00:00We kick off the close today with none other than former New York Fed President Bill Dudley,
00:05former economist at Goldman Sachs and also a Bloomberg opinion economist. Bill, it's great
00:10to see you and we're definitely going to talk rates and inflation, all the other things we
00:13normally bore you about. But you know, I was looking back at what transpired on 9-11 and
00:18particularly the big FAA ground stop that went into effect at about 9.45 a.m. that morning. There
00:24are a lot of flights that were not allowed to land in the U.S., including international flights that
00:28were diverted to Canada. There's a very famous musical called Come From Away, which depicts
00:33a lot of folks coming to the U.S. who basically got stuck in Gander, Newfoundland, for several days.
00:40You were on one of those flights, not to Gander, but to another town. St. John's, Newfoundland. So it
00:45was the same story. When we went to the play a few years later when the play came out, they
00:50nailed it.
00:50It was exactly what it was like. And the thing that was most memorable to me was obviously first
00:55trying to understand what was actually going on in the United States because the pilot wouldn't tell
00:59us when we landed. He just said, there's nothing wrong with the plane and we'll tell you when we
01:02get on the ground. That's a pretty scary idea. But the thing that really that we remember the most
01:07is the kindness of the Canadians. They took us in. They housed us. They clothed us. They fed us.
01:15We were there six days sleeping in a church every evening. And every day we'd go down to Walmart and
01:21buy some new underwear. You know, it's good to hear these stories, too, because amid all that
01:27tragedy, there was a lot of good. A lot of heroicism. I think about the first responders
01:34risking their lives to save people on that day. So, yeah. So I think, you know, it's obviously a
01:39horrible event, big tragedy. But there were also people showed there that they could rise to the
01:45occasion. Yeah. You know, that same day we talk about the stock market shutting down, the treasury
01:50market shutting down. But there was something even more severe underneath the surface with kind
01:53of a breakdown in our payment systems and our liquidity, etc. You were at Goldman Sachs at
01:58the time, not at the Fed. But I am curious just from your seat being at a major bank like
02:02that
02:02when you finally did finally make it back to work. I mean, what was going on to try to get
02:07things back
02:07up and running? Well, people are obviously scrambling it the best they can. And I think what we learned
02:12there is we need more resiliency. So one of the problems that we had that day is people had
02:18contingency sites in Jersey City. And Jersey City was not far enough away from Wall Street to actually
02:23have the necessary redundancy. You know, so over the years, people now have second sites that are
02:29really, you know, whole different zip code, whole different area code. And so we have a lot more
02:33resiliency as a result of that event. You are so deeply tied to the New York financial community.
02:40And on such an emotional day, we thank you and appreciate you being here. And to Romain's point,
02:459-11 really helped to cement the Fed's credibility as a crisis backstop. And we did want to get some
02:51of your thoughts today on the current policy outlook when it comes to the Fed. We got the CPI data.
02:57Markets have priced in a Fed rate hike. But if they don't deliver, what does that do to Fed
03:03credibility? Or are traders perhaps overreacting to the energy driven inflation that we saw in the data
03:10today? Well, markets priced to about 90% probability of the Fed raising rates next week. Kevin Warsh has
03:16said that he believes in Fed independence. He's committed to the 2% inflation objective.
03:20He gave a hawkish speech at Jackson Hole. So I think he's going to have to follow through with
03:24that and raise interest rates by a quarter percent. I'd be I'll be shocked at this point if they don't
03:29go. Go ahead. Shocked at this point. OK, that's a good backdrop here. Bloomberg had some reporting out
03:34earlier today that Fed officials may find rate hikes less potent when inflation is being driven by the
03:41supply side. AI related factors, the war rather than demand. As a former New York Fed president, do you
03:48agree with that? And how does that impact how aggressive the Fed should be when it does start
03:53hiking? Well, monetary policy, as we all know, is a very blunt instrument and higher interest rates affect
03:57different parts of the economy. As you pointed out, if the investment spending boom is one of the big
04:03reasons why we're we have such a strong economy. And obviously, we don't really want the labor market
04:08to get weaker. We're at full employment. We don't have a lot of wage pressure. So your point is well
04:12taken. Monetary policy is not a perfect instrument, but it's sort of the only game in town right now.
04:16When we start to talk about this idea, though, of the Fed's mandate and what is clearly at least if
04:21you believe
04:22the tone of what a worship speech in Jackson Hole was about, that this is now certainly much more of
04:27a focus
04:27on inflation and a commitment to getting back down to that 2% target. One rate hike isn't going to
04:33get us there, I would assume. So if we do on the off chance get that rate hike next week,
04:38should we assume
04:39that another one and then another one is coming shortly after? It'd be a huge surprise if there wasn't more
04:44than
04:44one. If you look through history, the Fed always moves more than one move at a time. And the reason
04:49for that is
04:50obviously 25 basis points doesn't do very much. If you look at where the market's priced today, the market's expecting
04:55about 75 basis points of rate hikes. And that's actually sort of, you know, convenient because that offsets the 75
05:00basis points of easing. So the Fed would just be unwinding that. So I think, you know, I think
05:05there's going to be more than one, probably one, you know, one next week, then probably one December.
05:09But it depends on the economic data, how the economy unfolds. I mean, Fed's made a lot of forecasts over
05:14time and some of them work out and some of them not so much. Yeah. I'm wondering what you've made
05:19of
05:19the fact that so much has been placed on this data point. And we had heard from Chair Warsh being
05:24critical
05:24of the fact that policy could be dependent on a single data point. Did the Fed almost paint itself
05:30into a corner? I think so. I mean, I think it's I think it's frankly ridiculous that one data point
05:37should determine whether the Fed tightens monetary policy or not. But I think what's really going on
05:41is a deeper issue, which is the economy has been resilient for quite a while, showing that monetary
05:45policy is actually not exerting much restraint. Number one. Number two, we've been missing the inflation
05:51target to the upside for more than five years. If you didn't have that, then it'd be a lot easier
05:55to wait
05:56because if you don't act now and it turns out that inflation gets out of hand, people are going to
06:02with the hindsight of history going to say, well, what were you doing at that at that moment in time?
06:05So the risk reward is definitely to go ahead and raise rates. All right, Bill, really appreciate you joining us
06:11today.
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