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Speaker 1: We can catch up now with the former Sen Lewis

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Speaker 1: FED President jimpallad for more. Jim, welcome back to the

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Speaker 1: program sir. Smuch has taken place since this election. We've

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Speaker 1: heard from the chairman Jpal Jpal suggesting to us that

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Speaker 1: maybe they can pause if they want to. This is

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Speaker 1: me inferring from what he's told us already, maybe as

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Speaker 1: soon as December. Is that what you're taking away from

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Speaker 1: recent communication?

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Speaker 2: Yeah, I mean, if it was me, I think they

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Speaker 2: could make one more move here in December and then

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Speaker 2: that would put them at four and three aids and

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Speaker 2: then there'll be a debate about where neutral is.

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Speaker 3: But if you thought the meeting of the committee.

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Speaker 2: Thinks neutral is maybe three percent, then you have to

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Speaker 2: have maybe one hundred basis points on top of that.

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Speaker 3: Or one hundred and twenty five even because.

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Speaker 2: You know inflation isn't all the way back down to target.

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Speaker 2: So normally you would take the inflation difference and then

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Speaker 2: multiply that by one point two five or one to

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Speaker 2: five or something like that, and that's what a tailor

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Speaker 2: roll would do.

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Speaker 3: That's going to put you right around four percent.

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Speaker 2: So they'd actually be pretty close to where they'd want

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Speaker 2: to be, they'd have another move to make maybe in

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Speaker 2: the first quarter or second quarter, and then after that

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Speaker 2: it would depend on where inflation went during twenty twenty five.

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Speaker 2: So they're in pretty good shape here, I think for

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Speaker 2: the December meeting.

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Speaker 4: Jim, maybe for December, But moving beyond that, there's a

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Speaker 4: real question. I haven't heard a lot about long and

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Speaker 4: variable lags in a long time. And basically there's this

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Speaker 4: feeling that maybe if markets are flying and we have

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Speaker 4: this feeling that businesses are doing just fine, that everything

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Speaker 4: can chug along at these interest rates, and you alluded

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Speaker 4: to it, we could see a higher neutral rate. Just

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Speaker 4: how much have you heard a change in tone from

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Speaker 4: FED officials over the past couple of weeks.

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Speaker 2: Yeah, well, they've made a seventy five basis points of

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Speaker 2: cuts already, so they're not in the same situation that

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Speaker 2: they were in say June or July. And I think

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Speaker 2: the growth scare that occurred in sort of the.

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Speaker 3: July August time frame has dissipated.

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Speaker 2: And now you've got GDP now Atlanta Fed at two

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Speaker 2: and a half, and the last two quarters of growth

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Speaker 2: have been pretty strong, above certainly above a potential growth

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Speaker 2: rate for the US economy, and so I think, you know,

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Speaker 2: they don't have to go too much further to be

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Speaker 2: at the right rate for this level of inflation and

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Speaker 2: economy that's you know, moving along pretty well.

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Speaker 3: Retail sales you reasonably good yesterday.

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Speaker 4: So given all of that, I just I'm trying to

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Speaker 4: extrapolate this out to understand what this means at the

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Speaker 4: long end, what this means for the yield curve at

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Speaker 4: a time when suddenly people are rethinking just how much

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Speaker 4: they can cut over a longer period of time. You

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Speaker 4: add to this some of the pro growth policies that

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Speaker 4: we've been talking about all morning.

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Speaker 1: How much are you.

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Speaker 4: Looking at bond yields resetting, not necessarily because of the

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Speaker 4: political overlay, but because people are realizing that if it's

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Speaker 4: a four percent neutral rate, a five percent tenure yield

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Speaker 4: looks pretty reasonable.

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Speaker 3: Yeah. I mean to me, this is the last piece

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Speaker 3: of the soft landing.

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Speaker 2: You're bringing the policy rate down to a more neutral

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Speaker 2: level as inflation goes back to target, and you would

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Speaker 2: expect the yelk curve to uninvert, which has happened here.

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Speaker 2: And I thought that, you know, eventually you'd have the

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Speaker 2: policy rate somewhere in the threes and the tenure somewhere

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Speaker 2: in the floors, and you'd have this nice upward sloping yelkurve,

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Speaker 2: so that all seems to be developing. And you know,

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Speaker 2: that's part of the soft landing narrative in my view.

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Speaker 5: When we heard from J. Powell and the fact that

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Speaker 5: he's talking about they're not in a hurry. How much

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Speaker 5: does that have to do with policy uncertainty that right

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Speaker 5: now is coming out of mar Lago, but we'll be

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Speaker 5: coming out of Washington, DC for twenty twenty five.

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Speaker 2: Yeah, I think the sense of not being in a hurry,

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Speaker 2: if you think about this December of meeting that's coming up,

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Speaker 2: there'll be a summer of economic projections at that meeting,

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Speaker 2: and what the committee will do is various members will

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Speaker 2: project out for twenty twenty five and twenty twenty six,

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Speaker 2: how many more BRAT cuts they think, But it's not

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Speaker 2: going to be that many, right because I've already made

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Speaker 2: some and neutralism, you know, won't be as far away

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Speaker 2: as it was.

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Speaker 3: And so then they'll say, well, you know, some people say.

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Speaker 2: I only need two more, or other people say I

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Speaker 2: need four more or something. But they'll spread those out

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Speaker 2: over twenty twenty five and maybe even over twenty twenty

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Speaker 2: six as inflation is projected.

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Speaker 3: To continue to come down.

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Speaker 2: So in that sense, it will smooth out and people

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Speaker 2: start talking about well, maybe once.

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Speaker 3: A quarter, maybe once every you know, every third meeting or.

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Speaker 2: Something like that would be the right pace, depending on

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Speaker 2: how fast you think inflation is actually going to go

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Speaker 2: down to two percent.

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Speaker 5: Right, So you're talking about inflation coming down to two percent,

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Speaker 5: but some of these policies could be inflationary. We're talking

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Speaker 5: about deregulation, we're talking about cutting taxes, and then there's

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Speaker 5: this debate debate on how hi the walls are going

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Speaker 5: to go up around the United States for imports coming

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Speaker 5: from China or the European Union. If that's the scenario

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Speaker 5: we have, does the FED need to think about potentially hiking.

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Speaker 6: You know, I think we've seen this movie before. In

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Speaker 6: twenty eighteen, twenty nineteen. I didn't see much inflation coming

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Speaker 6: from that. We had a corporate tax.

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Speaker 2: Cut late twenty seventeen. I didn't see much inflation from that.

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Speaker 2: So I just I don't think that that's the right

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Speaker 2: narrative for this. You know, that's not where the inflation

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Speaker 2: is going to come from. Where it comes from is

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Speaker 2: big fiscal spending. But if it goes straight into people's

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Speaker 2: bank accounts the way it did in twenty twenty one,

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Speaker 2: that's almost like printing money, and that ended up causing

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Speaker 2: a lot of inflation.

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Speaker 3: But if we don't get something like that, and I

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Speaker 3: haven't heard anybody talking.

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Speaker 2: About that, then I think other types of spending are

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Speaker 2: probably not devils suspending, probably not as inflationary.

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Speaker 3: Jim.

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Speaker 4: That's a fascinating point, and it really goes to the

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Speaker 4: heart of something that I've seen explored a number of

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Speaker 4: research papers over the past few weeks, which is how

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Speaker 4: we don't understand inflation, why the FED got it wrong

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Speaker 4: and didn't raise rates as early as March of twenty

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Speaker 4: twenty two in the face of real inflation, and going

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Speaker 4: forward our understanding of what the read through will be

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Speaker 4: from things like tariffs. Are you basically saying that some

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Speaker 4: of the tariffs that we're hearing about are not going

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Speaker 4: to be inflationary, and that frankly, we should be looking

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Speaker 4: simply at a cash infusion, at helicopter money as the

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Speaker 4: only source right now of the inflation that we've seen

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Speaker 4: in the post pandemic era.

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Speaker 2: I mean, inflation's a monetary phenomen and that's why they

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Speaker 2: call it monetary policy. And it's the job of the FED,

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Speaker 2: especially to keep inflation expectations under control. So you could

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Speaker 2: argue about an inflation expectations channel here.

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Speaker 3: If people start to worry.

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Speaker 2: That the Fed's not going to do its job, that

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Speaker 2: would be as serious concern I.

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Speaker 3: Think for the inflation outlook. But tariffs themselves kind of

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Speaker 3: a double edged sword.

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Speaker 2: They sure they rearrange the prices somewhat, but they also

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Speaker 2: changed demand for the important good and you've also got

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Speaker 2: what's the reaction of the foreign.

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Speaker 3: Country going to be.

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Speaker 2: So a good outcome would be is that you get

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Speaker 2: serious here and you tell the rest of the world,

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Speaker 2: which is pretty protectionists. You tell the rest of the

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Speaker 2: world you know, the US is going to play tougher here.

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Speaker 3: And we want you guys to lower your tariffs, and

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Speaker 3: those guys could say, hey, well.

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Speaker 2: You know, we agree, and we're going to lower our tariffs,

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Speaker 2: so you get just a lower tariff environment or the

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Speaker 2: whole thing. That would be very consistent with sort of

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Speaker 2: the Trump negotiating sort of view of the world.

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Speaker 1: Jimmy won't ask you for your favorite Trump Treasury Secretary.

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Speaker 1: We'll let you go. Thomas and Lewis FED President Jim

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Speaker 1: Jim appreciate your time, so thank you.