Bloomberg Savannah's with Tom Keane Lisa Roberts and Jonathan farrow futures unchanged on the S&P and on the NASDAQ two Here's a call from Oppenheimer Morgan Stanley and JPMorgan upgraded even of the economy were to enter a recession we believe that the banking industry would handle it better than any recession in history We're not economists but let's talk about it But this is unlikely to go straight from labor shortages to recession given the large pullback in the stocks and modestly higher estimates the average bank relative PE multiple is now down to 52% So they're looking for some real upside here to those two names tongue And all that up because they're very very constructive on the markets They have been they participate in this bull market But John again it goes to the people adapt Companies adapt central banks adapt They're looking for 30% upside from here I will just say that the market is not picked up on high yields translating as better for bank stocks That's just not been a story over the last few months In fact year to date we've seen this massive move in yields and banks just haven't participated Slot it in is a two hour conversation that we can have this morning with Kenneth rogoff He's Professor of economics at Harvard He is the former IMF chief economist It's far far more than that Truly one of our thinkers of this moment we're in I mentioned professor rogoff to get a gopinath when I was at the IMF A number of weeks ago about this moment with foreign exchange and linking it into our greater global economy and of course our central banks Ken thank you so much for joining surveillance This morning Ken I want to go to a quote from 20 years ago I remember this paper the Carnegie Mellon the freshwater school Bennett McCollum and the team the once dominant ISL M framework from macroeconomic analysis has been sharply criticized excellent of it and the rest of it Nevertheless most undergraduate macroeconomics textbooks continue to feature IS LM models can take us from John hicks 1939 through what you and I were weaned on to where we are now Does any Central Bank have a convection a conventional theory in 2022 Well they still teach I saw them analysis and modern versions of it But central banks of course were not expecting this inflation They hadn't seen inflation for a long time They didn't know what would cause it They had some thoughts And I think if you're honest about the academic literature there was tremendous uncertainty about the Phillips curve about the long run neutral rate of interest So there's just massive uncertainty and then you get hit by the pandemic and now the war in Ukraine and the uncertainty is bigger than ever It was so important here folks and I speak of project syndicate I can't say enough as a font of wisdom led by Kenneth rogoff the laureate Michael Spence and Steve roach many many others but can rog you're right in your assay there on the synchronized global economy How synchronized are we How synchronized is America with China and with Europe Well I mean I think the risks of having a perfect storm where Europe is in recession because of the war China is in recession because of a failed COVID lockdown policy in the United States because the fed Titans too much too fast or however we judge it in response to inflation And that's all feed on each other I mean if China has a supply recession which is really what we're talking about that's going to feed inflation It's going to hurt demand in Europe Obviously if the United States goes into recession it hits financial markets all over the world I would say the risks have risen palpably that this might happen We could get things could work out well I said there's a lot of uncertainty but it's not hard to see all of these risks I mean I'd met in China It's hard to see what's going on but I feel they might already be bordering on recession So Ken do you think that already the risk has gotten too much the fed moving too far too fast at a time when a significant proportion of those on Wall Street think it's the opposite that perhaps they're poised to be overly dovish and not respond enough to inflation that surprises again and again to the upside Well I don't think we'll know for a while what they're going to do because they can raise interest rates a lot before they raise them too much I mean the idea at this well I think the idea that just to 3% would be enough is really unlikely I think they're going to have to raise interest rates to four or 5% to bring inflation down to two and a half or 3% And I don't know if that is something they're going to decide to do I'm not even saying that's something they should do We really have to see what's going on How deep the recession is They've dug a hole or to be precise the huge stimulus and march And I think a lot of the pressures on the fat and uncertainty from academics and research has dug a hole And it's not easy to get out of I mean there's no pretty picture here Ken let's sit on that for a minute but you think that in order to get down to a two and a half or 2% inflation rate they would have to raise rates four or 5% You don't know whether they should do that When will we know whether they should be opting for getting back down to that kind of target at some point in the next few years Well I mean you know it depends on what's going on what the costs are They could get lucky and some of the inflation turns out to be transitory enough so that they get a gentle landing It is not impossible but clearly a lot of things still that could go wrong escalation in Europe China getting worse and it's irrational COVID lockdowns And there's just a lot of uncertainty so I'm not going to say I know exactly what needs to be done but it's clear that things are way out of control Can rogoff you are part of our global interior confidence in the dollar from mundell Fleming to Jacob frankel to your work Maurice felt in the rest and on Rudy dornbush and we come to a new point is the dollar study of value now or is it secondary to what it used to be Oh I think the dollars more powerful than it ever was And yes Central Bank reserves have been diversified a bit although a lot into currencies that are sort of pegging against the dollar The dollar is dominant in trade and boy saying it's dominant in financial markets that's dominant and all kinds of transactions it's surprising I think it's actually by many measures more dominant than it was in the 50s when it was supposed to be going to currency Well in the 50s and let me digress then Ken this is so important on Germany right now in Europe is Germany held back by a memory of atmar issing economics and such I mean is Germany reticent with the war and Ukraine from another time and place is the dollar from another time and place I'm not quite sure what you're asking Tom I mean are you asking is Germany not moving more aggressively and Ukraine because it's concerned about deficits I don't think so I think it's much more the concern about escalation how much do you push Putin to push him over a cliff I think that's actually a very tough call and the Germans don't see it the same way that the American administration does Yeah I'm sorry my question there wasn't all that clear I fail I failed Ken when the Red Sox are in last place So I'm failing Right now Ken on Germany then in the Euro the challenge for Christine Lagarde given what I'm going to call the German reticence How difficult a moment is this for the politician Lagarde.