Speaker 1: On Bloomberg Television and Radio. I am Shanallie Bassik. Joining
Speaker 1: us now is Bloomberg's Michael McKee and Chicago Fed President
Speaker 1: Austin Goolesby. Mike Geta started.
Speaker 2: Thank you chanelling, and thank you to everybody who is
Speaker 2: watching us around the world, including Austin Goolsby joining us
Speaker 2: from Chicago. Thank you very much, mister President. Hiring drop precipitously,
Speaker 2: the unemployment rate shoots up more than anticipated. Everyone wants
Speaker 2: to know, did the Fed make a mistake by not
Speaker 2: cutting rates on Wednesday?
Speaker 3: Well, look, you know, I'm not going to get myself
Speaker 3: in trouble and talk about what people's thinking are from
Speaker 3: the meeting. You're going to have to wait for the
Speaker 3: transcript to come out to see what was on people's mind.
Speaker 3: I've been saying to you for a long time and
Speaker 3: publicly that we'd never want to overreact to any one
Speaker 3: month's numbers. And if you back up to the last
Speaker 3: half of twenty twenty three, you know that the market
Speaker 3: said maybe there will be seven cuts for the year,
Speaker 3: and then when a month would come in, then that
Speaker 3: seven would drop to three. Then there was a group
Speaker 3: saying maybe there will be an increase in rates. The
Speaker 3: job of the central bank is to figure out the
Speaker 3: through line and to move in a steady way. I've
Speaker 3: been warning that we are tight. We are restrictive. The
Speaker 3: real Fed funds rate is as high as it's been
Speaker 3: in decades, and as inflation falls, that gets tighter. If
Speaker 3: we stay restrictive for too long, we're going to have
Speaker 3: to think about the employment side of the mandate. And
Speaker 3: if you look here, if you take this, if you
Speaker 3: take this summary the statement of economic projections in the SAP,
Speaker 3: the neutral rate of inflation, the long term rate of inflation,
Speaker 3: and unemployment. Say that people think full employment is about
Speaker 3: four point one percent. So if unemployment is going to
Speaker 3: go up higher than the neutral rate, that is exactly
Speaker 3: the kind of pinching on the other side of the
Speaker 3: mandate that the law says the Fed has to think
Speaker 3: about and respond to.
Speaker 2: Well, you've been talking about a rate cut, yet you
Speaker 2: voted to keep rates unchanged. Why did you do that?
Speaker 2: And now do you think maybe you are behind the curve?
Speaker 3: Well, look like I say, I'm not going to get
Speaker 3: into talking about the secret discussion. You got to wait
Speaker 3: for the minutes and the transcript to come out. I
Speaker 3: was a seat filler at the OSCARS that that's really
Speaker 3: Cleveland's seat. I was there for one meeting. The committee
Speaker 3: acts on the through line of the data, and the
Speaker 3: through line of the data, you should not change what
Speaker 3: you think. The through line is based on one month's
Speaker 3: number and the overall. You know that I believe that
Speaker 3: we are restrictive. I think that I've been saying for
Speaker 3: months that what we wanted to see was improvement on
Speaker 3: inflation and especially improvement in the components like housing and services.
Speaker 3: And we've been seeing that, and that the longer we
Speaker 3: were restrictive, we're going to have to start thinking about
Speaker 3: the employment side of the MANDID.
Speaker 2: Well, you've heard what the banks, economists and traders are
Speaker 2: saying today. Should the next move in September be a
Speaker 2: fifty basis point cut? And what do you think about
Speaker 2: JP Morgan proposing from a risk management perspective, there's a
Speaker 2: strong case to act before September eighteenth.
Speaker 3: Look, Paul Volger, my old mentor and friend, you saw
Speaker 3: is our job is to act and their job is
Speaker 3: to react. And let's not get the order mixed up
Speaker 3: on that. I fully understand why markets want to jump
Speaker 3: if they get one scrap of information and they see
Speaker 3: one thing, they want to conclude a trend out of
Speaker 3: one data point, and I would just caution us. If
Speaker 3: we had acted at the end of twenty twenty three
Speaker 3: based on a couple of observations, then the same people
Speaker 3: would have said, ah, but look, inflation went back up
Speaker 3: in the first quarter, so that was a mistake. I
Speaker 3: think the most important thing is to look at the
Speaker 3: through line. What will determine the action is if we
Speaker 3: don't want to tie our hands now, we're going to
Speaker 3: get a lot of information between now and the next meeting,
Speaker 3: and what will determine the size or if there is
Speaker 3: action at all, will be the conditions, And that's the
Speaker 3: way it should be. That's as I always say the
Speaker 3: data dogs, there's a time for walking, there's a time
Speaker 3: for sniffing. The sniffing time is when there's a lot
Speaker 3: of uncertainty and you don't know what's what. Once you
Speaker 3: get the through line, that's the time for walking.
Speaker 1: What exactly would it take to see a cut before
Speaker 1: that September meeting.
Speaker 3: I'm not going to get in a speculative bit about that.
Speaker 3: The FMC acts in a consensus manner. We have deliberation
Speaker 3: and debate, and we vote on things, and I hope
Speaker 3: I try to bring the through line mentality of you
Speaker 3: don't take one month's number, look at what the trends are.
Speaker 3: And to me, the trends show inflation coming down across
Speaker 3: the board multiple months in a row. They show the
Speaker 3: labor market cooling. What we want is for the labor
Speaker 3: market to get into good balance, sort of the full
Speaker 3: employment natural rate. If we're not stopping at that, and
Speaker 3: then we're not neutral and we're going to have to
Speaker 3: be thinking about the employment side of the mandate.
Speaker 1: It's not just about the next cut, it's also about
Speaker 1: the path forward from here. For the people that think
Speaker 1: that you might get multiple even multiple half point right
Speaker 1: cuts through September through November through December, what do you
Speaker 1: tell them in terms of what you expect for the
Speaker 1: entirety of the path going into next year.
Speaker 3: Look, you know, I don't like tie in our hands
Speaker 3: even for the next meeting, so I certainly don't want
Speaker 3: to commit ourselves to what going to be the rate
Speaker 3: path five to seven meetings from now. With all of
Speaker 3: that said, just look at the statement of economic projections
Speaker 3: and you can see that as a committee of the
Speaker 3: individuals believe have believed that the conditions will be appropriate
Speaker 3: to have multiple rate cuts with the unemployment getting into
Speaker 3: better balance and with inflation coming down to target, but
Speaker 3: even at a run rate that's a little higher than
Speaker 3: what we've seen in the last couple of months. So
Speaker 3: it's not any secret. The Fed's been pretty vocal about
Speaker 3: here's what the reaction function is and expecting. As is
Speaker 3: historically true, when conditions weren't a cut, they tend not
Speaker 3: to be one individual cut. The SEP shows that the
Speaker 3: median dot of the dot plot has multiple cuts over
Speaker 3: the next year.
Speaker 2: How weak is the US economy overall? I want to
Speaker 2: point out something that your Governor JB. Pritsker, the governor
Speaker 2: of Illinois, said just two days ago. Interest rates are
Speaker 2: holding companies back from making the investments that are necessary.
Speaker 2: All these companies are companies that are on a generally
Speaker 2: upward trajectory over the last decade, but are having a
Speaker 2: hard time in the moment because of some of the
Speaker 2: challenges the Federal Reserve has brought.
Speaker 3: I mean, in a way that's a description of monetary
Speaker 3: policy that sounds like he's saying policy is restrictive, and
Speaker 3: I agree with them. When the real federal funds rate,
Speaker 3: that is the Fed funds rate minus inflation, that's as
Speaker 3: high as it's been in a very long time. That's
Speaker 3: the highest it's been over the cycle. As inflation comes down.
Speaker 3: We set that rate a year ago at a time
Speaker 3: when conditions were very different than they are now. And
Speaker 3: you should be tightening by choice, not by accident. You
Speaker 3: shouldn't back yourself into tightening. What we need to do
Speaker 3: is take the through line on inflation and on employment,
Speaker 3: and that's what should determine our policy. I don't want
Speaker 3: to argue about the words how good or how weak
Speaker 3: is the economy? Well, the numbers are the numbers. We've
Speaker 3: seen GDP growing around trend. We had one weaker than
Speaker 3: expected GDP growth number at the beginning of the year.
Speaker 3: Then we had a stronger than expected in the second quarter,
Speaker 3: and so we were growing, but it's slowing down. The
Speaker 3: strongest thing in the economy has been the job market.
Speaker 3: The weakest thing in the economy has been the inflation.
Speaker 3: Both of those are converging back to let's call it
Speaker 3: normal or what it was pre pandemic. And our absolute
Speaker 3: goal now is we want to settle at something like
Speaker 3: full employment, not blow through normal and deteriorate.
Speaker 2: Well, I think the major thing that people want to
Speaker 2: know going forward is now you mentioned all the data
Speaker 2: coming up, what are you going to be looking at?
Speaker 2: What is going to what are you going to base
Speaker 2: your interest rate decisions on?
Speaker 3: I mean, the dual mandate comes to us by law.
Speaker 3: The law says the primary things we got to look
Speaker 3: at are inflation and the job market and are we
Speaker 3: maximizing employment? So those are going to be the big
Speaker 3: two kahunahs as we go forward. But it is still
Speaker 3: an economy with cross currents, where you've got some things
Speaker 3: that remain quite strong by historical terms and other things
Speaker 3: that have deteriorated. So if you look at credit card
Speaker 3: delinquencies or small business defaults, those have been rising and
Speaker 3: they have moved into what I call warning sign stage.
Speaker 3: So I'm going to be looking at what Chair Powell
Speaker 3: calls the totality of the data, not just the monthly
Speaker 3: PCE inflation and jobs reports, but the PCE inflation and
Speaker 3: the jobs reports are the big two for sure by law,
Speaker 3: we do have to.
Speaker 1: Leave it there. Wish we had more time, of course,
Speaker 1: that is Bloomberg's Michael McKee and Chicago Fed President Austin Goolsby,
Speaker 1: off the heels of a very highly watched and surprising
Speaker 1: jobs report. We thank you both very much for your
Speaker 1: time