1
00:00:02,759 --> 00:00:07,240
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:08,000 --> 00:00:09,840
Speaker 2: Let's get a little bit more detail. This is the

3
00:00:09,840 --> 00:00:12,320
Speaker 2: ecan function on the Bloomberg terminal. It really helps to

4
00:00:12,320 --> 00:00:15,760
Speaker 2: break down the different inputs to overall CPI. The yellow

5
00:00:15,800 --> 00:00:19,360
Speaker 2: bars core services, the purple is core goods, then the

6
00:00:19,400 --> 00:00:22,240
Speaker 2: red is energy, and then the blue is food. And

7
00:00:22,280 --> 00:00:25,320
Speaker 2: what I find really interesting about this is a disinflationary

8
00:00:25,400 --> 00:00:27,920
Speaker 2: trend that we saw back in twenty twenty four is

9
00:00:28,040 --> 00:00:31,400
Speaker 2: basically over in this last read. Maybe a little touch

10
00:00:31,680 --> 00:00:35,200
Speaker 2: of a disinflationary trend when it comes to the core goods,

11
00:00:35,200 --> 00:00:38,000
Speaker 2: but for the most part, everything else energy and food

12
00:00:38,200 --> 00:00:41,520
Speaker 2: as well as services is still rising now. Albeit services

13
00:00:41,560 --> 00:00:43,760
Speaker 2: inflation has come off the boil from one of what

14
00:00:43,840 --> 00:00:47,080
Speaker 2: we saw back in twenty twenty four in July, but

15
00:00:47,200 --> 00:00:50,400
Speaker 2: still we're right around forty year highs. And anyway you

16
00:00:50,440 --> 00:00:52,959
Speaker 2: look at it, those prices appear sticky plus for I mean,

17
00:00:53,360 --> 00:00:57,480
Speaker 2: if the disinflation narrative is over, then what then what?

18
00:00:57,600 --> 00:00:59,840
Speaker 1: Let's pose that question to our first guest kicking this

19
00:00:59,840 --> 00:01:03,400
Speaker 1: off to the close is Esther George of course, former

20
00:01:03,720 --> 00:01:07,520
Speaker 1: Kansas City Fed President, and Esther, you've had a lifetime,

21
00:01:07,560 --> 00:01:10,640
Speaker 1: really of doing this you've seen these various inflationary cycles,

22
00:01:10,680 --> 00:01:14,319
Speaker 1: these various economic cycles. Should we be worried about a

23
00:01:14,360 --> 00:01:17,360
Speaker 1: potential resurgence in inflation or is this just that normal

24
00:01:17,440 --> 00:01:21,040
Speaker 1: sort of bumpy road down to what I guess most

25
00:01:21,080 --> 00:01:23,040
Speaker 1: of us hope is going to be that two percent target.

26
00:01:24,319 --> 00:01:26,320
Speaker 3: Yeah, well, thank you for having me today. And I

27
00:01:26,360 --> 00:01:30,160
Speaker 3: think you have to be worried about this inflation, not

28
00:01:30,360 --> 00:01:33,240
Speaker 3: because what we've seen so far tells us that there'll

29
00:01:33,280 --> 00:01:37,720
Speaker 3: be a resurgence, but because this level of inflation has

30
00:01:38,360 --> 00:01:42,800
Speaker 3: remained well above the Fed's target. That, of course, is

31
00:01:43,080 --> 00:01:47,080
Speaker 3: a principal job of the FMC is to make sure

32
00:01:47,120 --> 00:01:50,480
Speaker 3: that inflation rate gets back to its two percent target

33
00:01:50,800 --> 00:01:53,520
Speaker 3: in a timely way. And we've gone on some time

34
00:01:53,680 --> 00:01:58,160
Speaker 3: now with inflation hanging out there ways above that.

35
00:01:58,920 --> 00:02:00,960
Speaker 1: How dangerous is it? Though? I mean we still talk

36
00:02:01,000 --> 00:02:04,880
Speaker 1: at least if you take pals preferred measure the core PCEE,

37
00:02:05,240 --> 00:02:07,400
Speaker 1: I mean we're basically at around three percent on some

38
00:02:07,480 --> 00:02:11,280
Speaker 1: of the headline CPI numbers. We're certainly in an area

39
00:02:11,320 --> 00:02:12,880
Speaker 1: that I think a lot of people can live with,

40
00:02:12,960 --> 00:02:15,960
Speaker 1: whether it's the economy, whether it's corporations, or whether it's

41
00:02:16,000 --> 00:02:19,280
Speaker 1: the market. If the economy is healthy as evidence by

42
00:02:19,280 --> 00:02:22,480
Speaker 1: consumer spending, as evidenced by the labor market. Should we

43
00:02:22,520 --> 00:02:25,840
Speaker 1: still be quibbling over three point three percent on core CPI?

44
00:02:27,560 --> 00:02:29,440
Speaker 3: Well, I think you do want to quibble over it,

45
00:02:29,520 --> 00:02:34,320
Speaker 3: because once in inflation psychology gets embedded in an economy,

46
00:02:34,840 --> 00:02:38,359
Speaker 3: you begin to see inflation expectations change. And it's one

47
00:02:38,360 --> 00:02:41,400
Speaker 3: of the things that would have my attention right now

48
00:02:41,760 --> 00:02:45,480
Speaker 3: is the FED has been able to rely on anchored,

49
00:02:45,880 --> 00:02:51,000
Speaker 3: well anchored inflation expectations over the course of this post

50
00:02:51,080 --> 00:02:54,840
Speaker 3: pandemic period. But if you look at recent prints, you

51
00:02:54,880 --> 00:02:57,800
Speaker 3: will see that those are beginning to drift up and

52
00:02:57,840 --> 00:03:03,760
Speaker 3: even consumer expectations or begin to signal expectations of future inflation.

53
00:03:04,440 --> 00:03:07,520
Speaker 3: And that's why, in addition to the FED zone credibility,

54
00:03:07,760 --> 00:03:12,200
Speaker 3: you want to anchor that inflation at the Fed's stated

55
00:03:12,240 --> 00:03:13,240
Speaker 3: two percent target.

56
00:03:13,880 --> 00:03:16,680
Speaker 2: A lot is being made though esther on seasonality, and

57
00:03:16,720 --> 00:03:21,120
Speaker 2: there's January season atalie sort of post vacation movement there.

58
00:03:21,160 --> 00:03:24,080
Speaker 2: You also had LA wildfires, etc. Do you buy the

59
00:03:24,120 --> 00:03:26,840
Speaker 2: seasonality argument, Well.

60
00:03:26,720 --> 00:03:29,119
Speaker 3: There's always an element there that you have to take

61
00:03:29,200 --> 00:03:33,480
Speaker 3: note of. But I think what's particularly important right now

62
00:03:34,120 --> 00:03:37,120
Speaker 3: is this is just a one off data print. You

63
00:03:37,120 --> 00:03:41,360
Speaker 3: have now seen a succession of reports that are telling

64
00:03:41,440 --> 00:03:45,080
Speaker 3: us that inflation is hanging in there in the three

65
00:03:45,200 --> 00:03:49,480
Speaker 3: percent range. And even though that's not the Fed's preferred

66
00:03:49,600 --> 00:03:54,040
Speaker 3: indicator when they are making decisions, the truth is CPI

67
00:03:54,200 --> 00:03:57,360
Speaker 3: tells us something because so many contracts in our economy

68
00:03:57,960 --> 00:04:00,360
Speaker 3: are based off of this, and so it's not to

69
00:04:00,400 --> 00:04:03,440
Speaker 3: be ignored, I think, and just dismissed at this point,

70
00:04:03,480 --> 00:04:06,040
Speaker 3: and I'd be paying very careful attention to the numbers

71
00:04:06,040 --> 00:04:07,240
Speaker 3: we've seen come in now.

72
00:04:07,240 --> 00:04:10,839
Speaker 2: Clearly at the FED, you guys look at PCEE versus CPI.

73
00:04:11,120 --> 00:04:14,160
Speaker 2: So is there a level for PCEE that you guys

74
00:04:14,240 --> 00:04:17,480
Speaker 2: used to talk about. Okay, that's a hurdle for say,

75
00:04:17,560 --> 00:04:18,480
Speaker 2: talking about hikes.

76
00:04:20,360 --> 00:04:23,359
Speaker 3: Well, I don't think there was a particular level to

77
00:04:23,440 --> 00:04:26,359
Speaker 3: talk about hikes, because what you're always trying to figure

78
00:04:26,400 --> 00:04:29,800
Speaker 3: out is that that core level telling us something. Is

79
00:04:29,839 --> 00:04:33,400
Speaker 3: that the headline, which can be volatile, as people know

80
00:04:33,600 --> 00:04:36,839
Speaker 3: with food and energy cost. I think what we've seen

81
00:04:36,920 --> 00:04:39,560
Speaker 3: over the past few years, though, is something quite different.

82
00:04:39,640 --> 00:04:42,880
Speaker 3: This is really telling us that there is real inflation

83
00:04:43,160 --> 00:04:46,240
Speaker 3: in the economy, and the FED has been quite clear

84
00:04:46,360 --> 00:04:49,000
Speaker 3: as I think they have to be that they will

85
00:04:49,040 --> 00:04:53,960
Speaker 3: not be satisfied that they have achieved their mandate until

86
00:04:53,960 --> 00:04:57,520
Speaker 3: they get back to two percent on a sustainable basis,

87
00:04:57,800 --> 00:04:59,440
Speaker 3: and so there's more work to do here.

88
00:04:59,480 --> 00:05:03,960
Speaker 1: Clearly, are you, generally, though, satisfied with the communication that

89
00:05:04,000 --> 00:05:06,480
Speaker 1: we're getting out of the Fed, whether it's coming directly

90
00:05:06,520 --> 00:05:09,279
Speaker 1: from Bow or from some of the other FOMC members,

91
00:05:09,520 --> 00:05:10,520
Speaker 1: Is that helping.

92
00:05:11,920 --> 00:05:15,479
Speaker 3: Well? The markets I think have already begun to take

93
00:05:15,600 --> 00:05:19,120
Speaker 3: note that this idea of a steady pace of rate

94
00:05:19,200 --> 00:05:22,599
Speaker 3: cuts is not likely to happen. And of course, with

95
00:05:22,680 --> 00:05:26,159
Speaker 3: a hundred basis points of cuts last year, the most

96
00:05:26,160 --> 00:05:30,560
Speaker 3: recent one in December, those expectations are beginning to shift.

97
00:05:30,839 --> 00:05:33,600
Speaker 3: And I hear that in the communications from the FED,

98
00:05:33,640 --> 00:05:36,880
Speaker 3: which is to say, we are not going to be moving.

99
00:05:37,839 --> 00:05:40,200
Speaker 3: We have time. We want to watch and see what

100
00:05:40,279 --> 00:05:42,800
Speaker 3: happens with the data. And this is true not only

101
00:05:42,880 --> 00:05:46,240
Speaker 3: for inflation, but you see a number of other policy

102
00:05:47,200 --> 00:05:51,240
Speaker 3: implications coming down the road as the new administration begins

103
00:05:51,279 --> 00:05:54,719
Speaker 3: to look at various levers they have for the economy.

104
00:05:55,040 --> 00:05:57,200
Speaker 1: Does the FED have that luxury of just waiting and

105
00:05:57,200 --> 00:05:59,960
Speaker 1: seeing and they've been waiting and seeing for a while now.

106
00:06:00,080 --> 00:06:02,200
Speaker 1: We played some comments earlier from Muhammadel area, and he

107
00:06:02,200 --> 00:06:04,839
Speaker 1: gave an interview on Bloomberg Television where he talked about,

108
00:06:04,880 --> 00:06:07,039
Speaker 1: in his words, what he sees as a lack of

109
00:06:07,080 --> 00:06:10,200
Speaker 1: strategic vision on the part of the FED, this idea

110
00:06:10,240 --> 00:06:12,400
Speaker 1: of just wait for the whites of the eyes before

111
00:06:12,440 --> 00:06:15,240
Speaker 1: you shoot. And now he seems and certain folks in

112
00:06:15,279 --> 00:06:17,800
Speaker 1: the market also seem to think that maybe the FED

113
00:06:17,839 --> 00:06:19,200
Speaker 1: should be a bit more proactive.

114
00:06:21,040 --> 00:06:22,640
Speaker 3: So I think the FED is certainly going to have

115
00:06:22,680 --> 00:06:25,599
Speaker 3: to be talking about this. And if you listen to

116
00:06:25,640 --> 00:06:28,760
Speaker 3: their language, they continue to refer to current interest rates

117
00:06:29,160 --> 00:06:30,960
Speaker 3: even at that four and a quarter four and a

118
00:06:31,080 --> 00:06:35,440
Speaker 3: half to be in restrictive territory. Some refer to it

119
00:06:35,480 --> 00:06:39,400
Speaker 3: as meaningfully restrictive. Some have said maybe it's getting close

120
00:06:39,480 --> 00:06:40,120
Speaker 3: to neutral.

121
00:06:40,560 --> 00:06:41,240
Speaker 2: And so I.

122
00:06:41,200 --> 00:06:45,160
Speaker 3: Suspected their upcoming meeting this has to be a real

123
00:06:45,320 --> 00:06:48,760
Speaker 3: point of discussion, is really narrowing in on where they

124
00:06:48,760 --> 00:06:52,800
Speaker 3: think they are and how they will communicate what their

125
00:06:52,839 --> 00:06:56,039
Speaker 3: stance is going to be relative to the objective that's

126
00:06:56,080 --> 00:06:56,960
Speaker 3: in front of them.

127
00:06:57,600 --> 00:07:01,279
Speaker 2: Esther, isn't it all confusing as to why it seems

128
00:07:01,480 --> 00:07:05,039
Speaker 2: like the feed through from rates from monetary policy to

129
00:07:05,080 --> 00:07:07,160
Speaker 2: the real economy has been somewhat stemied.

130
00:07:09,320 --> 00:07:11,680
Speaker 3: Yeah, I think that's been interesting to see whether the

131
00:07:11,680 --> 00:07:15,520
Speaker 3: transmission of policy has changed, and you can look at

132
00:07:15,560 --> 00:07:18,400
Speaker 3: some of the reasons why that might be. For example,

133
00:07:18,680 --> 00:07:21,120
Speaker 3: just look at a market that tends to get hit

134
00:07:21,240 --> 00:07:26,160
Speaker 3: directly in real estate, and particularly residential real estate, when

135
00:07:26,240 --> 00:07:30,000
Speaker 3: most of the mortgage holders have locked in low rates,

136
00:07:30,440 --> 00:07:34,160
Speaker 3: it will make the transmission of that policy different this

137
00:07:34,280 --> 00:07:37,560
Speaker 3: time and slower. You also see that I think when

138
00:07:37,600 --> 00:07:41,640
Speaker 3: you look at services, a services economy has a different

139
00:07:41,720 --> 00:07:46,960
Speaker 3: traction I would guess as it relates to that policy transmission.

140
00:07:47,560 --> 00:07:50,640
Speaker 3: So it is a challenge for the FED coming off

141
00:07:50,680 --> 00:07:54,360
Speaker 3: the pandemic, coming off the supply chain issues that were

142
00:07:55,160 --> 00:08:02,040
Speaker 3: complicating their analysis to really understand transmission. I think the risk,

143
00:08:02,120 --> 00:08:05,000
Speaker 3: of course, and one they must be very mindful of,

144
00:08:05,840 --> 00:08:10,880
Speaker 3: is that waiting too long carries important risks until they

145
00:08:11,600 --> 00:08:13,400
Speaker 3: bring that inflation right back down.

146
00:08:14,040 --> 00:08:16,400
Speaker 2: Esther, was a true pleasure to get your perspective. Thank

147
00:08:16,440 --> 00:08:19,360
Speaker 2: you so much, Esther George, former President and Chief Executive

148
00:08:19,440 --> 00:08:21,440
Speaker 2: of the Federal Reserve Bank of Kansas City,