Warsh Vows to Deliver Price Stability, Fed ‘Regime Change’

**SPEAKER_1** (0:02)
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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast with Carol Massar and Tim Stenovec. On Bloomberg Radio.

**Carol Massar** (0:32)
We're going to stay on the economy and the view of the Fed, because we are getting a bunch of messaging, actually this time from another member of the US Central Bank.

**Tim Stenovec** (0:42)
On Monday at a New York Association for Business Economics event, the Conference Board's senior US economist, our former Bloomberg colleague, Yelena Shuylatyeva, moderated a discussion with Fed Governor Chris Waller. He said he would need to see several months of lower inflation data to feel confident in the trajectory of price pressures. That pans out, he said. It would make sense for the Fed to continue holding rates steady. And if it doesn't...

**Chris Waller** (1:07)
If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term. As always, we need to avoid making the mistake of fighting the last war and reacting too soon to tighten inflation.

**Carol Massar** (1:25)
All right, that, of course, is Fed Governor Chris Waller with the Conference Board, Senior US. Economist and our former Bloomberg Colleague, Yelena Shuylatyeva. And she is the New York Association for Business Economics, I believe, new president. So congratulations.
Listen, it's so good to have you here with Tim and me, Yelena.

**Tim Stenovec** (1:44)
That's Ms. President to you.

**Carol Massar** (1:45)
Yes, Ms. President, Madam President.

**Yelena Shuylatyeva** (1:47)
Thank you, guys. It's such an honor, thank you.

**Carol Massar** (1:50)
Well, honor to have you here back with us. We always appreciate your perspective on things. Tell us about this conversation with Chris Waller. He seems like he and the Fed to some extent are on point. They are still concerned about inflation.

**Yelena Shuylatyeva** (2:03)
So what got everybody's attention yesterday was that Governor Waller said that, yes, if we get another hot print, we would not hesitate and we will have to move policy rates in the right direction, right?
But what he said as well was that, well, if we get a cool reading, we will have to see some more evidence that inflation is subsiding. I think that's exactly what is happening right now. So we got a cool reading on CPI.
I do see Chair Warsh's comments today in the same context. So he said that the mission is not accomplished, and basically the Fed now needs to see a few more cool readings on inflation to stay on hold. So at the Conference Board, we think that the underlying pace of inflation will prevail, and the underlying forces that would push inflation lower will prevail in the second half of this year, and ultimately, we will see the Fed staying on hold. But that's exactly what happened, I think, both at the event yesterday, and as Chair Warsh was commenting on inflation today. They just need to see a little bit more evidence that inflation is cooling down. Well, obviously, the CPI report today was a cool one.

**Tim Stenovec** (3:37)
It was, and that report notwithstanding, I just want to go to your prediction at the Conference Board. Why are you confident that you will see lower inflation prevail? Especially at a time where we do see things heating up in the Strait of Hormuz.

**Yelena Shuylatyeva** (3:49)
Well, energy is not the only thing, right?

**Tim Stenovec** (3:52)
It's not, but it really goes through to so much. It goes through to prices we pay at the grocery store. It goes through for transportation costs. And not necessarily a lot of services. And it's not as big as part of our economy as it was 30 years ago. But still, it has an effect.

**Yelena Shuylatyeva** (4:08)
Sure. But what kind of an effect? Does it really suppress consumer demand? And we do see in other prices that consumers are pushing back. They are not happy and they're pushing back and they're not paying the higher price. So look at prices of other goods like cars and apparel.
There's also some tariff impact that is leaving inflation.
And that's what we see as well. So another thing is housing. So housing prices continue to normalize. So there are a lot of other things that may countervail other prices, other forces that are pushing inflation higher. Another thing that I would like to make is that if you look at prices of gasoline, the prices at the pump are still below the average level that we saw back in June. So we may actually see another cool reading in July, despite some recent pick up in energy prices.