Speaker 1: Bloomberg Audio Studios, podcasts, radio news. There's a lot going
Speaker 1: on in the world right now, and the focus is firmly,
Speaker 1: of course, on Europe, but more importantly on the FED. Now.
Speaker 1: There are a number of outside economists, including Muhammadalarian, that
Speaker 1: have suggested that the FED should get on with cutting
Speaker 1: interest rates.
Speaker 2: And this is risk risk perception.
Speaker 1: Is there too much danger in waiting for too long
Speaker 1: to cut Look.
Speaker 3: There's a danger from waiting, and there's a danger from
Speaker 3: making wrong moves. The basic function of the central bank,
Speaker 3: and what the Fed's got to decide is we moved to.
Speaker 4: A quite restrictive posture. We raise the rates a great.
Speaker 3: Deal in a short period of time, and we've been
Speaker 3: holding it there. We got to this rate when inflation
Speaker 3: was over four percent, and inflation's now down close to
Speaker 3: two and a half percent. So if you sit with
Speaker 3: the rate somewhere while inflation goes down, you're tightening. And
Speaker 3: the reason that you would want to tighten is if
Speaker 3: you think you're not on path to two percent. If
Speaker 3: you're on path to two percent, you've got to take
Speaker 3: seriously that the US Central Bank's got a dual mandate,
Speaker 3: so we if employment starts falling apart or the economy
Speaker 3: begins to weaken, which you've seen some warning signs. You've
Speaker 3: got to balance that off with the how much progress
Speaker 3: you're making on the price front.
Speaker 1: So how worried are you about the unemployment rate? But
Speaker 1: with the job slowing down?
Speaker 3: I mean, it's still the unemployment rate is still quite low,
Speaker 3: but it has been rising.
Speaker 4: And if you look.
Speaker 3: At quit rates, if you look at the ratio of
Speaker 3: vacancies to the number of unemployed workers, and various conventional
Speaker 3: measures of the job market, they're cooling, but they're at
Speaker 3: a level which is still pretty strong. That's that's kind
Speaker 3: of what we've been trying to fully sort out now.
Speaker 3: I think if you look at the second half of
Speaker 3: last year in the US, we had seven straight months
Speaker 3: of excellent inflation. We hit a bump in the road
Speaker 3: in January of this year, but now we've gotten a
Speaker 3: string of improved inflation readings. If we get more like
Speaker 3: what we have just seen, to me, that feels like
Speaker 3: the path to two percent.
Speaker 1: But so you know, at what point would you want
Speaker 1: to cut rates to make sure that the unemployment number
Speaker 1: doesn't get worse.
Speaker 2: How do you.
Speaker 3: Calibrate that you need to calibrate that.
Speaker 4: That's the right way to say it.
Speaker 3: It's not a formula that says, hey, well, last month,
Speaker 3: this is what happened. Therefore let's change the monetary policy.
Speaker 3: You got to take it in totality. As I say,
Speaker 3: we've been restrictive. If you look at the real federal
Speaker 3: funds rate of just interst rate minus inflation, it's as
Speaker 3: high as it's been in decades. And the only reason
Speaker 3: that you would want to be that distinctively restrictive is
Speaker 3: if you think that the inflation is not coming back
Speaker 3: to two percent. If you get months that are like
Speaker 3: the second half of last year or like what we've
Speaker 3: seen now here for a bit of a string, then
Speaker 3: I feel we're on path to two percent, and you
Speaker 3: return if that's returning to normal, the rate structure return
Speaker 3: to normal too.
Speaker 2: So what does your dream dot look like?
Speaker 3: Yeah, I don't like tie in our tie in our hands,
Speaker 3: even partially. So it's going to depend on the data.
Speaker 3: It depends also on the composition. If you look at
Speaker 3: inflation in the FEDS dual mandate, we've been doing great
Speaker 3: on the employment side, and we have done far less
Speaker 3: great on the inflation side. But now inflation is coming down,
Speaker 3: So we got to think about both sides within inflation.
Speaker 3: Goods inflation has looked almost back to what it was
Speaker 3: pre COVID, services inflation and improving getting closer. And the
Speaker 3: thing that's been the toughest puzzle in the US has
Speaker 3: been why housing inflation hasn't come down. The way they
Speaker 3: measure the inflation in Europe is different. By the By
Speaker 3: the European measure, the US would already be at two percent.
Speaker 4: But we're still grappling with this housing issue.
Speaker 2: But is it fair too?
Speaker 1: I mean what I'm listening when I'm hearing you speak,
Speaker 1: is it fair that you would contest them sooner rather
Speaker 1: than later?
Speaker 4: Well, like I say, I don't, I don't like tie
Speaker 4: in our hand.
Speaker 3: We're still going to get a lot of data between
Speaker 3: now and the next meeting, and certainly between now and
Speaker 3: the rest of this year. But the question of how
Speaker 3: restrictive the FED wants to be when we're at a
Speaker 3: pretty historically restrictive position depends on what happens to inflation.
Speaker 3: And if you just hold the race where they are
Speaker 3: while inflation comes down, you're tightening, and so you should
Speaker 3: You should do that by decision, not by default.
Speaker 1: When you look at unemployment, so it's around four percent
Speaker 1: at the moment. If it slows down a little bit more,
Speaker 1: is there a danger if it actually rises a bit more,
Speaker 1: is there a danger that suddenly it kind of gets
Speaker 1: out of control?
Speaker 3: There is a look, the historical business cycle pattern, as
Speaker 3: you know, is that there's not slow deteriorations.
Speaker 4: What we have seen so far is very unusual.
Speaker 3: Usually, as they describe, unemployment goes up like a rocket
Speaker 3: and comes down like a feather. And so that's on
Speaker 3: everyone's mind that there are some warning signs in the
Speaker 3: job one.
Speaker 2: But is this time different or is this a real
Speaker 2: concern of yours?
Speaker 4: Probably some of both.
Speaker 3: I mean the I always say a job of central
Speaker 3: bankers to be concerned and worried about everything, So we
Speaker 3: have to take that seriously. That said, the unemployment rate
Speaker 3: is still very low by historic terms.
Speaker 4: The job market is still quite strong.
Speaker 3: It's just been some warning signs, and as inflation comes down,
Speaker 3: we got to keep our eye on the other side
Speaker 3: of the mandate. If you remain restrictive for too long,
Speaker 3: that that's going to be a problem.
Speaker 1: I know, you don't want to tie your hands into
Speaker 1: calling a cutter or when But when the FED starts cutting,
Speaker 1: is it going to be a cycle of costs like
Speaker 1: we've seen in the past, or it is a cycle different.
Speaker 3: It depends what happens with the data. This has been
Speaker 3: a very unusual business cycle recovery. Now in the job
Speaker 3: market it looks unusual. So I don't I don't like
Speaker 3: to predict for the next meeting, much less well, what
Speaker 3: would happen in multiple meetings after that.
Speaker 4: I just think we just have to see what happens.
Speaker 2: But do you think the market needs to be guided?
Speaker 1: I mean, the markets have been all over the place
Speaker 1: in pricing costs and then not CODs. I mean, I'm
Speaker 1: even looking at possible rate heights.
Speaker 3: Look, the market does what it does and the central
Speaker 3: bank does what it does. And I was Paul Volker
Speaker 3: was my mentor and had this phrase. Our job is
Speaker 3: to act and their job is to react. And let's
Speaker 3: not get the order mixed uff. So the market, it's
Speaker 3: presumptive not for the central bank to give guidance to
Speaker 3: the market.
Speaker 4: The market is trying to figure it out.
Speaker 3: They have a tendency to run one way, run the
Speaker 3: other way, and you've seen that with announcements of the
Speaker 3: summary of economic projections.
Speaker 4: For example, if the media.
Speaker 3: Dots says there will be three cuts, that's the same thing.
Speaker 4: Well, that must mean seven cuts, you know. And then.
Speaker 3: That volatility has a way of smoothing itself out as
Speaker 3: they learn about reality.
Speaker 1: So it seems that a lot of the data is
Speaker 1: also politicized when you look at consumer sentiment. Because we're
Speaker 1: an election, you're in the US, is it difficult to take?
Speaker 1: Are you confident that the consumer sentiment that you're seeing
Speaker 1: is the correct one?
Speaker 4: Because not really. You know, the law orders the FED
Speaker 4: to look.
Speaker 3: At the actual numbers employment and stabilization of prices. We've
Speaker 3: always used consumer sentiment and wanted to check that data
Speaker 3: because it was a good.
Speaker 4: Indicator of consumer spending.
Speaker 3: And part of the call it politicization, whatever you want
Speaker 3: to call it, this real divergence in the consumer sentiment
Speaker 3: data is that it's become a horrible predictor of actual
Speaker 3: spending behavior. So I think that's at least for me,
Speaker 3: that's made me a little cautious of concluding too much
Speaker 3: from what comes out.
Speaker 2: Of So what does that mean that you're putting more emphasis?
Speaker 2: We have a jobs report on Friday.
Speaker 3: Yeah, I've put a lot of emphasis on the jobs reports,
Speaker 3: on for sure, all the measures of inflation, both the
Speaker 3: official measures, and we now have such a wide expanse
Speaker 3: of private sector information that we can get in real
Speaker 3: time about prices. And I'm in the Chicago districts as
Speaker 3: the heart of the Midwest. We talked to business people,
Speaker 3: we talked to community leaders. We're trying to get real
Speaker 3: time information. I put a lot of weight on that too,