Instant Reaction: The Fed Decides

Summary

Podcast Summary: Bloomberg Intelligence — Instant Reaction: The Fed Decides

Date: June 17, 2026
Hosts: Paul Sweeney, Scarlet Fu, Michael McKee, Lisa Abramowicz
Featured Guests: Rich Clarida (former Fed Vice Chair), Diane Swonk (KPMG), Bob Schwartz, Matt Wadsworth (Deutsche Bank)

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Main Theme

This episode delivers immediate analysis of the Federal Reserve's latest decision and statement under new Fed Chair Kevin Warsh. The hosts and expert guests break down the headline rate decision, the thread of policy signals, sharp changes in official language, and their implications for markets and the Fed’s credibility. The conversation is framed by breaking news, offering insights as the story unfolds.

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Key Discussion Points & Insights

1. The Fed’s June 2026 Statement: Hawkish Shift

[01:41-06:10]

• The Fed held rates at 3.5–3.75%, but the statement and economic projections signaled a more aggressive approach to battling inflation.
• Notably, the statement was shortened to four paragraphs and removed any mention of a balance between inflation and employment, focusing exclusively on “delivering price stability.”
• The "dot plot" showed a split: Nine FOMC participants now expect a rate hike in 2026, with several forecasting as many as two moves.
• Quote: "The Wash. Fed holds the benchmark rate to 3 and a half to 3.75%...Nine members see at least one increase this year, with six of them seeing two moves, but nine see no moves or a cut." — Lisa Abramowicz [01:41]
• Inflation forecasts were revised upward (headline PCE inflation: 3.6% for 2026, core 3.3%), pushing out the timeline for returning to the 2% target. Unemployment is forecast slightly higher at 4.3%.

2. Immediate Market Reaction: Yields Jump, Equities Slide

[04:01-06:49]

• Yields on the 2-year Treasury jumped (~ 9 basis points), and stocks (S&P 500 and NASDAQ) dropped ~0.6%.
• Quote: "People bleeding in. The idea of a more hawkish central bank given that an increasing number of Fed participants are looking at a rate hike." — Michael McKee [04:01]
• The market was caught off guard by both the hawkish dot plot and the rhetorical shift from the new Fed Chair.

3. Kevin Warsh and the Future of 'Dot Plot' Guidance

[06:49-12:59]

• Analysts seized on the fact that there were only 18 economic projections submitted, implying Warsh himself skipped submitting a dot — fueling speculation he intends to downplay such guidance.
  • Quote: "It looks like potentially Fed chair Kevin Warsh did not put a dot. That is speculation. There were only 18 dots. There are 19." — Michael McKee [04:01]
  • Quote: "I was inclined to think that Wash would not submit a dot ... certainly the news that ... nine participants write down a rate hike was certainly above what I'd been thinking going into this meeting." — Rich Clarida [07:00]
• Warsh is apparently "doing away with the dots," suggesting a return to less explicit forward guidance.
• Debate: Some experts (Bob Schwartz, Matt Wadsworth) lament potentially losing the dot plot, while others note its misleading precision.

4. The Fed’s Rhetoric: Dueling Mandates and the Exclusion of Full Employment

[08:03-09:46]

• The statement’s focus on price stability, with no mention of the employment mandate, is seen as a tell.
  • Quote: "The last line of the statement is 'the committee will deliver price stability.' Nothing about full employment. How do you interpret that?" — Bob Schwartz [07:52]
  • Clarida: Notes it’s a departure, but not necessarily an abandonment of the dual mandate, given current labor market strength.

5. Underlying Drivers: Core Inflation Proves Sticky

[13:49–19:18]

• Panelists explain that inflation pressure is no longer just energy or tariff-driven—core service sector inflation is persistent, and behavioral changes (e.g., manufacturers front-running price hikes, high-income spending) complicate the outlook.
  • Quote: "It's beyond the energy shock. It's in that core super services component of inflation that we're seeing get sticky and hot and accelerate..." — Diane Swonk [15:49]
  • Wage growth cools but remains elevated at the higher end, amplifying inequality in spending and inflation impact.

6. Fed Credibility and Market Communication

[20:08–28:12]

• Some speculate Warsh seeks a return to the "Greenspan era" of strategic ambiguity, compared with the increased transparency of Bernanke and Powell.
  • Quote: "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 ... more transparency." — Lisa Abramowicz [30:22]
• Debate over forward guidance persists—should the Fed surprise markets (especially when easing), or be crystal-clear at all times?
  • Schwartz: "I want to know how they're thinking ... I want to see detailed forecasts... It just gives us more information." [27:12]

7. Outlook: Further Hikes Ahead?

[21:20-23:28]

• Diane Swonk projects two rate hikes by year-end; Bob Schwartz thinks it’s possible given “underlying growth and capex in the economy.”
• Matt Wadsworth argues that the committee’s stubbornly higher core inflation forecasts show they're “six years into the inflation shock and inflation has still not gone down to two and a half percent,” making further hikes highly probable.

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Notable Quotes & Memorable Moments

• "We were thinking two, maybe three to be decorative. We didn't think half the committee [expects hikes]. ... I think this is a Fed that is sending a hawkish message."
  – Bob Schwartz [05:01]
• "By statute the Fed does have a dual mandate.. at a point where we're at full employment ... I wouldn't read into this that they're abandoning the employment mandate but clearly some important change in the language for sure."
  – Rich Clarida [08:03]
• "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."
  — Diane Swonk [16:10]
• "If he's not in line with [the hawkish dot plot], he'll have to present an alternative case at this point... you have an economy where the labor market is strengthening ... you have inflation which is entrenched at elevated levels."
  — Matt Wadsworth [28:12]

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Key Segment Timestamps

• Fed Statement & Initial Breakdown: 01:41–06:10
• Dot Plot, Guidance, and Warsh's Philosophy: 06:49–12:59
• Inflation Focus and Service Sector Dynamics: 15:49–19:18
• Market Impact & Potential for More Hikes: 21:12–23:28
• Transparency, Communication, and Forward Guidance: 22:52–28:12
• “Greenspan Era” and Big Picture Reflections: 30:22–31:00

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Tone and Language

The conversation is candid, a mix of seasoned market skepticism and recognition of how delicate and impactful Fed communication is. Multiple hosts and panelists express both surprise and validation—surprise at the speed and hawkish tilt of the FOMC, validation that underlying inflation concerns are now openly dictating policy.

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For Listeners Who Missed The Episode

This episode delivers an expert blow-by-blow account of an inflection point in U.S. monetary policy—where a new Fed chair asserts a hawkish stance, disrupts established forms of guidance, and re-centers the FOMC around the need to clamp down on persistent inflation. It’s essential listening for those following financial markets, policy watchers, and anyone who relies on translating Fed statements into economic outlooks.

Transcript

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[Bloomberg Anchor Michael McKee]

Bloomberg Audio

[Diane Swonk]

Studios Podcasts Radio News

[Bloomberg Contributor Mike McKee]

this is a

[Bloomberg Promo Voice]

breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world.

[Bloomberg Reporter Lisa Abramowicz]

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 see a rate increase this year they see one cut each in 2027 and 2028. Nine members see at least 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, did not submit a.for 2028. The statement was cut to four paragraphs. The first the vote unanimous, 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 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 Anchor Michael McKee]

Michael McKee stay close. Definitely putting his mark on this Federal Reserve. Just to underscore what Mike was just saying, it looks like potentially Fed chair Kevin Warsh did not put a dot. That is speculation. There were only 18 dots. There are 19. 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 hawkish central bank given that an increasing number of Fed participants are looking at a rate hike this year. When you take a 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 Schwartz]

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 two, 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 what 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 Anchor Michael McKee]

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 Lisa Abramowicz]

So it'll be really interesting to see how Kevin Marsh 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 of about 2 basis points right now.

[Bloomberg Anchor Michael McKee]

Joining us now to extend the conversation, former Fed Vice chair Rich Clarida. 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 Lisa Abramowicz]

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 Schwartz]

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 maxim 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 Anchor Michael McKee]

Bob, what's your take on that?

[Bob Schwartz]

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 Anchor Michael McKee]

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 sure.

[Bloomberg Host Lisa Abramowicz]

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 Wash 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, to have him flesh out how the dual mandate fits into 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 he's how he's going to try to change minds on the committee about, about the balance sheet size as well.

[Bloomberg Host Lisa Abramowicz]

Mike McKee, jump in here.

[Bloomberg Contributor Mike McKee]

Well, I think Rich raises an important point. The only reference to the balance sheet is the Fed reaffirming its commitment to the 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, 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 that back, he's going to have to 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 Schwartz]

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 Wash policy in the FOMC now?

[Bloomberg Contributor 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 it 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 Warsh 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 Anchor Michael McKee]

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 curve 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 as hawkish. Would you be prepared to comment?

[Bloomberg Anchor Michael McKee]

Former Fed Vice Chair Rich Clarita 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 few firm Stan, 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 concern so many at the Fed meeting in March when we saw 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 Lisa Abramowicz]

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]

you know, 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. And they're seeing that out there. They're also seeing, 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 Lisa Abramowicz]

You've noted, Diane, that one of the largest near term hurdles for the central bank is the persistence of stock 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 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 Anchor Michael McKee]

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 from 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 Schwartz]

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 Anchor Michael McKee]

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 into seeing this as a hawkish Federal

[Diane Swonk]

Reserve, 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 and there' 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 Lisa Abramowicz]

Wow.

[Bloomberg Anchor Michael McKee]

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

[Bloomberg Host Lisa Abramowicz]

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

[Bloomberg Anchor Michael McKee]

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

[Bob Schwartz]

Oh, I think it's possible.

[Bloomberg Anchor Michael McKee]

You do?

[Bob Schwartz]

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 Anchor Michael McKee]

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 Wadsworth]

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 forecast 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 Lisa Abramowicz]

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 Wadsworth]

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 the market's

[Bloomberg Host Lisa Abramowicz]

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

[Matt Wadsworth]

So I think I'm going to piggyback on, on Vice Chair Clarity, his 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 Schwartz]

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, the nine voters 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 Wadsworth]

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 the median.

[Bloomberg Anchor Michael McKee]

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 Wadsworth]

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. It's a very strong signal from, 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 War 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 Anchor Michael McKee]

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

[Bob Schwartz]

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 Marshall 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 Lisa Abramowicz]

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 because it's more effective that way. It packs more of a punch. What do you think?

[Bob Schwartz]

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 create 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 influence, 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 it just gives us more information.

[Bloomberg Anchor Michael McKee]

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 Wadsworth]

I think maybe he takes that tack. But, but I think he's going to 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 have 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 Anchor Michael McKee]

Matthew is that 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 Schwartz]

Yeah. 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 Anchor Michael McKee]

Yes. 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 Scarlet. 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 fifth central banker, the fifth Fed chair, going back in the past 40 years. And clearly he is putting a stamp on the institution and a lot of

[Bloomberg Host Lisa Abramowicz]

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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