Warsh Says Inflation Isn’t Slowing, Policymakers Will Bring it Down

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2:15with Carol Masser and Tim Stenevek on Bloomberg Radio. We're talking about Fed Chair Kevin Warsh. He warned about a couple things, okay? So first, he warned inflation isn't meaningfully slowing. He also stressed that policymakers are going to return inflation to that 2 % goal. But here he was earlier. You want to listen to him? He was speaking at the Fed's annual conference in Jackson Hole, Wyoming. Take a listen. We should not indulge a regime in which market participants are looking primarily to the Fed for their next trade. The Fed's a decision-making agency. We make choices amid uncertainty, and the data upon which we draw must be relevant, contemporaneous, accurate, and as actionable as possible.

3:01The Fed's price stability objective of 2%, as measured by the PCE price index, is a firm, fixed target. Achieving both sides of our mandate over the medium term is not an either-or proposition. We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed. Otherwise, we have work to do. That's our job, that's our mandate, and that's our charge to keep. Fed Chair Kevin Warsh earlier today, this morning from Jackson Hole, Wyoming. In Jackson Hole, Wyoming, we bring in Michael McKee, Bloomberg TV and radio international economics and policy correspondent.

3:43He joins us from a still rainy day, unfortunately, Mike. Hopefully when you're done talking to us over these next few hours, the sun will come out a little bit. In the meantime, I do want you to just give us some detail about what we learned new about the way that this Fed chair looks at the Federal Reserve's role and how he plans to bring inflation down. Well, I think we learned a lot. The issue is, should we have learned it earlier? That's what Wall Street was complaining about, but he made it clear that he's looking at the data and that he is focusing on inflation. And one of the things he clued us into is he's not just looking at the level or the change on a month-to-month basis, but he's also looking at the breadth of inflation, how many components are going up, how many components are going down each month.

4:30And he noted that the number going up was 54 % in the last month, which is more than half. So that told him that the economy still needed help, that inflation was still rising. So that gives the folks on Wall Street something to hang their hats on. They can look at the same indicators and infer from that, when we get new data, what the Fed might do. He made no promises about what they're going to do, but he did give them sort of a roadmap to how he's thinking about it, which is what they were asking for. Yeah. So he did kind of say, you know, if inflation isn't slowing, he said we have work to do.

5:09He basically pointed out and said that. Do you think that he loses credibility if the Fed decides not to hike come September? No, I think it's all going to depend on the data. He made it clear that at this point, the inflation rate is still too high and it hasn't been moving in the right direction. And so if we don't see progress in the CPI and PPI reports coming up in two weeks, then there's probably going to be a market move to price in a rate hike. And if one didn't come, then he might lose some credibility. But he probably would follow through if it was pretty obvious that inflation is going in the wrong direction.

5:47You know, the Fed chair speech is a big part of the Jackson Hole Economic Symposium, Mike, but it's not just about the chairman of the Federal Reserve. I believe everybody from the Fed is there except for Jay Powell. What is the other chatter that's happening on the sidelines right now? Well, the most important chatter is that it is raining here. So the hike that usually attracts most of the participants at this conference is likely going to be postponed. And I don't know what they're going to do with all of them. Maybe rent a Netflix movie or something. But beyond that, there's obviously questions about the topic of the conference itself, the symposium here, which is financial innovation in payment systems, which sounds very wonky.

6:33And it is. But for people who are in this business, it's important. And then there's a sort of undercurrent of we're wondering what's going to happen with Lisa Cook. Is the president going to come out and try and fire her again? And is there going to be any drama on that score while we're here? And finally, you know, a lot of central bankers aren't here this year from other countries because there's a G20 meeting in Asheville, North Carolina, starting on Sunday. And a lot of the finance ministers just went directly there. The Treasury folks will be there. And given what Scott Besant has been doing in messing around with the bond market, there'll be a lot of focus on that as well.

7:10I mentioned Jay Powell not being there. The reason that is of interest is because he is still a member of the Federal Reserve, and he has not stepped down. I'm curious if that is at all part of the conversation or what we need to know about him not being there? No, I don't think so. It's certainly noted by everybody. And I think everyone agrees here that it would have been very awkward for him to show up. It's very, very unusual for a former chairman to stay on the board. He has good reasons for doing so with all the Donald Trump stuff. But he doesn't want to take the spotlight away from Kevin Warsh.

7:44And he certainly wouldn't want to do it for Warsh's maiden speech, because as Warsh was speaking, everybody would be looking at Jay Powell. So he made the decision to stay home and nobody's begrudging him that at all. All right, Mike, I have one more question before we let you go. I know you've been talking about all the things that Warsh did say and everything he did, but is there anything that he did not touch upon that you were thinking, well, maybe he would have? What did he not talk about? You know, I don't think there was anything in particular that he didn't talk about. He touched on a lot of the issues that he's been talking about for quite a while, the Fed reforms, the five task forces, the idea that the Fed wants to develop an up-to-date measure of inflation.

8:29He didn't say they wanted the trim mean or anything like that, but he wanted it to be updated and modernized. And those are all themes he's been hitting. What had been missing is how is he going to attack inflation given the tools that he has? And he did come through with that today. Mike McKee, Bloomberg Television and Radio International Economics and Business and Economics and Policy Correspondent out there in Jackson Hole. Stay with us. More from Bloomberg Business Week Daily coming up after this.

9:14and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America plays out in one small town. Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back.

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10:07You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Let's talk trade because Canada will place counter tariffs on more than 700 products made in the U.S. as retaliation for a new set of import taxes by the White House. We did see earlier this week the news hit some U.S. and Canadian stocks, including automotive auto parts stocks. Among them was Linamar, the roughly$4 billion U.S. dollar market cap maker of components used in the automotive defense and aerospace industry.

10:44Think engines, transmission, suspension components, and more. Shares of the company fell more than 8 % on Monday, down this week by about 10%. That said, still up about 18 % this year. And going into the last 10 days or so before that, they were up more than 25 % this year. We've got with us Linda Hassanfratz. She's Linamar Executive Chair. She joins us from Guelph, Ontario. Linda, good to have you on the program. I want to get a firm understanding from you about what is and what is not subject to not just tariffs currently, but potential tariffs come the beginning of next year. Well, from Lindemar's perspective, more than 90 % of our sales have absolutely no tariff on them this year.

11:33And that has been the case for some time. So we are not being, we are being impacted a little bit on that less than 10 % of our sales that has a tariff. But the vast majority of sales do not have a tariff. And even this latest round of tariffs, the 338 tariffs that were enacted last week, do not impact our industry. The retaliatory tariffs, we also believe, will not be impacting us due to exemptions that are in place for manufacturing in certain sectors. So we feel we're in as good a position as we could be at the moment. What about tariffs on actually cars and trucks? Because that's the end product for what your products go and build.

12:28And I'm curious, if this hits your customers, then that certainly affects your business in a certain way. So are there knock-on effects, even if your specific products aren't affected, but the end product is? Yeah, I mean, obviously, if our customers are being impacted by tariffs, that has a negative long-term impact on pricing because nobody can absorb tariffs forever. So in the end, it all ends up flowing down to the consumer, which is not a good thing, right? If consumer prices go up for vehicles, then that could negatively impact demand and result in lower production in the industry. So that's obviously a threat for the overall industry, even if the parts suppliers are not seeing tariffs.

13:18Again, just to clarify, because there are a lot of moving parts and there's a lot of back and forth between the U.S. and Canada here. We did hear earlier this week from the president of the United States who said that on January 1st, 2027, tariffs on all cars, trucks, both large and small, automotive parts and steel will be increased 50 percent. Does that increase to 50 %? If there is not an agreement reached between now and the end of the year, will those tariffs affect your company? Yeah, I mean, up until the moment and until this latest potential tariff, there has been no tariff on auto parts.

13:59So if a tariff is imposed on auto parts as of January, it will obviously have a big impact on the industry. I mean, the industry is incredibly integrated from a supply chain perspective across really all three countries, not just Canada and the U.S., but also Mexico. But I mean, just Canada and the U.S., I mean, we've had free trade in automotive with the U.S. since the mid-1960s. I mean, this is decades and decades of supply chain integration. So parts are going back and forth over the border six, seven or more times to incur a tariff at each border crossing will cripple the industry. It'll bring it to its knees.

14:45So, I mean, I understand it's a powerful threat that the president is bringing to bear. But the negative impact to the industry, the vast majority of which of employment of which is in the United States will be very negatively impacted. So I think that certainly the U.S. administration is going to need to give very careful consideration before they decide to impose such tariffs just because of the blowback on their own country and their own businesses and workers. So at what point would tariffs affect production on your end? What's what's your take on that? After all we've been talking about, all we've been hearing you talk about.

15:31Yeah. If tariffs are imposed on auto parts, and this is a position I've held for since tariffs first started to be bandied about, you know, at the beginning of this administration, it would be a matter of weeks before the industry would be on its knees. In my opinion, it would shut down within a matter of weeks. Wow. What are have you heard anything from companies, the automaker, you know, the car companies? Have you heard anything from them? Are they thinking of changing plans? Have you heard anything? Absolutely not. I mean, our type of product in our industry are highly engineered products.

16:07They're products that you spend years tooling up and getting qualified for with your customers. significant amounts of testing required to make sure that they're meeting requirements around safety, around performance, around a whole variety of aspects. So this isn't something you can say, oh, I'm going to buy this transmission component or driveline component from somebody else tomorrow. Just not possible. This is a multi-year endeavor. So we've heard nothing at the moment. I mean, this is a very new, newly suggested threat that has been thrown out there. I personally think that we will come to an agreement before then.

16:55I mean, I think we were very close last week. There were, you know, a few renters thrown in the works at the last minute. I have a lot of confidence that we will come to an agreement before the end of the year, simply because we are so reliant on each other. Americans on Canadians, Canadians on Americans. We have decades, frankly, centuries of interaction and commerce that we have done together. There's just too much at stake to not find a way to address concerns that either country might have with the trade relationship. I firmly believe that solutions are available and will be reached before the end of the year.

17:39Yeah, we hear what you're saying, Linda, from lawmakers to governors in states that border Canada and governors that do understand the importance of the relationship between the U.S. and Canada. We're speaking with Linda Hassanfrats, the executive chair of the auto parts supplier Linamar. She joins us from Guelph, Ontario. Among your biggest customers, Ford Motor, General Motors, Volkswagen, Stellantis, Mercedes-Benz. I mean, you sell that to everybody at this point. When we talk to executives at many different types of companies, what they tell us about this environment is it's less about the actual back and forth when it comes to trade policy.

18:20and more about the instability of an environment where it seems like rules and regulations can change very quickly. As executive chair at Linamar, what do you want to see, not just from the Canadian government, but from the U.S. government as well, just to make it easier for you to do business? Well, I mean, I obviously would love to see us come to a resolution between our countries, You know, also with respect to the USMCA agreement and any changes that are being considered in that regard to to, you know, see that agreement further strengthened. I mean, it is already a very robust agreement that is working exceptionally well for all three countries.

19:10So anything we can do to make that stronger would be great. But frankly, you know, to think that we can operate, that we're going to suddenly go back to operating in this more predictable world, that just might not happen. You know, I think that from our perspective, from my perspective and our executive team, our focus is how do we operate? How do we continue to operate and thrive in a dynamic environment? Because I think things are going to be dynamic for a while. So, you know, things aren't predictable and we need to develop strategies that are flexible, that are nimble, equipment that's flexible, people that are flexible in their capabilities.

19:55So we can pivot where the markets are going and take advantage of opportunities, frankly, that are created when there is uncertainty and turmoil around you. That's been our focus. Not a hope that, you know, we're somehow going to go back to some level of predictability, but instead, let's adopt a strategy. And I feel like we absolutely have a culture that's well suited to handling a dynamic, volatile environment so that we can, instead of worrying about where things are going, simply react to opportunities as they present and be positioned strategically and in terms of how we're structured to be able to take advantage of that.

20:43So I think that's what companies that are going to thrive over the next decade need to do. Be flexible, be nimble, be innovative, focus on your balance sheet and be commercially astute. All right, Lyndon, the last 30 seconds we have, I'm going to put you on the spot. If you could sit down with President Trump and Prime Minister Carney, what would you tell them that they are thinking wrong about the North American auto market? What are they how are they not thinking about it the right way? Well, I think, number one, the Canada-U.S. trade relationship is not broken. I mean, when you look at Canada exports$400,$450 billion worth of goods to the U.S., the U.S.

21:22exports$425 billion of product into Canada. Like, we have a balanced trading relationship. This is not the problem. Let's identify what are the irritants. Let's fix them. Let's keep working together because it's a big world out there. and we're a lot stronger when we approach it together than we try to do so in a fragmented way. Linda Hassan-Pratz, Linamar Executive Chair, joining us from Guelph, Ontario. Linda, thanks so much. Appreciate it. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

21:55So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America, plays out in one small town.

22:35Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

23:01You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Lisa, you got this on our radar this morning. I was shocked to hear this just because, I mean, time, it's just hard to remember this stuff. But today marks six months since the U.S. and Israel launched their war with Iran. Yeah, it sits back and makes you think where we are today and what was being said back then when the war first started. Yes, that was February 28th. And based on what the administration said at the beginning of the conflict and continues to say, I think some may be surprised that the war is ongoing and now control over the Strait of Hormuz is at issue.

23:44We thought it would be worth going back and taking a look at the way the president has spoken about the war. Here is comments beginning on March 9th. Thank you, Mr. President. On Iran, you called it an excursion. You said it would be over soon. Are you thinking this week it will be over? No, but soon. I think so. Okay, and with respect to... Very soon. But we're finishing the job, and I think within maybe two weeks, maybe a couple of days longer to do the job. But we want to knock out every single thing they have. Now, it's possible that we'll make a deal before that. The stock market is good.

24:17The oil prices are coming down. And it's looking very good that we're going to make a deal with Iran. And it's going to be a good deal. It's going to be a deal with no nuclear weapons. We just made a great settlement of the war with Iran. And we're going to be subject to finalization of documents. We should get done over the next few days. We probably have a signing maybe in Europe. That was President Trump. Over the last few months, March 9th, March 31st, April 16th, and June 11th. A big thank you to Anna for putting that sound together. I want to bring in Michelle Jamrisco, White House and National Security Editor for Bloomberg News.

24:58She joins us from our Washington, D.C. Bureau. Michelle, there's a lot to get to. I mean, just hearing the president talk about a couple of days, a few weeks. Here we are six months later. Is the war any closer to being over? Yeah, well, it's a tough question to crack in terms of where we are in that timeline, Tim. And in part because we've been asking the same question the entire time from day one is how long will this take? What does the U.S. see as the timeline for the war, for military operations and then for negotiations? And now also, additionally, to get the Strait of Hormuz open, which remains a big, huge challenge, global challenge right now.

25:36So we've been at this for a while. And even after many of those clips that you just put up, you know, our own Jeff Mason was in the Oval Office and questioned Trump about the timeline. And, you know, somewhere around May, June, Trump started to say things like, don't rush me, Jeff. And he started to use the leverage of saying, you know, like, I can wait for as long as it takes. And, you know, while they declared the military campaign over, U.S. officials did then acknowledge that it might be quite a bit longer to sort of wrap up this war and actually extricate U.S. assets from the region. So that's where we're at right now.

26:10And the conversation has really changed around what the motivations were, what the strategy was or lack thereof, and what the timeline is going forward. Michelle, I do remember when he said, don't rush me, Jess. I remember that very clearly. I want to put into perspective where we are now, because today you had Iran's top diplomat. He said resuming diplomacy with the U.S. isn't possible. He also said it depends on the U.S. understanding that pressure doesn't work. So that being said, it doesn't seem like something the U.S. is going to consider. I mean, we are squeezing Iran's economy, the blockade in Iranian ports.

26:47Where do we stand right now? Well, Lisa, I would start with the caveat that, you know, we need to talk about what we talk about when we talk about talks. There's many layers of talks here. And at times we've been, you know, at pains to describe what Trump might be referring to if he's saying, oh, we're talking with this or that country. You know, whether it be a mediating country or with Iran and usually not directly, but through a mediating country, while Iran is also conducting its own talks, including with Oman about how to manage the Strait of Hormuz or what the plans are there. So there's a lot of, you know, kind of song and dance around what each country and specifically U.S.