Speaker 1: Bloomberg, Audio studios, podcasts, radio news. Former New York FED
Speaker 1: President Bill Dudley, writing in his new column that just
Speaker 1: dropped across Bloomberg, the FED can and must at times
Speaker 1: make assumptions about what politicians will do. When the Trump
Speaker 1: administration's tariff and deportation policies come in to focus, that
Speaker 1: outlook may become less rosy. Bill Dudley, I'm so pleased
Speaker 1: to say joins us now, Bill, thank you so much
Speaker 1: for being with us. Let's just talk about how a
Speaker 1: FED comes up with a dot plot looking into twenty
Speaker 1: twenty five without making some assumptions about what the policy
Speaker 1: backdrop is going to look like.
Speaker 2: I think they are going to make assumptions.
Speaker 3: I think they're going to assume that the twenty seventeen
Speaker 3: text cuts do get extended. So I think what Paul
Speaker 3: said at the last press conference, you don't guess speculator
Speaker 3: to assume, is actually contradicted by what they actually did
Speaker 3: in December twenty sixteen when they did include the fiscal
Speaker 3: policy students that they thought was going to be enacted
Speaker 3: by the first Trump administration that was in the forecasts.
Speaker 3: So I think, you know, they have to assume it
Speaker 3: when it's big, when it's likely, when it's sort of
Speaker 3: clear what it's going to be, and when it's priced
Speaker 3: into financial markets. And I think that's true for the
Speaker 3: for the extension of the tax cuts. It's not true
Speaker 3: for terrorists or immigration policy, because it's very uncertain about
Speaker 3: what those policies actually will be at this point.
Speaker 1: Bill, do you think that that's why it's more important
Speaker 1: to look at, say tax cuts than some of the
Speaker 1: other policies. They could potentially have contradictory effects on inflation
Speaker 1: and growth.
Speaker 3: I think the real problem on terrorist is you don't
Speaker 3: know how big they are, how long they're going to last,
Speaker 3: what the whether it's going to be retaliation, and on deportations,
Speaker 3: you just don't know the magnitude or speed of what
Speaker 3: the program is going to be. And so if you
Speaker 3: don't know what it's going to be, it's really hard
Speaker 3: to put it into the forecast as in terms of
Speaker 3: its likely effects. Well, I think the text so I
Speaker 3: think the tax cut assumption is going to be in there,
Speaker 3: but nothing else.
Speaker 4: Well, when it comes to terrorists is September twenty eighteen,
Speaker 4: Tealbook talked about the fact that in the first iteration
Speaker 4: of Trump they just saw the terroriffs as a one
Speaker 4: hit threat. You agree with that assessment, and do you
Speaker 4: think that would still hold today for this FOMC.
Speaker 3: I don't think you're gonna make any assumptions on terror
Speaker 3: shick because we just don't really know what the administration
Speaker 3: is going to do. I think the big difference, though,
Speaker 3: the terrorists that we're done in the first Trump administration
Speaker 3: were actually relatively small. The total tariff on an importse
Speaker 3: one from one and a half percent of imports to
Speaker 3: three percent of imports during the first Trump administration.
Speaker 2: We're talking about much bigger numbers.
Speaker 3: Now, we're talking about ten, twenty percent, sixty percent against China.
Speaker 2: So Magatue may be much greater.
Speaker 3: But we're not really sure is this just a threat
Speaker 3: or is it actually going to turn out in terms
Speaker 3: of substance.
Speaker 5: So, Bill, what we essentially have is just then corporation
Speaker 5: of tax cuts and missing out on two key pillars
Speaker 5: of Trump's policy going forward, immigration and at the same time, tariffs.
Speaker 5: I know that this is a sacrilegious question, so you'll
Speaker 5: have to forgive me, but are the dots even useful
Speaker 5: this time around?
Speaker 2: Then?
Speaker 3: Well, I think what's the problem with the dots is
Speaker 3: you're going to have an unusually rosy FOURK because it
Speaker 3: doesn't include some of the more controversial economic policies that
Speaker 3: could really change the outlook with respect to growth, inflation,
Speaker 3: and proctuvity. You know, higher tariffs, deportation is going to
Speaker 3: be disruptive to the economy. It's going to tend to
Speaker 3: push inflation up, it's going to push growth down, and
Speaker 3: that's just not going to be in the forecast.
Speaker 1: At this point. Bill, what's your base case for how
Speaker 1: they're going to sort of telegraph some sort of pause
Speaker 1: or some sort of adjustment to the process of rate
Speaker 1: cuts in twenty twenty five.
Speaker 2: Well, I think I'll be done in a couple of
Speaker 2: different ways.
Speaker 3: Number One, the number of rate cuts that they show
Speaker 3: in twenty twenty five will go down from last time.
Speaker 3: Last time in September, they had four ratecuts, four to
Speaker 3: twenty five base point ratecuts in twenty twenty five, so
Speaker 3: this time will be two or three.
Speaker 2: And Second, I.
Speaker 3: Think I'll talk about how inflation is a little bit sticky,
Speaker 3: the economy is doing really well. You'll probably see some
Speaker 3: upper revisions of the FED estimates of so called our star,
Speaker 3: the neutral rate, so I think all those things together
Speaker 3: will make it pretty clear that you know, January is
Speaker 3: probably going to be a pause, and that's really what's
Speaker 3: in the markets. Markets are very certain about December being
Speaker 3: a cut, and they're pretty certain about January being a boss.
Speaker 1: Bill, what's your take if you were on the FMC,
Speaker 1: where would your dot be, what would you be looking
Speaker 1: for for next year? And what the bigger concern is
Speaker 1: inflation or weakness?
Speaker 3: Well, I think the big place where I would probably
Speaker 3: diverge from the consensus of.
Speaker 2: The committee is on our star.
Speaker 3: Right now, the media estimate or our star is two
Speaker 3: point nine percent, So the Feds basically show the federal
Speaker 3: funderrate going to two point nine percent in the SEP
Speaker 3: not in twenty twenty five, but in twenty twenty six
Speaker 3: and twenty SEP twenty seven. I'd have a higher ur star,
Speaker 3: probably something in the order of three and a half percent,
Speaker 3: maybe maybe a little bit of higher. So I would
Speaker 3: not have as much cumulative easing of manitary policies what
Speaker 3: the Fed will have, and.
Speaker 1: That seems to be where the market's at right now.
Speaker 1: Certainly as well. Absolutely, Former New York Fed President Bill Dudley,
Speaker 1: thank you so much. For being with us,