IBM Vice Chair Gary Cohn IBM’s Cohn Talks Warsh’s Fed

Summary

Bloomberg Talks: Gary Cohn on Warsh’s Fed, Market Instability & Shifting Central Bank Strategy

Episode Date: August 3, 2026
Guest: Gary Cohn, IBM Vice Chair & former NSC Director
Host: Bloomberg Interview Team (notable: Hannah Elliott, Jennifer Zabisaja)

Overview

This episode features IBM Vice Chair and former National Economic Council Director Gary Cohn in a wide-ranging discussion on Kevin Warsh’s approach as Chair of the Federal Reserve. The conversation covers Warsh’s return to less transparent, more 'traditional' Fed policy, current macroeconomic instabilities, global coordination (especially concerning Japan), the impact of major technological investments on liquidity, and the broad implications of unwinding years of forward guidance and easy money.

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Key Discussion Points & Insights

Warsh's Fed: A Return to Old-School Central Banking

• Reining in Fed Guidance
  • Cohn argues that Warsh is intentionally moving away from the extreme transparency and forward guidance that have characterized Fed policy since 2008.
  • He describes this as helping markets "kick the addiction" to knowing Fed moves ahead of time.
  • Quote:

    "Kevin is reverting the Fed to the historic norms of what the Fed did… [Since the] '08 period on, the Fed has been an open box...The market became addicted to knowing what the Fed was going to do. What Kevin is doing is he's trying to get the market off the addiction… You, the market participants, you should go and participate however you think it makes sense for you and wherever you think the opportunities are. This is a tough transition. People like having the answers to the quiz before they took the test."
    — Gary Cohn [01:00-02:00]

Tools & Inflation: Limited Options, Market Participation

• On Fighting Inflation
  • Warsh remains committed to the Fed's inflation target (2%), but is operating with a limited set of tools: rate hikes and balance sheet reduction.
  • Cohn stresses that current market dynamics (steepening yield curves, rising long-term rates) are accomplishing much of what official policy would aim to do.
  • Quote:

    "Chairman Wash is going out of his way...to tell you he is an inflation fighter...He has said...I have two tools: raise rates or sell down the balance sheet. Raising rates...affect[s] the overnight rate...The real effect on the economy is...the five to ten year bucket...Kevin is saying, look, the market is doing my job."
    — Gary Cohn [02:40-05:04]

Yield Curves & Structural Shifts: Is the Market Doing the Fed's Work?

• Long-End Sell-Off as Policy Tool
  • Cohn sees the rise in long-term yields post-Fed meeting as helpful in tamping down inflation—without the Fed needing direct intervention.
  • Other stressors: growing Treasury supply (from AI/data center investment booms), higher risk premium in the curve.
  • Quote:

    "If you want to slow down the economy and you want to tamp inflation, you have to make the cost of money more expensive...It's putting more risk premium into the curve. All things that Kevin is probably happy are happening without him having to do anything."
    — Gary Cohn [05:15-06:16]

Global Coordination: U.S. & Japan, Yen Intervention

• Linkages & Treasury Dynamics
  • Panel discusses possible coordination between U.S. and Japanese authorities regarding yen and U.S. Treasuries.
  • Cohn says there’s always multifactor coordination; trade balances, intervention logic, and treasury supply/demand are intertwined.
  • Quote:

    "When Scott Besson gets the phone call from the Bank of Japan, he's evaluating all of these factors...what's going on in the trade market, what's going on with the trade deficit specifically with Japan."
    — Gary Cohn [06:49-07:52]

Is the Market Fragile or Just Unstable?

• Multiple Instabilities, Not Fragility
  • Cohn counters the idea of 'fragility', but concedes there is an unprecedented number of destabilizing factors at play: wars, oil, AI/CapEx surges, and changes in free cash flow habits of major firms.
  • Consumer spending remains strong, but is increasingly bifurcated between wealthy and struggling consumers.
  • Quote:

    "We have as much instability or balls up in the air as we've had...the market's digesting that we went through the software scare versus the AI scare...So there's enormous amount of instability in the market. At the same time rates are going up, but the consumer...continues to spend, spend and spend."
    — Gary Cohn [08:10-10:18]

Consequences of Leaving ‘Easy Money’

• Transitioning to Unpredictable Central Banking
  • The biggest change is psychological: after years of forward guidance and 'Fed puts,' markets are returning to a state where the future is less knowable and risk must be actively managed.
  • Cohn believes the system can handle it, provided discipline returns.
  • Quote:

    "Like I said, most of my career trading, I had the opposite world...I had to assume that the Fed could meet any moment and change policy...That's not the way the market should work. The markets should manage themselves in a way that anything is possible on any given day."
    — Gary Cohn [12:27-13:24]

Debt, Hedging, and the Modern Market

• Private Markets & Hedging Tools
  • Financial systems are more robust now due to the proliferation of hedging tools (interest rate swaps, derivatives, etc.), but some exposures (like credit risk) are harder to hedge.
  • The era where everyone just counted on Fed support is ending—participants need to pay genuine attention to risk again.
  • Quote:

    "There are enormous amount of hedging tools today...you can hedge your interest rate exposure...It’s probably a better outcome when people look at their risk and say, my interest rate risk is X. Am I happy with that or not? Not, oh, I don't really care because the Fed's got my back."
    — Gary Cohn [13:52-14:37]

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Notable Quotes & Moments

On Transparency Addiction

• “People like having the answers to the quiz before they took the test.”
  — Gary Cohn [01:55]

On Market Self-Policing

• “The market is doing my job.”
  — Gary Cohn [05:04]

On Risk Management

• “The markets should manage themselves in a way that anything is possible on any given day.”
  — Gary Cohn [13:24]

On Consumer Spending

• “The wealthier consumers in this country are consuming at extraordinary high levels and we know the low end consumer is barely getting by.”
  — Gary Cohn [09:20]

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Key Timestamps

• [00:37–02:06] — Warsh’s Fed style, reduced transparency, market 'detox'
• [02:06–05:05] — Debating inflation, Fed’s policy options, yield curve implications
• [05:05–06:16] — Long-term rates, market’s role in monetary tightening, AI/CapEx
• [06:16–07:52] — Japan yen intervention, Treasury supply & global coordination
• [08:00–10:23] — Instability vs. fragility in global markets, changing cash/liquidity pictures
• [10:23–14:37] — The challenge of leaving forward guidance, discipline, risk management & hedging in the new regime

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Summary

Gary Cohn gives an unflinching diagnosis of the macro-financial transition as Kevin Warsh assumes the Fed chair. The conversation focuses on a return to less transparent, more market-driven policymaking, the stress tests this puts on the trading and investment community, the complex cocktail of global macro risks, and how participants—now more than ever—need to manage risk in a world where the central bank will not provide “the answers to the quiz.”

Listeners get both a timely window into current Fed thinking and a broader history lesson about risk, discipline, and adaptation in financial markets. Cohn’s candor and clear analogies (“kick the addiction,” “balls up in the air”) make the risks—and opportunities—understandable for insiders and lay observers alike.

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Transcript

[Jennifer Zabisaja]

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[Gary Cohn]

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[Interviewer / Host]

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[Matt Miller]

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Listen to Next Africa on Apple, Spotify or wherever you get your podcasts,

[Hannah Elliott]

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[Jennifer Zabisaja]

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[Interviewer / Host]

Joining us now, the former NSC director and IBM Vice Chair, Gary Cohn. Gary, good morning. Good to see you.

[Gary Cohn]

Good to see you.

[Interviewer / Host]

Thanks for having been following the debate. I wonder your reaction. You know Kevin Walsh well, what is everyone getting wrong? And I say everyone, I mean the consensus view on their reaction to that news conference last Wednesday.

[Gary Cohn]

I'm not going to characterize this. Anyone's getting anything wrong or anything. Anyone's getting it right. What I'm going to characterize this as. Kevin is a masterful student of the market. Kevin has been at the Fed before. He understands the limited toolbox, but the effective toolbox that the Fed has. What Kevin is doing right now, and I think people don't like this, is Kevin is reverting the Fed to the historic norms of what the Fed did. We unfortunately, as newscasters or as market makers or as traders, we got spoiled from the 08 period on. From 08 period on, the Fed has been an open box. They've been completely transparent. They have not done anything that you wouldn't know they would do hours or weeks or months before they did it. And the market became addicted to knowing what the Fed was going to do. What Kevin is doing right now is he's trying to get the market off the addiction of me, the Fed, chairman of the Fed board, having to tell you what we're going to do. And you, the market and you participants, you should go and participate however you think it makes sense for you and wherever you think the opportunities are. This is a tough transition. People like having the answers to the quiz before they took the test.

[Interviewer / Host]

So there's a markets question. I also think there's an economics question that needs to be addressed. The issue for us, I think, is less about the lack of guidance, less about having the answers before the test, more about you've got an inflation problem. Why are you not doing anything about it? Which essentially was the Mike McKee question in the news conference. Why are you waiting? What are you waiting for? Without Giving us any real clarity on the preferred tool, why they're waiting, whether they carry on waiting and at the same time telling us to believe them, that I do something about inflation. I think the economic question is the difficult one to answer.

[Gary Cohn]

Chairman Wash is going out of his way. I mean he's literally going out of his way to tell you he is an inflation fighter, that the stable price mandate and the 2% inflation guide is his, is his bellwether and he's going there. He has limited tools to get there, as we know. In fact, he has said in the speech, I have two tools to help us get there. I can raise rates or I can sell down the balance sheet. Those are his two tools. Raising rates as we know will affect the overnight rate, the Fed fund. That has very little effect on the economy as a whole. The real effect on the economy is let's say, let's call it the five to ten year bucket. That's where most people borrow. That's where consumers borrow. That's where credit cards are, that's where student loans are. That's where automobile loans are. That's where mortgages are. Kevin knows that. What he's also telling you is right now the market is doing its own work in steepening the yield curve. So in less than a year we have gone from a 2 tens interest rate curve, inverted about 20 basis basis points to positive 40 basis points. We've moved 60 basis points in 2 tens rates. So Kevin is saying, look, the market is doing my job. They're making the ability to borrow money out on the curve more and more expensive and it's going to continue to get more expensive. If I raise fed funds, yes, I can raise fed funds. I'm not sure that has the effect. I think what he would probably prefer to do is he prefer to sell down the balance sheet which again would put more supply in the market, which would steepen the yield curve. But the market's doing that for him right now. So being in that chair for less than two months or about two months, but he happened to come in in a funny time where a week and a half after he came in he had his first meeting. Then 30 days later he had a second meeting. He then told you nothing happened in those 30 days. He's sitting here and I think he's evaluating where he wants to be. He's lucky on the schedule. He doesn't have an August meeting. He does have Jackson Hole. He could tell us what's going on in Jackson Hole. So I think Kevin wanted to probably get through those first two meetings, make it clear to the market that he is an inflation fighter, make it clear to everyone who's watching that the market is doing much of what he would have tried to get accomplished early. And he's going to have the month of August before the September meeting to come out and deliver a relatively baked plan. In his mind he's not going to give you the big plan, but he himself will have a highly baked plan.

[Hannah Elliott]

Do you think that the sell off in the long end of the yield curve is by design that what he saw after the fed meeting with 30 year rates going to the highest level since 2007 was a good thing?

[Gary Cohn]

It's doing Kevin's jobs for him. At the end of the day, if you want to slow down the economy and you want to tamp inflation, you have to make the cost of money more expensive. Expensive. So if the 30 year rates went up, which they did in the 10 year rates went up and the front end, the curve basically stayed the same, which means we had a curve steepener. You are accomplishing what a Fed chair would want to accomplish. If you're trying to tamp down inflation and moderate. I don't think it's just Kevin that's doing that. I think Kevin's being very realistic to what the environment is today. He knows the treasury borrowings are going up every year. He also knows there's this, this enormous amount of need for debt in the AI compute datacenter world where we're talking about potentially another trillion dollars of issuance going on in the market day. The market is finding a home to clear these bonds. It's also raising longer, longer term rates. It's putting more risk premium into the curve. All things that Kevin is probably happy are happening without him having to do anything.

[Hannah Elliott]

Scott Bassett did something over the weekend and I wonder how related you see this as the idea that there was a coordinated inter intervention in the yen. Some people are speculating it's because the Japanese Finance Ministry was selling treasuries to finance their unilateral intervention in their currency and this could potentially help support U.S. yields from going much higher. Do you believe there is any coordination between the two?

[Gary Cohn]

Well, we know that the US and Japan coordinate. No, I mean no one's denying, no

[Hannah Elliott]

one's denying the 30 year yields in the US and potentially what happened.

[Gary Cohn]

I think there are multiple factors and why the US would have got involved in intervention. Obviously the rate the yen trades that would force people into transactions where they may be selling US securities to do to buy at home. It also has to do with trade balances. Remember, we've got an administration that is fixated on trade deficits. So to the extent that, you know, foreign products come into the United States below what we think is a market clearing price or our products are extraordinarily expensive to someone that would we would like to sell to, there's a way to try and equal out the trade deficit or trade balance with the country as well. So I don't think it's a single factor model. I think when, when Scott Besson gets the phone call from the bank of Japan, he's evaluating all of these factors. He's evaluating what's going on, supply, demand and treasuries from foreigners, what's going on in the trade market, what's going on with the trade deficit, specifically with Japan. And each one of those has a different input into the equation to go ahead and move forward.

[Interviewer / Host]

No investment. It might have been the one that made the call, you know, sort of laser focused on these issues.

[Hannah Elliott]

Well, he has had an experience with that with the bank of England. So why not bring it over to Japan?

[Interviewer / Host]

How fragile is the backdrop for markets right now? All these little things going on, tension in Japan, situational awareness that fund getting into a bit of trouble in the last week to how fragile do you think the backdrop is?

[Gary Cohn]

I don't know if the market, if I'd call it fragile, I would say we have as much instability or balls up in the air as we've had. I mean, usually there's one or two driving factors in the market today. We've got a myriad of factors. You know, we've got the war going on, we've got the price of oil going on, we've got the major CapEx AI investment going on. And the question is, you've taken some of the largest companies in America that historically have owned intellectual property and were massive free cash flow generators and then they recirculated that cash into the, into the market. Either by buying assets, buying other things, returning dividends, buying back shares. You've taken those companies and you've now made them huge. Huge asset gathers, huge asset builders, and they're no longer creating free cash flow. In fact, it's the first time I can remember in the history of an earnings call of some of these largest companies when they're talking about we will stay positive on free cash flow. It's hard to understand that these are companies that were producing tens of billions of dollars a quarter in free cash flow. So the market's Digesting that we went through the software scare versus the AI scare, markets digesting that we're trying to figure out where all these pieces come together. So there's enormous amount of instability in the market. At the same time rates are going up, but the consumer, we know the consumer continues to spend, spend and spend. So even when you look at the GDP numbers, the strongest pieces in there are the consumer spending. Now we can even go further. We know the consumer is spending, but we also know that's a bit of a bifurcated event effect. We know that the wealthier consumers in this country are consuming at extraordinary high levels and we know the low end consumer is barely getting by. And this is one of the dilemmas that everyone's trying to deal with. And how does this, how does this filter through markets? I think all of these pieces of instability are out there. And look, markets can handle one or two pieces of instability. They start to, they start to fail when it's 3, 4 and 5 and they really fail when it's 3, 4 and five and they're totally out of their control or the answer is six to 12 to 18 months off.

[Interviewer / Host]

And that's what I'm trying to work out. How close are we? So you've got a massive competition for capital. You articulated that really well. You've had a huge terms of trade shock at the energy market that's hitting Japan when they've already got a fragile backdrop. On top of that, there's evidence of leverage building up in places like South Korea and hedge funds blowing up. And I wanted to go back to the very beginning of this conversation whether now is a good time to go back to the old world of reducing forward guidance in the hand holding post GFC at central banks. How difficult will that mission be?

[Gary Cohn]

I don't think it's this difficult. Like I said, we, we've been trained since 2008 to today to expect the Fed to telegraph and forward guide. Prior to 2008 when I was trading for a living and running begging trading desks, we did not know when the Fed was going to move. There were surprise meeting after surprise meetings after surprise meeting. You know, the Fed doesn't have to wait for a scheduled meeting to cut or raise interest rates. Now they have not done it really since the, I guess they did it in Covid. The last time they did it was 2020. We had a, we had 100 basis point cut on a Sunday evening in Covid, if you remember. But we've now got in this point where the market insists not Only there be a meeting. There be a meeting with a press conference. You can't have actions unless there's a meeting with a press conference. I think the chair is trying to say, no, I have a job to do. We will meet whenever necessary to raise or lower rates. We will meet whenever necessary to do any action we need to do based on what's going on in the environment, not based on the schedule that I put out 18 months in advance.

[Interviewer / Host]

That's bringing the discipline back to capitalism and financial markets. I'm not averse to that at all. Just trying to work out the consequences of making the switch. When you've been feasting, gone easy money and forward guidance for 15, 16 years and knowing they're always going to be there to have your back and step in whenever there's a problem and they'll offer the guidance into your the way you put it, they'll give you the answers to the quiz before you sit the test. Wall Street's feasted on that for years.

[Gary Cohn]

They have.

[Interviewer / Host]

That's why I use the word fragile. How much fragility is in the system that needs to be unwound as we make that transition back to the old world?

[Gary Cohn]

I don't think there's as much fragility. You think like I said, most of my career trading, I had the opposite world. I had.

[Interviewer / Host]

Because you had the two way discipline. You had to discipline.

[Gary Cohn]

I had to be disciplined. I had to assume when I went home with the position or I made a price for something and I ran a big mortgage business for a while, ran a big treasury business for a while, ran a big equities. I had to assume that the Fed could meet any moment and change policy. And where we trading appropriately, Were we managing risk appropriately instead of saying, oh, I don't have to worry about that, there's a Fed put or rates can't change until September something now because there's no Fed meeting, maybe they'll say something in Jackson Hole. So I'll manage my risk up till the Jackson Hole meeting. I'll wait for that. Then I'll manage my risk differently after that. That's not the way market should work. The markets should manage themselves in a way that anything is possible on any given day.

[Interviewer / Host]

I hope we go back to that world. I just know that when the guard tried that we're not here to close spreads. Lagarde quickly closed spreads straight afterwards. Right. It's difficult to make the transition.

[Hannah Elliott]

The question, and I think you're alluding to it, John, how much is the financial market changed and debt built up under the old regime that has to be unwound in a period of a new regime that potentially is much less transparent but allows markets to do their thing.

[Interviewer / Host]

Did you write the piece, Gary?

[Gary Cohn]

I did that said, you know, there are enormous amount of hedging tools today. So as you see debt move up and you see the private credit markets explode, which has been very helpful, you know, you can hedge your interest rate exposure, you can't hedge your credit exposure as much. But hedging underlying interest rate exposure happens to be one of the most developed markets in the world. You can hedge interest rate exposure in almost virtually every currency that we issue bonds from in today. So managing interest rate exposure is not hard. Now, people historically have said, well, I know exactly what the Fed's going to do. I don't need to manage this. That's probably not a good outcome. It's probably a better outcome when people look at their risk and say, my interest rate risk is X. Am I happy with that or not? Not. Oh, I don't really care because the Fed's got my back.

[Interviewer / Host]

Gary, good to you all day. Appreciate it always. Thank you very much. Gary Cohn there, the IBM vice chair.

[Matt Miller]

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