00:00I might characterize it a little bit differently, but a Bank of England analogy, I think, is actually very apt
00:05here in that, you know, when the Bank of England votes, it's one person, one vote.
00:11And, you know, the governor, who's the equivalent of the Fed chair, has no enormous amount of power to dictate
00:19things.
00:19And that's very much in contrast to how the Fed has worked for at least the past 50 years, where
00:25it's been, I would say, a de facto dictatorship of the chair.
00:28And now we have Warsh, presumably not only the most dovish person of the 19-member FOMC, but also with
00:37only a couple of others on the Fed who are even, I would say, remotely dovish at this point.
00:42And so he probably finds himself in a minority.
00:45Is there a dovish framework going into this meeting?
00:49I'm not sure I can find it.
00:51Well, I think, you know, I think the dot plot is likely to show a number of dots that still
01:00have a cut or maybe even two appropriate for this year.
01:04And that's even with, you know, under the assumption that Warsh chooses not to submit a dot as has been
01:10reported.
01:11Now, it's going to be a scatter plot, to be clear.
01:14I mean, we're going to have plenty of dots for a hike this year, but I think there are still
01:19members of the Fed who are looking for a cut later this year.
01:23Paul, if Governor Christopher was down there, she'd just go like this, I'm sorry, I'm not submitting a dot.
01:29No, exactly.
01:30We're going to get some inflation data tomorrow, David.
01:34I mean, I'm just, you know, looking at the Bloomberg terminal, the CPI headline, 4.2 percent.
01:40That's not bueno if you're the Fed here at all.
01:43I mean, what's going on?
01:44I mean, you know, inflation appears to be actually rising.
01:48Now, we do actually see at Nomura a fairly soft print tomorrow of 0.2 and more risk of a
01:550.1 than a 0.3.
01:56That's for poor.
01:58But that really is not what the overall trend is.
02:02The trend, especially when you look at the Fed's preferred measure of core PCE, it's 3.3 percent on a
02:08year-over-year basis.
02:09And in a couple of weeks when we get the print for May, we expect that year-over-year basis
02:15to rise to 3.4 percent on a year-over-year basis.
02:19So too high and going in the wrong direction.
02:22But the reality is there's nothing the Fed can do, right?
02:25I mean, well, the Fed, I mean, the Fed could raise rates, and that would be the classic sort of
02:31move that a central bank is supposed to do when inflation is above target.
02:36GDP is growing at or above trend.
02:39And unemployment is low and, if anything, set to fall a little bit.
02:44Yep.
02:44So.
02:45We don't think they will, but.
02:47But then inflation, I mean, I'll use the term, I don't care, transitory.
02:52I mean, is it because of the war here?
02:53And if the war backs off, we got energy coming back down, maybe not the pre-war levels, but certainly
02:59coming down, and there you go, we're all set.
03:00I really think this is hard to say that this is transitory, especially when you look at core inflation.
03:06So headline inflation, which the Fed doesn't concentrate as much on, there you can make a very good argument.
03:13But, you know, when you look at how much the Strait of Hormuz and the energy price bump is hitting
03:20core inflation, probably no more than a tenth of a percent or so.
03:24So that's pretty small.
03:25I think what we're seeing is a much more classic sort of econ 101 overheating of the economy where there's
03:33a huge amount of, one could say, price insensitive demand from hyperscalers for everything chip related.
03:41And that is outstripping supply.
03:43And therefore, with demand outstripping supply, prices are rising.
03:47And I think it's really hard to make a case that this is Strait of Hormuz related again.
03:52And key thing here, inflation on a core basis would be at or very close to the level it is
03:59right now, even had the Strait of Hormuz not ended up being closed, we think.
04:04Okay.
04:05That's really interesting.
04:06That's controversial.
04:08If I'm Mr. Warsh, I'm like, now what do I do?
04:10I mean, come on.
04:11That just did an honorarium for John B. Taylor out at Stanford, one of my first supporters.
04:17And we have this architecture of certitude of a 2% inflation.
04:22Where did that go?
04:23I mean, we are miles from a trend line 2.x% statistic.
04:30Yeah, I mean, this is going to be the sixth consecutive year with the inflation target.
04:34What would Martin Feldstein say?
04:35You had the privilege.
04:36You know, I knew Martin, Professor Feldstein, well, we grieve his loss every day.
04:41You worked the grind with Feldstein.
04:44What would he say?
04:45He certainly is missed, and I think he would almost certainly be calling for rate hikes at this point.
04:52And so, you know, I think the argument, the dovish argument that Warsh and others who are doves will make
04:58is that they see disinflation coming because of the fading of the tariff effect, because of AI being disinflationary.
05:08But, you know, we've heard these arguments year after year now for six years, and where are we?
05:15We're, again, well above target and, if anything, moving in the wrong direction on inflation.
05:21Paul, this is serious stuff.
05:22I mean, we're benumbed by it.
05:24Paul and I are numb.
05:25Alexis is not numb because we have Tito's and Tang on this side of the studio.
05:29But, I mean, this is serious stuff, Paul.
05:32Serious inflation, and I don't see it going anywhere.
05:36Labor market.
05:37What's your sense of the labor market?
05:38Labor market is in somewhat of a Goldilocks zone.
05:40So, obviously, we got a fantastic print just last week.
05:44Now, if we took that print just at face value, the NFP, I mean, it would actually look like the
05:51labor market might be overheating.
05:53A lot of that stuff was temporary.
05:54So, we had a big bump in state and local.
05:56That's probably just a statistical noise sort of thing.
05:59And then leisure and hospitality, that may well have been related to the upcoming World Cup.
06:04So, that's unlikely to keep going.
06:07But still, you know, even taking those out, we're sort of right where we want to be at low 100
06:13,000 sort of jobs.
06:15And, yeah.
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