WEBVTT - Surveillance: Rate Hikes with Fed's Williams 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 Farrell and Lisa Brownowitz Jailey. 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, an Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.720 and of course on the Bloomberg Terminal. What would like 0:00:29.760 --> 0:00:32.800 to do is advance a conversation on the present economics 0:00:32.840 --> 0:00:34.800 of the world. That has been her tour to force 0:00:34.840 --> 0:00:37.880 at the International Monetary Fund for a number of years, 0:00:38.280 --> 0:00:41.240 but it is new duties for Geta Gopinath. She is 0:00:41.320 --> 0:00:45.120 first Deputy Managing Director at the International Monetary Fund. I 0:00:45.159 --> 0:00:47.960 could stay Geta. There was a celebration across all of 0:00:48.280 --> 0:00:52.200 economics with this announcement. What is different from your economic 0:00:52.280 --> 0:00:57.400 duties versus being first deputy managing director well as chief economists. 0:00:57.400 --> 0:01:00.960 I would see my role as an advisor, but I 0:01:01.000 --> 0:01:04.280 suppose deputy managing director. I'm in management, so I'm taking 0:01:04.319 --> 0:01:06.680 a lot more difficult decisions. I think that would be 0:01:07.000 --> 0:01:10.600 an important difference. You've been spiriting the pandemic and I 0:01:10.720 --> 0:01:13.680 must ask on an update on the way Asia and 0:01:13.720 --> 0:01:18.240 the way China is prosecuting their pandemic. What does the 0:01:18.319 --> 0:01:21.320 I m F need from China to help Asia do 0:01:21.480 --> 0:01:25.160 better in the pandemic. The pandemic has evolved, as you know, 0:01:25.400 --> 0:01:28.280 compared to the last two years, we have much more 0:01:28.280 --> 0:01:32.920 burau in strains, which is making it harder to contain. So, 0:01:33.040 --> 0:01:36.479 like every other country is recalibrating their strategy in terms 0:01:36.520 --> 0:01:39.000 of how to deal with the virus. I mean, our 0:01:39.000 --> 0:01:42.360 advice to China would also be that some recalibration would 0:01:42.360 --> 0:01:44.880 be very helpful. Do they need American vaccines to fix 0:01:44.959 --> 0:01:47.360 this is a heart of the matter. They need mrn 0:01:47.360 --> 0:01:52.360 A Visor Moderna to get China vaccinated. So firstly, they 0:01:52.400 --> 0:01:56.360 need to get more coverage of their seventy plus population. 0:01:56.640 --> 0:01:59.240 While they have overall very high vaccine coverage, if you 0:01:59.240 --> 0:02:02.680 look at the very tail end in terms of age distribution, 0:02:02.760 --> 0:02:06.960 you certainly need a greater coverage. Secondly, they would need 0:02:07.000 --> 0:02:11.040 booster shots for their older populations, and effective booster shots 0:02:11.160 --> 0:02:13.239 would be very important. Do you have an amazing bird's 0:02:13.240 --> 0:02:15.600 eye view right now of how well prepared we are 0:02:15.760 --> 0:02:19.080 to combat an additional strain that possibly the vaccines don't cover, 0:02:19.520 --> 0:02:23.320 or an additional pandemic with the additional rollouts of vaccines 0:02:23.360 --> 0:02:25.880 similar to what we just saw. Are we much better 0:02:25.919 --> 0:02:28.640 prepared to tackle it more quickly that we did this 0:02:28.720 --> 0:02:31.920 last time around? We certainly have the signs. We certainly 0:02:31.919 --> 0:02:34.799 have the knowledge from having dealt and lived with over 0:02:34.840 --> 0:02:37.800 two years of the pandemic. What I am worried about 0:02:38.160 --> 0:02:41.000 is that everybody is hoping for the best case scenario, 0:02:41.080 --> 0:02:44.840 which is that this is a mild endemic virus. But 0:02:45.000 --> 0:02:46.760 what the experts tell us is that we could have 0:02:46.880 --> 0:02:49.960 much worse downside scenarios, and we need to prepare for that. 0:02:50.080 --> 0:02:52.520 And that's the pot where I think more needs to 0:02:52.520 --> 0:02:54.960 be done. We needed on the fifteen billion in grants 0:02:55.080 --> 0:02:58.040 this year to get the right amount of preparation in place, 0:02:58.360 --> 0:03:02.040 and then ten billion every year four pandemic preparedness. What 0:03:02.080 --> 0:03:04.840 does preparation mean when we've seen that a lot of 0:03:04.880 --> 0:03:06.640 the money and a lot of the tools that have 0:03:06.680 --> 0:03:09.800 gone to certain countries haven't really gotten out to the public, 0:03:09.840 --> 0:03:12.200 and you deal with people who are so hesitant to 0:03:12.280 --> 0:03:16.160 actually get vaccinated in the first place. So the huge 0:03:16.400 --> 0:03:20.120 discrepancy between the vaccination rates in high income countries, which 0:03:20.160 --> 0:03:23.720 is around seventy versus low income countries, which is eleven. 0:03:24.560 --> 0:03:26.880 That gap has to be closed. Now. It's true that 0:03:26.960 --> 0:03:29.760 you are seeing vaccine hesitancy in different paths of the world, 0:03:30.160 --> 0:03:35.680 and you are seeing UH absorption capacity constraints, but still 0:03:35.720 --> 0:03:38.920 we need to get at least the most vulnerable population 0:03:38.960 --> 0:03:41.080 in every part of the world vaccinated. You don't want 0:03:41.080 --> 0:03:42.960 to turn to your tour to force here. We could 0:03:42.960 --> 0:03:44.800 get out front and make some breaking news today and 0:03:44.880 --> 0:03:47.440 the World Economical look, I think it comes out next week, 0:03:47.440 --> 0:03:49.600 but if you want to slip any numbers out this morning, 0:03:49.680 --> 0:03:52.680 that's fine. The w t O shocked the other day 0:03:52.760 --> 0:03:55.480 with a number that truly shocked me, two point eight 0:03:55.480 --> 0:03:59.120 percent global growth. I don't want to front run the 0:03:59.200 --> 0:04:01.720 great I m F work that you do here, but 0:04:01.760 --> 0:04:04.280 we're on I don't but we're under three pc. It 0:04:04.320 --> 0:04:07.880 appears in global growth. Have we been here before? Is 0:04:07.920 --> 0:04:12.840 the global slowdown now original and tangible? So Tom, you 0:04:12.960 --> 0:04:15.560 will get the numbers next week and I won't be 0:04:15.640 --> 0:04:18.080 leaking any numbers right now. You can do it on Twitter, 0:04:18.480 --> 0:04:21.919 elon muscle, let you do it on Twitter. What is 0:04:22.040 --> 0:04:25.400 true is that we will have a significant downgrade to 0:04:25.600 --> 0:04:28.120 our growth projection. So the last number we had for 0:04:28.200 --> 0:04:31.279 this year was four point four percent. We will have 0:04:31.320 --> 0:04:35.719 a significant downgrade motive to that number. You know, what 0:04:35.960 --> 0:04:38.880 is true is that we will remain in positive territory 0:04:38.960 --> 0:04:42.360 for global growth. But that's said, we are very very 0:04:42.360 --> 0:04:45.440 difficult times. The pandemic is not over. We have the 0:04:45.480 --> 0:04:48.400 war framing. I'm going to interrupt there. That was stunning 0:04:48.400 --> 0:04:52.600 what you just said. You're framing a probability distribution, a 0:04:52.640 --> 0:04:55.719 fan distribution. We will see next week, and you've got 0:04:55.720 --> 0:04:57.720 a lower bound of telling me it could it will 0:04:57.760 --> 0:05:00.800 be positive. No, that's not what I said. I said 0:05:01.080 --> 0:05:04.000 that the modal estimate, which is what we put out 0:05:04.080 --> 0:05:07.120 in terms of our baseline, will be a positive number. 0:05:07.400 --> 0:05:09.280 But if I look at the fan chart, of course 0:05:09.360 --> 0:05:11.880 many other things are possible. So we are still living 0:05:11.920 --> 0:05:15.120 in a time when they're very high railed. From that, 0:05:15.320 --> 0:05:19.080 I heard what she said. It's Lisa, we're talking here 0:05:19.200 --> 0:05:23.680 sub three percent global economic growth. I've never done that 0:05:23.960 --> 0:05:26.240 well ever. And part of this is because where does 0:05:26.279 --> 0:05:29.360 the growth come from? Right, We've always talked about China, 0:05:29.400 --> 0:05:32.800 about India driving growth. That's no longer the case. Now 0:05:32.839 --> 0:05:36.600 we're talking about the United States driving growth. How much 0:05:36.760 --> 0:05:39.560 does the United States have to grow their GDP this 0:05:39.680 --> 0:05:42.800 year in order to prevent the world's economy from flipping 0:05:42.800 --> 0:05:46.920 into recession. Okay, so firstly, I would say that much 0:05:46.960 --> 0:05:49.480 of the world economy towards the end of last year 0:05:49.560 --> 0:05:53.680 had the momentum coming out off the pandemic reopening, so 0:05:53.720 --> 0:05:55.800 there was growth coming back in and we're seeing labor 0:05:55.839 --> 0:05:59.120 markets in many advanced economies being very tight, so there 0:05:59.279 --> 0:06:03.039 is a momentum to sustain growth at this point. But 0:06:03.200 --> 0:06:06.560 you've hit shock after shock, so you've had the pandemic 0:06:06.600 --> 0:06:11.600 that's not over. You had the war. You're seeing inflation 0:06:11.680 --> 0:06:14.480 and members we haven't seen before. Just as a simple comparison, 0:06:14.520 --> 0:06:19.919 before the pandemic, global inflation was around two Today global 0:06:19.960 --> 0:06:24.160 inflation is eight percent. So this is in numbers that 0:06:24.200 --> 0:06:27.279 are a decade or highs, which makes it very challenging, 0:06:27.640 --> 0:06:31.560 which which is why one should be careful about projecting forward. 0:06:31.560 --> 0:06:33.599 I think there were very big risks, and I agree, 0:06:33.640 --> 0:06:35.640 and this is the magnitude issue, and we can be 0:06:35.680 --> 0:06:38.000 on the Y axis. I'm far more interested in your 0:06:38.040 --> 0:06:40.840 work next week in a particular financial stability in world 0:06:40.839 --> 0:06:44.320 economic outlook the X axis. Do you have a framework 0:06:44.400 --> 0:06:48.039 of how long the duration of four and five and 0:06:48.080 --> 0:06:51.359 six standard deviation inflation will be Do you have any 0:06:51.480 --> 0:06:54.839 sense of the width of that given the cacophony of 0:06:54.920 --> 0:06:58.800 issues you have. If you're thinking about a target of 0:06:58.880 --> 0:07:01.520 two percent, and your question is how long will it 0:07:01.560 --> 0:07:03.919 take to come down to it? The two percent target 0:07:03.960 --> 0:07:06.840 number that would take, you know, we're looking at towards 0:07:06.880 --> 0:07:09.360 the end of next year, so it's going to take 0:07:09.360 --> 0:07:12.920 many months before we see inflation coming down. Now, if 0:07:12.920 --> 0:07:14.880 your question is has it peaked and is it likely 0:07:14.920 --> 0:07:19.280 to come down again unless we're hit by another escalation 0:07:19.320 --> 0:07:22.640 of the war for the major events, the expectation is 0:07:22.680 --> 0:07:25.000 that the second half of you we should start seeing inflation. 0:07:25.080 --> 0:07:27.800 We need to adjust to Adam poses three DR pose 0:07:27.800 --> 0:07:30.080 and will join us today and Blanchard into an extent 0:07:30.200 --> 0:07:32.720 out of Posen are saying we got to forget about 0:07:32.720 --> 0:07:35.600 two percent, which I understand is the company line, and 0:07:35.640 --> 0:07:38.760 we have to bratchet that upward or band around three percent. 0:07:39.040 --> 0:07:40.920 Do we need to start thinking about that? I think 0:07:40.920 --> 0:07:44.560 what feed will realize that coming down bringing down inflation 0:07:45.000 --> 0:07:47.560 to four percent is going to be somewhat easier than 0:07:47.600 --> 0:07:49.320 coming down the rest of the way, which is from 0:07:49.360 --> 0:07:52.840 four to two. So you know, while it is important, 0:07:52.840 --> 0:07:56.400 of course, to communicate very clearly and having a framework 0:07:56.440 --> 0:07:59.560 that people understand it follow is important. You know, these 0:07:59.560 --> 0:08:02.360 are importan it's important to decide about where you're going 0:08:02.400 --> 0:08:04.520 to land. The i m F has just tweeted me 0:08:04.600 --> 0:08:06.760 and they've said on my d I they've said, that's 0:08:06.800 --> 0:08:09.840 way too much economic talk with Dr Gopinath, thank you 0:08:09.880 --> 0:08:13.520 so much for joining us as first Deputy Managing Director 0:08:13.560 --> 0:08:16.520 g to Gopeneth. Of course, here at the International Monetary Fund, 0:08:22.840 --> 0:08:26.840 we are advantaged by over the years wonderful guests who 0:08:26.840 --> 0:08:30.960 have provided us with decades of perspective and they're changing 0:08:31.080 --> 0:08:35.120 views on what matters to you on radio and on television. 0:08:35.200 --> 0:08:38.040 One of those is Adam Posen of the Peterson Institute, 0:08:38.480 --> 0:08:41.840 one of the great German authorities of American academics, but 0:08:42.040 --> 0:08:45.400 far more at the Peterson Institute, looking at the things 0:08:45.440 --> 0:08:49.840 that matter, and particularly this original inflation that we have. 0:08:50.120 --> 0:08:53.280 We spoke to his colleague Olivia Bonchard, of course, the 0:08:53.360 --> 0:08:55.520 former chief economist of the i m F, the other 0:08:55.600 --> 0:08:59.360 day and we advanced that conversation forward this morning. I 0:08:59.400 --> 0:09:01.440 was talking I believe it was with ge to gop 0:09:01.480 --> 0:09:05.240 and FF. I can't remember about once again the certitude 0:09:05.240 --> 0:09:08.680 of elites saying we've got to get inflation back to 0:09:08.720 --> 0:09:12.160 two percent. No one has led to charge in the 0:09:12.160 --> 0:09:16.440 world for a readjustment of that decades old certitude than 0:09:16.520 --> 0:09:22.240 you are we heading back to three inflation? I hope so, Tom. 0:09:22.480 --> 0:09:25.400 I think the ECB, which you and at least thing 0:09:25.440 --> 0:09:28.520 guy were just talking about, is important to set out 0:09:28.559 --> 0:09:33.600 a different path than the FED, notwithstanding is saying another's 0:09:33.640 --> 0:09:37.840 remarks because the inflation is different in Europe than in 0:09:37.880 --> 0:09:42.000 the US. It's different in Europe, but nevertheless, you've made 0:09:43.000 --> 0:09:47.040 worldwide impact, and Economics was saying we need to reset 0:09:47.520 --> 0:09:49.600 and some way maybe it's two point eight percent. Who's 0:09:49.600 --> 0:09:52.600 who splitting her tenth of a point as well? We 0:09:52.679 --> 0:09:54.440 are since the last time I talked to you, we 0:09:54.480 --> 0:09:58.280 are six standard deviations out on so many statistics. Now 0:09:58.320 --> 0:10:01.080 there's a glide path back we get how do we 0:10:01.120 --> 0:10:05.200 get back to two inflation for those days over? We 0:10:05.240 --> 0:10:07.720 can get there, but it's probably not worth the cost. 0:10:08.160 --> 0:10:10.320 In my view, I think you have to get it 0:10:10.400 --> 0:10:12.880 wailed below four percent in the US, and the FED 0:10:13.000 --> 0:10:16.240 is on track to do that. The choice point is 0:10:16.320 --> 0:10:19.400 how far and how fast? Echoing something Lisa just said 0:10:19.720 --> 0:10:21.960 it takes to get from four to two or four 0:10:22.000 --> 0:10:24.840 to two and a half. So between now and say 0:10:24.960 --> 0:10:29.120 first quarter of the FEDS tightening is baked in right 0:10:29.360 --> 0:10:33.360 two or fifty plus basis points, and inflation is probably 0:10:33.400 --> 0:10:36.040 peaking in the US or not elsewhere. So you're going 0:10:36.080 --> 0:10:38.320 to get it down below five by the end of 0:10:38.320 --> 0:10:42.320 the year. I'm reasonably confident. The question is how fast 0:10:42.400 --> 0:10:44.280 and how far do you push it down from there? 0:10:44.440 --> 0:10:47.839 And I'm hoping that they accept running something in the 0:10:47.920 --> 0:10:52.559 high twos or even three and take it. How high 0:10:52.640 --> 0:10:57.600 can inflation be without crippling consumer confidence, without crippling the 0:10:57.679 --> 0:11:01.120 ability to go out and spend. It's a good question, Lisa, 0:11:01.200 --> 0:11:03.360 But I think right now what we're seeing is, for 0:11:03.440 --> 0:11:06.480 all the talk consumer confidences determined by other things, we 0:11:06.559 --> 0:11:09.800 are seeing continued spending in the US. Right well, we're 0:11:09.800 --> 0:11:12.640 going to get actually retail sales coming up, and we 0:11:12.679 --> 0:11:16.120 have seen them decelerate dramatically, and on an inflation adjusted basis, 0:11:16.400 --> 0:11:19.480 they have been increasingly negative over the past few readings. 0:11:19.720 --> 0:11:22.360 So yes, people are still buying, but with an asterisk. 0:11:22.360 --> 0:11:24.080 I mean, at what point do you start to worry 0:11:24.600 --> 0:11:27.880 given the fact that this inflation rate is certainly affecting. 0:11:28.120 --> 0:11:30.839 There's no question. I mean again, I'm totally on record, 0:11:30.880 --> 0:11:33.400 and I was on record a year ago saying, I 0:11:33.440 --> 0:11:36.160 mean literally April one last year saying inflation is going 0:11:36.200 --> 0:11:38.200 to come in way beyond the Fed's forecast and they 0:11:38.240 --> 0:11:41.880 have to start moving. So but that the two are 0:11:42.000 --> 0:11:44.520 are not the same thing. The idea that they've took 0:11:44.559 --> 0:11:48.680 a gamble, in my view, the gamble didn't work out, 0:11:49.160 --> 0:11:51.280 and now they got to rectify it is one thing, 0:11:51.720 --> 0:11:55.079 and that's separate from what would happen if they don't 0:11:55.240 --> 0:11:57.920 grind the US economy down to get from three point 0:11:57.960 --> 0:12:01.160 three to two point five. And that's the question for 0:12:03.360 --> 0:12:06.920 Thomas sol the great conservative economist, wrote a book on 0:12:07.040 --> 0:12:10.679 classical economics now, and I've seen so much static analysis 0:12:10.800 --> 0:12:13.559 right now, I feel like I'm launching back pre Javonian, 0:12:13.880 --> 0:12:17.840 back to David Ricardo and almost nineteenth century analysis. Of 0:12:17.880 --> 0:12:22.000 all the noise going on. The optimists like Adam Posen 0:12:22.080 --> 0:12:25.280 would say, we are a dynamic system, we will compensate 0:12:25.360 --> 0:12:28.920 and we will get beyond. This is the great compensator 0:12:29.240 --> 0:12:33.080 the currency market, and that we could see substantial depreciation 0:12:33.440 --> 0:12:37.160 and devaluation in some countries in crisis who don't get 0:12:37.200 --> 0:12:39.440 it right. I think you're going to see some of 0:12:39.480 --> 0:12:41.360 that even if they do get it right. I mean 0:12:41.400 --> 0:12:43.360 we're coming into the spring meetings of the Bank and 0:12:43.400 --> 0:12:47.040 the Fund and as first step you Imagining Director Gopinat 0:12:47.040 --> 0:12:50.240 said earlier this morning to you there's in the secretary 0:12:50.320 --> 0:12:52.880 yell and said last night, there's real stuff going on 0:12:52.920 --> 0:12:56.319 in that world. There are food shortages, there are energy shortages, 0:12:56.360 --> 0:13:00.360 their price spikes, there are interest rates being past on 0:13:00.440 --> 0:13:04.520 by the US necessary actions, and so you get to 0:13:04.559 --> 0:13:07.040 a point where there are going to be dead problems 0:13:07.040 --> 0:13:09.320 and there are going to be recessions and maybe unrest. 0:13:09.520 --> 0:13:11.640 But it's not because they didn't get it right, because 0:13:11.679 --> 0:13:14.000 it's just the world is hard, and we're not very 0:13:14.040 --> 0:13:19.440 fair about sharing the ability to to to to keep 0:13:19.480 --> 0:13:21.880 the floor under things. Adam, We've got to move on 0:13:22.040 --> 0:13:24.560 in an incredibly hectic day. But can we see you 0:13:24.559 --> 0:13:27.520 against soon. Thank you for having an imposing Thank you 0:13:27.600 --> 0:13:36.600 so much right now it is an extremely timely moment. 0:13:36.679 --> 0:13:41.160 Michael McKee speaks to this fedeficial, that fedeficial, and he 0:13:41.240 --> 0:13:44.760 will look at the official they listen to with the 0:13:44.800 --> 0:13:49.000 New York Fed. John Williams Michael, thank you very much, 0:13:49.040 --> 0:13:52.000 and we'd like to welcome President Williams, the president of 0:13:52.040 --> 0:13:55.960 the New York Fed, to Bloomberg Television and Radio worldwide. 0:13:56.040 --> 0:13:58.160 We should also mention you are the vice chairman of 0:13:58.160 --> 0:14:01.160 the Open Market Committee, so second in command of the 0:14:01.200 --> 0:14:04.280 group that makes the interest rate decisions. You have to 0:14:04.320 --> 0:14:06.760 decide what you're going to do and how fast you're 0:14:06.760 --> 0:14:08.760 going to do it going forward from the data that 0:14:08.840 --> 0:14:12.800 you have. We just got retail sales numbers, inflation boosted 0:14:12.840 --> 0:14:17.360 sales up half a percent. What's your take on I 0:14:17.360 --> 0:14:19.120 know you've looked a little bit at the numbers on this, 0:14:19.240 --> 0:14:23.160 so we're seeing any decline in demand? Well, first of all, 0:14:23.200 --> 0:14:25.640 it's great to be here in person, Mike. It's uh, 0:14:25.640 --> 0:14:28.640 it's nice to be able to do this today. You know, 0:14:28.680 --> 0:14:32.120 we are seeing I think some signs, early signs that 0:14:32.280 --> 0:14:36.920 consumers are shifting their purchasing patterns coming out of the 0:14:36.920 --> 0:14:40.960 pandemic away from all the purchases of goods of the 0:14:41.000 --> 0:14:44.880 past few years and more to services. I won't respond 0:14:44.920 --> 0:14:47.400 too much to one months of data, but one month 0:14:47.440 --> 0:14:49.240 of data, but I do think that's how a pattern 0:14:49.280 --> 0:14:51.480 I'm expecting to see continue during the year and I 0:14:51.520 --> 0:14:54.200 think it's a very important part of this story is 0:14:54.240 --> 0:14:57.240 to see consumers as we get past the pandemic, be 0:14:57.280 --> 0:15:00.000 able to move back to more normal patterns of spendings. 0:15:00.280 --> 0:15:02.040 We'll have to watch that data carefully, but that as 0:15:02.080 --> 0:15:04.640 a trend I am looking to see this year. Well, 0:15:04.680 --> 0:15:06.840 it's been interesting over the last week or so a 0:15:06.880 --> 0:15:10.800 number of your colleagues have seemed more concerned about the 0:15:10.840 --> 0:15:13.760 pace of inflation and have suggested they're changing their mind 0:15:13.800 --> 0:15:16.520 about how quickly you should do that. Are you still 0:15:17.280 --> 0:15:20.200 believing that the that you can do this at a 0:15:20.280 --> 0:15:23.000 measured slow pace. Well, I don't think we're going to 0:15:23.160 --> 0:15:26.040 do our policy adjustment and measured slow pace for sure. 0:15:26.400 --> 0:15:29.240 I do think we need with high, very high inflation, 0:15:29.360 --> 0:15:32.760 we need to really focus on bringing inflation down to 0:15:32.840 --> 0:15:35.440 our two percent longer run goal and to do that 0:15:35.720 --> 0:15:37.960 over the next few years. So that is the number 0:15:38.000 --> 0:15:40.840 one focus. And we I say that because the economy 0:15:40.880 --> 0:15:44.400 is strong, the labor market is basically back to a 0:15:44.480 --> 0:15:46.480 close to where it was before the pandemic, with the 0:15:46.560 --> 0:15:49.000 unemployment rate round three and a half percent and other 0:15:49.040 --> 0:15:52.240 indicators showing that we have very strong demand for for 0:15:52.240 --> 0:15:54.680 for labor. So I do think from a Monterey policy 0:15:54.680 --> 0:15:56.440 point of view, it does make sense for us to 0:15:56.480 --> 0:16:00.480 move expeditiously towards more normal levels of the real funds 0:16:00.560 --> 0:16:03.720 rate UH, and also to move forward on our balance 0:16:03.760 --> 0:16:07.120 sheet reduction plans. If there was one phrase it sort 0:16:07.120 --> 0:16:09.520 of sums up where your colleagues are, it's get to 0:16:09.600 --> 0:16:11.640 neutral by the end of the year. Would you be 0:16:11.800 --> 0:16:14.720 on board with that? I do think we need to 0:16:14.760 --> 0:16:17.160 get back to a more neutral and normal level of 0:16:17.160 --> 0:16:19.720 the federal funds. Right whether it's at the end of 0:16:19.720 --> 0:16:22.200 the year or exactly when that happens will depend on 0:16:22.240 --> 0:16:24.560 the data. We We will continue to be a data 0:16:24.600 --> 0:16:27.840 dependent but given where the economy is, and especially given 0:16:27.880 --> 0:16:31.000 where inflation is, we really do need to reverse the 0:16:31.080 --> 0:16:33.560 policy actions that we put into place back in March, 0:16:34.400 --> 0:16:37.600 move that forward UH, and move the federal funds target 0:16:37.640 --> 0:16:40.400 to neutral. And again, whether it's by the end of 0:16:40.400 --> 0:16:43.320 the year or exactly when it happens, I think that 0:16:43.320 --> 0:16:45.600 that will depend on the path of the economy. But yes, 0:16:45.600 --> 0:16:49.320 I agree with them. So fifty basis points on May fourth, Well, 0:16:49.400 --> 0:16:51.200 that's not a decision we made yet, but I do 0:16:51.280 --> 0:16:54.120 think that, well, you can make it right now, that's 0:16:54.120 --> 0:16:56.520 not a decision we made yet, MIKEA. But but I 0:16:56.560 --> 0:16:58.960 think that's a you know, a reasonable option. I think 0:16:58.960 --> 0:17:02.120 that for us, because federal funds rate is very low, 0:17:02.640 --> 0:17:05.880 we do need to move UH policy back to more 0:17:05.920 --> 0:17:08.960 neutral levels uh later this you know, through this year. 0:17:09.240 --> 0:17:12.520 And I think that's a very reasonable option. Speaking of neutral, 0:17:13.080 --> 0:17:15.760 what do you think neutral is these days? You were 0:17:15.960 --> 0:17:17.960 sort of the guy who invented, along with the late 0:17:18.000 --> 0:17:22.720 Tim law back the our star concept measurement, and that's 0:17:22.760 --> 0:17:26.760 the key indicator for what neutral might be. So it's 0:17:26.760 --> 0:17:29.000 hard to know. I've always started any question on the 0:17:29.000 --> 0:17:32.000 neutral interest rate with it's it's it's an uncertain thing. 0:17:32.080 --> 0:17:34.760 It's something we don't measure directly. We have to infer 0:17:34.840 --> 0:17:38.640 it from other indicators coming into the pandemic, and our estimates, 0:17:39.119 --> 0:17:41.640 most estimates of neutral were quite low. And I think 0:17:41.680 --> 0:17:44.639 that's consistent with the my colleagues, the f O m 0:17:44.720 --> 0:17:47.359 c's view that the normal nominal federal funds rate is 0:17:47.359 --> 0:17:50.159 probably around two and a half percent UM. So I 0:17:50.200 --> 0:17:52.400 think that I think about, well, where is it today? 0:17:52.480 --> 0:17:55.800 It's uh, it's the economy is being pushed around supplying 0:17:55.840 --> 0:18:00.840 demand dramatically by UM pandemic. Obviously, H the invasion of 0:18:00.920 --> 0:18:04.200 Ukraine and and and other factors are moving the economy around. 0:18:04.320 --> 0:18:05.960 But then I go back to what are the longer 0:18:06.040 --> 0:18:09.000 run drivers of a neutral rate? And economists I think 0:18:09.000 --> 0:18:13.600 have studied this pretty carefully. They've identified demographics, productivity, growth, 0:18:14.160 --> 0:18:17.600 global demand for the safe assets like the US dollar. 0:18:17.840 --> 0:18:21.360 I don't think those have fundamentally changed since before the pandemic. 0:18:21.440 --> 0:18:24.360 So I guess my my baseline assumption is a neutral 0:18:24.640 --> 0:18:26.919 UH nominal federal funds rate in the long run is 0:18:27.000 --> 0:18:29.720 probably still in the very low two percent to two 0:18:29.760 --> 0:18:31.640 and a half percent range, So I don't think that's changed. 0:18:31.680 --> 0:18:33.760 But again we have to have an open mind and 0:18:34.160 --> 0:18:36.840 see how they can follow the data. How far above 0:18:36.880 --> 0:18:38.199 that do you think you might have to go to 0:18:38.240 --> 0:18:40.680 bring inflation down? That? You know, I think that's a 0:18:40.720 --> 0:18:43.119 really important question as we as we get back to 0:18:43.280 --> 0:18:47.600 you know, neutral uh nominal neutral levels UH, that we 0:18:47.720 --> 0:18:50.199 have to I think to do two things. One is 0:18:50.240 --> 0:18:52.399 we have to keep focus on real interest rate, so 0:18:52.640 --> 0:18:55.040 it's not it's not just a nominal interest rate like 0:18:55.640 --> 0:18:58.439 the federal funds rate. But whereas inflation so I do 0:18:58.520 --> 0:19:00.720 think that we do we will need to real interest 0:19:00.840 --> 0:19:04.160 rates mean nominal interest rates adjusted for inflation or expected 0:19:04.160 --> 0:19:09.720 inflation back to more normal levels uh by by next year, um, 0:19:09.840 --> 0:19:12.320 and we may need to go a little bit above 0:19:12.359 --> 0:19:15.400 that depending on where inflation is. I think the economy 0:19:15.520 --> 0:19:18.240 right now has a lot of good momentum. I think 0:19:18.240 --> 0:19:22.560 the economy can withstand uh neutral or real interest rates 0:19:22.640 --> 0:19:24.800 or you know, at neutral or a bit above. But 0:19:25.200 --> 0:19:27.919 the decision, those decisions we made, you know, in the future, 0:19:28.040 --> 0:19:31.080 depending on how the economy evolves. Well, where is inflation 0:19:31.119 --> 0:19:33.679 these days? The general consensus of analysts coming out of 0:19:33.680 --> 0:19:37.400 the CPI report this week was inflation has peaked. Well, 0:19:37.480 --> 0:19:40.080 I'm not gonna make a prediction about whether inflation has 0:19:40.119 --> 0:19:43.560 peaked because clearly energy food and energy prices have been 0:19:43.640 --> 0:19:48.480 quite volatile and affected by by this situation Ukraine. So 0:19:48.560 --> 0:19:51.600 and uh we you know, the oil prices could go 0:19:51.640 --> 0:19:54.639 back up. They're volatile. So I don't know about peaking. 0:19:55.000 --> 0:19:58.040 I do think that my view is with Monte policy 0:19:58.400 --> 0:20:01.880 reducing uh, you know, the imbalance between supply and demand 0:20:01.920 --> 0:20:04.840 and the economy. That's by bringing interest rates back to 0:20:04.880 --> 0:20:07.800 more normal levels. That's going to bring demand and the 0:20:07.840 --> 0:20:10.960 economy back to close to the supply. With some of 0:20:10.960 --> 0:20:15.040 the supply chain issues gradually being resolved, and also this 0:20:15.119 --> 0:20:17.639 rebalancing between goods and services. I do think that the 0:20:17.720 --> 0:20:21.480 underlying trend inflation is probably going to peak soon hopefully 0:20:21.640 --> 0:20:25.240 and start coming down later in this year. The black 0:20:25.320 --> 0:20:30.000 Rock Analysts, world's largest asset manager, say that you can't 0:20:30.119 --> 0:20:32.880 raise rates high enough to bring inflation down to two 0:20:32.920 --> 0:20:37.040 percent in the short run without an unacceptable level of unemployment. 0:20:37.680 --> 0:20:41.560 How high are you willing to go on unemployment? Uh? 0:20:41.600 --> 0:20:44.040 They also suggest you may just learn to live with 0:20:44.080 --> 0:20:47.119 three percent inflation instead of two. Well, I'll start with 0:20:47.160 --> 0:20:49.560 the last part where I don't agree with that. We 0:20:49.600 --> 0:20:52.960 have a two percent longer run goal. We we've discussed 0:20:52.960 --> 0:20:55.240 that thoroughly. That is our long run goal, and that's 0:20:55.240 --> 0:20:57.000 what we're gonna stay with. So we're going to get 0:20:57.000 --> 0:21:00.000 inflation back to two percent. In terms of the unemployment 0:21:00.040 --> 0:21:02.720 and the risks there, clearly this is a period of 0:21:02.760 --> 0:21:07.800 great uncertainty. Um. This is a challenging circumstances to conduct 0:21:07.840 --> 0:21:10.359 Monterey policy bringing inflation down while trying to keep the 0:21:10.359 --> 0:21:13.000 economy the labor markets strong. I think we have a 0:21:13.000 --> 0:21:16.359 couple of advantages over previous episodes. So one is where 0:21:16.400 --> 0:21:18.520 is the economy the strongest. Where are we seeing the 0:21:18.600 --> 0:21:22.280 kind of demand um, you know, exceeding supply. It's really 0:21:22.320 --> 0:21:26.200 in the interest sensitive sectors. It's in durable goods, in autos, 0:21:26.280 --> 0:21:29.800 in housing, and so as we brought up expectations of 0:21:29.840 --> 0:21:32.640 interest rates, as as yields have moved up, mortgage rates 0:21:32.640 --> 0:21:35.359 have come up, that's that's going to help bring down 0:21:35.600 --> 0:21:39.000 that excess demand for that sector relative to supply. So 0:21:39.040 --> 0:21:41.760 I think that our monte policy tool this time of 0:21:41.840 --> 0:21:45.560