Latest / Markets with Megan: A Quick Financial Markets Update / The Kevin Warsh Era Has Begun | S3 E151 | 06-17-26

Transcript

The Kevin Warsh Era Has Begun | S3 E151 | 06-17-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: It's welcome day for Kevin Walsh.
• 0:02
  Megan Horneman: It's Wednesday, June 17th, and this is Markets with Megan.
• 0:05
  Megan Horneman: If you like this podcast, you can subscribe to it.
• 0:07
  Megan Horneman: There's an alarm bell you can hit.
• 0:09
  Megan Horneman: Also, feel free to share this with your friends, family, neighbors, colleagues, anybody who really likes to delve into the economic data and what it means on a regular basis for moving these markets.
• 0:20
  Megan Horneman: Well, today we welcomed a Kevin Warsh as the Federal Reserve Chairman, and he came out with a meeting that was what quite what quite different than we've seen in past Fed Federal Reserve chairmen.
• 0:32
  Megan Horneman: Let's break down what we got.
• 0:33
  Megan Horneman: Now it was widely expected that we would see no changes in rates, and we did not.
• 0:38
  Megan Horneman: They left rates unchanged.
• 0:40
  Megan Horneman: It was a unanimous decision, 12 to zero.
• 0:43
  Megan Horneman: We've had some dissenters on the committee in the past few meetings, so this was welcome news to see some unification here in the committee.
• 0:50
  Megan Horneman: That was also as expected.
• 0:52
  Megan Horneman: Um, the dot plots, there were actually nine officials that see at least one rate height here over the next 12 months and some pricing in two.
• 1:01
  Megan Horneman: Um, Warsh did not release dot plots, and we'll talk about that in a few minutes.
• 1:05
  Megan Horneman: But um they also did remove the easing bias, was which was expected given the recent height we've seen in inflation.
• 1:13
  Megan Horneman: The statement was much shorter than we've seen compared to past chairmen's, and we'll also discuss that in a moment.
• 1:19
  Megan Horneman: But let's talk about the biggest move on their economic projections, and that was on inflation.
• 1:24
  Megan Horneman: So for 2026, they're expecting core inflation around 3.3%.
• 1:31
  Megan Horneman: That's up from 2.7% at the prior meeting.
• 1:35
  Megan Horneman: For 2027, they expected at 2.5%, and that's up from 2.2% at the prior meeting.
• 1:42
  Megan Horneman: So this is definitely a hawkish tilt to this to this meeting and the statement that came out.
• 1:48
  Megan Horneman: This is um the feds, remember their target inflation rate is about 2%.
• 1:52
  Megan Horneman: So they're not talking about inflation reaching that target until at least 2027.
• 1:57
  Megan Horneman: And in fact, it's not supposed to get there even in 2028 with these initial forecasts.
• 2:03
  Megan Horneman: Now, why do we want to kind of delve in a little bit about some of these things I mentioned, like the shorter statement and the dot plots?
• 2:09
  Megan Horneman: It's because Kevin Warsh has been very critical about overcommunication by the Fed.
• 2:14
  Megan Horneman: It creates way too much instability in the markets.
• 2:17
  Megan Horneman: It also, with regular releases of dot plots, this has Fed officials sometimes holding on to their estimates longer than they really should have.
• 2:26
  Megan Horneman: So he wants to give these members more flexibility to change as the economic picture changes.
• 2:32
  Megan Horneman: So he did make it very clear that they can and should produce their own dot plots, but he will not be.
• 2:38
  Megan Horneman: He did come out with a task force.
• 2:41
  Megan Horneman: Now, this is important because it's going to focus on five things.
• 2:45
  Megan Horneman: Communications.
• 2:46
  Megan Horneman: I mentioned their statement this time was much shorter than prior chairman's.
• 2:50
  Megan Horneman: They want to be clear, succinct, and to the point with what their comments are coming out of this meeting.
• 2:55
  Megan Horneman: There'll be a task force to look over the communications of the different Federal Reserve officials.
• 3:01
  Megan Horneman: The balance sheet.
• 3:03
  Megan Horneman: Obviously, the balance sheet is extraordinarily large.
• 3:05
  Megan Horneman: Kevin Warsh was very critical when he did serve on the Federal Reserve back during the financial crisis that the balance sheet should not be used.
• 3:15
  Megan Horneman: And we're still sitting here with a balance sheet that looks like we're in an emergency type of monetary policy situation, which we are not.
• 3:23
  Megan Horneman: He also is going to have some a task force on the data, really the methodology around what data points that we use.
• 3:30
  Megan Horneman: He's going to have one on productivity and jobs.
• 3:33
  Megan Horneman: Remember, there's a dual mandate by the Fed, price stability and full employment.
• 3:38
  Megan Horneman: Well, with the changing with AI and new technology, he wants to make sure that we're addressing the appropriately appropriate labor market measures and that we're balancing that full employment with price stability.
• 3:51
  Megan Horneman: Also, a Fed task force on inflation frameworks.
• 3:55
  Megan Horneman: So there's a lot of concern around the different measures that are being used by the Federal Reserve.
• 4:00
  Megan Horneman: And are they really showing the true inflation picture?
• 4:03
  Megan Horneman: Kevin Morris has often favored what's called a trimmed PCE inflation, which takes out a lot of noise around inflation and can sometimes smooth out those geopolitical and supply shocks like we're seeing as a result of the Iran war.
• 4:17
  Megan Horneman: However, there's a lot to be seen about this.
• 4:20
  Megan Horneman: He's hoping these task force, his goal is to have them up and running with details out by the end of this year.
• 4:26
  Megan Horneman: So we'll get more.
• 4:27
  Megan Horneman: I don't know, we'll get it at every Fed meeting because he's made it clear that these communications should be simply about monetary policy, but we'll keep our eye on it.
• 4:35
  Megan Horneman: We aren't really in favor of them changing too much on the inflation framework because as quickly as that can look in favor to a Fed where they're getting closer to their target, it can look in the opposite direction.
• 4:46
  Megan Horneman: So we just want to be careful on what monitoring how they do that and keeping our eye on that.
• 4:52
  Megan Horneman: Now the markets have been kind of all over the place.
• 4:55
  Megan Horneman: They were down big when the statement came out because it was much more hawkish.
• 4:59
  Megan Horneman: They've settled back in relatively unchanged.
• 5:02
  Megan Horneman: I'm not sure when I go back to my desk what we'll be seeing.
• 5:04
  Megan Horneman: Bond yields were weaker, meaning they rose because basically Fed cuts are priced completely off the table for this year.
• 5:11
  Megan Horneman: So those people that still had rate cuts priced into the market, which I don't understand why, um, it's off the table as of right now.
• 5:18
  Megan Horneman: But we'll be back with some more information right now.
• 5:21
  Megan Horneman: That's all we've gotten out of the Fed with the new Federal Reserve chairman.
• 5:24
  Megan Horneman: Um, good to see some new face in there.
• 5:26
  Megan Horneman: And it's always good to get a fresh eyes on how monetary policy is conducted.
• 5:30
  Megan Horneman: If you want a history of our podcast, you can go to marketswithmegan.fm.
• 5:33
  Megan Horneman: Thank you.