It's reasonable for the Fed to be split at this point, says fmr. Fed Governor Frederic Mishkin

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The just released minutes from the Fed's last meeting show a deeply divided Central Bank with a tight split voting in favor of a rate cut. Here now with fresh reaction, former Federal Reserve Governor and Columbia University Professor of Economics Frederick Mishkin. Uh Professor

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Mishkin, so I guess maybe no surprise we have a a bit of a split committee, some disagreement. Is this just the natural outgrowth of you know rates being not too far from neutral and and being far of the mark on on either mandate target or is there something else about uh about

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the the kind of obstinance of one side or the other. No,

Frederic Mishkin (Economics Professor) 00:34.000

I think it's it's very reasonable at this point to have a split. I mean, I would tend to be on the hawkish side. I mean, because of the fact that inflation is still above the the Fed's target, and it's really slowed down, it's progressed towards getting towards the target. Uh

Frederic Mishkin (Economics Professor) 00:48.280

but also the labor market's been weakening a little bit, but but the economy's still pretty solid. So, when you put all those things together, it's sort of a 50-50 type deal. You know, I would sort of lean to to to not cutting rate It's probably might not have even wanted to cut

Frederic Mishkin (Economics Professor) 01:02.040

rates at the last meeting because I'm a little bit more hawkish. I think the inflation concerns are are serious and I don't see the problem that we should have. But the other hand, if the economy could weaken a lot more, which is a real possibility, then in fact you would need

Frederic Mishkin (Economics Professor) 01:15.080

to cut rates. So uh this is a is showing a committee that's actually responsible in thinking hard about the problem and that it's not a slam dunk either way.

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Does that also mean I I know this maybe is counterintuitive, but does does it also mean that the stakes are relatively low. In other words, if they wait another uh meeting or if they do decide to cut a few, that kind of close and it's it's give or take either way. I just wonder

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if the risks of the next move are not that great.

Frederic Mishkin (Economics Professor) 01:44.480

You know, I I I don't know if the stakes are always there. I think that that one of the big issues however is uh that the independence of the Federal Reserve is is certainly very much in question right now for very obvious reasons uh because of the uh Trump administration's

Frederic Mishkin (Economics Professor) 02:01.440

attitude towards the Fed and the fact that we're going to get a new chair not too too far in the distant future. And uh and that's where the stakes really are very high. So, you know, you always have an issue whether you move 25, this meeting or that meeting, you know, you can

Frederic Mishkin (Economics Professor) 02:14.840

always fix it. And in fact, the Fed frequently has. Indeed, one of the things that's actually unique about this Fed, which I like to call the Powell doctrine, is that they will actually move very fast. Uh I sort of admit they made a mistake. So, there've been cases where they

Frederic Mishkin (Economics Professor) 02:28.680

didn't move and then they said, "Oh We got to move 50 basis points. In terms of recent Fed history and I think it's a good thing not a bad thing. But the real thing the real issue is going to be whether in fact the market start to believe that inflation is solidly grounded that

Frederic Mishkin (Economics Professor) 02:44.200

the Fed is committed to keeping the inflation goal of 2%. We always describe this as anchored expectations. That's key to not only getting good performance in terms of inflation but good performance in terms of the economy. And the Fed actually this has been something that's

Frederic Mishkin (Economics Professor) 02:57.720

built up over over the last 20 or so years it's been very successful for the Fed. And indeed now we're we're in a situation where we don't know how that's going to play out. And that may affect the way the Fed is making decisions because it doesn't want to look like it's weak

Frederic Mishkin (Economics Professor) 03:11.320

and uh willing to cave into a president once the lower rates. Uh and that could be a part of the important factor and that's more to me the big stakes.

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And is are you reassured at all in terms of how the market has treated those questions to date? In other words, long-term yields are not really blowing out to the upside. Market-based inflation expectations have been relative relatively steady. Uh, in other words, it doesn't

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seem like there's an alarm being sounded about either the way this fed or the next chair will will behave.

Frederic Mishkin (Economics Professor) 03:38.560

Yeah, but that could change. I mean, you know, Yeah uh this administration uh throws us a lot of wild surprises. I mean, we're we're we're living through wild and crazy times. Uh, it's exciting in a way, but also very nerve-racking. Uh, and uh we just don't know. Uh, I think

Frederic Mishkin (Economics Professor) 03:55.320

that that your markets do turn on a dime when there's new information. And so We have to see not only who the new Fed chair pick which which to me is more important is how the new Fed chair will act. So, you know, there's always this debate of somebody independent, not

Frederic Mishkin (Economics Professor) 04:10.360

independent, whatever. The proof in the pudding is going to be when they actually are making the decisions and they do have the protection of independence as long as the Supreme Court upholds that and to see actually how they behave. When Fed chairs actually show that they're

Frederic Mishkin (Economics Professor) 04:23.560

not serious about controlling inflation, bad things tend to happen. We call those inflation fears.