Coming out of the March FOMC meeting, US Federal Reserve officials have opted to hold interest rates at their current levels, maintaining hope for three rate cuts in 2024. While finding the Fed's dot plot "boring," Sahm Consulting Founder Claudia Sahm critiques the dot plot in its mischaracterization of certain sentiments from "the entire FOMC for the day."
Sahm, a former Federal Reserve Board Economist, also tells Yahoo Finance her thoughts on the Fed's inflation outlook: "I agree with their trajectory. Inflation is coming down. We're likely going to learn at the end of this month that PC core inflation was 2.8%, or something right around there. It has been steadily coming down. Yes, the last two months on inflation have been disappointing — so have the last two months on retail sales... We really have gotten a mixed bag of disappointing news out of the gate. I think they're right, it's going to be a little slower. It's been a slog getting inflation down..."
JOSH LIPTON: Claudia, it is good to see you. So zero confidence in the dot plot, Claudia. Walk us through that. How come?
CLAUDIA SAHM: It's not a useful tool for communication. There was so much attention today is the media going to be three cuts or two cuts. And markets could have moved, if it switched.
I mean, two people would have had to change their forecasts. And I think what we forget is the dot plot, the median, in particular. It is not the consensus forecast for the FOMC.
You have 19 people running off doing their own projections and then doing their appropriate policy. It's a neat little exercise. It's fine for in the building.
It should not be out in public. And thank goodness, Jay Powell definitely kept it together. This is a boring dot plot, and this is a boring statement. Yay. Good. We need more data before we get excited.
JULIE HYMAN: And it's funny, Claudia, about the dot plots because we talked to Andrew Levin a little bit earlier who said he was one of the guys who helped them construct it in the first place. And even he is saying, maybe we need to rethink this situation. So do you think that the Fed does need some type of publicly facing forecasting tool like this? Or do you think, no, they should just get rid of it and bring it back into the meeting rooms? And that's it.
CLAUDIA SAHM: They need Jay Powell at the press conference. That's it. He can give the message across and get like that. He speaks for the FOMC.
Those dots do not speak for the FOMC. Those dots are like playing Fed Chair for the day. And, in fact, it's even worse. It's like playing FOMC for the day.
This is not the way we should communicate. They are highly technical. I know why Andy put it together. I know why Ben and Janet did.
They're great for macroeconomists. I could spend hours on it thinking about what they mean. This is not what markets should be doing at 2 o'clock on a Wednesday that the Fed has put out their statement.
So Jay Powell is absolutely capable of doing this. And I'm so happy we're not going to sit through a press conference of him fighting with these dots.
JOSH LIPTON: Claudia, their projections for inflation did tick up a bit here. I'm interested how do you see inflation playing out in 2024.
CLAUDIA SAHM: I agree with their trajectory inflation is coming down. We're likely going to learn at the end of this month that PC core inflation was 2.8% or something right around there. It has been steadily coming down.
Yes, the last two months on inflation have been disappointing. So over the last two months on retail sales, we are seeing signs of demand flagging. The Fed has a dual mandate.
This Fed is fully aware of that. And so we've really gotten a mixed bag of disappointing news out of the gate. I think they're right.
It's going to be a little slower. It's been a slog getting inflation down. And yet, we all agree, this is where it's going.
And the data even the last couple of months, if you look under the hood, this is where it's going. We're getting back to 2.
JULIE HYMAN: So when is that happening, Claudia? I mean, I know we talk about like how uneven this all is, we talk about long and variable lags in terms of the effects of the interest rate increases through the system. But I think also your confidence notwithstanding, I think a lot of people, especially consumers are having trouble getting their arms around and understanding why it is not coming down further and faster.
CLAUDIA SAHM: And the root of all evil in this cycle has been COVID. I mean, we lived through an extremely disruptive experience both in our lives and livelihoods. Frankly, I want to put it in the rear view mirror, too.
People making decisions about economic policy like the Fed cannot. Like they have to understand the disruptions. They have to watch them work out.
It's been really hard to see it. But last year, it was very clear inflation came down a lot. Not enough, but a lot.
And we kept the labor market going, unemployment was low, growth was high. So that's a really clear sign. And I do not expect the regular person to get this.
But that is such a clear sign, those COVID, those Putin. We're unwinding it. It is very slow.
But we're a really big economy. I mean, to work things out, this is not trivial. But we are so headed in the right direction. And last year was the turning point.
JOSH LIPTON: Their economic outlook, Claudia, it looks like that also improved a bit, too. It looks like projected change real GDP for 2024, Claudia. 2.1%. Looks like that's up from about 1.4% in December. Does that kind of track with what you're seeing?
