1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along

2
00:00:09,240 --> 00:00:13,200
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jayleie. We bring you

3
00:00:13,320 --> 00:00:18,640
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,960 --> 00:00:23,840
Speaker 1: Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg dot Com,

5
00:00:23,920 --> 00:00:29,360
Speaker 1: and of course on the Bloomberg Terminal. Joining us now

6
00:00:29,440 --> 00:00:33,000
Speaker 1: is Gaki Choundery, head of Ice Shares America's investment strategy

7
00:00:33,159 --> 00:00:35,440
Speaker 1: at black Rock. Great to catch up with you again.

8
00:00:35,680 --> 00:00:38,880
Speaker 1: Let's just start with CPI, What you're looking for tomorrow

9
00:00:39,120 --> 00:00:43,080
Speaker 1: and how you expect this market to respond to it. Hey,

10
00:00:43,120 --> 00:00:46,240
Speaker 1: good morning, Great to be here. So very exciting days

11
00:00:46,280 --> 00:00:48,360
Speaker 1: for those of us who look at the inflation markets,

12
00:00:48,400 --> 00:00:51,480
Speaker 1: which is everyone these days. Um So, I think we're

13
00:00:51,600 --> 00:00:54,400
Speaker 1: probably going to get something that's a little bit stronger

14
00:00:54,440 --> 00:00:56,400
Speaker 1: at least than what the market is pricing in on

15
00:00:56,480 --> 00:00:59,279
Speaker 1: both the core and the headline. And when I think

16
00:00:59,320 --> 00:01:01,520
Speaker 1: about the core or data, I think what will be

17
00:01:01,560 --> 00:01:04,960
Speaker 1: important for us to look at is the breadth of

18
00:01:05,000 --> 00:01:08,240
Speaker 1: the strength. Um So, thinking back to sort of the summer,

19
00:01:08,400 --> 00:01:11,600
Speaker 1: you'll remember that most of the strength and cp I

20
00:01:11,720 --> 00:01:15,119
Speaker 1: was coming from those reopening sectors. So whether you think

21
00:01:15,120 --> 00:01:17,800
Speaker 1: about travel or f as or hotels, things like that.

22
00:01:18,160 --> 00:01:20,240
Speaker 1: And I think what we saw in the October data

23
00:01:20,319 --> 00:01:23,319
Speaker 1: more specifically, was that there was a little bit of

24
00:01:23,360 --> 00:01:26,360
Speaker 1: a breath broadening out, so we were seeing strengthen both

25
00:01:26,400 --> 00:01:30,280
Speaker 1: goods and services inflation. So I am looking forward to

26
00:01:30,319 --> 00:01:32,840
Speaker 1: seeing more of that, more of strength and some of

27
00:01:32,880 --> 00:01:36,880
Speaker 1: the goods parts of the market as well as services

28
00:01:36,920 --> 00:01:40,559
Speaker 1: such as shelter inflation. Where is the opportunity for investors, Gary,

29
00:01:40,640 --> 00:01:42,640
Speaker 1: given the fact that we've seen inflation rise to the

30
00:01:42,680 --> 00:01:45,680
Speaker 1: fastest pace since the nineteen eighties, likely to continue in

31
00:01:45,720 --> 00:01:48,560
Speaker 1: that vein with likely pressure then coming from the Fed

32
00:01:48,640 --> 00:01:52,440
Speaker 1: next year. Yes, absolutely, so I would say a couple

33
00:01:52,480 --> 00:01:55,560
Speaker 1: of things here. We do think that inflation, you know,

34
00:01:55,600 --> 00:01:57,720
Speaker 1: if you look about a year ahead from now, so

35
00:01:57,760 --> 00:01:59,400
Speaker 1: obviously we're going to see a pick up in the

36
00:01:59,480 --> 00:02:02,560
Speaker 1: near town, but after that we're likely to moderate. But

37
00:02:02,640 --> 00:02:05,240
Speaker 1: I think what it's important to note is we're still

38
00:02:05,280 --> 00:02:07,960
Speaker 1: going to settle at a level that is higher than

39
00:02:08,000 --> 00:02:10,680
Speaker 1: the pre pandemic period, which was obviously, as we know,

40
00:02:10,800 --> 00:02:12,920
Speaker 1: below two percent. So we're going to settle at that

41
00:02:13,080 --> 00:02:16,440
Speaker 1: higher level of inflation, and investors need to think about

42
00:02:16,520 --> 00:02:20,560
Speaker 1: hedging their portfolios in a multi asset fashion. So obviously

43
00:02:20,680 --> 00:02:23,320
Speaker 1: looking at equities of those companies what we call the

44
00:02:23,400 --> 00:02:27,519
Speaker 1: quality companies that are able to pass on higher prices

45
00:02:27,600 --> 00:02:30,720
Speaker 1: to their cast, you know, pass on the higher prices.

46
00:02:31,280 --> 00:02:34,960
Speaker 1: Within the bond markets, obviously, you know expectations are our

47
00:02:35,040 --> 00:02:37,960
Speaker 1: expectations are for yields to go higher. But at the

48
00:02:38,000 --> 00:02:41,799
Speaker 1: same time, sort of moving your allocations to inflation link

49
00:02:41,880 --> 00:02:45,080
Speaker 1: bonds I think could make sense. We've certainly seen a

50
00:02:45,160 --> 00:02:47,560
Speaker 1: huge amount of flow both into T I P and

51
00:02:47,760 --> 00:02:49,600
Speaker 1: S t I P, which are the two E t

52
00:02:49,720 --> 00:02:52,639
Speaker 1: F tak us. Twenty of the fixed income E t

53
00:02:52,800 --> 00:02:55,160
Speaker 1: F flows this year have come into inflation link bonds

54
00:02:55,160 --> 00:02:58,079
Speaker 1: and I expect that to continue to do well as

55
00:02:58,120 --> 00:03:01,280
Speaker 1: compared to nominal bonds. And in the last area, I

56
00:03:01,320 --> 00:03:04,000
Speaker 1: think that makes sense. It's really looking at real assets,

57
00:03:04,280 --> 00:03:07,520
Speaker 1: so you should be looking at a basket of diversified commodities,

58
00:03:07,520 --> 00:03:10,880
Speaker 1: looking at reads UH and looking at infrastructure. I think

59
00:03:10,919 --> 00:03:14,160
Speaker 1: all of those makes sense for an investor to think

60
00:03:14,160 --> 00:03:16,840
Speaker 1: about in a regime of higher inflation than the pre

61
00:03:16,919 --> 00:03:19,440
Speaker 1: pandemic one. Gargi, it's fantastic to speak with you, in

62
00:03:19,520 --> 00:03:21,560
Speaker 1: part because you've got a bird's eye view for the

63
00:03:21,600 --> 00:03:25,560
Speaker 1: retail and the institutional investors. Have you felt a big

64
00:03:25,600 --> 00:03:29,600
Speaker 1: divergence between the two heading into year end as retail

65
00:03:29,639 --> 00:03:33,920
Speaker 1: investors see the inflation concerns and a longer term nature

66
00:03:34,080 --> 00:03:36,640
Speaker 1: of them potentially as being more of a threat in

67
00:03:36,680 --> 00:03:40,600
Speaker 1: the institutions that seem relatively sanguine or even optimistic in

68
00:03:40,640 --> 00:03:45,440
Speaker 1: their outlooks um, I don't think it's a retail versus

69
00:03:45,480 --> 00:03:50,920
Speaker 1: institutional bifurcation. I think there are investors that brought into

70
00:03:50,960 --> 00:03:54,760
Speaker 1: that really did buy into that transitory story. I know

71
00:03:54,840 --> 00:03:57,440
Speaker 1: we don't say that word anymore, it's been retired, but

72
00:03:57,520 --> 00:04:00,480
Speaker 1: there were investors that did buy into that story, and

73
00:04:00,520 --> 00:04:03,200
Speaker 1: they could have been from the wealth community as well

74
00:04:03,240 --> 00:04:06,320
Speaker 1: as the institutional community. I think more and more we're

75
00:04:06,360 --> 00:04:10,240
Speaker 1: gravitating towards the space where investors are asking me, and

76
00:04:10,280 --> 00:04:13,480
Speaker 1: I'm sure many other strategies and portfolio managers across Wall Street,

77
00:04:13,520 --> 00:04:16,640
Speaker 1: around what is the best inflation head? You know, we've

78
00:04:16,680 --> 00:04:20,240
Speaker 1: written papers and we're coming out with our year ahead outlook,

79
00:04:20,279 --> 00:04:22,760
Speaker 1: and this is something that we're focusing on because this

80
00:04:22,839 --> 00:04:25,200
Speaker 1: is what our clients are asking us. So I think

81
00:04:25,240 --> 00:04:28,360
Speaker 1: the story has changed from what do I need to

82
00:04:28,400 --> 00:04:30,839
Speaker 1: do to insulate my portfolio for the next two or

83
00:04:30,880 --> 00:04:33,760
Speaker 1: three months to very much a belief now that this

84
00:04:33,839 --> 00:04:36,800
Speaker 1: is probably with us for a slightly longer period of time,

85
00:04:37,080 --> 00:04:39,560
Speaker 1: and how should I play for it in that medium

86
00:04:39,680 --> 00:04:42,719
Speaker 1: term period. And Gargy speaking of the two outlook, we've

87
00:04:42,720 --> 00:04:45,039
Speaker 1: talked a lot already this morning about the divergence in

88
00:04:45,200 --> 00:04:47,840
Speaker 1: the headline level where we think the SMB five were

89
00:04:47,839 --> 00:04:50,560
Speaker 1: strategists think it will end up at the surface level

90
00:04:50,600 --> 00:04:53,719
Speaker 1: when you talk about the leadership beneath. It was supposed

91
00:04:53,720 --> 00:04:56,039
Speaker 1: to be value over growth, small caps over large that

92
00:04:56,120 --> 00:05:00,120
Speaker 1: actually didn't really happen. Does that actually happen in you

93
00:05:02,120 --> 00:05:04,120
Speaker 1: we'll see, I mean, listen, there there are a lot

94
00:05:04,120 --> 00:05:06,080
Speaker 1: of reasons why it didn't happen. You know, we saw

95
00:05:06,120 --> 00:05:08,040
Speaker 1: that did take place in the beginning of the year,

96
00:05:08,080 --> 00:05:10,960
Speaker 1: and then you had the delta scare and again this year,

97
00:05:11,080 --> 00:05:13,719
Speaker 1: right when we were all getting pretty optimistic about the

98
00:05:13,760 --> 00:05:16,920
Speaker 1: growth prospect and you know we still are. You do

99
00:05:17,040 --> 00:05:20,159
Speaker 1: have this omicron fear that is in the markets. We

100
00:05:20,200 --> 00:05:23,000
Speaker 1: see that in the bond pricing right now. Um So

101
00:05:23,080 --> 00:05:26,479
Speaker 1: for next year, I think there is reason to believe that, yes,

102
00:05:26,560 --> 00:05:29,120
Speaker 1: we can see some of those cyclical components of the

103
00:05:29,160 --> 00:05:31,719
Speaker 1: economy do better. But we have to be a little

104
00:05:31,720 --> 00:05:35,000
Speaker 1: bit humble around some of the risks that have come

105
00:05:35,080 --> 00:05:37,839
Speaker 1: up more recently, whether it is with the Federal Reserve,

106
00:05:37,880 --> 00:05:40,520
Speaker 1: whether it's with the new variant. UM. So what we're

107
00:05:40,520 --> 00:05:43,839
Speaker 1: telling investors to do is really focus on a value

108
00:05:44,000 --> 00:05:46,680
Speaker 1: and a quality barbell and then really look at some

109
00:05:46,760 --> 00:05:50,200
Speaker 1: of those companies that have that pricing power, that ability

110
00:05:50,240 --> 00:05:53,400
Speaker 1: to pass on higher prices and um. You know, that's

111
00:05:53,440 --> 00:05:57,120
Speaker 1: what we think investors should do for just awesome and

112
00:05:57,200 --> 00:05:59,360
Speaker 1: so always and could hear from your county chantry there

113
00:05:59,480 --> 00:06:07,480
Speaker 1: of plank Rock Market Banner. I wonder if he is

114
00:06:07,520 --> 00:06:10,800
Speaker 1: the head of Right Strategy Bank America Global Research. Mark

115
00:06:10,920 --> 00:06:13,159
Speaker 1: the front end the back end of the yeld curve.

116
00:06:13,279 --> 00:06:14,720
Speaker 1: Let's start with the back end and then we can

117
00:06:14,720 --> 00:06:17,440
Speaker 1: go to the front end. What is driving tens right now?

118
00:06:17,520 --> 00:06:21,280
Speaker 1: Mark why we down at one fifty? So tends are

119
00:06:21,279 --> 00:06:24,320
Speaker 1: believing that the Fed maybe making a policy error by

120
00:06:24,440 --> 00:06:29,680
Speaker 1: essentially overweighting a fight against inflation versus supporting growth. UM.

121
00:06:29,800 --> 00:06:32,920
Speaker 1: They're doing that because there's concerns about the omicron variant

122
00:06:33,000 --> 00:06:35,400
Speaker 1: and the recent uptake in cases that we have seen.

123
00:06:35,640 --> 00:06:37,560
Speaker 1: They're doing that because they're worried that the FED is

124
00:06:37,560 --> 00:06:41,920
Speaker 1: going to be tightening into supply constrained inflation and reduction

125
00:06:41,920 --> 00:06:45,320
Speaker 1: of consumer purchasing power. And they're doing it because they're

126
00:06:45,320 --> 00:06:48,279
Speaker 1: worried that risk assets may be very sensitive to overall

127
00:06:48,360 --> 00:06:51,800
Speaker 1: rate levels in the stance of policy. So that's what's

128
00:06:51,839 --> 00:06:54,760
Speaker 1: keeping the back end relatively pinned. It's what's keeping it

129
00:06:54,760 --> 00:06:57,960
Speaker 1: around one and a half percent right now. Um, But

130
00:06:58,320 --> 00:07:00,880
Speaker 1: it's what's allowing the curve to flatten because the market

131
00:07:00,880 --> 00:07:02,840
Speaker 1: has gotten the message from the FED and they know

132
00:07:02,920 --> 00:07:04,320
Speaker 1: that the FED is going to be tightening in the

133
00:07:04,360 --> 00:07:06,520
Speaker 1: not too distant future. This is a reason why I

134
00:07:06,560 --> 00:07:09,040
Speaker 1: love covering this market. It's enough to make your head spin.

135
00:07:09,120 --> 00:07:11,600
Speaker 1: The idea that at a certain point the FED might

136
00:07:11,640 --> 00:07:13,320
Speaker 1: get a message from the markets that are getting a

137
00:07:13,320 --> 00:07:15,440
Speaker 1: message from the Federal Reserve and say, well, they think

138
00:07:15,480 --> 00:07:17,600
Speaker 1: that we're making a policy error. Perhaps will tap the

139
00:07:17,600 --> 00:07:20,560
Speaker 1: brakes not raise rates as much. At what point does

140
00:07:20,560 --> 00:07:23,480
Speaker 1: a yield curve flattening send that message to the Federal Reserve?

141
00:07:24,440 --> 00:07:27,680
Speaker 1: So I think that the FED is probably not too

142
00:07:27,760 --> 00:07:30,440
Speaker 1: happy about the shape of the curve, given where they

143
00:07:30,440 --> 00:07:33,680
Speaker 1: are in their hiking cycle. They're just about to start

144
00:07:34,240 --> 00:07:36,720
Speaker 1: and they know that the market is telling them that

145
00:07:36,920 --> 00:07:39,120
Speaker 1: they may not be able to hike by all that much.

146
00:07:39,200 --> 00:07:41,680
Speaker 1: That's not a real warm and fuzzy signal if you're

147
00:07:41,720 --> 00:07:45,440
Speaker 1: at the Fed. But that's not your issue right now.

148
00:07:45,480 --> 00:07:49,120
Speaker 1: Your issue is that you need to guard against elevated inflation.

149
00:07:49,480 --> 00:07:52,000
Speaker 1: You need to start leaning against demand, and need to

150
00:07:52,000 --> 00:07:55,160
Speaker 1: start doing that by tightening financial conditions. That's how the

151
00:07:55,160 --> 00:07:58,400
Speaker 1: FED transmits monetary policy. And so even though it's not

152
00:07:58,440 --> 00:08:00,400
Speaker 1: a great signal for the Fed, I don't think it's

153
00:08:00,400 --> 00:08:03,320
Speaker 1: going to prevent them from taking the necessary action and

154
00:08:03,360 --> 00:08:06,840
Speaker 1: beginning to withdraw a monetary policy accommodation. Well, the action

155
00:08:06,880 --> 00:08:08,720
Speaker 1: that will be taking in the most immediate term may

156
00:08:08,760 --> 00:08:11,000
Speaker 1: come on Wednesday, and of course we have the cp

157
00:08:11,080 --> 00:08:13,640
Speaker 1: I print tomorrow mark or either of those events actually

158
00:08:13,680 --> 00:08:16,520
Speaker 1: going to be catalyst for the bond market or is

159
00:08:16,640 --> 00:08:18,920
Speaker 1: all of that already priced in and the market already

160
00:08:18,920 --> 00:08:23,240
Speaker 1: front rent both of those events. So the market certainly

161
00:08:23,240 --> 00:08:27,000
Speaker 1: expecting elevated inflation tomorrow. Our economists who have had a

162
00:08:27,040 --> 00:08:30,280
Speaker 1: great call on this are projecting, though, that CPI is

163
00:08:30,320 --> 00:08:33,920
Speaker 1: going to realize even higher than expected. Uh. They project

164
00:08:34,280 --> 00:08:36,680
Speaker 1: a reading that's going to be two tents above consensus

165
00:08:36,679 --> 00:08:39,520
Speaker 1: on headline at one tenth above consensus on four. So

166
00:08:39,720 --> 00:08:43,400
Speaker 1: that's gonna be Probably it's gonna further this flattening dynamic

167
00:08:43,440 --> 00:08:45,880
Speaker 1: that we're seeing in the market, or it's gonna firm, uh,

168
00:08:45,920 --> 00:08:49,400
Speaker 1: the amount of rate hikes that are expected for next year. Now,

169
00:08:49,480 --> 00:08:52,600
Speaker 1: the meeting next week, we think will confirm some things

170
00:08:52,600 --> 00:08:55,600
Speaker 1: that are likely widely expected now by the market, such

171
00:08:55,600 --> 00:08:59,400
Speaker 1: as a more accelerated pace of taper, essentially doubling the

172
00:08:59,480 --> 00:09:03,360
Speaker 1: monthly just reduction and then ending purchases by the time

173
00:09:03,360 --> 00:09:05,560
Speaker 1: of the March fo MC meeting, which may give the

174
00:09:05,559 --> 00:09:07,440
Speaker 1: Fed there will give the Fed the option to hike

175
00:09:07,760 --> 00:09:10,000
Speaker 1: if they want. Um. It's also going to give us

176
00:09:10,040 --> 00:09:13,520
Speaker 1: an updated reading on the dot plot UM And certainly

177
00:09:13,800 --> 00:09:17,199
Speaker 1: we're sympathetic to former New York Fed President Dudley's views

178
00:09:17,400 --> 00:09:20,440
Speaker 1: that we're probably gonna see more hikes that get priced

179
00:09:21,000 --> 00:09:25,079
Speaker 1: two maybe three for next year. But the thing that

180
00:09:25,160 --> 00:09:28,800
Speaker 1: could surprise the market that we sense is still underappreciated

181
00:09:28,840 --> 00:09:32,120
Speaker 1: by clients is a discussion of the Fed's balance sheet.

182
00:09:32,160 --> 00:09:36,079
Speaker 1: At least you mentioned this earlier. The Fed maybe gearing

183
00:09:36,160 --> 00:09:40,160
Speaker 1: up for quantitative tightening. They haven't given us much guidance yet.

184
00:09:40,440 --> 00:09:42,800
Speaker 1: But if they start to shrink the balance sheet at

185
00:09:42,840 --> 00:09:46,120
Speaker 1: some point next year, that we think could really weigh

186
00:09:46,200 --> 00:09:49,800
Speaker 1: against risk assets, because it's going to be adding duration

187
00:09:49,880 --> 00:09:52,560
Speaker 1: risk to the market. It will be adding more term

188
00:09:52,600 --> 00:09:56,280
Speaker 1: premium that will lean against the flattening pressures slightly. But

189
00:09:56,400 --> 00:09:59,760
Speaker 1: most importantly, it's going to be withdrawing liquidity out of

190
00:10:00,000 --> 00:10:03,080
Speaker 1: markets um and the extent to which Powell elaborates on

191
00:10:03,120 --> 00:10:06,600
Speaker 1: this or provides hints in that direction may end up

192
00:10:06,600 --> 00:10:08,880
Speaker 1: being the big surprise for the meeting next week. Mark

193
00:10:08,960 --> 00:10:11,800
Speaker 1: just quickly, just in terms of sequencing, then, do you

194
00:10:11,840 --> 00:10:14,560
Speaker 1: think that needs to happen before we get that right?

195
00:10:14,640 --> 00:10:16,600
Speaker 1: High can just that change your view on when they

196
00:10:16,640 --> 00:10:19,800
Speaker 1: make a move Now, we think that the sequencing will

197
00:10:19,800 --> 00:10:23,320
Speaker 1: be as they have historically done, rate hikes before balance

198
00:10:23,360 --> 00:10:27,160
Speaker 1: sheet reduction, or perhaps rate hikes with balance sheet reduction.

199
00:10:27,200 --> 00:10:29,600
Speaker 1: At the same time, we don't think it's likely that

200
00:10:29,640 --> 00:10:34,080
Speaker 1: they begin balance sheet reduction before rate hikes, primarily because

201
00:10:34,360 --> 00:10:38,400
Speaker 1: the Fed has a much better understanding of how rate

202
00:10:38,480 --> 00:10:41,680
Speaker 1: hikes or increases in the Federal funds rate end up

203
00:10:41,800 --> 00:10:45,520
Speaker 1: impacting the real economy. They've done this for years. They've

204
00:10:45,559 --> 00:10:48,280
Speaker 1: got good models, they give them confidence and how it works,

205
00:10:48,640 --> 00:10:51,520
Speaker 1: but they're less confidences. Less confident in is how the

206
00:10:51,559 --> 00:10:57,920
Speaker 1: balance sheet actually influences underlying economic conditions. That said, Powell

207
00:10:57,960 --> 00:11:00,640
Speaker 1: has told us all along that they have multiple tools

208
00:11:01,120 --> 00:11:03,800
Speaker 1: with the emphasis on the plural here to deal with

209
00:11:03,840 --> 00:11:06,720
Speaker 1: elevated inflation, and the two of the obvious tools to

210
00:11:06,840 --> 00:11:09,520
Speaker 1: us are rate hikes and bounty reduction. That means that

211
00:11:09,559 --> 00:11:13,040
Speaker 1: bounty reduction could potentially be pulled forward. Gets you thinking, Mark,

212
00:11:13,240 --> 00:11:16,200
Speaker 1: just wonderful, brilliant. Thank you, sir, Mark o'banna of Bank

213
00:11:16,200 --> 00:11:23,920
Speaker 1: America Global Research jointing us now is planned Herbert Columbia

214
00:11:24,000 --> 00:11:27,040
Speaker 1: Professor of economics and former chairman of the Council of

215
00:11:27,120 --> 00:11:29,840
Speaker 1: Economic Advisors. Professor, You've also got a book coming out

216
00:11:29,840 --> 00:11:32,000
Speaker 1: at twenty two called The Wall and the Bridge. We

217
00:11:32,040 --> 00:11:34,000
Speaker 1: can discuss that little bit later. I just want your

218
00:11:34,040 --> 00:11:37,240
Speaker 1: response to your read how you gauge this labor market

219
00:11:37,320 --> 00:11:40,959
Speaker 1: right now in America? Well, I think the labor market

220
00:11:41,640 --> 00:11:45,400
Speaker 1: is improving and is in frankly fairly good shape even

221
00:11:45,400 --> 00:11:48,680
Speaker 1: from a FED perspective. The question is what about the

222
00:11:48,720 --> 00:11:52,320
Speaker 1: participation rate? If everything else looks good in terms of

223
00:11:52,360 --> 00:11:57,080
Speaker 1: employment and monetary policy, bring back that participation rate. I'm

224
00:11:57,120 --> 00:11:59,760
Speaker 1: skeptical there. I think the labor market is in great

225
00:12:00,040 --> 00:12:03,600
Speaker 1: a bit is time for the FED to adjust. It's

226
00:12:03,600 --> 00:12:05,200
Speaker 1: time for the FED to adjust. This is a message

227
00:12:05,240 --> 00:12:07,280
Speaker 1: that you've sent before, and you're not alone in this,

228
00:12:07,400 --> 00:12:10,280
Speaker 1: especially with the likes of Bill Dudley, formerly of the

229
00:12:10,320 --> 00:12:13,240
Speaker 1: New York FED saying the same thing. At what point

230
00:12:13,280 --> 00:12:15,480
Speaker 1: do we start to see it reflected in wages that

231
00:12:15,520 --> 00:12:18,640
Speaker 1: are keeping up with the inflation that we're seeing consumer prices.

232
00:12:19,760 --> 00:12:21,679
Speaker 1: I think that won't happen very soon, and I think

233
00:12:21,679 --> 00:12:25,079
Speaker 1: in some respects it is already happening. We have demand

234
00:12:25,160 --> 00:12:27,560
Speaker 1: running faster than supply. There are a lot of supply

235
00:12:27,679 --> 00:12:30,640
Speaker 1: problems in the economy, but FED can't really fix those.

236
00:12:31,080 --> 00:12:33,679
Speaker 1: I FED had been focused on the word transitory. Now

237
00:12:33,840 --> 00:12:38,000
Speaker 1: fortunately it's backed away from from that definition. The game,

238
00:12:38,080 --> 00:12:41,160
Speaker 1: of course, is to stop a wage spiral from starting.

239
00:12:41,200 --> 00:12:43,120
Speaker 1: I think there is an opportunity for the FED to

240
00:12:43,160 --> 00:12:46,320
Speaker 1: do that, but the pivot to tapering and rate hikes

241
00:12:46,400 --> 00:12:48,280
Speaker 1: will have to be more aggressive than the FED and

242
00:12:48,400 --> 00:12:51,600
Speaker 1: telegraphed before. What do you say to people who argue

243
00:12:51,760 --> 00:12:54,520
Speaker 1: that inflation will naturally roll over next year, that some

244
00:12:54,559 --> 00:12:57,800
Speaker 1: of these pressures will become less of a pressure as

245
00:12:57,840 --> 00:13:00,400
Speaker 1: we get a more normal economy and people come back

246
00:13:00,440 --> 00:13:03,160
Speaker 1: to work in more for some of those eleven million

247
00:13:03,200 --> 00:13:06,079
Speaker 1: job openings get filled. What do you say, given the

248
00:13:06,120 --> 00:13:08,040
Speaker 1: fact that that has been the regime we have been

249
00:13:08,040 --> 00:13:13,199
Speaker 1: in for decades. Well, we certainly will see supply pressures attenuate.

250
00:13:13,320 --> 00:13:15,920
Speaker 1: That will help, But let's remember there's been a lot

251
00:13:15,960 --> 00:13:19,000
Speaker 1: of goose sing of demand. FED had been buying back

252
00:13:19,040 --> 00:13:21,559
Speaker 1: mortgage backed securities when the housing market was on fire.

253
00:13:21,679 --> 00:13:25,520
Speaker 1: We've been very accommodated fiscal and monetary policy, so those

254
00:13:25,600 --> 00:13:27,719
Speaker 1: really have to adjust. I don't think we can think

255
00:13:27,760 --> 00:13:30,080
Speaker 1: it's just going to roll back on its own. You know,

256
00:13:30,160 --> 00:13:34,480
Speaker 1: consensus for PC next year will be about three c

257
00:13:34,679 --> 00:13:38,840
Speaker 1: p I, more than four. The FED really has overshot

258
00:13:38,920 --> 00:13:41,800
Speaker 1: in the manner it's suggested in its new framework. It's

259
00:13:41,800 --> 00:13:45,000
Speaker 1: still time to adjumpt. Well, glad you mentioned fiscal policy there,

260
00:13:45,000 --> 00:13:47,679
Speaker 1: and Michael McKee when talking about these jobless claims, the

261
00:13:47,720 --> 00:13:49,839
Speaker 1: idea that maybe people went back into the labor market

262
00:13:49,840 --> 00:13:52,240
Speaker 1: as they've had to start drawing down their savings that

263
00:13:52,280 --> 00:13:54,240
Speaker 1: they built up over the course of the pandemic things

264
00:13:54,240 --> 00:13:57,120
Speaker 1: in part to fiscal policy. What do you think happens

265
00:13:57,600 --> 00:14:00,360
Speaker 1: as that winds down, and what happens especially to can humors,

266
00:14:00,400 --> 00:14:04,040
Speaker 1: tolerance of some of the higher prices that they're facing. Well,

267
00:14:04,040 --> 00:14:07,000
Speaker 1: I think we will start to see people re entering

268
00:14:07,040 --> 00:14:09,160
Speaker 1: the labor force, but there's still a lot of excess

269
00:14:09,160 --> 00:14:12,920
Speaker 1: savings out there, albeit there unevenly distributed in the in

270
00:14:12,960 --> 00:14:17,160
Speaker 1: the population. I think a bigger issue may be consumers

271
00:14:17,200 --> 00:14:21,080
Speaker 1: and households workers fears of going back to work, and

272
00:14:21,120 --> 00:14:23,320
Speaker 1: I think that will have to sort its out out

273
00:14:23,360 --> 00:14:26,360
Speaker 1: with the vaccine more than with physical calls. Well, and

274
00:14:26,400 --> 00:14:28,840
Speaker 1: we're seeing return to office plans push back for some

275
00:14:28,920 --> 00:14:31,880
Speaker 1: Wall Street banks for the likes of Lift. What is

276
00:14:31,920 --> 00:14:34,360
Speaker 1: the economic consequence? And John was alluding to this earlier,

277
00:14:34,400 --> 00:14:36,240
Speaker 1: the idea that if people aren't going into the office

278
00:14:36,240 --> 00:14:37,920
Speaker 1: in the cities, they're not going to visit their coffee

279
00:14:37,920 --> 00:14:42,040
Speaker 1: shops or their lunch places. Do you see a risk

280
00:14:42,120 --> 00:14:44,640
Speaker 1: of us reverting if we do go back to a

281
00:14:44,720 --> 00:14:47,640
Speaker 1: kind of work from home environment as we move forward

282
00:14:47,680 --> 00:14:50,960
Speaker 1: throughout the winter and into two Well, I think most

283
00:14:51,000 --> 00:14:54,920
Speaker 1: large employers want to avert that for simple reasons that

284
00:14:55,360 --> 00:14:59,520
Speaker 1: having people together can improve collaboration and productivity. But of

285
00:14:59,560 --> 00:15:01,320
Speaker 1: course the down us to be safe, and so the

286
00:15:01,400 --> 00:15:04,160
Speaker 1: real issue is to focus on the public health and

287
00:15:04,200 --> 00:15:07,480
Speaker 1: get people back to work for all the reasons you suggest.

288
00:15:07,760 --> 00:15:09,760
Speaker 1: Having said that, I don't think the new world will

289
00:15:09,800 --> 00:15:12,680
Speaker 1: look like yold. I think companies will have to adjust

290
00:15:12,800 --> 00:15:15,680
Speaker 1: and be more flexible to work from home, just not

291
00:15:15,800 --> 00:15:17,840
Speaker 1: as extreme as all the time. Glenn, can I make

292
00:15:17,840 --> 00:15:20,280
Speaker 1: a suggestion that those empty shafts behind you, we filled

293
00:15:20,280 --> 00:15:24,440
Speaker 1: them with your new book. We're moving to a new

294
00:15:24,520 --> 00:15:26,960
Speaker 1: campus in a week, so they've just packed up my office.

295
00:15:26,960 --> 00:15:30,880
Speaker 1: I'm not part of the great resignation. Just wanted to

296
00:15:30,920 --> 00:15:33,720
Speaker 1: try and find out, Glenn. As this book release comes

297
00:15:33,720 --> 00:15:35,760
Speaker 1: out early next year, can you walk us through it? Glenn?

298
00:15:35,760 --> 00:15:38,560
Speaker 1: What's in the book? What's the objective? What's the essencelf

299
00:15:38,600 --> 00:15:41,280
Speaker 1: In Sure, it's a book called The Wall in the Branch.

300
00:15:41,400 --> 00:15:44,479
Speaker 1: It's a love letter to Adam Smith across the centuries,

301
00:15:44,760 --> 00:15:49,760
Speaker 1: uh founder of modern capitalism and economics. Basically, we're living

302
00:15:49,800 --> 00:15:52,720
Speaker 1: in a world a big change, and big change means

303
00:15:52,760 --> 00:15:55,600
Speaker 1: good things to a lot of people, but disruption for others.

304
00:15:56,160 --> 00:15:59,240
Speaker 1: Our policy makers on both sides have tended to try

305
00:15:59,280 --> 00:16:01,960
Speaker 1: to build walls on the left and the right to

306
00:16:02,000 --> 00:16:05,440
Speaker 1: protect people betters to go back to small and other

307
00:16:05,520 --> 00:16:07,720
Speaker 1: classical fingers. You wanted to build bridges. How do you

308
00:16:07,760 --> 00:16:11,400
Speaker 1: help people compete? How do you bring communities back? That's

309
00:16:11,400 --> 00:16:13,840
Speaker 1: what the books about, really really thoughtful stuff. And Glenn,

310
00:16:13,840 --> 00:16:16,520
Speaker 1: you're always generous with your time. We appreciate it. So Professor,

311
00:16:16,520 --> 00:16:25,480
Speaker 1: thank you, Glenn over there of Columbia, Dctor, thanks for

312
00:16:25,480 --> 00:16:28,800
Speaker 1: being with us. Dr Chris Bira, Professor the JOHNS. Halkins

313
00:16:28,840 --> 00:16:31,520
Speaker 1: Bloombergh School of Public Health, Dodger. I want to start

314
00:16:31,520 --> 00:16:33,880
Speaker 1: here because yesterday all we talked about was this lamb

315
00:16:33,920 --> 00:16:36,360
Speaker 1: based study from Fire to Beyond Tech. Can you help

316
00:16:36,480 --> 00:16:39,640
Speaker 1: us understand the difference between a lamp based study and

317
00:16:39,760 --> 00:16:42,920
Speaker 1: a real world study. How wide the gap is between

318
00:16:42,920 --> 00:16:46,920
Speaker 1: the two. Well, you know, the lab studies are very

319
00:16:46,960 --> 00:16:49,640
Speaker 1: informative and they're important, but at the end of the day,

320
00:16:49,640 --> 00:16:52,920
Speaker 1: what really matters is what the real world data looks like.

321
00:16:52,960 --> 00:16:58,000
Speaker 1: What we're seeing with infections, hospitalization, serious disease fisor study

322
00:16:58,280 --> 00:17:02,360
Speaker 1: UM was small, fewer than fifty people. It's lab based data.

323
00:17:02,560 --> 00:17:07,520
Speaker 1: It suggests good antibody responses to O macron with the

324
00:17:07,560 --> 00:17:11,640
Speaker 1: third dose boost in this small number of people UM.

325
00:17:11,640 --> 00:17:14,119
Speaker 1: But there's other data that we're more excited about, like

326
00:17:14,280 --> 00:17:17,119
Speaker 1: the fact that what we're seeing from South Africa is

327
00:17:17,160 --> 00:17:20,120
Speaker 1: that many of the people hospitalized with A macron are

328
00:17:20,200 --> 00:17:22,959
Speaker 1: on room air and don't appear to be as gravely

329
00:17:23,040 --> 00:17:26,240
Speaker 1: ill as people, for example, infective with delta. Dr Buyer.

330
00:17:26,320 --> 00:17:28,440
Speaker 1: I've been asking for a couple of months now, when

331
00:17:28,480 --> 00:17:32,160
Speaker 1: we can transfer from a pandemic to something endemic when

332
00:17:32,160 --> 00:17:35,880
Speaker 1: the illness is not severe enough, whether because of immunizations

333
00:17:36,040 --> 00:17:38,600
Speaker 1: or because of a variant, it isn't as severe to

334
00:17:38,680 --> 00:17:40,600
Speaker 1: allow us to treat it like the cold. Are we

335
00:17:40,600 --> 00:17:45,000
Speaker 1: getting close? Is O macron close to that threshold? Well? Unfortunately,

336
00:17:45,040 --> 00:17:47,240
Speaker 1: you know the world is in a serious delta search.

337
00:17:47,400 --> 00:17:50,360
Speaker 1: So I think right now the answer is no. Infections

338
00:17:50,359 --> 00:17:52,600
Speaker 1: are up in Europe as you know they're up here.

339
00:17:53,600 --> 00:17:57,600
Speaker 1: We are approaching eight hundred thousand American dead. We're going

340
00:17:57,640 --> 00:18:01,159
Speaker 1: to pass that threshold in a few days, is uh.

341
00:18:01,200 --> 00:18:05,359
Speaker 1: And we had a hundred eighteen thousand infections yesterday. Most

342
00:18:05,359 --> 00:18:08,000
Speaker 1: of that or almost all of it is delta. So

343
00:18:08,480 --> 00:18:11,200
Speaker 1: I think the answer so far is no. It does

344
00:18:11,240 --> 00:18:15,840
Speaker 1: appear that O macron is more transmissible even than delta.

345
00:18:16,160 --> 00:18:18,600
Speaker 1: And if it is really true, and we'll know that

346
00:18:18,640 --> 00:18:22,160
Speaker 1: in another week or two, that it's a milder disease. Uh,

347
00:18:22,400 --> 00:18:26,879
Speaker 1: that may be something of attorney, but for right now,

348
00:18:26,920 --> 00:18:28,879
Speaker 1: we're in the middle of a serious delta search. Can

349
00:18:28,920 --> 00:18:31,600
Speaker 1: you elaborate on that this idea that if it is

350
00:18:31,880 --> 00:18:34,680
Speaker 1: four or more times as transmissible as a delta variant,

351
00:18:34,760 --> 00:18:37,440
Speaker 1: is this one Japanese study showed and it is less

352
00:18:37,520 --> 00:18:40,160
Speaker 1: virulence that it could cause her immunity. And I hate

353
00:18:40,200 --> 00:18:42,000
Speaker 1: to use this when it's Tom Keene's birthday, but her

354
00:18:42,040 --> 00:18:45,639
Speaker 1: immunity in a more efficient way. How realistic is that

355
00:18:45,720 --> 00:18:48,280
Speaker 1: possibility among some of the health care professionals that you

356
00:18:48,320 --> 00:18:53,520
Speaker 1: speak with, well, I herd immunity has been elusive, unfortunately, Lisa.

357
00:18:53,600 --> 00:18:56,560
Speaker 1: And one of the reasons why is because one of

358
00:18:56,600 --> 00:18:59,639
Speaker 1: the things we've seen with O macron that's concerning is

359
00:18:59,680 --> 00:19:03,600
Speaker 1: that any of the people infected with omicron have recovered

360
00:19:03,640 --> 00:19:08,280
Speaker 1: from previous infections with coronavirus, So natural immunity does not

361
00:19:08,440 --> 00:19:12,119
Speaker 1: appear to be that protective. What we really need to see,

362
00:19:12,160 --> 00:19:17,040
Speaker 1: of course, is people getting their full immunization and then

363
00:19:17,200 --> 00:19:20,359
Speaker 1: now clearly needing to be boosted. If you look at

364
00:19:20,359 --> 00:19:24,000
Speaker 1: the total US population including children under five, we're only

365
00:19:24,040 --> 00:19:27,720
Speaker 1: at six percent fully immunized, So that is not enough

366
00:19:27,800 --> 00:19:31,040
Speaker 1: to achieve herd immunity in this country for sure. When

367
00:19:31,040 --> 00:19:33,040
Speaker 1: we look at the policy response to this in the

368
00:19:33,080 --> 00:19:36,200
Speaker 1: public sector in the UK, for example, where they're putting

369
00:19:36,200 --> 00:19:39,280
Speaker 1: in massive restrictions on the entire country, or the private

370
00:19:39,280 --> 00:19:41,200
Speaker 1: sector here in the U S where you have Jeffrey

371
00:19:41,240 --> 00:19:43,440
Speaker 1: saying work from home again, lift pushing their return to

372
00:19:43,480 --> 00:19:47,760
Speaker 1: office date out into what is the appropriate policy response

373
00:19:47,800 --> 00:19:52,120
Speaker 1: at this point in the pandemic, given how little we know, well,

374
00:19:52,600 --> 00:19:55,560
Speaker 1: I have to say that I think the vaccine mandates

375
00:19:55,640 --> 00:19:59,000
Speaker 1: are a very important part of this. And by the way,

376
00:19:59,240 --> 00:20:02,320
Speaker 1: as I've said four to you all, they are constitutional,

377
00:20:02,600 --> 00:20:05,360
Speaker 1: at least as far as the five case that went

378
00:20:05,400 --> 00:20:07,600
Speaker 1: to the Supreme Court in the case of the smallpox

379
00:20:07,680 --> 00:20:11,160
Speaker 1: vaccine mandate, and it was determined to be constitutional. So

380
00:20:11,200 --> 00:20:15,439
Speaker 1: I think the workplace employment mandate that President Biden has

381
00:20:15,480 --> 00:20:19,400
Speaker 1: put forward is a really important policy step. In the meantime,

382
00:20:19,640 --> 00:20:21,679
Speaker 1: we are in the middle of a delta surge. We

383
00:20:21,720 --> 00:20:24,200
Speaker 1: are seeing that related to the winter and the cold

384
00:20:24,280 --> 00:20:27,520
Speaker 1: weather and people going inside, and that means that non

385
00:20:27,640 --> 00:20:31,880
Speaker 1: vaccine interventions like indoor mask mandates and people working from

386
00:20:31,880 --> 00:20:35,960
Speaker 1: home are again going to be important. We know now

387
00:20:36,080 --> 00:20:39,080
Speaker 1: the O macron is here in fifty states. We're still

388
00:20:39,359 --> 00:20:42,840
Speaker 1: very carefully following this to see if indeed it's going

389
00:20:42,880 --> 00:20:45,679
Speaker 1: to be less virulent um. But of course in the

390
00:20:45,680 --> 00:20:49,159
Speaker 1: middle of a delta surge, we need to really practice

391
00:20:49,359 --> 00:20:52,840
Speaker 1: the basics of control of coronavirus. Dot gonna catch out

392
00:20:52,880 --> 00:20:55,400
Speaker 1: with you, sir, Dr Chris Biro that at John's helpines.

393
00:20:56,040 --> 00:20:59,800
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

394
00:20:59,880 --> 00:21:03,240
Speaker 1: us live weekdays from seven to ten am Eastern on

395
00:21:03,359 --> 00:21:07,600
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

396
00:21:07,720 --> 00:21:12,600
Speaker 1: to nine am for insight from the best in economics, finance, investment,

397
00:21:12,720 --> 00:21:17,720
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

398
00:21:17,840 --> 00:21:21,639
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

399
00:21:21,760 --> 00:21:25,919
Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg