Instant Reaction: Fed Chair Kevin Warsh's News Conference

**SPEAKER_1** (0:02)
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**SPEAKER_2** (0:09)
This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world.

**Tom Keene** (0:20)
I'm going to start with a quote from a late Fed chair.
This one, from Alan Greenspan. I know you think you understand what you thought I said, but I'm not sure you realize that what you heard is not what I meant. I don't think anyone really understood much the last 45 minutes, and the market right now is still trying to figure it out. The chairman talked about this market move we've seen in between meetings. This market is playing the ball and not the referee. Take a listen.

**Kevin Warsh** (0:45)
Nominal and real yields are materially higher across the treasury curve. In fact, some of the increases in market interest rates between FOMC meetings are among the most significant in the last two decades. In the intermeeting period, market attention centered on real data and real economic developments. Prices reacted in real time to incoming information. And the reduction in forward guidance may have been a factor.
Market participants are learning to play the ball, not the referee. And market prices will continue to respond in the direction and magnitude they see fit.

**Tom Keene** (1:30)
So, is the Fed chair outsourcing monetary policy to the market? And if it is, is this market starting to wonder whether this Fed will actually follow through? The most important part of this move today in this market cross-asset is in the bond market. Check this out. Look at the yield curve.
Two-year yields questioning whether this Fed will actually follow through on an interest rate hike. Yields dropping at the front end by six basis points. And with that questioning, the conviction to actually do something about the inflation that the chairman is telling you they will do something about. Look at the longer end of the yield curve. 30s untethered. Yields up by seven basis points. 516 on 30s. Lisa, that's an interesting market reaction to a Fed share that for many was confusing for the past 45 minutes.

**Lisa Abramowicz** (2:15)
Frankly, he came out, said that he was really happy to have the input of the market, but he wasn't outsourcing the Fed's decision to the market. He talked about these four goals, these deep questions that we talk about every single day, but gave no conclusion as to direction. He talked about a divided committee is not divided, but united in a determination to bring down inflation. This market said, you know what, we're going to call BS on this and you're not going to hike rates and you're going to try to job on us and you think that we're going to do the job for you and so they're calling the bluff.

**Jon Ferro** (2:45)
I would like us to extend this show to 5 p.m. frankly, Jon. I know you got early hours tomorrow morning, but that was an historic press conference. There was all sorts of little tidbits there. We've got wonderful guests to talk to about this, but every sense of that was radically different than anything we've seen in recent years.

**Tom Keene** (3:05)
Allow me to quote another central banker and this is the Fed governor on the board right now, Chris Waller, going into the quiet period. He made this statement, Stanley staring at inflation until it mounts before our withering gaze is not an option. Abramowicz, is it an option?

**Lisa Abramowicz** (3:21)
So, what I love from Renaissance Macro, from Neil Duddy, he came over and he said, Warsh, my judgment is this is a period of watchful thinking. So I guess a withering gaze is an option, because ultimately Kevin Warsh could not answer the question. If you still believe that inflation is a problem, why did you not hike today? He could not answer that question. What would make you hike? Reaction function is just a prediction hidden in that. Is that true? No. It's an understanding of which data and what could potentially make you pull the trigger. What I also think was interesting, he kept saying that the market is a pure input into what the market believes that the data is showing us. No, and Neil Duddy points this out too. It was a reaction to Fed speeches. They were indicating they were moving in a more hawkish direction. This is very difficult to say that this market is just playing the ball and not the referee.

**Tom Keene** (4:11)
Three dissents at this Federal Reserve meeting. Rates kept unchanged. A confusing news conference for the past 45 minutes. Abramowicz, did you nail it?

**Lisa Abramowicz** (4:20)