Warsh's Opening Act: Inside the Fed's Regime Shift with James Bullard
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What does the June 2024 FOMC meeting reveal about the new Warsh regime?
Welcome to PGIM's The Outthinking Investor, exploring the forces shaping global markets, past, present, and future. Join Dalip Singh as he talks to economists, policymakers, technologists, and veterans of global financial markets to explore what could happen next and why it matters. Now, over to Dalip.
So on June 17, Kevin Walsh chaired his first meeting of the FOMC. The rate decision itself was unremarkable. It was a unanimous hold of the target range at 3.5% to 3.3 quarters percent. Everything else, though, marked a regime shift. The first signals were in what the Fed chose to say and not to say about policy. The statement shrank. from three hundred and forty one words to one hundred and thirty, the easing bias was dropped, the dot plot flipped from showing one cut to a projected hike this year. And in the presser, the chair offered virtually no forward guidance other than an emphatic focus on price stability. The second set of signals were about the institution itself. Chair Warsh announced five task forces to review the Fed's communication practices, its balance sheet, its data sources, its inflation framework, and the impact of AI and other technologies on productivity and jobs.
To me the message was unmistakable. This was the opening act. Of a very different Fed. And I'll say up front, I've long believed that Kevin Walsh is the right choice for this moment. The Fed needed a chair who understands how to sustain institutional credibility in this environment when the system is under unprecedented stress, someone who knows when and how to deploy its most potent tools, who has the savvy to build consensus within the Federal Reserve system. I should also mention up front that at PGM we've predicted out of consensus that the Walsh Fed will hike the policy rate seventy-five basis points this year. The June meeting deepened our conviction about the direction of travel for policy, but the timing, the pace, the magnitude, the duration of the policy shift, those remain open questions for us.
And that's why I wanted to invite Jim Bullard to the show. Jim is one of the most consequential monetary policymakers of the past two decades as president of the St. Louis Fed from 2008 until 2023. He served on the FOMC through the financial crisis, through COVID, and the worst inflation outbreak in 40 years. He famously argued in late 2021 that the Fed was behind the curve while the committee was still calling inflation transitory. Jim is now the dean of the Daniels School of Business at Purdue University. It's a change of address that has not dulled his appetite to say sharp things about the institution. Thanks for joining the show, Jim. Thanks very much for having me. Looking forward to it.
How did the Fed’s statement and dot‑plot signal a shift toward rate hikes?
So, Jim, let's start with the most basic interpretive question. We've had one meeting under Chair Warsh, 130-word statement punctuated with clear emphasis on price stability, a dot plot that flipped towards hikes this year, five announced task forces, and virtually no explicit policy guidance in the presser. Markets have read the meeting outcome as hawkish. The Fed funds curve now prices about thirty five basis points of hikes before year end. Are markets correct?
I think they are. I think the committee has moved in a more hawkish direction. I've long felt that the chair position is not as powerful as people think. The chair can't just dictate. policy the chair has to maneuver within the middle of the committee, and the committee has clearly shifted in a hawkish direction. I think with core PC inflation running over three percent, that's beyond a red line for the committee. And they're still hoping, I think, that inflation will come down, but it's looking less likely without action. So So I think the market has this about right.
Okay, so Jim, let me press you on the character of underlying inflation. The committee revised up its year-end core PCE projection by 60 BIPS to 3.3%, and core PCE is no longer projected by the FOMC to hit 2.0% within its forecast horizon. I read this as a recognition of structurally hotter demand growth powered by drivers that are not highly sensitive to policy rates or energy prices for that matter.
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Chapters
8 chapters
1
What does the June 2024 FOMC meeting reveal about the new Warsh regime?
0:03–3:05
2
How did the Fed’s statement and dot‑plot signal a shift toward rate hikes?
3:05–5:45
3
Why do markets view the Warsh‑led Fed as more hawkish and is that view justified?
5:45–9:11
4
What is driving the current inflation surge and how persistent is it?
9:11–11:46
5
How might changes to forward guidance affect market volatility and policy transmission?
11:46–14:47
6
Which of the five new Fed task forces could most dramatically reshape monetary policy?
14:47–17:51
7
Is the AI productivity boom likely to lower inflation or create new price pressures?
17:51–20:35
8
What unconventional consensus does Jim Bullard hold about the Fed’s long‑term outlook?
20:35–23:18