Questions if 2.7% CPI is real given government shutdown concerns.
Scott
Jan Hatzius
Shelter numbers have uncertainty; recent 8bp average for Core CPI in Oct/Nov is a downside outlier. More importantly, core inflation has gone sideways to down in 2025 despite tariffs, meaning underlying trends are still improving.
Asks how to weigh 2.7% inflation vs 4.6% unemployment.
Scott
Jan Hatzius
Both are important. From Fed policy perspective, they point in same direction: 2.7% is better than expected (consistent with disinflation), 4.6% is worse. Recent changes point toward additional cuts.
Confirms expectation of two more cuts in 2026.
Scott
Jan Hatzius
No cut in January currently. Will look closely at next employment report; if it confirms upward pressure on unemployment, January is possible. Right now expects wait until March.
Asks why not cut in January if CPI is believable and unemployment concerning.
Scott
Jan Hatzius
Good case for January, but Fed just set a higher bar. Likely to wait longer, but becoming a closer call.
Notes Fed division makes decisions harder.
Scott
Jan Hatzius
Leadership ultimately drives decisions; if Powell and leadership want January cut, it would happen.
Asks if cutting into strengthening 2026 economy is concerning.
Scott
Jan Hatzius
Not worried because labor market looks soft even with GDP growth pickup. Expects 2.6% annual average GDP growth in 2026 but unemployment rate likely goes sideways, meaning inflation risk is diminishing.