Journalist: A Fed meeting is coming to rent balconies. Will President Trump’s envoy vote, Stephen Look, as a replacement for the renuncant governor Adriana Kugler? Will it arrive on time? Can the current Governor Lisa Cook vote, whom Trump fired through social networks? The independence of the Fed is in the pillory, no one seems to be interested in the US. All the emphasis is put in the meneada low rates. Because? Wall Street is in the clouds enjoying a remarkable bonanza. It does not seem to need an aid from the Central Bank. It is the Fed that needs respite the asphyxiating pressure of the White House. Trump turned things with his frenzy and low blows. Is the world upside down?
Gordon Gekko: Before the meeting, we will have a lot of relevant information. This week and the next one. There will be an opportunity to take the pulse to the labor market.
Q.: Which is the main reason to explain the need today of a rates.
GG: Correct. We will have the usual strip of indicators ahead. The Jolts report that gives us a broad framework to understand labor searches, hiring and separations. We have not seen an increase in layoffs, yet, what would be an unmistakable sign of problems in crescendo.
Q.: At the beginning of June a leap was detected in the initial orders of unemployment subsidies to 250 thousand that lit a yellow light, but the most recent readings were located between 220 thousand and 230 thousand. They are not very different values from those we see throughout the expansion cycles.
GG: Heaviness does not come on the side of layoffs as the difficulties in reinserting. Also in June we saw an ascent in the amount of unemployment subsidies that remain in force. The total was approached at 2 million, which is a relatively high figure, and remains there. Do not decompress. If the percentage of the workforce that has been unemployed for 15 weeks or more from 1.5% in May 1.8% in July is check. It is a higher record that in any month of 2022 that was a year in which a recession was discounted (which in the end did not happen). There is a problem there.
Q.: At the level? In acceleration?
GG: In the combination of both. The unemployment rate in the segment that goes from 16 years to 24 jumped from 9% in January to 10% in July. The general rate barely rose two tenth to 4.2%. What many were stopped are the first work contracts. There is another genuine reason for restlessness.
Q.: And do they justify a low rate?
GG: They have not done it yet. Although at the last meeting of the Fed there were two voices – of a total of eleven – who wanted a cut by way of insurance against a possible aggravation of these incipient signals.
Q.: I understand that the strongest came after the meeting. More than 100,000 new jobs were expected in July and it was only 73 thousand. And 250 thousand positions were evaporized that had been mistakenly informed in May and June.
GG: So it was. On Friday we will know the August measurement. And we will also know if there are new downward reviews.
Q.: What numbers are expected?
GG: A net creation of 75 thousand positions. With a slight rise from the unemployment rate to 4.3%. In Jackson Hole, Jay Powell admitted that we are facing a “curious” balance of the labor market due to the influence of Trump’s immigration policy. The demand for work falls, but the offer of foreign labor falls. That is why Powell ponders the role of the unemployment rate as the relevant indicator. And he is right. But, Chris Waller and Michelle Bowman, the two dissidents, point out that we must not neglect the dynamics of labor demand because that weakness goes beyond the mere labor market – it is an indication of fragility in different lines of economic activity – and this can merit to take early letters in the matter.
Q.: What do you think?
GG: That every sign of weakness, even if partial, will lead to the Fed to join behind a cutting quarter. With particular emphasis on its individual, punctual character. With inflation also on the rise, and a barefoot, there is no room to suggest a string of other rates. In that sense, on Tuesday 9 the annual review of employment estimates will be disseminated. And I think that if what is expected is verified – a reduction between half a million and one million jobs with respect to the previously informed – the push to define the cut.
Q.: This Thursday, the Senate will grant Stephen look to look at their credentials to occupy a seat at the Board of Governors of the Fed. Governor Kugler had to give up before his mandate expired to open this possibility. Do you think the Senate will approve its specifications?
GG: I would be surprised not.
Q.: And will they be ready to vote on 17?
GG: This is what the Treasury Secretary, Scott Besent, has just said, who is the one who commands the operation.
Q.: Trump sets a foot in the Fed with an official of his. And I already had the two dissidents – both designated by him – advocating a rates. Will Governor Cook get out of the game? Could it impose your will?
GG: He also appointed Powell at the head of the Fed. Don’t forget. Waller and Bowman are in favor of an independent central bank. That now they favor a low rate is not for mere political alignment, although they are interested in replacing Powell (as Powell was interested in replacing Yellen). Stephen look, yes, it is toad from another well. A militant economist. That last year he wrote a detailed proposal for the Board of Governors of the FED to depend on the Executive. That is the background doubt that one can have about the approval of the Senate. And, finally, Governor Cook is very likely to remain in office with an amparo of justice. And, judging by his statements of time ago, he should also be in favor of the loss of fees. So I would not make the mistake of thinking that if it occurs is because of Trump’s coercion.
Q.: Not everything is lost, then. I mean the independence of the Fed, although the voices that complain come rather from afar. The new head of the Basel Bank. And Christine Lagarde, from the ECB. In the US, much indignation is not observed.
GG: Bonds do not show disturbance. That is the most surprising. However, while Powell stays to the helm, I think we will have an independent central bank. But his mandate ends in May.
Q.: And there also ends independence?
GG: If Governor Waller is the chosen one, I believe that independence will continue. What I see difficult will be to maintain credibility. You will have to make a lot of merit to preserve it at the level we have become accustomed. And if the bonds recover their memory, and replicate, for example, the sensitivity we see today in Europe, where longer rates are climbing despite the cuts of short rates, that is where we will have a real headache. And a renamed Fed must show his talent.
Source: Ambito
