August 22, 2025 • 36 mins
Bloomberg's Tom Keene, Lisa Abramowicz and Michael McKee discuss remarks from Fed Chair Jay Powell following his speech at the Jackson Hole Symposium on a special edition of Bloomberg Surveillance.
They speak with:
- Jim Bullard, Former St. Louis Fed President
- Kate Moore, Citi Wealth CIO
- Rich Clarida, Former Fed Vice Chair
Federal Reserve Chair Jerome Powell carefully opened the door to an interest-rate cut in September, pointing to rising risks for the labor market even as worries over inflation remain.“The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said in remarks prepared for the Fed’s annual conference in Jackson Hole, Wyoming on Friday. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Following Powell’s remarks investors boosted bets that the Federal Open Market Committee would cut rates at their Sept. 16-17 meeting.
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Speaker 1 (00:02):
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(00:25):
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Speaker 2 (00:27):
Joining us now is someone who is very familiar with
these types of speeches. Saint Louis FED President James Bullard,
who recently was in the media talking about his preference
for one hundred basis points of rate cuts this year
heading into twenty twenty six. Also a potential contender, I
should say to be the next FED chair James Jim,
(00:48):
how much are you seeing what we heard from Fedchair
j Powell and seeing anything different that you would really
say say if you were at that podium.
Speaker 3 (00:56):
He used the speech to solidify expectations for twenty five
basis points in September. I was expecting that anyway markets
were expecting that. He leaned into the most recent labor
market report, which was very soft, and so I think
that's a done deal. He didn't say too much about
(01:21):
beyond that, what you want to do with the October
meeting or the December meeting. I have set one hundred
basis points, you know, going into twenty twenty six. I
think you could adjust as you go forward and eventually
get a full hundred basis points, but I would go
slowly in order to watch the data and then on
(01:42):
the framework review. I'm sure much earlier in the year
they had targeted that they would have the framework discussion
and that they would use the Jackson Hole speech to.
Speaker 4 (01:53):
Talk about changes to the framework.
Speaker 3 (01:55):
I thought those were thoughtful, and they were well presented
in this speed each and they're about what many.
Speaker 4 (02:03):
Have speculated on.
Speaker 3 (02:05):
So I think they did about as much as they
can on the framework side.
Speaker 5 (02:08):
Jim Bowler, Tom keenan good morning to you. I definitely
consider this my conversation of the day. You served a
lengthy term at the Saint Louis FED. You have lived
the decline of a greater economy decades and decades ago
in the effort to provide for a resurgence Saint Louis
(02:28):
is a next chairman of the FED, whoever that may be.
Do they have to manage for two American economies, a
technology driven exceptional economy and another, to use a cliche,
America flat on their back? How would a chairman execute
those two Americas.
Speaker 3 (02:47):
Yeah, I think in commonwealth distributsha have become more salient
topics for the FED.
Speaker 4 (02:53):
Is not that clear how much the FED can really do.
Speaker 3 (02:58):
Providing interest rate Paul, for the whole economy of if
you change the rate structure, that affects everyone, not just one.
Speaker 4 (03:07):
Particular group that you might be targeting.
Speaker 3 (03:11):
So I think that's been something we've had to wrestle with,
and I've actually done research on it myself to try
to understand it better from my point of view.
Speaker 4 (03:20):
So I think there's been been a theme.
Speaker 3 (03:23):
For a while, and that'll be an important theme in
Macreconowics going forward.
Speaker 5 (03:28):
Mike McKee's got a lot of smarter questions than me
on the immediacy of this speech. I'm going to ask
one more distant question, Jim Bollard. You're at Purdue executing
online technology education every single day. How do you define
the new technology productivity that America faces?
Speaker 6 (03:50):
Is it enough to save us?
Speaker 5 (03:52):
Is it enough to really add on to our present
gdp Oh.
Speaker 4 (03:57):
Yeah, I think that the AI boom is.
Speaker 3 (04:02):
You know, it's a general purpose technology that will diffuse
through the economy. I think the key question is how
fast does that actually diffuse? And sometimes marcus can get
ahead of themselves and think it's going to happen sooner.
Sometimes they're too late and it happens faster than markets think.
But nevertheless, anyway you look at it, it's an important technology.
Speaker 4 (04:24):
It can drive productivity and.
Speaker 3 (04:26):
I think in higher education is one of the places
where you can really have the biggest impact. We put
a AI requirement in at the Danniel School here for
every single student, and we're trying to expand that to
all produce. So I think that just shows you how
important this technology is.
Speaker 6 (04:45):
Jim, it's Mike McKee.
Speaker 7 (04:46):
I have a question about sort of the process involved
in this speech. The chairman is giving his own speech,
but basically when he says it's time to maybe adjust policy,
he's speaking for the entire open market. Can going into
a speech like this, would he have polled everybody? Does
he think he has the votes for that? Because we've
(05:07):
been speaking with FED officials here in Jackson Hall and
there's still some who were saying, well, we're not sure
that we need to do that yet.
Speaker 3 (05:15):
Now he's going to report on the center of gravity
of the committee, even though there might be people that
have misgivings. At the June meeting, the committee had a
median dot dot plot of two rate reductions by the
end of the year, and I think the minutes, you know,
suggested something that was more like fifty to fifty.
Speaker 4 (05:36):
But then the labor market report came in.
Speaker 3 (05:39):
I think that tilted the balance, so he could have
he could have pushed back a little bit. I think
financial markets were expecting him to come be a little
bit more hawkish here and try to set up a
fifty to fifty meeting where you would wait and see
for the rest of the data to come in. But
I don't think that's where the center of gravity is
(06:01):
on the committee, so so.
Speaker 4 (06:03):
He went ahead and leaned in.
Speaker 3 (06:05):
I thought there was quite a bit of talk about
the labor market at the at the beginning. You know,
you could have could have been a little more, uh,
you know, a little more emphasis on the low unemployment rate,
for instance. And you know, he did come out at
the end of that discussion saying, well, it's in balance,
but we're a little bit nervous. So I think, you know,
(06:27):
I think he's accurately uh describing where the bulk of
the committee is.
Speaker 7 (06:32):
Well where would you be on this question, because we've
heard FED officials for some time now saying, yes, we
had poor job creation in recent months, but the unemployment rate,
as you just mentioned, has been low, and they've described
the labor market as solid. Now, this seems to be
sort of a major shift in the way they view
the outlook and the sort of balance between the two mandates.
Speaker 3 (06:55):
Yeah, what he did at the end of that discussion,
he said, well, it's in balance.
Speaker 4 (07:00):
But I think the committee's nervous.
Speaker 3 (07:03):
I think it has been slowing, and I think the
policy rate is moderately restrictive. Is maybe you know, one
hundred and twenty five basis points above the neutral rate.
Is that really where you want to be in this circumstance.
I think the answers no, So you can come down
some and still have moderately restrictive monetary policy that puts
(07:26):
gentle downward pressure on inflation. And then the other thing
I think has happened is that this argument from Chris
Waller and others on the committee that the you know,
you should look through the one time increase in goods
prices coming from tariffs.
Speaker 4 (07:45):
I think that's carrying the day.
Speaker 3 (07:46):
And you know, then he emphasized that inflation expectations remain
anchored and so on, and so I think that sets
up a modest move downward in September.
Speaker 2 (07:56):
Jim, We've been talking with you for years and you
are very focused on the discipline of economics. Right now,
I'm looking at the headlines that are crossing from the
past hour. The top one, of course, is a Jerome
Powell fedchair saying that shifting risks may warrant adjusting rates.
The second one is that Trump says that hell fire
the Fed's Lisa's cook if she doesn't resign as someone
(08:18):
who is thought to be a contender to become the
next FED chair. Jim, how much does it concern you
that there's this increasing political noise around the seat and
exactly what the path of policy forward looks like.
Speaker 3 (08:31):
Yeah, I want to see due process around something like this.
I want to see you know, you can make charges
against anybody about anything, I guess, and you know the
person can answer the charges and the dojke and decide
what they want to do and so on.
Speaker 4 (08:48):
So I think this has, you know, should.
Speaker 3 (08:51):
Have longer to play out before you took that step.
Otherwise it's just is kind of the wild West, and
she can get reinstate later, I guess, or something if
there wasn't a conviction.
Speaker 4 (09:03):
So seems messy to me.
Speaker 3 (09:06):
I think these kinds of these kinds of charges are
made from time to time against various officials around Washington,
but I'd.
Speaker 4 (09:14):
Like to see due process there.
Speaker 2 (09:16):
Jim, there's another question here, and aside from Governor Cook
and what happens there, about how the perception of political
interference handles the market reaction to Fed policy. There is
this perception that that could cause the dollar a week
in more because there is more of an emphasis on
supporting growth and supporting the label market than containing inflation.
(09:37):
And some people are worried that if the Fed does
cut by fifty seventy five one hundred basis points, as
you were talking about this past week, that you could
see a move up in long end yields akin to
what we saw last year. If you are on the
FED currently and you did see yields along the long
end moving up in response to near term FED rate cuts,
(09:58):
what would you do?
Speaker 4 (10:00):
Definitely be a concern.
Speaker 3 (10:01):
And that's the tricky part of this business, is that
you know, you think you're pursuing a dubbish policy at
the short end, but the long end goes up because
in place and expectations start to rise, markets start to
lose confidence in the FED and the credibility of the FED,
and that can go very very badly and unfortunately fairly quickly.
(10:24):
So I think you do have to be come You
do have to be careful here. But I'm saying that
I think that committee has room to maneuver if they
proceed carefully over the remainder of twenty five and the
first half of twenty twenty six.
Speaker 5 (10:38):
I don't want to get out front of the debate
here the moment, Jim Bullard, But what I would say
to Chairman Bullard and Mike.
Speaker 6 (10:44):
McKee, I got to turn to you.
Speaker 5 (10:46):
You and I used to sit and look at the
dots and go which one is Bullard?
Speaker 6 (10:50):
I mean, you and I do.
Speaker 7 (10:51):
It's fairly easy after a while to figure out.
Speaker 5 (10:53):
I've Chairman Bullard, is your first act if you take
over the FED as your act to get rid.
Speaker 6 (11:01):
Of the dots?
Speaker 4 (11:02):
Yeah.
Speaker 3 (11:03):
I've threatened to well, ex President, I threatened to withdraw
from the dot plot. I think this could be done better.
This was discussed at the Framework conference and former chair
of Bernanke gave a very nice presentation and talk about
a quarterly monetary policy report, get more organized about it,
put out a forecast.
Speaker 4 (11:25):
I think all of that could be done.
Speaker 3 (11:26):
I've advocated that for a long time, and so I
think that would sort of clear up some of the
misconceptions around the dot plot.
Speaker 6 (11:35):
Okay, this is really really important, Folcus.
Speaker 5 (11:37):
Jim Bullard made he can history i'd say, a decade ago,
with a small, short paper forceful on regime change. How
do we get a new FED away from the guessing
and the certitude and the silly parlor game of it,
Jim Bullard, with great respect, how do we get to
that more disciplined study around the game of the FED
(12:00):
and regime change?
Speaker 3 (12:02):
Yeah, I think regime switching is a great way to
think about the global economy and the US economy and
how it operates. There are relatively long periods of time
where you might have let's say, slow growth and very
low interest rates, and you might switch to another time
(12:23):
with faster growth and higher interest rates. I think understanding
that and understanding how that affects policy choices is a
great thing to study further and talk about further in
the years ahead, So you know, I think it's very
salient for what the committee does.
Speaker 2 (12:43):
Jim Bullard, former FED President of the Saint Louis Bank,
will be sticking with us.
Speaker 6 (12:49):
Right now.
Speaker 2 (12:49):
In markets, you can see a cheering across Wall Street
to the opening the door to a potential rate cut
next month. Potentially more. You could see equities surging higher
across the different of the different indexes, led by some
of the more interest rate sensitive sectors. The Russell two thousand.
You can see ten year yields down now about six
(13:10):
basis points, even more at the front end, down ten
basis points. As people look to the prospect of the
Fed looking through some of the inflation from tariffs. You
could see the dollar markedly weaker one seventeen on the
euro dollar cross up on nine tenths of a percent
in terms of just the percentage rise up about a
(13:30):
basis point. And there's a real question here about what
this means going forward. City Wealth Chief Investment Officer Kate
Moore is still with us, freezing a little bit because
it is a little bit chilly.
Speaker 4 (13:39):
Here, nippy in the morning.
Speaker 2 (13:40):
I am curious though about what you're hearing in terms
of prospective FED chairs and the politicization of the Federal Reserve.
If this is a FED willing to err on the
Dubvish side, does that mean something that materially is higher
with respect to returns and with respect to risk appetite.
Speaker 8 (13:58):
Look, markets love certainty and our investors love certainty, and
we want a certainty in terms of the process around
making monetary policy decisions. So I don't have any insight
into who might be named next FED chair, But what
I will say is if there is a sense that
the process is changing, I think that will lead to
some pause and perhaps some volatility in the market. You know,
(14:18):
our expectation is that regardless of who takes the next
chair and what seats are filled, we'll have a continuous
continuation of the process of being data dependent, of being thoughtful,
of having great debate and discussion amongst the FED governors
and their staff. But if that were to change, I
think that would introduce volatility. I think the most important
thing for us right now is to recognize that so
(14:39):
much of the data is going to be mixed through
the back half of the year, and that's going to
have a huge impact I think in terms of investor sentiment,
and I would suggest even more crowding in some of
the favored trades.
Speaker 7 (14:51):
We tend to get reactions like we're seeing in the
market now on a day when news breaks. But I
think we're probably going to see extended rally here because
people are anticipating great conscience. Does that worry you in
terms of a bubble forming or some sort of excess
spending that would push up inflation because of inflated asset prices.
Speaker 8 (15:15):
Yeah, so I have been a little bit worried actually
about positioning. I feel like I've been a little bit
more cautious frankly than some of my peers on the
street and saying, you know, people own the highest quality
parts of the market. It's quite crowded. Some of the
shorts when we're looking at some of the fast money
a community are very similar across the board, and we've
seen people kind of shrug off concerns around economic growth
(15:38):
or even the technological disruption across a lot of industries.
We've seen significant improvements in terms of the earnings or
vision ratios, City Economic surprise index has moved up, you know,
and all of this together I think sets us up
for you know, a little bit of weakness if there
was a bad data point, or if there was a
bit of a shock where there's a lot of consensus positioning.
Speaker 2 (16:01):
Well, Jim, Jim Bullard, I'd love to bring you back
in here. How much does that concern you that sort
of a bias to cut rates could cause asset price
inflation to get ahead maybe of where the economy is.
Speaker 3 (16:13):
Yeah, equities, except for just recently, equities have been doing
very well as they've digested the new trade policy of
the US and how that's going to play out globally.
Speaker 4 (16:24):
You've got the AI boom going on, really a driver
for the big tech companies, and you know.
Speaker 3 (16:32):
I do get concerned that things we get ahead of ourselves.
Sure it's a great technology and everything, but how fast
is it really going to in diffuse into actual productivity
in the economy. But overall, I would say, you know,
it's possible that we'll get higher productivity growth ahead and
(16:54):
really a good outcome for the second half of the
twenty twenties here, much as we had in the for
the nineteen nineties.
Speaker 5 (17:01):
Let me talk to the chief investment strategist Purdue University
right now. I'm going to do a double barrel question
first to doctor Bullard and then to doctor Moore. Jim
Bullard as simple as I can all of my conversations
rather Jakamnagel, Bundesbank, Kate Moore, City Group and on and on,
is about an elevated or persistent nominal GDP.
Speaker 6 (17:21):
Do you frame out that.
Speaker 5 (17:22):
We're going to have an animal spirit in the country,
whether it's better real growth okay, inflation too much inflation, okay,
real growth, But what we're talking about forward is an
elevated nominal GDP.
Speaker 3 (17:38):
If you think real growth is going to be faster
than yes, nominal gp growth would be faster even if
the Fed hits it's two percent inflation target over that period.
So yeah, you would see higher, faster nominal GDP growth.
Speaker 6 (17:53):
I mean, I look at this, Kate Moore, and it's
a higher manner.
Speaker 5 (17:55):
And I'm really surprised by your comments. I think they're
extremely important our back to the US quality, etc.
Speaker 6 (18:00):
But it sounds like.
Speaker 5 (18:01):
City Group is modeling out through all the emotion, the fear,
the turmoil, the political debate.
Speaker 6 (18:08):
As we just sign next to the eight foot there
in the lobby.
Speaker 5 (18:11):
The answer here is you're modeling out that will be
okay and there'll be a better nominal GDP, it leads
into revenue, etc.
Speaker 8 (18:19):
Look, I think we're going to have an okay growth environment.
But one thing we keep on talking about is sort
of the ke shape. Right there are the haves and
have nots across all the different industries and different consumer groups.
And so I don't think that we want to assume
that everyone is going to experience strong growth in the
second half the year. And we're seeing this, of course
in the consumer companies. We're seeing this across you know,
(18:39):
segments of different households. We're seeing this even in technology companies,
those that have made the investments and are reaping dividends
from it. So yes, we may have these good headline numbers,
but I think as investors we have to really pay
attention to what's going on beneath the surface, and I
think there's an opportunity for differentiation over the next couple quarters.
Speaker 2 (18:58):
We are looking at a market that is moving, We
are looking at headlines that are coming. And I want
to bring this to you that Canada is planning to
remove retaliatory tariffs on many US products in an olive
branch to President Trump. And there is this feeling that
maybe some of the tariffs are fungible, that we are
going to see some of them removed, or US as
(19:20):
a negotiating state.
Speaker 5 (19:21):
I strongly agree with what you're saying. This was sort
of out there in the ether last night, but to
see these headlines is another example we adjust well.
Speaker 2 (19:29):
And that's one of the reasons why there has been
a focus on the labor market fed chair to ome
Powell speaking just moments ago, really focusing on the complications
for the labor market overall.
Speaker 9 (19:40):
While the labor market appears to be in balance, it
is a curious kind of balance that results from a
marked slowing in both the supply of and demand for workers.
This unusual situation suggests that downside risks to employment are rising,
and if those risks materialize, they can do so quickly
in the form of sharply higher layoffs and rising unemployment.
Speaker 2 (20:00):
Some people might say that a fetcher J. Powell is
coming around to the Chris Waller view of things, that
there is this feeling of potentially the weakening and the
labor market taking priority over inflation at a time where
some of these tariffs are put on taken off, and
that's what we're seeing a little bit in terms of
negotiation this morning.
Speaker 5 (20:19):
Well, the given the take and it goes back to
Kate Moore's optimism on investment in America and you see
it a dollar thank you, and you putting up that
wonderful dollar Looney chart and you see things adjusts and
you wonder, Okay, what do we do with China, what
do we do with Mexico with the produce debate? And
pharmaceuticals with Europe? Guess what there may be constructive surprises
(20:41):
is the certitude of the tariff debate gives way, It
makes it easier for the next chairman, and maybe maybe
I'll get out of triple levers all cash. It's fifty fifty.
Speaker 2 (20:51):
Oh, now is the time to definitely do it? Yeah,
for sure, Jim. Before we let you get on with
your day, I do want to finish there that have
we seen from tariffs that there is this fungibility there
that they get put on, they get taken off, and
that right now the path of travel is lower from
where we were maybe on April second, not higher again,
(21:11):
And so you can look through in another kind of
way some of the inflationary impact.
Speaker 3 (21:16):
Yeah, I mean, I think it was great to reach
a pluminary deal with the EU. That's one of the
bigger blocks in the world.
Speaker 4 (21:24):
China put on the back burner.
Speaker 3 (21:26):
Markets like that for now, and then you've got Canada
and Mexico. Looks like we're headed toward renegotiation of the USMCA,
which I think would be a fine thing to revisit.
Was scheduled for twenty twenty six anyway, so it's maybe
(21:47):
a little bit more settled than it was earlier this year,
and I think markets are liking that.
Speaker 4 (21:54):
That's making it easier to plan. So far, so good
on that.
Speaker 2 (21:59):
Jim Bullard, former Saint Louis FED President, joining us. Thank
you so much for being with us. Maybe a future
FED chair. We shall see. The process is ongoing. And
City Wealth Chief Investments Officer Kate Moore, before we let
you go, I just would like your take on this,
the idea that we are at a moment where suddenly
people are looking through the inflationary ramifications of tariffs. Are
(22:21):
you seeing the same kind of thing? And that's appropriate
that this isn't nineteen seventies. This is a different shock
that usually is a demand shock in the end.
Speaker 8 (22:29):
Look, I will say people have been looking through the
inflationary impact of terriffs for the entirety of the summer.
At this point, there's been an enormous roller coaster ride
in terms of expectations for end tariffs. But what I
will say is this, you know, even if we're at
a lower rate, I'm just going to say fifteen percent
effective tariffs relative to where expectations were in the beginning
of April. I think we have to keep our eye
(22:51):
on the sectoral teriffs and this has potentially some of
the biggest impact for overall earnings. And those are sticky,
we know, and are likely to endure through multiple different administrations.
So you know, this a give and take between some
of our trading partners around the reciprocal tariffs we're watching
that it's very hard to trade around it. But I
will say the sectoral tariffs are going to be very
important for our outlook.
Speaker 6 (23:13):
Stay with us.
Speaker 5 (23:14):
More from Bloomberg Surveillance coming up after this.
Speaker 1 (23:24):
This is the Bloomberg Surveillance podcast. Listen live each weekday
starting at seven am Eastern on Apple Cocklay and Android
Auto with the Bloomberg Business app. You can also watch
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Bloomberg terminal.
Speaker 2 (23:38):
Well, let's take a listen to what Fedchara Jerome Powell
had to say about tariffs and what the impact is
on the economy.
Speaker 4 (23:45):
Take listen.
Speaker 9 (23:46):
The effects of tariffs on consumer prices are now clearly visible.
We expect those effects to accumulate overcoming months, with high
uncertainty about both timing and amounts. The question that matters
for monetary policy is whether these price increases are likely
to materially raise the risk of an ongoing inflation problem.
Speaker 2 (24:06):
What you could see is the response is rip roaring
in markets, with equities surging, yields plunging on the front end,
yield curve steepening at a dollar a weeker Pimpko global
economic advisor and former FED Vice chair Rich Clarita joining us.
Now and Rich, what's your take on what we just
heard from FED share j Powell?
Speaker 10 (24:26):
Well, I think the share certainly intended to open the
door pretty wide to cutting in September. Importantly, Lisa, he
spent a lot of time on balance of risk, which
is what policy makers do, but at the two key
junctures he highlighted the balance of risk to the labor
market is to a weaker labor market, and he basically
(24:46):
indicated that the balance of risk to higher inflation doesn't
appear to be a first order concern in terms of
persistent inflation. So I think the message was they think
they're going to cut in September, we get some more data,
and the markets every acted to that.
Speaker 2 (25:01):
How much do you think that this is partly to
maintain the Fed's credibility, not necessarily with respect to the president,
but that right now, if they get it wrong on
the labor market front, that it is that much more
pernicious based on some of the job owning by what
we hear from the President.
Speaker 10 (25:18):
Well, yeah, I mean, as the chair said in the remarks,
it's a curious kind of balance in the labor market.
The payroll employment growth has been very, very weak in
the private sector, but the unemployment rate has not gone up,
and so they are really focused on the balance of risk.
Speaker 4 (25:35):
Look, the FED has a dual mandate.
Speaker 10 (25:37):
It's costly to let inflation move higher and stay there,
but it's also costly to have a recession with the
rise of the unemployment. And I think, Lisa, you're correct
they are tilting in that direction.
Speaker 4 (25:48):
Now.
Speaker 2 (25:48):
It feels like a very different Jackson Hole. And this
is something that we've been talking about with all of
our guests today, Rich that people have come on and
said there is a different tone about central banking independence
and a question of how to communicate at a time
of such political interference. What's your sense of where that
was in the speech that we just heard from Fedchair
(26:09):
J Powell.
Speaker 10 (26:10):
I think the approach the Chair took was to really
focus front and center Lisa on the dual mandate that's
assigned by Congress maximum employment and price stability, and the
Chair gave a very reasoned and thoughtful analysis and discussion
of how they're balancing the dual mandate risks.
Speaker 4 (26:29):
And I think that's the j. Powell message to the
issue of FED independence.
Speaker 10 (26:33):
We have an assignment from Congress, and this is what
we're doing to achieve it.
Speaker 2 (26:37):
At this point, we also are dealing with the headlines
that are coming out about FED Governor Lisa Cook, where
at the same time that Jerome Powell was giving his speech,
President Trump came out with this truth post saying that
he will fire Lisa Cook if she doesn't resign. We
did hear reports that in the Jackson Lake Lodge and
the lobby that James Fishback was screaming at so Cook
(27:00):
that why did she commit mortgage fraud? What's your take
on what this does in terms of both the FED
composition but also just the ability to be clear minded
about making FED policy.
Speaker 10 (27:14):
Well, obviously understand just looking at the headlines that you
mentioned myself and don't know the details or the facts
in this particular situation, but clearly we're in an environment
where FED independence is under scrutiny. And my conviction is that,
notwithstanding all of the very relevant factors that you mentioned,
(27:37):
that the Fed's is going to keep doing keep doing
his job.
Speaker 5 (27:41):
Richard Claire to Tom Keene here, thank you so much
for joining.
Speaker 6 (27:44):
U's very valuable.
Speaker 5 (27:45):
I've got two tasks I want to take here that
I think are important. You recently said that what matters
is the institution that this chairman and any future chairman
has to protect the institution. What's the day one first
mandate to protect the institution for the next chairman?
Speaker 10 (28:03):
Well, I think first and foremost it's to have in
place a plan and communication that will deliver expectations of
price stability. I think the chair was right today to
emphasize that the FED has to focus on getting price stability,
because that's going to deliver the ability to deliver maximum employment.
(28:24):
I've also written Tom that the FED is sort of
a complex and cumbersome institution with nineteen folks around the
table and the Reserve Bank presidents. But I do think
that is a strength right now of the institution.
Speaker 5 (28:37):
Right Well, this is really important because it's as fractiiced
as a meeting of the bond team at Pimco. In
the middle of the speech, Powell channeled a few years
ago at PIMCO the new normal for a moment, I thought.
Mohammed Ilarian persued it in to write the speech, What
is your optimal new normal for the FED? Which Powell
(28:58):
mentioned today? What's the best new normal for the next FED?
Speaker 10 (29:02):
Well, I think a new normal would be inflation moving
down towards the two percent target, which would let the
next BEED chair cut rates down towards a neutral level.
You know, Pimco in twenty fourteen we rolled out the
idea of a new neutral and we've been operating in
that new neutral world now for more than a decade,
and so I think well anchored inflation expectations, getting tariffs
(29:25):
in the rear view, Mirr would allow the FED to
cut rates by probably one hundred and fifty basis points
from here and achieving that ultimate soft landing. So I
think that would be a good new normal destination for
the next FED chair.
Speaker 2 (29:39):
What risks are there to that given what we're seeing
with the dollar, given the fact that we really have
a very high level of uncertainty around which tariffs are
going to stick and how much is going to get
past along to consumers.
Speaker 10 (29:49):
Sure, and I think the Chair was right to point
out that we are seeing evidence of tariffs showing up
in the price indexes for imported goods, but that's been
offset to extent with the decline in services inflation. Again,
I think where they are focused is to make sure
that what is an inevitable increase in the price level
(30:10):
from tariffs does not over time result in persistent inflation.
And I think the speech today addressed their thinking right now,
which is that their baseline is that that will not happen,
which will give them the room possibly in September, to
cut rates.
Speaker 5 (30:27):
Yeah, Lisa, I think it's important to mention within the
market check that the market is putting on steam. Here
an hour after the beginning of the speech and Mike
McKee's bombshell headlines a Dow lifting up. I'm not told
I can't leave Jackson Hall unless Dow goes up a
thousand points.
Speaker 6 (30:42):
Well, I'm getting pretty close to you.
Speaker 2 (30:44):
It sounds like you're going to be hiking for maybe
another six hours and then all of a sudden not
so much rich. I do want to know, though, about
what this does in terms of the currency ramifications and
where your preference lies in terms of the good investment backdrop,
because what we heard from fetcherg is so vastly different
from what we heard from Joakim Novel of the German
(31:06):
Central Bank, where he said we have to focus on
inflation and right now that is more concerning to them
than trying to support growth by cutting rates or being stimulative.
The fact that that is the framework there and it
is such a different framework here, does that make you
want to invest in Europe a little bit more?
Speaker 10 (31:24):
Well, you know, I think one of our themes at
PIMCO is that we're in a world where taking advantage
of a global opportunity set makes sense. Also, we're in
a world where makes sense to focus on valuations and
without getting into particular markets or securities. There have been
some pretty big divergencies between valuation in the US and Europe,
(31:44):
especially in inequity markets. Also, you know, the Europeans are
much closer to their two percent target than is the
FED because from your point of view, the tariffs are
really a disinflationary force. So we're at different points in
the rate cycle, and that does open up some good opportunities.
Speaker 5 (32:04):
Richard Clarita, you are definitive in the mathematics, the modern
mathematics of our economics. Then you know, we talk about
a new framework and it's a lot of job boning
about process.
Speaker 6 (32:14):
Maybe it's what are we going to do with the dots?
What are we going to do with the.
Speaker 5 (32:19):
Mathematics of modern economics?
Speaker 6 (32:22):
Forward? Is it diminished after all this turmoil?
Speaker 10 (32:25):
You know, you know, Tom, you and I over the
years decades now, I've talked about that a number of times,
and my thinking continues to be the mathematics, the models,
including my own, our tools. They're a starting point for
analysis and discussion, but they're not They're not handcuffs, nor
are they the destination.
Speaker 4 (32:44):
And certainly, you know.
Speaker 10 (32:46):
The last five years have been unusual with a pandemic
and all the rest. But I continue to believe that
models in math are our tools, not handcuffs.
Speaker 5 (32:55):
My goal right now, Rich is to get you on
the short list, is to be the next chairman.
Speaker 6 (32:59):
So let's talk tariffs here.
Speaker 5 (33:01):
What is the clarita mathematics of Trump tariffs?
Speaker 10 (33:06):
Well, as Mike McKee said, they are raising a heck
of a lot of revenue, and I would agree with.
Speaker 6 (33:10):
My Washington there you go.
Speaker 10 (33:13):
I think I think Washington may very quickly get hooked
on the two or three hundred billion dollars a year
in tariff revenue, especially if you know the initial cost
of raising that revenue is in the rearview mirror, which
which I think I expect to be the case down
the road.
Speaker 6 (33:32):
Look, we're in.
Speaker 4 (33:33):
A different regime, you know.
Speaker 10 (33:34):
We talked at PIMCO in June about an era of fragmentation,
and these trends have been accelerating and the destination for
the global trading system and global economy is going to
be very different in five years than it was in
the thirty years of globalization. So I think to be
continued is the way I would answer your question.
Speaker 2 (33:55):
He's running, Is that what you think? I know?
Speaker 6 (33:59):
Bullets running?
Speaker 5 (34:00):
Yeah, I think by the time we get done on
the show today, we're going to have Tracy Alloway, right.
Speaker 2 (34:04):
I think that maybe we'll find out, But I am
we will. She's sitting here with us. I'm sure, she says,
I bag Rich. I am curious though, going forward this
idea of how inflationary tariffs could or couldn't be given
the fact that this is a new world order. And
we were talking with Adam Posen of the Peter S
Constitute earlier, and he was talking about how he sees
(34:25):
inflation as having nodes of the nineteen seventies and potentially
being really pernicious. Why do you not necessarily see that?
Why are markets more sanguine on that risk?
Speaker 10 (34:38):
Well, I think simply because the nineteen seventies we're a
very serient experience for the current group of policymakers who
lived through it, and I think there were some important
lessons learned. And one lesson learned is high and persistent
inflation is very costly to the economy. And I think
(35:01):
politicians learn that as well, and so I think that
central banks have earned a lot of credibility. The under Vulcar,
under green Span, under pass fed chairs in the US
and abroad, and I think that expectations of inflation, we're
sort of in a world in which the bomb markets
at least think that over a five year period, the
(35:22):
FED is going to do whatever it takes to get
inflation down what I call two points something. And I
think that's an important victory that central banks are still
benefiting from, and I would expect that and certainly hope
that will continue.
Speaker 1 (35:35):
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(35:55):
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(00:25):
or watch us live on YouTube.
Speaker 2 (00:27):
Joining us now is someone who is very familiar with
these types of speeches. Saint Louis FED President James Bullard,
who recently was in the media talking about his preference
for one hundred basis points of rate cuts this year
heading into twenty twenty six. Also a potential contender, I
should say to be the next FED chair James Jim,
(00:48):
how much are you seeing what we heard from Fedchair
j Powell and seeing anything different that you would really
say say if you were at that podium.
Speaker 3 (00:56):
He used the speech to solidify expectations for twenty five
basis points in September. I was expecting that anyway markets
were expecting that. He leaned into the most recent labor
market report, which was very soft, and so I think
that's a done deal. He didn't say too much about
(01:21):
beyond that, what you want to do with the October
meeting or the December meeting. I have set one hundred
basis points, you know, going into twenty twenty six. I
think you could adjust as you go forward and eventually
get a full hundred basis points, but I would go
slowly in order to watch the data and then on
(01:42):
the framework review. I'm sure much earlier in the year
they had targeted that they would have the framework discussion
and that they would use the Jackson Hole speech to.
Speaker 4 (01:53):
Talk about changes to the framework.
Speaker 3 (01:55):
I thought those were thoughtful, and they were well presented
in this speed each and they're about what many.
Speaker 4 (02:03):
Have speculated on.
Speaker 3 (02:05):
So I think they did about as much as they
can on the framework side.
Speaker 5 (02:08):
Jim Bowler, Tom keenan good morning to you. I definitely
consider this my conversation of the day. You served a
lengthy term at the Saint Louis FED. You have lived
the decline of a greater economy decades and decades ago
in the effort to provide for a resurgence Saint Louis
(02:28):
is a next chairman of the FED, whoever that may be.
Do they have to manage for two American economies, a
technology driven exceptional economy and another, to use a cliche,
America flat on their back? How would a chairman execute
those two Americas.
Speaker 3 (02:47):
Yeah, I think in commonwealth distributsha have become more salient
topics for the FED.
Speaker 4 (02:53):
Is not that clear how much the FED can really do.
Speaker 3 (02:58):
Providing interest rate Paul, for the whole economy of if
you change the rate structure, that affects everyone, not just one.
Speaker 4 (03:07):
Particular group that you might be targeting.
Speaker 3 (03:11):
So I think that's been something we've had to wrestle with,
and I've actually done research on it myself to try
to understand it better from my point of view.
Speaker 4 (03:20):
So I think there's been been a theme.
Speaker 3 (03:23):
For a while, and that'll be an important theme in
Macreconowics going forward.
Speaker 5 (03:28):
Mike McKee's got a lot of smarter questions than me
on the immediacy of this speech. I'm going to ask
one more distant question, Jim Bollard. You're at Purdue executing
online technology education every single day. How do you define
the new technology productivity that America faces?
Speaker 6 (03:50):
Is it enough to save us?
Speaker 5 (03:52):
Is it enough to really add on to our present
gdp Oh.
Speaker 4 (03:57):
Yeah, I think that the AI boom is.
Speaker 3 (04:02):
You know, it's a general purpose technology that will diffuse
through the economy. I think the key question is how
fast does that actually diffuse? And sometimes marcus can get
ahead of themselves and think it's going to happen sooner.
Sometimes they're too late and it happens faster than markets think.
But nevertheless, anyway you look at it, it's an important technology.
Speaker 4 (04:24):
It can drive productivity and.
Speaker 3 (04:26):
I think in higher education is one of the places
where you can really have the biggest impact. We put
a AI requirement in at the Danniel School here for
every single student, and we're trying to expand that to
all produce. So I think that just shows you how
important this technology is.
Speaker 6 (04:45):
Jim, it's Mike McKee.
Speaker 7 (04:46):
I have a question about sort of the process involved
in this speech. The chairman is giving his own speech,
but basically when he says it's time to maybe adjust policy,
he's speaking for the entire open market. Can going into
a speech like this, would he have polled everybody? Does
he think he has the votes for that? Because we've
(05:07):
been speaking with FED officials here in Jackson Hall and
there's still some who were saying, well, we're not sure
that we need to do that yet.
Speaker 3 (05:15):
Now he's going to report on the center of gravity
of the committee, even though there might be people that
have misgivings. At the June meeting, the committee had a
median dot dot plot of two rate reductions by the
end of the year, and I think the minutes, you know,
suggested something that was more like fifty to fifty.
Speaker 4 (05:36):
But then the labor market report came in.
Speaker 3 (05:39):
I think that tilted the balance, so he could have
he could have pushed back a little bit. I think
financial markets were expecting him to come be a little
bit more hawkish here and try to set up a
fifty to fifty meeting where you would wait and see
for the rest of the data to come in. But
I don't think that's where the center of gravity is
(06:01):
on the committee, so so.
Speaker 4 (06:03):
He went ahead and leaned in.
Speaker 3 (06:05):
I thought there was quite a bit of talk about
the labor market at the at the beginning. You know,
you could have could have been a little more, uh,
you know, a little more emphasis on the low unemployment rate,
for instance. And you know, he did come out at
the end of that discussion saying, well, it's in balance,
but we're a little bit nervous. So I think, you know,
(06:27):
I think he's accurately uh describing where the bulk of
the committee is.
Speaker 7 (06:32):
Well where would you be on this question, because we've
heard FED officials for some time now saying, yes, we
had poor job creation in recent months, but the unemployment rate,
as you just mentioned, has been low, and they've described
the labor market as solid. Now, this seems to be
sort of a major shift in the way they view
the outlook and the sort of balance between the two mandates.
Speaker 3 (06:55):
Yeah, what he did at the end of that discussion,
he said, well, it's in balance.
Speaker 4 (07:00):
But I think the committee's nervous.
Speaker 3 (07:03):
I think it has been slowing, and I think the
policy rate is moderately restrictive. Is maybe you know, one
hundred and twenty five basis points above the neutral rate.
Is that really where you want to be in this circumstance.
I think the answers no, So you can come down
some and still have moderately restrictive monetary policy that puts
(07:26):
gentle downward pressure on inflation. And then the other thing
I think has happened is that this argument from Chris
Waller and others on the committee that the you know,
you should look through the one time increase in goods
prices coming from tariffs.
Speaker 4 (07:45):
I think that's carrying the day.
Speaker 3 (07:46):
And you know, then he emphasized that inflation expectations remain
anchored and so on, and so I think that sets
up a modest move downward in September.
Speaker 2 (07:56):
Jim, We've been talking with you for years and you
are very focused on the discipline of economics. Right now,
I'm looking at the headlines that are crossing from the
past hour. The top one, of course, is a Jerome
Powell fedchair saying that shifting risks may warrant adjusting rates.
The second one is that Trump says that hell fire
the Fed's Lisa's cook if she doesn't resign as someone
(08:18):
who is thought to be a contender to become the
next FED chair. Jim, how much does it concern you
that there's this increasing political noise around the seat and
exactly what the path of policy forward looks like.
Speaker 3 (08:31):
Yeah, I want to see due process around something like this.
I want to see you know, you can make charges
against anybody about anything, I guess, and you know the
person can answer the charges and the dojke and decide
what they want to do and so on.
Speaker 4 (08:48):
So I think this has, you know, should.
Speaker 3 (08:51):
Have longer to play out before you took that step.
Otherwise it's just is kind of the wild West, and
she can get reinstate later, I guess, or something if
there wasn't a conviction.
Speaker 4 (09:03):
So seems messy to me.
Speaker 3 (09:06):
I think these kinds of these kinds of charges are
made from time to time against various officials around Washington,
but I'd.
Speaker 4 (09:14):
Like to see due process there.
Speaker 2 (09:16):
Jim, there's another question here, and aside from Governor Cook
and what happens there, about how the perception of political
interference handles the market reaction to Fed policy. There is
this perception that that could cause the dollar a week
in more because there is more of an emphasis on
supporting growth and supporting the label market than containing inflation.
(09:37):
And some people are worried that if the Fed does
cut by fifty seventy five one hundred basis points, as
you were talking about this past week, that you could
see a move up in long end yields akin to
what we saw last year. If you are on the
FED currently and you did see yields along the long
end moving up in response to near term FED rate cuts,
(09:58):
what would you do?
Speaker 4 (10:00):
Definitely be a concern.
Speaker 3 (10:01):
And that's the tricky part of this business, is that
you know, you think you're pursuing a dubbish policy at
the short end, but the long end goes up because
in place and expectations start to rise, markets start to
lose confidence in the FED and the credibility of the FED,
and that can go very very badly and unfortunately fairly quickly.
(10:24):
So I think you do have to be come You
do have to be careful here. But I'm saying that
I think that committee has room to maneuver if they
proceed carefully over the remainder of twenty five and the
first half of twenty twenty six.
Speaker 5 (10:38):
I don't want to get out front of the debate
here the moment, Jim Bullard, But what I would say
to Chairman Bullard and Mike.
Speaker 6 (10:44):
McKee, I got to turn to you.
Speaker 5 (10:46):
You and I used to sit and look at the
dots and go which one is Bullard?
Speaker 6 (10:50):
I mean, you and I do.
Speaker 7 (10:51):
It's fairly easy after a while to figure out.
Speaker 5 (10:53):
I've Chairman Bullard, is your first act if you take
over the FED as your act to get rid.
Speaker 6 (11:01):
Of the dots?
Speaker 4 (11:02):
Yeah.
Speaker 3 (11:03):
I've threatened to well, ex President, I threatened to withdraw
from the dot plot. I think this could be done better.
This was discussed at the Framework conference and former chair
of Bernanke gave a very nice presentation and talk about
a quarterly monetary policy report, get more organized about it,
put out a forecast.
Speaker 4 (11:25):
I think all of that could be done.
Speaker 3 (11:26):
I've advocated that for a long time, and so I
think that would sort of clear up some of the
misconceptions around the dot plot.
Speaker 6 (11:35):
Okay, this is really really important, Folcus.
Speaker 5 (11:37):
Jim Bullard made he can history i'd say, a decade ago,
with a small, short paper forceful on regime change. How
do we get a new FED away from the guessing
and the certitude and the silly parlor game of it,
Jim Bullard, with great respect, how do we get to
that more disciplined study around the game of the FED
(12:00):
and regime change?
Speaker 3 (12:02):
Yeah, I think regime switching is a great way to
think about the global economy and the US economy and
how it operates. There are relatively long periods of time
where you might have let's say, slow growth and very
low interest rates, and you might switch to another time
(12:23):
with faster growth and higher interest rates. I think understanding
that and understanding how that affects policy choices is a
great thing to study further and talk about further in
the years ahead, So you know, I think it's very
salient for what the committee does.
Speaker 2 (12:43):
Jim Bullard, former FED President of the Saint Louis Bank,
will be sticking with us.
Speaker 6 (12:49):
Right now.
Speaker 2 (12:49):
In markets, you can see a cheering across Wall Street
to the opening the door to a potential rate cut
next month. Potentially more. You could see equities surging higher
across the different of the different indexes, led by some
of the more interest rate sensitive sectors. The Russell two thousand.
You can see ten year yields down now about six
(13:10):
basis points, even more at the front end, down ten
basis points. As people look to the prospect of the
Fed looking through some of the inflation from tariffs. You
could see the dollar markedly weaker one seventeen on the
euro dollar cross up on nine tenths of a percent
in terms of just the percentage rise up about a
(13:30):
basis point. And there's a real question here about what
this means going forward. City Wealth Chief Investment Officer Kate
Moore is still with us, freezing a little bit because
it is a little bit chilly.
Speaker 4 (13:39):
Here, nippy in the morning.
Speaker 2 (13:40):
I am curious though about what you're hearing in terms
of prospective FED chairs and the politicization of the Federal Reserve.
If this is a FED willing to err on the
Dubvish side, does that mean something that materially is higher
with respect to returns and with respect to risk appetite.
Speaker 8 (13:58):
Look, markets love certainty and our investors love certainty, and
we want a certainty in terms of the process around
making monetary policy decisions. So I don't have any insight
into who might be named next FED chair, But what
I will say is if there is a sense that
the process is changing, I think that will lead to
some pause and perhaps some volatility in the market. You know,
(14:18):
our expectation is that regardless of who takes the next
chair and what seats are filled, we'll have a continuous
continuation of the process of being data dependent, of being thoughtful,
of having great debate and discussion amongst the FED governors
and their staff. But if that were to change, I
think that would introduce volatility. I think the most important
thing for us right now is to recognize that so
(14:39):
much of the data is going to be mixed through
the back half of the year, and that's going to
have a huge impact I think in terms of investor sentiment,
and I would suggest even more crowding in some of
the favored trades.
Speaker 7 (14:51):
We tend to get reactions like we're seeing in the
market now on a day when news breaks. But I
think we're probably going to see extended rally here because
people are anticipating great conscience. Does that worry you in
terms of a bubble forming or some sort of excess
spending that would push up inflation because of inflated asset prices.
Speaker 8 (15:15):
Yeah, so I have been a little bit worried actually
about positioning. I feel like I've been a little bit
more cautious frankly than some of my peers on the
street and saying, you know, people own the highest quality
parts of the market. It's quite crowded. Some of the
shorts when we're looking at some of the fast money
a community are very similar across the board, and we've
seen people kind of shrug off concerns around economic growth
(15:38):
or even the technological disruption across a lot of industries.
We've seen significant improvements in terms of the earnings or
vision ratios, City Economic surprise index has moved up, you know,
and all of this together I think sets us up
for you know, a little bit of weakness if there
was a bad data point, or if there was a
bit of a shock where there's a lot of consensus positioning.
Speaker 2 (16:01):
Well, Jim, Jim Bullard, I'd love to bring you back
in here. How much does that concern you that sort
of a bias to cut rates could cause asset price
inflation to get ahead maybe of where the economy is.
Speaker 3 (16:13):
Yeah, equities, except for just recently, equities have been doing
very well as they've digested the new trade policy of
the US and how that's going to play out globally.
Speaker 4 (16:24):
You've got the AI boom going on, really a driver
for the big tech companies, and you know.
Speaker 3 (16:32):
I do get concerned that things we get ahead of ourselves.
Sure it's a great technology and everything, but how fast
is it really going to in diffuse into actual productivity
in the economy. But overall, I would say, you know,
it's possible that we'll get higher productivity growth ahead and
(16:54):
really a good outcome for the second half of the
twenty twenties here, much as we had in the for
the nineteen nineties.
Speaker 5 (17:01):
Let me talk to the chief investment strategist Purdue University
right now. I'm going to do a double barrel question
first to doctor Bullard and then to doctor Moore. Jim
Bullard as simple as I can all of my conversations
rather Jakamnagel, Bundesbank, Kate Moore, City Group and on and on,
is about an elevated or persistent nominal GDP.
Speaker 6 (17:21):
Do you frame out that.
Speaker 5 (17:22):
We're going to have an animal spirit in the country,
whether it's better real growth okay, inflation too much inflation, okay,
real growth, But what we're talking about forward is an
elevated nominal GDP.
Speaker 3 (17:38):
If you think real growth is going to be faster
than yes, nominal gp growth would be faster even if
the Fed hits it's two percent inflation target over that period.
So yeah, you would see higher, faster nominal GDP growth.
Speaker 6 (17:53):
I mean, I look at this, Kate Moore, and it's
a higher manner.
Speaker 5 (17:55):
And I'm really surprised by your comments. I think they're
extremely important our back to the US quality, etc.
Speaker 6 (18:00):
But it sounds like.
Speaker 5 (18:01):
City Group is modeling out through all the emotion, the fear,
the turmoil, the political debate.
Speaker 6 (18:08):
As we just sign next to the eight foot there
in the lobby.
Speaker 5 (18:11):
The answer here is you're modeling out that will be
okay and there'll be a better nominal GDP, it leads
into revenue, etc.
Speaker 8 (18:19):
Look, I think we're going to have an okay growth environment.
But one thing we keep on talking about is sort
of the ke shape. Right there are the haves and
have nots across all the different industries and different consumer groups.
And so I don't think that we want to assume
that everyone is going to experience strong growth in the
second half the year. And we're seeing this, of course
in the consumer companies. We're seeing this across you know,
(18:39):
segments of different households. We're seeing this even in technology companies,
those that have made the investments and are reaping dividends
from it. So yes, we may have these good headline numbers,
but I think as investors we have to really pay
attention to what's going on beneath the surface, and I
think there's an opportunity for differentiation over the next couple quarters.
Speaker 2 (18:58):
We are looking at a market that is moving, We
are looking at headlines that are coming. And I want
to bring this to you that Canada is planning to
remove retaliatory tariffs on many US products in an olive
branch to President Trump. And there is this feeling that
maybe some of the tariffs are fungible, that we are
going to see some of them removed, or US as
(19:20):
a negotiating state.
Speaker 5 (19:21):
I strongly agree with what you're saying. This was sort
of out there in the ether last night, but to
see these headlines is another example we adjust well.
Speaker 2 (19:29):
And that's one of the reasons why there has been
a focus on the labor market fed chair to ome
Powell speaking just moments ago, really focusing on the complications
for the labor market overall.
Speaker 9 (19:40):
While the labor market appears to be in balance, it
is a curious kind of balance that results from a
marked slowing in both the supply of and demand for workers.
This unusual situation suggests that downside risks to employment are rising,
and if those risks materialize, they can do so quickly
in the form of sharply higher layoffs and rising unemployment.
Speaker 2 (20:00):
Some people might say that a fetcher J. Powell is
coming around to the Chris Waller view of things, that
there is this feeling of potentially the weakening and the
labor market taking priority over inflation at a time where
some of these tariffs are put on taken off, and
that's what we're seeing a little bit in terms of
negotiation this morning.
Speaker 5 (20:19):
Well, the given the take and it goes back to
Kate Moore's optimism on investment in America and you see
it a dollar thank you, and you putting up that
wonderful dollar Looney chart and you see things adjusts and
you wonder, Okay, what do we do with China, what
do we do with Mexico with the produce debate? And
pharmaceuticals with Europe? Guess what there may be constructive surprises
(20:41):
is the certitude of the tariff debate gives way, It
makes it easier for the next chairman, and maybe maybe
I'll get out of triple levers all cash. It's fifty fifty.
Speaker 2 (20:51):
Oh, now is the time to definitely do it? Yeah,
for sure, Jim. Before we let you get on with
your day, I do want to finish there that have
we seen from tariffs that there is this fungibility there
that they get put on, they get taken off, and
that right now the path of travel is lower from
where we were maybe on April second, not higher again,
(21:11):
And so you can look through in another kind of
way some of the inflationary impact.
Speaker 3 (21:16):
Yeah, I mean, I think it was great to reach
a pluminary deal with the EU. That's one of the
bigger blocks in the world.
Speaker 4 (21:24):
China put on the back burner.
Speaker 3 (21:26):
Markets like that for now, and then you've got Canada
and Mexico. Looks like we're headed toward renegotiation of the USMCA,
which I think would be a fine thing to revisit.
Was scheduled for twenty twenty six anyway, so it's maybe
(21:47):
a little bit more settled than it was earlier this year,
and I think markets are liking that.
Speaker 4 (21:54):
That's making it easier to plan. So far, so good
on that.
Speaker 2 (21:59):
Jim Bullard, former Saint Louis FED President, joining us. Thank
you so much for being with us. Maybe a future
FED chair. We shall see. The process is ongoing. And
City Wealth Chief Investments Officer Kate Moore, before we let
you go, I just would like your take on this,
the idea that we are at a moment where suddenly
people are looking through the inflationary ramifications of tariffs. Are
(22:21):
you seeing the same kind of thing? And that's appropriate
that this isn't nineteen seventies. This is a different shock
that usually is a demand shock in the end.
Speaker 8 (22:29):
Look, I will say people have been looking through the
inflationary impact of terriffs for the entirety of the summer.
At this point, there's been an enormous roller coaster ride
in terms of expectations for end tariffs. But what I
will say is this, you know, even if we're at
a lower rate, I'm just going to say fifteen percent
effective tariffs relative to where expectations were in the beginning
of April. I think we have to keep our eye
(22:51):
on the sectoral teriffs and this has potentially some of
the biggest impact for overall earnings. And those are sticky,
we know, and are likely to endure through multiple different administrations.
So you know, this a give and take between some
of our trading partners around the reciprocal tariffs we're watching
that it's very hard to trade around it. But I
will say the sectoral tariffs are going to be very
important for our outlook.
Speaker 6 (23:13):
Stay with us.
Speaker 5 (23:14):
More from Bloomberg Surveillance coming up after this.
Speaker 1 (23:24):
This is the Bloomberg Surveillance podcast. Listen live each weekday
starting at seven am Eastern on Apple Cocklay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 2 (23:38):
Well, let's take a listen to what Fedchara Jerome Powell
had to say about tariffs and what the impact is
on the economy.
Speaker 4 (23:45):
Take listen.
Speaker 9 (23:46):
The effects of tariffs on consumer prices are now clearly visible.
We expect those effects to accumulate overcoming months, with high
uncertainty about both timing and amounts. The question that matters
for monetary policy is whether these price increases are likely
to materially raise the risk of an ongoing inflation problem.
Speaker 2 (24:06):
What you could see is the response is rip roaring
in markets, with equities surging, yields plunging on the front end,
yield curve steepening at a dollar a weeker Pimpko global
economic advisor and former FED Vice chair Rich Clarita joining us.
Now and Rich, what's your take on what we just
heard from FED share j Powell?
Speaker 10 (24:26):
Well, I think the share certainly intended to open the
door pretty wide to cutting in September. Importantly, Lisa, he
spent a lot of time on balance of risk, which
is what policy makers do, but at the two key
junctures he highlighted the balance of risk to the labor
market is to a weaker labor market, and he basically
(24:46):
indicated that the balance of risk to higher inflation doesn't
appear to be a first order concern in terms of
persistent inflation. So I think the message was they think
they're going to cut in September, we get some more data,
and the markets every acted to that.
Speaker 2 (25:01):
How much do you think that this is partly to
maintain the Fed's credibility, not necessarily with respect to the president,
but that right now, if they get it wrong on
the labor market front, that it is that much more
pernicious based on some of the job owning by what
we hear from the President.
Speaker 10 (25:18):
Well, yeah, I mean, as the chair said in the remarks,
it's a curious kind of balance in the labor market.
The payroll employment growth has been very, very weak in
the private sector, but the unemployment rate has not gone up,
and so they are really focused on the balance of risk.
Speaker 4 (25:35):
Look, the FED has a dual mandate.
Speaker 10 (25:37):
It's costly to let inflation move higher and stay there,
but it's also costly to have a recession with the
rise of the unemployment. And I think, Lisa, you're correct
they are tilting in that direction.
Speaker 4 (25:48):
Now.
Speaker 2 (25:48):
It feels like a very different Jackson Hole. And this
is something that we've been talking about with all of
our guests today, Rich that people have come on and
said there is a different tone about central banking independence
and a question of how to communicate at a time
of such political interference. What's your sense of where that
was in the speech that we just heard from Fedchair
(26:09):
J Powell.
Speaker 10 (26:10):
I think the approach the Chair took was to really
focus front and center Lisa on the dual mandate that's
assigned by Congress maximum employment and price stability, and the
Chair gave a very reasoned and thoughtful analysis and discussion
of how they're balancing the dual mandate risks.
Speaker 4 (26:29):
And I think that's the j. Powell message to the
issue of FED independence.
Speaker 10 (26:33):
We have an assignment from Congress, and this is what
we're doing to achieve it.
Speaker 2 (26:37):
At this point, we also are dealing with the headlines
that are coming out about FED Governor Lisa Cook, where
at the same time that Jerome Powell was giving his speech,
President Trump came out with this truth post saying that
he will fire Lisa Cook if she doesn't resign. We
did hear reports that in the Jackson Lake Lodge and
the lobby that James Fishback was screaming at so Cook
(27:00):
that why did she commit mortgage fraud? What's your take
on what this does in terms of both the FED
composition but also just the ability to be clear minded
about making FED policy.
Speaker 10 (27:14):
Well, obviously understand just looking at the headlines that you
mentioned myself and don't know the details or the facts
in this particular situation, but clearly we're in an environment
where FED independence is under scrutiny. And my conviction is that,
notwithstanding all of the very relevant factors that you mentioned,
(27:37):
that the Fed's is going to keep doing keep doing
his job.
Speaker 5 (27:41):
Richard Claire to Tom Keene here, thank you so much
for joining.
Speaker 6 (27:44):
U's very valuable.
Speaker 5 (27:45):
I've got two tasks I want to take here that
I think are important. You recently said that what matters
is the institution that this chairman and any future chairman
has to protect the institution. What's the day one first
mandate to protect the institution for the next chairman?
Speaker 10 (28:03):
Well, I think first and foremost it's to have in
place a plan and communication that will deliver expectations of
price stability. I think the chair was right today to
emphasize that the FED has to focus on getting price stability,
because that's going to deliver the ability to deliver maximum employment.
(28:24):
I've also written Tom that the FED is sort of
a complex and cumbersome institution with nineteen folks around the
table and the Reserve Bank presidents. But I do think
that is a strength right now of the institution.
Speaker 5 (28:37):
Right Well, this is really important because it's as fractiiced
as a meeting of the bond team at Pimco. In
the middle of the speech, Powell channeled a few years
ago at PIMCO the new normal for a moment, I thought.
Mohammed Ilarian persued it in to write the speech, What
is your optimal new normal for the FED? Which Powell
(28:58):
mentioned today? What's the best new normal for the next FED?
Speaker 10 (29:02):
Well, I think a new normal would be inflation moving
down towards the two percent target, which would let the
next BEED chair cut rates down towards a neutral level.
You know, Pimco in twenty fourteen we rolled out the
idea of a new neutral and we've been operating in
that new neutral world now for more than a decade,
and so I think well anchored inflation expectations, getting tariffs
(29:25):
in the rear view, Mirr would allow the FED to
cut rates by probably one hundred and fifty basis points
from here and achieving that ultimate soft landing. So I
think that would be a good new normal destination for
the next FED chair.
Speaker 2 (29:39):
What risks are there to that given what we're seeing
with the dollar, given the fact that we really have
a very high level of uncertainty around which tariffs are
going to stick and how much is going to get
past along to consumers.
Speaker 10 (29:49):
Sure, and I think the Chair was right to point
out that we are seeing evidence of tariffs showing up
in the price indexes for imported goods, but that's been
offset to extent with the decline in services inflation. Again,
I think where they are focused is to make sure
that what is an inevitable increase in the price level
(30:10):
from tariffs does not over time result in persistent inflation.
And I think the speech today addressed their thinking right now,
which is that their baseline is that that will not happen,
which will give them the room possibly in September, to
cut rates.
Speaker 5 (30:27):
Yeah, Lisa, I think it's important to mention within the
market check that the market is putting on steam. Here
an hour after the beginning of the speech and Mike
McKee's bombshell headlines a Dow lifting up. I'm not told
I can't leave Jackson Hall unless Dow goes up a
thousand points.
Speaker 6 (30:42):
Well, I'm getting pretty close to you.
Speaker 2 (30:44):
It sounds like you're going to be hiking for maybe
another six hours and then all of a sudden not
so much rich. I do want to know, though, about
what this does in terms of the currency ramifications and
where your preference lies in terms of the good investment backdrop,
because what we heard from fetcherg is so vastly different
from what we heard from Joakim Novel of the German
(31:06):
Central Bank, where he said we have to focus on
inflation and right now that is more concerning to them
than trying to support growth by cutting rates or being stimulative.
The fact that that is the framework there and it
is such a different framework here, does that make you
want to invest in Europe a little bit more?
Speaker 10 (31:24):
Well, you know, I think one of our themes at
PIMCO is that we're in a world where taking advantage
of a global opportunity set makes sense. Also, we're in
a world where makes sense to focus on valuations and
without getting into particular markets or securities. There have been
some pretty big divergencies between valuation in the US and Europe,
(31:44):
especially in inequity markets. Also, you know, the Europeans are
much closer to their two percent target than is the
FED because from your point of view, the tariffs are
really a disinflationary force. So we're at different points in
the rate cycle, and that does open up some good opportunities.
Speaker 5 (32:04):
Richard Clarita, you are definitive in the mathematics, the modern
mathematics of our economics. Then you know, we talk about
a new framework and it's a lot of job boning
about process.
Speaker 6 (32:14):
Maybe it's what are we going to do with the dots?
What are we going to do with the.
Speaker 5 (32:19):
Mathematics of modern economics?
Speaker 6 (32:22):
Forward? Is it diminished after all this turmoil?
Speaker 10 (32:25):
You know, you know, Tom, you and I over the
years decades now, I've talked about that a number of times,
and my thinking continues to be the mathematics, the models,
including my own, our tools. They're a starting point for
analysis and discussion, but they're not They're not handcuffs, nor
are they the destination.
Speaker 4 (32:44):
And certainly, you know.
Speaker 10 (32:46):
The last five years have been unusual with a pandemic
and all the rest. But I continue to believe that
models in math are our tools, not handcuffs.
Speaker 5 (32:55):
My goal right now, Rich is to get you on
the short list, is to be the next chairman.
Speaker 6 (32:59):
So let's talk tariffs here.
Speaker 5 (33:01):
What is the clarita mathematics of Trump tariffs?
Speaker 10 (33:06):
Well, as Mike McKee said, they are raising a heck
of a lot of revenue, and I would agree with.
Speaker 6 (33:10):
My Washington there you go.
Speaker 10 (33:13):
I think I think Washington may very quickly get hooked
on the two or three hundred billion dollars a year
in tariff revenue, especially if you know the initial cost
of raising that revenue is in the rearview mirror, which
which I think I expect to be the case down
the road.
Speaker 6 (33:32):
Look, we're in.
Speaker 4 (33:33):
A different regime, you know.
Speaker 10 (33:34):
We talked at PIMCO in June about an era of fragmentation,
and these trends have been accelerating and the destination for
the global trading system and global economy is going to
be very different in five years than it was in
the thirty years of globalization. So I think to be
continued is the way I would answer your question.
Speaker 2 (33:55):
He's running, Is that what you think? I know?
Speaker 6 (33:59):
Bullets running?
Speaker 5 (34:00):
Yeah, I think by the time we get done on
the show today, we're going to have Tracy Alloway, right.
Speaker 2 (34:04):
I think that maybe we'll find out, But I am
we will. She's sitting here with us. I'm sure, she says,
I bag Rich. I am curious though, going forward this
idea of how inflationary tariffs could or couldn't be given
the fact that this is a new world order. And
we were talking with Adam Posen of the Peter S
Constitute earlier, and he was talking about how he sees
(34:25):
inflation as having nodes of the nineteen seventies and potentially
being really pernicious. Why do you not necessarily see that?
Why are markets more sanguine on that risk?
Speaker 10 (34:38):
Well, I think simply because the nineteen seventies we're a
very serient experience for the current group of policymakers who
lived through it, and I think there were some important
lessons learned. And one lesson learned is high and persistent
inflation is very costly to the economy. And I think
(35:01):
politicians learn that as well, and so I think that
central banks have earned a lot of credibility. The under Vulcar,
under green Span, under pass fed chairs in the US
and abroad, and I think that expectations of inflation, we're
sort of in a world in which the bomb markets
at least think that over a five year period, the
(35:22):
FED is going to do whatever it takes to get
inflation down what I call two points something. And I
think that's an important victory that central banks are still
benefiting from, and I would expect that and certainly hope
that will continue.
Speaker 1 (35:35):
This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Easter and on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
(35:55):
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