Claudia Sahm Talks Fed Minutes, Inflation Gauge

**SPEAKER_1** (0:02)
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**SPEAKER_2** (0:07)
So here's the latest this morning, FOMC Meeting Minutes revealing several policy makers saw a case for raising interest rates with nine officials anticipating at least one hike this year. Fed Chair Kevin Walsh declining to submit his rate forecast, Claudia Sahm of New Century Advisors writing, we have a low information chair, but not a low information Fed. Claudia joins us now for more. Claudia, welcome, well-framed, appreciate that. What have we learned from a high information Federal Reserve, even if we have a low information Fed chair?

**Claudia Sahm** (0:36)
Right, so we got the minutes yesterday and we got finally some answers, or at least some details to this question of what will it take for the Fed to raise interest rates? The Fed's reaction function is alive and well. We had to wait three weeks to hear anything about it, but the minutes really did deliver on the substance of what those rate hikes would take and they put it out in scenarios and it very much goes back to the inflation outlook.

**SPEAKER_2** (1:02)
Claudia, that includes the AI spending and that came up a few times in the minutes. If you just bring up the PDF and search for AI, you'll see it mentioned several times. Given the move we've just had in energy in the last 24 hours, how fine are the margins Claudia separating a hold from a hike and could a renewal of tensions in the Middle East tip it one way versus the other?

**Claudia Sahm** (1:21)
Right, so the scenario for a hike is one where inflation stays elevated. And one thing that was very striking in that scenario was it did not discriminate on the source of that inflation, right? They mentioned AI, they mentioned the Middle East, they mentioned tariffs. So really, it's anything that keeps inflation high and doesn't start moving it soon to 2% would be enough.
And there was a lot of agreement. If that were to happen, most of the, or almost all of the participants said they would raise rates. So I think that's where we're just looking for, you know, inflation to start moving back towards 2%. And you do get a sense of some impatience. Like they want to see it soon. This is not like we're waiting till 2028 to see inflation moving down. So I think that's important. And it does bring the focus back to the inflation data. It's not a Fed that is divided in how we react to inflation. They're divided in what's coming next with inflation.

**SPEAKER_4** (2:18)
Claudia, are you surprised by how big a shift it was from simply dropping the easing bias to no one anticipating rate cuts anytime soon? The idea that it's not as if this committee is split between people who think that there should be rate cuts and rate hikes. The committee is split, as John was saying, between people who are going to stay on hold and hike rates. This is no one being a particular dove. Is that surprising in terms of the pace of that shift?

**Claudia Sahm** (2:44)
The events in the Middle East really were a big shift in terms of the Fed's thinking. And it's not so much that we have an energy shock. I think it's also that we have another cost shock. Last year, we had tariffs, and the Fed was very patient. We're going to look through this, we're going to wait and see it happen. And just as tariffs are rolling off, we are hit with another major cost shock to push up inflation. So it's the events really shifted early this spring. And I think this is a good example of the Fed can shift pretty quickly as events shift. This is very much a data driven, this is very much a reality driven. And you're seeing it not just at the Fed, other central banks are reacting in a similar way because it is a global shock we are reacting to.

**SPEAKER_4** (3:27)
Right now, people are pricing in about a quarter percent chance, 25% chance that there will be a rate hike at the meeting later this month for the Federal Reserve. I just wonder which side of the camp, which camp you're in right now, the people who believe that the Fed kind of bought itself some time by having these task forces to go through some of the metrics versus a Fed that truly could be live even as soon as in a couple of weeks' time.

**Claudia Sahm** (3:54)
So the meetings are live. I think the runway to a July interest rate increase is pretty short, but by the fall, they're gonna get more CPI prints, they're gonna get more information on inflation, more information on events happening. So I think something would be more likely to happen in the fall in terms of a rate increase. And what was clear in the minutes, I mean, this is a Fed that is combing through the data, they're discussing how to react to it, but they're not waiting for the task forces to come back and enlighten them. They will get that information, but that's not what is kind of determining when the Fed acts next.