Apollo Chief Economist Torsten Slok Talks Fed Chair Kevin Warsh

**SPEAKER_1** (0:02)
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**SPEAKER_2** (0:07)
Here's the latest. Investors are waiting. Kevin Warsh's first meeting as Federal Reserve chair as worrying inflation adds to uncertainty over the direction of rates. Torsten Slok of Apollo writing with geopolitical risk easing and Fed Chair Kevin Warsh focus on simplifying Fed communication. The number of words in the FOMC statement could move down to levels seen under Alan Greenspan. Torsten joins us now. Okay, so the statement comes out. Do I need to read it first or just do a quick word count?

**Torsten Slok** (0:35)
We certainly need to read it first because the key issue here is, of course, what style of communication are we going to get? And in particular, what is the forward guidance? Is there any forward guidance? Is he going to say that we do not like forward guidance? This is still a very, very unclear area in terms of what is the communication style and what is Kevin Warsh going to do in terms of what is he going to say at the press conference?

**SPEAKER_2** (0:56)
Former Fed Governor Betsy Duke was just on with us, and she was talking about how there could be a complete rewrite of the statement, not just a little tweak of the easing bias. Is that what you're expecting as well?

**Torsten Slok** (1:07)
I think that is something that we should expect as one of the outcomes. We just don't know. So that's the reason why the market, of course, has been used to having very well anchored expectations around the dot plot. The dot plot has been around now for 15 years almost. The ACP, meaning the forecast, So, let's go to the next question. What is the impact of the FOMC?
It's been around for almost 20 years. So, most people in financial markets have grown up with very anchored expectations about the economic outlook and very anchored expectations about what the Fed will do. And this discussion about, is there an anchor, is there not an anchor? Of course, it's good to have an anchor in the sense that that's clear, then everyone knows where we're going. But at the same time, if the world changes, then it's not good to have an anchor. And this is the debate up on the scale, namely, do we want to have an anchor or do we not want to have an anchor that will give more flexibility to the FOMC?

**Danny** (1:50)
In this very moment, if we remove some of that, we remove some of the forward guidance, does that not, all things considered, make us a little bit more hawkish, because we don't have that residual easing bias that had been there before?

**Torsten Slok** (2:01)
Yes, and that's particularly important if we begin to think about the discussion around rates, because Kevin Warsh has also been focusing on shrinking the balance sheet. And a compromise could potentially be that, well, we're not going to change much communication on rates, but maybe saying that the balance sheet will be smaller is implicitly also going to be a tightening policy. So it all depends on where the committee stands and where they discuss today and what their outcomes is in terms of how should they communicate, how are they going to signal, to your point, Danny, that there is still some problems with inflation being too high. We still have a very strong labor market, which all argues for that the Fed should be tightening financial conditions.

**Danny** (2:36)
Do you think this is a chair Warsh who will want to sort of galvanize a consensus as Powell had? And how challenging will that be if so, if he does want to implement something, in his words, of a regime change for the Fed?

**Torsten Slok** (2:49)
Kevin Warsh knows what he is doing, but I think what is a very important challenge, of course, for him, is that if he wants any changes, basically he needs to have the other 11 members on the FMC, the voting members, on board with whatever he wants to change. So that's why it must be clear also for him, he needs to get them on his side in terms of any decision made. Because always, decisions about not only rates, also about QE, QT, whatever needs to be changed in terms of policy, there are 12 voting members and they vote about what do they want to change and therefore the number of dissents also potentially becomes important when we get the statement tomorrow.

**SPEAKER_2** (3:22)
Do you think we get less Fed speak then with Kevin Warsh as the Fed Chair?

**Torsten Slok** (3:27)
Well, that's really challenging because telling the regional Fed presidents that they're not allowed to talk more, even the governors that they're not allowed to talk more, that's just not possible. And given we have had a history now of a lot of communication, that means also the market has been putting more weight on the Fed Chair, and I think the market will continue to put most weight on the Fed Chair.