Instant Reaction: Kevin Warsh's First News Conference as Fed Chair

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This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world. A new Fed chair in a new era as we do, it parsed through some of the commentary. The Kevin Warsh Federal Reserve is a very different Federal Reserve than the Jerome Powell Federal Reserve. Not only are we looking at a statement that was only 132 words versus 175 words at the April FOMC meeting, we're talking about a new framework, a new regime, and not giving any forward guidance because guess what? There's a task force for that. Right now, if you take a look at the reaction in Marcus, they're taking this hawkish tilt and they are running with it. You can see across the board declines on the S&P and the Russell 2000 Nasdaq now a little changed as they parse through all of the reactions. When you take a look at the yield space, that's where some of the fireworks are happening. It is yield curve compression time in a massive, massive way. 13 basis point rise on the two-year to 4.18 percent. Suddenly, the idea of one rate hike or even more is on the table as this Fed share talks about how this Federal Reserve has a commitment to the American people to get price stability and that is their goal. They should pooh-poohed some of the dual mandate, the 30-year yields. They like that down to basis points. And it is dollar strength across the board. A big question, Scarlet Fu, was would the president have any commentary on this? And it turns out that he does. He does. He's spoken to reporters several times today. He's at the G7 in France and he had said that it's all right that they held rates, whatever. He also said that the Fed raising rates is a possibility. It's possible. It could happen. So no sign of anger from him. We do know that Scott Besson, the Treasury Secretary had kind of eased the path there. He had been talking about the prospect of the Fed not being able to cut rates as the president would want and that inflation oil prices remains top of mind. So we did just listen to Fed Chair Kevin Warsh speaking moments ago. Is there any kind of forward guidance? Where did you put your potential dot if you were to have a dot? Well, he has an answer for that.
I'm appointing a task force in each of five areas that are central to the broad conduct of monetary policy.
First, Fed communications.
Second, the Fed's balance sheet.
Third, our use and reliance on existing data sources.
Fourth, productivity and jobs in an era of transformation. And last, the Fed's inflation frameworks. My expectation, I'm still in the business of recruiting and finalizing them. My expectation is the task forces will begin work in the next couple of weeks. And we'll start to get some more information from them. Some more framing of how they see things starting in the fall and hopefully most, if not all, of them concluding by year-end. Joining us now to discuss is Kate Moore of Citi and Jim Bianco of Bianco Research. Are either of you being recruited for the task force? We'll start with that. I just checked my text messages and nothing came through yet, so, but it's still early after the presser. All right. What's your first reaction to what we just heard, Kate? Well, a couple of things. Number one, there was broad acknowledgement that the economy is in good shape. There's also broad acknowledgement that the rates as they currently stand are not actually restricting any major sector outside, of course, housing, which Warsh mentioned. And there was a lot of collegial talk about how well the Fed is working together, how well they're communicating, how welcoming Warsh felt in his new chair position. So there was actually kind of a positive tone about both the economy and the functioning of the institution. And in terms of changes that he's made, Lisa, you already highlighted the fact that the statement was much shorter, the news conference was shorter as well, and we definitely heard a different side to these Fed news conferences. Jim, one thing that Kevin Warsh made clear was that for longer-term changes, including communications, including the dot plot, there's going to be a task force for that. How do you anticipate that kind of information to come out? Is that going to be a surprise when it just comes out, or is he, the Fed, going to give markets time to digest all of that? He also said that the task force might include people outside the Fed, so I would assume that you're going to have leaks, so you might as well be doing it almost in real time, telling us what's happening, because there's going to be some people outside the Fed. But in general, I think that this is a welcome thing. The Fed needed to change. This communication style that they have now is about 20 years old, and the world has changed, communication has changed, the role of the Fed has changed, and so it is a positive thing. I'll also mention that one of the things that Warsh talked about before he was Chairman was all of these prognostications, the Fed's going to cut rates according to the dot plot. He pointed out, it very rarely happens the way that they say it's going to be. So it was always an institution that was giving an inaccurate forecast, and we were over relying on that inaccurate forecast, maybe it is time that they try a different approach. Kate, is Chair Kevin Warsh kind of consistent with what former Governor, Fed Governor Kevin Warsh sounded like? I mean, I'm going to go back to this word I just mentioned a moment ago, collegial. I mean, it really felt like that was the sort of the overall tone. And I think something is very important here, which is that we are having more consistency of policy here between last meeting with Chair Powell and Chair Warsh, which I think is going to be comforting to the markets, even if risk assets, you know, dip a little bit on this news. It's just kind of reiterating what we already know, though, right? That inflation has been warmer, spicier than many people had expected, certainly even pre the Iran conflict. And we know that there's been a broadening out of some of these price pressures while the labor market has been solid. I just feel like, you know, Chair Warsh made those points, conceded that, and so was consistent with the person that he has always been, which is someone who is really grounded in data. There's also been a comment, and I thought that his answer to one of the questions was really interesting about why he thinks that this shouldn't be an overly communicative Fed, how the data and how the market response to the data should be done more purely. Take a listen to exactly what he had to say.