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Speaker 1: This is a special edition of Bloomberg Surveillance. In your

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Speaker 1: od loots podcast feed. We're in Jackson Hawayyoming, along with

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Speaker 1: Joe and Tracy covering the fed's annual Symposium. Keep listening

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Speaker 1: for conversations with Peterson Institute President Adam Posen and Philadelphia

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Speaker 1: Fed President Patrick Harker. That's coming up on the special

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Speaker 1: edition of Bloomberg Surveillance. This is the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 1: Join us each day for insight from the best an economics, geopolitics,

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Speaker 1: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 1: Spotify and anywhere you get your podcasts, and always on

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Speaker 1: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: Perfect guest for reaction to this speech as Mohammad al

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Speaker 2: Aaron of Bloomberg Opinion and Queen's College, cambridgemammed. Thanks for

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Speaker 2: being with us and being through with us through that

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Speaker 2: speech as well. What were your thoughts when you heard

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Speaker 2: some of those words from Chairman Power just moments ago.

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Speaker 3: I had three takeaways. John, First, it's a speech that

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Speaker 3: said very little that is new.

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Speaker 2: He repeated what he.

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Speaker 3: Has said in the past, and he has retained maximum

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Speaker 3: policy optionality. Second, he reminded us that with the exception

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Speaker 3: of the inflation target, which he said is two percent

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Speaker 3: and will remain two percent, everything else is uncertain. And

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Speaker 3: his reference to our star in particular was very interesting.

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Speaker 3: And third, what I thought was also curious is how

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Speaker 3: he ended the speech. He ended the speech talking about

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Speaker 3: we will follow the stars in a cloudy sky. Everybody

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Speaker 3: sees the cloudy sky, But what's interesting is that the

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Speaker 3: west of Jackson Hall will be about moving stars. All

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Speaker 3: the structural changes that are going on domestically and internationally,

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Speaker 3: and that just adds to the topic that the three

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Speaker 3: of you have been talking. That is a very complex

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Speaker 3: world out there, and the FED has to navigate a

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Speaker 3: lot of moving pieces.

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Speaker 2: Mohammed. One conversation you and I have had over the

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Speaker 2: last several weeks, the last several months for that matter,

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Speaker 2: people having this discussion here as well, are we, from

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Speaker 2: your standpoint, in your opinion, sufficiently restrictive?

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Speaker 3: John. This goes immediately to what is the right inflation target?

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Speaker 3: If the right inflation target is two percent and they

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Speaker 3: want to get there in a credible period of time,

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Speaker 3: then we are not sufficiently restrictive. If the right inflation target,

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Speaker 3: as you've heard many people say, including Adam Posen today,

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Speaker 3: is above two percent, giving all the structural changes, and

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Speaker 3: the way we're going to get there is not by

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Speaker 3: announcing the new target, but by following a shadow target,

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Speaker 3: and then once we see it stable at adopting it.

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Speaker 3: I think that's the most likely outcome, by the way,

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Speaker 3: then we are sufficiently restrictive.

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Speaker 4: Mohammed, Does it concern you that we've heard a lot

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Speaker 4: of people who sound pretty happy, actually, other than Jay Powell,

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Speaker 4: who is taking sort of the adult tone of we're

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Speaker 4: not there yet, Stop declaring victory. There's a lot more

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Speaker 4: down the pike, everybody else sounds like things are going

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Speaker 4: really well and the FED policy is achieving exactly what.

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Speaker 2: It saw to.

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Speaker 3: So I don't think it's everybody else, but most people are,

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Speaker 3: especially in the marketplace, not so the economists. You have

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Speaker 3: Larry Summers, for example, reminding us this morning that if

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Speaker 3: you look at the seventies inflation cycle, this one looks

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Speaker 3: very similar. He has to do graphs up and he's

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Speaker 3: sort of warning implicitly that we may see a pickup

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Speaker 3: in inflation. So I think the marketplace is much more

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Speaker 3: complacent than the economists saw. The economists recognize that the

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Speaker 3: many moving pieces, whereas the marketplace things that we've gotten

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Speaker 3: to a new equilibrium and from here is going to

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Speaker 3: be cut next year remains to be seen.

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Speaker 4: Do you think, Muhammad, that it's important for the Fed

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Speaker 4: to get ahead of a potential resurgence in inflation, or

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Speaker 4: do you think that Jay Powell's approach of watching the

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Speaker 4: stars and seeing what they are will be sufficient to

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Speaker 4: curtail some sort of more embedded inflation.

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Speaker 3: It's hard, Lisa, because as you know, they have not,

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Speaker 3: like past Feds, opted for a strategic view of inflation,

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Speaker 3: nor do they have a functional monetary policy framework. So

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Speaker 3: they've become highly data dependent, which means that they are

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Speaker 3: using instruments with lags on backward looking data. So they

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Speaker 3: are in a bit of a tough situation. They're going

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Speaker 3: to remain data dependent. So I don't think he knows

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Speaker 3: what they will do in September. He's going to wait

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Speaker 3: to see what the drop report is. He's going to

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Speaker 3: wait for the CPI numbers, and then they're going to

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Speaker 3: decide what to do. But this is the irony is

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Speaker 3: it's a highly dependent data and then fed using instruments

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Speaker 3: that act with a lag.

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Speaker 2: Plenty of feedback, Tom, This coming from No Data of

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Speaker 2: renmactis church and please send the following. I thought Pow

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Speaker 2: delivered a neutral speech. The Fed seas its monetary policy

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Speaker 2: stance is restrictive, and we'll make a more tempered approach

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Speaker 2: to future meetings. Proceed carefully, risk management. These are all

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Speaker 2: catchphrases for do nothing right now. The view from No

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Speaker 2: Data just Manasa guy.

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Speaker 1: A lot more response coming in here. Mixed market, red

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Speaker 1: and green on the screen, Doctor Orion. I want to

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Speaker 1: touch upon your iconic work and game theory, and that

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Speaker 1: with the word that I'm hearing this morning is complexity.

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Speaker 1: I heard it from you, I heard it from John

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Speaker 1: Lipsky and others. The simplicity we're all begging for is

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Speaker 1: teed decisions.

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Speaker 5: You are known for.

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Speaker 1: This This is a Jackson Hall devoid of teed decisions.

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Speaker 1: How do our viewers and listeners handle the complexity? Now?

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Speaker 3: And to come, Tom, I think the most important thing

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Speaker 3: to understand is that we have left the world of

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Speaker 3: insufficient demand and we are now in a world of

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Speaker 3: insufficient supply, and there's many reasons for that. It's a

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Speaker 3: world that's not going to go away anytime soon. It's

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Speaker 3: not pandemic issues that are fully reversible quickly. There are

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Speaker 3: longer term issues going on change, globalization, supply change management,

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Speaker 3: the functioning of the labor market, and the list goes on.

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Speaker 3: So we are now in a different world of supply

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Speaker 3: side constraints, and that world will mean that countries will

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Speaker 3: become more inwardly looking, which we've seen already, and it

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Speaker 3: also means that policy has to adjust to that. Now

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Speaker 3: put on top of that the layer of industrial policy

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Speaker 3: as we embark more meaningfully on a green transition, And

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Speaker 3: it's all about the supply side, tom and that's where

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Speaker 3: monetary policy is really challenged, because it acts on the

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Speaker 3: demand side.

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Speaker 1: We're thrilled, Mohaman to have doctor Gerghavin with us, and

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Speaker 1: then you and Christian Laguard with us later. And the

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Speaker 1: heart of the matter is, are we beyond the supply

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Speaker 1: shocks of this pandemic? Where are we on that Continueum Muhammad?

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Speaker 1: Have we escaped COVID?

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Speaker 3: I mean, we've escaped the worst of COVID, but we're

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Speaker 3: dealing with the legacy of COVID, but we're also dealing

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Speaker 3: with the legacy of the war. We're also dealing with

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Speaker 3: many other legacies. You know, Tom is fascinating that you

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Speaker 3: will have President Lagard on because if you think the

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Speaker 3: US is complicated, then in terms of degrees of complexity,

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Speaker 3: Europe is even higher. The UK is even higher than that.

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Speaker 3: So it's going to be really interesting to talk as

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Speaker 3: you will do to President Laguard because even though she

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Speaker 3: has a single mandate, her environment is significantly more complicated

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Speaker 3: than the FEDS, which is already complicated.

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Speaker 2: So Mohammed, she is so much more exposed. Europe is

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Speaker 2: much more exposed to what's developing in China at the moment, Muhammed,

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Speaker 2: if you took the US out of the equation right now,

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Speaker 2: and we've been talking just about Europe and China, wouldn't

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Speaker 2: we be talking about things like rate cuts and easing

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Speaker 2: and stimulating the economy.

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Speaker 3: If you take the US out of the equation, you

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Speaker 3: would be talking about stagflation, and that's what everybody is

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Speaker 3: afraid of. The US is exceptional, and it's exceptional in

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Speaker 3: its economic performance, and if you take the US away,

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Speaker 3: then you're taking away the only engine of growth for

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Speaker 3: this global economy. But you're not taking away to supply

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Speaker 3: side issues that are causing the inflationary pressure. So if

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Speaker 3: you take the US away, we would be talking about

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Speaker 3: not just the risk of stackflation in Europe, but you

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Speaker 3: would be talking about the risk of stackflation in the

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Speaker 3: global economy.

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Speaker 2: Muhammed, is that the risk or the reality in Europe

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Speaker 2: right now?

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Speaker 3: John, is still the risk?

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Speaker 2: You know?

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Speaker 3: Yes, Germany is struggling the most, and that is if

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Speaker 3: you like the engine for Europe, but there's also good

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Speaker 3: things happening in Europe. Away from Germany. It's a high risk.

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Speaker 3: It's flashing WED, not even yellow, it's flashing WED. But

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Speaker 3: it's not yet a done deal. The US is much

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Speaker 3: better off. China, ironically, is the one that's suffering the most.

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Speaker 3: If you've been discussing all morning, there is no obvious

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Speaker 3: policy response. And now these piecemeala responses are being rejected

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Speaker 3: by the marketplace really quickly. The marketplace is no longer

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Speaker 3: embracing the notion that China can get itself out of

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Speaker 3: the mess is finds itself in.

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Speaker 4: And that's perhaps the cause of the manufacturing recession that

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Speaker 4: we see in Germany and parts of Europe, but the

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Speaker 4: service aside, we've been talking about how that's maybe more

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Speaker 4: directly affected by the ECB's policies and where rates are

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Speaker 4: and the more direct transmission mechanism than in the US. J.

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Speaker 4: Powell just said that there is evidence that the long

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Speaker 4: and variable lags are coming to the fore and will

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Speaker 4: actually reduce growth materially in the US. Is Europe a

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Speaker 4: model for the US is headed with respect to services

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Speaker 4: in the next couple of months or in the next year.

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Speaker 2: I hope not, Lisa.

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Speaker 3: Our service sector has been stronger, and even though the

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Speaker 3: PMI numbers this week were disappointing, at least there were

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Speaker 3: over fifty for the service sector. We don't want pmis

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Speaker 3: south of sixty or fifty. And also, ironically, the service

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Speaker 3: sector is where Europe just to staflation as well. It's

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Speaker 3: not the goods sector, it's a service sector that's the

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Speaker 3: inflation problem, source of an inflation problem. So I hope

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Speaker 3: we don't follow Europe, because if we do, then we

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Speaker 3: will be talking about a very different outlook for the US.

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Speaker 4: We're silso talking about the potential for some sort of

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Speaker 4: weakness down the pike.

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Speaker 5: One thing that J.

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Speaker 4: Powell speech did we seem to remove rate cuts in

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Speaker 4: the near future, at least for the foreseeable future, and

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Speaker 4: you can see that shifting upward in the rate expectations.

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Speaker 4: Do you think that this economy can hand a five

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Speaker 4: percent fed funds rate for the remainder of next year,

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Speaker 4: even with all the strength that you're hearing about.

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Speaker 3: Lisa, We don't know. And he did use the word agile,

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Speaker 3: and that's absolutely correct. He's got to be agile. Look,

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Speaker 3: there are all sorts of sectors that adjust.

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Speaker 2: With a lag.

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Speaker 3: We haven't seen the full impact yet of the higher rates.

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Speaker 3: You're starting to see it play out in various segments,

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Speaker 3: but in a very small way. Remember, not everything that's

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Speaker 3: refinanced immediately. This is very unlike the UK economy, where

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Speaker 3: the effective duration is much shorter, so you get refinancing

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Speaker 3: quickly and the weights happen, the great effects happen much quicker.

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Speaker 3: So we don't know how well we can navigate the

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Speaker 3: five percent. It seems that the big issues in the

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Speaker 3: banking sector are behind us, but so far, and it's

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Speaker 3: really important to stress this, we've dealt only with interest

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Speaker 3: rate risk. We have not dealt with credit risk. We

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Speaker 3: have not dealt with liquidity risk, and that's what people

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Speaker 3: in the marketplace have to keep an eye on.

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Speaker 2: Stuart Kaiser, a city publishing just moments ago, give you

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Speaker 2: a flavor of what's happening on the south side. Not

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Speaker 2: a game changer for markets from Chair Power, but remind

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Speaker 2: us on upside risk to inflation, that demand downside risks

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Speaker 2: to growth. Mohammedel Airan still with us, Mohammed, I just

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Speaker 2: want to finish on that with you. The downside risk

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Speaker 2: to growth to counter the upside risk to inflation. Is

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Speaker 2: that something we all need to be cautious of, gone

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Speaker 2: into year round and beyond.

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Speaker 3: Yes, and that's why Chair Pal had a speech full

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Speaker 3: of optionality. You know, I go back to what Mike

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Speaker 3: McKee correctly said. It's not that the content was new.

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Speaker 3: It wasn't. There was nothing in that speech that we

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Speaker 3: didn't know before. Whether it was explaining what has been

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Speaker 3: behind inflation, or whether it was explaining the range of

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Speaker 3: policy possibilities and the risks and the need for risk management.

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Speaker 2: All that has been said before.

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Speaker 3: What was notable this time is that it was packaged

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Speaker 3: slightly more hawkish than than dubvish, and that's what people

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Speaker 3: are picking up on. But ultimately, John, if we step back,

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Speaker 3: the only thing he said is that what we know

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Speaker 3: for sure is his belief is that two percent is

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Speaker 3: the right inflation target and will remain the right inflation target.

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Speaker 3: That issue is going to be hotly discussed in the

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Speaker 3: next quarters as we get more and more data.

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Speaker 2: Yeah, Muhammed, and I think that device is gon and

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Speaker 2: go away anytime soon, even if you havevin power tries

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Speaker 2: to put it to bad. Mhammed, thanks for being with

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Speaker 2: us today. I appreciate it as always Mohammed al Arion.

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Speaker 1: It will be analysis and interpretation owning the high ground

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Speaker 1: on that is Joseph Wisenthal and Tracy Alloway. They host

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Speaker 1: a podcast odd Lot's. Alloway had to redo her fireplace

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Speaker 1: mantle because.

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Speaker 2: The awards have come in outright so large.

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Speaker 1: Yeah, they're piling up. I mean Wisenthal already had a

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Speaker 1: mantle that it holds three Interpax City joining us. Tracy

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Speaker 1: Alloway from Weisenthal would not get out of bed this

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Speaker 1: early this morning. What I love about your work back

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Speaker 1: at the f ten years ago is you own a

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Speaker 1: perspective of London and New York and synthesizing the Western

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Speaker 1: world China and an exceptional Japan with you waita in

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Speaker 1: attendance here in this YCC disaster. Just had to listen

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Speaker 1: to his hawkish one. How does Asia interpret what we

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Speaker 1: heard this morning?

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Speaker 6: Well, I'm kind of confused at some of the bond

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Speaker 6: market action that we've seen, so two year yields going

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Speaker 6: above five percent hawkish interpretation.

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Speaker 5: But I'm on the Neil.

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Speaker 6: Dudda side here, which is this was a very dubvish speech. Actually,

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Speaker 6: Powell sort of gave a nod to the r star debate,

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Speaker 6: the idea about whether or not the neutral rate of

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Speaker 6: interest is structurally higher in current world. But then in

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Speaker 6: the next sentence he basically goes, but we have no

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Speaker 6: idea what our star is anyway, so it's completely irrelevant.

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Speaker 5: And they're talking about being at restricted.

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Speaker 1: It's not a small matter, John, Yeah, that's not a

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Speaker 1: small matter. This has come up a couple times today.

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Speaker 1: The guy from New York City, you know, the private

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Speaker 1: equity guy, whatever Paul is, he's not too big on

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Speaker 1: the plugins of our stir.

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Speaker 2: The tracy something you've discussed. This probably shouldn't come as

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Speaker 2: a surprise, should it.

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Speaker 5: I don't think so.

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Speaker 6: To me, it very much resembles what we saw last

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Speaker 6: month from Powell. It's very much a data dependent speech,

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Speaker 6: which makes sense because you have two major data points

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Speaker 6: coming up before the next FED decision. Why would Powell

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Speaker 6: stick his neck out at this particular moment in time?

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Speaker 6: And of course there is a lot of uncertainty about

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Speaker 6: those long and variable lags, as.

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Speaker 5: You were talking about, Lisa, Well, this is a problem

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Speaker 5: right now for j.

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Speaker 4: Powell because he wants to bring things down, but he

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Speaker 4: doesn't want to curtail tynamism too much. Do you think

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Speaker 4: that it seems fair to view his speech as saying

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Speaker 4: that rate cuts are not in the cards for a

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Speaker 4: longer period of time time next year, because that's maybe

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Speaker 4: what he wanted to say in the implicit sort of tone,

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Speaker 4: but not what he actually said.

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Speaker 6: I think he'd have to see a real deterioration in

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Speaker 6: the underlying data to justify a rate cut, and that's

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Speaker 6: just not happening. We have a lot of sort of

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Speaker 6: anecdotal data points about maybe consumer spending is starting to weaken,

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Speaker 6: but we haven't seen any of that in the unemployment

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Speaker 6: rate right now. That said, I know the tone of

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Speaker 6: this particular Jackson hole is very different to last year

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Speaker 6: where Palell was talking about how we'd have to assume

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Speaker 6: more pain in order to bring down inflation. But that said,

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Speaker 6: it's still a really uncomfortable moment for central bankers because

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Speaker 6: inflation is coming down in a way that they didn't

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Speaker 6: necessarily expect.

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Speaker 2: Right.

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Speaker 6: The Phillips curve says that if inflation's coming down, the

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Speaker 6: unemployment rate should be going up, but that hasn't been

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Speaker 6: what's happening.

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Speaker 5: So there's still a ton of uncertainty here.

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Speaker 4: This is essentially, while it is a global central banker

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Speaker 4: is coming together, it's also essentially an academic conference and

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Speaker 4: you're here with Odds to speak to some of the

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Speaker 4: academic research. What are you hoping to illuminate in this

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Speaker 4: whole shifting global structure?

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Speaker 5: That was sort of the theme. Yeah, that's exactly right.

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Speaker 6: So I know that the focus is always going to

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Speaker 6: be on the sort of short term outlook for interest rates,

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Speaker 6: but really Jackson Hole is about the long term framework

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Speaker 6: of monetary policy.

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Speaker 5: And one of the big themes that is starting to.

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Speaker 6: Emerge is this idea of higher public debt and we've

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Speaker 6: seen that born out in the Fitch rating cut. Recently,

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Speaker 6: bond yields higher because of some concerns over the outlook

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Speaker 6: for US fiscal health. And again, the unusual thing about

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Speaker 6: this moment in time is that we are seeing massive

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Speaker 6: fiscal spending.

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Speaker 5: At a time of low unemployment. That hasn't really happened before.

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Speaker 6: And so I think there are a lot of people

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Speaker 6: at this conference who are wrestling with that idea.

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Speaker 5: In that dynamic, you and.

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Speaker 1: Joe wis loove Rockstar hours. You're just sort of windering,

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Speaker 1: and you do your podcast, and you do it by

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Speaker 1: piecing together conversations where Bloomberg surveillance is complete and total

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Speaker 1: chaos twenty four. What's the conversation here you're most looking

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Speaker 1: for into your next podcast?

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Speaker 6: Thank you for assuming that all thoughts isn't constant chaos

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Speaker 6: as well. Tom, Well, we're having you on later today.

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Speaker 2: Count please all.

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Speaker 1: Right, it's a conversation you want right now at Jackson Hole.

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Speaker 6: Okay, the big picture goes back to that bond outlook.

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Speaker 6: What does a world of structurally higher debt look like?

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Speaker 6: Does it necessitate higher interest rates? And what new financial

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Speaker 6: risks does it introduce into the system. So we basically

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Speaker 6: moved from a system that was very much reliant on

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Speaker 6: bank lending to one that is far more bond based.

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Speaker 6: And how do you square a world where bonds really

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Speaker 6: really matter with central bank mandates to bring down inflation.

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Speaker 5: There's a tension there.

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Speaker 6: You can't build the financial system on bonds and assume

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Speaker 6: that they're going to be very low volatility and then

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Speaker 6: try to bring down inflation and have higher rates.

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Speaker 2: Tricy, this was great. Good to have you here. Thank you,

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Speaker 2: thank you having Thank you very much, Tricy Anaway the

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Speaker 2: host the co host of the Odlots podcast. Joining us

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Speaker 2: is Patrick Kaker, the Philadelphia FED President, Patrick good Mornick,

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Speaker 2: Let's start right here, not what Chairman Pal said, but

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Speaker 2: what your colleague over at the Boston Fed said in

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Speaker 2: the last twenty four hours, that this resilience of this

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Speaker 2: economy suggests maybe we might have to do more. You

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Speaker 2: take a different view.

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Speaker 7: Why so, Look, we have to get inflation down to

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Speaker 7: two percent. We all agree on that, I mean everybody is.

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Speaker 7: We're all committed to that. The question is how to

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Speaker 7: get there. We are at a restrictive stance in my view,

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Speaker 7: and we're putting pressure on the economy to slow inflation.

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Speaker 7: The question is whether we need to increase the pressure,

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Speaker 7: just keep pushing pushing, pushing, and I'm in the camp

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Speaker 7: right now. Just keep the pressure going, let this work

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Speaker 7: through again. The data may dictate that we change course

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Speaker 7: or I change course, But for right now, what I'm

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Speaker 7: seeing and what I'm hearing, particularly soft data. What I'm

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Speaker 7: hearing I've been around my district all summer talking to people,

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Speaker 7: is the clea I hear is you've done a lot

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Speaker 7: very quickly. Right, You've taken a lot of pressure quickly.

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Speaker 7: Now let us work through that, Let the banking system

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Speaker 7: work through it, let the corporations work through that. So

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Speaker 7: that I agree with that, I think we just keep

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Speaker 7: the pressure on and see how things turn out. J.

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Speaker 8: Paul didn't really say anything new, but he did sort

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Speaker 8: of cast it in a hawkish light, and he talked

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Speaker 8: about how the economy is perhaps growing faster than anticipated

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Speaker 8: and that could increase inflationary pressures. So what would it

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Speaker 8: take to get you to change your view and think

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Speaker 8: we need to raise rates more.

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Speaker 7: If we saw that the decreases in inflation, we're stalling right,

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Speaker 7: that we weren't making that progress that we need to make.

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Speaker 8: But what would that How would that manifest itself? Because

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Speaker 8: people who calculate CPI the analysts suggest we're going to

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Speaker 8: see it go back up, just essentially for mechanical.

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Speaker 7: Reasons on the headline side, Yeah, for sure, But we

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Speaker 7: also were going to see shelter inflation come down, right

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Speaker 7: that it's coming down now. You see this with real

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Speaker 7: time rents. So if service inflation in particular, or core

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Speaker 7: service inflation, whatever you want to call it, supercore, if

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Speaker 7: that continues to stall, then I'd say we have to

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Speaker 7: do more. But again, I really want to emphasize we

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Speaker 7: are doing something right now. It's not as though keeping

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Speaker 7: rates where they are is doing nothing. We're actually continuing

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Speaker 7: to put pressure on the economy.

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Speaker 4: You said, and Jay Powell just said that it was

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Speaker 4: important to get inflation back down to two percent.

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Speaker 5: That was unequivocal.

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Speaker 4: Does it matter when I mean right now you can

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Speaker 4: see in the dots that it's not until after twenty

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Speaker 4: twenty five. If it takes till twenty thirty, does it matter?

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Speaker 7: Oh yeah, twenty thirty is a long way off twenty six.

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Speaker 7: They set under four this year, under three next year,

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Speaker 7: and then get to two in twenty twenty five. So yeah,

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Speaker 7: it's going to take some time. But what really matters

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Speaker 7: what I hear all the time. Is not just the headline,

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Speaker 7: not just supercore, but think about the essentials of life,

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Speaker 7: the things that people really need, shelter, food, transportation, energy.

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Speaker 7: As long as they're moving in the right direction, Americans

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Speaker 7: are better off, and we need to be committed to that.

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Speaker 2: You clearly think we're sufficiently restrictive. Other people think we don't.

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Speaker 2: So let's go through that point. Unemployment is still three

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Speaker 2: point five percent. Growth this quarter could come in at

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Speaker 2: about three percent. What is the evidence that we're sufficiently restrictive?

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Speaker 2: What can you actually point to beyond the soft day?

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Speaker 2: So let's talk about the real hard data.

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Speaker 7: Starting to stoppen. We are hearing story after story I'm hearing.

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Speaker 2: And you think that's connected to where interest rates are

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Speaker 2: right now?

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Speaker 7: Yeah, markets, labor markets are definitely easing up. We're hearing

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Speaker 7: this over and over again. It's easier to get employees.

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Speaker 7: And the retail numbers I'm a little suspicious of because

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Speaker 7: what we're hearing, for example, from a major supplier to

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Speaker 7: the back of the school market is sales are not

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Speaker 7: what they expected. So we are starting to see these

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Speaker 7: early signs, but they're early, right, and so I don't

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Speaker 7: think we need to react either way right now, just

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Speaker 7: let us ride a little bit. Let it let's just

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Speaker 7: keep putting the pressure on it.

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Speaker 8: Well, if you keep the pressure on, but even don't

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Speaker 8: raise rates, how long do you need to keep the

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Speaker 8: pressure on. When would you see moving away from the peak?

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Speaker 7: Clearly not until next year at the earliest. And when

438
00:23:12,200 --> 00:23:14,399
Speaker 7: next year again, the data will have to dictate that.

439
00:23:14,960 --> 00:23:18,360
Speaker 8: Well. There is a question about if inflation keeps coming down,

440
00:23:18,720 --> 00:23:21,840
Speaker 8: real rates continue to rise and put additional pressure on

441
00:23:21,960 --> 00:23:26,680
Speaker 8: the economy, would you see the FED recalibrate its peak

442
00:23:26,760 --> 00:23:30,240
Speaker 8: rate to keep the pressure steady as opposed to letting

443
00:23:30,280 --> 00:23:33,080
Speaker 8: it grow. I realized this is a fine point for

444
00:23:33,160 --> 00:23:35,119
Speaker 8: the market area. And if you get the wrong if

445
00:23:35,160 --> 00:23:37,040
Speaker 8: you say this the wrong way, they're all going to

446
00:23:37,080 --> 00:23:38,280
Speaker 8: start pricing your rate cuts.

447
00:23:38,640 --> 00:23:41,200
Speaker 7: It's possible, right but at this point, we really need

448
00:23:41,280 --> 00:23:45,480
Speaker 7: to see inflation moving down, and they're saying the early

449
00:23:45,560 --> 00:23:48,960
Speaker 7: signs of that again, and I'm getting story after story

450
00:23:49,040 --> 00:23:51,240
Speaker 7: from all our contacts that it is starting to happen.

451
00:23:51,800 --> 00:23:53,399
Speaker 7: But I want to keep rates where they are right now,

452
00:23:53,520 --> 00:23:55,320
Speaker 7: and then we'll decide later what we do.

453
00:23:55,880 --> 00:23:58,480
Speaker 8: What do you think is happening with labor market wages

454
00:23:58,520 --> 00:24:01,359
Speaker 8: at this point, because that was the concern, especially with

455
00:24:01,760 --> 00:24:05,840
Speaker 8: Jpal's non housing services. These guys were talking about the

456
00:24:05,960 --> 00:24:09,840
Speaker 8: United Autoworkers negotiations going on. Have we broken the back

457
00:24:09,920 --> 00:24:13,880
Speaker 8: of rising wages rising at a too fast a pace?

458
00:24:14,400 --> 00:24:16,879
Speaker 7: Too early to tell right now, but it does seem

459
00:24:17,040 --> 00:24:20,520
Speaker 7: like what I'm hearing from all our contacts is that

460
00:24:21,040 --> 00:24:23,480
Speaker 7: it is starting to ease, right I mean, we're not

461
00:24:24,040 --> 00:24:27,800
Speaker 7: where we were where midyear increases, they're there. Nobody's considering that.

462
00:24:28,280 --> 00:24:31,040
Speaker 7: So we are starting to see some easy particularly in

463
00:24:31,119 --> 00:24:35,679
Speaker 7: the service area, hotels, restaurants, and so forth. We are

464
00:24:35,760 --> 00:24:38,080
Speaker 7: starting to see it getting a little easier to get

465
00:24:38,119 --> 00:24:40,840
Speaker 7: the table at the restaurant. And you know, and one

466
00:24:40,840 --> 00:24:43,080
Speaker 7: of the things that I think about, one of the

467
00:24:44,520 --> 00:24:49,560
Speaker 7: potential risks is that when student loan payments come back in.

468
00:24:50,000 --> 00:24:51,920
Speaker 7: I don't think it's a big economic issue. I mean

469
00:24:52,040 --> 00:24:55,440
Speaker 7: when you run the numbers, but it's a psychological issue here.

470
00:24:55,720 --> 00:24:58,480
Speaker 7: I've not gotten that three four, five hundred dollars bill.

471
00:24:58,960 --> 00:25:01,320
Speaker 7: Now I get it. And so I've been talked to

472
00:25:01,400 --> 00:25:04,160
Speaker 7: a lot of people of that generation wher saying, yeah,

473
00:25:04,200 --> 00:25:05,639
Speaker 7: you know, I may have to back off some of

474
00:25:05,720 --> 00:25:06,280
Speaker 7: my spending.

475
00:25:06,520 --> 00:25:07,920
Speaker 5: Well, but this goes to this question.

476
00:25:07,840 --> 00:25:09,800
Speaker 4: Of Okay, well, the savings are going to get borne

477
00:25:09,840 --> 00:25:11,200
Speaker 4: down and then we're going to start to see the

478
00:25:11,240 --> 00:25:13,000
Speaker 4: real economy expose itself.

479
00:25:13,119 --> 00:25:14,480
Speaker 5: Right, A lot of people have questioned that.

480
00:25:15,000 --> 00:25:18,720
Speaker 4: But I am wondering, what kind of neutral rate, what

481
00:25:18,920 --> 00:25:22,720
Speaker 4: kind of you know, sort of longer term expectation for

482
00:25:22,800 --> 00:25:24,520
Speaker 4: the FED do you expect in the new normal?

483
00:25:25,080 --> 00:25:25,840
Speaker 5: What does it look like?

484
00:25:26,560 --> 00:25:29,320
Speaker 7: Yeah, so we don't know for sure, right, let's start there.

485
00:25:29,400 --> 00:25:31,159
Speaker 7: We don't know exactly what that new normal looks like.

486
00:25:31,920 --> 00:25:34,240
Speaker 7: But one of the things I think about is what's

487
00:25:34,359 --> 00:25:40,080
Speaker 7: fundamentally shifted in the economy between before the pandemic and now,

488
00:25:41,000 --> 00:25:43,800
Speaker 7: remember before the pandemic hard to remember for all of this, right,

489
00:25:43,960 --> 00:25:47,359
Speaker 7: given what we've been through, but we had low interest rates,

490
00:25:48,840 --> 00:25:54,960
Speaker 7: low unemployment, and low inflation. What's fundamentally shifted? There have

491
00:25:55,000 --> 00:25:56,520
Speaker 7: been a lot of things. Supply We're going to talk

492
00:25:56,520 --> 00:25:58,920
Speaker 7: about this in this meeting. There's supply chain issues that

493
00:25:58,960 --> 00:26:04,600
Speaker 7: are shifting and being re engineered. But fundamentally, I think

494
00:26:04,640 --> 00:26:08,040
Speaker 7: it's plausible that we can get back to that. No,

495
00:26:08,240 --> 00:26:10,640
Speaker 7: I'm not predicting that right now, but it is plausible.

496
00:26:10,720 --> 00:26:14,560
Speaker 7: So I think we have to realize that we lived

497
00:26:14,600 --> 00:26:17,960
Speaker 7: in that world. We've proven that that can happen, and

498
00:26:18,080 --> 00:26:19,200
Speaker 7: so could it happen again?

499
00:26:19,320 --> 00:26:22,040
Speaker 2: Yes, it sounds like a base case when I listened

500
00:26:22,080 --> 00:26:23,160
Speaker 2: to you, is that case?

501
00:26:23,240 --> 00:26:23,560
Speaker 1: I don't know.

502
00:26:23,760 --> 00:26:27,000
Speaker 7: I mean, at this point, I'm not quite sure. But

503
00:26:27,200 --> 00:26:29,480
Speaker 7: clearly we're going to get we think, and we'll get

504
00:26:29,520 --> 00:26:31,679
Speaker 7: back to trend growth in a couple of years. We'll

505
00:26:31,720 --> 00:26:34,119
Speaker 7: get inflation under control in a couple of years, and

506
00:26:34,240 --> 00:26:36,960
Speaker 7: inflation and unemployment will tick up. But really in the

507
00:26:37,080 --> 00:26:39,000
Speaker 7: fouri ish range, back to the neutral rate.

508
00:26:39,119 --> 00:26:42,080
Speaker 2: You've offered example after example in the last eight minutes.

509
00:26:42,160 --> 00:26:45,399
Speaker 2: It's highly anecdotal. Is the basebook now more important to

510
00:26:45,520 --> 00:26:47,280
Speaker 2: us than us retailselves?

511
00:26:47,720 --> 00:26:49,639
Speaker 7: When I step back and I think about myself, and

512
00:26:49,640 --> 00:26:53,040
Speaker 7: I can only speak for myself. Right when we were

513
00:26:53,400 --> 00:26:57,240
Speaker 7: going through the early part of the pandemic and we

514
00:26:57,320 --> 00:27:01,080
Speaker 7: were saying that inflation was transitory, it was just used

515
00:27:01,160 --> 00:27:03,960
Speaker 7: vehicles and so forth, what we're hearing, what I was

516
00:27:04,040 --> 00:27:08,720
Speaker 7: hearing from my contacts was now it's more persistent. And

517
00:27:08,920 --> 00:27:11,280
Speaker 7: I didn't factor that in. The mistake I made. If

518
00:27:11,280 --> 00:27:13,280
Speaker 7: I made a mistake, was I didn't factor that. It's

519
00:27:13,440 --> 00:27:16,320
Speaker 7: really soft data, that anecdotal data. But it's more than

520
00:27:16,320 --> 00:27:19,200
Speaker 7: anecdotal data. It's what people are really feeling real time

521
00:27:19,280 --> 00:27:21,760
Speaker 7: in the economy. Now we've done a lot of things

522
00:27:21,800 --> 00:27:23,840
Speaker 7: like done real time pulse surveys and so forth to

523
00:27:24,359 --> 00:27:26,280
Speaker 7: get ahead of that. Now, I don't want to make

524
00:27:26,320 --> 00:27:28,560
Speaker 7: that same mistake twice. And so what I'm hearing right

525
00:27:28,640 --> 00:27:31,800
Speaker 7: now from those same contacts is things seem to be

526
00:27:31,920 --> 00:27:36,080
Speaker 7: slowing more than the data is showing. That could be wrong,

527
00:27:36,160 --> 00:27:38,600
Speaker 7: and that's why we have to As chair Pal said,

528
00:27:38,760 --> 00:27:42,920
Speaker 7: risk management is an important issue here. But if they're right,

529
00:27:43,040 --> 00:27:45,840
Speaker 7: if that soft data is right, then I think it

530
00:27:46,400 --> 00:27:50,320
Speaker 7: really then just solidifies my view that we stay putting

531
00:27:50,359 --> 00:27:53,520
Speaker 7: pressure on not necessarily increasing right now to see how

532
00:27:53,920 --> 00:27:55,119
Speaker 7: that all resolves itself.

533
00:27:56,040 --> 00:27:58,600
Speaker 8: NERD question for our friends on the trading guests out there,

534
00:27:58,680 --> 00:28:03,680
Speaker 8: especially the bond guys. The balance sheet has been coming down,

535
00:28:03,800 --> 00:28:05,240
Speaker 8: but very slowly because of.

536
00:28:05,280 --> 00:28:06,720
Speaker 2: The caps and the way that works.

537
00:28:06,920 --> 00:28:10,479
Speaker 8: You haven't hit maximum reduction yet on a month by

538
00:28:10,560 --> 00:28:12,720
Speaker 8: month basis, and at the same time we have seen

539
00:28:12,800 --> 00:28:17,040
Speaker 8: financial conditions remain easier than you would expect. So the

540
00:28:17,160 --> 00:28:20,119
Speaker 8: question is do you do more with the balance sheet

541
00:28:20,440 --> 00:28:24,639
Speaker 8: because it has an effect on how tight the policy is.

542
00:28:25,760 --> 00:28:27,879
Speaker 7: At this point, I don't see us changing course on

543
00:28:28,000 --> 00:28:32,719
Speaker 7: how we're reducing the balance sheet. Again, circumstances could dictate

544
00:28:32,840 --> 00:28:35,200
Speaker 7: something else, but for right now, I think we just

545
00:28:35,240 --> 00:28:37,920
Speaker 7: stay the course, keep that on, as I've said or

546
00:28:38,240 --> 00:28:42,040
Speaker 7: many times before, on autopilot, just let it run, and

547
00:28:42,160 --> 00:28:44,120
Speaker 7: if we need to adjust policy, we adjust that. With

548
00:28:44,160 --> 00:28:44,880
Speaker 7: the bed country.

549
00:28:45,280 --> 00:28:47,480
Speaker 8: Well, there has been a question on the other side

550
00:28:47,600 --> 00:28:51,320
Speaker 8: of how close you are to stopping balance sheet reduction

551
00:28:52,320 --> 00:28:54,200
Speaker 8: when you reach the level of demand.

552
00:28:54,960 --> 00:28:57,720
Speaker 7: Yeah, I don't think we're there yet, but we do

553
00:28:57,960 --> 00:29:00,600
Speaker 7: clearly have to monitor that. If you go back to

554
00:29:00,720 --> 00:29:03,920
Speaker 7: the last time we did this, we knew we were

555
00:29:04,040 --> 00:29:05,840
Speaker 7: at that point where we needed to stop, and we

556
00:29:05,960 --> 00:29:09,680
Speaker 7: saw the market indicators, the volatility in the markets. We've

557
00:29:09,720 --> 00:29:10,960
Speaker 7: not seen that yet, but we could.

558
00:29:11,480 --> 00:29:14,760
Speaker 4: We have seen real yields climb significantly. Today five year

559
00:29:15,120 --> 00:29:18,280
Speaker 4: real yields, inflation for adjusted yields rose the highest levels

560
00:29:18,320 --> 00:29:20,720
Speaker 4: going back to two thousand and eight. Are you watching

561
00:29:20,880 --> 00:29:24,360
Speaker 4: that closely as an indication of the transmission mechanism at

562
00:29:24,400 --> 00:29:25,360
Speaker 4: the balance sheet run off?

563
00:29:25,680 --> 00:29:25,920
Speaker 5: Sure?

564
00:29:26,080 --> 00:29:27,880
Speaker 7: Yeah, I mean that's one of many, and it's also

565
00:29:28,040 --> 00:29:30,680
Speaker 7: just a simple trading and things like the phatas market

566
00:29:30,720 --> 00:29:33,160
Speaker 7: and so forth. Not at this point. I mean, but

567
00:29:33,280 --> 00:29:35,160
Speaker 7: it is clearly something we need to keep watching.

568
00:29:35,400 --> 00:29:39,680
Speaker 2: Can I finish on this itty provocative? Have you destroyed

569
00:29:39,680 --> 00:29:41,480
Speaker 2: the mortgage market in America for generation?

570
00:29:42,600 --> 00:29:47,240
Speaker 7: I don't think so. I mean, well, it is clearly

571
00:29:47,400 --> 00:29:48,960
Speaker 7: tough when you talk to bankers.

572
00:29:49,160 --> 00:29:53,560
Speaker 2: Beyond tough people, Yeah, it's first.

573
00:29:53,600 --> 00:29:57,160
Speaker 7: First time home buyer really really hard because there's no inventory.

574
00:29:58,000 --> 00:30:00,880
Speaker 7: Even if they could they could afford mortgage, they can't

575
00:30:00,920 --> 00:30:03,320
Speaker 7: find a home because people are locked into that low

576
00:30:03,400 --> 00:30:07,400
Speaker 7: mortgage rate, you know, in their existing home. That's why

577
00:30:07,480 --> 00:30:10,480
Speaker 7: I think we don't keep going with rigs right, so

578
00:30:10,520 --> 00:30:13,280
Speaker 7: that we can stay steady and at some point as

579
00:30:13,320 --> 00:30:16,959
Speaker 7: we reduce rates, we can bring those mortgage rates back down.

580
00:30:17,000 --> 00:30:18,320
Speaker 7: There's no question that's an initiation.

581
00:30:18,320 --> 00:30:20,720
Speaker 2: But we're not going back to two percent mortgages over

582
00:30:20,800 --> 00:30:23,840
Speaker 2: thirty years, are we. So that inventory is offline maybe

583
00:30:23,880 --> 00:30:24,880
Speaker 2: for a generation.

584
00:30:26,520 --> 00:30:26,760
Speaker 8: Less.

585
00:30:26,960 --> 00:30:29,040
Speaker 7: You're not there yet, yeah, because what we're hearing from

586
00:30:29,160 --> 00:30:31,520
Speaker 7: some of the home builders is they keep selling, how

587
00:30:31,520 --> 00:30:31,920
Speaker 7: they're having a.

588
00:30:31,920 --> 00:30:35,280
Speaker 2: Great sign, having a great high. I've done that a

589
00:30:35,440 --> 00:30:38,160
Speaker 2: huge favor. Yeah, we're talking about whether this housing market

590
00:30:38,200 --> 00:30:40,400
Speaker 2: can really recover in the next several years given that

591
00:30:40,480 --> 00:30:43,360
Speaker 2: this feels quite generational. This feels like a but there's a.

592
00:30:43,360 --> 00:30:45,400
Speaker 7: Lot of inventory coming online I can tell you in

593
00:30:45,400 --> 00:30:49,240
Speaker 7: Philadelphia and across many cities I know, but Philadelphia, for example,

594
00:30:49,360 --> 00:30:52,480
Speaker 7: a lot of multifamilies coming online in the next few years.

595
00:30:52,640 --> 00:30:54,280
Speaker 7: So we are increasing inventory.

596
00:30:55,000 --> 00:30:57,360
Speaker 2: Patrick, it's good to see you as always. Thank you,

597
00:30:57,440 --> 00:31:01,160
Speaker 2: sir Patrick Harker, the Philadelphia Fed President. Reaction there from

598
00:31:01,280 --> 00:31:04,000
Speaker 2: inside the Federals following that space from Chairman Powell.

599
00:31:14,280 --> 00:31:15,920
Speaker 1: What I'm going to do at Jackson Hall right now

600
00:31:16,000 --> 00:31:18,760
Speaker 1: as we begin in the sunrise at this important Friday

601
00:31:19,520 --> 00:31:22,400
Speaker 1: is taken a more international perspective. She is not here

602
00:31:22,480 --> 00:31:25,280
Speaker 1: at Jackson Hall, but in heart and soul her institution,

603
00:31:25,440 --> 00:31:31,040
Speaker 1: the International Monetary Fund, decisively is Kristallina Gorgiheva joins us,

604
00:31:31,080 --> 00:31:34,520
Speaker 1: the Managing director of the IMF, offer a recent essay

605
00:31:35,040 --> 00:31:39,320
Speaker 1: on what everyone's talking about, the fragmentation, the fracture of

606
00:31:39,440 --> 00:31:43,760
Speaker 1: the global economy. Doctor Gorgihaeva, congratulations on the essay that

607
00:31:43,880 --> 00:31:46,760
Speaker 1: you and your team put together for foreign affairs. You

608
00:31:46,840 --> 00:31:51,120
Speaker 1: speak of fragmentation, How urgent is the need for solution

609
00:31:51,440 --> 00:31:51,800
Speaker 1: right now?

610
00:31:52,080 --> 00:31:54,360
Speaker 2: What needs to be done now to.

611
00:31:54,480 --> 00:31:58,080
Speaker 1: Begin to a more stable global economy.

612
00:31:58,920 --> 00:32:03,040
Speaker 9: It is urgent, and that sense of urgency is lacking.

613
00:32:03,480 --> 00:32:05,640
Speaker 5: Tom. Why is it urgent?

614
00:32:06,080 --> 00:32:10,040
Speaker 9: Because we have moved in a more shock front world,

615
00:32:11,000 --> 00:32:14,520
Speaker 9: in a world of more uncertainty, and in this world

616
00:32:15,200 --> 00:32:19,200
Speaker 9: we need each other even more than before, and yet

617
00:32:20,080 --> 00:32:22,200
Speaker 9: cooperation is in a retreat.

618
00:32:23,480 --> 00:32:24,640
Speaker 2: What does that mean?

619
00:32:25,120 --> 00:32:28,920
Speaker 9: It means that unless we wake up and we act

620
00:32:29,120 --> 00:32:34,800
Speaker 9: pragmatically in the areas where we can find common ground,

621
00:32:35,440 --> 00:32:38,920
Speaker 9: and in the areas where we must find common ground,

622
00:32:39,160 --> 00:32:43,800
Speaker 9: like the fight against climate change, we will drift into

623
00:32:43,880 --> 00:32:48,600
Speaker 9: a world that is poorer and less secure. We have

624
00:32:49,760 --> 00:32:55,120
Speaker 9: random numbers. Unless we wake up and we pursue this

625
00:32:55,360 --> 00:33:00,640
Speaker 9: pragmatic collaboration, we are going to be losing about seven

626
00:33:00,840 --> 00:33:05,320
Speaker 9: percent of global GDP in the long run. I mean

627
00:33:05,400 --> 00:33:10,160
Speaker 9: that is like White transend and Germany from the economic

628
00:33:10,280 --> 00:33:11,240
Speaker 9: map of the world.

629
00:33:12,720 --> 00:33:15,600
Speaker 1: Because of time, doctor gargave. It's so important I get

630
00:33:15,680 --> 00:33:17,960
Speaker 1: this in this morning. I want you to speak right

631
00:33:18,040 --> 00:33:22,760
Speaker 1: now to the four major central bankers assembled here and

632
00:33:22,960 --> 00:33:26,160
Speaker 1: Jackson Hall. The singular call this year is the five

633
00:33:26,320 --> 00:33:31,400
Speaker 1: year caution of economic growth of your institution. You call

634
00:33:31,520 --> 00:33:36,120
Speaker 1: it slobalization. How do those four central bankers assemble here

635
00:33:36,640 --> 00:33:38,520
Speaker 1: get us out of slobalization.

636
00:33:40,080 --> 00:33:41,920
Speaker 9: It is not going to be only the job of

637
00:33:42,040 --> 00:33:45,280
Speaker 9: central bankers, but yes they play a role, and their

638
00:33:45,480 --> 00:33:50,800
Speaker 9: role is to be very careful in assessing how data

639
00:33:51,120 --> 00:33:56,840
Speaker 9: informs their actions. We're going to see tom after a

640
00:33:57,080 --> 00:34:02,160
Speaker 9: period of convergence in monetary part see action tightening creates

641
00:34:02,920 --> 00:34:09,239
Speaker 9: fighting inflation, some divergence because where the US economy is

642
00:34:09,880 --> 00:34:12,920
Speaker 9: very resilient I was listening to the discussion just before me,

643
00:34:14,239 --> 00:34:20,000
Speaker 9: the European economy is not. There is less strength in

644
00:34:20,120 --> 00:34:24,560
Speaker 9: the performance over there. So central bankers will have to

645
00:34:25,080 --> 00:34:31,520
Speaker 9: recognize that some specificity in how they approach the fight

646
00:34:31,600 --> 00:34:35,560
Speaker 9: against inflation and how they link this to their role

647
00:34:36,000 --> 00:34:40,600
Speaker 9: in supporting growth and employment. How they approach that is

648
00:34:40,680 --> 00:34:45,600
Speaker 9: going to be a matter of thorough assessment of national data.

649
00:34:45,920 --> 00:34:48,640
Speaker 9: Let me just make one point about the United States.

650
00:34:49,280 --> 00:34:53,200
Speaker 9: What we see in the US is very strong demand

651
00:34:53,320 --> 00:34:57,640
Speaker 9: for services, very good, but not good enough for the

652
00:34:57,719 --> 00:35:00,680
Speaker 9: world economy because it doesn't trans into.

653
00:35:01,000 --> 00:35:03,640
Speaker 5: Spillover for global growth.

654
00:35:03,800 --> 00:35:07,439
Speaker 9: And this is why my main point is there would

655
00:35:07,520 --> 00:35:12,600
Speaker 9: be some divergence in policy approaches across central banks.

656
00:35:14,080 --> 00:35:19,440
Speaker 4: Crystallina is fragmentation inflationary, of course.

657
00:35:19,239 --> 00:35:23,040
Speaker 9: It is why because so much, how much did you

658
00:35:23,160 --> 00:35:28,480
Speaker 9: take you if you take the main impact of fragmentation

659
00:35:28,760 --> 00:35:34,000
Speaker 9: through trade, what it translates into is pushing cost of

660
00:35:34,200 --> 00:35:41,120
Speaker 9: production up on a global scale. How inflationary it could

661
00:35:41,200 --> 00:35:47,879
Speaker 9: be depends, of course on how that specifically reflects into

662
00:35:48,000 --> 00:35:52,800
Speaker 9: cost structures across national economies in the world economy. But

663
00:35:52,920 --> 00:35:57,240
Speaker 9: the pressure on costs and then through that on standard

664
00:35:57,320 --> 00:36:01,840
Speaker 9: of living ordinary people serve only comes when we fragment

665
00:36:01,920 --> 00:36:02,800
Speaker 9: the world economy.

666
00:36:04,719 --> 00:36:06,399
Speaker 2: Christin and I just want to squeeze this in. I've

667
00:36:06,400 --> 00:36:09,040
Speaker 2: got about sixty seconds ninety seconds left on the clock.

668
00:36:09,440 --> 00:36:12,080
Speaker 2: You've said the IMF needs more resources. Can you be

669
00:36:12,160 --> 00:36:14,920
Speaker 2: a lot more specific about what that means, what do

670
00:36:15,080 --> 00:36:17,320
Speaker 2: you need and where do you expect those resources to

671
00:36:17,400 --> 00:36:17,839
Speaker 2: come from.

672
00:36:18,880 --> 00:36:22,960
Speaker 9: Well, let's face reality, more shot from world means countries

673
00:36:23,040 --> 00:36:26,480
Speaker 9: need to have more capacity to face these shocks. Today,

674
00:36:27,160 --> 00:36:31,280
Speaker 9: global reserves are concentrated in a small number of strong,

675
00:36:31,600 --> 00:36:36,600
Speaker 9: advanced and emerging market economists. Ten countries hold two thirds

676
00:36:36,719 --> 00:36:40,960
Speaker 9: of global reserves and all the small medium sized countries

677
00:36:41,680 --> 00:36:44,920
Speaker 9: hope less than one percent of global reserves. This is

678
00:36:44,960 --> 00:36:48,800
Speaker 9: where the IMF comes in. We are the insurer for

679
00:36:49,000 --> 00:36:55,799
Speaker 9: the uninsured. Today, our size one trillion dollars lending capacity

680
00:36:56,600 --> 00:37:01,720
Speaker 9: is just not enough to be the against future shocks

681
00:37:01,880 --> 00:37:05,719
Speaker 9: that we all anticipate are going to be happening. And

682
00:37:05,960 --> 00:37:10,120
Speaker 9: also what we want to see is reliance on own resources.

683
00:37:10,840 --> 00:37:15,160
Speaker 9: We are discussing with our membership to bring the quarter

684
00:37:15,239 --> 00:37:19,920
Speaker 9: resources of the fund again above fifty percent of our

685
00:37:20,120 --> 00:37:24,719
Speaker 9: funding level. Today they are at forty percent, So we

686
00:37:24,800 --> 00:37:28,640
Speaker 9: are talking about a not a minor increase. But I

687
00:37:28,719 --> 00:37:32,160
Speaker 9: think everybody understands that this is a provision of a

688
00:37:32,239 --> 00:37:37,160
Speaker 9: global public good. If the IMF cannot hold financial stability

689
00:37:37,200 --> 00:37:41,160
Speaker 9: in vulnerable countries, that is hurting not only those countries,

690
00:37:41,480 --> 00:37:44,680
Speaker 9: it has negative skill over for the world economy.

691
00:37:44,400 --> 00:37:47,000
Speaker 2: The IMF managing. All right, Christina, thank you. It's going

692
00:37:47,040 --> 00:37:47,920
Speaker 2: to hear from you. Thank you.

693
00:37:52,160 --> 00:37:54,320
Speaker 1: This is a wonderful moment now as we go to

694
00:37:54,440 --> 00:37:58,200
Speaker 1: that speech because of central bankers gathered here and yes,

695
00:37:58,520 --> 00:38:02,239
Speaker 1: US economics, but of course international economics, and they will

696
00:38:02,320 --> 00:38:06,439
Speaker 1: listen more to Barry eichen Green of Berkeley than anyone here.

697
00:38:06,560 --> 00:38:10,400
Speaker 1: He owns the high ground from Golden Fetters, his classic

698
00:38:10,440 --> 00:38:14,640
Speaker 1: book on gold until what we see with globalizing capital,

699
00:38:14,719 --> 00:38:18,600
Speaker 1: and now his intense focus on debt and the debt

700
00:38:18,680 --> 00:38:21,080
Speaker 1: mess we're in. Doctor kan Green, Thank you so much

701
00:38:21,080 --> 00:38:24,000
Speaker 1: for joining us. How bad is the debt mess we're in?

702
00:38:24,280 --> 00:38:27,680
Speaker 10: Well, I think it's a big change from the pre

703
00:38:27,760 --> 00:38:31,200
Speaker 10: COVID days. Governments are going to be constrained if and

704
00:38:31,320 --> 00:38:34,440
Speaker 10: when we have a global recession, if and when a

705
00:38:34,520 --> 00:38:37,560
Speaker 10: bad thing happens, they have a lot less room to

706
00:38:37,680 --> 00:38:42,480
Speaker 10: run fiscally because of the increase in public debts worldwide.

707
00:38:42,680 --> 00:38:44,719
Speaker 1: As usual, You've been out front on this, and the

708
00:38:44,800 --> 00:38:47,759
Speaker 1: phrase that I hear from you is and you say

709
00:38:47,840 --> 00:38:51,240
Speaker 1: it with respect to the institutional pressures and our political leaders.

710
00:38:51,840 --> 00:38:55,480
Speaker 1: The modern medicine that we have, what is the more

711
00:38:55,600 --> 00:38:59,440
Speaker 1: stronger medicine we need to take to get control of

712
00:38:59,520 --> 00:39:00,880
Speaker 1: our debt in our ratios.

713
00:39:01,320 --> 00:39:03,399
Speaker 10: I think we're going to have to learn to live

714
00:39:03,480 --> 00:39:07,080
Speaker 10: with these high levels of public debt that the advice

715
00:39:07,640 --> 00:39:11,000
Speaker 10: policy makers are getting from the Bank for International Settlements

716
00:39:11,040 --> 00:39:15,440
Speaker 10: in the IMF about bringing down debt ratios. That's unrealistic.

717
00:39:15,480 --> 00:39:17,040
Speaker 10: We're not going to be able to grow out of

718
00:39:17,360 --> 00:39:20,920
Speaker 10: these higher debt ratios. We're not going to have a

719
00:39:21,000 --> 00:39:24,279
Speaker 10: more favorable real interest rate going forward than we've had

720
00:39:24,320 --> 00:39:26,920
Speaker 10: in the past. We're not going to be able to

721
00:39:27,000 --> 00:39:31,120
Speaker 10: run primary budget surpluses for long periods of time. So

722
00:39:31,239 --> 00:39:36,000
Speaker 10: I think we're going to have to tiptoe lightly through

723
00:39:36,160 --> 00:39:39,640
Speaker 10: this problem and manage these heavy.

724
00:39:39,440 --> 00:39:43,360
Speaker 2: Debts tipso your words, manage. Other people might say this

725
00:39:43,560 --> 00:39:45,920
Speaker 2: ends in disaster, Barry, what's the argument against that?

726
00:39:47,640 --> 00:39:49,960
Speaker 10: For countries like the United States? There is a big

727
00:39:50,880 --> 00:39:55,600
Speaker 10: remains demand out there from foreign central banks and the

728
00:39:55,680 --> 00:39:59,040
Speaker 10: international private sector for US treasury bonds. So I think

729
00:39:59,120 --> 00:40:02,760
Speaker 10: the the US government is an exception to the general

730
00:40:02,880 --> 00:40:06,960
Speaker 10: rule in that it has room to run. Other governments

731
00:40:07,000 --> 00:40:11,000
Speaker 10: are going to have to reform fiscal institutions, worry about

732
00:40:11,040 --> 00:40:14,200
Speaker 10: fiscal transparency, do all the things that the IMF and

733
00:40:14,280 --> 00:40:15,799
Speaker 10: others have been recommending for years.

734
00:40:16,080 --> 00:40:19,520
Speaker 4: Does it basically suggest that longer term yields in the

735
00:40:19,680 --> 00:40:22,440
Speaker 4: US are where they need to be, That basically the

736
00:40:22,560 --> 00:40:26,280
Speaker 4: term premium is going to be significantly higher, That essentially

737
00:40:26,480 --> 00:40:26,719
Speaker 4: what you.

738
00:40:26,760 --> 00:40:27,560
Speaker 5: See is what you get.

739
00:40:28,160 --> 00:40:32,719
Speaker 10: Well, I think the term premium can come down a bit,

740
00:40:33,040 --> 00:40:37,440
Speaker 10: but not back down to pre COVID levels. I think

741
00:40:37,480 --> 00:40:40,480
Speaker 10: where everybody understands that we're in a new world with

742
00:40:41,360 --> 00:40:43,960
Speaker 10: higher interest rates, the question is how much higher? And

743
00:40:44,120 --> 00:40:47,600
Speaker 10: I wouldn't be a pessimist about that.

744
00:40:48,000 --> 00:40:49,719
Speaker 4: How much has the debt that the US is a

745
00:40:49,800 --> 00:40:52,320
Speaker 4: curd in particular driven a lot of the inflation that

746
00:40:52,360 --> 00:40:54,279
Speaker 4: we see. How much you can really basically write the

747
00:40:54,320 --> 00:40:56,640
Speaker 4: book and say helicopter money actually does cause inflation.

748
00:40:57,200 --> 00:41:00,479
Speaker 10: Well, I think the fiscal stimulus that we the United

749
00:41:00,480 --> 00:41:03,680
Speaker 10: States did in twenty twenty one was a contributing factor

750
00:41:03,960 --> 00:41:06,719
Speaker 10: to the inflation, and there will be debate about that

751
00:41:07,120 --> 00:41:09,960
Speaker 10: today because there were other contributing factories as well, the

752
00:41:10,480 --> 00:41:13,359
Speaker 10: supply shocks, a variety of other things.

753
00:41:14,080 --> 00:41:17,960
Speaker 1: Take your study of debt, your view on the inflation

754
00:41:18,120 --> 00:41:20,800
Speaker 1: adjusted yield, which is maybe what the adults of pros

755
00:41:20,880 --> 00:41:24,520
Speaker 1: look at, and bring it over to the Eichinggreen application

756
00:41:24,880 --> 00:41:28,600
Speaker 1: of monetary policy. And there's a whole our starred debate

757
00:41:28,760 --> 00:41:31,320
Speaker 1: in that. Are we going to move away from a

758
00:41:31,360 --> 00:41:34,719
Speaker 1: two percent regime? And how do we search out an

759
00:41:34,920 --> 00:41:37,200
Speaker 1: anchored level that is higher?

760
00:41:38,040 --> 00:41:41,359
Speaker 10: Well, I think the FED has to bring inflation down

761
00:41:41,520 --> 00:41:45,680
Speaker 10: to two percent before it really opens that conversation we

762
00:41:45,880 --> 00:41:50,200
Speaker 10: saw in this recent episode. The importance of credibility, and

763
00:41:50,400 --> 00:41:53,399
Speaker 10: credibility and two percent are synonymous. For the time being.

764
00:41:53,840 --> 00:41:56,800
Speaker 10: The only time you talk about changing the regime is

765
00:41:56,960 --> 00:41:57,880
Speaker 10: when you have everything.

766
00:41:58,160 --> 00:42:00,160
Speaker 1: Let's go to alohol at Berkeley to Brad the LNG

767
00:42:00,239 --> 00:42:01,520
Speaker 1: the office. You and I are going to walk in

768
00:42:01,680 --> 00:42:04,000
Speaker 1: with a professor DeLong, and I'm going to say to

769
00:42:04,080 --> 00:42:07,120
Speaker 1: both of you, with your academics and his politic more

770
00:42:07,160 --> 00:42:11,560
Speaker 1: political view, what's the price of bringing inflation down to

771
00:42:11,640 --> 00:42:14,719
Speaker 1: two percent? What's the cost of that to Americans?

772
00:42:15,120 --> 00:42:18,920
Speaker 10: Well, so far the cost has been minimal compared to

773
00:42:19,080 --> 00:42:22,719
Speaker 10: the doom and gloom scenarios. We heard about unemployment going

774
00:42:22,800 --> 00:42:24,560
Speaker 10: up to five or six percent.

775
00:42:24,960 --> 00:42:28,960
Speaker 1: So so far, Somark, you have been the arch optimist

776
00:42:29,120 --> 00:42:32,239
Speaker 1: against doom and glue. And how do you respond to

777
00:42:32,280 --> 00:42:34,640
Speaker 1: the doom and gloom that we hear daily from Lisa

778
00:42:34,760 --> 00:42:37,440
Speaker 1: Bramwooz or that we hear out in all of economics.

779
00:42:37,640 --> 00:42:40,400
Speaker 1: How do you respond to that American gloom that you

780
00:42:40,600 --> 00:42:42,040
Speaker 1: fought against for fifty years?

781
00:42:42,200 --> 00:42:46,399
Speaker 10: Well, look at what the Atlanta Fed now Crackers is saying.

782
00:42:46,560 --> 00:42:50,560
Speaker 10: The US economy is on track. There there's no sign

783
00:42:50,600 --> 00:42:54,279
Speaker 10: of inflation on the horizon. Yet in this kind of

784
00:42:54,320 --> 00:42:56,880
Speaker 10: assembly of economists there has to be one optimist.

785
00:42:57,239 --> 00:43:01,120
Speaker 2: At least your name is referenced.

786
00:43:02,080 --> 00:43:04,120
Speaker 4: I just want to wonder, you know, at one point,

787
00:43:04,280 --> 00:43:07,480
Speaker 4: is it unsustainable this kind of enthusiasm, this kind of growth, right,

788
00:43:07,520 --> 00:43:09,640
Speaker 4: I mean, at some point you're not going to get

789
00:43:09,680 --> 00:43:12,600
Speaker 4: down to two percent. I'm already changing to three percent

790
00:43:12,640 --> 00:43:14,480
Speaker 4: two percent for quite a while, even by the fed's

791
00:43:14,520 --> 00:43:16,880
Speaker 4: own admission twenty twenty five, exactly after.

792
00:43:16,760 --> 00:43:19,840
Speaker 5: Twenty twenty five. Doesn't that reduce their credibility to some degree?

793
00:43:21,320 --> 00:43:24,000
Speaker 10: They have to have a credible strategy for getting to

794
00:43:24,080 --> 00:43:27,600
Speaker 10: two percent? So this is the classic. Give them a

795
00:43:27,719 --> 00:43:29,680
Speaker 10: target two percent or give them a date and never

796
00:43:29,760 --> 00:43:31,440
Speaker 10: give them both two percent?

797
00:43:31,760 --> 00:43:33,520
Speaker 2: Can we think about where it came from? Is this

798
00:43:33,680 --> 00:43:35,720
Speaker 2: really about some people in New Zealand in the nineteen

799
00:43:35,719 --> 00:43:37,200
Speaker 2: eighties just coming up with a number. Is that what

800
00:43:37,239 --> 00:43:37,920
Speaker 2: we're all doing here?

801
00:43:38,280 --> 00:43:38,560
Speaker 5: Percent?

802
00:43:38,920 --> 00:43:39,680
Speaker 2: About two percent?

803
00:43:39,800 --> 00:43:41,640
Speaker 10: That's exactly what we're all all doing here.

804
00:43:41,719 --> 00:43:45,680
Speaker 1: But history has consequences, should I see anyway I said

805
00:43:46,320 --> 00:43:50,680
Speaker 1: geta I mean absolutely absolutely dead. On the first time

806
00:43:50,680 --> 00:43:52,279
Speaker 1: I think I met you, or it was like within

807
00:43:52,360 --> 00:43:54,200
Speaker 1: the year I met you, some guy almost took a

808
00:43:54,239 --> 00:43:56,600
Speaker 1: swing at you on a stage in Singapore at at

809
00:43:56,640 --> 00:43:59,279
Speaker 1: G seven meeting. He was so angry with you. How

810
00:43:59,320 --> 00:44:03,960
Speaker 1: do you respond to, OMG, the dollar's dead? Ren mindy ascended?

811
00:44:04,080 --> 00:44:06,680
Speaker 1: You throw chalk at people at Berkeley when it comes

812
00:44:06,719 --> 00:44:08,000
Speaker 1: up how do you respond.

813
00:44:07,960 --> 00:44:12,080
Speaker 10: No, at Berkeley, I don't hear it, but that that

814
00:44:12,280 --> 00:44:15,600
Speaker 10: kind of interchange, you get more invitations, do you.

815
00:44:16,239 --> 00:44:18,759
Speaker 1: Get okay, you get more speaking fees off that. Do

816
00:44:18,880 --> 00:44:21,880
Speaker 1: you suggest a dollar is at risk given all these stresses?

817
00:44:22,239 --> 00:44:25,440
Speaker 10: I think the dollar is not at risk yet. So

818
00:44:25,800 --> 00:44:30,040
Speaker 10: we in the United States can do things to damage

819
00:44:30,040 --> 00:44:32,920
Speaker 10: its credibility, but nothing that happens at the Brick Summit

820
00:44:33,000 --> 00:44:38,200
Speaker 10: this weekend will much as you reader, I would have

821
00:44:38,440 --> 00:44:39,600
Speaker 10: chosen to come here anyway.

822
00:44:40,400 --> 00:44:43,360
Speaker 2: Yet word yet it's so loaded. Thank you. This is

823
00:44:43,400 --> 00:44:45,120
Speaker 2: wonderful trading. Thank you very much, sir.

824
00:44:45,719 --> 00:44:49,520
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and

825
00:44:49,680 --> 00:44:53,840
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826
00:44:54,160 --> 00:44:58,680
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827
00:44:58,800 --> 00:45:02,480
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828
00:45:02,680 --> 00:45:06,440
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829
00:45:06,480 --> 00:45:10,560
Speaker 1: Bloomberg terminal. Thanks for listening. I'm Tom Keen, and this

830
00:45:11,400 --> 00:45:12,040
Speaker 1: is Bloomberg