Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's turn out to the Fed. President Trump says he
Speaker 2: plans to announce a new FED governor in the coming
Speaker 2: days after resignation of Adriana Kouegler. Former New York FED
Speaker 2: President Bill Dudley, writing this morning, quote, don't be fooled
Speaker 2: by the drama in terms of how the Fed manages
Speaker 2: the economy. It's mostly a tempest in a teapot. Bill
Speaker 2: joins us. Now, all right, Bill, I won't be distracted
Speaker 2: by all the drama. But there's a lot of noise
Speaker 2: right now coming out of Washington, DC when it comes
Speaker 2: to who potentially take this role. Do you think this
Speaker 2: administration wants to put in a shadow FED chair.
Speaker 3: I don't know if that's their intention or not.
Speaker 1: But obviously the next governor appointment that seemed to be
Speaker 1: on a faster timeline than we thought, will be important
Speaker 1: because that person could end up being the next FED chair,
Speaker 1: and so people pay particular attention to who that person
Speaker 1: is and what.
Speaker 3: Their views are.
Speaker 4: So in that case, and I know as you write, Bill,
Speaker 4: that you did see Waller's's to Succeed Powell and Bowman's
Speaker 4: thank you to Trump for appointing her as part of
Speaker 4: the reason behind their descents, Bill, if I can just
Speaker 4: push you on that, because many people have looked at
Speaker 4: this economy and said there are reasons for a cut,
Speaker 4: and Friday vindicated that with weaker labor market data. Is
Speaker 4: there an issue where we look at all these descents
Speaker 4: and say they are just political or is there real
Speaker 4: evidence that perhaps the FED should be leaning towards a cut.
Speaker 3: Well, the FED is leaning towards the cut.
Speaker 1: If you go back and look at the June Summary
Speaker 1: of Economic projections, everybody sees the path of race is
Speaker 1: going downward.
Speaker 3: It's just a question of magnitude and timing.
Speaker 1: So the degree of disagreement with in the FED is actually,
Speaker 1: I think dramatically overstated, because everybody thinks the next direction
Speaker 1: of moves is down. Just a question of when to
Speaker 1: do it and how to manage the inflation risk caused
Speaker 1: by the higher terrorists.
Speaker 4: So, Bill, the direction of descent or the amount of
Speaker 4: descent is overstated. So too is the ability for this
Speaker 4: FMC to be swayed. What happens though, if the data
Speaker 4: becomes less reliable, if a more political figure headed put
Speaker 4: in at the BLS. Bill, you've been in the room
Speaker 4: evaluating this data with colleagues. How does that change and
Speaker 4: the FEDS evaluation of said data if changes are made
Speaker 4: at the Bureau of Labor Statistics.
Speaker 1: Well, it depends on whether the change is made at
Speaker 1: the Bureau of Labor. Stitt says, the actually result in
Speaker 1: poor quality data or not. Obviously, if the data is rigged,
Speaker 1: then the FED Reserve is going to have to go
Speaker 1: to other sources of the data.
Speaker 3: There's a lot more data.
Speaker 1: Available now than there was in the past. You know,
Speaker 1: there's a lot of data that you can scrape off
Speaker 1: the Internet, for example. So I think that obviously we
Speaker 1: want the BLS data to be excellent quality and trusted,
Speaker 1: and that's very important, and so.
Speaker 3: We have to keep an eye on that.
Speaker 1: But the idea that the FED would be sort of
Speaker 1: unable to conduct mantrat policy because the BLS data was corrupt,
Speaker 1: I don't think.
Speaker 3: That's the case.
Speaker 2: Well, going to the BLS data on Friday now, the
Speaker 2: average three month payroll gain went from one hundred and
Speaker 2: fifty thousand before Friday's released to now just thirty five thousand.
Speaker 2: Going back to those two dissenters, doesn't Governor Waller have
Speaker 2: a point the crack has already emerged. Is the FED
Speaker 2: going to be behind the curve?
Speaker 1: Well, I think the FED probably will be behind the
Speaker 1: curve because the terroffs creates so much uncertainty about what's
Speaker 1: going to dominate the risk of inflation or the risk
Speaker 1: of growth. Everyone said the terrorists are going to push
Speaker 1: up prices and push down economic activity, and the questions
Speaker 1: which is going to predominate. So the fact that the
Speaker 1: FED might be late is because the tarift policies created
Speaker 1: this tremendous uncertainty about which force is going to be dominant.
Speaker 2: J Powell really honed in on the unemployment rate last week,
Speaker 2: talking about the fact that's the main number is going
Speaker 2: to look at. We did see a tick up to
Speaker 2: four point two percent. What do you think the line
Speaker 2: is for him where the unemployment rate ticking to what
Speaker 2: would get him really uncomfortable?
Speaker 1: I think, you know, a couple more tenths would definitely
Speaker 1: get him uncomfortable, because then you start to think that
Speaker 1: the whole labor market was starting to give way. And
Speaker 1: when that happens, it can be a self fulfilling prophecy
Speaker 1: because it scares people. They pull back on their own
Speaker 1: their spending, and that makes the labor market still weaker.
Speaker 1: The important part points that Paul made though, is it's
Speaker 1: not about the payroll employment changes, it's basically how that
Speaker 1: actually reflects in.
Speaker 3: The unemployering rate.
Speaker 1: Because what's basically happen this year is the growth rate
Speaker 1: of labor demand has fallen, but the growth rate of
Speaker 1: labor supply has also fallen dramatically because of deportations and
Speaker 1: the crackdown and immigration. So both sides of the labor
Speaker 1: market are less robust than they were before.
Speaker 4: And the jobs that were added Bill about seventy five
Speaker 4: of them came from healthcare, the cyclical parts of the economy. Really,
Speaker 4: we're not adding jobs. The lack of breath in Friday's data.
Speaker 4: Does that concern you at all?
Speaker 3: Well? I think.
Speaker 1: I mean, I'm worried that we're going to be in
Speaker 1: a sort of stagflationary environment where we're going to have
Speaker 1: at both higher prices and a weaker economy. And the
Speaker 1: question is which one do you put more weight on.
Speaker 1: I think the direction of rates is down. I think
Speaker 1: the question is just you know, what meeting does the
Speaker 1: FED finally to see enough evidence to warrant cuts.
Speaker 3: As I said in the piece that I published in
Speaker 3: Bilberg Opinion. You know, there's not that much disagreement about
Speaker 3: the FED. It's all about timing and magnitudes, not about direction.
Speaker 4: Well, what happens if Bill we have adrianic Googler stepping down,
Speaker 4: so that's certainly a Trump appointment, and then you get
Speaker 4: Shairpowell who decides not to stay as a governor through
Speaker 4: twenty twenty eight. In total, you add to that both
Speaker 4: Bowman and Waller. That means for Trump appointees on the FLMC,
Speaker 4: does that an aggregate just mean at the very margin
Speaker 4: a more dove is shift to this FED?
Speaker 3: Oh?
Speaker 1: Absolutely, I mean I think you know, when it's a
Speaker 1: close call in that kind of situation, the ties are
Speaker 1: going to go to the doves. But at the end
Speaker 1: of the day, the economy is going to drive the story.
Speaker 1: You know, I think you know, the chairman can't take
Speaker 1: the FED wherever he or she wants. It depends on
Speaker 1: how the economy is motivating. What's the right thing to
Speaker 1: do in terms of monetary policy. The chair has to
Speaker 1: convince the rest of the FMC to go along. Now, obviously,
Speaker 1: if you have four governors all lined up on one side,
Speaker 1: that that gives the chair quite a bit of momentum
Speaker 1: to get his or her way. But you know, I
Speaker 1: think the Fed Reserve presidents are going to continue to
Speaker 1: vote their conscience in terms of what's right for the
Speaker 1: for the macro economy.
Speaker 2: The markets this morning are rebounding off of the lows
Speaker 2: on Friday, following the fact that everyone's start to bake
Speaker 2: in this idea of a September rate cup But Bill,
Speaker 2: what if we get a hot CPI print, what's going
Speaker 2: to happen?
Speaker 4: Then?
Speaker 1: Well, I think it's too soon to say that we're
Speaker 1: going to get a September rate kot. I mean, we
Speaker 1: just saw how the market for September has moved dramatically
Speaker 1: just in the last week. When Paul made his remarks
Speaker 1: that the press conference, people said, oh, they're not going
Speaker 1: to cut in September, and then we got the week
Speaker 1: in payroll and plumber report on Friday and everyone says, oh,
Speaker 1: they are going to cut in September. So it's a
Speaker 1: long time between now and September. You know, I think
Speaker 1: the prospects are pretty good that the Fed's going to
Speaker 1: cut rates later this year, whether it turns out to
Speaker 1: be September or not, really is going to turn out
Speaker 1: to depend on the data bill.
Speaker 4: To what's agreed. Could this just be a post Liberation
Speaker 4: Day fallout the jobs data we've had over the past
Speaker 4: three months, and something that might rebound in August given
Speaker 4: more certainty on which tariff levels are being set.
Speaker 1: I think you're making a good point that the terriffs
Speaker 1: have caused people to sort of stand back in terms
Speaker 1: of business hiring and business investment because they don't really
Speaker 1: know what the landscape is. And as we get past
Speaker 1: August first and hopefully more clarity on what the arraff
Speaker 1: packages are going to be country by country, that presumably
Speaker 1: will make businesses more.
Speaker 3: Willing to move forward in terms of their investment and
Speaker 3: hiring plans.
Speaker 1: So it certainly could go that way, or it could
Speaker 1: go that the higher terrafts are raising prices, that's crimping
Speaker 1: really income, and that's affecting consumer spending, and that's leading
Speaker 1: to weakness and employment that it's going to motivate the
Speaker 1: FED to cut rates.
Speaker 3: We still don't know which way, which direction is going
Speaker 3: to predominate.
Speaker 2: What we do know, though, is we know most of
Speaker 2: the rates is a handful of countries potentially could get
Speaker 2: better deals and better rates. But for the most part,
Speaker 2: we do know the rates going forward and they're going
Speaker 2: to take effect this Thursday. How much time do you
Speaker 2: think the FED needs to see this work through the economy.
Speaker 1: Well, I think the FED would like to see, you know,
Speaker 1: a lot of time, a lot more than six weeks
Speaker 1: to the next FOMC meeting. I think they think it's
Speaker 1: probably going to take six months to get to see
Speaker 1: the full effects of the terraffs because it takes quite
Speaker 1: a bit of time between the good landing on US
Speaker 1: shores and it actually ending up being sold in a
Speaker 1: department store or in other retail establishment. The FED thinks
Speaker 1: it's going to be a slow process, and Paul basically
Speaker 1: said that at his press.
Speaker 3: Conference last week.
Speaker 2: Former New York Fed President Bill Dudley, thank you so
Speaker 2: much for your time this morning, and you can catch
Speaker 2: his opinion piece this morning in Bloomberg Opinion