00:00 Tony
John, your your recent survey, this was interesting. A former Fed officials. Let’s dig into that.
00:05 Tony
Uh expecting it looks like John, higher inflation and higher unemployment. Is that, I mean, did you look at that John, is that kind of a a potential warning shot to the Fed about stagflation?
00:16 John
Yes, I mean, that’s what, you know, a lot of the events that we’ve been talking about for the last year are stagflationary in their nature.
00:23 John
Tariffs, uh and now an oil price shock, general uncertainty,
00:28 John
it raises the cost of doing business, which some of which gets passed on consumers in the form of higher prices and some of which uh results in slower growth.
00:36 John
Let me talk for a moment about this survey. So what I do
00:41 John
uh four times a year before the Fed updates its own projections is I go out along with Duke University and survey former Fed officials, former governors, former regional bank presidents, former senior staff members.
00:53 John
and ask them, all right, where do you how do you see the outlook and where do you see interest rates going? A couple of important points.
00:59 John
Uh the median inflation expectation this year for this group, 28 people responded to the survey, was 3% inflation.
1:06 John
I don’t think the Fed is going to go that high, but its estimates have to go up, say 27 28.
1:11 John
The other thing is when I ask these former officials what they think is the right monetary policy,
1:17 John
uh of the 28, 13 said the right the the right move is going to be no move this year, keeping interest rates steady.
1:23 John
Uh the in addition to that, eight people pencilled in a rate cut, but six people pencilled in a rate increase.
1:32 John
So, you know, it’s really balanced around, don’t move this year, wait and see how things play out.
1:38 John
But there’s a possibility that rates could go up go either up or down. I don’t think the Fed is going to be as hawkish as this panel that I did,
1:44 John
but I think it shows you the direction of travel.
1:46 Tony
John, when you when you were surveying these former Fed officials and you were talking, you know, war with Iran, oil prices, did they give you a bogey, John? Like a okay, oil prices need to hit this to make a recession, an economic contraction more likely, 100, 120 and then say, okay, it has to stay here for this certain amount of time, this many days, this many weeks?
2:05 John
Uh a couple of rules of thumb. So, uh one rule of thumb and I think J. Powell has mentioned this, every $10 increase in the price of a barrel of oil.
2:13 John
Again, this is a rule of thumb. Uh results in about a 2/10 of a percentage point increase in headline inflation.
2:20 John
Now, you know, oil has gone up around $30 a barrel. So that’s a half a percentage point increase in uh the level of inflation over the next year.
2:28 John
A lot and every official who I surveyed said this, a lot depends on how long this thing drags on.
2:33 John
If it gets resolved, then, you know, those rules of thumb don’t mean as much.
2:36 John
And then a couple of people said that if we get uh oil sustained at 100, 122, uh 120 barrels dollars a barrel of oil for some long period of time,
2:47 John
then we’re talking potentially, over one Tony, we’re potentially talking about recession. I think the economy is more resilient than that and less dependent on oil.
2:55 John
But again,
2:57 John
the impulse is stagflationary, less growth, uh higher hit to American pocketbooks.