WEBVTT - Surveillance: Quickening Inflation with Gapen 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.480 and of course on the Bloomberg terminal. Michael cap and 0:00:29.600 --> 0:00:32.159 joint Chief US Economist at Barclays, and the course it's 0:00:32.159 --> 0:00:36.479 tour of duty at the International Monetary Fund is noted. Michael, 0:00:36.479 --> 0:00:39.200 I want to talk about the second derivative of inflation, 0:00:39.280 --> 0:00:41.040 the rate of change. Of the rate of change that 0:00:41.080 --> 0:00:45.040 we're all living's personified by my favorite indicator, the Cleveland 0:00:45.120 --> 0:00:49.040 Median is out two point eight standard deviations. It's on 0:00:49.080 --> 0:00:51.960 the edge of we've never seen this. What kind of 0:00:52.000 --> 0:00:55.400 report will we never see in twelve minutes, Well, it 0:00:55.440 --> 0:00:57.600 could be a really interesting part of this report is 0:00:57.640 --> 0:01:01.120 we all expect the headline to be driven by energy, gas, 0:01:01.200 --> 0:01:03.920 food prices, everything that we've been discussing and you've been 0:01:03.960 --> 0:01:06.960 discussing on on your show in recent weeks. What we 0:01:07.000 --> 0:01:10.640 will be looking for underneath that is any indication that 0:01:10.760 --> 0:01:13.680 actually goods prices are starting to roll over, there are 0:01:13.760 --> 0:01:16.320 signs use car prices could be falling in the next 0:01:16.720 --> 0:01:19.280 months ahead, and even new car prices this month we 0:01:19.319 --> 0:01:21.960 think might be falling. So we could see a bit 0:01:22.000 --> 0:01:24.960 of a dichotom here that the anticipated decline in goods 0:01:25.040 --> 0:01:28.360 prices that we've all been waiting for perhaps might show 0:01:28.440 --> 0:01:30.760 up a teeny bit in this report, but would be 0:01:30.800 --> 0:01:33.840 completely overwhelmed by, of course, what would we would be 0:01:33.880 --> 0:01:36.880 seeing and at the headline level from from energy and gas, 0:01:36.880 --> 0:01:39.680 whether it's Dallas trimmed or Cleveland Media, and let's go 0:01:39.920 --> 0:01:44.680 inside those trims. What inside the report will give you 0:01:44.720 --> 0:01:50.600 the best indication of America's inflation trend. Wow, that's just 0:01:50.800 --> 0:01:54.000 I mean, that's I would say. I would point to 0:01:54.760 --> 0:01:57.440 his service. We we all expect at some point for 0:01:57.480 --> 0:02:02.680 goods prices to moderate. So the underlying trend, we still 0:02:02.720 --> 0:02:06.360 think the long run will be driven by the services components, 0:02:06.440 --> 0:02:09.480 so shelter rent, owner's equivalent rent, and we as we 0:02:09.520 --> 0:02:12.520 have been discussing for some time, a lot of upward 0:02:12.560 --> 0:02:16.760 pressure there as well. So underlying inflation over the long 0:02:16.840 --> 0:02:20.320 run in the US is about services. It's less about energy, 0:02:20.720 --> 0:02:23.280 it's less about goods. So that if you if you 0:02:23.320 --> 0:02:26.840 can strip things away and think of, well, inflation should 0:02:26.919 --> 0:02:29.680 be moving lower over time, where might it settle in 0:02:30.120 --> 0:02:32.600 than you'd want to focus on services. The former New 0:02:32.680 --> 0:02:34.760 York Fed president built down. They came on this program 0:02:34.800 --> 0:02:36.200 Mike a number of weeks ago and found it was 0:02:36.200 --> 0:02:38.000 a few months ago, and he said the Fed forecasts 0:02:38.320 --> 0:02:41.240 were in fancy land. This is the forecast for growth 0:02:41.240 --> 0:02:45.079 in twenty two four percent for core pc A two 0:02:45.080 --> 0:02:49.359 point seven percent. Is that fancy land? Well, the Fed 0:02:49.480 --> 0:02:53.720 forecast always assume policy works and you get an optimal outcome, 0:02:53.720 --> 0:02:56.320 which in this case is a soft landing. I've been 0:02:56.360 --> 0:02:59.880 thinking their growth forecasting me have been too optimistic. Uh, 0:03:00.000 --> 0:03:02.240 when they were at four, we were at two nine, 0:03:02.440 --> 0:03:05.600 and now we're at to six. Um. I think you 0:03:05.680 --> 0:03:08.680 mentioned you were on with my good friend Seth Carpenter 0:03:08.760 --> 0:03:11.120 a few a few segments ago. They've been revising their 0:03:11.160 --> 0:03:13.560 growth lower in the US through down forty basis points. 0:03:13.600 --> 0:03:16.359 He said, So that four percent number has to come 0:03:16.360 --> 0:03:20.639 down a lot for a variety of reasons. And yes, 0:03:20.720 --> 0:03:23.440 they've got to bring that inflation number higher just because 0:03:23.480 --> 0:03:26.720 of where spot inflation is. I still think the outlook 0:03:26.720 --> 0:03:30.120 will will be a Goldilocks soft landing forecast. The FED 0:03:30.160 --> 0:03:33.079 has to kind of forecast that. But yes, I think 0:03:33.120 --> 0:03:35.480 some reckoning here in the in the data will will 0:03:35.520 --> 0:03:37.960 mean big changes in their outlook. Mike, I want to 0:03:38.000 --> 0:03:40.320 sit on that point that you made. This assumes that 0:03:40.400 --> 0:03:44.080 their policy we calibrations will work. Do you think that 0:03:44.080 --> 0:03:48.800 that is in question? Yes, I do, and that's it's 0:03:48.800 --> 0:03:53.120 not necessarily a direct criticism of the FED. I would 0:03:53.160 --> 0:03:55.400 just say that you know, the FED, as as you 0:03:55.440 --> 0:03:59.280 all know, has focuses on things like core and trim means, 0:03:59.320 --> 0:04:02.400 and it's a cognition that there are some prices that 0:04:02.480 --> 0:04:05.640 are set in markets that are largely beyond their control 0:04:06.280 --> 0:04:10.320 and and we've been getting movements in those prices recently, 0:04:10.480 --> 0:04:14.160 and we're all constantly revising our forecast higher and saying, oh, yes, 0:04:14.200 --> 0:04:16.920 the peak is coming, it's this month, it's getting pushed out. 0:04:17.400 --> 0:04:20.560 So yes, I think the the ability for central banks 0:04:20.600 --> 0:04:25.800 to control inflation in this environment without generating a substantial 0:04:25.839 --> 0:04:29.039 contraction and demand is certainly a question. And Mike, you 0:04:29.080 --> 0:04:31.200 talked about their assuming and they kind of have to 0:04:31.320 --> 0:04:35.680 this goldilock soft landing kind of outlook from your perspective, 0:04:35.720 --> 0:04:38.360 given the speed that we have seen of the increase 0:04:38.440 --> 0:04:40.640 in cp I and the increase and some of these 0:04:40.680 --> 0:04:44.000 inflationary inputs. Do you think that a soft landing is 0:04:44.040 --> 0:04:47.800 possible at all? I do think it's possible, and I 0:04:47.800 --> 0:04:50.760 would still say it's probable, but I think the odds 0:04:50.800 --> 0:04:53.400 of that come down. And in terms of you mentioned 0:04:53.400 --> 0:04:56.800 the speed of the move and inflation or sorry in 0:04:56.839 --> 0:04:59.240 the move of prices and in this case energy that 0:04:59.240 --> 0:05:01.400 that is important. Some of the work that we've done 0:05:01.760 --> 0:05:04.800 suggested is more about the speed of the move in 0:05:04.880 --> 0:05:09.000 oil prices than the level uh and and what tends 0:05:09.040 --> 0:05:12.919 to happen in cases where where gasoline prices shoot higher 0:05:12.960 --> 0:05:16.000 in in a very short period of time, consumers don't 0:05:16.040 --> 0:05:18.200 know what to do, so they pause, and what they 0:05:18.200 --> 0:05:21.080 do is they stop buying durable So durables is the 0:05:21.120 --> 0:05:25.080 most sensitive part of consumer spending to changes in oil prices. 0:05:25.120 --> 0:05:27.719 And if you look at history, it'll it'll say when 0:05:27.760 --> 0:05:31.719 when the three month annualized change and cp I exceeds 0:05:31.839 --> 0:05:35.680 nine percent, we we tend to get major pullbacks in 0:05:35.760 --> 0:05:39.479 durable spending. That happened for example in the go for 0:05:39.880 --> 0:05:44.120 obviously echoes of that in the current situation and following 0:05:44.200 --> 0:05:48.719 Hurricane Katrina, so major disruptions to oil a sharp rise 0:05:48.760 --> 0:05:52.560 and energy prices, consumers tend to pull back discreetly on 0:05:52.680 --> 0:05:55.680 durable's purchases. A CP president Christine the Counts just walked 0:05:55.680 --> 0:05:57.960 into the ride. Her opening statement before we turn to 0:05:58.000 --> 0:06:00.279 her her full counts in the Q and ice sction 0:06:00.279 --> 0:06:01.719 at the u CP my game and we have to 0:06:01.720 --> 0:06:03.839 come to USA from Barkeley. You've had a bit of 0:06:03.839 --> 0:06:07.480 time to pull through this one. You'll take you away. Well, 0:06:07.520 --> 0:06:09.520 it's probably the first time that we've talked in two 0:06:09.600 --> 0:06:13.039 years where we got a forecast spot on so um, 0:06:13.080 --> 0:06:15.960 you know, I guess we're happy about that. But look, 0:06:16.080 --> 0:06:17.880 I think your your main point was, Look, this is 0:06:17.880 --> 0:06:20.800 a report that came in before the recent conflict. So 0:06:20.880 --> 0:06:23.640 the contours were as we had expected. We were looking 0:06:23.640 --> 0:06:25.680 for gas to be up seven percent, so very much 0:06:25.720 --> 0:06:29.159 in the line with with what Michael had reported. Their 0:06:29.200 --> 0:06:32.040 food prices up up strongly, right, this is where the 0:06:32.279 --> 0:06:36.120 new impulses is coming from. So for the moment, we've 0:06:36.160 --> 0:06:38.719 got a little reprieve from goods prices. Let's see if 0:06:38.800 --> 0:06:41.400 that continues. If it does, it will provide some offset 0:06:41.800 --> 0:06:44.640 from headline inflation, but inflation is not likely to roll 0:06:44.680 --> 0:06:48.000 over and begin to come down for for several more 0:06:48.040 --> 0:06:50.440 months here. So I think this kind of sets the 0:06:50.480 --> 0:06:52.839 stage for where we are now, and we need to 0:06:52.839 --> 0:06:55.799 see how long this conflict plays out and how disruptive 0:06:55.839 --> 0:06:59.280 the sanctions regime actually is. Michael gape In, Honestly, the 0:06:59.279 --> 0:07:02.240 reaction in mark kids is not that significant. People were 0:07:02.279 --> 0:07:05.120 prepared for this because you and others got it spot on. 0:07:05.480 --> 0:07:07.920 How much does that tell you about how much or 0:07:07.920 --> 0:07:11.040 how little people are pricing in seven point nine percent 0:07:11.480 --> 0:07:16.040 given where yields are. Yeah, I mean it's a difficult 0:07:16.200 --> 0:07:19.360 situation to be a bond trader at the moment. So 0:07:19.400 --> 0:07:22.640 I think where yields are is is consistent with again 0:07:22.760 --> 0:07:26.360 medium term expectations that this is going to uh come, 0:07:26.440 --> 0:07:29.000 that inflation will come down and be back at levels 0:07:29.040 --> 0:07:31.800 that that we're more comfortable with. That's obviously a bet 0:07:32.120 --> 0:07:34.640 that the market is making, and one of the reasons 0:07:34.680 --> 0:07:37.000 they're doing that is because of what the ECB said 0:07:37.040 --> 0:07:39.160 this morning and the reaction in bond yields in Europe, 0:07:39.160 --> 0:07:41.960 what the FET has been saying. It's like, yes, inflation 0:07:42.040 --> 0:07:44.080 is high, but we will do what we need to 0:07:44.160 --> 0:07:46.800 do to bring that down. And that's why long and 0:07:46.960 --> 0:07:49.720 yields are where they are. Michael Gabin, I have hinged 0:07:49.760 --> 0:07:52.040 on this report for I'm going to say four, if 0:07:52.080 --> 0:07:55.800 not six weeks. How does this change the question you 0:07:55.840 --> 0:08:01.760 would give Chairman Powell on March. I think that the 0:08:01.840 --> 0:08:05.360 question I would give him is is beyond this? I 0:08:05.400 --> 0:08:07.440 think the question I would give him is about how 0:08:07.440 --> 0:08:10.760 do you how do you conduct monetary policy in an 0:08:10.880 --> 0:08:13.840 environment where the inflation that you're getting is largely beyond 0:08:13.880 --> 0:08:17.720 your control and uncertainty is has been rising right? And 0:08:18.040 --> 0:08:21.400 I think the answer to that is, you know, tread carefully. Move. 0:08:22.040 --> 0:08:24.240 I think sitting on the sideline is an option. I 0:08:24.240 --> 0:08:26.800 think they have to move. But when you're in an environment, 0:08:26.840 --> 0:08:29.320 when you don't know exactly what your policy move is 0:08:29.320 --> 0:08:32.160 going to bring in terms of response from markets, you 0:08:32.240 --> 0:08:42.320 have to go cautiously. My cap of Barclays, the team 0:08:42.320 --> 0:08:45.040 here at Bloomberg putting tremendous efforts to get you the 0:08:45.120 --> 0:08:47.760 right voices out of Europe and what is happening at 0:08:47.760 --> 0:08:50.400 the moment. No one is doing that better than Maria today. 0:08:50.559 --> 0:08:54.600 Let's kind of chat with Maria right now. Good morning, Maria, 0:08:55.800 --> 0:08:58.199 Good morning Jonathan. I'm very happy to say I'm joined 0:08:58.200 --> 0:09:01.240 by the Prime Minister of Stonia. Minister Kallis, thank you 0:09:01.280 --> 0:09:03.400 so much for being with us. Of course, you have 0:09:03.520 --> 0:09:06.720 been incredibly outspoken about the Russian threat. You set it 0:09:06.760 --> 0:09:09.480 from the beginning. This is a real issue in Europe. 0:09:09.480 --> 0:09:11.520 Of course, now we see there's a word stending now 0:09:11.559 --> 0:09:14.920 for fourteen days, today's surgery leave of the Russian for 0:09:15.000 --> 0:09:18.000 a minister acting as if nothing was happening. How can 0:09:18.040 --> 0:09:20.840 you engage with a Russia that seems to be completely 0:09:20.920 --> 0:09:25.199 oblivious to what's happening. You can't, That's that's the thing. 0:09:25.480 --> 0:09:28.600 They don't have any diplomatic will to you know, find 0:09:28.600 --> 0:09:32.079 a solution. They are building this narrative that they are 0:09:32.080 --> 0:09:35.319 selling back home in Russia that you know, the West 0:09:35.440 --> 0:09:39.080 is attacking, you know, there are biological weapons. I mean, 0:09:39.520 --> 0:09:42.160 this is now the third story that they are trying 0:09:42.160 --> 0:09:45.439 to sell to the people to you know, say, why 0:09:45.520 --> 0:09:49.160 are we doing this? Why are we attacking our Slavic brothers? 0:09:49.520 --> 0:09:52.600 And it's very hard to explain really, and you see 0:09:52.679 --> 0:09:56.079 Slavic brothers because that's that's but that's also a very 0:09:56.080 --> 0:09:58.720 important point here of course, as a culture that is 0:09:58.720 --> 0:10:02.120 shared by by Eastern opinions. But I wonder when Sergei 0:10:02.240 --> 0:10:05.160 Lavrov says, we're not here to talk about a ceasefire. 0:10:05.400 --> 0:10:07.680 This was not the goal, and the Ukrainian Prime minister 0:10:07.800 --> 0:10:10.280 hints it's latinerie put In the mix of decisions here 0:10:10.320 --> 0:10:12.800 and he does not want to meet with Zelinski. How 0:10:12.840 --> 0:10:16.480 can you have a diplomatic way forward here? Um, I 0:10:16.520 --> 0:10:19.080 don't think that they have the political will to have 0:10:19.200 --> 0:10:22.680 a diplomatic way forward. I mean they want to cause 0:10:22.720 --> 0:10:26.160 as much damage as possible. Um. It seems to me 0:10:26.280 --> 0:10:29.640 that Puttin, in poker terms, has gone all in, so 0:10:29.760 --> 0:10:32.320 he either wins or he loses. And I think it's 0:10:32.440 --> 0:10:35.800 it's up to everybody to make sure that Putin doesn't 0:10:35.800 --> 0:10:37.800 win this war. And when you say that Putin doesn't 0:10:37.800 --> 0:10:40.600 win the world, what does that mean? That that means 0:10:40.600 --> 0:10:44.880 that Ukraine, Ukrainians should win this war, which means that 0:10:45.320 --> 0:10:48.720 we shouldn't give in. We should help Ukraine every way 0:10:48.760 --> 0:10:54.880 we can humanitarian aid, military aid, political support, so that 0:10:55.240 --> 0:10:58.640 Ukraine would be able to defend its country. And there's 0:10:58.640 --> 0:11:00.360 a line of thought you know very well in Europe 0:11:00.360 --> 0:11:03.040 that says is best not to put Vladimir Putting in 0:11:03.080 --> 0:11:05.720 the corner because that makes In dangerous. Is that a mistake. 0:11:06.640 --> 0:11:10.199 But um, you know, we haven't put him in the corner. 0:11:10.280 --> 0:11:13.680 But he has still done everything that we are seeing 0:11:13.800 --> 0:11:17.440 right now, and it's heartbreaking to see what he's doing. 0:11:18.200 --> 0:11:20.679 If we look at the bigger picture. He has been 0:11:20.720 --> 0:11:25.000 planning this for for quite some time, I mean in 0:11:25.080 --> 0:11:29.480 all over the world, I mean creating or increasing it's 0:11:29.480 --> 0:11:33.800 it's influence, also trying to you know, cooperate with different 0:11:33.840 --> 0:11:38.240 countries and and and plan carefully this this attack as well, 0:11:38.480 --> 0:11:42.800 and also you know, having tests like Crimea don bus 0:11:43.000 --> 0:11:46.920 Um that went quite peacefully. So probably he had a 0:11:46.960 --> 0:11:51.640 thought that it's going to go easy overall Ukraine as well, 0:11:51.679 --> 0:11:55.360 but it's it's not because Ukrainians are fighting for the 0:11:55.480 --> 0:11:57.680 country and these people are fighting like hell and have 0:11:57.760 --> 0:12:00.280 been doing this for two weeks. But I wonder when 0:12:00.280 --> 0:12:02.439 you look at what Vladimie Putting is doing right now, 0:12:02.559 --> 0:12:05.600 is this an aspiration to return to the old Soviet Union? 0:12:05.800 --> 0:12:07.960 We know that he said the end of the USSR 0:12:08.080 --> 0:12:10.720 was the biggest tragedy ever in Russia. Is it about 0:12:10.840 --> 0:12:14.199 going back to the U S s R. He has 0:12:14.240 --> 0:12:19.079 been very open about his imperialistic dreams, so I mean 0:12:19.240 --> 0:12:23.880 years already talking about these things. Um, so so, and 0:12:24.080 --> 0:12:28.240 also being very open about not recognizing Ukraine as an 0:12:28.240 --> 0:12:32.040 independent country. So I think we should take him for 0:12:32.240 --> 0:12:35.600 his words, what his thoughts and plans are. But it's 0:12:35.640 --> 0:12:38.280 also up to us to make sure that it doesn't 0:12:38.320 --> 0:12:41.040 execute those plans. And of course I'm want to ask 0:12:41.080 --> 0:12:43.560 you about NATO. Your country belongs to native of course 0:12:43.600 --> 0:12:46.640 also the European Union. When it comes to NATO, are 0:12:46.679 --> 0:12:48.760 we going to see from now on an operation that 0:12:48.880 --> 0:12:51.959 is bigger in number, longer in time, more weapons. Is 0:12:52.040 --> 0:12:57.320 this a collaboration that will see NATO becoming stronger? Yes, 0:12:57.400 --> 0:13:00.440 I think so, because so far we have had this 0:13:00.800 --> 0:13:03.720 NATO's deterrence poster. But now we are moving to the 0:13:03.800 --> 0:13:07.960 defense plan, which means that you know, there are different capabilities, 0:13:08.000 --> 0:13:12.120 how these things work together, how we cooperate with different 0:13:12.480 --> 0:13:17.839 different troops on different soils, different countries. So, um, this 0:13:18.000 --> 0:13:20.959 is how NATO should work. I mean the defense plans, 0:13:21.000 --> 0:13:23.600 because it's a defense alliance, more troops on the ground, 0:13:23.679 --> 0:13:25.440 and of course, my ministers, just a final question. We 0:13:25.480 --> 0:13:28.320 know that today there are two big topics. One do 0:13:28.400 --> 0:13:31.200 include energy in the sanctions? And should Ukraine be part 0:13:31.200 --> 0:13:33.640 of the European Union? What's your answer to those two questions. 0:13:34.559 --> 0:13:38.960 I think we have to give hope to Ukraine and 0:13:38.960 --> 0:13:43.040 and some really clear political signal that they are part 0:13:43.080 --> 0:13:46.200 of the European family and they have a way to 0:13:46.920 --> 0:13:50.120 uh to Europe because they are literally fighting for Europe 0:13:50.600 --> 0:13:54.840 right now. Um. So this this is we need to 0:13:54.880 --> 0:13:58.440 give them some kind of message. Um. What comes to energy, 0:13:58.559 --> 0:14:01.880 of course we talk about the sanctions and and there 0:14:02.000 --> 0:14:05.280 is already the fourth package of sanctions on top of it. 0:14:05.480 --> 0:14:08.600 But what we have to understand that different European countries 0:14:08.679 --> 0:14:13.280 have different energy dependence. So so it has two sides. 0:14:13.600 --> 0:14:15.800 One side is of course that we want to hurt 0:14:15.840 --> 0:14:19.520 the war machine of Putin and and you know, deprive 0:14:19.640 --> 0:14:22.680 him of of of his income. But the other side 0:14:22.800 --> 0:14:27.240 is that our public has to support the decisions made 0:14:27.240 --> 0:14:29.840 as well. So you don't see a full band on imports. 0:14:30.520 --> 0:14:33.360 I don't think so No, I don't think so. Well. 0:14:33.360 --> 0:14:35.960 Prime Minister Callis, thank you so much. Has always appreciated 0:14:36.000 --> 0:14:41.480 your time here on Bloomer Television. Jonathan Tom Maria fantastic 0:14:41.520 --> 0:14:43.760 work as always. Going to catch up Maria today with 0:14:43.840 --> 0:14:46.600 the Prime Minister of Estonia Tom and eight member which 0:14:46.640 --> 0:14:53.240 shares a border to the East with Russia. Right now, 0:14:53.320 --> 0:14:55.960 Pierre Truwortz joins us out of the University of Texas 0:14:55.960 --> 0:14:58.440 in the combine at LBJ. He is now at the 0:14:58.480 --> 0:15:02.720 London School of Economic x and Professor of International Relations 0:15:02.720 --> 0:15:05.480 Peter Chubo. It's one of my iconic reads is Magna 0:15:05.600 --> 0:15:10.080 Decide of Lse and the wonderful Marxist Revenge. It is 0:15:10.080 --> 0:15:15.280 a clarion call of modern capitalism. Here's a guy talking 0:15:15.320 --> 0:15:19.880 about the shadows of Nazism, Denazification and the rest. Hearkening 0:15:19.920 --> 0:15:23.720 back to the empire, hearkening back to post lenin uss 0:15:23.800 --> 0:15:27.920 Are and it's all a shambles. What is Putin's theory 0:15:28.240 --> 0:15:31.120 this morning? Well, Tom, great to be with you. I mean, 0:15:31.160 --> 0:15:35.320 look how everyone wants to size up who's Putin's motivations 0:15:35.360 --> 0:15:39.680 and they range from security imperatives, a response to NATO 0:15:39.800 --> 0:15:44.520 and EU expansion, to what you're suggesting here Russian irredentism 0:15:44.640 --> 0:15:49.200 like restoring the glorious Soviet Empire to the autocratic nature 0:15:49.240 --> 0:15:53.760 of his regime. This guy made a massive miscalculation on 0:15:53.880 --> 0:15:58.480 two fronts. First, he underestimated Western resolve and unity, the 0:15:58.600 --> 0:16:04.000 capacity to respond collectively. And secondly, I think he just 0:16:04.040 --> 0:16:07.760 thought Ukraine was too fractured to respond the way they 0:16:07.800 --> 0:16:11.480 have responded, and it's just you know, he's created I mean, 0:16:11.520 --> 0:16:15.320 it's like a shambles in that sense. Doesn't mean that 0:16:15.400 --> 0:16:17.840 Russia is gonna lose, it's not going to get anything 0:16:17.880 --> 0:16:22.600 that it wants. He's demonstrating that he's prepared to go 0:16:23.040 --> 0:16:26.680 where people just you just don't want to go, do It' 0:16:26.760 --> 0:16:30.080 alluding to it the top all of these horrific photos 0:16:30.440 --> 0:16:34.280 in pictures to bring it to America, Peter, do we 0:16:34.400 --> 0:16:37.120 need a Ulysses Grant right now? Do you see the 0:16:37.160 --> 0:16:41.600 West with any idea of the sacrifices required to stop 0:16:41.640 --> 0:16:45.720 this guy? Yeah? I think. I mean, look that the 0:16:45.800 --> 0:16:48.800 West is in a You're in a difficult position. You're 0:16:48.840 --> 0:16:51.520 not dealing with an ordinary power, You're dealing with a 0:16:51.600 --> 0:16:54.240 nuclear power. I mean it's guy's like armed to the 0:16:54.360 --> 0:16:59.120 teeth with nuclear weapons. And so the problem here is 0:16:59.160 --> 0:17:04.760 to provide sufficient support to the Ukrainians on many different dimensions, 0:17:04.880 --> 0:17:08.960 but you know, immediately on military grounds, to be able 0:17:09.000 --> 0:17:12.640 to let them push back and sustain the war effort, 0:17:13.320 --> 0:17:16.040 but at the same time to avoid things that allow 0:17:16.240 --> 0:17:19.719 Putent to escalate that give them an excuse to do it. 0:17:20.119 --> 0:17:23.240 That's why no flies zone, That's why the EU will 0:17:23.359 --> 0:17:26.840 probably be very careful in response. And you know at 0:17:26.920 --> 0:17:30.119 Versailles today and tomorrow over how to respond to the 0:17:30.200 --> 0:17:35.920 Ukraine's request for expedited membership into into into the EU 0:17:36.400 --> 0:17:39.520 Peter we heard from yesterday. Certainly markets were hoping for 0:17:39.560 --> 0:17:42.480 some sort of diplomatic solution that we're diplomatic talks based 0:17:42.560 --> 0:17:46.040 on what we have seen. Is there any potential diplomatic 0:17:46.080 --> 0:17:50.520 resolution to this conflict? Do you have any optimism around that? Well? 0:17:50.560 --> 0:17:54.200 I think you know, I mean, we're all reading tea leads. 0:17:54.400 --> 0:17:57.000 I was not surprised by and I'm sure you weren't 0:17:57.000 --> 0:18:00.399 either by what just the outcome in interur Key this 0:18:00.480 --> 0:18:05.960 morning here. Um, Look, these talks are important because it's 0:18:06.000 --> 0:18:09.680 a way for each side to get a better sense 0:18:10.480 --> 0:18:14.879 of the other side's political resolve and importantly, I think 0:18:15.359 --> 0:18:20.800 to get clarity on minimal acceptable positions. They all both 0:18:20.840 --> 0:18:24.800 sides began with their maximal positions, and what I see 0:18:25.160 --> 0:18:29.480 is change on both fronts. The problem here is somebody alluded, 0:18:29.520 --> 0:18:33.640 maybe it was tom earlier and before I came on, 0:18:34.280 --> 0:18:38.359 lav Rov is not really speaking with Putin's confidence and 0:18:38.480 --> 0:18:42.199 so that you don't know, you know, exactly anything that 0:18:42.240 --> 0:18:44.840 he agrees to will be signed off or agreed to 0:18:45.880 --> 0:18:48.400 at home. But if we've seen two things so far, 0:18:48.560 --> 0:18:52.080 just let me finish on this point. One is what 0:18:52.200 --> 0:18:55.800 we're hearing from this to these negotiations but also the 0:18:55.840 --> 0:19:00.240 negotiations involving the Israeli Prime minister is that Putin is 0:19:00.280 --> 0:19:03.479 no longer looking for regime change. Okay, that you know, 0:19:03.560 --> 0:19:07.320 the Zelenski government has to go. And on Zelenski side, 0:19:07.640 --> 0:19:10.920 what we've heard is that they're willing to accept some 0:19:11.119 --> 0:19:16.480 form of neutrality in lieu of NATO membership. So there's 0:19:16.560 --> 0:19:19.800 movement on both of those things. The problem here is 0:19:19.840 --> 0:19:24.560 that both sides are making judgments diplomatically based on what's 0:19:24.560 --> 0:19:28.280 going on on the ground, and that is very opaque. Peter. 0:19:28.640 --> 0:19:32.440 Are the sanctions working quickly enough to exert the pressure 0:19:32.720 --> 0:19:36.920 on Vladimir Putin and frankly on his surrounding circle enough 0:19:37.240 --> 0:19:42.320 to really boost the prospects of some sort of resolution here? Yeah, 0:19:42.520 --> 0:19:44.840 So you know, Lisa, that's like the I don't know 0:19:44.920 --> 0:19:47.440 sixty four million dollar question, because I mean, the thing 0:19:47.600 --> 0:19:53.080 is is that what those sanctions require is the Ukrainians 0:19:53.200 --> 0:19:56.600 to resist, and the longer they can resist for the 0:19:56.760 --> 0:20:01.400 sanctions to take their bite, and the harder it will 0:20:01.440 --> 0:20:05.960 be for Putin to convince average Russians and also his selectorate, 0:20:06.440 --> 0:20:09.320 those very close to him, that the cost of the 0:20:09.359 --> 0:20:12.439 war in blood and treasure is worth the effort. But 0:20:12.560 --> 0:20:17.040 that's the story. It's not gonna happen overnight. Peter Kellis 0:20:17.200 --> 0:20:20.440 of Estonia joined us in the last hour. She and 0:20:20.520 --> 0:20:22.960 her nation, with all of her heritage, of her family 0:20:23.000 --> 0:20:26.240 back to World War One. What level of threat are 0:20:26.240 --> 0:20:29.960 the Baltic States under this morning? There's I mean, I 0:20:30.040 --> 0:20:32.959 have reason to be concerned, but the main reason for 0:20:33.000 --> 0:20:36.160 them to be concerned is not I think that Putin 0:20:36.280 --> 0:20:39.920 is going to pivot militarily. Um, I don't think right 0:20:39.960 --> 0:20:43.560 now Putin. Putin's got his handsful as it is. The 0:20:43.800 --> 0:20:48.560 danger is inadvertent escalation. It seems to me that this 0:20:48.680 --> 0:20:52.000 thing just tumbles and in ways that none of us 0:20:52.040 --> 0:20:54.919 can kind of anticipate. And that's why, you know, I 0:20:54.960 --> 0:20:57.919 think that the Biden team has been smart about the 0:20:57.920 --> 0:21:00.920 way they're handling this so far. Most of the Europeans 0:21:00.960 --> 0:21:04.520 have as well, and you know, but I think that 0:21:04.640 --> 0:21:08.880 this is this is a real present problem for them 0:21:08.960 --> 0:21:11.919 that this thing could stand in ways that you know, 0:21:12.080 --> 0:21:15.560 I mean just everybody's nightmare scenario. Peter, thank you said 0:21:15.720 --> 0:21:19.399 as always fantastic catch. It's that of the London School 0:21:19.640 --> 0:21:29.719 of Economics, Mark Chandler always has plans with Bannockburn their 0:21:29.760 --> 0:21:32.160 chief markets throughout to just Mark, I'm gonna go big 0:21:32.200 --> 0:21:36.160 and broad off of your magisterial book where you took 0:21:36.200 --> 0:21:40.080 the skies and astronomy and the fixedness of the stars 0:21:40.840 --> 0:21:45.479 into guessing our uncertainties. As Christine Legard has said this morning, 0:21:45.760 --> 0:21:49.800 the uncertainties are unmeasurable. How do we get a cast 0:21:49.880 --> 0:21:54.880 on the stars right now? Given a war in Ukraine? Yeah, 0:21:55.160 --> 0:21:58.200 what a tough situation we find ourselves in. I think 0:21:58.200 --> 0:22:01.760 that both the latlinits see uh today from Laguard but 0:22:01.800 --> 0:22:03.359 also we're going to see next week from the stead 0:22:03.359 --> 0:22:06.040 of Reserve, is that the net impact of this war 0:22:06.320 --> 0:22:09.879 is too sort of sharpened both blades. One blades inflation, 0:22:10.080 --> 0:22:12.960 it's going to raise inflation, and the other blade is 0:22:12.960 --> 0:22:15.520 slower growth. And that's what we're seeing. The e CBS 0:22:15.560 --> 0:22:19.240 forecast higher inflation. We could growth will probably get the 0:22:19.280 --> 0:22:21.520 same thing from the Fed. Powell gave us a nice 0:22:21.560 --> 0:22:24.600 rule of thumb. At a recent press conference, every ten 0:22:24.640 --> 0:22:27.119 dollar a barrel rise in oil prices. He says that 0:22:27.200 --> 0:22:30.960 a rule of thumb takes list the CPI by about 0:22:31.000 --> 0:22:34.159 point two and takes off about point one off of growth. 0:22:34.640 --> 0:22:37.320 So here we are, you know, at with oil at 0:22:37.359 --> 0:22:39.440 a hundred and twelve dollars, so it's maybe a thirty 0:22:39.440 --> 0:22:43.040 dollar rally since the war began. Just giving some sense 0:22:43.160 --> 0:22:45.479 of the ECB headlines, because there were a lot of 0:22:45.520 --> 0:22:49.040 them the press conference with Christine Laguard just ended. The 0:22:49.080 --> 0:22:53.560 ECB forecasts assumes an exchange trade of one dollars and 0:22:53.640 --> 0:23:00.159 twelve cents, and this comes as a growing number of 0:23:00.520 --> 0:23:03.560 prognosticators have said that the euro is going to face 0:23:03.680 --> 0:23:06.920 a weakening trend if there isn't some sort of hiking 0:23:07.000 --> 0:23:09.840 action or more hawkish action by the e c B. 0:23:10.080 --> 0:23:12.680 How much do you think that was the reason behind 0:23:12.760 --> 0:23:16.200 what seemed to be a pivot in today's announcement. Yeah, 0:23:16.280 --> 0:23:19.520 I at least I think that we really misunderstand how 0:23:19.640 --> 0:23:22.520 the ECB thinks of the Euro and oil prices. These 0:23:22.560 --> 0:23:26.120 are not really forecasts, but these are really the forward rate. 0:23:27.119 --> 0:23:30.240