SPECIAL REPORT: Was Kevin Warsh's Fed Debut A Hit? Or A Flop? | Axel Merk

Summary

• Fed Regime Shift: New chair emphasizes price stability, dials back forward guidance, and signals reform via task forces; markets priced higher short-term rates while long yields held steady.
• Precious Metals: Extensively discussed; near-term headwind from a more credible, hawkish Fed, yet guest remains bullish medium term due to fiscal dynamics and policy mix.
• Oil Prices: War/peace developments and potential Strait reopening could drive oil lower, easing inflation pressures and influencing the Fed’s reaction function.
• AI Theme: AI cited as a structural productivity driver with ample credit access; could justify lower rates over time if inflation moderates, shaping the Fed’s longer-run stance.
• Balance Sheet & Reserves: Review of the ample-reserve regime and possible shift toward pre-crisis operations could change liquidity dynamics and policy transmission.
• Market Outlook: No rate change now; risk of hikes pulled forward, but long-end stability suggests confidence in inflation control, with implications for asset valuations.
• No Stock Picks: No specific public company tickers were pitched; discussion focused on macro themes—precious metals, oil prices, and AI-driven productivity.

Transcript

All right, and we should be live. Welcome to a Thoughtful Money special report. I'm Thulful Money founder and your host, Adam Tagert. We are doing our usual debrief of the uh latest Federal Reserve release, FOMC release and presser by the chairman of the Federal Reserve. What's exciting this time is we have a new sheriff in town. We've got Kevin Worsh taking over the reigns at the Fed from Jerome Pal. And I'm joined as usual by Fed watcher Axel Murk, founder of the Merc family of funds, Merc Investments. Uh Axel, how are you my friend? >> Oh, I feel like a kid in a candy shop having listened to to the Fed to just put this in perspective, right? There are some folks that love chasing a ball, seeing that kick back and forth. I do that with my dog. I don't see why humans chase balls and get all excited about a whatever football, soccer, whatever it is. And so FOMC monetary policy, that's really exciting. Far more exciting than the ball game. So I'm just trying to set the stage here. >> Okay. All right. Well, now that you've convinced everybody of your nerd credentials, um, so listening to Kevin Walsh, um, I didn't get listened to the whole thing, but I I definitely heard his, uh, prepared remarks. Uh I was channeling you Axel thinking that you were probably really loving what you were hearing. Um so the kind of the key takeaways I took from Kevin Worsh were um he is going to take a very different approach than his recent predecessors. Uh he is lashing himself to the mast of price stability saying we are essentially going to we're going to kill inflation or at least you know tame inflation to the Fed's target. Um, and he said, "Look, I'm uh I'm going to communicate a lot less. Uh, I don't think it's that appropriate. The Fed has been communicating as much as it has," which I know has been one of your central points, central criticisms of the Fed, Axel. Um, and, uh, he also said, uh, if you have a question for me, I probably have a new committee for it. Um, I think he announced about five different committees on the Fed, although I thought they were all uh, very practical. Um, and so he seems like a guy coming in with a different playbook than his predecessor, but a clear plan on what he wants to do. Um, I'll hand the baton to you, Axel, because I know that you actually know Kevin Worsh. Um, and I'm curious if Kevin validated most of what you knew about him yesterday or whether he threw you any curveballs. >> Yes, and interrupt me before I go off on a rant for too many hours on this. Um, so yes, for context, I have followed Kevin's work ever since he was a governor during the financial crisis. I got to know him personally along the way and I was lobbying for him to become Fed chair. So I and I am thrilled to see what he did yesterday. I think he achieved all his >> clearly they listened to you, Axel. Clearly you convinced everybody. >> Well, yes. So I I just want to put this out there. Um, I have been a critic of the Fed over the years, many times over. And so, this puts me into a very different perspective. And I'm glad there's going to be some controversy here with people disagreeing. And that doesn't mean I won't be critical of anything he's everything he's going to do. But the reason why I have been aligned with him because he has shared many of the criticisms that I've had, many of which I've talked about with you on your program. So now let's just let's set the stage here, right? There's a guy who doesn't has never served on the Fed with any of the folks who are on the Federal Reserve. Now, he got to know them over the years because he's spoken at the same conferences. He's been on the same panels. He's been fiercely critical of the Fed, sometimes using rather strong language. So he comes in and wants to change everything. Um, and so how on earth are you going to do that? Also, the Fed has been highly politicized in recent years. I been blaming the Fed for its own doing. Um, one thing I may have mentioned on your program, Chris Waller, one of the governors, he started who wants wanted to become Fed chair. He started his own initiative to rationalize some of the operations at the regional Feds. I mentioned that because that poisons the atmosphere, right? The regional Fed presidents are furious that they want to lose power. over the the decades they have been losing power and indeed um there's a question of how much more cost cutting you can do by them duplicating some infrastructure but any case you come in there says hey do it my way everybody get away that that's not going to happen right um and unlike what some people may think Kevin is actually quite charismatic is a good team player and is very good at at arguing his points so what are you going to do for your first meeting Um, your goal is to have credibility. Your goal is to tell the market that there's a new sheriff in town. That changes in the air. But you're not going to be able to implement everything and everything you want to do the first day. And one of the things he's been big on, and there are some things, by the way, he he said that were completely lost, I think, and and people. So, let me talk let's talk about ample reserves. remind me of that later, but I'm not going to talk about this right now. Um, so he he came in and on the communication side, he said no more forward guidance. Now, why on earth is this important to begin with? Um, I have said many times that forward guidance came from the financial crisis and uh where you're kind of jawboning the markets into doing things. Mhm. >> And I actually before I talked to you right now, we I had a onehour chat with Bill P, the former St. Louis Fed president who has been Merk's um senior economic advisor um since this since he retired from the St. Louis Fed in in the spring of 2008 and he joined us in the summer of 2008. He said forward guidance actually started on Vulca. he introduced it and and he's made that point before but he introduced it um as part of fighting this very very high inflation. Um the challenge with forward guidance is that first of all it's wrong. I mean Nick Kimos the lead um Fed whisperer so to speak at the Wall Street Journal he wrote oh my god now the market doesn't know what the Fed wants to do. Well, whatever forward guidance there has been in the past has been wrong just about most of the time. And so there's a question >> and also Nick's gonna talk in his book, right? Because if without forward guidance, he doesn't get to be the leak, right? >> Well, yes. And indeed, um Nick has been quite biased during the runup to the Fed share. He's published several articles which I thought were somewhat inappropriate. Um I talked to him about it and then he thought, "No, everything he did was factual." And that's that's correct. I mean, everything CNN publishes is quote unquote factual and everything that Fox publishes is factual. You can still have a significant bias and and um but in recent weeks he's gotten more neutral and then it's he he's an excellent journalist in general. Um but he did let his personal bias get the better of him, I thought, therefore for several several months. In any case, um the core problem that how Walsh framed it um and I don't want to put too many words into his mouth is that when when you don't have forward guidance, the market will focus on the data >> and right >> will reflect what the data says. When you have folks at the Fed chime in every 5 seconds, the market will reflect the jawbon of the Fed. >> And one of the big challenges I've talked about since the financial crisis and then forward guidance is an element of that is that the Federal Reserve has taken away its gauges to read what the market is thinking. And so it's a bit like the dog chasing its own tail. You you don't have that information from the market anymore. what stuff means. And and so what ends up happening is you have a debating club. Um and you have this circus where the Federal Reserve is is kind of running in circles. They have no idea. They're going to be late by default. It doesn't lead to good outcomes. So why not just get rid of that stuff? And that is what what Kevin Worsh is advocating. And so he came in and he made a statement by significantly shortening the statement. It was a statement that's just to the point. talked about the facts, very short sentences about the economy and then had this brilliant conclusion that the comedy will pursue um price stability. Well, of course, that is the mandate, but and then he talked about in the Fed conference how there's been a a vigorous debate and and so forth. So, basically, some people want to hike, some people want to cut. uh they couldn't agree on anything but of course all everybody can agree that the Fed is gonna um succeed in its mandate and so I thought it was very brilliant how he kind of summarized that took the common denominator put that out there and he has Kevin Wo said many times right the fed's job isn't that difficult they just need to be approximately right be credible in what they say and that's kind of what he stuck stuck to and then all this reform stuff he wants to do. I mean, he did the the the communications. Obviously, the economic projections where everybody is supposed to say where rates are going to be. He couldn't just cut this off. He couldn't get his buddies on board or his new buddies, FOMC members on board to say, "Hey, let's get rid of this stuff." So, he just said, "Hey, I'll abstain. You do it because we promised the market we do it." Um and so obviously there's some forward guidance in there but he put that on the back burner but importantly he came in and provided leadership by providing a vision that he wants to do reform on on several on several fronts. Now some people say what leadership is it if he doesn't change anything um compared to Powell who in my assessment was not an intellectual leader. Um and there's of course a question whether he'll succeed with all of these initiatives but um he comes in he changes the tone and then on these comedies that he's created these these task force now if you think about it if you're on the FOMC you're probably a little bit miffed because one of the things he said he'll have experts on these panels the folks at the FMC think they're the expert >> um and so they may not exactly appreciate it but he said oh I'm going to have these outside experts and by the way I I haven't selected them all. Um I still have to do a few phone calls and I'll include people from um from the Fed and so forth that's all going to be happy and I'm going to get this all done by the end of the year, which I think is by the way super ambitious. But um he puts this into motion to kind of have a complete overhaul and I think that's fantastic, right? Whether he's going to succeed with all that is is another story. And just before I hand it back to you, if you notice the markets, they priced in higher rates in the short term. The 30-year did not sell off and overnight actually the long end of the yield curve came down further, which is confirmation that he achieved his mission. Getting inflation back down, the market buys it, the market believes it, and that is the relevant part, right? It's it's a lot of it at the Fed is about talk. Um, and so I think he he succeeded in in everything that he wanted to do. Um, and uh, and handled it very very well. >> All right. Um, great. Well, look, I want to dig into a number of things with you, but first I I should have said this at the beginning, folks. My apologies. Uh, the Fed decided to hold the policy rate study. >> Oh, yeah. Detail. >> We forgot to deliver the punch line up front. Um, uh, >> which by the way, nobody was was was wondering whether they would do it. Everybody knew that that what the market expected. >> What what happened is that the market had priced an a rate hike in December and that moved up to September. So the market did interpret um the entire session to be quote unquote somewhat hawkish. >> Hawkish. Okay. >> But the markets did not have a tantrum, right? The markets, given the rather substantial changes, I thought I mean gold sold off. Yes. And and and the short-term higher yields are priced in, but the market behaved quite acceptably. um did not have a major major impact based on his speech. >> Okay. And we're going to talk about the prices of the reaction in just a moment. Um so I think you mentioned this in your answer there um Axel, but he did allow the dot plot to go out. Was was this a swan song for the dot plot or is he going to let the dot plot continue? And and interestingly he told the the the voting members um hey you can you can participate in the dot plot or not. And I think about half chose not to. Kevin Worsh didn't. Um so was this sort of again like hey this is the last one or do you think they're going to continue doing this because it is a form of forward guidance? >> It is he he has to stick by his word right. He puts in these task forces. He said by the end of the year he wants to have decisions. So I wouldn't be surprised if we're going to have several more of those. He also said he might just reform them. Um and so he might do a dot plot that means something else. Um and and so he wants to be a team player in that sense and uh he presumably he needs to get everybody vote on this stuff, right? I mean got um and and so he can't just get it out entirely. And the same thing is one of the things is the regional fed presidents are fiercely independent. They're the governors, the political appointees and then the regional fed president. So the regional fed presidents can do whatever they want in communication. Um the important part is that the tone is set at the top and so if he tells people ignore it what everybody else is saying that may well happen and there will be so he can he can guide things but it's not this is not an a monarchy where he can just tell everybody what to do. >> Right. >> The one thing by the way that that people may not be aware of to just talk about this. One of the things that to at least the nerds create a lot of dust is the Fed minutes. the Fed minutes are released three weeks um after the FOMC meeting and uh Bill P who I just mentioned um he voted against that when that was decided to release that three weeks after the meeting. It used to be that the minutes were released after the next FOMC meeting and from a communications point of view and and Kevin Walsh mentioned the minutes in a sight sentence only and people miss that. Um the problem with releasing the minutes 3 weeks after the FMC minutes is one of two things. One is they'll be stale. new data will have come in >> and we'll say what the heck is this all about. The other part is the minutes don't reflect what happened at the meeting because what happens with these minutes you have the m meeting and I don't know some of your audience might be on a board meeting right and the minutes are created um and so should the minutes reflect exactly what happened or if you realize oh my god we put the foot in our mouth we shouldn't have really said that let's tweak that word a little bit because the markets crashed the next day we should really adjust to things a little bit >> and uh for the real nerds they can go back to the transcript which is published with many years and delay and compare the minutes and say what the heck are these minutes about right and some of these minutes have been manipulated over the years um and uh and so that's just a bad habit and by publishing them after the following m meeting they'll be stale but they serve their purpose it's good for academic reference but it's not yet another distortion tool right and so a lot of these good intentions saying, "Oh, we got to communicate more." They just lead to bad outcomes. And so, it's that sort of stuff that needs to change. And so, the economic projections is is just one of these things. The market would like to have some sort of guidance. Um, now Kevin Walsh is in the so-called rules-based camp. Um, I've mentioned this on your program before. There's rules based and discretionary camp. The discretionary camp likes to have complete flexibility. what they do. The rulesbased camp says, "Well, why don't we have an anchor, a reaction function that we do?" Um, and if you have a formal reaction function, well, that again needs to go through the task force or some comedy. It takes months. And so, the good news is the market kind of dictates what their rate should be anyway. Um, and so you don't really need for the time being anyway that sort of rules-based published system. I don't know whether Kevin is going to go down that road. Um, once people are fed shares, they like to do their own thing and don't like to have as much of a a rule anymore. Um the the the value of a rule by the way is is not necessarily that you follow it too strictly but that you would publish hey the tailor rule which tells you where where interest rates should be based on employment and inflation. Um they it said race should be here we'll put them here and then they explain why right that provates value because it helps explain to the public as to why they do something. And by the way I'm getting very nerdy here. The reason this is all relevant, um, I I should throw it out there once in a while, is because first of all, the Fed controls the risk-free rate, the so-called risk-free rate. All asset prices are priced around where the Fed is. They control the bazooka. It matters. And better monetary policy lowers the cost of of borrowing. Um the Fed is in part responsible why rates especially at the long end of the yield curve are as high as they are. Fiscal side of course plays a role as well. But the Fed is responsible inflation and there one of the things Kevin Walsh said very explicitly several times also during the meeting. the Fed controls inflation um in the medium term um and says the Fed can't control what the price of oil is going to do because because of a war in Iran, but they can control how that filters through to the economy. And he has been a fierce critic of Jay Powell and others blaming what's happening in the world about high inflation. And so he took ownership of that and what that also means is yeah, we do whatever it takes, right? We will do whatever it takes to get inflation down to 2%. And of course, it doesn't mean inflation will be at 2% tomorrow. But that clean delineation lowers the cost of borrowing and is good for the economy. It's good for the US and people don't fully appreciate that. >> Okay. All right. Actually, I'm going to ask you a couple of questions. Let's give short answers to each because I want to get back to the meat of the sandwich. But these are things that I think will help people understand the Fed a little bit better. the new Fed a little bit better. Um, so you've talked about the tension between the regional Fed presidents and the governors that are on the FOMC, the the political appointees. Um, so they all, you know, the the FOMC table that votes is comprised of a mix of both. The Fed governors, you know, they have real jobs, right? I mean, they they have to run their their businesses. >> I No, actually I actually No, the Fed governors don't do anything. They don't have staff unless >> the regional presidents. >> Oh yes. Yes. So, so this is somewhat funny almost the regional fed presidents is a mix of academics, former bankers or whatever they may be. If you take Bill Pul talked about he was an academic he still is an academic, right? Um and he was head of the St. Louis Federal Reserve managing 1,200 people. He's not a manager by I mean he managed them but he didn't grow up managing 1,200 people. Um that was the size of the the St. Louis Fed at the time. Um and so they are they all come from different backgrounds but yes they have a job there. Um and on on the governor's side they of course are on different committees and whatever but the governors pretty much have as much of an authority as the chair gives them. Now, some of them have an additional mandate um by by Congress, but if if the chair were to be nasty, they could he could cut off access to research to them, whereas the regional feds have their own research groups and depending on the history of that Fed, they're known for certain talent. And so there there are some oddities in the background that um that who knows it really depends on on how committed the the governors are to actually monetary policy and that varies quite a bit based on the person. >> Yeah. But but is is there friction there? Is it fair to say there's friction there between the Fed presidents and the the political governors in the >> course and and I got a real job. I've got my hands dirty in real data. I'm out there doing real things. suit sitting at a table. >> Yeah. Well, it's more about the power play because the the Fed governors have a lot of power. Um interest on reserves is set by the governors, not by the regional Fed presidents. So technically, they are completely sidelined. Um and and so it's a um and then by the way there's a rotation in the in the regional Fed presidents of who's voting and who's not voting and so but interesting. So there's there's sometimes where they're voting and sometimes when there's not. But even when they're voting, the the Fed governors can vote on other things like interest on excess reserves. >> Yes. And it's and it the entire idea is to be decentralized and to be free from politics, right? That's why this this this very complicated structure was set up. It's set up from from a world where spreading it around the country kind of helped in that quote unquote independence. Um, so there are good historic reasons why it is set up the way it is. Um, yeah, and you have the chief kind of cat herder now, Kevin Walsh, who who has to drive that institution forward. And one of the things I've said on your program many times is that the Fed got the Fed into politics. When the Federal Reserve buys mortgage back securities, they're allocating credit to the mortgage sector. That is fiscal policy, not monetary policy. >> During the pandemic, obviously, writing checks to business, it's none of the Fed's job to do any of this stuff. And so, going back to basics on many of these things um is is hugely important. >> Okay. So, let me let me talk about two basics things. Um, one you mentioned the Fed's bazooka and uh really the bazooka has two barrels, right? One is what are we going to do with interest rates? The other one is what are we going to do with our balance sheet? Right? Um, Worsh leading up to assuming the chair uh said, "Hey, look, I I I'm not really comfortable playing around with the balance sheet. I think we should just start shrinking that thing. It got way too distorted. um I'm going to really focus on the rate side of things. Um did he confirm that and what are your expectations about the Fed balance sheet going forward? >> Yeah, funny you say that because people missed what he actually said during the meeting. So first of all, a lot of people say the growth of the balance sheet contributed to asset price inflation. It's been fostering the K-shaped economy. Um that's not a good thing. We got to get away from that. um I I think you're on board with that. Many of your guests are on board with that. And so he comes from that perspective. So he's been criticizing the size of the balance sheet. Then in the runup to this meeting and his nomination says, "Well, what on earth is he talking about?" Because when we've tried to shrink the balance sheet, all hell breaks loose. Um because you can't do that. So the FMC statement said um ample reserve system will prevail which means we will have a large enough balance sheet. So the sort of issues that arose are not going to be there. But then in one of the many task forces he created, he said, "We got to review the ample reserve system that we have." And one of the things I have said, and I think I've been the only one because I haven't heard anybody else going say it, the Fed, if they want to shrink the balance sheet, they got to go back to the preinancial crisis system where we didn't have that system. Right now, by the way, if if banks want to get credit, there is enough credit available. They can always from the Federal Reserve get great money out of thin air. Um, and you can regulate that a little bit with a cost of borrowing, but you can't restrict it otherwise and so forth. Whereas, if you have a limited reserve systems, then then it's then you suddenly have more tools. Now the best way to go back is you go to back to the pre-inancial system era where the Federal Reser where you have a minimal balance sheet and you have the Federal Reserve, the New York Fed open market committee intervene in the markets to channel the Federal Funds rate. Um that system worked. The folks at the New York Fed did not like it because every day they are scrambling to get things done. Um, but it has the huge advantage that when problems arise, you know where the problem is. The challenge with the Apple reserve system is that you don't know whether there's a problem anywhere in the system because everybody has access to credit. Whereas if you keep things tight, you know whether a bank has an issue and it's an early it's like like a canary in a in a coal mine type of system. Now he didn't say he's going to go down that rabbit hole, but he threw out the question is the ample reserve system appropriate? And I don't think anybody has picked up that that's actually a huge deal that he isn't just there people have said, oh he can do a swap of the of of what the Fed has like they have longated securities. The Fed should only have treasuries. he'll do that swap. That's not going to change the issue about having different size of the balance sheet. You may do that separately. But the entire approach, how the Federal Reserve has been running since the financial crisis is being questioned. And one of the the big issues and I I don't want to get too academic here why the ample reserve system is is is not ideal is different participants in the banking system have different regulations. Indeed, several financial institutions have conflicting regulations. So, nobody knows exactly what the appropriate level of reserves is. Um, the folks at the Fed don't know it. The banks sometimes scramble to to know what they can do. And so, you got to go. One of the big things about the communications adjustment is that the Federal Reserve is going to be aligned with the market. So why not align the reserve regime with something that's market friendly rather than having the Fed come from the top and say, "Yep, everybody everything is good." It it just doesn't work there. There are some structural shortcomings in that approach. And so expect some changes there. Um but there's going to be push back against those changes because the folks at the the New York Fed who actually run this stuff, they like the new regime. um they can just play golf because they just set the number and and don't need to worry about anything and they actually have to get some work done. And so I I've talked to folks at the New York Fed and and they they think it's crazy to go back to the old system, but um and so that's not going to be an easy one for Kevin Walsh to push through. Um and it's it's not necessarily the road he's going to take. Um but the Apple reserve system is is certainly under review. You mute. Um, I don't hear you, Adam. >> Oh, sorry. >> Thanks. Um, so rather than change these things right away, you know, Wars is basically sort of setting his position and then saying it's under review presumably by these committees. So, do you think his plan is to let the communities go chew on it for a quarter or two and then come back and say, "Okay, we're now going to make a big change, but we're doing it because our experts thought about it and this is what they came up with." >> Well, I mean, the idea is to get everybody on board, right? And he didn't exactly say this is my position. That's also why on the SCP on the the on the dot plots, I don't know what's going to come out of it. And there are some things he's going to feel more strongly about than others. Um but yes, he wants to shake things up and he has a it's it's a bit like you have a new president come in it and when you ask most presidents at the end of the term what have you achieved and they say well I achieved I mean they'll of course brag about the the key achievement but ultimately they'll have made a dent right they'll have moved the country in the direction that they favored but the underlying structure is probably still the same and the folks who are critical about the Fed they'll continue to be critical about the Fed head, right? They're still going to print money in some ways. They're still going to do this or that. Um, it's not going to it's not like everything is going to change and we live h happily ever after, but he is going to move the needle. I think he had a chance to move the needle quite significantly. And um he intentionally didn't stake out his positions explicitly at the call today, but of course those who have followed him over the years actually know where he is aiming at. um and uh many people have not paid attention that I see commenting on on what what he's doing. And so he's been calling up people and he said he isn't done yet about experts he's going to have and he said he's going to have people who disagree with those guys um and then then move forward and and yes then he's going to present it to to the comedy and see whether he's going to get stuff done, right? I mean it's it's about leadership at the end of the day. um he does own the microphone during the the meeting. One of the things of course that may change is we may not have a press conference after every meeting, >> right? >> Um it's another thing that he has criticized, I have criticized. Um you only talk when you got something to say. Um and so you can paint yourself into a corner with stuff if you have a meeting at at the wrong time when there's a crisis. Um so it's it's not always appropriate. it's not always the best thing to talk and and so and he can control much of that, right? So even if the rest of the the FOMC doesn't come on board on some of the things or even many of the things that he does, he will have a profound impact on on how the Fed is going to be run. >> Okay. All right. Um we've got a few user questions I want to get to in a minute and I want to leave some time for precious metals questions. Um, but let me uh let me squeeze a few of these other ones in too. Um, so Wars made it super clear that his his the Fed under his new leadership, it's top priority by far is price stability. Um, did he say anything about the second mandate of the Fed? Do you do do you see him as uh deprioritizing uh full employment and uh yeah do do you expect it to continue to be a dual mandate system for long under him? >> There is there are two schools of thoughts. One is that these are conflicting mandates and uh others that say this is one and the same through until Greenspan the idea was we achieve maximum employment by focusing on inflation. >> Mh. >> Um and uh because if you have inflation low you're providing the environment for maximum employment. And so and he did expand on that. He he he did say he is not in the viewpoint of the the early 70s where it's one or the other. So he did allude to that. But um also by the way when when in a swearing in ceremony he uh he credited some former Fed chairs um but none of the newer ones. Um he credited Greenspan amongst others and so and Vulca of course but he he is in that camp that pursuing um pursuing stable prices so to speak leads to maximum employment. No, he he did expand on on productivity and the like. Um, which is somewhat related, right? How how hot can you let an economy run without getting too much inflation? And he is in the he is in the productivity camp. Um, he is he's also in a camp where um you don't want to kind of you don't want to kill an economy just because it is growing. And so he of course has to square that with inflation being too high. And that's part of the reason why why he got the job. One of the things um I believe he believes is that the only way to deal with the debt that we have um is to outgrow the debt, >> right? >> Um that's the only chance we really got. >> I think that's the administration's, you know, sort of near-term playbook, right? >> Well, exactly. and and I I think that's a big reason why he got the job. Now, obviously got a war in Iran, you got >> energy prices to the roof and so forth. Um he said during the nomination hearings, hey, inflation is too high, more work is to be done. And this thing about focusing on inflation, it's it's kind of a no-brainer, right? That's that's the job that the Fed has. And it's of course everybody agrees on that. And uh he just by putting that out there as a guiding light I he's just um he's just doing exactly what a fed chair should do. He communicates and he doesn't communicate about stupid little details. He communicates about the one and only thing that he should be communicating about. >> All right. So you're sort of answering my question then which is whether he says it directly or not a war a fed under Kevin Worsh is sort of a single mandate Fed and if they take care of that single mandate then unemployment should take care of itself. He would not characterize it this way because of how the law is phrased, but but yes. >> Okay. All right. Um and you mentioned that the market Yeah. the market a while ago stopped pricing any rate cuts this year and then started pricing and rate hikes and then it sounds like it has moved up its rate hike estimates after yesterday's presser. Um, did Kevin say anything particular to make the market do that or was it just more he says, "Look, I'm all about price stability and the market is interpreting that as okay, well that means that you're going to be more likely to hike to keep inflation under control and therefore we think you're more hawkish." >> Well, the dot plots came out and half the folks thought that there going to be a rate hike by the end of the year. Um, and so that was a more hawkish assessment and so there you had your forward guidance. So you can do that. The I think the the important part I see is that the long end of the yield curve has been extremely well behaved and actually at lower rates um also overnight then um in the long end of the yield curve and to me >> that's to be expected right because they just feel more comfortable that okay inflation is going to be less of a problem because this guy sounds pretty hawkish. Well, precisely that means that is why I say the meeting was a success because the purpose of the meeting is a new sheriff is in town and he's going to be able to implement the mandate to get inflation down and the market says, "Yep, he'll do that." And that's that's his job, right? Um, and so he and he he achieved that with the simplest of means by it's it's like Marrai coming out, I'll do whatever it takes, right? Um, he he'll just said, yep, I'll do it. Um, the Fed will do it. That's our job. And it's that simple. And he's not noodling around with all kinds of little details and crossurrens that are just confusing the hell out of everybody. >> Right. Although it's kind of interesting because it's kind of the opposite of Draghy, right? Draggy said like, "I'll do whatever it takes to hold the system together. If I got to print a quadrillion dollars, I will wor saying is is I'll do whatever it takes to to stick to my knitting, which is just to keep inflation." >> Yeah. So, let's let's talk a little bit about maybe about kind of the one of the things he he one of his big things is that how he likes real-time data, right? and he and he's been saying that for years and people are scratching their head. What is it? And one of the task force is going to figure that out. Um and I said, well, the market is already there as an engine of real-time data. And uh discussed uh with Bill P earlier today um the the jobs report um because that he specifically talked about the jobs report being a quote unquote echo of history. >> Absolutely. And uh and so the value of the jobs report, I think I mentioned this on your program, is not that it's accurate, but it's the first major release of how the job market is doing and it comes out on a fairly timely basis. That is why it has such a market impact. Um the challenge with jobs report is that part of it is is people are called up. Very few people are answering these phone calls anymore. Um the other part of it is that it's just super complicated if anybody really wants to understand it. Um the pool alleges that many people on the Fed don't understand the jobs report. That's how complicated this is. >> And I'm sorry I'm sorry to interject, but you and I have opined about this in the past. We live in the digital era with tons of real-time data. We don't necessarily need birth death models and stuff anymore. We can just get the exact payroll data. Well, one of the things that should happen, there are seasonal adjustments and economists love that stuff and and and say people miss that often announcement, but the seasonal adjustments should net out to zero. They don't do that in the jobs report when they do their adjustments. So, it's it's all a bit like what is this all about, right? Um and and so there's a lot of confusion there. Does that data s series need to be replaced? I don't know. Um, ultimately, of course, the Fed should look at additional data, but there are other data. Um, take oil prices, right? Those are real- time data. The Fed should not be predicting oil prices on its own because there's a freaking market for that sort of stuff, right? Um, that is far more accurate than anybody else's. The Federal Reserve should not be in the business of forecasting stock prices. I'm not saying that they are. They probably have some economist that does it. Um and so having an honest appreciation for what the market does I think is good. And my view is that yeah, you can rely on private industry but also I mean a lot of folks fixed income people say oh the Federal Reserve is just always doing what the two-year bond the two-year note is doing and uh and and yeah absolutely right listen to what the market is doing right if it's credible the Fed wants to is going to impose 2% inflation let the market tell you how to get there um and that's perfectly fine if that's the the direction the Fed is going to take. >> Okay. Um so you know and sort of my logic there that that um Wars said look my my my maniacal focus is price stability market said okay great this guy's a hawk. Um so they they pulled in the hikes. Is that pretty much why precious metals sold off was because they're saying okay look rate cuts are coming later then I guess. >> Well short-term rates zoomed higher right. I mean the precious metals prices somewhat react to those. Everything else equally was more hawkish. Um and so that does all of that has an impact on longerterm real rates which I think is a big driver of the price of of precious metals. And so if we have a quote unquote better Fed share who's able to control inflation better, all else equal, that warrants a headwind to to precious metals. um and and so that is that's it's quite appropriate in that sense. know I don't know you those who watch the market closely overnight um precious metals prices rallied again then they came they came off again a little bit and as we're talking >> and they've gotten whacked as we've been talking here silver I think is down 6% from its 24-hour high >> yes and and and so one I mean the other part of it is the immediate reaction to these prices one shouldn't always take take too seriously but um but Yes. Everything else equal. Kevin Walsh is a hawk at heart, right? And uh and some people say, "Oh, they don't know what he's going to do." Well, the reason they don't know what he's going to do is because the data is going to change in the next six weeks. I mean, I um if you watch the the FOMC conference, you got to get used to a new sense of humor. Um because um the the journalist wanted to tell them, "Hey, what what are you going to do? Don't you give me any forward guidance? And I'm not going to tell you anything. But the good news is in six weeks you'll hear from me again. Right? Because in six weeks is the next FOMC meeting. And and that's literally what it is, right? You gota you got to take the data as they come because the world is changing. Um especially in the year of Trump, right? I mean, you might have new terrorists, you might have a new war, you might have a peace agreement signed, you might have this or that. and and it's just you what the European Central Bank does is they publish scenarios um and they said well if this happens we'll do this and then like kind of they have an optimistic and different scenario and then they'll say well you got to figure out where we are in those things. So I think that's that's fair. What the European Central Bank does which I don't like is they think they are the best experts in the world um kind of saying we told you that exactly this is going to happen to the second decimal and we got to be right I know that right and so um Kevin W certainly doesn't have that but publishing scenarios is is certainly not a not a bad idea but he hasn't indicated that that's the direction he wants to take >> okay um so you know obviously there are things that the Fed can do to control inflation Um, with it looks like it's going to mostly be using the policy rate. Now, what appears to be the biggest driver of inflation right now is oil prices and uh it's something the Fed can't control, right? And uh you could say the Fed I'm guessing it might have been a different Fed press conference um if a peace deal hadn't just been struck. Um >> I I I don't I I'm not sure. I'm not sure. Um, first of all, um, the Kevin Walsh, one of the things he says very explicitly, the Fed does not worry about any prices at any given moment. The Fed worries about what the economists call the second round effects that higher prices due to a shock, for example, ripple through to the economy. That's his job. His job is not and yes, and he said as much, right? He watches he has a frequent meeting u with treasury secretary um but it's because they pay attention to what happens um but they don't they don't control the oil price right and the like and they worry about the fallout from um high egg prices high oil prices or whatever it may be >> right and so my question here is with a peace deal struck the straight presumably reopening uh you the administration at least has said, "Hey, oil is going to drop like a rock." I know there's some other analysts that disagree, but um presumably Wars is going to watch that really closely because that that may do his work for him, right? I might not need to hike if oil prices come down pretty swiftly and stay down. >> Yes. I mean, the market is going to dictate where where we're going to be. And uh now obviously the market is forward-looking and Fed policy acts with a long and variable lag. And so put this in the context of his productivity for example says you got to take a bet on something sometimes right? He says oh AI is going to make the economy more efficient. Let's just take that position. And of course there are some people that that might disagree on that but um and so if you take that position you might allow rates to be lower than otherwise but you don't have that luxury of taking that position when inflation is as high as it is right now >> and uh and so under Powell it was I framed it in a way saying he is haunted by what happened in the 70s. um the the the Walsh Fed is may come to the same conclusion but it's going to frame it very differently and I do think the framing matters. It may not matter to the folks who only care about where interest rates is, but it it matters in my view to kind of the overall and the one thing he does worry about um he doesn't wor Federal Reserve doesn't worry about asset prices because you don't want the Federal Reserve to to manage asset prices like where the stock market is, but they worry about financial conditions, right? And he was asked, well, are we in accommodative stance or not? and and so he he kind of punted a little bit and said well in the housing sector we got tight position conditions but not elsewhere and of course that can happen right there's plenty of access to credit for for AI investment right and so they got to look at the aggregate of of what is what is there and it's an indirect way I guess of of managing asset prices but you got to be very careful on on on how far you go down there but but yes in the in the in the short run there's lots of stuff happening in the economy and uh you got to watch is the what's going to happen to inflation expectations and uh if if they go up they got to act. I mean that's um right and if they don't go up you you have a little bit more leeway but if inflation is too high um and by the way just to put that out there Vulca the hero of of the hard money folks he did not get inflation down to 2%. it was towards the very end of his term and then with Greenspan where we got rates there. So all these talks they don't they don't use the sledgehammer to get inflation down to 2%. And so they all do a do a dance and so of course that leaves plenty of room for criticism. Um yet WA was still the hero right even though rates were actually very very high during his term. Um and so it's uh uh and so there'll always be plenty of room for the critics. Uh my point is that we are addressing many of the bad habits at the Fed. It matters because monetary policy was more more expensive. Kevin War accused um the Fed of enabling the excessive spending on the fiscal side. I think there are lots of to that and and and on the on the ample reser reserve thing on the huge balance sheet he says it's in charge of the K-shaped economy it's a big contributing factor and so I think um especially that aspect he's not going to be able to fix overnight um but attempting to address those I I think is super laudable. These are all moves in the right direction. >> Right. Okay. So, you're you're you're a fan and you know, I'm I'm happy for you and I've been rooting for >> and I I trust you'll have plenty of guests who will tear him apart. Um have us have a debate with one of those. >> Um and some people may say, "I've drunk the Kool-Aid or whatever it is." I've drunk that very slowly because I have followed him over the years, right? and uh he and I will speak up when he does something I disagree with. But I I have been waiting for somebody like him um to come to the Fed and I'm I'm thrilled that there is somebody there to do reform now. Now some people say, "Hey, abolish the Fed altogether." >> Yeah. But that's not going to happen tomorrow. Right. And by the way, one of the things one of the things that um >> um that I don't want to put words into Kevin Wars's mouth is, but one of the challenges of completely changing the system is if you have to go back to Congress, be careful what you wish for. So of course you can say something is completely wrong at the Fed. Let's go to Congress and let's have them change it. Well, who knows what's going to come out at the other end. So, if you're able to achieve much of what you want to do within the framework that there is, that's fantastic. So, one of the things for example, I think monetary policy and regulatory policy should be completely separated also from the perspective of does the president have the right to fire um somebody at the Fed. My view is that regarding monetary policy, somebody could be impeached by Congress but shouldn't be fired by the president based on the constitution. But on the regulatory side, absolutely the Fed should be able to fire somebody. Um there are different views on that. Some people say the president should be able to do anything in that regard and some nothing. But separating those duties would be helpful, but you might not be able to do that um without going to Congress, which you might not want to do. And so you can do that and Kevin Walsher is doing that by by just saying, "Yep, hey, um, yeah, we're independent, but it doesn't mean we're not accountable, right?" And so he is he's trying to thread that needle um carefully because I think he's aware that if he went back to Congress, it's it might create more problems than than solve things. >> That makes total sense. All right, Axel, we're gonna have to get to the um the the lightning round part of this, okay? Because you got a bunch of questions in a little time. I just want to finish where I was going, which is um it might have been a very different um FOMC release um if we hadn't had a peace deal, meaning let's say things were looking like they were going to go back to kinetics. Let's say that oil was, you know, rising above 100 bucks a barrel. Um that's something again that's out of out of the Fed's control. So, in that case, you would think that maybe Worsh might have come in and just said, "Look, I'm cutting. I'm just playing it safe, right? I don't know when this war is going to end. I don't know how I is going to go. Let's cut." I not cut. I'm sorry. Hike. Let's hike. Um I meant I meant to say hike. Sorry. You were you you were shaking your head, but now you're nodding, right? So, he he could he may have actually come in and hiked if if there was less clarity on what was happening with the war. Do you agree? >> Um I think his mission was to establish credibility at this meeting and he did. So whatever would have been necessary to establish credibility. Keep in mind right in the Fed world six weeks is nothing. So deferring the next doing no hike yesterday and then hiking in six weeks would have been an option. So I'm not sure it would have been a foregone conclusion because the market continued to price the conflict in Iran in as a shock as a temporary shock. >> Exactly. >> So you can you can push this this kind of you kick the you can kick the can down the road. Um there was no requirement so to speak to to if you look at the markets right a few weeks ago the market didn't price in in a minute hike right. Um, and so I think >> No, but but that's because oil was coming down because the market had actually sniffed out. >> Yeah, but it was it was volatile and and whatnot. So I'm I'm not sure he necessarily would have. Um but um yeah, it's it's certainly it's it's certainly conceivable that he might have, but I I'm not I'm not sure it's a it's not a And by the way, um you're talking about a peace deal, right? I mean we are pushing the can down the road on on those things u Iran on on many of the metrics >> and how dependable is this as Michael says the words peace and the words deal and the words deal are doing a lot of heavy lifting in that >> yes and and and just on that and I don't want to get political on this but >> anybody should we we kind of this is an investing channel right it's not a political channel and so it's about forwardlooking these are the costs we dealt with this will happen in the future. These are the choices we have and and so what does it mean for the markets? We can second guess whether it was a good idea to go in and this and that. But that's irrelevant really from from an investment point of view because there we have to be forward looking and that's how I try to to look at things. >> Yeah. Okay. So, where I was going with this is on the flip side, if um you know, right now I think Worsh did the sensible thing, which is to say, hey, look, the trends are kind of beginning to go in my my favor. So, let me not hike yet. Let me be patient and see. Um he he got his credibility. He he basically said, "Look, I'm going to do whatever it takes to keep inflation under control." He delivered that message. Bond market likes it. My point is is that who knows? But let's say if the price of oil does drop like a stone the way that the president has been saying. Um it may all of a sudden start give giving uh wars maneuverability here. And you know everybody is saying he's a big hawk but at the same time everybody knows he was put in his job by an administration that really wants him to cut. So if if inflation starts moderating enough, do you actually think that we could get back to cuts this year? >> Let me just replace the second half of one of your sentences saying >> that yes, he's a hawk, but he believes in the productivity boom, which is consistent with what the administration says, right? So if he were to cut, it's not because of the administration, but because he'll put more weight on the productivity boom. Um I think he if that were the case and that's a big and he thinks he can get the majority FORMC on board then he might. Yeah. The one thing to to keep in mind >> the FOMC pretty divided right now. So he's got half already kind of on that side. Right. >> But one of the things that is a big tradition at the Federal Reserve also in many other central banks they don't like to flip-flop. So they don't like it to cut this month and then hike the next month or vice versa. So you want to have enough certainty or so to speak that whatever trajectory you're on, you're going to continue. You might cut and pause, but you don't want to cut and hike. Now >> I personally don't think there's a problem with that, but that is not how the Fed works. >> Sure. and and and how how they do it because it creates you can do that if you publish the reaction function we're very quantitative and you just blame the model for flip-flopping I think that would be the way to to justify it >> but um and so it needs to be a little bit more than that also anybody who has listened to Fed officials speak that oh it's one jobs report we really need three reports in a row before we do anything that's part of that inertia right and it's part of the the the the the process of getting the folks at the FOMC on board. Um but in principle, yes, you're right. Um if a peace breaks out um and things work well, he might be inclined to cut rates and it's part of the reason why forward guidance is so useless because the world changes, things happen, >> right? And hopefully he'll train us to, you know, this new rules b the rules-based approach that he prefers and he'll make the reaction function a little bit more public so that the market can then start to anticipate what the Fed will do more correctly. >> Yes. And that's I mean I'm curious about that. One of the task force might do that. Getting a reaction function published, a more formal one is going to take more than six months. Um, but I'm curious as to >> Well, he's got what six years. >> Obviously, there's lots of choices, but he might just be happy with his more cryptic approach, saying, "I'm going to get it inflation down." Um, >> yeah, >> thank you. Good day. Yeah, I mean that that that that might work. >> All right. And remember, now we're in lightning round, so we got to give relatively swift questions here. Margar asks, "Expanding the money supply into growing productivity should not be inflationary." I would say should not necessarily be inflationary, but I'm splitting hairs. How does the Fed measure increases in productivity? >> Yeah, you got to get an economist on board. I'm going to only give you a high level answer, but there there are ways of it's it's the output per worker, right? That that that you measure. There are different ways of measuring that. Um and uh and you got to make sure that the data you look at are clean, that they're good, right? Um and there have been productivity gains have happened. Um, you can productivity gains can happen because you just work twice as hard during the hour you work and you don't play video games while you're on the job. Um, but it could be that technology helps you do things. I mean, none of us have a secretary anymore. We we do things ourselves. We've gotten more productive. Um, and we're enabling other people to be more productive. Um, but yes, there are market way there are ways to measure that and and and productivity has gone up. So that argument is there and uh Kevin Walsh can pull it off the shelf when when he when he is ready. >> Okay. >> And by the way um Powell um last December started talking about productivity gains as well and I've talked on your program how Powell has really presented the Fed on a silver platter and they are they are colleagues. they they want the Fed to succeed. And so he's been trying to make um Kevin Walsh's job easier. And Kevin Walsh says that there is a positive atmosphere at the Fed and they they all want the Fed to succeed. I believe that that they might disagree philosophically on on certain substance, but he may very well be able to convince the folks at the Fed that we should put more emphasis on the gains in productivity. >> Okay. I I also wonder too and I'm speculating here. The Fed's an old institution. It's bureaucratic. It's slowmoving. Um I think they want to feel relevant in the age of AI. And you know to be relevant you have to basically say all right AI is going to should be a big productivity driver. If so we don't want to miss that. We don't want to overlook that in its impact on the economy. >> Yeah. Well they they all have their framework of thinking. um many but not everybody on the Fed is an academic and so they they have their way and they of course have their political bias right um and so it's unfortunate that in economics a lot of are based on on on your politics it's uh I I once talked to um I I don't he said it privately so I shouldn't say who who it says but somebody said he is so glad that in his field. He's an academic, very well known. There's no Nobel Prize because it would just be I used a a very derogatory term what sort of people might get that prize, right? And and so and what he was referring to is that in economics the some idiots get a Nobel Prize that should never get it. It's it's just such a so he he does not think that the idea of a Nobel Prize in economics is is a sensible >> provides the right incentive structure. Yeah. >> Yeah. Um, this is a long this is a long comment and we don't even have all of it. Um, >> I'm gonna read it real quick and then you can pick whichever one you want to address. Um, was it really necessary for Worch to come out with such a declaration of a rejection of the previous regime? And it really and really it seems like the bigger takeaway is not the hawkishness, especially considering there was no hike yesterday and more about the volatility that will come as forward guidance is removed. You're shaking your head. If transitory inflation is removed and inflation comes down, won't it end up just being more of the same anyways? And are all these task forces really necessary? >> All right, let's keep that open. Let's keep that open. Um, and so somebody has drunk somebody else's Kool-Aid here. So, let me address that. Not trying to convince anybody. Yes, there's a new sheriff in town and you if you want change, you might as well announce it. And rejecting the past is good. Now, clearly a lot of Fed transitions say, "Oh, there's going to be continuity and so forth." But this is this is a institution that had been highly politicized. Change was necessary and uh I happen to like his approach and so yes, the rejection is good. Um the f the second one shows a the mistake that a lot of people in the markets are doing. There is zero evidence that the lack of communication will cause more volatility. Um the opposite may happen and the it really depends on many other factors. guiding the market in the wrong direction and having to change reverse course that creates volatility and that has happened and that's what needs to be avoided. Um will it be more of the same anyway? Well, I have said uh many times the rate path is really dictated by the market and in that sense is correct. But the underlying communication matters a great deal for long-term rates for the effectiveness of monetary policy. So it's because of that matters. Are all these task force really necessary? Well, I come back to the point I made in the beginning. He can't just waltz in there and say we're going to change everything. So, how are you going to do it? And the way you do it in a big bureaucracy, you create a comedy and discuss it, >> right? >> Um, and then you see what you're going to get done. He could have, of course, just worked in the background and tried to get it done, but you want to send the signal to the market that you're addressing these things. And that's what he did. He chose a task force. Um, I think it's a very appropriate vehicle. I know he's being ridiculed in the blogersphere, but everything is a task force now. Um, but I let the haters be haters. I think it's it's it's it's a very appropriate approach. Could he have chosen a different approach? Maybe, but this is this is a good approach. >> Yeah. Let's give him some leeway. It's his first month on the job, you know. Yeah. >> Um Okay. So, last question here before we wrap things up. Uh with Wars at the helm, is it time to look at divesting in the precious metals sector? This is this is probably what a lot of precious metals holders are thinking who don't know Worsh as well as you do, Axel. The guy comes in, precious metals get whacked. Ah, is a hawk bad for precious metals? Should we maybe take our capital and rotate it elsewhere? >> Well, all else equal, the answer would be yes. Uh, but we we um well, all else equal might be the wrong way of of phrasing it. If we didn't have those fiscal issues, the answer would be yes. Um that ultimately um it was Milton Friedman who said inflation is created by um government debt. Right. And so you're going to have that struggle that Kevin Walsh says the Fed is in charge of inflation. Milton Friedman says deficits. That's where inflation come from. They're both right. >> Freeman said money supply, right? Which are tied to that. But exactly. >> Yeah. >> Now Kevin Walsh is a big fan of Milton Friedman. Knew him personally. um they're both correct, right? And so if fiscal sanity breaks out in Congress and we have Kevin Walsh, I will would agree. But um but yes, it um Kevin Walsh is a headwind to precious metals prices all else equal. Um that is correct. Having a better having a better fellow there at the head. Um we do have we do have an opportunity here to do take this in many different ways. um precious metals have always been a hedge some somewhat that some things don't work well um at the Fed that as much as a quoteunquote fan as you put it I am of Kevin Walsh I don't think he can fix all the issues at the Fed um but on a relative basis yes um there is a um there's a headwind to the price of gold with with Kevin Walsh being there >> all right well two things give us your latest outlook for the precious metals let's say for the rest of the year uh and then square the circle for us that you are very heavily invested in precious metals through a variety of different vehicles of yours. How can you be a big fan of Kevin Worsh at the same time if it puts your professional interests at risk? >> If it puts my Well, um I I sold a small gold position late last year when it became clear that he would be the nominee. Um that said, I think I still have more gold and uh miners exposure than uh most if not all of your listeners. Um >> right, I sorry to interrupt, but in your answer, can you just provide are you still bullish on the precious metals despite >> Yes. Okay. >> Yes. Yes. And uh and the big reason is because um because of what's happening on the fiscal side. Um also because I do think that the Trump administration because they are so eager um to now boost the economy because of the midterms will double down on deregulation, will double down on they're not going to have fiscal restraint. um they gonna clearly are interested in lower oil prices and so all of that will take inflationary pressure down. All of that will allow the Federal Reserve to pursue the path of growth that there is and so there will be an attempt to engineer uh growth um at just about any cost. I think the credibility of Kevin Worsh will keep inflation somewhat low. But I do think that sort of environment is good for precious metals. The environment that's that's not good for precious metals is is this rep repression environment where where you have higher for longer kind of drum down in a in a low interest rate sort of environment. Um so I don't think we're in that that segment. Could we get to that? Um it's it's conceivable. Um but I do think one has to acknowledge that yes Kevin Worsh is a is a hawk and there's no way around that. >> Okay. Somebody here just wrote the comment gooey baby. Um, which you know, not uncommon to hear people say this when you're talking about the Fed. Would it surprise you slash maybe even shock you to see a Kevin Worsh Fed re resort to QE at some point? >> Yes is the short answer. But let me answer a different question because you earlier said um Kevin Walsh is going to use interest rate tool more than the balance sheet. Um what he had said before becoming Fed share is he would like to get the balance sheet down and so that he can have lower interest rates. So he looks at them in tandem. Now, we've also discussed he can't just shrink the balance sheet, and so we may have to wait until he tells us what his plans are with the balance sheet and how he's going to get there. Um, I think we're going to get rid of the ample reserve regime, take things down, and then lower interest rates. And so, that does not sound like QE QE to me. He is not a fan of QE. Um, and so, um, it would be a a quite a shock to me if he were to do that. Okay, that being said, I haven't looked at it in the past week or so, but the Federal Reserve's balance sheet has been increasing this year. Correct. >> Well, we have an ample reserve regime um and it will grow in that environment. >> So, as long as we have so it may well continue to grow until the end of the year until we know from the task force and and maybe beyond that, but but the and the market will not price in a shrinking balance sheet until we know more specifically what what the idea is. Um but and so if if people consider that QE that when there is more demand for credit the balance sheet is going to going to increase in that sense yes but QE the way I understand it is that the Fed is actively in the market um buying bonds and they may reinvest maturing securities um for the time being but it's a I don't think they will expand the balance sheet to to support markets in the QE sense of the world that I understand. >> Okay. Thank you. and you were answering the question I asked, but but just to make sure and it is a little >> little technical. >> Well, it just it's it's a little weird that okay, this new guy is in he doesn't like QE. He wants to shrink the balance sheet. But right now, for whatever reasons, the Fed balance sheet is remains increasing under his early days >> and and and so I get it that there are many cynics out there saying, "What the hell is this guy talking right some fanboy of of Kevin W." I I do think that the tone at the top matters and uh the direction matters and I wish him great success. Whether he's going to be able to succeed remains another question, but um it's an amazing opportunity. There is I mean just like the administration, right? Um they want to cut red tape. Did they succeed with Doge? Did they do this or that? Um, and of course there are going to be plenty of haters along the way amongst those initiatives and at the end of the day there are still government waste, right? At the end of the day when Kevin Walsh is all said and done in several years, will there be things to still criticize about the Fed? Almost certainly, right? >> Well, you don't you don't jump a big tree down with one swing of the axe, right? and so but I do applaud the direction that Kevin Wish was taking and I do believe that the the first ME meeting achieved all the goals that he set himself out to to achieve. >> Okay, I'm going to start wrapping up in just a sec. One one quick question for you just based on something you said earlier. You said um you know Kevin Worsh doesn't like the fact that the pay the balance sheet increased so much but also that it's got a still has a bunch of mortgage back securities on it and you made the comment about um doing a swap. Why couldn't the Fed just do a swap right now? What what business does it have mortgage having mortgage? >> And first of all I I'm a purist in that. I don't know whether Kevin Walsh is because mortgage back securities they're they're governmentbacked and all that right and so I'm a purist in that I think the Fed should not be in that business I don't know whether Kevin shares that view >> um but yes I do think there will be a swap of securities with treasury at some point >> I mean he said he's been somewhat busy and uh he and he also pointed out the Fed has many more roles in monetary policy um so he he cannot only do one thing at a time but but yes there will be an announcement of some swap at some point with Treasury of of sorts. >> Yeah. And let me just let folks understand this. So, um you know, it's it's not that different of let's say I'm an American. I have all my savings in dollars, but for some reason over the past year, you know, I started getting euros, saving in euros. So, so part of my wealth is in euros. And I'm like, you know what? I just want to have dollars, right? So, I could I could basically go exchange those euros with another bank, and they would give me the equivalent in dollars, and then my balance sheet would be all dollars. That's sort of what we're talking about here. >> It's more No, it's it's more than that because think about it having different subsidiaries and then and then having the the conglomerate balance sheet. It's really a consolidated balance sheet. You should look at it. Government plus treasure plus Federal Reserve. They may be independent, but it's still the same pot, right? And so you don't Why is >> But you could do that, couldn't you? It didn't have to be treasury, right? You could do it with banks. you could do. >> Not every not everybody has billions and trillions at their disposal, right? There's a limited number of players you can you can do this with. But but yes, they could do certain swaps with uh with the member banks. Um remember the the Fed is a is a member bank based institution in many ways, right? It's this quasi government thing, but it's really owned by the banks. And >> I get it. It wouldn't be simple, but basically my point is these are fungeable securities. like if if there's any issue with them having mortgage backs, just get them off the balance sheet and just bring on treasuries. >> Yep. It that that I think that will happen. >> Yeah. But um but um we'll we'll see about that. And but there's lots more wrong with the mortgage sector than just swapping those securities for different issue for a different day. >> All right. Well, Axel, I want to thank you again for doing this for us every time, but we have a uh a Fed release. I just want to give you some props here. Christopher here >> entertaining. Well, I am flattered that my nerdy talk was entertaining. >> Well, well, not not to burst your bubble, but he said the messages help and are entertaining today. I think he's talking about the live chat being the entertaining part, but he said you were excellent and informative, so so feel good about that. Um, all right. So, uh, let's see here. Um, Axel, for folks that really enjoy you coming on for these, who would like to follow in between you in between your appearances on Thoughtful Money, where should they go? >> If you enjoy NerdyFt Talk on Twitter, Axelmer is where I I do that. Um, I run Merc investments. We manage four billion in precious metals related securities and physical gold. Um, so that's place we have a we have a newsletter there that's free. But yeah, follow me, interact with me, reach out with questions. I try to answer them directly. Um, or one place to to hear me talk is on Adam Tag's program. I come once in a while. >> They they know that. And and folks, you know, we do these every time the Fed uh comes out with these FOMC releases followed by the chair presser. Um, folks have really been enjoying this, but if you would like us to continue doing this, just keep uh letting us know in the live chat or in the uh comments if you're watching the replay here. And of course, we will continue doing this for as long as Axel is willing to and as for as long as you guys want us to keep doing this. Um, couple quick things too, folks. Uh, if you haven't yet, please hit that like button. Uh, and definitely if you haven't yet, click the subscribe button and the little bell icon right next to it. Um, as a reminder, if you would like to get some help from a professional financial advisor in perhaps doing an audit of your current portfolio, giving you a sense of how it's positioned versus your goals and your risk tolerance and your personal situation, but also if you want to potentially take any action based off of any of the insights Axel shared today, if you don't already have a good financial adviser advising you on that, consider talking to one of the ones that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. To schedule one of those, just fill out the very short form right there at thoughtfulmoney.com. Only takes you a couple seconds to fill out the form. These consultations are totally free. There's no obligations. It's just a service they offer to be as helpful to as many investors as possible. And lastly, talking about uh the precious metals, um the precious metals endorsed uh company by Thoughtful Money, Miles Franklin, Andy Sheckchman's firm, is still offering their um buy junk silver from them at $200 spot promotion. And if you want to take advantage of that, go to thoughtfulmoney.combyold and fill out the short form there. Andy's firm will be in touch with you right away. I myself actually bought some uh physical silver today. Um you know hopefully let these lower prices work for you in the long run. Um and with that Axel I can't thank you enough buddy another great uh great summary here again excellent and informative and I'll even say on your behalf Axel entertaining >> and thank you and I hope I got everybody to understand why monetary policy is so much more exciting than a ball game. >> Oh god. Yeah. It's the sexiest. It's the sexiest thing around, buddy. >> All right, Axel. Um, and look, I hope to see you in uh in August out here in Reno for our fitness weekend. Folks, if you don't follow me on X, uh there'll be a general announcement that goes out on uh our Substack, and I'll put it on my socials, too. >> But, um we are going to do a a high-end fitness weekend here in Reno. Axel's already thrown his hat in the ring. So, if you come, you get to not only work out with Axel, but you get to talk to him on the side about monetary policy, which as we all know is the sexiest thing around. >> They're working out with Adam. I think you got All right. All right, my friend. Well, look, thanks so much for doing this. Look forward to seeing you soon. Everybody else, thanks so much for watching.