00:00So there is that market mantra out there that you don't trade ADP because the line between ADP and
00:06NFP is fuzzy at best. But still, you take a look at what we've gotten so far this week when
00:11it
00:11comes to ADP, when it comes to jolts, for example. In your view, how does that set us up for
00:17the
00:17official jobs report that we're getting this Friday? Well, as you highlight, the data hasn't
00:24been that bad. And given that the bombing started at the end of February, the jolts data was for
00:34February, but the ADP data is actually for March. And I think most people who follow the employment
00:42report are expecting it's going to be, as you highlighted, a reasonably good employment report
00:47with a snapback and payroll employment and probably no change in unemployment. So that lays pretty good
00:55groundwork for the Fed to basically stay on hold. And I wonder if that's your expectation, that that
01:02is what the Fed is going to do for the foreseeable future, because we heard from the Fed's Musalem
01:09earlier today basically saying that the rate we're at right now, we might stay there for a while. And
01:15you know, you add in the different cross currents that we see, you know, where might we land in
01:20your view when it comes to the coming months? I think for the coming months, unless something
01:25changes quite dramatically, we're not likely to see any change in monetary policy. There's still a
01:31great deal of uncertainty about what's going to happen with the Middle East. While the president is
01:37going on TV tonight to talk a little bit more about the situation. Some of the declarations have been
01:43that the war will be ended from the United States perspective in two to three weeks. But at the
01:49same time, we're sending another carrier battle group and we've been sending troops to the Middle
01:54East. So I think there's a great deal of uncertainty. And if we get a situation where we're actually
02:00bombing some of the energy infrastructure and some of the civilian infrastructure, that's a very
02:07different outcome than if we actually are pulling everything out in a couple of weeks. So I don't think
02:13the Fed's going to do anything until it has a little bit more clarity. It has a lot of those
02:19two outcomes
02:19are very different both for the economy and for inflation. Well, just thinking through even in a best case
02:24scenario to your point where this is all done and dusted and life goes on as usual a few weeks
02:29from now with the
02:30lag in data, when would the Fed even realistically be able to reconsider and view the current state of the
02:36economy with a potential path towards making a decision on economic policy? I think it's still going to be quite
02:43a few
02:43months because even if oil prices came down, they're not likely to go down to where they were before the
02:50shock
02:50occurred. The Fed's going to want to see how persistent the inflation impact is. Even if we're not actively fighting,
02:59there's
02:59still the question of whether the Strait of Hormuz will be open and whether there's a risk premium because people
03:06are
03:06uncertain whether it could be closed again. So I think on the employment side, as long as the employment stays
03:14rough, unemployment rate
03:15stays roughly where it is, I think the Fed's main concern is going to be focused on inflation. We haven't
03:21gotten any inflation reports since the start of the outbreak of the war.
03:27But I would expect that it's going to be not just one or two reports, but they're going to need
03:32more to be convinced that this is a shock that
03:36they can allow to just pass through. How do you think about the potential political pressures as it relates to
03:41the Fed making a decision, just
03:43given the expectations that Warsh will at some point be confirmed? Yeah, as you point out, Warsh will at some
03:49point be confirmed. But right now,
03:51Jay Powell, Jay Powell, the current chair, has said that he's not leaving until he's no longer under criminal investigation
04:00for the construction project at the Fed. And as you're aware, the Senate looks like they're not going to vote
04:07on that until that gets clarified. It's not clear to me how quickly that gets done.
04:14And that means that the new chair may not be coming in until later in the summer. So I think
04:22for now we're anticipating what the current chair is likely to do rather than the next chair.
04:28It is a pretty wild situation. And I have to imagine unprecedented that we could be in a situation where,
04:35you know, Jerome Powell is no longer the Fed chair or there hasn't been a new Fed chair confirmed.
04:41And that's something, as you say, we couldn't see until late summer. I mean, what does that mean when you
04:48think about how the markets might interpret that?
04:51Would they just be, you know, taking a look at the Fed votes holistically, taking a look at the messaging
04:56from Jerome Powell?
04:58I mean, again, you think about this question of Fed credibility to be without a leader. It poses some real
05:05questions there.
05:07Yeah, they'll have a leader since he would still be the chair pro temp.
05:11But what they won't have is clarity on when the new chair will come in and how he might change
05:17the views of the committee or try to change the views of the committee.
05:20As long as inflation is running as high as it is right now, I think it'll be difficult for any
05:27chair to significantly reduce interest rates.
05:31Even before the oil shock, core PCE inflation was around 3 percent.
05:37And at that rate, you add an oil shock on top of it and the fact that we've been well
05:43above the target of 2 percent for five years.
05:46I think the committee is going to want to just wait and be convinced that inflation is not going to
05:51be an ongoing concern.
05:52And, Eric, just quickly here, is there a world in your view that we could see the Fed, in fact,
05:56hike rates?
05:58I think it's pretty unlikely, because even if inflation is popping up, they're going to be concerned about whether the
06:05oil shock also has an impact on employment over time.
06:08So I think in the near term, they're not going to do anything.
06:13You know, we'll see what happens three or four months down the road if the shock is much more severe
06:18than it looks like it's going to be right now.
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