Even if inflation comes down slightly, it's still well above target, says Roger Ferguson

What are you expecting from the CPI report? What do you make of all these Fed officials coming out talking about possibly no cuts this year? Look, I think I’m in the broadly in the consensus, but the main message from the CPI report is whatever it does, it’s still well above the 2% target. And even if it comes down slightly, it’s moving very slowly. So what do I make of the, the, the chorus of voices from the from the Fed, I think they’re seeing what we’re seeing, which is they’ve always said they need to be convinced that inflation is coming down. And the last couple reports cannot have increased their level of conviction. So I think they’re simply reporting what the facts tell them, which is they’re not yet there. Even though they had a forecast and the SAP of productively 3 cuts, the economy may not be unfolding as they expected. And consequently, they and the market should be dialing back expectations of cuts going forward. Yes, his voices like Rafael Bostic are signaling to the market you need to dial back those expectations. We often cover these inflation reports, you know, every coffin spit. That’s the phrase I like to use. But they are actually backward looking. I want to ask you, as we see a rise in commodities and also a rise in oil prices, one specific commodity that is a big impact on the economy. How does the Fed view that? Do they take that into consideration? Look, I think they’re trying to understand exactly what inflation dynamics are. And yes, they’ve got to be recognizing that some of the inputs might be firming up. So commodities, one of them, look, also there’s a question of the market signal that’s coming from the the treasury market, which is suggesting higher interest rates as well. And certainly no, you know, coming off of the boil, so to speak, of a good economy. So they’re looking at all of these signals to both look at what happened in the past and try to figure out the future. And that’s another reason why I think you’re getting some signals that maybe we should not be so certain about expectations because they’re not so certain yet about inflation coming down. All right, Roger, if you don’t mind, I want to try to give the market some optimism. Looking at the CME Fed watch tool right now, a month ago, there was a 60% chance of 1/4 point cut in June. Remember, we do have another meeting before June. Right now, it’s at a 50% chance of the market sees it basically at 5050. Is there an argument to see that cut still happen in June despite some of these stronger economic reports we’re seeing? Is there also a concern that the Fed, if they don’t cut, they might wait just a little bit too long? Look, I think they’re worried about it. And so I think you heard a couple of them talking about the risk being much more balanced now, maybe evenly balanced. So they certainly know that there’s a risk of keeping rates too high as inflation is coming down. But it is, you know, a balanced risk right now. And I think June is at best 5050 if I wanted to give the market optimism. I think the optimism comes from the fact that the underlying economy is very strong. Consumers continue to be in pretty good shape and may be very good shape. The job market is continuing to produce jobs and individuals are coming to take those jobs. So the other optimism for the market should be, well, maybe the economy doesn’t need a boost of a inflation of a interest rate reductions because it’s doing pretty well. So I I want to get your perspective. You’ve been in the room and these decisions are getting made. When Fed officials are talking about the possibility of no cuts. Is it do they consider the fact that we may even though inflation is higher than expected, but we may just be on that so-called path for a soft landing and maybe inflation expectations they just need to change in the post pandemic world. Is that a conversation that you think they may be having? Look, I think there’s a longer term conversation among the Central bank community, those in the room and and economists who’ve been in the room about what the longer term so-called neutral rate is, whether or not there are a number of factors that are going to allow the economy to function well and inflation be relatively well contained, you know at numbers at at interest rates that are higher than we had thought originally. So that is certainly one of the conversations. It’s not the one that’s going to drive the decision making here, but it’s going to be the one as they think about their framework etcetera that’s going to come up. So Yep, that is certainly on people’s minds. I don’t think it’s the short term decision making. However, that’s being driven by the incoming data and as you suggest whatever the forecast might be. So no chance they might ease off the idea of getting back to 2% inflation. I mean one of the things that really sparked some of the inflation we saw were supply chain concerns and also continue consumer spending, supply chain concerns of ease. But people have not stopped spending by any means. I don’t think they’re going to step back off of the 2% inflation target at this moment. They’ve reiterated several times and understand if they start to signal that maybe 2% is not the target they risk one of the things that’s been helping them, which is so-called inflation expectations, Inflation expectations by almost all measures are reasonably well anchored roughly around that 2% number. And that is one of the things that’s really important for them. So I think stepping back from the 2% target at this stage leaves people wondering, well, what is the target and then things become a little unanchored. So I think it’s better for them to do what they’re doing, reflect the date as it comes in, show some nimbleness as need be, but don’t change the target, you know, halfway through the game, so to speak. That would be, I think, inappropriate.