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00:00Wednesday the twenty third stocks are down. Bonds are a bit of a break from recent form. The next hour of Bloomberg Markets starts right now. From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. This is what the price action looks like. Stocks are down. Had a good run recently. Bonds are up. Which is certainly a break with recent form. And crude is rising and rising aggressively to the euro stocks. Six hundred down by nine tenths of one percent. Brent crude is up by five and a half percent. Near session highs 121 with India 122 now. And we got a bit in the bond markets. It could be U.K. 10 years. It could be U.K. two years. It's a similar picture really across the peace across Europe. I bring up U.K. 10 years of course because we've had the spring statement from which you see that the chancellor of the exchequer today will come back to that in just a moment Kristie. Yeah a little bit of a risk off mode stateside guy when you do see the S & P 500 down just half a percent. But this is actually good news just given some of the selling pressure we've seen year to date. So you do see a little bit of a muted reaction. Let's see if it stays that way. Abigail Doolittle saying the technicals while they're pointing a little bit towards the green. We'll see if that holds the 10 year yield actually well down just three basis points. Once again muted volatility seems to be the story today in the stock market and the bond market. I really want to bring your attention to the dollar here though dollar and gold because with all this talk about commodity shocks you kind of have to talk about well how are people trading some of those geopolitical tensions trading some of the worry. And a lot of people tend to look at the Bloomberg dollar index and the gold spot as kind of this idea that if both are rising together it shows you at the market that investors have this extra level of stress this extra level of fear. And I think that's what you're kind of seeing today which is interesting given that volatility is a little bit muted. We'll see if that lasts though. Guy. Absolutely. Which brings us to our question of the day nice security. Gonna be selling bonds. What do you buy. Should you be selling bonds. Is the recent sell off now reaching its ends. Or actually. Is there much more to come. Certainly. That's the hint from the Fed. Matthew Savory BCA research chief strategist joining us now. Matthew thanks for your time today. I want to come on to the specific question of the day in just a moment. But first up do you think the bond market move we've seen this aggressive selling over the last few sessions is an opportunity. Or do you think there's much more still to come. Do you think you should be buying the dip in bonds. I guess is why I want to start with you know on a surgical basis for the next 12 to 24 months. We do see significantly more upside in yelled. So to us it would mean that yeah the Arctic NIKKEI here a bit oversold right now but I would use in fact any decline in yields from year to build up a bigger position to sell on further. Manthey told us a little bit about quite literally the alternatives there. So where what are the other options. Because it kind of seems like when people are looking at investment portfolio the primary narrative right now is what is the best hedge to inflation. On a fundamental basis where else do you put your money. That's very tricky right now because we've seen that the equity valuation can be justified if shells remain low. So it means that the equities will likely have some trouble. So it becomes a question of what can benefit from the drivers of health here. So what are the drivers of Shell. If you think about the 12 to 24 months feature it's about the fact that we do believe that growth will remain pretty decent in the global economy. Specifically we're looking at a lot of CapEx to alleviate the energy transition away from fossil fuel. In the case of Europe away from Russian dependency on energy also more fiscal spending and more CapEx as well to help companies deal with supply chain issues. So that's an environment in which normally we tend to see that industrials materials and financials are the sectors of the market where you want to be in. So that would be where I would put the money for the longer term picture. Near-term inflation is a long term dollar. What does the longer term mean right now. Twelve 12 to 24 months. What's waiting months to be more accurate. OK. So the short term picture looks like what. So for the short term picture it's really his inflation fears that are driving yields higher. So the best protection if we look at the historical analysis of what's going on has is typically been the U.S. dollar and the U.S. dollar. Look sports generally attractive today because the U.S. economy is more insulated from the shock that is caused by energy prices. So the negative growth shock that is particularly violent in Europe is natural gas prices which means that there is more leeway for the Fed to increase real interest rates than the ECB in the next few quarters. And that will help the U.S. dollar. That also benefits from safe haven flows. Well tough as you mentioned the ECB. Talk to us a little bit about how that fits into the broader monetary policy narrative you're seeing. The Federal Reserve even to be a very different path and say the ECB and arguably the people you see in the DOJ. So how do you square how to invest regionally when you have essentially the major economies of the world diverging when it comes to monetary policy. Yeah I mean in the near-term environment has been tough for Europe because Europe is facing the most violent growth. Shock in the current environment is energy prices. And that has been reflected to a large degree in the underperformance of equity prices in Europe. But if we look on the more long term basis again that 12 to 18 months horizon what we see is an environment that actually benefits Europe independent of what the central banks are doing. Ultimately European markets overweight value stocks cyclicals sports Jihye Lee industrials financials and materials compared to the U.S. where there is just overweight in the bag in health scares and things like that that do not enjoy an environment where yields are rising. So yes the economic environment is challenging for Europe. It's probably largely reflected already in relative stock prices. But the general economic environment will benefit the sectors that's overweight the industrial sector stripping out defense. The industrial sector is facing huge challenges at the moment. Everything it consumes is getting significantly more expensive be it energy be it metals be its people. I get that the cost of labor is going up. I appreciate not as much in Europe but industrials look like they are facing significant margin squeeze going forward from here. There is talk of rationing energy in Europe next winter. Do I want to be buying industrials in Europe if we're going to see energy rationing. Well that's an excellent question. When it comes to markets ultimately the trade not just in what's going on today but when we are buying an asset. It's strength to sink what's going to happen six to twelve months from now to the economic and underlying earnings picture. So at this point in time Bush's view is that the energy crunch is essentially at its IBEX. Right now. We are in the period where it's the most difficult for Europeans to essentially shift a week from Russian energy. So this is also reflected in the extreme backwardation that we see in energy markets and various measures of positioning. So yes right now the handicap is the highest. The Wolf worries for industrial. That is the highest. But on a go forward basis we do have a firm view that our Brent prices will average around at 90 to 95 dollars in the second half of 2022 which means that that big handicap is likely to diminish. And in this context where we do see more room for CapEx to increase infrastructure spending to increase than the sales of the industrial sector will perform very well. So if we take into account also the operating leverage which is elevated that should help the profits especially now that industrials have faced a bit of a correction. Matthew you brought up a very key point. The market is pricing in something that isn't happening now. It's happening 12 months down the road. Talk to us a little bit about the state of the consumer not just in America not just in Europe but perhaps in China as well when we're talking about the consumption that's going to kind of drive the global economy forward. It seems like perhaps in 12 or 18 months some of those pressures might come down a little bit. But it also seems like the markets aren't necessarily pricing that. And just given that just given the recent panic. What's your take. Is there a disconnect here between what the markets are pricing what's going to happen in 18 months down the road. No I don't think there is a full disconnect here because at the end of the day. Yes. The base case scenario would be that the energy prices decline from here. That's consumers feel better. But at the same time there's still enormous uncertainty around this outcome which means that there needs to be risk premium that are imputed in the price of those assets. And we've seen it in stuff that's obviously linked to consumers. But also we've just talked a second ago with industrials. So there is no fool disconnect. However as we move toward that outcome if we do see energy prices decline because the situation ultimately after how many months it takes improves in Ukraine Gulf producers and prisoner production American producers do the same then the risk premium will need to decrease. So it's we can tentatively try to put a little bit of capital in there but I see that as a researcher call then the sectors that are more diverted to corporate spending and infrastructure spending. Matthew salary of BCA Research we thank you so much for your time and for your insight as always. Guy it's fascinating here with. Have you really brought up the idea that some of these kind of investments is CAC that's what it's going to take a very long time. He was talking about a 12 to 18 months timeframe. What's going to happen in 12 to 18 months is interesting because on the one hand you have this idea that some of these price shocks are going to come back down to earth. But then on the other hand wasn't that the transitory narrative to begin with that have kind of been shoved into the back. He back basically. Yeah. Yeah. And I really struggled with this idea that things are gonna be easier next winter. We are going to find it very hard at this point in time to refill gas storage if Russia is not part of that process. We are going to find it very difficult when it comes to the diesel market. We are so short of diesel and we are going through diesel reserves like they're going out of fashion right now. And as a result of which you come next winter we're going to go into that winter significantly depleted as to where we normally are. So this idea that maybe energy prices come down. Gas prices in particular come down. Diesel prices come down. I don't know. I at the moment I think the near term is really going to determine that. And I'm not sure yet we have enough visibility near to the situation in Ukraine with a V Russia to make that call as to what next winter looks like at the moment. It doesn't look good and we certainly don't have the spare capacity or the infrastructure to make that happen before say the next 12 months. Certainly. Well we're going to be exploring the impact of that. No better. Best to talk about that with then. Our next one coming up. At the U.K. inflation rate jumps to a new 30 year high. That's putting pressure on the government to protect consumers from those price pressures we were just talking about. We'll talk with John Glenn the UK's economic secretary to the treasury. That conversation next. This is Bloomberg. There is unusually high uncertainty around the outlook. It is too early to know the full impact of the Ukraine war on the UK economy but their initial view combined with high global inflation and continuing supply chain pressures means the beyond now forecast growth this year of three point eight percent. A significant downgrade from the 6 percent that the chancellor was talking about only a little while ago. That of course the chancellor of the exchequer really soon speaking a little bit earlier in the House of Commons delivering his spring statement. Let's talk more about the inflation that the chancellor was referring to there. We earlier today saw the data for the UK. This is February data. The headline CPI number coming through at six point two percent. Now remember the Bank of England expects that number to go significantly higher up towards 8 percent. So suggesting it goes even further than that that we may see double digit inflation in the UK. RPI which is the old measure of inflation is already at 8 per cent were eight point two percent. Now a quarter of government debt is linked to RPI. The debt servicing costs for the UK economy is going to absolutely explode over the next year and we are likely to see it being by far and away the fastest growing parts of government expenditure. Now this inflation number obviously has an impact back into the economy and it's going to hit the consumer. It's going to hit the poorest hardest. It is regressive. Inflation is regressive in terms of the impact that it has on the economy. The expectation therefore today was that the chancellor was going to be delivering a significant package in order to help those most in need to deal with this challenge. However we've got this rising debt cost. Does that mean actually that the government's hands are tied that it can do not as much as it would once or hoped to or others would hope it to in these times of stress. Well let's bring in to try and answer that question. John Glenn he is the economic secretary to the treasury here in the UK. John Glenn welcome to the program. Is that rising cost higher interest rates going to mean that this government can do less to help those most in need when it comes to this cost of living squeeze right now. But I think what it means is that the extremely challenging circumstances for the economy as a whole and many of the chancers made some tough choices. What is an accident. Some immediate interventions to help the most vulnerable in our society. They increased the amount of money that people can hold on it. He's reduce the levy on fuel that will take effect immediately and will need fifteen hundred pounds more money CAC for individuals who drive HDTV vans for example. What is also done is looked at the thresholds by when. When you stop paying national insurance increase up to the level that you stop paying contracts. Tax not now worth 330 payments to tax payers. That's very significant because it builds on the interventions that you make in early February where he brought in nine point one billion of help to people to deal with the specifics of the additional energy costs that have come in. And some of that will be coming into people's bank accounts in a couple of weeks when they get that cancel taxes. Now obviously the uncertainty that you talk about is really important because the overall say that fiscal headroom could be what type II small changes. You've also pointed to the fact that debt servicing the debt interest costs is also increasing that fracking is going to be 83 billion pounds next year. That's twelve hundred pounds for every man woman and child in the UK. That's a significant amount of money. Obviously that has constrained the amount of support and additional help we can give households. John it's creepy in New York where she soon act said during a statement that he's keeping fiscal firepower in reserve for later this year. Can you outline some of the worst case scenarios there and what measures are being held in reserve. But what he's done is nice and clarity in terms of the direction of travel on income taxes. We're going to reduce income tax in the UK in two years time to nineteen P from twenty P. But what he's also done is said that he's held some back in line with best practice to deal with uncertainty in the economy. Around 1 per cent of GDP. And that's broadly in line with what previous chances have done to deal with the uncertainty over that trajectory of growth. Right. He said in the ISE at the outset of this piece that said growth predictions have been reduced from previous fiscal events five year view on ninety three point eight percent. And obviously it's really important that we ensure that we can fund everything go forward but also have some room to make other interventions ISE circumstances about. How can you fund things going forward. How can you say that for instance that that one P tax cut is fully funded when we don't know what's going to happen going forward. You've referenced uncertainty a number of times already. We have interest rates that are going higher. Why have you announced two years out and income tax cuts. That doesn't look like it's going to be fully funded because we don't know what is going to happen. We don't know what is going to happen with Ukraine. The chancellor said that himself. He said it's fully funded but we don't know what's going to happen because we don't know what the situation is in Ukraine. That strikes me as him saying we don't know if this is fully funded. Now it is fully funded but in all fiscal events and I've been part of several there are evolving predictions of what will happen with the public finances. And what he's done is made that a policy choice in the context of what we know now. But retain the flexibility in order to accommodate changes in growth that Shery Ahn changes in the economy. And that says a prudent way of dealing with the level of uncertainty. And that's what we'd expect from a responsible chancellor. But what he's prioritized is helping families. That is pretty much on the nose with the measures that I mentioned at the. John Glenn today what we've seen is a significant cut to the growth trajectory of the UK economy and a significant acceleration in the impact that inflation is going to have. Is the U.K. economy now facing stagflation. Now we're facing challenging times as is the whole of the world economy with grave uncertainty around what's happening in Ukraine affecting confidence levels. The Chancellor also said his determination to invest in human capital in CAC itself physical capital and also in ideas. And you'll be bringing forward incentives for investment in the budget in October to try to ensure conditions for growth in the economy are optimal. So that we can get out of this by growing our eye today and returning to higher levels of growth than than are anticipated at the present time. Well John Glenn the UK's economic secretary to the treasury. We thank you so much for your time and for your insight as always. Coming up Fed officials are out this week backing Chair Jay Paul's call to get going on raising rates. San Francisco Fed President Mary Daly. We'll be speaking to Bloomberg. That's ahead. This is Bloomberg. Let's get a check on the US Marcus Rascoff mood still a little bit there. Bloomberg's Abigail Doolittle is tracking the moves. Yeah interesting. And competing signals here created. As you can see overall the S & P 500 down about four tenths of one percent. So a little bit of a break in the rally that we've had over the last several days. Of course last week the best week since November of 2020. And to the upside you have Apple one of the biggest weightings to the index up one point five percent. I don't think a particular reason. But that suggests risk sentiment. On the other hand you have crude that commodity back above 115 a bit of a headwind. So again those mixed signals and then bonds up just slightly with that 10 year yield down. Now if we take a look at what's really flying on the day and actually over the last couple of days I mean this is really incredible. If you bought there you're really pretty happy. This of course is the Golden Dragon China Tech Index up 53 percent and a little more than a week. Talk about risk sentiment certainly there even as rates have been going bonkers to the upside folks wanting in on China tech. That's true too for mean stocks. Let's take a look at another look at the main stocks on the day rising. GameStop up 13 percent. Twelve and a half percent after rising 30 percent yesterday. You can see AMC until. Right. Also higher Mullen Automotive. Earlier today it had been lower. But on the month you can see it's now higher on a month up more than 700 percent. So this means stock mania. It's been returning sort of behind the scenes here. Very very interesting suggesting that we may continue to see some bid for some of these growth year stocks the VIX. Take a look at this one year chart of the VIX. And the VIX is very interesting because it started to come up from its bottom last June. You have this series of higher lows right now. That trend suggests you could see the VIX go down toward 20 maybe even a little bit below. Let's see whether or not that happens guy. So many different moving pieces but it does feel like even with that S & P 500 down just a little bit it feels like we are in a risk on mood. Again what are the technicals though telling us. Well interestingly enough the S & P 500 yesterday closing above that 200 day moving average from a pattern standpoint the index is confirmed to go toward let's call it forty six hundred or so. Whether or not we see a new all time high that seems less likely. And of course on bonds this is very interesting because to see stocks go higher you would expect bonds would continue to go down the way we've seen money from bonds going into stocks. But there's reason I showing a chart yesterday with the 10 year yield hitting up very strongly on peak resistance. If resistance holds there it suggests you could see that 10 year yield go back toward 2 percent or lower. So it's interesting to put all of these different moving pieces together. It's certainly not a traditional look at how you would look at all these different asset classes guy. IBEX thank you very much indeed. I want to come back to some headlines that are dropping onto the Bloomberg right now which in fact was a fascinating. So a key adviser to Mario Draghi the Italian prime minister suggesting that Italy is not minded Chrissy to pay for its gas and Italy is a significant importer and then user of Russian gas in rubles. Earlier we heard from the Kremlin suggesting that Europe may be forced to pay in rubles which I guess is one way of supporting the Russian currency. But I guess you do wonder whether we're finding ourselves now in a situation where Russia is engineering a turn of events where it could say you chose not to buy our gas not the other way round. It looks like that could be the positioning here. Well you know what's interesting about this is simply the way some of these payments are being made. They already negotiated with India about a repairable system. I wonder if they're trying to do that with some of these other countries as well. Well let's get the feds take on what is happening here. I want to turn to Bloomberg's equality summit. Bloomberg's Michael McKee is joined by Mary Daly. She of course is the San Francisco Federal Reserve president. Let's listen in to Mike's questions about things like inflation and war that are going on actually interest a lot of people. We have a lot of concerns. Yesterday you said in a speech that it is time to remove the accommodation we have been providing. That means marching up to neutral and looking at whether we need to go over neutral to tighten a little bit restrict the economy to ensure that inflation comes back down. My first thought was what song are we marching to. But my second thought is what is neutral. How high do you have to go and how fast you have to get there. Well let me say that that the song and I'm picking up on what you said but the song we're marching to is that we have a dual mandate price stability and full employment. And of course with the labor market so strong inflation inflation inflation is the top of everyone's mind. And so then it's about removing that accommodation. And if you think about estimates of the neutral rate and there are a wide range of estimates the confidence we have in any specific estimate is not very high. But I'll just use what I think more or less as a consensus estimate which is that the real neutral rate is 50 basis points point five and expected inflation. Inflation target is 2 percent on average. That gives you a nominal neutral of five. So if you think the nominal neutrals 2.5 then marching towards neutral as you would say or I did say is getting the policy rate to 2.5 at least and then being restrictive would be moving it above that. But of course the neutral rate of interest is a it's a concept it's a star variable as we call it in there. They're easier to talk about theoretically than they are to measure. But the measurement we have suggests that to answer your question specifically. 2.5 is sort of the neutral nominal rate that we would be aiming for. And then if we went above that that would be restricted in the economy not just removing the accommodation. Well how far above do you think you have to go in again. How how fast do you have to get there. So let's start with how far above it we need to go I think. You know my own view is that some increase in the rate policy rate above neutral is likely to be required. But that's down and that's down the road in 2023. And so right now I don't think we need to be so decision on what that looks like. We just need to be recognizing that if inflation comes down because our policy rates adjustments are affecting inflation because the factors that have also been pushing it up supply chain disruptions that the weak recovery of labor supply and get labor force participation to come back the that just the general settling of the economy people start buying services and not just goods. Then we might find that just a little restrictive is just right. If of course those factors don't materialize it inflation keeps moving up then we're going to have to be a little more restrictive. But I don't think it's necessary to call that today just to be assuring the American people that we're prepared to do whatever it takes to ensure that we get price stability which clearly no one thinks we have right now. Well several of your colleagues have. I have talked about front loading. Are you in that boat as well. I actually think the SVP the summary of economic projections that we released last week is front loading. If you think about it in historical context the traditional way that we've done it over the last couple of decades is you raise the interest rate you rest a meeting you raise the interest rate you rest on meeting. And it's really that gradual approach that was bent to see what's going on and then make adjustments. But the S & P median was 7 increases in 2022 and that suggests quite a bit of front loading on policy. And I'll remind people if I may that we're also going to make balance sheet adjustments and as early as in the May meeting but that hasn't been decided completely yet. But that's another. Now that's generally considered equivalent to at least another rate hike. And then this is something we often don't talk about either. We're making these adjustments at the same time. Other central banks across the globe are making similar types of adjustments tightening policy. So we could get a lot of tightening in financial conditions globally. And that is something we have to think about. So I do think relative to previous periods of tightening this is quite a bit of front loading just as the ECB has indicated. Well Chairman Powell said on Monday that he's open to a 50 basis point move at the next meeting and the market is certainly taking him at his word. Are you willing to support that. I think the data will tell us whether 50 basis points or 25 basis points in the balance sheet is the right recipe or 50 basis points in the balance sheet. These are all the tactics of how we get the policy rate adjusted and the data will help guide us. If and I so I would hate to front run those deliberations but I will absolutely confirm what Jay Powell is confirmed for himself which is that I have everything on the table right now. If we need to do 50 50 is what we'll do. If we need to do twenty five and balance sheet. That's what we'll do as the data will help us determine how much is necessary. The important thing I think everybody would listen we would like to know is that we're committed to moving the policy rate in alignment with what the economy needs. And right now it doesn't need all the extraordinary support that we've been offering. What do you think the war in Ukraine is going to do to the global and US economies. We had Christopher Waller Governor Waller on the board say that he didn't vote for 50 basis points last time because he was unsure what Jim Bullard told me yesterday. We can't wait to find out. We have to we have to act now. What do you think. So when I look at the you and I put a couple of risks in front of people so that the invasion of Ukraine and the ensuing difficulties. First my heart goes out to the Ukrainian people. But if you think about the effects on the economy you know that it is definitely a global headwind on the other in the US. But the domestic economy I see it as mostly a risk to inflation further upward pressure on prices gasoline. These RTS at the gas pumps but also other commodity prices which ultimately are inputs to goods that we are already finding high prices for. So I certainly think it is an upside risk to inflation. I factored that in and I think it's a modest risk to growth but not the kind that would produce anything like stagflation because again we're not we're a net oil exporter right now. And so when prices rise production in the US also increases and we get an offset on growth. But we know this is a big uncertainty shock. And then you also have this happening when it's clear that Covid is not completely behind us. In the U.S. we've been very fortunate. We feel like maybe we're moving to endemic but they don't feel that in China right now or other parts of Asia or even in the UK and particularly Asia where the tolerance for Covid because of the vaccination rates are low is just locked down and that disrupts supply chains. So I think all of these factors push up inflation and have a limited effect on growth. But certainly it's material that we should think about these things. Well Dallas Fed researchers put out a paper that scared a lot of people yesterday. That said if Russian oil stays off the market for the remainder of 2022 in the way that it is is right now that a global recession is almost inevitable. Do you disagree. So I think it's too early to call that we could have a global recession and I think it's too early to call that. You know this is all research is a hypothetical. You're imagining what would happen a counterfactual if you will that hasn't occurred yet. So I think it's useful. Our models are very useful. Our research is extremely useful in laying out the possibilities but the probabilities don't often match up to those possibilities. And so right now when I look out I see a very limited chance the US will fall into a recession. I do feel that the global economy will slow how much it slows and how much people adapt to the changing conditions that we find ourselves in. I think it's still uncertain. But the bottom line is that countries across the globe are facing something really important which is inflation that's far too high for their tolerance and for their price stability goals. And we also have these risks on the horizon which is why you know I'm I have stated that I don't think it's appropriate to you know really ratchet up so quickly that we forget about the risks out there but rather we be data dependent. We see how the data comes in and we're prepared to do whatever it takes to ensure price stability. And in the wake of all of the other challenges that we have. I suspect if I asked you if we could reach a soft landing you would say yes we can. But let me put it this way. What are the odds that we can. That the Fed won't tighten too much. That seems to be a major concern on global Wall Street. Well certainly I'm committed to doing everything that I can. We can to achieve a soft landing. And we've got periods of history. Alan Blinder who as a former vice chair of the Fed is doing work on this. It shows we've had periods of history where we've had a soft landing. And so it's not on. It's not unusual that we can achieve that. But what it requires is just what you said. It requires us to be diligent about getting the right amount of accommodation for the economy. But I'll use an analogy if you'll bear with me and it's one that I use when I try to explain policymaking to people. You know if you're in a car and I'm driving and you're in the back seat and you see that we need to slow down there you you hope that I'm aware and I've got my foot on the brake and I'm slowing. But you're also hoping that I'm not slamming the brake on and throwing you from the back to the front seat because that would be disruptive. And so a smooth landing is about adjusting the policy rate as quickly as we can to get the right amount of accommodation in the economy. But with the economy the bands but not doing it so abruptly that we are disruptive in the doing. And I think the disruption can come from just moving too quickly. We can also come from imagining that there are only a few risks out there when there are really no multitude of risks. And so that's how I'm approaching it in a balanced way with commitment to get price stability. I really want every American to wake up and not think about inflation. For those of you who are listening to this on Bloomberg Radio this is the Bloomberg Diversity Summit and we are speaking with Mary Daly the president of the San Francisco Fed. Madam President August 20 20 the Fed announced a new framework for its monetary policy. Let the economy run hot. Let inflation rise a little bit before reacting so that more people can find jobs particularly minorities and women. And this is where we track transition to the diversity question. First is that framework now junk. Given what's happened with inflation now I actually think the framework has served as well because you know the framework wasn't just about that. It wasn't just it didn't just say oh let's run the economy hot and employ as many people as possible. What it said is we have a multitude of conditions we could face. One of the conditions was the one we've been challenged by for the decade leading up to that framework which is after an 11 year expansion we were not yet able to get inflation stable up to 2 percent which is our target. And we know the risks of of of inflation below the target are also costly. They're not just inflation above the target. So we. The second thing we learned is that we just didn't really know. We have estimates but we do not know what full employment is until we experience it experientially by seeing it in wages and ultimately in prices. So you put those two factors together and we say full employment is a broad and inclusive goal. And our target for inflation is not 2 percent and a perceived ceiling it's 2 percent on average. And so those are two things that we held to. So then you roll into the pandemic and what it allows us to say is look to all the consumers and businesses out there. We are committed to ensuring that inflation is 2 percent on average and that full employment is met. We eliminate shortfalls. And so here we are today and we have eliminated shortfalls in employment. I think if you're a firm out there you recognize there is not a shortfall in employment there's a shortfall in numbers of people who want your jobs. And so that goal has been achieved. And we have inflation that's too high. But if you trace back the reasons for inflation being too high doesn't trace back to the framework it shaped. It traces back to supply shocks on the supply chain the rotation of all of us to buying you know exercise equipment and home improvement goods rather than partaking in vacations and other services. And the fact that we just lived through a global pandemic and we're still struggling with it. So those are things that the frameworks well equipped to do because we now say full employment we have a strong labor market and we are committed to getting using our tools which we've always had the framework and tie our hands using our tools. The policy right balance sheet reductions to bring inflation back to our definition of price stability. So I see that is serving us well. And importantly the employment recovery has been broad and inclusive and something that I think will look back on and say that was a success after a global pandemic. Although a monetary policy works you raise interest rates that slows demand which slows investment which slows or constricts hiring. So what do you say to blacks or Hispanics or Asians or women who would say yes we have an inflation problem but it's my job. You're talking about. Well you know what is true is that the rates of unemployment the wage have quit. All the things we can look at have wage growth that's been going up most rapidly. For those at the lowest part of the wage distribution. Blacks and Hispanics and women the unemployment rates for those groups have been falling for Asian-Americans falling and really starting to narrow some of those gaps. In fact we're seeing things in the labor market. I've been a student of the labor market for my entire career. We're seeing things in the labor market that we often don't see until very late in an expansion. And so the good news is we're already seeing those things. The important question for me is I think about this from a policymaker perspective in an equity summit is you know we have to be nimble in our policy. So right now inflation is top of mind because inflation is a regressive tax. The very people we care a lot about in terms of equitable inclusion in the labor market are the very people who are being most ill affected by the rapid rise in prices. So these are intertwined goals. They're not trade off goals. And intertwined goals means that full employment depends on price stability. Price stability depends on full employment. And when I tell all of the groups you you just named and anyone else who asks is that achieving one achieves both. If we do them together we'll get an economy that's sustained. And we do know this that for the groups that have been historically less advantaged in our economy a sustained expansion is the best remedy to many many of the problems that they face. I want to broaden out the discussion of diversity now but before I do that I want to help familiarize some of our viewers with maybe a little bit about your story. You came from a broken family dropped out of high school ultimately got to G.D.. Then went and got a bachelors masters AP HD ended up in the research department at the San Francisco Fed then became the research director and in 2018 became the president of the San Francisco Fed succeeding John Williams. You're the second female president for the bank and the first openly gay woman to lead a central bank. So you know a lot about diversity Keith which sets the stage for a few questions here. And I want to start with diversity at the Fed. The system not necessarily your bank but the system has been heavily criticized for being a bastion of white males from privileged educational backgrounds. Can you diagnose the problem. How has that affected policy and ultimately Americans who are being affected by the Fed's decisions. Well so let me start by saying something that I I hope all of us would agree to. I certainly hold this as a North star that we'd make our best policy decisions when we reflect the people we serve. So this is ultimately a public fed. And if we have people around the table and I importantly want to make a distinction between what I would call a decorative diverse state where you have a lot of different people around the table but only a few people have voice. So we have to have a diverse group of people but we have to have a diverse group of people with voice who can help make spot problems and broker solutions and come up with ideas that create the best policy for every American. Now the question is why have we historically not had that kind of diversity. Why have we not represented the people we serve in terms of our research department. So let me talk about economics. Economics is a profession that if you compare us to some other of the scientific professions with the STEM professions we actually have a poor track record in terms of diverse groups taking up and getting AP HD. And since it requires a lot of technical expertise to be in the research department of of of the Federal Reserve and we've ultimately felt like OK we can't do better. But the truth is we can do better and you can do better on a variety of fronts first. You could recognize that simply having a macro finance degree isn't the only way you can contribute in monetary policy. I'm a micro economist studying labor economics. When I came to the Fed there was a question about whether I'd ever be allowed to even go to the FOMC. And here I am and I think I make a contribution. So I think that proves a point that is broader than me. It proves a point that different ways of looking at things. If you're not in the traditional fields can be helpful. But those are also fields that have more women more minorities to partake in them. So that's one thing. The second thing is we can change the pipeline. You know the Federal Reserve is one of the system is one of the biggest purchasers of economists in the U.S. marketplace. And we are actively working as a system to try to change the pipeline get young people to think about PGD or economics as a degree that they would like go out and talk to people. Ultimately you know my goal I'll say that I I've always compared it to this economics is a little bit like that. People I know you've all been to these houses where they invite you to their house and then they tell you how they'd like you to behave so that they feel comfortable having you there. And I went economics to be the profession that we all have been to these houses as well. People invite you to their house. They open their doors. They can't wait for you to bring your full self to it. And then they may learn something and they may. But they just want you to be who you are. And economics is not traditionally been that profession. But I know that we can be. And the Federal Reserve and all my colleagues were devoted to trying to make that that home everybody wants to go to. Well it's interesting you say that because you've told a story about how in some graduate schools many of the schools have all kinds of welcoming efforts to try to get people into the schools and economics hasn't done that. And one of the reasons we may see fewer minorities and women is they don't feel like it's a welcoming profession and that they can advance. How do you change that. Well I think we have to get out there. You know we can. I implore schools to do this. And some schools are doing this. But. But you know in the absence of of being able to implore people to do it we'll just do it. So you know my colleagues and I are here in San Francisco but elsewhere we're just going to schools ourselves in talking about the value of being in economics. And we're starting. We just had an essay contest to bring in a young researcher to have that person work here with us and invest in them now that we're piloting a variety of these projects. But getting it to scale is the harder part of it's going to take more people than us. But I definitely think this is possible. But I you know what would make me very happy is if I walked onto the campus of any university in the United States and I saw a gigantic welcoming signs like having computer science saying we want you please come to our apartment for a mixer and think of all the young people of all kinds you know maybe from a rural area. I didn't even come from an Ivy League school. And so you know that was not very inviting for me. But we would if we changed that equation that would be tremendous. So that's I mean I'm an optimist by nature so I'm eager to work on these things. But I do think it's going to take more than just optimism. It's going to take attention. It's going to take changes in practices. It's going to take the idea that if we were entrepreneurs in our in our haste our pay depended on it. We would create a five year plan and we would have deliverable improvement in five years. And that's the mindset we have to bring to this. Now you've done some studies that show this is not just the right thing to do. It's the economically prudent thing to do. I think you did a research paper that suggested that it costs the U.S. economy this lack of diversity about three trillion dollars a year 70 trillion since 1990. This is a lot of money. It is a lot of money. And the reason we did this paper is that you know the the the issues of equity and inclusion and diversity tend to get relegated to a fairness debate or a social issue. But actually they're important for our economic and our economic fortitude our competitiveness as a nation. The ability I think all of us want to have which is to give the next generation a better and brighter future than the one we inherited. And if we're leaving this much talent on the table you know we've put a dollar amount on it. That's just putting a dollar amount on the literally millions of Americans that we leave their talent on the table. Either they have barriers that don't allow them to go into the to the things that they be best at or the things that they're most interested in or we simply don't even employ them. They just aren't part of the labor market. And so the point of the of the work was to show that an inclusive economy is a productive and competitive economy that has a bigger pie that can then be divided across a variety of ISE. It's it's a it's that it's an evolution of that famous phrase. We all do better when we all do better. I think this is beyond fairness. This is really about our livelihoods and our are our future. I asked. Sort of. How did you do it. Question And that is if I did a survey. I think it would be very hard to find any boss of any color who would say I'm not going to hire a person because they're a minority or because they're a woman but they don't get hired. So how does that change. How did you manage to work your way up. Well you know that's a good question. And so the way I worked my way up if you will is that I was really fortunate that people mentored me sponsored me. Talk to me. You know I've I've said publicly you know Janet Yellen is one of my great mentors. So what did that mean. It meant that Gina was willing to sit down with have coffee with me or if we were at an airport waiting for a plane you know we traveled together. She'd just start talking to me about how she did it and what she did and things that think about things to do. And that's that's really just a series of conversations with a variety of people that really helped me get to where I am. And then the question is do we want to leave that to chance. Someone once asked me what what do you take from having made it. And I said that we have a problem where we are. Actually the fact that we talk about me means that it's unusual. And if it's unusual it means we're leaving lots of other people on the table. So. So you know behind the scenes. So one of the things that we've done in San Francisco which you know we're just we're working on this but we're hoping that other people will join in. We'll get best practices as we learn something we call the framework for Change and the framework for changes. How do we get in there the elements of that equity that actually lead to outcomes like myself so that we can scale my experience. And it's about changing processes. It's about changing posting requirements so that you have to post all the jobs about giving people interview help. It's about making sure we understand that we might actually only you know often choose people who look like us whatever they are. But you know someone asked me wouldn't it be great to have a million of you. And I said probably not. Now we don't want the million Marys. We want. We want lots of people with diverse views. But we only can do that if we have programs practices and intentions that say what is true which is we make the best policy when we have a diverse set of years and everyone has a voice. Now that all sounds good but you know this very well. There are a lot of Republicans on Capitol Hill who say great but that's not the Fed's job. How do you respond to. So our job which Congress gave us is to help build a sound payment system safe and sound payment system safe and sound financial system along with other regulators and execute the dual mandate goals of price stability and full employment to the best of our ability and to the best of our ability. Serving every American means that we have to have a diverse set of voices around the table. And if those are my inputs then I have to be committed to ensuring that I deliver that and delivery. That means I have to be thinking about equity issues diversity issues inclusion issues voice issues. And importantly what I've learned in doing that is that these things are so materially material to our economy that it is absolutely squarely in our mandate. And those are the reasons why. And you know I talked to various leaders of all different groups young business leaders congressional reps community members. And we can all align around one thing that we understand that when you are a public servant you serve every American. It means you have to hear from every American. So that is what I do. Let me slice a little bit back into the Federal Reserve and that is a question about over the past couple of years there's been an issue with women not returning to the labor force the same way that mended after Covid. How much of that is really because of child care or medical care for others. And how much is it maybe a secular shift in the way women think about working in the same way we had in the 1990s when so many joined the labor force. Well you know it's hard to pass out those changes in culture from changes and constraints. But one of the things that you learn early on as an economist it's a little thing that we are taught is that you know using culture tastes and preferences is the last refuge of a scoundrel. And they really do teach you that. What they mean what is meant is that you know we can always ascribe what we say to differences in culture differences in preferences etc. But it often is differences in barriers differences and constraints differences in opportunities. And so with women I'd rather them as a group rather than prove to us that they don't want to come back rather than assume that they don't want to come back. And right now when I look at what women in particular Mary Daly the San Francisco Fed presidents in conversation with Bloomberg's Mike NIKKEI from the Bloomberg Equality Summit you want to follow that conversation. You want to continue to follow that conversation. And it's an excellent one. You could do so on your playbook. All you've got to do is go to live. Go. The takeaway for me. She sees a very limited chance of the U.S. will suffer recession. Actually that wasn't the takeaway for me. The takeaway for me is once again what an incredible one. Well that and that's the possible need for a 50 basis point hike at the next meeting in May. And that seems to be the headline there from that conversation. Absolutely. As I say you want to continue to follow Mary daily and conversationally. Bloomberg's Mike NIKKEI. You can do so on live go from Covid and myself. This is Bloomberg.

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