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