Marathon's Richards Says Fed Rates Are 'Simply Too High'

Bloomberg

Watch Marathon's Richards Says Fed Rates Are 'Simply Too High' - Bloomberg on Dailymotion

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00:00What was your thinking when you heard the reports?

00:02Exactly what you just said.

00:03I mean, you have to leave the Fed independent.

00:05Since the year 1913, 112 years ago, the Fed's always been independent.

00:10And the markets will not like lack of that.

00:13You have to have a line in the sand, and you can never cross that line.

00:17The Fed needs to be vigilant also with respect to inflation.

00:20If the Fed's not independent, who knows what they'll bring rates down to,

00:23which could be inflationary.

00:25Bond market will not like that.

00:26And so while the Fed will control the front-end Fed funds

00:29and bring that down to whatever rate you want to bring it down to,

00:32the longer will not respond well if we believe, and we all believe,

00:36that the Fed is no longer independent.

00:38So I believe that the poly market's probably right,

00:4025% probability that Trump will remove him.

00:44It's a low probability event relative to your base case.

00:47And I believe that he will not remove him

00:50because it's too much risk with respect to markets.

00:54And what he wants is lower funding costs.

00:57But in the same breath, I also know that rates are just simply too high.

01:01At 4.5% Fed funds rate, the ECB has rates at 2%,

01:06but at 4.5% Fed funds rate and inflation running at 2.5% CPI, PPI, MPCE,

01:13and no trace at all that tariffs really are impacting higher core good prices

01:19because we've seen April, May, and June, we haven't seen it flow through yet.

01:23And so we have three months of that.

01:25And so we're seeing it, we're seeing it at Marathon in the exporters absorbing it,

01:30the importers absorbing it, and very little actually being passed through.

01:33So I believe it's not hugely inflationary.

01:36And we can't wait forever because GDP slowed from over 2% to 1.5% this year.

01:42Inflation's come down.

01:43And so with inflation at 2.5%, GDP at 1.5%, Fed funds should be 3%, not 4.5%.

01:52It's way too high.

01:54And I believe rates should be lower.

01:55But the Fed needs to be independent, full stop,

01:58and the Fed needs to be vigilant with respect to inflation.

02:01And you're right.

02:02And you're right.

02:03And you're right.

02:04And you're right.

02:05And you're right.

02:06And you're right.

02:07And you're right.

02:08And you're right.

02:09and you're right.

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