WEBVTT - The Fed, Inflation and the Path Ahead

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<v Speaker 1>This is Bloomberg Daybreak Asia for this Wednesday February in

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<v Speaker 1>Hong Kong, Tuesday February four in New York and coming

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<v Speaker 1>up today, US consumer prices rise the most in three months,

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<v Speaker 1>and FED officials warn of more rate hikes. President Biden

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<v Speaker 1>names FED Vice chair Lele Brainerd as his top economic aide,

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<v Speaker 1>and Air India will buy four hundred seventy aircraft from

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<v Speaker 1>Boeing and Airbus in a record order. Henagon says the

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<v Speaker 1>latest balloon shot down likely not for intelligence gathering. Senators

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<v Speaker 1>asked the President to address the public regarding the balloons.

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<v Speaker 1>President she pledges to deepen ties with Iran. Nikki Haley's

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<v Speaker 1>in I'm at Baxter with Global News Byron Munich gets

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<v Speaker 1>past ps GENA Champions League Round of sixteen, first match.

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<v Speaker 1>I'm Dan Schwartzman. I'll have that story more coming up

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<v Speaker 1>in Bloomberg Sports. That's all straight ahead on Bloomberg Daybreak Asia,

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<v Speaker 1>the business news you need to start your day, and

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<v Speaker 1>just one fifteen minute podcast available on Apple, Spotify, the

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<v Speaker 1>Bloomberg Business App and everywhere you get your podcasts. Good morning,

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<v Speaker 1>I'm Do Prisoner and I'm Brian Curtis. Here are the

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<v Speaker 1>stories we're following today. CPI data shows investors are realizing

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<v Speaker 1>that inflation is likely to remain higher for some time

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<v Speaker 1>to come. Former I m F Chief economist Ken Rogoff

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<v Speaker 1>told us that the feds two percent inflation target remains

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<v Speaker 1>part of the problem. Back in the day, they should

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<v Speaker 1>have set three percent instead of two percent, but they didn't.

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<v Speaker 1>And you know, they've really made commitments. If you change it,

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<v Speaker 1>it means you might change it again. So I think

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<v Speaker 1>what in fact will happen. I don't think we're going

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<v Speaker 1>to have a soft landing, by the way. I think

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<v Speaker 1>we're gonna have soft but not the landing. I think

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<v Speaker 1>inflations they're gonna allow to be alibated for longer, but

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<v Speaker 1>they're gonna say it's going to get back to two percent.

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<v Speaker 1>We're just taking longer. I think that's going to be

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<v Speaker 1>the rhetoric. Rogof added that the Fed will have to

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<v Speaker 1>figure out where to put the interest rate longer terms

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<v Speaker 1>so that the US doesn't have inflation. So after that

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<v Speaker 1>CPI report, the Fed officials began stressing the need for

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<v Speaker 1>further rate increases. We heard from the head of the

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<v Speaker 1>Dallas Fed, Lory Logan. She was saying much more it

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<v Speaker 1>may be needed, and the FED should not lock in

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<v Speaker 1>on a peak interest rate or a precise path of

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<v Speaker 1>those rate increases. We also heard today from the head

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<v Speaker 1>of the Richmond FED, Tom Barkin. Here's what he had

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<v Speaker 1>to say earlier on Bloomberg. We may or may not

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<v Speaker 1>choose to take rates up further if inflation continues to persist,

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<v Speaker 1>but we'll have to see what happens. If inflation settles,

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<v Speaker 1>maybe we don't go quite as far. But if inflation

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<v Speaker 1>persists and levels well above our our target, maybe we'll

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<v Speaker 1>have to do more. Richmond Fed President Tom Barkin. Then

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<v Speaker 1>later in the day it was John Williams, who runs

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<v Speaker 1>the New York FED, saying subdued economic growth and labor

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<v Speaker 1>market weakness will likely be required to bring inflation back

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<v Speaker 1>down to that two percent target. Not to be left

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<v Speaker 1>out Pat Harker, the head of the Philly FED. He

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<v Speaker 1>added his voice in believing the Fed will need to

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<v Speaker 1>take rates somewhere above that five percent level. He also

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<v Speaker 1>said data will dictate how high the Fed will need

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<v Speaker 1>to go. Well life goes on, we have President Biden

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<v Speaker 1>naming FED Vice Chair Lal Brainerd as his top economic aid.

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<v Speaker 1>She will replace Brian Deese as head of White House

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<v Speaker 1>National Economic Council. More from Bloomberg's Michael McKee Leal Brainerd

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<v Speaker 1>has a lot of experience in Washington. She was Deputy

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<v Speaker 1>Treasury Secretary. She was the deputy head of the National

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<v Speaker 1>Economic Council before, so she has worked on the political

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<v Speaker 1>side for many years as well as on the monetary

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<v Speaker 1>policy side. So she knows everything about what's going on

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<v Speaker 1>in Washington. And she is also considered to be a

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<v Speaker 1>very capable kind of I don't want to use the

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<v Speaker 1>word bureaucrat, but somebody who knows how to get things done.

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<v Speaker 1>The FED said that brainer had submitted her resignation as

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<v Speaker 1>vice chair and it's effective on or around February. Her

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<v Speaker 1>departure means the FED will no longer have one of

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<v Speaker 1>its most devish voices. FED watchers wasted no time coming

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<v Speaker 1>up with potential replacements. Names circulating include Karen Dinon and

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<v Speaker 1>Janice Everley, who served as economist in the Obama Treasury Department,

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<v Speaker 1>and Brian Sack, the one time head of the New

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<v Speaker 1>York FEDS Market Group, was also floated as a possibility.

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<v Speaker 1>And I say life goes on. We often think that

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<v Speaker 1>it's all about the FED and is all about rates

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<v Speaker 1>that people do change jobs and go about their business.

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<v Speaker 1>Indeed they do. After the bell, Airbnb gave an outlook

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<v Speaker 1>for revenue in the current quarter that was above estimates.

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<v Speaker 1>More from Bloomberg's Charlie Pellett. It signals that travel demand

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<v Speaker 1>remains robust even after a record here for growth in

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<v Speaker 1>two Airbnb has been a major beneficiary of the work

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<v Speaker 1>and lifestyle changes brought on by the pandemic, and now

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<v Speaker 1>it's starting to see some of the trends that benefited

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<v Speaker 1>from such as people renting large rural homes for weeks

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<v Speaker 1>or months at a time reverse and travelers off for

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<v Speaker 1>shorter stays in big cities and more international destinations in

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<v Speaker 1>New York. Charlie Pellette, Bloomberg Daybreak Asia. Air India is

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<v Speaker 1>behind what stands to be the largest purchase ever made

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<v Speaker 1>in commercial aviation history. Bloomberg's and Kate's with the story.

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<v Speaker 1>Air India has announced a four hundred seventy plane order

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<v Speaker 1>with Airbus and Boeing, underscoring the industry's recovery from the

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<v Speaker 1>pandemic and the airline's ambition to become a global force.

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<v Speaker 1>The deal involves two hundred fifty Airbus jets and two

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<v Speaker 1>hundred twenty Boeing models. President Biden and Indian Prime Minister

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<v Speaker 1>Norndra Body held a phone conversation to discuss the transaction.

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<v Speaker 1>Body called on Boeing and other US companies to explore

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<v Speaker 1>opportunities arising from India's civil aviation sector in Washington and

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<v Speaker 1>Kate's Bloomberg Daybreak Asia. Well, Doug, I have to say this, Um,

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<v Speaker 1>it's bad that goods disinflation has slowed a little bit

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<v Speaker 1>for people hoping that inflation would come down sharply. But

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<v Speaker 1>it's it's good that services ex housing, which is kind

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<v Speaker 1>of tied to wages, only rose zero point three sent

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<v Speaker 1>month on month net net. I think from the equity

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<v Speaker 1>market standpoint, don't follow out of bed just yet. Yeah,

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<v Speaker 1>you're right about that. And I think if you look

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<v Speaker 1>at what the Cleveland Fed is saying, maybe some worrying

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<v Speaker 1>signs they're underlying inflation tracker is pointing to some price

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<v Speaker 1>pressure persisting both on a monthly and a twelve month basis,

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<v Speaker 1>so in selected pockets, I think you're right, Brian. You've

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<v Speaker 1>got to be very careful about saying that inflation the

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<v Speaker 1>problem is beginning to kind of wane a little bit.

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<v Speaker 1>It may be sticky for some time. People seized on

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<v Speaker 1>Patrick Harker's comment that we're not done yet, but we

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<v Speaker 1>are likely close. Yeah, but that's also to say that

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<v Speaker 1>when they get to wherever their destination point is, the

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<v Speaker 1>so called terminal rate, things may end up being held

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<v Speaker 1>higher for quite a bit longer. The other thing that

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<v Speaker 1>I thought was interesting today we were talking about FED speakers.

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<v Speaker 1>John Williams from the New York Fed was pushing out

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<v Speaker 1>rate cuts maybe sometimes into or even Yeah. Absolutely. Now

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<v Speaker 1>it's time for global news. The US says that three

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<v Speaker 1>of as of yet not identified objects down since Friday.

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<v Speaker 1>They don't appear to be government linked. That Baxter has

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<v Speaker 1>Global News from the nine six newswom in San Francisco. Yeah, right, Brian.

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<v Speaker 1>The Pentagon is saying likely for commercial use and not

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<v Speaker 1>foreign intelligence gathering. And the White House says now that

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<v Speaker 1>China has been launching balloons over the US for years,

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<v Speaker 1>but has just recently ramped things up. National Security Council

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<v Speaker 1>spokesman John Kirby, we have been studying the Chinese by

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<v Speaker 1>balloon program since we came into office. This is a

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<v Speaker 1>program that they have been working on for several years,

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<v Speaker 1>so they have ramped up their abilities. They have ramped

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<v Speaker 1>up their deployment of these balloons over just recent years. Yeah.

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<v Speaker 1>Kirby says Congress was briefed about it and classified setting

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<v Speaker 1>going back to last August, and the full Senate got

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<v Speaker 1>a classified briefing about the status today and Bloomberg examily

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<v Speaker 1>Wilkins says, the overall message coming up a call for transparency,

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<v Speaker 1>and really what you're getting from senators is a call

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<v Speaker 1>for transparency, a call for the Way House to take

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<v Speaker 1>this issue seriously and even if we don't know every

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<v Speaker 1>last detail about some of these objects, to make sure

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<v Speaker 1>that they're just clearly communicating with the American people on

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<v Speaker 1>this because of how sensitive this poticial potential issue could be.

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<v Speaker 1>Emily says, they call for a speech by the President

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<v Speaker 1>and Leon Panetta, former U S Secretary of Defense, c

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<v Speaker 1>i A Director Presidential Chief of Staff today on balance

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<v Speaker 1>of powers says, one explanation for the recent change in

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<v Speaker 1>balloon activity is carefully thought out by the Chinese. China

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<v Speaker 1>may very well be harassing us with these objects, UH

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<v Speaker 1>to try to create the kind of confusion that's taking

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<v Speaker 1>place in Washington right now is how we deal with it,

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<v Speaker 1>and says so far as succeeded. We've got to have

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<v Speaker 1>a strategy. I think if they are related to China,

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<v Speaker 1>all of them, then we've got to develop that strategy,

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<v Speaker 1>hopefully in conjunction with China. If not, we're going to

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<v Speaker 1>have to continue to shoot him down if they represent

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<v Speaker 1>a threat to the United States or to our airspace,

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<v Speaker 1>and he says Biden has done the right thing so far. Meanwhile,

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<v Speaker 1>the Pentagon scrambled fighter jets to counter for Russian aircraft

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<v Speaker 1>that approached but did not enter US or Canadian airspace.

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<v Speaker 1>Fishers describe it as a routine encounter, unrelated to the

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<v Speaker 1>series of unidentified objects shot down in recent days. Nikki

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<v Speaker 1>Hayley is officially a candidate for president of the United States.

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<v Speaker 1>In her presidential video to the here announcement, she immediately

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<v Speaker 1>pushed buttons on China and Russia. John and Russia are

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<v Speaker 1>on the march. They all think we can be bullied

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<v Speaker 1>kicked around. You should know this about me. I don't

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<v Speaker 1>put up with bullies, and when you kick back, it

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<v Speaker 1>hurts them more if you're wearing heels. She also says

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<v Speaker 1>it's a time for Republicans to win the popular vote again.

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<v Speaker 1>Global News powered by more than undred journalists and analysts

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<v Speaker 1>and over one hundred twenty countries. In San Francisco, I'm

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<v Speaker 1>at Baxter and this is bloom This is Bloomberg, Gay

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<v Speaker 1>Break Asia and Brian Curtis along with Rashad salamat here

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<v Speaker 1>in Hong Kong. Our guest is Rebecca Walser, President of

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<v Speaker 1>Walzer Wealth. Rebecca we mentioned that the equity market seemed

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<v Speaker 1>to take this CPI report more or less in stride,

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<v Speaker 1>while the bond market reacted much more sharply. Why well,

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<v Speaker 1>because the bond market obviously has an inverse relationship with

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<v Speaker 1>rising interest rates. And even though we all believe don't

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<v Speaker 1>fight the Fed, what we've seen as the market really

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<v Speaker 1>pushing the Fed to change their position. Right. They all

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<v Speaker 1>priced in a QW three pivots, and we all the

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<v Speaker 1>Fed has been very consistent from the beginning that this

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<v Speaker 1>could be a long road and that they've constantly talked

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<v Speaker 1>about getting inflation to a specific level for a sustained

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<v Speaker 1>period of time. So when you have a CPI number

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<v Speaker 1>that shows, you know, Mrs consensus is showing that the

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<v Speaker 1>inflation is not happening in US fast, or disinflation is

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<v Speaker 1>not happening as fast as expected. The market has to

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<v Speaker 1>start saying, okay, hike in March and a hike in

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<v Speaker 1>May is not going to be sufficient. We're going to

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<v Speaker 1>have to hike more. And being a a you know,

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<v Speaker 1>a terminal rate of five two or five to five

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<v Speaker 1>is not going to be enough. And if you guys

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<v Speaker 1>can remember, if you look at the analysis that we

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<v Speaker 1>really saw in two, the analysis was broader. It always

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<v Speaker 1>said that the terminary should be somewhere between five and seven.

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<v Speaker 1>So it was really the market that was kind of

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<v Speaker 1>clued in onto the lower end of that range. And

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<v Speaker 1>you see Jamie Diamond coming out last week saying, you know,

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<v Speaker 1>the sign might have to go to six. And this

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<v Speaker 1>is just indicative of that. Uh I mean, what has

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<v Speaker 1>to look at the data a bit more? Uh I

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<v Speaker 1>suppose in a granny of fashion, because if you look

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<v Speaker 1>at it, it's shelter, which was the main reason why

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<v Speaker 1>we still such an increase there. Now what does that

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<v Speaker 1>tell you, Well, it tells me that we still have

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<v Speaker 1>a very mobile society that hasn't quite felt the pinch

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<v Speaker 1>of maybe we would have thought they would have felt

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<v Speaker 1>because that means that people are still mobile, they're still moving,

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<v Speaker 1>and they're still making the prices of you know, where

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<v Speaker 1>they're living continue to a fleet. Whereas if you have

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<v Speaker 1>a demand destruction like we've had in some of the

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<v Speaker 1>you know the the uh you know, just disposal income,

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<v Speaker 1>you know, goods. You see that kind of demand destroying,

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<v Speaker 1>but you can't, you know, you should be able to

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<v Speaker 1>pick a cheaper place to live. But like I'm based

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<v Speaker 1>in Florida and everyone is moving here. My city specifically

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<v Speaker 1>is like now the number one city a coordinate to

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<v Speaker 1>Forbes to move to in the United States. So people

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<v Speaker 1>are still very mobile. Go ahead. In any case, shelter

0:12:28.559 --> 0:12:31.640
<v Speaker 1>is is longer term. It takes longer to adjust because

0:12:32.360 --> 0:12:35.640
<v Speaker 1>if for nothing else, one year leases in such But many,

0:12:35.800 --> 0:12:38.120
<v Speaker 1>many economists are saying that's going to drop like a

0:12:38.280 --> 0:12:40.760
<v Speaker 1>stone in the second half of this year. You agree

0:12:40.800 --> 0:12:44.040
<v Speaker 1>with that, um, I I think that it should have

0:12:44.120 --> 0:12:47.160
<v Speaker 1>already dropped. I mean, it's it's been amazing how tack

0:12:47.320 --> 0:12:50.160
<v Speaker 1>you know, how sticky this has really been because we

0:12:50.520 --> 0:12:53.800
<v Speaker 1>see all of the there's just a wide breath of

0:12:54.000 --> 0:12:55.920
<v Speaker 1>data that we see that we would expect you have

0:12:56.080 --> 0:12:58.679
<v Speaker 1>already dropped and it's just being really sticky. So I

0:12:58.840 --> 0:13:00.720
<v Speaker 1>I hate to make it pretty action as fast as

0:13:00.800 --> 0:13:03.439
<v Speaker 1>next uh, next quarter, but I honestly think that we

0:13:03.559 --> 0:13:06.480
<v Speaker 1>it has to drop. People can't afford these rates, and

0:13:06.520 --> 0:13:09.400
<v Speaker 1>we've seen mortgages and honestly housing US starts and all

0:13:09.440 --> 0:13:12.160
<v Speaker 1>of that completely affected by interest rates. And so it's

0:13:12.200 --> 0:13:15.560
<v Speaker 1>the rental market that has to come next. Okay, let's

0:13:15.600 --> 0:13:17.679
<v Speaker 1>have a look now at the overall markets and what

0:13:17.720 --> 0:13:19.240
<v Speaker 1>they're having to deal with. It's just you know, you've

0:13:19.240 --> 0:13:21.559
<v Speaker 1>got the FED, You've got the inflation I think is

0:13:21.559 --> 0:13:23.480
<v Speaker 1>of course very much dominant. But let's not forget we've

0:13:23.480 --> 0:13:27.480
<v Speaker 1>got Ukraine still, We've got balloons as well, all causing

0:13:27.559 --> 0:13:29.920
<v Speaker 1>confusion here. And on top of that, I think you

0:13:30.000 --> 0:13:33.280
<v Speaker 1>mentioned in your notes that the bird fluid new strain

0:13:33.360 --> 0:13:35.559
<v Speaker 1>of bird flu is also something that with one of

0:13:35.600 --> 0:13:38.480
<v Speaker 1>the geopolitical risks here as well. So it does seem

0:13:38.520 --> 0:13:43.360
<v Speaker 1>as they're being attacked on all sides. The confluence of

0:13:43.480 --> 0:13:49.560
<v Speaker 1>factors um geopolitically, macroeconomically, I have we've never I've never

0:13:49.640 --> 0:13:53.360
<v Speaker 1>experienced obviously before probably not since World War Two have

0:13:53.600 --> 0:13:58.000
<v Speaker 1>we had these kinds of massive factors. The difference now gentlemen,

0:13:58.160 --> 0:14:01.559
<v Speaker 1>is that we are an interglobally a pendant world. We have,

0:14:01.800 --> 0:14:04.599
<v Speaker 1>you know, globally outsourced most of our manufacturing, obviously to

0:14:04.720 --> 0:14:07.640
<v Speaker 1>Asia and America, and we rely on them a lot

0:14:07.800 --> 0:14:10.800
<v Speaker 1>to provide us our pharmaceuticals and and and everything that

0:14:10.960 --> 0:14:15.520
<v Speaker 1>we live off of. So when we have a globally, um,

0:14:15.920 --> 0:14:17.839
<v Speaker 1>if we have a geopolitical risk, if we have a

0:14:17.960 --> 0:14:20.840
<v Speaker 1>Ukraine Russia with NATO kind of coming in and no

0:14:20.960 --> 0:14:23.480
<v Speaker 1>longer being proxy, but now we're sending tanks between Germany

0:14:23.520 --> 0:14:25.480
<v Speaker 1>and the United States and we're moving. I mean, Joe

0:14:25.520 --> 0:14:28.560
<v Speaker 1>Biden said himself last year that if we send tanks

0:14:28.640 --> 0:14:31.360
<v Speaker 1>to the United sitstens tanks to Russia, are to Ukraine,

0:14:31.400 --> 0:14:33.800
<v Speaker 1>it's World War three. And now that's what we're doing.

0:14:33.920 --> 0:14:36.840
<v Speaker 1>So you could have any factor pop off and really

0:14:36.920 --> 0:14:40.800
<v Speaker 1>create additional economic distress. So lots to weigh up there, Rebecca.

0:14:40.920 --> 0:14:42.840
<v Speaker 1>But if we look at this most recent news, the

0:14:42.920 --> 0:14:45.960
<v Speaker 1>CPR report, would you be making changes major changes as

0:14:46.000 --> 0:14:49.520
<v Speaker 1>a result. You know, I I think that it was

0:14:49.600 --> 0:14:52.920
<v Speaker 1>exactly what I expected. I expected that it was going

0:14:53.040 --> 0:14:55.960
<v Speaker 1>to be more sticky than the market was stating. You know,

0:14:56.080 --> 0:14:58.640
<v Speaker 1>Larry Summers, I agree with his point on Friday on Bloomberg,

0:14:58.800 --> 0:15:01.400
<v Speaker 1>which was basically saying, we're just not taking it seriously enough.

0:15:01.440 --> 0:15:03.640
<v Speaker 1>The market has really been trying to push the FED

0:15:04.040 --> 0:15:07.120
<v Speaker 1>for a faster pivot, and we just don't have the

0:15:07.160 --> 0:15:10.280
<v Speaker 1>ability to do that right now. People have to remember that,

0:15:10.520 --> 0:15:12.520
<v Speaker 1>you know, we had a lot of stimulus release since

0:15:12.520 --> 0:15:15.000
<v Speaker 1>two thousand and eight, really low cost of capital, and

0:15:15.280 --> 0:15:17.760
<v Speaker 1>we have really had a lot of results from that,

0:15:18.040 --> 0:15:19.760
<v Speaker 1>and it's not going to be as much as we

0:15:19.880 --> 0:15:22.560
<v Speaker 1>all felt like, okay, here, let's gets back to a

0:15:22.680 --> 0:15:26.280
<v Speaker 1>normal year. We just aren't there with the fundamentals of

0:15:26.320 --> 0:15:29.240
<v Speaker 1>the economy at globally, and so until we get closer

0:15:29.280 --> 0:15:31.560
<v Speaker 1>to that, we're just going to have to bear through this.

0:15:31.680 --> 0:15:34.800
<v Speaker 1>And it's horrible. I'm the first to be like, can

0:15:34.880 --> 0:15:36.760
<v Speaker 1>this just be over? Can I pick my sectors and

0:15:36.800 --> 0:15:38.480
<v Speaker 1>can I trying to fully reopen? And can we get

0:15:38.520 --> 0:15:40.960
<v Speaker 1>GDP back up from the three percent of business number

0:15:40.960 --> 0:15:43.280
<v Speaker 1>they had last year? We need this for the global world,

0:15:43.640 --> 0:15:48.160
<v Speaker 1>but yet the conditions are not there yet. This is

0:15:48.200 --> 0:15:50.920
<v Speaker 1>Bloomberg Daybreak Asia, your morning brief on the story is

0:15:51.000 --> 0:15:54.160
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