*The Federal Reserve FOMC Presser & Rate Decision — Kevin Warsh*

[00:00:00] Speaker 1: all right all right all right here we go ah well well well welcome on back it is uh it's kind of early today huh we've got uh federal reserve uh chair mr warsh speaking today in portugal uh this comes after the adp employment report so we get to see some uh some good old good old numbers on jobs coming in actually a little weaker than expected but best like quarter of job gains we've seen in a decade i mean really incredible sort of bounce on uh on jobs so fantastic numbers uh and you've even got companies now starting to come out saying that the uh software sell-off is overblown i think there was guggenheim came out with that this morning but uh really interesting uh so we'll see how things uh develop today but mr warsh the warsh event begins technically in three minutes now there were a couple different uh timers that uh that i or times that i saw given for the warsh event uh some people said the event including the actual event website said it started in two minutes uh the others said you know warsh doesn't come out for you know 32 minutes from now so we'll see we'll figure it out and uh what's very interesting is uh you know kevin warsh in the fed meeting was obviously quite how should i put it uh quite reserved i think is is the best way to put how warsh was during the fed meeting uh and so we'll see if in this meeting that communication vacuum that we got kind of slows down and maybe we get a little bit more um how should you say a little bit more color we might not though you know he might just keep that strong face and unfortunately that strong face is associated with the markets pricing and rate hikes now again you know i've said it many times before i don't actually think we're going to end up getting rate hikes which means all of that pricing that we have towards rate hikes it actually ends up turning into bullish momentum as rates come down you know obviously uh absent a reason for rates coming down dramatically uh that would be negative right positive reasons disinflation negative reasons some kind of employment crash but that's not what we're seeing right now you've got 98 000 jobs on adp we do have the labor report coming out tomorrow so you'll also get the bls labor report tomorrow it's kind of busy two days here mostly because the market is closed on friday uh thanks so much darren appreciate it uh we've got uh 98 000 jobs uh created here on the adp report the expectation was actually a little higher we were looking at about 123 and on a weekly basis we have been seeing the weekly numbers and we're going to talk about a 120 to about 130 read here bls report is expected to come in at about 113 so um you know this a little bit lower but still very good and still the best decade we've seen in employment numbers for quite a while let's see what cnbc has to say big event today the ecb forum on central banking and sends reports it's just the start of jim kramer and jim looks very confused as usual yeah coming up there we go that's gonna be so it's gonna be a panel touched on that yesterday that uh sarah eisen is moderating this panel notice they don't have the bank of japan there this time instead they brought the bank of canada in which is interesting they brought the bank of canada in because uh you know canada the central bank of canada just recently said oh you know we disagree with the characterization that you know canada is in a recession we don't think we're in a recession and um hold on it sounded a little duplicating audio there um that i think is very interesting because their gdp has has technically come in a negative uh so for two quarters in a row uh that is uh in line with a technical recession for canada but and uh the united kingdom is also starting to see their gdp drift down so you're seeing other parts of the global economy start seeing uh their gdp really slow down and it kind of makes you wonder how much longer can the ai boom go in america but so far there's no sign the spending is gonna stop uh in america which is uh which is wild in terms of artificial intelligence but we shall see we're certainly going to be keeping a close eye on it because if things turn around it's gonna suck uh oh well all right good so what else do we have uh we've got um kevin warsh meeting i'm i've got a feed from c-span up waiting for that to start cnbc is indicating this is moments away we'll see we'll get to see kevin warsh yeah this is um uh oh still has it uh okay huh yeah well it says there they keep they keep throwing me through this little google ad fed river reserve uh chair war speaks at ecb forum but uh let's get through this google ad here we go yeah they they then they then they just talk about the space station so might end up uh might end up taking a few minutes for the actual event to start but that's no problem there's plenty of stuff uh that we could do let's uh listen in over over here for a moment listening [00:05:39] Speaker 2: for uh more clues about tasks forces uh about comps yeah i don't think we're gonna get any clues about [00:05:46] Speaker 1: the task forces remember this was a reference to uh kevin warsh basically punting uh answers well that's a great a great way to punt answers is to refer to a third party and so you're the chairperson the fed somebody asked you a question you punt over to a task force great that means you don't have to answer because you can pretty much answer everything with well we'll let you know when the task force decides i think it's kind of interesting uh and to me it's his way of delaying answers on rate hikes which to some extent is sort of a tool for anchoring rates where they are it's kind of great yeah see here's another feed i have of this um and this here does indicate the live stream's about to start they're two minutes late but we'll see anyway um as we wait for the warsh stream to start here pre-market i do want to take a look at that um guggenheim software piece let's take a peek at what they said so here we go yeah software gains as guggenheim says ai is no death knell for the sector oh of course it seems like every time my uh it's like every time i want to go live they make me re-log in no problem no problem i'll just do it from my phone where i'm logged in but uh i well here it is shares rose a software shares rose in pre-market trading after guggenheim upgraded a trio of companies uh this includes salesforce service now and checkpoint software valuations imply many software companies will decline in perpetuities forever because of ai we don't believe that to be true competition from ai companies would have an impact but the fatal bear case was a hallucination ooh what a line uh from uh guggenheim there on uh on software software stocks have been broadly pressured this year with investors fretting that offerings from ai native companies like anthropic or open ai will ravage the sector's long-term prospects software etf is down 14 this year compared with a gain of nearly 20 for the nasdaq 100. guggenheim wrote that it believed salesforce was grossly undervalued following this year's slump well we do see ai as a significant risk and view crm as a company likely to be negative impacted by agentic ai we believe the armageddon scenario priced into the stock is misaligned with reality yeah well that's what oh i think we're getting started here there we go now why did you do that [00:08:52] Speaker 3: well we did it because we had the perfect monetary policy circumstances to do so and um you know when you have uh in your inflation outlook up your core inflation up when you have the underlying inflation indicating that it's also trending up as well and that you're only going back to your two percent target at the end of 28 with a number of things happening in our uh inflation outlook which includes you know the market expectations in particular um you have the obvious decision and it was so obvious that we had a unanimity decision within the board of government [00:09:30] Speaker 4: the board of the governing council but seriously how will you decide whether you keep going [00:09:35] Speaker 3: because you're still above target you know what we decided to do is uh way back to uh give up on forward guidance okay and personally and i've said oh that sounds a whole lot like warsh doesn't it have felt um bound and compelled by forward guidance so i think what we do is now also informing uh market participants informing financial experts from all walks of life about how we come to our monetary policy stance and i have called it not forward guidance but framework guidance so that those interested in how we come up to a particular decision appreciate what we take into account what intellectual process we go through what indicators we are particularly attentive to so that of course they have to do a little bit more work themselves it's not forward guidance blindly and you just assume that it's going to be what had been um calibrated as forward guidance they will have to do a bit of homework they will have to look at the indicators that we're attentive to they will have to appreciate our intellectual process and what we are especially attentive to and that includes you know if if i go through what um we are we did on the 11th of june we looked at the inflation outlook uh taking into account all the the latest economic and financial data with risks part of our assessment as well and that's you know recent development as as you know we looked at underlying inflation various set of indicators and we looked at the transmission of monetary policy so it's taking all that into account in the context of a supply shock that led us to the decision that that we made speaking of not liking forward [00:11:23] Speaker 4: guidance which is going to make this job so much harder for me this panel um chairman warsh we have inflation in the u.s that is higher than europe's and farther away from our target so why are we not [00:11:34] Speaker 5: raising interest rates oh here we go i was hoping you asked me about forward guidance um we'll get there because you have so much to say there too right so we have found common cause um it's what president lagarde said i liked her when we met 20 years ago when she was finance minister after that answer i love her reform does not stop at the water's edge what i found most exhilarating about the last two days here is the kind of discussions that we've begun at the federal reserve as a lot of people at this conference open-minded keen to think anew about the conduct of monetary policy and uh and president lagarde's answer on forward guidance i couldn't have said it better myself we're going to chart a new course so that we can make better decisions and do the right thing and so my few days here have been incredibly rewarding on that on the broad conduct of policy uh at my press conference i said i'm not going to give forward guidance because we're meeting in six weeks but i have an update for you we're meeting in four weeks so uh sarah is trying to get me to break this rule she's going to fail um there's a lot of data that we received in that meeting i see many of my f1c colleagues here in cintra um i take the views very seriously i want us to have a good family fight when we meet in four weeks um there's a lot of late breaking news on a series of these things and we get into that room and shut the door we're going to have a good debate um uh but i don't have much more for you than that okay we'll get back to that i have [00:13:16] Speaker 4: more questions for you governor bailey you you did not raise interest rates even though you're all your inflation is above target but there are members of your committee that want to raise interest rates so [00:13:26] Speaker 6: why are you holding back go sarah is and kevin and christine um you know we all spend a great deal of time looking at the substance of the evidence and i think an important piece of the substance the evidence for us is that we've got a softening economy um so we're seeing a certain market we're seeing some softening of activity yeah we think we've got a bit of an output gap opening up and we had that before the hostility broke out in the gulf so that's the contextual setting i mean because we're you know we're very focused on you know the risk the risks of pass-through of the energy prices to in the indirect effects and things like food prices and the second round effects and we don't want obviously want it to become embedded it is very frustrating i was very much of the view that we were going to have inflation back at the 2.0 targets you know in in the late spring um uh everything i've seen naturally since tends to confirm me in that previous view it's obviously not there because of the effects in the gulf but the decision not to raise rates for me was based on uh you say reading you know the evidence of a softening economy and then a second thing and this is probably where we're in a little bit of a different position from the ecb to start with because it's the sort of the adage you know where you get to depends on where you start um you know we there was there was an expectation that we would cut rates this year that's not unreasonable in the context of the softening economy yeah that's off that was that was off the table in march and you know it's it's off the table at the moment so you know that was the context for me that i think we had some time because by taking that sort of in a sense that that that that loosening off the table you know the mortgage rate went up one percent so you can argue that we've actually tightened policy and in the period since the conflict uh broke out but like you know kevin and christine you know we reviewed every meeting so we've got a meeting coming up at the end of july uh and we will be looking at all the evidence again then so we we we return to it yeah the weakening economy though it sounds like is are you more [00:15:27] Speaker 4: worried about that than the higher inflation well i'm not going to give you any prediction as to [00:15:32] Speaker 6: what we will do i think obviously the thing that has happened is that energy prices have come down quite substantially they're still a bit above where they were pre-conflict but they've come down but the other thing you have to be a bit careful with in the uk is that we have a delayed reaction mechanism to energy prices because of the way our household energy price cap system works so i always say you know it's appropriate at the moment to borrow a soccer analogy analogy we always look i'm afraid we always look a bit better in the first half than we do in the second half [00:16:03] Speaker 4: i'm proud that you use the word soccer now the world cup is in the us everyone's talking soccer governor macklem your inflation rate for may was 3.2 percent it was above your your range for the first time in a long time but you have not really spoken about raising interest rates are you comfortable [00:16:20] Speaker 7: where you are well we we left our policy rate unchanged last time so yes i guess we're comfortable where we [00:16:26] Speaker 4: are um look on on the going forward without forward guidance the no no further guidance um you know [00:16:35] Speaker 7: what's what's interesting is we're all facing pretty similar shocks but we all start from slightly different places and we have different proximities or different exposures to these shocks and you know the benefit of our frameworks with flexible exchange rates is we can direct policy for what we need in our country so yeah you're gonna see you're gonna see some differences in canada like the uk uh the economy's soft growth is economy's growing but it's it's been weak uh there's excess supply the labor [00:17:05] Speaker 1: market uh there's some slack in the labor market but well imagine the u.s economy without ai that's how i think of canada and the uk i'm not saying there aren't ai companies there but like think about how [00:17:19] Speaker 7: slow our growth would be without ai right now and if inflation comes down quickly we're going to regret that we did that on the other hand we cut rates support growth there's a risk that the rise of inflation becomes more persistent so you know when we looked at it uh you know we're we're sort of on the we think you know our range for neutral is uh 225 to 325 or 225 so we're kind of at the bottom end of our our neutral range providing a little bit of support but um you know we think it's about the right level to to keep uh inflation contained they're about one and a quarter lower than us in the united states and this gets a bit back to your forward guidance question i mean we got to be humble there's a lot of uncertainty out there uh those risks could shift quickly and the other part of our message is if the situation changes we're prepared we're prepared to take action do you think chairman [00:18:16] Speaker 4: worse that the the inflationary spark that everyone's seeing and feeling is is a temporary phenomenon of as a result of the rise of energy prices which have already started reversing okay you can answer this [00:18:28] Speaker 5: one temporary sound like transitory is that what you were trying to sneak into is it transitory um so i'll build on what governor macklin just said by the way the four of us all served together in the global financial crisis in in different roles so i would say for us to be back on this stage in this circumstance is great and they've been incredibly warm to me president lagarde has sort of welcomed and encouraged these sorts of new ideas that we've talked about at the federal reserve on these series of task forces and sarah my hope is that the results of these can be a public good if we make progress and thinking about the effect of productivity the effect of data new and come on bro this is something we can all all borrow and use from um the other thing i'll add is that monetary policy uh spills over from one of our economies to the other and it spills back i think the way governor macklin said it right which is we're all being hit by a series of shocks in the u.s the ai shock is leading to a boom in capital expenditures we see that first and foremost in demand but i'm confident we're going to see it in supply at some point so we're spending most of our time trying to monitor those developments that's a big one he's saying that supply of deflation can observe it on the demand side but it's up to the central bank to decide whether it's inflationary that's why i'm asking whether in fact it it finds its way into a broader set of goods i don't have any news for you on that but i would certainly rather be in a position where we have two things where we recommit the way i know my colleagues have to deliver price stability and the other piece that i'll take note of which shows some difference i think among our our nations is the ai boom is showing itself first and very prominently in the united states i'd certainly rather have this problem where we have massive capital expenditures instead of thinking years back where we had financial engineering where we had companies that weren't able to deliver profits so they would do shareholder buybacks well right now they're investing in the future because their expectation is the supply side of the economy will expand and if it does that that has huge implications for monetary policy but again i'm not going to make a judgment now we'll meet again in four weeks but this is as exciting a time and also as a consequential a time to be a central banker that i can think of at any point maybe outside of a crisis in my adult lifetime [00:20:53] Speaker 3: president can i pick up on a point that um my friend uh kevin made it's the speed at which uh things change and that is clearly accelerated by ai and i think in that context we have to be to be open to new measurements new ways of thinking new tools that help us and assist in making the right decisions so i think in that context the use of scenarios for instance that we have now uh really uh nailed down with milder severe and and adverse scenario to make sure that our decisions you know are solid and robust across scenarios the fact that we're incorporating risk into our assessment of inflation and i think risks by the way that we have to the upside on inflation and to the downside of growth are probably more broadly balanced than they were a few weeks ago as a result of what we're seeing which happens at speed if you look at how fast the price of oil spot price granted has moved down you know 72 dollars a barrel now when it was 120 back in march these are changes that are just so accelerated that we have to all i hear is bullish differently and more accurately using ai for instance how do you make sure europe doesn't get left behind on ai i know it's not necessarily it's not it's not it's not the central bank governor's question in a way i know you probably have thoughts no i'll tell you something um one i think that we have to consider that as a transformational uh technology breakthrough and diffusion um and material technology it's going to it needs to be analyzed from our perspective both in terms of you know how much capex is going in that in that particular domain what impact it will have how fast will it develop how will it diffuse how will we reorganize the way in which we conduct work including at our central banks by the way uh to really appreciate what impact it will have on productivity but if it delivers the productivity expectation that we have then it is going to be a radical change going forward and we need to of course from our perspective as central bankers we need to measure the disinflationary inflationary uh impact it will have over the course of time and it might be disinflationary first and inflationary second or probably more so the other way around but it all needs to take into account now i i take your point about europe lagging behind in terms of investment and um and the the frontier companies that are leading the game at the moment but i think that we are all um sort of hostage to each other if i may say because we need those frontier companies but they need the markets when you represent 25 of the revenues of many of those hyperscalers we need each other we are in this game together at which end of the spectrum at which set of the supply chain to be determined and there will be healthy competition i'm sure but we depend on each other you can't dispense we can't dispense of the of them and they can't dispense of the revenue source that we constitute so we're in this together that's my personal view [00:24:09] Speaker 4: governor macklin how's it impacting canada do you get the tailwind from from the boom in the us or are you still dealing with too big of a headwinds from trade for instance um well look trade trade [00:24:22] Speaker 7: does continue to be a headwind i mentioned the economy is soft you certainly see the impact of u.s tariffs uh on our exports i think well you know coming back to investment i think we get both some tailwood but we also get a lot of competitive pressure from the u.s the u.s is investing in a very big way uh and you know our economies are very are very integrated um you know we have a very integrated business model in north america that's why trade uncertainty is impacting canada um it also means though yeah canadian firms are going to have to be competitive i mean what you see on ai you know it's it's it's very interesting talking to companies so you know you survey companies you ask them are you using ai yeah like almost everybody's using ai but then you say okay have you you know materially changed a whole production process and you know made it you know embedded ai that's a much smaller number you know that's something like 10 15 percent uh depending so it does show that there's there's a lot of a lot of potential there um the you know whether it's inflationary or disinflationary i think you know look looking out ultimately i mean there's so many good reasons why this is a general purpose technology and you know one of the things i picked up over the last couple days is well actually it could be even bigger than that if it actually uh accelerates the process of innovation of discovery itself it could be uh even bigger um but you know when exactly that arrives when those dis inflationary uh kick in i think is a very open question that's you know another one of those things uh we need to be humble about in the near term we are starting to see some pressures you can see it you know you mentioned our our may cpi number if you look at computers up 10 how's that going to feed through the supply chain i mean those are the sort of things we're going to need to keep an [00:26:18] Speaker 4: eye on yeah memory chips are a big deal there's the inflation question governor bailey there's also the jobs question and i know it's early and we don't exactly know but do you think of ai at this point as a job killer or job creator well i think the jury's out on that question i mean if you look [00:26:35] Speaker 6: at the sort of look at history um and you look at i mean tiff's just been referring to general purpose technology innovation and you've seen waves of general purpose technology innovation over history and they've actually had different patterns in terms of their impact yeah quick summary if you're [00:26:49] Speaker 1: just joining so far relatively bullish kicking the can down the road on rate hikes you actually had ecb lagarde say hey you know oil prices came down pretty fast that helps balance things we're going to rework in inflation frameworks kevin warsh picked that up as well yeah we're looking at new tools for measuring inflation supply will come when you read between the lines on war she's still a deflation [00:27:15] Speaker 6: bull this is dovish it's good mixes that we adopt on that front particularly in things like skills and training uh and the second points i make is because again this comes strongly view from free from looking at the past is that the length of time it takes these effects to come through uh and you know i said there's more than one labor market effect the the length of time it takes for each of those effects to come through and therefore what the mix will be over time differs over time now again you know we could yeah we can have choices there in ten broad public policy terms and in how economies operate so it's very important to to look at that but i wouldn't generalize i mean we're certainly i mean so far you know when i go around the country talking to businesses yes there's a lot of talk about it i think a lot of businesses are using it i mean we're using it at the bank of england i would say we're still really in the experimentation phase actually right and that actually comes before the [00:28:10] Speaker 1: layoff phase right when you experiment and build the workflows i made a video on this yesterday that's still the experiment we haven't figured out all the efficiencies we haven't started firing yet phase right important to remember a super quick note for those of you who have been asking reinvest homes ai is live this is just kind of like a quick little sneak peek of kind of how it functions and how it sorts deals by uh net worth which is really cool or potential net worth change super early beta uh and then of course our uh alpha wire is live for anybody using the meet kevin app uh and then of course the stock ai tab we've built a lot of really cool things for course members so if you're not part of it yet uh feel free to grab that coupon code we did push it to expire today let's get warsh said um [00:28:54] Speaker 5: the united states is likely to be a big winner over the medium term in this yeah but i don't say this from a parochial perspective the u.s is not afraid of productivity-led economic growth but we don't view the economics of this as zero sum we aren't rooting for another country to fail we're rooting for economic growth to be broad-based that's good for the united states it'll make all of our jobs easier on your question of jobs i mean i will go back to good econ one it's called the lump of labor fallacy for a reason um who knew when the internet was born that the internet was going to create a million and a half jobs as uber drivers we are in the first or second inning of this revolution this is a big paradigm shift both for the conduct of our policy and for our economies i think the jobs will be greater prosperity will be stronger the question as one of my colleagues raised his timing yeah and we have to take that timing very seriously we have at least in the united states a dual mandate and we have to deliver both on the employment side and on the stable price side so we'll be monitoring the speed of it but if you wanted me to sound like a pessimist and a doomer on this i'm [00:30:05] Speaker 6: i'm afraid i'm not there if i could just come back on one of the points um on this this whole area i mean conversation here as we've moved from uh discussion about rates to the impact [00:30:17] Speaker 1: it's stop interrupting them what the hell is this the headline is of course sarah talking to warsh [00:30:24] Speaker 2: about rates and his words we're going to start a good family fight when we meet in four weeks go away shut the door have a good debate but i don't have much more for you i i put my other feed [00:30:34] Speaker 1: away hold on i have another feed coming up though one sec what the hell i will figure it out there we go c-span i'm pretty sure is covering it it's okay we got the bell in three minutes um i do want to get into that because they're literally talking about productivity and this is kind of like the important part uh let's see if they're going back to it about the press conference [00:31:03] Speaker 8: but david yes sir this is the way it's going to be i'm not going to make any news you want me to make news i know you want you want me to have ghoulsby come out and say i think we should tighten or this person say oh dbs okay no speak with one voice that's it yeah and that's what it's going to be and that voice is going to speak once a month and that's it except for when they don't have a meeting [00:31:23] Speaker 2: um i do think it's important to listen to the fed chair discuss what he sees as the [00:31:27] Speaker 1: early innings of the ai revolution that i talk let me try bloomberg this is pissing me off i should have had a backup feed up i had it and i closed it oh here we go for the safety of all of us so that's [00:31:43] Speaker 4: that's a really good development i did want to bring it back to economic growth um for a moment president lagarde because and i've asked you this for a few years in a row now and you've always pushed back and have been right okay i'll push back again the stagflation question and whether europe [00:31:58] Speaker 3: is is facing stagflation okay well then i'll repeat what i've said before uh stagflation is a concept of the 70s in circumstances that are not replicated those days we are currently at almost lowest historical levels of unemployment employment participation continues growing there will be different jobs to you uh previous questions but employment is is is uh continuing to uh to grow a growth and and and and and we are taking all the right steps to make sure that we have price stability we're not going to let inflation run you know out or the genius get out of the bottle and inflation uh move up we will take [00:32:44] Speaker 4: the necessary steps and we have yeah i mean the employment story has been a positive one for europe [00:32:49] Speaker 1: for the us as well i mean we've said for course members we'll be live right after this live stream and we'll game plan and strategize together we've got a lot to talk about on strategies are going to be [00:32:59] Speaker 5: fun after this so uh when we met two weeks ago i think the way we as a committee described the labor side of the mandate is we said labor markets are steady we said the demand side of the economy was solid and we said the supply side of the economy especially capex and productivity again this is before we see the fruits of ai we said that was strong i don't want to i don't want to sound like a wall street newsletter and update that with recent events because we follow trends and you know i'll reinforce something that president lagar just said um we're all in the price stability business that might not be our only business but if there was a common thing i heard over the last couple of days it was open-mindedness on these questions of ai open-mindedness on productivity but we've all looked around and we've seen that prices are too high and i don't think i'm the only one on this stage that's recommitted to deliver price stability so the market was right to interpret your first news conference that's hawkish nice try love it i'm not i'm not i've just gotten advice from from a from my senior statesman on this group not to do that but i'll say this um expectations of inflation over the first four months uh first four weeks of this period they've come down inflation risks have come down let's go again in our business we don't want to over determine things but if there were people bullish household of the business sector in the financial markets who thought that this central bank was going to be comfortable with an inflation objective above two percent well i guess they'd be disappointed we're going to deliver price stability in the us that's what this committee has signed up to do and our objective is to do that the tactics the strategy and the rest uh that's still to come no matter what the president wants uh we were we've been an independent central bank for a very long time we're going to be an independent central bank uh uh at this moment and you're going to see no changes [00:35:00] Speaker 7: on that so is anybody yeah i come back to the stagflation point because i just want to double down on [00:35:06] Speaker 1: christine i mean stagflation it's a you know he wants to double down on christine and the other [00:35:12] Speaker 7: thing you know getting back to what kevin was just saying it's unanchored inflation expectations that was the fundamental problem in the 1970s and and the only way we got out of it was we had to have you know a big recession to re-anchor expectations if that happens you know we have fundamentally failed to do our jobs so yes you know we have a period in i mean canada yeah the economy's weak unemployment's a little bit you know it's high it's 6.6 inflation is 3.2 those those are not double digit numbers and you know that inflation isn't not going to be persistent uh inflation expectations are well anchored we're going to keep them well anchored so this whole word of stagflation it's it doesn't apply to the situation we have today you got to distinguish between the rise in unemployment and inflation and stagflation they're not the same thing right some people just think of it as slower growth and higher inflation but clearly that's not where you it's a much more loaded word than that [00:36:11] Speaker 4: yeah um governor bailey you know on this topic of forward guidance we make light of it but it is a bit of a change a departure from where we've seen central banks in recent years i know i mean you you you kind of got rid of forward guidance in 2021 you you said you did and how do we determine the difference between a reaction function and forward guidance well look i mean [00:36:39] Speaker 6: you know i think we have to sort of tread carefully through this debate not least because the question you just asked but um i mean almost anything we say of course can attempt to be interpreted as forward guidance um and the second thing i would observe is that of course all of us are making policy which is going to have effect in the future um so we sort of start with that position i mean i think where forward guidance has been very difficult and therefore i'm in a very similar place to my colleagues is that you you can get locked into it very easily um you know i've said a number of times in our committee it's much easier to put it in place than it is to take it away and therefore before you actually go and put it in place just think about you know what what we're going to have to deal with as time goes by uh because you know it becomes quite problematic uh after a while it overstays its welcome so you know i'm also very cautious now i but i recognize that you know anything we say about the outlook for the economy can be interpreted as a view of the future and of course that you know we we have to sort of in a sense do that but i think we have to be very careful about you know getting tied into views on where [00:37:51] Speaker 1: rates yeah that's actually exactly why i think kevin warsh is going dark kevin warsh going dark enables him to focus on cuts even though the market wants hikes the whole reaction function how you think of [00:38:06] Speaker 5: how you're going to make policy so i think the most important thing we can do is to get policy right if our communications tools if our models if the way we've been playing things makes it harder for us to go into these meetings have a family fight with our colleagues and make the best decision in pursuit of our mandates if that's an obstacle we should get rid of it it is it is said in recent weeks well we need to know more about your action function if i look at trigger pullers people that are making decisions in the bond market in a range of markets volatility is not up it's down uh yields aren't up they're down um inflation expectations are down so i hear this that as if people don't understand i think they actually understand quite well um i feel incredible comfort um that i'm not sure i had internalized that there is a willingness by my colleagues in the central banking community around the world to go back to first principles we all want to make the best decisions we can we've all been burdened with many of the policies that in some sense the fed created in the 2008 financial crisis this is a rare moment for us to go back to first principles ask hard questions review what we're doing at the fed we've got five outside task forces to shed new light on this and i'm encouraged because in some sense we each think we're making our own monetary policy but each of our monetary policies affect one another and uh i'm honored to be on a stage with three colleagues who have been in the fight for 15 or 20 years with me and without me and uh i won't at all be surprised if six or 12 months from now each of us are on a better path to deliver on what we've said we're going to do who's leading these task forces um we have news to come i can tell you likely next week who will be the outside experts some of them would have been folks in seats like this in prior years some would have been academics in the audience but we really tried to find the best minds in economics profession among practitioners people experienced hands including people from countries outside the u.s we're not asking for de tocqueville to come to america but sometimes we need a foreigner to sort of see things clearly and the idea of these is not to prejudge the outcomes i'm certainly not going to do it but i think as we make progress on this uh i think some of the lessons learned might not just be for the american central banker who's new to this crew but my colleagues on the stage i was going to [00:40:43] Speaker 3: volunteer at the ecb we went through the same process and when we started the start the strategy review it takes time and we did bring under the leadership of of philippe lane our chief economist it did take time to bring the we didn't call it task force but we had expert committees we had groups and and and it took a couple of years before we actually settled down and all agreed on the key principles the uh reaction function the elements that we would take into account the measurements of the nature of the supply shocks and the origin and blah blah blah blah blah it doesn't happen overnight it's complicated [00:41:25] Speaker 1: it sounds simple when they're buying time uh soulless seduction in the chat says kevin damn i missed the notification folks youtube is not going to give you every single notification even if you hit the button that says give me all notifications it's a scam they will only give you three in 24 hours if i post six videos and two live streams in 24 hours you will miss more than half of the notifications you could solve that by downloading the meet kevin app and you could customize no notifications let me know when you're live let me know if you post a fed video but if you post a pilot video i don't want it you could literally customize the video notifications like that in the me kevin app and you could use the alpha wire for free for now which is kind of cool because the alpha wire is really good especially if you're a trader and that's free go use it different places we were at two percent [00:42:14] Speaker 3: interest rates i think the fed was at 350 there about and you were at 325. inflations were at different levels as well and the markets were expecting cuts in various corners so it's the different the situation [00:42:30] Speaker 1: wasn't here's the wire service just a quick sneak peek as to what it looks like on the phone uh it's really cool minute by minute news we can pin some of the news too breaking news comes through as red [00:42:40] Speaker 4: wild swings and i mean the dollar yen for instance is at the highest level in 40 years is that is that okay [00:42:46] Speaker 5: chairman war well before we came here we each um told a small story about governor waita who's been a great colleague of many of ours and we're rooting for his good health so that he can join us on panels like this in a couple of months um if if this central bank stands for anything it's staying in its lane on monetary policy so if you think i'm going to wander into yen policy in japan way too much of it [00:43:11] Speaker 4: well it was it it's it's making a move that's all you know governor macklem on the markets you recently i think warned about excess um just given the ai trade speculation i think that's very much on the on the market's mind do you do you see signs of that thinking of irrational exuberance of the great [00:43:32] Speaker 7: alan greenspan yeah we've been warning really of two things and and i'm gonna i'm gonna draw andrew into this uh andrew chairs the financial stability board i chair the vulnerabilities committee so i mean you know as governor of the bank of canada i'm looking at at this from a canadian perspective but at the fsb we're looking at it from a more global perspective and yeah i i would highlight a couple of vulnerabilities you know as we've already said look there you know there is so much potential uh to raise productivity growth uh with the adoption of ai with the diffusion of ai but there you know we've seen this before in when there's a new breakthrough technology i mean the the internet proved to be you know better than anybody imagined created whole new businesses uh but we still got the dot-com bubble it doesn't mean there can't be a period where the market gets ahead of himself and and you see a retrenchment so look it take two sides to make the market uh we don't we don't we're not in the business of giving investment advice as central bankers uh so but you know from a financial stability point of view you you know you look at the sort of you know historical benchmarks pe ratios forward ratios yeah things look stretched compared to uh those so that doesn't mean there there's a problem but it does mean you need you need to take that risk on board the other the other risk we've been highlighting is we've seen uh very large growth of of hedge funds in the sovereign debt market and to some extent uh that's been very welcome they've been very efficient in buying and distributing government debt there's there's lots of issuance out there uh governments need investors but a lot of this is being done with a lot of leverage very short-term leverage and that does make you a lot of it overnight in the repo market um and that does make you nervous that if there was a period of volatility and and uh you know haircuts and repo markets went up or there was some disruption in repo markets you could get a you could get a rapid unwind um you know again part of our job is to [00:45:45] Speaker 1: sort of market and what's going on with leveraged etfs right now it's crazy they have a harder time [00:45:50] Speaker 7: seeing the systemic risks these these trades are very low risk for each hedge hedge fund but when they're all doing something similar there could be a systemic overlay and the idea is if we can point [00:46:02] Speaker 6: that out the market can can guard against that risk so yeah i mean kevin refer has referred to the financial crisis a few times and he's absolutely right to do that and one of the big questions that time or before it was is the subprime mortgage market going to be in a sense the trigger and the cause of a wider financial crisis and you know we didn't get that call particularly right frankly but the the thing that we have to bear in mind is what we're trying to look for here is sort of tail risk you know is there something in these markets that could trigger a wider you know a wider consequence in terms of financial stability yeah and that's as tiff said that's what we're trying to do you know tiff leaves that leads the work in the financial stability board globally to do that so yeah we're [00:46:50] Speaker 1: absolutely right these guys are probably telling all these concerns to wash too at this event [00:46:56] Speaker 6: change substantially uh i think the thing we've seen actually in the course of the last few months is an increase in in leverage in equity markets so you look at hedge fund leverage and equity markets you look at uh leveraged uh exchange traded fund markets those things are changing if you look at private credit the other questions we're asking is are those the things that actually can can you can move from tail risk into a broader consequence so then you have to say what are the channels through which it can happen so at the bank of england we're doing a second system-wide exploratory scenario to ask that very [00:47:31] Speaker 4: question about private credit yes that's our job do you see any other broader risks emerging and do you agree with the characterization of stretched for the market so i look i mean we [00:47:43] Speaker 6: are looking obviously yes we do look at asset valuations because you are living in a world i mean you've seen this obviously over recent months where you've got quite a divergence between how you know bond yield cut bond yields are moving and how equity markets are moving now i think this a lot of this comes back to what kevin was saying about ai i think it's explicable in broad economic terms but the question is you know is that going to lead to some some wider stability issues so that's on the list uh and then going back to what i was saying i don't want to reopen it again but frontier ai is obviously high on the risk as well so we've got quite a list of things that we're looking at at the moment [00:48:17] Speaker 4: i wonder if you chairman warsch see any signs of excess trillion dollar ipos high margin just say spacex sarah i mean other things that are going on in this market that remind you of those other times you know i don't give guidance i would say i've been out of this business [00:48:33] Speaker 5: for 15 years but i still have the scars from the global financial crisis i suspect my colleagues do too um we take risks seriously um and that's part of the reason why each of us i think at the core have sort of a reformer's heart on this what can we be doing in the conduct of monetary policy how should we be revisiting fundamental reforms to supervision and regulation how should we think about the payment systems that connect us all so this conference is principally about monetary policy i must admit my first four weeks at the fed my attention has been focused on monetary policy but our governments have tended to give us larger jobs than that we take it all very seriously um i'm not prepared to sort of make a broad comment denoting risks that are available in the system but i will say this this is the biggest time of consequence to each of our economies i think in our lifetime maybe absent the shocks of 2008 and the covid shocks the dramatic change in how businesses do business how households are thinking about employment and inflation and so this is the time we have to go back to first principles i know at the federal reserve with my colleagues many of whom are here we're doing that so i don't want to sound complacent at the same time i do want to say at least for the united states this is a time of huge opportunity and if the fed can deliver on its remit to deliver prices i've never been more optimistic [00:50:01] Speaker 4: about what the growth engine of the u.s could produce the growth outlook of the u.s economy this year is [00:50:09] Speaker 5: we're playing we're playing mad libs now um so i would just say this over the last four quarters in the u.s structural productivity is in the high two percent range so potential growth looks like it's trended up this is a time that the labor markets hours worked are relatively flat history says that we go from periods of low productivity to periods of high product productivity nothing is in the bank at this time of consequence but uh if the last four quarters are an indication which is really largely before the advent of the new surge in what artificial intelligence can do i think there's reason to be optimistic now does that optimism convey into policy in the next six or nine months still too soon to say but strong strong outlook sounds like you're you're you're you're back you're back to forward guidance i'm going to disabuse you of trying to extract that my view and my colleagues i think have said this better than i my view is financial markets and the real economy work best when you look at what's happening in the real economy you make your own judgments um there has been a tendency and i take plenty of blame from this the 08 crisis where we were trying to suppress volatility where we thought we needed to spoon feed markets to get out of that that was the right policy for a crisis it is not the right policy for the time that we have now and so sometimes unlearning is harder than learning and i'm going to keep at it [00:51:40] Speaker 4: okay so what are the president lagarde how do you think about the best levers to boost growth [00:51:46] Speaker 3: in the eurozone right now capital market union 28th regime and boost the venture capital okay so that that would be on the growth front but i would like to add one thing thanks to the veterans at this podium and a few other people we have a strong solid robust banking system which is strongly well regulated well supervised and i think we should be cautious about what we are throwing away by way of simplification so we do simplify things and i'm delighted that for instance the uh the ecb has done away with 40 different set of declaration disclosures that were unnecessary out of the 130 plus so we have to go through that process but i think we have to be cautious about how risks actually move and risks were squarely in the banking system back in 2007 8 when we were all together fighting this global financial crisis risks travel fast and there is no limit to the imagination of those in the financial sector who are trying to make money as is their business and who are taking risks but the question is really who eventually ends up taking the risk and sweeping the mess so i would contend that this regulatory work that we did at the time we need to be very attentive uh as andrew suggested to make sure that the risk that i've moved and traveled afar through different structures um bodies and the different names are also looked at carefully and that the right measures are taken to protect the public good and to protect the principle of who takes risks bear the responsibility that goes with it the other big topic that i know that you all think [00:53:46] Speaker 4: about and as part of your your remit is is the balance sheet and chairman warsh you have talked about before you became fed chairman that the balance sheet was too big in the united states so it's at 6.7 trillion right now what level would you be comfortable with it at no forward guidance no for [00:54:06] Speaker 5: guidance and and i'm not going to get i'm not going to get the balance sheet okay just we're just among friends um we have a task force for that too great um uh we're going to play drinking game on task force i i'll i'll say this there is no i want to play from the 2011 period when i was leaving the fed through now i wanted uh the fed's balance sheet to be smaller and i long wrote about and described you know interest rates should be the dominant means through which we make monetary policy if we're in a crisis that could be a different set of rules it's always struck me that interest rate policy is the fairest of the broad constellation of our citizens interest rate policy whether we move it up or down transmits its way into a new mortgage credit card debt transmits its way through a lending channel and credit channel i've always had a view that the balance sheet works mostly through asset prices works mostly through signaling effects my four weeks at the fed haven't disabused me of that idea um as we're hearing an alarm that must be my way of saying that i've gone too far on the balance sheet but we have a task force that you'll find out of outside people that are going to debate this topic bring it back to my colleagues and me to see whether we can have a judgment about whether the balance sheet should be made smaller the only thing that i'll repeat here which i've said repeatedly is if there's a change in balance sheet policy it'll be a change of my colleagues of the fomc and the board those decisions will be well deliberated publicly well understood and will not be implemented until financial markets have come to understand what those are it took us about 18 years to find our way into this big balance sheet which again in my biased view borders on fiscal policy took us 18 years to get out of it it won't it'll take us more than uh 18 weeks to to bring it down to size i'm open-minded on the question we're not going to prejudge it but i want interest rate policy to be the working or for monetary policy [00:56:14] Speaker 4: governor bailey you've been focused on the balance sheet i guess at one point we were asking how big can your balance sheets get and now i'm wondering how small they can get well i look there's a huge [00:56:24] Speaker 6: there's a nice sort of sense of irony i appreciate from this conversation because i you know i've been accused of having too big a balance sheet and reducing it too quickly so um you know uh well really um i so so can i go back to forward guidance from home because i've really eschewed forward guidance on the balance sheet so i really don't step into this world of saying we want ample reserves we want big reserves small reserves my line has always been we will meet the system's demand for reserves because that's the system's demand for liquidity now we will also spend a lot of time by the way understanding why the system wants the liquidity at once uh and also you know the key other point which kevin has made very forcefully is that's the way we actually implement monetary policy through the through the short-term interest rates transmitting out of our balance sheets into the into the system and that works very well so you know our world is look we wonder we will meet the system's demand for reserves we will under we will seek to understand very closely why it's doing that the other policy i have is that i want to take interest rate risk off the central bank's balance sheet because you know with a public balance sheet interest rate risk should be in the market not on our balance sheets and so that's why we're moving to a repo asset side of our balance sheet because that takes the it that takes the interest rate risk off our balance sheet which is what should be the case you mentioned that you [00:57:49] Speaker 4: alluded to the political heat that you get over this issue does that influence the way you think about [00:57:54] Speaker 6: it at all i know it's not supposed to no i think we we must have you know a sensible policy for moving to you know a system where our balance sheet reflects the system's demand for reserves so yes it went up during it went above that level during the qe period it's coming down to that level uh i want the interest rate risk off our balance sheet those are the policies we're pursuing and i think those are the [00:58:18] Speaker 4: right policies speaking of politics do you get let off the hook governor macklen because you're because [00:58:23] Speaker 7: the prime minister used to be in this seat uh you know we get some free advice from uh elected officials across the country uh and you know as i tell them i i appreciate understanding what's going on it's a big country i appreciate understanding what's going on across the country but uh i don't appreciate um telling me what we what what we should do with interest rates uh you've got your job we've got our job and you know that that needs to be respected so i'll just come back to the balance sheet um you know interestingly if you if you compare different central banks you'll you'll see you'll see a pretty wide range of sizes uh in canada uh we didn't do qe in 0809 uh fortunately canada no banks failed uh we we did get a big shock but it wasn't so big that we needed to invoke that emergency policy we did use qe uh in the pandemic it's the only time we have used it um but the fact that we only did it once meant that our balance sheet wasn't as big to start with uh and uh we we let the the bonds run off so our balance sheet has run back to its new steady state um and if you compare central banks as they said the size of the balance sheets can be pretty different i mean canada's balance sheet as a percentage bank of canada's balance sheet as a percentage of gdp is about a third of the feds um now look canada's not the world's global reserve currency so yeah there might be some differences here um but you know i think i think uh the results of kevin's um task force is going to be very informative to us and the other thing i'll say about balance sheets is um it's a very inside baseball kind of discussion it's not the sort of thing uh most canadians are really that engaged in um but it it does you know it is how we you know there is an element of how do we implement monetary policy what is the demand for reserves uh we've spent you know the last couple days talking about new kinds of money what do those do those what do those potentially mean uh for our balance sheet so these are questions we need we need some uh thinking on in the in the short time that we have left president lagarde i did want [01:00:42] Speaker 4: to get to you on this political point and because you have been a forceful voice for central bank independence um i know you continue to do so and and you i mean unlike these these guys you have to battle more than 20 different governments and leaders 21 21 21 so um you're you're a pro at that i'm i'm just i'm curious if you think that there are if you look across if you look out and see serious risks to central bank independence especially in light of the supreme court ruling that we got in the united states letting said governor lisa cook keep her job well i think you know the best way we can [01:01:17] Speaker 3: actually all do our jobs uh is to be number one accountable number two independent and the two come together you know and i go to the european parliament on a regular basis to report on what we do to explain what we do that's the counterpart for this independence that we have staying in our mandate the entirety of the mandate is also the sine qua non-condition for deserving that independence which is a precious good without which we would not do a good job that's my view how did you feel about the supreme court [01:01:48] Speaker 5: ruling chairman warsh we were doing so well um so before the supreme court the fed acted independently and followed its remit after the supreme court ruling the fed will continue to do so um uh i read the opinion on the plane over here um one of the secrets of the productivity-led economic growth that i was talking about at the outset is because of the constitutional design in the u.s it's the foundational element that has given us 250 years of outperforming expectations uh i believe in article three judges i believe in the rule of law uh we'll follow the supreme court decision but day to day the decision reaffirms what president lagarde already said we are calling balls and strikes as best we can we're taking seriously the reform objective and um and we're going to deliver on the high promise that congress gave us to deliver price stability in the context of our dual mandate and when we do that we don't have to worry about politics we don't have to worry about judicial intervention we get to look in front of us because it's a challenging step [01:03:00] Speaker 4: okay we have a minute left so i'm going to ask everybody one quick quickie for everybody a quickie two quickies actually um governor bailey i'll start with you so favorite economic indicator right now sorry though your favorite economic indicator right now oh that's a trap question as well [01:03:17] Speaker 6: you see that that's a trap question into forward guidance oh god thank you brother i'm trying [01:03:24] Speaker 7: i'll tell you what i'll answer it oh there you are my my inflation forecast yeah oh there you are [01:03:32] Speaker 6: governor bailey you have to answer well look we look at a whole range of data oh god i mean honestly if you sat through our meetings you would see more data than you could ever dream of um the other thing i say look i'll say this i spend a lot of time going around the country and i talk to a lot of businesses and it's absolutely imperative that we stay in touch with the economy president lagaran [01:03:53] Speaker 3: inflation outlook balance of risk underlying inflation transmission of monetary policy thank you [01:04:01] Speaker 5: chairman i guess i have the last word um with the new one more with the with the data project the data task force my hope my aspiration is that nine twelve months from now we're going to be using new technologies to understand what's happening in the real economy in a contemporaneous real-time way that positions us as central makers to make better decisions that we're no longer going to have to rely solely on data that we get from government agencies with mis-measurement problems that have surveys that are no longer relevant wow every business nine to 12 months being in our country are using new data sources to make better decisions my favorite uh data is upon us and if we do our jobs we'll be here a year from now and we'll say we've discovered data that helps us make better decisions and we live up to our promises we strengthen our credibility and politics stays at bay least favorite economic indicator um the conventional wisdom um uh the conventional wisdom that we hear from time to time tells us nothing monetary policy works with nor with long and variable lags as we know and um many of these indicators are echoes of history we need indicators that tell us what things are we look out our window today so we make judgments when we next convene they're as close to real time as possible i thought you were going to say the dots since you got right i i'm going to let one panel discussion go without me sort of wagering on the dots he does want to kill the dots that's why sarah said that at the very least um at the very least but we have a task force for that i know do you have a [01:05:46] Speaker 4: least favorite economic indicator president lagarde what did you say least favorite economic indicator that gets too much attention those that are wrong [01:05:58] Speaker 7: governor mackle help me out you know what what i'd say is that a lot especially a lot of the monthly data it can be very volatile and you know sometimes the market over rotates on on the last number you got to kind of you got to correlate it with other things you've got to you got to smooth it a bit um you know the last monthly number is never going to be the best indicator so i'll give you one [01:06:25] Speaker 6: that we're wrestling with at the moment and have wrestled with for years and it's obviously relevant which is uh oil oil and gas futures prices so they are terrible indicators in history the problem is that everything else is also a terrible indicator very good finally you know when we were coming into [01:06:45] Speaker 4: this year everybody was talking about rate cuts is anyone still talking here about rate cuts show of [01:06:50] Speaker 6: hands well that's a nice try that's a nice try at forward guidance all right i tried thank you all very much [01:07:02] Speaker 1: dang okay there's a lot to cover there and a lot to break down there we're going to do a complete summary uh of this uh quick reminder uh we have the reinvest homes ai is out uh this is very very early beta but uh houses are now sorted by estimated gain which is really cool that's the house hack tool this whole app by the way is owned by house hack that's the uh real estate terminal side right here with the little house icon and when you jump over to the other terminal to the stock side the little mountain graph over here you get the data feed you get the wire feed over here you get our stock ai tool which gives us uh forward guidance on price targets uh and uh and and what sort of the algorithms uh and ai that we've developed are looking at uh so we're really excited about this and uh we'd love to have you join us over at meetkevin.com uh or house hack.com and uh yeah join the membership all right let's get started with uh a full summary of what's going on here all right here we go well we just heard the central bank forum at the european central forum this being held in cintra portugal and we heard from christine lagarde kevin warsh andrew bailey and tiff over from canada we're gonna break down what all of them have said and i actually think there's a lot more color we got this time from kevin warsh uh sarah eisen's pretty good i think at loosening these people up uh asking them for quickies and uh let's just say i think we got a little bit more out of wash today than we've gotten out of uh him from the last press conference what's actually remarkable is you can immediately immediately look at the bond market's reaction the difference between the 2 and the 10. we can actually see that the two-year yield has is basically stayed flat here as the longer term yield is rising uh potentially a suggestion that uh maybe maybe markets don't need to price in heights hikes as aggressively on the near term but maybe that productivity growth will be stronger in the longer term leading to a little bit of a steepener here on the 10-2 but a lot of color for us to look at looking at the bond markets reaction the first 10 minutes is always a little kooky uh let's look at what was actually said so of course we heard the classic you know we don't want to talk about forward guidance but then they basically spent the whole time talking about what they think their concerns are for the future and uh what the upside risks are for the future so both downside risks and upside risks and i'm obviously going to start with kevin warsh on this and then we'll circle back to some of the other folks so uh kevin warsh gave us some pretty good insight uh in that monetary policy spills over from one economy to another he said what's worth knowing that the european central bank is basically facing eurozone growth that's near zero you've got the bank of england that's facing growth that's at like half of a percent and you've got the bank of canada that's looking at growth that's like negative half of a percent so all three of those economies are basically nowhere with gdp growth and so if kevin warsh is like yeah you know our monetary policy spills over from one economy to another i think what he's kind of implying is that all three of the other central bankers are going kevin don't raise rates you're gonna screw us to me maybe that's too bullish of a read there but that's what i'm gathering a little bit from what he's saying there now maybe he's also implying that hopefully we can spread our productivity boom to these other economies he says the following which is also a good insight he says quote the us ai shock is leading to a boom in demand first and the supply boom will come wait a second that's forward guidance holy moly he's basically i mean this this is like we would understand that this is to happen but for a central banker to say that bluntly is a way of saying hey guys yeah boy we have quite the inflationary boom right now because everybody's bye bye bye but the supply side is going to come and when what happens when demand goes up and supply stays down you should know this from econ 101 demand up supply doesn't move what happens to equilibrium price price goes up that's inflationary what happens when supply goes up to catch up with demand equilibrium price goes down that's disinflationary he basically used econ 101 to tell us prices are going to come down then he tells us by the way we're working on new ways to measure inflation in fact he gave us a time frame he didn't give us this last time i think sarah hosed information out of these folks you just have to read between the lines a little bit sarah literally eeked out of them the quickie that in the next nine to 12 months quote we're going to use new technology contemporaneous real-time technology to measure inflation and economic activity we're no longer going to rely on older government data that's heavily subject to revision wait a sec nine to 12 months for your tasks for task forces to actually get something done yes basically which is in alignment with what christine lagarde said about committees see christine lagarde literally and bluntly said yeah you know we didn't call them task forces we used committees but these take time time in our case was one to two years at the european central bank kevin wars just told us nine to twelve months and then we'll use this new way of measuring inflation well in my opinion he's not going to want to do anything until his task forces are done which in my opinion means we might end up being stable with rates for the next nine to twelve months as long as there's not another inflationary shock which in fairness all of them also said that they're really grateful that oil prices have come down christine lagarde said it's great that oil prices have come down uh kevin warsch talked about how great it is that recently over the last four weeks inflation expectations have come down and bond yields have come down which is another way of saying you know the oil shock is over which is good in other words hey bond market's pricing less of a risk of runaway inflation so we don't have to act as fast right all of this so far is in alignment when you put the pieces of the puzzle together and it makes sense because i mean look at oil prices right now we just had wti the western blend of oil fall to 69 dollars too bad sarah eisen didn't talk about exactly where the oil prices but whatever uh brend down at 72 that's good that's that disinflationary uh pressure on you know obviously oil prices which were very inflationary recently and they do eventually feed through to all consumer goods and services which isn't great when that pressure goes away you can afford the central bank more time and central banks know they can't really do anything about oil prices anyway it's a supply shock right all right fine so what else did we get because in my opinion so far all of that is pointing to the same direction but what's crazy is we also had them talk about the potential risks to broader economies and how a productivity boom works and what history tells us about productivity booms this potentially has the r word built into it we'll talk about that r word in just a moment do have to send a pitch though we just because we released this super late last night our reinvest homes ai with house hack we did push the coupon just 24 hours to tonight for both the meet kevin membership and the reinvest ai membership i'm going to show you the actual app really quickly but we're going to be updating uh the website here and then we'll be raising the price a lot on both these products the reinvest ai uh and the meet kevin membership we extended that coupon to tonight uh and we did that because we released the uh the app update so late yesterday and so we've got our reinvest homes ai app out which is in very early beta but we're very excited because it's going to sort properties already sorts properties by the estimated gain that you could get by buying them and we'll slowly be releasing the negative gain properties as well like the properties not to buy which could be equally as important but then inside our app as well especially if you're a course member we've got our alpha wire here we've got our stock ai tool with price targets meta by the way is up nine percent today our stock ai has met at a fair value of one thousand three hundred seventy seven dollars meta's up eight percent today i think that is scraping along the bottom we've got all the the you know meet kevin fundamental analysis in this the algorithms that we use the change that we see quarter to quarter and it's these are really cool tools that you can get lifetime access to after this video by the way we will be live in our course membership which you can join every day as well you get our alpha report our private live streams trade alerts all nine courses and a lot of people say joining could be a tax write-off so consider joining us over there all right so let's talk about central banks and this productivity boom so kevin warsh tells us that productivity booms are broad based and they don't have to be zero sum kevin warsh tells us that we're in the first or second inning and that this is a really you know big moment because it's a moment for us to consider our policy and where we are in relation to jobs productivity and the fact that kevin warsh believes that prosperity will be greater but he says that there is a timing risk he says it takes time for us to see the fruits of ai and that right now he essentially says we have time why because he says quote we're in this price stability business expectations of inflation have come down and inflation risks have come down basically we can afford to wait to see how this boom evolves but where's the risk that comes up kevin warsh says quote i still have scars from the financial crisis i don't want to sound complacent potential growth looks like it has trended up and we tend to go from cycles of low productivity to high productivity and we have to study history to understand that okay so that sounds pretty basic right that doesn't sound like there's forward guidance in that right but wait a minute what does history tell us you could ask any ai about this you could ask any or read any book about this what does history tell us about going from low productivity to high productivity two types of transitions one type of transition is the late cycle transition to recession that's basically where in the late cycle you have low unemployment and companies tolerate waste and inefficiency which is really interesting because remember the video we made yesterday about that ramp study remember this if you didn't watch the ramp study video you should really watch it but here's that ramp study they tell us that the earliest signs of employment growth are happening when companies start adopting artificial intelligence in the tech sector but what that doesn't tell us is what happens when companies go through the cleansing phase the cleansing phase is where companies go crap it's harder to raise money it's time for us to be a little bit more productive we need to lay people off well what is the cleansing phase called when an entire economy goes through the cleansing phase and removes waste and inefficiency it's called a recession if you can make the argument that the bank of england the bank of canada and the european central bank are all already facing near certain prospects of a recession that the u.s is the outlier for now but once we get into the cleansing phase and you get layoffs happening and more has to occur with fewer people that's when you get a global recession we saw that happen with the 19 uh or or the dot-com bubble uh and we saw that obviously happen with prior economic booms whether it was post railroad or otherwise now in fairness history doesn't tell you that you're guaranteed going into a recession you could boom like we did in the 90s or we could boom like we did during the electrification of the roaring 20s you know in part driven by the assembly line and productivity because of henry ford's assembly line the you know early part of the century so kevin warsh pointing out history in my opinion is again a reiteration that says hey look inflation risks are coming down our task forces are going to take 9 to 12 months to figure out which direction to go in the meantime we're going to wait and see what other data we can get to tell us are we going to have a roaring 20s electrification boom where we go from low productivity to higher productivity or are we potentially going to go from low productivity to high productivity through a recession both can happen and we're going to be mindful of the scars of the past so i think that's actually pretty useful guidance he's going to sit on his hands and wait for the data now governor bailey we'll go into some of these other governors here because some of these sort of reiterate what uh warsh is saying as well governor bailey acknowledges they've got a softening economy the output gap uh you know is present that ai is still in the experimenting phase uh he also uh tells us that there are tail risks that they're paying attention to such as leverage in markets uh he says that markets seem to be stretched they're analyzing private credit and financial stability matters because there is so much more leverage in the system now that financial stability could turn really rapidly now that's interesting because it kind of tells you that kevin war should be paying attention to financial stability as well right i mean they're all on a panel together there look at this for example leveraged etf assets under management huh interesting all-time highs leverage etfs had about 47 billion dollars in assets under management uh right after covet and those ran up to about 218 billion sitting in leveraged etfs this is why when we see a red day the end of the day tends to accelerate down or on a green day the end of the day tends to accelerate up now this is a phenomenon driven by leveraged etfs having to buy when the market is going up which is basically buying high and then selling when the markets go are going down which is basically selling low leveraged etfs are just amplifying bad investing uh and so andrew bailey pointing out leverage in the system is very important i mean look at the concentration peaks we have in markets historically we are sitting at a concentration peak nifty 50 tech and telecom uh the japan move and then of course uh the big 10 stocks like nvidia that we're seeing right now all of the concentration peaks peaked between 40 and 44 percent concentration peak we just had was 41 so these are real risks and the central bankers seem to be paying attention to those which is great now the bank of canada says that right now they're somewhat comfortable where they are at 2.25 which is about a one and a quarter percent lower than where we are in the united states uh and they argue that risks could shift quickly that uh when uh inflation or disinflation arrives we need to be humble about it and i think he leans towards disinflation because they also talk about how great it is that oil is falling uh and being humble about it means hey cutting rates uh the bank of canada was really bearish on this idea of stagflation they're like no we don't have inflation inflation expectations are low uh we've seen this sort of stuff before uh and we don't need to be worried about stagflation yes unemployment is six at 6.6 percent and inflation is at 3.2 percent but it's nowhere near as bad as what we saw in the 70s christine lagarde jumped right on this and she's like yeah no we don't have stagflation we have no stagflation but in fairness all of their economies are feeling like they're stagnating during a time we have elevated inflation it's just not the inflation we saw in the 70s and the reason they have to fight against that so hard is because they don't want to seem like they've lost control of inflation which was done in the 70s they lost control now uh the bank of canada goes on to say that the internet proved to be better than anybody imagined but we still ended up getting the internet bubble bust and the market can get ahead of itself another little you know elbow jab there to kevin warsh right this is what i'm saying like all of the other bankers are kind of like poking at warsh in the elbow going hey man you know things could hit poop the you know we could poop bricks pretty quickly here anyway uh christine lagarde uh she is really excited about more balance risks because of how quickly oil has gone down she says stagflation is a concept stuck in the 70s and that right now at least employment is still growing but we've got to be mindful of the tail risks uh and then we had bailey andrew bailey who came out and said that uh hey you know we'll see what happened the big thing that he said it was we already touched on a lot of what he said but the big thing that i wanted to go back to about him was how much he doubled down on how important financial stability is and i think it's really interesting because when you zoom out and look at all four of these bankers together you kind of have kevin warsh sitting there going look we're gonna wait nine to 12 months for our task forces to tell us what to do all of the other governors were like man there are tail risks to the economy you know things could go bad valuations are stretched there's a lot of debt boy isn't it nice that oil prices came down huh and so when you kind of bottom line it all you had three people up there going huh inflation is probably gonna go away here over time but our economy has real risks of overheating because of ai and potentially falling into a recession and the bubble popping and then you have kevin warsh going yeah we're gonna wait and see how all this crap plays out for nine to 12 months they're kind of all in the same place so that's my breakdown of what was just said i actually think this was much much more insightful than what we got out of the um uh fed meeting so now remember to go to meetkevin.com join the alpha membership keep in mind because we have released the uh reinvest homes ai product uh as soon as we update the website over here for reinvest we're going to be raising the price a lot on this product uh we did extend the coupon to tonight uh ignore the fact that right here it says um june 30th uh because that we did extend it 24 hours uh so it'll still be active through tonight as we update this website the product uh the valuation update is out it can now be downloaded for course members which is really exciting and what a lot of people are doing is they're joining uh over at meet kevin and then they're bundling up their membership uh with the homes ai which is really cool so anyway uh thanks so much for being here a really uh useful discussion and we'll see you in the next one so goodbye out there and as always good luck and maybe we should do some more of these live streams yeah leave a comment if you want some more live streams we like the live streams oh we gotta yeah we gotta do this too [01:27:56] Speaker 4: welcome nice to have you you want to talk about love making right we're gonna have to pull more clubs [01:28:02] Speaker 1: from sarah