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Olivier Blanchard

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18
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2022-09-20
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2022-09-20
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  1. “In supply constraints. And I think we're seeing that in measures like supplier deliveries and the PMIs, but also more anecdotally, if I go around and talk to corporates, there is definitely a lot more sense that a lot of this has unclogged. Still less clear on the service side. Probably we're seeing some deceleration in rent inflation, but in part for statistical reasons because of the way that these numbers are constructed, it's probably going to take a lot longer to bring Randon owner's equivalent rent to more normal levels. There are some tentative signs of deceleration in wage growth. There are some wage surveys that the Federal Reserve Banks and other organizations like the National Federation of Independent Business run that point to some deceleration. But at the moment, it's way too high. A lot of these things are pretty tentative, but it's more visible than it was three or six months ago. So, yeah, I would say I have gotten.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  2. “The slowdown in growth to a clearly below trend, but still positive pace is much more of a fact and less of a forecast than it was earlier in the year. And I would say our other indicators would also say slow but still positive growth. Obviously, there is a question how long that persists. We need a longer period of the low trend growth. So it will be important to maintain that. But at least we've made that transition. Number two, at a much earlier stage, we have seen some signs of labor market adjustment. And then lastly, we've seen some improvement in the inflation indicators, a lot of declines in commodity prices, which have yet to feed fully through to CPI, big dollar appreciation that has yet to fully show up in import prices and then ultimately in consumer goods prices and a lot of improvement.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  3. “Recession probability is about 30% over the next 12 months and close to 50% over the next 24 months. But I've become a little more confident that we'll manage to pull off a soft landing just because we're seeing some signs of progress in a number of places.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  4. “Yes, because a large part of the inflation that we did see was driven by forces that are temporary in nature and that are now abating. Goods inflation is clearly abating at the moment, could obviously pick back up again if we saw another surge in energy prices. But the supply constraint part, I think that is behind us for good dollar appreciation probably could be with us for a while longer. And then on the rent side and service side, I think we're also seeing early signs of encouragement on all that is still with a sub 4% unemployment rate. Is that going to bring us down to 2% or 2.5% or 3%? There are important differences between 2.5% and 3 at 3, I think the Fed would still be probably inclined to tighten somewhat more. At two and a half, I think they'd probably be fine.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  5. “The numbers on inflation are going to be quite good in the next few months. Now, the Fed knows that's not enough. It's not going to get you to 2%, but it can say, look, we started, we've done a good job. We now have maybe 4% or 5% at the end of the year. We don't need to basically kill the economy. We're just going to do it more slowly. And if they can do this and not lose credibility, and if they give up on the target of 2% and are willing to go to free, then these are parameters they can use. time to get there where to get to such that maybe they avoid a recession but suppose that we actually have to go to six or seven then you do the same computation and the only way to avoid a recession would be to decrease inflation of the three or four years which the fed is not going to be willing to do because credibility so if it turns out that what we need to do is 6% then I just don't see how the Fed will be able to”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  6. “Don't think any of us knows, but one can do that of the envelope. So take the optimistic assumption that basically we have to go to 5%. We are 3.7%, so we need 1.3 more. So then in terms of output growth, we have to use the so-called Oakens coefficient too, which means that in order to increase our output by 1.3%, you have to decrease growth relative to normal, like around 3%. So if you think normal is a bit on the low side of rate, then you get the result that if you want to do this in a year, then you probably have to have a recession. Now, what the Fed has is some leeway in how long, how slowly it fights, right? Can be a really strong fight right away. It tries to get to 5% unemployment within a few months, or it can say we go to 5% in a year and a half. My guess is because commodity and energy prices have stabilized, sometimes.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  7. “Gave you. The third factor is inflation expectations. If for some reason people say we don't believe the target of 2% anymore, but even what has happened with our belief four, then you'll have to have higher unemployment in order to convince them. But it's two. So if you add all these factors, the first one implies that we have to increase unemployment to get to the natural rate. And the other two say that unless there's a sharp declining in commodity prices, energy prices, we need to go above that. Well above is, I don't know that I wouldn't be surprised if it was 6%, for example. If you ask me what probability do I put on 7%, I would feel bad saying that it's probably positive, but it might well be positive. But if I had to make a median forecast six,”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  8. “Firms to share becomes smaller. And so none of the two sides really want this to happen. So the firms increase prices in order to reflect the fact that some of the intermediate inputs are higher. The workers see that, and if they're in a strong position to bargain, then they say our wages are lagging behind. And we want an increase in wages. And then the firm say, sure, we'll give them to you. But we're going to reflect that in our prices. And then it keeps going. And as long as either the commodity prices or the energy prices remain high, then that fight is fair. And inflation is the outcome. If no side wants to give in and is strong enough not to, then it goes on forever. And what has to happen is unemployment has to increase. So that second factor clearly has played a major role. It says that the unemployment rate that we would need today to avoid that would be even higher than the 4.5%.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  9. “I wish my answer is I wish, but the answer is no. So I think there are three factors behind inflation that we have. The first one is if matching is worse in the labor market, this means the natural rate is higher because you basically mean more unemployed and more job vacancies too match. I think it's safe to say that pre-COVID, we were probably at the natural rate, right? So we were at 3.5, say, right? And if the computations that I've done with Larry Somers and Alex are right, then presumably the natural rate is probably a point higher, so say 4.55. Today we are at 3.7, which means that the economy is overheating. So that's the first factor. That's putting pressure on inflation. The second factor is commodity prices, energy prices. And I think it's useful to think about why it is that it generates inflation. Well, it does, because when this happens, overall pie for workers and”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  10. “Not really that concerned. I think these things happen in stages and the deceleration in growth only happened really over the last couple of quarters, Q4 2021 was still very strong and it takes a while for these things to show up in part because of data reporting lags. I think it's very hard to be confident of what the timeline is going to be on this, but I wouldn't say that we should have seen a lot more.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  11. “On how deep the downturn in growth and in demand is going to be. If where we are now, which is modest positive growth of say 1% or so, if that is only an intermediate stop on the path to minus 2%, then I agree. Then you probably would see more significant layoffs. But I don't think there's any law of nature that says once you've gone to a 1% growth pace, we're going to have to see minus 2%. I don't really see that as something that has to happen Don't think that necessarily follows.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  12. “And I think that in that environment, this really unusual increase in job openings as the labor market moves to a lower level of utilization can unwind. A way that is very tilted towards job openings and not as tilted towards an increase in the unemployment rate. There are some early indications that things are improving. The job openings rate is down four tenths of a percentage point, even after the somewhat surprising increase that we saw in the July numbers, four tenths decline in the job openings rate is actually the biggest we've ever seen outside of a recession. We've seen a decline in the quiz rate. Employment growth has decelerated in a smooth fashion. So I think we're on a path that is certainly consistent with the idea that we're going to be able”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  13. “Broad level, I would say. that we had an incredibly unusual environment in 2021 We had the fastest GDP growth rate relative to potential in at least four decades, extremely rapid recovery and output. Still a lot of constraints on supply, labor supply in particular because of the pandemic, because of the unemployment benefits. And obviously a lot of supply issues more broadly in global supply chains. So it became a very tight environment and firms, I think, scrambled to post job openings because they felt that they were just not going to get enough workers to deal with all the work that was coming in the door. And so now we're in a post pandemic environment in which A lot of these things are reversing. Demand has slowed very significantly and supply is improving, probably will continue to improve somewhat.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  14. “I think what we're seeing is something which is well known, which is that when things turn around, when typically vacancies decrease first and then unemployment increases later. So you have a few months typically in which it looks good. Vacancies come down on unemployment may not move much. But eventually, and again, for the reasons we've discussed, at some stage, some firms who were not hiring in the first place are gotten too staring off. So I think what we've seen in the last two or three months is that now the issue is that we keep seeing the same numbers, namely job vacancies decrease and unemployment does not increase. Would I worry? I would. And if I saw that for another three months, I would very much worry that I'm wrong. So we have to accept the fact that it takes a bit of time. But within six months, I have no doubt that we'll have an increase in unemployment. The facet does what I expected to do.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  15. “Workers are working somewhere else. I would not be surprised if there was a bit of a shift back, but so far we haven't seen much. And it seems to me that the shift is there for some time. In the past, the big shifts have gone and stayed. It took 10, 20 years before they went back to something else.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  16. “So he should ask me a year and a half ago. I would have said, yeah, I'm almost surely there are strange things happening in the labor market. You have a need for very sharp relocations of labor to come in to lockdowns and so on. And people have very generous unemployment benefits. And so all this together may explain why it's both hard to find people and people are not eager to take the jobs. I thought at the time that would come and go when unemployment benefits came to an end or the checks were spent. The fact is we had not seen it at all. And my sense is we still are in a world where people have changed the way they consider jobs. So you have a job interview. The firm loves you, but you don't love the firm and you just don't take the job. There's still a lot of intersectorial reallocation. We all know the stories of art restaurants and their inability to find workers and presumably”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  17. “The issue is where the level of vacancies or job openings, which we've never seen before. So we are outside the realm of what we've seen in the past. So anything can happen by definition. But leave aside the math and the graphs and everything else. When firms have lower sales, what do they do? They do both, right? First, they stop hiring or they slow down hiring and the layoffs. Now, it may be that they start by decreasing hiring because it's easier to cancel your interviews than laying off people, but you do it at both margins. There are some firms which are going to do it mostly one way, other firms which are going to do it mostly the other way. The firms which were not hiring to start. I have no choice. But if you think about what a firm does, it is absolutely obvious that in general it's going to do both, which means yes, there is going to be a decrease in vacancies and there's going to be an increase in unemployment.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT

  18. “There seems to be a hope of some immaculate conception outcome in which basically job openings decrease and unemployment doesn't increase. It will not happen. There are two reasons. It has never happened. We've had many turnarounds each time vacancies decreased and unemployment increased. No exception, right? So that's fairly strong evidence now.”

    2022-09-20 · Goldman Sachs Exchanges · Will Slaying Inflation Require Recession? · IDENTIFIED FROM THE TRANSCRIPT