WEBVTT - Former NY Fed President Bill Dudley Talks Latest Fed Decision

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<v Speaker 1>And we start strong here after this historic press conference

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<v Speaker 1>with William Dudley, he's a former New York FED President,

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<v Speaker 1>a student at California Berkeley years ago of our monetary history,

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<v Speaker 1>and of course Bloomberg Economic senior advisor. As I said, Bill,

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<v Speaker 1>I got goosebumps. It just seems to be a massive

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<v Speaker 1>statement that even if we have nominal GDP of four percent,

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<v Speaker 1>we have immaculate productivity and will somehow get through this.

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<v Speaker 1>Do we sustain this market reaction, this belief in America

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<v Speaker 1>or do we are we inset for some titanic disappointment.

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<v Speaker 2>Well, I think that Pells Prescott has made clear that

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<v Speaker 2>he's really pleased by how the accounties performed, the fact

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<v Speaker 2>that you could get inflation down, about the unemployer rate

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<v Speaker 2>going up to had some moderation and wages.

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<v Speaker 3>He thinks everything is going really, really well, And I

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<v Speaker 3>think that's true. The question is whether it's going to

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<v Speaker 3>continue or not. And there are definitely things that can

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<v Speaker 3>go along.

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<v Speaker 2>One thing that can could go along if the Fed

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<v Speaker 2>keeps londor policy two type for too long and we

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<v Speaker 2>have weaker economy.

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<v Speaker 3>Another thing that they can go wrong is the Fed

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<v Speaker 3>can ease policy.

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<v Speaker 2>Prematurely, or the market itself can ease financial conditions prematurely,

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<v Speaker 2>which will stimulate the economy and make it so that

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<v Speaker 2>the FED can't cut rates that's.

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<v Speaker 3>At all quickly as the market expects.

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<v Speaker 2>I think the market's getting a little hab itself here

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<v Speaker 2>in the sense of taking the Fed's optimism and translating

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<v Speaker 2>that into very large reductions in short term rates in

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<v Speaker 2>twenty twenty four.

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<v Speaker 4>But what do you think happened to the Chaman pound

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<v Speaker 4>of only two weeks ago.

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<v Speaker 3>I just think that they're very happy with how the

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<v Speaker 3>economy is performed.

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<v Speaker 2>I mean, basically, they've had decent growth, unemployer rates stable,

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<v Speaker 2>and inslation's come down a lot, and.

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<v Speaker 3>That's basically, you know, as good as it can get.

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<v Speaker 2>And that's really what's just summarizing the summary of economic

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<v Speaker 2>productions now summary of economic projection shows the very modest

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<v Speaker 2>increases in the upplant rate from here and essentially a

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<v Speaker 2>soft landing kind of forecasts. Now, soft landings are really

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<v Speaker 2>difficult to pull off, and they're particularly difficult off and

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<v Speaker 2>we've been very late to take Marjory policy. And what's

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<v Speaker 2>allow of this to happen is that there were supply

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<v Speaker 2>just ruptions, those reduction and labor supply also things every verse,

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<v Speaker 2>and that made the fifth job a lot easier.

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<v Speaker 4>Build the prospect of getting sticky in flag shit into

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<v Speaker 4>next year getting stuck at three. So it makes it

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<v Speaker 4>because six months ago, Bill, we were told that the

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<v Speaker 4>last mile it was difficult. It was hard. Then Secretary

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<v Speaker 4>and starts sounding like the FED chair again, saying it's

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<v Speaker 4>not that hard. You hear it from Chairman Power didn't

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<v Speaker 4>get any indication it would be particularly difficult into next year.

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<v Speaker 4>Do you think that is the prudent approach to what

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<v Speaker 4>twenty twenty four could look like.

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<v Speaker 3>I think he's telling you what he really thinks.

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<v Speaker 2>I think he's very happy with how things to perform,

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<v Speaker 2>and he didn't say it would necessarily continue, but he

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<v Speaker 2>also said that he was hopeful that these trends will

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<v Speaker 2>continue into.

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<v Speaker 3>Twenty twenty four.

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<v Speaker 2>My own view is that the FED is going to

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<v Speaker 2>be cutting rates in twenty twenty four.

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<v Speaker 3>We're clearly done in terms of rate hikes.

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<v Speaker 2>You know, the possibility of another rate hike is really

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<v Speaker 2>low at this point. Is really just timing of rate

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<v Speaker 2>cuts and magnitude, and that's going to basically be driven

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<v Speaker 2>by the strength of the economy, pressure on resources, and

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<v Speaker 2>what actually happens to services inflation at this point.

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<v Speaker 5>Bill, do you think that J. Powell did a good job.

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<v Speaker 5>Do you think that it was right for him to

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<v Speaker 5>say what he thinks and not push back at all

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<v Speaker 5>against the market party.

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<v Speaker 2>I always think it's good to say what you really think,

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<v Speaker 2>but I think the problem with doing so is it's

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<v Speaker 2>basically added fuel to the fire. Paul talks about the

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<v Speaker 2>long legs of maitary policy, but financial conditions are much

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<v Speaker 2>much more common than they were just a few months ago.

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<v Speaker 3>If you look at the Fed's own.

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<v Speaker 2>Assessment of financial conditions back at the end of October,

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<v Speaker 2>of the impulse from financial conditions to the economy based

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<v Speaker 2>on the fedsal model was pretty neutral. So financial conditions

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<v Speaker 2>now are actually adding the impulse towards the economic growth

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<v Speaker 2>going forward.

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<v Speaker 1>I look Bill at where we are, and it's clearly

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<v Speaker 1>beyond the pandemic. We've had a number of conversations off

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<v Speaker 1>across a long surveillance about how goods are goods and

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<v Speaker 1>we've got some deflation and service sector inflations coming down.

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<v Speaker 1>Is this economy beyond the pandemic? If you were to

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<v Speaker 1>talk to Mary Daily, in San Francisco to John Williams

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<v Speaker 1>at the New York Fed, Can we say our economy

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<v Speaker 1>is beyond the pandemic?

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<v Speaker 2>Think? I think mostly in this sense that the conditioners

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<v Speaker 2>today are very similar to where we were in February

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<v Speaker 2>twenty twenty, when we had a very tight labor market.

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<v Speaker 2>The difference is wages are a bit higher, inflation's a

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<v Speaker 2>bit higher, and mandre policy.

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<v Speaker 3>Is considerably tighter.

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<v Speaker 2>But it does feel more like February twenty twenty than

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<v Speaker 2>it does between any period after that.

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<v Speaker 4>They'll sit time. I want to bring in Mia Kay

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<v Speaker 4>down in Washington day. Say, Michael McKay, you were in

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<v Speaker 4>that news conference. Were you surprised by the approach from

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<v Speaker 4>Chaman Powell.

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<v Speaker 6>Well, I was surprised by the approach once we'd heard

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<v Speaker 6>from the Fed and in their statement and what we

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<v Speaker 6>saw in the dot plot. But it is a rather

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<v Speaker 6>dramatic change from what he said just twelve days ago

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<v Speaker 6>about it not being time to talk about ray cuts.

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<v Speaker 6>Obviously they did today They're feeling much better about the

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<v Speaker 6>overall state of the economy. As one analyst put it, today,

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<v Speaker 6>if good inflation report is J Paul's idea of a

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<v Speaker 6>good time, then his party has turned into a rager

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<v Speaker 6>because inflation is coming down very quickly. And then the

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<v Speaker 6>next question becomes, as I asked you, when do you cut?

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<v Speaker 6>And that's the part they're not ready to get into

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<v Speaker 6>yet or describe. And so we're probably still in for

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<v Speaker 6>a few months of the markets watching the data and

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<v Speaker 6>trying to guess when the Fed is going to respond.

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<v Speaker 1>Michael, within all the blur of the data and all

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<v Speaker 1>the guestimates forward, did they frame out a subpar GDP,

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<v Speaker 1>either real or nominal? Did they frame out subpar growth?

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<v Speaker 6>Well, basically that's what Paul said, we're going to get

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<v Speaker 6>because the direction of the economy is slower, the lagged

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<v Speaker 6>effects of their rate increases have not yet completely been felt,

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<v Speaker 6>but the economy will start picking up again and growing

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<v Speaker 6>to potential. And he also admitted the possibility of a

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<v Speaker 6>surprise there the economy grows faster than expected is.

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<v Speaker 4>Also very real.

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<v Speaker 6>So I think they're at this point working on the

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<v Speaker 6>models that they have but admitting that they have been

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<v Speaker 6>wrong before and we could see faster growth. But the

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<v Speaker 6>interesting thing was, other than a sort of perfunctory caution,

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<v Speaker 6>he wasn't suggesting that we are now that they would

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<v Speaker 6>go back necessarily to rate increases.

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<v Speaker 4>Mi McKay, thank you so great job today. As always,

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<v Speaker 4>the reaction pouring in this afternoon. This line from Steve

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<v Speaker 4>cheveron over it federates it initial take as he wants

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<v Speaker 4>to come. He always saw inflation as transitory. Bram of

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<v Speaker 4>your favorite. It's come down on the supply side. He

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<v Speaker 4>smells his self landing and wants to count to stick

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<v Speaker 4>the landing. He had no interest in pushing back against

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<v Speaker 4>market expectations, right or wrong. It's bullish for now. Psych

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<v Speaker 4>away from Chevro on this soufternoon.

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<v Speaker 5>That's exactly where I wanted to go, and I wanted

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<v Speaker 5>to get Bill Dudley's opinion about whether we did get

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<v Speaker 5>basically confirmation of transitory Do you think when we look back,

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<v Speaker 5>the fat won't have been wrong when it came to

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<v Speaker 5>transitory inflation, They just were premature.

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<v Speaker 2>I think that most of the inflation pressure had which

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<v Speaker 2>was transitory, but not all of it. I mean, I

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<v Speaker 2>think some of the services inflation is due to the

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<v Speaker 2>tightness of their market. I think what's really interesting about

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<v Speaker 2>All's press conference today is he talked to us about

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<v Speaker 2>the risk of being too late to cut so he

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<v Speaker 2>actually admitted the possibility that if we stayed tight for

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<v Speaker 2>too long, we could actually have a commune that's too

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<v Speaker 2>weak relative to what we desire.

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<v Speaker 3>And that's something new from touch your home.

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<v Speaker 1>That's a very important point, the ex postedness of it,

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<v Speaker 1>if you will, doctor Dudley. They've got to wait weight

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<v Speaker 1>weight after the fact. So let's take something coarse like

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<v Speaker 1>the unemployment rate. How many months do they have to

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<v Speaker 1>wait until they get real confidence that the labor economy

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<v Speaker 1>is caught up with our immaculate disinflation.

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<v Speaker 2>I think they're gonna be looking at what happens to

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<v Speaker 2>the unemployed rate, the tatus of the labor market, and

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<v Speaker 2>what the consequences of that are for wages. Paul did

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<v Speaker 2>admit that wage inflation is still a little bit too

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<v Speaker 2>high to be consistent with two percent inflation. But boy,

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<v Speaker 2>the Fed is pretty close to where they want to

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<v Speaker 2>be there. I would look at this point.

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<v Speaker 5>Bill.

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<v Speaker 4>You've been on the committee before. You can look at

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<v Speaker 4>this from the outside.

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<v Speaker 3>Now.

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<v Speaker 4>It's a tricky game, this one to get into someone's head,

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<v Speaker 4>and I think maybe one we shouldn't play, but I

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<v Speaker 4>think on this occasion we should. Two weeks ago, I

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<v Speaker 4>heard from a very different Fed chairman, And I'm trying

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<v Speaker 4>to work out what happened today, whether that was just

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<v Speaker 4>a man who was representing his own views and this

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<v Speaker 4>was a man who was representing the committee's view, or whether,

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<v Speaker 4>like we've indicated, he's been seduced by this idea of

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<v Speaker 4>netting a soft landing and the guy who was trying

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<v Speaker 4>to act like Volka was never really Vulka. What is it?

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<v Speaker 4>What do you make of who Chairman Powe is and

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<v Speaker 4>what he ultimately thinks about things?

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<v Speaker 2>Well, the fact that he's worried about keeping Madrick Paul

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<v Speaker 2>too tight for too long, it tells you that he's

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<v Speaker 2>not thinking like Paul Bulgery.

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<v Speaker 3>So there is a and there's a risk of cutting

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<v Speaker 3>rates prematurely.

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<v Speaker 2>But I think weight's coming across us is the fact

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<v Speaker 2>that he's just really, really happy with how things have evolved,

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<v Speaker 2>and that you know, optimism is showing through as it

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<v Speaker 2>has show shown through from time to time and past

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<v Speaker 2>press conferences.

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<v Speaker 1>Bill, It's maybe not your remit, but it's certainly the

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<v Speaker 1>New York Fed's remit. They're going to treat keep track

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<v Speaker 1>of flows off of declining interest rates. What is the

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<v Speaker 1>stability or instability that you observe in six trillion dollars

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<v Speaker 1>of cash, let's say most of it loaded and money

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<v Speaker 1>market funds. Is that yield comes down? Is our system

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<v Speaker 1>going to be able to handle it?

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<v Speaker 2>Yeah?

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<v Speaker 3>I don't think there's gonna be any problem.

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<v Speaker 2>I mean, you know, the Fed reserves says short term

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<v Speaker 2>interest rates and then money market rates trade off.

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<v Speaker 3>That if if money market rates, you know, firm up.

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<v Speaker 2>A little bit, then money will flow back into the

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<v Speaker 2>money market inter fund.

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<v Speaker 3>I'm not worried about that at all at this point.

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<v Speaker 5>Bill, Just to wrap it all together, do you do

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<v Speaker 5>you think that the chance of a hard landing has

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<v Speaker 5>gone down materially over the past month or do you

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<v Speaker 5>think that it's about the same or even has gone up.

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<v Speaker 3>Well, I think it's gone down materially over the last

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<v Speaker 3>six months.

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<v Speaker 2>I mean over the last month. I don't think things

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<v Speaker 2>have changed very much, But definitely the prospects of a

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<v Speaker 2>soft landing are the best they've been in last year

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<v Speaker 2>or two.

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<v Speaker 4>Something changed in the last two weeks for Sham and Powell.

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<v Speaker 4>I'm just sure. Bill. Good to catch up. Bill Dunpley

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<v Speaker 4>there with Bloomberg Opinion. Former New York Fed President