Speaker 1: For those of you just joining us on radio, this
Speaker 1: is a Bloomberg special report the Fed Decides. I'm Scarlett Fell,
Speaker 1: along with Tom Keen and Mike McKee. Mike, Well, let's
Speaker 1: find out what it must be like inside the room
Speaker 1: today and talk with somebody who was inside the room
Speaker 1: for several years. Former FED governor now University of Chicago
Speaker 1: Booth School of Business professor Randall Krosner. He's joining us
Speaker 1: live from Chicago. Randy, you know they're going to be
Speaker 1: talking about the inflation numbers today, and you know they're
Speaker 1: gonna be talking about the possibility that the Phillips curve
Speaker 1: is back. We're gonna see wage inflation. The question is
Speaker 1: can monetary policy stay ahead of inflation given that it's
Speaker 1: so low, Can it catch up if it starts to
Speaker 1: accelerate or is the FED going to be behind the curve?
Speaker 1: Is that going to be one of the questions that
Speaker 1: they're debating today. I think that's dead on. That's exactly
Speaker 1: the issue that's on the table, exactly where is inflation going.
Speaker 1: So we have seen very low inflation of the last
Speaker 1: few years. We've now seen a few signs of a
Speaker 1: little bit of an increase um if you look at
Speaker 1: the core numbers from today, a little bit of move up,
Speaker 1: But if you look to the labor market, you're really
Speaker 1: not seeing much wage pressure there. We just had a
Speaker 1: report out today that suggests that incomes were declining, real
Speaker 1: wages were flat, And if you look at the numbers
Speaker 1: that came at the beginning of the month, we saw
Speaker 1: a decline in the work week and a slight decline
Speaker 1: in nominal wages. So the traditional impact of low unemployment
Speaker 1: rate would be towards more more wage pressure. We haven't
Speaker 1: seen that, and so there's gonna be a lot of
Speaker 1: debate about the table. When is it coming and is
Speaker 1: it coming? Is it coming? That's the question. Do you
Speaker 1: think that at this point we are set up for
Speaker 1: an acceleration of inflation later in the year that is
Speaker 1: going to lead the Fed to move more quickly to
Speaker 1: raise rates and surprise the markets. Do the markets have
Speaker 1: inflation right or does the Fed? Well? I think I
Speaker 1: wish somebody knew. My crystal ball is pretty cloudy on that,
Speaker 1: because the inflation performance has been different than it typically
Speaker 1: has in the past. By this time the cycle, we
Speaker 1: would normally be seeing a little bit more wage pressure
Speaker 1: we'd be seeing a little bit more inflation. Certainly, the
Speaker 1: FED has tried to provide a lot of liquidity to
Speaker 1: the system to hopefully get the money supply growing and
Speaker 1: get to get inflation towards a two percent goal. We
Speaker 1: haven't gotten there yet. So this is unusual circumstance. And
Speaker 1: in those unused room circumstance, reasonable people are going to disagree.
Speaker 1: And you've got a lot of reasonable people around the table,
Speaker 1: and I think there's a lot of disagreement. Professor Cross
Speaker 1: and I believe there's a school north of the University
Speaker 1: of Chicago. I think it's an Emisade, Illinois. I think
Speaker 1: it's called Northwestern University. We've got to I can't hear you.
Speaker 1: Here's Robert Gordon, the giant of Northwestern economics, saying to
Speaker 1: us the other day, with great non Gordon optimism, that
Speaker 1: if labor participation turns up, that's the signal. We've got
Speaker 1: the signal. What does that mean for you? So we've
Speaker 1: seen a little bit of a take up of labor
Speaker 1: force participation, but it's still at very low levels compared
Speaker 1: with where it was um So it would be great
Speaker 1: to see more of that. I think that would be
Speaker 1: tremendous because, as you were discussing before the even though
Speaker 1: the unemployment rate may be down below five percent, people
Speaker 1: are not feeling the benefits of five percent unemployment rate.
Speaker 1: A lot of people are outside in the labor market.
Speaker 1: We need to get people back into the labor market.
Speaker 1: We need to be creating jobs and hopefully raising real wages. Randy,
Speaker 1: are we at full employment or will we only know
Speaker 1: it after the fact? Well, this is one of these
Speaker 1: questions that we're not even sure that the concept of
Speaker 1: full employment really fits anymore, because we typically looked at
Speaker 1: something like the unemployment rate, um, but now there are
Speaker 1: these broader measures that Janet Yellen and others have talked about,
Speaker 1: the so called U six that includes people who are
Speaker 1: part time, would prefer prefer to be full time, people
Speaker 1: who are have not looked for a job in the
Speaker 1: last month, but it looked some time the last year
Speaker 1: and one a job. That number is much higher. That
Speaker 1: number is over ten percent, and that number is always
Speaker 1: higher than the regular unemployment rate. But maybe that's telling
Speaker 1: us more about the true state of the labor market
Speaker 1: than the traditional unemployment rate. So the debates on even
Speaker 1: what number to look at to try to assess that
Speaker 1: that question one of the numbers the FED likes to
Speaker 1: look at. And let's go inside the Bloomberg terminal and
Speaker 1: look at inflation expectations to five year forward. For those
Speaker 1: of you on radio, we've gained twenty one basis points
Speaker 1: over the last two weeks to three weeks in terms
Speaker 1: of inflation expectations. They've completely turned around to what extent
Speaker 1: does the FED have to uh ratify the markets Randy
Speaker 1: and say, you know, we are aware of this. How
Speaker 1: far can they go? Well, I think that the Fed
Speaker 1: has been very clear in its first paragraph about talking
Speaker 1: about not only inflation but inflation expectations, and they had
Speaker 1: noted how the market based measures had declined reasonably significantly,
Speaker 1: And and my guess is they will acknowledge a bit
Speaker 1: of a turnaround in those as well as a bit
Speaker 1: of a turnaround and core inflation. Does that mean that
Speaker 1: they're going to be moving immediately. No, But I think
Speaker 1: that gives them the foundation for at least having a
Speaker 1: serious discussion over the summertime about moving rates. You know,
Speaker 1: we talked earlier about the distinction between good inflation and
Speaker 1: bad inflation. I just had a gloomber customer message me
Speaker 1: and say, good inflation is demanded induced inflation. Bad inflation
Speaker 1: is fed induced inflation. Well, you know that can be
Speaker 1: part of it. You could say the same with deflation
Speaker 1: or disinflation. Professor Krasner, quickly here and then we'll have
Speaker 1: you back for for more. Aren't banks supposed to surprise
Speaker 1: when it's least expected? Why couldn't we get a droggy
Speaker 1: moment out of our fed today? I don't think that's
Speaker 1: what Janet Yellen is going for because, as you know,
Speaker 1: with what happened with with Europe the e c B,
Speaker 1: when they made the announcement of their big Bazuka the
Speaker 1: the europlummeted, interest rates plummeted. Then at the press conference
Speaker 1: when Aero Roggy said well there may be limits to hello,
Speaker 1: we can go on interest rate because of concerns about banks,
Speaker 1: you had this whipsaw and the euro uh spiked up,
Speaker 1: interest rates spiked up. I don't think that's what Jenne
Speaker 1: Ellen is trying to achieve. I think she wants to
Speaker 1: minimize volatility, not add to it. All right, Randy Krasser
Speaker 1: of the University of Chicago Booths School of Business, you
Speaker 1: will be sticking with us, will also have more with
Speaker 1: Richard Clarada of PIMCO. Shortly and over the next few
Speaker 1: hours full fed coverage, Alan Blinder of Princeton University joining
Speaker 1: us along with Bill Gross of Janni's Capital. Not to
Speaker 1: mention Ira Jersey of uppen Higher Capital