WEBVTT - Surveillance: Live From Jackson Hole '23 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.319 with Jonathan Ferreroll and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.880 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.160 --> 0:00:33.080 Perfect guest for reaction to this speech as Mohammad ol 0:00:33.120 --> 0:00:36.000 Aeron of Bloomberg Opinion and Queen's College, Cambridge. Mohammad, thanks 0:00:36.040 --> 0:00:38.120 for being with us and being with us through that 0:00:38.159 --> 0:00:40.559 speech as well. What were your thoughts when you heard 0:00:40.560 --> 0:00:42.480 some of those words from Chairman Powell just moments ago. 0:00:42.920 --> 0:00:46.680 I had three takeaways John. First, it's a speech that 0:00:46.800 --> 0:00:50.040 said very little that is new. He repeated what he 0:00:50.080 --> 0:00:53.040 has said in the past, and he has retained maximum 0:00:53.080 --> 0:00:57.760 policy optionality. Second, he reminded us that with the exception 0:00:58.000 --> 0:01:02.040 of the inflation target he said is two percent and 0:01:02.080 --> 0:01:06.800 will remain two percent, everything else is uncertain and that end. 0:01:06.959 --> 0:01:10.240 His reference to our star in particular was very interesting. 0:01:10.760 --> 0:01:14.200 And Third, what I thought was also curious is how 0:01:14.200 --> 0:01:17.319 he ended this speech. He ended the speech talking about 0:01:17.440 --> 0:01:22.360 we will follow the stars in a cloudy sky. Everybody 0:01:22.360 --> 0:01:24.800 sees the cloudy sky, but what's interesting is that the 0:01:24.840 --> 0:01:28.640 west of Jackson Hall will be about moving stars. All 0:01:28.680 --> 0:01:31.920 the structural changes that are going on domestically and internationally, 0:01:32.360 --> 0:01:34.760 and that just adds to the topic that the three 0:01:34.760 --> 0:01:37.280 of you have been talking. That is a very complex 0:01:37.319 --> 0:01:40.120 world out there, and the FED has to navigate a 0:01:40.160 --> 0:01:43.319 lot of moving pieces, Mohammed. 0:01:43.400 --> 0:01:45.319 One conversation you and I have had over the last 0:01:45.360 --> 0:01:47.840 several weeks, the last several months for that matter, people 0:01:47.920 --> 0:01:51.360 having this discussion here as well, are we, from your standpoint, 0:01:51.440 --> 0:01:53.840 in your opinion, sufficiently restrictive? 0:01:55.640 --> 0:01:58.960 John, This goes immediately to what is the right inflation target? 0:01:59.280 --> 0:02:02.400 If the riding inflation target is two percent, and they 0:02:02.400 --> 0:02:06.720 want to get there in a credible period of time, 0:02:07.240 --> 0:02:11.280 then we are not sufficiently restrictive. If the right inflation target, 0:02:11.280 --> 0:02:14.600 as you've heard many people say, including Adam Posen today, 0:02:15.200 --> 0:02:18.200 is above two percent giving all the structural changes, and 0:02:18.520 --> 0:02:20.079 the way we're going to get there is not by 0:02:20.120 --> 0:02:25.560 announcing the new target by but by following a shadow 0:02:25.680 --> 0:02:29.960 target and then once we see it stable at adopting it. 0:02:30.000 --> 0:02:31.720 I think that's the most likely outcome. By the way, 0:02:32.120 --> 0:02:33.679 then we are sufficiently restrictive. 0:02:35.919 --> 0:02:38.560 Wellhamed, does it concern you that we've heard a lot 0:02:38.639 --> 0:02:42.400 of people who sound pretty happy. Actually, other than Ja Powell, 0:02:42.400 --> 0:02:44.919 who is taking sort of the adult tone of we're 0:02:44.919 --> 0:02:47.520 not there yet, Stop declaring victory. There's a lot more 0:02:47.520 --> 0:02:51.480 down the pike, everybody else sounds like things are going 0:02:51.520 --> 0:02:54.799 really well, and the FED policy is achieving exactly what 0:02:54.840 --> 0:02:55.280 it saw to. 0:02:56.400 --> 0:02:58.760 So I don't think it's everybody else, but most people are, 0:02:58.880 --> 0:03:02.639 especially in the marketplace. So the economists. You have Larry Summers, 0:03:02.639 --> 0:03:05.519 for example, reminding us this morning that if you look 0:03:05.639 --> 0:03:11.160 at the seventies inflation cycle, this one looks very similar. 0:03:11.880 --> 0:03:14.520 He has to do graphs up and he's sort of 0:03:14.560 --> 0:03:18.280 warning implicitly that we may see a pickup in inflation. 0:03:18.880 --> 0:03:22.919 So I think the marketplace is much more complacent than 0:03:22.960 --> 0:03:27.320 the economists saw. The economists recognize that the many moving pieces, 0:03:28.320 --> 0:03:30.600 whereas the marketplace things that we've gotten to a new 0:03:30.880 --> 0:03:34.800 equilibrium and from here is going to be cut next year. 0:03:35.520 --> 0:03:36.520 That remains to be seen. 0:03:38.760 --> 0:03:40.960 Do you think, Muhammed, that it's important for the FED 0:03:41.480 --> 0:03:44.680 to get ahead of a potential resurgence in inflation. Or 0:03:44.720 --> 0:03:48.440 do you think that Jay Powell's approach of watching the 0:03:48.480 --> 0:03:51.160 stars and seeing what they are will be sufficient to 0:03:51.280 --> 0:03:53.480 curtail some sort of more embedded inflation. 0:03:54.600 --> 0:03:57.600 It's hard, Lisa, because as you know, they have not, 0:03:57.960 --> 0:04:02.160 like past Feds, opted for strategic view of the of inflation, 0:04:02.400 --> 0:04:07.640 nor do they have a functional monetary policy framework. So 0:04:07.680 --> 0:04:11.560 they've become highly data dependent, which means that they are 0:04:11.720 --> 0:04:17.560 using instruments with lags on backward looking data. So they 0:04:17.600 --> 0:04:20.400 aren't a bit of a tough situation. They're going to 0:04:20.400 --> 0:04:24.320 remain data dependent. So I don't think he knows what 0:04:24.400 --> 0:04:26.160 they will do in September. He's going to wait to 0:04:26.200 --> 0:04:28.359 see what the job report is. He's going to wait 0:04:28.400 --> 0:04:31.000 for the CPI numbers, and then they're going to decide 0:04:31.000 --> 0:04:33.800 what to do. But this is the irony is it's 0:04:33.839 --> 0:04:38.520 a highly dependent, data dependent FED using instruments that act 0:04:38.560 --> 0:04:39.080 with a lag. 0:04:40.040 --> 0:04:42.440 Plenty of feedback. Tom this coming from no data of Renmak. 0:04:42.560 --> 0:04:45.200 Just Truition sent the following. I thought Power delivered a 0:04:45.240 --> 0:04:48.480 neutral speech. The FED sees its monetary policy stances restrictive, 0:04:48.520 --> 0:04:50.680 and we'll make a more tempered approach to future meetings, 0:04:50.880 --> 0:04:54.279 proceed carefully, risk management. These are all cash phrases for 0:04:54.360 --> 0:04:56.960 do nothing right now. The view from no data, just 0:04:57.000 --> 0:04:57.480 manas a guy. 0:04:57.640 --> 0:05:00.280 A lot more response coming in here, mixed mark red 0:05:00.360 --> 0:05:03.560 and green on the screen, Doctor Orion. I want to 0:05:03.560 --> 0:05:07.680 touch upon your iconic working game theory and that the 0:05:07.720 --> 0:05:10.400 word that I'm hearing this morning is complexity. I heard 0:05:10.440 --> 0:05:13.599 it from you, I heard it from John Lipsky and others. 0:05:14.000 --> 0:05:18.200 The simplicity we're all begging for is tee decisions. You 0:05:18.279 --> 0:05:22.680 are known for this, This is a Jackson Hall devoid 0:05:22.960 --> 0:05:27.400 of tee decisions. How do our viewers and listeners handle 0:05:27.440 --> 0:05:31.239 the complexity now? And to come tom? 0:05:31.240 --> 0:05:35.200 I think the most important thing to understand is that 0:05:35.279 --> 0:05:39.000 we have left the world of insufficient demand and we 0:05:39.040 --> 0:05:42.400 are now in a world of insufficient supply. And there's 0:05:42.440 --> 0:05:44.640 many reasons for that. It's a world that's not going 0:05:44.720 --> 0:05:48.520 to go away anytime soon. It's not pandemic issues that 0:05:48.560 --> 0:05:52.000 are fully reversible quickly. There are longer term issues going 0:05:52.040 --> 0:05:57.080 on change, globalization, supply change management, the functioning of the 0:05:57.120 --> 0:05:59.960 labor market, and the list goes on. So we are 0:06:00.200 --> 0:06:05.640 now in a different world of supply side constraints, and 0:06:05.680 --> 0:06:08.720 that world will mean that countries will become more inwardly looking, 0:06:08.880 --> 0:06:13.040 which we've seen already, and it also means that policy 0:06:13.160 --> 0:06:15.280 has to adjust to that. Now put on top of 0:06:15.320 --> 0:06:20.720 that the layer of industrial policy as we embark more 0:06:20.800 --> 0:06:24.800 meaningfully on a green transition, and it's all about the 0:06:24.800 --> 0:06:29.000 supply side, Tom, and that's where monetary policy is really challenged, 0:06:29.040 --> 0:06:30.760 because it acts on the demand side. 0:06:32.240 --> 0:06:35.800 We're thrilled, Mohammad to have doctor Greghava with us, and 0:06:35.839 --> 0:06:38.400 then you and Christine Leguard with us later. And the 0:06:38.400 --> 0:06:41.760 heart of the matter is are we beyond the supply 0:06:41.960 --> 0:06:46.440 shocks of this pandemic? Where are we on that continuum? Muhammad? 0:06:46.640 --> 0:06:48.279 Have we escaped COVID? 0:06:49.800 --> 0:06:52.080 I mean, we've escaped the worst of COVID, but we're 0:06:52.080 --> 0:06:54.800 dealing with the legacy of COVID, But we're also dealing 0:06:54.800 --> 0:06:56.960 with the legacy of the war. We're also dealing with 0:06:57.000 --> 0:07:00.279 many other legacies. You know, Tom, is fascinating that you 0:07:00.320 --> 0:07:04.279 will have President Laggard on because if you think the 0:07:04.440 --> 0:07:08.600 US is complicated, then in terms of degrees of complexity, 0:07:09.080 --> 0:07:12.280 Europe is even higher. The UK is even higher than that. 0:07:12.680 --> 0:07:14.880 So it's going to be really interesting to talk as 0:07:14.920 --> 0:07:19.360 you will do to President Laguard, because even though she 0:07:19.560 --> 0:07:24.560 has a single mandate, her environment is significantly more complicated 0:07:24.560 --> 0:07:26.760 than the FEDS, which is already complicated. 0:07:28.400 --> 0:07:30.720 So, Mohammad, she is so much more exposed. Europe is 0:07:30.800 --> 0:07:33.920 much more exposed to what's developing in China at the moment, Muhammad, 0:07:34.000 --> 0:07:37.360 If you took the US out of the equation right now, 0:07:37.560 --> 0:07:41.280 and we've been talking just about Europe and China, wouldn't 0:07:41.280 --> 0:07:44.280 we be talking about things like rate cuts and easing 0:07:44.600 --> 0:07:45.960 and stimulating the economy. 0:07:47.040 --> 0:07:49.760 If you take the US out of the equation, you'ld 0:07:49.800 --> 0:07:54.600 be talking about stagflation, and that's what everybody is afraid of. 0:07:55.200 --> 0:07:59.800 The US is exceptional, and it's exceptional in this economic performance. 0:08:00.480 --> 0:08:03.120 And if you take the US away, then you're taking 0:08:03.160 --> 0:08:05.920 away the only engine of growth for this global economy. 0:08:06.480 --> 0:08:08.800 But you're not taking away to supply side issues that 0:08:08.800 --> 0:08:11.280 are causing the inflationary pressure. So if you take the 0:08:11.400 --> 0:08:14.080 US away, we would be talking about not just the 0:08:14.200 --> 0:08:17.160 risk of stackflation in Europe, but you would be talking 0:08:17.160 --> 0:08:19.600 about the risk of stackflation in the global economy. 0:08:21.160 --> 0:08:23.640 Muhammed, is that the risk of the reality in Europe 0:08:23.720 --> 0:08:24.160 right now? 0:08:25.320 --> 0:08:28.920 John, is still the risk. You know, Yes, Germany is 0:08:28.960 --> 0:08:32.120 struggling the most, and that is if you like the 0:08:32.160 --> 0:08:36.760 engine for Europe, but there's also good things happening in Europe. 0:08:37.120 --> 0:08:41.160 Away from Germany. It's a high risk. It's flashing WED, 0:08:41.600 --> 0:08:45.560 not even yellow, it's flashing WED, but it's not yet 0:08:45.679 --> 0:08:49.280 a done deal. The US is much better off. China, 0:08:49.400 --> 0:08:52.560 ironically is the one that's suffering the most. If you've 0:08:52.559 --> 0:08:57.480 been discussing all morning, there is no obvious policy response, 0:08:58.040 --> 0:09:02.840 and now these piecemeal responses are being rejected by the 0:09:02.920 --> 0:09:07.280 marketplace really quickly. The marketplace is no longer embracing the 0:09:07.320 --> 0:09:10.839 notion that China can get itself out of the mess 0:09:11.000 --> 0:09:11.920 is finds itself in. 0:09:14.080 --> 0:09:17.000 And that's perhaps the cause of the manufacturing recession that 0:09:17.040 --> 0:09:19.160 we see in Germany and parts of Europe. 0:09:19.240 --> 0:09:20.280 But the service. 0:09:19.960 --> 0:09:23.040 Aside, we've been talking about how that's maybe more directly 0:09:23.080 --> 0:09:26.560 affected by the ECB's policies and where rates are and 0:09:26.600 --> 0:09:29.760 the more direct transmission mechanism than in the US. J. 0:09:29.960 --> 0:09:33.120 Powell just said that there is evidence that the long 0:09:33.160 --> 0:09:35.440 and variable lags are coming to the foe and will 0:09:35.440 --> 0:09:38.040 actually reduce growth materially in the US. Is Europe a 0:09:38.080 --> 0:09:40.920 model for the US is headed with respect to services 0:09:40.960 --> 0:09:43.200 in the next couple of months or in the next year. 0:09:43.920 --> 0:09:47.559 I hope not, Lisa. Our service sector has been stronger, 0:09:48.000 --> 0:09:50.800 and even though the PMI numbers this week were disappointing, 0:09:50.800 --> 0:09:53.400 at least there were over fifty for the service sector. 0:09:54.000 --> 0:09:59.720 We don't want pmis south of sixty of fifty. And also, 0:10:00.160 --> 0:10:04.559 ironically the service sectors where Europe just to stackflation as well. 0:10:04.840 --> 0:10:07.040 It's not the goods sector, it's a service sector that's 0:10:07.080 --> 0:10:10.040 the inflation problem, source of an inflation problem. So I 0:10:10.080 --> 0:10:13.400 hope we don't follow Europe because if we do, then 0:10:13.880 --> 0:10:16.800 we will be talking about a very different outlook for 0:10:16.880 --> 0:10:17.319 the US. 0:10:19.280 --> 0:10:22.560 We're also talking about the potential for some sort of 0:10:22.559 --> 0:10:25.480 weakness down the pike. One thing that j Powell speech did. 0:10:25.640 --> 0:10:28.040 We seem to remove rate cuts in the near future, 0:10:28.520 --> 0:10:31.320 at least for the foreseeable future, and you can see 0:10:31.320 --> 0:10:34.600 that shifting upward in the rate expectations. Do you think 0:10:34.600 --> 0:10:37.000 that this economy can handle a five percent FED funds 0:10:37.040 --> 0:10:40.000 rate for the remainder of next year even with all 0:10:40.040 --> 0:10:42.360 the strength that you're hearing about. 0:10:42.000 --> 0:10:44.520 Lisa, we don't know. And he did use the word agile, 0:10:44.920 --> 0:10:49.040 and that's absolutely correct. He's got to be agile. Look, 0:10:49.040 --> 0:10:52.680 there are all sorts of sectors that adjust with a lag. 0:10:53.520 --> 0:10:56.640 We haven't seen the full impact yet of the higher weights. 0:10:57.320 --> 0:11:01.040 You're starting to see it play out in various segments, 0:11:01.040 --> 0:11:03.640 but in a very small way. Remember, not everything gets 0:11:03.679 --> 0:11:09.520 refinanced immediately. This is very unlike the UK economy, where 0:11:09.520 --> 0:11:12.840 the effective duration is much shorter, so you get refinancing quickly, 0:11:12.880 --> 0:11:15.720 and the weights have the great effects happen much quicker. 0:11:16.120 --> 0:11:19.240 So we don't know how well we can navigate under 0:11:19.280 --> 0:11:23.560 five percent. It seems that the big issues in the 0:11:23.600 --> 0:11:27.000 banking sector are behind us. But so far, and it's 0:11:27.080 --> 0:11:29.839 really important to stress this, we've dealt only with interest 0:11:29.880 --> 0:11:32.720 rate risk. We have not dealt with credit risk. We 0:11:32.800 --> 0:11:35.520 have not dealt with liquidity risk. And that's what people 0:11:35.520 --> 0:11:37.120 in the marketplace have to keep an eye on. 0:11:37.760 --> 0:11:40.319 Stuart Kaiser, a city publishing just moments ago, give you 0:11:40.360 --> 0:11:42.240 a flavor of what's happening on the south side. Not 0:11:42.320 --> 0:11:45.120 a game changer for markets from share power, but remind 0:11:45.200 --> 0:11:49.000 us on upside risk to inflation, that demand, downside risks 0:11:49.520 --> 0:11:51.880 to growth. Mohammed al Airin still with us Mohammed, I 0:11:51.960 --> 0:11:54.000 just want to finish on that with you. The downside 0:11:54.080 --> 0:11:57.720 risk to growth to counter the upside risk to inflation. 0:11:58.200 --> 0:11:59.880 Is that something we all need to be cautious of 0:12:00.160 --> 0:12:01.600 going to see year round beyond. 0:12:01.760 --> 0:12:05.920 Yes, And that's why Chair Pal had a speech full 0:12:06.120 --> 0:12:07.280 of optionality. 0:12:07.960 --> 0:12:08.160 You know. 0:12:08.800 --> 0:12:12.240 I go back to what Mike McKee correctly said. It's 0:12:12.280 --> 0:12:15.280 not that the content was new. It wasn't. There was 0:12:15.320 --> 0:12:18.240 nothing in that speech that we didn't know before. Whether 0:12:18.280 --> 0:12:21.320 it was explaining what has been behind inflation, or whether 0:12:21.320 --> 0:12:24.720 it was explaining the range of policy possibilities and the 0:12:24.840 --> 0:12:27.640 risks and the need for risk management. All that has 0:12:27.679 --> 0:12:31.800 been said before. What was notable this time is that 0:12:31.840 --> 0:12:37.439 it was packaged slightly more hawkish than dubvish, and that's 0:12:37.520 --> 0:12:40.320 what people are picking up on. But ultimately, John, if 0:12:40.360 --> 0:12:45.120 we step back, the only thing he said is that 0:12:45.360 --> 0:12:48.360 what we know for sure is his belief is that 0:12:48.440 --> 0:12:51.040 two percent is the right inflation target and will remain 0:12:51.080 --> 0:12:54.319 the right inflation target. That issue is going to be 0:12:54.720 --> 0:12:58.440 hotly discussed in the next quarters as we get more 0:12:58.440 --> 0:13:00.160 and more data. 0:13:00.559 --> 0:13:02.880 Yeah, Mohammed, and I think that device going gaway any 0:13:02.880 --> 0:13:05.120 tom soon, even if you haven Powell tries to put 0:13:05.160 --> 0:13:06.760 it to bad Mohammed. Thanks for famin us today. I 0:13:06.920 --> 0:13:09.400 appreciate it as O whys Mohammed al arion. 0:13:19.720 --> 0:13:22.960 It will be analysis and interpretation owning the high ground 0:13:23.000 --> 0:13:28.800 on that is Joseph Weisenthal and Tracy Alloway. They host 0:13:28.960 --> 0:13:34.160 a podcast od Loots. Alloway had to redo her fireplace 0:13:34.640 --> 0:13:38.720 mantle because the awards have come in so large. Yeah, 0:13:38.760 --> 0:13:41.679 they're piling up. I mean my Wisenthal already had a 0:13:41.720 --> 0:13:44.120 mantle that could hold three hundred pounds. Next joining us, 0:13:44.120 --> 0:13:47.520 Tracy Alloway from Wisenthal would not get out of bed 0:13:48.000 --> 0:13:51.360 this early this morning. What I love about your work 0:13:51.400 --> 0:13:53.880 back at the FTEN years ago is you own a 0:13:53.960 --> 0:13:58.640 perspective of London and New York and synthesizing the Western 0:13:58.720 --> 0:14:04.000 world and an exceptional Japan with Uwaita in attendance here 0:14:04.080 --> 0:14:08.000 in this YCC disaster. Just had to listen to his 0:14:08.200 --> 0:14:12.400 hawkish one. How does Asia interpret what we heard this morning? 0:14:12.720 --> 0:14:14.840 Well, I'm kind of confused at some of the bond 0:14:14.880 --> 0:14:17.760 market action that we've seen so two year yields going 0:14:17.800 --> 0:14:21.600 above five percent hawkish interpretation. But I'm on the Neil 0:14:21.720 --> 0:14:26.240 Dudda's side here, which is This was a very dubvish speech. Actually, 0:14:26.800 --> 0:14:30.920 Powell sort of gave a nod to the R star debate, 0:14:31.040 --> 0:14:33.440 the idea about whether or not the neutral rate of 0:14:33.440 --> 0:14:36.800 interest is structurally higher in the current world. But then 0:14:36.840 --> 0:14:39.240 in the next sentence he basically goes, but we have 0:14:39.240 --> 0:14:42.239 no idea what our star is anyway, so it's completely irrelevant. 0:14:42.280 --> 0:14:43.720 And they're talking about being at restriction. 0:14:43.840 --> 0:14:45.800 That's not a small matter, John, Yeah, that's not a 0:14:45.800 --> 0:14:48.400 small matter. This has come up a couple times today. 0:14:49.200 --> 0:14:52.040 The guy from New York City, you know, the private 0:14:52.040 --> 0:14:55.240 equity guy, whatever Paul is. He's not too big on 0:14:56.080 --> 0:14:57.480 the plugins of our. 0:14:57.400 --> 0:15:00.240 Start's tricy something you've discussed. This probably shouldn't come as 0:15:00.240 --> 0:15:01.040 a surprise, should it. 0:15:01.400 --> 0:15:02.000 I don't think so. 0:15:02.200 --> 0:15:04.680 To me, it very much resembles what we saw last 0:15:04.760 --> 0:15:05.800 month from Powell. 0:15:05.840 --> 0:15:07.640 It's very much a data dependent. 0:15:07.320 --> 0:15:10.160 Speech, which makes sense because you have two major data 0:15:10.200 --> 0:15:13.080 points coming up before the next FED decision. Why would 0:15:13.080 --> 0:15:16.080 Powell stick his neck out at this particular moment in time. 0:15:16.240 --> 0:15:18.440 And of course there is a lot of uncertainty about 0:15:18.480 --> 0:15:21.720 those long and variable lags as you were talking about, Lisa. 0:15:21.320 --> 0:15:23.760 And this is a problem right now for j Powell 0:15:23.800 --> 0:15:25.880 because he wants to bring things down, but he doesn't 0:15:25.880 --> 0:15:29.120 want to curtail tonymism too much. Do you think that 0:15:29.400 --> 0:15:32.280 it seems fair to view his speech as saying that 0:15:32.400 --> 0:15:35.280 rate cuts are not in the cards for a longer 0:15:35.320 --> 0:15:37.440 period of time next year, because that's maybe what he 0:15:37.480 --> 0:15:41.480 wanted to say in the implicit sort of tone, but 0:15:41.600 --> 0:15:42.760 not what he actually said. 0:15:43.120 --> 0:15:45.880 I think he'd have to see a real deterioration in 0:15:45.960 --> 0:15:48.680 the underlying data to justify a rate cut, and that's 0:15:49.040 --> 0:15:51.240 just not happening. We have a lot of sort of 0:15:51.280 --> 0:15:55.440 anecdotal data points about maybe consumer spending is starting to weaken, 0:15:55.640 --> 0:15:58.760 but we haven't seen any of that in the unemployment 0:15:58.840 --> 0:16:01.960 rate right now, said, I know, the tone of this 0:16:02.000 --> 0:16:05.160 particular Jackson hole is very different to last year, where 0:16:05.200 --> 0:16:08.000 Powell was talking about how we'd have to assume more 0:16:08.080 --> 0:16:11.480 pain in order to bring down inflation. But that said, 0:16:11.600 --> 0:16:15.840 it's still a really uncomfortable moment for central bankers because 0:16:15.840 --> 0:16:18.480 inflation is coming down in a way that they didn't 0:16:18.480 --> 0:16:20.119 necessarily expect. 0:16:20.320 --> 0:16:21.960 Right The Phillips curve says. 0:16:21.760 --> 0:16:24.680 That if inflation's coming down, the unemployment rate should be 0:16:24.720 --> 0:16:26.280 going up, but that hasn't been. 0:16:26.320 --> 0:16:28.680 What's happening, So there's still a ton of uncertainty here. 0:16:28.840 --> 0:16:31.800 This is essentially, while it is a global central banker 0:16:31.840 --> 0:16:34.440 is coming together, it's also essentially an academic conference, and 0:16:34.480 --> 0:16:37.360 you're here with odd laws to speak to some of 0:16:37.400 --> 0:16:41.200 the academic research. What are you hoping to illuminate in 0:16:41.240 --> 0:16:43.960 this whole shifting global structure? 0:16:44.040 --> 0:16:46.680 That was sort of the theme. Yeah, that's exactly right. 0:16:46.840 --> 0:16:48.960 So I know that the focus is always going to 0:16:49.000 --> 0:16:51.720 be on the sort of short term outlook for interest rates, 0:16:51.760 --> 0:16:55.080 but really Jackson Hole is about the long term framework 0:16:55.320 --> 0:16:57.720 of monetary policy. And one of the big themes that 0:16:57.840 --> 0:17:02.120 is starting to emerge is this idea of higher public 0:17:02.280 --> 0:17:04.440 debt and we've seen that born out in the Fitch 0:17:04.520 --> 0:17:08.000 rating cut. Recently, bond yields higher because of some concerns 0:17:08.000 --> 0:17:09.800 over the outlook for US fiscal health. 0:17:10.080 --> 0:17:11.960 And again, the unusual. 0:17:11.440 --> 0:17:13.359 Thing about this moment in time is that we are 0:17:13.400 --> 0:17:17.600 seeing massive fiscal spending at a time of low unemployment. 0:17:17.640 --> 0:17:20.199 That hasn't really happened before. And so I think there 0:17:20.200 --> 0:17:22.440 are a lot of people at this conference who are 0:17:22.480 --> 0:17:23.760 wrestling with that idea. 0:17:23.800 --> 0:17:24.840 In that dynamic, you and. 0:17:24.880 --> 0:17:27.840 Joe Wisvove Rockstar hours you're just sort of wandering, and 0:17:27.880 --> 0:17:30.160 you do your podcast, and you do it by piecing 0:17:30.200 --> 0:17:34.400 together conversations where Bloomberg surveillance is complete and total chaos 0:17:34.480 --> 0:17:38.800 twenty four seven. What's the conversation here you're most looking 0:17:38.920 --> 0:17:40.639 for into your next podcast? 0:17:40.880 --> 0:17:43.320 Thank you for assuming that all thoughts isn't constant chaos 0:17:43.400 --> 0:17:45.840 as well. Tom, Well, we're having you on later today. 0:17:46.000 --> 0:17:51.240 It count Please, it's a conversation you want right now 0:17:51.240 --> 0:17:51.920 at Jackson Hall. 0:17:52.040 --> 0:17:55.280 Okay, the big picture goes back to that bond Outlook. 0:17:55.440 --> 0:17:59.000 What does a world of structurally higher debt look like? 0:17:59.280 --> 0:18:02.680 Does it miss citate higher interest rates? And what new 0:18:02.760 --> 0:18:05.600 financial risks does it introduce into the system. So we 0:18:05.720 --> 0:18:08.680 basically moved from a system that was very much reliant 0:18:08.880 --> 0:18:09.679 on bank. 0:18:09.480 --> 0:18:12.160 Lending to one that is far more bond based. 0:18:12.400 --> 0:18:15.840 And how do you square a world where bonds really 0:18:15.880 --> 0:18:20.160 really matter with central bank mandates to bring down inflation? 0:18:20.240 --> 0:18:21.120 There's a tension there. 0:18:21.160 --> 0:18:24.200 You can't build the financial system on bonds and assume 0:18:24.240 --> 0:18:26.600 that they're going to be very low volatility and then 0:18:26.640 --> 0:18:29.800 try to bring down inflation and have higher rates. 0:18:30.200 --> 0:18:32.359 Tracy, this was great, good to have you here. Thank you, 0:18:32.400 --> 0:18:34.919 Thank you having thank you very much, Tracy Allaway, the 0:18:34.960 --> 0:18:41.880 host the co host of the Oddlots podcast. Joining us 0:18:42.080 --> 0:18:45.280 is Patrick Khaka, the Philadelphia FED President, Patrick good Monk. 0:18:46.080 --> 0:18:48.480 Let's start right here, not what Shaman Power said, but 0:18:48.520 --> 0:18:50.280 what your colleague over at the Boston FED said in 0:18:50.320 --> 0:18:52.600 the last twenty four hours that this resilience of this 0:18:52.640 --> 0:18:55.479 economy suggests maybe we might have to do more. You 0:18:55.480 --> 0:18:56.320 take a different view. 0:18:56.480 --> 0:18:59.320 Why so, Look, we have to get inflation down to 0:18:59.359 --> 0:19:02.320 two percent. We all agree on that, I mean everybody is. 0:19:02.760 --> 0:19:05.240 We're all committed to that. The question is how to 0:19:05.280 --> 0:19:08.200 get there. We are at a restrictive stance in my view, 0:19:08.640 --> 0:19:12.440 and we're putting pressure on the economy to slow inflation. 0:19:14.119 --> 0:19:16.200 The question is whether we need to increase the pressure. 0:19:16.359 --> 0:19:18.879 Just keep pushing, pushing, pushing, And I'm in the camp 0:19:19.119 --> 0:19:21.960 right now. Just keep the pressure going. Let this work through. 0:19:22.320 --> 0:19:25.960 And again the data may dictate that we change course 0:19:26.440 --> 0:19:28.760 or I change course. But for right now, what I'm 0:19:28.800 --> 0:19:31.440 seeing and what I'm hearing, particularly soft data, what I'm 0:19:31.480 --> 0:19:34.960 hearing I've been around my district all summer talking to people, 0:19:35.560 --> 0:19:38.119 is that the plea I hear is you've done a 0:19:38.160 --> 0:19:41.120 lot very quickly, right you've taken a lot of pressure quickly. 0:19:41.680 --> 0:19:44.280 Now let us work through that, Let the banking system 0:19:44.320 --> 0:19:48.320 work through it, let the corporations work through that. So 0:19:48.400 --> 0:19:50.480 that I agree with that. I think we just keep 0:19:50.480 --> 0:19:53.000 the pressure on and see how things turn out. 0:19:53.440 --> 0:19:57.200 JPL didn't really say anything new, but he did sort 0:19:57.200 --> 0:19:59.080 of cast it in a hawkish light, and he talked 0:19:59.080 --> 0:20:03.240 about how the economy is perhaps growing faster than anticipated 0:20:03.400 --> 0:20:06.560 and that could increase inflationary pressures. So what would it 0:20:06.640 --> 0:20:08.840 take to get you to change your view and think 0:20:09.000 --> 0:20:10.240 we need to raise rates more? 0:20:10.520 --> 0:20:13.720 If we saw that the decreases in inflation we're installing 0:20:14.280 --> 0:20:16.600 right that we weren't making that progress that we need 0:20:16.640 --> 0:20:16.920 to make. 0:20:17.480 --> 0:20:21.800 But what would that How would that manifest itself? Because 0:20:22.359 --> 0:20:26.359 people who calculate CPI the analyst suggest we're going to 0:20:26.359 --> 0:20:29.280 see it go back up, just essentially for mechanical. 0:20:28.880 --> 0:20:31.480 Reasons on the headline side, Ye, for sure, but we 0:20:31.600 --> 0:20:34.679 also were going to see shelter inflation come down, right 0:20:34.800 --> 0:20:37.360 that it's coming down now you see this with real 0:20:37.359 --> 0:20:41.680 time rents. So if service inflation in particular, or core 0:20:41.760 --> 0:20:44.600 service inflation, whatever you want to call it, supercore, if 0:20:44.640 --> 0:20:47.359 that continues to stall, then I'd say we have to 0:20:47.400 --> 0:20:50.440 do more, But again I really want emphasized we are 0:20:50.760 --> 0:20:55.080 doing something right now. It's not as though keeping rates 0:20:55.080 --> 0:20:58.040 where they are is doing nothing. We're actually continuing to 0:20:58.040 --> 0:20:59.399 put pressure on the economy. 0:20:59.480 --> 0:21:01.800 You said, Jay Powell just said that it was important 0:21:01.840 --> 0:21:03.520 to get inflation back down to two percent. 0:21:03.560 --> 0:21:04.440 That was unequivocal. 0:21:04.680 --> 0:21:06.479 Does it matter when I mean right now you can 0:21:06.480 --> 0:21:08.840 see in the dots that it's not until after twenty 0:21:08.880 --> 0:21:11.400 twenty five. If it takes till twenty thirty, does it matter. 0:21:12.160 --> 0:21:15.120 Yeah, twenty thirty is a long way off twenty six. 0:21:16.560 --> 0:21:17.600 We're going to get under four. 0:21:17.480 --> 0:21:19.520 This year, under three next year, and then get to 0:21:19.560 --> 0:21:22.440 two in twenty twenty five. So yeah, it's going to 0:21:22.480 --> 0:21:25.040 take some time. But what really matters, what I hear 0:21:25.119 --> 0:21:28.080 all the time is not just a headline, not just supercore, 0:21:28.320 --> 0:21:30.399