WEBVTT - Surveillance: Growth Trajectory With Rajappa 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailely, we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.800 and of course on the Bloomberg Terminals. About joins US 0:00:30.800 --> 0:00:33.320 now head of US Right Strategy at Selk and Sabauta. 0:00:33.360 --> 0:00:34.800 For a while now, a number of weeks you've been 0:00:34.800 --> 0:00:38.199 talking about high yields led by the United States. It's 0:00:38.240 --> 0:00:42.600 not still your care view going into next year. Absolutely. 0:00:42.640 --> 0:00:43.920 I mean, I think if you look at all the 0:00:44.000 --> 0:00:46.200 data we've been getting, whether it be on the employment 0:00:46.280 --> 0:00:50.360 front or retail sales, it's been gangbusters, right. So in 0:00:50.440 --> 0:00:54.000 that context, you should see as the US economy starts 0:00:54.040 --> 0:00:57.160 to reopen from business. Yes, people aren't getting into their 0:00:57.320 --> 0:00:59.800 business clothes and going into work, but it will happen 0:00:59.840 --> 0:01:02.680 if eventually when infection rates start to come down. So 0:01:03.120 --> 0:01:05.160 there's a lot there's a decent amount of savings still 0:01:05.240 --> 0:01:07.280 left in the US to be spent. So I think 0:01:07.280 --> 0:01:10.440 that that should that sort of trajectory supports you know, 0:01:10.560 --> 0:01:15.760 pretty decent growth, not just into but also and beyond. 0:01:15.880 --> 0:01:18.679 So you're looking at a very strong trajectory for growth 0:01:18.720 --> 0:01:21.760 over the next several years. Yes, there are some rests 0:01:21.760 --> 0:01:24.720 on the inflation front, as well as on things like 0:01:25.080 --> 0:01:28.720 oil prices, which might eat into consumer spending. But broadly speaking, 0:01:28.720 --> 0:01:31.440 I think the fundamentals are strong and that should lead 0:01:31.440 --> 0:01:33.800 to modestly higher years from here on the spar in 0:01:33.840 --> 0:01:37.280 another time and place, we were measured in our path 0:01:37.400 --> 0:01:42.080 to a restrictive monetary policy. How far away are we 0:01:42.640 --> 0:01:48.440 measured or unmeasured from being restrictive. Well, Montrey policy is 0:01:48.440 --> 0:01:50.920 not restrictive at all right now right, I mean defense 0:01:50.960 --> 0:01:55.320 to purchasing assets, So to me, that's providing more accommodation, 0:01:55.360 --> 0:01:57.800 not taking away accommodation, even though they're going to start 0:01:57.840 --> 0:02:01.200 keepering asset purchases um and they have suggested that they're 0:02:01.200 --> 0:02:03.720 not going to be hiking rates you know, soon, at 0:02:03.760 --> 0:02:06.000 least not as of yet, even though the markets pricing 0:02:06.000 --> 0:02:08.880 in hike as early as as as the June meeting, 0:02:09.360 --> 0:02:12.600 so the you know, for them to really move towards 0:02:12.680 --> 0:02:17.520 more tighter Montree policy, you're looking at sort of a 0:02:17.560 --> 0:02:21.120 pivot away from tapering at the pace that they are, 0:02:21.680 --> 0:02:24.560 as well as starting to move towards uh, you know, 0:02:24.600 --> 0:02:27.320 suggesting rate tax, both of which hasn't happened yet. But 0:02:27.400 --> 0:02:29.760 to build on what Tom was asking for, a key 0:02:29.800 --> 0:02:33.680 debate has been whether the market is underestimating how restrictive 0:02:33.680 --> 0:02:36.359 FED policy could get. What's your view on this at 0:02:36.360 --> 0:02:38.920 a time when right now the market is is projecting 0:02:39.080 --> 0:02:43.240 a sub two target top rate, whereas some people are 0:02:43.280 --> 0:02:47.079 saying it should be three to four. Well, I think 0:02:47.120 --> 0:02:50.360 it's really hard to know what the terminal FED trans 0:02:50.480 --> 0:02:53.040 rate is going to be. I think the markets pricing 0:02:53.040 --> 0:02:57.760 in a very very aggressive start timing for rate tax 0:02:57.800 --> 0:02:59.560 as well as a piece of rate tax after the 0:02:59.600 --> 0:03:02.640 first rate hype, maybe starting as early as June of 0:03:02.760 --> 0:03:05.440 next year. So I think it's really really hard to 0:03:05.480 --> 0:03:07.440 know what what the picture is going to be, like, 0:03:07.520 --> 0:03:09.680 you know, three or four years from now, and then say, oh, 0:03:09.720 --> 0:03:11.560 the termot fat funds rate has to be you know, 0:03:11.600 --> 0:03:14.320 four percent. I think we just don't have enough information. 0:03:14.320 --> 0:03:16.919 In fact, we don't even have enough information on what's 0:03:16.960 --> 0:03:18.680 going to happen in the next six months. I mean, 0:03:18.720 --> 0:03:21.919 most people think that inflation might persist well in the 0:03:22.080 --> 0:03:24.600 middle of next year now, but the fat doesn't is 0:03:24.600 --> 0:03:27.160 not on board with that view. So I think that's 0:03:27.200 --> 0:03:29.519 just a lot of uncertainty. Sort of extrapolating into the 0:03:29.639 --> 0:03:33.280 terminal fat funds right now is just premature. How lonely 0:03:33.400 --> 0:03:36.400 will the federal Reserve be early next year? SAVANTRAA will 0:03:36.440 --> 0:03:40.560 others join in? Do you think with this pivot? Well, 0:03:40.600 --> 0:03:42.040 first of all, we don't know if they are going 0:03:42.080 --> 0:03:44.680 to pivot, because I would say key takeaway from the 0:03:44.800 --> 0:03:47.920 f MC meeting minutes was that they do think that 0:03:48.400 --> 0:03:50.560 inflation is going to be transient and that it's going 0:03:50.600 --> 0:03:53.200 to come down by the second or third quarter of 0:03:53.240 --> 0:03:55.760 next year. They still believe that going to the December 0:03:55.760 --> 0:03:58.720 meeting or beyond, they're not really going to pivot period. 0:03:59.200 --> 0:04:03.000 So it really depends on, you know what they think. 0:04:03.640 --> 0:04:06.080 The you know, the information is by the December meeting. 0:04:06.080 --> 0:04:09.520 We get one more CPI print before the December meeting, 0:04:09.520 --> 0:04:11.400 and that's that's why I think the December meetings will 0:04:11.440 --> 0:04:13.880 be very, very crucial, because you're going to get information 0:04:14.080 --> 0:04:16.840 on employment, which we already have a pretty strong dejectory for. 0:04:17.240 --> 0:04:19.520 We're also going to get like a third data point, 0:04:19.560 --> 0:04:22.080 if you will, before the December meeting, which should give 0:04:22.080 --> 0:04:25.120 them enough information if they want to to pivot. Will 0:04:25.320 --> 0:04:28.400 other global central banks follow the US? Perhaps not. I 0:04:28.400 --> 0:04:32.240 think that global monetary policy is very asynchronous, and it's 0:04:32.279 --> 0:04:35.640 probably going to remain remain asynchronous whilst your next year 0:04:36.000 --> 0:04:38.839 and the year after. So every day over the past 0:04:38.880 --> 0:04:41.479 week or so, Sibat, we've gotten about a hundred different 0:04:41.480 --> 0:04:45.880 Fed officials I'm exaggerating speaking at different forums. What's your 0:04:45.880 --> 0:04:49.640 sense about anything, if anything we've learned that's new or 0:04:49.680 --> 0:04:52.520 moves the ball forward about how they're thinking about their 0:04:52.560 --> 0:04:56.680 rate policy. You know, it was kind of disappointing that 0:04:56.800 --> 0:04:59.600 we heard quite a few fat speakers, but not really 0:04:59.640 --> 0:05:03.200 and in substantive or new from any of the speakers. 0:05:03.560 --> 0:05:05.720 I think some of the hawks has sort of doubled down. 0:05:05.800 --> 0:05:08.280 You're hearing from the likes of Bullet, who are saying 0:05:08.279 --> 0:05:11.560 that we should be thinking about balance sheet normalization right 0:05:11.600 --> 0:05:13.919 after tapering as of purchases. He has always been calling 0:05:13.960 --> 0:05:16.960 for a sooner taper and to taper as well as 0:05:17.080 --> 0:05:20.960 you know, faster begin of beginning of rate heights. So 0:05:21.000 --> 0:05:24.000 it's all the same story from from the hawks, um 0:05:24.080 --> 0:05:26.719 and you're what you're hearing now more is the ex 0:05:27.200 --> 0:05:30.680 FED officials like the likes of Dudley and Lockhart, who 0:05:30.680 --> 0:05:33.880 are saying that the Fed should be thinking about normalizing 0:05:33.920 --> 0:05:36.680 policies sooner so that they don't sort of made so 0:05:36.920 --> 0:05:40.520 there's not a policy mistake, you know, by not raising 0:05:40.520 --> 0:05:43.160 greats soon. Do you listen to the former guys or 0:05:43.200 --> 0:05:46.040 the current wants Savantra from more accurate where you think 0:05:46.040 --> 0:05:48.640 it's going the current ones. I think the former guys 0:05:48.640 --> 0:05:51.560 are more honest and open with their opinion. But that's 0:05:51.560 --> 0:05:54.640 just my few Sabantra. The former guys have have a 0:05:54.680 --> 0:05:56.800 lot of wisdom, right, so we can we can take 0:05:56.800 --> 0:06:06.120 away information from that, Savantra Jampa of Sock. What we 0:06:06.200 --> 0:06:08.080 do with your folks is we try to get lucky, 0:06:08.600 --> 0:06:10.919 and you get lucky in all different ways when you 0:06:11.000 --> 0:06:14.640 book quality people, which our team recently has been on fire. 0:06:15.279 --> 0:06:17.760 And they said, let's get Megan Green, senior fellow at 0:06:17.760 --> 0:06:21.159 Harvard Kennedy School. But what you don't vote, no, folks 0:06:21.240 --> 0:06:24.840 is out of Princeton in Oxford. She was definitive on 0:06:25.000 --> 0:06:27.839 Europe and Turkey a good number of years ago, and 0:06:27.880 --> 0:06:30.920 we're thrilled Megan Green could join us at this moment. 0:06:31.040 --> 0:06:35.680 Is Turkey simply unravels on Lera. You know, Meg and 0:06:35.720 --> 0:06:37.960 I went back into the Great Internet and there it 0:06:38.080 --> 0:06:43.359 was EU Turkey. Something is rotten. You're an authority on this. 0:06:43.640 --> 0:06:49.000 How rotten is Air Tuan and Turkey right now? Yeah? 0:06:49.040 --> 0:06:51.479 I mean, I think the markets are really speaking for themselves. 0:06:51.600 --> 0:06:53.720 It's not just Air to Wan, it's also the independence 0:06:53.720 --> 0:06:58.280 of the central banks, some or unorthodox policies. Um, you know, 0:06:58.600 --> 0:07:02.680 euro dollar bonds in Turkey. I think that the Turkey 0:07:02.720 --> 0:07:05.040 is at the front of the line for emerging market 0:07:05.080 --> 0:07:07.599 countries that have borrowed a ton to pay for this 0:07:07.680 --> 0:07:10.880 pandemic response. Uh, and that may not be able to 0:07:10.920 --> 0:07:14.880 service that debt as interest rates start rising. Accommodation is 0:07:14.960 --> 0:07:18.800 withdrawn globally. So Turkey is a real car canary in 0:07:18.800 --> 0:07:22.080 the coal mine. Brazil is another one. But I think 0:07:22.120 --> 0:07:25.120 Turkey has been a real basket case for a long 0:07:25.160 --> 0:07:27.320 time and it's it's playing out in the markets. Now. 0:07:27.560 --> 0:07:30.440 Do you presume that Mr Arata Juan and the various 0:07:30.440 --> 0:07:35.440 Ara Tajuans from two thousand two under crisis of finance, 0:07:35.600 --> 0:07:42.080 will he turned to America or Europe? That's the big question. 0:07:42.120 --> 0:07:45.480 I think probably the US is actually more important Turkey 0:07:45.600 --> 0:07:48.160 makes no qualms about not really having any interest in 0:07:48.280 --> 0:07:51.520 joining the EU. Now. Uh, there was a spat between 0:07:51.560 --> 0:07:54.000 Turkey and EU with a migrant crisis of course a 0:07:54.080 --> 0:07:56.560 number of years ago. Um, but the US is really 0:07:56.560 --> 0:07:59.400 what matters in terms of big financial flows, and so 0:07:59.480 --> 0:08:02.240 I think one will probably turn more towards the US 0:08:02.640 --> 0:08:04.480 than it will towards Turkey. I think it will have 0:08:04.520 --> 0:08:06.240 to turn towards the i m F as well, though 0:08:06.360 --> 0:08:09.640 Megan a Turkey is a very specific story with a 0:08:09.760 --> 0:08:13.320 very novel perhaps approach to economic theory. When it comes 0:08:13.320 --> 0:08:15.760 to President are to Wan, there is a larger take 0:08:15.840 --> 0:08:18.120 here though, especially with the South African rand, which we're 0:08:18.120 --> 0:08:22.240 seeing also lose favor today as it raises rates, but 0:08:22.280 --> 0:08:25.160 perhaps not as much as people were hoping. Why is 0:08:25.200 --> 0:08:28.920 it that there is this feeling in emerging markets that 0:08:29.000 --> 0:08:30.760 they have to tighten rates, but they don't want to 0:08:30.760 --> 0:08:33.440 tighten rates quite as much as a lot of the 0:08:33.440 --> 0:08:37.960 traders are expecting them and want them to. Look, a 0:08:37.960 --> 0:08:40.840 lot of emerging markets, both middle and low income countries, 0:08:41.320 --> 0:08:45.120 already had a debt problem before the pandemics started. Then 0:08:45.160 --> 0:08:46.800 they had to issue a lot of debt, of course, 0:08:46.840 --> 0:08:49.520 to pay for the pandemic response. So they don't really 0:08:49.520 --> 0:08:51.520 want to high rate so that much because they know 0:08:51.600 --> 0:08:53.880 that that will increase their borrowing costs. And it's all 0:08:53.920 --> 0:08:57.000 fine as long as liquidity is ample and borrowing costs 0:08:57.040 --> 0:09:01.360 are low. But they learn from the LA STM debt crisis, 0:09:01.440 --> 0:09:03.320 and so a lot of that debt has been issued 0:09:03.320 --> 0:09:05.640 in local currency debt, and so central banks are a 0:09:05.679 --> 0:09:08.520 little bit reticent to high grades. It's also worth pointing 0:09:08.520 --> 0:09:12.920 out that in general, while fistful accommodation was really relaxed 0:09:13.000 --> 0:09:18.320 in most emerging markets are actually going ahead and engaging 0:09:18.320 --> 0:09:22.480 in a degree of austerity for three. And so if 0:09:22.520 --> 0:09:26.079 you have the fiscal engine pulling back and the monetary 0:09:26.120 --> 0:09:28.160 engine pulling back, it's going to make it much harder 0:09:28.160 --> 0:09:30.920 for these countries to service their debt. And also that 0:09:30.960 --> 0:09:33.640 has couragesy implications that makes it harder for them to 0:09:33.679 --> 0:09:36.040 pay for imports. And so I think we're going to 0:09:36.200 --> 0:09:38.440 run into a lot of trouble in terms of a 0:09:38.480 --> 0:09:41.480 sovereign debt crisis and emerging markets. Maybe not this year, 0:09:41.720 --> 0:09:44.240 but I think from next year onwards. And and the 0:09:44.280 --> 0:09:46.800 I m F has beefed up their firepower to deal 0:09:46.840 --> 0:09:49.400 with this, but they don't necessarily have good programs for 0:09:49.440 --> 0:09:51.280 countries that kind of fall in the middle and and 0:09:51.360 --> 0:09:54.000 need medium term help. And this goes really to Damien 0:09:54.040 --> 0:09:57.480 Sassaur's point, how the FED is banker to the world 0:09:57.800 --> 0:10:00.280 and they are looking not only at domestically what the 0:10:00.280 --> 0:10:03.520 policies need to be. But if they high rates twice, 0:10:03.720 --> 0:10:06.640 which is the consensus right now among traders at least 0:10:06.640 --> 0:10:08.679 that's what's priced it to the market, what would that 0:10:08.720 --> 0:10:11.120 do with that trigger the sovereign debt crisis that you're 0:10:11.120 --> 0:10:14.880 talking about in the developing world. Yeah, we've seen in 0:10:14.920 --> 0:10:17.199 the past that has the FED high grades, borrowing costs 0:10:17.280 --> 0:10:19.760 everywhere else go up, and that's that's the case for 0:10:19.800 --> 0:10:23.400 the Eurozone, that's certainly case for emerging markets. And while 0:10:24.000 --> 0:10:28.120 uh IM sovereigns have been better about issuing in local currencies, 0:10:28.200 --> 0:10:30.960 the private sector hasn't necessarily. Of course, it depends on 0:10:30.960 --> 0:10:33.240 which country we're speaking about, but a lot of that 0:10:33.320 --> 0:10:37.160 debt is issued in US dollars, and so as borrowing 0:10:37.160 --> 0:10:40.080 costs go up for the US, they rise everywhere else. 0:10:40.080 --> 0:10:43.040 But also their currency implications that make it harder for 0:10:43.240 --> 0:10:45.679 a lot of em countries to service that debt. Megan 0:10:45.760 --> 0:10:47.360 one of the things we're seeing in this season of 0:10:47.440 --> 0:10:51.000 outlooks of two thousand twenty two in market economics, which 0:10:51.000 --> 0:10:55.439 you did at Manual Life, is almost a lack of consensus. 0:10:55.480 --> 0:10:58.160 We use the C word consensus, But the bottom line 0:10:58.280 --> 0:11:02.400 is everybody's all over the map right now. Is that unusual? 0:11:04.640 --> 0:11:07.320 So it's not unusual in a pandemic. None of us 0:11:07.440 --> 0:11:09.560 really know where the economy is going unless we can 0:11:09.600 --> 0:11:11.760 work out what's happening with the virus. So that's one 0:11:11.880 --> 0:11:15.160 massive piece of uncertainty. But remember we've never been through 0:11:15.240 --> 0:11:18.520 any of this before, and so while other economists and 0:11:18.640 --> 0:11:20.640 I can come out and say with a lot of 0:11:20.679 --> 0:11:23.880 confidence what we think will happen to something simple like inflation, 0:11:24.440 --> 0:11:26.800 we actually just don't really know. There's a ton of 0:11:26.880 --> 0:11:29.520 uncertainty around the labor market. What does the labor force 0:11:29.559 --> 0:11:33.079 participation rate look like? That has big implications for whether 0:11:33.120 --> 0:11:35.240 the labor market is tight or actually has quite a 0:11:35.240 --> 0:11:37.760 lot of slack right now. That feeds on into what 0:11:37.800 --> 0:11:40.839 the Fed should do. Um, there's huge uncertainty around all 0:11:40.840 --> 0:11:43.840 of this, and these are the basic building blocks for 0:11:43.920 --> 0:11:48.199 any kind of macro forecast. So it's unsurprising that economists 0:11:48.240 --> 0:11:49.960 are sort of all over the map meanwhile, so that'th 0:11:49.960 --> 0:11:51.880 The carpenter of More Can Stanley, on the show earlier 0:11:52.040 --> 0:11:54.480 said that if you start to see inflation peek out 0:11:54.480 --> 0:11:57.040 in the first quarter, as the FED is currently expecting, 0:11:57.120 --> 0:11:59.840 and then start to decelerate, that will be enough for 0:11:59.880 --> 0:12:02.000 the FED to remain on hold for the remainder for 0:12:02.040 --> 0:12:05.080 the duration of two and wait until the first quarter 0:12:05.080 --> 0:12:08.480 of high rates. Do you agree that it's not necessarily 0:12:08.520 --> 0:12:14.520 the absolute level of inflation but the direction of travel. Yeah, 0:12:14.600 --> 0:12:17.200 I think that's probably right. Um. I also think that 0:12:17.240 --> 0:12:21.400 the FED has sort of promoted their mandate on full 0:12:21.440 --> 0:12:24.640 and inclusive employment and and that's a real priority for 0:12:24.679 --> 0:12:27.200 them in a way it hasn't always been. And so 0:12:27.240 --> 0:12:30.360 if we do see inflations start to decelerate next year, 0:12:30.679 --> 0:12:32.200 then I think that the FED will feel a lot 0:12:32.320 --> 0:12:35.280 less pressure to withdraw accommodation. That being said, I don't 0:12:35.320 --> 0:12:38.280 actually think we're going to see inflation decelerate at the 0:12:38.280 --> 0:12:40.560 beginning of next year, and I'm I'm firmly in team 0:12:40.559 --> 0:12:44.280 Transitory on the inflation question, but I think the supplier 0:12:44.320 --> 0:12:48.120 disruptions that we're facing now will probably persist for at 0:12:48.160 --> 0:12:52.000 least another year. And it requires not only an abatement 0:12:52.040 --> 0:12:55.600 in demand, but also it requires us to go back 0:12:55.720 --> 0:12:59.360 to buying services instead of goods, and and that will 0:12:59.400 --> 0:13:01.640 depend very much on the virus, so that can take 0:13:01.679 --> 0:13:03.880 a while. And then of course it also requires us 0:13:04.040 --> 0:13:06.640 addressing some of these supply chain disruptions. I think that 0:13:06.640 --> 0:13:09.120 could take quite a lot longer. But I do agree 0:13:09.160 --> 0:13:12.080 with Seth. If we were to see weaker inflation, the 0:13:12.120 --> 0:13:14.679 FED would be under much less pressure to hike rates, 0:13:14.880 --> 0:13:17.160 and I think we could well end up waiting until 0:13:18.080 --> 0:13:20.240 to see rate hikes, and I think that would be 0:13:20.280 --> 0:13:22.520 the right call actually, even if we don't see an 0:13:22.559 --> 0:13:25.480 abatement and inflation early next year. Interesting in line with 0:13:25.520 --> 0:13:28.079 Morgan Stanley and t D for that, Madam Megan, thank you, 0:13:28.280 --> 0:13:30.600 Mcan Grayen if they crawl institute and how the Kennedy 0:13:30.600 --> 0:13:39.200 School out of London this morning. Another one of the 0:13:39.240 --> 0:13:42.400 great dual degrees in America, as you take French at 0:13:42.440 --> 0:13:46.040 William and Mary and attach it to something else. Seth 0:13:46.120 --> 0:13:50.040 Carpenter did that. Were there French and Francophone studies program 0:13:50.080 --> 0:13:53.760 which is worldwide acclaimed And we're thrilled that the gentleman 0:13:53.800 --> 0:13:57.000 from Paris could join us today and John Faroll. I think, 0:13:57.240 --> 0:13:59.880 you know, if if down at the Fed, John help me, 0:14:00.200 --> 0:14:02.880 but they speak Greek, maybe Seth can pick up on that. 0:14:03.040 --> 0:14:05.120 Maybe the French would help on the resume along with 0:14:05.280 --> 0:14:07.959 working at the FED, working at the Treasury. Set Some 0:14:08.000 --> 0:14:10.960 people are saying it, and I asked this very delicately. 0:14:11.640 --> 0:14:15.120 Mr Gorman is watching. Would you be interested, Seth in 0:14:15.120 --> 0:14:17.240 the role that people are talking about connecting you with 0:14:17.320 --> 0:14:21.480 down at the Federal Reserve? Uh? You know, I always 0:14:21.520 --> 0:14:23.680 blush a little bit when I hear those stories. I 0:14:23.720 --> 0:14:26.280 don't personally have any information about that. If you do, 0:14:27.160 --> 0:14:30.440 you know, Seth, maybe they like the idea of the 0:14:30.480 --> 0:14:32.480 call you've got for next year on the Federal Reserve, 0:14:32.760 --> 0:14:35.840 no hike. In fact, you're going for Q one three. 0:14:36.160 --> 0:14:38.920 Let's start there, hy Q one, Seth? Why not next year? 0:14:39.840 --> 0:14:42.280 I think that's a great question. And you know, when 0:14:42.320 --> 0:14:45.480 I think about Ellen Zentner, who's a great economist in 0:14:45.520 --> 0:14:49.120 her US team, the call on the FED really is 0:14:49.160 --> 0:14:52.400 the derivative of the call on the US economy. So 0:14:52.960 --> 0:14:56.240 the forecast for inflation, which is obviously top of mind 0:14:56.280 --> 0:14:58.800 for everyone, is that inflation is going to peak somewhere 0:14:58.800 --> 0:15:01.200 around the beginning of the and then start to come 0:15:01.200 --> 0:15:05.560 down over the course of two And I'm looking at 0:15:05.560 --> 0:15:07.200 a few things. You were talking at the at the 0:15:07.200 --> 0:15:10.240 top of the segment about oil prices and if there's 0:15:10.280 --> 0:15:12.280 going to be a reserve release there. I don't have 0:15:12.320 --> 0:15:15.400 a strong call, but looking at futures where somewhere at 0:15:15.520 --> 0:15:17.840 or close to the peak, if you don't have oil 0:15:17.880 --> 0:15:22.560 prices going up anymore, that inflationary pressure starts to fade away. Similarly, 0:15:22.720 --> 0:15:25.880 supply chains. Our equity analysts from Asia have talked about 0:15:25.920 --> 0:15:30.000 the semiconductor shortage coming to an end. So as things 0:15:30.040 --> 0:15:33.240 start to normalize, probably over the course of the entire year, 0:15:33.360 --> 0:15:36.400 but as things start to to normalize with supply uh 0:15:36.440 --> 0:15:39.120 an oil prices stopped rising, then we we we have 0:15:39.160 --> 0:15:42.000 a forecast for inflation coming down. Listen to what your 0:15:42.120 --> 0:15:44.240 Powell said at the last press conference. He said he 0:15:44.280 --> 0:15:47.240 expects inflation to fall, but not until Q two or 0:15:47.320 --> 0:15:50.720 Q three. So if we're right and inflation does fall 0:15:50.880 --> 0:15:53.240 and maybe even starts in the first quarter of the year, 0:15:53.480 --> 0:15:55.640 that's going to give them a bit more breathing room 0:15:56.200 --> 0:15:58.240 relative to what I think a lot of the markets 0:15:58.240 --> 0:16:01.680 looking at. And then other part of their mandate employment. 0:16:02.000 --> 0:16:05.040 We've got a forecast for the labor fourth participation rate, 0:16:05.160 --> 0:16:07.680 especially for prime age workers, to do what it does 0:16:07.720 --> 0:16:11.360 in every expansion, which is to rise. It's already's been 0:16:11.400 --> 0:16:13.600 doing that over the past several months on net and 0:16:13.640 --> 0:16:16.960 if that continues, then they get to reconsider those two 0:16:16.960 --> 0:16:19.160 conditions for a rate lift off. What's going on with 0:16:19.200 --> 0:16:23.280 inflation and what's going on with pect So seth normalizing, 0:16:23.280 --> 0:16:26.280 though is not normal. As you pointed out, the idea 0:16:26.400 --> 0:16:29.560 of the inflation rate peeking and then coming down still 0:16:29.600 --> 0:16:32.560 does not leave us with a comfortable inflation rate for 0:16:32.600 --> 0:16:35.800 the Fed to just completely do nothing other than follow 0:16:35.960 --> 0:16:39.560 it's relatively slow taper. What gives you confidence that they 0:16:39.560 --> 0:16:41.840 will be able to push back against the Bill Dudley's 0:16:41.880 --> 0:16:44.640 of the world, who are saying, guys, you're so far 0:16:44.720 --> 0:16:47.520 behind the curve and you are risking a huge policy error. 0:16:48.560 --> 0:16:50.840 I mean, I think it's got to be very strong 0:16:50.920 --> 0:16:54.120 and very lively debate, and so you know, it's being 0:16:54.240 --> 0:16:56.640 at this desk and trying to think about what's likely 0:16:56.640 --> 0:16:59.840 to happen. I have to go back to Powell's words. 0:16:59.840 --> 0:17:02.560 He said he doesn't expect inflation to materially fall until 0:17:02.600 --> 0:17:05.240 Q two or Q three. That to me sounds like 0:17:05.600 --> 0:17:08.480 let's let the taper run its course and then after 0:17:08.560 --> 0:17:11.600 that start to think about when, when when to talk 0:17:11.640 --> 0:17:13.840 about rate hikes south I look at all this in 0:17:13.880 --> 0:17:16.560 the debate that we framed on Bloomberg surveillance over the 0:17:16.640 --> 0:17:19.639 last couple of days. Our listeners are viewers, their seats 0:17:19.680 --> 0:17:24.120 are spinning over fancy guys like you, over what's the 0:17:24.200 --> 0:17:28.080 key determinant in the fear of inflation and that this 0:17:28.160 --> 0:17:30.640 is the Bloomberg business we cover talks about. And I'm 0:17:30.640 --> 0:17:34.240 gonna ask you this as clearly as I can Kelli 0:17:34.600 --> 0:17:39.119 Look coefficient critique, what is the what is the Kelly 0:17:39.200 --> 0:17:42.880 Look coefficient critique? See I who play Kelly Look efficient 0:17:42.880 --> 0:17:46.960 critique very very well, then, tom Um, I think there 0:17:47.160 --> 0:17:50.520 is a massive disconnect between the way that macro economists 0:17:50.560 --> 0:17:54.200 talk about inflation and the way that everyday real people 0:17:54.359 --> 0:17:58.119 talk about inflation. People who are in the course of 0:17:58.119 --> 0:18:00.800 their everyday life are not running regret sans. They're not 0:18:00.920 --> 0:18:03.199 sort of scanning the data to see what's going on. 0:18:03.520 --> 0:18:06.119 They're paying attention to how much money they're paying to 0:18:06.160 --> 0:18:08.320 fill up their gas tank. They're paying attention to how 0:18:08.400 --> 0:18:10.960 much money they're paying at the grocery store when they 0:18:10.960 --> 0:18:15.720 buy food. It seems entirely reasonable for the average person 0:18:15.800 --> 0:18:18.560 to be to be feeling the high prices that are 0:18:18.560 --> 0:18:20.920 going on here, and I think they're in lies a 0:18:21.000 --> 0:18:25.240 real big communication challenge. I think, uh, that communication challenge 0:18:25.320 --> 0:18:29.000 might actually get compounded over time because the Fed very 0:18:29.040 --> 0:18:33.600 intentionally has set a target for pc inflation. Markets in 0:18:33.600 --> 0:18:37.080 general look at CPI inflation. They're measured differently. There are 0:18:37.160 --> 0:18:40.280 conceptual differences between them. The gap between those two can 0:18:40.320 --> 0:18:42.280 actually get much larger over the course of the year, 0:18:42.320 --> 0:18:46.800 and so there's a real challenge there translating inflation as 0:18:47.200 --> 0:18:50.919 macroeconomists who are studying central banks think about it, versus 0:18:51.440 --> 0:18:54.320 inflation and what it costs for it every for everyday 0:18:54.359 --> 0:18:58.720 activities for regular people. Seth, do you promise to come back? Promise? 0:18:58.720 --> 0:19:01.600 I would like to come back every time I'm invited. Yeah, 0:19:01.640 --> 0:19:03.840 but he can't come back within the window. He can't 0:19:03.840 --> 0:19:06.280 come back within the window. And that's on the black 0:19:06.280 --> 0:19:14.720 camp period. Want to hear from the run thank you 0:19:14.760 --> 0:19:17.040 for promising to come back, Seth. Convient to that from 0:19:17.080 --> 0:19:24.720 Marcin Stanley, Let's pick it up. We've got some wonderful 0:19:24.720 --> 0:19:27.520 guest today on economics, and we go to someone incredibly 0:19:27.640 --> 0:19:30.760 skilled here on market economics. Stephen Stanley is with the 0:19:30.760 --> 0:19:33.240 amorous peer part in their chief economist and is really 0:19:33.280 --> 0:19:36.000 good at the granularity. Steve Stanley, I want you to 0:19:36.000 --> 0:19:40.359 extrapolate the reality of John Deer and as Greg Velier 0:19:40.520 --> 0:19:44.280 reports this morning, ten percent inflate a wage lift, and 0:19:44.320 --> 0:19:47.440 then the next year of five percent in wage lift, 0:19:47.720 --> 0:19:50.399 and the year after that of five percent wage lift. 0:19:50.600 --> 0:19:54.800 That smells like inflation to me. Can the union inflation 0:19:55.359 --> 0:20:00.000 fall over to non union America? Well? Absolutely, I mean 0:20:00.040 --> 0:20:02.399 the labor market is incredibly tight right now, and I 0:20:02.400 --> 0:20:05.920 think workers realize that they have the leverage. And so 0:20:06.119 --> 0:20:08.760 you're not only saying it with some of these strike actions, 0:20:08.800 --> 0:20:12.520 but also UM people sitting out waiting until they get 0:20:12.520 --> 0:20:15.320 an offer that they that they liked. So yeah, I 0:20:15.359 --> 0:20:18.280 mean I think workers right now have the um you know, 0:20:18.320 --> 0:20:20.840 have the leverage, and they're gonna push it. You know. 0:20:20.880 --> 0:20:23.879 I look at Target in Amazon together bordering up on 0:20:24.000 --> 0:20:27.600 two million employees, and I would suggest that the margin 0:20:28.200 --> 0:20:32.840 those are almost union like employers just because of their mass, 0:20:32.920 --> 0:20:37.439 almost general motors of nineteen thirty five or nineteen fifty 0:20:37.520 --> 0:20:40.720 five as well. Are we more organized than we think 0:20:40.760 --> 0:20:44.760 we are in our labor markets? That's an interesting question. 0:20:44.760 --> 0:20:48.080 I mean, I think in some aspects that's probably true. Um, 0:20:48.640 --> 0:20:53.080 these big companies are big employers, I should say, have definitely, 0:20:53.520 --> 0:20:56.560 you know, responded with kind of big moves in terms 0:20:56.560 --> 0:20:59.760 of wages, raising the minimum ways that they pay or 0:20:59.840 --> 0:21:02.520 the average wage that they pay, in a manner that 0:21:02.720 --> 0:21:07.520 is somewhat akin to a collective bargaining type situation. Um. 0:21:07.560 --> 0:21:10.239 You know, maybe on some other parameters, whether it's you know, 0:21:10.320 --> 0:21:14.439 working conditions or other collective bargaining type issues, you know, 0:21:14.480 --> 0:21:16.640 maybe not so much so. It's maybe it's a bit 0:21:16.640 --> 0:21:19.480 of a hybrid. Stephen. Does the FED have time to 0:21:19.560 --> 0:21:21.920 wait for this labor market to hail, to get back 0:21:21.920 --> 0:21:25.439 to where we were before this pandemic. The FED is 0:21:25.600 --> 0:21:28.240 way behind the curve right now. I mean, the fact 0:21:28.320 --> 0:21:32.119 that we're still buying assets is you know, it's just 0:21:32.800 --> 0:21:35.400