1 00:00:05,120 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,520 --> 00:00:12,319 Speaker 1: with Jonathan Ferreroll and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,840 Speaker 1: for insight from the best an economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,119 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:29,880 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. 7 00:00:30,160 --> 00:00:33,080 Speaker 2: Perfect guest for reaction to this speech as Mohammad ol 8 00:00:33,120 --> 00:00:36,000 Speaker 2: Aeron of Bloomberg Opinion and Queen's College, Cambridge. Mohammad, thanks 9 00:00:36,040 --> 00:00:38,120 Speaker 2: for being with us and being with us through that 10 00:00:38,159 --> 00:00:40,559 Speaker 2: speech as well. What were your thoughts when you heard 11 00:00:40,560 --> 00:00:42,480 Speaker 2: some of those words from Chairman Powell just moments ago. 12 00:00:42,920 --> 00:00:46,680 Speaker 3: I had three takeaways John. First, it's a speech that 13 00:00:46,800 --> 00:00:50,040 Speaker 3: said very little that is new. He repeated what he 14 00:00:50,080 --> 00:00:53,040 Speaker 3: has said in the past, and he has retained maximum 15 00:00:53,080 --> 00:00:57,760 Speaker 3: policy optionality. Second, he reminded us that with the exception 16 00:00:58,000 --> 00:01:02,040 Speaker 3: of the inflation target he said is two percent and 17 00:01:02,080 --> 00:01:06,800 Speaker 3: will remain two percent, everything else is uncertain and that end. 18 00:01:06,959 --> 00:01:10,240 Speaker 3: His reference to our star in particular was very interesting. 19 00:01:10,760 --> 00:01:14,200 Speaker 3: And Third, what I thought was also curious is how 20 00:01:14,200 --> 00:01:17,319 Speaker 3: he ended this speech. He ended the speech talking about 21 00:01:17,440 --> 00:01:22,360 Speaker 3: we will follow the stars in a cloudy sky. Everybody 22 00:01:22,360 --> 00:01:24,800 Speaker 3: sees the cloudy sky, but what's interesting is that the 23 00:01:24,840 --> 00:01:28,640 Speaker 3: west of Jackson Hall will be about moving stars. All 24 00:01:28,680 --> 00:01:31,920 Speaker 3: the structural changes that are going on domestically and internationally, 25 00:01:32,360 --> 00:01:34,760 Speaker 3: and that just adds to the topic that the three 26 00:01:34,760 --> 00:01:37,280 Speaker 3: of you have been talking. That is a very complex 27 00:01:37,319 --> 00:01:40,120 Speaker 3: world out there, and the FED has to navigate a 28 00:01:40,160 --> 00:01:43,319 Speaker 3: lot of moving pieces, Mohammed. 29 00:01:43,400 --> 00:01:45,319 Speaker 2: One conversation you and I have had over the last 30 00:01:45,360 --> 00:01:47,840 Speaker 2: several weeks, the last several months for that matter, people 31 00:01:47,920 --> 00:01:51,360 Speaker 2: having this discussion here as well, are we, from your standpoint, 32 00:01:51,440 --> 00:01:53,840 Speaker 2: in your opinion, sufficiently restrictive? 33 00:01:55,640 --> 00:01:58,960 Speaker 3: John, This goes immediately to what is the right inflation target? 34 00:01:59,280 --> 00:02:02,400 Speaker 3: If the riding inflation target is two percent, and they 35 00:02:02,400 --> 00:02:06,720 Speaker 3: want to get there in a credible period of time, 36 00:02:07,240 --> 00:02:11,280 Speaker 3: then we are not sufficiently restrictive. If the right inflation target, 37 00:02:11,280 --> 00:02:14,600 Speaker 3: as you've heard many people say, including Adam Posen today, 38 00:02:15,200 --> 00:02:18,200 Speaker 3: is above two percent giving all the structural changes, and 39 00:02:18,520 --> 00:02:20,079 Speaker 3: the way we're going to get there is not by 40 00:02:20,120 --> 00:02:25,560 Speaker 3: announcing the new target by but by following a shadow 41 00:02:25,680 --> 00:02:29,960 Speaker 3: target and then once we see it stable at adopting it. 42 00:02:30,000 --> 00:02:31,720 Speaker 3: I think that's the most likely outcome. By the way, 43 00:02:32,120 --> 00:02:33,679 Speaker 3: then we are sufficiently restrictive. 44 00:02:35,919 --> 00:02:38,560 Speaker 4: Wellhamed, does it concern you that we've heard a lot 45 00:02:38,639 --> 00:02:42,400 Speaker 4: of people who sound pretty happy. Actually, other than Ja Powell, 46 00:02:42,400 --> 00:02:44,919 Speaker 4: who is taking sort of the adult tone of we're 47 00:02:44,919 --> 00:02:47,520 Speaker 4: not there yet, Stop declaring victory. There's a lot more 48 00:02:47,520 --> 00:02:51,480 Speaker 4: down the pike, everybody else sounds like things are going 49 00:02:51,520 --> 00:02:54,799 Speaker 4: really well, and the FED policy is achieving exactly what 50 00:02:54,840 --> 00:02:55,280 Speaker 4: it saw to. 51 00:02:56,400 --> 00:02:58,760 Speaker 3: So I don't think it's everybody else, but most people are, 52 00:02:58,880 --> 00:03:02,639 Speaker 3: especially in the marketplace. So the economists. You have Larry Summers, 53 00:03:02,639 --> 00:03:05,519 Speaker 3: for example, reminding us this morning that if you look 54 00:03:05,639 --> 00:03:11,160 Speaker 3: at the seventies inflation cycle, this one looks very similar. 55 00:03:11,880 --> 00:03:14,520 Speaker 3: He has to do graphs up and he's sort of 56 00:03:14,560 --> 00:03:18,280 Speaker 3: warning implicitly that we may see a pickup in inflation. 57 00:03:18,880 --> 00:03:22,919 Speaker 3: So I think the marketplace is much more complacent than 58 00:03:22,960 --> 00:03:27,320 Speaker 3: the economists saw. The economists recognize that the many moving pieces, 59 00:03:28,320 --> 00:03:30,600 Speaker 3: whereas the marketplace things that we've gotten to a new 60 00:03:30,880 --> 00:03:34,800 Speaker 3: equilibrium and from here is going to be cut next year. 61 00:03:35,520 --> 00:03:36,520 Speaker 3: That remains to be seen. 62 00:03:38,760 --> 00:03:40,960 Speaker 4: Do you think, Muhammed, that it's important for the FED 63 00:03:41,480 --> 00:03:44,680 Speaker 4: to get ahead of a potential resurgence in inflation. Or 64 00:03:44,720 --> 00:03:48,440 Speaker 4: do you think that Jay Powell's approach of watching the 65 00:03:48,480 --> 00:03:51,160 Speaker 4: stars and seeing what they are will be sufficient to 66 00:03:51,280 --> 00:03:53,480 Speaker 4: curtail some sort of more embedded inflation. 67 00:03:54,600 --> 00:03:57,600 Speaker 3: It's hard, Lisa, because as you know, they have not, 68 00:03:57,960 --> 00:04:02,160 Speaker 3: like past Feds, opted for strategic view of the of inflation, 69 00:04:02,400 --> 00:04:07,640 Speaker 3: nor do they have a functional monetary policy framework. So 70 00:04:07,680 --> 00:04:11,560 Speaker 3: they've become highly data dependent, which means that they are 71 00:04:11,720 --> 00:04:17,560 Speaker 3: using instruments with lags on backward looking data. So they 72 00:04:17,600 --> 00:04:20,400 Speaker 3: aren't a bit of a tough situation. They're going to 73 00:04:20,400 --> 00:04:24,320 Speaker 3: remain data dependent. So I don't think he knows what 74 00:04:24,400 --> 00:04:26,160 Speaker 3: they will do in September. He's going to wait to 75 00:04:26,200 --> 00:04:28,359 Speaker 3: see what the job report is. He's going to wait 76 00:04:28,400 --> 00:04:31,000 Speaker 3: for the CPI numbers, and then they're going to decide 77 00:04:31,000 --> 00:04:33,800 Speaker 3: what to do. But this is the irony is it's 78 00:04:33,839 --> 00:04:38,520 Speaker 3: a highly dependent, data dependent FED using instruments that act 79 00:04:38,560 --> 00:04:39,080 Speaker 3: with a lag. 80 00:04:40,040 --> 00:04:42,440 Speaker 2: Plenty of feedback. Tom this coming from no data of Renmak. 81 00:04:42,560 --> 00:04:45,200 Speaker 2: Just Truition sent the following. I thought Power delivered a 82 00:04:45,240 --> 00:04:48,480 Speaker 2: neutral speech. The FED sees its monetary policy stances restrictive, 83 00:04:48,520 --> 00:04:50,680 Speaker 2: and we'll make a more tempered approach to future meetings, 84 00:04:50,880 --> 00:04:54,279 Speaker 2: proceed carefully, risk management. These are all cash phrases for 85 00:04:54,360 --> 00:04:56,960 Speaker 2: do nothing right now. The view from no data, just 86 00:04:57,000 --> 00:04:57,480 Speaker 2: manas a guy. 87 00:04:57,640 --> 00:05:00,280 Speaker 1: A lot more response coming in here, mixed mark red 88 00:05:00,360 --> 00:05:03,560 Speaker 1: and green on the screen, Doctor Orion. I want to 89 00:05:03,560 --> 00:05:07,680 Speaker 1: touch upon your iconic working game theory and that the 90 00:05:07,720 --> 00:05:10,400 Speaker 1: word that I'm hearing this morning is complexity. I heard 91 00:05:10,440 --> 00:05:13,599 Speaker 1: it from you, I heard it from John Lipsky and others. 92 00:05:14,000 --> 00:05:18,200 Speaker 1: The simplicity we're all begging for is tee decisions. You 93 00:05:18,279 --> 00:05:22,680 Speaker 1: are known for this, This is a Jackson Hall devoid 94 00:05:22,960 --> 00:05:27,400 Speaker 1: of tee decisions. How do our viewers and listeners handle 95 00:05:27,440 --> 00:05:31,239 Speaker 1: the complexity now? And to come tom? 96 00:05:31,240 --> 00:05:35,200 Speaker 3: I think the most important thing to understand is that 97 00:05:35,279 --> 00:05:39,000 Speaker 3: we have left the world of insufficient demand and we 98 00:05:39,040 --> 00:05:42,400 Speaker 3: are now in a world of insufficient supply. And there's 99 00:05:42,440 --> 00:05:44,640 Speaker 3: many reasons for that. It's a world that's not going 100 00:05:44,720 --> 00:05:48,520 Speaker 3: to go away anytime soon. It's not pandemic issues that 101 00:05:48,560 --> 00:05:52,000 Speaker 3: are fully reversible quickly. There are longer term issues going 102 00:05:52,040 --> 00:05:57,080 Speaker 3: on change, globalization, supply change management, the functioning of the 103 00:05:57,120 --> 00:05:59,960 Speaker 3: labor market, and the list goes on. So we are 104 00:06:00,200 --> 00:06:05,640 Speaker 3: now in a different world of supply side constraints, and 105 00:06:05,680 --> 00:06:08,720 Speaker 3: that world will mean that countries will become more inwardly looking, 106 00:06:08,880 --> 00:06:13,040 Speaker 3: which we've seen already, and it also means that policy 107 00:06:13,160 --> 00:06:15,280 Speaker 3: has to adjust to that. Now put on top of 108 00:06:15,320 --> 00:06:20,720 Speaker 3: that the layer of industrial policy as we embark more 109 00:06:20,800 --> 00:06:24,800 Speaker 3: meaningfully on a green transition, and it's all about the 110 00:06:24,800 --> 00:06:29,000 Speaker 3: supply side, Tom, and that's where monetary policy is really challenged, 111 00:06:29,040 --> 00:06:30,760 Speaker 3: because it acts on the demand side. 112 00:06:32,240 --> 00:06:35,800 Speaker 1: We're thrilled, Mohammad to have doctor Greghava with us, and 113 00:06:35,839 --> 00:06:38,400 Speaker 1: then you and Christine Leguard with us later. And the 114 00:06:38,400 --> 00:06:41,760 Speaker 1: heart of the matter is are we beyond the supply 115 00:06:41,960 --> 00:06:46,440 Speaker 1: shocks of this pandemic? Where are we on that continuum? Muhammad? 116 00:06:46,640 --> 00:06:48,279 Speaker 1: Have we escaped COVID? 117 00:06:49,800 --> 00:06:52,080 Speaker 3: I mean, we've escaped the worst of COVID, but we're 118 00:06:52,080 --> 00:06:54,800 Speaker 3: dealing with the legacy of COVID, But we're also dealing 119 00:06:54,800 --> 00:06:56,960 Speaker 3: with the legacy of the war. We're also dealing with 120 00:06:57,000 --> 00:07:00,279 Speaker 3: many other legacies. You know, Tom, is fascinating that you 121 00:07:00,320 --> 00:07:04,279 Speaker 3: will have President Laggard on because if you think the 122 00:07:04,440 --> 00:07:08,600 Speaker 3: US is complicated, then in terms of degrees of complexity, 123 00:07:09,080 --> 00:07:12,280 Speaker 3: Europe is even higher. The UK is even higher than that. 124 00:07:12,680 --> 00:07:14,880 Speaker 3: So it's going to be really interesting to talk as 125 00:07:14,920 --> 00:07:19,360 Speaker 3: you will do to President Laguard, because even though she 126 00:07:19,560 --> 00:07:24,560 Speaker 3: has a single mandate, her environment is significantly more complicated 127 00:07:24,560 --> 00:07:26,760 Speaker 3: than the FEDS, which is already complicated. 128 00:07:28,400 --> 00:07:30,720 Speaker 2: So, Mohammad, she is so much more exposed. Europe is 129 00:07:30,800 --> 00:07:33,920 Speaker 2: much more exposed to what's developing in China at the moment, Muhammad, 130 00:07:34,000 --> 00:07:37,360 Speaker 2: If you took the US out of the equation right now, 131 00:07:37,560 --> 00:07:41,280 Speaker 2: and we've been talking just about Europe and China, wouldn't 132 00:07:41,280 --> 00:07:44,280 Speaker 2: we be talking about things like rate cuts and easing 133 00:07:44,600 --> 00:07:45,960 Speaker 2: and stimulating the economy. 134 00:07:47,040 --> 00:07:49,760 Speaker 3: If you take the US out of the equation, you'ld 135 00:07:49,800 --> 00:07:54,600 Speaker 3: be talking about stagflation, and that's what everybody is afraid of. 136 00:07:55,200 --> 00:07:59,800 Speaker 3: The US is exceptional, and it's exceptional in this economic performance. 137 00:08:00,480 --> 00:08:03,120 Speaker 3: And if you take the US away, then you're taking 138 00:08:03,160 --> 00:08:05,920 Speaker 3: away the only engine of growth for this global economy. 139 00:08:06,480 --> 00:08:08,800 Speaker 3: But you're not taking away to supply side issues that 140 00:08:08,800 --> 00:08:11,280 Speaker 3: are causing the inflationary pressure. So if you take the 141 00:08:11,400 --> 00:08:14,080 Speaker 3: US away, we would be talking about not just the 142 00:08:14,200 --> 00:08:17,160 Speaker 3: risk of stackflation in Europe, but you would be talking 143 00:08:17,160 --> 00:08:19,600 Speaker 3: about the risk of stackflation in the global economy. 144 00:08:21,160 --> 00:08:23,640 Speaker 2: Muhammed, is that the risk of the reality in Europe 145 00:08:23,720 --> 00:08:24,160 Speaker 2: right now? 146 00:08:25,320 --> 00:08:28,920 Speaker 3: John, is still the risk. You know, Yes, Germany is 147 00:08:28,960 --> 00:08:32,120 Speaker 3: struggling the most, and that is if you like the 148 00:08:32,160 --> 00:08:36,760 Speaker 3: engine for Europe, but there's also good things happening in Europe. 149 00:08:37,120 --> 00:08:41,160 Speaker 3: Away from Germany. It's a high risk. It's flashing WED, 150 00:08:41,600 --> 00:08:45,560 Speaker 3: not even yellow, it's flashing WED, but it's not yet 151 00:08:45,679 --> 00:08:49,280 Speaker 3: a done deal. The US is much better off. China, 152 00:08:49,400 --> 00:08:52,560 Speaker 3: ironically is the one that's suffering the most. If you've 153 00:08:52,559 --> 00:08:57,480 Speaker 3: been discussing all morning, there is no obvious policy response, 154 00:08:58,040 --> 00:09:02,840 Speaker 3: and now these piecemeal responses are being rejected by the 155 00:09:02,920 --> 00:09:07,280 Speaker 3: marketplace really quickly. The marketplace is no longer embracing the 156 00:09:07,320 --> 00:09:10,839 Speaker 3: notion that China can get itself out of the mess 157 00:09:11,000 --> 00:09:11,920 Speaker 3: is finds itself in. 158 00:09:14,080 --> 00:09:17,000 Speaker 4: And that's perhaps the cause of the manufacturing recession that 159 00:09:17,040 --> 00:09:19,160 Speaker 4: we see in Germany and parts of Europe. 160 00:09:19,240 --> 00:09:20,280 Speaker 5: But the service. 161 00:09:19,960 --> 00:09:23,040 Speaker 4: Aside, we've been talking about how that's maybe more directly 162 00:09:23,080 --> 00:09:26,560 Speaker 4: affected by the ECB's policies and where rates are and 163 00:09:26,600 --> 00:09:29,760 Speaker 4: the more direct transmission mechanism than in the US. J. 164 00:09:29,960 --> 00:09:33,120 Speaker 4: Powell just said that there is evidence that the long 165 00:09:33,160 --> 00:09:35,440 Speaker 4: and variable lags are coming to the foe and will 166 00:09:35,440 --> 00:09:38,040 Speaker 4: actually reduce growth materially in the US. Is Europe a 167 00:09:38,080 --> 00:09:40,920 Speaker 4: model for the US is headed with respect to services 168 00:09:40,960 --> 00:09:43,200 Speaker 4: in the next couple of months or in the next year. 169 00:09:43,920 --> 00:09:47,559 Speaker 3: I hope not, Lisa. Our service sector has been stronger, 170 00:09:48,000 --> 00:09:50,800 Speaker 3: and even though the PMI numbers this week were disappointing, 171 00:09:50,800 --> 00:09:53,400 Speaker 3: at least there were over fifty for the service sector. 172 00:09:54,000 --> 00:09:59,720 Speaker 3: We don't want pmis south of sixty of fifty. And also, 173 00:10:00,160 --> 00:10:04,559 Speaker 3: ironically the service sectors where Europe just to stackflation as well. 174 00:10:04,840 --> 00:10:07,040 Speaker 3: It's not the goods sector, it's a service sector that's 175 00:10:07,080 --> 00:10:10,040 Speaker 3: the inflation problem, source of an inflation problem. So I 176 00:10:10,080 --> 00:10:13,400 Speaker 3: hope we don't follow Europe because if we do, then 177 00:10:13,880 --> 00:10:16,800 Speaker 3: we will be talking about a very different outlook for 178 00:10:16,880 --> 00:10:17,319 Speaker 3: the US. 179 00:10:19,280 --> 00:10:22,560 Speaker 4: We're also talking about the potential for some sort of 180 00:10:22,559 --> 00:10:25,480 Speaker 4: weakness down the pike. One thing that j Powell speech did. 181 00:10:25,640 --> 00:10:28,040 Speaker 4: We seem to remove rate cuts in the near future, 182 00:10:28,520 --> 00:10:31,320 Speaker 4: at least for the foreseeable future, and you can see 183 00:10:31,320 --> 00:10:34,600 Speaker 4: that shifting upward in the rate expectations. Do you think 184 00:10:34,600 --> 00:10:37,000 Speaker 4: that this economy can handle a five percent FED funds 185 00:10:37,040 --> 00:10:40,000 Speaker 4: rate for the remainder of next year even with all 186 00:10:40,040 --> 00:10:42,360 Speaker 4: the strength that you're hearing about. 187 00:10:42,000 --> 00:10:44,520 Speaker 3: Lisa, we don't know. And he did use the word agile, 188 00:10:44,920 --> 00:10:49,040 Speaker 3: and that's absolutely correct. He's got to be agile. Look, 189 00:10:49,040 --> 00:10:52,680 Speaker 3: there are all sorts of sectors that adjust with a lag. 190 00:10:53,520 --> 00:10:56,640 Speaker 3: We haven't seen the full impact yet of the higher weights. 191 00:10:57,320 --> 00:11:01,040 Speaker 3: You're starting to see it play out in various segments, 192 00:11:01,040 --> 00:11:03,640 Speaker 3: but in a very small way. Remember, not everything gets 193 00:11:03,679 --> 00:11:09,520 Speaker 3: refinanced immediately. This is very unlike the UK economy, where 194 00:11:09,520 --> 00:11:12,840 Speaker 3: the effective duration is much shorter, so you get refinancing quickly, 195 00:11:12,880 --> 00:11:15,720 Speaker 3: and the weights have the great effects happen much quicker. 196 00:11:16,120 --> 00:11:19,240 Speaker 3: So we don't know how well we can navigate under 197 00:11:19,280 --> 00:11:23,560 Speaker 3: five percent. It seems that the big issues in the 198 00:11:23,600 --> 00:11:27,000 Speaker 3: banking sector are behind us. But so far, and it's 199 00:11:27,080 --> 00:11:29,839 Speaker 3: really important to stress this, we've dealt only with interest 200 00:11:29,880 --> 00:11:32,720 Speaker 3: rate risk. We have not dealt with credit risk. We 201 00:11:32,800 --> 00:11:35,520 Speaker 3: have not dealt with liquidity risk. And that's what people 202 00:11:35,520 --> 00:11:37,120 Speaker 3: in the marketplace have to keep an eye on. 203 00:11:37,760 --> 00:11:40,319 Speaker 2: Stuart Kaiser, a city publishing just moments ago, give you 204 00:11:40,360 --> 00:11:42,240 Speaker 2: a flavor of what's happening on the south side. Not 205 00:11:42,320 --> 00:11:45,120 Speaker 2: a game changer for markets from share power, but remind 206 00:11:45,200 --> 00:11:49,000 Speaker 2: us on upside risk to inflation, that demand, downside risks 207 00:11:49,520 --> 00:11:51,880 Speaker 2: to growth. Mohammed al Airin still with us Mohammed, I 208 00:11:51,960 --> 00:11:54,000 Speaker 2: just want to finish on that with you. The downside 209 00:11:54,080 --> 00:11:57,720 Speaker 2: risk to growth to counter the upside risk to inflation. 210 00:11:58,200 --> 00:11:59,880 Speaker 2: Is that something we all need to be cautious of 211 00:12:00,160 --> 00:12:01,600 Speaker 2: going to see year round beyond. 212 00:12:01,760 --> 00:12:05,920 Speaker 3: Yes, And that's why Chair Pal had a speech full 213 00:12:06,120 --> 00:12:07,280 Speaker 3: of optionality. 214 00:12:07,960 --> 00:12:08,160 Speaker 6: You know. 215 00:12:08,800 --> 00:12:12,240 Speaker 3: I go back to what Mike McKee correctly said. It's 216 00:12:12,280 --> 00:12:15,280 Speaker 3: not that the content was new. It wasn't. There was 217 00:12:15,320 --> 00:12:18,240 Speaker 3: nothing in that speech that we didn't know before. Whether 218 00:12:18,280 --> 00:12:21,320 Speaker 3: it was explaining what has been behind inflation, or whether 219 00:12:21,320 --> 00:12:24,720 Speaker 3: it was explaining the range of policy possibilities and the 220 00:12:24,840 --> 00:12:27,640 Speaker 3: risks and the need for risk management. All that has 221 00:12:27,679 --> 00:12:31,800 Speaker 3: been said before. What was notable this time is that 222 00:12:31,840 --> 00:12:37,439 Speaker 3: it was packaged slightly more hawkish than dubvish, and that's 223 00:12:37,520 --> 00:12:40,320 Speaker 3: what people are picking up on. But ultimately, John, if 224 00:12:40,360 --> 00:12:45,120 Speaker 3: we step back, the only thing he said is that 225 00:12:45,360 --> 00:12:48,360 Speaker 3: what we know for sure is his belief is that 226 00:12:48,440 --> 00:12:51,040 Speaker 3: two percent is the right inflation target and will remain 227 00:12:51,080 --> 00:12:54,319 Speaker 3: the right inflation target. That issue is going to be 228 00:12:54,720 --> 00:12:58,440 Speaker 3: hotly discussed in the next quarters as we get more 229 00:12:58,440 --> 00:13:00,160 Speaker 3: and more data. 230 00:13:00,559 --> 00:13:02,880 Speaker 2: Yeah, Mohammed, and I think that device going gaway any 231 00:13:02,880 --> 00:13:05,120 Speaker 2: tom soon, even if you haven Powell tries to put 232 00:13:05,160 --> 00:13:06,760 Speaker 2: it to bad Mohammed. Thanks for famin us today. I 233 00:13:06,920 --> 00:13:09,400 Speaker 2: appreciate it as O whys Mohammed al arion. 234 00:13:19,720 --> 00:13:22,960 Speaker 1: It will be analysis and interpretation owning the high ground 235 00:13:23,000 --> 00:13:28,800 Speaker 1: on that is Joseph Weisenthal and Tracy Alloway. They host 236 00:13:28,960 --> 00:13:34,160 Speaker 1: a podcast od Loots. Alloway had to redo her fireplace 237 00:13:34,640 --> 00:13:38,720 Speaker 1: mantle because the awards have come in so large. Yeah, 238 00:13:38,760 --> 00:13:41,679 Speaker 1: they're piling up. I mean my Wisenthal already had a 239 00:13:41,720 --> 00:13:44,120 Speaker 1: mantle that could hold three hundred pounds. Next joining us, 240 00:13:44,120 --> 00:13:47,520 Speaker 1: Tracy Alloway from Wisenthal would not get out of bed 241 00:13:48,000 --> 00:13:51,360 Speaker 1: this early this morning. What I love about your work 242 00:13:51,400 --> 00:13:53,880 Speaker 1: back at the FTEN years ago is you own a 243 00:13:53,960 --> 00:13:58,640 Speaker 1: perspective of London and New York and synthesizing the Western 244 00:13:58,720 --> 00:14:04,000 Speaker 1: world and an exceptional Japan with Uwaita in attendance here 245 00:14:04,080 --> 00:14:08,000 Speaker 1: in this YCC disaster. Just had to listen to his 246 00:14:08,200 --> 00:14:12,400 Speaker 1: hawkish one. How does Asia interpret what we heard this morning? 247 00:14:12,720 --> 00:14:14,840 Speaker 7: Well, I'm kind of confused at some of the bond 248 00:14:14,880 --> 00:14:17,760 Speaker 7: market action that we've seen so two year yields going 249 00:14:17,800 --> 00:14:21,600 Speaker 7: above five percent hawkish interpretation. But I'm on the Neil 250 00:14:21,720 --> 00:14:26,240 Speaker 7: Dudda's side here, which is This was a very dubvish speech. Actually, 251 00:14:26,800 --> 00:14:30,920 Speaker 7: Powell sort of gave a nod to the R star debate, 252 00:14:31,040 --> 00:14:33,440 Speaker 7: the idea about whether or not the neutral rate of 253 00:14:33,440 --> 00:14:36,800 Speaker 7: interest is structurally higher in the current world. But then 254 00:14:36,840 --> 00:14:39,240 Speaker 7: in the next sentence he basically goes, but we have 255 00:14:39,240 --> 00:14:42,239 Speaker 7: no idea what our star is anyway, so it's completely irrelevant. 256 00:14:42,280 --> 00:14:43,720 Speaker 5: And they're talking about being at restriction. 257 00:14:43,840 --> 00:14:45,800 Speaker 1: That's not a small matter, John, Yeah, that's not a 258 00:14:45,800 --> 00:14:48,400 Speaker 1: small matter. This has come up a couple times today. 259 00:14:49,200 --> 00:14:52,040 Speaker 1: The guy from New York City, you know, the private 260 00:14:52,040 --> 00:14:55,240 Speaker 1: equity guy, whatever Paul is. He's not too big on 261 00:14:56,080 --> 00:14:57,480 Speaker 1: the plugins of our. 262 00:14:57,400 --> 00:15:00,240 Speaker 2: Start's tricy something you've discussed. This probably shouldn't come as 263 00:15:00,240 --> 00:15:01,040 Speaker 2: a surprise, should it. 264 00:15:01,400 --> 00:15:02,000 Speaker 5: I don't think so. 265 00:15:02,200 --> 00:15:04,680 Speaker 7: To me, it very much resembles what we saw last 266 00:15:04,760 --> 00:15:05,800 Speaker 7: month from Powell. 267 00:15:05,840 --> 00:15:07,640 Speaker 5: It's very much a data dependent. 268 00:15:07,320 --> 00:15:10,160 Speaker 7: Speech, which makes sense because you have two major data 269 00:15:10,200 --> 00:15:13,080 Speaker 7: points coming up before the next FED decision. Why would 270 00:15:13,080 --> 00:15:16,080 Speaker 7: Powell stick his neck out at this particular moment in time. 271 00:15:16,240 --> 00:15:18,440 Speaker 7: And of course there is a lot of uncertainty about 272 00:15:18,480 --> 00:15:21,720 Speaker 7: those long and variable lags as you were talking about, Lisa. 273 00:15:21,320 --> 00:15:23,760 Speaker 4: And this is a problem right now for j Powell 274 00:15:23,800 --> 00:15:25,880 Speaker 4: because he wants to bring things down, but he doesn't 275 00:15:25,880 --> 00:15:29,120 Speaker 4: want to curtail tonymism too much. Do you think that 276 00:15:29,400 --> 00:15:32,280 Speaker 4: it seems fair to view his speech as saying that 277 00:15:32,400 --> 00:15:35,280 Speaker 4: rate cuts are not in the cards for a longer 278 00:15:35,320 --> 00:15:37,440 Speaker 4: period of time next year, because that's maybe what he 279 00:15:37,480 --> 00:15:41,480 Speaker 4: wanted to say in the implicit sort of tone, but 280 00:15:41,600 --> 00:15:42,760 Speaker 4: not what he actually said. 281 00:15:43,120 --> 00:15:45,880 Speaker 7: I think he'd have to see a real deterioration in 282 00:15:45,960 --> 00:15:48,680 Speaker 7: the underlying data to justify a rate cut, and that's 283 00:15:49,040 --> 00:15:51,240 Speaker 7: just not happening. We have a lot of sort of 284 00:15:51,280 --> 00:15:55,440 Speaker 7: anecdotal data points about maybe consumer spending is starting to weaken, 285 00:15:55,640 --> 00:15:58,760 Speaker 7: but we haven't seen any of that in the unemployment 286 00:15:58,840 --> 00:16:01,960 Speaker 7: rate right now, said, I know, the tone of this 287 00:16:02,000 --> 00:16:05,160 Speaker 7: particular Jackson hole is very different to last year, where 288 00:16:05,200 --> 00:16:08,000 Speaker 7: Powell was talking about how we'd have to assume more 289 00:16:08,080 --> 00:16:11,480 Speaker 7: pain in order to bring down inflation. But that said, 290 00:16:11,600 --> 00:16:15,840 Speaker 7: it's still a really uncomfortable moment for central bankers because 291 00:16:15,840 --> 00:16:18,480 Speaker 7: inflation is coming down in a way that they didn't 292 00:16:18,480 --> 00:16:20,119 Speaker 7: necessarily expect. 293 00:16:20,320 --> 00:16:21,960 Speaker 5: Right The Phillips curve says. 294 00:16:21,760 --> 00:16:24,680 Speaker 7: That if inflation's coming down, the unemployment rate should be 295 00:16:24,720 --> 00:16:26,280 Speaker 7: going up, but that hasn't been. 296 00:16:26,320 --> 00:16:28,680 Speaker 5: What's happening, So there's still a ton of uncertainty here. 297 00:16:28,840 --> 00:16:31,800 Speaker 4: This is essentially, while it is a global central banker 298 00:16:31,840 --> 00:16:34,440 Speaker 4: is coming together, it's also essentially an academic conference, and 299 00:16:34,480 --> 00:16:37,360 Speaker 4: you're here with odd laws to speak to some of 300 00:16:37,400 --> 00:16:41,200 Speaker 4: the academic research. What are you hoping to illuminate in 301 00:16:41,240 --> 00:16:43,960 Speaker 4: this whole shifting global structure? 302 00:16:44,040 --> 00:16:46,680 Speaker 5: That was sort of the theme. Yeah, that's exactly right. 303 00:16:46,840 --> 00:16:48,960 Speaker 7: So I know that the focus is always going to 304 00:16:49,000 --> 00:16:51,720 Speaker 7: be on the sort of short term outlook for interest rates, 305 00:16:51,760 --> 00:16:55,080 Speaker 7: but really Jackson Hole is about the long term framework 306 00:16:55,320 --> 00:16:57,720 Speaker 7: of monetary policy. And one of the big themes that 307 00:16:57,840 --> 00:17:02,120 Speaker 7: is starting to emerge is this idea of higher public 308 00:17:02,280 --> 00:17:04,440 Speaker 7: debt and we've seen that born out in the Fitch 309 00:17:04,520 --> 00:17:08,000 Speaker 7: rating cut. Recently, bond yields higher because of some concerns 310 00:17:08,000 --> 00:17:09,800 Speaker 7: over the outlook for US fiscal health. 311 00:17:10,080 --> 00:17:11,960 Speaker 5: And again, the unusual. 312 00:17:11,440 --> 00:17:13,359 Speaker 7: Thing about this moment in time is that we are 313 00:17:13,400 --> 00:17:17,600 Speaker 7: seeing massive fiscal spending at a time of low unemployment. 314 00:17:17,640 --> 00:17:20,199 Speaker 7: That hasn't really happened before. And so I think there 315 00:17:20,200 --> 00:17:22,440 Speaker 7: are a lot of people at this conference who are 316 00:17:22,480 --> 00:17:23,760 Speaker 7: wrestling with that idea. 317 00:17:23,800 --> 00:17:24,840 Speaker 5: In that dynamic, you and. 318 00:17:24,880 --> 00:17:27,840 Speaker 1: Joe Wisvove Rockstar hours you're just sort of wandering, and 319 00:17:27,880 --> 00:17:30,160 Speaker 1: you do your podcast, and you do it by piecing 320 00:17:30,200 --> 00:17:34,400 Speaker 1: together conversations where Bloomberg surveillance is complete and total chaos 321 00:17:34,480 --> 00:17:38,800 Speaker 1: twenty four seven. What's the conversation here you're most looking 322 00:17:38,920 --> 00:17:40,639 Speaker 1: for into your next podcast? 323 00:17:40,880 --> 00:17:43,320 Speaker 7: Thank you for assuming that all thoughts isn't constant chaos 324 00:17:43,400 --> 00:17:45,840 Speaker 7: as well. Tom, Well, we're having you on later today. 325 00:17:46,000 --> 00:17:51,240 Speaker 1: It count Please, it's a conversation you want right now 326 00:17:51,240 --> 00:17:51,920 Speaker 1: at Jackson Hall. 327 00:17:52,040 --> 00:17:55,280 Speaker 7: Okay, the big picture goes back to that bond Outlook. 328 00:17:55,440 --> 00:17:59,000 Speaker 7: What does a world of structurally higher debt look like? 329 00:17:59,280 --> 00:18:02,680 Speaker 7: Does it miss citate higher interest rates? And what new 330 00:18:02,760 --> 00:18:05,600 Speaker 7: financial risks does it introduce into the system. So we 331 00:18:05,720 --> 00:18:08,680 Speaker 7: basically moved from a system that was very much reliant 332 00:18:08,880 --> 00:18:09,679 Speaker 7: on bank. 333 00:18:09,480 --> 00:18:12,160 Speaker 5: Lending to one that is far more bond based. 334 00:18:12,400 --> 00:18:15,840 Speaker 7: And how do you square a world where bonds really 335 00:18:15,880 --> 00:18:20,160 Speaker 7: really matter with central bank mandates to bring down inflation? 336 00:18:20,240 --> 00:18:21,120 Speaker 5: There's a tension there. 337 00:18:21,160 --> 00:18:24,200 Speaker 7: You can't build the financial system on bonds and assume 338 00:18:24,240 --> 00:18:26,600 Speaker 7: that they're going to be very low volatility and then 339 00:18:26,640 --> 00:18:29,800 Speaker 7: try to bring down inflation and have higher rates. 340 00:18:30,200 --> 00:18:32,359 Speaker 2: Tracy, this was great, good to have you here. Thank you, 341 00:18:32,400 --> 00:18:34,919 Speaker 2: Thank you having thank you very much, Tracy Allaway, the 342 00:18:34,960 --> 00:18:41,880 Speaker 2: host the co host of the Oddlots podcast. Joining us 343 00:18:42,080 --> 00:18:45,280 Speaker 2: is Patrick Khaka, the Philadelphia FED President, Patrick good Monk. 344 00:18:46,080 --> 00:18:48,480 Speaker 2: Let's start right here, not what Shaman Power said, but 345 00:18:48,520 --> 00:18:50,280 Speaker 2: what your colleague over at the Boston FED said in 346 00:18:50,320 --> 00:18:52,600 Speaker 2: the last twenty four hours that this resilience of this 347 00:18:52,640 --> 00:18:55,479 Speaker 2: economy suggests maybe we might have to do more. You 348 00:18:55,480 --> 00:18:56,320 Speaker 2: take a different view. 349 00:18:56,480 --> 00:18:59,320 Speaker 8: Why so, Look, we have to get inflation down to 350 00:18:59,359 --> 00:19:02,320 Speaker 8: two percent. We all agree on that, I mean everybody is. 351 00:19:02,760 --> 00:19:05,240 Speaker 8: We're all committed to that. The question is how to 352 00:19:05,280 --> 00:19:08,200 Speaker 8: get there. We are at a restrictive stance in my view, 353 00:19:08,640 --> 00:19:12,440 Speaker 8: and we're putting pressure on the economy to slow inflation. 354 00:19:14,119 --> 00:19:16,200 Speaker 8: The question is whether we need to increase the pressure. 355 00:19:16,359 --> 00:19:18,879 Speaker 8: Just keep pushing, pushing, pushing, And I'm in the camp 356 00:19:19,119 --> 00:19:21,960 Speaker 8: right now. Just keep the pressure going. Let this work through. 357 00:19:22,320 --> 00:19:25,960 Speaker 8: And again the data may dictate that we change course 358 00:19:26,440 --> 00:19:28,760 Speaker 8: or I change course. But for right now, what I'm 359 00:19:28,800 --> 00:19:31,440 Speaker 8: seeing and what I'm hearing, particularly soft data, what I'm 360 00:19:31,480 --> 00:19:34,960 Speaker 8: hearing I've been around my district all summer talking to people, 361 00:19:35,560 --> 00:19:38,119 Speaker 8: is that the plea I hear is you've done a 362 00:19:38,160 --> 00:19:41,120 Speaker 8: lot very quickly, right you've taken a lot of pressure quickly. 363 00:19:41,680 --> 00:19:44,280 Speaker 8: Now let us work through that, Let the banking system 364 00:19:44,320 --> 00:19:48,320 Speaker 8: work through it, let the corporations work through that. So 365 00:19:48,400 --> 00:19:50,480 Speaker 8: that I agree with that. I think we just keep 366 00:19:50,480 --> 00:19:53,000 Speaker 8: the pressure on and see how things turn out. 367 00:19:53,440 --> 00:19:57,200 Speaker 6: JPL didn't really say anything new, but he did sort 368 00:19:57,200 --> 00:19:59,080 Speaker 6: of cast it in a hawkish light, and he talked 369 00:19:59,080 --> 00:20:03,240 Speaker 6: about how the economy is perhaps growing faster than anticipated 370 00:20:03,400 --> 00:20:06,560 Speaker 6: and that could increase inflationary pressures. So what would it 371 00:20:06,640 --> 00:20:08,840 Speaker 6: take to get you to change your view and think 372 00:20:09,000 --> 00:20:10,240 Speaker 6: we need to raise rates more? 373 00:20:10,520 --> 00:20:13,720 Speaker 8: If we saw that the decreases in inflation we're installing 374 00:20:14,280 --> 00:20:16,600 Speaker 8: right that we weren't making that progress that we need 375 00:20:16,640 --> 00:20:16,920 Speaker 8: to make. 376 00:20:17,480 --> 00:20:21,800 Speaker 6: But what would that How would that manifest itself? Because 377 00:20:22,359 --> 00:20:26,359 Speaker 6: people who calculate CPI the analyst suggest we're going to 378 00:20:26,359 --> 00:20:29,280 Speaker 6: see it go back up, just essentially for mechanical. 379 00:20:28,880 --> 00:20:31,480 Speaker 8: Reasons on the headline side, Ye, for sure, but we 380 00:20:31,600 --> 00:20:34,679 Speaker 8: also were going to see shelter inflation come down, right 381 00:20:34,800 --> 00:20:37,360 Speaker 8: that it's coming down now you see this with real 382 00:20:37,359 --> 00:20:41,680 Speaker 8: time rents. So if service inflation in particular, or core 383 00:20:41,760 --> 00:20:44,600 Speaker 8: service inflation, whatever you want to call it, supercore, if 384 00:20:44,640 --> 00:20:47,359 Speaker 8: that continues to stall, then I'd say we have to 385 00:20:47,400 --> 00:20:50,440 Speaker 8: do more, But again I really want emphasized we are 386 00:20:50,760 --> 00:20:55,080 Speaker 8: doing something right now. It's not as though keeping rates 387 00:20:55,080 --> 00:20:58,040 Speaker 8: where they are is doing nothing. We're actually continuing to 388 00:20:58,040 --> 00:20:59,399 Speaker 8: put pressure on the economy. 389 00:20:59,480 --> 00:21:01,800 Speaker 4: You said, Jay Powell just said that it was important 390 00:21:01,840 --> 00:21:03,520 Speaker 4: to get inflation back down to two percent. 391 00:21:03,560 --> 00:21:04,440 Speaker 5: That was unequivocal. 392 00:21:04,680 --> 00:21:06,479 Speaker 4: Does it matter when I mean right now you can 393 00:21:06,480 --> 00:21:08,840 Speaker 4: see in the dots that it's not until after twenty 394 00:21:08,880 --> 00:21:11,400 Speaker 4: twenty five. If it takes till twenty thirty, does it matter. 395 00:21:12,160 --> 00:21:15,120 Speaker 8: Yeah, twenty thirty is a long way off twenty six. 396 00:21:16,560 --> 00:21:17,600 Speaker 5: We're going to get under four. 397 00:21:17,480 --> 00:21:19,520 Speaker 8: This year, under three next year, and then get to 398 00:21:19,560 --> 00:21:22,440 Speaker 8: two in twenty twenty five. So yeah, it's going to 399 00:21:22,480 --> 00:21:25,040 Speaker 8: take some time. But what really matters, what I hear 400 00:21:25,119 --> 00:21:28,080 Speaker 8: all the time is not just a headline, not just supercore, 401 00:21:28,320 --> 00:21:30,399 Speaker 8: but think about the essentials of life, the things that 402 00:21:30,440 --> 00:21:34,359 Speaker 8: people really need, shelter, food, transportation, energy. As long as 403 00:21:34,440 --> 00:21:37,360 Speaker 8: they're moving in the right direction, Americans are better off, 404 00:21:37,359 --> 00:21:38,760 Speaker 8: and we need to be committed to that. 405 00:21:39,280 --> 00:21:42,320 Speaker 2: You clearly think with sufficiently restrictive. Other people think we don't. 406 00:21:42,400 --> 00:21:44,760 Speaker 2: So let's go through that points. Unemployment is still three 407 00:21:44,800 --> 00:21:47,240 Speaker 2: point five percent growth this quarter could come in at 408 00:21:47,280 --> 00:21:52,040 Speaker 2: about three percent. What is the evidence that we're sufficiently restrictive? 409 00:21:52,040 --> 00:21:53,760 Speaker 2: What can you actually point to beyond the soft date? 410 00:21:53,800 --> 00:21:55,520 Speaker 2: So let's talk about the real hard data. 411 00:21:56,040 --> 00:21:59,160 Speaker 8: Is starting to talk it. We are hearing story after 412 00:21:59,240 --> 00:22:00,159 Speaker 8: story here. 413 00:22:00,640 --> 00:22:02,880 Speaker 2: And you think that's connected to where interest rights are 414 00:22:02,960 --> 00:22:03,280 Speaker 2: right now? 415 00:22:03,359 --> 00:22:07,400 Speaker 8: Yeah, labor markets. Labor markets are definitely easing up. We're 416 00:22:07,400 --> 00:22:10,520 Speaker 8: hearing this over and over again. It's easier to get employees. 417 00:22:11,160 --> 00:22:14,800 Speaker 8: And the retail numbers I'm a little suspicious of because 418 00:22:14,840 --> 00:22:17,639 Speaker 8: what we're hearing, for example, from a major supplier to 419 00:22:17,680 --> 00:22:20,720 Speaker 8: the back of the school market is sales are not 420 00:22:20,800 --> 00:22:23,600 Speaker 8: what they expected. So we are starting to see these 421 00:22:23,600 --> 00:22:26,480 Speaker 8: early signs, but they're early, right, and so I don't 422 00:22:26,480 --> 00:22:29,560 Speaker 8: think we need to react either way right now. Just 423 00:22:29,640 --> 00:22:32,840 Speaker 8: let us ride a little bit. Let it, let's just 424 00:22:32,920 --> 00:22:33,919 Speaker 8: keep putting the pressure on. 425 00:22:34,440 --> 00:22:37,960 Speaker 6: Well, if you keep the pressure on, but even don't 426 00:22:38,040 --> 00:22:40,119 Speaker 6: raise rates, how long do you need to keep the 427 00:22:40,119 --> 00:22:44,679 Speaker 6: pressure on. When would you see moving away from the peak? 428 00:22:45,080 --> 00:22:47,840 Speaker 8: Clearly not until next year at the earliest. And when 429 00:22:47,920 --> 00:22:50,119 Speaker 8: next year again, the data will have to dictate that. 430 00:22:50,680 --> 00:22:54,200 Speaker 6: Well. There is a question about if inflation keeps coming down. 431 00:22:54,400 --> 00:22:57,560 Speaker 6: Real rates continue to rise and put additional pressure on 432 00:22:57,680 --> 00:23:02,399 Speaker 6: the economy. Would you see the FED recalibrate its peak 433 00:23:02,480 --> 00:23:05,960 Speaker 6: rate to keep the pressure steady as opposed to letting 434 00:23:06,000 --> 00:23:08,960 Speaker 6: it grow. I realized this is a fine point. 435 00:23:08,760 --> 00:23:09,560 Speaker 8: For the market area. 436 00:23:09,760 --> 00:23:11,399 Speaker 6: And if you get the wrong if you say this 437 00:23:11,520 --> 00:23:13,440 Speaker 6: the wrong way, they're all going to start pricing in 438 00:23:13,560 --> 00:23:14,000 Speaker 6: rate cuts. 439 00:23:14,119 --> 00:23:16,720 Speaker 8: Look, it's possible, right, but at this point, we really 440 00:23:16,760 --> 00:23:21,240 Speaker 8: need to see inflation moving down, and they're saying early 441 00:23:21,280 --> 00:23:24,719 Speaker 8: signs of that again, and I'm getting story after story 442 00:23:24,760 --> 00:23:27,000 Speaker 8: from all our contacts, and it is starting to happen. 443 00:23:27,520 --> 00:23:29,200 Speaker 8: But I want to keep rates where they are right now, 444 00:23:29,240 --> 00:23:31,080 Speaker 8: and then we'll decide later what we do. 445 00:23:31,560 --> 00:23:34,200 Speaker 6: What do you think is happening with labor market wages 446 00:23:34,240 --> 00:23:37,000 Speaker 6: at this point, because that was the big concern, especially 447 00:23:37,000 --> 00:23:41,480 Speaker 6: with Jpel's non housing services. These guys were talking about 448 00:23:41,520 --> 00:23:45,280 Speaker 6: the United Autoworkers negotiations going on. Have we broken the 449 00:23:45,320 --> 00:23:49,600 Speaker 6: back of rising wages rising at at too fast a pace? 450 00:23:50,119 --> 00:23:52,600 Speaker 8: Too early to tell right now, but it does seem 451 00:23:52,720 --> 00:23:56,400 Speaker 8: like what I'm hearing from all our contacts is that 452 00:23:56,720 --> 00:23:59,320 Speaker 8: it is starting to ease, right. I mean, we're not 453 00:23:59,720 --> 00:24:03,560 Speaker 8: where we were where midyear increases, they're there. Nobody's considering that. 454 00:24:04,000 --> 00:24:06,800 Speaker 8: So we are starting to see some easy particularly in 455 00:24:06,800 --> 00:24:11,439 Speaker 8: the service area hotels, restaurants, and so forth. We are 456 00:24:11,480 --> 00:24:13,840 Speaker 8: starting to see it getting a little easier to get 457 00:24:13,840 --> 00:24:16,520 Speaker 8: the table at the restaurant or you know. And one 458 00:24:16,560 --> 00:24:20,200 Speaker 8: of the things that I think about, one of the 459 00:24:20,240 --> 00:24:25,320 Speaker 8: potential risks is that when student loan payments come back in. 460 00:24:25,720 --> 00:24:27,680 Speaker 8: I don't think it's a big economic issue. I mean, 461 00:24:27,760 --> 00:24:29,560 Speaker 8: when you run the numbers, it not. But it's a 462 00:24:29,560 --> 00:24:33,040 Speaker 8: psychological issue here. I've not gotten that three, four or 463 00:24:33,080 --> 00:24:36,240 Speaker 8: five hundred dollars bill. Now I get it. And so 464 00:24:36,520 --> 00:24:38,159 Speaker 8: I've been talked to a lot of people of that 465 00:24:38,240 --> 00:24:40,600 Speaker 8: generation where saying, yeah, you know, I may have to 466 00:24:40,640 --> 00:24:42,000 Speaker 8: back off some of my spending. 467 00:24:42,240 --> 00:24:44,199 Speaker 4: Well, but this goes to this question of okay, well 468 00:24:44,240 --> 00:24:46,040 Speaker 4: the savings are going to get borne down and then 469 00:24:46,040 --> 00:24:48,719 Speaker 4: we're going to start to see the real economy expose itself. 470 00:24:48,800 --> 00:24:48,919 Speaker 2: Right. 471 00:24:48,960 --> 00:24:51,080 Speaker 4: A lot of people have questioned that, But I am 472 00:24:51,119 --> 00:24:55,679 Speaker 4: wondering what kind of neutral rate, what kind of you know, 473 00:24:55,800 --> 00:24:59,040 Speaker 4: sort of longer term expectation for the FED do you 474 00:24:59,080 --> 00:25:00,360 Speaker 4: expect in the new norm them all? 475 00:25:00,800 --> 00:25:01,560 Speaker 5: What does it look like? 476 00:25:02,240 --> 00:25:05,040 Speaker 8: Yeah, so We don't know for sure, right let's start there. 477 00:25:05,080 --> 00:25:06,959 Speaker 8: We don't know exactly what that new normal looks like. 478 00:25:07,640 --> 00:25:10,000 Speaker 8: But one of the things I think about is what's 479 00:25:10,040 --> 00:25:15,840 Speaker 8: fundamentally shifted in the economy between before the pandemic and now? 480 00:25:16,720 --> 00:25:19,560 Speaker 8: Remember before the pandemic hard to remember for all of this, right, 481 00:25:19,680 --> 00:25:23,119 Speaker 8: given what we've been through, but we had low interest rates, 482 00:25:24,520 --> 00:25:30,680 Speaker 8: low unemployment, and low inflation. What's fundamentally shifted? There have 483 00:25:30,680 --> 00:25:32,240 Speaker 8: been a lot of things supply We're going to talk 484 00:25:32,240 --> 00:25:34,639 Speaker 8: about this in this meeting. There's supply chain issues that 485 00:25:34,680 --> 00:25:40,280 Speaker 8: are shifting and being re engineered. But fundamentally, I think 486 00:25:40,320 --> 00:25:43,439 Speaker 8: it's plausible we can get back to that. 487 00:25:43,680 --> 00:25:43,800 Speaker 1: Now. 488 00:25:43,960 --> 00:25:46,399 Speaker 8: I'm not predicting that right now, but it is plausible. 489 00:25:46,440 --> 00:25:50,280 Speaker 8: So I think we have to realize that we lived 490 00:25:50,280 --> 00:25:53,720 Speaker 8: in that world. We've proven that that can happen, and 491 00:25:53,800 --> 00:25:54,920 Speaker 8: so could it happen again? 492 00:25:55,000 --> 00:25:58,360 Speaker 2: Yes, sounds like a base case. When I listened to you, 493 00:25:58,960 --> 00:25:59,359 Speaker 2: I don't know. 494 00:25:59,440 --> 00:26:03,520 Speaker 8: I mean point, I'm not quite sure. But clearly we're 495 00:26:03,520 --> 00:26:05,439 Speaker 8: going to get we think, and we'll get back to 496 00:26:05,480 --> 00:26:07,959 Speaker 8: trend growth in a couple of years. We'll get inflation 497 00:26:08,080 --> 00:26:10,680 Speaker 8: under control in a couple of years, and inflation and 498 00:26:10,760 --> 00:26:13,680 Speaker 8: unemployment will tick up, but really in the flourish range 499 00:26:13,760 --> 00:26:14,879 Speaker 8: back to the neutral rate. 500 00:26:14,840 --> 00:26:17,800 Speaker 2: You've offered example after example in the last eight minutes. 501 00:26:17,840 --> 00:26:21,119 Speaker 2: It's highly anecdotal. Is the Facebook now more important to 502 00:26:21,240 --> 00:26:23,000 Speaker 2: us than US retail sales? 503 00:26:23,400 --> 00:26:25,359 Speaker 8: When I step back and I think about myself, and 504 00:26:25,400 --> 00:26:28,760 Speaker 8: I can only speak for myself. Right when we were 505 00:26:29,119 --> 00:26:32,960 Speaker 8: going through the early part of the pandemic and we 506 00:26:33,040 --> 00:26:36,800 Speaker 8: were saying that inflation was transitory, it was just used 507 00:26:36,840 --> 00:26:39,720 Speaker 8: vehicles and so forth, what we're hearing, what I was 508 00:26:39,760 --> 00:26:43,920 Speaker 8: hearing from my contacts was now, really it's more persistent, 509 00:26:44,400 --> 00:26:46,880 Speaker 8: and I didn't factor that in. The mistake I made. 510 00:26:46,880 --> 00:26:48,760 Speaker 8: If I made a mistake was I didn't factor that 511 00:26:48,840 --> 00:26:51,919 Speaker 8: it's really soft data, that anecdotal data. But it's more 512 00:26:51,960 --> 00:26:54,680 Speaker 8: than anecdotal data. It's what people are really feeling real 513 00:26:54,720 --> 00:26:57,480 Speaker 8: time in the economy. Now, we've done a lot of things. 514 00:26:57,480 --> 00:26:59,560 Speaker 8: I've done real time pulse surveys and so forth to 515 00:26:59,560 --> 00:27:01,800 Speaker 8: get our get ahead of that. Now, I don't want 516 00:27:01,800 --> 00:27:03,760 Speaker 8: to make that same mistake twice. And so what I'm 517 00:27:03,800 --> 00:27:07,320 Speaker 8: hearing right now from those same contacts is things seem 518 00:27:07,359 --> 00:27:11,440 Speaker 8: to be slowing more than the data showing that could 519 00:27:11,440 --> 00:27:13,760 Speaker 8: be wrong, and that's why we have to As chair 520 00:27:13,800 --> 00:27:17,320 Speaker 8: Pal said, risk management is an important issue here. But 521 00:27:17,920 --> 00:27:20,880 Speaker 8: if they're right, if that soft data is right, then 522 00:27:21,080 --> 00:27:24,639 Speaker 8: I think it really then just solidifies my view that 523 00:27:24,680 --> 00:27:28,640 Speaker 8: we stay putting pressure on, not necessarily increasing right now 524 00:27:28,760 --> 00:27:30,880 Speaker 8: to see how that all resolves itself. 525 00:27:31,760 --> 00:27:34,320 Speaker 6: Nerd question for our friends on the trading guests out there, 526 00:27:34,400 --> 00:27:39,440 Speaker 6: especially the bond guys. The balance sheet has been coming down, 527 00:27:39,480 --> 00:27:41,880 Speaker 6: but very slowly because of the caps and the way 528 00:27:41,920 --> 00:27:45,800 Speaker 6: that works. You haven't hit maximum reduction yet on a 529 00:27:45,840 --> 00:27:48,000 Speaker 6: month by month basis, and at the same time we 530 00:27:48,080 --> 00:27:52,400 Speaker 6: have seen financial conditions remain easier than you would expect. 531 00:27:52,440 --> 00:27:55,080 Speaker 6: So the question is do you do more with the 532 00:27:55,119 --> 00:27:58,760 Speaker 6: balance sheet because it has an effect on how tight 533 00:27:58,880 --> 00:28:00,440 Speaker 6: the filese he is. 534 00:28:01,440 --> 00:28:03,639 Speaker 8: At this point, I don't see us changing course on 535 00:28:03,680 --> 00:28:09,399 Speaker 8: how we're reducing the balance Again, circumstances could dictate something else, 536 00:28:09,680 --> 00:28:11,679 Speaker 8: but for right now, I think we just stay the course, 537 00:28:12,240 --> 00:28:14,800 Speaker 8: keep that on as I said or many times before, 538 00:28:15,000 --> 00:28:18,239 Speaker 8: on autopilot, just let it run, and if we need 539 00:28:18,280 --> 00:28:19,720 Speaker 8: to adjust policy, we adjust that. 540 00:28:19,760 --> 00:28:22,040 Speaker 6: With the bed country, well, there has been a question 541 00:28:22,400 --> 00:28:25,159 Speaker 6: on the other side of how close you are to 542 00:28:25,320 --> 00:28:29,960 Speaker 6: stopping balance sheet reduction when you reach the level of demand. 543 00:28:30,680 --> 00:28:33,439 Speaker 8: Yeah. I don't think we're there yet, but we do 544 00:28:33,680 --> 00:28:36,359 Speaker 8: clearly have to monitor that. If you go back to 545 00:28:36,400 --> 00:28:39,720 Speaker 8: the last time we did this, we knew we were 546 00:28:39,760 --> 00:28:41,600 Speaker 8: at that point where we needed to stop when we 547 00:28:41,680 --> 00:28:45,360 Speaker 8: saw the market indicators, the volatility in the markets. We've 548 00:28:45,400 --> 00:28:46,720 Speaker 8: not seen that yet, but we could. 549 00:28:47,200 --> 00:28:50,480 Speaker 4: We have seen real yields climb significantly. Today five year 550 00:28:50,800 --> 00:28:54,000 Speaker 4: real yields. Inflation for adjusted yields rose the highest levels 551 00:28:54,040 --> 00:28:56,480 Speaker 4: going back to two thousand and eight. Are you watching 552 00:28:56,560 --> 00:29:00,160 Speaker 4: that closely as an indication of the transmission mechanism at 553 00:29:00,160 --> 00:29:01,200 Speaker 4: the balance sheet run off? 554 00:29:01,400 --> 00:29:01,640 Speaker 6: Sure? 555 00:29:01,800 --> 00:29:03,800 Speaker 8: Yeah, I mean that's one of many. It's also just 556 00:29:03,840 --> 00:29:05,560 Speaker 8: a simple trading and things. 557 00:29:05,400 --> 00:29:07,040 Speaker 4: Like the market and so forth. 558 00:29:07,600 --> 00:29:09,640 Speaker 8: Not at this point, I mean, but it is clearly 559 00:29:09,640 --> 00:29:10,880 Speaker 8: something we need to keep watching. 560 00:29:11,080 --> 00:29:15,360 Speaker 2: Can I finish on this slightly provocative? Have you destroyed 561 00:29:15,400 --> 00:29:17,240 Speaker 2: the mortgage market in America for a generation? 562 00:29:18,320 --> 00:29:23,000 Speaker 8: I don't think so. I mean, well, it is clearly 563 00:29:23,080 --> 00:29:24,840 Speaker 8: tough when you talk to bankers. 564 00:29:24,840 --> 00:29:26,080 Speaker 2: Beyond tough people. 565 00:29:29,280 --> 00:29:32,920 Speaker 8: First time home buyer really really hard because there's no inventory. 566 00:29:33,720 --> 00:29:36,360 Speaker 8: Even if they could they could afford the mortgage, they 567 00:29:36,360 --> 00:29:38,400 Speaker 8: can't find a home because people are locked into that 568 00:29:38,840 --> 00:29:42,920 Speaker 8: low mortgage rate, you know, in their existing home. That's 569 00:29:42,920 --> 00:29:45,920 Speaker 8: why I think we don't keep going with rates right, 570 00:29:46,160 --> 00:29:48,800 Speaker 8: so that we can stay steady and at some point 571 00:29:48,840 --> 00:29:52,360 Speaker 8: as we reduce rates, we can bring those mortgage rates 572 00:29:52,360 --> 00:29:54,040 Speaker 8: back down. There's no question that's an isitiation. 573 00:29:54,040 --> 00:29:56,440 Speaker 2: But we're not going back to two percent mortgages over 574 00:29:56,520 --> 00:29:59,480 Speaker 2: thirty years, are we. So that inventory is offline maybe 575 00:29:59,560 --> 00:30:03,480 Speaker 2: for a general less you're not there yet. 576 00:30:03,360 --> 00:30:05,400 Speaker 8: Yeah, because what we're hearing from some of the home 577 00:30:05,440 --> 00:30:07,280 Speaker 8: builders is they keep selling. 578 00:30:07,080 --> 00:30:10,640 Speaker 2: How they're having a great time, having a great high's 579 00:30:10,840 --> 00:30:13,600 Speaker 2: out a huge favor. We're talking about whether this housing 580 00:30:13,640 --> 00:30:16,080 Speaker 2: market can really recover in the next several years. Given 581 00:30:16,080 --> 00:30:18,800 Speaker 2: that this feels quite generational, This feels like a. 582 00:30:18,840 --> 00:30:21,760 Speaker 8: There's inventory coming online, I can tell you in Philadelphia 583 00:30:21,760 --> 00:30:25,000 Speaker 8: and across many cities I know, but Philadelphia, for example, 584 00:30:25,120 --> 00:30:28,240 Speaker 8: a lot of multifamilies coming online in the next few years. 585 00:30:28,320 --> 00:30:30,000 Speaker 8: So we are increasing inventory. 586 00:30:30,720 --> 00:30:33,120 Speaker 2: Patrick, it's good to see you as always. Thank you, 587 00:30:33,160 --> 00:30:36,200 Speaker 2: sir Patrick Harker, the Philadelphia Fed President. The first reaction 588 00:30:36,280 --> 00:30:39,800 Speaker 2: there from Insight the Federals following that speech from Chairman Powell. 589 00:30:50,000 --> 00:30:51,640 Speaker 1: What I'm going to do at Jackson Hall right now, 590 00:30:51,680 --> 00:30:54,480 Speaker 1: as we begin in the sunrise of this important Friday, 591 00:30:55,080 --> 00:30:58,280 Speaker 1: it's taking more international perspective. She is not here at 592 00:30:58,360 --> 00:31:01,240 Speaker 1: Jackson Hall, but in Hurt and Saul, her institution, the 593 00:31:01,320 --> 00:31:06,880 Speaker 1: International Monetary Fund, decisively is Crystallina Gorgheva joins us, the 594 00:31:06,880 --> 00:31:10,840 Speaker 1: Managing director of the IMF, of a recent essay on 595 00:31:10,920 --> 00:31:15,200 Speaker 1: what everyone's talking about, the fragmentation, the fracture of the 596 00:31:15,240 --> 00:31:19,680 Speaker 1: global economy. Doctor Gergieva, congratulations on the essay that you 597 00:31:19,760 --> 00:31:22,840 Speaker 1: and your team put together for foreign affairs. You speak 598 00:31:22,840 --> 00:31:27,640 Speaker 1: of fragmentation. How urgent is the need for solution right now? 599 00:31:27,800 --> 00:31:31,479 Speaker 1: What needs to be done now to begin to a 600 00:31:31,520 --> 00:31:33,360 Speaker 1: more stable global economy? 601 00:31:34,640 --> 00:31:39,560 Speaker 9: It is urgent, and that sense of urgency is lacking Tom. 602 00:31:40,200 --> 00:31:43,800 Speaker 9: Why is it urgent? Because we have moved in a 603 00:31:43,920 --> 00:31:49,240 Speaker 9: more shocked front world, in a world of more uncertainty, 604 00:31:49,320 --> 00:31:53,480 Speaker 9: and in this world we need each other even more 605 00:31:53,600 --> 00:31:59,360 Speaker 9: than before, and yet cooperation is in a retreat. What 606 00:31:59,440 --> 00:32:03,080 Speaker 9: does that mean? It means that unless we wake up 607 00:32:03,920 --> 00:32:08,960 Speaker 9: and we act pragmatically in the areas where we can 608 00:32:09,280 --> 00:32:13,520 Speaker 9: find common ground and in the areas where we must 609 00:32:13,560 --> 00:32:17,800 Speaker 9: find common ground, like the fight against climate change, we 610 00:32:17,880 --> 00:32:23,520 Speaker 9: will drift into a world that is poorer and less secure. 611 00:32:24,000 --> 00:32:30,200 Speaker 9: We have rundom numbers. Unless we wake up and we 612 00:32:30,280 --> 00:32:34,800 Speaker 9: pursue this pragmatic collaboration, we are going to be losing 613 00:32:35,120 --> 00:32:40,240 Speaker 9: about seven percent of global GDP in the long run. 614 00:32:40,760 --> 00:32:45,120 Speaker 9: I mean that is like White transcend and Germany from 615 00:32:45,200 --> 00:32:47,040 Speaker 9: the economic map of the world. 616 00:32:48,440 --> 00:32:51,120 Speaker 1: Because of time, doctor Garg gave. It's so important I 617 00:32:51,160 --> 00:32:53,400 Speaker 1: get this in this morning. I want you to speak 618 00:32:53,520 --> 00:32:58,040 Speaker 1: right now to the four major central bankers assembled here 619 00:32:58,440 --> 00:33:01,480 Speaker 1: in Jackson Hall. Ang your call this year is the 620 00:33:01,640 --> 00:33:06,760 Speaker 1: five year caution of economic growth of your institution. You 621 00:33:06,960 --> 00:33:11,560 Speaker 1: call it slobalization. How do those four central bankers assemble 622 00:33:11,680 --> 00:33:14,240 Speaker 1: here get us out of slobalization. 623 00:33:15,800 --> 00:33:17,680 Speaker 9: It is not going to be only the job of 624 00:33:17,720 --> 00:33:21,080 Speaker 9: central bankers, but yes, they play a role, and their 625 00:33:21,160 --> 00:33:26,560 Speaker 9: role is to be very careful in assessing how data 626 00:33:26,840 --> 00:33:32,560 Speaker 9: informs their actions. We're going to see tom after a 627 00:33:32,800 --> 00:33:39,640 Speaker 9: period of convergence in monetary policy action typening creates fighting inflation, 628 00:33:40,280 --> 00:33:46,320 Speaker 9: some divergence. Because where the US economy is very resilient, 629 00:33:46,400 --> 00:33:50,000 Speaker 9: I was listening to the discussion just before me, the 630 00:33:50,480 --> 00:33:55,920 Speaker 9: European economy is not there is less strength in the 631 00:33:56,000 --> 00:34:01,560 Speaker 9: performance over there. So central bankers will have to recognize 632 00:34:02,040 --> 00:34:07,720 Speaker 9: that some specificity in how they approach the fight against 633 00:34:07,960 --> 00:34:12,000 Speaker 9: inflation and how they link this to their role in 634 00:34:12,360 --> 00:34:16,600 Speaker 9: supporting growth and employment. How they approach that is going 635 00:34:16,680 --> 00:34:21,520 Speaker 9: to be a matter of thorough assessment of national data. 636 00:34:21,600 --> 00:34:24,760 Speaker 9: Let me just make one point about the United States. 637 00:34:24,960 --> 00:34:28,960 Speaker 9: What we see in the US is very strong demand 638 00:34:29,040 --> 00:34:33,360 Speaker 9: for services, very good, but not good enough for the 639 00:34:33,440 --> 00:34:39,440 Speaker 9: world economy because it doesn't translate into spillover for global growth. 640 00:34:39,520 --> 00:34:43,200 Speaker 9: And this is why my main point is there would 641 00:34:43,200 --> 00:34:48,840 Speaker 9: be some divergence in policy approaches across central banks. 642 00:34:49,800 --> 00:34:52,760 Speaker 4: Crystallina is fragmentation inflationary? 643 00:34:54,520 --> 00:34:58,520 Speaker 9: Of course it is why because so much how much 644 00:34:58,520 --> 00:35:02,960 Speaker 9: did you take? If you take the main impact of 645 00:35:03,520 --> 00:35:09,320 Speaker 9: fragmentation through trade, what it translates into is pushing costs 646 00:35:09,680 --> 00:35:16,480 Speaker 9: of production up on a global scale. How inflationary it 647 00:35:16,600 --> 00:35:23,319 Speaker 9: could be depends, of course on how that specifically reflects 648 00:35:23,360 --> 00:35:28,400 Speaker 9: into cost structures across national economies in the world economy. 649 00:35:28,440 --> 00:35:32,279 Speaker 9: But the pressure on costs and then through that on 650 00:35:32,440 --> 00:35:37,000 Speaker 9: standard the living of ordinary people certainly comes when we 651 00:35:37,160 --> 00:35:38,520 Speaker 9: fragment the world economy. 652 00:35:40,400 --> 00:35:42,080 Speaker 2: Christin and I just want to squeeze this in. I've 653 00:35:42,080 --> 00:35:44,760 Speaker 2: got about sixty seconds ninety seconds left on the clock. 654 00:35:45,160 --> 00:35:47,799 Speaker 2: You've said the IMF needs more resources. Can you be 655 00:35:47,840 --> 00:35:50,759 Speaker 2: a lot more specific about what that means, what do 656 00:35:50,800 --> 00:35:53,080 Speaker 2: you need and where do you expect those resources to 657 00:35:53,120 --> 00:35:54,440 Speaker 2: come from. 658 00:35:54,560 --> 00:35:58,680 Speaker 9: Well, let's face reality, more short prone world means countries 659 00:35:58,719 --> 00:36:02,240 Speaker 9: need to have more capacity to face these shocks. Today, 660 00:36:02,840 --> 00:36:07,040 Speaker 9: global reserves are concentrated in a small number of strong 661 00:36:07,320 --> 00:36:12,280 Speaker 9: advanced and emerging market economiests ten countries hold two thirds 662 00:36:12,440 --> 00:36:16,799 Speaker 9: of global reserves and all the small medium sized countries 663 00:36:17,360 --> 00:36:20,640 Speaker 9: hold less than one percent of global reserves. This is 664 00:36:20,680 --> 00:36:24,560 Speaker 9: where the IMF comes in. We are the insurer for 665 00:36:24,719 --> 00:36:31,560 Speaker 9: the uninsured. Today, our size one trillion dollars lending capacity 666 00:36:32,280 --> 00:36:37,000 Speaker 9: is just not enough to be the buffer against future 667 00:36:37,040 --> 00:36:40,760 Speaker 9: shocks that we all anticipate are going to be happening. 668 00:36:41,400 --> 00:36:44,560 Speaker 9: And also what we want to see is reliance on 669 00:36:44,800 --> 00:36:49,560 Speaker 9: own resources. We are discussing with our membership to bring 670 00:36:49,920 --> 00:36:54,760 Speaker 9: the quarter resources of the fund again above fifty percent 671 00:36:55,160 --> 00:36:59,840 Speaker 9: of our funding level. Today they are at forty percent. 672 00:37:00,239 --> 00:37:04,040 Speaker 9: So we are talking about a not a minor increase. 673 00:37:04,120 --> 00:37:07,719 Speaker 9: But I think everybody understands that this is a provision 674 00:37:07,719 --> 00:37:11,480 Speaker 9: of a global public good. If the IMAS cannot hold 675 00:37:11,760 --> 00:37:15,960 Speaker 9: financial stability in vulnerable countries, that is hurting not only 676 00:37:16,080 --> 00:37:20,520 Speaker 9: those countries, it has negative skill over for the world economy. 677 00:37:20,120 --> 00:37:22,759 Speaker 2: The IMF managing. All right, Christiana, thank you, it's got 678 00:37:22,760 --> 00:37:23,719 Speaker 2: a hair from you. Thank you. 679 00:37:27,880 --> 00:37:30,080 Speaker 1: This is a wonderful moment now as we go to 680 00:37:30,120 --> 00:37:33,919 Speaker 1: that speech with the central bankers gathered here on yes, 681 00:37:34,200 --> 00:37:37,960 Speaker 1: US economics, but of course international economics, and they will 682 00:37:38,000 --> 00:37:42,200 Speaker 1: listen more to Barry Eichen Green and Berkeley than anyone here. 683 00:37:42,239 --> 00:37:46,080 Speaker 1: He owns the high ground from golden feathers, his classic 684 00:37:46,160 --> 00:37:50,360 Speaker 1: book on gold until what we see with globalizing capital, 685 00:37:50,440 --> 00:37:54,360 Speaker 1: and now his intense focus on debt and the debt 686 00:37:54,400 --> 00:37:56,799 Speaker 1: mess we're in. Doctor Ikon Green, thank you so much 687 00:37:56,800 --> 00:37:59,719 Speaker 1: for joining us. How bad is the debt mess we're in? 688 00:38:00,040 --> 00:38:03,440 Speaker 10: Well, I think it's a big change from the pre 689 00:38:03,480 --> 00:38:06,960 Speaker 10: COVID days. Governments are going to be constrained if and 690 00:38:07,000 --> 00:38:10,200 Speaker 10: when we have a global recession, if and when a 691 00:38:10,200 --> 00:38:13,279 Speaker 10: bad thing happens, they have a lot less room to 692 00:38:13,360 --> 00:38:18,160 Speaker 10: run fiscally because of the increase in public debts worldwide. 693 00:38:18,360 --> 00:38:20,480 Speaker 1: As usual, you've been out front on this and the 694 00:38:20,520 --> 00:38:23,480 Speaker 1: phrase that I hear from you is and you say 695 00:38:23,520 --> 00:38:27,040 Speaker 1: it with respect to the institutional pressures and our political leaders. 696 00:38:27,520 --> 00:38:31,200 Speaker 1: The modern medicine that we have, what is the more 697 00:38:31,280 --> 00:38:35,239 Speaker 1: stronger medicine we need to take to get control of 698 00:38:35,280 --> 00:38:36,600 Speaker 1: our debt in our ratios. 699 00:38:37,040 --> 00:38:39,120 Speaker 10: I think we're going to have to learn to live 700 00:38:39,160 --> 00:38:42,840 Speaker 10: with these high levels of public debt. That the advice 701 00:38:43,360 --> 00:38:46,719 Speaker 10: policy makers are getting from the Bank for International Settlements 702 00:38:46,719 --> 00:38:51,160 Speaker 10: in the IMF about bringing down debt ratios, that's unrealistic. 703 00:38:51,200 --> 00:38:52,879 Speaker 10: We're not going to be able to grow out of 704 00:38:53,080 --> 00:38:56,680 Speaker 10: these higher debt ratios. We're not going to have a 705 00:38:56,719 --> 00:38:59,960 Speaker 10: more favorable real interest rate going forward then we've had 706 00:39:00,040 --> 00:39:02,640 Speaker 10: in the past. We're not going to be able to 707 00:39:02,719 --> 00:39:06,920 Speaker 10: run primary budget surpluses for long periods of time. So 708 00:39:06,960 --> 00:39:11,719 Speaker 10: I think we're going to have to tiptoe likely through 709 00:39:11,840 --> 00:39:15,719 Speaker 10: this problem and manage these heavy debts. 710 00:39:15,560 --> 00:39:19,439 Speaker 2: Tips your words, manage. Other people might say this ends 711 00:39:19,440 --> 00:39:21,640 Speaker 2: in disaster, Barry, what's the argument against that? 712 00:39:23,360 --> 00:39:25,760 Speaker 10: For countries like the United States. There is a big 713 00:39:26,600 --> 00:39:31,359 Speaker 10: remains demand out there from foreign central banks and the 714 00:39:31,400 --> 00:39:34,759 Speaker 10: international private sector for US Treasury bonds. So I think 715 00:39:34,840 --> 00:39:38,840 Speaker 10: the US government is an exception to the general rule 716 00:39:39,320 --> 00:39:42,839 Speaker 10: in that it has room to run. Other governments are 717 00:39:42,840 --> 00:39:47,880 Speaker 10: going to have to reform fiscal institutions, worry about fiscal transparency. 718 00:39:47,920 --> 00:39:50,319 Speaker 10: Do all the things that the IMF and others have 719 00:39:50,400 --> 00:39:51,560 Speaker 10: been recommending for years. 720 00:39:51,760 --> 00:39:55,279 Speaker 4: Does it basically suggest that longer term yields in the 721 00:39:55,360 --> 00:39:58,160 Speaker 4: US are where they need to be, that basically the 722 00:39:58,239 --> 00:40:02,080 Speaker 4: term premium is going to be significantly higher, that essentially 723 00:40:02,200 --> 00:40:02,880 Speaker 4: what you see. 724 00:40:02,760 --> 00:40:03,400 Speaker 5: Is what you get. 725 00:40:03,840 --> 00:40:08,479 Speaker 10: Well, I think the term premium can come down a bit, 726 00:40:08,760 --> 00:40:13,160 Speaker 10: but not back down to pre COVID levels. I think 727 00:40:13,200 --> 00:40:16,319 Speaker 10: where everybody understands that we're in a new world with 728 00:40:17,040 --> 00:40:19,799 Speaker 10: higher interest rates, the question is how much higher? And 729 00:40:19,840 --> 00:40:23,439 Speaker 10: I wouldn't be a pessimist about that. 730 00:40:23,680 --> 00:40:25,440 Speaker 4: How much has the debt that the US is a 731 00:40:25,520 --> 00:40:28,040 Speaker 4: curd in particular driven a lot of the inflation that 732 00:40:28,080 --> 00:40:30,000 Speaker 4: we see. How much you can really basically write the 733 00:40:30,000 --> 00:40:32,400 Speaker 4: book and say helicopter money actually does cause inflation? 734 00:40:32,920 --> 00:40:35,799 Speaker 10: Well, I think the fiscal stimulus that we in the 735 00:40:35,880 --> 00:40:39,080 Speaker 10: United States did in twenty twenty one was a contributing 736 00:40:39,080 --> 00:40:42,360 Speaker 10: factor to the inflation, and there will be debate about 737 00:40:42,360 --> 00:40:45,399 Speaker 10: that today because there were other contributing factors as well. 738 00:40:45,640 --> 00:40:49,160 Speaker 10: The supply shocks, a variety of other things. 739 00:40:49,800 --> 00:40:53,719 Speaker 1: Take your study of debt, your view on the inflation 740 00:40:53,840 --> 00:40:56,520 Speaker 1: adjusted yield, which is maybe what the adults of pros 741 00:40:56,560 --> 00:41:00,000 Speaker 1: look at, and bring it over to the Eichinggreen application 742 00:41:00,560 --> 00:41:04,360 Speaker 1: of monetary policy. And there's a whole our starred debate 743 00:41:04,440 --> 00:41:07,000 Speaker 1: in that. Are we going to move away from a 744 00:41:07,080 --> 00:41:10,520 Speaker 1: two percent regime? And how do we search out an 745 00:41:10,600 --> 00:41:13,040 Speaker 1: anchored level that is higher? 746 00:41:13,719 --> 00:41:17,080 Speaker 10: Well, I think the Fed has to bring inflation down 747 00:41:17,239 --> 00:41:21,480 Speaker 10: to two percent before it really opens that conversation we 748 00:41:21,600 --> 00:41:25,960 Speaker 10: saw in this recent episode the importance of credibility, and 749 00:41:26,080 --> 00:41:29,160 Speaker 10: credibility and two percent are synonymous for the time being. 750 00:41:29,560 --> 00:41:32,560 Speaker 10: The only time you talk about changing the regime is 751 00:41:32,640 --> 00:41:33,759 Speaker 10: when you have everything else. 752 00:41:33,880 --> 00:41:36,360 Speaker 1: Let's go to Alahall at Berkeley to Brad Delong's office. 753 00:41:36,400 --> 00:41:37,640 Speaker 1: You and I are going to walk in with a 754 00:41:37,719 --> 00:41:40,160 Speaker 1: professor DeLong, and I'm going to say to both of you, 755 00:41:40,280 --> 00:41:44,600 Speaker 1: with your academics and his politic more political view, what's 756 00:41:44,680 --> 00:41:48,640 Speaker 1: the price of bringing inflation down to two percent? What's 757 00:41:48,680 --> 00:41:50,480 Speaker 1: the cost of that to Americans? 758 00:41:50,800 --> 00:41:54,680 Speaker 10: Well, so far, the cost has been minimal compared to 759 00:41:54,760 --> 00:41:58,439 Speaker 10: the doom and gloom scenarios we heard about unemployment going 760 00:41:58,520 --> 00:42:02,000 Speaker 10: up to five or six percent. So so far so. 761 00:42:02,000 --> 00:42:05,480 Speaker 1: That imark you have been the arch optimist against doom 762 00:42:05,480 --> 00:42:08,359 Speaker 1: and glue. And how do you respond to the doom 763 00:42:08,360 --> 00:42:11,360 Speaker 1: and gloom that we hear daily from Lisa Bramwootz or 764 00:42:11,400 --> 00:42:13,600 Speaker 1: that we hear out in all of economics. How do 765 00:42:13,640 --> 00:42:16,920 Speaker 1: you respond to that American bloom that you fought against 766 00:42:17,000 --> 00:42:17,800 Speaker 1: for fifty years? 767 00:42:17,920 --> 00:42:22,160 Speaker 10: Well, look at what the Atlanta Fed now cracker is saying. 768 00:42:22,280 --> 00:42:26,239 Speaker 10: The US economy is on track. There there's no sign 769 00:42:26,320 --> 00:42:30,040 Speaker 10: of inflation on the horizon. Yet in this kind of 770 00:42:30,040 --> 00:42:33,400 Speaker 10: assembly of economists, there has to be one optimist at LISTA. 771 00:42:33,400 --> 00:42:36,880 Speaker 2: This is your name is reference to me. 772 00:42:37,800 --> 00:42:39,560 Speaker 4: I just want to wonder, you know it? At one 773 00:42:39,560 --> 00:42:42,600 Speaker 4: point is it unsustainable this kind of enthusiasm, this kind 774 00:42:42,600 --> 00:42:43,000 Speaker 4: of growth? 775 00:42:43,080 --> 00:42:43,200 Speaker 6: Right? 776 00:42:43,239 --> 00:42:45,319 Speaker 4: I mean, at some point you're not going to get 777 00:42:45,360 --> 00:42:48,320 Speaker 4: down to two percent. I'm already changing to three percent 778 00:42:48,360 --> 00:42:50,200 Speaker 4: two percent for quite a while, even by the Fed's 779 00:42:50,200 --> 00:42:51,320 Speaker 4: own admission. 780 00:42:50,840 --> 00:42:52,600 Speaker 2: Twenty twenty five, exactly after. 781 00:42:52,440 --> 00:42:55,560 Speaker 4: Twenty twenty five, doesn't that reduce their credibility to some degree? 782 00:42:57,040 --> 00:42:59,759 Speaker 10: They have to have a credible strategy for getting to 783 00:43:00,480 --> 00:43:04,000 Speaker 10: So this is the classic. Give them a target two 784 00:43:04,000 --> 00:43:06,080 Speaker 10: percent or give them a date, never give them both 785 00:43:06,600 --> 00:43:07,160 Speaker 10: two percent? 786 00:43:07,480 --> 00:43:09,319 Speaker 2: Can you think about where it came from? Is this 787 00:43:09,360 --> 00:43:11,440 Speaker 2: really about some people in New Zealand in the nineteen 788 00:43:11,480 --> 00:43:12,960 Speaker 2: eighties just coming up with a number. Is that what 789 00:43:12,960 --> 00:43:13,640 Speaker 2: we're all doing here? 790 00:43:15,520 --> 00:43:18,320 Speaker 10: That's exactly what we're all all doing here. But history 791 00:43:18,360 --> 00:43:19,480 Speaker 10: has consequences. 792 00:43:20,200 --> 00:43:22,360 Speaker 1: Can I see get? 793 00:43:22,400 --> 00:43:25,439 Speaker 2: I mean absolutely absolutely dead? 794 00:43:25,480 --> 00:43:27,320 Speaker 1: On the first time I think I met you, or 795 00:43:27,360 --> 00:43:29,120 Speaker 1: it was like within the year I met you, some 796 00:43:29,200 --> 00:43:31,000 Speaker 1: guy almost took a swing at you on a stage 797 00:43:31,040 --> 00:43:33,520 Speaker 1: in Singapore at at G seven meeting. He was so 798 00:43:33,640 --> 00:43:37,040 Speaker 1: angry with you. How do you respond to, OMG, the 799 00:43:37,160 --> 00:43:40,640 Speaker 1: dollar's dead, ren mindy ascended? You throw a chalk at 800 00:43:40,680 --> 00:43:43,360 Speaker 1: people at Berkeley when it comes up? How do you respond? 801 00:43:43,640 --> 00:43:45,000 Speaker 10: No, at Berkeley, I don't hear it. 802 00:43:45,040 --> 00:43:45,640 Speaker 6: But uh. 803 00:43:47,400 --> 00:43:51,120 Speaker 10: That that kind of interchange. You get more invitations, do 804 00:43:51,200 --> 00:43:52,520 Speaker 10: you get okay? 805 00:43:52,520 --> 00:43:55,160 Speaker 1: You get some're speaking fees off that. Do you suggest 806 00:43:55,200 --> 00:43:57,640 Speaker 1: a dollar is at risk given all these stresses? 807 00:43:57,960 --> 00:44:01,600 Speaker 10: I think the dollar is not risk yet. So we 808 00:44:01,680 --> 00:44:06,560 Speaker 10: in the United States can do things to damage its credibility, 809 00:44:06,600 --> 00:44:09,360 Speaker 10: But nothing that happens at the Brick Summit this weekend 810 00:44:09,440 --> 00:44:14,600 Speaker 10: will much as your work. I would have chosen to 811 00:44:14,600 --> 00:44:15,360 Speaker 10: come here anyway. 812 00:44:15,600 --> 00:44:18,600 Speaker 2: The word yet, the word yet is so loaded. Thank you. 813 00:44:18,800 --> 00:44:20,879 Speaker 2: This is wonderful, Trady. Thank you very much, sir. 814 00:44:21,400 --> 00:44:25,279 Speaker 1: Subscribe to the Bloomberg Surveillance Podcast on Apple, Spotify, and 815 00:44:25,400 --> 00:44:29,600 Speaker 1: anywhere else you get your podcasts. Listen live every weekday, 816 00:44:29,840 --> 00:44:33,360 Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the 817 00:44:33,480 --> 00:44:38,000 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 818 00:44:38,040 --> 00:44:42,120 Speaker 1: can watch us live on Bloomberg Television and always I'm 819 00:44:42,120 --> 00:44:46,120 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and 820 00:44:46,239 --> 00:44:47,799 Speaker 1: this is Bloomberg