Caught in the Canada trade war crossfire

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Kai Ryssdal (0:32)

On the program on this Friday, we will do our Friday thing. We're going to talk bonds. Yes, I know. Sorry. Also, when was the last time you posted on Linkedin? From American Public Media, this is Marketplace.

In Los Angeles, I'm Kyle Rizdal. It is, as I just said, Friday, the 18th of September is what this one is. Good as always to have you along, everybody. So look, let's just start, right? Catherine Rampel is at The Bullwork and also MSNOW. Heather Long is the Chief Economist at Navy Federal Credit Union. Hey, you two.

Ms. Rampel, we begin with you. And I would like your take, your sense of how Chairman Warsh is doing in his promise not to let people know what the Fed is going to do, the whole forward guidance thing, because, you know, regional presidents are doing their speaking and there is the dot plot. So we kind of do know. No.

Catherine Rampell (1:37)

Well, we certainly know what other members of the Fed, of the Federal Open Market Committee, are thinking and how they're digesting the data because they are providing their own form of forward guidance, as you point out, making speeches and, you know, planting those dots on the dot plot.

Warsh, as it pertains to Warsh, I think he is trying to not give a hint of where he expects policy to go, but he kind of can't help, but give a hint of where he expects policy to go. I mean, part of the reason why the Fed was sort of boxed in to raising rates this week is because of things that Warsh had said at Jackson Hole, where he basically said inflation is too high and kind of conveyed that unless we had unusually, a miraculously good inflation reports between then and the Fed's meeting this week, that markets should anticipate that the Fed would act, and so the Fed had to act. So there's that. There was also his comment about how they removed a dose of accommodation, which I think a lot of people heard as maybe there will be another dose of something or other that is coming soon. So there's only so much he can like corral the other members of the Fed, the FOMC, but there's also only so much that he can withhold from markets if he opens his mouth.

Kai Ryssdal (3:00)

Right, right. Which, you know, I mean, he's not a man of many words, but he does sort of have to speak in public sometimes. Heather Long, let me ask you this.

On that removing the dose of accommodation thing, he also said, policy is not restrictive yet. And while I do not want to get into a discussion of the neutral rate, what do you think he means by policy is not restrictive yet? That clearly means something's going to happen, right?

Heather Long (3:24)

Yeah, it clearly means that he thinks that there's no straight jacket on the economy yet and that he can, this hike is not going to slow growth. He went out of his way many times to talk about the strength of the economy. His final answer was probably the one that shocked me the most, which is when he flat out came out and said, I don't believe that we need to harm labor markets to achieve our objective. But we can do, forget immaculate conception, we can do immaculate disinflation, the holy grail of economics. That's what he means by not yet restrictive, that we are not in a place where hiking rates is causing people not to take out loans or not to start businesses or to really change their objectives.

SPEAKER_6 (4:09)

Yeah.

Kai Ryssdal (4:09)

Sorry, Heather, keep going with the labor market bit, right? Because that answer struck me as well, and it does seem that gives some room to the chairman and the rest of the committee.

Heather Long (4:19)

Well, there's a lot of tension there. That seems to be where he has tension with the rest of the committee, right? Because then the rest of the committee in that dot plot they released was projecting, it could take a long time for inflation to come back down.