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Why the Fed Must Move Fast to Tame Inflation · Trumponomics

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Speaker 1: of a webinar we held this week featuring the latest
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Speaker 1: and the US Central Bank, featuring some of the brightest
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Speaker 1: minds of Bloomberg Economics. It started naturally enough with a
0:55
Speaker 1: great introduction by me. There does seem to be an
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Speaker 1: unusually wide gap right now between where we are and
1:03
Speaker 1: where economists expect us to end up in a year
1:06
Speaker 1: or two time. I mean, the leading assumption when you
1:08
Speaker 1: look at the forecast for twenty three or four is
1:12
Speaker 1: that we're kind of heading back to normal in the
1:15
Speaker 1: global economy by by that time, probably by midy three.
1:20
Speaker 1: And that's fine, that's a traditional assumption that economists makes,
1:23
Speaker 1: sort of reversion to the mean. But you look around
1:26
Speaker 1: you and you think, wow, we're an awfully long way
1:28
Speaker 1: away from normal right now. You know, we've got a
1:31
Speaker 1: large chunk of the workforce isolating at home, maybe due
1:33
Speaker 1: to omicron. We have energy bills soaring in large parts
1:37
Speaker 1: of Europe, and for many American households, millions of workers
1:41
Speaker 1: missing from the labor market supply chain, still in a
1:46
Speaker 1: in a very troubled state. I mean, it all seems
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Speaker 1: very out of whack. So, although it's probably always the
1:52
Speaker 1: case that economists are better at telling you where you're
1:54
Speaker 1: going to end up than how you're going to get there,
1:57
Speaker 1: I think this year that path from a to be
2:00
Speaker 1: from now to normal seems particularly hazardous and uncertain, and
2:06
Speaker 1: I think the potential role of central banks in that
2:09
Speaker 1: also feels particularly challenging. So I'm especially glad that we're
2:13
Speaker 1: focusing today on the downside and upside risks that we're
2:17
Speaker 1: seeing in the global economy. Um, and I'm also very
2:21
Speaker 1: glad that we're going to spend a bit of extra
2:22
Speaker 1: time talking about how the US Central Bank is positioned
2:26
Speaker 1: for this year with one of the former leaders of
2:30
Speaker 1: the Federal Reserve, the former Federals New York Federals President
2:33
Speaker 1: Bill Dudley. So that's all to come, but first I
2:37
Speaker 1: think we should set the scene with our chief US Economist,
2:40
Speaker 1: Anna Wall and how things looking, Thank you, Stephanie. So
2:47
Speaker 1: a big question heading into this year for US is
2:50
Speaker 1: when will the Fed begin to raise rates? And a
2:54
Speaker 1: March rate hike had looked uncertain when we were just
2:58
Speaker 1: entering into this year because omicron has swept through the
3:01
Speaker 1: US like wildfire and cost widespread workers absentaism. There were
3:07
Speaker 1: lots of anecdotes of temporary business closures. So we developed
3:11
Speaker 1: a daily GDP tracker to allow us to better track
3:15
Speaker 1: the disruption of Omicron, and it had pointed to a
3:19
Speaker 1: big plunge in activity in the first week of this year,
3:22
Speaker 1: and using this daily activity index as a tool, we
3:25
Speaker 1: forecast out what GDP would look like at the end
3:27
Speaker 1: of the quarter, and the model forecast the recovery would
3:31
Speaker 1: be in full swing by March and in a reassuring sign, indeed,
3:35
Speaker 1: our daily trecker is already showing signs of improvement in
3:40
Speaker 1: the second week of this year, So this is why
3:42
Speaker 1: we now believe that a March rate hike is in
3:45
Speaker 1: the cards. So then the next question is how many
3:48
Speaker 1: hikes will there be this year, and the FED future
3:52
Speaker 1: market currently expect four hikes, but that forecast is contingent
3:57
Speaker 1: on inflation and unemployment rate evolving as we have written down,
4:03
Speaker 1: and our baseline currently is for inflation to peak in
4:07
Speaker 1: February at seven point two and thereafter we expect it
4:12
Speaker 1: will slow to an average of three. In the labor market,
4:17
Speaker 1: we expect it to continue to show signs of being
4:20
Speaker 1: very tight. Wage growth is now at the highest in
4:25
Speaker 1: the early nineties. There's one point six open jobs for
4:31
Speaker 1: every unemployed person out there UM, and we project unemployment
4:36
Speaker 1: rate to fall to three point five percent or lower
4:40
Speaker 1: by the end of the second quarter. But let me
4:43
Speaker 1: emphasize that our forecast for the inflation is subject to
4:46
Speaker 1: a lot of uncertainty, and we see two non trivial
4:51
Speaker 1: risks in the near term that could push it much higher.
4:54
Speaker 1: So first, um, with China hosting the Winter Olympics in
4:58
Speaker 1: early February and for the s time really open its
5:01
Speaker 1: borders to international visitors, there could be a risk that
5:05
Speaker 1: Amochron will infiltrate into China and with their zero COVID policy,
5:11
Speaker 1: this could um disrupt the production there and re intensify
5:14
Speaker 1: supply chains. And the second risk is that there is
5:18
Speaker 1: a risk of port strikes in June of this year
5:22
Speaker 1: and the along the ports along the West Coast in
5:24
Speaker 1: US as the contract expires between the port workers longshoremen
5:31
Speaker 1: and the ports. So overall we think that the risk
5:35
Speaker 1: are on the upside for more hikes in store than
5:37
Speaker 1: what the market currently expects. But for this year and
5:41
Speaker 1: next year, thank you, Anna, there's a lot there. But
5:43
Speaker 1: I'm interested in what you said about wage growth picking
5:48
Speaker 1: up and also the potential for us to hear from
5:51
Speaker 1: from some union activity or at least in the sort
5:53
Speaker 1: of crucial deal at the ports. And I think power
5:56
Speaker 1: workers have also got potentially a dispute coming down the track.
6:01
Speaker 1: I mean, are we are we going to see a
6:03
Speaker 1: very different kind of US labor market this year than
6:06
Speaker 1: we've seen in recent years? Or is this with more
6:10
Speaker 1: with workers actually um able to extract real wage increases,
6:16
Speaker 1: or is this really just about trying to catch up
6:19
Speaker 1: with with the very high level of inflation. I think
6:23
Speaker 1: that when the labor market is tight as you you're
6:26
Speaker 1: we are seeing right now, as I was saying, one
6:28
Speaker 1: point six open jobs for every unemployed person out there.
6:32
Speaker 1: Just the threat of um you know, your workers quitting.
6:36
Speaker 1: It's that latent threat there that can cause um um
6:41
Speaker 1: employers to raise the wage and you know, submit to
6:45
Speaker 1: request of the workers. And when it comes to the
6:49
Speaker 1: port workers in historically, whenever there's uh where where the
6:54
Speaker 1: port workers are up for renegotiating their UM wages, there
6:58
Speaker 1: has been significant slow down in ports. It happened in,
7:03
Speaker 1: It happened in and at a time when these port
7:09
Speaker 1: workers had been asked to work twenty four hours per
7:12
Speaker 1: day by the by the Biden administration. I think they're
7:15
Speaker 1: fed up, and uh so, the likelihood of that is high.
7:20
Speaker 1: But but back to the you know, to to the
7:23
Speaker 1: your question, I do think that the labor market now
7:26
Speaker 1: is different than what we have seen in the last
7:29
Speaker 1: ten years, just because um there's just just this latent
7:33
Speaker 1: threat of quitting, quitting, which gives a lot of bargaining
7:37
Speaker 1: powers to workers. Those missing workers. We have that the
7:41
Speaker 1: several million workers who as far as we could tell,
7:45
Speaker 1: we were in jobs before COVID struck and maybe lost
7:50
Speaker 1: their jobs during the recession but have not gone back.
7:53
Speaker 1: Is there any sign of of some of those coming
7:56
Speaker 1: back into the picture? Yeah? So you had a estimated
8:00
Speaker 1: how much workers have in their bank by income destiles,
8:04
Speaker 1: and our expectation is that um, the workers which are
8:09
Speaker 1: in shortage there their savings give them enough about to
8:14
Speaker 1: two months of runway to cover their spending. And UM,
8:20
Speaker 1: we were expecting that there would be a flood of
8:23
Speaker 1: labor supply starting this year because of that estimate. And
8:28
Speaker 1: I do see signs of the labor market loosening, but
8:31
Speaker 1: that is right before omicron hit. Okay, so we've got
8:35
Speaker 1: a good picture on the state of the economy and
8:39
Speaker 1: as far as we can see it, and we can
8:40
Speaker 1: see a bit better with those high frequency indicators. But
8:44
Speaker 1: clearly there's the center of a lot of the debate,
8:46
Speaker 1: and certainly what financial markets are focused on is what's
8:49
Speaker 1: the Fed gonna do? Is it going to do too
8:51
Speaker 1: much or too little UM this year? Having now resolved
8:55
Speaker 1: to raise interest rates UM several times in two And
8:59
Speaker 1: it's great to have a versation with Bill Dudley about
9:02
Speaker 1: these things, former chief economists for Goldman Sex and former
9:05
Speaker 1: President of the New York Federal Reserve now a senior
9:07
Speaker 1: adviser to Bloomberg Economics and Bloomberg Opinion columnists. Um, Bill,
9:13
Speaker 1: if we just stepped back briefly, I mean, there's a
9:15
Speaker 1: lot to talk about. But if we think about the
9:17
Speaker 1: FEDS handling of the past two years of the pandemic,
9:20
Speaker 1: did they win the war but lose the piece? You
9:22
Speaker 1: have a lot of people in the peanut gallery now
9:24
Speaker 1: critiquing their view all through last year that inflation was
9:29
Speaker 1: going to be transitory. I think Muhammad al Arian has
9:32
Speaker 1: called it probably the worst inflation call in the history
9:35
Speaker 1: of the Federal Reserve, wasn't it. Well. I think they
9:38
Speaker 1: did a great job at the early stages of the
9:40
Speaker 1: pandemic in terms of their interventions to restore market function. Uh,
9:44
Speaker 1: these financial conditions push into tras to zero. So I
9:47
Speaker 1: give them, you know, a plus, you know, back in
9:50
Speaker 1: March two thousand, twenty April two thy But since then,
9:54
Speaker 1: I think they've made a number of errors. And some
9:56
Speaker 1: of the errors are related to how they implement monetary policy,
9:59
Speaker 1: and some the ears are just bad forecasting. On the
10:02
Speaker 1: monterary policy implementation side, they operationalize their two percent average
10:07
Speaker 1: inflation target regime by essentially tying their hands and saying
10:10
Speaker 1: we cannot lift off, we cannot raise short term rates
10:13
Speaker 1: until three conditions are satisfied. Inflation at two expected to
10:18
Speaker 1: be above two percent for some time in the future,
10:20
Speaker 1: and we've also have to achieve our estimate of maximum
10:23
Speaker 1: sustainable employment. So what that meant was the FED was
10:27
Speaker 1: gonna have policy extremely easy even as the economy reach
10:31
Speaker 1: full employment, so be a big gap between where the
10:33
Speaker 1: FED needed to be versus where the FED was completely
10:37
Speaker 1: self induced er on their part. The second thing that
10:40
Speaker 1: was self induces they were so worried about a taper
10:42
Speaker 1: tantrum that they were very slow to actually taper the
10:46
Speaker 1: rate of asset purchases. So we've ended up in this
10:49
Speaker 1: odd situation today where everyone's talking about FED tightening, but
10:52
Speaker 1: the FED even as we speak, is still buying assets
10:55
Speaker 1: adding accommodation. The other two areas they made I think
10:58
Speaker 1: our heart heart, you know, I would give them less
11:01
Speaker 1: grief about because they were forecasting errors. The first forecasting error,
11:06
Speaker 1: which was significant, was that the inflation shock turned out
11:08
Speaker 1: to be much bigger and lasted much longer than they
11:12
Speaker 1: were anticipating. Nobody was expecting at the beginning of two thousand,
11:16
Speaker 1: uh and and and twenty that we were going to
11:18
Speaker 1: see seven percent CPI inflation by the end of one
11:23
Speaker 1: and so that was a surprise to them. The supply
11:26
Speaker 1: chain disruption just lasted longer than they expected. The second surprise,
11:31
Speaker 1: and it wasn't all completely a bad surprise, is that
11:34
Speaker 1: the labor market tightened much faster than they expected. UH.
11:37
Speaker 1: As you went through and twenty the first part of FETE,
11:42
Speaker 1: officials were focused on the shortfall of employment relative to
11:45
Speaker 1: where it was in February and pointing to the fact
11:48
Speaker 1: that there's still a lot of We're still a lot
11:50
Speaker 1: of jobs short from where we were in February. Well,
11:53
Speaker 1: that's still the case today. We're still three million jobs
11:56
Speaker 1: short of where we were in February. But that ignored
11:59
Speaker 1: the fact that there a lot of people that left
12:01
Speaker 1: the labor forces, and pointed out the labor force participate
12:04
Speaker 1: participation rate did not come back like the FETE expected.
12:08
Speaker 1: There are retirements, There are people that didn't want to
12:10
Speaker 1: work because of COVID risk. Uh there are people who
12:13
Speaker 1: are still sick because of COVID long COVID and all
12:16
Speaker 1: those things. They have made the labor market tighten much
12:18
Speaker 1: faster than what the FETE expect. Now, be fine if
12:21
Speaker 1: the labor market tighten faster than the FETE expected and
12:23
Speaker 1: the FED responded by tightening Monterrey policy. But we're in
12:26
Speaker 1: a situation today where the labor market is very, very
12:29
Speaker 1: very tight and monetary policy is is still extraordinarily easy.
12:33
Speaker 1: So the Fed is late. They're trying to catch up,
12:35
Speaker 1: and they'll start to catch up in March when they
12:38
Speaker 1: tightened at the March of Home c meeting. So what's
12:41
Speaker 1: the road from here? Do you think the Fed's gonna
12:44
Speaker 1: end up having to raise interest rates much more than
12:46
Speaker 1: people currently expect. Yeah, I think they are gonna have
12:49
Speaker 1: to do more than people expect, because you know, if
12:51
Speaker 1: you look at the Federal Reserves forecast, it's a incredibly
12:54
Speaker 1: benign forecast. If you look at their forecast twenty four
12:58
Speaker 1: in the Summary of Economic Projection, what they show is
13:01
Speaker 1: that inflation is going to magically melt away two point
13:04
Speaker 1: six this year, two point three percent next year two
13:07
Speaker 1: point on. The Federal funds rate is not gonna go
13:11
Speaker 1: very high two point one percent by the end of
13:15
Speaker 1: uh and the uneplanyer rate is gonna even even as
13:17
Speaker 1: the undeployer rate is persistently below beyond full employment, So
13:21
Speaker 1: it's not obvious how the FED forecast works. Why does
13:24
Speaker 1: inflation fall if the economy is operating below beyond full
13:28
Speaker 1: employment for three years and monetary policy never gets to
13:31
Speaker 1: a tight setting. So I think the FED hasn't you know,
13:33
Speaker 1: they've they've been in the bullet partly in the sense
13:35
Speaker 1: that they've admitted that they're behind the curve, and then
13:37
Speaker 1: so they're speeding up the pace of removing monetary policy accommodation,
13:41
Speaker 1: but they haven't gotten to the situation place where they
13:44
Speaker 1: actually recognize that they have to actually make monetary policy tight.
13:48
Speaker 1: And I think the last couple of weeks, our market
13:51
Speaker 1: is starting to come to the uh conclusion that monetary
13:54
Speaker 1: policy at some point the cycle is gonna have to
13:56
Speaker 1: be tight. It's not there yet, but we're moving in
13:58
Speaker 1: that direction. And just to continue that thought, I mean,
14:02
Speaker 1: some are suggesting that in order to indicate that it's
14:05
Speaker 1: taking inflation more seriously, the Fed could go for a
14:09
Speaker 1: half a percentage point increase the first time they raise
14:13
Speaker 1: interest rates, rather than this very gradual path people are
14:17
Speaker 1: expecting of a quarter of a percentage point each time
14:20
Speaker 1: do you think that's something that they should be thinking about. Well,
14:23
Speaker 1: I'm certainly certainly worth thinking about it, but I'd be
14:25
Speaker 1: very surprised if they did that. I mean, this FED
14:27
Speaker 1: has tried to be very predictable, you know, in terms
14:31
Speaker 1: of how they communicate and how they act following their communications.
14:34
Speaker 1: So you know, a fifty basis point rate hike, which
14:37
Speaker 1: which certainly you know you could argue it's appropriate, would
14:40
Speaker 1: be a huge shock to markets, and I think it
14:42
Speaker 1: goes very much against you know, everything that Powell has
14:46
Speaker 1: told us over the last eight months. I think would
14:49
Speaker 1: be a huge surprise, and I'd be very surprised if
14:51
Speaker 1: they actually do that. Smiling because I'm remembering I think
14:55
Speaker 1: it was was it Paul Volca in the early eighties
14:58
Speaker 1: who just decided on a Sunday night to raise interest
15:00
Speaker 1: rates by two percentage points and to help with the
15:03
Speaker 1: markets or what they were expecting. You just can't imagine
15:06
Speaker 1: a FED chair doing that these days. Goodness, Stephanie on
15:09
Speaker 1: that is that the markets still have quite a bit
15:11
Speaker 1: of confidence in the FED. You know, if we have
15:14
Speaker 1: a tight labor market, we have higher wages, but inflation
15:17
Speaker 1: expectations are still pretty well anchored, and I think if
15:20
Speaker 1: if inflation expectations were to become unanchored, that would be
15:24
Speaker 1: a science. The markets were losing conference in the FED,
15:27
Speaker 1: and that's why I think we pushed the FED into
15:28
Speaker 1: having to be more aggressive. Well, Bill, we're going to
15:40
Speaker 1: run out of time. But I think there is one
15:42
Speaker 1: big question I was interested in your answer to you
15:47
Speaker 1: have to bet that by the end of this year,
15:49
Speaker 1: the chances are policymakers will either have done too much
15:52
Speaker 1: to tame inflation or too little. And we've had many
15:56
Speaker 1: years where the assumption has been that you should air
16:00
Speaker 1: on the side of of having policy be too loose
16:04
Speaker 1: rather than too tight. The risks of of not giving
16:09
Speaker 1: enough support for the economy but much greater than the
16:11
Speaker 1: risks of doing too much. Has that changed. Are we
16:15
Speaker 1: now looking at a situation where the FED should be
16:19
Speaker 1: more concerned about not doing enough to tame inflation. Well,
16:24
Speaker 1: I think that's that's that's absolutely correct because last cycle
16:27
Speaker 1: inflation was too low for most of the cycle, so
16:30
Speaker 1: the federers are could actually try to see how far
16:33
Speaker 1: they can how tight they can make the labor market
16:35
Speaker 1: without any really big risk of that as a consequence,
16:38
Speaker 1: this time we're starting from a point that inflation is
16:41
Speaker 1: too high, it's above what the FEDS objective is, and
16:43
Speaker 1: the labor market is already very very tight. So I
16:46
Speaker 1: think using the last economic cycle as a template for
16:49
Speaker 1: this cycle, I think it is a very very poor choice. Uh.
16:53
Speaker 1: This cycle is very different in terms of where we're
16:55
Speaker 1: starting in terms of inflation and the unimplant rate. And
16:58
Speaker 1: it's also a very different cycle where we're starting in
17:01
Speaker 1: terms of household balance sheets. Household balance sheets, death service
17:04
Speaker 1: costs are really low, households have a lot of savings.
17:08
Speaker 1: Last cycle, we had lots of damage caused by the
17:11
Speaker 1: Great Financial Crisis. So people who are using the last
17:14
Speaker 1: cycle as a template for this secle, I think are
17:16
Speaker 1: going to be disappointed. Thanks very much for that, Bill Dudley. Now,
17:20
Speaker 1: we're not trying to cover everything in this webinar, everything
17:23
Speaker 1: that's going on in the global economy. We're just trying
17:25
Speaker 1: to zero in on some of the key risks that
17:29
Speaker 1: people are thinking about, and I think the top of
17:31
Speaker 1: that list is China. So we're going to hear now
17:35
Speaker 1: from our chief global economist, frequent participant on Stephanomics, Tom Olig,
17:40
Speaker 1: who also spent eleven years in Beijing and has written
17:43
Speaker 1: two books about the Chinese economy. Tom Thanks, Stephanie Um.
17:47
Speaker 1: So if we were having this conversation a year or
17:51
Speaker 1: so ago, there would be a pretty positive story to
17:55
Speaker 1: tell about how China had weathered the COVID storm. From
17:59
Speaker 1: where we are at the start of twenty two, though,
18:02
Speaker 1: and there's some pretty significant risks and obstacles which China
18:07
Speaker 1: now faces, in particular the Evergrand property slump. It's difficult
18:12
Speaker 1: to disagree with Beijing's strategy here. The property sector is
18:18
Speaker 1: over built and over leaver Ridge, and the entire rickety
18:22
Speaker 1: structure rests on a foundation of moral hazard. An ever
18:27
Speaker 1: Grand in many ways is the poster child for those problems,
18:31
Speaker 1: so allowing ever Grand to default and go into restructuring
18:36
Speaker 1: absolutely makes sense. The trouble is that with so many
18:40
Speaker 1: other developers in a similar position to ever Grand in
18:44
Speaker 1: terms of their leverage levels, and with property such an
18:47
Speaker 1: important driver of growth across the economy as a whole,
18:52
Speaker 1: even making that modest down payment on addressing the problem
18:56
Speaker 1: of moral hazard comes with some significant costs attached. There's
19:01
Speaker 1: confidence in the sector ebbs away, We're seeing sales and
19:05
Speaker 1: investment weekend, and with property directly and indirectly driving about
19:10
Speaker 1: a quarter of China's overall GDP. That has to come
19:14
Speaker 1: at a cost to growth in the year ahead. The
19:18
Speaker 1: second big risk for China looking forward is what happens
19:23
Speaker 1: when the omicron variant hits. Now in China's COVID strategy
19:29
Speaker 1: was brutally effective. It saves lives, It provided the basis
19:34
Speaker 1: for a V shaped recovery in g d P, But
19:38
Speaker 1: now they face some new and some difficult questions, in particular,
19:42
Speaker 1: what's the end game for their strategy. That strategy works
19:47
Speaker 1: in terms of keeping the population healthy, but it does
19:50
Speaker 1: come at a cost of growth. Lockdown's hit consumption. We
19:54
Speaker 1: saw that last summer when retail sales stumbled in the
19:58
Speaker 1: face of the Delta outbreak, and as we heard from Anna,
20:02
Speaker 1: in a nightmare scenario with widespread lockdowns, factories and ports
20:06
Speaker 1: closing down, we could see China contributing to the global
20:10
Speaker 1: supply crunch. We don't think that's the baseline scenario. China
20:14
Speaker 1: so far has done a good job at keeping production
20:17
Speaker 1: on track, but certainly, as cases in the Chian outbreak rise,
20:22
Speaker 1: it's a risk which is worth keeping in mind. So
20:25
Speaker 1: if we pull those pieces together our base case for
20:29
Speaker 1: China's GDP this year is actually pretty positive. We think
20:32
Speaker 1: growth could come in above five for the year, but
20:36
Speaker 1: risks to that outlook from Evergrand from the omicron variant
20:40
Speaker 1: affirmly to the downside, and a much lower number is
20:44
Speaker 1: certainly possible. With all that in mind, it's no surprise
20:47
Speaker 1: that the People's Bank of China has already moved towards stimulus.
20:51
Speaker 1: So just coming back to the question of the property risk,
20:55
Speaker 1: obviously everyone's had to learn the name ever Grand and
20:59
Speaker 1: even think about how to pronounce it. Apart from these
21:03
Speaker 1: monetary policy tools you've talked about, are there any specific
21:06
Speaker 1: policies that China has for managing the boom and bust
21:10
Speaker 1: of the property cycle and maybe getting to a situation
21:13
Speaker 1: where they're not so dependent on property for driving the
21:17
Speaker 1: driving the growth of the economy. Yes, you're you're completely right, Stephanie,
21:21
Speaker 1: and I should have gone with the more flamboyant ever
21:23
Speaker 1: Grandy pronunciation, which which I hear in Hong Kong is
21:27
Speaker 1: a little bit more fun um. So, what China can't
21:31
Speaker 1: do is control the kind of the fundamental problem in
21:36
Speaker 1: the property sector. They can't they can't get away from
21:39
Speaker 1: the problem, that there's massive overbuilding, that the country is
21:43
Speaker 1: littered with ghost towns, the developers have borrowed too much money.
21:47
Speaker 1: That sort of fundamental characteristics of the problem they can't change.
21:51
Speaker 1: What they do have, though, is a very refined and
21:54
Speaker 1: granular set of tools that they can try and use
21:57
Speaker 1: to manage the problem down. So they can They don't
22:01
Speaker 1: just set interest rates. They set interest rates for mortgages specifically,
22:06
Speaker 1: and they can set them at different rates for first
22:09
Speaker 1: time buyers and second time buyers and third time buyers.
22:12
Speaker 1: They can change down payment requirements city by city and
22:16
Speaker 1: change down payment requirements for first time buyers and second
22:19
Speaker 1: time buyers and third time buyers. They can open the
22:22
Speaker 1: credit taps for real estate developers in different ways for
22:28
Speaker 1: different categories of developer. So they can't magically make the
22:33
Speaker 1: problem go away. But what they've done over the last
22:36
Speaker 1: decade is developed this rather precise set of tools for
22:40
Speaker 1: managing it, and I expect we'll see those coming into
22:43
Speaker 1: play in the months ahead. And finally, Tom sh Jingping,
22:47
Speaker 1: we've seen him become more and more powerful as a
22:52
Speaker 1: Chinese president, leader of the Chinese Communist Party, and he's
22:56
Speaker 1: also through that increased the hold of the party over
23:01
Speaker 1: um the economy. We're now seeing him seek a third
23:06
Speaker 1: term as leader, maybe even leadership for life, as someone
23:10
Speaker 1: calling it. What are the economic implications of that? Yes,
23:14
Speaker 1: so she has been moving the sort of pieces into
23:19
Speaker 1: place to ensure that he can have a third term
23:23
Speaker 1: as president and as general secretary of the Communist Party,
23:27
Speaker 1: and that process will sort of reach its endgame at
23:31
Speaker 1: the end of this year, and very likely she will succeed.
23:34
Speaker 1: So there are some short term and some long term
23:37
Speaker 1: implications of that. The short term implication is, well, China
23:42
Speaker 1: in the best of times, has very little tolerance for
23:45
Speaker 1: bad news in the run up to big political events,
23:49
Speaker 1: and appointing she for a third term as president will
23:52
Speaker 1: be a big political event. They have zero tolerance for
23:55
Speaker 1: bad news. So that's a reason to think that they
24:00
Speaker 1: will stay very strict in terms of containing the spread
24:03
Speaker 1: of COVID, and it's also a reason to think I
24:06
Speaker 1: think that in the final analysis, they're not going to
24:09
Speaker 1: allow property to trigger a collapse in the economy this year.
24:14
Speaker 1: Looking longer term, well, one of the big successes of
24:17
Speaker 1: dong Hao Ping, China's great reformer, was getting in place
24:21
Speaker 1: a process for orderly leadership succession and orderly handover from
24:26
Speaker 1: Dong to jang Zamin, from jang Zamin to Jujuin Tao,
24:29
Speaker 1: and from Jujun Tao to shijim ping Um. If Hi
24:33
Speaker 1: Jimping succeeds in getting a third term as China's leader,
24:37
Speaker 1: well there's going to be some new questions about that
24:40
Speaker 1: orderly succession process. The wheels are not going to come
24:44
Speaker 1: off the wagon of Chinese governance immediately, but I think
24:48
Speaker 1: we'd be looking for problems in that area in the
24:51
Speaker 1: years ahead. Thank you very much. So that was a
25:02
Speaker 1: big dollop of economic intelligence from Bloomberg. Next week we
25:06
Speaker 1: might let some non Bloomberg folks get a word in. Finally,
25:11
Speaker 1: David Hood from Bloomberg Tax has this sorry tale of
25:15
Speaker 1: the overburdened Inland Revenue Service switchboard and very long suffering
25:19
Speaker 1: accountants c p a s who are finding they can't
25:23
Speaker 1: ever ever get through. Welcome to the Internal Revenue Service.
25:28
Speaker 1: You can also visit us at www dot IRS dot gov.
25:34
Speaker 1: Got a tax question, who are you going to call
25:36
Speaker 1: to continue in England? Not the i r S in fact,
25:39
Speaker 1: anyone but the I r S, unless, of course, you
25:43
Speaker 1: or your c p A have time to wait wait, wait,
25:52
Speaker 1: and wait some more on hold. That's the opinion of
25:55
Speaker 1: frustrated taxpairs, tax preparers, the White House, and even the
26:00
Speaker 1: agency itself. During peaks tax season, your c p A
26:04
Speaker 1: can expect to be on hold for ninety minutes or more,
26:08
Speaker 1: even if they call what some pros called the bat phone,
26:11
Speaker 1: a dedicated line to the I R S for cp
26:14
Speaker 1: as to call when they have a complicated question. The
26:18
Speaker 1: films have been particularly difficult when certain big things have happened.
26:27
Speaker 1: For instance, if you needed to get ahold of the
26:30
Speaker 1: I R S to deal with a certain penalty notice
26:34
Speaker 1: around the same time that something would happen with the
26:37
Speaker 1: stimulus payments, that would be particularly difficult. That was Rochelle
26:44
Speaker 1: Holds a principle in Crows Washington National Tax Office. Many
26:48
Speaker 1: big things happened in one like more stimulus payments, advanced
26:53
Speaker 1: child tax credit checks, and of course the pandemic. The
26:57
Speaker 1: free market did come up with an idea to help
27:00
Speaker 1: tax professionals. They can, for a fee, hire robots to
27:04
Speaker 1: wait in line for them. A startup called n Q Inc.
27:07
Speaker 1: Offers a service starting around a hundred dollars a month
27:11
Speaker 1: that makes robocalls to the agency's special so called bat
27:14
Speaker 1: phone waits on hold and then when it makes a connection,
27:18
Speaker 1: puts the client through to an I r S agent
27:21
Speaker 1: or your CPA can just call, wait on hold, maybe
27:24
Speaker 1: get some lunch and come back, and of course stay
27:28
Speaker 1: on hold. Thankfully, the agency recognizes these problems and has
27:34
Speaker 1: a strategy in the works to fix them. The I
27:37
Speaker 1: r S has plans to ramp up hiring for its
27:39
Speaker 1: call centers around the country, which have felt the same
27:42
Speaker 1: labor shortage crunch as other businesses. The agency is also
27:46
Speaker 1: rolling out natural language service spots to help taxpayers set
27:49
Speaker 1: up payment plans and get help quicker. However, these plans
27:55
Speaker 1: hinge on the country's and most notoriously unreliable group. That's right, Congress.
28:03
Speaker 1: If Congress can pass President Joe Biden's Build Back Better Bill,
28:06
Speaker 1: it will hand the I r S eight billion dollars
28:09
Speaker 1: a year for the next ten years. That tax pros
28:12
Speaker 1: say will go long way to help hire more people,
28:15
Speaker 1: open more call centers, and roll out better technology. But
28:20
Speaker 1: a bill isn't the magic wand the agency would still
28:23
Speaker 1: need to recruit, hire, train and routine more folks, update
28:27
Speaker 1: I T systems, and tell the public phone lines are
28:30
Speaker 1: open for business. If everything goes perfectly, We're still some
28:34
Speaker 1: years off from solving these problems, said Bill Smith, National
28:37
Speaker 1: director of tax Technical Services for c BIZ. M h M.
28:42
Speaker 1: It would go a long way towards helping that situation
28:46
Speaker 1: get a lot better. Is it? Is it going to
28:50
Speaker 1: happen immediately even with the funding? I don't think so.
28:56
Speaker 1: From Bloomberg tax I'm David Hood. H that's it for
29:17
Speaker 1: this week. Join me for another Stephonomics next week, and
29:20
Speaker 1: if you want more on the global economy, do follow
29:22
Speaker 1: at Economics on Twitter. Also rate this podcast if you
29:26
Speaker 1: like it. This episode was produced by Magnus Henrison, with
29:29
Speaker 1: special thanks to Anna Wong, Bill Dudley, Tom Rlick, and
29:33
Speaker 1: David Hood. Mike Sasso is executive producer of Stephanomics and
29:37
Speaker 1: the head of Bloomberg Podcast is Francesca Levi.