Bloomberg Audio Studios, podcasts, radio news send back to our top story. Surging oil prices sending bond your tire across the globe. Investors raising bet central banks will keep rates on hold. The former Kansas City Fed president es the George, writing, with oil prices surging over one hundred dollars a barrel, inflation is sure to move higher. The Fed will want to look through this price pressure, but it will likely stay their hand for entering rate cuts or entertaining red cuts.
The former Fed president joins us now for more Es, So, welcome to the program. Let's just get to that statement and your experience too. I always want to lean on that. You lift the twenty two energy shark. Can you frame for our audience the similarities the differences between this moment and that one.
Well, good morning, Jonathan, Yeah. I think I think the uncertainty that we've talked about for some time is one of the characteristics here that we have to remember. We have been relying heavily on a consumer that has faced significant price shock coming out of the pandemic. This is a consumer that has felt the impact of the tariffs, and they also have felt the uncertainty associated with a job market that has shifted significantly, and so when we rely on the consumer, as we do here in the US,
that becomes a real focal point. I think for trying to understand now we have added a new shock, this gasoline price at the pump. We understand that diesel prices will be affected, which of course will feed into the cost of transportation and other things. And I think it creates a real point not just of uncertainty, but I think heightened risk around consumer spending and growth as we look ahead.
When you were at the Federalserve through the twenty two shock, household balance sheets arguably much stronger and the labor market was much tighter. Do you think differently about how this price shock or the energy market will work its way through the economy.
Yeah, I think you hear a lot about the K shaped economy, and I think that will come into the four now. We have really been relying on a group of consumers that can power through this. But you can only stress weaker household balance sheets that have again had the benefit of having jobs. That has been really I
think one of the tailwinds here. But there is a breaking point, I think, and so I think the FED will have to be particularly focused on thinking about how that consumer is going to be positioned today to be able to look through this kind of additional price pressure.
As so, they could go one or two ways. On one hand, you can make an argument for easing policy to try to give lower income consumers a better scenario, a better backdrop to meet this price shock. On the other hand, you could say the FED has a role to play to combat inflation. Which side of the equation do you fit on?
Well?
The FED has been focusing on the labor market and on weakness at I think the risk of inflation even before this oil price shock. Now I think the FED and you hear them increasingly talking about the risk of inflation. They have allowed it to extend out for a period
of time. That now puts them in a very very difficult position, I think, and understanding how they're going to weigh their policy risk, whether they continue to think they are as well balanced coming into this March meeting, I think is going to be something to listen for here, because you are going to have headline inflation. For sure, we'll be getting more numbers than this week to see that.
And I think the calculus around keeping those inflation expectations in the long run anchored is going to be a point worth talking about rates.
Traders are pricing in rate hikes over at the ECB as well as the Bank of England. Do you think that as this progresses, if it does continue for a longer period of time, that that's going to be a scenario that's reflected in how the Federal Reserve is being priced.
Well. I think obviously a little bit different for the US to think about that in the FED as it contemplates its updated dot plots, But I do think it stays their hand on being able to suggest that they are looking to rate cuts, but maybe in a pause mode. I think this kind of environment will really remind them that inflation target has to be credible and they have to keep focused on that, even if their tools right
now are in conflict. They are looking at a job market that may be stable but has shown signs of weakness, while they have been looking at inflation that continues not only to be persistent, but as we've been talking about, is now going to show some upward pressure.
Would you describe this lave and market as stable?
I consider it stable in the sense when you step back and look at the unemployment rate, which is our best gauge. I think of how that labor market looks, it does mask what is underneath that surface of a lot of moving parts. I think we're beginning to see the real impact of some of the immigration policy hits here.
We're beginning to see the uncertainty, I would argue, play out where businesses are happy to hire for positions they feel confident about, but they're not going to move hard and fast relative to the growth levels that we've seen. So I think it's a tentative labor market in my view, even though we continue to enjoy a relatively low unemployment rate.
That's the George always appreciate your time, thanks for jumping on for us. The former Kansas City Fed president, an individual who lived the Nagy Shelka twenty two at the Federal Reserve talking about this Federal Reserve and a meeting that takes place on the eighteenth. That's a week away next Wednesday. That feels like a lifetime away. And if this conflict is still on going with no sign of an off ramp or the escalation, all bets are off for the next nine months.