WEBVTT - Bloomberg Surveillance TV: April 18, 2024 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.840 Terminal and the Bloomberg Business App. 0:00:36.520 --> 0:00:38.960 Tim joins us Now. Tim, wonderful to see you. 0:00:39.159 --> 0:00:40.760 Good war and good to see you. 0:00:40.760 --> 0:00:42.320 You know, it was really interesting when I was reading 0:00:42.360 --> 0:00:44.720 your notes. You talk about how usually it's something of 0:00:44.760 --> 0:00:47.559 a sleepy affair, people kind of get together. Yeah, some 0:00:47.680 --> 0:00:51.080 dude bureaucratic kinds of you know, hubbub. This is different 0:00:51.200 --> 0:00:52.680 why geo political risks. 0:00:52.680 --> 0:00:54.480 People are concerned at war in Europe, war in the 0:00:54.480 --> 0:00:57.959 Middle East, which could grow tensions in the Asia Pacific. 0:00:58.360 --> 0:01:00.400 So it feels like a very dangerous world. We'll keep 0:01:00.440 --> 0:01:03.240 making illusions to the nineteen thirties. I think that's probably overdone, 0:01:03.280 --> 0:01:05.080 but so certainly something we should consider. 0:01:05.200 --> 0:01:05.600 Part of the. 0:01:05.560 --> 0:01:09.040 Problem with some of these discussions is it's very hard 0:01:09.040 --> 0:01:10.880 to know how to prepare for something where it's a 0:01:11.000 --> 0:01:14.840 very bipolar kind of outcome. Are people actually hedging that 0:01:14.959 --> 0:01:18.040 kind of risk, particularly with the respect of the areas 0:01:18.080 --> 0:01:20.760 that might get hit hardest in the economy as a results. 0:01:20.440 --> 0:01:22.920 Yeah, everyone's preparing because you just don't know. The uncertainty 0:01:23.040 --> 0:01:26.160 just overwhelms all calculations. You know, the economy is good, 0:01:26.160 --> 0:01:27.880 as you noted, growth. 0:01:27.640 --> 0:01:29.120 Is exceeding what was expected this year. 0:01:29.160 --> 0:01:31.680 The US economy's humming right along. So from just a 0:01:31.720 --> 0:01:33.920 growth perspective, we're exceeding expectations. 0:01:33.920 --> 0:01:35.160 But people are still nervous. 0:01:35.520 --> 0:01:38.040 Is the US economy too good in terms of it's 0:01:38.080 --> 0:01:40.600 so good here that it's dealing with some pretty frock 0:01:40.640 --> 0:01:41.919 consequences around the world. 0:01:42.080 --> 0:01:43.520 Well, I don't think it ever be too good. 0:01:43.560 --> 0:01:45.000 I think there is other. 0:01:44.880 --> 0:01:46.840 Countries looking at saying how can we replicate that? 0:01:46.920 --> 0:01:49.000 Why aren't we doing what the US is doing? 0:01:49.040 --> 0:01:51.840 The US consumer continues to power aheads, so I think 0:01:51.880 --> 0:01:52.440 there's something to be. 0:01:52.440 --> 0:01:52.880 Said for that. 0:01:53.000 --> 0:01:55.280 Maybe lessons be drawn from the US. 0:01:55.480 --> 0:01:59.280 The US is doing more of industrial policy, especially fiscal policy, 0:01:59.360 --> 0:02:01.640 lose fiscal policy. The IMF report has talked about this. 0:02:02.000 --> 0:02:04.360 Do you hear other countries saying, well, if we're not 0:02:04.400 --> 0:02:07.680 going to have as robust global free trade, that's the 0:02:07.720 --> 0:02:09.000 direction we need to lean into. 0:02:09.160 --> 0:02:10.639 Well, I would hope we go back to a robust 0:02:10.919 --> 0:02:11.679 global free trade. 0:02:11.720 --> 0:02:13.079 I think that's the right answer. 0:02:13.600 --> 0:02:16.840 The fiscal deficit six percent GDP is not sustainable. There 0:02:16.880 --> 0:02:19.600 is a lot of fiscal support. Debt and deficits are 0:02:19.639 --> 0:02:21.200 part of the conversation this week. I think there's a 0:02:21.240 --> 0:02:22.679 lot of concern about where we're going to be and 0:02:22.720 --> 0:02:25.480 the sustainability. I don't think it's sustainable, but right now 0:02:25.480 --> 0:02:27.320 it's providing a real pulse to the economy. 0:02:27.639 --> 0:02:29.960 So let's take a step back and talk about what 0:02:30.000 --> 0:02:32.880 the main issues are the financial firms are looking at 0:02:32.919 --> 0:02:35.600 and actually trying to hedge against as they prepare for 0:02:35.720 --> 0:02:38.360 this more dangerous world in a whole host of different ways. 0:02:38.360 --> 0:02:40.680 You point to oil in particular and saying that it 0:02:40.720 --> 0:02:44.280 could surge forty percent globally next year or even this year. 0:02:44.320 --> 0:02:46.960 If you start to see a protracted and escalating conflict 0:02:47.000 --> 0:02:50.240 to the Middle East, do you see firms actually preparing 0:02:50.360 --> 0:02:52.880 for that or do you see them as incredibly vulnerable 0:02:52.919 --> 0:02:54.080 to a situation like that. 0:02:54.120 --> 0:02:56.919 Now our business, our firms are in the risk management business. 0:02:56.919 --> 0:02:59.400 They're all looking at different scenarios and have for some time. 0:03:00.280 --> 0:03:03.120 It's not a surprise that oil prices could surge, but 0:03:03.120 --> 0:03:05.960 it's energy prices generally, And that goes back to industrial policy. 0:03:05.960 --> 0:03:08.680 If you want to support manufacturing, energy price is one 0:03:08.720 --> 0:03:11.720 of the most important component input to manufacturing. So it's 0:03:11.720 --> 0:03:14.600 not just throwing more fiscal dollars at a certain sector. 0:03:14.840 --> 0:03:17.120 Is how do you get energy prices at appropriate level. 0:03:17.240 --> 0:03:19.400 I hear you talking about how they're prepared for it. 0:03:19.400 --> 0:03:21.880 They're the risk mitigation business. We hear that in a 0:03:21.919 --> 0:03:24.480 host of different ways. Does that mean that you don't 0:03:24.520 --> 0:03:27.720 see the likelihood of some sort of banking crisis or 0:03:27.720 --> 0:03:30.320 some sort of banking kerfuffle, whatever you want to call it, 0:03:30.320 --> 0:03:33.800 akin to what we saw even last March, just simply 0:03:33.840 --> 0:03:36.320 because they are prepared for higher interest rates, they are 0:03:36.360 --> 0:03:38.600 prepared for higher oil prices, they are prepared for a 0:03:38.600 --> 0:03:39.480 potential slowdown. 0:03:39.680 --> 0:03:43.440 Now, the system is highly capitalized, you have tremendous amount liquidy, 0:03:43.640 --> 0:03:45.560 very good risk management systems. What we saw a year 0:03:45.600 --> 0:03:48.720 ago is pretty idiosyncratic. So I feel pretty good where 0:03:48.720 --> 0:03:50.680 the industry is. But we're all every day, we're spent 0:03:50.720 --> 0:03:54.960 an entire week scenarioing out different risks. So we are 0:03:54.960 --> 0:03:57.000 trying to think through what are the array of possible 0:03:57.080 --> 0:03:58.040 downside outcomes. 0:03:58.120 --> 0:03:59.960 One risk that you mentioned when you talk about geopol 0:04:00.000 --> 0:04:02.440 politics that I thought was fascinating you talked about the 0:04:02.520 --> 0:04:04.680 US election and that that was actually one of the 0:04:04.720 --> 0:04:07.440 geopolitical risks that a lot of people were looking at. 0:04:08.040 --> 0:04:12.240 What are people expecting from a Trump presidency two point 0:04:12.280 --> 0:04:15.520 zero in terms of either deregulation? Is that really the case? 0:04:16.160 --> 0:04:17.119 Can you game that out? 0:04:17.360 --> 0:04:17.560 Sure? 0:04:17.600 --> 0:04:20.000 I just did a nine city, seventeen day tour across 0:04:20.000 --> 0:04:22.760 Europe's the first question out of everyone's mouth what's going 0:04:22.800 --> 0:04:24.800 to happen in November fifth, two hundred and one days 0:04:24.839 --> 0:04:27.520 from today, And the concern is what is a Trump administration? 0:04:27.600 --> 0:04:29.840 I think actually it'll be business friendly. I do think 0:04:29.880 --> 0:04:32.479 there's protectionism. I do think we'll see tariffs and non 0:04:32.520 --> 0:04:36.039 tariff barriers. I don't think we'll see deregulation for our industry. 0:04:36.320 --> 0:04:37.680 I think that's coming gone. 0:04:38.200 --> 0:04:41.839 So I think there's a lot of potential chaotic outcomes 0:04:41.880 --> 0:04:43.840 just the uncertainty of what a Trump two point zero 0:04:43.839 --> 0:04:44.520 would look like. 0:04:44.680 --> 0:04:48.960 What kind of tariffs do you actually see potentially happening? 0:04:49.000 --> 0:04:51.359 They talk about a ten percent wall, and all tariffs 0:04:51.400 --> 0:04:53.440 come all imports coming to the United States, and then 0:04:53.520 --> 0:04:55.560 sixty percent on Chinese imports. 0:04:55.680 --> 0:04:56.160 Yeah, I do it. 0:04:56.240 --> 0:04:58.480 I think I think it's a part of a negotiation, right. 0:04:58.520 --> 0:04:59.760 I think that's the opening bid. 0:05:00.040 --> 0:05:02.279 But I do think there's a proclivity to believe that 0:05:02.360 --> 0:05:05.120 somehow The biggest challenge we have in the United States 0:05:05.160 --> 0:05:07.600 is are global imbalance the external imbalance, and we need 0:05:07.640 --> 0:05:10.200 to solve that particular equation. I don't think that's the problem, 0:05:10.360 --> 0:05:12.040 and I think you'd end up doing some really bad 0:05:12.080 --> 0:05:14.560 policy in pursuit of an objective which I think is 0:05:14.560 --> 0:05:15.520 of secondary nature. 0:05:15.760 --> 0:05:17.800 But whether or not it's Trump or Biden, you see 0:05:17.800 --> 0:05:20.200 the direction of travel the same when it comes to 0:05:20.360 --> 0:05:21.760 potentially more tariffs on. 0:05:22.040 --> 0:05:22.799 Certainly on China. 0:05:22.880 --> 0:05:26.120 China is on the ballot your respective of who's elected, 0:05:26.160 --> 0:05:27.640 who's running, Yes, which rais is the. 0:05:27.680 --> 0:05:29.880 Question for banks, and this is something that we've heard 0:05:30.000 --> 0:05:33.919 and seen quite significantly. If you're an international bank, do 0:05:34.000 --> 0:05:37.560 you get into China, do you expand your presence or 0:05:37.560 --> 0:05:39.680 do you really curtail it? A more significant way. So 0:05:39.760 --> 0:05:43.240 yesterday Morgan Stanley pulling out a couple of its bankers 0:05:43.320 --> 0:05:43.960 from the region. 0:05:44.120 --> 0:05:44.280 Yeah. 0:05:44.320 --> 0:05:45.760 I think it depends on the institution. 0:05:45.839 --> 0:05:48.080 You see, some institutions are doubling down in others who 0:05:48.080 --> 0:05:50.040 what d're on. It really depends on your risk profile, 0:05:50.120 --> 0:05:51.159 your appetite for risk, and. 0:05:52.080 --> 0:05:53.040 Where you're located. 0:05:53.400 --> 0:05:55.520 I think I'd be cautious being in China, but certainly 0:05:55.600 --> 0:05:58.080 you can't walk away from the second largest economy in 0:05:58.120 --> 0:05:59.960 the world. You have to be there and your client 0:06:00.160 --> 0:06:01.640 want you there, so I think you. 0:06:01.600 --> 0:06:02.520 Do so cautiously. 0:06:02.600 --> 0:06:04.920 So this raises this question because we keep talking about 0:06:04.920 --> 0:06:07.240 how this is a whole new world and there is 0:06:07.279 --> 0:06:10.400 an increasingly protectionist kind of feel at this IMF meeting, 0:06:10.520 --> 0:06:12.520 and this feeling that free trade isn't as good as 0:06:12.520 --> 0:06:15.120 it really was thought up to be. Is that the 0:06:15.160 --> 0:06:18.120 same tone that you're hearing from the members of the 0:06:18.160 --> 0:06:19.440 If it's. 0:06:19.279 --> 0:06:22.000 A concern that we're hearing, My industry tends to be 0:06:22.040 --> 0:06:25.200 for free trade, flow of capital, free flow of data, 0:06:25.279 --> 0:06:27.920 free ideas, right, we think that's how you optimize growth, 0:06:28.080 --> 0:06:29.360 But we don't hear that coming out. 0:06:29.240 --> 0:06:30.080 Of political capitals. 0:06:30.120 --> 0:06:32.279 Do you hear politicians who think they can micro manage 0:06:32.279 --> 0:06:33.760 their economies into a better outcome. 0:06:33.920 --> 0:06:35.320 I think that's a huge mistake. 0:06:35.800 --> 0:06:38.039 So what's the biggest risk then right now? Is it 0:06:38.080 --> 0:06:38.880 the politicians? 0:06:39.040 --> 0:06:42.080 Well, it's the politician and misallocation of capital which won't 0:06:42.080 --> 0:06:44.240 show up for years, but we can end up wasting 0:06:44.240 --> 0:06:46.320 a lot of capital and pursuing sort of pipe dreams 0:06:46.360 --> 0:06:48.640 of politicians who think they can outsmart the markets. 0:06:48.680 --> 0:06:50.400 So we're here for the IMF's free meetings. How does 0:06:50.440 --> 0:06:54.680 the IMF as an institution do you think really guide 0:06:55.000 --> 0:06:57.960 the global economy and companies that you work with, Well, they. 0:06:57.880 --> 0:07:01.600 Can provide some intellectual framework, analytical framework, which is if 0:07:01.640 --> 0:07:04.080 you choose a this is b happens. So I think 0:07:04.520 --> 0:07:08.040 showing trade offs. I think trying to hold the sector 0:07:08.400 --> 0:07:09.279 the global. 0:07:09.000 --> 0:07:09.960 Economies are honest. 0:07:10.560 --> 0:07:13.000 You've got finance minister, central banker sitting around the table. 0:07:13.000 --> 0:07:15.000 They can be voices of reason, they can talk to 0:07:15.000 --> 0:07:18.239 the political leaders. Ultimately, it's about political leaders taking political 0:07:18.280 --> 0:07:19.600 decisions this morning. 0:07:19.600 --> 0:07:21.280 And I can't let you go without asking this because 0:07:21.320 --> 0:07:24.080 it's something that's very much on my mind. Vanguard came 0:07:24.120 --> 0:07:27.000 out and said, if you see treasure yields go up 0:07:27.000 --> 0:07:29.640 to four seventy five, they'll easily pop to five. We 0:07:29.760 --> 0:07:33.080 have Jonathan Pringle pingle over at UBS saying that the 0:07:33.080 --> 0:07:34.840 FED could hike rates to six and a half percent 0:07:34.880 --> 0:07:36.960 next year. Could banks withstand that? 0:07:37.200 --> 0:07:38.560 I think, well, I don't think we're going to see 0:07:38.560 --> 0:07:40.080 a rate hike, but I don't think rates are going 0:07:40.120 --> 0:07:41.880 down either, and I haven't thought that for some time. 0:07:41.920 --> 0:07:43.360 I think race are going to see where they are. 0:07:43.600 --> 0:07:45.560 You know, the FED has done a really remarkable job 0:07:45.600 --> 0:07:46.480 in inflation. 0:07:46.320 --> 0:07:47.680 But it feels a little sticky. 0:07:47.760 --> 0:07:50.600 We saw Governor Bowman last night talk about the stickiness. 0:07:50.640 --> 0:07:52.240 The last mile was always going to be hard. 0:07:52.280 --> 0:07:54.120 I don't know why it's a surprise, but I think 0:07:54.120 --> 0:07:55.160 we'll get there with time. 0:07:55.560 --> 0:07:57.320 Well, that seems to be the tone that we're hearing 0:07:57.560 --> 0:07:59.760 from the Federal Reserve as well. Tim Adam, CEO of 0:07:59.800 --> 0:08:12.000 the A thank you so much, Dutch Central Bank President, 0:08:12.080 --> 0:08:15.880 EASYB Governing Council member Class Canot joins US now and 0:08:16.120 --> 0:08:19.360 Governor President, all of the different ways that you weigh 0:08:19.440 --> 0:08:23.720 in European central bank policy, what a moment. How much 0:08:23.760 --> 0:08:27.520 are you looking to US policy to determine how far 0:08:27.760 --> 0:08:29.400 the EASYB can go on its own? 0:08:30.080 --> 0:08:33.760 Well, obviously monetary policy always takes place in a global context. 0:08:34.000 --> 0:08:37.080 But at the same time, we're not the thirteenth Federal District. 0:08:37.280 --> 0:08:38.680 We have our own monetary policy. 0:08:38.679 --> 0:08:42.800 We have our own set of outlooks, economic outlook, inflation outlook, 0:08:43.240 --> 0:08:46.559 and as Christine already alluded to, some of the fundamental 0:08:46.640 --> 0:08:50.520 drivers of inflation have developed quite differently in the US 0:08:50.600 --> 0:08:52.360 than in the Euro Area. So we have our own 0:08:52.440 --> 0:08:56.360 monetary policy to do that. Monetary policy, I think is 0:08:56.679 --> 0:08:59.599 testimony of the fact that we're increasingly confident with the 0:08:59.679 --> 0:09:02.600 disentflation process that we have been seeing and that we 0:09:02.679 --> 0:09:06.200 expect to continue. We expect it to become a little 0:09:06.200 --> 0:09:08.600 bit more bumpy also down the road, because of all 0:09:08.679 --> 0:09:10.800 kinds of technical factors that I would want to tire 0:09:10.840 --> 0:09:14.160 you with, but we are confident that the overall picture 0:09:14.240 --> 0:09:15.960 is one of continued disinflation. 0:09:16.160 --> 0:09:18.760 So you mentioned the b word bumps, and this is 0:09:18.800 --> 0:09:21.360 something we hear a lot. What kind of bumps would 0:09:21.400 --> 0:09:23.600 you have to see to not cut rates in June? 0:09:24.200 --> 0:09:27.880 Well, bumps that would lead me to fundamentally change my 0:09:28.080 --> 0:09:31.960 assessment of the ongoing this inflation process. And I think 0:09:32.000 --> 0:09:34.839 the projections that we have are pretty clear that we 0:09:34.880 --> 0:09:38.600 are moving toward reaching our target two percent inflation over 0:09:38.640 --> 0:09:41.199 the medium term in the remainder. 0:09:40.840 --> 0:09:42.600 Of this year course of twenty twenty five. 0:09:43.200 --> 0:09:47.520 But there are risks surrounding such projections, but increasingly these 0:09:47.600 --> 0:09:49.120 risks are becoming more balanced. 0:09:49.720 --> 0:09:51.200 Upside risks, I think, em. 0:09:51.040 --> 0:09:54.559 Andate predominantly from the labor market, and then it's not 0:09:54.679 --> 0:09:55.480 just about wages. 0:09:55.520 --> 0:09:57.120 It's about wages. 0:09:56.920 --> 0:10:00.560 In combination with very slow productivity growth. So a major 0:10:00.600 --> 0:10:04.440 difference with the US and the question about the capacity 0:10:04.520 --> 0:10:08.040 of firms profit margins to absorb any increase in unit 0:10:08.120 --> 0:10:11.600 labor costs that might come from this combination of wage 0:10:11.960 --> 0:10:15.680 wages and productivity growth. That's the assessment we need to make. 0:10:15.880 --> 0:10:18.760 That's a risk on the upside. At the same time, 0:10:19.280 --> 0:10:23.200 we also don't want to undershoot our inflation target. We 0:10:23.280 --> 0:10:26.240 have a two percent symmetric target. We are zooming in 0:10:26.280 --> 0:10:28.880 on it, and let's make sure that we continue to 0:10:28.920 --> 0:10:29.360 do so. 0:10:29.360 --> 0:10:29.440 So. 0:10:29.520 --> 0:10:31.960 Right now, the market's pricing in twenty five basis point 0:10:31.960 --> 0:10:33.880 cut in June and then two more of the range 0:10:33.920 --> 0:10:34.280 of the year. 0:10:34.320 --> 0:10:35.680 You're basically on board with that. 0:10:35.760 --> 0:10:38.400 If everything stays the same, well, I'm not uncomfortable with 0:10:38.720 --> 0:10:41.360 such market pricing, but At the same time, we don't 0:10:41.360 --> 0:10:44.840 pre commit where data depend that we go meeting by meeting. 0:10:45.520 --> 0:10:48.000 We of course we have a picture of where we 0:10:48.040 --> 0:10:51.200 think the underlying movement is within the data. But we 0:10:51.240 --> 0:10:54.600 will have new data points well every month on inflation, 0:10:54.760 --> 0:10:58.000 every quarter on the labor market, and that will continue 0:10:58.040 --> 0:11:00.120 to inform our decisions beyond June. 0:11:00.280 --> 0:11:02.960 Well, what would make you rethink what you have right 0:11:02.960 --> 0:11:06.000 now in terms of that path? Is it the geopolitical concerns? 0:11:06.320 --> 0:11:09.439 I'm trying to understand what would make the easy be 0:11:09.600 --> 0:11:12.520 changed path or how would they respond to, say, an 0:11:12.520 --> 0:11:13.400 oil price shock. 0:11:13.720 --> 0:11:16.880 Yeah, well, an oil price shock obviously will lift inflation, 0:11:17.080 --> 0:11:20.400 that is absolutely true. But the question for us is 0:11:20.920 --> 0:11:25.840 the oil price shock of enough significance to trigger second 0:11:25.960 --> 0:11:28.920 round of facts? And there's an important difference here today 0:11:29.160 --> 0:11:32.400 with twenty twenty two. In twenty twenty two, all inflation 0:11:32.480 --> 0:11:35.000 items will go up. We're going up, and we had 0:11:35.000 --> 0:11:40.839 the energy price shock as the consequence of Russia's unjustifiable. 0:11:40.200 --> 0:11:41.720 Invasion of Ukraine. 0:11:42.160 --> 0:11:44.880 Now, if we have an oil shock, it will be 0:11:44.920 --> 0:11:49.240 against the backdrop of general disinflation in all the other factors. 0:11:49.240 --> 0:11:52.160 So the likelihood of significant second round effects I would 0:11:52.240 --> 0:11:56.079 argue is smaller, but it is clearly something to monitor. 0:11:56.160 --> 0:11:57.560 It's clearly something to keep in mind. 0:11:57.640 --> 0:11:59.280 So you're willing to potentially look through it. 0:12:00.240 --> 0:12:05.400 If it continues to be confined to energy prices only. Yes, 0:12:05.920 --> 0:12:09.040 as soon as I get indication that it broadens into 0:12:09.880 --> 0:12:14.160 the consumer basket into more traditional goods and services inflation, 0:12:14.679 --> 0:12:16.760 then the answer would turn no. 0:12:16.920 --> 0:12:20.120 Something that people have speculated is that the ECB might 0:12:20.160 --> 0:12:22.800 be willing to also look through depreciation of the euro 0:12:23.360 --> 0:12:25.680 in response to recuts at a time where the FED 0:12:25.760 --> 0:12:28.600 is not cutting, as long as there isn't an oil 0:12:28.640 --> 0:12:31.400 price shock. So let's say that there isn't an oil 0:12:31.440 --> 0:12:33.960 price shock, would you be willing to accept parody with 0:12:34.040 --> 0:12:37.600 the euro and the dollar all things being equal, It's fine. 0:12:38.200 --> 0:12:39.959 Well, the exchange right in and of itself is not 0:12:40.000 --> 0:12:42.720 a target of our policy, so I account comment on 0:12:43.120 --> 0:12:47.080 specific levels of the exchange. It's one input into our 0:12:47.160 --> 0:12:51.280 overall assessment of the inflation outlook. It's clearly that a 0:12:51.320 --> 0:12:56.560 depreciating currency would lead to additionally important inflation at the 0:12:56.600 --> 0:12:59.720 same time, if the reason for that is tighter one 0:12:59.760 --> 0:13:02.680 of the policy in the US, higher bond yields in 0:13:02.679 --> 0:13:05.360 the US, that would also spill over to the Euro 0:13:05.520 --> 0:13:07.880 Area and we would have tighter financial conditions in the 0:13:07.920 --> 0:13:10.200 Euro Area as a consequence of that. Which of the 0:13:10.200 --> 0:13:13.320 two effects will dominate It remains to be sy. That's 0:13:13.440 --> 0:13:17.839 very much state contingency, So that's difficult to comment on beforehand. 0:13:18.400 --> 0:13:21.079 A very difficult question. Some people are speculating that high 0:13:21.160 --> 0:13:25.080 rates are actually helping inflation continue because people are earning 0:13:25.120 --> 0:13:28.239 more and then they're able to refuel that into the economy, 0:13:28.400 --> 0:13:30.679 and that low rates actually were depressive of inflation. 0:13:30.760 --> 0:13:33.040 Do you believe that? No, I don't believe that at all. 0:13:33.120 --> 0:13:36.920 I think it runs counter two decades of empirical evidence. 0:13:37.040 --> 0:13:39.640 And if you want to run to see what the 0:13:39.640 --> 0:13:42.280 consequences are of running such an experiment. 0:13:41.920 --> 0:13:44.400 Look at Turkey, right. I mean, that's where the experiment 0:13:44.559 --> 0:13:45.559 was brought to. 0:13:45.600 --> 0:13:47.839 Life, and I don't think that that's seen as a 0:13:47.880 --> 0:13:50.080 paragon of central banking success. 0:13:50.880 --> 0:13:53.800 Central Bank President ECV, Governing Council Member Class Cannod, thank 0:13:53.800 --> 0:13:54.920 you so much for being with us. 0:13:55.000 --> 0:13:56.000 Really appreciate it. 0:14:05.880 --> 0:14:08.680 With the pingle of UBS, he came out with a 0:14:08.720 --> 0:14:10.559 call that was nuanced, and I think that that's the 0:14:10.600 --> 0:14:12.240 important way of putting it, and I want. 0:14:12.120 --> 0:14:13.800 To start there, you talk about how. 0:14:13.679 --> 0:14:15.880 Your base case is two rate cuts, but you made 0:14:15.880 --> 0:14:19.040 headlines by talking about the possibility for the FED to 0:14:19.200 --> 0:14:20.520 raise rates to six. 0:14:20.320 --> 0:14:21.600 And a half percent next year. 0:14:22.000 --> 0:14:25.360 Put those two stories together, please explain, well. 0:14:25.240 --> 0:14:27.800 I mean the stories are I mean, I hate to 0:14:27.800 --> 0:14:29.960 admit that they are somewhat born out of our own 0:14:30.040 --> 0:14:33.120 forecast errors, right right, So I think there's an element 0:14:33.160 --> 0:14:35.240 of needing to be humble here, But I mean, the 0:14:35.280 --> 0:14:40.560 basic fact is growth has surprised persistently, you know, for 0:14:40.640 --> 0:14:43.560 the last year more essentially, And you know, we think 0:14:43.600 --> 0:14:45.800 about the central Bank, we're all focused on inflation. They're 0:14:45.840 --> 0:14:48.840 very focused on inflation. But in the backdrop, they have 0:14:49.000 --> 0:14:53.600 this very strong labor market, strong headline numbers, retail sales, 0:14:54.280 --> 0:14:57.920 and at some point, if that is really what's preventing 0:14:57.960 --> 0:15:01.760 them from achieving their inflation target or making further progress, 0:15:02.120 --> 0:15:03.920 at some point they may need to push back on that. 0:15:04.080 --> 0:15:06.960 And pushing back on that would imply something I think 0:15:07.000 --> 0:15:09.960 a little bit more than just higher for longer, where 0:15:09.960 --> 0:15:12.960 they maintain the same level of rates and hope that 0:15:12.960 --> 0:15:16.440 that slows growth and they make this grinding progress down 0:15:16.520 --> 0:15:19.000 towards two percent. Because if the economy is going to 0:15:19.040 --> 0:15:21.960 remain sufficiently strong. I mean, non farm PAERIL employment three 0:15:22.040 --> 0:15:23.359 hundred and three thousand. 0:15:23.000 --> 0:15:24.120 Extraordinary number. 0:15:24.400 --> 0:15:26.360 But even if it's still running at this two forty 0:15:26.360 --> 0:15:29.440 four average pace, eventually the unemployment rate is going to 0:15:29.440 --> 0:15:32.640 start moving lower. And that seems pretty inconsistent with two 0:15:32.680 --> 0:15:35.760 percent inflation. At some point the Central Bank may think 0:15:35.760 --> 0:15:37.160 they need to do something about it. 0:15:37.200 --> 0:15:40.640 Are you basically saying that if inflation doesn't come under control, 0:15:40.800 --> 0:15:42.040 if that's going to have to break something. 0:15:44.280 --> 0:15:46.560 This isn't even about breaking something. I mean, this is 0:15:46.600 --> 0:15:49.280 like going from two forty four to something closer to trend. 0:15:49.440 --> 0:15:52.760 I mean they it's really an extraordinary pace of growth. 0:15:52.760 --> 0:15:53.680 It's persistent for a. 0:15:53.640 --> 0:15:57.160 While, and they might think that they need to break 0:15:57.200 --> 0:15:58.960 something in order to solve this sort of I've been 0:15:59.000 --> 0:16:00.920 calling a sort of the last half mile problem, like 0:16:00.960 --> 0:16:02.240 if they're stuck at two and a half. 0:16:03.320 --> 0:16:05.440 But I think if growth is going to. 0:16:05.360 --> 0:16:08.160 Be three percent GDP growth and two fifty on payrolls, 0:16:08.160 --> 0:16:11.040 I mean, they're just I think they're going to end 0:16:11.120 --> 0:16:14.280 up coming to the realization that that is not going 0:16:14.280 --> 0:16:16.080 to allow them to achieve price stability. 0:16:16.080 --> 0:16:19.400 We here from Michelle Bowman last night saying keep things 0:16:19.440 --> 0:16:22.320 policy is restrictive, but maybe time will tell if it's 0:16:22.360 --> 0:16:25.480 restrictive enough. When you see these kind of numbers in 0:16:25.480 --> 0:16:27.400 this kind of market and you have a probability, even 0:16:27.440 --> 0:16:29.840 though it's small, you do are putting in probability of 0:16:29.840 --> 0:16:30.240 a hike. 0:16:30.720 --> 0:16:32.000 Do you think the FED is restrictive? 0:16:32.960 --> 0:16:35.200 Well, I do think the FED is restrictive, But I 0:16:35.240 --> 0:16:38.200 have to say I've been thinking the FED is restrictive, 0:16:38.880 --> 0:16:41.040 and at the same time, I'm still not seeing the 0:16:41.160 --> 0:16:43.440 kind of slow down I would have expected. I mean, 0:16:43.480 --> 0:16:46.600 you do see some evidence of restrictiveness. I mean equipment investment, 0:16:46.680 --> 0:16:48.680 I mean a lot of different types of business fixed 0:16:48.720 --> 0:16:51.640 investment have been pretty weak. You know what that looks like. 0:16:51.640 --> 0:16:55.160 It's the effect of higher interest rates restraining that activity. 0:16:55.560 --> 0:16:56.840 But overall, when. 0:16:56.640 --> 0:16:59.240 You're watching consumption growth at the pace we've had, it, 0:16:59.240 --> 0:17:01.480 it's very to cult to think. 0:17:01.320 --> 0:17:04.880 That, well, you know what is is the neutral rate? 0:17:05.040 --> 0:17:07.800 Really the zero point six and the SEP So we've 0:17:07.800 --> 0:17:09.840 started thinking about a short run neutral rate, But I 0:17:10.119 --> 0:17:12.359 will say it's hard to identify these things in models. 0:17:12.400 --> 0:17:14.040 It's hard to come up with a point estimate. 0:17:14.400 --> 0:17:17.520 So the FED and we are really feeling our way forward, 0:17:18.000 --> 0:17:20.560 and I think as we feel our way forward, I mean, 0:17:20.600 --> 0:17:22.840 if growth is just going to remain super strong, at 0:17:22.840 --> 0:17:25.440 some point they might realize they need higher rates to 0:17:25.560 --> 0:17:28.680 kind of you know, tame the economic conditions that would 0:17:28.720 --> 0:17:30.800 engineer a path to two percent. 0:17:31.080 --> 0:17:33.280 But back to your base case, you did push back 0:17:33.280 --> 0:17:35.360 your timing though, the first cut to September. 0:17:35.640 --> 0:17:38.119 A lot of people are saying, siptet right, Yeah, no. 0:17:37.960 --> 0:17:40.720 No, we did, only laughing because we got the CPI 0:17:41.200 --> 0:17:44.040