Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe and I'm Tracy. Allow Tracy, It's been a
Speaker 1: while since we've just sort of had a macro state
Speaker 1: of the Economy episode, but I think now is a
Speaker 1: very good time for it. Yeah. Absolutely, So we are
Speaker 1: recording this on December literally two hours after the fed's
Speaker 1: latest decision in which they hiked by fifty basis points.
Speaker 1: That was widely expected. But what wasn't as expected was
Speaker 1: the CPI number that we got just yesterday which came in.
Speaker 1: I think the headline figure was seven point one percent,
Speaker 1: which was lower than expected. Right, so a pretty big week,
Speaker 1: I mean, the story the big macro stories. Everyone's waiting
Speaker 1: for some clear sign of inflation deceleration. Everybody is trying
Speaker 1: to figure out, you know, is the FED going to
Speaker 1: pivot and what PIVO even means, which I think is
Speaker 1: a contested word. And so I would say a pretty
Speaker 1: big leak because, as you say, we got an inflation report,
Speaker 1: of FED announcement, press conference, all of that, and so
Speaker 1: I think a good moment to take stock of where
Speaker 1: we are in these stories, Right, Is this a turning
Speaker 1: point in these sort of high inflation, interest rate hiking
Speaker 1: cycle narrative that we've had for some time, and the
Speaker 1: fact that I've said turning point means that, and the
Speaker 1: fact that we're doing an episode on this means that
Speaker 1: it's probably going to amount to nothing. And I've cursed it,
Speaker 1: but you never know. We keep the setting ourselves up
Speaker 1: for the jinks right now, so we have all of
Speaker 1: our bases covered. But anyway, I think we should just
Speaker 1: get right into it because we have two great guests,
Speaker 1: two of the people we most like to turn to
Speaker 1: on these big macro questions. We've spoken to them many
Speaker 1: times over the years. We're gonna be speaking with two guests.
Speaker 1: Tim Dewey is the chief US economist at s g
Speaker 1: H Macro Advisors as well as the Professor of Practice
Speaker 1: in Economics at the University of Oregon. And John Turk,
Speaker 1: the founder of j ST Advisors and the author of
Speaker 1: The Cheap Convexity substag, which is a must read. Tim
Speaker 1: and John, thank you both for coming on. Well, thank
Speaker 1: you for having us. Thank you absolutely so. Why don't
Speaker 1: you know, I'll throw a question out for both of you,
Speaker 1: but like really simple, we just uh, just as we're talking,
Speaker 1: wrapped up Powell's press conference. Why do you sort of
Speaker 1: give us your summary? You know, you start with Tim,
Speaker 1: but both of you can go of, like, what did
Speaker 1: we just learn from Powell? Well that's a okay, So
Speaker 1: what did we learn from Paul? Uh? So, No, No,
Speaker 1: you know, I think, you know, I think the main
Speaker 1: thing that that we really learned from Paul is that
Speaker 1: they are very much committed to this idea that they
Speaker 1: need to hold rates, you know, at a at a
Speaker 1: restrictive level for for an extended period of time. Uh.
Speaker 1: And then we also know that they're closing in on
Speaker 1: what they think that level is. And and so you know,
Speaker 1: what this seems to be coming down to is causing
Speaker 1: you deliberately causing something that that looks very much like
Speaker 1: a recession, although Paul Paul always say that it's it's
Speaker 1: something in the forecast. Which is interesting now because it's
Speaker 1: gonna create some questions given this disinflationary trend we're seeing
Speaker 1: in the data. It's really gonna people are gonna start asking, well,
Speaker 1: why do you need to create a recession here? Right? John? Yeah?
Speaker 1: I mean, for me, I think of it that I
Speaker 1: took away three key things from today. I mean, I
Speaker 1: think that one is that they are kind of transitioning
Speaker 1: from this where is terminal to how long to stay
Speaker 1: their stage, And I think that that really was I
Speaker 1: think most put forward by the fact of policy very
Speaker 1: open to going in intervals starting at the February next
Speaker 1: FOMC meeting, so that, you know, along with the commentary
Speaker 1: of the press, commerce doesn't make it seem like they're
Speaker 1: in the ballpark of what they deemed to be so
Speaker 1: fficiently restrictive. I think the second thing is that they
Speaker 1: are seemingly looking at this at least ex anti as
Speaker 1: that they want to stay at five around five percent
Speaker 1: FED funds for a while. And then third, I think
Speaker 1: the interesting thing from the dots to me. You know,
Speaker 1: obviously one can point to an interesting PC number, but
Speaker 1: I think, you know, most interesting to me is that
Speaker 1: if you look at the real rates for twenty three
Speaker 1: and twenty four using FED funds and their core PC projection,
Speaker 1: it's a hundred sixty basis points for both years. So
Speaker 1: I think in terms of defining what sufficiently restrictive this
Speaker 1: sort of vague maybe dynamic term means, I think they
Speaker 1: gave you a pretty good insight into the level that
Speaker 1: they seemingly are going to be targeting. That's you know,
Speaker 1: equates to inflation back and target over the medium term.
Speaker 1: So this is something that I wanted to ask both
Speaker 1: of you. But I feel like there are a lot
Speaker 1: of terms that you know, we throw around now without
Speaker 1: really like digging into them very much. I mean, transitor
Speaker 1: inflation was one of them from last year, and now
Speaker 1: we're talking about transitory deflation, which is kind of amazing.
Speaker 1: But can we talk about restrictive, Like, what exactly do
Speaker 1: we mean when we talk about the FED moving to
Speaker 1: a restrictive policy that can be for either of you? No, Well, well,
Speaker 1: it's it's unfortunate that the FED doesn't doesn't seem to
Speaker 1: entirely know when when they're going to be restrictive, right, So,
Speaker 1: so how are they going to figure this out? And
Speaker 1: it's it's the case that they're looking for this this
Speaker 1: rate that they think we'll create downward pressure on the
Speaker 1: labor market, sustained downward pressure on the labor market, and
Speaker 1: the desire is to get wage growth down in order
Speaker 1: to really reduce the inflationary pressures that they think are
Speaker 1: going to persist if if unemployement stays this low. But
Speaker 1: but but what is that rate? Uh, you know, I
Speaker 1: think the best way to think about is is maybe,
Speaker 1: like like John was saying that maybe it's a a
Speaker 1: rate of a hundred sixty basis points, but but I
Speaker 1: don't know if we should have a lot of conviction
Speaker 1: in that number. Yeah, you know, I think that it
Speaker 1: is sort of this you know, feel your way around,
Speaker 1: you know, even in the context of what I know
Speaker 1: a message I took away from the SEP today. You know,
Speaker 1: I think that what I think Loretta Mester actually set
Speaker 1: up a decent way of thinking about it and sort
Speaker 1: of these like broad Stokes and in my notes the
Speaker 1: Climes that kind of called it like the Themester roadmap.
Speaker 1: But it's basically this idea is that once the FED
Speaker 1: gets to a rate that has, as Tim says, you know,
Speaker 1: sustained downward pressure on the labor markets stain down and
Speaker 1: pressure on economic activity, they can basically tee off this
Speaker 1: handoff from below trend growth to slowing wage growth to
Speaker 1: slowing inflation. And I think that is sort of the
Speaker 1: sequencing is that they're trying to achieve, and they can
Speaker 1: only really know which level is doing that in real time.
Speaker 1: Of course, they'll have model estimates that will guide them,
Speaker 1: and we'll, you know, we'll sure we'll see a Coshari blog,
Speaker 1: you know, following this meeting on what that looks like.
Speaker 1: But I think that you know, broadly speaking, it's going
Speaker 1: to be very much informed by the data. And this
Speaker 1: is something that I think, you know, a takeaway from
Speaker 1: me from this meeting is that you know, sufficiently restrictive
Speaker 1: is not a you know, it's it's not an absolute level,
Speaker 1: it's a it's a dynamic level. And I think, you know,
Speaker 1: going into you know, the next two years, staying still
Speaker 1: may actually include moving, but we can get into that.
Speaker 1: Let me back up a little bit, because set Us
Speaker 1: had the FED, let's talk about the day before. On Tuesday,
Speaker 1: we got that CPI report that Tracy mentioned in the beginning.
Speaker 1: Core cp I on a month over month basis came
Speaker 1: into just point two percent headline, obviously influenced a lot
Speaker 1: by the plunge and oil prices which can only go
Speaker 1: so far. I guess just zero point one person, Tim,
Speaker 1: is this like, when you look at this report, are
Speaker 1: you optimistic? Are the reasons to be optimistic that this
Speaker 1: is the start of a sustain in a bold trend
Speaker 1: or is this noise. Yeah, certainly when I look at
Speaker 1: the report, I had to be sort of honest to uh,
Speaker 1: you know the approach I was taking last year, earlier
Speaker 1: this year. And you know, when when I saw this
Speaker 1: inflation numbers started to rise and I saw what I
Speaker 1: call super core inflation, right, uh, core inflation minus housing
Speaker 1: and autos, you know, I really started to say, you know,
Speaker 1: we can't ignore you know, this inflation is transitory. And
Speaker 1: I'm kind of the same position as right now is
Speaker 1: that we've seen a lot of improvement in that super
Speaker 1: core and narrowing of of some inflationary pressures. And so
Speaker 1: it does seem to me like there has been a change.
Speaker 1: Now whether or not that's persistent will we'll find out.
Speaker 1: But I do think you kind of have to have
Speaker 1: to take the number face value and saying, yeah, there
Speaker 1: seemed to be a few of the lessening of inflationary pressures,
Speaker 1: at least in the near term here. So one of
Speaker 1: the things that Pal said today was, you know, he
Speaker 1: was talking about how there's this expectation that services inflation
Speaker 1: is going to be tough to bring down because the
Speaker 1: labor market is so strong and wage growth is still
Speaker 1: relatively high. And that's the thing that kind of feeds
Speaker 1: into overall prices. I mean that implies that the FED
Speaker 1: is explicitly going to be targeting like a softening of
Speaker 1: the labor market. Right. I was thinking that this is
Speaker 1: a way you can sort of tell that the fetish
Speaker 1: hawk is right, is that they're they're they're very much
Speaker 1: focused on getting inflation down, even at the at the
Speaker 1: cost of getting unimplanted higher, you know, considerably higher. And
Speaker 1: you know that's that's I think, you know that we're
Speaker 1: definitely trying to achieve here. So inflation is starting to
Speaker 1: come down. But for the past year or so, we've
Speaker 1: been told that the reason the FED needs to be
Speaker 1: so aggressive is because they're worried about expectations becoming embedded.
Speaker 1: They're worried about a wage price spiral. But the fact
Speaker 1: that core seems to be beginning to come down, does
Speaker 1: that suggest that maybe those concerns were overblown. That's gonna
Speaker 1: be the question that people start to ask. If core
Speaker 1: is coming down and the FED sort of backing down
Speaker 1: to this argument that that we really need to get
Speaker 1: this this lower level of core inflation services minus x
Speaker 1: housing down, it's going to cause some some concern about, well,
Speaker 1: why why is that now the measure of underlying inflation.
Speaker 1: Why should we be focused on that and not in
Speaker 1: fact the idea that maybe we can return to type
Speaker 1: of environment and the FED doesn't hasn't changed the narrative
Speaker 1: to to to allow that to happen yet, So I
Speaker 1: think it's going to be a question that's increasingly important
Speaker 1: as overall cored inflation if it remains low. I like
Speaker 1: two things on this. I think that, like Tim said,
Speaker 1: it's absolutely right, you know, I think that they're really
Speaker 1: like two reasons for why, you know, this rendition won't
Speaker 1: just be the reciprocal of sort of the you know,
Speaker 1: inflation rising period of late last year early this year.
Speaker 1: I think one, and this is why I think the
Speaker 1: FED is so emphatic on showing us that they're going
Speaker 1: to be looking at you know, services XO er sort
Speaker 1: of this like core labor market trend is because the
Speaker 1: FED knows that the labor market is not a tail
Speaker 1: when to achieving their goals. It's a headwind. So given
Speaker 1: the state of where nominal wage growth is, it's much
Speaker 1: harder to have you know, conviction that inflation is going
Speaker 1: to settle back at two percent when nominal wage growth
Speaker 1: is five and a half. Whereas we flip it to
Speaker 1: where the FED was, you know, in late last year
Speaker 1: early this year, it was it was becoming pretty obvious
Speaker 1: that you know, inflation would be even if there were
Speaker 1: transitory factors, it had this structural tail when from a
Speaker 1: very robust labor market. So you know, in terms of
Speaker 1: comparing then to now, I think it's it makes sense
Speaker 1: for at least like in terms of a range of outcomes,
Speaker 1: for the FED to be more hesitant into embracing this
Speaker 1: trend disinflation versus them accepting trend higher inflation because the
Speaker 1: labor market dynamic is feeding into one and not the other.
Speaker 1: And I think the second thing is, you know, on
Speaker 1: inflation expectations, you know such a big part of it.
Speaker 1: And this is something I think that you know, Powell
Speaker 1: has been really pounding the table on really I think
Speaker 1: since June when they made their initial rise to seventy five,
Speaker 1: is that he said that above target inflation in terms
Speaker 1: of expectations is not only about trend, but it's about level.
Speaker 1: And then from there it's like a ticking clock in
Speaker 1: terms of in terms of its feet through two inflation expectations,
Speaker 1: whereas if you allow inflation to remain above target for
Speaker 1: three or four years, even though it's headed in the
Speaker 1: right direction, that level can be a nuisance in terms
Speaker 1: of inflation expectations and making sure that inflation is anchoring
Speaker 1: a two percent So I think that you know, there
Speaker 1: are you know, similarities to playing that this is the
Speaker 1: reciprocal of the bull had been goods. This is the
Speaker 1: reciprocal to the bull with rents. But at the margin
Speaker 1: there are more factors for the FED to be hesitant
Speaker 1: in this full embrace of the early signs that they meaning,
Speaker 1: especially because they got burned on that last year too,
Speaker 1: So you know, that's there there. This has always been
Speaker 1: I think, you know, I'm not a risk, is not
Speaker 1: a risk the likelihood that the FED was going to,
Speaker 1: you know, was going to hold hold the line here
Speaker 1: for longer than than than maybe market participants thought appropriate,
Speaker 1: simply because they thought the risk of budding in flesh
Speaker 1: and get uncontrol and and Paul reidered that, reiterated that
Speaker 1: today it was just simply too hot. So I want
Speaker 1: to talk more about labor and tim This is a
Speaker 1: question for you. So right now, the unemployment rate is
Speaker 1: three point seven percent, And in the press conference, I
Speaker 1: don't think like Paul like specifically talked about a soft
Speaker 1: landing per se. I don't know if you used that term,
Speaker 1: but he did seem to express some hope that we
Speaker 1: need to see some weakening of the labor market, but
Speaker 1: that maybe you could just be a little because all
Speaker 1: you know, the labor markets really tighten his view, there's
Speaker 1: all these unfilled job openings, there's a structural shortage of workers.
Speaker 1: So maybe we just need a little bit of tilt.
Speaker 1: What does history say, Can we just get a modest
Speaker 1: increase in the unemployment rate to like the low floors,
Speaker 1: or if we start to see that pick up in
Speaker 1: the unemployment rate, does history say it's going to go
Speaker 1: up substantially more than that? Yeah, I would say that
Speaker 1: that the history is is not the Fed's favor here,
Speaker 1: that that you really can't guide the unemployment rate, you know,
Speaker 1: three tents or or five tents of the percentage point higher,
Speaker 1: let alo point nine right brains higher. So uh, you know,
Speaker 1: I I just don't think that this sort of soft
Speaker 1: lending idea is a likely outcome here. Um. I would
Speaker 1: like it to be right, but to me, it seems
Speaker 1: to be screaming against what we've seen in the past. Yeah, Tracy,
Speaker 1: I'm just looking at the FEDS set the Summary of
Speaker 1: Economic Projections, and it anticipates the unemployment rate peaking at like,
Speaker 1: you know, hitting four orth three point seven now, going
Speaker 1: to four point six next year and the year after that,
Speaker 1: and then going down a bit. So there's like this
Speaker 1: idea that we just get a little bit. You know,
Speaker 1: one person is not nothing, especially the people who have
Speaker 1: lost their jobs. But you know, the story the Fed
Speaker 1: is telling is that the unemployment rate will be contained. Well,
Speaker 1: this is something else I wanted to ask about, which is,
Speaker 1: you know, we hear comments from the FED a lot
Speaker 1: now about how monetary policy operates with a lag, and
Speaker 1: that to me seems like as big a question shin
Speaker 1: as the transitory inflation question that we were discussing, you know,
Speaker 1: a year or two ago, like how long is the
Speaker 1: inflation going to last? How long is it actually going
Speaker 1: to take interest rate hikes to have an effect? Do
Speaker 1: we have like a good sense of that, Like the
Speaker 1: fact that we've saw cp I come in less than
Speaker 1: expected yesterday, is that the a sign that monetary policy
Speaker 1: is working, is a sign that monetary policy has the
Speaker 1: potential to overshoot, and you know, cause the recession that
Speaker 1: everyone seems to be worried about. I think that, you know, broadly,
Speaker 1: the long and variable lack question is just very hard
Speaker 1: to answer. I don't think there is a clean one.
Speaker 1: I think that there is this assumption that the FED
Speaker 1: is like talking in central banks broadly, are talking about
Speaker 1: about long and variable lags in the sense of, you know, well,
Speaker 1: we should slow down and then wait six months and
Speaker 1: you'll have more apparent evidence. And you have seen it
Speaker 1: across the I mean, the Bank of Canada is recently
Speaker 1: transitioned from saying that you can feel the monetary policy
Speaker 1: tightening and just the interest rate sense of sectors and
Speaker 1: the economy, and now the whole economy is starting to
Speaker 1: feel it. So I think there's like, conceptually it makes
Speaker 1: a lot of sense. I don't think that there's like
Speaker 1: a strong empirical approach to say, okay, you know T
Speaker 1: minus nine months, this is when we'll start to feel
Speaker 1: the whole thing. I think that the way the FED
Speaker 1: is thinking about long variable aggs, and maybe I'll be
Speaker 1: more specific to the leadership is I think the way
Speaker 1: the FED things about long variable aggs as you kind
Speaker 1: of hope to engineer this, this handoff to pro cyclical tightening.
Speaker 1: And what I mean by that is that basically you
Speaker 1: let the disinflation that's occurring basically raise your real effective funds, right,
Speaker 1: And I think that the FED is now at the
Speaker 1: point where the long and variable lags is that now
Speaker 1: you're starting to see the data at least begin to
Speaker 1: cooperate with them. There has been some softening, not a lot,
Speaker 1: but there has been some softening in the labor market.
Speaker 1: There's definitely less churn, as we can see from continuing claims.
Speaker 1: Jolts have come down a lot, the inflation data starting
Speaker 1: to look a lot better than it did three months ago.
Speaker 1: And now I think from the FEDS long and variable
Speaker 1: lags quote unquote perspective is it's about, you know, exerting
Speaker 1: real positive policy rates across the curve and letting that
Speaker 1: sort of service. This that the new form or or
Speaker 1: anchored form of tightening more than you know now what
Speaker 1: we've been doing now, which is ratings. I want to
Speaker 1: go back to the theoretical question about whether some sort
Speaker 1: of immaculate disinflation is possible, or whether we can have
Speaker 1: inflation return to trend without a big jump in the
Speaker 1: unemployment rate. I mean again, just going back to the
Speaker 1: last few weeks, so we gotta you know, pretty a
Speaker 1: good November CPI report. We also had that hot wage
Speaker 1: growth number from the recent Non Firm Perils Report. I
Speaker 1: mean again, we're pulling out of just very few data points.
Speaker 1: Like you, I don't think you could tell a tremendous
Speaker 1: story from one CPR report, two CPR reports and one
Speaker 1: wage number in the Non farm Perils Report. But I
Speaker 1: don't know. It looks to me like you can have both.
Speaker 1: That you can have this period where wages are growing robustly,
Speaker 1: where the unemployment rate is low, and some sort of rollover.
Speaker 1: What would it take for the FED? I guess my
Speaker 1: question would be to say, you know what, maybe it's possible,
Speaker 1: maybe we don't need to induce a recession, or maybe
Speaker 1: we don't need to see much of an increase in
Speaker 1: the unemployment rate at all. What would it take for
Speaker 1: the FED to look at you know, how many more
Speaker 1: of these cool CPR reports would it need to be
Speaker 1: before maybe the FED started believing in the possibility of
Speaker 1: a soft landing. That's a that's a big question. I
Speaker 1: asked myself a lot exactly That reason is you have
Speaker 1: seen some improvement in the inflation numbers, and it seems
Speaker 1: like it's almost premature. Right, we had been expecting, and
Speaker 1: the FED had been expecting, that that improvement would really
Speaker 1: follow the labor market, and it's coming, you know, it's
Speaker 1: coming ahead of you know what we see as any
Speaker 1: any significant loose sing remarket and that the FED is
Speaker 1: going to be worried, and I think rightly so that
Speaker 1: you know, persistently high inflation excuse me, persistently high wage growth,
Speaker 1: if not matched by sufficiently high productivity growth, is over
Speaker 1: time going to lead to upward pressure on inflation and
Speaker 1: upper pressure on inflation expectations. Uh. And that that basically
Speaker 1: the argument that that wages and inflation are are tied
Speaker 1: together in the long run, and we could be seen
Speaker 1: in the short run is all the slippages that that
Speaker 1: can happen. So you could think of uh, you know,
Speaker 1: higher wages being resolved through lower margins, right margin compression.
Speaker 1: So you know, I think, as you said, it's really
Speaker 1: hard to make anything any clear decisions off of just
Speaker 1: a couple of months of data. But you know, the
Speaker 1: FED will have I think a hardard time selling that
Speaker 1: story going forward again, If if inflation continues a lot,
Speaker 1: especially if if the core services inflation numbers starts softened
Speaker 1: more than that's, that's gonna be something. It's it's gonna
Speaker 1: be harder to explain. When did we start calling it
Speaker 1: immaculate disinflation? I don't know this. Who came up with that?
Speaker 1: I think like the earliest mentioned. I was curious because
Speaker 1: this is the second or third time I've heard it
Speaker 1: just today, But the earliest I can find is actually
Speaker 1: Matt Klein in his newsletter. Um, it sounds like a
Speaker 1: summer's thing, I feel like, right, So I wanted to
Speaker 1: ask about financial conditions as well, because I mean, this
Speaker 1: is something that has come up. Neil Kashkari talked about
Speaker 1: it on on this podcast, talking about how he was
Speaker 1: happy to see the fall in stocks which fed into
Speaker 1: a tightening of financial conditions. And of course, monetary policy
Speaker 1: is supposed to work through either loosening or tightening financial conditions.
Speaker 1: But in recent weeks we've seen those conditions start to
Speaker 1: loosen again as bonds are rallying. Stocks have been rallying
Speaker 1: up until today, it looks like that is down a
Speaker 1: bit after the FED meeting. But John, this is for
Speaker 1: you in particular because I know you were very very
Speaker 1: focused on the stronger dollar over the summer, and you
Speaker 1: had argued that the strong dollar would end up doing
Speaker 1: some of the Fed's work when it comes to tightening
Speaker 1: financial conditions for it. But now that the dollar in
Speaker 1: particular is softening and financial conditions in general are loosening,
Speaker 1: does the FED need to be concerned about that? Do
Speaker 1: they need to try to move to offset that? That's
Speaker 1: a good question. I don't think so. Um, And I
Speaker 1: think that you know, from the FETs perspective, at least,
Speaker 1: you know, looking at it in dollar terms or US
Speaker 1: dollar terms, is it really almost was job done? I mean,
Speaker 1: we can, of course, you know, add in that China
Speaker 1: being effectively shut down for a lot of the years
Speaker 1: certainly helped com under pressure come off. We can also
Speaker 1: added that the spr a tremendous amount of relief to
Speaker 1: oil markets. But you know, I think in terms of
Speaker 1: the commodity supercycle that was being pitched, the dollar did
Speaker 1: new or a lot of the right tail in you know,
Speaker 1: the broader commodity complex and just looking at you know,
Speaker 1: the Bloomberg Commodity Index it's all from material amount from
Speaker 1: its highs. So I think in those terms, the FED
Speaker 1: has achieved a lot um. I think, you know, thinking
Speaker 1: about the financial conditions question, and this is one I actually,
Speaker 1: you know, get a lot because we have had a
Speaker 1: non trivial move and you know, and looking at something
Speaker 1: like a Goldman f CIS basket over the last few weeks.
Speaker 1: I think the way to think about it, and I
Speaker 1: think the way the FIT is broadly thinking about it,
Speaker 1: is that f c I s are sort of this
Speaker 1: this relative term. They're relative to the spot labor market
Speaker 1: data and this spot inflation data. And if f c
Speaker 1: i s were loosening in the context of the inflation
Speaker 1: data getting worse or the unemployment or the employment stuff
Speaker 1: getting better, I think that would be at odds with
Speaker 1: something that the FED is looking for. But you know,
Speaker 1: a point that I've been making over the last few weeks,
Speaker 1: if the f c I s have sort of been
Speaker 1: quote unquote earned in terms of a slight improvement in
Speaker 1: the labor market and more than slight improvement in the
Speaker 1: inflation data, even though it's only the last two months,
Speaker 1: then I think that's something that it's not necessarily equals
Speaker 1: like the FED is going to fight where you're going
Speaker 1: to It requires Powell to sound like he did at
Speaker 1: jackson All. I mean, I think the pretty telling thing
Speaker 1: for me was when Powell came out in Brookings and
Speaker 1: everyone was expecting him to, you know, beat the hammer
Speaker 1: on financial conditions, assuming that they loosened too much. He didn't,
Speaker 1: And I think that part of the reason he didn't
Speaker 1: is that this is different than it was in July
Speaker 1: and August, when there wasn't really any compelling evidence that
Speaker 1: inflation was following. We actually saw two months of point
Speaker 1: six is after and the claims moved from that when
Speaker 1: saw you initial claims reached k W back to two
Speaker 1: ten basically over the course of a month. And then
Speaker 1: it was more of a reaction function question how serious
Speaker 1: is the FED? Is the FED willing to do what
Speaker 1: it takes? And then Powell came out and Jackson All
Speaker 1: told you we're gonna do what it takes. That's not
Speaker 1: really the question. Now the market is full said we'll
Speaker 1: do what it takes, looking at you know, either for
Speaker 1: inflation stops or break even rates. The question now is
Speaker 1: is how much earned financial conditions can you loosening? Can
Speaker 1: you have? And that is I think data dependent, and
Speaker 1: I think that that's I think that's going to be
Speaker 1: the way that shakes out over the next few months.
Speaker 1: So just on this note, and this can be for
Speaker 1: either of you, But looking at the market reaction today,
Speaker 1: you know, stocks went up a bit right after the
Speaker 1: decision was announced and they've come back down since then.
Speaker 1: But in terms of the market reaction as the as
Speaker 1: the data, assuming the data starts to change and evolve,
Speaker 1: and we do see sustained deflation and maybe maybe even
Speaker 1: a little bit of weakness in the labor market, is
Speaker 1: the FED going to be able to continue to convince
Speaker 1: the market that it is in fact hawkish because that
Speaker 1: seems to be what it's trying to do, right. It
Speaker 1: needs to maintain expectations, put pressure on financial conditions and
Speaker 1: things like that. But is it going to be able
Speaker 1: to do that as the data starts to change. I
Speaker 1: think it gets to to John's point, is that that
Speaker 1: if the if the data is moving in a disinflationary direction,
Speaker 1: the market is going to go with that because they're
Speaker 1: gonna assume that. Sooner or later, the FED is going
Speaker 1: to catch up to that approach. And it's it's really
Speaker 1: more problematic for the FED if if the market is
Speaker 1: just not getting the FEDS reaction function right. You know,
Speaker 1: where again there could be some tension here is if
Speaker 1: the FED is excuse me, the markets are looking at
Speaker 1: core inflation and the FEDS looking at this you know,
Speaker 1: this services x housing component would be would be more
Speaker 1: interesting in a space where there could be you know,
Speaker 1: room for for confusion. But I think you know, once
Speaker 1: the data turns, or the markets starts to sense the
Speaker 1: data is starting, the FEDS is going to have a
Speaker 1: hard time you know, selling selling that story. It cuts
Speaker 1: both ways to if the data firms here, lower prices
Speaker 1: cause consumer spending to rise um for example, or real terms,
Speaker 1: in real terms, they could sort of tighten back up
Speaker 1: financial conditions. Well I joked about this over the weekend,
Speaker 1: but I don't know, you know, it's kind of only
Speaker 1: half a joke or half a troll about you know,
Speaker 1: we've had this big plunging gasoline prices and maybe because
Speaker 1: of that, maybe some of that is softening demand. I
Speaker 1: don't know, But for some people that's like a huge
Speaker 1: financial shot in the arm. I mean, that's like a lot,
Speaker 1: you know, that's more money left in the wallet each
Speaker 1: week and so you know, I think what could cause
Speaker 1: the data to firm. Maybe it's falling gasoline prices. But
Speaker 1: sim I want to you know, I want to go
Speaker 1: back to something you said. You know, you think about, Okay,
Speaker 1: what are some ways we could have like a soft landing,
Speaker 1: And one of them would be if we got some
Speaker 1: period of like catch up productivity. And we know that
Speaker 1: productivity I think has been pretty bad. What's your story
Speaker 1: for why productivity has been bad? And is there a
Speaker 1: possibility that whatever cause that could flip in some way
Speaker 1: and then we get a big spike in productivity. Yeah,
Speaker 1: so to you're measured as a residual you know of
Speaker 1: of GDP growth and unemployment. So you know, how how
Speaker 1: how um you know how confident we are of that number?
Speaker 1: Should it should always be in question? But it does
Speaker 1: look like productivity has been weaker this year. And you know,
Speaker 1: I don't know that anyone has some some hugely great
Speaker 1: explanation for this. I think that when you kind of
Speaker 1: run the economy too hot, you run it inefficiently. And
Speaker 1: that seems to be to me what was going on.
Speaker 1: You have to you have a lot of turn in
Speaker 1: the labor market. Maybe you've got some new new employees,
Speaker 1: some younger employees, and they're just not as efficient, you know,
Speaker 1: and and they're struggling against stronger demand, so that that
Speaker 1: eroades your your relative productivity. So I think I think
Speaker 1: that's a reasonable story. And then theory could could you know,
Speaker 1: ease back up if if people got some really breathing
Speaker 1: room on demand? Right, So, I think you know that's
Speaker 1: something that goes on to me. If you want a
Speaker 1: soft landing, the most important thing is is getting the
Speaker 1: FED to believe that you can have a soft landing. Um,
Speaker 1: you know right right now that that's I mean, they're
Speaker 1: saying you can have a soft landing. But again we
Speaker 1: can debate whether or not the rise in unemployment that
Speaker 1: they have penciled in is consistent with that alcohol and
Speaker 1: I would say say no. But you know what I'd
Speaker 1: like to see for soft landing is for the FED
Speaker 1: to book to believe you fully, they just do not
Speaker 1: have to keep hiking rates and can cut them sooner
Speaker 1: than they anticipated. Tim, I want to ask you about
Speaker 1: this as well. So, setting aside the prospect of a
Speaker 1: soft landing, which has now been rebranded as immaculate disinflation,
Speaker 1: it feels like the big concern or fear for the
Speaker 1: FED would be significant stagflation, So inflation combined with you know,
Speaker 1: negative economic growth. What would they do in that scenario.
Speaker 1: Paul has Has has said the objective here would be
Speaker 1: to bring inflation back down to trend. You know, I
Speaker 1: think that if you had a real stagflationary episode, how
Speaker 1: the FED dependent would really depend upon what they thought
Speaker 1: was happening with inflation expectations. So if you had, you know,
Speaker 1: elevated inflation this year going going into this suppose elevated
Speaker 1: inflation was was something we're still experienced, and then suddenly
Speaker 1: the unemployment got rate was rising, you know, the FED
Speaker 1: would start to think, well, you know, higher unemployment rate
Speaker 1: should pull down these inflation numbers. And so so the
Speaker 1: key in there would be what would have what would
Speaker 1: be happening with inflation expectations. If the FED could could
Speaker 1: be confident that that that they can focus on the
Speaker 1: employment mandate without worrying so much about the inflation mandate
Speaker 1: because they thought that was going down, then they could
Speaker 1: you know, pursue an easier policy. But if they saw
Speaker 1: inflation expectations rising, um, they would they would pursue a
Speaker 1: more aggressive policy John. You know, one of the things
Speaker 1: that Paul was asked about was, you know, we're talking
Speaker 1: about how many more hikes, but he was asked about cuts.
Speaker 1: And there still seems to be this tension between what
Speaker 1: the Fed officials have said and what market pricing have said.
Speaker 1: And so you know, all year the fetish like what
Speaker 1: do you guys even talk about We're not anywhere close
Speaker 1: to thinking about cuts, or at least that's basically my
Speaker 1: summary of like it's like, we're not, you know, we're
Speaker 1: not We're nowhere closed, and yet the market seems to
Speaker 1: be pricing in rate cuts and not even very far out.
Speaker 1: In fact, you have an inversion of the three month
Speaker 1: to year curve, which means, you know, rates in the
Speaker 1: fairly short next couple of years lower than they are
Speaker 1: right now or over the next three months. In some way,
Speaker 1: like what do you make of this divergence, because it's
Speaker 1: been a story, I think for several months, this gap
Speaker 1: between rhetoric and market pricing. Right right now, it's a
Speaker 1: good point, and I think that there's there's two parts
Speaker 1: to it. I think that that the and I'll talk
Speaker 1: about it in stage terms, and the first stage of
Speaker 1: this was really the middle two q three of this year.
Speaker 1: Part where the market kept saying is like, Okay, they're
Speaker 1: going to be cuts in X amount of time. And
Speaker 1: I think that was really a byproduct of the market's
Speaker 1: assumption that given all of this fix think of volatility,
Speaker 1: given the rapid increases in the federal funds, right that
Speaker 1: something was going to break, whether it be the labor market,
Speaker 1: whether it be a financial accident as we saw in
Speaker 1: the UK, something of that nature would break and the
Speaker 1: FED would have to unwind some of the things that
Speaker 1: it did. And that's why we always, even you know,
Speaker 1: looking as far back as June, we always kind of
Speaker 1: assumed that cuts couldn't be more than nine to twelve
Speaker 1: months away. Um. And I think what is happening now,
Speaker 1: which is different than that first stage, and I think
Speaker 1: is actually a little bit more sustainable, is the FED
Speaker 1: is basically not officially, but you can glean into the
Speaker 1: fact that the cycle is almost over. And from the
Speaker 1: market's perspective, once the market months the FED convinced conveys
Speaker 1: to the market that palace preferences probably for twenty five
Speaker 1: in February, then the market has to trade with a
Speaker 1: percentage chance that marches a pause a very reasonable percentage
Speaker 1: chance given what is seemingly the trend of you know,
Speaker 1: disinflation at least through key one UM and then from
Speaker 1: there the weighting game, the market is always going to
Speaker 1: trade the skew that either hard landing or soft landing
Speaker 1: will happen, and in both of those cases, the feed
Speaker 1: isn't at five percent forever. You know. The way I've
Speaker 1: kind of looked at it is is that there's three
Speaker 1: potentials for next year. There's the no landing, the soft landing,
Speaker 1: and the hard landing. The no landing is sort of
Speaker 1: we find ourselves in a similar world to where we
Speaker 1: are now, or inflation is to not convincingly on its
Speaker 1: way back to two nominal wage growth is still five
Speaker 1: and a half percent, and the FED is just kind
Speaker 1: of stuck. The soft landing is that you sort of
Speaker 1: get into this twenty nineteen world where the immaculate disinflation
Speaker 1: does somewhat take place, and then you could see yourself
Speaker 1: as you know, Goldman Sacks Q four forecast for you know,
Speaker 1: CORPC next year is two point nine, and the FED
Speaker 1: could feel at two point nine the five five and
Speaker 1: change is a bit too high in terms of the
Speaker 1: know how restrictive policy needs to be and that could
Speaker 1: lead to cuts. And then in the hard landing scenario,
Speaker 1: we obviously know that they cut a lot. So from
Speaker 1: the market's perspective, once you told them that there's really
Speaker 1: not that many more hikes left, maybe just fifty basis points,
Speaker 1: the market is going to lean into the skew cuts.
Speaker 1: It's just a faction of the time. M Yeah, there's
Speaker 1: there's really nothing that the FED I think can can
Speaker 1: do about that at a certain at a certain point. So,
Speaker 1: you know, we've been focused on the FED for obvious reasons.
Speaker 1: But John, I know you've been in particular looking at
Speaker 1: some other central banks, and you refer to the Central
Speaker 1: Bank of New Zealand the Reserve Bank over there as
Speaker 1: something of a north star in terms of the read
Speaker 1: across to other major central banks. You know, it was
Speaker 1: one of the first to actually start hiking rates. Can
Speaker 1: you maybe talk a little bit about what we've learned
Speaker 1: from the experience of central banks x U S. Yeah, No,
Speaker 1: I mean I think that you know there there there's
Speaker 1: been a few interesting examples. I would say over the
Speaker 1: last few months. I would say that the rbn Z
Speaker 1: sort of in both ways either in terms of their
Speaker 1: policy trajectory has been sort of this north star, as
Speaker 1: you said. But I also think that you know, for
Speaker 1: me sort of like thinking about the trajectory of the
Speaker 1: cycle and you know, what is the sort of the
Speaker 1: next phase of you know, of trading interest rates. Um.
Speaker 1: You know, I think the RBNC in November was a
Speaker 1: pretty telling meeting in terms of how the market is
Speaker 1: digesting this potential inflection point in the cycle. Because with
Speaker 1: the happen of the RBNZ in November is that they
Speaker 1: accelerated their hiking pace from fifty to seventy five from
Speaker 1: a place that was already restricted. And then in their
Speaker 1: monetary policy statement and there you know, their forecasts for
Speaker 1: the economy over the next few years, they said that
Speaker 1: they see the terminal rate in New Zealand being close
Speaker 1: to six percent. So this was a very big rerate
Speaker 1: in terms of both the actual hiking actual hikes that
Speaker 1: they did, and in terms of the hiking cycle in
Speaker 1: its totality and the market's reaction to that, which for
Speaker 1: most of this year would have been you know, rates
Speaker 1: at the very front of the curve ratchet higher, actually
Speaker 1: rates you know, yields increased on the day, but actually
Speaker 1: didn't make a new higher relative to where they were
Speaker 1: in October and September, even though given there's new marginal
Speaker 1: information and the arbanc he was much more hawkish, and
Speaker 1: I think many market participants thought of so I think,
Speaker 1: you know, in terms of where you know, using these
Speaker 1: leading hours, but also getting a feel for sort of
Speaker 1: what the distribution is in terms of markets. I think
Speaker 1: the RBNZ was very telling in terms of, you know,
Speaker 1: how the cycle, at least the hiking cycle towards the
Speaker 1: end of hiking cycle is going to be traded. And
Speaker 1: I think that you know, broadly speaking, you know central
Speaker 1: banks around the world now, is that there were going
Speaker 1: to be in this divergence period where you know, there
Speaker 1: are central banks they're going to see very clear and
Speaker 1: obvious signs of growth deceleration, and they're going to be
Speaker 1: central banks that don't. And I would probably put the
Speaker 1: Fed in the don't camp, whereas it's not obvious to
Speaker 1: me that you know, GDP next year is on track
Speaker 1: to run it as the FED thanks zero point five percent.
Speaker 1: You know, I think, as Joe was sort of cheekly
Speaker 1: alluding to earlier, is that you know, there's some pretty
Speaker 1: decent impulse for growth, given that the composition ship is
Speaker 1: getting a lot more healthier in real terms, and if
Speaker 1: you can sort of get a little bit less financial
Speaker 1: market volatility, you can maintain some decent real income growth,
Speaker 1: which we have sort of scene now since July. Then
Speaker 1: I think the economy can do you know, pretty well.
Speaker 1: Whereas you know, places like the UK, even Canada, places
Speaker 1: with you know, very high you know, private debt levels
Speaker 1: relative to GDP and have a lot of or intense
Speaker 1: you know, floating rate mortgage exposure, you know that those
Speaker 1: places are going to feel growth in a very different way.
Speaker 1: In those central banks I think will be quicker to
Speaker 1: be like listening, we have to be a little bit
Speaker 1: more two way in terms of, you know, how we
Speaker 1: approach the cycle. So I think it's gonna be. I
Speaker 1: think there are still north start. I think we're entering
Speaker 1: a period of pretty meaningful Divergence's interesting. I think the
Speaker 1: economic performance is going to be just very different across
Speaker 1: the world. So Tim, I have I have one last
Speaker 1: question aimed at you, but you know this idea and
Speaker 1: you sort of hinted at it, which is that if
Speaker 1: you if we were to get more data points like
Speaker 1: the November CPI report, they indicate, Okay, it looks like
Speaker 1: there's a meaningful slowdown. Then regardless of what happens on
Speaker 1: the labor market, the FED might start to believe it
Speaker 1: that something is real. But just how are you thinking
Speaker 1: about the next few months, So we don't have another
Speaker 1: decision again until February than in one in March, like
Speaker 1: just like what you talk of through like your sketch
Speaker 1: for how you're thinking about you know, the first quarter
Speaker 1: of the first half of next year, right, So I'm
Speaker 1: expecting a twenty five basis point right hike at the
Speaker 1: February meeting. Uh, and then beyond that, you know, getting
Speaker 1: to you know, the Fed's current terminal rate involves you know,
Speaker 1: rate hikes of that magnitude in in March, March and
Speaker 1: May as well. And at this juncture, I'm finding increasingly
Speaker 1: difficult to see that. First, you know, if the inflation
Speaker 1: numbers are sticking, you know, sticking on the downside here, Uh,
Speaker 1: you know, the it's going to be much more problematic
Speaker 1: for for the FED to continue raising rates. And then
Speaker 1: if we you know, over that period of time, we
Speaker 1: can see some some labor markets softening. Now the interesting
Speaker 1: question to me now is to help what extent the
Speaker 1: firming we're going to see in this data over rides
Speaker 1: any any softening we're seeing in labor markets right now.
Speaker 1: And John John mentioned some of those signs earlier. And
Speaker 1: if those signs stick, I mean, if we are getting
Speaker 1: a job growth down to you know, uh, you know,
Speaker 1: closer to a hundred thousand a month, as and as
Speaker 1: the economy firms, then I think the FED is going
Speaker 1: to be a hard press to keep keep raising rates
Speaker 1: after after certainly after March. And that's that's the kind
Speaker 1: of setup that I'm looking for, is that we see
Speaker 1: some of these continued evidence of labor market softening that
Speaker 1: gives the FED sum room to pause. But they're gonna
Speaker 1: want to be confident that that that softening is going
Speaker 1: to continue. So I do think they're gonna want to
Speaker 1: see the economy slowing uh, and and that the it's
Speaker 1: it's it's not evident to me that's that's going to happen.
Speaker 1: So this is a similar question, but directed to both
Speaker 1: of you. What's the one number or economic indicator that
Speaker 1: you're watching for signs of a soft landing that will
Speaker 1: allow the FED to potentially ease up on rate hikes,
Speaker 1: and please don't just say inflation. I'll go with one.
Speaker 1: I mean I think that you know I'll go with
Speaker 1: I'll go with the C I because I think that
Speaker 1: that's the way. How will sort of categorize how he
Speaker 1: sees a soft landing in Brookings? I think the interesting
Speaker 1: thing about Brookings and I think if you juxtapose Brookings
Speaker 1: with the SEP is you kind of get to glean
Speaker 1: into what the FED wants versus what the FED feels
Speaker 1: they need to say. And I think the SEP is
Speaker 1: more reflection of the FET things they need to say
Speaker 1: in terms of commitment and credibility versus If you listen
Speaker 1: to Powell's talk at Brookings, you don't get the sense
Speaker 1: that he truly believes that he needs the unemployment rate
Speaker 1: to go to four point six to get inflation closer
Speaker 1: to target. And I think for the FED, the question
Speaker 1: is going to be at five and a half percent
Speaker 1: or close to six percent nonimal wage growth. The FED
Speaker 1: does not believe that that is consistent with two percent inflation.
Speaker 1: So to me, the feds chances of a self lending
Speaker 1: will be to me very dependent on how the inflation
Speaker 1: data evolves post a lot of this, you know, more
Speaker 1: transitory noise in in the goods and rent side to
Speaker 1: some extent. But also, you know, what does wage growth
Speaker 1: look like in the middle of next year? And I
Speaker 1: think that will sort of set the stage not necessarily
Speaker 1: for how long how many more hikes there are, but
Speaker 1: how long they stay at this very elevated level of
Speaker 1: its tim Yeah, I would actually, I mean I don't
Speaker 1: I don't want to repeat the same thing, but I
Speaker 1: do think you know, the clearer evidence that that John
Speaker 1: is right. I mean, in theory, if if wages were
Speaker 1: to come down, wage growth was to decelerate, and so
Speaker 1: you know what what work could we see that other
Speaker 1: than just the e c I number. So you know
Speaker 1: one place that could be somewhere it shows up is
Speaker 1: and it's already declining. Is the quits right, So you know,
Speaker 1: presume Blue and Paople, you know, quidded job or another job,
Speaker 1: that the next job has a higher, higher wage. And
Speaker 1: so even if you've got the quicks right down, you
Speaker 1: probably you know, get get wage growth decelerated, and something
Speaker 1: like that could help convince the Fed that they did
Speaker 1: not need a recession. Right. So so the theme here is,
Speaker 1: you know what does the FET need to see to
Speaker 1: believe they don't need, you know, unemployment at at four
Speaker 1: and a half or center for four point seven percent,
Speaker 1: and the answer is is probably, you know, wage growth
Speaker 1: would be the most likely place that we can help
Speaker 1: see that. John and Tim, thank you so much for
Speaker 1: coming on the podcast. It's always great talking to you
Speaker 1: and particularly timely conversation to understand what I think is
Speaker 1: a pretty important moment, a pretty important week in this story.
Speaker 1: So thank you both for coming on outline. Thank you,
Speaker 1: thank you a good for having us. Yeah, thanks so much, guys,
Speaker 1: it's great that great, always great to talk with John
Speaker 1: and Tim. I mean, I think that last point from
Speaker 1: Tim is sort of the key thing, and it's still
Speaker 1: sort of the big question, which is will other signs
Speaker 1: emerge that convinced the FED that there can be some
Speaker 1: sort of durable decline in inflation without a meaningful jumping unemployment.
Speaker 1: So maybe it's a decline in the quits rate, maybe
Speaker 1: it's other measures of wages. Maybe maybe it's something with
Speaker 1: job openings, etcetera. Maybe it's just the employment cost index.
Speaker 1: But it does feel like those are the things to
Speaker 1: watch because look, the soft landing can't be as long
Speaker 1: as unemployment rate is at three point seven, you can't
Speaker 1: rule out the soft landing scenario. Yeah. Absolutely. The other
Speaker 1: thing that I thought was interesting was the idea of
Speaker 1: the sort of discrepancy potentially between what the market's looking
Speaker 1: at versus the FED. Yeah, because that seems like, you know,
Speaker 1: today might be kind of an example of it, where
Speaker 1: the FED came out pretty hawkish and the initial reaction
Speaker 1: at least was stocks went up. They've since gone down,
Speaker 1: But like you do, wonder as the data starts to change,
Speaker 1: whether or not that's going to become more of a theme,
Speaker 1: and whether or not it's going to complicate some of
Speaker 1: what the FED is trying to do here. I really
Speaker 1: liked John's explanation of this sort of seeming, you know,
Speaker 1: speak of market divergence, of you have FED officials saying, no,
Speaker 1: we're not talking about rate cuts at all, we're not
Speaker 1: even done with the hiking cycle, and yet the market
Speaker 1: is priced, you know, on some level of the market
Speaker 1: pricing rate cuts before too long. And I like, you know,
Speaker 1: the sketch of the three the no landing, the soft landing,
Speaker 1: and the hard landing, and if you sort of like
Speaker 1: figure that, okay, the hiking cycle is sort of maybe
Speaker 1: coming to an end, probably right, we're not that far
Speaker 1: from the final hike, maybe Fibruary and Marcher something like that.
Speaker 1: Then at some point, you know, there is some chance
Speaker 1: the spread that we go into hard landing scenario and
Speaker 1: that the FED would have to cut. Yeah, I mean,
Speaker 1: there are like these kind of weird discrepancies that are
Speaker 1: starting to emerge from the forecast. So like the PC
Speaker 1: forecast I think went up, but like the growth forecast
Speaker 1: when down where it seems strange. I do feel like
Speaker 1: we talked a lot about the past year is being
Speaker 1: like difficult for central banks, but I actually think next
Speaker 1: year could be even more difficult, just because you have
Speaker 1: all these different moving parts. And I know you were
Speaker 1: joking about gas prices putting money back into people's pockets.
Speaker 1: But like it does seem that as these trends start
Speaker 1: to change, and you know, maybe services inflation is still
Speaker 1: going up but consumer goods inflation starts to fall, there
Speaker 1: is like a weird interaction that could start to happen
Speaker 1: where like you know, maybe people who work in the
Speaker 1: services industry are getting more money and so they start
Speaker 1: spending more on consumer goods again. Landing scenario. Well, there's
Speaker 1: like a real possibility. There are so many moving parts,
Speaker 1: you know. I was glad that you asked that question
Speaker 1: about international central banks because I thought that was John's
Speaker 1: you know, the year of divergence. You know, all the
Speaker 1: central banks have been sort of like rowing in the
Speaker 1: same direction, so to speak. This you know, they're all
Speaker 1: on inflation fighting mode, but in on this point, you know,
Speaker 1: you have these other countries where the economy is super
Speaker 1: rate sensitive because so many people have adjustable rate mortgages
Speaker 1: and so, like, you know, you could imagine Canada and
Speaker 1: the UK said, really economies really get hit by higher rates.
Speaker 1: But if you have this situation like you're you know,
Speaker 1: you just sort of described or actually the U S
Speaker 1: consumer hangs in there pretty well because they're all getting
Speaker 1: a price cut on gasoline and there isn't really that
Speaker 1: pass through from rates to mortgages the way there is here,
Speaker 1: and so you have weakness the rest of the world.
Speaker 1: It also made me wonder it's like, well, does that
Speaker 1: mean the dollars get a rise. We don't really talk
Speaker 1: markets much, but that would sort of possibly be an
Speaker 1: implication of other central banks feel like they have to
Speaker 1: cut rates or slow then faster while the feed is saying, look,
Speaker 1: us consumers are doing all right anyway, all kinds of
Speaker 1: interesting possibilities for there. Well. I also think the big
Speaker 1: wild card is what China does here because we've seen
Speaker 1: such a huge pivot on COVID nineteen restrictions. Are they
Speaker 1: going to pivot when it comes to monetary policy and
Speaker 1: fiscal stimulus as well? Like right, and then the question is,
Speaker 1: you know, the reopening we have as of right now,
Speaker 1: West Texas oil seventy seven. Last Friday it was around seventy,
Speaker 1: so we you know, we're trying to reopening and the
Speaker 1: gas cut, will that cause oil prices to go plenty
Speaker 1: of plenty of moving parts to the mac. Yeah, I
Speaker 1: was gonna say the theme of this episode is moving parts. Moving.
Speaker 1: The world is a complicated place, very much, So shall
Speaker 1: we leave it there? Let's leave it there. This has
Speaker 1: been another episode of the All Thoughts Podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway and
Speaker 1: I'm Joe Wisn'tal. You can follow me on Twitter at
Speaker 1: the Stalwart. Follow our guests on Twitter. Tim Dewey, He's
Speaker 1: at Tim Dewey. John Turrek he's at j Turk eighteen.
Speaker 1: Follow our producers Carmen Rodriguez at Carmen Armon and Dash
Speaker 1: Bennett at Dashbot, and check out all of our podcasts
Speaker 1: at Bloomberg under the handle at podcasts and from more
Speaker 1: odd Lots content. Go to bloomberg dot com slash odd Lots,
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Speaker 1: Should go there and subscribe. Thanks for listening.