Power Lunch - Power Lunch 7/29/26

Episode Date: July 29, 2026

CNBC’s Kelly Evans and Brian Sullivan take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. ���Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, we've got a crucial couple hours ahead for the markets and your money. Welcome back, everybody, or just welcome to our special Fed coverage. We are in Washington, D.C. with Kelly. I am Brian. And we are just about four minutes, three, really, from the Fed's decision. A couple of key questions for the Fed. Will they try to make a move to tame inflation? The CME probabilities have the odds of a hike at a little under 30% right now.

And we'll see what our panelists think. Yeah, and let's get right now to that All-Star panel who we dragged down to Washington with us. minutes away from the Fed decision, David Kelly of JP Morgan Ascent Management, Jim Carrot of Morgan Sainley Investment, Francis Donald of RBC Capital Markets as well. Welcome everybody. I love it. David, first to you, your expectations for today. No rain hike. And I know Kevin Warsh doesn't like to do forward expectations or forward guidance. But the issue is dissents. Will there be more than two or three desents? Because it's kind of like in poker, you know, the tell and poker. The dissents of the tell here. We'll know whether this is a hawkish committee or not, the number of people who dissent in favor of a hike. Jim? Yeah, I'm going to say that there's

going to be no hike today. In fact, I'm going to also make the argument that there'll be no hike all year, so I'm going to disagree with the markets. Patience, I think, is really the key operating factor. And it's also going to be a question of what their policy reaction function is going forward, how they're valuing inflation, supply side shocks, things like that. We'll see if the statement gives us any clues or the press conference. Francis, what about you? I have a draft for a hike and a draft for a hold, but I did spend more time on the hold one because that's our expectation, but a hawkish hold.

And I'm going to agree with David, the clue is going to be in the dissent, but also in the press conference, how much emphasis do we hear Warsh put on inflation versus labor? Last time he mentioned inflation 14 times and labor only four times. Is it more balanced this time or even more towards inflation? Okay, but you do wonder like Warsh doesn't like a wordy Fed, Francis, you know that.

You wonder if we will get the same from a press, maybe it's a short press conference. maybe he ends the press conference down the road. Don't worry. We'll squeeze the juice out of whatever he gives us, and that's the big challenges. The less words you give us, the more weight we might put into all of that. And remember, there's other Fed Speak. And most importantly, there's data that we're going to get in the next six weeks and over the next few years.

Warsh wants us to look at the data. First, that might be the most important takeaway that he leaves us with today. David, could we end up with kind of a situation where the markets, I'm going to try to put this the right way, wrong about the near-term, hawkishness. Like it has more of Jim's point of view that there, but that he actually is, his tone is more hawkish, but that the actions are not. That's exactly where I think we're going to end up. I think if we get three descends to the market's going to say, oh, they're going to hike. But I actually agree with Jim that, you know, if it's an oil shock, that is the rest of the

economy outside of AI is not booming here. And there's really no good that can be done by hiking rates right now. So they shouldn't do it. And I think the majority of the FMC actually probably think that. What about inflation being over target? It's not the Fed's fault and they can't fix it. This is a supply side issue. It's coming from the other side of Washington. We're running around Washington today. I can see a lot of people to blame, but it's not the Federal Reserve. Yeah, you're pointing at the Capitol building behind us in the shot because we are in D.C.

All right, heading into that Fed decision, we've got stocks. They are down across the board. Oil and interest rates are slightly up. Steve Leesman has that Fed rate decision now. The Federal Reserve keeping interest rates unchanged at three and a half to three and a quarter percent. However, the vote was nine to three with three dissents. Logan from Dallas, Hammock from Cleveland and Kuskari from Minneapolis, all dissenting, and the three dissenters preferring a quarter point rate hike.

Other than the notation for the dissent, the statement was exactly the same as last mother, virtually the same. It said economic activities expanding at a solid pace, despite elevated uncertainty. The source of that economic uncertainty is the conflict in the Middle East. It noted strong productivity growth and capital investment, as it did in the prior statement. it says job gains and kept pace with the workforce. An interesting statement that some economists said should have been modified because the unemployment rate fell, suggesting that is not the case.

In any event, the statement says inflation remains elevated relative to the 2% goal, reflecting supply shocks, including in energy. And it ends with the TIRS statement once again, the committee will deliver price stability. That's it. It also adds that notion that they are going to maintain an ample reserve regime in the banking system. Brian, back to you. Steve Leesman, we are not done with you as well. We're going to bring in another voice.

That is our friend Rick Santelli in Chicago for reaction to the bond market. Rick, and you heard me earlier maybe in the show say, you know, whatever the Fed does today, it feels like the bond market has already moved. They've done the job for the Fed over the last few months. What's your take? Absolutely. There's no doubt about it. Just consider this.

Where was the two year at the last meeting? 405. Where is the 10 year at the last meeting? 444. Where was the dollar at the last meeting? 99.54. And here's a really cool one, Sully. Where was the Dow Jones Industrial Average?

It was at 51-999, which was in the range about 30 minutes ago. So virtually unchanged on stocks, the dollar index higher and interest rates higher. And you see that the two-year and the 10-year have gone lower since the statement was read. You know, I know they're all concentrating on. dissent, but I'm not concentrating on dissents. I'm concentrating on exactly what you pointed out. The market's doing what Kevin Moore's knew it would do, and it's going to, at some point, get messy, because in order to have a reaction function, you have to have a reaction that doesn't really match, you know, the market is thinking something that the Fed doesn't do.

That's what's going to be the learning curve, and we will get there at some point potentially. But it is possible if the runway's long enough with numbers like tomorrow after the logic of no rate change today and we get PCE tomorrow that we will start learning a little bit by watching how the Treasury market reacts to some of this data, which is exactly where Kevin Warsh wants to be. And I'll point out one other issue that I think is important. And the guest pointed out, we have some smart guests there. Supply shocks, I'm sorry, rates aren't going to cure that. Now, that doesn't mean there's not knockout effects, second round effects, but we're not quite there yet.

To me, we're looking at the wrong energy area, Sully. We should be looking at the fossil fuels. I'm pretty convinced that at some point that's going to take care of itself. But it's the electricity, okay? It's the kilowatt hour, the AI slash data centers and how it's going to affect every mom and pop in America's electricity bills, and that is going to be something that I think the Fed may have to deal with at some point. I'm not sure if rates are going to cure it.

But that's the seeds of the inflation I'm most concerned about. Back to you. Thank you, Rick. And let's look at the broad reaction here as we turn back to our panel. David, we see the NASDAQ trying to turn positive. The Dow had been down 800 points earlier. It's a little bit of a comeback. The dollar's weakening.

So in other words, a sigh of relief, which makes sense if we're taking out that 30% odds still of a hike. And now that we're getting the answer, which is not today. But I still think that this is kind of where we thought we were going to be, which is we get these dissents. But the real problem for the Fed now is that the market is pricing in a rate hike in September. And so how does, if they don't intend, yes, but if they don't intend to do that, and they don't intend to do any forward guidance.

But what if he wants them to price a rate hike in September and they continue to not deliver it? But he also wants credibility. That's exactly a way to destroy credibility. So I think he's going to have to, he's got an interesting dance at this press conference. He's going to have to try and explain why, if they really want price stability, they still see wisdom and not, I mean, I agree they shouldn't be cutting rates, but not by his framework. His framework says they should be raising rates at this point. And he needs to explain why they're not.

Francis Donald, I think you would agree, knowing you, and I'm quoting Francis Donald to Francis Donald, knowing you in your writings, Rick Santelli said something, I bet you're champing at the bit. And it is champing, by the way, it's not chopping. Champing at the bit to get to, which is, what is the Fed going to do about higher electric rates? What is the Fed going to do about higher home insurance rates? What is the Fed going to do about higher auto insurance rates? They can't do anything. And people act like higher rates are some sort of solve for inflation.

Guess what higher rates do? They're designed to slow the economy, which would then slow down the pace of price increases because the economy slows down. I don't know what the Fed can do with any of that. That's the big challenge. I'm going to agree once again with David. 39% of the components in the CPI basket are rising above 3%. And almost everything that America,

Americans buy every day from food, rent, electricity, daycare. You know, good luck if you want to make a salad. Lettuce prices are up 32 percent and tomatoes are up 20 percent. This is a real inflation problem that's hitting Americans, but it is not a problem that the Federal Reserve can solve, particularly not with 25, 50 or even 75 basis points. So Warsh right now has to explain why he's committed to his inflation target. He's committed to solving the problems of inflation, but he's going to hold at the same time. Sounds like we're speaking a little bit out of both sides of our mouth. The statement, once again, is Hemingway-esque, Jim. It is almost a haiku.

Four simple statements, four simple paragraphs with a couple of statements in there. What we've heard from people is this question of whether they'll start to explain their behavior more in this statement. I would say that this does not. It says they've approved a 9 to 3 vote to maintain the target range, maintain ample reserves, activity is expanding. They add due to elevated uncertainty in part to the conflict in the Middle East, productivity and capital investment are strong, job gains, blah, blah, blah. Inflation remains elevated in part reflecting supply shocks. The committee will deliver price stability. So to me that sounds like it's not an explanation of anything, but they are asserting a point of view, which is that inflation

is in part above target because of supply shocks. Yeah. So look, you're citing Hemingway, so we have to talk about the sun also rises here, right? So the sun that's going to rise in many ways, is that what the Fed is realizing and what the markets are slowly realizing is that monetary policy works on aggregate demand shock. So if you have an overheating economy, wages are going up, price pressures, and this is what's creating it, hiking rates is perfect. As you're pointing out, if it's energy prices, if it's Middle East conflicts, if it's other things like that, the supply element isn't there. Are they ignoring the deficit? I mean, it's all completely fine and true. But in other words, if we didn't have to be,

have the deficit spending going on with the economy broadly, we'd probably be seeing these price hikes adding much more deflationary. The consumer would be under much more pressure than they are. We had retail sales figures by some surveys up 10%, not including the inflationary impacts of gas. So I just wonder if there's an impact there that they need to acknowledge. So they probably need to acknowledge it, but it's going to take time. Now's not the right time to do that. So if we think about fiscal policy as one of the key drivers to economic growth right now, whether it's the one big beautiful bill, tax policy, it's its fiscal policy. A lot of this should add to higher productivity into the future.

And this is what Warsh is thinking about, and he's been very vocal about this point. If you get that higher productivity, you should be able to keep inflation relatively tame. Wage pressures aren't really going up right now. That's not what's generating a lot of this at the moment. We are seeing a reindustrialization of the U.S. We are seeing more manufacturing facilities get built. The service sector, whenever you create one manufacturing job, you create six service sector jobs. So this is a good broadening of the markets.

that's what we're seeing in the price action right now. Let me just correct myself because I thought the Middle East part was new, but it's not in fact. This entire statement is exactly the same as last meetings except for one word. Instead of reaffirmed its policy of maintaining ample reserves, it says, is continuing. So the only change at all, David, was in reference to that. So there's otherwise a statement. So hold on. Steve Leesman is a Ward Smith. He's a song Smith, and I think we've established this show is a movable feast.

If we're just going to continue the Hemingway theme, you see what I did there. You heard about the change in the wording Steve Leesman. Should we read, literally read anything into it? Well, I'd just like to point out I identify more with the old man in the sea than all the other things you guys mentioned, being a desperate and obsessed fisherman. But that said, a couple things. First of all, I want to respond to what David Kelly was mentioning before. The September contract now trading with a 77% probability of a rate hike right now. and there's even a possibility if you get towards December near 50% of a second rate hike that's in there.

So the market is now saying, okay, it's time to move on. I'd also like to point out to what Jim and David were saying is that Warsh has said that inflation is the Fed's responsibility. He hasn't said unless it's a supply shock. And I would point out he was extremely critical of the Powell Fed, which did endure inflation that was at least in part the result of a supply shock. So he hasn't really suggested that there's that sort of out or asterisk next to his comment about the supply check. And that's really what the market is taking, I think, him on his word here. And when he says, okay, we're running above target. We will deliver price stability.

We talked about it in the last hour before the statement came out. There's a missing statement there. Okay, how do you get to price stability? And there's only one way to do it. And that's with rate hikes. I want to make one more point, which is that given if you look at the two years, and the rally there and the 10 year and the rally there and a little bit better, there it is. And what you see is that because of the uncertainty engendered in the lack of any really explanation of the reaction function,

we spent a little more time at a somewhat more restrictive rate than we otherwise should have if the Fed was not going to hike rates. And the market had to price it in. And where was it hedged? It was hedged in the two years, was hedging the 10 year, it was hedged in equities as well as the Fed funds markets. All right. 427 for the two-year, as he was just talking about there. Francis, what are your thoughts? I'm wondering if this new Fed-Warsh makes my life easier or harder when we have fewer changes, then does that mean we have to extrapolate more into the change in some form of adverb? What I think is going to happen is that when the Federal Reserve doesn't give us new information, we have to look for that new information elsewhere. We're probably going to get a core PCE that prints at 3.3% tomorrow.

we're going to get more data that tells us inflation is heading in the wrong direction. Core inflation has been rising since April of last year. And so this redirection towards what's happening in the generalized economy, I think, is going to create more action. We've talked about volatility around the Fed. From my point of view, this means more volatility around the economy and why economists, I think, will actually become more important and perhaps this works out to more work for me. Uh-huh. Jim, do we change how and where?

we invest right now based on what we just learned. Now, I think the statement, as we pointed out, is almost exactly like the last statement. What the Fed is effectively doing is they're invoking some patience. This is allowing the economy and allowing the markets to correct a little bit. So we're seeing equities suffer a bit. We're seeing bond yields rise. What you're getting is a tightening in financial conditions.

So you are getting this tightening that's taking place. However, the long-term trend, I still think for the equity markets are positive. So what that tells me is that we can think about this and buy into some of these dips because the Fed is telling you we're not getting in the way of this. We're likely not going to hike interest rates and kill and crush the markets. So just to back out to a 30,000-foot view, they're not at the point of hiking to quash the bubble, whether it's the dot-com years of the housing. Is that kind of what you're saying?

They're going to let it ride? I think there's, well, I think there's been a lot of structural changes that have already taken place in the economy today with a lot of the investment through the town. tax code, fiscal policy, and things like that, that is the underpinnings, whether it's AI, CAPX, all the expenditures. That's the underpinning that's going to drive, I think, equity price is higher. Are we going to be volatile? Are we going to worry about return on investment and CAPX spending? Of course we are. Right. Look at the chips again today. Chips again today and things like that. But I think these are blips. I don't really think that this is changing the trend. So does it

change the way that we invest? No, we're still overweight equities and we're still underweight duration a little bit in bonds. You know, Rick, you go back to inflation, you look at the bond market the last couple of years, and you say, well, higher auto rates, all the stuff we just talked about. You talked about electricity, healthcare costs. None of that's going to come down. Is it? I mean, unless you crash the economy, I don't see where these inflationary pressures of the last five years are going to come down. The bond market appears to be reflecting that sentiment. Am I reading it wrong. No, you're reading it right. As a matter of fact, what I would like to tell Steve, if you was standing here next to me, is that the interpretation of what's happening,

first of all, in the September meeting, we have PCE tomorrow. That 71% could easily be 40%. So be a little careful about that interpretation. Second thing is, and this is to your point, the market today, two's tens, is steepened five basis points. Two year yields down, 10 year yields up. It agrees with you. That's why the two year yield is down a bit. The other issue is that even if Worse does not say that supply shocks aren't the kind of inflation, I'm not going to try to control, that doesn't mean that's the correct interpretation. Once again, Sully, you're right. Because let's say he does tighten for a supply shock that hasn't really resulted in knockout effects yet.

The market may do exactly the opposite. When the Fed started easing in 2025 and 2024, when they lowered rates and the market yields went up, Well, if they raise rates for the wrong reason, maybe the market yields would go down. So I think there's a lot of moving parts here. Conventional wisdom always wants to be easy, look at percentages, and that's exactly what worse wants to get away from. So I think that the press conference will be interesting because even though there's no forward guidance, the reaction function is kind of a semantics way around that, and I think

we're going to be learning how that works. David, I think of, well, there is another way to possibly get rid of inflation, which takes longer, and it's kind of the, you could compete it away. In other words, so I'm just curious when we talk about this, one of the things that makes it so hard when it's the price of oil and when it's the lagging effect of all these increases. It takes longer for the market to work in certain areas than it does in others. But I think we're looking at this backwards. I mean, the anger that people feel is not about today's inflation. It's about inflation over the last five years. And the problem is that you can't put that genie back in the bottle. Once the inflation has occurred,

people say, how are you going to get my prices down? They're not going to get your prices down. I'm about to tweet it out. You can't get prices down. You can't. They're never coming down. But you know the funny thing is, what you actually need to do is gradually push wages up. And the irony of this is that the reason I don't think this inflation is sticky here is because

wages won't go up. But the real problem is, you know, once you have a bouter supply-side inflation, the only way you bring everything back to equilibrium is actually allow the wages of lower income workers to go up and maybe take it out of the top of a little. signs there. I mean, the B of A data, I mean, they're seeing an acceleration in their lower income. There's some, but we've had three straight months now in which the wages of production, non-supervisory workers are actually below inflation year over a year. So you just cannot get prices to come back down again to where they were. That's not going to happen. And the Fed

shouldn't try and achieve it. So the question is, is how do we make a $20 hamburger affordable again, right? And the way that you make it affordable again is not that the hamburger is going to become less. It's just that your wages are going to go up more. And that's effectively what we're trying to do. That ultimately is the only way you get back to an economy, which feels like it's working for most people. Although we also feel frustrated to pay $20 for a hamburger because we've got used to it though. We don't complain like we used to I think people realize it's not coming back down. They realize it's not coming down. But it doesn't feel any better. I'm not saying people aren't annoyed $12 to $20. You're like damn it.

But it's not going back to $12 or even 15. If you broaden out employment, you get stronger wages, you get more manufacturing and you have more cap ex that's leading to all this. That's what helps it. And then you also then you also try not to be irons. responsible in terms of causing supply side shocks and causing overstimic the economy through bigger deficits. You've got to do other things, as I said, on the other side of Washington. I'm actually glad Francis is not here on set with us because she gets paid in Canadian dollars. She's probably ready to throw something at us right now because she's like, you want to talk

about inflation. Get paid in Canadian dollars. France, we'll let you comment on that after the break. Rick Santelli, Steve Leesman, thank you both very much. We're not done. We're minutes away from that Fed Chair Warsh's press conference. We will take it there live as soon as it happens. We will take a quick break.

Will Francis yell at us right after this short break? Stick around. Welcome back to our special coverage of the Fed's decision on rates, which they just issued 20 minutes ago. It was a hold if you missed it. Descents, though, 9 to 3 statement unchanged, basically. Let's check the markets. That's where we're seeing a little bit bigger reaction.

Although, look at this. We briefly saw the NASDAQ turn positive after that statement because they didn't hike, but now it's back to where we started. The Dow is actually down 812 points right now, so we're pretty much back to session lows. The tenure, the two-year, call it kind of unchanged on the day. We have so many people standing by the way and before we'll hear from Warsh himself. In fact, you'll probably hear more now than we will from him, but we'll see. David Kelly of J.P. Morgan Asset Management, Jim Karen of Morgan Stanley Investment Management.

Francis Donald is joining us from RBC Capital Markets. We have our senior economics reporter Matt Peterson. Jay Woods is here. He's the chief market strategist at Freedom Capital Markets, and Peter Bookvar, who is CIO at one point. goes over after all those entrows. And I'll take a breath. Peter, what jumped out to you?

Actually, nothing. I was not expecting a hike, and I thought they'd be two to three descends with uncertainty about Kashkari. So it all comes down to the presser. So, Peter, why aren't the markets, why are they reacting the way they are? Which is either you could read this as they're still in a bad mood today, or there was no reaction to the somewhat doveish surprise. There's so many interesting cross currents here.

Coming into this meeting, inflation expectations in the tips market have collapsed to the point where the two-year and the five-year break-evens are well below where they were entering the first weekend of March when the conflict began. Kevin Warsh has been sitting next to Stan Drunken Miller for many, many years. He looks at the tips market for some signaling. Now, also putting that aside, you know, the bond market's already tightened. The two-year yield, the 10-year yield, or up about 20 basis points since the June meeting. So I understand there's a lot of angst about whether the Fed was going to hike or not, but the bond market's already done it. Yeah, that was the point, Francis, that we made to Rick Santelli. Listen, what do you look at? We can look at the dollar index.

I was sort of semi-joking about currencies before the break. The dollar index is under 100. Peter Bukfar referencing the tips, Treasury, inflation protected securities market. What are the sort of one or two things that you and your team watch the most closely right now? Well, you mentioned my pride Canadian heritage, and one of the things we're watching is not just how the Fed is responding to this environment, but how global central banks are responding. Because it's not just the Federal Reserve that is dealing with an environment that has supply shocks, is less race sensitive, is much more acyclical. We're seeing this challenge globally, and it's calling in the question of what is the rule of monetary policy in this new economy. This is not the Yellen Fed because it's not the Yellen economy. Same thing for a Powell Fed, not being the Powell economy.

What's happening here is a shift away from monetary policy towards fiscal policy being the main tool. And what that means is watch the long end of the curve. That's going to be so much more telling about the future of policy, not just for fiscal, but monetary as well. Jay, how are you reading this? Well, usually the first reaction is the wrong reaction. What did we do when that announcement came out? We rallied. Now where are we as we going to the press conference?

Back to where we started. The tone of that press conference is vital. Equity traders were already spooked this morning because, If you remember, we came in flat and then the spike in oil. All of a sudden, that one big inflationary concern comes right back at us. So I want to hear his no tolerance for inflation when he hits that press conference. He should be pushed. Let's see how long he talks, but that tone and how we close is vital.

You want to hear him talk tough on inflation, even if that means the market sells off even more right now, or do you think it would respond better? No, I think we're in the midst of a sell-off. Last time I was with you, I thought we would probably test 7,000. We were 7,500 at the time. I think, you know, just rip the Band-Aid off. Now we have to wait through Jackson Hole. We have to go to the September meeting.

The chances I just looked it up right before I came on. But now 75% chance of a hike at the September meeting. So the inflationary concerns are there, and it just accelerated again with this spike in oil. And the volatility there is something he's going to have to address. Because right now, given the pullback in some of these semianames and, you know, Mehta and Microsoft after the bell, their spend. I think that's what we'll end up focusing on come tomorrow morning. But coming into

this press conference, I want to hear it stone because it's going to dictate how we close out the day. So look, I think we should watch what's going on at the long end here. I think this is going to be really important because Kevin Warsh has said this is how he measures the Fed's credibility. And if we see the 10-year already creeping up, we saw Kevin Warsh back 2025, said that the Powell Fed had failed after it cut rates in September of the year before, and we saw the long-end co-op. Now, here we are. He's keeping rates flag. Looks like maybe the market is worried about this persistent concern about inflation. Is he going to be able to get out there and say, well, I have credibility even when I said,

well, you bring up a great point, man. I mean, we forget the Fed's last move was rate cuts in the fall of 2024. Still kind of odd. I mean, even if they raised rates 75 basis points, three quarters of 1%, wouldn't they just be taking them back to where they were prior to those rate hikes or cuts rather in 2024, which probably the way, a lot of people, myself included, still don't fully understand. Yeah, absolutely. Look, I think he's got a really tough job here at this press conference coming up in a couple minutes, and let's see how long it goes. Is he going to give reporters as much opportunity to pester him?

I'd be willing to put an outside bet that this is the shortest press conference we've seen in many years. Would you make a bet that it's the last? Remember, the press conference has only been around for a few years? It's not a new thing. It's not going to be the last because he's got to have his task force on communications come back. But he's got very little he can actually talk about. He can't talk about his task forces here. He doesn't really want to talk about that a sense. He doesn't want to give any forward guidance. So the fewer questions he answers, the better he's going to feel.

So I'm willing to make a bet that this is the shortest we've seen in years. What I'm listening for in the press conference is how many times he says the words, task force? Because the reality is, is that we don't really know what inflation metric. We're talking about inflation. We don't know what metric he's looking at. Is it a trim mean? Is it a true flation?

Is it some other shorter time series? we don't know exactly what that is, and that's what the task force is there to determine. So I think whenever he gets a hard question on these things and gets pressed about what's your inflation. What do you mean by inflation stability? We have a task force. I think that's what he's going to continue. Is there a caution contract for how many times he says task force? Let's do it.

You know, I tell you what, Francis, seriously, though, there's been a lot of pushback. You look at that journal piece where they kind of dug in to that dinner. And it doesn't seem like a lot of people on the Fed outside of Mr. Warsh are very happy about the idea that there's going to be other people, i.e. these task forces, tasks force, or no which one is plural, coming in and making the decisions. Like, let's form a committee to look at the committee. Well, markets and economists and strategists, they don't like uncertainty. But what Warsh is telling us, and I know I'm repetitive here, is if you want to know what's going to happen, look at the data.

Take a look at where inflation is going and where the labor market is going first and then will respond appropriately to it. So the most important thing that we can do moving forward is not necessarily read the gossip behind a dinner meeting, although I did find it amusing, is to pay attention to the data. We have a list of, you know, calcium odds on all of these things. There's probably 30 terms on there, but task force isn't one of them. Which means, I mean, maybe it's not yet. They've got central bank, productivity, AI, balance sheet, uncertainty, oil.

I mean, that's where people feel the highest conviction. And data probably. Data, yes, exactly, things like that. I think the question's going to be, does this family fight become a family feud, right? If it's a family feud. It feels like it already is, Jim. That's the point I've been trying to make. Well, I think the issue is that Warsh is trying to change the culture of the Fed by what they look at.

Now, I think that many of the economists on the Fed are willing to give this some time and let the task force works. But if it really cuts against their grain, then I think it can get a family fear. Because the task forces are no more experts in these areas and actually the members of the committee. Yeah, I'm available. And so they will push back if they don't like the recommendations. Matt Peterson, what is your headline right now and what do you think your headline might be tonight and tomorrow morning? Kevin Warsh has got a tough battle ahead of him to convince everybody that he's serious about inflation, right? I mean, that is the reading a lot of people are going to take away from this, that in the face of, you know, hockey stick prices on semiconductors, as John Williams put it recently, he decided that we ought to keep interest rates steady, right?

So he's going to have a lot of people worrying not just outside the Fed, but probably within the Fed about, you know, what is it that is going to take him over the line here and say, okay, it's time we do something. something about inflation. Yeah, I know. Listen, home buyers, they don't care about interest rates, but they care about mortgage rates. And interest rates, the bond market, affect mortgage rates. Should they just get used to just having a six and a half percent mortgage for the next few years, David? Yeah, again, the problem is you can't put the G&E back in the bottle. In this case, it's home prices you rent up too much because mortgage rates were kept too low for a long time. We are gradually working away out of that, but that's going to take years. Did the previous feds screw up?

Yes, by keeping rates too low for too long. And the only way they can affect the economy is actually by affecting the housing market, and they cause home prices to get to a level which cannot be afforded at normal mortgage rates because there's nothing abnormal about these mortgage rates. He doesn't himself talk about this and wants a situation where home prices don't fall because the existing homeowners get hurt too.

I think we're seeing Warsh approaching the podium here. Here comes the Fed Chair for his second ever press conference. Good day. My second FOMC committee meeting as chairman has come quickly. It's probably too early to call it. a streak, but our discussions again were collegial and constructive. I'm truly lucky to work with colleagues so capable and mission-focused and so determined, like I am, to sharpen the performance of the Federal Reserve. Today, as you know, our committee decided to vote by a nine-to-three vote

to maintain the target range for the federal funds rate at three-and-one-half to three-and-three-quarters percent. The committee is continuing its policy of making ample reserves in the banking system. The economy is showing impressive resilience. Even with recent shocks, the trends are positive and reveal solid growth. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the committee's 2 percent goal. The committee remains resolute. You've heard this before, but we will deliver price stability. As before, the policy statement conveys just the facts.

It's steering clear of forecasting, a choice we consider especially prudent at these uncertain times. Uncertainty, however, does not mean a lack of clarity. For some households, businesses, and market professionals, five years' of high inflation have left a mistaken impression that's hard to shake, that the Fed's implicit inflation target was somehow above 2 percent. Let me reiterate, there is no soft inflation target. There is no soft implicit target, not on this committee's watch. There's only a target and it's 2 percent.

Not one of my FOMC colleagues is under any illusion. We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks, or by a single month of modest price decreases. This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities. Americans are right to expect that because our nation's prosperity depends on it. To the regulars here in the press room, today's assessment might sound familiar, yet there was nothing inertial about our discussions, our policy, or our strategy. Two economic developments are worth highlighting. The first is a very notable change since our last meeting 42 days ago. Nominal and real yields are materially higher across the Treasury curve. In fact, some of the increases, and market interest rates between FOMC meetings are among the most significant in the last two

decades, ranking around the top decile or so. But if the committee didn't change its policy rate, what happened? In the intermeeting period, market attention centered on real data and real economic developments. Prices reacted in real time to incoming information. And the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee, and market prices will continue to respond in the direction and magnitude they see fit. This is, in my view, a change for the better,

and we're just getting started. After all, the central bank need not always and everywhere be the center of attention. I understand the desire for rolling forward, forecasts and commentary from this committee. But for our part, we need to observe market reaction to developments, direct and unfiltered. I want to stress, of course, that decisions by this committee matter a great deal. And where necessary and appropriate, we will not hesitate to act.

A second economic development is one that I noted at the Congressional Oversight hearings this month, but it's worth repeating. The most striking feature of the economy is the strong growth of business investment. The surge in high-tech CAP-X has been remarkable, but that does not necessarily make the Fed's role any easier. In the AI-related category of high-tech equipment and software, the most recent data shows four-quarter growth rates of nearly 20 percent. This is how helping to sustain the healthy momentum of manufacturing output. More generally, CAP-X is preparing the ground for future growth. Nonetheless, the precise timing and magnitude of effects on the supply side remain hard to predict.

FOMC meetings produce policy decisions, but just as important is candid discussion of the big things that matter most. That too is a priority in this new chapter at the Fed. In our meeting, vigorous discussion centered on four questions, which I will enumerate. First, we talked a lot about the implications of the past five years of high inflation on the current policy conjuncture. To echo an old phrase, has the past really passed? Second, my colleagues and I considered the economic shocks of recent years. Strain supply chains arising from the pandemic, military conflicts, energy supply disruptions, substantial increases in tariff rates, and yes, the surge in AI-related investment.

These differ in their sources. Do they also differ in their effects on output and employment? Third, we took up the related question of price increases arising from shocks. The business CAP-X boom, for example, is driving up prices of memory and logic chips and associated AI infrastructure. Do these changes indicate a broader inflationary dynamic, or do we just focus on them because they are under the bright street light? Finally, we discuss monetary policy tools and strategies. for achieving stable prices. If, as the Fed is long held, interest rate policy should be its primary monetary policy instrument.

How much accommodation are we getting from the balance sheet? In all of this, our work is advancing at the Fed. We're asking the right questions. And in this consequential time, we know how very much depends on getting the right answers. Of course, you've all arrived with questions of your own, so let's turn to them now. Thank you for taking our questions, Mr. Chairman. Sure.

You've had a couple months now or nine weeks or whatever number it is to see the markets behave in the absence of forward guidance. I'm wondering if you could tell me what message are you getting from the markets as to where policy ought to be right now? Yeah, so I think officially it's eight weeks and four days. but I'm not counting. The message from markets is the message for markets. What I've really been trying to do, Steve, as I think you appreciate, your colleagues appreciate, is getting an unfiltered message from markets,

getting a direct message, letting buyers and sellers meet at prices for treasuries for the foreign exchange value of the dollar, and then trying to judge for ourselves, what does that mean about our remit? How are we doing on inflation? How are we doing on employment? appointment. We're trying not to interfere with that market signal. That's part of the reason why we've

been somewhat spare in our words, when we've pulled back from forward guidance. So they're reacting to events, I would say much more directly over the 42 days since we last met. This is a good thing. As I mentioned in the prepared remarks, we've seen a material tightening not just in nominal rates, but in real rates too. And we're observing it. We're trying to stay out of that because, you know, many of you might be interested in our reaction function. We're interested in the reaction of financial markets. I get that, Mr. Chairman. And I guess the follow-up question is, if the markets are talking to you, what do you hear them saying?

And if it's real rates or higher, it would suggest that that's where the funds rate ought to go. Yeah, so in – Sorry. I'm sorry. It's your question. So interpreting markets is an imperfect business. We central bankers like market pros can think these things are overdetermined, but let me offer some speculation.

First, as we said in the FOMC statement that you got at 2 o'clock, the economy output is solid. CapEx and productivity are strong. labor markets solid, steady. The bond market, the treasury market, it seems to be saying that as well. If we're to try to break down, disaggregate the treasury market signals, I wouldn't be able to do it perfectly. But the bond market's saying many of those same things, and that's why we're seeing a tightening, both in nominals and in reels, even while at some level we haven't done much in 42 days, the markets have done quite a bit. Claire Jones, Financial Times. You seem to have got the family fight you were after at this meeting.

We saw three dissents. Could you characterize the arguments that those dissenters put forward, please, and tell us a little bit why you weren't persuaded by them at this stage. Thank you. So I guess I shouldn't give you their best arguments. I'll give you some others. So you were right. I asked for a good family fight and I got one. That's the purpose. That's the design feature. I come into this meeting, even this press conference, heartened by what I've experienced the last two days. Most of our discussion were on the big questions that matter to the conduct of monetary policy. We didn't sort of hide from them. We weren't scared of them. There was a lot more interaction between and among my colleagues. It was a real family fight. My view, which you've long heard, is that's the better way to get policy right.

our North Star. So there was a lot of agreement that I heard, that we have the powers, the tools, also the authority to deliver stable prices, no walking back from our responsibilities. There was a large majority support for the decision that we made in the room. But I also want to leave you, Claire, with one other impression. There was nothing inertial about that discussion. It was an active, robust discussion about what's in the full range of what we can. can do and might want to do in the period ahead. You characterized accurately there was a disagreement about a decision today. I would say that doesn't sort of capture the full essence of the discussion.

The path to central bank heaven requires delivering on our remit. These days, that means delivering on price stability. I wouldn't measure that path in 42 days or any one particular meeting. And I came out of that meeting even more confident that this is the right team to win the battle against high inflation. How much do you think not going in July was down to the cool CPI print for June? So in two words, not much, not much. I'd like to believe that the committee shares my views,

which is the historic problem with data dependence is the data and the dependence. We are not relying on any one individual. piece of data as cover or as an excuse or as validation. What I care about and what I think the committee cares about is trends on the data. Sure, we got some encouraging inflation data. I think at the meeting 42 days ago, I said something like 63 months of inflation above target. I didn't say 64, though the final calculation might be a close one. So we'll be watching inflation data over the period ahead, but I also don't want you to leave the misimpression that we're sort of breathlessly waiting that. I've called for a task force to

revisit both the private and public data we use to make our decision making. That task force is out doing their work. I'll be checking back in with them the next couple of weeks, but I wouldn't say we overly relied on any one piece of data, including that data, which surprised some a couple of weeks ago. Hi, Chairman Warsh, thanks. Neil Irwin with Axios, thank you for taking our questions. So the Fed Funds Rate is now about 75 basis points below the

two-year yield. It suggests markets think you'll have to tighten eventually about 100 basis points below most Taylor Rule estimates. You're hitting your employment mandate, inflation stays high. Why should rates not be higher today? There's a lot in there, Neil. So

rates are higher today than they were 42 days ago. Markets have made decisions because we step back in part from trying to influence those, market judgments have moved up on what nominal rates are across the treasury curve. That doesn't mean we take them by dictation, but we're observing them. So I think it's a mischaracterization to say that markets haven't reacted because we didn't move today. Markets are reacting in real time. In the period ahead, we've got important decisions to make about the policy rate. Markets in the intervening period, I think, have quite a bit of decisions to make. I'll see if I can put it this way. Monetary policy matters,

not just by what we say or even what we do. Monetary policy matters by how it affects the real economy. And these prices that we see in financial markets is one of the many ways in which it affects the real economy. We'll be continuing to watch that market information, see how it responds to incoming events, and that can help inform our decision-making when we meet in seven or eight weeks. How would you characterize in the family fight the last couple of days of you and the other eight members who wanted to hold, was that a strong conviction, or was that a hair-trigger, close call on holding versus tightening? Well, I think, you know, the vote was nine to three. The broader discussion to my ear over the course of the last days showed a lot of

agreement on the hard questions. The four questions I raised at the outset about what's really happening in the economy with the shocks and absent the shocks. What are our tools and our capabilities? What's the effect on prices on output? I heard a lot of commonality on the questions. Were there different liens on the answers? You bet there was. So could people come to different conclusions? Absolutely. But my own judgment is this is a period of watchful thinking, not watchful waiting. And I think the score on that vote was unanimous. Thank you, Colby Smith, at the New York Times. You've mentioned that looking at the Fed's policy tools is one element of a three-prong strategy to address the inflation problem. So I'm curious how

you view the effectiveness of those tools. If inflation is too high and not coming down, is the best remedy to raise interest rates? So that was the discussion in the last two days. Is that the dominant remedy if inflation continues to be elevated through the forecast period? Interest rates could well be part of that solution. But I wouldn't say it's in isolation. I tried to describe in my remarks today, a point that I made into the oversight committees a couple of weeks ago. I think there was a misimpression by some in financial markets, by some households and businesses, that central bankers like me, we said a 2% inflation target, but maybe we were more tolerable of a somewhat higher inflation target. In economics, we'd call that the revealed preference. And so might it have

been rational for people to think, well, their inflation targets somewhat higher. What I heard in the last two days, what I've heard in eight and a half weeks is no. We will deliver the 2% inflation target. That is the committee's definition of price stability. So one way, absent the tools that you reference, to ensure that we get there, is ensure that expectations are centered around the right number. And I think we've made some progress on that. I am not suggesting we're done on that. It's worth reiterating. And ultimately, the business we're in, Colby is performance. We are going to be judged by how we perform. And that's what we intend to do. The inflation target, making clear expectations is one part of it, making sure we demonstrate we're

responsible for it. We're not blaming as another. And our policy tools, like you referenced, is the third and equally consequential part. How are you factoring the fact that a large portion of the inflation overshoot is being caused by supply shocks, as it's mentioned again in the statement? Is that blunt the effectiveness of rate hikes in your view? First on the premise of your question, it was almost as if you were listening to our discussion in the last day and a half. A lot of our focus was on trying to understand and identify underlying inflation dynamics amid shocks.

We take these shocks seriously. There have been a series of them that have been hitting this economy. We're not looking through them and saying, oh, they don't matter. But we're trying to understand is to what extent are these shocks broadening in their effects, broadening in their impact on prices that are quite far removed from it. Our goal is to have growth that is broadening and inflation that is becoming more limited, more circumscribed. I'll be the first to admit the shocks make this job in this policy conjuncture a little tougher, but that's among the chief questions we've asked ourselves.

And around the room, people have different. views on it, I tend to think in the coming months we're going to refine that view and have a better judgment, and we're going to market prices trying to help inform it too. Thank you, Mr. Chairman. Edward Lawrence from Fox Business. I guess I want to drill down maybe a little bit. What specifically in your mind would be the argument then for a pause today? So I wouldn't characterize what we did as anything like a pause. I would characterize what we did as a rigorous review of the economic situation. I would characterize what we did as a review of the big, hard questions, and I'd characterize it as a view of what our own homework is to try

to resolve those questions in the period ahead. If you were to try to force a description that this was a pause, I would say financial market prices would take the other side of that. financial market prices in this intermeeting period, they didn't pause. They reacted to the inflation data in one direction, strong economic growth in the other direction, and nominal and real rates went up. Did the Fed take an explicit change in its policy rate today? No, but I think that's the beginning of the story, not the end of the story. And if I could, I did want to ask, not forward guidance, but looking forward. Traditionally, a Federal Reserve chairman uses the Jackson Hole summit as a sort of a reset of monetary policy. How do you look at the speech that you're going to make in

August? I look at it like a blank piece of paper right now. I have not begun consideration with the incredible team here what would go into that document. I think you've characterized it correctly. Historically, at least from my first tour of duty at the Fed to more recent periods, it would be sort of a setting up speech more often than not of what was going to be happening. in the fall. I haven't made any judgments on that, but those are judgments we'll have to come to. If I could in the high mountain air in Jackson, Wyoming, I'd like to also frame the big questions. There is a tendency, especially with the proliferation of meetings and press conferences, to get caught up in the myopic. Did you do this by a quarter or do that?

ultimately whether we deliver on price stability matter some the decisions we make in six or seven or eight week periods. But they matter more. What are the big questions? What's really happening with productivity? What's really happening with demographics? What's really happening to the global economy amid the shocks? Haven't made a decision whether it's going to be a big picture speech or whether it's going to be a more traditional setup for all the action we're going to have between September and December. I will tell you one other thing that I am doing between now and Jackson Hole, so I'm checking with those task forces. My first principle of establishing a task force is find the best subject matter experts anywhere in the world and put them together, especially put them together with the people who might disagree with them.

In the next couple weeks, I'm going to be doing a check back in. I've given them time to sort of think hard about their agenda, their debate, their schedule, and when they might be ready for prime time. I'll be do a little bit of that checking and that may or may not inform anything I have to say in Jackson. Nick Tamerose of the Wall Street Journal. Chairman Warsh, I want to follow up on Colby's question about policy transmission.

You've said there's no cruel choice between stable prices and full employment. Rates bring inflation down by cooling demand. It's generally thought that can show up in the labor market. If that's not the channel you're relying on, What is? Yeah. So let me go back to the first principles, Nick.

I don't believe that either part of our mandate is generally at war with the other part. I do not believe that price stability and full employment isn't either-war proposition. There have been policymakers over the last several generations who have thought that there is a strict trade-off there. That isn't my judgment. In fact, my judgment is if and when we deliver on our remit, we're going to be satisfying both prongs. We're going to have price stability and full employment. And in fact, if you want to do the most harm to the labor markets, you would run a period of high inflation that's variable, such that employers, businesses, wouldn't really know what's going on. So I think the two parts of our mandate are equally important.

We have no legislative orphans here. I've been talking mostly about price stability because we're doing pretty well collectively as a country, as policy makers on the full employment side. But we're doing considerably less well on prices. That's why we describe them as elevated, and that's what's taken most of our discussion. In terms of transmission mechanisms of monetary policy, I think different tools work through different transmission mechanisms, the interest rates work through lending channels and credit channels, maybe confidence channels in foreign exchange. The balance sheet probably

works through some other channels like signaling and portfolio balance. We're keeping full abreast of all these tools in making policy. But if the suggestion is somehow we're going to be fine-tuning aggregate demand so it catches supply, that's not my mental model. I don't think we're great in the fine-tuning business. We're trying to get supply and demand in broad order. But really what we're doing as we sit here today at this press conference, so I think we've got a reasonable sense of what aggregate demand looks like in this economy. We're inferring aggregate supply.

We're making a judgment about what productivity is. And in some sense, there's a race between supply and demand. And the surge in business cap-ex in around AI, it's making that calculation a little harder to judge, but in the period ahead, we're going to be trying to judge just that. And if I could ask, Where exactly was the disagreement today?

Was it about the inflation forecast, or was it something more around the risks, the tactics? Yeah, so I'm going to let the dissenters speak for themselves. The way I heard it over the last two days was overwhelming agreement on objectives and authority and commitment. I didn't hear anybody walking away from it. the judgments as to how best to achieve the price stability. That was probably the question that we were trying to answer. What's the best move? What's the best strategy?

What's the best way to achieve it? And a second question that was asked is, when do we need to make those harder calls? When do we need to make those decisions? And like I said to one of your colleagues, I was comforted that markets in the intermeeting period weren't reacting to us. They weren't reacting to dots or to speeches. They appeared more than ever to be reacting to real-time events.

So they're gauging themselves how restrictive the treasury curve should be. And that, I think, has been a useful development. We don't endorse any particular market move, but I'd also suggest we observe them with keen interest. Janelle Marte with Bloomberg. Following up on that, there was more uncertainty in the markets about what the Fed would do at this meeting. To some extent, you might think that's what you want to see.

But my question is about, is there a point at which you would not want to surprise the markets if they were pricing in something with higher certainty that was opposite of what you were intending to do? What are the risks that you see associated with that? Yes. So it's a good question. Surprise is not the objective function. surprise is not what we're solving for.

We have a clear north star. What we're solving for is how to make the best decisions. Almost everything else should be in service to that goal. By not spoon-feeding markets, by not previewing our decisions, by not sort of giving nudges and liens, my colleagues and I have found in the intermeeting period what we're getting is the views from a very accomplished economist. That's the internals of financial markets. Instead of just repeating or echoing what we are saying back to us,

they're giving us somewhat, not perfect, their own judgment. So surprises are not the objective, but at the same time, I would say we didn't come into this meeting feeling constrained by the full range of alternatives we had in front of us. So some of your peers have continued to discuss how they think about, policy decisions and if you don't offer your reaction function or your way of thinking about it, how concerned are you that you're seating control of the narrative? So not very concerned. That's a short answer to the question.

When some people that follow the Fed say, well, we don't want your forecast. They don't want your dot. We just want your reaction function. Part of me here is the, what we really want is your forecast. What we really want is your dot. In terms of reaction function, let me sort of disabuse people of a question that may or may not be real and be out there. Any central banker, especially a central banker where the labor markets are more or less at equilibrium. Any central banker, when he or she sees underlying inflation moving higher, he or she is more inclined to tighten policy. Again, when you've achieved the other side of your mandate and you see underlying inflation falling, he's more inclined to loosen policy. That's my reaction function and I don't suspect it will cause people to not continue to pry for more because the truth is, for a very long time in a lot of countries coming out of the 2008 crisis, where in crisis mode we were purposely providing a lot of information. trying to provide a lot of assurance, trying to tell people exactly what we're going to do,

offering forward guidance with clarity as if we're tying our own hands behind our back. Well, in crisis mode, that strikes me as a very prudent policy. But in more benign conditions, it strikes me as worth revisiting. But markets and market participants and reporters have learned to devour all that information. So I take seriously that the pullback of forward guidance requires. some transition. Reform isn't easy, but our general judgment is going to help us make better decisions and in so doing satisfy our remit.