Fed Now Has a 'Dueling Mandate,' KPMG's Swonk Says

Bloomberg

Watch Fed Now Has a 'Dueling Mandate,' KPMG's Swonk Says - Bloomberg on Dailymotion

Transcript

00:00What's the big takeaway this afternoon?

00:02Well, instead of a dual mandate, we have a dueling mandate, and that's what you saw.

00:06We had seven people that had on their dots either no cuts or only the one cut that we had,

00:13and dissents are rarely done in a vacuum.

00:16And I think Schmid's dissent was also in line with another six of those 19 participants

00:21that did not think we needed any additional cuts right now.

00:25And I think that's what was important.

00:26I think it was very important with the first meeting with Governor Moran at the table,

00:31knowing that he was going to dissent and be an outlier on the dot plot,

00:35that you showed solidarity within the Federal Reserve.

00:39But we are going to see a lot of tension going forward because this is a really difficult time.

00:45One, we're flying blind.

00:46Two, we've got inflation is up, and unemployment is edging up as well, and the labor market is slowing.

00:53You add all of that together, and you get this sort of stagflation whiff,

00:57which is what makes this Fed likely to have more dissents that go in both directions going forward.

01:03Diane, as always, absolutely nailed it.

01:06And Diane, in many ways, not news, because we saw this in the dot plot last time around,

01:10just massive dispersion, a huge difference across the board with different Fed officials

01:13and what they expect policy to change and how it's going to change in the year to come.

01:17Diane, you mentioned inflation, and I think we've got to talk about this.

01:20This is an interest rate cut that comes a week after an inflation report that showed inflation at three,

01:25not at two, but at three.

01:27How credible is that pursuit of 3% given that we've missed it, missed that 2% target, sorry, for so long?

01:35Well, that's what the concern is.

01:37The argument, I do think that Jeff is sort of on a little bit firmer footing here.

01:41We know that this is a risk management cut.

01:43It's not clear that rate cuts alone will actually stimulate employment in this economy right now.

01:48I think there's some structural issues that are suppressing employment,

01:51which makes it much harder for the Fed to actually have an impact on employment.

01:55And lower interest rates tend to accrue to higher-income households more than they accrue to lower-income households.

02:01So, you know, that doesn't help the inequality problem that we already have out there.

02:05But I think it's really important to understand that we've got this situation where 40% of that CPI was imputed.

02:11Many of it is credible imputations where they get an easy substitute.

02:16Some of it's based on history.

02:17And if prices are changing on a real-time basis more rapidly, we don't know that.

02:22The other concern is that we have had more than four years where the Fed has not,

02:27the proximity to pandemic inflation, had price stability yet.

02:31And that gives us a muscle memory that ups the risk that this is not just a look-through moment.

02:36That is the Fed's, certainly Powell's-based case, is it's a look-through moment with a hedge.

02:42We don't want to go too far.

02:43And I think that's very important is that you've got sequencing of tariffs that mimics inflation,

02:48and it ups the ante that we get a more persistent bout of inflation.

02:53The Boston Fed came out October 9th with a study saying that they thought inflation expectations are becoming unmoored.

03:00And I think that's very important.

Category

Transcript

Be the first to comment

Recommended