Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Here's the big call of the last twenty four hours,
Speaker 2: Former New York Fed President Bill Dudley saying this, officials
Speaker 2: must cut, and they must do it now. Dudley writing
Speaker 2: and Bloomberg Opinion the following. The facts have changed, so
Speaker 2: I've changed my mind. The Fed should cut, preferably at
Speaker 2: next week's policymaking meeting. Although it might already be too
Speaker 2: late to fend off a recession by cunning interest rates,
Speaker 2: dawdling now unnecessarily increases the risk. Bill joins us for more. Bill,
Speaker 2: wonderful to go on this kind of journey with interest
Speaker 2: rates with you, because I remember at the very start
Speaker 2: of the conversation, coming out of the pandemic, you were
Speaker 2: one together with the likes of Muhammad Aaleri and Larry Summers,
Speaker 2: warning that there were going to be inflation pressures and
Speaker 2: this Federal Reserve needs to hike. You've changed your mind, Bill,
Speaker 2: And in the piece there are several points you've made
Speaker 2: as to why you've changed your mind. I want to
Speaker 2: pick up on what I think was the third one,
Speaker 2: the labor market Bill. What's happening there that's guiding this Coal.
Speaker 3: I think you can see labor market is slowing, especially
Speaker 3: evident in the household employment survey, which is much weaker
Speaker 3: than what we've seen in terms of payroll employment. Over
Speaker 3: the last year, household employments increased by less than two
Speaker 3: hundred thousand. I think the labor market, and the second
Speaker 3: part of the labor market story is, of course, the
Speaker 3: rise in the unemploying rate. We were at three point
Speaker 3: six percent a year ago, now we're at four point
Speaker 3: one percent. And these kind of rises in the unemploying
Speaker 3: rate are essentially warning signs. Every time the unemploying rate
Speaker 3: has gone up by more than a half a percent
Speaker 3: on a three month moving average basis, the US has
Speaker 3: had a recession. This is a so called SAM roll
Speaker 3: right now on the sum rule basis, smoothing it three
Speaker 3: months moving average zero point four to three percent increase.
Speaker 3: So we're getting very very close to training the SAM rule.
Speaker 3: You know, Cherry Pollo himself has pointed out the risks
Speaker 3: now are very much two sided, not one sided. Inflation
Speaker 3: is much more benign two point six percent for the
Speaker 3: core PC to flater a year over year, and we'll
Speaker 3: probably get another good reading on Friday. So I think
Speaker 3: it's time to start to focus on the risk of
Speaker 3: the economy, the risk of the labor market, to minimize
Speaker 3: the risk of recession, which always occurs when the unemployer
Speaker 3: rate goes up by more than zero point five percent
Speaker 3: of three month week average basis.
Speaker 2: Well, let's talk about timing. Then. This was Chairman Poal
Speaker 2: in Centro Portugal, so not even a month ago. He said,
Speaker 2: we have the ability to take our time and get
Speaker 2: this right because the US economy is strong and the
Speaker 2: labor market is strong. Based on your piece, just on
Speaker 2: the timing, they might already be too late to fend
Speaker 2: off a recession. Why are they miscalculating how much time
Speaker 2: they have, in your opinion, even though they have acknowledged
Speaker 2: what's developing in the labor market.
Speaker 3: Well, I think they put not very much weight on
Speaker 3: the some rule, some rules, perfect perfect track records since
Speaker 3: World War two thirteen and zero. But the interview is
Speaker 3: that the reason why the unemployer rate's going up is
Speaker 3: because labor force is growing rapidly, So that's not as
Speaker 3: disturbing as if the unemployer rate was going up because
Speaker 3: people are being laid off. The problem with that story
Speaker 3: is that in the nineteen seventies, we had labor force
Speaker 3: growth is also extremely rapid som roll held. So I
Speaker 3: think you said you want to stick with the Sam
Speaker 3: rule until it's disproved that.
Speaker 1: Said Klaudiassam of the Sum role has actually come on
Speaker 1: and said people put too much emphasis on my son
Speaker 1: role and actually backed away from using that as one
Speaker 1: indicator to really end all be all. Is there anything
Speaker 1: other than that that creates new urgency for.
Speaker 2: This sudden pivot?
Speaker 1: Really a week before the Fed's meeting.
Speaker 3: Well, you know, if the FED doesn't cut in July
Speaker 3: and waste of September, it's not going to have a
Speaker 3: huge effect on the communist ditrectory, except the fact that
Speaker 3: when the unemployment rates starts to deteriorate, the team seem
Speaker 3: to be a reinforcing negative feedback loop. Job jobs are lost,
Speaker 3: people pull back on spending. That leads to cuts in
Speaker 3: further cuts in the employment and investment. So the striking
Speaker 3: thing about the Sum rule is not just a zero
Speaker 3: point five percent threshold, is the fact that every time
Speaker 3: you've gone through that threshold, the unmployer rate's gone up
Speaker 3: a lot. The smallest increase beyond when you go beyond
Speaker 3: zero point five percent is almost two percentage points. So
Speaker 3: that just tells you that once things get start to
Speaker 3: unwind in a negative direction, it tends to keep going.
Speaker 3: And that's why the risk here is significant.
Speaker 1: Bill, your colin got a lot of attention, and in
Speaker 1: large part because you were on the forefront as John
Speaker 1: was mentioning of this idea that the FED would have
Speaker 1: to raise rates much beyond what people currently thought at
Speaker 1: the time, and that maybe even the neutral rate was
Speaker 1: going to be higher than what it was in the
Speaker 1: past based on the weakening that you've seen. Are you
Speaker 1: rethinking that concept that inflation is going to be structurally
Speaker 1: higher and that the FED is going to have a
Speaker 1: harder time combating it in the future.
Speaker 3: Well, if the economy slows and the unemployed right rises,
Speaker 3: then the downward pressures on inflation are going to persist.
Speaker 3: You know, two point six percent is really not that
Speaker 3: far away from the Fed's two percent inflation objection objective,
Speaker 3: and in my mind that difference is not a sufficient
Speaker 3: to take a big risk of reces. So I think
Speaker 3: it's time to the FED to focus on the other
Speaker 3: side of its dual mandate, which is the employment side.
Speaker 3: Paul has talked about the fact that the FED has
Speaker 3: two objectives, inflation and employment, and I just feel like
Speaker 3: the risks on the employment side are increasing to the
Speaker 3: points that you want to put more weight on that.
Speaker 2: But a lot of the things you can say as
Speaker 2: a form of FED official that you can't say as
Speaker 2: a current FED official. I'm just interested in the communication
Speaker 2: of this. You can speak your mind now freely with us.
Speaker 2: You can write the piece on Bloomberg Opinion. Can you
Speaker 2: imagine what the fallout would be if we had the
Speaker 2: current New York FED President or the chairman of the
Speaker 2: Federal Reserve saying the things that you're saying right now
Speaker 2: at the July FED meeting. Do you think they can
Speaker 2: even do that even if they thought it well.
Speaker 3: I think if chir Paul was of the view that
Speaker 3: shared the same view as many, I think he would
Speaker 3: probably talk to the officials and develop a consensus to
Speaker 3: move in in July. I mean, I think one of
Speaker 3: the interesting sort of quandaries of the fetis and right
Speaker 3: now they've telegraphed it pretty clearly that they're going to
Speaker 3: move in September, and it's sort of basic question. It
Speaker 3: was so obvious that you need to move in September,
Speaker 3: then what are you waiting for? Why not just moving July?
Speaker 1: At this point, there are a lot of people who
Speaker 1: are associating political reasons for why someone might want to
Speaker 1: come out and say that now is the right time
Speaker 1: to cut since the data hasn't weakened that dramatically in
Speaker 1: the past couple of weeks, we have seen an ongoing
Speaker 1: deterioration that seems consistent with a normalization bill.
Speaker 2: How do you counter.
Speaker 1: Those accusations that this is being done ahead of an
Speaker 1: election highly contested where if the economy can keep doing okay,
Speaker 1: typically the incumbent or the incumbent party does better.
Speaker 3: Well. I think my experience, and I think this is
Speaker 3: borne out by the Federal over Market Committee transcripts over
Speaker 3: many many years, is the FED doesn't take politics and
Speaker 3: consideration at all, and in terms of this timing of monetary policy,
Speaker 3: ratiing cases or rate cuts, and I think that's appropriate
Speaker 3: behavior by the Fed. They need to be independent, they
Speaker 3: don't want it. They shouldn't be taking the election cycle
Speaker 3: into consideration, and I don't think the Fed is doing
Speaker 3: that here. I think the reason why the Fed is
Speaker 3: delaying is I think they were surprise last year when
Speaker 3: they thought inflation was coming down and it turned out
Speaker 3: we got a number of disappointing reasonings readings on inflation.
Speaker 3: I think they're also probably waiting because Paul probably wants
Speaker 3: to achieve a full consensus, you know. I think he'd
Speaker 3: like to see a unanimous boat in favor of easing.
Speaker 3: And the hawks maybe, you know, there may be some
Speaker 3: people were hawkish on the nefom seed. They are still
Speaker 3: a bit reluctant. I think ray cuts are definitely coming.
Speaker 3: I just think that at this point there's not a
Speaker 3: really strong case for waiting.
Speaker 2: Hi, Bill, it's quite to catch up with this. Appreciate
Speaker 2: the insight. This piece yesterday and Bloomberg Opinion got a
Speaker 2: ton of attention. They form a New York Fed President
Speaker 2: and Bloomberg Opinion columnist Bill Dumpley that on his cove
Speaker 2: to start counting interest rights