1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloombergs Surveillance Podcast Home. Tom Keene, along 2 00:00:09,240 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz jay Leie, we bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment and 4 00:00:17,280 --> 00:00:23,280 Speaker 1: international relations, Fine Bloomberg Surveillance and Apple podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:30,360 Speaker 1: dot Com, and of course on the Bloomberg Tournament. Joining 6 00:00:30,400 --> 00:00:32,720 Speaker 1: us on Bloomberg Television and on radio. I'm pleased to 7 00:00:32,760 --> 00:00:35,159 Speaker 1: say the New York Fed President John Williams joins us 8 00:00:35,360 --> 00:00:39,080 Speaker 1: alongside Bloomberg's Michael McKee. President Williams, always great to catch 9 00:00:39,120 --> 00:00:40,440 Speaker 1: up with you, sir, and if you don't mind going 10 00:00:40,479 --> 00:00:42,920 Speaker 1: to start the conversation with the quote of yours you 11 00:00:42,960 --> 00:00:44,440 Speaker 1: went on to say, in the last day or so, 12 00:00:44,600 --> 00:00:47,560 Speaker 1: from my perspective, we are quite a ways from achieving 13 00:00:47,600 --> 00:00:51,400 Speaker 1: my interpretation of substantial further progress. So President Williams, I 14 00:00:51,400 --> 00:00:55,240 Speaker 1: imagine you anticipated this trillion dollar question, what is substantial 15 00:00:55,440 --> 00:01:01,240 Speaker 1: further progress? Well, you know that's something will be analyzed 16 00:01:01,280 --> 00:01:04,720 Speaker 1: and I'll be studying very carefully looking at the progress 17 00:01:04,720 --> 00:01:08,880 Speaker 1: we're making about getting back to maximum employment and also 18 00:01:08,959 --> 00:01:13,160 Speaker 1: our goals around a two inflation on average over time. 19 00:01:13,240 --> 00:01:16,119 Speaker 1: So it's really looking at all the data that indicators 20 00:01:16,200 --> 00:01:21,200 Speaker 1: and really seeing that actual achieved progress both in terms 21 00:01:21,240 --> 00:01:25,199 Speaker 1: of employment and also in terms of underlying inflation trans 22 00:01:25,240 --> 00:01:28,080 Speaker 1: back to two. So it's really looking carefully at all 23 00:01:28,120 --> 00:01:32,679 Speaker 1: the um data and indicators and assessing that to come 24 00:01:32,720 --> 00:01:35,360 Speaker 1: to conclusion. President Williams, for the benefit of our audience 25 00:01:35,360 --> 00:01:37,920 Speaker 1: on radio, as I asked that question, you smiled because 26 00:01:37,920 --> 00:01:41,640 Speaker 1: clearly you anticipate to there. I just wonder why keeping 27 00:01:41,680 --> 00:01:45,480 Speaker 1: what constitutes substantial further progress vague is a feature and 28 00:01:45,520 --> 00:01:51,960 Speaker 1: not a bug of policy. Well, you know, it's we 29 00:01:52,200 --> 00:01:55,360 Speaker 1: we are not following some mechanical formula for making monetary 30 00:01:55,400 --> 00:01:57,480 Speaker 1: policy that we have to look at a wide range 31 00:01:57,480 --> 00:02:01,640 Speaker 1: of information and different indicators, and we also have to 32 00:02:01,680 --> 00:02:04,920 Speaker 1: think about where the uncertainties and risks to the outlook 33 00:02:04,920 --> 00:02:07,480 Speaker 1: are too. So I wouldn't say it's a a. I 34 00:02:07,480 --> 00:02:10,440 Speaker 1: think it's pretty clear. We've laid out very clear indicators 35 00:02:10,440 --> 00:02:14,480 Speaker 1: about how we think about maximum employment and price stability UH. 36 00:02:14,760 --> 00:02:18,639 Speaker 1: But it's there's no kind of a numerical UH threshold 37 00:02:18,760 --> 00:02:20,639 Speaker 1: or something that we're looking at. We're really looking at 38 00:02:20,639 --> 00:02:24,400 Speaker 1: the full set of data around around these goals and 39 00:02:24,520 --> 00:02:27,760 Speaker 1: taking into count all the extreme you know, extraordinarily high 40 00:02:27,800 --> 00:02:31,200 Speaker 1: levels of uncertainty uh in the economy that we've experienced 41 00:02:31,200 --> 00:02:33,080 Speaker 1: for the past year and a half and uh and 42 00:02:33,120 --> 00:02:38,080 Speaker 1: we're continue to experience as the economy reopens. Well, John 43 00:02:38,120 --> 00:02:41,960 Speaker 1: the there's a lot of uncertainty, but that stern taskmaster J. 44 00:02:42,120 --> 00:02:44,640 Speaker 1: Powell makes you write down your forecasts. And I'm just 45 00:02:44,680 --> 00:02:49,200 Speaker 1: wondering on the FED spectrum from the Survey of Economic Projections, 46 00:02:49,800 --> 00:02:52,200 Speaker 1: what you think growth will be this year and in 47 00:02:52,280 --> 00:02:54,640 Speaker 1: two thousand twenty two, and what do you think PC 48 00:02:54,919 --> 00:03:00,320 Speaker 1: inflation will be. Well, you know, we're seeing you know, 49 00:03:00,480 --> 00:03:03,440 Speaker 1: great um, you know, signs of the reopening of the 50 00:03:03,440 --> 00:03:06,840 Speaker 1: economy in the past several months. So I have an 51 00:03:06,960 --> 00:03:10,000 Speaker 1: uh pretty optimistic view of what GDP growth will look 52 00:03:10,040 --> 00:03:12,079 Speaker 1: like this year. Uh So my my view is the 53 00:03:12,160 --> 00:03:15,200 Speaker 1: growth will be about seven percent on a Q four 54 00:03:15,200 --> 00:03:17,680 Speaker 1: of a Q four basis for real GDP, which is 55 00:03:17,720 --> 00:03:20,600 Speaker 1: the best number if you know that forecast is true, 56 00:03:20,560 --> 00:03:22,640 Speaker 1: that will be the best number since nineteen eight four. 57 00:03:23,080 --> 00:03:25,200 Speaker 1: So I feel very good about you know, the progress 58 00:03:25,280 --> 00:03:32,120 Speaker 1: we're making on vaccinations, on growth supported by strong fiscal support. 59 00:03:32,639 --> 00:03:34,720 Speaker 1: And so that's that's my forecast. And I see the 60 00:03:34,800 --> 00:03:37,119 Speaker 1: unemployment rate coming down to around four and a half 61 00:03:37,120 --> 00:03:39,240 Speaker 1: percent by the end of the year, which is again 62 00:03:39,320 --> 00:03:42,360 Speaker 1: really great UM signs of progress. Looking to next year, 63 00:03:42,400 --> 00:03:45,000 Speaker 1: I think growth will be uh GDP. Growth will probably 64 00:03:45,000 --> 00:03:47,040 Speaker 1: be around three to three and a half percent UM 65 00:03:47,160 --> 00:03:49,080 Speaker 1: slower than this year because we're not going to get 66 00:03:49,120 --> 00:03:51,640 Speaker 1: as much of that reopening dynamic and some of the 67 00:03:51,960 --> 00:03:54,760 Speaker 1: very strong fiscal support we saw last year and this 68 00:03:54,840 --> 00:03:57,480 Speaker 1: year will be I mean uh next year in terms 69 00:03:57,480 --> 00:03:59,680 Speaker 1: of its contribution to growth, I still see the end 70 00:04:00,000 --> 00:04:03,360 Speaker 1: the labor market continuing to recover next year, and employment 71 00:04:03,880 --> 00:04:06,640 Speaker 1: trending down. In terms of inflation, you know, I do 72 00:04:06,760 --> 00:04:10,600 Speaker 1: see the very um you know shark rice and prices 73 00:04:10,600 --> 00:04:12,960 Speaker 1: we've seen in the past few months is mostly temporary. 74 00:04:13,120 --> 00:04:17,839 Speaker 1: So after inflation being at three percent or so this year, 75 00:04:17,880 --> 00:04:22,320 Speaker 1: I expect both core and overall inflation rates to come 76 00:04:22,360 --> 00:04:26,800 Speaker 1: back down next year to around two as some of 77 00:04:26,800 --> 00:04:30,320 Speaker 1: the reopening dynamics you know UM play out and some 78 00:04:30,360 --> 00:04:32,680 Speaker 1: of these big increases in some of these prices like 79 00:04:32,800 --> 00:04:37,840 Speaker 1: used cars and things like that subside. Well, let's let 80 00:04:37,880 --> 00:04:40,000 Speaker 1: me put it the way the FED has always put it. 81 00:04:40,080 --> 00:04:44,360 Speaker 1: If the economy performs as you expect, would it be 82 00:04:44,640 --> 00:04:47,720 Speaker 1: likely that we would see you begin to taper in 83 00:04:47,760 --> 00:04:52,120 Speaker 1: the fourth quarter of this year or is that too early. Well, 84 00:04:52,160 --> 00:04:53,800 Speaker 1: it's really going to be driven by the day to 85 00:04:54,120 --> 00:04:57,120 Speaker 1: you know, Mike, you know, you know, I'm very data 86 00:04:57,200 --> 00:05:00,680 Speaker 1: dependent in my views on policy, and right now we're 87 00:05:00,720 --> 00:05:04,599 Speaker 1: still in the midst of just a really an extraordinary 88 00:05:04,920 --> 00:05:08,000 Speaker 1: and positive set of developments in terms of the economy, 89 00:05:08,160 --> 00:05:10,520 Speaker 1: in terms of vaccinations and other things. So right now 90 00:05:10,839 --> 00:05:13,680 Speaker 1: it's really about watching the data, seeing how quickly this 91 00:05:13,760 --> 00:05:16,719 Speaker 1: economy can recover and get back to you know, uh, 92 00:05:16,760 --> 00:05:20,000 Speaker 1: to its full potential. And so any views I have 93 00:05:20,120 --> 00:05:22,320 Speaker 1: about when, um, you know, when we'll get to that 94 00:05:22,320 --> 00:05:25,400 Speaker 1: point that we can start uh slowing the pace of 95 00:05:25,400 --> 00:05:28,320 Speaker 1: our asset purchases, that will be driven really like what 96 00:05:28,320 --> 00:05:31,360 Speaker 1: what's happening in the data, the as I mentioned before, 97 00:05:31,480 --> 00:05:33,960 Speaker 1: the kind of the risks they're out there, and in 98 00:05:34,040 --> 00:05:36,640 Speaker 1: terms of the economic outlook, and and doing it in 99 00:05:36,680 --> 00:05:39,160 Speaker 1: a way hope that you know, really will be uh 100 00:05:39,360 --> 00:05:44,039 Speaker 1: communicated very transparently and done in a very orderly way. 101 00:05:44,160 --> 00:05:46,280 Speaker 1: So that's that's how I view that the timings can 102 00:05:46,279 --> 00:05:49,800 Speaker 1: be driven by the you know, how how the data evolved, 103 00:05:50,000 --> 00:05:53,559 Speaker 1: and really my focus is on providing the appropriate amount 104 00:05:53,600 --> 00:05:57,560 Speaker 1: of monetary support for full and complete economic recovery and 105 00:05:57,680 --> 00:06:01,479 Speaker 1: with inflation averaging two person, Well, let's talk a little 106 00:06:01,520 --> 00:06:04,120 Speaker 1: bit about what's appropriate. What do we get for a 107 00:06:04,160 --> 00:06:06,800 Speaker 1: hundred and twenty billion dollars right now a month in 108 00:06:06,839 --> 00:06:10,120 Speaker 1: purchases that we wouldn't get from less given the state 109 00:06:10,160 --> 00:06:13,760 Speaker 1: of the economy. And are you worried that the minute 110 00:06:13,800 --> 00:06:16,479 Speaker 1: you announced that you might begin tapering, we get a 111 00:06:16,560 --> 00:06:20,640 Speaker 1: taper tantrum. Does that keep you pinned in place? Well, 112 00:06:20,680 --> 00:06:23,320 Speaker 1: you know, we really, in my view, we need to 113 00:06:23,360 --> 00:06:26,560 Speaker 1: focus on getting monte policy in the right place to 114 00:06:26,680 --> 00:06:30,240 Speaker 1: support the very strong economic recovery. Um. And you know, 115 00:06:30,279 --> 00:06:33,000 Speaker 1: the ur two percent inflation goal. I think, you know, 116 00:06:33,000 --> 00:06:35,960 Speaker 1: one of the lessons from the experience of the taper 117 00:06:36,000 --> 00:06:39,520 Speaker 1: from years ago is the importance of uh, you know, 118 00:06:39,680 --> 00:06:41,599 Speaker 1: not only getting the right decision at the right time 119 00:06:41,640 --> 00:06:43,680 Speaker 1: for the decision, but also you know, doing our very 120 00:06:43,680 --> 00:06:48,839 Speaker 1: best to communicate that has transparently uh and um, you 121 00:06:48,880 --> 00:06:52,160 Speaker 1: know kind of clearly to the public. I do think 122 00:06:52,200 --> 00:06:54,400 Speaker 1: that you know, this is this time we have a 123 00:06:54,440 --> 00:06:58,240 Speaker 1: really strong economy. Uh. In terms of the recovery, the 124 00:06:58,240 --> 00:07:00,040 Speaker 1: pace of recovery is of a long ways to go 125 00:07:00,120 --> 00:07:02,680 Speaker 1: to get to maximum employment. But we're on a very 126 00:07:02,720 --> 00:07:05,080 Speaker 1: good track for that. And I think that in the 127 00:07:05,080 --> 00:07:08,440 Speaker 1: context of a strong recovery UM and a good economic, 128 00:07:08,600 --> 00:07:10,960 Speaker 1: very good economic outlook, then we can you know, we 129 00:07:11,000 --> 00:07:16,680 Speaker 1: can adjust Monterey policy hopefully without any undo market um uh, 130 00:07:16,960 --> 00:07:20,520 Speaker 1: you know, turmoil or things like that you just mentioned. 131 00:07:20,600 --> 00:07:23,320 Speaker 1: President Williams might cast that question and already polite fashion, 132 00:07:23,360 --> 00:07:25,240 Speaker 1: so I'll be a little bit more plund Does this 133 00:07:25,360 --> 00:07:29,680 Speaker 1: housing market in America need the FED support? Well, you know, 134 00:07:29,880 --> 00:07:33,160 Speaker 1: the obviously the housing market is one of the key drivers, 135 00:07:33,560 --> 00:07:36,720 Speaker 1: along with consumer spending in business investment, of the strong 136 00:07:36,760 --> 00:07:40,280 Speaker 1: growth UM. Now, my view is the monetary accommodation that 137 00:07:40,320 --> 00:07:42,560 Speaker 1: we're providing, both in terms of little very low event 138 00:07:42,600 --> 00:07:46,280 Speaker 1: funds rate and also our asset purchases is supporting overall 139 00:07:46,360 --> 00:07:49,680 Speaker 1: financial conditions, really lowering the cost of um, you know, 140 00:07:49,960 --> 00:07:54,320 Speaker 1: financing for households, for businesses in general. It's not you know, 141 00:07:54,640 --> 00:07:58,560 Speaker 1: specifically targeted to you know, do the housing market UM 142 00:07:58,600 --> 00:08:00,440 Speaker 1: in terms you know, My my view one this is 143 00:08:00,480 --> 00:08:03,080 Speaker 1: we need to focus on our maximum employment and price 144 00:08:03,120 --> 00:08:06,360 Speaker 1: stability goals and and as the economy um you know, 145 00:08:06,400 --> 00:08:09,080 Speaker 1: makes this substantial, further progress on those goals, we can 146 00:08:09,760 --> 00:08:13,000 Speaker 1: make decisions around adjusting asset purchases and and then further 147 00:08:13,080 --> 00:08:15,760 Speaker 1: down the road in terms of our interest rates. So 148 00:08:15,800 --> 00:08:19,440 Speaker 1: it's really my focus is on on those goals where 149 00:08:19,520 --> 00:08:22,680 Speaker 1: it's not really about supporting or not supporting the housing 150 00:08:22,720 --> 00:08:26,200 Speaker 1: market in particular. Just a little hint from you there 151 00:08:26,440 --> 00:08:28,600 Speaker 1: on what your view might be when it does come 152 00:08:28,720 --> 00:08:31,920 Speaker 1: the time to reduce asset purchases on the composition of 153 00:08:31,960 --> 00:08:35,960 Speaker 1: that reduction, President is re biased to reduce say the 154 00:08:36,080 --> 00:08:40,199 Speaker 1: purchase of mbs the treasuries or what I'm hearing from you, 155 00:08:40,280 --> 00:08:44,800 Speaker 1: maybe not. Well, you know, those are the issues that 156 00:08:44,880 --> 00:08:47,400 Speaker 1: we need to think about in terms of not only 157 00:08:47,440 --> 00:08:50,920 Speaker 1: the timing of the adjustment of the of the purchase pace, 158 00:08:51,000 --> 00:08:53,839 Speaker 1: but the timing over which that would happen, and also 159 00:08:53,880 --> 00:08:57,120 Speaker 1: the composition of any adjustments that we, you know, we make. 160 00:08:57,200 --> 00:08:59,960 Speaker 1: So those are issues that we need to analyze very careful, 161 00:09:00,040 --> 00:09:03,400 Speaker 1: we um and think through in terms of again achieving 162 00:09:03,480 --> 00:09:06,440 Speaker 1: or a maximum employment and price supportability. But you're talking 163 00:09:06,480 --> 00:09:08,560 Speaker 1: about it right now because the chairman told us so, 164 00:09:08,600 --> 00:09:11,320 Speaker 1: President Williams, from your standpoint, what is the optimal approach 165 00:09:11,360 --> 00:09:15,679 Speaker 1: to that conversation? The optimal approach to the conversation around 166 00:09:15,920 --> 00:09:18,920 Speaker 1: the asset purchases. Yeah, well I think we just you know, 167 00:09:18,960 --> 00:09:21,000 Speaker 1: we do what we do, very are the best. We 168 00:09:21,400 --> 00:09:24,760 Speaker 1: analyze all the data, analyze the options we have in 169 00:09:24,800 --> 00:09:27,320 Speaker 1: front of us, and and really focus on the big 170 00:09:27,320 --> 00:09:30,160 Speaker 1: picture of our the goals that we're trying to achieve, 171 00:09:30,200 --> 00:09:32,480 Speaker 1: the progress for making on those, and how to best 172 00:09:32,920 --> 00:09:36,680 Speaker 1: um set our policy, um, you know, instruments as we 173 00:09:36,760 --> 00:09:39,760 Speaker 1: can to achieve those goals. Will forgive me for jumping 174 00:09:39,760 --> 00:09:41,720 Speaker 1: in because you're too good at this. When it comes 175 00:09:41,720 --> 00:09:44,480 Speaker 1: to the asset purchase program, do you view it as 176 00:09:44,480 --> 00:09:47,000 Speaker 1: a hundred and twenty billion a month or a mix 177 00:09:47,000 --> 00:09:49,800 Speaker 1: of purchases that needs to be reduced independent of one another. 178 00:09:50,000 --> 00:09:52,360 Speaker 1: Would you hit focus on MBS of a treasuries treasury 179 00:09:52,480 --> 00:09:54,120 Speaker 1: over MBS or do you just look at the whole 180 00:09:54,120 --> 00:09:56,640 Speaker 1: package that needs to be reduced equally? What's the optimal 181 00:09:56,679 --> 00:09:59,400 Speaker 1: approach to that? Oh? Yeah, so you know, I clearly 182 00:09:59,400 --> 00:10:04,160 Speaker 1: see them the to supporting a comedy of financial conditions broadly. 183 00:10:04,400 --> 00:10:07,280 Speaker 1: So that's that's how I think about thinking to your question, Now, 184 00:10:07,840 --> 00:10:10,680 Speaker 1: can we do we have options in terms of adjusting them? 185 00:10:10,800 --> 00:10:14,520 Speaker 1: Um in different ways? The different the purchases of nbs 186 00:10:14,600 --> 00:10:17,120 Speaker 1: and and treasuries. Clearly we have options to do that. 187 00:10:17,720 --> 00:10:21,000 Speaker 1: From my point of view, the main purpose of these 188 00:10:21,320 --> 00:10:26,040 Speaker 1: is really to provide strong support for that kind of Well, John, 189 00:10:26,160 --> 00:10:29,880 Speaker 1: if you do start the tapering process, do you go 190 00:10:30,000 --> 00:10:33,800 Speaker 1: through tapering completely before you get to rate increases? Do 191 00:10:33,880 --> 00:10:40,079 Speaker 1: you stop QUIE purchases altogether before you would consider raising rates? Well, 192 00:10:40,120 --> 00:10:42,520 Speaker 1: mikecause you know, you know, last time, we we had 193 00:10:42,760 --> 00:10:47,320 Speaker 1: a sequence of of UH decisions that were made around that. 194 00:10:47,480 --> 00:10:50,319 Speaker 1: I think this time, you know, clearly we can UM. 195 00:10:50,360 --> 00:10:53,200 Speaker 1: We've learned a lot from the experience of UH, the 196 00:10:53,240 --> 00:10:56,000 Speaker 1: slowing of the asset purchases last time, and then eventually 197 00:10:56,040 --> 00:10:58,959 Speaker 1: the normalization monetary policy. So those are lessons that I 198 00:10:59,000 --> 00:11:01,800 Speaker 1: think are important to take. But you know, this time 199 00:11:01,880 --> 00:11:04,800 Speaker 1: is very different to the economic of the recession, the recovery, 200 00:11:04,880 --> 00:11:07,720 Speaker 1: or just very different from the global financial crisis because 201 00:11:07,760 --> 00:11:09,760 Speaker 1: of the you know, the nature have been driven by 202 00:11:09,800 --> 00:11:13,079 Speaker 1: the pandemic. So I think it's really important that we 203 00:11:13,120 --> 00:11:15,480 Speaker 1: don't sit here and just think like what's going to 204 00:11:15,600 --> 00:11:18,640 Speaker 1: happen necessarily a year or two years ahead and think 205 00:11:18,679 --> 00:11:21,320 Speaker 1: through exactly all of those but really watch the data 206 00:11:21,480 --> 00:11:23,959 Speaker 1: see how the economy evolves. And see how our policy 207 00:11:24,160 --> 00:11:27,200 Speaker 1: you know, decisions can best support the achievement of our goals. 208 00:11:27,240 --> 00:11:30,240 Speaker 1: So those are those are you know, issues that will 209 00:11:30,440 --> 00:11:33,719 Speaker 1: obviously think about carefully, but also they're they're well off 210 00:11:33,720 --> 00:11:35,920 Speaker 1: in the future, and we really should be based on 211 00:11:36,160 --> 00:11:38,719 Speaker 1: how the economy is evolving rather than um, you know, 212 00:11:38,800 --> 00:11:43,160 Speaker 1: kind of where where things are right now in June. Well, 213 00:11:43,240 --> 00:11:45,680 Speaker 1: let's talk about the raising interest rates and your view 214 00:11:45,720 --> 00:11:47,920 Speaker 1: on it. Where is your dot did you move it 215 00:11:48,440 --> 00:11:50,959 Speaker 1: at the last meeting? Are you in two thousand twenty two, 216 00:11:51,040 --> 00:11:55,000 Speaker 1: two thousand twenty three? And you're not going to be 217 00:11:55,080 --> 00:11:58,319 Speaker 1: surprised by my answers. I'm not going to talk about 218 00:11:58,320 --> 00:12:00,880 Speaker 1: my specific you know view. It's as the chair uh 219 00:12:01,120 --> 00:12:04,080 Speaker 1: you know put uh you know has said on last 220 00:12:04,120 --> 00:12:06,680 Speaker 1: week is um uh that you know, these are just 221 00:12:06,760 --> 00:12:10,160 Speaker 1: projections based on a modal outlook. Each person comes into 222 00:12:10,160 --> 00:12:12,840 Speaker 1: the meeting and has a view on that. And so 223 00:12:13,160 --> 00:12:16,080 Speaker 1: you know, I don't think really right now that the 224 00:12:16,160 --> 00:12:19,320 Speaker 1: key issue for the FMC is, you know, when when 225 00:12:19,440 --> 00:12:21,360 Speaker 1: is the economy going to get to this point where 226 00:12:21,400 --> 00:12:25,160 Speaker 1: we meet these um you know, these uh, these conditions 227 00:12:25,160 --> 00:12:27,920 Speaker 1: that we've set out in the FMC statement about time 228 00:12:28,000 --> 00:12:30,679 Speaker 1: for for the lift off of the funds rate, that's 229 00:12:30,720 --> 00:12:32,520 Speaker 1: still a way off in the future right now. Really, 230 00:12:32,600 --> 00:12:34,600 Speaker 1: I think the attention is on the on the table. 231 00:12:34,679 --> 00:12:37,120 Speaker 1: In terms of my own views, my focus is really 232 00:12:37,160 --> 00:12:40,440 Speaker 1: on the framework. Is our new policy framework introduced last 233 00:12:40,480 --> 00:12:43,560 Speaker 1: year is I think positions is really well to deal 234 00:12:43,600 --> 00:12:46,840 Speaker 1: with the situations that we're dealing with today and will 235 00:12:46,840 --> 00:12:49,360 Speaker 1: over the next few years. And I think our FOMC 236 00:12:49,640 --> 00:12:53,080 Speaker 1: guidance around the funds rate is is a very strong 237 00:12:53,120 --> 00:12:55,360 Speaker 1: place to be. And that's you know, so when we 238 00:12:55,440 --> 00:12:57,960 Speaker 1: get to that point where the economy is is meeting 239 00:12:58,000 --> 00:13:00,720 Speaker 1: those um, you know, conditions we've laid out in the 240 00:13:00,800 --> 00:13:03,000 Speaker 1: FROMC steam, you know, I think that's when we'll get 241 00:13:03,040 --> 00:13:05,880 Speaker 1: to the discussion about whether the Fed funds right, Um, 242 00:13:06,080 --> 00:13:08,839 Speaker 1: you know, what's the appropriate stance of the Fed funds right? 243 00:13:08,960 --> 00:13:12,600 Speaker 1: That's still quite a waste off from today. Well, if 244 00:13:12,600 --> 00:13:13,959 Speaker 1: you won't tell us where your dad is, let me 245 00:13:14,000 --> 00:13:16,400 Speaker 1: ask it this way. You were quite bullish yesterday in 246 00:13:16,440 --> 00:13:19,880 Speaker 1: your speech, and yet we're still quite a ways from 247 00:13:19,880 --> 00:13:23,640 Speaker 1: substantial further progress. Are we getting to that substantial further 248 00:13:23,760 --> 00:13:28,480 Speaker 1: progress more quickly than you thought? Does the economy's speed 249 00:13:28,679 --> 00:13:33,600 Speaker 1: uh surprise you? And is the inflation number to you surprising, Well, 250 00:13:33,679 --> 00:13:36,040 Speaker 1: let me start with the inflation. Clearly inflation, that recent 251 00:13:36,040 --> 00:13:39,480 Speaker 1: inflation number has been very high. Um. That's and you 252 00:13:39,520 --> 00:13:43,000 Speaker 1: know obviously get a lot of attention, uh from us 253 00:13:43,040 --> 00:13:45,440 Speaker 1: and from everybody, and and really being we need to 254 00:13:45,440 --> 00:13:48,360 Speaker 1: be very careful watching that data. See to what extent 255 00:13:48,360 --> 00:13:51,000 Speaker 1: these are just you know, transitory temporary factors or or 256 00:13:51,080 --> 00:13:54,960 Speaker 1: do they you know, still into underlying inflation over the 257 00:13:54,960 --> 00:13:57,960 Speaker 1: next few years. So clearly inflation has moved up quite 258 00:13:58,000 --> 00:14:00,080 Speaker 1: a bit. That's something that's um, you know, part of 259 00:14:00,120 --> 00:14:02,240 Speaker 1: the picture. In terms of employment, you know, I do 260 00:14:02,360 --> 00:14:05,439 Speaker 1: tend to go back to indicators like UM, the employment 261 00:14:05,480 --> 00:14:08,640 Speaker 1: of population ratio UM and the unemployment rate and a 262 00:14:08,679 --> 00:14:11,520 Speaker 1: lot of other indicators of the health of the labor market. 263 00:14:11,559 --> 00:14:14,880 Speaker 1: And we have made you know, progress for sure since 264 00:14:15,120 --> 00:14:18,000 Speaker 1: December of last year. But you know that progress is 265 00:14:18,040 --> 00:14:20,480 Speaker 1: still I still don't think it's close to the substantial 266 00:14:20,880 --> 00:14:23,440 Speaker 1: further progress that we set out on. And you know, 267 00:14:23,560 --> 00:14:25,440 Speaker 1: really it's gonna you know, my views on this we 268 00:14:25,560 --> 00:14:29,360 Speaker 1: depend on how the data evolve over you know, overcoming months. 269 00:14:29,440 --> 00:14:32,240 Speaker 1: You know, see can the are we adding a large 270 00:14:32,320 --> 00:14:35,440 Speaker 1: number of jobs? We see employment of population continue to 271 00:14:35,560 --> 00:14:38,680 Speaker 1: move back up, and watching obviously all the other cares 272 00:14:38,680 --> 00:14:41,680 Speaker 1: as well. So I'm really focused on employment because that's 273 00:14:41,680 --> 00:14:44,400 Speaker 1: what our mandate is, and are we making really strong 274 00:14:44,520 --> 00:14:49,160 Speaker 1: progress towards UH, the maximum employment goal that we have John. 275 00:14:49,160 --> 00:14:51,680 Speaker 1: When it comes to the participation rate in the US 276 00:14:51,840 --> 00:14:53,720 Speaker 1: labor market, do you have any conviction around what that 277 00:14:53,760 --> 00:14:56,120 Speaker 1: looks like, how that progresses through the next twelve months. 278 00:14:56,160 --> 00:14:59,400 Speaker 1: How unknown is that? Yeah, that's that's obviously a really 279 00:14:59,440 --> 00:15:03,560 Speaker 1: hard quest. And UM participation changes for variety of reasons. 280 00:15:03,680 --> 00:15:05,720 Speaker 1: We've seen a lot of churn in the labor market 281 00:15:05,720 --> 00:15:08,640 Speaker 1: in the in the past few months, people exiting the 282 00:15:08,720 --> 00:15:12,600 Speaker 1: labor market, coming in, you know, a lot happening with 283 00:15:12,640 --> 00:15:15,160 Speaker 1: the reopening of the economy, UH and and all the 284 00:15:15,200 --> 00:15:17,200 Speaker 1: events of the past year and a half of the pandemic. 285 00:15:17,280 --> 00:15:19,360 Speaker 1: So I think right now it's hard to get a 286 00:15:19,400 --> 00:15:22,560 Speaker 1: clear read on the underlying trends. I do tend to 287 00:15:22,600 --> 00:15:25,280 Speaker 1: look at, you know, one category UM in the data, 288 00:15:25,360 --> 00:15:28,080 Speaker 1: which is the employment of population for twenty five to 289 00:15:28,160 --> 00:15:30,360 Speaker 1: fifty four year olds, which probably you know, more in 290 00:15:30,360 --> 00:15:34,160 Speaker 1: the middle of people's careers. And you know, if you 291 00:15:34,200 --> 00:15:37,360 Speaker 1: look back before the UM, you know, before the pandemic 292 00:15:37,400 --> 00:15:40,440 Speaker 1: that was over eight percent, So I think that, you know, 293 00:15:40,600 --> 00:15:43,520 Speaker 1: hopefully we can get back towards the number like that. 294 00:15:43,600 --> 00:15:46,040 Speaker 1: But um, and you know, for the overall population, we 295 00:15:46,120 --> 00:15:50,000 Speaker 1: have seen uh, some retirements from some older workers, where 296 00:15:49,960 --> 00:15:52,640 Speaker 1: I think we have to carefully analyze that data to 297 00:15:52,680 --> 00:15:55,880 Speaker 1: see if that's um, you know, shifted the trans somewhat 298 00:15:55,920 --> 00:15:58,800 Speaker 1: in terms of lay before participation. So I think, you know, 299 00:15:58,800 --> 00:16:00,480 Speaker 1: we have to just look at the data. Are employee 300 00:16:00,520 --> 00:16:04,400 Speaker 1: analyze it, um, and you come to our best assessment 301 00:16:04,440 --> 00:16:07,000 Speaker 1: of what you know, a maximum employment was. Now. One 302 00:16:07,000 --> 00:16:08,160 Speaker 1: thing I just wanted to say is we had an 303 00:16:08,200 --> 00:16:10,920 Speaker 1: unemployment rate of three and a half percent before the pandemic. 304 00:16:10,960 --> 00:16:14,680 Speaker 1: We had very strong labor force participation UM. And I 305 00:16:14,680 --> 00:16:18,760 Speaker 1: don't see any reason, um that our economy can't reattain 306 00:16:18,920 --> 00:16:21,960 Speaker 1: a really strong labor market similar to that. It may 307 00:16:22,000 --> 00:16:24,200 Speaker 1: be slightly different in terms of participation in some of 308 00:16:24,240 --> 00:16:26,720 Speaker 1: the other issues, but it should still be an economy 309 00:16:26,760 --> 00:16:30,480 Speaker 1: that is really a very strong one with maximum employment 310 00:16:30,480 --> 00:16:33,560 Speaker 1: Indian with our two percentization. It coming forward from here, 311 00:16:33,840 --> 00:16:36,080 Speaker 1: President Williams, as you know, you do get a lot 312 00:16:36,080 --> 00:16:39,240 Speaker 1: of criticism over the current policy stance, and often the 313 00:16:39,280 --> 00:16:41,960 Speaker 1: federal reserve will bring up the labor markets support the 314 00:16:42,000 --> 00:16:43,760 Speaker 1: current policy stance. We had a story from the Wall 315 00:16:43,800 --> 00:16:46,280 Speaker 1: Street Journal this morning on black Stone agreeing to buy 316 00:16:46,320 --> 00:16:48,600 Speaker 1: a company that buys some rents single family homes and 317 00:16:48,640 --> 00:16:52,080 Speaker 1: a six billion dollars deal. This is Wall Street competing 318 00:16:52,120 --> 00:16:56,280 Speaker 1: with Main Street for single family homes. It's the Federal reserve. 319 00:16:56,320 --> 00:16:59,600 Speaker 1: Part of the problem when it comes to this, Well, 320 00:16:59,800 --> 00:17:02,800 Speaker 1: in know this we're doing, you know, conducting monetary policy, 321 00:17:02,840 --> 00:17:05,960 Speaker 1: which is really just really about setting interest rates and 322 00:17:06,160 --> 00:17:09,840 Speaker 1: supporting the strong economic recovery and our inflation goals. You know, 323 00:17:10,280 --> 00:17:14,000 Speaker 1: there's always developments in the markets that um um, you know, 324 00:17:14,520 --> 00:17:16,800 Speaker 1: or maybe they're affected somewhat by interest rates, but I 325 00:17:16,800 --> 00:17:19,919 Speaker 1: think are really driven by other factors. And it just 326 00:17:19,960 --> 00:17:22,360 Speaker 1: remind people to, you know, when we think about why 327 00:17:22,520 --> 00:17:25,200 Speaker 1: interest rates are so low and maybe how people behaving 328 00:17:25,720 --> 00:17:28,280 Speaker 1: around very low interest rates, I think, I keep part 329 00:17:28,280 --> 00:17:30,480 Speaker 1: of this is is that this is a structural change 330 00:17:30,480 --> 00:17:32,960 Speaker 1: in our the global economy. We have very low interest 331 00:17:33,080 --> 00:17:36,639 Speaker 1: rates globally, not just because the FED is holding interest 332 00:17:36,720 --> 00:17:39,480 Speaker 1: rates lower right now to support the recovery, which we're doing, 333 00:17:39,800 --> 00:17:43,800 Speaker 1: but even once the economy is fully recovered, we've achieved 334 00:17:43,800 --> 00:17:46,640 Speaker 1: our goals, the neutral or kind of longer run interest 335 00:17:46,760 --> 00:17:49,280 Speaker 1: rate is still very low. So I think just when 336 00:17:49,280 --> 00:17:51,600 Speaker 1: we watch, you know, kind of things like this, we 337 00:17:51,640 --> 00:17:53,840 Speaker 1: have to keep in mind that part of low interest 338 00:17:53,920 --> 00:17:57,440 Speaker 1: rates is is obviously the intentional by FED policy, but 339 00:17:57,560 --> 00:17:59,240 Speaker 1: part of it is really a big part of the 340 00:17:59,280 --> 00:18:01,800 Speaker 1: decline interests race over the past few decades is driven 341 00:18:01,840 --> 00:18:07,320 Speaker 1: by more structural things like demographics and proctivity. Usage of 342 00:18:07,359 --> 00:18:11,800 Speaker 1: the feds overnight reverse repo facility has surged to hit 343 00:18:11,800 --> 00:18:15,760 Speaker 1: a record yesterday seven sixty five billion. Why isn't that 344 00:18:15,800 --> 00:18:18,239 Speaker 1: a signal that there is too much cash in the 345 00:18:18,320 --> 00:18:22,399 Speaker 1: markets and you don't need to add more. Well, the 346 00:18:22,440 --> 00:18:24,600 Speaker 1: goal here is not to add cash to the markets. 347 00:18:24,600 --> 00:18:28,000 Speaker 1: Markets is through uh you know, with our asset purchases, 348 00:18:28,359 --> 00:18:31,760 Speaker 1: is to provide really strong um financial conditions to support 349 00:18:31,800 --> 00:18:35,760 Speaker 1: economic growth. And effect of that is that um, you 350 00:18:35,800 --> 00:18:39,080 Speaker 1: know that our purchases of assets, UM and other other 351 00:18:39,119 --> 00:18:42,080 Speaker 1: developments tend have been pushing uh, you know, up the 352 00:18:42,119 --> 00:18:45,000 Speaker 1: amount of reserves that would be in the banking system. 353 00:18:45,040 --> 00:18:48,240 Speaker 1: Now we've we created the overnight reverse repo facility, which 354 00:18:48,240 --> 00:18:52,000 Speaker 1: you just mentioned years ago, uh, specifically to make sure 355 00:18:52,040 --> 00:18:54,840 Speaker 1: that interest rates are in the range that the FMC set. 356 00:18:54,880 --> 00:18:57,040 Speaker 1: So the FMCS at a target range for the bed 357 00:18:57,080 --> 00:19:00,160 Speaker 1: funds rate of zero tooint flap basis points, and it's 358 00:19:00,240 --> 00:19:01,880 Speaker 1: you know, we want to make sure the interest rates 359 00:19:01,880 --> 00:19:04,560 Speaker 1: stay well within that range and not all below it 360 00:19:04,640 --> 00:19:07,520 Speaker 1: or not be above it. And so one of the 361 00:19:07,560 --> 00:19:09,960 Speaker 1: ways that we do that is by through the overnight 362 00:19:09,960 --> 00:19:14,000 Speaker 1: reverse repo putting a floor on on interest rates. So 363 00:19:14,040 --> 00:19:15,959 Speaker 1: what we're seeing here is I think of the natural 364 00:19:16,280 --> 00:19:20,240 Speaker 1: operation of of uh you know this UM kind of 365 00:19:20,320 --> 00:19:22,679 Speaker 1: arrangements that we've set up to control interest rates. So 366 00:19:23,040 --> 00:19:26,920 Speaker 1: you know, banks can hold reserves UH and do that. UM. 367 00:19:26,920 --> 00:19:29,920 Speaker 1: We the FED UM and they offered you know, deposit 368 00:19:30,000 --> 00:19:33,640 Speaker 1: rates and other services to their customers. UH. Customers look 369 00:19:33,680 --> 00:19:36,920 Speaker 1: at what the banks are offering into terms and deposit rates. 370 00:19:37,040 --> 00:19:39,400 Speaker 1: They also look at money market mutual funds and other 371 00:19:39,440 --> 00:19:42,160 Speaker 1: investments and think about where is it best to park 372 00:19:42,680 --> 00:19:45,440 Speaker 1: their cash. So we see a natural movement between these two. 373 00:19:45,600 --> 00:19:48,440 Speaker 1: Especially with the large amount of reserves, we're seeing UH 374 00:19:48,600 --> 00:19:53,320 Speaker 1: investors move finding the money market mutual fund UH, so UM, 375 00:19:53,359 --> 00:19:56,359 Speaker 1: you know, option more advantageous, and so we're seeing a 376 00:19:56,359 --> 00:19:59,199 Speaker 1: lot more money moving the overnight reverse repot facility. And 377 00:19:59,200 --> 00:20:02,200 Speaker 1: that has shifted over time. That's exactly how the system 378 00:20:02,280 --> 00:20:05,200 Speaker 1: is supposed to work. Interest rates well within the range, 379 00:20:05,640 --> 00:20:08,280 Speaker 1: just as the FOMC wants, and we're not seeing any 380 00:20:08,440 --> 00:20:11,560 Speaker 1: problems with market functioning or anything. It's it's working exactly 381 00:20:11,560 --> 00:20:14,240 Speaker 1: it's assigned. And I'm not concerned about the large amount 382 00:20:14,240 --> 00:20:18,200 Speaker 1: of overnight reverse reposess. That's exactly what you'd expect, even 383 00:20:18,359 --> 00:20:20,960 Speaker 1: you know, conditions in money markets. So this is a 384 00:20:21,240 --> 00:20:23,520 Speaker 1: I think a good sign. President Williams, You've been kind 385 00:20:23,520 --> 00:20:24,879 Speaker 1: with your time and it's always try to catch up. 386 00:20:24,880 --> 00:20:27,280 Speaker 1: We appreciate It's the President of the New York Fed, 387 00:20:27,400 --> 00:20:38,160 Speaker 1: John Williams there alongside Mike McKay. It is the way 388 00:20:38,320 --> 00:20:40,760 Speaker 1: it is gotten there. And of course this is all 389 00:20:40,800 --> 00:20:43,919 Speaker 1: about the microeconomics and the underpinning of supply and demand. 390 00:20:44,000 --> 00:20:47,560 Speaker 1: Someone expert on this and consistent in well written thought 391 00:20:47,600 --> 00:20:50,800 Speaker 1: as Francisco blanche a Bank of America Securities head of 392 00:20:50,800 --> 00:20:54,760 Speaker 1: Global Commodities and Derivative Research. I want to go right away, 393 00:20:55,680 --> 00:20:58,920 Speaker 1: Francisco to what is less talked about, and that is 394 00:20:58,960 --> 00:21:01,800 Speaker 1: a demand I MAC, what do you envision to be 395 00:21:01,880 --> 00:21:05,240 Speaker 1: the demand dynamic that gets you to your acclaimed a 396 00:21:05,320 --> 00:21:09,800 Speaker 1: hundred dollars of barrel. Hey Tom, Hey, thanks for having me. 397 00:21:09,920 --> 00:21:12,920 Speaker 1: So three things are key here. First, there's a lot 398 00:21:12,920 --> 00:21:15,040 Speaker 1: of pent up demand. We've all been looked up in 399 00:21:15,080 --> 00:21:18,920 Speaker 1: our living rooms in my case, but really with very 400 00:21:18,920 --> 00:21:21,600 Speaker 1: little movement, whether it's business or personal. There's a huge 401 00:21:21,600 --> 00:21:23,760 Speaker 1: amount of pent up demand that we're already seeing in 402 00:21:23,800 --> 00:21:26,600 Speaker 1: the US. The rest of the world's going to join soon. 403 00:21:27,000 --> 00:21:30,000 Speaker 1: Europe is maybe a couple of months behind. An emerging 404 00:21:30,040 --> 00:21:32,520 Speaker 1: markets are between six and folve months behind the US. 405 00:21:32,880 --> 00:21:35,120 Speaker 1: They're the big laggers, but we think they're gonna come 406 00:21:35,160 --> 00:21:37,080 Speaker 1: back in in a in a huge way over the 407 00:21:37,080 --> 00:21:40,879 Speaker 1: next twelve months as vaccines get get distributed. Second reason, 408 00:21:41,119 --> 00:21:43,840 Speaker 1: Tom is really around what what we what we call 409 00:21:43,880 --> 00:21:46,640 Speaker 1: the avoidance of mass transit. People are gonna be using 410 00:21:46,680 --> 00:21:49,800 Speaker 1: more private vehicles, avoid subways and buses for an excellent 411 00:21:49,880 --> 00:21:53,120 Speaker 1: period of time. Third, recent really is what we call 412 00:21:53,240 --> 00:21:56,760 Speaker 1: the new work from home or as we put it, 413 00:21:56,920 --> 00:22:00,200 Speaker 1: work from a car situation. People are gonna be can 414 00:22:00,200 --> 00:22:03,520 Speaker 1: remotely one or twodays a week in the future. Um, 415 00:22:03,560 --> 00:22:05,800 Speaker 1: and that's going to lead to more driving, not less driving. 416 00:22:05,920 --> 00:22:09,240 Speaker 1: In in our view again, and we're based in this 417 00:22:09,320 --> 00:22:13,400 Speaker 1: opinion on on estimates pre pandemic and studies pre pandemic 418 00:22:13,480 --> 00:22:15,760 Speaker 1: that suggested that one or two days of working home 419 00:22:16,080 --> 00:22:18,879 Speaker 1: eventually leads to more no less driving. Those are the 420 00:22:18,880 --> 00:22:21,120 Speaker 1: three main reasons on the man side. Town of course, 421 00:22:21,280 --> 00:22:23,840 Speaker 1: on the flip side, when it comes to the demand picture, 422 00:22:23,920 --> 00:22:26,320 Speaker 1: business travel not coming back as quickly, with a lot 423 00:22:26,359 --> 00:22:28,679 Speaker 1: of companies saying that they are going to return to 424 00:22:28,880 --> 00:22:31,640 Speaker 1: just small fractions of what they used to do. How 425 00:22:31,720 --> 00:22:36,320 Speaker 1: much does that factor into your estimates? Well, so, business 426 00:22:36,320 --> 00:22:39,760 Speaker 1: travels is a big factor for airlines, but let me 427 00:22:39,840 --> 00:22:45,040 Speaker 1: just give you one data. Uh in average travel was 428 00:22:45,160 --> 00:22:48,720 Speaker 1: roughly two point three million passengers per day going through 429 00:22:48,760 --> 00:22:51,439 Speaker 1: p s A checkpoints. We are back at two million, 430 00:22:51,600 --> 00:22:53,600 Speaker 1: and we still don't have any business travel going on. 431 00:22:54,119 --> 00:22:58,000 Speaker 1: So clearly, I think the pent up demand story seems 432 00:22:58,000 --> 00:23:01,960 Speaker 1: to me is going to overwhelm the business travel story, 433 00:23:02,440 --> 00:23:04,480 Speaker 1: at least over the course of the next flo eighteen months. 434 00:23:05,040 --> 00:23:07,280 Speaker 1: I'm not claiming I'm not claiming this will last forever, 435 00:23:07,400 --> 00:23:08,920 Speaker 1: but I think I think there's there's gonna be a 436 00:23:08,960 --> 00:23:12,480 Speaker 1: huge search here over over the next few quarters. On 437 00:23:12,520 --> 00:23:15,159 Speaker 1: the flip side, the supply picture, we have this morning 438 00:23:15,160 --> 00:23:18,880 Speaker 1: a story about how Russia is arguing potentially for an 439 00:23:18,920 --> 00:23:23,040 Speaker 1: opaque plus supply increase, a boost based on this increase 440 00:23:23,080 --> 00:23:26,000 Speaker 1: in demand. You're starting to hear about shale producers eyeing 441 00:23:26,040 --> 00:23:27,800 Speaker 1: what it would look like to bring a little bit 442 00:23:27,840 --> 00:23:31,000 Speaker 1: more production online. How much do you expect that to accelerate. 443 00:23:31,000 --> 00:23:33,280 Speaker 1: How does that affect the hundred dollars a barrel call? 444 00:23:35,040 --> 00:23:39,040 Speaker 1: So so it certainly does. Um My, my expectation with 445 00:23:39,080 --> 00:23:41,040 Speaker 1: regards to shale is that we are going to be 446 00:23:41,080 --> 00:23:44,840 Speaker 1: see We're gonna see producers lagging for the most part. Remember, 447 00:23:45,040 --> 00:23:48,080 Speaker 1: there's three elements of this that on the nonopic side 448 00:23:48,359 --> 00:23:51,760 Speaker 1: that are going to hold back supply. Number one is 449 00:23:51,800 --> 00:23:56,159 Speaker 1: the fact that government policies are going to pressure companies 450 00:23:56,200 --> 00:23:58,600 Speaker 1: to invest less right. We are seeing that with international 451 00:23:58,640 --> 00:24:00,960 Speaker 1: and eng Agency coin for it and two oil and 452 00:24:01,000 --> 00:24:04,840 Speaker 1: gas investments to meet partis colin of goals. Second reason 453 00:24:05,000 --> 00:24:09,560 Speaker 1: is we are seeing investors pressuring companies, whether it's for 454 00:24:09,560 --> 00:24:12,920 Speaker 1: financial reasons to see more more cash balls coming back 455 00:24:13,160 --> 00:24:16,240 Speaker 1: or for e sd reasons to reduce investment. And the 456 00:24:16,280 --> 00:24:18,720 Speaker 1: third element really is the jewiciary. We were now seen 457 00:24:18,960 --> 00:24:21,480 Speaker 1: with the case of shell Um that the jewiciary can 458 00:24:21,520 --> 00:24:23,639 Speaker 1: also get involved and force you legally to reduce your 459 00:24:23,640 --> 00:24:27,520 Speaker 1: emissions with regards to OPEC, it is the big risk 460 00:24:27,560 --> 00:24:31,560 Speaker 1: in our call. Does OPEC discipline hold? My guess it 461 00:24:31,640 --> 00:24:34,800 Speaker 1: probably will. Remember we've only average sixty four doors barrel 462 00:24:35,280 --> 00:24:38,080 Speaker 1: so part this year the average open budgets at seventies. 463 00:24:38,119 --> 00:24:40,359 Speaker 1: So they just they want to make up for the 464 00:24:40,480 --> 00:24:43,440 Speaker 1: lost last year in terms of in terms of ground, Francisco. 465 00:24:43,520 --> 00:24:46,480 Speaker 1: As we speak, bitcoin bakes down, Brad. Maybe we've got 466 00:24:46,480 --> 00:24:48,840 Speaker 1: an internet chart a bitcoin to help us out here. 467 00:24:49,480 --> 00:24:54,720 Speaker 1: We've had people on Bloomberg talking up bitcoin. It's stability, Francisco. 468 00:24:54,760 --> 00:24:57,200 Speaker 1: I want to cut to the chase, a grizzled pro 469 00:24:57,440 --> 00:25:01,399 Speaker 1: like you. Is bitcoin linked to gold? Is there a 470 00:25:01,480 --> 00:25:09,560 Speaker 1: compare and contrast, a correlation, a relationship a bitcoin to gold? Okay, 471 00:25:09,600 --> 00:25:11,080 Speaker 1: so let me let me get to a chase. You know, 472 00:25:11,200 --> 00:25:14,280 Speaker 1: I put a pretty pretty negative piece on bitcoin back 473 00:25:14,320 --> 00:25:17,959 Speaker 1: in March entitled Bitcoins Dirty Little Secrets, where I argued 474 00:25:18,480 --> 00:25:23,960 Speaker 1: that bitcoin had serious environmental issues and obviously there was 475 00:25:23,960 --> 00:25:27,760 Speaker 1: a big new turning. Agrees with you, and China agrees 476 00:25:27,800 --> 00:25:29,560 Speaker 1: with us too as well, of course, because they are 477 00:25:29,560 --> 00:25:32,400 Speaker 1: burning a huge amount of call to produce those those 478 00:25:32,400 --> 00:25:35,600 Speaker 1: bitcoin to mind those bitcoins. Um, this is my take 479 00:25:35,640 --> 00:25:39,720 Speaker 1: on bitcoin. Bitcoin it was completely uncorrelated to other asset classes. 480 00:25:40,240 --> 00:25:42,600 Speaker 1: It became more of a risk asset in the past 481 00:25:42,600 --> 00:25:45,440 Speaker 1: love months. It was highly correlated to equities, to Mexican 482 00:25:45,480 --> 00:25:49,280 Speaker 1: pay so to cover um and and gold is a 483 00:25:49,320 --> 00:25:52,480 Speaker 1: safe asset. Is typically correlated to ten your treasuries to 484 00:25:52,600 --> 00:25:56,680 Speaker 1: Japanese yend. So to your question, our bitcoin and and 485 00:25:57,960 --> 00:26:00,639 Speaker 1: gold linked in a way. They are because one is 486 00:26:00,640 --> 00:26:03,240 Speaker 1: a risk asset, it runs a safe asset, so so 487 00:26:03,320 --> 00:26:06,359 Speaker 1: they're they're very different characteristics. Now, what is going to 488 00:26:06,400 --> 00:26:09,080 Speaker 1: be the long run story for bitcoin, I don't know. 489 00:26:09,560 --> 00:26:11,320 Speaker 1: What I know now is there's a risk asset and 490 00:26:11,320 --> 00:26:13,600 Speaker 1: golds are safe. Fact Um and gold spin a safe 491 00:26:13,600 --> 00:26:15,280 Speaker 1: facet for a very very long period of time. So 492 00:26:15,600 --> 00:26:18,680 Speaker 1: I'm pretty confident gold stage a safe facet. Bitcoin could 493 00:26:18,720 --> 00:26:22,240 Speaker 1: could keep changing, but for now they're inversely correlated, quite 494 00:26:22,240 --> 00:26:24,600 Speaker 1: inversely correlated. Francisco, you make it such a such a 495 00:26:24,640 --> 00:26:26,960 Speaker 1: good point, and I want to finish on this. You 496 00:26:27,040 --> 00:26:29,640 Speaker 1: can have a risk on asset and a risk off asset, 497 00:26:29,760 --> 00:26:32,000 Speaker 1: both in inflation re environment. So you can be risk 498 00:26:32,080 --> 00:26:34,399 Speaker 1: on in an inflationary environment and it likes a bitcoin 499 00:26:34,520 --> 00:26:37,240 Speaker 1: as well, and risk off in an inflation real environment 500 00:26:37,280 --> 00:26:38,720 Speaker 1: and the likes of gold should do. What is that 501 00:26:38,760 --> 00:26:43,240 Speaker 1: what you're saying, Francisco? Not not quite, I guess, not 502 00:26:43,320 --> 00:26:45,320 Speaker 1: quite what I'm saying. And I'm not sure I see 503 00:26:45,359 --> 00:26:48,920 Speaker 1: bitcoin as an inflationary asset. Okay, I think. I think 504 00:26:48,920 --> 00:26:51,400 Speaker 1: bitcoin if you look at the correlations to five year 505 00:26:51,480 --> 00:26:54,040 Speaker 1: five year forwards. If you look at correlation, then your inflation. 506 00:26:54,240 --> 00:26:56,720 Speaker 1: You look at correlation CPI, there is not much there. 507 00:26:57,040 --> 00:27:00,240 Speaker 1: I think. I think what bitcoins is good, uh work 508 00:27:00,560 --> 00:27:03,480 Speaker 1: is this is creating a new ecosystem of value transfer. 509 00:27:03,880 --> 00:27:08,600 Speaker 1: Um is creating a new a new economic organization based 510 00:27:08,640 --> 00:27:12,320 Speaker 1: on the stakeholder economy as opposed to the shareholder economy 511 00:27:12,359 --> 00:27:14,440 Speaker 1: that we have today. And again Bitcoin is the base 512 00:27:14,520 --> 00:27:17,119 Speaker 1: of that, built on Ethereum, built on the rest of 513 00:27:17,160 --> 00:27:19,520 Speaker 1: other coins that are coming behind it. That's what I 514 00:27:19,560 --> 00:27:22,240 Speaker 1: think is ultimately going to shape up. It's it's basically 515 00:27:22,320 --> 00:27:26,520 Speaker 1: communities of people that transfer value using the script occurrencies. 516 00:27:26,520 --> 00:27:28,360 Speaker 1: Which is why the I R. S is so interested 517 00:27:28,359 --> 00:27:30,359 Speaker 1: in taxing this because they realize there is a lot 518 00:27:30,400 --> 00:27:33,000 Speaker 1: of economic activity, real economic activity, not just not just 519 00:27:33,680 --> 00:27:36,040 Speaker 1: um criminal gangs. It's also a lot of people that 520 00:27:36,080 --> 00:27:39,679 Speaker 1: are actually transferring with its uh you know, music or 521 00:27:39,840 --> 00:27:43,840 Speaker 1: videos or anything they produced via the digital ass world. 522 00:27:43,480 --> 00:27:47,199 Speaker 1: It's it's clarified, isn't it. Francisco, thank you sir. It's 523 00:27:47,200 --> 00:27:50,240 Speaker 1: got to see it. A thank you sir from thank 524 00:27:50,359 --> 00:27:59,560 Speaker 1: America right now. And this is a joy to bring 525 00:27:59,560 --> 00:28:02,720 Speaker 1: a bigor chot of Deutsche Bank, their chief global strategist 526 00:28:02,880 --> 00:28:05,680 Speaker 1: tons to talk about in a three hour conversation with 527 00:28:05,840 --> 00:28:08,639 Speaker 1: making Out, we'll bring in a little tight and biking. 528 00:28:08,760 --> 00:28:11,399 Speaker 1: I want to first shout out the invention of modern 529 00:28:11,480 --> 00:28:15,800 Speaker 1: Deutsche Bank strategy and economics. You guys are on fire. 530 00:28:16,280 --> 00:28:19,359 Speaker 1: David Folkers land Out is looking out three and four 531 00:28:19,440 --> 00:28:23,399 Speaker 1: years to inflation. Your colleague George Sarah Ellis is near 532 00:28:23,560 --> 00:28:26,399 Speaker 1: term maybe going the other way. Are you caught in 533 00:28:26,400 --> 00:28:30,920 Speaker 1: the middle between dfl and Sarah Ellos? I think I 534 00:28:30,960 --> 00:28:33,400 Speaker 1: wouldn't describe it as being caught in the middle. I mean, 535 00:28:33,440 --> 00:28:36,840 Speaker 1: I think you know, if you take an issue like inflation, 536 00:28:37,000 --> 00:28:41,920 Speaker 1: which we really haven't had for fifty years now, you 537 00:28:41,920 --> 00:28:46,320 Speaker 1: know it's it's the most reasonable outcome is that reasonable 538 00:28:46,360 --> 00:28:49,880 Speaker 1: people will have very different views. And uh, I think 539 00:28:49,920 --> 00:28:52,520 Speaker 1: that's exactly where we are. We've got a baseline view 540 00:28:52,560 --> 00:28:55,200 Speaker 1: that inflation is a risk, and just that a risk. 541 00:28:55,360 --> 00:28:57,960 Speaker 1: But I think the risk, you know, the tails up 542 00:28:58,000 --> 00:29:00,280 Speaker 1: pretty fat. And I think that's the key point. Thinking. 543 00:29:00,320 --> 00:29:03,080 Speaker 1: We've had Wells Farnka on this morning, Federated on this morning, 544 00:29:03,480 --> 00:29:05,800 Speaker 1: and when they are confronting the question whether you want 545 00:29:05,840 --> 00:29:08,320 Speaker 1: to be long banks or big tech, they come to 546 00:29:08,360 --> 00:29:12,000 Speaker 1: the banks, are you I'm I'm long the financials and 547 00:29:12,000 --> 00:29:15,880 Speaker 1: and and and and the banks. I'm also long energy. 548 00:29:16,160 --> 00:29:19,000 Speaker 1: I think, you know, one of the dynamics that one 549 00:29:19,040 --> 00:29:21,520 Speaker 1: needs to keep in mind over the last eighteen months 550 00:29:21,640 --> 00:29:24,440 Speaker 1: or so is that, you know, this is not a 551 00:29:24,520 --> 00:29:27,480 Speaker 1: market that has, you know, except for the very early part, 552 00:29:27,600 --> 00:29:30,800 Speaker 1: you know, trended very nicely. It's been a series of 553 00:29:30,920 --> 00:29:34,000 Speaker 1: step functions. And so you know, when I look at 554 00:29:34,080 --> 00:29:36,680 Speaker 1: the SMP five hundred, and I asked myself, what's not 555 00:29:36,840 --> 00:29:39,760 Speaker 1: priced in and and and I would argue, you know, 556 00:29:40,000 --> 00:29:42,840 Speaker 1: it's it's oil prices. I would argue, there's plenty of 557 00:29:42,960 --> 00:29:46,920 Speaker 1: upside on you know, the global recovery continuing, especially if 558 00:29:47,360 --> 00:29:50,720 Speaker 1: the dollar falls. Keep in mind that you know, you 559 00:29:50,760 --> 00:29:53,840 Speaker 1: need three percent down on the trade really dollar to 560 00:29:53,880 --> 00:29:56,480 Speaker 1: get ten percent in the oil prices. So I think 561 00:29:56,560 --> 00:29:59,440 Speaker 1: it's very very reasonable that we will see eighty dollar 562 00:29:59,480 --> 00:30:01,800 Speaker 1: oil by the end of the year. Uh and the 563 00:30:01,800 --> 00:30:04,120 Speaker 1: other thing that's not priced in and that's completely out 564 00:30:04,120 --> 00:30:07,080 Speaker 1: of whack or rates and and and so you want 565 00:30:07,080 --> 00:30:11,240 Speaker 1: to be long basically the financials. Other than that, I 566 00:30:11,280 --> 00:30:13,680 Speaker 1: would be pretty careful here, and I would say, you know, 567 00:30:13,760 --> 00:30:17,560 Speaker 1: we continue basically to look for no a sizeable pullback, 568 00:30:17,800 --> 00:30:21,240 Speaker 1: not the mini version that we had on Friday, uh 569 00:30:21,320 --> 00:30:23,920 Speaker 1: and and and and you know that's gonna hurt both 570 00:30:23,920 --> 00:30:29,440 Speaker 1: the financials and energy. But we can have independent moves 571 00:30:29,960 --> 00:30:33,760 Speaker 1: oil prices and rates simply because of you know, where 572 00:30:33,760 --> 00:30:35,760 Speaker 1: we are relative to where we can. Let's build on 573 00:30:35,800 --> 00:30:37,880 Speaker 1: that banking you went on a tour of the asset classes. 574 00:30:37,880 --> 00:30:41,479 Speaker 1: There can that banks call happen independent of what happens 575 00:30:41,480 --> 00:30:44,160 Speaker 1: in right or is it dependent on what happens in rights? 576 00:30:45,200 --> 00:30:48,360 Speaker 1: I think it is dependent on rates, because I mean, 577 00:30:48,400 --> 00:30:50,520 Speaker 1: if you just look at the last eighteen months, financials 578 00:30:50,520 --> 00:30:53,560 Speaker 1: have been trading, you know, very very closely with the 579 00:30:54,120 --> 00:30:57,600 Speaker 1: US ten year yield uh and and and so the 580 00:30:57,640 --> 00:31:01,680 Speaker 1: pullback is in the financial relative to the market is 581 00:31:02,040 --> 00:31:04,520 Speaker 1: you know, very easily explained by simply what's happened to 582 00:31:04,560 --> 00:31:07,160 Speaker 1: the ten year yield? Coming off, it's hots Binkie. At 583 00:31:07,160 --> 00:31:11,680 Speaker 1: the core here, there is a tension between growth and inflation, 584 00:31:12,120 --> 00:31:15,240 Speaker 1: two different things that are often conflated. And we're seeing 585 00:31:15,240 --> 00:31:17,960 Speaker 1: inflation as you see oil prices heading towards eighty dollars 586 00:31:17,960 --> 00:31:19,360 Speaker 1: of barrel at the end of the year, and we 587 00:31:19,400 --> 00:31:22,280 Speaker 1: see it in certain commodities, which possibly is what China 588 00:31:22,360 --> 00:31:25,880 Speaker 1: is responding to with selling from its strategic reserves of copper. 589 00:31:26,400 --> 00:31:29,840 Speaker 1: But we're wondering how much this is asset price inflation, 590 00:31:29,920 --> 00:31:32,640 Speaker 1: whether this is inflation of key goods that leads to 591 00:31:32,720 --> 00:31:36,640 Speaker 1: SAG inflation, as your colleague George Saravellos seems to suggest. 592 00:31:37,000 --> 00:31:41,240 Speaker 1: When do we have a sense of that, I would say, 593 00:31:41,760 --> 00:31:44,480 Speaker 1: you know, stag inflation really has two parts to it, 594 00:31:45,040 --> 00:31:48,920 Speaker 1: so the first being growth. I think the key issue 595 00:31:49,000 --> 00:31:52,760 Speaker 1: and point here is that you know, growth generally peaks, 596 00:31:53,080 --> 00:31:55,800 Speaker 1: uh you know, about a year into the recovery. That's 597 00:31:55,880 --> 00:31:58,120 Speaker 1: kind of where we are. If you look at our 598 00:31:58,160 --> 00:32:01,800 Speaker 1: House Economics forecast, if you look the Consensus Economics forecast, 599 00:32:02,120 --> 00:32:04,800 Speaker 1: you know it growth rates a mental peak in the 600 00:32:04,920 --> 00:32:08,040 Speaker 1: second quarter, and the stronger the second quarter is the 601 00:32:08,120 --> 00:32:11,480 Speaker 1: more likely, uh, you know, the sharper the peak is 602 00:32:11,480 --> 00:32:14,120 Speaker 1: going to be um and and I think that you know, 603 00:32:14,240 --> 00:32:17,880 Speaker 1: there are always differences in every cycle. And and uh, 604 00:32:18,240 --> 00:32:20,959 Speaker 1: you know, the market has so far sort of diminished 605 00:32:21,320 --> 00:32:25,880 Speaker 1: the peak or you know, it's sort of ignored and 606 00:32:25,920 --> 00:32:30,560 Speaker 1: shrugged off basically the peak growth thesis. Uh. And that's 607 00:32:30,600 --> 00:32:33,480 Speaker 1: because you know, we have this big gap between goods 608 00:32:33,480 --> 00:32:36,920 Speaker 1: and services right now. But I think anybody's investment thesis 609 00:32:37,360 --> 00:32:40,480 Speaker 1: at this stage, you know, needs to confront a very 610 00:32:40,520 --> 00:32:43,800 Speaker 1: simple chart. You have a retail sales growing for five 611 00:32:43,880 --> 00:32:49,000 Speaker 1: years four percent trend rate. It's nominal, you know, purchases 612 00:32:49,040 --> 00:32:51,760 Speaker 1: of goods and and and if you ask you know, 613 00:32:51,920 --> 00:32:55,120 Speaker 1: where are we today? We are ten percentage points above 614 00:32:55,240 --> 00:32:59,040 Speaker 1: the trend line. And that strongly argues for you know, 615 00:32:59,160 --> 00:33:02,800 Speaker 1: not only slow or but very likely slow growth on 616 00:33:02,840 --> 00:33:05,480 Speaker 1: the good side. So the big question is, you know 617 00:33:05,520 --> 00:33:07,560 Speaker 1: what's going to happen on the services side, and and 618 00:33:07,560 --> 00:33:09,760 Speaker 1: and and sure there will be an expansion, but services 619 00:33:09,840 --> 00:33:11,480 Speaker 1: don't tend to go on the other side of the 620 00:33:11,520 --> 00:33:14,800 Speaker 1: trend line. And so that on the whole, you know, 621 00:33:14,960 --> 00:33:20,320 Speaker 1: basically argues for slow growth on the inflation side. You know, 622 00:33:20,440 --> 00:33:25,240 Speaker 1: I would argue, you know, this summer, yes it is important, 623 00:33:25,280 --> 00:33:29,240 Speaker 1: but remember that inflation, you know, generally lacks. So this 624 00:33:29,320 --> 00:33:31,560 Speaker 1: problem is not going away. I mean, if you look 625 00:33:31,600 --> 00:33:35,400 Speaker 1: at historically how inflations behaved relative to you know what 626 00:33:35,480 --> 00:33:38,400 Speaker 1: people talk unemployment, the output gap, it's next year that's 627 00:33:38,400 --> 00:33:41,640 Speaker 1: going to be the problem. The great missed call of 628 00:33:41,720 --> 00:33:44,560 Speaker 1: the decade or two decades has been the certitude of 629 00:33:44,720 --> 00:33:50,840 Speaker 1: single digit equity returns wrong, wrong, wrong, wrong sp X 630 00:33:51,120 --> 00:33:54,200 Speaker 1: six per year for the last ten years. I think, 631 00:33:54,800 --> 00:33:58,360 Speaker 1: are we going back to a single digit structure? I 632 00:33:58,360 --> 00:34:01,920 Speaker 1: mean everyone's predicted it, yet you and the other optimists 633 00:34:01,920 --> 00:34:03,840 Speaker 1: have said, no, you gotta play, you gotta be in 634 00:34:03,840 --> 00:34:06,280 Speaker 1: the game. So so you know, I would keep in 635 00:34:06,320 --> 00:34:08,360 Speaker 1: mind that total returns us in people. I heard it 636 00:34:08,440 --> 00:34:10,400 Speaker 1: last hundred a years since you did bring it up. 637 00:34:10,440 --> 00:34:13,760 Speaker 1: It's about eleven percent. It's a very very clear trend channel. 638 00:34:13,880 --> 00:34:16,839 Speaker 1: And the gloom crew is saying it's single digit. Yeah, 639 00:34:17,239 --> 00:34:19,680 Speaker 1: So I would say, given what's happened last year and 640 00:34:19,800 --> 00:34:23,400 Speaker 1: this year, you know, I mean, we have brought forward 641 00:34:23,560 --> 00:34:26,359 Speaker 1: some of that return, so single digits you know, next 642 00:34:26,400 --> 00:34:29,319 Speaker 1: few years is not unreasonable. Thank you Channing in the 643 00:34:29,320 --> 00:34:38,279 Speaker 1: studio from Deutsche Bank, the chief global strategist and it 644 00:34:38,400 --> 00:34:42,960 Speaker 1: had joined us. Now equate her pants on one leg 645 00:34:42,920 --> 00:34:47,200 Speaker 1: a tak you want to go there, right down, Anna, 646 00:34:47,480 --> 00:34:49,360 Speaker 1: I'm going to keep things down a minute with markets. 647 00:34:50,000 --> 00:34:52,520 Speaker 1: Let's get to the equity market. And there is anything 648 00:34:52,520 --> 00:34:56,680 Speaker 1: about your rout look shifted in the last week. There 649 00:34:56,719 --> 00:34:59,279 Speaker 1: has been some shifts, especially in the last week. What 650 00:34:59,360 --> 00:35:02,799 Speaker 1: you did see is that more people on the FED 651 00:35:02,880 --> 00:35:05,000 Speaker 1: are expecting a little bit of a sooner rate hike. 652 00:35:05,320 --> 00:35:07,799 Speaker 1: But you know, that move, as much as it was 653 00:35:08,040 --> 00:35:12,040 Speaker 1: a bit surprising, wasn't all that um mind blowing you 654 00:35:12,080 --> 00:35:16,400 Speaker 1: saw go from to maybe a hike at two That 655 00:35:16,480 --> 00:35:20,040 Speaker 1: probability distribution has been pulled forward in a time frame. 656 00:35:20,480 --> 00:35:22,879 Speaker 1: But that's not the biggest move to us. I think 657 00:35:22,920 --> 00:35:26,280 Speaker 1: more surprising in the market was hearing taper talk start. 658 00:35:26,600 --> 00:35:28,960 Speaker 1: But you know when is tapering actually gonna begin? We 659 00:35:29,000 --> 00:35:30,680 Speaker 1: don't think that's going to happen until the end of 660 00:35:30,719 --> 00:35:33,319 Speaker 1: this year. And your note is brilliant. The way your 661 00:35:33,360 --> 00:35:35,640 Speaker 1: dovetail g d P and is great. I've been I've 662 00:35:35,680 --> 00:35:37,400 Speaker 1: been harpered on this for a week and a half. 663 00:35:37,640 --> 00:35:39,680 Speaker 1: I'm putting my pants on one leg at a time, 664 00:35:39,719 --> 00:35:41,840 Speaker 1: and I want you to tell me right now what 665 00:35:42,000 --> 00:35:44,319 Speaker 1: your own power putting his pants on one leg at 666 00:35:44,320 --> 00:35:47,480 Speaker 1: a time. What we do with eleven point three percent 667 00:35:47,600 --> 00:35:51,880 Speaker 1: nominal GDP your new statistic up seven point three percent 668 00:35:52,160 --> 00:35:55,600 Speaker 1: plus four percent inflation. I think that math is eleven 669 00:35:55,640 --> 00:36:01,560 Speaker 1: point three percent, and that's a boom economy. Stocks go up. Yeah, 670 00:36:01,600 --> 00:36:04,960 Speaker 1: when you looked historically, you know, equities can go higher 671 00:36:05,080 --> 00:36:08,280 Speaker 1: even as rates are moving higher. Uh, And that's because 672 00:36:08,280 --> 00:36:10,759 Speaker 1: it's the level at which they're coming off of. Where 673 00:36:10,800 --> 00:36:13,239 Speaker 1: we're lifting off of mind, you look at where the 674 00:36:13,360 --> 00:36:17,040 Speaker 1: tenure is. But with these kind of changes to our projection, 675 00:36:17,120 --> 00:36:20,040 Speaker 1: the big driver there is going to be consumer expenditure. 676 00:36:20,520 --> 00:36:22,880 Speaker 1: What maybe a risk to our outlook we're keeping a 677 00:36:23,000 --> 00:36:26,120 Speaker 1: very close eye on, especially with upcoming earnings, is going 678 00:36:26,200 --> 00:36:29,240 Speaker 1: to be how the supply chain and inventories hold up. Anna, 679 00:36:29,400 --> 00:36:32,879 Speaker 1: you talked about the surprise of potential tapering. What would 680 00:36:32,880 --> 00:36:36,759 Speaker 1: the implication be, what's the reaction of equities should the 681 00:36:36,760 --> 00:36:40,960 Speaker 1: Feds start to taper their bond purchases sooner? Well, you know, 682 00:36:41,000 --> 00:36:43,319 Speaker 1: they're buying a hundred twenty billion dollars a day, and 683 00:36:43,360 --> 00:36:45,720 Speaker 1: I think rather than being a crutch at this point, 684 00:36:45,920 --> 00:36:48,440 Speaker 1: it's just something like we've gotten so used to it, 685 00:36:48,440 --> 00:36:51,600 Speaker 1: we've come dependent on it. Having that liquidity. As they 686 00:36:51,640 --> 00:36:55,120 Speaker 1: taper that back, I think that risk appetite will be 687 00:36:55,200 --> 00:36:58,160 Speaker 1: part back a bit. And that's natural when you have 688 00:36:58,239 --> 00:37:00,880 Speaker 1: accommodation coming off the table. People are going to have 689 00:37:00,960 --> 00:37:03,560 Speaker 1: to adjust their risk outlook and see what kind of 690 00:37:03,600 --> 00:37:07,319 Speaker 1: cyclical exposure they want. But that doesn't mean necessarily it's 691 00:37:07,360 --> 00:37:10,439 Speaker 1: time to head for defensives. In fact, the macro theme 692 00:37:10,520 --> 00:37:14,960 Speaker 1: and play still remains reflation recovery here. It's just a 693 00:37:15,000 --> 00:37:17,879 Speaker 1: bit of a little shift and it's different mentality than 694 00:37:17,920 --> 00:37:19,600 Speaker 1: we saw from a year ago. So if you had 695 00:37:19,600 --> 00:37:21,680 Speaker 1: to won one sector into year end and it would 696 00:37:21,760 --> 00:37:25,719 Speaker 1: be financials or would it be big tech, I would 697 00:37:25,760 --> 00:37:28,120 Speaker 1: go with financials. You know, the millennial in me still 698 00:37:28,200 --> 00:37:31,440 Speaker 1: believes that tech has more upside to go. But you know, 699 00:37:31,520 --> 00:37:34,200 Speaker 1: the out performer here, especially in the back of of 700 00:37:34,239 --> 00:37:36,400 Speaker 1: this year, of the next six months, I put my 701 00:37:36,480 --> 00:37:39,319 Speaker 1: money on banks and financials. How much is this a 702 00:37:39,320 --> 00:37:43,320 Speaker 1: bit on a stepening yield curve? You know that steepening 703 00:37:43,360 --> 00:37:45,880 Speaker 1: yield curve has been uh, you know, it's been a 704 00:37:45,880 --> 00:37:48,600 Speaker 1: headwind for banks and financials in the last quarter. You 705 00:37:48,640 --> 00:37:51,120 Speaker 1: saw what happens when the bat came down. You saw 706 00:37:51,160 --> 00:37:54,640 Speaker 1: what happened last week when that yeeld curve has been flattening. Uh, 707 00:37:54,680 --> 00:37:57,040 Speaker 1: and it can be a challenge, but I think that's 708 00:37:57,040 --> 00:37:59,640 Speaker 1: something that the market is going to get through. I 709 00:37:59,680 --> 00:38:02,640 Speaker 1: think that something that's going to see that trend returned 710 00:38:02,719 --> 00:38:06,080 Speaker 1: to a Stephenie yield curve, especially as you see more 711 00:38:06,160 --> 00:38:08,359 Speaker 1: data come out. But one of the things we got 712 00:38:08,360 --> 00:38:10,720 Speaker 1: to watch out for as well is you know, how 713 00:38:10,800 --> 00:38:14,000 Speaker 1: long is that inflation going to be marred or when 714 00:38:14,040 --> 00:38:17,360 Speaker 1: can it continue? Can the supply chain really slow it 715 00:38:17,440 --> 00:38:20,040 Speaker 1: down and keep that suppressed for the next several months. 716 00:38:20,200 --> 00:38:21,920 Speaker 1: I think that's going to be a part of the market. 717 00:38:21,960 --> 00:38:24,160 Speaker 1: We look as a signal for that, and I always 718 00:38:24,200 --> 00:38:27,799 Speaker 1: great thank you and hand that at last. This is 719 00:38:27,800 --> 00:38:31,799 Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live 720 00:38:31,960 --> 00:38:35,720 Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio 721 00:38:35,960 --> 00:38:39,560 Speaker 1: and on Bloomberg Television each day from six to nine 722 00:38:39,600 --> 00:38:44,040 Speaker 1: am for insight from the best in economics, finance, investment, 723 00:38:44,160 --> 00:38:49,200 Speaker 1: and international relations. And subscribe to the Surveillance Podcast on 724 00:38:49,280 --> 00:38:53,080 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 725 00:38:53,200 --> 00:38:57,360 Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg