00:00Kevin Walsh has said that he believes in Fed independence. He's committed to the 2 percent inflation objective.
00:05He gave a hawkish speech at Jackson Hall. So I think he's going to have to follow through with that
00:09and raise interest rates by a quarter percent.
00:12I'd be I'll be shocked at this point if they don't go. Go ahead.
00:15Shocked at this point. OK, that's a good backdrop here.
00:17Bloomberg had some reporting out earlier today that Fed officials may find rate hikes less potent when inflation is being
00:24driven by the supply side.
00:26A.I. related factors, the war rather than demand. As a former New York Fed president, do you agree with
00:33that?
00:33And how does that impact how aggressive the Fed should be when it does start hiking?
00:38Well, monetary policy, as we all know, is a very blunt instrument and higher interest rates affect different parts of
00:42the economy.
00:43As you pointed out, if the investment spending boom is one of the big reasons why we have such a
00:49strong economy.
00:50And obviously we don't really want the labor market to get weaker. We're at full employment.
00:54We don't have a lot of wage pressure. So your point is well taken.
00:57Monetary policy is not a perfect instrument, but it's sort of the only game in town right now.
01:01When we start to talk about this idea, though, of the Fed's mandate and what is clearly, at least if
01:06you believe the tone of what Warsh's speech in Jackson Hall was about,
01:09that this is now certainly much more of a focus on inflation and a commitment to getting back down to
01:14that two percent target.
01:15One rate hike isn't going to get us there, I would assume.
01:18So if we do, on the off chance, get that rate hike next week, should we assume that another one
01:25and then another one is coming shortly after?
01:26It would be a huge surprise if there wasn't more than one.
01:29If you look through history, the Fed always moves more than one move at a time.
01:33And the reason for that is obviously 25 basis points doesn't do very much.
01:37If you look at where the market's priced today, the market's expecting about 75 basis points of rate hikes.
01:41And that's actually sort of convenient because that offsets the 75 basis points of easing.
01:46So the Fed would just be unwinding that.
01:49So I think there's going to be more than one, probably one next week, then probably one in December.
01:53But it depends on the economic data, how the economy unfolds.
01:57I mean, the Fed's made a lot of forecasts over time, and some of them work out and some of
02:01them not so much.
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