00:00Jim, for once, I imagine you were happy. You were on the inside and you were sitting on the outside.
00:04What was your view of how that news conference went down yesterday?
00:08Well, unfortunately, I thought it was a little bit rocky. It's probably not unanticipated given that Chair Warsh is new
00:16in the role.
00:17This is a second press conference. But I thought, you know, the sell-off for the higher yields in the
00:2430-year are, you know, kind of nerve-wracking for a central banker, you know, dollar depreciation on the announcement.
00:35I think he needed to do more to create optionality in September, and he didn't do very much of that.
00:43That he emphasized the inflation target and that he weren't backing off the inflation target, gave a little bit of
00:52a hint that, you know, the measurement, you know, might be a factor there.
00:58I don't think that was helpful.
01:01And, you know, you might as well explain what the main arguments were around the table because the members are
01:09going to go out and tell you what they are thinking and basically what they're thinking is there are two
01:16more inflation reports to come.
01:17And we want to see those inflation reports before we get going on any kind of hiking campaign.
01:22So you might as well at least acknowledge, you know, the contours of the argument.
01:27I understand he doesn't want to give forward guidance, but it's a work in progress.
01:32And he's very accomplished, I think, in many ways.
01:36But Marcus obviously didn't like this.
01:39A work in progress implies there is some intent here.
01:43There is an objective.
01:44Jim, what do you think it is?
01:46What is the intent?
01:47What's the objective?
01:49Well, I think he says what he means.
01:51You know, I would characterize interest rate policy in the U.S. as being partly the Fed and partly the
01:59market.
02:00And he feels like it's become 90 percent Fed and 10 percent market.
02:04He wants that back to dial that back to 50 percent or something like that.
02:09And so that it's you can't get you can't drive either side to zero.
02:13Both sides have a role to play, but he feels like it's been too much Fed, not enough market.
02:20And, you know, maybe he's erring in the other direction now.
02:24But I think we'll get to a good equilibrium eventually.
02:27Do you think, Jim, that there's a difference between forward guidance and a reaction function?
02:34Yeah, I do.
02:36I think, you know, and we're struggling, I think, to know what what he means when he says he doesn't
02:42want to give forward guidance.
02:43If you look at a Taylor rule or something like a Taylor rule, that tells you what the Fed would
02:48do in every single state of the world.
02:51And so that's forward guidance in some sense.
02:54But I think what he means is like the chair would come out at a press conference and say, hey,
03:00it's highly likely we're going to move in September or it's highly unlikely we're going to move in September.
03:04That sort of forward guidance, I think, is what he wants to get away from.
03:09That might be warranted, especially when you want to have optionality to see how developments proceed.
03:15The reason why I ask Jim is because he seemed to say that we're conflating the two and that people
03:19are asking for a reaction function when actually all they're looking for is some sort of forward guidance.
03:24And I just wonder what you make of the way he answered questions or didn't answer questions.
03:30I mean, did you think that this was deliberate or do you think that there is a larger idea that
03:36the market isn't understanding?
03:40Yeah.
03:41Well, is it deliberate?
03:42Well, I'm sure he thought very carefully about how he wanted to handle things.
03:46And I thought I guess one thing that stood out to me is that he didn't want to bring up,
03:50OK, there are two inflation reports before the next meeting, because I think he was feeling like that would create
03:56too much data dependence and too much focus on that.
03:59But that's really the story here is can the committee count on inflation coming down, especially coming down core PCE
04:09inflation, coming down below 3 percent and being on track to go to 2 percent.
04:13Or are they going to have to get on a tightening campaign to make sure that that happens?
04:18So, you know, the data is going to be important over the next couple of months.
04:22Jim, do you think that performance makes it more likely they'll hike in September?
04:27Well, he steadfastly stayed away from that.
04:31I think I would have preferred that he say we're ready to move, you know, under certain circumstances and we're
04:39definitely willing to move.
04:40Instead, he only talked about the inflation target itself without saying that we're ready to take action.
04:47Markets didn't like that. And they actually the two year yield went down.
04:53And so now markets are less sure that the committee will actually follow through and and try to drive inflation
05:02back to 2 percent.
05:03So I think it is it is a bit of erosion of credibility.
05:06I think it can all be managed. But unfortunately, it was a little bit a little bit rocky.
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