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00:00 Julie
So, when we are looking at what the Fed might do this year, um, you know, under a Kevin Warsh assuming that he does end up getting confirmed when all is said and done as the next head of the Fed, um, how do you think a Warsh Fed is going to be reacting? You know, we were looking at, I don’t think anybody’s expecting, for example, a change in rates at the next meeting or maybe under, you know, under Powell, that the Powell Fed is sort of done. What do you think the Warsh Fed looks like?
00:39 Speaker B
So the market doesn’t expect a change in rates until June, after the new chair comes in, if if everything goes well for Kevin Wash. and at that point, they expect the market is pricing 60% probability of a hike. So that’s what the market is saying. Um, there are three aspects to focus on on on a new Fed. One is that the mindset is going to change from being excessively data dependent, and that’s what the Fed has been for the last three years after that big mistake in 2021-22, to being more forward-looking. And it seems that the incoming chair is embracing the Greenspan view that if you think productivity is increasing, the safe speed limit for the economy, meaning non-inflationary growth goes up, so rates can be lower. The second element that we will be focusing is on the balance sheet. Um, Kevin Wash wants a theory of the balance sheet. He doesn’t just doesn’t want reactions. He wants to know what is the the optimal size, just like we have some notion what is the neutral interest rates. And then the third thing, the most important thing, Julie, that people aren’t talking enough about is reforms to the way the Fed operates. It’s models, it’s communication, it’s compliance culture, it’s accountability. These are things that if you look at Kevin Wash’s April speech in Washington particular, he this is something that he wants to pursue.