Incredible. Just to see how quickly the market narrative has changed from expecting a rate cut in June. Now to some economists saying perhaps not at all this year you’ve been in the seat that Powell is in different country India. But still I’m curious how you think he navigates this complicated scenario that we’re in which is hotter economy with inflation remaining much higher than expected and at the same time rates also staying higher, the impact that could have on consumers. Yes, I mean clearly what’s happened is we’ve had three strong readings of inflation. One you can dismiss certainly the January 1, but the the next two basically suggests inflation is not coming down, in fact it’s going up. And if you look at the measure that the Fed has looked at most closely which is the Super core measure of inflation taking out housing, it’s gone up at a 8.2% rate over the last three months. So this is, this is something to worry about is inflation coming down steadily as it seemed at the end of last year or is it having a new set of legs and moving up. So, so my sense is you know they’re going to do what they did which is watch and wait. But you know you heard you know, New York Fed President talking for the first time about potentially rate hikes. I think that’s still some ways away serious talk about that. But clearly the kind of rate cuts that were expected are off the table. Certainly in the next meeting they have no more news on inflation or the labor markets and it’s likely they will continue pausing. But how long they will pause is now very much in question, Tom. Professor Rajan mentioned John Williams, a New York Fed President who did just mentioned rate hikes, but he just said that’s not his base case. But even the fact that he mentioned it, you saw the two year move to around 4.99%, which is a high for this year. You still have this notion that stocks can continue to outperform if rates stay high. How long do you think that theory will last? Well, I think it’s going to be valid as long as one of several things happens. One is that as long as the economy remains resilient and robust and so far earnings have actually been coming in quite good. I mean we’re only sort of the start of earning season, but already Q1 looks good. And I think the 2nd is that inflation. I I think inflation really has a bifurcation taking place because even as the professor cited super core, the recent super core is annualizing at 8% is auto insurance. If you took super core out of, I’m sorry if you took auto insurance out of super core, the long term average is around 2.7 and it’s actually annualizing at around 2.7% right now. So the biggest driver of inflation are the two stubborn components of auto insurance and shelter. So I don’t know if Williams really wants to be raising interest rates or hiking just because auto insurance rates are high. And I think the third thing to keep in mind is that we don’t really need the Fed to make, you know, three cuts. I think the one risk to markets would be that the inflation is accelerating to the point where the Fed has to hike and therefore really weaken the economy. I I think that’s still very much a tail scenario, but that’s the one of course that would unsettle markets the most. Professor Rajan, how critical is China’s recovery to global economic performance? Well, it certainly is very important, right? China has been the engine of global growth for a long time pre pandemic. But I think it’s also important for, you know, the reflationary forces we’re seeing. I mean if you look at commodity prices, they were largely dead in the water for the last year because China wasn’t performing up, you know up to expectations. As Chinese growth news is getting better, you’re seeing some commodities perk up. Certainly you’re seeing copper pick up some in in recent weeks. So, so my sense is that the deflationary effects of China, which have been substantial especially on the goods side, may abate a little bit if Chinese growth picks up. And of course it will also add to global demand, which is important.
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