Rebecca Patterson Talks Warsh, Fed Rate Decision Preview

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Tom Keene** (0:07)
News flow here with the president landing for the G7 meeting. We're gonna go to Tyler Kendall, but let's dash to Rebecca Patterson right now. To be kind, senior fellow at the Council on Foreign Relations, her work at Bridgewater, Bessemer, JP Morgan, over the years, thrilled she could join. I guess I gotta do the Fed meeting.
To me, it could be dramatic. If he's gonna change things, he doesn't want to dawdle around, does he?

**Rebecca Patterson** (0:35)
I mean, I think priority one, two, and three this week is reinforce the Fed's credibility. You don't want any questions about any political bias. So that's goal number one for Kevin Warsh this week, I think, which he should be able to execute beautifully. I think beyond that, if he does a press conference, I expect he will, but it's not a given.
If he does a press conference, then that'll be his opportunity to lay out the priorities. What is he going to focus on first? I would imagine he wants to review all the economic models, the processes, he's going to review communication. He's already been very vocal about having less communication. Think more, speak less.

**Tom Keene** (1:12)
It has been for years.

**Rebecca Patterson** (1:13)
Yes, yes.

**Tom Keene** (1:14)
It's not a new thing, Paul.

**Rebecca Patterson** (1:15)
The balance sheet will wait.

**Tyler Kendall** (1:17)
Yeah.
So, Rebecca, obviously he's got some level of pressure from the president, from the White House to lower rates, but the data is not there. He's got a committee he has to deal with.

**Rebecca Patterson** (1:28)
Yep.

**Tyler Kendall** (1:29)
I would think the messaging this week is as much for the rest of us, i.e. the market, maybe even more so for the president.

**Rebecca Patterson** (1:37)
Yeah. I mean, he's got a difficult needle to thread here, right? Keep the president on his side, ideally, but build credibility and trust with his colleagues at the FOMC.
I mean, and to your point on the data, I mean, right now, core PCE for May is tracking at around 3.3% year on year. If that's the number that comes in or something like that, there's no way they can cut rates anytime soon. Even if the Strait of the Hormones does open soon, which we all hope it does, and oil prices retreat further, you still have a strong economy, now probably stronger. You have inflation coming through the AI channel as well as other channels. It seems like the market pricing and the possibility of a hike makes a lot more sense. That is going to be a challenge for Chairman Warsh for sure.

**Tyler Kendall** (2:26)
How about the US dollar here? We kind of came into the year, I guess the consensus on the street was for a weaker dollar, and then the war with Iran starts, and we had that flight to quality like we typically see. Now what?

**Rebecca Patterson** (2:38)
Well, the dollar until the news over the weekend was down, or sorry, was down against only two major currencies, the Norwegian crown and the Australian dollar, both big commodity exporters. It was stronger against everything else, primarily on rate expectations. Higher interest rates following higher energy prices and broader inflation pressures. Now that that is off the table, you have seen yields, as you guys just mentioned, down a little bit.
You are seeing the dollar down a little bit today. And the question again, it goes back to the Fed. Do we have a hawkish bias in the press conference this week or not? I think the rate expectations will continue to be pretty important for the dollar going ahead. And again, it's not just the US, right? Two sides to every currency trade. We expect a Bank of Japan hike this week. The ECB, the European Central Bank, just raised rates.
So it's not clear how much stronger the dollar gets.

**Tom Keene** (3:34)
Out of Florida and Johns Hopkins, I mean, there was this idea that if you end a war, even as Kaplan says, a middle war, the idea is you get a disinflationary tendency. So not Rebecca Patterson now at CFR. But if you're on Wall Street right now, in what's clearly a boom investment banking environment, do you just assume disinflation?

**Rebecca Patterson** (3:58)
I wouldn't assume anything right now. Look, we have some tweets and some headlines suggesting that we have a step forward towards peace. But the deal isn't supposed to be signed till Friday. And even then, it's not clear yet if it sticks, it's not clear what the terms are gonna be. I mean, Iran wants and needs funding.