WEBVTT - Bill Dudley on Tariffs, Fed Decision on Rates

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, It's the latest.

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<v Speaker 2>This morning, President Trump calling for the FED to cut

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<v Speaker 2>interest rates once again, saying it's quote not fed to America.

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<v Speaker 2>After a soft CPR report out just yesterday, Former New

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<v Speaker 2>York Fed president built out lely Rights in the following,

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<v Speaker 2>The Fed has little choice when it doesn't know which

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<v Speaker 2>way the rescue. It must wait for more information. Right now,

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<v Speaker 2>any major move would have only a fifty to fifty

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<v Speaker 2>chance of a positive outcome. Build joins us now for more,

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<v Speaker 2>but welcome to the program. So why such a negative

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<v Speaker 2>assessment of the position that they're in right now?

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<v Speaker 1>Because they don't know where the terrorists are going to

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<v Speaker 1>land number one, And too, they don't know what the

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<v Speaker 1>effects of the terrists.

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<v Speaker 3>Are going to be on growth versus inflation. So they're

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<v Speaker 3>uncertain about two dimensions.

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<v Speaker 1>So they can't really just sort of flip a coin

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<v Speaker 1>and say, oh, we're going to worry about the growth

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<v Speaker 1>mention because that could turn out to be wrong.

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<v Speaker 3>So they have to sit and wait to wait for

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<v Speaker 3>more information.

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<v Speaker 4>I mean, if you're driving a car in a thunderstorm,

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<v Speaker 4>you want to just put the autopilot that you would

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<v Speaker 4>get through safely, so he pulled to the side of

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<v Speaker 4>the road until the weather cleared up.

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<v Speaker 1>And that's what the FED has to do. You know,

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<v Speaker 1>the FED are going to be criticized for waiting. They

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<v Speaker 1>have to wait, and because they are waiting, they're probably

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<v Speaker 1>ultimately going to be late. But it's not the FED fault.

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<v Speaker 1>I would behave exactly the same way in this in

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<v Speaker 1>this set of circumstances.

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<v Speaker 2>But what's that definition of light? And what's your definition

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<v Speaker 2>of light? Because he reflected on the move last summer

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<v Speaker 2>and he said, in some ways we were a little light,

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<v Speaker 2>and other people thought he was being preemptive. What's light

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<v Speaker 2>to you?

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<v Speaker 1>I think, ladies responding only after you've seen a preticizable

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<v Speaker 1>increase in the unemploying rate, because at that point it's

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<v Speaker 1>truly hard to avert a recession.

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<v Speaker 3>You know, when I evaluate the risks.

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<v Speaker 1>To inflation versus the risks of growth, here, I guess

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<v Speaker 1>I worry more about the downside risks of growth.

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<v Speaker 3>But the FED can't put all their marbles that on.

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<v Speaker 1>That side of the of the equation because inflation has

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<v Speaker 1>been running above the fed's target for five years. And

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<v Speaker 1>if they're wrong and inflation expectations get unanchored, then it's

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<v Speaker 1>a really difficult problem getting inflation back down. So I

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<v Speaker 1>think they have to wait. Because they wait, because there

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<v Speaker 1>will be forced to wait, They'll probably be late. Trump

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<v Speaker 1>will blame the FED for being late, But rally is

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<v Speaker 1>Trump creates the conditions that forces the Fed to have

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<v Speaker 1>to wait.

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<v Speaker 5>Bill, I'm just curious going forward, how much you see

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<v Speaker 5>the Fed unwilling to move even if the unemployment rate

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<v Speaker 5>rises by half a percentage point, which is sort of

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<v Speaker 5>the trigger that a lot of people are looking at.

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<v Speaker 5>If you do see those inflationary pressures coming back, well, I.

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<v Speaker 1>Think if the unplay rate rose by above four and

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<v Speaker 1>a half percent, that would change the feds calculus. They

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<v Speaker 1>would be much more worried about the self reinforcing deterioration

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<v Speaker 1>and the layer market leading to a full blown recession.

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<v Speaker 1>So I think the unplaying rate is really the single

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<v Speaker 1>most important indicator. If it stays around where it is today,

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<v Speaker 1>if it's going to just sit and wait. If the

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<v Speaker 1>unplayer rate starts rising quickly, then the Federal Reserve will

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<v Speaker 1>start to.

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<v Speaker 3>Respond, But I think it's going to take some time.

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<v Speaker 1>I mean, the hard data on the economy shows that

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<v Speaker 1>the economy is still just fine. I mean, the first

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<v Speaker 1>quarter report was very misleading because it was mainly the

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<v Speaker 1>fact that they couldn't count inventories properly to match up

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<v Speaker 1>with the big surgeon imports bill.

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<v Speaker 5>If you were still on the FED, and you have

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<v Speaker 5>been on the FED through crises and through really difficult

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<v Speaker 5>times where the market was moving faster than the underlying economy,

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<v Speaker 5>what data would you look at to get a real

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<v Speaker 5>read on what was going on in the United States.

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<v Speaker 1>Well, I think some of the bank the banks have

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<v Speaker 1>actually pretty good realtime data in terms of what's happening

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<v Speaker 1>sort of credit cards, and they're not seeing much of

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<v Speaker 1>a slowdown at this point, you know, initially unplanted claims.

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<v Speaker 1>It gives you a pretty high frequency look at what's

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<v Speaker 1>happening to the labor market that doesn't show any deterioration

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<v Speaker 1>yet of note, So I think you're looking at things

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<v Speaker 1>at the margin that suggests that weaknesses that are starting

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<v Speaker 1>to accumulate. Now what's interesting is the tariffs are actually

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<v Speaker 1>starting to bring in revenue, so fiscal policy and right

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<v Speaker 1>now is actually.

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<v Speaker 3>Starting to become tighter.

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<v Speaker 1>And I'd also look at low income households because I

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<v Speaker 1>think that's where the squeeze is going to be the

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<v Speaker 1>mostative significant. So if you start to see delinquency rates

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<v Speaker 1>on subprime all loans really start to hit up.

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<v Speaker 3>I mean they're already high.

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<v Speaker 1>If they start to head up even more substantially, that

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<v Speaker 1>would be also a sign of a growing strain on

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<v Speaker 1>the growth side.

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<v Speaker 2>But at some point the Fed will have to update

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<v Speaker 2>their numbers. On March nineteenth, they put out these forecasts

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<v Speaker 2>GDP at one point seven percent for twenty twenty five

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<v Speaker 2>PC at two point a unemployment of four point four

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<v Speaker 2>On June eighteenth, they'll have to deliver an update. When

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<v Speaker 2>we get that update, Bill, what do you think it

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<v Speaker 2>will look like relative to March.

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<v Speaker 1>I think I'll show somewhat slower growth to reflect the

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<v Speaker 1>fact that terists have gone up more than they anticipated,

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<v Speaker 1>and somewhat higher inflation to reflect the same consequence. So

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<v Speaker 1>I think he'll be even a more pessimistic forecast in

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<v Speaker 1>the sense that the FED will be missing both of

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<v Speaker 1>its deal mandate objectives by a bigger magnitude. But they

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<v Speaker 1>still want to have clarity on what's happening to terrorists

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<v Speaker 1>and the impact of terrorists on the economy, and so

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<v Speaker 1>I think it's going to take a while for that

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<v Speaker 1>to be realized, and only then will the Fed be

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<v Speaker 1>able to act.

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<v Speaker 2>One missing piece slower growth, somewhat higher inflation. What does

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<v Speaker 2>the median dot do? Bill, because I think that implies

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<v Speaker 2>what their reaction function is, how they respond to that

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<v Speaker 2>kind of data mix. Do you think it changes?

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<v Speaker 1>I think that you can make the case that the

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<v Speaker 1>Fed starts to cut rates in September and maybe we

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<v Speaker 1>could still get three racuts this year, which would be

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<v Speaker 1>consistent with the March set some rate economic projections. But obviously,

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<v Speaker 1>as time passes and the Fed doesn't act, the likelihood

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<v Speaker 1>is the number of median number of recuts starts to

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<v Speaker 1>come down just because there's fewer meetings left.

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<v Speaker 3>Bill.

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<v Speaker 2>I appreciate your time as always, sir, and enjoy your

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<v Speaker 2>pieces on Bloomberg dot Com on Bloomberg Opinion, they form

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<v Speaker 2>a New York Fed President Bill Dudley, There