Journalist: All expectation was focused on the July inflation number. Was it lower than in June and in line with what was expected? General inflation, yes. The nucleus definition; No, otherwise. What do we do? Just look at the bag, however, to notice the rise of contributions and the immediate relief reaction. Does the downward road be clear at the next Fed meeting in September?
GG: 89% on Friday. Monday, with the guard at high, 85%. Now, 94%. If the number had resulted in a fright, how much would it have fallen? 80%? 75%? And how long? There is already a legion of declarants, many of them members of the Fed, who maintain the need to quickly realize a first cut.
GG: Besides. But you can separate the straw from the wheat. The abrupt braking in job creation – in May, June and July – is a good reason for a prevention cut. And the Fed projections contemplated two before the end of the year, long before Trump unleashed his fierce offensive on the institution and his driving.
Q.: Trump makes personal brand about Jerome Powell. He doesn’t let him breathe. He has just said that he analyzes a trial for his management of edilicias in the Fed.
GG: The pressure is formidable. Think that we only see the tip of the iceberg. Governor Adriana Kugler did not support her. Six months before his period culminated, he presented the resignation. In parallel, the agency responsible for computing consumer inflation – the data we are considering – was already delayed at the beginning of the month. They are two vacancies to be covered by Trump’s trusted people, who advances as if it were a “Pacman”, inside and outside the government.
P.: The BLS also estimated the employment numbers whose review did not like the president. And he already has a new responsible – eg Antoni who comes from the Heritage Foundation – designated by Trump. How to know that the inflation report is genuine and did not make up so as not to unleash the anger of the White House?
GG: Antoni still did not assume. It requires the approval of the Senate, which is very interesting. It is not difficult to certify its incompetence, because it has written a lot of these issues. Without going any further, last month, he argued that the moderation of import prices published by the BLS reflected the absorption of tariffs by exporters. When it is known that they do not include them. Ergo, the conclusion would be the opposite. If they are stable, it means that the producers from abroad are not taking over the tribute. It is important, then, check if your appointment passes the filter of the legislators.
Q.: If the Senate approves it, will we have to stop trusting official inflation statistics?
GG: The BLS estimates consumer inflation (ICC). The deflator of personal consumption (PCE), which is the measure that the Fed prefers, is published by another agency, the Office of Economic Analysis, which still suffered any purge.
Q.: Do you have the same objections on Stephen Miran, the current head of the Blanca House Economic Advisors Council, who should replace Kugler at the Board of Governors of the Fed?
GG: No, it’s not the case. Although it is evident, because he wrote it last year, that does not advocate an independent Fed. And that is a problem.
Q.: Look also reacted to the inflation of July. “There is no evidence of the impact of tariffs,” he said. Are you right?
GG: It is easy to detect the trace of tariffs in the price auces of many specific items. What they look at is that they are variations of relative prices, it does not see an “tariff inflation.” And so far it is so. Of course, the last massive rise in tariffs, which shook dozens of countries with aliquots as high as 50% to India and Brazil, dates from last week and was not yet reflected.
Q.: And that’s why we would have to wait more.
GG: If it weren’t for the tariff saga, Powell Dixit, the Fed had already lowered the fees.
Q.: Maybe you have to hurry because what is weakened quickly is the labor market. And the Fed has a dual mandate. You must also worry about employment.
GG: It is not what Trump says, who states that everything looks magnificent. And that the loss of bars of employment is a manipulation of statistics for political purposes. It is the overwhelming argument that governors Waller and Bowman use to start the pruning of fees as before. What will they say look? Maybe give a detour to not get politically complicated. It will be interesting to listen to it.
Q.: Do you think that, saving drastic news, September comes with the loss of rates under the arm? Or do you think Powell will want to stop her? I do not say to cancel it, but postpone it until they have a greater reinsurance of evidence.
GG: Even with drastic news that advises to move prudence, I think we will have a reduction in September. Powell will not pronounce until all the information in August. It is reasonable. If you look at the nucleus inflation there are reasons to doubt. It rose 0.32%. The so -called super nucleus, 0.5%. There is an acceleration in the price of core goods, which is what one would expect as a spill of the tariff rise. But also in the lines of services, outside the house. Without the parallel deceleration of employment creation, the Fed would wait for a cross arms. But it dealt with a stapling shock, still moderate, that pulls both ways. And with a fierce political challenge that pushes into a single and clear direction. Rates down. If rates are reduced, it is crucial, then, inflation expectations are not damaged. With that goal in mind, I see Powell resisting, but leaning in the direction that the wind blows to maintain its leadership in the Fed. Lowering the rates in September, but preserving the opinion, and the margin of maneuver, forward …
Q.: Trump is not going to be content with a single decline in a quarterfinal. The rates are 4.50% and want them in 1%.
GG: Powell will go step by step, dating in hand, until finishing his term in May. It will be necessary to see if the Central Bank accompanies it, or if there is a “Takeover” of the open market committee that takes the helm to echo the most prone to a drastic logging (and closer to the government).
Q.: Do you see it possible?
GG: The final key is outside the Fed and the White House. Markets can contribute the necessary discipline if Trump the carcome. But, if the vigilant Bonds do not raise their voice, if long rates are not retailed, yes, everything is possible.
Source: Ambito
