What did you learn from the US? Not inflation number of actually the
surrounding commentary yesterday. Clearly, the central bankers are quite
worried about the second round effects and how much it's going to take to
actually squeeze inflation out of the system.
Probably looking at needing a recession to get things back to target consistent
levels. Can we get away without a recession
actually in the US? Given all of the hikes that we've had so
far and and given actually the Fed needs to do some things labor market.
If you're going to get inflation down to meaningful targets, we don't think you
can actually with think that a recession is necessary.
We're looking at something like a one and a half percent peak to trough
decline, and only then will we start getting inflation maybe next year closer
to target. But we've got second round effects, high
wages feeding through this evidence of that.
And know central banks have have to be mindful that financial conditions have
been listening and they've been banging the drum that they can't they can ease
off just yet. And actually, the recession is probably
needed to get all of the inflation out. What kind of recession is it going to be
like a deep and ugly recession? Because there's maybe over tightening
from the Federal Reserve or is it going to be a kind of shallow recession but
maybe stays longer than we're expecting? Probably somewhere in the middle, one
and a half percent. I think peak to trough would be probably
on the mild side, certainly milder than what we saw post financial crisis.
And the recovery, though, is going to be slow.
We don't expect much in terms of employment gains.
And once we even come out of it, it's gonna be a jobless recovery.
So, yeah, I'd say you have middling. What if there is?
What if the labor market holds, aren't there yet?
There's so much evidence at the moment. It could change very quickly that the
labor market is tight in the U.S., that it's very difficult to find the right
job with the right people for the right jobs because of the lack of skilled
workers. Yeah, I mean, that's the problem we're
seeing everywhere, including in Europe as well, the shortage of workers trying
to trying to cool the labor market. And we know the labor market is a
lagging indicator, but we would have expected by now more cracks to to have
appeared. And that is one part of the puzzle.
You know, the resilience has been quite astonishing.
We talk a lot about the UK and the fact that we have, you know, the other
problems of the world Shery Ahn, the problems that we have in Europe and the
US were distilled and condensed in the UK is a situation very similar to other
parts of the world. Some elements are very similar, so tight
labor market, deteriorating housing market and stagnating GDP.
But we have had a confluence of other things in the UK, the shortage of
workers exacerbated by Brexit and other things.
Inflation here in the UK still double digits despite despite the decline.
Core inflation is coming off again, still so very high from very high
levels. So what does that how do you think that
the beauty is looking at this? I know.
And I've taken a bet I won't say which we have taken a bet.
But, you know, the March 20 third hike is not in question
yet. So I think that that one's going to be
quite a close call. So the signal we got from the last
meeting was that Bank of England's probably done they were going to be
hyper hyper data, data sensitive. The wage numbers we had yesterday were
definitely pushing towards the Fed rate hike is necessary.
Today's numbers will be a relief. And I think that's where there's
probably going to be quite intense debate on the Bank of England for the
rate hike. More importantly, at the end of the
year, I think it's going to be very difficult to see cuts.
I mean, in the US, if they carry on hiking for longer, it just narrows the
window for that about turn in policy. And in the UK, we think core inflation
is going to be so much higher for longer than the Bank of England won't be able
to cut. Even though after the markets starting
to price in a bit more of that, we think it's unlikely.
Well, it was interesting last time where we're at the Bank of England to hear the
biggest, you know, move away from the doomsday scenario.
Its actions can take a long time for any kind of meaningful growth to come back.
Yes, it is. And the other part of the Bank of
England's assessment, which I thought was really important, is what they're
saying about potential growth. So we think and we agree potential
growth in the UK is going to be 1 percent at best.
It just means you have to have an even bigger downturn in the economy to
squeeze inflation out. And so, yes, in the near term, we've had
some better data. Labour markets holding up the medium
term assessment is very bleak and actually we would concur with that.
What are you expecting from ECB? The ECB?
I mean, they've pretty committed, haven't they?
Again, despite no forward guidance, they've told us, you know, with some
certainty what they're going to do. So, yeah, next next meeting, it's a 50.
Thereafter, I think 25 most likely. And there's definitely a kind of looking
in the rearview mirror looking at what the Fed is saying
going on, I think. But, yeah.
The inflation problem in Europe, similar in in the sense that the energy price
shock is still keeping those second round effects going.
Maybe less tight in terms of the labor market there.
But similar problems.