Kevin Warsh Takes Over the Fed. Here's What He Actually Can Do.: Bits + Bips

Transcript

Let's let's turn to his successor. I mean I mean Kevin Worsh as as I mentioned uh he's gone through a bit of an evolution in his own thought on whether or not to be doubbish or hawkish. One thing he made clear during his confirmation hearings is that he wants the Fed to move away from fiscal policy which I I I I believe he sort of characterized as not as being more of picking winners and losers whereas monetary policy is a bit more democratic in terms of affecting the whole economy and uh and and that's where he thinks the Fed should sit. He also has plans to try to uh create new ways of of measuring inflation so the Fed can I think be a bit more accurate and and and more predictive in how it exercises monetary policy and as you said Noel Jerome Pal was front and center and gave

a lot of forward guidance. Cameron Worsh doesn't want to do that. What are your expectations? >> I think that uh you know he can say he wants a lower balance sheet. The markets aren't going to let him have one. It's as simple as that. They're not going to let him have one. and independence, sure, but the bond market is the boss here and his, you know, it's relevant for price stability. The Federal Reserve cannot let a disorder take hold in the Treasury market. It just can't do that. So, because that would affect the dollar, which would affect price stability, etc., etc., etc. So, that is something that we can all, you know, wish for. I wish I were a professional piano player. Not going to happen. In terms of forward guidance, I would not be at all surprised to see fewer FOMC press conferences, fewer dot plots, and

there's a big debate to be had about whether this is going to be good or bad. It sort of ties in with what the SEC is doing, talking about also in reducing the number of reporting periods of the year. Do does the market will the market be okay with less information or will this add volatility? Does that mean analysts actually have to start doing their job rather than being fed the information quite so frequently? I don't know. This is a very very big change. We get so used to a certain cadence or used to being spoonfed certain pieces of data that when that's taken away, is that going to disrupt markets enough that he's going to have to put them back on the table or will it be a refreshing change, reduce costs as well as reduce some reintroduce some

original thinking that will in the end be healthy. I wouldn't be surprised to see him try that. Whether the markets will let him succeed or not, I don't know. But I think that's pretty much all he's going to be able to do. He's certainly not going to be able to change the inflation measure because it's not really up to him. He can influence what people might look at, but we're going to make our own decisions over what we think is important and he's certainly not going to be able to lower rates. >> Yeah. And uh speaking on that last part, not being able to lower rates, uh I'm sure you saw yesterday, I I guess it was yesterday, u minutes were released, I believe, from the Fed's uh April meeting last month. And uh although one thing that I guess was revealed was that uh

there was a lot more uh um acceptance of of of hawkish views than um what came out in the the final vote, which was really just to kind of hold hold the rates steady. And that speaks directly to what he's going to be walking into, which is a higher inflationary environment. But a president that wants lower rates believes that productivity coming from AI might put a bit of a lid on inflation. But and then to add to all this, um Kevin Worsh is going to have to prove his quote unquote independence um from the president. So So what are your expectations for the next couple of Fed meetings? I think the number one thing to look at here is what Trump says right

now. He has publicly said that, you know, Kevin Walsh is going to do what he's going to do. He has full faith in him, good man, etc., etc., which again is quite astonishing given the environment that you've said Kevin Walsh is walking into. We know Kevin Walsh isn't going to be able to lower rates. One, because he's just one vote and pretty much nobody else is going to be voting with him on this. And two, Trump can't bash the person he chose so soon after choosing him. So there's a bit of a resppite there. I think one thing the market is getting wrong is expectations of a rate hike. I've been saying no cuts for a long time now and it's reassuring to see that consensus take hold. Now

there's a consensus for a hike this year. I think that's going too far in the other direction. He's not going to be able to lower rates, but nobody's going to, I think, have the courage or not enough are going to have the courage to vote for a rate hike when there is still so much uncertainty. We don't know if this is transitory or not. We don't know what the other inflationary factors at work are going to do. So, there's going to be no hikes. So, that'll keep Trump happy. There aren't going to be any cuts either. That may not keep Trump happy, but I think it'll be quiet. And that'll just simply give the Fed some breathing room. It'll give W some breathing room to start to work on his relationships because in the end it does come down to how much the FOMC committee

trusts the chair whether they'll go along with what he suggests or not that will influence monetary policy going forward. >> Yeah, I'm I'm actually a little reassured in a way. I know like until descent started happening last year it had been what decades before we had we had descents. I'm actually more reassured that there are dissents at this point because it's sort of like you have so many different people in that room with different vantage points and they monitor different parts of the country economically like there should be differences of opinion and I'm actually >> yeah I mean move away from the group link I'm actually looking forward perhaps season 52 of SNL we'll have an FOMC meeting there there's enough characters there that people recognize serious brilliant I think I think there really could be one

>> yeah that that's actually brilliant and here's Another twist. What if the next descent comes from the chair himself? >> Yeah, that would be that would certainly be something. >> I don't think that's ever happened before. I'm not sure my history is weak, but that would be again kind of mind-blowing. I I doubt again I doubt he'd do that because his job his number one job now is to get the people to trust get the FMC members to trust him. If you've been loving Bits and Bibs, don't forget that the show is transitioning to its own feeds on X YouTube and your favorite podcast player. If you're not already subscribed to Bits and Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice weekly live streams and macro meets crypto breakdowns. Bits and Biffs will only be

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