Program and guest
In this episode of Prof G Markets, Morgan Stanley chief US economist Michael Gapen discusses the Fed. Original English title: Google's Business Is Booming — So Why Is Its Stock Tanking? The subtitles cover the full program (34:53); this article covers the Gapen segment (approximately 17:12–30:11). It does not cover Luria’s discussion of Google and Microsoft earnings or the segment on voluntary departures from Microsoft.
Key points
(The following paraphrases the guest’s intended meaning; the timestamp links point to the corresponding places in the original video.)
- What surprised him most was that the chair offered no convincing explanation for why the committee held steady this month: before the meeting, many FOMC participants had said there was no urgency to raise rates this month, but the chair’s own explanation never came. It was no surprise that he dislikes providing too much information, but clearly explaining to markets, investors and the public “what decision was made today, and why” is a most basic step. 18:17
- For anyone seeking a reason for holding steady despite strong growth, a stable labor market and inflation above target, the press conference did not really provide an answer; this is the most important point of this round. 19:07
- The real policy-based answer is that most committee members believe inflation is driven largely by supply-side forces that monetary policy cannot really fix. Raising rates cannot produce more oil, and monetary policy is not well suited to dealing with every inflation shock. The real task is to prevent energy prices from passing through to other goods, what economists call “preventing second-round effects”: rates can be raised, but by less, while time is taken to assess whether energy prices are passing through to the rest of the economy. 19:38
- Thus, although inflation remains stubborn, it has eased somewhat; the labor market is not really overheating, and growth is solid. Taken together, policy can be tightened, but there is no great urgency to do so. This is roughly the view of the vast majority of the 19 participants. 20:53
Background and notes
The subtitles cover the full program (34:53); this article covers the Gapen segment (approximately 17:12–30:11). It does not cover Luria’s discussion of Google and Microsoft earnings or the segment on voluntary departures from Microsoft. The views and timestamps are paraphrased from the original subtitles; each timestamp marks the beginning of the corresponding passage. The guest’s name follows Michael Gapen as given in the program description, and officials’ names use standard spellings rather than the spelling variants produced by the subtitles’ ASR.