Latest / Stephanomics / Long Is the Way Out of the Global Inflation Fight, and Hard

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Long Is the Way Out of the Global Inflation Fight, and Hard · Stephanomics

• 0:05
  Speaker 1: Hello, and welcome back to Stephanomics, the podcast that brings
• 0:08
  Speaker 1: you the global economy, and this week also brings you
• 0:11
  Speaker 1: the Bloomberg New Economy Forum. It was the final day
• 0:14
  Speaker 1: of the Forum today and I wanted to play you
• 0:16
  Speaker 1: most of a panel that I moderated about the end
• 0:18
  Speaker 1: of easy money policy making for an inflationary era. We
• 0:23
  Speaker 1: had a pretty high class set of speakers. Axel Weber,
• 0:26
  Speaker 1: the former head of the bundas Back now a senior
• 0:29
  Speaker 1: adviser to UBS, the investor Davode Sarah, chief executive officer
• 0:34
  Speaker 1: and founder of Algebra's Investments, and Geter Gopinath, formerly the
• 0:38
  Speaker 1: chief economist of the i m F, now it's first
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  Speaker 1: deputy Managing Director. Of course we're talking about inflation. We
• 0:47
  Speaker 1: could have spent a lot of time talking again about
• 0:49
  Speaker 1: why central banks have got things so wrong, but I
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  Speaker 1: was pretty keen to look ahead. What's the consequences of
• 0:55
  Speaker 1: this inflation that we're seeing and does it mean we
• 0:58
  Speaker 1: have to rethink some of the macro policy tool kit
• 1:02
  Speaker 1: that we developed for a rather different time. I started, though,
• 1:06
  Speaker 1: by asking Peter Governa, with her perspective at the International
• 1:10
  Speaker 1: Monetary Fund, whether collectively policymakers had done enough to confront inflation.
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  Speaker 1: I mean, stephaniely, without a doubt, one of the biggest
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  Speaker 1: challenges economies around the world are facing is inflation uh
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  Speaker 1: and to bring inflation down at the time when growth
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  Speaker 1: is also slowing for other reasons because of other forms
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  Speaker 1: of supply sharks. I think what central banks around the
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  Speaker 1: world have clearly recognized is that they need to move
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  Speaker 1: in the determined fashion to durably bring inflation down. If
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  Speaker 1: you see the total amount of rate increases that we've
• 1:55
  Speaker 1: seen in the US this past year, this is their
• 2:00
  Speaker 1: few parallels in terms of the last several decades to
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  Speaker 1: see this much of an increase in such a short
• 2:05
  Speaker 1: period of time, But I was needed to address the
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  Speaker 1: kind of inflation that we haven't seen in over four decades.
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  Speaker 1: The US FED is at the point where they've raised
• 2:16
  Speaker 1: interest rates around basis points. They are very likely to
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  Speaker 1: raise interest rates another round before the end of this year,
• 2:27
  Speaker 1: and then the question is what comes next, And I
• 2:30
  Speaker 1: think the question is more about how long are you
• 2:35
  Speaker 1: going to keep these rates at the at the levels
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  Speaker 1: that they've moved them too, and we see a need
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  Speaker 1: to keep it at over four percent for all of
• 2:47
  Speaker 1: twenty twenty three to be able to bring inflation down durably,
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  Speaker 1: and like you said, it's very important to do that
• 2:53
  Speaker 1: because it's extremely regressive high levels of inflation. Now, there
• 2:58
  Speaker 1: are countries at other different points in their cycle, but
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  Speaker 1: I focused on the US because in terms of spiller
• 3:03
  Speaker 1: was to the rest of the world, US policies had
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  Speaker 1: the biggest effect. Actually, you're the former central banker on
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  Speaker 1: this panel, and we should record that you were on
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  Speaker 1: the record early in morning about inflation at the end
• 3:16
  Speaker 1: of But you have now had at least ninety central
• 3:20
  Speaker 1: banks raised interest rates this year, at least half of
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  Speaker 1: them basis points in a single go, which most of
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  Speaker 1: them have not done before. Are we now at a
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  Speaker 1: point where central banks can have a more leisurely We're
• 3:32
  Speaker 1: not talking pivots, but a more leisurely pace. No. I think,
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  Speaker 1: as Gito was indicating as a central banker, seventy five
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  Speaker 1: basis point moves are usually conducted over the last couple
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  Speaker 1: of decades. Only on the way down. When you are
• 3:49
  Speaker 1: ever been hit by a shock and you were behind
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  Speaker 1: the curved by construction because something unexpected in the economy,
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  Speaker 1: like in the financial crisis, on the way up. I
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  Speaker 1: think it's a mirror image and and we don't want
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  Speaker 1: to talk about the past, but it's a bit of
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  Speaker 1: a mirror image of being laid in my view, by
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  Speaker 1: design from the inflation targeting regime that was adopted and
• 4:09
  Speaker 1: therefore having to do faster steps because inflation didn't just
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  Speaker 1: rise from below two percent to just above two percent
• 4:16
  Speaker 1: or three percent or four percent, when all the way
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  Speaker 1: up to double digit and that's where I think a
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  Speaker 1: lot of action was needed. If if central banks have
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  Speaker 1: a dual mandate, which many of them have explicitly or implicitly,
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  Speaker 1: the most violated objective in the central bank objective function
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  Speaker 1: at the moment is inflation. It's way out of line
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  Speaker 1: with the target, whilst the employment and the economy has
• 4:39
  Speaker 1: been holding up relatively well so far. And there is
• 4:42
  Speaker 1: a new shock with the war in Ukraine that has
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  Speaker 1: added another negative supply shock to an already strained environment
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  Speaker 1: that that central banks were facing. So I don't think
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  Speaker 1: they're done. I think they've got some more work to do.
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  Speaker 1: I think the belief in markets that central banks will
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  Speaker 1: go and then come back in next year is in
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  Speaker 1: my view, uh, both premature and not ideal. From a
• 5:07
  Speaker 1: central bank point of view, and with GETA, they probably
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  Speaker 1: have to keep rates at which they go over the
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  Speaker 1: spring next year at that level for the remainder of
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  Speaker 1: the year and into twenty four to bring inflation down
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  Speaker 1: towards they're objective, and it will take them two years
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  Speaker 1: to really be in the vicinity again of their objective
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  Speaker 1: bearing further shocks. But bearing further shocks is a very
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  Speaker 1: brave assumption, and a lot of the things that are
• 5:32
  Speaker 1: in the pipeline, the transition to a greener economy, all
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  Speaker 1: of this will have inflationary impacts on energy prices and
• 5:40
  Speaker 1: in other parts of life. So I think there is
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  Speaker 1: a likely scenario where you will see repeated shocks that
• 5:46
  Speaker 1: will keep inflation eye and more persistently high, despite central
• 5:51
  Speaker 1: banks having adjusted monetary policy and having raised rates substantially
• 5:55
  Speaker 1: at least for the next year or two. And as
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  Speaker 1: we know it's been discussed this week, it's not just
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  Speaker 1: the moved to net zero, it's climate change itself also
• 6:02
  Speaker 1: produces more volatile inflation. I think we're pretty clear on
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  Speaker 1: that Tai day from the investors standpoint, where where do
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  Speaker 1: you think we are on this road? I think investors
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  Speaker 1: right now have this view, at least what's priced in
• 6:16
  Speaker 1: the future, the rates are going to go lower. But
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  Speaker 1: here the beauty of Bank of England that has calculated
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  Speaker 1: numbers for the last five century is never in developed
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  Speaker 1: markets when core inflation passes five for more than twelve months,
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  Speaker 1: they're being able to bring the core inflation number below
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  Speaker 1: too in less than ten years. Only once in history
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  Speaker 1: in the last century in less than five years. So
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  Speaker 1: if history is of any help, I think rates are
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  Speaker 1: going to stay higher for longer, and there are free
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  Speaker 1: reason for it. The inflation shock comes from free main area.
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  Speaker 1: The first one is green transition. The second is the
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  Speaker 1: decaupling of the supply chain globally for geob political reason.
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  Speaker 1: And further, remember green transition require materials which are no
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  Speaker 1: longer in an abundant space. You know, think about copper.
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  Speaker 1: We'll be looking for copper for two thousand years. We
• 7:08
  Speaker 1: need to find more copper in the next twenty years
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  Speaker 1: that we've been found in the last two thousand years.
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  Speaker 1: And when you add then the add there's consequences of
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  Speaker 1: getting in transition and climate change on food, you add minerals,
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  Speaker 1: and then you add the war, you're creating an effect
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  Speaker 1: that's why I think inflation is going to be strategy.
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  Speaker 1: It's slightly higher. Then if you think that we had
• 7:31
  Speaker 1: in developed market US and Europe, now people have better
• 7:34
  Speaker 1: balance sheet. You see it in the US, so a
• 7:36
  Speaker 1: recession is likely to be less, you know, shallow. We're
• 7:40
  Speaker 1: not going to be a harder recession. And as a
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  Speaker 1: result of thin, central bank can keep rates higher. So
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  Speaker 1: I think if the market is wrong, rates ain't going
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  Speaker 1: to go down as stats as people think, in the
• 7:48
  Speaker 1: sense it is running together both things, as the current
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  Speaker 1: inflation shop where people are dealing with, and then these
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  Speaker 1: longer term trends, and people have thought that maybe this
• 7:56
  Speaker 1: was a sneak preview to those, But he's kind of saying,
• 7:59
  Speaker 1: we're already there, guitar, Do you buy into that that
• 8:02
  Speaker 1: we we're already in this structurally higher inflation world. Not fully.
• 8:09
  Speaker 1: I would say the following, which is what is true,
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  Speaker 1: is we are likely entering a period where supply sharks
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  Speaker 1: will play a bigger role then they did in the
• 8:20
  Speaker 1: last two decades. And supply sharks include sharks that come
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  Speaker 1: from a climate. But also I think risks in terms
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  Speaker 1: of economic fragmentation around the world. What could happen to
• 8:31
  Speaker 1: global trade. I think those risks could play an important role.
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  Speaker 1: So we probably are entering an error where for central
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  Speaker 1: banks they really have a trade off to deal with.
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  Speaker 1: They didn't have a trade off. I mean it was
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  Speaker 1: for the last couple of decades they could keep reducing
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  Speaker 1: the unemployment rate and not see any inflation. They didn't
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  Speaker 1: really have a trade off to deal with. But now
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  Speaker 1: they actually are likely to have a most serious trade
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  Speaker 1: off to deal with. But the question of the inflation
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  Speaker 1: that we've seen now, I wouldn't not start with the
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  Speaker 1: green transition of climates as being the leading factor for it.
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  Speaker 1: I think what we had was a very unique period
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  Speaker 1: of the pandemic now the war and we've seen very
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  Speaker 1: extraordinary recoveries that have come along with very large amounts
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  Speaker 1: of support that was provided during the worst time of
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  Speaker 1: the pandemic in terms of both money, ships policy support,
• 9:25
  Speaker 1: and also especially fiscal policy support, so people with high
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  Speaker 1: levels of savings, and now you've seen that money being
• 9:31
  Speaker 1: spent alongside you do have a supply side problem to
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  Speaker 1: which is that in markets like the US and the UK,
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  Speaker 1: labor supply hasn't come back to what it was pre pandemic.
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  Speaker 1: You still have the pandemic hitting other parts of the world.
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  Speaker 1: In China, we in cases going up that's affecting supply chains.
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  Speaker 1: So I think those are the main factors. I still
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  Speaker 1: do believe monetary policy works in the traditional way of
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  Speaker 1: reducing demand by raising interest rates, and we are seeing
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  Speaker 1: that happen in in the U S and other countries.
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  Speaker 1: It's going to take some time. I don't think it's
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  Speaker 1: going to take many, many decades like that. And they said,
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  Speaker 1: but again, um, so I would make that distinction. I mean,
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  Speaker 1: but what we're trying to solve now and what the
• 10:18
  Speaker 1: risks are there on the horizon? Accellent. We're focusing on
• 10:21
  Speaker 1: policy making. Um clearly we've seen I mean the UK
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  Speaker 1: had some of its own problems, but it also there
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  Speaker 1: was a structural issue which many countries face of balancing
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  Speaker 1: now in this more challenging world, the fiscal and the monetary.
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  Speaker 1: Do you think we have the right sense of what
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  Speaker 1: that how fiscal and monetary needs to work together or
• 10:44
  Speaker 1: not work together in this environment. Yes, So two things,
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  Speaker 1: and I need alluded to it. One thing you have
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  Speaker 1: to see is that what happened after COVID, namely a
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  Speaker 1: massive expansion of balance sheets of government and finance, largely
• 11:02
  Speaker 1: by emissions and purchases of sovereign debt into the balance
• 11:08
  Speaker 1: sheet of a central bank. Was a coordinated extension of
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  Speaker 1: balance sheets on the sides of the central bank, roughly
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  Speaker 1: to the tune of of global GDP and of governments,
• 11:19
  Speaker 1: and a lot of that, unlike in the financial crisis,
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  Speaker 1: was going to private households in forms of paychecks and
• 11:25
  Speaker 1: really increased demands. So there was quite a demand stimulus
• 11:29
  Speaker 1: that we saw necessarily so in but he was kept
• 11:33
  Speaker 1: in place, at least from the monetary side, way too long,
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  Speaker 1: and I think that is part why we saw inflation.
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  Speaker 1: The other side we haven't talked about is the balance
• 11:41
  Speaker 1: sheets really what will happen with them in the future. Now,
• 11:44
  Speaker 1: if you look at the S and P five, then
• 11:47
  Speaker 1: you look at the you know, added balance sheet of
• 11:50
  Speaker 1: the major three central banks Europe, Japan and the US,
• 11:55
  Speaker 1: you see a very high correlation between how financial markets
• 11:58
  Speaker 1: have been performing and the liquidity put into the system
• 12:02
  Speaker 1: by the central banks. Now, going forward, central banks don't
• 12:06
  Speaker 1: just raise rates, they're also reducing their balance sheet. And actually,
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  Speaker 1: if you look at Europe, because some of the liquidity
• 12:13
  Speaker 1: was provided through long term financing, operations that have an
• 12:17
  Speaker 1: end date and not been prolonged. A lot of the
• 12:20
  Speaker 1: success liquidity will go relatively fast in the short period
• 12:24
  Speaker 1: of early next year, and then the reduction or balance
• 12:27
  Speaker 1: sheet will add to a down draft that will continue
• 12:30
  Speaker 1: to draw liquidity structurally out of the markets, and so
• 12:33
  Speaker 1: the price for liquidity and the price for investments will
• 12:38
  Speaker 1: in my view in the future be quite a bit higher.
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  Speaker 1: What you saw in the UK was actually because of
• 12:43
  Speaker 1: a financial stability concern. The central Bank that was actually
• 12:47
  Speaker 1: on course for reducing its balance sheet had to intervene
• 12:50
  Speaker 1: in the market and pump liquidity in for three days,
• 12:53
  Speaker 1: as Andrew Bailey announced at the IF meeting in Washington,
• 12:56
  Speaker 1: d C. In order to stabilize some of the UK
• 13:01
  Speaker 1: pension funds that use derivative instruments and therefore got an
• 13:04
  Speaker 1: exposure to strong movements in financial markets. So I wouldn't
• 13:08
  Speaker 1: be surprised if we have further episodes in the market
• 13:11
  Speaker 1: were that combined great increase and withdrawal of liquidity will
• 13:16
  Speaker 1: lead to pocket of weaknesses in financial markets because of
• 13:20
  Speaker 1: leverage strategies getting cold and not being able to be
• 13:23
  Speaker 1: continued as they are. How dangerous is it to have
• 13:26
  Speaker 1: quantitative tightening. The shrinking of central bank balance sheets continued,
• 13:30
  Speaker 1: and we had traditionally said it was a tool when
• 13:34
  Speaker 1: the balance sheet was going out, and it was a
• 13:35
  Speaker 1: tool that was less well understood than the impact of
• 13:38
  Speaker 1: interest rates. So is it dangerous for central banks to
• 13:41
  Speaker 1: keep plowing ahead? I think it's dangerous if they don't
• 13:45
  Speaker 1: understand where the leverage is. And so I think we
• 13:49
  Speaker 1: will probably see central bank keeping the assets they have.
• 13:53
  Speaker 1: By the way, for ten years we haven't seen inflation.
• 13:56
  Speaker 1: So the world is designed to have inflation around two
• 13:59
  Speaker 1: to three. We had zero for ten years. It's great
• 14:03
  Speaker 1: that we're gonna have free four for the next tent.
• 14:06
  Speaker 1: It's just simply that you know, when you do an
• 14:07
  Speaker 1: average over twenty years, probably the an average is gonna
• 14:10
  Speaker 1: end up being about right. Yeah, And hence we need
• 14:13
  Speaker 1: some inflation because the only way to deflate that to
• 14:16
  Speaker 1: GDP is for inflation. That's always happening in history. One
• 14:21
  Speaker 1: of the places you look to think about hidden financial
• 14:25
  Speaker 1: stability risks is the i m FS PLAY Financial Stability Report.
• 14:31
  Speaker 1: Do you do you agree that we put there are
• 14:34
  Speaker 1: potentially some sort of unexploded consequences out there for the
• 14:38
  Speaker 1: quantitative tightening in central bank balance sheets. Well, I think, well,
• 14:43
  Speaker 1: without a doubt, there are significant segments of the financial
• 14:48
  Speaker 1: market that live in the shadows that are not well regulated.
• 14:54
  Speaker 1: We call them non bank financial institutions, and that is
• 14:58
  Speaker 1: where we are likely to be surprised. And that's what
• 15:01
  Speaker 1: happened in the UK. So as our Global Financial Stability
• 15:05
  Speaker 1: Report show that when you do a global stress test
• 15:08
  Speaker 1: for the banking system, advanced economy banks are quite resilient
• 15:15
  Speaker 1: too some very serious downside scenarios. Emerging market banks less so.
• 15:21
  Speaker 1: So in a very severe downside scenario, which is in
• 15:23
  Speaker 1: the GFSR, we have about thirty percent of emerging markets
• 15:27
  Speaker 1: who breach minimum capital requirements. That's a pretty serious event.
• 15:32
  Speaker 1: But I think the real unknown is the non bank
• 15:35
  Speaker 1: financial system, and that's exactly where we have hidden leverage,
• 15:39
  Speaker 1: where we have uh, you know, dark corners, which which
• 15:44
  Speaker 1: come up only when things get really difficult, like we
• 15:48
  Speaker 1: saw in the UK. So that's something that we are
• 15:50
  Speaker 1: worried about. It more generally, in terms of the financial
• 15:53
  Speaker 1: conditions at the moment, we see a distinction between you know,
• 15:58
  Speaker 1: investment grade assets which everywhere around the world training are
• 16:02
  Speaker 1: the spreads are quite low, they you haven't seen much
• 16:05
  Speaker 1: movement there, but if you look at frontier markets, that's
• 16:08
  Speaker 1: where you're seeing a lot of stress Already. We have
• 16:10
  Speaker 1: about sixty of low income countries that are already in
• 16:14
  Speaker 1: high debt distress, and I'm about of emerging markets now.
• 16:18
  Speaker 1: That does not make a systemic debt crisis for sure,
• 16:22
  Speaker 1: but again, we're in very risky times, like the war
• 16:26
  Speaker 1: is not over, the pandemic is not over, and we
• 16:29
  Speaker 1: haven't won the fight against inflation, so interest rates may
• 16:32
  Speaker 1: need to go up much more than any of us
• 16:34
  Speaker 1: would like it. Argentina, Scott a lot of debt, a
• 16:40
  Speaker 1: lot of it borrowed from the IMF. It has some
• 16:42
  Speaker 1: of the highest inflation rates in South America. What's your
• 16:45
  Speaker 1: advice to them about how to balance those two? And
• 16:48
  Speaker 1: I was just saying that there is no tension between
• 16:51
  Speaker 1: what fiscal policy and monetary policy need to do. They're
• 16:53
  Speaker 1: all have to go in the exact same direction, which
• 16:55
  Speaker 1: is they have to be on the restrictive side. You
• 16:59
  Speaker 1: know that part of the I am A program which
• 17:02
  Speaker 1: working with the authorities that was green on, which is
• 17:06
  Speaker 1: you know what, Argentina, it tanks the economy. Sorry if
• 17:09
  Speaker 1: it tanks the economy, then that doesn't support So there's
• 17:13
  Speaker 1: one way that we know how to bring inflation down,
• 17:16
  Speaker 1: which requires reducing demand in the economy. The Argentina economy
• 17:21
  Speaker 1: is growing at a healthy rate, it's there are headwinds
• 17:25
  Speaker 1: to it at this moment also from external shocks. But
• 17:29
  Speaker 1: you know, having inflation now is over sevent and if
• 17:34
  Speaker 1: we want to have durable growth, we know that you
• 17:38
  Speaker 1: need to bring inflation down. So just to make a
• 17:41
  Speaker 1: point to a dry said, which is inflation helps with
• 17:44
  Speaker 1: debt to GDP, clearly not the case on a long
• 17:47
  Speaker 1: term basis. Argentina for instance, as an example, where once
• 17:50
  Speaker 1: you live in a high inflation environment, that gets priced
• 17:54
  Speaker 1: into your interest rates and then there's no gain at
• 17:57
  Speaker 1: all in having that kind of inflation. So yes, you
• 17:59
  Speaker 1: have a very short term benefits because there's surprise inflation
• 18:04
  Speaker 1: and you're you've boarded low rates and you have surprised inflation.
• 18:08
  Speaker 1: So you can bring that to GDP down. But from
• 18:10
  Speaker 1: the experience, we know that is not a durable way
• 18:14
  Speaker 1: to bring that to GDP down and Argentina. Argentina is
• 18:18
  Speaker 1: an outlier here. If you look at actually what getas
• 18:21
  Speaker 1: job would be in in any of the previous cycles,
• 18:24
  Speaker 1: you would have not seen the stability of many of
• 18:27
  Speaker 1: the emerging markets that frontloaded some of the interest rate
• 18:30
  Speaker 1: increases before the established central banks did in order to
• 18:34
  Speaker 1: prevent outflows from their markets into the US and other market.
• 18:37
  Speaker 1: Emerging markets have been amazingly resilient so far. But the
• 18:42
  Speaker 1: problem is this frontier markets that the weakest and poorest economies,
• 18:46
  Speaker 1: because they're facing massive distress. There is a likely rating
• 18:52
  Speaker 1: cycle that is going to set in where even those
• 18:55
  Speaker 1: that are just about investment grade might get downgrades to
• 18:58
  Speaker 1: sub investment grade. The s from rising interest rates on
• 19:02
  Speaker 1: these markets, which are the poorest economies of this world.
• 19:05
  Speaker 1: It's going to be massive. Are We're gonna be talking
• 19:08
  Speaker 1: much more about sovereign debt and developed and developing economies
• 19:11
  Speaker 1: next year, having spent the last year really focused on
• 19:14
  Speaker 1: monetary policy, not in development market because I think we've
• 19:18
  Speaker 1: seen in the UK yours. No, because I think there's
• 19:21
  Speaker 1: one advantage currency. Remember, the candacy market is adjusting fast.
• 19:27
  Speaker 1: You have seen it in Europe. You know we're paying
• 19:30
  Speaker 1: five to six percent for hydro carbon ut gas and
• 19:34
  Speaker 1: oil more compared to the United States, and immediately the
• 19:38
  Speaker 1: cadency is adjusted in the UK, the panther is adjusted
• 19:41
  Speaker 1: fast of the last twenty thirty years. In the gaping productivity,
• 19:45
  Speaker 1: I think an image market, and there's a distinction those
• 19:47
  Speaker 1: the producer that our food producer are in a good shape.
• 19:51
  Speaker 1: The issue here with the war is those that don't
• 19:54
  Speaker 1: have enough food that we need to import food, so
• 19:57
  Speaker 1: sub Sahanan, Africa, Egypt, the industry Lanca. So if they
• 20:01
  Speaker 1: have a problem in the food supply chain with rising
• 20:04
  Speaker 1: rates and high level of that, it might end up
• 20:06
  Speaker 1: being an absolute catastrophe. And so I think here actually
• 20:09
  Speaker 1: where we need to be all worried. Well, I think
• 20:13
  Speaker 1: that just alluded to something very important. We're starting to
• 20:16
  Speaker 1: see the first round effects of inflation come off, and
• 20:19
  Speaker 1: why Central Max have to keep at it is to
• 20:22
  Speaker 1: prevent second round inflation very effects and from this to
• 20:26
  Speaker 1: become embedded in the wage price mechanism of the economy,
• 20:30
  Speaker 1: because once people start believing they should index their contracts
• 20:33
  Speaker 1: to four or five percent inflation as opposed to that's
• 20:36
  Speaker 1: where it becomes very long lasting and embedded in the economy.
• 20:40
  Speaker 1: And that's why in the in the seventies it was
• 20:42
  Speaker 1: so hard to get rid of inflation because it had
• 20:45
  Speaker 1: become embedded in the economy. We still have the chance
• 20:49
  Speaker 1: to prevent that, but it requires determined action that markets
• 20:54
  Speaker 1: and market participants will see inflation is going to colm
• 20:57
  Speaker 1: down over a reasonable period of time, not the decade.
• 21:00
  Speaker 1: I would say two years, three years at the most.
• 21:03
  Speaker 1: That helps you anchor inflation expectations. They have not run away,
• 21:07
  Speaker 1: so we're not yet lost this inflation battle, but I
• 21:11
  Speaker 1: think we need to be really focused on that now
• 21:13
  Speaker 1: for the for the period to come, at least for
• 21:15
  Speaker 1: the next couple of months. Peter, just a quick response
• 21:18
  Speaker 1: to that, So, I mean, do you do you agree
• 21:20
  Speaker 1: that we've dealt with the first round, but we still
• 21:24
  Speaker 1: need to be very cautious about second round effects. But
• 21:26
  Speaker 1: I think also what damadays say, because we've had warnings
• 21:29
  Speaker 1: from the European Central Bank just in the last couple
• 21:31
  Speaker 1: of days, do you agree that there's not likely to
• 21:33
  Speaker 1: be any issues around sovereign debt in the Eurozone in
• 21:37
  Speaker 1: the next year or two. So agree with Axcel on
• 21:43
  Speaker 1: the fact that it is very important for central banks
• 21:46
  Speaker 1: to stay the course. We've had false dawns before. One
• 21:52
  Speaker 1: in good inflation reading does not make a trend, and
• 21:56
  Speaker 1: we have enough lessons from history of central banks who
• 22:00
  Speaker 1: have kind of moved changed course too quickly UH and
• 22:06
  Speaker 1: then created an even bigger problem that required grinding the
• 22:10
  Speaker 1: economy to hold an even deeper recessions UH than would
• 22:14
  Speaker 1: have happened if they had just stayed the course. So
• 22:16
  Speaker 1: I think that's absolutely right, and we are there at
• 22:20
  Speaker 1: this point that we should this interrom actial state of
• 22:22
  Speaker 1: course in terms of sovereign death issues in UH in
• 22:29
  Speaker 1: the UR area. Firstly, I think that there have been
• 22:31
  Speaker 1: a lot of important developments in the European Union in
• 22:34
  Speaker 1: the your area compared to the previous the GFC. You
• 22:38
  Speaker 1: have your stability mechanism that is there to help countries
• 22:42
  Speaker 1: deal with surprise events or sudden tightening market liquidity. The
• 22:47
  Speaker 1: ECB has put in place a transmission protection mechanism, which
• 22:52
  Speaker 1: is you know, which is will help them UH raise
• 22:56
  Speaker 1: interest rates but ensure that you don't have very disorderly
• 22:59
  Speaker 1: market conditions in certain sovereign debt markets. So I think
• 23:03
  Speaker 1: that they have more instruments in place, that better mechanisms
• 23:06
  Speaker 1: in place to protect themselves to stand run. But but
• 23:10
  Speaker 1: there's still question routes about Italy or your Do you
• 23:13
  Speaker 1: think we're on the path now where Italy will be
• 23:16
  Speaker 1: able to sustain the kind of increase in borrowing costs
• 23:19
  Speaker 1: we've seen. I think we're in a time when there
• 23:22
  Speaker 1: is a lot of uncertainties. So, like I said, the
• 23:25
  Speaker 1: war is not over. We haven't seen the end of
• 23:28
  Speaker 1: the energy crisis. This winter is turning out to be
• 23:33
  Speaker 1: warmer and that really helps, but the bigger problem is
• 23:36
  Speaker 1: next winter. So all of that means that the ability
• 23:39
  Speaker 1: to raise resources to repay your death you know, those
• 23:43
  Speaker 1: those challenges will remain, uh, you know. At the same time,
• 23:48
  Speaker 1: I do think that there's been improvement in policymaking, and
• 23:51
  Speaker 1: there's been an improvement in institutions that you help see
• 23:53
  Speaker 1: guard against worst outcomes. Petty company as Sarah Banks Favor,
• 23:59
  Speaker 1: Thank you, so thank you. That's it for these mini
• 24:06
  Speaker 1: episodes from the New Economy Forum in Singapore. Stephanomics will
• 24:10
  Speaker 1: be back from London next week. Meantime, check out at
• 24:15
  Speaker 1: Economics on Twitter and the Bloomberg News website and terminal
• 24:20
  Speaker 1: for all our economic news and analysis. This episode is
• 24:24
  Speaker 1: produced by Yang Yang and the executive producer of Stephanomics
• 24:28
  Speaker 1: is Mike Sasso.