WEBVTT - Surveillance: ECB, Fed Raise Rates 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromoids, along with Tom Keen and Jonathan Ferrell. Join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:16.440 finance and investment. 0:00:16.760 --> 0:00:18.760 Subscribe to Bloomberg Surveillance. 0:00:18.320 --> 0:00:21.840 On demand on Apple, Spotify and anywhere you get your podcasts, 0:00:22.120 --> 0:00:25.200 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:25.200 --> 0:00:26.360 the Bloomberg Business App. 0:00:26.480 --> 0:00:29.480 I've been looking forward to this conversation all morning. Richard Clarida, 0:00:29.640 --> 0:00:33.120 the Global Economic Advisor at Pimco and former Fed Reserve 0:00:33.280 --> 0:00:35.360 Vice Chair and a good friend of this program for many, 0:00:35.360 --> 0:00:37.680 many years. Rich wonderful to catch up with you, sir. 0:00:37.840 --> 0:00:39.640 I was thinking back to our conversation we had on 0:00:39.680 --> 0:00:41.920 the West Coast when Pimco put out their second outlook 0:00:41.920 --> 0:00:43.559 and you and I talked about what you called the 0:00:43.600 --> 0:00:47.120 Fed tolerating two points something. Did you hear that from 0:00:47.240 --> 0:00:50.159 Chairman Power in that news conference yesterday, because I did. 0:00:51.240 --> 0:00:54.200 Well, well, yeah, I think that you know, they've had 0:00:54.240 --> 0:00:55.680 a lot to do, They've done a lot of happy 0:00:55.720 --> 0:00:58.920 at lifting. Ultimately, they do want to get inflation to 0:00:58.960 --> 0:01:01.240 two but they understand and that if the year from 0:01:01.280 --> 0:01:03.880 now it's running in the twos, that will have been 0:01:03.920 --> 0:01:07.319 a big accomplishment, and they can adjust rates down. They don't, 0:01:07.360 --> 0:01:10.240 you know, they obviously don't want to tighten too much. 0:01:10.280 --> 0:01:13.880 And so yes, I think two points something is kicking 0:01:14.400 --> 0:01:15.920 and alive for sure right now. 0:01:16.080 --> 0:01:19.360 Rich, it's worth going over what they're basically talingus. Explicitly, 0:01:19.680 --> 0:01:23.360 they're willing to cut interest rates with inflation above two percent? 0:01:23.480 --> 0:01:24.679 How controversial might that be? 0:01:26.319 --> 0:01:28.120 I think they'll do a good job explaining it. What 0:01:28.160 --> 0:01:31.560 they're going to say is, look, as inflation falls, if 0:01:31.600 --> 0:01:34.559 the Fed doesn't count rates, it's actually tightening policy because 0:01:34.600 --> 0:01:37.600 policy is the real rate. So if the nomine rates unchanged, 0:01:37.600 --> 0:01:41.039 inflation's falling, they're tightening and they won't think they need 0:01:41.040 --> 0:01:44.080 to add additional tightening if they think the inflation momentum 0:01:44.160 --> 0:01:46.320 is going in the right way. So that's the way 0:01:46.360 --> 0:01:48.480 that they will that they'll explain it. 0:01:48.960 --> 0:01:51.360 The FED was talking a lot about data dependency and 0:01:51.440 --> 0:01:53.960 how they really aren't giving forward guidance at this point. 0:01:54.320 --> 0:01:55.520 Did you get a sense. 0:01:55.400 --> 0:01:59.120 Of which data could really shift their views before September? 0:01:59.160 --> 0:02:01.200 Even though we do get a of data, we've heard 0:02:01.280 --> 0:02:04.160 every time them come out and say, one data point 0:02:04.240 --> 0:02:05.440 a trend does not make. 0:02:06.480 --> 0:02:09.120 Sure, and I think so they'll have They'll have two 0:02:09.160 --> 0:02:13.320 more inflation prints and two more labor market prints. But Lisa, 0:02:13.360 --> 0:02:17.280 I thought for a long time that another important development 0:02:17.360 --> 0:02:19.320 that they're going to be following is what's going on 0:02:19.400 --> 0:02:23.200 in the labor market. They like the fact that the 0:02:23.320 --> 0:02:27.079 labor market is buoyant, but wages are going up faster 0:02:27.160 --> 0:02:30.200 than consistent with the with the two percent target. So 0:02:30.280 --> 0:02:32.560 I do think they'll be looking at the labor market data, 0:02:32.639 --> 0:02:36.840 wage employment cost index, as well as the price inflation. 0:02:37.280 --> 0:02:38.440 So what would they have to see? 0:02:38.760 --> 0:02:41.280 How high is the threshold for them to hike again 0:02:41.639 --> 0:02:43.920 in September or, if not in September, in November. 0:02:44.240 --> 0:02:46.360 I think it's I think it's maybe a closer call 0:02:46.480 --> 0:02:49.600 than some of the market pricing right now. You know, 0:02:50.120 --> 0:02:53.120 they did write down two more hikes in June. We 0:02:53.200 --> 0:02:57.360 got one of them yesterday, and an overwhelming majority of 0:02:57.360 --> 0:03:00.440 the committee thought in June that appropriate policy would call 0:03:00.520 --> 0:03:03.520 for one more hike. So I think certainly one more 0:03:03.600 --> 0:03:05.720 hike is in play at some point in the fall. 0:03:06.120 --> 0:03:08.880 The chair said that explicitly. He also said that when 0:03:08.919 --> 0:03:11.760 he was in Europe, a couple of weeks ago. So 0:03:11.840 --> 0:03:14.079 I don't think it's an overly high hurdle to get 0:03:14.120 --> 0:03:15.960 that hike. I don't think they necessarily have to do 0:03:16.000 --> 0:03:20.120 it in September. I will say this, whatever hiking they 0:03:20.120 --> 0:03:21.640 think they need to do, I think they want to 0:03:21.639 --> 0:03:23.000 get in this year. 0:03:23.800 --> 0:03:25.600 Why this year, Rich? Why is that important? 0:03:26.680 --> 0:03:26.960 Well? 0:03:27.000 --> 0:03:29.920 I think a couple of reasons. I think that I 0:03:29.960 --> 0:03:32.880 think they think they're close to the end anyway, and 0:03:32.919 --> 0:03:37.040 inflation's moving, however, slowly in their direction, and I think 0:03:37.040 --> 0:03:39.520 they would like to stay out of the spotlight in 0:03:39.560 --> 0:03:42.200 an election year. Now we've had the FED hike in 0:03:42.280 --> 0:03:45.640 election years four nineteen eighty four come to mind. And 0:03:45.640 --> 0:03:48.720 they'll do that if they really think that inflation really 0:03:48.840 --> 0:03:51.960 requires a much higher ratepath. But I think this cycle 0:03:52.320 --> 0:03:54.640 is aiming to finish up sometime in the fall. 0:03:55.040 --> 0:03:57.680 You know that this FED is always criticized. The Committee 0:03:57.920 --> 0:04:01.080 always faces criticism for something. The criticism we heard from 0:04:01.080 --> 0:04:04.040 some guests in the news conference before the news conference 0:04:04.080 --> 0:04:06.680 and after the news conference too was just how data 0:04:06.720 --> 0:04:09.720 dependent this FED actually is. They took a break from 0:04:09.800 --> 0:04:13.000 hiking rich, then they come back and hike again, and 0:04:13.040 --> 0:04:15.800 in the intimated period we had inflation that actually improved 0:04:15.800 --> 0:04:17.840 the inflationy backdrops seem to get better, and yet they 0:04:17.880 --> 0:04:20.200 hiked anyway. How data dependent are they? 0:04:21.520 --> 0:04:25.040 Well, good good point. Data dependent is a very elastic 0:04:25.160 --> 0:04:29.040 phrase which has opened to various interpretations. I think, on balance, 0:04:29.440 --> 0:04:33.200 really the going forward, especially after this meeting yesterday, they 0:04:33.240 --> 0:04:35.400 really are data dependent. As you know, I've said on 0:04:35.440 --> 0:04:38.400 your air before most of this rate hike cycle, they've 0:04:38.440 --> 0:04:41.200 not been that data dependent. In March of last year, 0:04:41.240 --> 0:04:43.480 they knew two things. The funds rate was at zero 0:04:43.480 --> 0:04:45.920 and inflation was at five going to six. That's all 0:04:45.960 --> 0:04:48.320 the data they needed to set off this this very 0:04:48.360 --> 0:04:50.640 aggressive rate hike cycle. I do think that we do 0:04:50.720 --> 0:04:53.840 get close to the terminal rate, that the margin is 0:04:53.880 --> 0:04:56.240 more a data dependent although I did I agree, and 0:04:56.279 --> 0:04:59.839 I said on Bloomberg after that meeting it was it 0:04:59.880 --> 0:05:02.200 was an awkward pause in June, that's for sure. 0:05:02.560 --> 0:05:05.599 It's an awkward moment also right now, given that the 0:05:05.640 --> 0:05:08.520 FED is removing recession as the base case and we're 0:05:08.520 --> 0:05:11.360 looking at a soft landing. And yet there's a real 0:05:11.480 --> 0:05:14.640 question mark among analysts and a real split among investors 0:05:14.680 --> 0:05:18.680 about whether inflation could reaccelerate as a result of the strength, 0:05:18.720 --> 0:05:20.080 the resilience, the wages. 0:05:20.560 --> 0:05:22.360 Where do you fall on this? What do you think 0:05:22.440 --> 0:05:24.520 the FED falls on this, given that. 0:05:24.520 --> 0:05:27.080 They seem to be taking perhaps a bit more of 0:05:27.080 --> 0:05:27.920 a dubbish stance. 0:05:29.240 --> 0:05:33.479 Yes, quite quite frankly, Lisa, I was surprised in the 0:05:33.520 --> 0:05:36.040 press conference. I wasn't surprised to hear the chair says 0:05:36.040 --> 0:05:38.120 he has many times that he thinks there's a path 0:05:38.640 --> 0:05:41.400 to a soft landing. That's okay, sure there's a path. 0:05:41.960 --> 0:05:44.919 But I was surprised that he invoked the change in 0:05:45.000 --> 0:05:47.920 the staff forecast. I don't think that was in the 0:05:48.680 --> 0:05:52.600 June minutes, and so he's obviously entitled to do that. 0:05:52.640 --> 0:05:55.359 But yes, not my base case, not our base case. 0:05:55.400 --> 0:05:57.880 But there is a scenario where we get some good 0:05:57.920 --> 0:06:00.479 news on inflation in this fall because of falling rents, 0:06:01.240 --> 0:06:04.679 use car prices again falling. But if the FED finds 0:06:04.680 --> 0:06:08.000 itself in Marsha twenty twenty four with an unemployment rate 0:06:08.040 --> 0:06:11.599 of forig an inflation rate of four, you know, with 0:06:11.680 --> 0:06:14.240 some of that temporary good news behind them, they're in 0:06:14.240 --> 0:06:16.599 a very tough spot. So I do think it's a risk. 0:06:16.640 --> 0:06:19.400 It's not the base case, but it's certainly something if 0:06:19.400 --> 0:06:20.720 I were still there, I would be. 0:06:20.880 --> 0:06:23.359 I'd be assessing, what do you think right now is 0:06:23.360 --> 0:06:26.919 the bigger risk rich the idea of inflation reaccelerating and 0:06:26.960 --> 0:06:29.919 still being a problem, or the idea of recession and 0:06:29.960 --> 0:06:33.120 avoiding something more entrenched, which could happen if the FED 0:06:33.160 --> 0:06:33.760 moves slower. 0:06:35.440 --> 0:06:38.920 Well, personally, I do think that, you know, again, I'm 0:06:38.920 --> 0:06:41.760 in the private sector now, I do think that the FED. 0:06:41.800 --> 0:06:44.480 The bigger risk is for the FED is to declare 0:06:44.480 --> 0:06:48.479 a mission accomplished too early and find themselves next year 0:06:48.520 --> 0:06:51.040 having to restart the rate hike. So if I were there, 0:06:51.080 --> 0:06:54.080 it would skew me to getting in, you know, that 0:06:54.240 --> 0:06:57.120 additional hike this year, and I think some members of 0:06:57.160 --> 0:06:59.279 the committee we'll see it that way, lookly. So the 0:06:59.320 --> 0:07:04.320 other thing is the Fed's own projection, which I agree with, 0:07:04.480 --> 0:07:07.560 has unemployment rate rising by about a point by the 0:07:07.640 --> 0:07:10.480 end of next year. That would be very modest. That 0:07:10.480 --> 0:07:14.000 would probably be the most modest downturn we've had. But historically, 0:07:14.080 --> 0:07:16.800 as we know the so rule, whenever the unemployment rate 0:07:16.880 --> 0:07:19.920 rises by more than a half a point, it's ultimately 0:07:19.960 --> 0:07:22.960 declared a recession. So I actually think a truly non 0:07:23.000 --> 0:07:26.480 recession outcome without any rise in the unemployment rate at 0:07:26.520 --> 0:07:28.640 all is going to be tough. 0:07:28.800 --> 0:07:32.040 That's my personal view, would be phenomenal if that materialized. 0:07:32.040 --> 0:07:34.239 I want to finish on this if we can rich. Yeah, 0:07:34.360 --> 0:07:37.200 no dissent. We talked about this yesterday. I've been talking 0:07:37.200 --> 0:07:39.000 about it for a while. You've been on the committee. 0:07:39.480 --> 0:07:42.680 Why do people, even when we know they might disagree 0:07:42.680 --> 0:07:45.680 with the decision, make the decision not to descend. Why 0:07:45.680 --> 0:07:47.040 does that happen on the committee? 0:07:48.240 --> 0:07:50.840 Well, you know, the FED has been an institution that's 0:07:50.880 --> 0:07:53.120 been around for one hundred plus years, and there are 0:07:53.160 --> 0:07:58.120 certain cultural norms, and certainly it's been a very long 0:07:58.200 --> 0:08:01.440 time since you've had a governor dissent on a policy 0:08:01.520 --> 0:08:04.320 rate decision. If you go back to the Vulgar years, 0:08:04.320 --> 0:08:07.120 he had governors and his vice chair dissenting. But you 0:08:07.160 --> 0:08:10.240 know since green Span. But the Reserve Bank presidents can 0:08:10.360 --> 0:08:13.880 indue dissent. Certainly, during my time at the FED, especially 0:08:13.920 --> 0:08:16.720 in twenty nineteen, we had three descents, and we had 0:08:16.760 --> 0:08:18.920 several presidents saying they would have descended if they had 0:08:18.920 --> 0:08:21.680 had a vote. So descents can happen. The other thing 0:08:21.720 --> 0:08:24.920 I should notice we've had a lot of turnover among 0:08:25.000 --> 0:08:28.400 the Regional Bank, District Bank presidential, the announcement of Jim 0:08:28.440 --> 0:08:34.200 Bullard recently Aster George at Charlie Evans Rosengrin. You know 0:08:34.240 --> 0:08:38.960 there's accumulated fifty plus years of institutional experience that's no 0:08:39.040 --> 0:08:41.960 longer in that room. I think that's also relevant. 0:08:42.120 --> 0:08:44.440 Richard, thank you sir for wangan. That's catch up. 0:08:44.520 --> 0:08:47.040 So next time in studio please Richard Cloard of the 0:08:47.040 --> 0:08:49.480 the former FED Vice Chair and now with pim Coke 0:09:00.240 --> 0:09:02.559 joining us now for a preview of the ECP. James Athy, 0:09:02.800 --> 0:09:06.000 investment director at Aberdeen. James much had a decision for 0:09:06.040 --> 0:09:08.439 the Government Council in the European Central Bank. The FED 0:09:08.520 --> 0:09:10.880 has the luxury of saying growth is good, the labour 0:09:10.920 --> 0:09:11.600 market is strong. 0:09:12.040 --> 0:09:12.400 Right now. 0:09:12.440 --> 0:09:14.080 I'm not sure President the Guard can go into that 0:09:14.080 --> 0:09:16.439 news conference a little bit later this od James and 0:09:16.480 --> 0:09:17.760 say growth is good. 0:09:17.880 --> 0:09:18.800 Is this a hard one for her? 0:09:19.480 --> 0:09:21.480 H Hey, John, I mean you could argue it's a 0:09:21.520 --> 0:09:25.520 little bit easier because again, these the transmission for monetary 0:09:25.559 --> 0:09:29.800 policy to influence inflation is largely via demand. So if anything, 0:09:29.840 --> 0:09:32.560 the ECB is facing a slightly easier task because they 0:09:32.559 --> 0:09:35.400 can see that demand and forward demand through things like 0:09:35.440 --> 0:09:39.240 the bank lending survey are already softening and softening significantly, 0:09:39.640 --> 0:09:44.600 which suggests that their policy is further into restrictive territory 0:09:44.640 --> 0:09:49.880 and maybe they can more convincingly consider the end. Whereas 0:09:50.000 --> 0:09:52.439 you know, as you guys were just discussing, if the 0:09:52.559 --> 0:09:55.480 US consumer doesn't die down, if the US labor market 0:09:55.559 --> 0:09:59.000 doesn't soften, it's difficult to believe that they've found equilibrium, 0:09:59.040 --> 0:10:00.960 and it feels like would have to come back to 0:10:01.040 --> 0:10:04.600 the table. So the communication is difficult because we're moving 0:10:04.640 --> 0:10:07.880 from this very backward looking policy stance into something highly 0:10:07.960 --> 0:10:11.520 data dependent. Central bankers know that markets have a tendency 0:10:11.559 --> 0:10:13.920 to get carried away and they don't want that easing 0:10:13.960 --> 0:10:17.480 of financial conditions, but that's a problem they cannot really resolve. 0:10:18.120 --> 0:10:21.120 I think we'll see a very similar outcome today. Non committal, 0:10:21.240 --> 0:10:22.400 not really full of information. 0:10:22.920 --> 0:10:25.960 Meanwhile, we've been talking about the bank lending transmission mechanism 0:10:26.280 --> 0:10:28.720 in Europe and John rightly pointed out that it is 0:10:28.840 --> 0:10:33.800 more sensitive to this type of contraction which we've heard 0:10:33.840 --> 0:10:37.000 and we've seen. What are you experiencing, What are you 0:10:37.080 --> 0:10:40.000 seeing on the ground in terms of how quickly credit 0:10:40.080 --> 0:10:41.440 is contracting in the euroregion? 0:10:41.960 --> 0:10:44.160 Well, I mean, that's difficult to say on the ground. 0:10:44.160 --> 0:10:46.240 I think we all have to rely on the data 0:10:46.280 --> 0:10:48.280 as we see it. And I look at the contents 0:10:48.320 --> 0:10:51.080 of the bank lending survey and I think more pertinently 0:10:51.120 --> 0:10:54.360 on the demand side than the supply side. Of course, 0:10:55.080 --> 0:10:58.240 supply conditions matter, they always do. But what matters for 0:10:59.480 --> 0:11:03.040 judging the stance of and transmission of monetary policy is 0:11:03.160 --> 0:11:05.520 more about the demand for loans, and we can see 0:11:05.520 --> 0:11:08.360 that that really does look incredibly soft across the Eurozone. 0:11:08.480 --> 0:11:10.640 If you look at the sort of pre pandemic estimates 0:11:10.640 --> 0:11:14.240 for neutral rates in Europe and the US, maybe half 0:11:14.240 --> 0:11:17.040 a percent in the Eurozone and maybe two and a 0:11:17.040 --> 0:11:19.480 half percent in the US, there's two hundred basis points 0:11:19.520 --> 0:11:22.439 between them, but actually there's only one hundred hundred and 0:11:22.480 --> 0:11:26.319 fifty basis points between the cash rates. So that alone 0:11:26.440 --> 0:11:31.240 suggests that European policy is already tighter than US policy, 0:11:31.480 --> 0:11:33.360 and I do think we see that in the data. 0:11:33.440 --> 0:11:36.040 And that's without even getting to the structural challenges in 0:11:36.040 --> 0:11:36.719 the Eurozone. 0:11:36.720 --> 0:11:38.480 We've got to talk about some of those challenges now 0:11:38.520 --> 0:11:41.480 on the ground. In Frankfurt, Germany, Bloomberg's Marit toed out 0:11:41.480 --> 0:11:44.800 outside of the ECB headquarters. Maria, I just frame how 0:11:44.840 --> 0:11:47.360 difficult this is going to be for the European Central 0:11:47.360 --> 0:11:49.800 Bank in thirty minutes time for President of Guard when 0:11:49.800 --> 0:11:51.680 she has to deliver that news conference. 0:11:53.000 --> 0:11:56.199 Well, this is going to be a very difficult communications 0:11:56.280 --> 0:11:58.800 exercise for the head of the European Central Bank because 0:11:58.800 --> 0:12:00.880 on the one hand, we know they will hike twenty 0:12:00.880 --> 0:12:03.079 five basis points out with the guidance to the market 0:12:03.080 --> 0:12:05.400 and everyone as well calibrated for them. But the big 0:12:05.480 --> 0:12:07.920 question is what happens next. And you've talked about this 0:12:08.160 --> 0:12:10.360 range of data, some of it very soft when you 0:12:10.400 --> 0:12:12.600 look at the BMIs, and it wasn't just Germany this week. 0:12:12.720 --> 0:12:16.800 You also had significant downturns coming also from economies like France. 0:12:16.800 --> 0:12:19.000 We also had that lending survey, which we know they 0:12:19.040 --> 0:12:21.720 look at. But then core inflation's sticky. So again the 0:12:21.760 --> 0:12:25.280 market will be focused on any guidance, any bias potentially 0:12:25.280 --> 0:12:27.600 in this decision, but I'm not sure they want to 0:12:27.600 --> 0:12:30.400 do that. If anything, the European Central Bank, you could argue, 0:12:30.559 --> 0:12:33.720 wants to go for the most neutral possible, the most 0:12:33.800 --> 0:12:36.680 options open, look at the data, say we go back 0:12:36.679 --> 0:12:39.760 to very data dependent and look back in September where 0:12:39.800 --> 0:12:41.000 we are so, I think this is going to be 0:12:41.080 --> 0:12:43.000 a tricky exercise. There will be a lot of questions 0:12:43.080 --> 0:12:44.520 to try to get an indication of. 0:12:44.440 --> 0:12:45.960 Where they want to go. But I'm not sure she 0:12:46.040 --> 0:12:47.240 wants to do that yet. 0:12:47.360 --> 0:12:50.360 You follow the speakers we heard from Klasska not of 0:12:50.480 --> 0:12:52.800 the Netherlands recently in the last couple of weeks, the 0:12:52.840 --> 0:12:56.760 individual members of the Governing Council, the traditional hawks, Maria, 0:12:56.880 --> 0:12:59.360 do you send from them that even they are unsure 0:12:59.400 --> 0:13:01.079 about what comes next after July? 0:13:02.080 --> 0:13:05.520 Yeah, and remember, Jonathan, this was presented today July as 0:13:05.559 --> 0:13:08.440 a quote necessity for the Central Bank. When it comes 0:13:08.480 --> 0:13:11.319 to September, we've seen maybe it's now fifty to fifty. 0:13:11.440 --> 0:13:13.600 Maybe it's now an open call. Maybe we need to 0:13:13.640 --> 0:13:16.319 look at the data again, the waiting for new projections 0:13:16.559 --> 0:13:19.280 in September. So I think there's been almost a rethinking 0:13:19.960 --> 0:13:22.200 over the past two weeks. What I'm also curious to 0:13:22.240 --> 0:13:24.400 hear about is, and this will be sure a question, 0:13:24.880 --> 0:13:27.679 is this idea of rate cuts potentially earlier than expected. 0:13:27.720 --> 0:13:29.720 That would be the worst case scenario for the Central 0:13:29.720 --> 0:13:32.120 Bank to have inflation that is above target and get 0:13:32.120 --> 0:13:34.760 all this chit chat and market's about potentially because of 0:13:34.800 --> 0:13:37.800 the state of the economy cutting beforehand. I'm also very 0:13:37.840 --> 0:13:40.000 curious is to see can she shut it. 0:13:39.960 --> 0:13:42.320 Down and how will she push back against that idea. 0:13:42.559 --> 0:13:45.480 We're about five minutes away from that ECB rate decision, 0:13:45.480 --> 0:13:47.640 still with us James Athey of Aberdeen and James, I'd 0:13:47.640 --> 0:13:51.920 love your take on the data dependency, the maximum optionality 0:13:51.920 --> 0:13:54.560 that we're hearing certainly from the FED and as Maria 0:13:54.640 --> 0:13:58.640 was suggesting, from the ECB coming up as well, what 0:13:58.800 --> 0:13:59.600 data are you. 0:13:59.600 --> 0:14:00.240 Honed in on? 0:14:00.280 --> 0:14:03.160 Are you going to be trading more aggressively on data 0:14:03.360 --> 0:14:04.200 in a new way? 0:14:04.960 --> 0:14:05.160 Yeah? 0:14:05.200 --> 0:14:08.000 I mean that's unfortunately the game of investing it. It 0:14:08.040 --> 0:14:11.320 really is John Maynard Kine's beauty contest. Much as I 0:14:11.320 --> 0:14:15.199 would like to look more heavily at the most forward 0:14:15.200 --> 0:14:17.040 looking data, the fact of the matter is that the 0:14:17.120 --> 0:14:20.960 markets are still somewhat focused on the most lagging indicators, 0:14:21.000 --> 0:14:24.000 that's jobs and inflation. So I think some balance between 0:14:24.080 --> 0:14:27.160 the two is probably the right path to tread. I 0:14:27.200 --> 0:14:30.240 agree with Maria completely. The EACB really doesn't want to 0:14:30.240 --> 0:14:33.600 give a strong signal one way or the other. There 0:14:33.680 --> 0:14:38.040 is definitely persistent weakness across the manufacturing sector that's much 0:14:38.080 --> 0:14:40.520 more significant in the Eurzone than it is in the US. 0:14:40.920 --> 0:14:43.280 We're now starting to see softening in the service sector 0:14:43.320 --> 0:14:46.280 as well, and that is good news. But of course 0:14:46.320 --> 0:14:48.360 none of these central banks want to box them in, 0:14:48.400 --> 0:14:51.920 you know, to Nick John's words, they want maximum optionality, 0:14:52.040 --> 0:14:57.240 So some sort of obfuscation, constructional, constructive ambiguity is what 0:14:57.280 --> 0:14:59.920 we're likely to see. I think once these risk of 0:15:00.200 --> 0:15:01.920 are out the way, the market at the moment is 0:15:01.920 --> 0:15:03.720 in the mood to then run with the themes and 0:15:03.760 --> 0:15:06.080 the trades that it wanted to run with anyway. So 0:15:06.160 --> 0:15:08.160 I think we saw that in the US last night. 0:15:08.160 --> 0:15:11.400 Week a dollar risk on probably lower yields for the summer. 0:15:11.440 --> 0:15:14.960 That's what I'm expecting, and I don't expect Madame Lagarde 0:15:15.000 --> 0:15:17.880 to necessarily put a hole in that this afternoon. 0:15:18.080 --> 0:15:20.560 Do you expect the dollar to weaken and the euro 0:15:20.800 --> 0:15:24.840 to strengthen because of the US or because of Europe's actions. 0:15:25.760 --> 0:15:28.760 Well, I think the dollar is weakening because it's become 0:15:28.760 --> 0:15:31.440 a bit of a self fulfilling prophecy. The market always 0:15:31.480 --> 0:15:33.400 has a bias to want a week a dollar because 0:15:33.480 --> 0:15:36.160 risk tends to perform better in a week dollar environment. 0:15:36.240 --> 0:15:39.480 The market has been and continues to love the carry 0:15:39.520 --> 0:15:43.080 trade that generally involves at least selling dollar as an 0:15:43.080 --> 0:15:46.480 intermediate step. But I look at the dynamics currently and 0:15:46.520 --> 0:15:49.400 it doesn't necessarily look like a week dollar environment. To me, 0:15:49.920 --> 0:15:52.920 US rates are higher than European rates, the European data 0:15:52.960 --> 0:15:56.440 is rolling over far more quickly. As a general rule, 0:15:56.520 --> 0:15:59.800 that looks like a reasonably solid dollar environment versus the 0:15:59.880 --> 0:16:02.760 US euros. So we're marginally long the dollar here. We 0:16:02.840 --> 0:16:06.200 think already the market's got a little bit over excited. 0:16:06.600 --> 0:16:08.720 But short term, as I say, the market tends to 0:16:08.760 --> 0:16:11.320 run with the themes it wants to. I think positioning 0:16:11.360 --> 0:16:16.560 is a bigger headwind, a bigger headwind medium term. It 0:16:17.000 --> 0:16:19.040 exactly everybody sees what they want to It's. 0:16:18.920 --> 0:16:20.600 Always the way, James. I just wonder, I know what 0:16:20.640 --> 0:16:23.880 investors want. They'd like a big easing program out of China. 0:16:24.040 --> 0:16:26.040 Do you think that's what policy makers under government Council 0:16:26.040 --> 0:16:28.280 would like to see right now? Would that be welcomed 0:16:28.520 --> 0:16:29.480 by them? 0:16:30.480 --> 0:16:30.680 Yeah? 0:16:30.720 --> 0:16:32.920 I mean that's a really good question. I'm not sure 0:16:32.960 --> 0:16:37.640 there's necessarily a huge supply side stimulus from China easing aggressively, 0:16:38.080 --> 0:16:41.000 so that might actually complicate their picture ad to demand 0:16:41.080 --> 0:16:44.680 without an offset via supply. I think I think the 0:16:44.680 --> 0:16:47.560 Central Bank would like to see inflation closer to two 0:16:47.640 --> 0:16:50.680 percent by hook or by crook, and then they can 0:16:50.760 --> 0:16:53.320 worry about the balance between supply and demand and how 0:16:53.760 --> 0:16:57.160 stimulatory or how restrictive their policy is. For what it's worth, 0:16:57.320 --> 0:16:59.080 I don't think China is going to engage in the 0:16:59.120 --> 0:17:02.400 sort of massive sticks we've seen in twenty fifteen, sixteen 0:17:02.440 --> 0:17:04.320 or two thousand and seven and eight. I think there's 0:17:04.359 --> 0:17:07.239 a lot of adjustment and fiddling around the edges. I 0:17:07.280 --> 0:17:09.280 don't think they're going to go back to the sort 0:17:09.280 --> 0:17:13.520 of debt funded infrastructure investment stimulus that we've seen historically. 0:17:13.840 --> 0:17:17.840 So I don't think there's a massive impulse for Europe 0:17:18.160 --> 0:17:19.520 coming from China so far. 0:17:19.640 --> 0:17:22.600 Lots of people would agree with you. James Athy, investment 0:17:22.640 --> 0:17:23.960 director at Aberdeen. 0:17:29.600 --> 0:17:32.640 Right now, I really want to get through what we're 0:17:32.640 --> 0:17:35.240 looking at in terms of is it a soft landing 0:17:35.320 --> 0:17:37.399 or is it a head fake? And I'm pleased to 0:17:37.400 --> 0:17:40.360 say that we're joined by Vincent rein Hart, chief economist 0:17:40.400 --> 0:17:43.640 and macro strategist at Dreyfus and Melan Vincent, what's your 0:17:43.760 --> 0:17:46.080 take on the slew of data that we just got 0:17:46.240 --> 0:17:49.560 that really highlights both the soft landing and on the 0:17:49.600 --> 0:17:50.679 margins disinflation. 0:17:51.720 --> 0:17:56.280 We probably heard it from care Pal yesterday. Importantly, he 0:17:56.440 --> 0:18:00.960 said that the board staff had taken out air forecast 0:18:01.080 --> 0:18:06.240 of recession, and Mike noted that GDP wasn't a surprise 0:18:06.359 --> 0:18:10.479 to the Atlanta Fed that had an estimate of two 0:18:10.560 --> 0:18:15.920 point four percent growth last quarter. Board staff invests a 0:18:16.000 --> 0:18:18.840 lot of resources in doing the same thing. So I 0:18:18.960 --> 0:18:23.479 don't really think that this morning, certainly from the National 0:18:23.520 --> 0:18:26.840 Income Accounts, was that much of a surprise. Big question 0:18:27.040 --> 0:18:29.920 is does it make it more or less likely there's 0:18:29.920 --> 0:18:34.120 a soft landing? Sure leans that way, but it's one 0:18:34.240 --> 0:18:36.280 data point. That's what shar Pale would say. 0:18:36.280 --> 0:18:37.200 At this point, What. 0:18:37.080 --> 0:18:40.560 Do you make of initial jobless claims second consecutive month 0:18:40.600 --> 0:18:43.120 that there's been an upside surprise or at least a 0:18:43.160 --> 0:18:47.119 positive downside surprise. Basically there are fewer people filing for 0:18:47.200 --> 0:18:51.480 unemployment than previously expected in the prior month. How does 0:18:51.520 --> 0:18:54.680 this confirm with the idea that we need a loosening 0:18:54.800 --> 0:18:57.600 labor market in order to achieve disinflation. 0:18:58.640 --> 0:19:02.640 Yeah, So the other part of soft landing is new 0:19:02.720 --> 0:19:07.840 productivity that we are getting very strong employment growth that 0:19:07.960 --> 0:19:12.360 is at least matching that and output we're not gaining 0:19:12.440 --> 0:19:15.040 anything in terms of output. 0:19:14.720 --> 0:19:16.480 Power, among other things. 0:19:16.560 --> 0:19:20.320 That means that wage gains are more serious because there's 0:19:20.320 --> 0:19:26.920 no cushion between what firms pay workers and what they produce. 0:19:28.240 --> 0:19:30.320 I think that, among other. 0:19:30.280 --> 0:19:37.240 Things, you know that the main takeaway is tight labor 0:19:37.320 --> 0:19:42.960 market is fueling household income, and household income is supporting consumption, 0:19:43.640 --> 0:19:46.200 which isady to get a recession that way, which. 0:19:45.960 --> 0:19:48.679 Is a reason why some people are wondering whether this 0:19:48.760 --> 0:19:51.560 is somewhat of an uncomfortable rational that you're seeing strengthen 0:19:51.600 --> 0:19:54.640 the economy, and yet the Fed is moving away from 0:19:54.800 --> 0:19:57.520 any forward guidance of further rate hikes. Do you think 0:19:57.520 --> 0:20:00.560 that this is a mistake that there wasn't a greater 0:20:00.720 --> 0:20:03.760