Eric Winograd, Chief Economist, AllianceBernstein, discusses what to expect from next week’s Fed meeting.
Transcript:
CAROLINE WOODS: I am joined by Eric Winograd, chief economist at AllianceBernstein. Eric, great to have you here at the desk.
ERIC WINOGRAD: Thanks for having me. It’s great to be here.
CAROLINE WOODS: So we’re talking all things Fed in anticipation of the meeting next week. What are you expecting in terms of interest rates? What are you expecting to hear from Chair Powell?
ERIC WINOGRAD: So I think in terms of expectations for interest rates, it’s pretty straightforward. We don’t expect the Fed to cut rates next week. I don’t think the consensus expects the Fed to cut rates. I think that when he starts to talk, he will sound much more open to the idea of rate cuts going forward than he has. He’s talked about it being too early, being premature, and while he might say that, I expect him to soften that a little bit and to sound more open to the idea that if the economy continues to evolve the way that it has, they could well be cutting rates by the fall, which indeed is what we expect them to be doing if the economy continues to evolve as it has.
CAROLINE WOODS: Are you saying that the economy is slowing and that warrants rate cuts?
ERIC WINOGRAD: I think the economy is slowing enough that it makes rate cuts an appealing prospect, especially when the policy rate right now is above the Fed’s estimate of neutral. Different members of the Fed have described policy as either moderately restrictive or somewhat restrictive. That’s a cue from them that over time, they expect rates to come down. The question really has been when. And the reason they haven’t so far is that they’re hanging their hat on this idea that tariffs could push prices higher. They don’t know how consumers will respond to that in terms of inflation expectations. And so they want to be a little bit more patient. But look, the evolution of the economy this year has not included inflation really moving meaningfully higher. I pretty firmly believe that if it weren’t for tariff-related uncertainty, the Fed would already be cutting rates. And so by the time they get to their September meeting, if we haven’t seen a meaningful impact on inflation and more importantly, on inflation expectations, I think they’ll be ready to cut.
CAROLINE WOODS: We do have that August 1st tariff deadline approaching. We don’t know if the can is just going to be kicked down the road even further. Do you expect tariffs to ultimately have an inflationary impact though? Because, we are hearing potentially 15% with certain countries. There are sectoral tariffs that are even higher than that, but we haven’t really seen it hit the data yet. And the Fed is data dependent.
ERIC WINOGRAD: Yeah, so I want to be very careful in the way that I say this. I absolutely expect that tariffs will push prices higher. But I don’t think of that as being really inflation. Inflation in the context of monetary policy is sustainable. It’s durable. It’s something that persists over multiple quarters and years. Tariffs, like other tax increases, tend to have a one-off impact on prices. And so I think tariffs will raise the price level. That will impact the way inflation is calculated this year. But unless it impacts inflation expectations unless businesses and households expect that to persist I don’t think that will stop the Fed from cutting rates.
Subscribe |
Earn. Live. Invest. |
TheStreet Pro |
#federalreserve #jeromepowell #interestrates
source
