[CC may contain inaccuracies] Jay Powell tried. He was actually masterful also at not
giving any answers about the guidance. What are they going to watch?
What's going to trigger them to hike again or pause?
Why did he work so hard? What is the Fed?
How is this part of the Fed's strategy right now?
What does it mean? Well, first, to answer your first
question, I think they are going to follow two things.
One is the growth pattern in the economy And the second quarter numbers will come
out in a few weeks. And it looks like that's going to be a
pretty strong quarter. So growth continues to be relatively
robust. Then obviously, the inflation numbers of
quite a wide variety of inflation numbers to try to form a synthesis of
what the underlying inflation really is. Those are the two things I think he and
the committee will be following very carefully, particularly over the next
eight weeks, in which they get quite a bit of data actually, so that that's
what's on their mind. And I, I think the uncertainty around
the the actual path of inflation is, is
informing their reserve about committing to any forward guidance.
In your opinion, what would in terms of inflation in particular, what would
incline them to say, oh, we can pause. Is it going to be the core CPI, core PCE
coming down? What would incline them to hike?
Is it going to be a labor market that's just so hot, wages continue to rise,
etc., that they feel I know what they have to do?
Kathleen I don't think it's any one thing because they they very much look
at a dashboard and try to form a bigger picture about what's happening with
inflation. But wage pressures would be one data
point that I think would be very important to them.
Core inflation measures and other measures that kind of cut out the
outliers, the whether it's food, energy or other outliers, they're really trying
to get an idea of the undersea currents, how those are really
coursing, and that's how they come to a view of
whether they have to act further or whether they can pause.
Dennis There's a lot of economists looking at the inflation numbers,
looking at base effects and compare it year over year, and we're going to be in
a good few months of, oh, inflation looks like it's coming down.
But then all of a sudden, depending on what the next series of numbers do, it
can look like inflation is starting to rise again.
Does if that happens, do you think the Fed is going to put back into position
where it has to get a little more definite and even aggressive about more
rate hikes? Well, the base effects
argument is that many months ago there were numbers that are in the full year,
12, 12 month inflation numbers that are really history now, but nonetheless,
they inform the overall number. I think what they'll be doing is they'll
be looking at shorter term measures of inflation month over month, quarter over
quarter, six month measures, taking all of this in to try to discern what is the
current runway run rate, what's the current degree of inflationary pressure.
And they can eliminate this concern over base effects by looking at shorter term
measures. So, Dennis,
when all is said and done, where do you think the funds rate is going to get to?
Are you in the camp that says we may even have seen the last one If and if
it's not the July hike, it's last. It's going to be the September hike?
Or do you see the possibility that inflation's going to settle down and
stabilize, even if it's not still rising, even if it's not going up, and
that they're going to be that you would say they will be in position or you
would be if you were at the Fed now, to have to hike again to keep the
tightening going. I think the assumption of one more
increase either at the September or the October November meeting, is a
reasonable and plausible way of looking at the future.
Beyond that, it's just simply going to depend on how inflation evolves.
And I have no better crystal ball than anybody else in that respect.
So I would just say that I think as of now, you can see a scenario of at least
one more hike.