Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Farrell and Lisa Brownowitz Jailey. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminal. What would like
Speaker 1: to do is advance a conversation on the present economics
Speaker 1: of the world. That has been her tour to force
Speaker 1: at the International Monetary Fund for a number of years,
Speaker 1: but it is new duties for Geta Gopinath. She is
Speaker 1: first Deputy Managing Director at the International Monetary Fund. I
Speaker 1: could stay Geta. There was a celebration across all of
Speaker 1: economics with this announcement. What is different from your economic
Speaker 1: duties versus being first deputy managing director well as chief economists.
Speaker 1: I would see my role as an advisor, but I
Speaker 1: suppose deputy managing director. I'm in management, so I'm taking
Speaker 1: a lot more difficult decisions. I think that would be
Speaker 1: an important difference. You've been spiriting the pandemic and I
Speaker 1: must ask on an update on the way Asia and
Speaker 1: the way China is prosecuting their pandemic. What does the
Speaker 1: I m F need from China to help Asia do
Speaker 1: better in the pandemic. The pandemic has evolved, as you know,
Speaker 1: compared to the last two years, we have much more
Speaker 1: burau in strains, which is making it harder to contain. So,
Speaker 1: like every other country is recalibrating their strategy in terms
Speaker 1: of how to deal with the virus. I mean, our
Speaker 1: advice to China would also be that some recalibration would
Speaker 1: be very helpful. Do they need American vaccines to fix
Speaker 1: this is a heart of the matter. They need mrn
Speaker 1: A Visor Moderna to get China vaccinated. So firstly, they
Speaker 1: need to get more coverage of their seventy plus population.
Speaker 1: While they have overall very high vaccine coverage, if you
Speaker 1: look at the very tail end in terms of age distribution,
Speaker 1: you certainly need a greater coverage. Secondly, they would need
Speaker 1: booster shots for their older populations, and effective booster shots
Speaker 1: would be very important. Do you have an amazing bird's
Speaker 1: eye view right now of how well prepared we are
Speaker 1: to combat an additional strain that possibly the vaccines don't cover,
Speaker 1: or an additional pandemic with the additional rollouts of vaccines
Speaker 1: similar to what we just saw. Are we much better
Speaker 1: prepared to tackle it more quickly that we did this
Speaker 1: last time around? We certainly have the signs. We certainly
Speaker 1: have the knowledge from having dealt and lived with over
Speaker 1: two years of the pandemic. What I am worried about
Speaker 1: is that everybody is hoping for the best case scenario,
Speaker 1: which is that this is a mild endemic virus. But
Speaker 1: what the experts tell us is that we could have
Speaker 1: much worse downside scenarios, and we need to prepare for that.
Speaker 1: And that's the pot where I think more needs to
Speaker 1: be done. We needed on the fifteen billion in grants
Speaker 1: this year to get the right amount of preparation in place,
Speaker 1: and then ten billion every year four pandemic preparedness. What
Speaker 1: does preparation mean when we've seen that a lot of
Speaker 1: the money and a lot of the tools that have
Speaker 1: gone to certain countries haven't really gotten out to the public,
Speaker 1: and you deal with people who are so hesitant to
Speaker 1: actually get vaccinated in the first place. So the huge
Speaker 1: discrepancy between the vaccination rates in high income countries, which
Speaker 1: is around seventy versus low income countries, which is eleven.
Speaker 1: That gap has to be closed. Now. It's true that
Speaker 1: you are seeing vaccine hesitancy in different paths of the world,
Speaker 1: and you are seeing UH absorption capacity constraints, but still
Speaker 1: we need to get at least the most vulnerable population
Speaker 1: in every part of the world vaccinated. You don't want
Speaker 1: to turn to your tour to force here. We could
Speaker 1: get out front and make some breaking news today and
Speaker 1: the World Economical look, I think it comes out next week,
Speaker 1: but if you want to slip any numbers out this morning,
Speaker 1: that's fine. The w t O shocked the other day
Speaker 1: with a number that truly shocked me, two point eight
Speaker 1: percent global growth. I don't want to front run the
Speaker 1: great I m F work that you do here, but
Speaker 1: we're on I don't but we're under three pc. It
Speaker 1: appears in global growth. Have we been here before? Is
Speaker 1: the global slowdown now original and tangible? So Tom, you
Speaker 1: will get the numbers next week and I won't be
Speaker 1: leaking any numbers right now. You can do it on Twitter,
Speaker 1: elon muscle, let you do it on Twitter. What is
Speaker 1: true is that we will have a significant downgrade to
Speaker 1: our growth projection. So the last number we had for
Speaker 1: this year was four point four percent. We will have
Speaker 1: a significant downgrade motive to that number. You know, what
Speaker 1: is true is that we will remain in positive territory
Speaker 1: for global growth. But that's said, we are very very
Speaker 1: difficult times. The pandemic is not over. We have the
Speaker 1: war framing. I'm going to interrupt there. That was stunning
Speaker 1: what you just said. You're framing a probability distribution, a
Speaker 1: fan distribution. We will see next week, and you've got
Speaker 1: a lower bound of telling me it could it will
Speaker 1: be positive. No, that's not what I said. I said
Speaker 1: that the modal estimate, which is what we put out
Speaker 1: in terms of our baseline, will be a positive number.
Speaker 1: But if I look at the fan chart, of course
Speaker 1: many other things are possible. So we are still living
Speaker 1: in a time when they're very high railed. From that,
Speaker 1: I heard what she said. It's Lisa, we're talking here
Speaker 1: sub three percent global economic growth. I've never done that
Speaker 1: well ever. And part of this is because where does
Speaker 1: the growth come from? Right, We've always talked about China,
Speaker 1: about India driving growth. That's no longer the case. Now
Speaker 1: we're talking about the United States driving growth. How much
Speaker 1: does the United States have to grow their GDP this
Speaker 1: year in order to prevent the world's economy from flipping
Speaker 1: into recession. Okay, so firstly, I would say that much
Speaker 1: of the world economy towards the end of last year
Speaker 1: had the momentum coming out off the pandemic reopening, so
Speaker 1: there was growth coming back in and we're seeing labor
Speaker 1: markets in many advanced economies being very tight, so there
Speaker 1: is a momentum to sustain growth at this point. But
Speaker 1: you've hit shock after shock, so you've had the pandemic
Speaker 1: that's not over. You had the war. You're seeing inflation
Speaker 1: and members we haven't seen before. Just as a simple comparison,
Speaker 1: before the pandemic, global inflation was around two Today global
Speaker 1: inflation is eight percent. So this is in numbers that
Speaker 1: are a decade or highs, which makes it very challenging,
Speaker 1: which which is why one should be careful about projecting forward.
Speaker 1: I think there were very big risks, and I agree,
Speaker 1: and this is the magnitude issue, and we can be
Speaker 1: on the Y axis. I'm far more interested in your
Speaker 1: work next week in a particular financial stability in world
Speaker 1: economic outlook the X axis. Do you have a framework
Speaker 1: of how long the duration of four and five and
Speaker 1: six standard deviation inflation will be Do you have any
Speaker 1: sense of the width of that given the cacophony of
Speaker 1: issues you have. If you're thinking about a target of
Speaker 1: two percent, and your question is how long will it
Speaker 1: take to come down to it? The two percent target
Speaker 1: number that would take, you know, we're looking at towards
Speaker 1: the end of next year, so it's going to take
Speaker 1: many months before we see inflation coming down. Now, if
Speaker 1: your question is has it peaked and is it likely
Speaker 1: to come down again unless we're hit by another escalation
Speaker 1: of the war for the major events, the expectation is
Speaker 1: that the second half of you we should start seeing inflation.
Speaker 1: We need to adjust to Adam poses three DR pose
Speaker 1: and will join us today and Blanchard into an extent
Speaker 1: out of Posen are saying we got to forget about
Speaker 1: two percent, which I understand is the company line, and
Speaker 1: we have to bratchet that upward or band around three percent.
Speaker 1: Do we need to start thinking about that? I think
Speaker 1: what feed will realize that coming down bringing down inflation
Speaker 1: to four percent is going to be somewhat easier than
Speaker 1: coming down the rest of the way, which is from
Speaker 1: four to two. So you know, while it is important,
Speaker 1: of course, to communicate very clearly and having a framework
Speaker 1: that people understand it follow is important. You know, these
Speaker 1: are importan it's important to decide about where you're going
Speaker 1: to land. The i m F has just tweeted me
Speaker 1: and they've said on my d I they've said, that's
Speaker 1: way too much economic talk with Dr Gopinath, thank you
Speaker 1: so much for joining us as first Deputy Managing Director
Speaker 1: g to Gopeneth. Of course, here at the International Monetary Fund,
Speaker 1: we are advantaged by over the years wonderful guests who
Speaker 1: have provided us with decades of perspective and they're changing
Speaker 1: views on what matters to you on radio and on television.
Speaker 1: One of those is Adam Posen of the Peterson Institute,
Speaker 1: one of the great German authorities of American academics, but
Speaker 1: far more at the Peterson Institute, looking at the things
Speaker 1: that matter, and particularly this original inflation that we have.
Speaker 1: We spoke to his colleague Olivia Bonchard, of course, the
Speaker 1: former chief economist of the i m F, the other
Speaker 1: day and we advanced that conversation forward this morning. I
Speaker 1: was talking I believe it was with ge to gop
Speaker 1: and FF. I can't remember about once again the certitude
Speaker 1: of elites saying we've got to get inflation back to
Speaker 1: two percent. No one has led to charge in the
Speaker 1: world for a readjustment of that decades old certitude than
Speaker 1: you are we heading back to three inflation? I hope so, Tom.
Speaker 1: I think the ECB, which you and at least thing
Speaker 1: guy were just talking about, is important to set out
Speaker 1: a different path than the FED, notwithstanding is saying another's
Speaker 1: remarks because the inflation is different in Europe than in
Speaker 1: the US. It's different in Europe, but nevertheless, you've made
Speaker 1: worldwide impact, and Economics was saying we need to reset
Speaker 1: and some way maybe it's two point eight percent. Who's
Speaker 1: who splitting her tenth of a point as well? We
Speaker 1: are since the last time I talked to you, we
Speaker 1: are six standard deviations out on so many statistics. Now
Speaker 1: there's a glide path back we get how do we
Speaker 1: get back to two inflation for those days over? We
Speaker 1: can get there, but it's probably not worth the cost.
Speaker 1: In my view, I think you have to get it
Speaker 1: wailed below four percent in the US, and the FED
Speaker 1: is on track to do that. The choice point is
Speaker 1: how far and how fast? Echoing something Lisa just said
Speaker 1: it takes to get from four to two or four
Speaker 1: to two and a half. So between now and say
Speaker 1: first quarter of the FEDS tightening is baked in right
Speaker 1: two or fifty plus basis points, and inflation is probably
Speaker 1: peaking in the US or not elsewhere. So you're going
Speaker 1: to get it down below five by the end of
Speaker 1: the year. I'm reasonably confident. The question is how fast
Speaker 1: and how far do you push it down from there?
Speaker 1: And I'm hoping that they accept running something in the
Speaker 1: high twos or even three and take it. How high
Speaker 1: can inflation be without crippling consumer confidence, without crippling the
Speaker 1: ability to go out and spend. It's a good question, Lisa,
Speaker 1: But I think right now what we're seeing is, for
Speaker 1: all the talk consumer confidences determined by other things, we
Speaker 1: are seeing continued spending in the US. Right well, we're
Speaker 1: going to get actually retail sales coming up, and we
Speaker 1: have seen them decelerate dramatically, and on an inflation adjusted basis,
Speaker 1: they have been increasingly negative over the past few readings.
Speaker 1: So yes, people are still buying, but with an asterisk.
Speaker 1: I mean, at what point do you start to worry
Speaker 1: given the fact that this inflation rate is certainly affecting.
Speaker 1: There's no question. I mean again, I'm totally on record,
Speaker 1: and I was on record a year ago saying, I
Speaker 1: mean literally April one last year saying inflation is going
Speaker 1: to come in way beyond the Fed's forecast and they
Speaker 1: have to start moving. So but that the two are
Speaker 1: are not the same thing. The idea that they've took
Speaker 1: a gamble, in my view, the gamble didn't work out,
Speaker 1: and now they got to rectify it is one thing,
Speaker 1: and that's separate from what would happen if they don't
Speaker 1: grind the US economy down to get from three point
Speaker 1: three to two point five. And that's the question for
Speaker 1: Thomas sol the great conservative economist, wrote a book on
Speaker 1: classical economics now, and I've seen so much static analysis
Speaker 1: right now, I feel like I'm launching back pre Javonian,
Speaker 1: back to David Ricardo and almost nineteenth century analysis. Of
Speaker 1: all the noise going on. The optimists like Adam Posen
Speaker 1: would say, we are a dynamic system, we will compensate
Speaker 1: and we will get beyond. This is the great compensator
Speaker 1: the currency market, and that we could see substantial depreciation
Speaker 1: and devaluation in some countries in crisis who don't get
Speaker 1: it right. I think you're going to see some of
Speaker 1: that even if they do get it right. I mean
Speaker 1: we're coming into the spring meetings of the Bank and
Speaker 1: the Fund and as first step you Imagining Director Gopinat
Speaker 1: said earlier this morning to you there's in the secretary
Speaker 1: yell and said last night, there's real stuff going on
Speaker 1: in that world. There are food shortages, there are energy shortages,
Speaker 1: their price spikes, there are interest rates being past on
Speaker 1: by the US necessary actions, and so you get to
Speaker 1: a point where there are going to be dead problems
Speaker 1: and there are going to be recessions and maybe unrest.
Speaker 1: But it's not because they didn't get it right, because
Speaker 1: it's just the world is hard, and we're not very
Speaker 1: fair about sharing the ability to to to to keep
Speaker 1: the floor under things. Adam, We've got to move on
Speaker 1: in an incredibly hectic day. But can we see you
Speaker 1: against soon. Thank you for having an imposing Thank you
Speaker 1: so much right now it is an extremely timely moment.
Speaker 1: Michael McKee speaks to this fedeficial, that fedeficial, and he
Speaker 1: will look at the official they listen to with the
Speaker 1: New York Fed. John Williams Michael, thank you very much,
Speaker 1: and we'd like to welcome President Williams, the president of
Speaker 1: the New York Fed, to Bloomberg Television and Radio worldwide.
Speaker 1: We should also mention you are the vice chairman of
Speaker 1: the Open Market Committee, so second in command of the
Speaker 1: group that makes the interest rate decisions. You have to
Speaker 1: decide what you're going to do and how fast you're
Speaker 1: going to do it going forward from the data that
Speaker 1: you have. We just got retail sales numbers, inflation boosted
Speaker 1: sales up half a percent. What's your take on I
Speaker 1: know you've looked a little bit at the numbers on this,
Speaker 1: so we're seeing any decline in demand? Well, first of all,
Speaker 1: it's great to be here in person, Mike. It's uh,
Speaker 1: it's nice to be able to do this today. You know,
Speaker 1: we are seeing I think some signs, early signs that
Speaker 1: consumers are shifting their purchasing patterns coming out of the
Speaker 1: pandemic away from all the purchases of goods of the
Speaker 1: past few years and more to services. I won't respond
Speaker 1: too much to one months of data, but one month
Speaker 1: of data, but I do think that's how a pattern
Speaker 1: I'm expecting to see continue during the year and I
Speaker 1: think it's a very important part of this story is
Speaker 1: to see consumers as we get past the pandemic, be
Speaker 1: able to move back to more normal patterns of spendings.
Speaker 1: We'll have to watch that data carefully, but that as
Speaker 1: a trend I am looking to see this year. Well,
Speaker 1: it's been interesting over the last week or so a
Speaker 1: number of your colleagues have seemed more concerned about the
Speaker 1: pace of inflation and have suggested they're changing their mind
Speaker 1: about how quickly you should do that. Are you still
Speaker 1: believing that the that you can do this at a
Speaker 1: measured slow pace. Well, I don't think we're going to
Speaker 1: do our policy adjustment and measured slow pace for sure.
Speaker 1: I do think we need with high, very high inflation,
Speaker 1: we need to really focus on bringing inflation down to
Speaker 1: our two percent longer run goal and to do that
Speaker 1: over the next few years. So that is the number
Speaker 1: one focus. And we I say that because the economy
Speaker 1: is strong, the labor market is basically back to a
Speaker 1: close to where it was before the pandemic, with the
Speaker 1: unemployment rate round three and a half percent and other
Speaker 1: indicators showing that we have very strong demand for for
Speaker 1: for labor. So I do think from a Monterey policy
Speaker 1: point of view, it does make sense for us to
Speaker 1: move expeditiously towards more normal levels of the real funds
Speaker 1: rate UH, and also to move forward on our balance
Speaker 1: sheet reduction plans. If there was one phrase it sort
Speaker 1: of sums up where your colleagues are, it's get to
Speaker 1: neutral by the end of the year. Would you be
Speaker 1: on board with that? I do think we need to
Speaker 1: get back to a more neutral and normal level of
Speaker 1: the federal funds. Right whether it's at the end of
Speaker 1: the year or exactly when that happens will depend on
Speaker 1: the data. We We will continue to be a data
Speaker 1: dependent but given where the economy is, and especially given
Speaker 1: where inflation is, we really do need to reverse the
Speaker 1: policy actions that we put into place back in March,
Speaker 1: move that forward UH, and move the federal funds target
Speaker 1: to neutral. And again, whether it's by the end of
Speaker 1: the year or exactly when it happens, I think that
Speaker 1: that will depend on the path of the economy. But yes,
Speaker 1: I agree with them. So fifty basis points on May fourth, Well,
Speaker 1: that's not a decision we made yet, but I do
Speaker 1: think that, well, you can make it right now, that's
Speaker 1: not a decision we made yet, MIKEA. But but I
Speaker 1: think that's a you know, a reasonable option. I think
Speaker 1: that for us, because federal funds rate is very low,
Speaker 1: we do need to move UH policy back to more
Speaker 1: neutral levels uh later this you know, through this year.
Speaker 1: And I think that's a very reasonable option. Speaking of neutral,
Speaker 1: what do you think neutral is these days? You were
Speaker 1: sort of the guy who invented, along with the late
Speaker 1: Tim law back the our star concept measurement, and that's
Speaker 1: the key indicator for what neutral might be. So it's
Speaker 1: hard to know. I've always started any question on the
Speaker 1: neutral interest rate with it's it's it's an uncertain thing.
Speaker 1: It's something we don't measure directly. We have to infer
Speaker 1: it from other indicators coming into the pandemic, and our estimates,
Speaker 1: most estimates of neutral were quite low. And I think
Speaker 1: that's consistent with the my colleagues, the f O m
Speaker 1: c's view that the normal nominal federal funds rate is
Speaker 1: probably around two and a half percent UM. So I
Speaker 1: think that I think about, well, where is it today?
Speaker 1: It's uh, it's the economy is being pushed around supplying
Speaker 1: demand dramatically by UM pandemic. Obviously, H the invasion of
Speaker 1: Ukraine and and and other factors are moving the economy around.
Speaker 1: But then I go back to what are the longer
Speaker 1: run drivers of a neutral rate? And economists I think
Speaker 1: have studied this pretty carefully. They've identified demographics, productivity, growth,
Speaker 1: global demand for the safe assets like the US dollar.
Speaker 1: I don't think those have fundamentally changed since before the pandemic.
Speaker 1: So I guess my my baseline assumption is a neutral
Speaker 1: UH nominal federal funds rate in the long run is
Speaker 1: probably still in the very low two percent to two
Speaker 1: and a half percent range, So I don't think that's changed.
Speaker 1: But again we have to have an open mind and
Speaker 1: see how they can follow the data. How far above
Speaker 1: that do you think you might have to go to
Speaker 1: bring inflation down? That? You know, I think that's a
Speaker 1: really important question as we as we get back to
Speaker 1: you know, neutral uh nominal neutral levels UH, that we
Speaker 1: have to I think to do two things. One is
Speaker 1: we have to keep focus on real interest rate, so
Speaker 1: it's not it's not just a nominal interest rate like
Speaker 1: the federal funds rate. But whereas inflation so I do
Speaker 1: think that we do we will need to real interest
Speaker 1: rates mean nominal interest rates adjusted for inflation or expected
Speaker 1: inflation back to more normal levels uh by by next year, um,
Speaker 1: and we may need to go a little bit above
Speaker 1: that depending on where inflation is. I think the economy
Speaker 1: right now has a lot of good momentum. I think
Speaker 1: the economy can withstand uh neutral or real interest rates
Speaker 1: or you know, at neutral or a bit above. But
Speaker 1: the decision, those decisions we made, you know, in the future,
Speaker 1: depending on how the economy evolves. Well, where is inflation
Speaker 1: these days? The general consensus of analysts coming out of
Speaker 1: the CPI report this week was inflation has peaked. Well,
Speaker 1: I'm not gonna make a prediction about whether inflation has
Speaker 1: peaked because clearly energy food and energy prices have been
Speaker 1: quite volatile and affected by by this situation Ukraine. So
Speaker 1: and uh we you know, the oil prices could go
Speaker 1: back up. They're volatile. So I don't know about peaking.
Speaker 1: I do think that my view is with Monte policy
Speaker 1: reducing uh, you know, the imbalance between supply and demand
Speaker 1: and the economy. That's by bringing interest rates back to
Speaker 1: more normal levels. That's going to bring demand and the
Speaker 1: economy back to close to the supply. With some of
Speaker 1: the supply chain issues gradually being resolved, and also this
Speaker 1: rebalancing between goods and services. I do think that the
Speaker 1: underlying trend inflation is probably going to peak soon hopefully
Speaker 1: and start coming down later in this year. The black
Speaker 1: Rock Analysts, world's largest asset manager, say that you can't
Speaker 1: raise rates high enough to bring inflation down to two
Speaker 1: percent in the short run without an unacceptable level of unemployment.
Speaker 1: How high are you willing to go on unemployment? Uh?
Speaker 1: They also suggest you may just learn to live with
Speaker 1: three percent inflation instead of two. Well, I'll start with
Speaker 1: the last part where I don't agree with that. We
Speaker 1: have a two percent longer run goal. We we've discussed
Speaker 1: that thoroughly. That is our long run goal, and that's
Speaker 1: what we're gonna stay with. So we're going to get
Speaker 1: inflation back to two percent. In terms of the unemployment
Speaker 1: and the risks there, clearly this is a period of
Speaker 1: great uncertainty. Um. This is a challenging circumstances to conduct
Speaker 1: Monterey policy bringing inflation down while trying to keep the
Speaker 1: economy the labor markets strong. I think we have a
Speaker 1: couple of advantages over previous episodes. So one is where
Speaker 1: is the economy the strongest. Where are we seeing the
Speaker 1: kind of demand um, you know, exceeding supply. It's really
Speaker 1: in the interest sensitive sectors. It's in durable goods, in autos,
Speaker 1: in housing, and so as we brought up expectations of
Speaker 1: interest rates, as as yields have moved up, mortgage rates
Speaker 1: have come up, that's that's going to help bring down
Speaker 1: that excess demand for that sector relative to supply. So
Speaker 1: I think that our monte policy tool this time of
Speaker 1: interest rates is actually really well suited for the imbalance
Speaker 1: we have in the economy. So I think that's an
Speaker 1: important point to remember. The second is we have a
Speaker 1: very unique situation with the demand for labor obviously much
Speaker 1: stronger than the supply UM. So the goal here would
Speaker 1: be to reduce that excess demand. We see it in
Speaker 1: the record number of job openings. For example, Let's get
Speaker 1: the number of job openings down to a level that's
Speaker 1: consistent with maximum employment. So I don't think we have
Speaker 1: to decrease employment or raise unemployment. So much is just
Speaker 1: take the froth, if you will, out of the economy
Speaker 1: and get in a more sustainable basis. So you disagree
Speaker 1: with your predecessor at the New York Fed Bill Dudley,
Speaker 1: who said, uh, you can't achieve a soft landing. I
Speaker 1: think we can achieve a soft landing. I think this
Speaker 1: is a unique set of circumstances, as we've talked about
Speaker 1: with the pandemic and uh with the Russian invasion Ukraine
Speaker 1: creates a unique set of circumstances as well. It's not
Speaker 1: gonna be easy. I'm not gonna pretend this is a
Speaker 1: uh you Monty policy and this type of situation everything
Speaker 1: goes exactly according to plan. But I think we are
Speaker 1: in a good place with with Monterey policial policy. We've
Speaker 1: seen a dramatic, significant movement in yields and financial conditions
Speaker 1: over the past several months, and that's um you know,
Speaker 1: already positioning I think policy well to get supplying demand
Speaker 1: in kind of back into balance and to set us
Speaker 1: up for bringing inflation down over the next couple of years.
Speaker 1: I have to ask you about the balance sheet. Obviously
Speaker 1: you're gonna make that decision. Lile Brainerd suggested you announce
Speaker 1: it in May and it starts in June. Is that
Speaker 1: your anticipation. Well, again, a NodD decision we made, but
Speaker 1: that is what I would expect I think we should
Speaker 1: get the balance sheet reduction process underway. We've set out
Speaker 1: the principles around that. Those are I think really important,
Speaker 1: and we worked hard and coming up with a good
Speaker 1: plan for that. UM So, yes, if we do make
Speaker 1: the decision in the main meeting, technically that process of
Speaker 1: reduction would start at the beginning of June, but it
Speaker 1: would obviously continue for quite some time if we get
Speaker 1: the balance sheet down to Two quick follows on that one,
Speaker 1: what is your estimate of the impact on rates from
Speaker 1: reducing the balance sheet and to what would trigger sales
Speaker 1: of mortgage backed securities? You said you might do that. Yeah,
Speaker 1: So this question about what's how do you convert the
Speaker 1: balance sheet reduction into a like, how big of change
Speaker 1: in the federal funds target is that equal to? I
Speaker 1: think it's really hard. I think the way I think
Speaker 1: to calculate that kind of number, given all the uncertainty,
Speaker 1: and given that the balance sheet policies affect the economy
Speaker 1: in different ways than the normal uh same moving the
Speaker 1: federal funds target. The way I think about it is
Speaker 1: that as we reduce the balance sheing is we've announced
Speaker 1: doing that, you're seeing basically upward pressure on longer term
Speaker 1: interest rates in the term premium, and we're seeing that
Speaker 1: in the data. If you look at five year, five
Speaker 1: year four rates in the treasury yield curve, UH, look
Speaker 1: at tenure rates. Clearly we've seen over the past several
Speaker 1: months movements for movements up in those rates, which I
Speaker 1: think reflect the markets expectation that we're gonna conduct the
Speaker 1: balance sheet reduction. So I see, I see that is
Speaker 1: primarily the channel by which it affects things that raises
Speaker 1: mortgage rates, of effects longer term meelds, which affects borrowing costs.
Speaker 1: So we're seeing that happen. I think a lot of
Speaker 1: it has happened because it's through the expectation of our
Speaker 1: future action. That's in parallel obviously with our short rate
Speaker 1: the path of federal runs rate, which is also removing
Speaker 1: monetary accommodation. So important point here, I think is both
Speaker 1: of these are happy at the same time. Financial conditions
Speaker 1: are being adjusted pre significantly with both of these tools.
Speaker 1: In terms of nbs UM sales right now, uh, you know,
Speaker 1: the first part of the plan is really UH doesn't
Speaker 1: incorporate sales. It's really about um letting the balance sheet. UH.
Speaker 1: Fall kind of organically or be reduced through an organic process,
Speaker 1: and I think that's where we need to be focused.
Speaker 1: So to me, the first stage is really getting the uh,
Speaker 1: the size of the balance sheet down. There is this
Speaker 1: longer term issue. We got to also want to get
Speaker 1: the composition of the balance sheet to be primarily treasuries.
Speaker 1: So I see further down the road, once we've got
Speaker 1: the balance sheet reduction well underway, is the time. But
Speaker 1: we can contemplate, well, do we want to add to
Speaker 1: the mix some sales to really get the long run
Speaker 1: composition right. But that's not a decision for now. John Williams,
Speaker 1: President of the New York Federal Reserve, thank you very
Speaker 1: much for coming in this morning. Let's not delay because
Speaker 1: right now our next guests are the pre eminent thinkers
Speaker 1: in both Russia and energy is important. We've been doing
Speaker 1: this for years and I think of one moment at
Speaker 1: Davos ken Rogoff and Joe Stiglets Ken Rogoff and Joe
Speaker 1: Stiglets and Davos a couple of years ago, but they
Speaker 1: weren't married. This is wonderful in international relationship to have
Speaker 1: with us. Angela Stan and she's brought along Daniel Jurgen
Speaker 1: this morning with true expertise on Russia and are shattered
Speaker 1: commanding heights. Wonderful that both of you here. I want
Speaker 1: to begin simply with I did a survey last night.
Speaker 1: I called up the New York Times and I said, okay,
Speaker 1: I tried to read every wedding announcement. The record for
Speaker 1: number of academic citations and a wedding announcement was a
Speaker 1: few years ago when YouTube you were at the Times
Speaker 1: of London right now, I was actually a car. I
Speaker 1: mean while I was changing by PhD. I was a
Speaker 1: correspondent for the Time's Higher Education And were you abouming
Speaker 1: the subways of London or something? I was floating around
Speaker 1: as a graduate. How did you to me? I mean,
Speaker 1: I'm wrating the class on French history at Cambridge University.
Speaker 1: She she allegedly ran out of ink and I gallantly
Speaker 1: produced a patent. Serious and he has written every book
Speaker 1: on it. Let's get to this, and Angel, I want
Speaker 1: to start with you. And I've got a quote that's ugly.
Speaker 1: So we're in our studios in New York and Bloomberg
Speaker 1: surveillance is always trying to be smart in the immediate
Speaker 1: and I looked down at my screen of ten fifteen monitors,
Speaker 1: whatever it is, and there is Vladimir Putin in the
Speaker 1: far east of Russia doing a junket. First time really
Speaker 1: after the beginning of this war. Associated Press did a
Speaker 1: translation of his comments. Clearly for the Russian consumption. Putin
Speaker 1: two days ago. The only question was one of timing
Speaker 1: the thing we do. On the one hand, we help people,
Speaker 1: saving them from Nazism. On the other hand, we take
Speaker 1: measures to ensure Russia's own security. He reaffirms this concept
Speaker 1: of Nazism in Christina Gryava's Eastern Europe. Where did that
Speaker 1: come from? Well, this is a way of dehumanizing, you know,
Speaker 1: the Ukrainians. Right. The great moment in Russian history that
Speaker 1: Putin keeps talking about is the victory in World War
Speaker 1: two where the Soviet Union defeated the Nazis. So if
Speaker 1: you say that the Ukrainians are Nazis uh there and
Speaker 1: they're committing genocide against Russians, which is what he's also said,
Speaker 1: then in a sense you tell these young recruits on
Speaker 1: the field to go out and kill these Nazis uh
Speaker 1: and and even those Russian soldiers are confused. But it
Speaker 1: is it's the dehumanization and the demonization of the Ukrainians. Angela,
Speaker 1: do you think that within Russia there is a realization
Speaker 1: of what has been given up for the stability that
Speaker 1: Vladimir Putin has represented over the past number of decades.
Speaker 1: I don't think the Russian population fully understand that yet.
Speaker 1: I mean they can see things that disappearing from their shelves.
Speaker 1: It's hard to access a t m S. They're getting poorer,
Speaker 1: but they're being said all these lives, they're being told
Speaker 1: that they're defeating Nazism, and then if they don't do that,
Speaker 1: Rustaurant self will be invaded. So I think we have
Speaker 1: a reckoning to come, but I don't think we're there yet.
Speaker 1: And Dan, you're again with your expertise on the energy markets.
Speaker 1: They are being kept afloat from some of these oil
Speaker 1: and gas receipts, and we have seen that. Vladimir Putin
Speaker 1: today came out and said it is going to be
Speaker 1: very difficult for the world to move away in Europe,
Speaker 1: to move away from their gas. Do you see a
Speaker 1: different story, well, to some degree. I mean they're right now.
Speaker 1: If this year, at this price, they're going to earn
Speaker 1: about two hundred and fifty billion dollars from European purchases
Speaker 1: of oil and gas. I think we're going to start
Speaker 1: to see sanctions, I guess. I think the last two
Speaker 1: weeks have really changed in terms of what people have
Speaker 1: seen as the Russian troops have withdrawn as the war
Speaker 1: grows closer than the dawn boss intensity. And so I
Speaker 1: think we'll start we're seeing the self sanctioning, and I
Speaker 1: think it'll be progressive sanctioning that will cut back on energy.
Speaker 1: Oil will be easier, particularly crude oil, will be easier
Speaker 1: to cut back on than gas. That that is his
Speaker 1: strongest point right now. But I think you're going to
Speaker 1: start to see that to the pressure just will mount.
Speaker 1: Are the commanding heights shattered? Well, well, I think in
Speaker 1: the sense what we've seen as a return to government control.
Speaker 1: But I think the sense of a global economy and
Speaker 1: integrated global economy that Russia was part of, that's finished.
Speaker 1: I mean, Russia is going to end up in dependency
Speaker 1: of China. That's what it will be in greater global
Speaker 1: economy is shattered or ending or nuanced into something new.
Speaker 1: The great fear, and I would suggest the great fear
Speaker 1: in this building is what I would call block is
Speaker 1: m B L O C. Block is um of a
Speaker 1: regionalization of our trade. Is that where we're here? Yeah,
Speaker 1: I think I've used a phrase a fragmented globalization, but
Speaker 1: I think block ism is a fair way to describe it.
Speaker 1: To that this this thirty year period that we've been
Speaker 1: in the world, economy connected and people generally benefiting from
Speaker 1: an economic growth is really under great pressure right now. Angela,
Speaker 1: there's an issue of what this will do to bring
Speaker 1: the war to an end, right of basically pressuring Russia
Speaker 1: and Russia's isolation, and whether that actually will allow Ukraine
Speaker 1: to survive to some degree. What's your view on that. Well,
Speaker 1: Putin is in no mood at the moment to bring
Speaker 1: the war to an end. Now the Russians are regrouping,
Speaker 1: they wonder at least take the don bus since they failed,
Speaker 1: of course to take Kiev. So right now the sanctions
Speaker 1: don't seem to be driving Putin to do that. I
Speaker 1: really think the only solution is that the US and
Speaker 1: its allies to keep armoring the Ukrainians and to enable
Speaker 1: the Ukrainians to push back against the Russians so that
Speaker 1: the Russians really can't declare victory, but Putent's not going
Speaker 1: to accept that yet. How long do you think it
Speaker 1: will take for people to really move away Europe, in
Speaker 1: particular from importing gas from Russia to truly isolate Russia
Speaker 1: to the degree that many people are expecting. Yeah, I
Speaker 1: think I think I'll take a long time. I think
Speaker 1: I think we'll see crude oil for first. I think
Speaker 1: that the pressures definitely will grow and the restrictions. I
Speaker 1: think I think you can start chipping away at the
Speaker 1: gas and I think people are saying, well, maybe it
Speaker 1: will start with not taking Russian Ellengy for instance, into Europe,
Speaker 1: and I think to three years. I mean, what the
Speaker 1: Germans have to do is build those receiving stations for
Speaker 1: l en g and over the next two or three years.
Speaker 1: But I think I think it could actually come sooner,
Speaker 1: depending what horrors come out of Ukraine and the pressures
Speaker 1: will be so great. Angel sent one final question to you.
Speaker 1: There is a primal scream for the cliche of a
Speaker 1: martial plan. How do you envision a martial plan of
Speaker 1: the Allies to Ukraine. Well, it's going to be incredibly costly,
Speaker 1: but obviously they are going to have to pay and
Speaker 1: mentioned yesterday. She says mag to Tun is the issue.
Speaker 1: We're thinking in billions instead of trillions. Do we bankrupt ourselves?
Speaker 1: You'll be quiet? Do we besel we have? We have
Speaker 1: all of these Russian assets that we've impounded. We used
Speaker 1: those also partly to pay for it. We forced the rusting. Yeah,
Speaker 1: that's what I think. We'll use the Russian assets and
Speaker 1: use those Russian yachts as long as you can find
Speaker 1: buyers for those shots. Well, that's a key question. I mean,
Speaker 1: can you if you're talking about what brokers were there?
Speaker 1: Seven million dollars a lot of puts we got you
Speaker 1: ought to buy something for you. This has been wonderful.
Speaker 1: We hope we can do it. Took most of negotiations
Speaker 1: between us. Whoever is the next book coming up? At
Speaker 1: the moment, we're still both so engaging. We're living our
Speaker 1: current books every day every days, and Daniel can thank
Speaker 1: you so much. Not a usual interview at the International
Speaker 1: Monetary Fund in these unusual times with the spring meetings
Speaker 1: in one week, we are out front with the first
Speaker 1: interview with Kristilina Gorgeva, the International Monetary Fund Managing Director.
Speaker 1: An extensive interview and I'd made clear to her. If
Speaker 1: she wants to go longer, we'll let her go longer.
Speaker 1: On the morning, so much to talk about. Thank you
Speaker 1: so much for having us here. It's been a wonderful
Speaker 1: conversation through the morning. I want to talk and go
Speaker 1: to a quote which I just spoke to Angeluston about
Speaker 1: the great author of Putin. This is Vladimir Putin in
Speaker 1: Russia two days ago uh an Associated Press translation, obviously
Speaker 1: for the Russian audience. The thing we do, on one
Speaker 1: hand we help people, saving them from Nazism. On the
Speaker 1: other hand, we take measures to ensure Russia's own security.
Speaker 1: You are more qualified than anyone. Your heritage of Bulgaria.
Speaker 1: Your grandfather was a patriot of Aulgaria. You have lived
Speaker 1: under this car Marks University and such. You personally must
Speaker 1: be thunderstruck and with members of the Greater Gorgava clan
Speaker 1: in Ukraine. Now, just for a moment, what is the
Speaker 1: last fifty days been like for you and your family?
Speaker 1: It has been horrific. A war is a terrible thing
Speaker 1: for my family. What it means is threat to their safety,
Speaker 1: more difficult to find foot and more expensive to bite,
Speaker 1: no medicines, and above all that sense that the war
Speaker 1: would not soon end. Getting out there in Harkif in
Speaker 1: distant part of Ukraine is close to impossible. Why they
Speaker 1: are very close to the Russian border and very far
Speaker 1: from the Polish and other borders of Ukraine. But in
Speaker 1: this horror of war, what impressed me the most is
Speaker 1: the strength that they demonstrate for the future of Ukraine.
Speaker 1: My sister in law's messages, we will win this war.
Speaker 1: Can they do it alone? In the distinction of my
Speaker 1: interviews with the right and the left, the politically savvy
Speaker 1: and not is this timidity about starting a World War three?
Speaker 1: Now that's not your mandate, it I m F. But
Speaker 1: I would like you to comment on how you perceive
Speaker 1: the shock of the Western world and their tentativeness in
Speaker 1: assisting not only Ukraine for all of Eastern Europe, frankly
Speaker 1: the Finland. But the reality of this war is it
Speaker 1: is about Ukraine, and it is beyond Ukraine. It is
Speaker 1: about Ukraine because its existence is being threatened, but also
Speaker 1: the post world order is being threatened, and it this
Speaker 1: sends The war affects all of us. If we are
Speaker 1: to allow a twenty first century military takeover of a
Speaker 1: country in Europe that is detrimental to Europe, it is
Speaker 1: detrimental to the world. And what we have to recognize
Speaker 1: that the war is having consequences, reaching far and fast.
Speaker 1: It affects hundreds of millions of people through three main channels. One.
Speaker 1: Commodity prices especially food, energy, but also metals and foot
Speaker 1: prices are up at the time they were pushed already
Speaker 1: up by I want to talk about the food in
Speaker 1: a minute. That's going to be the main part of
Speaker 1: our conversation with what we see the challenges of the
Speaker 1: I m F and helping Sri Lanka, prow and others.
Speaker 1: But I want you to comment on the scope and
Speaker 1: scale we see. This is something you're expert in academically.
Speaker 1: And another expert, Janet Yellen, who has a little bit
Speaker 1: of experience with the trillions word, says we're getting the
Speaker 1: magnitude right. Yellen says, we need to think in trillions,
Speaker 1: not billions. Because you go to your Spring meetings and
Speaker 1: frankly to your October meetings, do we have the magnitude
Speaker 1: wrong of what is needed? Well, Janet Plan is right.
Speaker 1: We need trillions and we have been talking about these
Speaker 1: trillions for years. How can we transform billions into trillions. Well, First,
Speaker 1: by all of us working together, we cannot have fragmented
Speaker 1: deployment of scarce development international finance resources. Two, by embracing
Speaker 1: a very simple principle public money should be used for
Speaker 1: only one of two things. To finance what private money
Speaker 1: would never finance, and to remove barrious for private finance
Speaker 1: in emerging markets and developing economies. And we are still
Speaker 1: short of embracing entirely this principle at d Imath. Our
Speaker 1: concentration is when we have a program in the country,
Speaker 1: is this program going to open up space for private
Speaker 1: sector let growth, for jobs that come because vibrant investments
Speaker 1: are being made. And when we when we look at
Speaker 1: the countries that are now in difficulty, we are determined
Speaker 1: to have helped them have fundamentals that would make that
Speaker 1: private sector let growth possible. I want to talk about
Speaker 1: the mechanisms here and then get to the food crisis
Speaker 1: or Eric Martin is front and center on this and
Speaker 1: looking nation to nation where the greatest challenges are. The
Speaker 1: nuance here is the solution domestically for these troubled nations
Speaker 1: and food is price control. To keep the price of
Speaker 1: bread down and keep the price of week down. The
Speaker 1: price of rice down, etcetera. The I. M. F Comes
Speaker 1: in and says, okay, you're broke, fine, let us help
Speaker 1: you fix it. But there needs to be a new
Speaker 1: mechanism given the magnitude and the shock of this inflation.
Speaker 1: Explain the new mechanism or process you will use to
Speaker 1: move from domestic controls over the something that's more modern
Speaker 1: Western capitalists, how do you how do you get from
Speaker 1: A to B? We have been on this now for
Speaker 1: quite some time, and you're right. We have to get
Speaker 1: even faster on that path. And what we are working
Speaker 1: with countries to do is to have targeted assistance, so
Speaker 1: there is social protection that identifies who are the vulnerable
Speaker 1: that need to be helped. What is the problem with
Speaker 1: price controls? Everybody benefits from it, the rich benefit and
Speaker 1: the poor. But if the country doesn't have a social
Speaker 1: safety net, if they don't know who their vulnerable families are,
Speaker 1: they are bound to go for price controls because that's
Speaker 1: the only thing they can do. And by the way,
Speaker 1: at this moment of time, in some circumstances, we would
Speaker 1: say this is not your first best, it's not only
Speaker 1: your second best. But given the speed with which prices
Speaker 1: are jumping. There is some some logic in making sure
Speaker 1: people don't go hungry. How do we think about this
Speaker 1: in the future. We have to two complementary strategies. One
Speaker 1: is what I just described, target or your public spending.
Speaker 1: For God's sake, don't throw good money in the direction
Speaker 1: of rich people. Second, think about food in a more
Speaker 1: sustainable manner. Remember this year, food crisis has already been
Speaker 1: knocking on the door before the war, because of climate change,
Speaker 1: because of climate shocks, because agriculture in Africa rain fed.
Speaker 1: You have no rain, you have no food. We have
Speaker 1: to think about sustainability and resilience in a more shocked
Speaker 1: prone world differently. Okay, well, let's I want a digress
Speaker 1: here and I do want to come back to food
Speaker 1: and folks. So if you're just joining because on Bloomberg
Speaker 1: Radio Bloomberg Television, Crystallyna Gore gave of the i m
Speaker 1: F Managing director here in a conversation, I can say,
Speaker 1: in all my years of doing this, a critical point
Speaker 1: into the spring meetings of the i m F next week,
Speaker 1: I want to digress here on climate change. I was
Speaker 1: at the Paris Accords and the advancements that have been made.
Speaker 1: Tell me of the derailment of the need to burn call.
Speaker 1: How temporary is that? Or has there been a seismic
Speaker 1: shift for climate change? It is temporary. I don't see
Speaker 1: call persisting for much longer. Why because one of the benefits,
Speaker 1: the silver lining, if you wish, of high energy prices
Speaker 1: is they make renewables more viable and they inevitably believe
Speaker 1: we see so the yes, how long would it take?
Speaker 1: I'm not antige expert. I would not guess, but the
Speaker 1: direction to travel is uh cleaning, Okay, fine, just because
Speaker 1: of time. I really want to get all these issues in.
Speaker 1: We see Peru, we see Sri Lanka, we see Egypt,
Speaker 1: which is a much larger, bigger problem. That's a focus
Speaker 1: of our Eric Martin, If I see these different companies
Speaker 1: in maximum distress, it alludes to the Arab spring, to
Speaker 1: the Tunisia and almost the domino effect of an unraveling.
Speaker 1: Are we near not an Arab spring but a war
Speaker 1: crisis where we get a domino effect of food crisis.
Speaker 1: We have to get on top of the food crisis.
Speaker 1: We need to front it right now, and we can.
Speaker 1: We have learned lessons about it, we know how to
Speaker 1: do it. But even if we front it, more countries
Speaker 1: would be in trouble. Why because in everybody had to
Speaker 1: borrow more to sustain an economy. Instance, still the largest
Speaker 1: increase in that because of the pandemic in twenty one.
Speaker 1: Servicing this that was easy. It was actually cheaper in
Speaker 1: some places because interest rates were so low or negative
Speaker 1: two No more with technic of financial conditions, servicing that
Speaker 1: is getting more expensive. Now good news, not so good news.
Speaker 1: Good news is that we see that we follow it
Speaker 1: and we are already zero inking on on the countries
Speaker 1: that are in need of that restructuring. We have to
Speaker 1: press for that. Right they're coming in the doors, they're
Speaker 1: gonna and we will. We would sit with Egypt, we
Speaker 1: would sit with Tunisia, and we would discuss with them
Speaker 1: realistically what needs to be done. One one thing that
Speaker 1: I saw Sri Lanka has appointed very prominent Tri Lankan
Speaker 1: economies to be advisors. That gives me hope that they're saying, okay,
Speaker 1: we got because the time I've got to move on.
Speaker 1: Everybody in G seven is focused on the six. Mr
Speaker 1: mccrawn he's got to get reelected, so we'll give him
Speaker 1: a pass. Right now, what do you need from G
Speaker 1: seven to affect maximum I m F tactics and issues
Speaker 1: in this crisis. We need from the seven support for
Speaker 1: deploying the full set of instruments of the I m
Speaker 1: F FAST and we need space to build it for
Speaker 1: the future. Yesterday our board approved a new instrument, first
Speaker 1: time in the history of the IMF. We have a
Speaker 1: long term financing instrument specifically for pandemic preparedness and for
Speaker 1: climate action. What we want is to think of building
Speaker 1: that resilience I talked about in a more comprehensive way before.
Speaker 1: When I m F says resilience, we mean banking sector
Speaker 1: financial stability. Now it is broader. You have to have
Speaker 1: people that are healthy and educated. We have to have
Speaker 1: economy more vibrant. We have to have digital money integrated
Speaker 1: today in the way we would function tomorrow. You are
Speaker 1: a tough not the way you came up with some
Speaker 1: real struggle in Bulgaria. Your academics and the work, and
Speaker 1: you've just got that certain manner of you do this
Speaker 1: thing and you're like, let's go, let's go, let's go.
Speaker 1: What do you say to the I m F nations
Speaker 1: supporting mr Prutin, whether it's direct maybe it's someone indirect
Speaker 1: I think India, China, et cetera. How does the I
Speaker 1: m F address those nations that aren't on board helping
Speaker 1: Ukraine think of the interests of your people. Over the
Speaker 1: last decades of integrated global economy, we have tripled the
Speaker 1: size of global GDP triple who benefited the most emerging
Speaker 1: markets developing economies their size increased four and a half times.
Speaker 1: Their poor poor people are fewer, their their middle class
Speaker 1: has expanded. An integrated economy in which we can work
Speaker 1: together benefits you. Crystal nnagor Gaba, Thank you so much
Speaker 1: for joining us more a wonderful start to the spring meeting.
Speaker 1: She is the I m F Managing Director. Joining Bloomberg
Speaker 1: on radio and television, this is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening. Join us live weekdays from seven to
Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television
Speaker 1: each day from six to nine am for insight from
Speaker 1: the best in economics, finance, investment, and international relations. And
Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot com, and of course on the terminal. I'm Tom
Speaker 1: Keene and this is Bloomberg,