Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Center, the Datories. We can't get down to CPI. The
Speaker 2: former FED governor Bessie Jukes writing this, even if the
Speaker 2: tariff effect proofs, transitory inflation is likely to be at
Speaker 2: three percent or higher for more than five years. Betsy
Speaker 2: joins us. Now for more, Betsy, welcome to the program.
Speaker 2: Before we even talk about today's number, what does that
Speaker 2: say about the credibility the feder reserve, that we're going
Speaker 2: to be so above target for so long.
Speaker 1: I think it says a lot about the credibility, which
Speaker 1: is why I think it's a mistake to ignore where
Speaker 1: inflation is right now. If you look at where it's
Speaker 1: been and the Fed, it has been stationary or stuck
Speaker 1: for over a year now at three percent or higher,
Speaker 1: and so it's hard to argue that monetary policy is
Speaker 1: too tight.
Speaker 3: At this point, though, Betsy, couldn't you argue that it's
Speaker 3: okay that actually it's fostering The three percent inflation rate
Speaker 3: has been in some ways beneficial for certain aspects of
Speaker 3: the market.
Speaker 1: It may be for the market, but the thing is,
Speaker 1: the credibility of the Fed is based on anchoring inflation
Speaker 1: expectations and most people can't really accurately tell you a
Speaker 1: percentage of what they expect inflation to be, but they
Speaker 1: begin to build in sort of what recently was is
Speaker 1: what they expect, and if you have five years of
Speaker 1: over three percent, the expectations just instinctively are going to
Speaker 1: be for higher inflation.
Speaker 3: Right now, there seems to be this feeling that artificial
Speaker 3: intelligence is going to solve everything and that come next
Speaker 3: year you're going to start to see productivity increases that
Speaker 3: really triumph over any inflationary forces. How much do you
Speaker 3: think that that's factoring right now into the FEDS calculus.
Speaker 1: I don't think you've seen that yet, and I don't
Speaker 1: think the FED is counting on that at this point
Speaker 1: to bring inflation down well.
Speaker 4: When it comes to AI, though, at some point, how
Speaker 4: do they address this when maybe it's not even inflation
Speaker 4: issue it becomes a labor market issue.
Speaker 1: I think the labor market is going to get really
Speaker 1: difficult to judge because of mismatch in workers and jobs.
Speaker 1: So it seems that AI is impacting job market for
Speaker 1: particularly new college graduates. But those college graduates are not
Speaker 1: likely to take the jobs that are currently unfilled because
Speaker 1: of deportations and reductions and immigration.
Speaker 4: Let's see how difficult is this moment for the FED,
Speaker 4: And maybe not next week, but in the month's coming.
Speaker 4: If we remain in a government shutdown, we're day twenty four.
Speaker 4: No one's blinking, and we might continue to get CPI
Speaker 4: reports because we have to in terms of what it
Speaker 4: means for Social Security checks, but we might not have
Speaker 4: labor data.
Speaker 1: I think this is actually the reading that matters for
Speaker 1: Social Security checks, so you may not even get inflation
Speaker 1: data going forward. Will just have to deal with the
Speaker 1: data that it can get, and there is a fair
Speaker 1: amount of private sector data that's available. It won't be
Speaker 1: as good, but I think it will give them enough
Speaker 1: to be able to judge sort of generally where we are. Frankly,
Speaker 1: I don't think monetary policy is what's driving the economy
Speaker 1: right now. It is much more driven by fiscal policy.
Speaker 1: The great big beautiful bill currently, the government shut down, tariffs, immigration, deportations,
Speaker 1: all of these things, as well as just the uncertainty
Speaker 1: and unpredictability of policy right now.
Speaker 2: I see. I think that final point is a really
Speaker 2: really powerful one. And if something leasas us quite a
Speaker 2: few times, the federal Reserve is cutting interest rates responding
Speaker 2: to this massive downshift in payrolls. I think the question
Speaker 2: worth asking is what difference are those right cut signs
Speaker 2: you're going to make.
Speaker 1: I agree, and I think the FED would be well
Speaker 1: served to be very cautious in this environment.
Speaker 2: But I see if you think they will be cautious
Speaker 2: in this environment, they've basically managed to cover up differences
Speaker 2: on the committee at the moment by calling these risk
Speaker 2: management cuts. Now that risk management cuts that come with
Speaker 2: their own risks and Bessie, do you think that's going
Speaker 2: to come to the surface, not of this meeting, but
Speaker 2: maybe at the December one.
Speaker 1: I think it might come to the surface at this meeting.
Speaker 1: I think you might see descents on both sides at
Speaker 1: this meeting. The reason I say that is because this
Speaker 1: meeting sets a pattern. So if your pattern is quarter
Speaker 1: point every meeting, that's hardly a cautious cautious pattern in my.
Speaker 3: Mind going forward. Do you think that right now there
Speaker 3: is any reason to think that this feature reserve could
Speaker 3: actually become more hawkish in the near term, or do
Speaker 3: you think that ultimately it's going to come down to
Speaker 3: the long end of the yield curve and how much
Speaker 3: it's going to respond to exogenous factors and be the discipliner,
Speaker 3: if you will, on the market.
Speaker 1: I don't know how much the market is going to
Speaker 1: pressure the FED because if you start setting up an
Speaker 1: expectation for more and more C, but at some point
Speaker 1: the majority of the FED voters are going to feel
Speaker 1: uncomfortable with that pace, and then there's going to be
Speaker 1: it's going to appear to be a hockey stern, although
Speaker 1: it might not actually be if you'd been in the
Speaker 1: room for the entire discussion.
Speaker 2: Bessie, this was thoughtful. We appreciate it. Thanks for being
Speaker 2: with us. The form of FED Governor of Bessie joke
Speaker 2: just ahead of that CPI data