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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and

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Speaker 1: this is Here's Why, where we take one news story

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Speaker 1: and explain it in just a few minutes with our

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Speaker 1: experts here at Bloomberg. The European Central Bank is set

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Speaker 1: to cut interest rates for the first time since twenty sixteen.

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Speaker 1: ECB President Christine la gald says she's confident price rises

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Speaker 1: are under control. Here's what she told Irish broadcaster RTE.

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Speaker 2: No predicament, no prescription, no commitment. But it is a

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Speaker 2: case that if the data that we receive reinforce the

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Speaker 2: confidence level that we have that we will deliver two

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Speaker 2: percent inflation in the medium term, which is our objective,

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Speaker 2: our mission, our duty, then there is a strong likelihood.

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Speaker 1: But in the United States Federal Reserve charge your own

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Speaker 1: Powell is seeing different signals in the inflation data there.

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Speaker 3: The first quarter in the United States was notable for

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Speaker 3: its lack of further progress on inflation. We had higher

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Speaker 3: readings in the first quarter, and higher than we expected.

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Speaker 3: We did not expect this to be a smooth road,

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Speaker 3: but these were higher than I think anybody expected, and

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Speaker 3: so what that has told us is that will need

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Speaker 3: to be patient and let restrictive policy do its work.

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Speaker 1: The result, one central bank is cutting and one isn't,

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Speaker 1: at least for now. In the past that's led to

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Speaker 1: volatility on markets. So here's why growing central bank divergence

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Speaker 1: might not be a problem. Joining us now is Bloomberg

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Speaker 1: opinion columnist Daniel Moss. Now, we often hear where the

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Speaker 1: Fed leads the world follows, but not this time. Why

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Speaker 1: could that be a problem.

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Speaker 4: By the end of this interview, you're going to wish

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Speaker 4: you a Harry Truman asking for a one armed economist.

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Speaker 4: I'm not an economist, but i have covered and written

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Speaker 4: about and been responsible for coverage four central banks for

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Speaker 4: a long time at Bloomberg. And I'm not sure the

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Speaker 4: divergence is great. I'm not sure it's growing, and I'm

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Speaker 4: less convinced that it's a problem. So despite what a

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Speaker 4: lot of central banks say, they say they're independent from

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Speaker 4: the FED and they don't do things just because the

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Speaker 4: Fed does things. Well, that's true. However, there does tend

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Speaker 4: to be a broad historical correlation. So many times over

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Speaker 4: the years, I've heard central bank governors from say Indonesia

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Speaker 4: or South Africa or somewhere in Central America say, oh,

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Speaker 4: we're independent of the FED. Fine, but broadly the patterns followed.

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Speaker 4: Now with regards the ECB, my impression is they've talked

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Speaker 4: themselves into a June cut, and they more or less

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Speaker 4: have to go ahead with it because they've talked themselves

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Speaker 4: into it. I've not heard any convincing strategy or any

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Speaker 4: convincing timeline. ECB policy makers have coalesced around for what

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Speaker 4: comes after June. It's like, we've got to do it,

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Speaker 4: but what maybe we should wait for a while. The

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Speaker 4: other thing I would say is, you know, if the

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Speaker 4: divergence is so great, and if we're not waiting for

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Speaker 4: the FED, and if we're not hung up from the FED,

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Speaker 4: then put yourself in the room at Bank. Indonesia's last

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Speaker 4: surprise rate hike, the opening statement from the governor was

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Speaker 4: all about what's going on in the US. I may

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Speaker 4: have missed it, but I don't recall J. Powell beginning

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Speaker 4: a press conference talking about Indonesian domestic conditions.

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Speaker 1: Well, we'll wait and think if that happens the next

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Speaker 1: fat beating. You've been writing though about the massive chef

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Speaker 1: that we've seen in recent months, about what markets are

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Speaker 1: expecting from Central banks in terms of rate cuts. Is

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Speaker 1: this just a question of expectations versus reality for these

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Speaker 1: central banks?

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Speaker 4: Look, it's part of it, and I would say this.

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Speaker 4: The US gets the headlines on this, but it's a

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Speaker 4: far broader phenomenon. If you go back six months, people

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Speaker 4: were predicting that quite a few central banks in the

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Speaker 4: region where I'm sitting now, Asia Pacific would be either

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Speaker 4: cutting or well on their way. Now that hasn't happened.

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Speaker 4: And in one instance, the Reserve Bank of New Zealand

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Speaker 4: said publicly that it considered a hike last week. Definitely

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Speaker 4: not a cut. There's a couple of notes flying around

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Speaker 4: about the Reserve Bank of Australia saying, look, we are

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Speaker 4: only one more mediocre inflation report away from penciling in

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Speaker 4: another hike, right, So the last mile of inflation has

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Speaker 4: a bad reputation, you know. And here's why it can

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Speaker 4: be very, very tricky. Now, is the global economy slowing

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Speaker 4: down as people had feared this time last year. No,

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Speaker 4: If anything, you could make a case that it's real

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Speaker 4: accelerating now in the era of inflation targets, it's pretty

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Speaker 4: difficult to begin a cutting cycle when you're significantly above target.

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Speaker 1: That's the nuance in this uneven progress that we've seen

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Speaker 1: in bringing down inflation. Is that as a result of

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Speaker 1: mistakes made by central banks or is it just the

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Speaker 1: unique way that this particular inflationary cycle is playing out.

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Speaker 4: So there was a fascinating conversation which really sort of

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Speaker 4: dragged across a couple of sessions of a recent economic

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Speaker 4: conference in Singapore. And according to the rules of attendance,

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Speaker 4: I'm not allowed to identify people specifically, but there was

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Speaker 4: one very senior policy maker, not from Asia Pacific who

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Speaker 4: excoriated his erstwhile co extent. They thought it was the

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Speaker 4: end of history, they thought inflation was dead. That was

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Speaker 4: a problem for the seventies and eighties. And let's move

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Speaker 4: on now to the commanding heights of generating employment growth. Well,

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Speaker 4: you know, post pandemic, that's come back to bite us.

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Speaker 4: And you know, I've got some sympathy for the central banks.

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Speaker 4: They did make mistakes, Ben BERNANKI talked in testimony to

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Speaker 4: the UK House of Commons about collective mistakes. There wasn't

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Speaker 4: necessarily group think, but you know, I've got some sympathy

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Speaker 4: because between say two thousand and eight and early twenty

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Speaker 4: twenty two. Late twenty inflation was broadly below target and

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Speaker 4: consistently below target. You go back to the early eras

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Speaker 4: of QE now like twenty conservative pundits placed an open

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Speaker 4: letter to Ben Bernanke in the Wall Street Journal back

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Speaker 4: when the print edition meant something saying all this q

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Speaker 4: is going to lead to dollary basement. Didn't happen. Runaway

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Speaker 4: inflation didn't happen. Now, inflation did pick up ten years later,

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Speaker 4: but that was as a result of supply chain issues

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Speaker 4: related to the pandemic. Janet Yellen, in a previous incarnation

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Speaker 4: called it a mystery why inflation isn't firing? So I've

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Speaker 4: got some sympathy. They heard a lot of people cry wolf. Okay,

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Speaker 4: Well this time it happened. And there was a recent

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Speaker 4: commentary published by Brookings featuring Hassana Fruzi, Marina hallak Ken Rogoff,

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Speaker 4: and Pierre Jared that basically questioned this whole it's the

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Speaker 4: end of history mentality. Jarred subsequently went on a Brookings

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Speaker 4: podcast and said this, we actually think the future will

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Speaker 4: be more similar to the distant past, in a sense

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Speaker 4: that the more recent past may in fact be more

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Speaker 4: of an aberration. The more recent past was special. There

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Speaker 4: were a lot of pressures that made the job of

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Speaker 4: central banking easier. The more distant past involves central banks

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Speaker 4: feeling a lot of headwinds, you know, as they are now.

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Speaker 4: So it's all still to play for. And by the way,

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Speaker 4: these authors are not predicting higher forever. They think it

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Speaker 4: will get back to target this time, but in coming

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Speaker 4: years you're going to see more spikes above two percent

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Speaker 4: that need to be.

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Speaker 1: Addressed, making times interesting for you and for us. Bloomberger

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Speaker 1: Opinion columnist Daniel Moss, thank you, and I would recommend

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Speaker 1: checking out Daniel's latest writing on central banking at Bloomberg

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Speaker 1: dot com, Forward Slash Opinion, and for more explanations like

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Speaker 1: this from our team of twenty seven hundred journalists and

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Speaker 1: analysts around the world, search for Quick Take on the

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Speaker 1: Bloomberg website or the Bloomberg Business app. I'm Stephen Carroll

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Speaker 1: and this is here's why. I'll be back next week

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Speaker 1: with more. Thanks for listening.