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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: The Swiss National Bank has cut its key interest rate

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Speaker 2: by twenty five basis points, acting months before global peers

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Speaker 2: may follow suit. Now it's a huge week for central banks,

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Speaker 2: with the FED decision yesterday, the SMB and Norges today,

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Speaker 2: the BOE coming shortly. So for more on all of

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Speaker 2: this makes sense of it all? Really, let's bring in

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Speaker 2: the wece chair of Blackrock, A, Philip Hildebrant, who joined

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Speaker 2: us for an exclusive conversation. Also who knows the SMB

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Speaker 2: and actually the Swiss complex intimate lias A, Philip, What

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Speaker 2: a tree, What a date to have you on. As

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Speaker 2: I mean, it feels like momentus because it's the first

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Speaker 2: major central.

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Speaker 3: Bank to cut right.

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Speaker 1: Yeah, we've been waiting for this for a long time.

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Speaker 1: The market has been pricing it and had to come

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Speaker 1: off of now basically, you know, the first one is

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Speaker 1: out of the gates.

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Speaker 3: Not surprisingly that.

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Speaker 1: It's the SMB in the sense that Switzerland had by

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Speaker 1: far the best inflation record through this difficult period of

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Speaker 1: the pandemic.

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Speaker 3: So it's it's a courageous step but.

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Speaker 1: Perfectly justifiable when you look at the inflation forecast and

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Speaker 1: the inflation data these last couple of years.

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Speaker 2: So what does a policy mistake look like, not from SMB,

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Speaker 2: but but also for others. Is there a danger that actually,

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Speaker 2: if you cut too quickly, then inflation actually is rampant

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Speaker 2: control and so it makes your job double harder to

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Speaker 2: get on.

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Speaker 3: Top of that.

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Speaker 1: I think the main challenge they face all the central

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Speaker 1: banks effectively and certainly the FED, is that goods inflation

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Speaker 1: continues to come down. That's the post pandemic adjustment that

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Speaker 1: will settle it roughly zero, which is where typically historically

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Speaker 1: goods inflation is. What is not going to happen in

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Speaker 1: my view, is service inflation is not going to come down.

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Speaker 3: We have very.

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Speaker 1: Strong labor markets, wages are strong, and so my guess

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Speaker 1: is service inflation is going to turn out to be

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Speaker 1: sticky when it settles. And in combination between goods and

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Speaker 1: zero and service inflation somewhere around three percent, let's say,

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Speaker 1: that suggests to me that what we're going to end

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Speaker 1: up with a kind of a rate that is going

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Speaker 1: to be higher. And so I think what you're going

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Speaker 1: to see is a higher for longer story that will

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Speaker 1: ultimately kind of feed through the you know, the short

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Speaker 1: term adjustment of rates now beginning to ease, policy.

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Speaker 2: Rates beginning to ease for many years you were, of

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Speaker 2: course in charge of the SMB. We're now looking at

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Speaker 2: live pictures of Thomas Jordan speaking to report. I know

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Speaker 2: that room very well gathered there to try and understand

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Speaker 2: the path forward. He's also said he will step down.

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Speaker 2: What's the intricacies on I guess the complexities of just

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Speaker 2: managing the Swiss economy right now?

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Speaker 3: Well, I think that you know.

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Speaker 1: Just keeping keeping the track record of the SMB having

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Speaker 1: I mean, the legacy of Thomas, of course is that

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Speaker 1: he has the best inflation track record of any central bank,

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Speaker 1: and so I think that's the principal challenge going forward

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Speaker 1: to make to make sure that there's no question that

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Speaker 1: that credibility on inflation will be maintained. And then in

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Speaker 1: the longer term, the question will be, and that's partly

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Speaker 1: an SMB question, but more regulatory question, how do you

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Speaker 1: deal with a bank that is going to be very.

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Speaker 3: Very large compared to GDP.

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Speaker 1: And that's of course the legacy in a sense of

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Speaker 1: the failure of credit sweet So those will be the

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Speaker 1: main challenges going forward, i'd say for his success, but

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Speaker 1: would he be.

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Speaker 2: Worried about market reaction right now?

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Speaker 3: No, I don't think so.

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Speaker 1: I think he's you know, I mean, they've known how

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Speaker 1: the market, they know how to surprise markets, They've done

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Speaker 1: that before. As I said, I think he could certainly

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Speaker 1: perfectly justify the decision today.

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Speaker 3: He could have also waited, but in a sense when.

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Speaker 1: You look at the inflation data, the inflation forecast, there

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Speaker 1: is not much point in waiting here, So why not

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Speaker 1: go ahead? So I don't anticipate any problems. And if

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Speaker 1: he gets a little bit of currency weakness out of this,

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Speaker 1: then I think, you know, that's perfectly fine. So this

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Speaker 1: will not create any major kind of market reactions, but

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Speaker 1: it does signal to the world that we have kind

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Speaker 1: of turned the corner that central banks are easy.

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Speaker 3: And then the question will be worried as all this

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Speaker 3: settle in the long term.

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Speaker 2: Yeah, but then if you look at actually see what

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Speaker 2: we heard from j Power mean, he's quite tentative, right,

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Speaker 2: and again he's a lot less hawkish and even the

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Speaker 2: dot plot gave us a lot less hawkishness that we

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Speaker 2: could have seen.

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Speaker 1: Well, I think they've succeeded very well. Remember when we

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Speaker 1: last spoke in Davos. We had pricing in the market

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Speaker 1: that was just not realistic. So the FED has succeeded

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Speaker 1: in squeezing that out. We're now looking at three cuts

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Speaker 1: going forward. It seems pretty clear to me that the

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Speaker 1: Fed is intent on cutting rates so.

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Speaker 3: On, following Thomas Jordan, and.

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Speaker 1: That will happen unless something terrible happens. What's also clear

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Speaker 1: that when I look at the details of the charts,

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Speaker 1: that the dots going forward, that you know, there is

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Speaker 1: an implicit recognition that longer term, the inflation path and

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Speaker 1: the interest rate path is going to be sticky.

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Speaker 3: There's kind of an.

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Speaker 1: Implicit recognition that we are likely going to see a

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Speaker 1: higher neutral rate level. He didn't explicitly say that, but

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Speaker 1: if you look at the dots, it's there. The inflation

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Speaker 1: numbers actually slightly adjusted upwards for the next two years

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Speaker 1: to come, and I think that's going to be the

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Speaker 1: real story here. We are going to touch two percent.

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Speaker 1: Inflation is coming down quickly, but it's mostly a goods

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Speaker 1: inflation story. The real question where does service inflation settle

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Speaker 1: going forward?

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Speaker 2: Yeah, and actually this is I mean one of my

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Speaker 2: favorite authors is John Authors, and he has a beautifully

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Speaker 2: laid out, of course exactly what you're saying, what does

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Speaker 2: it mean for the economy, And there's an assumption base case,

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Speaker 2: but frankly completely priced in the markets that we have

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Speaker 2: a soft landing.

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Speaker 3: Well, we'll have.

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Speaker 1: I think what we will not have is a kind

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Speaker 1: of what I would call an immacul landing. We know

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Speaker 1: we're not going to We're unlikely to get a perfect

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Speaker 1: sort of two percent inflation and no weakness whatsoever rates

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Speaker 1: going back to levels that we've seen before. The supply

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Speaker 1: constraints that you and I have talked a lot about

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Speaker 1: in the last couple of years are still.

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Speaker 3: Going to be there.

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Speaker 1: So I think the challenge is how do we get

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Speaker 1: out of a kind of longer, higher for longer environment

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Speaker 1: with relatively sticky inflation, which will lead to a situation where,

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Speaker 1: unlike in the past where central banks had a kind

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Speaker 1: of permanent bias to ease, they may have a longer

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Speaker 1: term permanent bias to Titan. And one of the answers,

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Speaker 1: of course, of this dilemma would be a boost in productivity.

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Speaker 1: And I think that to me is the big kind

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Speaker 1: of longer term question. Do we get a boost in

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Speaker 1: productivity coming from AI or something else? That kind of

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Speaker 1: gets us out of this constrained environment of relatively low growth,

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Speaker 1: relatively high rates, and relatively sticky inflation.

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Speaker 2: Yeah, and productivity in the US is actually anon tear.

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Speaker 2: We're listening to Thomas Jordan of v SMB saying that

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Speaker 2: they will of course adjust monetary policy again if necessary.

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Speaker 2: How much do you look at gold, Philip, I mean

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Speaker 2: gold at a record high. I don't know if it's

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Speaker 2: symptomatic of actually, you know, traders or other central banks

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Speaker 2: not trusting the FED, and whether that's a debt problem.

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Speaker 1: Look that gold is always a kind of a gauge

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Speaker 1: of risk and uncertainty in the world. That we in

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Speaker 1: a very uncertain, very risky world, not just with regard

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Speaker 1: to where inflation will settle, but with regard to a

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Speaker 1: new trade order, fractured geopolitics. We have wars going on,

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Speaker 1: we have very high debt levels. Undoubtedly, the US fiscal

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Speaker 1: situation has deteriorate it, of course quite dramatically in the

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Speaker 1: last couple of years. It has helped in terms of

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Speaker 1: the resilience of growth. You can see that Europe has

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Speaker 1: much weaker growth because it didn't get as much fiscal stimulus.

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Speaker 3: The price to pay is the debt.

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Speaker 1: So I do think there are just lots of sources

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Speaker 1: of risk and uncertainty that are embedded in the global economy,

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Speaker 1: and that's what I read into the goal price, rather

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Speaker 1: than any kind of monetary or policy implication per se.

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Speaker 2: So we're talking a little bit about Chris the FED,

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Speaker 2: We're talking about productivities and of the challenges, and we're

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Speaker 2: certainly talking about the Swiss National Bank. It's a pretty big,

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Speaker 2: big week actually, because we have the S and B,

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Speaker 2: the first major central bank toccount, and then we have

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Speaker 2: the bank in Japan. Now it's largely gone unnoticed by

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Speaker 2: the markets, was telegraphed, but after seventeen years, I mean,

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Speaker 2: are there lessons that we take from boj and the

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Speaker 2: way they tried to reflate the economy.

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Speaker 1: I think it's kind of a textbook case, frankly, of

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Speaker 1: how you get out of an extreme and extremely long

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Speaker 1: regime into a new one. Now, in practice, of course,

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Speaker 1: it was kind of as you said, it was gradual,

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Speaker 1: but nonetheless I think it was done in a It

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Speaker 1: was really a masterclass in how you move from a

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Speaker 1: very entrenched policy stands to a new one while keeping

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Speaker 1: all the options open and not rattling the market. So

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Speaker 1: to me, this really was a masterclass by Governor Ueda.

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Speaker 2: When you look at some of the I guess the

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Speaker 2: outside forces. It can be politics, it can be you know, geopolitics,

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Speaker 2: the resurgence or uncertainty surrounding China, and it's AI. How

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Speaker 2: does that influence how the markets participate and what kind

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Speaker 2: of economies were left with.

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Speaker 1: The easiest way to think about it is if you

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Speaker 1: look at a lot of what is priced in today,

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Speaker 1: particularly in risk assets, there is a sense that we

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Speaker 1: are going to somehow come out of this low growth,

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Speaker 1: sticky inflation, high rate or higher rate environment. You know,

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Speaker 1: I think that assumption is implicit in the kind of

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Speaker 1: very optimistic pricing that we see in markets, which, by

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Speaker 1: the way, I think looks like it's set to continue

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Speaker 1: giving the feeds communication yesterday. And implicit in that is

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Speaker 1: something is going to help us get out of this

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Speaker 1: supply constrained world that leads to higher rates, lower growth,

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Speaker 1: and stickier inflation. And the obvious candidate for it is,

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Speaker 1: of course a productivity boost that comes from AI.

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Speaker 3: It could come from somewhere else, you know.

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Speaker 1: Productivity boosts by definition kind of come from innovation, which

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Speaker 1: we can predict, but that seems to be the most

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Speaker 1: likely story. So I think the most interesting thing to

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Speaker 1: do in the years and months and years to come

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Speaker 1: is to sort of observe what can we see in

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Speaker 1: the data that gives us more or less confidence that

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Speaker 1: this unfolding of a productivity boost is actually going to happen.

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Speaker 1: To put it differently, the world needs it desperately, frankly,

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Speaker 1: because the new geopolitical regime of constraint production capacity is

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Speaker 1: an uncomfortable one, and the one way to get out

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Speaker 1: of it is you get a boost in productivity that

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Speaker 1: then raises an increase is production capacity of the world economy.

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Speaker 2: Is there a danger that actually the US takes advantage

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Speaker 2: of this more than anyone else and we've seen the

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Speaker 2: numbers we've seen on shoring. Well, you know, we're rushing

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Speaker 2: the end of multilateralism, and so you have, you know,

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Speaker 2: a very strong US economy and the rest.

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Speaker 3: Of the world is kind of scrapping for pieces. There

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Speaker 3: is a clear danger of that. If you look at

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Speaker 3: the Internet.

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Speaker 1: Boom, right, that raised productivity probably by fifteen percent something

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Speaker 1: like that, and of course created these enormous companies that

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Speaker 1: we now all know in the US, and then we

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Speaker 1: had the energy shock, which was a big disadvantage for

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Speaker 1: your relative to the US. You know, there's a risk

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Speaker 1: on industrial competitiveness for Europe. I think that is very

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Speaker 1: in my view, very significant. So yes, I think this

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Speaker 1: has to be a wake up call for the rest

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Speaker 1: of the world, particularly for Europe, to make sure that

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Speaker 1: the next big boom in a sense that will create

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Speaker 1: the next set of big companies, the next source of

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Speaker 1: job growth doesn't again happen almost entirely in the US.

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Speaker 1: The tech story was largely missed by Europe, and the

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Speaker 1: result is today you have almost you know, maybe one,

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Speaker 1: if at all, kind of major tech company in Europe.

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Speaker 1: What you want to make sure is that from a

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Speaker 1: European perspective, that this doesn't happen again. If AI is

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Speaker 1: to be the next big source of productivity, we'll see

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Speaker 1: this is hard to predict, but I do think what

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Speaker 1: we can say today is that the world needs quite desperately,

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Speaker 1: in my view, a new source of productivity, a new

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Speaker 1: boost of productivity so that we can overcome some of

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Speaker 1: the constraints on production capacity that we see in the

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Speaker 1: world economy as a result of the new fract mental world.

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Speaker 2: We also, of course that Black Rock with the JPDO

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Speaker 2: is trying to grow in private markets.

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Speaker 3: So if this is the future, it changes.

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Speaker 2: Also the way you know, banks operate. I mean, it

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Speaker 2: kind of changes a whole construct right of the financial world.

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Speaker 1: Yeah, I think we're you know, we've seen for some

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Speaker 1: time we call this one of the one of the

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Speaker 1: several mega trends or mega forces. Of course, the kind

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Speaker 1: of disintermediation in essence from the banking system towards capital markets,

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Speaker 1: which has many advantages that poses challenges of course for banks,

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Speaker 1: And I think you know, one of the advantages here

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Speaker 1: is that private markets are growing one of the areas

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Speaker 1: that the world is going to need desperately in the

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Speaker 1: years to come as infrastructure, at a time when fiscal

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Speaker 1: capabilities of the major countries are really strained, quite severely

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Speaker 1: strained as a result of all the crisis fighting that

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Speaker 1: we've had, and so the notion that you have to

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Speaker 1: find ways to mobilize private capital, you public capital to

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Speaker 1: incentivize it, and then mobilize private capital at scale in

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Speaker 1: order to fund all the infrastructure investment needs that are

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Speaker 1: clearly out there, whether it's in this country or frankly

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Speaker 1: almost any other country that we see as a great

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Speaker 1: opportunity for our clients, which is why we've made a

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Speaker 1: big effort to become a more important significant player in

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Speaker 1: the space of infrastructure, investing four and a half billion.

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Speaker 3: Are going to the polls.

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Speaker 2: The US election probably the biggest one, well you can

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Speaker 2: see the biggest shift. But there's the European Parliament elections,

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Speaker 2: there's in the UK.

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Speaker 3: What does this mean for markets.

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Speaker 1: Well, it's a great source of uncertainty. I think for

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Speaker 1: the world at large, it means how do you think

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Speaker 1: about the United States? Thus the United States continue to

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Speaker 1: be the guardian of humanity's interests? Can you rely on

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Speaker 1: the old security arrangements, even on the old monetary arrangements,

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Speaker 1: the Bretton Wood system? You think about the international organizations,

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Speaker 1: they all came out of a world where the US,

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Speaker 1: in sort of enlightened self interest, created a system that served.

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Speaker 3: The world well.

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Speaker 1: And I think the big question that will be answered

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Speaker 1: not just in November this year, but frankly over the

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Speaker 1: years to come is to what extent do we continue

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Speaker 1: to live in that kind of world or are we

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Speaker 1: really moving on a sustained basis to a much more

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Speaker 1: fragmented world where different regions, different countries have to become

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Speaker 1: in essence more self reliant, and that would imply, of course,

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Speaker 1: vast adjustment calls.

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Speaker 3: Just think of security alone.

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Speaker 1: If that were to be the case for Europe, this

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Speaker 1: would imply major, major investments in security, a very different world.

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Speaker 1: So you know, to me, the big question here is

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Speaker 1: I think it was Henry Kissinger who said the holiday

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Speaker 1: from history is over at some point shortly before he passed.

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Speaker 3: Do we have to prepare for.

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Speaker 1: A completely different world where the role of the United

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Speaker 1: States is a different one? You and I and the

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Speaker 1: previous generation have really become used.

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Speaker 3: To since World War Two.

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Speaker 2: Philip, thank you so much, and of course I go

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Speaker 2: to the cost of money and everything else. We'll have

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Speaker 2: to get you back on really so I could speak

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Speaker 2: to you for another three hours, but we do have

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Speaker 2: other news to cover. Philip Hildebaran, the Blackrock vice chair,