Surveillance: Fed Policy with Bullard

gonna get right to it. With Jobs Day coming up on Friday, ism statistics today, all of it coming back down to fellow reserve policy and what is so important understand and folks, this is out at the Arch of Saint Louis on the Mississippi River. It's important when you are a Saint Louis Cardinal and you're on injured reserve. So Adam Wainwright of the Saint Louis Cardinals saying the Star Spangled banner on opening Day for the Cardinals, which

clearly sets us up for next year. On opening day, Michael McKee, we expect James Bullard of the Saint Louis fed to sing Opening Day for the Cardinals. Well, I suppose I could make that my first question Tom to Jim Bullard. He is the president of the Saint Louis FED and he joins us now good morning, Jim. Tom wants to know if you're going to sing the national anthem on opening day next half. I have no plans to do that. Well, as Rosanne Rosenta dat I used

to say on Saturday Night Live, it's always something. We were in the middle of a quote unquote banking crisis and now we've got another oil shock this morning. Everybody waking up to headlines and say maybe we go to one hundred dollars. So, as a FED official, when you see that, how are you reacting well on the financial stress?

I think you know this is a post Dodd Frank world, and I do think that the reaction to the banking problems was swift and was appropriate and both here in the US and overseas, and so I think you know the idea that there are macro predential tools that you can use in that kind of situation to calm things down. That seems to have worked so far. You never know if there's further things happening, but if if there are,

we can react with macro predential tools again. And then on the policy the monetary policy side, we can still proceed to fight inflation and get inflation down during twenty twenty three and twenty twenty four back to targets. So I think you know this idea that you can walk and chew gum at the same time. You've got the macro predential tools for financial stress and you've got monetary

policy to fight inflation. We can do both as long as the financial stress doesn't morph into something much larger. And so far, so good. But knock on wood, you're never sure what's going to be around the corner. But does one hundred dollars oil or the idea at least of this oil shock complicate your job? Yeah, well, of course oil is always the oil prices is always important.

I would have expected somewhat higher oil prices anyway, with China coming back sooner than expected during the first half here of twenty twenty three, and with Europe scurring recession, so both of those and strong data in the US, all of those are pretty bullish factors I would say for the oil market. This was a surprise, that OPEC decision, but whether it will have a lasting impact, I think is an open question. Now you had already moved up your estimate of where the Fed funds rate needed to

be to bring down inflation. You were talking an effective radar around five point six percent. Does this change that calculation at all? And can you explain why you think we need to go that high to hit the terminal rate? I think, well we will need I think we'll need to get over five percent. The committee says that the median person on the committee says a little over five percent. I'm a little higher than that. I think inflation will

be stickier. And you know, I'd look mostly at the core measures of inflation, like PC core inflation or the Dallas Fed trim mean, which really hasn't come down very much at all, still in the four percent range, so, you know, four point six or something like that. So so we're still talking about a lot of inflation, more than double our inflation target on that basis, and oil prices fluctuated around it's hard, it's hard to track exactly some of that might feed into inflation and make our

job a little bit more difficult. Just north of us this morning, in Oakbrook, Illinois, McDonald's has told its corporate officials to stay home this week because they're going to start notifying people that they're being laid off. How concern are you with all these headlines about layoffs coming in that you may go too far? Yeah, the labor market is super strong still, many more job openings, and there

are unemployed workers. I think if a worker does get disrupted today that they should, you know, let's hope and pray for them that they'll be able to get a new job. But it's still a very robust labor market with three point eight percent unemployment. You know, the Kansas City FEDS Labor Market Conditions Index still at a super high level. Jobs reports have been very very strong in twenty twenty three here, so you're really not seeing much

ebbing in the labor market. I think there's structural issues where labor supplies running under labor demand, and that's going to take quite a while to settle down. What are you expecting for Friday the job's reporting? I don't I don't have a number for you, but anecdotal information seems to indicate that their firms are still scrambling for workers. They're doing some other things that are strategies that might slow this down a little bit. There's substituting capital for labor.

That makes a lot of sense in this situation, but I just think that on the whole, they still need workers. Well, if they still need workers and supply is running below demand, that has to complicate the idea of monetary policy, because that's not what's supposed to happen when you're raising rates as much as you have. That's true, although I'm not as oriented towards the Phillips curve as many, But I think the way I would state it is that the

strong labor market gives us headroom to fight inflation. It's a good time to be fighting inflation and trying to get inflation back to target while the labor market is as strong as it is, and even workers that get disrupted hopefully will be able to find a new job and maybe a better job. In this situation, you have

critics around the country and certainly on Capitol Hill. That's say workers are finally getting their share, wages are going up, not quite keeping up with inflation, but much better than they had been, and here comes the Fed wants to squash them down again and cut the wage increases in order to bring down inflation. What do you say to those people, Well, what are they talking about? Real wages have gone down for most people, so the inflation is

hurting them. So inflation is hurting the average worker. So you don't think the FED has a perception problem with America these days. You'd like to get rid of the inflation so that people can get there, get a better labor market outcome, and be able to afford the goods that they have to purchase. So I think there's been a lot of confusion around this issue. It's true that some workers and some categories got more than the increase in wages that more than made up for inflation, but

for many workers that hasn't been the case. They've been lagging behind in real wages. And that's why you'd like to bring inflation under control and get a better outcome for the labor market. Markets have been struggling this morning to figure out what's going to happen going forward with the oil price headlines. But going into this weekend they

were pricing four rake cuts over the coming year. Why are you when wall streets so far apart in what you say is likely to happen, They should listen to me. So here's what I think. I think I put eighty percent probability that the financial stress will decline, and then make that your base baseline forecast. I think that's for low growth, but growth continued, pretty strong labor market and inflation coming down. That's got eighty percent probability. Maybe now

I'd go to eighty five percent probability or something. And then the other branch where financial stress gets worse, you know, then we'll have to bring out more macroprudential tools and it'll be a stressful situation, and all bets are off in that situation. The problem with Wall Street is they've got too much probability on that branch and not enough probability on the other branch. So I think they're going to reprice to the slow growth scenario, and so I

think we'll see this change in the weeks. I had here go back to the banks for a second. In February, the staff at the Open Market Committee presented on the idea of these asset mismatches on bank balance sheets. So you were kind of aware that this could be a problem. Was there something that the Fed missed or didn't do, or should have done to keep the bank situation, we'll call it from developing as it has. I can't talk about what was presented at their home c ME, so

I will neither confirm nor deny that. But my own staff here was certainly well aware of issues with banks. We talked to bankers all the time. We're a regulator of banks, and so we knew that there were issues about let's say, some deposits running off to non bank entities that wanted to pay a higher rate. That's occurring, but I think at a rate that's certainly manageable for

at least for the banks that we talked to. They've got some securities holdings that have lost value as interest rates have gone up, but that also I think is manageable for nearly all institutions. So that you know, they're running businesses and they've got challenges, but they've also they're also petitive, and they'll they figure out ways to manage the situation. I would also say anecdotally that most banks say loan demand is strong, and they actually haven't sentives

to make loans at the higher interest rates. If they can in order to offset some of the older loans that they have that are that are at lower interest rates, well, we got to send it back to Tom. But given how Tom introduced us, you've got predictions for interest rates, growth GDP, the end of the year Cardinals prediction. I'm sure it'll be a great year for the Cardinals. I think they'll win the division and I'll do very well.

Another victory yesterday, so excellent. All right, Tom Keane, we'll send it back to you and the folks in New York given the fact that Jim Bullard is so optimistic about the Cardinals, will take that as a good sign for the economy, we hope. And we like the pictures clock as well. Michael McKee, thank you so much for getting back to a National League baseball Here. James Bullard of the FED, our John G. Wilson and Don lem report here an update on the Blackstone Real Estate Income Trust.

And they're talking about the liquidity the redemptions as well that we're seeing. And to put this in scale, this trust was up eight percent last year. I want to make clear, even with the withdrawal requests they're seeing, they're seeing some rent stability within the Blackstone Real Estate Income Trust. Stay with us. This is Bloomberg Now with the latest

news from New York City and around the world. Here's Michael Barr that high to hit the terminal rate, I think, well we will need I think we'll need to get over five percent. The committee says that the median person on the committee says a little over five percent. I'm

a little higher than that. I think inflation will be stickier, And you know, I'd look mostly at the core measures of inflation, like PC core inflation or the Dallas Fed trim mean, which really hasn't come down very much at all, still in the four percent range, so you four point

six or something like that. So so we're still talking about a lot of inflation, more than double our inflation target on that basis, and oil prices fluctuated around it's it's hard to track exactly some of that might feed into inflation and make our job a little bit more difficult. Just north of us this morning, in Oakbrook, Illinois, McDonald's has told its corporate officials to stay home this week because they're going to start notifying people that they're being

laid off. How concerned are you with all these headlines about layoffs coming in that you may go too far? Yeah, the labor market is super strong. Still many more job openings, and there are unemployed workers. I think if a worker does get disrupted today that they should you know, let's hope and pray for them that they'll be able to get a new job. But it's still a very robust

labor market with three point eight percent unemployment. Uh, you know, the Kansas City FEDS Labor Market Conditions Index still at a super high level. Jobs reports have been very, very strong in twenty twenty three here, so you're really not seeing much ebbing in labor market. I think there are structural issues where labor supplies running under labor demand, and that's going to take quite a while to settle down.

What are you expecting for Friday the jobs reporting? I don't have an I don't have a number for you, but anecdotal information seems to indicate that their firms are still scrambling for workers. They're doing some other things that are strategy. Gee, it might slow this down a little bit. There's substituting capital for labor that makes a lot of sense in this situation. But I just think that on

the whole, they still need workers. Well, if they still need workers and supply is running below demand, that has to complicate the idea of monetary policy, because that's not what's supposed to happen when you're raising rates as much as you have. That's true, although I'm not as oriented towards the Phillips curve as many, But I think the way I would state it is that the strong labor

market gives us headroom to fight inflation. It's a good time to be fighting inflation and trying to get inflation back to target while the labor market is as strong as it is, and even workers that get disrupted hopefully will be able to find a new job and maybe a better job. In this situation, you have critics around

the country and certainly on Capitol Hill. That's say, workers are finally getting there or share wages are going up, not quite keeping up with inflation, but much better than they had been, and here comes the FED wants to squash them down again and cut the wage increases in order to bring down inflation. What do you say to those people, Well, what are they talking about? Real wages have gone down for most people, so the inflation is

hurting them. So inflation is hurting the average worker. So you don't think the FED has a perception problem with America these days? You'd like to get rid of the inflation so that people can get there, get a better labor market outcome, and be able to afford the goods if they have to purchase. So I think there's been a lot of confusion around this issue. It's true that some workers and some categories got more than the increase in wages that more than made up for inflation, but

for many workers that hasn't been the case. They've been lagging behind in real wages. And that's why you'd like to bring inflation under control and get a better outcome for the labor market. Markets have been struggling this morning to figure out what's going to happen going forward with the oil price headlines. But going into this weekend they were pricing four rake cuts over the coming year. Why are you when wall streets so far apart in what

you say is likely to happen? They should listen to me. So here's what I think. I think I put eighty percent probability that the financial stress will decline and then make that your base baseline forecast. I think that's for low growth, but growth continued, pretty strong, labor market and inflation coming down. That's got eighty percent probability. Maybe now I'd go to eighty five percent probability or something, and

then the other branch where financial stress gets worse. Then, you know, then we'll have to bring up more macro prudential tools and it'll be a stressful situation, and all bets are off in that situation. The problem with Wall Street is they've got too much probability on that branch and not enough probability on the other branch. I think they're going to reprice to the slow growth scenario, and so I think we'll see this change in the weeks. I had here go back to the banks for a second.

In February, the staff at the Open Market Committee presented on the idea of these asset mismatches on bank balance sheets. So you were kind of aware that this could be a problem. Was there something that the FED missed or didn't do, or should have done to keep the bank situation, we'll call it from developing as it has. I can't talk about what was presented at their homes, so I will neither confirm nor deny that. But my own staff

here was certainly well aware of issues with banks. We talked to bankers all the time, where a regulator of banks, and so we knew that there were issues about let's say, some deposits running off to non bank entities that wanted to pay a higher rate. That's occurring, but I think at a rate that's certainly manageable for at least for

the banks that we talked to. They've got some securities holdings that have lost value as interest rates have gone up, but that also, I think is manageable for nearly all institutions. So that you know, they're running businesses and they've got challenges, but they've also they're also competitive, and they'll they figure

out ways to manage the situation. I would also say anecdotally that most banks say loan demand is strong and they actually have incentives to make loans at the higher interest rates if they can in order to offset some of the older loans that they have that are that are at lower interest rates. Well, we got to send it back to Tom. But given how Tom introduced us, you've got predictions for interest rates growth GDP, the end of the year Cardinals prediction. I'm sure it'll be a

great year for the Cardinals. I think they'll win the division and they'll do very well. Another victory yesterday, so excellent. All right, Tom Keane, we'll send it back to you and the folks in New York. Given the fact that Jim Bullard is so optimistic about the Cardinals, will take that as a good sign for the economy. And we like the pitcher's clock as well. Michael McKee, thank you so much for getting back to a National League baseball. Here James Bullard of the Fed. Right now, the big

deal is to speak with John Writing. He's a chief economic advisor at Breen Capital, and there's any number of ways ago here to go here, John, I want to talk with James Bullard of Saint Louis. I'm going to say you have been in the camp with Bullard looking for some form of not sustained inflation, but that the inflation worry won't go away. Bullard making clear we're putting too much focus on the banking crisis and not enough a monetary policy. One oh one. Do you agree? I

do agree. I think it's very important to you just realize that the US is a very strong capital markets and banking system, and it's a very different situation than back in two thousand seven, two thousand and eight, and the financial crisis that took down bear Stearns, Lehman Brothers, AIG. It's a it's a very different world. So I think there is too much focus on that. The responses have

been very swift, very strong. We can argue what the r origins of this is, but we do know that in effect there's an implicit guarantee of all deposits, regardless of deposit insurance. There's some reform that needs to be considered later, but that was essentially what Powell promised the last FMC press conference. We're going to rip up the script here with John writing, who lived the bear Stearns crisis.

I would say one of the great themes right now, John, is it James Diamond standing out front of your bear Stearns headquarters on that tumultuous day. His hindsight is he made a massive mistake. Are we repeating the foibles of bear Stearns and Lehman Brothers or we learned our lessons over fifteen years? Well, I think we've learned some lessons. There's no doubt about it that the higher capital levels, the stress tests have done a lot to strengthen the

underlying banking system. But you have to have significant questions about how that was implemented by supervisors, because if you look at the case of Silicon Valley Bank, they had over fifteen billion dollars of losses in their health to maturity portfolio, which doesn't get run through the P and L statement, doesn't get scored against their capital, so they had almost all of their capital. The size of their capital was almost the same magnitude as the size of

their losses in the health to maturity portfolio. Now, you can only hold something to maturity if you have the funding to hold things to maturity. And that's where there is a similarity to two thousand and eight, which and in many ways what happened there was so much faster. But we know how to fix bank runs. Deposit insurance fixes bank runs, and we've had that. We've had some stabilization in the situation there, and the banking system as a whole looks very different rims of the size of

their health to maturity losses against the overall capital. I only get back on script here because the time is so important, folks for just joining us on the radio, John writing and bring capital with us this morning. And John, I've got a dovetail two themes this week, and one was Adam Two's is phenomenal essay in the ft, alluding to the delusion or the imagery, the illusion that nominal

GDP gives us. You've written about this for years and I pull it over to Dominic constant X credit suite now maszooo and the idea of we've got an odd nominal GDP because inflation is set high, we have a certain form of restriction. And then the Constant's phrase, are we super restrictive right now? All the dynamics that are going on? Does Powell have a restriction he didn't expect. Well, let's start with one definition restrictive, which is do we

have restrict in monetary policy? And I don't think that you know, the fetch seeking that sufficiently restrict level of policy. I don't think they're there, ye, I mean, Jim rightly, rightly pointed out that the underlying inflation rate is in the force, and he cited the Dallas fed all the other measures pretty firmly in the mid four percents, which means that interest rates, the policy rate adjusted for inflation,

that's only barely turned positive. Now there is a question how much does a credit tightening have an impact here and does that substitute for additional rate hikes. But Jim also said that loan demand has been strong, so we have to see how that plays out. But when I said we've you know, the USC's twin markets, where that if the banking system has issues, there's still the capital markets.

In many ways, this is the reverse of the long term capital episode back in nineteen ninety eight, where the capital markets froze up and the banking system was there to lend. So we do have to remember that there were banks as well as small banks. The big banks will get bigger out of this as they did out to the less financial crisis. They'll be i think, willing to lend, willing to take market share. And then there's

also the capital market. So let's look at things like the NFIB survey and see if the availability of credit becomes a constraining issue on businesses. It hasn't been up until this point major concern for them. We don't have to turn us into a history lesson Steve Leesman with a great essay He's over the death Star. Steve Leesman with a great essay years ago. Neo Viccellian theory and we don't need to go back to nineteen ten nineteen

twenty theory. But what we have here is a whole body of people, John, who have never lived in a normalized interest rate environment. I want you to speak to our audience on radio and television that have never lived Oh, that's the way the yield curve should look. Oh, we're going to get out to the oddity of a normal rate environment. What's going to be like? You know, it's very funny referring to Steve Leesman's essay because that came out of a conversation that I had with Steve and

we were talking about Vixcel before it became popularized. This concept of the natural rate of interest. Now, the FED has argued coming I'd work from John Williams for a long time, that that natural interest rate of interest has been depressed and became very low secular stagnation. Yet if you look now in the markets, the markets are saying real interest rates are going to be positive at a significant level for the next decade. We got as high

as one point seven percent. That was maybe a bit high. We were around one on a quarter percent at the end of last week. So if you have a real rate of one on a quarter percent, and you got to get inflation down. But right now you're talking inflation running underlying terms of four and a half percent. Where does that long term rate of interest belong right now? The where does it below? Would We're gonna run out of time? And this is critical Ken Rogoff's in the

camp with you versus what Olivia is saying. We're gonna talk to Olivia Blanchard at the IMF meetings here in ten days or so. With that said, where is your new two percent level? Does it have to be elevated higher? As Adam Posen says, well, what I think the Fed has to raise its long term neutral rate of interest from half a percent adjusted for inflation to something more like one one at a quardum percents where the markets are.

I would say that as a long term interest rate, allowing for inflation and certainty, probably should be thinking four percent. You're a four percent anchor for the ten year um, and I'm probably for the funds rate going forward. This idea that two and a half percent so are long run neutral rate of interest? I think it is an outdated concept. Okay, John writing with us today, very good let us move on into the second quarter of two

thousand and three. In the equities base. We do that with Laurie Kelvacine ahead of US Equity Strategy at RBC Capital Market. It's a sensitive kelvas you know, over the weekend saying that the stock market is healing. We're all healing, Laurie, how injured were we and how are we healing right now? So look, I think that what happened with SBB was a shock. I mean, and that's obviously you know, what

everybody said at the time. But you know, those companies in particular were very well owned over time in the small and MidCap community. There are a lot of longer leading reactors that need those companies quite well, you know, sort of prior to the crypto era, prior you know, to the kind of most recent version of the tech bubble. And I think it was just an unanticipated, you know, kind of mini black Swan event, and you've had a lot of investors to sort of staying quiet, digging in

their heels, doing work. And what we know is that sentiment indicators were already pretty depressed starting to recover a bit. And if you look at AAII for example, it shot right back down and kind of went close to GFC type levels. Now, the brunt of the pain was obviously taken in the banks. Small caps were one of the babies, I think essentially thrown out with the bathwater because of their cyclicality and because of that bank's exposure. And what we saw over the past week was that the banks

and the small caps performance really stabilized. And I think that's important because the banks are the problem child essentially of this crisis. If you look back to two thousand and two, what we saw was at the NASTAC one hundred really started to stabilize after the World Com bankruptcy. And that's very different from what we're like banks to the problem child at the GFC n O eight after

the different bankruptcies and collapses there. So I think the market is telling you that investors are starting to exhale a bit, even if they're not breathing easy just yet. What's critical here, Laurie, is if I take three groups of MidCap small cap I got the growthiness crew, very small group, I've got everybody else, and I've got the value trap of banks. Where do I put new money today? Do I buy the banks? Is a value proposition or are they a trap. I think time is going to

tell on the banks themselves. I think if you talk to Gerard and if you talk to ARC, they would tell you there's longer term value being created. But we do need to see a little bit more time to see the dust settle. I think if you look in small cap, though, banks were not the only things that were cheap. Energy was very cheap on a relative basis to both the R two and the big cap names.

A consumer discretionary was something else that really jumped down a dust in recent months as being very undervalued in a small cap space, but still looking quite expensive frankly in the large cap space. So it might be more of the time now to be a stockpicker in small cap as opposed to buying the index. But I do think there are bargains down there to be had, especially if GDP data and earnings data continue to forecast a recovery.

In twenty twenty four, Laurie, after we got Silicon Valley banks demise and some of the other banks that really ran into trouble, a lot of people said this is a game changer. It potentially does shift the narrative quite significantly. Is the OPEC plus news that we got over the weekend similar. You know, it's interesting I was thinking about

that at this morning, Lisa. You know, especially in regards to the inflation narrative, I think that they are sort of offsetting forces with one another in terms of the inflation debate right now, whereas SBB may have, you know, sort of put cuts back on the table in a bigger way. We obviously saw interest rate expectations ratchet down.

Now you may see those, you know, kind of come back up a little bit, probably not to the same degree, but if you sort of put those aside, I'm not sure that there has been a lot of change in terms of other issues right now on the inflation debate. We know the services sector is weakening. We know that layops are probably gonna keep wage growth in check. We know that CFOs from the Duke survey last week are talking about how prices and wage growth are both going

to come down this year and next year. Their optimism is really waiting for both this and next year. So I feel like the sources of inflation are generally on the mend. And now we've kind of got these two other big issues that are offsetting each other. I'm not sure I would call each of them game changer, but maybe major detours. So what is you here at the beginning of the second quarter? What are your twelve months

lifting equities? So we don't do twelve month forecast, but we've still got our year end target for December thirty first, and that we've still got forty one hundred, and we feel like that's a nice base case in here. We have done some valuation work which suggests there could be some upside from that. I think to really get downside from that, you've got to assume that there's a recession that bleeds into twenty twenty four, and I don't think

the case has been made for that yet. Laurie Chalvasina, thank you so much, greatly appreciate it. With RBC Capital Markets this morning and Ed Morris Press this morning, Ed you divide into west of Suez Canal. In East of Suez Canal, I want you to talk about the power of this coalition around Saudi Arabia with the Strait of Hermus and onto the Straits of Malacca in Singapore. What power do they hold? Well, the power that they hold is an ability to cut and an ability to add

oil to the market. And that's pretty incredible because it's a group they have shut in capacity that's well over two million dollars a day, and they're coming off a banning here in terms of revenue generation. That's it's something they want to keep. And if they want to cut million dollars a day, they've just shown that they have the power to do it. I literally have on my coffee table at at home another firms analysis to over one hundred dollars a barrel, which centers on em recovery

and China recovery. You were brilliant in calling for lower quissent Brent crude prices. Do you need to reverse this morning and to begin to consider one hundred a barrel oil? Well, we're considering higher prices than we otherwise had. And yes, there is a scenario of one hundred dollar barrel oil,

but I don't think we're anywhere near that yet. To get to one hundred dollars oil, we'd have to have significantly more taken out of the market and have a lot of uncertainty based on that oil taken out of the market. That is to say, it would come from a destruction to supply in countries such as rand Iraq, Libyan, Nigeria altogether at at the same time, and we would have no sense because of the domestic situation in those countries of when that oil could come back into the market.

We have what we consider to be an effort to prevent the repeat of twenty twenty eight nine, when we had oil prices collapsing from one hundred and forty seven to the low forties before getting to a normalized level of ninety dollars a barrel. It took about a year and a half to have all of that display work out, given financial flows and given the uncertainties in the market. We have the financial flows now and we don't have quite that level of uncertainty. We know that supply is

definitely coming into the market. I believe strongly that the increase in prices that we've already had is going to place a US production on a higher path to growth

than we otherwise might have had. And we think we're thinking that on first plus, looking at everything at the moment overnight, that we're going to have a fairly balanced market of market that's going to be plus or minus a couple hundred thousand bars a day, no big inventory build, no big inventory draw and on the demand picture that you were looking at, I have to say we flatly disagree. We think we're in a period of time when we're seeing demands last hurrah. We're seeing, to be sure, growth

in China that's formidable. It basically makes up for the loss of demand growth demand decline in China a year ago. And we don't think after this increase in demand from China we're going to see a Chinese demand ratcheting up much further. Yes, there is em growth and India leads, but that's that's going to be in the three or four hundred thousand barli day range, not a million bari

day range. Ed. Can you frame out then how much of a surprise this cut was, which was on died and comes at a time where some people are speculating that it was politically motivated to send a message to Washington and to possibly boost oil prices, meaning more cuts down the road if it doesn't work. Now, I think

it was definitely designed to boost oil prices. They countries will just looking at sixty dollars oils straight on and yes, they've seen a rally based on a whole bunch of things that they consider to be temporary, not permanent, And yes, they want higher oil prices. Or the countries that we were looking at, particularly Saudi Arabia has a significantly higher pistol break even than a lot of other countries, and they're more comfortable with oil certainly with an eighty dollars base,

and not bad with a ninety dollars base. They didn't see too much in the way of damage to the global economy at ninety dollars of barrow last year. I don't think we're staring in the face of one hundred. We're certainly flirting with a market which could see a more demand in the spring and summer than we otherwise thought might be. But I think the price is going to cap demand and we're going to see you know, we were looking at a world of around add one

point four one point five million varil to day demand. Yes, OPEC at a higher level than that, and there was some political factor I think involved in their own very type or a supply demand balance. Even in their last report, this goes against that and says, hey, there's something going on, and I think it's a defense that's going on. They want the higher oil prices. They need it in order to revamp and reinvest in their economies as rapidly as possible.

But they have no better interest than a hundred dollars oil than most other countries too. They don't want to see a demand decline. They want to prevent the drop of one hundred dollars that we saw, or a drop of more than fifty percent in today's market that they saw in two thousand and eight, but quickly, but quickly, just based on what you're saying. If they want higher prices, and perhaps eighty dollars is the floor, maybe ninety dollars, then what's to stop OPEC plus from cutting further and

further or even as the economy slows. There are a couple of things that stopped it. One is that the economies would slow a lot faster than they're now slowing, and they don't want that to happen. They understand fully well that Chinese growth is not exploding the way people thought it was. You look at the numbers. Yes, there was a million barrels a day of growth, but that was Chinese New Year, and that always happens. There's nothing about this particular rebounded in China that you can get

reinforced in your view by what happened. They're really concerned about a drop in oil prices. They just looked at a drop to the sixties and they're looking back at two thousand and eight nine, and I think they made a terrible judgment on that. They think they'll find out that that judgment was terrible because this is not two thousand and eight nine. In multiple ways, do you give an okay score to the Biden administration? They seem to be a pinata, even pro anti oil whatever. Everybody's beaten

up on our president's energy policy. Are you piling on? Are you beating up on President Biden's energy policy? Well, yes, certainly, and certainly. At the beginning of the administration, there was nobody, virtually nobody in the administration that came out of the markets anywhere in the world. There are all people coming from academia, people coming from a very strong pro environmental, anti fossil fuel bias, and they didn't really understand markets.

They were forced to understand markets. They've gained a lot better understanding of markets. We've just seen a reopening of bids on federal lands. This legislation that's going to assure that, and they know in the White House that they don't want to see a higher gasoline prices. And the way to do that is by having the USB the strong

power that it is. As by the way, now the world's largest GROS exporter of oil at a country where demand has already softened tremendously, where a demand is down well over a million barrels a day year on year, in our economy is not in bad shape. So we're seeing a transformation at all where we've become kind of a critical swing supplier, and Saudi Arabia is very very sensitive and aware of that. Ed thank you so much for joining us. Edward Morris a city group here on

the Shock announcement from OLDPEC Plus. 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. I'm Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can watch us live. I'm Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keane and this is Bloomberg,