Instant Reaction: The Fed Decides

Summary

Bloomberg Businessweek Podcast Summary
Episode: Instant Reaction: The Fed Decides
Date: June 17, 2026

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Episode Overview

This special Bloomberg Businessweek episode delivers immediate analysis of the Federal Reserve’s latest policy decision under its new Chair, Kevin Warsh. The episode focuses on the surprising hawkish pivot in the Fed’s approach, changes in their official statement and economic projections, and the market’s instant reaction. The conversation features Bloomberg hosts and journalists, alongside economic heavyweights such as former Fed Vice Chair Rich Clarida, Diane Swonk (KPMG), Bob (Economist/Analyst), and Matthew Zetti (Deutsche Bank), who break down what these seismic shifts mean for global markets and the future of Fed communication.

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Main Discussion Points & Key Insights

1. The Fed’s June 2026 Decision: A Hawkish Surprise

• Highlights of the Announcement
  • The Fed holds the benchmark rate at 3.5–3.75%.
  • The statement is dramatically shortened to four paragraphs and notably omits references to the employment mandate, focusing solely on price stability.
  • FOMC members evenly split on 2026 rate moves: Nine predict a hike, nine predict none or a cut. (03:34)
  • Projection for PCE inflation in 2026 is raised sharply to 3.6% from 2.7% in March.
  • The median “dot” (future rate projection) moved up, and Chair Warsh reportedly didn’t submit a dot, signaling his ambivalence toward this tool. (03:53)
• Market Reaction (Post-Decision)
  • Yields spike: Two-year yield up to 4.13%.
  • Stocks drop: S&P 500 and Nasdaq down about 0.5–0.66%.
  • Immediate interpretation is that a more hawkish Fed is signaling higher-for-longer rates.

Quote:

“It is a hawkish tilt from the committee. Half of the committee is expecting rate hikes this year which is…a real shot across the bow to the market.”
—Bob, Economist/Analyst (04:54)

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2. Parsing the Statement: Ditching the Dual Mandate?

• Shift in Tone & Substance
  • The much shorter statement is seen as a strong signal; the last sentence: “the committee will deliver price stability.”
  • Lack of mention of full employment is seen as significant, suggesting a (temporary?) deprioritization. (07:44)
• Insightful Analysis
  • Rich Clarida stresses that the legal dual mandate remains but agrees the language marks a notable change.
  • The new language is seen as the Fed “putting its foot down” on inflation, reflecting five years of missing the inflation target.

Quote:

“The focus is on price stability, given the stability we’ve seen in the unemployment rate. I think that’s very important—what the Fed is saying is, we’re not going to take the inflation as transitory.”
—Diane Swonk, KPMG (14:06)

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3. What’s Driving the Hawkish Turn?

• Rising Core Inflation
  • Core inflation is broadening beyond energy and supply shocks, notably in the super-services sector and high-end consumption.
  • The labor market is stable or improving, giving the Fed more leeway to be tough on inflation.

Quote:

“Underlying core inflation was not only sticky but maybe reaccelerating again. It is beyond the energy shock, beyond tariff shocks. It’s in that core super services component of inflation that we’re seeing get sticky and hot.”
—Diane Swonk, KPMG (15:23)

• Fed Projections
  • 2026 GDP downgraded; unemployment marginally higher.
  • Both headline and core inflation projections for this year jump markedly, causing markets to price in more hikes.

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4. Dot Plot Controversy: End of an Era?

• Kevin Warsh Ignores the Dots
  • Only 18 dots submitted out of 19 members; strong speculation Warsh is the missing “dot.” (03:53, 06:53)
  • Criticism of precise projections—seen as contributing little value for long-term guidance.
  • Panelists speculate the dot plot may be phased out under Warsh’s leadership.

Memorable Exchange:

“The Fed chair telling us he can’t be bothered with the dots—I think that’s a slap across the face. We’ll see how he deals with that and the Fed going forward.”
—Bob, Economist/Analyst (04:54)

“Too much focus is put on them…Eventually, I think they will go.”
—Matt Zetti, Deutsche Bank (24:08)

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5. Implications for Forward Guidance & Market Communication

• Shift to Less Transparency?
  • The concise statement and potential move away from forward guidance/hyper-transparency hints at a return to pre-Bernanke “mystique.”
  • Some panelists express concern markets will be left to “guess” more often, increasing volatility.
  • Warsh’s history of criticizing big balance sheets and the sustained use of guidance seen as evidence.

“Not only are yields higher, stocks are lower…maybe he’s going back to the Alan Greenspan era, where you don’t say a lot and you kind of keep the market guessing rather than what Ben Bernanke ushered in, which is more transparency.”
—Bloomberg Host (30:14)

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6. Deeper Dive: Service Inflation and Economic Fractures

• Service Sector Remains Hot
  • Service inflation cited as “impervious” to rate increases; driven by aging demographics and persistent wage growth at the top end.
• Socioeconomic Divide
  • Very high-end consumers' spending keeps service inflation elevated while those in the middle/lower end are squeezed.

Quote:

“We have other factors pushing up service sector inflation—that is inequality and the ability of very high-end consumers to spend up…while many lower or even middle income folks are seeing their wages eroded relative to inflation.”
—Diane Swonk, KPMG (17:33)

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7. Looking Ahead: Rate Hikes and Market Expectations

• Panel Forecasts
  • Diane Swonk expects as many as two hikes by year end. (20:14)
  • Bob considers two hikes “absolutely possible” given growth and capex strength. (21:16)
  • Matt Zetti underscores just how many members now see hikes, and that persistent inflation is driving the shift.
• Communication Challenges
  • Risk that if Warsh speaks less, other FOMC voices may “suck the oxygen away.” (24:48)
  • Speculation: Chairman Warsh may prefer fewer press conferences, but is likely to hold them to frame the messaging.

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Notable Quotes & Speaker Attributions

• “Half of the committee is expecting rate hikes this year which is…I think a real shot across the bow to the market.”
  —Bob (04:54)

• “The committee will deliver price stability. Nothing about full employment. How do you interpret that?”
  —Bob questioning Rich Clarida (07:44)

• “Chair Wash will have the bully pulpit and I very much will be looking forward to seeing how he frames this and provides his own perspective. But certainly I think we have an indication here, especially with that sentence, the committee will deliver price stability.”
  —Rich Clarida (09:13)

• “It is beyond the energy shock, it is beyond tariff shocks. It’s in that core super services component of inflation that we’re seeing get sticky and hot and accelerate and not consistent with anything that resembles price stability.”
  —Diane Swonk (15:23)

• “If he leans dovish, it’ll certainly be a case where he doesn’t appear to be speaking on behalf of the committee.”
  —Bloomberg Host (06:03)

• “Look, Kevin Warsh will be fine. He’s a very credible, capable Fed governor…Clearly he didn’t go in with the dovish bias that we all assumed he was sent in with. I’m dying to know how the President’s going to react to this.”
  —Bob (25:53)

• “Not only are yields higher, stocks are lower…maybe he’s going back to the Alan Greenspan era, where you don’t say a lot and you kind of keep the market guessing.”
  —Bloomberg Host (30:14)

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Important Timestamps

• 03:34: Detailed breakdown of the Fed decision and dot plot.
• 04:54: Market reaction and Bob’s initial hawkish analysis.
• 06:53: Interview with Rich Clarida, former Fed Vice Chair.
• 09:13: Focus on price stability, statement’s new language.
• 14:06: Diane Swonk on the Fed’s inflation focus.
• 17:33: Service sector inflation and inequality.
• 21:16: Rate hike possibilities discussed.
• 24:08: Matt Zetti on the fading relevance of dot plots.
• 25:53: Discussion on Fed communication under Chair Warsh.
• 30:14: Reflections on a return to less transparent Fed communication.

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Conclusion

This episode captures a pivotal moment as the Fed, under Kevin Warsh, signals a decisive hawkish shift in both policy tone and communication style, prioritizing inflation containment over employment and potentially moving away from the transparency norms of recent decades. Markets instantly react, and seasoned economists see the seeds of both a new policy era and elevated market uncertainty as the central bank’s vision and messaging continue to evolve.

Transcript

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[Bloomberg Host]

Bloomberg Audio

[Diane Swonk]

Studios Podcasts Radio News

[Mike McKee]

this is a

[Bloomberg Announcer]

breaking news update from Bloomberg.

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Instant reaction and analysis from our 3,000

[Bloomberg Announcer]

journalists and analysts around the world.

[Bloomberg Reporter]

The Wash. Fed holds the benchmark rate to 3 and a half to 3.75% significantly changes the statement and splits evenly over whether there will be a rate cut this year. They see a rate increase this year they see one cut each in 2027 and 2028. Nine members see one increase this year, with six of them seeing two moves, but nine see no moves or a cut. The median DOT this year does move to 3.75% from 3.375%. However, for 2026 there are only 18 dots, suggesting the Fed chairman did not enter one. He said he doesn't believe in the dot plot. Two members did not submit a dot for 2028. The statement was cut to four paragraphs. The first the vote unan, then the decision, along with the statement that the committee reaffirmed its policy of maintaining ample reserves in the banking system. The second and third graphs are the economic assessment activity is expanding at a solid pace despite elevated uncertainty that owes in part to conflict of the Middle East. Productivity growth and capital investment are strong, job gains have kept pace with the workforce and the unemployment rate has changed little. Inflation remains elevated, elevated relative to the committee's 2% goal, in part reflecting Supply shocks that have driven price increases in certain sectors including energy. There is no balance of risks anymore. The statement concludes the committee will deliver price stability. All 19 members of the committee did submit economic forecasts. GDP this year 2.2% down 210 from March. Unemployment will be 4.3% up a tenth. PC headline inflation will come in at 3.6% significantly increased from 2.7% in the their March projection. Core similarly moves much higher to 3.3% from 2.7%. Growth and unemployment for 2027 are unchanged from March while PC inflation falls back to 2.3% and core to two and a half. So some significant changes already under the Wash Fed. We'll see what the chair has to say coming up in about a half an hour.

[Bloomberg Host]

Michael McKee stay close. Definitely putting his mark on this Federal Reserve. Just to underscore what Mike was just saying, it looks potentially Fed Chair Kevin Warsh did not put a dot. That is speculation. There are only 18 dots. There are 19 members there. And meanwhile you're looking at nine of 18 FOMC participants penciling in a 2026 rate hike. When you take a look at what that is in markets, you can see a huge shift up in the two year yield. A market shift of about 7 basis points to 4.13%. You could see stocks rolling over as this continues. People bleeding in. The idea of a more hawk central bank given that an increasing number of Fed participants are looking at a rate hike this year. When you take a look at the Nasdaq that is continuing to decline the S&P 500 down about a half of a percent. Bob, what's your initial reaction? Given the fact this does seem to be a hawkish tilt on the committee and a very different statement, it is

[Bob (Economist/Analyst)]

a hawkish tilt from the committee. Half of the committee is expecting rate hikes this year which is I think a real shot across the bow to the market. We were thinking to maybe three to be decorative. We didn't think half the committee. So you know it's, it's something quite different when you look at the inflation projections. You know we were thinking up a couple 10, you're up 6, 10, 9, 10 for this year. So nobody at the FOMC is thinking that this inflation will be transitory enough and we'll see disinflation between now and the end of the year. So yeah, I think this is a Fed that is sending a hawkish message. I think you have a Fed chair telling us he can't be bothered with the dots I think that's a slap across the face. We'll see how he deals with that and the Fed going forward.

[Bloomberg Host]

Scarlett, it seems like this is a real change both in tone, both in substance and frankly points to a hawkish committee and as Bob said, a Fed chair that is doing away with the dots.

[Bloomberg Host/Interviewer]

So it'll be really interesting to see how Kevin Wash comes out and frames everything when he does begin speaking because if he leans dovish, it'll certainly be a case where he doesn't appear to be speaking on behalf of the committee. He's kind of speaking out there on his own, expressing his own views. It's fascinating because again, he has not said a whole lot about his take on the economy aside from his confirmation hearing before the Senate. So all of this raises a lot of questions. As you mentioned, stocks have extended their losses and we now see the S and P and the NASDAQ losing 2/3 of 1%. Yields again have continued to stay higher. The 2 year yield up 9 basis points. The 10 year yield up about 2 basis points right now.

[Bloomberg Host]

Joining us now to extend the conversation, former Fed Vice chair Rich Clarita. Rich, are you surprised that it appears that one member of the Fed did not submit a dot?

[Rich Clarida]

Well, Lisa, thanks for having me on. I'm actually not surprised. I actually was inclined to think that Wash would not submit a dot. But, but certainly the news that Mike McKee just shared with us, that you had nine participants right down a rate hike was certainly above what I've been thinking going into this meeting for sure.

[Bloomberg Host/Interviewer]

Why do you think that is? What is it that the nine members see that has taken the market by surprise? Certainly?

[Rich Clarida]

Well, there was a big markup in core inflation projected relative to the March acp. And I think the reality is that the pressure and core inflation that we've been seeing in recent data is not just a pass through from, from energy prices but, but it does appear to be more broadly based and I think that's probably a factor in these, in this reassessment.

[Bob (Economist/Analyst)]

Rich, the last line of the statement is the committee will deliver price stability. Nothing about full employment. How do you interpret that?

[Rich Clarida]

Well, it's not in front of me here because I'm doing, you're doing your show. But, but that is an important change to the statement. You know, by statute the Fed does have a dual mandate and that's also highlighted in the firm's policy framework and I'm sure I hope Kevin will be asked to elaborate on that at the, at the press conference. We're at a point where we're at full employment or at least close to the Fed's assessment of maximum employment. So I wouldn't read into this that they're abandoning the employment mandate, but clearly some important change in the language for sure.

[Bloomberg Host]

Bob, what's your take on that?

[Bob (Economist/Analyst)]

I think there they are concerned by the level of inflation. They are concerned about what they see in the capex cycle. They are somewhat scarred for 2022 and they don't want to repeat that mistake again. And they're watching other central banks coming out and lifting rates and their bond markets responding well to that. So I think they're reconsidering certainly where they were last meeting and they're getting us ready for rate hikes.

[Bloomberg Host]

Rich, is there anything at all dovish in any way, shape or form of any part of this four paragraph statement?

[Rich Clarida]

Not, not at first glance or at first. Listen again, at least for this meeting, Chair Wash will have the bully pulpit and I very much will be looking forward to seeing how he frames this and provides his own perspective. But certainly I think we have an indication here, especially with that sentence, the committee will deliver price stability. That's, that's, that sounds like where he's going to land for, for sure.

[Bloomberg Host/Interviewer]

So there's a comment here from Joseph Richter. He's one of our editors at Bloomberg Intelligence on our live blog and he says that those who looked for a quiet first FOMC meeting must be disappointed. Rich, what will you be listening for in particular from Kevin Marsh when he speaks today? I know you said it'll be interesting to see how he frames his thinking, but what will be the one thing that you want to hear from him?

[Rich Clarida]

Well, let me give you more. More, more than one, certainly. I would like to have him flesh out how the dual mandate f this at this, at this point. Also importantly, you know, he spent the last 15 years criticizing the Fed's big balance sheet. The Fed's growing, expanding its balance sheet now and so perhaps moving beyond this meeting to the rest of the year into next year if how he's going to try to change minds on the committee about, about the balance sheet size as well.

[Bloomberg Host/Interviewer]

Mike McKee, jump in here.

[Mike McKee]

Well, I think Rich raises an important point. The only reference to the balance sheet is the Fed reaffirming its commitment to ample reserves policy, which is generic enough to encompass both warsh's desire for a smaller balance sheet and others desire to maintain the corridor system that we have now. But the question is, do they go to that later? Is it just too much of a bridge to cross right now. Other points that I think are worth making is that while the committee dropped the bias statement and doesn't give any quote, unquote, forward guidance in the statement itself, self the dot plot is forward guidance because all you're talking about right now is the nine people who think that we're going to get a rate increase and that this tells you that the Fed is hawkish. So if Kevin Wash wants to walk

[Bloomberg Reporter]

that back, he's going to have to

[Mike McKee]

do that in the press conference, otherwise the markets are going to be tilting in that direction. It's also interesting that they did say they're committed to price stability. What it seems like is that the people who were worried about inflation, that worry has spread and as Rich noted, the core inflation has broadened out some. And so they are sending a message to the markets that we're not going to let this get out of control. We're not going to repeat what happened in 2021 22. We are going to focus on price stability right now. The unsaid thing is that we're basically at full employment, so we don't have to worry about that for the moment.

[Bob (Economist/Analyst)]

Mike, the other thing that jumped out at me is you said that we went from 18 dots to 17 dots for 2028. Is there an undercover supporter of warsh policy in the FOMC now?

[Mike McKee]

It does seem like there might be at least someone who supports the idea that the dot plot is not worth considering. It could also be that one member decided that there's just too much uncertainty for 2028 and why bother to add to that by just guessing at where rates are going to be? We've had a lot of Fed officials over the years tell us that they just kind of throw something in for the third year out because it's just too hard to project anything that far out. I wouldn't read too much into that, but the idea that Kevin Wash did not submit a dot kind of tells you that he's going to maybe push to do some change to the dot plot going forward.

[Bloomberg Host]

If you are just joining us right now, we did get a statement that's four paragraphs long, much shorter than usual, with no reference to the employment mandate. With nine of the 18 members opting to support some sort of rate hike this year, leaving the others either in support of just keeping things where they are or potentially cutting rates being taken as incredibly hawkish. You could see the sell off in Treasuries extending. You could see two year yields now up 8 basis points across the curve, all rising. Although this is yield curves flattening, this idea that potentially there will be some sort of tightening in policy. Former Fed Vice Chair Rich Clarida, final word for word from you. What's your question right now going to be for a Fed chair, Kevin Marsh?

[Rich Clarida]

Kevin, you did not submit a dot today. There's no forward guidance in the statement the markets are taking. The information today is hawkish. Would you be prepared to comment?

[Bloomberg Host]

Former Fed Vice Chair Rich Clarida who might make a sneak appearance because that was pretty good. Thank you so much. Joining us now, Diane Swonk of kpmg. Diane, what's your first take on this?

[Diane Swonk]

Well, I'm actually not all that surprised. We saw a major move in the minutes to the last meeting where a lot of people were moving towards that hawkish chant and saying we may need to consider rate hikes later this year. And in the interim period, we have seen even Fed governors, which usually hold their cards a little closer to the vest, some of them who I've never seen actually take a firm stand, talk about how the price stability side of the mandate is more important now than the employment side of the mandate. And that's exactly what you saw with that last sentence in the statement was not that one, was that we were not having a dual mandate. It's that the focus is on price stability, given the stability we've seen in the unemployment rate. And I think that's very important what the Fed is saying. We're not going to take the inflation as transitory. What concerned so many at the Fed meeting in March when we saw the sort of the initial forecast and there was a lot of uncertainty, but the minutes from that meeting really revealed how many people were already concerned about the data that was coming out that suggested that underlying core inflation was not only sticky but maybe reaccelerating again. And I think that is where we're seeing this come from. It is beyond the energy shock, it is beyond tariff shocks. It's in that core super services component of inflation that we're seeing get sticky and hot and accelerate and not consistent with anything that resembles price stability.

[Bloomberg Host/Interviewer]

I want to go back to that idea, Diane, that the statement ends with the committee will deliver price stability. From where you sit, what are the most reliable inflation indicators that the committee will then focus on? If it's of course, the reported numbers. But when it comes to inflation expectations, you've got market based measures, you've got survey based measures.

[Diane Swonk]

Yeah, and, and none of these measures, they have at times none of the Fed will never say inflation expectations are unanchored. And I think that's important. And a lot of these inflation measures on expectations do not look unanchored, although consumer sentiment certainly is not high at the moment. And I think the decoupling we've seen between consumer attitudes and their actual spending reflects the burn of inflation. Inflation. And they're seeing that out there. They're also seen in surveys like the ESM survey and the purchasing managers surveys, things where manufacturers are front running future price hikes. That's the exact behavior the Federal Reserve is tasked to prevent because that kind of hoarding behavior reinforces its own inflation cycle. So I think those kinds of behavioral shifts they're seeing out there, they're worried about the muscle memory of inflation. We're five years in and inflation is still a problem. Whether or not it's all the Fed's fault or not. It's only one institution's responsibility to derail inflation and that is the Federal Reserve. And that's what you're seeing Them sort of put their foot down now that the labor market situation, although not perfect, is not in the precarious situation it appeared to be last fall.

[Bloomberg Host/Interviewer]

You've noted, Diane, that one of the largest near term hurdles for the central bank is the persistence of service sector inflation. What has proven to be the most effective way to bring down inflation in the services sector?

[Diane Swonk]

Well, it's a sector that has been sort of impervious to some of the increases in interest rates we saw. We did see wages cool, but they've not cooled enough to bring it down. And I think part of the problem we're finding in the service sector is one demographic and the aging demographics and upward pressure on some health care costs. But we also have other factors pushing up service sector inflation and that is inequality and the ability of very high end consumers to spend up to buy at the front of the airplane and buy first class tickets to spend at high end hotels. All of that is buoying inflation at a time when many who are on the lower end or even in the middle part of the income strata are seeing their wages eroded relative to inflation. Where we know at the highest end of the income strata that wages are actually going up more rapidly than inflation. And so that's one of the challenges the Fed faces is they've got to manage to the economic aggregates when the devil is in the details underneath those aggregates.

[Bloomberg Host]

Bob, you know what strikes me is that if you look at some of the economic projections here, a lot of people do seem clearly much more concerned about inflation. They revised up their core PCE between 3.2 and 3 and a half percent for the entirety of this year from 2 and a half to 2.8 in the previous one. Throughout all of these, even the Fed funds rate central tendency was moved up between 3.6 and 4.1. At this point, can we say we're at neutral and can you say that right now this is a Fed committee purely trained on inflation? Just as Kevin Warsh reflected in that

[Diane Swonk]

statement,

[Bob (Economist/Analyst)]

they're telling us that we're not at neutral. Even though they're, you know, the median dot, there's enough dispersion for higher inflation and higher rates. It's telling us that maybe the market was right before the meeting, the market was pricing in one rate hike over year end into next year. It looks like they looked at the market and say, hey, it's giving us a rate hike. Inflation's not going to be at our target for five years going on to six. Maybe this is the opportunity for us to step in like every other central bank in hike rates. I thought we would get there. I didn't think we would get there at this meeting. The long end of the market likes it. Look at that. The front ends up 6, 7, 8 basis points. The long ends down a basis point. A Fed that's vigilant again creates support for the long end of the market.

[Bloomberg Host]

Well, and actually, Diane, do you think that in some ways, just to conclude this is actually a way to get the ultimate goal of rate cuts down the road by job voting the market market into seeing this as a hawkish Federal Reserve?

[Diane Swonk]

I think it is important and I think it's also an acknowledgment, though. I mean the context is important here. Five years without hitting its inflation target and five years of compounding inflation is a problem for the US Economy and they now have more flexibility. With the labor market showing some signs of finally generating jobs, stable unemployment rate for a while now, with the exception of the six week government shutdown and the weakness we saw at the end of 2025, they're squarely focused on what they should be focused on. And I agree that the neutral rate is actually likely higher than what they thought it was. There were some that were moving there prior to this meeting as well, which means that in and of itself suggests they should have a higher short term rate. And on top of that, we may need another hike as well. I still expect two hikes by year end.

[Bloomberg Host/Interviewer]

Wow.

[Bloomberg Host]

Diane Swank, thank you so much. Two rate hikes by year end. Can you imagine what that would do to markets?

[Bloomberg Host/Interviewer]

There are a couple of dots that point towards that direction but the majority of see 1.

[Bloomberg Host]

Do you see that in any capacity to rate hikes this year?

[Bob (Economist/Analyst)]

I think it's possible.

[Bloomberg Host]

You do?

[Bob (Economist/Analyst)]

Absolutely. There's a lot of underlying growth and capex in the economy and we don't know whether the Middle east will be worked out. It's certainly not impossible.

[Bloomberg Host]

Joining us now is Matt was Eddie of Deutsche bank who's had a few minutes to look through this statement. What's your first reaction Matt?

[Matt Zetti]

Yeah, I think this was towards the hawkish end of what we could have expected. The two things that I was focused on ahead of the meeting were one, how many dots we're going to show hikes this year. You have half of the dots, nine of them showing rate hikes. Six of them are showing 50 basis points or more of rate hikes. That has to be towards the hawkish end of expectations. The second thing and what drives the hawkishness in the dots is the upper division in their core inflation forecasts. This year they went up to 3.3%. I think really critically next year they went up to 2.5%. You have a median expectation in the committee that more than six years into the inflation shock inflation has still not gone down to 2 and a half percent and within 50 basis points of their target. That is what's driving the necessity for potentially higher rates.

[Bloomberg Host/Interviewer]

So one of the comments from Ira Jersey, who's our interest rate strategist here at Bloomberg Intelligence, says that Wash a stamp on the statement seems fairly evident with language moving closer to the style used before the global financial crisis. Is this a move to make the Fed less transparent? Matthew, with the statement really brought down, the word count brought down and the length of it reduced to the point where this is going to be a Fed that perhaps will surprise markets going forward as opposed to really calming them into submission.

[Matt Zetti]

Yeah, I don't think that we learned too much about that from the statement today. I think the reality is that there was a lot of superfluous content in the statement. There was a fourth paragraph that has been in there really since the COVID shock and was probably unnecessary from that perspective. But it is clear we're just going to get less information in the statement. It'll be interesting to see how much additional information Marsh provides us in the press conference. He's been both critical of forward guidance so I don't think that we get much more of that. But he's also been critical of data dependency. So the ultimate question is what do we hear from him about at the press conference that's still an unknown from

[Bloomberg Host/Interviewer]

the market's perspective, what's the one thing you want to hear from him?

[Matt Zetti]

So I think I'm going to piggyback on, on Vice Chair Clarida's question from earlier. And it's, it's a clear signal from the committee that higher rates might be needed to tame inflation. The market also believes that higher rates might be needed to tame inflation. We know that he didn't submit a dot yet today. But does he agree with the skew in those expectations that higher rates might be needed? And if not, why does he not agree with it?

[Bob (Economist/Analyst)]

Matt, don't you think that the dots give us a lot of information? Won't you be sorry to see them go? Look how we talked about the dots nonstop. We looked at the nine voters markets that were looking for rate hikes. I would miss them. I don't know what being less transparent and more opaque actually does for the markets or for the Fed.

[Matt Zetti]

Yeah, I don't know that I'll miss the dots. To be honest, Bob, I think too much focus is put on them. I'm sure Chair Wash is going to mention that as well. I think ultimately over time they will go away. I think Wash doesn't think that they serve a good purpose of actually providing meaningful forward guidance. I think they think that it, it's too precise, the market focuses too much on it and not the uncertainty bands around it. So eventually I think that they will go. I think we'll be left with an ACP that shows the central tendency on Fed funds rate expectations, shows the range on Fed funds rate expectations and that gives us the sense of overall where the trajectory of policy is going to be without kind of catalyzing us around one imprecise estimate from, from the median.

[Bloomberg Host]

You know, Matt, even if Kevin Wash doesn't want to talk that much, the Fed Chair can't muzzle everybody else. And there is a risk that potentially everybody else will talk a lot and give their perspective and suck the oxygen away from him, who's not saying very much. I mean, at what point do we end up in that type of scenario if the press conference holds true to what we're seeing, at least in the statement?

[Matt Zetti]

Yeah, I think it could be over the next week. I mean, if we don't hear very much from, from Chair Wash today, I would expect that we do hear a lot from other committee members over the next week. Think it's a Very strong signal from the, from the dot plot and the ACP that higher rates might be needed. And so I would expect that we hear from a number of those committee members. But exactly because of that, I actually don't expect that Wash gives up his opportunity to do the press conference. There's some questions or speculation that he might not do a press conference after every meeting. I think he will because it at least gives him the first chance to frame the meeting today. Gives him the first chance to frame that Doppler which kind of clearly skews hawkish and potentially push back on it if that's in fact what he wants.

[Bloomberg Host]

Bob, who would you listen to on the FOMC if Fed Chair Wash takes a back seat to communication?

[Bob (Economist/Analyst)]

Listen to Waller. I think Waller to us was somebody who is very reasonable, very rational, is very balanced, looks at the full picture. He would have made a very good Fed Chair. Didn't work out that way. Look, Kevin Warsh will be fine. He's a very credible, capable Fed governor. Clearly he didn't go in with the dovish bias that we all assumed he was sent in with. I'm dying to know how the President's going to react to this. His first meeting, everybody wants to now start hiking rates. That's certainly going against his thinking. But look, Warsh has proven that he's his own Fed Chair. He'll do what the data tells him. We're in good hands with him as

[Bloomberg Host/Interviewer]

far as I know. We don't have any social media posting from the President yet. We'll wait to see when new Fed Chair Kevin Marsh begins speaking. Going to the idea of forward guidance, I wonder if the effectiveness of Ford guidance is asymmetrical. Bob, I asked because rick Reeder of BlackRock says that you want to over communicate when you are loose, when you're tightening policy, but you want a surprise when you loosen. And because it's more effective that way, it packs more of a punch. What do you think?

[Bob (Economist/Analyst)]

I don't think so. It reminds me of the years when the European central banks used to ambush the market and come in and it created a shock. One way it was very disruptive to the markets. I don't think it accomplished anything other than create losses in some areas and it wasn't sustainable over time. I think we're in a world where there's a lot of information, there's a lot going on. The complexity of what the Fed has to deal with is real. They have a lot of tools at their disposal which didn't exist pre Covid. Or pre gfc. I want to know how they're thinking about them. I want to see detailed forecasts, I want to know what direction they're moving in. Yeah, I may agree, I may not. It's not a big deal one way or another other than. And it just gives us more information.

[Bloomberg Host]

Matt, do you think that there's plausible deniability potentially? You have a Fed chair that says you can't say it's hawkish? I just didn't say.

[Matt Zetti]

I think maybe he takes that tack. But, but I think he's going have to present an alternative case at this point because the case that is presented by the forecast and the dots at this point is clearly hawkish. And so if he's not in line with that view, I think I'll have to present an alternative case at this point. There's not kind of a plausible or realistic alternative case. I think, I think you have an economy where the labor market is strengthening, it's at worst stabilizing, at best reaccelerating. You have inflation which is entrenched at elevated levels. It's broad based. It is not simply about tariffs any longer. Your financial conditions at very easy levels. You see, growth is actually solid, as we saw with today's retail sales report. And we've argued in recent research reports that the Fed very likely could be accommodative at this point in time. So I don't actually see the strong case to push back against it, but, but he would have to present that case if that's in fact how he feels.

[Bloomberg Host]

Matthew Zetti of Deutsche bank, thank you so much and look forward to catching you in the weeks after the press conference. Bob, just about two and a half minutes to go before we hear from Fed chair Kevin Warsh. What are you expecting as we see 2 year yields now 9 basis points higher with people really surprised by the hawkish tilt.

[Bob (Economist/Analyst)]

Yeah, and, and again, and I think Diane said it, you know, she kind of expected it. Maybe we should have expected it. We all thought it was coming in two or three meetings from now, not this one. So clearly the market's telling you it didn't expect it. For me, the question for Wash is removing the dots isn't a regime change. That's part of it. What is it that he finds most outdated about the Fed's framework and how would he go about changing it? The dots are just one component of what bothers him.

[Bloomberg Host/Interviewer]

Yes.

[Bloomberg Host]

Also the balance sheet, also when it comes to just how liquid some of these instruments have actually been. Bob. Michael, thank you so much for being with us. It is always a pleasure having you in studio. Scarlett. We are awaiting Fed chair Kevin Warsh to step to the podium for the first time as head of the US Central bank, the central bank to the world. This is the first fifth central banker, the fifth Fed chair going back in the past 40 years. And clearly he is putting a stamp on an institution.

[Bloomberg Host/Interviewer]

And a lot of people say maybe he's going back to the Alan Greenspan era, where you don't say a lot and you kind of keep the market guessing rather than what Ben Bernanke ushered in, which is more transparency. And Jerome Powell kind of took that to new levels as well. It's worth noting here that not only are yields higher, stocks are lower, you've got the S&P 500 down 610 of 1%. The NASDAQ as well. The president, of course, is in Europe right now, has not, as far as we know, given any kind of comment. He had just praised the stock market, saying it was the most brilliant thing and smarter than anyone else. So we'll wait to see how this all plays out over the next 30, 40 minutes.

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