WEBVTT - Surveillance: Rate Hikes with Fed's Bostic (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brawmowitz Jaily. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.840 To find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:31.120 and of course on the Bloomberg terminal. It's somewhat comforting 0:00:31.200 --> 0:00:34.960 to know that is Mr Bostick, past economics and Harvard. 0:00:35.000 --> 0:00:38.960 He also took a degree in psychology. That's perhaps helpful 0:00:39.360 --> 0:00:42.280 at this moment. Very happy to say. Sitting alongside Olympex, 0:00:42.440 --> 0:00:47.120 Mike mccag and morn to Mike, good morning to you John. 0:00:47.159 --> 0:00:50.440 You guys are really depressing today. So maybe we'll ask 0:00:50.560 --> 0:00:54.320 Rafael to use his psychiatric degree to try and cheer 0:00:54.360 --> 0:00:57.640 you up or something. Rafael Bostic, President of the Atlanta 0:00:57.680 --> 0:01:00.800 Fat thank you for joining us this morning. Wall Street 0:01:00.840 --> 0:01:03.640 also depressed, as you heard there with the numbers that 0:01:03.640 --> 0:01:06.480 they were just giving us. The question of two questions, 0:01:06.480 --> 0:01:08.479 and everybody on Wall Street wants to know is how 0:01:08.560 --> 0:01:11.920 far how fast? Uh? And so let me start with that. 0:01:12.200 --> 0:01:14.800 Get the good stuff out of the way here. Um 0:01:15.440 --> 0:01:18.880 is seventy basis points really off the table is fifty 0:01:18.920 --> 0:01:21.600 fifty and maybe another fifty going to be good enough? 0:01:21.920 --> 0:01:24.600 And then how high do you think you end up going. 0:01:25.560 --> 0:01:27.440 First of all, good to see you, Mike. It's good 0:01:27.480 --> 0:01:29.440 to have you here at our conference. It's it's always 0:01:29.440 --> 0:01:31.840 a great time to be together. And when I think 0:01:31.840 --> 0:01:34.440 about our policy, the first thing that is on my 0:01:34.480 --> 0:01:36.880 mind is that inflation is too high and we need 0:01:36.920 --> 0:01:40.720 to act definitively and purposefully to to try to get 0:01:40.720 --> 0:01:42.920 that under control. And I think if you look at 0:01:42.920 --> 0:01:45.559 what we've what we've done so far in the last 0:01:45.560 --> 0:01:49.639 two meetings, we've really started that process. For me, fifty 0:01:49.640 --> 0:01:52.400 basis points from over the last twenty years, you know, 0:01:52.520 --> 0:01:56.440 as already pretty aggressive move I don't think we need 0:01:56.480 --> 0:01:58.960 to be be moving even more aggressively. I think we 0:01:58.960 --> 0:02:02.200 can stay at this, at this pace and as cadence 0:02:02.240 --> 0:02:05.520 and really see how the markets evolve. My expectation and 0:02:05.560 --> 0:02:09.000 hope really is that as we move closer to our 0:02:09.040 --> 0:02:13.360 neutral levels UH and far away from our accommodative stands, 0:02:13.880 --> 0:02:15.639 that we're gonna start to see a lot of the 0:02:16.680 --> 0:02:20.040 tightness and the tension the economy start to moderate, which 0:02:20.120 --> 0:02:23.320 can then give us options and choices as to sort 0:02:23.320 --> 0:02:25.920 of what we do after that point. How far do 0:02:26.000 --> 0:02:28.560 you go? Where do you think you'll be by say, 0:02:28.600 --> 0:02:31.919 the end of the year, by the end of Well, 0:02:32.000 --> 0:02:34.639 you know, that's a very good question. I really think 0:02:34.680 --> 0:02:37.680 we need to be getting somewhere into the neutral range. 0:02:37.720 --> 0:02:40.919 And as you know, um, different people have different ideas 0:02:40.919 --> 0:02:43.160 about what that looks like. For me, I'm looking at 0:02:43.200 --> 0:02:45.680 somewhere between two and two and a half percent as 0:02:45.680 --> 0:02:48.280 our neutral range. Uh. And then then let's just wait 0:02:48.320 --> 0:02:50.520 and see what's happening. Um. You know, in the in 0:02:50.560 --> 0:02:53.360 the intro to the segment, a lot of discussions about 0:02:54.000 --> 0:02:57.960 uncertainty or seth Carpenter reference reference. He's going to be here. 0:02:57.960 --> 0:03:00.560 I'm really excited about that, uh saying it, there's a 0:03:00.560 --> 0:03:02.560 lot of volatili a lot of stuff that's gonna play out. 0:03:02.760 --> 0:03:04.480 So once we get to that neutral level, I think 0:03:04.480 --> 0:03:08.079 that'll be fine. Um, we're gonna from my view, we're 0:03:08.080 --> 0:03:11.320 gonna move a couple of times, maybe two, maybe three times. 0:03:11.720 --> 0:03:15.919 See what happens, see how the economy responds, see if 0:03:15.960 --> 0:03:19.680 inflation continues to move closer to our two percent target, 0:03:20.080 --> 0:03:22.079 and then we can really take a pause, I think 0:03:22.120 --> 0:03:24.880 and look at how things are going, well, take a pause. 0:03:24.919 --> 0:03:28.679 What does that mean not move at a meeting or 0:03:29.560 --> 0:03:32.239 would just be just a rolling decision as you go along. 0:03:32.919 --> 0:03:35.800 So for me, I think all options are on the 0:03:35.840 --> 0:03:38.840 table at every meeting. So depending on how the economy 0:03:38.920 --> 0:03:42.280 is responding. It could be that the economy responding strongly, 0:03:42.360 --> 0:03:44.400 so we don't need to do anything. It could be 0:03:44.440 --> 0:03:49.200 that the economy is responding, uh, maybe a little less strong, 0:03:49.240 --> 0:03:51.280 so we might move to twenty five basis points, or 0:03:51.320 --> 0:03:53.400 we may stay at fifty. So I'm really going to 0:03:53.560 --> 0:03:57.160 keep my mind open. I'm going to observe what happens 0:03:57.160 --> 0:04:00.160 in the economy and then adapt my idea about what 0:04:00.440 --> 0:04:04.640 appropriate policy looks like based on a knowledge A lot 0:04:04.720 --> 0:04:08.120 of economists and many of your colleagues have said, you're 0:04:08.160 --> 0:04:11.480 going to have to go beyond neutral, uh, to restrictive. 0:04:11.680 --> 0:04:15.000 If you had a four percent inflation rate and a 0:04:15.200 --> 0:04:17.880 three pent Fed funds rate, you've still got a negative 0:04:17.920 --> 0:04:21.039 real Fed funds rate. Uh. Why don't you think that 0:04:21.120 --> 0:04:23.920 you're going to have to do that? Well, my hope 0:04:24.200 --> 0:04:26.760 is that a lot of the things that are really 0:04:26.760 --> 0:04:29.839 out of our control, things like supply chain disruptions and 0:04:29.880 --> 0:04:31.920 the like, are going to start to get to a 0:04:31.920 --> 0:04:36.120 better place. We're gonna see how the labor market responds. 0:04:36.400 --> 0:04:38.760 There's uh, there was a story just last week about 0:04:38.880 --> 0:04:42.280 retirees coming back into the workplace. Those are things that 0:04:42.400 --> 0:04:44.600 might relieve some of the tension that we're seeing in 0:04:44.680 --> 0:04:47.720 labor markets and allow producers to start to increase the 0:04:47.760 --> 0:04:51.040 supply there's supply of products that then reduces the imbalance 0:04:51.040 --> 0:04:54.520 between demanded supply, because all of this inflation is about 0:04:54.640 --> 0:04:58.160 an imbalance between the high demand and the low supply. 0:04:58.240 --> 0:05:00.000 This out there. So if we can start to see 0:05:00.080 --> 0:05:02.400 movement on the supply side, um, that means we'll have 0:05:02.480 --> 0:05:05.440 to push less on demand and so that inflation I'm 0:05:05.480 --> 0:05:10.039 hoping will come down. Now how fast we'll have to see, 0:05:10.080 --> 0:05:13.000 and that will really determine whether we have to get 0:05:13.040 --> 0:05:16.360 into restrictive territory, and if we do, how far. But 0:05:16.640 --> 0:05:19.320 I'm totally open to that. But you know, I'll just say, 0:05:19.640 --> 0:05:23.760 we've been doing surveys throughout the entire pandemic. Everyone has 0:05:23.800 --> 0:05:25.479 come with predictions that have turned out not to be 0:05:25.520 --> 0:05:27.599 the case. So I'm gonna trying to be as humble 0:05:27.640 --> 0:05:30.880 as I can be, really just true to being in 0:05:30.920 --> 0:05:33.880 the moment and trying not to anticipate too many steps 0:05:33.880 --> 0:05:36.719 out in advance because there's just a lot of stuff 0:05:36.720 --> 0:05:39.560 that's gonna happen. You heard the markets at the top 0:05:39.600 --> 0:05:42.400 of the show. Does it worry you that we're seeing 0:05:42.440 --> 0:05:46.000 such a rapid sell off and that market rates are 0:05:46.040 --> 0:05:49.320 going up so quickly? So those are two different things. 0:05:49.320 --> 0:05:51.840 So one, I think the moving market rates is actually 0:05:51.920 --> 0:05:54.520 quite interesting because we've not moved very far in terms 0:05:54.520 --> 0:05:58.200 of our policy rate, but the markets have responded extremely fast, 0:05:58.240 --> 0:06:02.000 and uh, that I think is uh, that's really positive 0:06:02.000 --> 0:06:04.120 from my view in the sense that they're taking on 0:06:04.160 --> 0:06:06.599 board the policies that we've signaled and now we've just 0:06:06.640 --> 0:06:08.320 got to deliver on that, and I think we're going 0:06:08.360 --> 0:06:11.320 to do that. In terms of the volatility and equity markets, 0:06:11.600 --> 0:06:14.240 you know. Uh, the one one of the things that 0:06:14.279 --> 0:06:17.080 I found to be very interesting is as I talked 0:06:17.120 --> 0:06:20.000 to a number of people, the range of forecasts about 0:06:20.040 --> 0:06:21.640 what's going to happen over the next six months and 0:06:21.680 --> 0:06:25.440 next twelve months has just really broadened considerably and that 0:06:25.520 --> 0:06:28.760 will translate into I think higher volatility, and I think 0:06:28.960 --> 0:06:30.839 some of what we're seeing right now has to do 0:06:30.920 --> 0:06:32.880 with that. What would it take for you to have 0:06:32.960 --> 0:06:36.240 to rescue the markets. A lot of people say, let's 0:06:36.240 --> 0:06:38.760 just say the economy, not the markets. That you get 0:06:38.800 --> 0:06:42.080 to two thousand twenty three, you might start cutting rates again. Well, look, 0:06:42.160 --> 0:06:44.400 there's a lot of momentum in the economy right now. 0:06:45.240 --> 0:06:47.599 We just had a job of support over four hundred 0:06:47.600 --> 0:06:52.520 thousand jobs in the month. That kind of performance, uh 0:06:52.520 --> 0:06:55.960 and the before times would have been a reason for 0:06:55.960 --> 0:06:59.400 for celebration. So I think we can ride out a 0:06:59.440 --> 0:07:02.919 lot of that more momentum even as we are raising rates. 0:07:02.920 --> 0:07:05.160 And my hope is that we'll get to a place 0:07:05.160 --> 0:07:08.240 where where we don't start to see breakdowns in labor 0:07:08.279 --> 0:07:11.000 markets or other parts of the economy, so that we 0:07:11.040 --> 0:07:13.800 won't have to worry about that. But just to be clear, look, 0:07:14.240 --> 0:07:16.640 we are we are paying and I am paying attention, 0:07:17.080 --> 0:07:20.120 and if necessary, we'll do whatever it takes to make 0:07:20.120 --> 0:07:22.560 sure the economy stays on a solid path. Well, I know, 0:07:22.760 --> 0:07:25.800 if I ask you about the recession probability, your job 0:07:25.880 --> 0:07:27.440 is to say, no, I don't think that's going to 0:07:27.440 --> 0:07:29.880 happen because you're at the Federal Reserve. But a lot 0:07:29.920 --> 0:07:33.960 of your former colleagues, including Bill Dudley, UM and uh 0:07:34.120 --> 0:07:37.200 Don Cone have said you cannot do this without inducing 0:07:37.200 --> 0:07:39.880 a recession. Well, you know, I was interviewing Roger Ferguson 0:07:39.960 --> 0:07:42.440 just last night and he said the same thing. So 0:07:42.440 --> 0:07:44.360 so yes, I am hearing all of that, and I 0:07:44.440 --> 0:07:47.280 understand that. I actually think that the thing we have 0:07:47.360 --> 0:07:49.640 to just be mindful of is that this is it. 0:07:49.800 --> 0:07:53.559 This context is nothing like we've ever seen in our 0:07:53.600 --> 0:07:57.480 in my lifetime, in my my policy space, the pandemic 0:07:57.760 --> 0:08:01.200 driven disruptions, we of a warren Ukraine. There are a 0:08:01.240 --> 0:08:03.720 lot of things that are intersecting in ways that I 0:08:03.760 --> 0:08:05.800 think make it really hard to know with any kind 0:08:05.800 --> 0:08:09.560 of certainty where the economy is likely to go. So 0:08:09.840 --> 0:08:12.880 I'm keeping my mind open. I'm I'm an optimist, but 0:08:13.000 --> 0:08:15.840 a worried optimist. I worry all the time. And uh, 0:08:16.080 --> 0:08:17.760 and so I'm just gonna pay attention to see where 0:08:17.840 --> 0:08:20.520 things go. One last very quick question, and that is 0:08:21.000 --> 0:08:23.800 it's an election year. Uh, there's a lot going on. 0:08:23.920 --> 0:08:27.960 Do you feel any political pressure. I'm not feeling any pressure. Look, 0:08:27.960 --> 0:08:29.960 we we have a clear job to do and that's 0:08:30.040 --> 0:08:33.640 that's meet our dual mandate today. And the labor market 0:08:33.720 --> 0:08:36.560 is doing fine. Inflation is where we really have a challenge, 0:08:36.559 --> 0:08:38.560 and so we just need to do whatever it takes 0:08:38.559 --> 0:08:41.360 to get that inflation under control. Raphael Bustick, thank you 0:08:41.440 --> 0:08:44.280 very much for joining us this morning from the Financial 0:08:44.280 --> 0:08:48.080 Markets Conference at Amelia Island, Florida, where everybody is back 0:08:48.120 --> 0:08:50.679 together for the first time in a couple of years. 0:08:50.760 --> 0:08:52.880 John and I hate it's beautiful to Mike, which is 0:08:52.880 --> 0:08:54.880 why you're so happy and not so clue me because 0:08:54.880 --> 0:08:57.000 you don't have to follow this market aid. Mike McKay, 0:08:57.080 --> 0:09:06.320 Thank you, buddy. Right now we will migrate to Washington. Well, yeah, 0:09:06.360 --> 0:09:09.720 did Emma joins us US Deputy Secretary of the Treasury 0:09:10.000 --> 0:09:14.280 and far more someone who knows the minutia of sanctus. Well, 0:09:14.440 --> 0:09:16.480 I want to cut to the chase, and not the broader, 0:09:16.480 --> 0:09:20.920 bigger picture, but the details of the Office of Foreign 0:09:21.080 --> 0:09:25.080 Assets Control. This goes back to Albert Gallatin the War 0:09:25.160 --> 0:09:28.000 of eighteen twelve, and we drag it forward to some 0:09:28.040 --> 0:09:33.000 two employees in the Office of Foreign Assets Control. What 0:09:33.080 --> 0:09:37.040 are what does that office doing in Treasury to defeat 0:09:37.200 --> 0:09:41.040 Mr Prutin, Well, thank you for asking about the career 0:09:41.080 --> 0:09:43.040 civil servants who work in the Office of Foreign Assing 0:09:43.120 --> 0:09:45.680 Control and today what they're doing is they're working to 0:09:45.840 --> 0:09:49.960 target the Russian military industrialized complex. They've taken a number 0:09:49.960 --> 0:09:52.319 of steps all ready to go after the Russian financial 0:09:52.360 --> 0:09:56.760 system and we've seen their economy is contract contracting by 0:09:56.920 --> 0:09:58.800 more than ten percent and due to that, and now 0:09:58.840 --> 0:10:01.400 we're focused on making sure that any money that remains 0:10:01.400 --> 0:10:03.959 in Russia can't be used to further build out their 0:10:03.960 --> 0:10:06.600 military industrialized complex and be able to fight the war 0:10:06.640 --> 0:10:09.559 in Ukraine today because the actions the Office of the 0:10:09.600 --> 0:10:13.120 Foretnance of Control has taken, the two top tank makers 0:10:13.160 --> 0:10:16.480 in Russia aren't functioning because they can't get access to 0:10:16.880 --> 0:10:18.920 the goods and the services they need to do the 0:10:18.920 --> 0:10:22.000 work that they're doing. And yesterday we sanctioned some of 0:10:22.040 --> 0:10:25.679 their top military companies as well. Well, what's so important 0:10:25.840 --> 0:10:28.840 here is we you know, the media is there's a yacht, 0:10:28.880 --> 0:10:31.760 it's Mr Prutin's yacht, or it's somebody else's yacht, and 0:10:31.800 --> 0:10:35.080 we've got all the silliness about boats flowing floating around 0:10:35.640 --> 0:10:39.800 in that office. Did they call up, say a manufacturer 0:10:39.800 --> 0:10:43.280 in Poland and say, wait, you can't do that, or 0:10:43.280 --> 0:10:47.520 are they just domiciled in America? So what we've done 0:10:47.600 --> 0:10:51.000 is that not only have we taken actions by talking 0:10:51.040 --> 0:10:53.960 directly to the financial system and making sure that they're 0:10:53.960 --> 0:10:57.439 aware that they can't provide services to the people who 0:10:57.480 --> 0:11:00.760 helped build those yachts or help fuel those But we've 0:11:00.800 --> 0:11:03.800 done this action in collaboration coordination with our allies and partners. 0:11:03.800 --> 0:11:06.640 So not only can you not domassile your yacht in 0:11:06.679 --> 0:11:09.920 the United States, but across the G seven, across thirty 0:11:09.920 --> 0:11:12.640 countries have taken these actions. And what we've also said 0:11:12.679 --> 0:11:15.040 is that if you happen to get your off to 0:11:15.040 --> 0:11:17.520 another country and in that country, you're able to find 0:11:17.520 --> 0:11:19.960 a company that will provide you with services. If that 0:11:20.000 --> 0:11:22.720 company provides you with material support, we're also going to 0:11:22.760 --> 0:11:24.959 sanction them as well. Well. We we're at a time 0:11:25.080 --> 0:11:28.520 we're we're dealing with the idea of sanctions on Russia, 0:11:28.760 --> 0:11:32.760 but also the idea of incredible inflation and possibly removing 0:11:32.800 --> 0:11:36.360 certain Trump era tariffs on China in order to reduce 0:11:36.400 --> 0:11:41.079 those inflationary pressures. How actively is the Treasury Department discussing 0:11:41.160 --> 0:11:43.520 some of those types of removals at a time when 0:11:43.520 --> 0:11:46.240 people are wondering about the U. S. China relationship in 0:11:46.320 --> 0:11:49.960 light of what's happening with Russia. So our goal is 0:11:50.000 --> 0:11:52.520 always to make sure that we're making trade policy in 0:11:52.559 --> 0:11:56.360 a manner that's consistent with our overarching goals. And what 0:11:56.400 --> 0:11:59.160 we're doing is working closely with the U. S. Trade 0:11:59.200 --> 0:12:01.520 Representative and the rest of the President's Cabinet to make 0:12:01.559 --> 0:12:03.960 sure that we have an approach with China that um 0:12:04.000 --> 0:12:06.040 puts front and center of America's interest and not just 0:12:06.120 --> 0:12:08.480 America's interest. When you look at the issues we have 0:12:08.480 --> 0:12:10.640 with China, there issues that other countries have as well. 0:12:10.679 --> 0:12:13.280 So working closely, as the President said, with our allies 0:12:13.320 --> 0:12:16.840 and partners, as we think about our China strategy going forward, 0:12:16.880 --> 0:12:18.679 what do you think is going to be uh the 0:12:18.720 --> 0:12:22.560 next step with respect to additional pressure put on Russia, 0:12:22.920 --> 0:12:26.800 especially given some of the inflation that we're seeing, the 0:12:26.840 --> 0:12:28.880 reality is the one you think about what Russia is 0:12:28.920 --> 0:12:31.960 doing in Ukraine. It is a key contributor to some 0:12:32.080 --> 0:12:34.720 of the price increases that we're seeing both in energy 0:12:34.760 --> 0:12:37.560 and in food. Today, Russia and ships are blocking the 0:12:37.600 --> 0:12:40.400 ability of food to get out of Ukraine because of 0:12:40.440 --> 0:12:45.239 Russia's actions. You've seen energy prices rise because the geopolitical uncertainty. 0:12:45.360 --> 0:12:47.280 So what we're trying to do with our sanctions is 0:12:47.320 --> 0:12:49.719 to end that invasion as quickly as possible. And what 0:12:49.840 --> 0:12:51.640 we're gonna go next is we're going to continue to 0:12:51.679 --> 0:12:54.360 put pressure on their financial system. We're gonna go after 0:12:54.400 --> 0:12:57.680 their military industrialized complex so that Russia doesn't have the 0:12:57.800 --> 0:13:00.200 arms they need to continue the war in Ukraine, but 0:13:00.280 --> 0:13:02.960 also so they can't project power into the future and 0:13:03.000 --> 0:13:06.320 continue to destabilize the region in the world. We've got 0:13:06.440 --> 0:13:10.400 reports on the Bloomberg terminal wally that Russia is seeing 0:13:10.440 --> 0:13:15.319 at twelve contraction. Do you have any idea or can 0:13:15.360 --> 0:13:19.800 you model out what form of contraction you visualize? Can 0:13:19.840 --> 0:13:23.680 it be negative eighteen percent? Can we get there? So 0:13:23.720 --> 0:13:25.800 what we know today based on what the IMATH and 0:13:25.840 --> 0:13:28.200 what others have told us, is that Russia has lost 0:13:28.240 --> 0:13:31.960 about fifth the last fifteen years of economic growth due 0:13:32.000 --> 0:13:34.880 to the sanctions we've imposed on them today. And that's 0:13:34.880 --> 0:13:37.480 not even talking about the inflation that is going through 0:13:37.480 --> 0:13:40.520 their economy. The truth is that Russia now has to 0:13:40.559 --> 0:13:42.880 make choices, and that's exactly what we want them to do, 0:13:42.960 --> 0:13:45.360 to have to choose between using their resources to prop 0:13:45.440 --> 0:13:47.920 up their economy or to fight their war in Ukraine, 0:13:48.040 --> 0:13:50.080 and we want to continue to make that choice even 0:13:50.160 --> 0:13:53.839 harder by continuing to level sanctions until the invasion ends 0:13:54.120 --> 0:13:56.679 from you as always come back soon. Well at Yama Dad, 0:13:56.720 --> 0:14:03.959 the U S Deputy Secretary of the tracery. Right now, 0:14:04.000 --> 0:14:06.880 what we're gonna do here is look at what is 0:14:07.000 --> 0:14:12.400 in Michael Rosenberg's absolutely classic textbook Currency Forecasting. If you'd 0:14:12.400 --> 0:14:16.240 like to buy it, it's two hardcover edition, if you 0:14:16.280 --> 0:14:19.880 can find a copy out on Amazon, out on eBay. George, 0:14:19.880 --> 0:14:22.880 Sarah Ellis knows Michael Rosenberg is one of the founding 0:14:22.920 --> 0:14:28.200 heroes of current currency forecasting, and Sarah Ellis goes all Rosenberg, George, 0:14:28.200 --> 0:14:33.440 I'm absolutely thunderstruck by your behavioral analysis right now, and 0:14:33.440 --> 0:14:38.280 now it folds into FX. Explain the behavior you're studying 0:14:38.680 --> 0:14:40.840 that gets you to a call on euro, that gets 0:14:40.880 --> 0:14:44.600 you to a call on dollar. So I think, Tom, 0:14:44.920 --> 0:14:47.560 we just need to start from the global growth environment, 0:14:47.720 --> 0:14:50.480 and that's really what's been driving the market over the 0:14:50.560 --> 0:14:53.520 last few weeks. And you have a perfect storm of 0:14:53.600 --> 0:14:57.080 weakening global growth in all regions. So in the U 0:14:57.160 --> 0:15:00.760 S you have this huge idiosyncratic tightening off my for conditions. 0:15:01.080 --> 0:15:03.840 In Europe we have the war, and I think what 0:15:04.000 --> 0:15:07.160 broke um the straw that broke the camel's back, so 0:15:07.240 --> 0:15:12.160 to speak, was the China COVID lockdowns Shanghai UM now 0:15:12.200 --> 0:15:15.000 potentially in Beijing. So you have all of the three 0:15:15.080 --> 0:15:19.000 world's biggest economies suffering from these shocks at the same time, 0:15:19.240 --> 0:15:22.520 and the market's bringing down growth expectations. And that's really 0:15:22.520 --> 0:15:25.840 what's what's driving things at the moment, including the US dollar, 0:15:26.120 --> 0:15:28.920 because you have the situation of lower global growth, but 0:15:28.960 --> 0:15:32.480 at the same time US real rate arising very significantly, 0:15:32.840 --> 0:15:35.400 and that's what's been supporting the stronger dollar over the 0:15:35.480 --> 0:15:38.560 last few weeks. If we're thinking about what would change that, 0:15:38.800 --> 0:15:41.400 we need to see an inflection in either of those 0:15:41.440 --> 0:15:45.360 three dynamics, So either China, Europe or the US to 0:15:45.520 --> 0:15:48.160 change the current market environment and narrative, George, if you 0:15:48.240 --> 0:15:54.680 change the eurodolloical at the moment, I'm actually still keeping 0:15:55.120 --> 0:15:58.480 my optimistic euro forecast because I think John, the market 0:15:58.560 --> 0:16:02.640 is too pessimistic on Europe looking out through the next 0:16:02.680 --> 0:16:05.040 three to six months. If you take a look at 0:16:05.400 --> 0:16:08.560 and there's a number of things the market's underestimating. The 0:16:08.600 --> 0:16:11.400 first one is fiscal policy. Everyone's talking about this big 0:16:11.440 --> 0:16:13.800 income shock in Europe which is bringing incomes down, but 0:16:13.840 --> 0:16:16.360 if you crunch the numbers, more than half of the 0:16:16.400 --> 0:16:19.240 income shock is being offset because Europe is easing fiscal 0:16:19.640 --> 0:16:21.600 um and that's not what's going on in the rest 0:16:21.640 --> 0:16:23.400 of the world, and it will continue to do so 0:16:23.680 --> 0:16:27.680 through next year. Then you've got the reopening dynamic. Europe 0:16:27.720 --> 0:16:31.360 never reopened after the omicron wave. The services sector never reopened, 0:16:31.520 --> 0:16:33.680 and that's exactly why. If you look at the services 0:16:33.720 --> 0:16:37.320 p MZ, they're holding up much better than expected. And 0:16:37.320 --> 0:16:40.040 then finally you've got the labor market. Um. The European 0:16:40.120 --> 0:16:42.560 labor market is actually stronger than the US, the unemployment 0:16:42.640 --> 0:16:45.600 rates that record lows, So we think the ECB goes 0:16:45.640 --> 0:16:49.080 in July. I think the market has become too pessimistic 0:16:49.080 --> 0:16:53.400 and growth expectations. If you look at equity earnings globally 0:16:53.600 --> 0:16:55.960 over the last few weeks, Europe has actually got the 0:16:55.960 --> 0:17:00.440 best forward earnings guidance out there, much better than the US, 0:17:00.560 --> 0:17:02.880 much better than e m UM. So I think that 0:17:02.920 --> 0:17:05.200 euro will end up rebounding by the end of the 0:17:05.280 --> 0:17:07.800 year in the second half. What's the catalyst, George, Given 0:17:07.800 --> 0:17:11.800 it all of what you're saying is already known, So 0:17:11.960 --> 0:17:14.600 I think it's interesting because if you look at price action, 0:17:14.880 --> 0:17:17.960 you are starting to see the Euro turn across a 0:17:18.000 --> 0:17:21.240 number of other currencies. So for example, it's a risk 0:17:21.280 --> 0:17:24.080 of environment, but euro Swiss is now up on the year. 0:17:24.600 --> 0:17:27.240 You're a sterling is starting to turn, so you are 0:17:27.359 --> 0:17:29.639 under the hood, so to speak, starting to see euro 0:17:29.720 --> 0:17:32.800 out performance. I think you need a couple of catalysts 0:17:32.840 --> 0:17:36.119 to get that translated into the dollar. Firstly, the ECB 0:17:36.280 --> 0:17:40.359 coming interview, actually starting to high rate UM. The market 0:17:40.400 --> 0:17:43.760 has been responding with lags to Montree policy re pricings. 0:17:43.960 --> 0:17:46.600 So if you think about the dollar strength, we've known 0:17:46.640 --> 0:17:49.520 the Fed is titening with known defects doing QT for 0:17:49.600 --> 0:17:52.200 quite a while, but it's really now that the dollars responded, 0:17:52.240 --> 0:17:54.360 and I think you can see some of that lack 0:17:54.400 --> 0:17:57.720 of response in Europe. So the ECB coming interview, UM, 0:17:57.760 --> 0:18:01.080 and partectually just some easing in all these shot downward 0:18:02.440 --> 0:18:06.240 shifts to growth expectations that are supporting the dollar. George, 0:18:06.240 --> 0:18:08.119 this has been a really tough trade. I really appreciate 0:18:08.119 --> 0:18:09.600 if we could catch up again in the next couple 0:18:09.640 --> 0:18:11.440 of weeks, just to reset ahead of the e CP 0:18:11.960 --> 0:18:13.800 in about a month's time, because this one has been 0:18:13.800 --> 0:18:16.040 really difficult for a lot of people. George Santa velis 0:18:16.080 --> 0:18:25.920 there of Deutsche Bank. In Shepherdson passes the American economy 0:18:25.960 --> 0:18:29.440 like No One's chief economists of Pantheon macro Economics and 0:18:29.480 --> 0:18:33.000 enjoins us for a recalibration this morning. Ian, we just 0:18:33.040 --> 0:18:37.119 spoke to Raphael Bostic, who gave us the FED line 0:18:37.480 --> 0:18:41.359 from Atlanta of the good news out there were in control, 0:18:41.440 --> 0:18:49.560 we have options. How much in control are our central bankers? Well, 0:18:49.640 --> 0:18:52.680 maybe a bit more than markets think. Actually, of course, 0:18:52.720 --> 0:18:54.359 you know, they would always say they're in control because 0:18:54.359 --> 0:18:57.480 if there's anything else and all, and the last few 0:18:57.520 --> 0:18:59.600 months have been the last thing must have been very 0:18:59.640 --> 0:19:03.240 difficult for them, you know, inflation hitting some really big spikes. 0:19:03.720 --> 0:19:06.159 But we're probably hit the peak. And my guess is 0:19:06.160 --> 0:19:08.840 when we get CPI numbers later this week, they're going 0:19:08.880 --> 0:19:11.080 to look significantly better year of a year, maybe month 0:19:11.119 --> 0:19:13.440 to month as well, and then the next few months 0:19:13.440 --> 0:19:15.919 that good news should continue. So I think they're going 0:19:15.920 --> 0:19:17.680 to be able to tell a story later in the 0:19:17.720 --> 0:19:20.600 summer of hey, you know what we've done is working. 0:19:20.720 --> 0:19:23.120 Of course, what's actually happening is a very favorable base 0:19:23.200 --> 0:19:26.480 effects are kicking in and that will bring inflation down. 0:19:27.080 --> 0:19:29.959 Then I think they're hoping that the downshift that we 0:19:30.040 --> 0:19:32.280 seem to be getting in the wage numbers in the 0:19:32.359 --> 0:19:35.000 last few months will persist and that will help them 0:19:35.040 --> 0:19:37.080 through the end of the year with some some genuine 0:19:37.119 --> 0:19:40.439 downshifting services inflation still some big question marks there, but 0:19:40.440 --> 0:19:42.840 the last few months data i'm guessing have been better 0:19:42.840 --> 0:19:46.879 than they expected. How important to the late summer into 0:19:46.920 --> 0:19:55.000 the end of the year view is escaping the Chinese lockdown? Well, 0:19:55.040 --> 0:19:57.680 you know that's that's a big deal for some small sectors. 0:19:57.760 --> 0:19:59.920 You know, the the U s c p I is 0:20:00.040 --> 0:20:03.760 primarily as domestic service price index with a few goods 0:20:03.760 --> 0:20:06.040 in it. Now quite a lot of those goods are 0:20:06.080 --> 0:20:11.960 China sensitive, so things like clothing, footwear, furniture, appliances, household electronics. 0:20:12.000 --> 0:20:14.120 But you add those things together and you're still looking 0:20:14.160 --> 0:20:16.399 at less than a tenth of the index. So if 0:20:16.440 --> 0:20:19.680 we're getting some meaningful disinflation in in some of those 0:20:19.680 --> 0:20:23.080 other components that I think will offset the supply disruption story. 0:20:23.359 --> 0:20:26.720 Plus we've got some extremely favorable based effects in the 0:20:26.760 --> 0:20:29.560 in the vehicle component, which will be pretty much a 0:20:29.600 --> 0:20:32.399 done deal to be a big downward shove to the 0:20:32.480 --> 0:20:34.600 year of a year numbers. So actually the China thing 0:20:34.680 --> 0:20:37.160 is not helpful, But I don't think it's a game 0:20:37.240 --> 0:20:39.520 changer as long as it doesn't get completely out of control. 0:20:39.680 --> 0:20:42.720 And we're teasing out your view here. Let's really highlight it. 0:20:43.320 --> 0:20:45.320 A lot of people that can census for you, because 0:20:45.359 --> 0:20:49.080 FED chair Jpal basically clarified it fifty at the next meeting, 0:20:49.520 --> 0:20:52.359 fifty after that. Have you got any doubt around that 0:20:52.440 --> 0:20:57.640 second fifty and if you have, can you explain it? Yeah? 0:20:57.880 --> 0:20:59.560 I mean the first fifty in June I think is 0:20:59.560 --> 0:21:01.920 have done. You're borrowing some sort of sky falling in moment. 0:21:02.000 --> 0:21:04.040 But July, you know, by July will have had three 0:21:04.040 --> 0:21:06.920 CPI reports, all of which will show inflation dropping by 0:21:07.000 --> 0:21:09.760 about half a point per month. We'll have also seen 0:21:09.880 --> 0:21:12.040 three more months of housing data. And this is where 0:21:12.040 --> 0:21:14.280 I have a really big gripe with the media narrative 0:21:14.320 --> 0:21:16.840 that the US housing market is still booming, because it isn't. 0:21:17.200 --> 0:21:20.480