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Back to the Federal Reserve, the President pushing for FED Chad check Pal to go big. The FED chair emergent competent, I think you have a big cut because I really I don't think you can help with God, it's perfect for Johnny Traders batting with this assessincy the Federal Reserve will cut interest rates by twenty five basis points this week, joining us to discuss the former New York Fed President Bill Dupley. But welcome back, So let's go straight to it.
What are you expecting to see this coming Wednesday.
Right along with everybody else, I expect a quarter point cut. It's baked in the cake. I'd be surprised if that do do anything else.
Do you think they'll guide much beyond that?
Well, they'll be guidance because they're going to publish the Summary of Economic Projections, which shows their interest rate outlook for the rest of the year and into twenty twenty six and twenty twenty seven. And I think the big debate there is do they show one more cut after September or do they shoot show two more cuts? And I think it's going to be a very close call between those two outcomes.
Yeah, Bill, I think we should build on that. That's the interesting piece of information for me. At the last meeting, the last round of forecasts, if you will, they were forecasting two cuts and they had unemployment year end at about four point five percent, And Bill, we could have this really strange situation where people are basically looking for the unemployment rate to stay study in the forecast, but all the dots to come down. Just what's happening there?
What is actually driving the outox for rate cuts. If it's not unemployment, what is it.
I think you're right that the forecast is evolving pretty close to what they had last summer of our economic projections in June. So if they're on the same forecast track, where would they pencil in more ricas. I think the thing that's changed is the just this weakness of the labor market in the sense of perial employment growth. So I've been thirty thousand a month over the last three months, and you see a lot of indicators that the libor
market is continuing to soften. So I think it's more of the softness that a lot of the labor market indicators that are getting them concerned that the market could continue to deteriorate. So I think they think that's the biggest risk right now, and so that's what it's causing them to have a little bit greater urgency Bill.
Doesn't the market agree with them? Isn't that the takeaway from the rally that we've seen in the long end of the yield curve?
Yeah? Absolutely, I mean market is an agreement that rates are coming down, not just this year, but in twenty twenty six and twenty twenty seven. In fact, the market you look at the federal funds futures market, it has the rates coming to all the way down to about three percent on the federal funds rate the end of
end of next year. So there's a lot of rate cuts priced did I think, you know, personally, I think it's not quite so clear that they're going to go that far over the medium to longer term, because the financial conditions are already very very accombinative and economy is not falling out of bed. I also think we haven't seen the full effects of the tarists in terms of prices yet, so I think inflation is going to stay sticky over the next six to twelve months.
So I want to dig a little bit deeper into what you just said. The idea that the long end of the yield curve is pricing in steeper cuts. Make the argument that if the economy isn't falling out of bed, that any steeper cuts would cause a reacceleration and inflation and potentially some deterioration and the dollar. That could cause kind of the opposite in a long end in terms of a selloff and a yield curve steepening. What's your understanding of why the market doesn't seem concerned about that?
Well, I think they think that the reasons for cutting now are actually quite compelling, given that the inflation path through from terrace has been smaller than expected and the weakness in the labor market has been at least as large as expected. So I think the market is shares the view of J. Powell that the downside risk to the labor market outweigh the upside risk to the inflation, so therefore rate cuts are warranted. But I think the question is how far are they going to go over
the medium to longer term. That's where the markets, I think, maybe a little bit ahead of themselves now. Some of this it's hard to factor in how much is the pressure of the Trump administration on the FED and some risks that the Trump administration could compromise the independence of the FED. Now, obviously if Trump administration is successful in doing that, that's gonna be lower rates, but it's also going to be higher inflation.
Well, just to talk about what we might get from the news conference as well with shaman Pal, how difficult is it going to be for him to establish a consensus at this meeting If you go back to the last dot plot, and things might have changed, But in the last dot plot, there were a big group of individuals that saw no cuts in twenty twenty five, And I'm just wondering how much has changed, not just for Shairman Poal, He's indicated a lot has changed based on
the last few times we've heard from him, but for other members of the committee.
I think most people are going to go along with what Chirpowell wants because they're not in disagreement about direction of rates. They're just maybe they have a small disagreement about timing. Should we start in September? Shall we wait a little bit longer. So the fact that they're all in agreement that rates are going to be coming down. I think they're going to give the chairman what he wants it. This means so I'm actually expect expecting very few the sense on the side of no recuts, maybe
zero or one. The other side of the equations are going to get fifty people supporting a fifty basis point great kind and I think one person I'm expecting there and perhaps is Steve Moran if he gets confirmed and is sitting on the FAMAC on Wednesday.
Afternoon, Bill, do you think that it's healthy to have a character like Stephen Moran Meran on the Federal Reserve on the Board of Governors to really foster a robust debate about not just whether to cut twenty five or fifty basis points, but the overarching framework that the FED is operating in.
I think it's good to have a diversity of views on the Federal Reserves to debate a lot of the framework. I think the FED could do quite a bit more in terms of developing a framework for quantitative easing and quantitative tighting, and I've written about that over the last few months, so I think there are things for the FED to do. I think it's a little odd to as someone that's essentially on loan from the administration for
four months to vote at two or three meetings. So and I don't think that, you know, Steve Moran is going to get a lot of difference at the meeting this coming week.
Well, for people who aren't familiar with the meeting, the meeting that you've been a part of many many times, can you describe to them what that kind of room will look like, that situation, how the meeting actually progresses, who runs things, and what kind of opportunity Steve and Maron would have as he sits around that table to make his points.
So the meetings typically are obviously chaired by the chairman, and there's typically a discussion about the economy. Everybody goes around and gives their views on the economy, and then there's a discussion about monitor policy. Everybody goes around the
room and talks about their views on monitory policy. So Steve ram will have a chance to speak on both of those, but he's going to be only one of nineteen people speaking, So you know, the idea that he would go there and dominate the meeting, I don't think he's I think his influence is going to be quite small.
But w do you take it in terms? Are there any kind of debates at all? Or do you just go around one by one by one around nineteen individuals.
Now there can be some back and forth, you know, do respond to what other people said say, But I mean, remember everybody's looking at the same set of information, So the disagreements tend to be small, you know, more at the margin rather than large, because everybody's looking at the same set of information and hearing the same staff for work ask evaluating the same economic information.
Bill, I appreciate your insight, your experience too, quote Dadley. They form a New York Fed President