How a former Fed vice chair would approach rate cuts

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• Former Fed Vice Chair Lael Brainard suggests favoring one more interest rate cut followed by a holding period, provided there is a firm commitment to achieving the 2% inflation target over the next two years, despite missing official economic data.  Copied to clipboard!
• The lack of official government economic indicators (like CPI and jobs reports) due to the shutdown forces decision-makers at the Federal Reserve to rely more heavily on private sector data and direct communication with businesses and consumers.  Copied to clipboard!
• Brainard distinguishes between high prices caused by long-standing supply dynamics (like housing or tariffs) and rising inflation, arguing that interest rate cuts are less effective against the former, which often require executive branch solutions.  Copied to clipboard!

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Public Media Funding Appeal

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(00:00:00)

• Key Takeaway: Federal funding for public media, including NPR, has been eliminated as of this fall, necessitating listener support.
• Summary: Public media’s mission is to inform, educate, and expand perspectives. Federal funding for NPR and local stations was eliminated starting this fall. Listeners are encouraged to support this work by joining the NPR Plus community.

Fed Decision Context and Fog

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(00:01:18)

• Key Takeaway: The Federal Reserve faces a difficult interest rate decision due to delayed economic indicators caused by the government shutdown.
• Summary: A government shutdown delayed or canceled key economic indicators, making decision-making difficult for the Federal Reserve. Jerome Powell compared the situation to driving in fog, necessitating caution. The Fed is deciding between maintaining high rates to fight inflation or lowering them to encourage hiring.

Interviewing Former Vice Chair

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(00:02:22)

• Key Takeaway: The episode features former Fed Vice Chair Lael Brainard to gain insight into the committee’s decision-making process.
• Summary: Lael Brainard served on the Fed’s decision-making committee for eight years, most recently as vice chair. The show aims to reveal what this former decision maker would do regarding interest rates in the current economic climate.

Fed Meeting Dynamics

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(00:03:55)

• Key Takeaway: Fed committee meetings involve personal observations fueled by caffeine and sugar, where members seriously consider differing viewpoints.
• Summary: Lael Brainard described the Fed committee meetings as starting with coffee and donuts where members share economic observations. Despite disagreements, decision-makers listen to each other’s views seriously. The current meeting’s observations are weighted more heavily due to missing government data.

Impact of Missing Data

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(00:04:36)

• Key Takeaway: The government shutdown canceled the October CPI and delayed November’s, leaving decision-makers with stale, two-month-old data during a volatile economic period.
• Summary: Key indicators like the Consumer Price Index (CPI) were canceled or delayed, and the latest jobs report is months old. This lagged data makes it hard to assess whether inflation risks outweigh unemployment risks. Brainard noted that reading the economy is always hard at turning points, as data is inherently backward-looking.

Alternative Data Sources

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(00:06:27)

• Key Takeaway: In the absence of official statistics, Brainard would prioritize calls, meetings, and private sector data like ADP and consumer sentiment surveys.
• Summary: When official data is missing, Brainard would rely on extensive calls and meetings, finding them crucial at economic turning points. She would examine non-governmental sources such as private sector jobs numbers (like ADP) and consumer sentiment surveys. Consumer sentiment shows people are increasingly worried about job security.

Brainard’s Rate Decision Stance

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(00:07:16)

• Key Takeaway: Brainard favors one more interest rate cut, balanced by a firm commitment to achieving the 2% inflation target within two years, termed a “hawkish cut.”
• Summary: The decision is difficult, balancing the need to bring inflation to 2% against avoiding a self-reinforcing downward economic spiral. Her preference is for one more cut, followed by a holding period, coupled with a strong commitment to the inflation target. This approach prioritizes avoiding job losses while maintaining a long-term inflation goal.

Inflation vs. Affordability

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(00:08:09)

• Key Takeaway: High prices for necessities like electricity and groceries are often due to underlying supply dynamics, not general rising prices curbed by interest rates.
• Summary: Affordability is a critical challenge, with costs rising for electricity, healthcare, and groceries. Brainard argues that many of these high prices stem from long-standing supply issues, such as in the housing sector, which require solutions from the executive branch. She differentiates these structural issues from general price pressures that interest rates are designed to curb.

Conclusion and Data Uncertainty

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(00:09:38)

• Key Takeaway: The current economic data situation is likened to looking through a foggy and imprecise rearview mirror.
• Summary: The reliance on past data when the economy is uncertain is compared to looking in the rearview mirror. With delayed and incomplete statistics, this view is described as looking through a mirror that is both backward-looking and foggy. The success of the Fed’s upcoming decision will only be known in hindsight.