Speaker 1: And we start strong here after this historic press conference
Speaker 1: with William Dudley, he's a former New York FED President,
Speaker 1: a student at California Berkeley years ago of our monetary history,
Speaker 1: and of course Bloomberg Economic senior advisor. As I said, Bill,
Speaker 1: I got goosebumps. It just seems to be a massive
Speaker 1: statement that even if we have nominal GDP of four percent,
Speaker 1: we have immaculate productivity and will somehow get through this.
Speaker 1: Do we sustain this market reaction, this belief in America
Speaker 1: or do we are we inset for some titanic disappointment.
Speaker 2: Well, I think that Pells Prescott has made clear that
Speaker 2: he's really pleased by how the accounties performed, the fact
Speaker 2: that you could get inflation down, about the unemployer rate
Speaker 2: going up to had some moderation and wages.
Speaker 3: He thinks everything is going really, really well, And I
Speaker 3: think that's true. The question is whether it's going to
Speaker 3: continue or not. And there are definitely things that can
Speaker 3: go along.
Speaker 2: One thing that can could go along if the Fed
Speaker 2: keeps londor policy two type for too long and we
Speaker 2: have weaker economy.
Speaker 3: Another thing that they can go wrong is the Fed
Speaker 3: can ease policy.
Speaker 2: Prematurely, or the market itself can ease financial conditions prematurely,
Speaker 2: which will stimulate the economy and make it so that
Speaker 2: the FED can't cut rates that's.
Speaker 3: At all quickly as the market expects.
Speaker 2: I think the market's getting a little hab itself here
Speaker 2: in the sense of taking the Fed's optimism and translating
Speaker 2: that into very large reductions in short term rates in
Speaker 2: twenty twenty four.
Speaker 4: But what do you think happened to the Chaman pound
Speaker 4: of only two weeks ago.
Speaker 3: I just think that they're very happy with how the
Speaker 3: economy is performed.
Speaker 2: I mean, basically, they've had decent growth, unemployer rates stable,
Speaker 2: and inslation's come down a lot, and.
Speaker 3: That's basically, you know, as good as it can get.
Speaker 2: And that's really what's just summarizing the summary of economic
Speaker 2: productions now summary of economic projection shows the very modest
Speaker 2: increases in the upplant rate from here and essentially a
Speaker 2: soft landing kind of forecasts. Now, soft landings are really
Speaker 2: difficult to pull off, and they're particularly difficult off and
Speaker 2: we've been very late to take Marjory policy. And what's
Speaker 2: allow of this to happen is that there were supply
Speaker 2: just ruptions, those reduction and labor supply also things every verse,
Speaker 2: and that made the fifth job a lot easier.
Speaker 4: Build the prospect of getting sticky in flag shit into
Speaker 4: next year getting stuck at three. So it makes it
Speaker 4: because six months ago, Bill, we were told that the
Speaker 4: last mile it was difficult. It was hard. Then Secretary
Speaker 4: and starts sounding like the FED chair again, saying it's
Speaker 4: not that hard. You hear it from Chairman Power didn't
Speaker 4: get any indication it would be particularly difficult into next year.
Speaker 4: Do you think that is the prudent approach to what
Speaker 4: twenty twenty four could look like.
Speaker 3: I think he's telling you what he really thinks.
Speaker 2: I think he's very happy with how things to perform,
Speaker 2: and he didn't say it would necessarily continue, but he
Speaker 2: also said that he was hopeful that these trends will
Speaker 2: continue into.
Speaker 3: Twenty twenty four.
Speaker 2: My own view is that the FED is going to
Speaker 2: be cutting rates in twenty twenty four.
Speaker 3: We're clearly done in terms of rate hikes.
Speaker 2: You know, the possibility of another rate hike is really
Speaker 2: low at this point. Is really just timing of rate
Speaker 2: cuts and magnitude, and that's going to basically be driven
Speaker 2: by the strength of the economy, pressure on resources, and
Speaker 2: what actually happens to services inflation at this point.
Speaker 5: Bill, do you think that J. Powell did a good job.
Speaker 5: Do you think that it was right for him to
Speaker 5: say what he thinks and not push back at all
Speaker 5: against the market party.
Speaker 2: I always think it's good to say what you really think,
Speaker 2: but I think the problem with doing so is it's
Speaker 2: basically added fuel to the fire. Paul talks about the
Speaker 2: long legs of maitary policy, but financial conditions are much
Speaker 2: much more common than they were just a few months ago.
Speaker 3: If you look at the Fed's own.
Speaker 2: Assessment of financial conditions back at the end of October,
Speaker 2: of the impulse from financial conditions to the economy based
Speaker 2: on the fedsal model was pretty neutral. So financial conditions
Speaker 2: now are actually adding the impulse towards the economic growth
Speaker 2: going forward.
Speaker 1: I look Bill at where we are, and it's clearly
Speaker 1: beyond the pandemic. We've had a number of conversations off
Speaker 1: across a long surveillance about how goods are goods and
Speaker 1: we've got some deflation and service sector inflations coming down.
Speaker 1: Is this economy beyond the pandemic? If you were to
Speaker 1: talk to Mary Daily, in San Francisco to John Williams
Speaker 1: at the New York Fed, Can we say our economy
Speaker 1: is beyond the pandemic?
Speaker 2: Think? I think mostly in this sense that the conditioners
Speaker 2: today are very similar to where we were in February
Speaker 2: twenty twenty, when we had a very tight labor market.
Speaker 2: The difference is wages are a bit higher, inflation's a
Speaker 2: bit higher, and mandre policy.
Speaker 3: Is considerably tighter.
Speaker 2: But it does feel more like February twenty twenty than
Speaker 2: it does between any period after that.
Speaker 4: They'll sit time. I want to bring in Mia Kay
Speaker 4: down in Washington day. Say, Michael McKay, you were in
Speaker 4: that news conference. Were you surprised by the approach from
Speaker 4: Chaman Powell.
Speaker 6: Well, I was surprised by the approach once we'd heard
Speaker 6: from the Fed and in their statement and what we
Speaker 6: saw in the dot plot. But it is a rather
Speaker 6: dramatic change from what he said just twelve days ago
Speaker 6: about it not being time to talk about ray cuts.
Speaker 6: Obviously they did today They're feeling much better about the
Speaker 6: overall state of the economy. As one analyst put it, today,
Speaker 6: if good inflation report is J Paul's idea of a
Speaker 6: good time, then his party has turned into a rager
Speaker 6: because inflation is coming down very quickly. And then the
Speaker 6: next question becomes, as I asked you, when do you cut?
Speaker 6: And that's the part they're not ready to get into
Speaker 6: yet or describe. And so we're probably still in for
Speaker 6: a few months of the markets watching the data and
Speaker 6: trying to guess when the Fed is going to respond.
Speaker 1: Michael, within all the blur of the data and all
Speaker 1: the guestimates forward, did they frame out a subpar GDP,
Speaker 1: either real or nominal? Did they frame out subpar growth?
Speaker 6: Well, basically that's what Paul said, we're going to get
Speaker 6: because the direction of the economy is slower, the lagged
Speaker 6: effects of their rate increases have not yet completely been felt,
Speaker 6: but the economy will start picking up again and growing
Speaker 6: to potential. And he also admitted the possibility of a
Speaker 6: surprise there the economy grows faster than expected is.
Speaker 4: Also very real.
Speaker 6: So I think they're at this point working on the
Speaker 6: models that they have but admitting that they have been
Speaker 6: wrong before and we could see faster growth. But the
Speaker 6: interesting thing was, other than a sort of perfunctory caution,
Speaker 6: he wasn't suggesting that we are now that they would
Speaker 6: go back necessarily to rate increases.
Speaker 4: Mi McKay, thank you so great job today. As always,
Speaker 4: the reaction pouring in this afternoon. This line from Steve
Speaker 4: cheveron over it federates it initial take as he wants
Speaker 4: to come. He always saw inflation as transitory. Bram of
Speaker 4: your favorite. It's come down on the supply side. He
Speaker 4: smells his self landing and wants to count to stick
Speaker 4: the landing. He had no interest in pushing back against
Speaker 4: market expectations, right or wrong. It's bullish for now. Psych
Speaker 4: away from Chevro on this soufternoon.
Speaker 5: That's exactly where I wanted to go, and I wanted
Speaker 5: to get Bill Dudley's opinion about whether we did get
Speaker 5: basically confirmation of transitory Do you think when we look back,
Speaker 5: the fat won't have been wrong when it came to
Speaker 5: transitory inflation, They just were premature.
Speaker 2: I think that most of the inflation pressure had which
Speaker 2: was transitory, but not all of it. I mean, I
Speaker 2: think some of the services inflation is due to the
Speaker 2: tightness of their market. I think what's really interesting about
Speaker 2: All's press conference today is he talked to us about
Speaker 2: the risk of being too late to cut so he
Speaker 2: actually admitted the possibility that if we stayed tight for
Speaker 2: too long, we could actually have a commune that's too
Speaker 2: weak relative to what we desire.
Speaker 3: And that's something new from touch your home.
Speaker 1: That's a very important point, the ex postedness of it,
Speaker 1: if you will, doctor Dudley. They've got to wait weight
Speaker 1: weight after the fact. So let's take something coarse like
Speaker 1: the unemployment rate. How many months do they have to
Speaker 1: wait until they get real confidence that the labor economy
Speaker 1: is caught up with our immaculate disinflation.
Speaker 2: I think they're gonna be looking at what happens to
Speaker 2: the unemployed rate, the tatus of the labor market, and
Speaker 2: what the consequences of that are for wages. Paul did
Speaker 2: admit that wage inflation is still a little bit too
Speaker 2: high to be consistent with two percent inflation. But boy,
Speaker 2: the Fed is pretty close to where they want to
Speaker 2: be there. I would look at this point.
Speaker 5: Bill.
Speaker 4: You've been on the committee before. You can look at
Speaker 4: this from the outside.
Speaker 3: Now.
Speaker 4: It's a tricky game, this one to get into someone's head,
Speaker 4: and I think maybe one we shouldn't play, but I
Speaker 4: think on this occasion we should. Two weeks ago, I
Speaker 4: heard from a very different Fed chairman, And I'm trying
Speaker 4: to work out what happened today, whether that was just
Speaker 4: a man who was representing his own views and this
Speaker 4: was a man who was representing the committee's view, or whether,
Speaker 4: like we've indicated, he's been seduced by this idea of
Speaker 4: netting a soft landing and the guy who was trying
Speaker 4: to act like Volka was never really Vulka. What is it?
Speaker 4: What do you make of who Chairman Powe is and
Speaker 4: what he ultimately thinks about things?
Speaker 2: Well, the fact that he's worried about keeping Madrick Paul
Speaker 2: too tight for too long, it tells you that he's
Speaker 2: not thinking like Paul Bulgery.
Speaker 3: So there is a and there's a risk of cutting
Speaker 3: rates prematurely.
Speaker 2: But I think weight's coming across us is the fact
Speaker 2: that he's just really, really happy with how things have evolved,
Speaker 2: and that you know, optimism is showing through as it
Speaker 2: has show shown through from time to time and past
Speaker 2: press conferences.
Speaker 1: Bill, It's maybe not your remit, but it's certainly the
Speaker 1: New York Fed's remit. They're going to treat keep track
Speaker 1: of flows off of declining interest rates. What is the
Speaker 1: stability or instability that you observe in six trillion dollars
Speaker 1: of cash, let's say most of it loaded and money
Speaker 1: market funds. Is that yield comes down? Is our system
Speaker 1: going to be able to handle it?
Speaker 2: Yeah?
Speaker 3: I don't think there's gonna be any problem.
Speaker 2: I mean, you know, the Fed reserves says short term
Speaker 2: interest rates and then money market rates trade off.
Speaker 3: That if if money market rates, you know, firm up.
Speaker 2: A little bit, then money will flow back into the
Speaker 2: money market inter fund.
Speaker 3: I'm not worried about that at all at this point.
Speaker 5: Bill, Just to wrap it all together, do you do
Speaker 5: you think that the chance of a hard landing has
Speaker 5: gone down materially over the past month or do you
Speaker 5: think that it's about the same or even has gone up.
Speaker 3: Well, I think it's gone down materially over the last
Speaker 3: six months.
Speaker 2: I mean over the last month. I don't think things
Speaker 2: have changed very much, But definitely the prospects of a
Speaker 2: soft landing are the best they've been in last year
Speaker 2: or two.
Speaker 4: Something changed in the last two weeks for Sham and Powell.
Speaker 4: I'm just sure. Bill. Good to catch up. Bill Dunpley
Speaker 4: there with Bloomberg Opinion. Former New York Fed President