5% Rates, Bessent's Failed Gamble & What Comes Next w/ Krishna Guha | The Real Eisman Playbook Ep 78

SPEAKER_1 (0:00)

Your credit card company is hoping you don't hear this. They're charging you 21% APR interest, making it hard to pay down your balance. A home equity loan from Rocket Mortgage could cut your interest rate by more than half. So you could wipe out your high interest credit card debt with the equity you've built in your home without touching your current mortgage rate. See how much you could save at rocketmortgage.com. Rocket Mortgage LLC, license in 50 states. nmlsconsumeraccess.org number 3030 Call 800-4-ROCKET for full program details.

SPEAKER_2 (0:31)

Hey y'all, Kelly Clarkson here with Wayfair. You know my favorite compliment during the holidays? Your house feels so cozy. That's when I know everyone's comfortable enough to kick off their shoes, grab more dessert and stay a little longer.

Wayfair makes it easy with everything from dining furniture to festive guest room essentials, all in one place. So whether you're hosting for an afternoon or all weekend, everyone feels right at home. Get holiday guests ready at wayfair.com or on the Wayfair app today.

Steve Eisman (1:05)

Hi, this is Steve Eisman. Welcome to another episode of The Real Eisman Playbook. So one of the most important things going on these days is our oil prices, the Fed, interest rates. So I thought I would bring in my absolute favorite Fed watcher, someone who I have known for a very, very long time and who I have to say, I probably read, if not every day, maybe every other day. And that is Krishna Guha of Evercore, who is Evercore's Fed watcher. Krishna, welcome to the Real Eisman Playbook.

Krishna Guha (1:38)

It's great to be here.

Steve Eisman (1:39)

So let's start with something simple.

Krishna Guha (1:42)

Sounds good.

Steve Eisman (1:42)

Which is we have a new Fed chairman.

Krishna Guha (1:45)

Yep.

Steve Eisman (1:46)

He just raised rates. Why are you just for, you know, my viewers are all different levels.

Krishna Guha (1:52)

Yep.

Steve Eisman (1:53)

Just explain to the viewers, OK, he raised rates. Why?

Why did he raise rates?

Krishna Guha (1:58)

Well, Kevin Warsh came in, you know, as Fed chair early in the summer, looked around, tried to assess, you know, where the economy was. His judgment is that inflation has been above the Fed's 2% target for too long. It's more than five years.

Steve Eisman (2:14)

Five years.

Krishna Guha (2:15)

Now, of course, a lot of things happened over that period of time. The pandemic, pretty big deal, right? You know, a lot of supply disruptions, and of course, also demand stimulus as we tried to get the economy going.

More recently, inflation was moderating, but then we got Trump's trade wars and tariffs. Then we got a shooting war in the Middle East and higher oil prices. So there's lots of stuff going on, not all of which is by any means under the Fed's control in the short term.

Steve Eisman (2:42)

Like oil prices.

Krishna Guha (2:43)

Like oil prices.

But Warsh's view is that the Fed has kind of run out of road just to look through these shocks and keep crossing its fingers and hoping that those price shocks will prove to be temporary. Even if that is, in many cases, the right baseline bet, becomes a certain point where you've just been above target for so long, you worry that people are going to start to just expect higher inflation, and then factor that in to their wage negotiations, the prices that businesses, large and small, set in a way that can lock it into the system. And that's what he's trying to avoid.

Steve Eisman (3:26)

Do you think he made the right decision? Your personal opinion.

Krishna Guha (3:31)

My own view is that the inflation data has been improving recently. Over the summer, it was somewhat cooler.

I think the fact that the labor market, the jobs market, is in pretty good shape, is telling you that maybe it's a good time to take out some insurance on the inflation side. My view on inflation is still relatively constructive. I do think it's heading down. I do think that the tariff inflation is going to drop out of the numbers fairly soon. It's already going that way. I don't see any evidence that oil is going to create some kind of lasting inflation impulse. So, I still think inflation should gradually be coming down from here. But the idea of taking out a bit of insurance on that side seems very defensible to me.

Steve Eisman (4:21)

Okay. Let's dig a little deeper into the Fed. So Warsh comes in.

He's made various speeches about, for lack of a better term, he doesn't like certain things that have been done in the past, and he's going to make changes. Why don't you tell us, like, give us a list, because it's not just one thing. It certainly isn't just one thing. What are the things that he's upset about, and what type of changes does he want to make?