MNI INTERVIEW: Fed To Slow Cuts As Inflation Lingers-Roberts
MNI (WASHINGTON) - The Federal Reserve will likely slow the pace of its interest rate cuts to a quarter point over the next couple of meetings as lingering inflation pressures and a strong job market make it unclear that substantial monetary easing is needed, former New York Fed executive Rick Roberts told MNI.
“I do not think 50 basis points is the new baseline here. I’d be surprised if we see another 50 basis point cut this year. I do expect a total of 50 basis points by year end, in increments of 25 and 25,” Roberts said in the latest episode of The FedSpeak Podcast.
Roberts said the economy remains robust, downplaying concerns about cracks in the labor market that might portend some sharper deterioration to come.
“These cracks are not apparent or concerning to me. I’m not sure we’re barking up the right tree in saying the labor market is substantially deteriorating and it’s arguing for substantial accommodative policies at this point. I just don’t see it,” said Roberts, also a former advisor to the Kansas City Fed and now a professor at Monmouth University. (See MNI INTERVIEW: Fed Can Cut Gradually If Jobs Stay Strong-Kohn)
At the same time, Roberts worries policy makers have become overly dismissive of lingering risks to inflation.
MISSION NOT ACCOMPLISHED
“I happen to feel that inflation is not where it needs to be yet. It seems to have gotten a little bit sticky. It’s trending in the right direction but I don’t feel comfortable with this broad mission accomplished statement. I don’t think we’re there yet, we need to be real careful with it,” he said. (See MNI POLICY: Fed Increasingly Convinced It Defeated Inflation)
“The economy is strong, we’re running huge fiscal deficits priming the pump further, there’s a wealth effect from the stock market. And we’re not even talking about these exogenous issues that could pop up on the horizon.”
Roberts said officials should not be too dismissive of persistent price pressures emanating from shelter costs either.
“I feel like it’s kind of picking and choosing – find the measure that tells the story you want to tell and then start leaning on that measure heavily as the ideal measure that gauges price pressures in society,” he said. “Upside pressures and risks to inflation are present. We shouldn’t declare the war on inflation to be won and over.”
TROUBLED DOTS
He said the Fed’s Summary of Economic Projections is problematic because it is taken as a plan though it rarely materializes as telegraphed. Roberts would prefer to see dot plots tied to scenario analysis in a way that emphasized the uncertainty of outcomes – and takes away the false sense of certainty markets seem to glean from the median dot.
“I don’t put much stock into what the dot plot is telling me because I don’t think it’s telling me much at all,” Roberts said.
He feels similarly about measures of the neutral rate, which he says are too ethereal to be useful.
“It’s somewhere between let’s say 2.5% and maybe 4%. Very smart people have estimates all over the board on this,” he said.
BUILDING CONSENSUS
He said what appeared like a last-minute pivot by the central bank toward affirming expectations for a 50 bp cut was likely the product of active internal debate and disagreement over how to proceed – including one camp that perhaps thought rate cuts should have come sooner.
“Possibly Chair Powell had a number of disgruntled folks on the FOMC who would have preferred cuts back in July,” Roberts said.