Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg terminal. Amos Hochstein, Presidential
Speaker 1: Coordinator for Energy Circuit Security for the President of the
Speaker 1: United States, would like West Texas Intermediate quickly to get
Speaker 1: back to eighty dollars a barrel. Amos, I'm gonna cut
Speaker 1: to the chase. You've read the Washington Post, Anny Hoyer
Speaker 1: and others. Uh lukewarm here on the microeconomics of price
Speaker 1: theory of an eighteen cents tax on a galon of gas.
Speaker 1: What's the plan to get oil back to eighty dollars
Speaker 1: a barrel? Well, good morning, Tom for a little thank
Speaker 1: you for having me. Uh. Look, since the since the
Speaker 1: late fall when Putin had a massive troops around Ukraine
Speaker 1: and ultimately the invasion followed by global sanctions, uh, the
Speaker 1: price of gasoline at the pump of Americans has gone
Speaker 1: up about two dollars UH, and diesel probably a little
Speaker 1: bit more than that. So what we are looking at
Speaker 1: is this historic increase in price as a result not
Speaker 1: of normal economic times, but under a time of war,
Speaker 1: at a time of of global security instability that is
Speaker 1: affecting the market and as a result, as we go
Speaker 1: into the into the driving season the summer, the President
Speaker 1: really wants to give a break to American families during
Speaker 1: these three months of the summer, and that's why he's
Speaker 1: asked Congress to suspend uh the eighteen cent gas tacks
Speaker 1: and he's called on governors to do that the same.
Speaker 1: So if the governor's match that, uh, that we're talking
Speaker 1: about fifty cents a gallon less. But I want to
Speaker 1: answer your question Tom directly. Look, we have done everything
Speaker 1: that we can to encourage the industry to increase production,
Speaker 1: which they have, which they are going to this year record.
Speaker 1: We're gonna get to record oil production at the end
Speaker 1: by the end of this year or the next next
Speaker 1: year's first quarter. Uh. We've released the President's ordered the
Speaker 1: release of a million barrels a day from the strategic petroleumers,
Speaker 1: and he led the effort to do two million barrels.
Speaker 1: Here's the problem, and I know you're sitting in the Oval, Uh,
Speaker 1: the Oval Office with a Bloomberg terminal next to you
Speaker 1: as you talk to the President, and you can bring
Speaker 1: up log West Texas Intermediate quarterly like I can't. Anybody
Speaker 1: can do this, bologny. It's about distillates, and it's about
Speaker 1: not in my backyard. How is a centrist Democrat going
Speaker 1: to explain to left Democrats they need to come up
Speaker 1: with a nod in my backyard policy to advocate greater
Speaker 1: distillate capacities in America? How do you do that? So time,
Speaker 1: you raise an excellent point that people tend to focus
Speaker 1: a lot on the oil production, but in reality, Uh,
Speaker 1: it's that's not the issue alone, right. Uh. During the pandemic,
Speaker 1: just during the years of the pandemic, we lost a
Speaker 1: remarkable amount of refining capacity in the United States. And
Speaker 1: those refineries that went out, some of them are gone
Speaker 1: and they're not coming back. We know that they're you know,
Speaker 1: one of them has turned into a terminal. Uh. The others, though,
Speaker 1: are there, and we can invest before we start talking
Speaker 1: about building new refineries. Uh, we can bring back potentially
Speaker 1: the old refineries that have been taken out of commission
Speaker 1: that are still there and what we've with the President
Speaker 1: has asked is for the industry to come to Washington
Speaker 1: to meet with Secretary Grant Holme UH and to bring ideas.
Speaker 1: As he said in his letter, look, he has taken
Speaker 1: extraordinary measures over the last several months in a number
Speaker 1: of areas, both in energy and beyond UH, he is
Speaker 1: willing to take those measures again. We're asking the industry
Speaker 1: to come and to give us their ideas. What do
Speaker 1: you need from the federal government from from us that
Speaker 1: we can be weak to work with you to increase
Speaker 1: the capacity or finding capacity and distill it's in order
Speaker 1: to get gasoline not only produced, but then ultimately get
Speaker 1: gasoline and diesel to the right places around the country.
Speaker 1: I mean, at least, what's so important and what almost
Speaker 1: is talking about is what are we going to do
Speaker 1: to politically shift the distillate debate? To me, that's the
Speaker 1: heart of the matter. The other heart of the matter,
Speaker 1: almost is this idea that the response to that letter
Speaker 1: that we're talking about from the President, from X and
Speaker 1: from Phillip sixty six, from a whole host of other
Speaker 1: companies was that the current administration has had obstructionist policies
Speaker 1: when it comes to the oil and gas industries, and
Speaker 1: that they have not been very clear. What is your
Speaker 1: response at a time when they have been increasing production
Speaker 1: and they invested more than they brought in during the
Speaker 1: heart of the pandemic. So look, that's that's the difficulty here.
Speaker 1: People say that we are standing in the way of
Speaker 1: increased production, but look at the numbers, look at the
Speaker 1: increase in production under the Biden administration. It's hard to
Speaker 1: argue that we have done anything to stand in the
Speaker 1: way of increased production. Uh, there's been an rise in
Speaker 1: oil production. We know that by the end of the year,
Speaker 1: at the beginning of next year, we're gonna hit record production.
Speaker 1: So on average, the old production in the United States
Speaker 1: in this last year and a half has been higher
Speaker 1: than the one under our predecessor. Excuse me those records, Lisa.
Speaker 1: Have you met with the CEOs of the big oil
Speaker 1: companies to talk about this and to talk about how
Speaker 1: things can be clear for them to produce more? You have,
Speaker 1: and are there going to be certain well, sorry, go ahead,
Speaker 1: let me know. I mean they're going to be scheduled
Speaker 1: changes in terms of more specific policies that you'll put
Speaker 1: out there that you think will allow them to refine
Speaker 1: more or create more production in the near term. Well,
Speaker 1: I think that they have. My point is that they
Speaker 1: have the tools they need. When I meet with the
Speaker 1: oil company executives and the c e o s, and
Speaker 1: I've asked them over the last several months, do what
Speaker 1: do you need from US? And and beyond what we've
Speaker 1: talked about the last several days and the press about
Speaker 1: the tone, what do you need? They don't need anything.
Speaker 1: They all say they have what they need. There are
Speaker 1: some labor shortages, there are some spare parts and so on,
Speaker 1: but they don't need policy changes from the from the
Speaker 1: US administration. They have what they need. In fact, when
Speaker 1: it comes to federal land, they have more than what
Speaker 1: they need. But as you and I both know, federal
Speaker 1: lands where government leases are are less than ten percent
Speaker 1: of the overall US production. So the companies actually don't
Speaker 1: need anything. What they do need is bankers in New
Speaker 1: York and and their funds funders to send their investors
Speaker 1: to say, use the profits that you're having under these
Speaker 1: record prices for the last level of months and invest
Speaker 1: them back into the into production, investment, back into refinery, investment,
Speaker 1: back into equipment, where that's where the rubbeats. It's not
Speaker 1: just about the availability of the crude, it's about the
Speaker 1: ability to turn that into product to refine it. Refining
Speaker 1: capacity is really a critical issue here. And when you
Speaker 1: speak to an oil executive, they say, why would I
Speaker 1: invest in a new refinery, which is a long term investment,
Speaker 1: when it is known that there is an intention to
Speaker 1: get to net zero, albeit in a few decades from now.
Speaker 1: They want they want to pivot to clean energy. So
Speaker 1: what is your messaging to c e O S when
Speaker 1: you're asking them to pump more also knowing that eventually
Speaker 1: there wants to be you want to wean off of
Speaker 1: fossil fuels. So two points one right, it is not
Speaker 1: just about the crude oil production. It is about refining.
Speaker 1: And as I said before, we lost a lot of
Speaker 1: refining over the last several years, specifically during the pandemic
Speaker 1: UH and we'd like to see that come back. But
Speaker 1: you raise it a fair question, why why do you
Speaker 1: make those investments and that and that's what we have
Speaker 1: to talk about. We need to make sure that we
Speaker 1: have enough oil and gas in the economy now over
Speaker 1: the next several years to meet the demand that we
Speaker 1: have in the economy. And you're right, we're not shying
Speaker 1: away from our climate goals, and they're aggressive, and we
Speaker 1: want to accelerate. We want to see the accelerate the
Speaker 1: movement to electric vehicles. UH the goals of I know
Speaker 1: the goal is about new car sales. You have several
Speaker 1: American companies and global car companies saying that their vehicles
Speaker 1: will be electric, so and that that's just new car sales.
Speaker 1: So we'll have a tail on that as the rest
Speaker 1: of the industry catches catches up. So the argument that
Speaker 1: we're we don't want to invest in refining or invest
Speaker 1: in oil production now because of these policies, I don't
Speaker 1: know that that really follows through UM and and meets
Speaker 1: the fact. We know we have the demand. So I
Speaker 1: think that we'd like to work together with the IT
Speaker 1: with the with the industry, tell us, tell us what
Speaker 1: you need, and tell us how you plan to use
Speaker 1: your record profits investing back into UH, into the industry,
Speaker 1: into production, into refining so that Americans can pay a
Speaker 1: little bit less at the pump and have the products
Speaker 1: that they need during this time almost we just have
Speaker 1: a little bit of time left. Has there been any
Speaker 1: discussion about reducing demand or possibly putting out some sort
Speaker 1: of guideline to pull back in terms of how much
Speaker 1: people use, akin to what we're seeing in the gas
Speaker 1: base over in Germany. Well, first, I think on natural gas,
Speaker 1: Europe and the United States are are vastly different UH
Speaker 1: in our systems. Our price here is about six dollars.
Speaker 1: There's about forty dollars on natural glass. But look, the
Speaker 1: we're we have provided record investment through the infrastructure legislation
Speaker 1: that passed UH into mass transit UH and into into
Speaker 1: rail UH that these are the things to convert people from.
Speaker 1: If we had a better rail and mass transit system
Speaker 1: that was efficient and fast, then people All studies show
Speaker 1: people would move from using vehicles to moving mass transit
Speaker 1: to using mass transit. So yes, we we'd like to
Speaker 1: put the investments to work. That's what President Biden has
Speaker 1: been offering all along. How can we move people away
Speaker 1: from driving their cars to mass transit UH and to rail,
Speaker 1: and how do we move from gasoline cars to electric
Speaker 1: vehicles which will also reduce the demand for gasoline. But
Speaker 1: we have to also be realistic that we need that
Speaker 1: supply today as we get towards that better future that
Speaker 1: you're talking about. Thank you for the brief. Almost Axtein
Speaker 1: is with the White House and with President Biden with
Speaker 1: energy policy. Maria today, oh in Brussels, and now is
Speaker 1: the Baltic States consider Ukraine as they consider Russia a
Speaker 1: convert station with the President of Lithuania, Maria, good morning,
Speaker 1: Thanks Toma. Let's go straight of course, with the President
Speaker 1: of Lithuania, Mr. And Alzeta. From day one you've said
Speaker 1: Russia is a threat to European security. Ukraine has to
Speaker 1: win and we need to see native troops deployed in
Speaker 1: big numbers on the eastern flank. But I want to
Speaker 1: ask you about a very delicate situation for you, a
Speaker 1: so I appreciate you taking the time today on Kleinigrad.
Speaker 1: When you look at it on a map, it's between
Speaker 1: your country Lithuania Poland, but it belongs to the Russian Federation,
Speaker 1: and the Russian Federation now openly accuses you your country
Speaker 1: a blocking transport from the Russian Federation to Klenigrat. They
Speaker 1: say there could be real repercussions. Are you concerned. We
Speaker 1: got used to that kind of manipulation, this information and
Speaker 1: threatening it comes very often, and you've got used to
Speaker 1: have this very dangerous neighbor very near to and this
Speaker 1: is nothing special. I just want to say that this
Speaker 1: issue we are talking this is not bilateral issue between
Speaker 1: Lithuenia and Russia. I would like to remind you that
Speaker 1: in March, the European Council decided on the fourth package
Speaker 1: of sanctions, which include some ferous metals iron steel and
Speaker 1: also some luxury goods. And what is Luthenia is doing.
Speaker 1: Luthenia is just implementing those sanctions according to the rules
Speaker 1: and prescriptions of European Commission. Now we are in the
Speaker 1: situation they where we have to apply those sanctions in
Speaker 1: post and this creates, of course some tension between Lithenia
Speaker 1: and Russia. But I think that Russia is just acting
Speaker 1: this proportionally and they are trying to use the supportunity
Speaker 1: the just to blow the propaganda bubble. I would name
Speaker 1: this like this, but when you say it's the propaganda bubble,
Speaker 1: was specifically because the Russians what they say is that
Speaker 1: you're preventing the Russian Federation from supplying a territory of
Speaker 1: the Russian Federation, that is kelen Grad. What's the propaganda
Speaker 1: no blockade? If we are talking about passengers, because you're
Speaker 1: talking in action blocade could be seen by Russia's knowledge located,
Speaker 1: because if we are talking about non sanctioned goods, we
Speaker 1: are talking about passengers, there's not locate. There's absolutely free
Speaker 1: movement between the territory of Russian mainland and region rout
Speaker 1: the territory of Luthenia. Now we are talking about this
Speaker 1: concrete group, and of course we need precise setting of
Speaker 1: just specifical features and tragulement how we can apply these
Speaker 1: this fourth package of sanctions, and we are waiting for
Speaker 1: European Commission's explanation to give that guidance. I wonder ever
Speaker 1: since the ward started, is Vladimir Putting always on your
Speaker 1: mind the idea that for Lithuania the Baltics, this is
Speaker 1: almost an existential threat potentially too. No, we are concentrated
Speaker 1: on our economic progress, prosperity of our people, and you know,
Speaker 1: we don't have the time to think all the time
Speaker 1: about Vladimir Puttin. Of course, we understand that situation in
Speaker 1: the eastern part of Europe is really dangerous and we
Speaker 1: strongly condemned this war against Ukraine. We are a very
Speaker 1: keen support of Ukraine trying to help to assist down
Speaker 1: by all means, by military mean, economically, homanitarian means, and
Speaker 1: of course political component is very important too. So this
Speaker 1: is a reason why I in his very enthusiastic supporter
Speaker 1: of candidate granting candidate status to Ukraine, and I hope
Speaker 1: very much, I am. I am looking forward that it
Speaker 1: it will happen this this evening. And of course you've
Speaker 1: said Ukraine has to win because it's the right thing.
Speaker 1: But if it doesn't and it gets defeated by Russia,
Speaker 1: the repercussions of that could be enormous for the rest
Speaker 1: of Europe. What do you mean by that and what
Speaker 1: does victory Ukraine mean for you? The victory of Ukraine
Speaker 1: means a victory of just historic truth, because they are
Speaker 1: fighting for their freedom, for the right of the country,
Speaker 1: of the people of the country to decide about the future,
Speaker 1: about their destiny, and nobody else and especially external forces
Speaker 1: cannot decide where Ukraine have to do, what Ukraine have
Speaker 1: to do, and we have it should go. Ukraine is
Speaker 1: according to to to I am fully convinced that Ukraine
Speaker 1: is European nation because they prove every day by fighting
Speaker 1: against the aggressor that they defend European values, they defend
Speaker 1: democratic values, and so they are fighting not only for
Speaker 1: the freedom, they are fighting for our freedom from the
Speaker 1: freedom of European Union too. And certain next week there's
Speaker 1: a NATO meeting, of course President Biden will be there.
Speaker 1: The Boltics your country. You've said, we need more troops here, stations.
Speaker 1: The eastern flank needs to be a priority. This is
Speaker 1: not just about China. Russia's an equal threat. What are
Speaker 1: you going to tell the President of the States. This
Speaker 1: is very important to have very adequate evaluation of the situation.
Speaker 1: What is happening in the eastern flank of Natal And
Speaker 1: we see the security issue is becoming more and more important.
Speaker 1: The threats are becoming char lines very fast. I don't
Speaker 1: want to to to to talk about some some some
Speaker 1: threats which are theoretical, but we first of all, we
Speaker 1: have to spend much more attention to the security of
Speaker 1: feast and flank in order to make deterrence factors as
Speaker 1: most effective if it is possible. And this is very important,
Speaker 1: not to show our willingness in case of aggression, but
Speaker 1: to show that we are ready to increase a number
Speaker 1: of troops, to increase military equipment, in our countries, and
Speaker 1: of course very important is to switch to the current
Speaker 1: ear policy regime in Bolti countries to air defense regime.
Speaker 1: It is very important too, and I'm looking forward that
Speaker 1: conclusion text of NATO will be suitable to cooperate who
Speaker 1: work with the leading country of our e FB troops
Speaker 1: in Lithuenia, namely Germany. I signed the communic with the
Speaker 1: German Chancellor all of Charles two weeks ago and according
Speaker 1: to this communic, Germany is committed to send additional troops
Speaker 1: up to brigade level so that scale up for a
Speaker 1: military presence in Lithenia. And I think this is very
Speaker 1: important to increase ort to scale up the military presence
Speaker 1: of other countries in Baltic, other Baltic countries too in
Speaker 1: Latin Estonian. Namely, Well, President, thank you so much for
Speaker 1: your time. We appreciate it, of course, and Bloomberg has
Speaker 1: always and your message is clear a peacement is not
Speaker 1: gonna work with Russia. Thanks so much, Tom, Thank you
Speaker 1: so much Maria. Today in a conversation, folks, I honestly
Speaker 1: never framed in my lifetime. I never thought we would
Speaker 1: hear a kind of tone those statements from a member
Speaker 1: of the Baltic States, and Rita soon joins us here
Speaker 1: with energy aspects, and I do want to note we
Speaker 1: protect the copyright of all of our guests. I can't
Speaker 1: say enough about the acuity of energy aspects. Uh notes
Speaker 1: you can get them from their people as you can.
Speaker 1: And Dr Son, I want to speak here about demand,
Speaker 1: which the fears are premature. And what I love about
Speaker 1: the energy aspects note is our geographic it is the
Speaker 1: elosticities are responsiveness of demand. It's different on the Pacific
Speaker 1: RIM than it is in Europe, etcetera, etcetera. What part
Speaker 1: of your oil demands study now is the most important
Speaker 1: for our listeners and viewers. I would say, first of all,
Speaker 1: thank you Tom, very kind words indeed, but I would
Speaker 1: say have to we have to focus on Asia because
Speaker 1: all the focus right now is on the US in
Speaker 1: terms of the market right and obviously with the US
Speaker 1: federising interest rates, everybody is now expect geting a recession.
Speaker 1: The questions have moved from oh are we going to
Speaker 1: be in a recession to how deep is it going
Speaker 1: to be? To how does it compare to pass recessions?
Speaker 1: Whereas nobody is actually looking at emerging markets Asia is
Speaker 1: eighteen months behind us in the reopening cycle. They have
Speaker 1: just started to reopen from COVID and by the way,
Speaker 1: China hasn't even started to reopen, So there's quite a
Speaker 1: lot of upside to those demands. Even our own demount
Speaker 1: numbers depending on that cadence of the Chinese reopening at least,
Speaker 1: so this is absolutely critical. The hyper analysis of microeconomics
Speaker 1: of Emerita send different from what we see at JP Morgan,
Speaker 1: but both of them are completely focused on demand responsiveness
Speaker 1: on the Pacific RIM. That's the common feature of two
Speaker 1: different houses, and sure there's a lot of distinction in
Speaker 1: each region. The overall picture, though, is a tight oil market,
Speaker 1: and I'm rita you highlight that as well. How much
Speaker 1: is what we're seeing right now a brief cooling in
Speaker 1: some of the fears of the tightness of the market
Speaker 1: before we reassert price up for there for a barrel
Speaker 1: of crude, especially as some people think that there already
Speaker 1: is a recession and our word baked into the price
Speaker 1: of oil. Yeah, I mean, look, have the balances necessarily
Speaker 1: turned out to be exactly what we had forecast after
Speaker 1: the Russian invasion? No, Russian supplies are still hitting the
Speaker 1: market probably about a million barrels per day or more
Speaker 1: more or less more than what we had expected. But
Speaker 1: they are still down about a million barrels per day.
Speaker 1: But equally we've had the SPR at the same time,
Speaker 1: demand is still coming in higher. So to your point,
Speaker 1: the market is incredibly tight despite some of those moving parts.
Speaker 1: I think the bottom line is underlying infantries are so low.
Speaker 1: Spec capacity is so low that you only need a
Speaker 1: little bit of movement, like such as Libya going offline
Speaker 1: for a couple of days. You can really swing balances
Speaker 1: from being solvable to unsolvable in the matter of hours.
Speaker 1: So what we're seeing right now is again this fear
Speaker 1: of a recession turning people to kind of doubt the
Speaker 1: demand recovery and say, Okay, you know, we've got all
Speaker 1: these SPR barrels, but if demand doesn't keep up, prices
Speaker 1: are going to come down. But I will also highlight
Speaker 1: a couple of other things, more technical factors. We tend
Speaker 1: to get sovereign producer hedging at this time, large producers
Speaker 1: in North America, even in Asia, and that has started.
Speaker 1: And it's a low liquidity environment, which means that even
Speaker 1: take away all the fundamentals, there will be some downward
Speaker 1: pressure on prices in the near term, but ultimately, especially
Speaker 1: going into the winter, we think prices are going to
Speaker 1: get head back higher. And so I'm reading maybe the
Speaker 1: best way to characterize this is a head fake if
Speaker 1: you believe that this is hedging by sovereign entities. How
Speaker 1: much of a head fake could it be? How much
Speaker 1: do you still see energy prices rising heading into the
Speaker 1: winter months. I mean, do we think prices are going
Speaker 1: to go back to a hundred forty dollar range for crude? Yes? Absolutely,
Speaker 1: But does that mean that we don't fall ten dollars first?
Speaker 1: I think we could definitely go down first, and I
Speaker 1: think for traders that matters a lot, right, it's always
Speaker 1: about the entry point, But I think more in terms
Speaker 1: of consumers and refiners, ultimately the trajectory is higher. And again,
Speaker 1: forget crew prices for a second. Think about diesel gasoline.
Speaker 1: Those prices are barely moved because the underlying fundamentals are
Speaker 1: so strong right now. Crew tends to move a lot
Speaker 1: more with these macro headlines. Product prices don't, and I
Speaker 1: think that really tells you where the fundamentals are. And
Speaker 1: I think going into the winter, the risk of a
Speaker 1: diesel price bike is much much higher. Okay, Well in Rita.
Speaker 1: As we talk about going into the winter, let's talk
Speaker 1: about whether or not Europe is going to be adequately
Speaker 1: prepared for the cold weather. You are Germany today triggering
Speaker 1: phase two of its emergency gas plan, the alarm phase.
Speaker 1: I believe it's called what happens if we start to
Speaker 1: see actual gas rationing in Europe. I think there's a
Speaker 1: real risk of that. I mean, we believe that our
Speaker 1: team absolutely believes that we've already put together a list
Speaker 1: of which industry is going to be hurt, so steel, cement, fertilizer,
Speaker 1: and so on. But I would say that we are
Speaker 1: starting to see countries restart cold plants. So I think
Speaker 1: the choice has been made again. It was always about
Speaker 1: kind of green energy versus energy security. I do think
Speaker 1: we're starting to see the move towards guaranteeing let's keep
Speaker 1: the lights on, UH and as long as whoever has
Speaker 1: coal capacity decides to bring cold capacity back, then I
Speaker 1: don't think the downturn in industry is going to be
Speaker 1: as severe as we are expecting right now, just assuming
Speaker 1: that gas gets turned off and recent thank you so
Speaker 1: much just a brilliant note from Energy Aspects this morning
Speaker 1: out of Houston and London. Let's go right there now
Speaker 1: with Andrew Lenoor's chief US economist, City Bank, of course,
Speaker 1: with an important call for a much higher rate of
Speaker 1: terminal value and all the other mathematical mambo. JOm do
Speaker 1: am do I want to go to ten am tomorrow morning,
Speaker 1: which you and I agree in my McKee agrees, I
Speaker 1: think all agree. Inflation expectations are important. They have spiked up.
Speaker 1: Are we unanchored in our expectations? Yeah? Critically important time.
Speaker 1: I think that was kind of the last data point
Speaker 1: that the FED could still point to and say there
Speaker 1: was some notion that we weren't on a more inflationary journey.
Speaker 1: And as that University of Michigan five to tenure expectation
Speaker 1: lifts above three percent UM and we'll see where it
Speaker 1: comes in tomorrow. Uh, that that just increases the concern
Speaker 1: that there really is an embedded sense to this inflation.
Speaker 1: I think we already saw it in in the labor market,
Speaker 1: like you were just talking about where we have wage
Speaker 1: growth by various different measures, you know, four to six
Speaker 1: percent wage growth. Chare Powell was talking about that yesterday. Um.
Speaker 1: And then you have price growth that is, you know,
Speaker 1: six percent plus depending on the measure that that you
Speaker 1: look at. Um. So, so I think there's a notion
Speaker 1: of a wage price firal here. Um. I think a
Speaker 1: little bit of what we're seeing. University of Michigan is
Speaker 1: can firming that also. Um. Just like Mike McKie was saying,
Speaker 1: it's it's not that the five to tenure expectation is
Speaker 1: a correct expectation, but it just tells you something about
Speaker 1: how inflation is becoming a structural factor in the economy. Yeah,
Speaker 1: but just as quickly as people get used to that, Andrew,
Speaker 1: how much is a labor market shifting already? And we're
Speaker 1: not necessarily seeing that and claims going up although you
Speaker 1: know they picked up a little bit, but really it's
Speaker 1: not that significant. How much are we seeing just job
Speaker 1: listings being taken down or not filled or companies pairing
Speaker 1: back some of their business ambitions. Yeah. I think that's
Speaker 1: what's difficult here is as an consists, you're always looking
Speaker 1: at two things. You're looking at the level of activity
Speaker 1: and the level of strength, but then you're also looking
Speaker 1: at the direction of travel and really what you want
Speaker 1: to get right, is the direction of travel, because that's
Speaker 1: going to determine where you're going. And we know a
Speaker 1: lot of things are very strong. You know, the labor
Speaker 1: market has been very strong, continues to be very strong,
Speaker 1: lots of job openings, relatively few unemployed individuals. UM. But
Speaker 1: you know that that kind of leading edge of the
Speaker 1: direction of travel, the weekly initial job bubless claims data,
Speaker 1: that's giving me a lot more of a real time
Speaker 1: signal of the labor market, and something like job openings
Speaker 1: which has lagged a couple of months. UM. So if
Speaker 1: you look at those initial claims again, the levels still
Speaker 1: very low. Hard to think that. Um, it's a difficult
Speaker 1: time to find a job in most sectors at least
Speaker 1: because the vacancies are so high. So it's not so
Speaker 1: much of a concern about the labor market being soft today.
Speaker 1: Everybody would agree it's strong today. UM. But I'm watching
Speaker 1: those claims. I think that what we're seeing now is
Speaker 1: you know, kind of some seasonal noise. Nothing to get
Speaker 1: too concerned about. Um, But it's definitely the case if
Speaker 1: you bring economists like me back on this show, UM,
Speaker 1: a month from now, two months from now, when we've
Speaker 1: seen these initial jobless clams that have continued to trend up,
Speaker 1: we'll have a lot more pessimistic view. Well, Thomas on
Speaker 1: a really good job today, not just talking about their
Speaker 1: domestic labor market, but looking internationally and what the ramifications
Speaker 1: from some of the global downdraft has been. And that
Speaker 1: has been in the stronger dollar. And in addition to
Speaker 1: jobless claims, we also got the current account balance out
Speaker 1: for the United States, which is surprised to the downside.
Speaker 1: We have a record trade deficit once again as the
Speaker 1: strong dollar allows the US to import more goods. How
Speaker 1: does this factor into your view on the GDP level,
Speaker 1: considering the prowess of the dollar and the ongoing sort
Speaker 1: of disinflationary object of that, but not the money coming
Speaker 1: back into the U S economy. Yeah, so the tree
Speaker 1: balance has really been kind of swinging around wildly, which
Speaker 1: is kind of a combination of the post COVID reopening
Speaker 1: phase of the economy as as trade kind of gotten
Speaker 1: more fully restarted, um as the economy is reopened globally,
Speaker 1: and then this kind of pattern of well, you had
Speaker 1: renewed waves of COVID which are disrupting goods, and then
Speaker 1: you have supply chain issues right on top of that. UM.
Speaker 1: So I'm really being very careful with that trade data
Speaker 1: right now in terms of interpreting it as any kind
Speaker 1: of longer term trend UM and where the economy is going. UM.
Speaker 1: If I look at the effect of the stronger dollar, UM,
Speaker 1: I think, what one thing that's maybe surprising, maybe even
Speaker 1: a little bit surprising to to me, and how this
Speaker 1: has played out. UM. You know, like Tom was saying,
Speaker 1: we have revised up our terminal Fed funds policy rate
Speaker 1: forecast to above four percent. Now I've been getting there
Speaker 1: in the first quarter of three UM. So you know,
Speaker 1: we're really getting rates to quite high levels in the US. UM.
Speaker 1: That's not an out their view anymore that your market
Speaker 1: has been pricing something not too far off from that,
Speaker 1: and when we were at higher yield levels. UM. And
Speaker 1: the dollar, yes, his strengthen, UM. But you know, if
Speaker 1: you had just told me six months ago, you know,
Speaker 1: we're all going to kind of think that Fed funds
Speaker 1: effective is getting above three and a half percent. UM,
Speaker 1: where's the US dollar? I would have thought a lot
Speaker 1: stronger than where it is now. So I think relative
Speaker 1: to that counter factual, it's you know, maybe not as
Speaker 1: much of a slowing factor for the economy. Andrew I
Speaker 1: mentioned this earlier in the show. But when Powell was
Speaker 1: testifying on Capitol Hill yesterday and Elizabeth Warren was asking
Speaker 1: him if a rate high would solve higher grocery prices
Speaker 1: or higher prices at the pump, his answer obviously was no.
Speaker 1: The FED isn't equipped to deal with some of those
Speaker 1: more supply side driven challenges. What is your confidence that
Speaker 1: the Fed actually can get demand down enough to the
Speaker 1: extent that it actually will offset persistent tight supply. Yeah,
Speaker 1: it's a really important question, and you know those questions
Speaker 1: that share powell answering UM yesterday and you know again today,
Speaker 1: just to show how difficult this moment is for monetary
Speaker 1: policy and for policy makers. UM, when there's a supply
Speaker 1: side constraint and it's persistent, the only thing you can
Speaker 1: do is gamp demand to try to bring the economy
Speaker 1: back into equilibrium and bring inflationary pressure down. UM. I'm
Speaker 1: very confident to answer your question that the Fed will
Speaker 1: be able to slow demands sufficiently UM to bring demand down. UM.
Speaker 1: The issue is how much slowing is that going to be?
Speaker 1: How much of an output gap does the FED need
Speaker 1: to create, um, how much weakness in the labor market.
Speaker 1: If you look at the FED Summary of Economic Projections,
Speaker 1: they have the unemployment rate that just moves up by
Speaker 1: a few tents of a percentage point um. So if
Speaker 1: you keep moving interest rates higher in financial conditions, it
Speaker 1: will slow down the economy. Um. The real issue for
Speaker 1: the petistant whether or not they can slow it down.
Speaker 1: It's can they slow it down and have it be
Speaker 1: a relative moderate slow down and still get inflationary pressure down?
Speaker 1: And thank you so much Andrew Holland Horst for City
Speaker 1: Group here with that shocking terminal rights statistic about four percent.
Speaker 1: I'm going to call that on the edge of outlier
Speaker 1: on Wall Street. This is the Bloomberg Surveillance Podcast. Thanks
Speaker 1: for listening. Join us live weekdays from seven to ten
Speaker 1: a m Eastern on Bloomberg Radio and on Bloomberg Television
Speaker 1: each day from six to nine am for insight from
Speaker 1: the best in economics, finance, investment, and international relations. And
Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot com, and of course on the terminal. I'm Tom
Speaker 1: Keene and this is Bloomberg