Bloomberg Audio Studios, podcasts, radio news. Here's the latest investors awaiting Kevin Walsh's first meeting as Federal Reserve chair. As warring inflation adds to uncertainty over the direction of rates, Torston's slock of Apollo writing with geopolitical risk easing and FED shair, Kevin Walsh focus on simplifying FED communication. The number of words in the FMC statement could move down
to levels seen under Alan Greenspan. Torston joins us, Now, okay, so a statement comes out, don't need to read it first or just do a quick word count.
We certainly need to read it first because the key issue here is, of course, what style of communication I we're going to get, and in particular, what is the forward guidance? Is that any forward guidance? Is he going to say that we do not like forward guidance. This is still a very very unclear area in terms of what is the communication style and what is Kevin w Wash going to do in terms of what is he going to say.
At the press conference, former Fed Governor Betsy Duke was just on with us. She was talking about how there could be a complete rewrite of the statement, not just a little tweak of the easing bias is that what you're expecting as well.
I think that is something that we should expect as one of the outcomes. We just don't know. So that's the reason why the market, of course, has been used to having very well anchored expectations around the dot plot. The dot plot has been around now for fifteen years. Almost the ACP meaning the forecast, been around for almost twenty years. So most people in financial markets have grown up with very anchored expectations about the economic outlook and
very anchored expectations about what the fab will do. And this discussion about is there an anchor? Is there not an anchor? Of course, it's good to have an anchor in the sense that that's clear then where everyone knows where we're going. But at the same time, if the world changes, then it's not good to have an anchor.
And this is the debate up on the scale, namely, do we want to have an anchor or do we not want to have an anchor that will give more flexibility to the affront seat in this very moment.
If we remove some of that and we remove some of the forward guidance, does that not all things considered make us a little bit more hawkish because we don't have that residual easing by that had been there before.
Yes, and next particularly important if we begin to think about the discussion around rates, because Kevin Wiss has also been focusing on shrinking the balance sheet, and a compromise could potentially be that, well, we're not going to change much communication on rates, but maybe saying that the balancy will be smaller is simplicitly also going to be a
tightening opposed. So it all depends on where the committee stands and where they discuss today and what their outcomes is in terms of how should they communicate, how are they going to signal to your point, Danny that there is still some problems with inflation being too high. We still have a very strong label market, which all argues for that the Fed should be tightening financial positions.
Do you think this is a chair war who will want to sort of galvanize a consensus as Powell had, And how challenging will that be? If so, if he does want to implement something in his words of a regime change for the Fed.
Well, Kevin was knows what he is doing. But I think what is a very important challenge of course for him is that he wants any changes, Basically he needs to have the other eleven members on there from see the voting members on board with whatever he wants to change. So that's why it must be clear also for him he needs to get them on his side in terms of any decision made, because always decisions about not only rates,
also about que qt whatever needs to be changed. In terms of policy, there are twelve voting members and they vote about what do they want to change, And therefore the number of descents also potentially becomes important. When we get the statement.
Tomorrow, do you think we get less FED speak then? With Kevin worsh as the FED.
Chair, Well, that's really challenging because telling the regional FED presidents that they're not allowed to talk more, even the governors that they're not to talk more, that's just not possible. And given we have had a history now of a lot of communication, that means also the market has been putting more weight on the FED chair, and I think the market continues to put most weight on the FIT chair.
And don't you think we've seen more of this robust debate and communication because of Steve Myron who was a Trump appointee. So it would be pretty odd if Kevin Moorsh came in and said, actually, stop talking as much.
Yeah, because we've also had some of course, to your point here, we have some quite diverging views in terms of the dot plot. And this is of course also why the dot plot creates sometimes a bit more confusion. Yes, it may be anchoring expectations, but the stain of deviation of those expectations also get a lot of attention. In other words, how divergent are the views in terms of what's going to happen in the future, And we don't
know which dot is the Fitchair dot. So that also makes it more complicated in terms of the dots coming out actually going to be helpful in the sense of anchoring expectations or do they raise more questions about the uncertainty of what is a disagreement on the committee.
There's also a debate right now whether or not Kevin Moorsh puts a dot on the plot.
Yeah, because he could also decide to This would be highly unusual, of course, that will of course decide he could decide to say I'm not going to put in a dot. He could also decide to say I'm not going to submit my CP forecast, meaning his forecast for he thinks the economy is going, that would be pretty dramatic. So if the goal here for him, Remember the most important job for the FET chair is really to create
consensus about a decision. All books written by previous FAT chairs they all emphasize that a key part of the job is to basically call around to all the voting here from SEA members and also the non voting men, and say, what do you think should be the outcome of this meeting? What is your view? And try to come up with some solution and try to come up with some path where he can get a majority and ideally a big majority for the decision that they're going to take.
It's complicated, but does this week's news on Iran a deal a memorandum of understanding being signed on Friday make things less complicated for FED shair wash?
Absolutely, because one key issue was that inflation is still at roughly three percent in COPCE and COCPI. And the problem is when inflation is three and the Fed's target is two, then now we have at least one good news is, of course that we have enterprises coming down, but we still have a fairly strong economy, getting taiblemints from the AI boom, getting tablewints from the one big
bit of a bill. And we also at the same time have up with pressure on inflation from tariffs still hanging over and putting up with pressure, as several fit posts have been suggesting. So the key answer to your question is he absolutely is absolutely a help. He's helped by the fact that enterprises are moving low. He is help.
But again to your point, tourist, and there's inflation coming from other parts of this economy. So if he wants to lean moresh if he wants to kind of like fulfill the promise that he had been talking to you from Trump, what points to the parts of this economy can he point to you to say we can still get a cut this year.
And the double sort is, of course that when energy prices go down, then we spend less money and energy and we spend more money on something else. And given that literally all high frequency indicators are still very strong, still very strong data from the TSA how many people travel on airplanes, still very strong data on the weekly data from Redbook on how many people are consuming stuff at Walmart and Target and Tjmax. And we also have still very strong data when it comes to Hotel Demain
on a weekly basis. So that just is very little science that no signs essentially at this point of the economy slowing down so too high inflation, strong labor market, that argues, of course for the fit needs to move towards a more hawky stance.