前纽约联储主席Dudley：25基点加息力度不足

The former New York Fed president Bill Dudley writing a 25 basis point hike is too small to have a meaningful impact on economic activity. Bill joins us now for more. Bill, welcome to the program. Before this decision, you wrote in your column, you said the case for a hike was crystal clear. Is the case for another hike just as clear? Right now it is unless the data changes pretty dramatically. Kevin Ward basically said that he needs to make financial conditions, less accommodative, probably, you know, push them into the restrictive side.

And he hasn't told us how much that you need to do to do that, but judging by the reaction of financial markets, he hasn't really accomplished that yet. You know, I think that, you know, he also signaled that this is probably the first in a series by talking about removing a dose of accommodation that implies that there's more doses to remove forthcoming. And if you look at what the federal funds futures market is pricing in, they're pricing in three or four hikes over the next, you know, over the next six to nine months.

So the market certainly expects that the Fed's not done, and that makes sense. If if financial conditions are accommodative, that's causing the economy to grow at a at an unsustainable pace. You need to do more to make financial conditions less accommodative to restrain economic activity. You know, what's interesting about the Fed's forecast is sort of the immaculate disinflation. If you look at the summary of economic projections Yeah.

Growth doesn't slow, unemployment rate doesn't rise, yet inflation magically sinks back to 2%. Think I it's gonna be a little bit harder than that. Bill, do you think we need the demand destruction, and what kind of level rates do you think is necessary to get that demand destruction to get inflation back to target? Well, it's hard to know because, you know, it depends a little bit on how financial markets react. I I I agree with Kevin that financial conditions are really the way of judging the stance of monetary policy because that's how monetary policy gets communicated to the economy.

So if the stock market, you know, ignores the Fed's tightening, if the bond market ignores the Fed's tightening, then there's more for the Fed to do. Did you think that Kevin Warsh did a really good job at this press conference, or do you think that he should have, illuminated a little bit more kind of how he was thinking about the path forward? I think he did a much better job, but, you know, he was still very, very guarded.

No follow-up questions. The answers were very short. Didn't really answer the question about, you know, what what where where's neutral in terms of a a neutral federal fund rate. I think it's a odd concept not to have a view of whether monetary policy today is easy, neutral, or tight. I think you need to have some framing of of where you think the federal funds rate is today in terms of whether it's providing positive impetus or negative impetus to the economy.

So certainly much better, but still very, very guarded, very, very constrained. Do you have a sense that neutral is significantly higher? I mean, that was sort of the implication when he said that they're removing some of the accommodation, or do you think that that phrase was just a a commentary on last year's 75 basis points of rate cuts? Yeah. I think I think neutral is higher. I mean, it's higher because we're we have this huge AI investment spending boom that's pushing up the neutral rate.

That's put increasing the demand for capital. Now if the investment spending boom comes to an end, then the the neutral rate will probably drop back down. But for the time being, as we're spending, you know, hundreds and hundreds of billions of dollars on these data centers and the chips to to fill them, that neutral is gonna be higher, and the Fed's gotta take that on on board. Bill, we often reflect on a conversation that we had together coming out of the pandemic.

I believe it was 2021. Maybe it was early twenty two. I remember it was with Mohamed El-Erian at the time as well. And you made the case this Fed might have to go to five, which just sounded crazy at the time because I think we were still close to zero. And they went to five, and they had to go further. And, Bill, it didn't cause the pain that the Fed chair at the time was talking about a Jackson Hole a couple of years later once he got there, the pain that was required to get inflation back to target.

But what is it about this economy? You've alluded to some of it, but what is it about this economy that can withstand these interest rates? Because it's the resilience that has surprised so many people in the face of what this Fed has been doing. Well, I think it is financial conditions. So we've had huge wealth gains in the stock market, which supports people spending, who have have who hold equities. Obviously, it's not very good for the people at the lower end of the income distribution that don't have that benefit.

And the AI boom. I mean, think the AI boom is this is this sort an exogenous factor that's pushing the economy along. And I don't think the spending on AI is particularly interest rate sensitive. I don't think if the Fed hikes 25 or 50 or a 100, it's really gonna have much to change the trajectory of AI's investment spending. That's gonna be driven by the returns on that investment, and that's gonna be determined not tomorrow or or or next month, but over the next few years.

If you can't influence it, why do anything, Bill? Because you can't let inflation get ingrained above 2%. The Fed's gotten away with something over the last few years. If you told me, you know, five years ago that inflation would be above the Fed's target by a meaningful amount for five years, I'd be very concerned about, you know, the credibility of the Fed. But the Fed's managed to maintain that credibility. People still believe that the Fed will push inflation down to 2%, but you can't stretch that out indefinitely, especially at a time when the economy is performing fine, the labor market's, you know, very much in balance, and all the risks are on the inflation side.

Mean, I think the the worst thing of the situation, the war in Iran and the uptick in oil prices and and obviously, diesel oil prices in particular, you know, basically raised the stakes for the Fed waiting. Bill, do you think that we would be talking about rate hikes if oil prices weren't where they were? It's possible that we that we might not. You know, it really depends. And, you know, as as Kevin Wenkow about, you know, it's it's it's really the distribution of price increases that we care about.

It it's really about the pass through of oil prices into other things. But I think the increase in diesel prices is really important because it's gonna affect things like airfares. It's gonna affect things like food prices. It's gonna have a lot of knock on effects. Trans it goes into transportation costs. So anybody any good at the in service that has to be trucked around The United States that has to embody that cost.

So it's not just gonna be, you know, in the in the headline inflation rate. It's gonna start to filter into the core inflation rate as well.