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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wisntal and I'm Tracy Hall. Tracy, I feel

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Speaker 1: like the big question right now from a macro perspective

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Speaker 1: is can we get inflation down to a level that's

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Speaker 1: consistent with the Fed's target around two percent or at

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Speaker 1: least trending in that direction without a painful recession or

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Speaker 1: a significant rise in the unemployment right? I think that's

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Speaker 1: exactly right. So there's this is the whole soft landing issue.

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Speaker 1: Can the FED hit the brakes on rising prices without

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Speaker 1: pushing the US into a recession pushing up the unemployment rate?

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Speaker 1: And I have to say history is not really on

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Speaker 1: their side. We do not have a lot of successful

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Speaker 1: examples of the FED being able to do exactly that.

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Speaker 1: Although at the moment, if you look at market pricing

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Speaker 1: we're recording this on August second, you know, if you

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Speaker 1: look at market inflation expectations, they do see inflation going down. Um,

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Speaker 1: there is obviously some concern about recession risk, but I

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Speaker 1: don't think we're yet at the point where people are

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Speaker 1: pricing that as inevitable. So despite the lack of successful

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Speaker 1: historic examples of the fed actually engineering a soft landing.

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Speaker 1: It feels like a lot of the market thinks they're

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Speaker 1: going to manage to do it this time. Well, you

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Speaker 1: know you mentioned history, and yes, I think history is

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Speaker 1: not too kind. And I think many people would say, look,

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Speaker 1: when inflation is this high historically, or when inflation is

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Speaker 1: significantly elevated, the only way to bring it down is

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Speaker 1: with a tough recession. On the flip side, maybe there's

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Speaker 1: no reason we should be looking at history. Is the

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Speaker 1: thing I keep coming back to everything that this time

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Speaker 1: is different. Are you going to say it? Say it, Joe,

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Speaker 1: say this time is different. I'll say this time could

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Speaker 1: be different. And the reason I say that is not

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Speaker 1: because I'm naive or Pollyanna. But this has been unprecedented.

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Speaker 1: Two years we had a pandemic. It was a matter

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Speaker 1: of policy to bring the economy more or less to

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Speaker 1: a halt with massive fiscal stimulus. We still have a pandemic.

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Speaker 1: We have the shift from services to goods consumption, nothing

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Speaker 1: like that we've ever really seen. At some point, we're

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Speaker 1: going to see this renormalization, which is already happening, and

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Speaker 1: so like, it seems very plausible to me that history

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Speaker 1: as a guide is just not a useful roadmap for

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Speaker 1: the situation we're in right now. And maybe that's good news,

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Speaker 1: but I wouldn't bet on that. I just think it's

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Speaker 1: possible that history is not so useful here. I think

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Speaker 1: that's a fair point. But you could also say that

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Speaker 1: economic exceptionalism, or you know, thinking that our current economic

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Speaker 1: cycle is somehow unique or exceptional in a way, helped

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Speaker 1: to get us in the place where we are in

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Speaker 1: right now, where inflation has come in has been and

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Speaker 1: stayed much hotter than expected. Right The failure of the

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Speaker 1: FEDS trans a tory messaging starting in summer one really

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Speaker 1: is kind of probably a lot of people who maybe

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Speaker 1: thought like me, which is like, yeah, you know, this

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Speaker 1: is like there are a bunch of disruptions, their one offs,

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Speaker 1: and then the one offs are going to fade, and

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Speaker 1: all the weird price shocks are going to fade too.

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Speaker 1: But anyway, the stakes have gotten high because since then

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Speaker 1: inflation has gotten only higher and higher, many false hopes

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Speaker 1: that it was gonna turn down. And now the question

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Speaker 1: is how much more will the FED do and how

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Speaker 1: much pain will we see because the Fed will you know,

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Speaker 1: the FED is determined. It seems to get that in

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Speaker 1: flash right down. How much pain do we have to

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Speaker 1: bear for that to happen? Yeah, it's kind of funny.

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Speaker 1: I was thinking about this the other day. But it's

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Speaker 1: kind of funny that in order to make things affordable

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Speaker 1: in general, or things more affordable in general, some people

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Speaker 1: have to like lose their income altogether. But anyway, it's perverse. Anyway,

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Speaker 1: let's dive in with someone who knows way more about

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Speaker 1: this than either of us. We've had them on the

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Speaker 1: podcast several times over the years. I'm thrilled to have

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Speaker 1: in studio. I'm in studio. Our guest is in studio.

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Speaker 1: Tracy is on the line, sadly missing this in person.

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Speaker 1: Thrilled to have him in studio. Jana is the chief

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Speaker 1: economist at Goldman Sex. So, Jan, thank you so much

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Speaker 1: for coming back on the show. It's so great to

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Speaker 1: be with you. Joe and Tracy. Really wonderful to have you,

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Speaker 1: know the time to explore some of these issues. They

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Speaker 1: obviously extremely central to everything that we're thinking about. We

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Speaker 1: got plenty of time, so let's try to learn something.

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Speaker 1: So let's just let me just ask you the the

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Speaker 1: multi trillion dollar question, which is, can we see inflation

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Speaker 1: get back to, if not two percent, something in that

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Speaker 1: vicinity without incurring a painful recession in the US. I

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Speaker 1: think it's possible, and I do think that there is

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Speaker 1: there is a path towards you know, something like two

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Speaker 1: percent that doesn't involve a recession, but it's a it's

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Speaker 1: a very narrow path, and obviously we've seen a lot

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Speaker 1: of unanticipated shocks over the last two and a half year.

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Speaker 1: You have to be very humble, I think in your

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Speaker 1: ability to predict what's going to happen. You know, I'd

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Speaker 1: say the first part of the inflation slow down, you know,

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Speaker 1: several percentage points. Maybe you know, right now we're a

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Speaker 1: little over nine percent if you take the headline CP,

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Speaker 1: I were a little bit low five percent if you

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Speaker 1: take the core PC, you know, getting back down to

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Speaker 1: the sort of four percent range or so, I think

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Speaker 1: it's going to be relatively easy, because I do think

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Speaker 1: that will be lapping a you know, significant amount of

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Speaker 1: you know, weakness or significant significant increases in commodity prices.

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Speaker 1: I also think that if you look at the goods market,

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Speaker 1: you know, supplier deliveries, indices and other measures of of

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Speaker 1: supply chain issues, those have improved pretty rapidly. I mean,

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Speaker 1: you look at the big in the service and there's

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Speaker 1: there's really been an impressive amount of improvement just in

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Speaker 1: the last few months. So I think that part is

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Speaker 1: is not going to be too difficult. The harder part,

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Speaker 1: I think, is to then get back down from four

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Speaker 1: percent to something in the vicinity of two. And I

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Speaker 1: think for that we do need a labor market adjustment.

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Speaker 1: The labor market continues to be very overheated. We still

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Speaker 1: have you know, close to eleven million open positions and

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Speaker 1: you know, less than six million unemployed workers. That's still

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Speaker 1: a very large gap, basically unprecedented both in absolute terms

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Speaker 1: and relative to the size of the population in post

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Speaker 1: war history. And you know, I think that is the

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Speaker 1: imbalance that the FED is going to have to address.

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Speaker 1: And the way they want to address it, of course,

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Speaker 1: is by bringing down open positions without raising unemployment too much.

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Speaker 1: If you if you see a you know, a large

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Speaker 1: wave and layoffs, I mean, that's likely to mean a recession.

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Speaker 1: In fact, you could say that is a recession, and

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Speaker 1: and and that's the goal. You know, I would say,

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Speaker 1: on the slightly encouraging side, so far in you know,

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Speaker 1: over the last three months, we've actually seen a fairly

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Speaker 1: sizeable adjustment in open positions that are down more than

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Speaker 1: a million, and you know, so far without an increase

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Speaker 1: in the in the unemployment rate. So I think the

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Speaker 1: path that they're trying to, you know, stay on here

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Speaker 1: is growth below trend with decline and labor demand and

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Speaker 1: therefore an unwinding of that imbalance that ultimately brings down

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Speaker 1: wage growth and that allows us to get back to

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Speaker 1: something in the vicinity of two percent. You know, it's

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Speaker 1: a tall order for sure, but I am somewhat encouraged

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Speaker 1: by what I've seen over the last several months. You know,

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Speaker 1: you mentioned getting inflation back down to four and I

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Speaker 1: wonder is there a chance that maybe the FED would

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Speaker 1: be satisfied with four percent, and maybe in a new

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Speaker 1: normal of strained commodities supply um and energy crises in

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Speaker 1: Europe and things like that, maybe the two percent target.

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Speaker 1: I don't want to say it gets abandoned, but maybe

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Speaker 1: the FED is willing to stomach slightly higher inflation at

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Speaker 1: four percent without you know, having to tip the entire

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Speaker 1: economy over into recession and really saying unemployment go up.

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Speaker 1: I think four percent is more than than slightly higher inflation.

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Speaker 1: I don't think four would be you know, remotely acceptable

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Speaker 1: from from the Fed's perspective. You know, a to handle,

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Speaker 1: I think maybe that that may be okay. Two and

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Speaker 1: a half percent, you know, in a still fairly strong

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Speaker 1: labor market environment, I think would be would be fine

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Speaker 1: from their perspective, because if you have two and a

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Speaker 1: half in a strong labor market, then you know, from

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Speaker 1: a an average inflation target perspective, you'd be, you know,

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Speaker 1: expecting the economy to go into a session at some

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Speaker 1: point that probably would bring inflation down to less than

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Speaker 1: two percent. So, you know, I think that could be

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Speaker 1: consistent with a two percent average inflation target. Maybe you

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Speaker 1: could push that a little bit more to two and

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Speaker 1: three quarters, you know, I think a three handle and

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Speaker 1: certainly a four handle would be too high from their perspective.

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Speaker 1: And I think if you listen to what FED officials

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Speaker 1: have been saying over the last several months, I mean,

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Speaker 1: it's pretty striking that they really haven't deviated from saying,

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Speaker 1: you know, we want to get back to two percent

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Speaker 1: the and you know, in part I think that's because

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Speaker 1: inflation is very unpopular. I mean, one of the things

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Speaker 1: we've discovered or maybe rediscovered, is that, you know, people

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Speaker 1: really don't like inflation. So I think there's not much

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Speaker 1: mileage in saying, oh yeah, maybe three percent or even

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Speaker 1: something more is okay, because I don't think that's how

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Speaker 1: people think about it. So to think about what might

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Speaker 1: cause the inflation rate to fall or how far it

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Speaker 1: can fall, it might be helpful to think decompose the

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Speaker 1: drivers of the upward move which is consistently caught everyone

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Speaker 1: by surprise. The Feds certainly been caught by surprise economists,

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Speaker 1: the market. In fact, we keep seeing these new highs.

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Speaker 1: How do you think about the different factors between sort

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Speaker 1: of disruptions related to the pandemic, monetary and fiscal expansion

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Speaker 1: in response to the pandemic, and then other idiosyncratic factors,

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Speaker 1: most notably probably Russia's invasion of Ukraine. How do you

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Speaker 1: think about waiting some of these factors for how we

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Speaker 1: got here today? Well, it depends on which inflation indicator

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Speaker 1: you're looking at. If you take the headline numbers, then

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Speaker 1: you know, of course the sharp increase in commodity prices

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Speaker 1: is you know, a very important part of that, you know,

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Speaker 1: the most important part in terms of the over shoot,

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Speaker 1: and some of that is you know, driven by I

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Speaker 1: think more structural issues under investment in the commodity industry,

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Speaker 1: which my good colleague Jeff Curry has talked about. I

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Speaker 1: always talked about it on on your program. But then,

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Speaker 1: of course we've also had some additional shocks that that

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Speaker 1: also have had an impact, most notably the Russia Ukraine War.

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Speaker 1: You know, I think supply disruptions that are related to

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Speaker 1: the pandemic and related to the fact that you know,

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Speaker 1: in the spring of two thousand and twenty one, we

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Speaker 1: thought the pandemic was receding into the background, but then

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Speaker 1: you had delta, and then you had a macron, and

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Speaker 1: then you had a macron again, and then you have

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Speaker 1: you know, a sort of succession of B A waves.

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Speaker 1: So you know, I think that that is has played

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Speaker 1: a role. I do think that that is abating at

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Speaker 1: least as far as the supply disruptions are concerned, at

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Speaker 1: least for now. So and you know, there are a

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Speaker 1: number of things that are probably somewhat more temporary in nature. Uh.

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Speaker 1: And you know, I would put into the agory of

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Speaker 1: you know, unfortunate and unforeseen unforeseen sharks. But then I

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Speaker 1: think the other big issue really is the labor market imbalance.

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Speaker 1: And I would say that a lot of economists, certainly,

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Speaker 1: I have changed my thinking about labor market balance. If

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Speaker 1: you had asked me about, you know, full employment and

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Speaker 1: how I would define full employment a year and a

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Speaker 1: half ago, I would have given you an answer that

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Speaker 1: was based in part on the unemployment rate and in

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Speaker 1: part on the employment of population ratio. But open positions

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Speaker 1: would have been, you know, would have had only a

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Speaker 1: supporting role. And you know, if you if you look

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Speaker 1: at unemployment or employment to population a year and a

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Speaker 1: half ago, we were still really far away from the

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Speaker 1: sort of pre pandemic level. I mean, it was very

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Speaker 1: hard to sort of envisage that we'd be close to

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Speaker 1: full employment even a year down the road. And you know,

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Speaker 1: the truth is employment of population is still well be

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Speaker 1: oh where it was pre pandemic. But the job openings,

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Speaker 1: I think are playing a much more central role because

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Speaker 1: they basically give you the balance between total labor demand

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Speaker 1: and total labor supply, a total number of jobs and

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Speaker 1: total number of workers. And uh. And so I've I've

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Speaker 1: definitely changed my thinking about labor market balance. And we

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Speaker 1: are you know, we we are way out of balance,

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Speaker 1: and the labor market is very overheated. I want to

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Speaker 1: dig into the labor market a little bit more, but

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Speaker 1: just before we do, I feel like when it comes

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Speaker 1: to inflation, we all agree that inflation has been higher

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Speaker 1: than you know, a lot of people initially expected, but

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Speaker 1: it feels like there's less agreement on exactly why. So

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Speaker 1: there's still a lot of folk us on one off

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Speaker 1: factors like Russia's invasion of Ukraine. But could you maybe

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Speaker 1: just give us a sense of, you know, why has

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Speaker 1: it turned out this way? Why does inflation continue to

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Speaker 1: be higher than expected? And you know, looking back, I

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Speaker 1: suppose what in retrospect did people miss because we still

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Speaker 1: have even people like Chairman Pal saying things like what

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Speaker 1: was that quote? Um, we now understand how little we

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Speaker 1: understand about inflation, and yet we're all focused on it

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Speaker 1: at the moment. But like everyone seems to admit that

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Speaker 1: we're not entirely sure what's driving prices. I think again,

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Speaker 1: it's a combination of some you know, unforeseen shocks and

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Speaker 1: you know, an underestimation of how tight the labor market

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Speaker 1: really was as of a year, a year or a

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Speaker 1: year and a half ago. And I mean we certainly

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Speaker 1: shared in that I didn't think that we were anywhere

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Speaker 1: close to full employment, and now I think we're significantly

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Speaker 1: beyond full employment, at least in terms of the balance

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Speaker 1: between you know, a total number of jobs and total

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Speaker 1: number of workers. And so I think it's a it's

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Speaker 1: a combination of things that were, you know, maybe harder

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Speaker 1: to forecast, just because shocks, you know, by definition, shocks

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Speaker 1: are shocks and things that you know, with a better model,

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Speaker 1: we would have, you know, we would have anticipated. And

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Speaker 1: you know, that's why we've kind of changed a model

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Speaker 1: of how to think about this. So you know, I'm

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Speaker 1: looking at these two charts now in the terminal, and

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Speaker 1: you have employment to population ratio, which is not only

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Speaker 1: is it not back to pre crisis levels, it's actually

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Speaker 1: turned down in the last few months, which maybe is

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Speaker 1: a little bit of a source of concern. And then

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Speaker 1: the job openings data, which has started to turn down,

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Speaker 1: but that one is sort of off the charts, and

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Speaker 1: that one shot with hair one quick question on job

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Speaker 1: job openings, isn't that high quality data? Like it's not

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Speaker 1: hard to put up a job listing these days? And

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Speaker 1: I forget who it was we did to speak to

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Speaker 1: someone months ago that questioned this sort of there was

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Speaker 1: some paper that questioned how long and this sort of

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Speaker 1: time series. This is comparable given the you know, the

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Speaker 1: proliferation of job boards and the ease with which one

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Speaker 1: can post. But how do you think about like the

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Speaker 1: quality of that data. I think there's also a theory

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Speaker 1: out there that some of this was driven by p

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Speaker 1: p P and that if you say that you're still

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Speaker 1: struggling to hire workers, you still get some support from

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Speaker 1: the government. So there's also like a question over whether

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Speaker 1: those pandemic policies actually have an impact too and encourage

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Speaker 1: people to keep job openings out there. No economic indicator

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Speaker 1: is perfect, and that's certainly true for the job opening series,

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Speaker 1: I mean, the official you know jolts series, which is

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Speaker 1: published by the Labor to HAARTMENTED. I think it's higher

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Speaker 1: quality than than a lot of the other job boards,

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Speaker 1: which I would would use as maybe kind of confirmation

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Speaker 1: of what I see in the in the Labor Department numbers.

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Speaker 1: The Labor Department numbers are verified openings. We have not

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Speaker 1: really found a lot of evidence that the meaning of

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Speaker 1: a job opening is you know, dramatically different relative to

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Speaker 1: ten or twenty years ago, and if you look at

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Speaker 1: the official series, you know, as of a year and

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Speaker 1: a half ago. I mean, it wasn't out of line

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Speaker 1: with history. It's only you know, and technologically obviously a

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Speaker 1: year and a half ago wasn't that different from from

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Speaker 1: where we are now. It's it only really moved out

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Speaker 1: of line with history in the summer of two thousand

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Speaker 1: and twenty one. So to me, that is somewhat encouraging

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Speaker 1: in terms of the quality of the of the data.

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Speaker 1: But you know, I do think you want to verify

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Speaker 1: tightness of the labor market via other indicators. Another indicator

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Speaker 1: you can look at that I think it's pretty useful

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Speaker 1: as the quit rate. And you know, broadly speaking, the

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Speaker 1: quit rate confirms that were in a very tight labor market,

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Speaker 1: the one that is loosening at the margin. So we

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Speaker 1: were we had literally an all time high in the

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Speaker 1: quit rate, you know, several months ago, and we've come

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Speaker 1: off of that slightly. I haven't seen as much of

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Speaker 1: a downturn as in the job openings numbers, but I

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Speaker 1: would say, broadly speaking, confirms what you see in the

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Speaker 1: job openings data. It's just a you know, very very

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Speaker 1: tight labor market. So going back to the employment population

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Speaker 1: ratio or some of these other measures. They have topped out,

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Speaker 1: they never even got back to pre crisis levels, and

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Speaker 1: they may be flatlining or even turning down. What do

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Speaker 1: you attribute that too. What's like the big change in

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Speaker 1: the composition or the size of the labor market that

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Speaker 1: seems to be at least one factor contributing to this

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Speaker 1: big supplied to demand mismatching labor. So I'd say, looking

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Speaker 1: at the household survey of employment in general, you know,

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Speaker 1: it's been significantly weaker than the establishment survey over the

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Speaker 1: last several months. So I would probably take the downturn

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Speaker 1: that we've seen in the employment of population ratio, which

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Speaker 1: of course is based on household employment. I would take

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Speaker 1: that with a little bit of a grain of salt.

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Speaker 1: I don't know that we really have, you know, a

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Speaker 1: lot of evidence that that it's turned down. I take

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Speaker 1: more of an average between the establishment survey and the

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Speaker 1: household survey, which would say definitely slower employment growth, but

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Speaker 1: probably not an outright decline. With that out of the way,

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Speaker 1: I do think that the employment of population ratio probably

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Speaker 1: will be lower in you know, at whatever the peak

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Speaker 1: of this cycle is, then it was in the previous cycle,

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Speaker 1: because I think aging of the population of course has continued,

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Speaker 1: so that is a kind of structural driver of declines

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Speaker 1: and employment of population. And then in addition, we've seen

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Speaker 1: you know, some people withdraw from from the workforce. We've

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Speaker 1: seen you know, significant amounts of early retirement. And I

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Speaker 1: don't think that that's really going to reverse either. I mean,

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Speaker 1: over you know, over the very long term, the impact

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Speaker 1: should should decline, but it's not going to reverse quickly,

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Speaker 1: I suspect. Then then I think the last point, and

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Speaker 1: this is related to it. I don't think it's you know,

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Speaker 1: visible of course in the employment of population ratio, is

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Speaker 1: that we had very few immigrants for a year or

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Speaker 1: two and unless we see kind of catch up immigration

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Speaker 1: immigration flows that are actually larger than the pre pandemic

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Speaker 1: rate to make up for that, you know, essentially whole

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Speaker 1: we're also going to have a permanently smaller workforce than

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Speaker 1: we would have otherwise otherwise had. Again that's not for

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Speaker 1: employment to population, but it's it's important for the overall

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Speaker 1: number of workers. So how much can unemployment actually rise

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Speaker 1: without tipping the US into a full blown recession. And

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Speaker 1: then you know, secondly, when when you look at something

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Speaker 1: like jolts falling, and we just had the jolt numbers

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Speaker 1: come out today. We're recording this on August. Second, you know,

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Speaker 1: we saw a higher than expected drop in job openings. Like,

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Speaker 1: how concerning is something like that to you? Given your

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Speaker 1: new framework? So a decline and job openings is not concerning.

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Speaker 1: In fact, in my view, it's a it's a good

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Speaker 1: thing because we need a you know, rebalancing of the

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Speaker 1: labor market, and it's much much better to have that

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Speaker 1: rebalancing of the labor market occur via declines and job

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Speaker 1: openings rather than increases in unemployment. And if firms get

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Speaker 1: rid of job openings, that does not have you know,

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Speaker 1: negative second round effects. You're not cutting anybody's income by

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Speaker 1: you know, removing job openings. You know, increases in the

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Speaker 1: ployment and layoffs are a very different story. Then you

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Speaker 1: you do cut people's income, you you know, impose hardship

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Speaker 1: at the individual level, and you're also taking income out

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Speaker 1: of the out of the economy, so you're you're you're

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Speaker 1: weakening the cycle. History would say that you can only

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Speaker 1: see you know, a small increase in the unemployment rate

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Speaker 1: without going into recession at least you know, in US history,

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Speaker 1: we've never seen an increase in the three month average

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Speaker 1: of the unemployment rate of more than thirty five basis

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Speaker 1: points without a recession. If you look outside the US,

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Speaker 1: you know, that looks a little bit different. So I

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Speaker 1: certainly wouldn't view it as a as a law of nature,

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Speaker 1: but I think it does drive home that sizeable increases

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Speaker 1: in the unemployment rate have historically been associated with with recessions,

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Speaker 1: and probably in part, you know, through kind of causal

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Speaker 1: forces that you've seen, you know, declines and despol stable

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Speaker 1: income on the back of layoffs, which have then fed

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Speaker 1: into weakness in in spending. You know, historically, I think

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Speaker 1: that's often been been a factor. You know, now I

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Speaker 1: think we might be in a somewhat different situation because

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Speaker 1: weakness and disposable income, at least in in two thousand

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Speaker 1: and twenty two, you know, it's driven by inflation and

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Speaker 1: fiscal tightening as opposed to labor market forces. So you know,

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Speaker 1: it may not be quite the same situation as over

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Speaker 1: the entire stretch of postible history, but but it's definitely

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Speaker 1: something to watch. If the labor market is so tight,

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Speaker 1: why have we seen negative real wage growth? I think

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Speaker 1: because you know, wage decisions are really more around nominal

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Speaker 1: wages than than around real wages, and there's you know,

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Speaker 1: a sufficient amount of inertia in the in the process

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Speaker 1: that if you try to explain the ups and owns

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Speaker 1: of wages with labor market tightness variables generally do a

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Speaker 1: much better job if you focus on nominal wages. Then

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Speaker 1: if you focus on on real wages, it's also a

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Speaker 1: little bit hard to know, you know, what real wage

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Speaker 1: expectations that you know might be set via the labor

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Speaker 1: market process too, you know, bargaining at the individual level

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Speaker 1: or even the collective level, what that really is. You know,

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Speaker 1: backward looking inflation is nine percent, but if you look

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Speaker 1: at expected inflation depending on the horizon, you know, it's

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Speaker 1: it's much much lower. Um. So, you know, I do

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Speaker 1: think the what we've seen in wages has been quite

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Speaker 1: consistent with an overheated labor market. I mean, i'd focus

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Speaker 1: on the fact that you know, most wage indicators are

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Speaker 1: showing something like five and a half percent year and

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Speaker 1: year growth, and that is, you know, that's very high.

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Speaker 1: That's way higher than what's consistent with a you know,

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Speaker 1: two percent inflation. Right. Let me ask you you know,

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Speaker 1: Tracy mentioned like, Okay, at what point does an increase

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Speaker 1: in the unemployment rate constitute a recession? And basically, if

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Speaker 1: it starts ticking up, there's a good chance we're going

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Speaker 1: to get a recession. At what point does the Fed

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Speaker 1: seriously have a problem on its hands about the correct

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Speaker 1: course of policy? If unemployment we're to start ticking up,

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Speaker 1: but inflation falls much slower than Hope did, so you know,

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Speaker 1: you start to say, like, this is a real recession,

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Speaker 1: but we still have we still have a long way

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Speaker 1: to go to two percent? Walk is through how you're

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Speaker 1: thinking about that risk, like the real stag inflation risk,

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Speaker 1: I guess is what's out there? Yeah, I think it

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Speaker 1: depends on what you see another indicators. I mean, you

432
00:25:39,560 --> 00:25:44,040
Speaker 1: wouldn't just want to focus on the realized inflation numbers

433
00:25:44,080 --> 00:25:48,000
Speaker 1: because that is, you know, going to be pretty backward looking.

434
00:25:48,000 --> 00:25:51,000
Speaker 1: I think you want to look at overall measures of

435
00:25:51,080 --> 00:25:53,520
Speaker 1: supply versus demand and the labor market. You want to

436
00:25:53,560 --> 00:25:56,080
Speaker 1: look at the at the wage numbers. But yeah, I mean,

437
00:25:56,240 --> 00:25:58,359
Speaker 1: it certainly could be that you're you'd be in a

438
00:25:58,359 --> 00:26:02,520
Speaker 1: difficult situation because you know, while you do want to

439
00:26:02,520 --> 00:26:06,919
Speaker 1: focus on forecasts, forecasting is always difficult, and it's probably

440
00:26:06,960 --> 00:26:10,080
Speaker 1: more difficult in the current environment then it has been

441
00:26:10,119 --> 00:26:13,120
Speaker 1: in previous cycles. So I think there is a real

442
00:26:13,240 --> 00:26:16,800
Speaker 1: risk that if you if you did see you know,

443
00:26:17,560 --> 00:26:22,320
Speaker 1: a sharper downturn, that it would be difficult to you know,

444
00:26:22,440 --> 00:26:25,880
Speaker 1: know exactly at what point you should you know, reverse

445
00:26:25,960 --> 00:26:29,120
Speaker 1: course on monetary policy. You know. With that said, if

446
00:26:29,160 --> 00:26:32,920
Speaker 1: I focus on the last efform C meeting, I think

447
00:26:33,840 --> 00:26:37,640
Speaker 1: there was some reassurance from Chair Powell as far as

448
00:26:37,640 --> 00:26:40,919
Speaker 1: markets were concerned, that you know, he said, we we

449
00:26:40,960 --> 00:26:43,240
Speaker 1: are going to look at at both sides of this.

450
00:26:43,480 --> 00:26:45,320
Speaker 1: I mean, I don't think it was a you know,

451
00:26:45,400 --> 00:26:49,000
Speaker 1: particularly doublsh meeting, you know, to the degree that that

452
00:26:49,000 --> 00:26:54,280
Speaker 1: that perhaps you might gauge from where market pricing has gone.

453
00:26:54,760 --> 00:26:57,959
Speaker 1: But it was reassuring in the sense that, you know,

454
00:26:58,040 --> 00:27:00,760
Speaker 1: he certainly didn't say, well only for a stone inflation.

455
00:27:01,800 --> 00:27:04,720
Speaker 1: Joe asked you that question about if the job market

456
00:27:04,760 --> 00:27:07,520
Speaker 1: is so tight, why haven't wages gone up more? And

457
00:27:07,560 --> 00:27:10,280
Speaker 1: this is I guess one of the maybe one of

458
00:27:10,280 --> 00:27:12,879
Speaker 1: the few good things that we have going at the moment,

459
00:27:12,920 --> 00:27:17,960
Speaker 1: which is that inflation expectations so far seemed to be

460
00:27:18,240 --> 00:27:22,520
Speaker 1: reasonably well anchored. Unfortunately, a lot of people don't think

461
00:27:22,520 --> 00:27:25,920
Speaker 1: they're going to get massive pay increases, and a lot

462
00:27:25,960 --> 00:27:28,639
Speaker 1: of people, at least according to the survey measures, still

463
00:27:28,720 --> 00:27:33,159
Speaker 1: think of inflation as transitory. How much does that help

464
00:27:33,560 --> 00:27:37,320
Speaker 1: the FED? And is there a risk that at some

465
00:27:37,440 --> 00:27:42,920
Speaker 1: point those expectations become unmoored or more unmoored. I think

466
00:27:42,960 --> 00:27:47,080
Speaker 1: it's you know, hugely helpful, certainly if you you know,

467
00:27:47,240 --> 00:27:50,840
Speaker 1: compared with the with the alternative. I mean, if if

468
00:27:51,000 --> 00:27:55,520
Speaker 1: inflation expectations were you know, anywhere close to current actual

469
00:27:55,600 --> 00:28:00,359
Speaker 1: inflation headline and and even core, I think would be

470
00:28:00,440 --> 00:28:04,760
Speaker 1: much harder to have any realistic scenario of bringing inflation

471
00:28:04,800 --> 00:28:07,560
Speaker 1: down without a very significant amount of economic pain. I mean,

472
00:28:07,560 --> 00:28:10,359
Speaker 1: if I look at the kind of economic history of

473
00:28:10,440 --> 00:28:16,200
Speaker 1: the late nineteen seventies early nineteen eighties, inflation expectations, based

474
00:28:16,240 --> 00:28:19,400
Speaker 1: on the indicators we have had become you know, very

475
00:28:19,400 --> 00:28:24,800
Speaker 1: significantly unmoored on the back of repeated increases and an

476
00:28:24,840 --> 00:28:28,560
Speaker 1: ongoing trend increases in inflation over the previous fifteen years,

477
00:28:29,200 --> 00:28:31,879
Speaker 1: and it turned out to be you know, extremely painful

478
00:28:32,359 --> 00:28:35,560
Speaker 1: to bring inflation back down to the kind of you know,

479
00:28:35,640 --> 00:28:39,160
Speaker 1: two or three percent range in the in the subsequent decade.

480
00:28:39,640 --> 00:28:44,120
Speaker 1: So I, you know, I do think that we with

481
00:28:44,200 --> 00:28:47,720
Speaker 1: the with the you know, most of the long term

482
00:28:47,720 --> 00:28:53,200
Speaker 1: inflation indicators, inflation expectations indicators still consistent with something like

483
00:28:53,240 --> 00:28:56,720
Speaker 1: two percent, we're in a much much better position. And

484
00:28:57,400 --> 00:29:00,680
Speaker 1: I'd say it's one of the real signific again upside

485
00:29:00,680 --> 00:29:03,640
Speaker 1: surprises that we've seen over the last you know, a

486
00:29:03,720 --> 00:29:05,160
Speaker 1: year or a year and a half. I mean, if

487
00:29:05,160 --> 00:29:09,120
Speaker 1: you had given me all of the inflation related indicators

488
00:29:09,680 --> 00:29:12,200
Speaker 1: other than the expectations measures a year ago and had

489
00:29:12,240 --> 00:29:14,960
Speaker 1: asked me to predict what the expectations measures are, I

490
00:29:14,960 --> 00:29:17,960
Speaker 1: would have given me a much higher number. And that also,

491
00:29:18,080 --> 00:29:20,840
Speaker 1: I think is important for the second part of your question,

492
00:29:21,440 --> 00:29:24,560
Speaker 1: because you know, while of course we need to watch

493
00:29:24,680 --> 00:29:29,840
Speaker 1: whether this anchored you know, environment changes. You know, I

494
00:29:30,440 --> 00:29:33,840
Speaker 1: guess I'd be surprised if we had a you know,

495
00:29:33,920 --> 00:29:37,960
Speaker 1: a major change having watched what these uh, you know,

496
00:29:38,200 --> 00:29:40,480
Speaker 1: what what these indicators have shown. You know, obviously you

497
00:29:40,480 --> 00:29:44,040
Speaker 1: don't want to over you know, overstress your your your

498
00:29:44,120 --> 00:29:46,000
Speaker 1: your luck in this. You do need to watch it,

499
00:29:46,080 --> 00:29:49,840
Speaker 1: but I would expect inflation expectations to stay anchored. So

500
00:29:50,160 --> 00:29:53,160
Speaker 1: here's a question that I can post you because your

501
00:29:53,280 --> 00:29:58,360
Speaker 1: Goldman's chief economist the globe. You know, inflation isn't just

502
00:29:58,440 --> 00:30:00,880
Speaker 1: high in the US, for it, art at the map,

503
00:30:01,200 --> 00:30:02,600
Speaker 1: and there's a good chance you're going to hit a

504
00:30:02,600 --> 00:30:05,320
Speaker 1: country where inflation is it like fourty year highs. And

505
00:30:05,360 --> 00:30:09,640
Speaker 1: there are different factors. You know, Germany obviously headline inflation

506
00:30:09,760 --> 00:30:13,160
Speaker 1: very exposed to electricity prices and the increase in the

507
00:30:13,200 --> 00:30:15,640
Speaker 1: cost of gas. But it's not just Germany, and it's

508
00:30:15,640 --> 00:30:17,960
Speaker 1: not just headline and core in Europe. In the Euro

509
00:30:18,080 --> 00:30:22,640
Speaker 1: Area continues to march higher. We haven't seen that turned

510
00:30:22,680 --> 00:30:25,120
Speaker 1: down either. And you know, you can't in Europe blame

511
00:30:25,200 --> 00:30:28,880
Speaker 1: the extra checks or anything like that. Just looking at

512
00:30:28,960 --> 00:30:33,800
Speaker 1: inflation on a global basis inform can it be used

513
00:30:33,840 --> 00:30:37,240
Speaker 1: to inform anything about root causes and the drivers of it?

514
00:30:38,240 --> 00:30:42,160
Speaker 1: I think so. I think it does show that common shocks,

515
00:30:42,920 --> 00:30:47,959
Speaker 1: as opposed to country specific policy choices, you know, played

516
00:30:47,960 --> 00:30:51,520
Speaker 1: a very important role in this. But I also think

517
00:30:51,600 --> 00:30:56,200
Speaker 1: that you see some evidence of country specific developments. So

518
00:30:56,720 --> 00:31:00,920
Speaker 1: if you take the Euro Area versus the US, you know,

519
00:31:02,720 --> 00:31:07,280
Speaker 1: certainly both headline and core inflation, you know, have converged

520
00:31:07,360 --> 00:31:11,360
Speaker 1: to some degree. But on the labor market side, you know,

521
00:31:11,400 --> 00:31:14,040
Speaker 1: I think we still have a pretty significant difference. Yes,

522
00:31:14,120 --> 00:31:18,280
Speaker 1: wage growth is accelerating in in Europe, but you know,

523
00:31:18,320 --> 00:31:21,320
Speaker 1: it's moving to three percent, whereas in the US it's

524
00:31:21,360 --> 00:31:24,080
Speaker 1: moved to to five and a half percent, and you know,

525
00:31:24,200 --> 00:31:28,200
Speaker 1: three percent is still that's still relatively well behaved. I

526
00:31:28,240 --> 00:31:31,960
Speaker 1: think it's much harder to argue that the European labor

527
00:31:32,000 --> 00:31:35,360
Speaker 1: market in aggregate is is overheated. So I think there

528
00:31:35,440 --> 00:31:38,440
Speaker 1: still are some differences, you know. With that said, I

529
00:31:38,440 --> 00:31:41,720
Speaker 1: think those differences don't look quite as stark as they

530
00:31:41,720 --> 00:31:45,920
Speaker 1: did maybe six months ago or twelve months ago. And

531
00:31:46,160 --> 00:31:49,479
Speaker 1: you know, not only because of additional shocks, also because

532
00:31:49,560 --> 00:31:53,240
Speaker 1: I think we've you know, probably learned a little more

533
00:31:53,800 --> 00:31:56,680
Speaker 1: about you know, what's happened to core inflation, not just

534
00:31:56,960 --> 00:32:01,479
Speaker 1: not just you know, oiland and natural gasper an electracitory prices.

535
00:32:02,080 --> 00:32:05,120
Speaker 1: So Joe asked the global question on inflation, and I'm

536
00:32:05,120 --> 00:32:07,120
Speaker 1: going to go right back to asking a very granular

537
00:32:07,320 --> 00:32:10,640
Speaker 1: US inflation question, But can you talk to us about

538
00:32:11,040 --> 00:32:15,720
Speaker 1: rental inflation in the States, there has been some concern

539
00:32:15,960 --> 00:32:19,360
Speaker 1: about rents going up um and people are sort of

540
00:32:19,400 --> 00:32:23,640
Speaker 1: wondering when and where that might stop. And also people

541
00:32:23,760 --> 00:32:28,120
Speaker 1: asking questions about how higher rents interact with the housing

542
00:32:28,160 --> 00:32:31,720
Speaker 1: market as well. So you know, at what point does

543
00:32:31,800 --> 00:32:35,440
Speaker 1: it maybe make more sense to buy a house versus

544
00:32:35,440 --> 00:32:38,479
Speaker 1: renting if everything is going up. So I'm just wondering

545
00:32:38,480 --> 00:32:41,920
Speaker 1: how how you're sort of thinking about that. Rental inflation

546
00:32:41,960 --> 00:32:44,800
Speaker 1: certainly has been you know, an ongoing upside surprise. I

547
00:32:44,840 --> 00:32:47,560
Speaker 1: would say in the in the last few months, actually

548
00:32:48,280 --> 00:32:51,920
Speaker 1: the most important upside surprise, I mean, more important I

549
00:32:51,920 --> 00:32:55,360
Speaker 1: think than the then the commodity numbers, because we sort

550
00:32:55,360 --> 00:32:58,200
Speaker 1: of know where those are coming from. You know, both

551
00:32:58,240 --> 00:33:01,960
Speaker 1: Rand and Honest equivalent brand have, you know, continue to accelerate,

552
00:33:02,240 --> 00:33:06,160
Speaker 1: and the last couple of numbers, you know, in the

553
00:33:05,920 --> 00:33:10,120
Speaker 1: in the sort of eight percent annualized range. You know,

554
00:33:10,200 --> 00:33:14,040
Speaker 1: I think there is good reason to believe that we'll

555
00:33:14,040 --> 00:33:17,720
Speaker 1: see lower rent inflation as we go kind of into

556
00:33:17,760 --> 00:33:21,280
Speaker 1: two thousand and and twenty three. If we look at

557
00:33:22,040 --> 00:33:28,720
Speaker 1: some of the more bottom up indicators on you know, rents,

558
00:33:28,760 --> 00:33:33,160
Speaker 1: on on new leases, those have decelerated. The housing market

559
00:33:33,200 --> 00:33:37,560
Speaker 1: more broadly, you know, clearly is is decelerating. The labor

560
00:33:37,600 --> 00:33:41,560
Speaker 1: market is decelerating, I mean statistically that is an important

561
00:33:41,640 --> 00:33:45,320
Speaker 1: driver of of rent inflation. So I think by two

562
00:33:45,360 --> 00:33:50,080
Speaker 1: thousand and twenty three, I would be reasonably confident that

563
00:33:50,120 --> 00:33:54,560
Speaker 1: will will see a deceleration, but over the next few months.

564
00:33:54,600 --> 00:33:58,280
Speaker 1: I think it's a major upside risk to the inflation numbers.

565
00:33:58,280 --> 00:34:04,000
Speaker 1: And we actually just you know, up our core PC forecast,

566
00:34:04,040 --> 00:34:06,840
Speaker 1: you know, somewhat further because rent has continued to come

567
00:34:06,840 --> 00:34:09,480
Speaker 1: in where they have CORPC going to know, we have

568
00:34:09,520 --> 00:34:12,359
Speaker 1: it at four and a half percent by the end

569
00:34:12,400 --> 00:34:16,319
Speaker 1: of the year and we're in over at four right now,

570
00:34:16,360 --> 00:34:20,480
Speaker 1: so very so not much progress, not much progress through

571
00:34:20,520 --> 00:34:23,440
Speaker 1: the end of two thousand and uh and twenty two,

572
00:34:23,600 --> 00:34:25,160
Speaker 1: and that you know, there are a number of factors

573
00:34:25,200 --> 00:34:30,000
Speaker 1: going into that, but an important factor is the rent situation.

574
00:34:30,200 --> 00:34:33,399
Speaker 1: Can you describe just sort of what you your your

575
00:34:33,480 --> 00:34:36,719
Speaker 1: current shortened medium term outlook for both I guess for

576
00:34:36,800 --> 00:34:39,560
Speaker 1: both inflation but also for the fence policy. How many

577
00:34:39,560 --> 00:34:41,919
Speaker 1: more hikes through this year and then what beyond after

578
00:34:41,960 --> 00:34:45,919
Speaker 1: this year? So for inflation, you know, we have core

579
00:34:45,920 --> 00:34:49,759
Speaker 1: inflation come down you know, very modestly through the end

580
00:34:49,800 --> 00:34:53,000
Speaker 1: of the year and then more significantly in two thousand

581
00:34:53,000 --> 00:34:56,399
Speaker 1: and twenty three. That's also partly related to two rent.

582
00:34:56,480 --> 00:34:58,680
Speaker 1: So we have you know, COREPC two and a half

583
00:34:59,080 --> 00:35:01,640
Speaker 1: by the end of two thousand and twenty three. That's

584
00:35:01,640 --> 00:35:06,520
Speaker 1: a pretty significant deceleration. Obviously still you know, somewhat above

585
00:35:06,600 --> 00:35:10,200
Speaker 1: the two percent, but probably more consistent with where they

586
00:35:10,200 --> 00:35:13,799
Speaker 1: would be comfortable at least in a continued expansion. And

587
00:35:13,840 --> 00:35:17,840
Speaker 1: then on on on Fed policy. You know, we're expecting

588
00:35:17,880 --> 00:35:21,120
Speaker 1: a fifty basis point move at the September meeting, so

589
00:35:22,000 --> 00:35:25,000
Speaker 1: ratcheting down the pace. And then we have two more

590
00:35:25,080 --> 00:35:29,799
Speaker 1: twenty five basis point moves in November and December, which

591
00:35:29,880 --> 00:35:31,719
Speaker 1: takes us to three and a quarter to three and

592
00:35:31,760 --> 00:35:35,040
Speaker 1: a half percent for the funds rate, consistent with the

593
00:35:35,120 --> 00:35:39,200
Speaker 1: latest dot plot and consistent with the fed's latest thinking

594
00:35:39,719 --> 00:35:43,040
Speaker 1: based on what Chair Paul said in the latest press conference.

595
00:35:43,400 --> 00:35:45,880
Speaker 1: And then in two thousand and twenty twenty three, we

596
00:35:45,920 --> 00:35:51,359
Speaker 1: actually have nothing continued three to three and a quarter

597
00:35:51,400 --> 00:35:53,920
Speaker 1: to three and a half percent funds rate. As the

598
00:35:53,960 --> 00:35:59,440
Speaker 1: economy cools off, inflation comes down, and the growth is

599
00:35:59,520 --> 00:36:02,759
Speaker 1: below the long term trend. You know, I think in

600
00:36:02,800 --> 00:36:07,360
Speaker 1: that environment, they probably would keep the funds rate somewhat

601
00:36:07,400 --> 00:36:10,080
Speaker 1: above where they think it's going to settle in the

602
00:36:10,120 --> 00:36:12,799
Speaker 1: longer term, because you know, after all, inflation is still

603
00:36:12,840 --> 00:36:16,279
Speaker 1: too high. So I think the hurdle for cuts in

604
00:36:16,360 --> 00:36:21,279
Speaker 1: two thousand and twenty three is is high. If I

605
00:36:21,320 --> 00:36:24,000
Speaker 1: look at market pricing, the market is obviously pricing some

606
00:36:24,080 --> 00:36:27,200
Speaker 1: pretty significant cuts, but I think that probably would require

607
00:36:27,200 --> 00:36:31,000
Speaker 1: an even weaker growth environment than we have no forecast.

608
00:36:32,520 --> 00:36:36,960
Speaker 1: So one of the unusual things about the current economic situation,

609
00:36:37,040 --> 00:36:39,520
Speaker 1: and there are a bunch of unusual things about it,

610
00:36:39,560 --> 00:36:42,080
Speaker 1: but one of the bigger ones, I would say, is

611
00:36:42,120 --> 00:36:46,880
Speaker 1: the difference between soft versus hard data, so the survey

612
00:36:46,960 --> 00:36:50,560
Speaker 1: based measures versus the actual numbers that are coming in.

613
00:36:50,880 --> 00:36:54,000
Speaker 1: So even though you look at things like consumer sentiment

614
00:36:54,440 --> 00:36:57,040
Speaker 1: that you know that survey is now at its lowest

615
00:36:57,080 --> 00:36:59,960
Speaker 1: and I can't remember exactly, but like very very low,

616
00:37:00,600 --> 00:37:03,240
Speaker 1: but if you look at the actual consumer spending figure

617
00:37:03,960 --> 00:37:09,799
Speaker 1: that's been relatively resilient, how do you explain that discrepancy? Well,

618
00:37:09,840 --> 00:37:13,960
Speaker 1: I think even among the soft data there are some

619
00:37:14,000 --> 00:37:18,800
Speaker 1: important discrepancies. Because the University of Michigan consumer sentiment number

620
00:37:18,880 --> 00:37:21,160
Speaker 1: is close to an all time law, goes back to

621
00:37:21,200 --> 00:37:23,799
Speaker 1: the late nineteen sixties. I mean, it just came off

622
00:37:23,880 --> 00:37:27,440
Speaker 1: an all time law, but it's still very close. But

623
00:37:27,520 --> 00:37:31,240
Speaker 1: then the Conference Board survey, which is the other longstanding

624
00:37:31,560 --> 00:37:35,680
Speaker 1: you know, consumer confidence survey is actually not particularly low,

625
00:37:36,080 --> 00:37:39,480
Speaker 1: and that's a that's a much bigger gap than normal,

626
00:37:40,200 --> 00:37:44,000
Speaker 1: and it reflects the fact that the Conference Board indicator

627
00:37:44,160 --> 00:37:46,880
Speaker 1: puts more weight on the labor market situation, and you know,

628
00:37:47,000 --> 00:37:49,760
Speaker 1: people recognize that the labor market is still very strong,

629
00:37:50,040 --> 00:37:53,919
Speaker 1: but confidence has taken a large hit, in particular from

630
00:37:53,960 --> 00:37:58,360
Speaker 1: the inflation increase and the increase in gas prices. You

631
00:37:58,440 --> 00:38:02,480
Speaker 1: see a somewhat similar gap up in the business surveys.

632
00:38:02,520 --> 00:38:07,319
Speaker 1: A number of the business surveys have fallen kind of

633
00:38:07,400 --> 00:38:12,239
Speaker 1: below the you know, zero or or or fifty line,

634
00:38:12,280 --> 00:38:15,920
Speaker 1: depending on which of the serveys you you take, so

635
00:38:16,280 --> 00:38:23,040
Speaker 1: basically into contractionary territory. But harder indicators of activity are

636
00:38:23,320 --> 00:38:27,000
Speaker 1: are still somewhat somewhat firmer. You know, industrial production generally

637
00:38:27,000 --> 00:38:31,200
Speaker 1: has looked looked somewhat better. Um So, yeah, it's a

638
00:38:31,360 --> 00:38:34,080
Speaker 1: there are a lot of different indicators out there. I

639
00:38:34,120 --> 00:38:38,080
Speaker 1: think you generally want to put some weight on on

640
00:38:38,160 --> 00:38:44,160
Speaker 1: a range of indicators. I generally take averages of different indicators.

641
00:38:44,800 --> 00:38:48,480
Speaker 1: And consumer confidence I think it's probably a bit of

642
00:38:48,480 --> 00:38:51,200
Speaker 1: an outlier to the low side or consumer sentiment. Rather

643
00:38:51,840 --> 00:38:54,320
Speaker 1: most of the indicators, in my view are still consistent

644
00:38:54,400 --> 00:39:13,680
Speaker 1: with positive growth, though very slow growth. I want to

645
00:39:13,680 --> 00:39:15,520
Speaker 1: ask you a question, and it's sort of long term,

646
00:39:15,520 --> 00:39:18,080
Speaker 1: and maybe it even is about the entirety of this

647
00:39:18,239 --> 00:39:21,120
Speaker 1: coming decade. But when I think of the last decade,

648
00:39:21,480 --> 00:39:24,839
Speaker 1: you know, the dominant economic phenomenon to some extent was

649
00:39:25,280 --> 00:39:29,000
Speaker 1: slack and there was always ample workers ready to be hired.

650
00:39:29,520 --> 00:39:34,080
Speaker 1: We had loose, uh, commodity markets. Oil was not only cheap,

651
00:39:34,120 --> 00:39:36,400
Speaker 1: it was plentiful. It was the shale era. It was

652
00:39:36,480 --> 00:39:40,160
Speaker 1: not you know, shortages and elsewhere. And of course that's

653
00:39:40,440 --> 00:39:43,719
Speaker 1: tight commodity markets. And we've had multiple conversations with your

654
00:39:43,719 --> 00:39:48,960
Speaker 1: colleague Jeff Curry. Is expected to be a persistent feature

655
00:39:49,040 --> 00:39:52,000
Speaker 1: of the economy, at least for the foreseeable future. It

656
00:39:52,080 --> 00:39:55,279
Speaker 1: doesn't seem like there's gonna be some major change in

657
00:39:55,320 --> 00:39:58,799
Speaker 1: the supplied dynamic of copper or lithium or oil or

658
00:39:58,840 --> 00:40:02,240
Speaker 1: anything like that. Does that change what this next decade

659
00:40:02,320 --> 00:40:04,160
Speaker 1: is going to be like and does it impose to

660
00:40:04,280 --> 00:40:08,280
Speaker 1: some extent a lower speed limit on what what growth

661
00:40:08,320 --> 00:40:10,480
Speaker 1: can be in the years ahead. Yeah, I think it

662
00:40:10,520 --> 00:40:13,840
Speaker 1: potentially does. I do think it's important for from a

663
00:40:13,920 --> 00:40:17,240
Speaker 1: from a speed limit perspective, you know, over time. Of course,

664
00:40:17,280 --> 00:40:21,640
Speaker 1: there will be you know, substitution and there will be innovation,

665
00:40:21,920 --> 00:40:24,960
Speaker 1: and you know, whatever constraint exists in the in the

666
00:40:25,000 --> 00:40:30,160
Speaker 1: short term can be relieved via investment and you know, ingenuity.

667
00:40:30,239 --> 00:40:33,920
Speaker 1: But but but I do think it's a uh, you know,

668
00:40:33,960 --> 00:40:38,480
Speaker 1: a significant significant issue at least relative to the sort

669
00:40:38,480 --> 00:40:42,080
Speaker 1: of post two thousand and fourteen period when you had

670
00:40:42,120 --> 00:40:45,960
Speaker 1: a you know, much much kind of looser supply environment,

671
00:40:46,120 --> 00:40:49,919
Speaker 1: especially in the in the commodity industry, which then kind

672
00:40:49,920 --> 00:40:54,680
Speaker 1: of begat the the the underinvestment for which we're now

673
00:40:54,760 --> 00:40:57,240
Speaker 1: we're now paying the price, you know. I think another

674
00:40:58,719 --> 00:41:03,200
Speaker 1: another issue, though, was on the macroeconomic side, that in

675
00:41:03,640 --> 00:41:08,120
Speaker 1: the aftermath of the two thousand and eight crisis, monetary

676
00:41:08,160 --> 00:41:13,320
Speaker 1: and fiscal policy we're you know, very reluctant to provide

677
00:41:13,360 --> 00:41:16,440
Speaker 1: stimulus even in an environment where we are still you know,

678
00:41:16,640 --> 00:41:19,200
Speaker 1: very far away from from from full employment. And it

679
00:41:19,239 --> 00:41:21,719
Speaker 1: took a long time for that to end. You know.

680
00:41:21,800 --> 00:41:24,799
Speaker 1: I do think that it was you know, the low

681
00:41:24,840 --> 00:41:29,320
Speaker 1: inflation environment. In part it was planetful supply of commodities,

682
00:41:29,360 --> 00:41:32,880
Speaker 1: but in part it probably also was overly tight policy.

683
00:41:33,120 --> 00:41:36,040
Speaker 1: Do you find yourself I'm just curious, you know, professional

684
00:41:36,360 --> 00:41:39,600
Speaker 1: question but obviously, like we've been doing the podcast over

685
00:41:39,760 --> 00:41:42,520
Speaker 1: for years and years now, and you know, the last

686
00:41:42,600 --> 00:41:45,360
Speaker 1: year our conversation to become much more micro, and we

687
00:41:45,360 --> 00:41:47,320
Speaker 1: want to learn about the ports, and we want to

688
00:41:47,400 --> 00:41:51,480
Speaker 1: learn about copper production. And you know, now when thinking about, well,

689
00:41:51,520 --> 00:41:54,719
Speaker 1: where electricity prices going to go in the US, it's

690
00:41:54,719 --> 00:41:56,839
Speaker 1: like you have to know, like how soon are they

691
00:41:56,880 --> 00:41:59,799
Speaker 1: going to get that export terminal in Louisiana back open?

692
00:41:59,840 --> 00:42:03,800
Speaker 1: They would presumably put upward pressure on natural gas prices.

693
00:42:04,160 --> 00:42:07,560
Speaker 1: Do you find yourself and in your conversation feeling the

694
00:42:07,600 --> 00:42:10,719
Speaker 1: impulse to get more micro to understand some of these

695
00:42:10,719 --> 00:42:14,560
Speaker 1: things as how they're going to inform the broader economy. Yeah,

696
00:42:14,560 --> 00:42:17,160
Speaker 1: and more of a crisis situation, I think you always

697
00:42:17,160 --> 00:42:21,200
Speaker 1: have to learn more, you know about details of the

698
00:42:21,280 --> 00:42:25,640
Speaker 1: economy or the financial system or healthcare. Then then you

699
00:42:25,719 --> 00:42:29,319
Speaker 1: really perhaps anticipated And that was true of course in

700
00:42:29,360 --> 00:42:32,520
Speaker 1: the run up to two thousand and eight, and you

701
00:42:32,560 --> 00:42:36,240
Speaker 1: know the immediate aftermath in terms of the financial system,

702
00:42:36,280 --> 00:42:40,240
Speaker 1: in the in the mortgage market, and you know, securitization,

703
00:42:40,880 --> 00:42:43,239
Speaker 1: and in the early days of the pandemic, it was

704
00:42:43,280 --> 00:42:46,640
Speaker 1: around health health and and I think in the aftermath

705
00:42:46,680 --> 00:42:50,160
Speaker 1: of the pandemic. A lot is around supply chain and

706
00:42:50,320 --> 00:42:54,280
Speaker 1: and commodity industries, So I do think it's a hallmark

707
00:42:54,400 --> 00:42:58,279
Speaker 1: in some ways of being in more of a crisis situation.

708
00:42:58,560 --> 00:43:02,000
Speaker 1: The other thing I'd say on this is that different

709
00:43:02,280 --> 00:43:06,520
Speaker 1: parts of the economy, you know, having very different experiences,

710
00:43:06,560 --> 00:43:08,920
Speaker 1: and that's probably going to continue to make it harder

711
00:43:09,400 --> 00:43:13,959
Speaker 1: to figure out the macro because you know, you've got

712
00:43:14,600 --> 00:43:19,400
Speaker 1: good spending still at pretty high levels, and even in

713
00:43:19,480 --> 00:43:22,640
Speaker 1: a decent econdom, you know, in a decent macro environment,

714
00:43:22,719 --> 00:43:25,600
Speaker 1: good spending is probably not going to develop very well

715
00:43:25,600 --> 00:43:29,400
Speaker 1: over the next next year or so. Where service spending

716
00:43:30,200 --> 00:43:33,400
Speaker 1: is you know, service consumption is still well below the

717
00:43:34,000 --> 00:43:36,839
Speaker 1: pre pandemic level, and there even in a not so

718
00:43:36,920 --> 00:43:41,319
Speaker 1: good economic environment, we probably will still see increases in

719
00:43:42,080 --> 00:43:46,399
Speaker 1: you know, say office adjacent consumption or you know, high

720
00:43:46,480 --> 00:43:50,360
Speaker 1: touch recreation services and and and and travel and spectator

721
00:43:50,400 --> 00:43:52,799
Speaker 1: events and things like that. And I think that's also

722
00:43:52,880 --> 00:43:57,560
Speaker 1: going to make it harder to extrapolate from kind of

723
00:43:57,600 --> 00:44:03,279
Speaker 1: partial indicators, you know, one sector of the economy to

724
00:44:03,400 --> 00:44:05,960
Speaker 1: say that you know, this is this is what's telling

725
00:44:06,040 --> 00:44:07,880
Speaker 1: us that we're in a recession. Now that we're not

726
00:44:07,920 --> 00:44:10,479
Speaker 1: in a recession, and you really do have to look

727
00:44:10,520 --> 00:44:14,000
Speaker 1: at the whole picture and and and the you know,

728
00:44:14,080 --> 00:44:16,720
Speaker 1: macroeconomy has made made up of a lot of different

729
00:44:17,120 --> 00:44:21,839
Speaker 1: sectors and separate micro indicators. Just on this note, how

730
00:44:21,920 --> 00:44:25,560
Speaker 1: has the pandemic changed the economy? I mean, you mentioned

731
00:44:25,719 --> 00:44:30,000
Speaker 1: tweaking your labor market model, but I can imagine, you know,

732
00:44:30,040 --> 00:44:32,920
Speaker 1: in the early days of the pandemic, when all this

733
00:44:32,960 --> 00:44:37,840
Speaker 1: new fiscal stimulus was unleashed, there was some talk that, oh,

734
00:44:37,840 --> 00:44:40,920
Speaker 1: this is a new paradigm that from now on, whenever

735
00:44:40,960 --> 00:44:43,239
Speaker 1: there's a recession, we're going to get you know, the

736
00:44:43,280 --> 00:44:46,480
Speaker 1: government writing checks and things like that. But now that

737
00:44:46,520 --> 00:44:49,080
Speaker 1: we have higher than expected inflation, it seems like that

738
00:44:49,280 --> 00:44:52,160
Speaker 1: might be in doubt. So I'm wondering if you think

739
00:44:52,320 --> 00:44:57,080
Speaker 1: that something permanent has changed because of our pandemic experience.

740
00:44:57,640 --> 00:45:00,560
Speaker 1: I think that's still an open question. On the on

741
00:45:00,640 --> 00:45:04,600
Speaker 1: the labor market, you know, kind of rethinking of our

742
00:45:05,000 --> 00:45:09,719
Speaker 1: labor market model. I don't think that's necessarily directly related

743
00:45:09,800 --> 00:45:13,200
Speaker 1: to the to the pandemic. I think it's just thinking

744
00:45:13,320 --> 00:45:17,920
Speaker 1: through how labor demand and labor supply interact in a

745
00:45:18,719 --> 00:45:20,799
Speaker 1: in a in a more careful way. I think. I

746
00:45:20,800 --> 00:45:24,080
Speaker 1: mean I think it's it's it could have that could

747
00:45:24,080 --> 00:45:28,080
Speaker 1: have occurred in a you know, very different kind of

748
00:45:28,120 --> 00:45:32,719
Speaker 1: healthcare and pandemic environment. It just so happened that because

749
00:45:32,760 --> 00:45:36,480
Speaker 1: we've seen these massive changes in job openings, that that's

750
00:45:36,520 --> 00:45:40,400
Speaker 1: what really made the whole job openings issue very salient.

751
00:45:40,800 --> 00:45:44,440
Speaker 1: How the economy is going to look from a structural perspective,

752
00:45:44,760 --> 00:45:48,280
Speaker 1: you know, what what the average level of say, service

753
00:45:48,280 --> 00:45:51,480
Speaker 1: consumption versus goods consumption is going to be, and you

754
00:45:51,520 --> 00:45:55,279
Speaker 1: know how many people, how much time people spending offices

755
00:45:55,480 --> 00:45:59,160
Speaker 1: versus working remotely. I think a lot of those things

756
00:45:59,200 --> 00:46:02,520
Speaker 1: are still somewhat up in the air. My own view is,

757
00:46:03,160 --> 00:46:06,759
Speaker 1: you know, probably more towards the the side that a

758
00:46:06,800 --> 00:46:09,799
Speaker 1: lot of these things are going to continue to normalize

759
00:46:09,880 --> 00:46:12,719
Speaker 1: relative to pre pandemic levels. I think we've already seen

760
00:46:12,760 --> 00:46:16,560
Speaker 1: a sizeable amount of normalization. I think that probably will continue,

761
00:46:16,560 --> 00:46:19,000
Speaker 1: although it's taking in a lot of areas, it's taking

762
00:46:19,480 --> 00:46:25,160
Speaker 1: longer than anticipated. I think on economic policy, the you know,

763
00:46:25,400 --> 00:46:30,399
Speaker 1: economic policy kind of goes in goes in waves and

764
00:46:30,400 --> 00:46:33,040
Speaker 1: and and you know, there's there's always a risk of

765
00:46:33,680 --> 00:46:36,880
Speaker 1: kind of fighting the last war for central banks and

766
00:46:36,920 --> 00:46:40,799
Speaker 1: fiscal policy makers, and you know, in the kind of

767
00:46:40,920 --> 00:46:43,960
Speaker 1: nine nineties and two thousands, and much of the two

768
00:46:43,960 --> 00:46:50,360
Speaker 1: thousands and tens, I think central banks were very focused

769
00:46:50,480 --> 00:46:55,200
Speaker 1: on high inflation and the risk of inflation recurring, and

770
00:46:55,360 --> 00:47:00,279
Speaker 1: so they tended to run too tight a monetary poll. See.

771
00:47:00,520 --> 00:47:05,120
Speaker 1: Then in the course of the posto eight recovery, you know,

772
00:47:05,360 --> 00:47:10,560
Speaker 1: they learned basically that they probably should be setting their

773
00:47:10,600 --> 00:47:15,040
Speaker 1: sights on full employment somewhat higher, should be more aggressive.

774
00:47:15,760 --> 00:47:19,799
Speaker 1: When the pandemic struck. They were very decharmined, We're not

775
00:47:19,840 --> 00:47:21,719
Speaker 1: going to make this mistake again. We're going to be

776
00:47:21,800 --> 00:47:25,720
Speaker 1: very aggressive. And you know, in two thousand and twenty

777
00:47:25,880 --> 00:47:30,440
Speaker 1: that was actually extremely fortuitous because they were very aggressive

778
00:47:30,600 --> 00:47:34,680
Speaker 1: in forestalling what could have been a significantly worse crisis.

779
00:47:35,160 --> 00:47:38,120
Speaker 1: But then in two thousand and twenty one, this thinking

780
00:47:38,480 --> 00:47:42,480
Speaker 1: led them to overdo it, and uh, you know, it

781
00:47:42,560 --> 00:47:46,480
Speaker 1: took it took too long to sort of bring about

782
00:47:46,520 --> 00:47:50,600
Speaker 1: a change in in policy, and and so in two

783
00:47:50,600 --> 00:47:52,920
Speaker 1: thousand and twenty two they've been they've been catching up.

784
00:47:53,400 --> 00:47:58,279
Speaker 1: I mean, yeah, it's late Jackson Hole. That's when they

785
00:47:58,360 --> 00:48:02,840
Speaker 1: unveiled the flexible average inflation targeting, which in retrospect seems

786
00:48:02,880 --> 00:48:06,840
Speaker 1: like it might have been the ideal policy for the

787
00:48:06,920 --> 00:48:11,480
Speaker 1: post GFC recession that might have led to better outcomes

788
00:48:11,640 --> 00:48:14,240
Speaker 1: than what we got. I guess still to be determined

789
00:48:14,280 --> 00:48:16,840
Speaker 1: whether they could pull off the soft landing here or not.

790
00:48:17,120 --> 00:48:19,879
Speaker 1: What's the buzz going to be like at Jackson Hole?

791
00:48:19,960 --> 00:48:22,400
Speaker 1: You think this year where you know, what do you

792
00:48:22,680 --> 00:48:24,680
Speaker 1: I guess just you know, high inflation. But I'm curious,

793
00:48:24,680 --> 00:48:26,799
Speaker 1: like what you're going to be listening for and what

794
00:48:27,520 --> 00:48:29,600
Speaker 1: the most important central bankers in the world, what's on

795
00:48:29,640 --> 00:48:33,920
Speaker 1: their mind. I think the question of how do you

796
00:48:33,960 --> 00:48:38,000
Speaker 1: think about you know, demand and supply in the economy

797
00:48:38,120 --> 00:48:42,120
Speaker 1: and labor market balance, and you know, what will it

798
00:48:42,200 --> 00:48:46,400
Speaker 1: take to bring the parts of the economy that central

799
00:48:46,400 --> 00:48:49,480
Speaker 1: banks and the FED can you have some control over

800
00:48:49,640 --> 00:48:52,839
Speaker 1: back into balance? And you know how much of the

801
00:48:52,880 --> 00:48:57,160
Speaker 1: inflation is you know, perhaps driven by by factors that

802
00:48:57,200 --> 00:48:59,600
Speaker 1: they really can't control. I think that's going to be

803
00:48:59,680 --> 00:49:04,279
Speaker 1: import And the question you asked earlier about, you know,

804
00:49:04,360 --> 00:49:09,120
Speaker 1: how do you trade off inflation still above the target

805
00:49:10,320 --> 00:49:15,240
Speaker 1: against an economy that is maybe at risk of falling

806
00:49:15,280 --> 00:49:17,560
Speaker 1: into a session or has fallen into our session. I

807
00:49:17,600 --> 00:49:20,160
Speaker 1: think that's going to be in an important one. You know,

808
00:49:20,200 --> 00:49:23,680
Speaker 1: how do you interpret the dual mandate. To what extent

809
00:49:23,760 --> 00:49:26,919
Speaker 1: do you, you know, put significant weight on on both

810
00:49:26,960 --> 00:49:29,239
Speaker 1: sides of the mandate, And to what extent do you

811
00:49:29,320 --> 00:49:33,239
Speaker 1: really focus primarily on on inflation and at what time horizon?

812
00:49:33,360 --> 00:49:36,480
Speaker 1: You know, I think these are really the the bread

813
00:49:36,520 --> 00:49:40,759
Speaker 1: and butter, really central questions of macroeconomic policy that are

814
00:49:40,800 --> 00:49:43,480
Speaker 1: going to be very much in in focus. You know,

815
00:49:43,520 --> 00:49:46,719
Speaker 1: at times in Jackson Hole in the past, um, you know,

816
00:49:46,800 --> 00:49:50,120
Speaker 1: they've talked about issues that are maybe a little bit

817
00:49:50,120 --> 00:49:54,640
Speaker 1: further away from the you know, from these kind of

818
00:49:54,640 --> 00:49:57,360
Speaker 1: bread and butter questions, But right now it's really blocking

819
00:49:57,400 --> 00:50:00,359
Speaker 1: and tact in central making pretty course part the job.

820
00:50:00,440 --> 00:50:03,720
Speaker 1: I just want to go back again to this question

821
00:50:04,040 --> 00:50:06,799
Speaker 1: of like, you know, you mentioned fighting the last war,

822
00:50:07,000 --> 00:50:10,239
Speaker 1: and you know that's a natural human phenomenon and sort

823
00:50:10,280 --> 00:50:13,760
Speaker 1: of anchoring to old conditions or old paradigms or thinking

824
00:50:13,800 --> 00:50:18,600
Speaker 1: that we can't really see high sustained inflation. And you

825
00:50:18,640 --> 00:50:21,839
Speaker 1: mentioned in your own models, say with you know, what

826
00:50:21,880 --> 00:50:24,280
Speaker 1: were the signs that things were more out of kilter

827
00:50:24,400 --> 00:50:29,200
Speaker 1: than maybe people appreciated, And you point a job, job openings.

828
00:50:29,360 --> 00:50:33,239
Speaker 1: Is there anything else deeper that over the course of

829
00:50:33,239 --> 00:50:35,400
Speaker 1: the last year that you might have learned or have

830
00:50:35,440 --> 00:50:38,719
Speaker 1: incorporated into your thinking, or is it not much more

831
00:50:38,800 --> 00:50:43,239
Speaker 1: than we should have picked a different input. I mean,

832
00:50:43,239 --> 00:50:48,399
Speaker 1: I think in general the inflation indicators that I think

833
00:50:48,480 --> 00:50:54,120
Speaker 1: also have been important and we're flashing you know, amber

834
00:50:54,520 --> 00:50:58,399
Speaker 1: or orange or or read in two thousand and twenty one,

835
00:50:58,840 --> 00:51:01,719
Speaker 1: the supply delivery and disease. I mean, we're you know,

836
00:51:01,800 --> 00:51:05,760
Speaker 1: pretty extreme and a lot of the supply chain issues,

837
00:51:06,320 --> 00:51:11,480
Speaker 1: you know, quite quite extreme. And you know, they they

838
00:51:11,480 --> 00:51:13,680
Speaker 1: while they have improved in recent months, it took a

839
00:51:13,719 --> 00:51:16,520
Speaker 1: long time for them for them to improve again. Some

840
00:51:16,680 --> 00:51:23,280
Speaker 1: of that was because of recurring shocks delta omicron Ukraine

841
00:51:23,960 --> 00:51:27,839
Speaker 1: and you know, an omicron again. But but but I

842
00:51:27,880 --> 00:51:31,120
Speaker 1: do think these are indicators that are that are very

843
00:51:31,200 --> 00:51:33,960
Speaker 1: useful and it's important to take them, take them very seriously.

844
00:51:34,480 --> 00:51:37,239
Speaker 1: Just a final question, what else are you sort of

845
00:51:37,360 --> 00:51:41,439
Speaker 1: looking out for right now? Like what okay, obviously unemployment,

846
00:51:41,920 --> 00:51:45,279
Speaker 1: the inflation data, anything else big that will sort of

847
00:51:45,320 --> 00:51:47,560
Speaker 1: inform your thinking, especially like you know, going into the

848
00:51:47,680 --> 00:51:50,600
Speaker 1: end of the year and thinking about whether the pace

849
00:51:50,680 --> 00:51:53,760
Speaker 1: of hikes could even be faster than what we're expecting

850
00:51:53,840 --> 00:51:58,040
Speaker 1: right now, The pace of hikes could be faster of course,

851
00:51:58,080 --> 00:52:02,680
Speaker 1: if the you know, inflation adjustment is you know, takes

852
00:52:02,719 --> 00:52:05,920
Speaker 1: longer and the labor market adjustment takes takes longer. So

853
00:52:06,120 --> 00:52:11,520
Speaker 1: I think that's very closely related to the you know,

854
00:52:11,600 --> 00:52:15,160
Speaker 1: to these core issues that we've been discussing. I am focused,

855
00:52:15,239 --> 00:52:18,560
Speaker 1: of course, on what happens globally. I mean, we're looking

856
00:52:18,680 --> 00:52:22,240
Speaker 1: at at least a mild recession in the euro Area,

857
00:52:22,920 --> 00:52:27,000
Speaker 1: and if there is no Russian gas at all that

858
00:52:27,040 --> 00:52:30,120
Speaker 1: will end up flowing, then you know, potentially a significantly

859
00:52:30,160 --> 00:52:34,080
Speaker 1: deeper recession. There is a question about the spillovers from

860
00:52:34,160 --> 00:52:37,200
Speaker 1: that into the US. I would say, if it's a

861
00:52:37,239 --> 00:52:42,040
Speaker 1: supply side driven recession because German and Italian industrial companies

862
00:52:42,280 --> 00:52:45,680
Speaker 1: don't get gas and therefore have to shut down production,

863
00:52:45,880 --> 00:52:48,799
Speaker 1: that may not have you know, a large spillovers. But

864
00:52:49,560 --> 00:52:52,840
Speaker 1: there's also the question, you know, what happens more broadly

865
00:52:52,840 --> 00:52:56,960
Speaker 1: in Europe. There's an election in Italy on September twenty five.

866
00:52:57,560 --> 00:53:00,799
Speaker 1: Probably will be some nervousness around in the run up

867
00:53:00,840 --> 00:53:06,680
Speaker 1: to that election because if you have a more Euroskeptic

868
00:53:07,080 --> 00:53:11,960
Speaker 1: government in Italy and you have increases in rates in

869
00:53:11,960 --> 00:53:17,000
Speaker 1: in the your area, upward pressure on Italian spreads, you know,

870
00:53:17,080 --> 00:53:21,560
Speaker 1: I think the risk is that you revisit at least

871
00:53:21,640 --> 00:53:27,279
Speaker 1: some of the European crisis kind of experiences, because you know,

872
00:53:27,320 --> 00:53:30,160
Speaker 1: there'll be a question of at what point can the

873
00:53:30,360 --> 00:53:32,920
Speaker 1: can the e c B you know, really step in

874
00:53:33,120 --> 00:53:37,680
Speaker 1: if the Italian government is less willing to cooperate. So

875
00:53:37,760 --> 00:53:40,920
Speaker 1: that's definitely something I'm focused on. You know, the latest

876
00:53:41,080 --> 00:53:45,400
Speaker 1: developments in China, I think a very important question. Obviously

877
00:53:45,400 --> 00:53:48,759
Speaker 1: we've seen some very strong, very strong rebound from the

878
00:53:48,760 --> 00:53:53,240
Speaker 1: Shanghai lockdown, but the latest data again show that the

879
00:53:53,320 --> 00:53:56,840
Speaker 1: renewed kind of virus spread is starting to have a

880
00:53:56,880 --> 00:54:00,719
Speaker 1: negative impact again. So I mean our our China forecast

881
00:54:01,000 --> 00:54:04,520
Speaker 1: has been you know, on the more cautious side for

882
00:54:04,520 --> 00:54:07,520
Speaker 1: for a while. We're currently at three point three percent

883
00:54:07,760 --> 00:54:10,960
Speaker 1: for the year as a whole for for GDP growth,

884
00:54:11,160 --> 00:54:14,920
Speaker 1: government target officially is still five and a half. And frankly,

885
00:54:14,960 --> 00:54:17,760
Speaker 1: I think the risks are forecasts are you know, probably

886
00:54:18,120 --> 00:54:21,160
Speaker 1: still pretty clearly on the downside. So there's a lot

887
00:54:21,239 --> 00:54:24,480
Speaker 1: going on globally, uh, you know, a lot of a

888
00:54:24,480 --> 00:54:28,200
Speaker 1: lot of downside risks to activity. Despite the fact that

889
00:54:28,440 --> 00:54:32,040
Speaker 1: you know, we're we're still we're still mostly discussed inflation

890
00:54:32,080 --> 00:54:36,520
Speaker 1: today art Is, chief economist at Goldman Sex. Always a

891
00:54:36,600 --> 00:54:39,319
Speaker 1: treat to chat with you, and with so much going

892
00:54:39,360 --> 00:54:42,319
Speaker 1: on right now, really appreciate you coming back on the show.

893
00:54:42,920 --> 00:54:45,160
Speaker 1: Thank you so much, Joe, Thank you so much. Tracy.

894
00:54:45,960 --> 00:54:47,440
Speaker 1: Great to be with you. Thanks you, and there's a

895
00:54:47,480 --> 00:55:05,480
Speaker 1: lot of fun. Thanks. Yeah, that was great, Tracy. I

896
00:55:05,600 --> 00:55:10,000
Speaker 1: always obviously enjoy speaking to Jan. I guess it's you know,

897
00:55:10,000 --> 00:55:12,279
Speaker 1: there's still a chance of a soft landing. You know,

898
00:55:12,320 --> 00:55:16,920
Speaker 1: it's not it doesn't seem that high, especially getting inflation

899
00:55:17,000 --> 00:55:19,480
Speaker 1: down from say like four percent to two percent, seems

900
00:55:19,520 --> 00:55:21,600
Speaker 1: like it's going to take a lot of pain. But

901
00:55:21,840 --> 00:55:24,680
Speaker 1: I guess it's not outside of the realm of possibility

902
00:55:24,719 --> 00:55:28,080
Speaker 1: when you look at the unemployment rate staying low despite

903
00:55:28,120 --> 00:55:30,279
Speaker 1: the drop in job opening So I don't know if

904
00:55:30,320 --> 00:55:33,919
Speaker 1: you causes for hope. Maybe I was about to say,

905
00:55:33,960 --> 00:55:38,520
Speaker 1: I thought Yan's point about the difference between job openings

906
00:55:38,520 --> 00:55:41,600
Speaker 1: going down versus the unemployment rate going up is a

907
00:55:41,640 --> 00:55:44,439
Speaker 1: really important one. But the other thing I would say

908
00:55:44,680 --> 00:55:49,520
Speaker 1: is I keep coming back to historic parallels, and I

909
00:55:49,560 --> 00:55:52,440
Speaker 1: know everyone tends to reach for the seventies or the

910
00:55:52,480 --> 00:55:56,160
Speaker 1: nine eighties, but really it feels like and we've we've

911
00:55:56,160 --> 00:56:00,400
Speaker 1: talked about this before, I'm sure, but the post eighteen

912
00:56:00,600 --> 00:56:06,799
Speaker 1: Spanish flu um situation like that feels just really relevant

913
00:56:06,840 --> 00:56:09,040
Speaker 1: to me at the moment because you did have a

914
00:56:09,040 --> 00:56:11,640
Speaker 1: period of high inflation there. You did have the FED

915
00:56:11,719 --> 00:56:15,839
Speaker 1: start raising rates in order to bring prices down, and

916
00:56:15,880 --> 00:56:20,080
Speaker 1: they did underestimate the impact that rising rates would have

917
00:56:20,360 --> 00:56:23,000
Speaker 1: on the job market, so you saw a big contraction

918
00:56:23,080 --> 00:56:27,799
Speaker 1: in job openings actually, and eventually that fed into unemployment

919
00:56:27,840 --> 00:56:30,920
Speaker 1: and it basically tipped the US back into recession um

920
00:56:31,040 --> 00:56:35,279
Speaker 1: a couple of years later. So I'm thinking, yeah, well

921
00:56:35,280 --> 00:56:38,920
Speaker 1: that too. Yeah, obviously, yes, there was a very large pandemic,

922
00:56:39,000 --> 00:56:42,720
Speaker 1: but it does seem like the big worry to my mind,

923
00:56:42,880 --> 00:56:46,640
Speaker 1: would be if we got some unexpected jump, of of

924
00:56:46,680 --> 00:56:50,960
Speaker 1: a meaningful unexpected jump in the unemployment rate over the

925
00:56:51,000 --> 00:56:56,479
Speaker 1: course of a few meetings while realized inflation remained very high.

926
00:56:56,520 --> 00:56:58,440
Speaker 1: Because again, you know, you could like look at the

927
00:56:58,480 --> 00:57:02,040
Speaker 1: math and say inflation should come down, and inflation expectations

928
00:57:02,040 --> 00:57:04,319
Speaker 1: are anchored, but we know that there's sort of this

929
00:57:04,920 --> 00:57:08,120
Speaker 1: very heavy emphasis on like we want to see it, right,

930
00:57:08,200 --> 00:57:11,200
Speaker 1: we want to see evidence that inflation is coming down,

931
00:57:11,400 --> 00:57:13,759
Speaker 1: it's coming down, sustained that it's a month over a

932
00:57:13,800 --> 00:57:17,080
Speaker 1: month over month that it's heading back towards target. And

933
00:57:17,120 --> 00:57:18,960
Speaker 1: so I do you know, like we do know that

934
00:57:19,040 --> 00:57:23,200
Speaker 1: initial claims have been picking up, corporate layoff announcements have

935
00:57:23,200 --> 00:57:25,720
Speaker 1: been picking up, not massively. There hasn't been some like

936
00:57:25,880 --> 00:57:28,480
Speaker 1: massive weakness in the labor market, but it feels like

937
00:57:28,560 --> 00:57:31,000
Speaker 1: that would be the one worry. And then the Fed's

938
00:57:31,040 --> 00:57:34,080
Speaker 1: in a really tricky problem of having to decide which

939
00:57:34,160 --> 00:57:35,920
Speaker 1: is the which is the fire it wants to put

940
00:57:35,960 --> 00:57:39,800
Speaker 1: out inflation or recession the other thing that struck me

941
00:57:40,120 --> 00:57:42,240
Speaker 1: or that jumped out and we probably should have talked

942
00:57:42,280 --> 00:57:44,960
Speaker 1: about this a little bit more, but just what a

943
00:57:45,040 --> 00:57:47,760
Speaker 1: terrible position Europe seems to be in at the moment.

944
00:57:48,600 --> 00:57:51,800
Speaker 1: Like as bad as things are in the US in

945
00:57:51,920 --> 00:57:55,320
Speaker 1: terms of inflation, it just feels like in Europe um

946
00:57:55,360 --> 00:57:57,760
Speaker 1: there's the potential for things to get even worse. Right,

947
00:57:57,800 --> 00:58:02,400
Speaker 1: So it's the combination of very high UH inflation, particularly

948
00:58:02,440 --> 00:58:06,080
Speaker 1: headline but also core rising, and then it has not

949
00:58:06,240 --> 00:58:09,200
Speaker 1: seen the wage growth that we've seen in the US.

950
00:58:09,240 --> 00:58:11,960
Speaker 1: And then you know there's all of the issues that

951
00:58:12,000 --> 00:58:15,080
Speaker 1: are like never getting never seemed to be solved about

952
00:58:15,200 --> 00:58:17,800
Speaker 1: fragmentation of the bond market, and so the question is

953
00:58:17,920 --> 00:58:20,840
Speaker 1: do you need intervention to hold down Italian dead and

954
00:58:20,840 --> 00:58:24,040
Speaker 1: then to different politics. We need to do another Europe

955
00:58:24,080 --> 00:58:27,400
Speaker 1: episode soon, that's for sure. Yeah, and just can you

956
00:58:27,440 --> 00:58:32,040
Speaker 1: actually bring down inflation while also trying to um narrow

957
00:58:32,160 --> 00:58:34,240
Speaker 1: the difference in bond spreads like that? Seems like a

958
00:58:34,320 --> 00:58:37,080
Speaker 1: really big challenge. But yeah, we should do a Europe episode.

959
00:58:37,240 --> 00:58:40,640
Speaker 1: That would be fun. Flashbacks to a two thousand twelve.

960
00:58:40,880 --> 00:58:42,560
Speaker 1: All right, shall we leave it there? Leave it there?

961
00:58:43,160 --> 00:58:46,240
Speaker 1: This has been another episode of the All Thoughts podcast.

962
00:58:46,320 --> 00:58:48,840
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at

963
00:58:48,840 --> 00:58:51,520
Speaker 1: Tracy Alloway. And I'm Joe Wisenthal. You can follow me

964
00:58:51,720 --> 00:58:55,680
Speaker 1: on Twitter at the Stalwart. Follow our producer Kerman Rodriguez

965
00:58:55,680 --> 00:58:58,680
Speaker 1: on Twitter at Kerman Erman, and check out all of

966
00:58:58,720 --> 00:59:03,480
Speaker 1: our podcasts bloom under the handle AD Podcasts. Thanks for listening.