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Speaker 1: Welcome to the Bloomberg Surveillance Podcast Hometown Keene. Along with

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Speaker 1: Jonathan Ferroll and Lisa are Brown Wits Jayleie, we bring

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Speaker 1: you insight from the best an economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance, an Apple Podcast, SoundCloud, Bloomberg

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Speaker 1: dot Com, and of course on the Bloomberg Terminal. We

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Speaker 1: spent a lot of time talking about energy security. As

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Speaker 1: you might expect, one thing we tried to do on

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Speaker 1: this program over the last few weeks is bring it

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Speaker 1: back to food security as well. We heard from the

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Speaker 1: Agricultural Minister of Ukraine this morning. Ukraine said the following

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Speaker 1: the situation with Ukraine's food is quote under control. They

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Speaker 1: went through the stockpiles, things like wheat, things like corn, said,

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Speaker 1: wheat stockpiles were sufficient for two years. Corn stockpiles sufficient

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Speaker 1: for one and a half years. Let's talk about food security,

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Speaker 1: domestic and international. And really one of the best guests

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Speaker 1: I can think of for insight into the inner work

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Speaker 1: into the Ukrainian economy, the former Ukraine finance minister naturally

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Speaker 1: to Risto, naturally fantastic to catch up with you again.

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Speaker 1: You are perfectly positioned to run us through this help

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Speaker 1: us understand the threats of both domestic food insecurity and

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Speaker 1: international food insecurity as well. Well. Thank you very much

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Speaker 1: for having me. I think on the domestic side, what

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Speaker 1: they said about the stocks is very true, and I

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Speaker 1: don't think it's the issue of whether or not there's

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Speaker 1: sufficient stocks. I think the challenges right now food security,

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Speaker 1: in particular in the cities that are being besieged because

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Speaker 1: there's no way to get food into the cities and

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Speaker 1: those that are still functional key of for the for example,

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Speaker 1: the capital are having trouble getting bakeries to function, and

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Speaker 1: so the challenges taking those stocks and translating that into food,

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Speaker 1: I think, usable food for the population. With regard to

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Speaker 1: the international community, that's very different. Everything depends on whether

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Speaker 1: or not farmers are able and willing to go out

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Speaker 1: and farm and to plant this spring, and as you've seen,

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Speaker 1: Ukrainian farmers have a lot of other things on their minds,

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Speaker 1: including taking some of the tanks. So it's it's a

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Speaker 1: question of how much of the arable land is going

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Speaker 1: to be safe without bombs flying overhead to plant, and

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Speaker 1: if not, I think you're going to see a serious

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Speaker 1: food problem globally in particular in Northern Africa and the

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Speaker 1: Middle East. Meanwhile, Nat, only or earlier this morning, we

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Speaker 1: were speaking with our own Maria Todeo, who said that

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Speaker 1: in two weeks Russia single handedly destroyed Ukraine's economy, and

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Speaker 1: I wonder how long how lasting that destruction will be,

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Speaker 1: which speaks directly to the food security. How soon after

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Speaker 1: the conflict ends, could those farmers get back out, could

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Speaker 1: the land be salvageable? Well, if we missed this farm

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Speaker 1: this planting season, we're not talking about planting again until

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Speaker 1: we have it. We have a minimal winter season and

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Speaker 1: then it's next spring. So really the time is the

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Speaker 1: next two months for for planting. And if we miss

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Speaker 1: this season, then I think you're going to see global

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Speaker 1: food prices rise substantially. That's the damage to the Ukrainian economy.

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Speaker 1: When it comes to the Russian economy, we know already

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Speaker 1: a lot of damage has been done by sanctions already

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Speaker 1: put into place. From your perspective, Natalie, how much powder

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Speaker 1: is still in the keg? How far away is the

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Speaker 1: West from having exhausted all of its options on that front?

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Speaker 1: Very far from having exhausted our options. We've been pretty timid.

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Speaker 1: There's been a couple of key sanctions that have had

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Speaker 1: an effect, meeting the freezing of the reserves of the

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Speaker 1: Central Bank of Russia which has affected their ability to

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Speaker 1: support the exchange rate, and then the devaluation of the

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Speaker 1: of the ruble has caused bank runs and so on.

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Speaker 1: But I think we're not yet seeing the rest of

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Speaker 1: the banking system frozen. So we do not have full

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Speaker 1: blocking sanctions even against his bare Bank and VTV, the

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Speaker 1: two largest in the system, um those only have minimal sanctions.

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Speaker 1: And then the rest of the state owned banks are

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Speaker 1: still unsanctioned, state owned energy companies unsanctioned. We still haven't

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Speaker 1: sanctioned the state owned logistics companies, the state owned transportation companies.

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Speaker 1: I think there's still quite a bit to do. We've

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Speaker 1: done in the United States and in a ban on

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Speaker 1: oil imports, but that really is the limit of it.

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Speaker 1: That and some increased tariffs in Canada. We really need

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Speaker 1: everyone in Europe to join in the at a minimum

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Speaker 1: increase in tariffs on Russian imports, if not a ban

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Speaker 1: on certain in particular oil and gas. So there are

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Speaker 1: still a wide variety of sanctions that haven't been used.

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Speaker 1: And frankly speaking, I think we've been too timid. We

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Speaker 1: need to move much more quickly. And that seems to

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Speaker 1: be the message from Vladimir's Lenski this morning in Germany.

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Speaker 1: He was saying, you guys need to stop with some

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Speaker 1: of these gas payments, although it does become very difficult

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Speaker 1: because they rely on those pipelines for their lifelines and

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Speaker 1: for costs to be with made within control. What are

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Speaker 1: you looking for in the next couple of days, the

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Speaker 1: next couple of weeks to try to bring this to

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Speaker 1: a close. First and foremost, it's delivery, urgent delivery of

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Speaker 1: those military supplies, some of which were promised by President

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Speaker 1: Biden yesterday, in particular air defense. It is the bombing

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Speaker 1: and the missiles that is causing the most tremendous amount

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Speaker 1: of death. What you saw with the bombing of a

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Speaker 1: theater in Mariopol in the southeastern part of the country,

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Speaker 1: um with three hundred to five hundred civilians inside, that

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Speaker 1: that can't be stopped, not with but by the very

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Speaker 1: brave Ukrainian armed forces on the ground. We need the

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Speaker 1: air defense, So number one, increase the military support urgently

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Speaker 1: to Ukraine so they can defend themselves. Number Two, I

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Speaker 1: would ask for blocking sanctions on the state owned banks,

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Speaker 1: blocking sanctions meaning no more doing business with Russian state

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Speaker 1: owned banks. If a few existing contracts need to be

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Speaker 1: carved out in Europe because of the energy contracts, then

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Speaker 1: find a way to permit by license in individual contract,

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Speaker 1: but stop and cease doing business with Russia Natally, can

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Speaker 1: I say thank you. We had important conversations eight years

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Speaker 1: ago and unfortunately we're having those conversations again. Thank you

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Speaker 1: very much for being with us. Naturally to Risco, the

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Speaker 1: former UK rain finance minister joined US now Director and

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Speaker 1: Chief Economies. He likes Mador G. P. Kayley, as you

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Speaker 1: know from the O. E. C. D. Lawrence, great to

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Speaker 1: catch up. We've got two sharks. We saw it in

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Speaker 1: the ECB's forecast. We saw in the fetes as well.

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Speaker 1: They've had to raise their inflation outlook. They've had to

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Speaker 1: drop their projections for growth. It's a difficult position for policymakers,

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Speaker 1: fiscal policymakers to be in Lawrence, what's your recommendation for

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Speaker 1: how fiscal policymakers should react to the higher energy bills

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Speaker 1: across Europe. Well, actually, as you're saying, this is a

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Speaker 1: moment for fiscal policy makers. What we are seeing now

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Speaker 1: is a hit too pull to consumers of energy and

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Speaker 1: a sor of food UM, and that needs to be

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Speaker 1: addressed with fiscal measures were recommended means targeted, temporary measure

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Speaker 1: to actually soothe the bill for the poorest household, lower

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Speaker 1: income and lower mint income class people. And that will

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Speaker 1: also actually help inflation to be kept in check by

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Speaker 1: lowering the wage price power that would come out of

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Speaker 1: inflation bursting without any physical support. So right now, Laurence,

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Speaker 1: I was looking at your projection and there was a

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Speaker 1: careful categorization of the market response slowing growth materially and

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Speaker 1: pushing up consumer prices. Markets seem to be starting to

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Speaker 1: move on, and assume that there's going to be some

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Speaker 1: quick resolution to this conflict, at least relatively speaking. Is

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Speaker 1: that Does that mean that the ramifications economically, however horrific,

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Speaker 1: the humanitarian aspect of this is would be really dampened

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Speaker 1: because the markets have moved on. So I think we

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Speaker 1: should refrain from any hasty conclusion. The situation is very volatile.

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Speaker 1: It evolves by the day UM and we are seeing

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Speaker 1: this not only with the humanitarian situation, which continue to

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Speaker 1: be a flow of refugees, but also in prices. Right.

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Speaker 1: So market job is to anticipate what's going to happen

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Speaker 1: in the future, and as the situation involves, this expectation

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Speaker 1: will move. So I think one thing, one known thing,

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Speaker 1: is that we will get a lot more volatility ahead

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Speaker 1: of airs as the situation evolves. Um. And the unknown

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Speaker 1: is you know in which direction and how far that

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Speaker 1: can go? Do you think, Lawrence, that the economy can

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Speaker 1: handle in the United States the idea of a hawkish

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Speaker 1: bed of more tightening in the face of the inflationary impulse.

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Speaker 1: So we are not starting in the vacuum right prior

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Speaker 1: to the conflict, and the United States economy was doing

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Speaker 1: super well, very strong recovery, very low and employment rate

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Speaker 1: and quite broad based and high inflation. So in that circumstances,

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Speaker 1: it's actually the fair you know, it's moving in the

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Speaker 1: direction that it should. Now these very high energy and

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Speaker 1: food prices mean that some consumers households will be hurt,

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Speaker 1: and those households they need to be supported because for

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Speaker 1: some of them, the energy and would be thirty of

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Speaker 1: their purchasing basket um. And if there is this fiscal

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Speaker 1: targeted support measure for these people, perhaps fiscal consolidation in

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Speaker 1: the US will be delayed a little, but that will

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Speaker 1: also allow the monetary policy to and its course and

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Speaker 1: do its job. Speaking of monetary policy specifically for the

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Speaker 1: Federal Reserve, what was absent from its statement yesterday was

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Speaker 1: mentioned of COVID nineteen. It was only actually mentioned in

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Speaker 1: the context of the inflationary impulse because of the supply

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Speaker 1: side challenges the pandemic presented. Has the world moved on

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Speaker 1: from the pandemic as an economic risk going forward, So

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Speaker 1: I think the pandemic remains an economic risk. You can

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Speaker 1: they see that from China with these zero COVID policies

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Speaker 1: where some cities are being shut down and many of

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Speaker 1: the city's manufacturers their manufacturing. They contribute to the global

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Speaker 1: supply chain. Um, there's also some technological products. So I

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Speaker 1: don't think we can we can disregard this reek why

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Speaker 1: the pandemics. We steer with US and in many countries,

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Speaker 1: and this steer has impact unsupplied chain and under tension

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Speaker 1: the inflationary retention as well. European consumers are going to

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Speaker 1: be in such a tough spot through the next few months. Lawrence,

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Speaker 1: Thank you. Lawrence burn the of the a c D.

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Speaker 1: Let's get to Sarah hum In, the head of Europe

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Speaker 1: and America's Researchers Standard chatted Sarah, can we start with

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Speaker 1: the Bank of England, work our way through the e

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Speaker 1: c B and get to the Federal Reserve eventually? Can

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Speaker 1: you see inflation at around eight percent in the second corner?

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Speaker 1: In the Bank of England not being more active through

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Speaker 1: this great hiking cycle through this year, well, it looks

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Speaker 1: as if they are losing their nerve. And of course

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Speaker 1: since the last meeting we had a massive change in

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Speaker 1: circumstances which really risks the stabsflation. In the UK, we

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Speaker 1: have rising inflation. Inflation eight percent looks likely could even

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Speaker 1: go to double digits later this year. And although the

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Speaker 1: data that we've had so far for the UK economy

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Speaker 1: have been pretty positive for January and February UM, there

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Speaker 1: is a clear concern about the squeeze in living standards

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Speaker 1: that is to come. We are seeing inflation essentially at

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Speaker 1: double the pace of wage increases and that's not good

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Speaker 1: news for the economy. I think also the comments on

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Speaker 1: the supply side constraints UM suggest that you know, there's

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Speaker 1: more consciousness that these costs coming through are externally generated

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Speaker 1: and that they potentially pose more of a risk for

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Speaker 1: growth over the over the medium term, So it's possible.

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Speaker 1: I mean, we're exteptly expecting another rate hike in May,

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Speaker 1: but we think that will be it. We think by

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Speaker 1: that stage there will be a clear sign of slowdown

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Speaker 1: in the economy and that the bankoming the will to pause.

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Speaker 1: So is there a message in this for the Federal

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Speaker 1: Reserve that basically, if the inflation is coming from something

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Speaker 1: other than monetary policy, raising reeds isn't necessarily the answer.

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Speaker 1: Is the Fed just dealing with a completely different set

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Speaker 1: of issues that also is a bit more driven by

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Speaker 1: monetary policy. I think there are differences. Um, the UK

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Speaker 1: economy is more exposed to the EU economy, and that

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Speaker 1: in turn is more exposed to the downside risks from

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Speaker 1: the Russia Ukraine War, so we're likely to see further

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Speaker 1: downgrades to your EU growth potentially to UK growth, whereas

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Speaker 1: for the US they are insulated to an extent. Similarly,

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Speaker 1: from an energy point of view, obviously, you know the

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Speaker 1: gasoline prices rising and that's a negative for US consumers,

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Speaker 1: but it's less of a case than it is in Europe.

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Speaker 1: I mean, we are still quite nervous about the US outlook.

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Speaker 1: We would only you know, we're expecting another three rate

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Speaker 1: heights this year from the FED, but we think that

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Speaker 1: those rate heights will be front loaded and that when

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Speaker 1: we get to the summertime that there will be clear

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Speaker 1: signs of a slowdown. So I think it's the same

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Speaker 1: phenomenon that's facing not just the UK, not just the EU,

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Speaker 1: but also the US, and it just may be a

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Speaker 1: matter of that impact being more delayed in the US.

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Speaker 1: Sarah Human of Standard Charlotte, How Big wire that rate

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Speaker 1: and Crispy though fifty going to do that all over

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Speaker 1: again with Ja Bryce and chief Economist A wils Fargo,

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Speaker 1: Jake and Hardy. Wait, Jay, let's start here with the

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Speaker 1: question we've asked all morning. Can you raise interest rates

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Speaker 1: without unemployment climbing? Sure you can, We've seen that happen before.

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Speaker 1: Can you move to a restrictive stance, tighten financial conditions

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Speaker 1: and do all of this reduced the banners sheet of

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Speaker 1: eighteen months and get yourself back to somewhere close to

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Speaker 1: three without unemployment rising, Jay, that's a big task in it,

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Speaker 1: you know, John, It is a big task. I mean,

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Speaker 1: the defense isn't a very tricky sort of position right now.

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Speaker 1: But you know, if you go back to the nineties,

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Speaker 1: and I know that Sam sounds like ancient history to

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Speaker 1: some folds, but you know, in between, the Fed did

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Speaker 1: raise rates by like three basis points UM, and you

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Speaker 1: know that was they were throwing in fifty basis point

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Speaker 1: rate hikes, are throwing a seventy basis point rate hikes.

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Speaker 1: There was concerned about inflation at the time. The economy

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Speaker 1: um hit a little bit of a rough patch for

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Speaker 1: early in but they were able to pull it off. Now,

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Speaker 1: I'm not being a polly and I'm not saying they're

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Speaker 1: necessarily going to pull it off again this time, but

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Speaker 1: it has happened before. So, Jay, are you saying that

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Speaker 1: the bond market is perhaps a little bit too gloomy

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Speaker 1: And I can't believe that I'm saying this, but a

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Speaker 1: little bit too gloomy with the flattening in the yield curve,

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Speaker 1: and as people realize that the economy is perhaps in

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Speaker 1: certain sectors, particularly the consumer area, less sensitive to rate hikes,

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Speaker 1: that it can withstand vastly more than they're expecting. Well, so, yeah,

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Speaker 1: so if you look at the two tens you know,

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Speaker 1: there's the spread between the two year note and the

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Speaker 1: ten year note right now, it's about twenty basis points ourselves.

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Speaker 1: You know, as long as that doesn't invert significantly, I'm

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Speaker 1: not really all that worried about it. And again, if

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Speaker 1: you go back to previous tightening cycles, you get to

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Speaker 1: a very very flat um yield curve at times. So

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Speaker 1: it's certainly something that we're keeping an eye on. And

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Speaker 1: more generally, you look at financial conditions right now, if

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Speaker 1: you look at corporate bond spreads over treasuries, and you know,

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Speaker 1: the stock market has come off, so in general, we

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Speaker 1: have had a financial fightening that's going on, and with

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Speaker 1: the Fed raising rains here it's as I said, you

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Speaker 1: know when we first started here, it's gonna be tricky

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Speaker 1: for the Fed. The pool that's went on. Jay, do

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Speaker 1: agree with economists who think that because there has not

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Speaker 1: been even more of a reaction risk assets, the FED

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Speaker 1: will be even more aggressive in May with the beginning

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Speaker 1: of their balance sheet shrinkage, as well as potentially even

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Speaker 1: a fifty basis rate hike. You know, I don't know

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Speaker 1: if it's all up to just you know, risk assets.

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Speaker 1: In general, I think it's lots going to depend upon

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Speaker 1: you know, the data. The FED is in data dependency

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Speaker 1: mode right now, right and the world can change between

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Speaker 1: here and May, and so you know, we'll see what happens.

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Speaker 1: I mean, our our view is that the FED will

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Speaker 1: announced balance sheet reduction starting in June. Who knows, maybe

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Speaker 1: it gets pulled up to May here, but it's it's coming,

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Speaker 1: assuming you know, something that the economy doesn't get completely

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Speaker 1: Israel derailed here. I think they'll start it out slow

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Speaker 1: in terms of the balance sheet reduction, and then they'll

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Speaker 1: just kind of pick up muks like it did the

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Speaker 1: last time I round as well well, Jay, when you

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Speaker 1: talk about data dependency for the FED, Chairman Pale seemed

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Speaker 1: to indicate yesterday that getting inflation under control price stability

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Speaker 1: is a prerequisite for everything else in their mandates. So

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Speaker 1: when we talk about data dependency, are we essentially exclusively

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Speaker 1: talking about inflation data, about CPI, about pc no. I mean,

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Speaker 1: I think those those you know, the inflation data, I

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Speaker 1: think are the prime things that the FED is looking

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Speaker 1: at right now, as long as long along with inflation expectations,

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Speaker 1: you know, measured both in the bond market and measured

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Speaker 1: by the University of Michigan. Sentiments are may but they're

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Speaker 1: also they look at everything that's coming in and so

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Speaker 1: you know, maybe labor market data takes a little bit

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Speaker 1: of a vac SAT right now, but it's not like

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Speaker 1: they're going to completely ignore that. And if we see

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Speaker 1: signs that the economy is really decelerating in the coming months,

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Speaker 1: I think the messaging out of DEFEND is okay, maybe

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Speaker 1: we're going to start to back at off here on

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Speaker 1: that deceleration. JA. Do you anticipate that, especially given the

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Speaker 1: uncertainties around the war in Ukraine or does that ripple

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Speaker 1: effect not really hit the US as hard as it

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Speaker 1: may Europe. So I think it hits Europe harder um

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Speaker 1: than than it does here in the United States. Um,

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Speaker 1: you know there's more. Uh. You look at the United States,

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Speaker 1: we have very very little direct exposure to Russia, both

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Speaker 1: financially as well as economic. Europe as much more exposure

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Speaker 1: as well. So the primary thing that Russia is causing

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Speaker 1: here in the United States is higher oil prices or

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Speaker 1: hired gas prices, and that's something that's leading to a

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Speaker 1: deceleration here. Outside of that, again, there's very very few

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Speaker 1: linkages between the US economy and the Russian or Ukrainian

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Speaker 1: economy to lead to a big deceleration and get outside

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Speaker 1: of gasoline prices just quickly. One rate hike in twose

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Speaker 1: tents is already about twenty basis points. We're already seeing

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Speaker 1: some form of inversion seven year yeards above tens. We

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Speaker 1: saw that with five a little bit earlier on this morning,

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Speaker 1: threes threatening to do the same. It's the Fed comfortable

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Speaker 1: to push through that, do you think ja this time around,

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Speaker 1: given where inflation is, given where the focus is this

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Speaker 1: time around. Well, so if you look at two, so

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Speaker 1: you know what's priced into the bond market. Seven rate hikes.

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Speaker 1: I mean, that's what the That's what the dot plot.

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Speaker 1: So seven rate hikes this year, that's what the dot

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Speaker 1: plot said yesterday. So in theory, if the Fed does

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Speaker 1: seven rate hikes this this year, and that should be

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Speaker 1: all completely priced in in theory, that shouldn't cause the

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Speaker 1: young curve too impked. But you know, if if the

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Speaker 1: market starts to anticipate even more aggressive tightening or more

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Speaker 1: tightening out in three, then that's potentially where you can

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Speaker 1: get duran version. Jay. Thank you, sir Jay Bryson of

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Speaker 1: who ELS. We appreciate it. Let's get to Sarah Human,

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Speaker 1: the head of Europe and America's researchers Standard shouted, Sarah,

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Speaker 1: can we start with the Bank of England, work our

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Speaker 1: way through the ECB and get to the Federal Reserve eventually?

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Speaker 1: Can you see inflation at around eight percent in the

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Speaker 1: second corner in the Bank of England not being more

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Speaker 1: active through this great hikey cycle through this year, Well,

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Speaker 1: it looks as if they are losing their nerve. And

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Speaker 1: of course since the last meeting we've had a massive

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Speaker 1: change in circumstances which really risks the stabsflation. In the UK,

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Speaker 1: we have rising inflation. Inflation eight percent looks like he

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Speaker 1: could even go to double digits later this year. And

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Speaker 1: although the data that we've had so far for the

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Speaker 1: UK economy have been pretty positive for January and February UM,

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Speaker 1: there is a clear concern about the squeeze in living

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Speaker 1: standards that is to come. We are seeing inflation essentially

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Speaker 1: at double the pace of wage increases and that's not

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Speaker 1: good news for the economy. I think also the comments

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Speaker 1: on the supply side constraints UM suggest that you know,

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Speaker 1: there's more consciousness that these costs coming through are externally

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Speaker 1: generated and that they potentially pose more of a risk

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Speaker 1: for growth over the over the medium term, So it's possible.

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Speaker 1: I mean, we're extept re expecting another rate hike in May,

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Speaker 1: but we think that will be it. We think by

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Speaker 1: that stage there will be a clear sign of slowdown

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Speaker 1: in the economy and that the bankening that will need

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Speaker 1: to pause. So is there a message in this for

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Speaker 1: the Federal Reserve that basically, if the inflation is coming

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Speaker 1: from something other than monetary policy, raising reeds isn't necessarily

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Speaker 1: the answer is the Fed just dealing with a completely

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Speaker 1: different set of issues that also is a bit more

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Speaker 1: driven by monetary policy. I think there are differences. Um,

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Speaker 1: the UK economy is more exposed to the EU economy,

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Speaker 1: and that in turn is more exposed to the downside

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Speaker 1: risks from the Russia Ukraine War, so we're likely to

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Speaker 1: see further downgrades to your EU growth potentially to UK growth,

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Speaker 1: whereas for the US they are insulated to an extent. Similarly,

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Speaker 1: from an energy point of view, obviously, you know the

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Speaker 1: gasoline prices rising and that's a negative for US consumers,

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Speaker 1: but it's less of a case than it is in Europe.

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Speaker 1: I mean, we are still quite nervous about the US outlook.

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Speaker 1: We would only you know, we're expecting another three rate

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Speaker 1: heights this year from the FED, but we think that

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Speaker 1: those rate heights will be front loaded and that when

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Speaker 1: we get to the summertime that there will be clear

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Speaker 1: signs of a slowdown. So I think it's the same

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Speaker 1: phenomenon that's facing not just the UK, not just the EU,

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Speaker 1: but also the US, and it just may be a

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Speaker 1: matter of that impact being more delayed in the US.

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Speaker 1: Sarah human Standard chatted. This is the Bloomberg Surveillance Podcast.

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Speaker 1: Thanks for listening. Join us live weekdays from seven to

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Speaker 1: Tom keene In. This is Bloomberg