Forward Guidance: The Warsh Fed Will Look Nothing Like Before | Joseph Wang

Sourced by podcast-ingest on 2026-06-18. Auto-transcribed via AssemblyAI (universal-2, en). Speakers identified by AssemblyAI Speaker Identification using the per-podcast host/regulars hints; the resulting label→name mapping is in the frontmatter. Duration: 39m. Episode page: (not provided). Audio: https://traffic.megaphone.fm/BWG9128668474.mp3.

Show notes (from RSS)

A new Fed chair has arrived, and the implications could be far bigger than a single rate decision.

Joseph Wang, former Fed trader and creator of Fed Guy, joins Forward Guidance immediately after Kevin Warsh’s first FOMC meeting to unpack what may be the beginning of a fundamental transformation of the Federal Reserve.

We discuss Warsh’s hawkish debut, the end of the forward guidance era, sweeping Fed task forces, potential changes to the inflation framework, AI and productivity, and why all of this could point to a meaningful repricing of risk assets. Enjoy!

TIMESTAMPS:

00:00 Intro

02:22 Warsh Kills Forward Guidance

05:57 Markets Price The Warsh Fed

11:19 The New Fed Task Forces

17:10 Impact On Rate Volatility

19:12 Warsh’s Balance Sheet Fight

23:13 Rethinking Fed Data

27:46 Weighing AI Productivity

31:52 Rethinking Inflation Target

36:17 Warsh’s Hawkish Market Signal

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Transcript

Joseph Wang: And I expected Kevin Walsh to be the Kevin begging for the job. He came out and he was like the Kevin. You always knew it was there. So I think it was a pretty hawkish. I think that the market reaction is in line with the hawkish Fed. He has been a champion of having less Fed communication, and he put that into practice right away. Maybe we don't need an acp. Maybe we shouldn't even have Fed presidents talk so much. Maybe we don't even need that many press conferences. Unless I have something to say. All the task forces are laying the groundwork for huge changes that are coming out to the Fed. You could actually have a significant consolidation of power within the Fed chair. What really stood out to me is this last sentence that where Kevin says the committee will deliver price stability. What you usually see in major tops is rate hikes. Now, we didn't hike rates now, but market is pricing at a hike. So you got all these things coming up together. I think they all point to me to a.

Jack Farley: Nothing said on Ford Guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. All right, everybody, welcome back to another episode of Forward Guidance. And we are recording on a very special day today, June 17, right after the first FOMC meeting from the new chair, Kevin Warsh. No one I'd rather be with right now than Joseph Wang, Fed guy. Joseph, you're. You're the man of the hour for this type of stuff. Great to have you on the show.

Joseph Wang: Thanks for inviting me, man. It's great to be back.

Jack Farley: Yeah, great to be back. We gotta. We gotta talk about how many times people said they hate the name of this podcast now, or at least Kevin Warsh did. So I see so many jokes about, you know, four Guidance is over.

Joseph Wang: Gonna change your name now.

Jack Farley: I know we gotta reaper, so you gotta be a. Maybe change it to Task Force might be the new name for the podcast after how many times he said it. So, yeah, I mean, we. We knew that was gonna happen. He's. He's been a big critic of Forward Guidance. We're gonna. We're gonna spend the next little bit here talking all about the different points that we just learned from this pretty monumental day. Of a new new Fed chair. Why don't we start with that? So obviously we got the statement that came out at 2pm and they, they took an ax to it. Much more concise statement, very little forward guidance, quite intentionally so. So just want to start off with hearing a bit about your take on the statement and then we'll get into some of the other specifics from the SCP and the, the press and the press conference after.

Joseph Wang: Yeah, so his statement was surprisingly brief, like you mentioned. So historically speaking, Kevin has always had, you know, disagreement with how the Fed communicates. So the Fed communication has changed a lot over the past few decades. A few decades ago under Chairman Greenspan, it was, there was basically very little communication and sometimes the chair would hike or we would cut and no one would know about it. You'd actually have to go and look at the money markets to see if the Fed did anything. But since then, under Chair Bernanke, there's been a huge revolution in communications. Chair Bernanke was a big believer in transparency. So under his leadership there was something called the dot plot. So, you know, the FOMC members would kind of guide to where they thought would be best for what rates or employment inflation would be the next few years. And he also began to do news conferences when he would take questions. So these are all things that are relative to new right happened in the past 10, 15 years. And Kevin was always a critic of this. He felt like having all this communication, especially with all the Fed presidents out there talking about that would confuse people. So he has been a champion of having less Fed communication and he put that into practice right away. So if you compare this current Fed statement with the last one, you'll notice that it is much, much briefer and I think it's also shockingly hawkish. Now when I looking at the first, the recent statement, what really stood out to me is this last sentence that where Kevin says the committee will deliver price stability, period. So that's kind of like a mic truck moment for me. And it reminded me a lot of Chair Powell's Jackson Hole speech A few years ago when inflation was raging high, Chair Powell went on stage with a very brief statement, said something to the extent that there would be some pain, you know, tightening is coming. And then he sat back down. So I got the sense that Kevin is aiming with a similar effect, trying to tell everyone that aisle the Fed is going to, I think, be more determined to get inflation down. So both a change in the tone in this, in the, in the statement and also Changing the format like you mentioned, it's a lot more terse, 100%.

Jack Farley: Of course, they didn't actually hike rates or do anything today in today's meeting. It was an SCP meeting, summary of economic projections and the rest of the FOMC meeting committee submitted their dot, their forecast. But of course Kevin Warsh did not. So we, we don't actually know what his forecast is for the path of the federal funds rate and the economy over the next couple years or so. But the fact of the matter is, is that if they're committed to price stability and you know, getting into some of the points from the press conference, Warsh mentioned multiple times about the fact that, look, you know, inflation has been above the 2% target and he doubled down on how important that 2% target is for them still. But look, we've been above the target for multiple years now and we're going to get price stability. But then, you know, you have Nick Timoros who, who asked a really direct and punchy question, said okay, well look, if, if inflation's above 2%, why didn't you hike today? What's your analysis there on, on the fact that we didn't actually get any sort of hike despite them saying that.

Joseph Wang: So I think notwithstanding the effort to get rid of forward guidance, forward guidance is still there. Right? We still have the dot plot, even though it was not in the language statement. Don't have to change the name of the show just yet. But through that dot plot though, you can see that the rates market reacted immediately to what both the statement and the dot plot. And you can see that the market is now pricing in a little bit more than one hike this year. So the entire curve basically shifted upward. The third, the long bond actually went, went down a little bit, but the, the front end and the, and the belly went up a bit in rates. And so that tells you that the market is actually already tightening a bit. So he, he didn't have to actually hike. He did tighten financial conditions and race rates just by his communication. And I think if you take a step back, it's really remarkable on this journey we've had over the past few months, right? We entered the year with the market pricing in a few cuts and then boom, we have the war with Iran, oil prices go up, inflation surges and the market began to price in price out those cuts began to price in hikes. And even after the recent resolution when we have oil prices come down, the market still is pricing in some hikes. So it's been quite a Quite an evolution over the past few, few months.

Jack Farley: Yeah, I mean it does still seem like the, the dot plot has a lot of power because I mean if you just look at the price action and the two year, a lot of the selling off there and the pressing into those hikes seem to have occurred right when the SCP came out before the press conference. Seems like a lot of the hawkish reaction to markets actually mostly came from that. And I'm trying to square out how much of this was just the FOMC and the dot plot marking the market where the SOFR market has been for a couple weeks now. We've had a hike priced into the curve by the end of the year for a little bit now. And now it seems like the SEP and the Fed is just getting to where the market has already been. Is that, is that sort of how you see. Obviously there's been a little bit more of a further excessive reaction. You can just see in the two year, but it feels like it's more so just meeting where the market was already at. Do you see it that way?

Joseph Wang: Well, I mean we're a bit more hawkish than they were a few days ago, so. So the SOFA market prices in what it thinks the Fed reaction function will be and I think it's going to have some difficulty right now as we transition from one Fed chair to the other. Now going into this meeting, I actually would not have expected it to be this hawkish. The reason being that if you listen to what Kevin has been saying, when he was auditioning to be a Fed chair, he was doing everything he could to try to justify rate cuts, right? First it was about AI productivity and then it was like, you know, the cpi, pce, that's just not a good measure. A really good measure is trim mean PCG guys, and it's telling you that inflation is coming down. So he was doing everything he can to do that. And then you had all these other people who were like, you know, the standard way that we approach these negative supply shocks, these energy shocks, is to look through them. That's what the Fed did during the Iraq war. That's what the Fed did during Operation Desert storm in the 1990s. Standard central banking. Now you had some people began to remember that, you know, we've had too many supply shocks. We got Covid, we got tariffs, we got oil. We can't keep looking through this. But we had huge declines in oil prices in the past few days. So if you still had that same Kevin who was campaigning for, you know, rate Cuts you had still had standard, standard central banking operating measures you would have expected with oil prices coming down, they could actually look through this. Especially since the most recent CPI data, if you, if you look at month over month core, it was actually a pretty tame 0.2%. So they had enough cover to look through this and so deliver something that was at least not hikes, but maybe just affirming the current, current rate. But they didn't do that. And so I think the market is learning about what this new Fed reaction function is and at the moment it's tilted to be a bit more emphasize a bit more on inflation, so a bit more hawkish

Jack Farley: based on that reaction function. Do you think these hikes actually happen? The committee is pretty split, you know, like nine of them are talking about hike. We don't actually know really where war stands and that's by design, but obviously there's a lot of difference between what gets priced in and what actually happens. Do you, do you have any thoughts there?

Joseph Wang: No, I don't think we'll hike this year. So yeah, on the one hand you can. Energy prices are coming down. They're going to come down maybe rapidly and so that is going to have a disinflationary tailwind coming forward. Why would you be hiking rates when inflation is, is going to start coming down? And the second thing is if you look at the equity market reaction, there's some possibility that equity markets could have, you know, a bit of a correction. And if that happens, I think there, there's even less justification for the Fed to, to continue to hike rates. So I think my base case is that we just keep where we are for the coming months and then I guess we'll revisit this as the data and we got a lot. Listen, a lot of things are happening in the world. I never expected us to, to go to war in the Middle east. Maybe the President would take Cuba next, I don't know. But you know, a lot of things keep coming up. So. But my base case is that we just hold rates throughout this year.

Jack Farley: Yeah, 100%. All right. So during the press conference, one of the big announcements was these new initiatives or task forces that Kevin Warsh announced that he was going to pursue that go across a few different key themes and yeah, I would love to just unpack each of them because I do think they are pretty consequential for how Fed watchers such as us and just the broader market think about things. So the first one is around communications. So obviously, as we've already talked about. Warsh has been a stern critic of the usage of forward guidance. It, you know, it's a lot of, it's pretty valid. It was very useful at a time when rates were at zero to provide some sort of, you know, forward guidance while we're at the zero lower bound. But we're not in that world anymore. And so the, the, the main points of contention for that part of the task force seem to be about the number of press conferences. You know, Worsh mentioned in that conference today that their press conference is really good when there's something to say. And he had something to say today. We'll, we'll see how many we get. But there's that component and then of course the SEP related to that. So just specific around this communications bucket of the task force. I'm curious about how you're thinking about that one.

Joseph Wang: First off, I'd like to take a broader view. Just why is this veteran getting on stage and telling us about task force? Right. What is this? Right. Some kind of compliance training. So I think it's really important to realize what this is actually doing. So if you are in a big bureaucracy, if you're, if you're anything, you got to have things move slowly and you have to have a lot of COVID You have to have documentation, you have to have to have support. Now as an example, when I was working at the New York Fed, there was a, you know, there was a whole bunch of senior managers there who'd been there for a long time, gave hit the ceiling on the salary grade there over there. And so these guys got together and they said that, you know, guys, I feel like our management is very cumbersome and so we could benefit for another layer of management. And so if we have another main layer of management, we, we will work so much better. I think everything will be great. And so they came up with this idea and they sold it to HR and to all the other stakeholders and then they got the okay for that. And then they began to interview people for this super tier of management right tier above them. And it took a long time. And they had all these very talented people come in from the private sector throughout the Fed to come interview. And after many months of interviews, they finally revealed to us who they had chosen.

Jack Farley: It was them.

Joseph Wang: It was them. It was them. They got the promotion, they got more headcounted. Everything was great. Okay, so this is healthy work. In bureaucratic organizations, you need cover, you need buy in, you need paper trail. This is especially so for the Fed because It's not just that you have other governors, other voters on the committee. You also have to be responsive to Congress. You have to go Fed chair, sit at Humphrey Hawkins, answer all these questions, you know, some of them from people who are not your friends, right? So you can't just stand up and be like, you know, I, Kevin Walsh, first in my name, defender of price stability, declare that the S and P is not good. You have to be able to say, hey, I'm making this big change. But it's just not me, though. I have this huge task force. There are like 50 people there. You got these big professors, you got these experts, you got these industries people. And some of them, you know, maybe they're Democrats, I didn't ask them, but, you know, they probably are. And so they all said that, well, the scp, they all said that the Fed is communicating too much, right? So, you know, I, I had that sense myself. This is what, what the, the right answer was. But, you know, now that they say it, it makes a lot more sense. Got this big report, and so, yeah, maybe we don't need an scp. Maybe we shouldn't even have Fed presidents talk so much. You know what, maybe we don't. Maybe we don't even needed that many press conferences unless I have something to say. So I think all the task forces are, is laying the groundwork for huge changes that are coming out to the Fed. And we know they're going to be huge changes because we have public record from Kevin over the past decade, and we also have more news of his recent hires. He actually hired the author of the Fed chapter of Project 2025. And so, you know, you can read that chapter, we can talk about it, some of the ideas of what they want to do. So if you want to do big changes to a very bureaucratic and political organization, it takes time and it takes these task force. It's just like the President when he puts on tariffs, right? You want to put on tariffs that can't be legally challenged. Section 301 investigation takes weeks. Now that you have the investigation in hand, you do your tariffs and you are on sound ground. Same principle here. So I think what could happen with the change in communication is you could actually have a significant consolidation of power within the Fed chair. So this meeting was very good. We got unanimous vote, right? No one dissenting. The last meeting was kind of a circus, right? You got three people dissenting. They wanted to be a bit more hawkish. You got one person descending, wanting rate cuts. So how is the market supposed to interpret that a lot of the power of the Fed in controlling interest rates is going to be through forward guidance whether they give it explicitly or not because the market will always have to price in where they think the market where the path of rates would be. Now if you are a Fed chair and you control the message, you don't have all these people dissenting, you don't have all these hawks saying whatever that gives you a lot more influence over the path of policy. And so maybe that is one thing that could happen. There would be more rate volatility. But as a Fed chair that is probably not super popular and maybe want to do things that most people don't agree with. I would like the other people who disagree to not be heard. So maybe that's, that's one thing that could happen.

Jack Farley: Yeah. I did want to ask you about the impact of this lack of guidance on ratevol because there's obviously a whole cottage industry now since 08 of funding of like you know, stir market traders, funding market whatever you want to call them. You know, you, you work the other side of that at the New York Fed on, on the markets desk there. There is this huge industry now that exists and that's been existing in this world ever since like Bernanke especially onwards where we've had this sort of forward guidance and now it just feels like it's going to get on anchor so you know, getting into some of the more specific wonkish parts of those funding markets components like how do you see that playing out if we have structurally more volatility in the rates market.

Joseph Wang: So structurally more volatility is actually something that is some people on the Fed actually think is good. Governor Bowman for example is like we should have more vault. This is great. Why? It's because if there's more volatility then people won't lever up as much and so that then you have less possibility of being surprised. Right. It's always what you think is true but just isn't so that it kind of blows you up. And so if you have an impression that you know everything there's no very policy things are really safe, you just lever up. Then when something bad happens and it could be like an out of the blue geopolitical event, then that's how you could get blow up. So I think that having some volatility would actually probably be not as good for speculators but could make the markets more resilient. And yes I understand that would make some people who have current strategies relying on low Volume unhappy.

Jack Farley: Yeah. What about the basis traders? Like the. I imagine like that is just so much bigger now. You've written plenty of times about it. I imagine this could be pretty dicey

Joseph Wang: for them if it were to become very more volatile. Funding costs would be more volatile. Yes. It would be more difficult for them to deliver up on their basis trades and that would make it more difficult for the market to absorb as much treasury issuance as is coming. So, so we'll see. Right now it's, it's still early stages in his reign.

Jack Farley: Yeah, too early to tell for sure. All right. The other major task force that was announced was around the balance sheet, which Warsh has been known to be a pretty stern critic of. He famously, basically resigned as a Fed governor in the early 2010s because he did not really support quantitative easing. In the, in the, one of the few things in the, in the FOMC statement was this commitment to the Apple reserve regime, which.

Joseph Wang: Yeah, that really stood out to me. Why would he say that? Right. That's kind of very much in the background. I mean, just, just for reference, you know, that over since last December, the Federals began to be concerned that maybe reserves are getting too low, too scarce, and that was impacting flooding markets. So they began reserve management purchases where they would print reserves to buy treasury bills. That topped up the, and that really took away the funding pressure we saw in the repo markets at the moment. They've really scaled down those reserve management purchases. I think it's like the 10 billion a month now. And so I think that was something that was subtle. There is really no reason to elevate that to what is now prime real estate. Right. There's only so many sentences we can have in the statement. So I think that was meant to address concerns that the public may have had as to having a chair that is supportive of a small balance sheet. So we all know that Kevin has been saying for the past decade that he would like a smaller Fed balance sheet. The primary concern of that is that when you shrink the balance sheet may be that you have not enough reserves, that results in hiccups in the funding markets. And so maybe by elevating, you know, just reserve levels to that level, it's kind of calming the markets down, saying, hey, we're not going to be, and do anything big here. Reserves are going to be ample. Everything is, is going to be okay. Now that being said though, again, if you want to have a big change under Fed policy, what do you need to do? You need a committee you need a task force, put it together. And so he's setting the ball rolling for, I would imagine to complete his lifelong dream of having a smaller Fed balance sheet. So my full expectation is he would have a big committee. All these people sign off, maybe they're all from the Heritage foundation or something like that. And they'd be like, yeah, you know what, having a smaller Fed balance sheet, great idea by the way. And this is from Project 2025. We should have it be a Treasury only balance sheet. Now this is something that actually has a complete buy in on everything on the Fed. Everyone agrees that we should have a Treasury only balance sheet, no agency mortgage backed securities. So that's something that's already done. The size of the balance sheet though, that's going to need some persuading. You have other people who are just saying that that basically it's stupid to shrink this Fed's balance sheet, which is probably true. But at the moment I think he's kind of building towards that and there's been big changes to the financial system that will actually allow him to shrink the Fed's balance sheet if he wants to. The biggest problem when you shrink the Fed's balance sheet of course is that you're going to have need more people in the private sector to hold Treasuries and that means that you're going to have to have more balance sheet. So either the banks are going to have to buy it or the banks are going to have to to be able to provide financing through repo to levered investors who hold it. Right. So there has been big changes in the banking system to allow that we have on upcoming changes to bank capital requirements. And more importantly, more immediately last year they also unleashed the asset cap for Wells Fargo. And Wells Fargo basically immediately began to lend a lot more in repo to the tune of hundreds of billions. So that's been freeing up balance sheet in the banking system to support the absorption of Treasuries. I expect that to continue and, but it's going to be a slow process and as the groundwork is laid for that, the Fed can more easily just step out of its role as having this huge treasury portfolio. Again, other discussions like whether or not we should sell mortgage backed securities or wait 30 years for them to mature, that's something that they'll have to discuss. But I do think this is just the beginning of big changes that will come maybe within a year or two.

Jack Farley: Interesting. Okay, another one of the, we're just going through the list of these tasks. There's a lot of task forces. There's a, there's a data. A task force as well.

Joseph Wang: By the way, guys, I just want to know. I would love to be on a task force. If anyone is listening, that'd be great.

Jack Farley: Yeah. There you can be in any of these, I imagine. Yeah. All right, so this task force is all about data and this, which really gets into the question of these different national accounts that are used real time versus lagging data. Obviously there's been plenty of talk about different inflation metrics and which are the best to use. There's been plenty of debate around the, the usefulness of the way that we measure jobs and jobs reports because of the amount of revisions. Seems like they want to change that a lot. How are you thinking about what data compositions they're going to start?

Joseph Wang: I think that's a legitimate concern. We have had a lot of big revisions to jobs. Right. Like I believe after revisions, basically all of the jobs last year got revised away. Right. That's kind of surprising. And so it is possible that because of changes in our economy, maybe the, our current methods don't work as well. But also we also have a lot more technology today such that maybe we could legitimately improve upon our efforts. What this reminds me of is, for example, after the great financial crisis, there were many people who were concerned that the official data was not accurately measuring inflation because they thought that QE was inflationary. But it's not showing up in inflation data, thus the inflation data must be wrong. And so you had a huge effort to try to collect measure inflation through non public means. So using private data, you had from that, the Billion Price Project, which was affiliated with MIT and I believe you have today things like true inflation as well. So there are a lot of private vendors who use technology to provide very, very good view of where inflation is. So maybe the public sector could benefit from some of that technology. So I think that's a great thing. The risk of course is that, you know, we do all this and we end up realizing actually the best way of measuring inflation is trimming PCE guys.

Jack Farley: So that. That is always funny how that works.

Joseph Wang: Yeah, that. That is always the risk of doing that. And also remember not too long ago there was a labor market report that was not good and that kind of got someone fired. Right. So again there, there is a risk of more of a politicization of our data and that's very concerning. No matter what your political beliefs are, we have to know what's actually happened in the economy to make good decisions. But we'll give them the benefit of a doubt and say that they want to modernize what has evidently been a process that is very difficult to do, of course, measuring employment and things like that, but it could potentially be improved by things like AI. We do have better tools today.

Jack Farley: Yeah. I feel like one of the valid criticisms that people have had of the Fed is that they're always behind the curve and that's sort of fundamentally baked into it because of the data points that they follow are often some of the more lagging metrics. Right. Like if you're, there's always, you know, for those that don't track the economic data as closely, like you always have leading metrics coincident and then lagging data points. And for the most part the Fed really focuses on the most lagging of data. Like by the time that bad data starts to show up in labor data, you know, things have already been falling apart for quite a while. If they start to move towards focusing on more leading data, whatever it is, do you think that can make them even like too, too reactive or too ahead of the curve where obviously it's going to be a bit noisier too if you go towards entirely leading data like it feels like that could also come forth with its own issues on the other side of the spectrum room.

Joseph Wang: Now, I think the Fed is, is in a difficult position when it comes to that. Let's say they have to act proactively. Right. To avert a crisis and they do that, the crisis doesn't materialize and then, you know, they don't get any credit because it never materializes. Right. So it's, it's always difficult from a political perspective to do that. Now if something bad happens and then you react to it, then you're accused of being too slow. So I don't think there's any win for that from their perspective. So it's just a tough job and no matter what you do, you're going to have people who are going to yell at you and accuse you of being too late or too early.

Jack Farley: Yeah, fair enough. One of the other ones is around productivity and jobs and the AI revolution that's occurring right now. And as you mentioned earlier, Warsh talked plenty about the emerging productivity boom from AI before his nomination and confirmation and seems like it's going to be top of mind here. It's, you know, it's, it's, it's an important question to answer and have a perspective on because it can be, have such large like fat tailed consequences on just how to Think about the economy. So yeah, the fact that they're elevating this to a task force to talk about how AI impacts productivity, I'm curious, how are you thinking about that one?

Joseph Wang: That was actually so that doesn't have, I mean, like you mentioned, the argument is that we could cut rates because we have a productivity boom. Maybe that's what we discover. But so far that you guys can't see that in the data. So their most recent productivity data is just not that special. It actually revisions revise the most recent productivity numbers lower. Now, I personally believe that AI is going to be hugely transformational and hugely productivity enhancing. But how that actually filters out into the economy, what that means for employment, that's something that's, I think it's a little bit more difficult to predict and it's going to play out over, over the coming years. So, you know, when I think about these huge productivity things, I first of all I look at things historically and then I look at my, my own life and so historically, let's say that, let's say agriculture, for example. Like a couple hundred years ago, most people worked on farms. Why? Because if you didn't, you would starve to death, right? You really couldn't produce enough food. It would take hours for you just to produce of work, to have enough to survive. But today, if you look at our Society Today, maybe 1 or 2% work in agriculture and that's enough to support all of us when it comes to food. And not just that people today eat more, eat better than they did than they ever have. And how can such fewer people produce so much more food? It's because of productivity, technology, chemistry and all those other things. So that huge productivity boom also had huge. Okay, okay, that's an increase in real goods and services. But that does not translate into necessarily monetary games or necessarily translate into employment. So as all these people, all these farmers were making more produce, you know, if you ask them whether or not they suddenly became very rich, they'll tell you no, it was ruinous. It was ruinous because when everyone can produce so much stuff, prices go down. So even though the real goods and services you have increase, you become wealthier as a society, everyone eats better now. The prices of those goods went down. And so you basically were ruined and you had to go find work elsewhere. It was either in manufacturing or the, the growing services sector, which at that time was very small. Today it's very big. And new employments were created such that podcasters didn't exist before. And now you have that so what I take away from that and looking at things today is that when you have AI, if you have a big productivity game, we're going to have, we're going to be wealthier, more good than service. Looking at my own life, I can ask AI all sorts of things. I have the knowledge of like the very smartest people that ever lived. Just kind of a snap of a fingertips. The AI organizes, gives me all the research and so forth. So my life is improved in that way. But then again I don't really pay them anything and so I don't see how they're making money. And so that doesn't necessarily mean there is a monetary gain. And that also implies of course that there will be some disruption where we had people who were providing these knowledge works, whether it be, you know, funny pictures that I can post on Twitter or actually, let's say health consultation or something like that, they're going to have to find new jobs. So this whole productivity thing, just looking at the past is going to be disruptive, might not going to make us all better off, might not make any money off of it and it's going to be something that I think is worthy of a task force group.

Jack Farley: Well said. Okay, we're at the last one which is all about inflation frameworks which we've, we've sort of mentioned already about how there's just all these different ways to measure inflation. And of course Trin mean inflation is, is worse's favorite, just also happens to be one of the lowest of them all. But overall, like I am curious about a broader question around inflation which is around Warsh mentioned the drivers of inflation and of course we're talking about this during the context of the Iran war and these energy supply shocks which are just inherently an exceptionally difficult thing for a central bank to react to. I mean we've seen in the ECB they just recently hiked last week. Even though, you know, you can make the argument that you should look through it and that it's going to be a very negative growth shock for Europe especially, but they still hiked. Is there any sort of way to have this correct framing of inflation for the Fed to be able to better react to these supply driven inflation shocks? Because it just, I don't know, I mean the old tale is that there's just no way for them to react well and that's why it's so difficult for them. But I don't know, as they go through this reflection on inflation and these first principle inflation drivers, like do you think there's a better way for them to think about that and react to.

Joseph Wang: Well, I think there's two points here. One is that whereas when you are Fed Chair, you have to tell everyone that, you know, inflation is largely driven by policy that tells people that you have the power to meet your 2% inflation target. That's just obviously not true. Like, inflation is very complicated. It's depending on many things, right? You got tax policy, you got, you know, geopolitical events, you got trade, you got demographics. And for example, looking at this AI boom, you know, these AI guys, they have a lot of cash, they believe they're doing something great. They're going to be building out their AI data centers and pushing up demand no matter what interest rates are, right? So interest rates really play a role in supply and demand, inflation and stuff like that. But just one role, Just a role. And honestly, sometimes not even a big role. So as a first principle, I would say that monetary policy alone is not able to achieve your objectives. Although as Fed Chair, you have to sound like you can do this. So I would say that if you wanted to, if the Fed really were concerned about inflation, they would really have to work with other parts of the government looking at these negative supply shocks, for example. It's hard if you look at monetary policy itself. But hey, you have other places in the government, for example, you got the SBI release, you got, perhaps you could have holidays, holiday on the gasoline tax and so forth to work together to manage the economy. So I would say that in the future, when you, when you're looking at managing inflation and employment, it's going to have to be more of a concerted effort on the government now. But what really makes me, what really picks my interest about the task force, though, is the potential to redefine the inflation target. And this comes in and out sometimes. And what Kevin says is resolutely that before we even talk about changing anything like that, we want to get inflation back to 2%. This is also what Madame Lagarde said when she was asked this question once upon a time. So this is all standard stuff. It's about managing expectations. But one possibility is that you could come out with from your task force that we can have an inflation target of 2%. Guys not changing that at all 2%. But what if we have it a 1% band around that, say 1.5% to 2.5%? Or what if it's 1% to 3%? You know, inflation is a complicated thing. Can't measure it very well. It fluctuates a lot. You know, what if we just have an inflation bad. Wow, okay, well, it's not unreasonable. We can find very important people who support it. And so that opens up the possibility of, of maybe modifying that a little bit. So not saying that they'll do that, but when I hear a task force on this inflation framework, stuff like that, that's my sense. Because seriously, having a point estimate, it's hard to fit to begin with anyway. Right. I mean, it's never going to be 2%. Exactly. So giving yourself a little bit of wiggle room, it makes sense and obviously it's going to bias inflation higher.

Jack Farley: All right, so just to wrap you up here, zooming out on the market's reaction to warsh. In day one, we saw US equity sold off. The dollar rallied, bond sold off two year, especially gold sold off pretty significantly. Precious metals overall, a pretty hawkish reaction function. But just generally speaking, I'm curious about how do you, how do you think this first day played out for, for Kevin Ward versus maybe what you expected would happen again?

Joseph Wang: I expected Kevin Walsh to be the Kevin begging for the job. He came out and he was like the Kevin. You always knew it was there.

Jack Farley: Yeah.

Joseph Wang: So I think it was a pretty hawkish. I think that it was. The hawkish reaction is, is in line with the market reaction is in line with the hawkish Fed. I think everything is consistent. Now, looking at the broader risk market though, it's very obvious to me that we are at a point where there is a lot of speculation in the market. Right. I don't have to point to SpaceX which lost a few billion last year trading at over 2 trillion in valuation. Right. So there's a lot of just momentum and leverage chasing the market. So that's always dangerous and we see that all over the world. You see that in Korea. Right. So the call speed basically doubled this year. A lot of these chip stocks in the US are very appreciated a lot as well. On top of that, you know, you have all these classic indicators of major tops. You have widespread public involvement, you got leverage and you got stocks that go up and up and up. Now what also coincides with tops is that you have now massive increase in equity issuance. So it's not just that SpaceX is coming. So SpaceX actually, even though they have a big market cap, they only gave a sliver of it is available for public, public trading in the coming months. You have lockups unlock and then you have the people sell. I mean, think about yourself as a SpaceX employee who has stock that you just can't sell. Watching the valuation go to the moon, looking at yourself being like a multi millionaire but also, also afraid that it will all disappear before you have a chance to sell. So obviously the first chance you have to sell, you're going to be dumping that all the other long term capital, long term venture investors will be doing the same. So that's equity supply. You got anthropic, you got you know, Google making an offering. You even had super Micro make an offering as well. So everyone is beginning to increase the supply of equities and what you usually see in major tops is rate hikes. Now we didn't hike rates now, but market is pricing at a hike. So you got all these things coming up together. I think they all tore point to me to a sustained and meaningful decline in risk assets. Again, I could be totally wrong and to be totally clear guys, I totally did not think that we would rally so hard after the Iran war. So I got that totally wrong. But I look at what's happening and it looks like it's, it looks concerning to me.

Jack Farley: Awesome. Well I appreciate the transparency, the, the perspective on the outlook and yeah, as always great to have you on during major Fed days, Joseph. So thanks again for joining.

Joseph Wang: Thanks so much for having me.