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00:00So that brings us to our question of the day. Given the numbers we've just seen is 75 basis points enough. We are seeing swaps taking us in that direction. Let's get an answer to that question. Tiffany Wilding pinkos chief U.S. economist joining us now for analysis. Tiffany 75 enough. Yeah I mean I think today's report certainly made seventy five. The base case I think it's possible the Federal Reserve officials could start to talk about this hundred basis point rate hike although I would suggest probably seventy five is is still the most likely here. You know now what I will think will happen is the summary of economic projections that the Fed puts out in September. You know they're not only going to do 75 but they're going to to also you know sort of show or guide the markets through that that there's more to come in the back half of this year. They need to do more I think at a minimum. You know you're going to see the median jump up to 3 8 which was where it was to 2023. So they're going to basically front load or pull forward rate hikes even more than they already have. Well so Tiffany to that point is this changing the pace of hikes or the ultimate destination. Yes so I think that's a really good question. You know I think I think we would argue at least right now that it'll probably change the pace of rate hikes. And it's certainly possible that we could see a hike or two more that they pencil in for twenty twenty three. So maybe a little bit higher. But of course the Federal Reserve one state cannot continue to assess and see data. I mean I do think the one thing that probably will give them pause is that we are getting very inconsistent signals depending on what data you look at. So if you look at a broader range of labor market indicators and obviously the things in the GDP report or spending indicators they do suggest that the economy is slowing. So it's a little bit puzzling that none of that is showing up in the labor market report at least in the establishment survey on the Federal Reserve. Officials will be I think cautious at least that some of that could show up in the months and quarters ahead. So Tiffany how high do you think we ultimately end up going with the Fed and how long do we stay there. Yeah I mean I think that is really the key question obviously for markets. You know and it's one that's obviously highly uncertain and it's something that the Federal Reserve is going to have to continue to assess as they hike. And what makes this more difficult is that monetary policy works through long and variable lags. So you know the hiking that they've done so far you know that you know isn't fully going to be reflected in economic outcomes. You know for at least some time to come we're starting to see you know the housing market some other interest rate sensitive sectors of the economy like autos et cetera start to slow down. But we really haven't felt the brunt of that. So the Federal Reserve is probably going to get to a place you know they've said moderately restrictive where they think they need to be see how much the economy slowing down and then assess if they need to move higher. You're kind of stay there or move lower. So I think this is going to be you know kind of like a guess and check. You know it's difficult monetary policy in practice certainly more than an art an art than a science. So now I think this very uncertain. But I do think though again the end of the year having them forecast they get to kind of a 3 8 level you know to us I think makes sense. Yeah. To your point Tiffany on the lag clearly if they're trying to get demand down in the labor market we are not seeing evidence of that yet. But it begs the question what they want to see is the number of available jobs in the economy coming down and inflation pressures therefore coming down as well. What level of unemployment do you ultimately think that will take. How far above it is. Three and a half percent. Yeah I mean so there's this whole discussion right now about you know because the number of job openings is so elevated. You know we just haven't had people you know fill being a bit able to fill them on their frictions in the labor market as a result of that pandemic. People moving out of city centers you have this migration happening people moving to different sectors relocation. All of this is creating friction the labor market and that's resulted in higher openings relative to a given unemployment rate. So the question that Federal Reserve officials are trying to understand is that can we just bring down the level of openings for jobs without really getting you know without having people laid off or getting fired. You know I think that that is going to you know his history would suggest that's going to be difficult. You do tend to get labor market weakening and the unemployment rate ticking up when you have growth slowing you know so not to mention if there is a recession. Right. So you know ultimately I think the labor the unemployment rate does take up over over the next year or so. And certainly it will be a question on how much. And we'll have to continue to watch and monitor the data to get a better sense of that. Upside surprise today what happens Tiffany if we get an upside surprise next week on CPI the numbers expected to go nine point one to eight point seven. If that number comes in hot how does that change the calculation. Yeah I mean I think that it ultimately confirms you know that inflationary pressures. It's just one more data point confirming that inflationary pressures are are broadening out. You know obviously we saw that in the wages data that came out this morning. You're seeing that on a broad array of wage indicators that that are being released. So you know I think that's that's ultimately concerning. You know obviously the details of any given report will matter. But what you know is becoming more clear I think in the economic data is that although headline inflation could start to tick down because we've had some easing in energy and food prices the you know the kind of more core measures they do look like they're going to be more you know more sticky at elevated levels. So I think that that again will continue to be concerning for the Fed although they are going to get some relief probably on the headline measure now. And just in terms of how this relates to recession you know I think the other important thing here is that although today's data confirm the U.S. economy is not in recession it also confirmed that the Federal Reserve needs to do more to tighten financial conditions. So I don't think that it really changed the recession probability. Is it kind of a 12 to 18 month time horizon because the Fed just has to probably do more. But just engineering below target inflation might not be enough right. You know you might actually have to get some contraction to bring inflation down. Well finally Tiffany this jobs report culminates a week packed with Fed speak in which they pushed back pretty aggressively on that whole pivot narrative. Are we seeing the return of guidance just after guidance we're supposed to have died. Yeah well you know I think ultimately although Fed Chair Powell tried to get rid of guidance at the press conference at the July meeting ultimately he provided guidance by pointing to the summary of economic projections. So he didn't actually fully get rid of guidance. You know so I think that you know overall Fed officials you know they do need to try to you know stop providing more concrete guidance. They have to start focusing on on the data you know and kind of give markets a sense for how they're going to react. Some of the scenarios around their baseline outlook so that the market can price in what it thinks the Fed is going to do on the Fed funds rate without them giving guidance. I think that's the best outcome. It looks like the Fed is sort of slowly moving in that direction but we probably have more to do in terms of just fully getting rid of this forward guidance.

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Is 75 BPS Enough?

Is 75 bps enough? That was Friday's question of the day posed by Kailey Leinz and Guy Johnson to Tiffany Wilding, PIMCO Chief US Economist, on "Bloomberg Markets: Americas". (Source: Bloomberg)

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