00:00the Federal Reserve expected to loosen
00:01monetary policy this year after bringing
00:03interest rates to their highest level in
00:06more than two decades but we know sticky
00:08inflation strong jobs data and cautious
00:10commentary from the FED is causing
00:12investors to reexamine the timing of
00:15that first Ray cut now currently 20% of
00:17Traders expect the FED to cut in May
00:19that's down from 28% Just A Week Ago
00:22more do out this week is going to help
00:24guide the central bank's decision
00:26including the fed's preferred inflation
00:27gauge pce that's out on Thursday here
00:30with more we want to bring in Mark Zandy
00:32he's Moody's Analytics a chief Economist
00:34Mark it's great to talk to you again so
00:36talk to us just about where things stand
00:38today because you and I have talked many
00:39times in the past just about the timing
00:42of that first Ray cut the fact that the
00:44FED right now seems to prefer the risk
00:46of staying higher for longer versus
00:48cutting Too Soon Is that the right
00:51strategy well if I Were King for the day
00:53Sean i' probably begin cutting rates
00:55sooner rather than later uh you know
00:58because uh at the end of the day the
00:59Federal Reserve has uh more or less hit
01:03its targets it's its dual mandate it has
01:05two objectives one is to achieve full
01:07employment I think we're there
01:103.67% unemployment rate would be
01:12consistent with that and on inflation
01:14you know we're we're not quite at Target
01:17but within spitting distance I mean on a
01:19six six take the pce number that you
01:23mentioned that going to come out for the
01:24month of January in a few days even if
01:26it comes in strong as the consensus
01:29expects up 0.4% on the month on a
01:32three-month basis six-month basis 12-
01:34month basis annualized well into the
01:36twos so we're spitting distance of the
01:38fed's 2% inflation Target and you know I
01:41think that's close enough to begin to
01:43start cutting rates and not run the risk
01:46of of pushing the economy into a ditch
01:49and the economy is fine it's resilient
01:51but you know there are some signs of
01:53stress particularly in the labor market
01:55and uh you know growth is you know a bit
01:58more pedestrian than I think the Top
02:00Line number suggest so and the financial
02:02system is under a lot of pressure given
02:03the inverted yield curve and a higher
02:06rate so why take the chance when you're
02:08you know on so close to achieving your
02:11goals but why is it that you think the
02:13FED would not be satisfied Mark with
02:15with a two handle on that number if we
02:17were to finally get that on on a
02:1912-month basis as you mentioned on a
02:21six-month we we had already seen that
02:23come in at about 2.6% and and be sitting
02:27now yeah I uh I think they uh they they
02:31want certainty they they want to be at
02:33Target which I you know I find uh a
02:35little bit of a different message than
02:36they were sending us three six nine
02:38months ago uh they were saying you know
02:40if we're headed towards Target and all
02:43the trend lines look good and you can do
02:45a reasonably confident forecast are
02:47going to get back to Target that would
02:49be sufficient to to have them start
02:51cutting rates but now the bar is higher
02:53feels like it's higher uh they want to
02:55be absolutely sure that you know we are
02:57at that T at the Target and they're
02:59going to wait a little bit longer but
03:01again you know and you know at the end
03:04of the day I think the economy is
03:04resilient enough to take higher rates
03:07for for longer but I guess I'm beginning
03:10to wonder why take that risk given given
03:13that uh we're so close to achieving
03:15those that that dual man mandate those
03:18two objectives Mark if they do in fact
03:20decide to delay that first rup what does
03:22that do to the self-landing narrative
03:24and how much does that put the potential
03:26here to avoid a recession at risk yeah I
03:29I mean I think the economy is resilient
03:30enough I mean I don't know this makes a
03:32big difference Sean if they cut in uh in
03:35March or whether it's in May but uh I I
03:39do think with each passing fomc meeting
03:42that they don't cut rates the
03:44probability that they undermine the soft
03:47Landing will rise now at this point I
03:49feels pretty low but that could change
03:51you know very very quickly uh and I I
03:54mentioned earlier the financial system
03:56you know generally what happens is the
03:58financial system financial markets are
04:00fine no problem Everything feels really
04:02good I heard your the previous uh
04:05commentator on the markets you know
04:07everything's okay feels great we all
04:09think we're Geniuses and but things can
04:10change very very rapidly and in a high
04:13rate environment that's the fod for you
04:15know rapid change in sentiment so again
04:18you know why take that chance given
04:21given where things are how does the
04:23inflationary environment right now in
04:25the US compared to some of what you're
04:27tracking from other countries as well
04:28Mark well inflation's down everywhere uh
04:31Brad uh and this goes to the reasons why
04:34inflation has been so elevated it goes
04:36to the pandemic and impact on Supply
04:38chains Libor markets and the Russian war
04:40in Ukraine it's impact on energy and
04:42agricultural markets as those two shocks
04:44Fade Into the rearview mirror and they
04:46are they're becoming less of an issue
04:47with each passing day inflation's coming
04:50in pretty much everywhere um and uh yeah
04:54pretty close to Target and that's why
04:55central banks everywhere including the
04:56fed the European Central Bank the Bank
04:58of Canada Bank of England everyone's
05:00thinking about uh cutting rates and
05:02exactly when to cut rates and that's
05:04because inflation has come in here
05:05reasonably gracefully and I think
05:07that'll continue Mark when it comes to
05:09housing you and I have talked about that
05:11many times in the past there is some
05:13signs I guess of life in the housing
05:15market when you take a look at those
05:16existing home sales ticking up here to
05:17start the year we're going to reading on
05:19new home sales in just a bit what's your
05:21assessment just of the pickup that we're
05:23seeing in activity and whether or not
05:25that points to maybe a more positive
05:27year than we had initially expected
05:30uh yeah splitting hairs it was up a
05:33little bit Sean I mean still very try to
05:34be optimistic here Mark to start the
05:36week but but I I and I I can Cur with
05:39optimism I I I mean I think we can say
05:42with strong conviction that that uh the
05:45the housing market in terms of home
05:46sales and demand probably at bottom
05:48obviously very rate sensitive the fixed
05:50the 30-year fixed mortgage rates around
05:527% if it goes north up here then we got
05:56a problem if it goes continues to move
05:57lower you know towards six I think we
06:00we'll be fine and I think everything
06:01indicates that we're going to be it's
06:03more likely we're going to go towards
06:04six by the end of the year than eight so
06:06if that's the case then yeah I think we
06:07should start to see an improvement in
06:09home sales but I I think this is a
06:10process I I don't think this is going to
06:12be one day we wake up and the Market's
06:15back it's going to take a couple three
06:16years because of that interest rate lock
06:18you've got so many homeowners out there
06:20with such with mortgages such low
06:22interest rates I think the average
06:25coupon on an existing mortgage is a
06:27three and a half% so 3 and a half%
06:29compared to seven you know the economics
06:30don't work so it's going to take a while
06:32to get home sales back up to something I
06:34think folks feel comfortable with but uh
06:36but we're heading that direction I will
06:38say we'll get there a lot faster if
06:40people start cutting prices I mean if
06:42you look at new home sales they're
06:43actually pretty good they're you know 7
06:45we'll get another read on that today but
06:47they're hanging around where you'd
06:49expect them in the long run and that's
06:50because home builders they've been
06:52aggressive they've been effectively
06:54cutting price through interest rate buy
06:55down so you know if if existing home
06:57sellers start to lower their price a
06:59little bit we'll we'll start to get more
07:01home sales uh they're reluctant to do
07:04that but if they want to move their home
07:05I think you know they may have to do
07:06that at some point down the road here
07:08yeah the med and sale price of existing
07:10homes up another 5% at the last reading
07:12here in January so certainly we have
07:13seen that Trend continue to the upside
07:15Mark always great to talk to you thanks
07:17so much for making the time with us this
07:18morning yeah anytime take care
