Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's turn back to the tride story tariffs. They form
Speaker 2: a New York Fed. President Bill Duty saying Trump's tariffs
Speaker 2: will be worse than market's thing right, saying, markets seem
Speaker 2: to think that if the President once stopped the damage,
Speaker 2: the Fed will. I think they're too complacent. Bill joined
Speaker 2: us now for more. Bill, welcome to the program, sir,
Speaker 2: great Pace, let's talk about it. Why do you think
Speaker 2: that's too complacent.
Speaker 1: I think the problem is that the players are bad
Speaker 1: for growth and bad for inflation, which puts a FED
Speaker 1: in a buying Basically, they're missing by more on both
Speaker 1: sides of their mandate. So I think in the near
Speaker 1: term and the Fed's going to basically be on hold
Speaker 1: waiting for more information. Trump administration is making the matter
Speaker 1: worse because not only are they putting tariffs in place,
Speaker 1: they are much larger than they do during the first term.
Speaker 1: They're doing it in a very haphazard, irregular way, which
Speaker 1: is creating a lot of uncertainty. You know, the decline
Speaker 1: in merger activity in the four months of this year
Speaker 1: is pretty strike. People expected merger activity to pick up
Speaker 1: with the Trump administration it's actually gone down because nobody
Speaker 1: knows what the rules of the game are going to
Speaker 1: be in terms of relative prices for inputs, relative prices
Speaker 1: for exports. So people are very confused and people are
Speaker 1: just sitting on their hands.
Speaker 3: Bill, as John was just saying, you wrote this line.
Speaker 3: Market seem to think that if the President won't stop
Speaker 3: the damage, the Federal Reserve will with rate cuts. Where
Speaker 3: do you think they have the political leverage to not
Speaker 3: cut rates at a time when they are seeing quite
Speaker 3: a bit of potential destruction to the US economic outlook.
Speaker 1: Well, it all depends on what happens to inflation, how
Speaker 1: high does it go, and too does it get into
Speaker 1: inflation expectations. The inflation expectations are the key key issue
Speaker 1: for the Fed. The second thing they're going to be
Speaker 1: focusing on how much does the unemployment rate rise. It's
Speaker 1: not about job creation, it's about the unemploying rate. One
Speaker 1: thing that people don't really understand, I think well is
Speaker 1: the fact that we don't need a lot of job
Speaker 1: creation to keep the unemployment rate here, because the growth
Speaker 1: rate of the labor force has collapsed with the Trump administration,
Speaker 1: where DeepArt tape where deporting workers, the number of people
Speaker 1: coming over the borders has collapsed. The growth rate of
Speaker 1: the native border population is really slow. So top speed
Speaker 1: for the US of commune in terms of keeping unemployment
Speaker 1: rate where it is probably fifty thousand in the payroll
Speaker 1: employment a month, and I think people think that one
Speaker 1: hundred and fifty two hundred thousand, if it slows to
Speaker 1: fifty thousand, the Fed's going to cut I think that's wrong.
Speaker 3: Well, I understand the argument that the FED put isn't
Speaker 3: exactly there, that the FED is going to come in
Speaker 3: and cut rates in response to market turmoil. At the
Speaker 3: same time, there is an argument that some of the
Speaker 3: terriff related inflationary forces are one time price adjustments that
Speaker 3: will eventually come down, especially with a weakening economic outlook,
Speaker 3: and that they can look through that a bit more
Speaker 3: in place a bigger emphasis on the unemployment rate and
Speaker 3: other economic indicators. Do you push back against that.
Speaker 1: Well, again, it depends on whether it gets into inflation expectations.
Speaker 1: The first term Trump, the tariff increases were relatively modest.
Speaker 1: It wasn't an inflation issue because inflation was running below
Speaker 1: the fedes two percent objective. This time, the teriff increases,
Speaker 1: our orders of magnitude larger, and it's happening at the
Speaker 1: time that inflation has been running well above the fedes
Speaker 1: two percent objective for four years. So inflation expectations are
Speaker 1: the key. And one troubling indicator in that regard is
Speaker 1: what the University of Michigan Household Expectations Survey showed last
Speaker 1: month for five to ten year forward inflation expectations, it
Speaker 1: rose to three and a half percent, the highest level
Speaker 1: since the nineteen nineties. So if that is corroborated by
Speaker 1: other inflation expectations indicators, that's going to make it much
Speaker 1: more difficult for the FED.
Speaker 3: Bill You're talking about the upcoming economic projections we're going
Speaker 3: to get from the Fed, and you say inflation will
Speaker 3: be increased, but the path for the unemployment rate won't
Speaker 3: change much as labor force growth slows along with hiring.
Speaker 1: Are you basically saying the Fed and their projections are
Speaker 1: going to almost pinpoint stagflation. Well, I think they have
Speaker 1: to lower their growth estimates given the uncertainty that the
Speaker 1: terrts are causing and the fact that it makes the
Speaker 1: real income for lower income households very much squeeze. So
Speaker 1: they're not going to be able to spend very much.
Speaker 1: They have to raise inflation because the price level of
Speaker 1: a lot of these important goods is going to go
Speaker 1: up pretty significantly. So I think that's sort of in
Speaker 1: the cards. I think what's going to surprise people is
Speaker 1: that they're not going to raise their unemployment rate projectory
Speaker 1: very much. And I think that people maybe be surprised
Speaker 1: that they're not going to increase the number of rate
Speaker 1: cuts they have in their forecasts. Last time, they had
Speaker 1: two rate cuts for twenty twenty five, and I think
Speaker 1: they'll keep it right there.
Speaker 2: Bill, let's just talk about those forecasts. What is the
Speaker 2: approach to putting forecasts together in a moment like this.
Speaker 2: How much of a conversation happens between individual policymakers actually with.
Speaker 1: Regard to the summary of economic projections, everyone sort of
Speaker 1: does their own, so this is not coordinated. You are allowed,
Speaker 1: towards the end of the Federal Open Market Committed Meeting
Speaker 1: to change your forecast based on what you've heard from others,
Speaker 1: but people rarely do that, So these things are really
Speaker 1: put into place before the meeting starts and hardly ever changed.
Speaker 3: A lot of people expect the statement of economic projection
Speaker 3: not to really move that signific ken Lee, and if
Speaker 3: they do, for it to essentially be irrelevant because they
Speaker 3: don't know anything, do you disagree? Do you think that
Speaker 3: it will be indicative of what kinds of scenario analysis
Speaker 3: individual members are doing and how much they're incorporating policy
Speaker 3: for their outlook.
Speaker 1: I think the reason that matters is the fact that
Speaker 1: I think people are looking for the FED to sort
Speaker 1: of come to the rescue of the economy by cutting rays.
Speaker 1: And you've seen it then in the decline and ten
Speaker 1: your treasure note heels over the last few months, and
Speaker 1: I think the Fed's doing a signal through the Summary
Speaker 1: of Economic Projections and in Chairman Paul's press conference, is
Speaker 1: that No, we're sitting on our hands for the time being.
Speaker 2: Bill Duntley with the license great pay on Bloomberg Opinion.
Speaker 2: That Bloomberg column available on Bloomberg Dot comment on the
Speaker 2: Bloomberg terminal Bill, Thank you, sir. As always, they form
Speaker 2: a New York Fed President, Bill Duntle that on the
Speaker 2: Federal reserve and whether that FED put is alive and
Speaker 2: well