Q.: Regardless of the president’s opinion.
GG: As is. We will have it at the head of the institution until April next year.
Q.: The markets think that the Fed is not going to be hostile to the idea of cutting the rates for a long time. If it is not in June, as they believed until very recently, they imagine it in July. How do you see it?
GG: Too soon. But Fed herself, in her March projections, which are the last, computed a couple of cuts before December. Let’s say, in the second half of the year, if inflationary inertia – and unemployment – did not complicate too much.
P.: The favorite inflation measure of the Fed is going down. And I don’t say it, it is what the Secretary of the Treasury affirms, Scott Besent.
GG: And unemployment remains stable at 4.2%. What trouble does the administration have then when Powell lowers the rate?
Q.: Do you think inflation is falling?
GG: No. And before I asked me, Besent either.
Q.: Let me dissent. Besent and Trump cite the fall in energy prices, “minors in years”; of vegetables and even “eggs.” That is why they ask the Fed to lower the rates.
GG: Inflation fell 3 tenths if the interannual measure of the consumer deflator is taken, and December, the last full month of the Biden Presidency, with March, is compared. That was very encouraging: 2.3% (and 2.6%, the core variation). But then came the day of liberation and zafarrancho of tariffs. Trump was boasting of the billions of dollars of greater collection, as if they were paid by aliens and prices had remained stable.
Q.: And isn’t it?
GG: No. Although the official April measurements are still available. But the preliminary data shows an acceleration since March. Modesta, limited, if you want in relation to tariff increases, but clear and visible.
Q.: A footprint is observed, but not a total transfer at prices.
GG: No one expected that either. Not immediately. The imports of goods of the first quarter increased more than 50%. Companies accumulated important stocks before the tax change. And remember that reciprocal tariffs, which were very high, are leisurely for three months.
Q.: Which complicates the decision making of the Fed. He doesn’t know if they are going to govern or not.
GG: You have said it. And the very high tariffs that govern China do not apply because trade has been paralyzed. So we are inside an unusual nebula, in which there are very few certainties and enormous uncertainty. In that Polvareda, for example, April PMI report warns – between companies in the services sector – an increase in inflation “to its highest level of the last three months.” It is a significant increase, but it is far from the inflation expectations that consumers have, also in April.
Q.: According to the survey in question, they are around 6.5% and 7% to one year.
GG: That is why the immediate task of the Fed is not to lower interest rates but inflation expectations. And that will take his time. It is not so simple as to think that in July the problem will be on track and the Fed can cut the rates, as the markets would like.
Q.: Trump promises to accelerate trade negotiations. Will it help to know the first agreements?
GG: Besent promises more friction -free trade from these agreements. The sooner this chapter closes, the better. But if he does not remember with China it will be difficult to return to “normality.” And that will force the Fed to overact as a containment dike. If Trump really wants Powell to lower the rates fast he has to understand that he takes the maneuver – and makes it impossible – he is himself. The tenacious zeal of the Fed may not do anything to dodge a recession. But at least it will avoid stagflation.
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