Vincent Reinhart, BNY Investments chief economist, joins 'Money Movers' to discuss the markets reaction to today's hot PPI report and what it means for the Fed's next move.

Washington

Vincent Reinhart, chief economist at BNY Investments and former FOMC economist, stated that the Federal Reserve is expected to cut interest rates by 25 basis points at its upcoming meeting. This decision is driven primarily by concerns over employment, rather than progress on inflation, as recent data indicates that disinflation has stalled.

Reinhart noted that while inflation remains above the Fed's target, the relative importance of employment in the Fed's dual mandate has increased as inflation has moderated. He also highlighted that Fed officials remain cautious about inflation risks, and the rate cut is being made despite their reservations about price stability.

BNY: The Fed has to accept disinflation has stalled out

Let's bring in Vincent Reinhart this morning, BNY Investments' chief economist, former economist of the FOMC. Vincent, great to have you. I got to know where your head is around this conversation and this morning's print, too. So we're in pretty deep waters after the conversation with the bank president and Steve. But where we are, you know, we think the Fed's going to cut 25 basis points at the September meeting. The PPI number this morning was not about if, it was about how much. Because their decision to cut rates isn't about inflation. It's despite the fact that disinflation has stalled out. They're cutting rates because they're concerned about employment, the other half of the dual mandate. And traditionally, when they're worried about maximum employment, they tend to tend to act. What what this morning's number means is they don't aren't going to supersize the move. They've got to worry about the other other part of the mandate inflation. So it's 25, not 50. Right. No argument as far as you're concerned that the asymmetry is greater on employment than it is on inflation. So historically, they move more when they're concerned about employment. Part of the conversation you and Steve had got to recognize is the dual mandate depends importantly, or they're waiting in the dual mandate depends on how far they are away from goal. So three years ago, when they were well north of the inflation goal of 2 percent, everything was centered on inflation. So the weight on the inflation goal was paramount. As they've gotten inflation down, the relative importance of employment has gone up. Hence, concerns about employment are much more impactful to the Fed decision today than it would have been a year ago. I don't know. And that's why they are moving. I agree with everything you say, except for if you listen to the language of all the Fed speakers, including just this morning voter from St. Louis. You know, they don't they don't seem convinced that inflation is not going to be a persistent problem. And, you know, they also tend to fight the last war and they felt burned by saying transitory when it wasn't transitory. And I just I'm not hearing like the leaning that I would expect to hear toward the September cut, given the weaker unemployment report. Yeah. Yeah. I think there's a couple of points there. You asked me what I think they'll do, not what I think they should do. And second, agree completely they could be in a world of hurt in a few months if, as the word curl is using, tariffs seep into prices and inflation backs up even more and employment is still pretty well maintained. The key word is they're going to be cutting rates despite inflation because of their concern about unemployment. As long as they have to accept that disinflation is stalled out, as long as inflation doesn't back up too much, they're willing to accept that. But they don't like it. Hence, you're not going to hear many bank presidents swim up to cutting rates with enthusiasm. They're doing it despite their longer run responsibilities toward price stability because of their immediate concern for employment.

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Breakdown