Central banks, inflation and the rate hike gamble

Hello everyone, thank you so much for joining us today. While we head into the next round of central bank meetings against a backdrop of some significant moves. In the bond market, yields have risen on fiscal sustainability concerns. heavy government borrowing, heavy borrowing from the hyperscalers, which has created this competition. the capital. And of course, we had that International from US Treasury Secretary. But this isn't just US story. Yields on German funds have risen to the highest level in 15 years. UK gilts are at the highest since the financial crisis. And even in Japan, we've seen bond yields rise to the highest level since 1996. That's all the way back when Alanis Morissette's Jagged Little Pill was. Topping International charts. But central bankers, they ought to know what to do about this, right? They ought to know how to... fix it but maybe not because they've got to assess the inflation backdrop, the underlying data. and in US they've got a look at the jobs Markets well. So we'll be trying to make sense of all this for you. today with our experts. We've got Pori. Garvey, who is our head Research. in the Americas looking at the bond markets. Chris Turner is here to give us the outlook for... the FX market. He's Global head Markets. We've got Carson Brzeski. who's Global head of Macro in Frankfurt looking at the ECB. And then here in the room with James Knight. is our International Economist,. looking at the Fed and James Smith, who's Developed markets Economist,. looking at the Bank of England. I'm Rebecca Byrne. If you've got a question, there is a questions tab. do put it in there and we'll come back to them. later on. But let's get straight to a a poll for you. Do you expect US tenure yield to breach 5% in 2026. It's currently about 4.8%. So So put your answer in there and we'll come back to it. But let's go straight to Padhraic. Padhraic I just mentioned there why yields have risen, but actually... We've been looking at rising deficits and inflation and heavy government borrowing. for many years. I actually, just before this webinar, I was looking at a... an article I wrote back in 2003 about Bush's tax cuts and how they would add to the deficit. And here we are, over 20 years later, still worrying about it. But why now? Why are we seeing this synchronized rise? in yields Developed markets. Yeah, good to see you, Rebecca. Bond Markets... very strange beasts sometimes they they they observe they watch their weight they see stuff that they probably should be reacting into what they don't react. and other times they're super flighty. I mean, ask Liz Truss about how that feels. But I mean, to answer your question, Rebecca, I just want to add a little bit of context. I want to take you all. all the way back to the pandemic. So we got back in five years. The pandemic shocked Global system into generating inflation. and in some cases they've forgotten how to generate inflation And it was also very expensive. So we came out of the pandemic with high inflation. and high fiscal deficits. We roll on over the following few years. And inflation never really landed in US. It kind of did in the Eurozone. We come into 2026, we have the Iran. war and suddenly we have inflation of 4% in US. 3% in the Eurozone, which is not acceptable from an ECB perspective. And we're reminding ourselves that last year... Japanese inflation hit 4% and we have fiscal deficit issues. We have wars. We have the requirement for more spending. by European governments in particular. And the bond Markets decided, okay, Enough is enough. We need to react here. We need to reprice ourselves. One other thing, Rebecca, Japan. Japan generated no inflation for long time. we hit 4.2%. For the third year, JGB yield about a week ago, 4.2. unbelievable level. And at the same time the Japanese yen was selling off, the reason that was happening was because the BOJ j had rates too low so there is that particular idiosyncratic pressure for of Japan, but for the rest it's a lot of inflation and fiscal issues. Okay, we'll be looking a bit more about on Japan in a little bit with Chris. We'll be looking at dollar yen. and the International there. But Padhraic, you argued that this rise in yields is actually, it's come from the real yields, not the inflation. parts. Does that suggest that investors are sort of demanding greater compensation for geopolitical fiscal risk. Or is it that their pricing is structurally stronger? economic outlook. Yeah, it's interesting, isn't it? Because if you were to look at the 10-year Treasury yield, It's now at 4.8, Rebecca, as you said. It was at 4% before the war started. And if I was to say to you, why... If you were to tell me that the 10-year Treasury yield rise from 4% to 4.8%, you'd probably say to me, well, because of the war, because of inflation, and that's fair. What's interesting is that if you look at the breakout of the 10-year Treasury yield, what you find is that inflation expectations are actually fine and it's all been arise in the real yields. Now, the rise in the real yield can happen for good reasons and for bad reasons. The bad reasons would be deficit pressure. where investors are simply demanding a higher real yield. to hold paper. So I think this is a supply element. The other thing is, if you remember about six weeks into the war, we were looking at each other and asking ourselves, why? Why are risk assets so strong here? And the reality is risk assets were strong because Copland Americas super strong. We're going through an AI revolution. That means higher productivity. I can't show UK graph of higher productivity, but it's happening. I think Markets knows it's happening as well. And there was a theoretical link between higher productivity and higher real yields. And would say that's a positive factor. for higher real yields. But absolutely, it's been the dominating force. behind the rise in nominal yields. It's all about higher real yields. Okay, we asked our audience if they expect ...yields a 10-year to breach 5%. The results are in. 68% of you think it will reach 5%. 32% think no. Padhraic, you wrote a recent article talking about a tipping point what would that tipping point actually look like to you? Yeah, and by the way, I would agree with the majority there that there's an inevitability about going above 5%. So Again, a bit of context. I don't think we've hit a tipping point. point yet with the maybe the exception of japan As I mentioned 4.2%, that is super high. But if I look at the Hey The 10-year yield in US is 4.8. That's, I would say, 30 basis points above normalcy. I think normalcy is 4.5. similar for the eurozone CEE the 10-year you know with a three handle uh 10-year bond yield threatening to go to three and half it's not particularly high a tipping point Rebecca would be the 10-year treasury yield breaking above five and threatening to go to six. it would be the back end of the eurozone uribe curve. breaking above 4%. Now, why would that be a tipping point? It's not because these are crazy levels. Remember, We were at 6 or 7 percent for the last The 10-year Treasury yield during the dot-com boom. which resonates with today. And we had a real yield back there at 4%. percent now the tipping point if you remember back there we had a dot bomb crash the tipping point is where the bond Yields get so high and so problematic that there is a negative feedback looping. to risk assets which might finally encourage Congress here to cut taxes to address the The original problem, which is a super high. fiscal deficit. So That's the risk. That's the risk. By the way, one final point, Rebecca. This is high real yield narrative. That's problematic for corporates. Why? Because if yields were higher because of inflation. Corporates could raise prices. If yields are higher because of higher real yields, they simply have to suck it up and refinance at higher real rates. So that's got to be discounted. into risk assets that's that's where you have a bit of tipping point Okay, thanks, Pari. We've got another poll for you. Now we want to know whether you expect a Fed rate hike. In September, yes or no? Those are your options. uh We're going to go James Knightley here in the room. James Walsh seems to be leaning towards um a hike at the next meeting What's driven that shift? Padhraic just talks about the rise in the real yield, that it's more of real rate story than an inflation story. Is the Fed seeing an inflation risk Markets aren't or Markets simply trust the Fed? fed to keep inflation under control. Yeah, no, it's an interesting one because I guess ahead of the Jackson Hole speech that Kevin We were, by the majority, believing that it was an environment where the Fed Could be patients and would more than likely hold rates unless the data forced them to hike. But I think the tone of the comments that we got from Walsh suggested actually it's the other way around. It's more the Fed is now more inclined to hike unless the data... forces them to hold. And that is a subtle shift, but it's a significant shift. And that's why we We changed our call to a rate hike at the September Hike next September meeting next week. The commentary surrounding the idea that we're at full employment, that inflation has been a above target for far too long and financial conditions can't be described as restrictive. I think it gives us a pretty good indication where he is now. viewing where the policy rate needs to go. And of course, also the data. We've seen a good... jobs report last week and the business surveys that we've been seeing such as the ISM indicators have actually He suggested a bit of re-acceleration in growth over the summer. So from that standpoint, We do think that the Fed will come in and hike rates next week. How much does the rise in yields affect the Fed's calculus? Is the bond market doing some of the... Does the Fed work for it? Yeah, I would certainly say it is. I mean, just look at mortgage rates. average fixed mortgage rates that was agreed last week hit 6.85%. and you know it wasn't that long ago that we were just at three percent so there is that higher borrowing costs permeating. through US economy. And as Padhraic just mentioned, you know, higher corporate borrowing costs are also being reflected through because of the move higher in treasury yields. So there is that will act as something of brake on economic activity. But of course, as I say, you know, we've still got a situation where unemployment is low. We're creating jobs where inflation is. above target and the growth backdrop remains pretty good. The results are in from our poll. Do you expect a Fed rate hike in September 64? Percent of you think yes. the federal hike and just 36%. percent think no looking beyond september though Are we debating whether that's like the final insurance hike or sort of fundamentally different? US interest rates. Yeah, well, coincidentally, 64% is exactly what the Bloomberg pricing is. of that hike today. I think The way I would characterize this is that we still got confidence in our view on inflation. We think there for key drives that will get inflation down to 2% next year. And that is eventually an agreement that allows them. more flow of oil and gas through from the Strait of Hormuz later this year. Shelter, which is the biggest component of inflation by substantial way. continuing to pull inflation lower. We've got weak wage growth of just 3%. And of course, also tariffs. Tariffs are no longer the threat that they once were. Yes, onerous tariff regime. And of course, we've got all these substantial tariff refunds coming through that are big. cash flow boost and so we're not alone you know the consensus actually now is US inflation to hit 2% in the second half. quarter of next year and stay around those sorts of levels. So as I say, I don't think there's a need for series of rate hikes here, especially if the The jobs market does remain pretty subdued as we think it will. Instead, we would think it's more of 1997 style Fed rate hike. where we had a recalibration under Alan Greenspan. He just felt we needed to just move policy that little bit tighter. We had a one-off. rate hike and policy rates stayed there for 18 months so So that's the way I'm looking at that. So I think this is sort of just a slight recalibration just to just to get policy into the right position. And we will eventually see. rate cuts at some point we think given the fed still tells us that their long run perceived neutral rate, if you like, is still around 3.1%. Okay, so it's sort of like 1997, but then again, we remember what happened in 1999. But let's not talk about that for now. We're going to turn the focus to the ECB. and another poll for you. We want to know whether you expect the ECB policy rates to... where you expect it to peak in this cycle. And so we're currently at two and quarter percent. Is that it? Two and half, 2.75, 3, 3.25. Three and half. Aya, what do you think? Submit your answers. So we're going to go to Carsten. So a few months ago, Carsten, many were worried that the Eurozone would struggle under the weight of of higher energy prices, lots of uncertainty, but instead growth has held up. pretty well. Why is that? That's correct. There was surprisingly strong resilience. And there is one reason. and it had to do with the fact that Asian competitors of many European industrial companies Companies were actually hit harder by the closure of the Stradale-Famousse than the European. ...and then orders were and away from Asia. to Europe. So that was a kind of nice positive one-off factor. The other factor is that some governments, Germany's... Spain came up with tax rebates, some kind of subsidies, fiscal support. to offset parts of the higher energy prices for consumers. So that has clearly also helped. And then we do CEE bit of still an ongoing Yeah, the final consumption, private consumption still doing relatively well. And on top of that, finally. We also saw it in the first half of this year. the German fiscal stimulus is finally reaching the real economy. And we saw a bit of the defense spending reaching the German economy already last. here and now in the first half of this year we do see that the infrastructure investment are also gradually reaching the economy. And this altogether makes the resilience for the entire European economy. Now you've described this move as an insurance hike or a dovish hike. If the ECB believes that inflation is largely being driven by energy, what exactly is it trying to achieve by raising rates? Yeah, well, I do know that Christine Lagarde doesn't like the term insurance rate hike. She explicitly mentioned it. at the last meeting, but... I still see it as a move and that was the first rate hike and we do expect Another rate hike tomorrow. So I do see it as moves in order to be out of the curve. in order to somehow support and strengthen the ECB's inflation fighter credibility. and also to Markets and maybe even, well, other ECB officials, other Europeans. that the ECB is not too late. as it was when we had this inflation shock after the pandemic where obviously the ECB reacted. too late so this time around they want to be early but I'd like you into that. Um, There are no second round effects currently. There are hardly any indirect or London effects. So right now we're really talking about Talking about a almost isolated energy price inflation in the Eurozone economy. And to tackle... what is currently really only an energy price inflation story. Um, via an exogenous shock via higher interest rates. doesn't make a lot of sense. So this is why we still think we're very similar in the same situation. opposition as the fed what uh what fed um what james just described So this is a symbolic. first and second move, but I still have my doubts that the ECB would go beyond. a deposit rate of 2.5% because if they would go beyond 2.5% percent it would mean that monetary policy would turn restrictive in Europe and cannot see that there is a majority at the ECB that is willing. to slow down economic activity. just in order to tackle what still is right now an exogenous shock. Well, it's interesting, Carson, because the results of our poll are back and they well plurality 40 percent think that the ecb will in fact go to 2.75 percent so above that two and half percent that you think you know is restricted ...being restrictive rates. But I mentioned earlier that the 10-year German Bundes hit a 15-year high. Markets become increasingly focused on debt sustainability. We've got French and Italian elections next year. Is there anything positive to say about Europe's fiscal outlook? Well, not really, in all honesty, Rebecca, but it also does mean that we are heading What's the next sovereign debt crisis in Europe? because right now where we only only talking about higher interest rates. which means we're talking about higher interest payments. which means we are talking about more pressure on governments. to somehow stop deficit-funded growth. and to start thinking about some kind of austerity measures. also to think about structural reforms. that are positive for public finances. So to me, this is a wake-up call. So what is positive and all that we'll have to find out. We will have to find out over the next 12 months. whether the physical rules in Europe. do work, whether Markets also kind of Well, penalizing. unsustainable public finances. If this is the case, we're definitely not looking into the next sovereign debt crisis. crisis. I think what we would need to see in order to be a bit more afraid of next sovereign debt. the crisis would be first of all much higher interest rates um and second of all, also an explicit. willingness by a single or several Eurozone governments not to adhere to the fiscal rules. But just to continue with deficit-funded growth and then and hoping for others to um to more or less solve the whole thing and others means looking at an ECB, potentially starting QE again, which looks unlikely as long as inflation is out. under control or looking at other european governments to come up with some kind of construct of pan-European debt. which under the current situation also looks highly unlikely. Okay, thanks Carsten. We're going to take a look now at the Bank of England. with James with me. James, Markets pricing in three rate hikes. Over the next year, but you're actually expecting to cut. So what do you think Markets getting so wrong? Yeah, big difference between what we're thinking Markets. I think when it comes to the UK mean, James has talked about it a bit in US, there's this big debate about Is the level of interest rates actually restricted for US economy? in the year St. Carsten just discussed it, are we getting to a point where they will be restricted for the economy? Economist, the UK don't think it's controversial i think we're already there rates are bearing down on economic activity. You can see it in the jobs Markets clearly. over the last year or so, payrolls. particularly in consumer services, have been falling, but across the private sector as well. wage growth has fallen like a stone. It was 6% 18 months or 24 months ago. So now it's 3%. That's below the level the bank thinks is consistent with getting to the 2% inflation target. medium term. So that's the sort of backdrop we find ourselves in right now. I don't think it's obvious that the bank needs to raise rates. In fact, the bank hasn't raised rates so far. nor is it likely to this month. We think there'll be a 6-3 decision again. to keep rates on hold. But you ask, why are we so different Markets? It's interesting when we talk to investors, I've not really found anyone who goes, yeah. The bank's going to hike rates three times, but I think it's just very difficult to trade because you can have a lot of conviction that rates might go lower next year or at least Markets overpricing the scope of hikes. But if oil prices go another $20 a barrel higher, you're going to lose a lot of money on that trade. So that's the real. problem for traders right now. uncertainty we've got the October budget approaching how much could that change the outlook for the growth, inflation, interest rates? Yeah, this is probably the big risk to our call for those rate cuts next year, but at the moment it looks like it could be a little bit boring. Because there's not a lot of wiggle room really for the new Chancellor John Healey right now. We talk about this concept of fiscal headroom in UK. This is basically... how much space is there, how much spending room is there? or tax cutting room is there before you miss your fiscal goals, which in UK in about three for years time. UK needs to have a balanced day-to-day budget, day-to-day spending. against fiscal or tax revenues. So that headroom is probably halved because of the rising debt interest costs and few other bits and pieces. So there's not a lot they can do in terms of like a big sort of spending splurge. Probably what we'll see is a bit of extra... spending. There's been a few sort of announcements so far on energy bills and few other things which eye-catching bus fares but don't really cost a lot of money maybe a few tax rises as well that don't add up to that much bit of extra borrowing, but not enough to change the UK overall fiscal outlook, which actually compared to everybody else actually looks quite good. UK often is put in this category of everything's awful. But actually, this year, the deficit is coming down quite a lot. We have this freeze on the tax thresholds which is bringing the sort of what we call the structural deficit lower Not many countries are engaging in fiscal consolidation right now. I don't think that picture changes at the October budget, but... boring budgets don't win elections. They do not. Now, your outlook for... interest rates depends on inflation come down you just sort of touched on that briefly But how much of threat are you know, higher energy prices and renewed tensions in the Middle East to that outlook. It is a risk. I think you never say never when it comes to Bank of England rate hikes. They put a They put an adverse scenario out back in July. And actually, we're already there in terms of their level of oil prices and natural gas prices. But Central Bank would probably argue that The higher energy prices go, the higher the likelihood that you get these second round effects, the more likely it is that wage growth. goes higher in response but we're simply not seeing that so far energy intensive inflation This is things like food, airfares, all that sort of stuff that's indirectly linked to energy prices. That's actually gone down over the last few months. Food inflation is falling in UK where it should be. be rising as we the models would tell you right now. So there's a bit of tension with this idea that You know, we're going to get those second round effects coming through. So yes, energy prices, they are a risk. They're going to push UK inflation. above 3%, probably to 3.5% over the coming months. But is it a risk for inflation in one, two years time? Those indirect effects, I'm not sure it is, which is ultimately why we don't expect a rate hike right now. Thanks very much, James going to turn the focus to FX now. Another poll for you. We want to know where you see your dollar. In 12 months, time is currently about 1.16. Do you think it could be below 105? 105 to 109, 110 to 114, 115 to 119, or 120 to... I'm 24 put your answers in we'll come back to it in just a minute but we're going to go to um Chris James has argued that the Fed is now More likely to hike than hold. And know that you've been looking at your dollar forecast in light of this. So tell us more about that. short-dated interest rates are such a big driver of the dollar and And remember last year when it was under pressure, there was all this speculation about the debasement trade. The Fed had been captured. It wouldn't be prepared to kind of hike rates. And they were still feeding into the dollar kind of this summer as well. Regarding the arrival of Kevin Walsh. Was he going to be hawkish enough? We've seen those views kind of bounce around. Quite a lot since July, since you sort of... in June since he arrived. But now we've come down to the view that we will CEE Fed rate hike next week. We have seen some bearish flattening of the USU curve and that's traditionally quite positive for the dollar. So the cyclical factors, I think, are mildly constructive here. It doesn't kind of feel like that in Markets at the moment. But because of that then, we had previously had a Eurodollar forecast of about 118 for the end of the year. We've now kind of cut that down. just to around kind of 1.16 or so. So actually 1.15 for the end of September. So we're more in the camp looking for the dollar to be contained rather than sell off in the next couple of months. Okay, your view is that the dollar's decline is just delayed, not cancel necessarily so what will bring us Back into that weak dollar story, what will bring that back into play? Could the bond Markets the catalyst? Yeah, I think there are a couple of factors here. I think if you look at purely the cyclical story, and we rely very much James for this, and you know work very kind of closely lining all our kind of forecasts Our forecasts US inflation should come down to target around 2%. percent in the second quarter of next year and we think at that point That will really be the period where Markets will question Why do we have further tightening expectations built into the money market curve? if inflation is back on target. And perhaps even then Markets can revert back to where it was almost like late last year saying why our Fed rates up at 375 when the neutral rate is 325. And so we think... In the second quarter of next year we can revert back to looking for the normalization of Fed story, Fed rates being cut down to 325. And at that point, you'll probably see the short end of the yield curve in the States come lower again. Those two-year swap rates starting to drop and the dollar starting to weaken. So we're looking for some just modest dollar weakening next year, maybe a dollar towards 120. by the end of next year. But you also mentioned the bond market and... And those kind of like left field stories like is there a big sell off US assets? Does US Treasury? do something that is against the free market that triggers massive kind of response for investors you can't do that and we've got some charts kind of showing that we think there are kind of like hedge ratios out there were actually and think I've shown this kind of chart before whereby at the moment, I think investors have really bought into the story that higher energy. Prices are going to keep the dollar supported. and they have to some degree. but what this chart shows, if you look on the right hand side, That's the hedge ratio, this window into the hedge ratios of European fund managers. provided by data from the Danish central bank. And those hedge ratios on your assets are... Very low again at 65%. You can see where they were. in early 2025 before Trump's Liberation Day tariffs and that whole big adjustment in dollar hedges, which really... cent euro dollar kind of soaring. So I would say the setup. is a little bit vulnerable for the dollar. Were there to be a big misstep in terms of kind US policy, I think the dollar could still have sharply. It's not the cyclical story that we're telling. but just a warning that if there is a misstep that the dollar could fall. Okay, let's talk quickly about the dollar-yen and US joint International. It's dominated FX Markets summer. What's the latest here? What role does the Bank of Japan play here? Yeah, I think there's probably right... ...speculation about some grand bargain reached between Washington and Tokyo on... policy and dollar yen and why was US Treasury interested in intervening? well we've seen over the recent years the Bank of Japan when they intervened to sell dollar-yen. they sell and the most recent exercise in the kind of late July early August They sold about 100 billion dollars and given that US assets are largely concentrated in treasury securities. That doesn't really help with kind US financing their debt, right? dollar yen stays very bit above 160 and Japan is still intervening so So there wanted to be CEE change and basically Scott Besink came in for the first time. yen buying since 1998, so it was a very big deal. But we think the grand bargain is if US. is helping Japan out by... driving the end stronger, helping Japan. insulating against those high import costs. Japan has a cost of living crisis they're trying to address. as well. What does Japan do in return? Well, Japan can make the fundamentals stack up by... hiking interest rates more quickly. And so speculation is rife. that the Bank of Japan will accelerate their pace of tightening so a rate hike at the end of next week is fully priced to 125. And the pace at which they're going to get to a neutral rate at 2% has been rough. been brought a lot forward as well. So there's the expectation that Bank of Japan is going to deliver a tighter... faster tightening cycle. but also as well this speculation that very much as a government-controlled pension fund worth two trillion dollars so huge asset manager the gpif that they, perhaps in late October as well, can announce a change of their portfolio allocations. At the moment, they've got 50% of their assets in domestic. assets and perhaps they could raise so to help JGPs and also kind of help the yen as well. So We've seen one side of the bargain with the International and now we're waiting to see whether Japan delivers. So I think that's why there's... It's going to be, you know, a lot of volatility around that BOJ meeting and then a lot of focus on whether there's... And you follow up hawkishness in October with the next BOJ meeting. and whether GPIF also delivers any change in their portfolio allocation. All right. Thanks, Chris. Let's take some of your questions now. They're coming in thick. and fast um maybe one from for Padhraic um if u.s treasury the u.s treasury sell-off continues Do you think that the Treasury will react by decreasing the size of... of long-end issuances, how much do you think I think this will affect yields in basis points please. Yeah, interesting question, Rebecca, because we know that the... The issuance in the long end has not changed. for years important point because the reason Meals are up is not because of higher issuance, it's because of the expectations of higher issuance. So what the Treasury is doing so far is they've increased the buybacks. And by the way, I... i think that's been successful i'm going to be controversial here there is this idea that Scott Besant announced the buyback. and my god the 10-year treasury yield ends up higher All that Scott Benson can do is he can Regional the 10-year Treasury yield and the 30-year Treasury yield. relative to 10 and 30-year sulfur. so we can make those swap spreads tighter. Has he done that? Yes, he has. By about eight basis points in the third year. If Scott Besant decided that wasn't enough, and he had to reduce issuance in the back end of the curve. I think it would have a material effect. I don't think he wants to go there. I think the first place he would possibly go is to kill the TwentyThree. the treasured of 10s, 20s, 30s. 20s is not a maturity that they... investor base loves the treasury light because it lightens up that part of the curve in terms of overall. issuance. But it absolutely is an option. In the extreme, they could just completely end 30-year and 10-year issuance, and that would have a big effect. But in the extreme, we're talking about extremes here. It's the same as the tipping point question you asked me, Rebecca. I don't think the 10-year is going to go to 6%, but look, these are strange times and stranger things have happened. All right, so one for James Knightley. After the Jackson Hole speech... by Chair Walsh. And assuming CPI, we've got CPI coming in, it's Friday, right? Coming in close to expectations are lower. If the Fed... doesn't deliver, do you think Markets would react? I think there is a little bit of credibility issue because of course Kevin Walsh did come in in June. pretty hawkishly reinforcing his inflation fighting credentials And then if you remember the July FOMC press conference was a little bit of muddled affair. I think to put it politely, whereby we didn't come out of that with any great conviction as to where he stood or where the Fed. more broadly stood. Then to go back quite hawkish again in August. and not to follow through in September, I think would raise a few eyebrows. and he was very emphatic about it being trends, not individual data points. So again, If that is the case and that is true, then... And, you know, Arguably, we're perhaps putting too much focus on the inflation print this Friday. And therefore, if I think the consensus is right, and... My own personal forecast is exactly in line with the consensus, which is a 0.4 month-on-month rise in the headline rate, which is Pretty elevated and core rate of 0.2 I think, given the commentary that we've had, it will be a big surprise. if he didn't. and he couldn't convince the rest of the Fed to hike. And think the important point here is that there is absolutely no one of the Fed that is hostile to a rate hike idea. Even Scott Besant is probably on board as well, given what's going on at the long end of the curve. And even the president has given him the green light, saying... Kevin Walsh is going to do what he's got to do. You couldn't imagine that comment coming out from... from the president's mouth when Powell was in charge. Well, that's interesting because somebody else did ask that question. Well, Trump's comments. make a hike more or less likely because in the past he has been quite vocal. about not wanting a hike. All right, lots of questions about Japan. What do you think will happen with dollar-yen without... the International, do you think uh Dolly Yen hits sub 150. and how might this affect carry trades? maybe one Chris. Yeah, I think we're only down here because of that International and the speculation that The Bank of Japan is going to tighten more quickly and maybe the GP office. The GPOF is going to move the allocation policy. I think without that... Especially now that we're going for Fed hike, I think Dolly M would have been sitting there at 160. driven by kind of the fundamentals which were really kind of wide yield spreads which have really driven a lot of foreign borrowing in yen. So I think without that International, which really was... a big wake-up call for Markets and obviously Markets pushed back initially saying you can't You know, fight the fundamentals. but um it really has kind of changed it but i think it's just so important now that um Japan really delivers on its side of the bargain if it doesn't weaken. you know go all the way back up to kind of 158 I think him pretty quick. Let's say with you, Chris quick question about EM currencies. Are they safe havens now, given the fiscal issues Developed markets, ignoring sort of outliers like Turkish Lira? Yeah, I think they are all doing very well because if you look at the Markets environment, volatility is still... incredibly low the equity kind of rate and fx so the carry trade is still very popular. I think the Swiss rank is being used as a funding currency for the carry trade. For emerging market currencies, if you think away from the Turkish lira, which is obviously particular arrangement there being sort of managed lower slightly lower than the The forwards for things like Brazil, Latin Americas been very popular at the moment, so Colombia, Brazil. In Europe, it's been the Hungarian kind of foreign. So I think all of that, probably out of those, I'd probably say. the money is going to stick in Hungary a bit more given the euro story. I mean, we've got a lot of experience with kind of aspirations for the Euro. I think there's going to be some medium-term fiscal plan coming up in Hungary. So I think the money will stick there. But I would say, you know, if there were a kind of real crisis. the emerging market currencies haven't really been tested yet because when you get a spike in volatility value at risk metrics kind of kick in you have to kind of downsize those and I would say they haven't been tested. So I think... you know if push came to of i'd probably We prefer like the Swiss franc in a real crisis as opposed to the Brazilian real. The Columbian Pacer. All right, one for Carsten. What do you think about the effects on inflation from the high price of natural gas in Europe and all these issues that we have with storage? could the ECB be more hawkish in sort of... you know, six months time as a result of that. Yeah, I think it's the right question. We do have it in our inflation forecast. So yes, I like the question that suggests. Gas storages are too low currently. Well, Europe wants to hit Knightley. percent by November which means there will have to be a lot of demand now. to get the gas levels up. will require a little bit or depend a little bit on how harsh the winter will get. obviously speaking but we do have it in our inflation scenario that The cost push from higher gas prices will reach inflation in the first quarter of next year. So which means that only afterwards inflation would come down and as regards the the ECB Yes, that is clearly one of the risks. to our call of only one additional rate hike or no rate hike after tomorrow. The risk is clearly there that the ECB thinks it has to do more. to tackle what even with the gas price, it would still only be a... an energy price shock. What is underlying? I think that's also important. What is underlying our ECB call and also the Fed call? Paul, James explained, is an assumption, not even a call, an assumption that the war in the Middle East after US midterm elections will find. some kind of peace agreement so that after the midterm elections the Stradale-Vermous will open up again. and that there will be a kind of normalization towards the end of the year and given. that the ECB's December meeting will be very late. 17th or 18th of December. This could then allow the ECB to look through this energy price shock stemming from both oil and gas. Thank you. Okay, thanks, Carsten. Final question to James. about a wealth tax. Is it feasible? or is it a non-starter in UK budget? Wealth tax. Sorry, you're looking at the wrong James currently, but I'll talk in the background. Yeah, so wealth tax is kind of interesting. It's obviously There's a lot of these proposals for big, bold change coming through. So wealth tax is one such thing. There's also a lot of focus on what's going to happen to you. Council tax as well, social housing is another big pledge, and obviously what happens with defence. These are all really big topics right now. I think what I would say with all of them and what really matters for the October budget is a lot of this is going to get shunted into... 2027. I think it's pretty clear that this budget is not going to tackle some of these bigger issues. I think the challenge always with wealth taxes is, you know, Obviously they're very appealing to the political left, but often they don't always raise that much money and that's the real kind of challenge I guess. Well, that's just about it. We're almost out of time. Thank you so much. for joining us today thanks to all of our experts for being here we've covered a lot You still have a lot of questions. You can probably find some of the answers on our website, ing.think.com. So do check that out. And thank you again for joining us and we'll see you next time.