Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App will be given the
Speaker 2: big issue. Stocks get their big Dubvish pivot, as fed shared.
Speaker 2: J Powell sets the stage for September Jason Thomas of
Speaker 2: Carlisle saying this, the case for a September raker is
Speaker 2: very simple. As inflation fools, policy becomes tighter if base
Speaker 2: rates remain unchanged, with cooler labor markets and a modest
Speaker 2: slowdown in nominal growth. There is no reason for tighter
Speaker 2: policy today. Jason joins us now for more. To catch
Speaker 2: up with you once again, Let's talk about that base
Speaker 2: case September. Like seventy people, it's what happens next. Weather
Speaker 2: seems to be some division and confusion the ultimate destination here. Jason,
Speaker 2: what do you think of the pricing beyond September for
Speaker 2: the next eighteen months or so, Well.
Speaker 3: I think it's very aggressive. I think the big lesson
Speaker 3: that we've learned over the last year is that policy
Speaker 3: has not been as tight as many suspected. Entering the year.
Speaker 3: There was, of course, expectations for six or seven rate cuts.
Speaker 3: That was predicated on the idea that a real interest
Speaker 3: rate of two percent would absolutely smother economic activity. Of course,
Speaker 3: that's not what we've observed, and I think learning from
Speaker 3: this experience would suggest that the fat is going to
Speaker 3: behave very cautiously. I think, in general, the less certain
Speaker 3: you are of the destination the terminal rate in this case,
Speaker 3: the more slowly, the more cautiously you're going to proceed
Speaker 3: in that direction.
Speaker 4: You put a comment out in your recent commentary, Jason,
Speaker 4: and I'm still trying to wrap my head around it,
Speaker 4: so I'd like your help. You wrote, it may be
Speaker 4: a time for investors to hold two seemingly contradictory thoughts
Speaker 4: in their head simultaneously. The time for rate cuts has arrived,
Speaker 4: but financial conditions are too accommodative for the FED to
Speaker 4: deliver the scale of easing anticipated by some market participants.
Speaker 4: Can you explain what the Fed should do with that
Speaker 4: and what that exactly means.
Speaker 3: Well, So, since the start of the year, policy is
Speaker 3: effectively tightened by fifty basis points, that's just the decline
Speaker 3: in core PC inflation observed in the first six months.
Speaker 1: Of the year.
Speaker 3: So I think there's a very strong case for two
Speaker 3: cuts September and December. Thereafter things get much murkier, and
Speaker 3: so really that's what I'm suggesting. You heard a lot
Speaker 3: of talk yesterday at the press conference about normalization. Are
Speaker 3: you just cutting rates once or are you normalizing policy?
Speaker 3: And I found this odd because we don't really know
Speaker 3: what normal is in the new environment. Have massive budget deficits.
Speaker 3: I don't mean to catastrophize those, but we do have
Speaker 3: to appreciate that right now, the after tax incomes of
Speaker 3: households and the corporate sector are about one trillion dollars
Speaker 3: larger than they would be if you had a fiscal
Speaker 3: policy that was stabilizing debt to GDP ratios at reasonable levels. Secondly,
Speaker 3: you have the largest concentrated kapex boom we've seen in
Speaker 3: this country since the telecom boom of the late nineteen nineties.
Speaker 3: You just mentioned the quote yesterday from Alphabet about the
Speaker 3: risk of underinvesting. This seems to be something that's going
Speaker 3: to persist. Finally, you have deglobalization, or at least the
Speaker 3: presumption that more of what we consume in the US
Speaker 3: is going to be produced here, which is of course
Speaker 3: going to lead to potentially some upward pressure on prices,
Speaker 3: the potential for supply shocks, more volatile inflation. If you
Speaker 3: put all of this together, it sets up for, on
Speaker 3: the one hand, some rate cuts coming at the end
Speaker 3: of this year September again probably December, but then thereafter
Speaker 3: you could have rates that essentially settle in at four six, five,
Speaker 3: four and a half somewhere.
Speaker 5: In that range.
Speaker 4: Are you saying that that's a more likely neutral rate
Speaker 4: at this point and that the market has gotten way
Speaker 4: ahead of itself in terms of estimating that it's something
Speaker 4: closer to four or even three and a half percent.
Speaker 3: I think you have to ignore the experience of this year,
Speaker 3: of the last eighteen months to think that the neutral
Speaker 3: rate is still five fifty basis points in real terms.
Speaker 3: And so again, this is a situation where there's a
Speaker 3: lot of uncertainty. To be so wetted to a neutral
Speaker 3: rate at these low levels, at levels that persisted between
Speaker 3: the global financial crisis and the pandemic is to ignore
Speaker 3: recent experience. I think that would be very unwise for
Speaker 3: the FED to take that sort of approach.
Speaker 4: Well, Jason, this goes to a deeper question really, which
Speaker 4: is essentially a lot of people are betting that rate
Speaker 4: cuts are going to support the next leg of growth
Speaker 4: in the US economy. Are you saying that that's not
Speaker 4: a lever that they can really pull in the same
Speaker 4: kind of way that maybe some of those inflation sensitive
Speaker 4: strategies look better and some of the ones that rely
Speaker 4: on inflation coming off and the FED cutting rates are
Speaker 4: maybe a little fraudy.
Speaker 3: Well, I think that in general, if you look at
Speaker 3: risk premium in the economy, if you look at where
Speaker 3: credit spreads are today, they're tighter than they were again
Speaker 3: at any point since two thousand and seven. If you
Speaker 3: look at duration risk premium, where's the tenure in relation
Speaker 3: to the expected path for FED funds over the next
Speaker 3: ten years, it's effectively zero. If you look at estimates
Speaker 3: of the equity risk premium, based on consensus forecast for
Speaker 3: dividend or earnings growth, it also looks very very tight,
Speaker 3: very narrow. So you know, I think that this all
Speaker 3: suggests that you have a market that is really priced
Speaker 3: for perfection to a large extent, and going forward, if
Speaker 3: we have some really unfortunate, unforeseen developments in the economy,
Speaker 3: of course, the fad with base rates at five point
Speaker 3: three percent has a lot of firepower, could do a
Speaker 3: lot to stabilize economic activity.
Speaker 5: But if things.
Speaker 3: Persist as they do today, again, I think base rates
Speaker 3: that you know, I would use as a baseline nothing
Speaker 3: that is lower than one hundred basis points from here
Speaker 3: as a reasonable expectation should growth persist.
Speaker 2: Jason, I don't want to put words in your mouth,
Speaker 2: so I just want to last for your opinion directly.
Speaker 2: Do you think the Federal Reserve is getting it wrong?
Speaker 3: No? Again, I think the case for rate cuts today
Speaker 3: is very clear.
Speaker 2: Not the same time labor Mark and Jason. I just
Speaker 2: mean in terms of how they think about the economy.
Speaker 2: Because I'll tell you what I heard in the news
Speaker 2: conference yesterday and even say this directly, but I think
Speaker 2: he gave us a lot of clues. He almost frames
Speaker 2: the inflation shop coming out of the pandemic because due
Speaker 2: to one of factors that are ultimately finding And what
Speaker 2: I hear from you is that actually some of these
Speaker 2: forces to hang around. Do you think he's getting that
Speaker 2: piece of it wrong.
Speaker 3: Well, there was, of course an element of inflation that
Speaker 3: was transitory, but I'm surprised given that the second and
Speaker 3: third order effects that we saw that people would still
Speaker 3: be of this mind. What we learned, I think in
Speaker 3: the inflation shock is that when you have shortages, you
Speaker 3: have a response to that. People over order. If they're
Speaker 3: expecting one hundred units of a component or part and
Speaker 3: they fear getting cut back, they order two hundred. You
Speaker 3: start seeing courting, You start seeing downstream price dynamics that
Speaker 3: are very difficult to control. And again, I think when
Speaker 3: we compare today relative to twenty nineteen, we see both
Speaker 3: with the fiscal deficit, with the kapex boom that certainly
Speaker 3: was not occurring. Then, I mean, you have fixed industrial
Speaker 3: investment in the United States right now that's three times
Speaker 3: twenty nineteen levels. And then again the shock from the
Speaker 3: Terra on China in twenty nineteen, most people expected they
Speaker 3: would be rolled back. Vice President Biden at the time
Speaker 3: suggested that this policy was unwise, it was harming American
Speaker 3: consumers and farmers. Now no one is speaking like that.
Speaker 3: In fact, the direction as it relates to trade frictions,
Speaker 3: I think is only in the direction of war. So
Speaker 3: you know, again, it's very important to when we contextualize
Speaker 3: the current situation, when we account for all of these
Speaker 3: massive changes relative to twenty nineteen, I think you're left
Speaker 3: with much more upside risk to inflation. Should you act
Speaker 3: more aggressed, should the Fed act more aggressively over the
Speaker 3: next six to twelve months than perhaps many perceive.
Speaker 4: Jason, you said that if growth continues, then this market
Speaker 4: is somewhat priced to perfection. Which market in particular is
Speaker 4: price to perfection?
Speaker 5: Is it sort of.
Speaker 4: A good news is bad news and bad news is
Speaker 4: bad news type of paradigm that we're entering into.
Speaker 3: To be clear, I think that when you look at indexes,
Speaker 3: if you look at the NASDAC, if you look at
Speaker 3: the SMP five hundred, because so much of the gains
Speaker 3: have been concentrated in, of course a very small number
Speaker 3: of stocks, and you look at the aggregates, and you
Speaker 3: look at the equity risk premium in the index.
Speaker 5: Then you say that.
Speaker 3: It's priced to perfection. Now, if you look at the
Speaker 3: broader US stock market, you see many stocks that look
Speaker 3: quite reasonably priced because they have not participated to the
Speaker 3: same extent. Many stocks where you've seen earning's growth fear
Speaker 3: an excess of price appreciation, of course, implying that valuations
Speaker 3: have come down in some cases quite materially. So you know,
Speaker 3: it's a market that I think is gravitating from momentum
Speaker 3: trades very focused on those stocks that you know actually
Speaker 3: quite benefited in many cases from higher rates. Many of
Speaker 3: these megacap companies, of course have negative net debt, and
Speaker 3: of course they have large cash piles that are earning
Speaker 3: floating rate interests that is an excess of their relatively
Speaker 3: low fixed rate liabilities. They're also, of course, generates so
Speaker 3: much cash in the near term that you know the
Speaker 3: effects of rates isn't so great. So it's quite rational
Speaker 3: that the market rotated into those stocks and they just
Speaker 3: the valuations now have reached levels where you know, I
Speaker 3: think on a perspective expected return basis, people have to
Speaker 3: start looking elsewhere.
Speaker 2: Jason, this was deeply thoughtful one of those conversations I'm
Speaker 2: going to re listen to a little bit later on
Speaker 2: this afternoon. Jason salmasa Kala, Jason, thank you.
Speaker 5: I want to turn to this story.
Speaker 2: Barklay's unvanning a share buyback plan worth more than nine
Speaker 2: hundred and sixty million US dollars This coming is the
Speaker 2: British lender reported better than expected second quarter investment banking
Speaker 2: revenue and boosted its guidance for the full year.
Speaker 5: Joining us now is.
Speaker 2: The Barklay CEO, CS ven Kada Krishnan Venkatt, it's great
Speaker 2: to catch up with you, sir. Once again, I will
Speaker 2: go through the numbers so you could be modest and
Speaker 2: you don't have to Equity underwriting booming.
Speaker 5: Equity is trading up nicely.
Speaker 2: The stock is up by something like fifty percent year today, Venkat.
Speaker 2: There was some weakness in thick trading that I want
Speaker 2: to get to in just a moment. But let's start
Speaker 2: with the position of strength you're in Equity is trading.
Speaker 2: Where did that strength come from, Venkat? And do you
Speaker 2: expect you to continue through the year.
Speaker 6: Well, thank you for asking me to join the program.
Speaker 6: I'm very grateful to be here.
Speaker 5: And as you.
Speaker 6: Say, we are in the process of delivering on the
Speaker 6: investor plan that we laid out in February of this year,
Speaker 6: which was to have a simpler, better, more balanced bank,
Speaker 6: a bank that returns twelve percent hour rote and above
Speaker 6: by twenty twenty six, returning about ten billion pounds to
Speaker 6: shareholders by twenty twenty six and more, and then rebalancing
Speaker 6: the bank so that the investment bank goes from around
Speaker 6: sixty percent of the bank to around fifty percent of
Speaker 6: the bank. One part of the investment bank is our
Speaker 6: market's business and the equity business, which you highlight. We've
Speaker 6: always had a great strength in equity, and I think
Speaker 6: as equity markets themselves have gone through the changes that
Speaker 6: you've seen in this since the start of this year,
Speaker 6: our traders have been able to capitalize on client demand,
Speaker 6: on increasing volatility and providing the kind of innovative derivative
Speaker 6: solutions they seek clients seek from Barclays and I do
Speaker 6: expect as market volatility keeps the pace for our performance
Speaker 6: in equities to continue.
Speaker 2: While we're seeing that same strength in Fick trading VENCAT,
Speaker 2: I wonder what you can do to turn things around
Speaker 2: in that particular part of the business.
Speaker 6: So within FEC we are a very very strong credit
Speaker 6: house and typically in the top three. One of the
Speaker 6: reasons in FICK that in the market and for US
Speaker 6: it affects us maybe a little more, is that credit
Speaker 6: spreads have been muted and credit volatility has been muted,
Speaker 6: quite the opposite case from equities. In European rates, which
Speaker 6: is an area of growth for US, we've improved from
Speaker 6: the first quarter to the second quarter, and securitized products,
Speaker 6: which is an important part of fixed income, is growing
Speaker 6: from strength to strength. So our fit performance is improved
Speaker 6: from the first quarter to the second and I could
Speaker 6: expect to continue to see more of that improvement as
Speaker 6: the year goes on.
Speaker 4: Venkatte, We've been having a debate for several months now.
Speaker 4: Are rate cuts good or bad for banks? Or rate
Speaker 4: hikes good or bad for banks? Our rate cuts broadly
Speaker 4: good or bad for your profitability at a time when
Speaker 4: a lot of people are expecting them globally.
Speaker 1: Than you and Mark.
Speaker 6: So what I would say is very special about this
Speaker 6: rate cycle is that the what we're expecting is not
Speaker 6: a state of cuts but fine tuning adjustments. So the
Speaker 6: answer to your question is, I don't think they'll make
Speaker 6: that much of a difference to a bank like ours
Speaker 6: or to the large banks.
Speaker 5: You know, my colleague A. J.
Speaker 6: Raja at Thyaksha, who runs in macro research for US,
Speaker 6: often says a rate cycle is when you go up
Speaker 6: in an escalator meaning slow cuts, and come down in
Speaker 6: an elevator. Slow rises and then fast cut coming down
Speaker 6: in an elevator. What we've seen this time is we
Speaker 6: went up in an elevator meaning very fast rate hikes,
Speaker 6: and we may be coming down by the stairs. So
Speaker 6: you saw a fine tuning adjustment by the Bank of
Speaker 6: England this morning. You saw the FED pause, but they're
Speaker 6: indicating they may go later this year. All of these
Speaker 6: things are just trying to adjust interest rates by a
Speaker 6: small amount because real rates have crept up at a
Speaker 6: constant inflation which is two percent, which is low. But
Speaker 6: it's just trying to overcome the slight impediment of rising
Speaker 6: real rates. So I don't expect this to have much
Speaker 6: of an effect on the banking sector of any and
Speaker 6: certainly we are not changing the way we view the
Speaker 6: world because of this modest rate cut.
Speaker 4: In the meantime, you say that you are on track
Speaker 4: to achieve one billion pounds in cost cuts. There is
Speaker 4: sort of some swirling questions around where those cost cuts
Speaker 4: are coming from. Is it simply just being more efficient
Speaker 4: in certain sectors, is it ongoing job cuts?
Speaker 2: What are you executing?
Speaker 6: So we did a billion pounds worth of structural cost
Speaker 6: actions last year. We're seeing a the benefits of some
Speaker 6: of that. B We're seeing the benefits of a greater
Speaker 6: focus on productivity and efficiency in the way in which
Speaker 6: we run the bank. And what we're also seeing is
Speaker 6: the results of investments which we have made, particularly in markets,
Speaker 6: particularly in trading technology. I'm talking to you from our
Speaker 6: equity trading flow in London and the way we have
Speaker 6: increased our market share and electronic trading here in Europe
Speaker 6: and in the US is all a result of past investment.
Speaker 6: You have to continue to do it, but it's probably
Speaker 6: at a slower pace than we did in the last
Speaker 6: couple of years. So it's efficiency and better investment.
Speaker 2: Can I ask you about the advisory business with that
Speaker 2: in mind, how is that going? How's the turnaround going
Speaker 2: in that unit?
Speaker 6: So investment banking we've done, as you've seen the results
Speaker 6: in the banking side quite strongly. Equity capital markets did
Speaker 6: very well, advisories improving. We still have a little way
Speaker 6: to go. We are seeing deal volume pickup, We're seeing
Speaker 6: our backlog increasing, and I think over time, as some
Speaker 6: of these ideas fructify, you will see an improvement in
Speaker 6: the advisory numbers.
Speaker 2: I'd love your view, vencoun on how business is going
Speaker 2: more generally, as you look across Corporate America and corporations
Speaker 2: across Europe. I can share with you some of the
Speaker 2: comments we've heard from Corporate America over the last couple
Speaker 2: of weeks from P ANDNG they're seeing slower price increases.
Speaker 2: Kimberly Clark also saying the same thing. McDonald's are talking
Speaker 2: about the first sales slide since twenty twenty, PEPSI saying
Speaker 2: the consumer is becoming more challenged. You've got a massive
Speaker 2: consumer business as well with the barclaycart business. When you
Speaker 2: look at corporations and the consumer, are you seeing the
Speaker 2: same kind of slow down VNCAP from your vantage point?
Speaker 6: So, what we are seeing, which is good for the
Speaker 6: credit performance of banks, is we are seeing both consumers
Speaker 6: and corporates focusing on efficiency and managing their budgets more carefully.
Speaker 6: So if you are in the concer humer business and
Speaker 6: if you're a consumer oriented company. What you will see
Speaker 6: is therefore a lack of pricing power and then people economizing.
Speaker 6: We see that in our own customers. What that means though,
Speaker 6: is that even though employment is still very strong, both
Speaker 6: in the UK and the US, people are managing their
Speaker 6: budgets more carefully, which is one of the reasons why
Speaker 6: buy and large credit impairment costs for banks have been
Speaker 6: relatively well controlled. So it's good for the consumer to
Speaker 6: do this and manage their budgets.
Speaker 5: It's good for their lenders.
Speaker 6: Because they're seeing less signs of consumer distress. It's good however,
Speaker 6: it's for the economy. However, there are winners and losers,
Speaker 6: and that's what you're seeing from some of the people
Speaker 6: you're courting.
Speaker 4: Are you seeing a big difference in terms of consumer
Speaker 4: strength globally depending on the region. We've been talking a
Speaker 4: lot about how the consumer shows a lot of I
Speaker 4: guess restraint when it comes to spending, but more so
Speaker 4: in some of the sector is more leverage to highese consumers.
Speaker 4: How much you see in Europe in a weaker spot
Speaker 4: than say the US, well, I.
Speaker 6: Think I think the the slow down which we've seen
Speaker 6: in China is palpable and what Chinese demand has done
Speaker 6: is affected sectors which were particularly exposed to them. You
Speaker 6: saw some of it in the fashion goods industry, and
Speaker 6: tech of course is a different situation because you know
Speaker 6: the trade with China is being limited in tech for
Speaker 6: other reasons. But I do think that what you will
Speaker 6: see as people with that exposure to China being more affected.
Speaker 6: You've already seen it in the numbers and that I
Speaker 6: expect that you'll see that for some time to come.
Speaker 4: How much does it affect where you're expanding or where
Speaker 4: you're not expanding.
Speaker 6: Well, Barclay's is a first and foremost a consumer bank
Speaker 6: in the UK, a global investment bank, and so've got
Speaker 6: a very strong corporate presence and a wealth presence. But
Speaker 6: all of that is very highly connected to London, from Europe,
Speaker 6: from the United States, and then from India, Singapore, Hong Kong.
Speaker 6: We are not a major presence in mainland China, and
Speaker 6: so what we think is that the impact of what's
Speaker 6: happening in China is relatively more muted for US compared
Speaker 6: to other banks with larger exposures.
Speaker 4: It has really a question though about some of the
Speaker 4: tensions that have been coming to the fore politically internationally
Speaker 4: in terms of potential tariffs, potential restrictions, changing policies, the elections.
Speaker 4: How are you trying to get ahead of that at
Speaker 4: a time where there's a lot of policy uncertainty. And
Speaker 4: arguably that's one reason why advisory and mergers and acquisitions
Speaker 4: hasn't been as robust as some people had expected it
Speaker 4: to be.
Speaker 6: It's a very very good point, and I think the
Speaker 6: big area where all that comes into play is cross
Speaker 6: border m and A and cross border transactions. You've even
Speaker 6: seen slowdown of that within Europe itself.
Speaker 5: You know, for.
Speaker 6: Us it highlight it's one of the things which we've done,
Speaker 6: which is we decided very early this year when we
Speaker 6: did our investorday and made the decision towards the end
Speaker 6: of last year to invest thirty billion pounds.
Speaker 5: Of risk created assets in the UK.
Speaker 6: The UK has had its election, We've elected a business
Speaker 6: friendly government. The transition has been smooth and it points
Speaker 6: to the importance for banks like us to be in
Speaker 6: places with very clear economic policy, the good rule of law,
Speaker 6: growth and stable governments and stable economic policies.
Speaker 5: Venkat, the year is going well.
Speaker 2: Hopefully next time we're in New York we can catch
Speaker 2: up again here in the studio.
Speaker 5: I appreciate your time this morning, sir.
Speaker 2: Thank you the Farculey CEO cs ven Kara Krishna. Here's
Speaker 2: the latest investors turning their attention to the data following
Speaker 2: yesterday's FED decision. The July payrolls report you out tomorrow
Speaker 2: and CPI coming in just two weeks time. Fetch JPOW
Speaker 2: waiting for the numbers before committing to a Rake cup.
Speaker 2: The former Kansas City FED president as the George right
Speaker 2: in this I found the chair leaned pretty clearly to
Speaker 2: confirm market expectations for a September cup. While September looks
Speaker 2: like the meeting to take this action, I think this
Speaker 2: room to be patient as the joined us now for
Speaker 2: more as the waterfall to catch up with you. It's
Speaker 2: been far too long. Thanks for being with us. I
Speaker 2: want to talk about that word you've used, patients. What
Speaker 2: underpins that patience? Why should we have that patience?
Speaker 1: Welcome morning. I think my view on this really comes
Speaker 1: from the fact that we are looking at an economy
Speaker 1: that is growing and by the reads of the second quarter,
Speaker 1: growing well above it's sustainable long run growth. You've got
Speaker 1: a strong labor market and you still have elevated inflation.
Speaker 1: And I think that combination reminds me that the FEDS
Speaker 1: mandate is a long run objective. And just as we
Speaker 1: saw earlier this year, the market had priced innumber of
Speaker 1: cuts only to have to pull back on that. So
Speaker 1: the central Bank's job is really to pay attention to
Speaker 1: the data. And as that gets closer, of course, that's
Speaker 1: going to be more difficult for them, and they recognize that.
Speaker 2: How big is the risk that we take that strong
Speaker 2: labor market for grants it?
Speaker 1: Well, I think you're always looking at this because we
Speaker 1: don't know with any great certainty where that equilibrium rate
Speaker 1: is for the labor market. Obviously, we came out of
Speaker 1: the pandemic during that recovery with a very tight labor market,
Speaker 1: and so as we watch it normalize, the space between
Speaker 1: normalization and weakening is one that policymakers are going to
Speaker 1: be very attentive to. So we'll get a report tomorrow.
Speaker 1: It will give a clue. I don't expect it'll be
Speaker 1: definitive and by any means around that, but it is
Speaker 1: the collection, the aggregate of these reports that begin to
Speaker 1: give the committee a better sense just where that labor
Speaker 1: market is right now, Ester, do.
Speaker 4: You get the sense that this fuge reserve still embraces
Speaker 4: the idea of transitory in that basically the inflation was
Speaker 4: largely due to the pandemic. It's come off the boil,
Speaker 4: and now some of the ramifications, the ripple effects are
Speaker 4: just being worked out of the economy.
Speaker 1: I think that could have a lot to do with it. Lisa,
Speaker 1: you did see tremendous supply adjustments, and it had been
Speaker 1: some time since we'd had to pay attention to the
Speaker 1: supply side of the economy. So as we watched supply
Speaker 1: and that was true on the labor side, certainly good
Speaker 1: on the good side, begin to adjust. That creates a challenge,
Speaker 1: I think for the Committee and understanding just how restrictive
Speaker 1: is our policy. How do we understand when the economy
Speaker 1: is approaching an equilibrium? And I think, as they've noted
Speaker 1: they are close, those risks are coming into better balance
Speaker 1: right now, and now judging how tight their policy is
Speaker 1: relative to the steady state of the economy, is there
Speaker 1: real challenge? And we heard that yesterday too soon versus
Speaker 1: too late and making adjustments to that.
Speaker 4: It seems like the market really believes that the risks
Speaker 4: at this point are greater potentially on some sort of
Speaker 4: intereration in the labor market than an increase a surge
Speaker 4: and inflation. I'm wondering if you think that maybe the
Speaker 4: FED would have been prudent to push back just a
Speaker 4: little bit on that base on what you're seeing, considering
Speaker 4: that you believe that maybe there should have been a
Speaker 4: little bit more patients, kind of a little more discipline
Speaker 4: imviewed on the market.
Speaker 1: Well, I would agree that the labor market again is
Speaker 1: coming into better balance for this committee, and you will
Speaker 1: have to look at some of the subtleties that come
Speaker 1: in underlying that labor market in terms of the levels
Speaker 1: of activity and the momentum that you see there. But
Speaker 1: at the end of the day, committee is faced with
Speaker 1: an elevated inflation rate relative to the target they've established
Speaker 1: and the credibility they seek around getting back to that,
Speaker 1: and in the long run, as we've heard many times
Speaker 1: from both the chairmen and others, that sets the conditions
Speaker 1: for a healthy labor market long run. So yes, near
Speaker 1: term they're going to be watching a lot of those signals.
Speaker 1: But the real issue, I think at the end of
Speaker 1: the day is their inflation mandate.
Speaker 5: So I'd like to do two things.
Speaker 2: I want to share a quote with you, and then
Speaker 2: I'd like to lean on your experience on the committee.
Speaker 2: You've got plenty of experience of understanding how all of
Speaker 2: this works behind closed doors. The stuff that we don't
Speaker 2: see this is whatever Core had to say. We think
Speaker 2: in practice it's not very data dependent, and view the
Speaker 2: cautious evolution of the statement as intended to carry hawks
Speaker 2: along and avoid dissents. Esther in your experience when you
Speaker 2: hear stuff like that, how true is that? How do
Speaker 2: things come together on the committee?
Speaker 1: Well, it's true. This is a committee that is consensus driven.
Speaker 1: They must make it decision and the nature of a
Speaker 1: large committee with differing views is to try to achieve
Speaker 1: consensus at some point. That doesn't mean you always get
Speaker 1: unanimity around that decision. And I think anytime you begin
Speaker 1: to approach what looks like I think, in their words,
Speaker 1: better balance things coming into balance, the decisions get more difficult.
Speaker 1: It's not as clear cut as it was when you
Speaker 1: know you have to ease, or it's not as clear
Speaker 1: cut when you see an inflation problem emerging that you
Speaker 1: have to address. And so I suspect there is challenge
Speaker 1: within the committee of trying to reconcile views and to
Speaker 1: try to bring a solid consensus to whatever the decision
Speaker 1: will be at their next meeting.
Speaker 2: As to this was wonderful and hopefully the team gets
Speaker 2: to see you in Jackson Holle as we used to
Speaker 2: as the George the formst kinds of City Fed President
Speaker 2: on the latest Fed Reserve decision from yesterday. This is
Speaker 2: the Bloomberg Seventans podcast, bringing you the best in markets, economics,
Speaker 2: and geopolitics. You can watch the show live on Bloomberg
Speaker 2: TV weekday mornings from six am to nine am Eastern.
Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else
Speaker 2: you listen, and as always, on the Bloomberg Terminal and
Speaker 2: the Bloomberg Business app.