Surveillance: Banks In 4% Rate World

the Bloomberg Terminal and the Bloomberg Business app. Luis Is and Galas of the University of Chicago Booth School calling for an independent commission to look into the FED rights in the following In the last two years, the FED has failed twice. It is failed to see inflation coming, and it has failed to see the banking crisis coming to the nation needs to trustworthy FED to combat inflation. The only way to recover this trust is through a transparent,

independent and authoritative commission whose findings are believable. President Biden should appoint such a commission without delay. Luigian please to say joins us right now, Luigika Mornic. Is it the FED chair fault or is this an institutional problem? I think that that's what we need to find out. I think I fear that it's an institutional problem or the just a German problem. Is easier to replace the German than to sort of rethink an institution. But I think

that is a very consensus institution. So I think the failures were shared and something has gone wrong. Is that a polite website that's too much group think at the fat? I think that definitely is the case. But I think maybe maybe there is more. Maybe they're not inough economists. This is this is I think a low point on the board. I think only half of the PhD so in economics. Now you don't need to have a PhD in economics, but helps in understanding situation like the one

where now, what are they getting wrong right now? I think that they're getting wrong how unstable the banking system is. I think that they have this idea that deposits are sticky, and I think that first of all, we have never experienced in recent time spread of four under business points between what you get on the money market and what you get on your deposit. And second, the WAD has changed.

The posits are mobile, they are really Google say, a click away, and so I think that if the posits move in search of better eels then banks have to realize their losses. The idea of losses automaturity that can stay there and not have any impact, I think is sort of a fantasy. Well, what do you think the FAD should be doing? I mean, at a certain point, this is really the consequence of banks not managing their assets well enough, isn't it. Or do you really think

this really lies with the FED? No? I think that the FED is a huge responsibility of the fact that they should have understood then they couldn't raise rates so fast, because when you raise rates so fast, you're going to impose losses in the bond market. And who's going to bear those losses? Insurance companies then you have to bail

them out. Banks then you have to them out. So unless all the losses are among us investors individual investors, then something happens, and so there was an extra reason to intervene early on inflation said they were very complacent. They said, oh, we have the tools, we're going to do it. We let it go a little bit, but no worry, because we have the tools. I think that their tools were not very sharp, and they should have

recognized that. How much do you think that the banking crisis that people talked about three weeks ago has abated, has really sort of moved from some sort of acute phase into perhaps a chronic question around flows and with respect to credit creation, but not necessarily a crisis. I think it's possible and hopefully that this is not going

to be an open crisis like we've seen in the past. However, clearly put a lot of softness in the banking sect, particularly regional banks, which we need to remember those are the ones who land to small and medium enter prices.

The large banks tend to do syndicated loans or big firms, but the brand and bottom of the economy is with the original banks, and they're very soft, and they see deposits flowing out, and they are not going to make loans because if they make loans and then the posits flow out, they have to solve securities and have to make losses. So I think that the first thing they do for sure is not make new loans, and then probably they're going to try to slowly divest their securities

when they can. We saw there was an article on the ft showing that at the beginning of the year, cash over assets in banks were particularly law and they say this is the cause of the current crisis, and no, no, this is an effect or the fact that we have a withdrawal of the posits, and so banks don't want to divest the securities at the loss. So what they do is they reduce the cash they have the deposits. Let's touch on them. You've been highly critical at the

Federal Reserve. I'll be the last in line to defend the Federal Reserve, so let me be clear about that. But we need to talk about the role of the banks and all of this. You could only credit the and for the way the banks have been run. Look, I think that if you don't expect some bankers to be stupid, you have not learned the lesson. It's just green Span were surprised. Yeah, we're surprised how little people were trying to do the right thing, even if they

had the writing centers. So we learn that people make mistakes. A resilient system is a system that can bear the mistakes of individual bankers, especially when these bankers are not the CEO of JP Morgan. If I go and open an account this morning, if we went out at least for a night and I open a joint account. It's a valance account without Tom's name on it, because we know what would happen to the cash. But that's another story.

They'd probably offer a zero percent one of the big names. Still, we've got Barclays out in the last twenty four hours saying that money market funds could go up another one point five trillion. Do you think they concern right now at the banks is return off capital or return on capital? And can they prevent deposit flight by quite simply just putting up interest rates on deposits. No, they can't. They

don't have the return to do that. If you look at the Silicon Valley Bank, if they had increased their return on their deposits by I think seventy five business points, they would have wiped out all the profits last year. So I don't think that they have a return on assets to justify a higher deposits. That's the conundrum. If the problem was solved simply by increasing rates would be easy,

but they cannot afford to. So you're saying this banking system does not work with rates of four percent plus? Is that basically what you're saying? Yes? So does the fat have to cut interest rates and then we just have that tolerate inflation. That first of all, I think the inflation might not be as big of a problem if we get into a recession. I think the recession would do the job. Now, that was not the plan of the FAT was a soft landing, not crashing the

banking sector. But that's the part that they should have seen. But so let's just put this in a perspective in terms of bad news being bad news, which seems to be the you seem in markets right now. How much is what you're talking about underpinning that that there is an imminent tension that's going to perhaps accelerate some sort of economic downturn because the banking system just is not going to function at these rates. I think that that

is the underlying bad news. Now, this is tempered by the fact that this will come with a reduction in interest rates, and as we know, that compensates some of the problems. So I think that the real tension is the FED will not raise interest rate modes, will probably at some point count them, and that is there going to be enough to transform what is likely to be

a hard lending into a more soft lending. That's the question I think that we are softening up and there will be a lending At this point in my way, there is little doubt. The question is how hard let's finish where we started. The changes you want to say, the changes you want to see over time, But I want to talk about the changes you want to say in the nice couple of months. What would you like

to see announced. From the point of view of the fat of the government for the Federal Reserve, I think that a serious analysis of what are the softness in the banking sector. I think that was a regulatory failure

and the FAD needs to own it and change. And two, I think that be honest about the fact that probably we need to soften up into at rates because the banking crisis is coming, and trying to find way to soften up this banking crisis, especially I think for landing of the mill a small and medium businesses because those are the one affected the most. You said, be honest. It implies that they know, but they're not saying it to truly believe that I don't know what you know.

You can be honest and being wrong, And I think sometimes people believe their own view of the world. I think that I honestly did not understand the twenty five business points increase last meeting. I thought that was just a signal to say, I want to reassure the things are not as bad as they might be. Was not determined by the objective situation. Again, but I've been wrong before, I can be wrong now. I just wonder whether there's a role of regional banks anymore, which are such a

mainstay of lending. I mean, basically under your paradigm. Not really, No, there is a very important role of regional banks because we know that small businesses don't borrow the large distance. They depend on local banks, and particularly also minorities depend dramatically on, for example, minority banks. I had the students who went on the market this year showing how important

is bank ownership in determining who gets the loans. So I think we cannot say we only go with a few large banks, because that means a complete change in the US economy. This was so good. You can promote your podcast what's the code? Capital isn't? What is working in capitalism? And what isn't nice? Where do I find that anywhere? You get your podcast? From there we go. That's perfect. You were that good that. He basically was like, you know, go for it. You have won yourself an

advertising second promo. You'll get in trouble with care for a now given that away, Luigi. Thank you. This was fantastic. Thank you, Luis. She's in Ghanas there of the university. If she can't go to school of business, Wiseman regret my currency strategistic aquarium already, Terry, thanks for VIM, sir, I'm going to see you. This from Towson Slot literally just moments ago in my inbox, he said. The credit

crunch has started. He said, a survey of seventy one banks in the Dallas FED District, done after SVB went under shows of dramatic reversal and nine volumes. The FED survey was carried out from March twenty one to twenty nine. Do you agree with that statement the credit crunch has started. Yes, absolutely. I want to call it a credit crunch. You might want to credit call it a credit crumble, but the

direction I think is un ambiguous. And I would add here that it's not just about the part of leaving the system right deposits can you come out of the small banks and they can find their way into the large banks, they can find their way into money market funds. In fact, the system has a way of recycling those deposits and potentially bringing them back to the small banks, especially if the government leans on the large banks to recycle those deposits, as we saw with the First Republic situation.

I'm not so much concerned about the flight of deposits as the origin ideology of a credit crunch or credit carbal I'm much more concerned with the regulatory overhang. I'm concerned with the fact that Congress is going to be doing compensation call backs, at least considering that for bank CEOs that get themselves or their or their balance sheets into trouble. I'm worried about the more variegated stress tests

stressing the banks for duration mismatches. I'm worried about the banks going back into their balance sheets looking at very and scrutinizing them. I'm worried about the regulators doing the same for the banks. I think that is going to cause an overhang of concern, of worry, of less risk

taking in the banking community. That's what's going to drive the credit crunch or credit crumbled, not the flight of the posits necessarily if there is a flight of deposits, all right, then we're talking about not just a credit crumble, but a real credit crunch. Okay, two questions. One policy consequences, well the Fed does ultimately in the coming months. And to market outcomes, How are you thinking about those two

things now? So the good thing with regard to market outcomes is we've gotten ten year yields coming down, right, and I think to some extent that's supporting multiples. But I'm afraid about the market because if you have a credit slowdown and you have an economic slowdown that follows from it, you're going to have an earning slowdown. You're going to have a revenue slowdown, effectively an operating slowdown.

In the corporate world, we're already seeing that with what happened with the Manufacturing Ism survey and the high Headline Index. When it falls to the levels it fell in the March report, it's typically historically associated with a big declining growth in corporate revenues, with a big declining growth in corporate earnings. It's also associated with negative revisions from bottom up analysts who cover companies in the five hundred and the broader indexes so that's what's in front of us

right now. Now there could be multiple elevation or because of the low yields, which you can't expect the market to do well in the context of downward revisions and earrings, and I think we're just on the verge of seeing that start. Just to sort of underscore your point, do you agree with professors in Galis that this banking system cannot handle rates where they are? No, and I'm going

to qualify it. I would have said something different. I would have said, the banking system cannot handle a very speedy, aggressive and abrupt increase it interest rates to four percent.

If any economic agent, not just banks, any borrowers, any creditors, get accustomed to very low interest rates and expect those to continue, that their behavior is going to accommodate to those low interest rates, and when interest rates rise by a lot, that behavior is going to suddenly be forced to shift, maybe because of what happens in their balance sheets. Duration mismatch with the banks is a good example. So it's not the level of interest rate that matters. We've

had percent interest rates in the past. We've glided through that pretty comfortably, not necessarily associated with a lot of inflation or low inflation. What has troubled me and I think what is troubling the economy right now, and certainly the credit economy, is the rapidity which interest rates ever risen. That is what is unprecedented, not the fact that interest rates at four percent. Translate this into the global market.

A lot of people are looking at signs that perhaps things are cracking a bit more in the US than in Europe, and that things are slowing down as a sign that Europe is strong and go into European assets. Do you disagreed? Do you think that they're just six months behind the US and that they're going to see the sort of tensions emerge in the economy at the same kind of pace based on some of their outside rate high There something to be said for the synchronicity

of business cycles around the world. If the US slows down, it's almost impossible that Europe will completely escape the impact of a US slowdown. But Europe's got a good things happening as well. First, we'll keep in mind that it was in its duldrums and it was in its slump in the fourth and third quarters of last year. So it's coming off a low base, and when you come off a low, you know, you can't imagine that it's

going to be hit hard unless there's another shock. And I have to imagine it's going to have to be more than a credit crumble in the US. China's recovering, that's going to help Europe. Right, there's the prospect that the initial shock of the war through the energy price mechanism has faded. Certainly, natural gas prices globally are low, oil prices relatively low. The things that hurt Europe in the third quarter, in the fourth quarter of last year

are no longer there. At the same time, the things that are about to start hurting the US specifically this credit crunch credit crumble are on the verge of starting that doll a positive or negative. It's dollar, it's dollar negative. There's something to be said for the idea that a global recession helps the dollar. I think that's an old way of thinking. I think I think astolato caters have

gotten more sophisticated over time. They can make distinctions between growth rates and the first order you know, second order growth rates around the world, and comparisons between them relative growth rates. I mean, and when you know We're going to start to see this divergence, indicated by the fact that the surprise index in the US is heading down and the surprising decks and Europe is still going up. I imagine we're going to start to see a weaker dollar.

We've already seen it right in March. We've already seen a weaker dollar. But I think there's room here for the euro to get even higher than break above the one ten level. We're already seen with Sterling. It got above. It's it's um, it's twenty twenty three highs already, right, and the next September and the next and the next, the next shoe to drop maybe dollar yen right. Um. We'll hear more from presently from the boj once the

new government takes over. But these are these are the consequences of effectively of of of the weaker US situation compared to the rest of the world's studing right now, very close to one twenty five. Terry, this was great, Thank you, Terry Weisman there of mcquarie. Jenny Norman joins us now the kind of director at the UCR Center on US Politics. Jenny, can we start there just the difference of approach between the Europeans and the US to tension with China at the moment. Sure, So there's a

couple of things to note here. First, even though the writer reckon US and many policies are very tough on China from both parties, you know, our trade relationship is still the highest ever been with China as well, So it's not just Europe that's keeping that economic back and forth going. That's very true for the US right now as well. And i'd say even Europe is not a

fully unified block on this. Macrone is extending much more open hand than his co traveler or slave underlying, who has been a bit more tough on China and her talk, especially on China's approach to Ukraine. So I would say a lot of diversity between kind of both sides of the Atlantic. But for the US, you know, I would say the fact that Europe is perhaps being a bit more open handed with China, especially through Macrone, could actually

be an advantage. I mean, the Biden administration has had a sort of three prong approach to China like cooperate when we can, compete when we should, and confront when we must. And the cooperation piece has obviously been the trickiest of late, and if you can have Europe keeping that door open, I do think that's somewhat important for preventing what could be again this increasing alliance really between

China and Russia. What we don't want to see is a cold war that's built on a sense of grievance towards the West and towards the US, And so France might be kind of the good cop keeping that door open for the time being, What does that do to US European relations Because at a certain point I understand the good cop bad cop kind of dichotomy here, but this isn't something that US multinational companies can really depend on. And we've already seen reports that Apple is quietly trying

to shift its supply chains. How much does this create a liability for the US and frankly create a real fissure in that alliance. Well it could, But I think again, what we're seeing both the US and Europe trying to do is on couple, as we're saying, in these key sectors, but also just very pragmatically knowing that you can't just

completely cut off this economic relationship with China. So I think we'll see this pressure sectorally, but at the same time recognizing that some trade relations are going to keep going through. So again we see France, you know, probably moving forward on the airbus production on that kind of deal, at the same time scaling back on other kinds of technology where there is more concern around security or surveillance. So I think some of that will be on par

between the two countries. But again, as this essentially you know, deepening a riff between the US and China continues, I do that becoming a bigger sticking point, but I don't think we're quite there yet. John asked me a really good question that I gave a pretty bad answer to just a couple of minutes ago, where he said, did China truly show restraint with the Kevin McCarthy meeting with

Taiwanese president? Is that really what we saw or is there potentially more to come and potentially a bigger and

broader consequence. Well, I think you were right LEAs in saying we heard a lot of right direct from China, a lot of pushback in in terms of verbal comments to this, and there was some movement, you know, one Chinese naval vessel going through the straight yesterday, some Coast Guard activities, but nothing like the war games and military movements that we saw back in August when Pelosi went and you I think, as you note, it's partly because the meeting was on US soil, it wasn't taking place

in Taiwan. The fact that you are having a head of state visit with McCrone having a massive military build but at the same time is not really the best look. And moreover, this is really a long game for China, and I think Taiwanese presidents say was very clear about that when she was making her comments in the US that China is seeing this as a ongoing effort and they're working through all different kinds of tactics to put

pressure on Taiwan, not just military. And so this is something that I think is just gonna be very drawn out, and not just through these big headline grabbing movements that China did back in August. So, Judy, you don't see anything big happening anytime soon from China towards Taiwan. Well, I would say I'm not overly alarmoust about it at

this point. I mean, right now, I think China has a certain interest in not completely upsetting things, especially as they are trying to kind of regain their position in the markets, regain themselves. Econ coming out of COVID to completely upset everything with something very provocative on Taiwan, I don't see right away. But again, all this is I think is much faster moving than many of us thought it would be even several months or a year ago.

So you know, I don't think any of us predicted what would be happening in Ukraine at this point either. So Julie, do you think that banning TikTok or some sort of more extreme measure in the US changes the game. It's definitely putting the pressure on I would say, I think the middle road of banning TikTok on government devices and that kind of thing, it is probably where the US is best suited to sit right now. I think

a blanket ban does get into very tricky waters. One, you just get into a situation of whackamole with any kind of Chinese product that might have these kinds of capabilities over here. And furthermore, it is a bit of a slippery slope for the US to get into to banning to banning platforms, just as China ban some of our platform, so I would say it's a bit of pressure, but I think the US is right to be taking this somewhat cautiously and not moving too quickly on a

get ban. Jenny, thanks for this as OWI said brilliant Jenny Norman at the University College London. I am so glad to help me break this all down. Carra Kadana Marcus three sixty, chief US economist at BNP Paraba. Carl, wonderful to see you in studio. Your first take on the importance of some of this just drumbeat of data

pointing to a softer labor market. Well, as I was thinking about the data dropping before I walked on set, I thought, well, you know, the rule of thumb is claims move up by about ten percent over the prior quarter average. That's often kind of an alarming signal that

you're heading towards recessions. So as I was guessing in my mind, well what would that be, I was thinking about two hundred and thirty thousand, So we're pretty much right there at the kind of level that gets outside of any kind of noise and starts to be more of a meaningful signal. Of some problems. Now that big debate is whether it's a slowdown or a hard stop.

I don't think this is hard stop evidence just yet. Also, I'm just extra sensitive around the interpreting jobless claims in the week weeks around the Easter holiday, basically because that's when school spring breaks happen, and often we see these kind of one off spikes or dips and claims that

get ironed out in the subsequent weeks. So if we're holding at these kinds of levels for a couple of weeks and there's not a retracement, then that would be more alarming to me that we are starting to see the real deterioration in labor conditions that could be pushing us to a much weaker pace of economic activity. Is that enough for the Federal Reserve to really perhaps cut rates, considering that they've been targeting inflation and this doesn't speak

necessarily to progress in the inflation fight. Well, there's some progress in the inflation fight, but it depends where you look, and if you look at the part of the inflation basket that really matters to the Feds, so core inflation, and then let's narrow it even further and look at

core services. You're not seeing improvement to any material degree on that front yet, and that is what is haunting FED policymakers in the backs of their minds, as they realize that is what has to break to really be back on a path towards US sustainable path towards two percent. We are not seeing that in the data now. If the labor market is slowing, that is a key factor that we need to see to move in that direction. But again, one week in jobless claims is not there.

We saw some cracks in the facade in the last jobs report. You saw finance actually looking pretty weak. You saw manufacturing starting to look up a week as well, and so I think those trends will continue. It's not necessarily that tomorrow's jobs report is going to be the key one. Right. The survey week was actually the same week that we had all the stresses in the in mid March in the banking sector. I think it'll take a month or two for that fallout to really start

to show up in economic data. But the direction of travel is pretty clear here. When we talk about what we got in terms of the past week, I want also talk about revisions we just got those as well. They just populated one hundred and forty six thousand. It was revised upward from one hundred and ninety eight thousand. The total number of continuing claims also revised upward from last week from one point is six to eight million

to one point eight million. So this is a couple weeks in a row now that there is an elevated number of initial jobless claims. Is that significant for you that the upward revisions are now the wrong side that we're seeing in my second highlighted the economic data surprise Index earlier on the show, and I think that does tell us something about how what's happening to the data and how forecasters are thinking about the data. Right, So,

you know, there is a moment. We've had this extended stretch where non farm payrolls continually surprise relative to consensus expectations, and it's been going on for many, many months now. Eventually it's going to have to go in the other direction, and I think we're getting close to that point. Again. I think things were too fast moving in March for this to really show up in tomorrow's payroll print, but I think we will see it much more evident in

the second quarter. Okay, you say, well, and actually, before we move on, if we can stick with the theme of data and revisions, something that I think slipped under the radar screen last Thursday was the third print on Q four GDP, which everyone says, it's a third print, why pay attention to it? But in Q four that's our first look at economy wide corporate profits and it's a pretty uncomfortable trend that we see in the economy

wide corporate profits data. A year ago, it was growing something like twenty percent, twenty two percent year on year. In the last quarter, it contracted by about two percent in the fourth quarter, so it's only growing two percent year on year, so a big deceleration. And that profit trend drives hiring, it drives investment, it drives business decision making.

Right now, you can see equity futures lower after that data, just marginally lower for the SMP, but futures on the NASDAC you can see lower by about four tenths of a percent. From your perspective, you said March, the events that we saw last month, I imagine you're talking about Silicon Valley Bank and some of the bank fissures that we saw. How much do you think that that really did change the land escape and accelerate the potential downturn

that this economy could see. Well, we know it's creating some tightening of financial conditions or credit conditions in the economy, and that's going to take some time for that to actually show up in the real macro data. So all eyes are on the Q one Senior Lending Officer Opinion Survey, the SLUICE. Unfortunately, we don't get that until after the FED meeting unless they decided to publish it early, but we'll get little glimpses of what the sluice could look like.

There was some survey data out of the Dallas Fed earlier this morning. Also, we have bank earning seasons basically starting next Friday and then the week after that continuing with a lot of the regional banks reporting, and so probably from those earnings calls in the tone of the discussions, we might get little glimpses of what that sluice will

ultimately look like in early May. How much are you looking at those types of surveys and official data, and how much are you looking at corporate earnings in a way that you hadn't before, not just the numbers, but also the guidance that you're getting from corporate executives seeing things moving in real time and confidence deteriorating pretty quickly

in a fast moving, fluid environment. Often the macro data is slow to catch up, and so you have to pay attention on what is the what is the driver of the narrative at the moment, And at the moment, it is that stress and kind of mid tier and smaller regional banks that really is a primary focus. And so that kind of anecdotal data, whether it's the Beige Book, whether it's bank earnings calls, or just simply reporting in the newspaper and on the Bloomberg terminal about what's happening

in those sectors really becomes that much more important. And that's true for FED officials, it's true for FED watchers, it's true for market participants. Given some of the shifts that we've seen over the past few weeks, how much have you changed your view for this year? So in light of the banking stresses we had, you know, I agree with Chair pale general assessment that now banked credit tightening will do some of the work for the FED.

And so as we modeled that out. Basically we came to the conclusion it was equivalent to about fifty basis points of tightening. So we had a terminal funds call of five seventy five. We dialed that back to five twenty five in light of that kind of you know, looking at through it a couple of different modeling exercises, but one simple way is to look at financial conditions and kind of what has happened in the fallout of SVB. And what's interesting to note here is that a lot

of that tightening has backtracked. Right, About half of the tightening of financial conditions has unwound in the weeks afterwards, where we saw this is not a giant systemic problem that is really you echoing the scary tones of two thousand and eight, but rather it could prove to be an isolated or a relatively isolated incident, So there are

long term consequences. Banks are acting more cautiously. I think we'll see that as a key theme during earning season, but we have to be careful not to over interpret

what's happening. So what's the read through in terms of the real economy and what kind of downturn the economy could enter later this Well, let's go back to the beginning of our discussion, which was that core service inflation is not showing improvement, and we shouldn't expect it to show improvement until we see some softening in labor conditions.

It's very unlikely that we can walk the tight wire, the very narrow path to get to a soft landing in this environment, especially now that we're saying, oh, banks are doing some of the tightening for the FED. It was hard enough to understand the long and variable leg from the FED let alone, now when we have this kind of phantom factor, which is this tightening of bank

credit conditions. So our view is that really to get inflation from the levels they're at down towards a two percent path really will take a recession in the economy to loosen those labor conditions. You see hints of that today. I'm not saying we're there yet. Our view is more that recession would be a second half of the year story that said Q two, we're looking for GDP growth of about one percent, so it's a growth recession ahead of a recession. It will start to feel increasingly recessionary.

We see it in this week's claims data. You saw it in the IM, you saw it in the manufacturing ism. It's just going to, I think, continue to snowball, and just if you're just joining it, just to reiterate, we did see an upside surprise in initial jobless claims for the past week of two hundred and twenty eight thousand. The interesting thing is we also saw an upside revision to the prior week. And I keep going back to

this because it's substantial. We're talking almost fifty thousand jobs that were not accounted for in terms of initial jobless claims last week that was revised and put into the data. So just a sense of ongoing softening. You talked a little bit, Carl about how it's going to feel painful, and the soft landing concept is really not in the cards right now. What is a historical analog in terms of periods of time that we can look to for

some sort of template of what this downturn will look like. Well, that's actually very interesting point that I was hoping you'd bring up. And I think the maybe interesting parallel is continental Illinois. And you're saying what you're wrinkling your brow, and for good reason, right Continental Illinois was a bank failure in nineteen eighty four. It was the biggest bank failure in US history up to Washington Mutual in two

thousand and eight. And of course, as you know, there was no great recession in nineteen eighty five or eighty six, right, we went on till nineteen ninety one before there was a recession. So John yesterday on the show was talking about the long and variable lag of banking crises or banking stresses as opposed to monetary policy, and I think that's very important. People don't remember Continental Illinois. The FED continued tightening, raising the interest rate after the fact, and

the economy did not succumb into recession. So when everyone is just universally saying we're heading into recession because of the banking stresses, you know, then we have to put on our contrarian hat and just think a little bit more creatively. But that episode tells you it's not fate

to complete that we're heading into recession. That being said, even before the bank stresses, our view was the FED is whether it's the banks doing it or the Fed, we have to tighten policy to a point where we start to break the labor market, and that is recession. Calcadana wonderful as always, Thank you so much, it's been too long. Carl Cardono VNP Pariba. We always appreciate us insights. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and

anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always on the Bloomberg terminal. Thanks for listening. I'm Lisa Abramowitz, and this is Bloomberg