Dudley Chides Fed’s ‘Sugarcoating.’ El-Erian Warns Of Inflation ‘Crisis’
In late March, around the time the 2s10s inverted, Bill Dudley penned a somewhat abrasive Op-Ed for Bloomberg.
Dudley isn’t a stranger to abrasive Op-Eds, but in this case, he targeted his former colleagues, blaming the Fed for inflation and suggesting a so-called "soft landing" for the US economy was very unlikely.
In fact, he all but suggested a benign outcome was a mathematical impossibility. He cited the Sahm Rule (figure below).
In short, if the three-month moving average of the un
There are always back-seat drivers. Though I do not like Jerome Powell, he, and his Fed mates, are driving. And they did not cut rates this time, or do nothing, after all. For all intents and purposes, he is at least going in the right direction.
All of this chatter about “people” losing faith in the Fed. What people? Well, how many people beyond our small circle of relatively wealthy people actually have a clue about what the Fed is and how it works?
That said, kudos for Dudley for being honest about what the Fed is trying to do. They have one tool and they are going to use it to drive the economy into recession, not stopping until the lagging indicator of job openings shrinks by 50% or so.
Powell didn’t “rule out” 75 bps cuts, he just said the Fed wasn’t currently considering it.
“They have one tool and they are going to use it to drive the economy into recession, not stopping until the lagging indicator of job openings shrinks by 50% or so.”
@derek, I agree – but I also wonder, what kind of recession is it, if – let’s say – the jobs-to-unemployed ratio “only” declines to 1:1? Does that make a shallow or deep recession, a short or long one? I think we (buysiders) are mostly past trying to “call” if there will be a recession, and moving on to try to suss out what kind of recession and hence what plays to get set for.
I disagree with a lot of the pundits. The Fed did make one large error- QE was kept too long. The Fed needed to end that last summer- and the reason was to give them optionality at that time. If they had done that, we would be in the soft landing most likely now and they probably would have only had to modestly raise rates last fall/winter. Hindsight is 20/20 after all. Think about what happened after last summer after all- two bad covid waves and the first ground war in continental Europe in 3 generations. For the guys saying the Fed needs to raise rates to 5%- in this leveraged economy I challenge.
I’m just not sure how you increase unemployment in a market where there are already 11.5M open positions. That seems like it would require quite a catastrophic economic downturn to achieve.
Cue Bostic to reflate that fleeting 75 bp trial balloon that never got far off the ground.