WEBVTT - Where Things Stand Now With Inflation and the Fed 0:00:10.119 --> 0:00:14.240 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.320 --> 0:00:18.200 I'm Joe and I'm Tracy. Allow Tracy, It's been a 0:00:18.239 --> 0:00:21.440 while since we've just sort of had a macro state 0:00:21.480 --> 0:00:23.599 of the Economy episode, but I think now is a 0:00:23.680 --> 0:00:26.360 very good time for it. Yeah. Absolutely, So we are 0:00:26.400 --> 0:00:32.400 recording this on December literally two hours after the fed's 0:00:32.440 --> 0:00:35.720 latest decision in which they hiked by fifty basis points. 0:00:35.760 --> 0:00:39.159 That was widely expected. But what wasn't as expected was 0:00:39.280 --> 0:00:42.000 the CPI number that we got just yesterday which came in. 0:00:42.080 --> 0:00:44.520 I think the headline figure was seven point one percent, 0:00:44.640 --> 0:00:48.960 which was lower than expected. Right, so a pretty big week, 0:00:49.000 --> 0:00:52.360 I mean, the story the big macro stories. Everyone's waiting 0:00:52.400 --> 0:00:57.040 for some clear sign of inflation deceleration. Everybody is trying 0:00:57.080 --> 0:00:58.680 to figure out, you know, is the FED going to 0:00:58.760 --> 0:01:01.440 pivot and what PIVO even means, which I think is 0:01:01.440 --> 0:01:04.800 a contested word. And so I would say a pretty 0:01:04.800 --> 0:01:07.560 big leak because, as you say, we got an inflation report, 0:01:07.959 --> 0:01:11.280 of FED announcement, press conference, all of that, and so 0:01:11.360 --> 0:01:15.119 I think a good moment to take stock of where 0:01:15.120 --> 0:01:17.520 we are in these stories, Right, Is this a turning 0:01:17.600 --> 0:01:20.920 point in these sort of high inflation, interest rate hiking 0:01:21.080 --> 0:01:23.520 cycle narrative that we've had for some time, and the 0:01:23.560 --> 0:01:25.600 fact that I've said turning point means that, and the 0:01:25.600 --> 0:01:27.440 fact that we're doing an episode on this means that 0:01:27.520 --> 0:01:29.840 it's probably going to amount to nothing. And I've cursed it, 0:01:30.040 --> 0:01:34.280 but you never know. We keep the setting ourselves up 0:01:34.280 --> 0:01:36.399 for the jinks right now, so we have all of 0:01:36.400 --> 0:01:38.640 our bases covered. But anyway, I think we should just 0:01:38.640 --> 0:01:40.679 get right into it because we have two great guests, 0:01:40.959 --> 0:01:43.120 two of the people we most like to turn to 0:01:43.640 --> 0:01:47.880 on these big macro questions. We've spoken to them many 0:01:47.920 --> 0:01:50.200 times over the years. We're gonna be speaking with two guests. 0:01:50.280 --> 0:01:53.000 Tim Dewey is the chief US economist at s g 0:01:53.200 --> 0:01:55.960 H Macro Advisors as well as the Professor of Practice 0:01:55.960 --> 0:01:59.400 in Economics at the University of Oregon. And John Turk, 0:01:59.480 --> 0:02:02.600 the founder of j ST Advisors and the author of 0:02:02.640 --> 0:02:06.240 The Cheap Convexity substag, which is a must read. Tim 0:02:06.280 --> 0:02:09.320 and John, thank you both for coming on. Well, thank 0:02:09.360 --> 0:02:13.520 you for having us. Thank you absolutely so. Why don't 0:02:13.639 --> 0:02:16.080 you know, I'll throw a question out for both of you, 0:02:16.160 --> 0:02:20.079 but like really simple, we just uh, just as we're talking, 0:02:20.200 --> 0:02:23.840 wrapped up Powell's press conference. Why do you sort of 0:02:24.120 --> 0:02:27.760 give us your summary? You know, you start with Tim, 0:02:27.800 --> 0:02:29.680 but both of you can go of, like, what did 0:02:29.720 --> 0:02:34.280 we just learn from Powell? Well that's a okay, So 0:02:35.760 --> 0:02:39.000 what did we learn from Paul? Uh? So, No, No, 0:02:39.160 --> 0:02:41.519 you know, I think, you know, I think the main 0:02:41.560 --> 0:02:43.720 thing that that we really learned from Paul is that 0:02:43.760 --> 0:02:46.240 they are very much committed to this idea that they 0:02:46.280 --> 0:02:49.240 need to hold rates, you know, at a at a 0:02:49.240 --> 0:02:52.760 restrictive level for for an extended period of time. Uh. 0:02:52.760 --> 0:02:55.640 And then we also know that they're closing in on 0:02:56.040 --> 0:02:59.320 what they think that level is. And and so you know, 0:03:00.520 --> 0:03:03.119 what this seems to be coming down to is causing 0:03:03.160 --> 0:03:06.320 you deliberately causing something that that looks very much like 0:03:06.360 --> 0:03:09.679 a recession, although Paul Paul always say that it's it's 0:03:09.680 --> 0:03:13.799 something in the forecast. Which is interesting now because it's 0:03:13.800 --> 0:03:18.760 gonna create some questions given this disinflationary trend we're seeing 0:03:18.800 --> 0:03:22.160 in the data. It's really gonna people are gonna start asking, well, 0:03:22.760 --> 0:03:27.600 why do you need to create a recession here? Right? John? Yeah? 0:03:27.639 --> 0:03:29.840 I mean, for me, I think of it that I 0:03:29.919 --> 0:03:32.720 took away three key things from today. I mean, I 0:03:32.760 --> 0:03:37.040 think that one is that they are kind of transitioning 0:03:37.160 --> 0:03:41.480 from this where is terminal to how long to stay 0:03:41.520 --> 0:03:45.160 their stage, And I think that that really was I 0:03:45.160 --> 0:03:47.400 think most put forward by the fact of policy very 0:03:47.440 --> 0:03:51.320 open to going in intervals starting at the February next 0:03:51.400 --> 0:03:54.200 FOMC meeting, so that, you know, along with the commentary 0:03:54.200 --> 0:03:56.600 of the press, commerce doesn't make it seem like they're 0:03:56.640 --> 0:03:59.800 in the ballpark of what they deemed to be so 0:04:00.000 --> 0:04:03.720 fficiently restrictive. I think the second thing is that they 0:04:04.040 --> 0:04:06.960 are seemingly looking at this at least ex anti as 0:04:07.000 --> 0:04:11.720 that they want to stay at five around five percent 0:04:11.760 --> 0:04:14.320 FED funds for a while. And then third, I think 0:04:14.360 --> 0:04:17.039 the interesting thing from the dots to me. You know, 0:04:17.240 --> 0:04:21.120 obviously one can point to an interesting PC number, but 0:04:21.120 --> 0:04:23.560 I think, you know, most interesting to me is that 0:04:23.600 --> 0:04:25.520 if you look at the real rates for twenty three 0:04:25.520 --> 0:04:29.839 and twenty four using FED funds and their core PC projection, 0:04:30.400 --> 0:04:33.280 it's a hundred sixty basis points for both years. So 0:04:33.320 --> 0:04:36.520 I think in terms of defining what sufficiently restrictive this 0:04:36.600 --> 0:04:40.120 sort of vague maybe dynamic term means, I think they 0:04:40.120 --> 0:04:42.560 gave you a pretty good insight into the level that 0:04:42.640 --> 0:04:45.520 they seemingly are going to be targeting. That's you know, 0:04:45.560 --> 0:04:49.000 equates to inflation back and target over the medium term. 0:04:49.040 --> 0:04:51.200 So this is something that I wanted to ask both 0:04:51.240 --> 0:04:52.880 of you. But I feel like there are a lot 0:04:52.920 --> 0:04:56.480 of terms that you know, we throw around now without 0:04:56.600 --> 0:04:59.919 really like digging into them very much. I mean, transitor 0:05:00.240 --> 0:05:02.480 inflation was one of them from last year, and now 0:05:02.520 --> 0:05:06.400 we're talking about transitory deflation, which is kind of amazing. 0:05:06.800 --> 0:05:10.640 But can we talk about restrictive, Like, what exactly do 0:05:10.760 --> 0:05:13.359 we mean when we talk about the FED moving to 0:05:13.960 --> 0:05:22.280 a restrictive policy that can be for either of you? No, Well, well, 0:05:22.920 --> 0:05:26.279 it's it's unfortunate that the FED doesn't doesn't seem to 0:05:26.440 --> 0:05:29.320 entirely know when when they're going to be restrictive, right, So, 0:05:29.320 --> 0:05:31.240 so how are they going to figure this out? And 0:05:31.279 --> 0:05:34.599 it's it's the case that they're looking for this this 0:05:34.880 --> 0:05:38.840 rate that they think we'll create downward pressure on the 0:05:38.920 --> 0:05:42.280 labor market, sustained downward pressure on the labor market, and 0:05:42.400 --> 0:05:45.600 the desire is to get wage growth down in order 0:05:45.640 --> 0:05:49.600 to really reduce the inflationary pressures that they think are 0:05:49.600 --> 0:05:53.320 going to persist if if unemployement stays this low. But 0:05:53.320 --> 0:05:55.719 but but what is that rate? Uh, you know, I 0:05:55.720 --> 0:05:57.960 think the best way to think about is is maybe, 0:05:58.000 --> 0:06:00.040 like like John was saying that maybe it's a a 0:06:00.160 --> 0:06:03.359 rate of a hundred sixty basis points, but but I 0:06:03.360 --> 0:06:05.560 don't know if we should have a lot of conviction 0:06:05.720 --> 0:06:09.120 in that number. Yeah, you know, I think that it 0:06:09.279 --> 0:06:11.960 is sort of this you know, feel your way around, 0:06:12.160 --> 0:06:14.400 you know, even in the context of what I know 0:06:14.400 --> 0:06:17.400 a message I took away from the SEP today. You know, 0:06:17.440 --> 0:06:20.240 I think that what I think Loretta Mester actually set 0:06:20.279 --> 0:06:23.560 up a decent way of thinking about it and sort 0:06:23.600 --> 0:06:26.240 of these like broad Stokes and in my notes the 0:06:26.279 --> 0:06:28.600 Climes that kind of called it like the Themester roadmap. 0:06:28.680 --> 0:06:32.360 But it's basically this idea is that once the FED 0:06:32.440 --> 0:06:36.120 gets to a rate that has, as Tim says, you know, 0:06:36.760 --> 0:06:39.360 sustained downward pressure on the labor markets stain down and 0:06:39.440 --> 0:06:43.000 pressure on economic activity, they can basically tee off this 0:06:43.520 --> 0:06:46.720 handoff from below trend growth to slowing wage growth to 0:06:46.760 --> 0:06:49.360 slowing inflation. And I think that is sort of the 0:06:49.480 --> 0:06:52.520 sequencing is that they're trying to achieve, and they can 0:06:52.560 --> 0:06:55.960 only really know which level is doing that in real time. 0:06:56.279 --> 0:06:58.600 Of course, they'll have model estimates that will guide them, 0:06:58.880 --> 0:07:01.640 and we'll, you know, we'll sure we'll see a Coshari blog, 0:07:01.880 --> 0:07:04.360 you know, following this meeting on what that looks like. 0:07:04.800 --> 0:07:07.560 But I think that you know, broadly speaking, it's going 0:07:07.600 --> 0:07:10.120 to be very much informed by the data. And this 0:07:10.200 --> 0:07:13.080 is something that I think, you know, a takeaway from 0:07:13.080 --> 0:07:16.760 me from this meeting is that you know, sufficiently restrictive 0:07:16.880 --> 0:07:19.880 is not a you know, it's it's not an absolute level, 0:07:19.920 --> 0:07:22.160 it's a it's a dynamic level. And I think, you know, 0:07:22.240 --> 0:07:26.000 going into you know, the next two years, staying still 0:07:26.240 --> 0:07:29.000 may actually include moving, but we can get into that. 0:07:31.600 --> 0:07:34.280 Let me back up a little bit, because set Us 0:07:34.280 --> 0:07:37.360 had the FED, let's talk about the day before. On Tuesday, 0:07:37.400 --> 0:07:40.080 we got that CPI report that Tracy mentioned in the beginning. 0:07:40.800 --> 0:07:44.400 Core cp I on a month over month basis came 0:07:44.440 --> 0:07:48.040 into just point two percent headline, obviously influenced a lot 0:07:48.040 --> 0:07:50.000 by the plunge and oil prices which can only go 0:07:50.080 --> 0:07:53.160 so far. I guess just zero point one person, Tim, 0:07:53.200 --> 0:07:55.520 is this like, when you look at this report, are 0:07:55.520 --> 0:07:58.680 you optimistic? Are the reasons to be optimistic that this 0:07:58.760 --> 0:08:00.720 is the start of a sustain in a bold trend 0:08:00.880 --> 0:08:05.040 or is this noise. Yeah, certainly when I look at 0:08:05.040 --> 0:08:07.840 the report, I had to be sort of honest to uh, 0:08:07.880 --> 0:08:10.640 you know the approach I was taking last year, earlier 0:08:10.680 --> 0:08:13.280 this year. And you know, when when I saw this 0:08:13.400 --> 0:08:16.120 inflation numbers started to rise and I saw what I 0:08:16.160 --> 0:08:20.520 call super core inflation, right, uh, core inflation minus housing 0:08:20.560 --> 0:08:23.520 and autos, you know, I really started to say, you know, 0:08:23.880 --> 0:08:27.480 we can't ignore you know, this inflation is transitory. And 0:08:27.800 --> 0:08:29.880 I'm kind of the same position as right now is 0:08:29.920 --> 0:08:32.200 that we've seen a lot of improvement in that super 0:08:32.200 --> 0:08:36.040 core and narrowing of of some inflationary pressures. And so 0:08:36.200 --> 0:08:39.240 it does seem to me like there has been a change. 0:08:39.320 --> 0:08:42.000 Now whether or not that's persistent will we'll find out. 0:08:42.000 --> 0:08:43.480 But I do think you kind of have to have 0:08:43.600 --> 0:08:46.160 to take the number face value and saying, yeah, there 0:08:46.240 --> 0:08:49.240 seemed to be a few of the lessening of inflationary pressures, 0:08:49.240 --> 0:08:51.959 at least in the near term here. So one of 0:08:52.000 --> 0:08:55.240 the things that Pal said today was, you know, he 0:08:55.360 --> 0:08:59.040 was talking about how there's this expectation that services inflation 0:08:59.360 --> 0:09:01.959 is going to be tough to bring down because the 0:09:02.040 --> 0:09:04.880 labor market is so strong and wage growth is still 0:09:04.920 --> 0:09:08.160 relatively high. And that's the thing that kind of feeds 0:09:08.280 --> 0:09:12.520 into overall prices. I mean that implies that the FED 0:09:12.640 --> 0:09:15.840 is explicitly going to be targeting like a softening of 0:09:15.920 --> 0:09:18.680 the labor market. Right. I was thinking that this is 0:09:18.679 --> 0:09:21.320 a way you can sort of tell that the fetish 0:09:21.400 --> 0:09:24.839 hawk is right, is that they're they're they're very much 0:09:24.880 --> 0:09:28.760 focused on getting inflation down, even at the at the 0:09:28.840 --> 0:09:32.559 cost of getting unimplanted higher, you know, considerably higher. And 0:09:32.840 --> 0:09:36.240 you know that's that's I think, you know that we're 0:09:36.360 --> 0:09:41.120 definitely trying to achieve here. So inflation is starting to 0:09:41.200 --> 0:09:44.280 come down. But for the past year or so, we've 0:09:44.320 --> 0:09:46.880 been told that the reason the FED needs to be 0:09:47.000 --> 0:09:51.520 so aggressive is because they're worried about expectations becoming embedded. 0:09:51.920 --> 0:09:55.560 They're worried about a wage price spiral. But the fact 0:09:55.600 --> 0:09:59.280 that core seems to be beginning to come down, does 0:09:59.320 --> 0:10:03.160 that suggest that maybe those concerns were overblown. That's gonna 0:10:03.200 --> 0:10:05.800 be the question that people start to ask. If core 0:10:06.000 --> 0:10:09.360 is coming down and the FED sort of backing down 0:10:09.400 --> 0:10:11.720 to this argument that that we really need to get 0:10:11.760 --> 0:10:17.559 this this lower level of core inflation services minus x 0:10:17.640 --> 0:10:21.360 housing down, it's going to cause some some concern about, well, 0:10:21.360 --> 0:10:26.120 why why is that now the measure of underlying inflation. 0:10:26.360 --> 0:10:28.800 Why should we be focused on that and not in 0:10:28.840 --> 0:10:33.280 fact the idea that maybe we can return to type 0:10:33.320 --> 0:10:37.000 of environment and the FED doesn't hasn't changed the narrative 0:10:37.040 --> 0:10:40.000 to to to allow that to happen yet, So I 0:10:40.040 --> 0:10:43.720 think it's going to be a question that's increasingly important 0:10:44.120 --> 0:10:47.600 as overall cored inflation if it remains low. I like 0:10:47.679 --> 0:10:51.000 two things on this. I think that, like Tim said, 0:10:51.000 --> 0:10:53.800 it's absolutely right, you know, I think that they're really 0:10:53.840 --> 0:10:58.559 like two reasons for why, you know, this rendition won't 0:10:58.600 --> 0:11:02.560 just be the reciprocal of sort of the you know, 0:11:02.600 --> 0:11:07.080 inflation rising period of late last year early this year. 0:11:07.480 --> 0:11:09.280 I think one, and this is why I think the 0:11:09.400 --> 0:11:12.400 FED is so emphatic on showing us that they're going 0:11:12.440 --> 0:11:15.560 to be looking at you know, services XO er sort 0:11:15.559 --> 0:11:18.800 of this like core labor market trend is because the 0:11:18.840 --> 0:11:23.480 FED knows that the labor market is not a tail 0:11:23.559 --> 0:11:27.440 when to achieving their goals. It's a headwind. So given 0:11:27.520 --> 0:11:30.800 the state of where nominal wage growth is, it's much 0:11:30.880 --> 0:11:35.240 harder to have you know, conviction that inflation is going 0:11:35.280 --> 0:11:38.360 to settle back at two percent when nominal wage growth 0:11:38.400 --> 0:11:40.560 is five and a half. Whereas we flip it to 0:11:40.600 --> 0:11:43.839 where the FED was, you know, in late last year 0:11:43.920 --> 0:11:47.760 early this year, it was it was becoming pretty obvious 0:11:47.800 --> 0:11:51.079 that you know, inflation would be even if there were 0:11:51.200 --> 0:11:54.880 transitory factors, it had this structural tail when from a 0:11:54.960 --> 0:11:58.040 very robust labor market. So you know, in terms of 0:11:58.080 --> 0:12:01.560 comparing then to now, I think it's it makes sense 0:12:01.880 --> 0:12:04.640 for at least like in terms of a range of outcomes, 0:12:04.640 --> 0:12:08.400 for the FED to be more hesitant into embracing this 0:12:08.520 --> 0:12:13.760 trend disinflation versus them accepting trend higher inflation because the 0:12:13.800 --> 0:12:17.480 labor market dynamic is feeding into one and not the other. 0:12:17.840 --> 0:12:19.719 And I think the second thing is, you know, on 0:12:19.840 --> 0:12:23.120 inflation expectations, you know such a big part of it. 0:12:23.120 --> 0:12:24.960 And this is something I think that you know, Powell 0:12:25.040 --> 0:12:27.240 has been really pounding the table on really I think 0:12:27.280 --> 0:12:30.760 since June when they made their initial rise to seventy five, 0:12:31.760 --> 0:12:34.680 is that he said that above target inflation in terms 0:12:34.679 --> 0:12:38.400 of expectations is not only about trend, but it's about level. 0:12:38.800 --> 0:12:40.880 And then from there it's like a ticking clock in 0:12:41.000 --> 0:12:44.199 terms of in terms of its feet through two inflation expectations, 0:12:44.360 --> 0:12:47.240 whereas if you allow inflation to remain above target for 0:12:47.320 --> 0:12:50.000 three or four years, even though it's headed in the 0:12:50.080 --> 0:12:53.200 right direction, that level can be a nuisance in terms 0:12:53.200 --> 0:12:55.800 of inflation expectations and making sure that inflation is anchoring 0:12:55.800 --> 0:12:58.720 a two percent So I think that you know, there 0:12:58.760 --> 0:13:02.400 are you know, similarities to playing that this is the 0:13:02.400 --> 0:13:04.320 reciprocal of the bull had been goods. This is the 0:13:04.320 --> 0:13:08.760 reciprocal to the bull with rents. But at the margin 0:13:08.800 --> 0:13:10.880 there are more factors for the FED to be hesitant 0:13:10.920 --> 0:13:14.000 in this full embrace of the early signs that they meaning, 0:13:14.840 --> 0:13:17.480 especially because they got burned on that last year too, 0:13:17.600 --> 0:13:20.640 So you know, that's there there. This has always been 0:13:20.679 --> 0:13:23.280 I think, you know, I'm not a risk, is not 0:13:23.400 --> 0:13:25.840 a risk the likelihood that the FED was going to, 0:13:26.400 --> 0:13:29.600 you know, was going to hold hold the line here 0:13:29.720 --> 0:13:33.479 for longer than than than maybe market participants thought appropriate, 0:13:33.720 --> 0:13:37.120 simply because they thought the risk of budding in flesh 0:13:37.120 --> 0:13:40.520 and get uncontrol and and Paul reidered that, reiterated that 0:13:40.559 --> 0:14:00.560 today it was just simply too hot. So I want 0:14:00.559 --> 0:14:03.160 to talk more about labor and tim This is a 0:14:03.440 --> 0:14:06.840 question for you. So right now, the unemployment rate is 0:14:06.960 --> 0:14:11.000 three point seven percent, And in the press conference, I 0:14:11.000 --> 0:14:14.240 don't think like Paul like specifically talked about a soft 0:14:14.360 --> 0:14:17.079 landing per se. I don't know if you used that term, 0:14:17.120 --> 0:14:19.600 but he did seem to express some hope that we 0:14:19.640 --> 0:14:22.200 need to see some weakening of the labor market, but 0:14:22.200 --> 0:14:23.920 that maybe you could just be a little because all 0:14:23.960 --> 0:14:26.640 you know, the labor markets really tighten his view, there's 0:14:26.680 --> 0:14:30.280 all these unfilled job openings, there's a structural shortage of workers. 0:14:30.600 --> 0:14:32.720 So maybe we just need a little bit of tilt. 0:14:33.160 --> 0:14:36.280 What does history say, Can we just get a modest 0:14:36.880 --> 0:14:39.680 increase in the unemployment rate to like the low floors, 0:14:40.360 --> 0:14:42.640 or if we start to see that pick up in 0:14:42.680 --> 0:14:45.680 the unemployment rate, does history say it's going to go 0:14:45.760 --> 0:14:49.080 up substantially more than that? Yeah, I would say that 0:14:49.080 --> 0:14:51.720 that the history is is not the Fed's favor here, 0:14:52.480 --> 0:14:55.280 that that you really can't guide the unemployment rate, you know, 0:14:55.600 --> 0:14:59.560 three tents or or five tents of the percentage point higher, 0:14:59.640 --> 0:15:04.360 let alo point nine right brains higher. So uh, you know, 0:15:04.400 --> 0:15:08.120 I I just don't think that this sort of soft 0:15:08.240 --> 0:15:12.760 lending idea is a likely outcome here. Um. I would 0:15:12.800 --> 0:15:16.000 like it to be right, but to me, it seems 0:15:16.040 --> 0:15:21.080 to be screaming against what we've seen in the past. Yeah, Tracy, 0:15:21.120 --> 0:15:23.720 I'm just looking at the FEDS set the Summary of 0:15:23.760 --> 0:15:28.760 Economic Projections, and it anticipates the unemployment rate peaking at like, 0:15:28.800 --> 0:15:30.960 you know, hitting four orth three point seven now, going 0:15:31.000 --> 0:15:33.520 to four point six next year and the year after that, 0:15:33.880 --> 0:15:36.520 and then going down a bit. So there's like this 0:15:36.560 --> 0:15:38.560 idea that we just get a little bit. You know, 0:15:38.680 --> 0:15:41.560 one person is not nothing, especially the people who have 0:15:41.640 --> 0:15:44.440 lost their jobs. But you know, the story the Fed 0:15:44.560 --> 0:15:47.720 is telling is that the unemployment rate will be contained. Well, 0:15:47.840 --> 0:15:50.120 this is something else I wanted to ask about, which is, 0:15:50.240 --> 0:15:52.960 you know, we hear comments from the FED a lot 0:15:53.000 --> 0:15:57.160 now about how monetary policy operates with a lag, and 0:15:57.320 --> 0:16:00.280 that to me seems like as big a question shin 0:16:00.640 --> 0:16:04.080 as the transitory inflation question that we were discussing, you know, 0:16:04.200 --> 0:16:06.160 a year or two ago, like how long is the 0:16:06.200 --> 0:16:08.640 inflation going to last? How long is it actually going 0:16:08.640 --> 0:16:12.160 to take interest rate hikes to have an effect? Do 0:16:12.240 --> 0:16:15.760 we have like a good sense of that, Like the 0:16:16.280 --> 0:16:20.160 fact that we've saw cp I come in less than 0:16:20.240 --> 0:16:24.920 expected yesterday, is that the a sign that monetary policy 0:16:25.000 --> 0:16:27.920 is working, is a sign that monetary policy has the 0:16:27.920 --> 0:16:32.120 potential to overshoot, and you know, cause the recession that 0:16:32.160 --> 0:16:36.440 everyone seems to be worried about. I think that, you know, broadly, 0:16:36.480 --> 0:16:41.240 the long and variable lack question is just very hard 0:16:41.360 --> 0:16:43.920 to answer. I don't think there is a clean one. 0:16:44.600 --> 0:16:47.760 I think that there is this assumption that the FED 0:16:47.880 --> 0:16:50.560 is like talking in central banks broadly, are talking about 0:16:50.600 --> 0:16:53.760 about long and variable lags in the sense of, you know, well, 0:16:53.800 --> 0:16:56.160 we should slow down and then wait six months and 0:16:56.200 --> 0:16:59.320 you'll have more apparent evidence. And you have seen it 0:16:59.360 --> 0:17:01.800 across the I mean, the Bank of Canada is recently 0:17:01.840 --> 0:17:05.240 transitioned from saying that you can feel the monetary policy 0:17:05.320 --> 0:17:08.080 tightening and just the interest rate sense of sectors and 0:17:08.119 --> 0:17:10.439 the economy, and now the whole economy is starting to 0:17:10.480 --> 0:17:14.000 feel it. So I think there's like, conceptually it makes 0:17:14.000 --> 0:17:15.840 a lot of sense. I don't think that there's like 0:17:15.880 --> 0:17:20.040 a strong empirical approach to say, okay, you know T 0:17:20.240 --> 0:17:22.520 minus nine months, this is when we'll start to feel 0:17:22.560 --> 0:17:24.640 the whole thing. I think that the way the FED 0:17:24.760 --> 0:17:26.840 is thinking about long variable aggs, and maybe I'll be 0:17:26.880 --> 0:17:31.160 more specific to the leadership is I think the way 0:17:31.160 --> 0:17:33.440 the FED things about long variable aggs as you kind 0:17:33.440 --> 0:17:38.560 of hope to engineer this, this handoff to pro cyclical tightening. 0:17:38.560 --> 0:17:41.000 And what I mean by that is that basically you 0:17:41.119 --> 0:17:46.080 let the disinflation that's occurring basically raise your real effective funds, right, 0:17:46.480 --> 0:17:48.720 And I think that the FED is now at the 0:17:48.800 --> 0:17:52.320 point where the long and variable lags is that now 0:17:52.359 --> 0:17:54.600 you're starting to see the data at least begin to 0:17:54.640 --> 0:17:57.800 cooperate with them. There has been some softening, not a lot, 0:17:57.840 --> 0:17:59.760 but there has been some softening in the labor market. 0:18:00.040 --> 0:18:03.240 There's definitely less churn, as we can see from continuing claims. 0:18:03.680 --> 0:18:06.280 Jolts have come down a lot, the inflation data starting 0:18:06.320 --> 0:18:08.480 to look a lot better than it did three months ago. 0:18:09.000 --> 0:18:11.320 And now I think from the FEDS long and variable 0:18:11.359 --> 0:18:14.920 lags quote unquote perspective is it's about, you know, exerting 0:18:15.480 --> 0:18:18.880 real positive policy rates across the curve and letting that 0:18:18.960 --> 0:18:21.879 sort of service. This that the new form or or 0:18:21.960 --> 0:18:25.320 anchored form of tightening more than you know now what 0:18:25.400 --> 0:18:27.760 we've been doing now, which is ratings. I want to 0:18:27.800 --> 0:18:31.680 go back to the theoretical question about whether some sort 0:18:31.680 --> 0:18:34.880 of immaculate disinflation is possible, or whether we can have 0:18:34.920 --> 0:18:38.280 inflation return to trend without a big jump in the 0:18:38.480 --> 0:18:41.840 unemployment rate. I mean again, just going back to the 0:18:41.960 --> 0:18:44.320 last few weeks, so we gotta you know, pretty a 0:18:44.359 --> 0:18:49.159 good November CPI report. We also had that hot wage 0:18:49.160 --> 0:18:53.280 growth number from the recent Non Firm Perils Report. I 0:18:53.280 --> 0:18:56.280 mean again, we're pulling out of just very few data points. 0:18:56.280 --> 0:18:58.160 Like you, I don't think you could tell a tremendous 0:18:58.160 --> 0:19:01.840 story from one CPR report, two CPR reports and one 0:19:01.880 --> 0:19:05.040 wage number in the Non farm Perils Report. But I 0:19:05.080 --> 0:19:07.680 don't know. It looks to me like you can have both. 0:19:07.720 --> 0:19:10.639 That you can have this period where wages are growing robustly, 0:19:11.119 --> 0:19:15.280 where the unemployment rate is low, and some sort of rollover. 0:19:15.480 --> 0:19:18.000 What would it take for the FED? I guess my 0:19:18.080 --> 0:19:20.960 question would be to say, you know what, maybe it's possible, 0:19:21.000 --> 0:19:23.080 maybe we don't need to induce a recession, or maybe 0:19:23.080 --> 0:19:25.159 we don't need to see much of an increase in 0:19:25.200 --> 0:19:28.399 the unemployment rate at all. What would it take for 0:19:28.440 --> 0:19:30.560 the FED to look at you know, how many more 0:19:30.560 --> 0:19:33.280 of these cool CPR reports would it need to be 0:19:33.280 --> 0:19:36.359 before maybe the FED started believing in the possibility of 0:19:36.359 --> 0:19:39.520 a soft landing. That's a that's a big question. I 0:19:39.520 --> 0:19:42.960 asked myself a lot exactly That reason is you have 0:19:43.119 --> 0:19:46.280 seen some improvement in the inflation numbers, and it seems 0:19:46.280 --> 0:19:49.359 like it's almost premature. Right, we had been expecting, and 0:19:49.400 --> 0:19:52.320 the FED had been expecting, that that improvement would really 0:19:52.359 --> 0:19:55.640 follow the labor market, and it's coming, you know, it's 0:19:55.640 --> 0:19:58.320 coming ahead of you know what we see as any 0:19:58.359 --> 0:20:01.680 any significant loose sing remarket and that the FED is 0:20:01.720 --> 0:20:04.520 going to be worried, and I think rightly so that 0:20:04.880 --> 0:20:09.160 you know, persistently high inflation excuse me, persistently high wage growth, 0:20:09.480 --> 0:20:15.440 if not matched by sufficiently high productivity growth, is over 0:20:15.560 --> 0:20:19.480 time going to lead to upward pressure on inflation and 0:20:19.560 --> 0:20:23.399 upper pressure on inflation expectations. Uh. And that that basically 0:20:23.440 --> 0:20:26.440 the argument that that wages and inflation are are tied 0:20:26.480 --> 0:20:28.960 together in the long run, and we could be seen 0:20:29.000 --> 0:20:32.159 in the short run is all the slippages that that 0:20:32.200 --> 0:20:34.639 can happen. So you could think of uh, you know, 0:20:34.720 --> 0:20:38.600 higher wages being resolved through lower margins, right margin compression. 0:20:39.000 --> 0:20:42.640 So you know, I think, as you said, it's really 0:20:42.640 --> 0:20:45.719 hard to make anything any clear decisions off of just 0:20:45.800 --> 0:20:48.320 a couple of months of data. But you know, the 0:20:48.320 --> 0:20:51.280 FED will have I think a hardard time selling that 0:20:51.359 --> 0:20:55.480 story going forward again, If if inflation continues a lot, 0:20:55.680 --> 0:21:00.639 especially if if the core services inflation numbers starts softened 0:21:00.680 --> 0:21:03.440 more than that's, that's gonna be something. It's it's gonna 0:21:03.480 --> 0:21:06.480 be harder to explain. When did we start calling it 0:21:06.560 --> 0:21:10.280 immaculate disinflation? I don't know this. Who came up with that? 0:21:10.440 --> 0:21:13.080 I think like the earliest mentioned. I was curious because 0:21:13.080 --> 0:21:15.159 this is the second or third time I've heard it 0:21:15.280 --> 0:21:17.800 just today, But the earliest I can find is actually 0:21:17.800 --> 0:21:21.080 Matt Klein in his newsletter. Um, it sounds like a 0:21:21.119 --> 0:21:26.720 summer's thing, I feel like, right, So I wanted to 0:21:26.760 --> 0:21:29.959 ask about financial conditions as well, because I mean, this 0:21:30.040 --> 0:21:32.480 is something that has come up. Neil Kashkari talked about 0:21:32.480 --> 0:21:34.800 it on on this podcast, talking about how he was 0:21:34.840 --> 0:21:37.840 happy to see the fall in stocks which fed into 0:21:37.840 --> 0:21:41.320 a tightening of financial conditions. And of course, monetary policy 0:21:41.400 --> 0:21:45.679 is supposed to work through either loosening or tightening financial conditions. 0:21:45.920 --> 0:21:49.399 But in recent weeks we've seen those conditions start to 0:21:49.480 --> 0:21:54.520 loosen again as bonds are rallying. Stocks have been rallying 0:21:54.600 --> 0:21:57.439 up until today, it looks like that is down a 0:21:57.440 --> 0:22:01.520 bit after the FED meeting. But John, this is for 0:22:01.560 --> 0:22:03.640 you in particular because I know you were very very 0:22:03.640 --> 0:22:07.439 focused on the stronger dollar over the summer, and you 0:22:07.480 --> 0:22:10.240 had argued that the strong dollar would end up doing 0:22:10.359 --> 0:22:13.120 some of the Fed's work when it comes to tightening 0:22:13.160 --> 0:22:16.520 financial conditions for it. But now that the dollar in 0:22:16.560 --> 0:22:20.840 particular is softening and financial conditions in general are loosening, 0:22:21.320 --> 0:22:24.199 does the FED need to be concerned about that? Do 0:22:24.280 --> 0:22:28.000 they need to try to move to offset that? That's 0:22:28.000 --> 0:22:31.680 a good question. I don't think so. Um, And I 0:22:31.720 --> 0:22:33.880 think that you know, from the FETs perspective, at least, 0:22:33.880 --> 0:22:37.200 you know, looking at it in dollar terms or US 0:22:37.280 --> 0:22:41.679 dollar terms, is it really almost was job done? I mean, 0:22:41.760 --> 0:22:44.720 we can, of course, you know, add in that China 0:22:44.760 --> 0:22:46.920 being effectively shut down for a lot of the years 0:22:46.960 --> 0:22:49.200 certainly helped com under pressure come off. We can also 0:22:49.240 --> 0:22:52.200 added that the spr a tremendous amount of relief to 0:22:52.359 --> 0:22:55.000 oil markets. But you know, I think in terms of 0:22:55.040 --> 0:22:59.679 the commodity supercycle that was being pitched, the dollar did 0:22:59.800 --> 0:23:02.439 new or a lot of the right tail in you know, 0:23:02.480 --> 0:23:04.800 the broader commodity complex and just looking at you know, 0:23:04.800 --> 0:23:08.320 the Bloomberg Commodity Index it's all from material amount from 0:23:08.320 --> 0:23:11.760 its highs. So I think in those terms, the FED 0:23:11.840 --> 0:23:14.720 has achieved a lot um. I think, you know, thinking 0:23:14.720 --> 0:23:17.720 about the financial conditions question, and this is one I actually, 0:23:18.160 --> 0:23:19.919 you know, get a lot because we have had a 0:23:19.960 --> 0:23:22.600 non trivial move and you know, and looking at something 0:23:22.600 --> 0:23:26.120 like a Goldman f CIS basket over the last few weeks. 0:23:26.520 --> 0:23:28.240 I think the way to think about it, and I 0:23:28.240 --> 0:23:30.639 think the way the FIT is broadly thinking about it, 0:23:30.680 --> 0:23:32.560 is that f c I s are sort of this 0:23:32.560 --> 0:23:36.480 this relative term. They're relative to the spot labor market 0:23:36.560 --> 0:23:39.560 data and this spot inflation data. And if f c 0:23:39.760 --> 0:23:43.360 i s were loosening in the context of the inflation 0:23:43.440 --> 0:23:47.080 data getting worse or the unemployment or the employment stuff 0:23:47.119 --> 0:23:50.240 getting better, I think that would be at odds with 0:23:50.359 --> 0:23:53.159 something that the FED is looking for. But you know, 0:23:53.280 --> 0:23:55.560 a point that I've been making over the last few weeks, 0:23:55.560 --> 0:23:57.240 if the f c I s have sort of been 0:23:57.480 --> 0:24:01.600 quote unquote earned in terms of a slight improvement in 0:24:01.640 --> 0:24:04.040 the labor market and more than slight improvement in the 0:24:04.040 --> 0:24:06.359 inflation data, even though it's only the last two months, 0:24:06.800 --> 0:24:10.720 then I think that's something that it's not necessarily equals 0:24:10.760 --> 0:24:12.880 like the FED is going to fight where you're going 0:24:12.960 --> 0:24:15.720 to It requires Powell to sound like he did at 0:24:15.800 --> 0:24:18.000 jackson All. I mean, I think the pretty telling thing 0:24:18.760 --> 0:24:21.240 for me was when Powell came out in Brookings and 0:24:21.280 --> 0:24:23.359 everyone was expecting him to, you know, beat the hammer 0:24:23.440 --> 0:24:27.240 on financial conditions, assuming that they loosened too much. He didn't, 0:24:27.720 --> 0:24:30.160 And I think that part of the reason he didn't 0:24:30.320 --> 0:24:32.800 is that this is different than it was in July 0:24:32.880 --> 0:24:36.960 and August, when there wasn't really any compelling evidence that 0:24:37.040 --> 0:24:40.040 inflation was following. We actually saw two months of point 0:24:40.080 --> 0:24:44.040 six is after and the claims moved from that when 0:24:44.160 --> 0:24:46.760 saw you initial claims reached k W back to two 0:24:46.840 --> 0:24:49.440 ten basically over the course of a month. And then 0:24:49.480 --> 0:24:51.880 it was more of a reaction function question how serious 0:24:51.960 --> 0:24:53.439 is the FED? Is the FED willing to do what 0:24:53.480 --> 0:24:55.160 it takes? And then Powell came out and Jackson All 0:24:55.240 --> 0:24:58.040 told you we're gonna do what it takes. That's not 0:24:58.160 --> 0:25:01.400 really the question. Now the market is full said we'll 0:25:01.440 --> 0:25:03.399 do what it takes, looking at you know, either for 0:25:03.640 --> 0:25:06.880 inflation stops or break even rates. The question now is 0:25:06.880 --> 0:25:10.480 is how much earned financial conditions can you loosening? Can 0:25:10.520 --> 0:25:12.639 you have? And that is I think data dependent, and 0:25:12.680 --> 0:25:14.760 I think that that's I think that's going to be 0:25:14.800 --> 0:25:17.400 the way that shakes out over the next few months. 0:25:17.440 --> 0:25:20.440 So just on this note, and this can be for 0:25:20.480 --> 0:25:23.959 either of you, But looking at the market reaction today, 0:25:24.000 --> 0:25:26.320 you know, stocks went up a bit right after the 0:25:26.359 --> 0:25:29.680 decision was announced and they've come back down since then. 0:25:30.480 --> 0:25:33.400 But in terms of the market reaction as the as 0:25:33.480 --> 0:25:36.560 the data, assuming the data starts to change and evolve, 0:25:36.640 --> 0:25:40.320 and we do see sustained deflation and maybe maybe even 0:25:40.359 --> 0:25:43.800 a little bit of weakness in the labor market, is 0:25:43.840 --> 0:25:48.040 the FED going to be able to continue to convince 0:25:48.119 --> 0:25:51.800 the market that it is in fact hawkish because that 0:25:51.880 --> 0:25:53.719 seems to be what it's trying to do, right. It 0:25:53.720 --> 0:25:58.439 needs to maintain expectations, put pressure on financial conditions and 0:25:58.440 --> 0:26:00.439 things like that. But is it going to be able 0:26:00.480 --> 0:26:04.240 to do that as the data starts to change. I 0:26:04.280 --> 0:26:07.159 think it gets to to John's point, is that that 0:26:07.480 --> 0:26:10.280 if the if the data is moving in a disinflationary direction, 0:26:10.359 --> 0:26:12.840 the market is going to go with that because they're 0:26:12.880 --> 0:26:14.639 gonna assume that. Sooner or later, the FED is going 0:26:14.720 --> 0:26:18.040 to catch up to that approach. And it's it's really 0:26:18.640 --> 0:26:21.119 more problematic for the FED if if the market is 0:26:21.160 --> 0:26:23.800 just not getting the FEDS reaction function right. You know, 0:26:23.880 --> 0:26:27.920 where again there could be some tension here is if 0:26:27.920 --> 0:26:30.240 the FED is excuse me, the markets are looking at 0:26:30.560 --> 0:26:33.240 core inflation and the FEDS looking at this you know, 0:26:33.720 --> 0:26:38.680 this services x housing component would be would be more 0:26:38.720 --> 0:26:40.800 interesting in a space where there could be you know, 0:26:40.920 --> 0:26:45.000 room for for confusion. But I think you know, once 0:26:45.040 --> 0:26:47.879 the data turns, or the markets starts to sense the 0:26:47.960 --> 0:26:50.359 data is starting, the FEDS is going to have a 0:26:50.400 --> 0:26:53.240 hard time you know, selling selling that story. It cuts 0:26:53.280 --> 0:26:56.560 both ways to if the data firms here, lower prices 0:26:56.960 --> 0:27:01.000 cause consumer spending to rise um for example, or real terms, 0:27:01.000 --> 0:27:04.159 in real terms, they could sort of tighten back up 0:27:04.200 --> 0:27:07.200 financial conditions. Well I joked about this over the weekend, 0:27:07.240 --> 0:27:08.960 but I don't know, you know, it's kind of only 0:27:09.000 --> 0:27:12.119 half a joke or half a troll about you know, 0:27:12.200 --> 0:27:15.359 we've had this big plunging gasoline prices and maybe because 0:27:15.359 --> 0:27:17.520 of that, maybe some of that is softening demand. I 0:27:17.560 --> 0:27:20.160 don't know, But for some people that's like a huge 0:27:20.200 --> 0:27:22.920 financial shot in the arm. I mean, that's like a lot, 0:27:23.080 --> 0:27:25.840 you know, that's more money left in the wallet each 0:27:25.920 --> 0:27:28.560 week and so you know, I think what could cause 0:27:28.640 --> 0:27:33.440 the data to firm. Maybe it's falling gasoline prices. But 0:27:33.680 --> 0:27:35.520 sim I want to you know, I want to go 0:27:35.560 --> 0:27:37.480 back to something you said. You know, you think about, Okay, 0:27:37.520 --> 0:27:40.639 what are some ways we could have like a soft landing, 0:27:41.119 --> 0:27:43.399 And one of them would be if we got some 0:27:43.440 --> 0:27:45.639 period of like catch up productivity. And we know that 0:27:45.720 --> 0:27:49.040 productivity I think has been pretty bad. What's your story 0:27:49.119 --> 0:27:51.879 for why productivity has been bad? And is there a 0:27:51.880 --> 0:27:56.400 possibility that whatever cause that could flip in some way 0:27:56.400 --> 0:27:58.920 and then we get a big spike in productivity. Yeah, 0:27:58.960 --> 0:28:02.920 so to you're measured as a residual you know of 0:28:02.920 --> 0:28:06.360 of GDP growth and unemployment. So you know, how how 0:28:06.560 --> 0:28:09.160 how um you know how confident we are of that number? 0:28:09.200 --> 0:28:10.800 Should it should always be in question? But it does 0:28:10.880 --> 0:28:13.920 look like productivity has been weaker this year. And you know, 0:28:14.160 --> 0:28:17.200 I don't know that anyone has some some hugely great 0:28:17.240 --> 0:28:19.399 explanation for this. I think that when you kind of 0:28:19.480 --> 0:28:22.640 run the economy too hot, you run it inefficiently. And 0:28:22.800 --> 0:28:25.199 that seems to be to me what was going on. 0:28:25.280 --> 0:28:26.879 You have to you have a lot of turn in 0:28:26.880 --> 0:28:29.800 the labor market. Maybe you've got some new new employees, 0:28:29.800 --> 0:28:32.159 some younger employees, and they're just not as efficient, you know, 0:28:32.240 --> 0:28:35.520 and and they're struggling against stronger demand, so that that 0:28:35.600 --> 0:28:39.160 eroades your your relative productivity. So I think I think 0:28:39.240 --> 0:28:42.880 that's a reasonable story. And then theory could could you know, 0:28:43.200 --> 0:28:45.600 ease back up if if people got some really breathing 0:28:45.680 --> 0:28:48.680 room on demand? Right, So, I think you know that's 0:28:48.680 --> 0:28:50.760 something that goes on to me. If you want a 0:28:50.800 --> 0:28:54.240 soft landing, the most important thing is is getting the 0:28:54.360 --> 0:28:57.520 FED to believe that you can have a soft landing. Um, 0:28:57.560 --> 0:28:59.680 you know right right now that that's I mean, they're 0:28:59.680 --> 0:29:02.080 saying you can have a soft landing. But again we 0:29:02.400 --> 0:29:05.880 can debate whether or not the rise in unemployment that 0:29:05.920 --> 0:29:09.840 they have penciled in is consistent with that alcohol and 0:29:09.840 --> 0:29:12.840 I would say say no. But you know what I'd 0:29:12.840 --> 0:29:15.200 like to see for soft landing is for the FED 0:29:15.240 --> 0:29:17.640 to book to believe you fully, they just do not 0:29:18.720 --> 0:29:21.280 have to keep hiking rates and can cut them sooner 0:29:21.280 --> 0:29:24.160 than they anticipated. Tim, I want to ask you about 0:29:24.160 --> 0:29:27.120 this as well. So, setting aside the prospect of a 0:29:27.160 --> 0:29:31.040 soft landing, which has now been rebranded as immaculate disinflation, 0:29:31.800 --> 0:29:36.280 it feels like the big concern or fear for the 0:29:36.280 --> 0:29:41.440 FED would be significant stagflation, So inflation combined with you know, 0:29:41.560 --> 0:29:46.720 negative economic growth. What would they do in that scenario. 0:29:47.400 --> 0:29:51.480 Paul has Has has said the objective here would be 0:29:51.520 --> 0:29:54.200 to bring inflation back down to trend. You know, I 0:29:54.200 --> 0:29:57.560 think that if you had a real stagflationary episode, how 0:29:57.600 --> 0:30:00.000 the FED dependent would really depend upon what they thought 0:30:00.120 --> 0:30:04.000 was happening with inflation expectations. So if you had, you know, 0:30:04.080 --> 0:30:08.120 elevated inflation this year going going into this suppose elevated 0:30:08.120 --> 0:30:12.280 inflation was was something we're still experienced, and then suddenly 0:30:12.320 --> 0:30:15.120 the unemployment got rate was rising, you know, the FED 0:30:15.120 --> 0:30:17.800 would start to think, well, you know, higher unemployment rate 0:30:17.840 --> 0:30:22.240 should pull down these inflation numbers. And so so the 0:30:22.640 --> 0:30:24.520 key in there would be what would have what would 0:30:24.520 --> 0:30:28.200 be happening with inflation expectations. If the FED could could 0:30:28.200 --> 0:30:31.160 be confident that that that they can focus on the 0:30:31.160 --> 0:30:35.120 employment mandate without worrying so much about the inflation mandate 0:30:35.160 --> 0:30:37.520 because they thought that was going down, then they could 0:30:37.560 --> 0:30:40.360 you know, pursue an easier policy. But if they saw 0:30:40.400 --> 0:30:45.200 inflation expectations rising, um, they would they would pursue a 0:30:45.240 --> 0:30:48.720 more aggressive policy John. You know, one of the things 0:30:48.720 --> 0:30:51.200 that Paul was asked about was, you know, we're talking 0:30:51.200 --> 0:30:53.560 about how many more hikes, but he was asked about cuts. 0:30:53.680 --> 0:30:56.840 And there still seems to be this tension between what 0:30:56.920 --> 0:30:59.680 the Fed officials have said and what market pricing have said. 0:30:59.800 --> 0:31:02.880 And so you know, all year the fetish like what 0:31:02.920 --> 0:31:04.760 do you guys even talk about We're not anywhere close 0:31:04.800 --> 0:31:07.000 to thinking about cuts, or at least that's basically my 0:31:07.080 --> 0:31:08.840 summary of like it's like, we're not, you know, we're 0:31:08.840 --> 0:31:11.880 not We're nowhere closed, and yet the market seems to 0:31:11.920 --> 0:31:16.080 be pricing in rate cuts and not even very far out. 0:31:16.200 --> 0:31:18.440 In fact, you have an inversion of the three month 0:31:18.520 --> 0:31:22.520 to year curve, which means, you know, rates in the 0:31:23.200 --> 0:31:26.040 fairly short next couple of years lower than they are 0:31:26.680 --> 0:31:28.960 right now or over the next three months. In some way, 0:31:29.080 --> 0:31:31.560 like what do you make of this divergence, because it's 0:31:31.600 --> 0:31:33.800 been a story, I think for several months, this gap 0:31:33.880 --> 0:31:38.200 between rhetoric and market pricing. Right right now, it's a 0:31:38.200 --> 0:31:41.360 good point, and I think that there's there's two parts 0:31:41.400 --> 0:31:44.640 to it. I think that that the and I'll talk 0:31:44.640 --> 0:31:46.880 about it in stage terms, and the first stage of 0:31:46.920 --> 0:31:50.120 this was really the middle two q three of this year. 0:31:50.200 --> 0:31:53.120 Part where the market kept saying is like, Okay, they're 0:31:53.120 --> 0:31:55.520 going to be cuts in X amount of time. And 0:31:55.560 --> 0:31:58.760 I think that was really a byproduct of the market's 0:31:58.760 --> 0:32:01.640 assumption that given all of this fix think of volatility, 0:32:01.640 --> 0:32:04.320 given the rapid increases in the federal funds, right that 0:32:04.440 --> 0:32:06.600 something was going to break, whether it be the labor market, 0:32:06.840 --> 0:32:09.160 whether it be a financial accident as we saw in 0:32:09.200 --> 0:32:11.800 the UK, something of that nature would break and the 0:32:11.800 --> 0:32:14.000 FED would have to unwind some of the things that 0:32:14.080 --> 0:32:16.480 it did. And that's why we always, even you know, 0:32:16.680 --> 0:32:19.880 looking as far back as June, we always kind of 0:32:19.920 --> 0:32:23.240 assumed that cuts couldn't be more than nine to twelve 0:32:23.240 --> 0:32:27.400 months away. Um. And I think what is happening now, 0:32:27.520 --> 0:32:31.200 which is different than that first stage, and I think 0:32:31.320 --> 0:32:34.720 is actually a little bit more sustainable, is the FED 0:32:34.840 --> 0:32:39.280 is basically not officially, but you can glean into the 0:32:39.280 --> 0:32:42.560 fact that the cycle is almost over. And from the 0:32:42.560 --> 0:32:46.800 market's perspective, once the market months the FED convinced conveys 0:32:46.840 --> 0:32:50.120 to the market that palace preferences probably for twenty five 0:32:50.160 --> 0:32:52.680 in February, then the market has to trade with a 0:32:52.720 --> 0:32:56.240 percentage chance that marches a pause a very reasonable percentage 0:32:56.280 --> 0:33:00.240 chance given what is seemingly the trend of you know, 0:33:00.280 --> 0:33:03.920 disinflation at least through key one UM and then from 0:33:03.960 --> 0:33:06.280 there the weighting game, the market is always going to 0:33:06.360 --> 0:33:11.680 trade the skew that either hard landing or soft landing 0:33:11.720 --> 0:33:14.640 will happen, and in both of those cases, the feed 0:33:14.760 --> 0:33:17.680 isn't at five percent forever. You know. The way I've 0:33:17.760 --> 0:33:19.680 kind of looked at it is is that there's three 0:33:19.680 --> 0:33:23.040 potentials for next year. There's the no landing, the soft landing, 0:33:23.080 --> 0:33:25.280 and the hard landing. The no landing is sort of 0:33:25.320 --> 0:33:27.280 we find ourselves in a similar world to where we 0:33:27.320 --> 0:33:31.200 are now, or inflation is to not convincingly on its 0:33:31.200 --> 0:33:34.160 way back to two nominal wage growth is still five 0:33:34.200 --> 0:33:36.120 and a half percent, and the FED is just kind 0:33:36.160 --> 0:33:38.920 of stuck. The soft landing is that you sort of 0:33:38.920 --> 0:33:43.800 get into this twenty nineteen world where the immaculate disinflation 0:33:44.000 --> 0:33:47.840 does somewhat take place, and then you could see yourself 0:33:47.880 --> 0:33:50.360 as you know, Goldman Sacks Q four forecast for you know, 0:33:50.400 --> 0:33:52.920 CORPC next year is two point nine, and the FED 0:33:52.960 --> 0:33:55.640 could feel at two point nine the five five and 0:33:55.800 --> 0:33:57.880 change is a bit too high in terms of the 0:33:58.080 --> 0:34:00.600 know how restrictive policy needs to be and that could 0:34:00.680 --> 0:34:02.560 lead to cuts. And then in the hard landing scenario, 0:34:02.600 --> 0:34:04.680 we obviously know that they cut a lot. So from 0:34:04.720 --> 0:34:07.400 the market's perspective, once you told them that there's really 0:34:07.440 --> 0:34:11.840 not that many more hikes left, maybe just fifty basis points, 0:34:12.080 --> 0:34:14.600 the market is going to lean into the skew cuts. 0:34:14.680 --> 0:34:17.479 It's just a faction of the time. M Yeah, there's 0:34:17.520 --> 0:34:19.600 there's really nothing that the FED I think can can 0:34:19.680 --> 0:34:41.359 do about that at a certain at a certain point. So, 0:34:42.239 --> 0:34:45.080 you know, we've been focused on the FED for obvious reasons. 0:34:45.120 --> 0:34:48.160 But John, I know you've been in particular looking at 0:34:48.200 --> 0:34:51.040 some other central banks, and you refer to the Central 0:34:51.040 --> 0:34:53.759 Bank of New Zealand the Reserve Bank over there as 0:34:53.920 --> 0:34:56.680 something of a north star in terms of the read 0:34:56.719 --> 0:34:59.640 across to other major central banks. You know, it was 0:34:59.680 --> 0:35:03.080 one of the first to actually start hiking rates. Can 0:35:03.120 --> 0:35:05.560 you maybe talk a little bit about what we've learned 0:35:05.960 --> 0:35:10.040 from the experience of central banks x U S. Yeah, No, 0:35:10.120 --> 0:35:12.200 I mean I think that you know there there there's 0:35:12.239 --> 0:35:15.480 been a few interesting examples. I would say over the 0:35:15.560 --> 0:35:17.719 last few months. I would say that the rbn Z 0:35:18.000 --> 0:35:20.279 sort of in both ways either in terms of their 0:35:20.320 --> 0:35:23.359 policy trajectory has been sort of this north star, as 0:35:23.400 --> 0:35:25.160 you said. But I also think that you know, for 0:35:25.200 --> 0:35:29.480 me sort of like thinking about the trajectory of the 0:35:29.520 --> 0:35:32.520 cycle and you know, what is the sort of the 0:35:32.560 --> 0:35:36.680 next phase of you know, of trading interest rates. Um. 0:35:36.760 --> 0:35:38.840 You know, I think the RBNC in November was a 0:35:38.880 --> 0:35:42.040 pretty telling meeting in terms of how the market is 0:35:42.080 --> 0:35:46.080 digesting this potential inflection point in the cycle. Because with 0:35:46.120 --> 0:35:48.520 the happen of the RBNZ in November is that they 0:35:48.600 --> 0:35:52.279 accelerated their hiking pace from fifty to seventy five from 0:35:52.280 --> 0:35:55.040 a place that was already restricted. And then in their 0:35:55.360 --> 0:35:58.239 monetary policy statement and there you know, their forecasts for 0:35:58.320 --> 0:36:00.239 the economy over the next few years, they said that 0:36:00.239 --> 0:36:02.359 they see the terminal rate in New Zealand being close 0:36:02.400 --> 0:36:05.200 to six percent. So this was a very big rerate 0:36:05.200 --> 0:36:09.400 in terms of both the actual hiking actual hikes that 0:36:09.440 --> 0:36:12.160 they did, and in terms of the hiking cycle in 0:36:12.200 --> 0:36:15.840 its totality and the market's reaction to that, which for 0:36:15.960 --> 0:36:18.000 most of this year would have been you know, rates 0:36:18.000 --> 0:36:21.320 at the very front of the curve ratchet higher, actually 0:36:21.680 --> 0:36:25.040 rates you know, yields increased on the day, but actually 0:36:25.120 --> 0:36:27.359 didn't make a new higher relative to where they were 0:36:27.960 --> 0:36:31.720 in October and September, even though given there's new marginal 0:36:31.760 --> 0:36:34.239 information and the arbanc he was much more hawkish, and 0:36:34.280 --> 0:36:36.680 I think many market participants thought of so I think, 0:36:36.680 --> 0:36:40.800 you know, in terms of where you know, using these 0:36:41.040 --> 0:36:43.400 leading hours, but also getting a feel for sort of 0:36:43.440 --> 0:36:46.520 what the distribution is in terms of markets. I think 0:36:46.520 --> 0:36:48.880 the RBNZ was very telling in terms of, you know, 0:36:49.080 --> 0:36:52.080 how the cycle, at least the hiking cycle towards the 0:36:52.160 --> 0:36:54.480 end of hiking cycle is going to be traded. And 0:36:54.520 --> 0:36:59.040 I think that you know, broadly speaking, you know central 0:36:59.080 --> 0:37:01.839 banks around the world now, is that there were going 0:37:01.880 --> 0:37:05.480 to be in this divergence period where you know, there 0:37:05.520 --> 0:37:07.759 are central banks they're going to see very clear and 0:37:07.800 --> 0:37:11.080 obvious signs of growth deceleration, and they're going to be 0:37:11.160 --> 0:37:14.000 central banks that don't. And I would probably put the 0:37:14.000 --> 0:37:17.759 Fed in the don't camp, whereas it's not obvious to 0:37:17.840 --> 0:37:20.880 me that you know, GDP next year is on track 0:37:20.920 --> 0:37:23.440 to run it as the FED thanks zero point five percent. 0:37:23.760 --> 0:37:25.680 You know, I think, as Joe was sort of cheekly 0:37:25.719 --> 0:37:29.400 alluding to earlier, is that you know, there's some pretty 0:37:29.440 --> 0:37:32.719 decent impulse for growth, given that the composition ship is 0:37:32.719 --> 0:37:35.399 getting a lot more healthier in real terms, and if 0:37:35.440 --> 0:37:37.520 you can sort of get a little bit less financial 0:37:37.520 --> 0:37:41.680 market volatility, you can maintain some decent real income growth, 0:37:41.680 --> 0:37:44.719 which we have sort of scene now since July. Then 0:37:44.760 --> 0:37:47.520 I think the economy can do you know, pretty well. 0:37:47.560 --> 0:37:51.600 Whereas you know, places like the UK, even Canada, places 0:37:51.640 --> 0:37:55.160 with you know, very high you know, private debt levels 0:37:55.200 --> 0:37:57.760 relative to GDP and have a lot of or intense 0:37:58.120 --> 0:38:00.879 you know, floating rate mortgage exposure, you know that those 0:38:00.880 --> 0:38:03.319 places are going to feel growth in a very different way. 0:38:03.320 --> 0:38:05.400 In those central banks I think will be quicker to 0:38:05.560 --> 0:38:07.759 be like listening, we have to be a little bit 0:38:07.760 --> 0:38:10.279 more two way in terms of, you know, how we 0:38:11.080 --> 0:38:13.120 approach the cycle. So I think it's gonna be. I 0:38:13.160 --> 0:38:15.680 think there are still north start. I think we're entering 0:38:15.719 --> 0:38:19.360 a period of pretty meaningful Divergence's interesting. I think the 0:38:19.400 --> 0:38:22.320 economic performance is going to be just very different across 0:38:22.440 --> 0:38:25.399 the world. So Tim, I have I have one last 0:38:25.520 --> 0:38:29.600 question aimed at you, but you know this idea and 0:38:29.600 --> 0:38:31.719 you sort of hinted at it, which is that if 0:38:31.719 --> 0:38:34.040 you if we were to get more data points like 0:38:34.080 --> 0:38:37.239 the November CPI report, they indicate, Okay, it looks like 0:38:37.280 --> 0:38:40.960 there's a meaningful slowdown. Then regardless of what happens on 0:38:41.040 --> 0:38:44.680 the labor market, the FED might start to believe it 0:38:44.760 --> 0:38:47.279 that something is real. But just how are you thinking 0:38:47.280 --> 0:38:49.440 about the next few months, So we don't have another 0:38:49.840 --> 0:38:52.400 decision again until February than in one in March, like 0:38:52.680 --> 0:38:55.240 just like what you talk of through like your sketch 0:38:55.320 --> 0:38:57.680 for how you're thinking about you know, the first quarter 0:38:57.719 --> 0:39:01.280 of the first half of next year, right, So I'm 0:39:01.360 --> 0:39:04.080 expecting a twenty five basis point right hike at the 0:39:04.480 --> 0:39:09.600 February meeting. Uh, and then beyond that, you know, getting 0:39:09.600 --> 0:39:12.920 to you know, the Fed's current terminal rate involves you know, 0:39:13.280 --> 0:39:16.400 rate hikes of that magnitude in in March, March and 0:39:16.520 --> 0:39:21.200 May as well. And at this juncture, I'm finding increasingly 0:39:21.239 --> 0:39:24.360 difficult to see that. First, you know, if the inflation 0:39:24.440 --> 0:39:27.920 numbers are sticking, you know, sticking on the downside here, Uh, 0:39:27.960 --> 0:39:30.920 you know, the it's going to be much more problematic 0:39:31.000 --> 0:39:34.560 for for the FED to continue raising rates. And then 0:39:34.600 --> 0:39:36.520 if we you know, over that period of time, we 0:39:36.520 --> 0:39:39.719 can see some some labor markets softening. Now the interesting 0:39:39.800 --> 0:39:42.719 question to me now is to help what extent the 0:39:42.840 --> 0:39:45.640 firming we're going to see in this data over rides 0:39:46.000 --> 0:39:48.920 any any softening we're seeing in labor markets right now. 0:39:48.960 --> 0:39:51.799 And John John mentioned some of those signs earlier. And 0:39:51.880 --> 0:39:54.120 if those signs stick, I mean, if we are getting 0:39:54.160 --> 0:39:56.600 a job growth down to you know, uh, you know, 0:39:56.719 --> 0:40:00.359 closer to a hundred thousand a month, as and as 0:40:00.400 --> 0:40:03.040 the economy firms, then I think the FED is going 0:40:03.080 --> 0:40:05.480 to be a hard press to keep keep raising rates 0:40:05.560 --> 0:40:10.080 after after certainly after March. And that's that's the kind 0:40:10.080 --> 0:40:13.240 of setup that I'm looking for, is that we see 0:40:13.280 --> 0:40:16.680 some of these continued evidence of labor market softening that 0:40:16.719 --> 0:40:19.839 gives the FED sum room to pause. But they're gonna 0:40:19.840 --> 0:40:22.120 want to be confident that that that softening is going 0:40:22.160 --> 0:40:24.319 to continue. So I do think they're gonna want to 0:40:24.360 --> 0:40:28.879 see the economy slowing uh, and and that the it's 0:40:29.040 --> 0:40:32.760 it's it's not evident to me that's that's going to happen. 0:40:33.280 --> 0:40:36.319 So this is a similar question, but directed to both 0:40:36.360 --> 0:40:40.400 of you. What's the one number or economic indicator that 0:40:40.440 --> 0:40:44.080 you're watching for signs of a soft landing that will 0:40:44.120 --> 0:40:47.200 allow the FED to potentially ease up on rate hikes, 0:40:48.440 --> 0:40:54.600 and please don't just say inflation. I'll go with one. 0:40:54.680 --> 0:40:56.719 I mean I think that you know I'll go with 0:40:56.880 --> 0:40:59.439 I'll go with the C I because I think that 0:40:59.440 --> 0:41:02.360 that's the way. How will sort of categorize how he 0:41:02.440 --> 0:41:05.720 sees a soft landing in Brookings? I think the interesting 0:41:05.760 --> 0:41:09.080 thing about Brookings and I think if you juxtapose Brookings 0:41:09.120 --> 0:41:11.880 with the SEP is you kind of get to glean 0:41:11.920 --> 0:41:15.520 into what the FED wants versus what the FED feels 0:41:15.560 --> 0:41:17.440 they need to say. And I think the SEP is 0:41:17.440 --> 0:41:20.279 more reflection of the FET things they need to say 0:41:20.440 --> 0:41:23.480 in terms of commitment and credibility versus If you listen 0:41:23.520 --> 0:41:25.920 to Powell's talk at Brookings, you don't get the sense 0:41:26.000 --> 0:41:29.480 that he truly believes that he needs the unemployment rate 0:41:29.520 --> 0:41:32.720 to go to four point six to get inflation closer 0:41:32.760 --> 0:41:35.520 to target. And I think for the FED, the question 0:41:35.600 --> 0:41:38.040 is going to be at five and a half percent 0:41:38.320 --> 0:41:40.879 or close to six percent nonimal wage growth. The FED 0:41:40.920 --> 0:41:44.720 does not believe that that is consistent with two percent inflation. 0:41:45.160 --> 0:41:50.160 So to me, the feds chances of a self lending 0:41:50.600 --> 0:41:54.279 will be to me very dependent on how the inflation 0:41:54.440 --> 0:41:57.680 data evolves post a lot of this, you know, more 0:41:57.760 --> 0:42:01.719 transitory noise in in the goods and rent side to 0:42:01.800 --> 0:42:04.960 some extent. But also, you know, what does wage growth 0:42:05.000 --> 0:42:07.120 look like in the middle of next year? And I 0:42:07.120 --> 0:42:09.319 think that will sort of set the stage not necessarily 0:42:09.360 --> 0:42:12.719 for how long how many more hikes there are, but 0:42:12.840 --> 0:42:15.360 how long they stay at this very elevated level of 0:42:15.560 --> 0:42:20.000 its tim Yeah, I would actually, I mean I don't 0:42:20.080 --> 0:42:21.719 I don't want to repeat the same thing, but I 0:42:21.719 --> 0:42:26.000 do think you know, the clearer evidence that that John 0:42:26.040 --> 0:42:28.359 is right. I mean, in theory, if if wages were 0:42:28.360 --> 0:42:30.960 to come down, wage growth was to decelerate, and so 0:42:31.360 --> 0:42:33.520 you know what what work could we see that other 0:42:33.560 --> 0:42:36.799 than just the e c I number. So you know 0:42:36.880 --> 0:42:39.319 one place that could be somewhere it shows up is 0:42:39.760 --> 0:42:43.960 and it's already declining. Is the quits right, So you know, 0:42:44.000 --> 0:42:47.439 presume Blue and Paople, you know, quidded job or another job, 0:42:47.480 --> 0:42:49.920 that the next job has a higher, higher wage. And 0:42:49.960 --> 0:42:52.360 so even if you've got the quicks right down, you 0:42:52.480 --> 0:42:56.280 probably you know, get get wage growth decelerated, and something 0:42:56.400 --> 0:42:59.359 like that could help convince the Fed that they did 0:42:59.400 --> 0:43:04.080 not need a recession. Right. So so the theme here is, 0:43:04.719 --> 0:43:06.799 you know what does the FET need to see to 0:43:06.880 --> 0:43:10.040 believe they don't need, you know, unemployment at at four 0:43:10.080 --> 0:43:12.800 and a half or center for four point seven percent, 0:43:13.280 --> 0:43:16.360 and the answer is is probably, you know, wage growth 0:43:16.520 --> 0:43:18.279 would be the most likely place that we can help 0:43:18.400 --> 0:43:22.200 see that. John and Tim, thank you so much for 0:43:22.320 --> 0:43:25.319 coming on the podcast. It's always great talking to you 0:43:25.800 --> 0:43:29.440 and particularly timely conversation to understand what I think is 0:43:29.640 --> 0:43:32.720 a pretty important moment, a pretty important week in this story. 0:43:32.760 --> 0:43:35.359 So thank you both for coming on outline. Thank you, 0:43:35.719 --> 0:43:38.120 thank you a good for having us. Yeah, thanks so much, guys, 0:43:37.960 --> 0:43:53.719 it's great that great, always great to talk with John 0:43:53.760 --> 0:43:56.160 and Tim. I mean, I think that last point from 0:43:56.400 --> 0:43:58.520 Tim is sort of the key thing, and it's still 0:43:58.560 --> 0:44:01.800 sort of the big question, which is will other signs 0:44:02.040 --> 0:44:05.359 emerge that convinced the FED that there can be some 0:44:05.400 --> 0:44:10.920 sort of durable decline in inflation without a meaningful jumping unemployment. 0:44:10.960 --> 0:44:13.520 So maybe it's a decline in the quits rate, maybe 0:44:13.560 --> 0:44:17.680 it's other measures of wages. Maybe maybe it's something with 0:44:17.960 --> 0:44:21.280 job openings, etcetera. Maybe it's just the employment cost index. 0:44:21.520 --> 0:44:24.080 But it does feel like those are the things to 0:44:24.120 --> 0:44:26.799 watch because look, the soft landing can't be as long 0:44:26.840 --> 0:44:29.399 as unemployment rate is at three point seven, you can't 0:44:29.440 --> 0:44:32.919 rule out the soft landing scenario. Yeah. Absolutely. The other 0:44:32.960 --> 0:44:35.160 thing that I thought was interesting was the idea of 0:44:35.200 --> 0:44:38.719 the sort of discrepancy potentially between what the market's looking 0:44:38.760 --> 0:44:42.480 at versus the FED. Yeah, because that seems like, you know, 0:44:42.600 --> 0:44:46.200 today might be kind of an example of it, where 0:44:46.280 --> 0:44:49.360 the FED came out pretty hawkish and the initial reaction 0:44:49.400 --> 0:44:52.520 at least was stocks went up. They've since gone down, 0:44:53.040 --> 0:44:56.600 But like you do, wonder as the data starts to change, 0:44:56.760 --> 0:44:59.160 whether or not that's going to become more of a theme, 0:44:59.239 --> 0:45:01.160 and whether or not it's going to complicate some of 0:45:01.160 --> 0:45:03.360 what the FED is trying to do here. I really 0:45:03.400 --> 0:45:07.480 liked John's explanation of this sort of seeming, you know, 0:45:07.520 --> 0:45:10.880 speak of market divergence, of you have FED officials saying, no, 0:45:11.000 --> 0:45:13.000 we're not talking about rate cuts at all, we're not 0:45:13.000 --> 0:45:14.920 even done with the hiking cycle, and yet the market 0:45:14.960 --> 0:45:17.680 is priced, you know, on some level of the market 0:45:17.760 --> 0:45:21.080 pricing rate cuts before too long. And I like, you know, 0:45:21.160 --> 0:45:24.880 the sketch of the three the no landing, the soft landing, 0:45:24.960 --> 0:45:27.640 and the hard landing, and if you sort of like 0:45:28.440 --> 0:45:31.320 figure that, okay, the hiking cycle is sort of maybe 0:45:31.320 --> 0:45:33.719 coming to an end, probably right, we're not that far 0:45:33.800 --> 0:45:38.080 from the final hike, maybe Fibruary and Marcher something like that. 0:45:38.560 --> 0:45:41.200 Then at some point, you know, there is some chance 0:45:41.440 --> 0:45:44.880 the spread that we go into hard landing scenario and 0:45:44.920 --> 0:45:48.000 that the FED would have to cut. Yeah, I mean, 0:45:48.040 --> 0:45:50.799 there are like these kind of weird discrepancies that are 0:45:50.800 --> 0:45:55.040 starting to emerge from the forecast. So like the PC 0:45:55.640 --> 0:45:59.560 forecast I think went up, but like the growth forecast 0:45:59.640 --> 0:46:03.160 when down where it seems strange. I do feel like 0:46:03.280 --> 0:46:05.359 we talked a lot about the past year is being 0:46:05.400 --> 0:46:08.440 like difficult for central banks, but I actually think next 0:46:08.520 --> 0:46:10.839 year could be even more difficult, just because you have 0:46:10.880 --> 0:46:12.920 all these different moving parts. And I know you were 0:46:12.960 --> 0:46:17.320 joking about gas prices putting money back into people's pockets. 0:46:17.360 --> 0:46:21.400 But like it does seem that as these trends start 0:46:21.520 --> 0:46:24.439 to change, and you know, maybe services inflation is still 0:46:24.440 --> 0:46:28.040 going up but consumer goods inflation starts to fall, there 0:46:28.160 --> 0:46:32.720 is like a weird interaction that could start to happen 0:46:32.920 --> 0:46:35.200 where like you know, maybe people who work in the 0:46:35.200 --> 0:46:38.479 services industry are getting more money and so they start 0:46:38.520 --> 0:46:42.040 spending more on consumer goods again. Landing scenario. Well, there's 0:46:42.080 --> 0:46:44.920 like a real possibility. There are so many moving parts, 0:46:45.280 --> 0:46:47.640 you know. I was glad that you asked that question 0:46:47.880 --> 0:46:51.480 about international central banks because I thought that was John's 0:46:51.520 --> 0:46:54.000 you know, the year of divergence. You know, all the 0:46:54.040 --> 0:46:56.279 central banks have been sort of like rowing in the 0:46:56.320 --> 0:46:58.000 same direction, so to speak. This you know, they're all 0:46:58.000 --> 0:47:01.880 on inflation fighting mode, but in on this point, you know, 0:47:01.960 --> 0:47:05.080 you have these other countries where the economy is super 0:47:05.160 --> 0:47:07.920 rate sensitive because so many people have adjustable rate mortgages 0:47:08.000 --> 0:47:11.560 and so, like, you know, you could imagine Canada and 0:47:11.840 --> 0:47:14.680 the UK said, really economies really get hit by higher rates. 0:47:14.920 --> 0:47:17.239 But if you have this situation like you're you know, 0:47:17.320 --> 0:47:19.600 you just sort of described or actually the U S 0:47:19.640 --> 0:47:21.880 consumer hangs in there pretty well because they're all getting 0:47:21.920 --> 0:47:25.120 a price cut on gasoline and there isn't really that 0:47:25.160 --> 0:47:28.120 pass through from rates to mortgages the way there is here, 0:47:28.560 --> 0:47:30.280 and so you have weakness the rest of the world. 0:47:30.360 --> 0:47:32.040 It also made me wonder it's like, well, does that 0:47:32.080 --> 0:47:33.680 mean the dollars get a rise. We don't really talk 0:47:33.760 --> 0:47:36.319 markets much, but that would sort of possibly be an 0:47:36.320 --> 0:47:38.719 implication of other central banks feel like they have to 0:47:38.800 --> 0:47:41.879 cut rates or slow then faster while the feed is saying, look, 0:47:42.000 --> 0:47:44.319 us consumers are doing all right anyway, all kinds of 0:47:44.320 --> 0:47:47.640 interesting possibilities for there. Well. I also think the big 0:47:47.680 --> 0:47:50.200 wild card is what China does here because we've seen 0:47:50.280 --> 0:47:53.960 such a huge pivot on COVID nineteen restrictions. Are they 0:47:54.000 --> 0:47:57.080 going to pivot when it comes to monetary policy and 0:47:57.120 --> 0:48:00.160 fiscal stimulus as well? Like right, and then the question is, 0:48:00.239 --> 0:48:03.319 you know, the reopening we have as of right now, 0:48:04.200 --> 0:48:09.520 West Texas oil seventy seven. Last Friday it was around seventy, 0:48:09.600 --> 0:48:12.120 so we you know, we're trying to reopening and the 0:48:12.160 --> 0:48:14.960 gas cut, will that cause oil prices to go plenty 0:48:14.960 --> 0:48:17.239 of plenty of moving parts to the mac. Yeah, I 0:48:17.280 --> 0:48:20.239 was gonna say the theme of this episode is moving parts. Moving. 0:48:20.960 --> 0:48:23.439 The world is a complicated place, very much, So shall 0:48:23.440 --> 0:48:25.239 we leave it there? Let's leave it there. This has 0:48:25.280 --> 0:48:28.680 been another episode of the All Thoughts Podcast. I'm Tracy Alloway. 0:48:28.760 --> 0:48:31.160 You can follow me on Twitter at Tracy Alloway and 0:48:31.200 --> 0:48:34.239 I'm Joe Wisn'tal. You can follow me on Twitter at 0:48:34.280 --> 0:48:37.640 the Stalwart. Follow our guests on Twitter. Tim Dewey, He's 0:48:37.719 --> 0:48:41.600 at Tim Dewey. John Turrek he's at j Turk eighteen. 0:48:42.000 --> 0:48:45.480 Follow our producers Carmen Rodriguez at Carmen Armon and Dash 0:48:45.520 --> 0:48:49.080 Bennett at Dashbot, and check out all of our podcasts 0:48:49.080 --> 0:48:53.520 at Bloomberg under the handle at podcasts and from more 0:48:53.520 --> 0:48:57.160 odd Lots content. Go to bloomberg dot com slash odd Lots, 0:48:57.160 --> 0:49:00.520 where we push the transcripts of the episode Tracy an blog. 0:49:00.880 --> 0:49:03.280 We even have a newsletter that comes out each Friday. 0:49:03.600 --> 0:49:06.080 Should go there and subscribe. Thanks for listening.