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00:00You've always given me really good chatter on inflation of course. You believe that it was something you know that's that can't stay here for a long time because a lot of it was imported. Has your view changed and where this inflation is coming from and what it does to consumers around the world. Sadly there's not enough of a sort of fundamental analysis of why we have this inflation. And I think we live in a world shaped by supply. You know we have of course more demand and supply. Otherwise we wouldn't have inflation. But the real reason for the inflation is that supply is at an unusually low level as a result of the restart post Covid and the energy shock from the war. So that's the story. That means you have to be thoughtful as to how you're going to mitigate this inflation by way of policy. So how should central banks will get this. First of all I mean is there any question that the Fed is behind the curve. Well I think that the key problem is in a world shaped by supply. That is the way it is described that you're not going to get a perfect outcome. There's a tradeoff involved. Either you have to accept that you're going to have to live with some inflation for some time until these supply problems mitigate themselves or you have to stamp out demand so much by raising rates so much that you actually drive down inflation. But the price of that is going to be very very high. And I think that's just part of the debate that is missing. But you think that's a recession. I mean if you hike interest rates to a point where you actually deal with inflation I don't know whether there is an optimum rate for inflation given where we are now at 4 percent. Do you have a soft landing or do you still have a recession in the US. Yeah that's the right question. My sense is the central banks will recognize that they cannot kill demand in order to get inflation down so they will ease off once they get to neutral. Right now they're talking very very tough and that's what's unsettling the markets. You know think about it. They weren't they were on one side of the boat completely stuck in this transitory debate. And now they've rushed over to the other side of the boat talking about stamping out demand in order to get inflation down. So no wonder markets are rocky in the end. I think there will be a middle path. But right now you know they're trying to find their place. And what what what's missing I believe is more of a debate as to what is shaping the world right now what is driving this inflation. And that's the supply story the unusual low level of supply. But it doesn't make central banks job any easier. It doesn't. No I think that makes it harder. It's very hard for them because for the first time in a generation I believe there's a real tradeoff involved. You're not going to get to the Goldilocks outcome where you can kind of you know slow demand just enough to get inflation down but not have a recession. This is a different story because it's shaped by supply. And so for the first time in a generation they're really facing a hard tradeoff. So it is a very difficult moment for Dani Burger. Phillip what does it mean for markets. So we suddenly saw this huge swing actually answered S & P. I know it's a bit supported by China right now. But where's the bottom for some of these equities. Well I think you know this boat analogy is probably pretty good. So they were on this transitory side. The central bank now they're rushing over to the other side of the boat that's rocking markets. As I said eventually I think the market will find its way once they see what the central bank is going to do. Recession in my view is still unlikely in the US. Unfortunately it's it's probably inevitable or just about inevitable in Europe given the much greater kind of impact the energy shock. But you're not seeing like a hurricane whilst the boat tries to go from London to New York. Right. I think in the short term we have we're going to see volatility here. The market is trying to find its way. You know central banks should normalize. There's no question about this. Once they get to normalization it's a different story. I understand why they talk tough. What's missing I believe is more of a focus on the real reasons for this inflation. And that's that's the unusual low level of supply. OK where is this terminal rates. I mean this elusive terminal rage can we actually find it or do I believe that in the end this interest rate cycle will still end up being much more modest than what you would what inflation currently would imply. You know we'll see right now. That's not what they're saying. If you look at the way the market is pricing the terminal point of this cycle it's still pretty modest relative to history relative to where inflation is currently. So the market isn't entirely buying the story even though certainly the equity markets they buy they are reacting very much to this very hawkish tone that we're seeing from the Federal Reserve in particular.

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Inflation Is a Supply Issue for BlackRock’s Hildebrand

Philipp Hildebrand, vice chairman at BlackRock, sees inflation driven by supply at “an unusually low level” and says central banks face an economic trade off in battling inflation. He speaks with Francine Lacqua on “Bloomberg Surveillance Early Edition.” (Source: Bloomberg)

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