Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's turn to the Federal Reserve. The Republican Senator Tom
Speaker 2: tillis praising FED shair nominee Kevin Walsh following their meeting yesterday,
Speaker 2: but not wavering on his promise to block any FED
Speaker 2: nominations until the criminal pro into the current chair. Jpew
Speaker 2: ends the former sen Lewis. FED President Jim Pillot joins us.
Speaker 2: Now for more, Jim, welcome to the program. Set the stage.
Speaker 2: How difficult a moment is this for an incoming FED chair?
Speaker 1: Yeah, so you've got to get through the nomination process first.
Speaker 1: And as I as I understand it, anyway, I don't
Speaker 1: think anything's going to happen. So nobody is going to
Speaker 1: be on the FED board anytime soon. The way this
Speaker 1: is going, the administration will have to come to some
Speaker 1: kind of deal. They don't seem to be talking about that.
Speaker 1: So I think it's stalled for now.
Speaker 2: It's the second time we've had to deal with this. Jim.
Speaker 2: Before it was largely in the President's hands, and for
Speaker 2: whatever reason, Biden's stored, he stolled, he stored, and waited
Speaker 2: a long long time to reselect renominate chair pau for
Speaker 2: a second term and some people, even people who were
Speaker 2: on the committee at the time. So that's what stopped
Speaker 2: this feder reserve from hiking quickly enough to respond to
Speaker 2: the energy crisis and the inflation pandemic shock coming out
Speaker 2: of the pandemic. Now, Jim, I just wondered this time
Speaker 2: around how critical this moment actually is with a frenchile
Speaker 2: labor market and pressure once again on inflation coming from energy.
Speaker 1: Well, it always critical, always lots of lots of interesting
Speaker 1: things going on, I would say about this shock.
Speaker 3: It's not like the seventies.
Speaker 1: I mean, this is of course this is going to
Speaker 1: bring up you know, hearkening back to the seventies. But
Speaker 1: the US is a leading oil producer today who weren't
Speaker 1: at that time. So I think the recession threat from
Speaker 1: this shock is probably smaller than it would have otherwise
Speaker 1: been because you've got the supply side kind of offsetting
Speaker 1: demand destruction that could occur, so I think. And then
Speaker 1: on the inflation side, well, you know, the FED looks
Speaker 1: through or presce shocks anyway, they look at core inflation.
Speaker 1: So there's only a small effect on core inflation from this.
Speaker 1: So it's really whether inflation expectations would start to rise
Speaker 1: because markets would start to think that the FED was
Speaker 1: going to accommodate this shock, which is what happened in
Speaker 1: the seventies. I don't think that committee's in much of
Speaker 1: a mood to do that. So I think it's a
Speaker 1: different situation. Even though this is a really big shock,
Speaker 1: it's a different situation than what we saw earlier in
Speaker 1: the postwar era.
Speaker 4: Jim, what gives you confidence that there's enough momentum in
Speaker 4: the underlying economy to make this not an issue of
Speaker 4: demand destruction, not an issue of the consumer increasingly crimped.
Speaker 1: Yeah, I just think, you know, the shock would hit
Speaker 1: the US economy and that would be you know, prices
Speaker 1: are certainly something that we all pay every day, so
Speaker 1: that has acted like a tax in the past.
Speaker 3: But you've also got a.
Speaker 1: Supply side, you know, being the world's leading oil producer,
Speaker 1: which is offsetting some of that. I would also say
Speaker 1: that we've you know, we've seen actually higher oil prices
Speaker 1: in the past. If I recall collect correctly in two
Speaker 1: thousand and eight, and in real terms, that would be
Speaker 1: over two hundred dollars a barrel.
Speaker 3: So that's a very different scenario.
Speaker 1: Markets are right to focus on, well, how long would
Speaker 1: this conflict continue to go on?
Speaker 3: You know, US could withdraw at.
Speaker 1: Any point saying it's declare victory and withdrawal.
Speaker 3: So we'll see, We'll see what happens here.
Speaker 4: We see Jim expectations over at the ECB as well
Speaker 4: as the Bank of England for a potential rate hike
Speaker 4: increasingly priced and in response to higher oil prices. Do
Speaker 4: you think that people will start thinking about the same
Speaker 4: here in the US.
Speaker 3: I don't know if they go that far. I think
Speaker 3: more would have to happen before they go that far.
Speaker 1: I think the more likely scenarios that they just stay
Speaker 1: on hold longer than they otherwise would have in order
Speaker 1: to send a signal that they want to keep inflation
Speaker 1: under control. But again, it's the inflation expectations probably that
Speaker 1: matter more.
Speaker 3: Than the oil price movements directly.
Speaker 5: Well, we already see airlines across Europe and Asia increasing fares.
Speaker 5: They're raising the fuel surcharges given what's going on in
Speaker 5: the war. Also in America, we are farmed to table society.
Speaker 5: All of our food comes because of petrol and gasoline
Speaker 5: on trucks. Isn't that going to be a problem for
Speaker 5: this Federal Reserve, not just the fact that gasoline prices
Speaker 5: this morning are closer to four dollars a gallon than three.
Speaker 1: Yeah, I mean it's going to be a problem for
Speaker 1: headline inflation. But you know, the Committee looks at core inflation.
Speaker 1: The whole point of that is to say that they're
Speaker 1: not going to react to movements in food and energy
Speaker 1: prices that can be pretty transitory and have historically been
Speaker 1: pretty transitory, so that what they want is the underlying
Speaker 1: trend in inflation. And you could look at core PC inflation,
Speaker 1: which the Committee likes, or Dallas Fed trim med inflation,
Speaker 1: which throws out some of the high and low price
Speaker 1: changes that occur in that price change distribution.
Speaker 3: So sure, yeah, people are really paying these things.
Speaker 1: It really does matter, Yes, But when you're trying to
Speaker 1: make policy for the medium term, you've got to look through.
Speaker 3: Some of it.
Speaker 2: Hi, Jim, it's going to say, always try to catch up.
Speaker 2: Jim Blad, the former Saint Louis FED president. The takeaway
Speaker 2: there not much to say here, seems to be the
Speaker 2: view of one FED official. One former FED official,