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Turning now to the FED. Former New York Fed President Bill Dudley, writing in his latest Bloomberg opinion piece, US Federal Reserve and it's chair Jerome Powell are rightly choosing not to act on any assumptions about what Donald Trump might do as president. That said, if he follows through on his more extreme campaign promises, they'll struggle to contain the economic consequences, a problem that equity investors ignore at their peril. Bill joins us. Now, Bill, you've been.

Turning now to the FED. Former New York Fed President Bill Dudley, writing in his latest Bloomberg opinion piece, US Federal Reserve and it's chair Jerome Powell are rightly choosing not to act on any assumptions about what Donald Trump might do as president. That said, if he follows through on his more extreme campaign promises, they'll struggle to contain the economic consequences, a problem that equity investors ignore at their peril. Bill joins us. Now, Bill, you've been.

In the room.

In the room.

You understand what this is like. Give us a sense potentially of this attention that might brew between the FED chair and President elect Trump.

You understand what this is like. Give us a sense potentially of this attention that might brew between the FED chair and President elect Trump.

Well, the shart run there's that come to much attention because I think the Federal Reserve is still going to cut interest rates a bit further, but longer term, if you look at what the President elect Trump is proposing, higher terrorists, deportations, and fiscal steamulus, that's going to tend to boost inflation, disrupt economic growth because terrorists will corrupt, force people to reorient their supply chains, and it's going to make the economic environment more difficult. And so the Fed Reserve ultimately is going to react to that. But as pol said in his press conference last week, we don't assume, we don't guess, we don't speculate, So they're not going to act until they actually see the Trump agenda actually take form. So don't expect any near term response from the Fed. But in the longer term, I think if Trump does what he said he's going to do, it's going to be difficult to economic ride.

Well, the shart run there's that come to much attention because I think the Federal Reserve is still going to cut interest rates a bit further, but longer term, if you look at what the President elect Trump is proposing, higher terrorists, deportations, and fiscal steamulus, that's going to tend to boost inflation, disrupt economic growth because terrorists will corrupt, force people to reorient their supply chains, and it's going to make the economic environment more difficult. And so the Fed Reserve ultimately is going to react to that. But as pol said in his press conference last week, we don't assume, we don't guess, we don't speculate, So they're not going to act until they actually see the Trump agenda actually take form. So don't expect any near term response from the Fed. But in the longer term, I think if Trump does what he said he's going to do, it's going to be difficult to economic ride.

Well. Bill, as you point out, though, if Trump does anything big or abrupt, in your words, the central banks response will occur too late to mitigate fully the economic impact. So what is the needle to thread to not respond too soon when we don't know the extent of things, but also not waiting too late that you just can't do anything at that moment.

Well. Bill, as you point out, though, if Trump does anything big or abrupt, in your words, the central banks response will occur too late to mitigate fully the economic impact. So what is the needle to thread to not respond too soon when we don't know the extent of things, but also not waiting too late that you just can't do anything at that moment.

Well, I do think there's a risk that if Trump is very aggressive in terms of his policy choices, that the Federal Reserve will be late. I'll be waiting to see what happens, and then when it does happen, it will be bigger than expected, have bigger consequences for growth and inflation. At that point, I think the Federal Reserve would be a little bit behind the curve.

Well, I do think there's a risk that if Trump is very aggressive in terms of his policy choices, that the Federal Reserve will be late. I'll be waiting to see what happens, and then when it does happen, it will be bigger than expected, have bigger consequences for growth and inflation. At that point, I think the Federal Reserve would be a little bit behind the curve.

And they might have to actually catch up. That's not a near term story.

And they might have to actually catch up. That's not a near term story.

That's probably, you know, late twenty twenty five, first half of twenty twenty six, just at the time that Paul's wrapping up his term is Chuir.

That's probably, you know, late twenty twenty five, first half of twenty twenty six, just at the time that Paul's wrapping up his term is Chuir.

Good morning to your Bill. In your opinion piece this morning, you talk about an oddly divergent reaction from the bond market and the equity market. I want to focus on the bond market because it has been a wild ride. This morning we waken up again. The birds have been reawakened. The question I put to you is this, we don't know the tariff, we don't know the tax, we don't know anything about the fiscal policy exactly. With some broad parameters. When you look at the term premium in the bond market, the debate is how much more term premium there needs to be if there's going to be such a large deficit run. Some of the numbers thrown out there are pretty obscure. But if we on the brink of where there needs to be a lot more term premium to hold US treasuries.

Good morning to your Bill. In your opinion piece this morning, you talk about an oddly divergent reaction from the bond market and the equity market. I want to focus on the bond market because it has been a wild ride. This morning we waken up again. The birds have been reawakened. The question I put to you is this, we don't know the tariff, we don't know the tax, we don't know anything about the fiscal policy exactly. With some broad parameters. When you look at the term premium in the bond market, the debate is how much more term premium there needs to be if there's going to be such a large deficit run. Some of the numbers thrown out there are pretty obscure. But if we on the brink of where there needs to be a lot more term premium to hold US treasuries.

There needs to be some more term premium to reflect the uncertainty about the economic outlook and the unsustainable fiscal paths of the United States. That's one area where Powell actually did to speak out last week. He did say that the fiscal path the United States is unsustainable, and if President Electrump does all the things he wants to do in terms of corporate tax reduction, extending the twenty seventeen tax cuts, the fiscal situation is going to worsen, not.

There needs to be some more term premium to reflect the uncertainty about the economic outlook and the unsustainable fiscal paths of the United States. That's one area where Powell actually did to speak out last week. He did say that the fiscal path the United States is unsustainable, and if President Electrump does all the things he wants to do in terms of corporate tax reduction, extending the twenty seventeen tax cuts, the fiscal situation is going to worsen, not.

Improve going forward.

Improve going forward.

So I think the path to higher bodilds is the most likely path. The other thing that's happened, of course, is people have changed their expectations of where the Fed's going in terms of short term interest rates. A couple of months ago, people were respecting the federal fund rate to bottom below three percent. Now the markets are expecting the federal fund rate to bottom at around three and three quarters percent. So if you have a higher federal fund rate, then you're going to have a higher bondiold just by construction.

So I think the path to higher bodilds is the most likely path. The other thing that's happened, of course, is people have changed their expectations of where the Fed's going in terms of short term interest rates. A couple of months ago, people were respecting the federal fund rate to bottom below three percent. Now the markets are expecting the federal fund rate to bottom at around three and three quarters percent. So if you have a higher federal fund rate, then you're going to have a higher bondiold just by construction.

So the direction of travel, you say, is higher in yields. When you look at the response from Power at that news conference touched on this with various people, are we going to hear much more? I don't know what the right word is. Aggressive, demonstrative, exacting language, from the FED. What word would you choose that the Fed's retoric needs to become more involved in twenty twenty five, I.

So the direction of travel, you say, is higher in yields. When you look at the response from Power at that news conference touched on this with various people, are we going to hear much more? I don't know what the right word is. Aggressive, demonstrative, exacting language, from the FED. What word would you choose that the Fed's retoric needs to become more involved in twenty twenty five, I.

Think the FED is actually going to be very, you know, mild in terms of their language. They're going to set monetary policy based on what they think is appropriate given the growth and inflation out look. And as you noticed, it's going to take time for that to manifest this stuff because we don't really know exactly what the President Electrump is going to do, So I think the language will be actually not combative at all. You saw last week, you know, reporters asked Trump Powell about you know, what's what's how you can react to the Trump policy mix and pile basis.

Think the FED is actually going to be very, you know, mild in terms of their language. They're going to set monetary policy based on what they think is appropriate given the growth and inflation out look. And as you noticed, it's going to take time for that to manifest this stuff because we don't really know exactly what the President Electrump is going to do, So I think the language will be actually not combative at all. You saw last week, you know, reporters asked Trump Powell about you know, what's what's how you can react to the Trump policy mix and pile basis.

That no common.

That no common.

So I think then in the very short term, the FED is going to keep its head down and conduct policy based on how the economy is doing right now.

So I think then in the very short term, the FED is going to keep its head down and conduct policy based on how the economy is doing right now.

Those we can take a step back to the reaction that we've seen here in the now. As you write in your column, you find the stock market response baffling. Equity bowls have been really excited about the prospects of tax cuts and deregulation.

Those we can take a step back to the reaction that we've seen here in the now. As you write in your column, you find the stock market response baffling. Equity bowls have been really excited about the prospects of tax cuts and deregulation.

What are they missing?

What are they missing?

Well, I think that the stock market has this notion that we're going to have deregulation, we're going to have corporate tax cuts, and that's going to boost corporate profit margins.

Well, I think that the stock market has this notion that we're going to have deregulation, we're going to have corporate tax cuts, and that's going to boost corporate profit margins.

And I think that's probably parking fair part of the argument.

And I think that's probably parking fair part of the argument.

But I think what they're missing is all the consequences of the other parts of the Trump agenda.

But I think what they're missing is all the consequences of the other parts of the Trump agenda.

Higher tariffs I mean higher inflation, they mean.

Higher tariffs I mean higher inflation, they mean.

Disruption, lower productivity, growth, deportations affect the supply of labor, and unsustainable fiscal path means higher interest rates. When I look at the bond market versus the stock market, I think the bond market, at bond mules rise, that's been put increasing pressure on the stock market. We're starting from points that the stock market valuations are already extremely high. So if bondyles go up, I think that will weigh on the stock market. I would not be a big stock market bowl at this point. Bill.

Disruption, lower productivity, growth, deportations affect the supply of labor, and unsustainable fiscal path means higher interest rates. When I look at the bond market versus the stock market, I think the bond market, at bond mules rise, that's been put increasing pressure on the stock market. We're starting from points that the stock market valuations are already extremely high. So if bondyles go up, I think that will weigh on the stock market. I would not be a big stock market bowl at this point. Bill.

Given that backdrop, how difficult is this December meeting going to be for the Fed?

Given that backdrop, how difficult is this December meeting going to be for the Fed?

I don't think it's gonna be that difficult, because I think Paul laid it out pretty clearly last week. They think that the economy is the risk of inflation, and the leader market are roughly in balanced. They think monetary policy is still restrictive so that they're heading back towards neutrals slowly. So I think at twenty five basis point rate of cut in December is still the most likely case now. If the economy continues to stay stronger than expected and inflation stays stickier than expected, then that December rate cut might be the last rate cut for a while.

I don't think it's gonna be that difficult, because I think Paul laid it out pretty clearly last week. They think that the economy is the risk of inflation, and the leader market are roughly in balanced. They think monetary policy is still restrictive so that they're heading back towards neutrals slowly. So I think at twenty five basis point rate of cut in December is still the most likely case now. If the economy continues to stay stronger than expected and inflation stays stickier than expected, then that December rate cut might be the last rate cut for a while.

But that really depends on the data.

But that really depends on the data.

The FED right now is really data dependent in terms of where they're going.

The FED right now is really data dependent in terms of where they're going.

The direction of rates is downward, but slowly.

The direction of rates is downward, but slowly.

Because the economy has continued to perform pretty well on the growth side.

Because the economy has continued to perform pretty well on the growth side.

Last week, Powell was asked a number of time by journalists about what would happen if President look Donald Trump tried to remove him, and this morning in the Wall Street Journal they talked about twenty eighteen and Powell then went what they're right reporting to Treasury Secretor Stephen Minuchin and said that he would fight his removal sought by the president. Are you concerned about the independence of this Fed?

Last week, Powell was asked a number of time by journalists about what would happen if President look Donald Trump tried to remove him, and this morning in the Wall Street Journal they talked about twenty eighteen and Powell then went what they're right reporting to Treasury Secretor Stephen Minuchin and said that he would fight his removal sought by the president. Are you concerned about the independence of this Fed?

Well, I think you have to always be concerned about the independence of the FED when you have a president that seems to be a president elected seems to be hostile to the Fed's independence.

Well, I think you have to always be concerned about the independence of the FED when you have a president that seems to be a president elected seems to be hostile to the Fed's independence.

And you know, the reason why we.

And you know, the reason why we.

Want an independent central bank is because historically independent central banks actually do a better job in terms of managing monitoring policy to achieve the outcomes that.

Want an independent central bank is because historically independent central banks actually do a better job in terms of managing monitoring policy to achieve the outcomes that.

We want in terms of growth of inflation. So independence is really driven.

We want in terms of growth of inflation. So independence is really driven.

By the fact that you actually get better outcomes. That people think that the Federal serve is going to change course based on pressure from the President, that increases uncertainty and risk, and it also makes the FED very short sighted in terms of its policy agenda.

By the fact that you actually get better outcomes. That people think that the Federal serve is going to change course based on pressure from the President, that increases uncertainty and risk, and it also makes the FED very short sighted in terms of its policy agenda.

So I think the FED, you know, basically, the FED is going to.

So I think the FED, you know, basically, the FED is going to.

Try to maintain its independent pouwll I think it was very very clear last week when asked about whether he's playing to resign early no, Whether PROMP has the right to fire him legally, no. So PAB basically said pretty clearly, I'm going to finish out my term which ends in May twenty twenty six, and so tried to close off the debate on that whole issue.

Try to maintain its independent pouwll I think it was very very clear last week when asked about whether he's playing to resign early no, Whether PROMP has the right to fire him legally, no. So PAB basically said pretty clearly, I'm going to finish out my term which ends in May twenty twenty six, and so tried to close off the debate on that whole issue.

Not permitted under the law. He kept saying that no, no, no, And the Wall Street Journal gives some insight into he knows this because he went through it in twenty eighteen. Former New York Fed President Bill Dudley, Thank you so much for your time and insight this morning.

Not permitted under the law. He kept saying that no, no, no, And the Wall Street Journal gives some insight into he knows this because he went through it in twenty eighteen. Former New York Fed President Bill Dudley, Thank you so much for your time and insight this morning.