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

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Speaker 2: Back to the Federal Reserve, the President pushing for FED

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Speaker 2: Chad check Pal to go big. The FED chair emergent competent,

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Speaker 2: I think you have a big cut because I really

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Speaker 2: I don't think you can help with God, it's perfect

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Speaker 2: for Johnny Traders batting with this assessincy the Federal Reserve

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Speaker 2: will cut interest rates by twenty five basis points this week,

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Speaker 2: joining us to discuss the former New York Fed President

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Speaker 2: Bill Dupley. But welcome back, So let's go straight to it.

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Speaker 2: What are you expecting to see this coming Wednesday.

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Speaker 1: Right along with everybody else, I expect a quarter point cut.

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Speaker 1: It's baked in the cake. I'd be surprised if that

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Speaker 1: do do anything else.

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Speaker 2: Do you think they'll guide much beyond that?

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Speaker 1: Well, they'll be guidance because they're going to publish the

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Speaker 1: Summary of Economic Projections, which shows their interest rate outlook

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Speaker 1: for the rest of the year and into twenty twenty

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Speaker 1: six and twenty twenty seven. And I think the big

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Speaker 1: debate there is do they show one more cut after

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Speaker 1: September or do they shoot show two more cuts? And

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Speaker 1: I think it's going to be a very close call

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Speaker 1: between those two outcomes.

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Speaker 2: Yeah, Bill, I think we should build on that. That's

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Speaker 2: the interesting piece of information for me. At the last meeting,

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Speaker 2: the last round of forecasts, if you will, they were

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Speaker 2: forecasting two cuts and they had unemployment year end at

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Speaker 2: about four point five percent, And Bill, we could have

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Speaker 2: this really strange situation where people are basically looking for

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Speaker 2: the unemployment rate to stay study in the forecast, but

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Speaker 2: all the dots to come down. Just what's happening there?

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Speaker 2: What is actually driving the outox for rate cuts. If

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Speaker 2: it's not unemployment, what is it.

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Speaker 1: I think you're right that the forecast is evolving pretty

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Speaker 1: close to what they had last summer of our economic

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Speaker 1: projections in June. So if they're on the same forecast track,

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Speaker 1: where would they pencil in more ricas. I think the

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Speaker 1: thing that's changed is the just this weakness of the

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Speaker 1: labor market in the sense of perial employment growth. So

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Speaker 1: I've been thirty thousand a month over the last three months,

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Speaker 1: and you see a lot of indicators that the libor

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Speaker 1: market is continuing to soften. So I think it's more

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Speaker 1: of the softness that a lot of the labor market

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Speaker 1: indicators that are getting them concerned that the market could

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Speaker 1: continue to deteriorate. So I think they think that's the

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Speaker 1: biggest risk right now, and so that's what it's causing

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Speaker 1: them to have a little bit greater urgency Bill.

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Speaker 3: Doesn't the market agree with them? Isn't that the takeaway

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Speaker 3: from the rally that we've seen in the long end

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Speaker 3: of the yield curve?

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Speaker 1: Yeah? Absolutely, I mean market is an agreement that rates

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Speaker 1: are coming down, not just this year, but in twenty

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Speaker 1: twenty six and twenty twenty seven. In fact, the market

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Speaker 1: you look at the federal funds futures market, it has

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Speaker 1: the rates coming to all the way down to about

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Speaker 1: three percent on the federal funds rate the end of

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Speaker 1: end of next year. So there's a lot of rate

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Speaker 1: cuts priced did I think, you know, personally, I think

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Speaker 1: it's not quite so clear that they're going to go

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Speaker 1: that far over the medium to longer term, because the

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Speaker 1: financial conditions are already very very accombinative and economy is

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Speaker 1: not falling out of bed. I also think we haven't

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Speaker 1: seen the full effects of the tarists in terms of

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Speaker 1: prices yet, so I think inflation is going to stay

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Speaker 1: sticky over the next six to twelve months.

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Speaker 3: So I want to dig a little bit deeper into

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Speaker 3: what you just said. The idea that the long end

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Speaker 3: of the yield curve is pricing in steeper cuts. Make

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Speaker 3: the argument that if the economy isn't falling out of bed,

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Speaker 3: that any steeper cuts would cause a reacceleration and inflation

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Speaker 3: and potentially some deterioration and the dollar. That could cause

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Speaker 3: kind of the opposite in a long end in terms

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Speaker 3: of a selloff and a yield curve steepening. What's your

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Speaker 3: understanding of why the market doesn't seem concerned about that?

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Speaker 1: Well, I think they think that the reasons for cutting

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Speaker 1: now are actually quite compelling, given that the inflation path

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Speaker 1: through from terrace has been smaller than expected and the

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Speaker 1: weakness in the labor market has been at least as

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Speaker 1: large as expected. So I think the market is shares

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Speaker 1: the view of J. Powell that the downside risk to

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Speaker 1: the labor market outweigh the upside risk to the inflation,

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Speaker 1: so therefore rate cuts are warranted. But I think the

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Speaker 1: question is how far are they going to go over

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Speaker 1: the medium to longer term. That's where the markets, I think,

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Speaker 1: maybe a little bit ahead of themselves now. Some of

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Speaker 1: this it's hard to factor in how much is the

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Speaker 1: pressure of the Trump administration on the FED and some

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Speaker 1: risks that the Trump administration could compromise the independence of

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Speaker 1: the FED. Now, obviously if Trump administration is successful in

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Speaker 1: doing that, that's gonna be lower rates, but it's also

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Speaker 1: going to be higher inflation.

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Speaker 2: Well, just to talk about what we might get from

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Speaker 2: the news conference as well with shaman Pal, how difficult

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Speaker 2: is it going to be for him to establish a

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Speaker 2: consensus at this meeting If you go back to the

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Speaker 2: last dot plot, and things might have changed, But in

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Speaker 2: the last dot plot, there were a big group of

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Speaker 2: individuals that saw no cuts in twenty twenty five, And

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Speaker 2: I'm just wondering how much has changed, not just for

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Speaker 2: Shairman Poal, He's indicated a lot has changed based on

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Speaker 2: the last few times we've heard from him, but for

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Speaker 2: other members of the committee.

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Speaker 1: I think most people are going to go along with

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Speaker 1: what Chirpowell wants because they're not in disagreement about direction

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Speaker 1: of rates. They're just maybe they have a small disagreement

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Speaker 1: about timing. Should we start in September? Shall we wait

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Speaker 1: a little bit longer. So the fact that they're all

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Speaker 1: in agreement that rates are going to be coming down.

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Speaker 1: I think they're going to give the chairman what he

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Speaker 1: wants it. This means so I'm actually expect expecting very

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Speaker 1: few the sense on the side of no recuts, maybe

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Speaker 1: zero or one. The other side of the equations are

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Speaker 1: going to get fifty people supporting a fifty basis point

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Speaker 1: great kind and I think one person I'm expecting there

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Speaker 1: and perhaps is Steve Moran if he gets confirmed and

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Speaker 1: is sitting on the FAMAC on Wednesday.

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Speaker 3: Afternoon, Bill, do you think that it's healthy to have

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Speaker 3: a character like Stephen Moran Meran on the Federal Reserve

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Speaker 3: on the Board of Governors to really foster a robust

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Speaker 3: debate about not just whether to cut twenty five or

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Speaker 3: fifty basis points, but the overarching framework that the FED

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Speaker 3: is operating in.

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Speaker 1: I think it's good to have a diversity of views

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Speaker 1: on the Federal Reserves to debate a lot of the framework.

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Speaker 1: I think the FED could do quite a bit more

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Speaker 1: in terms of developing a framework for quantitative easing and

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Speaker 1: quantitative tighting, and I've written about that over the last

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Speaker 1: few months, so I think there are things for the

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Speaker 1: FED to do. I think it's a little odd to

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Speaker 1: as someone that's essentially on loan from the administration for

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Speaker 1: four months to vote at two or three meetings. So

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Speaker 1: and I don't think that, you know, Steve Moran is

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Speaker 1: going to get a lot of difference at the meeting

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Speaker 1: this coming week.

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Speaker 2: Well, for people who aren't familiar with the meeting, the

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Speaker 2: meeting that you've been a part of many many times,

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Speaker 2: can you describe to them what that kind of room

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Speaker 2: will look like, that situation, how the meeting actually progresses,

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Speaker 2: who runs things, and what kind of opportunity Steve and

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Speaker 2: Maron would have as he sits around that table to

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Speaker 2: make his points.

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Speaker 1: So the meetings typically are obviously chaired by the chairman,

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Speaker 1: and there's typically a discussion about the economy. Everybody goes

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Speaker 1: around and gives their views on the economy, and then

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Speaker 1: there's a discussion about monitor policy. Everybody goes around the

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Speaker 1: room and talks about their views on monitory policy. So

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Speaker 1: Steve ram will have a chance to speak on both

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Speaker 1: of those, but he's going to be only one of

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Speaker 1: nineteen people speaking, So you know, the idea that he

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Speaker 1: would go there and dominate the meeting, I don't think

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Speaker 1: he's I think his influence is going to be quite small.

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Speaker 2: But w do you take it in terms? Are there

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Speaker 2: any kind of debates at all? Or do you just

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Speaker 2: go around one by one by one around nineteen individuals.

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Speaker 1: Now there can be some back and forth, you know,

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Speaker 1: do respond to what other people said say, But I mean,

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Speaker 1: remember everybody's looking at the same set of information, So

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Speaker 1: the disagreements tend to be small, you know, more at

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Speaker 1: the margin rather than large, because everybody's looking at the

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Speaker 1: same set of information and hearing the same staff for

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Speaker 1: work ask evaluating the same economic information.

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Speaker 2: Bill, I appreciate your insight, your experience too, quote Dadley.

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Speaker 2: They form a New York Fed President