• Asks Bill Dudley to speculate on what the FOMC will look like in June given political obstacles to Powell's confirmation and Kevin Warsh's nomination.
    Host
  • Bill Dudley
    Predicts someone will 'blink' to resolve the confirmation stalemate, or Powell will stay as acting chair. Notes the mess creates skepticism about Kevin Warsh's independence on the FOMC.
  • Acknowledges threat to central bank independence but notes comfort from anchored inflation expectations. Asks if anything could upset that.
    Host
  • Bill Dudley
    States inflation expectations are anchored because people trust the Fed. A firing of Powell or a contentious confirmation for Warsh would upset people. Says it's 'very unlikely' the Fed cuts rates in June with headline inflation near 4%, sentiment will be to 'watch and wait'.
    Explicitly links Fed behavior and political stability to inflation expectations.
  • Asks how a Treasury-Fed accord might work to shrink the balance sheet and reshape rate control and the yield curve.
    Host
  • Bill Dudley
    Doesn't expect a change in monetary policy execution. Believes structural changes will reduce reserve demand, allowing balance sheet shrinkage. Argues a ~$1 trillion reduction will exert 'very little real restraint' and is not credible as a driver of dramatic short-term rate declines.
  • References Dudley's 2021 call for 5% 10-year yields and Fed funds, asks if people are overly sanguine about inflation from the Middle East commodity shock.
    Host
  • Bill Dudley
    Agrees the Fed should view the energy shock as temporary. Says the Fed is constrained because: 1) Inflation has missed target to the upside for 5 years, increasing risk to expectations, and 2) Fed independence is under attack, which heightens that risk.
    Provides a two-part reasoning for why the Fed must remain vigilant despite a transient shock.
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