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Speaker 1: Twenty twenty three looks like it's going to end up

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Speaker 1: being a very substantial reduction in inflation without a big

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Speaker 1: increase in the unemployment rate. That's the golden path that

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Speaker 1: I talked about. But we're still above the target. I

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Speaker 1: still caution everybody it's not done, and so the data

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Speaker 1: is going to drive what's going to happen to rates.

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Speaker 1: For sure, it's too early to declear victory.

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Speaker 2: I'm not sure if that was for us, the market

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Speaker 2: or for the chairman himself. That was Chicago Fed President

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Speaker 2: often Gausby warning the inflation fight isn't over, speaking of

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Speaker 2: CBS over the weekend, joining a chorus of Fed officials

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Speaker 2: pushing back on ray cut speculation. In the wake of j.

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Speaker 2: Powe's dubvish outlook, Former New York Fed President Bill Dudley

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Speaker 2: calling Pal's comments a gamble oneing quote, there's plenty that

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Speaker 2: can go wrong. Power has repeated the emphasize that the

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Speaker 2: Fed must finish the job. Yet the more weight he

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Speaker 2: puts on cutting rates to avoid a recession, the greater

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Speaker 2: the risk of falling and failing to control inflation, of

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Speaker 2: markets getting a big unpleasant surprise one way or another.

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Speaker 2: Twenty two twenty four promises to be an interesting year.

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Speaker 2: Thanks for teeing that up. Bill. Let's start the conversation there,

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Speaker 2: just why do you think that is so risky? And

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Speaker 2: what on earth happened at the news conference last week?

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Speaker 2: We spoke immediately afterwards. You've had an extra week. What

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Speaker 2: was that, Bill?

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Speaker 3: I think he's did very pleased with how the economy

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Speaker 3: has performed to be fit pretty stridy growth. Yet the

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Speaker 3: inflation rate has come down, so the prospects of the

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Speaker 3: soft landing have gone up. I think that's all really

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Speaker 3: good and positive. What I don't understand is why you'd

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Speaker 3: want to add fuel of fire and cause financial conditions

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Speaker 3: to ease substantially, which is whether he provoked last week.

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Speaker 3: So stocks are up quite a bit, bonnials are down,

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Speaker 3: financial conditions are much more accomodative. The Goldman Sachs Financial

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Speaker 3: Conditions Index, for example, it is by a four percentage

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Speaker 3: point at the time that the economy has been growing

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Speaker 3: at and above Trent Peess to me, I'm worry the

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Speaker 3: defense is not going to finish the job.

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Speaker 4: He's behaving a little bit more like Arthur Bernth than

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Speaker 4: he is like Paul Bunker.

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Speaker 3: Bill.

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Speaker 2: Let's build on that just a touch more. Do you

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Speaker 2: think he's seduced by the prospect of net and the

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Speaker 2: soft landing. Do you think that's what sucked him in

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Speaker 2: a little bit.

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Speaker 3: Well, I think that's certainly what he's trying to achieve,

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Speaker 3: and if I was in issues, I would do the same.

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Speaker 3: I think there's the of a contest going on right

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Speaker 3: now between how to think about monitary policy. Is policy

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Speaker 3: really tight because real rates are high and inflation's coming down,

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Speaker 3: or is policy not so tight because financial conditions that

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Speaker 3: needs significantly and that's providing support to the economy. If

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Speaker 3: you look at the Atlanta Fed GDP now has for

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Speaker 3: the fourth quarter, it's not tracking two point six percent

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Speaker 3: after a five point two percent growth rate in the

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Speaker 3: third court, So it's not really clear that the economy

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Speaker 3: needs a lot more accommodation to support itself.

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Speaker 5: Bill. Do you think the Fed cher J. Powell understood

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Speaker 5: what he was going to do to markets?

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Speaker 4: I think that he certainly.

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Speaker 3: I hope he understood that he was coming across with

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Speaker 3: a very optimistic sort of framework form of markets to

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Speaker 3: that I digest.

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Speaker 4: I think that's true.

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Speaker 3: As Austin Gosby said a little a little bit earlier

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Speaker 3: that this is a forecast, and so if the forecast

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Speaker 3: doesn't materialize, and the Feder rate cuts that are promise

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Speaker 3: won't materialize either, so the market may be get a

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Speaker 3: little bit ahead of itself. Well, this is how Powell

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Speaker 3: thinks the world is going to evolve. Paul thinks the

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Speaker 3: FED is going to be cutting rates in twenty twenty four.

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Speaker 3: But it's possible that the economy could be firmer for longer,

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Speaker 3: inflation could be more stubborn, and the rate cuts might

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Speaker 3: not actually turn out to materialize.

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Speaker 5: The reason why I ask that is because fedcher Powell

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Speaker 5: had an opportunity to push back against the financial conditions

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Speaker 5: and the easing that we have seen. He had a

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Speaker 5: chance to say this is problematic and moves counter to

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Speaker 5: our goal of bringing inflation down. He didn't. And you're

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Speaker 5: saying financial conditions still matter. So why do they still matter?

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Speaker 5: Is it becoming inflationary or at least not necessarily restrictive

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Speaker 5: in a way that's problematic for the FED to see

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Speaker 5: financial conditions easing as much as you've pointed out they have.

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Speaker 3: Well, the big problem here is that if financial conditions

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Speaker 3: ease a lot, that provides impetus to economic growth.

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Speaker 4: If economy grows faster, the.

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Speaker 3: Labor markets tighter, wage inflation is higher, and then it's

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Speaker 3: harder to actually achieve your two percent inflation objective. So

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Speaker 3: the question is does the economy need more fuel? Does

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Speaker 3: economy need to grow faster? I would say probably no.

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Speaker 3: Labor markets already very very tight. Wage inflation, as Paul

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Speaker 3: has acknowledged, is above a level consistent with two percent inflation.

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Speaker 3: So I'm not sure why you'd want to put more

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Speaker 3: fuel on fire.

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Speaker 2: But do you think we've learned enough about the cycle

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Speaker 2: so far though to draw conclusions about the contribution of

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Speaker 2: the labor market to overall price pressure and just discount

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Speaker 2: it and say it's not as important as we thought

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Speaker 2: it was.

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Speaker 4: Well, I think it's.

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Speaker 3: True that there's a big labor force supply benefit that

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Speaker 3: you got last year. A lot of people rejoined the

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Speaker 3: labor force, so the FED got sorry head skicking to do.

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Speaker 3: They had pretty sturdy growth, but it didn't generate inflation

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Speaker 3: pressure because the labor force expanded to accommodate that growth.

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Speaker 3: Now the question is is that going to continue in

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Speaker 3: twenty twenty four. That's a really important question in the

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Speaker 3: eco Gal, Look, I'm going to continue to see that

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Speaker 3: kind of rapid labor force growth that accommodates perial gains

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Speaker 3: of one hundred and fifty one hundred and seventy two

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Speaker 3: hundred thousand a month.

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Speaker 2: Do you see reason to believe that it won.

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Speaker 3: I think that that there's some reason to believe that

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Speaker 3: some of the labor force breaths we saw last year

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Speaker 3: was a.

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Speaker 4: Catchup, right.

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Speaker 3: Basically, you opened up immigration again, so you had a

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Speaker 3: surge of immigration of legal immigration into the US last year.

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Speaker 3: Worked from home allowed working age women to re enter

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Speaker 3: the layer force. But whether that trend is going to

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Speaker 3: continue at that pace, I would be a bit skeptical

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Speaker 3: about that.

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Speaker 5: There seems to be an acceptance or reacceptance of the

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Speaker 5: concept of transitory at Fedhair among the FED officials, particularly

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Speaker 5: FED Shair J.

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Speaker 2: Powell.

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Speaker 5: Are you pushing back on that? Are you saying it's

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Speaker 5: still too early to say that there's still stickier aspects

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Speaker 5: to inflation that they're discounting.

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Speaker 4: I think a lot of the inflation pressure clearly was transitory.

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Speaker 3: A lot of the upward pressure you saw on goods

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Speaker 3: prices was just to the pandemic and people increasing their

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Speaker 3: demand for goods.

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Speaker 4: Temporarily during that shutdown period.

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Speaker 3: Now we've opened up the economy, the demand for goods falls,

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Speaker 3: and so that all.

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Speaker 4: That price pressure goes away.

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Speaker 3: I think the problem on inflation is really more about

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Speaker 3: pressure on resources in the labor market.

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Speaker 4: The libor market is still very very tight.

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Speaker 3: Wage inflation is still too high, and if the economy

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Speaker 3: grows at above trend pace in twenty twenty four, all

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Speaker 3: that pressure on layer order is going to increase rather

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Speaker 3: than diminished. So the real question I have in my

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Speaker 3: mind is the monetary policy as tight as the FED

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Speaker 3: thinks it is. And I think the fact that the

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Speaker 3: FED is pivoted in this way by easing financial conditions,

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Speaker 3: that makes monetary policy less restrictive rather than more restrictive

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Speaker 3: going forward.

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Speaker 5: Some people have speculated that the FED wants to cut

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Speaker 5: rates in the first half of the year and avoid

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Speaker 5: making any moves whatsoever the second half because of the

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Speaker 5: presidential election. Do you buy into that?

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Speaker 4: No, I don't buy into it.

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Speaker 3: I think at the end of the day, the FED

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Speaker 3: accident completely a political manner because they understand that if

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Speaker 3: they start timing rate cuts or rate increases with the

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Speaker 3: political cycle, that politicizes the Fed and puts them in

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Speaker 3: the middle of the whole debate. So the best thing

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Speaker 3: the FED can do is they totally ignore the political

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Speaker 3: cycle and do what they think is best to achieve

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Speaker 3: their dual man date objectives.

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Speaker 2: Let's just sit on the comments we've heard so far.

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Speaker 2: We've had clarifying remarks from New York Fed President John Williams,

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Speaker 2: year old Saint Bill, clarifying remarks from Gilsby over the weekend,

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Speaker 2: from Mesta this morning and the Financial Times Bill, how

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Speaker 2: does that work? These speeches, these interviews are scheduled well

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Speaker 2: ahead of time as we know. Is there someone on

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Speaker 2: the committee, the Board of Governors that sends out a

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Speaker 2: message to for one and says, let's all get on

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Speaker 2: the same page. I need you to say x y C.

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Speaker 3: Bill.

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Speaker 2: Does that ever happen?

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Speaker 4: So the answer is yes and no.

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Speaker 3: Yes, John Williams, when John Wayams speaks, you have to

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Speaker 3: believe that that's been carefully choreographed with the Board of

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Speaker 3: Governors and Jay Paul. When other FED presidents speak, No,

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Speaker 3: that's not choreographed. That's them operating on their own. So

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Speaker 3: Paul speaks, you want to pay Paul spech, You want

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Speaker 3: pay attention to John Wayne' speech.

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Speaker 4: You want to pay attention because.

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Speaker 3: They're part of the Troykat the core group that sets

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Speaker 3: monitor policy for the FED, which so I think, Look,

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Speaker 3: I think I think people are pushing back a little bit.

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Speaker 3: They think the market is sort of running away from them,

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Speaker 3: when when the story isn't really completed yet. I mean

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Speaker 3: Paul's Paul's remarks last week. We're all about how he

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Speaker 3: thinks things are.

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Speaker 4: Going to evolve.

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Speaker 3: We have to see if they actually evolved in that

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Speaker 3: way to provide the motivation for rate cuts.

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Speaker 2: Hi, Bill, I appreciate the update, great piece this morning.

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Speaker 2: Enjoyed the read Bill Dudley there of Bloomberg opinion on

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Speaker 2: the gamble. He thinks this federal reserve is taken with

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Speaker 2: the grand pivot that was seemingly unofficially announced in last

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Speaker 2: week's news Comfort