WEBVTT - Surveillance: Inflation Persistence with Dudley (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.960 and of course on the Bloomberg terminal. William Dudley joins us. 0:00:30.960 --> 0:00:33.600 He's a former New York Fed president and of course 0:00:33.600 --> 0:00:36.320 writing for Bloomberg Opinion, and he has been out front 0:00:36.920 --> 0:00:40.160 on what has happened. I'm not going to mince words, 0:00:40.200 --> 0:00:44.839 Bill Dudley. This is one inflation report but important and 0:00:44.920 --> 0:00:50.600 you highlight are jarring disconnect? How disconnected are we right 0:00:50.640 --> 0:00:54.760 now from where we need to go? I think the 0:00:54.800 --> 0:00:57.320 problem is that the Fed Reserve has not been forceful 0:00:57.440 --> 0:01:00.920 enough and stating not just what their goal is supercent inflation, 0:01:00.960 --> 0:01:03.520 but the means to achieve that goal. A chair Pole 0:01:03.600 --> 0:01:05.600 in his press conference last week didn't really want to 0:01:05.640 --> 0:01:08.840 talk about why Monterrey policy might actually not just have 0:01:08.920 --> 0:01:10.800 to go to neutral, it might have to go to type. 0:01:11.120 --> 0:01:12.920 And I think a type Monterrey policy is what's going 0:01:13.000 --> 0:01:16.520 to be required to get inflation under control. Why are 0:01:16.560 --> 0:01:21.600 they timid. It's not clear to me. Uh, they're not timid. 0:01:21.640 --> 0:01:23.720 Certainly they're not timid about talking about what the end 0:01:23.720 --> 0:01:26.080 goal is. But to me, if you're if you're talking 0:01:26.120 --> 0:01:28.640 about the end goal to percent inflation, you've gotta also 0:01:28.800 --> 0:01:31.479 subscribe how you're actually gonna get there. And if if 0:01:31.480 --> 0:01:35.679 you start to sugarcoat it, then financial conditions don't tighten 0:01:35.720 --> 0:01:38.160 as much, and you also run the risk that people 0:01:38.160 --> 0:01:40.680 will lose confidence in the federals are. One thing that's 0:01:40.720 --> 0:01:42.560 actually in the FED favor up to now is people 0:01:42.560 --> 0:01:44.240 still are confident in the Federals Erve is going to 0:01:44.319 --> 0:01:47.160 do his job. But if you keep under promising you 0:01:47.160 --> 0:01:50.680 know what you're gonna you know what's required, then I 0:01:50.680 --> 0:01:52.680 think there is a risk to the FED credibility down 0:01:52.680 --> 0:01:54.800 the road. Bill. Do you think that this really is 0:01:54.840 --> 0:01:57.520 sugarcoating or do you think that FED Chair J. Powell 0:01:57.600 --> 0:02:00.080 just does not believe that we're going to get a 0:02:00.120 --> 0:02:03.080 more persistent level of inflation that many people, including yourself 0:02:03.120 --> 0:02:06.280 are talking about. Well, I think you can see it 0:02:06.320 --> 0:02:10.520 also in the own projection economic projections. For example, after 0:02:10.560 --> 0:02:12.519 the March eff Once meeting, the published the Summary of 0:02:12.520 --> 0:02:14.959 Economic Projections and what they showed was infliction was just 0:02:15.120 --> 0:02:18.640 magically melting away despite the Monterrey policy that didn't really 0:02:18.680 --> 0:02:21.160 get to tight, and despite the fact that the unemployer 0:02:21.240 --> 0:02:24.480 rate did not rise, that the bondemplary was still projecting 0:02:24.560 --> 0:02:27.520 b around three and a half percent. So that's sort 0:02:27.560 --> 0:02:30.880 of a magical, immaculate disinflation. And I just don't think 0:02:30.919 --> 0:02:33.480 that's how it works. The Reserve has to tighten, moject 0:02:33.520 --> 0:02:36.160 policy sufficiently, just still get coming down to push the 0:02:36.240 --> 0:02:38.519 unemployer right up. That's what's required, and I think the 0:02:38.560 --> 0:02:41.079 feder Reserves should be more forthright about explaining that to 0:02:41.160 --> 0:02:43.720 the American public. Do you think that Andrew Bailey over 0:02:43.800 --> 0:02:46.600 at the Bank of England really basically charted the path 0:02:47.000 --> 0:02:49.799 for FED officials saying, Look, we're going to be hiking 0:02:49.919 --> 0:02:53.880 rates into a slowing economy. We might just exacerbate a recession, 0:02:53.960 --> 0:02:56.639 but a near term recession will be what's necessary to 0:02:56.720 --> 0:02:59.960 bring supply and demand more into balance to actually create 0:03:00.000 --> 0:03:03.000 it more growth later on. I don't think that that 0:03:03.160 --> 0:03:05.519 necessarily has to say that they're going there's going to 0:03:05.600 --> 0:03:08.000 be every session in the fetch still shoot for a 0:03:08.120 --> 0:03:10.400 soft lanning, but I think they should explain that soft 0:03:10.440 --> 0:03:12.880 lanning is very difficult to achieve when you have to 0:03:13.000 --> 0:03:16.919 push up the unemployer rate to hold down inflation. Bill 0:03:17.040 --> 0:03:19.960 from where you sit, and of course decades with Goldman 0:03:20.000 --> 0:03:22.280 Sachs and the grind of this with Ed mcclvey, and 0:03:22.400 --> 0:03:26.079 also all of your academics as well. I think our 0:03:26.200 --> 0:03:30.560 audience is fascinated by what politicians can do. And if 0:03:30.639 --> 0:03:34.160 we stretch in our recent memory from lb J to 0:03:34.680 --> 0:03:37.680 Jimmy Carter to Richard Nixon, who has handed that from 0:03:37.760 --> 0:03:42.200 Carter and onto the present president, what do presidents do 0:03:42.680 --> 0:03:48.040 about inflation? Are they even part of the discussion. Well, 0:03:48.080 --> 0:03:50.760 I think the public has an exaggerated view about what 0:03:50.960 --> 0:03:55.080 any administration can you do about inflation. By administration, probably 0:03:55.080 --> 0:03:57.240 the most important thing they've done is the soil from 0:03:57.240 --> 0:04:00.560 the Strategic Patrolling Reserve, and that's probably putting some downward 0:04:00.600 --> 0:04:03.560 pressure on oil prices relative to what they otherwise be. 0:04:03.840 --> 0:04:06.360 But I think the reality is the president's ability to 0:04:06.480 --> 0:04:09.720 do something about inflation is extremely limited. Really, the only 0:04:09.800 --> 0:04:13.240 thing that the president can do is get to Congress 0:04:13.280 --> 0:04:15.800 to tighten fiscal policy, to make the fens job a 0:04:15.800 --> 0:04:18.760 little bit more easy. On radio and television, truly an 0:04:18.839 --> 0:04:22.320 historic moment and particularly the inflation adjusted real wage where 0:04:22.360 --> 0:04:24.680 it is. William Dudley is with us. He's a former 0:04:24.760 --> 0:04:28.919 New York Fed president. He has been shocking in his pressions. 0:04:29.440 --> 0:04:32.880 Uh nature of guessing forward on where this price change 0:04:32.960 --> 0:04:36.240 is going. If you're just uh, we're just joining us. 0:04:36.520 --> 0:04:40.080 We're getting used to eight percent inflation. Ira Jersey scheduled 0:04:40.120 --> 0:04:42.359 to be with us, are waiting to get Mr Jersey 0:04:42.440 --> 0:04:44.400 lined up on a bond market with a two year 0:04:44.520 --> 0:04:48.640 yield higher by nine basis points. And Michael McKee doing 0:04:48.720 --> 0:04:50.760 what he does best, which you speak to people like 0:04:51.440 --> 0:04:55.440 President Dudley and also goes through the minutia and the data. 0:04:55.720 --> 0:04:59.240 Michael McKee, what does this report say about wage growth 0:04:59.640 --> 0:05:04.000 in the fear of a wage spiral? Uh, it doesn't 0:05:04.240 --> 0:05:06.640 give us a whole lot of new information because the 0:05:07.040 --> 0:05:11.360 real average hourly earnings, which they calculate by subtracting inflation 0:05:11.480 --> 0:05:15.279 from where people were, are down two point six same 0:05:15.400 --> 0:05:18.880 as last month. So no change there. We're still behind inflation. 0:05:19.240 --> 0:05:22.120 I've talked to a number of Fed officials in the 0:05:22.320 --> 0:05:25.200 last few days about whether companies are telling them that 0:05:25.320 --> 0:05:28.280 they are seeing a wage price spiral and they're seeing 0:05:28.360 --> 0:05:31.320 prices continue to go up, but they don't feel like 0:05:31.440 --> 0:05:34.840 they have enormous pressure on them yet to raise prices. 0:05:34.880 --> 0:05:37.520 And then Bill Donald to go to you on this question. 0:05:37.800 --> 0:05:40.640 I see the wage growth, but I also see the 0:05:40.800 --> 0:05:44.000 lack of wage growth over the last fifteen years or so. 0:05:44.720 --> 0:05:48.240 Is our fear of a wage spiral different now than 0:05:48.360 --> 0:05:52.160 it was decades ago? I think there has to be 0:05:52.279 --> 0:05:54.559 some fear of it. Given the tightness of the lander market. 0:05:54.640 --> 0:05:58.160 You have one point nine until jobs for every unemployed worker. 0:05:58.200 --> 0:06:00.320 That's an all time record. So the laber market has 0:06:00.360 --> 0:06:03.040 really never been this type and the consequence of that 0:06:03.120 --> 0:06:05.720 should be higher wages. Higher wages should also be the 0:06:05.760 --> 0:06:09.480 consequence of headline inflation running persistently above what wages are 0:06:09.480 --> 0:06:11.840 actually doing today. So I think the risk is that 0:06:11.920 --> 0:06:14.120 wages what you're trending about five and a percent year 0:06:14.160 --> 0:06:18.360 a year, go higher. Do you agree Bill with Chris 0:06:18.480 --> 0:06:20.760 Waller who came out yesterday and said that there's so 0:06:20.880 --> 0:06:23.520 much froth in the labor market that we could actually 0:06:23.560 --> 0:06:27.280 withstand a softening there that would be more beneficial rather 0:06:27.360 --> 0:06:32.560 than detrimental, even if it led to less opportunity fewer opportunities. Well, 0:06:32.600 --> 0:06:34.000 I think that's what they have to do. I mean, 0:06:34.000 --> 0:06:36.400 I think they're trying to also, you know, sugarcoat this 0:06:36.520 --> 0:06:38.760 a little bit too. We can basically reduce the demand 0:06:38.920 --> 0:06:43.119 for labor without increasing unemployment, so it will be fewer 0:06:43.200 --> 0:06:45.320 jobs available, but don't worry, you'll get a job because 0:06:45.320 --> 0:06:48.159 there'll still be enough for you. I think that's again sugarcoating. 0:06:48.440 --> 0:06:50.240 You know how easy is going to be. I think 0:06:50.240 --> 0:06:51.280 at the end of the day, they have to push 0:06:51.279 --> 0:06:55.560 the downiform rate up, and that's going to be painful. Bill. 0:06:55.600 --> 0:06:58.000 When we talk about the drivers of inflation, it's one 0:06:58.040 --> 0:07:00.320 thing for the FED to respond to a labor market 0:07:00.360 --> 0:07:02.600 that's hot, two rents that are going up. It's another 0:07:02.680 --> 0:07:05.760 thing to respond to supply chains that are disrupted and 0:07:05.839 --> 0:07:09.360 a shortage of goods that ensues they're in Do you 0:07:09.480 --> 0:07:12.080 think that it doesn't really matter that the FED has 0:07:12.160 --> 0:07:14.520 to reduce demand and that is the only tool that 0:07:14.600 --> 0:07:18.160 they have in order to prevent inflation from becoming entrenched 0:07:18.240 --> 0:07:22.040 in the psyches of Americans. Well, the end of the day, 0:07:22.080 --> 0:07:24.360 that's job is to make sure that demand and supply 0:07:24.480 --> 0:07:27.360 are aligned. Now, the supply shock is very temporary. The 0:07:27.400 --> 0:07:29.160 FED can look through it because it knows that supply 0:07:29.280 --> 0:07:31.920 is going to increase in the future, but the supply shock, 0:07:32.120 --> 0:07:34.480 you know, last for a long time, which seems to 0:07:34.520 --> 0:07:37.640 be the case currently. Then the fact that it's due 0:07:37.680 --> 0:07:40.160 to supply chain disruption, that doesn't really matter, because if 0:07:40.200 --> 0:07:43.360 those supply chain disruptions are persistent, then you're gonna have 0:07:43.400 --> 0:07:46.960 an inflation consequence bill. Just real quick here, You're talking 0:07:47.040 --> 0:07:49.960 earlier about a FED funds rate in order to be 0:07:50.040 --> 0:07:53.080 truly restrictive. Have you changed your view on how high 0:07:53.120 --> 0:07:56.040 the FED will have to go? Well, I think it's 0:07:56.080 --> 0:07:58.520 four to five or higher. Um, you know, I was 0:07:58.720 --> 0:08:01.160 three or four maybe six months to go on four 0:08:01.240 --> 0:08:03.840 to five and shocked me if I'm you know, five 0:08:03.920 --> 0:08:06.520 to six a few months from now, Well, what does 0:08:06.560 --> 0:08:09.080 that do to the employment trend in the economy? What's 0:08:09.120 --> 0:08:11.000 that gonna do to the unemployment rate? I wanted you 0:08:11.080 --> 0:08:13.560 to go off Phillips curve here and link it right, 0:08:13.600 --> 0:08:16.520 and what's it due to the unemployment? Right? Well, I 0:08:16.520 --> 0:08:19.400 think the umployment is really all about what's happening to demand. 0:08:19.440 --> 0:08:21.480 And I think in the short term demands gonna be fine, 0:08:21.560 --> 0:08:25.040 because right now demand is above supplying a number of 0:08:25.160 --> 0:08:27.800 key areas like housing and autos. So I don't I 0:08:27.840 --> 0:08:29.600 think the economy is going to be fine in two 0:08:29.720 --> 0:08:31.760 thousand and twenty two. But of course that just makes 0:08:31.800 --> 0:08:34.319 the fence job more difficult. Bill Dudley, thank you so 0:08:34.480 --> 0:08:36.719 much an important essay. I'll get that out for you 0:08:36.840 --> 0:08:39.360 this morning as well on Bloomberg Opinion. He's a former 0:08:39.400 --> 0:08:48.200 president of the New York Fed. Michael Darda joins now 0:08:48.320 --> 0:08:52.079 chief economist macro strategist mk M Partners. Michael, you and 0:08:52.120 --> 0:08:55.760 I had assimilating conversation five or six days ago about 0:08:55.840 --> 0:09:01.040 the nominal nature of the American economy, this kind of inflation, 0:09:01.520 --> 0:09:05.120 if we see it over one month, two months, three months, 0:09:05.480 --> 0:09:09.360 what does it say about the combination of real GDP 0:09:09.640 --> 0:09:14.040 and inflation by Tom, Yeah, I think you know, these 0:09:14.240 --> 0:09:17.719 numbers obviously are too hot. Um, so you know this 0:09:17.880 --> 0:09:19.920 is a bit of a shot to the upside. But 0:09:19.960 --> 0:09:22.439 i'd actually go to the point that you know that 0:09:22.559 --> 0:09:26.200 Jonathan just made where the you know, the peak which 0:09:26.280 --> 0:09:29.319 looks like it it is in now on a year 0:09:29.360 --> 0:09:32.520 over year basis, is potentially a lot less important than 0:09:32.600 --> 0:09:35.839 where these numbers settle or where the plateau is. And 0:09:35.920 --> 0:09:41.200 if we have really rapid nominal GDP aggregate demand even 0:09:41.240 --> 0:09:43.400 if these year over year numbers were to come down 0:09:43.480 --> 0:09:46.439 by half, right, and we settle around four percent or 0:09:46.520 --> 0:09:48.079 just above that by the end of the year, and 0:09:48.160 --> 0:09:51.160 it looks like that's the plateau. That's still a major 0:09:51.320 --> 0:09:54.559 problem for this bond market, a major problem for this 0:09:54.720 --> 0:09:58.079 federal reserve. And as we're seeing a major problem for 0:09:58.160 --> 0:10:01.320 the valuations that support b S and P five hundred. 0:10:01.400 --> 0:10:03.920 They are going down, and they are going down because 0:10:04.000 --> 0:10:06.320 long term interest rates have been going up. My does 0:10:06.400 --> 0:10:08.680 that landing strip for self landing just get that little 0:10:08.720 --> 0:10:13.679 bit narrower with this number? Yes, I I think it does. Um. 0:10:14.200 --> 0:10:16.520 You know, the Fed has its work cut out for it. 0:10:17.000 --> 0:10:20.800 It does need to slow aggregate demand. Um. And typically, 0:10:21.240 --> 0:10:23.920 you know, starting from behind the curve, the success rate 0:10:24.000 --> 0:10:27.400 isn't very high. Uh So, Usually what happens is central 0:10:27.440 --> 0:10:30.000 banks start off too slow when they're behind the curve. 0:10:30.120 --> 0:10:32.160 That's the definition of being behind the curve. And then 0:10:32.240 --> 0:10:35.959 eventually they apply too much breaking force later on, and 0:10:36.400 --> 0:10:39.800 that's you know, typically when you're in a bust part 0:10:39.840 --> 0:10:42.240 of the cycle. So I don't think that that part 0:10:42.320 --> 0:10:46.520 plays out this year, um, you know, but they've they've 0:10:46.559 --> 0:10:49.000 missed the boat a bit here. I think it's pretty 0:10:49.040 --> 0:10:51.800 obvious now they really should have gotten a tightening process 0:10:52.000 --> 0:10:55.439 going last year. And then even you know, with that 0:10:55.800 --> 0:11:00.640 that press conference last week, Powell seemingly you know, you know, 0:11:00.760 --> 0:11:05.199 explicitly ruling out greater than fifty basis points point moves. 0:11:05.240 --> 0:11:08.839 You mean, why rule anything out in the early innings, Um, 0:11:09.120 --> 0:11:12.559 you know, step away from the forward guidance and you know, 0:11:12.720 --> 0:11:15.800 take it meeting by meeting. So I think the message 0:11:15.920 --> 0:11:19.079 was a bit bungled and confused as well, and that 0:11:19.280 --> 0:11:21.760 is not helpful in this environment. There's a big debate 0:11:21.840 --> 0:11:24.880 Mike about where the drivers of inflation are coming from 0:11:24.960 --> 0:11:27.480 and how much is really within the Fed's control, and 0:11:27.559 --> 0:11:30.640 that's perhaps underpinning some of the hesitants for a more 0:11:30.679 --> 0:11:34.240 aggressive approach by FED Chair J. Powell. How much do 0:11:34.320 --> 0:11:36.679 you agree with that that the bulk of the inflationary 0:11:36.760 --> 0:11:40.079 pressures are coming from overseas, from supply chain disruptions, from 0:11:40.080 --> 0:11:44.520 geopolitical issues, and not from the dynamism in the labor market, 0:11:44.760 --> 0:11:47.360 from the willingness to spend from consumers that still have 0:11:47.440 --> 0:11:51.640 a lot of cash. Yeah, you know, it's confusing because 0:11:51.679 --> 0:11:54.199 we do have these supply side shocks playing out, and 0:11:54.720 --> 0:11:57.520 those shocks are raising inflation, and the FED cannot do 0:11:57.640 --> 0:12:01.439 anything specifically about those shocks. But we've also had a 0:12:01.640 --> 0:12:06.920 super robust nominal GDP backdrop, and nominal GDP is robust 0:12:07.040 --> 0:12:10.400 to supply side shocks, meaning that a supply side shock 0:12:10.440 --> 0:12:13.760 will change the composition but not the level or growth 0:12:13.880 --> 0:12:17.320 rate of nominal GDP. So you know, we can actually 0:12:17.400 --> 0:12:20.040 get to a rough and ready answer to that question 0:12:20.160 --> 0:12:23.800 by looking at how much nominal GDP has overshot its 0:12:23.880 --> 0:12:28.280 previous trend and how much inflation has overshot the previous trend. 0:12:28.640 --> 0:12:31.640 And if you do that, it looks like six of 0:12:31.679 --> 0:12:36.480 the inflation overshoot is actually demand side aggregate demand nominal GDP. 0:12:37.320 --> 0:12:39.960 If that's not the province of the FED, why don't 0:12:40.040 --> 0:12:42.640 why do we even have a FED? So that is 0:12:42.679 --> 0:12:45.760 the fed's responsibility, not the supply shocks. They are real, 0:12:46.559 --> 0:12:50.360 But this inflationary overshoot in large measures is due to 0:12:50.640 --> 0:12:56.600 aggregate demand. Michael, if they politically embed fifty basis point 0:12:56.720 --> 0:12:59.560 rate hikes, and they sort of say, I'm being very 0:12:59.640 --> 0:13:03.760 sufficsticated here, let's see what happens. How far out of 0:13:03.840 --> 0:13:07.400 trajectory do you see there if they go fifty fifty, etcetera. 0:13:08.320 --> 0:13:12.199 Do they really analyze two meetings out in July or 0:13:12.280 --> 0:13:14.880 do they go out further before. There's a lot of 0:13:15.000 --> 0:13:19.319 naval gazing over what to do next. Yeah, I think 0:13:19.400 --> 0:13:22.760 they just need to try to extricate themselves from the 0:13:22.880 --> 0:13:25.840 last business cycle. You know, we still have Fed officials 0:13:25.920 --> 0:13:27.880 out there saying, well, we want to get to neutral, 0:13:27.920 --> 0:13:30.880 and neutral is you know, around two and a half. Well, 0:13:31.320 --> 0:13:33.720 you know that might have applied to the last business cycle, 0:13:33.800 --> 0:13:38.359 but this cycle looks quite different, whether it's nominal GDP inflation, 0:13:38.559 --> 0:13:41.800 the rapidity of the fall, and the unemployment rate. And 0:13:42.000 --> 0:13:45.240 so the Fed's basically made two mistakes here. One isn't 0:13:45.520 --> 0:13:49.360 is assuming a flat Phillips curve up until you know, 0:13:49.480 --> 0:13:52.520 three and a half percent unemployment, because that's where we're 0:13:53.040 --> 0:13:55.960 at the end of the last cycle. And then assuming 0:13:56.000 --> 0:13:58.640 that the neutral interest rate is right around the same 0:13:58.760 --> 0:14:02.160 position that it was in the last cycle. So you know, 0:14:02.480 --> 0:14:05.120 that's a that's a problem. You know, really what they 0:14:05.160 --> 0:14:08.640 should be doing is saying, look, we are explicitly aiming 0:14:08.720 --> 0:14:13.120 to blow nominal GDP to a more sustainable growth rate 0:14:13.200 --> 0:14:16.480 consistent with two percent average inflation over time that would 0:14:16.480 --> 0:14:20.000 probably be around four percent per annum growth. It looks 0:14:20.120 --> 0:14:23.880 as of April the proxies for money in common nominal 0:14:23.960 --> 0:14:27.640 GDP we're closer to nine percent, so still way too fast. 0:14:28.080 --> 0:14:31.240 I think that's the best shot. The FED has engineering 0:14:31.240 --> 0:14:34.080 a soft landing. It's going to be difficult, um, but 0:14:34.600 --> 0:14:38.320 you know, embracing the Phillips curve in the neutral interest 0:14:38.400 --> 0:14:41.040 rate of the last cycle is just simply not going 0:14:41.160 --> 0:14:43.640 to cut it. That will lead to a policy mistake 0:14:43.720 --> 0:14:46.600 in a severe face plant for the US ecompany a 0:14:46.720 --> 0:14:49.840 line Michael Bolson as alwise Michael Dowd that thank you, 0:14:49.920 --> 0:14:59.280 sir of m Camponts. Karl Weinberg has been doing this 0:14:59.440 --> 0:15:03.160 for more than ten years, and within that is a 0:15:03.360 --> 0:15:09.120 story career, including the workout of distress. He's someone that's 0:15:09.280 --> 0:15:13.320 actually addressed distress. See how you see how I did that? 0:15:13.680 --> 0:15:16.760 That's good. Thank you. Dr Weinberg joins us this morning 0:15:16.800 --> 0:15:22.840 with high frequency economics. Carl, the zeitgeist is you have 0:15:23.000 --> 0:15:28.120 to manufacture some form of economic slowdown, contraction or n 0:15:28.200 --> 0:15:33.600 the art recession to extricate ourselves from eight percent inflation. 0:15:34.200 --> 0:15:38.200 Do you buy it? Absolutely? Tom, Good morning, and thank 0:15:38.280 --> 0:15:41.479 you for all of those words that rhyme, stress, distressed, 0:15:41.560 --> 0:15:45.840 and grizzled. Very kind. Um, Yes, we have the the 0:15:45.960 --> 0:15:49.840 only tool that that that that monetary policy has to 0:15:50.000 --> 0:15:53.440 bring price increases down, or the rate of price increases down. 0:15:53.760 --> 0:15:56.360 It's the cause of recession. It's just as simple as that. 0:15:56.520 --> 0:15:59.680 The instrument is interest rates. That's a blunt edge sword 0:16:00.160 --> 0:16:03.240 and that swings against all sectors of the economy and 0:16:03.320 --> 0:16:07.720 it basically hammers demand down to meet supply in times 0:16:07.760 --> 0:16:11.720 when there are excess demand. My question is is the 0:16:11.840 --> 0:16:14.560 problem that there's too much demand right now or is 0:16:14.600 --> 0:16:17.200 the problem that there's too little supply? Because if there's 0:16:17.240 --> 0:16:21.400 too little supply, then a different policy mix should be implemented. 0:16:21.960 --> 0:16:24.960 This goes back to Irving Fisher one, oh fund one. 0:16:25.120 --> 0:16:28.080 Not Stanley Fisher, folks, but Irving Fisher, one of the 0:16:28.280 --> 0:16:31.640 giants in the history of economics. He doesn't get nearly 0:16:31.760 --> 0:16:36.680 the play he should. And Carl, does Irving Fisher dynamics 0:16:36.920 --> 0:16:42.160 work now in a modern, open global economy or are 0:16:42.200 --> 0:16:45.960 the rules different this time? All the rules certainly are 0:16:46.040 --> 0:16:49.720 different this time compared to say seventy three, which was 0:16:49.800 --> 0:16:53.680 the last time when we saw significant supply constraints, and 0:16:54.040 --> 0:16:58.840 back then economies were more closed. Today economies are more open. 0:16:59.160 --> 0:17:02.520 So when you have more demanded than supply, you don't 0:17:02.560 --> 0:17:06.000 necessarily have to get inflation as prices are bid up 0:17:06.040 --> 0:17:09.320 to ration out that demand, but instead you can get 0:17:09.400 --> 0:17:12.080 more imports. And that's what we're seeing when we look 0:17:12.119 --> 0:17:16.800 at the data for every major oil important country, We're 0:17:16.840 --> 0:17:21.119 seeing the balance of payments blowout. We're seeing trade deficits widen, 0:17:21.200 --> 0:17:24.840 We're seeing trade surpluses, even the mighty German and Japanese 0:17:24.920 --> 0:17:28.359 surpluses are dwindling down or turning into deficits in the 0:17:28.440 --> 0:17:32.560 case of Japan. Because when you have too much money, Jason, 0:17:32.680 --> 0:17:38.080 too few goods, the resolution of it need not be inflation. Carl. 0:17:38.160 --> 0:17:40.359 It just feels like, as I think back over the 0:17:40.440 --> 0:17:42.960 last you know, several months, that the inflation that we're 0:17:42.960 --> 0:17:45.480 dealing with today is not necessarily wasn't caused by the 0:17:45.520 --> 0:17:48.040 Federal Reserve. I'm not sure the Federal Reserve can get 0:17:48.200 --> 0:17:49.960 get us out of this. It feels like it's more 0:17:50.000 --> 0:17:53.560 of a supply side issue that has impacted a lot 0:17:53.640 --> 0:17:55.879 of the prices that were paying, whether it's at the 0:17:55.960 --> 0:17:59.240 pomper or in the supermarket. What can the FED really 0:17:59.320 --> 0:18:01.520 do and should we depend upon the Fed to get 0:18:01.600 --> 0:18:04.480 us out of this inflationary environment? Well, you know, I 0:18:04.600 --> 0:18:07.040 agree with all of that, and we've been telling our 0:18:07.119 --> 0:18:09.800 clients at High Frequency Economics that on top of the 0:18:09.880 --> 0:18:13.800 inflation story, there's an even more important story, which is 0:18:13.920 --> 0:18:18.160 that within the inflation that we're experiences we're experiencing right now, 0:18:18.560 --> 0:18:22.080 that's the rise of all prices in all wages, we 0:18:22.240 --> 0:18:24.600 also have at the same time a change in the 0:18:24.760 --> 0:18:28.880 relative prices energy compared to all other goods. And that's 0:18:28.920 --> 0:18:32.440 a different, separate problem, and it's a much more difficult 0:18:32.560 --> 0:18:36.439 kettle of fish to digest when energy prices go up 0:18:36.520 --> 0:18:40.120 relative to all other prices. Even in an inflationary environment, 0:18:40.520 --> 0:18:45.000 that is deflationary because even when people have to pay 0:18:45.200 --> 0:18:48.720 to fuel their cars and to heat their houses and 0:18:48.800 --> 0:18:51.560 to light their homes, right when they're done paying for 0:18:51.680 --> 0:18:54.920 all that energy, they then have less money left over 0:18:55.000 --> 0:18:57.959 to spend on other stuff. And that's a separate problem, 0:18:58.040 --> 0:19:01.000 and in my view, that's a growth problem that's much 0:19:01.040 --> 0:19:03.520 more important than the little bit of inflation that we're 0:19:03.520 --> 0:19:06.560 seeing right now. Kurl Weinberg, with this High Frequency Economics, 0:19:06.640 --> 0:19:11.600 this day of elevated inflation in negative wage growth down 0:19:11.720 --> 0:19:14.600 negative one oh three. The vix thirty three point four 0:19:14.640 --> 0:19:17.359 or five NASK went under down one percent. These statistics 0:19:17.680 --> 0:19:20.000 are better than what we saw before the market open. 0:19:20.080 --> 0:19:22.200 But now with the market open we get a reading. 0:19:22.240 --> 0:19:26.879 I should mention Bitcoin down dollars it is under thirty. 0:19:28.119 --> 0:19:31.040 So Carl, you know again, I guess one of the 0:19:31.119 --> 0:19:34.440 questions is is as this feder reserve you know, moves higher, 0:19:34.720 --> 0:19:37.120 moves more aggressively on the interest right front, the risk 0:19:37.760 --> 0:19:40.600 of a recession is that much more prominent? Is that 0:19:40.800 --> 0:19:44.280 in your model either twenty two or twenty three, it 0:19:44.400 --> 0:19:47.480 certainly is. I mean, our job at high frequency economics 0:19:47.600 --> 0:19:49.600 is not to tell but fed what to do, but 0:19:49.720 --> 0:19:52.760 to tell the markets about the consequences of what the 0:19:52.840 --> 0:19:55.720 set is doing. And our view the rise and energy 0:19:55.840 --> 0:19:59.800 prices is causing at least a growth pause or possibly 0:19:59.840 --> 0:20:04.480 of session on its own and hammering demand down to 0:20:04.640 --> 0:20:07.840 meet a shortage of supply, my view, is not the 0:20:08.000 --> 0:20:12.000 right policy recommendation. It will make the be session the 0:20:12.080 --> 0:20:15.679 downturn more severe than it otherwise would be, or than 0:20:15.760 --> 0:20:17.600 it has to be. What you want to have right 0:20:17.640 --> 0:20:22.199 now are zero or negative interest rates to encourage investment, 0:20:22.600 --> 0:20:26.359 to get people to substitute different sources of energy for 0:20:26.480 --> 0:20:29.840 petro energy, to get people to invest in being more efficient. 0:20:30.240 --> 0:20:32.480 That's what you need. You need low interest rates for that, 0:20:32.880 --> 0:20:35.000 not higher interest rates. Carl, I want to go back 0:20:35.040 --> 0:20:37.120 to your you. This is folks back when the ice 0:20:37.160 --> 0:20:41.200 say you're just pulling back up the Taconic Parkway. Carl, 0:20:41.280 --> 0:20:43.240 I want to go back to what all this means 0:20:43.280 --> 0:20:46.120 for e M. I mentioned Irving Fisher Well, the red 0:20:46.240 --> 0:20:52.119 monograph that Stanley Fisher Road in two thousand is incredibly important. 0:20:52.880 --> 0:20:55.359 What does e M do in this mass? And I 0:20:55.400 --> 0:20:59.640 don't mean the idiosyncrasies of Turkish lira on winding over 0:20:59.760 --> 0:21:03.280 five team lyra por dollar, but as a general statement, 0:21:04.200 --> 0:21:08.639 what does Singapore do? What does giant India do? Indonesia? 0:21:09.240 --> 0:21:13.240 What does the Czech Republic do? Well, Tom, you just 0:21:13.359 --> 0:21:16.480 spend a whole range of different circumstances. I think you 0:21:16.560 --> 0:21:22.280 can Grossomoto divide emerging market economies into two kinds. There 0:21:22.320 --> 0:21:25.520 are those that import commodities that are getting a windfall, 0:21:25.880 --> 0:21:29.160 and there are those that export commodities that are hurting. 0:21:29.560 --> 0:21:33.399 And for the economies that import commodities that are hurting. 0:21:33.880 --> 0:21:37.240 They are going to face both lower revenue up their 0:21:37.560 --> 0:21:40.800 higher import bills because of the higher prices of commodities 0:21:40.840 --> 0:21:43.000 that they have to buy, and at the same time 0:21:43.080 --> 0:21:44.880 interest rates are going to go up on the debt 0:21:44.960 --> 0:21:48.159 that they have. So I think there's a subclass of 0:21:48.359 --> 0:21:52.960 highly indebted commodity importing economies that have to be watched carefully. 0:21:53.320 --> 0:21:55.040 I know that the I m F is already on 0:21:55.200 --> 0:21:58.480 this story. Investors also have to pay attention to the 0:21:58.560 --> 0:22:03.240 balance of payments challenges that many emerging the market economies 0:22:03.240 --> 0:22:05.520 are going to face. Carl, thank you so much. It's 0:22:05.520 --> 0:22:09.040 been too long, Carl Weinberger with this with high frequency economics. 0:22:15.040 --> 0:22:19.720 Now for a different conversation on Disney, on entertainment and 0:22:19.880 --> 0:22:22.920 on the Bob's Burgers movie, which is the next big 0:22:23.000 --> 0:22:26.479 thing to be launched by Disney. Michael Nathanson joins us, 0:22:26.520 --> 0:22:29.600 of course, with Moffatt Nathanson and Michael will be blunt. 0:22:29.680 --> 0:22:34.600 Nobody's talking about the Bob's Burgers movie launched by twentieth Century. 0:22:34.640 --> 0:22:38.760 Here they're talking about the fractured management of Disney. What 0:22:39.040 --> 0:22:42.600 happens here? What is Susan Arnold x Carlyle, What does 0:22:42.680 --> 0:22:45.600 she do? In the board do with the management of 0:22:45.720 --> 0:22:50.720 Disney looking more and Tom, that's a great question. I 0:22:50.920 --> 0:22:55.960