Former Fed Vice Chair Lael Brainard Talks Warsh's First Fed Meeting

**SPEAKER_1** (0:02)
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**Kailey Leinz** (0:07)
The bond market, especially fascinating in the last 24 hours in the aftermath of the first Fed decision made under the new chair, Kevin Warsh. The market clearly was expecting something a little bit more dovish than what it received in the form of a dot plot in which about half of the members of the FOMC suggested they would like to see or expect to see a rate hike this year.
That's why we saw the two-year yield yesterday jump to the highest level since April of 2025 But of course, as Charlie mentioned, we are seeing yields a bit lower today, including on the two-year by about three basis points. Of course, as I referenced that dot plot we got yesterday, Kevin Warsh himself did not contribute a dot. As we know and as he discussed in the press conference, he isn't really a fan of the Fed providing forward guidance. He also seems to suggest that financial markets shouldn't need forward guidance from the Fed. Maybe the guiding should be going in the other direction. Let's remind ourselves of what the chairman said at the press conference yesterday.

**Kevin Warsh** (1:07)
The more that markets are paying attention to what's happening in the real economy, deciding what's good data and what's less good data, the more financial markets can price what they believe is the most likely. Financial market prices are probably the most important source of information to guide central bankers.
But when all the financial markets are doing is reflecting back what we've said, then we're taking the most important source of information and we're being blind to it.

**Kailey Leinz** (1:37)
Let's talk to one former central banker, the former vice chair of the Federal Reserve, in fact, and the former director of the National Economic Council under the Biden administration. Lael Brainard is joining us now on Bloomberg TV and radio. She's now distinguished fellow at the Georgetown Sarris Center for Financial Markets and Policy. Welcome back to Bloomberg, Director. It's good to see you.
I wonder what you made overall of Kevin Warsh and his first press conference yesterday. Did he surprise you?

**Lael Brainard** (2:05)
Well, it was a very interesting press conference.
He stayed true to his vow not to really communicate his own views about policy or any sense of where policy might be going. The result of that was he really let the summary of economic projections do all the talking. I think the markets really reacted because you had half of those projections didn't include his projection, but half of those projections saying that inflation is going to be a lot higher this year, ending the year at 3.3 percent core, and that would warrant one or more rate hikes. That's why you saw that big move in the two year. The other thing that was notable is that both in the statement and in his discussion, he really emphasized price stability and made it sound like a one-mandate central bank. So those were the things that I think moved the direction of the market in a very hawkish shift. That's not actually what his comments, the sort of subtext, suggested, but those were the main messages.

**Kailey Leinz** (3:15)
Well, so talk about his comments on what we just heard him say about financial markets receiving guidance from the Fed. In particular, I wonder if you have sympathy with the view that maybe the market should be the one interpreting data on their own rather than interpreting the Fed's interpretation of said data.

**Lael Brainard** (3:33)
Well, I think the difficulty here is that the market needs to, and the public need to understand not forward guidance in the sense that I think he is objecting to, which is suggesting, here's what our action will be if inflation and unemployment come in at these levels, but at least a sense of how the Fed's policy is seeing current inflation, unemployment. And that gives both the markets and the public a sense of where policy might be heading. So what was interesting yesterday is he really didn't even want to provide a sense of what a lot of people call a reaction function. But his own biases seem to be sort of subtext in some of his comments. He noted that half of the people who did submit projections didn't see a rate hike this year.
He said there was no cruel choice between inflation and the labor market. So there were a few things that he said that might have pushed back in the other direction.

**Kailey Leinz** (4:45)
Well, and of course, as we consider what is said or what will be said going forward, we know there's going to be a whole task force on communications. There's going to be a lot of tax forces under this new chairman. Has he asked you to sit on any of them? He said he was still making calls.