And we start strong here after this historic press conference with William Dudley, he's a former New York FED President, a student at California Berkeley years ago of our monetary history, and of course Bloomberg Economic senior advisor. As I said, Bill, I got goosebumps. It just seems to be a massive statement that even if we have nominal GDP of four percent, we have immaculate productivity and will somehow get through this.
Do we sustain this market reaction, this belief in America or do we are we inset for some titanic disappointment.
Well, I think that Pells Prescott has made clear that he's really pleased by how the accounties performed, the fact that you could get inflation down, about the unemployer rate going up to had some moderation and wages.
He thinks everything is going really, really well, And I think that's true. The question is whether it's going to continue or not. And there are definitely things that can go along.
One thing that can could go along if the Fed keeps londor policy two type for too long and we have weaker economy.
Another thing that they can go wrong is the Fed can ease policy.
Prematurely, or the market itself can ease financial conditions prematurely, which will stimulate the economy and make it so that the FED can't cut rates that's.
At all quickly as the market expects.
I think the market's getting a little hab itself here in the sense of taking the Fed's optimism and translating that into very large reductions in short term rates in twenty twenty four.
But what do you think happened to the Chaman pound of only two weeks ago.
I just think that they're very happy with how the economy is performed.
I mean, basically, they've had decent growth, unemployer rates stable, and inslation's come down a lot, and.
That's basically, you know, as good as it can get.
And that's really what's just summarizing the summary of economic productions now summary of economic projection shows the very modest increases in the upplant rate from here and essentially a soft landing kind of forecasts. Now, soft landings are really difficult to pull off, and they're particularly difficult off and
we've been very late to take Marjory policy. And what's allow of this to happen is that there were supply just ruptions, those reduction and labor supply also things every verse, and that made the fifth job a lot easier.
Build the prospect of getting sticky in flag shit into next year getting stuck at three. So it makes it because six months ago, Bill, we were told that the last mile it was difficult. It was hard. Then Secretary and starts sounding like the FED chair again, saying it's not that hard. You hear it from Chairman Power didn't get any indication it would be particularly difficult into next year. Do you think that is the prudent approach to what twenty twenty four could look like.
I think he's telling you what he really thinks.
I think he's very happy with how things to perform, and he didn't say it would necessarily continue, but he also said that he was hopeful that these trends will continue into.
Twenty twenty four.
My own view is that the FED is going to be cutting rates in twenty twenty four.
We're clearly done in terms of rate hikes.
You know, the possibility of another rate hike is really low at this point. Is really just timing of rate cuts and magnitude, and that's going to basically be driven by the strength of the economy, pressure on resources, and what actually happens to services inflation at this point.
Bill, do you think that J. Powell did a good job. Do you think that it was right for him to say what he thinks and not push back at all against the market party.
I always think it's good to say what you really think, but I think the problem with doing so is it's basically added fuel to the fire. Paul talks about the long legs of maitary policy, but financial conditions are much much more common than they were just a few months ago.
If you look at the Fed's own.
Assessment of financial conditions back at the end of October, of the impulse from financial conditions to the economy based on the fedsal model was pretty neutral. So financial conditions now are actually adding the impulse towards the economic growth going forward.
I look Bill at where we are, and it's clearly beyond the pandemic. We've had a number of conversations off across a long surveillance about how goods are goods and we've got some deflation and service sector inflations coming down. Is this economy beyond the pandemic? If you were to talk to Mary Daily, in San Francisco to John Williams at the New York Fed, Can we say our economy is beyond the pandemic?
Think? I think mostly in this sense that the conditioners today are very similar to where we were in February twenty twenty, when we had a very tight labor market. The difference is wages are a bit higher, inflation's a bit higher, and mandre policy.
Is considerably tighter.
But it does feel more like February twenty twenty than it does between any period after that.
They'll sit time. I want to bring in Mia Kay down in Washington day. Say, Michael McKay, you were in that news conference. Were you surprised by the approach from Chaman Powell.
Well, I was surprised by the approach once we'd heard from the Fed and in their statement and what we saw in the dot plot. But it is a rather dramatic change from what he said just twelve days ago about it not being time to talk about ray cuts. Obviously they did today They're feeling much better about the overall state of the economy. As one analyst put it, today, if good inflation report is J Paul's idea of a good time, then his party has turned into a rager
because inflation is coming down very quickly. And then the next question becomes, as I asked you, when do you cut? And that's the part they're not ready to get into yet or describe. And so we're probably still in for a few months of the markets watching the data and trying to guess when the Fed is going to respond.
Michael, within all the blur of the data and all the guestimates forward, did they frame out a subpar GDP, either real or nominal? Did they frame out subpar growth?
Well, basically that's what Paul said, we're going to get because the direction of the economy is slower, the lagged effects of their rate increases have not yet completely been felt, but the economy will start picking up again and growing to potential. And he also admitted the possibility of a surprise there the economy grows faster than expected is.
Also very real.
So I think they're at this point working on the models that they have but admitting that they have been wrong before and we could see faster growth. But the interesting thing was, other than a sort of perfunctory caution, he wasn't suggesting that we are now that they would go back necessarily to rate increases.
Mi McKay, thank you so great job today. As always, the reaction pouring in this afternoon. This line from Steve cheveron over it federates it initial take as he wants to come. He always saw inflation as transitory. Bram of your favorite. It's come down on the supply side. He smells his self landing and wants to count to stick the landing. He had no interest in pushing back against market expectations, right or wrong. It's bullish for now. Psych away from Chevro on this soufternoon.
That's exactly where I wanted to go, and I wanted to get Bill Dudley's opinion about whether we did get basically confirmation of transitory Do you think when we look back, the fat won't have been wrong when it came to transitory inflation, They just were premature.
I think that most of the inflation pressure had which was transitory, but not all of it. I mean, I think some of the services inflation is due to the tightness of their market. I think what's really interesting about All's press conference today is he talked to us about the risk of being too late to cut so he actually admitted the possibility that if we stayed tight for too long, we could actually have a commune that's too weak relative to what we desire.
And that's something new from touch your home.
That's a very important point, the ex postedness of it, if you will, doctor Dudley. They've got to wait weight weight after the fact. So let's take something coarse like the unemployment rate. How many months do they have to wait until they get real confidence that the labor economy is caught up with our immaculate disinflation.
I think they're gonna be looking at what happens to the unemployed rate, the tatus of the labor market, and what the consequences of that are for wages. Paul did admit that wage inflation is still a little bit too high to be consistent with two percent inflation. But boy, the Fed is pretty close to where they want to be there. I would look at this point.
Bill.
You've been on the committee before. You can look at this from the outside.
Now.
It's a tricky game, this one to get into someone's head, and I think maybe one we shouldn't play, but I think on this occasion we should. Two weeks ago, I heard from a very different Fed chairman, And I'm trying to work out what happened today, whether that was just a man who was representing his own views and this was a man who was representing the committee's view, or whether, like we've indicated, he's been seduced by this idea of netting a soft landing and the guy who was trying
to act like Volka was never really Vulka. What is it? What do you make of who Chairman Powe is and what he ultimately thinks about things?
Well, the fact that he's worried about keeping Madrick Paul too tight for too long, it tells you that he's not thinking like Paul Bulgery.
So there is a and there's a risk of cutting rates prematurely.
But I think weight's coming across us is the fact that he's just really, really happy with how things have evolved, and that you know, optimism is showing through as it has show shown through from time to time and past press conferences.
Bill, It's maybe not your remit, but it's certainly the New York Fed's remit. They're going to treat keep track of flows off of declining interest rates. What is the stability or instability that you observe in six trillion dollars of cash, let's say most of it loaded and money market funds. Is that yield comes down? Is our system going to be able to handle it?
Yeah?
I don't think there's gonna be any problem.
I mean, you know, the Fed reserves says short term interest rates and then money market rates trade off.
That if if money market rates, you know, firm up.
A little bit, then money will flow back into the money market inter fund.
I'm not worried about that at all at this point.
Bill, Just to wrap it all together, do you do you think that the chance of a hard landing has gone down materially over the past month or do you think that it's about the same or even has gone up.
Well, I think it's gone down materially over the last six months.
I mean over the last month. I don't think things have changed very much, But definitely the prospects of a soft landing are the best they've been in last year or two.
Something changed in the last two weeks for Sham and Powell. I'm just sure. Bill. Good to catch up. Bill Dunpley there with Bloomberg Opinion. Former New York Fed President