US FINANCIALS: Insurers: Week in Review

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President Trump spoke to reporters during Warsh's press conference before departing France for the White House. 

• Q: Did you see the Fed decision? They held rates.
• Trump: "It's alright, whatever."
• Q: It looks like they may need to raise rates later.
• Trump: "It could happen. It's hard to believe. It just keeps the country down. It's so... it's so... unusual. But we have a very good guy over there now, so I'm guided by what he wants to do."

Warsh also hawkishly downplayed the tradeoff between the labor market and inflation, saying "I don't believe that we have a cruel choice. I don't share the view that was expressed a few generations ago that Federal Reserve chairmen show up at a podium and say you've got to choose. And you're going to have to decide whether you're willing to tolerate higher inflation to put more people at work. I don't believe in that. What I believe is if we do our job, we can make strong growth, low prices, and strong employment mutually compatible. So what you heard from the Committee today is we've got some work to done the price stability front."

• He called policy restrictiveness "uneven", restrictive on the housing market but not for financial markets - not exactly a rallying cry for lower rates.
• And he hardly played up the transitory nature of inflation, another key argument for would-be rate cuts, replying to a question about whether energy prices were driving inflation by saying "Inflation remains elevated relative to the committee's 2% goal. In part reflecting supply shocks that have driven price increases in certain sectors, including energy. That paragraph [in the Statement] goes on to say, to be clear, the Fed will deliver price stability.   My own judgment is the committee spent quite a bit of time not just in two days, but over iterations of a couple weeks. That's what we're prepared to say about inflation. But the commitment to deliver is strong, unanimous, and unambiguous."
• He said the Fed's "important job" was to ensure that "first-order" increases in prices "don't have second and third-order effects.".
• He is clearly wasting no time in his Fed reform agenda, taking the podium to announce the creation of 5 task forces, all areas that he has stated before: 1) Communications 2) Balance Sheet 3) Use and reliance on existing data sources 4) Productivity and jobs in an era of transformation (e.g. AI) 5) The Fed's inflation frameworks.
• Warsh said that he hopes these task forces would complete their work by year-end, and at this point we would guess he would advocate an end to the Dot Plot, a shrinking of the balance sheet, reduced/eliminated regular press conferences, "alternative" economic data, and a reconsideration of the Fed's models - again, all positions he'd advocated before, though today he said he didn't want to "prejudge the outcomes".
• On a last, subtle hawkish note - on the subject of AI, which has been seen by proponents of rate cuts as a factor set to drive higher productivity/lower inflation, Warsh did little to play up that dovish angle. "With respect to AI and the growth of datacenters and infrastructure around it, we're counting the demand side. And it is no doubt showing up in GDP figures. We can be less certain when we infer the timing and extent of the growth on the supply side. It may be an intuition the supply side is going to expand but it'll take longer. I just describe it this way. There's a race between supply and demand. Milton says the only thing we know about economics is there's a supply line, and a demand line, and they ultimately cross. When they cross and what are the implications for policy? The good news for you is we have a task force for that." In turn, the implication of that and the timeline for the task forces is that the disinflationary longer-run benefits (if any) of AI won't be assessed until later in the year at the earliest, meaning that won't really factor into near-term rate cut thinking.