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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Let's turn back to the tride story tariffs. They form

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Speaker 2: a New York Fed. President Bill Duty saying Trump's tariffs

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Speaker 2: will be worse than market's thing right, saying, markets seem

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Speaker 2: to think that if the President once stopped the damage,

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Speaker 2: the Fed will. I think they're too complacent. Bill joined

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Speaker 2: us now for more. Bill, welcome to the program, sir,

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Speaker 2: great Pace, let's talk about it. Why do you think

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Speaker 2: that's too complacent.

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Speaker 1: I think the problem is that the players are bad

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Speaker 1: for growth and bad for inflation, which puts a FED

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Speaker 1: in a buying Basically, they're missing by more on both

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Speaker 1: sides of their mandate. So I think in the near

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Speaker 1: term and the Fed's going to basically be on hold

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Speaker 1: waiting for more information. Trump administration is making the matter

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Speaker 1: worse because not only are they putting tariffs in place,

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Speaker 1: they are much larger than they do during the first term.

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Speaker 1: They're doing it in a very haphazard, irregular way, which

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Speaker 1: is creating a lot of uncertainty. You know, the decline

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Speaker 1: in merger activity in the four months of this year

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Speaker 1: is pretty strike. People expected merger activity to pick up

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Speaker 1: with the Trump administration it's actually gone down because nobody

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Speaker 1: knows what the rules of the game are going to

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Speaker 1: be in terms of relative prices for inputs, relative prices

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Speaker 1: for exports. So people are very confused and people are

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Speaker 1: just sitting on their hands.

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Speaker 3: Bill, as John was just saying, you wrote this line.

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Speaker 3: Market seem to think that if the President won't stop

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Speaker 3: the damage, the Federal Reserve will with rate cuts. Where

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Speaker 3: do you think they have the political leverage to not

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Speaker 3: cut rates at a time when they are seeing quite

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Speaker 3: a bit of potential destruction to the US economic outlook.

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Speaker 1: Well, it all depends on what happens to inflation, how

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Speaker 1: high does it go, and too does it get into

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Speaker 1: inflation expectations. The inflation expectations are the key key issue

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Speaker 1: for the Fed. The second thing they're going to be

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Speaker 1: focusing on how much does the unemployment rate rise. It's

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Speaker 1: not about job creation, it's about the unemploying rate. One

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Speaker 1: thing that people don't really understand, I think well is

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Speaker 1: the fact that we don't need a lot of job

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Speaker 1: creation to keep the unemployment rate here, because the growth

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Speaker 1: rate of the labor force has collapsed with the Trump administration,

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Speaker 1: where DeepArt tape where deporting workers, the number of people

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Speaker 1: coming over the borders has collapsed. The growth rate of

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Speaker 1: the native border population is really slow. So top speed

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Speaker 1: for the US of commune in terms of keeping unemployment

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Speaker 1: rate where it is probably fifty thousand in the payroll

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Speaker 1: employment a month, and I think people think that one

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Speaker 1: hundred and fifty two hundred thousand, if it slows to

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Speaker 1: fifty thousand, the Fed's going to cut I think that's wrong.

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Speaker 3: Well, I understand the argument that the FED put isn't

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Speaker 3: exactly there, that the FED is going to come in

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Speaker 3: and cut rates in response to market turmoil. At the

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Speaker 3: same time, there is an argument that some of the

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Speaker 3: terriff related inflationary forces are one time price adjustments that

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Speaker 3: will eventually come down, especially with a weakening economic outlook,

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Speaker 3: and that they can look through that a bit more

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Speaker 3: in place a bigger emphasis on the unemployment rate and

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Speaker 3: other economic indicators. Do you push back against that.

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Speaker 1: Well, again, it depends on whether it gets into inflation expectations.

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Speaker 1: The first term Trump, the tariff increases were relatively modest.

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Speaker 1: It wasn't an inflation issue because inflation was running below

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Speaker 1: the fedes two percent objective. This time, the teriff increases,

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Speaker 1: our orders of magnitude larger, and it's happening at the

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Speaker 1: time that inflation has been running well above the fedes

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Speaker 1: two percent objective for four years. So inflation expectations are

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Speaker 1: the key. And one troubling indicator in that regard is

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Speaker 1: what the University of Michigan Household Expectations Survey showed last

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Speaker 1: month for five to ten year forward inflation expectations, it

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Speaker 1: rose to three and a half percent, the highest level

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Speaker 1: since the nineteen nineties. So if that is corroborated by

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Speaker 1: other inflation expectations indicators, that's going to make it much

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Speaker 1: more difficult for the FED.

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Speaker 3: Bill You're talking about the upcoming economic projections we're going

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Speaker 3: to get from the Fed, and you say inflation will

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Speaker 3: be increased, but the path for the unemployment rate won't

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Speaker 3: change much as labor force growth slows along with hiring.

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Speaker 1: Are you basically saying the Fed and their projections are

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Speaker 1: going to almost pinpoint stagflation. Well, I think they have

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Speaker 1: to lower their growth estimates given the uncertainty that the

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Speaker 1: terrts are causing and the fact that it makes the

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Speaker 1: real income for lower income households very much squeeze. So

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Speaker 1: they're not going to be able to spend very much.

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Speaker 1: They have to raise inflation because the price level of

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Speaker 1: a lot of these important goods is going to go

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Speaker 1: up pretty significantly. So I think that's sort of in

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Speaker 1: the cards. I think what's going to surprise people is

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Speaker 1: that they're not going to raise their unemployment rate projectory

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Speaker 1: very much. And I think that people maybe be surprised

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Speaker 1: that they're not going to increase the number of rate

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Speaker 1: cuts they have in their forecasts. Last time, they had

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Speaker 1: two rate cuts for twenty twenty five, and I think

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Speaker 1: they'll keep it right there.

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Speaker 2: Bill, let's just talk about those forecasts. What is the

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Speaker 2: approach to putting forecasts together in a moment like this.

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Speaker 2: How much of a conversation happens between individual policymakers actually with.

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Speaker 1: Regard to the summary of economic projections, everyone sort of

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Speaker 1: does their own, so this is not coordinated. You are allowed,

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Speaker 1: towards the end of the Federal Open Market Committed Meeting

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Speaker 1: to change your forecast based on what you've heard from others,

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Speaker 1: but people rarely do that, So these things are really

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Speaker 1: put into place before the meeting starts and hardly ever changed.

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Speaker 3: A lot of people expect the statement of economic projection

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Speaker 3: not to really move that signific ken Lee, and if

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Speaker 3: they do, for it to essentially be irrelevant because they

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Speaker 3: don't know anything, do you disagree? Do you think that

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Speaker 3: it will be indicative of what kinds of scenario analysis

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Speaker 3: individual members are doing and how much they're incorporating policy

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Speaker 3: for their outlook.

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Speaker 1: I think the reason that matters is the fact that

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Speaker 1: I think people are looking for the FED to sort

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Speaker 1: of come to the rescue of the economy by cutting rays.

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Speaker 1: And you've seen it then in the decline and ten

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Speaker 1: your treasure note heels over the last few months, and

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Speaker 1: I think the Fed's doing a signal through the Summary

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Speaker 1: of Economic Projections and in Chairman Paul's press conference, is

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Speaker 1: that No, we're sitting on our hands for the time being.

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Speaker 2: Bill Duntley with the license great pay on Bloomberg Opinion.

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Speaker 2: That Bloomberg column available on Bloomberg Dot comment on the

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Speaker 2: Bloomberg terminal Bill, Thank you, sir. As always, they form

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Speaker 2: a New York Fed President, Bill Duntle that on the

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Speaker 2: Federal reserve and whether that FED put is alive and

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Speaker 2: well