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Speaker 1: Good morning. Let's find it the twentieth of October here

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Speaker 1: in London. This is the BlueBag Daybreak Heurate podcast. I'm

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Speaker 1: Caroline Hepka. Coming up today, Biden warns Hamas and Putin

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Speaker 1: want to annihilate democracy. The FED chief Jerown Powell suggests

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Speaker 1: that a rate heike next month is unlikely, and Starmer's

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Speaker 1: Labor makes history with a double by election win. Let's

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Speaker 1: start with a round up of our top stories. President

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Speaker 1: Joe Biden directly appealed to the American people to support

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Speaker 1: funding for Israel and Ukraine's war efforts in just the

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Speaker 1: second Oval Office address of his presidency. Biden warned that

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Speaker 1: both Hamas and Vladimir Putin want to destroy democracy.

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Speaker 2: Hamas and Putin represent different threats, but they share this

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Speaker 2: in common. They both want to completely annihilate a neighbouring democracy.

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Speaker 2: Hamas state of purpose for existing is a destruction of

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Speaker 2: the state of Issul and the murder of Jewish people.

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Speaker 2: Hamas does not represent the Palestinian people, homage us Palestinian

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Speaker 2: civilians as human shields and innocent Palestinian families are suffering

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Speaker 2: greatly because of them. Meanwhile, Putin denies Ukraine has or

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Speaker 2: ever had real statehood. I know these conflicts can seem

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Speaker 2: far away and s natural. Ask why does this matter

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Speaker 2: to America? You know, history has taught us that when

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Speaker 2: terrorists don't pay a price for their terror, when dictators

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Speaker 2: don't pay a price for their aggression, they cause more

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Speaker 2: chaos and death and more destruction.

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Speaker 1: So President Biden his fifteen minute address proceeds a formal

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Speaker 1: White House request for one hundred billion dollars from Congress

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Speaker 1: for Israel, Ukraine, Taiwan, and the US's southern border. The

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Speaker 1: news comes just one day after the US leader's visit

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Speaker 1: to Israel, and both while he was there and in

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Speaker 1: his Oval Office speech, he urged Israel against repeating American

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Speaker 1: policy errors.

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Speaker 2: An American experience, the hell of nine to eleven we

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Speaker 2: fell in as well. While we site and guid justice,

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Speaker 2: we made mistakes. So I cautioned the government of Israel

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Speaker 2: not to be blinded by rage.

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Speaker 1: Those comments come as reporting from Bloomberg uncovered the impact

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Speaker 1: that the United States is having on Israel's likely girls

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Speaker 1: of ground invasion. Three senior Israeli officials, speaking on condition

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Speaker 1: of anonymity, say that the role and influence of the

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Speaker 1: US in this war against Hamas is deeper and more

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Speaker 1: intense than anything Washington has done in the past. In

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Speaker 1: a first, Biden and Blincoln sat in on Israel's war

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Speaker 1: cabinet meetings, helping Benjamin Att Yahoo, also the Israeli Defense

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Speaker 1: Minister and opposition leader, to assess and to plan. The

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Speaker 1: US leader also said that he had spoken with the

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Speaker 1: Israelis about various quote alternatives regarding the ground war because

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Speaker 1: of concern over civilian casualties and an expansion of the conflicts. Meanwhile,

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Speaker 1: the UK Prime Ministers is in Saudi Arabia to discuss

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Speaker 1: the Israel Hamas conflict. The trip comes after the Prime

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Speaker 1: Minister visited Israel, where he also met with Prime Minister

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Speaker 1: net and Yahoo and welcomed a plan to allow aid

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Speaker 1: into Gaza, with reports suggesting that that could happen today.

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Speaker 1: Doctor Muhammad Kwandel is the emergency director at the NASA

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Speaker 1: Hospital in the territory. We are in a very difficult situation.

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Speaker 1: It's catastrophic, it's terrible, lords can describe it. Those comments

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Speaker 1: from doctor Mohammad Kwandel come as Egypt's foreign ministers said

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Speaker 1: that the distribution of aid to the Gaza strip should

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Speaker 1: be quote uninterrupted and continuous. The Hamas run health ministry

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Speaker 1: there says that more than three thy seven hundred people

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Speaker 1: and now have now been killed in Israeli bombings. That's

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Speaker 1: after the October seventh assault on Israel by Hamas which

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Speaker 1: killed more than one thousand and four hundred, the largest

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Speaker 1: loss of Jewish life since the Holocaust. Now another news

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Speaker 1: this morning, Jerome Powell signaled that the US Central Bank

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Speaker 1: is inclined to hold interest rates steady ahad again at

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Speaker 1: its next meeting.

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Speaker 3: We have to use our eyes and a little bit

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Speaker 3: of risk management in patients in slowing down the pace

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Speaker 3: to make sure that we are seeing the full effects.

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Speaker 3: And I think again that's part of why we've slowed

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Speaker 3: down this year. We went very quickly in twenty twenty

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Speaker 3: two to catch up to where we need to be,

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Speaker 3: and now we're moving carefully with these decisions.

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Speaker 1: FED Chair Powell's use of the word carefully comes as

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Speaker 1: rising bondi as a tightning financial conditions, and he called

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Speaker 1: geopolitical risks. Quote highly elevated yields on two year treasuries

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Speaker 1: declined after Powell spoke, whilst tenure yields paed an increase

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Speaker 1: that pushed them close to the five percent mark. Elsewhere

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Speaker 1: in corporate news, UBS is reportedly poised to start its

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Speaker 1: next wave of job cuts at Credit Sweee, targeting about

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Speaker 1: ten percent of support staff. According to Financial News, the

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Speaker 1: losses will likely focus on areas including compliance and marketing.

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Speaker 1: The publication says that the Swiss Bank has informed employees

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Speaker 1: that the reductions will start on the sixth of November.

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Speaker 1: The Labor Party has won two normally safe Conservative seats

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Speaker 1: in one of the largest voter shifts in UK election history.

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Speaker 1: New MPs Sarah Edwards and Alyssis to Thurn overturned normally

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Speaker 1: highly safe majorities of more than twenty thousand in special

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Speaker 1: elections yesterday. For Edwards it was a clear sign of

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Speaker 1: the current government's failings.

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Speaker 4: They've sent a clear message to Rishie Sunak and the

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Speaker 4: Conservatives that they have had enough of this failed government

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Speaker 4: which has crashed the economy and destroyed our public services.

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Speaker 1: The new Labour MP for Tamworth Sarah Edwards, there speaking

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Speaker 1: which until today was the Tory's fifty seventh safest seat

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Speaker 1: in the country. The landslide results are an ominous sign

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Speaker 1: for the Prime Minister as you're soon like ahead of

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Speaker 1: a general election, that is due in the next fifteen months.

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Speaker 1: The London Stock Exchange suffered what it called an incident

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Speaker 1: that brought trading to a halt for hundreds of shares

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Speaker 1: for the final hour and twenty minutes of yesterday's session.

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Speaker 1: The system outage affected mostly smaller cap equities, but they

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Speaker 1: included a few high profile names a Sauce Delivery and

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Speaker 1: Metro Bank. According to the LSE, stocks on the firty

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Speaker 1: one hundred and forty two to fifty and international order

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Speaker 1: book were not affected. However, it's not the first time

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Speaker 1: that the UK's main stock trading venue has suffered from

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Speaker 1: a glitch, with outages coming in both twenty nineteen and

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Speaker 1: twenty eighteen. Now every speech, every word from the chair

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Speaker 1: of the Federal Reserve is high stakes for investors. So

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Speaker 1: we're going to bring you in just a moment. Jerome

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Speaker 1: Powell's interview with our own David Western, this was a

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Speaker 1: fireside chat at the Economic Club of New York, was

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Speaker 1: quite revealing about why the Central Bank may still seem

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Speaker 1: more interest rates ahead, more a tightening of financial conditions,

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Speaker 1: and yet for the next meeting, the possibility that the

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Speaker 1: Fed could be on hold. So it's a really great

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Speaker 1: interview with David Western and Jeroam Power. So that is

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Speaker 1: going to be coming up in just a moment then

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Speaker 1: here on Bloomberg Radio. Crucial for our investors. Now, let's

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Speaker 1: also think about the address then from President Biden. A

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Speaker 1: fifteen minute address, very unusual, only the second of President

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Speaker 1: Joe Biden's presidency. He appealed directly to the American people

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Speaker 1: to support funding both for Israel and also for Ukraine's

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Speaker 1: war efforts, warning that Hamas and Putin present parallel threats

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Speaker 1: to American democracy. Joining me now to discuss as Stuart

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Speaker 1: Livingston Wallace, who is Bloomberg's head of coverage for the

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Speaker 1: Middle East and North Africa. Good morning, Stuart, thank you

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Speaker 1: for your time. Biden's address trying to convince Americans about

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Speaker 1: why they should support Israel and Ukraine. How did he

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Speaker 1: aim it as he tries to get funding from Congress.

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Speaker 1: It was focused on American democracy but also on global

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Speaker 1: democracy again, how did he frame this speech?

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Speaker 5: Yeah, good morning, Caroline. Jen He sort of wrapped it

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Speaker 5: all up together and basically put Hamas on a par

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Speaker 5: with Putin and others and sort of said that this

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Speaker 5: was a threat to US democracy. So it is very

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Speaker 5: much a global idea, and really the idea behind it,

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Speaker 5: or at least what we will get in practice is

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Speaker 5: a demand or other request for a one hundred billion

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Speaker 5: dollars in resources, and that will be channel towards Israel, Ukraine,

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Speaker 5: Taiwan and the US southern border. So it's all sort

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Speaker 5: of wrapped up in one big idea that what's going

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Speaker 5: on in Gaza and southern Israel is part of a

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Speaker 5: global picture of threats to US interests.

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Speaker 1: Bloomberg is reporting the US is influencing is having impact

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Speaker 1: on how Israel actually proceeds with its aim of trying

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Speaker 1: to eradicate hamass In God.

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Speaker 5: Yeah, and I would take it beyond that. I mean,

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Speaker 5: I think we've seen the steady stream of these seven

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Speaker 5: leaders make their way to Israel over the last what

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Speaker 5: would be ten days or so, and I think really

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Speaker 5: the attempt there is to figure out what twofold number one,

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Speaker 5: what ground war might look like, and how it might

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Speaker 5: be carried out, but also more importantly, how you contain

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Speaker 5: that situation. So you have seen, for instance, an increase

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Speaker 5: in attacks on US basis in Iraq. You've seen some

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Speaker 5: missiles fired from who's in Yemen heading towards Israel, they

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Speaker 5: were intercepted. You've seen rocket attacks coming across from South Lebanon,

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Speaker 5: and I suppose more is a precautionary thing than anything else.

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Speaker 5: You have seen some is very diplomats pulled out of

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Speaker 5: consulates and embassis across the Middle East, and notably in

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Speaker 5: Turkey yesterday. So all of that I think is sort

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Speaker 5: of part of one picture of trying to contain that

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Speaker 5: situation and making sure it doesn't spread too far. But

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Speaker 5: if you look at the reaction that you've had from

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Speaker 5: the Arab world or the Arab capitals, you know they

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Speaker 5: have typically they started off i would say, softly by

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Speaker 5: historical standards, and they've got increasingly forceful in the last

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Speaker 5: several days, particularly after you know, one or two incidents

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Speaker 5: that really have sparked a degree of anger within those populations.

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Speaker 1: In terms of the Palestinians and aide two girls and

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Speaker 1: civilians Egypt, but also the UN are calling for distribution

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Speaker 1: of aid to be quote uninterrupted and continuous. And so

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Speaker 1: this is this whole argument about the Rappa border crossing

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Speaker 1: is the only official entry point into Gaza that's not

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Speaker 1: controlled by Israel. Do you think that that's actually going

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Speaker 1: to open today for convoys. What do we know about that?

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Speaker 5: The fumes very unlikely will be today. That doesn't mean

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Speaker 5: it won't happen. But the reporting out there, not just

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Speaker 5: from ourselves but from other media is that the weekends

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Speaker 5: seems more likely. Now you can hear a certain hesitancy

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Speaker 5: in tone, because really no one knows. And on top

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Speaker 5: of that, I should say that the while we have

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Speaker 5: something like one hundred trucks lined up outside that crossing,

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Speaker 5: the context is that those hundred trucks any make a

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Speaker 5: dent in terms of the supplies that are needed within Gaza. Again,

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Speaker 5: remember this is a territory that tends to import just

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Speaker 5: about everything. It's been cut off now for some time.

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Speaker 5: We know most of the power is out. Vast amounts

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Speaker 5: fade are going to be needed for the size of

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Speaker 5: that population. But yeah, so far nothing. We continue to watch,

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Speaker 5: but I'd think the expectations for today are pretty low.

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Speaker 1: The big question, then, also is what happens to Garza

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Speaker 1: in the longer term. The options are looking really difficult.

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Speaker 1: How do we think about those now?

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Speaker 5: Though? Yeah, I mean there are no good solutions, it

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Speaker 5: would seem so. I mean, I suppose at the most

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Speaker 5: basic level. We will have to see what happens over

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Speaker 5: the next several weeks in terms of damage to infrastructure.

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Speaker 5: We also have to see how the situation evolves, for instance,

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Speaker 5: on that border crossing them. You know, can anyone come out?

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Speaker 5: And then you know, finally, what is the long term

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Speaker 5: solution If if Israel as indeed it has so that

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Speaker 5: its intention is really just completely dismantle hamass one way

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Speaker 5: or another, what does that mean for civil administration in

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Speaker 5: the territory, What does it mean for international relations? What

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Speaker 5: does it mean for its relationship with the Palatine authority

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Speaker 5: in the West Bank. It might conceivably, and I'm really

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Speaker 5: speculating at this stage, there might might you have some

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Speaker 5: sort of international body or force that's somehow involved in

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Speaker 5: administrative administrating the territory. But again I really am in

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Speaker 5: the reps of speculation there.

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Speaker 1: Yeah, absolutely, But the kind of thinking about the long

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Speaker 1: term versus the shorter term, I suppose in terms of

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Speaker 1: other actors in this, I mean Blomberg's reported on china

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Speaker 1: stance on Hamas and the US envoy talking about how

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Speaker 1: that is a distinction between the US and China. We've had,

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Speaker 1: as you say, a whole host of global leaders. There

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Speaker 1: are we expecting more of that? And in terms of

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Speaker 1: timing then of escalation, what are we thinking about in

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Speaker 1: the next few days.

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Speaker 5: Well, we don't have anyone on the agenda, but it's

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Speaker 5: in terms of sort of international arrivals. That doesn't mean

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Speaker 5: that you won't get any you know, the Biden because

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Speaker 5: it was sort of fairly put together, fairly quickly, in

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Speaker 5: sort of a couple of days notice, at least from

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Speaker 5: as far as we were concerned. And I suppose the

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Speaker 5: feeling is that if you can keep getting leaders going in,

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Speaker 5: maybe that delays a ground wall. But I think our

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Speaker 5: reporting has shown over the last couple of days that

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Speaker 5: there's not really been much of a change of the

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Speaker 5: mood within Israel in terms of its intention ready to

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Speaker 5: dismantle her mass and given the way things are both

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Speaker 5: in Gaza or mainly in Gaza, it's very hard to

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Speaker 5: see how you can do that without some sort of

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Speaker 5: boots on the ground. Now quite what that might look

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Speaker 5: like and how long that might last. But still again,

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Speaker 5: you know, we just don't know. But it does feel,

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Speaker 5: as I say, the mood with an Israel hasn't really

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Speaker 5: changed with all those visits.

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Speaker 1: Yeah, the global ramifications. I mean, if this you know,

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Speaker 1: this is basically a second major war for President Biden,

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Speaker 1: for example, in the last couple of years, but obviously

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Speaker 1: for everybody in the world, this is a second huge war.

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Speaker 1: This has economic impact. It certainly is having an impact

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Speaker 1: on the oil price. How are we thinking about that

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Speaker 1: sort of transmission mechanism into investors.

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Speaker 5: Yeah, I mean, I think really it comes down to

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Speaker 5: whether this spread. So was itity before we had Iran

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Speaker 5: sort of calling from a boycott on oil fails to

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Speaker 5: Israel and now you know within the scope of the

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Speaker 5: oil market that surrounding era. But it sort of again

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Speaker 5: set off those concerns that this might escalate, this might

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Speaker 5: spread wider, and you know, thinking particularly about this region,

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Speaker 5: it is primarily of importance for two things. One is

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Speaker 5: energy supply. Number two is shipping lanes, and that's hugely

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Speaker 5: important in every fast amount of the world's trade goes

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Speaker 5: through this region. So in a scenario where the conflict

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Speaker 5: spreads to other countries and other bits of the region

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Speaker 5: and you have any sort of disruption to shipping, that

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Speaker 5: obviously has an immediate inflationary impact. Again, though at this

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Speaker 5: stage it's very much concerns rather than any actual fact.

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Speaker 5: So you've seen just as in the our market for sure.

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Speaker 5: You know we're up another percent or so today. But

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Speaker 5: you know, if I think if those fears really do

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Speaker 5: unsold and come true, then you should expect things to

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Speaker 5: be or prices to be sharply higher.

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Speaker 1: Okay, Stuett, thank you so much for your time this morning.

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Speaker 1: As Stuart living Stone wallis, it's been a big head

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Speaker 1: of coverage for the Middle East and North Africa, takeing

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Speaker 1: us to the latest on the Israel hamas or thank

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Speaker 1: you now. I said that we would be hearing from

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Speaker 1: our interview with the Federal Reserve Chairge your own power. Well,

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Speaker 1: he sat down for a wide ranging interview with Bloomberg's

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Speaker 1: David Western A. Powell, talking about his outlook for the

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Speaker 1: Central banks policy path as it continues to tighten its cycle,

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Speaker 1: the tightening cycle of rising interest rates they were speaking

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Speaker 1: just earlier at the Economic Club of New York.

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Speaker 3: We are seeing those the effects where we expect to

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Speaker 3: see them, which is interrasensitive spending and also asset prices

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Speaker 3: to some extent, and the exchange rate, which you're also

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Speaker 3: seeing a strong exchange rate, which is disinflationary. So I

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Speaker 3: don't think there's a fundamental change in the way monetary

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Speaker 3: policy affects the economy. And again it goes back to

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Speaker 3: just very strong demand. We take the economy as it is,

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Speaker 3: We take fiscal policy and the economy and all the

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Speaker 3: things we don't control, they come to us, and we

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Speaker 3: conduct policy always to achieve maximum employment and stable prices.

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Speaker 3: So we just take what comes the fact that we

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Speaker 3: have have a strong growing economy, a strong growing labor market,

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Speaker 3: and you know, inflation coming down. These are the elements

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Speaker 3: that we want to see that to achieve the outcome

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Speaker 3: we want.

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Speaker 6: How much effect thus far has the FED had? We

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Speaker 6: all have memorized that long and variable legs? How long?

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Speaker 6: How variable? And where are you in that process? Are

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Speaker 6: you at the twenty five percent point in terms of

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Speaker 6: seeing it in the effect in the real economy.

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Speaker 3: So there's there's no precision in our understanding of how

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Speaker 3: long legs are. One thing that has changed in the

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Speaker 3: modern era is that markets now, over the course of

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Speaker 3: the last thirty years, central banks that have decided, instead

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Speaker 3: of being secretive, to be very transparent, and what that

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Speaker 3: has meant is that markets move actually well in it anticipation,

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Speaker 3: well before our policy moves, So the transmission from policy

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Speaker 3: moves to financial conditions actually happens before the moves. Now

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Speaker 3: where was that was not the case fifty years ago

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Speaker 3: when Milton Friedman coined the phrase long and variable legs.

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Speaker 3: But now you have financial preditions changing and the questions

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Speaker 3: how does it affect the economy? The standard channels are

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Speaker 3: asset prices and such, interrasensitive spending and the exchange rate,

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Speaker 3: for example. And again we do see that happening, just

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Speaker 3: not as fast as we would like. And I would

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Speaker 3: attribute some of that to just stronger demand. You know,

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Speaker 3: household savings were turned out to be higher, household spending

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Speaker 3: has been stronger, and that's by far the largest part

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Speaker 3: of the economy.

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Speaker 6: In order to conduct monetary policy effectively, do you need

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Speaker 6: at least a hypothesis about how much has already hit

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Speaker 6: the economy, because it's hard to know how much more

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Speaker 6: you need to do if you don't know how far

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Speaker 6: you've come.

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Speaker 3: So on legs, I think if you think back, it's

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Speaker 3: been a year now since since the last seventy five

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Speaker 3: basis point hike we did. It was the November meeting

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Speaker 3: in twenty twenty two. The first one was in June,

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Speaker 3: so it's more than a year, so we should be

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Speaker 3: seeing the effects. By the way, they don't all just

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Speaker 3: arrive on one day. They arrive and then they're thought

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Speaker 3: top peak and then to diminish lot of uncertainty around lags.

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Speaker 3: And one of the reasons why we have slowed down

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Speaker 3: significantly this year is to give monetary policy time to work.

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Speaker 3: The truth is, though you can find academic support for

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Speaker 3: different different speeds and duration of lags. So we have

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Speaker 3: to use our eyes and a little bit of risk

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Speaker 3: management in patients in slowing down the pace to make

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Speaker 3: sure that we are seeing the full effects. And I

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Speaker 3: think again that's part of why we've slowed down this year.

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Speaker 3: We went very quickly in twenty twenty two to catch

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Speaker 3: up to where we need to be, and now we're

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Speaker 3: moving carefully with these decisions.

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Speaker 6: So when you spoke back in August of twenty twenty

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Speaker 6: and sort of laid out the revisions to the framework

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Speaker 6: as it were, you said that in terms of anticipated growth,

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Speaker 6: the sort of consensus have gone from something like two

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Speaker 6: point five to one point eight percent. I think were

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Speaker 6: the numbers you laid out of that. Where are you now?

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Speaker 6: Where's the FED? Where are you and what you think? Basically,

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Speaker 6: the long run growth is.

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Speaker 3: Long run potential growth is not something that moves around

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Speaker 3: a lot over time. But I would my own guess

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Speaker 3: is it's around two percent. I think that the standard

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Speaker 3: mainstream view would be a little bit below two percent,

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Speaker 3: but I would just say two percent real growth over time.

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Speaker 3: And you know what causes growth is you know, growth

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Speaker 3: in hours worked plus growth in productivity. Growth in hours

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Speaker 3: worked is a function of population growth in the long run,

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Speaker 3: and also labor force participation. Many things affect productivity. But

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Speaker 3: if you if you drop in reasonable standard longer term

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Speaker 3: estimates of hours worked growth and productivity, which is just

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Speaker 3: output per hour productivity growth, you get something around two percent.

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Speaker 3: And that's that's higher than most other advanced economies.

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Speaker 6: As you look at it, do you see historical precedents

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Speaker 6: for having growing economy with high rates over a long

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Speaker 6: period of time? I mean, as you look back, I mean,

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Speaker 6: is it like the late nineties for example? What analogies

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Speaker 6: do you draw as you try to determine what this

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Speaker 6: might be doing at the economy of the longer term.

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Speaker 3: So that's really a question about what the level of

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Speaker 3: rates will be going forward. What the neutral level will be.

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Speaker 3: I think it's it's very hard to know confidently what

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Speaker 3: the answer to that will be in five years. Some

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Speaker 3: of the reasons why rates were low for the last

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Speaker 3: twenty five years were just the aging of the global

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Speaker 3: population and globalization, and you know, so lots of savings

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Speaker 3: and relatively with an aging population, savings greater than investment,

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Speaker 3: so rates are lower and productivity was low. So all

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Speaker 3: of those led to low interest rates. So what has

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Speaker 3: changed with the pandemic. You might see less effects from globalization,

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Speaker 3: certainly demographics that the aging of the global population is

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Speaker 3: not changed. I mean, this is a discussion we're having

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Speaker 3: on an ongoing basis. It doesn't really affect current policy.

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Speaker 3: But where will rates settle out? What will be at

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Speaker 3: a normal rate? So if a typical FED tightening cycle

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Speaker 3: would leave you at five or six percent, and this

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Speaker 3: is in the before the pandemic and before this the

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Speaker 3: low inflation period, you would have had FED rates in

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Speaker 3: four or five percent or even higher. Frequently we were

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Speaker 3: going back to that. I really don't know. I wouldn't want

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Speaker 3: to speculate. I mean, my guess is it'll be somewhere

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Speaker 3: in the middle.

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