[music]

>> Bloomberg Audio Studios. Podcasts,

radio, news.

>> It's an honor, a true honor to be back

at the Federal Reserve.

>> Kevin Warsh just made his public debut

as chair of the Federal Reserve.

>> We're going to listen hard to what the

experts say and make our own decision.

Um, but I can't give any forward

guidance about what we're going to do

next.

>> Less than a month into the job, Warsh

just oversaw his first Fed policy

meeting. And

>> [music]

>> in his first news conference today,

Warsh announced he and his fellow policy

makers unanimously agreed to hold rates

steady.

>> The committee decided to maintain the

target range for the Fed funds rate

at 3 and 1/2 to 3 and 3/4%.

In support of the Fed's dual mandate.

[music]

>> A mandate to achieve maximum employment

and stable prices.

The Federal Open Market Committee's

post-meeting statement was shorter, a

bit simpler, the Fed chair said, than

we've seen in recent years. And it was

hawkish in tone, reflecting the Fed's

concern with inflation.

>> I am pleased to report

that members of the FOMC are unambiguous

and unanimous. This committee will

deliver price stability.

>> The Fed chief's words are always

scrutinized, [music]

and all the more so with Warsh's

comments today. He was President Trump's

pick, and the president has been very

clear about his preference for rate

cuts. But markets are looking for a rate

hike, and investors are watching the

chairman of the world's most powerful

central bank to see how independent he

is.

>> [music]

>> What we heard from Warsh today is his

eagerness to reform the central bank on

a variety of fronts, with the goal of

having

>> a Federal Reserve that is clear-eyed

about its mission,

fit for purpose, and focused on the

future.

>> I'm David Garratt, and this is The Big

Take from Bloomberg News. [music]

Today on the the I sit down with

Bloomberg's Enda Curran, who was in the

room for Fed chair Kevin Warsh's first

news conference, for a conversation

[music] about what we learned about the

new Fed chair's approach to one of the

most powerful jobs in the world.

And in broad strokes, uh how did Kevin

Warsh do in his debut as as Fed chair?

What was the vibe in the room where he

held this press conference?

>> I think it was the old hawkish Kevin

Warsh who turned up. You know, remember

David, going into this meeting, there

was a lot of discussion around

credibility, what message would the new

Fed chairman send on inflation given the

whole political backdrop and the

pressure on the Fed to bring down

interest rates. Well, he seemed to send

a pretty clear message that right now

inflation is elevated, it's above where

the central bank wants it to be, and he

made it clear that price stability is

going to be a focus for the Fed under

his chairmanship. Now, that's the kind

of generous take, so to speak. He

certainly what he did not do was he did

not signal that they would have to raise

interest rates anytime soon. He He

stopped well short of that because

obviously that's where you get into

political dynamite territory. But, you

know, relative to what we expected, it

was Kevin Warsh, the old hawk, on show

today. We saw the statement, heard from

the Fed chair, one line delivered

emphatically by Kevin Warsh, the

committee will deliver price stability.

Uh effectively, inflation is the chief

concern here for for policy makers.

>> So, two things on that. Number one, it

sends a signal that the Fed is serious

about the inflation story right now. We

know that inflation hit a three-year

high last month. We know a lot of that

is due to the Iran energy story, but not

just Iran and energy, it's the AI

spillover, and it's other components in

the economy, too. So, he's sending a

signal that he is cognizant of it.

But, where he stopped short, David, was

sending any signal about what they would

do to get inflation back down. And

that's the kind of the gap left in the

proceedings from today. He's saying, "I

don't want to give forward guidance. I

don't want to tell you what we may or

may not do, only to have to reverse

course, maybe, or change plans later on.

But, plenty of people watching it today

were making the point, you know, you're

making the point that you're worried

about inflation, but you're not saying

what you're going to do about it. So,

there's a kind of a feeling there's a

little bit of a missing part of the

jigsaw there.

>> So, we got the hawkish Kevin Warsh, and

we got Kevin Warsh the reformer, as

well. There was a lot of talk in the

run-up to this meeting and about whether

Kevin Warsh plans to change the way that

the Fed communicates, if he would make

changes to a a Fed standby, that's the

dot plot, part of the summary of of

economic projections. And before I ask

you about that, just remind us what that

is, exactly.

>> Look, the dot plot is basically where

the Federal Reserve officials jot down

on a piece of paper where they think

interest rates will be at the end of

this year and next year. They do this

once a quarter, and [music] the dot

plots today told us that

um a majority of the committee, well,

nine of the 18, reckon interest rates

could be increased by the end of this

year. Um that's all it is. It's a simple

signaling device, but of course,

Chairman Warsh does not like it. He

didn't put his dot down today because he

doesn't believe in this idea of forward

guidance.

>> So, you said a majority, nine. It would

be not a majority had he given that dot,

he didn't. Why was that the case? And

and and how did he explain that?

>> So, you're quite right. Um so, before

Kevin Warsh got the job of running the

US Fed, he was skeptical about forward

guidance. He didn't like this idea of

the dot plots, anyway. [music]

And now that he he's in office, he came

out in the press conference, he got it

off his chest early on to say, "Look, I

did not put down my dot or my forecast

for where interest rates are going."

[music] And that's because he doesn't

like the exercise. He doesn't agree with

it. He doesn't like that signaling. Now,

again, this is where, you [music] know,

there's a bit of a gap left because,

okay, if you don't like that, what do

you want as an alternative?

Um David, we can talk about it, but

that's where you get on to the idea that

they're going to have a much longer and

bigger think now about what kind of

signals they do send to the public about

interest rates.

>> Before we get to that and and what he

has planned, what that big think is is

going to look like, there were a number

of questions from your colleagues in the

the Fed press corps about

if there isn't going to be forward

guidance, how should they think about

what the Fed is likely to to do next? Um

what does it mean in real terms if we're

no longer getting the kind of forward

guidance that was very common when

Jerome Powell was the Fed chair?

>> I mean, on the one hand, it offers

markets signposts. It gives investors

and businesses and and of course

households signposts in terms of where

interest rates might be going.

Um but there's no shortage of critics of

the dot plots, to be clear, internally

David at the Fed and you know, on the

street because the dots often turn out

to be quite a meaningless exercise. You

know, conditions change, circumstances

change. Take this year, for example,

just in itself. At the beginning of the

year in January,

those dot plots were saying, "We will

cut interest interest rates this year."

Well, you know, here we are in June, not

that long since January, and a lot has

changed. And now those dots are saying

they'll raise interest rates. So people

don't really think there's there's much

value in giving those signals when you

don't know what's going to happen in the

future.

>> To the big think that you mentioned, uh

Kevin Warsh announced he's going to be

appointing task forces for five key

areas of the Fed's operations. So they

are communications, the Fed's balance

sheet, its use of data. There'll be a

task force on productivity and jobs, and

there'll be a task force on on the

inflation framework. He said we're going

to learn a lot more about this in in the

coming weeks. What is the significance

of him doing this? He he has been

somebody who's been reform-minded,

talked about the need for the Fed to

change, to evolve. What can we expect

from all of these task forces? And and

the mantra throughout this throughout

this press conference was, "There's a

task force for that."

>> So, you know, before he got the job, he

was very critical of the Fed and the way

it was run and the way it thinks about

the economy and the way it looks at data

and the way it sets policy. So he was

very critical of the Fed and he promised

at one point what he described as regime

change.

And now he's got the job and he's making

it clear that I've set out these bodies

of these areas where we're going to

focus on over the coming months to see

where we can shake things up. For

example, he mentioned like the

communications strategy, how do we

communicate what we're doing to the

public and and with the markets Um on

its balance sheet on the areas its

economists will focus on doing research.

He said he's going to bring in outside

experts to guide on this. He wants to

have very different views inside these

task forces, you know, to have a kind of

a sub family fight. He likes family

fights at

Yeah, I

he wants little sub plots of family

fights going on as well. But you know,

again, big headline, we don't yet have

specifics, but we have to take it at

face value. And the face value suggests

there are going to be changes

implemented at the Fed over the coming

months.

>> What are the next challenges in store

for the Fed and other central banks?

That's next [music] with Bloomberg's

Enda Curran.

And did the Fed chair give any

indication about how he's balancing

pressure from the White House with

President Trump's eagerness for rate

cuts

and outside pressures to tackle

inflation and the threat to the central

bank's independence?

>> He was asked had he spoken with

President Trump since he's taken office

and he said I have nothing for you on

that.

He was asked about his relationship with

Treasury Secretary Besson and he made

the point, look, we meet for breakfast

every week. That's the normal tradition

between Fed chairs and Treasury

Secretary, so there's you know, nothing

untoward there.

But he did give this kind of a

a signal that you know, the Fed is

independent when it comes to monetary

policy.

He spoke about this idea of having a

wide lens but a narrow remit. I he wants

to keep the Fed in its lane. Now again,

we don't have too many specifics about

what he means on that, but I think he

was trying to make the point that we're

just going to

you know, tend to our own garden here.

We're not going to wade into politics

and the like. Pre- President Trump I

should also say did comment on the Fed's

decision to keep interest rates steady,

but he kind of brushed it off. He

sounded quite relaxed about it.

>> He sees the Fed's decision. They held

rates today.

>> It's all right. Whatever.

>> And it looks like they might even raise

them later this year at Jackson Hole. Do

you have any comments

>> It could happen. I mean, I I it's hard

to believe.

It just keeps the country

>> So, right here right now, look, when it

comes to political pressure,

Chairman Warsh is probably in his sweet

spot. The real pressure, David, might

come X months from now if the inflation

story comes off the boil, if the energy

story has changed, oil prices down, etc.

Uh and if we're in a point where you

could maybe argue the case, if you

could, that you could cut interest rates

for the economy, while also arguing you

could stay on a hold, that's where the

political pressure would would probably

come in.

>> And then how did markets react to what

the Fed did today and and what Kevin

Warsh said?

>> I think the markets took it in their

stride, which is mission accomplished

for Kevin Warsh.

Like he did not want to come out of that

press conference today either blowing up

bond yields or blowing up markets or

sending signals that, you know, start

conversations around his credibility and

that kind of thing. Uh and I think uh

on that front, from what I can see, he's

um it's early days of when what is it?

An hour, two hours since he spoke, but I

think he's he's pulled it off so far.

>> I want to go back to

what the Fed chair said about inflation,

what we saw in the the dot plot, and

what do both of those things say about

sort of what the Fed and policymakers

are thinking right now when it comes to

inflation?

>> Yeah, I should say I've spoken a lot

about, you know, Chairman Warsh's views,

but David, the dot plot suggests that

the rest of the people on the committee

that sets interest rates at the Fed,

um you know, a good number of them,

nine, are pretty worried about

inflation, so much so that they're

warning interest rates could go up this

year. So, clearly there is a divide

among the committee in terms of how they

need to respond. Now, all of that, of

course, will be contingent on the data

we get over the coming months. So,

again, let's take the energy story,

Iran. Let's say that deal holds

together, energy prices come off, you're

going to have an impact on inflation

data. And those dots will change and the

inflation sting will come out of that

conversation.

But at the moment, there clearly enough

people on that who are worried about

inflation.

>> We have a Fed that is now extremely

introspective trying to figure out what

it's going to look like in in the

future.

If the Fed were to look at its peers,

look at other central banks, what would

it learn about the way they're

approaching inflation? I'm thinking

about the Bank of Japan and the European

Central Bank, two banks that have raised

interest rates at recent meetings.

>> It is interesting. We have seen big

central banks around the world having to

raise interest rates in response. Um

you know, it's a slightly different

energy story here. The energy shock

hasn't been as pronounced, David. Um you

will have economists who say the

spillover from energy prices into the

rest of the economy hasn't been that

broad-based here yet. But nonetheless,

the mandate is they've got to keep a lid

on inflation and make sure there's um

strong labor market. Right now,

inflation is a bigger worry and even if

there hasn't been a great spillover so

far, that might get worse in the weeks

and months ahead. And therefore, the

officials need to be ready to go.

>> You and I, Akurin, got the last question

at this press conference.

And I want to play a little bit of that

exchange.

>> Could you guide us through, please, some

of the principles that guide your own

reaction function and tell us a little

bit about the kind of conditions that

you think what when the Fed should

respond?

>> Um

it's going to be a very unsatisfactory

answer to the final question. The

Federal Reserve

uh

has a lot of responsibilities, not just

in monetary policy, but in supervision,

regulation, consumer affairs, and

payments. My own view is our credibility

comes from delivering on what we're

saying we're going to do across

everything we do. Um

I've devoted more time in my first 3

weeks to monetary policy than all those

things.

But the more we deliver on our promises

as good supervisors and good regulators,

the more benefit we get, the more

credibility enhancement we have in

monetary policy.

>> What did you learn from that answer and

about what the Kevin Warsh Fed is is

going to prioritize in the months and

years [music] ahead.

>> Well, he certainly covered a lot of

ground there, David, probably in truth

he probably didn't want to get into the

details of what I asked him. The

thinking behind that question was we

haven't heard much from Chairman Walsh

on monetary policy either in the kind of

immediate build-up to him getting the

nomination for the Fed chair job and

since he got confirmed into the role.

And it's kind of an inside baseball

academic question to ask, well, you

know, what's your reaction function?

What it basically means like how are you

thinking about inflation?

and circumstances in which you would

have to respond to that? And he didn't

give us a lot to go on. So,

in fact, no sooner had I asked that

question when Walsh told me he would

give an unsatisfactory answer. I had an

email from someone on Wall Street

telling me

it was very unsatisfactory press

conference, full stop.

>> This is The Big Take from Bloomberg

[music] News. I'm David Garrard. To get

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