0:05

— Chairman Powell, really interested in

0:07

hearing your perspective. — Yesterday, Federal

0:09

Reserve Chairman Jerome Powell sat down

0:11

for a conversation with his counterpart

0:14

from the Bank of Canada. —

0:16

Why don't you call me Jay and call him Tiff.

0:18

— Okay, I know him. — Powell talked

0:20

about some important things, like

0:24

Canadian exports. —

0:26

And that is Canadian comedians

0:28

and comic actors. I

0:31

started to count the number

0:33

of really great, funny people, and

0:35

I limited myself to 10. So Jim

0:37

Carrey, Martin Short, John Candy, Mike Myers,

0:40

Norm McDonald, Rick Moranis, Dan Aykroyd. —

0:43

But jokes aside, this was

0:45

Powell's first chance to publicly

0:47

respond to some recent inflation

0:49

numbers. This inflation

0:52

data raised questions about whether the

0:54

Fed would cut interest rates this

0:56

year, as had been expected. And

1:01

Powell's remarks yesterday indicated

1:03

a clear shift in the Fed's

1:06

outlook. —

1:08

The recent data have clearly

1:11

not given us greater confidence and

1:13

instead indicate that it's likely to take

1:15

longer than expected to achieve that

1:17

confidence. —

1:20

What the Fed Chair said yesterday was that you

1:23

don't get interest rate cuts if inflation

1:25

doesn't keep going down. —

1:28

That's our colleague Nick Timaros. —

1:30

So everybody on Wall Street had been talking

1:32

about, will the Fed cut rates in

1:34

June? There were expectations you would

1:37

get three cuts this year starting in June. That's

1:40

gone away now. —

1:44

Welcome to The Journal, our show about

1:47

money, business, and power. I'm

1:49

Kate Leimbaugh. It's Wednesday, April 17th. The

2:00

will reserve cut interest rates at

2:02

all this air. With.

2:11

Episode is brought to you by Camber. We.

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2:47

Nick. Before. We'd again.

2:50

I want to know. Who. Is

2:52

your favorite. Canadian. Comedian:

2:55

Or cheese. Or

2:58

used to be a Jim Carrey. Fear

3:01

them in in the nineties if you're

3:03

like a teenage boy. Jim Carrey was

3:05

pretty cool. So I'll go with Jim

3:07

Carrey. And for the record, my name

3:09

is Catherine O'hara. I'm also

3:11

should screen fan, so that's that's just

3:14

as well. So data we have that

3:16

out of the way. Let's start talking

3:18

about the economy and let's go back

3:20

to the end of last year. How

3:23

was the economy looking? At

3:26

the end of last year, the economy

3:28

was looking great. It was like nirvana

3:30

for central bankers and particular. What

3:33

is nirvana for Central bankers? Strong

3:37

growth and inflation almost out of

3:39

nowhere just comes cruising down towards

3:42

the Feds two percent goal In

3:44

the last six months of last

3:46

year, Inflation: The

3:49

six months annualized inflation rate was

3:51

actually below two percent, and so

3:53

all of a sudden there was

3:55

euphoria. In financial markets, wait a

3:57

minute and patients at two percent.

4:00

Over these last six months before yet another

4:02

six months like this. That means that the

4:04

twelve month inflation rate that everybody pays attention

4:06

to will be at the Feds goal. That

4:09

was where the market was in. Some Fed

4:11

officials from beginning to say this is what

4:13

can you know, Austin Goolsbee, a fad, or

4:15

President of Chicago Cause of the Gold and

4:18

Past and boy it sure looks like we

4:20

were on the golden past of the end

4:22

of last year and at the beginning of

4:24

this year. The. Golden

4:27

Path. To. A so

4:29

called soft landing. A.

4:31

Soft Landing is when the Sad

4:33

races and frustrates to keep inflation

4:35

and check or to bring inflation

4:38

down, but achieves that without a

4:40

big deterioration in the labor market.

4:42

without an increase, a substantial increase

4:44

in the unemployment rate, and you

4:46

know, very, very unusual, very rare,

4:49

exceedingly difficult to pull off. You

4:51

need a lot of things to

4:53

go your way. You need good

4:55

luck, and at the end of

4:58

last year it looks like the

5:00

Sad was getting. Lucky. And

5:03

that. What does that

5:05

good luck translate into? In terms

5:07

of said, it's. So.

5:09

It was looking as if the Fed this

5:12

year my be able the pre emptively take

5:14

back some of the interest rate increases they

5:16

had made. So if you're in, are looking

5:18

to buy a house, do you wanna have

5:21

a seven and a half percent mortgage rate

5:23

or six and a half percent mortgage rate?

5:25

Of course you'd prefer the six and a

5:27

half percent mortgage rates. If

5:30

your company. And. You have a

5:32

three year note coming do and you borrowed

5:34

that when interest rates were very low and

5:36

no interest rates are much higher, You know

5:38

that's a potential pinpoint. Okay,

5:40

sell that was the end of last year.

5:43

The. Words you've used are:

5:46

Nirvana, Euphoria, Golden Past.

5:49

And. Then twenty twenty four happens.

5:52

What? Does the autonomy start to look like? Will.

5:57

The inflation report for January just team

5:59

and Hi. There's. No

6:01

way to circuited. It was a high

6:03

inflation reform. And

6:05

sometimes that the beginning of the year

6:07

businesses preset prices at there's a known

6:09

seasonal of fact, you think of it.

6:11

Okay, it's a New Year. We're going

6:13

to have a new priced restaurants changed

6:16

or menu prices. Bob Insurance companies might

6:18

adjust their premiums, but you do it

6:20

at the beginning of the years to

6:22

maybe you see an outsized increase, especially

6:24

after a couple years now higher inflation

6:26

businesses are trying to catch up. that

6:28

maybe they do it at the beginning

6:30

of the year So earnestly there was

6:32

some are. and let's not overreact to

6:34

this one. Month It's just one month

6:37

the said it. Always sad that they

6:39

expected there to be bumped so there

6:41

are some bumps in the road. Then

6:44

we get the February number and it

6:46

wasn't as bad as January, but it

6:48

wasn't a good number. But

6:53

there was still hope did

6:55

inflation would improve? In.

6:57

His State of the Union address

6:59

in March President Biden sounded. Optimistic.

7:02

Way to keep going up a fight. She keeps

7:04

coming down. Prices drop from nine

7:06

percent to three percent, the lowest in

7:08

the world and ten in lower. Away.

7:13

As well be sauce and then

7:15

the march number comes out last

7:17

week at. some bad news on the

7:20

economy but new inflation number of comey

7:22

and sought us the latest. Consumer

7:24

Price Index support shows inflation

7:26

is running hotter than expected. To

7:28

play sun rose and more than expected

7:30

and March I point four percent split

7:32

up three point five percent. Since this.

7:35

Time Last year, Inflation's higher

7:37

than expected because it housing

7:39

has been higher. And

7:42

because services have been

7:44

higher, it's in hospital

7:47

prices, car insurance, Rents.

7:50

And. Those are things that are a

7:53

little bit more difficult sometimes to have

7:55

them come down quickly. That

7:57

wasn't a terrible report, but the March

7:59

and. The report didn't make you more

8:01

confident that inflation was coming down. It

8:04

made you less confident. Why?

8:06

Was that significant? March. Was

8:08

significant because to the extent that

8:11

said policy makers under reacted to

8:13

January and February, they were primed

8:15

to overreact to March. And it

8:18

wasn't just March, Of course, there

8:20

was no three months. Maybe.

8:22

It's still a bumpy past the you could

8:25

say, but it looks like bees are bigger

8:27

bombs than you are expecting. Coming

8:32

up with these bigger bombs

8:34

could mean for interest rate.

8:59

This episode as bad if I were. A

9:02

whole lot together with. Who are financing

9:04

Hr on one platform points

9:07

off on a farm was

9:09

working as a Coors Field.

9:11

They causes diseases. He'll

9:14

drive flowers, business and finance. Authorizes

9:17

was is as our platform the

9:19

constantly evolve. To future freezer organizations

9:21

leave finances Each are lots. Our

9:23

lives were saved says it will

9:26

say that time to learn more.

9:35

What Is this? Inflation data

9:37

say about the state of

9:39

the economy. Well.

9:43

That's a great question. I think a lot of

9:45

people are still trying to work out. The.

9:48

Inflation data says that.

9:51

Inflation. Isn't as big of a problem

9:54

is that was a year ago, but it's

9:56

not going as quickly as we were hoping.

9:58

Back to the Feds goal. As

10:00

if you know the economy's been doing

10:02

well. There were concerns earlier this year

10:04

that the job market might slow down,

10:06

the job market's not slowing down, or

10:08

there were concerns that consumers might pull

10:10

back on spending. Consumer spending. Some

10:13

solid. So if you were worried about a

10:15

recession earlier this year, you're not worrying about

10:17

that right now. Are you really don't have

10:19

reason to be as worried about it? So.

10:22

If the economy is good, What?

10:25

Does that mean. For. The Feds

10:27

plan to cut rates. Because

10:29

the economy does not appear to be

10:31

weakening, you know there's no reason for

10:34

the said to cut interest rates on

10:36

that front. So it really meant that

10:38

the whole reason for cutting interest rates

10:40

was gonna be that inflation was getting

10:42

better. And these numbers said, well, inflation's

10:44

not getting better. Is.

10:47

There's still a chance for rate cuts. This is.

10:50

Your resetting the clock. Now you would

10:53

need to see several more months of

10:55

better behaved inflation to get the confidence

10:57

that you were looking for. So you

10:59

know. Ah, now we're looking at I

11:02

must. The economy slows unexpectedly sharply. You

11:04

get the first rate cut. Or maybe

11:06

it's of the end of the summer.

11:08

Maybe it's at the end of a

11:11

year. Maybe it's next year. Even

11:14

have to wait a little bit longer In a

11:16

when I go on a road trip in my

11:18

kids ask are we there yet in our in

11:20

the back the people in the back see right

11:22

now and same are we there yet? are we

11:25

there yet in the said syncing? Yeah Maybe maybe

11:27

Maybe we'll get off of the next exit and

11:29

now it's kind of like in a what. We're

11:32

We're going to be driving for a little bit longer. But

11:36

if we start to see inflation,

11:38

Keeps taking up. Is

11:42

there a risk that there could be rate

11:44

six? You

11:46

obviously can't rule out the idea of

11:49

interest rate hikes. now. When Powell spoke

11:51

yesterday, he was not putting them back

11:53

on the table. Is higher, Inflation does

11:56

persist. We can maintain a current level

11:58

of restrict and for as long as

12:00

needed. But

12:02

there's this view that interest rates will just

12:05

stay at a high level for longer of

12:07

your you know what? Whenever you thought you

12:09

were going get the cats well as inflation

12:11

doesn't come down or just hang out here

12:13

for longer. It's not the end of the

12:15

world. For. The Sad: And

12:17

it's not the end of the world for

12:19

the economy, but I think it does illustrate

12:21

just how tricky it is to pull off

12:24

the soft landing. Did. Powell. Talk

12:26

about that Directly a soft landing.

12:29

Know. He he did not end.

12:31

He's been kind of superstitious and

12:33

you know how even talk about

12:35

achieving it. But he won't say

12:37

soft landing in hell, just describe

12:39

what a soft landing is. If.

12:42

The said. Doesn't

12:45

cut rates this year. What? What That

12:47

means that the Us. I mean,

12:49

one argument is that what's the big

12:51

deal with the economy is growing well.

12:53

The unemployment rate is below four percent,

12:55

and it's been below four percent for

12:57

longer than any period of time in

12:59

the last fifty years. What's not to

13:01

like about that? I'm. You. Know if

13:04

inflation keeps coming down and wage growth

13:06

is above inflation, that means you're after

13:08

in place. Wages are rising. So there's

13:11

one scenario here where it's just not

13:13

a problem that interest rates are higher

13:15

for longer because the economy's to him.

13:18

It's a concern more if you were

13:20

to see some sort of abrupt or

13:22

unexpected slow down and then the said

13:24

has to decide of well, should we

13:27

react to that Or do we need

13:29

to stay a little bit tighter here

13:31

with interest rates because. Inflation

13:34

so above our target. And

13:36

to be clear, The.

13:39

Ideal The nirvana. The euphoria

13:41

is to get inflation down

13:44

with out causing a massive

13:46

recession. Yes, That

13:48

is the goal, right? So. It.

13:50

May be harder for people who.

13:53

Wanna. Buy houses they may be

13:55

facing, you know, elevated mortgage rates,

13:58

But. The. Get is

14:01

a pretty good autonomy

14:03

for most Americans. And

14:05

not. A. Recession and

14:07

massive unemployment. Real

14:09

the question is to break the back

14:12

of inflation. Do people need to lose

14:14

their jobs? The. Said she was

14:16

never going to say people need to

14:18

be thrown out of their jobs again,

14:20

place and down. But when he's saying

14:22

the sorts of things he was saying

14:24

at this time last year that there's

14:27

likely to be some pain, it's sort

14:29

of an acknowledgement that that may happen,

14:31

that that may be the side effect

14:33

of all these interest rate increases. He

14:35

stopped saying that at some point and

14:37

a second half of last year and

14:39

now is because the labor market looked

14:41

less overheated. Wage Rose was coming down,

14:43

and so people begin to say. Hey,

14:46

maybe there is a way to

14:48

get this last mile of inflation

14:50

without having some you know of

14:53

serious economic downturn. In the

14:55

last mile of a marathon can. Be really

14:57

long. The.

14:59

Can be, but it's a host of technically

15:02

the same. You know it's the same distances

15:04

the other mile before it and before that.

15:07

It feels that feels long as the

15:09

end of last year and looks like

15:12

maybe less my wouldn't be that hard.

15:15

And I think where the inflation or poor

15:17

last week said was that you know maybe

15:19

the last mile will be hard. Yeah maybe

15:22

it's more than a mile an hour. Work

15:25

Bloods Max or metaphors. This is a soft

15:27

landing that we went on the wrong airport.

15:34

Okay, We're was

15:36

a ruse doing stops. It's.

15:38

We go back to the kids in the car in

15:41

you're like oh when are we going to get their

15:43

sorry we have. To start the rest up, I

15:45

gotta get my of I gotta get my

15:47

metaphors alliance. Next time,

15:49

next next there will be annexed.

15:52

There's always the next. When

16:07

say April seventeenth? The Journal

16:10

is a coal production a Spotter Fi

16:12

and the Wall Street Journal see like

16:14

ourselves. Follow us on spotify or wherever

16:16

you get your podcasts route every weekday

16:18

afternoon. Thanks.

16:21

For listening, See it tomorrow.