Instant Reaction: Kevin Warsh's First News Conference as Fed Chair

Summary

Balance of Power – Instant Reaction: Kevin Warsh's First News Conference as Fed Chair

Bloomberg, June 17, 2026
Summary by Podcast Summarizer

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Episode Theme:

A breaking-news, in-depth analysis and instant market reaction to Kevin Warsh's first press conference as Federal Reserve Chair. Hosted by Bloomberg correspondents and featuring financial analysts Kate Moore (Citi), Stephanie Roth (Wolf Research), Jim Bianco (Bianco Research), and Jeffrey Rosenberg (BlackRock), the discussion centers on Warsh’s major policy shifts, new communication style, implications for the markets, and the reaction both in Washington and on Wall Street.

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Key Discussion Points & Insights

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1. Warsh’s New Fed: Short, Sharp & Task-Force Driven

[01:44–04:32]

• Warsh’s debut statement: Only 131 words (vs. 341 for Powell in April). Sets a “new regime” with minimal statement, no forward guidance.
• Major innovation: Warsh is delegating big policy areas (communications, balance sheet, data use, productivity/labor, inflation framework) to five specialized task forces, some to include outsiders.
  • Warsh [03:44]: “I’m appointing a task force in each of five areas that are central to the broad conduct of monetary policy…”
  • The expectation is preliminary input by fall and completion by year’s end.

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2. Immediate Market Reaction: Hawkish Tilt and Yield Curve Moves

[01:44–03:32, 15:01–18:20]

• Markets swiftly register a hawkish shift:
  • S&P and Russell 2000 fall, NASDAQ flat.
  • 2-year Treasury rises 13bps to 4.18%; yield curve compression.
  • Increased bets on future rate hikes.
  • Jim Bianco [16:15]: “If the Fed is going to be vigilant about inflation, that in of itself should be positive for bonds.”

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3. Presidential & Treasury Response: Muted Support

[03:03–03:32, 21:13–21:25]

• President (at G7) downplays the decision to hold rates: 'It’s all right, whatever’.
• No signs of friction from the White House; Treasury had already signaled flexibility due to inflation concerns.

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4. Shift in Communication Philosophy

[05:13–10:05, 31:11–31:43]

• Shorter, less frequent, but “content-driven” press conferences likely; Warsh doubts the necessity of a presser after every FOMC.
  • “You need to have something to say.”
• New openness to real-time/transparent updates — especially since task forces may include external members (risk of leaks).
• Less forward guidance: Forces both markets and Fed to interpret more from actual economic data.

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5. Market Signal to the Fed – and Vice Versa

[07:28–09:40]

• Warsh explicitly wants markets to react to incoming data, not to anticipate Fed reactions.
  • Warsh [07:45]: “Financial markets perform best when they react to incoming data… less efficiently when they ask, how will the Federal Reserve react?”
• Analysts say this could increase volatility but restore data’s primacy over Fed “tea-leaf reading.”
  • Jim Bianco [08:33]: Recalls Charles Goodhart: “When a measure becomes a target, it ceases to be a good measure.”

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6. No Vote Disclosure, No Dissenters Named

[22:40–23:28]

• For the first time, Fed didn’t disclose the vote count or dissenter identities, echoing ECB practice.
  • Jim Bianco: “If we don’t get it out of the minutes, they’re going full ECB… makes the Fed more independent.”

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7. Inflation Targeting & Policy Stance – “No 2-ish, It’s Just 2”

[11:11–14:50, 20:35–21:11]

• Warsh emphasized the Fed’s failure to hit its 2% inflation target for five years and declared intent to decisively rectify this.
  • Stephanie Roth [11:49]: “He repeated that we’ve been overshooting the target for five years… this acknowledgment… was a comfort to me.”
  • The 2% target is now being reaffirmed as an anchor—critics of “2-ish” get no comfort.
  • Fed is “unabashedly hawkish,” policy will be active until target is met.

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8. Dual Mandate De-prioritized

[01:44; 12:32–13:20]

• Warsh “pooh-poohed” the dual mandate: full employment isn’t seen as in conflict with price stability for now.
• Little concern for the labor market at present; focus wholly on inflation.

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9. Fed Independence Reaffirmed

[14:13–14:50]

• Warsh’s stance and tone have calmed fears that he would simply follow the President’s policy wishes.
  • Stephanie Roth: “He doesn’t seem to be giving way to any sort of pressure. That’s a very good thing for markets.”

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10. Task Forces: Outsiders, Transparency, and a Year-End Timeline

[03:44–04:32; 05:43–06:36; 32:59]

• Task forces will address all big changes—potentially including press conference frequency, dot plot reform, and balance sheet policy.
• Outside voices including market professionals may feature; process set to be transparent.

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11. Balance Sheet and Policy Transmission: A Deeper Change?

[24:05–29:16]

• Discussion suggests that “ample reserves” policy (large balance sheets) may be at risk of change, opening door to term premium normalization.
  • Jeffrey Rosenberg: “If the signal here is maybe we’re going to be hawkish on the balance sheet, I’m not sure curve flattening will hold.”
  • Risk assets may face more headwinds if the Fed provides less liquidity and support.

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12. Risk Assets, Credit, and Equities

[17:23–19:24; 29:16–31:11]

• Equities are less directly affected now as strong earnings, especially in AI/capex, drive valuations.
• Smaller companies more at risk in a high-rate, less supportive environment; analysts prefer equities to credit under these circumstances.
  • Warsh notes that policy is only “restrictive” in housing, not in broader financial markets.

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13. Expectations Going Forward

[32:33–33:42]

• The market and analysts expect a different, more independent—and more hawkish—Fed.
• All eyes on whether these rhetorical shifts become genuine policy actions.
• Echoes of current central bank global tightening: “The ECB has raised rates, Bank of Japan raised rates, now the Fed is suggesting they might too.” (Jim Bianco [32:33])

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Notable Quotes & Memorable Moments

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Warsh on Market Function and Forward Guidance

• [07:45] Kevin Warsh:

  “I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question, how will the Federal Reserve react to that incoming information… ”

On the 2% Target

• [12:32] Stephanie Roth:

  “... paying attention to the left of the decimal point versus the right, that, you know, that the target is two, not two-and-something, sort of reaffirms that commitment...”

On New Communication Norms

• [10:05] Michael McKee:

  “He doesn’t necessarily think you should have a press conference after every meeting if you don’t have something to say.”

On Task Forces and Transparency

• [06:36] Jim Bianco:

  “He also said that the task force might include people outside the Fed. So I’d assume you’re going to have leaks, so you might as well be doing it almost in real time… ”

Fed Independence

• [14:18] Stephanie Roth:

  “He doesn’t seem to be giving way to any sort of pressure. So I mean, that’s a very good thing for markets. The markets should want an independent Fed.”

Historical Perspective

• [28:24] Jeffrey Rosenberg:

  “My reaction to the statement was, wow, that looks like one of the first statements I saw in my career... February ’94, about the same length, similar kind of tonality.”

On FOMC Division and Secrecy

• [22:52] Jim Bianco:

  “So maybe we’ll get [the vote details] out of the minutes. But if we don’t… that says to me the Fed’s more independent… and they don’t want to be publishing 7-5 votes, 8-4 votes...”

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Conclusion: The New Fed Era

Kevin Warsh’s inaugural press conference signals a seismic shift at the Fed: less talk, more listening to data, a hard 2% inflation anchor, and willingness to act—even if it means going against political expectations. Markets have swiftly shifted to price in more hawkish outcomes, with renewed focus on the real economy over forward guidance. Warsh is deploying task forces to rethink every major aspect of Fed policy, potentially reshaping communications, the dot plot, and the balance sheet in a matter of months rather than years. The tone is collegial and consultative, but the substance is bold and disruptive—a new era for US monetary policy.

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Timestamps of Major Segments

• [01:44] – Host sets the stage: new Fed era, initial reactions
• [03:44] – Warsh lays out task force plan
• [04:46] – Analyst roundtable: first impressions
• [07:45] – Warsh explains market-Fed interaction philosophy
• [11:49] – Analysts dissect hawkish undertones, targeting 2% inflation
• [14:18] – Market confidence in Fed independence
• [15:01] – Analyst debate: market pricing and rate hike probabilities
• [22:40] – Fed vote secrecy discussed
• [24:05] – BlackRock’s Rosenberg on balance sheet implications
• [28:24] – Historical context, rapid change expectations
• [32:33] – Closing reflections and outlook

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This summary covers all policy, market, and communication highlights from Kevin Warsh’s first crucial minutes as Fed Chair.

Transcript

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[Bloomberg Host]

Bloomberg Audio Studios Podcasts Radio News

[Jim Bianco]

this is a breaking

[CBOE Representative]

news update from Bloomberg. Instant reaction and analysis from our 3,000

[Fed Chair Kevin Warsh]

journalists and analysts around the world.

[Bloomberg Host]

A new Fed Chair in a new era. As we do pass through some of the commentary, the Kevin Wash Federal Reserve is a very different Federal Reserve than the Jerome Powell of Federal Reserve. Not only are we looking at a statement that was only 132 words versus 175 words at the April FOMC meeting. We're talking about a new framework, a new regime and not giving any forward guidance because guess what, there's a task force for that right now. If you take a look at the reaction in markets, they are taking this hawkish tilt and they are running with it. You could see across the board declines on the S and p and the Russell 2000 NASDAQ now a little changed as they pass through all of the reactions. When you take a look at the yield space, that's where some of the fireworks are happening. It is yield curve compression time in a massive, massive way. 13 basis point rise on the 2 year to 4.18%. Suddenly the idea of one rate hike or even more is on the table as this Fed chair talks about how this Federal Reserve has a commitment to the American people to get price stability and that is their goal. He pooh poohed some of the dual mandate at the 30 year yields. They like that down 2 basis points and it is streng the board. A big question, Scarlet Fu was would the President have any commentary on this? And it turns out that he does.

[Kate Moore]

He does. He's spoken to reporters several times today. He's at the G7 in France and he had said that it's all right that they held rates, whatever. He also said that the Fed raising rates is a possibility, it's possible it could happen. So no sign of anger from him. We do know that Scott Besson, the Treasury Secretary, had kind of ease the path there. He had been talking about the prospect of the Fed not being able to cut rates as the President would want and that inflation, oil prices remains top of mind.

[Bloomberg Host]

So we did just listen to Fed Chair Kevin War speaking moments ago. Is here any kind of forward guidance? Where did you put your potential dot if you were to have a dot? Well, he has an answer for that.

[Fed Chair Kevin Warsh]

I'm appointing a task force in each of five areas that are central to the broad conduct of monetary policy. First, Fed communications. Second, the Fed's balance sheet. Third, our use and reliance on existing data sources. Fourth, productivity and jobs in an era of transformation. And last, the Fed's inflation frameworks. My expectation, I'm still in the business of recruiting and finalizing them. My expectation is the task forces will begin work in the next couple of weeks and we'll start to get some more information from them, some more framing of how they see things starting in the fall and hopefully most, if not all of them concluding by year end.

[Bloomberg Host]

Joining us now to discuss is Kate Moore of Citi and Jim Bianco of Bianco Research. Are either of you being recruited for the task force? We'll start with that.

[Stephanie Roth]

I just checked my text messages and nothing came through yet, so. But it's still early presser. All right.

[Bloomberg Host]

What's your first reaction to what we just heard, Kate?

[Stephanie Roth]

Well, a couple of things. Number one, there was broad acknowledgment that the economy is in good shape. There's also broad acknowledgment that the rates as they currently stand are not actually restricting any major sector outside, of course, housing, which was mentioned. And there was like a lot of collegial talk about, you know, how well the Fed is working together, how well they're communicating how welcoming Wash felt, you know, in his new chair position. So there was actually kind of a positive tone about both the economy and the functioning of the institution.

[Kate Moore]

And in terms of changes that he's made. Lisa, you already highlighted the fact that the statement was much shorter, the news conference was shorter as well. And we definitely heard a different side to the these Fed news conferences. Jim, one thing that Kevin was made clear was that for longer term changes, including communications, including the dot plot, there's going to be a task force for that. How do you anticipate that kind of information to come out? Is that going to be a surprise when it just comes out or is it, is he, the Fed going to give markets time to digest all of what?

[Jim Bianco]

He also said that the task force might include people outside the Fed. So I would assume that you're going to have leaks, so you might as well be doing it almost in real time telling us what's happening because there's going to be some people outside the Fed. But in general, I think that this is a welcome thing. The Fed needed to change. This communication style that they have now is about 20 years old and the world has changed, communication has changed, the role of the Fed has changed. And so it is a positive thing. I also mentioned that one of the things that Wash talked about before he was chairman was all of these prognostications. The Fed's going to cut rates according to the dot plot. He pointed out it very rarely happens the way that they say it's going to be. So it was always an institution that was giving an inaccurate forecast and we were over relying on that inaccurate forecast. And maybe it is time that they try a different approach.

[Kate Moore]

Kate, is Chair Kevin Marsh kind of consistent with what former Governor Fed Governor Kevin Marsh sounded like?

[Stephanie Roth]

I mean, I'm going to go back to this word I just mentioned a moment ago, collegial. I mean, it really felt like that was the sort of the overall tone. And I think something is very important here, which is that we are having more consistency of policy here between last meeting with Chair Powell and Chair Wash, which I think is going to be comforting to the markets, even if risk assets, you know, dip a little bit on this news. It's just kind of reiterating what we already know though, right? That inflation has been warmer, spicier than many people had expected, certainly even pre the Iran conflict. And we know that there's been a broadening out of some of these price pressures while the labor market has been solid. I just felt like, you know, Chair Wash made those points, conceded that, and so was consistent with the person that he has always been, which is someone who is really grounded in data.

[Bloomberg Host]

There's also been a comment, and I thought that that answer to one of the questions was really interesting about why he thinks that this shouldn't be an overly communicative Fed. How the data and how the market responds to the data should be done more purely. Take a listen to exactly what he had to say.

[Fed Chair Kevin Warsh]

I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question, how will the Federal Reserve react to that incoming information? The more that markets are paying attention to what's happening in the real economy, deciding what's good data and what's less good data, the more financial markets can price what they believe is the most likely and what are the tail risks.

[Bloomberg Host]

This actually, to me highlighted a real question that's been asked, Jim. Is this sort of codifying the fact that the Fed's going to follow the markets? The market is going to be sort of the arbitrator of what the Fed should do, because it is a pure indicator of the collective wisdom of crowds.

[Jim Bianco]

I think the market should. It'd be the thing that the Fed follows. His statement reminded me of that famous line from the economist Charles Goodhart. When a measure becomes a target, it seeks being a measure. Meaning if the Fed has already decided what they're going to do, then we can ignore the payroll report, we could ignore the cpi. Maybe we should. Maybe we should be reacting to all of this and having the market express its best judgment and then letting the Fed bring in that information that I agree with them is the proper way for things to be done. Than them to just summarily decide what they're going to do. Say they care about the data, but they've already made up their mind.

[Bloomberg Host]

Kate, do you agree?

[Stephanie Roth]

Yeah, I think that makes a lot of sense. Right. The market being an important signal, an important source of data for the Fed instead of this kind of manipulation. It is really hard, though, as market participants not to try and anticipate what other market participants or other policymakers or other people making decisions are doing or interpreting with the data. You know, and that is part of the game and part of the behavioral side of things that we all incorporate into our process. But I think, you know, Chair Warsh's point was very clear, that the market and that mechanism, Jim, as you're pointing out, is a really powerful mechanism and we shouldn't fade it right now.

[Bloomberg Host]

We want to get back with a part of the task force. I don't believe he actually has been appointed to a task force. He is officially the Bloomberg Task Force on the Federal Reserve. Bloomberg's Michael McKee, you are in the room and the press conference actually went along, went on a little bit longer than some people had expected. The commitment to a press conference, though not exactly concrete. His answer to you is really interesting. What was your takeaway from this conference?

[IBM Representative]

Well, the answer, of course, like almost all of his answers, ended with there's a task force for that, but basically they're going to look at all communications. And he did express the idea that he doesn't necessarily think you should have a press conference after every meeting if you don't have something to say. Now, that's going to be the thing that the task force is going to have to look at is what is question qualifies as something important to say today, obviously. But if you're in a situation where you don't know where inflation's going, where you're going to vote to hold rates, where they are, does that require a meet a press conference? If not, then how do the markets react? The Fed there is kind of leading the markets and if they come to you and say, hey, come on over, we're going to have a press conference today, then they're also leading the markets. So it's, it's a difficult needle to thread at this point, I think for, for Wash to try to get out of this, to put that genie back in the bottle. But we'll see what the, the task force comes up with. He was very, very complimentary of Fed officials today and he basically framed this all as we're all working together to make this work better for monetary policy. So it's going to be, we're all going to be sitting back and waiting for these task force reports to come out.

[Bloomberg Host]

Michael McKee, thanks so much for all of your work and insight today. Just real quick here, it does seem he's not necessarily paying attention to in the initial salvos of the reaction, he went on and said, honestly, I'm not that concerned in the first hours. That said, the idea that they dropped any kind of commentary on the labor market and the fact that he said we've missed for five years our inflation target and we are going to fix that. Is there any other way to interpret this other Kate, than unabashedly hawkish?

[Stephanie Roth]

I mean, look, here's what I would say. The fact that he repeated that we have been overshooting the Target for five years, something our team talks about all of the time, I thought was incredibly important and actually was a comfort to me. This acknowledgment that policy is going to be really active in terms of getting us to the goal. Thought that other comment he made around paying attention to the left of the decimal, decimal point versus the right, that, you know, that the target is two, not two. And something sort of reaffirms that commitment and the way that he'll work with the committee, frankly, to get policy in a place that we go closer to target over time. So it's hard not to interpret that where we are today as a little bit more hawkish than otherwise people might have expected.

[Kate Moore]

But also that's thinking perhaps more clearly than perhaps what we had heard in the past. Right. There's no 2ish. It's just 2. And he's happy with that. I'm curious, in terms of the labor market, there was a question posed about what the committee thinks of the labor market, Jim, and he said trends matter more than data points. The jobs data has been moving in a good direction. It feels like. That's all he said about the labor market. He's not concerned with it one way or another.

[Jim Bianco]

Yeah. If you go back to the statement, they didn't put anything in the statement. In the one question, he said, we're not worried about the labor market. Okay. That is not a problem. The problem seems to be the inflation problem. And that's what they addressed. So I almost suspect that this statement is going to be flexible. So today, now it's inflation. I could see a statement in, you know, six months a year where there's no mention of inflation. And it's all about the labor market. It's all about real growth Then at that point.

[IBM Representative]

Yeah.

[Bloomberg Host]

And he said that it wasn't necessarily in conflict with each other. Right now let's bring in Stephanie Roth of Wolf Research, who's been listening to all of this. Stephanie, your first take on what we just heard from Fed Chair Kevin Wash.

[Stephanie Roth]

Yeah, I mean, it was he, he's setting up to be a very credible Fed. He seems to be very smart about getting everybody on his side and getting the consensus. It seems while he was not in favor of a hike today, you know, that could, that could very much change with the incoming data. So it was certainly more hawkish than what some people had thought. Some people thought he would just come in and try to push through rate cuts because that's what the president wants. And that wouldn't necessarily, quite frankly, be very good for markets anyway. So this was a very deliberate and patient approach and we'll see, you know, through the path of incoming data how this plays out. Our base case is that inflation will cool enough, labor market will show some signs of softening such that in the coming weeks they don't actually have to hike. But certainly the odds have risen after this meeting.

[Kate Moore]

Stephanie, does this silence the critics who thought that we would not have an independent Fed under Kevin Marshall?

[Stephanie Roth]

Yes, I think it absolutely does. He is looking at the incoming data. He doesn't seem to be somebody who is scared to be hiking if we don't actually get closer to the inflation goal than would otherwise be the case. He doesn't seem to be giving way to any sort of pressure. So I mean that's a very good thing for markets. The markets should want an independent Fed. So just pushing through rates for the sake of appeasing the President is not something that will ultimately result in a better economy or markets at the end of the day. And I think we should all feel better about that after what we heard today.

[Kate Moore]

How do you anticipate economists to respond or to react to the fact that nine of the members want to hike? I mean, how is this going to adjust what Wall street thinks is going to happen with inflation?

[Stephanie Roth]

Yeah, you're seeing that in markets today. You know, the shorter end of the curve rates are up significantly and you have to raise your odds of a near term hike knowing that many more FOMC members than was generally expected are looking for a hike. Before this meeting, I would say somewhere between the expectation was somewhere between three and six members were expected to be penciling in a hike. Now you're substantially above that. So now we're talking about about half the committee is, you know, very much interested in hiking rates given the data that we have today. So whatever your odds were of a hike, you know, before today, you know, it certainly has to be to be to be rising.

[Bloomberg Host]

If you are just joining us, we're passing through a very noteworthy Fed meeting, the first for Kevin Warsh as chairman and he a lot of changes. I did want to make one correction. I said that there were 175 words in the April statement. It was actually 341 words versus the 131 words in this latest statement as we've been mentioning in markets you can see a real hawkish tilt that is filtering through markets. I'm wondering Jim, from your perspective, do you like long bonds better given what we just heard? I mean, does this actually give you more confidence that this is a Federal Reserve that wants to anchor inflation expectations at 2.0, not 2.8 something.

[Jim Bianco]

It should. The old Wall street adage that as a bond investor I can stop panicking when the Fed starts panicking really applies. If the Fed is going to be vigilant about inflation, that in all of itself should be positive for bonds. Now today it's positive for bonds with the yield curve flattening because they're not rising in yield as much as the front end of the curve. But yes, you know, if you want to go back to 2022, to give another example, the inflation rate hit 9% but with the Fed raising rates 75 basis points ever meeting, it never got above four and a quarter the entire year the Fed was in full panic mode. Bond investors on a relative basis held in.

[Bloomberg Host]

Kate, you agree, man?

[Stephanie Roth]

We have been very underweight duration for like the duration of my time here, to be fair. And we have debated over and over again what is it going to be be that that lets us kind of extend duration in portfolios. But I just can't get there. I mean our view is that inflation is going to be more persistent and broader than a lot of people expected for quarters to come. So even against that backdrop, against the comments from Chair Warsh and from kind of the tone of the fomc, you know, we're just not in a place yet where we're buyers.

[Kate Moore]

How does this make you think about credit? Would you be changing any of your allocation to it or what you prefer?

[Stephanie Roth]

Yeah, we think about credit, of course, in the risk asset spectrum too, not just in terms of yield. Right. And in this case, you know, equities, not credit, have had kind of a step down in valuation over the course of 2026 because of course earnings have been much stronger than the price movement. And so, you know, we're still close to that kind of 15 year high in terms of credit valuations, but we've come, you know, significantly lower in equities. We prefer to take our risk asset exposure in equities over credit. We've positioned that way over the course of the year. That doesn't mean no credit, but we just want to be more selective, frankly. And I wish I didn't just love equities so much. I think they were going to go higher actually. A pause to breathe, I think as we've seen over some last trading sessions is, is a good thing going into the summer. But I also wish I could use fixed income more actively in portfolios. But given where we are on rates and inflation, as I said, we're very underweight. Duration.

[Kate Moore]

Staying on that idea. We also heard from Kevin Warshaw, Steven, Stephanie, about his thoughts on how restrictive policy is right now. And his answer was it's uneven. If you look at housing, for instance, Fed policy does appear restrictive because you have that affordability crisis not just in the actual housing prices but in mortgage rates. But he doesn't see that in financial markets, noting the record highs that we're seeing in equities and the tight spreads that we see in credit. How do you think about that?

[Stephanie Roth]

Yeah, I mean, so, you know, the initial idea of, well, policy is somewhat uneven. You could initially be interpreted as, well, that's somewhat of a dovish comment until he later said you don't really see it anywhere outside of housing. So it's pointing to that as policy is largely, you know, not that restrictive outside of one sector of the economy. So once you hear that further information, it suggests that, you know, the economy is certainly running fairly hot relative to sort of where rates are. So, you know, our expectation is that was a, you know, somewhat, somewhat hawkish comment after, you know, could initially have been interpreted as a little bit more balanced.

[Bloomberg Host]

We heard him say pretty confidently, Stephanie, that he was not concerned with how the market was moving in the initial aftermath of this press conference. He wouldn't make too much of those moves. Do you think that that was a mistake?

[Stephanie Roth]

No, I mean, I think, I think he believes that. I think he, you know, he, he, he came out and delivered a message of, you know, credibility and the market is seeing, seeing through that. I don't think that was something he would wish, you know, wishes, wishes. He didn't say necessarily. He knew he was going to be coming out and delivering, you know, a balanced, although perhaps somewhat hawkish message. And that's exactly what he did today. He, he came in there, he painted the Fed as a very credible institution, one that's working together. He noted, you know, several times that, you know, while they might have sort of family feuds at the table, they're going to come out and deliver, you know, an important and singular message. And that's exactly what he did. So I think he, he came and went exactly as his plan and I think he was very successful in doing so.

[Bloomberg Host]

Stephanie, just sort of a similar question to what we were asking before about whether this gives you more confidence in long bonds. Does this make you actually pull down your longer term inflation expectations for the United States based on some of the shift in rhetoric?

[Stephanie Roth]

Yeah, I think it has to. You know that the Fed is going to be credible in getting inflation down. The market should. And, you know, we also do take him at his word that they are. He's, he's planning on getting inflation down one way or another. The hope or the expectation is you'll get it down through the passage of time and inflation naturally coming down because there have been shocks to the economy that should eventually fade. But if we don't, if that doesn't play out that way, then war is certainly going to be behind the Fed hiking rates in order to get there. So there are two paths to get there, but the end goal is certainly going to be that 2% inflation. He very much made that clear.

[Bloomberg Host]

Stephanie Roth, thank you so much for your insights.

[Kate Moore]

Just to go back to what President Trump said, he was answering a question from our Josh Wingrove about what happened with the Fed, and his exact quote was, it's all right, whatever. When asked about the Fed's decision to hold interest rates steady.

[Bloomberg Host]

Well, there you go. It got the endorsement, I guess, of the President of the United States. Jim, do you think that yield curve flattening is the path of travel from here?

[Jim Bianco]

Yeah. If the Fed is going to be committed to raising rates, to fighting inflation, the long and again, as I said on a relative basis, should like it more than the front end. Front end yields go up long and yields kind of hold steady or go up a little bit and you get that the Fed or you get that curve flattening.

[Kate Moore]

Kate, what will you be looking for in the Fed minutes when those come out in three weeks?

[Stephanie Roth]

I mean, I guess I'll be looking for that one small, tiny bit of discussion for the person who was suggesting that there would be space for a rate cut. Love to see kind of how fast that discussion was or how it's addressed. I'll also be, you know, kind of thinking about overall inflation expectations. This is something we want to see. You know, how does the Fed talk about that? Are they going to be acknowledging if we care a lot more about market pricing, you know, how that reflects back in terms of their overall debate. But in general, I think we already know what we need to know, which is like this was a split set of decisions. There were people with varying different degrees of interpretation of the inflation data and the economy, how tight financial conditions are, how much we need to worry about break evens. I mean, it's, we know it's all over the map. So I'm not sure we're going to get a single cohesive, special message from the minutes.

[Jim Bianco]

If I could jump in on that. There's one other thing that we haven't discussed. The Fed didn't disclose their vote for the first time ever. They didn't tell us whether it was a 12 vote or if there was any dissenter.

[Kate Moore]

By design.

[Jim Bianco]

Yes, by design. So maybe we'll get that out of the minutes. But if we don't get it out of the minutes, they're going full ecb, which never discloses their vote. And that says to me the Fed's more independent, that there's 12 voters across that table and they don't want to be publishing 7, 5 votes, 8, 4 votes, having all these dissents. So as he said, they'd rather keep it as a family fight, let them all hash it out in the meeting and then come out with a decision later on and not have to have people put out statements two days later about why they dissented for these meetings. So it's going to be a very different thing and maybe the minutes of help decide that.

[Kate Moore]

Let's not forget that Jay Powell was part of the discussion. He was in the room because he's a member of the Fed board, even though he's no longer the Fed chair, which is highly unusual. Lisa?

[IBM Representative]

Yeah.

[Bloomberg Host]

You have to wonder exactly what's so broken and whether he personally feels a little bit of attachment to the old way of communication, given that he was really helming that. Right now, I do want to bring in Jeffrey Rosenberg of blackrock. There is a sense right now in markets that this is a Fed that is newly renewed, really newly renewing their commitment to controlling inflation. Clearly yield curve flattening, clearly risk off in stocks. Is this signal or is this noise?

[CBOE Representative]

Well, there's, there's a lot of both. This is quite the change. And I think we're all trying to digest what we just what we just heard. I think there's a real risk here. Jonathan's not on the program, so I'm going to do my best interpretation. The first reaction is not always the right reaction. And I think there's a risk here of overplaying the yield curve flattening and the questioning of the long end that I'm listening to here. So first of all, you know, this is a market that is sort of split between the old reaction function, which really moved on the dot plot. Right. The nine votes, the nine dots voting for, for a hike were well in excess of expectations, and that's what moved the market. But then you have Warsh basically telling you we're going to get rid of the dot plot I mean, he got you all the way almost to the goal line, but didn't want to, you know, prejudge the outcome of the task force. But it's very clear, you know, the task force has its job ahead of it. So that undermines a little bit of that interpretation. I think the second reaction from the market is just a very clear hawkish statement. But I think here, there's a possibility here that the market may want to rethink, or I'm rethinking not talking about the market, but, you know, is this hawkish for rates or is this hawkish for the balance sheet? Because if you look underneath what he said, there were some very kind of telling interchanges there. And when you think about the path dependency of Warsh and his history during the post gfc, you know, first, you know, why was it that the communications of the Fed became paramount for markets? That interchange about why markets stopped paying attention to the data and instead of having their own reaction function, they were reacting to what they thought the Fed's reaction function would be. And that's because the era of the post GFC was the era of we will do whatever it takes and believe me, it will be enough. That was the quote from the ECB and Draghi when he threatened bond markets, that the central bank's balance sheet was bigger than the market's balance sheet. And that ushered in or is reflective of an era where central banks were the dominant price makers. And he wants to do away with that. Well, what's the primary tool for doing away with that? It's the balance sheet. So one of those tasks, forces may be more important than the others when it comes to markets and market reactions. The and the second interchange that was really quite revealing was when asked about restrictiveness, it wasn't so much about the unevenness, but what he went on to say about what is the source of the unevenness. I found that to be the most revealing comment because he said that might be due to transmission mechanisms, that one might be about the interest rates, that's reflective to housing and the other, the easiness of financial conditions is about the balance sheet. Well, that's about some of the risks of running an ample reserve system that maybe here is being hinted at being changed. And if you were to change that, what has been the biggest beneficiary of a big balance sheet? The flattening of the term premium. Right. That was the whole point of a lot of the bond purchases was to bring down that term premium. And we're still seeing the legacy of that benefit. So if the signal here is maybe we're going to be hawkish on the balance sheet, I'm not sure your reaction is big curve flattening. I get the initial reaction, hawkish surprise in terms of the, the, the focus on, on price stability. But there may be some other second order effects here. We'll think about that. Actually will become first order.

[Jim Bianco]

So, Jeffrey, I got a question for you about the balance sheet. I agree with a lot of your sentiment about it. And I'm thinking back to earlier with the Fed when they adopted inflation targeting. It took under Bernanke five years before we eventually got inflation targeting. Are we going to have to wait five years for them to change the balance sheet? Can this institution, especially since they've got Fed Governor Michael Barr, who's kind of against it in the first place, to move that fast? So while I agree with you about the balance sheet, is this something that's going to take years to unfold?

[CBOE Representative]

Well, Jim, I wonder, you know, we're around the same generation. My reaction to the statement was, wow, that looks like one of the first statements I saw in my career. February 94, about the same length, similar kind of tonality. And how quickly did Fed Chair Wash change the communications basically on his first day on the job. So I don't think from that signal we're going to be waiting with this Fed and this Fed chair five years to make these kinds of changes. And when asked the question, I think he even intimated that he expects these committees to come back by the end of the year.

[Bloomberg Host]

Well, Jeff, anyway you slice it though, this isn't great for risk assets, right? I mean, if you're shrinking the balance sheet, that's tightening in financial conditions. If you're hiking interest rates, that's tightening of financial conditions. Does this make you rethink some of your risk bet?

[CBOE Representative]

You know, the Fed may be less support supportive in terms of financial conditions, but it's occurring in an environment where the contribution, particularly to risky assets of the Fed's role is much secondary, much more secondary to what we're seeing in the real economy. Right. And that's the, that's the impact, the incredible amount of capital expenditures, the incredible amount of earnings growth. So it might be an opportunistic moment for the Fed to take a step back on supportive financial conditions when financial conditions can stand on their own.

[Stephanie Roth]

Yeah, I mean, Jeff, I couldn't agree with you more on this one, that what's been driving the equity market, of course, has been the earnings in the AI and the ecosystem as well as all the CapEx beneficiaries and the companies and the industries that are benefiting from adopting this technology. So it's hard to say that earnings are really coupled in any way with the rate position at point this, this point and that, you know, if we are fundamentally driven, which our team certainly is, we have to stay focused on where the earnings are going, who's growing them. In this case it's the US over everywhere else and regardless of where we are in kind of a relative monetary policy. The one thing I just would want to highlight though is that for the fringe companies, the smaller companies, those that are reliant on borrowing, people had gotten themselves incredibly excited, as you remember, in the beginning of the year around rate sensitive parts of the equity market. Like this is a time for rotation. We're going to get excited. But now I think we're getting a message very clearly from policymakers that the rates trajectory is not lower in the near term. At best case, we're kind of flat. And that's not going to be an environment where companies that need to borrow in order to keep up with their large cap counterparts are going to be able to do so at a very attractive rate. So that needs to be factored into people's expectations for margins and then earnings. And if you care about earnings and this case, which we really certainly do, that should tilt your size, you know, overall exposure.

[Kate Moore]

I wanted to go back to the idea about how communications is changing under Fed Chair Kevin Warsh. Question from Michael McKee was on communications and press conferences, whether Warsh would continue holding them after every meeting. He said that they can be a useful way to communicate with households and businesses, but you need to have something to say. So that suggests that perhaps the there won't be a meeting, a news conference after every decision. Having said that, if households and businesses are learning from this news conference, are listening to this, Jeff, what do you think they heard from this new Fed chair? What's the message for them?

[CBOE Representative]

Well, I think he wants us to reiterate the main message. Right. He said the other useful thing is, is everyone here in the room helps to amplify. I don't know if he said that, but I think it was implied. You help to amplify that message. Message. And the message was the recommitment to the Fed's stability, price stability of prices, goal. And I think that's the message that he wanted to get out, the recommitment to the attainment of the goal and all the task forces and everything else around that is really in service of that in recognition that for the past five years there's clearly been a failing on that part.

[Bloomberg Host]

Jeffrey Rosenberg of blackrock, thank you so much for being with us and breaking it all down. Kate Moore, Jim Bianco, you're still here. Jim. Final thoughts on exactly what we have experienced in this history making day that

[Jim Bianco]

we're going to see a different type of Fed right now with a different type of objective and communication style and that that's not necessarily a bad thing. I think the market reaction is appropriate because part of the path that they're going to go on is going to follow a lot of the other central banks. In the last week the ECB has raised rates, the bank of Japan has raised rates, and now the Federal Reserve is suggesting that they're going to raise rates too. So they're all moving in that direction.

[Stephanie Roth]

I love the overall message again around working with the rest of the fomc, around bringing in outside voices to these task forces. But I do want to say something. It's important to reiterate that commitment to price stability and to the target. But there's a phrase that keeps coming back into my mind was which is your actions speak so loudly I can't hear what you're saying. So let's see if there's follow through in terms of action and not just trying to jawbone the market to say hey, we do care about it, but we're not taking the necessary policy actions in order to get us closer to that goal. So I'll be watching very closely what happens over kind of the next six to 12 weeks of these next couple of meetings.

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