00:00Does it really matter who ultimately will be as Fed chair since it is one vote and an important
00:05vote? Yeah. So, you know, we've had to, as this news evolves, write just about everybody that's
00:09a front runner. So we wrote a HACCP piece before, you know, months ago, I think we were talking
00:13about Governor Waller and why we thought he could have been a very good candidate for Fed chair.
00:18But to the question of does it matter? I mean, the market is pricing it like it does matter.
00:22There's a premium in the June FOMC meeting. We're building in more rate cuts at that meeting than
00:26the surrounding meeting. So the market is pricing something happening as that transition takes
00:30place. I think we're a little bit more skeptical of how much it can matter. You know, clearly,
00:35I think Chair Powell has mattered recently. I think you don't get the December rate cut
00:39without Chair Powell essentially pushing it through what is a very hawkish committee at this point in
00:43time. But I think he built up that confidence, the credibility within the committee over a period of
00:48time. Just somebody coming in from the outside with a more dovish view is not going to be able
00:52to get this hawkish leaning committee to cut rates aggressively up front of the candidates who
00:57are the reported front runners. Is there one who would send a signal to you or maybe send a signal
01:04to the markets that the Fed's independence is at stake? Yeah, I think that there's lots of questions
01:09around this. I think when you kind of see surveys, Kevin Hassett raises some of the most concerns
01:15around Fed independence and kind of commitment to get inflation back down to target. And I think
01:20that's somewhat quite natural. I mean, he's been in the president's orbit for a period of time here.
01:25He's been an economic advisor for the president. He's been calling for aggressive rate cuts at this
01:29point in time. All these candidates are doing so at this point, as we heard from Governor Waller
01:34recently. And so I think whoever it is, the next Fed chair is going to have to earn the market's trust
01:40that they are going to commit it to bring inflation back down to target. And I expect the market to
01:44challenge that a little bit. Hey, Matt, you know, the New York Times writes, next Fed chair in a no-win
01:49scenario, a selection process draws to a close. And they go on to say the person picked to replace
01:53Jerome Powell will be thrust into a credibility problem that will be difficult to escape. Is that
01:58the case? And I also wonder, you know, sometimes you get into a position and you realize the weight
02:04of a position. And we know what the Fed does means a lot, not just to the U.S. markets, but to global
02:09markets. Yeah. So, you know, I think it is the case that there's going to be a challenge for this
02:14next Fed chair coming in. They come in almost with a mandate to cut rates meaningfully. The
02:19president has called for the Fed funds rate to be down close to 1 percent, near the lowest in the
02:23world. And yet, even though Governor Waller said that inflation is under control, core PC inflation
02:28is at 2.8 percent. It's still 80 basis points above their target. We're now four and a half years
02:32in well above target inflation. And although the market's pretty sanguine about the inflation outlook,
02:39you know, we do have a stronger growth outlook next year. We have fiscal stimulus that's coming
02:42through the pipeline. Sounds pretty good to me. It actually looks like a pretty good outlook
02:46from a growth perspective. And then a question of does that feed through into higher inflation
02:49pressures? What about the labor market, in your view? We got some data yesterday. It was weird
02:54to say Jobs Tuesday over and over again. It was. It's partial data, and we'll get some inflation
02:58data tomorrow. But the jobs market, how does it look into you? So the way we've been describing it,
03:03and I think yesterday was another case of this, it's a Rorschach test for how you think about the
03:06labor market. Each of these reports has good elements and bad elements. I think yesterday's report
03:12had strong job gains. It had a broadening out of job growth. We've seen the private sector
03:16rebound. We had negative job gains in June. Past three months have been 75,000 plus in terms of
03:21private sector job growth. So that's all quite solid. The weakness was in the household survey.
03:26You saw the unemployment rate rise to 4.6 percent. Broader measures of labor market slack actually
03:31picked up more. I think importantly at the December meeting, Chair Powell highlighted why we should
03:35discount that data. It's coming right around the government shutdown. We thought that there was
03:40going to be distortions to that household survey. So Fed pricing hasn't really moved all that much
03:45on the data. I think far more important will be the December jobs report that we get in early January.
03:49So the worst case scenario is we've got inflationary pressures, which sound like they could be coming
03:54in the new year because of some of the stimulus measures that we're certainly getting from the
03:59White House, Matt. But if we have more inflationary pressures, but we continue, if we get some
04:04confirmation in the December numbers, that yes, indeed, there is job weakness, and maybe it's
04:08continuing, that's a tough predicament. It is. I think it's, you know, a direction of travel
04:14towards stagflationary type impulses for the economy. It is what most economists and we thought
04:18you would get out of very large tariff increases. And so I think it is beginning to work its way
04:23through the economy. I think what we've learned, though, however, is, you know, this Fed under
04:28Chair Powell and undoubtedly, I think the next Fed, if you have weakness in the labor market,
04:32they will respond. They responded last year by cutting by 100 basis points. They responded this year
04:37by cutting by 75 basis points. Are base cases that the labor market stabilizes enough over
04:42the next several months that the Fed does not cut in the first half of the year? But look,
04:45if you get confirmation that the unemployment rate is 4.6 percent or above, I think the Fed
04:49cuts in the first quarter.
Comments