00:00Can the Fed look past the energy impulse from a four to six week conflict in the Middle East?
00:06Yeah, I think so. I mean, if it's actually four to six weeks, you're talking about
00:10energy prices being elevated for a period of time. You get some hit on the upside to inflation,
00:15but probably by the time you get to the end of the summer, the inflation impulse starts to subside
00:20and you could probably look through that and concentrate on things like core measures of
00:24inflation activity in the labour market. What I would say on that is that if you look at the
00:29core measures of inflation and you look at core PCE, it's actually quite elevated at about three
00:34percent. CPI is lower, but that's obviously basically driven by rent, which is a much smaller
00:39weight in core PCE. So it's not as though inflation has been completely defeated and the economy is
00:45quite strong. Growth's been, the numbers have been a bit shaky post the shutdown of the government
00:51are reopening, but growth's quite strong. And there's obviously twin monetary and fiscal
00:54civilisation still working its way through the system. So if it is a relatively brief energy
01:00shock, I think you would look through that, but concentrate on the risk of second round effects.
01:05Probably your calculus of rates has shifted to being a bit less easing bias.
01:11But let's see, because I don't think...
01:13You still see the Fed culling this year? How does Jay Powell thread that needle today?
01:16Well, I don't think Powell's in play really for changing rates anymore. I think with everything
01:21that's going on with the DOJ and pushing back against the government, unless things got really
01:25bad to the upside and he was thinking about rate hikes, I don't see him cutting rates. I think
01:30he's kind of backed away from that now. Our view has been that you get the new governor presumably
01:34Walsh coming in middle of the year with an easing bias and then tries to cut rates in the second
01:39half of the year. I don't think Powell's necessarily in play.
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