WEBVTT - Bloomberg Daybreak Weekend: Inflation, Banking, China 0:00:02.200 --> 0:00:04.760 This is Bloomberg Daybreak Weekend, our global look at the 0:00:04.760 --> 0:00:07.440 top stories in the coming week from our Daybreak anchors 0:00:07.440 --> 0:00:09.720 all around the world. And straight ahead on the program 0:00:09.880 --> 0:00:13.840 is more Inflation Ahead. I'm Tom Busby in New York. 0:00:14.040 --> 0:00:16.119 I'm Stephen Carol in London, where we're looking ahead to 0:00:16.120 --> 0:00:18.600 the next set of inflation numbers from the Euro Area. 0:00:18.880 --> 0:00:21.279 I'm Joe Matthew in Washington. We'll look ahead of the 0:00:21.320 --> 0:00:24.880 first hearings into the SVB and Signature Bank collapses. I'm 0:00:24.880 --> 0:00:27.600 Bryan Curtis in Hong Kong. We look at the restructuring 0:00:27.720 --> 0:00:31.480 plan finally delivered by China Evergrand Group in the court 0:00:31.960 --> 0:00:35.880 and what it means for China's property recovery. That's all 0:00:35.960 --> 0:00:40.160 straight ahead on Bloomberg Daybreak Weekend on Bloomberg ELEVEM FREEO, 0:00:40.280 --> 0:00:44.279 New York, Bloomberg ninety nine one, Washington, DC, Bloomberg one 0:00:44.280 --> 0:00:48.240 oh six one, Boston, Bloomberg nine sixty, San Francisco, DAB 0:00:48.479 --> 0:00:52.199 Digital Radio London, Sirius XM one nineteen and around the 0:00:52.200 --> 0:00:55.320 world on Bloomberg Radio dot Com and via the Bloomberg 0:00:55.360 --> 0:01:01.720 Business App. Good day to you. I'm Tom Busby. We 0:01:01.800 --> 0:01:05.399 begin today's program with inflation the driving force behind the 0:01:05.440 --> 0:01:08.720 Fed's decision to raise its benchmark lending rate again last 0:01:08.760 --> 0:01:12.360 week despite the banking crisis. And this coming week more 0:01:12.480 --> 0:01:15.600 headlines on inflation, with a key reading on consumer prices, 0:01:16.160 --> 0:01:19.160 also on economic growth in the final quarter of last year. 0:01:19.160 --> 0:01:21.320 And joining me now to talk about all this and more, 0:01:21.640 --> 0:01:25.800 Bloomberg's Global Economics and Policy Editor, Michael McKee. Michael, welcome, 0:01:26.000 --> 0:01:29.119 h nice to be here. Well, Michael will be getting 0:01:29.120 --> 0:01:32.640 and this is a mouthful. The US Personal consumption Expenditures 0:01:32.640 --> 0:01:36.520 price index from February this week. What is it? What 0:01:36.720 --> 0:01:39.600 is it? Measure? It is the Fed's favorite measure of inflation. 0:01:39.800 --> 0:01:43.080 It's constructed a little bit differently from the consumer price index. 0:01:43.480 --> 0:01:45.800 It has different weights on the kinds of things that 0:01:45.880 --> 0:01:50.560 people buy. But the FED looks at it as a 0:01:50.640 --> 0:01:55.040 much better indicator of where underlying inflation actually is. So 0:01:55.680 --> 0:02:01.280 they're expecting a three tenths increase for the month over 0:02:01.400 --> 0:02:03.920 month index, which would be down from six tents and 0:02:04.000 --> 0:02:06.280 that would be in theory good news. It would take 0:02:06.280 --> 0:02:08.600 the year over year level down to five point one 0:02:08.720 --> 0:02:12.880 from five point four. They're really watching core, which came 0:02:12.919 --> 0:02:15.960 in at six tenths in January, they think it economist 0:02:15.960 --> 0:02:19.239 survey by bloomberg'll go down to four tenths, and so 0:02:19.639 --> 0:02:24.040 that would show progress against inflation. The feed is also 0:02:24.080 --> 0:02:26.760 looking at these PC numbers to see what's happening with 0:02:26.800 --> 0:02:31.040 the services side, but that part is not forecast. Now 0:02:31.040 --> 0:02:35.960 we got a surprise increase in January, you know, also 0:02:36.000 --> 0:02:38.320 along with consumer spending, was that they think just an 0:02:38.320 --> 0:02:43.679 anomaly in January. Not an anomaly. What basically they think 0:02:43.800 --> 0:02:47.480 is happening is the low hanging fruit for inflation has 0:02:47.520 --> 0:02:51.200 been picked and now it gets harder to root out 0:02:51.200 --> 0:02:54.840 the inflation in various categories, and so we're going to 0:02:54.880 --> 0:02:57.720 see some lumpy inflation reports. Some months it'll go up 0:02:57.760 --> 0:02:59.920 a little bit in surprise people, and some months at 0:03:00.000 --> 0:03:04.600 the fall faster than anticipated. But we had their annual 0:03:05.480 --> 0:03:09.560 not annual, but quarterly new economic projections out this week, 0:03:09.919 --> 0:03:12.720 and they think that inflation is gonna fall the PC. 0:03:12.919 --> 0:03:15.040 Inflation is gonna fall to about three point four percent 0:03:15.080 --> 0:03:17.519 by the end of the year. So at five point one, 0:03:17.560 --> 0:03:19.920 if that's what it comes in at in February, that 0:03:20.040 --> 0:03:22.800 would still be a significant decline by the end of 0:03:22.800 --> 0:03:25.800 the year. And is that why this is often called 0:03:25.800 --> 0:03:30.280 the PC price deflator. Well, it's called the deflator because 0:03:30.320 --> 0:03:33.440 here's what they do. It's part of the collection of 0:03:33.560 --> 0:03:37.480 data for the GDP report, which we also get coming 0:03:37.480 --> 0:03:40.800 out for the fourth quarter, although they do the PC 0:03:41.200 --> 0:03:46.240 price collection monthly, but they take the GDP numbers and 0:03:46.720 --> 0:03:52.320 they subtract inflation. They deflate inflation, and so the data 0:03:52.360 --> 0:03:56.480 that they use is called the deflator. Okay, Now, more 0:03:56.520 --> 0:04:01.000 on inflation stubbornly high even after nine straight increases in 0:04:01.080 --> 0:04:03.280 the federal funds rate. So what are some of the 0:04:03.320 --> 0:04:05.720 main drivers of inflation that the FED is still concerned 0:04:05.720 --> 0:04:09.760 about right now? Well, we're still concerned mostly about housing. 0:04:09.800 --> 0:04:11.880 That's been the biggest problem for the FED all along. 0:04:12.320 --> 0:04:14.880 It has a smaller weight in the PC, which maybe 0:04:14.880 --> 0:04:16.760 one reason they think it's going to come down some. 0:04:17.640 --> 0:04:21.960 It is only about maybe twenty five percent or so 0:04:22.120 --> 0:04:25.960 of the PC, where it's about forty percent in the CPI, 0:04:26.400 --> 0:04:30.640 So that's an issue. They're also looking at some unusual 0:04:30.680 --> 0:04:34.520 things like used cars. People went out and bought a 0:04:34.520 --> 0:04:36.479 lot of used cars when they came back on the market, 0:04:36.480 --> 0:04:38.240 and now there's a bit of a shortage again. So 0:04:38.360 --> 0:04:41.120 on the wholesale level, we've seen used car prices going up. 0:04:41.400 --> 0:04:44.520 The question is does that translate over and then people 0:04:44.600 --> 0:04:48.440 keep an eye on things like medical care areas where 0:04:48.440 --> 0:04:51.000 we have seen inflation and they're trying to see if 0:04:51.000 --> 0:04:54.400 it if it continues. Now, let's dive a little more 0:04:54.440 --> 0:04:57.440 into housing. In February, we did see the first year 0:04:57.480 --> 0:05:01.799 over year price decline in in prices and over a decade, 0:05:01.839 --> 0:05:06.040 so prices are starting to soften. Bidding wars pretty much evaporated, 0:05:06.080 --> 0:05:08.720 Mortgage rates fluctuated right now, they've been down two weeks 0:05:08.720 --> 0:05:11.800 in a row. So is all this looking good for 0:05:12.520 --> 0:05:16.440 the PC? Yes and no good, but not for this PC. 0:05:17.400 --> 0:05:19.520 The problem is it takes a long time for the 0:05:19.720 --> 0:05:25.279 housing costs numbers to get into the indicators. They don't 0:05:25.680 --> 0:05:29.320 look at the actual cost of housing. They look essentially 0:05:29.360 --> 0:05:31.920 at what it would cost you to rent your house today. 0:05:32.600 --> 0:05:36.640 And what they find is it takes a while because 0:05:36.640 --> 0:05:38.680 you don't sign a lease every day, you know, by 0:05:38.720 --> 0:05:41.680 a house every day either. So even if prices were falling, 0:05:41.720 --> 0:05:45.120 and even if they were doing direct house prices into 0:05:45.160 --> 0:05:50.000 the index, this something that went down this month wouldn't 0:05:50.000 --> 0:05:52.640 make it into the data for six or eight months 0:05:53.080 --> 0:05:55.479 in general, because it takes that long to get enough 0:05:56.279 --> 0:06:00.960 housing activity to make a change visible to the Fed. 0:06:01.200 --> 0:06:04.280 They've been expecting because rents have been going down for 0:06:04.440 --> 0:06:06.240 about a year, they've been expecting it to start to 0:06:06.279 --> 0:06:08.599 show up anytime. And a lot of analysts think that 0:06:09.120 --> 0:06:12.560 maybe by April May will start to see housing decline 0:06:12.800 --> 0:06:14.679 and that will be one of the factors that would 0:06:14.680 --> 0:06:18.799 bring down the overall inflation rate as the FED anticipates 0:06:19.160 --> 0:06:22.479 towards the end of the year. Well, and that, let's 0:06:22.480 --> 0:06:24.640 talk about jobs and how that factors. And now we've 0:06:24.640 --> 0:06:27.080 seen a lot of headlines, a lot of tech sector layoffs, 0:06:27.120 --> 0:06:30.599 some other sectors tens of thousands, but the labor market 0:06:30.760 --> 0:06:34.239 still remains pretty strong. We won't get you the job's 0:06:34.279 --> 0:06:36.920 report for March for another week more. But what are 0:06:36.920 --> 0:06:38.800 some of the signs you're seeing in the labor market 0:06:38.839 --> 0:06:43.320 and is wage inflation still a factor? Wage inflation is 0:06:43.320 --> 0:06:45.720 a factor in certain categories. One of the things that 0:06:45.800 --> 0:06:50.400 happened was we did not refill all the jobs in 0:06:50.720 --> 0:06:54.960 a lot of service industries that went away during the pandemic, 0:06:55.000 --> 0:07:00.640 and so companies, restaurants, bars, people like that are struggling 0:07:00.920 --> 0:07:03.760 to find workers to fill the jobs, and so they 0:07:03.800 --> 0:07:07.440 have had to raise wages, and we've seen those categories 0:07:07.440 --> 0:07:11.520 of wages continue to rise. The question is do they 0:07:11.560 --> 0:07:15.160 start to flatten out. There are some tentative signs that's 0:07:15.200 --> 0:07:18.480 the case, even though hiring has been fairly strong. So 0:07:19.480 --> 0:07:21.800 we're really watching wages in the service sector and as 0:07:21.800 --> 0:07:23.920 far as prices, the FETE has been watching the service 0:07:23.920 --> 0:07:27.960 sector because of those wages. Since in services much of 0:07:28.000 --> 0:07:33.160 your cost is labor. When they have to raise wages 0:07:33.440 --> 0:07:35.960 to attract employees, then that's going to have an impact 0:07:35.960 --> 0:07:42.400 on what they charge you for the service that you get. Gotcha, Okay? Now, 0:07:42.440 --> 0:07:45.679 Also this week we talked about it, just for a moment, 0:07:45.720 --> 0:07:48.120 the latest read economic growth for the end of last year, 0:07:48.200 --> 0:07:51.520 fourth quarter GDP. This one looking backward a bit, but 0:07:52.080 --> 0:07:55.480 for all the hemming and hawing about economic weakness, it 0:07:55.520 --> 0:07:58.000 looks like it's going to be pretty good. Well, this 0:07:58.120 --> 0:08:02.120 is the second reverse to the number, and so it 0:08:02.160 --> 0:08:06.240 doesn't carry as much weight. The Commerce Department looks at 0:08:06.280 --> 0:08:10.960 a Census Bureau looks at all the sales of products 0:08:10.960 --> 0:08:14.400 in the United States, but it takes a while to 0:08:14.440 --> 0:08:17.720 get all the data in, so they will put out 0:08:17.760 --> 0:08:21.120 a first first indication and then they start putting out 0:08:21.720 --> 0:08:25.040 revisions to it, and this is the sort of the 0:08:25.040 --> 0:08:27.760 final revision of this series. It'll be revised again next 0:08:27.800 --> 0:08:30.600 year when they get benchmark numbers. But for right now 0:08:30.920 --> 0:08:33.760 they're looking at two point seven percent, which would be 0:08:33.880 --> 0:08:38.280 unchanged from the first revision and would be still much 0:08:38.400 --> 0:08:42.720 faster than the sustainable rate without inflation that the FED 0:08:43.440 --> 0:08:47.240 needs to see. And the Atlanta Fed GDP now number, 0:08:47.280 --> 0:08:50.720 which is sort of a NowCast of what they think 0:08:51.040 --> 0:08:54.319 the data are telling us about the current quarter, is 0:08:54.360 --> 0:08:58.680 showing three point two percent growth, so that really suggests 0:08:58.720 --> 0:09:01.600 that the economy has not slowed down. Now, we're only 0:09:01.720 --> 0:09:05.319 going to just start getting March data in the next 0:09:05.360 --> 0:09:07.920 few weeks, so that could change things. But right now 0:09:08.320 --> 0:09:10.920 between the fourth quarter and the first quarter still looks 0:09:10.920 --> 0:09:14.400 pretty strong. But that March data is certainly going to 0:09:14.520 --> 0:09:17.560 reflect the crisis in banking and what it means to 0:09:17.679 --> 0:09:21.280 lending and on economic growth. And you know, we don't 0:09:21.280 --> 0:09:23.240 know when this is going to end, if it's going 0:09:23.280 --> 0:09:25.559 to end, how bad it's going to get, but it's 0:09:25.559 --> 0:09:28.800 certainly going to weigh on things. Well, there's an old 0:09:29.160 --> 0:09:33.240 law in economics, if something can't continue, it will stop, 0:09:33.679 --> 0:09:35.600 and so at some point this will stop. We just 0:09:35.640 --> 0:09:40.000 don't know when. The data for March may not reflect 0:09:40.080 --> 0:09:44.240 a lot of this, because the way the crisis would 0:09:44.320 --> 0:09:48.199 hit the economy is if banks stop lending, if they 0:09:48.280 --> 0:09:53.559 raise their lending standards so high to keep from having problems, 0:09:54.040 --> 0:09:57.120 then we would see a restriction of the flow of 0:09:57.160 --> 0:10:00.440 credit into the economy. And that'll take a while to 0:10:00.480 --> 0:10:03.400 show up because the same sort of manner. You don't 0:10:03.440 --> 0:10:04.880 buy a house every day, you don't go to the 0:10:04.880 --> 0:10:07.600 bank for a loan every day, and businesses have to 0:10:07.640 --> 0:10:10.480 make decisions about whether they're going to still want to 0:10:10.720 --> 0:10:13.280 get loans. The FED does a couple surveys, won the 0:10:13.440 --> 0:10:15.920 Senior Loan Officers Survey, which will be out in April, 0:10:15.920 --> 0:10:18.640 and it will tell us whether banks have tightened credit standards. 0:10:18.679 --> 0:10:22.000 But they also have a survey of credit officers that 0:10:22.400 --> 0:10:24.320 the most recent one out a couple of weeks ago, 0:10:24.600 --> 0:10:29.120 showed that demand for loans was off significantly, and that 0:10:29.200 --> 0:10:31.440 was before the banking crisis. That was just saying that 0:10:31.920 --> 0:10:36.080 loans have gotten expensive, and companies at this point are saying, 0:10:36.080 --> 0:10:38.320 maybe we don't want to pay that. Oh boy, well, 0:10:38.360 --> 0:10:40.840 we live in interesting times. Michael, Thank you so much. 0:10:40.880 --> 0:10:43.840 Always a pleasure. That was our Global Economics and Policy 0:10:43.960 --> 0:10:47.479 editor Michael mckeeon coming up on Bloomberg Daybreak weekend. Inflation 0:10:47.559 --> 0:10:51.319 back in focus in Europe this week. I'm Tom Busby. 0:10:51.600 --> 0:11:05.480 This is Bloomberg. This is Bloomberg Daybreak weekend, our global 0:11:05.520 --> 0:11:07.680 look ahead at the top stories for investors in the 0:11:07.720 --> 0:11:10.360 coming week. I'm Tom Busby in New York and up 0:11:10.400 --> 0:11:13.720 later on our program What's Ahead in our Nation's capital. 0:11:14.000 --> 0:11:17.679 But first, after last week central bank meetings, inflation will 0:11:17.760 --> 0:11:20.080 be back in focus in Europe this week with the 0:11:20.160 --> 0:11:22.880 first March readings for the euro Area and some of 0:11:22.920 --> 0:11:26.760 its major economies. This after European Central Bank President Christine 0:11:26.800 --> 0:11:31.320 Lagarde said that underlying inflation wasn't trending down for more. 0:11:31.440 --> 0:11:33.959 Let's ad to London and bring in London Daybreak Europe 0:11:34.000 --> 0:11:37.760 Banker Stephen Carroll, Stephen Tom. February was a month of 0:11:37.800 --> 0:11:41.000 inflation surprises in Europe. The German and French numbers came 0:11:41.040 --> 0:11:43.679 in higher than expected, just like they did here in 0:11:43.720 --> 0:11:46.720 the UK. So will the March data bring good or 0:11:46.880 --> 0:11:50.320 bad news for officials at the European Central Buying quot 0:11:50.320 --> 0:11:54.960 To discuss. I'm joined by Bloomberg's chief Europe economists Jamie Rush. Jamie, So, 0:11:54.960 --> 0:11:57.640 we had a few surprises in February. The wider Eurozone 0:11:57.679 --> 0:12:00.360 reading was eight and a half percent, still en Rogy 0:12:00.400 --> 0:12:02.680 dictory from the peak that we had in October. What's 0:12:02.720 --> 0:12:07.880 the general expectation from March. Well, we're expecting headline inflation 0:12:07.960 --> 0:12:10.040 to drop from eight and a half to seven percent, 0:12:10.160 --> 0:12:14.800 so big drop, largely caused by energy prices, and you know, 0:12:14.840 --> 0:12:16.839 there's there's an element of inflation which is going to 0:12:16.920 --> 0:12:18.840 fall and that's just baked in because of the energy 0:12:18.880 --> 0:12:22.160 cost stuff. So that's what we expecting. Headline core though 0:12:22.760 --> 0:12:26.680 probably very similar to where it was in the last month, 0:12:26.720 --> 0:12:28.760 so around about five point seven percent, and we think 0:12:28.800 --> 0:12:31.480 it probably be around that number for the next few months, 0:12:31.840 --> 0:12:33.920 and that's something that's very important for the ECB. Will 0:12:33.960 --> 0:12:35.640 get to that in a moment, but I want to 0:12:35.679 --> 0:12:38.600 reflect a little bit on what happened in February, because 0:12:38.880 --> 0:12:42.160 first of all, we had the Spanish reading coming in, 0:12:42.400 --> 0:12:45.200 then France and Germany came in harder. You know, where 0:12:45.200 --> 0:12:47.960 did those surprises come from the last time around her? 0:12:48.000 --> 0:12:49.320 And it does it give us any clues as to 0:12:49.320 --> 0:12:52.360 where we could be looking for surprises this time. Well, 0:12:52.559 --> 0:12:54.760 I think that the troubling thing when you looked at 0:12:54.760 --> 0:12:57.720 all the numbers from the Eurozone is that services price 0:12:57.760 --> 0:13:00.600 inflation picked up, and so this is the thing that 0:13:00.679 --> 0:13:03.640 we need to probably pay most attention to. It's not 0:13:03.679 --> 0:13:06.120 always like the most clear read on inflation because it 0:13:06.160 --> 0:13:09.360 bounces around up and down because of like package holidays 0:13:09.400 --> 0:13:13.200 in Germany, for example, airfares. There's lots of stuff that 0:13:13.240 --> 0:13:15.560 moves things around. But I think that's that's where these 0:13:15.559 --> 0:13:18.439 people were focused. That's certainly where we're focused. In terms 0:13:18.480 --> 0:13:21.199 of energy prices, of course, the energy price shock was 0:13:21.240 --> 0:13:25.160 what drove so much of this inflation over the past year. 0:13:25.440 --> 0:13:30.200 Has that effect largely petered out now? Not yet, not 0:13:30.200 --> 0:13:31.800 in the annual rate. I mean, it's still got quite 0:13:32.080 --> 0:13:34.640 quite a bit further to run, but by the end 0:13:34.640 --> 0:13:36.400 of the year we should be heading back towards sort 0:13:36.440 --> 0:13:39.920 of like three percent headline inflation rates, and the energy 0:13:39.920 --> 0:13:42.280 cost could even start to push down on the headline 0:13:42.360 --> 0:13:45.600 rate a bit further out, how much of the differential 0:13:45.640 --> 0:13:48.480 and rates that we see across the Euro Area, because 0:13:48.520 --> 0:13:49.959 I mean, look, if you look at the numbers across 0:13:50.000 --> 0:13:53.000 the twenty countries, hungry. CPI was nearly twenty six percent 0:13:53.040 --> 0:13:56.040 in February. The lowest reading was in Luxembourg at four 0:13:56.120 --> 0:13:58.840 point eight percent. How much of this is down to 0:13:59.040 --> 0:14:03.920 national factor and national responses to inflation. I'm thinking about 0:14:03.960 --> 0:14:06.200 things like the energy price cap in France. Does that 0:14:06.760 --> 0:14:09.280 does those sort of differentials still holds when we think 0:14:09.320 --> 0:14:12.640 about the numbers to come. Yeah, it's made a massive difference. 0:14:13.480 --> 0:14:16.240 I mean, you're broadly speaking has faced the same sort 0:14:16.240 --> 0:14:17.760 of shock. There's a bit of a difference in the 0:14:17.840 --> 0:14:23.040 mix which countries consume, what proportion of gas, electricity, this 0:14:23.080 --> 0:14:25.440 sort of thing. But generally speaking, it comes down to 0:14:25.480 --> 0:14:28.320 how governments have responded and how it's been priced and 0:14:28.720 --> 0:14:32.720 hedging against against changing energy prices. So there's a massive 0:14:32.720 --> 0:14:34.320 difference on the way up. There's going to be a 0:14:34.320 --> 0:14:36.640 big difference on the way down. Now, obviously this is 0:14:36.640 --> 0:14:38.800 going to be very important to work. The European Central 0:14:38.800 --> 0:14:41.520 Bank doesn't its next rate decision, although that's not until 0:14:41.640 --> 0:14:44.120 early May. Now, Christine Legard has been speaking about the 0:14:44.120 --> 0:14:47.000 inflation picture in recent days. Let's listen to some of 0:14:47.000 --> 0:14:50.600 her speech at the ECB and it's Watchers conference, which 0:14:50.640 --> 0:14:53.800 we brought to you live on Bloomberg Radio. The Urrea 0:14:53.880 --> 0:14:57.240 has been hit by an inflation shock which is now 0:14:57.240 --> 0:15:02.160 working its way through the economy. While headline inflation is 0:15:02.200 --> 0:15:06.320 likely to decline steeply this year, driven by falling energy 0:15:06.360 --> 0:15:13.440 prices and easing supply bottlenecks, underlying inflation dynamics remain strong 0:15:15.280 --> 0:15:19.040 and in such an environment, our ultimate goal is clear. 0:15:20.120 --> 0:15:24.640 We must and we will bring down inflation to our 0:15:24.720 --> 0:15:28.000 medium term target in a timely manner. So that was 0:15:28.080 --> 0:15:30.600 Christine the Guard speaking at the ECB and its Watchers 0:15:30.680 --> 0:15:36.040 conference in Frankfurt. Jamie the last ECB decision, which really 0:15:36.080 --> 0:15:38.680 isn't very long ago in the grand scheme of things, 0:15:38.880 --> 0:15:40.920 they got in a fifty basis point hike. There's been 0:15:41.000 --> 0:15:42.920 lots of speculation they're up to it, that perhaps the 0:15:43.160 --> 0:15:47.440 instability in the banking sector might affect that. How should 0:15:47.440 --> 0:15:50.360 we be thinking about the ECB's trajectory from here, given 0:15:50.360 --> 0:15:52.280 that they did manage to get through a fifty basis 0:15:52.280 --> 0:15:55.080 point hike last time around. So I think on the 0:15:55.120 --> 0:15:57.920 last meeting there's important thing to understand it, which is 0:15:57.960 --> 0:16:00.560 that you can be hawkish in two ways. Now. You 0:16:00.600 --> 0:16:03.520 can be hawkish because you're worried about underlying inflation being 0:16:03.560 --> 0:16:06.240 too high. But you can also be hawkish about the 0:16:06.280 --> 0:16:11.960 division of monetary policy and financial policy, and that's what 0:16:12.000 --> 0:16:14.360 we saw. You can be a dave about inflation but 0:16:14.600 --> 0:16:18.280 not want to muddy the water between muniture policy and 0:16:18.480 --> 0:16:21.160 financial stability. And so I think that's probably why they 0:16:21.200 --> 0:16:23.960 have much more support for the big fifty basis point 0:16:24.040 --> 0:16:27.560 hike than markets are expecting even up to the day, 0:16:29.320 --> 0:16:31.760 and that carries forward to the subsequent meetings. They're still 0:16:31.800 --> 0:16:34.000 going to be focusing on this division between monetary and 0:16:34.000 --> 0:16:37.520 financial stability, and we've heard from Lagarde they're going to 0:16:37.520 --> 0:16:39.800 be thinking about three things as they set policy. They're 0:16:39.800 --> 0:16:42.880 going to be thinking about inflation forecasts. They're going to 0:16:42.920 --> 0:16:46.920 be thinking about underlying inflation as measured now, and they're 0:16:46.920 --> 0:16:49.280 going to be thinking about how much policy is transmitting 0:16:49.360 --> 0:16:52.480 to the economy. So they're monitoring those three things. Our 0:16:52.560 --> 0:16:55.800 view is that the banking crisis isn't yet severe enough 0:16:56.240 --> 0:16:58.720 to take great hikes off the table, and we think 0:16:58.720 --> 0:17:00.840 they're going to keep hiking tony five basis points of 0:17:00.920 --> 0:17:03.680 meeting through the summer. What does that mean then, in 0:17:03.800 --> 0:17:07.119 terms of the sort of terminal rate, where do you 0:17:07.160 --> 0:17:09.800 see that now I think we're probably getting somewhere between 0:17:09.880 --> 0:17:13.439 three and a half and three point seven five. There 0:17:13.440 --> 0:17:17.560 has been a tightening of financial conditions in terms of 0:17:17.600 --> 0:17:21.720 the cost of credit for banks relative to risk free rates. 0:17:22.040 --> 0:17:23.800 That is going to be that is going to weigh 0:17:23.800 --> 0:17:26.000 on the economy a bit in future years. But it 0:17:26.000 --> 0:17:27.840 takes like it takes one hike out the cycle. It 0:17:27.920 --> 0:17:30.200 doesn't take it doesn't take three out. So I think, 0:17:30.200 --> 0:17:33.359 whereas markets for previously expecting a terminal rate of four percent, 0:17:34.160 --> 0:17:36.199 somewhere three and a half three point seventy five. Now, 0:17:36.359 --> 0:17:39.119 now that's reasonable to us. Christie and regard did mention 0:17:39.440 --> 0:17:43.560 wage pressures in that speech in Frank First, what is 0:17:43.600 --> 0:17:46.719 the situation as regards wage inflation in Europe and how 0:17:46.760 --> 0:17:50.040 does that feed into the broader inflationary picture. Well, so 0:17:50.520 --> 0:17:53.240 we've had this energy shock and we're going to decide 0:17:53.240 --> 0:17:56.520 who's going to pay for it, and it's a negotiation 0:17:56.560 --> 0:18:03.240 between employees and between is, and so far businesses have 0:18:03.359 --> 0:18:06.800 basically one like, they've expanded their profit margins quite a lot, 0:18:07.080 --> 0:18:10.000 and they haven't made made good on on wage gains 0:18:10.040 --> 0:18:14.520 all that much. So the question is our household, our 0:18:14.560 --> 0:18:20.080 employees gonna achieve these some compensation over the coming year, 0:18:20.119 --> 0:18:21.800 and the more they push for it and the higher 0:18:21.840 --> 0:18:25.679 their wage costs go up, the longer inflation is going 0:18:25.720 --> 0:18:27.879 to be is going to stay high. So I think 0:18:27.960 --> 0:18:32.480 that's that the it's a negotiation the moment, the balance 0:18:32.520 --> 0:18:34.919 is probably already song too far in favor of businesses, 0:18:35.720 --> 0:18:38.719 but there are upside risks the inflation outlook from that. 0:18:38.800 --> 0:18:43.159 From that negotiation, we of course are sitting here in 0:18:43.200 --> 0:18:45.399 London looking at the picture as well. How different is 0:18:45.400 --> 0:18:49.879 the picture for Eurozone inflation versus inflation in the UK. Well, 0:18:49.960 --> 0:18:52.560 here in the UK and in the US, we do 0:18:52.680 --> 0:18:55.840 have really strong wage growth which is pushing up costs 0:18:55.840 --> 0:18:58.960 for businesses and extending the overshoot of inflation, and as 0:18:58.960 --> 0:19:01.320 the target and the Zone, it's not quite there yet. 0:19:02.200 --> 0:19:03.919 So I think that's the main difference. We have a 0:19:03.960 --> 0:19:06.800 difference in the amount of underlying pressure in the economy, 0:19:07.200 --> 0:19:09.360 and you could definitely say I think that the UK 0:19:09.400 --> 0:19:11.919 and the US were overheating by more. We have a 0:19:11.920 --> 0:19:15.000 couple more data points to come before the next ECB meeting, 0:19:15.920 --> 0:19:19.000 but I am conscious that we're looking ahead to the 0:19:19.000 --> 0:19:22.960 March figures. I suppose how important will it be in 0:19:23.000 --> 0:19:27.680 that scheme of policymaking when you come towards the next decision. Well, 0:19:27.680 --> 0:19:30.080 I think they're going to want to see underlying inflation 0:19:30.160 --> 0:19:32.520 come down. I mean they've said as much, and they're 0:19:32.560 --> 0:19:35.320 not going to see that probably until maybe even as 0:19:35.400 --> 0:19:38.320 late as September. So I think there's nothing There's not 0:19:38.320 --> 0:19:40.840 going to be a major change in core inflation or 0:19:40.840 --> 0:19:42.600 the underlying cost pressure until you get to the end 0:19:42.600 --> 0:19:44.639 of the summer, so that that keeps them hiking. And 0:19:44.800 --> 0:19:46.360 the main risk to that is just that something else 0:19:46.359 --> 0:19:49.280 blows up in the banking sector or that the tensions 0:19:49.280 --> 0:19:51.360 we've seen so far turned out it's been more painful 0:19:51.400 --> 0:19:54.119 than people in visage, in which case you know that 0:19:54.200 --> 0:19:57.440 all bets are off okay. Bloomberg's chief europe economist, Jamie Rush, 0:19:57.480 --> 0:20:00.000 thank you very much for joining us with those insights. 0:20:00.119 --> 0:20:02.520 I'm Stephen Carroll in London. You can catch us every 0:20:02.560 --> 0:20:05.359 weekday morning here for Bloomberg Daybreak. You're at beginning at 0:20:05.400 --> 0:20:08.879 six am in London and one am on Wall Streets. Tom, 0:20:08.880 --> 0:20:12.040 thank you, Stephen, and coming up on Bloomberg Daybreak weekend, 0:20:12.119 --> 0:20:15.520 the latest out of our nation's capital. I'm Tom Buzzbee 0:20:15.560 --> 0:20:31.600 This is Bloomberg broadcasting live from the Bloomberg Interactive Broker 0:20:31.720 --> 0:20:35.399 Studio in New York. Bloomberg elvon Freo to Washington, d C, 0:20:35.600 --> 0:20:39.000 Bloomberg ninety nine one to Boston, Bloomberg one oh six 0:20:39.119 --> 0:20:42.359 one to San Francisco, Bloomberg nine sixty to the country, 0:20:42.440 --> 0:20:46.720 Sirius XM Channel one nineteen to London DAB Digital Radio, 0:20:46.840 --> 0:20:49.920 and around the globe the Bloomberg Business app in Bloomberg 0:20:50.040 --> 0:21:00.600 Radio dot com. This is Bloomberg Daybreak Weekend, Tom Posty 0:21:00.680 --> 0:21:02.480 in New York, where your global look ahead at the 0:21:02.520 --> 0:21:05.399 top stories for investors in the coming week. On Tuesday, 0:21:05.440 --> 0:21:07.719 the Senate Banking Committee will hold the first of several 0:21:07.760 --> 0:21:11.440 hearings on the collapse of Silicon Valley Bank and Signature Bank. 0:21:11.880 --> 0:21:14.000 For what we can expect, led ted to our Bloomberg 0:21:14.040 --> 0:21:17.240 ninety nine one newsroom in Washington and sound On host 0:21:17.440 --> 0:21:20.520 Joe Matthew. Thanks Tom. I'm joined by Kaylee Lines here 0:21:20.560 --> 0:21:22.440 in Washington as we look ahead now to the week 0:21:22.480 --> 0:21:25.320 on Capitol Hill. You thought this past week was fun. 0:21:26.160 --> 0:21:28.760 We may not have TikTok influencers crowding the halls of 0:21:28.800 --> 0:21:30.600 Congress next week, but we do have a lot of 0:21:30.600 --> 0:21:34.160 heavy duty stuff on the calendar here, Kayley. It begins 0:21:34.200 --> 0:21:38.560 with the first banking hearings, the first hearings into the 0:21:38.600 --> 0:21:42.160 collapse of SVB and Silicon Bank. We've been waiting for these, 0:21:42.720 --> 0:21:45.480 and as Emily Wilkins at Bloomberg Government will help us 0:21:45.760 --> 0:21:49.480 look ahead to as well, some important energy legislation will 0:21:49.560 --> 0:21:52.639 dominate the House next week. So you know, rest up 0:21:52.680 --> 0:21:56.919 this weekend, right, Yeah, definitely, because it's going to be 0:21:56.960 --> 0:21:59.200 two days of probably what is going to be pretty 0:21:59.200 --> 0:22:02.399 intense questions of regulators on Capitol Hill. We thought the 0:22:02.480 --> 0:22:05.920 first hearing in inquiring as to what happened at Silicon 0:22:06.000 --> 0:22:07.639 Valley Bank and Signature Bank was going to be in 0:22:07.680 --> 0:22:11.000 the House. They announced it first Chairman Patrick McHenry and 0:22:11.080 --> 0:22:13.439 ranking Member Maxine Waters that they're going to have the 0:22:13.480 --> 0:22:15.800 hearing on Wednesday. Then the Senate Banking Committee came out 0:22:15.840 --> 0:22:18.520 and said they are actually going to have their hearing Tuesday, 0:22:18.640 --> 0:22:20.920 so that will be the one that we get first. 0:22:20.920 --> 0:22:24.800 But same witnesses will have Marty Grunberg from the FDIC, 0:22:25.160 --> 0:22:27.080 Michael Barr, the Vice chaff Supervision at the FED, and 0:22:27.080 --> 0:22:29.840 Nellie Lang, the Under Secretary for Domestic Finance. At the 0:22:29.880 --> 0:22:33.480 Treasury Department, so they will all three be testifying both days, 0:22:33.520 --> 0:22:35.520