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Ed Yardini, President of Yardini Research, now joins us. Ed, we have a lot to talk about, but how about we start with Jackson Hole? What is your main conclusion? What do you think of Kevin Warsh's " hawkish" speech , and what does it mean for the next Fed rate hike cycle ? Well , you're right. It was a "hawkish" speech, but it didn't come as a big surprise, because during his press conferences in June and July he was also quite tough and said that the Federal Reserve's task was to maintain price stability.
He said this in June. I think there was some disappointment that it didn't actually work in July. And now the question is that now he is speaking like a "hawk", but it is still not clear whether he will take decisive action. By the way, there are other FOMC members who have to vote. And now we know that there were exactly three dissenters at the July meeting who wanted to raise interest rates immediately.
So the upcoming meeting could be interesting. I don't think Warsh wants to be in the minority. In other words, he doesn't want to be the fourth to insist on an immediate rate hike. So he's going to have to work hard to convince the committee to do what I think is necessary— to gain some credibility by raising the federal funds rate by 25 basis points in September.
I think it will happen. So, 25 basis points in September. Do you think he needs to raise rates in December as well? Well, I guess we'll see what the yield curve response is. I believe that if he raises rates by a quarter point, we could see bond yields decline because the bond market wants to see that the Fed is actually willing to keep a close eye on inflation.
Not just talking about it, but actually doing something about it. Inflation—the next inflation indicator that will be relevant here will appear at the end of next month. Another indicator of the consumption deflator . And now the Cleveland Fed, which is monitoring this situation, says that the figure for August will increase by 0.3%.
Which again leaves the annual rate at a level above 3%. So the Fed will likely have to do even more. Got it. Certainly. Uh, so, you know, this is, as you would say, and some people have pointed that out, right? You have growth rates that are sometimes disappointing; for example, the Chicago PMI business activity index .
Inflation continues to be a little higher, you know, a kind of stagflation type environment. Would you believe that, Ed? I hate to disagree, but not at all. I mean, Ware himself said the economy is doing pretty well. Maybe some of the overall numbers, I mean, there are indicators that certainly support the stagflation scenario that you just laid out , but that doesn't seem to be true at all here in the United States.
Ware noted that private demand for goods and services is very strong. It grows faster at 3% than at 2%. The GDP indicator was affected by the fact that we have an artificial intelligence boom, but we are not producing everything that is needed for this boom. So our imports from South Korea, Taiwan, and also from Vietnam have increased, and that reduces GDP.
So, I think when you look at domestic demand in the United States, it's very strong, both on the consumer side and on the business investment demand side. Okay, Ed, we'll end this conversation, it was short. .
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