Judy Coronado of Macro Policy Perspective, suggesting the time is now writing this, The question is very much what are we doing at five point five percent? It's time to start adjusting the nominal funds rate. Julia Coronado on Place to say, joined us, Now, Judya, let's talk about that. The chairman of the feder Reserve in the news conference last week said we need to see more data, more good data, not better data, just more data, not.
Even necessarily as good, just good, he said.
So any reason to believe we won't see that in the next three months.
There is no real reason. Of course, you need the data to ratify that, and as we saw on Friday, data can always surprise us. But if inflation does continue to behave as it's been, they're rapidly approaching two percent, and so I think what we're hearing from the FED is that the committee is a little just you know, struggling to catch up to how quickly the data have
moved and what to make of that. It certainly defies all of our macro models for inflation to come down so rapidly with the labor market so healthy, and so there's still some skeptics. I think Chair Powell might be having a challenge corraling everybody on the committee. I think he wants to make that first move based on a strong consensus, and I think he's just having a little bit of committee management challenges, which is why he, in a very data undependent way, took March off the table.
So we're in May because we think the data will continue to tell the story.
Julia and Lisa said it immediately after that fed mating during that news conference, I think Lisa said to us around the table, it's like hurting cats. Judy, you noticed the same thing. What was it about the statement and the news conferences stood out to you that gave you the impression that maybe things are really fragmented divided on the committee at the moment.
For me, the moment that was most telling was when he took March off the table. He said it in a sort of halting way that he just doesn't think this committee will have the confidence by March. He thinks it's unlikely, I think was the term. But it was a reference not to his view but to sort of the collective confidence, which suggests that there were some people that were just digging their heels in still that just deeply skeptical of what they've seen or that it's likelyhood
of continuing. But yeah, I think that was the moment where it was like, well, that's not data dependent, and it wasn't referencing his own views, which we know that share. Powell's been a bit more encouraged and optimistic about the data flow, more willing because he's perhaps not an economist to just accept it for what it is and buy into its staying power. Again, data have to ratify it. But should they ratify it? You know, there's no reason
not to move in March. There's tension right now between the FEDS saying they're going to start the cutting process well before we get to two percent and taking March off the table, right because we are getting very close to two percent, and by March, with a couple more months, we could be quite close. But I think, yeah, I think it's just the herding cats challenge.
Julia, you said it is pretty clear that the FED has policy in a restrictive place. Is it clear? I mean, this is actually talk about herding cats. It's hurting cats the market too. You've got increasing number of people questioning just how restrictive that is if you're seeing job growth like what we saw on Friday, if you see ism service's prices paid grow at the pace that we did for last month as well.
Yeah, no, that's a fair question, Lisa. I think one of the things that's been the huge macro surprise of twenty twenty three was the productivity boom. We had been bullish productivity, that it would be strong in twenty twenty three, that it would help bring inflation down and make the FEDCE trade offs easier than they expected. But it was much stronger than we expected. My goodness. The second half of the year was a productivity boom. For the year,
it's close to three percent. That's quite a performance. Now. It comes after a very bad performance in twenty twenty two when supply chains were dragging us down. But it's masking I think some of the restriction in monetary policy, which could mean that the neutral rate, at least for now, is higher. And the big question in the big uncertainty,
and Chairpowell touched on this in his press conference. We just don't know if we're going to keep getting productivity gains like we saw in twenty twenty three, or even anywhere close. If we do if we are not just in a productivity sort of post pandemic dividend, but a stronger trend than the neutral rate could be higher.
Yeah.
On the other hand, if this is just a one time productivity dividend, then we could see a sudden stop in the economy as that slows down, and the restriction would come through and they'd have to cut a lot faster Juliett. So I think those are the uncertainties we're facing.
We just have.
About sixty seconds left. Do you believe in goldilocks or do you think that maybe it's kind of a little bit inaccurate at this point.
I do believe in goldilocks. I've been pretty bullish productivity. I do think the trend is better. That could mean a higher neutral rate, But what is higher. It's not five and a half. It might be three, but maybe three and a half. But I do think that productivity is higher, and these trade offs are going to continue to be you know what the Fed, You know, the Fed's dream come true, at least for now.
Somewhere in this country this morning, there was a child waking up who put on Business News Bramo on accident instead of the concerts and here you asking do you believe in Goldilocks? And this child is fixated now by two adults discussing whether Goldilocks is real or not. Well, you know, welcome.
That's all I could say.
We could talk about Fed policy a the other time.
Julia, Thank you. Julia Coronado of Macro Policy Perspectives, Julia, just brilliant