WEBVTT - Surveillance: Ukraine War's Economic Impact

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<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast Hometown Keene. Along with

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<v Speaker 1>Jonathan Ferroll and Lisa are Brown Wits Jayleie, we bring

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<v Speaker 1>you insight from the best an economics, finance, investment, and

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<v Speaker 1>international relations. Find Bloomberg Surveillance, an Apple Podcast, SoundCloud, Bloomberg

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<v Speaker 1>dot Com, and of course on the Bloomberg Terminal. We

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<v Speaker 1>spent a lot of time talking about energy security. As

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<v Speaker 1>you might expect, one thing we tried to do on

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<v Speaker 1>this program over the last few weeks is bring it

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<v Speaker 1>back to food security as well. We heard from the

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<v Speaker 1>Agricultural Minister of Ukraine this morning. Ukraine said the following

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<v Speaker 1>the situation with Ukraine's food is quote under control. They

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<v Speaker 1>went through the stockpiles, things like wheat, things like corn, said,

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<v Speaker 1>wheat stockpiles were sufficient for two years. Corn stockpiles sufficient

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

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<v Speaker 1>domestic and international. And really one of the best guests

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<v Speaker 1>I can think of for insight into the inner work

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<v Speaker 1>into the Ukrainian economy, the former Ukraine finance minister naturally

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<v Speaker 1>to Risto, naturally fantastic to catch up with you again.

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<v Speaker 1>You are perfectly positioned to run us through this help

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<v Speaker 1>us understand the threats of both domestic food insecurity and

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<v Speaker 1>international food insecurity as well. Well. Thank you very much

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<v Speaker 1>for having me. I think on the domestic side, what

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<v Speaker 1>they said about the stocks is very true, and I

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<v Speaker 1>don't think it's the issue of whether or not there's

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<v Speaker 1>sufficient stocks. I think the challenges right now food security,

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<v Speaker 1>in particular in the cities that are being besieged because

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<v Speaker 1>there's no way to get food into the cities and

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<v Speaker 1>those that are still functional key of for the for example,

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<v Speaker 1>the capital are having trouble getting bakeries to function, and

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<v Speaker 1>so the challenges taking those stocks and translating that into food,

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<v Speaker 1>I think, usable food for the population. With regard to

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

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<v Speaker 1>or not farmers are able and willing to go out

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<v Speaker 1>and farm and to plant this spring, and as you've seen,

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<v Speaker 1>Ukrainian farmers have a lot of other things on their minds,

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<v Speaker 1>including taking some of the tanks. So it's it's a

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<v Speaker 1>question of how much of the arable land is going

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<v Speaker 1>to be safe without bombs flying overhead to plant, and

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<v Speaker 1>if not, I think you're going to see a serious

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<v Speaker 1>food problem globally in particular in Northern Africa and the

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<v Speaker 1>Middle East. Meanwhile, Nat, only or earlier this morning, we

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<v Speaker 1>were speaking with our own Maria Todeo, who said that

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<v Speaker 1>in two weeks Russia single handedly destroyed Ukraine's economy, and

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<v Speaker 1>I wonder how long how lasting that destruction will be,

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<v Speaker 1>which speaks directly to the food security. How soon after

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<v Speaker 1>the conflict ends, could those farmers get back out, could

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<v Speaker 1>the land be salvageable? Well, if we missed this farm

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<v Speaker 1>this planting season, we're not talking about planting again until

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<v Speaker 1>we have it. We have a minimal winter season and

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<v Speaker 1>then it's next spring. So really the time is the

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<v Speaker 1>next two months for for planting. And if we miss

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<v Speaker 1>this season, then I think you're going to see global

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<v Speaker 1>food prices rise substantially. That's the damage to the Ukrainian economy.

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<v Speaker 1>When it comes to the Russian economy, we know already

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<v Speaker 1>a lot of damage has been done by sanctions already

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<v Speaker 1>put into place. From your perspective, Natalie, how much powder

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<v Speaker 1>is still in the keg? How far away is the

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<v Speaker 1>West from having exhausted all of its options on that front?

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

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<v Speaker 1>There's been a couple of key sanctions that have had

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<v Speaker 1>an effect, meeting the freezing of the reserves of the

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<v Speaker 1>Central Bank of Russia which has affected their ability to

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<v Speaker 1>support the exchange rate, and then the devaluation of the

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<v Speaker 1>of the ruble has caused bank runs and so on.

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<v Speaker 1>But I think we're not yet seeing the rest of

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<v Speaker 1>the banking system frozen. So we do not have full

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<v Speaker 1>blocking sanctions even against his bare Bank and VTV, the

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<v Speaker 1>two largest in the system, um those only have minimal sanctions.

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<v Speaker 1>And then the rest of the state owned banks are

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<v Speaker 1>still unsanctioned, state owned energy companies unsanctioned. We still haven't

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<v Speaker 1>sanctioned the state owned logistics companies, the state owned transportation companies.

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

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<v Speaker 1>done in the United States and in a ban on

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<v Speaker 1>oil imports, but that really is the limit of it.

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<v Speaker 1>That and some increased tariffs in Canada. We really need

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<v Speaker 1>everyone in Europe to join in the at a minimum

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<v Speaker 1>increase in tariffs on Russian imports, if not a ban

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<v Speaker 1>on certain in particular oil and gas. So there are

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<v Speaker 1>still a wide variety of sanctions that haven't been used.

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

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<v Speaker 1>need to move much more quickly. And that seems to

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<v Speaker 1>be the message from Vladimir's Lenski this morning in Germany.

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<v Speaker 1>He was saying, you guys need to stop with some

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<v Speaker 1>of these gas payments, although it does become very difficult

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<v Speaker 1>because they rely on those pipelines for their lifelines and

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<v Speaker 1>for costs to be with made within control. What are

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<v Speaker 1>you looking for in the next couple of days, the

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<v Speaker 1>next couple of weeks to try to bring this to

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<v Speaker 1>a close. First and foremost, it's delivery, urgent delivery of

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<v Speaker 1>those military supplies, some of which were promised by President

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<v Speaker 1>Biden yesterday, in particular air defense. It is the bombing

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<v Speaker 1>and the missiles that is causing the most tremendous amount

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<v Speaker 1>of death. What you saw with the bombing of a

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<v Speaker 1>theater in Mariopol in the southeastern part of the country,

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<v Speaker 1>um with three hundred to five hundred civilians inside, that

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<v Speaker 1>that can't be stopped, not with but by the very

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<v Speaker 1>brave Ukrainian armed forces on the ground. We need the

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<v Speaker 1>air defense, So number one, increase the military support urgently

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<v Speaker 1>to Ukraine so they can defend themselves. Number Two, I

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<v Speaker 1>would ask for blocking sanctions on the state owned banks,

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<v Speaker 1>blocking sanctions meaning no more doing business with Russian state

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<v Speaker 1>owned banks. If a few existing contracts need to be

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<v Speaker 1>carved out in Europe because of the energy contracts, then

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<v Speaker 1>find a way to permit by license in individual contract,

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<v Speaker 1>but stop and cease doing business with Russia Natally, can

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<v Speaker 1>I say thank you. We had important conversations eight years

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<v Speaker 1>ago and unfortunately we're having those conversations again. Thank you

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<v Speaker 1>very much for being with us. Naturally to Risco, the

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<v Speaker 1>former UK rain finance minister joined US now Director and

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<v Speaker 1>Chief Economies. He likes Mador G. P. Kayley, as you

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<v Speaker 1>know from the O. E. C. D. Lawrence, great to

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<v Speaker 1>catch up. We've got two sharks. We saw it in

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<v Speaker 1>the ECB's forecast. We saw in the fetes as well.

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<v Speaker 1>They've had to raise their inflation outlook. They've had to

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

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<v Speaker 1>fiscal policymakers to be in Lawrence, what's your recommendation for

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<v Speaker 1>how fiscal policymakers should react to the higher energy bills

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

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<v Speaker 1>moment for fiscal policy makers. What we are seeing now

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<v Speaker 1>is a hit too pull to consumers of energy and

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<v Speaker 1>a sor of food UM, and that needs to be

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<v Speaker 1>addressed with fiscal measures were recommended means targeted, temporary measure

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<v Speaker 1>to actually soothe the bill for the poorest household, lower

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<v Speaker 1>income and lower mint income class people. And that will

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<v Speaker 1>also actually help inflation to be kept in check by

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<v Speaker 1>lowering the wage price power that would come out of

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<v Speaker 1>inflation bursting without any physical support. So right now, Laurence,

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<v Speaker 1>I was looking at your projection and there was a

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<v Speaker 1>careful categorization of the market response slowing growth materially and

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<v Speaker 1>pushing up consumer prices. Markets seem to be starting to

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<v Speaker 1>move on, and assume that there's going to be some

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<v Speaker 1>quick resolution to this conflict, at least relatively speaking. Is

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<v Speaker 1>that Does that mean that the ramifications economically, however horrific,

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<v Speaker 1>the humanitarian aspect of this is would be really dampened

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<v Speaker 1>because the markets have moved on. So I think we

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<v Speaker 1>should refrain from any hasty conclusion. The situation is very volatile.

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<v Speaker 1>It evolves by the day UM and we are seeing

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<v Speaker 1>this not only with the humanitarian situation, which continue to

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<v Speaker 1>be a flow of refugees, but also in prices. Right.

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<v Speaker 1>So market job is to anticipate what's going to happen

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<v Speaker 1>in the future, and as the situation involves, this expectation

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<v Speaker 1>will move. So I think one thing, one known thing,

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<v Speaker 1>is that we will get a lot more volatility ahead

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<v Speaker 1>of airs as the situation evolves. Um. And the unknown

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<v Speaker 1>is you know in which direction and how far that

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<v Speaker 1>can go? Do you think, Lawrence, that the economy can

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<v Speaker 1>handle in the United States the idea of a hawkish

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<v Speaker 1>bed of more tightening in the face of the inflationary impulse.

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<v Speaker 1>So we are not starting in the vacuum right prior

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<v Speaker 1>to the conflict, and the United States economy was doing

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<v Speaker 1>super well, very strong recovery, very low and employment rate

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<v Speaker 1>and quite broad based and high inflation. So in that circumstances,

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<v Speaker 1>it's actually the fair you know, it's moving in the

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<v Speaker 1>direction that it should. Now these very high energy and

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<v Speaker 1>food prices mean that some consumers households will be hurt,

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<v Speaker 1>and those households they need to be supported because for

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<v Speaker 1>some of them, the energy and would be thirty of

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<v Speaker 1>their purchasing basket um. And if there is this fiscal

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<v Speaker 1>targeted support measure for these people, perhaps fiscal consolidation in

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<v Speaker 1>the US will be delayed a little, but that will

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<v Speaker 1>also allow the monetary policy to and its course and

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<v Speaker 1>do its job. Speaking of monetary policy specifically for the

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<v Speaker 1>Federal Reserve, what was absent from its statement yesterday was

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<v Speaker 1>mentioned of COVID nineteen. It was only actually mentioned in

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<v Speaker 1>the context of the inflationary impulse because of the supply

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<v Speaker 1>side challenges the pandemic presented. Has the world moved on

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<v Speaker 1>from the pandemic as an economic risk going forward, So

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<v Speaker 1>I think the pandemic remains an economic risk. You can

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<v Speaker 1>they see that from China with these zero COVID policies

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<v Speaker 1>where some cities are being shut down and many of

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<v Speaker 1>the city's manufacturers their manufacturing. They contribute to the global

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

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<v Speaker 1>don't think we can we can disregard this reek why

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<v Speaker 1>the pandemics. We steer with US and in many countries,

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<v Speaker 1>and this steer has impact unsupplied chain and under tension

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<v Speaker 1>the inflationary retention as well. European consumers are going to

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

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<v Speaker 1>Thank you. Lawrence burn the of the a c D.

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<v Speaker 1>Let's get to Sarah hum In, the head of Europe

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<v Speaker 1>and America's Researchers Standard chatted Sarah, can we start with

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<v Speaker 1>the Bank of England, work our way through the e

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<v Speaker 1>c B and get to the Federal Reserve eventually? Can

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<v Speaker 1>you see inflation at around eight percent in the second corner?

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<v Speaker 1>In the Bank of England not being more active through

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<v Speaker 1>this great hiking cycle through this year, well, it looks

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<v Speaker 1>as if they are losing their nerve. And of course

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<v Speaker 1>since the last meeting we had a massive change in

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<v Speaker 1>circumstances which really risks the stabsflation. In the UK, we

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<v Speaker 1>have rising inflation. Inflation eight percent looks likely could even

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<v Speaker 1>go to double digits later this year. And although the

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<v Speaker 1>data that we've had so far for the UK economy

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<v Speaker 1>have been pretty positive for January and February UM, there

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<v Speaker 1>is a clear concern about the squeeze in living standards

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<v Speaker 1>that is to come. We are seeing inflation essentially at

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<v Speaker 1>double the pace of wage increases and that's not good

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<v Speaker 1>news for the economy. I think also the comments on

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<v Speaker 1>the supply side constraints UM suggest that you know, there's

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<v Speaker 1>more consciousness that these costs coming through are externally generated

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<v Speaker 1>and that they potentially pose more of a risk for

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<v Speaker 1>growth over the over the medium term, So it's possible.

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<v Speaker 1>I mean, we're exteptly expecting another rate hike in May,

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<v Speaker 1>but we think that will be it. We think by

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<v Speaker 1>that stage there will be a clear sign of slowdown

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<v Speaker 1>in the economy and that the bankoming the will to pause.

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<v Speaker 1>So is there a message in this for the Federal

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<v Speaker 1>Reserve that basically, if the inflation is coming from something

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

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<v Speaker 1>Is the Fed just dealing with a completely different set

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<v Speaker 1>of issues that also is a bit more driven by

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<v Speaker 1>monetary policy. I think there are differences. Um, the UK

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<v Speaker 1>economy is more exposed to the EU economy, and that

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<v Speaker 1>in turn is more exposed to the downside risks from

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<v Speaker 1>the Russia Ukraine War, so we're likely to see further

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<v Speaker 1>downgrades to your EU growth potentially to UK growth, whereas

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<v Speaker 1>for the US they are insulated to an extent. Similarly,

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<v Speaker 1>from an energy point of view, obviously, you know the

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<v Speaker 1>gasoline prices rising and that's a negative for US consumers,

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<v Speaker 1>but it's less of a case than it is in Europe.

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<v Speaker 1>I mean, we are still quite nervous about the US outlook.

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<v Speaker 1>We would only you know, we're expecting another three rate

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<v Speaker 1>heights this year from the FED, but we think that

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<v Speaker 1>those rate heights will be front loaded and that when

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<v Speaker 1>we get to the summertime that there will be clear

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<v Speaker 1>signs of a slowdown. So I think it's the same

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<v Speaker 1>phenomenon that's facing not just the UK, not just the EU,

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<v Speaker 1>but also the US, and it just may be a

0:13:21.800 --> 0:13:24.839
<v Speaker 1>matter of that impact being more delayed in the US.

0:13:25.120 --> 0:13:33.679
<v Speaker 1>Sarah Human of Standard Charlotte, How Big wire that rate

0:13:33.720 --> 0:13:37.280
<v Speaker 1>and Crispy though fifty going to do that all over

0:13:37.320 --> 0:13:39.559
<v Speaker 1>again with Ja Bryce and chief Economist A wils Fargo,

0:13:39.640 --> 0:13:42.120
<v Speaker 1>Jake and Hardy. Wait, Jay, let's start here with the

0:13:42.200 --> 0:13:45.000
<v Speaker 1>question we've asked all morning. Can you raise interest rates

0:13:45.040 --> 0:13:47.959
<v Speaker 1>without unemployment climbing? Sure you can, We've seen that happen before.

0:13:48.360 --> 0:13:51.439
<v Speaker 1>Can you move to a restrictive stance, tighten financial conditions

0:13:51.440 --> 0:13:53.840
<v Speaker 1>and do all of this reduced the banners sheet of

0:13:54.000 --> 0:13:56.120
<v Speaker 1>eighteen months and get yourself back to somewhere close to

0:13:56.160 --> 0:14:00.240
<v Speaker 1>three without unemployment rising, Jay, that's a big task in it,

0:14:01.679 --> 0:14:03.640
<v Speaker 1>you know, John, It is a big task. I mean,

0:14:03.640 --> 0:14:06.600
<v Speaker 1>the defense isn't a very tricky sort of position right now.

0:14:06.679 --> 0:14:08.960
<v Speaker 1>But you know, if you go back to the nineties,

0:14:08.960 --> 0:14:11.319
<v Speaker 1>and I know that Sam sounds like ancient history to

0:14:11.440 --> 0:14:15.600
<v Speaker 1>some folds, but you know, in between, the Fed did

0:14:15.720 --> 0:14:19.360
<v Speaker 1>raise rates by like three basis points UM, and you

0:14:19.400 --> 0:14:21.440
<v Speaker 1>know that was they were throwing in fifty basis point

0:14:21.480 --> 0:14:23.760
<v Speaker 1>rate hikes, are throwing a seventy basis point rate hikes.

0:14:23.960 --> 0:14:27.840
<v Speaker 1>There was concerned about inflation at the time. The economy

0:14:28.200 --> 0:14:30.440
<v Speaker 1>um hit a little bit of a rough patch for

0:14:30.480 --> 0:14:34.200
<v Speaker 1>early in but they were able to pull it off. Now,

0:14:34.240 --> 0:14:36.080
<v Speaker 1>I'm not being a polly and I'm not saying they're

0:14:36.160 --> 0:14:38.720
<v Speaker 1>necessarily going to pull it off again this time, but

0:14:38.920 --> 0:14:42.360
<v Speaker 1>it has happened before. So, Jay, are you saying that

0:14:42.440 --> 0:14:45.440
<v Speaker 1>the bond market is perhaps a little bit too gloomy

0:14:45.480 --> 0:14:47.080
<v Speaker 1>And I can't believe that I'm saying this, but a

0:14:47.080 --> 0:14:50.520
<v Speaker 1>little bit too gloomy with the flattening in the yield curve,

0:14:50.560 --> 0:14:53.360
<v Speaker 1>and as people realize that the economy is perhaps in

0:14:53.400 --> 0:14:57.040
<v Speaker 1>certain sectors, particularly the consumer area, less sensitive to rate hikes,

0:14:57.200 --> 0:15:01.440
<v Speaker 1>that it can withstand vastly more than they're expecting. Well, so, yeah,

0:15:01.680 --> 0:15:03.480
<v Speaker 1>so if you look at the two tens you know,

0:15:03.520 --> 0:15:05.640
<v Speaker 1>there's the spread between the two year note and the

0:15:06.040 --> 0:15:09.600
<v Speaker 1>ten year note right now, it's about twenty basis points ourselves.

0:15:09.640 --> 0:15:13.560
<v Speaker 1>You know, as long as that doesn't invert significantly, I'm

0:15:13.560 --> 0:15:16.000
<v Speaker 1>not really all that worried about it. And again, if

0:15:16.040 --> 0:15:18.480
<v Speaker 1>you go back to previous tightening cycles, you get to

0:15:18.560 --> 0:15:22.880
<v Speaker 1>a very very flat um yield curve at times. So

0:15:23.240 --> 0:15:25.400
<v Speaker 1>it's certainly something that we're keeping an eye on. And

0:15:25.760 --> 0:15:29.360
<v Speaker 1>more generally, you look at financial conditions right now, if

0:15:29.360 --> 0:15:32.840
<v Speaker 1>you look at corporate bond spreads over treasuries, and you know,

0:15:33.040 --> 0:15:35.880
<v Speaker 1>the stock market has come off, so in general, we

0:15:36.000 --> 0:15:39.240
<v Speaker 1>have had a financial fightening that's going on, and with

0:15:39.320 --> 0:15:42.040
<v Speaker 1>the Fed raising rains here it's as I said, you

0:15:42.040 --> 0:15:44.520
<v Speaker 1>know when we first started here, it's gonna be tricky

0:15:44.560 --> 0:15:46.280
<v Speaker 1>for the Fed. The pool that's went on. Jay, do

0:15:46.440 --> 0:15:49.760
<v Speaker 1>agree with economists who think that because there has not

0:15:49.960 --> 0:15:52.880
<v Speaker 1>been even more of a reaction risk assets, the FED

0:15:52.880 --> 0:15:55.400
<v Speaker 1>will be even more aggressive in May with the beginning

0:15:55.800 --> 0:15:59.080
<v Speaker 1>of their balance sheet shrinkage, as well as potentially even

0:15:59.120 --> 0:16:02.680
<v Speaker 1>a fifty basis rate hike. You know, I don't know

0:16:02.680 --> 0:16:04.920
<v Speaker 1>if it's all up to just you know, risk assets.

0:16:04.920 --> 0:16:06.920
<v Speaker 1>In general, I think it's lots going to depend upon

0:16:07.840 --> 0:16:10.200
<v Speaker 1>you know, the data. The FED is in data dependency

0:16:10.360 --> 0:16:13.800
<v Speaker 1>mode right now, right and the world can change between

0:16:13.840 --> 0:16:17.200
<v Speaker 1>here and May, and so you know, we'll see what happens.

0:16:17.200 --> 0:16:19.320
<v Speaker 1>I mean, our our view is that the FED will

0:16:19.320 --> 0:16:23.400
<v Speaker 1>announced balance sheet reduction starting in June. Who knows, maybe

0:16:23.400 --> 0:16:26.040
<v Speaker 1>it gets pulled up to May here, but it's it's coming,

0:16:26.200 --> 0:16:28.640
<v Speaker 1>assuming you know, something that the economy doesn't get completely

0:16:28.840 --> 0:16:31.640
<v Speaker 1>Israel derailed here. I think they'll start it out slow

0:16:31.760 --> 0:16:33.920
<v Speaker 1>in terms of the balance sheet reduction, and then they'll

0:16:33.960 --> 0:16:36.080
<v Speaker 1>just kind of pick up muks like it did the

0:16:36.200 --> 0:16:38.600
<v Speaker 1>last time I round as well well, Jay, when you

0:16:38.640 --> 0:16:41.800
<v Speaker 1>talk about data dependency for the FED, Chairman Pale seemed

0:16:41.800 --> 0:16:45.600
<v Speaker 1>to indicate yesterday that getting inflation under control price stability

0:16:45.680 --> 0:16:48.440
<v Speaker 1>is a prerequisite for everything else in their mandates. So

0:16:48.440 --> 0:16:51.240
<v Speaker 1>when we talk about data dependency, are we essentially exclusively

0:16:51.280 --> 0:16:55.960
<v Speaker 1>talking about inflation data, about CPI, about pc no. I mean,

0:16:55.960 --> 0:16:58.600
<v Speaker 1>I think those those you know, the inflation data, I

0:16:58.640 --> 0:17:01.360
<v Speaker 1>think are the prime things that the FED is looking

0:17:01.400 --> 0:17:06.119
<v Speaker 1>at right now, as long as long along with inflation expectations,

0:17:06.160 --> 0:17:09.080
<v Speaker 1>you know, measured both in the bond market and measured

0:17:09.119 --> 0:17:12.600
<v Speaker 1>by the University of Michigan. Sentiments are may but they're

0:17:12.640 --> 0:17:15.120
<v Speaker 1>also they look at everything that's coming in and so

0:17:15.200 --> 0:17:17.280
<v Speaker 1>you know, maybe labor market data takes a little bit

0:17:17.280 --> 0:17:20.000
<v Speaker 1>of a vac SAT right now, but it's not like

0:17:20.000 --> 0:17:22.320
<v Speaker 1>they're going to completely ignore that. And if we see

0:17:22.359 --> 0:17:26.320
<v Speaker 1>signs that the economy is really decelerating in the coming months,

0:17:26.640 --> 0:17:28.920
<v Speaker 1>I think the messaging out of DEFEND is okay, maybe

0:17:28.960 --> 0:17:31.840
<v Speaker 1>we're going to start to back at off here on

0:17:31.920 --> 0:17:35.399
<v Speaker 1>that deceleration. JA. Do you anticipate that, especially given the

0:17:35.440 --> 0:17:38.160
<v Speaker 1>uncertainties around the war in Ukraine or does that ripple

0:17:38.200 --> 0:17:40.320
<v Speaker 1>effect not really hit the US as hard as it

0:17:40.400 --> 0:17:45.040
<v Speaker 1>may Europe. So I think it hits Europe harder um

0:17:45.280 --> 0:17:47.560
<v Speaker 1>than than it does here in the United States. Um,

0:17:47.600 --> 0:17:51.480
<v Speaker 1>you know there's more. Uh. You look at the United States,

0:17:51.520 --> 0:17:54.800
<v Speaker 1>we have very very little direct exposure to Russia, both

0:17:54.800 --> 0:17:58.679
<v Speaker 1>financially as well as economic. Europe as much more exposure

0:17:58.720 --> 0:18:03.320
<v Speaker 1>as well. So the primary thing that Russia is causing

0:18:03.320 --> 0:18:06.000
<v Speaker 1>here in the United States is higher oil prices or

0:18:06.119 --> 0:18:08.800
<v Speaker 1>hired gas prices, and that's something that's leading to a

0:18:08.920 --> 0:18:13.520
<v Speaker 1>deceleration here. Outside of that, again, there's very very few

0:18:13.600 --> 0:18:16.440
<v Speaker 1>linkages between the US economy and the Russian or Ukrainian

0:18:16.440 --> 0:18:19.880
<v Speaker 1>economy to lead to a big deceleration and get outside

0:18:19.920 --> 0:18:23.399
<v Speaker 1>of gasoline prices just quickly. One rate hike in twose

0:18:23.440 --> 0:18:26.359
<v Speaker 1>tents is already about twenty basis points. We're already seeing

0:18:26.440 --> 0:18:29.440
<v Speaker 1>some form of inversion seven year yeards above tens. We

0:18:29.480 --> 0:18:31.480
<v Speaker 1>saw that with five a little bit earlier on this morning,

0:18:31.520 --> 0:18:34.600
<v Speaker 1>threes threatening to do the same. It's the Fed comfortable

0:18:34.600 --> 0:18:36.720
<v Speaker 1>to push through that, do you think ja this time around,

0:18:36.720 --> 0:18:39.199
<v Speaker 1>given where inflation is, given where the focus is this

0:18:39.280 --> 0:18:42.560
<v Speaker 1>time around. Well, so if you look at two, so

0:18:42.680 --> 0:18:45.800
<v Speaker 1>you know what's priced into the bond market. Seven rate hikes.

0:18:45.840 --> 0:18:47.480
<v Speaker 1>I mean, that's what the That's what the dot plot.

0:18:47.840 --> 0:18:49.800
<v Speaker 1>So seven rate hikes this year, that's what the dot

0:18:49.800 --> 0:18:54.240
<v Speaker 1>plot said yesterday. So in theory, if the Fed does

0:18:54.280 --> 0:18:56.760
<v Speaker 1>seven rate hikes this this year, and that should be

0:18:56.800 --> 0:19:00.520
<v Speaker 1>all completely priced in in theory, that shouldn't cause the

0:19:00.680 --> 0:19:03.800
<v Speaker 1>young curve too impked. But you know, if if the

0:19:03.840 --> 0:19:07.640
<v Speaker 1>market starts to anticipate even more aggressive tightening or more

0:19:07.680 --> 0:19:11.600
<v Speaker 1>tightening out in three, then that's potentially where you can

0:19:11.640 --> 0:19:14.879
<v Speaker 1>get duran version. Jay. Thank you, sir Jay Bryson of

0:19:15.000 --> 0:19:21.560
<v Speaker 1>who ELS. We appreciate it. Let's get to Sarah Human,

0:19:21.600 --> 0:19:25.000
<v Speaker 1>the head of Europe and America's researchers Standard shouted, Sarah,

0:19:25.000 --> 0:19:26.919
<v Speaker 1>can we start with the Bank of England, work our

0:19:26.960 --> 0:19:29.760
<v Speaker 1>way through the ECB and get to the Federal Reserve eventually?

0:19:30.119 --> 0:19:32.240
<v Speaker 1>Can you see inflation at around eight percent in the

0:19:32.280 --> 0:19:34.120
<v Speaker 1>second corner in the Bank of England not being more

0:19:34.160 --> 0:19:39.840
<v Speaker 1>active through this great hikey cycle through this year, Well,

0:19:39.920 --> 0:19:41.960
<v Speaker 1>it looks as if they are losing their nerve. And

0:19:42.000 --> 0:19:45.120
<v Speaker 1>of course since the last meeting we've had a massive

0:19:45.320 --> 0:19:51.680
<v Speaker 1>change in circumstances which really risks the stabsflation. In the UK,

0:19:53.040 --> 0:19:58.439
<v Speaker 1>we have rising inflation. Inflation eight percent looks like he

0:19:58.520 --> 0:20:02.080
<v Speaker 1>could even go to double digits later this year. And

0:20:02.240 --> 0:20:04.280
<v Speaker 1>although the data that we've had so far for the

0:20:04.400 --> 0:20:08.760
<v Speaker 1>UK economy have been pretty positive for January and February UM,

0:20:08.840 --> 0:20:12.240
<v Speaker 1>there is a clear concern about the squeeze in living

0:20:12.320 --> 0:20:16.160
<v Speaker 1>standards that is to come. We are seeing inflation essentially

0:20:16.480 --> 0:20:19.959
<v Speaker 1>at double the pace of wage increases and that's not

0:20:20.040 --> 0:20:22.920
<v Speaker 1>good news for the economy. I think also the comments

0:20:22.960 --> 0:20:27.480
<v Speaker 1>on the supply side constraints UM suggest that you know,

0:20:27.560 --> 0:20:32.520
<v Speaker 1>there's more consciousness that these costs coming through are externally

0:20:32.600 --> 0:20:36.720
<v Speaker 1>generated and that they potentially pose more of a risk

0:20:36.800 --> 0:20:41.720
<v Speaker 1>for growth over the over the medium term, So it's possible.

0:20:42.000 --> 0:20:45.040
<v Speaker 1>I mean, we're extept re expecting another rate hike in May,

0:20:45.160 --> 0:20:47.479
<v Speaker 1>but we think that will be it. We think by

0:20:47.520 --> 0:20:50.359
<v Speaker 1>that stage there will be a clear sign of slowdown

0:20:50.359 --> 0:20:53.240
<v Speaker 1>in the economy and that the bankening that will need

0:20:53.280 --> 0:20:56.080
<v Speaker 1>to pause. So is there a message in this for

0:20:56.200 --> 0:21:00.240
<v Speaker 1>the Federal Reserve that basically, if the inflation is coming

0:21:00.280 --> 0:21:04.879
<v Speaker 1>from something other than monetary policy, raising reeds isn't necessarily

0:21:04.920 --> 0:21:07.360
<v Speaker 1>the answer is the Fed just dealing with a completely

0:21:07.400 --> 0:21:09.880
<v Speaker 1>different set of issues that also is a bit more

0:21:09.960 --> 0:21:15.760
<v Speaker 1>driven by monetary policy. I think there are differences. Um,

0:21:15.920 --> 0:21:20.600
<v Speaker 1>the UK economy is more exposed to the EU economy,

0:21:20.760 --> 0:21:23.919
<v Speaker 1>and that in turn is more exposed to the downside

0:21:24.000 --> 0:21:27.119
<v Speaker 1>risks from the Russia Ukraine War, so we're likely to

0:21:27.240 --> 0:21:32.840
<v Speaker 1>see further downgrades to your EU growth potentially to UK growth,

0:21:33.080 --> 0:21:37.280
<v Speaker 1>whereas for the US they are insulated to an extent. Similarly,

0:21:37.320 --> 0:21:40.000
<v Speaker 1>from an energy point of view, obviously, you know the

0:21:40.080 --> 0:21:45.200
<v Speaker 1>gasoline prices rising and that's a negative for US consumers,

0:21:45.200 --> 0:21:48.880
<v Speaker 1>but it's less of a case than it is in Europe.

0:21:49.240 --> 0:21:52.560
<v Speaker 1>I mean, we are still quite nervous about the US outlook.

0:21:52.680 --> 0:21:56.480
<v Speaker 1>We would only you know, we're expecting another three rate

0:21:56.560 --> 0:21:58.720
<v Speaker 1>heights this year from the FED, but we think that

0:21:58.920 --> 0:22:02.000
<v Speaker 1>those rate heights will be front loaded and that when

0:22:02.040 --> 0:22:04.600
<v Speaker 1>we get to the summertime that there will be clear

0:22:04.720 --> 0:22:08.320
<v Speaker 1>signs of a slowdown. So I think it's the same

0:22:08.320 --> 0:22:11.760
<v Speaker 1>phenomenon that's facing not just the UK, not just the EU,

0:22:12.080 --> 0:22:14.800
<v Speaker 1>but also the US, and it just may be a

0:22:14.880 --> 0:22:17.920
<v Speaker 1>matter of that impact being more delayed in the US.

0:22:18.240 --> 0:22:22.440
<v Speaker 1>Sarah human Standard chatted. This is the Bloomberg Surveillance Podcast.

0:22:22.680 --> 0:22:26.080
<v Speaker 1>Thanks for listening. Join us live weekdays from seven to

0:22:26.160 --> 0:22:29.639
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0:22:47.520 --> 0:22:50.159
<v Speaker 1>Tom keene In. This is Bloomberg