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00:00Betsy, great to have you on the program. Perfect person to talk to. Tomorrow is gonna be all about tea leaves. We're going to be reading the tea leaves. We're going to be trying to understand what the Fed is signaling. How shall I read twenty five bits as a hike? How should I read 0? What do you think the messaging is going to be contained in that decision? Yeah, you know, that's a great question. And I think that they're thinking right now about how we're thinking about how it might be. I it might be perceived. Look, I think sticking with 25 basis points is hopefully going to be sending the signal that they really do believe that the situation is stabilizing, that they don't need to veer from their planned path. You know, it's clear that they're not done raising rates. So why pause now is sort of the question. And if they pause now, that may sit send a signal that they don't have as much confidence that things are are stabilizing. So that's, I think, how we read that. What about the argument that the investors is making it like what we've seen, the tightening of financial conditions is equal to a certain amount of rate hikes and therefore, they don't really need to do that much more. How do you think the Fed looks at that? So, I mean, it's clear that we are going to have that, but we don't really see it yet. But we're going to have tightening, you know, 150 basis points. I think that's on the upper end of the estimates. I've heard. I've heard twenty five. Fifty one fifty. You know, there is clearly some tightening there. They're gonna be better capable of of again assessing. Not so there is something there that they might say look we just had some tightening but remember the Fed just added 300 billion to its balance sheet. So it's a little bit of easing that went on with the lending that they were doing to help support banks, which CAC is a little bit of that. Can I ignore any guidance that the Fed delivers tomorrow? It is much we don't know what the next few days and weeks are going to bring when it comes to the financial sector. Well, you know, I think the feds realizing that they don't really know what's going on, so it'll be interesting to see what they do with forward guidance. They may actually decide, you know, look, I can't give you much forward guidance. We're going. You know, I think Chair Powell has said from the very beginning he's a data driven guy, that they're going to go where the data takes them. What they've had to pivot to recently is saying we are going to stay tough on inflation even when the boat gets rocky. Now, everybody thought the boat was going to get rocky for workers. That unemployment was going to go up. Now it's getting rocky for bankers and we're all having a little bit of a moral panic. Stability of the financial system is really, really important. But it's equally important that the Fed doesn't pull back from fighting inflation just because the boat gets a little rocky. When the boat gets rocky and the banks have to go the discount window, they go to the Federal Home Loan Association when they go there to get money. Does that hurt or help the quantitative tightening process? I've kind of heard it both ways. Well, I mean, I think that undoes some of the quantitative tightening that was sort of my point about how they're adding more to their balance sheets. I think that's providing easing, you know. It's directly a tool that's mostly about making sure that banks have the liquidity they need to make sure that there's that no they can be stable. You know, when we're looking at this particular banking crisis, unlike 2008, 2008, there was a systemic solvency problem. What we've seen so far is mostly some, you know, some banks that were mismanaged and particularly problematic, like SB Bank or Credit Suisse. And that's caused greater scrutiny. And a bunch of banks and a little bit of panic. And panic is not a solvency problem. That's a liquidity problem. So the Fed's stepping in to make sure that, you know, that we need to step in and make sure that banks can meet that liquidity, because that is something that we can stem the tide of. And I think that's also why we're having debates about how much should be insured so that people do feel confident and we can stop those panics. What is the danger of inflation re accelerating if the Fed takes its foot off the brake? Well, we know for one thing is like inflation is not so high. Here, I'll give you the argument for why they could pause, like how much is that going to really affect inflation over the next month or two? Right. They could re raise rates. They could increase rates in May. So a pause from March to May. Probably doesn't have a huge impact on inflation. What would have a big impact on inflation is if people became a little bit convinced that, oh, the Fed is not going to be able to stay the course in fighting inflation. And then if they start that, we started to see inflation expectations rising. Then we start to have problems in the banking system, will have even bigger problems from that. Right. If everybody thinks inflation is going to be higher in the future. That's going to change the value of the banks assets that are holding right now just as much as the Fed raising rates could. So I think that is why the Fed has to think really hard about what do they need to do to fight inflation. And that's what they're talking about right now and trying to figure out, does that mean a pause today and we restart or does that mean we stay the course? Either way, we've got to get inflation down. But let me tell you, what people aren't talking about is it's time for Congress to get in on the inflation fighting, partly because I think the Fed we're finding that the Fed trying to do this all on their own is causing some rocking this in the banking sector and in the economy. There are other things we could do. I think the Fed needs to stay their course, but it would be great if Congress could join them with some of the actions they could take to fight inflation. This is meant to be the last question, but in 10, 15 seconds, just give me two or three things Congress could do. Immigration reform would ease labor supply shortages. Make sure they raise the debt ceiling right away. And removing tariffs would be another.

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Federal Reserve Kicks off Two Day Meeting

Betsey Stevenson, University of Michigan Professor of Economics and Public Policy and former member of the Council of Economic Advisers during the Obama administration, appeared Tuesday morning on "Bloomberg Markets: Americas." Stevenson previewed the Federal Reserve rate hike decision due on Wednesday afternoon. (Source: Bloomberg)

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