chairman just said and we saw a bit of insight into why they're thinking that way as the speech chris wallerd of governors gave at the university this month and he said that basically this is the theory that long and variable lag in other words there's a delay in how the economy reacts to changes at the fed. it's not always true and he made the case for something that he call shocks travel fast and two of his examples are that the fed raised interest rates, 500 basis points in a year, and also that it gave forward guidance and told the markets it was going to start raising even before it did and the market moved so there's been a lot of theft in the fed policy and chris waller said that's why i think we have a ways to government paul: alicia, what's your take on the fed's decision in do you think this logic makes sense and they should have raised rates? there's a lot of people griping that they really don't need to and inflation is already down enough. >> look, core inflation is minus energy and food is running about 4.8% and see ago lot of inflation in the service sector about 5.7% based on

certainly come to the search committee and the search firm's mind is of course the new governor, chris waller, because he was a longtime associate. he spent a decade or more in st. louis. there is no sense, i am told, that waller is unhappy at all. he likes his new job. he is happy in washington. probably not going to happen. but he would be the first name that would come to your mind. the research director at st. louis is also somebody whose name will definitely be on the list. haidi: steve matthews there. from one central bank, we change to another big story we are watching in australia. who will replace governor phil lowe? bloomberg news reporting he will not be getting that three year extension that he said he is open to. rumors and speculation have been swirling for weeks and months now. perhaps we will finally get the confirmation today. we know the cabinet meeting is taking place, and following that meeting, treasurer jim chalmers will be delivering that announcement presumably with the choice of his successor. we know among the top candidates from treasury, steven kennedy, the deputy

i want to bring you chris waller who spoke yesterday and it seems like he is taking a pretty hawkish stance. >> ic two more 25 basis point hikes in the target range over the four remaining meetings this year. if necessary, to keep inflation moving down toward our target. i see no reason why the first of those two hikes should not occur at our meeting later this month. katie: those comments came after we got june's inflation numbers but waller is sticking to his gun saying to more hikes this year. how big of a risk do you see that actually happened and we are setting up for another markets against the fed situation? >> i don't think another 25 basis point hike after the july meeting is really going to move the needle in a meaningful way. if you told me that the fed is going to be following the taylor rule and raising rates by 200 basis ways from here on, that's a meaningful effect on yields. 25 basis points in my view is not really going to move the needle by a lot. the question is, the more the fed hikes, i think the deeper the potential that the recession will be. the consensus view

he doesn't want to commit, he doesn't want to go all out and be more ready to hike rates like chris waller and others? >> i do, i think that's part of the reason, i feel like a big wing of the committee wants to do as little by the way of rate hikes as possible. they want to see what they can get away with, see what they can do to get inflation down raising rates, without erring on the side of higher rate increases. the danger they are running is inflation comes down a little bit persists for a while and i think that's what we are facing now. inflation may be coming down, but it's not headed to do percent any time and he signaled that that inflation will not be less -- it will not be at 2% until 2025 at the soonest. that puts him in a situation where inflation is hanging around too high next year. have raise rates, what did they do? do they sit there and let inflation go along at 3.5% or 4%? they will be reluctant to take action and shift to rate increases in the middle of next year. there's this window. if inflation motors along 4% for a couple of years, it will be tough in 2025 to get it

meanwhile, he will be at this meeting along with his former director of research, chris waller who isrs. basically they are saying they could be in favor of two or rate hikes depending on information that core inflation has not come down anywhere near as much as the headline number. right in the middle is a camp led by jay powell. studies disinterest. the centrists agree there could be more rate hikes needed. beyond this one but they think the pace has to start out. even if they leave the door open to a rate hike, they will probably emphasize that. if you provide phil bostic come the president of the atlanta fed as one of the leaders of that cap. along with the new chicago fed president. both of them pretty dovish. they think there has been a lot done. inflation is coming down and it is not worth risking damage to the labor market. basically, markets are with the doves -- darkside. that is a, no more. investors are voting dovish. ultimately, i think a lot of people are betting that we probably get the hike for july. keeping the door open to more hikes if more are asked they needed. >>

. >> i respect and no chris waller, and on that point i agree, that said i think there is more than juste of the details in prior reports were encouraging, so i do agree, and i think quite frankly the fed several times in the last several years including when i was there got burned when they looked at data that was improving and extrapolated that, so i think this community -- this committee will be wary, but clearly they would rather have data like last week's. haidi: do you see a soft landing as being still achievable, and how should bond it be positioning at this point? >> what i see is very achievable, and i have used this term before, it is a softish lending. in a soft landing you disinflation and avoid a recession. i do think some modest rise in the unemployment rate to 4.5% will be required, and typically when we get a rise in rate like that, it has always been designated a technical recession , so i think a softish lending with slowdown in growth and modest rise in unemployment is what the fed is aiming to achieve, and i think they have a shot at doing that. the important point fo

. >> i don't see lags as a factor here, at least not compared to the past i think governor chris wallergood points about lag effects. so the moves that began last march were telegraphed six months in the advance. you saw one year, two year yields pop up well before the hiking actually began. so there's sort of less of lag really than usual. i would expect, you know, all the lag effects to kind of really have played out for the most part at this point in time. given historical data we have on this point in time given how the lags work. >> interesting we really appreciate your insight, thank you jeff. >> thank you, leslie. >> we'll look forward to 2:00 p.m. this afternoon. >>> as we head to a break, let's give you a look at the bigger gainers in the s&p 500 this morning, let by union pacific. when you're a long-time ceo and you leave and the stock goes up 10%, i'm not sure what that says about investors' view of your tenures. you can see the other leaders as well including banks which leslie and i will probably talk about before this hour is up "squawk on the street" is right back (bobby)

we will hear from chris waller. does he say we are there? this is it. this is the soft landing. more? does he say we are concerned about xyz? or does he give the sense this will be the last hike. jonathan: go rogue and tell us what you think of delta. everyone wants it. lisa a.: i think delta is a fabulous airline. [laughter] jonathan: ok. troy gayeski joins us now, fs investments. let's start with the market. a, is this a melt up, and b, is this a melt up you want to be part of? troy: we took multiples back and we are at 19.3 the next 12 months. melt ups can last longer. there could be 5% more upside. lisa brought this up before in terms of the labor market and the labor market cracking. there are still signs of that in terms of payroll growth. that already rolled negative last quarter and is more negative in q3. recession is not a guaranteed outcome, but it looks highly probable to us, a mild one, and that means earnings estimates will have to be cut. when you have the lowest equity premium since the dot-com bubble days and lows almost back to 2021 the risk/reward is not likel