The U.S. economy is currently facing a series of complex challenges, including persistent inflationary pressures, a high national debt exceeding $35 trillion, and uncertainty surrounding future monetary policy.
Recent data show that in October, the Personal Consumption Expenditures (PCE) price index rose by 0.2% month-over-month, with an annual increase of 2.3%. This is slightly higher than September's 2.1%, but in line with market expectations. Core PCE, which excludes food and energy, showed even stronger figures, increasing by 0.3% month-over-month, with an annual rate of 2.8%, also meeting expectations.
Amid this economic landscape, Wall Street Frontline conducted an exclusive interview at the Yale Club in Manhattan with Richard Roberts, a former 20+ year executive of the Federal Reserve System. He headed the New York Central Bank’s Credit Risk Management during the 2008 financial crisis, led the Payment Systems Risk area, chaired key system committees on counterparty risk identification and mitigation, and oversaw the preparation of FOMC monetary policy briefing materials for the President of the Kansas City Reserve Bank.
In the interview, Roberts analyzed the impact of key factors on the U.S. economy and shared his views on the Fed’s recent monetary policy actions. He candidly stated that the Fed's recent decision to cut interest rates by 75 basis points may have been premature, as inflationary pressures have not yet fully subsided.
Moreover, with President-elect Donald Trump set to return to office, his proposed economic policies, including higher tariffs, could exacerbate inflationary risks and present new challenges for the Fed's future policy direction. Roberts emphasized that, with inflation still not back to target, the Fed may face greater pressure to adjust its policies.
This interview not only delves into the risks and policy choices currently facing the U.S. economy, but also reflects on the far-reaching impacts of the 2008 financial crisis on both ordinary citizens and policymakers. Roberts’ analysis provides a unique perspective on the current complex economic environment and offers valuable insights for future monetary policy and economic development. The full interview is as follows:
Wall Street Frontline: Given your extensive background in macroeconomics, what is your overall assessment of the U.S. economy at this moment, considering risks such as inflation and the extremely high national debt, which now exceeds $35 trillion?
Richard Roberts: The U.S. economy, from a policymaker's perspective, is in very tricky waters right now. Inflation remains sticky, and it's too early to declare victory over inflation. I believe the Federal Reserve jumped the gun by cutting interest rates by 75 basis points at their last two meetings. In the face of continued strong economic growth and upward pressure or sticky prices, makes monetary policy very tricky right now.
Wall Street Frontline: The most recent data shows US's core CPI at around 2.6% for October, which represents a slight increase. Do you think this signals inflation stabilization, or could it indicate an upward trend?
Richard Roberts: I think inflation is edging upward now. You will hear Federal Reserve officials saying it's down because you can discount out housing costs. There's another measure where you back out rents, and the numbers are a little better. However, in my judgment, upward pressures on inflation are in front of us right now, and they're further compounded by upcoming President Trump's agenda, which has many inflationary aspects to them.
Wall Street Frontline: With the Federal Reserve recently cutting rates by 75 basis points in total over two meetings, what is your expectation for their move in the December meeting and beyond?
Richard Roberts: The Federal Reserve has a difficult time saying we were wrong. Against that background, I'd say it's likely that they're going to cut rates by 25 basis points in December. However, I noticed that Chair Powell just last week came out and said that maybe we don't have to be in such a big rush to cut interest rates. So I don't know if he was kind of greasing the runway to tell the market, “hey, we may not cut in December” or not. I'll be watching very carefully the words of Fed officials over the next couple of weeks, to try to gauge what they're going to do at that last FOMC meeting in December. But for now, I think the default is they're going to cut 25 basis points. There's a chance they may just leave rates as they are.
Wall Street Frontline: There’s growing concern in the market that inflation may be picking up again. How do you think this recent data will impact the Federal Reserve's decisions in 2025?
Richard Roberts: I think it gets very complicated because inflation is not back to its 2% on average target. Depending on what measure you select, it's running around 2.6%, possibly down to 2.2% if you discount housing costs. But the fact that it is a mandate from Congress that the Federal Reserve must meet makes it just that, and the fact that inflationary pressures are trending up. As I mentioned, the Fed jumped the gun cutting rates twice already. And then on top of that, we have President-elect Trump coming in with policies that, in my judgment, are largely inflationary. So this is going to pose some problems for the Federal Reserve cutting interest rates much, if at all, certainly in the first part of next year.
Wall Street Frontline: With Trump returning to office, how do you think his economic policies, such as increased tariffs, will impact the U.S. economy and the Federal Reserve’s decisions?
Richard Roberts: I look at Trump's policies with three prongs, really. One is, as you mentioned wisely, the tariff piece. The tariff, certainly the near-term impact of the tariff, should he go through with them, is inflationary, right? Consumers face higher prices or inflation. Companies that import inputs to make products here face higher costs. And largely, they pass some of those costs on to consumers. That's inflation. So the near-term impact of these tariffs, if in fact they go through, and that's a big question with Trump, right? He does a lot of talking, possibly with an incentive to get them to the table. But if they go through, these are likely to be inflationary and further complicate the Federal Reserve's interest rate-cutting goals.
Wall Street Frontline: You’ve worked within the Federal Reserve System for many years, including during the 2008 financial crisis. What is the greatest lesson you’ve learned during your tenure?
Richard Roberts: Greatest lesson is, be mindful of the expectations of markets, I would say. Markets often know things a little bit ahead of how well the Federal Reserve understands them. So, for example, recently we've seen, in fact, since the Fed cut rates, what have we seen in bond markets? We see rates going the other way, right? I think the bond market doesn't believe the same set of data that the Federal Reserve seems to have believed, at least when they cut those rates twice. So I would say, within the Fed, it's useful. And something I learned there is to, don't dismiss markets. They have a lot to offer in terms of their understanding of economic fundamentals.
Wall Street Frontline: Here comes our last question, during your time leading the New York Federal Reserve’s credit risk management during the 2008 crisis, what were some of the most difficult decisions you had to make at that time?
Richard Roberts: During the 2008 crisis, the difficult decisions were many. Meaningfully, the impact of that crisis on Main Street America. And to see that, of course, it started out with the housing bubble that burst. So everyone knew someone who lost their house or was in foreclosure. Just sad, sad stories. And policymakers, when you're in school and you learn about policymakers, it's just kind of in a book. These are real people, right? With real feelings. So you see that as a policymaker and it really gets at you in terms of the decisions that you're making. When the impact of what you're doing or not doing has a real face to it, people losing their houses, thrown out on the street and so forth. That's something I remember from 2008. Also, this balance between so-called bailing out a big institution and leaving it slide, leaving it fail. So it's always a trade-off between should we catch a systemically risky institution, for example, Citibank.
It's been written about. It's public knowledge now that back then they had some problems. How much should we do to help them? Because if they do fall, the impact is going to be very systemic. But on the other hand, if you catch or if you bail out every institution, it sends a message to the market, the so-called moral hazard message that, hey, if you do something risky and it doesn't pay off, we're here to catch you. And other institutions see that. So that promotes risk-taking in other institutions as well. So it's a trade-off between the better good. If that institution fails, there's going to be a big impact, systemic impact across the system, if you will, versus do you really want to send a message so others don't do that in the future.
