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Let's turn to the Federal Reserve. The Republican Senator Tom tillis praising FED shair nominee Kevin Walsh following their meeting yesterday, but not wavering on his promise to block any FED nominations until the criminal pro into the current chair. Jpew ends the former sen Lewis. FED President Jim Pillot joins us. Now for more, Jim, welcome to the program. Set the stage. How difficult a moment is this for an incoming FED chair?
Yeah, so you've got to get through the nomination process first. And as I as I understand it, anyway, I don't think anything's going to happen. So nobody is going to be on the FED board anytime soon. The way this is going, the administration will have to come to some kind of deal. They don't seem to be talking about that. So I think it's stalled for now.
It's the second time we've had to deal with this. Jim. Before it was largely in the President's hands, and for whatever reason, Biden's stored, he stolled, he stored, and waited a long long time to reselect renominate chair pau for a second term and some people, even people who were on the committee at the time. So that's what stopped this feder reserve from hiking quickly enough to respond to the energy crisis and the inflation pandemic shock coming out
of the pandemic. Now, Jim, I just wondered this time around how critical this moment actually is with a frenchile labor market and pressure once again on inflation coming from energy.
Well, it always critical, always lots of lots of interesting things going on, I would say about this shock.
It's not like the seventies.
I mean, this is of course this is going to bring up you know, hearkening back to the seventies. But the US is a leading oil producer today who weren't at that time. So I think the recession threat from this shock is probably smaller than it would have otherwise been because you've got the supply side kind of offsetting demand destruction that could occur, so I think. And then on the inflation side, well, you know, the FED looks through or presce shocks anyway, they look at core inflation.
So there's only a small effect on core inflation from this. So it's really whether inflation expectations would start to rise because markets would start to think that the FED was going to accommodate this shock, which is what happened in the seventies. I don't think that committee's in much of a mood to do that. So I think it's a different situation. Even though this is a really big shock, it's a different situation than what we saw earlier in the postwar era.
Jim, what gives you confidence that there's enough momentum in the underlying economy to make this not an issue of demand destruction, not an issue of the consumer increasingly crimped.
Yeah, I just think, you know, the shock would hit the US economy and that would be you know, prices are certainly something that we all pay every day, so that has acted like a tax in the past.
But you've also got a.
Supply side, you know, being the world's leading oil producer, which is offsetting some of that. I would also say that we've you know, we've seen actually higher oil prices in the past. If I recall collect correctly in two thousand and eight, and in real terms, that would be over two hundred dollars a barrel.
So that's a very different scenario.
Markets are right to focus on, well, how long would this conflict continue to go on?
You know, US could withdraw at.
Any point saying it's declare victory and withdrawal.
So we'll see, We'll see what happens here.
We see Jim expectations over at the ECB as well as the Bank of England for a potential rate hike increasingly priced and in response to higher oil prices. Do you think that people will start thinking about the same here in the US.
I don't know if they go that far. I think more would have to happen before they go that far.
I think the more likely scenarios that they just stay on hold longer than they otherwise would have in order to send a signal that they want to keep inflation under control. But again, it's the inflation expectations probably that matter more.
Than the oil price movements directly.
Well, we already see airlines across Europe and Asia increasing fares. They're raising the fuel surcharges given what's going on in the war. Also in America, we are farmed to table society. All of our food comes because of petrol and gasoline on trucks. Isn't that going to be a problem for this Federal Reserve, not just the fact that gasoline prices this morning are closer to four dollars a gallon than three.
Yeah, I mean it's going to be a problem for headline inflation. But you know, the Committee looks at core inflation. The whole point of that is to say that they're not going to react to movements in food and energy prices that can be pretty transitory and have historically been pretty transitory, so that what they want is the underlying
trend in inflation. And you could look at core PC inflation, which the Committee likes, or Dallas Fed trim med inflation, which throws out some of the high and low price changes that occur in that price change distribution.
So sure, yeah, people are really paying these things.
It really does matter, Yes, But when you're trying to make policy for the medium term, you've got to look through.
Some of it.
Hi, Jim, it's going to say, always try to catch up. Jim Blad, the former Saint Louis FED president. The takeaway there not much to say here, seems to be the view of one FED official. One former FED official,