Central Bank Central Collected Insights from Week: Tariffs, Fed's Next Move Key
Richmond's Fed's Barkin, BNY Investment's Reinhart, KPMG's Swonk, See Rate Cuts Coming, Big Question Is Timing and Number
One thing was clear this week: whether I was trying to gain insight on Fed policy or after a Fed meeting or after an economic report, whatever the experts talked about it was going to include a large dose of tariff-talk. Tariffs one way or another are deeply in the psyche of market participants and policy makers. And then when we turn the discussion to policy, the topic du jour uniformly is “Wait and See.” My three interviews this week each concluded with the finding that wait and see was the law of the land for Fed policy and that it should be.
Together, these findings tell us that the experts think Fed is unsure what lies ahead. That means it will wait and see to make a more informed policy judgement.
Tom Barkin, is an FOMC member, but not a voter this year. He sees four possible outcomes as he awaits tariff news, and he thinks three of them could lead to rate cuts. He conceded that Chris Waller and Michelle Bowman, who both say there could be a cut as soon as the July meeting, could be right. To Tom it simply depends on the incoming data and the clarity they shed about the policy situation and tradeoffs; ot just the numbers but the surety of the analysis, his expression is ‘waiting for the fog to lift.’
Vince Reinhart a Fed economist who once was the principal author of the Fed Minutes as secretary, surprisingly said that there is so much Fed information that is put out these days that the Fed hardly can surprise us any more at its twice a year testimonies before Congress - although markets continue to brace for them as they do have the potential to be big events. Vince noted that The Fed’s meetings even with the SEPS are often not that revealing. He found the Fed SEPS (the Summary of Economic Projections) were simply not internally consistent and that leaves us wondering where the Fed really stands when push comes to shove. As for the Economic data, Vince noted that there are any number of ways tariffs could play out. Vince was careful to point out the last time the Fed said a supply shock could be ignored it did not work out so well for the Fed. Vincent seems to be a little more skeptical of the supply shock argument and the idea that we know where to slot it and how to handicap it.
Diane Swonk was particularly detailed about tariffs and work she had done and also seen from the Fed on tariffs being passed through. She is also a wait and see person but she is more in the ‘wait’ camp. Diane sees one Fed rate cut this year and sees it later on in the year. She sees the potential for continued pressures from tariffs on prices near term. The KPMG Chief Economist sees a slowing in the economy and some flirtation with Stagflation but no recession. She also sees a bit more inflation pressure than the Fed sees this year.
When you speak to a several different economists you expect to get a lot of different feedback. This week I found differences among my experts for sure, but actually there was a lot more common ground, about what the Fed needed to see and what it was waiting for. Of course, different folk seemed to have different notions about specifics. Diane seemed a bit more worried about inflation, Vince sees a lot of flexibility among the various transactors in the international sales/production Chain while Tom seems a little more in the camp of being more certain that tariffs would come and go and in the end their residue would not leave that much inflation.
And as always time will tell. Let me thank my experts once again for their time and their expertise on these fascinating and important topics: Tom, Vince, and Diane, thank you again.