WEBVTT - Surveillance: Central Banks Wake Up 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brawmowitz Jay Lee, we bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.240 dot com, and of course, on the Bloomberg terminal. Jean 0:00:29.320 --> 0:00:31.040 Bavaan with us now the head of the black Rock 0:00:31.120 --> 0:00:35.360 Investment Institute. John, I've been following your research. You're writing, 0:00:35.479 --> 0:00:37.320 you know I do, and I'm pleased you writing on 0:00:37.400 --> 0:00:39.400 something that I don't think enough people are thinking about 0:00:39.600 --> 0:00:43.240 the appropriate time horizon to bring inflation back to target 0:00:43.720 --> 0:00:47.280 with the circumstances to backdrop that we have at the moment, John, 0:00:47.320 --> 0:00:49.360 What is it? And why aren't we talking enough about it? 0:00:51.320 --> 0:00:53.280 There used to be I'm all school, I guess, but 0:00:53.320 --> 0:00:56.200 there used to be a two key principles under lying 0:00:56.280 --> 0:00:58.880 monetary policy. One was that, you know, you need to 0:00:58.920 --> 0:01:01.680 be thoughtful about the link with tradeoffs and being deliberate 0:01:01.680 --> 0:01:05.360 around that, and the other was about being forward looking. Um. 0:01:05.400 --> 0:01:07.960 Those two principles seem to be pretty much absent from 0:01:08.000 --> 0:01:10.240 the current discussion. UM, and I think that speaks to 0:01:10.240 --> 0:01:14.480 the horizons. Here we're dealing with a massive shock that 0:01:14.680 --> 0:01:18.160 is more of a supply and nature, and that leads 0:01:18.200 --> 0:01:20.440 to uh, you know, you just we're just talking about 0:01:20.440 --> 0:01:22.480 how much GDP cost we need to go through. We 0:01:22.560 --> 0:01:25.600 think the g because it's pretty significant if we want 0:01:25.600 --> 0:01:28.400 to bring inflation down to too quickly. It's a two 0:01:28.400 --> 0:01:31.200 percent of GDP UM, you know, recession type we need 0:01:31.280 --> 0:01:34.440 to to go to in in in short order. Um. 0:01:34.480 --> 0:01:38.400 That's a very brutal cost. And nowhere in the discussion 0:01:38.480 --> 0:01:41.560 right now you see this explicitly being acknowledged, being discussed 0:01:41.640 --> 0:01:43.320 or hearing from Central Bengal. And how do you want 0:01:43.360 --> 0:01:46.399 to navigate that? You know, we used to think that 0:01:46.600 --> 0:01:48.320 in the face of the shock, you would take longer 0:01:48.320 --> 0:01:50.600 to bring inflation back to target. Nobody is really making 0:01:50.640 --> 0:01:52.560 this argument, Jean, I want you to talk about the 0:01:52.600 --> 0:01:56.040 asymmetry is there of strong dollar versus week doll? Now 0:01:56.080 --> 0:01:57.840 we have strong dollar. I'm not going to ask you 0:01:57.920 --> 0:02:02.040 for a level and your Canada and loney one thirty two, 0:02:02.400 --> 0:02:06.240 but one is the asymmetric differences of a bold strong 0:02:06.360 --> 0:02:10.000 dollar versus a week dollar. Reality, we don't have that 0:02:10.120 --> 0:02:14.079 right now. We have strong dollar. It seems new. Yeah, 0:02:14.080 --> 0:02:16.079 I think, I think, you know. I mean we always 0:02:16.080 --> 0:02:17.920 break that down in terms of what we think is 0:02:17.919 --> 0:02:20.560 that the key driver think of the currency being driven 0:02:20.639 --> 0:02:24.040 typically by two broad regimes. In my view, one is uh, 0:02:24.200 --> 0:02:27.680 interest rate differentials and the other is um the broad 0:02:27.800 --> 0:02:32.040 risk on risk of global sentiment. Um. I think we're 0:02:32.040 --> 0:02:35.119 in a world now that is mostly driven by overall 0:02:35.639 --> 0:02:39.280 risk sentiments. So I see the gyration being about whether 0:02:39.360 --> 0:02:41.920 we are we are risk averse, which tends to bid 0:02:42.120 --> 0:02:44.839 provide a bid to the US dollar, and that when 0:02:44.880 --> 0:02:47.760 that wins, we see some weekending. So I think we 0:02:47.800 --> 0:02:50.120 haven't seen the full implication of this world yet. The 0:02:50.160 --> 0:02:53.360 pressure is gonna put globally um. Um. You know Canada 0:02:53.400 --> 0:02:56.200 is one place, but like emerging markets um, so that 0:02:56.240 --> 0:02:58.919 hasn't really played out yet. Um. And I think that's 0:02:59.560 --> 0:03:01.480 that's where here. I wanted to go there because Ozzie 0:03:01.639 --> 0:03:03.920 and is out wanting to have standard deviations, which is 0:03:03.919 --> 0:03:07.600 a rare occurrence. Tell me of the Pacific rim risks 0:03:07.639 --> 0:03:10.760 that we face now or are they in some way 0:03:10.840 --> 0:03:16.200 protected from the tumult in the Western world? Uh? No, 0:03:16.200 --> 0:03:18.799 no one is protected, but I think there's there's own 0:03:18.880 --> 0:03:22.600 grown kind of headwinds right that we see. Uh, you know, 0:03:22.680 --> 0:03:25.440 we were just talking about lockdowns in China, so the 0:03:26.040 --> 0:03:29.160 poll of growth there, it certainly has been challenged. We've 0:03:29.200 --> 0:03:31.800 we've been neutral on on the region for for some 0:03:31.880 --> 0:03:34.760 time now as a result of this um and I 0:03:34.800 --> 0:03:38.600 think a global recession or slowdown that would be significant. 0:03:38.960 --> 0:03:41.880 We'll have some rippling effect there as well. So I 0:03:41.920 --> 0:03:44.600 think we see these the part of the transmission of 0:03:44.680 --> 0:03:49.600 the slowdown through the impact call of growth. It is 0:03:49.640 --> 0:03:51.960 your good morning from London. What are they? Good afternoon? 0:03:52.000 --> 0:03:54.080 Even now it's time catching up with me. What are 0:03:54.120 --> 0:03:56.280 the monetary policy lags that we need to keep in 0:03:56.320 --> 0:03:58.880 mind when you're talking about the tining of policy as 0:03:58.920 --> 0:04:01.640 you are there and talking about the time horizons ever 0:04:01.720 --> 0:04:04.560 which we should be correcting inflation. What are the lags 0:04:04.560 --> 0:04:06.640 in policy that you have in focus? I mean, I'm 0:04:06.640 --> 0:04:11.360 thinking here about the US, so so we in general, 0:04:11.640 --> 0:04:13.800 I think we're still in the world where like monetary 0:04:13.840 --> 0:04:16.479 policy works with at least like you know, a year 0:04:16.600 --> 0:04:19.919 to two year of like eighteen months is the is 0:04:19.920 --> 0:04:22.280 the number you would get from typically if you pin 0:04:22.400 --> 0:04:25.000 me you to one number. I think that still is 0:04:25.040 --> 0:04:28.040 the case in this one and I would argue that um, 0:04:28.080 --> 0:04:32.000 it might be even more delayed because the interest rate 0:04:32.040 --> 0:04:33.599 here is not the cure for the source of the 0:04:33.640 --> 0:04:37.599 inflation we're we're experiencing. UM. So we will need to 0:04:37.800 --> 0:04:40.880 basically crush the interest rate, since it'sive part of the economy, 0:04:40.920 --> 0:04:43.559 which is not the culprit of the inflation at this point, 0:04:43.920 --> 0:04:47.720 to really upset the other inflation pressures. And so that 0:04:47.760 --> 0:04:49.680 needs to work its way through the system. None of 0:04:49.680 --> 0:04:54.080 the rate heights we've seen so far are really containing inflation. 0:04:54.120 --> 0:04:55.960 We're getting now to the phase where it's going to 0:04:56.000 --> 0:04:58.600 be restrictive. It will have an impact, but that's gonna 0:04:58.600 --> 0:05:01.840 be about the twenty tw our story really, UM. And 0:05:01.880 --> 0:05:04.560 that's why I think we see a lot of optics 0:05:04.600 --> 0:05:07.800 of central bank talking tough on inflation. But this is 0:05:07.800 --> 0:05:11.159 really optics and politics ventilation, not really the economics of inflation. 0:05:11.320 --> 0:05:13.520 So Sean, let's talk about what it would take for 0:05:13.560 --> 0:05:16.440 you to get bullish on the security market. San, What 0:05:16.480 --> 0:05:20.200 you need to say, we need to see a couple 0:05:20.200 --> 0:05:24.520 of things. Right. I think now we're equities UH and 0:05:24.800 --> 0:05:29.360 UH generally are reflecting a path of policy tightening UH 0:05:29.440 --> 0:05:31.680 that is more than is in line with what we 0:05:31.760 --> 0:05:35.360 think will materialize. So um, you know, Jackson hole as 0:05:35.440 --> 0:05:38.480 I think crush any hopes of backing off from hiking 0:05:38.480 --> 0:05:41.880 intention soon. I think equities are starting to reflect that properly. 0:05:42.200 --> 0:05:44.560 The part of is not yet in the price is 0:05:44.800 --> 0:05:48.360 um the earnings story. And you know, we think we're 0:05:48.360 --> 0:05:51.799 gonna see a recession early twenty twenty three, uh in 0:05:51.800 --> 0:05:55.440 in the US, but it's it's happening earlier and deeper 0:05:55.480 --> 0:05:58.240 in Europe and that is not reflected in the in 0:05:58.279 --> 0:06:00.480 the eity price. So to be to turn in bullish, 0:06:00.480 --> 0:06:02.240 which will be the big call to make over the 0:06:02.240 --> 0:06:04.480 next few months, is when we're gonna gonna be able 0:06:04.520 --> 0:06:07.560 to start to look through the size of this reception. 0:06:07.600 --> 0:06:10.280 I have more handle on this. And the second is 0:06:10.320 --> 0:06:12.840 when we get to the point where we get some 0:06:12.880 --> 0:06:15.679 sense that central banks are waking up to the damage 0:06:15.680 --> 0:06:17.560 that has been caused and are starting to take that 0:06:17.560 --> 0:06:19.160 into account. So what are we gonna see to see 0:06:19.240 --> 0:06:21.640 start to see sign of that. I think will be 0:06:21.800 --> 0:06:24.440 now in a position to really talk about a version 0:06:24.440 --> 0:06:27.240 of a pivot or slowing down or stopping. And when 0:06:27.240 --> 0:06:29.360 we once we have visibility on this, then I think 0:06:29.480 --> 0:06:32.039 that's gonna be a more positive, backrupt and will catch 0:06:32.120 --> 0:06:35.200 up soon on it. John, really deeply thoughtful stuff. We 0:06:35.240 --> 0:06:49.560 appreciate it. Jomp Off on that Flee flank Rock Investment Institute. 0:06:50.040 --> 0:06:52.720 It is a crisis in Germany, it is a crisis, 0:06:52.720 --> 0:06:56.039 and Edwards, United Kingdom, and it goes to is John 0:06:56.080 --> 0:07:01.719 mentioned the grid Francisco Blanche. I've seen endless, endless studies Davos. 0:07:01.880 --> 0:07:04.400 You could fill up the promenade with all the fancy 0:07:04.440 --> 0:07:08.120 studies about what to do. Why can't we fix this 0:07:08.440 --> 0:07:12.880 energy crisis? Why can't we fix the global grid of 0:07:12.960 --> 0:07:21.000 electricity and hydrocarbons? Well, Uh, Tom, You've you've kind of 0:07:21.000 --> 0:07:22.920 burning a lot of issues into a single question. But 0:07:22.960 --> 0:07:25.760 I think I think the best answer that I can 0:07:25.800 --> 0:07:29.160 give you is the uncertainty that we have created in 0:07:29.280 --> 0:07:32.680 terms of what the future demand for energy looks like. UM. 0:07:33.080 --> 0:07:36.640 If you if you start with the international energy agencies 0:07:36.760 --> 0:07:42.200 UH scenarios for for the conronization, UM, there's a huge 0:07:42.200 --> 0:07:46.320 gap between the business as usual scenario, the aggressive scenario, 0:07:46.640 --> 0:07:49.480 or the zero scenario. And it's really hard to tell 0:07:49.520 --> 0:07:53.680 which way we're gonna go into whether global coal demand 0:07:53.720 --> 0:07:55.480 is going to collapse or maybe it's going to hold 0:07:55.480 --> 0:07:57.800 in a little bit or maybe oil demand will collapse 0:07:57.880 --> 0:08:01.080 or maybe won't. And I think, um, the same thing 0:08:01.120 --> 0:08:03.520 applies to electricity, right, Um, so all that's kind of 0:08:03.560 --> 0:08:06.240 really different, making it very difficult for companies to make 0:08:06.280 --> 0:08:09.320 a decision and in terms of how to allocate their capital. 0:08:09.480 --> 0:08:12.240 And then of course we've had the Russia Ukraine situation 0:08:12.320 --> 0:08:15.680 which has made things a lot worse. UM surveillance research 0:08:15.760 --> 0:08:19.080 Francisco is that you and Sevita Supermanian are actually on 0:08:19.200 --> 0:08:22.960 speaking terms at Bank of America. She has provides stunning 0:08:23.080 --> 0:08:27.200 leadership in the quantitative aspects of E s G. When 0:08:27.200 --> 0:08:29.400 you have a cup of coffee with her, can you 0:08:29.480 --> 0:08:32.120 state that E s G is here to stay or 0:08:32.200 --> 0:08:36.800 is it dead? With the war in Ukraine? Look, I 0:08:36.679 --> 0:08:38.280 mean I think he s she is here to stay 0:08:38.960 --> 0:08:41.559 in most people's minds. I think that's true for investors, 0:08:41.679 --> 0:08:45.520 true for governments, which which I think ultimately means for 0:08:45.559 --> 0:08:47.960 a lot of a lot of the pieces of the 0:08:48.040 --> 0:08:50.360 energy sector you're talking about, like how how you fix them, 0:08:50.520 --> 0:08:51.959 I think you're gonna have to end up with a 0:08:52.040 --> 0:08:55.440 lot more government involvement. We've seen it already in Germany 0:08:55.440 --> 0:08:59.240 and in France with with the takeover of UNIPAWER and 0:08:59.520 --> 0:09:01.719 e d F. I think we'll see just a lot 0:09:01.760 --> 0:09:05.920 more participation of governments generally. Um Even when you look 0:09:05.920 --> 0:09:09.480 at oil and gas investments OPEC this time around, particularly 0:09:09.559 --> 0:09:13.720 the Gulf Corporation Council countries have actually been leading investment 0:09:13.760 --> 0:09:16.360 reactive to other parts of the world. Um So, so 0:09:16.400 --> 0:09:18.000 I think I think governments are just going to get 0:09:18.000 --> 0:09:20.360 a lot more involved in in the energy space on 0:09:20.360 --> 0:09:24.120 on a forward basis um to to essentially get us 0:09:24.120 --> 0:09:26.600 through the current mess. Francisco, do you think climate change 0:09:26.640 --> 0:09:29.000 has become a convenient excuse for some of the challenge 0:09:29.000 --> 0:09:31.400 which we faced right now when a lot of it 0:09:31.480 --> 0:09:34.360 is about investment and lack thereof a lack of planning. 0:09:34.720 --> 0:09:36.440 And I understand we've had a big shock this year, 0:09:37.160 --> 0:09:39.320 but I think that's a convenient excuse in the minds 0:09:39.320 --> 0:09:42.040 of many people Francisco, that we've tried to transition too fast, 0:09:42.080 --> 0:09:45.520 too quickly and move away from fossil fuels without a 0:09:45.520 --> 0:09:51.040 more resilient plan in place. Which one is it? Look? 0:09:51.040 --> 0:09:54.480 I mean, I think I think the the climate change 0:09:54.720 --> 0:09:57.520 data that we're getting every day really points to the 0:09:57.640 --> 0:10:00.800 urgency of doing something about the carbonate missions that we 0:10:00.880 --> 0:10:03.760 have on on a daily basis. We are warming up 0:10:03.760 --> 0:10:06.040 the planet very quickly, and we've seen that in Pakistan 0:10:06.080 --> 0:10:10.680 more recently with pretty catastrophic outcomes. We've seen a complete 0:10:10.760 --> 0:10:14.480 drop in in water restaoirts in in the Alps as well, 0:10:14.600 --> 0:10:18.520 which is leading to two lower rare levels across Europe. 0:10:18.760 --> 0:10:20.880 So I think climate change is real. We're seeing one 0:10:20.880 --> 0:10:22.760 of the biggest routes I think is I think you 0:10:22.760 --> 0:10:25.199 guys put that out recently. In Europe we have the 0:10:25.200 --> 0:10:28.480 biggest rather in five hundred years UM, So you're having 0:10:28.480 --> 0:10:31.680 a lot of a lot of data points out there 0:10:31.720 --> 0:10:34.920 that really suggests that the climate change is happening very quickly, 0:10:35.480 --> 0:10:39.080 and and that's further straining our our energy system as 0:10:39.080 --> 0:10:41.960 it would now. I do think we wouldn't be in 0:10:41.960 --> 0:10:45.040 the current situation if we hadn't been losing as much 0:10:45.280 --> 0:10:48.240 Russian energy as we have over the course of the 0:10:48.320 --> 0:10:52.120 past six months, Right, Francisco, Can I ask you about 0:10:52.200 --> 0:10:56.000 proposals in Europe to cap gas prices and what you 0:10:56.040 --> 0:10:57.840 think is that I suppose to my guests earlier, and 0:10:57.880 --> 0:10:59.560 this goes to what you were saying there about relying 0:10:59.559 --> 0:11:02.319 on Russian energy, I spoied to with guests earlier who 0:11:02.320 --> 0:11:05.000 said she doesn't want to see a cap on gas prices. 0:11:05.160 --> 0:11:07.800 She thinks fiscal stimulus should just be given to those 0:11:07.800 --> 0:11:10.160 who are struggling to pay because with with a cap, 0:11:10.480 --> 0:11:12.520 you don't have quite such a strong price signal, and 0:11:12.520 --> 0:11:14.640 we need that to make the transitions and the investments 0:11:14.640 --> 0:11:18.679 that you talk about. I I think that's completely wrong. 0:11:18.920 --> 0:11:20.679 I mean, I think you need to put a bit 0:11:20.720 --> 0:11:22.200 of a cap on the price of gas, and you 0:11:22.240 --> 0:11:24.520 need to bring Remember, the price of gas is setting 0:11:24.520 --> 0:11:27.280 the marginal price of electricity, right, so let's say that. 0:11:27.559 --> 0:11:30.800 Let's say that you know, if the price of electricity 0:11:30.840 --> 0:11:33.200 is a thousand euros a mega at hour, you're not 0:11:33.280 --> 0:11:37.520 really incentivizing anything at that price point. Um and and 0:11:37.520 --> 0:11:40.760 and there is a clear market failure that I think, UM. 0:11:40.800 --> 0:11:44.560 I think um she should encourage governments to take action here. 0:11:44.920 --> 0:11:47.560 Um and And again it's pretty simple stuff. I mean, 0:11:47.559 --> 0:11:49.880 you're you're above two hundred years of mega at our 0:11:50.360 --> 0:11:53.760 most European industrials cannot operate, right, So when you're at 0:11:53.760 --> 0:11:56.319 the faust inuris a mega at hour, this is past 0:11:56.400 --> 0:11:59.280 beyond the point of the Aman destruction. Um and And 0:11:59.320 --> 0:12:03.959 it's also as the point of supply increases of vernal 0:12:04.120 --> 0:12:06.000 energy in the future. You don't need a thousand US 0:12:06.040 --> 0:12:08.600 and may our encourage wind or solar power. You need 0:12:08.600 --> 0:12:10.559 a much much lower number. So I think I think 0:12:10.559 --> 0:12:12.880 governments are taking the right steps to try to cap 0:12:12.960 --> 0:12:15.959 the price of the price of gas um and and 0:12:16.000 --> 0:12:18.600 again it's going to be a subsidy for sure, um. 0:12:18.640 --> 0:12:21.280 But I do think that the consequences of not tackling 0:12:21.280 --> 0:12:24.560 the current shortage of gas and Europe could be devastating 0:12:24.559 --> 0:12:27.560 to both consumers and industry over the course of the 0:12:27.600 --> 0:12:30.760 next of the next six months. Remember, you're probably destroying 0:12:31.240 --> 0:12:36.040 about about five percent of European uh power gas and 0:12:36.080 --> 0:12:38.360 power demand every month with this kind of price levels 0:12:38.480 --> 0:12:41.000 we were seeing here, and this is just massive numbers. 0:12:41.000 --> 0:12:44.320 Francisco that and I think we still fully internalized and 0:12:44.360 --> 0:12:46.800 recognized how bad this is gonna be. Francisco Blanche, the 0:12:47.040 --> 0:12:49.280 of Bank American Global Research. Francisco, you one of the best. 0:12:49.320 --> 0:12:56.640 We appreciate your time. Rubella Feruki joins US chief US 0:12:56.679 --> 0:13:00.440 economist high Frequency Economics. Oh, he's channeling the inner national 0:13:00.520 --> 0:13:03.760 views of Carl Weinberg. Rebel and bring it back to 0:13:03.960 --> 0:13:07.360 America and bring it back to what matters, which is 0:13:07.360 --> 0:13:11.560 in the A d P Report Wages Clock seven, what 0:13:11.600 --> 0:13:17.280 will we see on a wage spiral tomorrow? Good morning, 0:13:17.320 --> 0:13:19.840 Thanks for having me. What we're expecting to see is 0:13:20.240 --> 0:13:23.040 you know, still elevated to wage gains. You know, maybe 0:13:23.040 --> 0:13:25.560 a slide take up. Uh, you know, still a five 0:13:25.600 --> 0:13:29.040 handle on your your changes in average early earnings. You know. 0:13:29.160 --> 0:13:31.520 The central point of this is what are we seeing 0:13:31.520 --> 0:13:34.040 on supply? And we really are not seeing any relief 0:13:34.040 --> 0:13:36.760 on supply. The participation rate has gone down. If you 0:13:36.800 --> 0:13:39.240 look at the civilian labor force, it's declined in three 0:13:39.240 --> 0:13:41.680 of the last four months, and that is where the 0:13:41.720 --> 0:13:45.400 stresses lie. And you know, without that and without any 0:13:45.440 --> 0:13:47.720 relief on wage gains, you know, the FED is going 0:13:47.760 --> 0:13:50.920 to remain focused on these things and really the trajectory 0:13:51.040 --> 0:13:53.000 is not going to change at all. Uh. You know, 0:13:53.160 --> 0:13:57.240 on tomorrow's numbers, I find the analysis of the FED 0:13:57.440 --> 0:14:00.120 action and this goes to crush carry of Minneapolis, US. 0:14:00.640 --> 0:14:05.559 But a FED action to desire to move the unemployment 0:14:05.640 --> 0:14:10.199 rate higher to be way too simple. What's the complex 0:14:10.280 --> 0:14:15.319 part of that analysis matters for our viewers and listeners. Well, 0:14:15.360 --> 0:14:17.800 I mean what we're seeing right now is severe dislocations 0:14:17.800 --> 0:14:19.680 in the labor market right, and we're seeing supply and 0:14:19.720 --> 0:14:23.160 demand imbalances. Does the FED necessarily want to see the 0:14:23.240 --> 0:14:25.960 unemployment trade go up? No, absolutely not not. I mean 0:14:26.080 --> 0:14:28.800 that's not what central banks want. But you know, in 0:14:28.840 --> 0:14:31.960 this instance, you know, we keep hearing about a tight 0:14:32.080 --> 0:14:35.200 labor market and J. Powell has said a labor market 0:14:35.280 --> 0:14:38.480 that is, you know, tied to an unhealthy level. So 0:14:38.640 --> 0:14:42.520 that's what we're trying to figure out. How can this FED, 0:14:43.080 --> 0:14:47.320 you know, orchestrate rate hiking cycle where there's still positive 0:14:47.360 --> 0:14:50.560 growth but and you know, unemployment goes up but not 0:14:50.680 --> 0:14:53.400 by much. And I think the best case for them 0:14:53.520 --> 0:14:56.800 is that, uh, you know, you do you know, the 0:14:56.880 --> 0:14:59.560 demand side is so strong that you're going to see 0:14:59.600 --> 0:15:02.960 limited and uh increase in layoffs. But I'm not really 0:15:02.960 --> 0:15:06.520 sure that that is really possible. Okay, we'll be a 0:15:06.560 --> 0:15:10.200 good morning from London. You talked about participation having dropped off, 0:15:10.200 --> 0:15:13.280 and clearly during COVID and the immediate aftermath, it was 0:15:13.320 --> 0:15:15.960 obvious why that was. What's your analysis now of why 0:15:16.320 --> 0:15:19.440 participation is so poor? There are similarities with the UK 0:15:19.600 --> 0:15:22.040 market and it's clear why it's why it's poor here, 0:15:22.040 --> 0:15:24.560 But what's the story in the US. I mean, what 0:15:24.640 --> 0:15:27.880 we're seeing is you know, elevated retirements that really contributed 0:15:27.920 --> 0:15:31.000 in a large way. We still have people who are 0:15:31.040 --> 0:15:35.600 suffering the effects of COVID. Excuse me, we's still affecting, 0:15:35.720 --> 0:15:38.880 you know, being affected by the effects of COVID, and 0:15:38.880 --> 0:15:42.560 you're still seeing you know, some challenges, uh in terms 0:15:42.640 --> 0:15:45.960 of you know, primary prime age participation, in terms of 0:15:46.040 --> 0:15:49.440 childcare issues, health issues, elder care issues. So those still 0:15:49.760 --> 0:15:53.760 those things are still you know, persisting, and it's really 0:15:53.760 --> 0:15:56.080 not clear that we're going to see any relief. What 0:15:56.160 --> 0:15:58.520 we did see last time around was you know, as 0:15:58.520 --> 0:16:01.520 we were going into in two thousand nineteen before the 0:16:01.560 --> 0:16:04.800 COVID crisis, what we saw as people strong labor market 0:16:04.800 --> 0:16:07.320 did draw people back into the labor force. And that's 0:16:07.320 --> 0:16:09.960 what the federally is looking for. That strong job growth, 0:16:10.120 --> 0:16:14.240 high inflation, you know, the lower of higher wages. Maybe 0:16:14.280 --> 0:16:16.400 that is where the relief comes in. But really that's 0:16:16.440 --> 0:16:19.200 not something that is part of a base case scenario anymore. 0:16:19.400 --> 0:16:21.680 You know, we've been expecting for participation to go up 0:16:21.880 --> 0:16:24.320 and we really haven't seen it. So if we want 0:16:24.400 --> 0:16:26.360 job wipings to come down, it has to come from 0:16:26.440 --> 0:16:30.120 from unemployment, has to come from from layoffs, then REBELA, Well, 0:16:30.240 --> 0:16:33.000 not necessarily. We do think that demand for labor is 0:16:33.040 --> 0:16:36.240 going to go down. But you know, we're trying to 0:16:36.280 --> 0:16:38.600 figure out why are layoffs so low? Is it just 0:16:38.720 --> 0:16:41.080 that demand is strong? Or is it that companies are 0:16:41.120 --> 0:16:45.280 also reluctant. You know that they've they've suffered, you know, 0:16:45.400 --> 0:16:48.000 for you know, persistent shortages. So are they just hanging 0:16:48.000 --> 0:16:51.200 onto their workforce? Are they just reluctant to lettle of 0:16:51.360 --> 0:16:55.600 the workers? Rebell? Here's the mystery question right now? What 0:16:55.760 --> 0:16:59.000 is non firm payrolls normal number? It used to be 0:16:59.120 --> 0:17:02.200 two hundred and we'd model out one fifty. We all 0:17:02.240 --> 0:17:04.439 got that wrong. That was a great wrong call of 0:17:04.480 --> 0:17:09.639 a decade. We're now rocking two hundred three hundred thousand 0:17:08.240 --> 0:17:14.880 three per months. What's normal? It's very difficult to assess 0:17:14.960 --> 0:17:19.000 what this labor market is. You know, what what normal 0:17:19.240 --> 0:17:22.240 is where we're going to balance out? If we look 0:17:22.359 --> 0:17:25.520 at the numbers, you know, break even is probably around 0:17:25.520 --> 0:17:29.400 a hundred thousand. Maybe it's like really but yeah, exactly. 0:17:29.440 --> 0:17:32.760 And but again, you know, we are basing our analysis 0:17:32.880 --> 0:17:36.960 on things that prevailed before the before the pandemic. So 0:17:37.000 --> 0:17:40.000 it's really difficult to assess. Right now. What we're seeing 0:17:40.280 --> 0:17:44.760 is you know, extremely solid job growth um and also 0:17:44.760 --> 0:17:47.760 I mean it's it's really not tying in with the 0:17:47.800 --> 0:17:51.800 concept of you know economy that has really you know, 0:17:51.880 --> 0:17:54.080 just flattened out in the first half of the year. 0:17:54.640 --> 0:17:59.359 But you know what's what's appearing now is companies still uh, 0:17:59.400 --> 0:18:04.600 you know, adding to the workforce and the unemployment rate 0:18:04.720 --> 0:18:08.240 at historical laws maybe even said to go down a 0:18:08.320 --> 0:18:11.879 little bit more. And you know, a fact that is 0:18:11.920 --> 0:18:15.080 facing a huge challenge Rebeta a massive challenge and not 0:18:15.119 --> 0:18:17.200 just a fat The a c BA has a challenge 0:18:17.200 --> 0:18:32.080 of his son, Rebeta fury that high frequency economics. It's 0:18:32.080 --> 0:18:35.080 a rare and beautiful thing. John, she's here for what, John? 0:18:35.280 --> 0:18:38.240 Is this like a two hour interviewer? Could we could? 0:18:38.280 --> 0:18:41.480 We could do it? Here's what you need to know. 0:18:41.560 --> 0:18:45.240 In one a young boy named Mick Jagger went to 0:18:45.280 --> 0:18:48.040 the London School of Economics and went down in flames 0:18:48.080 --> 0:18:52.199 and mathematics. Tracy Alloway followed on from Mick Jagger and 0:18:52.280 --> 0:18:55.199 actually got through the rigorous math course to get your 0:18:55.200 --> 0:18:58.240 way along at LC and went on to a sterling 0:18:58.359 --> 0:19:03.080 journalism career include work working Mr Wisenthal and Adlats and 0:19:03.160 --> 0:19:06.960 she joins us here on the aerospace engineer from Minneapolis. 0:19:07.560 --> 0:19:10.880 He's talking about, Oh, the interesting thing about cash car 0:19:11.080 --> 0:19:14.440 is that he's transformed from the fed's biggest dove into 0:19:14.480 --> 0:19:16.760 the biggest talk And he says it's because he's been 0:19:16.760 --> 0:19:19.359 watching the data. Data didn't come in quite the way 0:19:19.400 --> 0:19:23.080 he thought it would, so like Kines, he changed his mind. Right, 0:19:23.119 --> 0:19:25.160 So that's the interesting thing about him at the moment. 0:19:25.880 --> 0:19:28.480 I look at this, Tracy. What's so important here is 0:19:28.520 --> 0:19:31.480 what of the monetary pro stinc It was Clarada and 0:19:31.480 --> 0:19:34.120 now it's maybe John Williams and a few others. What 0:19:34.160 --> 0:19:37.960 do they think of presidents shooting from the hip. That's 0:19:38.040 --> 0:19:41.440 quite a question what I will say. You know, Jonathan 0:19:41.480 --> 0:19:43.679 kind of alluded to this about the interview that we 0:19:43.720 --> 0:19:45.960 had with cash Cary where he was talking about how 0:19:46.040 --> 0:19:49.960 he welcomed that stock reaction, stocks actually going down, So 0:19:50.000 --> 0:19:54.480 following Jackson hole, I cannot believe that markets were so surprised. 0:19:54.520 --> 0:19:56.960 You have had a FED, and you've had central bankers 0:19:57.000 --> 0:20:00.000 on the FED talking about how they want financial conditions 0:20:00.119 --> 0:20:02.240 to tighten for months and months and months and a 0:20:02.280 --> 0:20:06.719 component of financial conditions. Of course, it's stocks financial conditions. 0:20:07.000 --> 0:20:10.240 They need stocks slower, then he spreads wider. Tracy, what 0:20:10.359 --> 0:20:12.520 was the biggest piece of pushback you had against that? 0:20:12.560 --> 0:20:14.760 Because I was watching all the commentary of a Twitter 0:20:15.000 --> 0:20:16.959 the people who were surprised, and you and I who 0:20:17.000 --> 0:20:19.240 were surprised about them being surprised. What was the biggest 0:20:19.240 --> 0:20:21.600 piece of pushback that you saw from this interview. There 0:20:21.600 --> 0:20:23.359 were a lot of people talking about how the FED 0:20:23.560 --> 0:20:25.960 said the quiet part out loud. But these are the 0:20:26.000 --> 0:20:28.080 same people who would make jokes about how the FED 0:20:28.160 --> 0:20:30.600 only wants to push up asset prices for the past 0:20:30.760 --> 0:20:33.200 five or ten years. Right, If the FED only wants 0:20:33.200 --> 0:20:35.719 to push up asset prices, then they can have situations 0:20:35.720 --> 0:20:38.399 where they also want to push them down. Now is 0:20:38.520 --> 0:20:41.240 arguably one of those times the FED is explicitly telling 0:20:41.280 --> 0:20:44.440 you that it needs financial conditions to tighten in order 0:20:44.480 --> 0:20:47.440 to get a grip on inflation. The components of financial 0:20:47.440 --> 0:20:52.000 conditions got things like mortgage spreads, bonds, and of course stocks, 0:20:52.000 --> 0:20:56.879 So I'm not entirely sure why people were so surprised, Hi, Tracy, 0:20:56.960 --> 0:20:59.320 it was a really fascinating conversation that you had with him. 0:20:59.359 --> 0:21:01.359 I mean, if he wants, I can find you mentioned 0:21:01.359 --> 0:21:03.879 the other ways you get sites of financial conditions. Do 0:21:03.920 --> 0:21:06.199 we have a sense of which of the elements the 0:21:06.240 --> 0:21:10.000 FED would prefer? I mean we've got Cashgarian saying stocks 0:21:10.040 --> 0:21:11.920 doesn't mind if they go down, but that's not quite 0:21:11.920 --> 0:21:13.840 the same thing as saying, you know, you really want 0:21:13.880 --> 0:21:16.240 them to drop. Yeah. Well, I think the big question 0:21:16.280 --> 0:21:19.040 in markets right now is why, even with all this 0:21:19.200 --> 0:21:23.480 FED jaw boning, why financial conditions haven't tightened more, Why 0:21:23.520 --> 0:21:26.640 our investors, I guess dragging their feet when it comes 0:21:26.640 --> 0:21:28.919 to this issue. Does the FED have a preference on 0:21:29.040 --> 0:21:32.520