00:00The possibility of a surprise hike looming over today's decision.
00:03The former Kansas City Fed President Esther George expecting the Fed to stay on hold,
00:07writing, although the probabilities of a hike have risen,
00:10the outcome of the committee's family fight could well conclude
00:13that the cooler June inflation numbers allow them to wait.
00:16Esther joins us now for more.
00:17Esther, a warm welcome back to the program.
00:19We're in a whole new world. This is different.
00:21Typically, post-GFC, we're guided into the decision.
00:24We already know what the outcome will be.
00:25What do you make of that change that we actually have just a little bit of two-way risk?
00:30So I think it's a good move in the sense of not trying to forecast
00:37and lay the groundwork for upcoming moves.
00:40I think the market doing this work is probably an important development here.
00:45And at the same time, while you're going to stop short of giving forward guidance,
00:50I think it's always helpful to be clear about what you are looking for.
00:54So today I think will be important to listen to what is the rationale,
00:58how is the committee thinking about the current state of the economy?
01:03Esther, if you were in the family fight right now, today and heading into tomorrow,
01:07what would you be screaming about?
01:09What would you be sort of arguing for?
01:13Well, Lisa, I've been concerned for some time about the duration of elevated inflation in the economy.
01:21And yes, we've had a number of one-offs, as we call them, coming, hitting the economy.
01:28But the truth is underlying inflation has remained well above the Fed's target.
01:33And so my own sense is the cuts last year really eased in to something that was still a problem
01:42in terms of inflation.
01:43So I would continue and am continued to be concerned about elevated inflation.
01:49Do you think that it would be appropriate for a number of dissents today?
01:53Do you think that would be healthy?
01:54Or does that indicate that maybe Kevin Warsh is losing clutch over the body?
02:01Well, I'm not concerned that there'll be too many dissents.
02:04You know, the Fed chairman is going to make sure, I think, that his direction, his particular leaning on this
02:13is going to carry the day.
02:15So, yes, I would expect there are dissents.
02:17I wouldn't be concerned about that.
02:19We've heard those in some sense already being communicated publicly about how people feel about inflation.
02:27So I'm not terribly concerned that he will be outnumbered in terms of a direction today.
02:33The characteristics we're seeing in this kind of oil price spike, is this something that the Federal Reserve could look
02:39through?
02:41Well, they have been looking through it more or less.
02:44But we know that the oil price shock is a salient price.
02:49It can feed into other things.
02:51And so while this has been moving around, again, we haven't seen clear direction that we are getting an underlying
02:59disinflationary trend.
03:01Yes, we had cooler numbers in June.
03:03And I think that causes the committee then to really weigh more carefully what might the trend be, what is
03:11the direction going to be, and how much of that is influenced by oil right now.
03:15We are seeing some companies come out, Reckitt Benkaiser apparently coming out and saying because of the move in crude,
03:21they're going to have to put some of that into their products.
03:24Is that the time then where you would see the Federal Reserve start to really take notice of what's going
03:29on in the oil market?
03:31Well, it is a factor that I think has been present for some time.
03:37And that is trying to understand the pricing power that is associated with any one of these particular shocks.
03:44And I do think that is always the risk that it broadens out.
03:49The Fed has been able to rely on anchored inflation expectations.
03:54But that is always a risk.
03:56How much time can pass before there begins to be questions about the Fed's commitment?
04:03And so that is always the tension here.
04:04How much time can you buy and keep inflation expectations well anchored as these various factors are unfolding?
04:12Esther, instead of throwing bread rolls today then, would you dissent?
04:17Well, I wouldn't want to prejudge what information is coming out at that table because you always learn something up
04:25until the time that you are voting on that interest rate.
04:28I have been concerned.
04:30I probably would put myself in the camp of thinking action is needed, that rates have not been restrictive as
04:38described in the past.
04:40So my leaning is to say inflation remains a problem.
04:44And the one instrument the Fed has to attack that is really its Fed funds rate.
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