NORMAL RANGE.
THAT’S A DESIRABLE PLACE TO BE
BECAUSE YOU BEGIN TO HAVE MORE
OPTIONALTY THERE ABOUT THE SPEED
AT WHICH YOU WOULD PROCEED GOING
FORWARD.
>> CHERYL: I WANT TO BRING IN
INSTITUTE CHIEF ECONOMIST BILL
LEE AND CAROLINA’S INVESTMENT
CONSULTING DIRECTOR OF ECONOMICS
JOHN SILVER.
THERE’S SO MUCH TO GO THROUGH,
GENTLEMEN.
I’M SO GLAD YOU ARE HERE.
BILL, YOUR INITIAL REACTION TO
WHAT YOU HAVE SEEN FROM THE FED?
>> I’M SO RELIEVED THAT CHAIR
POWELL DID THE RIGHT THING.
IT IS A TRADITION WITHIN THE FED
THAT WE DON’T WANT THE MARKETS
TO DICTATE MONETARY POLICY.
I’M GLAD HE DROPPED THAT AND
SAID WE’RE FALLING BEHIND,
LOSING THE NARRATIVE ON
INFLATION, OUR CREDIBILITY IS ON
THE LINE, THE MARKETS HAVE GIVEN
US THE LEEWAY TO RAISE RATES BY
75 BASIS POINTS AND IN FACT WE
DID IT.
THAT IS SUCH A GREAT THING.
ONE OF THE THINGS THAT CHAIR
POWELL EMPHASIZED WAS THE MINUTE
INFLATION EXPECTATIONS BECOME
UNANCHORED, THEY HAVE LOST THE
GAME.
THAT’S WHAT HAPPENED IN THE 70s.
THAT’S THE ONE THING THEY
PREVENTED THIS TIME.
>> CHERYL: REAL QUICK YORK ,
REAL QUICK, YOU KNOW, WE HEARD
THE NEXT MEETING IN JULY, IT
COULD BE 50, IT COULD BE 75.
JOHN WHAT DO YOU THINK HAPPENS
AT THE NEXT MEETING?
GOING INTO THIS, YOU WERE
EXPECTING 75.
BUT YOU WERE ALSO THINKING IN
YOUR FORECASTING ANOTHER 75 IN
JULY.
>> I THINK THEY DO ANOTHER 75.
HE’S TALKING ABOUT GETTING
EVIDENCE THAT INFLATION IS GOING
TO MODERATE.
JULY IS ONLY A MONTH AWAY.
I DON’T THINK YOU WILL GET
ENOUGH EVIDENCE THAT YOU WILL
MODERATE.
I’M DOING 75 BASIS POINTS.
I AGREE WITH BILL THAT THE FED
IS MUCH MORE REALISTIC NOW.
RAISING THOSE FEDERAL FUNDS
RATES MEANS THAT YES, YOU’RE
CONSISTENT NOW WITH SLOWER
ECONOMIC GROWTH AND HIGHER
UNEMPLOYMENT GOING FORWARD, SO I
THINK THIS REALLY WAS A GOOD
MEETING FOR THE MARKETS OVERALL,
AND I’M NOT SURPRISED THAT THE
MARKETS ARE RALLYING ON THIS
KIND OF -- I THINK APPROPRIATE
MONETARY POLICY MOVE.
>> CHERYL: JOHN, DO YOU THINK
THE MARKETS ARE RALLYING BECAUSE
I MEAN LOOK, WE’RE NOW ABOVE OUR
SESSION LOWS FOR THE DAY.
WE’RE AT SESSION HIGHS FOR THE
DAY, 591 ON THE DOW.
ARE THE MARKETS RALLYING BECAUSE
THEY’VE GOT FAITH IN THE FED?
OR ARE THE MARKETS RALLYING FOR
SOME OTHER REASON?
>> NO, I THINK THE MARKETS ARE
RALLYING BECAUSE THEY NOW SAY
THE FED NOW UNDERSTANDS THE
PROBLEM.
THEY’RE GIVING US A REALISTIC
VISION OF GROWTH, UNEMPLOYMENT,
AND INFLATION GOING FORWARD.
AND I THINK THAT IS INCREDIBLY
IMPORTANT.
THE MARKETS NOW HAVE A HIGHER
LEVEL OF CONFIDENCE IN THE FED
THAT THE JOB WILL GET DONE.
>> CHERYL: YOU KNOW, IT IS
INTERESTING TOO.
I WAS LISTENING OBVIOUSLY BILL
INTENTLY DURING THE PRESS
CONFERENCE, AND NICK FROM THE
"WALL STREET JOURNAL," HE AND
JOHN HILSENRATH WROTE A PIECE AT
THE END OF LAST WEEK AND ONE OF
THE THINGS THEY SAID IS THAT THE
FED’S CREDIBILITY IS ON THE LINE
BECAUSE THEY ARE USING AN OLD
PLAY BOOK TO DEAL WITH A NEW
PROBLEM.
YOU KNOW, IT WAS ONE THING IN
2007 AND 2008 DURING THE
FINANCIAL CRISIS, YOU KNOW, YOU
LOWER RATES.
YOU THROW STIMULUS INTO THE
SYSTEM.
BUT THAT IS NOT THE PLAY BOOK
THAT THE FED NEEDS TO TAKE ON
NOW.
AND HE ASKED ABOUT CREDIBILITY.
AND POWELL I THINK GAVE HIM A
PRETTY STRONG ANSWER, YOU KNOW,
BILL, AND SAID LOOK, I ADMIT
THERE ARE A LOT OF THINGS IN
THIS ECONOMY THAT ARE OUT OF OUR
CONTROL.
WE WILL DO WHAT WE CAN CONTROL,
BUT A LOT OF IT WE CANNOT.
>> ABSOLUTELY.
IN FACT, THE PLAY BOOK THEY GOT
RID OF WAS FROM GREENSPAN, THE
PLAY BOOK OF GRADUALISM, DO A
LITTLE BIT AT A TIME, DON’T
SPOOK MARKETS.
RIGHT NOW BECAUSE THE FED HAS
BEEN SO TRANSPARENT IN
EXPLAINING WHAT THEY HAVE BEEN
DOING, MARKETS HAVE RUN AHEAD OF
THE FED AND THE FED HAS TO
RECOGNIZE WHERE THE MARKET
REALLY IS AND WHAT WOULD AND
WOULD NOT SURPRISE MARKETS.
IF THEY DID 50 BASIS POINTS YOU
WOULD BE SEEING THE MARKET CRASH
RIGHT NOW.
THE MARKET WAS HUGELY VOLATILE
BECAUSE THE FED WAS SO UNCLEAR
ABOUT WHAT ITS FUTURE PATH IS
GOING TO BE.
TO SAY WE’RE MEETING BY MEETING
DOESN’T HELP.
YOU HAVE TO TELL THE MARKETS IF
INFLATION DOESN’T COME BACK DOWN
TO OUR LEVEL BY THIS TIME, WE’RE
GOING TO BE VERY AGGRESSIVE AND
GOING TO DO WHATEVER IT TAKES.
SO FAR THIS MEETING HAS BROUGHT
BACK SOME CREDIBILITY TO THE FED
BECAUSE THE MARCH FOMC MEETING
THEY SHOWED WE CAN GET THIS
INFLATION WITHOUT ANY REVISEMENT
ON UNEMPLOYMENT, WITHOUT ANY
SLOWDOWN IN GROWTH, THAT IS A
FAIRYTALE I’M GLAD THE FED HAS
GOTTEN RID OF.
THIS FORECAST ITSELF WASN’T THAT
GREAT ALSO.
>> CHERYL: NO, AND AGAIN THERE
WAS A LOT OF TALK, JOHN, ABOUT
SEP.
TO LET EVERYBODY KNOW WHAT THEY
WERE SAYING SUMMARY OF ECONOMIC
PROJECTIONS.
IT IS THE BIG THREE.
TODAY WAS THE DAY WE WERE GOING
TO GET -- WE ONLY GET THIS EVERY
QUARTER.
HERE’S OUR FORECAST FOR GDP 1.7%
THIS YEAR.
HERE’S OUR FORECAST FOR
UNEMPLOYMENT FOR THE YEAR, 3.7%.
INFLATION, 5.2%.
JOHN, SO A LOT OF TALK ABOUT --
THEY REALLY IT SEEMED TO ME HAD
TO REALLY DO A QUICK PIVOT AFTER
THAT CPI NUMBER LAST FRIDAY, AND
POWELL PRETTY MUCH ADMITTED THAT
DURING THE PRESS CONFERENCE.
>> YEAH, IT WAS DEFINITELY A
QUICK PIVOT, AND ALSO NOTICE TO
INVESTORS, THEY LOWERED THE GDP
ESTIMATE FOR THE NEXT THREE
YEARS.
THEY RAISED THE UNEMPLOYMENT
RATE FOR THE NEXT THREE YEARS.
AND THEY STILL DON’T GET TO
THEIR INFLATION TARGET OF 2%
OVER THE NEXT THREE YEARS.
SO ONCE AGAIN, IT’S A MUCH MORE
REALISTIC VISION OF WHAT THE FED
CAN AND CANNOT DO, AND I THINK I
WILL MAKE ONE MORE POINT.
IT IS INTERESTING THAT HE
DROPPED THE TERM MODEL.
WE’RE NOT FOLLOWING A MODEL.
WE’RE FOLLOWING THE DATA, AND
THAT’S SOMETHING THAT ECONOMISTS
LIKE BILL AND I ARE DOING RIGHT
NOW.
WE’RE LOOKING AT THE DATA VERY
CAREFULLY.
WE’RE NOT GIVING A MODEL THAT WE
HAVE TO FOLLOW.
>> CHERYL: THEY THREW OUT THE
OLD PLAY BOOK.
THAT’S WHAT THEY DID TODAY.
THEY THREW IT OUT.
THEY SAID OKAY, NEW PROBLEM, NEW
SOLUTION.
BILL, JOHN, GUYS, THANK YOU VERY
MUCH.
GREAT ANALYSIS OBVIOUSLY OF THIS