Federal Reserve gears up for change

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0:32Good morning from the Financial Times. Today is Thursday, June 18th, and this is your FT News Briefing. Huawei is in the middle of a major comeback, and U.S. President Donald Trump says he'll unfreeze Iran's assets. But first, the Federal Reserve is in its Kevin Warsh era. What we've given markets is a new chapter for the central bank, some fresh thinking. I'm Mark Filippino, and here's the news you need to start your day.

1:07New Fed Chair Kevin Warsh held his first press conference yesterday. It's an honor, a true honor to be back at the Federal Reserve and to take up this duty at a time of such consequence. The central bank kept interest rates steady at 3.5 to 3.75 percent as expected. The really big news is the changes that are coming to the central bank. Warsh said the Fed will be reviewing the way it communicates what it's thinking to investors and the general public. Claire Jones is our U.S. economics editor and was at that press conference following the meeting. Hi, Claire. Hi, Mark. I want to get into the changes that Warsh outlined in a second.

1:44But first, let's talk about how he and the rest of the Fed is thinking about inflation. The consumer price index rose by 4.2 % in May. What do we know about how the Fed wants to handle that? So coming into the meeting over the weekend, we've had this deal between the US and Iran, which has led to a sharp fall in oil prices. And I think some people thought the Fed might sound a little bit less concerned about inflation than officials have been sounding recently. That wasn't the case at all, both from the statement and Walsh's remarks in the post-meeting press conference. We got the sense that they're still very concerned.

2:22And Walsh suggested he's very, very serious about finally getting inflation back to the Fed's 2 % goal. Clary, you know how much I love the dot plot. We got one yesterday. For those who don't know, it's a graphic that outlines what members of the FOMC, the Federal Open Market Committee, are thinking about interest rates in the future. but there was one dot missing. Who was it? It was no one other than Kevin Walsh. Now going into this meeting, we knew that he wanted to revamp communications with Wall Street and the public. There was a lot of guessing, but you know, I personally thought that he wouldn't do a dot just because he's objected so much to the dots in the past.

3:02And that very much proved to be the case. He set out his stall and said, I'm not going to lay out what I think is going to happen to interest rates. I'm not going to lay out my economic outlook. And that's quite a sharp change in his first meeting. Another very interesting thing is it wasn't just Walsh. We got 18 dots for the projections for this year and next year. But for 2028 and the longer term, someone joined Walsh. We don't know who yet, but someone joined Walsh in not submitting the dots. So it certainly weakens the sense in which those dot plots are going to be the key tool for the way the Fed communicates with markets here on in.

3:43And communication was just a broader theme in Warsh's press conference. And generally, it sounds like there might be less of it going forward. Absolutely. Yesterday, we saw big changes to the Fed's statement too. It was a lot shorter using what, to my mind, was a lot more direct language. There's forward guidance about whether or not Fed officials want to raise or cut rates, that was gone too. He really left his imprint on the way the Fed is going to communicate already. But there's more to come too. I mean, he's going to do this task force. I suspect by year end, there'll be a review about communications broadly.

4:22He's going to look at press conferences. Dots, meetings and the like. He's going to look at transcripts, minutes, all these things. This is so different than how former chair Jay Powell used to conduct the Fed. Very communicative. The idea being that I want to catch the markets off guard. How does Warsh feel like the markets will respond to a change like this? Warsh's stance is less is more. When he speaks, it's going to be so vital to markets that they're going to better understand how the Fed responds to events. But he made clear to investors, There's no going back here. I mean, you know, he put it quite succinctly.

5:01What we've given markets is a new chapter for the central bank, some fresh thinking. And markets are going to have to adjust to that. So, Claire, what were your general impressions of Walsh's first meeting? You know, what was your big takeaway from it? This was a guy who people thought was hired by Donald Trump to cut interest rates. What we got yesterday was a very different Kevin Walsh. I found his rhetoric very hawkish indeed. All the focus was on inflation and maintaining price stability and getting back to that 2 % target for price pressures that the Fed has. That's not what a lot of people imagined when he won the nomination back in January.

5:47That's the FT's Claire Jones. Thank you so much, Claire. Thanks, Mark. Pleasure.

5:57President Trump says the U.S. will release frozen funds back to Iran, but only if Iran, in his words, behaves. We have taken their money. It's not our money. It's their money. And we froze it. Trump spoke at the G7 summit in France yesterday. He defended the memorandum of understanding his administration agreed with Tehran. If we didn't give it back, nobody would ever invest in the dollar again. He also promised Iran relief from sanctions under the same condition. The MOU extends the U.S.-Iran April 8th ceasefire for another two months. It reopens the Strait of Hormuz so oil can flow through it again, and it gives the two countries some time to agree to a nuclear deal.

6:36They're expected to officially sign the MOU either today or tomorrow.

6:46Seven years ago, Chinese tech giant Huawei received what many saw as a fatal blow. The U.S. government in 2019 cut off the company's access to American chips, software, and a key semiconductor manufacturing technology known as EUV, or extreme ultraviolet lithography. But Huawei was secretly working on sidestepping these curbs, and says now that it has developed its own backup chips that will eventually allow it to compete with U.S. rivals. Si Jing Wu, the FT's Asia Tech correspondent, has the story. Hi there. Hi, Mag. So what impact has the U.S. export curbs had on Huawei's business so far? So Huawei's AI chips has the dominant position in China right now, but that's mainly thanks to the U.S.

7:35export control. The market used to be dominated by NVIDIA, who can no longer sell to China its most advanced products. In terms of the other areas, I believe Huawei's smartphone is among the top three in China at the moment. And it's also expanding into electronic vehicles and many other different areas. So overall, it's doing very well. But now since AI has become a trend, AI chips is the main bottleneck. Now, how did Huawei respond when it was stopped from importing NVIDIA chips? So when they first planned all these backup products in 2019, it was basically just replacement. But now since AI has become a trend to solve the problem that it does not have access to the most advanced semiconductor production tools, which is the EUV, Huawei has come up with this technology, which is called logic stacking.

8:31And in simple words, it's basically to fold multiple layers of chips into one to make it more powerful. But it is quite complicated work. So Huawei is not going to be able to use it for its AI chip until at least 2030, according to the company's executives. So it will take them a few more years. But at least it's showing the world that it has found a plan to get around the bottleneck of not having a new UV. And that's giving the industry and the market a lot of confidence of China will be eventually able to achieve semiconductor independence. And that is the key message Huawei is trying to deliver.

9:12So let me ask you this. Is Huawei able to produce phones as good as an iPhone, for example? So Huawei currently is confident that it can produce this logic stacking chips for smartphones. And performance-wise, it will be similar to an iPhone or the most advanced Android phones globally. But because of the logic stacking technology, it will be producing a lot more heat and consuming significantly more energy. So the battery size for the phone will be a lot larger. So in order to compensate for that, Huawei then needs to reduce some of the other functions or find a way to make it more energy efficient.

9:53That was the FT's Si Jin Wu in Hong Kong. Thanks so much. Thank you, Mark.

10:03UK inflation unexpectedly held steady last month at 2.8%. The government figure came out yesterday and was below the 3 % that analysts expected. Higher prices for petrol and airfares were offset by food inflation slowing down, plus the cost of heating oil fell, so basically it all evened out and inflation didn't change. The data reinforces expectations that the Bank of England will hold off on raising interest rates when it meets today. Before we go, the Makerfield by-election is today. the constituency in northwest England has become a key battleground for Prime Minister Keir Starmer. That's because Andy Burnham, the current Greater Manchester Mayor, said he would challenge Starmer's leadership if elected as an MP.

10:47Burnham is the favorite, but he's got stiff competition from reform candidate Robert Kenyon. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

11:04Thank you.

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