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

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Speaker 2: I'm pleased to say that joining USNA is the former

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Speaker 2: Sen Lewis FED President Jim Pullott. Jim, welcome back to

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Speaker 2: the program. So it's been a while. We haven't spoken

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Speaker 2: to you, I believe since Cham and Pal spoke in

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Speaker 2: the news conference. So we've got to watch you. We

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Speaker 2: need your reaction. The T word making a comeback at

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Speaker 2: the Federal serv What did you make of that.

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Speaker 3: It's now making it come back with me? I'm not

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Speaker 3: using that word. So I think that the I.

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Speaker 4: Do think that the committee has, you know, good reason

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Speaker 4: to stick with the policy rate where it is. Inflation

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Speaker 4: expectations for the next two years and the tips market

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Speaker 4: they've been rising.

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Speaker 3: They're about three in a quarter today. That's a CPI

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Speaker 3: based measure. But if you put that over the pc based.

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Speaker 4: Measure, be you know, around three percent PC inflation over

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Speaker 4: the next two years.

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Speaker 3: That's what the market is thinking. That's too high for

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Speaker 3: the committee.

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Speaker 4: The committee is trying to get, you know, especially core

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Speaker 4: PC inflation once you came in a little bit hot here,

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Speaker 4: you're trying to get.

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Speaker 3: Core PC inflation down to two percent.

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Speaker 4: So they're going to have to be higher for longer,

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Speaker 4: and if it goes too much farther, they're going to

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Speaker 4: have to raise the policy rate.

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Speaker 1: Wait hold on a second, because Jim, this is exactly

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Speaker 1: what people thought that fedcher Powell did last week when

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Speaker 1: he said transitory the word that you will not go

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Speaker 1: so far as to say is that you would be

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Speaker 1: willing on some level to look past terref related boosts

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Speaker 1: to inflation in the short term, especially if growth was sagging,

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Speaker 1: and that the FED would have to or be open

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Speaker 1: to responding to slow in growth. Are you saying that

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Speaker 1: inflation should it be above expectations because of care forwhere else?

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Speaker 4: It's going to be interesting that Committee should be hitting

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Speaker 4: their inflation target two years from that, And what the

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Speaker 4: market is saying is no, you're not going to hit it.

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Speaker 3: You're going to hit three percent. That's that was my

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Speaker 3: story here. So that doesn't sound very good to the committee. Now,

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Speaker 3: maybe the market's wrong.

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Speaker 4: They often have and I'm talking about two year tips here,

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Speaker 4: and they can move around, yes, but it's a good

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Speaker 4: reason for the Committee to stay where it is. I

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Speaker 4: have argued that the Committe is in good shape here.

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Speaker 4: They didn't go as far as was previously previously expected

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Speaker 4: on cutting the policy rate, so they stayed a little

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Speaker 4: bit higher.

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Speaker 3: I think that's turned out to be wise.

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Speaker 4: The tariffs, I mean when I say tariffs don't cause inflation,

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Speaker 4: what I mean is that inflation is a product of

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Speaker 4: monetary policy over the medium term, and it's not up

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Speaker 4: to the trade representative to control inflation. It's up to

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Speaker 4: the policy makers to control inflation, and they have to

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Speaker 4: adjust policy appropriately given everything else that's going on in

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Speaker 4: the economune so and over a two year horizon, that's

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Speaker 4: something you should be able to influence. But right now

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Speaker 4: markets are saying that the committee doesn't look tight enough

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Speaker 4: to get down to two percent at the end of

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Speaker 4: two years.

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Speaker 1: Think that the Fed should open the possibility of hiking

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Speaker 1: rates again.

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Speaker 4: Well it's not my base case, but I think the

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Speaker 4: probability on that is rising slightly here.

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Speaker 3: And this wasn't that radical of.

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Speaker 4: A data release here, but I do think that possibility

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Speaker 4: is rising.

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Speaker 3: We really haven't made any progress.

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Speaker 4: On getting core PC inflation down, let's say over the

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Speaker 4: last year. You know, I think the man on the

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Speaker 4: street would look at those numbers and say, now it

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Speaker 4: has basically been flat for the last year.

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Speaker 2: Jim One thing we've heard repeatedly from some economists, and

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Speaker 2: this labor market is just not as tight as it was.

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Speaker 2: And because it's not, that dampens down the potential for

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Speaker 2: second round effects from the inflation we kick up that

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Speaker 2: you get from tariffs. What would you say back to that,

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Speaker 2: How fertile do you think this environment is for second

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Speaker 2: round effects?

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Speaker 3: I don't know.

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Speaker 4: Come on unemployment insurance claims, you know, ridiculously low.

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Speaker 3: That's your best week to week indicator. Unemployment rates, if anything, is.

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Speaker 4: Probably below the natural rate for the US economy, but

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Speaker 4: certainly low by historical standards. I just don't see it

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Speaker 4: right now. Now there's fear of the future and what

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Speaker 4: might happen. And we know that the last era war

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Speaker 4: in twenty eighteen twenty nineteen did cause to slow down

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Speaker 4: in the economy, and if that did react to that

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Speaker 4: by lowering the policy rate.

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Speaker 3: So we'll see if that history repeats itself here. So

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Speaker 3: it's the expectation that people might be thinking about. But

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Speaker 3: as far as where.

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Speaker 4: The labor market is right now and whether that's disinflationary

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Speaker 4: pressure coming from there, I.

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Speaker 3: Don't think so.

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Speaker 2: Jim. Can we have a best guess from you?

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Speaker 4: Next?

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Speaker 2: Move cuttle hike. What would your best guest be Right now.

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Speaker 4: I still think the committee can stick to its baseline

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Speaker 4: that there will be further cuts, but they're being pushed

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Speaker 4: farther and farther out.

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Speaker 3: Into the future.

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Speaker 4: And now with a hotter core PCE, you're over year number,

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Speaker 4: you might start pushing those out into twenty twenty six

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Speaker 4: instead of the twenty twenty five.

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Speaker 3: We'll suit the market does in the days I had.

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Speaker 2: Him before you go. Boiler Makers play Tonight down nine

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Speaker 2: Sweet sixteen.

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Speaker 3: Yes, and Atty good about that victory for the Boilers here.

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Speaker 3: I we're playing in Indianapolis. They don't lose at home

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Speaker 3: very often, so I think they've got a good.

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Speaker 2: Shot boiler Up. I do that because you know the

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Speaker 2: manager who does my reviews. Purdue appreciate it. Thank you, sir,

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Speaker 2: Formers and Lewis got President Jim Filat