Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane.
Speaker 1: Daily we bring you insight from the best in economics, finance, investment,
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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg James
Speaker 1: Sweeney was with Credit Sweete his wonderful call a number
Speaker 1: of years ago, fear not of deflation, He joins us
Speaker 1: now the chief economists for Credit Sweete, James Sweeney, Should
Speaker 1: we fear inflation? I don't think so. I think we
Speaker 1: may get it. I think the risks of of inflation,
Speaker 1: of higher inflation down the road are certainly going up
Speaker 1: with all this policy. But I'm not sure there's anything
Speaker 1: really to fear there. Well, there's not the fear there,
Speaker 1: but then there's a rate of change. In Antonian analysis
Speaker 1: of all this, I mean, I don't really see. I
Speaker 1: do see the vector of five year five years. I
Speaker 1: get it. It's an impulse higher inflation. But do you
Speaker 1: see your rate of change that causes concern? I don't.
Speaker 1: I think where the global fixed income market is leaves
Speaker 1: supply and demand supported for lower long term yealds. So
Speaker 1: I think they can go up, but I don't think
Speaker 1: they're gonna go up a hundred basis points. I don't
Speaker 1: think they're gonna go up enough to imparallel housing recovery
Speaker 1: or anything like that. James, I assume you read the
Speaker 1: pace from Larry Summers on Friday and to the weekend,
Speaker 1: and it's huge debate everybody's having right now. Can you
Speaker 1: weigh in on that just a little bit more for us, James,
Speaker 1: you'll take and why you sit on this discussion right now? Well,
Speaker 1: I mean I've been looking for the package to come
Speaker 1: down from one point nine trillion. At one point nine
Speaker 1: is is very large. Um So you know this is uh,
Speaker 1: this is this is stimulative relief. It's it's stimulus, and
Speaker 1: it's true. And I think we look ahead to next year.
Speaker 1: I think it is realistic to get back to full
Speaker 1: employment in two thousand twenty two. We're gonna have a
Speaker 1: little overshoot and inflation in the coming months. It is
Speaker 1: possible that we have inflation running above two percent, maybe
Speaker 1: a decent amount above two for the next twelve months. Um,
Speaker 1: we'll take it. I mean, these are these are good things.
Speaker 1: Um So I I think, yes, we may get overheated.
Speaker 1: We may get very volatile markets, we may get a
Speaker 1: cyclical whip Shaw in the economy. Um, so you're you're
Speaker 1: putting more cyclicality into growth. So there's a lot of
Speaker 1: volatility in a bill of this size, But volatility is
Speaker 1: not you know, a significant cost given the objectives involved here,
Speaker 1: which is really to get the economy back to full employment.
Speaker 1: Uh and and maybe to soothe some of its distributional consequences.
Speaker 1: Do you take issue with size alone, though, James, Or
Speaker 1: is it the composition of it as well? Oh? Composition
Speaker 1: is quite important. And and actually I would say I
Speaker 1: think about this as part one because it's clear than
Speaker 1: when that because this gets past, the administration is going
Speaker 1: to start focusing on a long term stimulus bill with
Speaker 1: green energy and infrastructure and and all that. So there's
Speaker 1: a balance between immediate stimulus, how much cash drop is
Speaker 1: in that immediate stimulus, and then what is the long
Speaker 1: term implication including the later package. Because I don't think
Speaker 1: you can think about the results of this bill, uh
Speaker 1: and the politics of this bill without realizing what's up next.
Speaker 1: So these are these are all big things, and and
Speaker 1: this is a major increase in the projected growth of
Speaker 1: the economy in the in the next few years, if
Speaker 1: both of these bills get through, and even if this
Speaker 1: one just gets through at a one point non trillion
Speaker 1: size or something close to it, James, let's talk a
Speaker 1: little bit more about composition, and I want to follow
Speaker 1: up on something John was talking about. You rightly identified
Speaker 1: the way that Democrats are painting at the checks is
Speaker 1: something perhaps a bit more than just relief, but also
Speaker 1: evening out that K shaped recovery. It is a very
Speaker 1: important point. Is the Democratic Party framing this wrong? Is
Speaker 1: there a cleaner economic argument for the money to be
Speaker 1: going to lower income families in it they will be
Speaker 1: spending it more and more quickly. Whereas if you have
Speaker 1: a certain threshold, a certain cut off that's even known,
Speaker 1: that will go directly into savings. Well, it's clear that
Speaker 1: this at one point nine trillion, or even a little
Speaker 1: bit below that this is gonna be enough money to
Speaker 1: boost savings, to boost current spending, to help balance sheets,
Speaker 1: and to boost future spending when we finally get into
Speaker 1: a proper services recovery. I think the distribution of this,
Speaker 1: especially with the payments, is going to be a very
Speaker 1: large improvement in the short term prospects of of people
Speaker 1: with you know, the bottom half of the income distribution.
Speaker 1: How they emphasize that, I think that's a political question.
Speaker 1: They're just trying to get it past. I think the
Speaker 1: beneficiaries of those checks are gonna they don't care about,
Speaker 1: you know, the political operations and how they get it through.
Speaker 1: They just want to get it through. They want to
Speaker 1: get this check, and they want to get through this pandemic,
Speaker 1: uh and get onto normal life again later this year. James,
Speaker 1: you agree with what Jenny I was saying over the
Speaker 1: weekend on Meet the Press when she was saying that
Speaker 1: if they pass this bill, we could get to full
Speaker 1: employment by perhaps next year. I think we can easily
Speaker 1: get the five percent unemployment by the end of this
Speaker 1: year with this bill, and I think late next year
Speaker 1: four percent is within reach. I think full employment is
Speaker 1: around four percent. I think it's a reasonable thing for
Speaker 1: her to say yes. And like I said, I think
Speaker 1: that next fiscal bill is going to be right around
Speaker 1: the corner. I think in three months we're gonna be
Speaker 1: talking about green energy and infrastructure. So this is this
Speaker 1: is really just the starts. The question then, is how
Speaker 1: to financial markets start to move in response to all that?
Speaker 1: Do we see meaningfully higher interest rates, inflation, etcetera. So
Speaker 1: this this really is changing the macro outlook very substantially. James,
Speaker 1: what is the inflation partition services and goods? What's that
Speaker 1: dynamic right now? Where do you foresee it to be
Speaker 1: in the next twelve months? Sure, well, right now we've
Speaker 1: had we've had a larger jump in goods inflation than
Speaker 1: services inflation because for the obvious reason that that good
Speaker 1: spending has been very strong, services spending remains lackluster due
Speaker 1: to the pandemic. We've all heard about this base effect
Speaker 1: coming in in the next few months. So core inflation
Speaker 1: inflation measures are really around the world. They're gonna be
Speaker 1: going up into June. But actually it's gonna be more
Speaker 1: pronounced at this goods versus services level. Goods inflation, non
Speaker 1: services inflation is really gonna jump. P p I inflation
Speaker 1: measures looking at intermediate goods things like that are going
Speaker 1: to really jump in the next few months. As we
Speaker 1: get into the end of the year. Maybe there's gonna
Speaker 1: be shortages of restaurant tables and flights, and then you
Speaker 1: can actually get some services inflation. But we need a
Speaker 1: pandemic recovery for that relative price shot to start to
Speaker 1: switch around. James Wilson's to catch up as always. Good
Speaker 1: to see you, buddy, James Sweeney, The chronis Sway chief economist,
Speaker 1: David Rosenberg and Rosenberg Research, and we're thrilled a good
Speaker 1: joint us today. David. When you partition our present inflation
Speaker 1: and our expectations of inflation, what do you see? Well, look,
Speaker 1: what we see is a you know, the break even
Speaker 1: levels Nutinior Treasury, you know, getting as high, uh, you
Speaker 1: know as they were practically uh, you know, attending to
Speaker 1: the peak of the last cycle. So you know, we're
Speaker 1: already well above two uh. And the market is pricing
Speaker 1: in you know, not just a significant econmount of recovery,
Speaker 1: but alongside that the closing of the output gap earlier
Speaker 1: than expected, and these inflacement expectations. I mean, the company
Speaker 1: by surprise, how quickly the market is priced in an
Speaker 1: inflation cycle so quickly, I think it's way overdone. Um.
Speaker 1: But you know, the big question isn't so much the
Speaker 1: one point nine trillion dollars. It's really ultimately how much
Speaker 1: of that one point nine trillion dollars filters through into
Speaker 1: the economy. And I would have thought actually that the
Speaker 1: markets have recognize the survey that the New York Said
Speaker 1: did a little while ago, uh, following the Cares Act,
Speaker 1: that found that only of that stimulus sound as play
Speaker 1: into the economy. You know, the rest went into savings.
Speaker 1: I guess you could say in the deadcoin and the
Speaker 1: game stock in the stock market baving, and the rest
Speaker 1: went into a debt paid down. Like what I can't
Speaker 1: correlate is desk in terms of the market mindset, how
Speaker 1: are we going to get inflation as the household sector
Speaker 1: is deleveraging unless the marketing ex temporary household household household
Speaker 1: demand for bank credit is running negative three year of
Speaker 1: the year negative three, and people think that's going to
Speaker 1: be inflationary. You're taking a different tech. Can you buy
Speaker 1: bill notes and bonds today? Can you buy today for
Speaker 1: price up, yield lower? Well, I think we're heading into
Speaker 1: a very attractive buying opportunity at the long end of
Speaker 1: the curve. I mean it's your bullish on bonds. I
Speaker 1: be heading towards the thirty year, which, as you said,
Speaker 1: touch two percent today. The bottom line here is that
Speaker 1: the set is not going to be plaid in policy
Speaker 1: for a long period of time, so there's no risk
Speaker 1: that the cost of carry is going to go up.
Speaker 1: The big debate is really is about inflation. Um. But
Speaker 1: you've got a market right now that's price for inflation
Speaker 1: heading to the peak we had the last cycle co inflation,
Speaker 1: and I think that's gonna still be very difficult to
Speaker 1: achieve even with the fiscal stimula. David. Let's build on this.
Speaker 1: When we're talking about inflation, as you correctly point out,
Speaker 1: we're talking about market based inflation expectations. How useful are they, David?
Speaker 1: How useful have they ever been? Given where we are
Speaker 1: right now? How do you move ten year inflation expectations
Speaker 1: based on what's happened in the last couple of weeks. Well, look,
Speaker 1: the biggest correlation between the break even is with the
Speaker 1: CRB index and UM. Of course that's real time Vieto.
Speaker 1: People don't see is that the biggest component of the CPI,
Speaker 1: and course CPI is rent and Bacon's reach are going up.
Speaker 1: The rental inflation is melting, and that's going to be dominating, UM.
Speaker 1: But the renal data don't come out as quickly on
Speaker 1: your Bloomberg at terminal as the CREB index. And we
Speaker 1: have a commodity boommate going on. But we had we
Speaker 1: had four or five of these commodity cycles just in
Speaker 1: the previous ten years, and that cycle from O nine
Speaker 1: and two thousand nineteen we have four or five. Incredible
Speaker 1: They look like sign ways, and people get caught offside
Speaker 1: because they believe that we're going to get inflations around
Speaker 1: the corner. Uh. And then what was the dominant feature
Speaker 1: of the last cycle? Did we get cyclical inflation? Yes,
Speaker 1: we've got some of it. But the bigger picture is
Speaker 1: that from O nine and two thousand nineteen, despite all
Speaker 1: the good dances went fiscal stimulus we had and all
Speaker 1: the monetary stimulus we had and the quintupling of the
Speaker 1: stock market, the peak and cor inflation last cycle was
Speaker 1: two point four percent. To me, the big picture is
Speaker 1: that you've got to go back to century to find
Speaker 1: that find the last time cor inflation peaked at such
Speaker 1: a low level, and we're getting to the break evens
Speaker 1: heading back to that right now. So I think that's
Speaker 1: a great buying opportunity to market right knows pricing in
Speaker 1: peak cor inflation from the last cycle when the unemployment
Speaker 1: rate was three point five percent not six point three percent,
Speaker 1: So to me, this is a great opportunity to get
Speaker 1: back into the long end of the curve. David, to
Speaker 1: build on what John was talking about, there's a difference
Speaker 1: between inflation expectations and actual belief in inflation that's being
Speaker 1: borne out throughout markets. How consistent is the reflation trade
Speaker 1: throughout all asset classes or is it mostly tied to
Speaker 1: break even and a specific subset of the market. Well, look,
Speaker 1: I think that you're seeing it across you know, a
Speaker 1: broad array of asset classes. I mean, you've got the
Speaker 1: reflation inflation trade in small cap stocks, You're seeing it
Speaker 1: in commodities. You're seeing that how value as I'll performed
Speaker 1: growth for the better part of the past few months,
Speaker 1: So it's not just in the bond market. Um, the
Speaker 1: inflation expectations and I've only been feeling called now in
Speaker 1: the past a couple of weeks over whether the inflation
Speaker 1: story is going to be the real story. I think
Speaker 1: it's us to meet to have faith. I think that
Speaker 1: the class will be about the inflation doesn't come back.
Speaker 1: That's what the people think. But it's really endemical class.
Speaker 1: Almost every after class you've seen you right now ready
Speaker 1: looking forward to getting you back to David. Always enjoy
Speaker 1: catching up. Thanks for being with us this morning. David
Speaker 1: Rosenberg there of Rosenberg Research, and Rita sent is a
Speaker 1: joy to speak to with energy aspects. What she does
Speaker 1: better maybe than anybody out there, is the elasticity the
Speaker 1: responsiveness of supply and demand worldwide. She joins us this morning,
Speaker 1: Amrita Sent, I think you nail it would demand elasticity
Speaker 1: being an absolute mystery. How much of a mystery is
Speaker 1: it right now? Oh, it continues to be a mystery.
Speaker 1: I don't think COVID has really helped the situation because
Speaker 1: you know, even when you had nine of the of
Speaker 1: a manufacturing down or industrial production shot in this was
Speaker 1: around March April last year, oil demand only felt by.
Speaker 1: It does show you how in elastic al demand is
Speaker 1: right now. Globally, all demand is down about five million
Speaker 1: barrels per day year on year um which, again, given
Speaker 1: the scale of relative lockdowns that we're still talking about,
Speaker 1: even in places like China, it is doing very very well.
Speaker 1: I think the cold weather has also really helped. We've
Speaker 1: seen l en G prices in Asia hit record highs
Speaker 1: and as a result, a lot of power plants there
Speaker 1: have switched to liquids of fuel oil LPG. That's been
Speaker 1: boosting oil as well. And now, of course in Europe
Speaker 1: and US you've also had a cold blast, so there's
Speaker 1: definitely support for heating fuels that's potentially masking some of
Speaker 1: the weakness elsewhere. Like you know, you guys just talked
Speaker 1: about airlines. Jet fuel demand isn't recovering anytime soon, but
Speaker 1: I do think the colder weather has helped at least
Speaker 1: mask part of that weakness. That's the demand side. Then
Speaker 1: there's also the supply side, the idea that OPEC plus
Speaker 1: has maintained certain output cuts and that shale producers in
Speaker 1: the United States are actually producing almost a fifth less
Speaker 1: oil then they were, say a year ago, or you know,
Speaker 1: ahead of the pandemic. How high oil prices get before
Speaker 1: all of that supply starts coming up flooding online. I
Speaker 1: think that's a million dollar question right now. I think
Speaker 1: you're exactly right. Supply has been a very critical factor.
Speaker 1: And I think full marks to OPEC for how they've
Speaker 1: handled the market. Uh, this is very much their achievement
Speaker 1: and and they will take a lot of credit for this.
Speaker 1: Saudi Arabian particular coming in with that million barrels of
Speaker 1: voluntary cuts. Uh, they will start bringing that back from
Speaker 1: April onwards. But to your point, shale production, we don't
Speaker 1: think it's going to go back to the pre COVID
Speaker 1: levels anytime soon, if ever, because they are more focused
Speaker 1: on discipline or product the shareholder returns right now. I
Speaker 1: think in terms of oil prices, part of the problem
Speaker 1: is that the market can see this rebound and demand
Speaker 1: coming and supplies remaining tight exactly what we're talking about
Speaker 1: right now. But we aren't really going to see the
Speaker 1: actual demand recovery till qto potentially even the second half
Speaker 1: of the year. But this is the futures market. We
Speaker 1: always discount stuff that's going to happen in the future. Now,
Speaker 1: that's why prices are rallying right now. Should prices today
Speaker 1: b sixty dollars, No, But we're trading April futures, and yes,
Speaker 1: things will sequentially get better. Remember, we've also got a
Speaker 1: very very like easy monetary policy, so much liquidity in
Speaker 1: the system. We've always called for eighty dollar plus oil
Speaker 1: in maybe that is hundred dollars now, given how much
Speaker 1: liquidity there is in the system, I wouldn't rule that out.
Speaker 1: We've been talking I'm read of this whole program about
Speaker 1: how people are doubling down on this reflation trade, the
Speaker 1: recovery trade. And you do have some naysayers, David Rosenberg
Speaker 1: among them, and also Mike Muller of v Toll, of
Speaker 1: the Asian operations. He said over the weekend, the market
Speaker 1: is getting ahead of itself when it talks about oil
Speaker 1: prices going much higher from here. Do you agree? I
Speaker 1: do think if you look at prompt fundamentals, yes, the
Speaker 1: market has gotten ahead of itself because right now demand
Speaker 1: is still relatively weak. It is going to get better.
Speaker 1: But again, this is a reflection trade. People are not
Speaker 1: going to wait for the event to happen to position.
Speaker 1: Why not position now? If you know if airlines will
Speaker 1: reopen whenever, that is, if not Q two, it will
Speaker 1: be Q three or Q four. And I think that
Speaker 1: is part of the problem. You've seen this across asset
Speaker 1: classes right that. The reflection trade, to your point, is
Speaker 1: very much in vogue. However, above sixty dollars there will
Speaker 1: be headwinds from supply. Yes, US production may not go
Speaker 1: back to levels, but it will start to rise, or
Speaker 1: PAK compliance might start to slip a little bit as well,
Speaker 1: So yes, I can. I don't think this is going
Speaker 1: to be a straight line higher. We are also very
Speaker 1: cautious around the prompt. There's still a lot of unsold
Speaker 1: barrels in West Africa, for instance, But it doesn't take
Speaker 1: away from the fact that the second half of the
Speaker 1: year does look much much healthier in terms of demands.
Speaker 1: Set the scene two hundred dollar crude next year, second
Speaker 1: year of the Biden presidency. Some kine it was no
Speaker 1: doubtor of a nissance macro last week. Who I think now?
Speaker 1: Did park the politics? Get rid of the politics when
Speaker 1: you start to make market calls, because if you made
Speaker 1: a market call based on the politics, you wouldn't be
Speaker 1: eighty two on crude. I mean, I mean freeing this out.
Speaker 1: There's a trading range seventy eight. No one believes in that.
Speaker 1: And then as John mentions, there's a migration back to
Speaker 1: a hundred, no one believes in that. How likely is it?
Speaker 1: Look that's an outside chance. I don't think the hundred
Speaker 1: is a base case at all for us. The base
Speaker 1: case has always been around eighty dollars next year for
Speaker 1: the simple reason that a demand is going to go
Speaker 1: back to pre COVID levels b we've even got around
Speaker 1: coming back. We've just put out a noteying Iranian production
Speaker 1: will probably come back by more in the second half
Speaker 1: of the year. We've always been very clear on the
Speaker 1: timeline that it's not going to come back before June.
Speaker 1: But with the Biden presidency or administration rather engaging or
Speaker 1: likely to engage with Iran, volumes will start to come back.
Speaker 1: But then once Iran is back, there's very little specupacity
Speaker 1: in the system. OPEC will continue to bring oil back
Speaker 1: to the market, but no OPEC supplies which nobody talks about.
Speaker 1: There's no investment. Everybody is going after net zero. Everybody
Speaker 1: wants to be in the green age or has to
Speaker 1: be guided by the Green agenda. If there's no investment
Speaker 1: in the upstream, where is the marginal barrel of supply
Speaker 1: going to come from once OPEC has exhausted whatever it
Speaker 1: can bring on to meet the increase in demand. That's
Speaker 1: the question for next year. And rates always great to
Speaker 1: catch up come back, saying rate a cent of energy
Speaker 1: aspects down the CREWD market. Let's go to serious economic matters.
Speaker 1: Ethan Harris with the Bank of America running all of
Speaker 1: their economic research Ethan, I like how you and Michelle
Speaker 1: Meyer do the math. Four percent of g d P
Speaker 1: plus nine percent of g d P is a Larry
Speaker 1: Summer's impulse of g d P. Is that too much? Well,
Speaker 1: it's unprecedented. I mean if you take the two packages together,
Speaker 1: the one past December and one on the table, now,
Speaker 1: it's as big as what we did last spring when
Speaker 1: the economy was in free fall, when the unemployment rate
Speaker 1: was fourteen point three percent. Now the unemployment rate it's
Speaker 1: only six point three. Just these two packages, not including
Speaker 1: all the stuff they did last year, just these two
Speaker 1: packages are much more than double what the US did
Speaker 1: in two nine recession. So um, I've described this as
Speaker 1: clients as it's like the big gulp at seven eleven.
Speaker 1: I would know about that. Well, this is like drinking
Speaker 1: two of those Okay, Well, Ethan, you know on the
Speaker 1: big gulf. I I look at the other debate, which
Speaker 1: is an open and closed economy, and that some of
Speaker 1: the economic templates of the past are much more closed
Speaker 1: economies that are not international. How does that fiscal stimulus
Speaker 1: affect America if we are much more an open economy? Now, well,
Speaker 1: I mean when you put that kind of demand stamulus
Speaker 1: in the economy. And by the way, it's not going
Speaker 1: to show up right away. It's going to show up
Speaker 1: when we reopened the service sector and all the money
Speaker 1: that people have been holding in their bank accounts goes
Speaker 1: out into spending. But yeah, I mean a lot of
Speaker 1: it's gonna leak overseas in terms of stronger trade. Um,
Speaker 1: it's gonna provide a modest boost to go global growth,
Speaker 1: but you know, we still are relatively closed economy. It's
Speaker 1: going to be very service focused spending. All the stuff
Speaker 1: that we've been unable to buy for a year now
Speaker 1: that will boom. Uh, and that's mainly domestic spending, So
Speaker 1: it's it's going to spill over, but most of it's
Speaker 1: going to stay at home. Even how much is two
Speaker 1: thousand and nine a correct comparison that we should be
Speaker 1: looking at, both in terms of the of the nature
Speaker 1: of the shock as well as how quickly the economy
Speaker 1: accelerated afterwards. In other words, a lot of people said
Speaker 1: we didn't move quickly enough, and that's why the recovery
Speaker 1: took so long. This time, we want to fix that mistake.
Speaker 1: What's your take? Well, I think that that it's correct
Speaker 1: that there wasn't enough escill stimulus in two thousand nine,
Speaker 1: and and we knew it at the time. We knew
Speaker 1: that uh six percent of GDP stimus was inadequate given
Speaker 1: how massive the recession was. And the other thing we
Speaker 1: knew is that they gave up too early. Um, they
Speaker 1: stopped doing additional fiscal stimulus when the unemployment rate was
Speaker 1: still over nine percent, and there was no follow through
Speaker 1: at all. But I think people are looking back at
Speaker 1: that and not taking the lesson right. We're not waiting,
Speaker 1: We're not sitting here at nine percent unemployment. We're down
Speaker 1: to six point three and we haven't even felt the
Speaker 1: effects of the latest package. So this is um a
Speaker 1: very strong reaction to what was a policy mistake back
Speaker 1: in two thousand nine. The other thing I would point
Speaker 1: out is in two thousand nine, one reason you had
Speaker 1: such a crummy recovery was because he had a banking
Speaker 1: in real estate crisis. And we know that those crises
Speaker 1: always produced weak recoveries. There's a lot of economic historians
Speaker 1: have written about this. This is different. We don't have
Speaker 1: a banking real estate crisis. We have a healthy banking
Speaker 1: and real estate sector. So once the economy gets going,
Speaker 1: you're gonna have a more normal recovery with or without
Speaker 1: the stimulus. So the two thousand nine analogy sounds great
Speaker 1: as a talking point, but when you look at the
Speaker 1: details of it, it's hard to justify. You know, it
Speaker 1: seems like an overreaction to that historic experience. So are
Speaker 1: you saying even that you think that the high asset
Speaker 1: prices that the FED is allowing to continue actually help
Speaker 1: them achieve their goal of lower employment and higher inflation. Well,
Speaker 1: I mean, you know, we've got both the FED and
Speaker 1: physical authorities with their pedal to the metal. It's like
Speaker 1: you've got two accelerators and no break. Um, So that's
Speaker 1: gonna be very stimulus to cap stimulustic to capital markets. UM.
Speaker 1: I think the danger here is not in the immediate
Speaker 1: the immediate future, but more you know, at what point
Speaker 1: do we kind of say, okay, now we need to
Speaker 1: apply some breaking here. We were starting to get a
Speaker 1: little bit of inflation in the system. Um, how do
Speaker 1: the markets adapt? Yeah, the sad starts hiking. Um. You know,
Speaker 1: I think it makes more sense to go slower. I
Speaker 1: think ethan Over the last year, there's been a huge
Speaker 1: conversation about how Wow the Treasury is working with the
Speaker 1: Central Bank in the UK, in Europe, in the United
Speaker 1: States as well, but there's some tension there too. The
Speaker 1: objective of the Federal Reserve has been to divorce asset
Speaker 1: prices from fundamentals that have been successful. That was a
Speaker 1: policy objective to boost asset prices. And we know what
Speaker 1: that's at the expense of that's a tackling wealth inequality.
Speaker 1: Wealth inequality now is a target of the Treasury. How
Speaker 1: do you track that and how did they execute? How
Speaker 1: are you thinking about that issue at the moment? Ethan Well,
Speaker 1: I think that I think tackling inequalities an extremely important
Speaker 1: and I you know, I think it's a It's a
Speaker 1: very important policy objective. The question is how do you
Speaker 1: do it right? I mean, you you a dress it
Speaker 1: through edge Haitian, through income distribution changes, you know, progressive
Speaker 1: tax system, um. You know, those are the areas where
Speaker 1: you can affect performance at the low end without overheating
Speaker 1: the economy. I don't think you address any quality by
Speaker 1: creating a huge boom that eventually creates inflation. I think
Speaker 1: that that's not a lasting solution. The solution has to
Speaker 1: be education and redistributive tax policies, and we all can
Speaker 1: agree or disagree on that from a political point of view,
Speaker 1: but those are the tools for the task, not not
Speaker 1: massive monetary and fiscal standards. So even from your perspective,
Speaker 1: then it sounds like that you would be in the
Speaker 1: campillarity summers on the composition of this probagram that's been
Speaker 1: put together down to d C. Yeah, I agree that
Speaker 1: they've they're pushing a little too hard here. I think
Speaker 1: that the UM I think that we need. I'd love
Speaker 1: to see what the economy looks like two quarters from now,
Speaker 1: when we're reopened and people have been vaccinated, UH, service
Speaker 1: sectors coming back, UM, and then you can figure out
Speaker 1: whether you've really done enough or not. UM. It doesn't
Speaker 1: mean we don't need any fiscal stimulus. We need to
Speaker 1: address the most hurt parts of the economy. But giving
Speaker 1: stimulus dollars to people who are doing well only goes
Speaker 1: into bank accounts and also comes out the other end
Speaker 1: when the economy recovers. What is your GDP called twelve
Speaker 1: months forward? I've really lost sight of it, Ethan. It's
Speaker 1: because right, so we've got growth this year six percent UM.
Speaker 1: The Bloomberg consensus is four point one right now, so
Speaker 1: we think consensus has got a lot of catching up
Speaker 1: to do. And then we've got four and a half
Speaker 1: percent growth next year. But those are some that's based
Speaker 1: on our assumption that only half of the one point
Speaker 1: nine trillion would actually be enacted. UM. If the whole
Speaker 1: thing gets enacted, we're gonna have to revisit those numbers UM.
Speaker 1: And by the way, that's the fastest growth um since
Speaker 1: four coming out of the mass of recession. So we've
Speaker 1: got a very strong growth coming out of this this recession.
Speaker 1: Eighthan wonderful to catch you sn cluse Ethan has that
Speaker 1: a Bank of America. Thank you said, thanks for listening
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