WEBVTT - Surveillance: Fed Tightening with Dudley 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you 0:00:13.320 --> 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 --> 0:00:29.960 and of course on the Bloomberg terminal. William Dudley of 0:00:30.000 --> 0:00:32.479 course went on to Goldman Sachs and then on to 0:00:32.640 --> 0:00:34.760 his public service at the New York Fed, and we're 0:00:34.800 --> 0:00:37.960 thrilled that Dr Dudley could join us this morning. We've 0:00:37.960 --> 0:00:40.560 got a lot of questions built off your important essay 0:00:40.560 --> 0:00:43.120 al at John and Lisa get to that define the 0:00:43.240 --> 0:00:49.080 difference between Vulker and brainerd inflation. What's different with this 0:00:49.200 --> 0:00:52.839 seven eight percent versus a seven eight percent when you 0:00:52.880 --> 0:00:56.960 were certified at Berkeley. I think the difference is that 0:00:57.120 --> 0:00:59.920 the inflation that Boker had to fight built up over 0:01:00.000 --> 0:01:03.560 a long period of time, and so inflation expectations started 0:01:03.600 --> 0:01:06.200 to rise pretty significantly. So it's much harder to get 0:01:06.280 --> 0:01:08.400 rid of the inflation than the inflation we have now. 0:01:08.720 --> 0:01:11.399 The good news is that the inflation expectations are still 0:01:11.480 --> 0:01:14.119 relatively well anchored, so that would imply that the Federal 0:01:14.160 --> 0:01:16.720 Reserve isn't gonna have to do quite as much to 0:01:16.840 --> 0:01:20.039 push inflation back down your line in your pace this morning. 0:01:20.040 --> 0:01:22.680 In the late paragraph, Bell, I think it's got everyone's attention, 0:01:22.720 --> 0:01:24.480 so I'll repeat it for everybody who hasn't heard it 0:01:24.600 --> 0:01:27.320 so far. To be effective, it will have to inflect 0:01:27.360 --> 0:01:30.759 more losses, inflict more losses on stock and bond investors 0:01:30.959 --> 0:01:33.800 than it has so far. Bill runners through financial conditions 0:01:33.800 --> 0:01:36.360 and how you gauge financial conditions and why you might 0:01:36.400 --> 0:01:39.520 believe it stocks for a big part of that. Well, 0:01:39.560 --> 0:01:42.000 financial conditions are important in the United States, and sure 0:01:42.080 --> 0:01:46.800 Paula has emphasized this in his prepared remarks because that's 0:01:46.800 --> 0:01:49.440 how Montrey policy works. So you guys, E commy doesn't 0:01:49.560 --> 0:01:51.960 really run on short term interest rates. It really runs 0:01:52.000 --> 0:01:54.120 on long term interest rates. And the stock market is 0:01:54.120 --> 0:01:56.880 also important because a lot of people have exposure to 0:01:56.920 --> 0:01:58.720 the stock market and the level of the stock market 0:01:58.760 --> 0:02:01.960 affects their wealth. So the Fed has said pretty clearly 0:02:02.440 --> 0:02:05.560 we need to tighten financial conditions to slow the economy down, 0:02:05.600 --> 0:02:08.919 to keep inflation and check, and so far financial conditions 0:02:08.960 --> 0:02:11.760 really haven't tightened very much. The stock market is only 0:02:11.919 --> 0:02:14.520 for percent or so off it's high. It's still up 0:02:14.639 --> 0:02:16.640 very sharply from where it was a couple of years ago. 0:02:17.120 --> 0:02:19.239 And body els, you know, two point five two point 0:02:19.320 --> 0:02:23.400 six are still really low, especially when you adjust for inflation. 0:02:23.760 --> 0:02:26.800 So in my mind, the FED hasn't really accomplished much yet, 0:02:27.000 --> 0:02:29.760 and if financial conditions don't cooperate with the Fed, the 0:02:29.800 --> 0:02:31.959 Fed is going to have to do more until financial 0:02:31.960 --> 0:02:34.960 markets do cooperate. Bill, talk a little bit about the 0:02:35.000 --> 0:02:38.520 consequences of this. If stocks are a reflection of sentiment, 0:02:38.800 --> 0:02:40.800 if they affect the way that people are willing to 0:02:40.840 --> 0:02:44.000 go out and make purchases based on their household wealth, 0:02:44.280 --> 0:02:46.720 what does that do to the economy. Are you basically 0:02:46.760 --> 0:02:49.400 saying that if things continue the way they are, the 0:02:49.400 --> 0:02:52.400 FED is going to after torpedo growth to a potentially 0:02:52.440 --> 0:02:56.360 recessionary degree. Well, the Fed right now is, you know, 0:02:56.800 --> 0:02:59.720 markets are pretty confident in the FEDS program because they 0:02:59.760 --> 0:03:02.280 have the FED kicking the flirture rates up to about three. 0:03:03.120 --> 0:03:05.000 That causes the economy is slow, and then the Fed 0:03:05.160 --> 0:03:09.200 reserve eases policy in two and we have a soft 0:03:09.280 --> 0:03:12.040 lanning live happily. Ever after. I don't think it's gonna 0:03:12.040 --> 0:03:14.760 be that easy because because the markets are so confident 0:03:14.760 --> 0:03:17.440 in the FED, the financial conditions are still quite buoyant. 0:03:17.960 --> 0:03:20.000 Financial conditions are buoyant. That means the FED has to 0:03:20.000 --> 0:03:22.959 do more because it's slow down the economy. Also, a 0:03:23.000 --> 0:03:25.880 soft lanning is very very hard to achieve when the 0:03:25.919 --> 0:03:29.040 unemployer rate is so low. Uh the soft lanning examples 0:03:29.080 --> 0:03:34.000 that Paul has cited in nineteen n n where all 0:03:34.040 --> 0:03:36.560 examples where the FED tightened and the economy slowed, but 0:03:36.640 --> 0:03:39.160 did not slow sufficiently to push up the unemployer rate, 0:03:39.280 --> 0:03:42.200 the unemployer rate and all three of those episodes kept declining. 0:03:42.520 --> 0:03:44.040 I think at the in the current environment, with the 0:03:44.120 --> 0:03:47.120 unemployer rate at three points six percent and wages running 0:03:47.200 --> 0:03:50.560 well above outrate consistent with two percent inflation, the Fed's 0:03:50.560 --> 0:03:53.560 gonna have to tighten enough to tighten financial conditions enough 0:03:53.720 --> 0:03:56.000 to push up the unemployer rate. And when the FED 0:03:56.040 --> 0:03:58.720 has done that in the past, it's always resulted in 0:03:58.720 --> 0:04:01.280 a recession. That's not their intention. They'll go for a 0:04:01.320 --> 0:04:04.200 soft lantic with their chances of pulling off are very 0:04:04.280 --> 0:04:07.360 very low. Do you think that rapidly reducing the balance 0:04:07.400 --> 0:04:10.280 sheet bill will be enough to achieve this sell off 0:04:10.320 --> 0:04:13.040 that you think is necessary in order to enact some 0:04:13.120 --> 0:04:16.680 of the tightening that the FEED is that trying to achieve. Well, 0:04:16.720 --> 0:04:19.920 certainly we'll work on in the right direction. Obviously, quantitative 0:04:20.040 --> 0:04:22.640 easing help pull down long term meles, and I think 0:04:22.680 --> 0:04:24.720 if as a reverse course, that should push them up. 0:04:24.720 --> 0:04:27.640 But we don't know by how much. Uh, we already 0:04:27.640 --> 0:04:29.479 know what the FEN is gonna do, and markets haven't 0:04:29.520 --> 0:04:32.040 really moved very much, so uh, you know, I think 0:04:32.040 --> 0:04:34.200 it's just a big wild card in terms of how 0:04:34.240 --> 0:04:37.560 much will the quantitative tightening do the FENS job for them. 0:04:37.760 --> 0:04:39.320 I think the big point I would just make it's 0:04:39.320 --> 0:04:42.400 just it's very unlikely uh that a year from now 0:04:42.440 --> 0:04:44.800 we're gonna be at this level of bonds is low 0:04:45.120 --> 0:04:47.800 and this level of stock prices this high, because that's 0:04:47.839 --> 0:04:51.159 probably not sufficiently tight financial conditions to do the FEDS 0:04:51.240 --> 0:04:55.760 job for them. Bill parts. The difference is inflation comes 0:04:55.839 --> 0:05:00.160 down of the importance of goods inflation coming down own 0:05:00.320 --> 0:05:05.599 versus service sector inflation coming down. Well, obviously both matter. 0:05:05.640 --> 0:05:08.200 I mean, I think where the Fed's expectations is that 0:05:08.279 --> 0:05:10.599 goods inflation will come down quite a lot over the 0:05:10.640 --> 0:05:14.320 next year because the composition of demand as the economy reopens, 0:05:14.320 --> 0:05:17.440 will shift away from goods back to services. And the 0:05:17.480 --> 0:05:20.040 fact that some of these supply chain disruptions, for example, 0:05:20.080 --> 0:05:23.280 the auto sector will gradually get resolved, and so car prices, 0:05:23.320 --> 0:05:25.680 for example, will be weaker. Use car prices a bit weaker, 0:05:26.040 --> 0:05:27.800 but the services sector. Inflation is going to be a 0:05:27.839 --> 0:05:31.080 lot more persistent because that's really about labor costs, and 0:05:31.160 --> 0:05:33.520 we're seeing that labor costs are going up because the 0:05:33.600 --> 0:05:37.040 labor market is unusually tight in the current setting. But 0:05:37.240 --> 0:05:40.200 one time, FED officials when they're in the state talk 0:05:40.200 --> 0:05:44.479 a lot. You just have now, well, it's unpleasant to 0:05:44.720 --> 0:05:46.359 be a FED official and talking about how you have 0:05:46.360 --> 0:05:48.920 to tighten financial conditions to push up the unemployee rate. 0:05:49.320 --> 0:05:51.800 You don't want to talk about putting people out of work. 0:05:52.120 --> 0:05:54.680 And that's not, obviously the deliberate goal of policy. The 0:05:54.720 --> 0:05:57.880 deliberate goal of policy is to keep inflation from getting 0:05:57.880 --> 0:06:01.040 out of hand. Unfortunately, one of the reasons ways you 0:06:01.120 --> 0:06:03.560 have to do that is to is to generate enough 0:06:03.600 --> 0:06:06.480 slack in the labor market to keep inflation in check. 0:06:06.760 --> 0:06:09.160 And that's just an unpleasant conversation to have. So with 0:06:09.200 --> 0:06:11.080 what the FED set officials talk about is how we 0:06:11.120 --> 0:06:13.040 have to keep inflation in check so we can sustain 0:06:13.120 --> 0:06:16.240 this economic expansion and keep the most number of people employed. 0:06:16.480 --> 0:06:19.080 And that's true too. What they're not telling you, though, 0:06:19.160 --> 0:06:21.799 is that how difficult that is to pull off. Built 0:06:21.839 --> 0:06:24.760 a clinic as always, and we appreciate your time this morning. 0:06:24.760 --> 0:06:27.280 Built down that the former New York Fed President and 0:06:27.320 --> 0:06:30.280 of course, amongst other things, now a Bloomberg opinion columnists. 0:06:30.440 --> 0:06:32.120 The title of his pace this morning tell me if 0:06:32.160 --> 0:06:42.039 stocks don't fold, the Fed nates to force them, let's 0:06:42.040 --> 0:06:43.680 get right to it. This is too important of a 0:06:43.760 --> 0:06:47.760 conversation and it's truly extraordinary. Evel and Farcus and her 0:06:47.800 --> 0:06:50.840 family are out of Hungary. They know the experience of 0:06:50.960 --> 0:06:54.200 moving out of continental Europe over to America, where their 0:06:54.240 --> 0:06:56.920 tour of duty at Franklin and Marshall College and then 0:06:56.920 --> 0:07:00.640 her PhD at the acclaimed Toughs University flood your school. 0:07:01.040 --> 0:07:04.719 What is fascinating is in her public service to President Obama. 0:07:05.120 --> 0:07:08.640 She is now on the same page is John Bolton. 0:07:08.880 --> 0:07:12.280 That is extraordinary. And Evelyn, we had John Bolton on 0:07:12.320 --> 0:07:16.360 the other day and both of you say, get over it. 0:07:16.600 --> 0:07:19.840 We're not going to start world War three, discuss what 0:07:20.000 --> 0:07:24.360 America can do amid this fear that we have that 0:07:24.480 --> 0:07:28.800 O MG, We're gonna have World War three. Well, I mean, 0:07:28.840 --> 0:07:33.120 I think tom to the point that what what I've 0:07:33.160 --> 0:07:36.000 been arguing and I and I had a Washington Post 0:07:36.000 --> 0:07:38.880 all that about this, and I've been running around, Um, 0:07:38.880 --> 0:07:41.480 I guess like John Bolton, not with my mustache on fire, 0:07:41.480 --> 0:07:43.880 but my hair on fire, trying to explain that we 0:07:43.880 --> 0:07:47.880 shouldn't let Vladimir Putin deter us. Yes, unfortunately he has 0:07:47.960 --> 0:07:51.400 used chemical weapons and he has a lower threshold for 0:07:51.520 --> 0:07:54.560 nuclear use, but he does not want war with NATO. 0:07:54.880 --> 0:07:57.400 So we should really calculate the risk that we are 0:07:57.440 --> 0:08:00.720 willing to take in order to protect civilians. And I 0:08:00.760 --> 0:08:04.520 think me and several colleagues of mine who are national 0:08:04.520 --> 0:08:07.720 security and foreign policy experts, we signed a letter saying 0:08:07.760 --> 0:08:10.960 that the administration should not dismiss the idea of a 0:08:11.040 --> 0:08:15.000 humanitarian no fly zone completely out of hand. And what 0:08:15.000 --> 0:08:18.119 we're trying to do there is say, do not rule 0:08:18.240 --> 0:08:21.040 things out. We to be agile, and we need to 0:08:21.080 --> 0:08:23.680 understand that we may need to do more, take on 0:08:23.840 --> 0:08:26.640 more risks to save lives. And so I'm worried as 0:08:26.640 --> 0:08:28.960 we move into the next phase of the fighting, that 0:08:29.040 --> 0:08:31.800 we aren't thinking enough about how to save lives. We 0:08:31.840 --> 0:08:35.720 are providing additional military support and that is really important 0:08:35.920 --> 0:08:42.520 and that should continue. I look, Evelyn at the path forward, 0:08:42.800 --> 0:08:45.959 and we are shocked by these atrocities. I don't want 0:08:45.960 --> 0:08:48.560 to get in the debate of the war game, but 0:08:48.640 --> 0:08:52.080 I want to know from you how a Pentagon, or 0:08:52.120 --> 0:08:55.760 the Pentagon in Germany, or the Pentagon in France, how 0:08:55.800 --> 0:08:59.880 they respond the horror that we've seen. Well, I think 0:09:00.040 --> 0:09:04.680 everyone is horrified, and the question now is what can 0:09:04.720 --> 0:09:09.440 be done. In the past, even even in brutal wars 0:09:09.520 --> 0:09:12.160 like the Balkan Wars in Bosnia, I lived there after 0:09:12.200 --> 0:09:16.760 the war, we have had international agencies in their providing 0:09:16.800 --> 0:09:20.600 humanitarian assistance and trying to prevent the kind of massacre 0:09:20.760 --> 0:09:23.600 that happened in Buchan and elsewhere. And I would like 0:09:23.720 --> 0:09:27.080 to see some of these multilateral institutions like the Red 0:09:27.120 --> 0:09:30.080 Cross taking more risk, maybe going in with armed escort. 0:09:30.280 --> 0:09:32.959 They were held back more than twenty four hours from 0:09:33.280 --> 0:09:37.959 rescuing citizens, innocent civilians from Mariopal just this past week, 0:09:38.400 --> 0:09:41.920 so more needs to be done. Certainly, other countries need 0:09:41.960 --> 0:09:45.400 to be pressured to put pressure on Russia to allow 0:09:45.760 --> 0:09:49.240 for civilians to be evacuated. But unfortunately, what we see 0:09:49.280 --> 0:09:52.800 here is that Russia is purposely trying to slaughter civilians. 0:09:52.800 --> 0:09:55.720 It's part of their their effort to try to break 0:09:55.760 --> 0:09:58.439 the will of the Ukrainian people and the government. Evelyn, 0:09:58.480 --> 0:10:02.200 how do you see this ending? Well, of course, I'm 0:10:02.200 --> 0:10:05.520 hopeful that the Ukrainians can frankly take back their territory 0:10:05.600 --> 0:10:08.720 and beat the Russians on the battlefield. I don't think 0:10:08.760 --> 0:10:13.480 sanctions are going to destroy Vladimir Putin's intentions here, I 0:10:13.480 --> 0:10:17.080 mean his his his aggressive foreign policy will continue and 0:10:17.160 --> 0:10:19.640 sanctions will take a longer time to have an impact. 0:10:19.840 --> 0:10:22.760 So really it will be determined on the battlefield. We 0:10:22.960 --> 0:10:27.760 if we can provide sufficient or or enough I mean sufficient, 0:10:27.800 --> 0:10:29.520 I don't like the word. But if we can provide 0:10:29.679 --> 0:10:32.920 the military means necessary for Ukraine to push back the 0:10:33.000 --> 0:10:36.520 Russian military, there's a chance that they can regain their territory. 0:10:36.559 --> 0:10:40.080 Other than that, there's a compromise potentially where the Ukrainians 0:10:40.280 --> 0:10:42.560 might have to give up some territory, but I don't 0:10:42.559 --> 0:10:45.920 see that happening anytime soon. In a personal question, your 0:10:46.040 --> 0:10:50.360 father has been definitive on the collapse of the Hungarian 0:10:50.480 --> 0:10:54.760 aristocracy and the time from another place, even before Stalin 0:10:55.120 --> 0:10:59.600 and Hitler. I am fascinated how you believe we can 0:11:00.120 --> 0:11:05.840 laying to the Russian people that Ukraine doesn't need denazification. 0:11:06.559 --> 0:11:11.840 You live, your family lived Nazification. How do we explain 0:11:11.880 --> 0:11:17.280 to them that we don't need to denazify. Well, this 0:11:17.360 --> 0:11:20.440 is a problem. I mean, the Russian government has a 0:11:20.520 --> 0:11:24.280 lot of control over its population through its monopoly on 0:11:24.320 --> 0:11:27.160 the media. That they do have a lot of internet 0:11:27.200 --> 0:11:30.480 saturation in Russia now, and so some people can get 0:11:30.720 --> 0:11:35.160 alternative news and truth, but that's also being increasingly squeezed out. 0:11:35.320 --> 0:11:37.800 And yes, my family I was born in the United States, 0:11:37.880 --> 0:11:40.520 but my parents both fled Communist Hungry and as a 0:11:40.600 --> 0:11:43.280 child I went back to Hungry to visit my grandparents. 0:11:43.360 --> 0:11:45.240 I spent summers in Hungary. I know what it's like 0:11:45.320 --> 0:11:47.880 to live under communism when you can't speak the truth, 0:11:47.920 --> 0:11:49.760 and being told as a ten year old to be 0:11:49.880 --> 0:11:52.840 quiet because I might get my grandparents in trouble, and 0:11:52.880 --> 0:11:57.040 by trouble I understood it meant jail and something pretty serious. So, um, 0:11:57.080 --> 0:12:00.000 you know, the Russian people, we don't really know exactly 0:12:00.240 --> 0:12:02.400 what they think even when there are polls that are taken, 0:12:02.840 --> 0:12:06.960 those are probably somewhat suspect. But unfortunately the brandwashing is 0:12:07.000 --> 0:12:11.120 pretty effective. It's going to take, frankly speaking, the Russian 0:12:11.120 --> 0:12:15.320 soldiers coming home or not coming home, for the Russian 0:12:15.360 --> 0:12:18.520 people to start to figure out what actually they their 0:12:18.559 --> 0:12:20.800 government is doing in their names. So, as I said, 0:12:21.040 --> 0:12:24.680 the home front in Moscow in Russia proper is not 0:12:24.800 --> 0:12:26.760 really where the war is going to be determined. I 0:12:26.760 --> 0:12:29.000 think it's really going to be on the battlefield evident. 0:12:29.120 --> 0:12:30.839 Thank you, as a wife said, you want to get 0:12:30.840 --> 0:12:33.920 seven and focused that the former Deputy Assistant Secretary of 0:12:34.040 --> 0:12:45.240 Defense Dr. Cassidy. Bill Cassidy is from Louisiana. He is 0:12:45.280 --> 0:12:48.960 a force in Baton Rouge win the vote in two 0:12:49.000 --> 0:12:52.319 thousand twenty. Senator Cassidy, thank you so much for joining 0:12:52.320 --> 0:12:54.800 this morning. Before we dive into the clear and present, 0:12:54.840 --> 0:12:57.280 Gou Jing, I need to talk to you about the 0:12:57.320 --> 0:13:01.439 distance from Detroit and the Democrat big Dingle and John 0:13:01.520 --> 0:13:06.480 Dingle out to Kalamazoo on Root ninety four and Fred Upton. 0:13:07.000 --> 0:13:12.160 Fred Upton retired yesterday almost in tears from the Senate 0:13:12.679 --> 0:13:16.120 because he's being pushed out by the Trump part of 0:13:16.160 --> 0:13:19.959 the GOP. You live this. You had a nice re 0:13:20.080 --> 0:13:23.800 election in two thousand twenty. Can you comment on the 0:13:23.880 --> 0:13:28.320 GOP vendetta against those that said we need to impeach 0:13:28.440 --> 0:13:32.640 the president. Well, first, Fred was redistrict in a tough way. 0:13:32.760 --> 0:13:35.360 He lost three hundred fifty thousand of his base voters. 0:13:35.800 --> 0:13:37.880 Now there are some of the party who are mad 0:13:37.920 --> 0:13:40.760 at folks like Upton Matt of folks like me who 0:13:40.920 --> 0:13:44.360 voted for impeachment. Uh, that's just the way it is. 0:13:44.840 --> 0:13:48.720 You do what's right and you live with it. And 0:13:48.760 --> 0:13:51.960 I think Fred is incredibly proud of the integrity that 0:13:52.000 --> 0:13:54.920 he showed with that vote, with the enthusiasm that we hear, 0:13:54.960 --> 0:13:58.000 and suggest that the Republicans may take the House. Indeed, 0:13:58.040 --> 0:14:01.480 the Republicans may take this Senate. What does the new 0:14:01.559 --> 0:14:06.800 majority Republican Congress need to do day one? Yeah, day one, 0:14:06.800 --> 0:14:08.280 we need to have to We need to start going 0:14:08.280 --> 0:14:13.720 after inflation. Inflation. Inflation right now is being driven by energy. 0:14:14.160 --> 0:14:17.080 Uh cost both direct the cost of the pomp on 0:14:17.080 --> 0:14:20.880 your fuel build, but the indirect the inputs to the fertilizer, 0:14:21.080 --> 0:14:22.880 the go to the crops. That's a lot higher now 0:14:22.920 --> 0:14:26.320 as well, I proposed an operation warp speed. Just like 0:14:26.400 --> 0:14:29.360 we took the vaccine and within ten months had something 0:14:29.480 --> 0:14:32.240 predicted to take two to ten years, we should take 0:14:33.120 --> 0:14:36.840 a regulatory kind of let's get all together and figure 0:14:36.840 --> 0:14:40.440 out how we can increase supply and decrease prices for 0:14:40.560 --> 0:14:44.760 US and our allies within ten months, if not shorter. 0:14:45.000 --> 0:14:47.240 We can do that, but we need the regulatory agencies. 0:14:47.280 --> 0:14:49.360 We need an operation warp speed. Seneca, where do you 0:14:49.400 --> 0:14:52.560 see this fitting into eventually moving away from less of 0:14:52.560 --> 0:14:56.680 a reliance and fossil fuels. Yeah, so right now, believe 0:14:56.680 --> 0:15:00.360 it or not, there is a regulatory uncertainty for renew doubles. 0:15:00.680 --> 0:15:05.120 There's a regulatory uncertainty for carbon capture utilization sequestration. So 0:15:05.160 --> 0:15:07.560 what I'm speaking of is not just oil and gas. 0:15:07.840 --> 0:15:11.600 It is also the ccus that Louisiana has been waiting 0:15:11.640 --> 0:15:14.720 for Regions six E p A in Dallas to get 0:15:14.760 --> 0:15:18.920 off their duff on our application since October of last year. 0:15:19.760 --> 0:15:23.160 So excuse me, senator, are you saying basically that it 0:15:23.200 --> 0:15:26.520 could just be a regulatory fix that could plug the hole, 0:15:26.600 --> 0:15:29.080 that could plug the gap in some of the supplies 0:15:29.120 --> 0:15:32.280 that we're seeing, at least in part stemming from Russia. 0:15:33.280 --> 0:15:37.280 It could be a regulatory fix as well as regulatory certainty. Um. 0:15:37.960 --> 0:15:41.200 Right now, it's death by a thousand cuts to fossil fuel. 0:15:41.440 --> 0:15:44.880 So why are you going to invest when OPEC may 0:15:44.920 --> 0:15:49.560 decide to collapse prices and you're left with regulations which etcetera, etcetera. 0:15:50.000 --> 0:15:53.880 So my point being that if you could have regulatory certainty, 0:15:54.400 --> 0:15:57.160 have a little bit of capital injection to kind of 0:15:57.160 --> 0:16:00.920 commit the federal government, yes, you oil field service providers, 0:16:01.160 --> 0:16:03.840 we're not going to leave you out hanging bankrupt, then 0:16:03.840 --> 0:16:07.400 we could rapidly improve, increase production, Bill cassidy. You on 0:16:07.520 --> 0:16:09.800 the high ground on this and today it's gonna be 0:16:09.840 --> 0:16:12.720 big oil that's gonna talk about price gouging and that. 0:16:13.120 --> 0:16:17.840 But you live it in Donaldsonville, Louisiana, with CF Industries 0:16:18.080 --> 0:16:22.720 the largest nitrogen fertilizer company, I believe in America maybe 0:16:22.720 --> 0:16:25.640 in the world, I'm not sure on that explained to 0:16:25.720 --> 0:16:31.960 us how the people in Donaldsonville aren't price gouging fertilizer. Yeah, 0:16:32.000 --> 0:16:36.720 so natural gas is a feedstock for fertilizer UM, and 0:16:36.840 --> 0:16:42.040 so if your inputs rise, then it's going to increase 0:16:42.080 --> 0:16:45.440 the cost of the final product. Now there's also the 0:16:45.480 --> 0:16:49.239 ability to ship. There's also other aspects of the logistical 0:16:49.240 --> 0:16:52.720 supply chain. Obviously, it costs more to maintain your plant, 0:16:52.720 --> 0:16:56.240 costs more for labor because of general inflation. But that's 0:16:56.280 --> 0:16:58.680 just gonna be a little bit of a gap. Now, 0:16:58.720 --> 0:17:00.920 you could sell it below prod ice in which some 0:17:01.000 --> 0:17:02.960 middle person is going to buy it and then sell 0:17:02.960 --> 0:17:05.440 it at the market rate, but in somewhere there's going 0:17:05.440 --> 0:17:09.439 to be a markup. Senator, amid this soup of information, 0:17:09.480 --> 0:17:12.720 the soup of concern around gas prices, how concerned are 0:17:12.760 --> 0:17:15.640 you or how upset will you be if you see 0:17:15.720 --> 0:17:20.000 oil companies post bang gangbusters up profits in the next 0:17:20.040 --> 0:17:23.400 earning season, Well, you want to look at the reason 0:17:23.440 --> 0:17:26.560 for their profit. Um uh, let me just say that. 0:17:27.080 --> 0:17:28.880 And if they're going to use that profit to turn 0:17:28.880 --> 0:17:33.040 around and invest in the new um fields that we 0:17:33.080 --> 0:17:36.000 need in order to increase production, well isn't that a 0:17:36.040 --> 0:17:38.600 good thing? And let me point out about I don't know, 0:17:38.640 --> 0:17:43.080 a year ago, people had to sell their oil at 0:17:43.160 --> 0:17:46.920 a zero below zero price. There was no storage, They 0:17:46.920 --> 0:17:49.560 had to pay people to take their oil. So there's 0:17:49.560 --> 0:17:51.919 always going to be some rises and falls. What you 0:17:51.960 --> 0:17:54.760 want to see those the capital investment that long term 0:17:55.400 --> 0:17:58.200 creates more certainty in terms of our fuel supply. Senator 0:17:58.240 --> 0:18:01.120 Bill Cassidy, if Louisiana said it, thank you for being 0:18:01.119 --> 0:18:10.359 with us today with Michael Collins. He's a pie jum. 0:18:10.760 --> 0:18:13.200 And what's cool for our global audience is the state 0:18:13.320 --> 0:18:16.760 university system of New York. And in my ute, everyone 0:18:16.840 --> 0:18:20.240 knew the most prestigious math program was if you could 0:18:20.280 --> 0:18:24.960 survive it at Binghamton, New York. Michael Collins survived mathematics 0:18:24.960 --> 0:18:27.600 at Binghamton, which is a big deal when we were 0:18:27.600 --> 0:18:31.719 growing up. He's senior portfolio manager again, pijam, Mike Buried 0:18:31.760 --> 0:18:36.800 in your mathematical note, is the economic bet of pijum 0:18:36.880 --> 0:18:40.399 that the wage spiral or the wage worry, including what 0:18:40.520 --> 0:18:44.199 Bill Dudley saw in the last hour, May ebb away. 0:18:44.760 --> 0:18:48.720 Do you see evidence of that yet? You know, we're 0:18:48.760 --> 0:18:52.960 just started to see Tom the wage growth uh and 0:18:53.040 --> 0:18:56.720 the labor market growth start to flatten out here UH 0:18:56.760 --> 0:18:58.760 and maybe start to roll over. You see it in 0:18:58.840 --> 0:19:01.920 hours worked in the in the report we got on Friday. 0:19:01.960 --> 0:19:05.800 So so I think you have probably passed the peak 0:19:05.920 --> 0:19:09.280 rate of growth UH in wage certainly the peak rate 0:19:09.359 --> 0:19:11.639 of inflation. I would argue as well. You're going on 0:19:11.800 --> 0:19:15.000 calculus on it's like lyle Brainer did yesterday when she 0:19:15.119 --> 0:19:18.520 talked about the rapid pace. Let's call it the second 0:19:18.520 --> 0:19:23.320 derivatives of in these markets? How do you actually prosecute 0:19:23.400 --> 0:19:27.199 bond management given the rate of the rate of change 0:19:27.400 --> 0:19:30.480 right now? Yeah, Well we all know, Tom that the 0:19:30.520 --> 0:19:33.560 markets really do focus on second derivatives, right, and it's 0:19:33.600 --> 0:19:37.119 it's the change that really matters more than the stock right. 0:19:37.160 --> 0:19:40.439 When it comes to quantitative tightening, for example, you know 0:19:40.480 --> 0:19:42.199 a lot of people will look at well, the balance 0:19:42.200 --> 0:19:44.440 sheet is nine trillion, so it goes to eight and 0:19:44.440 --> 0:19:46.840 a half. What's the big deal? Uh, it is a 0:19:46.880 --> 0:19:50.120 big deal. Right. When the Fed embarks on quantitative easing, 0:19:50.520 --> 0:19:55.440 you see a super high direct correlation with asset prices 0:19:55.480 --> 0:19:58.960 going up. So what we're contemplating in our shop, Tom, 0:19:59.040 --> 0:20:02.119 is when they do unitative tightening, do you get a 0:20:02.160 --> 0:20:06.520 symmetrical um pull back in asset prices or is it 0:20:06.560 --> 0:20:10.639 more measured as the Fed tries to um signal that 0:20:10.720 --> 0:20:15.200 quantitative tightening is watching paint dry and it's on autopilot, 0:20:15.480 --> 0:20:17.560 and it's it's not going to be a big impact 0:20:17.560 --> 0:20:19.280 on the markets. But I do worry that it will 0:20:19.320 --> 0:20:22.119 result in much tighter financial conditions. So let's since you 0:20:22.200 --> 0:20:24.520 walked right into the big debate of the day. It 0:20:24.600 --> 0:20:28.520 does quantitative tightening cause higher longer term bond fields or 0:20:28.560 --> 0:20:32.400 lower ones? Yeah, it's the opposite of what everybody thinks. Right. 0:20:32.400 --> 0:20:37.080 By the time they start the quantitative easing, right, typically 0:20:37.160 --> 0:20:40.720 rates have plummeted, your your inner recession. Uh it's a 0:20:40.960 --> 0:20:43.840 big risk off. And what happens when they start buying 0:20:43.920 --> 0:20:47.160 bonds rates go up because what they're trying to do 0:20:47.320 --> 0:20:49.919 is get inflation higher. And it's going to be the 0:20:49.920 --> 0:20:53.520 exact opposite when they do quantitative tightening. The markets have 0:20:53.600 --> 0:20:56.320 already priced in. Look where rates are, right, Look where 0:20:56.520 --> 0:21:00.600 inflation expectations are, they're kind of peaking here. Uh So 0:21:00.640 --> 0:21:04.200 by the time they start tightening policy through through rate 0:21:04.320 --> 0:21:08.399 hikes and simultaneous quantitative tightening, which we've never seen in 0:21:08.720 --> 0:21:11.919 our lives. Right, this this kind of quick reversal of 0:21:11.960 --> 0:21:15.639 monetary policy on so many fronts. I think you're going 0:21:15.680 --> 0:21:17.680 to see a peak and rates at that time. So 0:21:17.720 --> 0:21:20.240 a peak and rates at that time, are you buying 0:21:20.359 --> 0:21:23.879 tenure treasuries at this point? Saying two point six looks 0:21:23.960 --> 0:21:27.399 golden over the long term. Yeah. I mean, fortunately we 0:21:27.440 --> 0:21:29.800 had we had cut duration earlier this year and we 0:21:29.800 --> 0:21:33.800 were we were short uh duration marginally in the US 0:21:33.880 --> 0:21:36.520 and just really in the last week or so, we've 0:21:36.560 --> 0:21:39.040 we've covered in most of that and we're kind of 0:21:39.080 --> 0:21:41.920 flat duration. I mean, there there can be a better 0:21:42.040 --> 0:21:45.439 entry point. I mean, personally, I'd love to be you know, 0:21:45.720 --> 0:21:48.919 long duration at some point over the next you know, 0:21:48.960 --> 0:21:51.160 a few months or a few quarters. But for this 0:21:51.280 --> 0:21:53.520 at this point, we're just kind of waiting for for 0:21:53.600 --> 0:21:56.320 the right entry point, uh and it will come right 0:21:56.359 --> 0:21:59.480 and it typically comes right around the time the Fed 0:21:59.560 --> 0:22:02.800 starts fighting policy aggressively, and they really haven't started that 0:22:02.920 --> 0:22:06.359 right and they're going to start in earnest really soon, Michael. 0:22:06.359 --> 0:22:08.960 The movable feast, which is the terminal yield or the 0:22:09.119 --> 0:22:12.080 terminal dot plot as an ex exist and also a 0:22:12.200 --> 0:22:15.200 level what's the level of the tenure yield and how 0:22:15.240 --> 0:22:19.200 far out is that terminal yield right now? Yeah, it's 0:22:19.200 --> 0:22:22.560 really fascinating time to to look at what's happening with 0:22:22.680 --> 0:22:25.760 forward rates, what the market is pricing in the markets 0:22:25.760 --> 0:22:29.399 are basically pricing in a funds rate right now and 0:22:29.480 --> 0:22:31.879 like a year or year and a half of close 0:22:31.920 --> 0:22:35.040 to three and a quarter now, right, so three hundred 0:22:35.040 --> 0:22:39.320