00:00Can we know much about Kevin Warsh?
00:03Because so many people in the president's circle
00:05really make a huge shift in order to endear themselves to Donald Trump.
00:12So, I mean, it's unclear whether or not he's still an inflation hawk, isn't it?
00:18Yes, I think it is.
00:20I think the short answer to your question is, yes,
00:22it's hard to know what will actually happen when Kevin Warsh is confirmed and in the seat.
00:27Kevin Warsh does have experience as a governor and knows all too well
00:33the challenges of engineering and forging a consensus
00:38amongst 19 opinionated independent thinkers,
00:43and he will have to confront that still.
00:46So, you know, he sort of has to sort of shift his position,
00:51as you note, to get the job.
00:53Once in his seat, he's going to have to contend with the committee like any other Fed chair
00:59and look at the data and deal with different opinions.
01:03And, you know, he faces the uncomfortable situation of,
01:08if you don't have a majority of the committee favoring lower rates,
01:12are you going to dissent from your own policy as Fed chair?
01:16That would be unprecedented.
01:17Or are you going to disappoint the president?
01:21That may be the difficult situation he finds himself in.
01:25And this, I just am reading a message from Joe Brusuelas at RSM.
01:30He writes in to remind me that Kevin Warsh had some pretty radical views on balance sheet reduction.
01:36And I wonder if he maintains those views,
01:40especially considering he was active on the Fed, you know, 20 years ago,
01:45when the economy was much smaller,
01:47maybe a larger balance sheet is necessary to deal with a $35 trillion economy.
01:52Yeah, I mean, he was mostly he was a balance sheet hawk.
01:57I mean, that was one of his core positions that he just,
02:00Huey did not sit right with him.
02:02He was very uncomfortable with it, even in the depths of the global financial crisis.
02:08So, you know, I think it seems like he would be amongst the four candidates
02:14that were under consideration, the less likely to be interventionist on the balance sheet.
02:20And in any case, any kind of shift in balance sheet policy will also require
02:25that the New York Fed president is with you, that the committee is with you.
02:30So we don't really know what his position will be going forward
02:35and whether he will be willing to use the levers of the balance sheet
02:40to try to engineer lower rates.
02:43But more importantly, would he even be able to is the question.
02:47And I think that in any scenario, whether Powell leaves or stays,
02:52whether Waller leaves or stays,
02:54and whether there's a bigger rotation or a smaller rotation in personnel,
02:58it's going to take some time for Kevin Warsh to affect a plan of action
03:05that tries to engineer lower rates, particularly given the current state of the data.
03:10Of course, if the labor market were to wobble and we were, you know,
03:13the economy looked shaky, you know, you'd have a lot of support for lower rates
03:18and possible balance sheet intervention.
03:19But that's not where we are right now.
03:21So we don't know where we'll be in June when he takes over.
03:26So the data could, you know, help his case or it could get in his way.
03:32I remind viewers that you spent many years at the Fed after doing your PhD at UT.
03:39And I wonder what is your take on where we are right now?
03:43I mean, do we need lower rates?
03:45How does the labor market look to you?
03:47The Fed seemed pretty sanguine about that.
03:49And how does inflation look to you, Julia?
03:52Yeah, I mean, you know, we just got a statement from Governor Waller on the labor market
03:56kind of saying, you know, we had basically once we get the benchmark,
04:00no job growth in 2025.
04:03Does that look like a healthy labor market to you?
04:05He used some spicy language.
04:09But I think, you know, it's not clear that we're out of the woods on either side of their mandate.
04:16I think a pause is perfectly sensible after the three rate cuts, given the constellation
04:22of data, very strong GDP tracking, some signs of stabilization in the labor market.
04:27So the unemployment rate ticked lower.
04:29It's drifted higher over the year.
04:32ADP tells us that we're seeing modest, positive private sector job growth.
04:39Indeed, job postings have sort of stabilized and drifted a bit higher.
04:43So there are some indications that the labor market may not be on the same downward trajectory
04:49it was through most of last year.
04:52So pausing and gathering more information, I think, is perfectly sensible.
04:57In fact, I think absent some of the politicization, it would have been a unanimous decision because
05:03it's not that controversial after three cuts to take a pause and see how the data pans out.
05:08And really, we're down even more than that, if you look since September of 24, right?
05:15I wonder about inflation.
05:18And I'm always worried about it.
05:20I worry about everything.
05:21As a journalist, I feel like it's partly my job.
05:23But we're getting big, supposedly big tax reductions, 15 to 20 percent higher than, or sorry,
05:29refunds higher than we had a year before.
05:31We have tax reductions, right?
05:33Especially for the wealthy who do a lot of the spending.
05:35President Trump wants to cut stimmy checks for the masses as well.
05:41And, you know, 3 percent inflation, I also wonder, Julia, that seems a lot worse after
05:469 percent, right?
05:48So is there any chance that we can average our way down to the Fed's target?
05:53Or is that just, have we just blown past that?
05:56No, I think, look, I think it's going to take some time to get to 2 percent, even under
06:01good scenarios, you are very correctly pointing out that we've got some fiscal expansion and
06:09that that fiscal expansion could be inflationary at a micro level.
06:13For example, we hear that automakers may try to use that tax refund season to push through
06:19some of those higher costs they've been facing because of tariffs.
06:22We'll see how that plays out.
06:24But we could see some transmission from that fiscal support or a fiscal expansion into inflation.
06:32That's entirely possible.
06:34And I think the risks are certainly tilted in that direction.
06:36If you've got more fiscal easing, you need less monetary easing.
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