Former Fed Gov Duke on inflation and Fed (with Katie Greifeld, Romaine Bostick)

The CPI print is disturbing for everyday consumers as expenses are now outweighing paychecks. Duke does not expect immediate Fed action but believes credibility to control inflation is key. She expects new Fed Chair Kevin Warsh to remain a hawk but tackle inflation differently. She questions whether the Fed has the will or ability to control inflation after years below target. The size of the federal debt is a growing concern that will push rates up regardless of Fed action.

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Former Federal Reserve Governor 3.0
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Betsy Duke 8.5

Former Fed Gov Duke on inflation and Fed (with Katie Greifeld, Romaine Bostick)

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Duke expects the Fed to hold steady and sees inflation as persistent but not runaway. This suggests a period of uncertainty and no clear catalyst for tech to break out or collapse in the near term.

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The higher the debt gets, the more that's going to push rates up, regardless of what the Fed does.

Asks how the CPI print changes the debate on the Fed's interest rate trajectory and what to expect from new Chair Kevin Warsh.

Katie Greifeld
Betsy Duke

I don't expect any action at the next meeting. But it's disturbing. For everyday consumers, the things you have to buy are getting more expensive. For the last two months, expenses are outweighing paychecks. That's the real danger.

Economists can parse inflation readings, but for consumers it doesn't matter.
Asks how higher energy prices translate into consumer spending, given sentiment has been low but spending hasn't collapsed.

Katie Greifeld
Betsy Duke

The most important thing to control inflation is credibility. Once that credibility is lost, consumers scramble to make enough money to pay for things they are certain will cost more in the future.

It's not just how they spend money, but what demands they make in terms of wages.
Asks who Kevin Warsh is speaking to when he takes the podium - markets or everyday consumers.

Romaine Bostick
Betsy Duke

He's speaking to all publics. For his first statement, he will set the stage. I think Kevin will remain a hawk, concerned about inflation, but will tackle it in a different way than previous chairs.
Asks about disinflationary components in the report (cars, furnishings) - is it consumer pullback or structural shift?

Romaine Bostick
Betsy Duke

We've had so many one-off issues (COVID reopening, tariffs, war, gas prices). It's hard to know how they feed through. Prices have been below the Fed's target for five years. You have to question whether the Fed has the will or ability to control inflation.

When I was at the Fed for five years, we could never get inflation above 1%.
Asks about the theory that rising cost of living will bring down discretionary spending and eventually lower prices.

Katie Greifeld
Betsy Duke

There is some truth to that. But in a K-shaped economy, investors seeing tremendous gains are doing most of the spending. How does their spending adjust versus those who can barely pay for nondiscretionary items?
Asks how much power a shift in interest rates actually has at this stage.

Romaine Bostick
Betsy Duke

I'm not sure a quarter point up or down will make a big difference. The Fed is right to hold steady until they see if issues play themselves out or run away from them.
Asks how much damage has been done by rising energy and food prices, even if the conflict ends soon.

Katie Greifeld
Betsy Duke

If the conflict ended, you would see some reduction in inflation. Fuel prices would come down. The other issue is the size of our federal debt. Social Security is running out of money sooner. The higher the debt, the more it pushes rates up regardless of what the Fed does.

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