Confirming guest's view: no rate cuts this year, next move is a hike in 2027.
Kelly
Michael Feroli
Core PCE inflation next week will be above 3%, retail sales suggest strong Q4 GDP growth, so case for near-term cut is weak.
Michael Feroli
As time goes on, FOMC will revise up their estimate of the neutral interest rate, and the case for rate cuts goes down.
Asks if Fed is already pressing on the gas given Larry Lindsey's view that rates are accommodative.
Kelly
Michael Feroli
Wouldn't say Fed is pressing on the gas, but case that Fed is restraining economy with rates in high threes doesn't jibe with real economy or financial markets.
Asks why labor market is weak with rising unemployment if economy is strong.
Kelly
Michael Feroli
Slow job growth is due to slow labor supply growth; unemployment rate upward momentum seems arrested recently.
Asks if 40-50k monthly job growth is the new normal versus previous 150-200k.
Kelly
Michael Feroli
New normal in job growth may be 0-50k due to demographics and immigration policy changes.
Asks if this explains 10-year yield moving from 5% to below 4% then reversing higher.
Kelly
Michael Feroli
That's part of it, Fed moving in that period has been a factor too.
Notes market still pricing 1-2 cuts, so if guest is right, market would be caught offsides.
Kelly
Michael Feroli
Market already expects no action in January, can gradually reset expectations through the year.