As the Federal Reserve prepares to make an interest rate decision, a key piece of data is being overlooked.
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00:00With regard to Fed policy, you know, not should necessarily listen to everything the president says and do your own work to anybody.
00:10But in this particular case, he's correct about the Fed.
00:15They follow an index. It's about two years lagged for CPI is two years lagged.
00:20We have CPI-R. It's on our website. That's running at 1.3 percent year over year.
00:26But the Fed is going to be slow to figure this out. They don't understand how to deal with tariffs.
00:33So I do think for them to cut, we do either need to see some inflation reports with tariffs that are modest, which we think will be true,
00:43and or maybe not a crash in the labor market, but some weakening in the labor market.
00:48We're sticking with three cuts this year, but we think they'll come in the second half of the year.
00:53And the reason for that is what I just mentioned.
00:56That we're forecasting that actually CPI stays under control over the next couple of months as these tariffs come in because of the fact that energy is more important than tariffs.
01:07Tariffs are only, as proposed, only a half percent of GDP.
01:12And energy is more than that in terms of the reduction in price.
01:15So, but the Fed is not good at forecasting inflation, sort of given up after their debacle during 22.
01:24So we think they're going to actually need to see those reports and maybe the labor market weaken.
01:30Hopefully not, actually.
01:31And then they'll cut three times out of the four meetings.
01:35Every half year has four meetings.
01:37So we think they'll cut three, maybe two, because they are behind the curves.
01:40With regard to a soft landing, the right way to think about that in terms of Fed avoiding the recession is it's better to be lucky than smart.
01:50So the Fed has bungled monetary policy really over the last five years at too low a target in forecast inflation, way over cranked the money supply and created a great inflation.
02:04So they're not good at their job, but they're lucky in the sense that we have a shortage of housing.
02:11So normally housing crashes.
02:13Now it's just kind of bubbling along.
02:16And plus the market's better running the Fed than the Fed is.
02:19So they've cut long-term rates down to about four and a quarter, even with no Fed action from 480.
02:26And that's given more leeway to the housing sector, which is normally what causes crash in housing, almost always causes recessions.
02:35So again, lucky, it's better lucky than smart, very resilient housing market because of the shortage of homes in the U.S.