Bloomberg Audio Studios, podcasts, radio news. There's a lot going on in the world right now, and the focus is firmly, of course, on Europe, but more importantly on the FED. Now. There are a number of outside economists, including Muhammadalarian, that have suggested that the FED should get on with cutting interest rates.

Bloomberg Audio Studios, podcasts, radio news. There's a lot going on in the world right now, and the focus is firmly, of course, on Europe, but more importantly on the FED. Now. There are a number of outside economists, including Muhammadalarian, that have suggested that the FED should get on with cutting interest rates.

And this is risk risk perception.

And this is risk risk perception.

Is there too much danger in waiting for too long to cut Look.

Is there too much danger in waiting for too long to cut Look.

There's a danger from waiting, and there's a danger from making wrong moves. The basic function of the central bank, and what the Fed's got to decide is we moved to.

There's a danger from waiting, and there's a danger from making wrong moves. The basic function of the central bank, and what the Fed's got to decide is we moved to.

A quite restrictive posture. We raise the rates a great.

A quite restrictive posture. We raise the rates a great.

Deal in a short period of time, and we've been holding it there. We got to this rate when inflation was over four percent, and inflation's now down close to two and a half percent. So if you sit with the rate somewhere while inflation goes down, you're tightening. And the reason that you would want to tighten is if you think you're not on path to two percent. If you're on path to two percent, you've got to take seriously that the US Central Bank's got a dual mandate, so we if employment starts falling apart or the economy begins to weaken, which you've seen some warning signs. You've got to balance that off with the how much progress you're making on the price front.

Deal in a short period of time, and we've been holding it there. We got to this rate when inflation was over four percent, and inflation's now down close to two and a half percent. So if you sit with the rate somewhere while inflation goes down, you're tightening. And the reason that you would want to tighten is if you think you're not on path to two percent. If you're on path to two percent, you've got to take seriously that the US Central Bank's got a dual mandate, so we if employment starts falling apart or the economy begins to weaken, which you've seen some warning signs. You've got to balance that off with the how much progress you're making on the price front.

So how worried are you about the unemployment rate? But with the job slowing down?

So how worried are you about the unemployment rate? But with the job slowing down?

I mean, it's still the unemployment rate is still quite low, but it has been rising.

I mean, it's still the unemployment rate is still quite low, but it has been rising.

And if you look.

And if you look.

At quit rates, if you look at the ratio of vacancies to the number of unemployed workers, and various conventional measures of the job market, they're cooling, but they're at a level which is still pretty strong. That's that's kind of what we've been trying to fully sort out now. I think if you look at the second half of last year in the US, we had seven straight months of excellent inflation. We hit a bump in the road in January of this year, but now we've gotten a string of improved inflation readings. If we get more like what we have just seen, to me, that feels like the path to two percent.

At quit rates, if you look at the ratio of vacancies to the number of unemployed workers, and various conventional measures of the job market, they're cooling, but they're at a level which is still pretty strong. That's that's kind of what we've been trying to fully sort out now. I think if you look at the second half of last year in the US, we had seven straight months of excellent inflation. We hit a bump in the road in January of this year, but now we've gotten a string of improved inflation readings. If we get more like what we have just seen, to me, that feels like the path to two percent.

But so you know, at what point would you want to cut rates to make sure that the unemployment number doesn't get worse.

But so you know, at what point would you want to cut rates to make sure that the unemployment number doesn't get worse.

How do you.

How do you.

Calibrate that you need to calibrate that.

Calibrate that you need to calibrate that.

That's the right way to say it.

That's the right way to say it.

It's not a formula that says, hey, well, last month, this is what happened. Therefore let's change the monetary policy. You got to take it in totality. As I say, we've been restrictive. If you look at the real federal funds rate of just interst rate minus inflation, it's as high as it's been in decades. And the only reason that you would want to be that distinctively restrictive is if you think that the inflation is not coming back to two percent. If you get months that are like the second half of last year or like what we've seen now here for a bit of a string, then I feel we're on path to two percent, and you return if that's returning to normal, the rate structure return to normal too.

It's not a formula that says, hey, well, last month, this is what happened. Therefore let's change the monetary policy. You got to take it in totality. As I say, we've been restrictive. If you look at the real federal funds rate of just interst rate minus inflation, it's as high as it's been in decades. And the only reason that you would want to be that distinctively restrictive is if you think that the inflation is not coming back to two percent. If you get months that are like the second half of last year or like what we've seen now here for a bit of a string, then I feel we're on path to two percent, and you return if that's returning to normal, the rate structure return to normal too.

So what does your dream dot look like?

So what does your dream dot look like?

Yeah, I don't like tie in our tie in our hands, even partially. So it's going to depend on the data. It depends also on the composition. If you look at inflation in the FEDS dual mandate, we've been doing great on the employment side, and we have done far less great on the inflation side. But now inflation is coming down, So we got to think about both sides within inflation. Goods inflation has looked almost back to what it was pre COVID, services inflation and improving getting closer. And the thing that's been the toughest puzzle in the US has been why housing inflation hasn't come down. The way they measure the inflation in Europe is different. By the By the European measure, the US would already be at two percent.

Yeah, I don't like tie in our tie in our hands, even partially. So it's going to depend on the data. It depends also on the composition. If you look at inflation in the FEDS dual mandate, we've been doing great on the employment side, and we have done far less great on the inflation side. But now inflation is coming down, So we got to think about both sides within inflation. Goods inflation has looked almost back to what it was pre COVID, services inflation and improving getting closer. And the thing that's been the toughest puzzle in the US has been why housing inflation hasn't come down. The way they measure the inflation in Europe is different. By the By the European measure, the US would already be at two percent.

But we're still grappling with this housing issue.

But we're still grappling with this housing issue.

But is it fair too?

But is it fair too?

I mean what I'm listening when I'm hearing you speak, is it fair that you would contest them sooner rather than later?

I mean what I'm listening when I'm hearing you speak, is it fair that you would contest them sooner rather than later?

Well, like I say, I don't, I don't like tie in our hand.

Well, like I say, I don't, I don't like tie in our hand.

We're still going to get a lot of data between now and the next meeting, and certainly between now and the rest of this year. But the question of how restrictive the FED wants to be when we're at a pretty historically restrictive position depends on what happens to inflation. And if you just hold the race where they are while inflation comes down, you're tightening, and so you should You should do that by decision, not by default.

We're still going to get a lot of data between now and the next meeting, and certainly between now and the rest of this year. But the question of how restrictive the FED wants to be when we're at a pretty historically restrictive position depends on what happens to inflation. And if you just hold the race where they are while inflation comes down, you're tightening, and so you should You should do that by decision, not by default.

When you look at unemployment, so it's around four percent at the moment. If it slows down a little bit more, is there a danger if it actually rises a bit more, is there a danger that suddenly it kind of gets out of control?

When you look at unemployment, so it's around four percent at the moment. If it slows down a little bit more, is there a danger if it actually rises a bit more, is there a danger that suddenly it kind of gets out of control?

There is a look, the historical business cycle pattern, as you know, is that there's not slow deteriorations.

There is a look, the historical business cycle pattern, as you know, is that there's not slow deteriorations.

What we have seen so far is very unusual.

What we have seen so far is very unusual.

Usually, as they describe, unemployment goes up like a rocket and comes down like a feather. And so that's on everyone's mind that there are some warning signs in the job one.

Usually, as they describe, unemployment goes up like a rocket and comes down like a feather. And so that's on everyone's mind that there are some warning signs in the job one.

But is this time different or is this a real concern of yours?

But is this time different or is this a real concern of yours?

Probably some of both.

Probably some of both.

I mean the I always say a job of central bankers to be concerned and worried about everything, So we have to take that seriously. That said, the unemployment rate is still very low by historic terms.

I mean the I always say a job of central bankers to be concerned and worried about everything, So we have to take that seriously. That said, the unemployment rate is still very low by historic terms.

The job market is still quite strong.

The job market is still quite strong.

It's just been some warning signs, and as inflation comes down, we got to keep our eye on the other side of the mandate. If you remain restrictive for too long, that that's going to be a problem.

It's just been some warning signs, and as inflation comes down, we got to keep our eye on the other side of the mandate. If you remain restrictive for too long, that that's going to be a problem.

I know, you don't want to tie your hands into calling a cutter or when But when the FED starts cutting, is it going to be a cycle of costs like we've seen in the past, or it is a cycle different.

I know, you don't want to tie your hands into calling a cutter or when But when the FED starts cutting, is it going to be a cycle of costs like we've seen in the past, or it is a cycle different.

It depends what happens with the data. This has been a very unusual business cycle recovery. Now in the job market it looks unusual. So I don't I don't like to predict for the next meeting, much less well, what would happen in multiple meetings after that.

It depends what happens with the data. This has been a very unusual business cycle recovery. Now in the job market it looks unusual. So I don't I don't like to predict for the next meeting, much less well, what would happen in multiple meetings after that.

I just think we just have to see what happens.

I just think we just have to see what happens.

But do you think the market needs to be guided?

But do you think the market needs to be guided?

I mean, the markets have been all over the place in pricing costs and then not CODs. I mean, I'm even looking at possible rate heights.

I mean, the markets have been all over the place in pricing costs and then not CODs. I mean, I'm even looking at possible rate heights.

Look, the market does what it does and the central bank does what it does. And I was Paul Volker was my mentor and had this phrase. Our job is to act and their job is to react. And let's not get the order mixed uff. So the market, it's presumptive not for the central bank to give guidance to the market.

Look, the market does what it does and the central bank does what it does. And I was Paul Volker was my mentor and had this phrase. Our job is to act and their job is to react. And let's not get the order mixed uff. So the market, it's presumptive not for the central bank to give guidance to the market.

The market is trying to figure it out.

The market is trying to figure it out.

They have a tendency to run one way, run the other way, and you've seen that with announcements of the summary of economic projections.

They have a tendency to run one way, run the other way, and you've seen that with announcements of the summary of economic projections.

For example, if the media.

For example, if the media.

Dots says there will be three cuts, that's the same thing.

Dots says there will be three cuts, that's the same thing.

Well, that must mean seven cuts, you know. And then.

Well, that must mean seven cuts, you know. And then.

That volatility has a way of smoothing itself out as they learn about reality.

That volatility has a way of smoothing itself out as they learn about reality.

So it seems that a lot of the data is also politicized when you look at consumer sentiment. Because we're an election, you're in the US, is it difficult to take? Are you confident that the consumer sentiment that you're seeing is the correct one?

So it seems that a lot of the data is also politicized when you look at consumer sentiment. Because we're an election, you're in the US, is it difficult to take? Are you confident that the consumer sentiment that you're seeing is the correct one?

Because not really. You know, the law orders the FED to look.

Because not really. You know, the law orders the FED to look.

At the actual numbers employment and stabilization of prices. We've always used consumer sentiment and wanted to check that data because it was a good.

At the actual numbers employment and stabilization of prices. We've always used consumer sentiment and wanted to check that data because it was a good.

Indicator of consumer spending.

Indicator of consumer spending.

And part of the call it politicization, whatever you want to call it, this real divergence in the consumer sentiment data is that it's become a horrible predictor of actual spending behavior. So I think that's at least for me, that's made me a little cautious of concluding too much from what comes out.

And part of the call it politicization, whatever you want to call it, this real divergence in the consumer sentiment data is that it's become a horrible predictor of actual spending behavior. So I think that's at least for me, that's made me a little cautious of concluding too much from what comes out.

Of So what does that mean that you're putting more emphasis? We have a jobs report on Friday.

Of So what does that mean that you're putting more emphasis? We have a jobs report on Friday.

Yeah, I've put a lot of emphasis on the jobs reports, on for sure, all the measures of inflation, both the official measures, and we now have such a wide expanse of private sector information that we can get in real time about prices. And I'm in the Chicago districts as the heart of the Midwest. We talked to business people, we talked to community leaders. We're trying to get real time information. I put a lot of weight on that too,

Yeah, I've put a lot of emphasis on the jobs reports, on for sure, all the measures of inflation, both the official measures, and we now have such a wide expanse of private sector information that we can get in real time about prices. And I'm in the Chicago districts as the heart of the Midwest. We talked to business people, we talked to community leaders. We're trying to get real time information. I put a lot of weight on that too,