WEBVTT - Surveillance: ECB’s Path Forward with Lane (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.640 and of course on the Bloomberg Terminal. I will introduce 0:00:31.000 --> 0:00:34.000 Philip Lane. He's the chief Economist at the e c B, 0:00:34.159 --> 0:00:36.919 and I want to make clear, particularly to our American audience, 0:00:36.960 --> 0:00:40.280 there is no equivalent at the FED, with the inaugural 0:00:40.360 --> 0:00:44.280 Chief Economist Marius sing of Germany. This is considered a 0:00:44.400 --> 0:00:48.240 key position in global economics. Philip Lane, I want to 0:00:48.280 --> 0:00:51.040 go back to a paper you did from Trinity over 0:00:51.080 --> 0:00:54.160 to Harvard years ago with a guy named Manque, and 0:00:54.200 --> 0:00:58.760 you and Greg Manque did a paper on economics and 0:00:58.800 --> 0:01:03.560 the scientists in engineering of it all? Do we throw 0:01:03.640 --> 0:01:07.040 the textbooks out? Now? Does the science and does the 0:01:07.120 --> 0:01:12.440 engineering of modern economics work given this moment? So I'm 0:01:12.480 --> 0:01:15.319 familiar with that with that paper, but I cannot take credit. 0:01:15.520 --> 0:01:18.160 I think there might have been a Greg Manki and 0:01:18.240 --> 0:01:21.759 maybe Ricardo reset the London s going of economics, But 0:01:21.760 --> 0:01:25.880 but the the basic question is still very relevant and 0:01:26.680 --> 0:01:31.600 absolutely in central banking. Um, it's a blend of of course, 0:01:31.680 --> 0:01:37.400 respecting the science of the textbook while also understanding we 0:01:37.440 --> 0:01:39.440 live in the real world where we have to you know, 0:01:39.840 --> 0:01:43.920 understand the actual data arriving and to filter out and 0:01:44.600 --> 0:01:47.199 come up with policies that that work in the real world, 0:01:47.640 --> 0:01:50.680 not just in the textbook version. Well, let's talk about 0:01:50.680 --> 0:01:52.720 the real world and the data this morning, Philip, right 0:01:52.720 --> 0:01:54.080 to have you with us on the program. So, by 0:01:54.120 --> 0:01:57.240 the way, the writing core inflation in the urosign more 0:01:57.280 --> 0:02:00.200 bad news comes in at three point. It's that with 0:02:00.240 --> 0:02:02.200 how worried you are about the second round effects here 0:02:02.560 --> 0:02:04.880 and how quickly you think we should react to that pressure. 0:02:05.960 --> 0:02:10.160 So clearly the Holy economy, all sectors, so core non core, 0:02:10.320 --> 0:02:14.640 the Holy economy has to adjust at essentially three factors 0:02:14.680 --> 0:02:19.680 in Europe. One is the very large increase in energy prices, 0:02:20.680 --> 0:02:24.720 which of course matters directly, but also matters indirectly because 0:02:24.760 --> 0:02:29.600 every sector uses energy, so every every business which uses 0:02:29.720 --> 0:02:33.120 energies and input, including in the services sector just think 0:02:33.160 --> 0:02:39.079 about hotels, restaurants, transportation, That energy shock will show up everywhere. 0:02:39.919 --> 0:02:44.240 A second factor is the pandemic and that's working through 0:02:44.320 --> 0:02:49.320 different channels. As you know, now with the renewed wave 0:02:49.400 --> 0:02:52.720 of lockdowns in China, we have new bottom x. Well, 0:02:52.560 --> 0:02:55.600 we also in Europe have the reopening of the economy 0:02:55.919 --> 0:02:59.639 this winter, including the early weeks of Q one, which 0:02:59.680 --> 0:03:02.920 we just seen, a lot of sectors were still locked down, 0:03:03.080 --> 0:03:06.760 which basically meant that there was a lack of activity 0:03:07.040 --> 0:03:12.320 and also honestly in the world where of that less 0:03:12.360 --> 0:03:15.919 pricing pressure. And then as we reopened those sectors, at 0:03:15.960 --> 0:03:19.400 those sectors are also going to normalized prices. And then 0:03:19.440 --> 0:03:22.359 the third element is the war, and the war when 0:03:22.360 --> 0:03:26.240 we're talking about started as you know in late February, 0:03:27.160 --> 0:03:29.880 and this is a source of great uncertainty for the 0:03:29.880 --> 0:03:34.840 European economy. Of course, it interacts with the with the 0:03:34.960 --> 0:03:38.880 energy shock, it interacts with bottomnecks, but also has a 0:03:38.920 --> 0:03:42.320 direct effect in terms of annually trying to kind of 0:03:42.720 --> 0:03:46.600 form their outlook for for Europe for the coming months 0:03:46.640 --> 0:03:49.360 and years. How the war plays out in the coming 0:03:49.400 --> 0:03:53.160 weeks and months is really the most important topic. Well, 0:03:53.200 --> 0:03:55.720 let's talk about how that informs your sequencing. The latest 0:03:55.720 --> 0:03:58.600 minutes published by the ECB. Let's call them the account 0:03:58.680 --> 0:04:00.600 the way you like us to show. Do you viewed 0:04:00.600 --> 0:04:03.160 the call for a rate hikes sometime after the end 0:04:03.160 --> 0:04:06.160 of asset purchases. I understand from your point of view 0:04:06.160 --> 0:04:09.720 you want to disentangle the rate hikes from asset purchases. 0:04:09.880 --> 0:04:12.560 I get all of that. You suggested recently, Philip, that 0:04:12.640 --> 0:04:15.600 would give the Governing Council this extra space. Do you 0:04:15.640 --> 0:04:18.640 think you still need that extra space given everything you've 0:04:18.640 --> 0:04:21.560 just said and given the data this morning. So so 0:04:21.600 --> 0:04:24.000 I suppose that, let me be clear along a few 0:04:24.040 --> 0:04:29.120 dimensions after us uh, the the idea is to have 0:04:29.200 --> 0:04:32.760 an option. So that option is an option that that 0:04:32.880 --> 0:04:36.599 could be invoked quickly, as President of Guard has said. 0:04:36.640 --> 0:04:40.520 I think in the press conferences it covers, you know, 0:04:40.560 --> 0:04:43.440 I arranged at the long end from a few months 0:04:44.160 --> 0:04:47.320 to the short end, you know, as you know of 0:04:47.320 --> 0:04:49.520 of you know, even a week. I think specially mentioned 0:04:49.520 --> 0:04:52.480 that at the short end. So it's an option, it's 0:04:52.520 --> 0:04:55.640 not a it's not a fixed window of time. And 0:04:55.839 --> 0:04:59.280 essentially here we are at the end of April. We're 0:04:59.320 --> 0:05:02.080 nearly six weeks, six weeks I think from yesterday to 0:05:02.120 --> 0:05:05.280 the June meeting, and after that we have another number 0:05:05.279 --> 0:05:07.800 of weeks to the next meeting in July and and 0:05:07.839 --> 0:05:12.599 so on. So I appreciate those who are trying to 0:05:12.760 --> 0:05:18.200 uh form market judgments like predictions. I'm much more focused 0:05:18.200 --> 0:05:21.640 on the process. We we need to take into account 0:05:21.640 --> 0:05:24.440 of data we've seen today, We need to take into 0:05:24.520 --> 0:05:30.479 county boat on GDP and on inflation. We're basically, honestly 0:05:30.600 --> 0:05:34.640 in the middle of trying of the staff are working 0:05:34.800 --> 0:05:37.600 on the projections that will inform the June meeting. And 0:05:38.120 --> 0:05:42.320 we we were clear sequencing, if in terms of policymaking, 0:05:42.480 --> 0:05:44.719 but also in terms of the meetings we have and 0:05:44.760 --> 0:05:47.800 the information we have. So I don't really want to 0:05:47.880 --> 0:05:50.760 run ahead of that sequence. Philip, you mentioned market pricing. 0:05:51.400 --> 0:05:54.280 Do you think it adequately reflects right now? The way 0:05:54.320 --> 0:05:57.400 you're communicating is that of any interest to you whatsoever? 0:05:58.560 --> 0:06:01.039 So I mean, I think the is involved in the 0:06:01.120 --> 0:06:07.160 market and policymakers are essentially confronted with a number of factors. 0:06:08.000 --> 0:06:11.080 Number one, I think you said earlier on in the commentary. 0:06:12.080 --> 0:06:18.200 Our current policies are interest rate policies were developed at 0:06:18.240 --> 0:06:21.560 a time when when the imperative was to try and 0:06:21.640 --> 0:06:25.080 tackle inflation that was persistently below our two percent target. 0:06:25.720 --> 0:06:29.119 So we've been basically saying all the year long that 0:06:29.120 --> 0:06:33.960 that on a step by step basis uh uh conditional 0:06:34.240 --> 0:06:37.800 on this outlet where we do think, um, we are 0:06:37.880 --> 0:06:42.559 not returning to that low inflation trap of normalizing interest 0:06:42.640 --> 0:06:45.960 rate policy. So so the interest rate policy will move 0:06:46.520 --> 0:06:49.040 at the you know, the question of I know of 0:06:49.200 --> 0:06:54.640 of interest at to everyone is exactly when that that 0:06:54.720 --> 0:06:58.720 will start. And you know, we essentially have been assessing 0:06:58.720 --> 0:07:01.960 in our recent meetings that we should be data dependent 0:07:03.160 --> 0:07:06.400 to respect the uncertainty we face, and that you know 0:07:06.560 --> 0:07:09.600 we thought you respect. Can I just jump into some 0:07:09.720 --> 0:07:12.080 central bankers that you will be data dependent and then 0:07:12.120 --> 0:07:14.480 I see the data change, and then I don't see 0:07:14.480 --> 0:07:17.840 anything you say that changes whatsoever. I ask the question 0:07:17.880 --> 0:07:20.080 earlier on about what you said about a month ago 0:07:20.480 --> 0:07:22.680 relative to what the data says now, about whether you 0:07:22.720 --> 0:07:26.040 still need that extra space between ending rate purchases and 0:07:26.160 --> 0:07:29.360 rate heights, and then you say data dependence still sure, 0:07:29.440 --> 0:07:33.800 jump back in. Let's let me challenge this. Just look 0:07:34.000 --> 0:07:38.720 at the very large changes in the ECB's monetary stance 0:07:39.840 --> 0:07:43.520 since since December. So in December, you know we took 0:07:43.560 --> 0:07:48.040 decisions which you know we're not We're not universally praised 0:07:48.080 --> 0:07:50.560 at the time to to have a big scaling down 0:07:50.600 --> 0:07:54.320 of ass of purchases, including through the ending the announced 0:07:54.400 --> 0:07:56.560 end of the of the PEP purchases at the end 0:07:56.600 --> 0:08:00.920 of March. So in terms of step one scaling down 0:08:00.960 --> 0:08:04.320 that the monthly volume of purchases, a lot has already happened. 0:08:05.840 --> 0:08:09.680 Step two of not only going ending the PEP but 0:08:09.800 --> 0:08:14.040 talking about concluding net purchases under the app. You know, 0:08:14.280 --> 0:08:17.920 we we've signaled that strong expectation that this, this is, 0:08:18.040 --> 0:08:21.080 this is coming up. And then after that sequence it's 0:08:21.120 --> 0:08:24.720 it's the issue about moving interest rates and you know, 0:08:24.760 --> 0:08:29.600 the market um um and for ourselves, you know, it's 0:08:29.720 --> 0:08:32.920 the story is not you know, the issue about uh, 0:08:33.120 --> 0:08:35.120 you know, are we going to move away from from 0:08:35.160 --> 0:08:38.440 minus zero point five for for the deposit rate. The 0:08:38.480 --> 0:08:42.160 big issue which we do have to still be data 0:08:42.200 --> 0:08:46.640 dependent about is the scale and the timing of interest 0:08:46.720 --> 0:08:49.800 rate normalization. And you know, we've just thought about the 0:08:49.840 --> 0:08:54.360 high uncertainty um it's recurrent everywhere that that that there 0:08:54.400 --> 0:08:58.280 are mixed dynamics into your area in the near term. Yes, 0:08:58.320 --> 0:09:01.079 inflation is very high, and that us carry its own 0:09:01.160 --> 0:09:05.240 risk of momentum under the hand at the high energy 0:09:05.280 --> 0:09:10.520 prices are eating into a disposal incomes. It's reducing consumption. 0:09:11.320 --> 0:09:14.720 The war you know, has the scope especially you know, 0:09:14.840 --> 0:09:19.440 depending on how it goes in terms of mapping into 0:09:19.520 --> 0:09:24.520 lower investment, lower consumption at true true confidence effects and 0:09:24.640 --> 0:09:27.920 the extra pressure and energy. So I'm going to hold 0:09:28.320 --> 0:09:32.400 to this perspective that the a lot remains data dependent. 0:09:32.440 --> 0:09:35.640 But but but but I would emphasize though, is at 0:09:36.480 --> 0:09:38.680 where where you know, I don't think you're hearing anyone 0:09:38.840 --> 0:09:43.320 saying that the the current deposit rate of minus zero 0:09:43.360 --> 0:09:47.760 point five is going to be remained there indefinitely. It's 0:09:47.800 --> 0:09:52.760 all about the prudent and the robust and durable way 0:09:53.520 --> 0:09:56.600 of having normalization. Looking at the move in the Euro, 0:09:57.559 --> 0:09:59.640 it's been pretty brutal over the last month, phill It 0:10:00.000 --> 0:10:02.319 you're a dollars down about four point five on a 0:10:02.360 --> 0:10:04.360 month so far. You will, of course tell me that 0:10:04.400 --> 0:10:06.160 this is not a policy target, but we can all 0:10:06.160 --> 0:10:08.920 agree it has possible implications for the immediate turn outlook 0:10:08.920 --> 0:10:11.960 for price stability. We then in mind, Philip, the latest 0:10:12.000 --> 0:10:15.560 development is problematic for you. The way I mean I 0:10:15.559 --> 0:10:19.200 would think about it, I think I've always taken this 0:10:19.280 --> 0:10:22.800 view is that the exchange rate is a very important 0:10:23.040 --> 0:10:26.560 macroeconomic variable for Europe. The your area is a big 0:10:26.600 --> 0:10:30.600 trading block. It's from a Marcrot point of view, the 0:10:30.600 --> 0:10:33.920 exchange rate absolutely matters. So when we are when the 0:10:33.920 --> 0:10:37.720 staff now are working through the projections for June, that 0:10:37.880 --> 0:10:42.480 that currency depreciation will will be an important factor shaping 0:10:42.520 --> 0:10:47.319 their projections. And again to emphasize, it's you know, one 0:10:47.440 --> 0:10:50.520 channel is a mechanical effect and import prices, but when 0:10:50.559 --> 0:10:54.880 we think about investment, when we think about consumption net 0:10:54.880 --> 0:10:56.720 exports for the your area, it's it's a it's a 0:10:56.720 --> 0:11:02.920 big macro variable and this movie significant. So anyone looking 0:11:02.960 --> 0:11:05.000 at that and trying to think about the implications from 0:11:05.000 --> 0:11:08.560 mantro policy, that will definitely be one trend along with 0:11:08.640 --> 0:11:11.040 every other trend that we need to think about, which 0:11:11.080 --> 0:11:14.280 will be integrated into an overall assessment in the In 0:11:14.320 --> 0:11:17.400 the June forecast, Philip, how much does it affect your 0:11:17.440 --> 0:11:20.439 expectation for the potential for a recession in the Euroregion? 0:11:20.800 --> 0:11:24.000 And I say this as ECB member Mattis Muller came 0:11:24.000 --> 0:11:26.600 out and said that they saw that the chance of 0:11:26.600 --> 0:11:31.199 a recession in the euroregion was low. Do you agree so? Absolutely? 0:11:31.200 --> 0:11:35.280 In our baseline. Let me point point out two factors. One, 0:11:36.320 --> 0:11:39.120 this is still a lot of momentum from from the 0:11:39.160 --> 0:11:43.120 recovery from the pandemic um. That's true, especially when you 0:11:43.120 --> 0:11:46.640 think about year on year, because this time last year 0:11:46.800 --> 0:11:49.320 there was you know, we were still very far below 0:11:49.360 --> 0:11:52.920 at the now, so you know, when we think about 0:11:52.960 --> 0:11:55.880 the economy, that momentum is there. But it's not just 0:11:55.960 --> 0:11:58.760 about that kind of base effect, Like you know, the 0:11:58.840 --> 0:12:03.120 momentum we've just seen, you know, a positive Q one, 0:12:03.520 --> 0:12:07.840 not very high, admittedly, that's still positive. And the we 0:12:07.960 --> 0:12:12.640 know from the near time indicators for what's going on 0:12:12.760 --> 0:12:16.960 right now that this still seems to be resoural activity 0:12:17.080 --> 0:12:20.600 right now here at the end of April um. So again, 0:12:21.240 --> 0:12:23.360 I don't think it's it's the most interesting way to 0:12:23.480 --> 0:12:28.080 to kind of frame the question because even if the 0:12:28.080 --> 0:12:33.040 economic continues to grow compared to the pre war baseline, 0:12:33.800 --> 0:12:38.559 you know, under all scenarios, the path for output is 0:12:38.960 --> 0:12:41.360 not going to be as high as we as we 0:12:41.360 --> 0:12:44.760 were hoping before before the war broke out. So the 0:12:45.080 --> 0:12:50.120 basic analysis applies regardless of whether everything ends up being 0:12:50.160 --> 0:12:53.160 so strong to put us into negative territory. But but 0:12:53.520 --> 0:12:57.280 really it's it's not so much about what we know today. 0:12:57.320 --> 0:12:59.800 It's we all know the possible scenarios. We all know 0:12:59.880 --> 0:13:04.200 the possible scenarios about the intensification of the interruption of 0:13:04.240 --> 0:13:08.400 amgry supplies and other scenarios which could and this is 0:13:08.440 --> 0:13:12.839 why at the ECB we've been, you know, publishing scenarios. 0:13:13.320 --> 0:13:15.679 We've been emphasizing we don't just look at the baseline, 0:13:15.679 --> 0:13:19.000 but also adverse and severe scenarios. Philip, just a sort 0:13:19.040 --> 0:13:21.960 of some up though. Are you saying that the market 0:13:22.120 --> 0:13:25.040 is wrong because the market seems to increasingly be pricing 0:13:25.080 --> 0:13:28.079 in a recession in the euroregion and pricing in that 0:13:28.200 --> 0:13:31.120 those scenarios look a lot more likely. Are you saying 0:13:31.360 --> 0:13:35.199 that the risk reward is perhaps a little less pessimistic 0:13:35.400 --> 0:13:40.240 from your perspective. I don't think again, I want to 0:13:40.280 --> 0:13:43.400 spend any time on the commenting on that. What's too 0:13:43.440 --> 0:13:45.800 is the market, of course has to fold in a 0:13:45.840 --> 0:13:50.720 significant risk premium, a wrist premium on inflation, a wrist 0:13:50.720 --> 0:13:54.320 premium on GDP, and there is a covariance factor there 0:13:54.880 --> 0:13:58.440 which which is basically the urge to to kind of 0:13:58.840 --> 0:14:02.439 look for protection. It's going to be higher where when 0:14:02.440 --> 0:14:05.600 you're confronted with the risk of higher inflationment and lower output, 0:14:06.360 --> 0:14:10.319 and so filtering out between risk premia and what the 0:14:10.400 --> 0:14:13.880 market truly expects. Of course, we we we we we 0:14:13.920 --> 0:14:17.320 did that ourselves in understanding the data. But that but 0:14:17.559 --> 0:14:22.280 both forces risk management and kind of true forecasts are 0:14:22.600 --> 0:14:26.160 off the influencing market pricing. Philip Line of ECV, the 0:14:26.200 --> 0:14:29.200 chief economist, Philip, fantastic to catch up with you, deeply 0:14:29.200 --> 0:14:33.240 thoughtful stuff on a tricky moment for this European Central Bank, Philip, 0:14:33.280 --> 0:14:42.480 Thank you. Tom Purcellio joins us now truly expert within 0:14:42.520 --> 0:14:45.920 market economics in America on wage dynamics time. You're the 0:14:45.960 --> 0:14:48.680 best guy to talk to about this right now. Is 0:14:48.720 --> 0:14:54.240 it a wage spiral? Yeah, you know so. I'm sympathetic 0:14:54.280 --> 0:14:56.680 to everyone looking at ECI because Powell mentioned it, But 0:14:56.960 --> 0:15:01.040 I don't know too. It's quarterly number, and because monthly 0:15:01.120 --> 0:15:02.880 stuff in hand, where you have a month, we have 0:15:02.960 --> 0:15:04.720 a new month, we have March in hand. We're gonna 0:15:04.720 --> 0:15:06.760 get April dat as soon enough. I mean, look, if 0:15:06.800 --> 0:15:08.640 you're looking at wages and salaries, I think it's really 0:15:08.680 --> 0:15:10.720 interesting that at the month on months actually continue to 0:15:10.800 --> 0:15:12.400 slow and that's been going on for quite a number 0:15:12.400 --> 0:15:14.520 of months now again make a mistake. I mean, we're 0:15:14.560 --> 0:15:16.760 looking at really high run rate here, but at the 0:15:16.840 --> 0:15:19.240 end of the day, I mean, you know, look, everyone 0:15:19.280 --> 0:15:21.160 wants it so fast, right like they just wanted like 0:15:21.240 --> 0:15:22.840 one month. They want they want to wake up one 0:15:22.920 --> 0:15:24.640 day and they want like inflation back to you know, 0:15:24.680 --> 0:15:27.040 two percent. This is not how it's gonna work, right, mean, 0:15:27.040 --> 0:15:28.320 you have to look for like these sort of little 0:15:28.320 --> 0:15:30.200 shifts that are happening. And one of the I think 0:15:30.240 --> 0:15:32.360 there's a couple of interesting shifts that are happening right now. 0:15:32.400 --> 0:15:34.600 One of them is wages and salaries are actually slowing 0:15:34.600 --> 0:15:36.760 down on a month on month basis. Again running at 0:15:36.760 --> 0:15:38.440 a high level, we get that, but you got to 0:15:38.480 --> 0:15:40.680 look for these little ships. I thought the Beige Book 0:15:40.680 --> 0:15:42.480 from last week, I thought that was really interesting too. 0:15:42.520 --> 0:15:45.640 I mean, you know, there was this commentary embedded throughout 0:15:45.680 --> 0:15:46.920 again right like the things that you're not going to 0:15:47.000 --> 0:15:49.520 see at the at the headline. I'm looking at the 0:15:49.520 --> 0:15:51.520 comment right here. I thought it was really interesting. A 0:15:51.520 --> 0:15:54.680 few firms noted that they're reevaluating their employment level and 0:15:54.720 --> 0:15:58.080 maybe ready for some attrition to reduce staff size, and 0:15:58.120 --> 0:16:00.840 comments like that are embedded throughout the bag book. Now again, 0:16:00.960 --> 0:16:02.960 I want to be clear, You're not gonna wake up 0:16:03.000 --> 0:16:04.640 one day and everything is going to be sort of different. 0:16:04.680 --> 0:16:06.480 I'm just simply saying you've got to look at these things. 0:16:06.520 --> 0:16:08.640 We're sort of you know, signs or how things are 0:16:08.640 --> 0:16:11.560 starting to shift. Um, and I will submit to you 0:16:11.600 --> 0:16:13.880 that that that is happening. So you know what it 0:16:13.880 --> 0:16:15.520 means for markets, Tom, And you're trying to pick up 0:16:15.520 --> 0:16:17.440 on the e c I the recent people care it's 0:16:17.440 --> 0:16:19.520 because Chapman pounce old as he cares. This is about 0:16:19.520 --> 0:16:21.600 the reaction function of the FED. So let's work through 0:16:21.640 --> 0:16:24.840 it together. How do you anticipate this data will develop? 0:16:24.880 --> 0:16:28.040 There will be a mechanical peak developing in CP in America. 0:16:28.120 --> 0:16:30.480 We may have already seen that peak. Tom. How do 0:16:30.520 --> 0:16:33.600 you think this Federal Reserve will internalize that data and 0:16:33.640 --> 0:16:35.680 react to it as it peaks and you start to 0:16:35.720 --> 0:16:38.160 see this slow deceleration that I assume that you anticipate 0:16:38.200 --> 0:16:40.800 through the summer. Yeah, Jonathan, So I think that this 0:16:40.880 --> 0:16:42.440 is the question that you know, we've just wrote about 0:16:42.440 --> 0:16:43.760 this the other day, and I think this is the 0:16:43.760 --> 0:16:45.920 thing that you know, the FED is going to need 0:16:45.920 --> 0:16:49.600 to sort of quantify to some extent. Think about last year. 0:16:50.200 --> 0:16:52.320 Think about what they did last year. Last year, it 0:16:52.360 --> 0:16:54.920 was basically all about getting to max employment, right, like 0:16:55.080 --> 0:16:57.720 you know, forget about inflation. Um, it was, it was 0:16:57.760 --> 0:17:00.320 all it was, you know, a bee line to getting 0:17:00.360 --> 0:17:03.080 to max employment. Well we see how that worked out, 0:17:03.160 --> 0:17:04.840 right when you have your blinders on and you're only 0:17:04.880 --> 0:17:07.840 focused on a single side of the mandate. So the 0:17:07.920 --> 0:17:11.160 question today is are they only going to focus on 0:17:11.240 --> 0:17:14.280 getting back to target inflation? Because I'll tell you if 0:17:14.320 --> 0:17:16.880 that's true. Look, you're speaking to someone and I think 0:17:16.880 --> 0:17:18.679 you will know this. You're speaking to someone who actually 0:17:18.680 --> 0:17:20.680 thinks that inflation will slow down as the as the 0:17:20.760 --> 0:17:23.800 year progresses. But if if it's, if this is a 0:17:23.880 --> 0:17:28.000 march to target, then you're gonna blow through bullards three fifty. 0:17:28.160 --> 0:17:30.600 I mean you're not gonna get to target until well 0:17:30.640 --> 0:17:34.760 into next year. Um. From a from a core perspective, Um, 0:17:34.880 --> 0:17:37.320 So I think the Fed needs to define what they 0:17:37.440 --> 0:17:40.480 sort of would will feel comfortable with from an inflation perspective, 0:17:40.840 --> 0:17:43.760 because if it's if it's, if it's target, then you're 0:17:43.760 --> 0:17:46.879 gonna be meanifully higher than than neutral and you're going 0:17:46.960 --> 0:17:49.560 to cause a recession. So where do you think that 0:17:49.600 --> 0:17:53.200 they should be okay or comfortable with inflation. Coming down 0:17:53.200 --> 0:17:56.200 to yeah, Lisa, I think that it's it really is 0:17:56.240 --> 0:17:58.959 about the movement of inflation. Right Like if if by 0:17:59.000 --> 0:18:00.760 the end of the year your whole a three handle 0:18:00.840 --> 0:18:04.480 on core inflation, core inflation, UM, I would I would 0:18:04.520 --> 0:18:06.919 define that as actually feeling like you're in a good spot, right. 0:18:06.960 --> 0:18:09.000 It's it's about the movement and where we are going. 0:18:09.040 --> 0:18:10.840 It's about the narrative in place at the time. It's 0:18:10.880 --> 0:18:12.800 really easy today to say, hey, inflation is can be 0:18:12.800 --> 0:18:15.920 an eight at eight percent, because that's all people see 0:18:16.000 --> 0:18:18.440 is eight percent inflation. But I think as the year progresses, 0:18:18.480 --> 0:18:20.320 I think the sort of the tone on that will 0:18:20.359 --> 0:18:22.960 be very different. I think as the year progresses, the 0:18:22.960 --> 0:18:25.480 tone on spending will be very different. I mean, we've 0:18:25.480 --> 0:18:27.640 talked about this quite a bit. If you look at 0:18:27.680 --> 0:18:32.159 the lower end consumer, at the fourth and fifth income quintiles, 0:18:32.200 --> 0:18:36.120 they're tapped out. They don't have the ability to overspend overspend, 0:18:36.160 --> 0:18:38.080 which is what happened last year, and the data are 0:18:38.080 --> 0:18:40.159 pretty clear on that, you know. I think it's interesting. 0:18:40.200 --> 0:18:42.399 I was listening to um you guys earlier, and I 0:18:42.400 --> 0:18:45.760 think Tom was was completely spot on. I think that 0:18:45.840 --> 0:18:49.320 the most recent I think that yesterday's GDP number, I 0:18:49.320 --> 0:18:51.879 think that's fascinating. I think that that is a really 0:18:51.920 --> 0:18:54.320 interesting report. And it has nothing to do with the negative. 0:18:54.520 --> 0:18:56.200 It's nothing to do with the fact that the consumer 0:18:56.240 --> 0:18:58.800 held in nothing. Has everything to do with trade and 0:18:58.840 --> 0:19:02.359 inventories and when and this is again feeds into our 0:19:02.400 --> 0:19:05.760 story so so nicely. I think it's really interesting that 0:19:05.800 --> 0:19:09.359 the inventory build has been staggering over the last couple 0:19:09.440 --> 0:19:14.280 of quarters, absolutely staggering. And yes it's subtracted from growth yesterday, 0:19:14.359 --> 0:19:16.679 but only before you know, because of the way is 0:19:16.680 --> 0:19:18.720 the delta right, It is just because the build was 0:19:18.840 --> 0:19:21.440 less than what we saw last quarter. But the last 0:19:21.440 --> 0:19:25.280 two quarters we have seen an absolutely enormous amount of build. 0:19:25.840 --> 0:19:28.000 Think about that in the context of the other thing 0:19:28.000 --> 0:19:31.280 that's subtracted from growth, that was trade. We're importing. We've 0:19:31.320 --> 0:19:36.199 imported almost the annual run rate is eighteen percent, eighteen 0:19:36.240 --> 0:19:39.960 percent over the last two quarters. This is amazing, iRacing us. 0:19:40.119 --> 0:19:42.240 So sorry, let's just finish his point. So what's happening 0:19:42.240 --> 0:19:45.240 is we're building all of this inventory and at the 0:19:45.320 --> 0:19:48.320 same time that the consumer is transitioning from good spending 0:19:48.320 --> 0:19:50.679 the services spending. Um, what do you think is going 0:19:50.720 --> 0:19:53.639 to happen to good prices? In that context? Good prices 0:19:53.640 --> 0:19:54.880 are going to fall, And I think it could fall 0:19:54.880 --> 0:19:57.440 pretty sharply, just real quickly. We only have about forty 0:19:57.440 --> 0:19:59.840 five seconds left. It's no problem. I know that you're 0:20:00.040 --> 0:20:02.399 you is that the FED shouldn't go too quickly and 0:20:02.480 --> 0:20:05.280 force a recession. What would you have to see in 0:20:05.320 --> 0:20:07.840 the data that would make you change your mind about 0:20:07.840 --> 0:20:12.080 the momentum that the FED has to curtail. So so, Lisa, 0:20:12.200 --> 0:20:15.200 if if if we're wrong, if inflation remains elevated, then yes, 0:20:15.240 --> 0:20:17.919 of course then the FED should engineer a recession, right, 0:20:17.960 --> 0:20:21.800 They basically should just get aggressive and knock this thing out. Um. 0:20:21.840 --> 0:20:24.160 But but again I think, well I've said this many 0:20:24.160 --> 0:20:26.159 times on your program. I just think a little bit 0:20:26.200 --> 0:20:28.560 of sort of patients and and and and a little 0:20:28.560 --> 0:20:30.639 bit of sort of look, making sure you're sort of 0:20:30.640 --> 0:20:32.920 noting both sides of the mandate. I think that would 0:20:32.920 --> 0:20:35.080 get you to a pretty reasonable place. You know, we 0:20:35.119 --> 0:20:37.640 don't have to generate a recession. I don't think we'll 0:20:37.640 --> 0:20:39.680 have to generate a recession and inflation slows down. But 0:20:39.720 --> 0:20:41.360 if it doesn't, then yes, I think the FED will 0:20:41.840 --> 0:20:44.119 necessarily have to get aggressive some do you think the 0:20:44.160 --> 0:20:46.000 pivot was more to do with secure in a second 0:20:46.040 --> 0:20:48.440 term and not the a CI. Then just a final 0:20:48.520 --> 0:20:51.240 question from me. You know, you know Jonathan, I I 0:20:52.040 --> 0:20:54.240 don't think so. I mean, I don't I don't pretend 0:20:54.280 --> 0:20:57.600 to know J. Powell in any meaningful way, but I 0:20:57.640 --> 0:21:00.040 don't think that's that what was driving just incline in 0:21:00.119 --> 0:21:05.080 minds once tonight. Some thank you, So I don't think obviously. 0:21:05.200 --> 0:21:08.520 Cavina Markets, thank you very much, just checking in. So 0:21:08.840 --> 0:21:18.560 it's just having a word. Ellen Wald is definitive off 0:21:18.560 --> 0:21:21.520 the Atlantic Council as a senior fellow in a wonderful 0:21:21.520 --> 0:21:24.439 book Saudi and kind of culture, the fabric of the 0:21:24.560 --> 0:21:28.240 royal family in Saudi Arabia, And today we're all embargo 0:21:28.720 --> 0:21:32.480 with ellen Wald. Ellen, it's really simple. Can an embargo 0:21:32.640 --> 0:21:36.960 work on oil against Russia? I don't think that in 0:21:37.200 --> 0:21:41.800 this case an embargo really can work on oil against Russia, because, UH, 0:21:42.080 --> 0:21:44.520 there are, first of all, so many different points that 0:21:44.640 --> 0:21:49.080 Russia is able to UH to to export oil. We've 0:21:49.119 --> 0:21:52.840 got pipelines, we've got multiple ports. UH. In fact, we've 0:21:52.880 --> 0:21:56.200 got ports and UH and pipeline systems that they share 0:21:56.280 --> 0:21:59.560 with other countries like Kazakhstan, and that would be very 0:21:59.720 --> 0:22:02.160 very are to police. So I think that what we're 0:22:02.160 --> 0:22:05.560 really talking about here is um Europe is kind of 0:22:05.560 --> 0:22:10.680 embargoing itself against Russian oil and that oil will go 0:22:10.840 --> 0:22:13.679 to other sources. In fact, we just got news that 0:22:14.040 --> 0:22:18.879 UM Indian oil companies, Indian refineries are looking to set 0:22:19.240 --> 0:22:23.359 and to secure some longish term contracts with Russia to 0:22:23.440 --> 0:22:26.720 import Russian oil. And there really isn't any way that, 0:22:27.040 --> 0:22:29.560 you know, short of of some kind of military embargo, 0:22:30.000 --> 0:22:33.000 that the EU and the United States can stop that 0:22:33.119 --> 0:22:39.720