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Does the UN still matter? With António Guterres

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This is an audio transcript of the Rachman Review podcast episode: ‘Does the UN still matter? With António Guterres’

Gideon Rachman
Hello and welcome to the Rachman Review. I’m Gideon Rachman, chief foreign affairs commentator of the Financial Times. This week’s podcast is about the future of the United Nations. My guest is António Guterres, the secretary-general of the UN. Guterres has one of the world’s most daunting in-trays. He’s trying to organise the global response to climate change, refugees, famine and future pandemics, as well as the wars in Gaza, Ukraine, Sudan and elsewhere. But with the UN Security Council bitterly divided, agreeing on co-ordinated international action on any of those subjects is very difficult. So can the UN still make a difference?

[MUSIC PLAYING]

António Guterres voice clip
Our world is becoming unhinged. Geopolitical tensions are rising. Global challenges are mounting. And we seem incapable of coming together to respond.

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Gideon Rachman
That was António Guterres speaking to the United Nations last year. Few would dispute his argument that the world does seem unable to respond to many of the big global crises. But the secretary-general’s critics say that it should be his job to overcome the obstacles and get the world working together. Easier said than done, perhaps.

But Guterres will have more opportunities soon. This weekend, he’ll convene a Summit of the Future, which will happen just as world leaders assemble for the annual meeting of the UN General Assembly in New York. When I spoke to the UN secretary-general earlier this month, he was just back from another international summit, the Pacific Forum in Tonga. And climate change and rising oceans were very much on his mind.

António Guterres
This visit to the Pacific was essentially based on two reports: published on sea level rise and looking into the impacts of sea level rise in the highlands of the Pacific because sea level rise has increased since the ’90s by about 10 centimetres. In the Pacific it’s 13 to 15 for a number of reasons that have to do with the melting in Antarctica and other physical conditions.

The drama is that the sea level rise is now at double the level of the ’90s. It is accelerating and we are getting close to some tipping points. We believe that if we reach the two degrees Celsius and increase temperature, we will have a massive acceleration of melting in Greenland and West Antarctica and that of course will completely change the rules of the game. So the situation of the highlands of the Pacific, some of them are atolls and are in risk of disappearing. Others that are higher are having serious coastal problems and they are having to move people from villages close to the sea further inland.

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And the truth is that most of the population of the world is in coastal areas. So cities like Lagos, Shanghai, New York, Bangkok are really growingly threatened by sea level rise. I had the opportunity to meet the Shanghai authorities in my recent visit to Shanghai, and they already have a meaningful plan of adaptation in order to protect the city in relation to sea level rise. This shows that there is a growing conscious of the dramatic potential impacts of sea level rise unless we are able to keep the temperature rise at 1.5 degrees and we are at the limit.

Gideon Rachman
So when you were in the Pacific, I mean, there were also at that summit high-level representatives from the US, deputy secretary of state, from China and so on. So did you get an opportunity to talk to them about climate change or put it another way, do you have any sense that the largest economies in the world are ready to move faster, which is something you urged?

António Guterres
First of all, we would need a very solid discussion between developed countries and emerging economies because developed countries and emerging economies, let’s say the G20, represent 80 per cent of the emissions. And until now, we have had a situation that is a blame game in which developed countries will say, basically, we are now drastically reducing our emissions. It’s time for emerging economies to do the same. And you have emerging economies saying, well, you have polluted for decades or centuries. You are more developed. Now we need some margin to accelerate our development.

And on the other hand, if you measure emissions by consumption, instead of measuring by production and you have moved your production mainly into the developing world, then the emissions are much higher in the developed countries than in the emerging economies. Of course, there is a principle of common but differentiated responsibilities. It’s normal that emerging economies come after. But we absolutely need to have a drastic reduction of emissions in these decades, both in developed countries and in emerging economies. Both in the US and in China, but also in Europe, in India, in Indonesia, in many other countries.

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And this dialogue is not being sufficiently put on the table. We had some good experiences with South Africa, with Indonesia and with Vietnam in relation to the reduction of coal, with support of the international community. But the serious negotiation and the serious discussion to put together all the technological resources and the financial mechanisms mobilising international financial institutions that we can use, a serious discussion to make both developed countries and emerging economies drastically reduce emissions, we are not yet there.

Gideon Rachman
Yeah, I mean, I think many climate experts would agree with the clarity of that analysis and would say it’s very helpful that you as UN secretary-general speak so clearly on this. But as well as identifying the problem and urging action, is there anything more the UN can do to actually get things done?

António Guterres
Well, as a matter of fact, we are working hard at the present moment with the two Cop presidencies, the Azerbaijani and the Brazilian and especially with Brazil that leads the G20. We are having very serious discussions in order to try to put a lot of pressure in relation to the key actors to a much more responsible behaviour facing climate. Brazil is in a good position to do so because as you know, most of its electrical production is renewable. And having now the president in G20 and the president of the Cop next year, we are working very intensely with Brazil to create a common initiative to put pressure on other developed and emerging economies in order to make sure that we have the so-called nationally determined contributions, which means the national action plans that will be presented next year fully aligned with 1.5 degrees and covering all sectors of the economy. And this is a battle. It’s the fundamental battle of next year.

Gideon Rachman
And I mean, I guess one of the big problems in dealing with these very urgent but relatively long-term problems like climate change is that your agenda is also full of immediate crises, one of which is Gaza, which must be taking up a lot of your time.

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António Guterres
Well, it’s true that international public opinion in general and the political attitude of governments have been, to a certain extent, diverted to the serious security crises that we are witnessing with the war in Ukraine, with the situation in Gaza and others. But the emergency question that climate change represents really requires a very strong attention now. It’s now. Even in the present circumstances, we will have very probably one year of overshooting of 1.5 degrees until the end of the decade.

That is not dramatic, an overshooting, provided that there is drastic action to correct things, allowing the overshooting to end as quickly as possible. But at the same time, the acceleration of sea level rise, the bleaching of corals, the melting of glaciers, the melting in Greenland and in West Antarctica, the dramatic multiplication of storms of all kinds make, in my opinion, the question of climate change as serious for us all as the conflicts that have, I would say, taken large parts of the attention of the political leadership in the world. Climate change is the existential threat of our time. And it is, in my opinion, the most dramatic problem that we are facing today.

Gideon Rachman
Do you have any confidence that people will act quickly enough? People have been talking about the need for urgent action for 25, 30 years. And if you go to do it in the next year or two, why is there any grounds for hope?

António Guterres
I have two sources of hope. One is technological evolution. Now the cheapest energy is renewable. We have had a growth in renewables in the production of electricity. That is the highest growth ever registered in electrical production in the world. We see electric cars multiplying very quickly and we see that other very important technological discoveries and evolutions that make climate action the right thing to do from an economic point of view. And this is, of course, a source of hope.

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The second source of hope is with the young generation and the growing pressure of the young generation in relation to political leadership because it is clear that they will pay most of the price and they have the moral authority and they are having more and more mobilisation in that regard. In the meetings we are preparing, we see a growing presence of young people and of young people that is organised and organised in a way that, especially in the democratic countries where the elections, will become an important source of political pressure.

Gideon Rachman
OK. So let me try a question on Gaza though. Clearly there are international negotiations going on, but they’re being hosted by Qatar, not — as some might hope — by the United Nations. Why isn’t the UN able to be more active on this?

António Guterres
Well, as a matter of fact, you can only negotiate between two parties if the two parties are ready to accept you as the negotiator. And that is not the situation. Neither Israel nor Hamas want the UN involved in negotiation of a ceasefire. Qatar has a leverage that comes from the fact that Qatar has relations with Hamas and relations with Israel and is accepted by both sides. And working together with Egypt and the United States, they are the ones that are trying to broker this extremely difficult ceasefire.

Unfortunately, both the ceasefire and the release of hostages that, by the way, should be unilateral because hostages are unacceptable in all circumstances, these negotiations, unfortunately, are not leading to any solution. And we are going on seeing in Gaza the most dramatic level of deaths and destruction that I have seen in my times as secretary-general and in a way that is creating a situation from which it will be extremely difficult to recover, especially if Israel remains determined to avoid the two-state solution, as we see with the activities taking place in the West Bank, in which there is clearly an intention to progressively undermine the possibility of a two-state solution with both Gaza and the West Bank, including East Jerusalem.

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Gideon Rachman
You mentioned that Israel was not prepared to accept the UN as a player in the negotiations, and they’ve made some very bitter accusations against the UN about its role in Gaza. Do you think the UN got anything wrong in the way it behaved in Gaza over the last 20 years? Should they have done more to somehow stop what Hamas were doing?

António Guterres
Well, as a matter of fact, if there is education in Gaza, and by the way, the school year is starting exactly now, 630,000 children for the second year will not be at school in Gaza. But if there has been education in Gaza, if there has been health in Gaza, it’s because of the UN. It’s not the occupying power that has dealt with the social needs of the population. It was the UN, so UNWRA. And in recent times, with all the difficulties, with all the problems, with all the obstacles that were put, now evacuations in which even the areas where the UN as its essential organisational capacity have to be evacuated from one place and then from another, with all the restrictions that were made, the truth is that the UN remains the organisation that was able to provide the minimum assistance that the population in Gaza has benefited.

So we will be determined to do our best to support the population in distress and in terrible health situation, food security situation. We will do our best, whatever the difficulties, but at the present moment it is clear that nobody is able to provide the level of humanitarian assistance that would be necessary in Gaza.

Gideon Rachman
Turning to the other big conflict, you mentioned Ukraine. Again, what role for the UN in that, if any?

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António Guterres
Well, we have, as you know, developed several actions when our role was accepted by those parties. I’m remembering the release of the people that were in Azovstal. I’m reminding the Black Sea Grain Initiative. But neither Ukraine nor Russia has shown every interest in a possible mediation of the UN in relation to ending the war. And I think we are very far from the end of the war and unfortunately that we have a situation that is stuck without any perspective of a solution in the short term.

But obviously our good offices are always available, but we are not optimistic at all about the possibility of serious peace negotiations between Russia and Ukraine in the near term. For us, that is a question of principle. I mean, we are the guardians of the charter and the charter is clear. The charter is clear about international law. The charter is clear about territorial integrity of countries. So you cannot ask the UN to abdicate from the values of the charter to enter in some kind of negotiation that would undermine that position of principle that for us is extremely important.

Gideon Rachman
But then you’re in a very difficult situation, aren’t you? Because Russia is a permanent member of the UN Security Council and has just violated the charter by violating the territorial integrity of Ukraine. How do you deal with the fact that they have such a powerful position and have violated the founding principle?

António Guterres
That’s one of the reasons why we believe that the Security Council has today a problem not only the effectiveness but the legitimacy. And that reform of the Security Council is one of the key elements of our proposals in relation to the Summit of the Future.

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Gideon Rachman
Any chance of UN Security Council reform? Because people have been speaking about it for so long.

António Guterres
When I started my functions, it was a taboo. Today, I don’t think there is any speech that I make in the General Assembly in which I do not say that the reform is necessary. On the other hand, we have already the five permanent members recognising that there should be at least an African permanent member. And we see that the negotiations at the level of the General Assembly that are completely paralysed are slowly starting to move. So this is not something that will be solved from one moment to another. But I think that there is a growing conscience that there is a central question of legitimacy and of effectiveness of the Security Council.

And that together with the reform of the Bretton Woods system, the reform of many other multilateral institutions that were created after the second world war and do no longer represent world of today, the reform of the Security Council is a must if we really want to have a system of peace and security that works in the world.

Gideon Rachman
You particularly mentioned an African permanent member, but I guess others would say, well, which African country? And also if you’re talking about that, surely India should be a permanent member and then maybe a Latin American permanent member, yeah?

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António Guterres
Yeah. Well, one thing that is clear is that you have three European permanent members in five. And Europe is not exactly three-fifth of the population of the world. You have UK, you have France, and you have Russia. You have only one Asian country that is China as permanent member. And obviously there are other countries in Asia that represent to the important contributions to international relations. You have no African and you have no Latin America. So it’s not difficult to think about one possibility of a reform with a meaningful increase in the number of members, non-permanent and permanent members in order to have a more balanced representation.

The question is a question of political will. There will be many spoilers in this process, as we know, but I think it’s our duty to go on asserting the need to make our institutions work. We cannot accept without doing anything that our institutions do not work.

Gideon Rachman
One more international crisis, if I may, because it’s often forgotten and lots of people say it could be the most severe of the lot. Sudan. How bad is the situation there? And again, what should be happening?

António Guterres
Sudan is in a horrible situation. You have, of course, one army and one set of militias that are fighting each other. They fight each other with support from all sides. There are more and more spoilers interfering with the situation in Sudan. There is no perspective of a serious negotiation. We had convened to Geneva, both sides, and we managed to have both sides in Geneva with the UN, which was quite an achievement that many others were not able to get.

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But the truth is that there was no progress. Not even in humanitarian aspects and in protection of civilian experts, there was a way to have an agreement between the two sides. We are really stuck in a very dramatic situation with more and more spoilers from outside and with no indication from any of the generals and their supporters that they want any political solution. They just want to win the war.

Gideon Rachman
So to summarise, I mean, in some ways it’s a rather depressing survey of the world. We’ve just done, you know, tragedy in Gaza and tragedy in Sudan, no progress in Ukraine. Climate change is more and more threatening. Can you think of any causes for optimism for people listening to us?

António Guterres
It’s not a matter of being optimistic or pessimistic. Like Jean Monnet said, it’s a matter of being determined. We will not solve all problems of the world, but it’s our duty to do everything we can and to put all our energies in facing those problems. Together with the inequalities, together with the dramatic situation of large populations in the developing world, together with the lack of any significant governance mechanisms in relation to artificial intelligence.

I mean, the challenges are huge and probably many would give up. But I can tell you we will not give up. And we have no power, we have no money in the United Nations, but we have a voice and we have some convening capacity, as we have shown recently with the high-level advisory body on artificial intelligence and the conclusions that they presented and will be discussed in the Summit of the Future. So we are not giving up on any of those fronts and we will do our best.

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And sometimes there is a surprise and sometimes we get something and we do our best to make sure that we mobilise as much as possible the conscience of humankind for the need for more equality, more justice and more peace.

[MUSIC PLAYING

Gideon Rachman
That was António Guterres, secretary-general of the United Nations ending this edition of the Rachman Review. Thanks for listening. And please join me again next week.

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Banker all-nighters create productivity paradox

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Banker all-nighters create productivity paradox

Last week JPMorgan made headlines by announcing it planned to cap its junior bankers’ working week to 80 hours (“High pressure, long days, crushing workloads: why is investment banking like this?”, FT Alphaville, FT.com, September 13).

The media and most western professionals and other workers will see that figure as extraordinarily high — but the small print makes clear that the cap will not apply when junior bankers are working on “live” deals.

The 80-hour working week, it seems, is the routine baseline expectation.

Former investment banker Craig Coben, author of the FT Alphaville piece, outlined the history and factors that make the long-hours culture a seemingly intractable fact of life across the investment banking industry — and other related sectors such as Big Law.

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As investment banking is a bespoke service the work cannot fit into a standard nine-to-five schedule. The question is: does this bespoke service require regular “all-nighters”?

Is this really the most efficient approach? Research shows that working long hours does not improve productivity. Studies document diminishing returns after a certain threshold — typically around 50 hours per week.

Coben also pointed to the mega-salaries junior bankers earn. In the end, there is no such thing as a free lunch in life.

They know what they are getting themselves into. The reality may not be as glamorous as it seems. Assuming an entry salary of £90,000, as indicated in the article, an 80-hour working week for 47 weeks a year — admittedly a very basic calculation — junior bankers would earn a higher hourly rate by doing private tutoring!

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Yes, this is partly down to the nature of the business but it is also a self-perpetuating culture that is blocking efforts to at least mitigate its worst excesses.

Addressing this could, in fact, positively impact productivity as well.

Sonia Falconieri
Professor in Corporate Finance,
Bayes Business School (formerly Cass),
London EC1, UK

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A reader’s reassurance at sight of Rolls-Royce logo

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No publication has bettered the FT for the coverage of Boeing’s downward and tragic flight path resulting from putting financial engineering (sic) before real engineering. Rereading John Gapper’s piece about the revival of Rolls-Royce’s fortunes (Opinion, September 13) I was surprised to see no words of caution about the possible consequences of too much “squeezing” of a product that must work perfectly throughout its life, and no warning on the potential for a Boeing outcome.

For me, I am always reassured when I look out from a window seat to see the classic black and silver RR logo on the engine housing. Long may this continue.

Gregory King
Aberdeen, Aberdeenshire, UK

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Federal Reserve puts on enormous party hat

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This is an audio transcript of the Unhedged podcast episode: ‘Federal Reserve puts on enormous party hat

Katie Martin
A great moment in history has arrived. Rob Armstrong was right about something. Quite against the run of play — shush, Rob — quite against the run of play, the Federal Reserve has cut interest rates — hurrah — from the highest level in decades, and for the first time since the pandemic. And what’s more, it went large, cutting by half-a-point, precisely as my esteemed colleague had predicted.

What kind of voodoo is this? Does the Fed know something horrible we don’t? Cutting by half-a-point is normally a crisis measure, a cry for help. Should we panic about a recession? And really, Rob was right. End times.

Today on the show, we’re going to explain how come investors are ignoring the usual script and taking this bumper cut as a good thing. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist here at FT Towers in London. And listeners, I must tell you, the saddest of things has happened. I’m joined by Rob Armstrong, lord of the Unhedged newsletter. But the sad thing is he’s dialling in from his sickbed. Rob, I’m sorry, you’re poorly.

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Robert Armstrong
I am poorly. It’s terrible. But on a 50-basis-point day, the dead shall rise from their graves. The angels shall sing. And we all . . . we’re all gonna talk about it.

Katie Martin
Yes. Good, strong Barry White vibes I’m getting from this voice you’re busting out today. So, as you say, half a percentage point from the Fed; that’s 50 basis points in market money. Normally central banks love being super boring and they normally move by quarter-point increments. So, I mean, was it the shock of being right about the 50-basis-point thing that pushed you over the edge into sickness?

Robert Armstrong
It could have been. I’m so accustomed to getting this wrong now that it was really paralysing. However, I think, you know, you mentioned earlier, why is the market kind of taking this in stride and seeing this as a good thing? And I think it’s a bit of a communications success by the Fed in that they told the story about this, that they’re not doing this because they have to, because it’s an emergency. They’re doing it because they can.

Katie Martin
So gangster.

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Robert Armstrong
And the reason they can is because they’ve kind of beaten inflation. Right?

Katie Martin
So for people who, unlike us, have a life and don’t sit around watching central bank press conferences, the way this works is they do the decision, they say, here you are, here’s your 25 or 50 whatever basis points, or we’re on hold. This time around, it was 50 basis points.

And then just a little while later, there’s a press conference where the chairman, Jay Powell, gets up in front of like all of the kind of most pointy headed Fed journalists in the world and fields whatever questions. There’s a statement, and then he field whatever questions they want to throw at him. And this for him was the point of highest danger, because the risk of giving the impression somehow that . . . 

Robert Armstrong
Yes.

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Katie Martin
Yeah, we’re really worried. That’s why we’ve done 50. That was a serious risk, right? But instead, what happened?

Robert Armstrong
Well, right from the press release announcing the 50 basis cut, they tweaked the language in the press release so that it was more affirmative and strong on the topic of inflation. We’re really pleased how it’s going on inflation.

Katie Martin
Right, right.

Robert Armstrong
And then in the press release, I mean in the press conference, he just reinforced that point again and again. The line he repeated was the labour market is fine, it’s healthy. It is at a good level. We don’t need it to get any better. We’re not trying to improve it, but we have the freedom to make sure it stays as good as it is.

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And that message seems to have gone through. Markets didn’t move yesterday afternoon. And as a very, you know, opening minutes of trading this morning, stocks are up. So that message seems to have gotten through.

Katie Martin
Yeah. That is skills, actually. You know, I will hand it to them. Because, you know, it’s . . . we’ve said this before on this podcast. Like, it’s so easy to like throw stones and peanuts at the Fed or the European Central Bank, the Bank of England or whatever and say they messed this up. But, like, this stuff is hard. Getting the markets to come away with that sort of impression is not to be taken for granted.

Robert Armstrong
It’s not to be taken for granted. I agree. However, I will note any time you’re trying to spin a narrative and you want people to believe it, one thing that really helps is if the narrative is true. And in this case, I think it broadly is.

I think inflation really does look like it’s whipped. It’s really either at or very close to 2 per cent. And look, with an unemployment rate of 4.2 per cent and basically no increase in lay-offs and the economy is still adding jobs, I think the economy is pretty good. So it’s not like he had to spin a magical tale of unicorns and wizards here. He just had to, you know, make a case based on the facts.

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Katie Martin
Yeah. And and that kind of goes back to the fact that the Fed is not quite like all the central banks in that it has to look after inflation, but it also has to look after the jobs market. And so, you know, again, the risk is that you come away from a decision like this and think, well, you know, those little cracks that we’ve seen in the jobs market, maybe they’re the start of something really big and hairy and awful, but he seems to have massaged this one away.

Robert Armstrong
Indeed. Impressive performance.

Katie Martin
And so the other thing they do in this press conference is they give the general public and sad nerds like us a little bit of a taster about what’s coming next from the Fed, right. So they’re always, like, central bankers are at pains to say none of this stuff is a promise. This is just our kind of best current understanding of the state of the universe. But so, then you end up with this thing called — drumroll — the dot.

Robert Armstrong
The dot plot.

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Katie Martin
The dot plot. Explain for normal people what the dot plot is.

Robert Armstrong
OK. So it’s kind of a grid. And along the bottom are the years 2024 through 2027, and then another column for the infinite future. And then there’s a range of interest rates going up and down on the side. And every member of the monetary policy committee puts a little dot in each year column where they think the rate is gonna be in that year. Cue much speculation about what all this means, how they’ve changed their mind since the last dot plot and, you know, the implications of all of this.

Katie Martin
Whose dot is whose? We’ll never know.

Robert Armstrong
They don’t reveal whose dot is whose. That’s an important point. And by the way, Katie, according to everything we hear out of the Fed, having invented this device, which was supposed to increase clarity and make everyone’s life easier, everyone in the Fed now hates it and wishes it would go away . . . 

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Katie Martin
Damn you, dot plot!

Robert Armstrong
Because it just causes endless, idiotic little niggling questions from people like me and you. But once you’ve invented something like this, if you take it away, people get upset.

Katie Martin
So you look at the dots and you look at what Jay Powell was saying at the press conference and what does it all add up to? Does it mean that, like, OK, they’ve started with 50 basis points, so like 50 is the new 25? Get used to it, boys and girls?

Robert Armstrong
If you look at the dot plot and their kind of aggregate expectations of where rates are gonna go, it is not that 50 is the new 25. The implication is that the rate of cuts is going to be very measured — or might I say stately, from here until they reach their target.

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Katie Martin
Right, right.

Robert Armstrong
And, you know, another point to mention here is where they think they need to go is very important. That’s the kind of last part of the dot plot is, like, where should interest rates be when everything is normal again?

Katie Martin
Because that will happen one day. And . . . 

Robert Armstrong
Yeah, that will happen. They think it’s gonna happen sometime around 2026, 27. We’ll get to where it’s about normal and they’re looking for about 3 per cent rates in the long run and that . . . so that’s where we’re going to. Just to set the context, we cut from 5.5 per cent to 5 per cent yesterday. And the map of the dot plot shows us moving towards a little under 3 per cent over time. And it’s a matter of how quickly are we going to get there, and along the way, are we going to change our mind and decide we have to go somewhere else?

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Katie Martin
Yeah. So is there a kind of joyful hope that maybe the Fed could be, like, boring again and it can just sort of do 25 basis points here and there and just take this kind of glide path lowering rates that doesn’t get people excited any more?

Robert Armstrong
Well, this is the problem about the future is that it is hard to predict and particularly hard to predict with interest rates. The issue is that the economy, the structure of the economy has changed a lot in the last couple of years because of the pandemic and for other reasons. So that final destination point I talked about, which economists call the neutral rate, which is the just normal, everything is boring and steady rate of interest in the economy where everyone has a job, there’s no inflation, everything’s cool, the neutral rate. We don’t know what that number is.

And Jay Powell has this line about it. We know it by its works. And what that means, stated less calmly, is we know it when we screw it up. In other words, we hit it, we go past it. We push interest rates above the neutral rate and stocks have a big puke and the economy starts to slow down and people get fired or we travel too far below it and inflation starts again. So like the Fed over the next couple of years is like walking down this passage in the complete dark and it knows it can’t touch the wall on its left or the wall on its right. Right? But it doesn’t know the shape of the passageway, what direction it’s supposed to go. So it’s just like, well, I sure hope we’re going this way. Dee-dee-dee. And hope it doesn’t hit too low or too high along the way.

Katie Martin
Hope it doesn’t just walk into a wall.

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Robert Armstrong
The history of interest rates is history of feeling your way along in the dark.

Katie Martin
Rob, that’s the most lyrical thing I’ve ever heard you say.

Robert Armstrong
Isn’t it? It’s poetry. It’s because I’m so ill. These could be the final words of a dying man.

Katie Martin
What meds are you on for this cold you’ve got?

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Robert Armstrong
This could be my legacy, Katie. (Laughter)

Katie Martin
I feel like we should kind of wrap up quite soon before you just like expire during the recording.

Robert Armstrong
I do. As much as I like you, I’d like to have a few words with my wife before I shove off.

Katie Martin
But I will ask you, are we ever going back to like zero interest rates, do you think? Or are we gonna look back on that…

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Robert Armstrong
I feel like I’ve been asking a lot of questions. This is a great question, Katie, but let me push it back on you. We had this wild period in the last decade where there was like a gajillion dollars of sovereign bonds issued at a negative interest rate.

Katie Martin
I think that was something like $18tn or something.

Robert Armstrong
Money was free. It was bonkers. And it was like the Fed funds rate was up against zero. Money was free. We were all in Silicon Valley inventing start-ups whatever, doing our thing. Do you think we’re going back to that? Like once this incident, the pandemic and everything after is over, are we going back?

Katie Martin
I mean, I can’t see it. I buy the narratives that are kicking around about inflation now being structurally higher, right? There’s a climate emergency. There’s a global defence emergency. There is all sorts of things that governments need to spend lots of money on, borrow lots of money for, all things being equal. And then there’s the whole supply chain thing after COVID and with geopolitics yada-yada.

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Robert Armstrong
And the world is getting older, right? And so when old people create demand for savings, that drives interest rates up, right?

Katie Martin
Ah, old people. Yeah.

Robert Armstrong
Old people.

Katie Martin
But I think also before we wrap up, we should note that although you were right, about 50 basis points, I was right about the timing. I said on this here very podcast back in, I think it was June 2023, the . . . Not 24. 23. That the Fed is not gonna cut rates till the third quarter this year. So what I’m saying is I’m the genius here. You’re just like a (overlapping speech) took a coin flip.

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Robert Armstrong
You’re basically Cassandra. Doomed to see the future and not be believed.

Katie Martin
I’m going to . . . 

Robert Armstrong
Do I have the right mythological figure there? I think that was Cassandra.

Katie Martin
Absolutely no idea. But I’m going to set up a hedge fund called like hunch capital where I can invest your money for two and 20. (Laughter) Based on nothing but pure hunches. Do you want in? Because like my hunch on that, your hunch on the other. I think we’re going to make good money.

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Robert Armstrong
We could. We could be rich people, Katie. But I will answer your question seriously. I think interest rates are higher now. We’re not going back to zero. I will end on that serious point.

Katie Martin
Yeah, yeah.

Robert Armstrong
Governments are spending too much. They have to spend too much. There’s loads of old people. There’s the green stuff has to be funded. Productivity might be rising possibly because of AI. We are going into a higher interest rate world. And by the way, the Fed thinks that. If you look at the history of the Fed’s view of what the long term normal interest rate is, that has been steadily ticking higher over the last year and a half or so.

Katie Martin
So rates have come down already pretty hard, but don’t get yourself carried away with thinking that we’re going back to zero, because ain’t . . . I mean.

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Robert Armstrong
No. Ain’t gonna happen. Nope.

Katie Martin
Ain’t gonna happen.

[MUSIC PLAYING]

On that bombshell, we’re going to be back in a sec with Long/Short.

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[MUSIC PLAYING]

OK, now it’s time for Long/Short, that part of the show where we go long a thing we love, short a thing we hate. Rob, I feel like you should go first before you completely lose your voice. (Laughter)

Robert Armstrong
Well, I’m going to go short wellbeing. And I say this not because my wellbeing is poor right now, but because of an article our colleague Joshua Franklin, wrote in the Financial Times yesterday that says, I’m quoting here, JPMorgan Chase has tasked one of its bankers with overseeing the company’s junior banker program, a response to renewed concerns about working conditions for young employees. And it goes on that this poor person is gonna have to make sure all these young investment bankers are happy and have work-life balance. I think investment bankers owe it to the rest of us to be miserable.

Katie Martin
Right.

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Robert Armstrong
They make a lot of money. They are the lords of the universe. They should not be happy. Their wellbeing should be awful. And that’s what you’re getting paid for. So I think JPMorgan Chase is doing the wrong thing here. And they need to appoint a banker to oversee the what’s the opposite of wellbeing. Unwell being of their junior bankers.

Katie Martin
You’re a very, very mean person and you just want everyone to be sad like you.

Robert Armstrong
No, if you want to be happy, become a journalist and make no money. If you want to be rich, become a banker and like get divorced and have your kids hate you. It’s just the normal way of life. (Laughter)

Katie Martin
Well, I am long European banking merger drama. So if you’ve missed it, the German government is, like, quite scratchy and unhappy about a potential takeover of Commerzbank by Italy’s UniCredit. It’s the talk of the town. Everyone is kind of, you know, huddled around in bars in the city asking like, how the hell did UniCredit manage to amass like a nine per cent stake in this thing? Like that doesn’t seem like a good strategic move. There’s a lot of excitement over the motives. My interest here is that this is just like the good old days of European banking mergers with like very important European bankers wearing gilets under their jackets going around in like big fast cars and, you know, chatting away on their mobile phones and being masters of the universe.

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Robert Armstrong
I just wish they would get along with it. As far as I know, in continental Europe, there’s actually more banks than people.

Katie Martin
Yeah, it’s like sheep in New Zealand. You’ve just got . . . (Laughter)

Robert Armstrong
They just need. I mean, as long as I’ve been in finance, people have been rattling on about how banking in Europe was going to consolidate. The industry was finally going to make some. They just need . . . I mean, as long as I’ve been in finance, people have been rattling on about how banking in Europe was going to consolidate. The industry was finally going to make some money and it was going be able to compete with the US. And then it’s like, you know, some Germans get mad at some Italians, it never happens and the cycle turns again.

Katie Martin
Yeah, it’s like we want consolidation, but no, no, no, no, no. Not like that.

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Robert Armstrong
Not like that.

Katie Martin
Anything but that.

[MUSIC PLAYING]

And I am here for the drama is all I’m saying.

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Robert Armstrong
Right on. I love it.

Katie Martin
OK, listeners, we are going to be back in your feed on Tuesday if Rob makes it that long, but listen up anyway, wherever you get your podcasts.

Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler. FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer. I’m Katie Martin. Thanks for listening.

[MUSIC PLAYING]

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How the EU can reset foreign policy for the western Balkans

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Steven Everts makes numerous important and laudable points on the need for the EU to seriously recalibrate both its capacities and posture in foreign policy (Opinion, September 12).

It’s worth adding that in a foreign policy area on the bloc’s very borders, the EU has led the west into a dead end of failure, in which official pronouncements have never been more at variance with the on-the-ground reality.

The western Balkans is the only region in which the US consistently defers to a democratic partner’s leadership — that of the EU.

Nowhere else does the west, if united, wield greater leverage or have a wider array of policy instruments. Yet for far too long, the EU has addressed the region almost solely through its enlargement process, neglecting its foreign policy commitments — including a deterrent force in Bosnia and Herzegovina mandated by the Dayton Peace Agreement and authorised under Chapter 7 by the UN Security Council.

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This force remains well below the brigade-strength required to pose a credible deterrent to threats to the peace and territorial integrity. In addition, the EU states it will support local authorities, who have primary responsibility to maintain a secure environment — defying the reason the mandate exists to begin with: namely to thwart attempts by local authorities to upend the peace.

The desire to maintain the fiction that the Belgrade-Pristina Dialogue is still alive compels the EU into all sorts

of contortions which in effect reward Serbia, despite allegations of Serbian involvement in recent violence, and periodic (and ongoing) threats of invasion. By straying from its original declared purpose to achieve mutual recognition between Serbia and Kosovo, as well as serving as a shield for Serbia’s authoritarian president, Aleksandar Vučić, the dialogue serves as a diversion from genuine problem- solving.

Incoming EU foreign policy chief Kaja Kallas has demonstrated leadership and vision for Europe and the wider west as Estonia’s prime minister, particularly with regard to the response to Russia’s war of aggression against Ukraine.

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One hopes she will undertake the overdue task of making the policies of the EU and the wider west more consistent with the values of democracy and human dignity we proclaim to hold dear. She can begin by leading the west to a restoration of credible deterrence in the Balkans, and start to counter the backsliding of democracy long visible there.

Kurt Bassuener
Co-Founder and Senior Associate, Democratization Policy Council, Sarajevo, Bosnia and Herzegovina

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Illegal settlements have been encouraged for years

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Neri Zilber’s piece “Far-right minister accused of politicising Israeli police” (Report, September 17) eloquently describes the crisis in the West Bank. Israel’s current government and its unsavoury allies in the settler movement stand accused, but in truth every government since 1967 has favoured illegal settlement.

The first settlements — the so-called Nahal settlements — in September 1967 were supposedly military and so did not, Israel argued, contravene international law. The west did nothing, so Israel then went ahead with brazen colonisation. When the first Oslo Accord was signed in 1993, there were in the order of 110,000 settlers in the West Bank.

A central principle of Oslo was that neither party would takes steps that would prejudice final status talks five years later. But Israel’s so-called moderate leaders, Yitzhak Rabin and Shimon Peres, immediately inaugurated the most intensive phase of settlement to date. By January 1996 settlers numbered 140,000. Rabin told his electorate not to worry — the Palestinians would not get a state. Meanwhile, Rabin and Peres accepted the Nobel Peace Prize. Butter wouldn’t melt in their mouths. The west did nothing. The Palestinians knew they had been stitched up.

So we should be under no illusions. This isn’t simply Benjamin Netanyahu and his associates, it is the long-standing thrust of the majority of Israelis across the political spectrum. Western governments have known this all along and even now appear unwilling to ensure respect for international humanitarian law as they have undertaken to do.

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The UN General Assembly is likely to agree that the July 19 advisory opinion of the International Court of Justice, which spells out Israel’s lawbreaking in detail, must be applied.

If it isn’t, in the Middle East the killing will continue while in New York the UN may face an impasse given the unwillingness of the US and its allies to uphold the international order they themselves helped put in place.

David McDowall
London TW10, UK

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Economy worries swirl after ‘painful’ Budget warning

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Economy worries swirl after 'painful' Budget warning
Getty Images Woman wearing yellow strappy sandals walking down a High Street carrying two shopping bags, one in each handGetty Images

The longest-running measure of consumer confidence fell sharply in September, raising concerns about whether government rhetoric about Budget “pain” has spooked people.

GfK’s Consumer Confidence Index had been recovering after years of rolling crises, higher interest rates and inflation gradually creeping up.

But since the end of August, it fell by seven points to -20 overall, which GfK has said does not provide “encouraging news” for the UK’s new government.

Some economists have linked the drop to officials’ warnings of a “painful” Budget at the end of August, although it is impossible to prove a link.

There were “major corrections” – or double digit falls – for consumers’ perception of the general economic situation, as well as how likely they were to make big purchases.

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People’s view of their own personal finances in the future has also gone negative again, down nine points to -3.

Former Prime Minister Rishi Sunak had previously hailed the turn in this measure positive as a sign of an economic turnaround.

The fall was unexpected as it came in the aftermath of an interest rate cut from the Bank of England, potentially easing the pressure faced by some homeowners.

But other measures of consumer confidence have dipped too.

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“Despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government,” said Neil Bellamy, consumer insights director at GfK.

He suggested that following the withdrawal of winter fuel payments and warnings of “further difficult decisions” to come on tax, spending and welfare, consumers are “nervously” awaiting the upcoming Budget on 30 October.

Some business leaders, such as the Labour-supporting boss of Iceland, Richard Walker, have warned the government about “doom-laden prophecies” on the economy.

When asked if “doom and gloom were overdone” last week, Chancellor Rachel Reeves told the BBC: “The latest business surveys continue to show a high degree of confidence in the UK economy because this government has brought stability back”.

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She also spoke of how she now wanted to “unlock the huge potential” of the country.

The Bank of England Governor Andrew Bailey said on Thursday that he thought underlying confidence was rising but that consumers “want to see evidence that this is sustained”.

He also noted that rising incomes in the wake of inflation spiking had led to a “sharp rise in savings” in the last year – more than the increase in consumer spending.

The chancellor and prime minister are expected to outline a more hopeful, upbeat economic message at the Labour party’s conference next week, and at an important investment summit in mid-October.

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But what’s clear is that this is not a government that is rowing back on the message that the Budget will contain tax rises, welfare cuts and government departmental cuts, which may prove painful for some.

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