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Let's turn out to the Fed. President Trump says he plans to announce a new FED governor in the coming days after resignation of Adriana Kouegler. Former New York FED President Bill Dudley, writing this morning, quote, don't be fooled by the drama in terms of how the Fed manages the economy. It's mostly a tempest in a teapot. Bill joins us. Now, all right, Bill, I won't be distracted by all the drama. But there's a lot of noise right now coming out of Washington, DC when it comes
to who potentially take this role. Do you think this administration wants to put in a shadow FED chair.
I don't know if that's their intention or not.
But obviously the next governor appointment that seemed to be on a faster timeline than we thought, will be important because that person could end up being the next FED chair, and so people pay particular attention to who that person is and what.
Their views are.
So in that case, and I know as you write, Bill, that you did see Waller's's to Succeed Powell and Bowman's thank you to Trump for appointing her as part of the reason behind their descents, Bill, if I can just push you on that, because many people have looked at this economy and said there are reasons for a cut,
and Friday vindicated that with weaker labor market data. Is there an issue where we look at all these descents and say they are just political or is there real evidence that perhaps the FED should be leaning towards a cut.
Well, the FED is leaning towards the cut.
If you go back and look at the June Summary of Economic projections, everybody sees the path of race is going downward.
It's just a question of magnitude and timing.
So the degree of disagreement with in the FED is actually, I think dramatically overstated, because everybody thinks the next direction of moves is down. Just a question of when to do it and how to manage the inflation risk caused by the higher terrorists.
So, Bill, the direction of descent or the amount of descent is overstated. So too is the ability for this FMC to be swayed. What happens though, if the data becomes less reliable, if a more political figure headed put in at the BLS. Bill, you've been in the room evaluating this data with colleagues. How does that change and the FEDS evaluation of said data if changes are made at the Bureau of Labor Statistics.
Well, it depends on whether the change is made at the Bureau of Labor. Stitt says, the actually result in poor quality data or not. Obviously, if the data is rigged, then the FED Reserve is going to have to go to other sources of the data.
There's a lot more data.
Available now than there was in the past. You know, there's a lot of data that you can scrape off the Internet, for example. So I think that obviously we want the BLS data to be excellent quality and trusted, and that's very important, and so.
We have to keep an eye on that.
But the idea that the FED would be sort of unable to conduct mantrat policy because the BLS data was corrupt, I don't think.
That's the case.
Well, going to the BLS data on Friday now, the average three month payroll gain went from one hundred and fifty thousand before Friday's released to now just thirty five thousand. Going back to those two dissenters, doesn't Governor Waller have a point the crack has already emerged. Is the FED going to be behind the curve?
Well, I think the FED probably will be behind the curve because the terroffs creates so much uncertainty about what's going to dominate the risk of inflation or the risk of growth. Everyone said the terrorists are going to push up prices and push down economic activity, and the questions which is going to predominate. So the fact that the FED might be late is because the tarift policies created this tremendous uncertainty about which force is going to be dominant.
J Powell really honed in on the unemployment rate last week, talking about the fact that's the main number is going to look at. We did see a tick up to four point two percent. What do you think the line is for him where the unemployment rate ticking to what would get him really uncomfortable?
I think, you know, a couple more tenths would definitely get him uncomfortable, because then you start to think that the whole labor market was starting to give way. And when that happens, it can be a self fulfilling prophecy because it scares people. They pull back on their own their spending, and that makes the labor market still weaker. The important part points that Paul made though, is it's not about the payroll employment changes, it's basically how that actually reflects in.
The unemployering rate.
Because what's basically happen this year is the growth rate of labor demand has fallen, but the growth rate of labor supply has also fallen dramatically because of deportations and the crackdown and immigration. So both sides of the labor market are less robust than they were before.
And the jobs that were added Bill about seventy five of them came from healthcare, the cyclical parts of the economy. Really, we're not adding jobs. The lack of breath in Friday's data. Does that concern you at all?
Well? I think.
I mean, I'm worried that we're going to be in a sort of stagflationary environment where we're going to have at both higher prices and a weaker economy. And the question is which one do you put more weight on. I think the direction of rates is down. I think the question is just you know, what meeting does the FED finally to see enough evidence to warrant cuts.
As I said in the piece that I published in Bilberg Opinion. You know, there's not that much disagreement about the FED. It's all about timing and magnitudes, not about direction.
Well, what happens if Bill we have adrianic Googler stepping down, so that's certainly a Trump appointment, and then you get Shairpowell who decides not to stay as a governor through twenty twenty eight. In total, you add to that both Bowman and Waller. That means for Trump appointees on the FLMC, does that an aggregate just mean at the very margin a more dove is shift to this FED?
Oh?
Absolutely, I mean I think you know, when it's a close call in that kind of situation, the ties are going to go to the doves. But at the end of the day, the economy is going to drive the story. You know, I think you know, the chairman can't take the FED wherever he or she wants. It depends on how the economy is motivating. What's the right thing to do in terms of monetary policy. The chair has to
convince the rest of the FMC to go along. Now, obviously, if you have four governors all lined up on one side, that that gives the chair quite a bit of momentum to get his or her way. But you know, I think the Fed Reserve presidents are going to continue to vote their conscience in terms of what's right for the for the macro economy.
The markets this morning are rebounding off of the lows on Friday, following the fact that everyone's start to bake in this idea of a September rate cup But Bill, what if we get a hot CPI print, what's going to happen?
Then?
Well, I think it's too soon to say that we're going to get a September rate kot. I mean, we just saw how the market for September has moved dramatically just in the last week. When Paul made his remarks that the press conference, people said, oh, they're not going to cut in September, and then we got the week in payroll and plumber report on Friday and everyone says, oh, they are going to cut in September. So it's a
long time between now and September. You know, I think the prospects are pretty good that the Fed's going to cut rates later this year, whether it turns out to be September or not, really is going to turn out to depend on the data bill.
To what's agreed. Could this just be a post Liberation Day fallout the jobs data we've had over the past three months, and something that might rebound in August given more certainty on which tariff levels are being set.
I think you're making a good point that the terriffs have caused people to sort of stand back in terms of business hiring and business investment because they don't really know what the landscape is. And as we get past August first and hopefully more clarity on what the arraff packages are going to be country by country, that presumably will make businesses more.
Willing to move forward in terms of their investment and hiring plans.
So it certainly could go that way, or it could go that the higher terrafts are raising prices, that's crimping really income, and that's affecting consumer spending, and that's leading to weakness and employment that it's going to motivate the FED to cut rates.
We still don't know which way, which direction is going to predominate.
What we do know, though, is we know most of the rates is a handful of countries potentially could get better deals and better rates. But for the most part, we do know the rates going forward and they're going to take effect this Thursday. How much time do you think the FED needs to see this work through the economy.
Well, I think the FED would like to see, you know, a lot of time, a lot more than six weeks to the next FOMC meeting. I think they think it's probably going to take six months to get to see the full effects of the terraffs because it takes quite a bit of time between the good landing on US shores and it actually ending up being sold in a department store or in other retail establishment. The FED thinks it's going to be a slow process, and Paul basically said that at his press.
Conference last week.
Former New York Fed President Bill Dudley, thank you so much for your time this morning, and you can catch his opinion piece this morning in Bloomberg Opinion