Warsh Faces Intensifying Pressure to Raise Rates After Hot CPI

SPEAKER_1 (0:02)

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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy, plus global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast, with Carol Massar and Tim Stenovec on Bloomberg Radio.

Carol Massar (0:33)

Well, monetary markets see a Fed hike. Well, the money markets, I should say, see a Fed hike next week as an almost done deal amid elevated inflation data. Treasury yields fell from multi-year highs. As for inflation, White House National Economic Council Director Kevin Hassett, doesn't seem all that worried. He joined Bloomberg this morning.

Kevin Hassett (0:49)

If you look at the last three months, even with a slightly disappointing number, a core CPI is two. And so in the model that I would be using, I would say that you just about hit the target and inflation is decelerating. Now what the Fed decides to do, maybe they decide that they're gonna do something that put risks on this side or that side, it's up to them.

But frankly, I think that inflation is clearly decelerating, even with this slight uptick this month. If you look at the three-month average, then you're basically hitting the core target.

Tim Stenovec (1:18)

That of course was White House National Economic Council Director Kevin Hassett this morning on Bloomberg. Let's get into it. Let's talk that CPI print. Let's talk inflation overall. Let's talk rates. Let's talk the Fed. With us to do that is Ira Jersey, Chief US Interest Rate Strategist at Bloomberg Intelligence. He's out there in our Princeton News Bureau. Also with us right here in studio, Bloomberg News Macro Strategist, Frank Monkam. And of course, he previously worked at commodity trading houses, several of them, and so has an unique trading perspective. We love this kind of roundtable to have. I want to start, though, with you, Ira, in terms of what we got on the latest inflation print, what it tells us about US inflation here in the United States, and what it really means maybe for rates longer term.

Ira Jersey (2:03)

Yeah, a little bit higher than expected. You know, there was one, you know, cell phones really wound up driving a lot of the beat. But, you know, almost every single print that you get, you can point to one or two things that kind of drive the inflation. So you can't completely ignore that and ignore the print. I think the important thing here for the rates market in particular is, if the Fed doesn't hike next week, which is now, you know, 90-plus percent price the last time that I looked, I think the 10-year, 20-year, 30-year treasuries are really vulnerable.

And you could wind up seeing new highs for all of those for the recent cycle if the Fed doesn't actually hike interest rates. So I think at this point would be my big fear. And, you know, maybe if you really think that they're not going to move next week, which there are still some people that I've talked to today that think they won't, then there's some trades to do there for sure.

Carol Massar (2:56)

Frank, do you think the Fed is going to move next week?

Frank Monkam (2:58)

I think they should and I think they will. And the reason being that, you know, when you've got a print like this, right, you've got to obviously fulfill your mandate on the price side of the mandate, but also the credibility portion of the mandate, which has been in place of the mandate for the Fed now. Credibility is the biggest risk for the Fed. And I think when the market is saying 90% probability that you need to hike, it's almost impossible to try to push against that. It's just going to create way too much volatility in the marketplace, especially when you're seeing oil prices, seeing another round of upside convexity, given the move that we've seen yesterday and over the past week.

Tim Stenovec (3:36)

Is that the tone to when you guys are typing away on the macro blog? Are most folks on the street saying, he's got to do it, they got to do it, and it makes sense fundamentally?

Frank Monkam (3:48)

I think it doesn't make sense fundamentally, but it's been very difficult to kind of, I guess the market is saying 90%, 100%. The reason why I used to have some folks that think that they would go, I think it's because of the political dynamics within the Fed and even between the Fed and Treasury, some of that interference happening there. So I think that's why people are keeping kind of a non-zero probability of them staying pad next week. But it should be a hiking of things considered.