Kevin Warsh: On the American people. As I said in my prepared remarks, the least well-off are the ones who have the most to gain from stable prices. The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices.
Moreover, I would say because of the underlying strength of the economy, because we are, as I mentioned, largely acting consistent with full employment, we can be focused on stable prices.
Some months ago, I said we will deliver stable prices. Today's action is consistent with that.
Remy Blaire: Well, the Federal Reserve delivered its first interest rate hike in over three years yesterday, raising the benchmark rate to a range of 3.75% to 4% and signaling another move before year-end.
Fed Chair Kevin Warsh is framing the decision as removing a dose of accommodation to combat sticky core inflation, pushing benchmark Treasury yields initially back above that 5% level yesterday.
Well, with the Fed now drafting a longer timeline for price stability and Trump renewing calls for drastic rate cuts, markets are weighing how resilient the American consumer can remain.
Well, joining us live to break down the Fed's pathway and the real-world impact on borrowing costs is Mark Hamrick, Founder and Chief Economic Analyst at The Hamrick Brief.
Good afternoon. Thank you so much for joining us.
Mark, so I know that you were in that room yesterday for that press conference. So give us your take. And does this mark the beginning of an extended hiking cycle?
Mark Hamrick: Good to be with you, Remy. And it was good to be in that room. It was an interesting session, that's for sure.
It was shorter than most of these news conferences that I've attended since they began in 2011 under Bernanke, 30 minutes long. And we were instructed to try to keep it to only one question.
I think not everybody honored that rule. That's okay. Reporters like to press, as you know.
But to answer your question specifically, as you set it up so well, the FOMC members signaled the possibility, if not the likelihood, of one more rate hike. My gut tells me it's going to take more than that.
And I appreciate the fact that you mentioned the quotation about the removal of accommodation because I thought that was strange.
And when pressed on the point, Chairman Warsh stopped short, or declined to say, that rates are currently restrictive. So what gives?
You know, in recent meetings, Remy, there's been kind of the would-be complaint that the Fed was talking the talk but not walking the walk, meaning that, you know, we will deliver price stability.
Does a quarter-point rate increase do that? Does 50 basis points do that?
And one of the first questions right out of the box was from a reporter that I think everybody wanted to have ask, so that was good.
That was, you know, this doesn't do anything about the Strait of Hormuz, right? It doesn't get oil flowing again. So how does it address that? Are you going to knock the economy so flat on its back that people are going to stop buying oil and the price flattens out?
That was essentially what the question was getting to.
And Chairman Warsh, I think, had a sophisticated answer to that along the lines of saying, we can't do anything about that, but what we can do and what we intend to do is try to keep those price increases from spreading throughout the broader economy.
I'm not quite as confident about that as perhaps he is, but he has the job. It's his responsibility, along with his colleagues, and the monkey is on their back since they've been so emphatic about saying they are going to win this war against inflation.
Remy Blaire: Yeah. And Mark, it was quite a different press conference yesterday, as you mentioned. A lot of changes and no follow-up questions for reporters in that room who did want to ask Warsh a few questions.
But the market reaction we saw yesterday was interesting in that we saw U.S. stocks sell off, and then we saw the 10 year Treasury yield back above that 5% level.
And in New York afternoon trade, actually, we are looking at the 10 year still below the 5% level, currently hovering right around the 4.95% level.
But how severely will higher long-term borrowing costs weigh on consumer credit, as well as auto loans and the housing market, as we head into year-end?
Mark Hamrick: Yeah, those are the key questions, of course, Remy. Good questions to be asking.
I think it really depends on how steep the curve is with respect to what the Fed does with its benchmark rate. In other words, do rates go up substantially from here?
And to some degree, we can't answer that question with a high degree of confidence because we don't know about the geopolitical situation, let's say, in the coming months.
And if it is as, let's say, durable as it has been already, that's probably going to mean that the Fed does have to continue to raise rates more.
I also was a bit puzzled by the fact that we did have the median projections suggesting that there wasn't a lot of rate hiking still to come.
And that's, to me, at odds with saying we're removing accommodation and we're not saying that rates are restrictive. I just frankly don't see how those pieces of the puzzle align.
But, you know, he's new to the job. I've had some Fed staffers in the past tell me that, you know, one of the first things a new chair has to do is to learn Fed-speak. In other words, you know, how to walk the line.
Warsh obviously is more, let's say, a follower of the Greenspan "more words, but less meaning" than some of his recent predecessors. So perhaps that's part of it.
I worry that there might be some embedded antipathy toward journalists under this new leadership in the sense of, you know, 30 minutes instead of 45 minutes or an hour. Please, no follow-up questions because we want everybody to be able to ask a question.
Well, one way you can do that is have more than 30 minutes.
And the other part is I'm concerned that they might cut back on news conferences. And as somebody who's advocated for press freedom, transparency, all those things in some of my volunteer roles as president of the National Press Club and president of SABEW, the Association of Business and Financial Journalists, where I founded a First Amendment committee that's still very active, I would really, frankly, hate to see the Fed step back.
Having had such great moves over the years, with first those news conferences in 2011 with Bernanke and then under Jerome Powell moving to news conferences after every meeting, not just every other meeting.
But I'm not going to complain about that unless I actually see a change.
And I'm hoping we can at least maintain the status quo with having these news conferences because this is a powerful institution. This is a powerful job that the chair has, and the American people deserve to have their questions asked.
And that's why journalists are in the room, to sort of act as intermediaries on their behalf.
Remy Blaire: Yeah, I do agree with you there.
And Mark, before I let you go, you did talk about the geopolitical side, but I do want to ask you about the political side, especially as we are counting down to the midterms here in the U.S.
Now, Trump immediately criticized the move out from the Federal Reserve, reiterating that rates should be at 1% or lower.
But at the same time, how challenging do you think it will be for Warsh to maintain independence as political pressure, as well as trade tensions, could potentially escalate?
Mark Hamrick: Well, words are one thing, and the president obviously isn't shy about utilizing those.
But let's also think about the fact that, you know, there was this attempt to essentially investigate Lisa Cook, which seems to have sort of stalled or been roadblocked to some degree.
It depends on what that hostility ultimately involves.
If it's just going to Truth Social and complaining and making unreasonable demands that the Fed should be moving rates to crisis levels, you can't both say that the economy is strong and, oh, by the way, we should have crisis-level interest rates. That makes literally no sense.
But, you know, Warsh clearly knew what he was getting into when he took this position.
And let's remember, Jerome Powell stayed on the Board because he thought it was, and thinks it's, important to preserve the independence of this institution. And that's going to be a challenge for Warsh.
You noted, I'm sure, that he did not want to answer any questions about the president of the United States at the news conference because perhaps he felt that that would only exacerbate the rhetoric on the other side.
Remy Blaire: And Mark, we do have to keep in mind that it was a unanimous rate hike yesterday, but the dot plot and the Summary of Economic Projections was something that we zoomed in on.
So we have about 60 seconds here. How did you interpret that?
Mark Hamrick: I thought it was kind of a vanilla Summary of Economic Projections in the sense of there just wasn't a lot of there there.
Obviously, we were looking primarily, first, to what the projections were with respect to rate increases. And, you know, I've already talked about that here.
But in the sense of any adjustments to GDP, unemployment, PCE, the federal funds rate, those were very minuscule. So perhaps the Fed thinks that the situation is somewhat stable.
But also, you know, they talked about a timely return to their 2% target. The dot plot doesn't, or the summary doesn't, indicate it's going to be, quote-unquote, timely.
And that again raises the question: Well, why aren't you acting more aggressively?
Perhaps they're afraid they'll upset the apple cart, do too much and hurt the economy.
Remy Blaire: Well, Mark, we will have to leave it there. But I appreciate you joining us after the September Fed meeting, and I look forward to speaking with you soon.
Thank you so much for joining us.
Mark Hamrick: Thank you, Remy.
