Yahoo Finance

now to the Federal Reserve. We've already heard from a few FOMC members this week, and we're getting a lot more, including Fed chair J. Powell coming up on Friday. Yahoo Finance Fed correspondent Jennifer Schonberger joining us now. Jennifer, I I know that you spoke with the New York Fed President John Williams yesterday, and a fantastic interview, and you were able to get some more clarity from him about his reaction to transitory reentering the conversation. What stood out to you?

Yeah, thank you, Maddie. So, two things stood out to me. One, uncertainty reigns. And two, we're going to see higher inflation and lower growth, to Christina's point. Um, when it comes to uncertainty, what struck me was that I asked him, are you increasingly seeing a chance for fewer than two cuts this year? And he said to me, Jennifer, you're asking me to look out to the end of this year. The future is so uncertain, and that told me two things. One, if we do get cuts, we're not going to see that until the fall. So, a June rate cut, probably not on the table, what the market is pricing in. And two, they don't have that much confidence in their forecast because visibility is so poor right now, because we just don't have any certainty about the policies coming out of the administration. And even if we do get a plan, or when we get a plan, I should say, tomorrow from the president, we could see several rounds of revisions from that, which creates further ripples of uncertainty. Now, the second thing you asked about, inflation, he does see the potential for prolonged effects. Um, specifically the fact that we can see tariffs on intermediate goods within the supply chain. He says that could take up to two years to ripple through the system. So, uh, transitory or or not, I don't know how you define transitory, but it looks like the potential for inflation to be with us a little bit longer than just this year.

Yeah, Jennifer, just for those who weren't able to listen to your interview yesterday, we just want to play a quick clip from that for our viewers.

Those, you know, increase costs for American producers, it takes for some time for those to get into consumer prices and and show up an inflation. So, there's definitely a channel that past history teaches us may take a few years to be fully, uh, uh, kind of, you know, seen in the data.

Yeah, and Maddie, you heard there President Williams basically speaking to the notion of prolonged effects. I did ask him, you know, we're already at 2.8% on the Fed's preferred inflation gauge, which was an upwardly revised forecast that we saw at the last meeting. Is there upside risk to inflation? He said, absolutely. Um, but again, the visibility very poor. I did also ask him, are you willing, and can you assure Americans that you're not going to allow stagflation of the 1970s to take hold? And he said, absolutely. So, Christina, I wonder, to your point, you say that we are facing stagflation or maybe a mild version of that. Certainly, the ISM manufacturing seem to point to that, um, with when you look at prices versus the actual manufacturing. What are your thoughts on that?

Well, I certainly think the risks have grown. I don't think it's a fete accompli. Um, that's that's the key takeaway for me and that's why there's so much uncertainty, is the administration could certainly pivot, and we could be in a very different place where stagflation risks decrease. That's why it's fascinating to me to have seen the Fed actually come out with a dot plot last week. I mean, I guess they felt they had to because they come out with it every quarter, but this was a very difficult and and it was an admittedly difficult exercise. Chair Powell said that. But I was impressed that they even penciled in two rate cuts for this year because who knows? I mean, given, you know, depending upon the policies we see and the impact, we could see hikes, we could see them sitting on their hands. I do think it's important to recognize, though, that the mindset of most Fed members is they don't want to be the next Arthur Burns. They're a lot more afraid about inflation than they are about a recession. So, they don't they don't mind being

I agree with you there because I I asked Williams, are do you see higher risks to inflation in the near term versus risks to growth and unemployment employment? He said, I can't answer that question, it's too hard. But I really think that they are worried about inflation. They still have an inflation problem coming into this before we're getting the most aggressive slate of tariffs that even kick in. We were already seeing inflation bubble higher. So,

And doesn't it make sense, too, that recent history would somewhat impact them, right? That there's this idea that they dropped the ball on the initial pop and inflation coming out of COVID. How could that not make you want to prevent that embarrassment from happening again? To put it kind of crassly. Yeah.

Sure. Which is why I think there was like sort of stunned silence when Chair Powell actually used the term transitory last week in the press conference, because shaken investors everywhere. Yes, yes, but I think he's right, because if you actually go back to the first Trump administration and that bout of tariff wars, um, what we saw was that prices went up, but very, very briefly, so they truly were transitory. And so that is perhaps the best playbook we can rely on is what happened in the first administration. I think the fear is, though, that things could go very differently this time. Yeah.

We're already seeing, though, tariffs that are four times the amount that we saw in 2018, 2019. So this is a totally different situation.

Well, go bigger, go home. But, you know, seriously, though, you could still have four times the amount of of four times the size of tariffs, but if you pull them off quickly, I don't think it would have any kind of lasting impact. The question becomes how long will they stay on?

And we will be covering any potential developments that we get out of that on our special coverage on April 2nd for so-called liberation day, according to the president.