Sebnem Kalemli-Ozcan is quick to remind me that way back in August in Jackson Hole when Jay Powell said it was time to start cutting rates, she did not expect a jumbo 50bps move. This even after he all but announced that a September rate cut was in the works as the labor market weakened.
Now after the fact, she says this mostly unexpected oversized move serious was the right thing to do.
”The Fed is in a good place, right?,” she says. “They did a move, they showed how serious they are about the other side of their dual mandate,” how serious they are about the risks in the labor market.
”So they’re in a good place right now to continue (with rate cuts), but maybe not with that big of a move,” she says.
Sebnem is also quick to point out that the September jobs report “is just one number.” The next jobs report may tell us that the labor market is actually still slowing, she adds, but that it is “a ‘slow’ slowing.”
What if the data keep coming in strong? Could that cause the Fed to pause its rate hikes? She can’t rule it out entirely but says for the Fed to do that it would have to see an economy that is overheating as the U.S, economy did in 2021 and 2022. “I just don’t think we are there yet.”
As Sebnem joined me after day one of a monetary policy conference at the European Central bank we also discussed her recent research developing a model that shows how an economy can generate slowly coming down inflation without an increase in unemployment, in other words what the dynamics are the dynamics of a soft landing.
Dive in and have a look and a listen as you hear why this long time central-bank-watching economist says Powell and the FOMC are on the right rate-cutting track.
Şebnem Kalemli-Özcan is Schreiber Family Professor of Economics at Brown University and the Director of the Global Linkages Lab. She is a Research Associate at the National Bureau of Economic Research (NBER) and a Research Fellow at the Center for Economic Policy Research (CEPR). Currently, she is the co-editor of American Economic Journal: Macroeconomics. She also serves at the economic advisory panels of the NY Federal Reserve and the Bank of International Settlements.
She was the Duisenberg Fellow at the European Central Bank, held a position as Lead Economist/Adviser for the Middle East and North Africa Region, served as the Houblon-Norman Fellow of Bank of England and also CFR International Affairs Fellow. She was the Senior Policy Advisor and Assistant Director at the International Monetary Fund. She is the first Turkish social scientist who has received the Marie Curie IRG prize in 2008 for her research on European financial integration.
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