SKEPTICISM ABOUT THE GROWTH STORY BUT IT POPPED BACK UP. >>> TURNING BACK TO THE BROADER MARKET, STOCKS FINISHING THE MONTH WITH A WHOOSH HIGHER INTO THE CLOSE. EARLIER WE GOT THE FED'S PREFERRED INFLATION MEASURE, PCE, IN LINE WITH FORECASTS FOR APRIL. WILL THE FED BE SATISFIED WITH THIS READING, OR ARE RATE CUTS STILL FAR AWAY JOINING US IS MOODY'S ANALYTICS CHIEF ECONOMIST MARK ZANDI WELCOME. HAPPY FRIDAY A GUEST EARLIER, WARREN, TOLD US HE THOUGHT MAYBE THE MARKET WAS READING THIS PCE REPORT TOO DONNISHLY. WHAT DO YOU SAY -- DODOVISHLY WHAT DO YOU SAY? >> A GOOD REPORT IT INDICATES INFLATION IS ON TRACK TO GET BACK TO THE FED'S TARGET IN A -- BY THE END OF THE YEAR, WITHIN SPITTING DISTANCE OF THE FED'S TARGET BY THE END OF THE YEAR. FELT PRETTY GOOD TO ME PARTICULARLY AFTER THE KIND OF DISAPPOINTING NUMBERS WE'VE BEEN GETTING SINCE THE BEGINNING OF THE YEAR I THINK ALL THE TREND LINES LOOK GOOD WITH RESPECT TO INFLATION SO I -- I TOOK A LOT OF SOLACE IN THE NUMBER. >> WHERE DO YOU NEED LOOK FROM HERE FOR CONFIRMATION OF THAT THE NEXT STRONG DATA SIGNAL THAT WE GET >> WE NEED MORE OF THE SAME. I MEAN, THE FED'S FOCUSED PRIMARILY ON THE INFLATION STATISTICS SO I THINK THERE WILL BE ANOTHER COUPLE THREE BEFORE I -- I THINK THEY'LL CUT IN SEPTEMBER OR SO, THEY'LL GET TWO, THREE MORE INFLATION STATISTICS BEFORE THEN SO WE NEED, YOU KNOW, .2 ON A MONTH-TO-MONTH BASIS BE GREAT IF WE CAN THROUGH IN A .1, THAT WOULD BE NICE BUT I THINK, YOU KNOW, WE'LL GET THAT OR SOMETHING CLOSE ENOUGH TO THAT THAT THE FED WILL BE ABLE TO START CUTTING RATES AT THE SEPTEMBER MEETING. >> WE KNOW INFLATION DATA IS BACKWARD LOOKING WE KNOW THE SHELTER COMPONENT, PARTICULARLY TRUE ON THE CPI SIDE OF THINGS, IS OUTSIZED AND ALSO LAGGING BY QUITE A NUMBER OF MONTHS. I MEAN, HOW REAL IS THE RISK HERE THAT THE FED IS BEHIND THE BALL >> WELL, YOU KNOW, MORGAN, IF I WERE ON THE FED I'D BE CUTTING RATES. YOU KNOW, I THINK THEY'VE ACHIEVED THEIR GOALS AT FULL EMPLOYMENT THE 4% UNEMPLOYMENT RATE, UP .4 FOR MORE THAN TWO YEARS. FEELS LIKE WE'RE THERE AND I THINK INFLATION IS -- YOU KNOW, CLOSE ENOUGH TO TARGET AS YOU POINT OUT, IF YOU EXCLUDE THE COST OF HOMEOWNERSHIP, THE SO-CALLED OWNERS EQUIVALENT RENT WHICH IS DIFFICULT TO MEASURE IN GOOD TIMES, BUT IN A TIME LIKE THIS WHEN THE HOUSING MARKET'S TOPSY-TURVY, ALL BUT IMPOSSIBLE. IF YOU CONCLUDE IT AND GO TO HARMONIZED INFLATION, THAT'S THAT TARGET. MIEN, I THINK WE JUST -- I MEAN, I THINK WE JUST DID THE HARMONIZATION FOR THE CONSUMPTION PLAYER, 1.7% YEAR OVER YEAR FOR THE MONTH OF APRIL. IT'S BEEN BELOW TWO FOR ALMOST SIX MONTHS SO I THINK WE'RE THERE AND IF YOU'RE AT -- IF YOU ACHIEVED YOUR GOALS, YOU GOT ASK YOURSELF WHY DO WE WE NEED SUCH A HIGH RATE OF 5.5% RATE, THE TIME'S RESILIENT AND STRONG, I GET IT WHY TAKE THE CHANCE? THE THINGS CAN CHANGE QUICKLY. I'D BE ARGUING FOR CUTTING RIGHT NOW. I WOULD ARGUE FOR CUTTING EARLIER IN THE YEAR. >> HARMONIZED CORE PCE WE'LL START USING THAT MORE. >> YEAH. >> EVEN AS WE'RE TALKING ABOUT THE FED HOLDING STEADY RIGHT NOW AND WANTING TO SEE SEVERAL -- AT LEAST PROBABLY SEVERAL MORE MONTHS OF BETTER, IMPROVING INFLATION DATA, WE HAVE AN ECB THAT IS POISED TO POTENTIALLY CUT AS SOON AS NEXT WEEK HOW DOES THAT DIVERGENCE NOW PLAY OUT HERE GLOBALLY WHETHER IT COMES TO THE DOLLAR AND WHAT WE SEE IN THE CURRENCY MARKETS, WHEN YOU TALK ABOUT THE GLOBAL BOND COMPLEX, WHEN YOU TALK ABOUT THE IMPACT HERE IN THE U.S., AS WELL? >> WELL, I THINK THE MARKETS ARE ANTICIPATING WHAT YOU JUST SAID. THAT THE ECB IS GOING TO BE CUTTING RATES HERE SHORTLY THE BANK OF ENGLAND, NOT TOO FAR BEHIND BANK OF CANADA, ALSO NOT TOO FAR BEHIND THAT'S IN THE MARKETS, INVESTORS EXPECT THAT. SO THAT'S THE END OF THE DIVERGENCE I DON'T THINK IT'S ANY BIG DEAL, CURRENCY MARKETS WILL BE STABLE. BUT YOU KNOW, AGAIN, IF THE FED HOLDS ON TIGHT HERE, HIGHER FOR LONGER, THE DIVERGENCE IS GOING TO CONTINUE TO GROW. AT SOME POINT THAT WILL BECOME AN ISSUE ONE MORE REASON WHY THE FED MAY WANT TO START CUTTING RATES SOONER RATHER THAN LATER >> YEAH. I MEAN, THINGS BEING AS STRONG AS THEY ARE, I'M SURPRISED -- YOU'RE SAYING SEPTEMBER. TELL ME MORE WHY NOT -- WHY NOT LATER JUST A LITTLE? >> WELL, BY SEPTEMBER I THINK THEY GET THE DATA THEY -- LOOK, I THINK THERE'S THE DEBATE ABOUT FULL EMPLOYMENT THAT'S BEEN SETTLED, WE'RE THERE WHERE THEY ACHIEVED THAT TARGET THE DEBATE IS ARE WE AT THE 2% INFLATION TARGET SO THAT THEY CAN FEEL LIKE THEY'VE SATISFIED THEIR OBJECTIVE TO EVERYONE'S SATISFACTION, PARTICULARLY IN AN ELECTION YEAR. YOU KNOW, I THINK THE BAR'S A LITTLE BIT HIGHER. I THINK THEY NEED A COUPLE THREE MORE NUMBERS TO BE ABLE TO DEFINITIVELY SAY THAT. NOW HAVING SAID THAT, YOU KNOW, THINGS ARE MOVING AROUND AND WILL CONTINUE TO MOVE AROUND SO WE COULD SEE THE ECONOMY START TO SOFTEN A LITTLE BIT WE COULD SEE CRACKS IN THE FINANCIAL SYSTEM WE COULD SEE PROBLEMS IN THE CURRENCY MARKET LIKE WE WERE TALKING ABOUT. AND THAT WOUND -- OR THE EQUITY STOCK MARKET COULD CORRECT THE MARKET'S HIGHLY VALUED FEELS VULNERABLE THAT COULD CORRECT THERE'S -- IT'S VARIABLES THAT COULD CHANGE THAT COULD CHANGE THEIR MIND AND FOR THEM TO START CUTTING EARLIER THAN THAT. BUT ASSUMING NONE OF THAT, ASSUMING ROUGHLY THE STATUS QUO AND EVERYTHING STICKS TO SCRIPT HERE,
