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Speaker 1: Let's get to our guest now, and it is William Lee,

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Speaker 1: chief economist at Milken Institute. So Bill, thanks very much

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Speaker 1: for joining us. The hawkish line again, was that very

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Speaker 1: premature to be thinking about pausing and likely higher terminal rate.

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Speaker 1: The devish line might have been the Fed taking into

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Speaker 1: account the cumulative tightening and the lag effect. So today

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Speaker 1: the market seized on the former and sold down. But

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Speaker 1: I wonder whether or not the cumulative tightening is actually

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Speaker 1: the newer news and whether that might be the enduring

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Speaker 1: read going forward. Well, Brian, I think today's is a

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Speaker 1: good lesson in FED speak, how it is that we

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Speaker 1: the market should be listening to the Fed. It seems

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Speaker 1: as though every press conference the markets are looking for

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Speaker 1: some clue that there's going to be a pivot, and

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Speaker 1: the FED chorus instruction hole has been consistent, we will

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Speaker 1: not be deterred from our path towards two percent. We're

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Speaker 1: going to keep rates going up. So the questions were really,

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Speaker 1: how fast you're gonna do it? Well, right now, schu

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Speaker 1: Poll has told the markets, don't worry about how fast

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Speaker 1: we're doing it in a pretty quick manner. Worry now

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Speaker 1: about how high and how long we're going to keep

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Speaker 1: it there. So I think that the press conference today

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Speaker 1: has been really a remarkable press conference is trying to

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Speaker 1: shift the discussion away from how fast to how long

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Speaker 1: and how high? And I think that's the relevant question

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Speaker 1: to be asked for. And Bill, I mean, you will

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Speaker 1: have to see some evidence, and they have to wait

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Speaker 1: for them because the data dependent. As they say, can

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Speaker 1: you see any material difference so far? Because even because

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Speaker 1: of the lag effect of cause, have you seen any

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Speaker 1: difference to the economy and inflation on the constitution parts

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Speaker 1: from what they've done? That's far well, Richard, that's really

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Speaker 1: the key question that I'm glad you asked that. On inflation,

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Speaker 1: absolutely no sign at all, right, I mean, it seems

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Speaker 1: like core inflation, which is what really matters for the FED,

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Speaker 1: persistently higher and higher every time we get a new release.

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Speaker 1: In fact, it's so much higher that people are surprised

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Speaker 1: that it gets the high. But then when you look

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Speaker 1: at the real economy, the housing sector has clearly been crushed.

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Speaker 1: The consumers now, even though people say they're very strong,

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Speaker 1: it's the weakest part of the GDP release. Uh. In fact,

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Speaker 1: GDP would have been zero or negative if it weren't

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Speaker 1: for net exports and inventories. So so I think the

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Speaker 1: signs are there that the economy is slowing down, but

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Speaker 1: it's not there in terms of the labor market. And

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Speaker 1: that's where Paul comes back and says, the labor market

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Speaker 1: is very strong. We are still creating jobs at too

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Speaker 1: fast pace, and we are worried that wages will start

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Speaker 1: to get to entrenched. The idea that we're gonna have

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Speaker 1: to deal with inflation and wage demands. You can start

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Speaker 1: rising right now. Wages the rising about five and that's okay,

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Speaker 1: if we can maintain inflation go back to say two percent.

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Speaker 1: But once the way to start to pick up again,

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Speaker 1: that's the danger. Bill. If there's something out there at

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Speaker 1: the moment which really bothers you with the regards to

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Speaker 1: that what the j PAL is doing and whould I

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Speaker 1: said FMC is doing with interest rates, And I'm not

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Speaker 1: talking about the immediate effects, but something that perhaps is

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Speaker 1: an unintended consequence. I think one of the things that

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Speaker 1: the Fed hasn't taken into account enough are the consequences

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Speaker 1: of their type policy on the dollar and the dollars

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Speaker 1: effect on the rest of the world. I think the

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Speaker 1: traditional line from the FED, and even when I was

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Speaker 1: there as a staffer. The FED is the US central bank.

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Speaker 1: We will conduct monstort policy according to the needs of

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Speaker 1: the United States, which means full employment and price stability

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Speaker 1: in the United States full stop. But we are aware

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Speaker 1: that where where we have a global effects, and we

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Speaker 1: will try to take that into account and minimize it's

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Speaker 1: uh it's still over uh effects. But right now I

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Speaker 1: think the Chair has said very clearly we are good

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Speaker 1: in our program of getting ahead of inflation faster than

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Speaker 1: other central banks, and because of that, at thestrangthening dollar,

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Speaker 1: and when everyone else catches up with us, the dollar

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Speaker 1: will bry itself. I think that the attitude is something

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Speaker 1: that is dangerous because the quantity of tightening and the

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Speaker 1: rate increases is to probably the world of liquidity, and

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Speaker 1: the world right now is desperate for liquidity as we

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Speaker 1: are seas and cruts in financial markets all of the world,

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Speaker 1: including even the United Kingdom. He acknowledged all the impact

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Speaker 1: of it, but he had this overarching defense, which is

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Speaker 1: it would be much worse for the global economy if

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Speaker 1: we don't get a handle on inflation in the United States.

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Speaker 1: So that is a sort of job one but you

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Speaker 1: know when you look at rates moving up like this bill,

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Speaker 1: and you know, the bulls don't like it, and there

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Speaker 1: are people that are very worried about the impact and all,

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Speaker 1: but uh, those bulls that are hoping for you know,

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Speaker 1: going back to so called normal low rates, low growth,

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Speaker 1: low inflation. Uh, that trend actually forced a lot of people,

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Speaker 1: investors and and savers way out the risk curve and

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Speaker 1: incentivized leverage. Isn't it better? And isn't it easy to

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Speaker 1: argue that a new regime of interest rates three to

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Speaker 1: five is really healthier over wrong? Oh, Brian, that that's

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Speaker 1: absolutely you hit it right on the head. Uh. The

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Speaker 1: the abnormality was zero rates because when when rasor zero

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Speaker 1: and investment managers trying to decide what projects should invest in,

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Speaker 1: every cat and dog investment looks good, and so you

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Speaker 1: really have a severe misallocation of capital when when the

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Speaker 1: race are at zero, we really need a more normalized rate.

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Speaker 1: That's that really measures the value of money and the

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Speaker 1: value of time. How much do I delay consumption in

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Speaker 1: order to invest in something? And that that really is

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Speaker 1: a key element to the efficient allocation of capital, which

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Speaker 1: which the global economy has benefited from. For the last

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Speaker 1: several decades. When race are distorted, we get distorted investments,

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Speaker 1: and you get all sorts of cats and dogs being

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Speaker 1: approved when they shouldn't be. Bill that systems. You know,

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Speaker 1: look who are talking about the world and look at

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Speaker 1: the world second biggest economy, and it doesn't have an

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Speaker 1: inflation problem, but it has an economic growth problem, that's

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Speaker 1: what they'd say. And this has also unintended consequences are

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Speaker 1: very intended ones because they've of course you seek refuge

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Speaker 1: in foreign policy sometimes. Well rich China has escaped the

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Speaker 1: inflation in part because they have control prices UH and

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Speaker 1: and it's essentially a transfer from producers to consumers and

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Speaker 1: and that's and from the government to consumers to try

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Speaker 1: to subsidize the lower prices. I think one of the

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Speaker 1: things that we learned from this part of Congress is

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Speaker 1: that the new government is going to be very clear

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Speaker 1: about who's welcome into China. UH. Investors who will help

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Speaker 1: develop national champions will be welcome. Investors that will help

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Speaker 1: develop investe marketably welcome. But if if you come into

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Speaker 1: just exploit our markets the way you have in the

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Speaker 1: past hundreds of years, stay out. I think that message

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Speaker 1: is very clear. Yeah. Yeah. Powell had some interesting comments

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Speaker 1: about the lag that it could be shorter than earlier thought.

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Speaker 1: He said that it used to be the FED would

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Speaker 1: raise the funds, ray the financial system would absorb it.

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Speaker 1: It would then hit the economy and then hit inflation.

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Speaker 1: But he said now in the last twenty five years,

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Speaker 1: the market moves so far for the FED that that

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Speaker 1: might be speeding up the overall impact. What's the main

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Speaker 1: takeaway from that. I'm so glad you mentioned that, because

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Speaker 1: that is the new lesson of Montreal policy that people

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Speaker 1: have got to learn. Markets have got to realize that

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Speaker 1: the old version of Milton Friedman's long and burnbal life

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Speaker 1: it takes two to eight months. As well. We now

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Speaker 1: have much fast French markets. The lives are very short. Cool.

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Speaker 1: You summ that up nicely. Thanks very much. Bill. We

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Speaker 1: gotta go, Unfortunately, we should. We should get you for

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Speaker 1: the whole hour, and we'll have to try to do

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Speaker 1: that sometime. William Lee, chief economist at the Milken Institute.

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Speaker 1: I'm Brian Curtis along with her Shad salan It. This

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Speaker 1: is Bloomberg