The Fed's Next Move, and How Couples Should Actually Handle Money

**Scott Galloway** (0:01)
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**Scott Galloway** (1:46)
Welcome to Office Hours of Prof G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. Anyway, if you'd like to submit a question for next time, you can send a voice recording to officehoursofprofgmedia.com. Again, that's officehoursofprofgmedia.com, or post your question on the Scott Galloway subreddit. We just might feature it in our next episode. Plus, you can now call or text a question at 201-472-3656.
That's 201-472-3656.
Let's bust right into it. Question number one. Our first question comes from bargers on Reddit. Hi Scott, with Warsh coming on next week, having his first press conference on Wednesday, he's been quoted saying he's not a fan of the longer term projections coming from the Fed. Do you think markets will become more volatile if you announce some major changes? So in his first few weeks, Warsh has declined to submit a dot plot projection and announced a broad review of Fed communications. He did not lower interest rates, despite that being the suspected reason Trump nominated him. I don't see how he could have, if he'd lowered interest rates, I think markets would have crashed. They would have said, oh fuck, here we are. We're Hungary or Argentina.
The job apocalypse that was supposed to happen has not, in fact, manifested. Job growth is actually strong, but inflation numbers are even worse than the job market is strong, forming in, I think, 4.2 percent. So there's no fucking way this guy could reasonably cut interest rates. There's even now, I think, a greater than 50 percent likelihood he raises rates by the end of the year. His also, in terms of lowlights from Chairman Warsh, during his confirmation, he refused to acknowledge that Biden had won the election in 2020 So, I mean, I understand. I think he's qualified. I also think he's a little bitch and afraid to actually speak truth to power, which is what you want in a Fed chairman. Having said that, it's a group of, I think, 12 governors. So, we overestimate the power that the chair has. But yeah, there was no way he was going to lower interest rates.
The core issue with the dot plot and forward guidance, investors tend to misinterpret these as promises rather than projections. They can make the Fed slow to respond to market changes because they feel compelled to follow through on their projections. The debate around forward guidance is really a debate around anchors. In an interview with Bloomberg, Torsten Slock, friend of the pod and chief economist Apollo Global Management described the central bank trade-off as forward guidance being that while it helps understand where markets are headed, it can be counterproductive when conditions change unexpectedly. And concerns about, everyone is always worried about communications coming out of the Fed because the media and the markets parse over every word. Jerome Powell or Chairman Powell publicly expressed reservations about the dot plot and its tendency to be misunderstood by investors, but noted the reform efforts stalled because the committee struggled to identify a better alternative. Minneapolis Fed President Neil Kashkari has highlighted that the dot plot forces policymakers to provide precise forecasts without being able to convey their level of uncertainty. The question moving forward is how does he plan to reform, if at all, the current framework and what replaces it? I find generally speaking once a metric becomes universally accepted, it's no longer valid or no longer doing his job. But so far, okay, he's batting a thousand. If he'd lowered interest rates, I think the markets would be in a state of panic. I think once anyone gets a job, whether it's someone elected mayor, you rally around them and hope for the best. He is qualified, he worked at Morgan Stanley, smart guy. This is a very important position. I think it's a 12-year appointment, so we're going to get some time or we're going to have some time to get to know Chairman Warsh. Thanks for the question.