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Well, we welcome our Bloomberg TV and radio audiences worldwide. I'm Michael McKee joining me now as Cleveland FED President Beth Hammock.
And Beth, if we only had something to talk about this, I mean, it's been a really quiet, quiet morning.
Yeah, were you gobsmacked by these numbers?
It was a disappointing report, to be sure, But when I look at the data, we don't try not to make too much of any one individual report, and so we look at the confluence of data, we look at the longer term picture. What we have is a labor market that is showing signs that we should be watching carefully.
Having the headline numbers come down makes sense to me given what we've seen happening on the immigration side, and the headline number on unemployment, which is the most reliable indicator we have, is still within that four one to four to three range that it's been at for the past year. So it looks like a market that a healthy labor market that's still well in balance, but with some disappointing signs that we should watch very carefully.
Well, one thing that caught everybody's attention is the revisions. We went from one forty seven in June to just fourteen thousand. And I want to point out the statement from Chris Waller earlier today on why he dissented. He had a line in there that said, basically, when labor markets turn, they often turn fast. Does that suggest maybe that you made a mistake by not moving in July.
I feel confident with the decision that we made earlier this week. We have to look at the whole picture of the data. When I step back and look at where we are, I see a labor market that is largely in balance. Again, today's report is just one report.
We'll watch it carefully.
We'll look to see if the dynamism in the labor market is picking up, because that's been something.
That we haven't really seen.
If you have a job, you're able to keep your job, but if you don't have a job, it's harder to find one. But in aggregate, we're still seeing unemployment in that four to two range where it came out today, but it's been for one to four to three for.
The entire year. We're seeing pressure on the inflation side of our mandate.
That's where our miss has been bigger, and it's been lasting for longer. We haven't hit on inflation in four.
And a half years.
And when I'm out talking to people across the district, whether it's Wheeling, Toledo, Cincinnati, what I hear from people is that the pain of inflation is really biting. They're making very difficult choices. They're trading down from buying ground beef to buying hot dogs. The four hundred dollars emergency fund that they have, they're not able to stretch as
far as they used to. And so we have to balance those two sides of our mandates when we think about setting correct policy, and we have to look at if we're missing by how much and for how long do we expect those misses to last. And right now we're missing by much more on the inflation side than we're missing on the employment side.
It's basically sort of the message that Chairman Powell gave on his Wednesday news conference. But we're looking at backward data always of course looking forward. To get back to what you were saying about, when you're talking to people, what are companies telling you about their plans?
Let me put a two part question.
Does the poor job numbers that we got for the last two months now comport with what you had been told by companies and what are they saying about what they're going to do about tariff price increases.
So what we've heard from businesses consistently is that uncertainty has been high for all of this year.
They've had a difficult.
Time making investments, executing on the plans that they had going into this year because they just didn't know where the economy is going to go. They didn't know how tariffs were going to impact their businesses. What we've heard consistently is that they thought really long and hard to get their labor force together to train employees and make sure that they were really able to help produce, and
that they're loath to let them go. But that can't last forever if demand ticks down, and so they're watching carefully to see if they're able to continue seeing that demand, if they need to pass on price increases to keep their margins where they need to be.
And so I would.
Anticipate that we could see some weakening. It's something we've been talking about and watching for that we could see some weakening on the labor side of the picture. And if we see that, it would be something that we might want to respond to again, having to balance that against the inflation side where we continue to really mess on that side of the mandate.
Well, what's the inflation outlook?
Basically our company saying we can't absorb too much of this or are they going to try to hold off as long as possible. Americans going to feel the tariffs sometime soon.
Yeah, I mean my expectation, my forecast is that we will see the inflation numbers tick up. The thirty billion dollars a month in tariff revenues is being paid by someone, it looks like it's more being paid by importers and consumers at this point. I think importers have borne a lot of that to this date, and it's.
Likely that will start to get pushed.
We're hearing from the business as we talk to that they can't absorb those costs anymore and they will start
pushing that out into prices to consumers. If you look at look at some of our forecasts, if you look at my forecast, I do expect that we're going to see inflation continue to tick up into the end of this year, and I expect that we'll see lit labor market weekend into the end of this year, and again, how we need to manage that really depends on by how much and for how long we're going to miss on each side.
Well, let's talk about your forecast.
Were you a two dot person or a one dot person for twenty twenty five?
There are other.
Choices than that. There are seven people at no dots. I don't usually disclose my dot, but you know, part of my view has been that we see an economy that's operating right around full employment. We've been reasonably closed not all the way where we need to be on the inflation side of our mandate, and the growth numbers continue to do well.
So to me, I think that the economy.
Is operating right around a neutral long term rate.
We're a little bit restrictive.
I think I said modestly restrictive, but I don't think we have much further to go to get to a neutral Fed funds rate.
I know that you're going to say one month's data are not determinative when I ask you this question, but I've got to ask because the markets are posing the question. We went from forty percent chance of a rate move in September to over seventy percent. After these numbers came out, is September a realistic possibility?
Now, one month's data is not determinative. I will back say that, but I enter every meeting with an open mind. I think you know my job, and I think all of my colleagues around the table walk into every meeting with an open mind to make sure we're looking at the data.
And we're going to get an awful lot more.
Data between now and the September meeting. We'll get another jobs report, we'll get two inflation reports, and there'll be a lot more time to be out in the district talking with business leaders, talking with community leaders, understanding their experiences to try to put everything together. So I walk into every meeting with an open mind to make sure that we can support the American people and that we can have an economy that's working for everyone.
Well, obviously the markets today are looking at the labor situation, and you were referencing the inflation situation. If inflation's going up, you can't cut rates. If the economy's collapsing, you have to cut rates. So how do you balle two right now?
Yeah, this is a really tricky time for monetary policy makers. This is when both sides of our mandate could potentially be in conflict, and we'll really have to look at what is the size of the mess and for how long do we think that is going to persist. And so again, it will take a lot of conversations with businesses, with community leaders, it will take a lot of careful
analysis of the data. And it makes sense that there can be disagreement at these particular moments because this is really the most challenging time for monetary policy.
Well, I've talked to a lot of your colleagues around the country and basically they're saying companies are on hold.
Now we've got the tariff numbers.
If you have any indication of how fast companies are going to make decisions about what they're going to do in terms of staffing, in terms of investment, companies.
Have been making decisions all along.
I think they've been delaying or postponing or scaling back from what I've heard. So, we have a franchisee who was looking at building new stores and they decided instead they were just going to renovate existing stores, and so
they were kind of downsize their plans. If you will, hopefully with more clarity around tariffs, and hopefully the policies that we have are durable policies, because that's really important to the businesses that I talk to that they have certainty in what the policies are going to be against which they're making decisions. So it's possible that we could see some more investment being spurred here given more confidence in the overall picture.
The other issue that is hanging out there, of course, is FED credibility and the pressure you're getting from Washington. Donald Trump tweeting this morning that if Chair Powell continues to refuse to lower interest rates, the Board should assume control, leaving aside the fact that the Board doesn't take this is not a Banana Republic kind of situation. How does the Board and the Open Market Committee feel about Chairman Paul?
I have the enormous respect for Chair Powell. I know him to be a person of incredibly high integrity, and I know he walks into every meeting and approaches every day making sure he can do what's best for the American people like I and all my colleagues around the table do, and so I think each one of us goes into a meeting with an open mind, we have a really rich discussion. We learn from one another, We listen carefully, and people reading the exact same data can disagree.
That's what makes markets and it's no different for economists or policymakers.
But it's a good conversation.
It's very collegial, it's very collaborative, and we make sure that we're doing what we think is in the best interest in the American public.
Now I can't really say what the President is thinking, but he tries to give the impression that if only this meddlesome priest were taken care of, interest, rates would go down.
You'll be a voter next year if you get a.
New chair appointed by the President who comes in and says I want rates to go down.
How will you vote.
I will look at where the data is, I will look at how the economy is performing, and I will approach that the same way that I've approached it all of this year and all of last year, which is to make sure that we're hitting as close as we can on both sides of our dual mandate of maximum employment and stable prices.
Do you worry that the Fed's credibility has been damaged by all of this in the public mind or in the business mind.
I've been really reassured by a number of business leaders and the Treasury Secretary who all talk about the importance of monetary policy.
There is a large body of literature about.
How economies that have independent central banks have much better economic outcomes for their population than ones that don't have that level of independence.
What you've seen across.
The globe is a bigger move towards independence, and so I'm encouraged that.
Our leaders, our business leaders.
And hopefully our government leaders recognize that that's critically important for.
The American people.
Beth Hammick, thank you very much for joining us. The president of the Cleveland Federal Reserve,