00:00This feels different for the ECB versus the Fed. Is that fair? I think it's fair. I think obviously the
00:06shock is probably going to be larger for them given their imports of oil and natural gas. Also remember the
00:13ECB has a single mandate. Their job is price stability. The Fed has a dual mandate. And so I think
00:20they are data dependent. I take them at their word. I don't think a hike is a slam dunk but
00:25it's it's an option. Is this a shock you should look through as a central banker.
00:30My inclination would be to look through it initially although the caveat of course is the last five years inflation
00:36has been too damn high and above target. So I think that's a case to maybe think a little bit
00:41harder about it. But my inclination would be to look through especially given I think most economies including the U
00:48.S. are at a point where if we do get a stagflationary shock there there will be a contraction in
00:54growth and higher unemployment and central banks are going to have to factor that in as well.
00:59Well with the ECB right now markets are pricing in a number of rate hikes for the remainder of this
01:04year. And in the past there has been a history for the ECB of hiking in the face of an
01:08oil price shock. Do you think that would be a policy error that would send the region into recession?
01:14I think it's a possible policy error. You know you don't have a crystal ball least as a central banker.
01:19So you make those judgment calls. But but you are correct both in 08 and 2011 as I recall that
01:24the ECB was hiking when headline inflation went up for an oil shock.
01:28And and both of those moved in retrospect did not did not pan out to too well. So I think
01:33that could be on their mind.
01:35PIMCO recently put out a paper pushing back against some of the rate hike expectations in the United States saying
01:40it's a little bit overdone given what the rhetoric has been and the dual mandate that we're facing.
01:46Do you think that a rate hike that the bar is just so high that it really wouldn't happen especially
01:50under Kevin Walsh worse whenever he gets in?
01:54Well Jay Powell was asked that question at the press conference and I think he said again as he did
01:59in January that the committee is not really considering a rate hike now and it's really not something that they
02:06anticipate.
02:07You do have some members of the committee. I think some of the presidents who would like the statement at
02:11least to acknowledge there could be a rate hike.
02:13I do think the bar is high for a couple of reasons. The Fed is a dual mandate central bank.
02:18The unemployment rate is low.
02:20But let's face it job creation has been virtually zero for the last year or so especially in the private
02:25sector.
02:26And I don't think it would take much to push the unemployment rate up. And I think that will also
02:30be a factor for them.
02:32So I think the most likely path is the uncertainty in the Middle East may put them on hold for
02:37a while.
02:38But I think eventually this will be resolved. It'll be in the rearview mirror.
02:42And I think at that point Kevin Walsh when he does arrive will will be inclined to lower rates at
02:48least down to the neutral level of around 3 percent.
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