00:00I've seen commentary that this was a good day yesterday for central bank independence.
00:04Do you think Kevin Warsh has silenced the critics that he'd be a threat to Fed independence?
00:10Absolutely. Yesterday, he accomplished his primary goal, which was to achieve credibility.
00:16We viewed the bar for sounding hawkish as very, very low. He almost had no choice. He had to
00:23sound hawkish. The bar for raising REITs, on the other hand, is completely different,
00:27and that's very, very high. That's where we disagree with a lot of the commentary in the market
00:32right now because if you look at inflation, the trimmed mean, for example, that's in the low
00:37twos. It's 2.3%. Just as a recap, the trimmed mean means that you rank all the prices from increasing
00:44the most to decreasing the most, and you cut out the top 8% and the bottom 8%. You still
00:49have 84%
00:50of prices. It's still a broad measurement, and that's showing 2.3%. Kevin Warsh yesterday was
00:59very clear that he's looking to the left of the decimal point. That's a two. It's actually a low
01:04two. And even inflation expectations, when you look at every measure of inflation expectations
01:09throughout the market, they all have a two handle. So that's well within the range as well.
01:15Mark, what do you think?
01:16Well, I can't hear Jamie, though. Jamie, it's great to see you on TV. But what I will say is
01:22this. With regards to Chair Warsh and Independence, I think he absolutely established himself as
01:29someone that will not be beholden to the president. And really, Scarlett, I think there were a number
01:35of investors in the market that were very worried about him essentially trying to do the president's
01:40bidding, and that is not what we got at all. And I think that explains a lot of the market
01:44reaction. Now, we thought that he would be more hawkish than those who overweighted, let's say,
01:51the political arguments around Warsh. We recommended being paid going into the meeting. We're still
01:56holding that view, at least on the two-year. We think it still has room to run. And we do
02:00think
02:00that he established himself as a somewhat of an independent thinker. He did follow through on the
02:05lack of forward guidance. And that's very different for the market to get a handle on because we've
02:10gotten so accustomed to the Fed leading us and guiding us. And it's somewhat difficult to
02:15imagine a world where the Fed could just pivot on a dime. And it's just a fundamentally different
02:21way, I think, that investors have to approach this market. To us, again, we think you still want to be
02:25paid. We think the curve has more flattening potential to go from here. And we do think that
02:29this is a Fed that is quite serious about bringing inflation back down to 2 percent. They have been
02:33missing. Now, if I may, one other thing. The thing that has struck me the most about the press
02:37conference yesterday were Warsh's comments about how he really doesn't think that monetary policy
02:42is restrictive outside of the housing market. He described it as uneven. Uneven. But the only area
02:48that he pointed to where monetary policy was restrictive is the housing market. And that's a very important
02:54part of the economy. But broadly speaking, it doesn't sound like he thinks policy is all that
03:01restrictive. And there's nine individuals that think it's appropriate to be raising rates later
03:04this year. At least they did yesterday. So with that in mind, it does seem like the risk around
03:09Fed hikes have grown a lot. And that really does challenge the more politically influenced part of
03:15the market that was thinking there's no way he can hike.
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