Expect two rate hikes this year or early next year, says Roger Ferguson

[00:00:00] Speaker 1: This is an Alphabet board member, and we're going to get him to weigh in on what we were just talking about, not the grill stuff, the stuff before that, and some new data out from the conference board in collaboration with the Business Council. Their latest Measure of CEO Confidence Survey shows an uptick of optimism in the C-suite. Joining us now, former Fed Vice Chairman Roger Ferguson, Vice Chair of the Business Council. So much, in addition to all that to talk to you about, Roger, Bank of America thinks three rate hikes. I don't think it's going to, I think they're wrong. I think they're going to have to say, oops, do you think we get three rate hikes? [00:00:38] Speaker 2: I don't think we get three, but I have come to learn a possibility of two this time or this year or early next year, because I think the inflation pressures are not going to subside quickly enough. And I think the kid in the community, particularly this year, want to hold on to their credibility. [00:00:55] Speaker 1: Do you think that that that is consensus right now? I still don't. I think most people are thinking no change still. Do you think that that has shifted in recent weeks? And it shouldn't have because the inflation numbers have been have been more friendly. But the war obviously has ramped up and now oil is back to 75. So I don't know what you're assuming to get to two. You must be making some assumptions about Iran. [00:01:24] Speaker 2: I'm making some assumptions. Yeah, I'm assuming that that oil does not come back down very quickly. And even if it does, there's inflation in the pipeline. You know, I think there have been other disruptions as well. And then finally, you know, while we had one good reading, let's see how the others work out. Now, everybody's predictions are data dependent because I think the Fed is very data dependent. And the market last time around saw a pretty good read and, you know, expected maybe a 30, 35 percent chance of a move. But I think it's not over yet. And it's just too early to say for sure that this inflation is back in the bottle. And finally, you've got the fact that, you know, the chair has been very clear that five years of missing the target is really unacceptable. And I think the market is expecting to hear from him something clear about his framework, how he thinks about all of this and how he knows it's his watch is going to respond to it. [00:02:17] Speaker 1: How about people that come in and argue that some of the some of the problem areas of the inflation have started to to look better, like shelter or services or even, I don't know, even even wage pressure. Have you seen positive signs in some of that data? [00:02:37] Speaker 2: Absolutely. There were positive signs to some of it. And as you point out, you know, the last meeting was a relatively positive surprise. But be careful because, you know, coming in at slightly below three is not coming in at two. And so these concepts of, you know, positive surprise, et cetera, are against the backdrop of inflation that is certainly running hot. Even if it's, you know, less hot than it had been before, it doesn't mean that it's definitively on its wage of two percent over the next, you know, probably three or four or five quarters. And I think that's the Fed's dilemma right now. You know, things like you're improving, but from a very bad base. [00:03:16] Speaker 1: Yeah. We all like to live in interesting times. And the the Warsh Fed is is is grist for a lot of really interesting conversations that we've had and arguments, family fights, which which the chairman apparently likes. So I could ask you. Yeah. I could ask you about whether you you like the whole idea of less transparency and you're on your own. And then yesterday we it was fascinating to see the interplay between Treasury and and the Fed and and and a financial reporter. Did you see the whole Nick Timberos thing? Yeah, I you probably didn't like that. I didn't love it. I probably didn't. I know that as a as a reporter. Me, as is not a journalist, sort of was tickled by the whole thing. What did you hear? I said me is not. Yeah. Yeah. I like I caught the whole thing. But that's not a surprise to you. That's not a surprise to you. What do you make of all that, Roger? [00:04:16] Speaker 2: Look, I think two or three things that. Clearly, the Fed needs to be clear, influence communication. Certainly, you know, some of the things they've done that portend the future are sort of confusing. So consider the dotbox, et cetera. On the other hand, you know, the market does want some degree of transparency. It's it's called the reaction function. How is the Fed likely to act? And I think Chair Walsh is going to eventually be forced to say a little more about the future than perhaps he wants to. On the back, for the Fed and Treasury, you know, the standard has been very, very clear, which is the Fed is responsible for monetary policy. Treasury definitely takes the lead on fiscal policy. The Fed tends not to not to comment. And generally, Treasury is not commented, at least in the last three or four administrations, on monetary policy. On dollar policy, which comes into play, frankly, the Treasury takes the lead. The Fed helps to implement. So I think the rules of the world are clear. But obviously, reporters like to report, you know, tit for tat. And what's exciting is disagreement, not agreement. So I think we've got to, the Fed has really got to focus on its mandate. It's got to be clear about transparency, because the markets, I think, deserve and expect a certain degree of transparency, knowing there's not going to be, you know, forward commitments, because the Fed and markets are all very good. [00:05:41] Speaker 3: And then Roger, there was another story in The Wall Street Journal just this morning about Kevin Warsh and these conversations he's been having with the president of the United States has been having with him. Apparently, routinely, curious where you stand on that. I mean, it sounds like there have been periods of time where where there have been conversations between the president and a Fed chair. It sounds like more recently that has not been the case. [00:06:07] Speaker 1: But from your perspective, how the market you read that you should with the cover, you should point out that the the the the article says we have no idea whether they talked about Fed policy. They talked about the Iran war, they talked about the economy, they talked about all the wide range. And I thought about that immediately. And I know, Kevin, I know we've known Kevin. I would use him as a resource for and if the president's doing that, I'm like, fantastic. [00:06:34] Speaker 3: And by the way, the reason I the reason I was asking him to contextualize it was because during the Clinton era, for example, there was close. There was there was there was there was lots of back and forth between Alan Greenspan and him. But we don't know if this we don't know what are you doing with rates? We don't know what was going on. It's also hard to imagine that there's never a conversation that even touches on how they think. I mean, all these conversations relate to each other. [00:06:59] Speaker 2: But yeah, so let me to answer any question, try to contextualize it. These conversations go on quite frequently. The rules of the road are let's talk about the economy. The president should be taking advice from someone as smart and insightful as the chair of the Fed, including obviously Kevin Warsh. So one shouldn't be surprised. One should recognize that historically there has been a degree of pressure applied. You know, there are famous incidents when, you know, the president has called in the chair to suggest a sort of move to monetary policy. That is clearly off limits. I think here it's a little riskier insofar as we know this president has been very clearly dismissive in some sense, certainly critical of Fed policy. And so, you know, and Kevin Warsh needs to show, as he has, a strong degree of independence. So I think these conversations will go on. I think they are newsworthy in this context because of the history of this president really bashing the Fed. I can use that word. [00:08:06] Speaker 3: Talking about newsworthy, Roger, before you go, I do want to get your sense of this big move inside of Google Alphabet. I know you're on the board. I don't know how much you can say about it. But as we mentioned, Demis, who I've known for many years, he really is the OG of all this. And Jeff, also one of the great OGs. I know you got a bench there, but how are you thinking about it? [00:08:32] Speaker 2: Well, what you said earlier is true, which is, you know, I would prefer actually not to comment on it. I know that seems very sort of disappointing. As a board member, I am calm and comfortable with the leadership team that we have there. And these moves are part of sort of a natural progression, as they were talking about in the press release. So I'll just leave it at let the press release speak for itself. The good news is, obviously, you know, there's a deep bench, and I expect Google to do quite well in the space, as it has for a long, long time. [00:09:04] Speaker 1: In your survey, Roger, measure of CEO confidence, I mean, if you combine what's been going on in the stock market and the type of, you know, earnings we've seen in the last couple of quarters, there's a, it says an uptick. Is it just a little uptick, or is it a surge in confidence that you see? No, it's a little uptick. [00:09:24] Speaker 2: You know, it's, I think the word that we've used in that press release was cautious, and I would stick with that. It's a slight uptick. It's not a big surge. And what's interesting is, you know, the capital expenditure change hasn't changed very much. Low hire, low fire still seems to come through in the index as well. So overall, I wouldn't look at this as, you know, a major change, a major surge. It's just moved slightly into positive territory by some measures after being slightly into negative territory early. [00:09:55] Speaker 1: Yep. They get paid to worry, obviously. But I don't see tariff worry this time, and that's when I see AI worry, or I don't see geopolitical concerns necessarily as the top risk. So it's cybersecurity is the top risk. [00:10:10] Speaker 2: Cyber is the top risk. AI has now edged out geopolitics as the second highest risk. What's interesting about AI, it's really a double-edged sword, right? There's a lot of potential there. And also, if you're a CEO, a lot of uncertainty as to how it might impact your industry and how you should respond to that. And all that's coming through very clearly in the survey. Okay.