Speaker 1: Elsewhere on the Federal Reserve. The former New York Fed
Speaker 1: President Bill Dudley in a new Bloomberg opinion column, writing this,
Speaker 1: I've been too pessimistic about the risks of a so
Speaker 1: called hard landing for the US economy over the past
Speaker 1: few years. Although most of my conclusions that led to
Speaker 1: that view were correct, such an outcome remains very much
Speaker 1: in doubt. Bill joins us now for more. Bill, welcome
Speaker 1: back to the program, sir. It's been quite a journey
Speaker 1: for you, an intellectual journey over the year so far.
Speaker 1: I want to go through a couple of headlines and
Speaker 1: you help me understand why you've changed your thinking. Someone.
Speaker 1: It was only back earlier this summer where you said
Speaker 1: I changed my mind the FED needs to cut rates
Speaker 1: now before the Federal Reserve meeting. Last time around, you
Speaker 1: said they need to go big. Now I think they will.
Speaker 1: They did this morning. My hard landing forecast turned out
Speaker 1: to be wrong. Bill, just walk us through how you're
Speaker 1: thinking about things currently and what kind of policy this
Speaker 1: backdrop needs.
Speaker 2: Well, my original view was that Fed would be late
Speaker 2: to take Madre policy check. As a consequence, inflation want
Speaker 2: to go up, and the labor market would get very tight.
Speaker 2: Then the Federal Reserve would have to tighten mantre policy
Speaker 2: a lot check, and the unployer would have to go up.
Speaker 2: At least they have a percentage point trigger the sam
Speaker 2: rule check, but the shop role trigger. That doesn't seem
Speaker 2: like it's leading to recession. If you look at that
Speaker 2: the GDP numbers, they've have been very firmly lately.
Speaker 3: Second quarter three percent, third quarter is tracking two and
Speaker 3: a half percent.
Speaker 2: So even though I had the story right, it doesn't
Speaker 2: look like the conclusion is going to pan out.
Speaker 3: It was too soon to say for sure.
Speaker 2: That's why the labor market has so much attention focused
Speaker 2: on it, and I thought I was interesting the summary.
Speaker 3: Of economic projections at the last FMC meeting.
Speaker 2: They actually in the in their summary of economic projections,
Speaker 2: they actually think that the downside risks to the labor
Speaker 2: market are actually greater now than the outside risk of
Speaker 2: the inflation. So they're worried about the exact same thing.
Speaker 2: And that's why tomorrow's labor market report is so important.
Speaker 2: If the labor market really starts to deteriorate, then I
Speaker 2: think the soft landing story will start to come into question.
Speaker 2: And that's why the FED cut fifty basis points a
Speaker 2: couple of weeks ago.
Speaker 4: I think a lot of people bill share your journey
Speaker 4: in terms of changing views and not understanding which models
Speaker 4: are actually accurate this time around. What in your analysis
Speaker 4: makes you think that this time is different and that
Speaker 4: some of the classic indicators that traditionally have foretold recession
Speaker 4: no longer work.
Speaker 3: I think two things are different.
Speaker 2: Number One, you had all these fiscal transfers during the
Speaker 2: pandemic to businesses and households, so business and household bounce
Speaker 2: sheets are in better shape than they typically are late
Speaker 2: in the business cycle. You know, for example, look at
Speaker 2: debt service colls for the household sector is still pretty
Speaker 2: low because people locked in very low mortgage rates during
Speaker 2: the servant during the pandemic. Second thing I think is
Speaker 2: different is that financial conditions have eased a lot even
Speaker 2: before the federieser cut rates. So financial conditions are We're
Speaker 2: at the most tightest about about a year ago, and
Speaker 2: since then the beads a lot, stock market up, bondials down,
Speaker 2: credit spreads tighter, and so even though Madre policies tighten,
Speaker 2: when you look at the level of short term rates,
Speaker 2: financial conditions at ease a lot, and that's supporting economic activity.
Speaker 4: What's to say we're landing at all?
Speaker 1: Bill?
Speaker 3: Well, that's a good question.
Speaker 5: I mean, I think you know the fact would like
Speaker 5: the economy to grow, you know too, two and a
Speaker 5: half percent, keep the unemployer rate right where it is,
Speaker 5: and the third quarter looks like it's shaping up that way.
Speaker 5: But keeping on that very you know, that nice edge
Speaker 5: growth not strong enough to cause the researches of inflation,
Speaker 5: not weak enough to lead to the kind of deterioration
Speaker 5: and labor market that would lead to recession.
Speaker 3: That's gonna be tough to keep on that nice edge.
Speaker 4: So what are you expecting for tomorrow?
Speaker 2: I think it'll be a decent payroll employer report. I mean,
Speaker 2: I think the estimates are around one hundred and forty thousand.
Speaker 2: That seems like a regionalle estment.
Speaker 6: We have to remember, though, the payroll employment has a
Speaker 6: big standard are around those estimates, So you could get
Speaker 6: something like eighty thousand, or you get something like two
Speaker 6: hundred thousand, and it really wouldn't to tell you for sure.
Speaker 3: That the economy has actually changed momentum.
Speaker 1: Bill, How difficult is that? In the November seventh meeting
Speaker 1: going to be considering how messy the data might be,
Speaker 1: we might not have an outcome from the election. Can
Speaker 1: you think of a time like this want that they're
Speaker 1: going into in the next month.
Speaker 2: Well, the particular awkwardness is that there will be another
Speaker 2: payilmployment report during the blackout period right before the.
Speaker 3: Fo C meeting.
Speaker 2: Look, I think that most of the momentum is for
Speaker 2: twenty five basis points at this point.
Speaker 3: Powell basically foreshared that in a speech.
Speaker 2: The fact that you had all these people in the
Speaker 2: summery that projections that only had one more rate cut
Speaker 2: in their forecast after the last meeting also tells you
Speaker 2: that it's probably not going to be fifty. So I
Speaker 2: think the basic stories still intact. Risks to the labor
Speaker 2: market are greater than the risk of inflation, Madre policies tight,
Speaker 2: We're still quite ways from neutral, so twenty five basis
Speaker 2: points is the most likely scenario in my view at
Speaker 2: this point.
Speaker 4: Bill we had Adam posted on earlier from the Peterson
Speaker 4: Institute who said that the FED should be vocal about
Speaker 4: the fact that they're considering the deficit and potential tariffs
Speaker 4: as a potential inflationary pressure heading into twenty twenty five
Speaker 4: and a reason to cut less. What do you make
Speaker 4: of that? Not necessarily the FED weighing in on that
Speaker 4: particular issue, but being more cautious ahead of next year
Speaker 4: because of it.
Speaker 2: In my experience, the Fed doesn't make you fit policy
Speaker 2: today on things that might or might not happen in
Speaker 2: the future.
Speaker 3: I think they wait to those things either materialized or not.
Speaker 2: And so I think that the idea that the FED
Speaker 2: wouldn't eased because they're worried that an election could result
Speaker 2: in a certain outcome that would lead to higher terrorists
Speaker 2: and higher inflation.
Speaker 3: I don't think the feder Reserve would hold off because
Speaker 3: of that.
Speaker 1: Bill Dumpley, I appreciate it, sir, as always the former
Speaker 1: New York FED president built dumping down its latest pace.
Speaker 1: How my heart landing forecast turned out to be wrong?
Speaker 1: You can find that on Bloomberg Opinion.