WEBVTT - Surveillance: Beware Bonds, Holland Says 0:00:05.120 --> 0:00:09.320 Welcome to the Bloomberg Surveillance Podcast Downtown Keene. Along with 0:00:09.440 --> 0:00:13.080 Jonathan Ferrell and Lisa A. Brownwitz jay Leie, we bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.200 dot Com and of course, on the Bloomberg terminal. Let's 0:00:30.200 --> 0:00:33.400 talk about inflation. Mike Holland, Chairman and Chairman of Holland 0:00:33.440 --> 0:00:35.760 and Company, joins us at this morning to do just 0:00:35.960 --> 0:00:38.920 that and to expand the conversation from there. Mike, good 0:00:39.040 --> 0:00:40.440 to speak to you. Thanks for joining us here on 0:00:40.440 --> 0:00:43.760 Bloomberg TV. What do you think a central bank policy 0:00:43.760 --> 0:00:46.600 can do against inflation right now? Because you say ahead 0:00:46.600 --> 0:00:48.400 of our conversation in your notes, you say there's too 0:00:48.440 --> 0:00:50.680 much money chasing too few goods, and so that makes 0:00:50.680 --> 0:00:53.000 me realize that the taper can't do much about the 0:00:53.000 --> 0:00:54.960 two few goods, but it can do something about the 0:00:55.160 --> 0:00:58.120 too much money. So what kind of downward pressure can 0:00:58.200 --> 0:01:00.640 the FED bring to bear on inflation, given some of 0:01:00.640 --> 0:01:04.880 it is driven by those supply chain issues and such 0:01:04.920 --> 0:01:08.360 an an important question, and I'm not sure that Jerome 0:01:08.440 --> 0:01:10.959 Paul if he were sitting with you right now could 0:01:11.000 --> 0:01:13.600 answer that because he has all of these tools, which 0:01:13.600 --> 0:01:18.840 he employed brilliantly uh fifteen eighteen twenty months ago, UH 0:01:18.880 --> 0:01:22.880 and as as Uh started out one of the epic 0:01:23.680 --> 0:01:27.759 salvage of the U. S economy missions um that any 0:01:27.800 --> 0:01:30.600 FED president has ever done, FED had has ever done. 0:01:31.200 --> 0:01:34.360 Right now, they are in a in a period where 0:01:34.400 --> 0:01:38.120 they are losing a little bit of confidence. In addition 0:01:38.200 --> 0:01:42.400 to their persistence with that word transitory and inflation. A 0:01:42.400 --> 0:01:46.160 couple of the FED presidents regional presidents have had to 0:01:46.200 --> 0:01:50.400 resign because of claims of some insight or whatever. But 0:01:50.640 --> 0:01:53.440 I think the luster is a little bit off the FED. 0:01:53.640 --> 0:01:56.120 I think that Paul has has shown that he can 0:01:56.160 --> 0:02:00.600 do well in trying circumstances. Right now. I think it's 0:02:00.640 --> 0:02:04.520 pretty well in bred in the population. As Kayley was 0:02:04.560 --> 0:02:08.960 just saying, that we have inflation, particularly the wage price 0:02:09.080 --> 0:02:12.160 spiral kind of inflation from the seventies that is so 0:02:12.720 --> 0:02:16.560 inimical to to to a good economy. So he's got 0:02:16.600 --> 0:02:18.200 his job cut out for him. I don't think he 0:02:18.240 --> 0:02:20.160 would be able to answer the question is what will 0:02:20.200 --> 0:02:22.000 he do? Because they have lots of tools, some of 0:02:22.040 --> 0:02:25.200 which are can work well and depending on what tools 0:02:25.240 --> 0:02:27.840 they use. How how would you put the odds of 0:02:27.880 --> 0:02:32.359 a policy mistake Mike, Oh, Kayley, that's a I don't 0:02:32.400 --> 0:02:35.040 even want to talk about it because with with the 0:02:35.160 --> 0:02:38.040 rates where they are now, which are at historic levels, 0:02:38.480 --> 0:02:41.840 historically bad levels for the Fed, they don't have much 0:02:41.919 --> 0:02:45.120 room to do anything with them. The supply of money, however, 0:02:45.120 --> 0:02:47.320 which is really talked about by the people come out 0:02:47.360 --> 0:02:49.480 of the show and talk about what the Fed can do, 0:02:49.560 --> 0:02:52.480 and they're talking about rate heights and so on. I 0:02:52.520 --> 0:02:55.320 think it's the supply of money, which has been it's 0:02:55.760 --> 0:02:58.400 to to to a few goods chased by a lot 0:02:58.440 --> 0:03:01.200 of money is what causing this in the wage price 0:03:01.280 --> 0:03:04.480 BIRO is going to persist long after the services and 0:03:04.480 --> 0:03:08.239 and uh other kinds of inflation. Commodity inflation is already 0:03:08.240 --> 0:03:13.079 looking better. I think that the the viruses as of 0:03:13.160 --> 0:03:16.919 this morning officially being retired by the markets. I think 0:03:17.080 --> 0:03:20.320 inflation is the is the big bogey over the next 0:03:20.760 --> 0:03:23.480 six to twelve eighteen months. Mike, what do you think 0:03:23.520 --> 0:03:26.840 would be the bigger event for the markets when the 0:03:26.840 --> 0:03:29.320 Fed ultimately does lift off and we get that first 0:03:29.400 --> 0:03:31.560 rate hike, or when q T begins and we actually 0:03:31.600 --> 0:03:35.280 start rolling off that balance sheet. Well, between the two, 0:03:36.040 --> 0:03:38.520 the balance sheet is it's it's the key. It's it's 0:03:38.560 --> 0:03:40.680 the amount of money going into the system. But they're 0:03:40.720 --> 0:03:44.040 both important because the market is is determined into a 0:03:44.040 --> 0:03:48.120 great deal by psychology. Psychology has been waning recently with 0:03:48.160 --> 0:03:50.800 regard to the favoritism toward the Fed. So I think 0:03:50.800 --> 0:03:53.040 that they have to do smart things. But I think 0:03:53.080 --> 0:03:55.080 that in the end of the day, it's it's the 0:03:55.080 --> 0:03:58.000 supply of money which will be the key, the proverbial 0:03:58.000 --> 0:03:59.800 punch ball as it was Mike. I mean, for me, 0:04:00.000 --> 0:04:02.120 I have one question for you. Our bonds dead. I mean, 0:04:02.120 --> 0:04:04.400 if one more person tells me to get short duration, 0:04:04.600 --> 0:04:07.840 move up in quality, uh, you know, maintain ample liquidity, 0:04:07.880 --> 0:04:09.880 I may just blow my brains out. You know. For me, 0:04:10.120 --> 0:04:12.880 what serves the store as a store of value in 0:04:12.920 --> 0:04:18.000 this environment? Well, Damian, I think beware, beware the bottom market. 0:04:18.200 --> 0:04:22.240 It's almost uh baked into the cake, the Christmas cake 0:04:22.279 --> 0:04:25.159 here that you can lose money in a meaningful way 0:04:25.160 --> 0:04:28.400 over the next twelve months. In terms of interest rates 0:04:28.440 --> 0:04:31.120 move up. I should say when interest rates move up, 0:04:31.600 --> 0:04:34.320 the Fed has to move interest rates up the bond 0:04:34.360 --> 0:04:37.640 market unless we go into a series recession caused by 0:04:37.839 --> 0:04:41.080 in part rates going up. The bond market is going 0:04:41.160 --> 0:04:45.359 to have a very negative reaction. So you're gonna lose money, 0:04:45.640 --> 0:04:48.040 just a question of how much, and and and so. 0:04:48.080 --> 0:04:50.000 Then what about the risk of a policy ira, Mike, 0:04:50.080 --> 0:04:51.440 I mean, you know, I mean, do you think the 0:04:51.480 --> 0:04:54.200 Fed can actually taper without causing a tantrum this time around? 0:04:55.040 --> 0:04:58.760 I think, damon that the that Jerome Polo is very savvy. 0:04:58.920 --> 0:05:01.000 I think he watched the market. I think he'll do 0:05:01.080 --> 0:05:04.479 his best to avoid that. But I think unfortunately for 0:05:04.640 --> 0:05:08.640 us as investors and as citizens, uh, the possibility of 0:05:08.720 --> 0:05:13.320 a mistake is relatively high. All right, thank you so 0:05:13.400 --> 0:05:17.479 much for joining us, my Collin, appreciate your Yes. Happy 0:05:17.520 --> 0:05:19.480 holidays to you, and thank you for joining us on 0:05:19.520 --> 0:05:21.560 a holiday week. Your time is even more valuable for 0:05:21.600 --> 0:05:30.560 that reason. Thank you for the insight. Matt Lizette, chief 0:05:30.640 --> 0:05:33.000 US economist at Deutsche Bank joining us now, he's gonna 0:05:33.040 --> 0:05:35.080 have smart things to say about all of this. What 0:05:35.120 --> 0:05:37.440 do you read into these numbers, Matt? What can you 0:05:37.520 --> 0:05:39.760 take away from them that it's going to be useful 0:05:39.800 --> 0:05:43.440 as we think about the trajectory we're on into next year, 0:05:43.480 --> 0:05:45.840 it's the consumer gonna hold up? Is this going to 0:05:45.920 --> 0:05:50.839 be an industrial story next year? Give us your take, sure, 0:05:50.839 --> 0:05:52.520 thanks so much for having me. I guess I focus 0:05:52.560 --> 0:05:55.640 on two things from this morning's data. One has the inflation. 0:05:55.680 --> 0:05:58.440 It's been the story of it will remain the story 0:05:58.440 --> 0:06:02.520 of that core PC data up point five percent month 0:06:02.560 --> 0:06:04.680 on month was was run in line with our expectations, 0:06:04.680 --> 0:06:06.240 but we see that the highest year of a year 0:06:06.320 --> 0:06:09.000 race since the late nineteen eighties. Uh. So that is 0:06:09.080 --> 0:06:11.440 in line with expectations, but just putting it into context 0:06:11.440 --> 0:06:14.039 how high inflation is at the moment and why the 0:06:14.040 --> 0:06:16.919 Fed will be tightening policy next year. The second I 0:06:16.920 --> 0:06:19.440 think is consumer spending, and and there we saw real 0:06:19.480 --> 0:06:23.600 consumer spending flat month of month, below expectations. And really 0:06:23.640 --> 0:06:26.919 this is before omicron hits. It's before the child tax 0:06:26.960 --> 0:06:30.160 credit may may hit incomes uh in January if that's 0:06:30.200 --> 0:06:32.800 not renewed. And so we do see a consumer that 0:06:32.800 --> 0:06:36.160 that has looked a little bit more fragile. Fragile consumer 0:06:36.200 --> 0:06:38.680 sentiment has dipped late in the year, and so I 0:06:38.720 --> 0:06:40.920 think from a growth perspective, that does raise at least 0:06:40.920 --> 0:06:43.680 some of the downside risks on the consumer. Yeah, I 0:06:43.720 --> 0:06:45.680 mean my god. I mean, look at the core rate 0:06:45.760 --> 0:06:47.719 four point seven. That's a bit of a surprise. I 0:06:47.760 --> 0:06:50.039 mean for me, you know, that's the high since two 0:06:50.520 --> 0:06:52.799 I mean, Matt, you know, what's your position on inflation 0:06:52.800 --> 0:06:54.359 as we get into the new year. I mean, should 0:06:54.360 --> 0:06:56.440 we expect you know, inflation as many are calling for, 0:06:56.520 --> 0:06:58.919 and certainly as the markets are pricing in to accelerate 0:06:58.960 --> 0:07:00.680 a little bit and then come often the second half 0:07:00.720 --> 0:07:03.480 of the year. What do you think they're sure? So 0:07:03.520 --> 0:07:05.840 I think in the near term it is gonna get worse. Um, 0:07:05.880 --> 0:07:08.200 we do have we know some from some core goods 0:07:08.200 --> 0:07:10.560 items use cars, new vehicles, We're probably going to see 0:07:10.560 --> 0:07:12.800 some upward pressure there in the near term. I think 0:07:12.800 --> 0:07:16.360 in addition to that, housing costs in terms of rent 0:07:16.360 --> 0:07:18.080 and o E are are going to be continue to 0:07:18.080 --> 0:07:20.120 pick up. So the near term it does get worse. 0:07:20.160 --> 0:07:23.160 I think we are of a perspective that it will 0:07:23.200 --> 0:07:26.920 come down later next year, but that will remain very elevated. 0:07:26.920 --> 0:07:29.120 So we have core PC inflation at around two point 0:07:29.120 --> 0:07:31.680 seven two point eight percent at the end of next year, 0:07:31.720 --> 0:07:34.280 that's still seventy eight basis points above the FEDS target. 0:07:34.680 --> 0:07:36.400 And it's exactly the reason that we expect them to 0:07:36.480 --> 0:07:39.040 raise rates at least three times next year. Yeah, Matthew, 0:07:39.040 --> 0:07:40.600 And I heard you hint at it. You know, housing 0:07:40.600 --> 0:07:42.960 prices and rents, you know that, and the supply bottlenext 0:07:43.000 --> 0:07:45.240 due to the do the om con variant. I mean, like, 0:07:45.280 --> 0:07:47.040 what are your thoughts on those? I mean, like, you know, 0:07:47.080 --> 0:07:49.200 those are the obviously the two big factors that are 0:07:49.240 --> 0:07:51.200 going to drive inflation in the US come the new year. 0:07:51.480 --> 0:07:55.000 You know, where do you think? Sure? I think the 0:07:55.120 --> 0:07:59.000 key story, and as I saw you mentioned earlier is 0:07:59.040 --> 0:08:02.360 about the labor market and how COVID tends to impact that. 0:08:03.360 --> 0:08:05.880 What we've seen during the delta wave in previous waves 0:08:06.600 --> 0:08:09.040 is it tends to shrink the labor force. You tend 0:08:09.080 --> 0:08:11.880 to see labor force participation decline. It tends to do that, 0:08:11.960 --> 0:08:15.200 particularly for those that are impacted by childcare, whether it's 0:08:15.200 --> 0:08:18.680 schooling or childcare and needs for for younger children. And 0:08:18.680 --> 0:08:20.680 so I think in the next few months, probably probably 0:08:20.680 --> 0:08:22.680 for the first half of this year, the labor force 0:08:22.680 --> 0:08:26.000 remains constrained. That means the labor market tends it will 0:08:26.000 --> 0:08:29.400 tend to look tight. Wages will continue to accelerate, uh, 0:08:29.480 --> 0:08:31.560 and that'll be a tight labor market that that is 0:08:31.640 --> 0:08:34.760 feeding into inflationary pressures. I think as we get further out, 0:08:35.120 --> 0:08:37.240 I'm optimistic that labor force will come back. If you 0:08:37.240 --> 0:08:41.120 look at primate participation, it rose ninety basis points this year, 0:08:41.440 --> 0:08:44.800 and actually relative to last cycle, looks relatively good compared 0:08:44.840 --> 0:08:48.000 to where it was last cycle given the unemployment rate. 0:08:48.440 --> 0:08:51.440 So I'm optimistic that labor force will rise in the 0:08:51.440 --> 0:08:54.160 second half of next year and further out. But in 0:08:54.200 --> 0:08:56.960 the near term it's likely to remain constrained given omacrom 0:08:57.120 --> 0:08:59.240 and the and the pandemic well and not. I wonder 0:08:59.280 --> 0:09:01.480 how the build up of savings plays in here as well, 0:09:01.520 --> 0:09:04.040 because obviously the fact that the consumer has a pretty 0:09:04.040 --> 0:09:07.520 strong balance sheet has allowed spending to continue to keep 0:09:07.559 --> 0:09:10.680 pace even as incomes don't necessarily with inflation, and that 0:09:10.720 --> 0:09:13.320 wage growth is still when adjusted for inflation, uh not 0:09:13.440 --> 0:09:15.800 where you know it might need to be in order 0:09:15.880 --> 0:09:18.600 for consumption to be that strong. Otherwise, ask the consumer 0:09:18.679 --> 0:09:20.760 starts to draw it down on those savings, which we're 0:09:20.760 --> 0:09:24.040 already seeing. Is it going to take a complete removal 0:09:24.120 --> 0:09:28.839 of that buffer to drive people back into the labor force. Sure, 0:09:29.360 --> 0:09:31.920 So I think it's a very key question we have 0:09:32.080 --> 0:09:35.280 excess savings at around two point four trillion dollars. That's 0:09:35.280 --> 0:09:38.560 how much has been built up accumulated since the pandemic hit. 0:09:38.920 --> 0:09:41.600 But I think the key point there is that that 0:09:41.679 --> 0:09:43.560 is heavily skewed towards the upper part of the income 0:09:43.600 --> 0:09:47.679 distribution UH and older, older age households, and so you 0:09:47.760 --> 0:09:50.800 have a large portion of the population of the income 0:09:50.840 --> 0:09:53.520 distribution that does not have excess savings that have been 0:09:53.840 --> 0:09:56.000 built up, and therefore I don't think that that is 0:09:56.040 --> 0:09:58.280 a key constraining force on them coming back into the 0:09:58.360 --> 0:10:01.480 labor force. I think what it does tell us is 0:10:01.520 --> 0:10:03.600 there are a number of factors that do tell you 0:10:03.640 --> 0:10:06.040 that the consumer does have a strong balance sheet. Excess 0:10:06.080 --> 0:10:08.800 savings is one of them. That income ratios have fallen, 0:10:08.840 --> 0:10:11.000 debt service ratios are are quite low, and net worth 0:10:11.080 --> 0:10:14.560 is really elevated, but households are dealing with a number 0:10:14.559 --> 0:10:17.800 of shocks in the near term. Obviously, is one UH 0:10:17.960 --> 0:10:20.319 sentiment has been hit on that an income will be 0:10:20.400 --> 0:10:22.840 hit if we don't have the child tax credit renewed 0:10:22.880 --> 0:10:25.040 next year. And I'm so glad you brought that up, because, 0:10:25.080 --> 0:10:26.679 of course, the reason we talk about such a high 0:10:26.679 --> 0:10:29.640 saving story is because we saw unprecedented fiscal stimulus that 0:10:29.679 --> 0:10:33.000 padded consumers wallets. When we think about build back better 0:10:33.000 --> 0:10:35.320 and that child tax credit specifically, is that if that 0:10:35.400 --> 0:10:40.000 doesn't happen, what are the growth implications of that? Sure, 0:10:40.040 --> 0:10:42.120 So we assume that it will be renewed next year, 0:10:42.480 --> 0:10:44.720 uh and if we're not renewed, that that would reduce 0:10:44.720 --> 0:10:47.120 our growth forecast by thirty to fifty basis points. So 0:10:47.160 --> 0:10:49.800 we would go from thick three point six percent growth 0:10:49.800 --> 0:10:53.120 next year to something closer to three percent growth. It's material, 0:10:53.360 --> 0:10:56.160 is particularly material for the consumer, but in my mind, 0:10:56.160 --> 0:10:59.120 it's not something that moves us from you know, very 0:10:59.400 --> 0:11:02.280 very high, well above trend to something that sees the 0:11:02.360 --> 0:11:04.320 labor market begin to contract. So I don't think it 0:11:04.360 --> 0:11:07.840 has as big of implications for the Fed FED policy. 0:11:07.920 --> 0:11:10.480 The Fed story. They will still be tightening policy, the 0:11:10.520 --> 0:11:12.840 labor markets should continue to improve, But it is a 0:11:12.880 --> 0:11:17.320 material impact on the growth outlet for next year. Matt. 0:11:17.400 --> 0:11:20.560 You're talking about three, possibly four rate hikes next year 0:11:20.760 --> 0:11:25.040 from the FED. Recessions are normally caused by the Fed 0:11:25.600 --> 0:11:29.400 raising rates. It's either higher rates or higher energy prices. 0:11:29.880 --> 0:11:31.960 To a certain extent, we could have both next year, 0:11:32.360 --> 0:11:34.840 how would you handicap the risk of a recession in 0:11:34.880 --> 0:11:42.840 the United States? So, I think you have very interesting 0:11:42.880 --> 0:11:46.080 divergences right now between recession indicators. There's there's a few 0:11:46.080 --> 0:11:49.400 consumer indicators that we focus on closely. The look at 0:11:49.400 --> 0:11:52.120 either at the gaps between expectations and current conditions or 0:11:52.520 --> 0:11:55.240 the gaps between current conditions in the different surveys, and 0:11:55.280 --> 0:11:59.199 those look like recessions are very elevated call it over 0:11:59.240 --> 0:12:01.840 the next year. On the on the other hand, if 0:12:01.840 --> 0:12:04.080 you look at YELD curve metrics, yes they have flattened, 0:12:04.120 --> 0:12:07.360 but they remained pretty steep and are suggesting recession risks 0:12:07.360 --> 0:12:11.600 are pretty muted around. I think you nailed it that 0:12:11.679 --> 0:12:14.560 the biggest risk here is the FED. That the FED 0:12:14.600 --> 0:12:18.199 has to respond more aggressively to inflation, uh, and that 0:12:18.200 --> 0:12:21.000 that does trigger the next downturn. That is not our 0:12:21.000 --> 0:12:22.920 base case. We think that they raise rates as you 0:12:22.920 --> 0:12:24.920 mentioned three to four times, that they begin donewind the 0:12:24.960 --> 0:12:28.400 balance sheet, and that inflation comes down to supply bottlenecks 0:12:28.440 --> 0:12:31.080 begin to work themselves out. But the key risk here 0:12:31.200 --> 0:12:33.480 is UH, maybe their supply bottle necks do not work 0:12:33.520 --> 0:12:36.960 themselves out, or inflation expectations pick up or a wage 0:12:36.960 --> 0:12:40.280 price spiral begins to uh an anchor inflation, and that 0:12:40.320 --> 0:12:42.840 becomes self fulfilling in many ways, and that the FED 0:12:42.880 --> 0:12:45.720 has to move more aggressively. It's a very difficult different 0:12:45.760 --> 0:12:47.920 environment than where we were pre COVID, where inflation was 0:12:48.000 --> 0:12:50.280 quite low when the FED started to raise rates and 0:12:50.280 --> 0:12:53.320 the labor market still had some room to tighten. Today, 0:12:53.360 --> 0:12:56.200 inflation is well above target, the unemployment rate is almost 0:12:56.200 --> 0:12:58.280 at the Fed's view of neighbor of the long run level, 0:12:58.760 --> 0:13:00.439 and so there is a great risk I think that 0:13:00.480 --> 0:13:02.200 they have to move more aggressively and that that does 0:13:02.320 --> 0:13:05.400 raise recession risks. Probably not two, but as we look 0:13:05.400 --> 0:13:08.760 out into four man, I just have to pick up 0:13:08.760 --> 0:13:10.760 a little bit on what Kailey was alluding to earlier. 0:13:10.800 --> 0:13:13.600 You know, we had City Global Chief Economists Nathan Sheets 0:13:13.640 --> 0:13:16.760 on yesterday and he talked about the immense fiscal hurdle 0:13:16.840 --> 0:13:19.160 that the US is facing in the first half of 0:13:19.200 --> 0:13:22.199 this year. I mean two point seven trillion of fiscal 0:13:22.679 --> 0:13:25.640 stimulus last year. You know, how is this economy going 0:13:25.679 --> 0:13:27.840 to manage through without any of that? That's equivalent by 0:13:27.880 --> 0:13:30.920 the way, as you well are aware of GDP. So 0:13:31.000 --> 0:13:33.680 that's a pretty big number that's not coming anytime soon, 0:13:35.080 --> 0:13:38.120 absolutely so. So I think what these traditional fiscal impulse 0:13:38.160 --> 0:13:41.360 measures miss is that a lot of the stimus that 0:13:41.400 --> 0:13:43.520 we had last year was saved. We noted about the 0:13:43.520 --> 0:13:46.080 two point four trillion dollars of excess savings that households have. 0:13:46.400 --> 0:13:48.160 There's a couple of hundred billion dollars of state and 0:13:48.200 --> 0:13:50.760 local governments have not spent yet. And so I think 0:13:50.800 --> 0:13:55.440 those typical physical impulse measures of very elevated last year 0:13:55.760 --> 0:13:59.080 UH and very negative over the next year do overstate 0:13:59.120 --> 0:14:00.640 the case. I do think there's gonna be a lot 0:14:00.640 --> 0:14:02.800 more smoothing and the fiscal impulse given that a lot 0:14:02.800 --> 0:14:05.240 of it was saved. But it does highlight the challenge 0:14:05.280 --> 0:14:08.200 we We've had an economy UH since COVID hit that 0:14:08.280 --> 0:14:11.960 has been you know, very significantly supported by massive fiscal 0:14:11.960 --> 0:14:15.839 stimulus and a FED policy that has been incredibly accommodative. 0:14:17.000 --> 0:14:19.160 Two we'll see a reversal of both of those things. 0:14:19.600 --> 0:14:21.960 We think that the economy can you know, weather that 0:14:22.000 --> 0:14:24.320 and still see growth well above trend, But it is 0:14:24.360 --> 0:14:26.360 an open question. And and just to go back to 0:14:26.360 --> 0:14:28.640 the last point, the key question I think for for 0:14:28.680 --> 0:14:32.440 growth in the outlook remains. Can the Fed actually land 0:14:32.520 --> 0:14:36.000 this this uh you know, land this plane in a 0:14:36.040 --> 0:14:39.480 soft landing way and environment where inflation is as we 0:14:39.520 --> 0:14:41.720 saw this morning, at the highest level since the nineties. 0:14:42.200 --> 0:14:44.320 Great stuff, Matt Lozzettie of Deutsche Bank, thank you so 0:14:44.400 --> 0:14:47.280 much for your insight. Appreciate it. Thank you for joining us, 0:14:47.280 --> 0:14:54.360 and Jane Fowley joining a Snatches, the head of effect 0:14:54.360 --> 0:14:57.280 Strategy of Rabbi Bank, got to ask the big question, Jane, 0:14:57.680 --> 0:15:01.120 as we come out of one into me too, does 0:15:01.160 --> 0:15:03.480 this incredible tail when that we've seen for the dollar 0:15:04.080 --> 0:15:07.560 this year continue into next year? I think it can 0:15:07.560 --> 0:15:10.040 certainly continue into the the initial few months and maybe 0:15:10.040 --> 0:15:12.640 wait until the Fed gets going with that interest rate 0:15:12.720 --> 0:15:15.520 hiking net cycle. But you know, we've got to remember 0:15:15.520 --> 0:15:17.280 that there's an awful lot of good news priced into 0:15:17.280 --> 0:15:19.800 the US dollar, and the market has been becoming longer 0:15:19.800 --> 0:15:21.440 and longer of the the U S dollar, and in 0:15:21.440 --> 0:15:23.920 the last few months and since that, that trend really 0:15:23.960 --> 0:15:26.440 did get underway in June, and of course June was 0:15:26.680 --> 0:15:30.560 FOMC where the prospect of an interest rate hiking two 0:15:30.640 --> 0:15:33.480 was initially put on the table, and since then the 0:15:33.520 --> 0:15:36.280 market has become more and more optimistic about the possibilities 0:15:36.320 --> 0:15:39.000 of interest rate hiking, and so there is a lot 0:15:39.040 --> 0:15:40.520 of good news in the price. I think that's why 0:15:40.560 --> 0:15:43.280 we're sort of glued to that one thirteen handling in 0:15:43.320 --> 0:15:46.040 eury dollar right now. I think we need this consolidation. 0:15:46.080 --> 0:15:49.960 I think perhaps we need some pullbacks before the market 0:15:50.000 --> 0:15:52.040 can can really make a decision about you know, don't 0:15:52.200 --> 0:15:54.840 we don't want to build on those long dollar positions more. 0:15:55.080 --> 0:15:57.840 You know what on earth can happen in order to 0:15:57.840 --> 0:15:59.760 to make me do that? So um, I think we 0:16:00.000 --> 0:16:02.040 and have further to go. I'm not so sure if 0:16:02.240 --> 0:16:04.920 if the the the movement up in the dollar can 0:16:05.080 --> 0:16:08.200 can last a full year, though, so we understand the 0:16:08.280 --> 0:16:11.640 risks around European growth at this stage. One of the 0:16:11.680 --> 0:16:14.080 big stories that I think has kind of flown under 0:16:14.080 --> 0:16:16.560 the radar a little bit as we've watched what has 0:16:16.600 --> 0:16:20.520 happened with the FED, what's been happening with the fiscal 0:16:20.520 --> 0:16:22.800 programs in the United States, and of course O Macron 0:16:23.000 --> 0:16:26.280 has been this gas crisis in Europe. Energy prices are 0:16:26.360 --> 0:16:28.400 super high all the way across the continent. They're coming 0:16:28.440 --> 0:16:30.360 down a little bit as we see the arrival of 0:16:30.440 --> 0:16:33.360 some lergy tankers from the United States. But nevertheless they 0:16:33.400 --> 0:16:37.560 remain very very high. We've got very little storage. We 0:16:37.600 --> 0:16:40.120 could potentially be in the same situation next year. And 0:16:40.240 --> 0:16:42.680 rather than this being an inflation threat, Jane, could this 0:16:42.760 --> 0:16:45.600 be a growth threat for Europe? And we underestimating the 0:16:45.600 --> 0:16:48.680 impact that this could have. Yeah, I think you said it. 0:16:48.840 --> 0:16:51.640 I think this is a growth threat and in many 0:16:51.960 --> 0:16:54.680 respects it really doesn't endorse that the very cautious stance 0:16:54.760 --> 0:16:57.000 of of Leguard at the ECB. You know, she has 0:16:57.400 --> 0:17:01.320 continuing to remain davish, continuing with this very supportive monetary 0:17:01.520 --> 0:17:04.040 policies and and I think this is one reason, you 0:17:04.080 --> 0:17:06.679 know why she's you know, justified in doing this. And 0:17:06.720 --> 0:17:10.119 I think, um, you know, we've already heard reports um 0:17:10.280 --> 0:17:14.120 small businesses, bigger businesses really having to to shut her 0:17:14.160 --> 0:17:17.880 because of the additional costs that these energy prices brain. 0:17:17.920 --> 0:17:20.080 But also it's going to be a significant headwind to 0:17:20.200 --> 0:17:22.800 two consumers too, and I think that risk is only 0:17:22.800 --> 0:17:25.159 going to be highlighted, you know during the winter months there. 0:17:25.320 --> 0:17:28.080 Some country Spain comes to mind, have taken some action 0:17:28.280 --> 0:17:32.560 to reduce the the the the bills on for for consumers, 0:17:32.800 --> 0:17:36.280 not coal, cert for industry and that will help, but 0:17:36.600 --> 0:17:40.439 this is certainly a significant headwind for for for business, 0:17:40.440 --> 0:17:43.959 business and consumers in the region. Good morning, Jane. I 0:17:44.040 --> 0:17:46.639 had a lovely chat with your colleague Christian Lawrence and 0:17:46.680 --> 0:17:50.520 Cross assid Strategy yesterday and one area of disconnect was China, 0:17:50.680 --> 0:17:53.680 an area that he tends to avoid at all costs. 0:17:53.720 --> 0:17:56.840 What are your views on the REMIMBI in two. Well, 0:17:56.880 --> 0:17:58.560 you know, if you look at the Chinese economy, we 0:17:58.600 --> 0:18:00.680 know it's slowing, we know that are there are head 0:18:00.680 --> 0:18:03.240 winds there, and it's it's fairly normal. And if we 0:18:03.280 --> 0:18:07.680 had a floating exchange rate to see a currency weekend now. 0:18:07.960 --> 0:18:10.159 I think one of the constraints for for China and 0:18:10.320 --> 0:18:13.720 in terms of the exchange rate was that the very 0:18:13.800 --> 0:18:17.280 very strong PPI inflation numbers that we were getting at 0:18:17.320 --> 0:18:19.840 but they've appeared to started to moderate, and I think 0:18:20.000 --> 0:18:21.920 this is really the key because if we do get 0:18:22.119 --> 0:18:26.639 you know, some indication that inflationary pressures are moderating in China, 0:18:26.880 --> 0:18:28.959 I think at that point the authorities could be more 0:18:29.040 --> 0:18:32.600 comfortable in allowing the exchange rate or the Chinese remember 0:18:33.080 --> 0:18:36.720 to weekend. So I think we are probably gonna see 0:18:36.720 --> 0:18:39.040 certainly more talk of interest rate cuts if we don't 0:18:39.040 --> 0:18:41.920 see more interest rate cuts and in the next few months, 0:18:41.960 --> 0:18:45.000 and I think that too could be associated more with 0:18:45.040 --> 0:18:48.399 more expectation that they will allow the remember to slip 0:18:48.680 --> 0:18:51.000 against the U. S. Dollar. Well, in one area that 0:18:51.080 --> 0:18:53.400 is the void of surprise is Turkey. The lira, which 0:18:53.400 --> 0:18:55.800 had plummeted through eleventh to ten or earlier today, is 0:18:55.840 --> 0:18:57.679 now back through eleven. I mean, these are big figure 0:18:57.680 --> 0:19:00.879 moves in the Turkish lirror. Clearly it's not owners participating, 0:19:00.880 --> 0:19:03.159 it's all driven by locals. What are your thoughts on 0:19:03.160 --> 0:19:05.480 the lyric from the new year? You know, there was 0:19:05.520 --> 0:19:07.960 a very interesting report in the FT that this morning 0:19:08.040 --> 0:19:12.639 making calculations about the level of foreign exchange reserves UM 0:19:12.720 --> 0:19:15.760 and their calculation was that these had dropped by billions 0:19:15.800 --> 0:19:17.720 in a couple of days at the start of this week, 0:19:18.080 --> 0:19:20.760 and and and and the implication was was that we 0:19:20.840 --> 0:19:24.360 had the speech from President argon Um in the course 0:19:24.400 --> 0:19:25.760 of the week, we had this if you like this 0:19:25.880 --> 0:19:29.399 back door interest rate hike as far as retail investors 0:19:29.440 --> 0:19:32.320 that were concerned, and the implication was is that we 0:19:32.359 --> 0:19:36.040 had intervention or they made intervention to to really exaggerate 0:19:36.160 --> 0:19:38.480 at the move. Of course, liquidity conditions are very very 0:19:38.480 --> 0:19:41.160 thin because of the Christmas period too, And and so 0:19:41.680 --> 0:19:43.320 you know that the takeaway from that is that the 0:19:43.320 --> 0:19:45.879 intervention was done at a time which could make her 0:19:46.000 --> 0:19:48.280 can look good, make his measures look good. And actually, 0:19:48.520 --> 0:19:52.360 you know that takeaway really does undermine the credibility of 0:19:52.400 --> 0:19:56.240 the Turkish authorities even further. And I you know, do 0:19:56.280 --> 0:19:58.920 you think that unless we do get an interest rate hike, 0:19:59.320 --> 0:20:03.680 that the majority of investors, institutional investors at least in speculators, 0:20:03.720 --> 0:20:07.400