This is an audio transcript of the FT News Briefing podcast episode: ‘What would Kevin Warsh’s Federal Reserve look like?’

Victoria Craig Good morning from the Financial Times. Today is Monday, February 2nd and this is your FT News Briefing.

Low crude prices are prompting some belt-tightening for Europe’s oil majors. And what could the Federal Reserve look like under a chair, Kevin Warsh? Plus, consumer giants are facing a growing crisis after a widespread infant formula recall.

Madeleine Speed Something like this can irreparably destroy a reputation of a brand for years and years to come.

Victoria Craig I’m Victoria Craig and here’s the news you need to start your day.

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Europe’s biggest oil companies are expected to slash billions of dollars in shareholder payouts. Shell, BP and Total Energies report their full-year earnings this month and analysts predict the companies will slow share buybacks by as much as 25 per cent. It’s in a move to protect their balance sheets as oil prices are expected to continue weakening due to geopolitical tensions. In recent years, European oil majors have ploughed more than half their cash flow into repurchasing their shares that shrinks the number of them in circulation and supports the stock price. Overall, UBS says the industry has cut its share count by about a fifth since 2021.

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In the days since US President Donald Trump nominated Kevin Warsh to head up the Federal Reserve, plenty of Wall Street heavyweights have piled on the praise, but others are wary about Warsh’s desire to radically transform the world’s most important central bank. And there’s still a long road between Warsh and the top seat at the Fed.

My colleague Claire Jones, the FT’s US economics editor, is here to talk about what monetary policy might look like if Warsh is confirmed by the Senate. Hi, Claire.

Claire Jones Hi, Victoria.

Victoria Craig So Warsh, himself, was a Fed governor during the 2008 financial crisis when the Fed started its massive and controversial bond-buying program. But in the years since, he’s been much more critical of what he sees as the sort of mission creep at the Fed. What kind of changes does he wanna make to the central bank?

Claire Jones I think something that’s been really interesting about Warsh’s candidacy is that a key aspect of what he has brought to the table is this idea that the Fed needs a fundamental overhaul and, in particular, it needs regime change on its bloated balance sheet. And the Fed’s balance sheet really has soared in size since the global financial crisis of 2008. And that’s something that Warsh really wants to challenge.

Victoria Craig The other issue here is fed independence, which has been a key focus over the past year or so. We’ve talked so many times with you about this, as President Trump has put a constant pressure on Jerome Powell to lower rates. Where does Warsh come down on this issue?

Claire Jones Warsh is someone who really understands that the central bank needs to be free from political interference when it sets interest rates. However, he has been advocating for a rethink of the Fed-Treasury Accord, which is a document that came about in the 1950s and is seen as one of the underpinnings of the Fed’s independence to set interest rates free from political pressure.

Now, to be sure, Warsh isn’t talking about ripping up that accord, but he wants it rethought in a way where there’d be a smaller role for the US central bank and a bigger role for the US Treasury.

Victoria Craig And how does that align with Treasury secretary Scott Bessent? Thinking about the role of the Fed in the economy?

Claire Jones A lot of what Warsh has been saying chimes closely with what Scott Bessent has been arguing as well. Bessent said in quite a long and detailed article last year that you know, the Fed had been susceptible to what he referred to as gain of function. He thought it’d really become too powerful and both he and Warsh think that’s something that they really need to challenge now.

Victoria Craig So how are people within the Fed now reacting to this view of Warsh’s desire to shrink the central bank’s role?

Claire Jones So I think there’s two aspects of this. I mean, a lot of the criticism of Bessent and of Warsh has been about quantitative easing, which is the program under which the US central bank has bought trillions of dollars worth of US government and US government agency bonds. Fed officials very much think QE, as it’s known, is part of the usual central bank toolkit. So they really disagree with what Warsh and Bessent have been saying about this.

The other aspect is on shrinking the balance sheet right now. Fed officials are really, really reluctant to do this. They think it had cause a lot of turmoil in money markets in the US. And I think there will be a very strong pushback if Warsh wants to push through measures that would lead to a shrinking of the balance sheet very quickly.

Victoria Craig How likely is it that Warsh will be able to make these changes that he wants to?

Claire Jones I think it’s gonna be tough. I think he’s gonna face a lot of internal resistance within the Federal Open Market Committee, which sets US interest rates. I think he could face resistance from other members of the Fed board, including perhaps Jay Powell, if he stays on as governor. I think he also could face resistance from the White House on this. If he rapidly shrinks the US central bank’s balance sheet, that’s gonna push up, most likely, longer-term US interest rates. It’s gonna lead to people who wanna buy a house in the US having higher mortgage borrowing costs. And it’s also gonna lead to the US government having to pay more to borrow potentially. So I don’t get the impression that is what Trump wants from his Federal Reserve chair either.

Victoria Craig I’m sure there will be plenty more for us to dissect in the months ahead. Claire Jones, the FT’s US economics editor. Thanks so much for chatting about this.

Claire Jones No problem. Great to be on the show.

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Victoria Craig Three of the world’s biggest baby formula makers are facing a growing backlash. That’s after an ingredient they sourced from a single supplier in China was contaminated with a dangerous toxin.

Nestlé, Danone and Lactalis potentially added the toxin to hundreds of product lines before shipping them out to more than 65 countries across five continents.

To break all of this down, I’m joined by the FT’s Madeleine Speed, who’s been reporting on this story. Hi, Madeleine.

Madeleine Speed Hi, Victoria.

Victoria Craig So just walk us through this timeline. How was this contamination first discovered?

Madeleine Speed So the contamination was first discovered by Nestlé, which is the world’s biggest infant formula maker, back in December, when they were doing routine checks on one of their factories in the Netherlands. And they found traces of this toxin called cereulide, which can be very dangerous. It can cause vomiting and food poisoning in infants who consume it. They then told authorities and then started trying to get to the bottom of where this had come from.

This took a number of weeks because they had to test literally every single ingredient in multiple different product lines and they eventually traced it to an ingredient called ARA oil, which they had bought from a supplier in Wuhan in China.

Victoria Craig Now we should mention Nestlé told the FT it acted swiftly to notify all stakeholders about this issue. Lactalis told us it applies strict quality and safety protocols and it pointed out that this particular toxin isn’t on a list of required regulatory controls for infant products. Danone declined to comment.

But widening this out a little bit, Madeleine, there’s been a big market reaction to this discovery. What’s been happening?

Madeleine Speed Yeah, so after Nestlé flagged this, a number of other companies realised that their products were also potentially affected because they used the same supplier. So we’ve seen Nestlé as well as French group, Danone, have both seen their share prices fall significantly since they announced quite widespread recalls.

Analysts have been estimating the revenue losses that might happen as a result of these recalls. So in the case of Nestlé, Jefferies analysts estimated that they could lose up to €1.6bn of revenue. For Danone, it’s a bit smaller. It just affected sales of about 40mn because it’s a more limited recall.

But beyond those, you have the financial, less quantifiable, financial impact. Something like this can irreparably destroy the reputation of a brand for years and years to come until that company can rebuild back the trust of parents.

Victoria Craig And you reported that public health charities are calling for tighter controls on the sector. Does this point to wider problems with regulating this industry?

Madeleine Speed The industry always points out that this sector is already incredibly, highly and intensely regulated. That being said, there are still regular and frequent recalls, crises, shortages and regulatory scandals that seem to occur on a very regular basis.

So last week, the European Food Safety Authority announced that it was updating its scientific advice on cereulide — the toxin that was found in the ingredient. And this is essentially going to establish a safe amount of the toxin that can be used in an infant formula and detected in a formula before it is then gonna be triggering a recall.

That’s quite a quick turnaround and a quick reaction to an incident like this, which shows the sort of severity and urgency of this global crisis.

Victoria Craig Certainly a story for all of us to keep our eyes keenly focused on. Madeleine Speed is the FT’s consumer industries reporter. Thanks so much for your time, Madeleine.

Madeleine Speed Thanks so much for having me.

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Victoria Craig Before we go, there’s been a lot of volatility in the price of gold and silver recently. The latter surged to a record high on Wednesday and then plunged 20 per cent on Friday to a 2008 low. Our reporter found that that has caused pandemonium in New York’s fame diamond district. At least three large refineries on the so-called jewellers’ row took the unusual step last week of closing to retailers. That’s after one shop owner described what he saw as panic selling.

Worries over inflation, a weaker dollar and unpredictable US policymaking are behind the severe price wings. One dealer called it insane, crazy times, but an exciting moment to be in the metals game.

You can read more on the precious metals rollercoaster and all of today’s 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.

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