Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Good Afternoon on Wednesday, the Federal Open Market Committee voted
Speaker 2: to lower interest rates by a quarter percentage point or
Speaker 2: twenty five basis points.
Speaker 3: My colleagues and I remained squarely focused on our achieving
Speaker 3: hour dual mandate goals of maximum employment and stable prices
Speaker 3: for the benefit of the American people.
Speaker 2: This follows a cut of the same size at the
Speaker 2: fed's September meeting, which was the first cut all year.
Speaker 2: Policymakers also announced plans to stop shrinking the size of
Speaker 2: the Central Bank's portfolio of securities starting on December first.
Speaker 2: The Fed's decision was in reaction to signs of a
Speaker 2: weakening labor market, even though stubborn inflation and declining consumer
Speaker 2: confidence still concern policymakers. Federal Reserve chair Jerome Powell talked
Speaker 2: about the rationale for the cut at a news conference
Speaker 2: on Wednesday afternoon.
Speaker 3: Conditions in the labor market appeared to be gradually cooling,
Speaker 3: and inflation remains somewhat elevated.
Speaker 2: The October meeting comes in the midst of an ongoing
Speaker 2: White House push to pressure the Fed Reserve and its
Speaker 2: chairman to cut rates more aggressively. The latest criticism came Tuesday,
Speaker 2: during President Trump's trip to Asia. I call him too late.
Speaker 4: He's always too late.
Speaker 2: He's been too late, and uh, Jerome too late Powell.
Speaker 2: The President also noted that Powell's term as chairman will
Speaker 2: soon come to a close in May.
Speaker 3: We got a bed fed guy, but he'll be out
Speaker 3: of there a few months.
Speaker 2: Powell was able to keep the committee largely in lockstep
Speaker 2: this month. There were two descents. FED Governor Stephen Myron
Speaker 2: wanted to see a larger cut of fifty basis points,
Speaker 2: and Jeffrey Schmidt, who heads up the Kansas City FED,
Speaker 2: was in favor of keeping rates steady. What happens at
Speaker 2: the next meeting in December and beyond is quickly becoming
Speaker 2: anyone's guess.
Speaker 3: In the committee's discussions at this meeting, there were strongly
Speaker 3: differing views about how to proceed in December. A further
Speaker 3: reduction in the policy rate at the December meeting is
Speaker 3: not a foregone conclusion. Far from it. Oolsey is not
Speaker 3: on a preset course.
Speaker 2: I'm David Gerra, and this is the big take from
Speaker 2: Bloomberg News Today. On the show, I sit down with
Speaker 2: Amera Amokway and end of Kourran. We've covered the Federal
Speaker 2: Reserve for Bloomberg to break down the factors that influenced
Speaker 2: the October rate cut and to talk about what they're
Speaker 2: watching through the end of this year into twenty twenty six.
Speaker 2: After Federal Reserve Chair Jerome Powell announced a cut of
Speaker 2: twenty five basis points on Wednesday, I asked Bloomberg's end
Speaker 2: of Current to break down what we know about the
Speaker 2: committee's decision making.
Speaker 1: Until around July part of this year, the feder thought
Speaker 1: the jobs mark was doing well. They were more concerned
Speaker 1: about inflation. But in recent months we've seen clear evidence
Speaker 1: that companies are hiring at a slower rate, and of course,
Speaker 1: at the same time during the cations, inflation is perhaps
Speaker 1: headed in the right direction, not there yet, but headed
Speaker 1: in the right direction, giving a window for the FED
Speaker 1: could So that's why they went ahead with their move
Speaker 1: today to lower rates for the second decision in a row,
Speaker 1: reflecting their concerns now or more of but the job's
Speaker 1: market done inflation.
Speaker 2: Something else that's happened recently the government has shut down.
Speaker 2: The FED is not funded through congressional appropriations, so its
Speaker 2: staff are unaffected by the shutdown, but that doesn't mean
Speaker 2: the Central Bank is completely insulated from its effects. The
Speaker 2: FED relies on data produced by agencies like the Bureau
Speaker 2: of Labor Statistics and the Bureau of Economic Analysis, whose
Speaker 2: staff have been for a load. Bloomberg's amearra A. Mokway says,
Speaker 2: that's meant that key economic gauges and reports have come
Speaker 2: in late or not at all.
Speaker 4: So I think FED policymakers would have preferred to have
Speaker 4: more official government data. But what you heard a lot
Speaker 4: of them saying in the intermting period is that the
Speaker 4: data that they did have was still pointing in the
Speaker 4: same direction, and that direction was in one of a
Speaker 4: weaker labor market. And you didn't see Chair Power or
Speaker 4: other policy makers pushing back against market expectations for a
Speaker 4: quarter point cut at this meeting, and so that basically
Speaker 4: signals to people headed into the meeting that the FED
Speaker 4: was going to be comfortable cutting here. That the level
Speaker 4: of concern about the labor market has continued to rise,
Speaker 4: and you are seeing a group of policy makers expressing
Speaker 4: a little bit more comfort with the inflation outlook because
Speaker 4: some of the tariff passed through has been less than
Speaker 4: initially feared, and because some do believe that sort of
Speaker 4: the underlying trend in inflation when you strip out sort
Speaker 4: of the tariff effects, is lower. And so you saw
Speaker 4: FED policy makers take all of that and say, Okay,
Speaker 4: we feel comfortable cutting again.
Speaker 2: And the absence all of the data that the FED
Speaker 2: would usually have, what have policymakers been doing? So you've
Speaker 2: been listening to speeches and them in interviews. What are
Speaker 2: they kind of leaning on? More so now that they
Speaker 2: don't have the full panoply of economic data from the government.
Speaker 1: So there are private sector gauges, gauges of consumer confidence,
Speaker 1: gauges of industrial activity, gauges of where the jobs market
Speaker 1: is at. There are those private sector indicators that the
Speaker 1: Feder's lean on, which is useful. They did, of course,
Speaker 1: get all important inflation data last week, which was in
Speaker 1: one data release that the government effectively green lighted, but
Speaker 1: they have been flying blind on the jobs market. I
Speaker 1: guess today's decision reflects the fact that for now they've
Speaker 1: concluded the market, the job's market is weakening, and that
Speaker 1: they need to move in advance of a weakening any further.
Speaker 1: But you have to say the longer this kind of
Speaker 1: data avoid continues, that decision will get more complicated because
Speaker 1: they simply won't know where the job's market is at.
Speaker 2: Let's stick with those inflation data. So the BLS released
Speaker 2: the September CPI report a few days later than it
Speaker 2: was expecting to brought people back to go through the
Speaker 2: data that've been collected. You look at CPI excluding food
Speaker 2: and energy, which are known to be more or volatile,
Speaker 2: and we saw the price of consumer goods an increase
Speaker 2: point two percent from the month before, a softer read
Speaker 2: than was expected by Wall Street and a lot of economists.
Speaker 2: Sounds like we have a good sense of what that
Speaker 2: means for this meeting, for the October meeting, looking ahead
Speaker 2: to December. How did that kind of change the conversation
Speaker 2: that's taking place about the Fed's path forward.
Speaker 1: Well, so there's no doubt inflation came in a touch
Speaker 1: on the soft side in September. That does encourage, of course,
Speaker 1: policy makers that maybe are headed in the right direction.
Speaker 1: But you know, economists say plenty of culture around that number, David,
Speaker 1: And for example, the big decline in rents, for example,
Speaker 1: is considered maybe to be one off, maybe some statistical
Speaker 1: noise there, even though tariffs haven't passed through the way
Speaker 1: we might have expected. There certainly is some tariff impact
Speaker 1: in terms of tradable inflation. You look at furnishings, you
Speaker 1: look at apparrel by the way, so those kind of
Speaker 1: goods that are imported, showing some price pressure there. And
Speaker 1: the point being that the end result is inflation remains
Speaker 1: around three percent, well above the Fed's two percent target.
Speaker 1: So yes, you can say, okay, inflation's not coming in
Speaker 1: as bad as we might have expected, but it's nowhere
Speaker 1: near where the central bank needs it to be or
Speaker 1: wants it to be, and that's expected to be something
Speaker 1: of a complicating theme in the months ahead, And of
Speaker 1: course it will be driven by the labor market. If
Speaker 1: there's a view, for argument's sake, the labor market has
Speaker 1: stabilized if we reach that point, given that some people
Speaker 1: blame it on the immigration crackdown anyway, So if you
Speaker 1: reach that point, then you might say inflation comes back
Speaker 1: into the story and the Fed goes in hold. But
Speaker 1: of course we've had a point where the labor market
Speaker 1: continues to weaken and people are losing their jobs, and
Speaker 1: let's just say inflation is where it's not not getting
Speaker 1: any worse, well, then at that point the FED will
Speaker 1: probably feel much more pressure to keep cutting rates rather
Speaker 1: than staying on hold.
Speaker 2: I think I can speak for a mar when we
Speaker 2: say we love hearing you say apparel and not a
Speaker 2: pair of.
Speaker 3: Alvera.
Speaker 2: So, as I said, we had, we had workers come
Speaker 2: back to get this release together to put it out there,
Speaker 2: but we know from the White House there's no data
Speaker 2: collection happening now. So tease out for a sort of
Speaker 2: what that means, and we talk about flying blind the
Speaker 2: prospect that there not being another CPI report on the
Speaker 2: heels of this, and what does that mean for the Fed?
Speaker 4: Yeah, that would be not great. And the White House
Speaker 4: has already signaled that we aren't going to get a
Speaker 4: repeat of that of the inflation release that we saw
Speaker 4: last week. And you heard chaer Pal talk about this
Speaker 4: earlier this month. He said, Okay, we're fine for now,
Speaker 4: but if this goes on, then it becomes more challenging
Speaker 4: for policy makers to make their decisions in the absence
Speaker 4: of data. Right, they were already facing a very tricky
Speaker 4: policy landscape. As we've been discussing. There is a group
Speaker 4: of FED policy makers that does have this heightened concern
Speaker 4: about the labor market, but there is another group that
Speaker 4: is still like, wait a minute, inflation is still a
Speaker 4: big problem. And without data to kind of inform them
Speaker 4: about how these factors are developing and evolving, it makes
Speaker 4: it very difficult for the FED to calibrate its policy
Speaker 4: response correctly. And so if this goes on, the FED
Speaker 4: could face a really challenging position at its December meeting.
Speaker 4: And as we had into twenty twenty.
Speaker 2: Six after the break, how the balance of power at
Speaker 2: the FED could soon shift as jap Powell's term comes
Speaker 2: to a close and who's on the short list to
Speaker 2: replace him. The clock is ticking for Federal Reserve Chair
Speaker 2: Jerome Powell. After this month's meeting, there are only four
Speaker 2: more meetings left until he concludes his term as chair
Speaker 2: in May of twenty twenty six. Bloomberg's and Merri Mokway
Speaker 2: and end Occurrent say that looming above it all is
Speaker 2: the reality that President Trump and Treasury Secretary Scott Bessont
Speaker 2: intend to name Powell's successor before his term is up.
Speaker 2: I ask them how that decision will affect Powell's ability
Speaker 2: to lead the FED in the months ahead.
Speaker 1: He has until May and of course, he could stay
Speaker 1: on as a governor on the FED Board. I look
Speaker 1: like any job like Annie Roll. At some point his
Speaker 1: power will start to wane. He will become something of
Speaker 1: alame duck. And you'd have to say the obvious moment
Speaker 1: for that might be when his successor is announced, and
Speaker 1: the indications from President Trump he might make that announcement
Speaker 1: before the end of the year, and as soon as
Speaker 1: that happens, a lot of folks let swing to that
Speaker 1: person's public commentary, speeches, interviews and everything else in terms
Speaker 1: of where the FED might be going forward in terms
Speaker 1: of policy. But you know, right here, right now, Truman
Speaker 1: Palace still remains pretty much in control. It's clearly a
Speaker 1: vibrant debate going on on the Fed's policy board. You
Speaker 1: can see that in the minutes and in the public
Speaker 1: speeches and everything else. But he seems to be steering
Speaker 1: it in the direction he wants. So i'd say, right here,
Speaker 1: right now, David, He's influence remains intact. But as I say,
Speaker 1: once his successor is appointed, you'll start to see someone
Speaker 1: of that drain away.
Speaker 4: Er.
Speaker 2: Let's talk a bit about that process of picking a successor.
Speaker 2: So we learned from Treasury sectory Scott Besson, who's overseeing
Speaker 2: this search. There are five leading candidates here, So there's
Speaker 2: Chris Waller, current governor, Michelle Bowman, Kevin Warsh, Kevin Hassett,
Speaker 2: and Rick Reader who's at Black Rock. So you've got
Speaker 2: some current Fed governor, as a former Fed governor, somebody
Speaker 2: who's on Wall Street for good measure. What do you
Speaker 2: make of the list?
Speaker 4: I think it is actually a diverse set of candidates.
Speaker 4: We have Kevin Hassett, who is the current chair of
Speaker 4: the White House National Economic Council, which means he's one
Speaker 4: of Trump's top economic advisors, one of Trump's top allies.
Speaker 4: But you also have people like Chris Waller, who is
Speaker 4: viewed as sort of a more independent person. So while
Speaker 4: he was appointed to the FED Board by Trump, he
Speaker 4: is viewed as someone who is not willing to necessarily
Speaker 4: just go along with whatever Trump might want.
Speaker 3: Right.
Speaker 4: He has made a lot of credible calls on the
Speaker 4: economy over the years, and he's viewed as someone who
Speaker 4: would be inclined to continue to do that, but would
Speaker 4: also perhaps be open to some of the kinds of
Speaker 4: changes that you've heard President Trump and his allies talk
Speaker 4: about wanting at the FED. Then you have Mickey Bowman,
Speaker 4: who is kind of an untraditional candidate. She comes from
Speaker 4: a banking background, also an appointee of Trump to the board,
Speaker 4: and is really seen as someone who in some ways
Speaker 4: is aligned with Trump, particularly on the regulatory front, and
Speaker 4: this year she has been in favor of rage. She
Speaker 4: was an earlier proponent of rates than many others on
Speaker 4: the FED board, so she's kind of seen as aligned
Speaker 4: with Trump, but also having sort of this unique view
Speaker 4: and this unique background.
Speaker 2: There's also Kevin Worsh, who was a leading contender for
Speaker 2: the job back in twenty seventeen but lost out to Powell.
Speaker 4: And in many ways Worsh has aligned with the Trump administration.
Speaker 4: A lot of his critiques of the FED are pretty
Speaker 4: much in lockstep with the critiques we've been hearing from
Speaker 4: Treasury Secretary Bessant, and he is also a proponent of
Speaker 4: lower rates, which is likely to appeal to the President.
Speaker 4: And then Rick Great I think is a little bit
Speaker 4: of of a dark Corse, kind of an unknown, a
Speaker 4: Wall Street guy. So yes, like a really diverse slate
Speaker 4: of candidates, each with I think different kinds of expertise
Speaker 4: and backgrounds and.
Speaker 2: What's the status of this process. So we have this list,
Speaker 2: and I think we learned that Scott Best and the
Speaker 2: Treasury sectory intends to give maybe a list of finalists
Speaker 2: to the President around the Thanksgiving holiday. What do we
Speaker 2: know about the president's level engagement with this process and
Speaker 2: sort of what's going to be factoring to his thinking
Speaker 2: as he makes the selection.
Speaker 1: Yeah, so we know the timeline is pretty much as
Speaker 1: you mentioned, David Is. Both the President and Treasures actually
Speaker 1: said over the weekend that roughly speaking, the short list
Speaker 1: will go to the President in around Thanksgiving and decision
Speaker 1: will come at some point in the week's after. We
Speaker 1: don't know too much in terms of what the President
Speaker 1: is thinking about the individuals, but we certainly know he's
Speaker 1: thinking a lot about the FED. He's been posting on
Speaker 1: social media about it incessantly since he took office back
Speaker 1: in January. He's clearly of the view that interest rates
Speaker 1: need to be much lower. He's adamant that the FED
Speaker 1: need to react and act on those views. He wants
Speaker 1: the next FED chair to obviously share his worldview in
Speaker 1: terms of the economy and monetary policy, but the trick
Speaker 1: for the President will be to pull off appointing someone
Speaker 1: who he can be confident shares, as I say, his worldview,
Speaker 1: which is that there's a case for lower in gistrates
Speaker 1: without really spooking the markets, because he will have to
Speaker 1: know that credibility is still critical for the FED. And
Speaker 1: of course we know President Trump is very cognizant of
Speaker 1: the markets. So it's going to be I think it's
Speaker 1: going to be a more tricky balancing act for him
Speaker 1: to pull off than he might himself think.
Speaker 2: Actually, Mary, you've been looking at all of these individuals,
Speaker 2: but at Chris Waller in particular. You profiled him. Why
Speaker 2: did you decide to kind of dig into his biography
Speaker 2: and outlook and what did you learn about how he
Speaker 2: might approach this job.
Speaker 4: Yes, so we wanted to look at Chris Waller because
Speaker 4: of this question. Right, if a person has an independent streak,
Speaker 4: if they are a person who believes in conducting credible
Speaker 4: economic analysis and making policy decisions based on what is
Speaker 4: in the best interest of the economy and not necessarily
Speaker 4: what the president says, how does someone like Chris Waller
Speaker 4: get the job? Can he get the job?
Speaker 2: How would he approach the job?
Speaker 4: Right? Because he does have this reputation as being a
Speaker 4: tried and true economist. And what we learned from talking
Speaker 4: to his friends and associates is that, yes, right now
Speaker 4: he is in the camp of lower rates, but the
Speaker 4: way he got to that place was what they say
Speaker 4: is a credible analysis of the data. He looked at
Speaker 4: the labor market and he said, this is weakening. And
Speaker 4: he was the first among the FED governors this year
Speaker 4: to say we should resume cutting because the labor market
Speaker 4: is showing these warning signs. And I think his associates, though,
Speaker 4: also say that he is not necessarily someone who's going
Speaker 4: to be committed to the status quo. And in reporting
Speaker 4: the story, we learned that in his role on the
Speaker 4: FED right now, he oversees the twelve regional FED banks
Speaker 4: and he has really pushed for streamlining and cost cutting
Speaker 4: and even some staff cuts. So it's not the case
Speaker 4: that he would necessarily just continue to approach the FED
Speaker 4: as it has been. He is open to some change,
Speaker 4: but that doesn't mean that he's necessarily going to go
Speaker 4: along with whatever President Trump says.
Speaker 2: And then let me play this out. So, as you said,
Speaker 2: there's going to be a point at which FED Chair
Speaker 2: Jerome Powell's influence begins to wane as we get to
Speaker 2: the end of his tenure. For a while, there's been
Speaker 2: this idea floated if there being a kind of shadow chair,
Speaker 2: that is, the President could pick somebody to be the
Speaker 2: next FED chair, and that person, by opining on monetary
Speaker 2: policy and the role of the FED, could kind of
Speaker 2: confuse financial markets. Does it do something to kind of
Speaker 2: blunt the fear about having a shadow FED chair? If
Speaker 2: the President were to pick Chris Paller.
Speaker 1: I mean, you know, or is central casting macroeconomists, if
Speaker 1: he was to be appointed, it probably would be offered
Speaker 1: something of a reassurance to investors who are nervous about
Speaker 1: where the FED might be heading, because ultimately he's grounded
Speaker 1: economics and that's what he is, and the signals he's
Speaker 1: given is that he will be willing to stand up
Speaker 1: to political pressure and be guided by data. If it's
Speaker 1: not someone like Waller, for example, then I think there
Speaker 1: would be a lot more scrutiny, a lot more focus
Speaker 1: than what that person is saying, because if we get
Speaker 1: to the turn of the year, you know, you're four
Speaker 1: or five months out from German Pal's term ending, naturally,
Speaker 1: a lot of the focus and interest will gravitate to
Speaker 1: or whoever that next person coming in will be.
Speaker 2: Where are we in this conversation about the sanctity of
Speaker 2: FED independence, how safety experts think the kind of independence
Speaker 2: of the FED is at this point in time.
Speaker 4: There's a big thing that we haven't talked about, which
Speaker 4: is the fact that President Trump is attempting to fire
Speaker 4: FED Governor Lisa Cook, Right, And I think the outcome
Speaker 4: of that case, which now sits at the Supreme Court,
Speaker 4: is going to be ultimately the answer to that question
Speaker 4: about FED and dependence. Right. So, the Supreme Court denied
Speaker 4: the Trump administration's requests to be able to remove least
Speaker 4: to Cook while this underlying case around an accusation of
Speaker 4: mortgage fraud plays out, and they're going to have hearings
Speaker 4: in January, so they kind of kick the can down
Speaker 4: a road a little bit, so we have a little
Speaker 4: bit of a reprieve. But ultimately, whatever the Supreme Court
Speaker 4: says about this case is going to have huge implications
Speaker 4: for the question of the Fed's independent because if the
Speaker 4: President can remove a FED governor while there's an underlying
Speaker 4: legal case playing out, that means that he has pretty
Speaker 4: wide latitude to remove a FED governor and the inability
Speaker 4: or the difficulty of removing a FED governor has long
Speaker 4: been seen as the key protection for central bank independence,
Speaker 4: and so if that is somehow watered down, then I
Speaker 4: think it really does open the door for the president
Speaker 4: to have much more influence over the central bank.
Speaker 2: This is the Big Take from Bloomberg News. I'm David Gura.
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Speaker 2: Thanks for listening. We'll be back tomorrow