The Fed vs. AI inflation

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Kai Ryssdal (1:01)

Well, let's see, we've got like seven or eight minutes to kill. What do you want to talk about? From American public media, this is Marketplace.

In Los Angeles, I'm Kai Ryssdal. It is Friday today. This one is the 13th of November. Good as it always is to have you along, everybody. All right, so look, we're just gonna start because there is a bunch of stuff to talk about. David Gura is at Bloomberg. Courtney Smith is at Axios. Hey, you two.

Karen Woody (1:38)

Hey, Kai. Hey, Kai.

Kai Ryssdal (1:40)

So Courtney, first of all, it's Courtney Brown, not Courtney Smith. I apologize. I don't know where that one came from. I truly don't know where that one came from.

And thank you for not correcting me live on the air. I will do that myself. Anyway, so it has been a week. So let's talk about the thing of most immediate concern, inflation.

CPI and PPI both came in this week. The numbers were not good. Do you suppose that the Federal Reserve would like a do-over on its pause from its last meeting?

Courtney Brown (2:11)

I think there are some officials who might want a do-over. Before we even got the CPI report, can I just say that a top Fed official whose name is Chris Waller came out and laid out a very precise test for what in his view would lead to a possibly half percentage point hike at the Fed's meeting next month. He laid out the test and the data came in exactly how he said it would need to come in for him to support a supersized rate hike.

It doesn't seem like that's a widespread view on the committee, but remember, he didn't dissent. He didn't raise his hand and say, hey, guys, I don't agree that we should stay on hold here. So something has changed. And I think what that something is, is inflation pressure is heating up in the economy, as we saw with the data releases this week.

Kai Ryssdal (3:05)

David Gura, whose name I got right, keep going with that. Inflation pressures are real. There's AI going on in this economy out the wazoo. We're going to talk about that a little bit later with Kristin Schwab.

It's not like inflation pressures are easing, but I guess is what I'm saying.

David Gura (3:20)

No, in fact, I think they're broadening. We heard that from a number of Fed policy makers, and this has been a busy week for people like Courtney who have to listen to all of those speeches and interviews that are taking place.

But I think listening to Courtney and sort of the way that Chris Waller talked about his threshold and the like is so starkly different from the Fed chair and what he's doing right now, and that comes as no surprise. He doesn't want to offer forward guidance, and he's going to speak on Monday, and it's likely he'll say nothing of use to markets of looking for what the Fed's path forward is going to be. But no, I mean, you look at the data that we got this week, and I'm contractually obligated to say we get the Fed's preferred inflation gauge, BCE here in a couple of weeks' time, and some of this feeds into that. And I think, look, we've been dealing with a lot of these pressures, not narrowly, but hasn't been affecting the whole breadth of the economy. We're seeing that change now, and I think that metamorphosis is what's really scaring a lot of policymakers. And so I don't know that they regret the pause that they had in place, but I think historically there's been kind of a systematic approach to the way that the Fed raises rates. And I think that there is a sense here, yes, that this is persisting longer and becoming a bigger deal than they expected. But also, as you were alluding to just a moment ago in your question, there are so many variables here at play. Obviously, what happens with AI and the broader AI economy, what happens with energy prices, with the war in the Middle East, and then what happens, of course, with the resilience of the consumer. And that is something that everyone trumpets, and we've seen a remarkably resilient consumer, but how long can that persist in light of the pressures that everyone's under?