Labor market breakdown could push Fed to cut rates: Frances Newton Stacey

Let's get right to our top story. Markets digesting the latest comments from Jerome Powell, who says we're now in a disinflation mode, but that the Fed needs more confidence before cutting rates. The read on all this and a lot more from market analyst Francis Newton Stacy. So, Francis, what do you think of Powell saying this? I mean, I, I'm surprised that the markets didn't react more favorably to suggesting that inflation is coming down. Yeah, they didn't act more favorably because he said it would take a lot more data that he would have been the confidence that inflation is not going to re accelerate. He said basically right now we've got, you know, unemployment just above 4%. So that's not out of control. Growth is sort of trending around 2%. So that's not out of control. It's above 2%. And you know, inflation is coming towards its target at 2%. So he said there really wasn't a catalyst. Although the labor market is weakening a little bit, there really isn't a catalyst. And he said what he fears is that if he goes ahead and preemptively lowers rates, that that could cause a reacceleration, inflation. He said some very fun comments where he said, look, you could do it too soon or too late. He said that now the risk is on both sides of doing too soon or too late. So he's going to balance those risks. And he also very cheekily said that, you know, they asked him about political policies and trade tariffs and he was like, no, no, no, no, no, they went back and they asked him about the neutral rate and he's like, let's get back to trade. Just kidding. So he played, he's one of the most effective communicators I've ever seen. He did it, you know, Well, I, I, by the way, intentionally does not 'cause alarm. I love your adverb cheekily. I, I don't think I've ever heard cheekily before, but that he does have that, that way of saying thing. But he's doing it based on history because in the past and specifically back in the 70s when just when the Fed began to feel that it was making progress against inflation, they lowered rates too soon. We saw this huge spike in inflation that went into the, the election, election year 1980. And we had to to live with two years of, of a really tightening of the by the Fed, which led to a big recession. There are suggestions. And in fact, the Wall Street Nick Timoreos had a piece over the weekend in the Wall Street Journal suggesting that a, a slowdown might actually lead to a recession. What's your feeling about that? No, I completely agree with that because we have a lot of, you know, people are living paycheck to paycheck. They're putting a lot of things on credit cards. And at some point, if, you know, unemployment goes up dramatically or there's some sort of momentum and defaults on credit, that could cause some problems. And he did say that if he saw a meaningful breakdown in the labor market, that would be an incentive to move rates lower. There is another thing to consider which he did not talk about that that I can recall from catching the bits and pieces, which is that we still need demand for our debt because we're running these deficits. And so we need the world and everyone in in the US to continue to buy bonds and continue to buy debt. And that is of course incentivized by keeping those rates high, higher so that they get higher returns on their fixed income. The other thing he said, as he said that the fiscal debt is not a problem. I don't know if I agree with that because the debt service is very onerous on that, But he said the deficits, while not a problem currently, we are not on a sustainable path. And he said that's not even a controversial issue. So he did make those comments with which I thought were interesting. And of course, if you slow the fiscal spending, that's going to also reduce the liquidity in the system and that will, you know, be de facto tightening. So he's weighing all of these various risks. By the way, Speaking of the debt, I mean, you, you mentioned how, how necessary it is for us to sell it to keep the government working. But it's getting more difficult, is it not, as as a lot of investors and bonds worry about that debt and the fact that debt service is now over $800 billion a year. I think it's now on track to to to be more than the military spending. I mean, could could it become much more difficult for the Treasury to sell its bonds now in this market, David, if we did not have the US dollar as the world's reserve currency? Our balance sheet is headed in the direction of a third world country. And that's what we have to maintain against the bricks influence. And that's a whole other conversation. But absolutely. Yeah, Francis, great to have your perspective. Thank you very much for being here. Francis Newton Stacy. Appreciate it.