The Hiking Trip

in twenty seven years. John Author Is, Near Casar and Jonathan live In discuss later one in five Americans suffer from some form of long COVID Lisa Jarvis on persistent and widespread COVID nineteen. Let's get straight to the FED now with John Authors and Near case are. So, we had the Federal Reserve meeting, we had the decision, we had the news conference. We learned a lot, but also a lot of this was priced in. We effectively got

this on Monday. Is that too harsh? No, I'm inclined to say that the FED probably handled an impossible situation about as well as it could be handled in terms of having a blackout, but obviously eating to make some kind of response to really seriously bad numbers that came out, and I think the way they did that which Ja Pou didn't really deny, was by guiding the press through what was likely to happen, and the market of course priced at all in yes, near the FED chair obviously

said that the University of Michigan preliminary figures were a huge motivating factor here. He said, he's not going to see this too often from now on? Is that fantasy? Will we see numbers like this? You know, I wish we knew because it would make his job a lot easier, But I think that you know, as you say, as John had mentioned, the bigger news from all this is

how much Powe was committed to fighting this. They added a statement in the release that says that they're strongly committed to returning inflation to their two percent target, and he reinforced that message in the presser and all this is really important because he of course is trying to get the market too self correct as it were, which they had done some of the work for him before today. The question was once these prints became really ugly, were

they really going to act? And I think they did their best both indeed and and word to reassure the market that they're going to fight this all the way. I think that's right. It was as though j Pal had a binkie of the word commitment. I think he came back to saying they were committed to fighting inflation more or less every question he took in the press conference.

There were some very unusual things about this particular press conference, though, For example, the idea that headline inflation is almost becoming more important at the moment than the PC deflator. I mean, is there any usefulness to the PC deflator these days? There's a lot of use if you're a central banker. A politician quite reasonably cares most about the headline, because the headline is what actually hurts people. You're calling politician that.

There are lots of fascinating issues about exactly how politically independent a central bank needs to be. But he's obviously under pressure, as he should be, because we do want some degree of democratic accountability, even if we also want independence. He's obviously under a lot of pressure to deal with inflation at this point because it's so intense. Well, and as excuse near is and I'm quoting, forces are different.

Inflation is behaving differently. The pandemic is over, though, and the war in Ukraine is a long term event, So figure that out. Well, I think this has gone on longer than anyone wants, and so obviously we can no longer call it transitory in any way. But I think there's another reason to worry about the headline inflation, which is that some of this is based on expectations, and

the headline inflation is what people are really feeling. And to the except that people are really feeling the brunt of the headline inflation number and that is affecting their behavior and their expectations, then that's a problem for the FED. So I think they're in this moment where in a theoretical sense they'd like to focus on the PC, but as a practical matter, they have no choice. That's a

great way of putting it. If you look at the retail sales numbers for this month, Basically, as a certain point, headline inflation becomes deflationary in terms of economic growth. And here it's an empirical matter exactly where that comes, but it seems to have come last month. There were fewer retail sales than the month for presumably because higher gas

prices and someone were acting like attacks. So there is a point which has been reached where the dual mandate goes by the board, you just have to get inflation down for the sake of both parts of the mandate, inflation and employment. Well, and I'm quoting again now, he actually said during the news conference it would be hard to watch anything more closely than we're watching consumers spending. And it sounds like he's watching consumer spending headline inflation

forces outside of his control. I mean, he's got a terribly difficult job, and they're kind of hoping that unemployment goes up for good reasons and that that means that we avoid a recession. What are the odds now that we avoid at least a deep recession. I mean, they're looking slimmer and slimmer all the time. You know, I was just looking at the GDP now that the Atlanta said publish. They're their most recent forecast is zero real growth for the current quarter. So it's looking like, if

we're not already in recession, were on the precipice. Yeah, yeah, that's good. Depressing, it's not good. One of the things that forecasters have been saying is get out of risk assets. And we talked about this a little bit, sweet John, about how companies are going to see defaultrates going up. It's going to be more difficult for them to roll over dead. At the same time, we've seen amount of sell off. We're in a bear market from many of the industries. If we're already in a recession, how much

worse can it get? Well, the key question is profits. We've seen a very big reduction in valuations in pe s, partly reversing a massive expansion in valuations in the immediate aftermath of the pandemic and the money to tie us through it. We haven't so far seen any real adjustment to what the EA is likely to be. The e m P estimates for this full year are still something at three percent higher than they were at the beginning of January, despite all that's happened since January exclude energy,

and it's still flat. Usually earnings expectations fall during a normal year. The fact that you haven't seen earnings expectations begin to decline in any meaningful way is the reason I would still be quite nervous about this market. It's all about expectations from the FED two earnings near Are you getting out of all risk assets? No? No, definitely not In out market. Timing is you're never going to be able to call the top to the bottom. If

you try it, you're gonna lose. Having said that, I mean, I think it's useful to have some expectation about what's coming. I mean, I think the best thing we can say is expected returns for equities have to be higher today and they were before this whole mess started. You know, so far, this to me looks like a quite orderly repricing. Enterprises in the US were too high. I think that was generally acknowledged they needed to come down. You never know what the catalyst for that is going to be.

Do they deserve to come down a bit further? I think probably certainly. They're well higher than the bottoms of previous sell off, So there's a lot more room to go if the market wants to go there. Esther George, who hadn't been a hawk, dissented in favor of fifty basis points. What was that about? I saw one interpretation that it was about communication credibility, to the extent that we saw the FED perhaps leaking basis point move from

saying no, obviously, I haven't spoken to Rested George. My best guess, because it is surprising she's been one of the more hawkish members. Is exactly that, having said that seventy five isn't on the table, we really can't do. We have to do fifty and be really mega hawkish about the future. I'm guessing would have been a line that would make some fair degree of sense and would be consistent with what she said in the past. But

it is strange. Well, you know, one of the things that I look at is again going to the Atlanta Fed. They have a FED funds tracker based on the futures markets, and right now, a year from now, that's sitting at three forty basis points. And as we're sitting down after this rate high today we're sitting at the range of seven five. So they have a lot of room to

move before they get to expectations. And of course, if inflation keeps running hot, I mean, if these efforts are not having a meaningful impact, I'm getting some sort of disinflation, then those expectations are probably likely to go higher um. And so at this point, the feed is in a position where it's chasing with the market expect which is both good and bad. It's good in the sense that it gives them a lot of room to move without

shock in the market. On the other hand, it's bad because their credibility is constantly being questioned, Right, I mean they have to get up to the marker, otherwise they're going to be seen as not being serious about this. Right. How does he look like a guy who understood that very well today? Well, and in fact, he came straight out and said, and I'm quoting again, by this point, we thought we'd be seeing signs of inflation flattening and

ideally declining. I mean, they must be completely shocked. There were only two FED governors. I have the December dots plots in front of me. There were only two FED governors who thought that FED funds rate would get as high as one percent by the end of this year

as of December. Jonathan Levin wrote, a great artist, and we're now well beyond that's already exactly unanimously on his point was that Bullard needs an apology from somebody because he's been saying this, and he was probably one of the only ones saying and even even he because we don't know which dot he is, but even he has been surprised in a Hawkes direction by by what's happened in the last six months, and he was the outline

you brought consumer spending earlier, Vanni in the conversation. And I think some of the uncertainty that we're seeing within the set itself has to do with the way that economic data works, right. I mean, part of the problem

for them is the economic data. That means that most of them is lagging data, and so you know, by the time that they have the data to make a decision, you know, a lot of people think that the FETE has already waited too long, and to some extent that's just the nature of the beast, and that's more to try to find leading indicators, and that's probably why they took the preliminary Michigan expectations so seriously. I mean, typically you'd wait for a thing reading right right, what's pricedon now?

For what gets pricedon I should say for July. Now at the moment, it's a rate hike of sixty six

basis points. I happened to check just before I came into the studio, So a seventy five bits hike you've seen is slightly more lightly than a fifty and certainly Powell saying that it was going to be a choice between fifty and seventy five at the next and therefore implicitly taking a hundred off the table and saying we shouldn't get used to rate hikes of this dimension was very important in the market liking what they heard as

much as they did. He was saying he was committed, but he was also saying, don't worry, guys, there aren't going to be any hundred medieval hundred basis And we did talk an you know, I'm not sure the path matters so much as the destination. I think, however, they get there, My guess is what we're talking about now is roughly three hundred fifty basis points on set funds,

give or take. And that's a number I keep my eye on because if that number starts to drift higher, then I think the probability of them having to be more aggressive on the path goes up. Also, I just wouldn't put a whole lot of faith and what the markets are telling us about the past. I would put more faith of what they're telling us about the destination as the data currently sits. Yeah, I agree with that.

I personally am nervous. I can easily by the notion that we need to go to four even if the FED doesn't essentially lose control, and obviously if the FED loses control, then disguise the limit. I think, yeah. And do we need to worry about the curve being inverted at several points at the moment, Well, I mean it's it's never healthy, It's never a great sign At this point,

the curve inverted and uninverted twice on Monday. I'm not that concerned about the curve as a whole, because plainly it has been inverted or flat over a long enough period to signal very great concern about recession, and we can't really treat it as much more of a concrete indicated than this. There are lots and lots of reasons for concern about the bond marketing general, obviously, yeah, including

contact of tightening. This is not the base case by any stretch of the imagination, but I think there is a higher probability than than people are generally acknowledging that the FED will have to go higher than anyone thinks right now and the funds, and that the longer end of the curve doesn't follow higher just for supply and demand reason, because there's so much interest internationally in longer term treasury because a lot of the pension funds in

the US have moved to hedge their liabilities against thirty year treasuries. UM. It seems to me that there's a lot of demand for U S treasuries on the longer end of the curve. If pet funds goes higher than we think, you could have some serious inversion. I mean, you could have in version that I think people are really not talking about whether it loses its signal at

that point because of idiosyncratics applying demand forces. In terms of telling us what that means for the economy, I'm not convinced that that's going to be the case necessarily, but keep your eye on that longer end of the curve. I'm not sure it's going to follow the FED funds of time. There was concern in the news conference about international economies, you know, and the stronger dollar. That's the question. That's the point I was about to make that the

really big fault lines. The fit matters a lot, But there are two other immense fault lines in the global economy, both of which are affected negatively by a strong dollar. One is the Eurozone, where very Unfortunately, the CB still hasn't managed to convince markets for much the same structural problems that created the crisis of a decade ago that it's going to be able to keep the euro Zone together. Asset raises, rates and more pressure on the euro makes

that all the worse. And then in Japan you've had the end breaking through some very significant and also twenty to the Chinese UN, which is only the second time it's got there. The first time was followed within days by the shocking Chinese UNS evaluation of then caused to

sort of mini global crisis for a few months. So there is a There is also a very important element of tension where the if the Japanese want to keep controlling the yield curve, that will mean the stays ever more artificially weak, and that is going to be a real problem for its neighbor China. So that's the other fault line that it's very difficult to avoid. John Old, there is a near case, are there some indicators of inflation expectations have risen, and projections of this year have

moved up notably. So we thought that strong action was warranted at this meeting, and today we delivered that in the form of a seventy five basis point rate hike. Be Jared your Ome Powell. We're with Jonathan Levin covering the fat and fixed income from Bloomberig Opinion. Jonathan, what for you were the most salient features of this particular news conference? What really struck me was j Pal's meditation

on what's going on with inflation expectations? And I really thought it underscored sort of the catch twenty two that this bed finds itself in. You know, the tricky part here is that, as j Pal himself put it, central bankers cannot control volatile food and energy products. However, those very same volatile food and energy products have a tremendous impact on the way that consumers think about inflation. So

Jpal finds himself in an extraordinary pickle here. Right now, as we saw in the University of Michigan survey, those inflation expectations are drifting up. Central bankers believe that this is a huge problem. Clearly, this is happening in part because of what's going on at the pump. But the Fed's reaction mechanism, as j Pal himself seemed to acknowledge, today, is going to forever, keep them behind the curve on

managing those expectations. Yeah, exactly, And he even said we're absolutely determined to keep inflation expectations at two how much above han does he is that? I think it's going to be very tricky. I mean, it's not a fantasy, because, of course, there is a possibility that some of these sources of inflation that consumers most experienced could come in on their own. Right. It would be great if some of these gas prices would moderate, if some of these

food prices would moderate. But what we're seeing, sort of unfortunately, is Powell is tacitly admitting that so much of this is out of his hands. He's really kind of just you know, putting his hands together and saying a little prayer that these inflation expectations could stay under control. And there's absolutely nothing on the horizon to suggest that any of those things is changing anytime soon, right. I mean, we still have countries holding onto what food they can

produce themselves and not letting it get exported. We're not seeing oil get any relief anytime soon. There's not much the head can do about those kinds of things, so it has to look for other avenues are there any Yeah, I mean, you know, the main thing they can do, I think is to just show that they are not asleep at the wheel, and you know, basis points. I think it's a step, perhaps in the right direction. Perhaps that's why you saw such a rally in the market.

I think markets are just pleased to see that this FED is paying attention to what's going on. So, Jonathan, what's the beds terminal rate now? So? I think in the Summary of Economic Projections it has it heading up towards the high end of the three, is almost getting to the fours. So that is essentially consistent with what a simple tailor type rule would suggest. After the CPI print that we just got. Yeah, I mean, does it look like a recession is more likely than it was

a few hours ago? Well, you know, I was really struck by what the Summary of Economic Projections said about the unemployment rate? Right, So the step has the unemployment rate moving up from remembering correctly about forty basis points or fifty basis points. The some rule famously says, if you move up fifty basis points on the unemployment rate

in a twelve month period, then you're already a recession. Right, So the step itself doesn't quite get us there because it has us getting to that higher unemployment rate in so it's outside of the twelvemonth time frame of the rule, but it really shows you how perilously close we're getting to that threshold. You know. The other thing that struck me, well, many things struck me. One line that I'm going to quote is we are not trying to induce a recession.

It was in response to a question about whether the FED is trying to induce a recession. I mean, obviously JOJ palal has to say that, but would a little recession help? Well, you know, look, the bottom line is that the FEDS tools, it's only tools, is to control the demand side of the equation. They are actively trying to get people to spend less money at a very very delicate time for the economy. So you know, the

risks here are extraordinary, I think for political reasons. Uh, you know, and J pal is ultimately a political figure here. It would be crazy to go before the microphone and say I want to take somebody's job away from them. They can't do that, right, But this is how it works. This is essentially how it works. I've written in the past that I think this idea that he can simply cool off the labor market by getting companies to take down listing, to take down openings without doing anything to

the people who actually have jobs. I think the FED has blunt instruments here, and it's going to be extraordinarily difficult and would be virtually unprecedented in the history of this thing for them to do a move of this magnitude, reign in the worst inflation in forty years, and not push unemployment to a meaningful degree. Jonathan live In don't forget to reach out with adults, suggestions, opinions. I'm at any Quinn on Twitter or email v Quinn at Bloomberg

dot net. You're listening to Bloomberg Opinion. I'm Bonny Quinn. By the way, do get in touch. Comments and opinions always welcome. I'm at Bonnie Quinn on Twitter or email v Quinn at Bloomberg dot net. Now to COVID nineteen. That other persistent and widespread threat to US and global well being, both human and economic. Happy to have Lisa Jarvis join. So Lisa, first, a word about the nearly one million, ten thousand people that are dead in the

United States as a result of COVID. It almost seems unbelievable that that many people are dead in the last two years. But if COVID hadn't come along, very many of those would not be dead. Is that true. I think that's true to a certain extent. Very many people

would have died no matter what. But we also didn't have good vaccine adherents once those were available, So if people had gotten vaccinated when they were eligible, we probably would have seen several hundred thousand lives would have been saved. I would have to take a look at the estimates, but we know that many of the serious cases of

COVID were preventable one to the vaccines were available. What are we going to learn over the course of the next year, two x years, maybe five years, maybe ten, maybe more about COVID and various viruses like COVID from the amount of people that have died. Are their studies ongoing? I hope that what we're going to learn is actually from the people who have lived, and in that instance, what we want to know is long COVID. I think

that's the biggest opportunity here to better understand viruses. One in five Americans suffer from some form of long COVID, which is a big umbrella term. It can mean a lot of different things. That's part of the issue is that there's no good definition for it, but for a small percentage of that one in five people, that can mean that their symptoms transform into something that is potentially

lifelong and looks a lot like chronic fatigue syndrome. We know that those people stopped working, and so justin Box actually has a column out about that. At the moment, it's actually showing up in the employment data. It is showing up in unemployment data, and so you know, we know that this is a huge issue now and it's going to be a huge issue going forward because even people who had mild COVID could end up with long COVID and O macron and its siblings are just sweeping

the country. Many more people have been exposed, sometimes multiple times the virus. The NH has been given one point two billion dollars to run along COVID study to really try to understand and get to the bottom of who's at risk, what are some of the possible treatments to better define it. Unfortunately, that study is moving very slowly. That makes me very worried about how quickly we're going to get to answers to help the people who currently have long COVID and those who will in the future.

But we still have a lot of questions we need to answer. Also, how long does it last? Can it go away? I mean, just anecdotally, it seems that sometimes long COVID does go away, other times it hasn't gone away yet. Yeah, that's right. I mean part of that is again, you know, there's this big umbrella of symptoms that compass long COVID, and one of the things that I think we need to do is get better at defining that. So you could think about it in two ways.

To start with the people who had very serious COVID and have long COVID because they have organ damage from you know, being in the hospital. And then there's the people who had mild COVID and went on to have this long tale of symptoms. Those are the ones that are the real mystery. And within that there's other buckets. You know, people who have heart symptoms and there are

some treatments for that. And I think that's a message more cardiologists would like to get out there that you're experiencing heart palpitations or high heart rate after having COVID. There are treatments for you. There's people who have lung effects, and then there are these people who progress to these chronic fatigue like symptoms. So yeah, we'd like to understand what puts you at risk for that and how can

we provide it and how can we treat it. We're now at eight five point seven million cases in the United States and another one hundred thousand per day. If one in five of those turns into long COVID, we have a very serious health issue on our hands over the coming decades. I mean, it's terrifying to really think about. And when you talk to people who are working on this, I think they really are calling it kind of a

parallel pandemic that not enough people are talking about. I mean, there are going to be people, as you pointed out, who's seen them you resolve, and it might be kind of like the same you know, long viral effects when you have the flu. You might be tired or have a cough that persists for a few weeks, and some people are calling that long COVID. It may also be you know that some portion of those people go on to have longer term damage that's still hidden. We just

don't know that. We need to be putting more time and attention towards setting it. Lisa, how is the virus evolved from delta through omcom to the subvariants that we're seeing now. It seems like we're in now, I don't know, the sixth seventh wave of subvariant. Yeah, we keep seeing more. Part of that has to do with the lack of vaccinations around the world, giving the virus plenty of opportunity to spread. These variants forms because the virus has lots

of hosts. Another way that the variants form is when they just the right host, So someone who's immun compromise and the virus persists in their system for a really long time. That allows it time to evolve. Is that, you know, something fitter emerges. Right now, we've got three they're circulating. We've got be A two point one to one. We've got be A four and b A five. I was looking at the recent data out of CBC and I think BE A four and five are starting to

really creep up in the US. Something like one percent of cases this week are those two variants. Which I should note that if you're someone who had O macron B A one, the original O macron in the winter and even in the spring, if you had B A one or B A two, you're susceptible to be A four and five. You might not get really sick, but chances are good that you'll get reinfected if you're not being careful. Um, and that brings up the question about those who qualify for a second booster. Is it of

any use against the new sub variants. I think the second booster is always going to help protect you against serious infection. If you're someone that is at risk of serious infection, you should get that second booster. Um. There's so much virus circulating right now. Tony Saucci has COVID. You know, I think everyone at some point is being exposed to this virus, and so if you're someone as high risk, we know that are the vaccine protection wanes

over time. Yeah. Another thing that happened this week was that the US started letting people in from other countries without a negative test. How does it impact the rest of the world and the United States domestically that people who have taken vaccines other than those that were available, say in the US and Europe, will start to mix with each other now that travel is becoming more prevalent. I'm not sure if the fact that they're vaccinated differently

will matter. I mean, I honestly think that it made sense to lift that testing requirement in no small part because people were flying within the US. They're flying domestically without having to test, and we know that the opportunity for spread is great there. But I think one thing that has been a little confusing has been trying to part data coming out of different countries that are better

tracking infections where people have different kinds of immunity. So, for example, we look at data out of South Africa, a lot of people that have been infected over and over again with different variants but haven't been vaccinated. We look at you know, Israel, where Dave vaccinated with the same vaccines we use, but maybe in a little different schedule. That's offering us and good data. The picture is getting very complex as we try to understand, you know, our immunity.

To be honest with you, what do we know about it and whether we should take goodness. So first of all, let me say packs of it is a very good drug for the people that it works in. We only know right now that it works in people who are unvaccinated and are at high risk for getting covid um.

You know, we saw some new data from Fiser yesterday that essentially said we're stopping our study looking at people who are vaccinated and have one risk factor because it's enrolling too slowly, and essentially it didn't look like the drug was helping those people very much, if at all, and so we just we're giving the drug out as part of this Test to Treat program, which the cornerstone

of the Biden administration's current pandemic plan. And basically, if you get covid you can go get tested and immediately be given a prescription for pax leavid if you qualify. However, you know that really means that many, many people who may not benefit from the drug are taking it. A second issue is that we're seeing these rebounds with tax lavid. So people are taking this five day pill pack and at the end of it, they feel better and then

their virus comes back. We don't know if that's because of pax leavid or if that's something that naturally happens when you get when you get COVID and those people that same thing might have happened, But we really need to study it so much to learn. Speaking of which monkey pokses diagnosed, now, is it a real threat as we go about our everyday activities. I don't think it is. I mean, it's not that it's not serious and we

shouldn't be paying attention to it. We should, you know, um, but this is the kind of thing that transmits differently than COVID, you know. I think there was a little fear around some of the media attention to it being potentially airborne. I think most people think that's not a risk. It really is transmitted primarily recently through sexual contacts. So it's important to get that message out in the communities where there are people who are vulnerable and may contract

monkey pocks. It's not a sexually transmitted disease, it's not a SPI, but it is can be transmitted through that kind of activity, and so, you know, I think the focus has to be on contact tracing, making sure communities that are particularly at risk are aware. And then another approach. I think that people are thinking about bring vaccination. So if you've been exposed to monkey poks, you would vaccinate just the people who are close contact to ensure that

it doesn't spread well. And that's the other thing lesa vaccination weariness. I mean, we're coming to the point where it's flu vaccination season again. Is vaccination weariness going to impact the number of flu vaccinations given out this year? Gosh, that's something I'm very worried about. So you tis to provide a little context to the first winter of our pandemic. We were locked down and you know, pretty locked down, and we had very little flu, almost none. It just

never happens that way. And I think people in some of the high risk age groups, most prominently seniors, did a good job getting vaccinated. I think everyone was trying to get some sort of vaccine, that COVID vaccine. But last year, gosh, we had a little more flu. This season has been very wonky, but the fewer people in those vulnerable groups got vaccinated. So we've seen vaccination where rates drop over the last two years, and both kids and pregnant women who are at risk for serious outcomes

from the flu. So I worry, you know, I worry with general vaccine fatigue that people aren't going to go out and get their shots. Lisa Jarvis there. We're now choosing to end all conversations not with you, though, as always we love to hear from you. I'm at Bonnie Quinn on Twitter, or send your thoughts to v Quinn at Bloomberg dot net. We're produced by Eric mollow Until next time on Bloomberg Opinion h