Consumer sentiment falling today as Expectations for inflation over the next Year take up to 3.1% highlighting Americans frustration with high prices After a hotter than expected CPI print Earlier this week for more on what this Means for rate cuts from the FED we're Bringing in Jim Boward former St Louis Fed president and Dean of the Purdue Daniels School of Business thank you for Joining us here today um a lot of can Change in a week and I note that last Friday you were in front of the National Association for business economics in Washington talking about the need for Rate Cuts saying it's probably wiser to Go sooner but slower you talked about The dangers of waiting but in the Interim we've gotten this higher than Expected CPI print just wondering what Your thinking is Now yeah if you look at the policy rate Uh and and you think the policy rate was Right last summer when inflation was 200 Basis points higher than it is today uh Then you have to wonder well why hasn't The policy rate come down a little bit In response to the good inflation news Now I think the committee was ready Probably to go ahead here in the first Quarter but all three inflation reports For the first quarter uh came in hot so It wasn't a good time to make that first Move and uh that's where we're sitting
Today Jim what do you make of Larry Summers comments here uh this week uh Mr Summers on X posting you have to take Seriously the possibility he says that The next rate move will be upwards Rather than downwards give me your Response to that Well I mean take seriously the Possibility I suppose we should always Take that into account um I think for The Hawks on the committee uh if they Want to continue to put downward Pressure on inflation they can just stay Where they are because the policy rate Is is pretty high and it has been viewed As restrictive so um from that point of View I think you just stand Pat and uh And you know for those that are Concerned about inflation still hanging Up at 3% uh that would be one way to Combat that Jim we got some big Bank Earnings out today I don't need to get Into the nitty-gritty details but Broadly speaking there were some Concerns about net interest income Projections for the year and we also got To look on the consumer just wondering What factors uh that what factors should We be paying attention to right now Given these big Bank earnings and a Slate next week uh that would tell us Give us information about the economy And also potentially the path of fed Rate Cuts or potentially
Hikes yeah I think it's been uh Difficult relatively difficult time for Banks uh since svb uh last March so we About a year ago uh and a few other Banks at that time um the larger Banks Tended to profit from that uh because They got some traffic moving toward them And away from the big regionals I think That's probably retrenching a little bit Now I think that the Um uh Market over interpreted svb uh Last year and started to predict 100% Probability of recession I have to smile There isn't this is macroeconomics there Isn't 100% probability of anything so uh You know that turned out not to be right Uh and the economy actually boomed in The second half of 2023 instead of going Into recession um I think the you know I Mean my Broad read of this is that uh That was good for very large Banks but Now there's probably some payback Jim I'm not sure what you think need to Happen in order to in order for Inflation to get back uh to the fed's Target does the labor market need to Significantly weaken is that it Jim I don't really think so uh I think You could have a strong labor market as We did in the second half of the 1990s And you could still push inflation right To the 2% Target um you know it is an Art form and these things are not Terribly precise but still I think with
The uh you know relatively high value of The policy rate and um uh expectations Of inflation uh lower than they were uh Let's say a year and a half ago uh I Think that that means that the price Change in the economy will uh eventually Come back to the 2% Target it hasn't Been quite as smooth as we would have Hoped HED over last three months um but On the other hand we did get a lot of Disinflation in the second half of 2023 Even as the economy boom during that Period uh so I think uh I think it's all Still possible I think we're still on Track for a soft Landing um but it's Going to take a little longer than uh Previously thought Jim I want to dial Back to Mid 202022 uh you penned a Missive here for the St when you were President of St Louis fed and you talked About similarities at the time between Then and 1983 and also the high Inflationary period back then um and you Were a proponent of the rapid uh hikes That we experienced in 2022 you were Making the case and here's one thing That you wrote uh in 1983 we kept the Fomc kept the policy rate relatively High even as inflation declined uh real Interest rates were very high you go on To say one might have expected the High Real interest rates to cause a recession But that didn't happen the US Experienced a robust expansion during
The remainder of the ' 80s and didn't Have a recession till 1991 I was just Wondering do you think in any way that Fears of a of a recession really are Overblown and that uh we could actually Stick with these higher real rates for Longer than perhaps economists Think yes I do and I think uh you know That was talking about the 80s but the 90s are another good example where uh The Greenspan fed increased the policy Rate dramatically in 1994 some 300 basis Points uh uh not quite as much as as the Current episode but quite a lot at the Time and uh they did push inflation down To 2% uh by 1995 96 uh they made a few adjustments uh Down but basically that's interest rate Stayed for the second half of the 1990s And the economy boomed during that Period that was one of the best periods In the whole post World War II era uh For the US economy um and we were Talking about actually paying off the Entire national debt so it shows you how Good things can get uh if if everything Goes well so I think we are in good Position today uh to have a similar type Of outcome uh inflation isn't quite down To the Target yet but it's uh certainly Over the last nine months has gone in The right direction and um you know These most recent inflation reports Notwithstanding I think uh we'll still
Get inflation down to 2% uh with a Pretty strong economy and some potential For a productivity boom similar to the One that we had in the uh 95 to 2000 Period Jim thanks so much for joining The show appreciate It great thank you
