WEBVTT - Jan Hatzius on the Narrow Path to Avoid a Hard Landing 0:00:10.080 --> 0:00:13.880 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:13.920 --> 0:00:17.720 I'm Joe Wisntal and I'm Tracy Hall. Tracy, I feel 0:00:17.760 --> 0:00:21.119 like the big question right now from a macro perspective 0:00:21.400 --> 0:00:24.919 is can we get inflation down to a level that's 0:00:24.960 --> 0:00:27.280 consistent with the Fed's target around two percent or at 0:00:27.320 --> 0:00:32.080 least trending in that direction without a painful recession or 0:00:32.120 --> 0:00:35.600 a significant rise in the unemployment right? I think that's 0:00:35.640 --> 0:00:39.440 exactly right. So there's this is the whole soft landing issue. 0:00:39.560 --> 0:00:44.400 Can the FED hit the brakes on rising prices without 0:00:44.520 --> 0:00:47.760 pushing the US into a recession pushing up the unemployment rate? 0:00:47.960 --> 0:00:51.120 And I have to say history is not really on 0:00:51.400 --> 0:00:54.520 their side. We do not have a lot of successful 0:00:54.520 --> 0:00:57.240 examples of the FED being able to do exactly that. 0:00:57.680 --> 0:01:01.000 Although at the moment, if you look at market pricing 0:01:01.480 --> 0:01:05.160 we're recording this on August second, you know, if you 0:01:05.200 --> 0:01:11.200 look at market inflation expectations, they do see inflation going down. Um, 0:01:11.240 --> 0:01:14.399 there is obviously some concern about recession risk, but I 0:01:14.400 --> 0:01:16.560 don't think we're yet at the point where people are 0:01:16.560 --> 0:01:21.640 pricing that as inevitable. So despite the lack of successful 0:01:21.720 --> 0:01:25.319 historic examples of the fed actually engineering a soft landing. 0:01:25.560 --> 0:01:28.000 It feels like a lot of the market thinks they're 0:01:28.000 --> 0:01:30.080 going to manage to do it this time. Well, you 0:01:30.080 --> 0:01:33.560 know you mentioned history, and yes, I think history is 0:01:33.640 --> 0:01:36.000 not too kind. And I think many people would say, look, 0:01:36.200 --> 0:01:39.640 when inflation is this high historically, or when inflation is 0:01:39.680 --> 0:01:42.280 significantly elevated, the only way to bring it down is 0:01:42.440 --> 0:01:46.560 with a tough recession. On the flip side, maybe there's 0:01:46.600 --> 0:01:48.600 no reason we should be looking at history. Is the 0:01:48.640 --> 0:01:50.680 thing I keep coming back to everything that this time 0:01:50.720 --> 0:01:52.800 is different. Are you going to say it? Say it, Joe, 0:01:53.320 --> 0:01:55.880 say this time is different. I'll say this time could 0:01:55.880 --> 0:01:57.720 be different. And the reason I say that is not 0:01:57.800 --> 0:02:02.320 because I'm naive or Pollyanna. But this has been unprecedented. 0:02:02.400 --> 0:02:05.040 Two years we had a pandemic. It was a matter 0:02:05.080 --> 0:02:07.320 of policy to bring the economy more or less to 0:02:07.360 --> 0:02:11.080 a halt with massive fiscal stimulus. We still have a pandemic. 0:02:11.200 --> 0:02:14.359 We have the shift from services to goods consumption, nothing 0:02:14.400 --> 0:02:16.600 like that we've ever really seen. At some point, we're 0:02:16.600 --> 0:02:20.000 going to see this renormalization, which is already happening, and 0:02:20.080 --> 0:02:24.400 so like, it seems very plausible to me that history 0:02:24.560 --> 0:02:28.280 as a guide is just not a useful roadmap for 0:02:28.360 --> 0:02:31.800 the situation we're in right now. And maybe that's good news, 0:02:31.840 --> 0:02:33.840 but I wouldn't bet on that. I just think it's 0:02:33.880 --> 0:02:37.320 possible that history is not so useful here. I think 0:02:37.360 --> 0:02:40.760 that's a fair point. But you could also say that 0:02:41.040 --> 0:02:45.600 economic exceptionalism, or you know, thinking that our current economic 0:02:45.639 --> 0:02:49.280 cycle is somehow unique or exceptional in a way, helped 0:02:49.400 --> 0:02:51.360 to get us in the place where we are in 0:02:51.560 --> 0:02:55.080 right now, where inflation has come in has been and 0:02:55.160 --> 0:02:59.240 stayed much hotter than expected. Right The failure of the 0:02:59.280 --> 0:03:04.320 FEDS trans a tory messaging starting in summer one really 0:03:04.919 --> 0:03:06.640 is kind of probably a lot of people who maybe 0:03:06.760 --> 0:03:08.919 thought like me, which is like, yeah, you know, this 0:03:09.000 --> 0:03:11.360 is like there are a bunch of disruptions, their one offs, 0:03:11.600 --> 0:03:13.040 and then the one offs are going to fade, and 0:03:13.080 --> 0:03:15.200 all the weird price shocks are going to fade too. 0:03:15.280 --> 0:03:17.880 But anyway, the stakes have gotten high because since then 0:03:18.240 --> 0:03:21.880 inflation has gotten only higher and higher, many false hopes 0:03:21.960 --> 0:03:24.440 that it was gonna turn down. And now the question 0:03:24.560 --> 0:03:27.480 is how much more will the FED do and how 0:03:27.560 --> 0:03:30.560 much pain will we see because the Fed will you know, 0:03:30.600 --> 0:03:32.760 the FED is determined. It seems to get that in 0:03:32.800 --> 0:03:34.960 flash right down. How much pain do we have to 0:03:35.000 --> 0:03:38.200 bear for that to happen? Yeah, it's kind of funny. 0:03:38.200 --> 0:03:39.680 I was thinking about this the other day. But it's 0:03:39.720 --> 0:03:43.120 kind of funny that in order to make things affordable 0:03:43.360 --> 0:03:47.040 in general, or things more affordable in general, some people 0:03:47.080 --> 0:03:52.600 have to like lose their income altogether. But anyway, it's perverse. Anyway, 0:03:52.840 --> 0:03:56.440 let's dive in with someone who knows way more about 0:03:56.480 --> 0:03:58.360 this than either of us. We've had them on the 0:03:58.400 --> 0:04:01.560 podcast several times over the years. I'm thrilled to have 0:04:01.760 --> 0:04:04.400 in studio. I'm in studio. Our guest is in studio. 0:04:04.480 --> 0:04:07.320 Tracy is on the line, sadly missing this in person. 0:04:07.600 --> 0:04:10.680 Thrilled to have him in studio. Jana is the chief 0:04:10.720 --> 0:04:14.119 economist at Goldman Sex. So, Jan, thank you so much 0:04:14.120 --> 0:04:16.279 for coming back on the show. It's so great to 0:04:16.279 --> 0:04:20.200 be with you. Joe and Tracy. Really wonderful to have you, 0:04:20.240 --> 0:04:22.080 know the time to explore some of these issues. They 0:04:22.160 --> 0:04:25.560 obviously extremely central to everything that we're thinking about. We 0:04:25.680 --> 0:04:28.119 got plenty of time, so let's try to learn something. 0:04:28.240 --> 0:04:30.000 So let's just let me just ask you the the 0:04:30.440 --> 0:04:34.040 multi trillion dollar question, which is, can we see inflation 0:04:34.760 --> 0:04:37.560 get back to, if not two percent, something in that 0:04:37.680 --> 0:04:41.919 vicinity without incurring a painful recession in the US. I 0:04:41.920 --> 0:04:45.120 think it's possible, and I do think that there is 0:04:45.360 --> 0:04:48.680 there is a path towards you know, something like two 0:04:48.720 --> 0:04:52.360 percent that doesn't involve a recession, but it's a it's 0:04:52.360 --> 0:04:56.359 a very narrow path, and obviously we've seen a lot 0:04:56.400 --> 0:04:59.800 of unanticipated shocks over the last two and a half year. 0:05:00.279 --> 0:05:02.280 You have to be very humble, I think in your 0:05:02.880 --> 0:05:07.039 ability to predict what's going to happen. You know, I'd 0:05:07.080 --> 0:05:13.360 say the first part of the inflation slow down, you know, 0:05:13.520 --> 0:05:17.000 several percentage points. Maybe you know, right now we're a 0:05:17.000 --> 0:05:20.920 little over nine percent if you take the headline CP, 0:05:21.080 --> 0:05:23.599 I were a little bit low five percent if you 0:05:23.640 --> 0:05:26.719 take the core PC, you know, getting back down to 0:05:26.800 --> 0:05:30.520 the sort of four percent range or so, I think 0:05:30.560 --> 0:05:34.200 it's going to be relatively easy, because I do think 0:05:34.279 --> 0:05:39.080 that will be lapping a you know, significant amount of 0:05:39.600 --> 0:05:45.440 you know, weakness or significant significant increases in commodity prices. 0:05:46.240 --> 0:05:49.599 I also think that if you look at the goods market, 0:05:50.279 --> 0:05:54.800 you know, supplier deliveries, indices and other measures of of 0:05:54.839 --> 0:05:58.840 supply chain issues, those have improved pretty rapidly. I mean, 0:05:59.320 --> 0:06:01.040 you look at the big in the service and there's 0:06:01.080 --> 0:06:04.159 there's really been an impressive amount of improvement just in 0:06:04.200 --> 0:06:08.239 the last few months. So I think that part is 0:06:08.240 --> 0:06:12.039 is not going to be too difficult. The harder part, 0:06:12.160 --> 0:06:14.440 I think, is to then get back down from four 0:06:14.520 --> 0:06:17.440 percent to something in the vicinity of two. And I 0:06:17.480 --> 0:06:20.480 think for that we do need a labor market adjustment. 0:06:20.520 --> 0:06:23.799 The labor market continues to be very overheated. We still 0:06:23.880 --> 0:06:28.640 have you know, close to eleven million open positions and 0:06:29.200 --> 0:06:34.320 you know, less than six million unemployed workers. That's still 0:06:34.680 --> 0:06:39.560 a very large gap, basically unprecedented both in absolute terms 0:06:39.600 --> 0:06:43.560 and relative to the size of the population in post 0:06:43.600 --> 0:06:46.840 war history. And you know, I think that is the 0:06:46.880 --> 0:06:49.919 imbalance that the FED is going to have to address. 0:06:50.040 --> 0:06:51.760 And the way they want to address it, of course, 0:06:52.080 --> 0:06:58.000 is by bringing down open positions without raising unemployment too much. 0:06:58.279 --> 0:06:59.960 If you if you see a you know, a large 0:07:00.040 --> 0:07:04.359 wave and layoffs, I mean, that's likely to mean a recession. 0:07:04.480 --> 0:07:08.000 In fact, you could say that is a recession, and 0:07:07.760 --> 0:07:10.440 and and that's the goal. You know, I would say, 0:07:10.480 --> 0:07:14.480 on the slightly encouraging side, so far in you know, 0:07:14.520 --> 0:07:16.400 over the last three months, we've actually seen a fairly 0:07:16.400 --> 0:07:19.200 sizeable adjustment in open positions that are down more than 0:07:19.200 --> 0:07:22.840 a million, and you know, so far without an increase 0:07:22.880 --> 0:07:26.800 in the in the unemployment rate. So I think the 0:07:26.840 --> 0:07:30.280 path that they're trying to, you know, stay on here 0:07:30.560 --> 0:07:36.600 is growth below trend with decline and labor demand and 0:07:36.680 --> 0:07:42.400 therefore an unwinding of that imbalance that ultimately brings down 0:07:42.680 --> 0:07:46.160 wage growth and that allows us to get back to 0:07:46.880 --> 0:07:49.720 something in the vicinity of two percent. You know, it's 0:07:49.720 --> 0:07:53.440 a tall order for sure, but I am somewhat encouraged 0:07:53.520 --> 0:07:56.240 by what I've seen over the last several months. You know, 0:07:56.360 --> 0:08:00.280 you mentioned getting inflation back down to four and I 0:08:00.320 --> 0:08:04.160 wonder is there a chance that maybe the FED would 0:08:04.200 --> 0:08:09.160 be satisfied with four percent, and maybe in a new 0:08:09.200 --> 0:08:14.160 normal of strained commodities supply um and energy crises in 0:08:14.200 --> 0:08:17.600 Europe and things like that, maybe the two percent target. 0:08:17.960 --> 0:08:20.440 I don't want to say it gets abandoned, but maybe 0:08:21.040 --> 0:08:24.880 the FED is willing to stomach slightly higher inflation at 0:08:24.880 --> 0:08:27.640 four percent without you know, having to tip the entire 0:08:27.640 --> 0:08:30.880 economy over into recession and really saying unemployment go up. 0:08:31.840 --> 0:08:35.679 I think four percent is more than than slightly higher inflation. 0:08:35.800 --> 0:08:39.120 I don't think four would be you know, remotely acceptable 0:08:39.200 --> 0:08:42.640 from from the Fed's perspective. You know, a to handle, 0:08:43.000 --> 0:08:47.000 I think maybe that that may be okay. Two and 0:08:47.040 --> 0:08:50.439 a half percent, you know, in a still fairly strong 0:08:50.520 --> 0:08:53.040 labor market environment, I think would be would be fine 0:08:53.080 --> 0:08:55.760 from their perspective, because if you have two and a 0:08:55.760 --> 0:09:00.680 half in a strong labor market, then you know, from 0:09:00.679 --> 0:09:04.600 a an average inflation target perspective, you'd be, you know, 0:09:04.640 --> 0:09:06.600 expecting the economy to go into a session at some 0:09:06.679 --> 0:09:10.839 point that probably would bring inflation down to less than 0:09:11.000 --> 0:09:13.600 two percent. So, you know, I think that could be 0:09:13.679 --> 0:09:17.520 consistent with a two percent average inflation target. Maybe you 0:09:17.520 --> 0:09:19.640 could push that a little bit more to two and 0:09:19.720 --> 0:09:23.640 three quarters, you know, I think a three handle and 0:09:23.720 --> 0:09:27.800 certainly a four handle would be too high from their perspective. 0:09:27.880 --> 0:09:30.600 And I think if you listen to what FED officials 0:09:30.600 --> 0:09:33.880 have been saying over the last several months, I mean, 0:09:33.880 --> 0:09:38.000 it's pretty striking that they really haven't deviated from saying, 0:09:38.040 --> 0:09:39.800 you know, we want to get back to two percent 0:09:40.400 --> 0:09:42.800 the and you know, in part I think that's because 0:09:43.280 --> 0:09:45.720 inflation is very unpopular. I mean, one of the things 0:09:45.760 --> 0:09:49.680 we've discovered or maybe rediscovered, is that, you know, people 0:09:49.720 --> 0:09:53.040 really don't like inflation. So I think there's not much 0:09:53.120 --> 0:09:56.960 mileage in saying, oh yeah, maybe three percent or even 0:09:57.320 --> 0:09:59.959 something more is okay, because I don't think that's how 0:10:00.000 --> 0:10:02.960 people think about it. So to think about what might 0:10:03.200 --> 0:10:06.480 cause the inflation rate to fall or how far it 0:10:06.520 --> 0:10:10.360 can fall, it might be helpful to think decompose the 0:10:10.440 --> 0:10:13.760 drivers of the upward move which is consistently caught everyone 0:10:13.800 --> 0:10:16.720 by surprise. The Feds certainly been caught by surprise economists, 0:10:16.880 --> 0:10:19.679 the market. In fact, we keep seeing these new highs. 0:10:19.720 --> 0:10:22.400 How do you think about the different factors between sort 0:10:22.400 --> 0:10:27.079 of disruptions related to the pandemic, monetary and fiscal expansion 0:10:27.160 --> 0:10:30.520 in response to the pandemic, and then other idiosyncratic factors, 0:10:30.960 --> 0:10:34.559 most notably probably Russia's invasion of Ukraine. How do you 0:10:34.600 --> 0:10:36.880 think about waiting some of these factors for how we 0:10:36.920 --> 0:10:41.440 got here today? Well, it depends on which inflation indicator 0:10:41.480 --> 0:10:43.920 you're looking at. If you take the headline numbers, then 0:10:44.600 --> 0:10:48.800 you know, of course the sharp increase in commodity prices 0:10:49.040 --> 0:10:53.280 is you know, a very important part of that, you know, 0:10:53.360 --> 0:10:55.960 the most important part in terms of the over shoot, 0:10:56.480 --> 0:10:59.320 and some of that is you know, driven by I 0:10:59.360 --> 0:11:05.240 think more structural issues under investment in the commodity industry, 0:11:05.320 --> 0:11:08.880 which my good colleague Jeff Curry has talked about. I 0:11:08.880 --> 0:11:12.000 always talked about it on on your program. But then, 0:11:12.080 --> 0:11:14.520 of course we've also had some additional shocks that that 0:11:14.640 --> 0:11:18.319 also have had an impact, most notably the Russia Ukraine War. 0:11:19.120 --> 0:11:23.160 You know, I think supply disruptions that are related to 0:11:23.200 --> 0:11:26.880 the pandemic and related to the fact that you know, 0:11:27.000 --> 0:11:29.680 in the spring of two thousand and twenty one, we 0:11:29.760 --> 0:11:32.959 thought the pandemic was receding into the background, but then 0:11:32.960 --> 0:11:34.880 you had delta, and then you had a macron, and 0:11:34.920 --> 0:11:36.600 then you had a macron again, and then you have 0:11:36.760 --> 0:11:41.760 you know, a sort of succession of B A waves. 0:11:42.040 --> 0:11:44.600 So you know, I think that that is has played 0:11:44.600 --> 0:11:47.640 a role. I do think that that is abating at 0:11:47.720 --> 0:11:50.080 least as far as the supply disruptions are concerned, at 0:11:50.120 --> 0:11:52.839 least for now. So and you know, there are a 0:11:52.920 --> 0:11:58.000 number of things that are probably somewhat more temporary in nature. Uh. 0:11:58.000 --> 0:12:00.560 And you know, I would put into the agory of 0:12:01.120 --> 0:12:06.240 you know, unfortunate and unforeseen unforeseen sharks. But then I 0:12:06.240 --> 0:12:09.720 think the other big issue really is the labor market imbalance. 0:12:09.840 --> 0:12:14.400 And I would say that a lot of economists, certainly, 0:12:14.440 --> 0:12:18.040 I have changed my thinking about labor market balance. If 0:12:18.040 --> 0:12:22.560 you had asked me about, you know, full employment and 0:12:22.960 --> 0:12:25.719 how I would define full employment a year and a 0:12:25.760 --> 0:12:28.000 half ago, I would have given you an answer that 0:12:28.080 --> 0:12:31.079 was based in part on the unemployment rate and in 0:12:31.120 --> 0:12:34.800 part on the employment of population ratio. But open positions 0:12:34.880 --> 0:12:37.160 would have been, you know, would have had only a 0:12:37.200 --> 0:12:40.120 supporting role. And you know, if you if you look 0:12:40.160 --> 0:12:44.120 at unemployment or employment to population a year and a 0:12:44.160 --> 0:12:47.720 half ago, we were still really far away from the 0:12:48.040 --> 0:12:50.480 sort of pre pandemic level. I mean, it was very 0:12:50.559 --> 0:12:54.320 hard to sort of envisage that we'd be close to 0:12:54.360 --> 0:12:57.320 full employment even a year down the road. And you know, 0:12:57.400 --> 0:12:59.839 the truth is employment of population is still well be 0:13:00.000 --> 0:13:03.400 oh where it was pre pandemic. But the job openings, 0:13:03.480 --> 0:13:06.920 I think are playing a much more central role because 0:13:07.160 --> 0:13:10.880 they basically give you the balance between total labor demand 0:13:10.960 --> 0:13:13.320 and total labor supply, a total number of jobs and 0:13:13.360 --> 0:13:17.079 total number of workers. And uh. And so I've I've 0:13:17.120 --> 0:13:20.400 definitely changed my thinking about labor market balance. And we 0:13:20.480 --> 0:13:23.679 are you know, we we are way out of balance, 0:13:23.800 --> 0:13:42.040 and the labor market is very overheated. I want to 0:13:42.080 --> 0:13:44.480 dig into the labor market a little bit more, but 0:13:44.880 --> 0:13:47.000 just before we do, I feel like when it comes 0:13:47.040 --> 0:13:51.360 to inflation, we all agree that inflation has been higher 0:13:51.400 --> 0:13:54.120 than you know, a lot of people initially expected, but 0:13:54.600 --> 0:13:58.360 it feels like there's less agreement on exactly why. So 0:13:58.840 --> 0:14:00.960 there's still a lot of folk us on one off 0:14:01.000 --> 0:14:05.160 factors like Russia's invasion of Ukraine. But could you maybe 0:14:05.240 --> 0:14:08.400 just give us a sense of, you know, why has 0:14:08.440 --> 0:14:11.120 it turned out this way? Why does inflation continue to 0:14:11.200 --> 0:14:15.400 be higher than expected? And you know, looking back, I 0:14:15.440 --> 0:14:20.440 suppose what in retrospect did people miss because we still 0:14:20.480 --> 0:14:25.960 have even people like Chairman Pal saying things like what 0:14:26.080 --> 0:14:29.480 was that quote? Um, we now understand how little we 0:14:29.600 --> 0:14:33.400 understand about inflation, and yet we're all focused on it 0:14:33.520 --> 0:14:35.840 at the moment. But like everyone seems to admit that 0:14:35.880 --> 0:14:39.760 we're not entirely sure what's driving prices. I think again, 0:14:39.760 --> 0:14:44.520 it's a combination of some you know, unforeseen shocks and 0:14:45.360 --> 0:14:51.080 you know, an underestimation of how tight the labor market 0:14:51.120 --> 0:14:54.920 really was as of a year, a year or a 0:14:55.000 --> 0:14:57.760 year and a half ago. And I mean we certainly 0:14:57.800 --> 0:15:01.160 shared in that I didn't think that we were anywhere 0:15:01.160 --> 0:15:04.920 close to full employment, and now I think we're significantly 0:15:05.000 --> 0:15:08.120 beyond full employment, at least in terms of the balance 0:15:08.200 --> 0:15:10.920 between you know, a total number of jobs and total 0:15:11.040 --> 0:15:14.000 number of workers. And so I think it's a it's 0:15:14.000 --> 0:15:18.480 a combination of things that were, you know, maybe harder 0:15:18.760 --> 0:15:24.600 to forecast, just because shocks, you know, by definition, shocks 0:15:24.600 --> 0:15:28.640 are shocks and things that you know, with a better model, 0:15:29.320 --> 0:15:32.920 we would have, you know, we would have anticipated. And 0:15:33.120 --> 0:15:35.560 you know, that's why we've kind of changed a model 0:15:36.320 --> 0:15:38.680 of how to think about this. So you know, I'm 0:15:38.680 --> 0:15:41.280 looking at these two charts now in the terminal, and 0:15:41.280 --> 0:15:45.440 you have employment to population ratio, which is not only 0:15:45.640 --> 0:15:49.320 is it not back to pre crisis levels, it's actually 0:15:49.320 --> 0:15:51.760 turned down in the last few months, which maybe is 0:15:51.800 --> 0:15:54.440 a little bit of a source of concern. And then 0:15:54.960 --> 0:15:58.160 the job openings data, which has started to turn down, 0:15:58.200 --> 0:16:00.560 but that one is sort of off the charts, and 0:16:00.680 --> 0:16:03.640 that one shot with hair one quick question on job 0:16:03.840 --> 0:16:07.840 job openings, isn't that high quality data? Like it's not 0:16:07.920 --> 0:16:10.120 hard to put up a job listing these days? And 0:16:10.320 --> 0:16:12.520 I forget who it was we did to speak to 0:16:12.560 --> 0:16:16.680 someone months ago that questioned this sort of there was 0:16:16.720 --> 0:16:19.560 some paper that questioned how long and this sort of 0:16:19.600 --> 0:16:22.600 time series. This is comparable given the you know, the 0:16:22.680 --> 0:16:25.200 proliferation of job boards and the ease with which one 0:16:25.240 --> 0:16:27.320 can post. But how do you think about like the 0:16:27.400 --> 0:16:30.200 quality of that data. I think there's also a theory 0:16:30.200 --> 0:16:31.840 out there that some of this was driven by p 0:16:32.000 --> 0:16:35.240 p P and that if you say that you're still 0:16:35.280 --> 0:16:38.440 struggling to hire workers, you still get some support from 0:16:38.480 --> 0:16:41.560 the government. So there's also like a question over whether 0:16:41.600 --> 0:16:45.160 those pandemic policies actually have an impact too and encourage 0:16:45.160 --> 0:16:48.600 people to keep job openings out there. No economic indicator 0:16:48.720 --> 0:16:52.600 is perfect, and that's certainly true for the job opening series, 0:16:53.200 --> 0:16:58.720 I mean, the official you know jolts series, which is 0:16:58.760 --> 0:17:01.800 published by the Labor to HAARTMENTED. I think it's higher 0:17:01.880 --> 0:17:05.080 quality than than a lot of the other job boards, 0:17:05.080 --> 0:17:08.040 which I would would use as maybe kind of confirmation 0:17:08.760 --> 0:17:12.439 of what I see in the in the Labor Department numbers. 0:17:12.560 --> 0:17:16.520 The Labor Department numbers are verified openings. We have not 0:17:16.720 --> 0:17:20.520 really found a lot of evidence that the meaning of 0:17:20.560 --> 0:17:25.399 a job opening is you know, dramatically different relative to 0:17:25.640 --> 0:17:28.560 ten or twenty years ago, and if you look at 0:17:28.560 --> 0:17:32.280 the official series, you know, as of a year and 0:17:32.359 --> 0:17:35.200 a half ago. I mean, it wasn't out of line 0:17:35.240 --> 0:17:39.960 with history. It's only you know, and technologically obviously a 0:17:40.040 --> 0:17:42.920 year and a half ago wasn't that different from from 0:17:42.920 --> 0:17:45.880 where we are now. It's it only really moved out 0:17:45.880 --> 0:17:49.240 of line with history in the summer of two thousand 0:17:49.440 --> 0:17:53.520 and twenty one. So to me, that is somewhat encouraging 0:17:53.560 --> 0:17:56.439 in terms of the quality of the of the data. 0:17:56.920 --> 0:18:00.399 But you know, I do think you want to verify 0:18:00.600 --> 0:18:03.920 tightness of the labor market via other indicators. Another indicator 0:18:03.960 --> 0:18:05.679 you can look at that I think it's pretty useful 0:18:05.680 --> 0:18:09.439 as the quit rate. And you know, broadly speaking, the 0:18:09.560 --> 0:18:14.040 quit rate confirms that were in a very tight labor market, 0:18:14.119 --> 0:18:16.560 the one that is loosening at the margin. So we 0:18:16.560 --> 0:18:19.520 were we had literally an all time high in the 0:18:19.600 --> 0:18:22.840 quit rate, you know, several months ago, and we've come 0:18:22.880 --> 0:18:25.080 off of that slightly. I haven't seen as much of 0:18:25.119 --> 0:18:28.040 a downturn as in the job openings numbers, but I 0:18:28.080 --> 0:18:31.040 would say, broadly speaking, confirms what you see in the 0:18:31.080 --> 0:18:33.880 job openings data. It's just a you know, very very 0:18:33.920 --> 0:18:38.120 tight labor market. So going back to the employment population 0:18:38.320 --> 0:18:41.280 ratio or some of these other measures. They have topped out, 0:18:41.359 --> 0:18:43.960 they never even got back to pre crisis levels, and 0:18:44.000 --> 0:18:47.200 they may be flatlining or even turning down. What do 0:18:47.240 --> 0:18:50.600 you attribute that too. What's like the big change in 0:18:50.680 --> 0:18:53.960 the composition or the size of the labor market that 0:18:54.119 --> 0:18:56.840 seems to be at least one factor contributing to this 0:18:56.960 --> 0:19:02.960 big supplied to demand mismatching labor. So I'd say, looking 0:19:03.080 --> 0:19:06.399 at the household survey of employment in general, you know, 0:19:06.440 --> 0:19:11.040 it's been significantly weaker than the establishment survey over the 0:19:11.080 --> 0:19:14.440 last several months. So I would probably take the downturn 0:19:15.000 --> 0:19:17.520 that we've seen in the employment of population ratio, which 0:19:17.520 --> 0:19:20.200 of course is based on household employment. I would take 0:19:20.200 --> 0:19:21.800 that with a little bit of a grain of salt. 0:19:21.840 --> 0:19:25.679 I don't know that we really have, you know, a 0:19:25.720 --> 0:19:29.520 lot of evidence that that it's turned down. I take 0:19:29.520 --> 0:19:32.000 more of an average between the establishment survey and the 0:19:32.040 --> 0:19:35.800 household survey, which would say definitely slower employment growth, but 0:19:36.320 --> 0:19:40.119 probably not an outright decline. With that out of the way, 0:19:41.000 --> 0:19:43.760 I do think that the employment of population ratio probably 0:19:43.760 --> 0:19:47.480 will be lower in you know, at whatever the peak 0:19:47.520 --> 0:19:50.679 of this cycle is, then it was in the previous cycle, 0:19:50.800 --> 0:19:54.879 because I think aging of the population of course has continued, 0:19:55.119 --> 0:19:59.240 so that is a kind of structural driver of declines 0:19:59.320 --> 0:20:03.119 and employment of population. And then in addition, we've seen 0:20:03.480 --> 0:20:06.320 you know, some people withdraw from from the workforce. We've 0:20:06.400 --> 0:20:10.439 seen you know, significant amounts of early retirement. And I 0:20:10.480 --> 0:20:14.200 don't think that that's really going to reverse either. I mean, 0:20:14.320 --> 0:20:17.840 over you know, over the very long term, the impact 0:20:17.840 --> 0:20:21.359 should should decline, but it's not going to reverse quickly, 0:20:21.400 --> 0:20:23.840 I suspect. Then then I think the last point, and 0:20:23.880 --> 0:20:27.359 this is related to it. I don't think it's you know, 0:20:27.560 --> 0:20:29.879 visible of course in the employment of population ratio, is 0:20:29.920 --> 0:20:34.199 that we had very few immigrants for a year or 0:20:34.200 --> 0:20:38.320 two and unless we see kind of catch up immigration 0:20:38.480 --> 0:20:42.520 immigration flows that are actually larger than the pre pandemic 0:20:42.600 --> 0:20:45.160 rate to make up for that, you know, essentially whole 0:20:45.440 --> 0:20:49.399 we're also going to have a permanently smaller workforce than 0:20:49.440 --> 0:20:52.240 we would have otherwise otherwise had. Again that's not for 0:20:52.280 --> 0:20:55.160 employment to population, but it's it's important for the overall 0:20:55.240 --> 0:20:59.680 number of workers. So how much can unemployment actually rise 0:21:00.080 --> 0:21:04.119 without tipping the US into a full blown recession. And 0:21:04.160 --> 0:21:06.840 then you know, secondly, when when you look at something 0:21:06.880 --> 0:21:10.399 like jolts falling, and we just had the jolt numbers 0:21:10.440 --> 0:21:14.720 come out today. We're recording this on August. Second, you know, 0:21:14.840 --> 0:21:19.199 we saw a higher than expected drop in job openings. Like, 0:21:19.640 --> 0:21:22.880 how concerning is something like that to you? Given your 0:21:22.880 --> 0:21:27.040 new framework? So a decline and job openings is not concerning. 0:21:27.119 --> 0:21:29.920 In fact, in my view, it's a it's a good 0:21:29.960 --> 0:21:34.520 thing because we need a you know, rebalancing of the 0:21:34.600 --> 0:21:37.800 labor market, and it's much much better to have that 0:21:37.920 --> 0:21:41.680 rebalancing of the labor market occur via declines and job 0:21:41.720 --> 0:21:47.040 openings rather than increases in unemployment. And if firms get 0:21:47.160 --> 0:21:50.919 rid of job openings, that does not have you know, 0:21:51.040 --> 0:21:55.120 negative second round effects. You're not cutting anybody's income by 0:21:56.000 --> 0:21:59.520 you know, removing job openings. You know, increases in the 0:22:00.000 --> 0:22:03.359 ployment and layoffs are a very different story. Then you 0:22:03.359 --> 0:22:07.560 you do cut people's income, you you know, impose hardship 0:22:07.720 --> 0:22:11.920 at the individual level, and you're also taking income out 0:22:11.960 --> 0:22:15.280 of the out of the economy, so you're you're you're 0:22:15.320 --> 0:22:19.119 weakening the cycle. History would say that you can only 0:22:19.160 --> 0:22:22.480 see you know, a small increase in the unemployment rate 0:22:22.520 --> 0:22:25.960 without going into recession at least you know, in US history, 0:22:26.040 --> 0:22:30.480 we've never seen an increase in the three month average 0:22:30.520 --> 0:22:33.520 of the unemployment rate of more than thirty five basis 0:22:33.560 --> 0:22:37.080 points without a recession. If you look outside the US, 0:22:37.280 --> 0:22:40.320 you know, that looks a little bit different. So I 0:22:40.400 --> 0:22:43.080 certainly wouldn't view it as a as a law of nature, 0:22:43.160 --> 0:22:47.440 but I think it does drive home that sizeable increases 0:22:47.440 --> 0:22:52.680 in the unemployment rate have historically been associated with with recessions, 0:22:52.720 --> 0:22:56.000 and probably in part, you know, through kind of causal 0:22:56.080 --> 0:23:00.240 forces that you've seen, you know, declines and despol stable 0:23:00.280 --> 0:23:02.720 income on the back of layoffs, which have then fed 0:23:02.800 --> 0:23:07.320 into weakness in in spending. You know, historically, I think 0:23:07.320 --> 0:23:10.480 that's often been been a factor. You know, now I 0:23:10.520 --> 0:23:13.160 think we might be in a somewhat different situation because 0:23:13.760 --> 0:23:18.480 weakness and disposable income, at least in in two thousand 0:23:18.480 --> 0:23:22.680 and twenty two, you know, it's driven by inflation and 0:23:22.960 --> 0:23:27.439 fiscal tightening as opposed to labor market forces. So you know, 0:23:27.560 --> 0:23:30.919 it may not be quite the same situation as over 0:23:31.320 --> 0:23:34.879 the entire stretch of postible history, but but it's definitely 0:23:34.920 --> 0:23:37.760 something to watch. If the labor market is so tight, 0:23:38.160 --> 0:23:42.280 why have we seen negative real wage growth? I think 0:23:42.359 --> 0:23:48.320 because you know, wage decisions are really more around nominal 0:23:48.359 --> 0:23:52.199 wages than than around real wages, and there's you know, 0:23:52.720 --> 0:23:57.480 a sufficient amount of inertia in the in the process 0:23:57.480 --> 0:24:00.359 that if you try to explain the ups and owns 0:24:01.040 --> 0:24:05.480 of wages with labor market tightness variables generally do a 0:24:05.560 --> 0:24:08.640 much better job if you focus on nominal wages. Then 0:24:08.680 --> 0:24:11.560 if you focus on on real wages, it's also a 0:24:11.560 --> 0:24:15.400 little bit hard to know, you know, what real wage 0:24:15.520 --> 0:24:19.400 expectations that you know might be set via the labor 0:24:19.440 --> 0:24:22.680 market process too, you know, bargaining at the individual level 0:24:22.720 --> 0:24:25.919 or even the collective level, what that really is. You know, 0:24:26.160 --> 0:24:30.640 backward looking inflation is nine percent, but if you look 0:24:30.680 --> 0:24:34.640 at expected inflation depending on the horizon, you know, it's 0:24:34.760 --> 0:24:38.520 it's much much lower. Um. So, you know, I do 0:24:38.600 --> 0:24:41.920 think the what we've seen in wages has been quite 0:24:41.920 --> 0:24:45.000 consistent with an overheated labor market. I mean, i'd focus 0:24:45.040 --> 0:24:47.679 on the fact that you know, most wage indicators are 0:24:47.680 --> 0:24:50.200 showing something like five and a half percent year and 0:24:50.320 --> 0:24:52.760 year growth, and that is, you know, that's very high. 0:24:52.880 --> 0:24:57.119 That's way higher than what's consistent with a you know, 0:24:57.160 --> 0:24:59.119 two percent inflation. Right. Let me ask you you know, 0:24:59.240 --> 0:25:03.320 Tracy mentioned like, Okay, at what point does an increase 0:25:03.359 --> 0:25:06.840 in the unemployment rate constitute a recession? And basically, if 0:25:06.880 --> 0:25:08.520 it starts ticking up, there's a good chance we're going 0:25:08.560 --> 0:25:12.480 to get a recession. At what point does the Fed 0:25:12.640 --> 0:25:15.679 seriously have a problem on its hands about the correct 0:25:15.680 --> 0:25:18.960 course of policy? If unemployment we're to start ticking up, 0:25:19.240 --> 0:25:22.560 but inflation falls much slower than Hope did, so you know, 0:25:22.640 --> 0:25:24.600 you start to say, like, this is a real recession, 0:25:25.040 --> 0:25:26.800 but we still have we still have a long way 0:25:26.800 --> 0:25:29.480 to go to two percent? Walk is through how you're 0:25:29.480 --> 0:25:32.800 thinking about that risk, like the real stag inflation risk, 0:25:32.840 --> 0:25:36.679 I guess is what's out there? Yeah, I think it 0:25:36.720 --> 0:25:39.560 depends on what you see another indicators. I mean, you 0:25:39.560 --> 0:25:44.040 wouldn't just want to focus on the realized inflation numbers 0:25:44.080 --> 0:25:48.000 because that is, you know, going to be pretty backward looking. 0:25:48.000 --> 0:25:51.000 I think you want to look at overall measures of 0:25:51.080 --> 0:25:53.520 supply versus demand and the labor market. You want to 0:25:53.560 --> 0:25:56.080 look at the at the wage numbers. But yeah, I mean, 0:25:56.240 --> 0:25:58.359 it certainly could be that you're you'd be in a 0:25:58.359 --> 0:26:02.520 difficult situation because you know, while you do want to 0:26:02.520 --> 0:26:06.919 focus on forecasts, forecasting is always difficult, and it's probably 0:26:06.960 --> 0:26:10.080 more difficult in the current environment then it has been 0:26:10.119 --> 0:26:13.120 in previous cycles. So I think there is a real 0:26:13.240 --> 0:26:16.800 risk that if you if you did see you know, 0:26:17.560 --> 0:26:22.320 a sharper downturn, that it would be difficult to you know, 0:26:22.440 --> 0:26:25.880 know exactly at what point you should you know, reverse 0:26:25.960 --> 0:26:29.120 course on monetary policy. You know. With that said, if 0:26:29.160 --> 0:26:32.920 I focus on the last efform C meeting, I think 0:26:33.840 --> 0:26:37.640 there was some reassurance from Chair Powell as far as 0:26:37.640 --> 0:26:40.919 markets were concerned, that you know, he said, we we 0:26:40.960 --> 0:26:43.240 are going to look at at both sides of this. 0:26:43.480 --> 0:26:45.320 I mean, I don't think it was a you know, 0:26:45.400 --> 0:26:49.000 particularly doublsh meeting, you know, to the degree that that 0:26:49.000 --> 0:26:54.280 that perhaps you might gauge from where market pricing has gone. 0:26:54.760 --> 0:26:57.959 But it was reassuring in the sense that, you know, 0:26:58.040 --> 0:27:00.760 he certainly didn't say, well only for a stone inflation. 0:27:01.800 --> 0:27:04.720 Joe asked you that question about if the job market 0:27:04.760 --> 0:27:07.520 is so tight, why haven't wages gone up more? And 0:27:07.560 --> 0:27:10.280 this is I guess one of the maybe one of 0:27:10.280 --> 0:27:12.879 the few good things that we have going at the moment, 0:27:12.920 --> 0:27:17.960 which is that inflation expectations so far seemed to be 0:27:18.240 --> 0:27:22.520 reasonably well anchored. Unfortunately, a lot of people don't think 0:27:22.520 --> 0:27:25.920 they're going to get massive pay increases, and a lot 0:27:25.960 --> 0:27:28.639 of people, at least according to the survey measures, still 0:27:28.720 --> 0:27:33.159 think of inflation as transitory. How much does that help 0:27:33.560 --> 0:27:37.320 the FED? And is there a risk that at some 0:27:37.440 --> 0:27:42.920 point those expectations become unmoored or more unmoored. I think 0:27:42.960 --> 0:27:47.080 it's you know, hugely helpful, certainly if you you know, 0:27:47.240 --> 0:27:50.840 compared with the with the alternative. I mean, if if 0:27:51.000 --> 0:27:55.520 inflation expectations were you know, anywhere close to current actual 0:27:55.600 --> 0:28:00.359 inflation headline and and even core, I think would be 0:28:00.440 --> 0:28:04.760 much harder to have any realistic scenario of bringing inflation 0:28:04.800 --> 0:28:07.560 down without a very significant amount of economic pain. I mean, 0:28:07.560 --> 0:28:10.359 if I look at the kind of economic history of 0:28:10.440 --> 0:28:16.200 the late nineteen seventies early nineteen eighties, inflation expectations, based 0:28:16.240 --> 0:28:19.400 on the indicators we have had become you know, very 0:28:19.400 --> 0:28:24.800 significantly unmoored on the back of repeated increases and an 0:28:24.840 --> 0:28:28.560 ongoing trend increases in inflation over the previous fifteen years, 0:28:29.200 --> 0:28:31.879 and it turned out to be you know, extremely painful 0:28:32.359 --> 0:28:35.560 to bring inflation back down to the kind of you know, 0:28:35.640 --> 0:28:39.160 two or three percent range in the in the subsequent decade. 0:28:39.640 --> 0:28:44.120 So I, you know, I do think that we with 0:28:44.200 --> 0:28:47.720 the with the you know, most of the long term 0:28:47.720 --> 0:28:53.200 inflation indicators, inflation expectations indicators still consistent with something like 0:28:53.240 --> 0:28:56.720 two percent, we're in a much much better position. And 0:28:57.400 --> 0:29:00.680 I'd say it's one of the real signific again upside 0:29:00.680 --> 0:29:03.640 surprises that we've seen over the last you know, a 0:29:03.720 --> 0:29:05.160 year or a year and a half. I mean, if 0:29:05.160 --> 0:29:09.120 you had given me all of the inflation related indicators 0:29:09.680 --> 0:29:12.200 other than the expectations measures a year ago and had 0:29:12.240 --> 0:29:14.960 asked me to predict what the expectations measures are, I 0:29:14.960 --> 0:29:17.960 would have given me a much higher number. And that also, 0:29:18.080 --> 0:29:20.840 I think is important for the second part of your question, 0:29:21.440 --> 0:29:24.560 because you know, while of course we need to watch 0:29:24.680 --> 0:29:29.840 whether this anchored you know, environment changes. You know, I 0:29:30.440 --> 0:29:33.840 guess I'd be surprised if we had a you know, 0:29:33.920 --> 0:29:37.960 a major change having watched what these uh, you know, 0:29:38.200 --> 0:29:40.480 what what these indicators have shown. You know, obviously you 0:29:40.480 --> 0:29:44.040 don't want to over you know, overstress your your your 0:29:44.120 --> 0:29:46.000 your luck in this. You do need to watch it, 0:29:46.080 --> 0:29:49.840 but I would expect inflation expectations to stay anchored. So 0:29:50.160 --> 0:29:53.160 here's a question that I can post you because your 0:29:53.280 --> 0:29:58.360 Goldman's chief economist the globe. You know, inflation isn't just 0:29:58.440 --> 0:30:00.880 high in the US, for it, art at the map, 0:30:01.200 --> 0:30:02.600 and there's a good chance you're going to hit a 0:30:02.600 --> 0:30:05.320 country where inflation is it like fourty year highs. And 0:30:05.360 --> 0:30:09.640 there are different factors. You know, Germany obviously headline inflation 0:30:09.760 --> 0:30:13.160 very exposed to electricity prices and the increase in the 0:30:13.200 --> 0:30:15.640 cost of gas. But it's not just Germany, and it's 0:30:15.640 --> 0:30:17.960 not just headline and core in Europe. In the Euro 0:30:18.080 --> 0:30:22.640 Area continues to march higher. We haven't seen that turned 0:30:22.680 --> 0:30:25.120 down either. And you know, you can't in Europe blame 0:30:25.200 --> 0:30:28.880 the extra checks or anything like that. Just looking at 0:30:28.960 --> 0:30:33.800 inflation on a global basis inform can it be used 0:30:33.840 --> 0:30:37.240 to inform anything about root causes and the drivers of it? 0:30:38.240 --> 0:30:42.160 I think so. I think it does show that common shocks, 0:30:42.920 --> 0:30:47.959 as opposed to country specific policy choices, you know, played 0:30:47.960 --> 0:30:51.520 a very important role in this. But I also think 0:30:51.600 --> 0:30:56.200 that you see some evidence of country specific developments. So 0:30:56.720 --> 0:31:00.920 if you take the Euro Area versus the US, you know, 0:31:02.720 --> 0:31:07.280 certainly both headline and core inflation, you know, have converged 0:31:07.360 --> 0:31:11.360 to some degree. But on the labor market side, you know, 0:31:11.400 --> 0:31:14.040 I think we still have a pretty significant difference. Yes, 0:31:14.120 --> 0:31:18.280 wage growth is accelerating in in Europe, but you know, 0:31:18.320 --> 0:31:21.320 it's moving to three percent, whereas in the US it's 0:31:21.360 --> 0:31:24.080 moved to to five and a half percent, and you know, 0:31:24.200 --> 0:31:28.200 three percent is still that's still relatively well behaved. I 0:31:28.240 --> 0:31:31.960 think it's much harder to argue that the European labor 0:31:32.000 --> 0:31:35.360 market in aggregate is is overheated. So I think there 0:31:35.440 --> 0:31:38.440 still are some differences, you know. With that said, I 0:31:38.440 --> 0:31:41.720 think those differences don't look quite as stark as they 0:31:41.720 --> 0:31:45.920 did maybe six months ago or twelve months ago. And 0:31:46.160 --> 0:31:49.479 you know, not only because of additional shocks, also because 0:31:49.560 --> 0:31:53.240 I think we've you know, probably learned a little more 0:31:53.800 --> 0:31:56.680 about you know, what's happened to core inflation, not just 0:31:56.960 --> 0:32:01.479 not just you know, oiland and natural gasper an electracitory prices. 0:32:02.080 --> 0:32:05.120 So Joe asked the global question on inflation, and I'm 0:32:05.120 --> 0:32:07.120 going to go right back to asking a very granular 0:32:07.320 --> 0:32:10.640 US inflation question, But can you talk to us about 0:32:11.040 --> 0:32:15.720 rental inflation in the States, there has been some concern 0:32:15.960 --> 0:32:19.360 about rents going up um and people are sort of 0:32:19.400 --> 0:32:23.640 wondering when and where that might stop. And also people 0:32:23.760 --> 0:32:28.120 asking questions about how higher rents interact with the housing 0:32:28.160 --> 0:32:31.720 market as well. So you know, at what point does 0:32:31.800 --> 0:32:35.440 it maybe make more sense to buy a house versus 0:32:35.440 --> 0:32:38.479 renting if everything is going up. So I'm just wondering 0:32:38.480 --> 0:32:41.920 how how you're sort of thinking about that. Rental inflation 0:32:41.960 --> 0:32:44.800 certainly has been you know, an ongoing upside surprise. I 0:32:44.840 --> 0:32:47.560 would say in the in the last few months, actually 0:32:48.280 --> 0:32:51.920 the most important upside surprise, I mean, more important I 0:32:51.920 --> 0:32:55.360 think than the then the commodity numbers, because we sort 0:32:55.360 --> 0:32:58.200 of know where those are coming from. You know, both 0:32:58.240 --> 0:33:01.960 Rand and Honest equivalent brand have, you know, continue to accelerate, 0:33:02.240 --> 0:33:06.160 and the last couple of numbers, you know, in the 0:33:05.920 --> 0:33:10.120 in the sort of eight percent annualized range. You know, 0:33:10.200 --> 0:33:14.040 I think there is good reason to believe that we'll 0:33:14.040 --> 0:33:17.720 see lower rent inflation as we go kind of into 0:33:17.760 --> 0:33:21.280 two thousand and and twenty three. If we look at 0:33:22.040 --> 0:33:28.720 some of the more bottom up indicators on you know, rents, 0:33:28.760 --> 0:33:33.160 on on new leases, those have decelerated. The housing market 0:33:33.200 --> 0:33:37.560 more broadly, you know, clearly is is decelerating. The labor 0:33:37.600 --> 0:33:41.560 market is decelerating, I mean statistically that is an important 0:33:41.640 --> 0:33:45.320 driver of of rent inflation. So I think by two 0:33:45.360 --> 0:33:50.080 thousand and twenty three, I would be reasonably confident that 0:33:50.120 --> 0:33:54.560 will will see a deceleration, but over the next few months. 0:33:54.600 --> 0:33:58.280 I think it's a major upside risk to the inflation numbers. 0:33:58.280 --> 0:34:04.000 And we actually just you know, up our core PC forecast, 0:34:04.040 --> 0:34:06.840 you know, somewhat further because rent has continued to come 0:34:06.840 --> 0:34:09.480 in where they have CORPC going to know, we have 0:34:09.520 --> 0:34:12.359 it at four and a half percent by the end 0:34:12.400 --> 0:34:16.319 of the year and we're in over at four right now, 0:34:16.360 --> 0:34:20.480 so very so not much progress, not much progress through 0:34:20.520 --> 0:34:23.440 the end of two thousand and uh and twenty two, 0:34:23.600 --> 0:34:25.160 and that you know, there are a number of factors 0:34:25.200 --> 0:34:30.000 going into that, but an important factor is the rent situation. 0:34:30.200 --> 0:34:33.399 Can you describe just sort of what you your your 0:34:33.480 --> 0:34:36.719 current shortened medium term outlook for both I guess for 0:34:36.800 --> 0:34:39.560 both inflation but also for the fence policy. How many 0:34:39.560 --> 0:34:41.919 more hikes through this year and then what beyond after 0:34:41.960 --> 0:34:45.919 this year? So for inflation, you know, we have core 0:34:45.920 --> 0:34:49.759 inflation come down you know, very modestly through the end 0:34:49.800 --> 0:34:53.000 of the year and then more significantly in two thousand 0:34:53.000 --> 0:34:56.399 and twenty three. That's also partly related to two rent. 0:34:56.480 --> 0:34:58.680 So we have you know, COREPC two and a half 0:34:59.080 --> 0:35:01.640 by the end of two thousand and twenty three. That's 0:35:01.640 --> 0:35:06.520 a pretty significant deceleration. Obviously still you know, somewhat above 0:35:06.600 --> 0:35:10.200 the two percent, but probably more consistent with where they 0:35:10.200 --> 0:35:13.799 would be comfortable at least in a continued expansion. And 0:35:13.840 --> 0:35:17.840 then on on on Fed policy. You know, we're expecting 0:35:17.880 --> 0:35:21.120 a fifty basis point move at the September meeting, so 0:35:22.000 --> 0:35:25.000 ratcheting down the pace. And then we have two more 0:35:25.080 --> 0:35:29.799 twenty five basis point moves in November and December, which 0:35:29.880 --> 0:35:31.719 takes us to three and a quarter to three and 0:35:31.760 --> 0:35:35.040 a half percent for the funds rate, consistent with the 0:35:35.120 --> 0:35:39.200 latest dot plot and consistent with the fed's latest thinking 0:35:39.719 --> 0:35:43.040 based on what Chair Paul said in the latest press conference. 0:35:43.400 --> 0:35:45.880 And then in two thousand and twenty twenty three, we 0:35:45.920 --> 0:35:51.359 actually have nothing continued three to three and a quarter 0:35:51.400 --> 0:35:53.920 to three and a half percent funds rate. As the 0:35:53.960 --> 0:35:59.440 economy cools off, inflation comes down, and the growth is 0:35:59.520 --> 0:36:02.759 below the long term trend. You know, I think in 0:36:02.800 --> 0:36:07.360 that environment, they probably would keep the funds rate somewhat 0:36:07.400 --> 0:36:10.080 above where they think it's going to settle in the 0:36:10.120 --> 0:36:12.799 longer term, because you know, after all, inflation is still 0:36:12.840 --> 0:36:16.279 too high. So I think the hurdle for cuts in 0:36:16.360 --> 0:36:21.279 two thousand and twenty three is is high. If I 0:36:21.320 --> 0:36:24.000 look at market pricing, the market is obviously pricing some 0:36:24.080 --> 0:36:27.200 pretty significant cuts, but I think that probably would require 0:36:27.200 --> 0:36:31.000 an even weaker growth environment than we have no forecast. 0:36:32.520 --> 0:36:36.960 So one of the unusual things about the current economic situation, 0:36:37.040 --> 0:36:39.520 and there are a bunch of unusual things about it, 0:36:39.560 --> 0:36:42.080 but one of the bigger ones, I would say, is 0:36:42.120 --> 0:36:46.880 the difference between soft versus hard data, so the survey 0:36:46.960 --> 0:36:50.560 based measures versus the actual numbers that are coming in. 0:36:50.880 --> 0:36:54.000 So even though you look at things like consumer sentiment 0:36:54.440 --> 0:36:57.040 that you know that survey is now at its lowest 0:36:57.080 --> 0:36:59.960 and I can't remember exactly, but like very very low, 0:37:00.600 --> 0:37:03.240 but if you look at the actual consumer spending figure 0:37:03.960 --> 0:37:09.799 that's been relatively resilient, how do you explain that discrepancy? Well, 0:37:09.840 --> 0:37:13.960 I think even among the soft data there are some 0:37:14.000 --> 0:37:18.800 important discrepancies. Because the University of Michigan consumer sentiment number 0:37:18.880 --> 0:37:21.160 is close to an all time law, goes back to 0:37:21.200 --> 0:37:23.799 the late nineteen sixties. I mean, it just came off 0:37:23.880 --> 0:37:27.440 an all time law, but it's still very close. But 0:37:27.520 --> 0:37:31.240 then the Conference Board survey, which is the other longstanding 0:37:31.560 --> 0:37:35.680 you know, consumer confidence survey is actually not particularly low, 0:37:36.080 --> 0:37:39.480 and that's a that's a much bigger gap than normal, 0:37:40.200 --> 0:37:44.000 and it reflects the fact that the Conference Board indicator 0:37:44.160 --> 0:37:46.880 puts more weight on the labor market situation, and you know, 0:37:47.000 --> 0:37:49.760 people recognize that the labor market is still very strong, 0:37:50.040 --> 0:37:53.919 but confidence has taken a large hit, in particular from 0:37:53.960 --> 0:37:58.360 the inflation increase and the increase in gas prices. You 0:37:58.440 --> 0:38:02.480 see a somewhat similar gap up in the business surveys. 0:38:02.520 --> 0:38:07.319 A number of the business surveys have fallen kind of 0:38:07.400 --> 0:38:12.239 below the you know, zero or or or fifty line, 0:38:12.280 --> 0:38:15.920 depending on which of the serveys you you take, so 0:38:16.280 --> 0:38:23.040 basically into contractionary territory. But harder indicators of activity are 0:38:23.320 --> 0:38:27.000 are still somewhat somewhat firmer. You know, industrial production generally 0:38:27.000 --> 0:38:31.200 has looked looked somewhat better. Um So, yeah, it's a 0:38:31.360 --> 0:38:34.080 there are a lot of different indicators out there. I 0:38:34.120 --> 0:38:38.080 think you generally want to put some weight on on 0:38:38.160 --> 0:38:44.160 a range of indicators. I generally take averages of different indicators. 0:38:44.800 --> 0:38:48.480 And consumer confidence I think it's probably a bit of 0:38:48.480 --> 0:38:51.200 an outlier to the low side or consumer sentiment. Rather 0:38:51.840 --> 0:38:54.320 most of the indicators, in my view are still consistent 0:38:54.400 --> 0:39:13.680 with positive growth, though very slow growth. I want to 0:39:13.680 --> 0:39:15.520 ask you a question, and it's sort of long term, 0:39:15.520 --> 0:39:18.080 and maybe it even is about the entirety of this 0:39:18.239 --> 0:39:21.120 coming decade. But when I think of the last decade, 0:39:21.480 --> 0:39:24.839 you know, the dominant economic phenomenon to some extent was 0:39:25.280 --> 0:39:29.000 slack and there was always ample workers ready to be hired. 0:39:29.520 --> 0:39:34.080 We had loose, uh, commodity markets. Oil was not only cheap, 0:39:34.120 --> 0:39:36.400 it was plentiful. It was the shale era. It was 0:39:36.480 --> 0:39:40.160 not you know, shortages and elsewhere. And of course that's 0:39:40.440 --> 0:39:43.719 tight commodity markets. And we've had multiple conversations with your 0:39:43.719 --> 0:39:48.960 colleague Jeff Curry. Is expected to be a persistent feature 0:39:49.040 --> 0:39:52.000 of the economy, at least for the foreseeable future. It 0:39:52.080 --> 0:39:55.279 doesn't seem like there's gonna be some major change in 0:39:55.320 --> 0:39:58.799 the supplied dynamic of copper or lithium or oil or 0:39:58.840 --> 0:40:02.240 anything like that. Does that change what this next decade 0:40:02.320 --> 0:40:04.160 is going to be like and does it impose to 0:40:04.280 --> 0:40:08.280 some extent a lower speed limit on what what growth 0:40:08.320 --> 0:40:10.480 can be in the years ahead. Yeah, I think it 0:40:10.520 --> 0:40:13.840 potentially does. I do think it's important for from a 0:40:13.920 --> 0:40:17.240 from a speed limit perspective, you know, over time. Of course, 0:40:17.280 --> 0:40:21.640 there will be you know, substitution and there will be innovation, 0:40:21.920 --> 0:40:24.960 and you know, whatever constraint exists in the in the 0:40:25.000 --> 0:40:30.160 short term can be relieved via investment and you know, ingenuity. 0:40:30.239 --> 0:40:33.920 But but but I do think it's a uh, you know, 0:40:33.960 --> 0:40:38.480 a significant significant issue at least relative to the sort 0:40:38.480 --> 0:40:42.080 of post two thousand and fourteen period when you had 0:40:42.120 --> 0:40:45.960 a you know, much much kind of looser supply environment, 0:40:46.120 --> 0:40:49.919 especially in the in the commodity industry, which then kind 0:40:49.920 --> 0:40:54.680 of begat the the the underinvestment for which we're now 0:40:54.760 --> 0:40:57.240 we're now paying the price, you know. I think another 0:40:58.719 --> 0:41:03.200 another issue, though, was on the macroeconomic side, that in 0:41:03.640 --> 0:41:08.120 the aftermath of the two thousand and eight crisis, monetary 0:41:08.160 --> 0:41:13.320 and fiscal policy we're you know, very reluctant to provide 0:41:13.360 --> 0:41:16.440 stimulus even in an environment where we are still you know, 0:41:16.640 --> 0:41:19.200 very far away from from from full employment. And it 0:41:19.239 --> 0:41:21.719 took a long time for that to end. You know. 0:41:21.800 --> 0:41:24.799 I do think that it was you know, the low 0:41:24.840 --> 0:41:29.320 inflation environment. In part it was planetful supply of commodities, 0:41:29.360 --> 0:41:32.880 but in part it probably also was overly tight policy. 0:41:33.120 --> 0:41:36.040 Do you find yourself I'm just curious, you know, professional 0:41:36.360 --> 0:41:39.600 question but obviously, like we've been doing the podcast over 0:41:39.760 --> 0:41:42.520 for years and years now, and you know, the last 0:41:42.600 --> 0:41:45.360 year our conversation to become much more micro, and we 0:41:45.360 --> 0:41:47.320 want to learn about the ports, and we want to 0:41:47.400 --> 0:41:51.480 learn about copper production. And you know, now when thinking about, well, 0:41:51.520 --> 0:41:54.719 where electricity prices going to go in the US, it's 0:41:54.719 --> 0:41:56.839 like you have to know, like how soon are they 0:41:56.880 --> 0:41:59.799 going to get that export terminal in Louisiana back open? 0:41:59.840 --> 0:42:03.800 They would presumably put upward pressure on natural gas prices. 0:42:04.160 --> 0:42:07.560 Do you find yourself and in your conversation feeling the 0:42:07.600 --> 0:42:10.719 impulse to get more micro to understand some of these 0:42:10.719 --> 0:42:14.560 things as how they're going to inform the broader economy. Yeah, 0:42:14.560 --> 0:42:17.160 and more of a crisis situation, I think you always 0:42:17.160 --> 0:42:21.200 have to learn more, you know about details of the 0:42:21.280 --> 0:42:25.640 economy or the financial system or healthcare. Then then you 0:42:25.719 --> 0:42:29.319 really perhaps anticipated And that was true of course in 0:42:29.360 --> 0:42:32.520 the run up to two thousand and eight, and you 0:42:32.560 --> 0:42:36.240 know the immediate aftermath in terms of the financial system, 0:42:36.280 --> 0:42:40.240 in the in the mortgage market, and you know, securitization, 0:42:40.880 --> 0:42:43.239 and in the early days of the pandemic, it was 0:42:43.280 --> 0:42:46.640 around health health and and I think in the aftermath 0:42:46.680 --> 0:42:50.160 of the pandemic. A lot is around supply chain and 0:42:50.320 --> 0:42:54.280 and commodity industries, So I do think it's a hallmark 0:42:54.400 --> 0:42:58.279 in some ways of being in more of a crisis situation. 0:42:58.560 --> 0:43:02.000 The other thing I'd say on this is that different 0:43:02.280 --> 0:43:06.520 parts of the economy, you know, having very different experiences, 0:43:06.560 --> 0:43:08.920 and that's probably going to continue to make it harder 0:43:09.400 --> 0:43:13.959 to figure out the macro because you know, you've got 0:43:14.600 --> 0:43:19.400 good spending still at pretty high levels, and even in 0:43:19.480 --> 0:43:22.640 a decent econdom, you know, in a decent macro environment, 0:43:22.719 --> 0:43:25.600 good spending is probably not going to develop very well 0:43:25.600 --> 0:43:29.400 over the next next year or so. Where service spending 0:43:30.200 --> 0:43:33.400 is you know, service consumption is still well below the 0:43:34.000 --> 0:43:36.839 pre pandemic level, and there even in a not so 0:43:36.920 --> 0:43:41.319 good economic environment, we probably will still see increases in 0:43:42.080 --> 0:43:46.399 you know, say office adjacent consumption or you know, high 0:43:46.480 --> 0:43:50.360 touch recreation services and and and and travel and spectator 0:43:50.400 --> 0:43:52.799 events and things like that. And I think that's also 0:43:52.880 --> 0:43:57.560 going to make it harder to extrapolate from kind of 0:43:57.600 --> 0:44:03.279 partial indicators, you know, one sector of the economy to 0:44:03.400 --> 0:44:05.960 say that you know, this is this is what's telling 0:44:06.040 --> 0:44:07.880 us that we're in a recession. Now that we're not 0:44:07.920 --> 0:44:10.479 in a recession, and you really do have to look 0:44:10.520 --> 0:44:14.000 at the whole picture and and and the you know, 0:44:14.080 --> 0:44:16.720 macroeconomy has made made up of a lot of different 0:44:17.120 --> 0:44:21.839 sectors and separate micro indicators. Just on this note, how 0:44:21.920 --> 0:44:25.560 has the pandemic changed the economy? I mean, you mentioned 0:44:25.719 --> 0:44:30.000 tweaking your labor market model, but I can imagine, you know, 0:44:30.040 --> 0:44:32.920 in the early days of the pandemic, when all this 0:44:32.960 --> 0:44:37.840 new fiscal stimulus was unleashed, there was some talk that, oh, 0:44:37.840 --> 0:44:40.920 this is a new paradigm that from now on, whenever 0:44:40.960 --> 0:44:43.239 there's a recession, we're going to get you know, the 0:44:43.280 --> 0:44:46.480 government writing checks and things like that. But now that 0:44:46.520 --> 0:44:49.080 we have higher than expected inflation, it seems like that 0:44:49.280 --> 0:44:52.160 might be in doubt. So I'm wondering if you think 0:44:52.320 --> 0:44:57.080 that something permanent has changed because of our pandemic experience. 0:44:57.640 --> 0:45:00.560 I think that's still an open question. On the on 0:45:00.640 --> 0:45:04.600 the labor market, you know, kind of rethinking of our 0:45:05.000 --> 0:45:09.719 labor market model. I don't think that's necessarily directly related 0:45:09.800 --> 0:45:13.200 to the to the pandemic. I think it's just thinking 0:45:13.320 --> 0:45:17.920 through how labor demand and labor supply interact in a 0:45:18.719 --> 0:45:20.799 in a in a more careful way. I think. I 0:45:20.800 --> 0:45:24.080 mean I think it's it's it could have that could 0:45:24.080 --> 0:45:28.080 have occurred in a you know, very different kind of 0:45:28.120 --> 0:45:32.719 healthcare and pandemic environment. It just so happened that because 0:45:32.760 --> 0:45:36.480 we've seen these massive changes in job openings, that that's 0:45:36.520 --> 0:45:40.400 what really made the whole job openings issue very salient. 0:45:40.800 --> 0:45:44.440 How the economy is going to look from a structural perspective, 0:45:44.760 --> 0:45:48.280 you know, what what the average level of say, service 0:45:48.280 --> 0:45:51.480 consumption versus goods consumption is going to be, and you 0:45:51.520 --> 0:45:55.279 know how many people, how much time people spending offices 0:45:55.480 --> 0:45:59.160 versus working remotely. I think a lot of those things 0:45:59.200 --> 0:46:02.520 are still somewhat up in the air. My own view is, 0:46:03.160 --> 0:46:06.759 you know, probably more towards the the side that a 0:46:06.800 --> 0:46:09.799 lot of these things are going to continue to normalize 0:46:09.880 --> 0:46:12.719 relative to pre pandemic levels. I think we've already seen 0:46:12.760 --> 0:46:16.560 a sizeable amount of normalization. I think that probably will continue, 0:46:16.560 --> 0:46:19.000 although it's taking in a lot of areas, it's taking 0:46:19.480 --> 0:46:25.160 longer than anticipated. I think on economic policy, the you know, 0:46:25.400 --> 0:46:30.399 economic policy kind of goes in goes in waves and 0:46:30.400 --> 0:46:33.040 and and you know, there's there's always a risk of 0:46:33.680 --> 0:46:36.880 kind of fighting the last war for central banks and 0:46:36.920 --> 0:46:40.799 fiscal policy makers, and you know, in the kind of 0:46:40.920 --> 0:46:43.960 nine nineties and two thousands, and much of the two 0:46:43.960 --> 0:46:50.360 thousands and tens, I think central banks were very focused 0:46:50.480 --> 0:46:55.200 on high inflation and the risk of inflation recurring, and 0:46:55.360 --> 0:47:00.279 so they tended to run too tight a monetary poll. See. 0:47:00.520 --> 0:47:05.120 Then in the course of the posto eight recovery, you know, 0:47:05.360 --> 0:47:10.560 they learned basically that they probably should be setting their 0:47:10.600 --> 0:47:15.040 sights on full employment somewhat higher, should be more aggressive. 0:47:15.760 --> 0:47:19.799 When the pandemic struck. They were very decharmined, We're not 0:47:19.840 --> 0:47:21.719 going to make this mistake again. We're going to be 0:47:21.800 --> 0:47:25.720 very aggressive. And you know, in two thousand and twenty 0:47:25.880 --> 0:47:30.440 that was actually extremely fortuitous because they were very aggressive 0:47:30.600 --> 0:47:34.680 in forestalling what could have been a significantly worse crisis. 0:47:35.160 --> 0:47:38.120 But then in two thousand and twenty one, this thinking 0:47:38.480 --> 0:47:42.480 led them to overdo it, and uh, you know, it 0:47:42.560 --> 0:47:46.480 took it took too long to sort of bring about 0:47:46.520 --> 0:47:50.600 a change in in policy, and and so in two 0:47:50.600 --> 0:47:52.920 thousand and twenty two they've been they've been catching up. 0:47:53.400 --> 0:47:58.279 I mean, yeah, it's late Jackson Hole. That's when they 0:47:58.360 --> 0:48:02.840 unveiled the flexible average inflation targeting, which in retrospect seems 0:48:02.880 --> 0:48:06.840 like it might have been the ideal policy for the 0:48:06.920 --> 0:48:11.480 post GFC recession that might have led to better outcomes 0:48:11.640 --> 0:48:14.240 than what we got. I guess still to be determined 0:48:14.280 --> 0:48:16.840 whether they could pull off the soft landing here or not. 0:48:17.120 --> 0:48:19.879 What's the buzz going to be like at Jackson Hole? 0:48:19.960 --> 0:48:22.400 You think this year where you know, what do you 0:48:22.680 --> 0:48:24.680 I guess just you know, high inflation. But I'm curious, 0:48:24.680 --> 0:48:26.799 like what you're going to be listening for and what 0:48:27.520 --> 0:48:29.600 the most important central bankers in the world, what's on 0:48:29.640 --> 0:48:33.920 their mind. I think the question of how do you 0:48:33.960 --> 0:48:38.000 think about you know, demand and supply in the economy 0:48:38.120 --> 0:48:42.120 and labor market balance, and you know, what will it 0:48:42.200 --> 0:48:46.400 take to bring the parts of the economy that central 0:48:46.400 --> 0:48:49.480 banks and the FED can you have some control over 0:48:49.640 --> 0:48:52.839 back into balance? And you know how much of the 0:48:52.880 --> 0:48:57.160 inflation is you know, perhaps driven by by factors that 0:48:57.200 --> 0:48:59.600 they really can't control. I think that's going to be 0:48:59.680 --> 0:49:04.279 import And the question you asked earlier about, you know, 0:49:04.360 --> 0:49:09.120 how do you trade off inflation still above the target 0:49:10.320 --> 0:49:15.240 against an economy that is maybe at risk of falling 0:49:15.280 --> 0:49:17.560 into a session or has fallen into our session. I 0:49:17.600 --> 0:49:20.160 think that's going to be in an important one. You know, 0:49:20.200 --> 0:49:23.680 how do you interpret the dual mandate. To what extent 0:49:23.760 --> 0:49:26.919 do you, you know, put significant weight on on both 0:49:26.960 --> 0:49:29.239 sides of the mandate, And to what extent do you 0:49:29.320 --> 0:49:33.239 really focus primarily on on inflation and at what time horizon? 0:49:33.360 --> 0:49:36.480 You know, I think these are really the the bread 0:49:36.520 --> 0:49:40.759 and butter, really central questions of macroeconomic policy that are 0:49:40.800 --> 0:49:43.480 going to be very much in in focus. You know, 0:49:43.520 --> 0:49:46.719 at times in Jackson Hole in the past, um, you know, 0:49:46.800 --> 0:49:50.120 they've talked about issues that are maybe a little bit 0:49:50.120 --> 0:49:54.640 further away from the you know, from these kind of 0:49:54.640 --> 0:49:57.360 bread and butter questions, But right now it's really blocking 0:49:57.400 --> 0:50:00.359 and tact in central making pretty course part the job. 0:50:00.440 --> 0:50:03.720 I just want to go back again to this question 0:50:04.040 --> 0:50:06.799 of like, you know, you mentioned fighting the last war, 0:50:07.000 --> 0:50:10.239 and you know that's a natural human phenomenon and sort 0:50:10.280 --> 0:50:13.760 of anchoring to old conditions or old paradigms or thinking 0:50:13.800 --> 0:50:18.600 that we can't really see high sustained inflation. And you 0:50:18.640 --> 0:50:21.839 mentioned in your own models, say with you know, what 0:50:21.880 --> 0:50:24.280 were the signs that things were more out of kilter 0:50:24.400 --> 0:50:29.200 than maybe people appreciated, And you point a job, job openings. 0:50:29.360 --> 0:50:33.239 Is there anything else deeper that over the course of 0:50:33.239 --> 0:50:35.400 the last year that you might have learned or have 0:50:35.440 --> 0:50:38.719 incorporated into your thinking, or is it not much more 0:50:38.800 --> 0:50:43.239 than we should have picked a different input. I mean, 0:50:43.239 --> 0:50:48.399 I think in general the inflation indicators that I think 0:50:48.480 --> 0:50:54.120 also have been important and we're flashing you know, amber 0:50:54.520 --> 0:50:58.399 or orange or or read in two thousand and twenty one, 0:50:58.840 --> 0:51:01.719 the supply delivery and disease. I mean, we're you know, 0:51:01.800 --> 0:51:05.760 pretty extreme and a lot of the supply chain issues, 0:51:06.320 --> 0:51:11.480 you know, quite quite extreme. And you know, they they 0:51:11.480 --> 0:51:13.680 while they have improved in recent months, it took a 0:51:13.719 --> 0:51:16.520 long time for them for them to improve again. Some 0:51:16.680 --> 0:51:23.280 of that was because of recurring shocks delta omicron Ukraine 0:51:23.960 --> 0:51:27.839 and you know, an omicron again. But but but I 0:51:27.880 --> 0:51:31.120 do think these are indicators that are that are very 0:51:31.200 --> 0:51:33.960 useful and it's important to take them, take them very seriously. 0:51:34.480 --> 0:51:37.239 Just a final question, what else are you sort of 0:51:37.360 --> 0:51:41.439 looking out for right now? Like what okay, obviously unemployment, 0:51:41.920 --> 0:51:45.279 the inflation data, anything else big that will sort of 0:51:45.320 --> 0:51:47.560 inform your thinking, especially like you know, going into the 0:51:47.680 --> 0:51:50.600 end of the year and thinking about whether the pace 0:51:50.680 --> 0:51:53.760 of hikes could even be faster than what we're expecting 0:51:53.840 --> 0:51:58.040 right now, The pace of hikes could be faster of course, 0:51:58.080 --> 0:52:02.680 if the you know, inflation adjustment is you know, takes 0:52:02.719 --> 0:52:05.920 longer and the labor market adjustment takes takes longer. So 0:52:06.120 --> 0:52:11.520 I think that's very closely related to the you know, 0:52:11.600 --> 0:52:15.160 to these core issues that we've been discussing. I am focused, 0:52:15.239 --> 0:52:18.560 of course, on what happens globally. I mean, we're looking 0:52:18.680 --> 0:52:22.240 at at least a mild recession in the euro Area, 0:52:22.920 --> 0:52:27.000 and if there is no Russian gas at all that 0:52:27.040 --> 0:52:30.120 will end up flowing, then you know, potentially a significantly 0:52:30.160 --> 0:52:34.080 deeper recession. There is a question about the spillovers from 0:52:34.160 --> 0:52:37.200 that into the US. I would say, if it's a 0:52:37.239 --> 0:52:42.040 supply side driven recession because German and Italian industrial companies 0:52:42.280 --> 0:52:45.680 don't get gas and therefore have to shut down production, 0:52:45.880 --> 0:52:48.799 that may not have you know, a large spillovers. But 0:52:49.560 --> 0:52:52.840 there's also the question, you know, what happens more broadly 0:52:52.840 --> 0:52:56.960 in Europe. There's an election in Italy on September twenty five. 0:52:57.560 --> 0:53:00.799 Probably will be some nervousness around in the run up 0:53:00.840 --> 0:53:06.680 to that election because if you have a more Euroskeptic 0:53:07.080 --> 0:53:11.960 government in Italy and you have increases in rates in 0:53:11.960 --> 0:53:17.000 in the your area, upward pressure on Italian spreads, you know, 0:53:17.080 --> 0:53:21.560 I think the risk is that you revisit at least 0:53:21.640 --> 0:53:27.279 some of the European crisis kind of experiences, because you know, 0:53:27.320 --> 0:53:30.160 there'll be a question of at what point can the 0:53:30.360 --> 0:53:32.920 can the e c B you know, really step in 0:53:33.120 --> 0:53:37.680 if the Italian government is less willing to cooperate. So 0:53:37.760 --> 0:53:40.920 that's definitely something I'm focused on. You know, the latest 0:53:41.080 --> 0:53:45.400 developments in China, I think a very important question. Obviously 0:53:45.400 --> 0:53:48.759 we've seen some very strong, very strong rebound from the 0:53:48.760 --> 0:53:53.240 Shanghai lockdown, but the latest data again show that the 0:53:53.320 --> 0:53:56.840 renewed kind of virus spread is starting to have a 0:53:56.880 --> 0:54:00.719 negative impact again. So I mean our our China forecast 0:54:01.000 --> 0:54:04.520 has been you know, on the more cautious side for 0:54:04.520 --> 0:54:07.520 for a while. We're currently at three point three percent 0:54:07.760 --> 0:54:10.960 for the year as a whole for for GDP growth, 0:54:11.160 --> 0:54:14.920 government target officially is still five and a half. And frankly, 0:54:14.960 --> 0:54:17.760 I think the risks are forecasts are you know, probably 0:54:18.120 --> 0:54:21.160 still pretty clearly on the downside. So there's a lot 0:54:21.239 --> 0:54:24.480 going on globally, uh, you know, a lot of a 0:54:24.480 --> 0:54:28.200 lot of downside risks to activity. Despite the fact that 0:54:28.440 --> 0:54:32.040 you know, we're we're still we're still mostly discussed inflation 0:54:32.080 --> 0:54:36.520 today art Is, chief economist at Goldman Sex. Always a 0:54:36.600 --> 0:54:39.319 treat to chat with you, and with so much going 0:54:39.360 --> 0:54:42.319 on right now, really appreciate you coming back on the show. 0:54:42.920 --> 0:54:45.160 Thank you so much, Joe, Thank you so much. Tracy. 0:54:45.960 --> 0:54:47.440 Great to be with you. Thanks you, and there's a 0:54:47.480 --> 0:55:05.480 lot of fun. Thanks. Yeah, that was great, Tracy. I 0:55:05.600 --> 0:55:10.000 always obviously enjoy speaking to Jan. I guess it's you know, 0:55:10.000 --> 0:55:12.279 there's still a chance of a soft landing. You know, 0:55:12.320 --> 0:55:16.920 it's not it doesn't seem that high, especially getting inflation 0:55:17.000 --> 0:55:19.480 down from say like four percent to two percent, seems 0:55:19.520 --> 0:55:21.600 like it's going to take a lot of pain. But 0:55:21.840 --> 0:55:24.680 I guess it's not outside of the realm of possibility 0:55:24.719 --> 0:55:28.080 when you look at the unemployment rate staying low despite 0:55:28.120 --> 0:55:30.279 the drop in job opening So I don't know if 0:55:30.320 --> 0:55:33.919 you causes for hope. Maybe I was about to say, 0:55:33.960 --> 0:55:38.520 I thought Yan's point about the difference between job openings 0:55:38.520 --> 0:55:41.600 going down versus the unemployment rate going up is a 0:55:41.640 --> 0:55:44.439 really important one. But the other thing I would say 0:55:44.680 --> 0:55:49.520 is I keep coming back to historic parallels, and I 0:55:49.560 --> 0:55:52.440 know everyone tends to reach for the seventies or the 0:55:52.480 --> 0:55:56.160 nine eighties, but really it feels like and we've we've 0:55:56.160 --> 0:56:00.400 talked about this before, I'm sure, but the post eighteen 0:56:00.600 --> 0:56:06.799 Spanish flu um situation like that feels just really relevant 0:56:06.840 --> 0:56:09.040 to me at the moment because you did have a 0:56:09.040 --> 0:56:11.640 period of high inflation there. You did have the FED 0:56:11.719 --> 0:56:15.839 start raising rates in order to bring prices down, and 0:56:15.880 --> 0:56:20.080 they did underestimate the impact that rising rates would have 0:56:20.360 --> 0:56:23.000 on the job market, so you saw a big contraction 0:56:23.080 --> 0:56:27.799 in job openings actually, and eventually that fed into unemployment 0:56:27.840 --> 0:56:30.920 and it basically tipped the US back into recession um 0:56:31.040 --> 0:56:35.279 a couple of years later. So I'm thinking, yeah, well 0:56:35.280 --> 0:56:38.920 that too. Yeah, obviously, yes, there was a very large pandemic, 0:56:39.000 --> 0:56:42.720 but it does seem like the big worry to my mind, 0:56:42.880 --> 0:56:46.640 would be if we got some unexpected jump, of of 0:56:46.680 --> 0:56:50.960 a meaningful unexpected jump in the unemployment rate over the 0:56:51.000 --> 0:56:56.479 course of a few meetings while realized inflation remained very high. 0:56:56.520 --> 0:56:58.440 Because again, you know, you could like look at the 0:56:58.480 --> 0:57:02.040 math and say inflation should come down, and inflation expectations 0:57:02.040 --> 0:57:04.319 are anchored, but we know that there's sort of this 0:57:04.920 --> 0:57:08.120 very heavy emphasis on like we want to see it, right, 0:57:08.200 --> 0:57:11.200 we want to see evidence that inflation is coming down, 0:57:11.400 --> 0:57:13.759 it's coming down, sustained that it's a month over a 0:57:13.800 --> 0:57:17.080 month over month that it's heading back towards target. And 0:57:17.120 --> 0:57:18.960 so I do you know, like we do know that 0:57:19.040 --> 0:57:23.200 initial claims have been picking up, corporate layoff announcements have 0:57:23.200 --> 0:57:25.720 been picking up, not massively. There hasn't been some like 0:57:25.880 --> 0:57:28.480 massive weakness in the labor market, but it feels like 0:57:28.560 --> 0:57:31.000 that would be the one worry. And then the Fed's 0:57:31.040 --> 0:57:34.080 in a really tricky problem of having to decide which 0:57:34.160 --> 0:57:35.920 is the which is the fire it wants to put 0:57:35.960 --> 0:57:39.800 out inflation or recession the other thing that struck me 0:57:40.120 --> 0:57:42.240 or that jumped out and we probably should have talked 0:57:42.280 --> 0:57:44.960 about this a little bit more, but just what a 0:57:45.040 --> 0:57:47.760 terrible position Europe seems to be in at the moment. 0:57:48.600 --> 0:57:51.800 Like as bad as things are in the US in 0:57:51.920 --> 0:57:55.320 terms of inflation, it just feels like in Europe um 0:57:55.360 --> 0:57:57.760 there's the potential for things to get even worse. Right, 0:57:57.800 --> 0:58:02.400 So it's the combination of very high UH inflation, particularly 0:58:02.440 --> 0:58:06.080 headline but also core rising, and then it has not 0:58:06.240 --> 0:58:09.200 seen the wage growth that we've seen in the US. 0:58:09.240 --> 0:58:11.960 And then you know there's all of the issues that 0:58:12.000 --> 0:58:15.080 are like never getting never seemed to be solved about 0:58:15.200 --> 0:58:17.800 fragmentation of the bond market, and so the question is 0:58:17.920 --> 0:58:20.840 do you need intervention to hold down Italian dead and 0:58:20.840 --> 0:58:24.040 then to different politics. We need to do another Europe 0:58:24.080 --> 0:58:27.400 episode soon, that's for sure. Yeah, and just can you 0:58:27.440 --> 0:58:32.040 actually bring down inflation while also trying to um narrow 0:58:32.160 --> 0:58:34.240 the difference in bond spreads like that? Seems like a 0:58:34.320 --> 0:58:37.080 really big challenge. But yeah, we should do a Europe episode. 0:58:37.240 --> 0:58:40.640 That would be fun. Flashbacks to a two thousand twelve. 0:58:40.880 --> 0:58:42.560 All right, shall we leave it there? Leave it there? 0:58:43.160 --> 0:58:46.240 This has been another episode of the All Thoughts podcast. 0:58:46.320 --> 0:58:48.840 I'm Tracy Alloway. You can follow me on Twitter at 0:58:48.840 --> 0:58:51.520 Tracy Alloway. And I'm Joe Wisenthal. You can follow me 0:58:51.720 --> 0:58:55.680 on Twitter at the Stalwart. Follow our producer Kerman Rodriguez 0:58:55.680 --> 0:58:58.680 on Twitter at Kerman Erman, and check out all of 0:58:58.720 --> 0:59:03.480 our podcasts bloom under the handle AD Podcasts. Thanks for listening.