Fed Rate Meeting | Kevin Warsh FOMC Analysis

0:00 The FOMC meeting. And of course, the way we do these, so if you're brand new to the live streams, is we'll air Kevin Warsh's meeting minutes where he basically addresses the press. And this is kind of the way that people get a little bit of a signal from what Warsh says in terms of looking forward. And a lot of this is really pointing towards the December decision that, of course, will be coming after the midterms. That, of course, is next week, so we will be airing his live statements today from the FOMC press conference coming in. They usually start around 2.30. We've got a lot to talk about before we get there. Obviously, the big news today was no change just came in. It looks as though Polymark was right, or at least the indicators were right

0:47 on this in terms of how this might lay out between now and December. Right now, December, though, is looking very high on the scale in terms of a quarter basis points hike. So we're going to get into all of that. I want to lead off with this right here, which is the market price, the 90% chance. So you can kind of see this is pretty much been on point.

1:08 And I think if this starts to play into it for December, the real question will be, how does the rest of 2027 look for Fed rate hikes? or their overall strategy to try to get control of inflation. Now, one thing is that you kind of have to consider whether this is going to be bearish or, I should say, hawkish or dovish. And these are always based off of the statements that Warsh will give to the reporters. Many people read between the lines. You guys probably will as well.

1:42 But I think he says sometimes he'll give indications that actually do give us a direction. even though he said that he doesn't really believe in that. So I want to play a clip for you around the hawkish hold. Take a look.

1:56 So I think the message, the line.

2:02 All right.

2:02 So the message is that the hawkish hold was the plan. And of course, that has come out right now with what's going on. I want to jump over to another thing that could be happening. And of course, that is going to be how does Bitcoin react to all of this? There's two things that the market has shown many times over. One, of course, is where does it perform after a particular situation right here? So FOMC interest rate decision will happen tomorrow. Obviously, the last time that happened, Bitcoin bottomed the exact day and then pumped 16 in a week. Now, FOMC kind of indicates a little bit of move in the market.

2:42 The real question will be, does it apply now? Because we have continued to see quite a bit of volatility that has circled around not only Bitcoin trading sub 80 for just a slight amount, then seeing a correction. But hopefully this is getting all of that in terms of while this may play out for the next few weeks for Bitcoin's price. And I think that's the factor that everybody is looking at. Bitcoin kind of has led the way in terms of the crypto market. And how does this correlate to altcoins will be another factor. If you look at the overall situation that's happening in these elections. This, of course, was the prime minister of Israel after the next election, and it looks as though Netanyahu, this was

3:26 the flip that happened literally overnight. Some people might say, well, you know, this means things are going to start continuing to be a problem in the Middle East. Some people are pointing at oil continuing to skyrocket here. We're seeing all sorts of indications now that this is actually flipped.

3:44 It looks as though Netanyahu is going to win at 47%. If you look at what's going on in the midterms for the U.S., the Senate is the one to watch. It is holding a 67% likelihood right now of the Democrats taking the Senate. Now, if that were the case, this would be, I would think this will be a blue sweep, a Democrat sweep, and this includes the House, obviously.

4:09 The real question, does Trump hold the Senate? This is a very critical time. Many people still believe that there is a chance for that to occur. The House may be out of range in terms of the ability. So a lot, I think, is going to happen between now and then. And I still have yet to see an October surprise. So things could still get a little bit heated there. I know you guys are probably going to drop in some comments. If some of you are brand new to the show and especially to the FOMC meetings, we will air Kevin Warsh's comments here in a minute.

4:43 Usually goes on around 2.30, so we'll get into all that. And the way, as I said, in case you just joined, a lot of his statements will give us an indication on how this plays into the December meeting, which I think is the one that is most important because it could set the tone going into 2027. That's the factor that everybody's looking at. Now, the other things that you got to look at is how inflation is going to be affected. Well, military spending is always on the top of the hill. in terms of how inflation is affected.

5:15 Pentagon tells Congress Iran military operation has cost America taxpayer 47 bill. I don't know that that's an accurate number because I think this, I just feel like this is, you'd have to spend so much more with all that's been going on as well as what's going on in the straight. So whether that is true, the key here is going to be if Netanyahu gets in, we're going to see more money heading over there. And that usually means more expenses for sure. All right, so let me go back to, let's play a couple of clips here.

5:46 Let's go over to a new Fed chair incoming clip. And this one is, it's not saying that there is a potential, but well, you'll see the clip. It's kind of a little bit of a tongue in cheek. Take a look.

5:58 We've had existential crisis come and go in this field and resilience continues to be the order of the day.

6:04 There's this cleanup crowd that has to come in afterwards. And if I were at the Federal Reserve, This week, I'd be saying, look, if we have a deceleration, what does that mean for inflation, for growth in 2027, 2028? I think they're going to have a rate increase come December.

6:24 But what do they do after that?

6:26 And I am starting to think they're going to start to see a deceleration. And maybe they don't raise rates as much in 2027. And now, in terms of politics, we're going to have the midterms in a week. And then- Katie, bar the door, there's going to be 15 or 20 people running for president for 28 that will all be announced by January or February of next year.

6:47 Or by the Wednesday after the election. All right. I don't know about you guys, but he was talking a lot about the Fed. Is Gensler looking for a new job here? And when you think about this, he's pointing at pretty much what he thinks is going to be a major change across this administration. Does that mean that we start to see new assignments out there? Is Gary Gensler pulling his resume and brushing it off? Can you imagine Gensler being in the Fed chair position or even some other entity inside of government that could control finance or possibly policy going in, especially to the next few years?

7:29 Because I think we're going to see so much growth around where these markets are heading And there's a lot of reasons why. Much of it has been RWA-led, real-world assets. Tokenized treasury is going to continue to skyrocket, even though we are seeing pushback on that. I think the opportunity right now for the markets, most people see this as still a very bullish market. I'd love to see it in your eyes, in the comments. We'll try to get to some of these. Do you feel like we are bullish right now post-midterms? Just let me know, bullish or bearish post-medterms. Now, Mike Wilson thinks that maybe this is the best buying opportunity available. Take a look.

8:09 The three things that we're most focused on now, in no particular order, the obvious ones are the midterm elections, which is always a clearing event. I mean, historically, it's always a good time to be adding risk into that event. Now, sometimes it could linger another month or so, but over the next six to 12 months, 100% certainty, going back to 1952, you make positive returns, and usually double digits.

8:28 Number two is I think it's around this idea around AI CapEx and the scarcity of capital. Okay, that one's pretty well understood too. And I think these companies are dealing with it properly, right? So they're doing the back and forth between equity issuance and debt issuance. There's going to be a separation between the weaker players and the stronger players.

8:44 That's happened.

8:45 And then the stronger players can actually issue equity. And then the one I think that's not as appreciated is the liquidity constraint. The Fed has tightened this year. Don't forget six or seven months ago, they were talking about, or the market was talking about them cutting rates. OK, so now they've slowed the balance sheet growth and they've raised rates 25 basis points and they've allowed two or three or four more hikes to get priced in. That has done the tightening for the Fed. Financial conditions are now as tight as they were in 2018, also midterm election year. And you kind of know how that year ended.

9:15 All right. So timing is everything in the market. And I think the key here is going to be the issue around how Bitcoin starts to respond to what these situations play out. And one thing to consider here, I'll kind of zoom in on this, U.S. stocks tend to rally following the midterm elections. So the S & P 500, they returned 17% on average in the year following midterm elections.

9:40 That goes all the way back since 1950. So that to me is an indicator. Now, sure, could there be some crazy event or some major scenario that plays out both during or prior to these elections that could change that? Or could there also be something else You know, when you look at all this, you know, fear mongering that's happening really around the world in terms of preppers that are dealing with this. So that in itself could still put some pressure on the market in general. But for the most part, the markets kind of respond based on the handshake of a new administration starting to play in D.C.

10:18 And of course, that is the question. I'm a little bit more concerned that if this administration loses both the House and the Senate, most of the time is going to be spent in Congress dealing with a lot of hearings and all sorts of things around impeachment, you name it. It's going to suck up a lot of the air.

10:35 I just don't know how much effect that is going to have other than possibly rulemaking that will go ahead with the SEC and the CFTC going into this. I've got a clip here that will get into how this set up. plays into this? Because there's still some real risks, but it's the setup that you need to watch. Take a look.

10:54 I think the setup right now is positive, but with real risks. That is a healthy way to be. Whenever a market looks positive from every angle, it means you're probably missing something. And whenever you get too bearish, it's probably the time that you're actually missing the real positive coming in. And it is one of the the most common types of markets in terms of the stocks are an inflationary asset. So what are those real risks out there?

11:16 Oil prices are right at the highs. And I just don't see how that risk gets resolved until we get clarity on what the U.S. action is on Iran post midterms. So I think that's with us for another week. And while SK Hynix was very reassuring results, the big ones, as you just discussed, are really ahead of us. Alphabet, Microsoft are much more important.

11:35 All right.

11:36 So what he's what he's getting at there is how important are these earnings to Some of those kind of play into what SK Hynix returned, which blew me away. And this is 75 billion of shareholders after record profit. Remember, SK Hynix, a Korean chip maker, the chip trade definitely not dead as with this kind of performance. I think you're going to continue to see those kind of numbers.

12:00 If you look at the chart, there's SK Hynix right there exploding up to 163. This thing had dipped it down to around 130. This is on the daily. right there. And you can kind of see the overall since it's gone public, but a nice return for a chip maker moving into it. All right, the poll is in, and we've got percentage-wise about 500 votes here, bullish 53% post-med terms.

12:26 We've got bearish 31% of you are bearish post-med terms and neutral 16%. So a bullish crowd today. I like that. In the sense of why this is going to happen, I think the key there is maybe We finally get off of kind of high center and we can start moving forward with some of these markets. And I think the question really boils down to two things. One, do the earnings continue to come through for 2027? Do we see some major impact on labor in 2027? Because usually first quarter is when you'll start to see adjustments in a lot of these major companies. And with the advancements of what's happening with AI, that could be a factor that going into 2027 around how the economy may support.

13:11 And if you look at the only two of the Mag7 that are actually outperforming this year are Apple and Nvidia. So if you look at it, the rest of them, they rank one and two in free cash flow. So that is the key right there. Microsoft, Amazon, Google, Meta, even Tesla down almost 13%. So boiling down to performance, Free cash flow and, of course, the issue of earnings continues to be a major factor with all of this.

13:42 And that, I think, is the next step because with what the Fed will do today, obviously pausing rates, going into December, maybe setting up 2027, if that's hawkish or dovish is the key here. And then you've got earnings that will potentially continue to perform, hopefully in Q1. And then the real question is, is how does the job market hold? If any of that starts to play, it's very possible we could start to see a ramp up into a major bull run going into 2027. I want to go to another clip because this will get into whether or not you should set this out. And there's a lot happening with the AI trade, but more importantly, how this is all going to eventually start to play into the market itself. Take a look.

14:29 We've had existential crisis come and go in this field And resilience continues to be the order of the day. So I'd say we're not at the crossroads yet. We have the euphoria that will power us through this current anthropic offering. But I do believe once the election's over and some chips have fallen in that respect, we will have a reckoning at that stage.

14:48 Should we sit this one out, look elsewhere, diversify our portfolios? And if so, where should that rotation take us?

14:58 Unfortunately, I think the opportunity to sit this one out has definitely sailed in the respect there would be even career risk for any investor, certainly a professional investor, who is opting out of the AI trade at this point. It is so pervasive across every sector, every market in the globe. There is no sitting this out.

15:16 All right, so you can kind of see there, guys, we are going to cut to Kevin Warsh, who should be coming on to the stage here. Let's see if we can pull that up on the live stream and get his comments going. And, of course, we do have a poll that's coming in right now. And when does the AI bubble pop? In 2026, Q1 of 27, or by 2028? Let me know what you guys think. Right now, the leading, we've got a couple hundred votes in, looks like by 2028 is the leader. So we'll see. Here's Kevin Warsh. We'll cut to him.

15:56 Good day.

15:58 This morning, the FOMC decided to maintain the target rate for the federal funds rate at three and three quarters to 4% in support of the Federal Reserve's dual mandate. Economic activity is expanding at a strong pace. While uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient.

16:22 Productivity growth is strong and capital investment robust. Job gains have kept pace with the workforce and the unemployment rate has changed little, but inflation remains elevated. The committee believes that the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to the 2% goal. The committee will deliver price stability.

16:52 At each policy meeting, my colleagues and I assess the economy By looking out the window, it's what we call interrogating reality. To gauge what's really going on, it is not a task that has grown easier. So what exactly do we observe? Economic growth has strengthened. The GDP increase in the first half of this year was revised up from an earlier estimate of 1.8% up to 2.4%. And the third quarter appears to have brought an even more rapid advance, led by healthy consumer spending, likely running above 3% growth, and business investment likely rising at about a double-digit pace. Capital expenditures are at a historically high share of GDP. High-tech investment is leading the acceleration. But there's

17:49 also been a broadening in other categories, and these trends bear watching. What about the jobless rate? The jobless rate is lower than a year ago, and payroll growth is noticeably above last year's pace. The four-week moving average of unemployment insurance claims continues to run at the lowest level in generations. So on the employment side of the Fed's dual mandate, conditions are quite positive. And yet Americans, of course, are still dealing with inflation that has been running above the committee's objective for close to six years. It's our responsibility to get inflation down. That's the reason the FOMC's discussion over the last couple of days focused mainly on the price stability side of our remit. Since our policy

18:43 action in September, we have started to see some changes in financial and credit conditions. They have tightened for some businesses and households, much as we would expect. Market participants are becoming somewhat more discerning in their capital allocations. And while overall financial conditions are tighter, I'm unwilling and unable to call them tight. But broadly, these developments go in the direction of achieving a longer, more durable period of economic growth and price stability. Over the last couple of days, the committee had a good discussion of the changes in the economic and financial landscape that marked this intermeeting period.

19:28 We discussed geopolitical developments and fast-moving changes in technology. We observed, but were not surprised, that financial markets showed bouts of volatility and shifting correlations. So as we widen the frame to survey the broad economic and financial picture, real activity is clearly pointing in the right direction. That's good news.

19:54 But inflation is too high. Energy and related prices have moved higher again in recent weeks. And our job is to ensure that relative price changes in some sectors do not broaden out across the economy. and that inflation expectations remain as they are anchored. While these uncertainties are real, there's no lack of clarity in our purpose at the Fed.

20:21 Since becoming chairman just five months ago, I've been honored to work with FOMC policymakers who are unambiguous in their commitment to stable prices. We've made clear our readiness to act as circumstances require, and we have shown our willingness to act. The information we receive over the coming period will help us determine where we want policy to be.

20:47 And at every turn, good or bad, our job is to get monetary policy right. And that's exactly what we're doing.

20:55 Now, with this.

20:56 Objective in mind, we've decided on a change in our FOMC schedule starting next fall. We believe eight meetings per year is the right number for the FOMC. But in 2027, one meeting will focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated. The rest will be regular FOMC policy setting meetings. And I expect that in 2028, we'll have two meetings dedicated to discussions of strategy and six for setting policy. Now, what's the reasoning behind this change?

21:36 To me, it's quite straightforward. Getting policy right involves assessing near-term developments at timely, regular, and information-rich intervals. But it's equally important we reserve time and space as an intellectually diverse group for strategic deliberations, for thinking anew about big questions, looking out over longer time horizons, focusing, as I say, on the left side of the decimal point. I believe the setting of the meeting schedule and agenda is more than some administrative detail. It's an institutional choice affecting the nature and the quality of our deliberations and ultimately the wisdom of our decisions. It's yet another change to get the conduct of monetary policy on the right track. I

22:28 appreciate your attention this afternoon. Now my time is yours and I welcome your questions.

22:36 Thank you.

22:36 Colby Smith with the New York Times. There's been essentially no progress toward the 2% inflation target. The labor market remains stable, as you suggested in your opening statement, and most of your colleagues seem to be on board with raising rates in December. So why not just raise rates today?

22:53 So it's a good question. I will say I read your stories the last day or two, so I must admit I sort of saw that question coming. What I said in my prepared statement Was information coming in the coming period will help us tell us where we want to be But I suspect you want a little more than that. So let me let me give it a shot Ensuring price stability Colby Quashing inflation is not about some fixed individual date on a calendar Same way. It's not about some isolated data point if it were about those two things this job would be easier and And we wouldn't be suffering from nearly six years of inflation above target. So what's this about? It's about ensuring we have clear objectives. And it's about a monetary policy strategy,

23:46 which might sound strange from the last several years. So let me step back. In the five months or so that I've been around, we've put in place what I describe as new monetary medicine. Well, what's been in that package of medicine? First thing we did when we showed up with my colleagues is we doubled down on the 2% inflation target. We said, we own it. We're taking responsibility for it. And if you think that we're tolerating some inflation target somewhere in the twos, let us disabuse you of it. That was the first part of this new monetary medicine. Second part is we took responsibility. No anguish of central banking here. No blaming others. It's the third thing that we've done. We laid out for you

24:34 and the world our framework. I did it in Jackson Hole. It was part of the discussion the last couple of days. This is the framework that many of my colleagues skew to as well. This is how we think about how monetary policy should work. These are the transmission mechanisms, and this is how we're going to deliver. Then what do we do? We interrogate reality. We do that periodically. That's a very useful thing to do. But we don't just talk.

24:58 We act.

25:00 And so in September, when we last met, we acted. We removed a dose of accommodation. So what are the signposts about how this new strategy is going? Inflation compensation, as measured by swaps prices, many other measures, inflation compensation is going in the right way. Inflation expectations. The world is quite unsettled. If you'd say, absent the Fed, what would have happened to expectations, they might have gone the wrong way. They've gone the right way, too. So I feel good about those signposts. The period right in front of us is information rich. There is a lot that's happening in the world. My colleagues and I are keen to take notice of it. So in this coming period, what do I think we're going to be able to do?

25:48 We're going to be able to figure out what's the appropriate protocol as part of this package that we started to deliver five months ago to deliver price stability. I'm encouraged by the progress we've made in a short period of time. But if the crux of your question is you haven't delivered yet, you haven't achieved price stability, you're right about that, but we're working on it.

26:16 Thank you, Chair Warsh. So if I could, this statement says that the accumulation of more information will help the committee determine the policy stance appropriate to ensure a timely return of inflation to the 2 percent goal. Does that mean that the current level of the Fed funds rate might already be the right one?

26:35 Well, we've got to determine the appropriate protocol. If you were listening next to me in that room the last couple of days, the overwhelming consensus, the overwhelming judgment is that what we've done in this monetary medicine, starting to work some, But there's no firm conclusions. If we had a firm conclusion about the conduct of monetary policy, we'd announce it to much fanfare today. What we decided to do was to Colby's question, take stock of where we are, evaluate what we're seeing out the window, ask ourselves whether the period right in front of us is likely to provide more clarity on the appropriate protocol. My judgment, the judgment of my overwhelming number of colleagues is that it would.

27:31 Mr.

27:32 Chairman, before-thanks for taking our questions-before the meeting, several members of the Board and the Committee went out and told us that it was going to take more time and that it had a profound effect on the outlook for the funds rate. Were you involved in discussing that message with them? And if you don't mind, I'm sorry, but a protocol question, what will be the disclosure public disclosure on the meetings where you're not going to have a statement.

27:58 So two questions, I'm sorry.

27:59 So two questions. Did you not hear the one question rule?

28:03 I did, but I thought there was like a protocol thing I could do.

28:05 I would, um, that was like a parliamentary procedure question you were asking that didn't count. Um, I hesitate to indulge the second question. I fear what it would do, but let's, let me see if I can do it and not have the slippery slope among us. Um, your first question was about my colleagues. Um, I've got 18 quite independent colleagues. If you were inside that room the last couple of days, you would come to believe that to be true. One way to test the independence of my colleagues is, I don't know if you've heard, Steve, but I don't submit a dot. I don't plan on submitting a dot. But the 18 of them do to suggest somehow that I am some kind of all-knowing person sending messages out. That's not the committee of the FOMC

28:52 that I know. these are serious, sober, responsible people. We had a serious, sober discussion. So that's the answer to that. On the parliamentary question, which doesn't count as a question, I'll just say this. We've made a decision that at that strategy meeting in 27 and the two strategy meetings in 28, I do not anticipate making any policy decision, putting out a policy statement. But what might we come out with? It's not obvious yet. There's more news to come on that. The decision on the new format for the meetings is relatively new. It was a robust discussion over a couple of meetings of how to handle that.

29:31 As we get details of that, which are still now, not until next fall, we'll be prepared to share.

29:35 Them with you.

29:37 Nicole.

29:40 Hi, Nicole.

29:41 Good kind with Barron's. Thanks for taking my question. In September, you mentioned that the Fed has a role in sustaining the economic progress happening in America right now and in the rising opportunities that come with it. I'm wondering if you can expand on whether you see this as a mandate and how you intend to fulfill that mandate.

29:57 So the mandate was given to us by Congress. The mandate was deliver stable prices and deliver full employment all in the context of financial stability. Now they gave us some other homework to do on supervision and regulation payments, but I presume you're talking about monetary policy. So what's the best thing we can do in this environment looking at our window to deliver on that remit? Ensure stable prices.

30:24 I mentioned, I think, at a prior press conference, if you were trying to do the most harm to the least well-off among us, you would let the last six years of inflation above the Fed's target, usually well above the Fed's target, you'd let that continue. So that's the most important thing we can do as we look out the window, and that's what we plan to do. You probably heard me say this. We will deliver price stability.

30:47 No ifs, ands, or buts, and that continues to be the case.

30:49 Eleanor.

30:51 Eleanor Wheeler with me.

30:55 Eleanor Mueller with Semaphore.

30:56 Wanted to ask you about the working groups, when we can expect the reports to come up, and if there is anything you can preview.

31:02 For us, whether it's on AI or data or balance sheets.

31:06 Sure. These five task forces are hard at work. I have scarcely seen anything that would constitute a final report, but I have done some periodic check-ins with them. And I am impressed by the rigor of the intellectual discussions, by the seriousness of the task that we've given them. Now, some of the questions that I asked to kick off the reports, they want to answer those and answer a whole range of other questions, which might go to other task forces. But I'm impressed by what they're doing. I gave them, like I told you, a year-end deadline. I think some but not all of the groups will probably hit their deadline and turn their homework in on time.

31:51 But that just begins the process by which we're going to be consuming, which is intellectually serious work. That's a catalyst for us to think anew about productivity and jobs and an inflation framework, and what's the best data to help us do our job, how to think about the balance sheet task force. These are huge intellectual investments that I think are going to bear fruits in the next policy conjuncture. unlikely to find their way into this policy conjuncture, given the important role as consumers of these ideas that my colleagues have. But I will have one small announcement.

32:29 I previewed this when I was at an IMF meeting, much to the chagrin of some of my colleagues around here. On November 16th, the Productivity and Jobs Task Force will be doing a field hearing, inviting a broad range of people who have strong views on What are the implications for jobs in the economy, near-term, medium-term, long-term? Is this a productivity miracle that's going to happen, or will it happen slowly? I know I, for one, am keenly interested in refining my own views on that question. But that task force decided that they wanted to hear from more people as part of their undertaking. I plan on attending.

33:07 I might have a few words to say at the outset of that conference. I expect the conference will go three, four hours. It'll be pretty wonky stuff. I don't know how good the material will be for the likes of you and your colleagues, but it's a purpose to do a lot of listening for me to interrogate the reality in front of me. What do experts in their fields think about this? What are the implications for the dual mandate that I referenced to your colleague? Is this going to make it harder or easier for us to achieve price stability over the next several years? What are the implications for jobs, medium and long term, but near term too?

33:43 So we're going to explore those largely in the public realm on November 16th. I look forward to seeing you there.

33:53 Thank you so much. Thank you, Mr.

33:55 Chairman.

33:55 James Rosen with Newsmax. You spoke of interrogating reality. Since reality is a no-show here today, I'm going to satisfy myself with interrogating you. You spoke earlier in your remarks here today about how your colleagues are serious and sober people who are committed to price stability. In an event in the Oval Office on October 7 of this year, President Trump said, and I quote, Kevin is great, but Kevin's one vote out of a board with numerous people that were put on by Obama and Biden and a couple by me, so you have a board that would like to see the country do badly, in my opinion.

34:29 Do you agree with those comments?

34:31 So, James, I appreciate the question. I'm not going to be responding to quotes from public officials. What I can tell you is my experience in five months here, we just came out of a heck of a family fight, a serious, sober discussion. I think we came to the right policy decision for this moment, and I'm honored to be here and honored to be the chairman of this group.

35:01 Chairman Walsh, Mariela Isacapurro with Bloomberg News. So the economy is strong. Inflation is well above 2%. You're saying inflation expectations are going the right way, but surveys show that households expect inflation to remain above the Fed's goal, and not just for the short term. Using a hike today, other than waiting for more data, I haven't really heard the clear arguments as to that decision. So Do you worry that with today's decision, households may not believe your pledge to bring down inflation clearly and at sufficient speed, and instead will read this decision of holding rates steady as a sign that the central bank has, in fact, a soft inflation target?

35:42 Yeah, so what I can do is tell you there's no soft inflation target. There's no implicit inflation target. There's a target of price stability, and it's 2% as measured by PCE. It took six years for inflation to have the effect on consumers that you reference. But I would say this. When consumers interrogate reality, they look outside their window, too.

36:10 They go to the gas station, too, and they see that prices are up. I am not going to be the guy who says that oil prices haven't gone up, and when they fill up their tank, they don't see it. And so inflation's gone up in expectations in the very near term because they're doing what we're doing, interrogating reality.

36:29 But if you look out over the horizon, if you look at most, but not all, measures, what you see is households, businesses, financial markets, they have the confidence that they should have that this central bank will deliver price stability.

36:45 Edward Barnes.

36:51 Thank you, Mr.

36:52 Chairman.

36:52 Edward Lawrence, Fox Business. So do you see a direct line correlation between oil prices and the inflation we're seeing in the United States?

36:59 And if so, how fast could inflation fall or react to falling oil prices?

37:04 So I don't want to engage in hypotheticals, but I can look out our window and see what's happened. There's been a stable correlation between oil prices as they've moved up this year, generally, and interest rates. Not the interest rates that we control, but interest rates set in the market. That correlation has been quite strong until very recently. We've seen oil prices continue to move up, largely due to geopolitical events. We've seen crack spreads between oil and refined products continue to stay elevated. But what's happened? Interest rates have rolled over to the downside. I'm not a Wall Street newsletter. I'm just telling you when I look out the window over the last several months, that is what

37:54 we've seen. To the extent that oil prices were to move lower, again, probably due to geopolitical events, that's something that we're going to have to interrogate. What are the effects on the Fed's dual mandate? What are the effects on financial market prices, and what are we going to do about it? But that's a hypothetical, and in fact— if we look at financial market prices, futures prices for oil, they've moved up over the course of the last several weeks.

38:25 And I can't help but take note of that, too.

38:26 Claire.

38:33 Thank you.

38:33 Claire Jones, Financial Times. Much of the growth that we're seeing in the U.S. economy now, and quite a bit of the inflation, too, is coming from the AI boom. There's quite a lively debate as to whether or not this is a part of the economy that's sensitive to interest rates in the same way as, say, housing. I'd love to get your sense of do rates need to rise more, given that so much of the US economy now is about AI than it otherwise would if, say, housing was a bigger part of the story. Thank you.

39:08 Thank you, Claire. So there was a narrative. for quite a while, maybe even in this room over the course of the last several press conferences. Well, they're going to raise rates, they're talking about raising rates, but it's not going to have any effect on AI because the returns that investors are expecting are so different. I was skeptical of that. view. Interest rates get in the cracks. Interest rates affect directly or indirectly almost everything. And what have we seen? Since early September, what we've seen inside of the technology complex, Outside of the technology complex, whether you pronounce it AI or SI, Claire, is up to you.

39:58 What have you seen? Interest rates have had an effect. You see market participants that are discriminating between the kinds of investments they want to make. You've seen credit spreads for certain assets widen out, gap out. For others, you've seen some tightening in financial conditions, but not significantly. So on the thrust of your question of with respect to the new technology and this investment surge, do interest rates matter?

40:27 I believe they do. And I don't believe that they're somehow divorced from the rest of the economy. Secondly, I'll just say this. It is convenient to say that the strength of the economy is all about this new technology wave. In fact, if we look at the data, really including data from the last meeting till this, the CapEx story is not just robust, not just strong, but it is broadening.

40:55 And so if you want to tell the story somehow that this is strength we're seeing only in narrow pockets, it's a much harder story to tell now than it would have been several quarters ago.

41:05 Elizabeth, she'll sit on the back row.

41:11 Thanks so much, Elizabeth Schulze with ABC News. As you know, the midterm elections are in six days. Did the midterms factor into the Fed's decision to stay on hold? And if not, how can you assure the American public that politics were not at play here?

41:25 So politics played no role in the decision. I just spent two days with my colleagues upstairs. I didn't hear an utterance about politics. I didn't hear a reference to politics. Politics, elections, what's happening in the next week or so. I didn't hear anything about it. And I don't believe it had any role in the decision, not just for me, but my colleagues around the room. But I will say it's an information-rich interval in the coming period, having nothing to do with politics.

42:00 Chris Rugeber.

42:06 Hi, thank you.

42:07 Chris Rugeber at Associated Press.

42:09 I know you don't like the statement of economic projections, but last month your colleagues penciled in another rate hike for this year. And so could you give us your sense from this meeting whether you still see widespread support for another hike this year around the table?

42:24 Thank you.

42:26 So the blackout period for them ends, I think, on Friday or at some point over the weekend. So they might indulge you in that discussion. I don't believe in forward guidance. absent exigent circumstances, absent a crisis. I have to give that caveat because in the darkest days of the 2008 financial crisis, in part using some literature and thinking from a very recent Nobel Prize winner, that kind of forward guidance is actually quite helpful. But in normal, ordinary times, especially times where the underlying real economy is this strong, I don't believe in it. I don't favor it.

43:06 I also don't believe in prejudging meetings. A lot of things can happen. So I'm not going to be able to share with you my musings about what happens when this group gets together six weeks from now. But my judgment is that we might learn a lot. And like in my response to Colby's question, we'll be, I think, better positioned to determine the right policy decision and the stance of policy.

43:37 Sang Lee.

43:40 Hi, my name is Sang Lee from the Korea Economic Daily newspaper. I got a question as a foreign press. You have spoken several times about the possibility of the Fed shrinking its balance sheet further. If that plan moves forward later, how would you avoid disrupting foreign official holders of treasuries or dollar funding markets abroad like South Korea and Japan?

44:04 So thank you for your question. First off, I would say I pay probably more attention to the Korean economy than you might think, because when I'm looking at the feedstocks effectively for this new surge in technology, a lot of it's coming from Japan and Korea, some from Singapore. So I'm particularly interested in what's happening in the Korean economy, usually because it's telling me what's on planes and ships coming this way. Secondly, I should say that your new central bank governor is someone I've known for 20 years and is a very talented guy and a good friend.

44:42 So I'm glad he's in that post. He and I met actually about 20 years ago amid the global financial crisis, as it would come to be known. And I remember this is a generation of discussions with him about the use of the balance sheet in exigent circumstances like we had then. At this point, the balance sheet is solely within the four walls of the balance sheet task force. Now, I have checked in with them, full disclosure. They're working away and comparing their best thoughts. And I think the conclusions they come to, the recommendations they come to, will be fed into the FOMC probably early in the first quarter.

45:24 But don't hold me exactly to that timing. And if we decide to make changes in the balance sheet, It'll be after a serious consideration of their proposals and their recommendations. I think it is unlikely to have any material effect on this policy conjuncture, but it's a question we should get to the bottom to, and I look forward to doing it with the help of the outside task force.

45:54 Nick.

45:54 Nick Temerosa, The Wall Street Journal. Chairman Warsh, I want to follow up on your answer to Claire's question. As the AI investment boom becomes more dependent on external financing, does that make aggregate demand more sensitive to interest rates than it was before? And related to that, when you removed a dose of accommodation last month, did you see about what you bargained for?

46:20 So you gave me two questions, and neither of them had any sort of parliamentary out. So you're giving me the opportunity to choose which of those. So I'll answer your second question. When we removed a dose of accommodation, I don't know, six weeks ago, we don't have perfect foresight on what financial markets are going to do with it.

46:45 But broadly, I would say the effects on financial markets, on financial market conditions, broadly were consistent with my expectations.

46:55 Howard Schneider.

47:01 Howard Schneider with Reuters.

47:02 Thank you, Chairman. I'm going to take Nick's first question then.

47:05 Okay.

47:05 Give it to me again. I don't remember.

47:07 No.

47:07 It's about aggregate demand and the components of inflation. A lot of your colleagues have said they felt the investment boom in AI was now adding a strong demand component to inflation? And this was a handoff from the supply side, concerns that might be expected to fade over time. How much do you think demand is adding to inflation right now, and how sensitive will that be to Fed control?

47:31 CHAIR POWELL.

47:32 Good, good, good, good, good pickup of that, good team effort. So I'd say this. The only things we really know in economics and supply and demand cross. Our measures of the size and the shape of the aggregate demand curve is imperfect. Broadly, what I heard in the room the last couple of days is consistent with my own views, which is the economy is strong. I didn't try to sugarcoat that in the first part of my statement. The economy has been marked up for the first three quarters.

48:05 The economy is pointing in the right direction. Is the economy running too hot? Is the economy running too strong? That isn't the judgment of most of my colleagues. Part of it is we never know what potential growth really is, Howard. My judgment is we have seen an improvement in productivity. We can't measure it precisely. I think most of that change in productivity precedes everything we're talking about superintelligence. But productivity has been moving higher in the economy, however imperfectly measured, I think for a couple of years. And so economic growth is higher, but that doesn't tell me that economic growth is somehow causing inflation and making our job harder.

48:53 But we'll be continuing to look at those issues. The goal, in my view, and you've heard me say this before, isn't to throw sand in the gears of the economy and throw people out of work. I don't think we have to do that. The dominant means in which this policy is going to be put into practice is we are tightening financial conditions. They've tightened a bit since we met last time. That isn't something that we're uncomfortable with.

49:18 That tells me that policy is working, and I think we can do that and make the economy more durable, have it last longer, and still achieve stable prices.

49:28 Okay, we'll go to Victoria for the last question.

49:34 Hi, Chair Warsh. Victoria Guido with Politico. I wanted to ask, next week is... a hearing at the White House on Lisa Cook's future and allegations that have been made against her. Are you personally or the Fed as an institution going to be involved at all in those proceedings?

49:50 Not to my knowledge. Thank you. Thank you, guys.

50:10 All right guys so as you saw right there a lot happening with where he was going and of course this leans into what we had been anticipating and that is a quarter point hike coming in december bitcoin kind of holding its own right now still around 81k We did have some poll results that came in on this AI bubble pop. This one surprised me a little bit.

50:39 Right now, we had four options of when the AI bubble would pop. 2026, 17% said 2026. 2027 in Q1 was holding at 30%. By 2028, 27%. And then never was 27%. So you have over 50%. They think it's going to be 2028 or beyond. So not necessarily an issue, but the AI trade will have a major factor into 2027.

51:10 And the other thing that came out of this meeting was an adjusted schedule for the meetings themselves, what they're going to look like. A lot more strategy meetings. I expect a lot of drama from those. Another thing is the lockup of the commissioners gets released this week, which means that The likelihood is those commissioners are going to start talking about what December is going to look like.

51:31 So we could get a better indicator, even though it's still a very high percentage of a quarter basis points. I think the biggest concern I have right now would be, and this may be good for crypto, is that if we do start to see an accelerated pressure on interest rates, that could push things a little bit differently into the markets.

51:52 I think the markets would react differently in Q1. And all of this is really hinging on a couple of key events. One, of course, is Anthropic. If Anthropic rolls out and we start to see a major pull or a black hole, much like we saw with SpaceX originally, that could cause some pressure, I think, in the markets in general. And it may ask the question for a lot of traders that are new to the AI trade, is it over? So that is going to be something that will be coming up very shortly. So with Anthropic going public. And I think the point behind this is how these chairs start to look at really this new administration going forward. Because the next time we have an FOMC meeting, we will have essentially either a new administration

52:42 in the Senate and the House, or we will have a split administration most likely in the Senate and the House. which changes the dynamic, I think, politically for both what's happening at the Fed level, but more importantly, what could be happening from investors. So as you guys know, we do these live streams. We're going to try to get more to you. I hear your comments when you ask for that. We'll try to get more to you. Ask that you guys subscribe. And if you're not hitting that bell, do that because it will give you notifications when we do produce a live stream for you. So We will see you later this week. There's going to be some more big news dropping, I anticipate. If you like this video, hit like and subscribe. Drop a comment down below and

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