Speaker 1: Bloomberg Audio Studios, podcasts, radio news sent.
Speaker 2: Back to the Federal Reserve, the President pushing for FED
Speaker 2: Chad check Pal to go big. The FED chair emergent competent,
Speaker 2: I think you have a big cut because I really
Speaker 2: I don't think you can help with God, it's perfect
Speaker 2: for Johnny Traders batting with this assessincy the Federal Reserve
Speaker 2: will cut interest rates by twenty five basis points this week,
Speaker 2: joining us to discuss the former New York Fed President
Speaker 2: Bill Dupley. But welcome back, So let's go straight to it.
Speaker 2: What are you expecting to see this coming Wednesday.
Speaker 1: Right along with everybody else, I expect a quarter point cut.
Speaker 1: It's baked in the cake. I'd be surprised if that
Speaker 1: do do anything else.
Speaker 2: Do you think they'll guide much beyond that?
Speaker 1: Well, they'll be guidance because they're going to publish the
Speaker 1: Summary of Economic Projections, which shows their interest rate outlook
Speaker 1: for the rest of the year and into twenty twenty
Speaker 1: six and twenty twenty seven. And I think the big
Speaker 1: debate there is do they show one more cut after
Speaker 1: September or do they shoot show two more cuts? And
Speaker 1: I think it's going to be a very close call
Speaker 1: between those two outcomes.
Speaker 2: Yeah, Bill, I think we should build on that. That's
Speaker 2: the interesting piece of information for me. At the last meeting,
Speaker 2: the last round of forecasts, if you will, they were
Speaker 2: forecasting two cuts and they had unemployment year end at
Speaker 2: about four point five percent, And Bill, we could have
Speaker 2: this really strange situation where people are basically looking for
Speaker 2: the unemployment rate to stay study in the forecast, but
Speaker 2: all the dots to come down. Just what's happening there?
Speaker 2: What is actually driving the outox for rate cuts. If
Speaker 2: it's not unemployment, what is it.
Speaker 1: I think you're right that the forecast is evolving pretty
Speaker 1: close to what they had last summer of our economic
Speaker 1: projections in June. So if they're on the same forecast track,
Speaker 1: where would they pencil in more ricas. I think the
Speaker 1: thing that's changed is the just this weakness of the
Speaker 1: labor market in the sense of perial employment growth. So
Speaker 1: I've been thirty thousand a month over the last three months,
Speaker 1: and you see a lot of indicators that the libor
Speaker 1: market is continuing to soften. So I think it's more
Speaker 1: of the softness that a lot of the labor market
Speaker 1: indicators that are getting them concerned that the market could
Speaker 1: continue to deteriorate. So I think they think that's the
Speaker 1: biggest risk right now, and so that's what it's causing
Speaker 1: them to have a little bit greater urgency Bill.
Speaker 3: Doesn't the market agree with them? Isn't that the takeaway
Speaker 3: from the rally that we've seen in the long end
Speaker 3: of the yield curve?
Speaker 1: Yeah? Absolutely, I mean market is an agreement that rates
Speaker 1: are coming down, not just this year, but in twenty
Speaker 1: twenty six and twenty twenty seven. In fact, the market
Speaker 1: you look at the federal funds futures market, it has
Speaker 1: the rates coming to all the way down to about
Speaker 1: three percent on the federal funds rate the end of
Speaker 1: end of next year. So there's a lot of rate
Speaker 1: cuts priced did I think, you know, personally, I think
Speaker 1: it's not quite so clear that they're going to go
Speaker 1: that far over the medium to longer term, because the
Speaker 1: financial conditions are already very very accombinative and economy is
Speaker 1: not falling out of bed. I also think we haven't
Speaker 1: seen the full effects of the tarists in terms of
Speaker 1: prices yet, so I think inflation is going to stay
Speaker 1: sticky over the next six to twelve months.
Speaker 3: So I want to dig a little bit deeper into
Speaker 3: what you just said. The idea that the long end
Speaker 3: of the yield curve is pricing in steeper cuts. Make
Speaker 3: the argument that if the economy isn't falling out of bed,
Speaker 3: that any steeper cuts would cause a reacceleration and inflation
Speaker 3: and potentially some deterioration and the dollar. That could cause
Speaker 3: kind of the opposite in a long end in terms
Speaker 3: of a selloff and a yield curve steepening. What's your
Speaker 3: understanding of why the market doesn't seem concerned about that?
Speaker 1: Well, I think they think that the reasons for cutting
Speaker 1: now are actually quite compelling, given that the inflation path
Speaker 1: through from terrace has been smaller than expected and the
Speaker 1: weakness in the labor market has been at least as
Speaker 1: large as expected. So I think the market is shares
Speaker 1: the view of J. Powell that the downside risk to
Speaker 1: the labor market outweigh the upside risk to the inflation,
Speaker 1: so therefore rate cuts are warranted. But I think the
Speaker 1: question is how far are they going to go over
Speaker 1: the medium to longer term. That's where the markets, I think,
Speaker 1: maybe a little bit ahead of themselves now. Some of
Speaker 1: this it's hard to factor in how much is the
Speaker 1: pressure of the Trump administration on the FED and some
Speaker 1: risks that the Trump administration could compromise the independence of
Speaker 1: the FED. Now, obviously if Trump administration is successful in
Speaker 1: doing that, that's gonna be lower rates, but it's also
Speaker 1: going to be higher inflation.
Speaker 2: Well, just to talk about what we might get from
Speaker 2: the news conference as well with shaman Pal, how difficult
Speaker 2: is it going to be for him to establish a
Speaker 2: consensus at this meeting If you go back to the
Speaker 2: last dot plot, and things might have changed, But in
Speaker 2: the last dot plot, there were a big group of
Speaker 2: individuals that saw no cuts in twenty twenty five, And
Speaker 2: I'm just wondering how much has changed, not just for
Speaker 2: Shairman Poal, He's indicated a lot has changed based on
Speaker 2: the last few times we've heard from him, but for
Speaker 2: other members of the committee.
Speaker 1: I think most people are going to go along with
Speaker 1: what Chirpowell wants because they're not in disagreement about direction
Speaker 1: of rates. They're just maybe they have a small disagreement
Speaker 1: about timing. Should we start in September? Shall we wait
Speaker 1: a little bit longer. So the fact that they're all
Speaker 1: in agreement that rates are going to be coming down.
Speaker 1: I think they're going to give the chairman what he
Speaker 1: wants it. This means so I'm actually expect expecting very
Speaker 1: few the sense on the side of no recuts, maybe
Speaker 1: zero or one. The other side of the equations are
Speaker 1: going to get fifty people supporting a fifty basis point
Speaker 1: great kind and I think one person I'm expecting there
Speaker 1: and perhaps is Steve Moran if he gets confirmed and
Speaker 1: is sitting on the FAMAC on Wednesday.
Speaker 3: Afternoon, Bill, do you think that it's healthy to have
Speaker 3: a character like Stephen Moran Meran on the Federal Reserve
Speaker 3: on the Board of Governors to really foster a robust
Speaker 3: debate about not just whether to cut twenty five or
Speaker 3: fifty basis points, but the overarching framework that the FED
Speaker 3: is operating in.
Speaker 1: I think it's good to have a diversity of views
Speaker 1: on the Federal Reserves to debate a lot of the framework.
Speaker 1: I think the FED could do quite a bit more
Speaker 1: in terms of developing a framework for quantitative easing and
Speaker 1: quantitative tighting, and I've written about that over the last
Speaker 1: few months, so I think there are things for the
Speaker 1: FED to do. I think it's a little odd to
Speaker 1: as someone that's essentially on loan from the administration for
Speaker 1: four months to vote at two or three meetings. So
Speaker 1: and I don't think that, you know, Steve Moran is
Speaker 1: going to get a lot of difference at the meeting
Speaker 1: this coming week.
Speaker 2: Well, for people who aren't familiar with the meeting, the
Speaker 2: meeting that you've been a part of many many times,
Speaker 2: can you describe to them what that kind of room
Speaker 2: will look like, that situation, how the meeting actually progresses,
Speaker 2: who runs things, and what kind of opportunity Steve and
Speaker 2: Maron would have as he sits around that table to
Speaker 2: make his points.
Speaker 1: So the meetings typically are obviously chaired by the chairman,
Speaker 1: and there's typically a discussion about the economy. Everybody goes
Speaker 1: around and gives their views on the economy, and then
Speaker 1: there's a discussion about monitor policy. Everybody goes around the
Speaker 1: room and talks about their views on monitory policy. So
Speaker 1: Steve ram will have a chance to speak on both
Speaker 1: of those, but he's going to be only one of
Speaker 1: nineteen people speaking, So you know, the idea that he
Speaker 1: would go there and dominate the meeting, I don't think
Speaker 1: he's I think his influence is going to be quite small.
Speaker 2: But w do you take it in terms? Are there
Speaker 2: any kind of debates at all? Or do you just
Speaker 2: go around one by one by one around nineteen individuals.
Speaker 1: Now there can be some back and forth, you know,
Speaker 1: do respond to what other people said say, But I mean,
Speaker 1: remember everybody's looking at the same set of information, So
Speaker 1: the disagreements tend to be small, you know, more at
Speaker 1: the margin rather than large, because everybody's looking at the
Speaker 1: same set of information and hearing the same staff for
Speaker 1: work ask evaluating the same economic information.
Speaker 2: Bill, I appreciate your insight, your experience too, quote Dadley.
Speaker 2: They form a New York Fed President