'WORK CUT OUT FOR HIM': Fed's new chair faces major challenge

[00:00:00]Checking the markets and they are all in the green right now. Dow Jones Industrials up close to 400 and the S&P is up 8 and 1/2 and Nasdaq is up now 26 points.

[00:00:12]Show me Mobileye if you can. They are launching their own robo-taxi service in the US next year. They plan to deploy about 100 vehicles in major cities and it is now up 5 and 1/2%. Now this today Fed chair Kevin Warsh will host his first policy policy meeting at the Fed.

[00:00:31]Anthony Chan is here with me now. So Anthony, tomorrow we get the decision.

[00:00:35]What are you expecting?

[00:00:36]>> Well, I think that this time they're not going to change rates. They just can keep rates unchanged, but there is some good news. The good news is that oil prices are dropping and they might continue to drop if we get this deal. So it'll make Kevin Warsh's job a lot easier. He's certainly qualified for the job, one of the best people that the president could have selected and I think he will do an excellent job.

[00:00:58]As he looks at the big picture, he's not just going to look at one mandate. He's going to look at both mandates, but right now the unemployment rate is exactly where you want it to be. The Congressional Budget Office estimates that the full employment unemployment rate is a little bit higher than where it is right now. So we're doing fine on the unemployment rate and inflation is above the target, but it is coming down.

[00:01:19]>> And David David Bondson is still with me. He also wants to change David the character in in many ways of the Fed and the one thing Judy Shelton pointed this out early this morning with Maria. It's not the Fed's role to direct the economy as strongly as it has been directing the economy through various crises, whether it was the financial crisis or the or the pandemic, etc. He wants the Fed to kind of pull back a little. Is that smart?

[00:01:45]>> Well, it's very smart, but I want to point out the Fed did not just take that role as the arbiter of the economy.

[00:01:51]Congress gave it to him. The executive branch gave it to him. You know, the media has crowned Greenspan and Bernanke and these guys as having this huge role.

[00:01:59]They're supposed to be a lender of last resort. They're supposed to have a very humble role in the economy. Kevin Warsh gets that. I worked with him at Morgan Stanley. I believe that he has a tremendous understanding of where the Fed needs to go, but he's not going to try to do it all at once. That's another key thing. It could be too radical if he takes big steps quickly, then there's a big pushback on. He's going to do this methodically. He's a smart actor.

[00:02:22]>> And Anthony, he does not believe in the the fabled Phillips curve the way a lot of the economists at the Fed do. That is to say that that growth is the enemy of the Fed. That growth immediately means you'll have an increase in inflation. He doesn't buy that, right?

[00:02:37]>> No, he doesn't buy it. And in fact, if he gets that strong productivity growth, I just recently wrote a Substack article looking at all the regimes all the way back to Alan Greenspan and even before Arthur Burns. And he's got his work cut out for him because if inflation is coming down, then you don't have to worry about a little bit faster growth.

[00:02:56]We still are waiting for the evidence on productivity, but it is coming and many of the people on Wall Street are telling us that with all this AI spending and in fact, most of the real GDP growth that we're seeing today is because of AI spending. That at some point is going to generate higher productivity, which will mean we can accept higher economic growth and not be so worried about inflation.

[00:03:17]>> David, he is the chair of the Federal Reserve, but he has to deal with the culture. The Fed has a culture just like any big corporate structure. The Fed has a character and he's going to be going against that. How do you think the the people working there are going to be affected by this? And do some of them decide to walk out as a result?

[00:03:36]>> I I don't think that that's the culture of the Fed of a lot of protest and and and animosity. I think he has a real cordiality about him. He's a collegial guy. I think he's going to go in and win an argument. He's going to have to be persuasive. Not everyone will be sold, but the Fed has a good history of having these discussions and and being differential to the chair. We'll see if that's changed cuz a lot of cuz the numbers are a little different. 8 4 7 5 votes, we're not used to that. We're used to 11 1 kind of vote.

[00:04:03]>> Right. Right. Right. All right, one more, Anthony. Want to take a look at SpaceX. The stock surged on its first day of trading today. Day three, SpaceX is up almost 10% again. No signs of slowing down. Where do you think it's going to go?

[00:04:17]>> Oh, I think it's going to go much higher and the reason for that is the consensus for revenues of SpaceX by 2031 was about $50 billion and all of a sudden we hear Elon Musk saying that he would be disappointed if you don't get at least a trillion. That's a huge number relative to $50 billion. That's almost 20 times greater. So, when you have to take that into account, then of course that justifies much higher prices. And I will say by the way, one point on the Fed. I was a former Federal Reserve economist and I like to think that as a staff member, as an economist there, we have an open mind. So, if Kevin Warsh comes in with good facts and good evidence, I think that the staff will follow.

[00:05:00]>> attitude and he he gets along with people. He's just a very decent guy.

[00:05:04]Finally, I got to ask you about you're not used to getting political questions, but all of these socialist victories in New York City, in in various areas of the West Coast, possibly in Washington, D.C. where you have another socialist trying to become mayor. There's this denigration of capitalism. Do you think it's taking root in America or is this just something specific to the Democratic Party right now?

[00:05:27]>> I hope and and pray that it is something that is just temporary because I'm a capitalist at heart and while I entertain all ideas, capitalism is in my heart 24/7.

[00:05:39]>> 30 seconds.

[00:05:40]>> There's no subject I feel more passionate about than this. It's not an attack on capitalism as if the ism that we're defending is capital. It's free enterprise. It's aspirational society.

[00:05:49]It's hopes and dreams. He can't become poor. Elon Musk cannot become poor without other people becoming poor, without taking away jobs and opportunities and growth for all the people that work for him, for the customers of the business. The way you get wealthy is creating value for others, period. Why don't they understand this?

[00:06:07]>> Strong letter to follow.

[00:06:09]>> [laughter] >> David Anthony, thank you very much.