Episode summary
Roger Ferguson: Fed likely to hold rates this week, but two hikes are necessary to tackle inflation
Summary
Roger Ferguson said the Fed is more likely to hold rates this week than raise them, even though recent inflation data have been disappointing and he thinks the central bank needs to show it still has 2% inflation as its target. He argued the Fed is in a bind: it wants to be cautious and avoid rattling markets, but it also risks falling behind the inflation curve if it waits too long.
Ferguson said the economy looks increasingly bifurcated. Consumers at the lower end are feeling the pain of inflation, while spending is being supported by wealthier households with equity-market exposure. He described a similar split in markets, where a small number of companies tied to the AI buildout are doing very well while many others lag behind.
Looking ahead, Ferguson expects the Fed may need two hikes if it skips this meeting, with one potentially in December and another after that. He added that inflation may prove stickier than expected, while outside risks such as geopolitical tensions, oil prices and the election could complicate the outlook.
Key takeaways
- Roger Ferguson said the Fed is more likely to hold rates this week, despite inflation data that have come in hotter than expected.
- He expects two additional hikes may be necessary to get inflation back toward 2%, including one potentially in December.
- Ferguson argued the economy is increasingly bifurcated, with lower-income consumers under pressure while equity holders keep spending.
- He said the AI-led stock market advance is concentrated in a small group of winners, leaving many companies behind.
- Ferguson warned that geopolitical shocks, oil prices and election-related tensions could change the policy path.
Notable quotes
“I THINK THEY'RE MORE LIKELY TO HOLD. I THINK THE MARKET IS REALLY EXPECTING THAT”
“INFLATION HAS NOT BEEN COMING DOWN. THE MOST RECENT READS HAVE BEEN DISAPPOINTING TO THE TO THE UPSIDE”
“I THINK AT THE END OF THE DAY, THEY'VE GOT TO FOCUS ON THE INFLATION STORY”
“I THINK I THINK TWO HIKES NECESSARY, ONE, CERTAINLY IN DECEMBER, THEY MAY TAKE A PAUSE TO SEE HOW THINGS ARE GOING”
“IT'S REALLY A VERY BIFURCATED ECONOMY. YOU KNOW, THOSE WHO ARE CONSUMERS, ETC. WHO ARE AT THE BOTTOM GROUP ARE CERTAINLY FEELING THE PAIN OF INFLATION”
How the episode opens
Here I — Here in washington, fed policymakers will meet this week to decide on interest rates. Joining us right now is former fed vice chair and former tia ceo, Roger Ferguson. And roger, thanks for coming in today. — Sure. — My pleasure. This is something the markets are watching pretty closely this week, but I think it's pretty much a split decision on which way this is going to go. Do you think the fed will actually raise rates this week.
You know I think they're more likely to hold. I think the market is really expecting that. And the commentary before the blackout period suggested it. Unfortunately for them the data are you know should encourage them to go. But I think they're sort of in a little bit of a bind and they may may hold this.
Week a bind. How what do you mean?
Well, inflation has not been coming down. The most recent reads have been disappointing to the to the upside. And so, you know, this whole notion that they're trying to speed the return of the 2%, which is what they said in the last statement, is inconsistent with holding this time.
On the other hand, major policy makers were suggesting kind of patience. So they're not yet in a credibility gap. But I think they're they're going to have to move pretty aggressively next time, I think, in order to make up.
You know, I heard.
I heard drew mattis describe it this week, and he said it's kind of at this point, like the pizza delivery guy who is driving down the street at night trying to deliver the pizza to you. And it's a little dark out and you can't see the numbers very clearly.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed policy meeting
- interest rates
- inflation fight
- economic outlook
- rate path
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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