Speaker 1: Bloomberg Audio Studios, podcasts, radio news send back to our
Speaker 1: top story. Surging oil prices sending bond your tire across
Speaker 1: the globe. Investors raising bet central banks will keep rates
Speaker 1: on hold. The former Kansas City Fed president es the George, writing,
Speaker 1: with oil prices surging over one hundred dollars a barrel,
Speaker 1: inflation is sure to move higher. The Fed will want
Speaker 1: to look through this price pressure, but it will likely
Speaker 1: stay their hand for entering rate cuts or entertaining red cuts.
Speaker 1: The former Fed president joins us now for more Es, So,
Speaker 1: welcome to the program. Let's just get to that statement
Speaker 1: and your experience too. I always want to lean on that.
Speaker 1: You lift the twenty two energy shark. Can you frame
Speaker 1: for our audience the similarities the differences between this moment
Speaker 1: and that one.
Speaker 2: Well, good morning, Jonathan, Yeah. I think I think the
Speaker 2: uncertainty that we've talked about for some time is one
Speaker 2: of the characteristics here that we have to remember. We
Speaker 2: have been relying heavily on a consumer that has faced
Speaker 2: significant price shock coming out of the pandemic. This is
Speaker 2: a consumer that has felt the impact of the tariffs,
Speaker 2: and they also have felt the uncertainty associated with a
Speaker 2: job market that has shifted significantly, and so when we
Speaker 2: rely on the consumer, as we do here in the US,
Speaker 2: that becomes a real focal point. I think for trying
Speaker 2: to understand now we have added a new shock, this
Speaker 2: gasoline price at the pump. We understand that diesel prices
Speaker 2: will be affected, which of course will feed into the
Speaker 2: cost of transportation and other things. And I think it
Speaker 2: creates a real point not just of uncertainty, but I
Speaker 2: think heightened risk around consumer spending and growth as we
Speaker 2: look ahead.
Speaker 1: When you were at the Federalserve through the twenty two shock,
Speaker 1: household balance sheets arguably much stronger and the labor market
Speaker 1: was much tighter. Do you think differently about how this
Speaker 1: price shock or the energy market will work its way
Speaker 1: through the economy.
Speaker 2: Yeah, I think you hear a lot about the K
Speaker 2: shaped economy, and I think that will come into the
Speaker 2: four now. We have really been relying on a group
Speaker 2: of consumers that can power through this. But you can
Speaker 2: only stress weaker household balance sheets that have again had
Speaker 2: the benefit of having jobs. That has been really I
Speaker 2: think one of the tailwinds here. But there is a
Speaker 2: breaking point, I think, and so I think the FED
Speaker 2: will have to be particularly focused on thinking about how
Speaker 2: that consumer is going to be positioned today to be
Speaker 2: able to look through this kind of additional price pressure.
Speaker 3: As so, they could go one or two ways. On
Speaker 3: one hand, you can make an argument for easing policy
Speaker 3: to try to give lower income consumers a better scenario,
Speaker 3: a better backdrop to meet this price shock. On the
Speaker 3: other hand, you could say the FED has a role
Speaker 3: to play to combat inflation. Which side of the equation
Speaker 3: do you fit on?
Speaker 1: Well?
Speaker 2: The FED has been focusing on the labor market and
Speaker 2: on weakness at I think the risk of inflation even
Speaker 2: before this oil price shock. Now I think the FED
Speaker 2: and you hear them increasingly talking about the risk of inflation.
Speaker 2: They have allowed it to extend out for a period
Speaker 2: of time. That now puts them in a very very
Speaker 2: difficult position, I think, and understanding how they're going to
Speaker 2: weigh their policy risk, whether they continue to think they
Speaker 2: are as well balanced coming into this March meeting, I
Speaker 2: think is going to be something to listen for here,
Speaker 2: because you are going to have headline inflation. For sure,
Speaker 2: we'll be getting more numbers than this week to see that.
Speaker 2: And I think the calculus around keeping those inflation expectations
Speaker 2: in the long run anchored is going to be a
Speaker 2: point worth talking about rates.
Speaker 3: Traders are pricing in rate hikes over at the ECB
Speaker 3: as well as the Bank of England. Do you think
Speaker 3: that as this progresses, if it does continue for a
Speaker 3: longer period of time, that that's going to be a
Speaker 3: scenario that's reflected in how the Federal Reserve is being priced.
Speaker 2: Well. I think obviously a little bit different for the
Speaker 2: US to think about that in the FED as it
Speaker 2: contemplates its updated dot plots, But I do think it
Speaker 2: stays their hand on being able to suggest that they
Speaker 2: are looking to rate cuts, but maybe in a pause mode.
Speaker 2: I think this kind of environment will really remind them
Speaker 2: that inflation target has to be credible and they have
Speaker 2: to keep focused on that, even if their tools right
Speaker 2: now are in conflict. They are looking at a job
Speaker 2: market that may be stable but has shown signs of weakness,
Speaker 2: while they have been looking at inflation that continues not
Speaker 2: only to be persistent, but as we've been talking about,
Speaker 2: is now going to show some upward pressure.
Speaker 1: Would you describe this lave and market as stable?
Speaker 2: I consider it stable in the sense when you step
Speaker 2: back and look at the unemployment rate, which is our
Speaker 2: best gauge. I think of how that labor market looks,
Speaker 2: it does mask what is underneath that surface of a
Speaker 2: lot of moving parts. I think we're beginning to see
Speaker 2: the real impact of some of the immigration policy hits here.
Speaker 2: We're beginning to see the uncertainty, I would argue, play
Speaker 2: out where businesses are happy to hire for positions they
Speaker 2: feel confident about, but they're not going to move hard
Speaker 2: and fast relative to the growth levels that we've seen.
Speaker 2: So I think it's a tentative labor market in my view,
Speaker 2: even though we continue to enjoy a relatively low unemployment rate.
Speaker 1: That's the George always appreciate your time, thanks for jumping
Speaker 1: on for us. The former Kansas City Fed president, an
Speaker 1: individual who lived the Nagy Shelka twenty two at the
Speaker 1: Federal Reserve talking about this Federal Reserve and a meeting
Speaker 1: that takes place on the eighteenth. That's a week away
Speaker 1: next Wednesday. That feels like a lifetime away. And if
Speaker 1: this conflict is still on going with no sign of
Speaker 1: an off ramp or the escalation, all bets are off
Speaker 1: for the next nine months.