WEBVTT - Bloomberg Surveillance: Julie Coronado on Nominal Funds Rate

0:00:00.080 --> 0:00:03.160
<v Speaker 1>Judy Coronado of Macro Policy Perspective, suggesting the time is

0:00:03.200 --> 0:00:06.360
<v Speaker 1>now writing this, The question is very much what are

0:00:06.360 --> 0:00:08.880
<v Speaker 1>we doing at five point five percent? It's time to

0:00:08.880 --> 0:00:12.639
<v Speaker 1>start adjusting the nominal funds rate. Julia Coronado on Place

0:00:12.680 --> 0:00:15.600
<v Speaker 1>to say, joined us, Now, Judya, let's talk about that.

0:00:16.040 --> 0:00:18.200
<v Speaker 1>The chairman of the feder Reserve in the news conference

0:00:18.280 --> 0:00:21.720
<v Speaker 1>last week said we need to see more data, more

0:00:21.760 --> 0:00:25.239
<v Speaker 1>good data, not better data, just more data, not.

0:00:25.720 --> 0:00:29.120
<v Speaker 2>Even necessarily as good, just good, he said.

0:00:29.440 --> 0:00:31.760
<v Speaker 1>So any reason to believe we won't see that in

0:00:31.800 --> 0:00:33.240
<v Speaker 1>the next three months.

0:00:33.080 --> 0:00:35.720
<v Speaker 2>There is no real reason. Of course, you need the

0:00:35.800 --> 0:00:38.199
<v Speaker 2>data to ratify that, and as we saw on Friday,

0:00:38.280 --> 0:00:43.199
<v Speaker 2>data can always surprise us. But if inflation does continue

0:00:43.200 --> 0:00:47.400
<v Speaker 2>to behave as it's been, they're rapidly approaching two percent,

0:00:48.520 --> 0:00:50.520
<v Speaker 2>and so I think what we're hearing from the FED

0:00:50.640 --> 0:00:53.360
<v Speaker 2>is that the committee is a little just you know,

0:00:53.720 --> 0:00:56.840
<v Speaker 2>struggling to catch up to how quickly the data have

0:00:57.040 --> 0:01:01.440
<v Speaker 2>moved and what to make of that. It certainly defies

0:01:01.480 --> 0:01:03.920
<v Speaker 2>all of our macro models for inflation to come down

0:01:04.040 --> 0:01:08.520
<v Speaker 2>so rapidly with the labor market so healthy, and so

0:01:08.720 --> 0:01:11.560
<v Speaker 2>there's still some skeptics. I think Chair Powell might be

0:01:11.600 --> 0:01:14.760
<v Speaker 2>having a challenge corraling everybody on the committee. I think

0:01:14.760 --> 0:01:18.760
<v Speaker 2>he wants to make that first move based on a

0:01:18.880 --> 0:01:22.720
<v Speaker 2>strong consensus, and I think he's just having a little

0:01:22.720 --> 0:01:26.160
<v Speaker 2>bit of committee management challenges, which is why he, in

0:01:26.200 --> 0:01:32.560
<v Speaker 2>a very data undependent way, took March off the table.

0:01:32.640 --> 0:01:36.040
<v Speaker 2>So we're in May because we think the data will

0:01:36.080 --> 0:01:37.240
<v Speaker 2>continue to tell the story.

0:01:37.360 --> 0:01:40.000
<v Speaker 1>Julia and Lisa said it immediately after that fed mating

0:01:40.200 --> 0:01:42.440
<v Speaker 1>during that news conference, I think Lisa said to us

0:01:42.480 --> 0:01:45.600
<v Speaker 1>around the table, it's like hurting cats. Judy, you noticed

0:01:45.640 --> 0:01:48.280
<v Speaker 1>the same thing. What was it about the statement and

0:01:48.320 --> 0:01:51.200
<v Speaker 1>the news conferences stood out to you that gave you

0:01:51.240 --> 0:01:54.400
<v Speaker 1>the impression that maybe things are really fragmented divided on

0:01:54.400 --> 0:01:55.400
<v Speaker 1>the committee at the moment.

0:01:56.400 --> 0:01:58.960
<v Speaker 2>For me, the moment that was most telling was when

0:01:59.080 --> 0:02:01.480
<v Speaker 2>he took March off the table. He said it in

0:02:01.520 --> 0:02:05.360
<v Speaker 2>a sort of halting way that he just doesn't think

0:02:05.480 --> 0:02:10.560
<v Speaker 2>this committee will have the confidence by March. He thinks

0:02:10.560 --> 0:02:13.239
<v Speaker 2>it's unlikely, I think was the term. But it was

0:02:13.280 --> 0:02:16.360
<v Speaker 2>a reference not to his view but to sort of

0:02:16.400 --> 0:02:20.880
<v Speaker 2>the collective confidence, which suggests that there were some people

0:02:20.919 --> 0:02:23.600
<v Speaker 2>that were just digging their heels in still that just

0:02:23.720 --> 0:02:27.239
<v Speaker 2>deeply skeptical of what they've seen or that it's likelyhood

0:02:27.400 --> 0:02:31.000
<v Speaker 2>of continuing. But yeah, I think that was the moment

0:02:31.040 --> 0:02:33.440
<v Speaker 2>where it was like, well, that's not data dependent, and

0:02:34.680 --> 0:02:38.000
<v Speaker 2>it wasn't referencing his own views, which we know that share.

0:02:38.080 --> 0:02:41.440
<v Speaker 2>Powell's been a bit more encouraged and optimistic about the

0:02:41.680 --> 0:02:45.919
<v Speaker 2>data flow, more willing because he's perhaps not an economist

0:02:46.800 --> 0:02:51.680
<v Speaker 2>to just accept it for what it is and buy

0:02:51.760 --> 0:02:54.880
<v Speaker 2>into its staying power. Again, data have to ratify it.

0:02:55.280 --> 0:02:58.120
<v Speaker 2>But should they ratify it? You know, there's no reason

0:02:58.200 --> 0:03:04.280
<v Speaker 2>not to move in March. There's tension right now between

0:03:04.360 --> 0:03:06.919
<v Speaker 2>the FEDS saying they're going to start the cutting process

0:03:07.000 --> 0:03:10.920
<v Speaker 2>well before we get to two percent and taking March

0:03:10.960 --> 0:03:14.280
<v Speaker 2>off the table, right because we are getting very close

0:03:14.320 --> 0:03:17.200
<v Speaker 2>to two percent, and by March, with a couple more months,

0:03:17.240 --> 0:03:22.440
<v Speaker 2>we could be quite close. But I think, yeah, I

0:03:22.480 --> 0:03:25.840
<v Speaker 2>think it's just the herding cats challenge.

0:03:25.960 --> 0:03:28.480
<v Speaker 3>Julia, you said it is pretty clear that the FED

0:03:28.639 --> 0:03:32.120
<v Speaker 3>has policy in a restrictive place. Is it clear? I mean,

0:03:32.120 --> 0:03:34.920
<v Speaker 3>this is actually talk about herding cats. It's hurting cats

0:03:35.000 --> 0:03:37.600
<v Speaker 3>the market too. You've got increasing number of people questioning

0:03:38.280 --> 0:03:40.880
<v Speaker 3>just how restrictive that is if you're seeing job growth

0:03:40.920 --> 0:03:43.280
<v Speaker 3>like what we saw on Friday, if you see ism

0:03:43.400 --> 0:03:45.800
<v Speaker 3>service's prices paid grow at the pace that we did

0:03:46.400 --> 0:03:48.520
<v Speaker 3>for last month as well.

0:03:48.680 --> 0:03:51.120
<v Speaker 2>Yeah, no, that's a fair question, Lisa. I think one

0:03:51.160 --> 0:03:54.280
<v Speaker 2>of the things that's been the huge macro surprise of

0:03:54.320 --> 0:03:58.240
<v Speaker 2>twenty twenty three was the productivity boom. We had been

0:03:58.320 --> 0:04:02.560
<v Speaker 2>bullish productivity, that it would be strong in twenty twenty three,

0:04:02.600 --> 0:04:04.920
<v Speaker 2>that it would help bring inflation down and make the

0:04:04.920 --> 0:04:09.200
<v Speaker 2>FEDCE trade offs easier than they expected. But it was

0:04:09.400 --> 0:04:12.280
<v Speaker 2>much stronger than we expected. My goodness. The second half

0:04:12.280 --> 0:04:16.039
<v Speaker 2>of the year was a productivity boom. For the year,

0:04:16.360 --> 0:04:19.920
<v Speaker 2>it's close to three percent. That's quite a performance. Now.

0:04:19.960 --> 0:04:23.440
<v Speaker 2>It comes after a very bad performance in twenty twenty

0:04:23.440 --> 0:04:27.960
<v Speaker 2>two when supply chains were dragging us down. But it's

0:04:28.320 --> 0:04:33.240
<v Speaker 2>masking I think some of the restriction in monetary policy,

0:04:33.640 --> 0:04:36.640
<v Speaker 2>which could mean that the neutral rate, at least for now,

0:04:36.800 --> 0:04:39.200
<v Speaker 2>is higher. And the big question in the big uncertainty,

0:04:39.240 --> 0:04:42.680
<v Speaker 2>and Chairpowell touched on this in his press conference. We

0:04:42.880 --> 0:04:45.400
<v Speaker 2>just don't know if we're going to keep getting productivity

0:04:45.440 --> 0:04:49.200
<v Speaker 2>gains like we saw in twenty twenty three, or even

0:04:49.279 --> 0:04:53.360
<v Speaker 2>anywhere close. If we do if we are not just

0:04:53.400 --> 0:04:57.280
<v Speaker 2>in a productivity sort of post pandemic dividend, but a

0:04:57.320 --> 0:05:01.159
<v Speaker 2>stronger trend than the neutral rate could be higher.

0:05:01.600 --> 0:05:01.800
<v Speaker 3>Yeah.

0:05:02.200 --> 0:05:04.880
<v Speaker 2>On the other hand, if this is just a one

0:05:04.960 --> 0:05:09.440
<v Speaker 2>time productivity dividend, then we could see a sudden stop

0:05:09.480 --> 0:05:12.560
<v Speaker 2>in the economy as that slows down, and the restriction

0:05:12.640 --> 0:05:14.520
<v Speaker 2>would come through and they'd have to cut a lot

0:05:14.640 --> 0:05:17.880
<v Speaker 2>faster Juliett. So I think those are the uncertainties we're facing.

0:05:18.000 --> 0:05:18.440
<v Speaker 1>We just have.

0:05:18.480 --> 0:05:22.120
<v Speaker 3>About sixty seconds left. Do you believe in goldilocks or

0:05:22.120 --> 0:05:24.400
<v Speaker 3>do you think that maybe it's kind of a little

0:05:24.440 --> 0:05:25.559
<v Speaker 3>bit inaccurate at this point.

0:05:26.640 --> 0:05:29.680
<v Speaker 2>I do believe in goldilocks. I've been pretty bullish productivity.

0:05:29.760 --> 0:05:32.640
<v Speaker 2>I do think the trend is better. That could mean

0:05:32.640 --> 0:05:34.800
<v Speaker 2>a higher neutral rate, But what is higher. It's not

0:05:34.920 --> 0:05:39.719
<v Speaker 2>five and a half. It might be three, but maybe

0:05:39.760 --> 0:05:43.440
<v Speaker 2>three and a half. But I do think that productivity

0:05:43.520 --> 0:05:46.200
<v Speaker 2>is higher, and these trade offs are going to continue

0:05:46.240 --> 0:05:49.480
<v Speaker 2>to be you know what the Fed, You know, the

0:05:49.480 --> 0:05:51.799
<v Speaker 2>Fed's dream come true, at least for now.

0:05:52.279 --> 0:05:54.599
<v Speaker 1>Somewhere in this country this morning, there was a child

0:05:54.640 --> 0:05:57.640
<v Speaker 1>waking up who put on Business News Bramo on accident

0:05:57.839 --> 0:06:01.000
<v Speaker 1>instead of the concerts and here you asking do you

0:06:01.040 --> 0:06:04.240
<v Speaker 1>believe in Goldilocks? And this child is fixated now by

0:06:04.279 --> 0:06:07.920
<v Speaker 1>two adults discussing whether Goldilocks is real or not. Well,

0:06:08.040 --> 0:06:08.919
<v Speaker 1>you know, welcome.

0:06:09.040 --> 0:06:09.760
<v Speaker 2>That's all I could say.

0:06:09.760 --> 0:06:11.520
<v Speaker 3>We could talk about Fed policy a the other time.

0:06:11.720 --> 0:06:15.000
<v Speaker 1>Julia, Thank you. Julia Coronado of Macro Policy Perspectives, Julia,

0:06:15.360 --> 0:06:15.920
<v Speaker 1>just brilliant