Exchanges of Goldman Sachs and Nathan, a senior shouted distant Goldman Sachs Research for this week's up here, I am delighted to welcome back yard huts. Yes difference. Chief economist and global had a research to discuss the economy, take away from Jackson, Hole, and his use on economic growth and inflation. John welcome back to the programme. I am that we are so, let's start with less that conference and Jackson Hawaii roaming, which is of course a close. Watch two annual meeting held by the Kansas City FED? What were your t take away from the conference and anything, your pal say: surprise, you not much law was pretty much, in line with what we have thought coming out of the minutes of the last,

Zeb meeting in July. I think, if you take watch check all said and what we saw in the minutes. There two key points about the timing of tapering of acid purchasers. One is that they want to get started this year, which basically me They probably after amounts by November and number two. According to the minutes, they will provide advance notice. tapering, which basically means that they can't really unanswered in September, celebrity only leaves the November meeting. Obviously that could change ev. We saw the shift in the economic outlook, something very naked happening? It would be delayed. Of course a baseline is that we'll get a November announcement in December start today bring the little bit less clear how quick the tapering would occur. We haven't gotten as much indication

about that I'll baseline? Is they reduce purchases? Spies Jeanne billion dollars for a meeting, so they start from under twenty billion a meeting that would basically take them down to zero by October. Next year, the hours on people who want to go faster, but that, I think, still an open debate and ultimately, we think it's probably going to be something more like fifty billion. That would then mean that spy, the fourth quarter of next year. You could in theory start a high grades than can be hiking, while the tapering Jimmy, but for that you would probably need to see the nerve again key higher and nation and somewhat stronger growth and what we have in our work outside our forecasts? It takes until maybe third quarter of two thousand and twenty three before you then get the first rate. I, but that's much, want certain men who did it.

hence on the economic outlook and what we see in the numbers. So, let's talk about wealth You ve had a strongly above consensus, call for U S growth for much of the year, but you recently taken your forecasts down. What's hi knows our visions and do they mark an important shift in their growth expectations. Your fingers, always important when there is a change in direction. Member is a chain Gender action in terms of you know, where we are relative to the consensus, partly on the back of our downward revisions and we ve taken two thousand twenty one down by about a percentage point, we were at Heaven or little above seven, went out six percent. That's one shift on net. The consensus has been revised up. Two thousand and twenty one so far as all that's, why would now a little bit below the consensus and if you look at the sequential pace of broth, with all think that the peak is probably behind us and that's

tool for the quarterly GDP numbers just about its also true for the business service. I think both have probably seen the highest levels and probably going to decline from here and that always going to be an important shift for markets. What are the drivers of the shifts that we ve made me Driver really has been virus related, the rebound in virus cases in the U S has been certainly bigger than we thought several months ago. The impact activity has stolen, reasonably limited, but there has been some impact and we ve seen somewhat more as the delta wave has progressed, and it's probably just going to take longer, especially in the service sector, for activity to get back. We already saw some signs that, for example, the return to office was pretty soon

even during the period when enthusiasm about vaccination was probably out a peak and with this renewed set back of course, you ve gotta believe that it's going to take even longer and we built that involve work ass, a little bit more than the other thing. I'd say it's beyond the downgrade that we made to our number we have always had a pretty subdued growth forecast in the second half of two thousand and twenty to basically because of the pay back for the very large amount of fiscal support that we're getting two thousand and twenty ones. We ve only got one and a half to two percent sequential growth in the second half of next year. That's not a change, but the US we're moving closer to without its also becoming more relevant for markets and for policymakers and one that other countries outside of the EU, as we have also been downgrading forecast there. So what's driving the weaker growth elsewhere,

In some places I mean mainly in Asia. We really haven't made significant changes elsewhere but in Asia we ve taken bound China, most importantly on the back of the delta outbreak, and you don't much smaller numbers than in the? U S and drums of you no virus cases. This is a very small fraction by China is still trying to achieve basic zero covered and that's men, some pretty significant. restrictions on activity in the service sector. We now think that third quarter, sequential growth, is probably the only going to be some, like one and a half percent down your lies, that's come down significantly. We do think that, as the numbers in China have also improved again as far as virus cases are concerned, it will be a significant rebound fell to make us at providing support, but nevertheless it's going to leave and then friends in

I'm your lumber search, you chance less in terms of growth, not eight and a half percent, but maybe not eight point two percent aid and a quarter of a sample strands of numbers. Then we had some pretty never jammed outbreaks elsewhere in Asia all the more serious in solving, danger. He met with very bad health outcomes and, of course, there are economic consequences as well, and then Australia also some significant. dance, so it's all been very much forward related and yet the news has just been worse than we had expected them. What we had built Ajar numbers Europe continues to do pretty. Well, despite the renewed outbreaks, we still think that the european recovery is progressing quite well. Uk continues to progress pretty well, despite the relative behind numbers, their Latin America, the virus numbers actually have been generally better,

That's also shown to win somewhat better economic member. So yeah you look around the world. There are lots of different sort of trends and lots of different Elvira situation and economic consequences for now, so it's no longer quite as synchronized on the outside, the downside, as it has been so much of this pandemic just a little bit more on that, because now we have the big downturn to master the big rebound this you're. Now you talked about breasting the p. Can deceleration. But can you just put this on respect in terms of where our activity will levels in the? U S and globally relative to where they were pre pandemic.

Among the big economies? There are three groups: one is China stands by itself, its back at the pre pandemic trend and has been for several quarters. Now, of course, is seeing a bit of a set back at the moment, but they basically at the free pandemic, threatened the. U S is at the pre pandemic level, approximately slightly love, but basically where it was in early, two thousand and twenty, but at the present level means two to three percent below the creep endemic trend, so that sort of the output gap that that he's from a GDP perspective that you would assess having from an employment perspective somewhat more. But that's what you see in the? U S and then most other big countries are still significantly below the levels that he saw pre pandemic and catching up in some cases, but a long way to go. So you take the european countries and growth in June.

And probably even do tree so do be quite strong, but still going to leave them well short of where they were certainly where they could have been in the absence of covered. So I think I wanted to spend your view coming in here and three bullets, because the meaningful we bound we are expecting from the ito trough of the pandemic last year, how would you describe your view right now globally, in terms of higher thinking about groups, I would say, still pretty borders in Europe. I see a lot of upside potential in some of the places that are still pretty deeply in the hall and Europe is in that category. I still think that vaccinations are going to make a big difference were still finding that the vaccines do a very good job, again severe outcomes, despite the fact that against the delta very

I'm from an infection perspective there, not as good as previous variants, but as one more of the world gets vaccinated and activity is still quite depressed in a lot of places, guy still thing We are going to see a large amount of improvement, we're not as far away from the consensus on that as we were earlier in the year and in the? U S, you don't want no longer above consensus. I think the recovery is going to continue, but no longer have a foolish technical view, just in terms of the growth of cites a bit more complicated than it has been for really most of the posts in our March April, two thousand and twenty period, and it's a little bit harder. Summarize in one word than it was another strong, be you how this year is that inflationary pressures will prove temporary inflation. still seem pretty strong and even more

eyes in your inflation forecasts up at the same time that you ve been revising the growth forecasts. Doubt how's, your inflation outlook changed for two thousand twenty one For sure I mean We are now looking for in all three seventy five for a core pc inflation, and this is mainly you ass. I mean it's true, some degree elsewhere, but this mainly biggest changes have definitely been in. U S, three: seventy five and you know about far above where we were earlier in the year when all generally were looking to serve two and a half percent. Us all saw the big upward revision, but I think in terms of characterizing, what kind of inflation we have here. I don't think it's really been changed still looks very temporary

this temporary, as it did previously, we have not made changes. Any meaningful changes are two thousand twenty. Two inflation forecasts still have court busy inflation go back to one point: eight percent, that's almost identical to what we have previously now, of course, if you look at average inflation, average inflation is much higher. From the perspective of monetary policy is not in an average inflation targeting framework, you know two thousand twenty one, not just by dogs, It will have an impact on you not actively the hurdle of wage. This evasion overshoot is going to have an impact on the hurdle rate that feds going to assess in deciding where height. Now, there's a little bit of wrinkle here, because in addition,

the average inflation targeting framework. The FED also has forward guidance and place in the Fomc statement. That basically says you have to be at two percent for hiking the funds rate and that's a spot perspective. So if you're below to, I don't think they're going to be hiking, not unless they decided to actually change that for guidance, and I think they're going to be pretty reluctant to do that but I don't even have to be far above two percent for them died in all. If we were at say two point, one or two point: two percent in late, two thousand and twenty two. Instead of one point, eight does our forecasts thought that huge difference, but I think it could have important implications for the left off point would move forward problem

so let's talk about job growth. There's thinness narrative that federal unemployment insurance benefits have kept. People out of the workforce is basically allowed people to make as much money staying at home to see him and of its as going to work. So as these benefits and you, what do you expect for the labour market, but we feel a bit up in job growth in the last several months of some initial disappointment in the spring, the doing employment report was very farm. I think what we're going to find is that the extended on one

and of its and the three hundred dollar. Four we top up did have quite a large impact on curtailing labour supply. We looked at the experience of moving these benefits in a number of states, not just by comparing the republican states that cut the benefits and the democratic states. That's didn't, but actually looking at the micro level at individuals that are otherwise identical that most benefits versus individuals that didn't, whose benefits we found a pretty meaningful, statistically significant effects, or to ask that suggests that, as these benefits end at the federal level over the nor September October or November period, we should see a substantial amount of additional job growth and we ve said one and a half million informal on the back of that expiration that ships all up in the barrel numbers you haven't got a wonder, is going to come down what the dissipation rate, overtime

still think is going to rise from here, but I think that's gonna be a slow process and we ve actually scaled back to some degree our expectations for how quickly the participation rate warm lies us- and you know, I think, even the year out a tree as out the dissipation is probably still won't be somewhat below, where it would have been in the absence of prevent them, So what does this mean for wages? The fact that we have seen but struggling to find workers summit might be abating, as you said, but ultimately do we think that wages are going to continue to grow here as company. he's need to reason to attract workers. Yet I think they're gonna be We need to grow. What they're not going to do, I think, is role at these extremely rapid rates at the bottom end of the day, distribution. If you take a production and new

the advisory workers in leisure and hospitality, one average make fifty dollars an hour. We ve been seeing wage growth rates I'm your lies pace of twenty five to thirty percent. In the last three to six months, we obviously far above any We ve seen in many decades or actually ever in these data, and, if that's not true, surprising, because make fifteen dollars an hour with the three hundred dollar top up. You know people are basically as well love or better off from achievement? Bakers perspective, not working, then working. no. I mean this is sort of what you should expect that then get the enormous competition for these workers and being Greece's and day, I think ass. Those benefits send will get much lower wage growth rate. I don't think we'll get our driveway to the pines way just tend to be by sticking to the downside, so I don't think you'll be cutting their wages, but it also don't think you going to have this kind of way.

elsewhere, in a higher up in the income distribution towards the in all twenty five, thirty and dollar per hour rates. I mean they're. Wage growth rates have been reasonably farm, but more out of line with what we had in the past, I mean on a composition, adjusted basis. We ve seen about three and a half percent wage Roth WAR in the middle range of the income distribution. Uniting will probably continue to see numbers in that sort of range and in all steady wage growth, and if we could see substantial job roll them. That's probably is going to accelerate somewhat from their and our is that a peace that is sustainable, probably sustainable. I mean we ve, seen pretty good productivity growth, but in general the branch of the news in pretty good. So I think we should be able to sustain somewhat higher wage growth rates than we had in the last cycle.

Maybe always you said basis in coming years, the left the end on the big picture. Again, we ve talked a lot about the virus, obviously a key determinant of the outlook, but no, what do you see is the biggest risks to the? U S: and global economic expectations, they discussed I mean I wish I could say something other than the virus, but the truth is covered barrier In addition, all negative news on in ovarian start are more inspectors and escape vaccination, but still the biggest rest. I mean you look at Delta yeah. In some ways it's been a negative surprise, but at the same time the vaccine still work. You know pretty well from hospitalized perspective. Of course we could.

The barriers that is even more dangerous because the vaccines might not work as well from a severe diseased respect. Us I mean I'm not predicting that you know I don't know. I don't think the medical experts really know what that is the downside that I think we have to have our eye on you got there. Are you not obviously risks that maybe a little bit closer the usual ups and downs of the cycle that are also relevant in the fact that fiscal policy is coming off of this action. Least immunity, level and that were almost certain to see a significant negative fiscal involves. I mean that poses some rests as well, and I do think it's gonna have an impact at the bigger one is still going to be covered and some countries are going to be better placed to deal with that than others again. I do think that backs the nation is still progressing. Pretty well were going to

We think fifty percent of the global population fully vaccinated by the end of the year- that's fluffy all timeline. That obviously makes a very big difference, but We are also seeing higher infection numbers than we had hoped in all three months for six months. Back saw that raises more acute in some ways. Then perhaps we had thought not. That long ago, so, let's hope down that we don't see a very low turned into variants. Thank you, sir. for joining us. It's always be different sites on the global economy, and you too much else- and I presume that conclusion Episode of exchanges are gonna, tax thinks, for listening and joined the showing hope you describe on Apple podcast rating and comment. This podcast is acquitted on August to reverse the TWAIN. Twenty one,

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