflation, then
Speaker 7: that would change my mind.
Speaker 1: But thus far there's no evidence.
Speaker 2: So Kevina, what would that evidence look like? What would
Speaker 2: you look for? Specifically?
Speaker 7: I'd look for inflation expectations starting to move as a result,
Speaker 7: starting to move on it, or consume avice, I tend
Speaker 7: to think that the market based ones are more important,
Speaker 7: are more important to me, or evidence that or evidence
Speaker 7: the economy is starting to in some sense overheat again.
Speaker 7: Then I then I would be comfortable sort of changing
Speaker 7: that view and moving more slow, moving even more slowly.
Speaker 7: But at the moment, you know, I see, I see
Speaker 7: it as appropriate to continue continue cutting.
Speaker 5: Do you have any company on the committee?
Speaker 7: Uh, you know, I can't speak for an I can't
Speaker 7: speak for anyone else. And I think most people probably
Speaker 7: end up sharing my view that it's too early to
Speaker 7: draw dramatic conclusions.
Speaker 1: As a result of that, we're.
Speaker 5: Coming to a very different conclusion about what to do.
Speaker 5: As a result of not drawing conclusions. They say, Okay, well,
Speaker 5: then don't move you're saying keep moving.
Speaker 4: So I mean that's this they started.
Speaker 7: Every everybody is I think people are generally where they
Speaker 7: were last week, right, And it's just too early to
Speaker 7: change your mind based on based on what's going on,
Speaker 7: my forecast for inflation and employment and my view call
Speaker 7: for continuing continuing industry cuts. Other people disagree, you know,
Speaker 7: and so they also haven't haven't moved yet. But as
Speaker 7: we get information about.
Speaker 2: It, TIMI thinks the words right, So the credit JED
Speaker 2: is one, an AI another. I want to squeeze in
Speaker 2: both then if we can, So let's start with the AI.
Speaker 2: Jet says, so Block, a fintech company came out in
Speaker 2: the last week or so and cut almost half of
Speaker 2: its staff, and they set them make it a mas,
Speaker 2: save AI productivity bad as a policy, make it for you.
Speaker 4: Do you consider that noise or signal?
Speaker 1: What is that?
Speaker 7: So that's you know, that's one, that's one company. It's
Speaker 7: indicative of what you could have more of. But this
Speaker 7: is just how this is how productivity gains and technology work.
Speaker 7: They allow you to produce more with fewer, fewer inputs,
Speaker 7: with fewer, fewer resources. And so if you were able
Speaker 7: to produce the same amount with fewer workers and less capital,
Speaker 7: then your productivity goes up. That frees those workers not
Speaker 7: necessarily into unemployment, but to do other work. And this
Speaker 7: is this is this has always been the story of
Speaker 7: human technological progress and the human economic growth. We create
Speaker 7: new technologies, they destroy some jobs, and then they create
Speaker 7: new jobs.
Speaker 1: They free people to do new activity.
Speaker 4: I don't think it's different this time.
Speaker 1: Uh, you know, I don't have a reason for.
Speaker 7: Like I said before, you know, it's too early projected
Speaker 7: to your trend of of of labor market moving in
Speaker 7: a gradual cooling direction. It's too early to reject tens
Speaker 7: of thousands of years trend of how technology works in
Speaker 7: the economy.
Speaker 1: We've talked about.
Speaker 2: These sources of risk and one is Spain the geopolitical problems.
Speaker 2: This is another two and the third one is connected
Speaker 2: in some cases to what's happening with AI. It's also
Speaker 2: the credit jitters as well. So this riises the question
Speaker 2: about potential financial risk for you and the committee. How
Speaker 2: are you thinking about things as they develop?
Speaker 7: But just one last point, an AI, even as it
Speaker 7: destroys old jobs and creates new jobs, that is the
Speaker 7: type of that is the type of job transition that
Speaker 7: is typically accommodated by a central bank. Right, you don't
Speaker 7: want to prevent the new jobs from being created by
Speaker 7: having policy that's too restrictive. If you have an increase
Speaker 7: in job loss due to new technology, you have to
Speaker 7: accommodate that and allow the new jobs to get created
Speaker 7: instead of preventing it.
Speaker 4: Do support what's developing and credit. Sorry, oh, what's developing
Speaker 4: and credit?
Speaker 7: So look, you know, I am, like with vents in
Speaker 7: the Middle East, I'm not at the point where I
Speaker 7: have a strong read through from what's going on in
Speaker 7: credit into the economy.
Speaker 1: I don't.
Speaker 7: I'm not at the point where I think where I
Speaker 7: think there's any sort of policy response that's necessary or
Speaker 7: adjustment to forecast this necessary. One thing that I think
Speaker 7: is interesting about what's going on in credit is, to me,
Speaker 7: it highlights the potential shortcoming of our financial conditions and disease.
Speaker 7: We've got a lot of people who argue it's inappropriate
Speaker 7: to cut because financial conditions are so loose.
Speaker 1: They've been arguing that for a long time.
Speaker 7: But one hypothesis of mine that I'm exploring is that
Speaker 7: those financial conditions and disease aren't showing you what's going
Speaker 7: on in private credit because you don't get the marks
Speaker 7: for them, and to the extent that private credit has
Speaker 7: been a major driver of credit growth over the last
Speaker 7: half decade or so, that's missing from the financial conditions
Speaker 7: and disease. So when we get these jitters in private
Speaker 7: credit markets and then say, oh, financial conditions are so loose,
Speaker 7: it's just because we decided not to look at the
Speaker 7: part of the financial markets that are tight.
Speaker 2: So I do you think we are seeing it on
Speaker 2: warranted toynic of financial conditions so far?
Speaker 7: Well, you know, sort of unwarranted is a bit is
Speaker 7: a bit of a heavy load, But I do think
Speaker 7: I do think it's it's I would be cautious about
Speaker 7: concluding that financial conditions are so loose when you're getting
Speaker 7: these things happening in private credit markets.
Speaker 5: I just want to ask, have you talked to President
Speaker 5: Trump recently?
Speaker 1: Not since I resigned, now since you resigned.
Speaker 5: I'm just wondering how difficult it is to conduct policy
Speaker 5: with a huge unknown hanging over the committee about who
Speaker 5: is going to be the next FED sure and what
Speaker 5: this process is going to look like past April.
Speaker 1: Well, I mean, I.
Speaker 7: Think we have a pretty good idea of who's going
Speaker 7: to be the next FED chairman. We don't have a
Speaker 7: good idea yet of exactly when he will become the
Speaker 7: next FED chairman, but I'm hopeful that we get that
Speaker 7: type of that type of clarity soon. I think it
Speaker 7: would be I think it would be great to have
Speaker 7: that type of clarity gone.
Speaker 2: It's a weird thing on the Federal Reserve and not
Speaker 2: knowing when you're going to ACCEP just sort of like
Speaker 2: there with an open ended calendar on what's going to
Speaker 2: happen next.
Speaker 7: It makes it difficult to plant it.
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