Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Debate of a potential
Speaker 1: US rate cut in December is ramping up as investors
Speaker 1: look ahead to the latest reading on Wednesday of the
Speaker 1: FETES Preferred price gauge. Minneapolis Fed President Neil Keshkari told
Speaker 1: us what key fact is he's watching out four as
Speaker 1: officials prepared for the final policy call of the year.
Speaker 2: Right now, we know that inflation is somewhat above our target.
Speaker 2: It's running around two and a half two point six
Speaker 2: percent run rate. Right now, I have some confidence that
Speaker 2: it's gently trending down, and right now the labor market
Speaker 2: remains strong. The question, in my mind, the biggest question
Speaker 2: is where is the neutral rate environment. You know, we've
Speaker 2: had relatively high interest rates relatively the prior ten years,
Speaker 2: and the US economies continue to grow with great resilience,
Speaker 2: and the labor market has been resilient, And so how
Speaker 2: do I reconcile the fact that the policy rate has
Speaker 2: been relatively high and growth has been sustained. That suggests
Speaker 2: to me that perhaps the neutral rate environment is higher
Speaker 2: than it was in the past, and that perhaps monetary
Speaker 2: policy is not putting as much downward pressure on the
Speaker 2: economy as I would have expected. And so this is
Speaker 2: what I'm trying to understand right now is how much
Speaker 2: downward pressure are we putting on the economy and what
Speaker 2: is the path for inflation. But right now, knowing what
Speaker 2: I know today, you know, still considering a twenty five
Speaker 2: basis point cut in December. It's a reasonable debate for
Speaker 2: us to have.
Speaker 1: Why not pause? You're talking about how resilient the economy is.
Speaker 1: You talk about how resilient the labor force is, you
Speaker 1: talk about how resilient all the factors are. And add
Speaker 1: to that we have, you know, this rally in the
Speaker 1: stock market. Why not just pause?
Speaker 2: Well, you know, you're making good points that would argue
Speaker 2: in favor of not cutting rates. On the other hand,
Speaker 2: if I look at the underlying components of inflation, goods
Speaker 2: inflation has fallen all the way back down to pre
Speaker 2: pandemic levels. Services inflation is trending down, and that's tied
Speaker 2: to wage growth, and wage growth is slowly trending down.
Speaker 2: And what's left is housing inflation. Housing inflation is still high.
Speaker 2: But if we look at forward leading indicators of where
Speaker 2: housing inflation is likely going, and that's the inflation of
Speaker 2: new rents that new rental inflation has already come back down,
Speaker 2: so that suggests that housing inflation ought to come back down. Ultimately,
Speaker 2: we want to get inflation back down to our two
Speaker 2: percent target. We're not aiming to undershoot it, and so
Speaker 2: we do have to make some judgments about what is
Speaker 2: the path ahead for inflation, and that's going to be
Speaker 2: an important determinant on what we do with monetary policy.
Speaker 1: We also asked how Trump's star threats could affect global
Speaker 1: trade and his views on Beijing's battle to revive its economy.
Speaker 2: You know, there's obviously the risks of potential tear back
Speaker 2: and forth between the US and China, which are notable.
Speaker 2: The other big concern is just the domestic Chinese economy
Speaker 2: and the slumber that it appears to be in from
Speaker 2: our analysis, the heavy weight of the housing sector that
Speaker 2: has been a driver of Chinese growth for so many
Speaker 2: years is now appears to be weighing down the Chinese economy,
Speaker 2: and just the struggles that the Chinese economy is facing.
Speaker 2: And so I'm just something that I'm watching a lot
Speaker 2: is what the policymakers in China do and can they
Speaker 2: get the Chinese economy on a stronger sustainable growth path,
Speaker 2: you know, reinflating so to speak. Their housing bubble doesn't
Speaker 2: seem like it's a long term strategy. So what is
Speaker 2: China's growth strategy? I agree the potential tarots between the
Speaker 2: US and China and back and forth is something to
Speaker 2: pay close attention to. But I think China's own domestic
Speaker 2: challenges are also notable.
Speaker 1: Do you think that if China's economy remains leg lost,
Speaker 1: we could see some contagion and other Asian economies and
Speaker 1: perhaps even for the afield may get impacted as well.
Speaker 2: Certainly possible. I mean, China is obviously a huge economy
Speaker 2: and of a huge part of the global economy, just
Speaker 2: grows slowly. That's obviously going to have an imprint on
Speaker 2: everybody else. For example, commodity markets would be one of
Speaker 2: the first places that we would see that, whether it's
Speaker 2: for steel or for iron or other metals or other minerals.
Speaker 2: So that's something that we're going to pay closer attention
Speaker 2: to because it just matters a lot for the global economy.
Speaker 2: But then I also think many other Asian economies are
Speaker 2: linked to economies all around the world. I was just
Speaker 2: looking at some analysis on where the US imports most
Speaker 2: of its goods. Of course, China dominated that six ten
Speaker 2: years ago, and China shared exporting directly to the US
Speaker 2: has actually fallen quite a bit, and countries like Mexico
Speaker 2: and other southeastern Asian countries have picked up the slack,
Speaker 2: and so I'm actually optimistic that other Asian economies could
Speaker 2: contain need to perform well because they're connected to the US,
Speaker 2: they're connected to Europe, to South America. But of course
Speaker 2: China is just so large that what happens in China
Speaker 2: matters to everybody.
Speaker 1: That was Minneapolis FED President Neil Keshkari