WEBVTT - Surveillance: Fed Day with Lacker 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Abramowitz Jailey, we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.840 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.480 and of course on the Bloomberg terminal. We get informed 0:00:31.640 --> 0:00:34.680 by a gentleman from the Richmond Fed. Jeffrey Lacker, came 0:00:34.720 --> 0:00:38.000 out at University Wisconsin, Madison and had to step into 0:00:38.040 --> 0:00:42.160 maybe the biggest shoes and biggest cultural moment in Fed America, 0:00:42.320 --> 0:00:45.159 and that was all of the heritage and the conservative 0:00:45.200 --> 0:00:49.440 ethos of the Richmond Fed. Dr Lacker joins us this morning, 0:00:49.479 --> 0:00:53.000 the former Richmond FED president, Jeff Just a perfect time 0:00:53.360 --> 0:00:56.120 to speak to you as well. If I walked down 0:00:56.120 --> 0:00:58.680 my hallway at home and I threw half my books out, Jeff, 0:00:58.680 --> 0:01:02.360 because I'm blind, like years ago, I kept all the textbooks. 0:01:02.640 --> 0:01:07.360 There's man Que, there's Abel Bernanke, there's CARLN. Saski's there's 0:01:07.400 --> 0:01:10.319 all these great books, including what you studied in one 0:01:10.360 --> 0:01:13.479 on one at Wisconsin. Is any of this Fed moment, 0:01:13.600 --> 0:01:18.160 this theory, this framework, is any of this fed process 0:01:18.200 --> 0:01:23.640 in the textbooks. I think so. I think that the 0:01:23.800 --> 0:01:27.000 empirical record of the Federal Reserve over the last a 0:01:27.360 --> 0:01:31.200 hundred years or more that they've been around shows repeated 0:01:31.240 --> 0:01:35.600 instances of them pivoting from a concern about promoting demand 0:01:35.640 --> 0:01:40.440 and growth to a concern about trying to fight inflation. UM. 0:01:40.640 --> 0:01:45.039 Their record is UM not that great. I think less 0:01:45.080 --> 0:01:48.960 than half of the time have they done it without successfully, 0:01:49.160 --> 0:01:54.480 that is, reduced inflation without successfully without pushing the UM 0:01:54.600 --> 0:01:58.520 economy into a recession by overdoing it. It's hard to 0:01:58.520 --> 0:02:03.360 do because the lags involved. And they've set out a 0:02:03.400 --> 0:02:05.880 course for themselves this year, and they've they've got a 0:02:05.880 --> 0:02:08.400 tough job this year for sure. Are they going to 0:02:08.520 --> 0:02:11.680 move forward and do you have confidence they can move 0:02:11.720 --> 0:02:16.400 forward and recalibrate and adjust with stability or do you 0:02:16.480 --> 0:02:21.679 suggest there is instability risk. I think they're threading a 0:02:21.800 --> 0:02:26.400 needle UM. I think they have to tighten UM rapidly 0:02:26.560 --> 0:02:33.520 enough to ease demand and ease inflation. UM cooler and inflation. 0:02:33.720 --> 0:02:36.560 But I think that they UM are going to be 0:02:36.639 --> 0:02:40.239 mindful of not going too fast and pushing the economy 0:02:40.240 --> 0:02:42.240 into the recession. I think they're all going to be 0:02:42.280 --> 0:02:47.600 mindful of Psalms rule. This is this impure, amazingly consistent 0:02:48.160 --> 0:02:51.959 vehicle regularity that the unemployment rate never rises more than 0:02:52.720 --> 0:02:56.040 five tenths of a percentage point without rising two or 0:02:56.080 --> 0:02:59.840 three percentage points. So you know, without the economy to 0:03:00.000 --> 0:03:03.359 begin to inflate into a recession. So they're gonna be 0:03:03.600 --> 0:03:06.680 They're going to be on egg shells this year. Jeff, 0:03:06.720 --> 0:03:09.320 what would it take to slow things down? I just 0:03:09.320 --> 0:03:11.560 want to understand that from your perspective, because clearly that 0:03:11.680 --> 0:03:14.200 number is shifted in the last ten years and shifted 0:03:14.240 --> 0:03:16.240 quite a lot. And clearly it's different with inflation at 0:03:16.280 --> 0:03:19.040 seven percent compared to say inflation down it. So what 0:03:19.080 --> 0:03:22.920 do you think it would take, um, So they have 0:03:22.960 --> 0:03:25.840 to get the real rate positive, perhaps to one or 0:03:25.880 --> 0:03:29.040 two percent, and if they got inflation down to two percent, 0:03:29.160 --> 0:03:32.799 that would take obviously three or four percent nominal rate 0:03:32.840 --> 0:03:35.320 on the Fed Funds rate. Don't have to get there overnight, 0:03:35.720 --> 0:03:37.280 can get there in a year or two, but to 0:03:37.400 --> 0:03:40.880 lay out the expectations so that markets understand it. That's 0:03:40.920 --> 0:03:44.800 about where the Fed Funds rate is likely to be 0:03:44.840 --> 0:03:47.200 at the end of three I think that's what it's 0:03:47.200 --> 0:03:49.280 going to take that's well north of where the dolt 0:03:49.280 --> 0:03:51.640 pot is. As you know, I wonder, Jeff, how you 0:03:51.640 --> 0:03:54.480 would think that the bannet sheet reduction would play into 0:03:54.520 --> 0:03:57.000 that as well as that's something that complements that effort, 0:03:57.080 --> 0:04:00.320 something that replaces it, What would it mean? And so 0:04:00.360 --> 0:04:02.640 I've been in the camp for a while of thinking 0:04:02.680 --> 0:04:06.560 that the balance sheet is kind of small beer relative 0:04:06.640 --> 0:04:10.880 to funds rates um increases. So I don't think the 0:04:10.880 --> 0:04:13.080 balance I think they ought to roll off the balance sheet, 0:04:13.080 --> 0:04:16.440 and they ought to get about it rapidly and soon. 0:04:16.640 --> 0:04:20.760 But I don't think that that's the major determined the 0:04:20.800 --> 0:04:23.080 stance of montery right policy right now sort of a 0:04:23.080 --> 0:04:27.479 marginal pact um. So, um, yeah, I think they need to, um, 0:04:27.520 --> 0:04:30.000 you know, focus on the funds rate and getting that going. 0:04:30.440 --> 0:04:33.159 Do you think, Jeff, that FED chair j Powell has 0:04:33.200 --> 0:04:38.400 been a good communicator through all this, you know, yeah, 0:04:38.520 --> 0:04:40.800 given the handy has been dealt in terms of what 0:04:40.920 --> 0:04:45.159 to communicate by the committee. Yeah, But I think, um, 0:04:45.800 --> 0:04:48.599 there's got to be a lot of my former colleagues, 0:04:49.040 --> 0:04:51.599 um on the FED I feel bad for who are 0:04:51.920 --> 0:04:54.440 looking back at the last year and feeling as if 0:04:54.480 --> 0:04:58.480 the FED didn't play its hand very well that Jeff 0:04:58.600 --> 0:05:00.600 no no, I apologize for how to off, but can 0:05:00.640 --> 0:05:04.479 you elaborate on which aspects, which moves they made that 0:05:04.600 --> 0:05:08.320 you think in retrospect were big mistakes and sort of 0:05:08.360 --> 0:05:11.760 site two or three things. First, they they hamstrung themselves 0:05:11.839 --> 0:05:16.920 by placing them under this tactical constraint of UM, giving 0:05:16.960 --> 0:05:21.520 the market a huge amount of notice before they started tapering. 0:05:21.600 --> 0:05:24.080 So Powell said, you know, we're not even talking about 0:05:24.120 --> 0:05:26.480 talking about tapering. Well, that means you got to talk 0:05:26.520 --> 0:05:29.360 about it, and then so on. I think that delayed 0:05:29.400 --> 0:05:32.640 their reaction, and they felt compelled to go through this 0:05:33.160 --> 0:05:36.520 steady march of releasing discussions in the minutes before they 0:05:36.520 --> 0:05:39.599 started tapering, and they put on their themselves the constraint 0:05:39.640 --> 0:05:42.440 that they were going to raise rates until they stopped UM, 0:05:43.279 --> 0:05:45.960 that they stopped purchases. So I think that set them 0:05:46.000 --> 0:05:49.000 back materially. And I think you can see, like around 0:05:49.000 --> 0:05:52.760 August and September they realized they needed to start raising rates. 0:05:52.760 --> 0:05:56.480 They could have done it in October November, but they 0:05:56.480 --> 0:06:03.240 were on this sort of tapering thing. The second, because continue, Jeff, continue, sure. 0:06:03.279 --> 0:06:05.840 The second Well, the second thing is the way they 0:06:05.880 --> 0:06:09.000 think about maximum employment. I mean they think of it 0:06:09.120 --> 0:06:13.119 the way as three point five percent unemployment and labor 0:06:13.160 --> 0:06:16.479 force participation rate backup to trend. And I think that 0:06:16.560 --> 0:06:19.400 caused them to misinterpret inflation in the first half of 0:06:19.480 --> 0:06:22.600 last year. I think they assumed, well, we must there's 0:06:22.640 --> 0:06:26.279 a lot of slack in the economy. It can't be um, 0:06:26.320 --> 0:06:29.320 you know, a persistent inflation search And they were wrong 0:06:29.360 --> 0:06:32.240 because maximum employment last year was about where it was 0:06:32.400 --> 0:06:35.000 about where actual employment was. We got to maximum employment 0:06:35.160 --> 0:06:38.120 MAXI employment various over time. It depends on all sorts 0:06:38.120 --> 0:06:40.040 of develop continue economy. I don't think they take it 0:06:40.080 --> 0:06:42.839 on board. Jeff, this is a delicate question because we 0:06:42.839 --> 0:06:45.680 speak to all these people with immense, immense respect. But 0:06:45.760 --> 0:06:48.920 I'm suggested Laquers never heard me say this. Krugman and 0:06:49.000 --> 0:06:51.400 lacquer are on the same page that we've got to 0:06:51.400 --> 0:06:54.239 go back to a much more traditional economics. And Jeff, 0:06:54.240 --> 0:06:57.680 for you, that's Wisconsin nine economics, which is one of 0:06:57.760 --> 0:07:01.159 the leading departments in the world at the time. Is 0:07:01.200 --> 0:07:03.600 the is the regret of the Fed looking at John 0:07:03.600 --> 0:07:06.279 Williams Richard Claire that one of the founders of ds 0:07:06.600 --> 0:07:09.600 GE that the Feds getting to Mathey and they've got 0:07:09.600 --> 0:07:15.400 to get more conceptual about the real economy. So this 0:07:15.480 --> 0:07:19.840 idea about maximum employment varying over the cycle, I mean, 0:07:20.080 --> 0:07:22.280 that's been around a while. There's been some new empirical 0:07:22.280 --> 0:07:25.040 work on it by Robert Hall and Marianna Goodly Act, 0:07:25.120 --> 0:07:27.920 But I don't think of that as as a new idea. 0:07:28.280 --> 0:07:30.000 What I think they ought to go back to is 0:07:30.120 --> 0:07:33.600 before the last framework revision. I think the last framework 0:07:34.440 --> 0:07:39.160 was a mistake. It essentially took preemptive rate increases off 0:07:39.200 --> 0:07:44.160 the table, and I think, in hindsight last year would 0:07:44.160 --> 0:07:48.600 have been the ideal time UH to engage in that 0:07:48.640 --> 0:07:51.160 in the second half of the year, nudge, nudge the 0:07:51.320 --> 0:07:53.520 rate up a bit, just to hedge your bets about 0:07:53.560 --> 0:07:58.000 whether inflations persistent in transitory rather than putting all your 0:07:58.000 --> 0:08:01.040 eggs in the transitory basket. But I think that the 0:08:01.080 --> 0:08:05.800 framework that took preemptive rises a rate increases off the table, 0:08:05.800 --> 0:08:08.080 I think that was a big mistake. So Jeff, just finally, 0:08:08.440 --> 0:08:12.560 is this a failure of expost monetary policy? After all 0:08:12.600 --> 0:08:15.280 that effort to shift in that direction, you're saying gets 0:08:15.320 --> 0:08:16.920 failed and we should go back to what we used 0:08:16.920 --> 0:08:22.520 to do. I don't think that the new framework was 0:08:22.560 --> 0:08:26.000 a constructive step forward. I think that people took for 0:08:26.080 --> 0:08:30.240 granted the price stability we had from on, and I 0:08:30.280 --> 0:08:33.080 don't think they appreciated the extent to which, you know, 0:08:33.200 --> 0:08:36.680 small preemptive moves were really going to established the credibility 0:08:36.760 --> 0:08:39.839 of the fact. Jeff, this is this is fiery language. 0:08:40.000 --> 0:08:42.960 Can they catch up and be preemptive at two pm 0:08:43.320 --> 0:08:48.520 this afternoon? I think, Um, I think they can. And 0:08:48.640 --> 0:08:50.640 it's going to play out over a couple of meetings, 0:08:50.640 --> 0:08:54.360 but I think, um, you know they're there. At the 0:08:54.440 --> 0:08:58.560 next meeting, they'll release Summari economic projections that will have 0:08:58.920 --> 0:09:02.400 dot a new dot uh, and that's an opportunity for 0:09:02.480 --> 0:09:06.320 them to spell out that, you know, they anticipate a 0:09:06.360 --> 0:09:11.120 more aggressive UM path. I think they could be more 0:09:11.160 --> 0:09:14.920 realistic in that in that some reveection on the actions 0:09:15.400 --> 0:09:19.680 about their inflation forecast. I don't think two point six 0:09:19.720 --> 0:09:22.520 percent is at all plausible at this point. I think 0:09:22.520 --> 0:09:25.440 inflation is likely to be four percent or north of 0:09:25.480 --> 0:09:29.360 that is that calendar year, UM, and I think they 0:09:29.440 --> 0:09:31.840 can spell out the extent to which they're gonna how 0:09:31.840 --> 0:09:35.920 they're gonna respond incoming data. Are they gonna discount blips 0:09:35.960 --> 0:09:38.480 one way or another. Are they gonna get on top 0:09:38.520 --> 0:09:43.200 of um inflation and and move the great path up 0:09:43.640 --> 0:09:48.200 if inflation comes in stronger than expected the first half 0:09:48.200 --> 0:09:51.160 of the year. Jeffrey Laca, formerly of the Richmond Fed, 0:09:51.480 --> 0:10:00.120 Jeff fantastic to catch up with you, Bob Michael. He 0:10:00.240 --> 0:10:04.400 is chief investment Officer and ahead of Global Fixed Income, 0:10:04.440 --> 0:10:07.679 Currency and Commodities of JP Morgan John. That means he's 0:10:07.720 --> 0:10:11.280 senior vice president Headaches and Estimates for all of JP 0:10:11.400 --> 0:10:13.280 Morgan John. Why don't you kick it off? I think 0:10:13.320 --> 0:10:15.080 that makes he's busier than you and I. We're going 0:10:15.120 --> 0:10:17.080 to talk about a football lights above, So let's start 0:10:17.120 --> 0:10:19.040 with this one. Why do you want to sit in 0:10:19.120 --> 0:10:23.640 cash in this market with this backdrop? Well, I think 0:10:23.640 --> 0:10:25.800 there are a number of things going on. First, let 0:10:25.800 --> 0:10:28.560 me say I think the Fed has played this month 0:10:28.640 --> 0:10:32.120 perfectly and given all the chaos, that may seem to 0:10:32.240 --> 0:10:35.640 be a conundrum to a lot of people, but think 0:10:35.679 --> 0:10:38.679 about it. Uh, they got last year wrong. Inflation got 0:10:38.679 --> 0:10:41.120 away from them. They walked in this year, they admitted 0:10:41.160 --> 0:10:43.439 they got it wrong, went out there all the f 0:10:43.520 --> 0:10:46.280 O m C members talked about all their tools were 0:10:46.280 --> 0:10:48.720 in play, then went into their quiet period and let 0:10:48.920 --> 0:10:51.800 us in the market hash it out. So they come 0:10:51.800 --> 0:10:55.959 into the day's meeting knowing what the median expectations are 0:10:56.240 --> 0:10:59.840 March liftoff for rate hikes, q E n's in Mar 0:11:00.520 --> 0:11:03.280 and some conversation about q T at the end of 0:11:03.280 --> 0:11:06.760 the year. They didn't have that information two weeks ago, 0:11:07.240 --> 0:11:10.440 so they are now playing it, I think very smartly. 0:11:10.679 --> 0:11:14.079 My concern is those things won't be enough the inflation 0:11:14.120 --> 0:11:16.640 genius out of the bottle. They're going to try to 0:11:16.720 --> 0:11:20.040 thread the needle and go with the market consensus. I 0:11:20.040 --> 0:11:22.400 think we heard them from Waller. They don't want to 0:11:22.440 --> 0:11:26.840 surprise the markets. They got enough for this meeting, but 0:11:26.960 --> 0:11:29.760 we think down the road they're going to have to 0:11:29.800 --> 0:11:33.160 accelerate a number of things, including rate hikes. We think 0:11:33.200 --> 0:11:36.040 they're going to have to go to every meeting twenty 0:11:36.080 --> 0:11:39.800 five basis points and QT. We hope that's the Jackson 0:11:39.840 --> 0:11:43.200 whole conversation that may be pulled forward, and then you 0:11:43.200 --> 0:11:45.839 have to watch the caps. Let's get into it before 0:11:45.840 --> 0:11:48.160 we get to the caps on banant reduction, it's really 0:11:48.200 --> 0:11:50.360 really important, really nuance, we need to spend some time 0:11:50.400 --> 0:11:53.320 on that. You're looking at potentially at a hike at 0:11:53.360 --> 0:11:56.880 every single meeting balance sheet reduction that could come earlier, 0:11:57.240 --> 0:11:59.240 maybe totally in one point five trilli and through the 0:11:59.280 --> 0:12:02.520 end it's twenty And you think that's what it's going 0:12:02.559 --> 0:12:05.400 to take to get inflation down, Bob, What does the 0:12:05.440 --> 0:12:11.040 market look like if they deliver everything you just said, John, 0:12:11.320 --> 0:12:15.560 You have to understand, central banks broke a thirty year 0:12:15.640 --> 0:12:19.439 promise to us. They told us the one mistake they 0:12:19.440 --> 0:12:23.239 would never make is to let inflation get away from them, 0:12:23.280 --> 0:12:26.160 and it has in every part of the world, in 0:12:26.360 --> 0:12:30.439 every economy. And now you listen to the Fed at 0:12:30.440 --> 0:12:33.280 the start of this month, they're back on their heels 0:12:33.520 --> 0:12:36.600 and they've got to fight ahead of them because inflation 0:12:37.080 --> 0:12:41.280 is getting entrenched. It's in the price of shelter, it's 0:12:41.320 --> 0:12:44.679 it's an employment They've got a couple of tough months 0:12:44.760 --> 0:12:48.600 ahead to look at inflation data. So we think that 0:12:48.679 --> 0:12:53.720 the inflation battle is much bigger than either they're estimating 0:12:54.280 --> 0:12:58.280 or admitting. So yes, they should bring forward those fights, John. 0:12:58.559 --> 0:13:01.600 If they do for rate hikes this year, a year 0:13:01.600 --> 0:13:03.920 from now, we're looking at a one percent FED funds 0:13:04.000 --> 0:13:07.640 rate deflate that by the inflation that's going on today, 0:13:07.679 --> 0:13:11.199 that's minus six a lot of people actually buy into 0:13:11.240 --> 0:13:13.480 the transitory idea at least that this will be a 0:13:13.559 --> 0:13:17.520 passing surgeon inflation. That's actually the market expectation if you 0:13:17.559 --> 0:13:19.680 look at FED funds futures, if you look at some 0:13:19.720 --> 0:13:22.160 of those forward indicators in terms of break even rates, 0:13:22.480 --> 0:13:26.199 what's the market getting wrong? What data points should traders 0:13:26.240 --> 0:13:28.440 be looking at to confirm the view that you put 0:13:28.440 --> 0:13:32.680 out there. They've been brainwashed by the last twenty years 0:13:32.760 --> 0:13:35.520 that inflation never goes higher than two two and a 0:13:35.600 --> 0:13:40.240 half percent. So I agree, it's all transitory. Things will 0:13:40.280 --> 0:13:44.040 slow down, Inflation will come down, But where will the 0:13:44.080 --> 0:13:48.920 economy slow down to? Still above trent? You've already closed 0:13:48.960 --> 0:13:52.720 the output gap, so you've got that inflationary pressure working 0:13:52.760 --> 0:13:56.199 as well. We're inflation. Will inflation slowed down to two 0:13:56.240 --> 0:13:58.800 and a half percent? I don't think so. I think 0:13:58.880 --> 0:14:01.600 over three percent. And by the way, the oil shocks 0:14:01.640 --> 0:14:05.000 in the seventies those proved to be transitory too, but 0:14:05.120 --> 0:14:08.440 it took an awful lot of central bank ammunition to 0:14:08.520 --> 0:14:13.080 contain them. Can they stay on a measured dialogue, a 0:14:13.160 --> 0:14:17.480 measured cadence, a measured set of speeches, or do they 0:14:17.520 --> 0:14:21.160 say as you just stated, Bob we're gonna move up 0:14:21.200 --> 0:14:23.640 for rate hikes, but along the way, we're going to 0:14:23.800 --> 0:14:27.680 monitor and adjust and change if we have to. Why 0:14:27.720 --> 0:14:30.440 can't they say that? Well, I think they will, but 0:14:30.520 --> 0:14:33.160 I think today's meeting would be a lost opportunity if 0:14:33.200 --> 0:14:35.600 they just did that, because the next couple of months 0:14:35.600 --> 0:14:37.960 of inflation data are going to put them back on 0:14:38.040 --> 0:14:41.000 their heels again before it starts to slow down. So 0:14:41.040 --> 0:14:44.400 I'll give you that. So why not do something? Why 0:14:44.440 --> 0:14:47.000 not at least come in today and say, you know what, 0:14:47.040 --> 0:14:49.720 we've put out the schedule of large scale asset purchases 0:14:49.760 --> 0:14:53.000 to five fifteen, that's the last one, and then that 0:14:53.200 --> 0:14:56.960 a month early. That's kind of halfway priced into the market. 0:14:57.400 --> 0:14:59.960 Go with the four rate hikes, but leave the option 0:15:00.000 --> 0:15:04.600 anality there um to to go to every meeting. Fifth, 0:15:04.680 --> 0:15:07.200 I've heard a lot of discussion about fifty basis points 0:15:07.200 --> 0:15:11.600 at a conversation with client yesterday. UM, and I think 0:15:11.720 --> 0:15:15.320 fifty basis points is pretty destructive. That reminds me of 0:15:15.440 --> 0:15:20.560 the end of the tightening regime. But can we just 0:15:20.600 --> 0:15:22.760 finished on the technical stuff because you did mention it 0:15:22.760 --> 0:15:24.680 and I promised you some time on it. The banas 0:15:24.680 --> 0:15:27.200 sheet reduction that a lot of people expect now it's 0:15:27.240 --> 0:15:29.160 about one point five trillion from the middle of this 0:15:29.240 --> 0:15:31.680 year to the back end of twenty three. As you 0:15:31.720 --> 0:15:33.640 know on the Banish at the moment there's a ton 0:15:33.720 --> 0:15:36.640 of tea bills. But you mentioned the word caps. How 0:15:36.680 --> 0:15:40.200 do you think they managed the roll off well? When 0:15:40.240 --> 0:15:44.760 they were doing quantitative tightening previously they had caps at 0:15:45.080 --> 0:15:48.440 at fifty billion per month. We think that's a good 0:15:48.440 --> 0:15:52.240 starting point, but ultimately they should go to a billion 0:15:52.240 --> 0:15:55.280 in caps because the balance sheet is is a lot 0:15:55.320 --> 0:15:59.840 bigger and they actually don't belong in meddling in the 0:16:00.040 --> 0:16:03.000 markets to the extent that they have. They don't belong 0:16:03.480 --> 0:16:06.640 owning as much of the mortgage market and the treasury 0:16:06.680 --> 0:16:09.920 market as they have. That should be left to free 0:16:09.960 --> 0:16:13.840 market participants like myself to price, not to the Fed. 0:16:14.120 --> 0:16:16.960 Not in a recovery. But Michael, conviction trade right now? 0:16:17.040 --> 0:16:22.040 What is it? So my conviction? There's there's been a 0:16:22.120 --> 0:16:26.280 lot of repricing in the market, um, but I'm still 0:16:26.480 --> 0:16:29.200 a seller of rallies. Can I also just ask I 0:16:29.320 --> 0:16:31.400 heard that Bill Dudley is going to be on later. 0:16:32.040 --> 0:16:34.560 I think the question you have to ask him is 0:16:34.600 --> 0:16:39.360 he brought financial conditions in disease to the FED, which 0:16:39.480 --> 0:16:43.560 is really a private markets concept. Of course us in 0:16:43.640 --> 0:16:47.320 the markets love them, but is that really something that 0:16:47.640 --> 0:16:51.280 belongs at the Fed? Is that how they missed inflation 0:16:51.720 --> 0:16:54.680 because they were too concerned about people like me throwing 0:16:54.680 --> 0:16:58.600 our toys out of the baby carriage? And a question 0:16:58.720 --> 0:17:02.440 for Tom, Tom, I know you around when vulcar raised 0:17:02.520 --> 0:17:07.440 rates from five to can you imagine I was there? Also? 0:17:07.760 --> 0:17:12.280 Can you imagine if if he looked at financial conditions indicators? 0:17:12.480 --> 0:17:14.399 What do you think he would have said and done? 0:17:14.800 --> 0:17:17.480 I think this really important question. This goes back to 0:17:17.520 --> 0:17:20.439 the landmark work of Michael Rosenberg, a Bloomberg folks who 0:17:20.480 --> 0:17:24.080 put together it's wonderful indusseries. I agree with you, Bob, 0:17:24.119 --> 0:17:27.880 it's been. It's been a new certitude with these indusseries 0:17:28.320 --> 0:17:31.719 that doesn't work in crisis or pivot points. And I 0:17:31.760 --> 0:17:34.600 love Bill Dudley, I've known him for years. Brilliant. She 0:17:34.640 --> 0:17:38.840 slipped that one in. That's goods. She's running the interview too, now, Bob, 0:17:38.920 --> 0:17:41.080 do you want a final comment? And you're beloved Liverpool 0:17:41.080 --> 0:17:44.840 as well. They're coming, They're coming on strong and I'd 0:17:44.880 --> 0:17:47.760 be proud for them to have the David Ortie's number 0:17:47.840 --> 0:17:52.440 fly during their next match. Okay, Bob Michael, thank you sir, 0:17:52.600 --> 0:17:54.320 it's going to catch up my as a ways, JP 0:17:54.440 --> 0:18:03.200 Morgan Asset Management's Bob Michael, I'm fixing, come now quickly. 0:18:03.240 --> 0:18:06.960 Maryland Watson joins ahead of Global Fundamental Fixing Come strategy 0:18:07.040 --> 0:18:10.080 at black Rock. What would your own power due to 0:18:10.240 --> 0:18:15.480 your bonds space this afternoon? Well, I think that he's 0:18:15.480 --> 0:18:18.679 going to try to convey a very very measured approach 0:18:19.280 --> 0:18:21.439 um as you as you just noticed, I mean, the 0:18:21.480 --> 0:18:24.320 market has been extremely volatile over the past few days. 0:18:24.600 --> 0:18:25.920 I think it maybe got a bit of ahead of 0:18:25.960 --> 0:18:29.120 itself in terms of what some market commentators are expecting 0:18:29.119 --> 0:18:32.000 in terms of great rises and quantat to tightening. But 0:18:32.040 --> 0:18:35.199 I think they're going to basically try to outline a 0:18:35.320 --> 0:18:38.920 very measured path in terms of first of all ending QUEWI, 0:18:39.119 --> 0:18:41.960 which should be in March, and then potentially we could 0:18:42.000 --> 0:18:44.080 see also a lift off in March. There is some 0:18:44.080 --> 0:18:48.600 speculation around whether they might start to signal when quantitative 0:18:48.600 --> 0:18:50.320 tightening might start to happen. I think that's maybe a 0:18:50.359 --> 0:18:53.320 little bit premature for today, but I think certainly as 0:18:53.320 --> 0:18:56.400 well they're going to acknowledge that you know, the employment 0:18:56.520 --> 0:18:59.840 levels are maybe consistent with maximum employment in the economy, 0:19:00.160 --> 0:19:02.960 Inflation remain is very high, so there is a need 0:19:03.080 --> 0:19:06.840 to continue to withdraw this very very loose munty policy, 0:19:06.840 --> 0:19:10.120 to withdraw the stimulus and start to move towards normalization. 0:19:10.440 --> 0:19:13.440 What does black Rock as a general statement doing with duration, 0:19:13.720 --> 0:19:16.560 I mean, is it is it a micro analysis? Are 0:19:16.560 --> 0:19:19.639 you looking at first second derivative analysis of duration? What 0:19:19.680 --> 0:19:23.000 are you doing on the X axis? Yes, so in 0:19:23.080 --> 0:19:26.520 terms of duration, obviously we are starting to go a 0:19:26.520 --> 0:19:29.440 bit closer to home in terms of um the interest 0:19:29.480 --> 0:19:32.960 rate sensitivity around our portfolios. So for example, where we 0:19:33.040 --> 0:19:36.560 had been short or underweight in the treasury, for example, 0:19:36.960 --> 0:19:39.240 we are now a little bit closer to neutral. I 0:19:39.280 --> 0:19:42.439 think at this stage, given the uncertainty in the market, 0:19:42.440 --> 0:19:45.800 given the uncertainty around the path of growth, that we 0:19:45.840 --> 0:19:49.000 do expect growth to remain you know, robust and strong, 0:19:49.160 --> 0:19:51.959 but there are increasing headwinds at the moment. There is, 0:19:52.000 --> 0:19:55.280 as you mentioned, more certainty around issues with Ukraine. There 0:19:55.280 --> 0:19:59.320 are more uncertainty has just given the slowdowns in various areas, 0:19:59.359 --> 0:20:02.640 given on chron and different aspects. So I do think 0:20:02.680 --> 0:20:05.919 that in terms of duration we are a little bit 0:20:05.960 --> 0:20:08.720 closer to home and we are keeping it relatively like 0:20:08.920 --> 0:20:12.880 right right, John, and important research this morning always out 0:20:12.880 --> 0:20:15.240 of Hong Kong with Mr Major. I thought it was 0:20:15.280 --> 0:20:19.159 a real clarification of that camp, like Steve Englander as well. 0:20:19.240 --> 0:20:22.679 Let's look at the major note right now. It's real simple. 0:20:23.080 --> 0:20:25.960 The conventional wisdom is that changing patterns of Central bank 0:20:26.000 --> 0:20:29.520 bond by means yields will go up. We beg to differ. 0:20:29.960 --> 0:20:33.600 Can't get clearer than that, John, The complex interactions, et cetera. 0:20:34.040 --> 0:20:37.200 The q T teaser is not solved by just looking 0:20:37.240 --> 0:20:39.399 at one side. Let's get into the q T t 0:20:39.560 --> 0:20:41.760 so a little bit more Man. I spoke to Bob 0:20:42.119 --> 0:20:44.080 Bob Miller of black Rock, a good friend of colleague 0:20:44.080 --> 0:20:45.960 if yours and Rick Rada recently, and they've talked about 0:20:45.960 --> 0:20:48.880 the importance of that balant sheep reduction. Deutsche Bank coming 0:20:48.880 --> 0:20:52.200 out with huge numbers one trillion for twenty three five 0:20:52.600 --> 0:20:54.600 and sixty billion for the back end of this year, 0:20:55.160 --> 0:20:58.320 does that necessarily mean high yields? That's what Steve Majores 0:20:58.359 --> 0:21:03.399 getting into for HSBC is the translation. That's simple. No, 0:21:03.560 --> 0:21:06.840 it doesn't necessarily mean particularly higher yields. I think as 0:21:06.880 --> 0:21:09.720 you do start to see the you know, the balance production, 0:21:10.080 --> 0:21:12.600 whether it begins um, you know, in the second half 0:21:12.640 --> 0:21:15.720 of this year or you know, and progresses into three 0:21:15.920 --> 0:21:19.520 or beyond UM. I think Steven Major is right and 0:21:19.560 --> 0:21:22.400 that you do see it's more complex than that, because 0:21:22.440 --> 0:21:24.800 on the one hand, you do have obviously the market 0:21:24.840 --> 0:21:28.160 is already pricing um, you know, maybe overpricing the level 0:21:28.160 --> 0:21:30.480 of interest rates that this year it's pricing in four 0:21:30.560 --> 0:21:33.160 hikes that might be a little bit excessive. I think 0:21:33.200 --> 0:21:35.320 also when you get into q T as well, then 0:21:35.320 --> 0:21:37.720 that we might actually start to see that we've seen 0:21:37.760 --> 0:21:39.919 the back end. Actually it's almost inverted if you look 0:21:39.960 --> 0:21:41.680 at the twenties and thirties a part of the curve 0:21:41.760 --> 0:21:45.000 as well. So I don't think it necessarily means HIW 0:21:45.040 --> 0:21:46.399 you or they do think it's a lot more nuance. 0:21:46.480 --> 0:21:48.800 I completely agree. And taking a look at that nuances 0:21:48.800 --> 0:21:51.000 the yield curve and how much do you think that 0:21:51.040 --> 0:21:54.440 the market is overpriced or underpriced projections for longer term 0:21:54.440 --> 0:21:58.800 growth at this point, Yes, the projections for longer term growth. 0:21:58.840 --> 0:22:01.240 I mean we do have and continue to have a 0:22:01.280 --> 0:22:04.199 pretty positive view on growth going forward and notwithstanding that, 0:22:04.280 --> 0:22:06.560 you know, the headwinds and stunty that we see. So 0:22:06.600 --> 0:22:10.199 I think at the momentum projections around growth they have 0:22:10.280 --> 0:22:13.680 been revised down by their meth and various different organizations, 0:22:14.040 --> 0:22:16.320 but we actually think that they are you know, it 0:22:16.359 --> 0:22:18.879 does remain on a picture of bus path, and so 0:22:19.480 --> 0:22:22.119 we think it's pretty fair in terms of what either 0:22:22.480 --> 0:22:26.159 the the you know, the dots are projecting or you know, 0:22:26.200 --> 0:22:27.600 what the market projecting as well. We think that the 0:22:27.640 --> 0:22:30.040 growth will remain picture of us and what's in there 0:22:30.160 --> 0:22:32.640 of black Rock. Marilyn as always, thank you very much 0:22:38.320 --> 0:22:40.879 right now helping us. Bruce Chasman, chief Economists, had a 0:22:40.880 --> 0:22:44.760 global economic research at JP Morgan. Bruce, I want to 0:22:44.800 --> 0:22:47.639 go back to the foundational mandate here, which is economic 0:22:47.720 --> 0:22:51.040 growth and the ability to create jobs. You mentioned in 0:22:51.040 --> 0:22:55.520 your note a hiccup of activity. How hiccup E is 0:22:55.560 --> 0:23:00.520