What Adrian Orr learned at Jackson Hole

Reserve Bank Governor Adrian Orr says central bankers see signs Covid and war have lifted inflation and interest rates more permanently; he says they're determined to get on top of inflation

TLDR: Reserve Bank Governor Adrian Orr learned at the Jackson Hole shindig for central bankers last weekend there are increasing signs the disruptions from Covid and the war in Ukraine are pumping extra inflation into the global economy in a more permanent way that central bankers are serious about getting on top of.

Orr told me about his impressions from the Jackson Hole conference in an audio interview for When The Facts Change on Thursday. The full transcript is below. Here’s the link to the article as published on The Spinoff.

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Here’s the takeaways from the 30 minute interview with Orr:

• central banks are determined to establish their credibility as inflation fighters;

• growth rates have been hit hard and in a more permanent way than previous thought;

• most of Aotearoa-NZ’s interest rates and inflation are generated by global economic forces;

• Covid may have changed labour supply and practices in permanent ways that could improve productivity; and,

• other central banks were interested in our Reserve Bank’s approach and its decisions to stop quantitative easing and start hiking interest rates earlier than others.

‘Some of it’s longer-lasting and we’re serious about beating it back down

“We are a very small economy bobbing about on a global financial ocean,” says Adrian Orr. Photo: Lynn Grieveson / The Kākā

The times they are a changin’ for everyone, and especially for central banks and the global economy. In 2020 and early 2021 they were seen as saviours of the global economy with their decisive interventions in the immediate wake of Covid to create trillions of dollars to buy bonds and dramatically lower interest rates.

But as inflation surged towards double digit rates in much of the developed world this year, the view has shifted. Now central bankers are partly seen as the causes of inflation and their independence is being challenged because inflation rates are double and triple the targets they’re supposed to meet.

Nowhere was that more evident than last weekend when hawkish talk about getting inflation under control rattled global financial markets and saw stock and bond prices fall 3-4%. This battle between central bankers and markets over the future of inflation has been focused on one place and one man for weeks. It’s all because his view has changed so dramatically over the last year.

Late last August of 2021, the world’s most important central banker, US Federal Reserve Chair Jerome Powell, told the annual conference for central bankers at Jackson Hole in Wyoming that the US Federal Reserve saw early signs of rising inflation in the wake of Covid as ‘transitory’ and likely to ‘wash out’ over time. He used the word ‘transitory’ four times in a 2,800 word speech that took more than a quarter of an hour. It reassured investors worried that inflation might become dangerous.

Fast-forward a year and Powell was in a much tougher and more aggressive mood, spending just eight minutes and 1,300 words to say inflation was now his main focus and he wouldn’t hesitate to act to squash it.

Among the 120 or so other central bankers and macroeconomists there to hear the speech, Reserve Bank of New Zealand Governor Adrian Orr also heard the change of tone.

“Without doubt, the tone changed considerably. Jerome Powell set two records in his speech the other day, he came in under eight minutes for a monetary policy speech. So that must be amongst the world's shortest,” Orr said.

“And he took around 3% off global equity markets, so that must be around one of the world's most expensive speeches. They say small things are generally more expensive, and he delivered,” he said.

“He is reminding people that, first and foremost, their primary concern is maintaining low and stable inflation. And yes, people have underestimated the scale and persistence of the shocks that the globe is going through at the moment, mostly with regard to just once the economy shrinks, and its capacity to produce, once labor is scarce, capital is scarce, energy is more expensive, the inflationary pressures are much higher and more persistent.”

Why we should care about the Jackson Hole talk

Orr made a point of explaining why the conference matters and how interconnected our economy, our financial markets and financial conditions are to the rest of the world.

“We are a very small economy bobbing around on a global financial ocean. And you know, the big swells and waves that come in that financial ocean are driven by the larger countries in the world,” he said.

“The US dollar is still the common denominator, largely in currencies around the world. So what is happening to US monetary policy, European monetary policy is still absolutely critical to what is happening to the New Zealand economy, and particularly around interest rates, exchange rates, and all things financial.

“The base level of interest rates are set internationally, not here. I would say the vast bulk on average through time for interest rates are determined overseas.”

‘Somewhat of a victim support group’

Orr also reported back that central banks felt under enormous pressures.

“A little bit of that Jackson Hole gig was a victim support group for central bankers. They are under immense pressure. Globally, it's no different. And in each country, everyone's got higher than targeted inflation. And everyone is wearing the blame for that, because our task is to keep low and stable inflation,” he said.

Orr said Covid and the war in Ukraine had effectively made the world poorer, which was putting pressure on central banks to demonstrate their value, and the importance of their independence.

“I think it's important that central bankers always remain paranoid about losing the independence,” he said, pointing to the need for central banks to be transparent and explain what they can and can’t do.

“The perspective that I think people are missing is we have had a wealth shock. We are poorer as citizens of planet Earth, because of this Covid, because of the climate change implications, because we keep going back to war,” he said.

“Monetary policy can smooth the pain through time, or shift it between sectors, but it can't avoid pain.”

Climate change and a poorer earth

Orr also pointed out how climate change was also a factor slowing growth and introducing inflation, along with war.

“Earth is now poorer. We've got a sudden realization around climate change, and so we're seeing for any one investment, the returns are different or less. We've got much higher input costs, energy much higher, consumption costs and food. Whilst employment levels have remained where they are, hours of work are declining so we've got less supply capacity,” he said.

Orr said it was too early to tell just how much lower growth would be in a permanent way.

“But without doubt, the signals are that long run growth is going to be on a lower trajectory, then say in the beginning of this century. So the lower trajectory is a partly around demographics, it's part around the shocks, the climate change shocks, and partly around the pandemic supply chains,” he said.

“Now, rather than ‘just in time’ stocking, it's ‘just in case’ stocking. You are seeing quite a lot of general change in economic behavior that is not conducive to innovation or increasing higher growth. It's constraining it at the moment.”

Good productivity news

Orr said there were some encouraging signs for inflation from worker productivity, and in particular working from home, which meant fewer hours to produce the same output.

“We're doing that because we're probably more productive. We're probably now got more capital, our bedroom is now an office. It's almost like a capital injection. And so that has heightened productivity, but it varies significantly across sectors,” he said.

“I would say you are in a new equilibrium where where managers are going to have to be far more focused on managing outcomes, not inputs, having trust and confidence that you know that the people are there. And people are going to be far more flexible and demand that flexibility in how they work.

“In the long run, and I'll say the long run, over the next five to 10 years, I would say productivity and per capita growth will be back to a steady state level of what we saw pre-Covid. But we have to remember that level was a low growth level, it was not a boom period.”

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The full transcript (bolding mine):

Bernard Hickey: Welcome to When The Facts Change Adrian Orr, the Governor of the Reserve Bank. Great to see you.

Adrian Orr: Greetings. Thank you, Bernard.

Bernard Hickey: Glad to see you got back safely from Jackson Hole. For those people who haven't heard of Jackson Hole or don't know why it's the biggest thing since sliced bread for people who are interested in macroeconomics and global finance, why is Jackson Hole so important?

Adrian Orr: So Jackson Hole itself is a location on the middle of Wyoming. It does feel a bit strange travelling all around the world to sit in a paddock and stare at mountains. We've got plenty of those here, but in that paddock with us, is the global community of monetary policy experts. So it's run by the US Federal Reserve of Kansas, and they have got a 45-year track record now of having this annual gig. And they get central bankers from all around the world. And I'd say top academics, and they choose chunky themes. So don't try and just talk about everything all at once. They'll choose. They'll go deep on a particular theme. So this year, it was around the constraints on economic activity. That seems rather real and topical for all central banks.

Bernard Hickey: So why should people in New Zealand – who are paying their mortgages or paying their rent or getting money from a term deposit, wondering whether they are going to get a pay rise or not, or keep their jobs – why should they care about what people like Jerome Powell, the Federal Reserve Chair in the United States or the policymakers at the European Central Bank say? Why should we care here in New Zealand, what they're thinking and doing?

Adrian Orr: We are a very small economy bobbing around on a global financial ocean. And the big swells and waves that come in that financial ocean are driven by the larger countries in the world. The US dollar is still the common denominator, largely in currencies around the world. So what is happening to US monetary policy, European monetary policy is still absolutely critical to what is happening to the New Zealand economy, and particularly around interest rates, exchange rates, and all things financial. If US interest rates go up and we don't, then that's downward pressure on exchange rate, is one simple example. Likewise, if the world gets spooked, and everyone wants to rush to safety, that's generally the US dollar. So again, our exchange rate goes down, or our interest rates go up. So we're interconnected. We can't deny that and every country is. Countries have different ways of connecting. For us in New Zealand, we've chosen to have a freely floating exchange rate, which is a first best choice in my book. That means we can control local inflation. But we can't control the exchange rate. And the base level of interest rates are set internationally, not here.

Bernard Hickey: Because we debate a lot about inflation, and often it's framed as a political issue, the focus is very much on local stuff, and what the government is doing or what the Reserve Bank's doing. But how much of the inflation that we see, and how much of the interest rates that we have, are driven by inflation overseas or interest rate expectations overseas?

Adrian Orr: I would say the vast bulk on average through time for interest rates are determined overseas. There's the global savings and then there's global demand for capital. And that's what sets the global interest rate. Then for any one country, we are really just anchoring off what is that global interest rate. The nearest measure of the global interest rate would be the cost of debt in the US for the US government, the lowest risk type of anchor, and then we anchor ourselves either above that or below that, depending on our own business cycle.

The wonderful thing Jackson Hole brings us is an opportunity for the three legs of leadership: getting perspective. having empathy, and having the courage to do the right thing through that. So a little bit of that Jackson Hole gig was a Victim Support Group for central bankers. They are under immense pressure. Globally, it's no different. And in each country, everyone's got higher than targeted inflation. And everyone is wearing the blame for that, because our task is to keep low and stable inflation.

On the perspective side, global inflation is very high, I summed it up in my mind, the closer you are to the Baltics, you're around 15 to 20% inflation and still rising. Core Europe, you are between 10 and 15%, and still rising. The UK, I will consider part of Europe for that component. And then you know, around the rest of the world, excluding China, Japan, we're somewhere between five and 8%, inflation. That's where New Zealand sits.

So that perspective of just how high inflation is globally is critical. The world is poorer. We've had true economic shocks, where the potential growth rates of countries are very inhibited by higher energy costs, a lack of labor resources, war, trade, all of these things. And that is those big global perspectives that are creating the inflation pressure.

Bernard Hickey: So at the last Jackson Hole conference, the Fed chair was at that point, saying, ‘Well, I think this inflation might be transitory’, and he was seen as the head of Team Transitory, although at that point, our Reserve Bank had stopped its quantitative easing program process, and was in the process of planning for rate hikes, which started in October, and the Reserve Bank was amongst the first in the world to do it. But the Fed chair's view has changed since then. And he said in the speech, which was public, over the weekend, that inflation was taking longer than everyone expected to get down, and the US Federal Reserve was going to just keep on hammering at it until it was done. How did you feel the mood or the vibe was of the other central banks in terms of: that was last year, this is this year?

Adrian Orr: Without doubt, the tone changed considerably. Jerome Powell set two records in his speech the other day, he came in under eight minutes for a monetary policy speech. So that must be amongst the world's shortest. And he took around 3% off global equity markets, so must be around one of the world's most expensive speeches. They say small things are generally more expensive, and he delivered. He is reminding people that, first and foremost, their primary concern is maintaining low and stable inflation. And yes, people have underestimated the scale and persistence of the shocks that the globe is going through at the moment, mostly with regard to just once the economy shrinks, and its capacity to produce, once labor is scarce, capital is scarce, energy is more expensive, the inflationary pressures are much higher and more persistent.

So you know, the focus of this gig was around what's happened to the supply potential of countries. So now the US, the rest of Europe are saying, well, this really is a permanent dent in our capability to produce goods and services without generating inflation. And so they're having to tighten policy. They want to win the day on credibility. You cannot have maximum sustainable employment without low and stable inflation. So that's their primary goal. They're having to repeat it often because markets, you know, they will pick 15 of our next two moves. Markets are already trying to pick, have they done enough so far, and when can they start easing? And so the central bankers globally are saying, it's not for some time yet. There will be a prolonged period where economic demand has to be reduced to below the potential growth rate of the economy, to take the inflation pressures out.

Bernard Hickey: That chunk that's come out of supply. Where is that? What caused that?

Adrian Orr: Earth is now poorer. We've got a sudden realization around climate change, and so we're seeing for any one investment, the returns are different or less. We've got much higher input costs, energy, much higher consumption costs, food. Whilst employment levels have remained where they are, hours of work are declining so we've got less supply capacity. And war does nothing to long term growth potential for a country. And obviously you're seeing geopolitical tensions, particularly in the Europe area, but everywhere.

So these are areas where the world's capacity to produce has shrunk, in part temporarily, some of these things were resolved themselves supply chains, and in other parts, there is a fundamental change in investment needs for countries. A lot of the work and the academic research was trying to sift through how much of this was going to set us on a lower permanent growth trajectory, versus a back to normal, but normal was always much lower than what was being priced in the markets.

Bernard Hickey: So what did you learn from those papers about how much of its permanent and how much of it's temporary?

Adrian Orr: You have the most famous words of other people: too early to tell. But without doubt, the signals are that long run growth is going to be on a lower trajectory, then say in the beginning of this century. So the lower trajectory is in part around demographics, it's part around the shocks I've just talked about, the climate change shocks, part around the pandemic supply chains. You're seeing a change in your behavior around regional trade now. Rather than 'just in time stocking, it's just in case stocking', you are seeing quite a lot of general change in economic behavior that is not conducive to innovation or increasing higher growth. It's constraining it at the moment.

Bernard Hickey: That deglobalisation idea has been talked about a lot in tensions between China and the United States, and of course, the war in Ukraine. But there's some people pushing back and go, actually, when you look at the trade numbers, there's still plenty of stuff going in and out. And not many companies have pulled out of China. It's a massively integrated supply chain, that would be like trying to unpick the tangle of cords at the bottom of the bag, you know, it's really hard to do. So what's your view on that deglobalisation thing?

Adrian Orr: I think global trade will continue to grow and be stronger through time. But there is going to be a higher fixed cost to doing business. I used the phrase, ‘just in case stocking’. All good ideas get taken to too much of an extreme, they become a bad idea. If you're trying to run a factory somewhere else in the world, based on the just in time delivery of a ball bearing from another part of the world, well, you might decide that you're going to stock some ball bearings. And so that fixed cost of activity has happened.

The other one around outright security, whether it's food security, cyber security, access to labour security, people are going to be far more comfortable carrying additional surplus capacity, even though it's not always used. So those changes have happened.

On the flip side of it, there was really good banter around ‘well, what's working from home done?’. So employment levels have stayed where they are, but hours worked have declined per employee globally. And we're doing that because we're probably more productive, we're probably now got more capital, our bedroom is now an office. It's almost like a capital injection. And so that has heightened productivity, but it varies significantly across sectors. And you so you'll see, well, aggregate productivity may have held up, it's highly variable across sectors, those who can benefit from working from home have done so. Those who can't are really struggling (with) physical transport physical activity. So you will see real changes in supply chains continuously for a long time to come.

Bernard Hickey: Because when Covid first happened, we all thought, you know, work from home for a few weeks, and then we'll all go back to normal, but not just a physical effect of Covid, long Covid. But also some of the what appear to be almost permanent changes in how people work. You know, they're now working only four days a week or three days a week from home and two days in the office or three days in the office and two days at home. How will we know when? Okay, that's not a temporary thing. That's a permanent thing. And this is what it means.

Adrian Orr: I think we know now. I would say most firms globally. I spend a lot of time talking with the other central banks. I spend a lot of time talking to business. You know if you're going to get three to four days of people in the office and and one to two days, working from home, that looks about the norm. That's happened now. Which two days is it? Determined by the individuals.

What does it mean? You can get a significant lift in productivity. People are far more focused. Less hours to achieve the same outcome. Less commuting, less fixed cost to doing business in a lot of ways.

But it does challenge other means. Are we losing innovation by not being together and sharing ideas and chatting? Do we have disconnected labor forces. People who have never actually met their colleagues. That is now a real thing. Two years and a labor force and haven't been to the shop yet.

You are in a new equilibrium where where managers are going to have to be far more focused on managing outcomes, not inputs, having trust and confidence that you know that the people are there. And people are going to be far more flexible and demand that flexibility in how they work.

Bernard Hickey: So that's quite a good story on productivity. And typically, when you have productivity growth, that's actually good for inflation. But on the same token, you've got fewer people working, maybe they've got long Covid, you've got a chunk of the world where trade is hit by the war, you've got these geopolitical issues. So what net-net do you think all of these permanent changes mean for inflation and growth as we see it?

Adrian Orr: In the long run over the next five to 10 years, I would say productivity and per capita growth will be back to a steady state level of what we saw pre-Covid. But we have to remember that level was a low growth level. It was not a boom period.

Throwing more resources at the same thing has been a means of growth for some large parts of the world. But that's not productivity enhancing, that's coming to an end. The labor force of China has now been discovered, and it's now being embedded. So we were missing that big, free lunch we had for a while around just more and more people doing the same thing. Now we have to either do the same thing better or better things.

A lot of the immediate technology usage we've seen has been about doing the same job, but just better. So doing my job, but from home without commuting, the real challenge will be around what are the better things that we start doing because of our connectivity. And because of these economic shocks. So a lot of those better things are going to need significant investment. The swing towards sustainability on the climate area, that's going to be massive areas for investment. Fantastic productivity pickups, but you're not going to see that for some time. Meanwhile, you're going to have industries written off.

Bernard Hickey: Now on the issue of financial markets and financial stability, often it's at Jackson Hole and and the various meetings overseas are a good chance to find out, you know, where the sounds of a bomb about to go off and the system are and, you know, 2008/09, you know, everyone could talk to the other bankers and find out what's going on. When you have these sort of geopolitical shocks, the war, the inflation, sometimes that causes grief in some markets. We haven't seen, you know, collapses of banks in Europe or the States. But I just wonder, what was your feeling about where the places to watch are? Where were the bodies starting to be buried?

Adrian Orr: First and foremost, I mean, Russia wasn't at this meeting but they are in other meetings. So the closer to that region of the world, the harder, the higher actual inflation is. So if you think about if I put it into three big areas.

Europe's in a really tough position where they have a single monetary policy, but they don't have a joint fiscal policy. So the interest rate is, they've only got a single interest rate for that vast group of countries. Some have extremely high inflation rates, others less so who. Where is that interest rates set and how they're really going to get on top of the inflation challenge?. That is a real challenge for them. You go into a lot of our trading partners in the Asian region: any country that is trying to fix or manage their exchange rate is really struggling at the moment.

We float. We're not party to that. But if you're trying to fix or manage, you're hearing a sucking sound of capital going on in your country, because the capital is going to the US. The US dollar is appreciating for all the reasons and if you want to peg yourself the US dollar, you're having to intervene in your own currency, or set up capital controls, or have a myriad of macro-prudential tools, leverage ratios on banks and liquidity and capital. So it's expensive and complex to have. There's no free lunch to be able to fix your exchange rates., other things need to move. So that is a real pressure there. That was -- I'm not saying it's an Asian financial crisis -- But that was the beginning of that of that in the late 1990s.

Bernard Hickey: So that's, that's how Thailand gotten into trouble and caused the financial crisis? Is there anything like that brewing?

Adrian Orr: The good news is that region of the world, and we're very close with them, we, through another group of central banks, really are significantly bolstered to manage through those periods, the new challenge to them so you know, in terms of reserves, in terms of capital controls in terms of credibility, a real challenge for them. Is that the high inflation that's coming through most impacts on low socio economic groups, and its energy and its food. So social cohesion is being really challenged.

That's a global story, and you really felt that talking to a colleague, the Bank of Thailand, and apologies if I get the stats wrong, but I think there were 40 million tourists, pre-Covid, they got down to 400,000. They're back at about 4 million. The scale of of the impact they're doing and now the scale of support that the government balance sheets need to provide to keep them keep these countries on a good path.

Bernard Hickey: So through Jackson Hole, there were a whole bunch of speeches and papers presented. One of the fun things I did at university was listened to some great lectures. And sometimes you'd be going out of the lectures thinking, that was an idea I've never thought of, or a data point that like, opened my eyes. Did you have any moments like that where you know, you were listening to a speech and thought, well, it's a genuine new insight. I had no idea about that. Or I need to write a note and send it to my my direct reports.

Adrian Orr: A couple. I mentioned perspective, empathy, courage. Perspective was just fantastic. We're all looking at ourselves and blaming ourselves, but it's such a global phenomenon. That perspective came where we talked about this inflation: the IMF, it's mainly fiscal, the IMM, it's mainly monetary or the IMR -- It's mainly real.

Some countries were really up against that fiscal barrier. If you have got extremely high government debt, then the incentives to either inflate that debt away, or you lead inflation expectations get to own you, or to outright default, are real. We've got plenty of examples, recent and and right on the edge, globally, where fiscal positions are just never been so high.

The US sits in amongst that. The mainly monetary group didn't get much at all, because, we've had plenty of criticism here. It's all the settlement cash balances, da da da, that the money times velocity equals price times output.

Whilst that's great, the velocity is the thing that is endogenous. It just does not move according to that framework. So the monetarists were allowed to have their say, but they didn't really get much momentum on the ground. There's nothing new there.

Bernard Hickey: Why has the velocity slowed down? Is there a savings glut? Or is it like Scrooge McDuck has got it piled up in the corner, or what?

Adrian Orr: It's more than that our banking system is so fundamentally changed. We've got capital expectations, we've got liquidity expectations, we've got loan to value ratio expectations, we've got the transparency. It's just not the banking sector of the 1970s. So even though there might be a pot of putea sitting in the settlement cash balance here, it's just the outright demand that's not being met and the ability for the banks to do the multipliers they used to do so. That was writ large across all countries. It wasn't specific to New Zealand. Everyone was comfortable there.

It was the 'it's mostly real' side that had the insights. So I was pleased to hear that's largely where we were. It's around potential output, output gaps, shapes of the Phillips Curve -- that trade-off between inflation and employment -- real side supply shocks and inflation expectations -- that world of pulling these things together.

And across all of those countries, there were insights for us here in New Zealand, both helping us explain, but also areas of research, around potential output. Do not focus just on the level of employment? It's the hours worked. It's the participation, it's a wide range of things that really matter. Don't focus on just the fact that nominal wages rose. Of course they do and relative prices shift like they do. It's around how that feeds through to the broader expectation, generalized side.

And what shape is this Phillips Curve? For years, central banks kept lowering interest rates, but inflation wouldn't rise. And so everyone finally flattened this trade off and their frameworks. Well, guess what? It's back.

Bernard Hickey: The ghost of Bill Phillips is back?

Adrian Orr: That's right. These things are always non-linear. At some point, it bites. And that was the real revelation. That was what Jay Powell in his eight minutes was saying. 'We've hit that limit. There is not much more we can do other than tighten. Demand has to slow. It has to be below potential output. Full stop. And no ambiguity in that.

I did feel more comfortable for Aotearoa, in the sense that, 'it's mainly fiscal', it's just not an issue here, because of our fiscal responsibility, our low levels of net debt. It's, as you know, it's not a problem here, because we're managing it, not because we're different.

The 'it's mainly monetary', we can explain very easily through the systems and look at our own credit stats to say, well, that's not it.

So it's about refining those tool sets, and more importantly, refining how we communicate, and how we show bias to risk either sides, you know, when you're uncertain. What's the worst things that we most might want to avoid? Rather than what's the average we're trying to achieve?

Bernard Hickey: So just to finish up. Any particular takeaway -- you jumped on the plane and thought – right – that's the thing.

Adrian Orr: It was almost, what wasn't talked about, and what was. Monetary policy and central bankers get together and celebrate 30 years of independence. Yet at the same time, they talked about the role that fiscal policy played in this interaction. What is the optimal level of monetary and fiscal policy coordination? And how can we get over this 'independence does not mean isolation.' Independence means knowing what we have to do with the full information set of the fiscal authorities.

Bernard Hickey: Did you get a sense that people are a little bit worried that the end of independence is a threat after the dramas of the last few years?

Adrian Orr: It's always a topic. I think it's important that central bankers always remain paranoid about losing their independence, because it's, 'how do you keep earning it?’ And so this transparency, this explanation around what we can and can't do?

The perspective that I think people are missing is: we have had a wealth shock. We are poorer as citizens of planet Earth, because of this Covid, because of the climate change implications, because we keep going back to war. Monetary policy can smooth the pain through time, or shift it between sectors, but it can't avoid pain being met.

Bernard Hickey: You're right that overall wealth has reduced. But one of the problems is that, for some people, they're actually wealthier by what happened over the last few years with monetary policy. And was there any discussion about the effects of equality on how people run monetary policy or how that widening inequality gap might endanger central bank independence?

Adrian Orr: Not specifically at this gig, although there was plenty of reference to it in the conversations. But certainly in the history of Jackson Hole, the distributional impacts of monetary policy are really important. Central bankers are pretty impotent, really, we can only operate on aggregate demand. We can't shift supply around much.

Where it was most talked about was that 'it's a mainly fiscal' view of the world. Inflation hurts the poor. Default hurts the savers. There are some pretty stark choices in some countries out there. Do you try and get your way out of this situation by having higher inflation and lower socio-economic groups pay for it? Or do you say to foreign nations who lent you the money in the first place? Sorry, love doesn't live here anymore, or renegotiate? That is at a true global extreme, those two examples.

But, personally at this bank we do worry about those relative impacts. But we have limited tools. But we can explain and talk through.

Our number one challenge over the last couple of years was just the impact on housing and house prices. The underlying cause is that we didn't build any houses for 20 years. So, when we shifted interest rates the impact was outsized. Every country has the same example. The asset classes might differ a bit.

Bernard Hickey: Just finally, what were people coming to you and asking about New Zealand?

Adrian Orr: Thank you for that. This is going to sound a bit trite. I was very humbled by how much people knew about what we're doing. Very proud of the fact that we were called out three times independently as the central bank, who will be the most innovative, has tended to be in the front of the curve and was talked about by having the most success in halting QE and starting the tightening cycle and being on top of it.

So an enormous amount of interest in anything that we're up to is, is out there. I mean, right down to the UK, France, the Netherlands, the US, Brazil, South Korea, all of the governors interviewing me at length on bits and pieces, so it was good.

Bernard Hickey: And Jackson Hole is famous is a place that was launched to get Paul Volcker along because he was a keen fly fisherman. Did you get a chance during the lunch breaks to catch any fish?

Adrian Orr: No, sorry. I think it's my fourth time here so I've been I've been on a couple of good hikois around around the place. It's a stunning place. Warning to Kiwis, they have animals that can kill you there. I thought they had tall possums, but then I saw beware of the grizzly bear sign so I was back to the hotel. This time around, didn't have time.

Bernard Hickey: Adrian Orr, thank you very much for being on ‘When The Facts Change’.

Adrian Orr: Kia ora. Thank you.

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Ka kite ano

Bernard