And I'm so glad. Back with the are joining us because
you've been there done that. There is a central bank.
Exactly. So you you've been through those times
when people love you as a Tom Keene said when you're raising cutting rates they
love you. When you're raising them they doubt.
Are central banks really so much at fault.
Are they getting a lot of criticism right now.
Do they deserve it. They deserve a little.
Not as much as that getting. Why.
Well we're in unprecedented times. It's really hard to look through the
fog. And you're steering a hundred thousand
ton tanker which moves slowly even when you steer when you change direction and
you're trying to navigate through rocks. So what do you do.
You do the best job you can but everybody sort of is is there opining
and knowing because they can see through the fog which you can't.
That's the situation these guys are in because these are difficult times.
The labor market is doing things that we don't quite understand.
Why is it so tight. How is it responding to a slowing in
activity. How are we just moving.
These are all things that are evolving that we're seeing as we go.
In the meantime we have the pandemic sort of rearing its head shutting down
supply chains in China. We have you know globalization and
globalization have lots of things happening.
And you still want these guys to make perfect decisions.
It's a tough job. You can maybe sort of present them a
little bit for being a little late on reacting to inflation.
But I think it's hard to say that that they've got it completely wrong.
Is this going to create long lasting pressures maybe changes for central
banks that they were for example maybe need to change their operating
procedures or maybe that their central bank independence gets a little bit
eaten into it. Well I think the lesson from all this is
central banks can do more by trying to do less.
In other words they've been charged with climate change.
They've been charged with you know maximum employment including of
minorities. Lots of things which you know are better
done through more direct policies and perhaps only peripheral to the central
bank's mandate in instead if they focused on keeping inflation low.
I don't even think they can keep us from you know from two low inflation.
In other words there's a lot of pressure on them to raise inflation.
They can't do that particularly well. They don't know how to do that.
What they do know how to do is bring down inflation once it exceeds a certain
point. I think if you told them that is your
job and focus on that and leave all this other stuff aside it wouldn't make the
job a lot easier. And I think they would do a better job.
A lot of commentary maybe more from the markets than from central bankers
themselves that there's a disconnect. For example putting the Fed and the
markets and people say well maybe the markets aren't listening or maybe
they're credible now because they let inflation get out of control.
What do you say. Well I think the market is embedding its
hopes and fantasies on on the Fed. So for example I think today hard to
imagine that the Fed raising interest rates will suddenly start cutting them
in April. I mean why would it do that unless there
was a massive recession. And that's you know it's hard to see
that in the in in the tealeaves right now.
So why is the markets sort of assuming that after raising rates the Fed will
suddenly cut. It's okay to assume maybe it pauses
after that to see how the economy is progressing.
But you need a really serious recession by April 4 for the Fed to start.
Some people say maybe they're not listening.
Some people say maybe this is a generation that has never seen inflation
like this. And they just don't understand no matter
what the Fed or another central bank says.
Yes it may well be that they haven't seen inflation actually.
That's the silver lining in what the Fed is trying to do.
You know when the Fed was trying to bring down inflation in the early 80s it
had 10 years of high inflation behind it.
This time when it's trying to bring down inflation we've had a year.
So maybe people aren't. Don't have inflationary expectations
entrenched. Right.
Maybe they're not all going to go out on the street and say we want higher wages.
They're all saying well inflation is coming down.
Yeah I was a little perturbed. Yeah.
But maybe if my wage increase is 5 percent that's okay.
And next year back to 2 percent. You know at the at the last I was at
that ECB meeting European Central Bank it seemed that Christine Lagarde was
saying well we're going to we're going to be really right the moment data
dependent no more forward guidance. And people we've got whiffs of that from
other central banks. Is that a shift or is it.
Well forward guidance was easy when things were really stable.
Nothing really moved. And that was what the problem was.
Wanted to shift up inflation and it wasn't happening.
And so you were trying to tell the markets you'd be patient so that
inflation would move up. Now you're in a really volatile
environment. Every day something else is changing
right. So in this environment any kind of
forward and forward guidance is dated very quickly by the data.
And so I don't think it's you can do anything but be data dependent of course
with the idea that central banks don't sort of swerve and turn on a moment's
notice. They're slow moving tankers.
They will take time to turn. Well actually I remember when Ben
Bernanke and his Fed suddenly turned four guys into a tool that could
actually affect the economy. Right.
And financial conditions. I wonder did that get overdone.
Are they going to maybe take another look at their tool box at their
communications and maybe say that everybody should stick to something more
simple like interest rates. Well I think the problem is events
overtook forward guidance. They tried to portrayed the central bank
as being far more patient. We will wait till we see employment sort
of go up. Unemployment come down.
We will wait until these markets happen. And it turned out that even when that
happened did you know you still weren't seeing what you wanted to see in terms
of growth and inflation. And so at some point they said look we
can see all of this but you know it doesn't have that much credibility
leading with a final question from one of my colleagues who is looking at the
dollar. There are many different aspects to
that. But you know the Russia invasion of
Ukraine and everything that's happened there seems to far from help that their
currency at certain or even Chinas is definitely cemented the dollar's
strength. It's one of the things.
Right. Do you think when you look at China now
the economy slowing down. Of all the thing the issues the
government's facing now. Is there anything that's going to push
that currency more to that that strong more dominant position.
I think there's a lot needed to make a currency of reserve currency.
And if the if your question is about when does China zoom that flips.
It requires not only China to be a really big economy which it already is
but needs deep financial markets. It needs trust in government policy.
That government policy doesn't change overnight to favor this set of investors
with that set of investors. It requires a certain sense of rule of
law a sense of redress if there's something that goes wrong can be
appealed to the courts. China has somewhere to go there.
I think the US is already there. But is the US position to lose.
And so to the extent that the US becomes unpredictable to the extent that
investors in the US see sanctions applied on their investments the US
becomes a less hospitable place. And that's the sense in which the US has
to be careful that it is still seen as a reliable place for people to invest that
would protect the dollar. But but being a little sort of
schizophrenic about it going back and forth that will hurt.