Welcome back to cheddar news is closing bell.
Everyone while President biden speaking on inflation and
the latest GDP data earlier this afternoon.
What were the big takeaways while the president introducing an inflation bill
and saying that he doesn't think that we're in a recession.
This comes as an initial read does show that the U. S.
Economy shrank for a second straight quarter in the second quarter of this year.
And the Bureau of Economic Analysis releasing its second quarter report
this morning showing that GDP did fall 9/10 of a percent.
Well, joining me now is Beth ann bovino U. S. Chief economist at S. And P.
Global ratings beth and thanks so much for coming on the show.
From your perspective, this is the technical definition of a recession.
Do you think that the U. S. Economy is in one?
No, I don't.
Uh There's three things that the Bureau
National Bureau of Economic Research looks for.
They look for the so called three D. S duration.
What is it um duration, depth and diffusion
this right now? We have two of them, but we don't have diffusion
housing is where it's being hit.
But in other areas, consumer spending, other factors are still holding up.
And of course the jobs market is incredibly strong.
So right now, I don't think we're there. Not yet anyway.
Uh the president outlining that plan to fight inflation with
the report of key senators here on capitol hill,
Are you optimistic that that bill could do anything to bring down prices,
which of course is the primary focus
for the Fed right now,
Well more power to them as all I can say.
But I think right now this is all for this is all the Fed's mandate.
The Fed, the way we control prices,
particularly when we're looking at it as a supply chain disruption factor,
meaning we just can't get the goods.
All we can do is slow demand. And that's what the Feds doing.
They're raising interest rates.
And that's why when we look at the housing market,
which was the biggest hit for a second quarter GDP when we look at the housing market,
home prices are incredibly high, but now borrowing costs are high.
Why? Because of the Fed and the Fed?
It seems to have indicated that they're going to keep moving in that direction,
meaning that our concern is a recession could very well be on the way.
You know,
it is pretty impressive that the stock market
has seen some strong follow through today.
We've seen a really strong day yesterday beth in the wake of
this decision by the Fed in that press conference and then again,
rising today a near obsession high after these comments from the President and
just an overall more optimistic tone than it sounds like the U.
S. Economy.
There are still strong pockets here within the overall economic picture,
like the jobs market for instance.
Um
Is this the report that the Fed wanted to
see because I think this report would indicate if we're
not in a recession at least the Fed's aggressive monetary
policy and rate rises are starting to have an impact
in slowing spending.
I think that the Fed is looking for particularly housing
housing is one of the benchmarks of the economy.
People buy a house, What do they do?
They have to put stuff in it And then of course that just snowballs
if we see housing slow well consumer consumer spending will slow as well.
And that's I think one of the one of the factors
that the that the Fed is looking for slowing things down,
they do want to see the jobs market softened as well.
That could be painful for some people who are looking for a job.
But with the unemployment rate at what 3.5 to 3 and 3.6% we have the
Fed can actually push it up with not feeling that they can threaten with.
Right? And we had certainly heard from
jerome Powell yesterday that even though the jobs
market is currently very strong tight supply high demand
that we could see it start to slow here in the months
ahead. I want to talk about inflation
of course the bed wants to get inflation down.
You think it starts with the housing sector beth
But 9.1% gain in consumer prices that we saw in June and
I think Fed chair jerome how a little wishy washy yesterday as to whether or not
that inflation number is actually peaked. What's your take?
Well I think that the
the C. P. I.
Numbers and of course the other the one that the Fed
loves to look at which is the personal consumption expenditures deflator.
They're both at four times or three times uh there where the Fed would like them to be.
And of course the Fed is concerned.
One of the reasons why they moved at 75 basis points last uh in
june was because they got spooked by what what they saw it didn't stabilize.
Uh Now the Fed,
I think the the caution there of course and one of the reasons why
what I took what I took away was that the Fed became really indicated
that they were going to be very aggressive and continue to raise rates they
planned to take it to where the where they seemed to indicate in june
3.5 to. Well actually I think almost a 3.8% for the federal funds rate.
I think markets might have been happy that we didn't see 100 basis point
hike that they thought that that might have been reasonable by the Fed.
But in my mind the Fed is going to be incredibly aggressive and that's why I'm
concerned that the this this expansion could turn
back into recession sometime down the road.
Okay,
let's take a listen quickly at what the Feds
are had to say yesterday about the path forward beth
It is essential that we bring inflation down to our 2% goal
if we are to have a sustained period
of strong labor market conditions that benefit all
while another unusually large
increase could be appropriate
at our next meeting.
That is a decision that will depend on the data we get between now and then.
We will continue to make our decisions,
meeting by meeting and communicating and communicate
our thinking as clearly as possible.
As the stance of monetary policy tightens further,
it likely will become appropriate to slow the pace of increases
while we assess how our cumulative policy
adjustments are affecting the economy and inflation.
Okay,
Beth so what we're hearing there from the Fed Chair
is likely by the end of the year after what
might be another sizable rate rise in september that the
Fed is going to slow its pace down collectively,
rates might be a full percentage point higher
by year end from here. Do you think that that's aggressive enough?
That is right now, that that is the concern that we have.
I think right now we have about, I think we're looking at 3, 3.5 to 3 75 by mid 2023.
Uh Could it be too little? Possibly so?
And that's where the risk of a much more three recession could happen now,
we don't have right now we have a 45% chance of recession almost like flipping a coin.
But the worry, of course, as you pointed out, is that if the Fed goes too slow,
then they're going to have to speed up next year.
And that means much worse conditions for the U. S. Going forward.
Alright, Beth Ann bovino, U. S, chief economist at S. And P. Global ratings.
Thank you so much for coming on.