Fed Chair Kevin Warsh Faces Challenging Debut

[00:00:00] Speaker 1: Joining us now, Ira Jersey, Chief U.S. Interest Rate Strategist for Bloomberg Intelligence. All right, this has been a long time coming, but what are you expecting to hear from Warsh on Wednesday, and is he in a bit of a no-win situation, at least for now? [00:00:14] Speaker 2: I do think that he's in a little bit of a no-win situation because it's going to be very difficult for the Federal Reserve to reduce interest rates, which, of course, President Trump has said that he wants Kevin Warsh to do and what he said he thinks Kevin Warsh will do. But firstly, Kevin Warsh can't do it because he's only one member of the committee, and that's one of the big things. So, you know, what I'm looking forward to hearing from him is, one, how his relationship is with his fellow FOMC members, and then secondly, you know, his outlook and the outlook of the committee for the future of interest rates. You know, if we do actually have a conclusion to the Iran war, you could see maybe a further reduction in oil prices, and maybe that gives a little less chance of an interest rate increase later in the year. And you have seen some of that price out of the market on Friday, certainly. And then secondly, if there is any movement or what movement he expects to have on communications policy, which was another thing that he had [00:01:11] Speaker 3: mentioned that he'd like to see changed. So Irwin, they sit around the big table in the Eccles building this week. They're going to look at all of the economic data points that they've gotten. Indeed, we're going to get a few more here before that meeting kicks off. But I think of the major price pressures. I think of that better than expected job support. I think of the inflation read that we got for May. And I'm curious of how you think the calculus looks like for them. Again, having a new chair there, trying to both introduce himself to all the other policymakers, but also assert some control control over them going forward here. How does he begin to how does the committee begin to think through the data that we've gotten in [00:01:46] Speaker 2: recent days? Yes. So you do have certainly kind of three camps in the Federal Reserve right now. You do have this group of hawks, right? The Lori Logans of the world that the Dallas Fed president who is worried about inflation and does think that the economy is very good and would maybe increase interest rates later this year if inflation and the job market stays stays where it is. And then you have another group that's really worried that higher energy prices act more as a tax on the consumer and will eventually slow real consumption and kind of create a stagflationary environment which could affect the jobs market. You know, the Fed, unlike the European Central Bank, which raised interest rates this past week, does have the dual mandate. It does worry about both the job market and inflation, whereas the ECB, when they see inflation go up, they have to raise interest rates. That's their only mandate. So I think for Kevin Warsh, it's going to be, hey, how do I get more of those people who are more on the hawkish side of things to be more neutral or even a little bit dovish to be able to lower interest rates. Now, you know, historically, people have said, oh, Kevin Warsh isn't a dove. Kevin Warsh is, I think, relatively neutral. He's a relatively middle of the road type of economic thinker. So I suspect that when he looks at a preponderance of the data in a vacuum without having the political pressure of being appointed by President Trump, he would probably say, hey, let's just sit on our hands here because if inflation does come down because the war ends and, you know, the job market is is very focused only on a couple of sectors that are doing well. It's not very broad strength in the job market. It's all very concentrated in basically two sectors right now. You know, maybe we do a little bit of nothing here until we get some clarity on both the inflation and the jobs front. [00:03:38] Speaker 3: Eric, I want to go back to something you just said, which is I think there's this perception of who Kevin Warsh is. And we really haven't gotten a whole lot of concrete information from him in recent weeks about sort of his perspective on the economy and the Federal Reserve. Yes, there's kind of corpus of work that he's done when he's at the Hoover Institution as a private investor. But during his testimony, he really didn't get into great detail about sort of what he would prioritize, the path that he would intend to take at the Fed. Bearing that in mind, how critical is that first press conference going to be? What are you going to be listening for to kind of get a sense of the direction of a Kevin [00:04:08] Speaker 2: Warsh Fed? Yeah. So, you know, I think there's going to be two pieces that he's going to have to express. One is the overall committee, right, because the chair has to speak for the for the whole committee. And then secondly, he will say, look, my personal view might be I suspect that we'll hear that in some kind of speech or statement afterward. Keep in mind, Kevin Warsh really wants less communication out of the Federal Reserve rather than more. So he has expressed this idea that he wants, you know, the chair to speak for the Fed and not to have so many speeches about monetary policy and economic thought. I think in a way, the cat's out of the bag in that regard. You know, the market certainly wants more. And keeping a lid, you know, certainly on the presidents of the regional Fed banks is going to be exceptionally difficult for for Kevin Warsh to do. But that being said, you know, we'll hear what we'll have to hear what he says on Wednesday, because there was a doubt like you had in your lead in. You know, we didn't know if maybe he would just say, hey, I'm not going to do a press conference. And certainly he could go back. And one of the things that Kevin Warsh could do is go back to saying, hey, instead of doing a press conference after every meeting, we're only going to do a quarterly like we did when we started this whole project of having post-meeting press conferences. So so that's not out of the question either. We will get the summary of economic projections at this at this meeting. So maybe he'll give us a hint as to which dot is his on the dot plot or he might not even post a dot. Right. He doesn't have to. There is actually precedent for some members of the Federal Reserve not actually presenting where they think interest rates are going to be at the end of [00:05:43] Speaker 1: this year and the next couple of years. Ira, before we let you go, reliable sources, somewhat reliable sources. And by that, I mean David Gurra tells me that you are a fanatical soccer fan. And I do see some things behind you that might indicate that. Listen, the World Cup has started. It's a little bit controversial for a lot of reasons. One of them is that, you know, FIFA took over the ticketing system for the first time. And there's a lot of these games that so far have unsold seats. How are you looking at this World Cup? Do you think eventually people will get on board and those will get filled and anything you see that you love or that really worries you? Are you asking if he's going? Maybe that's the question. Well, okay. Are you going? [00:06:21] Speaker 2: I'm attending at least one match and hopefully another couple. And I also own a minor league soccer team. So we actually had a game last night. So I couldn't watch the Brazil game. But the, you know, I think that the ticketing was all mocked up. I think FIFA did a really bad job with ticketing. They were trying to kind of maximize their own profits. But in doing so, they created a lot of uncertainty around when tickets were going to be released and at what price. Also, you know, given that this is an expanded World Cup with 48 teams for the first time, they really should have thought about some of the smaller teams going into somewhat smaller venues. You don't need a 65,000 seat stadium for a Coração that only has 250,000 people or something like that, right? Like, it's going to be hard for a quarter of the country to go to that game. So I think they could have done things a little bit differently. And, you know, they really did price out a lot of countries because, you know, not everyone is like the US in terms of wealth and prosperity. So you have a lot of people from countries in Africa and Asia in particular who just can't afford to attend some of these games. Now, some will and I think the atmosphere so far have been really good. But at the same time, I think it could have been even better if they just thought about it a little bit more.