1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,840 --> 00:00:23,840 Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:29,960 Speaker 1: and of course on the Bloomberg terminal. William Dudley of 6 00:00:30,000 --> 00:00:32,479 Speaker 1: course went on to Goldman Sachs and then on to 7 00:00:32,640 --> 00:00:34,760 Speaker 1: his public service at the New York Fed, and we're 8 00:00:34,800 --> 00:00:37,960 Speaker 1: thrilled that Dr Dudley could join us this morning. We've 9 00:00:37,960 --> 00:00:40,560 Speaker 1: got a lot of questions built off your important essay 10 00:00:40,560 --> 00:00:43,120 Speaker 1: al at John and Lisa get to that define the 11 00:00:43,240 --> 00:00:49,080 Speaker 1: difference between Vulker and brainerd inflation. What's different with this 12 00:00:49,200 --> 00:00:52,839 Speaker 1: seven eight percent versus a seven eight percent when you 13 00:00:52,880 --> 00:00:56,960 Speaker 1: were certified at Berkeley. I think the difference is that 14 00:00:57,120 --> 00:00:59,920 Speaker 1: the inflation that Boker had to fight built up over 15 00:01:00,000 --> 00:01:03,560 Speaker 1: a long period of time, and so inflation expectations started 16 00:01:03,600 --> 00:01:06,200 Speaker 1: to rise pretty significantly. So it's much harder to get 17 00:01:06,280 --> 00:01:08,400 Speaker 1: rid of the inflation than the inflation we have now. 18 00:01:08,720 --> 00:01:11,399 Speaker 1: The good news is that the inflation expectations are still 19 00:01:11,480 --> 00:01:14,119 Speaker 1: relatively well anchored, so that would imply that the Federal 20 00:01:14,160 --> 00:01:16,720 Speaker 1: Reserve isn't gonna have to do quite as much to 21 00:01:16,840 --> 00:01:20,039 Speaker 1: push inflation back down your line in your pace this morning. 22 00:01:20,040 --> 00:01:22,680 Speaker 1: In the late paragraph, Bell, I think it's got everyone's attention, 23 00:01:22,720 --> 00:01:24,480 Speaker 1: so I'll repeat it for everybody who hasn't heard it 24 00:01:24,600 --> 00:01:27,320 Speaker 1: so far. To be effective, it will have to inflect 25 00:01:27,360 --> 00:01:30,759 Speaker 1: more losses, inflict more losses on stock and bond investors 26 00:01:30,959 --> 00:01:33,800 Speaker 1: than it has so far. Bill runners through financial conditions 27 00:01:33,800 --> 00:01:36,360 Speaker 1: and how you gauge financial conditions and why you might 28 00:01:36,400 --> 00:01:39,520 Speaker 1: believe it stocks for a big part of that. Well, 29 00:01:39,560 --> 00:01:42,000 Speaker 1: financial conditions are important in the United States, and sure 30 00:01:42,080 --> 00:01:46,800 Speaker 1: Paula has emphasized this in his prepared remarks because that's 31 00:01:46,800 --> 00:01:49,440 Speaker 1: how Montrey policy works. So you guys, E commy doesn't 32 00:01:49,560 --> 00:01:51,960 Speaker 1: really run on short term interest rates. It really runs 33 00:01:52,000 --> 00:01:54,120 Speaker 1: on long term interest rates. And the stock market is 34 00:01:54,120 --> 00:01:56,880 Speaker 1: also important because a lot of people have exposure to 35 00:01:56,920 --> 00:01:58,720 Speaker 1: the stock market and the level of the stock market 36 00:01:58,760 --> 00:02:01,960 Speaker 1: affects their wealth. So the Fed has said pretty clearly 37 00:02:02,440 --> 00:02:05,560 Speaker 1: we need to tighten financial conditions to slow the economy down, 38 00:02:05,600 --> 00:02:08,919 Speaker 1: to keep inflation and check, and so far financial conditions 39 00:02:08,960 --> 00:02:11,760 Speaker 1: really haven't tightened very much. The stock market is only 40 00:02:11,919 --> 00:02:14,520 Speaker 1: for percent or so off it's high. It's still up 41 00:02:14,639 --> 00:02:16,640 Speaker 1: very sharply from where it was a couple of years ago. 42 00:02:17,120 --> 00:02:19,239 Speaker 1: And body els, you know, two point five two point 43 00:02:19,320 --> 00:02:23,400 Speaker 1: six are still really low, especially when you adjust for inflation. 44 00:02:23,760 --> 00:02:26,800 Speaker 1: So in my mind, the FED hasn't really accomplished much yet, 45 00:02:27,000 --> 00:02:29,760 Speaker 1: and if financial conditions don't cooperate with the Fed, the 46 00:02:29,800 --> 00:02:31,959 Speaker 1: Fed is going to have to do more until financial 47 00:02:31,960 --> 00:02:34,960 Speaker 1: markets do cooperate. Bill, talk a little bit about the 48 00:02:35,000 --> 00:02:38,520 Speaker 1: consequences of this. If stocks are a reflection of sentiment, 49 00:02:38,800 --> 00:02:40,800 Speaker 1: if they affect the way that people are willing to 50 00:02:40,840 --> 00:02:44,000 Speaker 1: go out and make purchases based on their household wealth, 51 00:02:44,280 --> 00:02:46,720 Speaker 1: what does that do to the economy. Are you basically 52 00:02:46,760 --> 00:02:49,400 Speaker 1: saying that if things continue the way they are, the 53 00:02:49,400 --> 00:02:52,400 Speaker 1: FED is going to after torpedo growth to a potentially 54 00:02:52,440 --> 00:02:56,360 Speaker 1: recessionary degree. Well, the Fed right now is, you know, 55 00:02:56,800 --> 00:02:59,720 Speaker 1: markets are pretty confident in the FEDS program because they 56 00:02:59,760 --> 00:03:02,280 Speaker 1: have the FED kicking the flirture rates up to about three. 57 00:03:03,120 --> 00:03:05,000 Speaker 1: That causes the economy is slow, and then the Fed 58 00:03:05,160 --> 00:03:09,200 Speaker 1: reserve eases policy in two and we have a soft 59 00:03:09,280 --> 00:03:12,040 Speaker 1: lanning live happily. Ever after. I don't think it's gonna 60 00:03:12,040 --> 00:03:14,760 Speaker 1: be that easy because because the markets are so confident 61 00:03:14,760 --> 00:03:17,440 Speaker 1: in the FED, the financial conditions are still quite buoyant. 62 00:03:17,960 --> 00:03:20,000 Speaker 1: Financial conditions are buoyant. That means the FED has to 63 00:03:20,000 --> 00:03:22,959 Speaker 1: do more because it's slow down the economy. Also, a 64 00:03:23,000 --> 00:03:25,880 Speaker 1: soft lanning is very very hard to achieve when the 65 00:03:25,919 --> 00:03:29,040 Speaker 1: unemployer rate is so low. Uh the soft lanning examples 66 00:03:29,080 --> 00:03:34,000 Speaker 1: that Paul has cited in nineteen n n where all 67 00:03:34,040 --> 00:03:36,560 Speaker 1: examples where the FED tightened and the economy slowed, but 68 00:03:36,640 --> 00:03:39,160 Speaker 1: did not slow sufficiently to push up the unemployer rate, 69 00:03:39,280 --> 00:03:42,200 Speaker 1: the unemployer rate and all three of those episodes kept declining. 70 00:03:42,520 --> 00:03:44,040 Speaker 1: I think at the in the current environment, with the 71 00:03:44,120 --> 00:03:47,120 Speaker 1: unemployer rate at three points six percent and wages running 72 00:03:47,200 --> 00:03:50,560 Speaker 1: well above outrate consistent with two percent inflation, the Fed's 73 00:03:50,560 --> 00:03:53,560 Speaker 1: gonna have to tighten enough to tighten financial conditions enough 74 00:03:53,720 --> 00:03:56,000 Speaker 1: to push up the unemployer rate. And when the FED 75 00:03:56,040 --> 00:03:58,720 Speaker 1: has done that in the past, it's always resulted in 76 00:03:58,720 --> 00:04:01,280 Speaker 1: a recession. That's not their intention. They'll go for a 77 00:04:01,320 --> 00:04:04,200 Speaker 1: soft lantic with their chances of pulling off are very 78 00:04:04,280 --> 00:04:07,360 Speaker 1: very low. Do you think that rapidly reducing the balance 79 00:04:07,400 --> 00:04:10,280 Speaker 1: sheet bill will be enough to achieve this sell off 80 00:04:10,320 --> 00:04:13,040 Speaker 1: that you think is necessary in order to enact some 81 00:04:13,120 --> 00:04:16,680 Speaker 1: of the tightening that the FEED is that trying to achieve. Well, 82 00:04:16,720 --> 00:04:19,920 Speaker 1: certainly we'll work on in the right direction. Obviously, quantitative 83 00:04:20,040 --> 00:04:22,640 Speaker 1: easing help pull down long term meles, and I think 84 00:04:22,680 --> 00:04:24,720 Speaker 1: if as a reverse course, that should push them up. 85 00:04:24,720 --> 00:04:27,640 Speaker 1: But we don't know by how much. Uh, we already 86 00:04:27,640 --> 00:04:29,479 Speaker 1: know what the FEN is gonna do, and markets haven't 87 00:04:29,520 --> 00:04:32,040 Speaker 1: really moved very much, so uh, you know, I think 88 00:04:32,040 --> 00:04:34,200 Speaker 1: it's just a big wild card in terms of how 89 00:04:34,240 --> 00:04:37,560 Speaker 1: much will the quantitative tightening do the FENS job for them. 90 00:04:37,760 --> 00:04:39,320 Speaker 1: I think the big point I would just make it's 91 00:04:39,320 --> 00:04:42,400 Speaker 1: just it's very unlikely uh that a year from now 92 00:04:42,440 --> 00:04:44,800 Speaker 1: we're gonna be at this level of bonds is low 93 00:04:45,120 --> 00:04:47,800 Speaker 1: and this level of stock prices this high, because that's 94 00:04:47,839 --> 00:04:51,159 Speaker 1: probably not sufficiently tight financial conditions to do the FEDS 95 00:04:51,240 --> 00:04:55,760 Speaker 1: job for them. Bill parts. The difference is inflation comes 96 00:04:55,839 --> 00:05:00,160 Speaker 1: down of the importance of goods inflation coming down own 97 00:05:00,320 --> 00:05:05,599 Speaker 1: versus service sector inflation coming down. Well, obviously both matter. 98 00:05:05,640 --> 00:05:08,200 Speaker 1: I mean, I think where the Fed's expectations is that 99 00:05:08,279 --> 00:05:10,599 Speaker 1: goods inflation will come down quite a lot over the 100 00:05:10,640 --> 00:05:14,320 Speaker 1: next year because the composition of demand as the economy reopens, 101 00:05:14,320 --> 00:05:17,440 Speaker 1: will shift away from goods back to services. And the 102 00:05:17,480 --> 00:05:20,040 Speaker 1: fact that some of these supply chain disruptions, for example, 103 00:05:20,080 --> 00:05:23,280 Speaker 1: the auto sector will gradually get resolved, and so car prices, 104 00:05:23,320 --> 00:05:25,680 Speaker 1: for example, will be weaker. Use car prices a bit weaker, 105 00:05:26,040 --> 00:05:27,800 Speaker 1: but the services sector. Inflation is going to be a 106 00:05:27,839 --> 00:05:31,080 Speaker 1: lot more persistent because that's really about labor costs, and 107 00:05:31,160 --> 00:05:33,520 Speaker 1: we're seeing that labor costs are going up because the 108 00:05:33,600 --> 00:05:37,040 Speaker 1: labor market is unusually tight in the current setting. But 109 00:05:37,240 --> 00:05:40,200 Speaker 1: one time, FED officials when they're in the state talk 110 00:05:40,200 --> 00:05:44,479 Speaker 1: a lot. You just have now, well, it's unpleasant to 111 00:05:44,720 --> 00:05:46,359 Speaker 1: be a FED official and talking about how you have 112 00:05:46,360 --> 00:05:48,920 Speaker 1: to tighten financial conditions to push up the unemployee rate. 113 00:05:49,320 --> 00:05:51,800 Speaker 1: You don't want to talk about putting people out of work. 114 00:05:52,120 --> 00:05:54,680 Speaker 1: And that's not, obviously the deliberate goal of policy. The 115 00:05:54,720 --> 00:05:57,880 Speaker 1: deliberate goal of policy is to keep inflation from getting 116 00:05:57,880 --> 00:06:01,040 Speaker 1: out of hand. Unfortunately, one of the reasons ways you 117 00:06:01,120 --> 00:06:03,560 Speaker 1: have to do that is to is to generate enough 118 00:06:03,600 --> 00:06:06,480 Speaker 1: slack in the labor market to keep inflation in check. 119 00:06:06,760 --> 00:06:09,160 Speaker 1: And that's just an unpleasant conversation to have. So with 120 00:06:09,200 --> 00:06:11,080 Speaker 1: what the FED set officials talk about is how we 121 00:06:11,120 --> 00:06:13,040 Speaker 1: have to keep inflation in check so we can sustain 122 00:06:13,120 --> 00:06:16,240 Speaker 1: this economic expansion and keep the most number of people employed. 123 00:06:16,480 --> 00:06:19,080 Speaker 1: And that's true too. What they're not telling you, though, 124 00:06:19,160 --> 00:06:21,799 Speaker 1: is that how difficult that is to pull off. Built 125 00:06:21,839 --> 00:06:24,760 Speaker 1: a clinic as always, and we appreciate your time this morning. 126 00:06:24,760 --> 00:06:27,280 Speaker 1: Built down that the former New York Fed President and 127 00:06:27,320 --> 00:06:30,280 Speaker 1: of course, amongst other things, now a Bloomberg opinion columnists. 128 00:06:30,440 --> 00:06:32,120 Speaker 1: The title of his pace this morning tell me if 129 00:06:32,160 --> 00:06:42,039 Speaker 1: stocks don't fold, the Fed nates to force them, let's 130 00:06:42,040 --> 00:06:43,680 Speaker 1: get right to it. This is too important of a 131 00:06:43,760 --> 00:06:47,760 Speaker 1: conversation and it's truly extraordinary. Evel and Farcus and her 132 00:06:47,800 --> 00:06:50,840 Speaker 1: family are out of Hungary. They know the experience of 133 00:06:50,960 --> 00:06:54,200 Speaker 1: moving out of continental Europe over to America, where their 134 00:06:54,240 --> 00:06:56,920 Speaker 1: tour of duty at Franklin and Marshall College and then 135 00:06:56,920 --> 00:07:00,640 Speaker 1: her PhD at the acclaimed Toughs University flood your school. 136 00:07:01,040 --> 00:07:04,719 Speaker 1: What is fascinating is in her public service to President Obama. 137 00:07:05,120 --> 00:07:08,640 Speaker 1: She is now on the same page is John Bolton. 138 00:07:08,880 --> 00:07:12,280 Speaker 1: That is extraordinary. And Evelyn, we had John Bolton on 139 00:07:12,320 --> 00:07:16,360 Speaker 1: the other day and both of you say, get over it. 140 00:07:16,600 --> 00:07:19,840 Speaker 1: We're not going to start world War three, discuss what 141 00:07:20,000 --> 00:07:24,360 Speaker 1: America can do amid this fear that we have that 142 00:07:24,480 --> 00:07:28,800 Speaker 1: O MG, We're gonna have World War three. Well, I mean, 143 00:07:28,840 --> 00:07:33,120 Speaker 1: I think tom to the point that what what I've 144 00:07:33,160 --> 00:07:36,000 Speaker 1: been arguing and I and I had a Washington Post 145 00:07:36,000 --> 00:07:38,880 Speaker 1: all that about this, and I've been running around, Um, 146 00:07:38,880 --> 00:07:41,480 Speaker 1: I guess like John Bolton, not with my mustache on fire, 147 00:07:41,480 --> 00:07:43,880 Speaker 1: but my hair on fire, trying to explain that we 148 00:07:43,880 --> 00:07:47,880 Speaker 1: shouldn't let Vladimir Putin deter us. Yes, unfortunately he has 149 00:07:47,960 --> 00:07:51,400 Speaker 1: used chemical weapons and he has a lower threshold for 150 00:07:51,520 --> 00:07:54,560 Speaker 1: nuclear use, but he does not want war with NATO. 151 00:07:54,880 --> 00:07:57,400 Speaker 1: So we should really calculate the risk that we are 152 00:07:57,440 --> 00:08:00,720 Speaker 1: willing to take in order to protect civilians. And I 153 00:08:00,760 --> 00:08:04,520 Speaker 1: think me and several colleagues of mine who are national 154 00:08:04,520 --> 00:08:07,720 Speaker 1: security and foreign policy experts, we signed a letter saying 155 00:08:07,760 --> 00:08:10,960 Speaker 1: that the administration should not dismiss the idea of a 156 00:08:11,040 --> 00:08:15,000 Speaker 1: humanitarian no fly zone completely out of hand. And what 157 00:08:15,000 --> 00:08:18,119 Speaker 1: we're trying to do there is say, do not rule 158 00:08:18,240 --> 00:08:21,040 Speaker 1: things out. We to be agile, and we need to 159 00:08:21,080 --> 00:08:23,680 Speaker 1: understand that we may need to do more, take on 160 00:08:23,840 --> 00:08:26,640 Speaker 1: more risks to save lives. And so I'm worried as 161 00:08:26,640 --> 00:08:28,960 Speaker 1: we move into the next phase of the fighting, that 162 00:08:29,040 --> 00:08:31,800 Speaker 1: we aren't thinking enough about how to save lives. We 163 00:08:31,840 --> 00:08:35,720 Speaker 1: are providing additional military support and that is really important 164 00:08:35,920 --> 00:08:42,520 Speaker 1: and that should continue. I look, Evelyn at the path forward, 165 00:08:42,800 --> 00:08:45,959 Speaker 1: and we are shocked by these atrocities. I don't want 166 00:08:45,960 --> 00:08:48,560 Speaker 1: to get in the debate of the war game, but 167 00:08:48,640 --> 00:08:52,080 Speaker 1: I want to know from you how a Pentagon, or 168 00:08:52,120 --> 00:08:55,760 Speaker 1: the Pentagon in Germany, or the Pentagon in France, how 169 00:08:55,800 --> 00:08:59,880 Speaker 1: they respond the horror that we've seen. Well, I think 170 00:09:00,040 --> 00:09:04,680 Speaker 1: everyone is horrified, and the question now is what can 171 00:09:04,720 --> 00:09:09,440 Speaker 1: be done. In the past, even even in brutal wars 172 00:09:09,520 --> 00:09:12,160 Speaker 1: like the Balkan Wars in Bosnia, I lived there after 173 00:09:12,200 --> 00:09:16,760 Speaker 1: the war, we have had international agencies in their providing 174 00:09:16,800 --> 00:09:20,600 Speaker 1: humanitarian assistance and trying to prevent the kind of massacre 175 00:09:20,760 --> 00:09:23,600 Speaker 1: that happened in Buchan and elsewhere. And I would like 176 00:09:23,720 --> 00:09:27,080 Speaker 1: to see some of these multilateral institutions like the Red 177 00:09:27,120 --> 00:09:30,080 Speaker 1: Cross taking more risk, maybe going in with armed escort. 178 00:09:30,280 --> 00:09:32,959 Speaker 1: They were held back more than twenty four hours from 179 00:09:33,280 --> 00:09:37,959 Speaker 1: rescuing citizens, innocent civilians from Mariopal just this past week, 180 00:09:38,400 --> 00:09:41,920 Speaker 1: so more needs to be done. Certainly, other countries need 181 00:09:41,960 --> 00:09:45,400 Speaker 1: to be pressured to put pressure on Russia to allow 182 00:09:45,760 --> 00:09:49,240 Speaker 1: for civilians to be evacuated. But unfortunately, what we see 183 00:09:49,280 --> 00:09:52,800 Speaker 1: here is that Russia is purposely trying to slaughter civilians. 184 00:09:52,800 --> 00:09:55,720 Speaker 1: It's part of their their effort to try to break 185 00:09:55,760 --> 00:09:58,439 Speaker 1: the will of the Ukrainian people and the government. Evelyn, 186 00:09:58,480 --> 00:10:02,200 Speaker 1: how do you see this ending? Well, of course, I'm 187 00:10:02,200 --> 00:10:05,520 Speaker 1: hopeful that the Ukrainians can frankly take back their territory 188 00:10:05,600 --> 00:10:08,720 Speaker 1: and beat the Russians on the battlefield. I don't think 189 00:10:08,760 --> 00:10:13,480 Speaker 1: sanctions are going to destroy Vladimir Putin's intentions here, I 190 00:10:13,480 --> 00:10:17,080 Speaker 1: mean his his his aggressive foreign policy will continue and 191 00:10:17,160 --> 00:10:19,640 Speaker 1: sanctions will take a longer time to have an impact. 192 00:10:19,840 --> 00:10:22,760 Speaker 1: So really it will be determined on the battlefield. We 193 00:10:22,960 --> 00:10:27,760 Speaker 1: if we can provide sufficient or or enough I mean sufficient, 194 00:10:27,800 --> 00:10:29,520 Speaker 1: I don't like the word. But if we can provide 195 00:10:29,679 --> 00:10:32,920 Speaker 1: the military means necessary for Ukraine to push back the 196 00:10:33,000 --> 00:10:36,520 Speaker 1: Russian military, there's a chance that they can regain their territory. 197 00:10:36,559 --> 00:10:40,080 Speaker 1: Other than that, there's a compromise potentially where the Ukrainians 198 00:10:40,280 --> 00:10:42,560 Speaker 1: might have to give up some territory, but I don't 199 00:10:42,559 --> 00:10:45,920 Speaker 1: see that happening anytime soon. In a personal question, your 200 00:10:46,040 --> 00:10:50,360 Speaker 1: father has been definitive on the collapse of the Hungarian 201 00:10:50,480 --> 00:10:54,760 Speaker 1: aristocracy and the time from another place, even before Stalin 202 00:10:55,120 --> 00:10:59,600 Speaker 1: and Hitler. I am fascinated how you believe we can 203 00:11:00,120 --> 00:11:05,840 Speaker 1: laying to the Russian people that Ukraine doesn't need denazification. 204 00:11:06,559 --> 00:11:11,840 Speaker 1: You live, your family lived Nazification. How do we explain 205 00:11:11,880 --> 00:11:17,280 Speaker 1: to them that we don't need to denazify. Well, this 206 00:11:17,360 --> 00:11:20,440 Speaker 1: is a problem. I mean, the Russian government has a 207 00:11:20,520 --> 00:11:24,280 Speaker 1: lot of control over its population through its monopoly on 208 00:11:24,320 --> 00:11:27,160 Speaker 1: the media. That they do have a lot of internet 209 00:11:27,200 --> 00:11:30,480 Speaker 1: saturation in Russia now, and so some people can get 210 00:11:30,720 --> 00:11:35,160 Speaker 1: alternative news and truth, but that's also being increasingly squeezed out. 211 00:11:35,320 --> 00:11:37,800 Speaker 1: And yes, my family I was born in the United States, 212 00:11:37,880 --> 00:11:40,520 Speaker 1: but my parents both fled Communist Hungry and as a 213 00:11:40,600 --> 00:11:43,280 Speaker 1: child I went back to Hungry to visit my grandparents. 214 00:11:43,360 --> 00:11:45,240 Speaker 1: I spent summers in Hungary. I know what it's like 215 00:11:45,320 --> 00:11:47,880 Speaker 1: to live under communism when you can't speak the truth, 216 00:11:47,920 --> 00:11:49,760 Speaker 1: and being told as a ten year old to be 217 00:11:49,880 --> 00:11:52,840 Speaker 1: quiet because I might get my grandparents in trouble, and 218 00:11:52,880 --> 00:11:57,040 Speaker 1: by trouble I understood it meant jail and something pretty serious. So, um, 219 00:11:57,080 --> 00:12:00,000 Speaker 1: you know, the Russian people, we don't really know exactly 220 00:12:00,240 --> 00:12:02,400 Speaker 1: what they think even when there are polls that are taken, 221 00:12:02,840 --> 00:12:06,960 Speaker 1: those are probably somewhat suspect. But unfortunately the brandwashing is 222 00:12:07,000 --> 00:12:11,120 Speaker 1: pretty effective. It's going to take, frankly speaking, the Russian 223 00:12:11,120 --> 00:12:15,320 Speaker 1: soldiers coming home or not coming home, for the Russian 224 00:12:15,360 --> 00:12:18,520 Speaker 1: people to start to figure out what actually they their 225 00:12:18,559 --> 00:12:20,800 Speaker 1: government is doing in their names. So, as I said, 226 00:12:21,040 --> 00:12:24,680 Speaker 1: the home front in Moscow in Russia proper is not 227 00:12:24,800 --> 00:12:26,760 Speaker 1: really where the war is going to be determined. I 228 00:12:26,760 --> 00:12:29,000 Speaker 1: think it's really going to be on the battlefield evident. 229 00:12:29,120 --> 00:12:30,839 Speaker 1: Thank you, as a wife said, you want to get 230 00:12:30,840 --> 00:12:33,920 Speaker 1: seven and focused that the former Deputy Assistant Secretary of 231 00:12:34,040 --> 00:12:45,240 Speaker 1: Defense Dr. Cassidy. Bill Cassidy is from Louisiana. He is 232 00:12:45,280 --> 00:12:48,960 Speaker 1: a force in Baton Rouge win the vote in two 233 00:12:49,000 --> 00:12:52,319 Speaker 1: thousand twenty. Senator Cassidy, thank you so much for joining 234 00:12:52,320 --> 00:12:54,800 Speaker 1: this morning. Before we dive into the clear and present, 235 00:12:54,840 --> 00:12:57,280 Speaker 1: Gou Jing, I need to talk to you about the 236 00:12:57,320 --> 00:13:01,439 Speaker 1: distance from Detroit and the Democrat big Dingle and John 237 00:13:01,520 --> 00:13:06,480 Speaker 1: Dingle out to Kalamazoo on Root ninety four and Fred Upton. 238 00:13:07,000 --> 00:13:12,160 Speaker 1: Fred Upton retired yesterday almost in tears from the Senate 239 00:13:12,679 --> 00:13:16,120 Speaker 1: because he's being pushed out by the Trump part of 240 00:13:16,160 --> 00:13:19,959 Speaker 1: the GOP. You live this. You had a nice re 241 00:13:20,080 --> 00:13:23,800 Speaker 1: election in two thousand twenty. Can you comment on the 242 00:13:23,880 --> 00:13:28,320 Speaker 1: GOP vendetta against those that said we need to impeach 243 00:13:28,440 --> 00:13:32,640 Speaker 1: the president. Well, first, Fred was redistrict in a tough way. 244 00:13:32,760 --> 00:13:35,360 Speaker 1: He lost three hundred fifty thousand of his base voters. 245 00:13:35,800 --> 00:13:37,880 Speaker 1: Now there are some of the party who are mad 246 00:13:37,920 --> 00:13:40,760 Speaker 1: at folks like Upton Matt of folks like me who 247 00:13:40,920 --> 00:13:44,360 Speaker 1: voted for impeachment. Uh, that's just the way it is. 248 00:13:44,840 --> 00:13:48,720 Speaker 1: You do what's right and you live with it. And 249 00:13:48,760 --> 00:13:51,960 Speaker 1: I think Fred is incredibly proud of the integrity that 250 00:13:52,000 --> 00:13:54,920 Speaker 1: he showed with that vote, with the enthusiasm that we hear, 251 00:13:54,960 --> 00:13:58,000 Speaker 1: and suggest that the Republicans may take the House. Indeed, 252 00:13:58,040 --> 00:14:01,480 Speaker 1: the Republicans may take this Senate. What does the new 253 00:14:01,559 --> 00:14:06,800 Speaker 1: majority Republican Congress need to do day one? Yeah, day one, 254 00:14:06,800 --> 00:14:08,280 Speaker 1: we need to have to We need to start going 255 00:14:08,280 --> 00:14:13,720 Speaker 1: after inflation. Inflation. Inflation right now is being driven by energy. 256 00:14:14,160 --> 00:14:17,080 Speaker 1: Uh cost both direct the cost of the pomp on 257 00:14:17,080 --> 00:14:20,880 Speaker 1: your fuel build, but the indirect the inputs to the fertilizer, 258 00:14:21,080 --> 00:14:22,880 Speaker 1: the go to the crops. That's a lot higher now 259 00:14:22,920 --> 00:14:26,320 Speaker 1: as well, I proposed an operation warp speed. Just like 260 00:14:26,400 --> 00:14:29,360 Speaker 1: we took the vaccine and within ten months had something 261 00:14:29,480 --> 00:14:32,240 Speaker 1: predicted to take two to ten years, we should take 262 00:14:33,120 --> 00:14:36,840 Speaker 1: a regulatory kind of let's get all together and figure 263 00:14:36,840 --> 00:14:40,440 Speaker 1: out how we can increase supply and decrease prices for 264 00:14:40,560 --> 00:14:44,760 Speaker 1: US and our allies within ten months, if not shorter. 265 00:14:45,000 --> 00:14:47,240 Speaker 1: We can do that, but we need the regulatory agencies. 266 00:14:47,280 --> 00:14:49,360 Speaker 1: We need an operation warp speed. Seneca, where do you 267 00:14:49,400 --> 00:14:52,560 Speaker 1: see this fitting into eventually moving away from less of 268 00:14:52,560 --> 00:14:56,680 Speaker 1: a reliance and fossil fuels. Yeah, so right now, believe 269 00:14:56,680 --> 00:15:00,360 Speaker 1: it or not, there is a regulatory uncertainty for renew doubles. 270 00:15:00,680 --> 00:15:05,120 Speaker 1: There's a regulatory uncertainty for carbon capture utilization sequestration. So 271 00:15:05,160 --> 00:15:07,560 Speaker 1: what I'm speaking of is not just oil and gas. 272 00:15:07,840 --> 00:15:11,600 Speaker 1: It is also the ccus that Louisiana has been waiting 273 00:15:11,640 --> 00:15:14,720 Speaker 1: for Regions six E p A in Dallas to get 274 00:15:14,760 --> 00:15:18,920 Speaker 1: off their duff on our application since October of last year. 275 00:15:19,760 --> 00:15:23,160 Speaker 1: So excuse me, senator, are you saying basically that it 276 00:15:23,200 --> 00:15:26,520 Speaker 1: could just be a regulatory fix that could plug the hole, 277 00:15:26,600 --> 00:15:29,080 Speaker 1: that could plug the gap in some of the supplies 278 00:15:29,120 --> 00:15:32,280 Speaker 1: that we're seeing, at least in part stemming from Russia. 279 00:15:33,280 --> 00:15:37,280 Speaker 1: It could be a regulatory fix as well as regulatory certainty. Um. 280 00:15:37,960 --> 00:15:41,200 Speaker 1: Right now, it's death by a thousand cuts to fossil fuel. 281 00:15:41,440 --> 00:15:44,880 Speaker 1: So why are you going to invest when OPEC may 282 00:15:44,920 --> 00:15:49,560 Speaker 1: decide to collapse prices and you're left with regulations which etcetera, etcetera. 283 00:15:50,000 --> 00:15:53,880 Speaker 1: So my point being that if you could have regulatory certainty, 284 00:15:54,400 --> 00:15:57,160 Speaker 1: have a little bit of capital injection to kind of 285 00:15:57,160 --> 00:16:00,920 Speaker 1: commit the federal government, yes, you oil field service providers, 286 00:16:01,160 --> 00:16:03,840 Speaker 1: we're not going to leave you out hanging bankrupt, then 287 00:16:03,840 --> 00:16:07,400 Speaker 1: we could rapidly improve, increase production, Bill cassidy. You on 288 00:16:07,520 --> 00:16:09,800 Speaker 1: the high ground on this and today it's gonna be 289 00:16:09,840 --> 00:16:12,720 Speaker 1: big oil that's gonna talk about price gouging and that. 290 00:16:13,120 --> 00:16:17,840 Speaker 1: But you live it in Donaldsonville, Louisiana, with CF Industries 291 00:16:18,080 --> 00:16:22,720 Speaker 1: the largest nitrogen fertilizer company, I believe in America maybe 292 00:16:22,720 --> 00:16:25,640 Speaker 1: in the world, I'm not sure on that explained to 293 00:16:25,720 --> 00:16:31,960 Speaker 1: us how the people in Donaldsonville aren't price gouging fertilizer. Yeah, 294 00:16:32,000 --> 00:16:36,720 Speaker 1: so natural gas is a feedstock for fertilizer UM, and 295 00:16:36,840 --> 00:16:42,040 Speaker 1: so if your inputs rise, then it's going to increase 296 00:16:42,080 --> 00:16:45,440 Speaker 1: the cost of the final product. Now there's also the 297 00:16:45,480 --> 00:16:49,239 Speaker 1: ability to ship. There's also other aspects of the logistical 298 00:16:49,240 --> 00:16:52,720 Speaker 1: supply chain. Obviously, it costs more to maintain your plant, 299 00:16:52,720 --> 00:16:56,240 Speaker 1: costs more for labor because of general inflation. But that's 300 00:16:56,280 --> 00:16:58,680 Speaker 1: just gonna be a little bit of a gap. Now, 301 00:16:58,720 --> 00:17:00,920 Speaker 1: you could sell it below prod ice in which some 302 00:17:01,000 --> 00:17:02,960 Speaker 1: middle person is going to buy it and then sell 303 00:17:02,960 --> 00:17:05,440 Speaker 1: it at the market rate, but in somewhere there's going 304 00:17:05,440 --> 00:17:09,439 Speaker 1: to be a markup. Senator, amid this soup of information, 305 00:17:09,480 --> 00:17:12,720 Speaker 1: the soup of concern around gas prices, how concerned are 306 00:17:12,760 --> 00:17:15,640 Speaker 1: you or how upset will you be if you see 307 00:17:15,720 --> 00:17:20,000 Speaker 1: oil companies post bang gangbusters up profits in the next 308 00:17:20,040 --> 00:17:23,400 Speaker 1: earning season, Well, you want to look at the reason 309 00:17:23,440 --> 00:17:26,560 Speaker 1: for their profit. Um uh, let me just say that. 310 00:17:27,080 --> 00:17:28,880 Speaker 1: And if they're going to use that profit to turn 311 00:17:28,880 --> 00:17:33,040 Speaker 1: around and invest in the new um fields that we 312 00:17:33,080 --> 00:17:36,000 Speaker 1: need in order to increase production, well isn't that a 313 00:17:36,040 --> 00:17:38,600 Speaker 1: good thing? And let me point out about I don't know, 314 00:17:38,640 --> 00:17:43,080 Speaker 1: a year ago, people had to sell their oil at 315 00:17:43,160 --> 00:17:46,920 Speaker 1: a zero below zero price. There was no storage, They 316 00:17:46,920 --> 00:17:49,560 Speaker 1: had to pay people to take their oil. So there's 317 00:17:49,560 --> 00:17:51,919 Speaker 1: always going to be some rises and falls. What you 318 00:17:51,960 --> 00:17:54,760 Speaker 1: want to see those the capital investment that long term 319 00:17:55,400 --> 00:17:58,200 Speaker 1: creates more certainty in terms of our fuel supply. Senator 320 00:17:58,240 --> 00:18:01,120 Speaker 1: Bill Cassidy, if Louisiana said it, thank you for being 321 00:18:01,119 --> 00:18:10,359 Speaker 1: with us today with Michael Collins. He's a pie jum. 322 00:18:10,760 --> 00:18:13,200 Speaker 1: And what's cool for our global audience is the state 323 00:18:13,320 --> 00:18:16,760 Speaker 1: university system of New York. And in my ute, everyone 324 00:18:16,840 --> 00:18:20,240 Speaker 1: knew the most prestigious math program was if you could 325 00:18:20,280 --> 00:18:24,960 Speaker 1: survive it at Binghamton, New York. Michael Collins survived mathematics 326 00:18:24,960 --> 00:18:27,600 Speaker 1: at Binghamton, which is a big deal when we were 327 00:18:27,600 --> 00:18:31,719 Speaker 1: growing up. He's senior portfolio manager again, pijam, Mike Buried 328 00:18:31,760 --> 00:18:36,800 Speaker 1: in your mathematical note, is the economic bet of pijum 329 00:18:36,880 --> 00:18:40,399 Speaker 1: that the wage spiral or the wage worry, including what 330 00:18:40,520 --> 00:18:44,199 Speaker 1: Bill Dudley saw in the last hour, May ebb away. 331 00:18:44,760 --> 00:18:48,720 Speaker 1: Do you see evidence of that yet? You know, we're 332 00:18:48,760 --> 00:18:52,960 Speaker 1: just started to see Tom the wage growth uh and 333 00:18:53,040 --> 00:18:56,720 Speaker 1: the labor market growth start to flatten out here UH 334 00:18:56,760 --> 00:18:58,760 Speaker 1: and maybe start to roll over. You see it in 335 00:18:58,840 --> 00:19:01,920 Speaker 1: hours worked in the in the report we got on Friday. 336 00:19:01,960 --> 00:19:05,800 Speaker 1: So so I think you have probably passed the peak 337 00:19:05,920 --> 00:19:09,280 Speaker 1: rate of growth UH in wage certainly the peak rate 338 00:19:09,359 --> 00:19:11,639 Speaker 1: of inflation. I would argue as well. You're going on 339 00:19:11,800 --> 00:19:15,000 Speaker 1: calculus on it's like lyle Brainer did yesterday when she 340 00:19:15,119 --> 00:19:18,520 Speaker 1: talked about the rapid pace. Let's call it the second 341 00:19:18,520 --> 00:19:23,320 Speaker 1: derivatives of in these markets? How do you actually prosecute 342 00:19:23,400 --> 00:19:27,199 Speaker 1: bond management given the rate of the rate of change 343 00:19:27,400 --> 00:19:30,480 Speaker 1: right now? Yeah, Well we all know, Tom that the 344 00:19:30,520 --> 00:19:33,560 Speaker 1: markets really do focus on second derivatives, right, and it's 345 00:19:33,600 --> 00:19:37,119 Speaker 1: it's the change that really matters more than the stock right. 346 00:19:37,160 --> 00:19:40,439 Speaker 1: When it comes to quantitative tightening, for example, you know 347 00:19:40,480 --> 00:19:42,199 Speaker 1: a lot of people will look at well, the balance 348 00:19:42,200 --> 00:19:44,440 Speaker 1: sheet is nine trillion, so it goes to eight and 349 00:19:44,440 --> 00:19:46,840 Speaker 1: a half. What's the big deal? Uh, it is a 350 00:19:46,880 --> 00:19:50,120 Speaker 1: big deal. Right. When the Fed embarks on quantitative easing, 351 00:19:50,520 --> 00:19:55,440 Speaker 1: you see a super high direct correlation with asset prices 352 00:19:55,480 --> 00:19:58,960 Speaker 1: going up. So what we're contemplating in our shop, Tom, 353 00:19:59,040 --> 00:20:02,119 Speaker 1: is when they do unitative tightening, do you get a 354 00:20:02,160 --> 00:20:06,520 Speaker 1: symmetrical um pull back in asset prices or is it 355 00:20:06,560 --> 00:20:10,639 Speaker 1: more measured as the Fed tries to um signal that 356 00:20:10,720 --> 00:20:15,200 Speaker 1: quantitative tightening is watching paint dry and it's on autopilot, 357 00:20:15,480 --> 00:20:17,560 Speaker 1: and it's it's not going to be a big impact 358 00:20:17,560 --> 00:20:19,280 Speaker 1: on the markets. But I do worry that it will 359 00:20:19,320 --> 00:20:22,119 Speaker 1: result in much tighter financial conditions. So let's since you 360 00:20:22,200 --> 00:20:24,520 Speaker 1: walked right into the big debate of the day. It 361 00:20:24,600 --> 00:20:28,520 Speaker 1: does quantitative tightening cause higher longer term bond fields or 362 00:20:28,560 --> 00:20:32,400 Speaker 1: lower ones? Yeah, it's the opposite of what everybody thinks. Right. 363 00:20:32,400 --> 00:20:37,080 Speaker 1: By the time they start the quantitative easing, right, typically 364 00:20:37,160 --> 00:20:40,720 Speaker 1: rates have plummeted, your your inner recession. Uh it's a 365 00:20:40,960 --> 00:20:43,840 Speaker 1: big risk off. And what happens when they start buying 366 00:20:43,920 --> 00:20:47,160 Speaker 1: bonds rates go up because what they're trying to do 367 00:20:47,320 --> 00:20:49,919 Speaker 1: is get inflation higher. And it's going to be the 368 00:20:49,920 --> 00:20:53,520 Speaker 1: exact opposite when they do quantitative tightening. The markets have 369 00:20:53,600 --> 00:20:56,320 Speaker 1: already priced in. Look where rates are, right, Look where 370 00:20:56,520 --> 00:21:00,600 Speaker 1: inflation expectations are, they're kind of peaking here. Uh So 371 00:21:00,640 --> 00:21:04,200 Speaker 1: by the time they start tightening policy through through rate 372 00:21:04,320 --> 00:21:08,399 Speaker 1: hikes and simultaneous quantitative tightening, which we've never seen in 373 00:21:08,720 --> 00:21:11,919 Speaker 1: our lives. Right, this this kind of quick reversal of 374 00:21:11,960 --> 00:21:15,639 Speaker 1: monetary policy on so many fronts. I think you're going 375 00:21:15,680 --> 00:21:17,680 Speaker 1: to see a peak and rates at that time. So 376 00:21:17,720 --> 00:21:20,240 Speaker 1: a peak and rates at that time, are you buying 377 00:21:20,359 --> 00:21:23,879 Speaker 1: tenure treasuries at this point? Saying two point six looks 378 00:21:23,960 --> 00:21:27,399 Speaker 1: golden over the long term. Yeah. I mean, fortunately we 379 00:21:27,440 --> 00:21:29,800 Speaker 1: had we had cut duration earlier this year and we 380 00:21:29,800 --> 00:21:33,800 Speaker 1: were we were short uh duration marginally in the US 381 00:21:33,880 --> 00:21:36,520 Speaker 1: and just really in the last week or so, we've 382 00:21:36,560 --> 00:21:39,040 Speaker 1: we've covered in most of that and we're kind of 383 00:21:39,080 --> 00:21:41,920 Speaker 1: flat duration. I mean, there there can be a better 384 00:21:42,040 --> 00:21:45,439 Speaker 1: entry point. I mean, personally, I'd love to be you know, 385 00:21:45,720 --> 00:21:48,919 Speaker 1: long duration at some point over the next you know, 386 00:21:48,960 --> 00:21:51,160 Speaker 1: a few months or a few quarters. But for this 387 00:21:51,280 --> 00:21:53,520 Speaker 1: at this point, we're just kind of waiting for for 388 00:21:53,600 --> 00:21:56,320 Speaker 1: the right entry point, uh and it will come right 389 00:21:56,359 --> 00:21:59,480 Speaker 1: and it typically comes right around the time the Fed 390 00:21:59,560 --> 00:22:02,800 Speaker 1: starts fighting policy aggressively, and they really haven't started that 391 00:22:02,920 --> 00:22:06,359 Speaker 1: right and they're going to start in earnest really soon, Michael. 392 00:22:06,359 --> 00:22:08,960 Speaker 1: The movable feast, which is the terminal yield or the 393 00:22:09,119 --> 00:22:12,080 Speaker 1: terminal dot plot as an ex exist and also a 394 00:22:12,200 --> 00:22:15,200 Speaker 1: level what's the level of the tenure yield and how 395 00:22:15,240 --> 00:22:19,200 Speaker 1: far out is that terminal yield right now? Yeah, it's 396 00:22:19,200 --> 00:22:22,560 Speaker 1: really fascinating time to to look at what's happening with 397 00:22:22,680 --> 00:22:25,760 Speaker 1: forward rates, what the market is pricing in the markets 398 00:22:25,760 --> 00:22:29,399 Speaker 1: are basically pricing in a funds rate right now and 399 00:22:29,480 --> 00:22:31,879 Speaker 1: like a year or year and a half of close 400 00:22:31,920 --> 00:22:35,040 Speaker 1: to three and a quarter now, right, so three hundred 401 00:22:35,040 --> 00:22:39,320 Speaker 1: basis points almost of incremental hikes. But a year and 402 00:22:39,440 --> 00:22:42,560 Speaker 1: two years and three years after that, the markets are 403 00:22:42,560 --> 00:22:45,640 Speaker 1: pricing in almost a hundred basis points of rate cuts. 404 00:22:46,080 --> 00:22:49,640 Speaker 1: I don't recall ever in our life FED has FED, 405 00:22:49,680 --> 00:22:52,720 Speaker 1: hasn't even started or has just started hiking, and the 406 00:22:52,760 --> 00:22:55,040 Speaker 1: markets are pricing in a hundred basis points of cuts 407 00:22:55,320 --> 00:22:57,520 Speaker 1: in in the out years. And I actually think that's 408 00:22:57,520 --> 00:23:00,680 Speaker 1: a pretty brilliant And I called up the parlor game. 409 00:23:00,680 --> 00:23:03,239 Speaker 1: It's just to me, it's just absolutely idiotic. But what 410 00:23:03,320 --> 00:23:06,440 Speaker 1: you just said what I find fascinating, And this goes 411 00:23:06,480 --> 00:23:08,960 Speaker 1: to what Bill Dudley was talking about an hour ago. 412 00:23:09,560 --> 00:23:12,399 Speaker 1: Is the idea of in a year and a half, 413 00:23:13,359 --> 00:23:17,879 Speaker 1: what does your world, seriously, what is the PGAM insurance 414 00:23:18,000 --> 00:23:23,320 Speaker 1: asset management conservative money world do if you get that 415 00:23:23,640 --> 00:23:28,520 Speaker 1: magnitude of change over eighteen months. Yeah, well, I mean 416 00:23:28,520 --> 00:23:31,200 Speaker 1: that's that's based probably our base case, Tom, that you're 417 00:23:31,240 --> 00:23:34,679 Speaker 1: going to have growth slowing. I believe we're already at 418 00:23:34,720 --> 00:23:37,760 Speaker 1: the beginning stages of what could be a pretty significant 419 00:23:38,200 --> 00:23:42,439 Speaker 1: level of demand destruction from higher inflation. And now you're 420 00:23:42,480 --> 00:23:45,920 Speaker 1: seeing higher rates and tighter financial conditions, I mean mortgage 421 00:23:45,920 --> 00:23:50,000 Speaker 1: refinancings are plummeting, mortgage rates are pressing against five percent 422 00:23:50,440 --> 00:23:54,400 Speaker 1: this morning. I mean housing has become basically unaffordable for 423 00:23:54,400 --> 00:23:57,040 Speaker 1: for most of the people in this country. That is 424 00:23:57,080 --> 00:24:00,480 Speaker 1: tighter financial conditions. Growth is going to slow. It's just 425 00:24:00,520 --> 00:24:03,479 Speaker 1: a matter of how much and how fast. But certainly 426 00:24:03,520 --> 00:24:05,120 Speaker 1: in a year, a year and a half from now, 427 00:24:05,359 --> 00:24:07,480 Speaker 1: we could be in a very different world where the 428 00:24:07,520 --> 00:24:10,840 Speaker 1: FED is pausing on rate hikes and maybe even contemplate 429 00:24:10,920 --> 00:24:13,159 Speaker 1: and cuts. So what you do as an investor you 430 00:24:13,280 --> 00:24:16,240 Speaker 1: try to take the long term view, knowing that in 431 00:24:16,359 --> 00:24:18,119 Speaker 1: three and five years, Tom, the funds rate is going 432 00:24:18,200 --> 00:24:20,879 Speaker 1: to be back to zero, right, the tenure will probably 433 00:24:20,960 --> 00:24:23,440 Speaker 1: be back to one at some point over the next 434 00:24:23,480 --> 00:24:25,760 Speaker 1: five years, So you want to take advantage of that, 435 00:24:25,880 --> 00:24:28,920 Speaker 1: capitalize on that, on that capital gain you can get 436 00:24:28,960 --> 00:24:31,200 Speaker 1: by being along duration. Tom, I just want to be cleared. 437 00:24:31,200 --> 00:24:33,000 Speaker 1: Did you just call the parlor game of trying to 438 00:24:33,040 --> 00:24:37,159 Speaker 1: game out FED policy into the future? Idiotic? Is that right? 439 00:24:37,320 --> 00:24:40,280 Speaker 1: I agree with Michael Collins were in an absolutely original place. 440 00:24:40,600 --> 00:24:45,359 Speaker 1: I just I was talking to uh. I think it 441 00:24:45,440 --> 00:24:50,720 Speaker 1: was a quantist this morning about Richard Timberlake of of Georgia. 442 00:24:51,640 --> 00:24:54,720 Speaker 1: Timberlake never wrote about this. Meltzer never wrote about this. 443 00:24:54,840 --> 00:24:57,480 Speaker 1: Anna Schwartz never wrote about this. This is unheard of 444 00:24:57,640 --> 00:25:00,240 Speaker 1: territory and what we're moving toward. And Michael, this is 445 00:25:00,280 --> 00:25:02,520 Speaker 1: what you were picking up on the idea that at 446 00:25:02,600 --> 00:25:05,480 Speaker 1: some point the feed is going to trigger a downturn. 447 00:25:05,520 --> 00:25:08,760 Speaker 1: You're going to see growth materially slow down. The question 448 00:25:08,880 --> 00:25:11,600 Speaker 1: is will it be something controlled or will it be 449 00:25:11,640 --> 00:25:15,320 Speaker 1: a dramatic downturn, something that's a recession that's sooner than expected. 450 00:25:15,560 --> 00:25:18,359 Speaker 1: Deutsche Bank came out and so they expect a recession 451 00:25:18,480 --> 00:25:22,399 Speaker 1: in the United States in do you agree? Do you 452 00:25:22,400 --> 00:25:25,320 Speaker 1: think that that's looking increasingly likely as we look at 453 00:25:25,359 --> 00:25:28,000 Speaker 1: what the FED has to do to get markets basically 454 00:25:28,080 --> 00:25:30,840 Speaker 1: to believe them. Yeah, I think the probability of a 455 00:25:30,840 --> 00:25:33,840 Speaker 1: pretty significant global slowdown, and you're already seeing it, you know, 456 00:25:33,920 --> 00:25:36,520 Speaker 1: in big parts of the world in Europe and China. 457 00:25:36,560 --> 00:25:38,080 Speaker 1: We got p m I s out of China below 458 00:25:38,119 --> 00:25:40,560 Speaker 1: fifty today and and the US just cannot you know, 459 00:25:40,640 --> 00:25:43,240 Speaker 1: be an island of prosperity onto itself. So you will 460 00:25:43,240 --> 00:25:45,720 Speaker 1: see global growth slow. The question is what does the 461 00:25:45,760 --> 00:25:48,879 Speaker 1: recession the recession look like and I actually am pretty 462 00:25:48,880 --> 00:25:51,120 Speaker 1: constructive on this one, right, And if you look at 463 00:25:51,359 --> 00:25:54,600 Speaker 1: consumer balance sheets, you look at corporate balance sheets and 464 00:25:54,640 --> 00:25:57,399 Speaker 1: the liquidity they have in the profit margins and the 465 00:25:57,480 --> 00:26:00,800 Speaker 1: and the wherewithal to kind of withstand some weakness here. 466 00:26:00,840 --> 00:26:03,200 Speaker 1: This is not going to be a big business or 467 00:26:03,280 --> 00:26:06,119 Speaker 1: consumer led contraction. I feel like it's gonna be almost 468 00:26:06,119 --> 00:26:08,480 Speaker 1: like two thousand and two thousand one, where you get 469 00:26:08,480 --> 00:26:12,760 Speaker 1: a big correction and asset prices possibly uh and some 470 00:26:12,760 --> 00:26:15,600 Speaker 1: some pain in the markets. But but you know, back then, 471 00:26:15,640 --> 00:26:18,640 Speaker 1: you hardly saw consumers spending uh, you know, go down 472 00:26:18,680 --> 00:26:21,679 Speaker 1: at all. And maybe it's that kind of mild recession 473 00:26:21,800 --> 00:26:24,800 Speaker 1: or big gold global slowdown. Mike, you are just awesome. 474 00:26:24,960 --> 00:26:27,040 Speaker 1: I'm miss sitting around a table with you, Sir Mike 475 00:26:27,040 --> 00:26:36,240 Speaker 1: Collins there of AJM. Mike, thank you a well time 476 00:26:36,280 --> 00:26:39,200 Speaker 1: meeting with Lindsay pigs a chief economists of Steve What. 477 00:26:39,280 --> 00:26:41,800 Speaker 1: We're thrilled that she could join us this morning. Lindsay, 478 00:26:41,840 --> 00:26:44,240 Speaker 1: I got to get to May four, and I guess 479 00:26:44,240 --> 00:26:46,199 Speaker 1: there's the hides of March, but tell me about the 480 00:26:46,280 --> 00:26:49,000 Speaker 1: IDEs of April. First, I got to get to April 481 00:26:49,040 --> 00:26:54,359 Speaker 1: fift What data matters for loud Brainer, Jerome Paul, and 482 00:26:54,440 --> 00:26:56,879 Speaker 1: Lindsay pigs Uh. As we try to get to the 483 00:26:56,920 --> 00:27:00,320 Speaker 1: IDEs of April, I think, first and foremost, the FED 484 00:27:00,440 --> 00:27:03,240 Speaker 1: is going to be focused on inflation. Inflation is the 485 00:27:03,320 --> 00:27:06,120 Speaker 1: driver of the fed's new more hawkish position, and it's 486 00:27:06,119 --> 00:27:10,280 Speaker 1: inflation that's driving this forward pathway for rate hikes. The 487 00:27:10,320 --> 00:27:12,800 Speaker 1: FED telling us now that the consensus is for six 488 00:27:12,840 --> 00:27:17,400 Speaker 1: additional increases potentially coming in fifty basis point increases. That 489 00:27:17,440 --> 00:27:21,320 Speaker 1: new position, that more aggressive pathway is driven by inflation. 490 00:27:21,440 --> 00:27:24,879 Speaker 1: So as prices continue to rise, be that lingering pressures 491 00:27:24,880 --> 00:27:28,239 Speaker 1: from the supply chain disruptions or new upward pressures from 492 00:27:28,240 --> 00:27:30,879 Speaker 1: the Russia Ukraine conflict, that is what is going to 493 00:27:30,920 --> 00:27:33,359 Speaker 1: determine the pathway forward for the federal funds race and 494 00:27:33,440 --> 00:27:36,960 Speaker 1: goods and services. What is the distinction in moving from 495 00:27:37,080 --> 00:27:40,399 Speaker 1: seven to a survey to eight point three percent? Is 496 00:27:40,440 --> 00:27:43,760 Speaker 1: that a goods umph or a service umph? Oh? I 497 00:27:43,800 --> 00:27:46,480 Speaker 1: think it's both. I think we're seeing price pressures in both. 498 00:27:46,520 --> 00:27:48,880 Speaker 1: I think the FED is washing the fact that prices 499 00:27:48,920 --> 00:27:52,800 Speaker 1: are no longer transitory. They're now broad brain, excuse me, 500 00:27:52,880 --> 00:27:56,959 Speaker 1: broad based across nearly every sector of the economy, and 501 00:27:57,040 --> 00:28:00,000 Speaker 1: that is sparking fears that we're moving closer and closer 502 00:28:00,040 --> 00:28:03,879 Speaker 1: to a wage price spiral where prices rise, pushing wages higher, 503 00:28:03,920 --> 00:28:07,639 Speaker 1: pushing prices higher, etcetera, etcetera. And so the FED is 504 00:28:08,119 --> 00:28:12,119 Speaker 1: very much focused on capping inflation, starting to imply that 505 00:28:12,240 --> 00:28:16,280 Speaker 1: second derivative decline, meaning a still positive pace of price pressures, 506 00:28:16,320 --> 00:28:19,240 Speaker 1: but a slower pace, and then eventually moving on to 507 00:28:19,359 --> 00:28:23,280 Speaker 1: an outright decline in price growth towards that two percent 508 00:28:23,680 --> 00:28:25,760 Speaker 1: two percent target for the FED. Lindsay, do you think 509 00:28:25,800 --> 00:28:28,560 Speaker 1: that people are overestimating or underestimating the strength of the 510 00:28:28,600 --> 00:28:31,960 Speaker 1: consumer right now? Oh, I think people are overestimating the 511 00:28:32,000 --> 00:28:35,840 Speaker 1: strength of the consumer. We hear about the consumer being strong, 512 00:28:35,920 --> 00:28:38,840 Speaker 1: we hear about the economy being strong, and the potential 513 00:28:38,880 --> 00:28:42,440 Speaker 1: for the FED to undermine this strength in the economy. 514 00:28:42,520 --> 00:28:45,479 Speaker 1: The economy is not overheating. The economy is not strong. 515 00:28:45,800 --> 00:28:49,200 Speaker 1: The economy is just moderate at best, and arguably poised 516 00:28:49,200 --> 00:28:53,120 Speaker 1: to already slow as we're still struggling to grow organic 517 00:28:53,280 --> 00:28:56,240 Speaker 1: legs in the aftermath of the worst of the COVID pandemic. 518 00:28:56,560 --> 00:29:00,520 Speaker 1: Consumers are still very much relying on an accumulated savings 519 00:29:00,840 --> 00:29:04,040 Speaker 1: as a result of very generous federal programs as a 520 00:29:04,040 --> 00:29:07,920 Speaker 1: result of a shift in spending patterns from pre pandemic 521 00:29:07,960 --> 00:29:11,960 Speaker 1: to post pandemic. As we saw an additional and check 522 00:29:12,000 --> 00:29:15,440 Speaker 1: in many people's mailboxes for that enhanced child tax credits. 523 00:29:15,680 --> 00:29:18,040 Speaker 1: There were a number of different factors that really build 524 00:29:18,120 --> 00:29:21,480 Speaker 1: up that wealth cushion, and that continues to support consumers 525 00:29:21,560 --> 00:29:25,200 Speaker 1: for now, but it will not support consumers indefinitely. Well, 526 00:29:25,240 --> 00:29:26,560 Speaker 1: and that was really where I was going to go 527 00:29:26,600 --> 00:29:28,560 Speaker 1: the time frame here, How long is it going to 528 00:29:28,640 --> 00:29:31,200 Speaker 1: take before that weakness that you're talking about starts to 529 00:29:31,200 --> 00:29:35,400 Speaker 1: present itself in earnings in other economic data. Oh, I 530 00:29:35,400 --> 00:29:37,560 Speaker 1: think we're already seeing the weakness. Even if you look 531 00:29:37,600 --> 00:29:40,360 Speaker 1: at fourth quarter GDP, which was up near seven percent. 532 00:29:40,760 --> 00:29:43,360 Speaker 1: When you strip out inventories and we look at real 533 00:29:43,520 --> 00:29:47,320 Speaker 1: final sales, you're talking about one point five percent and 534 00:29:47,440 --> 00:29:50,720 Speaker 1: Q one GDP shaping up to be a significant disappointment, 535 00:29:50,760 --> 00:29:54,840 Speaker 1: well below two percent. So we're already seeing that weakness now. 536 00:29:54,840 --> 00:29:56,880 Speaker 1: When I think the bigger question is when do we 537 00:29:56,920 --> 00:30:00,600 Speaker 1: see that translate into negative GDP? And do think we'll 538 00:30:00,600 --> 00:30:04,000 Speaker 1: continue to float around positive territory for the next six 539 00:30:04,040 --> 00:30:07,080 Speaker 1: to nine months, but getting that first outright negative print 540 00:30:07,240 --> 00:30:09,480 Speaker 1: by the first quarder of next year. You're looking for 541 00:30:09,520 --> 00:30:11,800 Speaker 1: a negative print on real g d P by the 542 00:30:11,840 --> 00:30:15,760 Speaker 1: first quarter of two thousand three. That's correct. I do 543 00:30:15,880 --> 00:30:18,360 Speaker 1: think at that point the FED will have raised rates 544 00:30:18,560 --> 00:30:22,120 Speaker 1: enough to choke off domestic growth. Now will we see 545 00:30:22,120 --> 00:30:25,200 Speaker 1: a technical recession? That's a question for whether or not 546 00:30:25,280 --> 00:30:28,240 Speaker 1: the FED can identify the weakness and then pull back 547 00:30:28,280 --> 00:30:31,240 Speaker 1: after a series of bread increases. If they continue to 548 00:30:31,280 --> 00:30:33,920 Speaker 1: move forward, I do think we go into technical recession. 549 00:30:34,240 --> 00:30:36,719 Speaker 1: If they have the wherewithal to pull back, we may 550 00:30:36,800 --> 00:30:40,240 Speaker 1: be able to navigate not necessarily a soft landing, but 551 00:30:40,360 --> 00:30:43,200 Speaker 1: a very brief dip into negative territory. And there you 552 00:30:43,200 --> 00:30:45,280 Speaker 1: are two days in a row. Folks is Lindsay Pegs 553 00:30:45,280 --> 00:30:47,760 Speaker 1: of pulls forward or Deutsche Bank and Matt Lozettie we're 554 00:30:47,760 --> 00:30:51,120 Speaker 1: talking about yesterday from late two thousand twenty three. If 555 00:30:51,160 --> 00:30:53,040 Speaker 1: the Fed bollox is it up, maybe we see a 556 00:30:53,160 --> 00:30:56,600 Speaker 1: Q one of two thousand dr pigs. And thank you 557 00:30:56,640 --> 00:31:01,680 Speaker 1: so much for joining yours. This is the Bloomberg Surveillance Podcast. 558 00:31:01,920 --> 00:31:05,280 Speaker 1: Thanks for listening. Join us live weekdays from seven to 559 00:31:05,360 --> 00:31:09,440 Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg television 560 00:31:09,800 --> 00:31:13,760 Speaker 1: each day from six to nine am for insight from 561 00:31:13,800 --> 00:31:18,360 Speaker 1: the best in economics, finance, investment, and international relations. And 562 00:31:18,480 --> 00:31:23,600 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 563 00:31:23,680 --> 00:31:27,400 Speaker 1: dot com, and of course, on the terminal. I'm Tom Keene, 564 00:31:27,400 --> 00:31:29,400 Speaker 1: and this is Bloomberg.