Let me start with you on the reaction of the markets to this CPI and PPO numbers some encouragement. Does it sort of suggest
maybe we're heading in a better direction. David We're definitely heading in a better direction. It looks like we're
past peak for inflation. But the problem is inflation is still very very high. If we think about the Fed's inflation target of
2 percent we're way far away from that. And it's going to take us a significant amount of time to get there. But this is the
first step in that direction. And so it's progress Joy. I think the markets are the thought. Maybe we can back off a little bit.
Well the market I think might be a little bit too optimistic about how much work the Fed still has to do. Yes the numbers
have been good. In fact the core P.C. inflation looks like it peaked back in March. We got that information and that's a
positive. And we're starting to see some of those items that were really short supply now start to become more available. And
that's helping to take the price pressure off where we are. As Christine said we are a long way from 2 percent inflation
although the long term expectation for inflation is closer to 2 percent. We still have a lot of work. The Fed has a lot of work
to do in the short term. So I think the market might be a little bit too optimistic about the path of rate increases. And I think
they're going to continue to rise over the next few meetings at least until the Fed is really convinced that inflation is moving
in the right direction. And because they're data driven they're going to wait until enough data has really piled up before they
shift their focus. I think Christine that take us over the next month or a half or so because at Jackson Hole first rate we'll
hear from Fed speakers including Jay Powell and then just fill in the data. I think we get another CPI really or two. We get
jobs numbers reading things like that. Where do you think the Fed will be come September. Well I'm actually going to go out on
a limb David and say we're probably going to be in a place where the Fed feels it should air on the side of a little more
caution. Right. We've gone at a pretty breakneck speed in terms of back to back 75 basis point hikes. And the Fed is as Joanne
said very data dependent. So it's going to be looking at data and seeing that longer term inflation expectations are better
anchored than they were and they are going to see inflation moving in the right direction. Inflation growth is obviously
still an issue. So they're going to be hiking rates but they don't have to be as aggressive. So perhaps they signal it in a
Jackson Hole speech that might be too premature. But I think by the time we get to September October we should see a fed that
pivot to a less hawkish tightening stance. You know I think the critical data in addition to what you just
mentioned Christine is going to be the employee cost index that ECI. But we know the labor market is very tight and we're
concerned right that wages are going to continue to rise and that's going to put a floor really under price inflation as
those bleed through into prices from firms. We're seeing that a lot. We're seeing firms actually be pretty successful at raising
prices in the face of those higher costs. So you know if if job openings drop and some of the heat comes out of the labor market
and we don't get as large increases in wages and overall employee costs then I could see the Fed you know becoming a
little bit more at ease about the number of rate increases. But right now the wage pressure just looks really severe and
companies are still clamoring for workers even as we hear about these anecdotes of telecom firing hundreds more workers and
others. But a lot of those that are you know announcing firings are the ones who were right in the center of the pandemic
benefit in terms of just massive business expansion. And they're now having to dial back. So we'll see if that spreads more
broadly across the economy. Joanne I would argue some of the heat is already coming out of the job market that we've seen a
drop in the number of job openings. It's moving in the right direction. And of course we are seeing companies and earnings
calls talking about how they're going to be more cautious in hiring or actually implementing hiring freezes. And of course we
have heard about some layoffs as well. So I think this is an environment in which we're going to see increasingly lower level
of labor mobility. And so that should help tamp down upward wage
pressure. Joel I'm curious about your take on the risks faced on the one hand by the markets on the other hand by the Fed and
whether it's the same because there is a risk in backing off too quickly. I mean you say boy the inflation is down headline and
core but it's still pretty high. And even with wage increases that may not be as high as they were. They're still pretty high
for the Fed. Do they have to really be concerned about the appearance. They're backing off too soon.
Yeah I think they do have to be concerned about that because they're their main tool for getting this right is creating the
correct expectations. They really have to convince the market firms workers who might be out there clamoring for raises they
have to convince them that this inflation spike is a temporary one. And so to back off too soon would potentially lead the
markets to think OK this could get out of control. I agree with Christina. We have seen some softening in the labor markets job
openings that did come down a bit but there's still nearly twice the number of the unemployed. And that could be a little bit of
a mirage right. We could see more more firings. And that's a backward looking data point. We know. So you know that's why I
think we will know a fair bit more over the next couple of months. But the Fed I think cannot air on the side of looking
like they're going to ease off if the data is not really strongly supportive Christine. We have to talk about the
possibility of a recession and the yield curve because we've had the twos tens now inverted for an extended period time. And
somewhere in the 30s right now I've got as high as 58. What do you see in terms of the risk of a recession at this point. Well
actually David I would argue this week was a good week that increased our chances of avoiding a real full blown broad
recession. I think the Fed it's going to be a little bit easier for the Fed to execute a soft landing but that would mean that
the Fed needs to pivot to a less hawkish tightening stance sooner rather than later. Do you agree with that Joanne. What do
you think. What the chances of a recession. Wait up. I think it's probably the case that things got a little
bit brighter in terms of the outlook with the data we got this week with those inflation numbers coming in below expectations.
Clearly short term instruments can go up even significantly without triggering inflation. What we're watching is really the
longer term interest rates. Right. So the yield curve being inverted doesn't surprise us. It seems actually kind of a
natural outcome of the Fed trying to deal with what hopefully will be a short term inflation problem. So you have the shorter
term interest rates the three month two year et cetera spiking up a little bit as the Fed moves. But provided that the tenure
remains anchored close to the level where it's currently sitting. That doesn't materially raise the cost of doing
business for firms. It doesn't raise mortgages as much. It doesn't raise the cost of financing durable goods purchases. So
we tend to have less of a drive towards you know any recessionary dynamic than just having the short term rates go
up.