00:00The Fed's got a difficult job. Data is volatile. It's hard to read some of the underlying trends.
00:07Our house view is one that would be at no move for this year.
00:12We think inflation continues to moderate. We think growth continues to moderate.
00:17We recognize and respect the arguments that the hawks make with regard to concerns about stickiness of inflation.
00:24But our sense is when you look through to the underlying data that there are some real struggles at the
00:30bottom end of the economy,
00:31whether it's small and medium-sized companies, whether it's lower-income households, real incomes are not growing any longer,
00:38which is very different from three, four, five years ago.
00:42But I've still got government spending roaring at the moment.
00:44You've got a massive deficit that is being driven by the Trump administration.
00:47I've got an investment boom that is on.
00:49Key components of growth are performing pretty strongly right now.
00:54Isn't that going to show up in inflation numbers?
00:56Well, we'll see. We'll know at 1.30 this afternoon whether or not it shows up or not.
01:02There have been sequential misses, despite all of that news.
01:05We know that deficits are running unchecked.
01:08We know that debt to GDP in the United States has just crossed 100% on its way to 130%,
01:12140%, 150% by the end of the decade.
01:16But despite all of that, in the last two prints of U.S. inflation, whether it's CPI or core PCE,
01:23there were downside surprises.
01:24We've seen downside surprises here in the U.K.
01:26We've seen them in Australia.
01:27We've seen them in Canada.
01:28My goodness, we've seen them even in Brazil.
01:31And so maybe there is something to the data.
01:34And I don't want to be a poor statistician that is going to extrapolate one data point into a trend,
01:39so we need to see several data points.
01:42But there is some flavor to this inflation moderation story.
01:46And then when you look at some of the Federal Reserve's other data, something that Kevin Walsh seems to want
01:50to focus on, sort of a range of possible data, trimmed mean-type reports are incredibly well-behaved.
01:57And so we're much less fussed about the inflation sort of outlook on a forward-looking basis than I think
02:04many in the market.
02:05And you think if the inflation comes in line with expectations today or maybe a little softer, the Fed stays
02:11on hold.
02:12It gives them a pass to stay on hold through this year.
02:14There isn't a credibility issue that Walsh faces.
02:16Are you concerned about credibility around the Fed?
02:18I'm not concerned.
02:19There is an incredible amount of emotion surrounding the narrative and discussion about the Federal Reserve these days.
02:29I'd suggest that that's really quite unwarranted.
02:32I think the Fed is credible.
02:35It shows up in longer-dated inflation expectations.
02:38I mean, the inflation-protected bond market in the United States is predicting that CPI inflation will be 2.26
02:46% for the balance of the next 10 years.
02:48There's nothing to see there.
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