00:00I think Kevin Walsh is an incredibly strong intellectual candidate. He has very strong views on the role of the Federal Reserve. So I think he believes in a narrow central bank, a central bank that will have a much smaller balance sheet, a central bank that should stick purely to interest rates and not opine on other things such as climate, DENI and also the, you know, sort of the shift in its mandate to include
00:30inclusive employment. So I would say he is a very sort of orthodox figure from his past sort of speeches. He gave a very illuminating speech to the IMF last September, you know, laying out what kind of sort of view he would have on monetary policy. So I would expect him to be much more orthodox. The question really for someone like him would be that were he to come and become chair,
01:00whether or not he can actually navigate the political pressures, because I think from a textbook perspective, he is fantastic. You know, I think every economist would say, well, all the things that he's laid out, you know, orthodoxy, you know, monetary orthodoxy, it's a good thing. But, you know, in reality, as chair, he will have to navigate the political sort of pressures. And the biggest pressure, which he himself has acknowledged, is the fact that, you know, government debt to GDP ratios at 100%
01:27do have impacts on the economy that, you know, he will have to at some point address. So the interest burden for the federal government today is 3% of GDP. You know, what does that imply for monetary policy? And he has, you know, so far remained fairly quiet on that topic.
01:43Yeah, indeed. And I mean, the whole idea of the kind of strong dollar policy goes back to Robert Rubin, you know, under Clinton, this idea, and that was to do with the with that issue of government funding, effectively funding government deficits.
02:00In terms of what it means, what you make of the kind of market reaction, what it means for the dollar and what it means for for treasuries. Do you think that it'll stop the kind of slide in the dollar? How do you think about it in terms of the market reaction so far? I mean, it's not even confirmed yet.
02:18Yeah, I mean, I would say some of the market reaction does make sense, in the sense that I would expect that he would, you know, try to veer towards orthodoxy.
02:28But the thing that makes him quite unpredictable, and I think this is why I think perhaps we're jumping the gun a little bit. He is quite unpredictable because he has also come out and said that he really believes that AI is a profound transformation for the economy is going to lead to materially lower prices.
02:44So he has a view of the world that's not borne out by current data. And the question he's also very sort of anti the dot plot and frequent Fed communications, he believes that, you know, giving these sort of like, you know,
02:58frequent press conferences, laying out every individual's forecast, those are actually over indexing on short term volatility. And he believes that the Fed should just stick to its knitting, set out a medium term course, and just stay the, you know, stay the course.
03:12And so it's not clear, you know, where he's he seems to be mixing quite a different a number of different things. And I'd say that it's possible that he comes and becomes Fed chair, says that the economy is going to, you know, actually experience lower prices because of AI and use that as a reason to cut interest rates.
03:27I wonder with the move that we have seen in Treasury yields, and I'm watching that 30 year yield in particular, inching up back towards 5% again this morning.
03:36I mean, how much does that feed into the dilemma that's going to be faced in in the US and the question of, you know, the fiscal concerns there, too?
03:44Yes. So I think this the move in the Treasury really underpins sort of the inherent contradiction with President Trump's desire to have lower interest rates.
03:52I think, you know, he would like to have lower short term interest rates, and that's what he keeps badgering the Fed for.
03:58But in reality, the you know, if the Fed were to pursue sort of a loose monetary policy, you know, lower than neutral rates, you would have the long end back up.
04:09And that would ultimately undermine the president's goal of getting the housing market back on his feet, getting investment spending, you know, back up and running.
04:17So I would say that, you know, this is, you know, the the next Fed chair will have to somehow manage not just short term interest rates, but also the term premium.
04:28And so far, you know, he was just said repeatedly that, you know, his role is very narrow.
04:34It is to set short term interest rates and to stick to that as his goal.
04:39And also the other move in the the other reason the move in the long end might be that he actually does have very strong views on having a much smaller Fed balance sheet.
04:48So unlike Waller and possibly, you know, a couple of the others, he actually believes that, you know, the Fed should really work to actively reduce the size of his balance sheet.
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