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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.

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Speaker 3: I'm Tracy Alloway and I'm Joe.

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Speaker 4: Isn't thal Joe?

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Speaker 2: You know one nice thing about getting old?

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Speaker 4: Go on?

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Speaker 3: I've been thinking about this a lot.

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Speaker 2: Actually, the nice thing about getting old is that a

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Speaker 2: lot of people that you have known for a very

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Speaker 2: long time and that you've sort of grown up with,

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Speaker 2: you'd say, over the years, start to get into really

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Speaker 2: interesting positions and sometimes senior positions or sometimes positions of power.

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Speaker 4: I love this take, right, Yeah, there are certain people

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Speaker 4: that you don't get to know or you know in

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Speaker 4: your twenties or whatever your peers or your peers are.

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Speaker 4: That's great, but they probably aren't for just ample external

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Speaker 4: members of the Bank of England Monetary Policy Committee and

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Speaker 4: so forth, or other such roles. By day, as you

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Speaker 4: get senior, you're like, oh, wow, I know that person.

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Speaker 4: I recognize that name. As you guys like to say,

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Speaker 4: who went to university in London? I went to UNI

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Speaker 4: with that person. My impression is that everyone in London

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Speaker 4: quote went to UNI with literally everyone else, because I've

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Speaker 4: heard you and Sid say that specific phrase so many

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Speaker 4: times over the last decade.

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Speaker 2: No, not that often, surely, But you're absolutely right. You've

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Speaker 2: sort of given the guest away. We're going to be

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Speaker 2: speaking with someone that we've known for a long time,

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Speaker 2: and I think a lot of people have known her

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Speaker 2: for a long time from her very public role on

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Speaker 2: Finance Twitter, that's right, as they say, and also in

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Speaker 2: various columns in different media organizations professional roles. Yeah, to me,

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Speaker 2: she will always be a member of Finance Twitter. Yes,

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Speaker 2: various professional roles. And now she is in fact an

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Speaker 2: external member of the Monetary Policy Committee at the Bank

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Speaker 2: of England.

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Speaker 4: And it's the interesting time, of course to be talking

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Speaker 4: about monetary policy. I mean, I would say it's an

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Speaker 4: interesting tongue, it's all. It's an interesting time to be

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Speaker 4: talking about monetary policy. But I would say it's a

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Speaker 4: particularly interesting time because I could list several reasons for that.

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Speaker 4: So obviously, we are still in the wake of the

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Speaker 4: incredible inflation wave that we had post COVID, and at

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Speaker 4: least in much of the world, inflation has not returned

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Speaker 4: to target. In fact, in some countries the rate hike

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Speaker 4: cycle has begun. So there's still the live issue. There

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Speaker 4: is the shifting political situation in many countries in which

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Speaker 4: the very premise of like, well, how much independence should

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Speaker 4: the central bank have to operate is being rediscussed, and

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Speaker 4: it is.

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Speaker 3: In fact local elections in the UK.

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Speaker 4: Right now, that's right, we are speaking during a week

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Speaker 4: of local elections. And then of course COVID shocked maybe

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Speaker 4: transitorial one off thing. Governor Christopher Waller in the US

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Speaker 4: had a good speech recently called one transitory shock after another,

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Speaker 4: of course, in this case alluding to the war and

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Speaker 4: rock on and so what does the price and oil

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Speaker 4: and so forth mean for inflation? There are so many

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Speaker 4: interesting questions right now for anyone in the seat of

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Speaker 4: a monetary policy.

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Speaker 2: Maker, so much, and also the interaction between monetary policy

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Speaker 2: and the bond market as well. Right so we're recording this,

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Speaker 2: I feel I have to say this for every episode.

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Speaker 5: Now.

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Speaker 2: On May six, yesterday we saw the thirty year UK

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Speaker 2: guilt yield hit its highest since nineteen ninety eight, and

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Speaker 2: that was after the BOE decision from last week to

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Speaker 2: actually hold interest rate. So there's a tension there. Anyway,

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Speaker 2: we have so much to talk about, so much, truly

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Speaker 2: the perfect guest, we are of course going to be

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Speaker 2: speaking with Megan Green.

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Speaker 3: Thank you so much for coming on the show.

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Speaker 6: Mega, thank you for having me. It's great to see

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Speaker 6: you guys again.

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Speaker 2: It's very, very fun, very nostalgic. What's it like to

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Speaker 2: go from I guess thinking and writing and tweeting about

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Speaker 2: economics to actually practicing economics? Yeah, setting economic policy.

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Speaker 6: Yeah.

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Speaker 7: So first of all, I love that you guys think

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Speaker 7: of me as finance Twitter, she said it certainly was

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Speaker 7: not paying any of my bills over the years. Now,

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Speaker 7: sadly my Twitter account is relegated mostly to baseball commentary.

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Speaker 6: Go red Sox.

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Speaker 7: But you know, it's very different to go from kind

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Speaker 7: of analyzing and forecasting what central bankers will do to

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Speaker 7: being a central banker and you know, making this sausage myself.

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Speaker 7: So it's it's a very different position with a whole

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Speaker 7: lot more responsibility.

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Speaker 4: We like talking to Americans who have served made it. Yeah,

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Speaker 4: well we've done, you know, for us SHO a bunch

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Speaker 4: of times. So it's plausible that you and I could

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Speaker 4: be MPC members. What is your role? What does it

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Speaker 4: mean to be an external member of the MPC at

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Speaker 4: the b O.

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Speaker 7: Yes, so that's a great question. And the Bank of

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Speaker 7: England is pretty unique for its set up this way.

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Speaker 7: So the Monetary Policy Committee, which meets every six weeks

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Speaker 7: and votes on interest rates, is comprised of nine people.

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Speaker 7: Five are so called internals and four are so called externals.

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Speaker 7: And the internal members are the Governor, the deputy governors

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Speaker 7: and the chief economists. Some of them grew up at

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Speaker 7: the Bank of England, some of them did, and some

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Speaker 7: of them came in, but they're all part of the

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Speaker 7: executive and then the four external members of the NPC,

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Speaker 7: of which I'm one quite intentionally came from outside the bank.

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Speaker 7: And what that means exactly is, you know, differs in

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Speaker 7: every case, so it could be from outside the industry entirely,

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Speaker 7: it could be from outside the country. As you can

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Speaker 7: tell from my accent and also from my background, I'm

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Speaker 7: a little bit of both, although actually I'm also British,

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Speaker 7: so I'm not sure how. Yeah, I passed for it.

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Speaker 7: I'm not sure how they're classifying me. But there's always

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Speaker 7: been an American actually on the MPC.

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Speaker 4: It's not a rule, so you and Adam Martha Forest no, So.

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Speaker 7: There have been, Yeah, there have been others, but the

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Speaker 7: ideas just to have to quite intentionally bring in different perspectives.

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Speaker 7: The external members sit in a different part of the

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Speaker 7: bank from the internal members, so that we don't all

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Speaker 7: collude and get stuck in group think. So the idea

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Speaker 7: is to have different perspectives. I come from the private sector.

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Speaker 7: Many members of the NPC come from academia, so I

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Speaker 7: bring kind of the business environment corporate side of things,

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Speaker 7: and also from outside the country, so I spent a

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Speaker 7: lot of time time looking at international spillovers.

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Speaker 6: You can see in my.

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Speaker 7: Speeches how the UK is affected by things happening in

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Speaker 7: the US and the Eurozone, for example. So the idea

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Speaker 7: is to just fight groups inc and you can see

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Speaker 7: that often in our votes, right. We're also unique for

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Speaker 7: reporting who voted for what every time, and so you

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Speaker 7: can see what the.

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Speaker 3: Votes, figuring out which dot is lily so.

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Speaker 4: In the US and the report. But I guess in

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Speaker 4: the Europe they don't, right, so you don't actually get

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Speaker 4: those vote counts, or you don't know who if they

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Speaker 4: dissented or what.

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Speaker 7: That's right, people can out themselves if they want to do,

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Speaker 7: but at the Bank of England we're fully transparent about

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Speaker 7: all of that, and so you can see that often

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Speaker 7: their descents. In fact, after the last FED vote, I

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Speaker 7: had a number of friends say, gosh, the FED looks

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Speaker 7: a lot like the NPC right now because there were

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Speaker 7: four descents. It's quite normal to have descents at the

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Speaker 7: Bank of England, which is pretty different from most major

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Speaker 7: central banks. But it's all part of this idea of

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Speaker 7: sort of personal accountability for your vote and having different

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Speaker 7: perspectives on a committee.

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Speaker 2: You kind of anticipated my next question, but how much

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Speaker 2: of your role is viewed as sort of explaining perhaps

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Speaker 2: US monetary policy and its potential impact on the UK

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Speaker 2: versus actually analyzing the UK and having to know that

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Speaker 2: particular economy. And you know, when you first joined the MPC,

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Speaker 2: did they hand you like a UK economic handbook that

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Speaker 2: you had to like get up to speed on.

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Speaker 7: So no, there was no handbook, but I did have

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Speaker 7: to get up to speed pretty quickly, including up to

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Speaker 7: speed with kind of the data in the UK, which

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Speaker 7: is quite different from the US. But my role really

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Speaker 7: is about looking at the UK economy, trying to understand

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Speaker 7: what's going on, but also understanding how there are spillovers

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Speaker 7: from other places. So, by way of example, before the pandemic,

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Speaker 7: when the yield curve moved. About a third of that

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Speaker 7: move was usually from outside the UK entirely, so mostly

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Speaker 7: from the US and also the Eurozone. Since the pandemic,

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Speaker 7: it's been about half of the moves in our yield curves.

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Speaker 7: So financial conditions are affected pretty significantly by what we

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Speaker 7: have absolutely no control over whatsoever at the Bank of England.

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Speaker 7: But it's important to understand how those spillovers might happen.

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Speaker 7: You also have spillovers via trade, which obviously we've looked

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Speaker 7: into a whole bunch through the past year given tariffs.

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Speaker 7: In the economic state craft.

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Speaker 4: It occurs to me, well, I actually don't what is

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Speaker 4: the Boies mandate? Of course in the US it's the

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Speaker 4: famous dual mandate. My understanding is the ECB is a

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Speaker 4: more ostensibly singularly price mandate. What is the Boes mandate?

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Speaker 7: Yeah, so our mandate is to achieve price stability of

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Speaker 7: two percent inflation sustainably over the medium term and then

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Speaker 7: subject to that to support the goals of the government.

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Speaker 7: But it really is whereas the Fed does have a

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Speaker 7: dual mandate, we really have one primary mandate and the

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Speaker 7: rest is secondary to that.

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Speaker 2: How would you characterize the health of the UK economy

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Speaker 2: at the moment, and Joe and I get to ask

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Speaker 2: this very basic question because we don't live here. You know,

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Speaker 2: we see the headlines that everyone else does. We see

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Speaker 2: headlines about energy shocks, trade and tariffs, as you mentioned.

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Speaker 2: But then we walk around the city things things seem

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Speaker 2: pretty crowded and people seem to be eating out and.

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Speaker 4: Central whereists go. That'sive to me.

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Speaker 3: That's right.

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Speaker 7: How would you describe it at the moment, particularly on

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Speaker 7: a Tuesday through a Thursday, list Friday, people aren't necessarily

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Speaker 7: coming into the office. Look, the UK economy has been

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Speaker 7: pretty weak. It's been week since I started this role

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Speaker 7: three years ago, and the question is why it's so weak.

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Speaker 7: And most economists, you guys included, I imagine, think of

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Speaker 7: the economy through the demand side, because that's what we

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Speaker 7: were all taught for generations to just think about demand.

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Speaker 7: And so demand is pretty weak in the UK. But

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Speaker 7: actually the supply side is pretty weak as well, and

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Speaker 7: as you mentioned earlier, Joe has been hit by a

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Speaker 7: number of successive supply shocks, and so we have growth,

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Speaker 7: that's it's there. There's some, but it's pretty weak. And

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Speaker 7: even though you have variations, we have monthly GDP data

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Speaker 7: in the UK, which we don't have in the US.

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Speaker 6: That was a real surprise to me.

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Speaker 7: But there are you know, variations in the monthly GDP data,

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Speaker 7: but underlying GDP, which is what we tend to look

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Speaker 7: at and we build it based on a bunch of surveys,

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Speaker 7: that's pretty weak. You know, zero point two percent growth

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Speaker 7: per quarter, So that's not significant.

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Speaker 6: That said, the supply side.

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Speaker 7: Of the economy is also pretty weak, and so if

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Speaker 7: you had more demand than that, that could actually end

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Speaker 7: up becoming inflationary.

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Speaker 4: Yeah, just intuitively, you know, you mentioned the supply side,

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Speaker 4: and like much of the sort of developed western world,

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Speaker 4: there's the Okay, there's the struggles of the industrial sector,

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Speaker 4: and large part due to competition with China, there's the

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Speaker 4: fact that if you're in a sector that's not AI,

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Speaker 4: you're probably not getting a ton of investment. London is

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Speaker 4: what I'm in London specifically at least a decent AI hub. Okay,

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Speaker 4: so we've established that the economy is somewhat weak. You

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Speaker 4: voted to hold rate. So what is it about the

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Speaker 4: inflationary environment such that this week does not call for

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Speaker 4: cuts right now?

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Speaker 7: Yeah, So part of that story is the supply side,

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Speaker 7: which is also incredibly weak. So if you had stronger growth,

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Speaker 7: that could be inflationary. But I think it's worth thinking

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Speaker 7: about where the UK economy was before the war and

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Speaker 7: Iran before we had this energy shock, because I think

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Speaker 7: my and others' views on where we are right now

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Speaker 7: very much depends on where we started from. So before

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Speaker 7: a few months ago in February, you know, we had

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Speaker 7: inflation that was still above target. It was coming towards target,

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Speaker 7: but it was still above target. We've had inflation above

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Speaker 7: target for the best part of five years now in

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Speaker 7: the UK, so it's been above two percent for all

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Speaker 7: but one or two months in.

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Speaker 6: The past five years. And that's off the back of.

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Speaker 7: A publist successive shocks, particularly COVID and also the Russian

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Speaker 7: invasion of Ukraine. And so as we were looking at

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Speaker 7: inflation start to come down towards our two percent target,

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Speaker 7: it had been coming down more slowly than we had

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Speaker 7: hoped since I got here, in fact, and if you've

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Speaker 7: looked at some of the forward looking indicators for wages

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Speaker 7: and also for prices, those actually seemed to be stalling out.

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Speaker 7: So we run a survey called the Decision Makers Panel,

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Speaker 7: the DMP, where we ask companies about their own price

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Speaker 7: expectations a year ahead and their own wage growth expectations

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Speaker 7: a year ahead, and their own price expectations a year

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Speaker 7: ahead had pretty much stalled out, so they weren't really

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Speaker 7: coming down anymore. Also, more worries, in my view, was

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Speaker 7: what they thought about wages a year ahead, where they

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Speaker 7: thought they were going to drop a little bit from

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Speaker 7: last year, so not much, not as much as we had.

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Speaker 6: Expected wage growth.

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Speaker 7: Wage growth was going to drop a little bit, that's right,

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Speaker 7: not wages, wage growth. And also we have agents who

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Speaker 7: are based around the country who go and talk to firms.

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Speaker 7: They do a whole survey on pay settlements, and pay

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Speaker 7: settlements were due to come in a bit lower this year.

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Speaker 7: Pay settlement growth was due to come in a bit

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Speaker 7: lower than it was last year. So this disinflationary process

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Speaker 7: had signs of stalling out. Also, if you look at

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Speaker 7: inflation expectations, so household inflation expectations were really elevated before

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Speaker 7: Iran was invaded. In fact, up until February, they were

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Speaker 7: above what you could explain looking at historical relationships between

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Speaker 7: inflation outturns and inflation expectations. So it was a concern

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Speaker 7: that households were thinking that inflation was going to be higher.

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Speaker 7: That could feed through into wage setting, which could explain

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Speaker 7: why wage growth was coming off more slowly than we'd expected,

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Speaker 7: and therefore price growth was coming off more slowly than

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Speaker 7: we'd expected. So there were already some signs of some

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Speaker 7: persistence from previous shocks left in the economy. In fact,

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Speaker 7: I've been working on a speech on second round effects

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Speaker 7: since before Iran was invaded, and part of me thought, gosh,

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Speaker 7: is this going to be irrelevant, you know in six

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Speaker 7: months when I finally give this speech. Of course, it's

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Speaker 7: only more relevant now. But I was already worried about

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Speaker 7: some of this inflation persistence and some of the second

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Speaker 7: round effects from the last couple of negative supply shocks,

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Speaker 7: even before Iran was invaded. And of course since then

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Speaker 7: we've now had a negative supply shock, an energy shock,

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Speaker 7: and that stands to push inflation up, growth down, which

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Speaker 7: is a terrible situation for a central banker to be in.

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Speaker 2: So, just to emphasize this point, is the idea that

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Speaker 2: if we keep getting transitory shock after transitory shock, or

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Speaker 2: if we keep getting I think you've used the word

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Speaker 2: mini waves of inflationary bouts over and over and over again,

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Speaker 2: expectations will be more vulnerable towards higher inflation levels, so

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Speaker 2: people will be even more worried about inflation once we

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Speaker 2: get like the third shock and the fourth shock.

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Speaker 7: That's right, and the size of the shock matters too.

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Speaker 7: So inflation was eleven percent a couple years ago, that

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Speaker 7: was on the front page of every newspaper. Households kind

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Speaker 7: of knew about it, they saw it at the grocery stores.

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Speaker 7: So we've done a lot of research showing that households

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Speaker 7: and businesses are possibly just more attentive to inflation, and

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Speaker 7: particularly once inflation comes within a certain band.

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Speaker 6: So there's a threshold.

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Speaker 7: It used to be no one paid attention to inflation

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Speaker 7: if it was below four percent, that ban is actually

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Speaker 7: shifted down. So in the UK we think that if

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Speaker 7: inflation is somewhere between three three and a half percent,

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Speaker 7: that's the threshold at which people actually notice it a

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Speaker 7: lot more. So if you then have another negative supply

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Speaker 7: shock and inflation go up, people will be much more

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Speaker 7: sensitive to that. We also have done research showing that

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Speaker 7: people are more sensitive to upside surprises and inflation than

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Speaker 7: downside surprises.

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Speaker 6: And inflation, and.

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Speaker 7: So that's a concern given we're now facing rising inflation.

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Speaker 7: And then for firms when they're looking at inflation, it

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Speaker 7: used to be.

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Speaker 6: Before we had these supply shocks.

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Speaker 7: That firms kind of set prices on a schedule, and

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Speaker 7: since the pandemic they've shifted much more to state dependent pricing,

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Speaker 7: So when inflation gets higher, they set prices more often

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Speaker 7: and pass through their higher costs through the end user

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Speaker 7: in the form of higher prices, and that that's remained.

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Speaker 7: So if you have more state dependent pricing from firms,

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Speaker 7: then actually you can get a pass through from inflation

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Speaker 7: expectations for them much more quickly.

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Speaker 2: So with people clearly caring about higher inflation more than

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Speaker 2: they care about deflation, being more attuned to higher inflation,

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Speaker 2: and with companies more willing to reset prices in the

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Speaker 2: face of higher inflation, to what degree does the BOE

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Speaker 2: try to get ahead of higher inflation versus wait for

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Speaker 2: it to actually emerge.

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Speaker 6: Yeah.

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Speaker 7: So the way that we think about these kinds of

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Speaker 7: shocks propagating through the economy, it's sort of in three

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Speaker 7: different phases.

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Speaker 6: The first phases kind of direct effects.

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Speaker 7: So when you have an energy shock that automatically makes

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Speaker 7: energy prices higher for everyone.

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Speaker 6: In the UK, we actually have.

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Speaker 7: A price cap for households, the off GM price cap,

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Speaker 7: and so households had been shielded from that bit until July,

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Speaker 7: and then they'll see energy costs go up. So this

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Speaker 7: could happen in stages, but in any case, monetary policy

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Speaker 7: doesn't kick in for eighteen to twenty four months, so

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Speaker 7: it kicks in with a lag.

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Speaker 6: So if we were to.

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Speaker 7: Respond to that right now, by the time it hits

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Speaker 7: the economy, it's just too late and we could risk

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Speaker 7: suppressing activity unnecessarily.

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Speaker 6: So mostly you.

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Speaker 7: Look through direct energy effects. Then you think about indirect

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Speaker 7: energy effects, so firms that are using energy pass it on.

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Speaker 7: For example, food production is a great example. It's pretty

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Speaker 7: energy intensive, both through fertilizer but also transport, and so

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Speaker 7: you see food prices start to go up, which I

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Speaker 7: think we probably will see. And so those are indirect effects.

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Speaker 7: And the jury's out a little bit amongst the central

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Speaker 7: banking community on whether you should try to lean against

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Speaker 7: indirect effects or not. Generally you should try to lean

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Speaker 7: against some of them, but not all of them. Again,

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Speaker 7: because of lags in monetary policy. The real kicker is

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Speaker 7: second round effects, and that's when actually all these price

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Speaker 7: increases start changing wage and price setting behavior, so that

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Speaker 7: you get individuals and households saying, well, I can't my

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Speaker 7: money's just not going as far anymore. You're going to

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Speaker 7: have to pay me more, And then firms might say,

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Speaker 7: a fine, we'll pay you more, but are now are

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Speaker 7: cop They're higher, so we're going to pass that through

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Speaker 7: in higher prices, and that can turn into a bit

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Speaker 7: of a spiral. We've looked at past supply shocks in

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Speaker 7: the UK and every single one of them has had

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Speaker 7: second round effects, but to very differing degrees depending on

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Speaker 7: the state of the economy at the time. So in

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Speaker 7: two thousand and eight, twenty eleven, twenty fourteen, twenty twenty two,

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Speaker 7: you had second round effects in all of these situations,

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Speaker 7: but the economy was very different in these different periods.

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Speaker 7: We tend to look at twenty twenty two because it's

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Speaker 7: the most recent one and I think for a lot

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Speaker 7: of people kind of the most scarring one when you

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Speaker 7: had energy costs go up so much. And in twenty

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Speaker 7: twenty two, of course, it's worth remembering we had just

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Speaker 7: reopened after COVID, so you did have pretty strong demand,

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Speaker 7: and also the labor market was pretty tight. That's not

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Speaker 7: the case now. Actually we have much weaker demand in

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Speaker 7: the UK economy, and we have a much weaker labor market,

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Speaker 7: and it's continuing to weaken. So we have slack in

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Speaker 7: the labor market. So that suggests that we shouldn't get

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Speaker 7: the same degree of second round effects now that we

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Speaker 7: did in twenty twenty two. I think that's of little comfort.

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Speaker 7: Actually those were pretty extreme second round effects. I also

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Speaker 7: look at twenty eleven, when the labor market was actually

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Speaker 7: much weaker than it is now. You had unemployment of

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Speaker 7: eight percent in the UK, and you had some second

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Speaker 7: round effects then. So right now the economy is somewhere

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Speaker 7: in between those two. So we will get some second

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Speaker 7: round effects. It's impossible to calibrate them exactly in advance.

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Speaker 7: The trick for us also is that you know, we

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Speaker 7: kind of know how to measure direct and indirect effects.

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Speaker 7: We can do that pretty easily. The second round effects

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Speaker 7: are pretty difficult to measure. But of course if we

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Speaker 7: wait until we have real concrete evidence of them, we're

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Speaker 7: too late in responding. So we're going to have to

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Speaker 7: make a judgment. A proactive judgment in advance about the

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Speaker 7: size of the second round effects that we're going to

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Speaker 7: want to lean against so that we can lean against

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Speaker 7: them in time.

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Speaker 4: You know, curse me. I have a theoretical question, but

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Speaker 4: meaning to ask someone about this. When the inflation started

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Speaker 4: to explode in the immediate wake of the pandemic, really globally,

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Speaker 4: one of the stories that people like to tell was

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Speaker 4: that monetary policy would have weaker teeth or be less

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Speaker 4: effective in the US, in part because so many American

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Speaker 4: households are on thirty year fixed mortgages, unlike in much

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Speaker 4: of the other Western world or the anglosphere world, where

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Speaker 4: a lot of people's mortgages reset regularly. Did that actually

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Speaker 4: play out in practice? Did BOE decisions transmit quicker to

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Speaker 4: the real economy because fewer households see their mortgage bill

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Speaker 4: reset on a regular basis.

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Speaker 7: Yeah, So we've done a lot of looking into the

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Speaker 7: monetary transmission mechanism to see how the change in the

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Speaker 7: structure of the UK mortgage market has affected things. Because

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Speaker 7: to your point, in the UK, we weren't always all

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Speaker 7: onto in five year fixed mortgages in fact, used to

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Speaker 7: have longer term fixes.

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Speaker 6: You've had periods with variable mortgage.

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Speaker 7: Today, it's dominated by two mostly it's two and five

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Speaker 7: year with I think in increase seeing number of variable

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Speaker 7: rate mortgages, and so what you find is that it

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Speaker 7: does transmit a bit more quickly. But it's also very different.

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Speaker 7: In the US and the UK. You can port your

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Speaker 7: mortgage with you, whereas in the US you can't.

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Speaker 6: So there's an.

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Speaker 7: Entire supply problem in the US that we don't face.

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Speaker 7: We face supply problems in real estate in the UK,

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Speaker 7: but for completely different reasons. So that's a difference that's

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Speaker 7: worth taking into account as well. But it's also meant

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Speaker 7: even though it's a shorter fix that we have here,

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Speaker 7: it does mean that you know, over the course of

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Speaker 7: this hiking and cutting cycle, even though rates have been

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Speaker 7: coming down for a while now, consumers haven't really been spending.

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Speaker 7: And I think one of the reasons for that is

441
00:21:40,119 --> 00:21:42,600
Speaker 7: that even though rates are coming down as people come

442
00:21:42,640 --> 00:21:45,600
Speaker 7: off of five year fixed mortgage, their own debt servicing

443
00:21:45,640 --> 00:21:48,480
Speaker 7: costs are jumping massively from where they were when they

444
00:21:48,480 --> 00:21:51,200
Speaker 7: first check out the mortgage. And so even though rates

445
00:21:51,200 --> 00:21:54,520
Speaker 7: are coming down, people's debt servicing costs continue to go up,

446
00:21:55,080 --> 00:21:57,040
Speaker 7: and so as you're in a rate cutting cycle, you

447
00:21:57,040 --> 00:21:59,160
Speaker 7: would expect consumers to spend a bit more.

448
00:21:59,440 --> 00:22:02,080
Speaker 6: We're not fine that so much. So this is one.

449
00:22:02,040 --> 00:22:05,440
Speaker 7: Potential explanation for why consumers aren't spending more. It could

450
00:22:05,480 --> 00:22:09,480
Speaker 7: also be scarring from previous bats of inflation as well,

451
00:22:09,520 --> 00:22:12,439
Speaker 7: but that's going to feed into the current conjuncture because

452
00:22:12,800 --> 00:22:15,160
Speaker 7: one of the concerns. Of course, I'm worried about inflation.

453
00:22:15,280 --> 00:22:17,480
Speaker 7: I think that's paramount, and I think the risks to

454
00:22:17,560 --> 00:22:19,600
Speaker 7: inflation are on the upside, But of course you have

455
00:22:19,640 --> 00:22:23,159
Speaker 7: to offset that with the risk of weaker demand. And

456
00:22:23,480 --> 00:22:26,400
Speaker 7: if consumers aren't spending in the UK because they're scarred

457
00:22:26,480 --> 00:22:30,320
Speaker 7: from previous experiences, then they're looking at this energy shock

458
00:22:30,400 --> 00:22:33,080
Speaker 7: and probably thinking, well, no way I'm going to spend now.

459
00:22:33,160 --> 00:22:36,200
Speaker 7: I'd better save for a rainy day, which by the way,

460
00:22:36,280 --> 00:22:38,199
Speaker 7: could be now. And so there is a chance that

461
00:22:38,280 --> 00:22:40,960
Speaker 7: consumption and therefore growth could be even weaker than we've

462
00:22:41,000 --> 00:22:43,920
Speaker 7: been expecting as well. So you have to offset that

463
00:22:44,000 --> 00:22:45,560
Speaker 7: with concerns about greater inflation.

464
00:22:46,400 --> 00:22:48,480
Speaker 2: Since we're talking about the consumer, I mean, it feels

465
00:22:48,560 --> 00:22:52,520
Speaker 2: like one of the few potential deflationary forces out there,

466
00:22:52,520 --> 00:22:55,320
Speaker 2: but still potentially a very big one is AI right,

467
00:22:55,400 --> 00:22:58,399
Speaker 2: and this idea that well, if there are fewer jobs

468
00:22:58,440 --> 00:23:00,560
Speaker 2: because of AI, then obviously people are going to be

469
00:23:00,600 --> 00:23:03,680
Speaker 2: earning less and spending less and that's going to exert

470
00:23:03,800 --> 00:23:08,400
Speaker 2: deflationary pressure on many different economies. What have you seen

471
00:23:08,440 --> 00:23:10,719
Speaker 2: so far in terms of the impact of AI on

472
00:23:10,760 --> 00:23:12,960
Speaker 2: the job market and how are you thinking about this?

473
00:23:13,440 --> 00:23:16,400
Speaker 2: You know, kind of very new still development.

474
00:23:17,359 --> 00:23:20,520
Speaker 7: Yeah, so the Bank has done some research on how

475
00:23:20,760 --> 00:23:23,520
Speaker 7: AI is affecting the labor market in particular, and there's

476
00:23:23,560 --> 00:23:27,360
Speaker 7: some nascent evidence that maybe those industries that are more

477
00:23:27,400 --> 00:23:31,400
Speaker 7: exposed to AI or seeing fewer job openings than industries

478
00:23:31,440 --> 00:23:35,000
Speaker 7: that are exposed, which you can imagine use unemployment is

479
00:23:35,080 --> 00:23:38,360
Speaker 7: particularly high in the UK, So I think it's quite

480
00:23:38,400 --> 00:23:41,480
Speaker 7: easy to jump to a conclusion that suggests that, you know,

481
00:23:41,520 --> 00:23:43,439
Speaker 7: it's very difficult to get a job if you're just

482
00:23:43,600 --> 00:23:46,560
Speaker 7: coming out of UNI, and maybe that's an AI effect,

483
00:23:46,560 --> 00:23:49,400
Speaker 7: But I think there's actually very little evidence to directly

484
00:23:49,480 --> 00:23:52,640
Speaker 7: make that link, and so there isn't much evidence of that.

485
00:23:52,880 --> 00:23:55,120
Speaker 7: It's not just a labor market of course, though as

486
00:23:55,160 --> 00:23:57,800
Speaker 7: I mentioned already, I'm worried about the supply side of

487
00:23:57,800 --> 00:24:00,920
Speaker 7: the UK economy. So most of this shocks we've seen

488
00:24:00,920 --> 00:24:03,240
Speaker 7: over the past couple of years have been negative supply shocks.

489
00:24:03,280 --> 00:24:06,879
Speaker 7: AI represents the one potential positive supply shock that we

490
00:24:06,960 --> 00:24:10,040
Speaker 7: might see coming down the pike, and so that could

491
00:24:10,040 --> 00:24:10,600
Speaker 7: be possible.

492
00:24:10,680 --> 00:24:12,160
Speaker 6: We look at the supply side.

493
00:24:12,000 --> 00:24:13,960
Speaker 7: Of the economy all the time now at the Bank

494
00:24:13,960 --> 00:24:15,679
Speaker 7: of England. When I first started, we only looked at

495
00:24:15,720 --> 00:24:17,600
Speaker 7: it once a year because it's not supposed to move

496
00:24:17,640 --> 00:24:18,320
Speaker 7: around that much.

497
00:24:18,359 --> 00:24:20,680
Speaker 3: But we've learned, actually, what does that mean once a year?

498
00:24:20,880 --> 00:24:23,680
Speaker 2: Did you have like supply side Week or something where

499
00:24:23,680 --> 00:24:25,160
Speaker 2: you all got together and thought about it.

500
00:24:25,280 --> 00:24:27,160
Speaker 7: I find this, Yes, So it's not that we didn't

501
00:24:27,160 --> 00:24:28,520
Speaker 7: ever talk about it. In the intro.

502
00:24:28,840 --> 00:24:31,000
Speaker 6: We did like a real deep dive.

503
00:24:30,920 --> 00:24:33,000
Speaker 7: On the supply side of the economy to try to

504
00:24:33,000 --> 00:24:36,119
Speaker 7: measure productivity growth and total factor of productivity. I mean really

505
00:24:36,160 --> 00:24:38,160
Speaker 7: deep dive and it really was a.

506
00:24:38,119 --> 00:24:39,640
Speaker 6: Once a year event.

507
00:24:39,960 --> 00:24:42,000
Speaker 7: And now we do it all the time because obviously

508
00:24:42,040 --> 00:24:44,080
Speaker 7: the supply side moves more than we had expected.

509
00:24:44,119 --> 00:24:46,760
Speaker 6: We keep getting hit by supply shocks. But you know,

510
00:24:46,800 --> 00:24:47,200
Speaker 6: when we.

511
00:24:47,119 --> 00:24:49,280
Speaker 7: Look at the supply side of the economy, there is

512
00:24:49,400 --> 00:24:52,639
Speaker 7: no judgment that we've put in on the supply side

513
00:24:52,720 --> 00:24:56,600
Speaker 7: to do with AI so possibly it's in our assumptions

514
00:24:56,600 --> 00:25:01,080
Speaker 7: about productivity growth, just through some assumption about but generally

515
00:25:01,160 --> 00:25:03,080
Speaker 7: we haven't made a judgment that over the next three

516
00:25:03,160 --> 00:25:07,440
Speaker 7: years AI will meaningfully impact productivity, and I'm not sure

517
00:25:07,440 --> 00:25:09,439
Speaker 7: that that's right. I think the timing of this is

518
00:25:09,440 --> 00:25:10,200
Speaker 7: the hardest part.

519
00:25:10,400 --> 00:25:10,560
Speaker 1: Well.

520
00:25:10,560 --> 00:25:13,439
Speaker 4: Actually, when I think about the term supply side or

521
00:25:13,440 --> 00:25:16,480
Speaker 4: supply side shocks, or I think of there are sort

522
00:25:16,520 --> 00:25:19,199
Speaker 4: of two things, right. There's a supply side shock, you

523
00:25:19,240 --> 00:25:22,560
Speaker 4: can't do anything suddenly the price of electricity goes up everywhere,

524
00:25:22,680 --> 00:25:25,040
Speaker 4: and we call that a supply side shock, and it's

525
00:25:25,240 --> 00:25:28,159
Speaker 4: not great when that happens. And then there's also the

526
00:25:28,240 --> 00:25:33,000
Speaker 4: sort of like core productive capacity of a country and

527
00:25:33,040 --> 00:25:37,240
Speaker 4: how productive industries are, and what type of investment is

528
00:25:37,280 --> 00:25:42,399
Speaker 4: there and so forth. Even setting aside the shocks, the

529
00:25:42,600 --> 00:25:45,679
Speaker 4: trend seems to be negative in the UK in terms

530
00:25:45,680 --> 00:25:49,200
Speaker 4: of business investment. You hear about the last steel mill

531
00:25:49,359 --> 00:25:52,680
Speaker 4: or whatever that's closing, or I read something recently the

532
00:25:53,040 --> 00:25:56,080
Speaker 4: UK might be importing salt for the first time or whatever.

533
00:25:56,480 --> 00:26:01,040
Speaker 4: In your whether it's formerly annual but now regular studies

534
00:26:01,119 --> 00:26:03,760
Speaker 4: of the supply side of the UK economy, do you

535
00:26:03,800 --> 00:26:06,480
Speaker 4: have a diagnosis or do you have an assessment about

536
00:26:06,840 --> 00:26:09,680
Speaker 4: what is driving the sort of long term deterioration.

537
00:26:10,560 --> 00:26:12,960
Speaker 7: I mean we do insofar as you can say there

538
00:26:12,960 --> 00:26:15,200
Speaker 7: hasn't been a whole lot of investment in the UK

539
00:26:15,480 --> 00:26:18,000
Speaker 7: starting with the global financial crisis. I think most people

540
00:26:18,160 --> 00:26:20,679
Speaker 7: pin that on Brexit, and Brexit didn't really help, but

541
00:26:20,760 --> 00:26:24,440
Speaker 7: it predates Brexit, and so that has been a long

542
00:26:24,520 --> 00:26:27,639
Speaker 7: term drag on potential growth, productivity growth.

543
00:26:27,800 --> 00:26:30,280
Speaker 6: We assume that productivity.

544
00:26:29,640 --> 00:26:33,600
Speaker 7: Growth in particular will rebound to its long term trend,

545
00:26:33,880 --> 00:26:36,080
Speaker 7: and I'm not sure that that's right. I think my

546
00:26:36,200 --> 00:26:38,560
Speaker 7: own view is that the risk to that is entirely

547
00:26:38,680 --> 00:26:41,400
Speaker 7: on the downside, but you know, a lack of investment

548
00:26:41,480 --> 00:26:43,520
Speaker 7: is part of it. And then on top of that,

549
00:26:43,600 --> 00:26:45,879
Speaker 7: I mean, I understand how you're splitting these out, but

550
00:26:45,920 --> 00:26:48,840
Speaker 7: if you keep getting negative supply shocks, then eventually that

551
00:26:48,880 --> 00:26:53,399
Speaker 7: does feed through into potential growth. Yeah, and so I

552
00:26:53,400 --> 00:26:55,880
Speaker 7: think that's a concern. In the way that central bankers

553
00:26:55,920 --> 00:26:59,159
Speaker 7: have approached negative supply shocks has always been you just

554
00:26:59,200 --> 00:27:02,639
Speaker 7: look through them. Their temporary. You know, you Bank of

555
00:27:02,680 --> 00:27:04,840
Speaker 7: England can't do anything about the strait of horror moves,

556
00:27:05,040 --> 00:27:07,800
Speaker 7: for example, can't actually address it.

557
00:27:07,840 --> 00:27:09,920
Speaker 4: We have cameraxit. No.

558
00:27:10,280 --> 00:27:14,760
Speaker 7: We have tools that are uniquely designed for demand side problems.

559
00:27:14,760 --> 00:27:17,240
Speaker 7: They can't really address supply side problems, and so we've

560
00:27:17,240 --> 00:27:20,360
Speaker 7: always learned to just look through them and consider sort

561
00:27:20,359 --> 00:27:24,480
Speaker 7: of underlying inflation, underlying growth. And I think that when

562
00:27:24,520 --> 00:27:27,639
Speaker 7: you keep having negative supply shocks and you consider that

563
00:27:27,680 --> 00:27:31,280
Speaker 7: households and businesses are more attentive to inflation, that you

564
00:27:31,320 --> 00:27:34,480
Speaker 7: know they're setting prices more often, that some kinds of

565
00:27:34,520 --> 00:27:37,560
Speaker 7: inflation are more salient for households and businesses, and other

566
00:27:37,720 --> 00:27:41,840
Speaker 7: particularly food and energy inflation, and we keep having increases

567
00:27:41,880 --> 00:27:45,400
Speaker 7: in both of those things, then that eventually gets embedded

568
00:27:45,440 --> 00:27:48,560
Speaker 7: into people's expectations and then their wage in price setting,

569
00:27:48,600 --> 00:27:51,560
Speaker 7: and so that creates the kind of inflation persistence that

570
00:27:51,640 --> 00:27:54,359
Speaker 7: I've been worried about even before this invasion of Iran,

571
00:27:54,440 --> 00:28:08,840
Speaker 7: but now I continue to be worried about it.

572
00:28:12,160 --> 00:28:16,640
Speaker 2: I'm going to ask another sort of background American visiting London,

573
00:28:16,880 --> 00:28:19,320
Speaker 2: haven't been here for many years kind of question.

574
00:28:19,400 --> 00:28:21,080
Speaker 3: But when people talk about the UK's.

575
00:28:20,880 --> 00:28:24,200
Speaker 2: High were last year, oh yeah, I haven't lived here

576
00:28:24,240 --> 00:28:27,320
Speaker 2: for many years. When people talk about the UK's high

577
00:28:27,320 --> 00:28:31,360
Speaker 2: exposure to energy volatility, why is that? Because the other

578
00:28:31,400 --> 00:28:33,639
Speaker 2: thing people talk about in relation to the UK is

579
00:28:33,680 --> 00:28:36,520
Speaker 2: like it does actually have nor sea oil, it does

580
00:28:36,600 --> 00:28:39,760
Speaker 2: have kind of its own supply, Like what exactly is

581
00:28:40,320 --> 00:28:43,000
Speaker 2: that vulnerability in this economy.

582
00:28:43,040 --> 00:28:47,360
Speaker 7: So it has some supply, not massive amounts, And I

583
00:28:47,400 --> 00:28:50,840
Speaker 7: think part of the trick is it's also very.

584
00:28:50,680 --> 00:28:52,719
Speaker 6: Exposed to gas prices.

585
00:28:52,240 --> 00:28:55,080
Speaker 7: Which you know, were what went up so dramatically when

586
00:28:55,160 --> 00:28:59,080
Speaker 7: Russia invaded Ukraine, and then in the UK electricity prices

587
00:28:59,160 --> 00:29:03,200
Speaker 7: are keyed off gas pricess and then electricity is particularly

588
00:29:03,280 --> 00:29:07,560
Speaker 7: vulnerable as well. So unfortunately, I mean, the US has

589
00:29:07,680 --> 00:29:09,680
Speaker 7: kind of energy and dependence at the moment, in the

590
00:29:09,760 --> 00:29:11,600
Speaker 7: UK is nowhere close to that position.

591
00:29:12,600 --> 00:29:15,840
Speaker 4: I know in the US there is an entire art

592
00:29:16,520 --> 00:29:21,200
Speaker 4: to asking a monetary policy setter a question about fiscal policy,

593
00:29:21,240 --> 00:29:23,920
Speaker 4: because you have to do it very delicately, otherwise they

594
00:29:24,000 --> 00:29:27,000
Speaker 4: might faint over in their chair if they're presented with

595
00:29:27,040 --> 00:29:30,200
Speaker 4: something outside their remit. I don't know what exactly the

596
00:29:30,280 --> 00:29:33,880
Speaker 4: norms are here about how we're supposed to phrase such

597
00:29:34,000 --> 00:29:37,440
Speaker 4: questions to elicit some sort of answer. But with all

598
00:29:37,520 --> 00:29:41,120
Speaker 4: that out of the way, when you think about upward

599
00:29:41,160 --> 00:29:44,760
Speaker 4: pressure on inflation and why you're so concerned about inflation

600
00:29:45,120 --> 00:29:48,200
Speaker 4: that we've talked about energy and all that. How much

601
00:29:48,360 --> 00:29:53,800
Speaker 4: does the seeming inability of government after government to engage

602
00:29:53,800 --> 00:29:57,920
Speaker 4: in fiscal consolidation. How much is that a factor when

603
00:29:57,960 --> 00:30:00,440
Speaker 4: you think about the future trajectory consulation.

604
00:30:01,200 --> 00:30:03,760
Speaker 7: Yeah, so, I mean I'll say what any rate et

605
00:30:03,800 --> 00:30:05,160
Speaker 7: cetera will will tell you.

606
00:30:05,240 --> 00:30:06,440
Speaker 6: So thank you for that.

607
00:30:07,120 --> 00:30:09,360
Speaker 4: I've done all for you.

608
00:30:09,840 --> 00:30:12,000
Speaker 7: Yeah. But I mean the way that we think about

609
00:30:12,040 --> 00:30:15,400
Speaker 7: fiscal policy is we take exactly what's legislated and we

610
00:30:15,480 --> 00:30:17,520
Speaker 7: put that into models.

611
00:30:17,200 --> 00:30:20,960
Speaker 4: So stipulate that doesn't seem like there is any real

612
00:30:21,080 --> 00:30:24,120
Speaker 4: impulsive fiscal consolidation or capacity right now. So what does

613
00:30:24,160 --> 00:30:24,480
Speaker 4: that mean?

614
00:30:25,080 --> 00:30:28,720
Speaker 7: Well, so, I mean, actually the government has legislated some

615
00:30:28,760 --> 00:30:31,680
Speaker 7: consolidation given fiscal rules, and so that is exactly what

616
00:30:31,720 --> 00:30:33,360
Speaker 7: we put into our forecasts.

617
00:30:33,440 --> 00:30:34,360
Speaker 6: And so that's just.

618
00:30:34,320 --> 00:30:37,560
Speaker 7: One of the conditioning assumptions is what's legislated we assume

619
00:30:37,600 --> 00:30:40,600
Speaker 7: will happen, okay, and then we base our forecasts off

620
00:30:40,640 --> 00:30:41,160
Speaker 7: the back of that.

621
00:30:41,840 --> 00:30:46,800
Speaker 4: But so just to push further some of these fiscal choices,

622
00:30:46,880 --> 00:30:50,480
Speaker 4: like the inviolability of say the triple lock, which again

623
00:30:50,520 --> 00:30:52,560
Speaker 4: I'm not asking you whether these are good or bad

624
00:30:52,600 --> 00:30:58,200
Speaker 4: policies et cetera. But are these contributors to the persistence

625
00:30:58,320 --> 00:31:00,000
Speaker 4: of upside inflation? Right?

626
00:31:01,400 --> 00:31:05,200
Speaker 7: So I think it contributes to government borrowing costs. So

627
00:31:05,720 --> 00:31:08,800
Speaker 7: we're sitting in the UK a day after long term

628
00:31:08,960 --> 00:31:10,440
Speaker 7: rates went up. Some of that is to do with

629
00:31:10,480 --> 00:31:12,640
Speaker 7: the straight up hormus, some of that is to do

630
00:31:12,800 --> 00:31:16,480
Speaker 7: with true social posts. Some of that maybe because there

631
00:31:16,520 --> 00:31:18,680
Speaker 7: are local elections coming up, and I think there's just

632
00:31:18,680 --> 00:31:21,280
Speaker 7: a whole bunch of positioning around that in a guilt

633
00:31:21,280 --> 00:31:25,200
Speaker 7: market which is pretty niche and fairly small relative to

634
00:31:25,200 --> 00:31:27,920
Speaker 7: the US treasury market in particular, So I think that's

635
00:31:27,920 --> 00:31:30,080
Speaker 7: all worth considering as well, and that all feeds through

636
00:31:30,120 --> 00:31:31,320
Speaker 7: into financial conditions.

637
00:31:32,040 --> 00:31:35,160
Speaker 2: You mentioned guilt yields. Now that you've gone from sort

638
00:31:35,160 --> 00:31:40,040
Speaker 2: of financed Twitter to you know, hardcore economic practitioner, monetary

639
00:31:40,080 --> 00:31:44,040
Speaker 2: policy practitioner, she did have real jobs, I know, I know,

640
00:31:44,480 --> 00:31:50,120
Speaker 2: but not like, not on a central bank. I'm complementing

641
00:31:50,160 --> 00:31:52,760
Speaker 2: the current role, not denigrating the previous ones.

642
00:31:52,840 --> 00:31:53,560
Speaker 3: That's my intent.

643
00:31:53,640 --> 00:31:58,800
Speaker 7: I'll always be economists mag to you, But like, how

644
00:31:58,840 --> 00:32:00,960
Speaker 7: do you think about bond vigilantes?

645
00:32:01,680 --> 00:32:02,560
Speaker 3: Do you have nightmares?

646
00:32:02,640 --> 00:32:05,920
Speaker 2: Or have you gone from tweeting about bond vigilantes to

647
00:32:06,080 --> 00:32:09,240
Speaker 2: thinking about them relentlessly as you watch UK gilt yields

648
00:32:09,240 --> 00:32:09,480
Speaker 2: go on.

649
00:32:10,760 --> 00:32:15,400
Speaker 7: No, so I neither have nightmares about them, nor do

650
00:32:15,480 --> 00:32:18,960
Speaker 7: I wish I could tweet about them. I think markets

651
00:32:18,960 --> 00:32:22,640
Speaker 7: are sometimes efficient and sometimes get things totally wrong, and

652
00:32:22,800 --> 00:32:25,560
Speaker 7: so we have an entire function at the bank that

653
00:32:25,680 --> 00:32:28,480
Speaker 7: talks to investors to get a sense of kind of

654
00:32:28,480 --> 00:32:32,120
Speaker 7: what's behind their positioning, what they think. Often it's what

655
00:32:32,160 --> 00:32:34,040
Speaker 7: do they think about us? What do they think we

656
00:32:34,120 --> 00:32:36,000
Speaker 7: should be doing, what do they think we will do?

657
00:32:36,160 --> 00:32:39,480
Speaker 7: And I think that's all worth understanding, because, like I said,

658
00:32:39,480 --> 00:32:42,120
Speaker 7: sometimes they get things right, certainly not always.

659
00:32:42,320 --> 00:32:45,400
Speaker 4: Well, let me ask you a mechanical question about the

660
00:32:45,440 --> 00:32:50,719
Speaker 4: bond market, which is are the coupon payments as we

661
00:32:50,800 --> 00:32:53,080
Speaker 4: see yields rise? And this is a question for all

662
00:32:53,120 --> 00:32:56,320
Speaker 4: developing economies, and it certainly at least a little bit

663
00:32:56,320 --> 00:32:58,000
Speaker 4: of an anxiety in the US as well. As we

664
00:32:58,080 --> 00:33:01,720
Speaker 4: see those coupon payments rise, are we anywhere near where

665
00:33:01,800 --> 00:33:06,720
Speaker 4: those interest payments themselves are creating an inflationary impulse in

666
00:33:06,800 --> 00:33:09,560
Speaker 4: the UK, which economists would call fiscal dominance.

667
00:33:09,840 --> 00:33:12,720
Speaker 7: Yeah, I mean I mostly look at this through financial conditions,

668
00:33:13,120 --> 00:33:15,880
Speaker 7: And so if you get bond yields rising, then that's

669
00:33:15,920 --> 00:33:19,360
Speaker 7: tightening financial conditions and that feeds through into the economy,

670
00:33:19,400 --> 00:33:21,840
Speaker 7: and then there's a judgment to be made about what

671
00:33:21,880 --> 00:33:24,120
Speaker 7: monetary policy should do about it.

672
00:33:24,160 --> 00:33:27,680
Speaker 4: But that's a fiscal expenditure, that coupon payment, and so

673
00:33:27,720 --> 00:33:30,480
Speaker 4: the question is is it of a size such that

674
00:33:30,960 --> 00:33:34,600
Speaker 4: physical expenditure which the screens tell us is rising when

675
00:33:34,600 --> 00:33:37,560
Speaker 4: we see the rates rising. Is that large enough where

676
00:33:37,720 --> 00:33:40,440
Speaker 4: is there a delta there such that that actually itself

677
00:33:41,040 --> 00:33:42,520
Speaker 4: creates an inflationary impulse.

678
00:33:42,880 --> 00:33:46,560
Speaker 7: So no, that's not a significant impulse that we're looking at.

679
00:33:46,720 --> 00:33:49,600
Speaker 7: Mostly we're just looking at it through financial conditions.

680
00:33:50,080 --> 00:33:50,280
Speaker 6: Yeah.

681
00:33:50,960 --> 00:33:55,040
Speaker 2: So we talked earlier about spillover from US monetary policy,

682
00:33:55,160 --> 00:33:59,240
Speaker 2: and it is thinkable that the US could be raising

683
00:33:59,320 --> 00:34:01,920
Speaker 2: rates sooner that it might be lowering rates.

684
00:34:02,480 --> 00:34:03,160
Speaker 3: How would you.

685
00:34:03,080 --> 00:34:07,080
Speaker 2: Anticipate the feed through from a tightening of US monetary

686
00:34:07,080 --> 00:34:09,200
Speaker 2: conditions to the UK at this current moment.

687
00:34:09,719 --> 00:34:13,640
Speaker 7: Yeah, So, as I mentioned, there's significant read through from

688
00:34:13,640 --> 00:34:16,680
Speaker 7: the US treasury market into the UK guilt market, rightly

689
00:34:16,760 --> 00:34:20,560
Speaker 7: or wrongly. So if you look at economic indicators that

690
00:34:20,640 --> 00:34:24,120
Speaker 7: come out and how they influence our financial conditions in

691
00:34:24,160 --> 00:34:29,040
Speaker 7: the UK, the indicator if it surprises that influences conditions here.

692
00:34:29,080 --> 00:34:32,880
Speaker 7: The most is UK inflation, thank goodness. Secondly is US inflation.

693
00:34:33,080 --> 00:34:36,359
Speaker 7: I think third might be nonfarm payrolls in the US.

694
00:34:36,400 --> 00:34:38,720
Speaker 7: It's not at all clear why these things should actually

695
00:34:38,760 --> 00:34:42,640
Speaker 7: be influencing financial conditions in the UK, right, But I

696
00:34:42,680 --> 00:34:45,920
Speaker 7: think part of that is an implicit assumption that the

697
00:34:45,920 --> 00:34:48,799
Speaker 7: FED is the world's biggest economy central bank, and so

698
00:34:49,040 --> 00:34:51,600
Speaker 7: when the FED does something, everybody kind of has to

699
00:34:52,360 --> 00:34:55,440
Speaker 7: I don't think that's right actually, but you can't ignore

700
00:34:55,480 --> 00:34:59,400
Speaker 7: these spillovers. So if financial conditions were to tighten in

701
00:34:59,440 --> 00:35:01,840
Speaker 7: the US, that would feed through to the UK and

702
00:35:01,960 --> 00:35:05,279
Speaker 7: financial conditions. I mean, of course the reason matters, but

703
00:35:05,440 --> 00:35:08,200
Speaker 7: you know, if it's because of rate hikes in the US,

704
00:35:08,239 --> 00:35:11,279
Speaker 7: it could mean that our financial conditions tighten as well,

705
00:35:11,320 --> 00:35:14,040
Speaker 7: and then that feeds through into kind of our view

706
00:35:14,080 --> 00:35:18,279
Speaker 7: of how restrictive our monetary policy stance is and how

707
00:35:18,320 --> 00:35:20,680
Speaker 7: we manage inflation forwards our two percent target?

708
00:35:21,040 --> 00:35:22,279
Speaker 4: Can I go back to something you said at the

709
00:35:22,400 --> 00:35:24,719
Speaker 4: very beginning when I asked you about what is the

710
00:35:25,280 --> 00:35:28,399
Speaker 4: remit or the objective of the central bank, and you said,

711
00:35:28,440 --> 00:35:31,560
Speaker 4: one thing is to support the government, and that is

712
00:35:31,680 --> 00:35:34,640
Speaker 4: not formally I don't think that's part of the FED,

713
00:35:34,800 --> 00:35:36,759
Speaker 4: but I know that that's why the whole bank, that's

714
00:35:36,800 --> 00:35:39,399
Speaker 4: why the Bank of England was founded, was to be

715
00:35:39,680 --> 00:35:44,360
Speaker 4: to the government's bank and to facilitate financing of the government.

716
00:35:44,480 --> 00:35:48,560
Speaker 4: Does that functionally change anything? Does that mean something substantively

717
00:35:48,960 --> 00:35:52,280
Speaker 4: different in terms of the conduct of monetary policy within

718
00:35:52,320 --> 00:35:55,439
Speaker 4: the BOE versus say another central bank, when that's sort

719
00:35:55,440 --> 00:35:57,560
Speaker 4: of like part of your founding charter.

720
00:35:57,920 --> 00:36:01,920
Speaker 7: Yeah, So to be clear, is two percent inflation sustainable

721
00:36:01,960 --> 00:36:05,200
Speaker 7: in the medium term subject to that? Yeah, to support

722
00:36:05,360 --> 00:36:08,160
Speaker 7: the goals of the government, and they's changed. And this

723
00:36:08,239 --> 00:36:12,280
Speaker 7: is a mandate that the Treasury sets every November because

724
00:36:12,320 --> 00:36:15,160
Speaker 7: once a year they look at it and what fits

725
00:36:15,200 --> 00:36:17,480
Speaker 7: in that has changed over the past couple of years.

726
00:36:17,680 --> 00:36:19,799
Speaker 4: On the margin, it was an incident a few years

727
00:36:19,840 --> 00:36:22,399
Speaker 4: ago in which the Bank and the government, the bank

728
00:36:22,480 --> 00:36:23,400
Speaker 4: helped out the government a.

729
00:36:23,400 --> 00:36:25,600
Speaker 7: Little bit, but that that had nothing to do with

730
00:36:25,640 --> 00:36:28,000
Speaker 7: the mandate. Yeah, for what it's worth. But so in

731
00:36:28,040 --> 00:36:30,879
Speaker 7: my time at the Bank of England, we've only hit

732
00:36:30,920 --> 00:36:34,040
Speaker 7: our inflation target for one or two months maybe, And

733
00:36:34,120 --> 00:36:36,680
Speaker 7: so while I've been at the Bank of England, and

734
00:36:36,719 --> 00:36:39,720
Speaker 7: I think generally it's the case really two percent inflation

735
00:36:39,920 --> 00:36:41,600
Speaker 7: is the target and we're working.

736
00:36:41,320 --> 00:36:42,880
Speaker 6: Tirelessly to hit that.

737
00:36:43,040 --> 00:36:45,880
Speaker 7: So the secondary part of the mandate, which is subject

738
00:36:46,000 --> 00:36:49,160
Speaker 7: to that, we haven't we haven't achieved that yet, so

739
00:36:49,200 --> 00:36:51,120
Speaker 7: that that is the primary focus.

740
00:36:51,520 --> 00:36:53,640
Speaker 2: Can you talk a bit more about just the decision

741
00:36:53,680 --> 00:36:58,440
Speaker 2: making process on the MPC, because again here here I'm

742
00:36:58,440 --> 00:36:59,880
Speaker 2: going to emphasize Megan's men.

743
00:37:00,000 --> 00:37:01,080
Speaker 3: Any other jobs.

744
00:37:01,280 --> 00:37:05,640
Speaker 2: You've been in academia, you've been in business settings, and

745
00:37:05,680 --> 00:37:07,960
Speaker 2: now you're at a central bank. What are the sort

746
00:37:08,000 --> 00:37:11,719
Speaker 2: of differences that you observe between how the decision making

747
00:37:11,800 --> 00:37:15,680
Speaker 2: process works at those types of institutions versus a central bank.

748
00:37:16,040 --> 00:37:17,520
Speaker 2: This is just a long way of me asking you

749
00:37:17,560 --> 00:37:18,920
Speaker 2: what the discussions are actually like.

750
00:37:19,000 --> 00:37:22,759
Speaker 4: Oh, there's vigorous, is Prime Minister's question? Which is our

751
00:37:22,800 --> 00:37:25,719
Speaker 4: only exposure to what policy making looks like a UK.

752
00:37:26,120 --> 00:37:28,640
Speaker 7: Yeah, So we meet every six weeks and every other

753
00:37:28,719 --> 00:37:31,760
Speaker 7: time we produce a forecast. So when we produce a forecast,

754
00:37:31,760 --> 00:37:35,279
Speaker 7: it's a more involved process. This last round was particularly

755
00:37:35,320 --> 00:37:38,239
Speaker 7: interesting because we didn't produce a forecast. We said, you

756
00:37:38,280 --> 00:37:41,279
Speaker 7: know what, things are so uncertain, we're just going to

757
00:37:41,320 --> 00:37:44,200
Speaker 7: produce three scenarios. We're not going to give you weights

758
00:37:44,239 --> 00:37:47,080
Speaker 7: on them. Who knows what's happening with energy prices. But

759
00:37:47,719 --> 00:37:50,480
Speaker 7: we produce three different scenarios and they were based on

760
00:37:50,600 --> 00:37:53,640
Speaker 7: kind of what energy futures curves might look like, how

761
00:37:53,760 --> 00:37:56,960
Speaker 7: energy prices might evolve, and then also second round effects

762
00:37:57,040 --> 00:37:59,080
Speaker 7: off the back of that, and so as you can

763
00:37:59,120 --> 00:38:02,279
Speaker 7: imagine the good old days not good old days, and

764
00:38:02,280 --> 00:38:05,200
Speaker 7: the old days when we only produced as central forecast,

765
00:38:05,400 --> 00:38:08,359
Speaker 7: that was a less involved process, I would say, than

766
00:38:08,480 --> 00:38:11,600
Speaker 7: now producing a bunch of scenarios to think about risk

767
00:38:12,239 --> 00:38:14,719
Speaker 7: and uncertainty, and now I think we're facing kind of

768
00:38:14,800 --> 00:38:20,520
Speaker 7: nine and uncertainty, so radical unpredictability and uncertainty. So it's

769
00:38:20,520 --> 00:38:24,200
Speaker 7: an incredibly involved process to produce these scenarios, to think

770
00:38:24,239 --> 00:38:27,000
Speaker 7: about different states of the world, to try to identify

771
00:38:27,040 --> 00:38:30,719
Speaker 7: where we might be in these scenarios, and then most importantly,

772
00:38:30,840 --> 00:38:33,080
Speaker 7: to try to figure out how we would respond if

773
00:38:33,120 --> 00:38:35,400
Speaker 7: we were in any parts of these worlds. And so

774
00:38:35,920 --> 00:38:39,440
Speaker 7: to figure out our reaction function, we look at we

775
00:38:39,480 --> 00:38:41,400
Speaker 7: look at the market curve, but we also look at

776
00:38:41,400 --> 00:38:42,120
Speaker 7: a whole bunch.

777
00:38:41,880 --> 00:38:42,880
Speaker 6: Of policy rules.

778
00:38:43,239 --> 00:38:48,440
Speaker 7: They're all different, and in figuring out where we forecast from,

779
00:38:48,840 --> 00:38:51,200
Speaker 7: we have to figure out where we are We've used

780
00:38:51,200 --> 00:38:54,320
Speaker 7: a whole bunch of different models, get loads of updates

781
00:38:54,360 --> 00:38:58,360
Speaker 7: and research notes from our fantastic staff to help inform

782
00:38:58,440 --> 00:39:01,400
Speaker 7: us of where we're starting from, because that's always really important.

783
00:39:01,480 --> 00:39:03,480
Speaker 7: So you know, in a forecast round, it's about three

784
00:39:03,480 --> 00:39:08,799
Speaker 7: weeks of intensive discussions and research and notes, and then

785
00:39:08,840 --> 00:39:11,439
Speaker 7: figuring out how to communicate that to the outside world

786
00:39:11,520 --> 00:39:13,759
Speaker 7: I think is really important too, So it is a

787
00:39:13,800 --> 00:39:17,640
Speaker 7: really involved process. And I would say that the model

788
00:39:17,680 --> 00:39:21,160
Speaker 7: where we have externals and internals and where dissent is

789
00:39:21,400 --> 00:39:24,920
Speaker 7: totally normal, does work in that we certainly don't agree

790
00:39:25,080 --> 00:39:28,560
Speaker 7: on everything. In fact, often we don't agree on important

791
00:39:28,600 --> 00:39:30,200
Speaker 7: things and that comes out in our votes.

792
00:39:30,239 --> 00:39:31,400
Speaker 6: But I think that's how.

793
00:39:31,320 --> 00:39:34,000
Speaker 7: You make sure that you're making the strongest decisions.

794
00:39:34,719 --> 00:39:37,080
Speaker 4: This might be sort of like an abstract question. You

795
00:39:37,080 --> 00:39:40,120
Speaker 4: could take it, however you wanted. A prior guest We've

796
00:39:40,120 --> 00:39:42,320
Speaker 4: had on the podcast a bunch of times. Tone Sanction

797
00:39:42,560 --> 00:39:45,560
Speaker 4: recently became the head of Korea Central Bank, and I

798
00:39:45,600 --> 00:39:47,880
Speaker 4: read his opening speech, which I thought was really interesting,

799
00:39:48,200 --> 00:39:50,560
Speaker 4: and he said, you know, central bankers like to talk

800
00:39:50,560 --> 00:39:52,719
Speaker 4: about theory and putting it into practice, and you have

801
00:39:52,800 --> 00:39:56,160
Speaker 4: theories like independence is good and so forth, these ideas

802
00:39:56,239 --> 00:39:59,760
Speaker 4: you put in practice, he said, in reality the practice happened,

803
00:40:00,040 --> 00:40:01,640
Speaker 4: then you sort of form a theory around it. And

804
00:40:01,680 --> 00:40:04,920
Speaker 4: that we're in a moment of historical change for central

805
00:40:04,920 --> 00:40:09,360
Speaker 4: banks for many reasons, perhaps political right, populism. Politics is

806
00:40:09,480 --> 00:40:12,360
Speaker 4: changing that might change the nature of central banks. AI.

807
00:40:12,600 --> 00:40:15,719
Speaker 4: The extreme uncertainty of AI and how that's going to

808
00:40:15,760 --> 00:40:19,360
Speaker 4: affect the economy. That's a source of change. And therefore

809
00:40:19,640 --> 00:40:21,520
Speaker 4: central banks period are going to be in a new

810
00:40:21,560 --> 00:40:24,719
Speaker 4: period of like the old ways. Does it feel like,

811
00:40:25,120 --> 00:40:28,560
Speaker 4: whether the BA or general, that we're going to be

812
00:40:28,719 --> 00:40:32,080
Speaker 4: entering a new era of central banking per se?

813
00:40:32,600 --> 00:40:33,640
Speaker 6: Yeah, I think we already have.

814
00:40:33,840 --> 00:40:36,799
Speaker 7: In fairness, So I've spoken to some of my predecessors.

815
00:40:36,880 --> 00:40:39,399
Speaker 7: Kristin Forbes I saw recently, for example, and she said,

816
00:40:39,400 --> 00:40:41,520
Speaker 7: you're so lucky. My entire time on the NPC, I

817
00:40:41,600 --> 00:40:43,680
Speaker 7: never voted to change interest.

818
00:40:43,440 --> 00:40:45,680
Speaker 6: Rates at all. Oh my god, that's right. And now

819
00:40:45,840 --> 00:40:47,040
Speaker 6: I've seen it conceivable.

820
00:40:47,080 --> 00:40:47,920
Speaker 5: Now that's right.

821
00:40:48,000 --> 00:40:50,840
Speaker 7: And so I've seen a hiking cycle, a holding cycle,

822
00:40:50,880 --> 00:40:53,800
Speaker 7: and a cutting cycle, and who knows what comes next

823
00:40:54,320 --> 00:40:56,440
Speaker 7: off the back of this shock, And so I do

824
00:40:56,600 --> 00:41:00,160
Speaker 7: think that that has changed. But also, you know, I

825
00:41:00,160 --> 00:41:03,920
Speaker 7: think getting hit by successive shocks is just here to stay,

826
00:41:04,120 --> 00:41:07,000
Speaker 7: and I think you can identify some already. So if

827
00:41:07,040 --> 00:41:11,040
Speaker 7: economic state craft is how major world powers are going

828
00:41:11,080 --> 00:41:15,319
Speaker 7: to operate using economic tools for foreign policy goals, those

829
00:41:15,480 --> 00:41:19,319
Speaker 7: just represent negative supply shocks for someone, And so you know,

830
00:41:19,400 --> 00:41:22,240
Speaker 7: I think we will continue to have negative supply shocks,

831
00:41:22,239 --> 00:41:25,960
Speaker 7: whether it's terris or export controls or investment controls.

832
00:41:25,520 --> 00:41:26,320
Speaker 6: All these things.

833
00:41:26,719 --> 00:41:31,399
Speaker 7: And then climate change, whether it's physical risk or transition risk.

834
00:41:31,800 --> 00:41:35,279
Speaker 7: If it crystallizes, that represents a negative supply shock as well.

835
00:41:35,360 --> 00:41:37,120
Speaker 7: So we're no longer at a point where we can

836
00:41:37,200 --> 00:41:39,319
Speaker 7: kind of say, well, one day we might have some

837
00:41:39,360 --> 00:41:42,200
Speaker 7: of these things happen. I think we're already there. And

838
00:41:42,280 --> 00:41:44,359
Speaker 7: so this old adage that you should just look through

839
00:41:44,360 --> 00:41:46,680
Speaker 7: negative supply shocks because you can't address them directly, I

840
00:41:46,680 --> 00:41:49,640
Speaker 7: don't think it works when you keep having them wave

841
00:41:49,719 --> 00:41:52,920
Speaker 7: after wave. And I also think there's just a ton

842
00:41:53,000 --> 00:41:55,880
Speaker 7: of uncertainty now. A lot of economists feel like they

843
00:41:55,920 --> 00:42:00,000
Speaker 7: had a framework for understanding how the global economy works,

844
00:42:00,239 --> 00:42:03,400
Speaker 7: and it doesn't work anymore, but no one's quite identified

845
00:42:03,440 --> 00:42:06,000
Speaker 7: the new one. And so in an age when you

846
00:42:06,080 --> 00:42:09,320
Speaker 7: have this much uncertainty, you need to stop thinking about

847
00:42:09,320 --> 00:42:12,239
Speaker 7: your very specific forecast where you do get out whether

848
00:42:12,280 --> 00:42:16,160
Speaker 7: inflations point two percentage points higher or lower in year

849
00:42:16,239 --> 00:42:19,080
Speaker 7: three of your forecast. It's kind of neither here nor there.

850
00:42:19,520 --> 00:42:22,719
Speaker 7: It's much more about kind of scenario analysis and risk

851
00:42:22,760 --> 00:42:26,680
Speaker 7: management when you're making decisions about interest rates. So figuring

852
00:42:26,719 --> 00:42:28,719
Speaker 7: out if we thought we were in this state of

853
00:42:28,760 --> 00:42:30,919
Speaker 7: the world and it turns out we're in a different one,

854
00:42:31,040 --> 00:42:33,759
Speaker 7: how bad could we mess that up? And how do

855
00:42:33,800 --> 00:42:36,520
Speaker 7: we minimize some of those costs? And that's a different

856
00:42:36,520 --> 00:42:38,960
Speaker 7: way of thinking I think about central banking than what

857
00:42:39,000 --> 00:42:39,960
Speaker 7: we had in the past.

858
00:42:40,239 --> 00:42:43,200
Speaker 2: I mean, other than scenario analysis, is there anything else

859
00:42:43,200 --> 00:42:45,960
Speaker 2: that central bankers should do in order to deal with

860
00:42:46,280 --> 00:42:48,960
Speaker 2: supply shocks? Because this was a theme post COVID in

861
00:42:49,000 --> 00:42:52,040
Speaker 2: the US, this idea that the FED only has an

862
00:42:52,040 --> 00:42:55,120
Speaker 2: interest rate, and interest rate is not a particularly adepth

863
00:42:55,160 --> 00:42:57,920
Speaker 2: tool at dealing with the supply side. As you said earlier,

864
00:42:58,160 --> 00:43:02,000
Speaker 2: central bankers are often you know, they're very much trained

865
00:43:02,040 --> 00:43:04,640
Speaker 2: and focused on dealing with the demand side, not necessarily

866
00:43:04,719 --> 00:43:06,719
Speaker 2: the supply side of the equation. And part of that

867
00:43:06,800 --> 00:43:09,640
Speaker 2: is because they don't necessarily have the right tools.

868
00:43:09,719 --> 00:43:11,960
Speaker 7: Yeah, we don't really have the right tools.

869
00:43:12,000 --> 00:43:14,640
Speaker 2: So we've got what we've got to get tools, just

870
00:43:14,640 --> 00:43:15,320
Speaker 2: what I'm asking.

871
00:43:15,520 --> 00:43:17,000
Speaker 6: Yeah, it's a good question.

872
00:43:17,239 --> 00:43:21,320
Speaker 7: I think probably if you're making decisions about the supply

873
00:43:21,400 --> 00:43:24,280
Speaker 7: side of the economy, often that comes down to questions

874
00:43:24,320 --> 00:43:27,520
Speaker 7: about who choosing winners and losers. And that's not what

875
00:43:27,960 --> 00:43:30,920
Speaker 7: independent central banks are here for. That's what elected politicians

876
00:43:30,960 --> 00:43:33,880
Speaker 7: are there for. So I think some of these solutions

877
00:43:33,920 --> 00:43:36,520
Speaker 7: have to come from elected officials and not from central

878
00:43:36,560 --> 00:43:40,279
Speaker 7: banks at all. But understanding that it's the multiplicative effects

879
00:43:40,280 --> 00:43:43,200
Speaker 7: of multiple supply shocks rather than just looking at them

880
00:43:43,239 --> 00:43:46,920
Speaker 7: in concert, is important. And also, you know, we look

881
00:43:46,920 --> 00:43:50,520
Speaker 7: at decompositions of inflation over the past, and you can't

882
00:43:50,520 --> 00:43:53,600
Speaker 7: explain them all using standard channels. There's just kind of

883
00:43:53,600 --> 00:43:56,520
Speaker 7: a wedge, and sometimes that's a judgment that we've made,

884
00:43:57,440 --> 00:44:00,279
Speaker 7: and sometimes it's just an unknown. But being a bit

885
00:44:00,320 --> 00:44:03,200
Speaker 7: more curious about these wedges, why haven't things panned out

886
00:44:03,360 --> 00:44:05,480
Speaker 7: in a way that we can perfectly explain. Maybe there's

887
00:44:05,520 --> 00:44:09,239
Speaker 7: something else going on because of these supply shocks. I

888
00:44:09,239 --> 00:44:11,000
Speaker 7: think there's a lot of work to be done in

889
00:44:11,000 --> 00:44:11,759
Speaker 7: that area too.

890
00:44:12,200 --> 00:44:16,360
Speaker 2: You also mentioned communicating how the central Bank, how the

891
00:44:16,360 --> 00:44:18,440
Speaker 2: BOE is thinking to the market, and I guess to

892
00:44:18,480 --> 00:44:23,520
Speaker 2: households as well. We might have a new FED governor

893
00:44:24,120 --> 00:44:27,040
Speaker 2: very very soon, in the form of Kevin Walsh, and

894
00:44:27,280 --> 00:44:29,040
Speaker 2: he is, as far as I can tell, not a

895
00:44:29,040 --> 00:44:30,440
Speaker 2: fan of forward guidance.

896
00:44:30,560 --> 00:44:31,720
Speaker 3: I think that's fair to say.

897
00:44:32,280 --> 00:44:34,840
Speaker 2: Someone pedantic is going to point out that the FED

898
00:44:34,880 --> 00:44:38,440
Speaker 2: may already have abandoned forward guidance of the bond market

899
00:44:38,560 --> 00:44:40,480
Speaker 2: based off of what happened in twenty twenty two. But

900
00:44:40,560 --> 00:44:44,320
Speaker 2: if we got a more formalized abandonment of forward guidance,

901
00:44:44,960 --> 00:44:47,200
Speaker 2: does that make your job at the BOE a lot

902
00:44:47,239 --> 00:44:50,240
Speaker 2: more difficult if you're trying to judge those spillover effects

903
00:44:50,280 --> 00:44:51,440
Speaker 2: from US bonds.

904
00:44:51,760 --> 00:44:56,239
Speaker 7: So I think we don't understand the spillovers just from

905
00:44:56,400 --> 00:44:59,160
Speaker 7: what the FED is saying about them. We're also looking

906
00:44:59,239 --> 00:45:01,560
Speaker 7: at the us AC to me and the fundamentals, So

907
00:45:02,360 --> 00:45:04,799
Speaker 7: Ford guidance has its place. I think you don't need

908
00:45:04,840 --> 00:45:06,520
Speaker 7: it all the time. I don't think that means we

909
00:45:06,560 --> 00:45:09,360
Speaker 7: won't understand what's happening in the US economy and therefore

910
00:45:09,400 --> 00:45:11,840
Speaker 7: how that might spill over into the UK economy. I

911
00:45:11,840 --> 00:45:15,200
Speaker 7: think they're just different approaches on this stuff.

912
00:45:15,360 --> 00:45:18,720
Speaker 2: So if I look over the whole of this conversation.

913
00:45:19,400 --> 00:45:22,960
Speaker 2: You're talking a lot about being wary of inflationary risks,

914
00:45:23,120 --> 00:45:25,759
Speaker 2: and we talked about maybe the public and companies being

915
00:45:25,800 --> 00:45:29,040
Speaker 2: more prime towards inflationary risks than they were previously.

916
00:45:30,000 --> 00:45:33,359
Speaker 3: Why why did you vote to hold rights last week?

917
00:45:33,400 --> 00:45:33,880
Speaker 6: Why don't you?

918
00:45:34,640 --> 00:45:38,000
Speaker 7: Yeah, yeah, you know, I think given that it will

919
00:45:38,040 --> 00:45:41,120
Speaker 7: take too long to get evidence for second round effects

920
00:45:41,120 --> 00:45:43,760
Speaker 7: to actually address them, I think that's a fair question.

921
00:45:44,080 --> 00:45:46,120
Speaker 7: You know, if you don't hike now, then when are

922
00:45:46,160 --> 00:45:49,480
Speaker 7: you going to? To my mind, a big contribution was

923
00:45:49,520 --> 00:45:51,360
Speaker 7: that we are going to get some news over the

924
00:45:51,400 --> 00:45:53,160
Speaker 7: next six weeks or so, but you know, over the

925
00:45:53,160 --> 00:45:55,640
Speaker 7: next couple of months, and a lot of that news

926
00:45:55,680 --> 00:45:58,719
Speaker 7: will not be definitive evidence of second round effects, but

927
00:45:58,719 --> 00:46:02,000
Speaker 7: it will be evidence about energy prices, which are a

928
00:46:02,040 --> 00:46:05,279
Speaker 7: big feed into what's going on with the economy and

929
00:46:05,320 --> 00:46:08,120
Speaker 7: with inflation. So, is there a state of the world

930
00:46:08,320 --> 00:46:11,920
Speaker 7: in which restrictiveness that we already have in our monetary

931
00:46:11,960 --> 00:46:15,160
Speaker 7: policy stance because we are restrictive, I think, just not

932
00:46:15,320 --> 00:46:17,520
Speaker 7: hugely so. But is there a state of the world

933
00:46:17,560 --> 00:46:20,960
Speaker 7: in which, actually, if the war ended tomorrow, the strait

934
00:46:21,000 --> 00:46:24,960
Speaker 7: of Hormos opened up completely? Whether that restrictiveness could squeeze

935
00:46:24,960 --> 00:46:26,879
Speaker 7: out the second round effects that have already been.

936
00:46:26,840 --> 00:46:28,440
Speaker 6: Kicked off by this crisis.

937
00:46:28,480 --> 00:46:30,880
Speaker 7: I think it's I think it's defensible to think that

938
00:46:31,040 --> 00:46:34,320
Speaker 7: possibly there are In my view, the risk is entirely

939
00:46:34,360 --> 00:46:36,880
Speaker 7: on the upside, though there's kind of ratchet here. I

940
00:46:36,960 --> 00:46:39,719
Speaker 7: think the risk to energy prices and also second round

941
00:46:39,719 --> 00:46:42,440
Speaker 7: effects are probably on the upside.

942
00:46:42,040 --> 00:46:43,200
Speaker 6: Rather than the downside.

943
00:46:43,200 --> 00:46:45,600
Speaker 7: But I do think that it's worth waiting for a

944
00:46:45,640 --> 00:46:48,320
Speaker 7: little while to see kind of what happens with the

945
00:46:48,360 --> 00:46:51,560
Speaker 7: progression of this war and therefore see what we can

946
00:46:51,600 --> 00:46:54,480
Speaker 7: infer about how it will propagate through the economy before

947
00:46:54,680 --> 00:46:55,359
Speaker 7: we make a move.

948
00:46:55,880 --> 00:46:57,719
Speaker 3: Maga, it was so great to catch up with you.

949
00:46:58,320 --> 00:46:59,960
Speaker 3: Congrats on the new rule.

950
00:47:00,160 --> 00:47:01,799
Speaker 2: I know we're a little bit late to it, but

951
00:47:01,880 --> 00:47:04,320
Speaker 2: it was really great to be able to actually ask.

952
00:47:04,120 --> 00:47:05,799
Speaker 3: You all the questions about what you're doing right now.

953
00:47:05,920 --> 00:47:07,520
Speaker 6: Yeah, thanks for having me. It's great to see.

954
00:47:07,640 --> 00:47:08,520
Speaker 4: Yeah, thank you so much.

955
00:47:08,560 --> 00:47:23,000
Speaker 5: That was great, Joe, that was really fun.

956
00:47:23,719 --> 00:47:26,040
Speaker 2: I have to say I'm a little bit jealous that

957
00:47:26,080 --> 00:47:28,640
Speaker 2: Meghan probably has like a really nice office at the

958
00:47:28,680 --> 00:47:30,680
Speaker 2: Bank of England, the building I know.

959
00:47:30,880 --> 00:47:33,080
Speaker 4: In the Bank of England. Bank of England, I know

960
00:47:33,160 --> 00:47:34,520
Speaker 4: that would be a pretty sweet job.

961
00:47:34,640 --> 00:47:36,560
Speaker 2: I think I'm going to go through like my entire

962
00:47:36,600 --> 00:47:40,040
Speaker 2: career without ever having my own office in a building.

963
00:47:40,280 --> 00:47:43,680
Speaker 4: I know me too. It's I'm like, I love my

964
00:47:43,800 --> 00:47:47,440
Speaker 4: job and I'm going to leave it at that. It

965
00:47:47,480 --> 00:47:49,480
Speaker 4: would be nice to one day just like have an

966
00:47:49,520 --> 00:47:51,200
Speaker 4: office with a door and all that stuff.

967
00:47:51,200 --> 00:47:54,200
Speaker 2: But there are a bunch of interesting things to pick

968
00:47:54,239 --> 00:47:57,480
Speaker 2: out of that conversation. I mean, I thought her point

969
00:47:57,640 --> 00:48:00,720
Speaker 2: about the emphasis of central banks and cans in general

970
00:48:00,719 --> 00:48:04,239
Speaker 2: on the demand side historically versus the supply side kind

971
00:48:04,280 --> 00:48:08,680
Speaker 2: of captures a lot of the struggle that policymakers have

972
00:48:08,760 --> 00:48:12,520
Speaker 2: had with the post COVID economy. Right, Like all of

973
00:48:12,600 --> 00:48:16,080
Speaker 2: economics is very much focused on the idea of like, well,

974
00:48:16,080 --> 00:48:19,279
Speaker 2: you need a healthy consumer who's spending right and going

975
00:48:19,280 --> 00:48:22,360
Speaker 2: out and buying stuff, versus like thinking about those supply

976
00:48:22,520 --> 00:48:23,280
Speaker 2: side shocks.

977
00:48:23,520 --> 00:48:25,400
Speaker 4: I think she made a really good point, which is

978
00:48:25,760 --> 00:48:30,239
Speaker 4: it does seem at least theoretically possible to truly have

979
00:48:31,480 --> 00:48:34,600
Speaker 4: one supply shock after another, and they really are just

980
00:48:34,680 --> 00:48:38,320
Speaker 4: independent supply shocks, right that at least it's conceivably possible.

981
00:48:38,400 --> 00:48:42,000
Speaker 4: A pandemic is not the same thing as a war

982
00:48:42,160 --> 00:48:44,800
Speaker 4: here as a war there at the work they could

983
00:48:44,840 --> 00:48:47,759
Speaker 4: be discrete events. The sort of money line for me

984
00:48:48,000 --> 00:48:51,880
Speaker 4: when she said, with the rise of economics, takecraft and

985
00:48:51,960 --> 00:48:56,800
Speaker 4: if once governments start using economic tools as foreign policy,

986
00:48:57,160 --> 00:49:01,360
Speaker 4: and once that cycle gets going, then there begin to

987
00:49:01,440 --> 00:49:05,040
Speaker 4: be reasons to think that these discrete one off supply

988
00:49:05,120 --> 00:49:07,080
Speaker 4: shocks are not just going to be things that are

989
00:49:07,120 --> 00:49:09,520
Speaker 4: one and done, but that are part of a sustained

990
00:49:09,560 --> 00:49:12,839
Speaker 4: new part of the world that consistent. And you see

991
00:49:12,840 --> 00:49:15,200
Speaker 4: this obviously, I mean, the tariffs are one part of it,

992
00:49:15,520 --> 00:49:18,080
Speaker 4: but all of the moves that we talk to about

993
00:49:18,440 --> 00:49:23,799
Speaker 4: reshoring and strategic domestic investments for backup capacity, et cetera,

994
00:49:24,200 --> 00:49:27,799
Speaker 4: this is like what constitutes a sustained trend. And so

995
00:49:28,200 --> 00:49:30,560
Speaker 4: I thought it was really just overall very interesting to

996
00:49:30,640 --> 00:49:34,200
Speaker 4: hear someone like really wrestle with the reality of conducting

997
00:49:34,280 --> 00:49:40,680
Speaker 4: milnetary policy in a period of sustained supply side degradation

998
00:49:41,000 --> 00:49:41,960
Speaker 4: shocks what have you.

999
00:49:42,280 --> 00:49:45,120
Speaker 2: And then the question of course is if the Central

1000
00:49:45,120 --> 00:49:48,799
Speaker 2: Bank is not the right entity to deal with these

1001
00:49:48,800 --> 00:49:52,640
Speaker 2: supply side shocks, like should it given its existing tools

1002
00:49:52,640 --> 00:49:55,480
Speaker 2: which we touched on, like should it have new tools?

1003
00:49:55,719 --> 00:49:58,600
Speaker 2: I mean, a lot of people would say no, because

1004
00:49:58,960 --> 00:50:02,080
Speaker 2: that's veering in fiscal and you want governments to decide that,

1005
00:50:02,160 --> 00:50:05,560
Speaker 2: and democratically elected governments to decide that.

1006
00:50:06,080 --> 00:50:08,319
Speaker 3: But on the other hand, like if it.

1007
00:50:08,360 --> 00:50:14,320
Speaker 2: Keeps happening, it also feels somehow unsatisfactory to just say like, well, we're.

1008
00:50:14,120 --> 00:50:16,040
Speaker 3: Going to have to deal with this with like the

1009
00:50:16,160 --> 00:50:17,000
Speaker 3: existing tool case.

1010
00:50:17,120 --> 00:50:19,840
Speaker 4: Yeah, and also again, but it really does cut straight

1011
00:50:19,880 --> 00:50:22,840
Speaker 4: to the core of what we want in a democratic society.

1012
00:50:22,920 --> 00:50:25,120
Speaker 4: You could say, you know what part of the reason

1013
00:50:25,200 --> 00:50:30,319
Speaker 4: we have declining productivity is because regulations on setting up

1014
00:50:30,320 --> 00:50:33,440
Speaker 4: a new factory are burdens zoom. Do we want non

1015
00:50:33,480 --> 00:50:37,160
Speaker 4: elected officials deciding, oh, you know what, we're going to

1016
00:50:37,239 --> 00:50:40,400
Speaker 4: change environmental regulations, We're going to change the minimum wage,

1017
00:50:40,600 --> 00:50:44,520
Speaker 4: We're going to change the protected habitat speech, Like most

1018
00:50:44,560 --> 00:50:47,880
Speaker 4: people would be very uncomfortable with the d We're going

1019
00:50:47,920 --> 00:50:51,719
Speaker 4: to change household zoning so that there could be construction lending. Sure,

1020
00:50:51,719 --> 00:50:54,120
Speaker 4: most people would get really uncomfortable about what it would

1021
00:50:54,160 --> 00:50:57,920
Speaker 4: mean for the Central Bank to have the capacity to

1022
00:50:57,960 --> 00:50:59,200
Speaker 4: address supply side problems.

1023
00:50:59,239 --> 00:51:01,080
Speaker 2: But I think the other point is like, maybe there

1024
00:51:01,120 --> 00:51:03,760
Speaker 2: are more creative ways of doing it that we haven't

1025
00:51:03,760 --> 00:51:06,920
Speaker 2: even thought of yet. So for instance, like could you

1026
00:51:06,960 --> 00:51:10,480
Speaker 2: do monetary policy on a weekly basis versus like a

1027
00:51:10,560 --> 00:51:11,400
Speaker 2: monthly decision?

1028
00:51:11,400 --> 00:51:11,480
Speaker 4: No?

1029
00:51:11,600 --> 00:51:14,440
Speaker 2: Seriously, if like, if the entire world is changing on

1030
00:51:14,480 --> 00:51:17,120
Speaker 2: a week to week basis, maybe you need to start

1031
00:51:17,160 --> 00:51:20,359
Speaker 2: like making these decisions and like, yeah, I don't know.

1032
00:51:20,800 --> 00:51:23,960
Speaker 2: My point is like there may be creative solutions out

1033
00:51:23,960 --> 00:51:25,360
Speaker 2: there that we haven't even thought about.

1034
00:51:25,960 --> 00:51:27,960
Speaker 4: Well, let's get on that.

1035
00:51:28,200 --> 00:51:30,560
Speaker 5: Let's get up, all right, shall we leave it there?

1036
00:51:30,640 --> 00:51:31,319
Speaker 4: Let's leave it there.

1037
00:51:31,440 --> 00:51:33,960
Speaker 2: This has been another episode of the Authoughts podcast. I'm

1038
00:51:34,000 --> 00:51:36,800
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.

1039
00:51:36,440 --> 00:51:38,640
Speaker 4: And I'm Jill Isn't that You can follow me at

1040
00:51:38,640 --> 00:51:42,280
Speaker 4: the Stalwart. Follow our producers Carmen Rodriguez at Carmen armand

1041
00:51:42,320 --> 00:51:45,400
Speaker 4: Dash Oll Bennett at Dashbod kel Brooks at Kelbrooks, and

1042
00:51:45,480 --> 00:51:48,399
Speaker 4: Kevin Lozano at Kevin Lloyd Lozano and from our Odd

1043
00:51:48,440 --> 00:51:51,040
Speaker 4: Lags content. Go to Bloomberg dot com slash odd lotch

1044
00:51:51,080 --> 00:51:53,480
Speaker 4: for with a daily newsletter in all of our episodes,

1045
00:51:53,640 --> 00:51:55,680
Speaker 4: and you could shout about all these topics twenty four

1046
00:51:55,719 --> 00:51:59,240
Speaker 4: seven in our discord Discord dot gg slash odd.

1047
00:51:59,160 --> 00:52:01,800
Speaker 2: Lots and if you enjoy all thoughts, If you'd like

1048
00:52:01,880 --> 00:52:03,879
Speaker 2: it when we talk to central bankers, then please leave

1049
00:52:03,960 --> 00:52:07,480
Speaker 2: us a positive review on your favorite podcast platform. And remember,

1050
00:52:07,520 --> 00:52:09,759
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1051
00:52:09,880 --> 00:52:12,600
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1053
00:52:15,000 --> 00:52:16,359
Speaker 2: and follow the instructions there.

1054
00:52:16,760 --> 00:52:17,560
Speaker 3: Thanks for listening.