WEBVTT - Bloomberg Opinion Columnist Bill Dudley Talks Forecasting the Economy

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<v Speaker 1>Elsewhere on the Federal Reserve. The former New York Fed

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<v Speaker 1>President Bill Dudley in a new Bloomberg opinion column, writing this,

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<v Speaker 1>I've been too pessimistic about the risks of a so

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<v Speaker 1>called hard landing for the US economy over the past

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<v Speaker 1>few years. Although most of my conclusions that led to

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<v Speaker 1>that view were correct, such an outcome remains very much

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<v Speaker 1>in doubt. Bill joins us now for more. Bill, welcome

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<v Speaker 1>back to the program, sir. It's been quite a journey

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<v Speaker 1>for you, an intellectual journey over the year so far.

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<v Speaker 1>I want to go through a couple of headlines and

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<v Speaker 1>you help me understand why you've changed your thinking. Someone.

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<v Speaker 1>It was only back earlier this summer where you said

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<v Speaker 1>I changed my mind the FED needs to cut rates

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<v Speaker 1>now before the Federal Reserve meeting. Last time around, you

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<v Speaker 1>said they need to go big. Now I think they will.

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<v Speaker 1>They did this morning. My hard landing forecast turned out

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<v Speaker 1>to be wrong. Bill, just walk us through how you're

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<v Speaker 1>thinking about things currently and what kind of policy this

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<v Speaker 1>backdrop needs.

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<v Speaker 2>Well, my original view was that Fed would be late

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<v Speaker 2>to take Madre policy check. As a consequence, inflation want

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<v Speaker 2>to go up, and the labor market would get very tight.

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<v Speaker 2>Then the Federal Reserve would have to tighten mantre policy

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<v Speaker 2>a lot check, and the unployer would have to go up.

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<v Speaker 2>At least they have a percentage point trigger the sam

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<v Speaker 2>rule check, but the shop role trigger. That doesn't seem

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<v Speaker 2>like it's leading to recession. If you look at that

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<v Speaker 2>the GDP numbers, they've have been very firmly lately.

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<v Speaker 3>Second quarter three percent, third quarter is tracking two and

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<v Speaker 3>a half percent.

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<v Speaker 2>So even though I had the story right, it doesn't

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<v Speaker 2>look like the conclusion is going to pan out.

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<v Speaker 3>It was too soon to say for sure.

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<v Speaker 2>That's why the labor market has so much attention focused

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<v Speaker 2>on it, and I thought I was interesting the summary.

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<v Speaker 3>Of economic projections at the last FMC meeting.

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<v Speaker 2>They actually in the in their summary of economic projections,

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<v Speaker 2>they actually think that the downside risks to the labor

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<v Speaker 2>market are actually greater now than the outside risk of

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<v Speaker 2>the inflation. So they're worried about the exact same thing.

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<v Speaker 2>And that's why tomorrow's labor market report is so important.

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<v Speaker 2>If the labor market really starts to deteriorate, then I

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<v Speaker 2>think the soft landing story will start to come into question.

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<v Speaker 2>And that's why the FED cut fifty basis points a

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<v Speaker 2>couple of weeks ago.

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<v Speaker 4>I think a lot of people bill share your journey

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<v Speaker 4>in terms of changing views and not understanding which models

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<v Speaker 4>are actually accurate this time around. What in your analysis

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<v Speaker 4>makes you think that this time is different and that

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<v Speaker 4>some of the classic indicators that traditionally have foretold recession

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<v Speaker 4>no longer work.

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<v Speaker 3>I think two things are different.

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<v Speaker 2>Number One, you had all these fiscal transfers during the

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<v Speaker 2>pandemic to businesses and households, so business and household bounce

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<v Speaker 2>sheets are in better shape than they typically are late

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<v Speaker 2>in the business cycle. You know, for example, look at

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<v Speaker 2>debt service colls for the household sector is still pretty

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<v Speaker 2>low because people locked in very low mortgage rates during

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<v Speaker 2>the servant during the pandemic. Second thing I think is

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<v Speaker 2>different is that financial conditions have eased a lot even

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<v Speaker 2>before the federieser cut rates. So financial conditions are We're

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<v Speaker 2>at the most tightest about about a year ago, and

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<v Speaker 2>since then the beads a lot, stock market up, bondials down,

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<v Speaker 2>credit spreads tighter, and so even though Madre policies tighten,

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<v Speaker 2>when you look at the level of short term rates,

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<v Speaker 2>financial conditions at ease a lot, and that's supporting economic activity.

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<v Speaker 4>What's to say we're landing at all?

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<v Speaker 1>Bill?

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<v Speaker 3>Well, that's a good question.

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<v Speaker 5>I mean, I think you know the fact would like

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<v Speaker 5>the economy to grow, you know too, two and a

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<v Speaker 5>half percent, keep the unemployer rate right where it is,

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<v Speaker 5>and the third quarter looks like it's shaping up that way.

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<v Speaker 5>But keeping on that very you know, that nice edge

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<v Speaker 5>growth not strong enough to cause the researches of inflation,

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<v Speaker 5>not weak enough to lead to the kind of deterioration

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<v Speaker 5>and labor market that would lead to recession.

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<v Speaker 3>That's gonna be tough to keep on that nice edge.

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<v Speaker 4>So what are you expecting for tomorrow?

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<v Speaker 2>I think it'll be a decent payroll employer report. I mean,

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<v Speaker 2>I think the estimates are around one hundred and forty thousand.

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<v Speaker 2>That seems like a regionalle estment.

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<v Speaker 6>We have to remember, though, the payroll employment has a

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<v Speaker 6>big standard are around those estimates, So you could get

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<v Speaker 6>something like eighty thousand, or you get something like two

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<v Speaker 6>hundred thousand, and it really wouldn't to tell you for sure.

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<v Speaker 3>That the economy has actually changed momentum.

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<v Speaker 1>Bill, How difficult is that? In the November seventh meeting

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<v Speaker 1>going to be considering how messy the data might be,

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<v Speaker 1>we might not have an outcome from the election. Can

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<v Speaker 1>you think of a time like this want that they're

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<v Speaker 1>going into in the next month.

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<v Speaker 2>Well, the particular awkwardness is that there will be another

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<v Speaker 2>payilmployment report during the blackout period right before the.

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<v Speaker 3>Fo C meeting.

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<v Speaker 2>Look, I think that most of the momentum is for

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<v Speaker 2>twenty five basis points at this point.

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<v Speaker 3>Powell basically foreshared that in a speech.

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<v Speaker 2>The fact that you had all these people in the

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<v Speaker 2>summery that projections that only had one more rate cut

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<v Speaker 2>in their forecast after the last meeting also tells you

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<v Speaker 2>that it's probably not going to be fifty. So I

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<v Speaker 2>think the basic stories still intact. Risks to the labor

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<v Speaker 2>market are greater than the risk of inflation, Madre policies tight,

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<v Speaker 2>We're still quite ways from neutral, so twenty five basis

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<v Speaker 2>points is the most likely scenario in my view at

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<v Speaker 2>this point.

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<v Speaker 4>Bill we had Adam posted on earlier from the Peterson

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<v Speaker 4>Institute who said that the FED should be vocal about

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<v Speaker 4>the fact that they're considering the deficit and potential tariffs

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<v Speaker 4>as a potential inflationary pressure heading into twenty twenty five

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<v Speaker 4>and a reason to cut less. What do you make

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<v Speaker 4>of that? Not necessarily the FED weighing in on that

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<v Speaker 4>particular issue, but being more cautious ahead of next year

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<v Speaker 4>because of it.

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<v Speaker 2>In my experience, the Fed doesn't make you fit policy

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<v Speaker 2>today on things that might or might not happen in

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<v Speaker 2>the future.

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<v Speaker 3>I think they wait to those things either materialized or not.

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<v Speaker 2>And so I think that the idea that the FED

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<v Speaker 2>wouldn't eased because they're worried that an election could result

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<v Speaker 2>in a certain outcome that would lead to higher terrorists

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<v Speaker 2>and higher inflation.

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<v Speaker 3>I don't think the feder Reserve would hold off because

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<v Speaker 3>of that.

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<v Speaker 1>Bill Dumpley, I appreciate it, sir, as always the former

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<v Speaker 1>New York FED president built dumping down its latest pace.

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<v Speaker 1>How my heart landing forecast turned out to be wrong?

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<v Speaker 1>You can find that on Bloomberg Opinion.