Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Last week, the halls of Congress were a buzz.
Speaker 3: Committee will come to order.
Speaker 2: It was a big day for the House Committee on
Speaker 2: Financial Services.
Speaker 4: The Federal Reserves semi annual Monetary Policy Report inventive title.
Speaker 4: We use semi annually here on the committee.
Speaker 2: In case you missed it. That is a little bit
Speaker 2: of Federal Reserve style of humor from Committee Chairman Patrick McHenry.
Speaker 4: I see Chairman Powell smile. It's just three hours.
Speaker 2: In the hot seat. For those three hours is Jerome Powell,
Speaker 2: who doesn't joke around much, and for good reason. He's
Speaker 2: the chair of the Federal Reserve. His decisions about interest rates,
Speaker 2: move markets and the entire economy. Not that you'll hear
Speaker 2: that from him. In start, contrast to almost everyone else
Speaker 2: in Washington, Powell shies away from dramatics. He's intentionally kind
Speaker 2: of boring, and tends to downplay the power of the
Speaker 2: Fed's actions. Listen to his response to Gregory Meeks, a
Speaker 2: New York Democrat, Inflation is also now coming down faster
Speaker 2: than any place else on the planet.
Speaker 3: Just about Is that not correct? I think that's right. Yeah.
Speaker 2: Powell's response is pretty bland, But bland is kind of
Speaker 2: the point for the FED chair. When Powell speaks, markets move,
Speaker 2: so he doesn't want to be dramatic or declare mission accomplished.
Speaker 3: We wouldn't be, you know, declaring victory like that.
Speaker 2: Or do anything that people might interpret as a hint
Speaker 2: to what FED policy will look like in the future.
Speaker 2: He specially doesn't want to say anything that might be
Speaker 2: seen as political, and that puts him in a really
Speaker 2: tough spot right now because the US economy is at
Speaker 2: the center of the twenty twenty four election, and the
Speaker 2: decisions that Powell and the FED make have a powerful
Speaker 2: effect on the economy that each candidate hopes will hand
Speaker 2: him the White House. Today on the show, I speak
Speaker 2: with Bloomberg Fed editor Kate Davidson about the Central Banks
Speaker 2: politics problem and the growing pressure on j Powell.
Speaker 1: The closer we get to the election in November, we
Speaker 1: can expect that things are going to get a little spicy.
Speaker 2: Can the FED battle inflation in the glare of electioneer
Speaker 2: politics all while maintaining its independence from Bloomberg's Washington bureau.
Speaker 2: This is the Big Take DC Podcast. I'm Salaiah Mosen.
Speaker 2: I've covered economic policy for years, from the White House, angle,
Speaker 2: the Treasury Department, Congress, the Fed. I even have a
Speaker 2: book coming out all about the dollar, so I can
Speaker 2: get pretty wonky. But someone who never gets bored talking
Speaker 2: policy with me is my colleague Kate Davidson.
Speaker 1: I lead our Federal Reserve coverage, and honestly, when I
Speaker 1: first came to Washington and I got into covering the
Speaker 1: banking industry and regulation after the two thousand and eight
Speaker 1: financial crisis, have found myself thinking like, how did I
Speaker 1: stumble into this? How do I explain this to people?
Speaker 1: It feels so removed from my everyday life and what
Speaker 1: seems important to me. But I quickly realized it is
Speaker 1: so important.
Speaker 2: Kate was my arch rival at the Wall Street Journal
Speaker 2: and political for years. We were always competing for scoops,
Speaker 2: but now we're scooping for the same team, and there's
Speaker 2: nobody better to break down the job of the Federal Reserve.
Speaker 1: So the FED is charged with basically managing the economy,
Speaker 1: and the primary way that the Fed affects our lives
Speaker 1: is by influencing the cost to borrow money.
Speaker 2: The cost to borrow money as an interest rates. When
Speaker 2: the FED wants people to spend more, you know, juice
Speaker 2: the economy. It lowers interest rates, so it's cheaper to borrow.
Speaker 2: When it's cheaper to borrow, people and businesses spend more,
Speaker 2: they buy more, invest more. That grows the economy. When
Speaker 2: the FED raises interest rates, people borrow less, they spend less,
Speaker 2: and the economy slows down.
Speaker 1: So credit card rate, it's auto loans, mortgages, all of
Speaker 1: these things are influenced by the rate that the FED sets.
Speaker 2: Now, one thing that you said was a little bit confusing.
Speaker 2: Why would the FED want to slow down a consumer
Speaker 2: driven economy.
Speaker 1: Yeah, well, it all goes back to inflation.
Speaker 2: Inflation meaning prices rising. The FED likes to see prices
Speaker 2: rise at a predictable rate, a little bit every year.
Speaker 2: It means the economy is healthy. But over the last
Speaker 2: few years prices have risen a lot. When inflation gets
Speaker 2: too high, it's bad for the economy and for people.
Speaker 2: Higher prices mean each dollar you earn buys you less.
Speaker 2: That's why your grocery bill has been so much higher recently.
Speaker 2: To bring prices down, meaning slow inflation, the central Bank's
Speaker 2: main tool interest rates, and.
Speaker 1: So really the primary tool the FED has with interest
Speaker 1: rates is to try to what they say is cool
Speaker 1: demand is to slow down spending. That's really the whole
Speaker 1: game for the FED. They have to try to discourage
Speaker 1: people from spending money.
Speaker 2: Between March of twenty twenty two and July of twenty
Speaker 2: twenty three, the FED raised interest rates eleven times. That
Speaker 2: brought down prices, but it also slowed the economy. And
Speaker 2: many economists saw this and said the FED is going
Speaker 2: to trigger a recession. But that recession never came. And
Speaker 2: now those same economists are saying that j. Powell and
Speaker 2: the FED have pulled off a so called soft.
Speaker 1: Landing, trying to make sure inflation comes all the way
Speaker 1: back down to a level they think is appropriate for
Speaker 1: healthy economy without causing a big downturn in the labor market,
Speaker 1: without having tons of layoffs.
Speaker 2: Not everyone's convinced the economy is working for them, but
Speaker 2: so far, unemployment in the US is near record lows
Speaker 2: and prices have come down a lot. A soft landing
Speaker 2: would be a big win for Powell.
Speaker 1: He's an interesting guy. He's not an economist. You know,
Speaker 1: a lot of FED leaders typically have been these PhD economists,
Speaker 1: and Jay Powell as a lawyer, he kind of stumbled
Speaker 1: into this role as a Fed governor. He had played
Speaker 1: a really pivotal role during the debt sealing crisis in
Speaker 1: twenty thirteen. He was seen as someone who could reach
Speaker 1: out to Republicans on Capitol Hill and explain to them
Speaker 1: why it would be a terrible thing for financial markets
Speaker 1: if we were to breach the debt ceiling.
Speaker 2: Powell has been working at the Federal Reserve for years.
Speaker 2: He was nominated as chair in twenty seventeen by President
Speaker 2: Trump and then confirmed by the Senate, and President Biden
Speaker 2: kept him in that role when he took office.
Speaker 1: He seems to be really well liked by a lot
Speaker 1: of people. I think he's pretty even keeled, and I
Speaker 1: think that people really appreciate that he's pretty plain spoken
Speaker 1: because he's not an economist, so he tries to explain
Speaker 1: things very simply, and he I think realizes that he's
Speaker 1: speaking to the American people. He's speaking of financial markets,
Speaker 1: of course, and that's really important, but he doesn't lean
Speaker 1: into these very complicated economic ideas. Doesn't he play the
Speaker 1: electric guitar, Yeah, he plays the guitar. He's a big,
Speaker 1: grateful dead fan. He was spotted at a concert in
Speaker 1: the Washington area last summer at a Dead and Company show.
Speaker 1: He was asked about it when he was testifying on
Speaker 1: Capitol Hill.
Speaker 3: Oh, it was terrific. What can I say? So it
Speaker 3: was great. I've been a grateful Dead fan for fifty years.
Speaker 2: Is he in touch with the average American? Because I
Speaker 2: know he's a member of a couple of country clubs
Speaker 2: or exclusive clubs that have like twenty fifty thousand dollar
Speaker 2: a year entries.
Speaker 1: That's sort of the knock on him, right. He is
Speaker 1: a Beltway insider. You might say he went to Georgetown
Speaker 1: Prep in Washington, which is where Neil Gorsich and Brett
Speaker 1: Kavanaugh also went to school. I mean, he worked at
Speaker 1: the Carlisle Group. He certainly is very wealthy and wealthier
Speaker 1: than most Americans, and so I think that I don't
Speaker 1: know that you could say he's exactly relatable, but he tries.
Speaker 2: So Powell is dealing with the economy, but the economy
Speaker 2: isn't Powell's only consideration. He is dealing with some political pressures.
Speaker 2: Can you talk a little bit about what Powell is
Speaker 2: dealing with in twenty twenty four a presidential electioneire?
Speaker 1: Sure? So as if it wasn't hard enough to manage
Speaker 1: what they called the soft landing. Right. Kind of layered
Speaker 1: on top of that is this election. The Fed and J.
Speaker 1: Powell will always say, and they emphasize over and over
Speaker 1: and over again that the election and the politics of
Speaker 1: these decisions they are just not a factor. They are
Speaker 1: looking purely at what's best for the economy.
Speaker 2: But of course the economy is one of the key
Speaker 2: indicators of whether an incumbent president will win reelection. For Biden,
Speaker 2: then it's crucial that the economy stays strong. To a
Speaker 2: certain extent, He's based his campaign on the triumph of Bidenomics.
Speaker 1: And yet a lot of polls show that voters have
Speaker 1: more trust in the former president Donald Trump to steer
Speaker 1: the economy. And so I think that for the Biden
Speaker 1: White House, they want to see this healthy economy continue.
Speaker 2: And here's where all the pressure comes in for Powell.
Speaker 2: Cutting interest rates now would make borrowing easier, boost spending,
Speaker 2: and give the economy a little kick. Leaving rates where
Speaker 2: they are could mean parts of the economy plateau or
Speaker 2: even suffer.
Speaker 1: Democrats have been saying, hey, it's time to cut rates
Speaker 1: are too high, You're risking the economy. There could be
Speaker 1: a downturn. But if and when they start cutting rates
Speaker 1: this year, there will be criticism from the right that
Speaker 1: they're probably doing it to help Democrats. Right, we did
Speaker 1: already hear the former president a few weeks back. This
Speaker 1: is Trump on Fox Business last month. It looks to
Speaker 1: me like he's trying to lower interest rates for the
Speaker 1: sake of maybe getting people elected.
Speaker 2: I don't know. Listen to his tone. It's almost like
Speaker 2: he's winking at the audience.
Speaker 4: So you think he's political, he's just going to cut
Speaker 4: rates to hell lighting it.
Speaker 2: I think he's politically. In a few other countries, this
Speaker 2: is actually the way it works. The president or the
Speaker 2: Prime minister can call up the Central Bank and say
Speaker 2: lower rates. That's an order. Not in the US.
Speaker 1: That was Congress in nineteen thirteen, the Federal Reserve Act,
Speaker 1: so a very long time ago. They established this idea
Speaker 1: that the FED is independent. There's not meant to be
Speaker 1: any sort of political influence on the process.
Speaker 2: Why is the reality and the appearance of independence for
Speaker 2: the FED so important?
Speaker 1: Well, I think that they need to be viewed as credible. Right.
Speaker 2: If politicians can come in and move interest rates around
Speaker 2: whenever they want, that can really mess with an economy.
Speaker 2: A central bank's neutrality means it can do things like
Speaker 2: raise interest rates, which might hurt in the short run,
Speaker 2: but also prevents inflation from spiraling out of control.
Speaker 1: There's a lot of research to suggest that countries where
Speaker 1: there is more political pressure, they tend to have higher
Speaker 1: inflation over time.
Speaker 2: So maintaining that independence is good for the economy in.
Speaker 1: A very real way, for sure.
Speaker 2: And US presidents are supposed to respect that independence, you know,
Speaker 2: let the central bank do its thing, which is why
Speaker 2: it was a little bit shocking when Biden said this
Speaker 2: at a campaign event in Philadelphia last week.
Speaker 4: Guess what.
Speaker 1: I can't guarantee it, but I bet you. I bet
Speaker 1: you that makes you come down more because I bet you.
Speaker 3: That loutfit that sets interest rates it's going to come down.
Speaker 2: Why do you think he said that, I don't know.
Speaker 1: I certainly was surprised when I saw the alert on
Speaker 1: my phone or the email traffic in the Bloomberg newsroom,
Speaker 1: because it is a little bit unusual. It wasn't saying
Speaker 1: anything controversial, It was more just observing what he thinks
Speaker 1: is likely. But even still, that's unusual.
Speaker 2: Unusual, and maybe not in a good way. The White
Speaker 2: House has already had to clean up after Biden's comments.
Speaker 2: Here's Press Secretary Kareein John Pierre on Tuesday.
Speaker 1: I just want to be really clear, Unlike previous presidents,
Speaker 1: the President does very much believe on the importance of
Speaker 1: the FED being independent.
Speaker 2: That previous president she doesn't want to name is Trump.
Speaker 2: He broke with a twenty five year tradition of presidents
Speaker 2: trying to stay out of the Fed's lane. And when
Speaker 2: that happened in twenty eighteen, Kate and I were both
Speaker 2: Beat reporters who got a front row seat to the
Speaker 2: theatrics that's coming up. As President Trump broke with the
Speaker 2: tradition of the executive branch remaining publicly neutral about the
Speaker 2: actions of the Federal Reserve. My colleague Kate Davidson and
Speaker 2: I covered it closely as Beat reporters. Do you remember
Speaker 2: what it was like when we heard that President Trump
Speaker 2: back then was considering firing J.
Speaker 1: Powell, the sitting FED chair. I mean, it was pretty unthinkable, right.
Speaker 1: He had been complaining about the FED chair pretty openly
Speaker 1: in a way that reporters in the public and the
Speaker 1: fedg just hadn't seen in many, many, many years. In
Speaker 1: a way maybe they'd ever seen in such a public way.
Speaker 1: You know, there had been reports and stories of previous
Speaker 1: administrations maybe reaching out behind the scenes, but this was
Speaker 1: on Twitter, right.
Speaker 2: He called j Powell a bonehead.
Speaker 1: Yes, I'm trying to think that there was one. You know,
Speaker 1: he think he said he was like a golfer with
Speaker 1: no touch, or he couldn't nail the pot or something
Speaker 1: like that. You know, he had a lot of I mean,
Speaker 1: it was it was funny, except that it was alarming
Speaker 1: in some ways. I think then we found out. I
Speaker 1: think it was it was usefully how that broke that
Speaker 1: story Storry right that actually in private, he was really
Speaker 1: searching for ways to replace the Fed chair.
Speaker 2: Yeah, it ruined a lot of people's Christmases because it
Speaker 2: was Christmas. Because if a president could meddle in monetary policy,
Speaker 2: the US dollar and the entire global economy could be shaken.
Speaker 2: That story I helped report was the breaking news grinch
Speaker 2: that stole Christmas that year. It triggered a nearly three
Speaker 2: percent drop in the S and P five hundred. Immediately,
Speaker 2: investors everywhere worried that Trump's beef with Powell could put
Speaker 2: global markets on fragile ground. So Powell has been here
Speaker 2: before and now he's doing all he can to reassure
Speaker 2: people that the FED is not going to be bullied
Speaker 2: or swayed by politicians.
Speaker 1: I think that's something that's unique about Chair Powells. He's
Speaker 1: very much aware of where lawmakers are and risks to
Speaker 1: the FED. I mean, I think he definitely thinks about
Speaker 1: it from the perspective of risks to the institution, right,
Speaker 1: and that they don't want to be perceived as leaning
Speaker 1: one way or the other for political reasons, of course.
Speaker 1: And he was on sixty minutes recently.
Speaker 2: And yeah, he went on sixty minutes. One of the
Speaker 2: main messages that he had was to assure the public
Speaker 2: We're not going to be influenced by politics. We're above
Speaker 2: the fray. Even though it was twenty twenty four.
Speaker 3: You know, I would just say this integrity is priceless.
Speaker 2: Notice how he pretty much says the bare minimum at.
Speaker 3: The end, that's all you have, and we plan on
Speaker 3: keeping hours.
Speaker 1: I mean, I feel like that's the quote that's going
Speaker 1: to be, you know, in his biography one day. I
Speaker 1: think that's genuinely how he feels. They don't want to risk.
Speaker 2: That it's unusual for a FED chair to go on
Speaker 2: primetime to talk about his job. Usually we hear from
Speaker 2: him at press conferences, meticulously prepared speeches, or at those
Speaker 2: twice a year hearings. Last week's kicked off with Patrick McHenry,
Speaker 2: who you heard earlier. He's a North Carolina Republican and
Speaker 2: chair of the House Financial Services Committee, which oversees the
Speaker 2: Fed's work. He essentially gave Powell a warning it's.
Speaker 4: Highly inappropriate for lawmakers to attempt to influence monetar policy.
Speaker 4: Jar Val, I have faith that you will not allow
Speaker 4: politics to cloud your judgment in the fight to tackle inflation.
Speaker 2: The way I hear it, this lawmaker is saying, we're
Speaker 2: watching you. And during the rest of that three hour hearing,
Speaker 2: Powell was in the hot seat from lawmakers on both
Speaker 2: sides of the aisle.
Speaker 1: I think that he've used it as a really important
Speaker 1: part of his job, to be going up there and listening,
Speaker 1: talking to lawmakers, finding out what their concerns are. I
Speaker 1: think some lawmakers obviously are frustrated they're hearing from their
Speaker 1: constituents about, for example, the high cost of housing right now,
Speaker 1: housing affordability, like.
Speaker 2: This criticism from Massachusetts Democrat Ayana Presley.
Speaker 3: We need the FED to start cutting because, like the rent,
Speaker 3: interest rates are too damn high.
Speaker 2: You can hear Powell try to toe the line as
Speaker 2: he's under fire. He's really careful not to say anything
Speaker 2: that could be perceived as political. When Al Green, a
Speaker 2: Democratic congressman from Texas, prompts Powell to reassure the public
Speaker 2: that the US has successfully avoided a recession, he doesn't
Speaker 2: take the bait.
Speaker 3: So will there be.
Speaker 2: Some official statement that would give people some comfort?
Speaker 3: I don't think by us.
Speaker 1: No.
Speaker 3: I think we're just going to keep our heads down
Speaker 3: and do our jobs and try to deliver what the
Speaker 3: public is expecting from us. We wouldn't be, you know,
Speaker 3: declaring victory like that.
Speaker 2: Kate Trump, we know, has already talked about getting rid
Speaker 2: of Powell. You would think someone whose job might disappear
Speaker 2: soon would take a moment to boast about what they've done.
Speaker 2: But Powell doesn't do that here.
Speaker 1: Why not? No? I mean, I just think the idea
Speaker 1: of announcing mission accomplished is just not in the FEDS
Speaker 1: DNA as an instant fashion. That's a good question. I mean,
Speaker 1: I think they probably would view that as maybe sort
Speaker 1: of political He's going to let the politicians, I think,
Speaker 1: do the talking and say probably as little as possible.
Speaker 1: There's not going to be a lot of patting himself
Speaker 1: on the back.
Speaker 2: It's a tough needle to thread, though, because the economy
Speaker 2: and politics can't be separated so easily. The Fed's decisions
Speaker 2: are based in part on economic policies installed by Congress
Speaker 2: and the executive branch. Part of Powell's job is keeping
Speaker 2: tabs on those policies. Will there be more or less immigration,
Speaker 2: and how will that affect the labor market? Will the
Speaker 2: twenty seventeen tax cuts be renewed by the next administration.
Speaker 2: All of these policies affect the data that the FED
Speaker 2: looks at to make decisions that shape the economic fortunes
Speaker 2: of millions of Americans. So can the FED actually convince
Speaker 2: the public that it's independent amidst all of this politicking?
Speaker 1: I mean, they're certainly going to try. The next president,
Speaker 1: whoever it will be, will play a role in deciding
Speaker 1: who is going to be the next FED chairman, whether
Speaker 1: they're going to keep Jay Powell, whether they're going to
Speaker 1: replace him with somebody else. I have no idea if
Speaker 1: he wants another four years in this job has been
Speaker 1: pretty crazy the time he has been at the Helm.
Speaker 1: But JA Powell is going to have to contend with
Speaker 1: a lot of noise from a lot of lawmakers on
Speaker 1: both sides of the aisle this year.
Speaker 2: And the closer we get to election day in November,
Speaker 2: the more the Fed's actions will be put under the microscope.
Speaker 1: If the FED is cutting rates around that time, we
Speaker 1: will probably hear from Donald Trump and from others his
Speaker 1: allies really complaining about this.
Speaker 2: Meanwhile, the FED isn't out of the woods yet. They
Speaker 2: still haven't nailed the soft landing, and some people think
Speaker 2: a recession might still be in the cards.
Speaker 1: Look, the FED, I think was and maybe still isn't
Speaker 1: a really precarious position. I mean, they've been really successful,
Speaker 1: fortunately for them and for Powell, in bringing inflation down
Speaker 1: without this big rise in unemployment. Nobody thought they could
Speaker 1: do it, so that's been good. But I think they
Speaker 1: haven't totally finished the job, and that will be I
Speaker 1: think really important for j. Powell personally. It's certainly important
Speaker 1: for his legacy. It's also about protecting the FED as
Speaker 1: an institution and sort of making things right if you will,
Speaker 1: and showing that The FED might have had some missteps,
Speaker 1: but that they can and they did what they needed
Speaker 1: to do when the moment really clearly demanded it.
Speaker 2: Until then, we can expect Powell's neutral balancing act to
Speaker 2: continue as election politics rage around him.
Speaker 3: And with that, the sharings adjourned.
Speaker 2: Thanks for listening to The Big Take DC podcast from
Speaker 2: Bloomberg News. And if you want to geek out more
Speaker 2: about economic policy and the dollar, I have a book
Speaker 2: coming out next week. It's called Paper Soldiers, all about
Speaker 2: the Treasure Department and how it's use the dollar to
Speaker 2: help secure the US's place in the world. I'm Salaiah Mosen.
Speaker 2: This episode was produced by Julia Press. It was edited
Speaker 2: by Stacy Vanix Smith and Matt Bosler. It was mixed
Speaker 2: by Ben O'Brien.
Speaker 1: It was fact checked.
Speaker 2: By Stacy Renee. Naomi Shaven is our senior producer. Michael Shepherd,
Speaker 2: Wendy Benjaminson and Elizabeth Ponso provide editorial direction. Nicole Beemsterbower
Speaker 2: is our executive producer. Sage Bowman is Bloomberg's head of podcasts.
Speaker 2: Please subscribe and review The Big Take DC where where
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Speaker 2: Thanks for listening. We'll be back next week.