WEBVTT - Bloomberg Surveillance TV: March 23rd, 2026 0:00:00.040 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:36.879 Terminal and the Bloomberg Business App. Here's the take from 0:00:36.920 --> 0:00:40.160 Norman Raw, the former senior US Intelligence official and senior 0:00:40.200 --> 0:00:43.360 advisor a CSIS. He writes the following. If the US 0:00:43.360 --> 0:00:48.240 executives executes strikes on Iranian power plants, Civilian infrastructure would 0:00:48.280 --> 0:00:51.760 become a primary battlefield, and oil would reprice sharply for 0:00:51.760 --> 0:00:55.160 an extended disruption scenario. Norm joins us. Now for more, Norm, 0:00:55.240 --> 0:00:57.520 welcome to the program. Can you help set the stage? 0:00:57.600 --> 0:00:59.800 What are we set up for later this evening? 0:01:01.280 --> 0:01:04.040 Good morning, So three weeks into the conflict, a new 0:01:04.080 --> 0:01:09.560 battle space dynamic has been created. Despite the extraordinary campaign 0:01:09.880 --> 0:01:13.120 results of the United States and Israel, the Iranian government 0:01:13.160 --> 0:01:15.919 has survived, so the war has evolved from a golf 0:01:15.959 --> 0:01:20.480 shipping and gas infrastructure crisis into a deadline driven, strategic 0:01:20.560 --> 0:01:26.520 depth and civilian critical infrastructure contest that openly involves control 0:01:26.560 --> 0:01:29.800 of the straight upform moves with all energy systems, regional 0:01:29.880 --> 0:01:35.640 power infrastructure, desalination systems within a potential escalation envelope. Once 0:01:35.720 --> 0:01:40.760 these systems become explicit targets or even threat objects, you 0:01:40.800 --> 0:01:43.400 in essence have a situation where the market will now 0:01:43.920 --> 0:01:46.520 need to price in not only the crude and liquefied 0:01:46.959 --> 0:01:51.200 threat to natural gas, but also a reliability of electrical systems, 0:01:51.360 --> 0:01:55.960 water security repair times, and the higher probability of allied 0:01:55.960 --> 0:01:59.200 burden sharing of all of the Golf Cooperation Council partners. 0:02:00.280 --> 0:02:02.680 When the President puts out a statement and has this 0:02:02.840 --> 0:02:05.880 ultimatum about opening up the strait of Hormoves or he's 0:02:05.920 --> 0:02:08.760 going to go after power plants, do you think that 0:02:08.800 --> 0:02:10.800 statement would come from the President United States if he 0:02:10.880 --> 0:02:12.480 was unwilling to do so. 0:02:14.120 --> 0:02:14.200 No. 0:02:14.360 --> 0:02:16.520 I believe the President of the United States has a 0:02:16.560 --> 0:02:20.919 serious intent of taking a greater action against Iran. I 0:02:20.960 --> 0:02:24.680 also believe that US forces in the region are more 0:02:24.720 --> 0:02:29.359 than capable of executing the presidents of wishes, but they 0:02:29.400 --> 0:02:32.840 would prefer to undertake these actions when the conditions are 0:02:32.880 --> 0:02:36.200 most appropriate. Now they can do whatever the president requires. 0:02:37.040 --> 0:02:42.120 Fully opening the strait would require reduction of the Iran's UAVs, 0:02:42.160 --> 0:02:45.799 it's dr own threats, and probably undertaking more action against 0:02:46.120 --> 0:02:50.600 the strait of hormones as Iranian infrastructure, and waiting until 0:02:50.639 --> 0:02:54.160 we have the full contingent of additional marines and perhaps 0:02:54.200 --> 0:02:55.600 some additional air assets. 0:02:56.120 --> 0:02:59.000 Norm you've been in the room, the president will have 0:02:59.040 --> 0:03:01.240 a number of options in front of him. There's reporting 0:03:01.280 --> 0:03:04.600 over the weekend that he molls carg Island, a takeover 0:03:05.080 --> 0:03:08.400 of that island that's just some miles off the Iranian cost. 0:03:08.440 --> 0:03:10.240 Can you go through all the options right now you 0:03:10.240 --> 0:03:12.359 think are being presented to the president? 0:03:13.760 --> 0:03:15.960 Well, I prefer to avoid all the options, and that 0:03:16.040 --> 0:03:18.320 perhaps the Iranians are watching and giving them a school 0:03:18.360 --> 0:03:21.280 answer may not be the best of ideas, but it's 0:03:21.480 --> 0:03:24.680 likely that the Iran the president's overall approach is to 0:03:24.720 --> 0:03:27.359 convey to the Iranian government that they're about to lose 0:03:27.400 --> 0:03:30.560 control and the revenue from their most strategic asset, and 0:03:30.560 --> 0:03:34.000 that that idea is going to ripple through the strategic 0:03:34.080 --> 0:03:37.640 leadership of Iran's government and compel them to push for 0:03:38.680 --> 0:03:42.480 negotiations and to make concessions on several points, which is 0:03:42.520 --> 0:03:47.000 an essence to give up the idea of nuclear weaponization, 0:03:48.160 --> 0:03:53.720 the enhancement of their ballistic missile program, the could's force 0:03:53.840 --> 0:03:56.960 activities within the region, and to return these straight up 0:03:56.960 --> 0:04:00.520 hoo moves to international control vice their control none. 0:04:00.520 --> 0:04:03.600 There is some speculation that a ground operation could be imminent. 0:04:03.920 --> 0:04:06.440 Can we go into the ramd of speculations together and 0:04:06.520 --> 0:04:09.440 talk about the geography geography that you know, Well, how 0:04:09.440 --> 0:04:12.360 difficult would a ground operation be in a place like Iran? 0:04:13.880 --> 0:04:17.000 Well, I'm not sure the issue is of difficulty. US 0:04:17.000 --> 0:04:21.560 forces are extremely capable. All ground operations have a lethal 0:04:21.600 --> 0:04:24.880 component that no one should diminish the threat to US forces. 0:04:25.000 --> 0:04:27.440 I think you want to ask instead what the ultimate 0:04:27.560 --> 0:04:30.279 goal might be. What is the purpose? Are we trying 0:04:30.320 --> 0:04:33.800 to retain territory? Are we trying to send a message 0:04:33.800 --> 0:04:36.440 to Iran that we can take territory? We're trying to 0:04:36.520 --> 0:04:40.440 destroy key facilities. The question is what message are you 0:04:40.480 --> 0:04:43.440 trying to send to the Iranian leadership. We've already sent 0:04:43.480 --> 0:04:46.240 the message that we can destroy anything in Iran. We 0:04:46.279 --> 0:04:50.520 can control any physical space in Iran. We control the skies, 0:04:50.560 --> 0:04:52.160 which means we control the ground. 0:04:53.040 --> 0:04:56.600 Stay with us, mul Bloomberg surveillance coming up after this 0:05:05.800 --> 0:05:09.680 crude hovering around multi year highs. Michael Haig of Self Gen, writing, 0:05:09.720 --> 0:05:12.680 with each passing day, the market grows more strained with 0:05:12.800 --> 0:05:15.800 no resolution in sight, prices could climb towards one fifty 0:05:15.880 --> 0:05:18.880 a barrel in April. Michael joins us. Now for more. Michael, 0:05:18.880 --> 0:05:21.200 welcome to the program. Your note was one of the 0:05:21.240 --> 0:05:23.960 first notes I read to start the week. Scenario B. 0:05:24.440 --> 0:05:26.760 We're very close to what you call scenario B. What 0:05:26.839 --> 0:05:29.400 was scenario A and what do scenario B look like? 0:05:30.680 --> 0:05:33.440 Scenario A. First of all, good morning, thanks for having me. 0:05:33.760 --> 0:05:37.159 Scenario A was our basically scenario at the start of March. 0:05:37.560 --> 0:05:40.800 The market was pricing in a very quick resolution to 0:05:40.880 --> 0:05:45.480 this conflict. So our scenario A was that we see 0:05:45.480 --> 0:05:47.960 the streets opening up by the end of March, but 0:05:48.160 --> 0:05:50.320 prices getting up to one hundred and twenty five dollars 0:05:50.360 --> 0:05:52.960 a barrel. Looks like we're going to have to adjust 0:05:52.960 --> 0:05:56.000 that move to scenario B, where we have this conflict 0:05:56.000 --> 0:06:00.120 continuing through April and that brings oil solidly up to 0:06:00.200 --> 0:06:01.520 one hundred and fifty dollars a how. 0:06:01.680 --> 0:06:04.320 Michael, A. You know, pricing for longer. That's not just 0:06:04.320 --> 0:06:06.960 the short term story. That's a long term problem. 0:06:08.160 --> 0:06:11.200 Yeah. Unfortunately that seems to be the case because every 0:06:11.279 --> 0:06:17.640 day that goes by, oil taken of the production makes 0:06:17.680 --> 0:06:20.080 it harder to come back. Obviously, infrastructure gets more and 0:06:20.160 --> 0:06:23.640 more damaged. So yes, higher for longer. I'm afreed, Michael. 0:06:23.680 --> 0:06:25.320 This was an issue for the equity market. 0:06:25.400 --> 0:06:27.680 The issue I think a source of comfort was we 0:06:27.720 --> 0:06:31.200 had extreme vanquidation in the future's curve, and for people 0:06:31.200 --> 0:06:33.000 who aren't in your world, that just meant the front 0:06:33.040 --> 0:06:35.159 month of the future's curve was really elevated. But the 0:06:35.160 --> 0:06:37.440 market was pricing a short term problem and we had 0:06:37.440 --> 0:06:39.320 this steep drop off through the rest of the year. 0:06:39.320 --> 0:06:41.560 You see this plank out this morning. The opposite were 0:06:41.560 --> 0:06:43.800 starting to lift the back end of the curve, starting 0:06:43.839 --> 0:06:47.159 to price in the higher for longer scenario. Michael. This 0:06:47.279 --> 0:06:51.599 raises the question of demand destruction, so called demand elasticity. 0:06:51.920 --> 0:06:54.320 What are the realities for the energy market when does 0:06:54.320 --> 0:06:55.640 that destruction creep in? 0:06:56.839 --> 0:07:00.000 So well, there's one thing to not being able to 0:07:00.120 --> 0:07:02.520 ford oil because the price is too high, and the 0:07:02.560 --> 0:07:04.760 other thing is not being able to get the oil, 0:07:04.800 --> 0:07:08.320 and that's the bigger concern. So generally speaking, from a 0:07:08.360 --> 0:07:11.520 price perspective, and when we talk about demand elasticities, the 0:07:11.600 --> 0:07:14.600 oil market is fairly inelastic. That means that when prices 0:07:14.600 --> 0:07:17.960 go up, people really can't change their behavior that much. 0:07:18.040 --> 0:07:20.200 So given the fact we've had about a fifty percent 0:07:20.320 --> 0:07:24.560 increase in oil prices since the end of February, that 0:07:24.600 --> 0:07:27.360 would ordinarily mean from a price perspective, you would lose 0:07:27.400 --> 0:07:30.400 about one point two million barrels a day of oil 0:07:30.480 --> 0:07:34.040 demand as people can't afford it. If we go to 0:07:34.080 --> 0:07:37.480 the one hundred and fifty dollars scenario, then we'd be talking 0:07:37.600 --> 0:07:40.600 over three million barrels a day of oil demand destruction 0:07:40.760 --> 0:07:43.280 because of the price effect. But as I mentioned, it's 0:07:43.320 --> 0:07:45.440 not really just about the price. It's about that some 0:07:45.480 --> 0:07:48.840 countries can't get the oil. So you're already seeing airlines 0:07:49.000 --> 0:07:52.360 put on surcharges, cutting flights. You see refineries in China 0:07:52.680 --> 0:07:56.880 cutting their runs. You see ethanol crackers cutting their output 0:07:56.920 --> 0:07:59.360 because they can't get the feedstock. So there are some 0:07:59.400 --> 0:08:02.320 countries in Southeast Asia that maybe have fifteen to twenty 0:08:02.360 --> 0:08:05.320 days of oil and product in inventory. So we're going 0:08:05.360 --> 0:08:07.720 to get to a situation potentially where we get demand 0:08:07.760 --> 0:08:10.920 destruction because these countries can't operate as normal. 0:08:11.240 --> 0:08:13.679 Michael, to that point, we have sprs around the world. 0:08:13.720 --> 0:08:16.440 Different countries have their own strategic reserves when it comes 0:08:16.520 --> 0:08:18.960 to crude. Are you basically talking about the fact that 0:08:19.000 --> 0:08:22.240 we might have the crude but it's so dislocated in 0:08:22.280 --> 0:08:24.120 the market right now there's not going to be enough 0:08:24.160 --> 0:08:26.960 refining capacity to say turn that crew to diesel or 0:08:27.080 --> 0:08:27.600 jet fuel. 0:08:29.520 --> 0:08:29.760 Yeah. 0:08:29.800 --> 0:08:32.080 I mean we're talking seventeen million barrels a day that 0:08:32.280 --> 0:08:34.800 has been displaced. I mean, if you look back historically, 0:08:35.240 --> 0:08:39.440 we've basically had thirty geopolitical conflicts since the early nineteen seventies, 0:08:39.480 --> 0:08:42.599 and the next biggest disruption to supply was all the 0:08:42.600 --> 0:08:44.840 way back in nineteen seventy three when we had seven 0:08:44.880 --> 0:08:48.360 percent of oil being removed because of the Arab oil embargo. 0:08:48.880 --> 0:08:51.680 Now we're talking seventeen percent being removed. So it's a 0:08:51.720 --> 0:08:54.080 massive difference. So you know, all you need to do 0:08:54.160 --> 0:08:56.720 is take that seventeen million barrels and say how much 0:08:56.760 --> 0:09:00.599 can be redirected through pipeline. How much can be we 0:09:01.600 --> 0:09:05.920 offset through demand destruction, how much can come from the 0:09:05.960 --> 0:09:09.440 relief from Iranian sanctions on floating oil, et cetera, et cetera. 0:09:09.480 --> 0:09:11.280 And you add it all up and you still have 0:09:11.320 --> 0:09:14.280 a massive deficit of around eight nine million barrels a day. 0:09:14.600 --> 0:09:16.760 And that means that that can't get to the refined 0:09:16.880 --> 0:09:20.040 is in Singapore elsewhere they can't create the product, and 0:09:20.040 --> 0:09:24.520 that creates the issue for gasoline diesel, mainly in Asia. 0:09:24.640 --> 0:09:27.120 Michael, the way you talk, I'm thinking this is not 0:09:27.120 --> 0:09:30.119 going to be months. This sounds like a multi year recovery. 0:09:30.320 --> 0:09:31.040 Is that accurate? 0:09:32.800 --> 0:09:35.079 I don't think it would be as drastic as that, 0:09:35.160 --> 0:09:37.240 but I'm you know, as each month goes by, we're 0:09:37.280 --> 0:09:41.840 talking several more months to recover. The market's very resilient 0:09:41.880 --> 0:09:44.000 and it will bounce back, and there is plenty of 0:09:44.080 --> 0:09:47.319 oil out there in terms of spare capacity generally speaking, 0:09:47.840 --> 0:09:51.520 So you know, if by some miracle this was resolved 0:09:51.880 --> 0:09:55.280 tomorrow and all the oil came back into the market, 0:09:55.320 --> 0:09:57.400 we might lose like one or two million barrels a 0:09:57.480 --> 0:10:00.439 day because of the shut ins, because of infrastrut etc. 0:10:01.000 --> 0:10:04.200 But generally speaking, going into this, we were in a 0:10:04.240 --> 0:10:07.000 surplus of let's call it about three million barrels a day. 0:10:07.080 --> 0:10:11.400 So fingers crossed this doesn't go on through past April, 0:10:11.400 --> 0:10:15.040 because I think if we can get through that by 0:10:15.080 --> 0:10:17.400 the end of the year a year will be back 0:10:17.440 --> 0:10:18.240 to kind of normal. 0:10:18.400 --> 0:10:20.840 Michael, this is starting to creep into base metals. Let's 0:10:20.880 --> 0:10:23.880 just turn from energy to things like aluminum to comper. 0:10:24.000 --> 0:10:26.280 We're starting to see some big moves there as well. 0:10:26.360 --> 0:10:27.640 How far along do you think we are in the 0:10:27.679 --> 0:10:30.800 process of trying to understand how cyclic or the demand 0:10:30.800 --> 0:10:32.599 for those metals actually is at a time when a 0:10:32.640 --> 0:10:34.640 lot of people are getting built up on these secular 0:10:34.679 --> 0:10:36.160 tail when it's coming out of technology. 0:10:38.360 --> 0:10:41.200 Well, I think, I mean, let's let's think about copper here. 0:10:41.360 --> 0:10:43.720 I mean, we said before this conflict that there was 0:10:43.920 --> 0:10:48.480 some unusual demand situations going on in those metals markets 0:10:48.480 --> 0:10:50.960 given the growth of AI, etc. But also because of 0:10:51.000 --> 0:10:54.599 strategic stomppiling because of military spending. So I see a 0:10:54.679 --> 0:10:57.560 very bright future for those metals from that perspective, because 0:10:57.880 --> 0:11:00.960 coming out of this conflict, I still believe there'll be 0:11:01.120 --> 0:11:04.160 a push to do more strategic stockpiling four things like 0:11:04.200 --> 0:11:07.800 copper and aluminium just like we have for oil. We'll 0:11:07.840 --> 0:11:11.920 see more military spending that's very metal intensive. So you know, 0:11:12.000 --> 0:11:14.319 despite the fact that they get pulled down because equity 0:11:14.440 --> 0:11:16.640 get pulled down, I think I think their future is 0:11:16.679 --> 0:11:17.240 pretty bright. 0:11:17.360 --> 0:11:20.200 Can we finish on gold? Michael? Twenty percent move so 0:11:20.240 --> 0:11:23.200 far this month? Huge, huge move. What do you think 0:11:23.280 --> 0:11:25.679 is behind that move? Is it just an interest rate 0:11:25.720 --> 0:11:27.880 move driving people out of gold? Is there something else 0:11:27.920 --> 0:11:28.280 of ply. 0:11:30.080 --> 0:11:31.680 So, I think what's going on there is that we 0:11:31.679 --> 0:11:33.480 don't have any central bank buying right now. I don't 0:11:33.480 --> 0:11:35.839 think there's any appetite to do that where countries are 0:11:35.920 --> 0:11:40.880 squarely focused on getting through this energy crisis. I wouldn't 0:11:40.920 --> 0:11:44.640 be surprised to hear reports that some central banks have 0:11:44.720 --> 0:11:47.000 sold gold in order to subsize some of the energy 0:11:47.360 --> 0:11:49.600 issues that they have in their countries. So it's been 0:11:49.760 --> 0:11:53.040 a big pause I think in that buying. That's mainly 0:11:53.040 --> 0:11:55.160 the reason why we've seen it sell off. ETF flows 0:11:56.000 --> 0:11:59.000 by themselves couldn't explain the dramatic decline in the gold 0:11:59.040 --> 0:12:01.559 price that we've seen recently. Of course, some of it 0:12:01.640 --> 0:12:05.280 is fundamentally bas based on interest rate expectations, et cetera. 0:12:05.840 --> 0:12:09.000 But again, a bit like the base metal complex. I 0:12:09.040 --> 0:12:12.520 think once we get through this oil situation, with goal 0:12:12.600 --> 0:12:14.760 prices where they are right now, I would imagine central 0:12:14.760 --> 0:12:15.920 banks resuming they're buying. 0:12:16.480 --> 0:12:29.240 Stay with us. More Bloomberg surveillance coming up after this. 0:12:29.240 --> 0:12:32.080 This bond markets some wild moves earlier on this morning, 0:12:32.200 --> 0:12:34.160 yields three four percent at the front end of the curve, 0:12:34.400 --> 0:12:37.280 past yield we've seen since last summer three eighty five. Now, 0:12:37.320 --> 0:12:40.000 because we've pulled back following those headlines, we're down five 0:12:40.040 --> 0:12:42.360 basis points on the session we priced out the easing. 0:12:42.400 --> 0:12:44.839 At one point we were talking about price again, rate 0:12:44.920 --> 0:12:47.800 hikes at the Federal Reserve. Let's have that conversation right 0:12:47.800 --> 0:12:49.800 now with the Federal Reserve, Governor Stephen Mara and the 0:12:49.800 --> 0:12:53.720 lone voice dissenting at last week's FMC meeting, continuing his 0:12:53.800 --> 0:12:56.440 push for interest rate cuts. Governor Maron joins us now 0:12:56.480 --> 0:12:58.280 for more. Steve, good to see you, good morning, Thanks 0:12:58.320 --> 0:13:00.360 for havving me back. Governor, Where do we begin with 0:13:00.440 --> 0:13:03.600 these headlines right here? As a policy maker, as an official, 0:13:03.640 --> 0:13:05.720 when things are moving this fast, what do you do? 0:13:06.600 --> 0:13:09.880 Well? Look, we've had already handsome whiplash this morning, and 0:13:09.920 --> 0:13:12.640 I think that underlines that we shouldn't be making policy 0:13:12.679 --> 0:13:15.679 based on short term headlines, right. We should wait for 0:13:15.720 --> 0:13:18.880 all the information to come in before really changing our outlook. 0:13:18.880 --> 0:13:21.240 And I think it's just still premature to have a 0:13:21.320 --> 0:13:23.280 clear view about what this is going to look like 0:13:23.360 --> 0:13:25.920 as you look twelve months out, and because of monetary 0:13:25.920 --> 0:13:27.760 policy lags, we really need to be looking a year 0:13:27.840 --> 0:13:29.960 to a year and a half out, and there's just 0:13:30.360 --> 0:13:32.040 not enough information yet about what that looks like. 0:13:32.040 --> 0:13:34.480 Communication in the near term, of course, matters. The chairman 0:13:34.520 --> 0:13:37.320 in the news conference last week really vowing to anchor 0:13:37.360 --> 0:13:40.960 inflation expectations. Do you think that's a worthwhile pursuit at 0:13:41.000 --> 0:13:41.400 this point? 0:13:41.800 --> 0:13:44.760 I do. Look, you know, traditional central banking Federal Reserve 0:13:45.160 --> 0:13:48.840 wisdom is that oil shocks head headline inflation, but they 0:13:48.880 --> 0:13:51.520 don't really pass that much into core as by as 0:13:51.640 --> 0:13:54.200 much as they do as they do into headline and 0:13:54.400 --> 0:13:56.840 the two ways that you would want to respond to, 0:13:56.920 --> 0:13:59.400 and so therefore you typically look through an oil shock. Now, 0:13:59.440 --> 0:14:03.240 the two excepts would be if inflation expectations beyond the 0:14:03.280 --> 0:14:06.199 first year start to move higher. That hasn't happened thus far. 0:14:06.240 --> 0:14:08.600 Inflation expectations for the first year out have moved higher, 0:14:08.600 --> 0:14:10.640 of course, but as I look at the CBI swop 0:14:10.640 --> 0:14:13.320 market beyond the first year, there hasn't been that much movement. 0:14:13.520 --> 0:14:16.120 Medium term five year, five year, longer term five year 0:14:16.160 --> 0:14:19.120 five year forward expectations have actually been coming down lately, 0:14:19.400 --> 0:14:21.480 so there's no evidence of that. The other reason why 0:14:21.520 --> 0:14:23.280 you would want to respond to an oil shock is 0:14:23.320 --> 0:14:25.320 if you saw a wage price spiral, if you saw 0:14:25.400 --> 0:14:29.360 wages responding to oil price increases, gas price increases, that 0:14:29.360 --> 0:14:32.040 could result in the type of reinforcing inflation dynamics that 0:14:32.080 --> 0:14:34.920 you want to forestall. Now Again, thus far, there's little 0:14:35.000 --> 0:14:37.560 evidence of that. In fact, wage pressures have been declining 0:14:37.800 --> 0:14:40.840 for the last few years on a steady, steady, steady basis, 0:14:40.960 --> 0:14:43.120 so that's also something that I don't really see right now. 0:14:43.200 --> 0:14:45.040 So the market, the labor market is just not strong 0:14:45.160 --> 0:14:46.160 enough to worry about it. 0:14:46.760 --> 0:14:49.120 I think the labor markets still could use additional support 0:14:49.120 --> 0:14:51.920 from montary policy, and that's why I dissented last meeting, 0:14:51.920 --> 0:14:54.280 as I have continued to send for all previous meetings. 0:14:54.320 --> 0:14:57.080 How lonely were you at that committee meeting just last 0:14:57.080 --> 0:14:59.480 week voting for a twenty five basis point reduction in 0:14:59.520 --> 0:15:01.880 the face of an energy shock. How robust was the 0:15:01.880 --> 0:15:03.440 conversation around the table. 0:15:03.600 --> 0:15:05.360 Look, I think a lot of people around the table, 0:15:05.480 --> 0:15:09.040 like me, were hesitant to draw conclusions from the oil 0:15:09.200 --> 0:15:11.120 from the oil and news thus far, because as I 0:15:11.120 --> 0:15:13.320 said before, we have to look twelve to eighteen months out, 0:15:13.480 --> 0:15:16.120 not what happened to the oil price yesterday. And so 0:15:16.200 --> 0:15:18.520 looking twelve to eighteen months out, there's still not enough 0:15:18.760 --> 0:15:22.160 clarity to think that montery policy itself should adjust in 0:15:22.200 --> 0:15:23.040 response to what's happened. 0:15:23.040 --> 0:15:25.120 Well, check out the old futures curve that has changed. 0:15:25.240 --> 0:15:27.360 I've just had one eye on December over the last 0:15:27.440 --> 0:15:29.680 three weeks or something that's gone from the sixties and 0:15:29.720 --> 0:15:32.120 threatening to break out into the nineties at one point 0:15:32.160 --> 0:15:34.520 earlier on this morning. That's a change. That's a real 0:15:34.520 --> 0:15:36.119 step up now it has. 0:15:35.880 --> 0:15:37.880 And I boosted my you know, in the summery of 0:15:37.920 --> 0:15:40.320 economic projections, I boosted my inflation dot for the end 0:15:40.360 --> 0:15:42.480 of the year to two point seven percent, reflecting that 0:15:42.560 --> 0:15:45.040 in part, right, so there is some expectation of higher 0:15:45.040 --> 0:15:47.840 headline inflation. However, I said before, I think it's way 0:15:47.880 --> 0:15:51.000 too early to draw conclusions that it's bleeding beyond headline 0:15:51.000 --> 0:15:53.560 inflation in a way that matters for monteria policy. Don't 0:15:53.600 --> 0:15:56.640 forget higher oil prices also depressed demand. Right, They take 0:15:56.680 --> 0:15:58.640 money out of the pockets of consumers that we spending 0:15:58.640 --> 0:16:01.560 on other goods and services and redirects it towards gas 0:16:01.560 --> 0:16:04.520 and other energy costs, and that depresses demand and causes 0:16:04.560 --> 0:16:07.040 unemployment to move a little bit higher. That offsets some 0:16:07.120 --> 0:16:08.280 of the increase in inflation. 0:16:08.120 --> 0:16:10.000 Your colleagues. This morning, Gustin goes to be at the 0:16:10.080 --> 0:16:12.360 Chicago Fed speaking to the press, saying, we could see 0:16:12.360 --> 0:16:15.560 a circumstance where we'd need to raise interest rates. How 0:16:15.640 --> 0:16:18.040 high is the bar to raise interest rates? What kind 0:16:18.080 --> 0:16:20.760 of circumstances would you personally need to see? 0:16:20.880 --> 0:16:22.560 Yeah, so I just laid out a couple of them before. 0:16:22.640 --> 0:16:22.800 Right. 0:16:22.920 --> 0:16:25.280 If it looks like the oil like the oil shock, 0:16:25.360 --> 0:16:28.160 is bleeding into inflation expectations beyond the first year, then 0:16:28.200 --> 0:16:30.680 you get really concerned about second rand effects. Or it 0:16:30.720 --> 0:16:32.680 looks like you're starting to cause a wage price spiral, 0:16:32.760 --> 0:16:35.000 then you get really concerned about second rend effects. First 0:16:35.040 --> 0:16:37.360 round effects are not something you traditionally respond to as 0:16:37.360 --> 0:16:40.200 a central bank. Now I'll say one thing beyond that, 0:16:41.080 --> 0:16:43.520 which is that these oil shocks have been things that 0:16:43.520 --> 0:16:46.200 this FED has looked through for a long time, right, 0:16:46.360 --> 0:16:48.480 it would be highly unusual for the FED to start 0:16:48.480 --> 0:16:50.240 looking through them now. And when you think about what 0:16:50.240 --> 0:16:53.160 happened in twenty twenty one and twenty twenty two, we 0:16:53.200 --> 0:16:55.800 did have negative supply shocks like the oil shock from 0:16:55.840 --> 0:16:58.560 the Russia Ukraine invasion. But in my view, part of 0:16:58.560 --> 0:17:00.360 the reason why it was able to reverb right through 0:17:00.360 --> 0:17:02.760 the economy the way it did was because policy settings 0:17:02.800 --> 0:17:05.200 of the time were very different. Monetary policy and fiscal 0:17:05.240 --> 0:17:09.399 policy were at all time historical accommodative levels. We were 0:17:09.400 --> 0:17:11.480 doing one hundred and twenty billion dollars a month of KIWI. 0:17:11.800 --> 0:17:14.359 We were doing two trillion dollars fiscal packages at a time. 0:17:14.600 --> 0:17:17.000 That's not the case right now. We're not hitting the 0:17:17.000 --> 0:17:20.600 gas on demand that would interact with the higher oil 0:17:20.600 --> 0:17:22.600 price in a way that we reverberate these prices through 0:17:22.640 --> 0:17:24.440 the economy. Now, that's not the case at all. 0:17:24.480 --> 0:17:28.520 But right now we're just seeing price spike on paper market. 0:17:28.560 --> 0:17:31.040 But what's happening in the physical market is actually avoid 0:17:31.160 --> 0:17:33.840 We are seeing not just shut ins, but some of 0:17:33.840 --> 0:17:36.679 these installations going to take years to rebuild. At what 0:17:36.760 --> 0:17:40.880 point does that start to potentially de anchor inflation expectations. 0:17:41.200 --> 0:17:43.520 Yes, so you'd want to see you'd want to see 0:17:43.840 --> 0:17:47.320 the oil price shocks start to reverberate through supply chains 0:17:47.320 --> 0:17:48.240 and pushing up prices. 0:17:48.240 --> 0:17:51.240 More broadly, we are there in terms of airlines diesel. 0:17:51.359 --> 0:17:53.439 That means that it's going to do more expensive in 0:17:53.480 --> 0:17:55.919 terms of some goods and services that are delivered by truck. 0:17:56.160 --> 0:17:57.840 Yeah, there's been a few instances, but you want to 0:17:57.880 --> 0:17:59.639 see that in a broad based way that starts to 0:17:59.640 --> 0:18:01.960 bleed in core inflation and boost it and boosted in 0:18:01.960 --> 0:18:03.440 a way that's sort of not just a one off time, 0:18:03.480 --> 0:18:05.320 but you start to see really second round effects that 0:18:05.760 --> 0:18:07.680 are concerning for the longer term. And if that starts 0:18:07.680 --> 0:18:09.960 to happen, then you start to get concerned about inflation. 0:18:10.320 --> 0:18:12.600 And I think that that is what you did see 0:18:12.600 --> 0:18:14.879 happen in twenty one twenty two, and thus far I 0:18:14.880 --> 0:18:16.879 don't see it happening on a broad basis. Now it 0:18:16.920 --> 0:18:19.439 could happen, right, but thus far it hasn't happened on 0:18:19.440 --> 0:18:21.959 a broad basis. You get some usyncratic stories like airline 0:18:22.000 --> 0:18:25.000 prices that are more directly tied to jet fuel, but 0:18:25.400 --> 0:18:27.480 beyond that you haven't really seen it, and I think 0:18:27.480 --> 0:18:29.720 part of the reason why is because we're not hitting 0:18:29.720 --> 0:18:32.200 on the gas. We're not hitting the gas on demand, 0:18:32.240 --> 0:18:35.440 We're not boosting demand with all time record accommodative policy 0:18:35.640 --> 0:18:38.320 in a way that would allow pricing to accommodate a 0:18:38.320 --> 0:18:39.080 supply shock like that. 0:18:39.200 --> 0:18:40.480 It's fair to say that I think a lot of 0:18:40.480 --> 0:18:42.919 FED watchers watching this right now, and I'm getting some 0:18:42.960 --> 0:18:45.520 reaction from them in real time, agree with you that 0:18:45.560 --> 0:18:48.400 this isn't the environment to high grate. The opposite, though, 0:18:48.480 --> 0:18:50.520 is a difficult argument to make. Is it the right 0:18:50.560 --> 0:18:53.920 time to cut interest rates this quickly, this soon? 0:18:54.400 --> 0:18:54.600 Yeah? 0:18:54.800 --> 0:18:57.000 So, as I said before, traditionally you would look through 0:18:57.000 --> 0:18:58.720 an oil price shock like this, which means that my 0:18:58.760 --> 0:19:01.320 policy outlook from before or is unchanged, and my policy 0:19:01.359 --> 0:19:04.399 outlook from before would be gradual cuts of interest rates. 0:19:04.440 --> 0:19:06.680 I had about six cuts for the year at the 0:19:06.760 --> 0:19:09.560 last step in December. I reduced that to four cuts 0:19:09.560 --> 0:19:12.440 for the year in response to the inflation data right 0:19:12.480 --> 0:19:15.960 that we received between the two between the two projection periods. 0:19:16.119 --> 0:19:19.560 So I'm maintaining my outlook that I had change. 0:19:19.920 --> 0:19:21.600 For Give me for jumping in, but the balance of 0:19:21.680 --> 0:19:25.080 risks around the outlook should change. That should change off 0:19:25.080 --> 0:19:27.359 the back of energy shock. Isn't that a fair summary 0:19:27.400 --> 0:19:28.080 of where we should be? 0:19:28.320 --> 0:19:30.320 Well, the balance service does change, but I think it's 0:19:30.320 --> 0:19:32.680 actually changed on both sides equally. The inflation risks have 0:19:32.720 --> 0:19:34.720 got a little more concerning, but the unemployment risks have 0:19:34.760 --> 0:19:37.680