00:00Joining us right now to talk a little bit more about this and the expectations is Betsy Duke, former Fed
00:07governor.
00:07She joins us right now. Betsy, great to have you here on the program.
00:10Look, I know no one's expecting a change in rates, but we also get to this idea about the debate
00:16that has to go on behind closed doors,
00:18given the fluctuations that we continue to see with regards to the situation in Iran and its impact on energy
00:24prices,
00:24and more importantly, the feed through into more impactful inflation numbers that the Fed will have to parse.
00:31Yeah, so I don't expect there to be any change, but honestly, I think there's a very good case to
00:37be made for making a change.
00:39If you look at five years, more than five years now, the Fed's missed its target.
00:44The labor market seems to be stable in any case. The growth in the economy is solid.
00:50There's no indication that I can see it. It'd be hard to make the argument that the current level of
00:56interest rates is restrictive.
00:59So, you know, they came out so strongly saying we are going to get inflation under control.
01:04If they say that and don't do anything and don't say anything more, that's kind of hard to deal with.
01:11So, yeah, I think a good case can be made for a quarter point hike.
01:14Oh, a hike. OK, that'd be interesting. But, well, it's actually to that point.
01:18We were talking a lot over the last few days about the strength of the economy and how if there
01:22was any time to sort of maybe make a little bit more of a fight against inflation now would be
01:26it.
01:26Do you agree? I think it would be. I think if I were in the room, I would certainly be
01:32arguing for it.
01:33I don't think I would be at the point where I felt so strongly that I would dissent.
01:37But I think you may very well see dissents after this meeting.
01:40What would restrictive policy look like to you?
01:44Well, I you know, I think that the neutral rate is probably somewhere around four.
01:50That that's my guess. And I think with deglobalization, I think globalization made inflation really easy to keep under control.
02:01And what do you kind of how do you kind of parse through the one time shocks then of oil,
02:15of geopolitics, of volatility in the Middle East?
02:19How does that kind of factor into how you think about where neutral really is?
02:24So so everything in economics says you look through one time shocks, but there have been so many one time
02:30shocks.
02:31It's been one time shock after one time shock. It was supply shock from from the covid reopening.
02:36There were tariffs. There was the war. Now there's more tariffs. Now there's more trouble in the Middle East going
02:44on.
02:45And there comes a point where each of these one time shocks has some lingering effect and they pile on
02:51top of each other, on top of each other.
02:53And so people begin to expect inflation to continue at its current level.
02:57Just real quickly, that's only about a minute left.
02:59But with regards to Kevin Walsh and the communication that he's going to have to give, because at the end
03:04of the day, no matter what decision they make on Wednesday,
03:07the real challenge is going to be trying to explain that to investors at 2.30 p.m.
03:13I think that's true. I mean, you can avoid giving forward guidance, but at some point you have to explain
03:18the decision that you just made.
03:20That's not forward guidance. That's a decision.
03:22And so it's going to be interesting to hear and really interesting to see the minutes from this meeting to
03:29see how contentious it actually was.
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