LOOK AHEAD TO FRIDAY'S CORE P PCE REPORT AS THE NEXT PIECE OF INFLATION DATA. JOINING ME AT POST 9 IS JAN HATZIUS OF GOLDMAN SACHS. NICE TO SEE YOU. >> GOOD TO SEE YOU. >> WHAT IS THE PCE GOING TO TELL US ON FRIDAY? >> OUR ESTIMATE IS 26 BASIS POINTS. WE TALK ABOUT BASIS POINTS NOW. WE USED TO TALK ABOUT TENTHS OF A PERCENTAGE POINT, BUT WE HAVE I THINK A REASONABLE IDEA THAT IT'S GOING TO BE SOMEWHERE IN THE MID-20s JUST BASED ON WHAT WE SAW IN THE CPI AND THE PPI AND THE IMPORT PRICE NUMBERS. SO THAT WOULD REPRESENT, I THINK, A SIGNIFICANT AMOUNT OF PROGRESS. >> OKAY. >> IT'S ALSO IMPORTANT TO LOOK AT THE MARKET BASE CORE PCE NUMBER, WHICH WE THINK IS GOING TO BE JUST UNDER 20 BASIS POINTS, AND THAT LEAVES OUT PRICES LIKE, FOR EXAMPLE, FINANCIAL SERVICES WHICH ARE EXTRAPOLATED FROM STOCK MARKET MOVEMENTS AND MAY NOT BE REALLY REPRESENTATIVE OF INFLATION. >> THE POINT YOU MAKE, THOUGH, IS THAT IT POTENTIALLY BRINGS THESE CUT CONVERSATIONS BACK INTO THE FOREFRONT BECAUSE IT WOULD THEORETICALLY GIVE THE FED COMFORT IN THINKING THAT IT COULD CUT RATES. >> WELL, IT'S A STEP IN THE RIGHT DIRECTION AFTER THREE STEPS IN THE WRONG DIRECTION OR A FIRST QUARTER IN THE WRONG DIRECTION, SO IT DOESN'T UNDO WHAT WE SAW IN THE FIRST QUARTER, BUT IF WE GET CONTINUED MOVES, YOU KNOW, IN THE 0.2% RANGE OVER THE NEXT SEVERAL MONTHS, THEN I THINK, YES, THAT WILL GIVE THE FED COMFORT AND ULTIMATELY CAN STILL GET YOU A CUT BY THE SEPTEMBER MEETING. >> REMIND OUR VIEWERS -- BECAUSE THINGS CHANGE, YOU'VE CHANGED YOUR VIEW FROM TIME TO TIME -- HOW MANY CUTS DO YOU THINK WE'RE GOING GOAT THIS YEAR AS OF TODAY? >> WE'VE GOT TWO CUTS, ONE IN SEPTEMBER AND ONE IN DECEMBER. >> AND YOU'RE STICKING WITH THAT FOR NOW? >> WE'RE STICKING WITH THAT. OBVIOUSLY IT'S ALWAYS SUBJECT TO WHAT WE FIND IN TERMS OF INFLATION DATA, IN TERMS OF LABOR MARKET DATA, AND IN TERMS OF THE COMMITTEE'S REACTION FUNCTION. I THINK ONE OTHER IMPORTANT DATA POINT PROBABLY MORE IMPORTANT FRANKLY THAN THE CORE PCE NUMBER IS WHAT WE SEE IN THE NEXT EMPLOYMENT REPORT AT THE END OF THE FOLLOWING WEEK. WE HAVE SEEN SOME DECELERATION IN THE LABOR MARKET, NOTHING TOO CONCERNING, I WOULD SAY. THIS LOOKS LIKE A HEALTHY DECELERATION, BUT IF WE WERE TO SEE MORE DECELERATION, I THINK, AGAIN, THAT WOULD SUPPORT THE IDEA THAT MAYBE WE SHOULD TAKE A SMALL STEP DOWN. >> DO YOU THINK THAT THE ECONOMY AS REASONABLY STRONG AS IT IS TODAY CAN WITHSTAND A SCENARIO IN WHICH RATES REMAIN THIS ELEVATED THROUGHOUT THE REMAINDER OF THE YEAR AND THAT THEY DON'T CUT AT ALL? >> WELL, I'D CERTAINLY THINK THAT'S A POSSIBILITY. AGAIN, IT'S GOING TO DEPEND ON THE DATA. IF WE FIND THAT THE ECONOMY CAN WITHSTAND A HIGHER LEVEL OF RATES AND IF THE INFLATION DATA MAYBE CONTINUE TO SURPRISE ON THE UPSIDE, THEN I THINK THEY COULD DO NOTHING. AND THAT COULD BE OKAY. MY BEST GUESS, THOUGH, IS AS INFLATION COMES DOWN AGAIN AND THE LABOR MARKET CONTINUES TO LOOK MORE IN BALANCE THAT THEY WILL SAY IN ORDER TO REBALANCE THE RISKS IT'S BETTER TO CUT A COUPLE TIMES. >> AND YOU DON'T THINK THAT SEPTEMBER, WHICH IS HOW YOU MOVED YOUR FIRST CUT BACK TO IS HINDERED AT ALL BY THE ELECTION? YOU DON'T THINK THAT'S TOO CLOSE? >> WE DO NOT, NO. WE THINK WHAT MATTERS IS REALLY THE ECONOMIC DATA AND THE COMMITTEE WILL MAKE DECISIONS BASED ON THE ECONOMIC DATA AND WILL LEAVE THE POLITICS OUT OF IT. I WOULD ALSO NOTE IN THE LAST PRESS CONFERENCE, CHAIR POWELL WAS ASKED THAT QUESTION, OF COURSE, AS EXPECTED, AND HE GAVE AN ANSWER THAT WAS, YOU KNOW, VERY DETAILED WHY THEY DO NOT TAKE POLITICS INTO ACCOUNT. IT WASN'T JUST A PERFUNCTORY, WE DON'T TAKE POLITICS INTO ACCOUNT, AND WE TAKE THEM AT THEIR ORD. >> BUT IF WE TAKE THE CALENDAR, YOU KNOW, AT FACE VALUE, YOU'VE GOT -- TAKE YOUR TIME LINE INTO CONSIDERATION, SO SEPTEMBER WE GO. THE NEXT MEETING IS THE DAY AFTER ELECTION DAY. CAN YOU IMAGINE A SCENARIO IN WHICH THEY CUT IN NOVEMBER, OR IS THIS SEPTEMBER, DECEMBER IS YOUR BEST GUEST GS? >> I CAN IMAGINE A SCENARIO IN WHICHI WHICH THEY CUT IN NOVEMBER RIGHT AFTER THE ELECTION. I CAN IMAGINE A SCENARIO, I THINK IT'S LESS LIKELY THAT THEY WOULD DO BACK-TO-BACK CUTS IN SEPTEMBER AND IN NOVEMBER, UNLESS THE ECONOMY SLOWED MORE SHARPLY. I THINK THE MORE LIKELY PATH FOR RATE REDUCTIONS -- BY THE WAY, IN THE U.S. AND ALSO IN OTHER G 10 CENTRAL BANKS THAT ARE STARTING TO CUT IS THAT THEY GO EVERY OTHER MEETING BECAUSE IT'S MAINLY NORMALIZATION CUTS. IT'S NOT C
