00:00I think $5 is quite possible if the situation continues and the blockade persists into the
00:08summer driving season. So we're approaching the Memorial Day weekend and a lot of people will hit
00:15the roads despite the high gasoline price. I would be watching how this impacts spending elsewhere.
00:24I think we are all used to paying for gas. This is somewhat inelastic in a sense, but we may
00:33be
00:33cutting on other things, you know, like clothing or, you know, some other services, for example.
00:41So how sticky do you think this inflation could be? If you're the Federal Reserve, are you thinking
00:47this is, I'm not going to use the word transitory, but I mean, how sticky can this be, do you
00:51think?
00:51It depends on how long it lasts, quite frankly. For now, the pass-through into a broader inflation
01:00is pretty limited, actually. You know, if you look at the composition of CPI price increases,
01:08where do you see all these increases? You see that in products and services, which
01:15usually experience an immediate pass-throughs, so like airfares or food prices, things like that.
01:22But it hasn't yet passed through into a broader core inflation metrics. So the longer it lasts,
01:32the higher core prices will be. And that would make the Federal Reserve job much more difficult.
01:40So what is the concern here for the Federal Reserve? How do you think they're going to react
01:46here, Yelena, going forward?
01:49They're strictly on hold for now. And there are a lot of different reasons for them to stay on hold.
01:55You know, the economy's doing okay, right? The labor market is relatively healthy. And as long as the
02:03unemployment rate holds near the current levels, you know, they have this luxury, actually, of staying
02:12on hold. So another reason to stay on hold is the new Fed chair coming in, right? So he cannot
02:20really
02:20cut rates at this point because of the inflation, obviously. Or, you know, he would have to descend
02:28from the committee's decision, which will not look pretty at all. But, you know, instead, we could hear,
02:36start hearing from the new Fed chair things like, you know, rewamping the structure of the Fed or the Fed
02:45communication tools and things like that. So they can do this for now while staying on hold on interest rates.
02:52Do you have a yield in your head, I haven't asked this folks, coming down, which is all clear for
03:00Chairman Walsh to cut rates? Is it like, does he need to get back to 4.10, 10-year or
03:07sub 4%? I mean,
03:10where's that in your head, Yelena?
03:12I don't think there's a clear connection between short-term rates and long-term rates, quite frankly.
03:18So, yeah, at least it hasn't been over the last several years. So I think, you know, cutting rates
03:26will happen eventually. Our own projections call for that next year. It's more of a normalization
03:36of policy rates. Remember, we are still in sort of a slightly restrictive territory, at least,
03:43you know, according to the Fed dot plot, which is also in question. But I think that, you know, we
03:51will
03:51have rate cuts eventually, but not because of what the market says, but because of what the economy does.
03:58In our own projections, we expect a lot of demand destruction from all these inflationary pressures
04:05that we're experiencing right now. So eventually, we will see a significant slowdown in economic growth
04:13and potentially negative risks to the labor market.
04:17Yelena, AI has basically consumed at least, you know, the airwaves, the marketplace, the dialogue in
04:25the markets. Give us a sense of how much of the economic growth that we're seeing, we're experiencing,
04:30which is probably better than a lot of people would think, is really driven by AI and maybe even
04:35masking some some weakness in other parts of the economy. Well, eight tenths of GDP growth in the
04:41first quarter, which was 2%, right, came from AI related investment. So this is growth that is
04:50highly concentrated in a particular sector. And that is happening at the time when consumer growth
04:57is slowing. So consumers are still spending and they're still the sector is still growing, but it
05:04is growing at a slower pace. So I see that as a risk. And when growth is not diversified and
05:12highly
05:13concentrated, that is risky. So if all of a sudden, you know, something happens to this AI investment,
05:21so where we left, I still think that we need to, like we need a broader kind of growth in
05:28the country.
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