Kevin Warsh Testifies, IBM’s Warning, and the Incredible Shrinking AI Model 7/14/26

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**Kelly Evans** (0:45)
You're listening to The Exchange. Here's today's show.
Thank you very much, Scott. Kevin Warsh vows that inflation will be a thing of the past as CPI comes in light, and President Trump backs off of his 21st cent fee on the Strait of Hormuz. I'm Kelly Evans, and welcome to The Exchange. You can see the S&P there is fractionally higher right now. Supercore inflation is running below 1% over the past three months. Annualized will get reaction to that. And Kevin Warsh's first testimony on Capitol Hill from Claudia Tsam and Greg Ip, they'll join us shortly. Plus oil prices are stabilizing after Brent hit $85 a barrel overnight. Does all of this put rate cuts back in play?
And shares of IBM having their worst day since October of 1987 What they said about their corporate customers and what does it mean for other software stocks that had been on a comeback? Brent Thill weighs in on that shortly. But let's begin with this sudden change of tone on the inflation front between this morning's CPI showing a drop in core prices. You can see that bar right there. It's going to the downside. And Kevin Warsh's comments on Capitol Hill. Senior economics reporter Steve Leesman joins us with the latest. And boy, Steve, do those Waller comments look more ancient than ever after the events of today.

**Steve Leesman** (2:02)
Perhaps untimely would be a good word, Kelly. Fed Chairman Kevin Warsh in his first congressional testimony firmly promising the central bank will deliver price stability and he was upbeat on the US economy and the promise of AI and under repeated questioning from Democrats, he pledged independence from President Trump in the making of monetary policy.

**Kevin Warsh** (2:23)
If the president publicly pressures you to pursue a different course than the one you believe is in the economic, that you believe the economic data supports, will you follow the president's wishes or follow the data?

**Kevin Warsh** (2:40)
My commitment to you is to follow the law and follow the data, follow our very best judgment.

**Steve Leesman** (2:47)
Warsh repeated his promise for regime change at the Fed, talking about his five task force, do whatever the communications to the balance sheet. Said, there's more work to do on inflation in response to a question about this morning's inflation report. Said the labor market is resilient, and he focused on the balance sheet, reducing that and the duration of the balance sheet. Overall, Warsh stayed away from providing any hint about the direction of monetary policy. He was helped, of course, by a lower than expected CPI this morning, didn't have to talk much about it.
The probability of a Fed rate hike in September dropping to around 61% from 72% before the CPI report, and Warsh's testimony became public, that remains elevated, but down from the surge yesterday after what Kelly mentioned, those very hawker's comments from Fed Governor Chris Waller that do seem poorly timed. Warsh did not affirm any need to consider rate hikes, but then again, Kelly, he didn't talk much about rates at all and wasn't asked much about it.

**Kelly Evans** (3:42)
Just Steve, as you've seen so many different Fed chairs come and go, so much different political pressure put on them from whether the president or the cut. Did anything in particular stand out to you or feel to you like the big takeaway from his appearance today? We'll get day two tomorrow.

**Steve Leesman** (3:59)
Well, he definitely has, I think, the best hair, that's for sure.

**Kelly Evans** (4:04)
If that's the biggest news, then he probably achieved his goal of not making any news today.

**Steve Leesman** (4:09)
No, I just thought I would take a shot and a self-deprecating shot, I guess is the best way to put it.
But I do think this kind of underlying hawkishness of Kevin Warsh did come out. And when he's asked about how do you fix employment, he says you get inflation right. So and he wouldn't sort of bite on any of these other questions about inequality and that sort of stuff. He really wants the Fed to focus back to where it was before, which is stay away from fiscal policy, stay in its lane, he talked a lot about. And back to this notion of first principles. I must admit, I'm not sure what exactly those first principles are, but he talked a lot about Alan Greenspan and getting back to a time, I think, when the Fed communicated less and he's relying a lot upon these task forces. So I would say that I think he has this underlying hawkishness. Although, of course, he embraces this promise of AI, I think it was significant. But he talked about the AI gains being something more down the road. So maybe back to way a little bit from the congressional test of his nomination hearing, where the sense was maybe he would incorporate those gains earlier on, but he seems to be saying, you know, those things are going to come. And it was upbeat, by the way, on the job prospects when it comes to AI.