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And our special guest on the final
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Friday of every month is Jeremy Seagull,
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Wharton Ammeritis, professor of finance
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and also a chief economist at Wisdom
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Tree. Jeremy, great to see you again.
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How are you, sir?
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>> I'm very good, thank you, Jen.
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>> Well, as we're doing this, we are post
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Jacksonhole. Uh, interesting meeting,
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interesting comments by the Fed chair.
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Let me get your general thoughts uh
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right at the top.
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>> Yeah, I mean, I I thought it was a
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pivot. I thought it was a strong pivot.
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Uh I I heard words I didn't hear before,
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which was we can see through the
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tariffs. I do think tariffs are going to
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bring some inflation. Uh but not much.
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Maybe a one to 2% bump, but it's one
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time. It's not persistent.
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Um and he seemed to acknowledge that for
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the first time setting the stage
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uh I strongly believe for a cut uh in
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their September meeting. Now the size of
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the cut is is is uh under question. I
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mean at this point 25 basis points but
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if we get weak data between now and
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September 17th uh there is a possibility
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of a larger cut u as as you know and I
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think I voiced in in my last uh uh
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broadcast with you that I actually think
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the appropriate level of Fed funds uh is
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in the in the low 3s which is a full
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percentage point below where it is now.
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We don't don't have to get there
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tomorrow, but that should be the goal of
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the Federal Reserve.
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>> But you and I have talked in the past
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about the the the reaction by the
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markets to whether or not it's a 25 or
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50. And seemingly if there is a 50 basis
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point cut and we saw 50 basis point
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increase, you know, during the time uh
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of the pandemic, uh that there is a
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harsher reaction by Wall Street when
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it's 50 compared to 25. Well, the thing
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it would be 50, I think, if we'd get
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negative payrolls and weak data, then
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you're going to see a reaction to the
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market and then they'd be disappointed
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if they didn't go 50. So, in a way,
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yeah, I if if the data stays strong and
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they go 50, that that is a little
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puzzle, that could be troublesome. If
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the data is weak and they go 50, then
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the market will say, "Yeah, you you are
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responding to the data." So again, I
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think if the data uh the data are are
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quite okay. They're it's not real
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strong. I mean uh we're looking at third
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quarter looks like around a 2% GDP
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growth at this particular point. Um uh
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and you know at that particular growth I
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think you you get a quarter. But if if
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we have any negative payrolls and we
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certainly did get a shock in payrolls as
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you know uh last um uh uh last month um
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uh you know uh you know 50 is would be
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uh in the cards
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>> is is are are multiple cuts the
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remainder of this year still possible?
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I would I would anticipate one cut each
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of the next three meetings September,
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November, December. Um uh if if if this
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one time inflation stays the same and
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depending on how strong the uh economy
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goes. uh uh so that it's be at the end
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of of of uh at the beginning of next
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year or toward the middle that they're
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going down towards 3% and 3 and a/4%
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which I think is probably the correct
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level of Fed funds uh given given the
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strength of the economy. Now, we all
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have to realize that um the the price
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increases from tariffs are really not
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going to be felt until um um the uh the
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middle of this quarter toward the end of
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this quarter. They're still selling out
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of inventory. Firms are still absorbing
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uh some margin compression. Uh that
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can't continue forever. So, we will see
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that one time point. I think the pivot
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was a recognition by the Fed that if we
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see goods inflation go up because of of
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the tariffs. Um and we don't see
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inflation
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um service inflation accelerate which
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looks does look good because home prices
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are definitely on the soft side. Uh that
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we could set ourselves up for for cuts.
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Let me circle back to the labor
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component for a second and you kind of
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alluded to it there a moment ago that
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there are some concerns out there about
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where the labor markets are headed right
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now uh about the ability of people to
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get jobs and get back into the labor
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force when they are cut. How much of a
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factor does that play into the general
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thought process or have to play into it
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by the Fed and the leadership in terms
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of thinking about about cuts? Yeah, some
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people uh sort of talk about this as
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being the no hire, no fire economy.
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We're not seeing a lot of firing. Uh not
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seeing a lot of layoffs. I mean, on the
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jobless claims, uh you know, they're
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staying in that uh 200 to 240 range,
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which is normal, but we're not seeing a
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lot of hiring. It's sort of a firms are
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sort of in a wait and see mode.
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um you know, how much are the tariffs
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really going to pass through to
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discourage consumer spending or not? Um
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so they're sort of holding their
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position. Now, if they have to confront
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rising prices on tariffs and they think
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that comp competition will force them to
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keep the prices relatively firm, then
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they're going to have to contemplate
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layoffs to cut costs and and more
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intensively use AI,
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which uh as you know in some recent
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reports is not being used as intensively
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by many firms as they could in order to
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save on expenses. Jeremy, let me finish
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up with the the topic of the
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independence of the Fed, which obviously
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is being brought into a lot of question
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uh here in the last few months with the
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back and forth between the White House
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and the Fed leadership and obviously
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most recently with Lisa Cook. How do you
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view what we're seeing play out here and
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give us your thoughts on the importance
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of the of an independent Fed?
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>> Well, you know, I teach an independent
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Fed is ex extremely important there.
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Then again remember the Federal Reserve
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is a creature of Congress. Um uh it is
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subject to Congress. All all its powers
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devolve from Congress. There is no
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constitutional
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uh central bank. Uh you know if for
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instance the the US Senate House of
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Representatives and Trump and with the
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Republicans decide to abolish the Fed,
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that's it. I mean there's not it doesn't
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even go to the Supreme Court. So I mean
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in a way they are beholden to the
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government. There's always been pressure
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as one person said, "Yeah, usually I
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mean Trump just announces the pressure,
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but there were pressure by other
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presidents uh through the telephones and
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not uh not into the public." That's
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that's sad. Clearly independent central
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banks have been shown to have lower
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inflation uh than those central banks
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that are not uh totally uh independent.
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Remember no again with no constitutional
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guarantee there is no real independence
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of of that central bank and let me also
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mention
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um you know now there's a question of
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firing people the the pe uh we don't the
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the the the chair nominees and I think I
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may have mentioned this last month
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uh particularly uh Walsh and um Waller
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are excellent I I mean there's not these
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are not just psychopantic followers of
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Trump. Now they may want to lower
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interest rates. Well, I want to lower
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interest rates and I'm not a you know
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I'm not a Trumpian. So I mean but they
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are also excellent economists. So in in
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that particular sense
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uh you know I think that the feds uh
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will be managed anyways. It appears now
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that there doesn't seem to be an
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imminent announcement. I think if if if
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if Powell does not go in September,
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however, um then I think you're going to
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get an announcement and a very very high
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pressure unless you know the the the
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data definitely supports his move.
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>> Jeremy, always great to talk with you.
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We will uh reach out and talk again next
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month. Thank you, sir.
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>> Thank you very much, An.
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>> You got it. Jeremy Seagull, uh Wharton
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ameritus professor of finance and chief
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economist at Wisdomree.
