A 50-Basis-Point Fed Hike? Saccaro Says It May Be Needed

SPEAKER_1 (0:00)

I do want to broaden things out, though. Take a look at some of the data that we've gotten this week with Anthony Saccaro, President of Providence Financial and Insurance Services. Anthony, great to talk to you. We have gotten some data. We've got our inflation report a little hotter than expected. We have an economy that's still growing, but we have a labor market that seems to be cooling a bit. So how are you looking at that? Is stagflation a word that's on your radar right now?

Anthony Saccaro (0:24)

So I've used the word stagflation a couple of times. I've seen that word thrown around. I don't see how it's actually relevant right now. GDP is still growing strong. It fell a little bit in 2025 I think it was down to 2.1, half a percent from the previous couple of years. Q3 is predicted to be strong though. I think Q3 GDP is well over 3 percent. The forecast, so we're not at a point where we're not growing. Stagflation is a stagman economy and growing inflation. So we've got an economy that's growing. The problem is we have inflation that's growing even faster. The CPI, your print that came out yesterday showed 3.7 percent. That's hot on the CPI, hot on consumer spending, but it is energy driven. You take the energy out of that and core was 1.1 percent less at 2.6 percent. So much better.

And then you look at the PPI and the PPI print that came out this morning was extremely hot. That means that next month's CPI is going to be hotter than this month. This month was hotter than last month. That's not going to be good for consumers. Things are going to be more expensive. And then you throw in the labor market, as you mentioned, is softening.

Real rage growth is 3% right now, so consumers are going backwards. But it is tied to the energy. Hopefully the war ends and that starts to curtail. The challenge is it takes a few months for energy to get in. And it's going to take months for energy to get out, even if the war ended today. So for consumers, there's definitely going to be a rough road ahead.

SPEAKER_1 (1:46)

So then how does the Fed handle its dual mandate right now? If we are seeing some slowing in the labor market, which they've made very clear was not their focus, at least for the last two meetings, we've got inflation taking higher. Now we've got PPI showing that that's getting a lot of pass-through, which implies we may get a hotter inflation print next month. Does that change your outlook for the Fed's path forward at the meeting at the end of the month?

Anthony Saccaro (2:09)

No, not at all. The reality is that when you look at the dual mandate labor market and inflation, they have to look at both. They have to counterweight which one's stronger. Right now there's no problem with the labor market. I say that a little bit tongue in cheek. It has softened, but we have to remember that coming out of COVID, the labor market was abnormally strong. And so it's softened, but it's softened back to normal levels. There's roughly one job available for every worker today. A couple of years ago, that was two jobs available for every worker.

The fact is that real wages have come down, but the last print, the last jobs, 29,000 versus 85,000, so it is softening for sure, but the unemployment rate still only ticked up to 4.2 percent. We're still very manageable. The inflation is the Federal Reserve's key indicator right now. That's the one that could be spiraling out of control. You kind of get the feeling that it is going in the wrong direction fast and you don't want to get out of control. I think right now, whether they raise rates next, at the end of this month or not, a coin flip, I think they need to do it. If they want to be ahead of this inflation, especially with the PPI, I think they got to raise rates a quarter of a percent.

I'll stand out and say, maybe even a half a percent, and I'm going to get a lot of pushback, but the reality is, I think they got to go up if they want to get ahead of this inflation and not be being reactive.

SPEAKER_1 (3:29)

Yeah, I mean, we've certainly seen a Fed play catch up before, and it's not a position that they want to find themselves in. So, we'll remain to be seen. The FedWatch tool has been ticking higher and higher for October. It was about 20% before. Oh, it's actually back down a bit. Now it's down to 27%.