Bill Dudley: I Changed My Mind: The Fed Needs to Cut Rates Now
The facts have changed, so I’ve changed my mind.
The Fed should cut, preferably at next week’s policy-making meeting.
Waiting until September unnecessarily increases the risk of a recession.
Fed’s efforts to cool the economy are having a visible effect.
Granted, wealthy households are still consuming, thanks to buoyant asset prices and mortgages refinanced at historically low long-term rates.
But the rest have generally depleted what they managed to save
Fed officials don’t seem particularly troubled by the risk that the unemployment rate could soon breach the Sahm Rule threshold.
The logic is that rapid labor force growth, rather than a rise in layoffs, is driving the increase in the unemployment rate. This isn’t compelling
Historically, deteriorating labor markets generate a self-reinforcing feedback loop. When jobs are harder to find, households trim spending, the economy weakens and businesses reduce investment, which leads to layoffs and further spending cuts.
Bill Dudley Bloomberg 24 juli 2024 at 11:30 CEST
The strength of the US consumer is showing signs of deterioration.
That adds to the pressure to cut rates.
Pressure is apparent in credit card debt, while there are signs of tectonic plates shifting under the economy.
In foreign exchange, the balance appears to be turning decisively against carry traders — investors who borrow in low interest-rate currencies like the Japanese yen and park in currencies with higher rates, such as the Mexican peso.
It’s a trade that works beautifully unless the currency in which you’re borrowing starts to gain.
John Authers Bloomberg 25 July 2024
Why is the economy so strong?
Maybe previous monetary tightening has yet to fully play out, or maybe the abatement of frictions in supply chains and the labor market has been providing a transitory boost to growth.
There is, however, a competing explanation: Maybe monetary policy isn’t all that tight.
Bill Dudley Bloomberg 20 februari 2024
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