Let me start with you on what happened with bond yields because they had been really ramping up there'd been a lot of
volatility. They settled down a bit today this week. Is that because of a fear of recession. I do think that it is. What
we're seeing is concerns about at least a slowdown. I don't know if it's exactly a recession. I would argue that we'll still be
able to avoid a recession in the United States. And one could argue that that's what the bond market is telling us. The
spreads between the two year and the 10 year yield are still positive even though they've flattened a lot. There's a very big
positive spread between three month and 10 year yields which some might argue is an even better indicator of whether or not
we go into recession. So clearly pricing a slowdown but I don't believe a recession. So Jihye Lee isn't that exactly what the
Fed wants. Is a slowdown maybe short of recession. Absolutely. And so I think the softness and commodity prices in
recent days has also contributed to the moderation in bond yields. And the Fed is tightening financial conditions
dramatically. And all you have to do is look at what's happened to mortgage rates and the impact on the housing market. That is
starting to have to understand that the Fed's impact is already starting to make a difference. Well I wonder to say we got
University of Michigan consumer sentiment numbers out on Friday and they came off a little bit actually on the longer term 5 to
10 year expectation that inflation. Are we starting to see some effect of the Fed do you think. I do think we are. I mean what
we're also just starting to see a reflection of some commodity prices energy prices easing a bit in the last several weeks. So
I think that is reflected in it. I mean Jay Powell even said in that FOMC press conference that there is a pretty strong
correlation between energy prices headline CPI essentially and inflation expectations for consumers.
Jim how much of concern about inflation actually comes right off of energy just straight off energy.
I think it's extremely high. I think if you look at the correlation between gas prices and the Michigan survey it's
really high. It's the most visible demonstration of what energy costs are to the consumer. And so I think it's going to be a
critical point to inflation expectations and bond yields over the next year that we see at least a flattening if not some
moderation in gasoline prices. Yeah and I would expect that we see some moderation in longer
term inflation expectations going forward and I think it's very important to recognize this is very different than what we saw
in the 80s and 90s before those recessions. We saw inflation high and yet long term inflation expectations were just as high
or nearly as high as the one year inflation expectations. That's not what we're seeing today. Longer term expectations are well
anchored and are relatively well anchored. And that's what the Fed is looking for. Jim. Well we didn't have the data. Go ahead
please. David I would add that this is such an unusual period because we're dealing with these supply disruptions that are not
really possible to confidently forecast. The disruptions coming out of Ukraine are still in place and they could get worse.
Russia has started to turn down the gas to Europe and you don't know what they're going to do with that. And the agricultural
season is coming towards harvest and we don't know how they're going to get the grain out of there. So while there's a good
case to be made that we will see inflation coming down the risk around it are very atypical at this time. Like.
I wonder about that specifically as we heard for example Elizabeth Warren Senator Elizabeth Warren this week asking Jay
Powell the Fed chair saying what can you do about gas prices. Is there anything you can do effectively. Because it's not clear
that they can do anything about those supply chain problems. And Jim's talking about. Well the Fed can't do anything really about
energy prices or commodity prices either. But what they can do and what he said in his testimony was that they could soften
demand demand for things for durable goods and that will have some impact. So I anticipate we'll see elevated inflation but it
should start to moderate from where we are. What can the consumer keep up. I mean because so much the economy is driven
Christina by the consumer. They're spending down their savings right now. How far can they
go. Well it all depends on exactly the trajectory of this slowdown. So we have a very tight labor market which I think is
the biggest advantage we have. And we have more job openings than we have job seekers. So theoretically if the Fed cools
demand we could see companies react not so much by layoffs but by removing job openings job postings. And in that way they
could navigate a soft landing. I also think it's critical that the Fed is data dependent. Mean and we saw that on display. It
wasn't just words. The Fed reacted to essentially two data points and made a pivot in terms of how much it hiked rates at
the last meeting. That could happen in the other direction as well. I think it's great that they're going to be reacting to
incoming data. I think it enables what is a blunt instrument not a surgical tool to become at least a little bit more like a
surgical tool. Jim what about currency. The dollar's been something of a tear. As a practical matter I'm not sure how long
the rest of the world can put up with that. Is there a danger of reverse currency war here.
I think there absolutely is no major impact from that. It is going to lead to a curb of inflation in the U.S. but it's
going to really hurt growth outside the U.S. and hurt the ability of those companies to service their debt.
So I do think that that's got to be paid a lot of attention to. It is an important part of the financial conditions index. And
so the level of strength that we've seen so far I will absolutely help slow our growth in the U.S. along with
inflation. So Christina what about those financial conditions. James mentioned that before here and I saw a chart that Northern
Trust had actually showing financial conditions have tightened a lot more. They have in the last four or five rate hike cycles
actually. Although I think the inflation rate was much higher this time than there were at those times as well. Well yeah. And
the Fed is doing what it hoped to do. And it actually started doing that with talk which is great when when talking can do
some of the heavy lifting. And so immediately at really at the start of this year when we heard that the Fed was planning on
reducing the size of its balance sheet this year that's really when we started to see financial conditions tighten. And it has
continued since then. That suggests to me the Fed may be able to get away with fewer rate hikes than it currently projects
because it has done a very good job tightening financial conditions. Jim you. Chris. Go ahead please Jim. So here's a
great example of the impact the Fed's moves will have. They will probably hurt GDP by roughly 1 percent by the decline in housing
activity because of the jump in mortgage rates probably won't hit house prices as much. But there clearly would be a slowdown
in activity because of not only less construction but less remodeling. Was broker commissions cetera all tied to the fact
that mortgage rates have had a historic percentage increase in the last six months.