Speaker 1: Judy Coronado of Macro Policy Perspective, suggesting the time is
Speaker 1: now writing this, The question is very much what are
Speaker 1: we doing at five point five percent? It's time to
Speaker 1: start adjusting the nominal funds rate. Julia Coronado on Place
Speaker 1: to say, joined us, Now, Judya, let's talk about that.
Speaker 1: The chairman of the feder Reserve in the news conference
Speaker 1: last week said we need to see more data, more
Speaker 1: good data, not better data, just more data, not.
Speaker 2: Even necessarily as good, just good, he said.
Speaker 1: So any reason to believe we won't see that in
Speaker 1: the next three months.
Speaker 2: There is no real reason. Of course, you need the
Speaker 2: data to ratify that, and as we saw on Friday,
Speaker 2: data can always surprise us. But if inflation does continue
Speaker 2: to behave as it's been, they're rapidly approaching two percent,
Speaker 2: and so I think what we're hearing from the FED
Speaker 2: is that the committee is a little just you know,
Speaker 2: struggling to catch up to how quickly the data have
Speaker 2: moved and what to make of that. It certainly defies
Speaker 2: all of our macro models for inflation to come down
Speaker 2: so rapidly with the labor market so healthy, and so
Speaker 2: there's still some skeptics. I think Chair Powell might be
Speaker 2: having a challenge corraling everybody on the committee. I think
Speaker 2: he wants to make that first move based on a
Speaker 2: strong consensus, and I think he's just having a little
Speaker 2: bit of committee management challenges, which is why he, in
Speaker 2: a very data undependent way, took March off the table.
Speaker 2: So we're in May because we think the data will
Speaker 2: continue to tell the story.
Speaker 1: Julia and Lisa said it immediately after that fed mating
Speaker 1: during that news conference, I think Lisa said to us
Speaker 1: around the table, it's like hurting cats. Judy, you noticed
Speaker 1: the same thing. What was it about the statement and
Speaker 1: the news conferences stood out to you that gave you
Speaker 1: the impression that maybe things are really fragmented divided on
Speaker 1: the committee at the moment.
Speaker 2: For me, the moment that was most telling was when
Speaker 2: he took March off the table. He said it in
Speaker 2: a sort of halting way that he just doesn't think
Speaker 2: this committee will have the confidence by March. He thinks
Speaker 2: it's unlikely, I think was the term. But it was
Speaker 2: a reference not to his view but to sort of
Speaker 2: the collective confidence, which suggests that there were some people
Speaker 2: that were just digging their heels in still that just
Speaker 2: deeply skeptical of what they've seen or that it's likelyhood
Speaker 2: of continuing. But yeah, I think that was the moment
Speaker 2: where it was like, well, that's not data dependent, and
Speaker 2: it wasn't referencing his own views, which we know that share.
Speaker 2: Powell's been a bit more encouraged and optimistic about the
Speaker 2: data flow, more willing because he's perhaps not an economist
Speaker 2: to just accept it for what it is and buy
Speaker 2: into its staying power. Again, data have to ratify it.
Speaker 2: But should they ratify it? You know, there's no reason
Speaker 2: not to move in March. There's tension right now between
Speaker 2: the FEDS saying they're going to start the cutting process
Speaker 2: well before we get to two percent and taking March
Speaker 2: off the table, right because we are getting very close
Speaker 2: to two percent, and by March, with a couple more months,
Speaker 2: we could be quite close. But I think, yeah, I
Speaker 2: think it's just the herding cats challenge.
Speaker 3: Julia, you said it is pretty clear that the FED
Speaker 3: has policy in a restrictive place. Is it clear? I mean,
Speaker 3: this is actually talk about herding cats. It's hurting cats
Speaker 3: the market too. You've got increasing number of people questioning
Speaker 3: just how restrictive that is if you're seeing job growth
Speaker 3: like what we saw on Friday, if you see ism
Speaker 3: service's prices paid grow at the pace that we did
Speaker 3: for last month as well.
Speaker 2: Yeah, no, that's a fair question, Lisa. I think one
Speaker 2: of the things that's been the huge macro surprise of
Speaker 2: twenty twenty three was the productivity boom. We had been
Speaker 2: bullish productivity, that it would be strong in twenty twenty three,
Speaker 2: that it would help bring inflation down and make the
Speaker 2: FEDCE trade offs easier than they expected. But it was
Speaker 2: much stronger than we expected. My goodness. The second half
Speaker 2: of the year was a productivity boom. For the year,
Speaker 2: it's close to three percent. That's quite a performance. Now.
Speaker 2: It comes after a very bad performance in twenty twenty
Speaker 2: two when supply chains were dragging us down. But it's
Speaker 2: masking I think some of the restriction in monetary policy,
Speaker 2: which could mean that the neutral rate, at least for now,
Speaker 2: is higher. And the big question in the big uncertainty,
Speaker 2: and Chairpowell touched on this in his press conference. We
Speaker 2: just don't know if we're going to keep getting productivity
Speaker 2: gains like we saw in twenty twenty three, or even
Speaker 2: anywhere close. If we do if we are not just
Speaker 2: in a productivity sort of post pandemic dividend, but a
Speaker 2: stronger trend than the neutral rate could be higher.
Speaker 3: Yeah.
Speaker 2: On the other hand, if this is just a one
Speaker 2: time productivity dividend, then we could see a sudden stop
Speaker 2: in the economy as that slows down, and the restriction
Speaker 2: would come through and they'd have to cut a lot
Speaker 2: faster Juliett. So I think those are the uncertainties we're facing.
Speaker 1: We just have.
Speaker 3: About sixty seconds left. Do you believe in goldilocks or
Speaker 3: do you think that maybe it's kind of a little
Speaker 3: bit inaccurate at this point.
Speaker 2: I do believe in goldilocks. I've been pretty bullish productivity.
Speaker 2: I do think the trend is better. That could mean
Speaker 2: a higher neutral rate, But what is higher. It's not
Speaker 2: five and a half. It might be three, but maybe
Speaker 2: three and a half. But I do think that productivity
Speaker 2: is higher, and these trade offs are going to continue
Speaker 2: to be you know what the Fed, You know, the
Speaker 2: Fed's dream come true, at least for now.
Speaker 1: Somewhere in this country this morning, there was a child
Speaker 1: waking up who put on Business News Bramo on accident
Speaker 1: instead of the concerts and here you asking do you
Speaker 1: believe in Goldilocks? And this child is fixated now by
Speaker 1: two adults discussing whether Goldilocks is real or not. Well,
Speaker 1: you know, welcome.
Speaker 2: That's all I could say.
Speaker 3: We could talk about Fed policy a the other time.
Speaker 1: Julia, Thank you. Julia Coronado of Macro Policy Perspectives, Julia,
Speaker 1: just brilliant