WEBVTT - Rich Miller on Powell Abandoning Soft Landing (Audio)

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<v Speaker 1>Well, you can forget about a soft landing. Fed J. J.

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<v Speaker 1>Pale is now aiming for something much more painful for

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<v Speaker 1>the economy, to put an end to elevated inflation. This

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<v Speaker 1>is the subject of a column with my Richard Miller

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<v Speaker 1>Bloomberg Economics Report, and he joins us. Now, Richard, so

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<v Speaker 1>what's what's going to be more painful? Well, it's something

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<v Speaker 1>trying not to laugh at something that economist called a

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<v Speaker 1>growth recession. Right, it sounds like an oxymoron, then I

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<v Speaker 1>guess it is. But what it is is the growth

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<v Speaker 1>slows down to basically to a crawl, and unemployment rises,

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<v Speaker 1>and then you slowly slow and you have that for

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<v Speaker 1>a while, like a year maybe more, and you slowly

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<v Speaker 1>ring this inflation out of the economy. It's it's like

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<v Speaker 1>we got an economist in the story quota As saying,

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<v Speaker 1>it's like you know, dripping water torture. Um, but you

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<v Speaker 1>know the economy never goes south, never goes into a contraction. Yeah.

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<v Speaker 1>Well yeah, that's Diane swanksline right right exactly. Um, this

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<v Speaker 1>is a pretty negative period if your long equities one

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<v Speaker 1>would think it sort of reminds me of once it

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<v Speaker 1>became painfully obvious that Chinese officials just didn't feel comfortable

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<v Speaker 1>with the size of big tech players in China, and

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<v Speaker 1>you'd get these, you know, a couple of days where

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<v Speaker 1>you'd get some positive news, but it was always slammed.

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<v Speaker 1>It feels like the FED is slamming risk assets now

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<v Speaker 1>and it really wants you to know that, uh, if

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<v Speaker 1>you fight the FED, you'll lose. Yeah, I mean, I

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<v Speaker 1>mean that's a good point. I mean, basically, it suggests

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<v Speaker 1>that they're just gonna keep They're gonna raise interest rates

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<v Speaker 1>up to a pretty high level, at least high compared

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<v Speaker 1>to where we wove been most recently, and just hold

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<v Speaker 1>them there. And even if growth slows and then the

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<v Speaker 1>market's waiver, they're just going to keep, you know, keep

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<v Speaker 1>the screws on until I get you know, what they

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<v Speaker 1>want on inflation. So you're right, it does not sound

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<v Speaker 1>like a an attractive time to be, you know, uh, risk.

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<v Speaker 1>It certainly doesn't sound like a risk on time. And

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<v Speaker 1>the other danger is, of course, when you're growing so slowly,

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<v Speaker 1>it doesn't take all that much to knock you actually,

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<v Speaker 1>you know, in south and into an actual recession. So,

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<v Speaker 1>you know, another another run up in oil prices or

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<v Speaker 1>you know anything. So you know, you're you're, you're as

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<v Speaker 1>you say, it's not it's not necessarily conducive to taking

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<v Speaker 1>a lot of risks. Yeah, this is said, I mean exactly.

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<v Speaker 1>And you want to get slow growth down to below

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<v Speaker 1>its potential, which I think some people have pegged that

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<v Speaker 1>at one point eight per cent, as you've alluded to.

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<v Speaker 1>As you also, you can easily easily miss that and

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<v Speaker 1>go directly below and into contraction territory. And it's is

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<v Speaker 1>it really at the moment, almost like Russian roulette. Yeah, it's,

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<v Speaker 1>you know, it's it's it's certainly not an easy thing

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<v Speaker 1>to do, right, I mean, you know, uh it somebody said,

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<v Speaker 1>is you know, like they trying to Someone said they're

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<v Speaker 1>trying to you know, thread and needle in the dark

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<v Speaker 1>with you know, with oven mits on. You know, I mean,

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<v Speaker 1>this is you know, a pretty pretty difficult thing to

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<v Speaker 1>pull off with as you say, not making a misstep,

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<v Speaker 1>and and and the on the other side is if

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<v Speaker 1>they don't get the slow growth, and the inflation stuck

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<v Speaker 1>you know, keeps highing higher than they want, so they're

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<v Speaker 1>kind of you know, stuck but rich. If if you

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<v Speaker 1>abandon the soft landing it's not that difficult. You just

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<v Speaker 1>have to get you know what I mean. I mean,

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<v Speaker 1>you just have to get the FED funds rate in

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<v Speaker 1>a restrictive mode so higher than inflation. This is what

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<v Speaker 1>Vulker did you know back in in uh in the

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<v Speaker 1>early eighties. Um, it's just that, you know, you you

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<v Speaker 1>sort of want to have a FED that seemingly has

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<v Speaker 1>the power to pull off a FED a soft landing

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<v Speaker 1>and give both investors and workers and companies the hope

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<v Speaker 1>that this could happen. But it seems like that's abandoned now. Yeah,

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<v Speaker 1>I mean I think it's you know, they held out

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<v Speaker 1>that out for a while and um, but they're coming

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<v Speaker 1>around to the view that it's it's not realistic. You

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<v Speaker 1>know that this can't be done. You can't get rid

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<v Speaker 1>of this inflation. Yes, some of it's gonna melt away

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<v Speaker 1>when you know, uh uh, when you know, you know,

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<v Speaker 1>the chips chips makers start pumping out more chips, et cetera.

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<v Speaker 1>But you know there's there there's enough underlying momentum to

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<v Speaker 1>inflation that it's not going to melt away without some pain.

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<v Speaker 1>You know. That's what and that's what basically saying. You know,

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<v Speaker 1>it's not going to be this soft gentle landing where

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<v Speaker 1>you know, everything is called pathetic. It's it's gonna be,

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<v Speaker 1>you know, this growth recession where you're gonna have you know,

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<v Speaker 1>you know, you're gonna be growing, but it's not gonna

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<v Speaker 1>feel very good. The thing is also what complicates it

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<v Speaker 1>is perhaps an arguably quantitative tightening. What do you make

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<v Speaker 1>of that region? I'm sorry, I didn't I didn't quite

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<v Speaker 1>get that right, oh qt. Oh yeah, I mean, um,

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<v Speaker 1>that's a good point. I mean yeah, they themselves admit

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<v Speaker 1>they're not quite sure how this is gonna, you know,

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<v Speaker 1>work out. They're hoping that the markets have already you know,

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<v Speaker 1>discounted the quantitive quantity of tightening and playing down its impact.

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<v Speaker 1>But you know, when you talk to them, they say, look,

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<v Speaker 1>you know, we only did this once before. Uh, we

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<v Speaker 1>didn't do it anywhere near the size we're about to

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<v Speaker 1>do it. We don't really know. Rich Thanks very much,

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<v Speaker 1>interesting story. Richard Miller, Bloomberg Economics reporter,