We're a little north of 3.5, so that's well in the range of what I would consider a reasonable, reasonable, but at the higher end of the range of what I would consider reasonable neutral rate, um, you know, I think you're the, the labor market is still probably cooling off just a little bit.
Um, and I, I, I don't think there's a much of a case for any case really for the, for, uh, policy looking, you know, meaningfully restrictive, maybe mildly restrictive or neutral, I would say.
The era of Jay Powell as ventures ending with a stark warning to markets.
Inflation has not even peaked yet.
And as President Trump reportedly prepares for an extended naval blockade of Iran, WTI is back above $100 and Brent crude surged to as high as above $120 a barrel, sending Treasury yields spiking.
Well joining me on the heels of the Fed.
And the latest economic data releases is Sarah Foster, a Bankrate Analyst.
Sarah, good morning.
Thank you so much for joining me.
Thank you for having me.
Always great to be here.
Well, we know that the stock market is not the US economy, but we are looking at futures bouncing by at least 0.5% point.
So first and foremost, what did you make of the Fed meeting yesterday?
It was a remarkable meeting, I think.
Something that we always talk about with the Fed is that it's not about what they do that's always pretty much forecasted.
It's about what they signal about the future and this Fed meeting, it was all about sending a message and that message was received.
We had 4 dissents.
It was the most dissent since 1992, of course, only one of those was a dissent against interest rates staying steady.
That was Myan wanting a cut.
The other three were disagreements about the statement, and we've never seen that kind of friction about the language that the Fed agrees upon in its post-meeting projections and statements.
So I think the message that the Fed is trying to receive is that we know we have this new Fed chair coming in, Kevin Warsh.
He's likely to be confirmed, and this is likely Powell's last appearance at the podium, but he's going to have a hard time getting the interest rate cuts that he wants because we're starting to see that. committee members want to have optionality on interest rates and a lot of people were anticipating Jay Powell's swan song and we did get that yesterday afternoon, but of course this morning we got GDP figures as well as PCE data.
So given the fact that this quarter so far has been quite unexpected, we have to keep in mind that energy prices do remain elevated.
So what does this actually mean?
Growth and inflation.
The Fed is caught in such a difficult position between these stagflationary conflicts of weaker growth from higher energy prices, but also higher inflation from those higher energy prices.
We've all been saying that the end of an era, the end of the Powell era, is his legacy is going to last longer than he's up at the podium.
That's not just because he's staying on the Fed as a governor.
It's also Just because the Fed has not really wrestled inflation, it's been elevated for 5 years now.
Of course the biggest concern is whether that story of the post-pandemic economy with the supply shocks getting increasingly entrenched in the economy here with higher prices elsewhere.
The reason why higher energy prices are just so disastrous for the Fed is because it can it can often transfer to other parts of the economy here with services.
So that optionality that the Fed wants with interest rates, it means that the Fed doesn't really know whether its next move could be a cut, and we even heard Powell acknowledge that at least along the margins of Fed officials that some are starting to acknowledge that maybe a rate hike could be on the table.
So we'll continue to monitor the situation in the Middle East and the implications and the impact on global.
And it's really interesting because it isn't just the Federal Reserve this week in terms of global central bank meetings and rate announcements we heard from the DOJ.
We are hearing from the ECB as well as the BOE this morning.
So this is something to keep in mind.
But you mentioned energy and I'm sure a lot of Americans that are watching this right now, they are wondering what this means in the long term, not just.
For Q2.
So what would you say to them, especially given the fact that borrowing costs are still where they are right now?
It's so difficult.
Higher energy prices are essentially a regressive tax where we hear that it's the households who are least able to bear it are the ones who struggle the most, lower income households and middle income households who are already struggling with the weight of.
Inflation before the war in Iran took place.
Now they're starting to have to make tough decisions, you know, where am I going to cut back on now that I have to pay all of this extra money to gasoline, to energy?
What does this mean for my future financial goals?
One thing that we've been looking at, of course, are mortgage rates.
Many Americans having those hopes to eventually become a home buyer.
I think it's becoming a lot more difficult to really signal where those interest rates are going to, of course, the ones that aren't directly tied to the Fed's interest rate.
And something that I think to watch is whether Kevin Worsch's Fed might change the communications strategy.
Of course, if it becomes a lot more hard to predict where inflation is going, if it becomes hard for Fed officials to even signal where interest rates are going, that's going to make it really hard for many of those Americans to find the lower mortgage rates that they were hoping they would get this year.
And another area that we're watching is the labor market.
So of course we got those PC figures and growth figures this morning, but when it comes to those weekly jobless claims figures, we are anticipating the jobs report coming out.
But what are your key takeaways when it comes to the labor market?
Yes, you know, we saw some stabilization in the last month, of course, though that was kind of weather related bounce back.
The definition of full employment that the Fed uses is whether everybody who wants a job can find one, and anybody out there in this barren labor market would tell you that they are still struggling to find new positions.
So I think this is why it's so damaging for the Fed to have to decide whether to rescue the labor market or to decide whether to keep interest rates elevated to kind of keep the brakes on inflation.
It's certainly moving forward.
We're looking at a no higher, you know, hopefully slow layoff economy labor market where a lot of economists continue to project that unemployment will remain a little bit elevated from its previous point a few years ago.
Well, Sarah, a lot of moving parts to keep our eyes on.
So thank you so much for joining us after the Fed meeting and weighing in on Powell's comments yesterday.
Thank you so much.
