00:00You know, I think I think this does, you know, result in a Federal Reserve that is hiking interest rates.
00:06I think they were very clear about, you know, framework guidance ahead of this report, not forward guidance.
00:13Basically to say if we're seeing inflation that's not moderating at a pace that we would like it to moderate,
00:19you know, then we're going to have to gradually adjust policy.
00:22You know, so I think that's likely what they're going to do. The market, I think, is rightly pricing that
00:27right now.
00:28The last I looked, the market was pricing, you know, maybe 75 basis points of cumulative hikes.
00:33That implies that they're taking back what the cuts that they did last year.
00:39You know, and I guess just taking a step back from all of that, you know, I think I think
00:43ultimately here, you know,
00:44we are still dealing with a series of supply shocks to to the U.S. economy, to the global economy.
00:51Central banks, not only not only the Fed in the U.S., but elsewhere, you know, they're they are worried
00:57about the risk that inflation expectations start to drift higher.
01:00So, you know, I think hikes here as to really ensure that credibility, you know, makes a lot of sense
01:07to us.
01:07You know, but the last point I would just make on this is that, you know, we don't think we're
01:11in a 2022 type of environment.
01:13You know, that is a very different environment than we are now. Labor markets were much tighter than we aren't
01:19seeing labor markets as a source of inflationary pressures.
01:21You know, so we really view these hikes as risk management hikes here.
01:27Barring any leaks, we are in a blackout period, so we're not going to hear from any Fed speakers anytime
01:31soon, Tiffany.
01:32The last time we heard from them, there were core members of that committee, New York Fed President Williams, Governor
01:38Waller, who pointed to underlying inflation trends as being quite favorable.
01:42And they weren't leaning towards hiking rates. In fact, it looked like sounded like they were leaning towards holding.
01:48Of the doves going into the meeting next week, Tiffany, what kind of argument can they make next week to
01:53hold?
01:55Well, I mean, I think, like I said, I mean, if the labor markets are not a source of inflationary
02:00pressures right now, you look at a broad array of nominal wage inflation measures.
02:07They have been decelerating. We think AI, as well as demographic trends, you know, the aging of the population, retirements
02:14is just is having some fundamental shifts on the labor market,
02:18which is, you know, which is resulting in just wage pressures that are pretty modest.
02:24And when we adjust that for productivity, so unit labor costs, what are the marginal costs that companies have?
02:31Labor is just not an accelerating one of them. You know, so maybe other non-labor costs for companies are
02:37going up like energy.
02:39You know, but certainly we are seeing labor costs inflation that's coming down.
02:43You know, so because labor is, you know, 75 percent of the input costs of most companies in the United
02:48States.
02:48You know, I think that's why Federal Reserve officials, you know, can still be pretty patient here, you know, although
02:55hiking, but but at a gradual pace.
02:58You know, because we're just not seeing, you know, those marginal cost pressures, you know, certainly that that we were
03:04seeing in 2022.
Comments