The Fed’s Future & Kevin Warsh 7/17/25

0:00Bring in show music please. Hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod. The drama devouring Washington and Wall Street, the president versus the Fed chair. I don't think anyone on the entire planet can make a case that the Fed should not be independent. Are Jay Powell's days at the Federal Reserve so numbered that he'll be out before his term expires next year? I already think that there's a shadow Fed. We have a special interview with Kevin Warsh, the former Fed governor, one of two Kevins possibly waiting in the wings to be the next central banker. This isn't the first time you've heard me in the last decade say we need regime change at the Fed.

0:40It's not just about a person. It's about an approach to economics. It's about approach to what they're doing. And I'm troubled when I see them moving the goalposts. At the Fed during the great financial crisis, Warsh wants lower rates now. The inflation that has done huge harm to the American people. First, they blame Vladimir Putin. It was because of the war. Then what did they do next? They blame the pandemic. Supply chains, they would say. Well, supply chain was legit. When was the last Fed chair job interview so public? The broad conduct of monetary policy has been broken for quite a long time.

1:16Plus, Coke, it's the real thing with real sugar. And the long days and short nights in Congress. Doesn't it look like a kabuki dance? What's a kabuki dance look like? We use that all the time. We do. No idea. It's Thursday, July 17th, 2025. Squawk Pod begins right now. Stand Becky by in three, two, one. Cue, please. Good morning, everybody. Welcome to Squawk Box right here on CNBC. We're live from the NASDAQ market site in Times Square. I'm Becky Quick along with Joe Kernan and Andrew Ross Sorkin. Anybody drink regular Coke? You've got to be crazy to drink regular Coke. You used to. I would if I could.

1:57I would if I could. I like Diet Coke better than Coke. I love Diet Coke. You run on... I love Diet Coke. I don't like the F. And I like my coffee, as you know. I'm drinking Sprite Zero now, but... That's good, too. Do you ever run on a treadmill? If you run... I don't run very fast, but running is an operative term. If you get 140 calories burned off, it takes like a half hour. You should not be drinking Coca-Cola. That's one, that's like, you can either drink a 12-ounce Coke or run for, you know. I'm with you. It's empty calories. Diet Coke. You're crazy. Coke Zero. Do it. No, I know. If you're going to do it.

2:30I know. But if I could, and if you ever feel like upset stomachs or something like that. Yes, very helpful. Regular Coca-Cola is amazing. I don't know what it is. What is it? Fructose? It's like corn syrup. But I think we think, although the recipe's secret, that's the expectation. But I think, I thought in Mexico they made it with real food. I believe in Mexico it tastes a little bit different. and maybe a little bit better. You gotta love the president likes the Diet Coke. Oh, they said real sugar in Mexico. The Diet Coke. Pure cane sugar? I don't know if it's pure cane sugar. No, she said yes.

2:58The Diet Coke to wash down the Big Macs and the fries. I do that a lot. I do that. There's sometimes I've done that. Give me those nachos. Diet Coke. But extra cheese. Yeah. In time, President Trump now denying that he has plans to fire Fed Chair Jay Powell a day after he asked a group of House Republicans if they thought he should proceed with that move. Here's what the president said yesterday about it all. Completely ruling out the idea of firing Jerome Powell. I don't rule out anything, but I think it's highly unlikely, unless he has to leave fraud. I mean, it's possible there's fraud involved with the$2.5,$2.7 billion renovation.

3:41Now, in that clip, President Trump was referring to an over-budget renovation of the Federal Reserve that has drawn criticism, but that many see as a pretext for President Trump ousting Powell. In a radio interview that aired later in the day, the president then said that he would love if Powell resigned, but acknowledged removing him would disrupt markets. Goldman Sachs, the CEO of David Salomon, Bank of America's CEO of Brian Moynihan, both weighed in on the Fed yesterday during interviews right here on CNBC. I think central bank independence, Fed independence is very important, and it's something we should fight to preserve.

4:15The stability of this country is actually necessary and important to the whole world. And I think a stable Fed, an independent Fed is key to that. Fed Chair Powell has been getting some support from an unlikely source. That's Massachusetts Senator Elizabeth Warren. I mean, I understand that the idea of firing Powell to get lower rates would make you question Fed independence. But I don't think anyone on the entire planet can make a case that the Fed should not be independent. because it's the most obvious thing in the world that there are times when you need to take some tough medicine. And because we all live through Paul Volcker and 21.5 % prime rates when inflation was created, we know that you can't just keep the good times rolling all the time or you're going to get South American inflation.

5:05So I don't even know why, you know, we call it news when someone says that they think the Fed should be independent. independent. It seems like the president is. Well, I know that's what I said. But the idea that you get rid of someone because you want lower rates and I'm not saying we shouldn't have lower rates. I'm not saying we should. Nobody knows. Right. And the Fed has a tough position. They really do. But when you're always waiting to see something before you do something, you're never going to be ahead of it. But there's you know what I mean? If you had to choose right now, is inflation worse or is the possibility of a slowing recession or of a slowing economy?

5:45Inflation. Which is worse? You think inflation is worse? Well, if it gets out of control. I mean, that's. But either one, if you if you wait till you know, then it's going to be hard to stem it. But do you think that the FOMC has some magical insight? I wish they did that. You need someone. That's why guys that know things that are going to happen are money managers. They're not working. But money managers aren't always right. No, they're not always right either. But if you knew, you could make a bet now. But I kind of think inflation, now I'm thinking that it's not the main thing. I still go back to the idea that I think that the market's already seen through the fact that Jay Powell is not running the Fed.

6:25Oh, it's already a shadow Fed. That I already think that there's a shadow Fed. And I think that these comments have already put the independence of the Fed not in quite a way. question, but sort of optically and just even psychologically how the market thinks about what's happening. I think the bad news is, I think that the Fed is going to be much less likely to cut rates because it's going to look like they're caving. Well, that's the other thing. I know. Well, we're three talking heads opining. We have Warsh coming on. So someone that might be in that chair someday. And we're going to talk to him.

7:02We can talk to him a little bit better. And amid President Trump's criticism of Jay Powell, we're hearing from other Fed voices on the economy. New York Fed President John Williams said yesterday that monetary policy is in the right place now to allow central bankers to monitor things before doing anything, taking next steps. He also warned the trade and tariff impacts are only just now starting to impact the economy. Meanwhile, Atlanta Fed President Rafael Bostic saying he still supports holding interest rates steady, though Bostic is not a voter on rate policy this year. Have all members voted?

7:40Have all members voted? Do any members wish to change their vote? On this vote, the yeas are 217, the nays are 212. The resolution is adopted. And the House adopting a rule late last night to bring forward cryptocurrency legislation. That vote took more than nine hours as Republican leadership worked to win over holdout members. Originally, I think there were 13 Republicans who had voted against it. So it was a bit of a heavy lift. It did set the record for the longest vote in modern history. A bill to establish federal guidelines around stablecoins is likely to be the first bill that's passed.

8:17The Senate has already approved that. Also set to come under consideration is a separate bill to create market structure rules for crypto products. And the Senate voting early this morning to pass a package of spending cuts that was requested by President Trump. It cancels previously approved funding of about nine billion dollars for foreign aid and corporations for public broadcasting, which of course funds PBS, also NPR. The vote 51 to 48 and then followed by a 13-hour series of votes on amendments. Republican Susan Collins and Lisa Murkowski voted no on that bill. They'll now head back to the House, which narrowly passed it last month.

8:55It will need to be approved and signed by President Trump by the end of the day tomorrow for the proposed cuts to stand. No one can cut anything, even Republicans. I mean, the margin was like two in the house and barely, you know, barely did it here as well. The thing with where it takes nine hours, did these do they know they're going to eventually do they get something? Probably. Maybe it's either you get something or it's a huge amount of pressure that's brought to bear. Like, hey, it's on the holdouts. It looks like a Kabuki dance. Doesn't it look like a Kabuki dance? So this thing, I mean, you wonder why people.

9:30What's a Kabuki dance look like? uh i we use that all the time we do no idea i can't i think it's the costumes that are more secret dance or something yes no no it's a i know it's japanese theater yes but i think it's i don't know what it looks like it's different than the horizontal mom though i know that i'm sorry i watched shane gillis and the sb um awards was that no but i figured what the hell because he did in every single thing he said he goes whoa we talked about that uh i knew it wouldn't work for, and it was... As we, yeah. Yeah, exactly. But he was getting a lot of play on social media.

10:07Some people think he went too far. Other people thought it was funny. But if you want, check it out. You can see all these. You don't have to watch live, Andrew. I'm thinking, I'm going to leave you out there on that limb. I'd rather do the chicken dance. Yeah. Yeah, okay. I'm a little afraid. But the kabuki, can we see what that, I think it's costume. I was looking at it. It was big costumes, big... A lot of pomp and circumstance. A lot of pomp and circumstance. But nothing, it doesn't accomplish anything, I guess. That's sort of a kabuki dance. Maybe that's the, I don't know. But you looked it up.

10:42I'm going to look it up, too. We'll talk about it later. We'll have to figure a little bit more. Maybe we can get some video. President Trump says Coca-Cola will be updating its American ingredients list. That news coming in a Truth Social post from the president, who is a noted fan of Diet Coke. He said, I've been speaking to Coca-Cola about using real cane sugar and Coke in the United States, and they have agreed to do so. He added, it's just better. U.S. Coca-Cola is made with high fructose corn syrup, at least as best as we know it is a secret recipe. Archer Daniels Midland is one of the biggest producers of that ingredient.

11:18The shares for Archer Daniels are down by about 5.7%, much lower in the pre-market. When asked later yesterday about the president's claim, Coke didn't explicitly say that it would make that switch to cane sugar. In a statement, the company said, we appreciate President Trump's enthusiasm for our iconic Coca-Cola brand. More details on new innovative offerings within our Coca-Cola product range will be shared soon. So if you're reading through the corporate speak here, it sounds to me like, oh, my gosh, he made public comments that we were making to him kind of privately with maybe something we're planning.

11:52I would almost wonder, based on that statement, if they're just going to do a different line of Coke that says pure cane sugar and keep the old stuff there, too. In fact, they go on to say that they're thinking about introducing something called New Coke. Do you remember that? Yes. It was during the Cola Wars with Pepsi. And it tasted like... Pepsi. Yeah. I mean, the reversal on that. That was really great. Is that like 30 years ago? No, it's like 40 years ago. It was like 40 years ago. Yeah, but it was back in the 80s. Huge hoopla. Maybe 35 years ago. Big campaign. They did it. Like, why? It's also been written up in business schools because they thought they were losing out to Pepsi.

12:31They wanted to catch the Pepsi generation was going on at that time. They wanted to capture the younger generation. It's also the fastest about face that you've just about ever seen. Yeah. Where this is a marketing stroke of genius or actually corporate governance that is still studied to this day at Harvard and other places about how quickly they pulled it and said, never mind. We made a mistake. We're going back to the old. But here we are now with 10 different versions, Coke Zero, and they kind of did introduce a bunch of new Cokes, but they just didn't. But they didn't get rid of the old Coke.

12:59Yeah, but they didn't. That makes a big difference. I would be shocked. Oh, in fact, then they start calling it Coke Classic. Coke Classic. Coke Classic. Cheese will be next. Coming up next on Squawk Pod, the economist who may end up leading our central bank, Kevin Warsh. He's calling for regime change at the Federal Reserve, and he isn't pointing at Jerome Powell. He's pointing at the entire institution. I think we could use a new idea, a new theory of inflation, so let me practice one for you. Okay. Inflation happens when the government prints too much, spends too much, and lives too well. An extended conversation about inflation, policy, and America's economy is right after this.

13:45Welcome back to Squawk Pod from CNBC. We're diving right back into the conversation around the Federal Reserve in the U.S. A few questions. Can the president fire a Fed chairman? And whether he can or can't, does or doesn't, in May 2026, we will have a new one. Jerome Powell's current term at the central bank will end. And all indications point to a new candidate emerging, possibly someone we know. So who will it be? And what's the approach to both monetary policy and staying independent of the administration? The highest profile candidates so far include Kevin Hassett, current director of the White House's National Economic Council, who you may know from our interviews over the years, including one just this Monday.

14:27I think that we definitely need to rethink the way the Fed's acting. We 100 percent want independent monetary policy, but it sure looks like they need more congressional oversight on things like the way they built their buildings. Another candidate, another Kevin, Kevin Warsh, is coming up in conversation. Like with billionaire Home Depot co-founder Ken Langone earlier this week about a possible Trump golden age, he said this. He's acting presidential. I'm impressed with the people he's got around him. I had a nice chat with Kevin Warsh last week, and part of my positivity comes from my discussion with him.

15:01By the way, you can hear our conversations with both Kevin Hassett and Ken Langone on SquawkPod if you scroll to previous episodes right in your feed.

15:13Today, we hear from Kevin Warsh himself. He is a Fed veteran, a central bank governor during the financial crisis of 2008 and 2009. He also served as one of President George W. Bush's economic advisors and worked at Morgan Stanley in mergers and acquisitions. Wall Street is considering what either Kevin might do with the Fed. But change is certainly coming. The Wall Street Journal's chief economics reporter, Nick Timuros, a bit of a Fed whisperer, joined our TV broadcast today. We are going to have the most unusual Fed transition ever, you know, since at least the Volcker one. Because in 87, you know, Volcker to Greenspan.

15:48In 06, when Bernanke came in, Yellen and 2014, pal, they all pledged continuity with their predecessor. They said, I'm going to step into the shoes of my predecessor. I'm going to try to be the same Fed. And now we have people who are running for the job who are saying, I'm going to be completely different. Let's get back to Joe, Becky and Andrew with Kevin Warsh. Becky kicks things off. Kevin, we are very glad to have you here with us this morning. Becky, it's great to be with you. It's a slow, lazy summer day on a Thursday. I don't know what could possibly be on your mind. By the way, we booked you before a lot of the blow up that came yesterday with what was happening.

16:25But you are here and you are somebody who has been mentioned on the short list for people who would be headed to the Fed. We've thought that for a long time. We've had people like Ken Langone, who was here earlier this week, talking about how he is a huge fan of yours. I just wonder what you're thinking right now where you see things. Well, I think Ken's a great man. He's he's an American hero. I came to know him when I started to work for Druckenmiller about 15 years ago. And I talked to him all the time. And I usually ask him what's going on in the real economy. Almost everything he touches turns to gold.

16:56And over the last six months, every month, he would just sound a little bit more positive about what was happening. And he told me something's happening out there that's different. And I said to him once, I might sound a little like Joe. I said, why aren't you more supportive of the president then? This is because of policy. And I think, listen, my sense is that this is we're at the forefront. We're at a transformational moment in U.S. economic history. This is, as George Shultz told me before he passed a hinge point in history. I think the president's language is this could be a golden age. And frankly, I think they all could be right.

17:29Good policies could advance this U.S. economy. What we call AI in a couple of years, we'll just call business. And AI is going to make almost everything cost less. and the U.S. can be a big winner. That's my argument to Ken. I think Ken's now come on to the president's side. That's what he said when he was here. And it's a hugely exciting moment. If I were to step back for a minute, if I were the president, what I'd be worried about is a central bank that doesn't see any of that. A central bank that is stuck with models from 1978, governance from a prior period, and don't recognize we could be at the front end of a productivity boom.

18:08and if I were the president, I'd be worried that they might not see it. And they might think economic growth is somehow going to be inflationary. I think we were probably in the early innings of a structural decline in prices. Ken sees it on the front lines of real businesses. And I think if you look over the period of the next year or two, it's a pretty special moment. We've been talking today about how far the Fed should forecast, how predictive they should be if they should be dependent on data that's coming in. And, you know, there's one school of thought that says it would be better to have somebody who sees this and can anticipate in advance.

18:46That's what great money managers do. But great money managers don't always get it right either. We spoke earlier with Nick Timmeros, who made the point that, look, sometimes it's better to wait so that if there is a mistake, you can recalibrate much more quickly. So I heard a little bit about that interview and I heard Nick say something like, well, what we need is continuity. My goodness, I think that's the last thing that we need. The broad conduct of monetary policy has been broken for quite a long time. The central bank that sits there today is radically different than the central bank I joined in 2006.

19:23Six, I don't think we need policy continuity that brought about the greatest mistake in macroeconomic policy in 45 years, that divided the country, that caused a surge in inflation. I don't think we need continuity when the central bank doesn't have credibility. Last September, Becky, as you'll recall, the Fed cut interest rates 100 basis points, 50 basis points before the election, 50 basis points after. Inflation was 50 percent higher then than it is now. And what did the bond market do when they cut rates? Long rates went up 75 basis points. That's a credibility crisis. So, listen, this isn't the first time you've heard me in the last decade say we need regime change at the Fed.

20:08It's not just about a person. It's about an approach to economics. It's about approach to what they're doing. And I'm troubled when I see them moving the goalposts. It is very puzzling to me, Becky, how you could think that we should do emergency rate cuts last September. And now all of a sudden you stand there like a hawk. That's not good for the institution. I don't think it's good for the economy to be changing the goalposts like that. Let me ask you, as somebody who's been there before, how much power slash influence the chair ultimately has if you're in a room with 12 other, 11 other voting individuals who may not agree with that person?

20:48Historically, there's been sort of an alignment. Everybody's tried, I think, to come to a unanimity on most things. and whether you think that the Fed, I don't know if in history there have been times where there's been, you know, complete and utter distinctions between views on the Fed and what it ultimately means. So there have been exactly those times. Paul Volcker, when he came in, not only have 12 years of experience in government and six at the Fed, I've got some knowledge of Fed history. Paul Volcker came in and said, we don't need continuity, we need regime change. and it was that regime change that brought inflation back and reestablished the Fed as this beacon of credibility.

21:32But the president at the time put in some members under the Volcker team afterwards that forced what some thought would be a coup. It hasn't always been pretty. In fact, my own view, Andrew, is what the Fed needs is more robust discussion of ideas, less groupthink. I don't like it that everyone's following the same models. To give you just one simple example, the dominant models at the Fed, which might have been the best models there were in 1978, what do they think, Andrew? They think inflation comes if the economy runs too hot and workers get paid too much. That's not my view. I think we could use a new idea, a new theory of inflation, so let me practice one for you.

22:12Inflation happens when the government prints too much, spends too much, and lives too well. That theory, that theory that money has something to do with monetary policy, is nowhere in the central thinking of the Fed. I think if those ideas were imported into the discussion, we could have a good family fight about it. You don't get to decide how much is spent. That's up to Congress, and the president has to sign off on those things. Would you support them? And I guess the biggest question, Kevin, is people are wondering, the next Fed chairman, is he going to be independent? Is he going to say, and I say he because right now the candidates that we're hearing are all men, is he going to be independent?

22:53Is he going to do what he thinks is right, despite what the White House may advise or think, what the administration thinks? So in a word, yes. So I've strongly believed for 20 years and history tells us that the independent operations in the conduct of monetary policy is essential. But that doesn't mean the Fed is independent in everything else it does. In fact, if I look at the track record of the Powell Fed over the last six or seven years, they've tried to say, how dare you be critical of us? We're independent in everything. Well, that's nonsense. They wandered into climate change, a subject upon which they have no comparative advantage.

23:31With a change of this administration, they said, just kidding. They wandered into another political area of which they were never assigned, diversity, equity, and inclusion. They changed the remit that Congress gave them about whether they were in the business of full employment or full inclusive employment. This change in their definition in 2020 is one of the key reasons why we had the great mistake, the great inflation. And on spending, Becky, during the period of the last administration, what did they say to Congress? Spend, spend, spend. So like you, I think they should stay in their lane.

24:07But it's very strange to me that they're asymmetric. Spend a bunch of money when it's popular. And now if you get asked about spending constraint, what does the leadership at the Fed say? Oh, no, that's not about us. You should establish what the rules of the road are and stick with it regardless of the administration. I think the Fed has done a very good job of blaming others for their mistakes. It's been very popular to blame the president because he's being so mean to them. Well, most of the Fed's mistakes are because of choices they've made. They've done a very good job in the business of politics.