Former New York Fed President Bill Dudley Talks Rate Cuts

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Now with his thoughts on this. Bill Dudley Bloomberg, opinion columnist and former New York Fed President, here's my unfair question. You looked at the data twenty five or fifty in September.

Well, I think the logic for fifty is pretty compelling. The officials have basically said policies should be neutral. The risks of the labor market side are equal to the risks on the inflation side, and they're long away from neutral.

But I don't think they're going to do fifty.

I think that a gradual approach is what they're going to pursue.

Today.

You had two fit speaker at John Williams and Chris Waller, and neither of them hinted that they might go more aggressively just meeting. So I think the logic for fifty is pretty strong. But I think they're just going to do a twenty five basis point rate cut in September.

If they don't do fifty, does that significantly damage the economy until the next meeting.

I don't think so, because the market's priced in a lot of raycuts between now and the end of next year, and so you know, we know where headed to much lower short term interest rates. All we don't know is the speed in which how we're going to get there.

How much about bill do you think the FIT is actually concerned about the market reaction to this? The last time we had a major shift in monetary policy cycles, there was a lot of talk by J. Powell about financial conditions about the reaction function in the markets. Is that concerned as present now as it was then?

Well, I think they view financial conditions as their friend right now because financial conditions are easing even before they've actually been forced to act, and so that reduces the legs of monitary policy. In terms of how mandary policy affects the economy. We've already seen long term mortgage rates, for example, come down quite a bit. We haven't seen the consequence of that drop up long term mortgage rates

When we talk about this potential for the start of a major easing cycle bill, we'd be remiss and not pointing out that there are a lot of fiscal conditions government fiscal government conditions that the Fed is at least going to have to pay attention to, probably much more than they would have had if they had started this I don't know a couple of years ago here, what's going that discussion like behind closed doors when they have

Well, the FED always takes the world as it is, not the world that it hopes it might be. And I think you know, if you look at the candidate's proposals, the Trump site in particular, would really blow up the budget dose it over the next ten years. The Harris is a little bit more ambiguous, and so the FED knows that the fiscal stress is going to be probably sustained for quite some time, but it's probably not necessarily going to get worse than what.

It is today.

I mean, if you look at the Congressional budget Office, which makes projections over the next decade, They have them staying about the same level as a percentage of GDP, about six percent of GDP over the next decade. That's not good by any stretch of imagination, but it's not dramatically worse than.

What we have today.

So I don't think the fiscal outlook in the near term is going to be a big driver what the FED does. I think the FED is basically going to react to what they see in terms of the.

Risk on the labor market side.

So watching the unemployer rates the payer, all employment growth, wages, layoffs, in particular, any signs of growing weakness in the labor market are going to accelerate the rate of FED rate cuts.

So let's get more than into some of the candidate's proposals on the economic side. You had a peace out in Bloomberg Opinion yesterday talking about the high tariffs proposed by former President Donald Trump. You say, high tariffs week dollar a recipe for disaster. You write, as long as the US keeps borrowing at the same pace, the policies of higher tariffs and weaker dollar are fundamentally at odds and a bigger deficit means less savings, which means the

Well, it basically wouldn't work.

You know. Trump's basically proposing that I'm going to raise terris a lot and I'm going to intervene and push the dollar down in value, and that's somehow going to solve the trade deficit. But that this is what actually causes trade deficits in the first place. The reason why we have a big trade deficit is we have a shortage of domestic savings relative to domestic investment.

The personal savings rate right now is running around three percent.

We have a large fiscal deficit, and so you know, we're essentially spending beyond our means, and so we have to import that capital from abroad to fill that savings shortfall. And that caple from broad is in the form of a big trade deficit. So if you're president, if you're a candid Trump and become a President Trump and all of a sudden you enact all these things that are going

So the notion that the dollar would go you.

Know, would would be would depreciate and the environment is probably pretty unlikely. The dollar would probably have to strengthen to generate that bigger trade deficit.

There is so much debate though as to whether those higher tariffs are going to be good or bad for the economy and who actually winds up paying for it at the end, walk me through your thinking.

Well, most economists are pretty uh, you know, they don't agree on we don't agree on everything, but we are one thing. The terrorists are are are bad idea generally unless you're doing it for sort of you know, for for national security kind of reasons.

Because they basically distort trade.

They push you away from doing the things that you have a competitive advantage from for to doing things where you're you're probably less less, less less effective. They're also bad because the end the burden of terrorists are not felt by foreign producers. At the end of the day, they're felt by domestic households. And you know what's interesting about the Trump proposals is they would be bad for the core constituency that Trump, uh, you know, has has

Is there a way to blunt that impact through monetary policy? I mean, given how blunt that policy is.

Not really I mean, obviously, you know, if you had higher terrorists, you'd have more inflation, and the Fed Reserve would have to take that into consideration in terms of the manitary policy paths that they chose. But you know, the FED is not going to make any decisions about this for many many months. The Fed doesn't set policy based on what might be it might happen in the future. They set policy on what's happening today, So anything, you know,

So that's still many months down the road.

All right, well said Bill, Always great conversation. Bill Dudley is the Bloomberg Opinion, a columnist, senior advisor to Bloomberg Economics, and of course, former fed