Fed Has No Choice But to Keep Rates on Hold, Slok Says

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00:00Is there real progress in this economy right now? I know we can look at these numbers and

00:03find some modicum of stability, but is there real progress, real growth?

00:08Well, this is also a very important question, Romain, because if we think about what was the

00:12reason why we had a slowdown over the summer, it was likely because of the turmoil that came

00:18after Liberation Day. But Liberation Day is now eight, nine months ago, and things are gradually

00:23getting better on the trade front, at least as more clarity. And we've, of course, signed a number

00:26of trade deals over the last several months. All those things at least means that uncertainty

00:31has been coming down. And at the same time, the one big bill for bill next year, according

00:35to the Congressional Budget Office, is going to lift GDP by almost a full percentage point.

00:39So if I combine lower a degree of uncertainty, and at the same time, some fiscal stimulus

00:45coming in the next several months, then we will also begin to see the economy re-accelerate

00:50as we go into 2026. So the bottom line is, we should expect the labor market to bottom

00:55out of where we are now, and then things to get better as we go into next year.

00:59Torsten, I want to talk about what I continue to see as a bit of a disparity between what

01:03we're seeing in the official data and what we see in some of the sentiment indicators,

01:07and as well as a lot of the anecdotal evidence, including what we're getting out of the Fed

01:10beige book. The idea that a lot of folks on the ground, they're still going into the grocery

01:14store, going into retail stores, and in their view, still seeing higher prices, and they're

01:19still concerned about why they haven't come down. And I am curious as to when that becomes

01:24a concern for economists like yourselves, and more importantly, for the White House

01:27and Congress.

01:28And this is, of course, very important for me, because if you think about that question

01:32from a macro perspective, it is exactly the question of when will the upper leg of the

01:36K no longer be able to drive things fast enough? And when will the lower leg of the K begin

01:42to become such a big problem that it begins to have a more heavy macro impact? And it's

01:47very clear in the sentiment data, exactly as you're highlighting, that things have not been

01:51particularly good on a number of different fronts. And it is also clear, as you're highlighting,

01:55that affordability in so many different ways is weighing on the sentiment outlook overall.

02:01But we still look at the incoming macro data, such as the employment report today is still

02:05very good. Look at jobless claims. People are still having jobs. They're not getting unemployed.

02:09And at the same time, inflation is still too high. The Fed really has no other choice than

02:12to stay on hold in December.

02:14Well, that's where I want to go when it comes to inflation being very stubborn. It's not moving

02:18down. It's kind of clear that rates at this level aren't the cure for inflation and bringing prices

02:23under control towards us. And so at this point, what do you think it will take?

02:28Well, and that's why, of course, this debate at the FOMC is just, excuse me, fascinating that there

02:33seems to be a group of individuals who are very data dependent and looking at the incoming data and

02:38the incoming data, which we've been talking about here, is basically telling us we should not be

02:42cutting. Then there's a different group of individuals who are saying, well, on the other hand,

02:46we have at the same time that we have a measure of R star, which is model dependent. And that

02:51measure of R star, you could argue, some people think it should be higher, some people should

02:55be lower. But some people hang their hat on a model. Other people hang their hat on the incoming

02:59data. And I do think that the incoming data should get the most weight. And incoming data that's been

03:04getting to date, jobless claims, non-farm payrolls, it does say that we should still be very

03:08cautious with cutting rates in this environment.

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