Instant Reaction: The Fed Decides

Summary

Podcast Summary: Bloomberg Surveillance – "Instant Reaction: The Fed Decides" (June 17, 2026)

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Main Theme and Purpose

This episode provides real-time analysis and expert commentary on the latest U.S. Federal Reserve (Fed) policy decision under new Chair Kevin Warsh. The panel of finance journalists and economists offers immediate reactions to a significantly more hawkish stance from the Fed, dissecting the shorter, sharper FOMC statement, the controversial dot plot, shifts in economic projections, and what this signals for inflation, rates, and market expectations going forward.

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Key Discussion Points & Insights

1. Fed’s Policy Decision and Statement Overview [01:34–03:53]

• Rate Decision: The Fed holds its benchmark rate at 3.5%–3.75%.
• Economic Projections:
  • GDP growth for 2026: 2.2%.
  • Unemployment: 4.3%.
  • PCE headline inflation: 3.6% (up from 2.7% in March).
  • Core inflation: 3.3% (up from 2.7%).
• Dot Plot Controversy: Nine members see a rate hike this year, six see two moves, and nine see no moves or a cut. Unusually, there are only 18 dots for 2026 (suggesting Chair Warsh abstained).
• Language Changes: The statement is compressed to four paragraphs and omits direct reference to the employment mandate, concluding instead with “the committee will deliver price stability.”

2. Market Reaction & Hawkish Tilt [03:53–06:42]

• Yield and Stock Movements:
  • Noted a surge in the 2-year yield (up to ~4.13%).
  • Equities declining: S&P 500 and NASDAQ both down about 0.5%–0.66%.
• Commentary on Hawkish Tone:
  • The panel (Michael McKee, Bob) agrees this is a clear pivot to hawkishness.
  • There's surprise at the number of FOMC members supporting hikes.

3. Expert Analysis: Rich Clarida (Former Fed Vice Chair) [06:42–10:31]

• Warsh’s Rejection of the Dot Plot:
  • “I actually was inclined to think that Warsh would not submit a dot.” — Rich Clarida [06:53]
• Drivers of Hawkishness:
  • Core inflation is “more broadly based” and not simply a pass-through from energy.
• Mandate Changes:
  • Clarida points out the statement’s emphasis on price stability over the dual employment/inflation mandate is “clearly some important change in the language” [07:56], speculating the Fed sees the labor market as stable for now.
• Looking Ahead:
  • Clarida wants Warsh to clarify how he plans to balance the dual mandate and the future of the Fed’s large balance sheet.

4. Panel Discussion: Communication Strategy and Transparency [10:31–13:42]

• Balance Sheet Policy:
  • Continued commitment to ample reserves, but openness to change under Warsh.
• Loss of Forward Guidance:
  • With “no reference to the employment mandate” and “the dot plot is forward guidance,” the group underscores the Fed’s shift toward opaqueness and unpredictability.

5. Diane Swonk (Chief Economist, KPMG) on Fed Priorities & Inflation [14:06–18:38]

• No More ‘Transitory’:
  • Swonk: “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.” [14:54]
• Inflation Expectations:
  • The Fed is watching for “behavioral shifts” like hoarding or anticipatory price hikes, which “reinforce its own inflation cycle.” [16:01]
• Service Sector Challenge:
  • Persistent inflation here driven by demographics, healthcare costs, and income inequality buoying high-end consumption.

6. Is the Fed Now Focused Solely on Inflation? [18:38–21:04]

• Panel Consensus:
  • “They're telling us that we're not at neutral...Inflation is 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 and hike rates.” — Bob [19:13]
• Rate Hike Expectations:
  • Swonk predicts as many as two hikes by year-end [21:04].
  • Bob: “It’s possible... There's a lot of underlying growth and capex in the economy...” [21:18]

7. Market Transparency & The Future of the Dot Plot (Matt Luzzetti, Deutsche Bank) [21:28–25:45]

• Statement Style Shifts:
  • Warsh’s influence evident in “language moving closer to the style used before the global financial crisis.” [22:15]
• Loss of Forward Guidance a Feature, Not a Bug?:
  • “Too much focus is put on [the dots]... I think over time they will go away. I think Warsh doesn’t think that they serve a good purpose...” — Matt Luzzetti [24:08]
• Risks in Communication:
  • If Warsh is tight-lipped, “everybody else will talk a lot and give their perspective and suck the oxygen away from him...” [24:48]

8. Speculation on Fed’s Regime Change & Markets [29:14–30:53]

• Regime Change?:
  • Bob: “For me, the question for Warsh is removing the dots isn’t a regime change—what is it that he finds most outdated about the Fed’s framework and how would he go about changing it?” [29:14]
• Return to Greenspan Era?:
  • Host Lisa: “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...” [30:14]

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Notable Quotes & Memorable Moments

• On the statement’s focus:

  “The last line of the statement is the committee will deliver price stability. Nothing about full employment. How do you interpret that?” — Bob [07:44]

• On inflation risks:

  “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 [14:54]

• On potential for further hikes:

  “I still expect two hikes by year end.” — Diane Swonk [21:04]
  “Oh, I think it’s possible.” — Bob [21:15]

• On Fed transparency:

  “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...” — Host Lisa [30:14]
  “I don’t know what being less transparent and more opaque actually does for the markets or for the Fed.” — Bob [24:08]

• On abandoning the dot plot:

  “Too much focus is put on [the dots]...I think ultimately over time they will go away.” — Matt Luzzetti [24:08]

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Important Segment Timestamps

| Timestamp | Segment | |------------|---------------------------------------------------------------| | 01:34 | Fed statement overview and economic projections | | 03:53 | Initial market and commentator reactions | | 06:42 | Rich Clarida weighs in on policy and statement changes | | 10:31 | Group discussion on balance sheet and Fed communication shift | | 13:55 | Diane Swonk on inflation and service sector stickiness | | 17:20 | Service sector inflation, demographics, inequality issues | | 21:04 | Debate over rate hike predictions for the rest of 2026 | | 22:45 | Matt Luzzetti on Fed transparency and statement brevity | | 24:48 | Risks of fragmented Fed communication if Chair goes quiet | | 29:14 | Panel speculates on regime change and historical precedents | | 30:14 | Discussion of return to a more opaque “Greenspan era” |

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Flow & Takeaways

Listeners gain a deep, nuanced understanding of how a single Fed statement—especially one signaling a hawkish pivot, ambiguity in policy direction, and an uneasy departure from transparency—can instantly ripple through markets and change perceptions for economists, investors, and policymakers. The discussion is frank, occasionally urgent, and rich with both technical and practical perspectives on what this means for rates, inflation, and the Fed’s institutional direction under Kevin Warsh.

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Summary prepared for those who haven't listened. All content sections and expert quotes are preserved in the original tone, with timestamps for orientation.

Transcript

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[Diane Swonk]

Bloomberg Audio Studios Podcasts Radio News

[Reporter/Anchor]

this

[Advertiser]

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

[Reporter/Anchor]

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 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 three 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 unanimous, then the decision, along with a statement that the committee reaffirmed its policy of maintaining ample reserves in the banking system. The second and third graphs are 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.

[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 are 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 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.

[Bob]

It is 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 tenths, 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, Scarlett, it

[Michael McKee]

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.

[Host Lisa]

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.

[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.

[Host Lisa]

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]

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.

[Michael McKee]

Bob, what's your take on that?

[Bob]

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.

[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, for sure.

[Host Lisa]

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 look for a quiet first warshomc 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 to 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.

[Host Lisa]

Mike McKee, jump in here.

[Reporter/Anchor]

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, 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]

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?

[Reporter/Anchor]

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.

[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 a 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 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 former

[Michael McKee]

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 in this 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 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 may be re accelerating 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.

[Host Lisa]

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 markets based measures, you've got survey based measures.

[Diane Swonk]

Measures 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 seen in surveys like the ESM survey and the purchasing 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 response, 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.

[Host Lisa]

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 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 cost 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.

[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 for the entirety of this year from 2 and a half to 2.8 in the previous 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 was reflected in that

[Diane Swonk]

statement,

[Bob]

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 is 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 and hike rate 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.

[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 Reserve curve?

[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. And they're squarely focused on what they should 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

[Michael McKee]

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

[Host Lisa]

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

[Michael McKee]

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

[Bob]

Oh, I think it's possible.

[Michael McKee]

You do?

[Bob]

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.

[Michael McKee]

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

[Narrator/Advertiser]

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 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, but 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.

[Host Lisa]

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.

[Narrator/Advertiser]

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 Ford 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

[Host Lisa]

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

[Narrator/Advertiser]

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]

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, at 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.

[Narrator/Advertiser]

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.

[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?

[Narrator/Advertiser]

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 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.

[Michael McKee]

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

[Bob]

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

[Host Lisa]

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 to surprise when you lose reason because it's more effective that way. It packs more of a punch. What do you think?

[Bob]

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, other than it just gives us more information.

[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.

[Narrator/Advertiser]

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 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, 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.

[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]

Yeah, and again I think Diana Ann 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.

[Host Lisa]

Yes.

[Michael McKee]

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, past 40 years. And clearly he is putting a stamp on an institution and a lot of

[Host Lisa]

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, 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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