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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brawmowitz Jaily. We bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,

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Speaker 1: and of course on the Bloomberg terminal. It's somewhat comforting

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Speaker 1: to know that is Mr Bostick, past economics and Harvard.

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Speaker 1: He also took a degree in psychology. That's perhaps helpful

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Speaker 1: at this moment. Very happy to say. Sitting alongside Olympex,

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Speaker 1: Mike mccag and morn to Mike, good morning to you John.

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Speaker 1: You guys are really depressing today. So maybe we'll ask

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Speaker 1: Rafael to use his psychiatric degree to try and cheer

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Speaker 1: you up or something. Rafael Bostic, President of the Atlanta

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Speaker 1: Fat thank you for joining us this morning. Wall Street

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Speaker 1: also depressed, as you heard there with the numbers that

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Speaker 1: they were just giving us. The question of two questions,

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Speaker 1: and everybody on Wall Street wants to know is how

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Speaker 1: far how fast? Uh? And so let me start with that.

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Speaker 1: Get the good stuff out of the way here. Um

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Speaker 1: is seventy basis points really off the table is fifty

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Speaker 1: fifty and maybe another fifty going to be good enough?

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Speaker 1: And then how high do you think you end up going.

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Speaker 1: First of all, good to see you, Mike. It's good

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Speaker 1: to have you here at our conference. It's it's always

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Speaker 1: a great time to be together. And when I think

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Speaker 1: about our policy, the first thing that is on my

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Speaker 1: mind is that inflation is too high and we need

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Speaker 1: to act definitively and purposefully to to try to get

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Speaker 1: that under control. And I think if you look at

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Speaker 1: what we've what we've done so far in the last

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Speaker 1: two meetings, we've really started that process. For me, fifty

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Speaker 1: basis points from over the last twenty years, you know,

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Speaker 1: as already pretty aggressive move I don't think we need

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Speaker 1: to be be moving even more aggressively. I think we

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Speaker 1: can stay at this, at this pace and as cadence

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Speaker 1: and really see how the markets evolve. My expectation and

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Speaker 1: hope really is that as we move closer to our

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Speaker 1: neutral levels UH and far away from our accommodative stands,

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Speaker 1: that we're gonna start to see a lot of the

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Speaker 1: tightness and the tension the economy start to moderate, which

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Speaker 1: can then give us options and choices as to sort

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Speaker 1: of what we do after that point. How far do

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Speaker 1: you go? Where do you think you'll be by say,

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Speaker 1: the end of the year, by the end of Well,

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Speaker 1: you know, that's a very good question. I really think

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Speaker 1: we need to be getting somewhere into the neutral range.

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Speaker 1: And as you know, um, different people have different ideas

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Speaker 1: about what that looks like. For me, I'm looking at

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Speaker 1: somewhere between two and two and a half percent as

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Speaker 1: our neutral range. Uh. And then then let's just wait

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Speaker 1: and see what's happening. Um. You know, in the in

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Speaker 1: the intro to the segment, a lot of discussions about

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Speaker 1: uncertainty or seth Carpenter reference reference. He's going to be here.

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Speaker 1: I'm really excited about that, uh saying it, there's a

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Speaker 1: lot of volatili a lot of stuff that's gonna play out.

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Speaker 1: So once we get to that neutral level, I think

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Speaker 1: that'll be fine. Um, we're gonna from my view, we're

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Speaker 1: gonna move a couple of times, maybe two, maybe three times.

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Speaker 1: See what happens, see how the economy responds, see if

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Speaker 1: inflation continues to move closer to our two percent target,

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Speaker 1: and then we can really take a pause, I think

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Speaker 1: and look at how things are going, well, take a pause.

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Speaker 1: What does that mean not move at a meeting or

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Speaker 1: would just be just a rolling decision as you go along.

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Speaker 1: So for me, I think all options are on the

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Speaker 1: table at every meeting. So depending on how the economy

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Speaker 1: is responding. It could be that the economy responding strongly,

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Speaker 1: so we don't need to do anything. It could be

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Speaker 1: that the economy is responding, uh, maybe a little less strong,

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Speaker 1: so we might move to twenty five basis points, or

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Speaker 1: we may stay at fifty. So I'm really going to

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Speaker 1: keep my mind open. I'm going to observe what happens

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Speaker 1: in the economy and then adapt my idea about what

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Speaker 1: appropriate policy looks like based on a knowledge A lot

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Speaker 1: of economists and many of your colleagues have said, you're

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Speaker 1: going to have to go beyond neutral, uh, to restrictive.

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Speaker 1: If you had a four percent inflation rate and a

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Speaker 1: three pent Fed funds rate, you've still got a negative

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Speaker 1: real Fed funds rate. Uh. Why don't you think that

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Speaker 1: you're going to have to do that? Well, my hope

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Speaker 1: is that a lot of the things that are really

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Speaker 1: out of our control, things like supply chain disruptions and

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Speaker 1: the like, are going to start to get to a

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Speaker 1: better place. We're gonna see how the labor market responds.

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Speaker 1: There's uh, there was a story just last week about

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Speaker 1: retirees coming back into the workplace. Those are things that

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Speaker 1: might relieve some of the tension that we're seeing in

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Speaker 1: labor markets and allow producers to start to increase the

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Speaker 1: supply there's supply of products that then reduces the imbalance

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Speaker 1: between demanded supply, because all of this inflation is about

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Speaker 1: an imbalance between the high demand and the low supply.

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Speaker 1: This out there. So if we can start to see

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Speaker 1: movement on the supply side, um, that means we'll have

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Speaker 1: to push less on demand and so that inflation I'm

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Speaker 1: hoping will come down. Now how fast we'll have to see,

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Speaker 1: and that will really determine whether we have to get

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Speaker 1: into restrictive territory, and if we do, how far. But

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Speaker 1: I'm totally open to that. But you know, I'll just say,

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Speaker 1: we've been doing surveys throughout the entire pandemic. Everyone has

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Speaker 1: come with predictions that have turned out not to be

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Speaker 1: the case. So I'm gonna trying to be as humble

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Speaker 1: as I can be, really just true to being in

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Speaker 1: the moment and trying not to anticipate too many steps

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Speaker 1: out in advance because there's just a lot of stuff

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Speaker 1: that's gonna happen. You heard the markets at the top

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Speaker 1: of the show. Does it worry you that we're seeing

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Speaker 1: such a rapid sell off and that market rates are

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Speaker 1: going up so quickly? So those are two different things.

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Speaker 1: So one, I think the moving market rates is actually

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Speaker 1: quite interesting because we've not moved very far in terms

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Speaker 1: of our policy rate, but the markets have responded extremely fast,

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Speaker 1: and uh, that I think is uh, that's really positive

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Speaker 1: from my view in the sense that they're taking on

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Speaker 1: board the policies that we've signaled and now we've just

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Speaker 1: got to deliver on that, and I think we're going

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Speaker 1: to do that. In terms of the volatility and equity markets,

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Speaker 1: you know. Uh, the one one of the things that

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Speaker 1: I found to be very interesting is as I talked

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Speaker 1: to a number of people, the range of forecasts about

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Speaker 1: what's going to happen over the next six months and

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Speaker 1: next twelve months has just really broadened considerably and that

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Speaker 1: will translate into I think higher volatility, and I think

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Speaker 1: some of what we're seeing right now has to do

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Speaker 1: with that. What would it take for you to have

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Speaker 1: to rescue the markets. A lot of people say, let's

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Speaker 1: just say the economy, not the markets. That you get

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Speaker 1: to two thousand twenty three, you might start cutting rates again. Well, look,

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Speaker 1: there's a lot of momentum in the economy right now.

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Speaker 1: We just had a job of support over four hundred

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Speaker 1: thousand jobs in the month. That kind of performance, uh

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Speaker 1: and the before times would have been a reason for

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Speaker 1: for celebration. So I think we can ride out a

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Speaker 1: lot of that more momentum even as we are raising rates.

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Speaker 1: And my hope is that we'll get to a place

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Speaker 1: where where we don't start to see breakdowns in labor

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Speaker 1: markets or other parts of the economy, so that we

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Speaker 1: won't have to worry about that. But just to be clear, look,

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Speaker 1: we are we are paying and I am paying attention,

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Speaker 1: and if necessary, we'll do whatever it takes to make

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Speaker 1: sure the economy stays on a solid path. Well, I know,

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Speaker 1: if I ask you about the recession probability, your job

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Speaker 1: is to say, no, I don't think that's going to

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Speaker 1: happen because you're at the Federal Reserve. But a lot

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Speaker 1: of your former colleagues, including Bill Dudley, UM and uh

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Speaker 1: Don Cone have said you cannot do this without inducing

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Speaker 1: a recession. Well, you know, I was interviewing Roger Ferguson

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Speaker 1: just last night and he said the same thing. So

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Speaker 1: so yes, I am hearing all of that, and I

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Speaker 1: understand that. I actually think that the thing we have

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Speaker 1: to just be mindful of is that this is it.

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Speaker 1: This context is nothing like we've ever seen in our

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Speaker 1: in my lifetime, in my my policy space, the pandemic

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Speaker 1: driven disruptions, we of a warren Ukraine. There are a

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Speaker 1: lot of things that are intersecting in ways that I

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Speaker 1: think make it really hard to know with any kind

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Speaker 1: of certainty where the economy is likely to go. So

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Speaker 1: I'm keeping my mind open. I'm I'm an optimist, but

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Speaker 1: a worried optimist. I worry all the time. And uh,

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Speaker 1: and so I'm just gonna pay attention to see where

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Speaker 1: things go. One last very quick question, and that is

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Speaker 1: it's an election year. Uh, there's a lot going on.

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Speaker 1: Do you feel any political pressure. I'm not feeling any pressure. Look,

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Speaker 1: we we have a clear job to do and that's

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Speaker 1: that's meet our dual mandate today. And the labor market

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Speaker 1: is doing fine. Inflation is where we really have a challenge,

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Speaker 1: and so we just need to do whatever it takes

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Speaker 1: to get that inflation under control. Raphael Bustick, thank you

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Speaker 1: very much for joining us this morning from the Financial

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Speaker 1: Markets Conference at Amelia Island, Florida, where everybody is back

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Speaker 1: together for the first time in a couple of years.

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Speaker 1: John and I hate it's beautiful to Mike, which is

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Speaker 1: why you're so happy and not so clue me because

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Speaker 1: you don't have to follow this market aid. Mike McKay,

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Speaker 1: Thank you, buddy. Right now we will migrate to Washington. Well, yeah,

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Speaker 1: did Emma joins us US Deputy Secretary of the Treasury

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Speaker 1: and far more someone who knows the minutia of sanctus. Well,

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Speaker 1: I want to cut to the chase, and not the broader,

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Speaker 1: bigger picture, but the details of the Office of Foreign

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Speaker 1: Assets Control. This goes back to Albert Gallatin the War

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Speaker 1: of eighteen twelve, and we drag it forward to some

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Speaker 1: two employees in the Office of Foreign Assets Control. What

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Speaker 1: are what does that office doing in Treasury to defeat

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Speaker 1: Mr Prutin, Well, thank you for asking about the career

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Speaker 1: civil servants who work in the Office of Foreign Assing

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Speaker 1: Control and today what they're doing is they're working to

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Speaker 1: target the Russian military industrialized complex. They've taken a number

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Speaker 1: of steps all ready to go after the Russian financial

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Speaker 1: system and we've seen their economy is contract contracting by

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Speaker 1: more than ten percent and due to that, and now

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Speaker 1: we're focused on making sure that any money that remains

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Speaker 1: in Russia can't be used to further build out their

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Speaker 1: military industrialized complex and be able to fight the war

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Speaker 1: in Ukraine today because the actions the Office of the

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Speaker 1: Foretnance of Control has taken, the two top tank makers

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Speaker 1: in Russia aren't functioning because they can't get access to

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Speaker 1: the goods and the services they need to do the

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Speaker 1: work that they're doing. And yesterday we sanctioned some of

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Speaker 1: their top military companies as well. Well, what's so important

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Speaker 1: here is we you know, the media is there's a yacht,

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Speaker 1: it's Mr Prutin's yacht, or it's somebody else's yacht, and

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Speaker 1: we've got all the silliness about boats flowing floating around

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Speaker 1: in that office. Did they call up, say a manufacturer

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Speaker 1: in Poland and say, wait, you can't do that, or

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Speaker 1: are they just domiciled in America? So what we've done

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Speaker 1: is that not only have we taken actions by talking

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Speaker 1: directly to the financial system and making sure that they're

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Speaker 1: aware that they can't provide services to the people who

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Speaker 1: helped build those yachts or help fuel those But we've

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Speaker 1: done this action in collaboration coordination with our allies and partners.

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Speaker 1: So not only can you not domassile your yacht in

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Speaker 1: the United States, but across the G seven, across thirty

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Speaker 1: countries have taken these actions. And what we've also said

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Speaker 1: is that if you happen to get your off to

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Speaker 1: another country and in that country, you're able to find

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Speaker 1: a company that will provide you with services. If that

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Speaker 1: company provides you with material support, we're also going to

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Speaker 1: sanction them as well. Well. We we're at a time

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Speaker 1: we're we're dealing with the idea of sanctions on Russia,

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Speaker 1: but also the idea of incredible inflation and possibly removing

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Speaker 1: certain Trump era tariffs on China in order to reduce

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Speaker 1: those inflationary pressures. How actively is the Treasury Department discussing

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Speaker 1: some of those types of removals at a time when

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Speaker 1: people are wondering about the U. S. China relationship in

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Speaker 1: light of what's happening with Russia. So our goal is

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Speaker 1: always to make sure that we're making trade policy in

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Speaker 1: a manner that's consistent with our overarching goals. And what

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Speaker 1: we're doing is working closely with the U. S. Trade

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Speaker 1: Representative and the rest of the President's Cabinet to make

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Speaker 1: sure that we have an approach with China that um

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Speaker 1: puts front and center of America's interest and not just

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Speaker 1: America's interest. When you look at the issues we have

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Speaker 1: with China, there issues that other countries have as well.

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Speaker 1: So working closely, as the President said, with our allies

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Speaker 1: and partners, as we think about our China strategy going forward,

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Speaker 1: what do you think is going to be uh the

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Speaker 1: next step with respect to additional pressure put on Russia,

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Speaker 1: especially given some of the inflation that we're seeing, the

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Speaker 1: reality is the one you think about what Russia is

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Speaker 1: doing in Ukraine. It is a key contributor to some

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Speaker 1: of the price increases that we're seeing both in energy

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Speaker 1: and in food. Today, Russia and ships are blocking the

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Speaker 1: ability of food to get out of Ukraine because of

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Speaker 1: Russia's actions. You've seen energy prices rise because the geopolitical uncertainty.

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Speaker 1: So what we're trying to do with our sanctions is

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Speaker 1: to end that invasion as quickly as possible. And what

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Speaker 1: we're gonna go next is we're going to continue to

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Speaker 1: put pressure on their financial system. We're gonna go after

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Speaker 1: their military industrialized complex so that Russia doesn't have the

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Speaker 1: arms they need to continue the war in Ukraine, but

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Speaker 1: also so they can't project power into the future and

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Speaker 1: continue to destabilize the region in the world. We've got

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Speaker 1: reports on the Bloomberg terminal wally that Russia is seeing

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Speaker 1: at twelve contraction. Do you have any idea or can

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Speaker 1: you model out what form of contraction you visualize? Can

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Speaker 1: it be negative eighteen percent? Can we get there? So

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Speaker 1: what we know today based on what the IMATH and

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Speaker 1: what others have told us, is that Russia has lost

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Speaker 1: about fifth the last fifteen years of economic growth due

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Speaker 1: to the sanctions we've imposed on them today. And that's

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Speaker 1: not even talking about the inflation that is going through

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Speaker 1: their economy. The truth is that Russia now has to

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Speaker 1: make choices, and that's exactly what we want them to do,

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Speaker 1: to have to choose between using their resources to prop

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Speaker 1: up their economy or to fight their war in Ukraine,

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Speaker 1: and we want to continue to make that choice even

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Speaker 1: harder by continuing to level sanctions until the invasion ends

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Speaker 1: from you as always come back soon. Well at Yama Dad,

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Speaker 1: the U S Deputy Secretary of the tracery. Right now,

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Speaker 1: what we're gonna do here is look at what is

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Speaker 1: in Michael Rosenberg's absolutely classic textbook Currency Forecasting. If you'd

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Speaker 1: like to buy it, it's two hardcover edition, if you

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Speaker 1: can find a copy out on Amazon, out on eBay. George,

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Speaker 1: Sarah Ellis knows Michael Rosenberg is one of the founding

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Speaker 1: heroes of current currency forecasting, and Sarah Ellis goes all Rosenberg, George,

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Speaker 1: I'm absolutely thunderstruck by your behavioral analysis right now, and

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Speaker 1: now it folds into FX. Explain the behavior you're studying

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Speaker 1: that gets you to a call on euro, that gets

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Speaker 1: you to a call on dollar. So I think, Tom,

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Speaker 1: we just need to start from the global growth environment,

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Speaker 1: and that's really what's been driving the market over the

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Speaker 1: last few weeks. And you have a perfect storm of

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Speaker 1: weakening global growth in all regions. So in the U

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Speaker 1: S you have this huge idiosyncratic tightening off my for conditions.

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Speaker 1: In Europe we have the war, and I think what

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Speaker 1: broke um the straw that broke the camel's back, so

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Speaker 1: to speak, was the China COVID lockdowns Shanghai UM now

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Speaker 1: potentially in Beijing. So you have all of the three

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Speaker 1: world's biggest economies suffering from these shocks at the same time,

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Speaker 1: and the market's bringing down growth expectations. And that's really

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Speaker 1: what's what's driving things at the moment, including the US dollar,

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Speaker 1: because you have the situation of lower global growth, but

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Speaker 1: at the same time US real rate arising very significantly,

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Speaker 1: and that's what's been supporting the stronger dollar over the

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Speaker 1: last few weeks. If we're thinking about what would change that,

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Speaker 1: we need to see an inflection in either of those

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Speaker 1: three dynamics, So either China, Europe or the US to

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Speaker 1: change the current market environment and narrative, George, if you

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Speaker 1: change the eurodolloical at the moment, I'm actually still keeping

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Speaker 1: my optimistic euro forecast because I think John, the market

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Speaker 1: is too pessimistic on Europe looking out through the next

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Speaker 1: three to six months. If you take a look at

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Speaker 1: and there's a number of things the market's underestimating. The

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Speaker 1: first one is fiscal policy. Everyone's talking about this big

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Speaker 1: income shock in Europe which is bringing incomes down, but

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Speaker 1: if you crunch the numbers, more than half of the

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Speaker 1: income shock is being offset because Europe is easing fiscal

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Speaker 1: um and that's not what's going on in the rest

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Speaker 1: of the world, and it will continue to do so

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Speaker 1: through next year. Then you've got the reopening dynamic. Europe

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Speaker 1: never reopened after the omicron wave. The services sector never reopened,

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Speaker 1: and that's exactly why. If you look at the services

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Speaker 1: p MZ, they're holding up much better than expected. And

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Speaker 1: then finally you've got the labor market. Um. The European

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Speaker 1: labor market is actually stronger than the US, the unemployment

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Speaker 1: rates that record lows, So we think the ECB goes

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Speaker 1: in July. I think the market has become too pessimistic

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Speaker 1: and growth expectations. If you look at equity earnings globally

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Speaker 1: over the last few weeks, Europe has actually got the

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Speaker 1: best forward earnings guidance out there, much better than the US,

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Speaker 1: much better than e m UM. So I think that

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Speaker 1: euro will end up rebounding by the end of the

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Speaker 1: year in the second half. What's the catalyst, George, Given

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Speaker 1: it all of what you're saying is already known, So

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Speaker 1: I think it's interesting because if you look at price action,

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Speaker 1: you are starting to see the Euro turn across a

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Speaker 1: number of other currencies. So for example, it's a risk

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Speaker 1: of environment, but euro Swiss is now up on the year.

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Speaker 1: You're a sterling is starting to turn, so you are

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Speaker 1: under the hood, so to speak, starting to see euro

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Speaker 1: out performance. I think you need a couple of catalysts

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Speaker 1: to get that translated into the dollar. Firstly, the ECB

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Speaker 1: coming interview, actually starting to high rate UM. The market

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Speaker 1: has been responding with lags to Montree policy re pricings.

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Speaker 1: So if you think about the dollar strength, we've known

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Speaker 1: the Fed is titening with known defects doing QT for

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Speaker 1: quite a while, but it's really now that the dollars responded,

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Speaker 1: and I think you can see some of that lack

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Speaker 1: of response in Europe. So the ECB coming interview, UM,

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Speaker 1: and partectually just some easing in all these shot downward

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Speaker 1: shifts to growth expectations that are supporting the dollar. George,

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Speaker 1: this has been a really tough trade. I really appreciate

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Speaker 1: if we could catch up again in the next couple

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Speaker 1: of weeks, just to reset ahead of the e CP

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Speaker 1: in about a month's time, because this one has been

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Speaker 1: really difficult for a lot of people. George Santa velis

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Speaker 1: there of Deutsche Bank. In Shepherdson passes the American economy

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Speaker 1: like No One's chief economists of Pantheon macro Economics and

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Speaker 1: enjoins us for a recalibration this morning. Ian, we just

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Speaker 1: spoke to Raphael Bostic, who gave us the FED line

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Speaker 1: from Atlanta of the good news out there were in control,

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Speaker 1: we have options. How much in control are our central bankers? Well,

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Speaker 1: maybe a bit more than markets think. Actually, of course,

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Speaker 1: you know, they would always say they're in control because

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Speaker 1: if there's anything else and all, and the last few

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Speaker 1: months have been the last thing must have been very

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Speaker 1: difficult for them, you know, inflation hitting some really big spikes.

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Speaker 1: But we're probably hit the peak. And my guess is

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Speaker 1: when we get CPI numbers later this week, they're going

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Speaker 1: to look significantly better year of a year, maybe month

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Speaker 1: to month as well, and then the next few months

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Speaker 1: that good news should continue. So I think they're going

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Speaker 1: to be able to tell a story later in the

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Speaker 1: summer of hey, you know what we've done is working.

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Speaker 1: Of course, what's actually happening is a very favorable base

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Speaker 1: effects are kicking in and that will bring inflation down.

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Speaker 1: Then I think they're hoping that the downshift that we

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Speaker 1: seem to be getting in the wage numbers in the

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Speaker 1: last few months will persist and that will help them

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Speaker 1: through the end of the year with some some genuine

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Speaker 1: downshifting services inflation still some big question marks there, but

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Speaker 1: the last few months data i'm guessing have been better

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Speaker 1: than they expected. How important to the late summer into

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Speaker 1: the end of the year view is escaping the Chinese lockdown? Well,

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Speaker 1: you know that's that's a big deal for some small sectors.

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Speaker 1: You know, the the U s c p I is

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Speaker 1: primarily as domestic service price index with a few goods

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Speaker 1: in it. Now quite a lot of those goods are

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Speaker 1: China sensitive, so things like clothing, footwear, furniture, appliances, household electronics.

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Speaker 1: But you add those things together and you're still looking

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Speaker 1: at less than a tenth of the index. So if

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Speaker 1: we're getting some meaningful disinflation in in some of those

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Speaker 1: other components that I think will offset the supply disruption story.

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Speaker 1: Plus we've got some extremely favorable based effects in the

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Speaker 1: in the vehicle component, which will be pretty much a

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Speaker 1: done deal to be a big downward shove to the

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Speaker 1: year of a year numbers. So actually the China thing

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Speaker 1: is not helpful, But I don't think it's a game

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Speaker 1: changer as long as it doesn't get completely out of control.

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Speaker 1: And we're teasing out your view here. Let's really highlight it.

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Speaker 1: A lot of people that can census for you, because

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Speaker 1: FED chair Jpal basically clarified it fifty at the next meeting,

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Speaker 1: fifty after that. Have you got any doubt around that

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Speaker 1: second fifty and if you have, can you explain it? Yeah?

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Speaker 1: I mean the first fifty in June I think is

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Speaker 1: have done. You're borrowing some sort of sky falling in moment.

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Speaker 1: But July, you know, by July will have had three

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Speaker 1: CPI reports, all of which will show inflation dropping by

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Speaker 1: about half a point per month. We'll have also seen

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Speaker 1: three more months of housing data. And this is where

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Speaker 1: I have a really big gripe with the media narrative

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Speaker 1: that the US housing market is still booming, because it isn't.

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Speaker 1: Mortgage demand is absolutely cratering. I mean rates have gone

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Speaker 1: from three to five and a quarter. There's no way

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Speaker 1: the market could take that. And every week we get

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Speaker 1: mortgage applications numbers and they're terrible. I mean, applications fell

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Speaker 1: in April alone, no sign of a bottom. There's still

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Speaker 1: haven't fully responded to the peak in rates yet. And

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Speaker 1: my guess is over the next few months of springing

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Speaker 1: into the summer, we're going to see people some really

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Speaker 1: startlingly weak numbers on home sales, suggesting that the market

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Speaker 1: has really roll them over. I just wonder in July

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Speaker 1: whether the Fed will have the stomach after three good

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Speaker 1: inflation reports as well to do another fifty, and whether

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Speaker 1: the market will want them to do another fifty against

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Speaker 1: that backdrop. So there's a lot to play for over

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Speaker 1: the next few months. But but I do think that

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Speaker 1: two of those very important things, inflation and housing, are

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Speaker 1: going to be telling the FED. Maybe you know, you

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Speaker 1: can switch back the twenty a bit sooner. Are you

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Speaker 1: questioning the journey to to to fifty? Are you questioning

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Speaker 1: the ultimate destination of getting to to to fifty? Here? Ian, No,

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Speaker 1: I'm not. I mean my beef with markets, as they've

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Speaker 1: got far too aggressive on the speed that the FED

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Speaker 1: needs to go. I'm not certainly, I'm not arguing at

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Speaker 1: all with the idea that race need to be significantly higher.

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Speaker 1: And I actually think they'll be raising rates again in

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Speaker 1: twenty three and twenty four because the neutral rate will

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Speaker 1: be rising on the back of stronger productivity. And that's

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Speaker 1: a different story to raising rates because you've got behind

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Speaker 1: and inflation is rampant and everyone's panicking. That's that's this

430
00:22:35,560 --> 00:22:37,800
Speaker 1: year's story. But next year story, you know, I could

431
00:22:37,800 --> 00:22:41,080
Speaker 1: see rates going significantly higher really across the whole curve.

432
00:22:41,600 --> 00:22:43,879
Speaker 1: So my my beef with markets has been maybe too

433
00:22:43,920 --> 00:22:46,440
Speaker 1: aggressive for the short term and not thinking enough about

434
00:22:46,440 --> 00:22:48,960
Speaker 1: what might happen next year as well, a different glide path.

435
00:22:49,040 --> 00:22:51,639
Speaker 1: But but nonetheless, you know, a rising rate environment, a

436
00:22:51,680 --> 00:22:55,080
Speaker 1: normalization if you like, after such a long period new

437
00:22:55,160 --> 00:22:58,040
Speaker 1: decades of falling rates are real rates across the whole curve,

438
00:22:58,119 --> 00:23:01,439
Speaker 1: Maybe we're moving back to something recognizable normal. And I'm

439
00:23:01,480 --> 00:23:04,160
Speaker 1: wrapping my head around the scenario that you're portraying. We're

440
00:23:04,200 --> 00:23:08,040
Speaker 1: basically wages start decelerating, and that is actually one of

441
00:23:08,080 --> 00:23:11,080
Speaker 1: the key drivers in addition to housing that causes a

442
00:23:11,160 --> 00:23:14,199
Speaker 1: deceleration in inflation. Is this a good thing? Does this

443
00:23:14,280 --> 00:23:16,480
Speaker 1: lead to something that is positive for the foot or

444
00:23:16,520 --> 00:23:20,440
Speaker 1: something that sounds stagflationary because we still have the base

445
00:23:20,760 --> 00:23:26,560
Speaker 1: effects of what's going on with supply supply chain disruptions. Yeah.

446
00:23:26,600 --> 00:23:28,679
Speaker 1: I mean, from the first perspective, the wage numbers that

447
00:23:28,680 --> 00:23:30,920
Speaker 1: we saw last summer, when they were running annualized above

448
00:23:30,960 --> 00:23:33,240
Speaker 1: six percent, that was not sustainable. That's scared the pants

449
00:23:33,280 --> 00:23:35,879
Speaker 1: off them, you know. Chap how said that very clearly.

450
00:23:36,240 --> 00:23:38,080
Speaker 1: Where we are now in the last few months, it

451
00:23:38,119 --> 00:23:41,040
Speaker 1: looks as so tentatively, wedge growth could be settling down

452
00:23:41,040 --> 00:23:43,520
Speaker 1: at something like four or maybe the high threes. Now,

453
00:23:43,560 --> 00:23:45,359
Speaker 1: that is faster than we saw at any point in

454
00:23:45,400 --> 00:23:48,080
Speaker 1: the last cycle, but that was a very unusual cycle.

455
00:23:48,560 --> 00:23:50,800
Speaker 1: Wage growth at that pace would be normal for previous

456
00:23:50,800 --> 00:23:54,000
Speaker 1: cycles and would be consistent with the inflation target if

457
00:23:54,000 --> 00:23:56,159
Speaker 1: productivity growth just picks up a little bit. So it's

458
00:23:56,240 --> 00:23:59,080
Speaker 1: kind of a sweet spot if we can engineer it

459
00:23:59,320 --> 00:24:02,159
Speaker 1: against this drop of chaos from China and all the

460
00:24:02,200 --> 00:24:04,040
Speaker 1: other stuff that's going on as well. But if I

461
00:24:04,080 --> 00:24:06,240
Speaker 1: were at the FED thinking about inflation, you know, one

462
00:24:06,280 --> 00:24:08,560
Speaker 1: to two years down the line, I would be thinking,

463
00:24:08,600 --> 00:24:10,800
Speaker 1: if wage growth settles at three and a half to

464
00:24:10,840 --> 00:24:13,080
Speaker 1: four percent, I'd be really pretty happy, because it's not

465
00:24:13,119 --> 00:24:15,280
Speaker 1: what I was imagining three months ago. I was thinking

466
00:24:15,320 --> 00:24:18,359
Speaker 1: of five plus, and that's a much more scary place

467
00:24:18,400 --> 00:24:21,640
Speaker 1: to be. So it's it's it's a plausible, applausible end point,

468
00:24:21,640 --> 00:24:24,600
Speaker 1: but it's not yet certain. I apologize to Harp on this,

469
00:24:25,040 --> 00:24:27,520
Speaker 1: But is it the absolute number or is it real wages?

470
00:24:27,720 --> 00:24:30,119
Speaker 1: This idea? I hear Tom laughing, But this to me,

471
00:24:30,200 --> 00:24:33,320
Speaker 1: it's sort of a relative kind of equation here in

472
00:24:33,440 --> 00:24:37,080
Speaker 1: terms of wage gains versus the cost of goods. Because

473
00:24:37,080 --> 00:24:39,639
Speaker 1: if you're only getting a three percent wage increase but

474
00:24:39,680 --> 00:24:42,119
Speaker 1: the cost of goods are surging at ten percent, this

475
00:24:42,200 --> 00:24:44,280
Speaker 1: isn't looking very good for the American public, and it

476
00:24:44,280 --> 00:24:49,320
Speaker 1: doesn't necessarily look good in terms of consumer dynamism. Well,

477
00:24:49,359 --> 00:24:51,560
Speaker 1: you gotta remember that the US household sector is sitting

478
00:24:51,560 --> 00:24:53,359
Speaker 1: on three and a half trillion dollars of cash that

479
00:24:53,359 --> 00:24:56,159
Speaker 1: it accumulated during COVID, which is about fourteen percent of

480
00:24:56,200 --> 00:24:59,040
Speaker 1: GDP cash. That's not taking account of the rising home

481
00:24:59,040 --> 00:25:01,960
Speaker 1: prices or the rising in other asset prices like stocks

482
00:25:01,960 --> 00:25:05,440
Speaker 1: and everything else. That's a gigantic cushion when you set

483
00:25:05,440 --> 00:25:07,240
Speaker 1: against you know, having to spend a couple of hundred

484
00:25:07,240 --> 00:25:09,480
Speaker 1: billion dollars a year more on on food and energy.

485
00:25:09,560 --> 00:25:12,359
Speaker 1: So the overall the household sector is in pretty great shape.

486
00:25:12,400 --> 00:25:14,960
Speaker 1: There are some questions of distribution, who has this money,

487
00:25:15,000 --> 00:25:18,439
Speaker 1: who doesn't have it, But overall the household sectors in

488
00:25:18,520 --> 00:25:21,000
Speaker 1: really good shape. And of course, remember if the CPI

489
00:25:21,119 --> 00:25:23,600
Speaker 1: numbers are going to moderate too to core prints a

490
00:25:23,680 --> 00:25:25,760
Speaker 1: point two or point three over the next few months,

491
00:25:25,920 --> 00:25:28,320
Speaker 1: then real way to growth stops falling more or less immediately.

492
00:25:28,320 --> 00:25:30,760
Speaker 1: I mean, for example, this week the CPI is going

493
00:25:30,800 --> 00:25:32,199
Speaker 1: to be a point more or a point two at

494
00:25:32,200 --> 00:25:34,560
Speaker 1: the headline level well wage growth this month there's going

495
00:25:34,600 --> 00:25:36,159
Speaker 1: to be a point three or a point four. So

496
00:25:36,440 --> 00:25:38,560
Speaker 1: we're past the worst of it. It's not great, and

497
00:25:38,560 --> 00:25:40,360
Speaker 1: the year of year it's down, a real income growth

498
00:25:40,480 --> 00:25:43,200
Speaker 1: is down, but we're moving into i think, a better position.

499
00:25:43,240 --> 00:25:46,880
Speaker 1: And we do have this gigantic cushion of accumulated savings

500
00:25:46,960 --> 00:25:49,439
Speaker 1: and the transfers of the federal government made under COVID,

501
00:25:49,680 --> 00:25:51,760
Speaker 1: and that makes this income squeeze from food and energy

502
00:25:51,760 --> 00:25:54,960
Speaker 1: prices very different to previous experience when that cushion just

503
00:25:55,040 --> 00:25:58,360
Speaker 1: wasn't there. And take your optimism and this has been

504
00:25:58,480 --> 00:26:02,639
Speaker 1: hugely beneficial within the loom. Chake your optimism over an

505
00:26:02,880 --> 00:26:11,159
Speaker 1: export in import dynamics for America, well, we've seen some

506
00:26:11,480 --> 00:26:14,439
Speaker 1: insane import numbers over the last few months, which was

507
00:26:14,440 --> 00:26:16,800
Speaker 1: a big drag on growth in the first quarter. But

508
00:26:16,800 --> 00:26:18,800
Speaker 1: but I'm I'm I'm guessing, and looking at the data,

509
00:26:18,800 --> 00:26:22,640
Speaker 1: it seems pretty clear that this is substantially because domestic retailers,

510
00:26:22,640 --> 00:26:25,920
Speaker 1: domestic wholesales are rebuilding inventry after really struggling during the

511
00:26:26,359 --> 00:26:29,640
Speaker 1: peak good spending frenzy of COVID. So this won't last

512
00:26:29,680 --> 00:26:31,800
Speaker 1: for much longer. I mean, we've seen record trade deficits

513
00:26:31,800 --> 00:26:34,919
Speaker 1: in the last few months. That's completely unsustainable, and my

514
00:26:34,960 --> 00:26:36,520
Speaker 1: guess is that the trade numbers will be a lot

515
00:26:36,600 --> 00:26:39,280
Speaker 1: quieter over the next few months. That's on the import side.

516
00:26:39,280 --> 00:26:40,840
Speaker 1: On the export side, we're going to struggle for the

517
00:26:40,880 --> 00:26:43,200
Speaker 1: foreseeable future because the dollar has shot to the moon,

518
00:26:43,600 --> 00:26:46,920
Speaker 1: Europe teetering on the edge of recession, China's in chaos. Yes,

519
00:26:46,960 --> 00:26:49,359
Speaker 1: it's not a great environment to be an exporter. But again,

520
00:26:49,520 --> 00:26:52,880
Speaker 1: remember the U S economy overall is primarily a domestic

521
00:26:52,920 --> 00:26:55,639
Speaker 1: services economy that applies to growth just as much as

522
00:26:55,680 --> 00:26:57,800
Speaker 1: it applies to inflation. You know, I'd like to see

523
00:26:57,800 --> 00:26:59,840
Speaker 1: strong exports, but it's not the end of the world

524
00:26:59,880 --> 00:27:02,360
Speaker 1: if they don't happen, And certainly for the next few months.

525
00:27:02,400 --> 00:27:03,960
Speaker 1: It's going to be difficult. And we did this whole

526
00:27:03,960 --> 00:27:07,200
Speaker 1: interview with that talking about Newcastle United. We did. Wasn't

527
00:27:07,200 --> 00:27:09,600
Speaker 1: that a beautiful thing? Tom? I think he owes us

528
00:27:09,680 --> 00:27:12,640
Speaker 1: for that. Did you watch that game t K yesterday?

529
00:27:13,640 --> 00:27:17,280
Speaker 1: That was special fancy Not so much for Newcastle United.

530
00:27:17,920 --> 00:27:20,240
Speaker 1: Special summer maybe coming up in the transfer market. And

531
00:27:20,280 --> 00:27:22,320
Speaker 1: we'll leave it there. We'll catch up soon in Shepherds

532
00:27:22,359 --> 00:27:31,520
Speaker 1: and there of pantheons economies. Now from the College of

533
00:27:31,520 --> 00:27:34,800
Speaker 1: the Holy Cross, Cynthia Whoper joins Director of Russian and

534
00:27:34,840 --> 00:27:38,399
Speaker 1: European Studies with some terrific work out of the Harvard

535
00:27:38,400 --> 00:27:42,920
Speaker 1: Princeton Combine on Russia and on over the years. Cynthia,

536
00:27:43,080 --> 00:27:47,960
Speaker 1: this from the great leader today, you're defending what our fathers,

537
00:27:48,240 --> 00:27:53,359
Speaker 1: grandfathers and great grandfathers fought for. The bottom line is

538
00:27:53,400 --> 00:27:57,280
Speaker 1: there is a conflation here rhetorically of the Nazis and

539
00:27:57,400 --> 00:28:03,280
Speaker 1: a special military operation. What is next in this resurrection

540
00:28:03,480 --> 00:28:09,240
Speaker 1: of the Nazis of World War Two? Well, watching UM

541
00:28:09,359 --> 00:28:12,600
Speaker 1: Russia's Victory Day celebrations earlier this morning, as I'm in

542
00:28:12,680 --> 00:28:16,400
Speaker 1: Germany right now, UM, I was just struck by Putin's

543
00:28:16,359 --> 00:28:20,000
Speaker 1: speech to the troops because of some astonishing things that

544
00:28:20,040 --> 00:28:23,639
Speaker 1: he said that maybe American audiences wouldn't pick up on immediately,

545
00:28:23,680 --> 00:28:26,280
Speaker 1: but certainly are very clear to Russian domestic audiences and

546
00:28:26,359 --> 00:28:30,160
Speaker 1: to Europeans. Um. Above all, Putin actually drew an implicit

547
00:28:30,200 --> 00:28:34,720
Speaker 1: comparison between UH, the Nazi regime under the Third Reich

548
00:28:34,800 --> 00:28:37,920
Speaker 1: in their ideology of racial superiority, and the United States

549
00:28:38,000 --> 00:28:42,680
Speaker 1: after with what Putin claimed was its ideology of political

550
00:28:42,680 --> 00:28:47,640
Speaker 1: and economic exceptionality. And Putin acts actually said that the

551
00:28:47,760 --> 00:28:50,640
Speaker 1: United States has been humiliating the rest of the world

552
00:28:50,840 --> 00:28:54,840
Speaker 1: and even its own European allies who have to lap

553
00:28:54,960 --> 00:29:00,600
Speaker 1: up this rhetoric of superiority and um and. Putin also

554
00:29:00,760 --> 00:29:06,280
Speaker 1: went on to um assure his domestic audience that Russia

555
00:29:06,600 --> 00:29:11,000
Speaker 1: in nineteen forty five and again today is acting only

556
00:29:11,040 --> 00:29:16,520
Speaker 1: in self defense. He said that UH that actually Russia

557
00:29:16,560 --> 00:29:20,880
Speaker 1: had approached the United States wanted to talk about global security.

558
00:29:21,080 --> 00:29:24,680
Speaker 1: Ben rejected, and that Russian intelligence had discovered that the

559
00:29:24,760 --> 00:29:27,600
Speaker 1: United States was planning an invasion, so Russia had no

560
00:29:27,680 --> 00:29:30,800
Speaker 1: choice but to invade the heritage of Holy Cross. Besides

561
00:29:30,840 --> 00:29:34,120
Speaker 1: giving us dr fauci is to put put religion within

562
00:29:34,160 --> 00:29:38,080
Speaker 1: the calculus of our international relations. We've talked very little

563
00:29:38,160 --> 00:29:42,840
Speaker 1: Dr Hooper about this idea of the Greek Orthodox Church,

564
00:29:42,920 --> 00:29:46,000
Speaker 1: the Eastern Church, if you will, the Church of Kiev,

565
00:29:46,080 --> 00:29:50,000
Speaker 1: in the Church of Moscow. How does religion fold into

566
00:29:50,000 --> 00:29:55,200
Speaker 1: the framework that Mr Putin has in his mind. Well,

567
00:29:55,240 --> 00:29:58,480
Speaker 1: if you talked to the Ukrainian Church, they would stress

568
00:29:58,520 --> 00:30:02,560
Speaker 1: that there's actually a significan can schism between Ukrainian and

569
00:30:02,640 --> 00:30:07,200
Speaker 1: Russian Orthodoxy. But again, Putin his speech today listed a

570
00:30:07,240 --> 00:30:11,120
Speaker 1: whole number of cities that he started courageously resisted the Nazis,

571
00:30:11,160 --> 00:30:14,280
Speaker 1: and these cities are located in what today are Russia,

572
00:30:14,480 --> 00:30:18,840
Speaker 1: Ukraine and Belarussia. And Putin referred to a spiritual unity

573
00:30:18,880 --> 00:30:21,800
Speaker 1: that binds these places together, which he implied is much

574
00:30:21,840 --> 00:30:26,400
Speaker 1: stronger than any kinds of contemporary ideas of national sovereignty.

575
00:30:26,600 --> 00:30:28,920
Speaker 1: In the meantime, what we see some sort of spiritual

576
00:30:29,000 --> 00:30:31,720
Speaker 1: unity at least when it comes to trade between Russia

577
00:30:31,800 --> 00:30:34,960
Speaker 1: and China. How does that nexus fit into what you're

578
00:30:34,960 --> 00:30:42,560
Speaker 1: talking about? Well, um Putin is emphasizing actually that Russia

579
00:30:42,880 --> 00:30:47,560
Speaker 1: is right now standing for UH together with the majority

580
00:30:47,560 --> 00:30:52,600
Speaker 1: of the world's population in resisting United States domination. And

581
00:30:52,680 --> 00:30:56,880
Speaker 1: so he talks a lot about um UH, China, but

582
00:30:57,000 --> 00:31:01,160
Speaker 1: also India and Africa not supporting say actions against Russia.

583
00:31:01,240 --> 00:31:04,000
Speaker 1: He stresses that that is where the majority of the

584
00:31:04,000 --> 00:31:07,520
Speaker 1: world's population lives. And he also emphasizes, just as he

585
00:31:07,520 --> 00:31:12,400
Speaker 1: did in two thousand fourteen um when Russia first occupied

586
00:31:12,440 --> 00:31:17,400
Speaker 1: the Crimea, that if Europe is going to um uh

587
00:31:17,760 --> 00:31:22,160
Speaker 1: cut Russia off with sanctions, Russia doesn't need to worry

588
00:31:22,160 --> 00:31:26,160
Speaker 1: about that. Russia can make new alliances with developing nations

589
00:31:26,200 --> 00:31:29,960
Speaker 1: the brick countries and particularly look used for towards China.

590
00:31:30,320 --> 00:31:32,680
Speaker 1: Do you have a sense of what the popular opinion

591
00:31:32,800 --> 00:31:34,680
Speaker 1: is at a time when there is a growing sense

592
00:31:34,720 --> 00:31:37,160
Speaker 1: that people are trying to get news through VPNs and

593
00:31:37,200 --> 00:31:41,520
Speaker 1: not necessarily through the traditional mainstream of the Kremlin controlled

594
00:31:41,560 --> 00:31:45,720
Speaker 1: media in Russia. Yeah, great question. It's very hard to

595
00:31:45,760 --> 00:31:48,720
Speaker 1: gauge popular support for Putin right now. The current polls

596
00:31:48,800 --> 00:31:51,800
Speaker 1: do show his popularity rising when most recent number was

597
00:31:51,880 --> 00:31:54,680
Speaker 1: eighty one point five percent, but there's reason to be

598
00:31:54,920 --> 00:31:58,840
Speaker 1: skeptical about such figures. And also um Western analytics say

599
00:31:58,840 --> 00:32:02,920
Speaker 1: that fully one heard of Russia's Internet users have downloaded

600
00:32:02,920 --> 00:32:05,800
Speaker 1: at least one VPN, which allows them to, you know,

601
00:32:05,840 --> 00:32:07,960
Speaker 1: act as if they're logging in from another country and

602
00:32:08,000 --> 00:32:13,600
Speaker 1: thus evade Russian um government restrictions on internet usage. UM. Also,

603
00:32:13,640 --> 00:32:17,280
Speaker 1: according to whatever statistics you look at, somewhere between three

604
00:32:17,360 --> 00:32:20,560
Speaker 1: hundred thousand to one million Russians have left the country

605
00:32:20,560 --> 00:32:22,600
Speaker 1: because they don't want to be accused of collaborating with

606
00:32:22,600 --> 00:32:26,440
Speaker 1: the Putin regime, and these are college educated professionals. Um.

607
00:32:26,480 --> 00:32:29,720
Speaker 1: At the same time, I think that many many Russians

608
00:32:29,720 --> 00:32:31,640
Speaker 1: who are left in the country, all the ones that

609
00:32:31,720 --> 00:32:33,440
Speaker 1: I know that remain in the country, which is a

610
00:32:33,480 --> 00:32:35,720
Speaker 1: decreasing number, they're kind of doing what a lot of

611
00:32:35,760 --> 00:32:39,280
Speaker 1: Germans did during the days of the Hitler regime before

612
00:32:39,320 --> 00:32:43,880
Speaker 1: World War Two. Actually um uh started. They're retreating into

613
00:32:43,920 --> 00:32:47,120
Speaker 1: the private sphere. One thing that you didn't see on

614
00:32:47,200 --> 00:32:50,440
Speaker 1: Russian TV during these Victory Day celebrations, where a lot

615
00:32:50,480 --> 00:32:54,800
Speaker 1: of pictures of huge crowds outside Red Square, and all

616
00:32:54,800 --> 00:32:57,280
Speaker 1: the people I know have actually taken the last two

617
00:32:57,320 --> 00:33:00,280
Speaker 1: weekends or long weekends in Russia, the May holidays, as

618
00:33:00,320 --> 00:33:03,280
Speaker 1: a chance to go to their dodges. They're honkering down.

619
00:33:03,600 --> 00:33:07,120
Speaker 1: They're trying to plant on small land plots any kind

620
00:33:07,120 --> 00:33:11,720
Speaker 1: of vegetables they can UM, trying to anticipate rising food

621
00:33:11,760 --> 00:33:14,959
Speaker 1: prices h winter. That could be hard if this war

622
00:33:15,120 --> 00:33:17,280
Speaker 1: goes on and Russia continues to be the target of

623
00:33:17,360 --> 00:33:20,720
Speaker 1: sanctions and they're trying to sort of figure out how

624
00:33:20,800 --> 00:33:26,360
Speaker 1: they and their family can hunker down and survive and

625
00:33:26,560 --> 00:33:30,840
Speaker 1: try to remove themselves from the regime. Well perhaps not

626
00:33:31,600 --> 00:33:35,760
Speaker 1: uh openly resisting it. Cynthia valuable insight and perspective this morning.

627
00:33:35,760 --> 00:33:38,760
Speaker 1: Thank you, Cynthia Hoopo as the College of the Hotty Cross.

628
00:33:38,800 --> 00:33:42,560
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

629
00:33:42,680 --> 00:33:46,000
Speaker 1: us live weekdays from seven to ten am Eastern on

630
00:33:46,080 --> 00:33:50,360
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

631
00:33:50,440 --> 00:33:55,320
Speaker 1: to nine am for insight from the best in economics, finance, investment,

632
00:33:55,440 --> 00:34:00,480
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

633
00:34:00,560 --> 00:34:04,360
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

634
00:34:04,480 --> 00:34:16,200
Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg h