Program and guest
Bloomberg Television interview with Betsey Stevenson, a University of Michigan professor and former chief economist at the Labor Department. Original English title: Stevenson Says Fed Is Waiting to See Economy Slow. Subtitles cover the full program (6:20); this article covers the entire segment.
Key points
(The following paraphrases the guest’s intended meaning; timestamp links point to the corresponding positions in the original video.)
- The vote was 10 to 2, not unanimous. What makes keeping rates unchanged “puzzling” is that, if everyone believes the Fed will eventually have to raise rates and steady increases are likely over the next three months, why not raise them today? The question of what benefit there is in waiting has not been well answered. 0:22
- The best explanation she can offer is that no one thinks the economy is overheating now, and the labor market is moving slowly, with neither substantial hiring nor substantial layoffs. An economic slowdown, combined with rate increases already implemented, will continue to push down the upward trajectory of prices, and the Fed wants to see what the economy can achieve on its own. 1:14
- Interest rates have limited effectiveness against supply shocks: energy prices are a supply issue, and the Fed cannot lower energy prices directly; it can respond only by suppressing demand. But interest rates remain effective against the AI investment boom: if rates rise high enough, they will certainly reduce demand for AI investment, though the whole economy will be affected. 2:23
- Households have remained reluctant to cut spending, even as the Fed raises rates and the economy appears to be slowing. The savings rate is falling and borrowing is rising; easing price pressures requires slower consumption growth. 4:04
- On the election, she said Warsh’s claim that elections do not matter was interesting, but elections do bring more uncertainty, making it reasonable to wait and see. Whether fiscal policy tightens or expands over the next few months will affect how high rates need to rise to bring inflation back to target. 5:13
Background and notes
Subtitles cover the full program (6:20); this article covers the entire segment. The views and timestamps are paraphrased from the original subtitles, and each timestamp marks the start of the corresponding subtitle segment. The guest’s name as used by the host in the subtitles is standardized to the full name Betsey Stevenson given in the introduction.