Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: We're on Central Bank Watch Markets fully pricing in a
Speaker 2: September rate cut for the FO ANDC after some encouraging
Speaker 2: signs from recent inflation data. Here to talk about maybe
Speaker 2: what we might learn out of the FED tomorrow as
Speaker 2: it makes that big decision is rober Ram Rajan, Professor
Speaker 2: of Finance at the University of Chicago Booth School of
Speaker 2: Business and of course former governor of the Reserve Bank
Speaker 2: of India as well as a former a chief economist
Speaker 2: over at the International Monetary Fund. All Right, rajer There's
Speaker 2: been a lot of talk right now about the idea
Speaker 2: that the FED and all the data points that we've
Speaker 2: gotten leading up to this meeting basically leaves it with
Speaker 2: no choice other than to at least telegraph some type
Speaker 2: of cut sometime in twenty twenty four. When you look
Speaker 2: at the data that we've gotten so far, do you
Speaker 2: think that would be justified?
Speaker 3: Yeah, I mean, as far as the FED goes, I
Speaker 3: think all the data, recent data point towards, you know,
Speaker 3: things moving in the direction at once. It's not there yet,
Speaker 3: but it's moving in the right direction. Certainly, chem and
Speaker 3: Paul doesn't want to commit himself in his post decision
Speaker 3: talk to a cut in September, but he wants to
Speaker 3: hint as much as he can.
Speaker 4: I think the FED is seeing well.
Speaker 3: Inflation is nearabouts where it wants to be, two and
Speaker 3: a half percent on the core PC is getting there,
Speaker 3: and labor markets are certainly cooling at least when you
Speaker 3: look at unemployment claims, openings are down to one point
Speaker 3: two per unemployed person and quits a low and stable
Speaker 3: at below pre pandemic levels. So other than the jobs numbers,
Speaker 3: which are still in the one hundred to two hundred range,
Speaker 3: it is a labor.
Speaker 4: Market that seems to be cooling off.
Speaker 3: And of course there are other parts of the economy
Speaker 3: we're just showing signs of some stress. I mean, housing
Speaker 3: isn't great, and of course you look at credit card
Speaker 3: defaults and all that. It's starting to pick up. So
Speaker 3: the FED is saying we're nearly there. If wait too long,
Speaker 3: we see a slowdown, which we don't want.
Speaker 2: Well, well, that's what I'm curious about, particularly when it
Speaker 2: comes to the consumer side of the equation, household spending
Speaker 2: and the idea that we have started to see softness
Speaker 2: there at least softness that showed up in the official data,
Speaker 2: and of course there's a ton of a acdotal evidence
Speaker 2: out there that households have at least started to rethink
Speaker 2: just how much they spend on discretionary items. How much
Speaker 2: does that that particular data point have the factor into
Speaker 2: this decision.
Speaker 4: It does weigh into the Fed's decision.
Speaker 3: But remember that at the aggregate level or the overall level,
Speaker 3: the economy is still chugging on pretty strongly. The second
Speaker 3: quarter growth numbers were really quite quite strong at two
Speaker 3: point eight. And what you're seeing is, you know, for
Speaker 3: every sort of bit of weakness that you hear about,
Speaker 3: there is potentially an offsetting strength. What the FED doesn't
Speaker 3: want to do is maybe, you know, cut in July
Speaker 3: and then see things pick up. There's also the sort
Speaker 3: of uncertainty surrounding the election. How much do they want
Speaker 3: to ease before the election only to see an administration
Speaker 3: come in which may change things.
Speaker 4: On the ground substantially.
Speaker 3: So I think a gentle cut, if the data cooperate
Speaker 3: by September, is what they want to sort of signal,
Speaker 3: and I think it'll be hint Hay and down Sinach
Speaker 3: without any kind of commitment tomorrow that they will cut
Speaker 3: in September.
Speaker 1: To give themselves maximum optionality, as they've been careful to
Speaker 1: do each step along the way. So Rabram, you had
Speaker 1: mentioned that the labor market seems to be cooling, But
Speaker 1: I look at the estimates for job growth for the
Speaker 1: jobs of what we're going to get on Friday, and
Speaker 1: an estimated one hundred and seventy five thousand jobs added
Speaker 1: after two hundred and six thousand jobs are added in
Speaker 1: the month of June. You don't really see signs of
Speaker 1: cooling as much in new jobs growth as you do
Speaker 1: in say jobless claims or job openings and quits. Does
Speaker 1: that matter that mix?
Speaker 3: That's right, I mean it's not telling the same story.
Speaker 3: But then you know household surveys, for example, are telling
Speaker 3: a different story from the payrolls. So I think, again,
Speaker 3: there are lots of data out there. Depending on your persuasion,
Speaker 3: you can find something to satisfy you that cuts up
Speaker 3: way over you, or you know, we should wait a
Speaker 3: little longer. I think the fad is going to be
Speaker 3: fairly pragmatic and say, well, we don't have any economy
Speaker 3: that's tanking yet, and if it does show signs of weakness.
Speaker 3: We can always cut a little faster. So for now,
Speaker 3: let's hold and see what happens, and we can cut September.
Speaker 1: Do you believe ra rum that we're going to get
Speaker 1: a unanimous decision? And I asked that because Bill Dudley,
Speaker 1: of course, a former New York FED president, wrote an
Speaker 1: opinion piece for US where he said he has changed
Speaker 1: his mind and now sees the need to cut this
Speaker 1: month as opposed to waiting until September because that increases
Speaker 1: the risk of a recession. Will anyone stick their head
Speaker 1: out on that idea when it comes down to a
Speaker 1: bout tomorrow.
Speaker 3: It's not an entirely bad outcome. If one or two
Speaker 3: depart from the overall decision, especially towards a cut. It
Speaker 3: shows that the FED is debating things, and in this
Speaker 3: environment where the political pressure on the FED will start
Speaker 3: amping up before the election, it's good to show that
Speaker 3: the FED is mildly split.
Speaker 4: But you know, let's see.
Speaker 3: I don't know if they will engineer that or it
Speaker 3: will come because of natural differences in opinion. But I
Speaker 3: don't think it's the end of the world if there
Speaker 3: is a little bit of a split.
Speaker 2: Right, I have to ask you a little bit about
Speaker 2: what's going on overseas, because there's been a lot of
Speaker 2: talk about the idea that we might start to see
Speaker 2: significant divergence in central banks. We know the ECB has
Speaker 2: already cut. There's a big question as to whether they'll
Speaker 2: do anything else again and whether they went to early.
Speaker 2: But I'm wondering if it actually matters this time. I
Speaker 2: know we used to in the past focus so much
Speaker 2: on the correlations between these central banks raising and cutting
Speaker 2: at least somewhat in sync here, but is that sort
Speaker 2: of the wrong thing to look at this cycle?
Speaker 3: No, I think it does matter. You can see the
Speaker 3: problem with Japan. Right when Japan was holding firm on
Speaker 3: a relatively mild monitory policy while everybody else was tightening,
Speaker 3: you saw a weakening of the end and that has
Speaker 3: had an impact domestically, both in terms of consumer confidence
Speaker 3: as well as inflation. Now it would seem this week
Speaker 3: tomorrow Japan has to make a decision and probably start
Speaker 3: raising rates, even as the rest of the world is
Speaker 3: starting to contemplate cuts. So you know that does have
Speaker 3: to be an equilibrium, and it doesn't sort of emerge.
Speaker 3: You see the effects in exchange rates, which eventually cause
Speaker 3: you know, central banks to have to adjust. I think
Speaker 3: the ECB is seeing weakness in Europe right now, so
Speaker 3: they actually have a greater reason to cut in September
Speaker 3: than potentially the FED has at this point.
Speaker 2: Well, it's interesting you bring up Japan because obviously they're
Speaker 2: going in a different direction than everyone else, and maybe
Speaker 2: that's a good thing. I am curious. I mean you've
Speaker 2: seen a lot, of course, going back to your days
Speaker 2: at dimth and then of course at the Reserve Bank
Speaker 2: of India, when you look at Japan and this multi
Speaker 2: decade doll drums if you will, that it's been in
Speaker 2: do you look at what's happening now as sort of
Speaker 2: a real upcycle, the idea that they're finally breaking free
Speaker 2: from the past and moving on to something better.
Speaker 3: I think they are, and it's not just monetary policy.
Speaker 3: Of course, a lot of work on corporate governance. There
Speaker 3: is now a greater sense, for example, that Japanese cooperations
Speaker 3: have to deliver a value for money to their investors,
Speaker 3: and there's been a lot of pressure on them.
Speaker 4: To up their game.
Speaker 3: So I think Japan has spent a lot of time
Speaker 3: in the doldrums, but is slowly starting to come out
Speaker 3: for a.
Speaker 4: Variety of reasons. You know, this time is different.
Speaker 3: But of course Japan still has the huge aging problem
Speaker 3: that you know other countries are yet to confront but
Speaker 3: will eventually, and how they manage that is going to
Speaker 3: be really important. How much immigration do they allow? How
Speaker 3: much immigration can they sustain? So it still has problems,
Speaker 3: but I think at least the malaise from the Great
Speaker 3: Recession and the slowdown after that is finally coming to
Speaker 3: an end.
Speaker 1: All right, rob Ram, we started with the FED. I
Speaker 1: want to end with the FED. What is the headline
Speaker 1: going to be tomorrow when jape House speaks? Where could
Speaker 1: he surprise everyone?
Speaker 3: I think he's going to try and not to surprise anyone.
Speaker 3: He's going to try and say, look, we're still in
Speaker 3: data contingent more but the data are cooperating right now,
Speaker 3: and you know, if things go the right way, you
Speaker 3: guys should expect some good news in September.
Speaker 4: As far as Reid Country School, that's sort of the message.
Speaker 3: I don't know how clear he's going to be, yeah,
Speaker 3: but that's the message.
Speaker 4: He is probably going to.
Speaker 2: Say, all right, all right, we've got to leave it
Speaker 2: there here and always great to talk to you and
Speaker 2: great to see that view. You know, I'm not sure
Speaker 2: exactly what way your windows facing, but if you turn
Speaker 2: to the left of the right, you actually see the
Speaker 2: home that I grew up in right down.
Speaker 4: The street, the University of Chicago right now.
Speaker 2: Right down by Medici. I don't know if it's sill there.
Speaker 2: Rag Aaram Raja and always a pleasure. Professor of Finance
Speaker 2: at the University of Chicago Booth School, the business former
Speaker 2: Reserve Bank of India Governor