WEBVTT - Former NY Fed President Bill Dudley Talks Fed Outlook For 2025

0:00:02.400 --> 0:00:07.120
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:07.000 --> 0:00:09.360
<v Speaker 2>The Center, The Federal Reserve Trader is looking ahead to

0:00:09.440 --> 0:00:11.600
<v Speaker 2>the FED minutes this week and a great decision at

0:00:11.640 --> 0:00:13.600
<v Speaker 2>the end of the month. The former New York Fed

0:00:13.600 --> 0:00:15.800
<v Speaker 2>president built out le calling for the Central Bank to

0:00:15.840 --> 0:00:18.720
<v Speaker 2>improve its communication, writing the better the quality of the

0:00:18.720 --> 0:00:22.560
<v Speaker 2>Fed's communication, the more accurately market participants can assess how

0:00:22.600 --> 0:00:25.800
<v Speaker 2>policy is likely to change. This tightens the linkage between

0:00:25.920 --> 0:00:30.320
<v Speaker 2>monetary policy actions and financial conditions, which increases the speed

0:00:30.360 --> 0:00:35.120
<v Speaker 2>and precision of monetary policy transmission. Bill Johndice now for more. Bill,

0:00:35.159 --> 0:00:36.879
<v Speaker 2>Welcome to the show, sir, and a very happy new

0:00:36.920 --> 0:00:38.560
<v Speaker 2>year to you. Where do you think the Fed is

0:00:38.600 --> 0:00:41.920
<v Speaker 2>struggling to communicate right now? On what issue? Specifically?

0:00:43.000 --> 0:00:46.919
<v Speaker 3>I think the sorary econotic projections last month was confusing

0:00:46.920 --> 0:00:49.879
<v Speaker 3>the people because there was a pretty big up up

0:00:49.920 --> 0:00:53.360
<v Speaker 3>through revision to the inflation estimates for twenty twenty five,

0:00:53.840 --> 0:00:57.040
<v Speaker 3>yet it was hard for Paul to explain the sources

0:00:57.040 --> 0:01:01.040
<v Speaker 3>of that. He noted that the participants and operate from

0:01:01.080 --> 0:01:04.120
<v Speaker 3>a common set of assumptions. Some are assuming effects of

0:01:04.880 --> 0:01:07.920
<v Speaker 3>Trump tariff and deportation policies, some weren't, and some didn't

0:01:07.959 --> 0:01:10.360
<v Speaker 3>say whether they were or weren't, So each of the

0:01:10.360 --> 0:01:13.200
<v Speaker 3>projections has a different set of assumptions embedded in it,

0:01:13.440 --> 0:01:17.360
<v Speaker 3>which makes it very hard to anticipate what the Fed

0:01:17.440 --> 0:01:18.920
<v Speaker 3>thinks is going to happen and how they're going to

0:01:18.920 --> 0:01:19.440
<v Speaker 3>react to it.

0:01:19.880 --> 0:01:22.039
<v Speaker 1>Bill is the issue for the FED right now communication

0:01:22.400 --> 0:01:26.319
<v Speaker 1>or just not necessarily understanding which direction of this economy

0:01:26.360 --> 0:01:26.840
<v Speaker 1>is going to go.

0:01:26.880 --> 0:01:31.440
<v Speaker 3>In both, I think the problem is they're having trouble

0:01:31.480 --> 0:01:35.560
<v Speaker 3>communicating how they're likely to react to the Trump policies.

0:01:35.760 --> 0:01:38.200
<v Speaker 4>Obviously, if terroists are broad based, that is one effect.

0:01:38.240 --> 0:01:42.000
<v Speaker 3>If they're much more targeted, as the Watching Post report suggest,

0:01:42.440 --> 0:01:43.640
<v Speaker 3>that has a different implication.

0:01:43.800 --> 0:01:44.920
<v Speaker 4>So it's a lot of the I'm certainly about what

0:01:44.920 --> 0:01:46.520
<v Speaker 4>Trump policies are going to be, and of.

0:01:46.480 --> 0:01:49.360
<v Speaker 3>Course the Fed is uncertain about how the economy itself

0:01:49.440 --> 0:01:52.680
<v Speaker 3>is going to perform. A key issue for the Fed

0:01:52.720 --> 0:01:54.800
<v Speaker 3>in terms of the economy is the labor market going

0:01:54.800 --> 0:01:55.880
<v Speaker 3>to continue to weaken or not.

0:01:56.920 --> 0:01:57.639
<v Speaker 4>Had been very.

0:01:57.480 --> 0:01:59.760
<v Speaker 3>Clear that he thinks the labor market is still weakening

0:02:00.000 --> 0:02:01.480
<v Speaker 3>and he doesn't want it to waken any further.

0:02:01.880 --> 0:02:04.760
<v Speaker 4>So that's why Friday's paydroll and ployer report is so important.

0:02:04.760 --> 0:02:06.640
<v Speaker 1>When you talk about a reaction function. This has been

0:02:06.680 --> 0:02:08.680
<v Speaker 1>one of the big quag buyers for people. What is

0:02:08.760 --> 0:02:12.000
<v Speaker 1>sort of the scenario analysis that the FED is doing

0:02:12.000 --> 0:02:13.760
<v Speaker 1>and how they're going to respond to it. Do you

0:02:13.840 --> 0:02:16.480
<v Speaker 1>think that they have that scenario analysis or do you

0:02:16.560 --> 0:02:20.080
<v Speaker 1>think that increasingly, by default, it is becoming an increasingly

0:02:20.160 --> 0:02:21.720
<v Speaker 1>data point dependent federal reserve.

0:02:23.080 --> 0:02:25.760
<v Speaker 3>Well, there's definitely a scenario analysis that takes place before

0:02:25.800 --> 0:02:26.320
<v Speaker 3>each meeting.

0:02:26.440 --> 0:02:27.880
<v Speaker 4>The staff prepares.

0:02:27.639 --> 0:02:30.280
<v Speaker 3>What's so called tealbook, and in the Tealbook there's a

0:02:30.320 --> 0:02:34.520
<v Speaker 3>baseline forecast, but there's also these alternative simulations which suggests

0:02:34.520 --> 0:02:37.440
<v Speaker 3>how the economy might evolve if things happen differently.

0:02:37.560 --> 0:02:39.920
<v Speaker 4>I think that's another problem with the Summary of Economic Projections.

0:02:40.720 --> 0:02:43.560
<v Speaker 3>It's a modal forecast and it doesn't talk about at

0:02:43.560 --> 0:02:45.480
<v Speaker 3>all about what's going to happen if things turn out

0:02:45.480 --> 0:02:49.200
<v Speaker 3>differently than what FED officials expect. So I think one

0:02:49.240 --> 0:02:51.919
<v Speaker 3>thing the FED could do is actually do what a

0:02:51.960 --> 0:02:54.480
<v Speaker 3>lot of foreign central banks do is actually have a

0:02:54.600 --> 0:02:58.000
<v Speaker 3>consensus forecast, difficult to do with a committee of nineteen

0:02:58.040 --> 0:03:01.000
<v Speaker 3>people spread all over the country. You could actually start

0:03:01.040 --> 0:03:03.720
<v Speaker 3>to publish the staff forecast. There is a staff forecast

0:03:03.760 --> 0:03:06.400
<v Speaker 3>available before every meeting, and if you put that out there,

0:03:06.400 --> 0:03:09.680
<v Speaker 3>you have a better sense of what the baseline assumptions

0:03:09.720 --> 0:03:10.359
<v Speaker 3>of the FED are.

0:03:10.720 --> 0:03:13.639
<v Speaker 5>But Bill isn't one of the issues that Comm's problems

0:03:13.720 --> 0:03:16.120
<v Speaker 5>is because they don't want to or can't be seen

0:03:16.200 --> 0:03:18.640
<v Speaker 5>talking about policy. Do you just think the FED should

0:03:18.639 --> 0:03:21.799
<v Speaker 5>be more open about policy all of the members?

0:03:23.480 --> 0:03:26.680
<v Speaker 3>Well, clearly what happens on tiarists and deportation is going

0:03:26.720 --> 0:03:29.079
<v Speaker 3>to have a big, big effect on the Commy in

0:03:29.080 --> 0:03:31.880
<v Speaker 3>twenty twenty twenty five, So I don't think you can

0:03:31.960 --> 0:03:35.560
<v Speaker 3>avoid thinking about that in terms of making your economic forecast.

0:03:35.880 --> 0:03:37.960
<v Speaker 3>I think the FED is reluctant to talk about it

0:03:37.960 --> 0:03:40.400
<v Speaker 3>because he doesn't want to get self engaged into this

0:03:40.480 --> 0:03:43.920
<v Speaker 3>political discussion, and I think they're worried that will politicize

0:03:43.960 --> 0:03:46.520
<v Speaker 3>the FED, So they're trying to think about it with

0:03:46.600 --> 0:03:48.440
<v Speaker 3>how talking about it at the same time.

0:03:48.640 --> 0:03:51.200
<v Speaker 5>Is your main concern right now with the FED communications

0:03:51.320 --> 0:03:53.960
<v Speaker 5>or would you do anything differently on policy?

0:03:55.280 --> 0:03:57.440
<v Speaker 3>I think they are in a pretty good place right now.

0:03:57.440 --> 0:04:00.560
<v Speaker 3>I think that they understand that the Commy is doing okay.

0:04:01.520 --> 0:04:05.800
<v Speaker 3>Inflation is a little bit sticky, so it makes sense

0:04:05.840 --> 0:04:08.080
<v Speaker 3>to wait. They also understand that there's a lot of

0:04:08.120 --> 0:04:11.080
<v Speaker 3>uncertainty about what policy is going to be forthcoming, and

0:04:11.240 --> 0:04:13.280
<v Speaker 3>Paul said when things are usurned, you should slow down.

0:04:13.400 --> 0:04:14.840
<v Speaker 4>So I think that all makes a lot of sense.

0:04:14.880 --> 0:04:17.880
<v Speaker 4>I think the big disconnect I think between.

0:04:17.560 --> 0:04:19.559
<v Speaker 3>Markets and the FED is where is the FED heading

0:04:19.640 --> 0:04:22.280
<v Speaker 3>over the medium the longer term. The FED says we're

0:04:22.279 --> 0:04:24.920
<v Speaker 3>heading to three percent federal funds rate. The market says

0:04:24.920 --> 0:04:27.120
<v Speaker 3>we're heading to something more like a four percent federal

0:04:27.120 --> 0:04:27.560
<v Speaker 3>fund rates.

0:04:27.560 --> 0:04:28.000
<v Speaker 4>So there's a.

0:04:27.920 --> 0:04:31.760
<v Speaker 3>Pretty big gap about what is a neutral monitary policy.

0:04:32.040 --> 0:04:34.120
<v Speaker 3>FED thinks the neutral monitary policy is quite a bit

0:04:34.120 --> 0:04:36.520
<v Speaker 3>easier than we are today. The market thinks that the

0:04:36.640 --> 0:04:39.560
<v Speaker 3>neutral monitary policy is slightly easier than where we are today.

0:04:39.839 --> 0:04:42.479
<v Speaker 2>But what did you do with your own forecast when

0:04:42.520 --> 0:04:44.840
<v Speaker 2>you had Trump coming in in Volume one? How did

0:04:44.880 --> 0:04:46.800
<v Speaker 2>you change things? So do you anticipate the changes to

0:04:46.839 --> 0:04:50.000
<v Speaker 2>policy beforehand or react once it was introduced.

0:04:51.640 --> 0:04:52.800
<v Speaker 4>I think I thought.

0:04:52.600 --> 0:04:54.520
<v Speaker 3>That there was more risk in the forecast, So I

0:04:54.560 --> 0:04:56.640
<v Speaker 3>think the biggest change for me was to talk about

0:04:56.720 --> 0:04:59.240
<v Speaker 3>risk and uncertainty going up. And I think that's what's

0:04:59.320 --> 0:05:01.680
<v Speaker 3>happened to I mean, I think we the big transition

0:05:01.760 --> 0:05:04.120
<v Speaker 3>from Biden to Trump is under Biden, we sort of

0:05:04.200 --> 0:05:06.480
<v Speaker 3>knew exactly what the policies were, and in fact, over

0:05:06.480 --> 0:05:08.279
<v Speaker 3>the last two years there hasn't really been much in

0:05:08.400 --> 0:05:10.960
<v Speaker 3>terms of new policy initiatives. Now we're going into the

0:05:10.960 --> 0:05:12.520
<v Speaker 3>Trump era, when you know there's gonna be a lot

0:05:12.520 --> 0:05:14.440
<v Speaker 3>of changes in policy and yet and.

0:05:14.400 --> 0:05:16.280
<v Speaker 4>We don't know yet they're what they're going to be.

0:05:16.360 --> 0:05:18.240
<v Speaker 3>So I think we're going from a period of low

0:05:18.360 --> 0:05:20.200
<v Speaker 3>uncertainty to much higher uncertainty.

0:05:20.640 --> 0:05:22.279
<v Speaker 4>That's what's got to get priced into markets.

0:05:22.279 --> 0:05:24.200
<v Speaker 3>That's one reason why I think the bond market has

0:05:24.240 --> 0:05:26.280
<v Speaker 3>done poorly over the last few months.

0:05:26.520 --> 0:05:28.640
<v Speaker 2>Oh, I appreciate your time, as always bought down to

0:05:28.760 --> 0:05:31.400
<v Speaker 2>the former New York Fed president. Looking at to twenty

0:05:31.440 --> 0:05:32.720
<v Speaker 2>twenty five and beyond,