The Warsh Era Begins

[00:00:05]Welcome to the Power Market podcast. I'm Ryan McMin, editor-inchief at the Mises Institute. And joining me today are two of our contributing editors. We've got Tho Bishop, we've got Connor O'Keefe, and as promised last time, we're going to talk today about the Federal Reserve, the FOMC's latest press conference, the first press conference with the new chairman Worsh.

[00:00:27]Uh but before we do that though, we got a coming up very very soon is our New Hampshire event. Uh so what do people need to know about that?

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[00:01:48]>> All right. Well, let's talk about the press conference from Wednesday. Uh, you can always watch these. They stream online every time there's one. Just go to the Fed's YouTube channel if you want to watch it. Uh it's 2:30 on the days that they have them. Usually you get on, he comes out, he reads a statement from the Fed and adds maybe some additional comments that he wants and then takes questions from the media assembled in the gallery. And so the the form of the new press conference was the same as Powell and before him Yellen and Bernani.

[00:02:25]Uh all pretty pretty general stuff.

[00:02:28]Although there was definitely a shift in style and clearly an attempt by Worsh to differentiate himself uh from Powell and the Powell Fed.

[00:02:39]whether that actually turns into any sort of real difference. Uh I'm skeptical and it certainly remains to be seen, but he certainly wants to send that message. Before we get into that, just let's note so you have context, right? The Fed, the FOMC meets, they decide what is our interest rate policy, what is our balance sheet policy, and they decide to do nothing. They decide to not change their target policy interest rate, also known as the federal funds rate. That's a 3.75%.

[00:03:10]And as I noted in an article on it the other day, it's it's been that way for quite a few months, but they've brought it down uh over all of that time. It was it peaked out at I believe five and a half percent there and then they slowly brought it down over a period of a number of a number of months and then they've been holding it um steady for for a while. Uh there's they've clearly been just afraid to change uh the number. there hasn't been I mean the dynamic has been soft jobs market and the I the idea being that in most cases a soft market would lead them to clearly lower interest rates more uh but they're also facing inflation pressures inflation hits 40-year highs back in 2022 2023 and in as War emphasized more than once At no point in the last 5 years has the Fed actually hit its 2% target. A target that the Fed made up for itself. And it can't even hit that. As we've said here before, the target really should be closer to zero or negative. Uh because a productive economy will actually drive down prices. But they picked 2% because that gives them more leeway to loot the people and uh basically monetize the debt and and use other uh ways to turn inflation or turn taxation into inflation. Uh so what is what is the future here for the Fed in terms of its policy? the markets seem to be saying, "Yeah, I think they're going to raise rates now because the inflation situation has been bad the last few months." And if we look at just this last month, the the May numbers for inflation hitting 38-month highs in terms of uh the the overall uh CPI inflation rate. And if you look at say PPI, that's at I think a 42month high. Uh it's at I think a 20-month high for PCE inflation, which is the Fed's preferred inflation measure. So it's all heading up and this is all well 18 months or so after Powell gets up there and says we're going to hit the 20 the 2% target any day now. So we're going to start lowering interest rates.

[00:05:46]That was what he said to justify lowering interest rates back right before the election back in 2024. So what are we faced with? Soft job market.

[00:05:54]upward pressures or inflation. The the the Fed has failed for years to hit its inflation targets. Uh the Fed doesn't seem to know what it's doing with its balance sheet. Worsh barely mentioned the balance sheet at all except to mention that he wants to create a task force to examine balance sheet policy, but no mention of it otherwise. So, we can presume that's going to be the same for a while.

[00:06:20]And it all just seems very much in the air. So really the only substance here seems to the only hope we could have for finding some substance here was in Wars' statements about what he wants to do, how he wants to change things. So Tho why don't you kind of give us an appraisal of what are these some of these things that Worsh says he wants to change and how would the Fed look different if Worsh actually does some of these things or gets to do what he wants to do?

[00:06:48]>> Well, I think there's two different buckets here. one is again as you mentioned earlier I mean you know the Fed is an institution of loot and plunder um that is not going to change that is the very nature of central banks that is why governments create central banks that's why governments love central banks right I I found that this press conference though absolutely fascinating because really and and and well we'll see the the the seriousness of this of this and and this should not my my my following comments should not be taken as some sort of of broad like ah finally we're going to get a a good functioning Fed. But the broad scope of his comments were not simply uh distinguishing on the margins the difference between him and Pal. His comments were not simply um trying to emphasizing um kind of being above the fold a certain bit and like you know look I'm I'm I'm a new new person here.

[00:07:45]We're going to we're going to think about things differently in a in a very generic sense. Um, it was from my point of view a remarkable critique of how the Fed has operated as an institution for quite some time. A critique of economics essentially the mainstream economics profession for quite some time. Um but there there was a lot of systemic critiques of the Fed, the way it collects data, the way that forward guidance is used to hold the hands of markets to over so so that their decisions are made uh independent of their own data that they're getting.

[00:08:24]And and so again, none of that means that, you know, the Fed's systemic issue is a data problem. None of this suggests that updating some of these things and and incorporating more real-time data and things like that are going to fix these problems. Again, as we know, the problem is the role of central banks within an economy. But his critiques were very broad and systemic and basically I think a mirror of highlighting the failures that the Federal Reserve has had on its own terms. And I think getting that sort of rhetoric from that position is meaningful even if the reforms coming from it. You know, we should not expect, oh, this is going to be a return of the gold standard, go back to the good old days, right? But just having that sort of critiques coming from this position um is is I think very fascinating and opens the door to I think a broader interesting conversation to have about again not only the Fed itself but you know macroeconomic policy in the 21st century and I think and I you know I think that is a a phenomenon worth acknowledging as being um for one clearly justified but also just just institutionally significant to have that coming from the podium. Now, one of the interesting components that Worsh has, and I think there's one mention of the Pword the entire press conference, in this case, I'm talking about the president, is that Worsh is a a very, you know, the the the the dissonance of Worsh being uh selected by the most explicitly public Fed critic president we've ever had, who has made it very clear that he wants lower rates.

[00:10:01]that aspect of it of of who he owes his position to coupled with his long-standing public criticism and his reputation as a dove as a as a as a hawk not a dove and these greater systemic critiques of the way that Fed has conducted policy. I mean those are seem to me inevitably going to collide. Um it's also clear that the rest of the Fed as itself the rest of the FOMC FOMC has no idea where things are going. um uh understandably so. We still deal with the fog of war with the Middle East stuff beyond everything else. Um they certainly don't want to take any culpability for any economic problems.

[00:10:36]They're going to try to outsource that as much as possible to the to any extent they can. But I mean I think the FOMC vote was was was totally split on whether rates are going to go up or go down between now and years end. that kind of, you know, shows uh uh just just the lack of even though there was unanimous consent on not doing anything, which is notable because you do have certain Trump Fed governors that have been reliably we need to cut rate votes, you know, so far, you know, this year. I mean, obviously, I think there was a very clear political agenda item to have a a unanimous vote on this particular thing entering in a new Fed chairmanship. Um but there there is you know from the rest of the board no clear understanding of of where the direction is going to go. But I think it's very interesting Wars himself took him out of the entire conversation why you're refusing to do the dot plot. I I think the dot plot time might be limited based off of Worsh's comments. He's got to go to a he's got to go to one of the the the the task groups which I think was the most repeated word during the press conference. Um and again so so so there there are two sides of it. One is that there's clear political theater in what Worsh was doing yesterday. As as your article, I think, did a great job illustrating is that a lot of this was a stall tactic. A lot of this was um a a a symbolic representation that new things are going on. Um again, ultimately there was a lot of similarity in the PAOW, hey, we're just data focused. Uh but I do think there's a a worthwhile uh uh note in the extent to which Warsh is is critiquing the quality of the data and talking about uh strong re-evaluation of how that data should be taken to account. I think that's a little bit different than the PAL standard data thing. Even though there's been you broad conversations about, you know, issues with, you know, Bureau of Labor Statistics statistics data and things like that, there's a much more pointed emphasis on the inadequacy of that data.

[00:12:24]Um so so you have the the the theatric the the theatrical side of it but within it is the broader again I think a very uh constant and steady uh critique of basically the Fed itself has been operating at the at best outdated models and at worst uh a clearly bad clearly facious views of the economy and even if we know that the end result of this is not going to be oh golly gosh darn Mary Roth was right the entire time I think having that from the Fed chair is a a very interesting situation particularly when you consider the rest of the globe follows the Fed and so having the Fed chairman saying you know we're not doing things right there are systemic problems here that need to be reevaluated that I think is something notable even if we'll see what actually comes from that in terms of you know meaningful policy meaningful changes given that the institution itself is the problem what do you think of war better or worse than Powell and if worse how much worse or how much better I don't know give give us a rundown on this.

[00:13:26]>> I guess I um am mostly focused on how he's just kind of the same. I I feel like and the points you're bringing up there though are interesting. Um and I certainly enjoyed seeing him say some of that stuff, but also I guess the pessimist in me feels like that's what the Fed needs to do if it's going to survive in the the coming years, at least politically, or with the general population. and I don't want them to do that. So, um it's uh it's nice to see that they're kind of forced into this situation, but at the same time, like the and from my perspective, what worsher's real job was yesterday, it wasn't even really that related to monetary policy. I think everybody just expected them to do what they ended up doing, but he needed to come in and simultaneously signal that he is not Trump's puppet so that, you know, he he kind of stops that freak out from happening. he's not going to go in there and immediately start calling for serious cuts. But at the same time, he needs to show the disaffected public that this is a new regime, that we're this is a new Fed and the problems that you had with PAL and everybody that came for like those are those days are in the past. And I think he did a very good job of that. That being said, to the point you made in your article, Ryan, a lot of that is because he's essentially kicking in a lot of the difficult decisions down the road until at least the end of the year.

[00:14:46]Um, so it doesn't necessarily solve the headaches for him. It's just that's gonna come a bit later. Um, but yeah, I guess it was sort of I mean I always am focused on like the FedSpeak dynamic. He was coming in and I mean there was one part where I had to like watch it twice cuz he started talking about how um if you're going to do a press conference as a Fed chair, you have to have something to say. And he said, "We have something to say." And then he went through and it was just these meaningless um statements. I think I Yeah, I have them.

[00:15:17]He said, "We're committed to delivering on price stability." Okay, we're moving the Fed forward.

[00:15:26]All right, we're going to see.

[00:15:28]>> That's the worst. That is Can I just say every time someone says, "Oh, we need to move forward. We're moving things forward." I just I just want to puke.

[00:15:36]That is like the most favored term among people who aren't saying that doesn't mean anything.

[00:15:40]>> Yeah. Sorry to interrupt. Go on.

[00:15:42]>> Yeah. uh um we're going to seek out the best minds and and then he said these aren't idol thoughts these are concrete thoughts and it was like like yeah the theater production basically and so you know it kind of sounds nice enough where people can nod along but he's not saying anything concrete which is his job as fed chair there but um yeah it a lot of it too it kind of reminded me of heath a bit and also kind of like Dan Mongrino way less bombastic I mean his job is to be measured a Fed share, but it was all about how essentially like to kind of play up this regime change um narrative that they're now cleareyed, focused on the mission that it's all about and you know, he's signaling that they were going to really focus in on inflation, but yet like the chest thumping was there in the very Fedsp speak grounded form where it's like, okay, yeah, what was happening before was a bunch of nonsense, but now we're serious, right?

[00:16:40]were serious about inflation and um yeah, I just I don't really buy it, I guess.

[00:16:46]>> Well, to your point, Connor, and kind of go into the the question you asked them, Ryan, is that like there's a very real possibility that a a a serious reform-minded Fed chair could be worse, right? Like if if if I mean like there there are Fed critics out there, some of which are even associated with, you know, nominally, you know, free market libertarian organizations that have pushed for Fed reforms that I would argue are worse than the status quo. And so that is very that that is very much within the within the cards here is oh okay you you are criticizing the Fed this is a difference this is this is a different style of doing the Fed we're a lot more data driven we're a lot more rule driven etc etc and the result is even worse policy than we have before but now it has a nice veneer and it it changes the goalpost there that that is a very real possibility of this entire dynamic is that yes the Fed might change if if if you know WH delivers on on some of his more ambitious promises but there's always something even worse than it was before and I think that's definitely something worth noting in terms of within the realm of possibilities that we get out of this.

[00:17:41]>> Well, that's often my problem with a lot of the the people in the financial area that get famous as Fed critics, right?

[00:17:50]They're always secondguessing the Fed, always saying the Fed isn't doing things right. And then some of some of like our readers are like, "Oh yeah, this guy's on our side because he's criticizing the Fed." But then when you finally get down to what is it that this critic of the Fed wants, their problem with the Fed is that they haven't lowered interest rates enough. The problem with the Fed is that they're not easy money enough. The problem with the Fed is that they've committed a policy error. Uh or that the Fed isn't properly calculating what the natural interest rate, right? All like stuff that isn't real. That's fantasy land stuff. Stuff that the Fed can't do or shouldn't do. That's what a lot of these Fed critics actually want the Fed to do. So that's not that does that's not they're not one of my people if if that's their problem with the Fed. The Fed isn't inflating enough. So now we're going to reform the Fed and inflate more. Oh, okay. Yeah, we're not all united if we dislike the Fed together.

[00:18:43]There. You have to dislike the Fed for the right reason. To build a little bit on what you were saying though, Connor, right? The thing that annoyed me about Wars, he said this more than once, was his goal? His goal of all of these reforms, of the task forces, of changing things was to increase the credibility of the Fed. He said this multiple times.

[00:19:03]My goal is to increase the credibility of the Fed. Well, I don't want to increase the credibility of the Fed. I want the Fed to go down in flames. I want the Fed to look awful. I want the Fed to look so utterly out of touch with reality that people understand what it is.

[00:19:19]That's something that is utterly out of touch with reality and is against the interests of regular people. The Fed is out of touch with reality and against the interests of regular people. They are very much in tune with the reality of the upper class, with the ruling class, with the people who are actually running things. They are openly hostile to conservative savers, to normal people. Um, so the last thing I want is credibility of the Fed to increase with normal people because that's basically just fooling the people uh to convince them that the Fed is interested in in helping you because they're not. And then the other issue is just simply so many of these goals are really just beyond uh wars control, right? There's this idea that the Fed comes in and the Fed decides what policy is. But the truth is the Fed functions within this extremely constricted policy arena that is bounded in by the needs of the regime. The regime needs low interest rates. The regime needs revenue. The regime needs to be able to finance its wars. the regime needs to be able to maintain conversely the dollar as the reserve currency. So there are all of these often conflicting goals of what the regime wants and that really boxes in what wars can do. So Worsh can have all of these organizational goals.

[00:20:43]He can have those all day long. You could have a hundred point list of them, but in reality, uh, the the the larger regime is not going to say, "Hey, Kevin, do whatever you want, right? And we'll just sit back. We trust you." No, they're going to tell him what he needs to do in order to make sure that the regime can finance itself and and uh accomplish its geopolitical goals, uh, which are generally on the service of preserving the wealth and power of the people who generally run the regime. But uh Kevin, you know, he's part of that, but he's certainly not the one that decides all on his own what these policies are. So just for that reason alone, a lot of what he says and a lot of what his goals are may or may not have anything to do with what actually happens.

[00:21:28]>> Well, that's why I'm I'm very interested to see what he looks like as Fed chair at the next, you know, Humphrey Hawkins hearing, right? Like the ne when he has to go in front of Congress. It's one thing to to do this the new new sheriff in town sort of thing in front of a press. You know, the press could try to find a interesting sound bite here and there, but you know, is there any change in a in a even even if it's purely the theatrical in the public uh between the Fed and the legislature given the extent to which like if if if if you know Worsh is really serious and again let's just for the sake of argument say that he is you know oh price stability is an issue price you price stability price stability price stability. Well, obviously I mean you you have a price stability problem because the Fed has been subservient to you know the political process has been subservient to the legislature subservient to the executive branch has allowed for this entire environment to to happen right is the direct you know the direct looter of the public in this regard is is is the relationship between the Fed and legislature going to change under Kevin Worsh that's I I have a very low that that's where I I think this the the some of this rhetoric actually mean the road is going to be is is is going to go off the rails very very quickly.

[00:22:39]Um you know I I think that's part of um taking a more or more cynical look at some of the focuses on data and things like that. It's a lot easier to even though if you me mentioned you said oh you know we've got respect for um these other government agencies that collect the data that we're kind of you know relying upon yada yada yada. It's it's in some ways that tactic of focusing on the data that they get is an easy way because you know there's not a a you there's there's not a public battle between the Bureau of Labor Statistics and the Fed, right? Like it's it's very boring, very wonkish. None of that's you that that's a very easy target to have.

[00:23:15]It's a lot harder to go after Congress and say, you know, you guys are are you know, screwing over people with with you get your spending under control, yada yada yada. Um, and so like that's that's where I think that part of this strategy of blaming kind of the inputs that they have as that being a major thing that's been blinding the Fed for quite some time is one way is avoiding the the the conflict with the legislature that inevitably you would have to have if you actually were a Fed chair that believed in the things that Kevin Marsh has said.

[00:23:40]Yeah, that's kind of the wild card that I was hoping for and I'm a little bit more pessimistic now is that the Democrats would calculate that it would be good for them if they could really frame Trump as corrupting the Fed. And I do think that Trump has made some smart moves recently. He's really toned down the calls for uh rig cuts. Um I think going with war show for somebody like Hasset um was it Hasset? Whatever the guy that goes on Fox News every day and talks about how great the economy is. um was smart and really the way this press conference would like if your goal as an administration was to get lower rates.

[00:24:15]This is what I think you want to do. You you don't want to go in and start immediately saying we need lower rates.

[00:24:20]You go in and you say we're gonna we are taking inflation very seriously and we're going to devote you know a bunch of task groups to studying all this stuff and you know looking at all the data getting the best data getting new data and then after you've done that for a little bit you could say well after this very serious deliberation we have come to the conclusion that yeah we need to cut rates and I think um I'm not sure that's what's happening there's other factors right now but um that what I was sort of dreaming for this like obvious Trump attack dog coming in as Fed chair and the Democrats that freaking out and making it a huge national issue. Um that could still happen. Like we said, a lot of this has been kicked down the road a number of months. Um but yeah, especially if he's getting, you know, thrown in front of Congress members who are then looking for their moment. Um who knows what could happen there. That would definitely be good. Unfortunately, the the Democrats are very tend to be very unified in their messaging. So, if the party decides not to go that direction, um I I see it being kind of minimal, but one could hope.

[00:25:28]>> Yeah. I uh I do we have another one in six weeks.

[00:25:33]The Yes. Right. There's not a gap in the summer or anything, right?

[00:25:36]>> Yeah. So yeah, we'll probably know a lot more. But as I suggested in my article, it's going to be like November, December before I think they feel the pressure.

[00:25:44]Uh because he did he was asked, hey, when when are we going to get some results from these uh task forces? And he did say end of the year. I assume he means this year. Uh and so uh pro presumably would have to deliver something at some point, but by then who knows what the inflation situation will be. And that's really what's dictating policy, right? is how much inflation can they get away with? And it it hits up on this politically unacceptable point at some point and you have to get more hawkish, not out of ideological interest or anything like that, just because your hand gets forced because you don't want to have to deal with the uh the political fallout from that. Unless of course, right, your your regime starts to become totally dysfunctional and you end up with something like with Bolivia, hyperinflation, those sorts of things, or just start printing money and handing out cash to all your allies and that sort of thing. I mean, America's not above going down that road, but I don't think that's on the docket for this year. And so, I do think they're going to try and and manage that that sort of thing. So I I think really just the answer to all these questions are going to be determined by some macro issues that we'll know more about come the fall.

[00:27:00]>> Well, and one thing that that is worth noting is that again, you know, the dot plot and this is, you know, other other voting members and and Wars made clear to say like, oh, when they were filling out this dot plot, they're they're using a pencil with a big eraser. So like don't take this to stuff too seriously.

[00:27:14]I mean, if if normal listeners are kind of like, what what what the heck is a dot plot? I mean like the these are what is interesting is that these are these are communications tools that the Fed has created after 2008 that have been core pieces of the modern modern Federal Reserve as we know it. The the forward guidance and the communication aspect has been one of the major innovations of the post Bernanki Federal Reserve world which is a distinct period in the grand scheme of things. It's very modern, very new and you basically have the Fed chairman saying these things don't work.

[00:27:44]these things are actually counterproductive if with some of his comments there. But that that's why that's you talk about dots matters here is just kind of interesting seeing the Fed share saying one of the Fed's tools is not useful and might be harmful. Um but beyond that um looking at that dot chart you you have most of the Fed looking at inflation still being above 2% by their own predictions. And again, we should not take their predictions that seriously, but from their own point of view is that they're not looking at the Fed getting down to 2%. Um, for until 2028.

[00:28:14]And so that would be if you if we live in that timeline. Um, then that would be eight years of the Fed consistently shooting inflation, which makes it which makes like any belief of having even that landing very very difficult to believe. And I think that's another aspect of, you know, Fed. Yeah, I I think some of those comments there is basically uh Wars how much of this he believes how much of this could he actually do is there's a very clear clear conflict between Worsh trying to and again some of this might be a confidence gain but trying to say no we're we're going to prioritize inflation number one and then the FOMC saying okay well this is going to be you know two more years down the road you know this there's there's no other path to this that is a a a a conflict in messaging there and again the expectation should be given everything else that the the the the veteran members of the Fed have a have a have a or more realistic in this than Worsh but that is a a very I think a a subtle conflict between the broader FMC report and Worsh's attempts to uh to spin it publicly.

[00:29:18]>> Well, and then add into that the thing that's been concerning me is the signals he's sending that he may look into redefining how they look at inflation.

[00:29:26]Um that's really the two things is um prioritizing like a trimmed mean inflation. So basically taking out any of the most dramatic price moves and just looking at like the the small movers um which would make inflation look a lot better right now. Um, and then the other one being, and they're talking about the productivity of AI and essentially that we have this huge deflationary thing on the horizon, which I think is accurate, but that therefore gives them more room. And both of those, um, it's like it's not that there's nothing to that. Like, yes, I do think AI will prove to be a very deflationary force. Um I also like it is technically true that there are a lot especially in the last few years there have been a lot of dramatic price moves that are not by our definition inflation but those are still very painful for everyday people and the fact that we're going to try to set those aside to then use that as an excuse to inflate more like our kind of infl monetary inflation is very concerning to me and that's why this sort of I I don't want to make any like firm predictions but this whole thing kind of felt like counter signaling to me that he was coming in and saying we're going to take inflation really serious like setting that tone from the beginning to give himself more room later when it's like oh turns out we actually need to inflate more and so yeah those are like I guess two things that are very um I'm watching closely in terms of his rhetoric here because those are two uh red flags and >> to that point to that to that point one very obvious you contemporary example of how and I think Worsh even said that uh I think he said that that AI might be the the uh uh you know one of the most important economic uh uh you know drivers in his lifetime. Well, one of the, you know, one major driver of deflationary pressure in, you know, my lifetime, much less his, uh, was the opening of trade to China at the end of the '90s. And it was precisely the fear of deflationary pressure from China that helped spur everything that we got in the 2000s and eventually culminating 2008 and everything that came came with that. like that that was a a a a a clear explicitly stated objective of Federal Reserve policy during the 2000s was that oh well Chinese goods are going to make things cheap. We can allow we we can't allow this inflation to to to impact the economy. We've got to fight it. We're going to juice this sucker even more.

[00:31:56]And so like that's that's a a very clear contemporary example of how oh well you know this this conversation about uh productivity growth and and lower prices can directly lead to disastrous monetary policy because of just the the the larger uh the deflation phobia to use a solo term that is so baked into the pro the entire you mentality both of the central bank and good macroeconomics and and very serious institutions as a whole. Um, and that is something that again I don't think Wars is necessarily going to cheerlead uh questioning.

[00:32:26]>> That's a good point. I do want to go back to uh the issue of forward guidance. Uh this is something that um he noted that Worsh noted more than once that we're not going to give forward guidance anymore. Now they said that before, right? like back under Powell, in the earlier years of Powell, back before inflation started to get pretty bad and the wheels started to kind of come off on this myth that the Fed has like a multi-year plan and the Fed knows what it's doing a few years out and it has this uh gradually unfolding brilliant genius uh monetary policy uh sort of um I I don't even know what you would call it. It's a it's a narrative and it is it is just a it's a stated plan for or at least it's what they're telling you is that they have a plan and then they drop a few hints about what this plan is and that's forward guidance and they used to kind of like really emphasize that that here we're going to tell you we're going to give you hints about what we're hoping for and what we're going to do and we're going to do go going forward and that was explicit forward guidance uh combined also with the the dot plots where the members would basically say, "Okay, we think the unemployment rate is going to be this next year and the year after and we think um the inflation rate is going to be this this year and the year after and so on." Well, they scaled that back, right? Powell says, "Oh, we're no more forward guidance basically." They did keep though the summary of the SCP and they do have the dot plots still. So, that's a form of forward guidance, I guess. I guess we're we're using forward guidance light now as opposed to what was the story back in 2021.

[00:34:14]All right. But apparently we're now getting rid of forward guidance light because he's kind of hinting I don't like the SCP. Uh maybe the dot plot's no good. I'm not going to submit my own dot. U that's I mentioned to throw earlier. That's a fun thing. Right now we submit dots. Uh, we have a dot. I didn't send him my dot. I I kind of talk about Fed speak sort of stuff, but >> active rebellion.

[00:34:42]>> I should know, by the way, that there's no correlation, of course, between what these hack frauds say will be the inflation rate two years from now and what it is, right? If you go back, right, because now they're saying, "Oh, we'll have inflation back down to 2% in 2028." It's fun. Here, try it yourself.

[00:35:00]Go back to the old SEPs and look at what they were saying will be the inflation rate two years out. Inflation's always 2% two years out. They're always saying that. Oh, we'll get it back down to 2% a year from now, two years from now.

[00:35:13]They're always saying that. And then each year comes by, it's not down to 2%.

[00:35:17]And they say, well, just kidding. It's actually two years out from now, not two years out from two years ago. That didn't come true. So now we're going to try again. So that's how the SAP works.

[00:35:27]It's just right. It's a political communication. It's there to plate the masses to kind of give people the impression that they have things under control. But here's the part where I get to complimenting Worsh.

[00:35:39]Uh he actually had he said one thing that was actually insightful and true.

[00:35:43]Um let me break it up. Okay. So they asked him about right. Well, if you're not giving forward guidance, won't there more be more market volatility? They asked him. one of the reporters asked and he actually he said good things in in response to that question. He said financial markets perform best when they react to incoming data. I think the financial markets work less efficiency less efficiently when they ask how will the Federal Reserve react to that income information. So what he's saying is he wants to see the markets react to information on their own market information, not react to everything through the filter of what will the Fed do in response to this. He says the more that markets are paying attention to what's happening in the real economy, deciding what's good data, the more financial markets can price what they believe is the most likely and what are the tail risks. Financial market prices are probably the most important source of information to guide central bankers.

[00:36:48]But when all the financial markets are doing is reflecting back what we've said, we're taking the most important source of information and being blind to it. So on that portion of the test, I think Worsh gets an A+. Everything else is an F, but on so he averages out to Dminus or whatever for this particular press conferences. But on this on this thing, uh, pretty good because he's saying what we've been saying for years, right? There is no market anymore in the sense of how are how's the financial sector, how are firms responding to market information, to things like earnings data. If you're very very old like me and you were like investing in your early 20s, um, you used to read stuff about stock prices and so on where was about fundamentals, right? What is profitability? Where is the economy heading in terms of productivity? What is what is the state of the real economy? There wasn't nearly as much talk about what is the Fed going to do with this information 3 months now. Now, it mattered, of course, what the Fed did, but there wasn't this constant constant thinking and filtering every single corporate decision through the filter of what will the Fed do, right?

[00:38:04]And that's and then you get this absurd stuff where the unemployment rate goes up and the markets go crazy because they think, "Oh, unemployment bad. That means lower interest rates. That means more cheap debt for corporate America. Stock price soarses."

[00:38:22]Um, wow. That's an interesting way of going about it, right? Because it has nothing to do with are these companies becoming more efficient? Are these companies investing well? Are they engaging in good capital accumulation?

[00:38:35]No. Bad news is good news because if the economy stinks, the Fed will come in and lower interest rates and then we should assume everything's great. So stock price goes up, worst economy gets. This is where we've ended up thanks to doing what Worsh is condemning here, which is everything's about how's the Fed going to interpret this data. So that's great that he said that. That should be quoted. I don't I don't think it's going to lead to any real change of any kind, but that was a an a good observation by war. Yeah, that that was the kind I was alluding to earlier like that to me like getting that sort of critique from the Fed shares like is is is to me pretty remarkable and again we'll see what comes out of it and you know again I don't think we're just going to say the Fed or you know I don't think you can say the Fed but but like hearing that particular critique is very very fascinating from coming to a Fed share like and I just that that that might be why I'm I'm grading hell a little bit higher than the rest because I just I was so I thought that comment alone again getting that from that position is is something that is is is definitely noteworthy. It's refreshing if nothing else. Um that said to to be the pessimist again. Um the the problem to me comes in with his solution because I this whole dynamic that he was talking about that you were laying out there, Ryan, drives me absolutely crazy. And for me, like it's basically been the entire time I've been following financial news, it's everything is just about what the Fed's going to do. But that is a symptom of the fact that so much of the economy is reliant on easy money. That is the actual problem there.

[00:40:05]The problem is not just that the Fed's putting out too much data. It's that that's actually the biggest factor for all of these companies and all these industries out there. And so I guess just looking forward, it seems like his plan is to leave all that in place. So the actual root of the problem is still there, but then take away some of the data. And then I just think it'll be Yeah. like the volatility will come because the markets will just have to guess a little bit more. they'll be a little bit more in the dark about what the Fed is planning on doing, but they're still going to be chiefly concerned with what the Fed is doing.

[00:40:36]And that's because they are so reliant on those low interest rates and all that easy money. And so, um, yeah, it was so refreshing to hear him say that. But when you don't, you try to dance around the the actual root of the problem there and just go after the symptom by, I guess, taking away some data. Um, I'm not necessarily opposed to that, getting rid of the Ford guidance. I'm a fan of shaking things up. Um, but I'm not really a huge optimist in terms of the changes he'll actually bring on this front.

[00:41:05]>> Well, the problem is if if he let's say he takes takes this seriously. I mean, and that's things like within his public record, he's got very interesting things about nonpolitical assets and he's been happy about gold and bitcoin, all that sort of stuff and all these are very interesting things. The problem is that actually trying to do anything to rock this boat is is is, you know, it requires you like requires a bust. It requires a recession. requires the necessary economic correctives which is poking a whole bunch of bubbles that exist because of these policies. And again, particularly someone that that is coming in as a byproduct of a president who very clearly does not want that. Um someone whose entire career and the Fed and you know his his first time around during the the Bush years was as a a liaison between Republican officials back in the day and the Fed. Um, you know, there's a very clear divide between who does he owe his position to, what has been his particular strength the last time he was in this institution and the rhetoric that he has talked about when he has presented himself as a Fed reformer because you cannot simply um, you know, technocratically manage this problem. You you can't uh you can't have a a pathy press conference and and fix the the inher inherent instability here. And so if you identify the problem, are you willing to do what is necessary to fix that problem? Even if the result of that is great pain, not only in the economy as it exists, but also just the political backlash that has been a a major piece of your success professionally. And that's that's where these things just it's difficult to reconcile these two realities.

[00:42:40]>> All right, and with that, we'll go ahead and wrap up this episode of Power Market. Thank you everyone out there for listening. We'll be back next time with more. So we'll see you then.