About this transcript: This is a full AI-generated transcript of Fed Keeps Rates Steady — Warsh Holds First Press Conference as Chair from Bloomberg Television, published June 17, 2026. The transcript contains 24,551 words with timestamps and was generated using Whisper AI.
"in the hot seat, Tom Keane, Jonathan Farrell both off today for a truly revolutionary meeting, something that really doesn't happen very often. This is a historic day when it comes to a Federal Reserve meeting, given the fact that there have only been four chairs for the Federal Reserve over the..."
[00:00:00] Speaker 1: in the hot seat, Tom Keane, Jonathan Farrell both off today for a truly revolutionary meeting, something that really doesn't happen very often. This is a historic day when it comes to a Federal Reserve meeting, given the fact that there have only been four chairs for the Federal Reserve over the past 30 years. Make it five. Enter Kevin Warsh. This is a new day and a new head of the Federal Reserve. In a new era when it comes to what's happening with the economy, right? We're
[00:00:24] Speaker 2: making this change from an idea where people thought the Federal Reserve was going to cut rates to perhaps the Federal Reserve hiking rates. So it comes at this crucial time. There's no question that rates are going to stay unchanged for this meeting. So it all comes down to what he
[00:00:36] Speaker 1: says, how he communicates and how long he talks for. Yeah, that's some of the big questions that people have. Exactly that. How many words, how many questions, et cetera. Will they remove the easing bias? Of course, that's going to be a big one. Will there be a dot plot? If so, will he have a dot on that plot? And how long the statement will be, as you mentioned before, this will set the tone potentially at a time when the market is expecting him to have something of a dovish tilt. How much is that the
[00:01:02] Speaker 2: potential surprise? Absolutely. Markets are heading into this with the S&P 500, the Dow, the Nasdaq, all near record highs. They've been little change bouncing around all day. Yields have come down as oil prices have really fallen following the announcement of an interim peace deal between Iran and the U.S. We don't know what that peace deal looks like.
[00:01:20] Speaker 1: We don't have the details. Nothing's been published. But right now, markets are taking it. Right now, we see the S&P, as Scar was mentioning, down just a touch. The Nasdaq, though, really had been leading the charge. The Russell 2000, though, getting a boost. As people take a look at the bond space, yields just slightly higher as they look towards some guidance, at least in the front and 4.06% on the long end, getting a bid with a one basis point decline on the 30-year. And really, as Scarlett was mentioning, what we are seeing in the oil space has infiltrated through everything as we talk about a potential deal that could could sign to the next couple of days, hanging out there around that $76 a barrel level on New York crude. Coming up shortly, we've got J.P. Morgan's Bob Michael, Sakjan's Subadra Japa, and Bank of America's Aditya Bahave. They will be taking us up to that Fed rate decision at 2:00 p.m. Eastern. Then we get immediate reaction from former Fed vice chair Redrich Clarida Diane Swank of KPMG and Deutsche Bank's Matt Lizetti. And finally, after the fireworks, breaking it all down, who is Fed chair Kevin Warsh? We'll be speaking with Citigroup's Kate Moore, Jim Bianco of Bianco Research, Stephanie Roth of Wolfe Research, as well as BlackRock's Jeffrey Rosenberg. Joining us now, I am so glad to say, is Bob Michael of J.P. Morgan. Bob, always great to see you. Thank you for being here.
[00:02:33] Bob Michael: Bob Michael: Fantastic to be here. It's a historic day.
[00:02:35] Speaker 1: It is a historic day. What do you think is the biggest question that could be answered at today's meeting?
[00:02:41] Bob Michael: Bob Michael: I think the question that everyone is wondering, he talks about regime change. What does that actually mean? Bob Michael: Does he have a framework that he wants to put in place at the Fed? Is he willing to give us some indication of what that could be? Bob Michael: Or is he just going to try to get through this meeting without any controversy, throw his dot in, kind of no change, and sort of the average, be very bland during the press conference, and then move on?
[00:03:09] Speaker 2: Bob Michael: How confident are you that whatever he says, he will be speaking on behalf of the committee?
[00:03:13] Bob Michael: Bob Michael: Well, I think we'll have to watch that. The good news is we do get a dot plot, so we'll see the dispersion of dots. We'll be able to match his comments to the dispersion of dots and see if he's telling a narrative that explains it. Bob Michael: Look, I think there are a lot of questions about a regime change. I think what's important to remember, the Federal Reserve Act of 1913 is 113 years old. Bob Michael: Yeah, the objectives of full employment and price stability make sense, but it needs to be modernized and updated every so often. So he is certainly entitled to take a fresh look at it, come up with suggestions. I don't think you'd do that at the first meeting, though.
[00:03:54] Speaker 2: Bob Michael: You kind of set the tone and, you know, kind of bring people on board. How do you think he will perform for the president? Because he was President Trump's pick. He comes out of central casting, as the president likes to say. And to some extent, part of his role, at least according to the White House, is to say stuff that soothes the president.
[00:04:13] Bob Michael: Bob Michael: He's destined to disappoint. It can't work out any other way. If you look at the economy right now, it's doing great. And we're going to see that Bob Michael: in the summary of economic projections. They're probably going to lower unemployment and raise inflation. It will all be fine. But we have to accept the economy's in pretty good shape. Bob Michael: That's not an economy where you cut rates. So you're not cutting rates. I'm interested to see for the end of 2026, how many dots are there for rate hikes? Do you get two or three? So the president's not going to like that. The sequence of events that would cause him to cut rates over the next six to nine months, Bob Michael: nobody should want that. It will likely mean that there's problems somewhere in the economy, that unemployment is going up, that something's stagnating. Bob Michael: That's not a healthy economy. And if he has to cut rates in that kind of environment, the president won't be happy with the macroeconomic environment.
[00:05:09] Speaker 1: Bob Michael: One thing that's marked some of the recent meetings has been the dissents. We've seen dissents for the first time and at the greatest pace going back a number of decades. Do you expect dissents at this meeting? Do you think that that would be really notable?
[00:05:21] Bob Michael: Bob Michael: It depends how the post-meeting statement is curated. If they just drop the easing bias, then I think you'll be able to shift the dissents that existed to no rate cut. I think we'll see 12-0 for no rate cut and no dissents. If they leave in kind of fuzzy language, I think you could see a couple dissents that indicate higher rates. But I don't expect any dissents. Bob Michael: I think you just drop the easing bias 12-0 and move on.
[00:05:52] Speaker 1: Bob Michael: What's the bias in markets in terms of whether this is going to be a hawkish or dovish kind of read? I mean, right now, it seems like people are expecting a status quo. Bob Michael: At least we've seen the bond market really do very little over the past, since the last Fed meeting on April 29th. Do you expect people to be more surprised by a hawkish tilt given some of the political discussion that Scarlett was mentioning?
[00:06:12] Bob Michael: Bob Michael: I think the market would be equally surprised by either a hawkish tilt, given some of the political discussion that Scarlett was mentioning. Bob Michael: I think everyone sees the need to do nothing. Just leave rates where they are, see if the MOU in the Middle East actually holds through the weekend, gets signed, where oil settles, how the economy adjusts to all that. Bob Michael: We still have tariffs brewing in the background. We move to section tariffs. How does all of that happen? Bob Michael: I think the market participants would just be happy to see that play out. If they see a hawkish tilt, they're going to think that's premature. Bob Michael: I think they'll get worried that the Fed is seeing something they're not. And if they see a dovish tilt, they're just going to poo poo it as that's yesterday's news. What's the matter with the Fed? Maybe Warsh is right. It needs some modernization.
[00:07:04] Speaker 2: Bob Michael: In Kevin Warsh's confirmation hearing, he said inflation is a choice. What did he mean by that? And how do you think he applies that thinking?
[00:07:11] Bob Michael: Bob Michael: Well, I think as chair of the Federal Reserve, he's absolutely right. Inflation are prices that are denominated in money. If you want to go out there and increase the money supply and start printing money again and distributing through the system, you could live with higher inflation. You'll have much higher growth, but prices will go up. Bob Michael: If you want to start draining liquidity from the system, you want to do things like shrink the size of the balance sheet, then you're going to moderate inflation quite a bit. Bob Michael: Yeah. It could have an adverse reaction to the economy and to the markets. It depends how much, how quickly.
[00:07:46] Speaker 2: Lizzy Roberts: Kevin Warsh was Fed Governor from 2006 to 2011, so up to, during, and after the great financial crisis and was pretty vocal as a hawk. Or do you think that's the case? Bob Michael: Is that the right characterization or was he hawkish for that moment at that time when the economy looked like that?
[00:08:04] Bob Michael: Bob Michael: So here are two interesting fun facts. One, the dots came in in 2012, so he never did the dots. This would be new to him. How can you just not do it without even trying it? And two, he never overlapped with anyone who's on the FOMC now. Bob Michael: He left right as Williams was going on. They never attended a meeting together, a mere technicality. So I think he's in a curious spot right now.
[00:08:33] Speaker 1: Lizzy Roberts: So as a bond investor, given that on one side, you see a lot of froth in the markets and the other side, people say, well, rates might be slightly restrictive, although probably neutral right now. How are you navigating that? I mean, do you still see bonds as a really attractive investment, both in the corporate space with spreads at some of the lowest that you've seen in a long time, and given yields that have really remained tame, given some of the speculation around inflation?
[00:08:57] Bob Michael: Bob Michael: So four months ago, the 10-year was 390. Last month, it was 470. You had a dramatic repricing. You have to understand the bond market's different at 470 than at 390. So there has been some repricing that's gone on. Bob Michael: The easing bias has been removed. A tilt to one or two rate hikes over the next year or so are priced into the market. I think the market's in great shape right now. Bob Michael: I don't even want to hear about the 10-year until rates get to 4 and 5/8. Then we can evaluate whether there's something happening that will take them higher. Otherwise, they're with 100 basis points of the Fed funds rate. That's fine. Bob Michael: And on the other side, is it 420? Is it 430? Pick your retracement level. You can get down there realistically. Through that, you have to reevaluate.
[00:09:49] Speaker 1: Bob Michael: Bob Michael, you're sticking with us. We'll continue the conversation in just a moment. Coming up, Subhadra Jappa of SockGen, Bank of America's Adichie Bahave. Both of them will be joining us. That conversation coming up next. This is Bloomberg. Bob Michael:
[00:10:07] Speaker 2: Bob Michael: When news breaks. Bob Michael: A redhead across the Bloomberg terminal. Bob Michael: Bloomberg has you covered. Bob Michael: Trump's global tariffs are struck down by the U.S. Supreme Court. Bob Michael: For all the context and clarity you need. Bob Michael: There's going to be now tons of tariff headlines until midterm elections.
[00:10:33] Speaker 4: Bob Michael: Here at First on Bloomberg.
[00:10:34] Speaker 5: Bob Michael:
[00:10:36] Speaker ?: Bob Michael: Bob Michael: Bob Michael:
[00:10:57] Speaker 6: Mind being called an ideological lunatic or a bunch of left-wing nutjobs?
[00:11:10] Speaker 7: You know, I've been called worse things than that.
[00:11:16] Speaker 8: 23andMe, I think, is so incredibly valuable. We're coming back.
[00:11:21] Speaker 6: What magazines were you reading as a kid? I don't think I was reading magazines until I was in them. So is it Paradise Ahead? Or Gattaca? Maybe somewhere in the middle.
[00:11:36] Speaker 8: In case you missed it, on Bloomberg Brief. When we were talking about it originally, we thought that this was going to be a very short war. We thought that the energy price hike or increase would be just a spike up and down. But it's been persistent, and that's the concern that we continue to have because we're starting to see a little bit of fragility in the consumer. If we look at consumer inflation expectations, they're much higher than what the market is pricing in. Don't miss Bloomberg Brief, live every weekday.
[00:12:12] Speaker 9: I think Kevin Morris has a dilemma on his hands. Once you're in that seat, it's a lot different.
[00:12:17] Speaker 10: I don't think he's going to want to rock the committee. The Fed clearly has a pretty complicated dynamic.
[00:12:24] Speaker 11: You do have this higher resting heart rate for inflation.
[00:12:28] Speaker 1: We have a labor market that looks stable but feels tighter. The Fed is going to be careful not to overreact.
[00:12:37] Speaker 12: We need to see the Fed remove the easing bias.
[00:12:39] Speaker 8: We're not going to get a rate cut anytime soon. Most Fed officials, of course, are going to be fine leaving rates as they are.
[00:12:45] Speaker 11: I think the Fed will do what they can to be on hold. They're just on hold.
[00:12:50] Speaker 13: The Fed will remain on hold. It's all going to be about communications.
[00:12:53] Speaker 8: The Fed will do what they can to leave flexibility in the statements.
[00:12:58] Speaker 14: The dot plot creates sometimes a bit more confusion. If they put the dot plot out, it's going to give some indication.
[00:13:04] Speaker 1: There is always the chance that it could be drastically different.
[00:13:07] Speaker 14: I don't know how much fundamental change there's going to be.
[00:13:11] Speaker 1: This is Countdown to the Fed Decides on Bloomberg Television and Radio. I'm Lisa Abramowitz. As everyone talks dots and gets excited when people start talking about what we could potentially see changing communication, let's take a quick look at markets. Markets are in a waiting zone, a landing zone, as they await for a Fed chair. Kevin Warsh stepped to the podium for the first time at the head of the U.S. Central Bank. S&P futures just a little bit lower. The Russell 2000 doing better, as people anticipate. Maybe a little bit of relief when it comes to not necessarily endorsing the idea of a rate hike. When you take a look at the bond space, it is remarkable to see how stable the bond market has been going back to the last Fed meeting on April 29th. At that day, the 10-year yield, 4.43%. Today, where is that yield? 4.43%. We've done nothing since April 29th until today, with the move index falling to real lows.
[00:14:05] Speaker 2: Yeah, it's all a matter of what he says and how he says it. And I did see that you kind of paused before you said his name, Kevin Warsh, because we're so used to saying Fed Chair Jay Powell. Jay Powell is still a part of this Fed board. Let's not forget, right? Because he stepped down as chair, but he's still very much a member of the board. He has not stepped down from that position, and in part because he's worried about the Fed's independence.
[00:14:25] Speaker 1: Yeah, so what will it take for him to step away? Will he make an appearance in any capacity? Where will his dot be, Governor Powell? Meanwhile, we are looking at an oil market that has dictated so much of this. How do they message oil, given the fact that ultimately it is coming in, in terms of the pricing, and potentially could be chalked up as just a transitory issue? Joining us now is Subhadra Jappa of Societe Generale. Subhadra, great to have you on the show. Thank you so much for being here. I want to start with what you're expecting today in terms of the length, in terms of the questions, in terms of the tone for the new Kevin Walsh Federal Reserve.
[00:15:02] Speaker 15: So the economy is in a sweet spot, and this is really a good time for Walsh to start his new job. We've seen a very sharp decline in oil prices. Yields have come off the highs. Equity markets are near all-time highs. Risk sentiment is extremely positive. So for the most part, I think we're not really expecting a lot of changes. I think the summary of economic projections might show modestly higher inflation, as well as a modestly lower unemployment rate. But for the markets, I think what's really going to be market-moving is what we see in the dots. Is there going to be much more of a bias towards hikes from the rest of the committee versus where Kevin Walsh's dot would be, and whether we even get a dot from Chair Walsh. And the next thing that I'll be watching to see is how long the press conference is. Is there going to be a short conference, or is he going to spend 45 minutes like Powell did when he was chair?
[00:16:04] Speaker 2: How much do they bring up oil prices, Subhagra? I look at WTI, and on April 29th, it was at $100 a barrel. Today, it's about 76. And of course, this is very much in flux, given what's going to happen or what's expected to happen by the end of this week.
[00:16:19] Speaker 15: Oil prices are very, very important because that really pegs the narrative of headline inflation, or inflation in general being somewhat transitory on the upside, on the headline part. Core inflation, of course, is starting to trend higher. I mean, I think we're going to get core PCE next year, next week, I should say, showing a much hotter print. So the trajectory for inflation for the remainder of the year is going to be on the hotter side. The fact that we're starting to see lower oil prices is definitely a step in the right direction to reinforce that transitory narrative.
[00:16:59] Speaker 2: You've said the word transitory. We've heard it a couple of times so far this hour. But is that something that the Fed can actually use in its language? Because it's become kind of a dirty word in the Fed world.
[00:17:11] Speaker 15: So if you kind of step back and look at geopolitical events in the past, we've always seen that the rise in oil prices tends to be somewhat temporary. The feed-through to headline inflation tends to be somewhat temporary as well. So in that sort of context, it makes sense that we're able to look past the rise in headline inflation. The real concern for the Fed is, of course, core PCE. Core inflation has been trending higher, probably remains between 3% and 3.5% or 3.25%. And 3.5% for the remainder of the year. And that really argues for the Fed to keep policy on hold, not just for this year, but well into next year as well. So it's going to be a prolonged period of Fed on hold and with no real case for the Fed to rush into heights.
[00:18:00] Speaker 1: Bob Michael, still alongside us. Is the oil shock transitory and are we seeing that essentially getting eased through the market?
[00:18:06] Bob Michael: Bob Michael, for sure, the market is far more focused on the Middle East and oil than it is on the Federal Reserve. So you just have to accept that. Is it transitory? Somewhat.
[00:18:19] Speaker ?: Somewhat.
[00:18:19] Bob Michael: I don't think we're going back to $60 a barrel. Do we settle in around $80 a barrel? Are we going to find that it takes a while to get the oil and natural gas out of the Middle East to where it's much needed? Yeah, it probably will take some time. I don't think we go back up to $100, but somewhere around $80 is a more modest headwind than we've seen, but something higher than what existed at $60 a barrel.
[00:18:45] Speaker 1: There's also some pretty big chip inflation, as well as inflation in the pocketbooks of anybody who invested in SpaceX who seem to be doing well today and maybe notwithstanding. Subhajah, from your perspective, do you expect any commentary from the Federal Reserve about how broad-based the inflation is? I mean, we saw retail sales today. It was broad-based. It wasn't just coming from oil. Absolutely.
[00:19:04] Speaker 15: And I think that that is something that we should all be paying close attention to because it's headline inflation, it's core inflation, it's goods inflation, as well as services inflation. On the core side. So it's definitely something that we should be talking about. Inflation expectations, however, have been somewhat contained. If anything, we've seen a significant decline in inflation expectations over the last few trading days with the decline in oil prices. But inflation in general, I think, is going to be the key topic that Walsh is going to be questioned on. And that's really where we'll be paying close attention to see if he actually focuses on the trimmed mean measures as opposed to the headline inflation or core inflation specifics. So the trimmed mean measure might suggest that he's looking to be somewhat more on the dovish side. Again, we don't really expect that he's going to show a dovish bias, but that's something that I'll be paying attention to.
[00:20:09] Speaker 1: Subhadra Ashapa, thank you so much for your insights. I'm sure we'll be catching up with you post-Kevin Warsh debut. Joining us now is Adichie Bahave of Bank of America. As we do a look ahead about seven minutes and the change to that decision, what are you expecting today?
[00:20:23] Speaker 16: Adichie Bahave: Good afternoon, thanks for having me on. So we think the easing bias will be removed from the forward guidance language in the statement. We think the dot block won't show any policy action this year, so the Fed is on hold. An interesting question is how many people will show hikes this year? We've ballparked it at three, but if it's significantly above or below that number, I think that could be viewed as hawkish or dovish. And then most importantly, what is Kevin Warsh going to say? We think he's going to lean dovish relative to the rest of the committee. Honestly, I think he could just copy-paste his comments from his nomination testimony, which were viewed as slightly dovish at the time. And I think given the data flow, they would be a little bit more dovish now. He can take a victory lap on his comment that you should look through supply shocks with oil prices falling. He could continue to emphasize the trimmed mean because that really hasn't moved in the last couple of months, even though core PC has moved up.
[00:21:20] Speaker 2: What is he likely to say about AI disinflation? This is one of his talking points where perhaps we're not factoring in just how much productivity gains AI will usher in.
[00:21:30] Speaker 16: I think he can stick with the story. We need to make a forward-looking bet on this, according to Warsh, and I don't think that really changes from two months ago, right? It's something that he's been clear is still in the pipeline. We're probably not going to see it for a while. But he's saying we should be forward-looking about it. So that part of the story doesn't need to change. The challenge for him will be that, before we get there, we're now looking at a period of significant overshoot in inflation. And how much tolerance does the committee have for that sort of overshoot? So even if you told me that inflation is going back to 2 percent two years down the line, what's happening in those intervening two years? Are we averaging 3 percent, 3.5 percent? And what does that mean for the cumulative overshoot since 2021?
[00:22:18] Speaker 2: Do we think also that under Kevin Warsh, the FOMC, the Fed, is going to be looking more carefully at new data sets, perhaps data sets that the Fed started to rely on during the government shutdown when we couldn't really look at the traditional measures for an accurate reflection of the economy?
[00:22:33] Speaker 16: He certainly talked about measuring inflation better. Alternative data sets are not necessarily better data sets. And I think that's the sell that he has to make to the committee. So, for example, a lot of the old data that we looked at during the pandemic was useful for a brief period of time. And then after that, it actually became not very useful at all. So it's a matter of finding better data, not just different data.
[00:23:00] Speaker 1: Bob Michael is still here alongside us. Bob, are you expecting any commentary about AI at all from this Fed chair, given the fact that there's been a lot of questions, both about the disinflationary aspect of this, as well as potentially financial security?
[00:23:14] Bob Michael: I think he should be questioned on it. And when I listened to Christine Lagarde earlier today, she talked a lot about AI and the threat to financial stability. And what she meant was that if it gets into the banking system and creates another financial crisis, what do you do? How do you deal with it? So central bankers have to start thinking about that. They're there to backstop the banking system. And this is one of the great existential threats to the banking system.
[00:23:43] Speaker 1: And this would be a Fed chair that comes in after being a governor at a time of the last financial crisis. Aditya, are you expecting any kind of nod to that type of backdrop, given exactly what Bob's talking about, very much front and center for a lot of bankers?
[00:23:58] Speaker ?: Right.
[00:23:59] Speaker 16: So that's a regulatory issue. I think it's kind of more of a medium term issue. I don't know it necessarily gets addressed at the June meeting. Let's not forget he's only been in the seat for less than four weeks now. So it's probably something that the Fed is discussing. I don't think he's going to be ready to talk about that just yet.
[00:24:17] Speaker 1: Aditya Bahave, thank you so much for your thoughts as we count you down to that Fed decision about three minutes away. Bob, that is going to be a big issue. And the fact that he is new. I mean, this is the other thing. He is new. He is coming in. And the market tends to test a Federal Reserve chair. What do you think is the biggest test for him right now? Inflation, financial security, or just getting the whole committee together?
[00:24:39] Bob Michael: I think he should be asked if the expected disinflation is transitory. There's a broad capex cycle underway globally. Everyone talks about AI. Well, every major sovereign is interested in investing in AI and the power grid they need to power it. You tell me a sovereign that's also not interested in border security and investing in its defense. You tell me a sovereign that's not also invested in energy security and investing in that. There are three massive capex programs underway globally that will need capital, compete for capital, and create a cost for that capital.
[00:25:21] Speaker 2: And certainly not limited to the U.S. We can see this around the world as well. What kind of commentary have we gotten from other central bankers? You mentioned Christine Lagarde talking about cybersecurity in the context of it being a risk of the financial system. But what can we glean from how other policymakers are thinking about this?
[00:25:37] Bob Michael: I think they're all gathering information. I think they're worried. Aditya said it's a regulatory issue. I would remind everyone that housing was also regulated going into the GFC, and yet it spilled into the financial system. I think what Christine Lagarde is doing is she's thinking ahead. She's looking to be preemptive. If something does happen that's unforeseen that we don't know today, how are we prepared to deal with it? I think every central banker is thinking through that. Not many have been as public as she's become.
[00:26:09] Speaker 1: Bob Michael, you're going to stick with us as we wait for that decision. We are about a minute and a half away. You can see markets treading water ahead of that. It seems like people don't know what to do given the buffeting news of both what's happening in the Middle East as well as who will the real Fed Chair Warsh actually be?
[00:26:27] Speaker 2: Yeah, it's a big question mark, especially since he hasn't been that vocal. And there's all this expectation that under Chair Warsh, Fed communication is going to change. Perhaps it'll be less robust. Perhaps there'll be fewer instances of it. It feels like every week there's five or six Fed presidents speaking. Will that still remain the case going forward?
[00:26:44] Speaker 1: Yeah, communication is going to be a big deal. And right now people have been looking at a yield curve that earlier this year was steepening. Suddenly it's been flattening and it's now the flattest going back to early last year. As people take a look at a potentially more restrictive Federal Reserve, about an 80 percent chance that there is one rate hike this year, will he push that off? Or will he kind of lean into that? How does this Fed Chair potentially wrangle all of the committee members together at a time where there have been an increasing number of dissents? Will he take questions? How long will he speak? What word count will there be? Check out Polymarket. I'm sure it's all there as we await for this decision. And frankly, for the tone to be set, it cannot be emphasized enough how historic this day is. There have only been four Federal Reserve chairs in the past 30 years. Jerome Powell, Janet Yellen, Ben Bernanke, Alan Greenspan. Let's get to Bloomberg's Michael McKee.
[00:27:38] Speaker 10: The Warsh Fed holds the benchmark rate to 3.5 to 3.75 percent. Significantly changes the statement and splits evenly over whether there will be a rate cut this year. They see a rate increase this year. They see one cut each in 2027 and 2028. Nine members see at least one increase this year, with six of them seeing two moves, but nine see no moves or a cut. The median dot this year does move to 3.75 percent from 3.375 percent. However, for 2026, there are only 18 dots, suggesting the Fed chairman did not enter one. He said he doesn't believe in the dot plot. Two members did not submit a dot for 2028. The statement was cut to four paragraphs. The first, the vote unanimous. Then the decision, along with the statement that the committee reaffirmed its policy of maintaining ample reserves in the banking system. The second and third graphs are the economic assessment. Activity is expanding at a solid pace, despite elevated uncertainty that owes, in part, to conflict of the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the committee's 2 percent goal, in part, reflecting supply shocks that have driven price increases in certain sectors. Including energy. There is no balance of risks anymore. The statement concludes the committee will deliver price stability. All 19 members of the committee did submit economic forecasts. GDP this year, 2.2 percent, down two tenths from March. Unemployment will be 4.3 percent, up a tenth. PCE headline inflation will come in at 3.6 percent, significantly increased from 2.7 percent in their March projection. CORE similarly moves much higher to 3.3 percent from 2.7 percent. Growth and unemployment for 2027 are unchanged from March, while PCE inflation falls back to 2.3 percent and CORE to 2.5. So, some significant changes already under the Warsh Fed. We'll see what the chair has to say coming up in about a half an hour.
[00:29:58] Speaker 1: AMNA NAWAZ: Michael McKee, stay close, definitely putting his mark on this Federal Reserve. Just to underscore what Mike was just saying, it looks like potentially Fed chair Kevin Warsh did not put a dot. That is speculation. There were only 18 dots. There are 19 members. Meanwhile, you're looking at nine of 18 FOMC participants penciling in a 2026 rate hike. When you take a look at what that is in markets, you can see a huge shift up in the two-year yield, a market shift of about seven basis points to 4.13 percent. You can see stocks rolling over as this continues, people bleeding in the idea of a more hawkish central bank given that an increasing number of Fed participants are looking at a rate hike this year. When you take a look at the NASDAQ that is continuing to decline the S&P 500 down about half of a percent. Bob, what's your initial reaction given the fact this does seem to be a hawkish tilt on the committee and a very different statement?
[00:30:57] Bob Michael: It is a hawkish tilt from the committee. Half of the committee is expecting rate hikes this year, which is, I think, a real shot across the bow to the market. We were thinking two, maybe three, to be decorative. We didn't think half the committee. So, you know, it's something quite different. When you look at the inflation projections, you know, we were thinking up a couple tenths. You're up six tenths, nine tenths for this year. So, nobody at the FOMC is thinking that this inflation will be transitory enough and we'll see disinflation between now and the end of the year. So, yeah, I think this is a Fed that is sending a hawkish message. I think you have a Fed chair telling us he can't be bothered with the dots. I think that's a slap across the face. We'll see how he deals with that and the Fed going forward.
[00:31:57] Speaker 1: Scarlett, it seems like this is a real change both in tone, both in substance and, frankly, points to a hawkish committee and, as Bob said, a Fed chair that is doing away with the dots.
[00:32:07] Speaker 2: So, it will be really interesting to see how Kevin Walsh comes out and frames everything when he does begin speaking. Because if he leans dovish, it will certainly be a case where he doesn't appear to be speaking on behalf of the committee. He's kind of speaking out there on his own, expressing his own views. It's fascinating because, again, he has not said a whole lot about his take on the economy aside from his confirmation hearing before the Senate. So, all of this raises a lot of questions. As you mentioned, stocks have extended their losses and we now see the S&P and the Nasdaq losing two-thirds of one percent. Yields, again, have continued to stay higher. The two-year yield up nine basis points. The 10-year yield up about two basis points right now.
[00:32:47] Speaker 1: Joining us now to extend the conversation, former Fed Vice Chair Rich Clarida. Rich, are you surprised that it appears that one member of the Fed did not submit a dot?
[00:32:58] Speaker 17: Well, Lisa, thanks for having me on. I'm actually not surprised. I actually was inclined to think that Walsh would not submit a dot. But certainly the news that Mike McKee just shared with us that you had nine participants right down a rate hike was certainly above what I've been thinking going into this meeting for sure.
[00:33:17] Speaker 2: Why do you think that is? What is it that the nine members see that has taken the market by surprise, certainly?
[00:33:24] Speaker 17: Well, there was a big markup in core inflation projected relative to the March S&P. And I think the reality is that the pressure in core inflation that we've been seeing in recent data is not just a pass through from energy prices, but it does appear to be more broadly based. And I think that's probably a factor in these in this reassessment.
[00:33:48] Bob Michael: Rich, the last line of the statement is the committee will deliver price stability. Nothing about full employment. How do you interpret that?
[00:33:58] Speaker 17: Well, it's not in front of me here because I'm doing your doing your show. But but that is an important change to the statement. You know, by statute, the Fed does have a dual mandate. And that's also highlighted in the firm's policy framework. And I'm sure I hope Kevin will be asked to elaborate on that at the at the press conference. We're at a point where we're at full employment or or at least close to the Fed's assessment of maximum employment. So I wouldn't read into this that they're abandoning the employment mandate, but clearly some important change in the language for sure. Bob, what's your take on that?
[00:34:40] Bob Michael: I think they're they are concerned by the level of inflation. They are concerned about what they see in the CapEx cycle. They are somewhat scarred for 2022 and they don't want to repeat that mistake again. And they're watching other central banks coming out and lifting rates and their bond markets responding well to that. So I think they're reconsidering certainly where they were last meeting and they're getting us ready for rate hikes.
[00:35:08] Speaker 1: Rich, is there anything at all dovish in any way, shape or form of any part of this four paragraph statement?
[00:35:14] Speaker 17: Not not at first glance or at first listen again, at least for this meeting. Chair Warsh will have the bully pulpit and I very much will be looking forward to seeing how he frames this and provides his own perspective. But certainly I think we have an indication here, especially with that sentence, the committee will deliver price stability. That's that's that sounds like where he's going to land for sure.
[00:35:41] Speaker 2: So there's a comment here from Joseph Richter. He's one of our editors at Bloomberg Intelligence on our live blog, and he says that those who looked for a quiet first Warsh FOMC meeting must be disappointed. Rich, what will you be listening for in particular from Kevin Warsh when he speaks today? I know you said it'll be interesting to see how he frames his thinking, but what will be the one thing that you want to hear from him?
[00:36:06] Speaker 17: Well, let me give you more more than one. Certainly, I would like to have him flesh out how the dual mandate fits into this at this at this point. Also, importantly, you know, he spent the last 15 years criticizing the Fed's big balance sheet. The Fed's growing, expanding its balance sheet now, and so perhaps moving beyond this meeting to the rest of the year into next year, if he's how he's going to try to change minds on the committee about about the balance sheet size as well. Mike McKee, jump in here.
[00:36:38] Speaker 10: Well, I think Rich raises an important point. The only reference to the balance sheet is the Fed reaffirming its commitment to the ample reserves policy, which is generic enough to encompass both Warsh's desire for a smaller balance sheet and others desire to maintain the corridor system that we have now. But the question is, do they go to that later? Is it just too much of a bridge to cross right now? Now, other points that I think are worth making is that while the committee dropped the bias statement and doesn't give any, quote unquote, forward guidance in the statement itself, the dot plot is forward guidance. Because all you're talking about right now is the nine people who think that we're going to get a rate increase and that this tells you that the Fed is hawkish. So if Kevin Warsh wants to walk that back, he's going to have to do that in the press conference. Otherwise, the markets are going to be tilting in that direction. It's also interesting that they did say they're committed to price stability. What it seems like is that the people who were worried about inflation, that worry has spread. And as Rich noted, the core inflation has broadened out some. And so they are sending a message to the markets that we're not going to let this get out of control. We're not going to repeat what happened in 2021, 22. We are going to focus on price stability right now. The unsaid thing is that we're basically at full employment. So we don't have to worry about that for the moment.
[00:38:08] Bob Michael: Mike, the other thing that jumped out at me is you said that we went from 18 dots to 17 dots for 2028. Is there an undercover supporter of Warsh policy in the FOMC now?
[00:38:21] Speaker 10: It does seem like there might be at least someone who supports the idea that the dot plot is not worth considering. It could also be that one member decided that there's just too much uncertainty for 2028. And why bother to add to that by just guessing it where rates are going to be? We've had a lot of Fed officials over the years tell us that they just kind of throw something in for the third year out because it's just too hard to project anything that far out. I wouldn't read too much into that. But the idea that Kevin Warsh did not submit a dot kind of tells you that he's going to maybe push to do some change to the dot plot going forward.
[00:38:56] Speaker 1: If you are just joining us right now, we did get a statement that's four paragraphs long, much shorter than usual, with no reference to the employment mandate. With nine of the 18 members opting to support some sort of rate hike this year, leaving the others either in support of just keeping things where they are or potentially cutting rates, being taken as incredibly hawkish. You could see the sell-off in Treasury is extending. You could see two-year yields now up eight basis points across the curve, all rising, although this is yield curve flattening, this idea that potentially there will be some sort of tightening in policy. Former Fed Vice Chair Rich Clarida, final word from you. What's your question right now going to be for Fed Chair Kevin Warsh?
[00:39:44] Speaker 17: Kevin, you did not submit a dot today. There's no forward guidance in the statement. The markets are taking the information today as hawkish. Would you be prepared to comment?
[00:39:59] Speaker 1: Former Fed Vice Chair Rich Clarida, who might make a sneak appearance, because that was pretty good. Thank you so much. Joining us now, Diane Swank of KPMG. Diane, what's your first take on this?
[00:40:09] Speaker 4: Well, I'm actually not all that surprised. We saw a major move in the minutes to the last meeting, where a lot of people were moving towards that hawkish chant and saying we may need to consider rate hikes later this year. And in the interim period, we have seen even Fed governors, which usually hold their cards a little closer to the vest, some of them who I've never seen actually take a firm stand, talk about how the price stability side of the mandate is more important now than the employment side of the mandate. And that's exactly what you saw with that last sentence in the statement, was not that one was that we were not having a dual mandate. It's that the focus is on price stability, given the stability we've seen in the unemployment rate. And I think that's very important. What the Fed is saying, we're not going to take the inflation as transitory. What concerned so many at the Fed meeting in March, when we saw sort of the initial forecast and there was a lot of uncertainty. But the minutes from that meeting really revealed how many people were already concerned about the data that was coming out that suggested that underlying core inflation was not only sticky, but maybe reaccelerating again. And I think that is where we're seeing this come from. It is beyond the energy shock. It is beyond terror shocks. It's in that core super services component of inflation that we're seeing get sticky and hot and accelerate and not consistent with anything that resembles price stability.
[00:41:46] Speaker 2: I want to go back to that idea, Diane, that the statement ends with the committee will deliver price stability from where you sit. What are the most reliable inflation indicators that the committee will then focus on if it's, of course, the reported numbers? But when it comes to inflation expectations, you've got market based measures. You've got survey based measures.
[00:42:07] Speaker 4: You know, and and none of these measures they have at times, none of the Fed will never say inflation expectations are unanchored. And I think that's important. And a lot of these inflation measures on expectations do not look unanchored, although consumer sentiment certainly is not high at the moment. And I think the decoupling we've seen between consumer attitudes and their actual spending reflects the burn of inflation. And they're seeing that out there. They're also seeing in surveys like the ISM survey and the purchasing manager surveys things where manufacturers are front running future price hikes. That's the exact behavior. The Federal Reserve is tasked to prevent because that kind of hoarding behavior reinforces its own inflation cycle. So I think those kinds of behavioral shifts they're seeing out there, they're worried about the muscle memory of inflation. We're five years in and inflation is still a problem. Whether or not it's all the Fed's fault or not, it's only one institution's responsibility to derail inflation. And that is the Federal Reserve. And that's what you're seeing them sort of put their foot down now that the labor market situation, although not perfect, is not in the precarious situation it appeared to be last fall.
[00:43:25] Speaker 2: You've noted, Diane, that one of the largest near-term hurdles for the central bank is the persistence of service sector inflation. What has proven to be the most effective way to bring down inflation in the services sector?
[00:43:36] Speaker 4: Well, it's a sector that has been sort of impervious to some of the increases in interest rates we saw. We did see wages cool, but they've not cooled enough to bring it down. And I think part of the problem we're finding in the service sector is, one, demographic and the aging demographics and upward pressure on some health care costs. But we also have other factors pushing up service sector inflation, and that is inequality and the ability of very high-end consumers to spend up, to buy at the front of the airplane and buy first-class tickets, to spend at high-end hotels. All of that is booing inflation at a time when many who are on the lower end or even in the middle part of the income strata are seeing their wages eroded relative to inflation, where we know, at the highest end of the income strata, that wages are actually going up more rapidly than inflation. And so that's one of the challenges the Fed faces, is they have got to manage to the economic aggregates when the devil is in the details underneath those aggregates.
[00:44:42] Speaker 1: Bob, you know, what strikes me is that, if you look at some of the economic projections here, a lot of people do seem clearly much more concerned about inflation. They revised up their core PCE between 3.2% and 3.5% for the entirety of this year, from 2.5% to 2.8% in the previous one. Throughout all of these, even the Fed Fund's rate central tendency was moved up between 3.6% and 4.1%. At this point, can we say we're at neutral? And can you say that right now, this is a Fed committee purely trained on inflation, just as Kevin Warsh reflected in that statement?
[00:45:16] Bob Michael: They're telling us that we're not at neutral, even though they're, you know, the median dot. There's enough dispersion for higher inflation and higher rates. It's telling us that maybe the market was right. Before the meeting, the market was pricing in one rate hike over year end into next year. It looks like they looked at the market and say, hey, it's giving us a rate hike. Inflation is not going to be at our target for five years going on to six. Maybe this is the opportunity for us to step in like every other central bank in hike rates. I thought we would get there. I didn't think we would get there at this meeting. The long end of the market likes it. Look at that. The front ends up six, seven, eight basis points. The long ends down a basis point. A Fed that's vigilant again creates support for the long end of the market.
[00:46:06] Speaker 1: Well, and actually, Diane, do you think that in some ways, just to conclude, this is actually a way to get the ultimate goal of rate cuts down the road by jaw voting the market into seeing this as a hawkish Federal Reserve?
[00:46:18] Speaker 4: I think it is important. And I think it's also an acknowledgment, though. I mean, the context is important here. Five years without hitting its inflation target and five years of compounding inflation is a problem for the U.S. economy. And they now have more flexibility with the labor market showing some signs of finally generating jobs, stable unemployment rate for a while now, with the exception of the six-week government shutdown and the weakness we saw at the end of 2025. And they're squarely focused on what they should be focused on. And I agree that the neutral rate is actually likely higher than what they thought it was. There were some that were moving there prior to this meeting as well, which means that in and of itself suggests they should have a higher short-term rate. And on top of that, we may need another hike as well. I still expect two hikes by year end. Wow. Diane Swank, thank you so much.
[00:47:11] Speaker 1: Two great hikes by year end. Can you imagine what that would do to markets? There are a couple of dots that point towards that direction, but the majority see one. Do you see that in any capacity? Two rate hikes this year?
[00:47:20] Bob Michael: Oh, I think it's possible. You do? Absolutely. There's a lot of underlying growth and capex in the economy, and we don't know whether the Middle East will be worked out. It's certainly not impossible.
[00:47:32] Speaker 1: Joining us now is Matt Lizetti of Deutsche Bank, who's had a few minutes to look through this statement. What's your first reaction, Matt?
[00:47:39] Speaker 18: Yeah, I think this was towards the hawkish end of what we could have expected. The two things that I was focused on ahead of the meeting were, one, how many dots we're going to show hikes this year. You have half of the dots, nine of them showing rate hikes, six of them showing 50 basis points or more of rate hikes. That has to be towards the hawkish end of expectations. The second thing and what drives the hawkishness in the dots is the upper division in their core inflation forecast. This year they went up to 3.3%. I think really critically next year they went up to 2.5%. You have a median expectation in the committee that more than six years into the inflation shock, inflation has still not gotten down to 2.5%. And within 50 basis points of their target, that is what's driving the necessity for potentially higher rates.
[00:48:19] Speaker 2: So one of the comments from Ira Jersey, who's our interest rate strategist here at Bloomberg Intelligence, says that Warsh's stamp on the statement seems fairly evident with language moving closer to the style used before the global financial crisis. Is this a move to make the Fed less transparent, Matthew, with the statement really brought down, the word count brought down, and the length of it reduced to the point where this is going to be a Fed that perhaps will surprise markets going forward as opposed to really calming them into submission?
[00:48:49] Speaker 18: Yeah, I don't think that we learned too much about that from the statement today. I think the reality is that there was a lot of superfluous content in the statement. There was a fourth paragraph that has been in there really since the COVID shock and was probably unnecessary from that perspective. But it is clear we're just going to get less information in the statement. It'll be interesting to see how much additional information Warsh provides us in the press conference. He's been both critical of forward guidance, so I don't think that we get much more of that, but he's also been critical of data dependency. So the ultimate question is, what do we hear from him about at the press conference? That's still an unknown from the market's perspective.
[00:49:22] Speaker 2: What's the one thing you want to hear from him?
[00:49:24] Speaker 18: So I think I'm going to piggyback on Vice Chair Clarida's question from earlier. And it's a clear signal from the committee that higher rates might be needed to tame inflation. The market also believes that higher rates might be needed to tame inflation. We know that he didn't submit a DOT yet today, but does he agree with the skew in those expectations that higher rates might be needed? And if not, why does he not agree with it?
[00:49:48] Bob Michael: Matt, don't you think that the DOTs give us a lot of information? Won't you be sorry to see them go? Look how we talked about the DOTs nonstop. We looked at the nine voters that were looking for rate hikes. I would miss them. I don't know what being less transparent and more opaque actually does for the markets or for the Fed.
[00:50:11] Speaker 18: Yeah, I don't know that I'll miss the dots to be honest, Bob. I think too much focus is put on them. I'm sure Chair Warsh is going to mention that as well. I think ultimately over time they will go away. I think Warsh doesn't think that they serve a good purpose of actually providing meaningful forward guidance. I think they think that it it's too precise. The market focuses too much on it and not the uncertainty bands around it. So eventually I think that they will go. I think we'll be left with an SEP that shows the central tendency on Fed funds rate expectations, shows the range on Fed funds rate expectations. And that gives us the sense of overall where the trajectory of policy is going to be without kind of catalyzing us around one imprecise estimate from the median.
[00:50:52] Speaker 1: You know, Matt, even if Kevin Warsh doesn't want to talk that much, the Fed chair can't muzzle everybody else. And there is a risk that potentially everybody else will talk a lot and give their perspective and suck the oxygen away from him, who's not saying very much. I mean, at what point do we end up in that type of scenario if the press conference holds true to what we're seeing, at least in the statement?
[00:51:11] Speaker 18: Yeah, I think it could be over the next week. I mean, if we don't hear very much from from Chair Warsh today, I would expect that we do hear a lot from other committee members over the next week. It's a very strong signal from the from the dot plot and the SEP that higher rights might be needed. And so I would expect that we hear from a number of those committee members. But exactly because of that, I actually don't expect that Warsh gives up his opportunity to do the press conference. There's some questions or speculation that he might not do a press conference after every meeting. I think he will, because it at least gives him the first chance to frame the meeting today, gives him the first chance to frame that dot plot, which kind of clearly skews hawkish and potentially push back on it if that's in fact what he wants.
[00:51:50] Speaker 1: Bob, who would you listen to on the FOMC if Fed Chair Warsh takes a back seat to communication?
[00:51:56] Bob Michael: I'd listen to Waller. I think Waller to us was somebody who is very reasonable, very rational, is very balanced, looks at the full picture. He would have made a very good Fed chair, didn't work out that way. Look, Kevin Warsh will be fine. He's a very credible, capable Fed governor. Clearly, he didn't go in with the dovish bias that we all assumed he was sent in with. I'm dying to know how the president's going to react to this. His first meeting, everybody wants to now start hiking rates. That's certainly going against his thinking. But look, Warsh has proven that he's his own Fed chair. He'll do what the data tells him. We're in good hands with him.
[00:52:43] Speaker 2: As far as I know, we don't have any social media posting from the president yet. Not yet. We'll wait to see when new Fed chair Kevin Warsh begins speaking. Going to the idea of forward guidance, I wonder if the effectiveness of forward guidance is asymmetrical, Bob. I ask because Rick Reeder of BlackRock says that you want to over-communicate when you're tightening policy, but you want to surprise when you loosen because it's more effective that way. It packs more of a punch. What do you think?
[00:53:09] Bob Michael: I don't think so. It reminds me of the years when the European Central Banks used to ambush the market and come in, and it created a shock one way. It was very disruptive to the markets. I don't think it accomplished anything other than create losses in some areas, and it wasn't sustainable over time. I think we're in a world where there's a lot of information. There's a lot going on. The complexity of what the Fed has to deal with is real. They have a lot of tools at their disposal which didn't exist pre-COVID or pre-GFC. I want to know how they're thinking about them. I want to see detailed forecasts. I want to know what direction they're moving in. Yeah, I may agree. I may not. It's not a big deal one way or another, other than it just gives us more information.
[00:54:00] Speaker 1: Matt, do you think that there's plausible deniability? Potentially, you have a Fed chair that says, you can't say it's hawkish. I just didn't say.
[00:54:07] Speaker 18: I think maybe he takes that tack, but I think he's going to have to present an alternative case at this point, because the case that is presented by the forecast and the dots at this point is clearly hawkish. And so if he's not in line with that view, I think he'll have to present an alternative case. At this point, there's not a kind of a plausible or realistic alternative case, I think. I think you have an economy where the labor market is strengthening. It's at worst stabilizing at best, re-accelerating. You have inflation, which is entrenched at elevated levels. It's broad-based. It is not simply about tariffs any longer. Your financial conditions at very easy levels. You see growth is actually solid, as we saw with today's retail sales report. And we've argued in recent research reports that the Fed very likely could be accommodative at this point in time. So I don't actually see the strong case to push back against it. But he would have to present that case if that's, in fact, how he feels.
[00:55:00] Speaker 1: Matthew Lizetti of Deutsche Bank, thank you so much. And I look forward to catching you in the weeks after the press conference. Bob, just about two and a half minutes to go before we hear from Fed chair Kevin Warsh. What are you expecting as we see two-year yields now nine basis points higher with people really surprised by the hawkish tilt?
[00:55:19] Bob Michael: Yeah, and again, and I think Diane said it, you know, she kind of expected it. Maybe we should have expected it. We all thought it was coming in two or three meetings from now, not this one. So clearly the market's telling you it didn't expect it. For me, the question for Warsh is removing the dots isn't a regime change. That's part of it. What is it that he finds most outdated about the Fed's framework and how would he go about changing it? The dots are just one component of what bothers him.
[00:55:49] Speaker 1: Yes, also the balance sheet, also when it comes to just how liquid some of these instruments have actually been. Bob Michael, thank you so much for being with us. It is always a pleasure having you in Studio Scarlett. We are awaiting Fed chair Kevin Warsh to step to the podium for the first time as head of the U.S. Central Bank, the central bank to the world. This is the fifth central banker, the fifth Fed chair going back in the past 40 years, and clearly he is putting a stamp on the institution.
[00:56:18] Speaker 2: And a lot of people say maybe he's going back to the Alan Greenspan era where you don't say a lot and you kind of keep the market guessing rather than what Ben Bernanke ushered in, which is more transparency. And Jerome Powell kind of took that to new levels as well. So it's worth noting here that not only are yields higher, stocks are lower. You've got the S&P 500 down six tenths of one percent, the Nasdaq as well. The president, of course, is in Europe right now, has not, as far as we know, given any kind of comment. He had just praised the stock market, saying it was the most brilliant thing and smarter than anyone else. So we'll wait to see how this all plays out over the next 30, 40 minutes.
[00:56:54] Speaker 1: Take a look at what Scarlett was just talking about. When it comes to the equity market, you're seeing S&P in particular take it on the chin. Also, the Nasdaq, as people look forward to hearing from Kevin Warsh. In the yield space, two-year yields really leading the charge here, 4.14 percent. That has ricocheted higher by about nine basis points. You could see a similar move on the 10-year yields. But the long end of the yield curve, as Bob Michael mentioned, really likes this. You could see a two basis point decline, 4.92 percent. A promise for stability, a promise to get some sort of control over inflation that has been -- Clearly, they predict it going up in the near future. And this, to me, is sort of the interesting thing in their forecasts. Yep.
[00:57:39] Speaker 2: Kevin Warsh due to come out any minute. There's a lot of question marks about whether the news conference itself will be shorter in the same way that the statement was.
[00:57:47] Speaker 1: Right now, we have Kevin Warsh going to the podium. Let's take a listen to new Fed Chair Kevin Warsh starting his news conference.
[00:57:54] Speaker 19: It's an honor, a true honor, to be back at the Federal Reserve and to take up this duty at a time of such consequence. I've been especially heartened by the warm welcome of old friends and new colleagues both. And I've listened closely to my fellow FOMC members for a lot of new ideas, new thinking, and genuine interest in moving the Fed forward. This week's FOMC meeting exemplified the very best of the Fed's traditions -- rigorous debate, open-mindedness, commitment to mission, responsibility, and accountability for performance. In this business, they all add up to one thing: getting monetary policy right. We're as near to it as we can do. That is our North Star. My colleagues and I are here to serve our legislative remit, which you've heard us say before: price stability and maximum employment. And these objectives guided our business in the meeting just concluded. As you saw a few moments ago, the committee decided to maintain the target range for the Fed funds rate at 3.5% to 3.75% in support of the Fed's dual mandate. The committee also reaffirmed its policy of maintaining ample reserves in the banking system. Economic activity is expanding at a solid pace, despite elevated uncertainty that owes in part to the conflict in the Middle East. Productivity growth and capital investment both strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. We recognize that inflation has been running well ahead of the Fed's long-stated inflation goal of 2%. That's been going on for more than five years. Persistently high prices are a burden for the American people. But the recent past need not be prologue. I am pleased to report that members of the FOMC are unambiguous and unanimous. This committee will deliver price stability. At any institution, a change in leadership is a natural and timely opportunity to reaffirm its mission, to review current practices, and to consider whether those practices best meet our objectives. My Fed colleagues and I will be working in close collaboration to ask what changes might improve the conduct of monetary policy. On that score, you might have already noticed something, a difference in today's policy statement. It's a bit shorter, a bit simpler, and it dispenses with some older language. That statement just gives you the facts as best we can judge it. Absent also is so-called forward guidance, which we agreed was not well suited to the current policy conjuncture. This afternoon, you also received the usual summary of economic projections. It's been the practice of this committee for participants to submit these projections, and I have encouraged my colleagues to continue to do so. I, however, have refrained from offering any projections of my own, consistent with my long-held views on the SEP, at least as currently structured. In the median projections, real GDP rises at 2.2% this year, 2.3% next year, and total PC inflation runs at 3.6% this year, 2.3% next year. The unemployment rate stands at about 4.3%. The median participant judges that the appropriate federal funds rate to be at 3.8% at the end of this year and 3.6% at the end of next. Let me turn now to a few words on a key initiative that we're announcing today. I'm appointing a task force in each of five areas that are central to the broad conduct of monetary policy. First, Fed Communications. Second, the Fed's balance sheet. Third, our use and reliance on existing data sources. Fourth, productivity and jobs in an era of transformation. And last, the Fed's inflation frameworks. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. 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[01:05:40] Speaker ?: Third, the Fed's balance sheet.
[01:05:41] Speaker 6: Third, the Fed's balance sheet. Third, the Fed's balance sheet.
[01:05:43] Speaker ?: Third, the Fed's balance sheet.
[01:05:44] Speaker 20: Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet.
[01:05:58] Speaker 19: Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet.
[01:06:24] Speaker 20: Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Third, the Fed's balance sheet. Should this be starting from a premise that 2% as a point estimate is too strict? Let me break that into two pieces.
[01:06:47] Speaker 19: First, on the inflation framework review, their remit is what are the drivers of inflation? What's the Fed's responsibility for inflation? In part, how do we measure inflation? But that will overlap with my data group. On the 2% inflation objective, that is the Federal Reserve's long-held objective of 2%. You've heard me say before, I tend to focus on the left of the decimal point. Well, the 2 is the left of the decimal point. For now, zero is to the right. I see no reason until we have reestablished our commitment and ability to deliver on the 2% inflation objective to revisit that. So that will be outside the scope of what we're taking on.
[01:07:29] Speaker 1: Colby. Thank you so much.
[01:07:34] Speaker 9: Colby Swift from the New York Times. You've in the past said that inflation is a choice, and in the policy statement, it includes this pledge to deliver price stability, as you've reiterated today. But looking at the SEP, the bulk of your colleagues expect core PCE to run around 3.3% by year-end, and for the 2% inflation target not to be reached until 2028. So I'm curious how patient you think the Fed can afford to be at this juncture in terms of waiting for one-time inflation waves to wash through and for underlying inflation to step down after so many years of inflation running above target, and under what circumstances you would support the Fed taking some action and raising rates?
[01:08:16] Speaker 19: Sure. Sure. Sure. So quite a bit there. Let me try to break that into pieces. First, we have the capability and commitment to deliver on our price stability objective of 2%. That's exactly what we're going to do. In the Fed's review of its strategy over the last any number of years, in January, the Fed, including the strategy that we're still bound by, the Fed's statement says that inflation is primarily determined by monetary policy. You bet it is. You bet it is. I've said for years, inflation is a choice. You bet it is. And today, I'm announcing that this committee unambiguously and unanimously have decided we are going to deliver on that. The rest of your questions sounded like an encouragement for me to give forward guidance. We've dropped forward guidance. Some along the committee, I think, dropped it, I suspect, from our discussion the last couple of days, because they said at this moment in time, it doesn't feel as though providing forward guidance is right. Others have, I'd say, different views and think as a general proposition, forward guidance isn't the business we should be in. But that will be taken up by the Task Force on Communications and my policymaker colleagues. We're going to listen hard to what the experts say and make our own decision. But I can't give any forward guidance about what we're going to do next. The good news is we'll be meeting in six weeks.
[01:09:41] Speaker 9: So just following up, I guess, on the current policy settings then, I am curious how restrictive you think things are at the current moment, given the flow of data that we've seen and, you know, forecasts that are coming down the pipeline. Yeah.
[01:09:54] Speaker 19: I've heard characterizations, both inside and the Fed, about that. I'll give you my own. It's uneven. If I look at the housing markets as one example, Fed policy isn't the single determinant of the state of the housing market. But broadly, I would say there, Fed policy appears to be somewhat restrictive. I would have a hard time managing to say those words if I were to see what's happening in financial markets. So I'd say it's uneven. That's perhaps a function of different transmission mechanisms of monetary policy, whether monetary policy is coming from our interest rate tool or our balance sheet tool. But the good news, we have a task force on that, too, and the balance sheet task force will be looking more at that subject. Mike McKee.
[01:10:40] Speaker 10: You said you don't like forward guidance. You dropped it from the statement this time. But with the dot plot, nine members suggested that they want a rate increase by the end of the year. And the markets have taken that as forward guidance. So what does this mean in terms of how you guide the markets and in terms of what the dot plot's future is?
[01:11:09] Speaker 19: I'm going to have to give you the same answer I gave to Ms. Smith. We've got a task force for that. I'll give you a little bit more. I reviewed the dot plots, and when I saw the submissions, I noted that all the submissions were coming in with pencils. You know, those kind with the big erasers. That's to say that I think my colleagues around the table, when they submitted their dots, understand the world is changing quite quickly. And they didn't feel bound by them six weeks from now or six days from now in the event that their circumstances change. I'll note a couple other things. What I heard around the table was as they submitted their modal forecasts, their modal forecasts, to be clear, weren't this was more likely than not. This was more likely than their other scenarios. So I didn't hear tons of conviction. What I heard was the kind of humility that I think we should have. I did not submit a dot. For me, it's not helpful in the conduct of policy. I suspect by year end, as I mentioned in my opening statements, there'll be a review about communications broadly, press conferences, dots, meetings and the like, transcripts, minutes. This will be part of that. I don't want to prejudge the outcomes there, but I'm pretty open minded about what they could be. And I was just incredibly impressed over the last couple of days. My colleagues over the last two days and frankly, the first three weeks I've been here, they've been very open about changes. Change isn't easy. Change is filled with risk. But our number one goal is to get monetary policy right. The way to get monetary policy right is to deliver on the remit that Congress gave us, to deliver on price stability, and there was no disagreement on any of those points.
[01:13:03] Speaker 10: At the risk of possibly getting the same answer about task forces, communications. What is your feeling about these news conferences? Are you going to continue one after every meeting? Do you find them useful? What is the future for the way Kevin Warsh will communicate?
[01:13:22] Speaker 19: Well, this one's probably got another 15 or 20 minutes in it, so I don't want to prejudge the outcome. Press conferences can be a very useful way to communicate with households, businesses, and more broadly, through using the likes of you. I had a great old mentor named George Schultz, and his mantra was press conferences are useful, but when you have one, you want to make sure you have something important to say. Today, I think we had something important to say about our commitment to deliver on price stability, our commitment to rethink practices with an eye of moving the Fed forward, and to give you and the American people a sense that these aren't idle thoughts. These are concrete thoughts that we're going to seek out the best minds, both the best thinking inside of the Federal Reserve and the best people I know in business and economics and the academy and technology and the rest to share their views. That's what we're going to be doing here, the pursuit of truth. I think we're going to come up with some new and interesting things. We made some changes today. I expect more changes to come, and some of those might well be worthy of a press conference.
[01:14:31] Speaker 1: Chris Rugeber.
[01:14:33] Speaker 7: Hi, Chris Rugeber at Associated Press. Thanks for taking our questions. Could you give us a sense of how you see inflation more in the long term? I know you may not want to comment on the ups and downs, but is this mainly driven by energy prices in the Iran War at this point, or do you have any concerns about underlying inflation pressures in the economy? Thank you.
[01:14:56] Speaker 19: So I can't do much better than the committee just did, so let me restate it. Inflation remains elevated relative to the committee's 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The paragraph goes on to say, but to be clear, the Fed will deliver price stability. My own judgment is the committee spent quite a bit of time, not just in two days, but over iterations of a couple of weeks. That's what we're prepared to say about inflation, but the commitment to deliver is strong, unanimous, and unambiguous. And that's, I think, an important message. We've missed for five years, and we're going to fix that. Well, great.
[01:15:40] Speaker 7: And then just on the data task force and everything else, I mean, generally speaking, I think people feel the Fed looks at everything already. Certainly that was the sense from before. What's, is there data that you feel is not given enough weight? I mean, you mentioned the trimmed mean in the past, but again, that's well known to certainly most Fed members. So what is that task force looking at, and what might be the, I mean, I know you don't want to prejudge the outcome, but are there examples of data that you expect might be given more weight? Thank you.
[01:16:12] Speaker 19: So you're answering my question, so let me say I don't want to prejudge the outcome. I also don't want to say too much about what they're going to do because I still have a phone call or two to make before I've nailed down the people that are doing that. I'm interested in what the outside experts' view is on the subject. I'll say this generally. most of the data that central bankers and other government officials in the United States consume come with old fashioned survey methods. A national accounts of what the US economy looks like that looks very little like the US economy in 2026. Survey methods that don't have response rates that we need, asking questions that might have been quite applicable a generation ago that are less applicable now. So even inside of official statistics, I would be open minded if the task force and our own best thinking had recommendations how those official statistics can be brought up to a standard of our time using new analytic methods. I'd also say this, almost every private company CEO that's running his or her business are doing so with real time information that isn't subject to much revision, that is telling them what just happened at that very moment. As you know, there are normal long and variable lags in the conduct of monetary policy. What we're really interested in is what's happening right now. What we're less interested in is echoes of history. And you're hearing from my answer that some of the data that we receive, that we're waiting on the first Friday after the month of payroll index or something else, that might be an echo of history that's quite useful on its third revision. We need to take those error bounds down because we have to make hard decisions in real time. I'm really open minded that there is a lot of new data sources that we can learn from the private sector, from reforms in the official sector, and new analytic techniques that are far more refined than asking a simple question about whether something was core or non-core. Edward.
[01:18:23] Speaker ?: Edward.
[01:18:24] Speaker 10: Thanks. Welcome, Mr. Chairman.
[01:18:26] Speaker 21: Edward Lawrence with Fox Business. So if you don't give a lot of ongoing forward guidance, won't the markets have more volatility, and shouldn't Americans have more access into what you're thinking going forward?
[01:18:39] Speaker 19: So I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question, how will the Federal Reserve react to that incoming information? The more that markets are paying attention to what's happening in the real economy, deciding what's good data and what's less good data, the more financial markets can price what they believe is the most likely, and what are the tail risks? Financial market prices are probably the most important source of information to guide central bankers. But when all the financial markets are doing is reflecting back what we've said, then we're taking the most important source of information, and we're being blind to it. I'd like us to create a system where those blinders come off, where markets are following data that they efficiently think is reliable, and they'll be watching data, we'll be watching data, they'll come with better information through market prices to us, we can make more informed decisions. But ultimately, the goal that I said at the outset, deliver on the price stability objective that Congress told us to do, and that we've got to get in the business of doing.
[01:19:58] Speaker 21: If I could take you in the meeting a little bit, this is your first meeting, the board members seem fairly hawkish when you listen to, in general, when you listen to what they're saying. Was there any discussion of a rate cut going forward today?
[01:20:11] Speaker 19: There was one proposal on the table. There was no discussion of any other proposals. The discussion on that proposal, I would say, was quite limited. The group was unanimous and unambiguous on it. It has been the practice of this central bank and others to have a range of alternatives. Today we had one. I thought it furthered the discussion, deepened it, and made it clear what we needed to do and how we need to deliver. I wouldn't prejudge what happens in the future, but there was only one big subject for us. We took it on. We had a good family fight on it for a couple of days, and we ended up, I think, in a better place.
[01:20:55] Speaker 1: Claire.
[01:20:56] Speaker 5: Thanks a lot, Claire Jones, Financial Times. You know, coming to this blind, reading this very nice short statement that I think we've all appreciated in the room. One might wonder why you didn't raise rates today, considering what you're saying here about the risks to US inflation and your mandate. I guess, why not, and what would you need to see in order to get to that place? And secondly, on your task forces, are there any best practices at other central banks that you'd consider looking at? Thank you.
[01:21:37] Speaker ?: Yeah.
[01:21:37] Speaker 19: I'm glad they're in the practice of giving you two questions, because my answer to your first question was to be very curt. I've got nothing more to say than the statement itself. And to the point of the question I got before, market reactions to what we say unfiltered, I think, is more helpful than having delivered a statement to me than improvising further upon it. Best practices of task forces. This is a subject I've thought some about. I've been on a task force or two in my life. Best practice. Find the best minds. Ensure that the task forces have a range of people, both by backgrounds and predispositions, so they, too, can have a bit of a family fight. Make sure when you establish a task force that the group that's going to be the recipient of the information feels as if they've got some equities in it, too. That's why we're looking for, having done the final roll call, some of the most significant talent we have in the building and across the reserve banks on each of these, and in some sense seconding them to this group for a period of some number of months, so that the leaders of the task force know what the most analytical central bank in the world thinks about that. They can reflect on it in a final best practice. We're not outsourcing decisions to anybody. Administrations past and present. Reserve banks have chosen a group of 19 people around the table. These will be our decisions. We can agree to some of the recommendations, disagree with others, have a good family fight about it, but what comes from them will, I hope and believe, make the discussion we have internally better, stronger, more of a dialectic, so that we can finally deliver on that price stability objective.
[01:23:25] Speaker 5: And just a quick follow-up on your markets point. If you look at two-year yields, they're really suggesting that markets think more tightening is needed. Would that be your read on what the two-year yield is saying as well?
[01:23:37] Speaker 19: We were in such a good place. This is why we don't do third questions, I presume. I'm not going to offer any commentary on market reaction over the last 30 or 60 minutes. What we've given markets is a new chapter for the central bank, some fresh thinking. What we've given markets and households and businesses, I think, is a commitment to ask ourselves hard questions such that we can deliver on the promises that we've made before. This is a lot of change for financial markets to digest. I wouldn't be particularly intrigued by how they react in the first several minutes or even the first several days. What I think is most important is that the financial markets, and at least as important, households and businesses know that this central bank will deliver on price stability. Brian.
[01:24:30] Speaker 4: Hi there, Chairman Worship.
[01:24:33] Speaker 22: Brian Chung with NBC News. Thank you for taking our questions. So when you say that we've dropped forward guidance for the layperson, that might sound like the Fed's going to say less or offer less insight into where their borrowing costs might go. So for the person that maybe you might run into at the grocery store where the price tags are rising at a faster pace than their wages at the moment, how would you explain it to them? I don't know if task force might be the answer there, but how would you kind of communicate this era, this chapter of the Fed?
[01:24:58] Speaker 19: If I told somebody in the milk aisle that I had a task force for that, I think that would be doing a very poor job. So I appreciate it. If I saw somebody in the grocery store, what I would say to them is that we cannot have a very significant effect on particular prices. The price of oil in the markets today or even the price of a dozen eggs, that does not have first order consequences to what we're doing. But we do have a really important job there, and it's to make sure that those changes in oil or beef or eggs or milk don't broaden in the economy, don't have second and third order effects. That's our job. That's our commitment. That's our capability, and we're going to deliver on it.
[01:25:42] Speaker 22: And then is the Fed's relationship with the Treasury also under review? There was the normal breakfast meetings with the Treasury Secretary. Is that something you intend to continue doing, and have you had conversations with the President since you're swearing in?
[01:25:55] Speaker 19: So on the President, I don't have anything for you. With respect to the Treasury Secretary, he has been posting pictures of our breakfast, so I don't think I can deny that. The long tradition at the Central Bank is that the Fed Chairman and the Treasury Secretary meet weekly. I think we've pulled off three of those so far. I believe he's overseas this week, so this will be the exception of the rule. I think they're very useful discussions. The Central Bank's objectives and our roles and responsibilities are quite delineated from the fiscal authorities. And in my view, monetary policy is independent in the conduct of what we do. But that doesn't mean we're not interested in what's happening with the fiscal authorities. The way I think about it is this central bank needs to have a wide lens, but a narrow remit. We need to be quite interested in what's happening in the world. I won't be breaking any news here to suggest I'm quite interested in what's happening in the Middle East. That does have some effect on our day job. It doesn't mean it's our responsibility, but I think we're going to keep a wide lens. And my meetings with Secretary Besson to this point have helped widen that aperture. So we're aware of things that could affect our day job, even if it isn't.
[01:27:14] Speaker 1: Steve.
[01:27:15] Speaker 23: Steve Leisman, CNBC. Mr. Chair. Thank you, Mr. Chairman. Thank you for taking my question. You had said before you became chairman that you thought productivity was a reason why the Federal Reserve could lower interest rates. Do you still believe that to be the case?
[01:27:35] Speaker 19: So the committee had a discussion of productivity today. AI came up. The way I thought about it before and socialized with the group is that artificial intelligence, the latest generation of general purpose technology, is perhaps as important a change in the economy and business and households that we've had in my adult lifetime. It is filled with both a huge opportunity and with risks. I take both of those very seriously. You may have heard me say before that AI is shorthand perhaps for American ingenuity. That doesn't mean that it's going to be easy. That certainly doesn't mean it's not going to be disruptive. But over the long term, my conviction, and I heard quite a bit of support for this around the committee today, is the United States is a winner as we go down this. The United States is ultimately going to be better off in that. Now, to bring that back to the conduct of policy, timing, scale, speed, implications for output and employment, it's one of the things we have a task force to do.
[01:28:49] Speaker 23: If you don't mind a follow up from the other side, which is that when you look at the strong job growth that's out there, the elevated inflation, GDP seems to be going pretty good and the stock market seems to be soaring. Do you look around this economy and see the funds rate being restrictive?
[01:29:04] Speaker 19: So that's your second question. I'm going to give the same answer that I gave before. I'd say as I think about the conduct of policy, what matters is what's the effect of policy. Not what do we say, but what happens. And the best way I can describe it is it's uneven. I do see some restrictiveness in things like housing. It's hard to use those same words anywhere else. I'll just make one other point. You talked about one of our dual mandates on the employment side. I don't believe that we have a cruel choice. I don't share the view that was expressed a few generations ago that Federal Reserve chairmen show up at a podium like this and say, you got to choose. And you're going to have to decide whether you're willing to tolerate higher inflation to put more people at work. I don't believe in that. What I believe is if we do our job, we can make strong growth, low prices, and strong employment mutually compatible. And so what you heard from the committee today is we've got some work to do on the price stability front.
[01:30:15] Speaker 15: Nick. Thank you.
[01:30:18] Speaker 14: Nick Timmeros with the Wall Street Journal. Chairman Warsh, you've said repeatedly credibility is earned by delivering. If credibility requires delivering, the move would be to tighten or at least to threaten to. Now, you didn't do that today. Why not?
[01:30:34] Speaker 19: That judgment you expressed was not expressed by any of the 19 people around the table. We'll be meeting in six weeks. We'll take up the issue again.
[01:30:44] Speaker 14: And if I could ask about AI, the build out is generating enormous demand right now, CapEx, data centers, power. The productivity payoff may be further out. So in your judgment today, is AI adding more to demand or to supply?
[01:30:58] Speaker 19: That's a good question. At the central bank in the economics profession, what we spend most of our time doing is counting demand. It's easier. We can see it. We can count it. We can check it. We can revise it. What we do, though, is we infer supply. You'll notice in the second paragraph of what one of your colleagues described as a very short statement. We have a sentence on the demand side and a sentence about the same length on the supply side. They're both important. Just because we can count one better than the other doesn't mean we're going to favor one more than the other. With respect to AI and the growth of data centers and infrastructure around it, we're counting the demand side. And it is no doubt showing up in GDP figures. We can be less certain when we infer the timing and extent of the growth in the supply side. It may well be an intuition the supply side is going to expand, but it'll take longer. I just described it this way. There's a race between supply and demand. Milton Friedman says that the only thing we know about economics is that there's a supply line and a demand line they ultimately cross. When they cross and what are the implications for policy, the good news for you is we have a task force for that.
[01:32:19] Speaker 1: Andrew.
[01:32:21] Speaker 24: Thanks, Mr. Chairman. It sounded like on the task force on data that you were looking at overhauling or completely overhauling the system of national accounts, the way the government minds the economy. Is that your ambition?
[01:32:37] Speaker 19: In a word, no. In a few words, much of this data gathering happens in other government agencies to which we owe a tremendous amount of respect, tremendous amount of deference. But if in the course of this we come up with recommendations, which Fed staff have already begun to develop about things that they could be doing to help inform us as policymakers, we're not going to hesitate. Again, I don't want to try to delineate the four corners of the research of the task force on data, but I do think there will be a review of official statistics and at least as important a view of bringing the best practices from the private sector and new analytical tools made possible by AI so we can forge these into a fabric that gives us better real-time information. So as I mentioned before, when we're making decisions, we're making decisions that we'd say are real contemporaneous data, not data that we call contemporaneous, that's really an echo of history.
[01:33:42] Speaker 24: Okay, thanks. Thanks. The other question I wanted to ask is related to the building renovations. Are you considering any changes to the renovations, the projects, just in light of the fact that they became kind of a political football in the last year? Yeah. I've heard something about that.
[01:33:58] Speaker 19: I don't think I'm breaking any news, but my view when you show up at a new institution, you should go meet with the inspector general just as a matter of good practice. It's a practice that I hope to continue. I've had one meeting with the inspector general, and he told me what I believe the world knows, which he'll be coming out with a report on the building and the building projects at some point later this summer, and I'll be interested in reading the report. From my perspective, with a forward-looking glance, is there anything that we can be doing or should be doing from this moment until the completion of the project to do what we can to be good stewards of taxpayer money and make sure that we're delivering on the promises that we made? Some more work to do. You might not be surprised in the first few weeks. I've been somewhat preoccupied on other matters, but I promised to get to the full breadth of the Fed's tasks in the weeks ahead.
[01:34:58] Speaker 1: Victoria.
[01:34:59] Speaker 13: Hi, Victoria Guida with Politico. So I know that you did not submit a forecast, but you are the person who is authorized to speak on behalf of the FOMC. So I'm wondering if you could tell us in the SEP the increase in the expectations for inflation. Is that all because of the Iran war? What was the discussion around the expectations for inflation being higher and also potentially growth being slower?
[01:35:28] Speaker 19: So my read of what I heard in the room reflected, I must admit, in the SEP is half of my colleagues thought the policy rate, given all those developments, should be at this level or lower between now and year end, and the other half thought higher. That 19th voter was me and I didn't submit one. There's a range of views on the questions of first and second round effects. No resolution or conviction, but we'll be meeting again in six weeks. I think we're going to know more then. And I think that my colleagues are very attentive to incoming developments between now and then.
[01:36:14] Speaker 13: And can I just quick follow up on the SEP? You said that you're still encouraging your fellow committee members to submit forecasts even if you're not doing it. So what do you think is the benefit of them doing it even if you don't? Yeah.
[01:36:27] Speaker 19: That's the commitment that the FOMC made, and it's a commitment that I hope we live up to. The commitment we made was to deliver price stability. I expect us to live up to it. By the time we get to the end of this year, as I mentioned, I wouldn't be surprised if there was a new communications framework. There were some changes to the SEP. That's a committee discussion, a robust discussion. I think we'll have it. I believe we're going to come to a better mix of communications to deliver on what we promised. But I wouldn't want to prejudge what those are. But between now and then, I would continue to expect colleagues to submit their SEPs. Some of them, I think, believe that the practice is currently structured is okay. But I heard a lot of interest in real reform, generally about all these topics. You didn't ask it, but I'll answer. It was a pretty gracious couple of days, and it's been a pretty warm few weeks. The institution wants to figure out how we can do better. The institution's going back to first principles. And I'm encouraged that what we've done in the statement, what we're thinking about doing with respect to the SEP, that instinct towards a new chapter is a real one. And by the end of the year, I hope we can put some points on the board, both in form and in substance of delivering.
[01:37:54] Speaker 1: I'm going to end up for the last question.
[01:37:57] Speaker 12: Thank you, Mr. Chairman. Andy Curran, Bloomberg News. Could you guide us through, please, some of the principles that guide your own reaction function and tell us a little bit about the kind of conditions that you think when the Fed should respond?
[01:38:13] Speaker 19: It's going to be a very unsatisfactory answer to the final question. The Federal Reserve has a lot of responsibilities, not just in monetary policy, but in supervision and regulation, consumer affairs and payments. My own view is our credibility comes from delivering on what we're saying we're going to do across everything we do. I've devoted more time in my first three weeks to monetary policy than all those things. But the more we deliver on our promises as good supervisors and good regulators, the more benefit we get, the more credibility enhancement we have in monetary policy. When we deliver on our price stability objectives, which we will, the American people will feel as though the hardships that they've been living through in part because of inflation the last five years are in the rear view mirror. And that credibility will have dividends across what we do. And the institution will come to press conferences like this, always with an impetus to reform, always with an impetus to do better. But we're going to put some points on the board.
[01:39:22] Speaker 12: And Mr. Chairman, we've got some labour data in recent months. How would you sum up the labour market right now? Do you see it as stable and potentially a source of inflation? Thank you.
[01:39:30] Speaker 19: Yeah, so the committee, if I were to try to capture how the committee thought about it, the committee thought that the labour markets were stable. There were some people around the committee who thought that it was trending better than that. Trends matter more than data points. What's happening over three or six months matters more than any one data point, any one data release. And I'd say the jobs data has been moving in a good direction. If I heard one other thing around that subject over the course of the last couple of days, what I heard was that strong productivity-led growth is not something that we fear, but something we embrace. Thank you all very much.
[01:40:19] Speaker 1: We've been listening to Kevin Warsh, a new Fed chair in a new era, as we do parse through some of the commentary. The Kevin Warsh Federal Reserve is a very different Federal Reserve than the Jerome Powell Federal Reserve. Not only are we looking at a statement that was only 132 words versus the 175 words of the April FOMC meeting, we're talking about a new framework, a new regime, and not giving any forward guidance. Because guess what? There's a task force for that. Right now, if you take a look at the reaction in markets, they're taking this hawkish tilt, and they are running with it. You can see across-the-board declines on the S&P and the Russell 2000. Nasdaq now little changed as they parse through all of the reactions. When you take a look at the yield space, that's where some of the fireworks are happening. It is yield curve compression time in a massive, massive way. 13 basis point rise on the two-year to 4.18 percent. Suddenly, the idea of one rate hike or even more is on the table, as this Fed chair talks about how this Federal Reserve has a commitment to the American people to get price stability. And that is their goal. He's poo-pooed some of the dual mandate, the 30-year yields. They like that, down two basis points. And it is dollar strength across the board. A big question, Scarlett Fu, was would the president have any commentary on this? And it turns out that he does. He does.
[01:41:40] Speaker 2: He's spoken to reporters several times today. He's at the G7 in France. And he had said that it's all right that they held rates, whatever. He also said that the Fed raising rates is a possibility. It's possible. It could happen. So no sign of anger from him. We do know that Scott Besson, the Treasury Secretary, had kind of eased the path there. He had been talking about the prospect of the Fed not being able to cut rates as the president would want. And that inflation, oil prices, remains top of mind.
[01:42:09] Speaker 1: So we did just listen to Fed Chair Kevin Worf speaking moments ago. Is there any kind of forward guidance? Where did you put your potential dot if you were to have a dot? Well, he has an answer for that.
[01:42:20] Speaker 19: I'm appointing a task force in each of five areas that are central to the broad conduct of monetary policy. First, Fed communications. Second, the Fed's balance sheet. Third, our use and reliance on existing data sources. Fourth, productivity and jobs in an era of transformation. And last, the Fed's inflation frameworks. My expectation -- I'm still in the business of recruiting and finalizing them -- my expectation is the task forces will begin work in the next couple of weeks. And we'll start to get some more information from them, some more framing of how they see things starting in the fall and hopefully most, if not all, of them concluding by year end.
[01:43:08] Speaker 1: Joining us now to discuss is Kate Moore of Citi and Jim Bianco of Bianco Research. Are either of you being recruited for the task force? We'll start with that.
[01:43:16] Speaker 6: I just checked my text messages and nothing came through yet, so -- but it's still early after the presser. All right. What's your first reaction to what we just heard, Kate? Well, a couple things. Number one, there was broad acknowledgment that the economy is in good shape. There's also broad acknowledgment that the rates as they currently stand are not actually restricting any major sector outside, of course, housing, which Warsh mentioned. And there was, like, a lot of collegial talk about, you know, how well the Fed is working together, how well they're communicating, how welcoming Warsh felt, you know, in his new chair position. So there was actually kind of a positive tone about both the economy and the functioning of the institution.
[01:43:50] Speaker 2: And in terms of changes that he's made, Lisa, you already highlighted the fact that the statement was much shorter, the news conference was shorter as well, and we definitely heard a different side to these Fed news conferences. Jim, one thing that Kevin Warsh made clear was that for longer-term changes, including communications, including the dot plot, there's going to be a task force for that. How do you anticipate that kind of information to come out? Is that going to be a surprise when it just comes out, or is he, the Fed, going to give markets time to digest all of that?
[01:44:19] Speaker 25: Well, he also said that the task force might include people outside the Fed. So I would assume that you're going to have leaks, so you might as well be doing it almost in real time, telling us what's happening, because there's going to be some people outside the Fed. But in general, I think that this is a welcome thing. The Fed needed to change. This communication style that they have now is about 20 years old, and the world has changed. Communication has changed. The role of the Fed has changed. And so it is a positive thing. I'll also mention that one of the things that Warsh talked about before he was chairman was all of these prognostications. The Fed's going to cut rates according to the dot plot. He pointed out it very rarely happens the way that they say it's going to be. So it was always an institution that was giving an inaccurate forecast, and we were over-relying on that inaccurate forecast. And maybe it is time that they try a different approach.
[01:45:13] Speaker 2: Kate, is Chair Kevin Warsh kind of consistent with what former Fed Governor Kevin Warsh sounded like?
[01:45:20] Speaker 6: I mean, I'm going to go back to this word I just mentioned a moment ago, collegial. I mean, it really felt like that was sort of the overall tone. And I think something is very important here, which is that we are having more consistency of policy here between the last meeting with Chair Powell and Chair Warsh, which I think is going to be comforting to the markets, even if risk assets, you know, dip a little bit on this news. It's just kind of reiterating what we already know, though, right? That inflation has been warmer, spicier than many people had expected, certainly even pre the Iran conflict. And we know that there's been a broadening out of some of these price pressures while the labor market has been solid. I just feel like, you know, Chair Warsh made those points, conceded that, and so was consistent with the person that he has always been, which is someone who is really grounded in data.
[01:46:05] Speaker 1: There's also been a comment, and I thought that his answer to one of the questions was really interesting, about why he thinks that this shouldn't be an overly communicative Fed, how the data and how the market responds to the data should be done more purely. Take a listen to exactly what he had to say.
[01:46:21] Speaker 19: I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question, how will the Federal Reserve react to that incoming information? The more that markets are paying attention to what's happening in the real economy, deciding what's good data and what's less good data, the more financial markets can price what they believe is the most likely, and what are the tail risks.
[01:46:55] Speaker 1: This actually, to me, highlighted a real question that's been asked. Jim, is this sort of codifying the fact that the Fed's going to follow the markets? The market is going to be sort of the arbitrator of what the Fed should do, because it is a pure indicator of the collective wisdom of crowds.
[01:47:10] Speaker 25: I think the market should be the thing that the Fed follows. His statement reminded me of that famous line from the economist Charles Goodhart, "When a measure becomes a target, it seeks being a measure." Meaning, if the Fed has already decided what they're going to do, then we could ignore the payroll report, we could ignore the CPI. Maybe we shouldn't. Maybe we should be reacting to all of this and having the market express its best judgment, and then letting the Fed bring in that information. That, I agree with him, is the proper way for things to be done, than them to just summarily decide what they're going to do, say they care about the data, but they've already made up their mind. Kate, do you agree?
[01:47:44] Speaker 6: Yeah, I think that makes a lot of sense, right? The market being an important signal, an important source of data for the Fed, instead of this kind of manipulation. It is really hard, though, as market participants, not to try and anticipate what other market participants or other policy makers or other people making decisions are doing or interpreting with the data. And that is part of the game and part of the behavioral side of things that we all incorporate into our process. But I think, you know, Chair Warsh's point was very clear, that the market and that mechanism, Jim, as you're pointing out, is a really powerful mechanism, and we shouldn't fade it.
[01:48:16] Speaker 1: Right now, we want to get back with part of the task force. I don't believe he actually has been appointed to a task force. He is officially the Bloomberg task force on the Federal Reserve. Bloomberg's Michael McKee, you are in the room. And the press conference actually went along -- went on a little bit longer than some people had expected. The commitment to a press conference, though, not exactly concrete. His answer to you is really interesting. What was your takeaway from this conference?
[01:48:41] Speaker 10: Well, the answer, of course, like almost all of his answers, ended with there's a task force for that. But basically, they're going to look at all communications. And he did express the idea that he doesn't necessarily think you should have a press conference after every meeting if you don't have something to say. Now, that's going to be the thing that the task force is going to have to look at, is what qualifies as something important to say. Today, obviously. But if you're in a situation where you don't know where inflation is going, where you're going to vote to hold rates where they are, does that require a press conference? If not, then how do the markets react? The Fed there is kind of leading the markets. And if they come to you and say, hey, come on over. We're going to have a press conference today, then they're also leading the markets. So it's a difficult needle to thread at this point, I think, for Warsh to try to get out of this, to put that genie back in the bottle. But we'll see what the task force comes up with. He was very, very complimentary of Fed officials today. And he basically framed this all as we're all working together to make this work better for monetary policy. So it's going to be -- we're all going to be sitting back and waiting for these task force reports to come out.
[01:49:56] Speaker 1: Michael McKee, thanks so much for all of your work and insight today. Just real quick here, it does seem like the market he's not necessarily paying attention to in the initial salvos of the reaction. He went on and said, honestly, I'm not that concerned in the first hours. That said, the idea that, A, they dropped any kind of commentary on the labor market. And the fact that he said, we've missed for five years our inflation target and we are going to fix that. Is there any other way to interpret this, other Kate, than unabashedly hawkish? I mean, look, here's what I would say.
[01:50:28] Speaker 6: The fact that he repeated that we have been overshooting the target for five years, something our team talks about all of the time, I thought was incredibly important and actually was a comfort to me. This acknowledgement that policy is going to be really active in terms of getting us to the goal. I thought that other comment he made around paying attention to the left of the decimal point versus the right, that the target is two, not two and something, sort of reaffirms that commitment and the way that he'll work with the committee, frankly, to get policy in a place that we go closer to target over time. So it's hard not to interpret that where we are today as a little bit more hawkish than otherwise people might have expected.
[01:51:09] Speaker 2: But also that's thinking perhaps more clearly than perhaps what we had heard in the past, right? There's no two-ish, it's just two, and he's happy with that. I'm curious in terms of the labor market. There was a question posed about what the committee thinks of the labor market, Jim, and he said trends matter more than data points. The jobs data has been moving in a good direction. It feels like that's all he said about the labor market. He's not concerned with it one way or another. Yeah.
[01:51:31] Speaker 25: And if you go back to the statement, they didn't put anything in the statement. And the one question he said, we're not worried about the labor market. Okay. That is not a problem. The problem seems to be the inflation problem. And that's what they addressed. So I almost suspect that this statement is going to be flexible. So today, now it's inflation. I could see a statement in, you know, six months, a year where there's no mention of inflation. And it's all about the labor market. It's all about real growth then at that point.
[01:51:57] Speaker ?: Yeah.
[01:51:57] Speaker 1: And he said that it wasn't necessarily in conflict with each other. Right now, let's bring in Stephanie Roth of Wolf Research, who's been listening to all of this. Stephanie, your first take on what we just heard from Fed Chair Kevin Warsh.
[01:52:08] Speaker 26: Yeah. I mean, he's setting up to be a very credible Fed. He seems to be very smart about getting everybody on his side and getting the consensus. It seems while he was not in favor of a hike today, you know, that could, that could very much change with the incoming data. So it was certainly more hawkish than what some people had thought. Some people thought he would just come in and try to push through rate cuts because that's what the president wants. And that wouldn't necessarily, quite frankly, be very good for markets anyway. So this was a very deliberate and patient approach. And we'll see, you know, through the path of incoming data, how this plays out. Our base case is that inflation will cool enough, labor market will show some signs of softening such that in the coming weeks they don't actually have to hike. But certainly the odds have risen after this meeting.
[01:52:50] Speaker 2: Stephanie, does this silence the critics who thought that we would not have an independent Fed under Kevin Warsh?
[01:52:55] Speaker 26: Yes, I think it absolutely does. He is, you know, looking at the incoming data. He doesn't seem to be somebody who was scared to be hiking if we don't actually get closer to the inflation goal than would otherwise be the case. He doesn't seem to be, you know, giving way to any sort of pressure. So, I mean, that's a very good thing for markets. Markets should want an independent Fed. So just pushing through rates for the sake of, you know, appeasing the president is not something that will ultimately result in a better economy or markets at the end of the day. And I think we should all feel better about that after what we heard today.
[01:53:27] Speaker 2: How do you anticipate economists to respond or to react to the fact that nine of the members want to hike? I mean, how is this going to adjust what Wall Street thinks is going to happen with inflation?
[01:53:38] Speaker 26: Yeah, and you're seeing that in markets today. You know, at the shorter end of the curve, rates are up significantly and you have to raise your odds of a near-term hike knowing that many more FOMC members than was generally expected are looking for a hike. Before this meeting, I would say the expectation was somewhere between three and six members were expected to be penciling on a hike. Now you're substantially above that. So now we're talking about half the committee is, you know, very much interested in hiking rates given the data that we have today. So whatever your odds were of a hike, you know, before today, you know, it certainly has to be to be to be rising.
[01:54:13] Speaker 1: If you are just joining us, we're parsing through a very noteworthy Fed meeting, the first for Kevin Warsh as chairman. And he made a lot of changes. I did want to make one correction. I said that there were 175 words in the April statement. It was actually 341 words versus the 131 words in this latest statement. And as we've been mentioning in markets, you can see a real hawkish tilt that is filtering through markets. I'm wondering, Jim, from your perspective, do you like long bonds better given what we just heard? I mean, does this actually give you more confidence that this is a Federal Reserve that wants to anchor inflation expectations at 2.0, not 2.something? It should.
[01:54:52] Speaker 25: The old Wall Street adage that as a bond investor, I can stop panicking when the Fed starts panicking really applies. If the Fed is going to be vigilant about inflation, that in all of itself should be positive for bonds. Now, today, it's positive for bonds with the yield curve flattening because they're not rising in yield as much as the front end of the curve. But yes, you know, if you want to go back to 2022, to give another example, the inflation rate hit 9%. But with the Fed raising rates, 75 basis points every meeting, it never got above 4.25 the entire year. The Fed was in full panic mode, bond investors on a relative basis held in.
[01:55:30] Speaker 6: Kate, you agree? Oh, man. We have been very underweight duration for like the duration of my time here at Citi, to be fair. And we have debated over and over again what is it going to be that lets us kind of extend duration in portfolios. But I just can't get there. I mean, our view is that inflation is going to be more persistent and broader than a lot of people expected for quarters to come. So even against that backdrop, against the comments from Chair Warsh and from kind of the tone of the FOMC, you know, we're just not in a place yet where we're buyers.
[01:56:00] Speaker 2: How does this make you think about credit? Would you be changing any of your allocation to it or what you prefer?
[01:56:07] Speaker 6: Yeah, we think about credit, of course, in the risk asset spectrum, too, not just in terms of yield, right? And in this case, you know, equities, not credit, have had kind of a step down in valuation over the course of 2026 because, of course, earnings have been much stronger than the price movement. And so, you know, we're still close to that kind of 15 year high in terms of credit valuations, but we've come, you know, significantly lower in equities. We prefer to take our risk asset exposure in equities over credit. We've positioned that way over the course of the year. That doesn't mean no credit, but we just want to be more selective, frankly. And I wish I didn't just love equities so much and think they were going to go higher. Actually, a pause to breathe, I think, as we've seen over some last trading sessions, is a good thing going into the summer. But I also wish I could use fixed income more actively in portfolios. But given where we are in rates and inflation, as I said, we're very underweight duration.
[01:56:57] Speaker 2: Staying on that idea, we also heard from Kevin Warsh, Stephanie, about his thoughts on how restrictive policy is right now. And his answer was it's uneven. If you look at housing, for instance, Fed policy does appear restrictive because you have that affordability crisis, not just in the actual housing prices, but in mortgage rates. But he doesn't see that in financial markets, noting the record highs that we're seeing in equities and the tight spreads that we see in credit. How do you think about that?
[01:57:21] Speaker 26: Yeah, I mean, so, you know, the initial idea of, well, policy is somewhat uneven. You could initially be interpreted as, well, that's somewhat of a dovish comment until he later said, you don't really see it anywhere outside of housing. So it's pointing to that as policy is largely, you know, not that restrictive outside of one sector of the economy. So once you hear that further information, it suggests that, you know, the economy is certainly running fairly hot relative to sort of where rates are. So, you know, our expectation is that was a, you know, somewhat hawkish comment after, you know, it could initially have been interpreted as a little bit more balanced.
[01:58:00] Speaker 1: We heard him say pretty confidently, Stephanie, that he was not concerned with how the market was moving in the initial aftermath of this press conference. He wouldn't make too much of those moves. Do you think that that was a mistake?
[01:58:12] Speaker 26: No, I mean, I think, I think he believes that. I think he, you know, he, he, he came out and delivered a message of, you know, credibility and the market is seeing, seeing through that. I don't think that was something he would wish, you know, wishes, wishes he didn't say necessarily. He knew he was going to be coming out and delivering, you know, a balanced, although perhaps somewhat hawkish message. And that's exactly what he did today. He, he came in there. He painted the Fed as a very credible institution, one that's working together. He noted, you know, several times that, you know, while they might have sort of family feuds at the table, they're going to come out and deliver, you know, an important and singular message. And that's exactly what he did. So I think he came, you know, came and went exactly as his plan. And I think he was very successful in doing so.
[01:58:56] Speaker 1: Stephanie, just sort of a similar question to what we were asking before about whether this gives you more confidence in long bonds. Does this make you actually pull down your longer term inflation expectations for the United States based on some of the shift in rhetoric?
[01:59:11] Speaker 26: Yeah, I think it has to. You, you know that the Fed is going to be credible in getting inflation down. The market should. And we, you know, we also do take him at his word that they are, he's, he's planning on getting inflation down one way or another. The, the hope or the expectation is you'll get it down through the passage of time and inflation naturally coming down because there have been shocks to the economy that should eventually fade. But if we don't, if, if that doesn't play out that way, then worse is certainly going to be behind the Fed hiking rates in order to get there. So there are two paths to get there. But the, the end goal is certainly going to be that 2% inflation. He very much made that clear. Stephanie Roth.
[01:59:48] Speaker 1: Thank you so much for your insights. Just to recap what we're seeing in markets right now, you're seeing a bit of a risk off in equities in bonds, very much of a risk off at the front end. Yields up almost 15 basis points now on the two year yield to 420 even. As people take a look at the possibility of a rate hike, 10 year yields up five basis points. A market difference that at the front end of the yield curve, 4.48%. And 30 year yields are actually down a basis point. So that is your yield curve flattening and you see it at the strongest, fastest pace in the 230s curve going back to April of 2025. Scarlett, this is exactly what some people were not expecting, which maybe is why you're seeing such a violent move right now.
[02:00:28] Speaker 2: Absolutely. People came in here thinking that he was going to sound dovish. He was the Fed, the president's pick. And we know the president wants lower interest rates. And just to go back to what President Trump said, he was answering a question from our Josh Wingrove about what happened with the Fed. And his exact quote was, it's all right, whatever, when asked about the Fed's decision to hold interest rate steady. Well, there you go.
[02:00:48] Speaker 1: We've got the endorsement, I guess, of the president of the United States. Jim, do you think that yield curve flattening is the path of travel from here?
[02:00:53] Speaker 25: Yeah, if the Fed is going to be committed to raising rates, to fighting inflation, the long end, again, as I said, on a relative basis, should like it more than the front end. The front end yields go up, long end yields kind of hold steady or go up a little bit, and you get that Fed, or you get that curve flattening.
[02:01:11] Speaker 2: Kate, what will you be looking for in the Fed minutes when those come out in three weeks?
[02:01:15] Speaker 6: I mean, I guess I'll be looking for that one small, tiny bit of discussion for the person who was suggesting that there would be space for a rate cut. Love to see kind of how fast that discussion was or how it's addressed. I'll also be, you know, kind of thinking about overall inflation expectations. This is something we want to see, you know, how does the Fed talk about that? Are they going to be acknowledging if we care a lot more about market pricing? You know, how that reflects back in terms of their overall debate. But in general, I think we already know what we need to know, which is like this was a split set of decisions. There were people with varying different degrees of interpretation of the inflation data and the economy, how tight financial conditions are, how much we need to worry about break-evens. I mean, we know it's all over the map, so I'm not sure we're going to get a single cohesive special message from the minutes.
[02:02:02] Speaker 25: If I could jump in on that, there's one other thing that we haven't discussed. The Fed didn't disclose their vote for the first time ever. They didn't tell us whether it was a 12-0 vote or if there was any dissenters. By design. Yes, by design. So maybe we'll get that out of the minutes. That's a good point. But if we don't get it out of the minutes, they're going full ECB, which never discloses their vote. And that says to me, the Fed's more independent, that there's 12 voters across that table, and they don't want to be publishing 7-5 votes, 8-4 votes, having all these dissents. So as he said, they'd rather keep it as a family fight, let them all hash it out in the meeting, and then come out with a decision later on, and not have to have people put out statements two days later about why they dissented for these meetings. So it's going to be a very different thing, and maybe the minutes will help design that.
[02:02:49] Speaker 2: Let's not forget that Jay Powell was part of the discussion. He was in the room because he's a member of the Fed board, even though he's no longer the Fed chair, which is highly unusual, Lisa.
[02:02:57] Speaker 1: You have to wonder exactly what's so broken and whether he personally feels a little bit of attachment to the old way of communication, given that he was really helming that. Right now, I do want to bring in Jeffrey Rosenberg of BlackRock. There is a sense right now in markets that this is a Fed that is newly renewing their commitment to controlling inflation, clearly yield curve flattening, clearly risk-off in stocks. Is this signal or is this noise?
[02:03:27] Speaker 11: Well, there's a lot of both. This is quite the change, and I think we're all trying to digest what we just heard. I think there's a real risk here. Jonathan's not on the program, so I'm going to do my best interpretation. The first reaction is not always the right reaction. Crushing it. And I think there's a risk here of overplaying the yield curve flattening and the questioning of the long end that I'm listening to here. So, first of all, you know, this is a market that is sort of split between the old reaction function, which really moved on the dot plot, right? The nine votes, the nine dots voting for a hike were well in excess of expectations. And that's what moved the market. But then you have Warsh basically telling you, we're going to get rid of the dot plot. I mean, he got you all the way almost to the goal line, but didn't want to prejudge the outcome of the task force. But it's very clear, you know, the task force has its job ahead of it. So that undermines a little bit of that interpretation. I think the second reaction from the market is just a very clear, hawkish statement. But I think here, there's a possibility here that the market may want to rethink, or I'm rethinking, not talking about the market. But, you know, is this hawkish for rates or is this hawkish for the balance sheet? Because if you look underneath what he said, there were some very kind of telling interchanges there. And when you think about the path dependency of Warsh and his history during the post-GFC, you know, first, you know, why was it that the communications of the Fed became paramount for markets? That interchange about why markets stopped paying attention to the data and instead of having their own reaction function, they were reacting to what they thought the Fed's reaction function would be. And that's because the era of the post-GFC was the era of, we will do whatever it takes, and believe me, it will be enough. That was the quote from the ECB, Draghi, when he threatened bond markets that the central bank's balance sheet was bigger than the market's balance sheet. And that ushered in or was reflective of an era where central banks were the dominant price makers. And he wants to do away with that. Well, what's the primary tool for doing away with that? It's the balance sheet. So one of those task forces may be more important than the others when it comes to markets and market reactions. Then the second interchange that was really quite revealing was when asked about restrictiveness, it wasn't so much about the unevenness, but what he went on to say about what is the source of the unevenness. I found that to be the most revealing comment, because he said that might be due to transmission mechanisms, that one might be about the interest rates, that's reflective to housing, and the other, the easiness of financial conditions, is about the balance sheet. Well, that's about some of the risks of running an ample reserve system that maybe here is being hinted at being changed. And if you were to change that, what has been the biggest beneficiary of a big balance sheet? The flattening of the term premium, right? That was the whole point of a lot of the bond purchases, was to bring down that term premium. And we're still seeing the legacy of that benefit. So if the signal here is maybe we're going to be hawkish on the balance sheet, I'm not sure your reaction is big curve flattening. I get the initial reaction, hawkish surprise in terms of the focus on price stability. But there may be some other second order effects here. We'll think about that actually will become first order.
[02:07:16] Speaker 25: So, Jeffrey, I got a question for you about the balance sheet. I agree with a lot of your sentiment about it. And I'm thinking back to earlier with the Fed when they adopted inflation targeting. It took under Bernanke five years before we eventually got inflation targeting. Are we going to have to wait five years for them to change the balance sheet? Can this institution, especially since they've got Fed Governor Michael Barr, who's kind of against it in the first place, to move that fast? So while I agree with you about the balance sheet, is this something that's going to take years to unfold?
[02:07:46] Speaker 11: Well, Jim, I wonder -- you know, we're around the same generation. My reaction to the statement was, wow, that looks like one of the first statements I saw in my career, Feb '94. About the same length, similar kind of tonality. And how quickly did Fed Chair Warsh change the communications, basically on his first day on the job? So I don't think, from that signal, we're going to be waiting with this Fed and this Fed chair five years to make these kinds of changes. And when asked the question, I think he even intimated that he expects these committees to come back by the end of the year.
[02:08:24] Speaker 1: Well, Jeff, any way you slice it, though, this isn't great for risk assets, right? I mean, if you're shrinking the balance sheet, that's tightening of financial conditions. If you're hiking interest rates, that's tightening of financial conditions. Does this make you rethink some of your risk bet?
[02:08:36] Speaker 11: You know, the Fed may be less supportive in terms of financial conditions, but it's occurring in an environment where the contribution, particularly to risky assets, of the Fed's role is much secondary, much more secondary to what we're seeing in the real economy, right? And that's the AI impact, the incredible amount of capital expenditures, the incredible amount of earnings growth. So it might be an opportunistic moment for the Fed to take a step back on supportive financial conditions when financial conditions can stand on their own.
[02:09:14] Speaker 6: Yeah, I mean, Jeff, I couldn't agree with you more on this one, that what's been driving the equity market, of course, has been the earnings in the AI and the AI ecosystem, as well as all the CapEx beneficiaries and the companies and the industries that are benefiting from adopting this technology. So it's hard to say that earnings are really coupled in any way with the rate position at this point. And that, you know, if we are fundamentally driven, which our team certainly is, we have to stay focused on where the earnings are going, who's growing them. And in this case, it's the U.S. over everywhere else. And regardless of where we are in kind of a relative monetary policy. The one thing I just would want to highlight, though, is that for the fringe companies, the smaller companies, those that are reliant on borrowing, people had gotten themselves incredibly excited, as you remember, in the beginning of the year around rate sensitive parts of the equity market. Like this is a time for rotation. We're going to get excited. But now I think we're getting a message very clearly from policymakers that the rates trajectory is not lower in the near term. At best case, we're kind of flat. And that's not going to be an environment where companies that need to borrow in order to keep up with their large cap counterparts are going to be able to do so at a very attractive rate. So that needs to be factored into people's expectations for margins and then earnings. And if you care about earnings in this case, which we really certainly do, that should tilt your size, you know, overall exposure.
[02:10:32] Speaker 2: I wanted to go back to the idea about how communications is changing under Fed chair Kevin Warsh. A question from Michael McKee was on communications and press conferences, whether Warsh would continue holding them after every meeting. He said that they can be a useful way to communicate with households and businesses, but you need to have something to say. So that suggests that perhaps there won't be a meeting, a news conference after every decision. Having said that, if households and businesses are learning from this news conference or listening to this, Jeff, what do you think they heard from this new Fed chair? What's the message for them?
[02:11:04] Speaker 11: Well, I think he wants us to reiterate the main message, right? He said the other useful thing is everyone here in the room helps to amplify. I don't know if he said that, but I think it was implied. You have to amplify that message. And the message was the recommitment to the Fed's stability price -- stability of prices goal. And I think that's the message that he wanted to get out, the recommitment to the attainment of the goal. And all the task forces and everything else around that is really in service of that, in recognition that, for the past five years, there's clearly been a failing on that part.
[02:11:42] Speaker 1: Jeffrey Rosenberg of BlackRock, thank you so much for being with us and breaking it all down. Kate Moore, Jim Bianco, you're still here. Jim, final thoughts on exactly what we have experienced in this history-making day?
[02:11:54] Speaker 25: That we're going to see a different type of Fed right now with a different type of objective and communication style. And that that's not necessarily a bad thing. I think the market reaction is appropriate because part of the path that they're going to go on is going to follow a lot of the other central banks. In the last week, the ECB's raised rates, the Bank of Japan has raised rates, and now the Federal Reserve is suggesting that they're going to raise rates, too. So they're all moving in that direction. Kate?
[02:12:21] Speaker 6: I love the overall message, again, around working with the rest of the FOMC, around bringing in outside voices to these task forces. But I do want to say something. It's important to reiterate that commitment to price stability and to the target. But there's a phrase that keeps coming back into my mind, which is, "Your actions speak so loudly I can't hear what you're saying." So let's see if there's follow through in terms of action and not just trying to job on the market to say, "Hey, we do care about it, but we're not taking the necessary policy actions in order to get us closer to that goal." So I'll be watching very closely what happens over kind of the next, you know, six to 12 weeks in these next couple meetings.
[02:12:57] Speaker 1: Kate Moore, Jim Bianca, both of you, thank you so much for being here. Scar, we're seeing some pretty big moves. I mean, in particular, looking at the Japanese yen. Now, the weakest versus the dollar going back to 2024. We're seeing all sorts of sell-offs in various equity markets. A big day for the broader Wall Street market. This is not your father's Federal Reserve. Or maybe it is. Maybe that's the whole thing. Maybe this is your father's Federal Reserve. Depending on when you were born. Exactly. It's maybe a hearkening back to days of yore when this was a shorter statement, when the balance sheet was not a big tool. What a day history making from New York City to our TV and radio audience worldwide. That does it for us. This was The Fed Decides. Thank you.
[02:14:05] Speaker ?: Thank you.