1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,800 --> 00:00:23,799 Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:29,880 Speaker 1: and of course on the Bloomberg terminal. We've got to 6 00:00:29,920 --> 00:00:32,320 Speaker 1: start with this one right here, though, Patrick Harker, the 7 00:00:32,360 --> 00:00:35,800 Speaker 1: president of the Philadelphia Fed. Mr President, I think you've 8 00:00:35,800 --> 00:00:38,239 Speaker 1: got a good slot because about an hour ago it 9 00:00:38,320 --> 00:00:44,240 Speaker 1: was much colder than this. Good morning to you. Let's 10 00:00:44,240 --> 00:00:46,120 Speaker 1: get straight into it. Forget about the weather. We've got 11 00:00:46,159 --> 00:00:48,800 Speaker 1: a beautiful backdrop. I want to start here. As we 12 00:00:48,880 --> 00:00:51,480 Speaker 1: sit here today. The biggest risk today is it doing 13 00:00:51,520 --> 00:00:55,200 Speaker 1: too much for you guys or doing too little. Well, 14 00:00:55,240 --> 00:00:57,200 Speaker 1: I think what we need to do is just act, 15 00:00:57,240 --> 00:00:59,440 Speaker 1: and we're acting, and so I think we need to 16 00:00:59,480 --> 00:01:04,600 Speaker 1: move and need to move methodically toward a clearly restrictive stance, 17 00:01:04,640 --> 00:01:07,800 Speaker 1: which we're doing. And then in my view, then we 18 00:01:07,920 --> 00:01:10,160 Speaker 1: either pause, depending on the data, We're gonna have to 19 00:01:10,200 --> 00:01:13,120 Speaker 1: see how this plays out, we get to above three 20 00:01:13,120 --> 00:01:16,560 Speaker 1: point four. By year end, we're at or above three 21 00:01:16,560 --> 00:01:18,759 Speaker 1: point four and then we see we have to let 22 00:01:18,800 --> 00:01:20,440 Speaker 1: some of this play out. We don't have to keep 23 00:01:20,440 --> 00:01:24,600 Speaker 1: climbing climbing, climbing. Then it go down very quickly. Let's 24 00:01:24,600 --> 00:01:27,240 Speaker 1: stay up there and let the economy do its think 25 00:01:27,560 --> 00:01:30,560 Speaker 1: so for how long? Right? And this is point where 26 00:01:30,600 --> 00:01:33,640 Speaker 1: he said keep it there for possibly years and see 27 00:01:33,680 --> 00:01:36,000 Speaker 1: the trickle out effect. We don't know. I mean, we 28 00:01:36,040 --> 00:01:38,560 Speaker 1: really need to let the data play out. You just 29 00:01:38,600 --> 00:01:40,800 Speaker 1: don't know. I'll pray Art, what date are you looking at? 30 00:01:41,080 --> 00:01:43,880 Speaker 1: Inflation number one? For sure? That's the issue that's headline 31 00:01:43,880 --> 00:01:47,840 Speaker 1: of four core for sure, because you know the volatile 32 00:01:48,000 --> 00:01:52,280 Speaker 1: the volatility of energy and food is extreme, particularly because 33 00:01:52,280 --> 00:01:54,559 Speaker 1: of the situation we have in Ukraine and around the world. 34 00:01:55,400 --> 00:01:59,960 Speaker 1: This has been this whole set up in the chairman's speech. 35 00:02:00,000 --> 00:02:02,480 Speaker 1: Don't think of a totemic issue for Wall Street and 36 00:02:02,480 --> 00:02:04,960 Speaker 1: everybody is gonna be tuning in at the top of 37 00:02:05,000 --> 00:02:07,960 Speaker 1: the next hour. What's the message that the Fed would 38 00:02:08,040 --> 00:02:11,880 Speaker 1: like investors to take away today? I don't know what 39 00:02:12,080 --> 00:02:15,480 Speaker 1: the Fed has. I can only speak for myself. I 40 00:02:15,520 --> 00:02:19,200 Speaker 1: think the message is for me that we need to 41 00:02:19,240 --> 00:02:21,400 Speaker 1: get inflation under control. We will do what it takes 42 00:02:21,400 --> 00:02:24,280 Speaker 1: to get inflation under control, and hopefully we can do 43 00:02:24,320 --> 00:02:26,840 Speaker 1: that in a way that does not ruin what otherwise 44 00:02:26,919 --> 00:02:29,560 Speaker 1: is a good economy. You look at the jobs data, 45 00:02:29,639 --> 00:02:32,280 Speaker 1: you look at other parts of the economy. We don't 46 00:02:32,320 --> 00:02:34,639 Speaker 1: want to do this in a way that really just 47 00:02:34,880 --> 00:02:38,919 Speaker 1: squashes the jobs market right now? Is this whatever it takes? 48 00:02:39,000 --> 00:02:41,880 Speaker 1: Or is this Mario dragging whatever it takes? Because everybody 49 00:02:41,880 --> 00:02:44,640 Speaker 1: on Wall Street wants to know, would you risk recession 50 00:02:45,080 --> 00:02:49,960 Speaker 1: to bring inflation down? It's possible, It's always possible to 51 00:02:49,960 --> 00:02:51,959 Speaker 1: have a recession at this point. I don't think it's 52 00:02:52,080 --> 00:02:54,799 Speaker 1: in my forecast that it's probable. I think we can 53 00:02:54,880 --> 00:02:56,880 Speaker 1: we can still do this. There's still a path to 54 00:02:56,919 --> 00:02:59,919 Speaker 1: do this, to have if if there is a recession, 55 00:03:00,360 --> 00:03:03,680 Speaker 1: it would be shallow and short. In my view, there's 56 00:03:03,919 --> 00:03:06,120 Speaker 1: two camps. One says get to the terminal rate as 57 00:03:06,160 --> 00:03:08,760 Speaker 1: quickly as possible to get ahead of inflation. The other says, 58 00:03:08,800 --> 00:03:11,080 Speaker 1: move more slowly because you want to make sure that 59 00:03:11,120 --> 00:03:14,200 Speaker 1: the lags don't bring down the economy. Which camp are 60 00:03:14,200 --> 00:03:16,400 Speaker 1: you in? Again? Where I am is, let's get up 61 00:03:16,400 --> 00:03:20,000 Speaker 1: to the clearly restrictive stance. Three point four is a 62 00:03:20,000 --> 00:03:23,119 Speaker 1: good number. Three point five, and then let's see how 63 00:03:23,200 --> 00:03:25,960 Speaker 1: things play out from there. This word neutral has been 64 00:03:25,960 --> 00:03:28,040 Speaker 1: thrown around a lot in the last couple of weeks. 65 00:03:28,040 --> 00:03:30,239 Speaker 1: You're smiling already, So I talked to me about what 66 00:03:30,320 --> 00:03:33,160 Speaker 1: you think neutral is, what's restrictive? What is it? And 67 00:03:33,160 --> 00:03:36,800 Speaker 1: how do we know it's clearly above free? For sure? 68 00:03:37,400 --> 00:03:39,440 Speaker 1: How much above? Again? I think we just have to 69 00:03:39,480 --> 00:03:42,640 Speaker 1: see today's data. We can talk about that we're seeing 70 00:03:42,600 --> 00:03:45,440 Speaker 1: glimmers of hope, and I emphasize glimmers of hope on 71 00:03:45,480 --> 00:03:48,520 Speaker 1: the inflation front. We're not done and so we need 72 00:03:48,560 --> 00:03:50,720 Speaker 1: to continue to raise raids to make sure that those 73 00:03:50,720 --> 00:03:53,680 Speaker 1: glimmers turned into a clear downward trend. How do you 74 00:03:53,680 --> 00:03:56,120 Speaker 1: know when we have a clear down with Trent and clearly, 75 00:03:56,120 --> 00:03:57,800 Speaker 1: as she pointed out as two ways of looking at this, 76 00:03:57,840 --> 00:04:00,000 Speaker 1: she keep hiking until you see two percent. That's clearing 77 00:04:00,120 --> 00:04:01,520 Speaker 1: where you want to go. You want to get to 78 00:04:01,520 --> 00:04:03,480 Speaker 1: this place where you're restrictive and you're waiting, and you're 79 00:04:03,480 --> 00:04:06,520 Speaker 1: convinced that we've got this trajectory we're moving back down 80 00:04:06,560 --> 00:04:08,880 Speaker 1: towards too. I think what we'd all like is just 81 00:04:08,880 --> 00:04:10,920 Speaker 1: a better understanding of what that world looks like. How 82 00:04:10,960 --> 00:04:13,560 Speaker 1: do we know when we see that world? So clearly 83 00:04:13,560 --> 00:04:16,599 Speaker 1: we have the numbers right, corps and headline. I also 84 00:04:16,600 --> 00:04:19,640 Speaker 1: look at the distribution of inflation. That's how many goods 85 00:04:19,640 --> 00:04:22,440 Speaker 1: and services are about five percent, about four percent. As 86 00:04:22,520 --> 00:04:25,279 Speaker 1: we see that distribution shrinking at you think about the 87 00:04:25,320 --> 00:04:27,680 Speaker 1: beginning of the pandemic was all about use cars and 88 00:04:27,720 --> 00:04:30,720 Speaker 1: some other commodities. Let's start to bring that down because 89 00:04:30,800 --> 00:04:33,400 Speaker 1: right now it's pretty widespread. That to me would be 90 00:04:33,440 --> 00:04:36,440 Speaker 1: a clear sign that we're making progress. Financial conditions are 91 00:04:36,440 --> 00:04:40,080 Speaker 1: an important mechanism for you to get your policy into 92 00:04:40,120 --> 00:04:43,280 Speaker 1: the economy. Would you say we've seen an unwarranted easy 93 00:04:43,520 --> 00:04:47,120 Speaker 1: financial conditions through the summer. I don't know if it's unwarranted, 94 00:04:48,279 --> 00:04:50,280 Speaker 1: but we need to continue to do what we have 95 00:04:50,360 --> 00:04:53,200 Speaker 1: to do with respect of the Fed funds right which 96 00:04:53,520 --> 00:04:56,440 Speaker 1: we've committed, But clearly financial conditions would need to be 97 00:04:56,480 --> 00:04:59,200 Speaker 1: tighter for you to achieve that. Well, no, let's let's 98 00:04:59,200 --> 00:05:01,320 Speaker 1: talk about the housing market, and we've already have a 99 00:05:01,400 --> 00:05:03,640 Speaker 1: very tight We already have a very tight housing market, 100 00:05:03,680 --> 00:05:06,560 Speaker 1: so there already is progress being amazing comfortable. You don't 101 00:05:06,560 --> 00:05:08,720 Speaker 1: believe it's a disconnect between what you're saying as a 102 00:05:08,760 --> 00:05:11,640 Speaker 1: committee and on what you're saying plant and Finance. Not yet, 103 00:05:11,880 --> 00:05:14,680 Speaker 1: Not yet. I mean, it's something clearly watched, but I'm 104 00:05:14,680 --> 00:05:18,400 Speaker 1: not worried about it at this point. Unemployment, you're expecting 105 00:05:18,480 --> 00:05:21,039 Speaker 1: that to rise a little bit, that's the Fed's message. 106 00:05:21,040 --> 00:05:24,320 Speaker 1: But the same time you're saying that at three five percent, 107 00:05:24,400 --> 00:05:26,599 Speaker 1: it's below the natural rate. So how much of a 108 00:05:26,720 --> 00:05:30,000 Speaker 1: rise is acceptable to you? And what do you say 109 00:05:30,000 --> 00:05:32,160 Speaker 1: to the people who say, yeah, it's just a tiny rise, 110 00:05:32,240 --> 00:05:34,560 Speaker 1: but it was my job. Yeah, I know. And that's 111 00:05:34,640 --> 00:05:37,000 Speaker 1: what's difficult. And this is the balance, right that we 112 00:05:37,080 --> 00:05:40,400 Speaker 1: have to try to find because we know inflation hurts 113 00:05:40,440 --> 00:05:44,400 Speaker 1: the lowest income people in our country, and because of 114 00:05:44,520 --> 00:05:46,920 Speaker 1: losing jobs, it hurts those people the most too, So 115 00:05:47,000 --> 00:05:50,040 Speaker 1: we have to find that balance. How much higher it's 116 00:05:50,080 --> 00:05:53,320 Speaker 1: hard to say exactly. I'm not in the camp of 117 00:05:53,360 --> 00:05:56,640 Speaker 1: it being necessarily at five. We're going into this with 118 00:05:56,680 --> 00:06:01,160 Speaker 1: an incredibly strong job market. This is not like other 119 00:06:01,520 --> 00:06:04,920 Speaker 1: situations we've had historically, so I think we don't have 120 00:06:05,040 --> 00:06:08,640 Speaker 1: to see a rapid rise in unemployment at to get 121 00:06:08,680 --> 00:06:11,279 Speaker 1: inflation on the control at this point. So Adam pose 122 00:06:11,320 --> 00:06:13,680 Speaker 1: it was on earlier and he was talking about how 123 00:06:13,720 --> 00:06:16,880 Speaker 1: there has to be an acceptance of perhaps three for 124 00:06:16,920 --> 00:06:19,680 Speaker 1: a longer period of time that yes, maybe the trajectory 125 00:06:19,680 --> 00:06:21,120 Speaker 1: has to be okay, but that has to be a 126 00:06:21,200 --> 00:06:24,680 Speaker 1: tolerated inflation rate. Do you think that that's appropriate given 127 00:06:24,680 --> 00:06:27,839 Speaker 1: the concerns about unemployment. So I think what's most important 128 00:06:27,839 --> 00:06:31,719 Speaker 1: is we keep moving toward two exactly the pace which 129 00:06:31,760 --> 00:06:34,600 Speaker 1: we get to to. I'm less worried about that, but 130 00:06:34,720 --> 00:06:39,160 Speaker 1: we keep moving forward right and get to a position 131 00:06:39,160 --> 00:06:43,640 Speaker 1: where inflation is consistently going down. That's the most important thing. 132 00:06:43,720 --> 00:06:47,000 Speaker 1: See do you not buy the argument that if inflation 133 00:06:47,160 --> 00:06:50,600 Speaker 1: remains above a certain point, regardless of the trajectory, for 134 00:06:50,640 --> 00:06:54,240 Speaker 1: a long time, it gets into the psyche of Americans 135 00:06:54,279 --> 00:06:56,520 Speaker 1: and then they start to sort of have a self 136 00:06:56,520 --> 00:06:59,280 Speaker 1: fulfilling prophecy inflation. You don't believe that the number one 137 00:06:59,360 --> 00:07:03,240 Speaker 1: risk is getting inflation expectations on actor. We cannot let 138 00:07:03,320 --> 00:07:07,320 Speaker 1: that happen. So so far it's not happened. We need 139 00:07:07,320 --> 00:07:09,600 Speaker 1: to continue to act and make sure it doesn't. So 140 00:07:09,640 --> 00:07:12,480 Speaker 1: are you watching the University of Michigan one to five 141 00:07:12,560 --> 00:07:14,440 Speaker 1: year or five to ten year forecast? Is that's sort 142 00:07:14,440 --> 00:07:18,240 Speaker 1: of the key data point all of the above. You 143 00:07:18,320 --> 00:07:20,280 Speaker 1: look at all the above, whether it's the new York 144 00:07:20,320 --> 00:07:24,640 Speaker 1: Fed survey or tips markets, you know all those measures. 145 00:07:24,840 --> 00:07:28,120 Speaker 1: What's the response function to that? Doing what we're doing 146 00:07:28,200 --> 00:07:31,880 Speaker 1: right now, continuing to move rates up methodically to get 147 00:07:31,920 --> 00:07:35,040 Speaker 1: inflation down. Period. You mentioned the consumer. When you look 148 00:07:35,040 --> 00:07:37,240 Speaker 1: at the economy these days, what do you see? We 149 00:07:37,320 --> 00:07:41,280 Speaker 1: got the PC numbers today, The inflation data were great, 150 00:07:41,320 --> 00:07:45,000 Speaker 1: wages and salaries were great, but spending was weak. Well 151 00:07:45,000 --> 00:07:47,240 Speaker 1: that's a bit expected. Right as we race rates and 152 00:07:47,240 --> 00:07:51,280 Speaker 1: we're trying to slow demand, you would expect that spending 153 00:07:51,280 --> 00:07:54,720 Speaker 1: would come down. Are you worried about recession? I know 154 00:07:54,840 --> 00:07:57,240 Speaker 1: that you say it doesn't have to happen, but what 155 00:07:57,280 --> 00:08:00,160 Speaker 1: do you think the odds are? And uh, is there 156 00:08:00,160 --> 00:08:03,160 Speaker 1: any way to foresee it given the unusual nature of 157 00:08:03,280 --> 00:08:06,680 Speaker 1: this recession and recovery? Um So at this point it's 158 00:08:06,680 --> 00:08:09,680 Speaker 1: not in my forecast that we'd hit a deep recession, 159 00:08:09,800 --> 00:08:12,960 Speaker 1: not at all. Short and shallow is something we keep hearing. 160 00:08:13,240 --> 00:08:17,120 Speaker 1: You mentioned four minutes ago, twelve months ago, the buzzwords. 161 00:08:17,160 --> 00:08:19,520 Speaker 1: You know what that was. I won't mention it because 162 00:08:19,520 --> 00:08:25,160 Speaker 1: it's like toxic around here. Bell Rings ejected. That was 163 00:08:25,200 --> 00:08:27,440 Speaker 1: clearly a massive failure and it wasn't unique to this 164 00:08:27,520 --> 00:08:29,680 Speaker 1: central bank. A lot of people were sat on this 165 00:08:29,720 --> 00:08:32,280 Speaker 1: program a million times. We discussed it with Mike McKee 166 00:08:32,320 --> 00:08:34,920 Speaker 1: a million times. Was also a story that played out 167 00:08:34,960 --> 00:08:37,680 Speaker 1: abroad and then didn't materialize. Do you worry that we're 168 00:08:37,720 --> 00:08:40,640 Speaker 1: doing that again by having this conversation, because I can 169 00:08:40,679 --> 00:08:45,920 Speaker 1: tell you President Harker, every single day, short shallow, short, shallow, 170 00:08:46,120 --> 00:08:49,160 Speaker 1: it's all a here, It's all we hear every single day. 171 00:08:49,200 --> 00:08:50,800 Speaker 1: Do you think we could be getting this wrong again? 172 00:08:52,679 --> 00:08:55,360 Speaker 1: I'm not sure that we'd be getting it wrong again. 173 00:08:55,520 --> 00:08:57,679 Speaker 1: What go back and what did we miss? I think 174 00:08:57,679 --> 00:09:02,800 Speaker 1: what did I miss to where we were not enough 175 00:09:02,800 --> 00:09:05,520 Speaker 1: emphasis on the soft data in a situation is changing 176 00:09:05,720 --> 00:09:08,840 Speaker 1: very rapidly. The data is lagging, and in particular, it's 177 00:09:08,920 --> 00:09:13,280 Speaker 1: lagging in those quick change moments. So more emphasis on 178 00:09:13,360 --> 00:09:16,360 Speaker 1: the soft data is really important. What we're hearing from 179 00:09:16,360 --> 00:09:20,600 Speaker 1: our context is the soft data. They're starting to see 180 00:09:20,600 --> 00:09:23,319 Speaker 1: supply chain constraints ease a little bit. They're starting to 181 00:09:23,360 --> 00:09:27,640 Speaker 1: see some relief when it comes to hiring. Not everywhere, 182 00:09:27,640 --> 00:09:31,080 Speaker 1: but in some cases there's so but and they don't 183 00:09:31,120 --> 00:09:34,360 Speaker 1: plan on laying people off at this point. They worked 184 00:09:34,440 --> 00:09:36,400 Speaker 1: very hard to get the people they have. They don't 185 00:09:36,400 --> 00:09:39,079 Speaker 1: want to let them go. So I think in that situation, 186 00:09:40,080 --> 00:09:44,600 Speaker 1: I'm not sure that we're mischaracterizing a short and shallow 187 00:09:44,920 --> 00:09:48,400 Speaker 1: potential and emphasized potential recession. As you said, though, the 188 00:09:48,480 --> 00:09:51,280 Speaker 1: cyclists move very quickly, and there's a feeling that the 189 00:09:51,320 --> 00:09:54,920 Speaker 1: post financial crisis communication architecture of this Federal Reserve, how 190 00:09:54,960 --> 00:09:57,160 Speaker 1: to you back in the last twelve months, what needs 191 00:09:57,160 --> 00:10:00,240 Speaker 1: to change? I think we need to keep emphasize thing 192 00:10:00,240 --> 00:10:02,880 Speaker 1: that what we know, what we don't know, what we 193 00:10:02,960 --> 00:10:06,800 Speaker 1: can know, what we can't know, and act appropriately. I mean, 194 00:10:06,880 --> 00:10:09,680 Speaker 1: people want to level of precision in a situation that 195 00:10:09,720 --> 00:10:12,720 Speaker 1: we're in where we keep getting hit right issue after 196 00:10:12,800 --> 00:10:16,760 Speaker 1: issue as now it's droughts globally right that where it's 197 00:10:16,880 --> 00:10:19,679 Speaker 1: just impossible to put that level of precision on these 198 00:10:19,720 --> 00:10:21,960 Speaker 1: normal Would you like the dot plot to be thrown 199 00:10:21,960 --> 00:10:24,439 Speaker 1: into the trash? Would you like to see that gone? 200 00:10:24,720 --> 00:10:27,200 Speaker 1: I think we need to continue to communicate with the 201 00:10:27,240 --> 00:10:30,720 Speaker 1: American people about what are our views on the beauty 202 00:10:30,720 --> 00:10:32,440 Speaker 1: of the FED is we have a diversity of opinions 203 00:10:32,440 --> 00:10:35,240 Speaker 1: and that's you see those in the dots. President Harker 204 00:10:35,559 --> 00:10:37,679 Speaker 1: of the Philadelphia FED, thank you, sir, that's good to 205 00:10:37,720 --> 00:10:39,640 Speaker 1: catch up. The key I know you've said it a 206 00:10:39,679 --> 00:10:41,959 Speaker 1: few times. Is that something you'd like to see gone 207 00:10:42,280 --> 00:10:44,560 Speaker 1: out of the summary of Economic projections? Well, I wouldn't 208 00:10:44,559 --> 00:10:46,160 Speaker 1: speak for the FED, but I can tell you Wall 209 00:10:46,160 --> 00:10:51,400 Speaker 1: Street continually misinterprets it as a plan rather than nineteen 210 00:10:51,480 --> 00:10:55,520 Speaker 1: individual forecasts. It's something that the chaman often sometimes leans on, 211 00:10:55,600 --> 00:10:58,800 Speaker 1: when it's when it's good for the chan to lean on. 212 00:10:59,000 --> 00:11:02,160 Speaker 1: Other times it's something the emphasizes. You know, it's such 213 00:11:02,160 --> 00:11:04,200 Speaker 1: a tricky moment right now, because when you talk about 214 00:11:04,200 --> 00:11:06,720 Speaker 1: the data dependency, I just keep going back to two 215 00:11:07,320 --> 00:11:09,800 Speaker 1: one and how the data was wrong, How when it 216 00:11:09,880 --> 00:11:13,199 Speaker 1: got revised in the job's formation, it showed this incredible 217 00:11:13,240 --> 00:11:17,000 Speaker 1: strength that hadn't been foreseen in the same kind of way. 218 00:11:17,160 --> 00:11:19,400 Speaker 1: So how do you remain data dependent and look for 219 00:11:19,400 --> 00:11:22,040 Speaker 1: that trajectory if it's so noisy and we're dealing with 220 00:11:22,080 --> 00:11:24,880 Speaker 1: so many different and unfortunately for them, it's the only 221 00:11:24,880 --> 00:11:26,720 Speaker 1: tool they've got, it's the only thing they can do. 222 00:11:26,800 --> 00:11:29,760 Speaker 1: So they can't do They can't say, gee, we wish 223 00:11:29,760 --> 00:11:33,360 Speaker 1: we had the revised numbers yesterday. GDP gets revised up 224 00:11:33,600 --> 00:11:37,880 Speaker 1: and goes domestic income is positive, and that makes uh, 225 00:11:38,679 --> 00:11:42,000 Speaker 1: those two things, don't data there's something clearly wrong with 226 00:11:42,080 --> 00:11:45,440 Speaker 1: the measurement right now, given that gap between GDP and 227 00:11:45,440 --> 00:11:47,800 Speaker 1: g d I. President, how can it's fantastic catch Howe 228 00:11:47,880 --> 00:12:01,400 Speaker 1: you said, this is Blindbeck, we walk them immediately. Here 229 00:12:01,840 --> 00:12:05,520 Speaker 1: the gentleman from St. Louis in Indiana University, James Bullard, 230 00:12:06,080 --> 00:12:08,960 Speaker 1: joins us with all his effort over the years, and 231 00:12:09,040 --> 00:12:14,280 Speaker 1: particularly his research effort a bit ago on regime change 232 00:12:14,320 --> 00:12:16,960 Speaker 1: that had a profound effect seven eight, nine years ago. 233 00:12:17,600 --> 00:12:20,160 Speaker 1: And there's a new phrase from Jim Bullard right now, 234 00:12:20,200 --> 00:12:22,240 Speaker 1: we'll get right to and that is the phrase of 235 00:12:22,280 --> 00:12:28,839 Speaker 1: the moment. Fronting Jim Bullard, what is front moding? I 236 00:12:28,880 --> 00:12:33,520 Speaker 1: think we wanted to pull the rate increases forward in 237 00:12:33,679 --> 00:12:40,199 Speaker 1: time because the inflation that we got in to exploded 238 00:12:40,280 --> 00:12:43,280 Speaker 1: onto the scene, so we had to move more quickly 239 00:12:43,360 --> 00:12:47,600 Speaker 1: than we would have historically. Um, but that's appropriate for 240 00:12:47,679 --> 00:12:51,000 Speaker 1: this situation as we're coming out of the pandemic and 241 00:12:51,040 --> 00:12:56,000 Speaker 1: we've got uh, you know, a lot of fiscal policy, 242 00:12:56,000 --> 00:12:58,680 Speaker 1: a lot of monetary policy during the pandemic. One of 243 00:12:58,720 --> 00:13:02,360 Speaker 1: the questions that Waltz he has had after Chairman Power 244 00:13:02,360 --> 00:13:05,160 Speaker 1: has spoken in the past is he said that, uh, 245 00:13:05,240 --> 00:13:09,120 Speaker 1: at some point it's appropriate to slow the pace of increases, 246 00:13:09,320 --> 00:13:12,960 Speaker 1: and they take that as devish. Others push back and say, 247 00:13:13,160 --> 00:13:17,079 Speaker 1: it's not how fast we do it, it's where we go. Uh. 248 00:13:17,320 --> 00:13:19,720 Speaker 1: Do you agree with that that that the pace doesn't 249 00:13:19,720 --> 00:13:22,800 Speaker 1: really matter as much as what the term pace matters 250 00:13:22,800 --> 00:13:25,400 Speaker 1: a little bit? You do have to get to the 251 00:13:25,520 --> 00:13:28,200 Speaker 1: level of the policy rate that will put downward pressure 252 00:13:28,200 --> 00:13:32,000 Speaker 1: on inflation. Now, and we've been able to get some 253 00:13:32,040 --> 00:13:34,880 Speaker 1: download pressure on inflation during the first half of this year. 254 00:13:35,320 --> 00:13:37,680 Speaker 1: Most of that came through market pricing, not through the 255 00:13:37,720 --> 00:13:40,240 Speaker 1: actual level of the funds rate. But now you have 256 00:13:40,320 --> 00:13:42,200 Speaker 1: to follow through and get the funds rate to the 257 00:13:42,480 --> 00:13:45,839 Speaker 1: to a level that's defensible that you can say, hey, 258 00:13:45,840 --> 00:13:48,200 Speaker 1: I'm I'm putting downward pressure on inflation. We've got an 259 00:13:48,200 --> 00:13:52,120 Speaker 1: EID handle on headline CPI inflation. Uh, this is more 260 00:13:52,120 --> 00:13:54,160 Speaker 1: inflation than we've seen in forty years. We've got to 261 00:13:54,160 --> 00:13:57,320 Speaker 1: get the rate up well. The concern that some members 262 00:13:57,360 --> 00:14:00,400 Speaker 1: of the committee have had is that as you it's 263 00:14:00,440 --> 00:14:03,000 Speaker 1: been market pricing, it's not the full effects yet of 264 00:14:03,040 --> 00:14:05,640 Speaker 1: the tightening, and when that hits, the economy may be weak, 265 00:14:06,160 --> 00:14:09,000 Speaker 1: and then you're doing a disservice by sending us into 266 00:14:09,320 --> 00:14:13,240 Speaker 1: you know, long and variable lags something uttered by Milton Freedman, 267 00:14:13,280 --> 00:14:15,880 Speaker 1: but that was based on data from the fifties and sixties. 268 00:14:15,920 --> 00:14:19,160 Speaker 1: I think today's market, it's partly because of media like this. 269 00:14:20,040 --> 00:14:24,560 Speaker 1: It moved very quickly in response to projected paths of policy. 270 00:14:24,600 --> 00:14:27,760 Speaker 1: And I would site as exhibit number one the housing market, 271 00:14:28,080 --> 00:14:32,200 Speaker 1: which has already slowed down substantially in the spring here, 272 00:14:32,240 --> 00:14:34,400 Speaker 1: and it started to do that before we even made 273 00:14:34,560 --> 00:14:36,720 Speaker 1: much of a move. We would only move twenty five 274 00:14:36,800 --> 00:14:39,600 Speaker 1: or or made one or two moves, and and hadn't 275 00:14:39,640 --> 00:14:42,760 Speaker 1: even started the battlestreet runoff. So I don't think this 276 00:14:42,880 --> 00:14:46,200 Speaker 1: long and variable lags thing is as accurate as it 277 00:14:46,280 --> 00:14:48,760 Speaker 1: might have been historically. I think you're getting a lot 278 00:14:48,760 --> 00:14:51,680 Speaker 1: of the impact now, but we can't just rely on markets. 279 00:14:51,720 --> 00:14:54,160 Speaker 1: We have to get our rate up to the level 280 00:14:54,240 --> 00:14:56,680 Speaker 1: that will put down the pressure on inflation. I've said 281 00:14:56,880 --> 00:14:59,320 Speaker 1: three point seven, five or four percent by the end 282 00:14:59,360 --> 00:15:01,920 Speaker 1: of this year. I'd like to get to that level, 283 00:15:02,080 --> 00:15:04,160 Speaker 1: and sooner is better as far as I'm concerning, A 284 00:15:04,200 --> 00:15:07,560 Speaker 1: lot of people have said neutral is higher than Chairman suggested. 285 00:15:07,640 --> 00:15:09,400 Speaker 1: We were there almost at two and a half percent, 286 00:15:09,480 --> 00:15:13,280 Speaker 1: but the inflation is making that that's a long runner 287 00:15:13,400 --> 00:15:16,480 Speaker 1: that's a long run neutral that that you can read 288 00:15:16,520 --> 00:15:20,200 Speaker 1: that off the summary of economic projections, and that's if 289 00:15:20,240 --> 00:15:23,320 Speaker 1: the economy is on the balanced growth path, inflation was 290 00:15:23,360 --> 00:15:26,360 Speaker 1: at two percent expected to remain at two percent, then 291 00:15:26,400 --> 00:15:29,160 Speaker 1: that would be a logical level for the policy rate then. 292 00:15:29,640 --> 00:15:32,000 Speaker 1: But that's not where we are today. We've got all 293 00:15:32,040 --> 00:15:35,160 Speaker 1: this inflation and we've got a very strong labor market. 294 00:15:35,200 --> 00:15:38,800 Speaker 1: So that's why it makes sense to go well above 295 00:15:38,880 --> 00:15:41,400 Speaker 1: that to a recommended policy rate that's well above that 296 00:15:41,400 --> 00:15:44,560 Speaker 1: has that longer run neutral point. Change for you is 297 00:15:44,600 --> 00:15:46,200 Speaker 1: that how to lift Do you think we go back 298 00:15:46,240 --> 00:15:48,800 Speaker 1: to the old world, the pre pandemic world of low inflation, 299 00:15:48,880 --> 00:15:52,040 Speaker 1: low growth and a lower long term neutral rate. What 300 00:15:52,160 --> 00:15:57,520 Speaker 1: are we going towards? Uh? You know, I don't like 301 00:15:57,600 --> 00:15:59,360 Speaker 1: to get wrapped up in this because this is the 302 00:15:59,400 --> 00:16:01,920 Speaker 1: thing we know the least about. So it's good to 303 00:16:01,960 --> 00:16:04,440 Speaker 1: think about it and it's good to project about it, 304 00:16:04,480 --> 00:16:07,680 Speaker 1: but we don't really know where the where this everything 305 00:16:07,720 --> 00:16:10,120 Speaker 1: will settle out, let's say five to ten years from now. 306 00:16:10,640 --> 00:16:13,000 Speaker 1: But you know, you've got this a media problem now 307 00:16:13,080 --> 00:16:15,120 Speaker 1: where you've got the inflation today, that's where you got 308 00:16:15,120 --> 00:16:17,080 Speaker 1: to fight your battle today. Can you tell me what 309 00:16:17,160 --> 00:16:20,360 Speaker 1: ballets sheet reduction fits into that. We've had numbers like 310 00:16:20,400 --> 00:16:23,200 Speaker 1: a trillion dollars bantons sheet reduction over the next twelve months. 311 00:16:23,400 --> 00:16:25,880 Speaker 1: What is that to you in terms of tightening policy? 312 00:16:25,880 --> 00:16:27,960 Speaker 1: And how does that complement your thoughts? Somewhere right should be? 313 00:16:28,320 --> 00:16:31,040 Speaker 1: And I think it's uh, it is a compliment to 314 00:16:31,440 --> 00:16:35,520 Speaker 1: the rate policy. Um. I'm hopeful that we'll get uh. 315 00:16:35,560 --> 00:16:38,880 Speaker 1: And I do think that we've gotten some downward pressure 316 00:16:39,000 --> 00:16:42,440 Speaker 1: or upward pressure on longer term interest rates through this channel. 317 00:16:42,840 --> 00:16:46,360 Speaker 1: I think that econometric estimates are you know, all over 318 00:16:46,400 --> 00:16:49,880 Speaker 1: the map, they're they're very wide. UM, so we'll we'll see. 319 00:16:50,640 --> 00:16:53,320 Speaker 1: One thing that I think maybe pretty effective here is 320 00:16:53,360 --> 00:16:56,840 Speaker 1: that this is a global quantitative tightening and so you've 321 00:16:56,880 --> 00:17:00,200 Speaker 1: got many central banks moving in the same direction here, 322 00:17:00,240 --> 00:17:03,240 Speaker 1: all at once. That may push longer term meals higher 323 00:17:03,240 --> 00:17:07,280 Speaker 1: and help us keep inflation under control globally. St. Louis Cardinals, 324 00:17:07,400 --> 00:17:11,320 Speaker 1: who had a spectacular August. There's no question you're looking 325 00:17:11,440 --> 00:17:13,880 Speaker 1: like the best team in baseball right now. And they've 326 00:17:13,920 --> 00:17:17,560 Speaker 1: got a manager who is unique, young and different. He 327 00:17:17,600 --> 00:17:22,359 Speaker 1: has a communication strategy that is original. What's the next 328 00:17:22,400 --> 00:17:28,560 Speaker 1: communication strategy for the FED? Is there too much communication? Though? Uh? 329 00:17:29,520 --> 00:17:33,200 Speaker 1: I think we do a great job because I think 330 00:17:33,240 --> 00:17:36,480 Speaker 1: it's good to have a big committee. There's information is 331 00:17:36,480 --> 00:17:40,679 Speaker 1: coming in and continuous time. If you'll appreciate and uh, 332 00:17:40,720 --> 00:17:43,600 Speaker 1: and you have to react. Markets want to know, well, 333 00:17:43,960 --> 00:17:45,800 Speaker 1: you know, what do you think about? What do you 334 00:17:45,840 --> 00:17:49,080 Speaker 1: think about that? Dade twice in this conversation blame the 335 00:17:49,160 --> 00:17:56,120 Speaker 1: media for the mess word. We asked President Hawkin whether 336 00:17:56,119 --> 00:17:58,200 Speaker 1: we should get rid of the doult clock. Do you 337 00:17:58,240 --> 00:18:02,840 Speaker 1: think we should? I've felt that we should do something 338 00:18:02,840 --> 00:18:05,000 Speaker 1: with the dot plot, but we haven't figured out what 339 00:18:05,160 --> 00:18:09,240 Speaker 1: to do. I have talked with you guys about stepping 340 00:18:09,240 --> 00:18:12,560 Speaker 1: out of it. But I don't like the emphasis on 341 00:18:13,119 --> 00:18:15,719 Speaker 1: let's say, three years from now, here's where we're gonna be. 342 00:18:16,320 --> 00:18:19,240 Speaker 1: The information content of that is close to zero. So 343 00:18:19,400 --> 00:18:22,160 Speaker 1: I don't think we should pretend that we're saying something 344 00:18:22,160 --> 00:18:25,440 Speaker 1: when we don't really know. Uh. And we should probably 345 00:18:25,520 --> 00:18:28,080 Speaker 1: keep a shorter term about, well, here's where we think 346 00:18:28,119 --> 00:18:30,080 Speaker 1: we are here. If you have pools up to the 347 00:18:30,160 --> 00:18:32,520 Speaker 1: lunch room at the St. Louis Fed, you know, in 348 00:18:32,560 --> 00:18:35,280 Speaker 1: his retirement, can you have this surveillance team come out 349 00:18:35,320 --> 00:18:39,760 Speaker 1: to celebrate that. Okay, you think he's gonna hit I 350 00:18:39,800 --> 00:18:42,480 Speaker 1: don't know the the the home running hit the other 351 00:18:42,560 --> 00:18:45,679 Speaker 1: day pensioning in the third inning was extraordinary, that grand slam. 352 00:18:47,320 --> 00:18:50,119 Speaker 1: What's the grand slam Sherman Paul has to do before 353 00:18:50,119 --> 00:18:53,440 Speaker 1: the September meeting? What is the communication strategy he needs 354 00:18:53,480 --> 00:18:55,800 Speaker 1: to do to hit a grand stand? Like the gentleman, 355 00:18:56,119 --> 00:18:58,440 Speaker 1: I think he'll do a great job in this speech here. 356 00:18:58,760 --> 00:19:01,800 Speaker 1: Um I I haven't seen it, so I don't know exactly. 357 00:19:01,840 --> 00:19:10,560 Speaker 1: What would you like to just single sense you like 358 00:19:11,680 --> 00:19:14,399 Speaker 1: I just said, I don't know what, but he'll do 359 00:19:14,440 --> 00:19:16,040 Speaker 1: a great job with it, and it's a it's a 360 00:19:16,080 --> 00:19:19,119 Speaker 1: great opportunity and he'll use it effectively to UH to 361 00:19:19,359 --> 00:19:23,719 Speaker 1: lay out the committee strategy. Very diplomatic there than if 362 00:19:23,760 --> 00:19:35,000 Speaker 1: they St. Louis Fed Right now, we have with us, 363 00:19:35,000 --> 00:19:38,560 Speaker 1: of course, Atlanta FED President Raphael Bostick, who has provided 364 00:19:38,560 --> 00:19:42,000 Speaker 1: the intellectual leadership for the region and has really been 365 00:19:42,080 --> 00:19:44,919 Speaker 1: vocal recently about what's going to happen in September. And 366 00:19:44,920 --> 00:19:46,959 Speaker 1: that's where we have to start. Where you said recently 367 00:19:47,000 --> 00:19:49,639 Speaker 1: in a recent interview, that's it's a coin toss between 368 00:19:49,680 --> 00:19:52,480 Speaker 1: fifty and seventy five in terms of how many basis 369 00:19:52,520 --> 00:19:55,880 Speaker 1: points you HiPE. What will determine that coin toss for you? Well, 370 00:19:55,920 --> 00:19:57,520 Speaker 1: for me, it will be the data that comes in 371 00:19:57,520 --> 00:19:59,760 Speaker 1: over the next couple of weeks. You know, PC today 372 00:19:59,840 --> 00:20:02,359 Speaker 1: is actually an important one showing the economy is slowing 373 00:20:02,359 --> 00:20:05,280 Speaker 1: down in an orderly way, which is helpful. But we 374 00:20:05,320 --> 00:20:07,880 Speaker 1: also have a job report that's coming in I guess 375 00:20:07,880 --> 00:20:10,199 Speaker 1: a week from now, and then ten days later we 376 00:20:10,280 --> 00:20:13,400 Speaker 1: have the CPI. I think the three of those together 377 00:20:13,960 --> 00:20:17,440 Speaker 1: will start to give me a sense of the big 378 00:20:17,480 --> 00:20:20,400 Speaker 1: story about how the economy is responding to our policies 379 00:20:20,840 --> 00:20:24,080 Speaker 1: and also just the changing dynamic. And and if it 380 00:20:24,160 --> 00:20:27,720 Speaker 1: comes in strong and start strong, as if there's no change, 381 00:20:27,960 --> 00:20:31,760 Speaker 1: I'll probably be leaning seventy. If it comes in slowing 382 00:20:31,800 --> 00:20:34,200 Speaker 1: like we've seen today, it's the first piece of evidence 383 00:20:34,520 --> 00:20:37,119 Speaker 1: I'll probably lane your fifty. Okay, So is there a 384 00:20:37,160 --> 00:20:40,400 Speaker 1: certain threshold with the jobs data in particular that you're 385 00:20:40,400 --> 00:20:42,840 Speaker 1: looking for because you mentioned that we saw a pretty 386 00:20:43,000 --> 00:20:45,760 Speaker 1: a pretty elevated number the last time around. How is 387 00:20:45,800 --> 00:20:47,240 Speaker 1: that going to inform you what's sort of the cut 388 00:20:47,280 --> 00:20:49,720 Speaker 1: off that you're looking for there? Well, I don't know 389 00:20:50,160 --> 00:20:52,880 Speaker 1: these things. There is some art here, right, So it's 390 00:20:52,920 --> 00:20:57,880 Speaker 1: not if it hits to seventies seven then I'm good, right. 391 00:20:58,240 --> 00:21:00,200 Speaker 1: I do think that you have to think of out 392 00:21:00,240 --> 00:21:02,880 Speaker 1: this as you know, what does the jobs number tell 393 00:21:02,920 --> 00:21:06,199 Speaker 1: us in terms of trajectory and the jobs. You know, 394 00:21:06,320 --> 00:21:08,720 Speaker 1: the economy has been producing a lot of jobs on 395 00:21:08,720 --> 00:21:13,520 Speaker 1: a monthly basis, food people a month, and that's a 396 00:21:13,600 --> 00:21:16,840 Speaker 1: lot um. I think we want to start to see 397 00:21:16,880 --> 00:21:20,119 Speaker 1: that slow, uh, And that would be consistent with the 398 00:21:20,160 --> 00:21:23,240 Speaker 1: idea that our policies are starting to take demand and 399 00:21:23,520 --> 00:21:27,560 Speaker 1: pull it down and reduce that in balance that is underlying, uh, 400 00:21:27,640 --> 00:21:30,080 Speaker 1: the inflation that we're seeing. So that's kind of what 401 00:21:30,080 --> 00:21:32,720 Speaker 1: I'm looking for. And and we'll look through it to 402 00:21:32,760 --> 00:21:36,600 Speaker 1: see if there are particular sectors where there are movements 403 00:21:36,640 --> 00:21:40,600 Speaker 1: that would suggest that that there is some some some 404 00:21:40,800 --> 00:21:43,760 Speaker 1: help that's coming in terms of the demand side. There 405 00:21:43,760 --> 00:21:46,200 Speaker 1: are thousands of traders on Wall Street who are turning 406 00:21:46,200 --> 00:21:48,800 Speaker 1: blue now because they're holding their breath waiting for the 407 00:21:48,840 --> 00:21:52,600 Speaker 1: chairman speech. And I wonder, given the disconnect that we've 408 00:21:52,600 --> 00:21:54,720 Speaker 1: seen between Wall Street and the Fed, and the fact 409 00:21:54,720 --> 00:21:57,959 Speaker 1: that financial conditions have lucied, what's the message that you 410 00:21:58,000 --> 00:22:01,760 Speaker 1: would like them to take away from the Chairman's speech today. Well, 411 00:22:01,800 --> 00:22:04,919 Speaker 1: I think the message is inflation is high, Inflation is 412 00:22:04,920 --> 00:22:06,360 Speaker 1: too high, and we're going to do what we need 413 00:22:06,400 --> 00:22:08,800 Speaker 1: to do to bring it down. And we're going to 414 00:22:08,840 --> 00:22:11,920 Speaker 1: be resolute in our policy to make sure that that 415 00:22:12,119 --> 00:22:16,200 Speaker 1: inflation is well on its way to our two percent target. 416 00:22:16,720 --> 00:22:20,960 Speaker 1: And I think that is the basic message. Um, we've 417 00:22:21,000 --> 00:22:23,280 Speaker 1: been saying that already, right, So that's not a new message, 418 00:22:23,560 --> 00:22:26,080 Speaker 1: but it is. It is important for us to be 419 00:22:26,119 --> 00:22:30,240 Speaker 1: continuing to reinforce that so that there is an uncertainty 420 00:22:30,240 --> 00:22:32,560 Speaker 1: about what we're going to do. You know, we were 421 00:22:32,560 --> 00:22:35,040 Speaker 1: still in the pandemic economy. I try to remind everybody that. 422 00:22:35,560 --> 00:22:38,440 Speaker 1: And one of the things that's been true is that, uh, 423 00:22:38,480 --> 00:22:42,600 Speaker 1: there's the unexpected has happened repeatedly, and so I would 424 00:22:42,640 --> 00:22:45,360 Speaker 1: like for our policy, and I think my my colleagues 425 00:22:45,400 --> 00:22:49,159 Speaker 1: share this, to not be contributing to that uncertainty. We 426 00:22:49,200 --> 00:22:51,800 Speaker 1: want people to understand sort of what our action function 427 00:22:51,920 --> 00:22:54,359 Speaker 1: is and what we're trying to get to, uh, and 428 00:22:54,480 --> 00:22:56,920 Speaker 1: that we're not going to bounce around. We're going to 429 00:22:57,040 --> 00:23:01,640 Speaker 1: be stable, resolute and sure about where we want to begin. Well, 430 00:23:01,640 --> 00:23:04,600 Speaker 1: are you willing? In Wall Street parlance, to be vulcan 431 00:23:05,080 --> 00:23:07,359 Speaker 1: to let the economy go into recession if you need 432 00:23:07,400 --> 00:23:11,359 Speaker 1: to focus more on inflation, bringing that down because the 433 00:23:11,400 --> 00:23:15,720 Speaker 1: costs are higher. Well, you know, inflation is extremely high, 434 00:23:15,840 --> 00:23:19,919 Speaker 1: sort of unimaginable. The levels we're at, we're unimaginable eighteen 435 00:23:19,960 --> 00:23:22,879 Speaker 1: months ago, and so we have to get that under control. 436 00:23:22,960 --> 00:23:26,919 Speaker 1: That's job one. That's our top priority. Beyond that, you know, 437 00:23:26,960 --> 00:23:30,240 Speaker 1: if if we start to see weakening in labor markets 438 00:23:30,280 --> 00:23:32,840 Speaker 1: but inflation is still too high, we've got to get 439 00:23:32,880 --> 00:23:36,080 Speaker 1: inflation down, like that is the first thing. So, um, 440 00:23:36,440 --> 00:23:39,959 Speaker 1: I'd be comfortable with some weakness in labor markets if 441 00:23:39,960 --> 00:23:43,520 Speaker 1: we start to see some job losses. But to be honest, 442 00:23:44,080 --> 00:23:47,800 Speaker 1: we're far from that today. Right, There's a lot of 443 00:23:47,840 --> 00:23:51,040 Speaker 1: momentum in terms of job creation. And so I'm going 444 00:23:51,119 --> 00:23:53,760 Speaker 1: to focus on the next month and the month after that, 445 00:23:54,280 --> 00:23:56,280 Speaker 1: and you know, I think we won't have to face 446 00:23:56,320 --> 00:23:59,760 Speaker 1: a question like that for quite some time. Well, put 447 00:23:59,800 --> 00:24:02,439 Speaker 1: three questions together into one about the terminal, Right, what 448 00:24:02,480 --> 00:24:05,119 Speaker 1: do you think you need to get to, how fast 449 00:24:05,160 --> 00:24:06,760 Speaker 1: do you need to get there? And then how long 450 00:24:06,760 --> 00:24:09,840 Speaker 1: do you leave it there? So that's three questions and 451 00:24:09,960 --> 00:24:12,200 Speaker 1: once right, so you do well and I'm supposed to 452 00:24:12,240 --> 00:24:15,520 Speaker 1: do this. I know we don't have You've got eight 453 00:24:15,520 --> 00:24:21,719 Speaker 1: minutes to at that time. So so for me, I 454 00:24:21,760 --> 00:24:25,159 Speaker 1: think I want to see our policy get to something 455 00:24:25,200 --> 00:24:29,160 Speaker 1: that's marginally restrictive. I think right now we are still 456 00:24:29,200 --> 00:24:33,040 Speaker 1: in a somewhat accommodated state weekly so I'm looking for 457 00:24:33,119 --> 00:24:35,919 Speaker 1: us to move maybe a hundred basis points, maybe undive 458 00:24:35,920 --> 00:24:40,240 Speaker 1: basis points from where we are. In terms of that movement, UM, 459 00:24:40,320 --> 00:24:42,960 Speaker 1: I'd like to get there sooner rather than later. I 460 00:24:43,000 --> 00:24:46,280 Speaker 1: think that the sooner we get to that that level, 461 00:24:46,760 --> 00:24:50,680 Speaker 1: the faster and the more dramatic our our impact will 462 00:24:50,680 --> 00:24:52,879 Speaker 1: be on the economy. But I also want to do 463 00:24:52,920 --> 00:24:54,760 Speaker 1: it in an orderly way. I want to get to 464 00:24:54,800 --> 00:24:57,560 Speaker 1: that term right, in an orderly way, so that the 465 00:24:57,600 --> 00:25:01,840 Speaker 1: markets and businesses and families don't think that our movement 466 00:25:01,920 --> 00:25:05,879 Speaker 1: is suggesting there's some underlying weakness or something unexpected that 467 00:25:05,880 --> 00:25:08,119 Speaker 1: it's going to make people be concerned. And then in 468 00:25:08,200 --> 00:25:11,120 Speaker 1: terms of staying there, um, I think we should stay 469 00:25:11,160 --> 00:25:13,959 Speaker 1: there for a long time. And I would say I 470 00:25:14,000 --> 00:25:17,280 Speaker 1: want to see, um, the signs of the economy slowingly 471 00:25:17,320 --> 00:25:21,159 Speaker 1: be clear, but also start to see inflation uh really 472 00:25:21,240 --> 00:25:25,320 Speaker 1: moving down to closer to our two percent target before 473 00:25:25,359 --> 00:25:27,919 Speaker 1: we contemplate sort of moving at all. So you know, 474 00:25:27,960 --> 00:25:30,400 Speaker 1: the word I'm using a lot is resolute. I think 475 00:25:30,440 --> 00:25:32,439 Speaker 1: once we get to that level, we want to be 476 00:25:32,560 --> 00:25:37,440 Speaker 1: resolute in and our goal, which is to get inflation 477 00:25:37,560 --> 00:25:39,800 Speaker 1: down to our target. I've got to watch this because 478 00:25:39,840 --> 00:25:42,200 Speaker 1: you mentioned a time you said a long time. What's 479 00:25:42,200 --> 00:25:49,800 Speaker 1: a long time? It could be five days ask the question, right, 480 00:25:50,240 --> 00:25:54,080 Speaker 1: So so for me, I think what what my team 481 00:25:54,119 --> 00:25:58,040 Speaker 1: has told me and what we've seen, uh historically is 482 00:25:58,080 --> 00:26:01,560 Speaker 1: that it takes a long time for the actual inflation 483 00:26:01,640 --> 00:26:03,679 Speaker 1: numbers to move. The economy has got to weaken in 484 00:26:03,720 --> 00:26:06,000 Speaker 1: a lot of ways, it's got to slow down, uh, 485 00:26:06,040 --> 00:26:08,520 Speaker 1: and on some level, the inflation number is the last 486 00:26:09,040 --> 00:26:13,080 Speaker 1: number to move. And so what what I'm where I 487 00:26:13,160 --> 00:26:17,520 Speaker 1: am right now on this is from a typical perspective, 488 00:26:17,840 --> 00:26:23,639 Speaker 1: we would expect maybe eighteen months two years for that trajectory. 489 00:26:24,000 --> 00:26:26,040 Speaker 1: But at the same time, if you look at how 490 00:26:26,040 --> 00:26:29,240 Speaker 1: financial markets responded to our policy when we started moving 491 00:26:29,240 --> 00:26:32,000 Speaker 1: in March, it moved much faster than we've seen historically. 492 00:26:32,520 --> 00:26:34,960 Speaker 1: And we know that in the pandemic, the economy has 493 00:26:35,040 --> 00:26:40,520 Speaker 1: evolved faster than we expected historically. GDP responded much faster 494 00:26:40,600 --> 00:26:43,720 Speaker 1: than the analysts were expecting at the outset. So there 495 00:26:43,840 --> 00:26:48,000 Speaker 1: is the possibility that the movement in inflation could be 496 00:26:48,040 --> 00:26:50,919 Speaker 1: faster than what we've seen in the past. The reality is, 497 00:26:51,480 --> 00:26:53,840 Speaker 1: we don't know what's going to happen, right, and so 498 00:26:54,280 --> 00:26:56,240 Speaker 1: I want but I want people to know that we're 499 00:26:56,280 --> 00:26:58,879 Speaker 1: really focused on the goal, and the goal is to 500 00:26:59,000 --> 00:27:03,160 Speaker 1: see that inflation hopefully goes faster. But I can't say 501 00:27:03,160 --> 00:27:05,440 Speaker 1: that for sure, So we're gonna just have to wait 502 00:27:05,440 --> 00:27:07,080 Speaker 1: and see. I think what we all need then it's 503 00:27:07,119 --> 00:27:09,119 Speaker 1: not the crystal ball is just a deeper understanding of 504 00:27:09,160 --> 00:27:11,600 Speaker 1: your reaction function, and we kind of danced around it 505 00:27:11,640 --> 00:27:14,440 Speaker 1: just a little bit. Can you help me understand the following. 506 00:27:15,080 --> 00:27:17,359 Speaker 1: If the mandate is in conflict at any point in 507 00:27:17,400 --> 00:27:20,880 Speaker 1: the next twelve months, if inflation is still too sticky, 508 00:27:21,280 --> 00:27:23,359 Speaker 1: but the growth side of things, the labor market starts 509 00:27:23,400 --> 00:27:25,800 Speaker 1: moving in the wrong direction, do you need to tolerate 510 00:27:25,840 --> 00:27:29,000 Speaker 1: that to get this lower? Is that something you're willing 511 00:27:29,040 --> 00:27:32,119 Speaker 1: to tolerate. Sure, we have to be open to that 512 00:27:32,160 --> 00:27:36,240 Speaker 1: as a possibility. Look, if if inflation is far from 513 00:27:36,240 --> 00:27:40,200 Speaker 1: the target UH and labor markets and and employment are 514 00:27:40,440 --> 00:27:43,040 Speaker 1: is relatively close to target or on target, someone said 515 00:27:43,040 --> 00:27:46,760 Speaker 1: we already overshot the target. We should be willing. I 516 00:27:46,800 --> 00:27:51,160 Speaker 1: would be willing to see that employment, those employment numbers 517 00:27:51,200 --> 00:27:56,200 Speaker 1: moderate to get us either back to target if we've overshot, 518 00:27:56,440 --> 00:27:58,760 Speaker 1: or maybe a little further away from the target. But 519 00:27:59,200 --> 00:28:03,040 Speaker 1: that further away now, it's still extremely close. And so 520 00:28:03,040 --> 00:28:07,160 Speaker 1: so my concerns in terms of our mandate are not 521 00:28:07,560 --> 00:28:11,240 Speaker 1: very heavily weighted in on the labor market side, much 522 00:28:11,240 --> 00:28:14,080 Speaker 1: more in inflation. There's a belief that seems to be 523 00:28:14,119 --> 00:28:16,560 Speaker 1: embedded in markets that we're going back to what we 524 00:28:16,640 --> 00:28:20,440 Speaker 1: knew ten years ago in terms of inflation being low, 525 00:28:20,840 --> 00:28:23,920 Speaker 1: growth being slow, and that just sort of being the normalcy, 526 00:28:23,920 --> 00:28:26,640 Speaker 1: and that rates will eventually go back to what they 527 00:28:26,640 --> 00:28:29,960 Speaker 1: were accustomed to. You know, say back then, do you 528 00:28:30,080 --> 00:28:31,440 Speaker 1: disagree with this? I mean, this is one of the 529 00:28:31,480 --> 00:28:34,800 Speaker 1: fundamental questions. Are we in for a a sea change 530 00:28:34,920 --> 00:28:37,560 Speaker 1: and how much inflation there is globally and in the 531 00:28:37,640 --> 00:28:40,880 Speaker 1: United States. Well, I think that that's an interesting question. 532 00:28:41,000 --> 00:28:43,360 Speaker 1: I actually think it's an open question if you think 533 00:28:43,440 --> 00:28:47,480 Speaker 1: about what's happened through the pandemic, where we've just we've 534 00:28:47,520 --> 00:28:52,120 Speaker 1: discovered that supply chain strategies where you're relying on just 535 00:28:52,280 --> 00:28:57,960 Speaker 1: one supplier, increases exposure to volatility and outcome and outputs. 536 00:28:58,440 --> 00:29:02,280 Speaker 1: Um businesses are changing those strategies. The ones I talked to, 537 00:29:02,320 --> 00:29:04,240 Speaker 1: they say, look, we're we're no longer going to rely 538 00:29:04,320 --> 00:29:08,320 Speaker 1: on just one supplier, that lowest cost provider, and we're 539 00:29:08,320 --> 00:29:10,880 Speaker 1: going to do this across a number of different suppliers. 540 00:29:11,000 --> 00:29:13,120 Speaker 1: That in and of itself means we're going to have 541 00:29:13,200 --> 00:29:16,600 Speaker 1: higher cost basis. There's gonna be upward pressure on prices 542 00:29:16,640 --> 00:29:19,360 Speaker 1: that we're going to have to embrace. And so there's 543 00:29:19,400 --> 00:29:21,600 Speaker 1: a lot of other things that are that are going 544 00:29:21,600 --> 00:29:24,480 Speaker 1: on in the economy. So I said, it's very difficult 545 00:29:24,520 --> 00:29:28,040 Speaker 1: to project that. And so I would say, I think 546 00:29:28,040 --> 00:29:30,120 Speaker 1: inflation is gonna mind it being a little higher than 547 00:29:30,200 --> 00:29:33,480 Speaker 1: what we've seen historically. How much higher and is it 548 00:29:33,560 --> 00:29:35,480 Speaker 1: going to be a material? I think that's still that 549 00:29:35,600 --> 00:29:37,200 Speaker 1: We're just going to have to let things play out 550 00:29:37,280 --> 00:29:40,200 Speaker 1: to understand that. So going back to John's question about 551 00:29:40,240 --> 00:29:42,400 Speaker 1: how long, and you said, you know it could be 552 00:29:43,080 --> 00:29:47,760 Speaker 1: typically it was minutes two years exactly, Why don't we 553 00:29:47,800 --> 00:29:50,400 Speaker 1: freak it down five days a month or you know 554 00:29:50,440 --> 00:29:53,240 Speaker 1: it's been eighteen to two years, could it be much 555 00:29:53,320 --> 00:29:55,800 Speaker 1: longer than that. Could it be that the new FED 556 00:29:55,840 --> 00:29:59,400 Speaker 1: funds rate eventually evolves something closer to three to three 557 00:29:59,440 --> 00:30:01,520 Speaker 1: and a half per said? Is that something feasible? Not 558 00:30:01,640 --> 00:30:04,720 Speaker 1: just could, but is it feasible in your framework? Well, 559 00:30:04,760 --> 00:30:08,880 Speaker 1: I think it's possible. But a lot is going to 560 00:30:08,960 --> 00:30:11,320 Speaker 1: happen between now and when we get to that place 561 00:30:11,640 --> 00:30:14,120 Speaker 1: to where I'll be able to have an understanding or 562 00:30:14,120 --> 00:30:16,800 Speaker 1: a sense of whether that's a new permanent and whether 563 00:30:17,200 --> 00:30:19,840 Speaker 1: there is some new kind of floor that we're going 564 00:30:19,920 --> 00:30:23,640 Speaker 1: to have to push to. But I don't know that now. Um. 565 00:30:23,680 --> 00:30:26,960 Speaker 1: You know the thing that's been helpful, like conversations like 566 00:30:27,000 --> 00:30:30,840 Speaker 1: this are actually quite helpful in making me be sensitive, 567 00:30:30,920 --> 00:30:34,120 Speaker 1: sensitive about what sorts of things we need to be 568 00:30:34,240 --> 00:30:36,360 Speaker 1: focusing on. Me and my team need to be focusing 569 00:30:36,400 --> 00:30:39,120 Speaker 1: on as the economy evolves in the next couple of years. 570 00:30:39,280 --> 00:30:42,760 Speaker 1: So I know they're watching this, so this will be 571 00:30:42,800 --> 00:30:45,760 Speaker 1: something that shows up on their on their list of 572 00:30:45,760 --> 00:30:48,120 Speaker 1: things to do over the next six to twelve. We've 573 00:30:48,120 --> 00:30:50,480 Speaker 1: got about naughty six is left. I want to squeeze 574 00:30:50,520 --> 00:30:53,560 Speaker 1: this in because we we had it the discussion with President, 575 00:30:53,560 --> 00:30:56,200 Speaker 1: but out as well. Let this balance sheet reduction fit in. 576 00:30:56,360 --> 00:30:59,000 Speaker 1: I guess so many questions from bloom Bag subscribes about 577 00:30:59,000 --> 00:31:01,080 Speaker 1: this almost every day. What we're talking about this more? 578 00:31:01,120 --> 00:31:02,959 Speaker 1: What are we're talking about this more? Where does it 579 00:31:03,000 --> 00:31:06,360 Speaker 1: fit in? Well, you know, I think it fits in 580 00:31:06,560 --> 00:31:10,720 Speaker 1: as an additional two of the policy, and the reduction 581 00:31:10,720 --> 00:31:14,240 Speaker 1: of the balance sheet will have sort of a more 582 00:31:14,280 --> 00:31:19,440 Speaker 1: restrictive impact on how the economy evolves. We are very 583 00:31:19,480 --> 00:31:22,600 Speaker 1: early on in the reduction of our balance sheet and 584 00:31:22,720 --> 00:31:25,400 Speaker 1: we're still ramping up in some regards to get to 585 00:31:25,440 --> 00:31:29,240 Speaker 1: a level of um that we can start to reduce 586 00:31:29,320 --> 00:31:33,520 Speaker 1: much faster. For me, I think that it is another 587 00:31:33,600 --> 00:31:36,800 Speaker 1: factor that allows us to say, the economy standing on 588 00:31:36,840 --> 00:31:40,680 Speaker 1: its own, it doesn't need these additional supports. Uh. And 589 00:31:40,960 --> 00:31:44,800 Speaker 1: so the energy in the marketplace is just less uh 590 00:31:44,840 --> 00:31:47,520 Speaker 1: And and that's kind of how it plays out, you know. There, 591 00:31:48,320 --> 00:31:50,760 Speaker 1: I saw the segment you did with with Jim, and 592 00:31:50,960 --> 00:31:53,040 Speaker 1: you know, trying to come up with a hard estimate 593 00:31:53,080 --> 00:31:55,680 Speaker 1: about you know, you know, a hundred billion dollars, what 594 00:31:55,720 --> 00:31:59,080 Speaker 1: does that translate? It's very difficult, but I think it's 595 00:31:59,160 --> 00:32:02,080 Speaker 1: unambiguous that there's less energy that we are contributing to 596 00:32:02,120 --> 00:32:06,680 Speaker 1: the marketplace. Uh. And that means that that the ability 597 00:32:06,800 --> 00:32:08,960 Speaker 1: for the economy to grow faster. It's just been a weekend. 598 00:32:08,960 --> 00:32:10,520 Speaker 1: We've got a guy, But I'm telling you're not going 599 00:32:10,600 --> 00:32:13,240 Speaker 1: to watch some real football in Atlanta. At some point 600 00:32:13,760 --> 00:32:25,840 Speaker 1: you're gonna make it happen. This ace bloom bag. There 601 00:32:25,880 --> 00:32:28,760 Speaker 1: are people that are signposts along the way. There is 602 00:32:28,880 --> 00:32:32,040 Speaker 1: research where you stop and you say, oh. And that 603 00:32:32,200 --> 00:32:35,080 Speaker 1: was a number of months ago with Priamzra truly one 604 00:32:35,120 --> 00:32:37,720 Speaker 1: of the great calls of two thousand twenty two on 605 00:32:37,840 --> 00:32:40,840 Speaker 1: the dynamics of the yield curve. Global head of rate 606 00:32:40,920 --> 00:32:45,840 Speaker 1: strategy at TV Securities Prior readjust here off of the 607 00:32:45,880 --> 00:32:50,880 Speaker 1: Powell's speech, readjust the dynamic between the short term two 608 00:32:50,960 --> 00:32:56,440 Speaker 1: year yield in the benchmark tenure. Sure, thanks for having me. 609 00:32:56,520 --> 00:32:58,840 Speaker 1: I think the front end is all about new dum 610 00:32:58,920 --> 00:33:01,800 Speaker 1: Foot policy, and I think we got a few clues 611 00:33:01,840 --> 00:33:06,280 Speaker 1: from Chapal's comments today. You know, he's he's acknowledging that 612 00:33:06,320 --> 00:33:09,680 Speaker 1: there's there could be pain ahead, and that suggests tolerance 613 00:33:09,760 --> 00:33:12,240 Speaker 1: for pain, I would argue, so also talking about being 614 00:33:12,240 --> 00:33:15,080 Speaker 1: restrictive for quite some time. So this idea that the 615 00:33:15,160 --> 00:33:17,440 Speaker 1: FED will take rates up to terminal and then quickly 616 00:33:17,520 --> 00:33:19,920 Speaker 1: cut rates, I think he's pushing back against that. So 617 00:33:19,960 --> 00:33:22,600 Speaker 1: that front end, I think it is still biased higher 618 00:33:22,600 --> 00:33:24,680 Speaker 1: in rate. We're looking for two year rates to continue 619 00:33:24,680 --> 00:33:28,360 Speaker 1: to rise, really getting close to that terminal level, so 620 00:33:28,720 --> 00:33:30,880 Speaker 1: you know it's at three seventy five or something in 621 00:33:30,920 --> 00:33:33,440 Speaker 1: that range. The long end. I think the long end 622 00:33:33,480 --> 00:33:36,120 Speaker 1: is a lot more anchored because I don't think long 623 00:33:36,240 --> 00:33:38,560 Speaker 1: term neutral rate is a whole lot higher the long 624 00:33:38,680 --> 00:33:40,720 Speaker 1: run neutral rate. There could be a higher short term 625 00:33:40,720 --> 00:33:43,440 Speaker 1: neutral rate, but the long run neutral rate, the fact 626 00:33:43,440 --> 00:33:46,280 Speaker 1: that global growth is going the treasuries are still the 627 00:33:46,360 --> 00:33:48,680 Speaker 1: safe haven acid if you're in risk asses right now. 628 00:33:48,720 --> 00:33:50,520 Speaker 1: The Feds just telling you that that put is much 629 00:33:50,600 --> 00:33:53,200 Speaker 1: further away. I think long end treasuries are actually a 630 00:33:53,200 --> 00:33:55,320 Speaker 1: safe place to be end. So I think that flattening 631 00:33:55,360 --> 00:33:58,560 Speaker 1: bias here continues. The curve keeps inverting. The long end 632 00:33:58,600 --> 00:34:00,680 Speaker 1: I think is much safer than a front end. That's 633 00:34:00,680 --> 00:34:05,320 Speaker 1: all a function of inflation later. The fancy word for pointing, 634 00:34:05,440 --> 00:34:10,000 Speaker 1: the fancy word for pointy is stochastic, and curven versions 635 00:34:10,000 --> 00:34:13,600 Speaker 1: are almost always in every case stochastic. Do we have 636 00:34:13,680 --> 00:34:16,160 Speaker 1: to get used to this? If we have a longer 637 00:34:16,840 --> 00:34:20,760 Speaker 1: fed regime, Are we going to have longer deeper curve 638 00:34:20,840 --> 00:34:25,960 Speaker 1: in version. I think inflation is what is likely to 639 00:34:26,000 --> 00:34:29,360 Speaker 1: make this longer. The fact that inflation is just inherently 640 00:34:29,440 --> 00:34:32,160 Speaker 1: more sticky and a lagging indicator. I mean, growth can 641 00:34:32,200 --> 00:34:34,600 Speaker 1: be slowing, inflation might be the last thing to respond 642 00:34:34,600 --> 00:34:36,560 Speaker 1: to it, and the facts telling you that it's public 643 00:34:36,640 --> 00:34:39,280 Speaker 1: enemy number one. So I do think that the inversions 644 00:34:39,280 --> 00:34:42,920 Speaker 1: that historically have been short lived because inflation has not 645 00:34:42,960 --> 00:34:45,359 Speaker 1: been a problem, and so the Fed has the flexibility 646 00:34:45,400 --> 00:34:49,160 Speaker 1: to respond. They're telling you that if inflation doesn't decelerate, 647 00:34:49,520 --> 00:34:53,600 Speaker 1: that dual mandate is very lopsided, and therefore a period 648 00:34:53,600 --> 00:34:56,440 Speaker 1: of sticky inflation will mean that that inversion, I think 649 00:34:56,560 --> 00:34:59,319 Speaker 1: lasts for much longer than the markets pricing in or 650 00:34:59,560 --> 00:35:03,680 Speaker 1: or that you know people are looking for. Given how 651 00:35:03,680 --> 00:35:06,400 Speaker 1: they're setting up the reaction function here and given how 652 00:35:06,440 --> 00:35:08,759 Speaker 1: little the market seems to be listening to them, how 653 00:35:08,800 --> 00:35:11,919 Speaker 1: do you think this market would respond to a bad 654 00:35:12,080 --> 00:35:16,160 Speaker 1: labor market print, a bad payrolls print on September two? 655 00:35:17,920 --> 00:35:20,839 Speaker 1: So define which market? I think there could be some 656 00:35:20,960 --> 00:35:24,360 Speaker 1: risk assets that could be actually comforted by a weaker number, 657 00:35:24,640 --> 00:35:27,319 Speaker 1: because then that might mean the Fed may have to 658 00:35:27,360 --> 00:35:29,640 Speaker 1: respond and may not hike as much I would actually 659 00:35:29,719 --> 00:35:32,960 Speaker 1: argue would be risk negative. I think bad data is 660 00:35:33,040 --> 00:35:37,840 Speaker 1: bad for risk assets, and you know, and and and treasuries. 661 00:35:37,880 --> 00:35:40,040 Speaker 1: I think it's it's good for long data treasuries. But 662 00:35:40,120 --> 00:35:42,720 Speaker 1: the front end, I think chap ill is telling you, well, 663 00:35:42,760 --> 00:35:45,160 Speaker 1: you know, we're gonna have to tolerate some pain. Inflation 664 00:35:45,280 --> 00:35:48,360 Speaker 1: is still the data print that I think the market 665 00:35:48,400 --> 00:35:50,560 Speaker 1: will respond a lot more. I think sensitivity will be 666 00:35:50,640 --> 00:35:54,040 Speaker 1: higher to inflation because that's what the Fed's watching. A 667 00:35:54,120 --> 00:35:57,440 Speaker 1: weaker payroll report, If it means a weaker wages down 668 00:35:57,520 --> 00:36:00,640 Speaker 1: the road and ultimately weaker inflation, I think it can 669 00:36:00,680 --> 00:36:03,560 Speaker 1: allow the FED to slow down, but not with inflation 670 00:36:03,640 --> 00:36:05,880 Speaker 1: running as high as it is right now. So I 671 00:36:05,920 --> 00:36:09,239 Speaker 1: still think that CPR report, unfortunately in another blackout, is 672 00:36:09,239 --> 00:36:12,200 Speaker 1: probably the lynchpin for the seventy five or fifty, And 673 00:36:12,520 --> 00:36:15,480 Speaker 1: we didn't get much from j Power, But I think 674 00:36:15,480 --> 00:36:17,680 Speaker 1: they're trying to move us out of just the pace 675 00:36:17,760 --> 00:36:20,080 Speaker 1: of hikes to that end point and how long they 676 00:36:20,120 --> 00:36:26,440 Speaker 1: stay there as ultimately what will tighten financial conditions. Priamzra 677 00:36:26,600 --> 00:36:29,680 Speaker 1: we are in Jackson Hall talking about the FED, talking 678 00:36:29,680 --> 00:36:31,720 Speaker 1: about the United States, and so I feel a little 679 00:36:31,719 --> 00:36:33,880 Speaker 1: strange doing this, but we need to pivot to Europe 680 00:36:34,080 --> 00:36:36,600 Speaker 1: because that is really where the incredible action is, at 681 00:36:36,640 --> 00:36:38,799 Speaker 1: least in the markets today. As people start to think 682 00:36:38,800 --> 00:36:41,920 Speaker 1: about a seventy five basis point Reid hike by the 683 00:36:42,000 --> 00:36:45,400 Speaker 1: e c B, do you foresee this as actually a 684 00:36:45,480 --> 00:36:48,920 Speaker 1: real possibility and something that could sustain some of the 685 00:36:48,960 --> 00:36:51,279 Speaker 1: moves that we've seen that are quite dramatic in the 686 00:36:51,320 --> 00:36:54,440 Speaker 1: German bond market, in the Italian bond market, and certainly 687 00:36:54,440 --> 00:36:58,680 Speaker 1: in the euro right. So we're still looking for fifty 688 00:36:58,960 --> 00:37:01,319 Speaker 1: um now is there a is for seventy five? There 689 00:37:01,400 --> 00:37:03,800 Speaker 1: is when you're just starting out in the hiking cycle. 690 00:37:03,840 --> 00:37:05,960 Speaker 1: You could make the same case for the FED should 691 00:37:05,960 --> 00:37:08,719 Speaker 1: they have gone the first hike have been seventy five, 692 00:37:08,800 --> 00:37:11,239 Speaker 1: and the Minute suggests that it might have been had 693 00:37:11,280 --> 00:37:13,919 Speaker 1: we not had the Russian invasions. So I think it's 694 00:37:13,960 --> 00:37:16,759 Speaker 1: a possibility. They need to set the market up more. 695 00:37:16,960 --> 00:37:19,440 Speaker 1: They also need to look at unintended consequences. I think 696 00:37:19,480 --> 00:37:21,400 Speaker 1: e CV is on a much harder position than the 697 00:37:21,440 --> 00:37:24,160 Speaker 1: FED because they're dealing with an energy crisis that's only 698 00:37:24,200 --> 00:37:27,680 Speaker 1: going to get worse as as as winter sets in um. 699 00:37:27,719 --> 00:37:29,840 Speaker 1: You know, our thought is that fifty is still a 700 00:37:29,880 --> 00:37:32,640 Speaker 1: sizeable number, especially for the Eurozone that's been dealing with 701 00:37:32,719 --> 00:37:36,320 Speaker 1: negative rates for so long, that they would still start 702 00:37:36,360 --> 00:37:38,719 Speaker 1: with fifty. But I think if they set the market up, 703 00:37:39,000 --> 00:37:41,400 Speaker 1: they talk about how they're going to address the problem 704 00:37:41,400 --> 00:37:44,800 Speaker 1: and the periphery, because they're related. You go seventy five, 705 00:37:45,480 --> 00:37:48,480 Speaker 1: the periphery is going to underperform um, you know that. 706 00:37:48,760 --> 00:37:50,520 Speaker 1: I think if they're able to set it up between now, 707 00:37:50,520 --> 00:37:52,359 Speaker 1: there's still a lot of time. I guess between now 708 00:37:52,440 --> 00:37:57,160 Speaker 1: and their September FED meeting, it's possible, but that's not 709 00:37:57,200 --> 00:38:01,800 Speaker 1: our base case. Three. How much of this is resulting 710 00:38:01,880 --> 00:38:03,719 Speaker 1: from the strength that we're seeing in the dollar from 711 00:38:03,760 --> 00:38:06,840 Speaker 1: FED policy so far to date. Is that what's forcing 712 00:38:06,920 --> 00:38:09,120 Speaker 1: us to even be having this conversation about a seventy 713 00:38:09,160 --> 00:38:12,080 Speaker 1: five basis point rate high in Europe, which was unthinkable 714 00:38:12,200 --> 00:38:16,359 Speaker 1: just months ago, right. I think the dollar is responding 715 00:38:16,520 --> 00:38:20,480 Speaker 1: to the diverging economic environments and to a different central 716 00:38:20,480 --> 00:38:22,800 Speaker 1: bank reaction function, where the FED has a really strong 717 00:38:22,880 --> 00:38:26,719 Speaker 1: labor market, you know, the unemployment rate well through nehru Um, 718 00:38:26,760 --> 00:38:30,200 Speaker 1: and I think that's what strengthening the dollar, creating the 719 00:38:30,239 --> 00:38:32,120 Speaker 1: issues for the rest of the world. They're going to 720 00:38:32,200 --> 00:38:35,200 Speaker 1: have to respond. I don't think it changes FED policy. 721 00:38:35,640 --> 00:38:39,400 Speaker 1: Are other central banks responding to that type of financially, 722 00:38:39,400 --> 00:38:41,319 Speaker 1: you know, to the to the fact that they've got 723 00:38:41,320 --> 00:38:45,680 Speaker 1: an inflation problem that gets worse. Um, you know, yes, 724 00:38:45,719 --> 00:38:49,480 Speaker 1: and I do think that they're not targeting any effects, 725 00:38:49,920 --> 00:38:54,240 Speaker 1: but it works through the the effects channel will impact 726 00:38:54,239 --> 00:38:56,160 Speaker 1: the economy, and that's what the central banks are taking 727 00:38:56,160 --> 00:38:59,120 Speaker 1: it into account. Absolutely, I'm sure it was. It was 728 00:38:59,160 --> 00:39:02,399 Speaker 1: an input into the idea of going fast more than 729 00:39:02,480 --> 00:39:16,279 Speaker 1: fifty lisa. If excuse me, if Europe, if Europe does 730 00:39:16,320 --> 00:39:20,360 Speaker 1: not act bald, if the United States keeps on this track, 731 00:39:20,480 --> 00:39:24,480 Speaker 1: what does Mark McCormick say for TV securities? What are 732 00:39:24,480 --> 00:39:28,399 Speaker 1: the ramifications of a resilient or even a dollar out 733 00:39:28,440 --> 00:39:33,359 Speaker 1: of new strength. I think, you know, ultimately there are 734 00:39:33,400 --> 00:39:37,440 Speaker 1: self limiting aspects to dollar strength. It tightens conditions, starts 735 00:39:37,440 --> 00:39:40,640 Speaker 1: putting down repressure on inflation over time. So it's not 736 00:39:40,760 --> 00:39:43,840 Speaker 1: something that can happen right away. There are some limits. 737 00:39:44,160 --> 00:39:46,680 Speaker 1: But in the near term, especially as I think the 738 00:39:46,719 --> 00:39:49,360 Speaker 1: market grapples with the fact that you're not going to 739 00:39:49,440 --> 00:39:54,120 Speaker 1: get the FED responding to slowing economic you know, conditions 740 00:39:54,160 --> 00:39:57,160 Speaker 1: on the growth front, the dollar tends to be also 741 00:39:57,239 --> 00:40:00,239 Speaker 1: safe haven acid, and so I, you know, are we're 742 00:40:00,280 --> 00:40:02,560 Speaker 1: positive on the doll in the near term with an 743 00:40:02,600 --> 00:40:04,759 Speaker 1: idea that there are limits and we just have to 744 00:40:05,360 --> 00:40:07,319 Speaker 1: the markets of forward looking and at some point we'll 745 00:40:07,360 --> 00:40:11,760 Speaker 1: realize those limits are being felt in the economic channel. 746 00:40:12,160 --> 00:40:13,959 Speaker 1: And you know, I think that's why there's a limit 747 00:40:14,040 --> 00:40:15,560 Speaker 1: to it. But I don't think they're close to that 748 00:40:15,640 --> 00:40:19,680 Speaker 1: limit just yet. Right let me flip the tables here. 749 00:40:19,719 --> 00:40:22,960 Speaker 1: I asked the i G and the distress, how I 750 00:40:23,080 --> 00:40:27,080 Speaker 1: yield people, how they interpret full faith and credit? How 751 00:40:27,120 --> 00:40:31,439 Speaker 1: do you interpret the price declines the giant historic bear 752 00:40:31,560 --> 00:40:34,759 Speaker 1: market of say corporate paper and a little bit of 753 00:40:34,800 --> 00:40:38,920 Speaker 1: a rally recently. How do you interpret the losses that 754 00:40:38,960 --> 00:40:41,799 Speaker 1: we've seen in the i G market? What does that 755 00:40:41,880 --> 00:40:45,560 Speaker 1: signal to you? So, I think most of it is 756 00:40:45,600 --> 00:40:48,600 Speaker 1: still an interest rate story, the fact that there's duration risk, 757 00:40:48,640 --> 00:40:52,840 Speaker 1: there's inherent interst rate risk in these bonds. It's not 758 00:40:52,920 --> 00:40:55,600 Speaker 1: as much the defaultress. I think defaultress because only just 759 00:40:55,640 --> 00:40:58,839 Speaker 1: started to get, you know, repriced higher. It's the fact 760 00:40:58,920 --> 00:41:02,799 Speaker 1: that interstrates have risen. Born funds have seen significant outflows. 761 00:41:02,920 --> 00:41:06,480 Speaker 1: So it's a supply demand issue for IG corporate that 762 00:41:06,560 --> 00:41:09,799 Speaker 1: has resulted in in those higher rates or or lower 763 00:41:09,840 --> 00:41:12,799 Speaker 1: prices as you talk about. I don't think recession is 764 00:41:12,800 --> 00:41:15,480 Speaker 1: still being priced in. So if growth starts to falter, 765 00:41:16,160 --> 00:41:18,520 Speaker 1: which is actually our call, and we actually start heading 766 00:41:18,520 --> 00:41:20,560 Speaker 1: to a recession and we see the FED not responding 767 00:41:20,600 --> 00:41:23,680 Speaker 1: because they're still worried about inflation, I think that's when 768 00:41:23,719 --> 00:41:27,400 Speaker 1: defaultress starts to reprice. So you know, it's hard for 769 00:41:27,440 --> 00:41:31,000 Speaker 1: me to be very positive on even credit here because 770 00:41:31,200 --> 00:41:33,279 Speaker 1: even though the interest rate we talked about with you 771 00:41:33,320 --> 00:41:36,120 Speaker 1: know that the tenure is probably fair around three percent here, 772 00:41:36,600 --> 00:41:40,160 Speaker 1: but that defaultress premium can rise if the economy starts 773 00:41:40,200 --> 00:41:42,240 Speaker 1: too slow. Now, I think that's the key to watch. 774 00:41:42,520 --> 00:41:43,880 Speaker 1: A lot of the work has been done on the 775 00:41:43,880 --> 00:41:46,279 Speaker 1: interest rate front. I just worry a little bit about 776 00:41:46,320 --> 00:41:51,600 Speaker 1: the growth side and is that getting priced in appropriately. Prayer, 777 00:41:51,680 --> 00:41:54,960 Speaker 1: thank you and congratulations again on just an absolutely brilliant 778 00:41:55,000 --> 00:41:57,560 Speaker 1: cool on this yield curve two stands. Prayer was looking 779 00:41:57,560 --> 00:42:00,600 Speaker 1: for forty, maybe fifty, perhaps even I d print version 780 00:42:00,640 --> 00:42:03,640 Speaker 1: than that, and we got forty pretty quickly after those comments. Pratty, 781 00:42:03,719 --> 00:42:16,400 Speaker 1: thank you so much. Andrew Hollenhorst with us now from City. Andrew, 782 00:42:16,520 --> 00:42:19,960 Speaker 1: you're looking for seventy five basis points in September. Did 783 00:42:19,960 --> 00:42:22,160 Speaker 1: you hear what you wanted to hear from this FED chair? 784 00:42:23,480 --> 00:42:26,160 Speaker 1: I think when we heard today was really a change 785 00:42:26,160 --> 00:42:29,279 Speaker 1: in tone more than any kind of new information. And 786 00:42:29,320 --> 00:42:31,560 Speaker 1: I think that's really important, and that's what we've been 787 00:42:31,600 --> 00:42:34,800 Speaker 1: highlighting ahead of this speech, the idea that this was 788 00:42:34,840 --> 00:42:37,680 Speaker 1: an opportunity for the FED to kind of recalibrate and 789 00:42:37,719 --> 00:42:43,040 Speaker 1: read message shorter, narrower, more direct. That's exactly what fed 790 00:42:43,080 --> 00:42:47,080 Speaker 1: Share Powell gave us UM and really didn't leave any 791 00:42:47,080 --> 00:42:50,320 Speaker 1: opportunity for a devish interpretation. I think that's what's important. 792 00:42:50,320 --> 00:42:52,600 Speaker 1: So a lot of the phrases were even phrases that 793 00:42:52,640 --> 00:42:56,400 Speaker 1: he'd used before. A lot of this was verbiage that 794 00:42:56,480 --> 00:43:00,200 Speaker 1: we'd heard before. UM. But the typical conversation app your 795 00:43:00,280 --> 00:43:03,319 Speaker 1: FED speak is I hear from clients and I think 796 00:43:03,360 --> 00:43:06,040 Speaker 1: it was hawkish. Maybe they read something different that was dubbish. 797 00:43:06,160 --> 00:43:08,640 Speaker 1: There was just no room for that, and then maybe 798 00:43:08,680 --> 00:43:10,960 Speaker 1: the kicker was quoting Paul Vulker. So I think it's 799 00:43:11,000 --> 00:43:14,680 Speaker 1: pretty clear where share Powell is moving here. I think 800 00:43:14,680 --> 00:43:17,719 Speaker 1: he's being cautious and trying to have kind of a 801 00:43:17,719 --> 00:43:22,399 Speaker 1: continuous movement towards a more hawkish tone and a more 802 00:43:22,440 --> 00:43:25,640 Speaker 1: hawkish policy orientation. I think that's all there. When he 803 00:43:25,680 --> 00:43:28,520 Speaker 1: did clarify, Mike McKee picked up on this, this idea 804 00:43:28,600 --> 00:43:31,560 Speaker 1: that at some point they will slow down. That again, 805 00:43:31,640 --> 00:43:34,799 Speaker 1: that exact language was used at the July OMC. Some 806 00:43:34,920 --> 00:43:37,280 Speaker 1: analysts took that to me and that they would slow 807 00:43:37,320 --> 00:43:40,160 Speaker 1: down in September, And here he clarified that, no, there's 808 00:43:40,200 --> 00:43:42,680 Speaker 1: really still a choice between fifty and seventy five bases points. 809 00:43:42,880 --> 00:43:44,560 Speaker 1: Is going to come down to the data. Um. I 810 00:43:44,600 --> 00:43:47,960 Speaker 1: think that Jobs Report LESA was highlighting consensus expectations are 811 00:43:47,960 --> 00:43:51,239 Speaker 1: expectations around three hundred thousand. I'm not sure that that's 812 00:43:51,320 --> 00:43:53,040 Speaker 1: enough of us slowing to really say that we have 813 00:43:53,120 --> 00:43:57,680 Speaker 1: this under control. We're looking right now at at Nazak, 814 00:43:57,800 --> 00:44:00,600 Speaker 1: at the slower by one nine percent sage reaction with 815 00:44:00,640 --> 00:44:03,560 Speaker 1: somewhat tepid and now it has accelerated in terms of 816 00:44:03,600 --> 00:44:06,879 Speaker 1: the decline. How have we really fully assessed what fed 817 00:44:06,920 --> 00:44:09,520 Speaker 1: share Powell was saying in the bond markets with the 818 00:44:09,560 --> 00:44:12,080 Speaker 1: front end going to three point four two, given it 819 00:44:12,080 --> 00:44:14,319 Speaker 1: in your view, we could get somewhat higher than that 820 00:44:14,640 --> 00:44:17,680 Speaker 1: in the next year or so. I think it does 821 00:44:17,760 --> 00:44:19,839 Speaker 1: come back to the data, and I think markets need 822 00:44:19,880 --> 00:44:23,000 Speaker 1: to be convinced by the data. So we have FED 823 00:44:23,080 --> 00:44:26,040 Speaker 1: rhetoric now that's more clearly pointing in the direction of 824 00:44:26,160 --> 00:44:29,480 Speaker 1: further tightening of financial conditions. It was interesting also that 825 00:44:29,680 --> 00:44:33,279 Speaker 1: share Powell mentioned the June Summary of Economic Projections when 826 00:44:33,280 --> 00:44:35,359 Speaker 1: he talked about that in July. He said that's still 827 00:44:35,360 --> 00:44:37,640 Speaker 1: a pretty good baseline for where policy is going to 828 00:44:37,719 --> 00:44:41,399 Speaker 1: play out um with interest rates, And what he said 829 00:44:41,440 --> 00:44:45,360 Speaker 1: in this speech was we're going to update those expectations 830 00:44:45,400 --> 00:44:48,759 Speaker 1: those projections at the September eform CE, so clearly keeping 831 00:44:48,760 --> 00:44:52,480 Speaker 1: the door open here for more hawkish policy orientation. It 832 00:44:52,480 --> 00:44:53,880 Speaker 1: will come down to the data, and I think the 833 00:44:53,920 --> 00:44:56,719 Speaker 1: interpretation of the data. So we saw core inflation that 834 00:44:56,840 --> 00:44:59,959 Speaker 1: slow in July, maybe going to get a weaker saw 835 00:45:00,000 --> 00:45:02,799 Speaker 1: after core inflation reading again in August, looking through to 836 00:45:02,840 --> 00:45:05,359 Speaker 1: the underlying strength and still looks like there's a lot 837 00:45:05,360 --> 00:45:08,240 Speaker 1: of underlying inflationary pressure that's gonna be hard to get down. 838 00:45:08,920 --> 00:45:12,040 Speaker 1: Powell mentioned the view around inflation hadn't really changed after 839 00:45:12,040 --> 00:45:14,880 Speaker 1: that July print, but that's where is the inflation data go. 840 00:45:15,320 --> 00:45:19,280 Speaker 1: That's gonna determine the FED goes in the market. Andrew, 841 00:45:19,320 --> 00:45:22,640 Speaker 1: one final question. If we get to sustain average two 842 00:45:23,320 --> 00:45:26,200 Speaker 1: thousand nine farm perils, what does that do to the 843 00:45:26,200 --> 00:45:30,880 Speaker 1: holland Or's call. I think it really leaves our call intact. 844 00:45:31,040 --> 00:45:33,360 Speaker 1: Our call is that the BED will get rates to 845 00:45:33,440 --> 00:45:37,399 Speaker 1: four percent, probably this year, move beyond that next year. 846 00:45:37,480 --> 00:45:39,160 Speaker 1: And I think what that kind of a number would 847 00:45:39,160 --> 00:45:41,879 Speaker 1: be telling you is that the job market is still 848 00:45:41,920 --> 00:45:44,759 Speaker 1: creating jobs at a pace that is pushing the unemployment 849 00:45:44,880 --> 00:45:47,640 Speaker 1: rate lower. And we know the unemployment rate is currently 850 00:45:47,680 --> 00:45:51,000 Speaker 1: at a level that's generating excess wage pressure. I think 851 00:45:51,000 --> 00:45:53,080 Speaker 1: we heard from share Powell and maybe even more clearly 852 00:45:53,280 --> 00:45:55,960 Speaker 1: from Atlanta Fed President Boston, who you had on earlier, 853 00:45:56,160 --> 00:45:59,239 Speaker 1: that even as the job market slows, this is a 854 00:45:59,280 --> 00:46:01,480 Speaker 1: FED that's gonna lead of rates higher. And then in 855 00:46:01,520 --> 00:46:04,120 Speaker 1: fact they're looking for that slow down in the job 856 00:46:04,160 --> 00:46:06,720 Speaker 1: market because that's where there's a supply demand in balance. 857 00:46:06,880 --> 00:46:09,239 Speaker 1: And unfortunately that's something that the economy has to go 858 00:46:09,320 --> 00:46:12,880 Speaker 1: through now to bring inflation down. Andrew Hollen host with 859 00:46:13,040 --> 00:46:14,839 Speaker 1: a big coal for some big hikes still to come 860 00:46:14,880 --> 00:46:18,040 Speaker 1: from this Federal Reserve of City. Andrey, thanks Obama this tonight. 861 00:46:18,200 --> 00:46:21,960 Speaker 1: This is the Bloomberg surveillance podcast. Thanks for listening. Join 862 00:46:22,080 --> 00:46:25,400 Speaker 1: us live weekdays from seven to ten am Eastern on 863 00:46:25,520 --> 00:46:29,760 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 864 00:46:29,880 --> 00:46:34,719 Speaker 1: to nine am for insight from the best in economics, finance, investment, 865 00:46:34,880 --> 00:46:39,880 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 866 00:46:40,000 --> 00:46:43,800 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 867 00:46:43,920 --> 00:46:48,040 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg