WEBVTT - Surveillance: Inflation Pressures with Pyle 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz Jailey, we bring you 0:00:13.320 --> 0:00:17.960 insight from the best and economics, finance, investment, and international 0:00:18.000 --> 0:00:23.280 relations to find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.639 dot Com, and of course on the Bloomberg terminal. We 0:00:29.760 --> 0:00:33.560 are hugely advantaged on this Friday. This was not expected. 0:00:34.120 --> 0:00:36.800 Michael Pile will join us. Now, yes he is chief 0:00:36.960 --> 0:00:40.479 economic advisor to the Vice President, but far more this 0:00:40.560 --> 0:00:43.920 is Mike Pile who took all the heritage of Dartmouth economics, 0:00:44.159 --> 0:00:46.400 think the trade of Douglas Irwin and the rest of 0:00:46.440 --> 0:00:51.040 even the modern Blanche Flower macro economic babble, and and 0:00:51.159 --> 0:00:55.280 brought it into a sterling record in Dartmouth economics, including 0:00:55.280 --> 0:00:59.720 winning the Rockefeller Award, hugely coveted onto Black Rock, and 0:00:59.800 --> 0:01:03.080 now again with the Vice President. Mike Pile thrilled on 0:01:03.160 --> 0:01:05.800 this day to have you with us. I'm gonna go 0:01:06.000 --> 0:01:08.800 or my Michael McKee is I'm gonna go with Captain 0:01:08.880 --> 0:01:11.959 Rampod of the Washington Post is which is has got 0:01:12.040 --> 0:01:16.880 to be talk of price controls for this rampant inflation. 0:01:17.520 --> 0:01:21.000 Are you talking about price controls with the Vice President? 0:01:21.319 --> 0:01:24.600 Are you talking with about price controls with the White House? 0:01:26.840 --> 0:01:29.880 So thanks for having me, Tom. I would say the 0:01:30.240 --> 0:01:33.720 President and Vice President have a game plan that we 0:01:33.800 --> 0:01:37.280 are executing around the short term, uh and the long 0:01:37.440 --> 0:01:41.959 term to expand the productive potential of the economy. In 0:01:42.000 --> 0:01:46.600 the short term, that means things like unstartling our supply chains. 0:01:47.000 --> 0:01:51.520 We've been taking actions there around ports, around getting more 0:01:51.560 --> 0:01:55.120 commercial driver's licenses out the door to get truckers on 0:01:55.160 --> 0:01:57.720 the road. Over the medium to long term, obviously, we're 0:01:57.800 --> 0:02:01.960 very focused on things like my conductors and getting investments 0:02:02.040 --> 0:02:04.920 there to build our productive capacity. That's what we're focused 0:02:04.960 --> 0:02:07.600 on here, building that productive capacity out over the short, 0:02:07.640 --> 0:02:10.720 medium and long run. That can be the plans under control. 0:02:10.760 --> 0:02:13.079 But if there is a lack of control due to 0:02:13.160 --> 0:02:16.119 month after month of high inflation, again a word that's 0:02:16.160 --> 0:02:19.640 out there, rampant inflation, I believe from the Financial Times 0:02:20.040 --> 0:02:22.720 Mike Pyle, what this comes down to is do price 0:02:22.760 --> 0:02:27.680 controls work? In your stunning academic career at Dartmouth, did 0:02:27.720 --> 0:02:32.720 you study that price controls can work? So again, I 0:02:32.720 --> 0:02:37.200 would say, you know, our job here is to use 0:02:37.320 --> 0:02:39.560 the tools that we have. We think that those tools 0:02:39.639 --> 0:02:43.840 go to expanding the productive potential, to supply capacity the 0:02:43.840 --> 0:02:47.200 economy in the short term, in the medium term. Uh. 0:02:47.240 --> 0:02:51.200 You know, if you look down Constitution Avenue here the 0:02:51.200 --> 0:02:56.000 Federal Reserve, they have principal responsibility for maintaining full employment 0:02:56.040 --> 0:02:59.840 for stable prices. We are also looking to give them 0:02:59.840 --> 0:03:02.840 the space and the independence they need to take that 0:03:02.880 --> 0:03:05.880 principle responsibility. Our job here is to use the tools 0:03:05.880 --> 0:03:08.040 we have. We think we're doing that around supply chains, 0:03:08.040 --> 0:03:11.240 around calling for and acting on the investments to to 0:03:11.360 --> 0:03:13.720 give this economy room to run, to give the supply 0:03:13.760 --> 0:03:17.079 capacity economy room to run. That's what we're focused on. Mike, 0:03:17.120 --> 0:03:19.280 what do you say to people to say that you 0:03:19.320 --> 0:03:22.040 guys run things too hot? Talk about the Federal Reserve 0:03:22.120 --> 0:03:23.760 and the lack of response we had from the Fed. 0:03:23.840 --> 0:03:26.280 But the argument that you run things too hot, that 0:03:26.360 --> 0:03:28.840 the package you passed when you took over the White 0:03:28.880 --> 0:03:31.200 House was too big for this economy. Yes, it was 0:03:31.240 --> 0:03:34.200 supply constraint, but you fuel demand. And here we are 0:03:34.240 --> 0:03:37.400 at seven point. Do you have an argument for that 0:03:37.480 --> 0:03:41.560 still that stands up? So I'd say two things. I mean, one, 0:03:41.640 --> 0:03:45.400 let's take a step back. UH, this is a historic 0:03:45.520 --> 0:03:51.080 recovery that is ongoing. The fastest GDP growth in forty years, 0:03:51.840 --> 0:03:55.400 and unemployment rate UH now down to four percent, the 0:03:55.440 --> 0:03:59.000 fastest it's dropped on record. UH. Six point six million 0:03:59.080 --> 0:04:03.400 jobs created last year. That is a historic recovery. When 0:04:03.400 --> 0:04:07.520 we look obviously, we're very focused, the President vice president 0:04:07.640 --> 0:04:10.680 very focused on price pressures on the way they pinch 0:04:11.280 --> 0:04:13.880 working families. But we would observe that you know, this 0:04:14.000 --> 0:04:17.479 is a global phenomenon. This is traceable to a global shock, 0:04:17.960 --> 0:04:21.479 the pandemic, and we've seen record inflation in the UK 0:04:21.800 --> 0:04:26.000 and Canada, the highest inflation in Europe in twenty some years. UH, 0:04:26.120 --> 0:04:28.839 this is a global phenomenon. But we want to build 0:04:28.839 --> 0:04:31.640 on the successes that we've had around their recovery. But 0:04:31.760 --> 0:04:34.279 also we're focused in a very laser like way with 0:04:34.320 --> 0:04:36.800 the tools that we have to bring price pressures under 0:04:36.839 --> 0:04:39.440 control to some degree. My that is true to a 0:04:39.680 --> 0:04:41.880 certain extent. Some people would arcum against it. President that 0:04:41.880 --> 0:04:44.680 God herself has said this. She said this yesterday evening 0:04:44.920 --> 0:04:47.440 the U. S economy is overheated. Our economy is far 0:04:47.480 --> 0:04:50.080 from being that. She thinks, it's a very different economy 0:04:50.080 --> 0:04:52.440 in Europe compared to say, the United States, and you 0:04:52.560 --> 0:04:54.480 rattle through those numbers, and we do that as well 0:04:54.520 --> 0:04:57.479 on this program. There's some great numbers out there. The 0:04:57.480 --> 0:04:59.680 automate problem you've got as an administration at the moment, 0:04:59.680 --> 0:05:02.320 as you obviously, the sentiment numbers don't echo it. People 0:05:02.360 --> 0:05:05.360 don't feel good and in the polls the administration is 0:05:05.440 --> 0:05:07.240 rolling over, including for the Vice President. It's been a 0:05:07.240 --> 0:05:10.120 difficult time for her as well. Mike's time on your 0:05:10.160 --> 0:05:12.400 side here going into the midterms. Do you think it is? 0:05:12.400 --> 0:05:14.760 Is the calendar on your side when you look at 0:05:14.760 --> 0:05:17.920 the inflation and the hope that it decelerates its year end. 0:05:19.760 --> 0:05:22.640 So I'm the economics guy, not the politics guys. I'll 0:05:22.680 --> 0:05:25.120 just go straight to the economics. You know. I think 0:05:25.120 --> 0:05:29.320 you heard from the President yesterday in his statement after 0:05:29.360 --> 0:05:32.320 the CPI release. That's something we've been been saying for 0:05:32.360 --> 0:05:35.240 a while. When you look at the vast majority of 0:05:35.279 --> 0:05:38.400 forecasters out there, whether it's the Fed or or the 0:05:38.440 --> 0:05:43.320 private sector, they do see inflation decelerating meaningfully over the 0:05:43.320 --> 0:05:47.080 course of two At the same time, we like, they 0:05:47.160 --> 0:05:51.280 see the labor market remaining strong. So our expectation is 0:05:51.520 --> 0:05:55.440 as we go through two, We're gonna see ongoing strength 0:05:55.440 --> 0:05:57.880 in the labor market. We're going to see inflation decelerate. 0:05:57.960 --> 0:06:00.560 I think you saw the glimmers of that uh in 0:06:00.720 --> 0:06:03.800 the CPI print and the jobs print last week, where 0:06:03.839 --> 0:06:07.479 we saw wages go up by point seven month on month, 0:06:07.839 --> 0:06:10.520 we saw inflation up point six. Obviously that's a firm print, 0:06:10.520 --> 0:06:13.279 but it was indicative of real wage growth. We think 0:06:13.320 --> 0:06:15.960 that as we moved through the year, that's going to improve. 0:06:16.040 --> 0:06:19.599 His wages stay strong, but inflation comes down my pile. 0:06:19.800 --> 0:06:21.719 Thank you. Mike is going to catch up, buddy, Chief 0:06:21.720 --> 0:06:29.920 Economic Advisor to Vice President Karmena Harris. Let's get to 0:06:29.920 --> 0:06:33.000 the perfect ghost Jim's alter Apollo Global Management. John. What's 0:06:33.000 --> 0:06:35.720 so great here out of his dooke economics is the 0:06:35.760 --> 0:06:39.599 immense credit of actually running money. You know, it's a 0:06:39.640 --> 0:06:42.359 path from Smith Berney John that was a small startup 0:06:42.400 --> 0:06:45.159 firm a few years ago on the City Group and 0:06:45.160 --> 0:06:48.320 then onto Apollo. The co president and credit c IO 0:06:48.480 --> 0:06:50.599 joins us right now. He JM. Let's talk about the 0:06:50.600 --> 0:06:52.480 business and then let's get our teeth into markets to 0:06:52.640 --> 0:06:55.640 the business. The inflow is fantastic for the quarter. Looking 0:06:55.680 --> 0:06:58.960 at credit strategies accounting for six of that during the period. 0:06:59.120 --> 0:07:02.760 What's driving that him, Well, we're fortunately we have an 0:07:02.760 --> 0:07:05.599 amazing platform and it was a banner year in every 0:07:05.640 --> 0:07:08.480 aspect of our business. First of all, investrial performance. We 0:07:08.600 --> 0:07:12.640 performed across the firm, from credit to hybrid to pe. 0:07:13.160 --> 0:07:16.440 We deployed a tremendous amount of capital um and certainly 0:07:16.480 --> 0:07:19.320 from all of those metrics, investors do well. And we 0:07:19.360 --> 0:07:22.920 provide solutions for a variety of businesses, so the businesses 0:07:23.000 --> 0:07:26.840 is performing on all cylinders. Twenty one was a banner year, 0:07:26.920 --> 0:07:30.440 as I used that termament in all the economic performance. 0:07:30.600 --> 0:07:34.320 And you know, certainly we've continued to expand our role 0:07:35.000 --> 0:07:38.720 in the infrastructure of the economy. Credit is the lifelood 0:07:38.720 --> 0:07:41.360 of the of the economy. Um, we can talk about 0:07:41.360 --> 0:07:43.400 a variety of the extension. Last time I was now 0:07:43.440 --> 0:07:46.840 we talked about a variety of platforms. Were still expanding 0:07:46.880 --> 0:07:49.640 that area to one of our three big five year 0:07:49.680 --> 0:07:53.480 strategic goals. But um, no, no doubt, twenty one a 0:07:53.520 --> 0:07:55.240 little bit in the rear view mirror. But but it 0:07:55.280 --> 0:07:57.400 was a record year in every aspect for us. You 0:07:57.440 --> 0:07:59.840 know what's terminating in the conversation this morning, it's the 0:08:00.000 --> 0:08:02.680 is a credit you've had from all the banks, five six, 0:08:02.720 --> 0:08:05.800 seven hikes maybe fifty basis points in March. Jim, as 0:08:05.800 --> 0:08:08.160 you follow that conversation, what does it change for you 0:08:08.480 --> 0:08:10.200 for the company, for the business, for what you do 0:08:10.240 --> 0:08:15.280 today today? Well, you know, for us, we play an 0:08:15.280 --> 0:08:19.120 expanding role in in the credit markets, and whether whether 0:08:19.200 --> 0:08:22.720 it's the platforms like an auto fleet finance business like 0:08:23.200 --> 0:08:26.640 wheels Doalin, or an inventory finance of Elian what you 0:08:26.720 --> 0:08:29.960 did with all of those. We are in touch with 0:08:30.000 --> 0:08:33.040 the end user of the end client and power and 0:08:33.080 --> 0:08:38.439 the marketplaces robust, the consumers and relatively strong shape across 0:08:38.480 --> 0:08:41.800 the board. No doubt we're seeing wage and and other 0:08:41.960 --> 0:08:46.280 inflation in the marketplace, but the credit markets are not 0:08:46.360 --> 0:08:49.440 rolling over right now. We're still in historically very low rates. 0:08:49.840 --> 0:08:52.280 The faults are expected to be quite low the next 0:08:52.360 --> 0:08:55.080 six to twelve months. Certainly as you get into twenty 0:08:55.160 --> 0:08:57.760 three and twenty four that may be a different story. 0:08:57.800 --> 0:09:01.960 But we're relatively constructed on the underlying economy, which is 0:09:02.000 --> 0:09:04.760 what you really are investing in when you invest in credit. Jim, 0:09:04.800 --> 0:09:07.000 you're such a student of Wall Street. I've got to 0:09:07.000 --> 0:09:10.640 go to the leverage question. Usually when things blow up 0:09:10.760 --> 0:09:14.600 for Wall Street, American Wall Street and frankly Global Wall Street. 0:09:15.000 --> 0:09:19.240 It's this evil thing, leverage. What's the state of your 0:09:19.320 --> 0:09:23.800 Wall Street right now? Are they exposed with leverage to 0:09:23.920 --> 0:09:28.800 any interst rate dynamics that we could see, you know, 0:09:28.920 --> 0:09:32.880 from in my three plus decades, I'm not seeing on 0:09:33.080 --> 0:09:37.559 the Wall Street participants of size areas where there's a 0:09:37.559 --> 0:09:41.360 complete lack of discipline um and if there is aggressive lending, 0:09:41.840 --> 0:09:45.240 they distribute and syndicate in the manner. So I don't 0:09:45.280 --> 0:09:47.840 see any areas. Certainly, if you look at the leverage 0:09:47.920 --> 0:09:52.400 law market, the high yield market UM, with equity valuations 0:09:52.440 --> 0:09:55.640 so strong, there are a number of spins to talk about, 0:09:56.080 --> 0:09:59.120 you know, loan to value on enterprise values that are 0:09:59.160 --> 0:10:03.720 probably at the extreme level of high um and but 0:10:03.960 --> 0:10:07.400 certainly in most of the things in and our business 0:10:07.480 --> 0:10:10.160 what we do here to follow for our investors and 0:10:10.200 --> 0:10:13.400 for our institutions, we're a senior lender top of the 0:10:13.480 --> 0:10:17.440 capital structure. We actually two or three times. But I'm 0:10:17.440 --> 0:10:20.960 not seeing the big pothole out there, i e. Housing 0:10:21.240 --> 0:10:23.720 or leverage finance that you saw on O eight oh nine. 0:10:24.280 --> 0:10:27.040 With within this then is the wall of money that's 0:10:27.080 --> 0:10:29.760 out there. There was a terrific infrastructure announcement of a 0:10:29.920 --> 0:10:32.320 jillion dollars made a few days ago. I can't remember 0:10:32.360 --> 0:10:36.160 the details, Jim. It becomes a blur. But how do 0:10:36.280 --> 0:10:41.920 you adapt to the unlimited alternative investment wall of money 0:10:42.120 --> 0:10:46.120 that is out there? Well, I think you're you're, you're 0:10:46.120 --> 0:10:48.880 a great question is you evolved? The reality is the 0:10:48.960 --> 0:10:51.600 world is short duration and what I mean by that 0:10:51.840 --> 0:10:55.960 is long dated yield on tension assets. Uh. And there's 0:10:56.000 --> 0:10:58.280 a lot of there's a lot of secular drivers, so 0:10:58.360 --> 0:11:01.440 that the growing wealth a on Asia, the Middle East, 0:11:01.600 --> 0:11:05.160 Latin America, the pensions are actually in good shape. The 0:11:05.240 --> 0:11:07.760 rally in the last or three years have put many 0:11:07.920 --> 0:11:10.800 many pensions around the globe in better shape. And as 0:11:10.840 --> 0:11:14.560 they get to a fund or closer that they want 0:11:14.559 --> 0:11:17.400 to lock in that and they transfer their equity risk 0:11:17.440 --> 0:11:20.760 to more income if you would. So there's no doubt 0:11:21.280 --> 0:11:24.160 if you look at how the role of private credit 0:11:24.240 --> 0:11:29.640 and yield is now a permanent part of investor strategies. Uh. 0:11:29.720 --> 0:11:32.160 Your point is well taken that whether it's in Japan 0:11:32.240 --> 0:11:36.120 when race or basically zero, and Japan Post Bank has 0:11:36.160 --> 0:11:39.720 north of two trillion of assets, they need these type 0:11:39.720 --> 0:11:43.600 of yield strategies. So what Apollo does well in terms 0:11:43.600 --> 0:11:46.680 of responding to that with our type of returns Uh, 0:11:46.720 --> 0:11:50.520 there is an insatiable appetite that exists out there, and 0:11:50.600 --> 0:11:53.480 all we're doing is we are really putting the capital 0:11:53.520 --> 0:11:57.240 from our investors at the intersection of borrowers who are 0:11:57.280 --> 0:12:00.880 need solutions. So it's a it's a trend, and it's great. 0:12:00.920 --> 0:12:03.720 We're very fortunate coming into a business where every day 0:12:04.040 --> 0:12:08.040 the backdrop and the technicals and the tsunami actually get 0:12:08.120 --> 0:12:12.240 better quarter the quarter. Jim gretta catch up, sir, great quarter. 0:12:12.320 --> 0:12:14.440 To appreciate your time on this market as well. What 0:12:14.520 --> 0:12:16.640 a fun time for a lot of people. Jim's outs 0:12:16.960 --> 0:12:24.040 of Apollo Global Management. With us, now we get lucky. 0:12:24.280 --> 0:12:26.480 Mark o'banna, the head of US rate strategy at Bank 0:12:26.559 --> 0:12:30.520 America Global Research, Mark Ethan Harris for the economy team, 0:12:30.559 --> 0:12:33.200 came out with the FED rate cool said seven hikes 0:12:33.240 --> 0:12:36.120 two weeks ago. There's non consensus is consensus now and 0:12:36.160 --> 0:12:39.360 that's changed quickly. Mark, you oversee the Bannan sheet side 0:12:39.360 --> 0:12:41.320 of the call as well. Put it all together for us. 0:12:41.400 --> 0:12:45.280 What's the team looking for now? So kudos to Ethan 0:12:45.400 --> 0:12:47.440 he did have a great call on seven hikes for 0:12:47.480 --> 0:12:50.120 this year. The market style pricing now it seems like 0:12:50.200 --> 0:12:54.480 that's rapidly becoming consensus. There are still questions about whether 0:12:54.559 --> 0:12:57.559 or not the Fed goes fifty in March. We on 0:12:57.640 --> 0:13:00.600 the Riach strategy team have been recommending the client position 0:13:00.720 --> 0:13:03.880 for fifty m We hit our target on that trade 0:13:04.040 --> 0:13:06.839 yesterday and certainly in the market's mind, it seems very 0:13:06.880 --> 0:13:09.320 likely that the Fed's gonna go fifty in March, and 0:13:09.520 --> 0:13:13.400 who knows, maybe even fifty in May as well. UM 0:13:13.480 --> 0:13:16.679 On the balance sheet, UM, we've also been pretty aggressive 0:13:16.800 --> 0:13:20.200 on the timing balance sheet reduction and key teeth. We 0:13:20.240 --> 0:13:23.320 believe that the bounty reduction will start in May and 0:13:23.360 --> 0:13:27.160 it will go pretty aggressively. The federalll likely have one 0:13:27.240 --> 0:13:32.360 hundred billion caps redemption camps on treasuries and mortgages sixty 0:13:32.400 --> 0:13:35.439 billion treasuries forty billion mortgages, and they'll phase into that 0:13:35.600 --> 0:13:38.679 over a three month period. But while they're phasing into 0:13:38.760 --> 0:13:41.840 those caps, they're gonna allow their bill holdings, of which 0:13:41.840 --> 0:13:46.000 they have about three billion, to roll off immediately. So 0:13:46.040 --> 0:13:48.200 what this will mean is that the Fed can shrink 0:13:48.240 --> 0:13:51.320 their balance sheet by over a hundred billion dollars straight 0:13:51.320 --> 0:13:53.240 out of the gate, with the bills coming off and 0:13:53.280 --> 0:13:56.960 those redemption caps gradually phasing in. And according to our numbers, 0:13:57.040 --> 0:13:59.040 we think that the FED will see their bounch sheet 0:13:59.280 --> 0:14:02.400 shrink by a trillion dollars in two. Again, that's a 0:14:02.440 --> 0:14:08.880 trillion dollar in and another trillion in three. So the 0:14:08.880 --> 0:14:11.480 balance sheet reduction is likely to occur quite rapidly. So 0:14:11.480 --> 0:14:13.880 the feed will be technique not only through greate heights 0:14:14.040 --> 0:14:15.920 and the front end of the curve, but they'll also 0:14:15.960 --> 0:14:19.000 be tightening by adding duration risks back into the market 0:14:19.080 --> 0:14:20.720 at the back end of the curve. With the balance 0:14:20.720 --> 0:14:23.160 sheet reduction. Mark stuff, stop stop, let me jump in. 0:14:23.760 --> 0:14:27.040 Seven hikes this year, A trillion dollars of balance sheet 0:14:27.080 --> 0:14:29.840 reduction this year. Not here to say it's wrong, it's 0:14:29.840 --> 0:14:32.000 a cool I want to talk about the cold. What 0:14:32.120 --> 0:14:34.800 on earth does the yield curve look like with all 0:14:34.840 --> 0:14:38.840 of that going on, flat, maybe inverted by the end 0:14:38.880 --> 0:14:43.000 of this year. Um uh. We we think that. Look, 0:14:43.280 --> 0:14:45.400 the back end of the curve only has a limited 0:14:45.440 --> 0:14:48.320 capacity to rise in our few We actually just revised 0:14:48.320 --> 0:14:50.320 our tenure call at the end of the year from 0:14:50.360 --> 0:14:53.600 two percent to two and a quarter my minor adjustment. 0:14:53.960 --> 0:14:56.120 But what we're thinking is that, look, the back end 0:14:56.120 --> 0:14:57.520 of the curve is going to have a hard time 0:14:57.720 --> 0:15:01.000 rising in the face of tightening finance with conditions and 0:15:01.040 --> 0:15:04.360 presumably concerns about slowing economic growth. That's going to keep 0:15:04.400 --> 0:15:07.600 the back end anchor. Meanwhile, the Fed's gonna be raising 0:15:07.640 --> 0:15:10.160 right to the front end pretty aggressively. So we think 0:15:10.160 --> 0:15:13.320 you're gonna be looking at a pancake flat curve twos 0:15:13.480 --> 0:15:16.680 the thirties by the end of the year, with risks 0:15:16.720 --> 0:15:20.080 that it becomes inverted. And we don't think that the 0:15:20.080 --> 0:15:24.080 FED is gonna feel terribly bad about that because they 0:15:24.080 --> 0:15:27.640 have an inflation problem. They need to tighten monetary policy 0:15:27.800 --> 0:15:31.600 pretty quickly, and they need to tighten beyond neutral in 0:15:31.680 --> 0:15:37.600 order to slow demand and get control of the inflation issue. So, Mark, 0:15:37.680 --> 0:15:39.760 if you have an inverted curve forecast by the end 0:15:39.800 --> 0:15:43.560 of this year, are you calling for recession then? So 0:15:43.800 --> 0:15:46.840 we are a forecasters only for a flat curve. We're 0:15:46.880 --> 0:15:50.760 not at the inversion yet, um and we're not calling 0:15:50.840 --> 0:15:53.320 for a recession. But what we are calling for is 0:15:53.360 --> 0:15:57.240 a gradual slowdown in the economy over the remainder of 0:15:57.240 --> 0:16:01.160 this year and into next year. UM, an inverted curve 0:16:01.240 --> 0:16:02.960 doesn't necessarily mean that you're going to be in a 0:16:02.960 --> 0:16:07.240 recession right away. Inverted curves do have a reasonable history 0:16:07.440 --> 0:16:12.440 of preceding recessions, but with long and variable labs, and 0:16:13.480 --> 0:16:16.840 we're not in the recession camp at this point. But 0:16:16.960 --> 0:16:18.680 what we are saying is that the FED has to 0:16:18.720 --> 0:16:22.880 take policy into a place where it becomes tight in 0:16:23.000 --> 0:16:25.480 order to deal with the inflation issue. They've got a 0:16:25.520 --> 0:16:28.680 slow aggregate demand in order to get on handle on inflation, 0:16:28.800 --> 0:16:31.360 and that means that the curve has to be flat 0:16:31.480 --> 0:16:33.880 or possibly inverted. Mark. I don't want to front run 0:16:33.920 --> 0:16:36.080 you or Dr Harris this morning on what Bank of 0:16:36.080 --> 0:16:39.280 America is going to suggest here, but within the talk 0:16:39.360 --> 0:16:43.080 of an emergency meeting and the fundamental idea that that 0:16:43.320 --> 0:16:48.160 threatens central bank credibility. If they have an emergency meeting 0:16:48.200 --> 0:16:52.200 to change your world the balance sheet dynamic, does that 0:16:52.360 --> 0:16:57.920 threaten FED credibility? It's an original effort, an original action. 0:16:58.400 --> 0:17:04.320 Does it? Actually you've FED credibility? So great question. UM, 0:17:04.400 --> 0:17:06.480 there's a lot of chatter in the market right now 0:17:06.480 --> 0:17:10.120 about an inter meeting move, especially following St. Louis FED 0:17:10.119 --> 0:17:14.320 President Pollard's comments yesterday. We think that an inter meeting 0:17:14.520 --> 0:17:18.320 hike is quite unlikely. The FED doesn't typically like to 0:17:18.359 --> 0:17:21.480 surprise the market when they hike. UM. They will follow 0:17:21.520 --> 0:17:24.119 the market in the hiking path, but they typically don't 0:17:24.119 --> 0:17:26.919 like the surprise. And we think that it would it 0:17:26.960 --> 0:17:30.159 would be very unexpected to see the FED deliver an 0:17:30.200 --> 0:17:33.960 intermeding hype, especially since they're just not there. You had 0:17:33.960 --> 0:17:38.600 married Daily on the wires yesterday from the San Francisco 0:17:38.680 --> 0:17:41.560 FED saying that she thinks that a couple of hikes 0:17:41.560 --> 0:17:44.200 this year are appropriate. She's not even sold on fifty, 0:17:44.359 --> 0:17:47.639 never mind an inter meeting hike. And and and Tom, 0:17:47.840 --> 0:17:51.840 I would encourage you and everyone who's listening to pay 0:17:51.880 --> 0:17:56.000 attention at three o'clock today. I know that sounds very specific, 0:17:56.000 --> 0:17:59.199 but it's really important because at three o'clock today, the 0:17:59.320 --> 0:18:05.080 New York FED is scheduled to release it's final purchase calendar. 0:18:05.400 --> 0:18:08.600 The final month of its paper is scheduled to be 0:18:08.640 --> 0:18:10.960 released at three o'clock today. And if the FED releases 0:18:11.000 --> 0:18:15.159 that calendar at three, interesting pretty strong forward guidance that 0:18:15.240 --> 0:18:18.040 they're not going to be doing an intermeding hype. UM. 0:18:18.160 --> 0:18:20.640 So again we would fade the notion of an intermeding hype, 0:18:20.760 --> 0:18:24.240 especially if that calendar publishes as a schedule mark. Is 0:18:24.280 --> 0:18:26.480 there a chance they don't publish that, and just and 0:18:26.600 --> 0:18:30.080 ki right now, there is a chance of that, But 0:18:30.480 --> 0:18:33.040 we don't believe that they're gonna wait until three o'clock 0:18:33.359 --> 0:18:36.359 to surprise the market with that. We do believe that 0:18:36.400 --> 0:18:39.760 if they make the decision to end paper early Cold 0:18:39.760 --> 0:18:43.640 Turkey now, they're probably gonna tell us soon, like within 0:18:43.680 --> 0:18:46.720 the next couple of hours. UM, we'd be surprised if 0:18:46.720 --> 0:18:51.040 they wait until three o'clock to make that announcement. And again, honestly, Jonathan, 0:18:51.160 --> 0:18:53.520 I just don't think that the FED is ready yet 0:18:53.760 --> 0:18:57.000 to signal an intermeding hyke. And that means that they're 0:18:57.040 --> 0:18:59.600 probably going to publish the calendar at three o'clock and 0:18:59.640 --> 0:19:01.880 for Foo to want to play for this intermeting hype, 0:19:01.880 --> 0:19:03.399 and there's a lot of them in the market. Just 0:19:03.440 --> 0:19:06.359 look at the February FED Funds futures contract. It's showing 0:19:06.480 --> 0:19:08.639 rising odds of engineering. If you want to play for 0:19:08.640 --> 0:19:11.880 an engineering hype, we think you're better position to play 0:19:11.920 --> 0:19:15.400 for a seventy five basis point hype in March as 0:19:15.400 --> 0:19:18.720 opposed to an intermeding hype. In February, dear me, Mark 0:19:18.720 --> 0:19:20.879 comes struggling to keep up. So let's go through it together. 0:19:21.960 --> 0:19:25.040 The idea of seven this year, the possibility of maybe 0:19:25.040 --> 0:19:27.320 fifty in March. You and Ethan seemed to be still 0:19:27.320 --> 0:19:29.640 having a discussion about that. We'll see what the outcome is. 0:19:29.840 --> 0:19:33.040 Bannet sheet reduction one trillion this year, one trillion next year. 0:19:33.680 --> 0:19:35.960 Talk to me about destination. Can you put a number 0:19:35.960 --> 0:19:38.600 on that? Because all the calls we're seeing some people 0:19:38.640 --> 0:19:41.080 going to five, some people joining you as seven Goldman 0:19:41.119 --> 0:19:44.719 one of them, they're not moving the terminal rate. They 0:19:44.800 --> 0:19:46.800 ultimately think that we end where they thought we were 0:19:46.800 --> 0:19:49.159 going to win three months ago. Mark, where do you 0:19:49.200 --> 0:19:52.879 think this ends at what number? So the b a 0:19:53.080 --> 0:19:56.120 house called Ethan's call is at the terminal rate between 0:19:56.440 --> 0:19:59.399 two point seven, five and three percent. That's where the 0:19:59.520 --> 0:20:02.240 thinks the real funds rate will end at the end 0:20:02.240 --> 0:20:05.560 of next year. So terminal is going to be about 0:20:05.560 --> 0:20:10.560 neutrals discussing before because the fedest of Titan, Mark, I 0:20:10.560 --> 0:20:12.439 want to go to the history of this. In this 0:20:12.520 --> 0:20:16.359 incredible moment you just described on this Friday morning in 0:20:16.440 --> 0:20:20.280 two thousand twenty two, the late Alan Meltzer of Carnegie 0:20:20.280 --> 0:20:23.200 Mellon wrote an important essay four years before he died, 0:20:23.240 --> 0:20:26.960 this in two thousand thirteen, where he was scathing, as 0:20:27.000 --> 0:20:32.159 you would expect from the conservative over quantitative Quicksand the 0:20:32.200 --> 0:20:35.439 Fed's got a deal with a quantitative Quicksand right now, 0:20:35.920 --> 0:20:38.920 are you suggesting we could see action as early as 0:20:38.960 --> 0:20:43.200 this morning to delay or dismiss the New York FED 0:20:43.280 --> 0:20:48.760 action this afternoon? It's certainly being talked about in the market. Um. 0:20:48.840 --> 0:20:52.880 And the chatter around this was very very high from 0:20:52.880 --> 0:20:57.320 our clients on the trading floor at be a Bey yesterday. Um, 0:20:57.359 --> 0:20:59.880 there's a buzz about that in the market. Really fall 0:21:00.000 --> 0:21:04.159 away um St Louis Fed President Bullard's comments yesterday. But 0:21:04.240 --> 0:21:07.280 to us, look, this three o'clock announcement is a very 0:21:07.320 --> 0:21:10.520 strong signal. It's very strong forward guidance. If it comes 0:21:10.520 --> 0:21:14.440 out as expected, um, then they're not going to go intermeding. 0:21:14.480 --> 0:21:16.760 But if it doesn't, then the odds of that intermeding 0:21:16.880 --> 0:21:19.600 potential hike are going to go up meaningful. We think 0:21:19.640 --> 0:21:22.479 the intermeeding hike is a fade um. And again, if 0:21:22.520 --> 0:21:25.280 you want a position for that for a more aggressive FED, 0:21:25.400 --> 0:21:27.800 we think you're better off paid march up one c 0:21:27.960 --> 0:21:30.040 l I s and maybe driving the Fed to go 0:21:30.119 --> 0:21:33.480 seventy five in their first time. Marcabanna, just unreal, and 0:21:33.480 --> 0:21:36.280 I wish I could take this through the morning. Just fantastic, Marcabanna, 0:21:36.320 --> 0:21:44.800 that of Bank America. We're thrilled to bring you in 0:21:44.960 --> 0:21:48.199 studio for the first time since Nixon was president, well 0:21:48.200 --> 0:21:50.800 not that far back. Tina Fordham joins, us head of 0:21:50.880 --> 0:21:54.920 Global Political Strategy at Evans. Thrilled that you could because 0:21:54.920 --> 0:21:57.040 thank you so much for coming into the studio. Such 0:21:57.040 --> 0:21:59.960 a pleasure to be back on. These are delicate times 0:22:00.000 --> 0:22:03.000 times and that Russia has conveyed a message. There is 0:22:03.080 --> 0:22:06.119 no plans, there's no this. There are talks to the 0:22:06.200 --> 0:22:10.439 north where we're comfortable with the map of Belarus, of 0:22:10.720 --> 0:22:14.320 the northern northeast of Kiev. I should say, in the 0:22:14.400 --> 0:22:18.400 southern parts of the Russian Federation. You have the courage 0:22:18.440 --> 0:22:21.719 to go the other way and look south to the 0:22:21.840 --> 0:22:27.080 naval reality of the Black Sea into this weekend. What 0:22:27.160 --> 0:22:31.160 do we need to know about Russia and Ukraine. Ukraine 0:22:31.240 --> 0:22:35.200 and Russia and the Black Sea. Thanks Tom, It's a 0:22:35.320 --> 0:22:38.280 very important conversation, and I've been talking to investors here 0:22:38.280 --> 0:22:40.879 in New York and also in London where I'm based. 0:22:41.040 --> 0:22:44.879 And uh, you know, the memo is um is becoming 0:22:44.920 --> 0:22:49.480