Alan Blinder has been a leading voice at Federal Reserve Bank of Kansas City’s Annual Economic Symposium in the shadow of the Grand Tetons near Jackson Hole, Wyoming for four decades. He is in what I call the “Been There Done that Camp” after serving as Fed vice chair alongside Alan Greenspan in the 1990’s. He is closely followed as a highly respected, longtime professor of economics at Princeton University - and as the author of several books and articles, from economics research to popular opinion pieces.
Just one day before he sat down with me for an interview at the Jackson Lake Lodge where the K.C. Fed’s symposium is held each year, Fed Chair Jay Powell took the opportunity in his opening remarks at the event to throw down the rate-cutting gauntlet saying, "The time has come for policy to adjust.”
Alan says this came clear to saying that "the rate cut is imminent…and imminent means the next Fed meeting,” Alan says referring to the mid-September meeting. “They’re not going to have an emergency meeting. There’s no emergency.”
He has been calling for the Fed to start cutting rates for a while now, and even made the case for the Fed to do its first rate cut at its July meeting. Even so, he is surprised that Powell has gotten ahead of the rest of the FOMC – Federal Open Market Committee – members by all but announcing a September rate cut before the Committee members even had a chance to vote on the move. But he adds that Powell must know the majority is ready move to cut rates or he would not have delivered such a definite signal.
”He wouldn’t have gotten ahead of the Committee (if he had) any doubt what the outcome was going to be in September,” Alan says of Powell’s speech. “So that’s what the outcome is going to be. A rate cut, probably 25 bps, though he certainly wasn’t specific enough to distinguish, was that a signal of 25 or a signal of 50. I think 25.”
I ask Alan the other-side-of-the-coin rate cut question: why cut rates now if the labor market still looks to be on solid ground? Unemployment even at 4.3% is still near historic lows, and it’s going from an abnormally low rate of 3.4% during the pandemic to what looks more like the “natural rate of unemployment.” Jobless claims are still low.
”First, two-and-a-half percent (inflation) is within shouting distance of two (percent), but trailing down and unless you believe it’s going to stop (trailing down) like a train crashing into a wall… if you don’t take your foot off the brake or at least loosen the brake you’re going go crashing through 2%,” he cautions.
There are still key members of the FOMC like Fed Board governor Michele Bowman who said as recently as last week she remains cautious about any shift policy because of what she sees as continued upside risks for inflation, warning that overreacting to any single data point could jeopardize the progress already made. So I asked Alan if he thinks there could be any dissents against a decision by a majority of the voting members to cut the key rate.
”Yes I think it’s possible, he says. “I don’t think it’s likely.”
”If I was handicapping it I would give it less than a 50% probability. but I certainly wouldn’t give it a zero probability,” Alan says.
So hear, see what Alan has to say. His willingness to keep the door open to the Fed not cutting rates in September even as he is sure it’s the right thing to do is evidence he’s ready to look at both sides of the story, showing that my “Been There Done That” category is a good one to watch.
Jackson Hole: Blinder Sees 25bps Fed Rate Cut, No Need for 50 bps Move