00:00Joining us now is Michael McKee, Bloomberg's international economics and policy correspondent.
00:05And of course, you know, having worked with President Trump, he knows how important a clean transition is in the
00:11White House, certainly.
00:12What about at the Fed? Well, at the Fed, it's not going to be clean because Jay Powell is staying
00:17on.
00:18Today is his official last day. We don't know exactly when Kevin Warsh will be sworn in.
00:23They have to finish the paperwork. It could be Monday, it could be Tuesday, or it could be at midnight
00:27tonight if they get everything done.
00:29But if not, then Jay Powell stays on as the chair pro tem for a couple of days won't make
00:36any difference over the weekend.
00:37He is going to stay on as a governor, though, for an indeterminate period, and that could make the difference.
00:43He says he's going to keep a very low profile, and I would expect we wouldn't hear from him at
00:47all, probably,
00:48other than in the minutes or something like that, because he doesn't want to overshadow Kevin Warsh,
00:54and he doesn't want to make two centers of power.
00:57And if he spoke out on any of the monetary policy issues, then people would say, you know,
01:04which one is really driving things, because Powell's been there for so long, he has all the allies.
01:08Does that mean, because we often hear from Fed presidents and governors all the time giving their viewpoints.
01:13Is it unlikely that we would get that sort of thing from Powell when he just is no longer chair
01:18but is still at the Fed?
01:19I think he will maybe not speak at all. He doesn't know how long he's going to stay.
01:26That's up to the Justice Department. But he doesn't want to overshadow, so he can step back.
01:34And remember, as chair, he didn't give very many speeches. And so he's used to not speaking up,
01:39and I don't think he will care if people don't hear his views on a regular basis.
01:44But Warsh has got enough problems of his own. He comes in with the Trump cloud hanging over his head.
01:49You know, the threats that you better lower interest rates. You've got inflation moving away from Target.
01:56The tariffs, more tariffs are coming this summer.
01:59The tariffs have never gotten to Target.
01:59So I think actually about one month since it actually was put in place.
02:06Remember, they want to average. They want to average 2%.
02:09So we need to be, like, looking at deflation for a few decades before we get there.
02:14I thought it was interesting that Michael Barr came out and said shrinking the balance sheet is the wrong objective.
02:19And many of the proposals to meet this objective would undermine bank resilience, impede money market functioning,
02:25and ultimately threaten financial stability.
02:28I mean, those sound like pretty serious problems.
02:30Yeah, well, and you look here, you've got at least three members of the Open Market Committee who don't like
02:36the idea.
02:37A number have said they would listen to him, but nobody's come out in support of shrinking the balance sheet
02:42at this point.
02:43So that's another issue he faces because this is one of his signature things that he wants to do, Kevin
02:49Warsh,
02:50is shrink the balance sheet.
02:51And if you go back to scarce reserves the way they used to run monetary policy, you have Chris Waller
02:57saying that would be stupid.
02:59That's a pretty ringing non-endorsement.
03:01So he's got his work cut out for him coming in trying to make major changes at the Fed.
03:06And not least to which.
03:07It feels like it's a market that's already testing him.
03:09We were having this conversation with Cameron Kreiss at the top of the other hour basically saying that,
03:14yes, every Fed chair usually gets a test by the market, but he's coming in with front-end yields at,
03:19you know,
03:20four, four and a half for the 10-year yield and five percent for the 30-year yield.
03:24It feels like the test is already here for Kevin Warsh.
03:26Well, you know, you're a victim of circumstance, you're a victim of timing,
03:29and it seems that the markets have realized there's a war on the day before Kevin Warsh takes over
03:37because they seem to be reacting to the idea that inflation is going to be around longer
03:41and at these higher levels, which is what analysts, oil industry analysts and others have been saying
03:47for quite some time, and there's been a lot of hope in the markets that wasn't going to be the
03:50case.
03:51Now they've come in and decided that maybe we should react to this,
03:56but the problem is there's nothing Kevin Warsh can do to end the war
03:59and there's nothing he can do to bring down the cost of oil.
04:02So they're kind of stuck for a while.
04:05You made me think of saint of circumstance, you know, or victim of the crime.
04:09Did you go see Steve Leisman play the Grateful Dead in the Central Park a couple days ago?
04:13No, I was in Washington.
04:15I have seen him do that before.
04:17I've gone to his shows before.
04:19I saw you at one of them.
04:20Yeah, but I was in Washington for Kevin Warsh, so.
04:24All right, well, that's good that you're dedicated, first and foremost, to your professional duties.
04:31And you spelled that D-E-A-D-I-C-A-D.
Comments