Speaker 1: Andersavanns this morning, the Fed remaining patient.
Speaker 2: We're headed back down toward normal. The question is, of course,
Speaker 2: are we normalizing or are we weakening? Those are two
Speaker 2: very different things.
Speaker 3: Underneath the hood of the labor market report.
Speaker 1: There's a little more room for confidence, confidence that we're
Speaker 1: slowing but not falling off a clear You know.
Speaker 2: That I believe that we are restrictive. The longer we
Speaker 2: were restrictive, we're going to have to start thinking about
Speaker 2: the employment side of the manding.
Speaker 1: So here's the latest FED officials refusing to overreact to
Speaker 1: last week's payroll data, Former New York Fed President Bill
Speaker 1: Dudley suggesting that patience might be misplaced right in this
Speaker 1: the Fed's wild ride has only just begun. A deteriorating
Speaker 1: labor market tends to be self reinforcing. The longer the
Speaker 1: FED weights, the greater the potential for damage. An immediate
Speaker 1: rate cut is in order, but that's very unlikely. Prepare
Speaker 1: for more volatility in stock and bond markets. Bill joined us.
Speaker 1: Now for more. Bill, let's stop the market. Then we
Speaker 1: can get to the fed lack of response to it.
Speaker 1: What suggests to you that this is self reinforcing? This
Speaker 1: is the beginning of something much worse.
Speaker 2: Well, a couple of things. Number one, we've seen a
Speaker 2: rise in unemployment claims. We've seen a drop in the
Speaker 2: hire's rate. We've seen a drop in the quits rate.
Speaker 2: It looks to me like the labor market is cooling
Speaker 2: off quite significantly. We've also triggered a so called samrle
Speaker 2: where if the unemploying rate rises by more than a
Speaker 2: half a percent of ver a twelve month period. Every
Speaker 2: time that's happened, we've ended up in recession. So there's
Speaker 2: a lot of risk out there to the downside in
Speaker 2: terms of the labor market. On the other side of
Speaker 2: the mandate, the inflation news has been very, very good recently.
Speaker 2: So it seems to me that the Fed needs to
Speaker 2: hold both sides of the mandate with equal weight right now.
Speaker 2: And that implies that monetary policy should be neutral, not restrictive.
Speaker 2: And we're a long way from neutral. I mean, people
Speaker 2: don't know exactly what a neutral monetary policy is precisely,
Speaker 2: but nobody thinks that five and a quarter five and
Speaker 2: a half percent federful fund trate's consistent with neutral. Probably
Speaker 2: somewhere in the three four percent range is where the
Speaker 2: Fed should be.
Speaker 4: Bill, You've had an enormous influence on how people are
Speaker 4: thinking on Wall Street about what's ahead. So I want
Speaker 4: to ask you, if you think an immediate weight cut
Speaker 4: is not on the table, that they won't move into meeting,
Speaker 4: what would you recommend they should do in the next
Speaker 4: few weeks.
Speaker 2: I think what they should do is change the messaging
Speaker 2: a little bit and make it very clear that they're
Speaker 2: now focused more on the liver side of the mandate.
Speaker 2: Get the market to a tune to the notion that
Speaker 2: if we get weak data over the next six weeks
Speaker 2: that fifty basis points is highly likely. At the September meeting,
Speaker 2: you can put fifty basis points firmly on the table
Speaker 2: if the data can flow continue in the same direction.
Speaker 4: And do you think that'd be willing to do that?
Speaker 4: This has been a very backward looking FED and now
Speaker 4: they need to regain control of the narrative. Do you
Speaker 4: think that that by itself at Jackson Hole for example,
Speaker 4: would be enough to regain control of the narrative.
Speaker 2: Well help a lot, because if the FED, if people
Speaker 2: feel that the Fed's got it finance, so conditions will
Speaker 2: become more accounted. Stock market recover and he'll provide support.
Speaker 2: You know, the problem here is when the labor market
Speaker 2: starts to deteriorate, confidence starts to decline. We saw that
Speaker 2: over the last couple of days, you know, the big,
Speaker 2: big change in market sentiment. And when market sentiment TOTERI rates,
Speaker 2: that can be self reinforcing. People start to pull back
Speaker 2: on hiring, people pull back on spending. Next thing, you know,
Speaker 2: the unemployer rate hasn't gone up a half a percent,
Speaker 2: has gone up a full percentage point or two percentage
Speaker 2: You're in recession now. The good news here is that,
Speaker 2: you know, we if we have economic weakness, the FED
Speaker 2: has plenty of firepower. They have their long way from
Speaker 2: zero percent short term rates, so the fifth can respond
Speaker 2: pretty aggressively if needed. And I think you know, my
Speaker 2: view is that the risk that they're going to need
Speaker 2: to respond aggressively has increased significantly in recent weeks.
Speaker 3: Well, I just want to put a fine point on that,
Speaker 3: because you did write about two weeks ago, before the
Speaker 3: FED decision, before we got the jobs data, that not
Speaker 3: going in July would increase the risk of recession, and
Speaker 3: all of that happened. So just how acute is the
Speaker 3: risk at this moment.
Speaker 2: Well, I think that what's happened is there's quite a
Speaker 2: bit of stress in a couple areas of the ecomomy.
Speaker 2: Number one, low income households are really feeling it, both
Speaker 2: because they're tapped out the savings that was generated by
Speaker 2: the fiscal transfers during the pandemic. And two, they're the
Speaker 2: ones who pay the higher short term interest rates in
Speaker 2: terms of credit card debt and not alone debt. And
Speaker 2: number two, we're seeing softness in the housing sector, especially
Speaker 2: in multi family construction. So you're seeing areas of weakness
Speaker 2: that are leading to softer labor market. And that's a
Speaker 2: softer labor market, though, is the key thing. If it
Speaker 2: frightens consumers, then you have weakness and consumption and the
Speaker 2: thing becomes self reinforcing.
Speaker 3: I think the confusing thing for a lot of people
Speaker 3: bill is for every week point, there seems to be
Speaker 3: a strong point for every issue. At Airbnb, there is
Speaker 3: a disney that can raise prices. There is an uber
Speaker 3: that people are willing to buy. How do you distinguish
Speaker 3: between a lower end consumer that's dropping off a cliff
Speaker 3: and one that has just gotten more picky with where
Speaker 3: it spends its money.
Speaker 2: Well, it is difficult to sort out. And you know,
Speaker 2: high income consumers are doing pretty well. I mean, they've
Speaker 2: locked in low mortgage rates. They have been the beneficiaries
Speaker 2: of a very strong stock market. Even after the recent
Speaker 2: decline in the stock market's still up quite over ten
Speaker 2: percent this year. So the high end consumer is feeling
Speaker 2: pretty good about things, but the low end is not.
Speaker 2: The other thing, of course, is also what's happening on
Speaker 2: the investment side. The Biden administration had a number of
Speaker 2: initiatives that boosted investments, spending, infrastructure, chipsacked climate, and the
Speaker 2: question is what's the impetus from investment from those programs.
Speaker 2: Has that peaked or not? And if that has peaked,
Speaker 2: that's another source of potential restraint in coming months.
Speaker 1: It's great to can't shot with this, sir As always
Speaker 1: appreciate the comments this morning, Bill don't be there. The
Speaker 1: former New York Fed president Mohamma, I just want to
Speaker 1: get some fun of thoughts from you. How off site
Speaker 1: do you think we are on rates when we've spent
Speaker 1: the last two years to banking, whether we're sufficiently restrictive.
Speaker 4: Well, if you just listened to what Bill said, and
Speaker 4: I listened very carefully to what he said about the
Speaker 4: labor market. If he's right, we're quite offside.
Speaker 1: Are way too restrictive, like one hundred basis points off side?
Speaker 4: Yeah? I think the more interesting debate is where where's
Speaker 4: the destination? And I think there's major major differences of
Speaker 4: us here as to what is ultimately to destination. Is
Speaker 4: it in the fours or is it below three?
Speaker 1: Well, the market in the moment certainly focused on the path.
Speaker 1: You're focused on this. I've just in the peace that's
Speaker 1: just dropped Maham's just published in Bloomberg Opinion. How do
Speaker 1: you do that at the same time as this waiting
Speaker 1: in vain for a vocal moment? You say the system
Speaker 1: needs a vocal moment. What is that volcan moment?
Speaker 4: Well, every time central banks blink, the Bank of Japan
Speaker 4: blink this morning, the markets take it further, so it
Speaker 4: makes the next episode even more difficult. I think a
Speaker 4: vocal moment is having the courage, as Paul Volker had
Speaker 4: in the nineteen eighties, to say, I'm going to break
Speaker 4: a certain mindset once and for all. And he broke
Speaker 4: the inflating mindset once and for all. But no one
Speaker 4: right now wants wants to be the source of that
Speaker 4: vocal moment.
Speaker 3: Do we need to see something a lot worse, something
Speaker 3: like mine, but even more to shake the fad from
Speaker 3: that to get them to do what you're talking about.
Speaker 4: Yeah, I think I do. But you also need someone
Speaker 4: who is confident enough to be able to say I'll
Speaker 4: see it through. And that's what we haven't had.
Speaker 3: So so you don't sound you don't sound like you
Speaker 3: think that they will change to get where they should be.
Speaker 4: No, I don't. I think we're going to continue playing
Speaker 4: this repeated game until something bad happens, but this repeated
Speaker 4: big game can be played for a while.
Speaker 1: Does need to communicate the destiny Stin Jackson Holle, He
Speaker 1: absolutely needs to do that. How does he do that?
Speaker 1: What does that look like? What does it sound like?
Speaker 4: He'll say, we've looked at this. This is what our
Speaker 4: instincts are right now for where we're going. We're going
Speaker 4: to be going down that path, but we will course
Speaker 4: correct as we get more information. But you need desperately
Speaker 4: to anchor this market. John Muhammed appreciate it. Just fantastic.
Speaker 4: You've nailed the turn in this economy