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

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Speaker 2: Let's turn out to the Fed. President Trump says he

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Speaker 2: plans to announce a new FED governor in the coming

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Speaker 2: days after resignation of Adriana Kouegler. Former New York FED

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Speaker 2: President Bill Dudley, writing this morning, quote, don't be fooled

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Speaker 2: by the drama in terms of how the Fed manages

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Speaker 2: the economy. It's mostly a tempest in a teapot. Bill

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Speaker 2: joins us. Now, all right, Bill, I won't be distracted

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Speaker 2: by all the drama. But there's a lot of noise

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Speaker 2: right now coming out of Washington, DC when it comes

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Speaker 2: to who potentially take this role. Do you think this

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Speaker 2: administration wants to put in a shadow FED chair.

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Speaker 3: I don't know if that's their intention or not.

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Speaker 1: But obviously the next governor appointment that seemed to be

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Speaker 1: on a faster timeline than we thought, will be important

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Speaker 1: because that person could end up being the next FED chair,

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Speaker 1: and so people pay particular attention to who that person

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Speaker 1: is and what.

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Speaker 3: Their views are.

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Speaker 4: So in that case, and I know as you write, Bill,

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Speaker 4: that you did see Waller's's to Succeed Powell and Bowman's

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Speaker 4: thank you to Trump for appointing her as part of

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Speaker 4: the reason behind their descents, Bill, if I can just

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Speaker 4: push you on that, because many people have looked at

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Speaker 4: this economy and said there are reasons for a cut,

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Speaker 4: and Friday vindicated that with weaker labor market data. Is

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Speaker 4: there an issue where we look at all these descents

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Speaker 4: and say they are just political or is there real

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Speaker 4: evidence that perhaps the FED should be leaning towards a cut.

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Speaker 3: Well, the FED is leaning towards the cut.

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Speaker 1: If you go back and look at the June Summary

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Speaker 1: of Economic projections, everybody sees the path of race is

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Speaker 1: going downward.

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Speaker 3: It's just a question of magnitude and timing.

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Speaker 1: So the degree of disagreement with in the FED is actually,

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Speaker 1: I think dramatically overstated, because everybody thinks the next direction

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Speaker 1: of moves is down. Just a question of when to

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Speaker 1: do it and how to manage the inflation risk caused

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Speaker 1: by the higher terrorists.

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Speaker 4: So, Bill, the direction of descent or the amount of

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Speaker 4: descent is overstated. So too is the ability for this

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Speaker 4: FMC to be swayed. What happens though, if the data

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Speaker 4: becomes less reliable, if a more political figure headed put

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Speaker 4: in at the BLS. Bill, you've been in the room

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Speaker 4: evaluating this data with colleagues. How does that change and

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Speaker 4: the FEDS evaluation of said data if changes are made

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Speaker 4: at the Bureau of Labor Statistics.

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Speaker 1: Well, it depends on whether the change is made at

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Speaker 1: the Bureau of Labor. Stitt says, the actually result in

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Speaker 1: poor quality data or not. Obviously, if the data is rigged,

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Speaker 1: then the FED Reserve is going to have to go

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Speaker 1: to other sources of the data.

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Speaker 3: There's a lot more data.

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Speaker 1: Available now than there was in the past. You know,

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Speaker 1: there's a lot of data that you can scrape off

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Speaker 1: the Internet, for example. So I think that obviously we

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Speaker 1: want the BLS data to be excellent quality and trusted,

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Speaker 1: and that's very important, and so.

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Speaker 3: We have to keep an eye on that.

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Speaker 1: But the idea that the FED would be sort of

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Speaker 1: unable to conduct mantrat policy because the BLS data was corrupt,

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Speaker 1: I don't think.

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Speaker 3: That's the case.

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Speaker 2: Well, going to the BLS data on Friday now, the

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Speaker 2: average three month payroll gain went from one hundred and

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Speaker 2: fifty thousand before Friday's released to now just thirty five thousand.

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Speaker 2: Going back to those two dissenters, doesn't Governor Waller have

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Speaker 2: a point the crack has already emerged. Is the FED

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Speaker 2: going to be behind the curve?

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Speaker 1: Well, I think the FED probably will be behind the

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Speaker 1: curve because the terroffs creates so much uncertainty about what's

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Speaker 1: going to dominate the risk of inflation or the risk

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Speaker 1: of growth. Everyone said the terrorists are going to push

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Speaker 1: up prices and push down economic activity, and the questions

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Speaker 1: which is going to predominate. So the fact that the

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Speaker 1: FED might be late is because the tarift policies created

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Speaker 1: this tremendous uncertainty about which force is going to be dominant.

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Speaker 2: J Powell really honed in on the unemployment rate last week,

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Speaker 2: talking about the fact that's the main number is going

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Speaker 2: to look at. We did see a tick up to

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Speaker 2: four point two percent. What do you think the line

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Speaker 2: is for him where the unemployment rate ticking to what

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Speaker 2: would get him really uncomfortable?

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Speaker 1: I think, you know, a couple more tenths would definitely

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Speaker 1: get him uncomfortable, because then you start to think that

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Speaker 1: the whole labor market was starting to give way. And

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Speaker 1: when that happens, it can be a self fulfilling prophecy

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Speaker 1: because it scares people. They pull back on their own

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Speaker 1: their spending, and that makes the labor market still weaker.

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Speaker 1: The important part points that Paul made though, is it's

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Speaker 1: not about the payroll employment changes, it's basically how that

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Speaker 1: actually reflects in.

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Speaker 3: The unemployering rate.

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Speaker 1: Because what's basically happen this year is the growth rate

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Speaker 1: of labor demand has fallen, but the growth rate of

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Speaker 1: labor supply has also fallen dramatically because of deportations and

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Speaker 1: the crackdown and immigration. So both sides of the labor

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Speaker 1: market are less robust than they were before.

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Speaker 4: And the jobs that were added Bill about seventy five

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Speaker 4: of them came from healthcare, the cyclical parts of the economy. Really,

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Speaker 4: we're not adding jobs. The lack of breath in Friday's data.

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Speaker 4: Does that concern you at all?

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Speaker 3: Well? I think.

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Speaker 1: I mean, I'm worried that we're going to be in

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Speaker 1: a sort of stagflationary environment where we're going to have

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Speaker 1: at both higher prices and a weaker economy. And the

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Speaker 1: question is which one do you put more weight on.

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Speaker 1: I think the direction of rates is down. I think

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Speaker 1: the question is just you know, what meeting does the

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Speaker 1: FED finally to see enough evidence to warrant cuts.

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Speaker 3: As I said in the piece that I published in

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Speaker 3: Bilberg Opinion. You know, there's not that much disagreement about

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Speaker 3: the FED. It's all about timing and magnitudes, not about direction.

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Speaker 4: Well, what happens if Bill we have adrianic Googler stepping down,

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Speaker 4: so that's certainly a Trump appointment, and then you get

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Speaker 4: Shairpowell who decides not to stay as a governor through

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Speaker 4: twenty twenty eight. In total, you add to that both

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Speaker 4: Bowman and Waller. That means for Trump appointees on the FLMC,

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Speaker 4: does that an aggregate just mean at the very margin

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Speaker 4: a more dove is shift to this FED?

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Speaker 3: Oh?

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Speaker 1: Absolutely, I mean I think you know, when it's a

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Speaker 1: close call in that kind of situation, the ties are

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Speaker 1: going to go to the doves. But at the end

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Speaker 1: of the day, the economy is going to drive the story.

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Speaker 1: You know, I think you know, the chairman can't take

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Speaker 1: the FED wherever he or she wants. It depends on

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Speaker 1: how the economy is motivating. What's the right thing to

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Speaker 1: do in terms of monetary policy. The chair has to

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Speaker 1: convince the rest of the FMC to go along. Now, obviously,

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Speaker 1: if you have four governors all lined up on one side,

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Speaker 1: that that gives the chair quite a bit of momentum

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Speaker 1: to get his or her way. But you know, I

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Speaker 1: think the Fed Reserve presidents are going to continue to

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Speaker 1: vote their conscience in terms of what's right for the

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Speaker 1: for the macro economy.

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Speaker 2: The markets this morning are rebounding off of the lows

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Speaker 2: on Friday, following the fact that everyone's start to bake

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Speaker 2: in this idea of a September rate cup But Bill,

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Speaker 2: what if we get a hot CPI print, what's going

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Speaker 2: to happen?

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Speaker 4: Then?

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Speaker 1: Well, I think it's too soon to say that we're

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Speaker 1: going to get a September rate kot. I mean, we

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Speaker 1: just saw how the market for September has moved dramatically

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Speaker 1: just in the last week. When Paul made his remarks

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Speaker 1: that the press conference, people said, oh, they're not going

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Speaker 1: to cut in September, and then we got the week

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Speaker 1: in payroll and plumber report on Friday and everyone says, oh,

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Speaker 1: they are going to cut in September. So it's a

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Speaker 1: long time between now and September. You know, I think

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Speaker 1: the prospects are pretty good that the Fed's going to

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Speaker 1: cut rates later this year, whether it turns out to

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Speaker 1: be September or not, really is going to turn out

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Speaker 1: to depend on the data bill.

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Speaker 4: To what's agreed. Could this just be a post Liberation

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Speaker 4: Day fallout the jobs data we've had over the past

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Speaker 4: three months, and something that might rebound in August given

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Speaker 4: more certainty on which tariff levels are being set.

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Speaker 1: I think you're making a good point that the terriffs

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Speaker 1: have caused people to sort of stand back in terms

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Speaker 1: of business hiring and business investment because they don't really

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Speaker 1: know what the landscape is. And as we get past

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Speaker 1: August first and hopefully more clarity on what the arraff

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Speaker 1: packages are going to be country by country, that presumably

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Speaker 1: will make businesses more.

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Speaker 3: Willing to move forward in terms of their investment and

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Speaker 3: hiring plans.

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Speaker 1: So it certainly could go that way, or it could

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Speaker 1: go that the higher terrafts are raising prices, that's crimping

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Speaker 1: really income, and that's affecting consumer spending, and that's leading

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Speaker 1: to weakness and employment that it's going to motivate the

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Speaker 1: FED to cut rates.

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Speaker 3: We still don't know which way, which direction is going

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Speaker 3: to predominate.

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Speaker 2: What we do know, though, is we know most of

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Speaker 2: the rates is a handful of countries potentially could get

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Speaker 2: better deals and better rates. But for the most part,

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Speaker 2: we do know the rates going forward and they're going

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Speaker 2: to take effect this Thursday. How much time do you

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Speaker 2: think the FED needs to see this work through the economy.

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Speaker 1: Well, I think the FED would like to see, you know,

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Speaker 1: a lot of time, a lot more than six weeks

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Speaker 1: to the next FOMC meeting. I think they think it's

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Speaker 1: probably going to take six months to get to see

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Speaker 1: the full effects of the terraffs because it takes quite

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Speaker 1: a bit of time between the good landing on US

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Speaker 1: shores and it actually ending up being sold in a

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Speaker 1: department store or in other retail establishment. The FED thinks

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Speaker 1: it's going to be a slow process, and Paul basically

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Speaker 1: said that at his press.

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Speaker 3: Conference last week.

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Speaker 2: Former New York Fed President Bill Dudley, thank you so

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Speaker 2: much for your time this morning, and you can catch

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Speaker 2: his opinion piece this morning in Bloomberg Opinion