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I'm pleased to say that joining USNA is the former Sen Lewis FED President Jim Pullott. Jim, welcome back to the program. So it's been a while. We haven't spoken to you, I believe since Cham and Pal spoke in the news conference. So we've got to watch you. We need your reaction. The T word making a comeback at the Federal serv What did you make of that.
It's now making it come back with me? I'm not using that word. So I think that the I.
Do think that the committee has, you know, good reason to stick with the policy rate where it is. Inflation expectations for the next two years and the tips market they've been rising.
They're about three in a quarter today. That's a CPI based measure. But if you put that over the pc based.
Measure, be you know, around three percent PC inflation over the next two years.
That's what the market is thinking. That's too high for the committee.
The committee is trying to get, you know, especially core PC inflation once you came in a little bit hot here, you're trying to get.
Core PC inflation down to two percent.
So they're going to have to be higher for longer, and if it goes too much farther, they're going to have to raise the policy rate.
Wait hold on a second, because Jim, this is exactly what people thought that fedcher Powell did last week when he said transitory the word that you will not go so far as to say is that you would be willing on some level to look past terref related boosts to inflation in the short term, especially if growth was sagging, and that the FED would have to or be open to responding to slow in growth. Are you saying that inflation should it be above expectations because of care forwhere else?
It's going to be interesting that Committee should be hitting their inflation target two years from that, And what the market is saying is no, you're not going to hit it.
You're going to hit three percent. That's that was my story here. So that doesn't sound very good to the committee. Now, maybe the market's wrong.
They often have and I'm talking about two year tips here, and they can move around, yes, but it's a good reason for the Committee to stay where it is. I have argued that the Committe is in good shape here. They didn't go as far as was previously previously expected on cutting the policy rate, so they stayed a little bit higher.
I think that's turned out to be wise.
The tariffs, I mean when I say tariffs don't cause inflation, what I mean is that inflation is a product of monetary policy over the medium term, and it's not up to the trade representative to control inflation. It's up to the policy makers to control inflation, and they have to adjust policy appropriately given everything else that's going on in the economune so and over a two year horizon, that's
something you should be able to influence. But right now markets are saying that the committee doesn't look tight enough to get down to two percent at the end of two years.
Think that the Fed should open the possibility of hiking rates again.
Well it's not my base case, but I think the probability on that is rising slightly here.
And this wasn't that radical of.
A data release here, but I do think that possibility is rising.
We really haven't made any progress.
On getting core PC inflation down, let's say over the last year. You know, I think the man on the street would look at those numbers and say, now it has basically been flat for the last year.
Jim One thing we've heard repeatedly from some economists, and this labor market is just not as tight as it was. And because it's not, that dampens down the potential for second round effects from the inflation we kick up that you get from tariffs. What would you say back to that, How fertile do you think this environment is for second round effects?
I don't know.
Come on unemployment insurance claims, you know, ridiculously low.
That's your best week to week indicator. Unemployment rates, if anything, is.
Probably below the natural rate for the US economy, but certainly low by historical standards. I just don't see it right now. Now there's fear of the future and what might happen. And we know that the last era war in twenty eighteen twenty nineteen did cause to slow down in the economy, and if that did react to that by lowering the policy rate.
So we'll see if that history repeats itself here. So it's the expectation that people might be thinking about. But as far as where.
The labor market is right now and whether that's disinflationary pressure coming from there, I.
Don't think so.
Jim. Can we have a best guess from you?
Next?
Move cuttle hike. What would your best guest be Right now.
I still think the committee can stick to its baseline that there will be further cuts, but they're being pushed farther and farther out.
Into the future.
And now with a hotter core PCE, you're over year number, you might start pushing those out into twenty twenty six instead of the twenty twenty five.
We'll suit the market does in the days I had.
Him before you go. Boiler Makers play Tonight down nine Sweet sixteen.
Yes, and Atty good about that victory for the Boilers here. I we're playing in Indianapolis. They don't lose at home very often, so I think they've got a good.
Shot boiler Up. I do that because you know the manager who does my reviews. Purdue appreciate it. Thank you, sir, Formers and Lewis got President Jim Filat