00:00For more on the markets, we're joined now by Michael McKee once again, Bloomberg's International Economics and Policy Correspondent, who's
00:05had a busy week talking with a lot of Fed policymakers.
00:08And, Mike, that's where I want to start. One of the policymakers with whom you spoke was Tom Barker of
00:12the Richmond Fed.
00:12You asked him about oil prices. Let's take a listen to what he had to say about how this might
00:15affect the U.S. economy going forward.
00:17I don't have any sense on how long it's going to take or what the implications are going to be.
00:22Obviously, you watch oil prices. While the U.S. is no longer a net importer, it's still the case that
00:27the price at the pump matters a lot.
00:29In terms of sentiment, in terms of crowding out other spending. And so I'm just watching prices at the pump.
00:35They've jumped up over the last week. You can see that when you drive around.
00:39But, of course, no one knows whether this is going to be short term or long term. And so we'll
00:43just see where it goes.
00:44We'll see where it goes. Michael McKee, we've been talking about that in the geopolitical context.
00:48A lot of folks watching this war unfold, unsure of that. You have economic policymakers who are very much in
00:53the same boat, kind of wondering, with no real information about how long this is likely to drag on.
00:57And how much of a difference does it mean the longer it does?
00:59Well, the longer it does, the worse the impacts are going to be.
01:03Again, to go back to what I said earlier, it's probably not going to be a recession.
01:07But you're going to see maybe people pulling back on spending.
01:09There's a kind of rule of thumb that for every dollar, price of oil goes up by the barrel.
01:15It's about two cents for a gallon of gasoline.
01:18But if it drags on, that drifts up to four cents.
01:22So it's definitely already noticeable for Americans.
01:25And the question is, are they going to start pulling back on other expenditures because they have to put that
01:31money into their gas tank?
01:32And that's what the Fed doesn't know.
01:34Now, the Fed also knows that lowering interest rates with gasoline prices going up isn't going to bring them down.
01:42And we learned a lesson in the 70s that that just leads you to inflation.
01:46So they're not going to react to this.
01:48What they'll watch for is that knock-on effect doesn't get into other parts of the economy.
01:54I mean, my first question is, do you also have Tom Keene in your head?
01:57And is this something that I will soon have?
01:59I'm new to Bloomberg.
02:00I've got to know if this is a rite of passage.
02:01Be careful.
02:02We'll circle back to that.
02:04But I do also want to ask you about Friday's jobs report.
02:06Obviously, it came in a lot lower than expected, triggering broad market sell-offs.
02:11How are these two things related?
02:13And what does that mean for the overall health of the economy?
02:15Well, they're really more related in a political sense.
02:18And it's tough for the president because, of course, gasoline prices are very bad for the Republicans in the midterm
02:25elections.
02:25And the fact that people are not getting jobs is also very bad.
02:29We heard the administration blaming cold weather and a couple other things.
02:32Yeah, it really wasn't cold weather.
02:34There were some adjustments statistically, but the number of people couldn't work because the weather was not out of line
02:42with what you usually see in February.
02:45It was just basically a weak report.
02:47Now, for the Fed, it's tough because it puts them on both sides of their mandate.
02:51They've got a weakening job market, which means they should maybe think about cutting interest rates.
02:56But they've got inflation going up, which means they should probably think about holding, if not raising rates.
03:01So they're kind of stuck.
03:03And I go back to what Tom Barkin was talking about right now.
03:05The best thing for them to do is just sit and watch what's going on.
03:08Talk to Tom Barkin.
03:09You talked to Austin Goolsbee, the Chicago Fed.
03:11And this is something that you and he had a little colloquy about.
03:13The way that this is complicating the Fed's calculus and thinking going forward when it comes to inflation.
03:18Let's take a listen to what President Goolsbee had to say.
03:20I remain hopeful slash expecting that conditions will improve, that we'll start to see some progress on inflation.
03:30Head us back to 2 percent.
03:32And by the end of this year, that we would be in a situation that we could commence our march
03:38back down to something like the settling point.
03:42Mike, give us a fuller sense of what President Goolsbee and others are thinking.
03:46I know there's a school of thought here that you have this dramatic incident, this war in the Middle East.
03:50But with big events like this in the past, there's been some inclination on policymakers' parts that they can look
03:55through it.
03:56They can look through a big event like this, particularly in the context of inflation.
03:59What did he say about that and sort of how he's thinking about that dual mandate in light of what's
04:03happened here over the last week?
04:04Well, everybody says they should look through it, all members of the Fed,
04:07because they know that energy prices go up and stay up temporarily and then come back down.
04:14And by the time the monetary policy move you make hits the markets, it's already going to be too late.
04:22So for them, it's a question of sitting tight or when can they get back on the idea of cutting
04:31rates?
04:31Now, certainly the Fed's divided, and there's a group of members of the Open Market Committee who don't want to
04:36cut rates any further, absent a war.
04:39But for the majority, it's still a feeling that they're a little bit above neutral and that they could come
04:44down a little more.
04:45And it's a question of what are the data going to be telling them?
04:49What kind of permission do they have to move forward?
04:51And while there's all this uncertainty about prices and jobs, they can't move forward.
04:56All right. You were a very busy man.
04:58You also spoke with Beth Hemmack at Hughes, the Fed Reserve, at Cleveland.
05:03And speaking of monetary policy, you asked her kind of about the ultimate victor in the Battle of the Kevins,
05:09and that's Kevin Warsh and what role that he's going to play in making these decisions.
05:14Let's take a listen.
05:15Whoever walks into that role, the chair seat is a particularly influential seat.
05:19They historically have tried to bring the committee together, get a perspective on where people are.
05:24And I have every confidence that Kevin, if he assumes the job, is going to do his absolute best for
05:29the American public,
05:29like all the rest of the 18 of us do around that table.
05:32So with a divided Fed, will that person be the ultimate arbiter of how this decision is made?
05:37Well, that would be the case if it were still Jay Powell.
05:41The issue is that the president is expecting Kevin Warsh to come in and immediately lower interest rates,
05:45and one man can't do that.
05:47There are 19 people on the committee.
05:48The chair's power is basically the power to persuade.
05:52And that was kind of the impetus of my question to Beth was, how soon will he be able to
05:58be persuasive?
05:59Because he's new.
06:00He's coming in.
06:01People know him.
06:02But he hasn't been in the chair where your job is try to gather all the sheep together and get
06:07a consensus on what's going on.
06:09Yeah, and so everybody I talked to, including Beth Hammock, said that they think he's going to be able to
06:15do that,
06:15that he's got the kind of personality and the experience of the Fed to do that, but they don't know
06:19exactly when that's going to be.
06:21And in a kind of funny way, the war helps Warsh out in that we're saying now these people can't
06:29really move until the data change.
06:31So he can come in and he can tell the president, well, I'm sorry we couldn't cut rates because our
06:36hands are tied, yeah.
06:37You spoke to these three officials on the eve of the blackout period.
06:40We're not going to hear from them anymore until the next Fed meeting.
06:42A lot of people are happy about that.
06:43There you go.
06:44Until the next meeting, which is in about 10 days' time.
06:47Get us up to speed on sort of what's going to be added to that panoply of data in the
06:50days to come.
06:51So we got this job support, and we've drilled into that a little bit here.
06:55But as they kind of look at a picture of this economy, and I should say the job support, obviously
06:59data that was before the war began,
07:02I'm curious of what they'll be looking for and what's going to determine the tack that they take going into
07:06that meeting on the 17th and 18th.
07:07Well, all of the data they're going to get basically was before the war began.
07:12But what we're going to see is another CPI, another PPI, and another PCE.
07:17And the PCE is the inflation index that the Fed uses, that the Fed targets.
07:21And CPI is probably going to come in reasonably low as it did last time because there are some distortions
07:27in it left over from the government shutdown.
07:29PPI last time came in high, and it came in high on goods because of the tariffs.
07:36The question is, do we get to the end of that process?
07:40Are we going to start to see that level out because tariffs aren't going up anymore?
07:44And then the PCE is affected by both of those, and it's been hot.
07:48And the people who are nerdy enough to go in and put all this stuff together in advance are thinking
07:53we're going to see a strong PCE.
07:56So they're going to be in a position where they can't do anything about rates, and there's going to be
08:01a nervousness about inflation.
08:03So they'll sit tight.
08:04What will be interesting to see is who projects what in terms of the dot plot.
08:11They forecast in December that there would be one move this year.
08:14Do they take that out of any consideration?
08:18Do they add another one in?
08:20Where are they on that?
08:21And then what are their forecasts for inflation going forward?
08:24And all the people we talked to basically haven't changed their forecast much.
08:28They think that second half of this year, prices are going to go start to – price increases will start
08:33to slow, and inflation will start to slow.
08:35But they all admit now we don't know because we don't know how long the war is going to go
08:39on.
08:40Can I ask you just going back to the jobs report, what was most worrisome to you and others therein?
08:44So 92,000 jobs lost.
08:46Health care had kind of been buffeting the jobs market for so long.
08:50I saw on one note, I think it was some high-frequency economics commentary, that this is a job support
08:54that will get the Fed's attention.
08:56What beneath the headline numbers was most startling that's more likely to get the Fed's attention?
09:00I think the biggest thing, there was little job creation in any category.
09:04There was no breadth of job creation.
09:07Even health care, right?
09:08Health care was affected by a strike, 31,000 nurses off the job on the West Coast.
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