WEBVTT - The Hiking Trip 0:00:03.720 --> 0:00:06.840 Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week, the 0:00:06.880 --> 0:00:09.760 median projection is five point two percent this year and 0:00:09.880 --> 0:00:12.080 false to two point six percent next year and two 0:00:12.160 --> 0:00:15.080 point two percent in two thousand twenty four. FED Jerry J. 0:00:15.200 --> 0:00:18.599 Powell on inflation forecasts after the f o MC decided 0:00:18.600 --> 0:00:21.440 on the biggest interest rate increase seventy five basis points 0:00:21.560 --> 0:00:24.520 in twenty seven years. John Author Is, Near Casar and 0:00:24.600 --> 0:00:28.760 Jonathan live In discuss later one in five Americans suffer 0:00:28.880 --> 0:00:32.320 from some form of long COVID Lisa Jarvis on persistent 0:00:32.400 --> 0:00:35.760 and widespread COVID nineteen. Let's get straight to the FED 0:00:35.800 --> 0:00:38.080 now with John Authors and Near case are. So, we 0:00:38.159 --> 0:00:40.640 had the Federal Reserve meeting, we had the decision, we 0:00:40.680 --> 0:00:42.800 had the news conference. We learned a lot, but also 0:00:42.840 --> 0:00:45.480 a lot of this was priced in. We effectively got 0:00:45.520 --> 0:00:50.280 this on Monday. Is that too harsh? No, I'm inclined 0:00:50.320 --> 0:00:54.639 to say that the FED probably handled an impossible situation 0:00:54.640 --> 0:00:56.840 about as well as it could be handled in terms 0:00:56.880 --> 0:01:00.680 of having a blackout, but obviously eating to make some 0:01:00.760 --> 0:01:04.040 kind of response to really seriously bad numbers that came out, 0:01:04.120 --> 0:01:06.319 and I think the way they did that which Ja 0:01:06.440 --> 0:01:10.880 Pou didn't really deny, was by guiding the press through 0:01:10.959 --> 0:01:13.000 what was likely to happen, and the market of course 0:01:13.040 --> 0:01:16.360 priced at all in yes, near the FED chair obviously 0:01:16.400 --> 0:01:19.000 said that the University of Michigan preliminary figures were a 0:01:19.160 --> 0:01:22.319 huge motivating factor here. He said, he's not going to 0:01:22.360 --> 0:01:24.880 see this too often from now on? Is that fantasy? 0:01:24.920 --> 0:01:27.800 Will we see numbers like this? You know, I wish 0:01:27.959 --> 0:01:30.679 we knew because it would make his job a lot easier, 0:01:30.720 --> 0:01:32.840 But I think that you know, as you say, as 0:01:32.920 --> 0:01:35.440 John had mentioned, the bigger news from all this is 0:01:35.520 --> 0:01:38.360 how much Powe was committed to fighting this. They added 0:01:38.360 --> 0:01:40.840 a statement in the release that says that they're strongly 0:01:40.840 --> 0:01:43.800 committed to returning inflation to their two percent target, and 0:01:43.800 --> 0:01:46.160 he reinforced that message in the presser and all this 0:01:46.240 --> 0:01:48.720 is really important because he of course is trying to 0:01:48.760 --> 0:01:51.120 get the market too self correct as it were, which 0:01:51.160 --> 0:01:53.480 they had done some of the work for him before today. 0:01:53.880 --> 0:01:57.919 The question was once these prints became really ugly, were 0:01:57.960 --> 0:02:00.440 they really going to act? And I think they did 0:02:00.480 --> 0:02:03.200 their best both indeed and and word to reassure the 0:02:03.240 --> 0:02:05.480 market that they're going to fight this all the way. 0:02:05.720 --> 0:02:08.080 I think that's right. It was as though j Pal 0:02:08.200 --> 0:02:11.080 had a binkie of the word commitment. I think he 0:02:11.200 --> 0:02:15.120 came back to saying they were committed to fighting inflation 0:02:15.480 --> 0:02:19.079 more or less every question he took in the press conference. 0:02:19.200 --> 0:02:22.359 There were some very unusual things about this particular press conference, though, 0:02:22.360 --> 0:02:25.560 For example, the idea that headline inflation is almost becoming 0:02:25.600 --> 0:02:28.000 more important at the moment than the PC deflator. I mean, 0:02:28.200 --> 0:02:30.440 is there any usefulness to the PC deflator these days? 0:02:30.600 --> 0:02:32.440 There's a lot of use if you're a central banker. 0:02:32.760 --> 0:02:36.080 A politician quite reasonably cares most about the headline, because 0:02:36.080 --> 0:02:40.359 the headline is what actually hurts people. You're calling politician that. 0:02:40.480 --> 0:02:43.600 There are lots of fascinating issues about exactly how politically 0:02:43.600 --> 0:02:48.000 independent a central bank needs to be. But he's obviously 0:02:48.240 --> 0:02:50.720 under pressure, as he should be, because we do want 0:02:50.760 --> 0:02:53.960 some degree of democratic accountability, even if we also want independence. 0:02:54.280 --> 0:02:56.520 He's obviously under a lot of pressure to deal with 0:02:57.000 --> 0:03:00.840 inflation at this point because it's so intense. Well, and 0:03:00.880 --> 0:03:03.680 as excuse near is and I'm quoting, forces are different. 0:03:03.720 --> 0:03:06.639 Inflation is behaving differently. The pandemic is over, though, and 0:03:06.760 --> 0:03:08.720 the war in Ukraine is a long term event, So 0:03:09.040 --> 0:03:11.400 figure that out. Well, I think this has gone on 0:03:11.480 --> 0:03:14.320 longer than anyone wants, and so obviously we can no 0:03:14.400 --> 0:03:17.200 longer call it transitory in any way. But I think 0:03:17.200 --> 0:03:20.239 there's another reason to worry about the headline inflation, which 0:03:20.240 --> 0:03:22.760 is that some of this is based on expectations, and 0:03:22.800 --> 0:03:26.040 the headline inflation is what people are really feeling. And 0:03:26.040 --> 0:03:28.519 to the except that people are really feeling the brunt 0:03:28.560 --> 0:03:30.880 of the headline inflation number and that is affecting their 0:03:30.919 --> 0:03:34.040 behavior and their expectations, then that's a problem for the FED. 0:03:34.240 --> 0:03:36.440 So I think they're in this moment where in a 0:03:36.480 --> 0:03:38.720 theoretical sense they'd like to focus on the PC, but 0:03:38.720 --> 0:03:41.000 as a practical matter, they have no choice. That's a 0:03:41.000 --> 0:03:42.560 great way of putting it. If you look at the 0:03:42.600 --> 0:03:46.800 retail sales numbers for this month, Basically, as a certain point, 0:03:47.040 --> 0:03:53.000 headline inflation becomes deflationary in terms of economic growth. And 0:03:53.160 --> 0:03:55.720 here it's an empirical matter exactly where that comes, but 0:03:55.840 --> 0:03:58.440 it seems to have come last month. There were fewer 0:03:58.560 --> 0:04:02.920 retail sales than the month for presumably because higher gas 0:04:02.920 --> 0:04:06.720 prices and someone were acting like attacks. So there is 0:04:06.760 --> 0:04:10.400 a point which has been reached where the dual mandate 0:04:10.640 --> 0:04:13.200 goes by the board, you just have to get inflation 0:04:13.240 --> 0:04:15.400 down for the sake of both parts of the mandate, 0:04:15.440 --> 0:04:18.159 inflation and employment. Well, and I'm quoting again now, he 0:04:18.240 --> 0:04:20.920 actually said during the news conference it would be hard 0:04:20.960 --> 0:04:23.560 to watch anything more closely than we're watching consumers spending. 0:04:23.600 --> 0:04:26.480 And it sounds like he's watching consumer spending headline inflation 0:04:26.720 --> 0:04:29.000 forces outside of his control. I mean, he's got a 0:04:29.080 --> 0:04:31.919 terribly difficult job, and they're kind of hoping that unemployment 0:04:32.040 --> 0:04:34.880 goes up for good reasons and that that means that 0:04:34.880 --> 0:04:36.800 we avoid a recession. What are the odds now that 0:04:36.839 --> 0:04:39.680 we avoid at least a deep recession. I mean, they're 0:04:39.720 --> 0:04:41.680 looking slimmer and slimmer all the time. You know, I 0:04:41.800 --> 0:04:43.880 was just looking at the GDP now that the Atlanta 0:04:43.920 --> 0:04:47.080 said publish. They're their most recent forecast is zero real 0:04:47.160 --> 0:04:50.000 growth for the current quarter. So it's looking like, if 0:04:50.000 --> 0:04:53.360 we're not already in recession, were on the precipice. Yeah, yeah, 0:04:53.520 --> 0:04:56.680 that's good. Depressing, it's not good. One of the things 0:04:56.680 --> 0:04:58.919 that forecasters have been saying is get out of risk assets. 0:04:58.920 --> 0:05:00.440 And we talked about this a little bit, sweet John, 0:05:00.440 --> 0:05:02.359 about how companies are going to see defaultrates going up. 0:05:02.360 --> 0:05:03.600 It's going to be more difficult for them to roll 0:05:03.640 --> 0:05:05.800 over dead. At the same time, we've seen amount of 0:05:05.839 --> 0:05:07.599 sell off. We're in a bear market from many of 0:05:07.640 --> 0:05:10.480 the industries. If we're already in a recession, how much 0:05:10.520 --> 0:05:13.800 worse can it get? Well, the key question is profits. 0:05:13.960 --> 0:05:19.240 We've seen a very big reduction in valuations in pe s, 0:05:19.560 --> 0:05:23.760 partly reversing a massive expansion in valuations in the immediate 0:05:23.839 --> 0:05:26.720 aftermath of the pandemic and the money to tie us 0:05:26.720 --> 0:05:32.000 through it. We haven't so far seen any real adjustment 0:05:32.120 --> 0:05:34.560 to what the EA is likely to be. The e 0:05:34.760 --> 0:05:38.560 m P estimates for this full year are still something 0:05:38.600 --> 0:05:41.320 at three percent higher than they were at the beginning 0:05:41.360 --> 0:05:45.400 of January, despite all that's happened since January exclude energy, 0:05:45.480 --> 0:05:49.960 and it's still flat. Usually earnings expectations fall during a 0:05:50.000 --> 0:05:55.839 normal year. The fact that you haven't seen earnings expectations 0:05:56.120 --> 0:05:59.640 begin to decline in any meaningful way is the reason 0:05:59.680 --> 0:06:03.440 I would still be quite nervous about this market. It's 0:06:03.440 --> 0:06:05.960 all about expectations from the FED two earnings near Are 0:06:06.000 --> 0:06:08.839 you getting out of all risk assets? No? No, definitely 0:06:08.880 --> 0:06:10.840 not In out market. Timing is you're never going to 0:06:10.920 --> 0:06:12.720 be able to call the top to the bottom. If 0:06:12.760 --> 0:06:15.080 you try it, you're gonna lose. Having said that, I mean, 0:06:15.120 --> 0:06:18.520 I think it's useful to have some expectation about what's coming. 0:06:18.560 --> 0:06:20.320 I mean, I think the best thing we can say 0:06:20.680 --> 0:06:22.960 is expected returns for equities have to be higher today 0:06:23.000 --> 0:06:25.200 and they were before this whole mess started. You know, 0:06:25.279 --> 0:06:29.040 so far, this to me looks like a quite orderly repricing. 0:06:29.480 --> 0:06:31.680 Enterprises in the US were too high. I think that 0:06:31.760 --> 0:06:34.240 was generally acknowledged they needed to come down. You never 0:06:34.279 --> 0:06:36.000 know what the catalyst for that is going to be. 0:06:36.240 --> 0:06:38.240 Do they deserve to come down a bit further? I 0:06:38.279 --> 0:06:42.040 think probably certainly. They're well higher than the bottoms of 0:06:42.200 --> 0:06:44.919 previous sell off, So there's a lot more room to 0:06:44.920 --> 0:06:47.640 go if the market wants to go there. Esther George, 0:06:47.640 --> 0:06:50.159 who hadn't been a hawk, dissented in favor of fifty 0:06:50.200 --> 0:06:53.599 basis points. What was that about? I saw one interpretation 0:06:53.600 --> 0:06:56.200 that it was about communication credibility, to the extent that 0:06:56.240 --> 0:06:59.840 we saw the FED perhaps leaking basis point move from 0:07:00.080 --> 0:07:04.960 saying no, obviously, I haven't spoken to Rested George. My 0:07:05.040 --> 0:07:08.159 best guess, because it is surprising she's been one of 0:07:08.160 --> 0:07:11.200 the more hawkish members. Is exactly that, having said that 0:07:11.320 --> 0:07:13.920 seventy five isn't on the table, we really can't do. 0:07:15.400 --> 0:07:19.200 We have to do fifty and be really mega hawkish 0:07:19.280 --> 0:07:22.880 about the future. I'm guessing would have been a line 0:07:23.040 --> 0:07:25.280 that would make some fair degree of sense and would 0:07:25.320 --> 0:07:27.360 be consistent with what she said in the past. But 0:07:27.920 --> 0:07:30.160 it is strange. Well, you know, one of the things 0:07:30.200 --> 0:07:32.440 that I look at is again going to the Atlanta Fed. 0:07:32.840 --> 0:07:35.680 They have a FED funds tracker based on the futures markets, 0:07:35.680 --> 0:07:37.400 and right now, a year from now, that's sitting at 0:07:37.400 --> 0:07:40.280 three forty basis points. And as we're sitting down after 0:07:40.320 --> 0:07:42.080 this rate high today we're sitting at the range of 0:07:42.840 --> 0:07:45.400 seven five. So they have a lot of room to 0:07:45.560 --> 0:07:49.000 move before they get to expectations. And of course, if 0:07:49.000 --> 0:07:51.760 inflation keeps running hot, I mean, if these efforts are 0:07:51.800 --> 0:07:55.320 not having a meaningful impact, I'm getting some sort of disinflation, 0:07:55.560 --> 0:07:59.080 then those expectations are probably likely to go higher um. 0:07:59.080 --> 0:08:00.680 And so at this point, the feed is in a 0:08:00.680 --> 0:08:03.800 position where it's chasing with the market expect which is 0:08:03.800 --> 0:08:05.360 both good and bad. It's good in the sense that 0:08:05.360 --> 0:08:06.840 it gives them a lot of room to move without 0:08:06.840 --> 0:08:08.960 shock in the market. On the other hand, it's bad 0:08:09.000 --> 0:08:11.960 because their credibility is constantly being questioned, Right, I mean 0:08:12.160 --> 0:08:14.400 they have to get up to the marker, otherwise they're 0:08:14.440 --> 0:08:16.920 going to be seen as not being serious about this. Right. 0:08:17.000 --> 0:08:19.560 How does he look like a guy who understood that 0:08:19.800 --> 0:08:21.840 very well today? Well, and in fact, he came straight 0:08:21.840 --> 0:08:23.680 out and said, and I'm quoting again, by this point, 0:08:23.720 --> 0:08:25.840 we thought we'd be seeing signs of inflation flattening and 0:08:25.880 --> 0:08:29.920 ideally declining. I mean, they must be completely shocked. There 0:08:29.920 --> 0:08:32.920 were only two FED governors. I have the December dots 0:08:32.920 --> 0:08:35.400 plots in front of me. There were only two FED 0:08:35.440 --> 0:08:37.920 governors who thought that FED funds rate would get as 0:08:38.000 --> 0:08:41.800 high as one percent by the end of this year 0:08:42.240 --> 0:08:44.719 as of December. Jonathan Levin wrote, a great artist, and 0:08:44.760 --> 0:08:49.920 we're now well beyond that's already exactly unanimously on his 0:08:50.040 --> 0:08:53.120 point was that Bullard needs an apology from somebody because 0:08:53.120 --> 0:08:54.679 he's been saying this, and he was probably one of 0:08:54.720 --> 0:08:57.880 the only ones saying and even even he because we 0:08:57.920 --> 0:09:00.199 don't know which dot he is, but even he has 0:09:00.240 --> 0:09:04.160 been surprised in a Hawkes direction by by what's happened 0:09:04.160 --> 0:09:05.840 in the last six months, and he was the outline 0:09:06.080 --> 0:09:09.040 you brought consumer spending earlier, Vanni in the conversation. And 0:09:09.040 --> 0:09:10.920 I think some of the uncertainty that we're seeing within 0:09:10.960 --> 0:09:13.120 the set itself has to do with the way that 0:09:13.200 --> 0:09:15.640 economic data works, right. I mean, part of the problem 0:09:15.679 --> 0:09:17.920 for them is the economic data. That means that most 0:09:18.000 --> 0:09:20.400 of them is lagging data, and so you know, by 0:09:20.480 --> 0:09:22.760 the time that they have the data to make a decision, 0:09:23.000 --> 0:09:24.800 you know, a lot of people think that the FETE 0:09:24.800 --> 0:09:27.200 has already waited too long, and to some extent that's 0:09:27.240 --> 0:09:30.760 just the nature of the beast, and that's more to 0:09:30.800 --> 0:09:32.920 try to find leading indicators, and that's probably why they 0:09:32.920 --> 0:09:36.040 took the preliminary Michigan expectations so seriously. I mean, typically 0:09:36.040 --> 0:09:40.320 you'd wait for a thing reading right right, what's pricedon now? 0:09:40.400 --> 0:09:43.439 For what gets pricedon I should say for July. Now 0:09:43.520 --> 0:09:46.440 at the moment, it's a rate hike of sixty six 0:09:46.440 --> 0:09:48.640 basis points. I happened to check just before I came 0:09:48.800 --> 0:09:52.480 into the studio, So a seventy five bits hike you've 0:09:52.480 --> 0:09:56.319 seen is slightly more lightly than a fifty and certainly 0:09:56.600 --> 0:09:58.360 Powell saying that it was going to be a choice 0:09:58.320 --> 0:10:01.160 between fifty and seventy five at the next and therefore 0:10:01.200 --> 0:10:04.079 implicitly taking a hundred off the table and saying we 0:10:04.160 --> 0:10:09.800 shouldn't get used to rate hikes of this dimension was 0:10:10.000 --> 0:10:14.120 very important in the market liking what they heard as 0:10:14.200 --> 0:10:17.040 much as they did. He was saying he was committed, 0:10:17.040 --> 0:10:19.120 but he was also saying, don't worry, guys, there aren't 0:10:19.240 --> 0:10:22.560 going to be any hundred medieval hundred basis And we 0:10:22.559 --> 0:10:25.199 did talk an you know, I'm not sure the path 0:10:25.280 --> 0:10:28.719 matters so much as the destination. I think, however, they 0:10:28.760 --> 0:10:31.600 get there, My guess is what we're talking about now 0:10:31.800 --> 0:10:34.959 is roughly three hundred fifty basis points on set funds, 0:10:35.360 --> 0:10:37.240 give or take. And that's a number I keep my 0:10:37.360 --> 0:10:40.760 eye on because if that number starts to drift higher, 0:10:41.160 --> 0:10:43.240 then I think the probability of them having to be 0:10:43.240 --> 0:10:46.840 more aggressive on the path goes up. Also, I just 0:10:46.840 --> 0:10:48.719 wouldn't put a whole lot of faith and what the 0:10:48.760 --> 0:10:50.760 markets are telling us about the past. I would put 0:10:50.800 --> 0:10:53.280 more faith of what they're telling us about the destination 0:10:53.400 --> 0:10:55.840 as the data currently sits. Yeah, I agree with that. 0:10:55.920 --> 0:10:59.480 I personally am nervous. I can easily by the notion 0:10:59.520 --> 0:11:02.520 that we need to go to four even if the 0:11:02.559 --> 0:11:05.440 FED doesn't essentially lose control, and obviously if the FED 0:11:05.480 --> 0:11:10.320 loses control, then disguise the limit. I think, yeah. And 0:11:10.360 --> 0:11:12.480 do we need to worry about the curve being inverted 0:11:12.520 --> 0:11:15.160 at several points at the moment, Well, I mean it's 0:11:15.200 --> 0:11:19.000 it's never healthy, It's never a great sign At this point, 0:11:19.400 --> 0:11:26.400 the curve inverted and uninverted twice on Monday. I'm not 0:11:27.240 --> 0:11:32.440 that concerned about the curve as a whole, because plainly 0:11:32.600 --> 0:11:35.520 it has been inverted or flat over a long enough 0:11:35.559 --> 0:11:40.360 period to signal very great concern about recession, and we 0:11:40.440 --> 0:11:43.560 can't really treat it as much more of a concrete 0:11:43.559 --> 0:11:46.079 indicated than this. There are lots and lots of reasons 0:11:46.080 --> 0:11:49.120 for concern about the bond marketing general, obviously, yeah, including 0:11:49.160 --> 0:11:51.760 contact of tightening. This is not the base case by 0:11:51.760 --> 0:11:54.040 any stretch of the imagination, but I think there is 0:11:54.040 --> 0:11:57.440 a higher probability than than people are generally acknowledging that 0:11:57.559 --> 0:12:00.959 the FED will have to go higher than anyone thinks 0:12:01.040 --> 0:12:03.440 right now and the funds, and that the longer end 0:12:03.480 --> 0:12:06.599 of the curve doesn't follow higher just for supply and 0:12:06.679 --> 0:12:10.080 demand reason, because there's so much interest internationally in longer 0:12:10.200 --> 0:12:12.959 term treasury because a lot of the pension funds in 0:12:13.000 --> 0:12:16.240 the US have moved to hedge their liabilities against thirty 0:12:16.280 --> 0:12:18.400 year treasuries. UM. It seems to me that there's a 0:12:18.440 --> 0:12:20.720 lot of demand for U S treasuries on the longer 0:12:20.800 --> 0:12:22.880 end of the curve. If pet funds goes higher than 0:12:22.880 --> 0:12:25.360 we think, you could have some serious inversion. I mean, 0:12:25.400 --> 0:12:26.880 you could have in version that I think people are 0:12:26.960 --> 0:12:29.920 really not talking about whether it loses its signal at 0:12:29.960 --> 0:12:34.000 that point because of idiosyncratics applying demand forces. In terms 0:12:34.120 --> 0:12:36.400 of telling us what that means for the economy, I'm 0:12:36.400 --> 0:12:38.960 not convinced that that's going to be the case necessarily, 0:12:39.280 --> 0:12:41.680 but keep your eye on that longer end of the curve. 0:12:41.760 --> 0:12:43.440 I'm not sure it's going to follow the FED funds 0:12:43.480 --> 0:12:46.840 of time. There was concern in the news conference about 0:12:47.080 --> 0:12:50.280 international economies, you know, and the stronger dollar. That's the question. 0:12:50.320 --> 0:12:52.400 That's the point I was about to make that the 0:12:52.640 --> 0:12:56.360 really big fault lines. The fit matters a lot, But 0:12:56.400 --> 0:12:59.679 there are two other immense fault lines in the global economy, 0:12:59.720 --> 0:13:03.199 both of which are affected negatively by a strong dollar. 0:13:03.760 --> 0:13:08.440 One is the Eurozone, where very Unfortunately, the CB still 0:13:08.520 --> 0:13:12.400 hasn't managed to convince markets for much the same structural 0:13:12.400 --> 0:13:15.960 problems that created the crisis of a decade ago that 0:13:16.080 --> 0:13:19.280 it's going to be able to keep the euro Zone together. 0:13:19.640 --> 0:13:23.439 Asset raises, rates and more pressure on the euro makes 0:13:23.480 --> 0:13:27.120 that all the worse. And then in Japan you've had 0:13:27.160 --> 0:13:34.400 the end breaking through some very significant and also twenty 0:13:34.480 --> 0:13:37.679 to the Chinese UN, which is only the second time 0:13:37.720 --> 0:13:41.000 it's got there. The first time was followed within days 0:13:41.320 --> 0:13:46.079 by the shocking Chinese UNS evaluation of then caused to 0:13:46.120 --> 0:13:49.400 sort of mini global crisis for a few months. So 0:13:49.440 --> 0:13:52.560 there is a There is also a very important element 0:13:52.640 --> 0:13:56.960 of tension where the if the Japanese want to keep 0:13:56.960 --> 0:14:01.280 controlling the yield curve, that will mean the stays ever 0:14:01.360 --> 0:14:04.640 more artificially weak, and that is going to be a 0:14:04.679 --> 0:14:08.360 real problem for its neighbor China. So that's the other 0:14:08.600 --> 0:14:11.839 fault line that it's very difficult to avoid. John Old, 0:14:11.840 --> 0:14:14.120 there is a near case, are there some indicators of 0:14:14.160 --> 0:14:18.360 inflation expectations have risen, and projections of this year have 0:14:18.440 --> 0:14:21.880 moved up notably. So we thought that strong action was 0:14:21.920 --> 0:14:24.840 warranted at this meeting, and today we delivered that in 0:14:24.880 --> 0:14:27.400 the form of a seventy five basis point rate hike. 0:14:27.560 --> 0:14:30.640 Be Jared your Ome Powell. We're with Jonathan Levin covering 0:14:30.680 --> 0:14:33.320 the fat and fixed income from Bloomberig Opinion. Jonathan, what 0:14:33.360 --> 0:14:35.680 for you were the most salient features of this particular 0:14:35.680 --> 0:14:39.560 news conference? What really struck me was j Pal's meditation 0:14:39.600 --> 0:14:42.760 on what's going on with inflation expectations? And I really 0:14:42.800 --> 0:14:45.400 thought it underscored sort of the catch twenty two that 0:14:45.480 --> 0:14:48.680 this bed finds itself in. You know, the tricky part 0:14:48.760 --> 0:14:52.440 here is that, as j Pal himself put it, central 0:14:52.480 --> 0:14:58.480 bankers cannot control volatile food and energy products. However, those 0:14:58.600 --> 0:15:02.960 very same volatile food and energy products have a tremendous 0:15:03.000 --> 0:15:07.040 impact on the way that consumers think about inflation. So 0:15:07.240 --> 0:15:10.640 Jpal finds himself in an extraordinary pickle here. Right now, 0:15:10.880 --> 0:15:13.760 as we saw in the University of Michigan survey, those 0:15:13.800 --> 0:15:17.640 inflation expectations are drifting up. Central bankers believe that this 0:15:17.720 --> 0:15:21.600 is a huge problem. Clearly, this is happening in part 0:15:21.680 --> 0:15:24.360 because of what's going on at the pump. But the 0:15:24.400 --> 0:15:29.120 Fed's reaction mechanism, as j Pal himself seemed to acknowledge, today, 0:15:29.440 --> 0:15:32.320 is going to forever, keep them behind the curve on 0:15:32.400 --> 0:15:36.760 managing those expectations. Yeah, exactly, And he even said we're 0:15:36.800 --> 0:15:41.280 absolutely determined to keep inflation expectations at two how much 0:15:41.280 --> 0:15:43.440 above han does he is that? I think it's going 0:15:43.480 --> 0:15:45.920 to be very tricky. I mean, it's not a fantasy, because, 0:15:45.960 --> 0:15:48.840 of course, there is a possibility that some of these 0:15:48.840 --> 0:15:52.600 sources of inflation that consumers most experienced could come in 0:15:52.680 --> 0:15:56.040 on their own. Right. It would be great if some 0:15:56.120 --> 0:15:58.560 of these gas prices would moderate, if some of these 0:15:58.600 --> 0:16:02.960 food prices would moderate. But what we're seeing, sort of unfortunately, 0:16:03.600 --> 0:16:07.360 is Powell is tacitly admitting that so much of this 0:16:07.480 --> 0:16:09.840 is out of his hands. He's really kind of just 0:16:09.960 --> 0:16:12.560 you know, putting his hands together and saying a little 0:16:12.600 --> 0:16:16.480 prayer that these inflation expectations could stay under control. And 0:16:16.520 --> 0:16:19.360 there's absolutely nothing on the horizon to suggest that any 0:16:19.400 --> 0:16:21.840 of those things is changing anytime soon, right. I mean, 0:16:21.840 --> 0:16:26.120 we still have countries holding onto what food they can 0:16:26.160 --> 0:16:29.520 produce themselves and not letting it get exported. We're not 0:16:29.560 --> 0:16:33.080 seeing oil get any relief anytime soon. There's not much 0:16:33.120 --> 0:16:35.160 the head can do about those kinds of things, so 0:16:35.160 --> 0:16:38.360 it has to look for other avenues are there any Yeah, 0:16:38.400 --> 0:16:40.400 I mean, you know, the main thing they can do, 0:16:40.680 --> 0:16:43.760 I think is to just show that they are not 0:16:44.280 --> 0:16:48.120 asleep at the wheel, and you know, basis points. I 0:16:48.160 --> 0:16:51.800 think it's a step, perhaps in the right direction. Perhaps 0:16:51.800 --> 0:16:54.080 that's why you saw such a rally in the market. 0:16:54.240 --> 0:16:57.320 I think markets are just pleased to see that this 0:16:57.560 --> 0:17:01.800 FED is paying attention to what's going on. So, Jonathan, 0:17:02.120 --> 0:17:05.639 what's the beds terminal rate now? So? I think in 0:17:05.760 --> 0:17:10.119 the Summary of Economic Projections it has it heading up 0:17:10.240 --> 0:17:13.399 towards the high end of the three, is almost getting 0:17:13.480 --> 0:17:19.600 to the fours. So that is essentially consistent with what 0:17:19.720 --> 0:17:23.840 a simple tailor type rule would suggest. After the CPI 0:17:24.000 --> 0:17:26.680 print that we just got. Yeah, I mean, does it 0:17:26.800 --> 0:17:29.800 look like a recession is more likely than it was 0:17:29.840 --> 0:17:32.960 a few hours ago? Well, you know, I was really 0:17:33.000 --> 0:17:37.320 struck by what the Summary of Economic Projections said about 0:17:37.359 --> 0:17:42.359 the unemployment rate? Right, So the step has the unemployment 0:17:42.480 --> 0:17:47.359 rate moving up from remembering correctly about forty basis points 0:17:47.480 --> 0:17:52.320 or fifty basis points. The some rule famously says, if 0:17:52.359 --> 0:17:55.760 you move up fifty basis points on the unemployment rate 0:17:56.320 --> 0:18:01.400 in a twelve month period, then you're already a recession. Right, 0:18:01.520 --> 0:18:05.040 So the step itself doesn't quite get us there because 0:18:05.080 --> 0:18:07.680 it has us getting to that higher unemployment rate in 0:18:08.680 --> 0:18:12.000 so it's outside of the twelvemonth time frame of the rule, 0:18:12.240 --> 0:18:15.439 but it really shows you how perilously close we're getting 0:18:15.480 --> 0:18:19.320 to that threshold. You know. The other thing that struck me, well, 0:18:19.400 --> 0:18:22.000 many things struck me. One line that I'm going to 0:18:22.080 --> 0:18:24.640 quote is we are not trying to induce a recession. 0:18:24.640 --> 0:18:26.680 It was in response to a question about whether the 0:18:26.760 --> 0:18:29.360 FED is trying to induce a recession. I mean, obviously 0:18:29.680 --> 0:18:32.600 JOJ palal has to say that, but would a little 0:18:32.600 --> 0:18:35.840 recession help? Well, you know, look, the bottom line is 0:18:35.880 --> 0:18:39.640 that the FEDS tools, it's only tools, is to control 0:18:39.840 --> 0:18:43.920 the demand side of the equation. They are actively trying 0:18:44.480 --> 0:18:48.080 to get people to spend less money at a very 0:18:48.200 --> 0:18:52.159 very delicate time for the economy. So you know, the 0:18:52.280 --> 0:18:56.680 risks here are extraordinary, I think for political reasons. Uh, 0:18:56.720 --> 0:19:00.240 you know, and J pal is ultimately a political figure here. 0:19:00.680 --> 0:19:03.359 It would be crazy to go before the microphone and 0:19:03.440 --> 0:19:06.720 say I want to take somebody's job away from them. 0:19:06.800 --> 0:19:09.520 They can't do that, right, But this is how it works. 0:19:09.720 --> 0:19:12.280 This is essentially how it works. I've written in the 0:19:12.320 --> 0:19:16.520 past that I think this idea that he can simply 0:19:16.600 --> 0:19:20.280 cool off the labor market by getting companies to take 0:19:20.359 --> 0:19:24.840 down listing, to take down openings without doing anything to 0:19:24.920 --> 0:19:28.680 the people who actually have jobs. I think the FED 0:19:28.720 --> 0:19:33.119 has blunt instruments here, and it's going to be extraordinarily 0:19:33.240 --> 0:19:37.080 difficult and would be virtually unprecedented in the history of 0:19:37.119 --> 0:19:41.200 this thing for them to do a move of this magnitude, 0:19:41.440 --> 0:19:44.800 reign in the worst inflation in forty years, and not 0:19:44.960 --> 0:19:49.520 push unemployment to a meaningful degree. Jonathan live In don't 0:19:49.520 --> 0:19:52.959 forget to reach out with adults, suggestions, opinions. I'm at 0:19:53.040 --> 0:19:55.880 any Quinn on Twitter or email v Quinn at Bloomberg 0:19:56.000 --> 0:20:03.000 dot net. You're listening to Bloomberg Opinion. I'm Bonny Quinn. 0:20:03.200 --> 0:20:05.480 By the way, do get in touch. Comments and opinions 0:20:05.520 --> 0:20:08.320 always welcome. I'm at Bonnie Quinn on Twitter or email 0:20:08.400 --> 0:20:12.120 v Quinn at Bloomberg dot net. Now to COVID nineteen. 0:20:12.680 --> 0:20:16.480 That other persistent and widespread threat to US and global 0:20:16.520 --> 0:20:19.680 well being, both human and economic. Happy to have Lisa 0:20:19.760 --> 0:20:23.240 Jarvis join. So Lisa, first, a word about the nearly 0:20:23.320 --> 0:20:26.080 one million, ten thousand people that are dead in the 0:20:26.160 --> 0:20:28.879 United States as a result of COVID. It almost seems 0:20:28.960 --> 0:20:31.560 unbelievable that that many people are dead in the last 0:20:31.560 --> 0:20:34.680 two years. But if COVID hadn't come along, very many 0:20:34.680 --> 0:20:36.919 of those would not be dead. Is that true. I 0:20:36.960 --> 0:20:39.879 think that's true to a certain extent. Very many people 0:20:39.920 --> 0:20:42.600 would have died no matter what. But we also didn't 0:20:42.640 --> 0:20:46.760 have good vaccine adherents once those were available, So if 0:20:46.840 --> 0:20:50.360 people had gotten vaccinated when they were eligible, we probably 0:20:50.359 --> 0:20:53.919 would have seen several hundred thousand lives would have been saved. 0:20:54.400 --> 0:20:56.280 I would have to take a look at the estimates, 0:20:56.320 --> 0:20:58.359 but we know that many of the serious cases of 0:20:58.359 --> 0:21:02.639 COVID were preventable one to the vaccines were available. What 0:21:02.800 --> 0:21:04.520 are we going to learn over the course of the 0:21:04.560 --> 0:21:08.160 next year, two x years, maybe five years, maybe ten, 0:21:08.240 --> 0:21:13.280 maybe more about COVID and various viruses like COVID from 0:21:13.320 --> 0:21:15.840 the amount of people that have died. Are their studies ongoing? 0:21:16.480 --> 0:21:18.639 I hope that what we're going to learn is actually 0:21:18.680 --> 0:21:21.280 from the people who have lived, and in that instance, 0:21:21.440 --> 0:21:23.560