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The Supply Chain And Consumer Spending · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. The Leading Economic Index
• 0:22
  Speaker 1: was released today, gave it a little bit better than
• 0:24
  Speaker 1: expected at one point one percent. Consensus was for one percent.
• 0:27
  Speaker 1: Let's get some color under the hood there. We can
• 0:29
  Speaker 1: do that with Ottoman OZL. Drum, Senior director of Economic
• 0:33
  Speaker 1: Research at the Conference Board. He got his pH d
• 0:36
  Speaker 1: in economics and Happy Valley at Penn State. So we
• 0:39
  Speaker 1: welcome Ottoman. Thanks so much for joining us here. What
• 0:42
  Speaker 1: did you see in your numbers this morning? Again a
• 0:45
  Speaker 1: little bit better than expected? Good morning. Yes, Uh, the
• 0:49
  Speaker 1: heavy I rose pretty sharply this morning. Overall, the trend
• 0:54
  Speaker 1: in the leading indicators is still pointing to a gathering
• 0:58
  Speaker 1: momentum in the economies. So uh, the expansion is to
• 1:02
  Speaker 1: continue into the first half of two. But talk to
• 1:07
  Speaker 1: us about inflation. I mean we're hearing from Senator Joe Manchin,
• 1:10
  Speaker 1: Inflation is the biggest threat. Do you see that as
• 1:13
  Speaker 1: a threat to hurt the consumer in any pullback in
• 1:16
  Speaker 1: consumer spending? Yeah, Inflation does pose one of those risks
• 1:23
  Speaker 1: in the outlook UM, and it directly affects consumers purchasing power.
• 1:28
  Speaker 1: So pull back in spending UM and consumers sort of
• 1:33
  Speaker 1: outlook on the economy has been worsening throughout the fall,
• 1:38
  Speaker 1: largely because of what's what's happening in their wallets. So
• 1:43
  Speaker 1: that does pose their risk. And the Fed of course
• 1:46
  Speaker 1: has been responding to that UM and UH trying to
• 1:51
  Speaker 1: cool down the economy and uh that will possibly bring
• 1:54
  Speaker 1: the economy back to a more sustainable but healthy growth
• 1:59
  Speaker 1: rate u UM, and we'll begin to see that in
• 2:02
  Speaker 1: the leading indicators. So Ottoman, I guess you know one
• 2:05
  Speaker 1: of the issues here is just the consumer here, and
• 2:08
  Speaker 1: we've got this oncron variant here. How do you think
• 2:12
  Speaker 1: that's gonna impact, if at all, kind of the the
• 2:16
  Speaker 1: economy in two Yeah, that's the other large risk that's
• 2:23
  Speaker 1: looming in the outlook. Uh. So COVID nineteen we were
• 2:26
  Speaker 1: already expecting winter wave. I think the omicron complicates the
• 2:32
  Speaker 1: matter a little bit more in terms of how much
• 2:35
  Speaker 1: it's going to impact. It does feel like deja vu.
• 2:38
  Speaker 1: You know, we've've been through these ways before. But I
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  Speaker 1: think the difference now is that you know, we have
• 2:44
  Speaker 1: the vaccines uh and uh more reliable treatments. So UM,
• 2:50
  Speaker 1: you know, if the public health aspect can be contained
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  Speaker 1: um and managed, perhaps UM you know, it doesn't pose
• 2:59
  Speaker 1: a huge economic risk for the economic outlook. UM. So
• 3:04
  Speaker 1: to the extent that UM, you know, we don't go
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  Speaker 1: into these significant, large scale lockdowns. You know, perhaps we
• 3:12
  Speaker 1: can weather this winter wave of COVID nineteen. What are
• 3:15
  Speaker 1: you hearing about, you know, not only really expectations for
• 3:19
  Speaker 1: the next year, but three five years out, particularly in
• 3:22
  Speaker 1: the face of what could be a potential rate hike
• 3:25
  Speaker 1: or three or four in the next year. How is
• 3:29
  Speaker 1: that affecting some of the economics and consumer sentiment? UM
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  Speaker 1: well longer longer horizon. UM. You know, we are seeing
• 3:39
  Speaker 1: kind of uh, you know, healthy robust economic growth rates,
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  Speaker 1: especially in the US. UM. The fundamental uh sort of
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  Speaker 1: supply demand relationship is you know, working in the US economy,
• 3:53
  Speaker 1: whether you look at consumer spending or labor markets. UM.
• 3:58
  Speaker 1: You know, if we can whether these risk in the
• 4:00
  Speaker 1: next three to five years, you know, perhaps inflation doesn't
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  Speaker 1: become a persistent feature of the economy, and it can
• 4:07
  Speaker 1: be Uh, those risks can be can be handled so automan.
• 4:12
  Speaker 1: It seems like most shoppers are finding generally what they
• 4:17
  Speaker 1: want here for this holiday shopping season, and that's kind
• 4:19
  Speaker 1: of what the supply chain concerns. Maybe a little bit
• 4:22
  Speaker 1: on the back burner, but I'm looking at map go
• 4:26
  Speaker 1: on the Bloomberg term, and I still see lots of
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  Speaker 1: ships stocked off the ports of Los Angeles and Savannah.
• 4:33
  Speaker 1: How big of an issue is that for you as
• 4:35
  Speaker 1: you think about your outlook. Yeah, the supply chain disruptions UM,
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  Speaker 1: you know, have have been pushing up prices and we
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  Speaker 1: do expect um those uh to resolve in the longer term.
• 4:50
  Speaker 1: But I think in the near term next year, we
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  Speaker 1: will continue to see some of those bottlenecks UM and
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  Speaker 1: the volatility and destructions in races uh partly a matter
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  Speaker 1: of this, you know, mismatch between the supply and demand
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  Speaker 1: and the inability to deliver on time. UM. But eventually,
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  Speaker 1: you know, they will be resolved in the long return.
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  Speaker 1: But I think in some sectors we are going to
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  Speaker 1: continue to see those and I'm thinking specifically of you know,
• 5:21
  Speaker 1: motor vehicles and semiconductors used in the automobiles and so on,
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  Speaker 1: that might take longer to resolve because you know, you
• 5:28
  Speaker 1: need more investment in those areas. All right, Ottoman, thank
• 5:31
  Speaker 1: you so much for joining us here. Ottoman also Drum,
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  Speaker 1: Senior director of Economic Research for the Conference Board. Conference
• 5:37
  Speaker 1: Word report of their leading Economic Index for the month
• 5:41
  Speaker 1: of November came in at one point one percent positive
• 5:44
  Speaker 1: versus the consensus of one percent. So again, still some
• 5:47
  Speaker 1: positive news out there in the economy. Led by the
• 5:51
  Speaker 1: consumer supply chain. It's been an issue really since yeah,
• 5:58
  Speaker 1: the majority of this pandemic and the economic disruption and
• 6:01
  Speaker 1: then the reopening really exposed from the shortcomings in this
• 6:05
  Speaker 1: global just in time economy. Let's get the latest on
• 6:08
  Speaker 1: our supply chain issues. We can do that with Dr
• 6:10
  Speaker 1: Lisa Williams, chief executive Officer of World of EPI. Lisa,
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  Speaker 1: thanks so much for joining us here. It seems like
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  Speaker 1: this supply chain challenge a it's a global issue, but
• 6:21
  Speaker 1: it seems to be lingering here maybe a little bit
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  Speaker 1: longer than some people thought. Give us your view of
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  Speaker 1: kind of where we are on this challenge. A good morning, Paul,
• 6:31
  Speaker 1: it's a pleasure to be here. You are fought on.
• 6:33
  Speaker 1: You're right. The global crisis is laying going on more
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  Speaker 1: than we'd like, and it's because of so many different issues,
• 6:40
  Speaker 1: one of which is of course, the variance with COVID.
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  Speaker 1: You know, until we get COVID under control, we're going
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  Speaker 1: to continue to see a slowdown of supply and because
• 6:51
  Speaker 1: of COVID previously there is an increase in pent up
• 6:55
  Speaker 1: demand and in some cases income, So we have a
• 6:58
  Speaker 1: shortage of product uh, slowed down supply chain, pent up demand.
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  Speaker 1: That right there shows the core issue related to the
• 7:06
  Speaker 1: supply chain crisis. We have a port question to ask you.
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  Speaker 1: I've been fascinated by this. We've been out several times
• 7:14
  Speaker 1: to the port of Long Beach in the part of
• 7:16
  Speaker 1: l A and interviewed those executive directors, and they continue
• 7:20
  Speaker 1: to say that things are getting better. But what we're
• 7:22
  Speaker 1: also hearing is that they're just holding out ships outside
• 7:27
  Speaker 1: the area where we're counting. So ships look like they're
• 7:30
  Speaker 1: going down, but we're just doing a better job of
• 7:34
  Speaker 1: changing the optics. What are you hearing about if things
• 7:37
  Speaker 1: actually are getting better or not. Taylor, that's a brilliant observation.
• 7:43
  Speaker 1: You are right, it's looking better, but there's still some
• 7:47
  Speaker 1: of the same core issues. There is a reduction or
• 7:50
  Speaker 1: a lack of personnel to help um drivers, truck drivers.
• 7:54
  Speaker 1: There is a shortage of trast these equipment. So it's
• 7:57
  Speaker 1: kind of a whackable problem with the port. Right It's
• 8:00
  Speaker 1: like there's a delay coming in of the ships from Asia.
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  Speaker 1: Then once they get here, it's find the personnel and
• 8:07
  Speaker 1: the equipment to move it from the port into the warehouse.
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  Speaker 1: So there's a multifaceted challenge that we're still trying to handle.
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  Speaker 1: So you're right, there is a light short term improvement,
• 8:21
  Speaker 1: light short term improvement, I want to stress that, but
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  Speaker 1: it is certainly nothing that is going to come to
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  Speaker 1: an end or bring this crisis to a quick and
• 8:29
  Speaker 1: speedien So to that question, Lisa, what in your view
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  Speaker 1: is probably a reasonable time frame to get back to
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  Speaker 1: some level of normalcy in terms of supply chain. Well, Paul,
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  Speaker 1: you know, we know this is unprecedented and because of that,
• 8:46
  Speaker 1: we can't really look to history to give as much guidance. Unfortunately,
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  Speaker 1: it's going to depend upon getting a handle on COVID.
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  Speaker 1: It's going to depend upon getting supplies to the ingredients
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  Speaker 1: that we need. It's going to depend on finding the
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  Speaker 1: right containers, not just containers in terms of cargo containers,
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  Speaker 1: but containers for the bottle of the products that we
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  Speaker 1: need every day. All of those different challenges of why
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  Speaker 1: we're seeing what we're seeing. So the question is when
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  Speaker 1: do we think we'll see an into all of those
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  Speaker 1: different facets. I don't know, but what I do believe
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  Speaker 1: strongly is that we will see a change around three generally,
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  Speaker 1: assuming we can get COVID under control. But in the
• 9:32
  Speaker 1: beverage industry, I see it actually being longer. More like, wow,
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  Speaker 1: that's that's five years away. So talk to us then
• 9:43
  Speaker 1: about giving the longevity of the timelines you just laid out,
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  Speaker 1: Has anything changed permanently structurally within supply chain issues or
• 9:52
  Speaker 1: can we bounce back? You know, what is the new normal?
• 9:55
  Speaker 1: Look like sailors again? The new normal is going to
• 9:59
  Speaker 1: be something usual for us. Um it is we are
• 10:02
  Speaker 1: going to back back miles back because we are resilient
• 10:05
  Speaker 1: people and we have that desire. So I do believe
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  Speaker 1: we will bounce that. The timing of that, however, it
• 10:11
  Speaker 1: could be a lot longer than any of us prefer
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  Speaker 1: and it's gonna be again until we can get COVID
• 10:17
  Speaker 1: under control. That's like, for example, being a toy manufacturer,
• 10:20
  Speaker 1: we ship the majority of our products from Asia. Asia.
• 10:24
  Speaker 1: The largest port is the m t N. They have
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  Speaker 1: a zero tolerance for COVID, so if one person comes
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  Speaker 1: down with COVID, they shut things down. You can see
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  Speaker 1: right there at the rippling effect that that's having. Then
• 10:36
  Speaker 1: once to finally do get the container on a ship,
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  Speaker 1: it gets here, and as we just talked about, there's
• 10:41
  Speaker 1: a shortage of containers, there's a shortage of chassis, there's
• 10:44
  Speaker 1: a shortage of workers, there's a shortage of warehouse space.
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  Speaker 1: All of that continues to the length of our supply
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  Speaker 1: chain and adding to the supply chain crisis. So, like
• 10:54
  Speaker 1: I said, it's a multi faculted problem that we have
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  Speaker 1: to address, but I do believe the core of it
• 11:00
  Speaker 1: is dealing with the COVID pandemic. Dr Lisa Williams, thank
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  Speaker 1: you so much for joining us. Really appreciate getting your
• 11:07
  Speaker 1: thoughts and insights, which into a lingering, lingering economic challenge
• 11:12
  Speaker 1: for the global economy in terms of supply chain bottlenecks
• 11:15
  Speaker 1: again around the globe. Dr Lisa Williams, Chief executive Officer
• 11:20
  Speaker 1: of World of ep I. Alright, let's switch gears and
• 11:25
  Speaker 1: take a look at retail. We're just in the thick
• 11:28
  Speaker 1: rate at the very end of this holiday shopping season.
• 11:32
  Speaker 1: Lots of money being spent there. The consumer has a
• 11:35
  Speaker 1: lot of cash putting that money to work. Let's check
• 11:38
  Speaker 1: in with Andrew Rostami ahead of Citizens Pay at Citizens Bank. Andrew,
• 11:42
  Speaker 1: thanks so much for joining us here. There's a concept
• 11:44
  Speaker 1: that's I've been hearing about for the last six and
• 11:46
  Speaker 1: maybe twelve months that's a little bit new. By now
• 11:50
  Speaker 1: pay later. What does that mean to you and what
• 11:53
  Speaker 1: does that mean to the retail space? Yeah, no, thanks
• 11:56
  Speaker 1: and thanks for having me on the show here. Yeah,
• 11:58
  Speaker 1: I mean by now pay later is really about, um,
• 12:01
  Speaker 1: you know, helping a consumers spread out their payments, right,
• 12:04
  Speaker 1: and so you know, it's about taking a large purchase
• 12:07
  Speaker 1: and shopping that up into smaller payments, um, fixed monthly payments,
• 12:11
  Speaker 1: similar to what you would do maybe with the car purchase.
• 12:14
  Speaker 1: And sometimes that has no interest at all, Right, and
• 12:16
  Speaker 1: so it can be a very responsible thing for a
• 12:19
  Speaker 1: consumer and why they're rarely gravitating towards that type of product. Okay,
• 12:23
  Speaker 1: on the flip side, of that. That was interesting. Last
• 12:26
  Speaker 1: week you're the Consumer Financial Protection Bureau just asked for
• 12:30
  Speaker 1: an inquiry into some of these buy now, pay later
• 12:33
  Speaker 1: companies of just asking to make sure that consumers really
• 12:37
  Speaker 1: know what it is, Do they know their debt burden?
• 12:40
  Speaker 1: What are some of the regulatory headwinds that you see
• 12:43
  Speaker 1: though from this? Yeah, now, we we really think that's
• 12:46
  Speaker 1: a great thing that the CFPP is doing. Um, you
• 12:49
  Speaker 1: really want to make sure you're doing it responsibly, right
• 12:52
  Speaker 1: and so um a Citizens Pay. We're a fintech, but
• 12:54
  Speaker 1: we're within a regulated bank, which has been fantastic. Right,
• 12:58
  Speaker 1: So you're doing things like under writing the consumer, making
• 13:01
  Speaker 1: sure that they have the right not just credit profile,
• 13:04
  Speaker 1: but they have the right income to be able to
• 13:06
  Speaker 1: afford the purchase. You're working with the credit bureau such
• 13:09
  Speaker 1: that that dad is reported back to the bureau such
• 13:12
  Speaker 1: that all lenders can take a look at that. So
• 13:14
  Speaker 1: those are the types of things you really want to
• 13:16
  Speaker 1: make sure you're doing to put the consumer right on
• 13:18
  Speaker 1: the right footing. So, Andrew, you know, when you talk
• 13:21
  Speaker 1: to your retail clients, how are they thinking about supply
• 13:26
  Speaker 1: chain issues? Because we talked to someone in a supply
• 13:28
  Speaker 1: chain just earlier today and suggesting that this is going
• 13:32
  Speaker 1: to stretch well into next year and maybe even longer.
• 13:36
  Speaker 1: Is that what you're hearing from your customers? Yeah, it's
• 13:38
  Speaker 1: it absolutely has been a challenge. Obviously, some UM clients
• 13:43
  Speaker 1: have different UM ownership over the supply chain UM right,
• 13:47
  Speaker 1: based on their scale, but in general, it's it's definitely
• 13:50
  Speaker 1: been a challenge and UM, you know, I think the
• 13:53
  Speaker 1: real UM, the only real UM you know, panacea really
• 13:57
  Speaker 1: is just kind of finding new ways to delight the
• 14:00
  Speaker 1: insumer and provide growth. Right, So, in addition to providing
• 14:02
  Speaker 1: transparency on what shipping times may be, UM finding new
• 14:06
  Speaker 1: ways really to provide other types of UM you know,
• 14:10
  Speaker 1: purchases for those consumers UM you know, as it as
• 14:14
  Speaker 1: it looks like it will you know, unfortunately continue. I'm
• 14:17
  Speaker 1: also really curious about what you're seeing anecdotally from the consumer.
• 14:21
  Speaker 1: Are basket size going up because prices are higher and
• 14:27
  Speaker 1: we're experiencing inflation? Or are we actually buying more items
• 14:33
  Speaker 1: even if the prices aren't going up? Right? What what
• 14:35
  Speaker 1: is that telling you? Yeah, we've we've seen UM, without
• 14:40
  Speaker 1: going to too much detail, I mean, to spend this
• 14:42
  Speaker 1: year is certainly higher than last year and certainly higher
• 14:46
  Speaker 1: than pre pandemic. And when you look at that across categories,
• 14:50
  Speaker 1: it really is broad based, save one or two categories,
• 14:53
  Speaker 1: essentially all categories are up. We are seeing both frequency
• 14:58
  Speaker 1: as well as a higher ticket size in the basket.
• 15:02
  Speaker 1: And you know that is going back to buy now,
• 15:04
  Speaker 1: pay later, a point of sale financing that is what
• 15:07
  Speaker 1: can really support that, right, um, where you can really
• 15:10
  Speaker 1: make that purchase more responsibly. So we are seeing both
• 15:13
  Speaker 1: of those tramps, but on an inflation adjusted basis, our
• 15:17
  Speaker 1: basket size is still higher as the consumer actually stronger. Yeah,
• 15:21
  Speaker 1: I mean again from what we can see it does
• 15:23
  Speaker 1: you know, appear you know, to be that way. Um.
• 15:26
  Speaker 1: And then you know, to your point, the consumer strength
• 15:29
  Speaker 1: still looks pretty solid, um, right, the balance parking that's
• 15:33
  Speaker 1: happening that we see in deposit accounts, um, it's still
• 15:37
  Speaker 1: you know, you know, relatively strong, right, so it would
• 15:40
  Speaker 1: indicate some pretty good underlying strength in the consumer. Still
• 15:44
  Speaker 1: all right, Andrew, thank you so much for joining us.
• 15:46
  Speaker 1: Always appreciate getting your thoughts. Andrew Rostami, head of Citizens Pay.
• 15:50
  Speaker 1: It's part of Citizens Bank giving us the lay of
• 15:53
  Speaker 1: the land on all things retails. So we've got central
• 15:59
  Speaker 1: bankers are round the globe either raising rates as we
• 16:02
  Speaker 1: speak or talking about raising rates in the near future. Uh.
• 16:07
  Speaker 1: Yet I look at a tenure at one point three
• 16:09
  Speaker 1: seven with the one global central bank who's taking the
• 16:11
  Speaker 1: opposite of that inflation right exactly exactly. The question is
• 16:18
  Speaker 1: what do you do in that kind of environment on
• 16:20
  Speaker 1: the fixed income side of the ledger? Let's bringing in
• 16:22
  Speaker 1: a professional does this for a living r? J. Gallo,
• 16:26
  Speaker 1: Senior portfolio manager for Federated Hermes J thanks so much
• 16:30
  Speaker 1: for joining us here. How are you guys thinking about,
• 16:34
  Speaker 1: and again an environment where presumably central packers around the
• 16:38
  Speaker 1: world are gonna be pushing up rates? Well, good morning,
• 16:41
  Speaker 1: thanks for having me. We continue to believe that rates
• 16:47
  Speaker 1: had to go higher that the pivot that we're now
• 16:49
  Speaker 1: seeing at the FED and other developed country central banks
• 16:53
  Speaker 1: and developing countries, it was necessary. The simple fact of
• 16:57
  Speaker 1: the matter is the dynamic of the pandemic, the on
• 17:00
  Speaker 1: again off again economy, the restart, the logistical supply chain problems.
• 17:04
  Speaker 1: They've all added up to a level of inflation that
• 17:06
  Speaker 1: requires central bank attention, and now they're speaking to that
• 17:10
  Speaker 1: as well as acting with acceleration of the taper. There
• 17:14
  Speaker 1: are a lot of cross currents. Though the fiscal policy
• 17:17
  Speaker 1: sequentially is going to become less stimulative. The news this
• 17:20
  Speaker 1: morning from Senator Mansion basically bailing on the build back
• 17:24
  Speaker 1: better plan is another point in that direction. Um, So
• 17:28
  Speaker 1: I wouldn't be worried that we're about to go through
• 17:30
  Speaker 1: skyrocketing rates. I think that's highly unlikely. Uh. And then
• 17:34
  Speaker 1: the omicron slash delta wave that we're all dealing with
• 17:38
  Speaker 1: is another sort of bond friendly development. So you know,
• 17:41
  Speaker 1: it's sort of clear as mud. But I think that
• 17:43
  Speaker 1: the simple fact the matter is we do believe yields
• 17:45
  Speaker 1: will be somewhat higher than the art today, but there's
• 17:47
  Speaker 1: plenty of reasons not to go max short at this
• 17:50
  Speaker 1: point in time. Yeah, talk to us about that r J,
• 17:54
  Speaker 1: because it's so interesting when, as Paul was saying, the
• 17:57
  Speaker 1: call was two percent yields and we're down below a
• 18:01
  Speaker 1: one fort on the tenure and below two percent, well
• 18:03
  Speaker 1: below two on the thirty year. Is it that we
• 18:06
  Speaker 1: have a central bank who is now less tolerant of
• 18:09
  Speaker 1: inflation and so long term we're thinking lower growth, lower
• 18:13
  Speaker 1: inflation or is this some technicals. I think that there's
• 18:19
  Speaker 1: a number of factors out there. First of all, the
• 18:23
  Speaker 1: fet worked really hard to get many to accept the
• 18:27
  Speaker 1: idea that part of this inflation was transitory. That word
• 18:31
  Speaker 1: now has basically been banned. UM, So let's use a
• 18:34
  Speaker 1: different one that's probably not a clear clearly implying that
• 18:37
  Speaker 1: it would be brief episodic. I think there's something episodic
• 18:41
  Speaker 1: about this inflation, but that's not explaining all of it. UM.
• 18:45
  Speaker 1: I think the fact that the fet is is pivoted,
• 18:48
  Speaker 1: has pivoted in the hawkish direction, has prompted some fears
• 18:52
  Speaker 1: that they might overdo it. I mean, it's remarkable how
• 18:56
  Speaker 1: the distance between the dots and the markets imply levels
• 19:00
  Speaker 1: of short rates out a year or two, three years
• 19:03
  Speaker 1: from now. It's pretty stark. H. Obviously, there's a mixed
• 19:08
  Speaker 1: view on how fast the economy can grow and how
• 19:11
  Speaker 1: much the economy can tolerate of FED tightening cycle. Uh.
• 19:15
  Speaker 1: It rains to be seen. However, how this one unfold
• 19:18
  Speaker 1: makes it sort of tough for the bond managers of
• 19:20
  Speaker 1: the world. I do think there's some silver lining for
• 19:23
  Speaker 1: people who are afraid that they're going to experience massive
• 19:25
  Speaker 1: bond losses. UH. They have to remember, you've already experienced
• 19:28
  Speaker 1: losses on the Barkley's Aggregate, the U S Treasury Index,
• 19:31
  Speaker 1: they're all down one over two percent on the year.
• 19:34
  Speaker 1: It's quite possible as yields rise in the year to come,
• 19:38
  Speaker 1: I expect returns to be low, that's for sure. UM.
• 19:41
  Speaker 1: But some of the rising rate dynamics behind us. And
• 19:44
  Speaker 1: the question is where is that terminal rate? The markets
• 19:46
  Speaker 1: pricing at very low terminal rate. We think it's probably
• 19:48
  Speaker 1: a little too low. We're a little short as a result,
• 19:51
  Speaker 1: and that's how we're dealing with this sort of foggy
• 19:52
  Speaker 1: picture in front of us. R J. Are you of
• 19:56
  Speaker 1: the Are you in the camp that central banks perhaps
• 19:58
  Speaker 1: have been moving to slow on inflation? UM? I think yeah, yeah.
• 20:05
  Speaker 1: I think the simple fact of the matter is that
• 20:07
  Speaker 1: the FED in other eras, the FED wouldn't have accelerated
• 20:12
  Speaker 1: the taper, they would have just stopped buying bonds. Uh.
• 20:15
  Speaker 1: There's abundant reasons to argue that that that they should
• 20:18
  Speaker 1: do that, and they should have done at the last meeting.
• 20:21
  Speaker 1: But in the current central banking framework, the FET doesn't
• 20:24
  Speaker 1: like to surprise the markets. They viewed that as destabilizing. UH.
• 20:28
  Speaker 1: It would unsettle risk assets which have been on a tear.
• 20:32
  Speaker 1: So I think the FED has to move very sensitively
• 20:35
  Speaker 1: gingerly is probably a better word, uh in in their pivot,
• 20:39
  Speaker 1: and so far they've pulled it off. It's interesting that
• 20:40
  Speaker 1: risk assets are now struggling because I think people are
• 20:42
  Speaker 1: concerned about the idea of a policy error, that the
• 20:45
  Speaker 1: FED is going to overtighten, that their doughts are too aggressive.
• 20:48
  Speaker 1: Economy can't take it, like I was saying before, But yeah,
• 20:51
  Speaker 1: I think the central banks probably waited a little too long.
• 20:53
  Speaker 1: But can you blame them. The uncertainties that we face
• 20:57
  Speaker 1: as an economy as a society keep thing. It's hard
• 21:01
  Speaker 1: to charge forth with great confidence, whether you're a public
• 21:04
  Speaker 1: health official or a monetary policy official in the context
• 21:08
  Speaker 1: of a world that's changing as the pandemic continues to
• 21:10
  Speaker 1: to change over Now you know, r J, we just
• 21:13
  Speaker 1: have about thirty seconds left. When will we know when
• 21:16
  Speaker 1: we are past the point of having to worry about
• 21:18
  Speaker 1: a policy error. That's a great question. I I personally
• 21:24
  Speaker 1: think Chairman Powell laid out of you that if inflation
• 21:27
  Speaker 1: isn't materially declining mid to late next year from its
• 21:32
  Speaker 1: very high rates that we currently see, um, that's where
• 21:35
  Speaker 1: the FED might start to get more aggressive and and
• 21:39
  Speaker 1: the policy error judgment we'll only become apparent sort of
• 21:43
  Speaker 1: as it's happening. Recalled the fourth quarter of twenty team,
• 21:46
  Speaker 1: when the FED was tightening and the balance she was shrinking.
• 21:49
  Speaker 1: The stock markets were, you know, they were screaming Uncle,
• 21:51
  Speaker 1: they couldn't take it. Stock markets quarter, That's when the
• 21:54
  Speaker 1: policy error trade becomes evident. It's sort of real time,
• 21:58
  Speaker 1: all right. R J. Thanks so much for join Instagrams.
• 22:00
  Speaker 1: Appreciate getting your thoughts on the credit markets. R J. Gallop,
• 22:04
  Speaker 1: Senior portfolio manager for Federated Hermes, giving us his thoughts
• 22:07
  Speaker 1: on these credit markets. Thanks for listening to the Bloomberg
• 22:10
  Speaker 1: Markets podcast. You can subscribe and listen to interviews with
• 22:14
  Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
• 22:19
  Speaker 1: I'm on Twitter at Matt Miller three. Put on fall Sweeney.
• 22:23
  Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast. You
• 22:26
  Speaker 1: can always catch us worldwide at Bloomberg Radio