Special Coverage: Kevin Warsh’s First Rate Decision as Fed Chairman 6/17/26

Summary

Podcast Summary: The Exchange – Special Coverage: Kevin Warsh’s First Rate Decision as Fed Chairman

Date: June 17, 2026
Host: Brian Sullivan, Kelly Evans, Megan Casella
Notable Guests & Contributors:

• Steve Liesman (CNBC)
• Claudia Sahm (New Century Advisors)
• David Wessel (Brookings Institution)
• Jason Thomas (Carlyle Group)
• Patrick Harker (Former Philadelphia Fed President)
• Thomas Hoenig (Former Kansas City Fed President)
• Steve Case (AOL co-founder)
• Senator Dave McCormick (Pennsylvania)

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Main Theme

Examining Kevin Warsh’s First Fed Rate Decision Amid Global Uncertainty
This episode delivers in-depth, real-time analysis as Kevin Warsh presides over his first Federal Reserve meeting as Chairman. The discussion focuses on the challenges facing monetary policy in 2026: persistent inflation, geopolitical risk (notably Iran and the Strait of Hormuz), a massive AI-driven capital expenditure boom, and the questions of Fed communication, credibility, and consensus. The show features live reactions to President Trump’s G7 remarks, insights from Fed watchers and ex-Fed presidents, and debate on the future direction of the Fed under Warsh’s leadership.

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Key Discussion Points & Insights

1. Geopolitical Backdrop: G7, Iran, and Sanctions

• President Trump’s Comments from G7 Summit ([01:12]–[06:35], [22:43]–[24:56]):
  • He signals that if the Iran nuclear deal falls through in the next 60 days, the U.S. may "go back to bombing".
  • Emphasizes that enforcement comes from the threat of force, not legalese:

    “What else am I going to do? Am I going to say I’ll take you to court? No. He thinks the threat of more bombs is what will keep Iran in this agreement.” – Megan Casella ([06:35])

  • The U.S. is not unfreezing $300 billion for Iran; any potential private funding is contingent on Iranian behavioral change.
  • Iran’s enriched uranium to be handled under IAEA supervision; compliance mechanisms still not finalized.

2. Market Context: Tension, Volatility, and the Fed

• Markets in Wait-and-See Mode ([08:21]):
  • Markets are mixed but calm ahead of the Fed decision; oil prices sensitive to Iran news.
  • “The markets don’t make any big moves. You guys all know this by now. … This is what happens on Fed days.” – Brian Sullivan
  • 10-year yield flat at 4.43%.
• Dollar Index as a Harbinger ([20:58]):
  • “If you see [the dollar index] falling, that's telling you that Warsh … could be leaving open the possibility still of cuts before the end of the year.” – Megan Casella

3. Fed Policy: The Warsh Era Begins

• Fed’s Internal Dynamics ([09:13], [13:27], [27:59]):
  • Warsh enters a hawkish committee:

    “He’ll have to go with the committee he has … only one lonesome dove.” – Steve Liesman ([09:13])

• Communication Challenges and the “Dot Plot” ([10:38], [29:00]):
  • Warsh is skeptical of the dot plot as policy signal and doubts excess forward guidance.

    “He thinks the dots are not necessarily helping the Federal Reserve with policy.” – Steve Liesman ([10:38])

  • Warsh likely to dial back Fed communications, which could increase market volatility.
• The “Weight of Words” ([11:31]):
  • “Every word from the Federal Reserve, especially the statement, is parsed… I would expect at some point Kevin Warsh to slip up. Every chair is tested.” – Steve Liesman ([12:01])
• Consensus and Leadership ([28:06]):
  • “Kevin, his first job is to make it very clear to the committee what he’s going to try to achieve… The committee is not as divided as people think.” – Patrick Harker ([28:06])

4. Inflation and the Economy

• Persistent Inflation Problem ([14:36]):
  • “Inflation’s a problem and it’s been a problem for five years… maybe you should stop looking through the shocks.” – Claudia Sahm ([14:36])
• Voters and Accountability ([15:14]):
  • 25% price level increase since early 2020: top public concern, feeds into debates on the Fed’s independence vs. accountability.

    “Getting inflation to target at this point … shows accountability to voters given how disenchanted they are…” – Kelly Evans ([15:55])

• AI-Driven Capex Boom Changing the Equation ([18:01], [21:36]):
  • “We’re in the midst of the largest concentrated capex boom in at least 25 years.” – Kelly Evans ([18:01])
  • Semiconductors, construction, and data centers are booming; this positive demand shock interacts with supply shocks from energy and geopolitics.
• Confusion over Direction and Outlook ([17:31]):
  • Fed torn between hiking to control inflation and holding/potentially easing in face of unpredictable shocks.
  • “It’s very hard to know where the economy is headed. That makes it very hard to know where policy should be.” – Claudia Sahm ([16:58])

5. Balance Sheet and Monetary Toolbox

• Warsh’s Reform Stance ([29:00], [47:40]):
  • “He’s got a reformer’s heart. He’s not going to take the way the Fed has operated in the past as a predictor of how he’ll do things… I think he’s going to think about bringing it back to a more narrow ambition.” – Sen. Dave McCormick ([47:40])
  • Balance sheet reduction is on Warsh’s radar but will require consensus and caution:

    “He would love to reduce the balance sheet, but I think he knows he’s going to be stuck. … His goal is not to expand it.” – Thomas Hoenig ([30:43])

• Global Impact ([33:55]):
  • U.S. faces different tradeoffs from ECB/BOJ/BofE due to dual mandate (prices and jobs).
  • “I have a very different view, especially since I left the committee. I think more hierarchically, inflation first, then jobs.” – Patrick Harker ([34:10])

6. Tech Boom, AI, and IPOs – Economic Spillovers

• SpaceX, Nvidia, Oracle: Mega-Valuations & Debt-Raising ([37:36]):
  • “For the first time, the Fed is making a big rate decision … while the industry is rapidly loading up on debt to fund the buildout.” – Brian Sullivan ([37:36])
• IPO “Wealth Effect” and the Human Factor ([38:19], [41:04]):
  • “It’s also, in some ways, betting on not just Elon, but betting on America. It’s a great American innovation story.” – Steve Case ([39:20])
  • AI and digital overdrive amplifying the value of real-world experiences and luxury assets.
• Job Market Questions ([43:08]):
  • “There’s going to be job loss for sure. There’ll be some job creation for sure. How it nets out, hard to say. I think it will be a net negative … we have to think about that as a society.” – Steve Case ([43:08])

7. Sen. Dave McCormick on Warsh’s Appointment & Economic Policy

• Why Warsh? ([47:25]):
  • “He understands markets, he understands the Fed, and he’s got a reformer’s heart.” – Sen. McCormick
  • Warsh aims for “family fights” over fragile consensus, pushing for real debates inside the committee.
• Permitting Reform & Energy Policy ([51:39]):
  • AI demand means energy supply must rise to keep inflation (particularly fuel costs) in check.
  • “Permitting reform is the most significant thing we could do—not just for energy policy, it is economic policy.” – Sen. McCormick ([52:13])

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Notable Quotes & Memorable Moments

• On keeping Iran in check:

  “He said, I let them know that if they don't adhere to the agreement, he will go back to bombing… He thinks the threat of more bombs is what will keep Iran in this agreement.”
  – Megan Casella ([06:35])

• On the difficulty of the Fed Chair job:

  “It’s really hard to appreciate how much power your words have… Today they’re going to listen to every syllable, every adverb and it’s a lot.”
  – David Wessel ([13:27])

• On the “dot plot” and Fed communication:

  “He thinks the dots are not necessarily helping the Federal Reserve… wants a more clear signal from the markets about what the Fed ought to be doing as opposed to one that the Fed essentially gives to markets. … There might be more volatility.”
  – Steve Liesman ([10:38])

• On Inflation and Accountability:

  “Getting inflation to target at this point… shows accountability to voters given how disenchanted they are…”
  – Kelly Evans ([15:14])

• On the AI Capex Boom:

  “Total compute CAPEX in the economy increased 60% scaled to GDP… a positive demand shock.”
  – Kelly Evans ([18:12])

• Warsh’s Leadership Style:

  “He’s not trying to build some fragile consensus. He’s trying to really sort it out and have people argue and make their case.”
  – Senator Dave McCormick ([47:40])

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Important Timestamps

• [01:12]–[06:35]: President Trump G7 presser (Iran, Brazil, G7 views on legality of Iran action)
• [06:35]: Megan Casella recaps Trump’s Iran remarks and deal details
• [08:08]: Warsh’s first day as Fed Chair; market check
• [09:13]: Steve Liesman’s Fed “hawkish tilt” analysis
• [10:38]: Debate on dot plots, transparency vs. volatility (Liesman/Casella)
• [13:27]: Roundtable with Claudia Sahm, David Wessel, Jason Thomas
• [14:36]: “Inflation has been a problem five years…” (Sahm)
• [18:01]: AI/Capex boom described (Evans/Thomas)
• [20:58]: U.S. dollar index as Fed signal (Casella)
• [27:59]: Panel with ex-Fed presidents Harker & Hoenig
• [29:00]: Balance sheet debate
• [33:43]: U.S. dual vs. single inflation mandate (Harker/Hoenig)
• [37:36]: Mega-IPO/AI segment with Steve Case
• [41:04]: Tech era & “human experience” value (Case)
• [47:25]: Sen. Dave McCormick on Warsh’s mandate and priorities
• [52:13]: Permitting reform, energy policy, and the AI demand link

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Overall Tone and Takeaways

The episode is dense with jargon, technical analysis, and the real-time tension of a major market event. The language is forthright, energetic, and at times playful, mixing inside-baseball Fed discussion (“dot plot,” “reaction function”) with broader questions of geopolitical risk, electoral accountability, the tech boom, and what the next chapter at the Fed should look like.

Final Impression:
The future direction of U.S. monetary policy hangs in the balance as Kevin Warsh takes command. His approach—less communication, more internal debate, and a “reformer’s heart”—is poised to reshape the Fed at a time of extraordinary uncertainty, both global and domestic. The panel leaves listeners with the sense that no Fed decision will be a “nonevent” for the foreseeable future.

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Transcript

[Brian Sullivan]

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[Megan Casella]

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[Brian Sullivan]

You're listening to the exchange in progress.

[Megan Casella]

You're listening to the exchange. Here's today's show.

[Reporter/Correspondent]

Iran from charging what they say could be fees after the 60 day extension.

[President Donald Trump]

The thing that's going to stop them from doing that because you can't cover everything in a document is common sense. They don't want to get bombed, they don't want to get hit. As far as sanctions are concerned, at some point, you know we have sanctions which will never let them rebuild. They would have no money, they would be in poverty. The 91 million people would starve. So something will happen as soon as they behave. When they behave, we're going to let that go. We're going to have to. I put sanctions on a lot of people and then I let them go a lot of countries. Yeah, please.

[Journalist/Reporter]

Thank you. Mr. President. My name is Shinji Abe. I'm a Japanese Yomiri Newspaper Co. From the Washington correspondent. My question is about the Strait of Homes. Did you ask other G7 nations to send military force? And what specifically are you asking of Japan or where are you from? I'm from Japan.

[President Donald Trump]

From where?

[Senator Dave McCormick]

Japan.

[Journalist/Reporter]

And is it support?

[President Donald Trump]

I just left your Prime Minister. Japan's doing very well. She's my biggest fan. I have to tell you. She thinks I did a great job. You have to call her and ask her. She's doing a very good job by the way. Go ahead.

[Journalist/Reporter]

And military support is no longer necessary.

[President Donald Trump]

What do you want to know? Go ahead. Just tell me. What do you want to know?

[Journalist/Reporter]

Okay, my question is, did you ask other G7 nations to send military force? And what specifically are you asking of

[President Donald Trump]

Japan to send the air force for what? Oh, other countries, not just Japan. No, no, I don't need. We don't need it. Oh, by the way, they all want to do it. They all want to do it. Every single one of them. They want to go be a part of it now. Not while the war was going on. I was a little disappointed. The uk, I said, yeah, it would be nice if you sent ship. I didn't put a hard sell on, but I said, it would be nice if you sent some ships. And the Prime Minister said, they'll be there, sir, as soon as the war is over. I said, did he just say that? I couldn't believe it. Actually, Japan has offered to get involved, but, I mean, I'll be honest, Japan was not willing to get involved during the war. I asked her, I said, you want to get involved a little bit? I didn't put the heavy cell on, but they said, no, we don't want to get involved. Nobody did. We did it ourselves with Israel and with the Arab states that got hit. Surprisingly hit. Yeah. Yes, please, go ahead.

[Megan Casella]

Thanks a lot. Mr. President, question on Brazil. I would like to know how was your interaction here in evian during the G7 with the Brazilian President, Lula, did you talk about the new U.S. tariffs on Brazil? Did you talk about the U.S. designation of criminal gangs? How was it?

[President Donald Trump]

I spent a lot of time with them, actually. And it's become a little rough country, right, Politically, been a little dangerous. Politically, you're talking about Brazil? Yeah, it's been nasty. I hear they arrested somebody that's running for office today. I found that out after we left. I just said goodbye to him and I heard that they arrested the Bolsonaro junior He was doing well in the polls, and they arrested him because he made a statement in Texas. They arrested him or they want to arrest him? They have something out for his arrest. They play pretty tough, but nobody plays tougher than the United States. Look, our elections are totally rigged. We have rigged elections. Please, in the back. Yes, sir. Go ahead.

[Brian Sullivan]

Thank you so much, President.

[Senator Dave McCormick]

Thank you.

[Brian Sullivan]

For G7, the concept of the rule of law has long been considered the core principle. During this summit, any of the leaders expressed any concerns on the possible violation of international law on the attack on Iran?

[President Donald Trump]

No, no, actually, the opposite. They felt they were very dangerous. They were very relieved because they could get hit, too. They were very relieved. No, we never discussed that.

[Journalist/Reporter]

They.

[President Donald Trump]

No, it would be the opposite. They broke the law. They killed thousands of people. They killed thousands of our soldiers and hundreds of thousands of people. Yeah, please go Ahead, go.

[Kelly Evans]

Okay,

[Senator Dave McCormick]

Mr. President.

[Journalist/Reporter]

All right.

[Brian Sullivan]

Are you been listening to President Trump Speaking at the G7 meeting in Evian, France? Hi, everybody. I am Brian Sullivan alongside Kelly, and we are Live in Washington, D.C. why? Because we are preparing for the new meeting of the Federal Reserve as the new chairman of the Fed takes over. Before we get to all of that, though, because there is a lot going on here in Washington, D.C. lot of let's head overseas. We're actually going to go to Switzerland where Megan Casella is. Megan, there was a lot there. The President speaking basically extemporaneously for over one hour. What are some of the highlights that we heard from the President?

[Reporter/Correspondent]

That's right, guys. The President is still speaking right now. So we could still get more from this. And I'll also emphasize that at the same time the President was speaking, we were also hearing from from some senior US Officials with some more details on this MOU as well. But a couple of highlights from the President. He said that if this deal doesn't get done in the next 60 days, that the US will go back to bombing. And he conceded on the very important point of is there anything enforceable in this deal on Iran's nuclear program? He said, no, it doesn't need to be. He said, I let them know that if they don't adhere to the agreement, he will go back to bombing. He says, what else am I going to do? Am I going to say I'll take you to court? No. He thinks the threat of more bombs is what will keep Iran in this agreement. He also said that Iran will work with the US to turn over its enriched material. But he said it's not that important that we do it quickly. He says in the meantime, we have cameras on every inch of it. This has been a point of contention because it raises the question of why the urgency for the US to start this war in the first place. But the President says they'll be watching this carefully and they will eventually get that highly enriched uranium. One more here is the President was also asked about the $300 billion fund that has gotten a lot of attention. Is the US giving Iran access to $300 billion to rebuild its country? He says that the US is not investing anything in it. Importantly, that this will be mostly private funding and that all of this money will only come to Iran if they start changing their behavior. So on the sanctions relief, on the unfreezing of funds and the $300 billion fund, the president emphasizing right here, all of that is tied to Iran changing its behavior much More to come on this, guys. As I said, the president still speaking. More highlights as we have them.

[Megan Casella]

All right, Megan, thank you, Meghan Casella. We appreciate it. Let's turn now to why we're in Washington today, which is the Fed meeting. It will be Kevin Warsh's first meeting as chairman for the new Fed head in eight and a half years replacing Jerome Powell.

[Brian Sullivan]

Yeah, let's go ahead and check the markets ahead of that decision which is going to happen in about 53 minutes. All right. So the markets, they're mixed. This is what happens on Fed days. You guys all know this by now. The markets don't make any big moves. The dow is up about 3. 10 of 1%. The 10 year yield 4.43%. That's been holding steady really for about two years now. Oil which has come down the last few days. Oil on some of the headlines around Iran, up a little bit today, up about 8, 10 of 1%, 76, 66. President Trump saying the peace framework with Iran of course is not final. And as you heard Megan say, Kelly, there is still a chance that violence re escalates pending. Basically what happens over the next couple of days and really weeks as we

[Megan Casella]

prep for the Fed's decision and then the press conference at 2:30 Eastern. What are the key words and actions to watch out for this afternoon? Let's get across town to Steve Liesman with the final setup.

[Reporter/Correspondent]

Steve.

[Steve Liesman]

Hey guys. You know, by tradition, Kevin Warsh will be greeted cordially by his colleagues. They'll pledge his support. But really if his intention is to cut rates quickly, Warsh might be entering a what you might call a hostile work environment. An analysis by Deutsche bank which used a large language model to evaluate every Fed speech since the last meeting judged 11 lean hawkish on rates. Five were neutral. Only one was said to be dovish in all but two have grown more hawkish since the May meeting. That analysis could be could explain why despite the decline in oil prices, you have a really a sharp fall in oil prices. The Fed funds rate is still trading with a 60% probability of a December rate hike. It's also why markets expect the Fed to stop drop to drop the easing bias. In this statement here, Deutsche bank saying this pronounced hawkish trend signals and I'll just cut to the chase there, the possibility of rate hikes down the road. Well hopefully find out today if war continues to support rate cuts as he did before. We don't know if we're going to hear that or not. But guys, he'll have to go with the committee he has and you can see that's a very hawkish committee. These are all voters on the committee, only one lonesome dove. Guys, back to you.

[Megan Casella]

So Steve, there's going to be the statement. Steve, there's also going to be the projections, right. That we're going to get those today. And well, what is this talk I'm hearing that Wash may not be a dot?

[Steve Liesman]

Well, he don't like the dots is maybe a good way to put it. He thinks the dots are not necessarily helping the Federal Reserve with policy. And look, a lot of people on the committee also don't like the dots very much in part because they're confused by markets as a Fed committee forecast when all they are is essentially the individual forecasts that are aggregated up into a single number. So Wash wants to dial back Fed communications. He wants a more clear signal from the markets about what the Fed ought to be doing as opposed to one that the Fed essentially gives to markets. It's called in a speech in 2004, Kelly Bernanke called it the hall of mirrors problems problem where they you tell the market what we're going to do and the market tells you what they're going to what you're going to do. So it's really a reflexive problem that was wants to get out of and that could be less communication and there might be more volatility.

[Brian Sullivan]

Quickly, Steve, speaking of communication and I know you know Kevin Wash, I assume he understands the magnitude and the weight of his words. Every word from the Federal Reserve, especially the statement, is parsed. Is there a chance that Kevin Warsh doesn't fully recognize this? Is there a chance that he sort of stumbles or screws up on the wording and the market overreacts? Because the way the Fed says something is is just as important as what they say.

[Steve Liesman]

It's a very good point, Brian. And I would expect at some point Kevin Warsh to slip up. I've seen every Fed chair slip up. I guess everyone has done it.

[Brian Sullivan]

Yes. It's not a knock on it.

[Steve Liesman]

No. And I've slipped up covering a Fed chair. So we all do. We're all human. We're not yet running, running or covering the Fed through solely AI. Maybe that's a in the future. But I do think he already comes in with a massive appreciation of what his words mean and the impact of him. He was battle tested in the great financial crisis and Brian, you know that nothing mattered more than every single word. And you remember Bernanke with the Taper tantrum. He didn't even know he was making a mistake and the market told him he was making a mistake. And that's echoed now on almost 15 years later. So Warsh understands it. Can he get away from making a mistake? Every chair is tested and this chairman will be as well.

[Megan Casella]

Steve, we'll let you go and we'll see you top of the hour for the decision. Steve Liesman, thanks so much. And we turn now to our first panel right here around the desk, the table, the set. With us in Washington D.C. today, Claudia Sahm is New Century Advisors chief economist and creator of the sahm. We don't need to talk about that lately. I mean, maybe we do. David Wessel is senior fellow at the Brookings Institution and Jason Thomas is Carlyle Group's head of global research and investment strategy. Welcome to all of you. David, you worried about any missteps here by war? Should this be a non event event?

[Journalist/Reporter]

It will not be a non event because everybody will want to see is he really starting to change anything? Will he put in a dot? Will he not talk about the dots? But I think Steve's point is a good one. It's, it's really hard to appreciate how much power your words have when you stand up at that microphone. And even though you're prepped for it or something, there's nothing like actually having all of a sudden Kevin Warsh is in a position where his opinions really matter. For 15 years he's been ranting about the Fed and some people listened and some people didn't. Today they're going to listen to every syllable, every adverb and it's a lot. And you know, you're standing up there at the podium and, and you don't know that you've moved the market.

[Megan Casella]

Exactly. And what was the term he used, Claude? It was a family fight or a food fight that he, a good family fight he wants to be having during this two day meeting.

[Claudia Sahm]

That's right. He wants to step away from the scripted remarks and really have people come in and share their views and have it out.

[Brian Sullivan]

That's dangerous.

[Claudia Sahm]

I think in a moment where it's not clear what the right policy is, it can be very healthy.

[Brian Sullivan]

So how unclear are things right now, Claudia?

[Claudia Sahm]

Inflation's a problem and it's been a problem for five years. And I think this is one where the textbook for monetary policy right now look through the supply shock, look through the energy. There are definitely people on the committee that are questioning that because we've had one shock after Another, maybe you should stop looking.

[Brian Sullivan]

I feel like the biggest shock, Jason, is duration. And if you look at the time that we've had inflation over 2% now we're going on over five years. We had Covid, we had lockdowns, we had supply chain disruptions, we came back to a semblance of normal, a lot of stimulation. Now we have the supply shock from energy and the Iran war. At some point do they burn the textbook?

[Kelly Evans]

Well, you know, I think that first we have to appreciate there's been a 25% increase cumulatively in the price level, which of course the electorate has noticed. It's been quite a long period of time where inflation and of course past inflation prices have been the top concern of voters. And I think that this is interesting to me because we spend so much time talking about Fed independence. We want them to make decisions that are not influenced by elected officials. But there's also a question of accountability. And I do think that getting inflation to target at this point, given the cumulative increase in prices, shows accountability to voters given how disenchanted they are with the last five years.

[Journalist/Reporter]

Yeah, I think that's right. And what the people at the Fed will say is we're looking at inflation expectations. And so far inflation expectations have been reasonably well anchored. But I think the concern is, is the underlying rate of inflation still coming down or not? And once we get over the oil shock, will we will begin moving down again. And you know, it'd be really interesting. On one hand, Kevin Warsh campaigned for this job saying he wanted to cut interest rates. But in the past, before the current situation, he tended to be pretty hawkish. He has a hawkish committee. And I think that's why the markets are saying 60, 40, they'll raise rates

[Steve Case]

before the end of the year.

[Megan Casella]

And we were talking about this yesterday as well, but I'm already hearing people, Claudia, start starting to talk about rate cuts again. So even though I take your point. Oh yeah. About the 25% inflation that we've experienced and all of that, could we flip the script? And maybe we need a much weaker labor market for a couple of months. But there's saying that the labor market strength is narrow and it's a one off. And so I think it goes back to Brian's question, which is what is really going on with inflation? And you said we have an inflation problem.

[Claudia Sahm]

Right. And I do think this is where I can appreciate the Fed trying to step away from doing too much forecasting, telling us, oh, there's going to be a rate Cut the end of the year there's going to be a rate hike into the year because the economy has been very unpredictable. Like we have had major shocks come at us kind of out of nowhere. And so it's very hard to know where the economy is headed. And that makes it very hard to know where policy should be headed. But we should be having, we should be hearing from the Fed what they're looking for, their reaction function. And I think to David's point, there's a lot of curiosity about what Kevin Warsh's reaction function is because it's kind of changed over time.

[Brian Sullivan]

So how long do we wait? And I'll kind of open this up to the table, right. What did Donald Rumsfeld say? There's known unknowns and unknown unknowns or something like that. And I think there's so many unknown unknowns right now because we don't know what's going to happen with Iran. We know that oil prices have come down the last few days, but, but they're still very high compared to where they were a year ago. And we don't know what's going to happen the next few weeks and months and how long it's going to take to work through. So how long does the Fed have to wait, Jason, before it sees some kind of a clear trend on pricing?

[Kelly Evans]

One thing we do know is that we're in the midst of the largest concentrated capex boom in at least 25 years. What may soon be the largest concentrated capex boom in any of our lifetime.

[Megan Casella]

Wow.

[Kelly Evans]

And just since the Fed cut rates September of last year, you see Total compute CAPEX in the economy increased 60% scaled to GDP much, much larger in absolute terms. You've seen the earnings forward earnings of semiconductor manufacturers rise two and a half fold. Again, this is just.

[Brian Sullivan]

So you answered a different question that

[Kelly Evans]

I'm suggesting because this is a, this is a demand shock. Positive demand shock.

[Brian Sullivan]

Yes, it's contradicting supply shock. I think it's the McGlob.

[Kelly Evans]

No, but it's, it's interacting between the two. You have the supply shock.

[Brian Sullivan]

David, I put it to you, you

[Kelly Evans]

have the supply shock. And that would be again a reason to look through. But you have this underlying positive demand shock that is also taxing economy wide resource constraints, putting upward pressure on the price level. In that context, I think the dovish move here is not to move to rate cuts, it's to explain to your committee why you should remain on hold. I think that.

[Megan Casella]

As opposed to hiking.

[Kelly Evans]

Exactly.

[Megan Casella]

Well, that's what the Interesting thing is we talk so much about if you take the war, the productivity is going to come out of the AI boom and therefore you can have lower rates and better growth. But right now the AI boom is a little bit inflationary itself, right?

[Claudia Sahm]

No, everything's about timing. And you can see even in the consumer price inflation, you can see signs of AI showing up and putting some upward pressure on prices. It may be deflationary in the future, but we have an inflation problem right now. So I think that's an issue. And then another piece with the capital expenditures and the productivity is, is the Fed may get to a place where they raise rates just to stay neutral. Like the resilient economy may be able to handle a little bit higher interest rates. So that's a different argument to hiking. And again, it's just going to be important to see where the people on the committee are on this issue.

[Journalist/Reporter]

Right. I don't see any harm to waiting how long. Why do we have to decide? Wait until you get a clearer signal. If we get to the end of the year and inflation remains above target, there's no signs of it coming down and Donald Trump hasn't done anything to make the situation worse and the labor market remains strong, then I think the case for tightening is what Claudia said. The neutral may be higher than they think. And also real rates are come down when inflation goes up.

[Kelly Evans]

Real. Real rates are negative right now.

[Journalist/Reporter]

Yeah.

[Kelly Evans]

And so I think the strongest case

[Brian Sullivan]

for you got to. I need to meet these friends of yours are talking about a rate cut because I'm going to have what they're having.

[Journalist/Reporter]

They were at the UFC fight.

[Brian Sullivan]

They might have been. But we need to be talking about a rate hike. We don't.

[Kelly Evans]

Jason, I think that you have to consider one. And that's why the changing the language to a much more neutral position is where. Where I think they need to go. And again, I think that Kevin Warsh is going to have his work cut out for him over the next three meetings. I think September is probably the first live meeting between now and then convincing the members of the committee to remain on hold.

[President Donald Trump]

Yeah.

[Megan Casella]

Let me show before we go the dollar real quick. This could be an important one to watch. And the kind of reaction we always talk about some stock market, treasury market reaction as well. But the dollar index is where you're going to see if. If we're. If market participants are starting to sniff out.

[Claudia Sahm]

Yes.

[Megan Casella]

RC A rate cut. Here's a look at year to date. We're basically flat. We had a period of Ramp from Feb through April, we've been kind of chopping sideways. We're 9969 going into this meeting. If you see that falling, that's telling you that there, that warsh and the condition I'm talking about three to six months from now could be leaving open the possibility still of cuts before the end of the year. So this is definitely. Jason, didn't mean to cut you off there, but one area to watch.

[Kelly Evans]

Yeah, certainly. And I think that also when you look at the amount of external demand that's being sucked in the production of chips, essentially, you know, the first 10 days of this month, shipments of semiconductors from Korea were up 209%. Again, these, we're talking about time series that have gone vertical. I think that's, that's a very important background.

[Journalist/Reporter]

What about the non AI parts of the capital spending?

[Kelly Evans]

Well, for an example, when you think about the spillovers on construction, construction employment, very interestingly has grown at three times the rate of broader payrolls, which is interesting given where commercial residential fixed investment is.

[Brian Sullivan]

When you think data centers.

[Kelly Evans]

Data centers and semiconductors. Absolutely.

[Brian Sullivan]

Truck drivers, concrete electricians, it's incredible. The total supply chain benefit, not shock from the buildup.

[Kelly Evans]

Exactly. And I think that we see that certainly in things like turbines and battery manufacturing transformers. So. So again, it is concentrated. It's worth emphasizing that. But there are so many spillovers.

[Megan Casella]

All right, we'll leave it there for the time being. Jason, Claudia, David, really appreciate it. Thanks so much.

[Brian Sullivan]

We are getting some details on this memorandum of understanding with Iran. Let's go back to Megan Casella in Switzerland with more on what we know or maybe still don't know. Megan?

[Reporter/Correspondent]

That's right, guys. We are learning a lot more. So while President Trump was holding his press conference last hour, senior U.S. officials were holding a press call with reporters where after days of secrecy, they read what they said was the full text of the MoU that the US and Iran had signed on Sunday. They said this was the same document that they had signed. Now, it mostly matches what had been reported and what we had already been talking about on air today. But it does get slightly more specific on a few points, one of them being on the nuclear program. The document that was read to reporters says that the US And Iran will mutually agree on a way to dispose of Iran's stockpiled enriched material, but that the minimum method will be down blending it on site under the supervision of the iaea. So none of that was addressed in the document that had been circulated that had been reported earlier today it's not quite the US Going in and grabbing Iran's nuclear dust as the president had repeatedly promised, but it is still a concession by the Iranians to get rid of that material in some way. A senior US Official also said that the agreement says Iran and Oman will negotiate with Gulf countries on how to govern the Strait of Hormuz moving forward. One official said that the fact that the Gulf states were in on these negotiations meant that tolls would be unlikely after the end of the 60 day period. But it was not a firm no on the question of those tolls. That still has to be negotiated in this next round of talks. The president in his press conference said it was common sense not to charge tolls, but he said it couldn't fit in the document. So there's nothing on there in that now as to who will inspect the Iranian facilities, officials said that they will not be taking Iran's word for anything, that they will be working with the IAEA again on that, but that they do still have to discuss the protocols of how that will work. So a lot still has to be done to figure out the verification and Iran's compliance with all of this. Guys, there's much more to dig into here, but the big news being that we now have the text of the MoU at least as read to reporters by these senior US officials. And I have to give a big thank you to our Eamon Jabbers, our Matt Peterson and the whole team that was helping decipher this while some of us were caught up in the President's press conference. Guys.

[Megan Casella]

Right, exactly, Megan, appreciate that. More detail from Megan Casella in Geneva. As we mentioned, we're just getting started on our special countdown to the Fed decision this afternoon. Coming up, a pair of former Fed presidents weigh in on Kevin Wash, his first decision as chairman. Plus AOL founder turned VC Steve Case for the Tech Perspective today.

[Brian Sullivan]

Yeah. Also joining US Senator Dave McCormick from Pennsylvania. He's been a strong supporter of Kevin Walsh. He voted to confirm him. He'll join us with his take on the new chairman's first meeting as well. We've got about 35 minutes until that Fed decision on rates markets they are largely in the green at least the the dow is rates 10 year 4.43%. Oil is up a touch. Our special coverage live from here in D.C. continues right after this.

[Reporter/Correspondent]

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[Brian Sullivan]

Never bet against American Grit or American Energy through innovation. Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost and a fraction of the time. So while others are busy talking, we're busy building. That's Venture Global. That's unstoppable energy. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Landsford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and [e-mail] MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts. All right, welcome back. It is Fed Day, so we are live here in Washington, D.C. and the New Fed chairman, Kevin Warsh, walking into a somewhat divided Fed Remember the last Fed meeting had a record four members dissent from the rate decision. And with differences emerging inside the committee, the question isn't just what the Fed does today. Nobody's expecting a rate move. It's more than how will Kevin Wash manage the voices and let's be honest, the egos around the table and bring everybody in that room at a consensus. Joining us now are two people who know those debates. They've been in that room. Patrick Harker is former Philadelphia Fed president and former Kansas City Fed president Thomas Hoenig, also with us as well. Welcome gentlemen, both. Patrick, what is Kevin Warsh's first job as new chair?

[Patrick Harker]

We had egos. We had egos.

[Brian Sullivan]

Well, this is coming from a TV news anchor, so I just, I know egos.

[Patrick Harker]

No, I think Kevin, his first job is to make it very clear to the committee what he's going to try to achieve. And not just in terms of monetary policy, but generally what the FOMC has to do each and every meeting and between the meetings. That's his first job. Second, I don't think the committee's as divided as people think it is. I think people objected to the language, but nobody thinks that we should raise or lower at this meeting. That would be really out of the way.

[Brian Sullivan]

But we had no dissents and then we had four. So yes. It may be over the language, but you have to admit that going from 0 to 4 implied that again, this was Jerome Powell, not Kevin worship, that he couldn't get everybody exactly on the same page. And isn't that part of the job?

[Patrick Harker]

Yes. And I think this time around they're all going to be on the same page. I can't imagine anything other than a neutral stance.

[Thomas Hoenig]

I agree with that. I would say, first of all, though, the language probably will change to be more neutral. That'll be one thing. But the other thing I agree with Pat on is Kevin has to set expectations today within the committee and when he does his press conference, how he's going to run things, he's spoken a lot about, we're not going to do forward guidance, how we're going to do the dot plots, we're going to get that agreed to and then get everyone going the same direction. And I will tell you the culture, I think the fomc that for dissents last time was very unusual. It is to basically support the chairman if you possibly can. And I think you will have a pretty much a unanimous vote today.

[Megan Casella]

I think the thought behind those dissents was it was people trying to make it clear to wash coming in like, hey, we're feeling a little hawkish. Don't come in and tell us about rate cuts where we're kind of signaling to you that we're not necessarily receptive to that.

[Thomas Hoenig]

There was a lot of expectations about rate cuts this year. We want to make it clear things have changed. Kevin, you've said it. Things have changed as well, though. You have talked about rate cuts, but we're not ready for that. And I don't think Kevin's ready for that either, given his past statements, his op eds and so forth. So I think we have a very agreeable committee, despite all the talk. One thing that will be inside there that I think will be interesting, but I don't think he'll talk about much today. And that's the balance sheet.

[Brian Sullivan]

I was just about to bring it up because Kevin Warsh and I think it was David Wilson, brought this up in the previous roundtable. Very critical about the Fed, very critical about the size of the balance sheet. Well, now guess what? He is the chairman, right? All right. So now he can do something about it. Does he do it, Thomas? Does he. Does he try to reduce the balance sheet, which is a form of quantitative tightening, right?

[Thomas Hoenig]

Well, he is going to be. He would love to reduce the balance sheet, but I think he knows he's going to be stuck. If he, if he tightens it too quickly, he's going to. Cause he's going to part two. Not only that, but the long end will go up much more quickly. But his goal is not to expand it. Remember, since December, the balance sheet has increased almost a quarter of a trillion dollars. The reserves are up about 180 billion. So he has to, if he can focus on getting them to say, wait a minute, we need to slow this down, how are we going to do it? That will be his big, his big challenge and his big success if he gets it done.

[Patrick Harker]

Yeah. There's two forms of balance sheet normalization, balance sheet light and balance sheet heavy. The light is exactly that. That you're going to just stop. Now, the liabilities keep growing. Right? Currency liabilities, other liabilities keep growing, but holding it so that the reserves run off some. That's one form. The second form is a more radical form which is dramatically reduce reserves, which would get you out of the ample reserves regime.

[Megan Casella]

But can we do that anymore?

[Patrick Harker]

That would take a significant change in the committee. I don't expect that. But there are voices out there that want that.

[Thomas Hoenig]

Right.

[Megan Casella]

It's not just the Fed. This would affect the whole banking system.

[Journalist/Reporter]

Absolutely.

[Thomas Hoenig]

And I would remind you, when Volcker find, when Volcker was the chairman and they decided to take care of inflation, that's the one time reserves did decline straight down. And you had a major bump up in interest rates, recession.

[Patrick Harker]

Right.

[Thomas Hoenig]

Kevin knows that. And I think the committee is going to go slow.

[Patrick Harker]

He's not going to go balance sheet.

[Brian Sullivan]

So how long is the rate change grace period, if there's any from a new Fed chair? How many meetings do they have to kind of just hang out? Because if they come in hot, they open themselves up to criticism and worse, they may open themselves up to major policy.

[Patrick Harker]

It all depends on the circumstances. You have a pandemic hit, you act right. You don't sit around. So it really depends on what we're going to see. God willing, this MOU holds and we get peace. But if something bad happens there, he's going to have to act. If inflation starts to spike dramatically, if the war turns back on, he's going to have to act irregardless.

[Megan Casella]

And we were talking about being in that room. Powell is still in that room, is he not?

[Thomas Hoenig]

Yes, he is. And he will, I think he'll be very quiet. That's kind of his agreement. I don't think he wants to get out in front of this. But I will tell you to pass point I think what they have to do is begin to untangle what's causing the inflation. How much of it is Iran related, how much of it is the one big beautiful bill. We have a huge national debt growing every day. That puts a lot of pressure on the Fed. And thirdly, we have real interest rates that are fairly accommodative. If you think about it, if you have inflation of over 3% and you have the rate of three and a half, you've got a very low real interest rate. So you have to untangle that and then think about how you're going to manage it going forward, what you're going to watch. That should be on their agenda today.

[Patrick Harker]

That Tom's point is really important. Go back before the war, we were still stuck above 2%. We weren't getting inflation down to 2%. These other factors, the deficit, etc. Etc. Were affecting.

[Brian Sullivan]

This is why central bank, but ours is raising rates around the world or talking about it, because they don't have to worry about the second mandate of jobs. They're only worried about the inflation rates. If you're in England, if you're the ecb, if you're bank of Japan, you're raising rates. Should we raise rates?

[Patrick Harker]

Well, I have a very different view, especially since I left the committee. I think more hierarchically, inflation first then jobs. I don't think of it as an exact tradeoff. If you get inflation within spitting distance of 2%, then you worry about jobs. But the problem with thinking about jobs is what's hitting the labor market right now, et cetera, et cetera, has nothing to do with monetary policy, has nothing to do with interest rates.

[Thomas Hoenig]

Well, I agree you have to focus on inflation first. But, but part, part of the, part of the issue is you have this national debt and there's what I call the unspoken mandate. Keep money markets and the treasury market functioning smoothly and liquid. That's a big factor. It has really influenced a lot of the actions I think they've taken with the balance sheet and even with interest rates. So you've got to get into that and they have to have that, what I call the cat fight that Kevin was talking about and get that resolved. Otherwise they're going to be going in all kinds of different directions and events will drive them rather than driving events.

[Brian Sullivan]

All right, Tom Hoenig, Patrick Harker, really appreciate your insight. Having been in that room. I think there was a musical that had that as a song in the room where it happens. Guys, you've been in that room. Thank you. Very much appreciate that. All right, folks, 25 minutes till that Fed rate decision. Let's take a quick look at where the markets and your money stand. We right now we are seeing a mixed market. This is very normal ahead of a Fed. People just not going to make huge decisions also moves. By the way, there is something else, Kelly, that does influence this Juneteenth holiday is Friday. So the markets are closed on Friday. And I'm going to sound crazy, but tomorrow is the New York Knicks parade in New York City downtown. If you work downtown New York Stock Exchange, you're either not going to come to work or you're going to just kind of go outside and see the parade. People I'm talking to and reading about suggesting that maybe the last couple of hours of today or maybe a couple of hours tomorrow morning is kind of the end, if you will, of the trading week.

[Megan Casella]

One other factor to mention is this is Warsh's first time to set a pattern of trading for the markets. And interestingly, although stocks are pretty well across the duration of Powell's tenure, we often saw this pattern where the market would sell off as soon as his press conferences began and usually when he made one or the other comment that they didn't take quite well. This will now be a different Fed chair. We'll see if that pattern when we sometimes can see market weakness again, that was often when there was maybe something said that was a little bit to the hawkish side or not quite as dovish as expected. Will that pattern hold or will we start a completely different pattern?

[Brian Sullivan]

We also have a company on, if you heard about this, called Space X. Yeah. Went public on Friday down today. Is that allowed? Because Space X up the lot the first, what, three or four trading days? It was. I don't know if it still is. Maybe you do, Kelly. Bigger than Amazon and briefly bigger than Microsoft. It's no longer bigger than Microsoft. There we go. Space X though, is slightly bigger at 2.62 trillion in market cap. Amazon 2.58 space X and what you call yesterday 85 times revenue.

[Megan Casella]

Oh, yeah.

[Brian Sullivan]

It was not even Earnings Revenue to

[Megan Casella]

100 plus times Revenue prior to the cursor acquisition, which, which I pulled the trigger on very quickly. That number came down to. I don't know, it's probably right back around to about 85 times at the moment. So it's, it's up there nearly in outer space, shall we say? Let's stay with the tech theme because for the first time the Fed is making a big rate decision, even if it's no decision. While the industry is rapidly loading up on debt to fill the fund that very build out. We were just talking about both Oracle and Nvidia announcing debt raises last week. Nvidia's first since the start of the AI boom. Here to discuss is AOL co founder and Revolution Chairman and CEO Steve Case. It's great to have you here.

[Journalist/Reporter]

Great to be with you.

[Steve Liesman]

Welcome.

[Megan Casella]

Oh man, I'd rather be in Hawaii.

[Steve Case]

Exactly.

[Brian Sullivan]

You know something about Hawaii.

[Steve Case]

I was there a couple weeks ago for my 50th high school reunion. I started to feel a little old, but it was fun.

[Megan Casella]

Well, thanks for making us feel younger these days. So we're talking about like the tech world. There's often this sense that if you get a hawkish Fed, it's going to kill the tech rally and all these things. We're just talking about this mega valuation for Space X. Given that we're expecting a hold today, how big are the risks around the Fed, especially as the tech sector is taking on more debt?

[Steve Case]

Well, the early stage, the startup phase, the interest rates don't matter quite as much. As for later stage companies which really need significant capital, often debt, other, other kinds of things, I do think they'll, they'll hold. Maybe later this year they'll have to, you know, know raise the data seems to suggest that. But Space X is interesting. When we went public air went public in 1992, our market value was 70 million. Most of the companies go on public that. Microsoft, Nvidia, Amazon were all in 500 million zone. So the idea that you go public at a $2 trillion valuation is you were 70 million.

[Brian Sullivan]

70 million, I'm sorry, million with an M. Which 70 million. We raised 10.

[Steve Case]

No, it was. And then seven years later it was 160 billion. So the nice thing about that, all the, all the value creation went to retail investors for AOL, Microsoft and Video, etc. Not really happening with Space X and not going to happen with Anthropic and Open Air. They might trade up. Obviously they could very well trade retail.

[Megan Casella]

Look, I think if anything this was a validation of giving retail some skin in the game right at the right of the ipo. It went off so well.

[Steve Case]

And it's also a, in some ways betting on not just Elon, but betting on America. It's a great American innovation story. A little bit like 50 years ago people might have bought savings bonds as a way to show their commitment to America.

[Megan Casella]

Does that make it harder though for Anthropic and OpenAI to tell the same story?

[Steve Case]

No, I think they're both well positioned. They'll tell, they'll tell a similar story about what's happening with. It also happens to create a wealth effect, the IPO wealth effect. We're starting to see that with some of our businesses in Hawaii. Also Costa Rica would have a development there. We're seeing interest, a company called Exclusive Collective, which owns Exclusive resorts and Inspirato and the luxury travel hospitality side, they're saying. So there are some positives from this. It's not so positive. You're in San Francisco there a couple of weeks ago and a house that was listed for six and a half million sold for eight million. So it's not the listing price is now the starting, just starting bid, not the ending.

[Brian Sullivan]

These, these companies go public. I mean I think the second best job in the world right now, besides being an early Space X employee, that'd be number one because you're going to get really, really rich. And by the way, they deserve it is going to be being a Realtor in Silicon Valley and San Francisco, which has been pretty grim for a few years. But now with Space X, I understand that they're based in Hawthorne, California and Austin, but a lot of people in Silicon Valley, anthropic, open air, all these companies, we're going to see these numbers just go up. You are more of a real estate and travel and hospitality person than a tech person. Now through Exclusive Collection, are you seeing any sign of a slowdown?

[Steve Case]

We're seeing signs of acceleration. There's some race, a lot of interest that we're exclusive collectors are about 25,000 high net worth families and a lot of their travel needs, doing a lot of things in the real estate sector and it's a very strong market. I think it's IPO health wealth effect will accelerate that. And I think that real estate interest won't just be where people live, it's also where they want to have a second home. And that's where some of the destinations like Costa Rica likely will benefit.

[Megan Casella]

Your own pivot is something that kind of mirrors the broader market right now. There's, you know, we all talk about how AI is going to destroy humanity or whatnot, but in some, some ways both intentional and unintentional, it's actually causing the human experience to become more valuable. So people talk about this all the time, but Lollapalooza, live sports events, look at the price of tickets to be at the Knicks game or in the World cup or to go to a, you know, experience like One of yours. And I think you are among the people who think. I don't want to put it too strongly and say the Internet is over, but the AI age I think is making people realize they don't know what is coming at them from the digital world and they want a real, authentic human, human experience.

[Steve Case]

Absolutely. There's two, two sides of the way I look at it. One is what are the industries that I can't disrupt? This is why Barry Diller is buying mgm. He already made a big investment. It's a physical place, Las Vegas. He thinks that experience will be there for decades, not going to impact it. But the second, which is what you're touching on, we're seeing this with our various revolution places, businesses. In a world where people spend more and more time with technology on their Internet, on their smart smartphones now increasing with AI, there's a growing hunger for real people, real experiences, real places, real authenticity and that time to get together as a family with friends. I think there's more of a desire for that. I think Covid also drove more of that desire. Not being able to be connected, living a life on Zoom or other, other platforms. The idea of being connected makes sense. So I think you'll see an acceleration. The final point I'd say and Goldman did their report on what they call halo and investments that were heavier asset, lower obsolescence. I think there'd be a real investment thrust there and that's where owning land, real estate kind of plays into things.

[Brian Sullivan]

Jobs to pay for all that. Not at your, not at the tippy top where some of your clients live, right, the exclusive collection, higher end, but the mid level the fear I think to Kelly's point about destroying humanity and I hope you're wrong because I like I'm a fan of humanity, not all of it but, but a big chunk being here right now. Is it going to kill enough jobs that it will kill the demand for those things that you're talking about? Will people have the money to experience those things?

[Steve Case]

Well, we do have this economy where the wealthy are getting K shaped economy where the wealthy are getting wealthier and a lot of people are being left behind. That's why we launched our rise of the rest investment strategy more than a decade ago. We've made 200 investments going around the

[Brian Sullivan]

country, cities back, middle of the country

[Steve Case]

creating jobs, jobs and opportunity in those, in those places. We've also invested the next big phase. Obviously right now it's anthropic, opening eyes, sort of Nvidia, the platforms, the Lambs this next phase around vertical AI. We invested in Tempest, a health care company in Chicago, invested Hidden Level, a drone detection company in Syracuse. We invested in Carbon Robotics and Seattle and defense tech tech company. Vertical AI is where the puck is going now. Does not have horizontal AI but vertical AI. And there will be job creation creation in that. So there's going to be job loss for sure. There'll be some job creation for sure. How it nets out, hard to say. I think it will be a net negative and we have to think about that as a, as a society.

[Megan Casella]

And I listen to all this and I wonder if this decision at 2:00pm matters. I mean does it in a very just quickly, I mean in an impactful, immediate way other than him coming out and saying I'm hiking by two full percentage points. Is it going to start?

[Steve Case]

I think everybody expects them to hold. I think think it would be news and move the markets if there's anything different. But in the long arc of it, we started AOL in 1985, only 3% of people are online. You know what? The interest rates didn't matter. It was really the idea of the Internet and the entrepreneurs and the teams backing those ideas. So in the long run, what happens in the day to day markets, what happens with interest rates doesn't matter obviously impacts capital flows in the short run.

[Megan Casella]

All right, Steve, it's been great to have you here.

[Steve Case]

Great to see you.

[Megan Casella]

Thanks so much.

[Reporter/Correspondent]

Steve Case.

[Brian Sullivan]

Yeah, we'll kind of continue this conversation and pivot a bit because we've got Pennsylvania Senator David McCormick certainly wears a lot of hats. He's a member of the Senate Committee on Banking, Energy and Foreign Relations. All of those things, by the way, pretty important. Kelly.

[Megan Casella]

And in the news right now, we'll talk to him about everything from the Iran war and oil prices to why he called Kevin Warsh quote, the right man for this pivotal moment. That's next.

[Reporter/Correspondent]

Your data lives everywhere on prem in the cloud, across apps. Bring it all together with Everpure, the platform that acts like a living system, delivering the latest in data performance, security and innovation without ever slowing you down. Sophisticated enough to anticipate your ever changing data needs, yet simple enough to feel like second nature. Tame your data chaos with Everpure and make storage and data management the simplest part of your business. Visit everpeardata.com to learn more.

[Brian Sullivan]

Never bet against American grit or American Energy through innovation. Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost and a fraction of the time. So while others are busy talking, we're busy building. That's venture global. That's unstoppable energy. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and [e-mail] Market Update podcast or find Schwab Market Update wherever you get your podcasts. Welcome back to our special Federal Reserve Day coverage here from Washington, D.C. we are just minutes away from Kevin Warsh's first rate decision and press conference as chairman. And while he certainly has had a bit of a bumpy political road getting here, I mean, who hasn't? Your next guest is confident Warsh is the right pick, not only voting just yay on both nomination votes, but also introducing him at his Senate Banking Committee hearing. Joining us now on set is Senator Dave McCormick of Pennsylvania serving on multiple committees, foreign relations, banking, energy. I mean, those are literally the three things we want to talk about today, Senator. So this is perfect to have you in number one, I know he's your friend, okay Pittsburgh guy, I believe, Kevin Warsh, where you're from. So what are you expecting out of your friend in the Federal Reserve chair today?

[Senator Dave McCormick]

Well, listen, I think he was a great choice for a couple of reasons. One, he, he understands markets. Two, he understands the Fed. And three, he's got a reformer's heart. So he's not going to take the way the Fed has operated in the past as a, as a predictor of

[Brian Sullivan]

how shock reformers heart.

[Senator Dave McCormick]

First of all, he that the Fed has really spiraled over the last two decades in terms of its mandate, how it's used its balance sheet, really taken on a set of responsibilities that weren't consistent with its original mandate. I think he's, he's going to think about bringing it back to a more narrow ambition and over time shrinking that balance sheet. And he's also going to think differently, I believe, about how he communicates, how he communicates to the markets. I think he's going to be much more discreet in terms of how he speaks to the markets and the expectations he sets. The final thing I'll say is he described in his hearing, I like this, he wants to have sort of family fights. In other words, he's not trying to build some from fragile consensus. He's trying to really Sort it out and have people argue and make their case. So I suspect the first meeting is going to reflect all those things, although

[Megan Casella]

the first press conference is paradoxical for those goals, because press conferences don't go back that long. He, he could get rid of them if he wanted. I don't know if he'll seem not uncomfortable up there. He's obviously quite comfortable in the limelight.

[Patrick Harker]

But.

[Megan Casella]

But does he feel that, that it

[Claudia Sahm]

was interesting to talk to? I think it was.

[Megan Casella]

Powell was asked at the last Fed meeting and they said, well, why did you go to doing these meetings every time? And he said, we felt like we could only adjust policy when we were at a press conference meeting.

[Journalist/Reporter]

Yeah.

[Megan Casella]

And so from that point of view, I thought it was fascinating insight into kind of how those decisions might work in real time. They wanted to be able to explain it. So maybe that event sticks around, but he makes changes elsewhere in terms of that.

[Senator Dave McCormick]

Yeah, it could be. And maybe the nature of that event will change over time. I don't think you're going to see any radical, radical change on day one, but I think he's going to go into it with, with an expectation that the Fed's going to evolve under his leadership in ways that will look back 12, 24, 36 months, we'll say that's a different Federal Reserve. It's not going to happen overnight.

[Brian Sullivan]

Should he kill the press conference?

[Senator Dave McCormick]

I don't know. You know, we'll have to. We'll have to see.

[Brian Sullivan]

That's not a no.

[Senator Dave McCormick]

Yeah, we'll have to.

[Brian Sullivan]

Kelly's point. It's not been around that long.

[Journalist/Reporter]

Yeah.

[Brian Sullivan]

And I don't want anybody we work with to hear this because I know we take the press conference live on cbc, but sure. Should that go away. Should the summary of economic projections, better known as the dot plots, go away?

[Senator Dave McCormick]

Well, he certainly thinks that the dot plots should require some significant change, but. Which he, which he made that clear in his testimony. But think about this way. He's going to be driving a change agenda. So I haven't spoken to him about this, but my guess is he'll need to find the right form to communicate the changes taking place over time. So the irony is the paradox is one of the vehicles to communicate the changes and the reforms might be the actual press conference is a mechanism to do that. But I think the nature of the press conference, at least to start, will be very different. And we'll see over time. I wouldn't rule out anything.

[Megan Casella]

Could you still make the case for a rate cut here? Do you think he would, would want. If you look all hour long we've been hearing people and this is saying inflation is sticky. It's been five years now, it's been 25%. Now. Bush himself has said this is full stop, the Fed's responsibility. Patrick Harker says, I've left the Fed. I'm even more convinced inflation should be their only fight. So he wouldn't. He normally seem to say, look, we've got to raise rates and just quell this, or is he going to think you can still make a case for cuts?

[Senator Dave McCormick]

Well, I think he's going to. He's not going to do anything today. I think they're going to keep the rates where they are. And I think that the thing that's a little bit hard to factor in at this point, I do think we're in an unprecedented moment in terms of how to read the economic indicators. On one hand, we're in the middle of a conflict that's a shock. Shock to the oil markets is a big driver of the uptick in inflation. On the other hand, we're in this moment of enormous capital investment, unprecedented in our time, that's going to have significant effects on productivity. And as Kevin said in his testimony, he expects that productivity to be a big driver that will keep inflation in check. So how those two come together in this moment, I suspect what he'll say is, let's get more data. Let's get.

[Brian Sullivan]

So you know, Pennsylvania, I love what you guys are doing. I know you don't always agree politically with the governor, but I feel like you guys have worked together really well on energy. So let me ask this directly, has been this sort of arching theme that the investment in AI will sort of overpower higher gas prices. So for your voter in Dubois, and it is Dubois, Pennsylvania, filling up at a sheets at 450 a gallon versus 350 gallon, does the capital spending investment, does that override that higher gas price?

[Senator Dave McCormick]

It depends on what we do. So in other words, we have to have energy production that exceeds the new demand that's coming from AI. So if we get out of our own way, we have permitting reform, we embrace energy dominance, and we have energy that meets that moment and goes beyond that moment, then energy prices are going to come down over time. But that's the question. And permitting reform is the most significant thing we could do, not just for energy policy. It's not just energy, it is economic policy. There's a trillion and a half dollars sitting on the sidelines. This is where I say I've introduced a new permitting reform bill. We need to get on that right now.

[Brian Sullivan]

We'll get you back on soon to talk about that.

[Senator Dave McCormick]

Yes, sir.

[Brian Sullivan]

With your former colleague in the Senate and friend Joe Manchin. We talked about it. Senator Dave McCormick. Really appreciate that. Thank you very much. All right, folks, we are less than 10 minutes away from the Federal Reserve rate decision. We'll get the decision. We'll get the analysis. Markets are up just a touch. Oil is up just a touch. 10 years at 4.43%.

[Megan Casella]

And we're back right after this. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.

[Steve Liesman]

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